1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 (No Fee Required)
For the fiscal year ended May 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (No Fee Required)
For the transition period from __________ to ___________
Commission File No. 0-5132
RPM, INC.
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-6550857
- ------------------------------- ----------------------------
(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
P.O. Box 777, 2628 Pearl Road, Medina, Ohio 44258
- -----------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (330) 273-5090
Securities registered pursuant to Section 12(b) of the Act:
Common Shares, Without Par Value
--------------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports) and (2) has been subject
to the filing requirements for the past 90 days. Yes x No
--- ---
2
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of August 18, 1998, 110,511,003 Common Shares were
outstanding, and the aggregate market value of the Common Shares of the
Registrant held by non-affiliates (based upon the closing price of the Common
Shares as reported on the New York Stock Exchange on August 18, 1998) was
approximately $1,663,115,714. For purposes of this information, the 3,213,215
outstanding Common Shares which were owned beneficially as of August 18, 1998 by
executive officers and Directors of the Registrant were deemed to be the Common
Shares held by affiliates.
Documents Incorporated by Reference
Portions of the following documents are incorporated by
reference to Parts II, III and IV of this Annual Report on Form 10-K: (i)
definitive Proxy Statement to be used in connection with the Registrant's Annual
Meeting of Shareholders to be held on October 9, 1998 (the "1998 Proxy
Statement") and (ii) the Registrant's 1998 Annual Report to Shareholders for the
fiscal year ended May 31, 1998 (the "1998 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this
Annual Report on Form 10-K is as of May 31, 1998.
2
3
PART I
ITEM 1. BUSINESS.
THE COMPANY
RPM, Inc. ("RPM" or the "Company") was organized in 1947 as an
Ohio corporation under the name Republic Powdered Metals, Inc. On November 9,
1971, the Company's name was changed to RPM, Inc. As used herein, the terms
"RPM" and the "Company" refer to RPM, Inc. and its subsidiaries, unless the
context indicates otherwise. The Company has its principal executive offices at
2628 Pearl Road, P.O. Box 777, Medina, Ohio 44258, and its telephone number is
(330) 273-5090.
RECENT DEVELOPMENTS
In May 1998, the Company filed an application to list its
Common Shares for trading on the New York Stock Exchange ("NYSE"). On June 9,
1998, the Company's Common Shares began trading on the NYSE under the symbol
"RPM."
On July 8, 1998, the Company announced that all of the
outstanding $191.7 million principal amount of its Liquid Yield Option Notes Due
2012 ("LYONs(TM)") were called for redemption on August 10, 1998 pursuant to the
provisions of the Trust Indenture dated September 15, 1992 between the Company
and the First National Bank of Chicago, as Trustee and Paying Agent. As a result
of the redemption of these convertible securities, approximately 10.1 million
Common Shares were issued and LYONs(TM) holders who chose not to convert their
Notes to Common Shares received aggregate cash payments of $32.1 million.
ACQUISITIONS
Since RPM's offering of Common Shares to the public in
September 1969, the Company has made a number of significant acquisitions that
have been described in previous reports on file with the Securities and Exchange
Commission. RPM's acquisition strategy focuses on companies with high
performance and quality products which are leaders in their respective markets.
RPM expects to continue its acquisition program, although there is no assurance
that any acquisitions will be made.
As part of this acquisition program, in March 1998, the
Company acquired all of the issued and outstanding shares of The Flecto Company,
Inc. and its affiliated companies headquartered in Oakland, California. Flecto
is a leading manufacturer of wood finishes and wood finishing equipment for the
retail do-it-yourself wood and floor finishing markets in the United States and
Canada. Flecto sells clear and stain finishes under the Varathane(R) and
Watco(R) name brands.
- -------------
(TM) Merrill Lynch & Co., Inc.
3
4
Subsequent to the May 31 fiscal year-end, on July 8, 1998, the
Company acquired Nullifire Ltd., based in Coventry, England. Nullifire is a
leading manufacturer and marketer of intumescent fireproofing coatings for
industrial and commercial applications. Nullifire will operate as part of the
Company's Carboline Company subsidiary, supplementing the product lines and
geographic coverage of Carboline's existing fireproofing business.
BUSINESS
RPM operates principally in one business segment, the
manufacture and marketing of protective coatings. These protective coatings
products are used for both industrial and consumer applications. For industrial
applications, RPM manufactures and markets coatings for waterproofing and
general maintenance, corrosion control, and other specialty chemical
applications. For consumer applications, RPM manufactures do-it-yourself
products for the home maintenance, automotive repair, hobby and leisure and
marine markets. RPM, through its operating companies, serves niche markets
within these broader categories, thus providing a foundation for its strategy of
growth through product line extensions.
The protective coating products manufactured by RPM are used
primarily on property which already exists. RPM is not involved to any great
degree in new construction and, therefore, is generally less affected by
cyclical movements in the economy. RPM markets its products in approximately 130
countries and operates manufacturing facilities in 61 locations in the United
States, Argentina, Belgium, Brazil, Canada, China, Germany, Malaysia, The
Netherlands, Poland, Singapore, South Africa, the United Arab Emirates and the
United Kingdom.
INDUSTRIAL PRODUCTS
RPM's industrial products represent approximately 63% of the
Company's sales. The numerous protective coatings manufactured by the Company
are used in a variety of industrial applications including waterproofing,
general maintenance, corrosion control and other specialty chemical
applications.
The Company manufactures a number of products designed for
waterproofing applications. These waterproofing products include sealants, deck
coatings, membranes and water-based coatings for commercial and industrial
maintenance produced by the Company's Martin Mathys, ESPAN, and Tremco
businesses.
The Company also manufactures a variety of products used for
general commercial and industrial maintenance. These products include roofing
products, such as asphaltic aluminum roof deck coating produced by RPM's
original business unit, Republic Powdered Metals, Geoflex and Hy-Shield premium
single-ply roofing materials and Tremco roofing systems. Other products include
high-performance polymer floors, linings and wall systems produced by Stonhard,
molded and pultruded fiberglass reinforced plastic grating products manufactured
by Fibergrate Composite Structures, Inc. (formerly Composite Structures
International), under the brand names of Chemgrate and Fibergrate, as well as
Dryvit coatings and adhesives for exterior wall insulating finishing systems and
TCI powdered coatings.
4
5
The Company's industrial product line also includes a
broad-line of high-performance corrosion control coatings. The Company's
Carboline subsidiary manufactures high-performance corrosion-resistant
protective coatings, fireproofing, tank linings and floor coatings, and markets
these products to industrial, architectural and applicator companies throughout
the world. The Company's various other corrosion-resistant coatings include the
Plasite and Alox brands.
The Company also produces a variety of specialty chemical
products within selected niche markets. Products manufactured for specialty
chemical applications include: Day-Glo Color and Radiant Color fluorescent
colorants and pigments; Kop-Coat manufactured compounds and wood treatment
products including Wolman industrial lumber treatments and ValvTect diesel fuel
additives; American Emulsions dye additives for textile dyeing and finishing;
Chemspec commercial carpet cleaning solutions; and concrete admixtures sold by
The Euclid Chemical Company, RPM's 50-50 joint venture with the
Switzerland-based Holderbank Group.
CONSUMER PRODUCTS
RPM's consumer products represent approximately 37% of the
Company's sales. The Company's consumer products include products designed for
the household do-it-yourself, automotive repair, hobby and leisure and marine
markets.
RPM's primary consumer do-it-yourself businesses are
Rust-Oleum, William Zinsser, Bondex International and Bondo/Mar-Hyde. Rust-Oleum
manufactures high quality corrosion-resistant, general purpose and decorative
coatings for the household maintenance and light industrial markets. William
Zinsser manufactures a broad line of specialty primers and sealants and is the
nation's leading producer of shellac items used as pharmaceutical glazes,
confectioner's glazes, citrus fruit coatings and wood coatings. Bondex
International produces a nationwide line of household patch and repair products,
in addition to basement waterproofing products. Bondo/Mar-Hyde manufactures auto
body paints and repair products for the automotive aftermarket. Products
marketed by these units include spray paints, body fillers, vinyl colors and
bumper repair products.
The Company also manufactures products for the hobby and
leisure markets including Testor's model kits and accessory products and
Floquil/Polly S Color hobby, art and craft coatings. RPM's consumer hobby and
leisure products are marketed through thousands of mass merchandise, toy and
hobby stores throughout North America.
Other consumer do-it-yourself products include: fabrics,
window treatments and wall coverings sold by Design/Craft Fabric and Richard E.
Thibaut; Mohawk, Star Finishing and Chemical Coatings, and newly acquired Flecto
furniture finishes and repair and restoration coatings; pleasure marine coatings
marketed under the Pettit, Woolsey and Z-Spar brand names; and Wolman deck
coatings, sealants and brighteners. RPM's consumer do-it-yourself products are
marketed through thousands of mass merchandise, home center and hardware stores
throughout North America.
5
6
FOREIGN OPERATIONS
The Company's foreign manufacturing operations for the fiscal
year ended May 31, 1998 accounted for approximately 19% of its total sales
(which does not include exports directly from the United States), although it
also receives license fees and royalty income from numerous license agreements
and also has joint ventures accounted for under the equity method in various
foreign countries. The Company has manufacturing facilities in Argentina,
Belgium, Brazil, Canada, China, Germany, Malaysia, The Netherlands, Poland,
Singapore, South Africa, the United Arab Emirates and the United Kingdom, and
sales offices or public warehouse facilities in Australia, Canada, Finland,
France, Germany, Hong Kong, Iberia, Mexico, the Philippines, Russia, Singapore,
Sweden, the United Kingdom and several other countries. Information concerning
the Company's foreign operations is set forth in Note I (Industry Segment and
Geographic Area Information) of Notes to Consolidated Financial Statements,
which appear elsewhere in this Annual Report on Form 10-K.
COMPETITION
The Company is engaged in a highly competitive industry and,
with respect to all of its major products, faces competition from local and
national firms. Several of the companies with which RPM competes have greater
financial resources and sales organizations than the Company. While no accurate
figures are available with respect to the size of or the Company's position in
the market for any particular product, management believes that the Company is a
major producer of aluminum coatings, cement-based paint, hobby paints, pleasure
marine coatings, furniture finishing repair products, automotive repair
products, industrial corrosion control products, consumer rust-preventative
coatings, polymer flooring, fluorescent coatings and pigments, exterior
insulation finish systems, molded and pultruded fiberglass reinforced plastic
grating and shellac-based coatings. However, the Company does not believe that
it has a significant share of the total protective coatings market.
INTELLECTUAL PROPERTY
The intellectual property portfolios of the subsidiaries of
the Company include numerous valuable patents, trade secrets and know-how,
trademarks and trade names. Significant research and technology development
continues to be conducted by the subsidiaries. However, no single patent,
trademark, name or license, or group of these rights, other than the marks
Day-Glo(R), Rust-Oleum(R), Carboline(R) and Tremco(R), are material to the
Company's business.
Day-Glo Color Corp., a subsidiary of the Company, is the owner
of over 50 trademark registrations of the mark and name "DAY-GLO(R)" in numerous
countries and the United States for a variety of fluorescent products. There are
also many other foreign and domestic registrations for other trademarks of the
Day-Glo Color Corp., for a total of over 100 registrations. These registrations
are valid for a variety of terms ranging from one year to 20 years, which terms
are renewable as long as the marks continue to be used. Renewal of these
registrations is done on a regular basis.
Rust-Oleum Corporation, a subsidiary of the Company, is the
owner of over 50 United States trademark registrations for the mark and name
"RUST-OLEUM(R)" and other
6
7
trademarks covering a variety of rust-preventative coatings sold by Rust-Oleum
Corporation. There are also many foreign registrations for "RUST-OLEUM(R)" and
the other trademarks of Rust-Oleum Corporation, for a total of nearly 400
registrations. These registrations are valid for a variety of terms ranging from
one year to 20 years, which terms are renewable for as long as the marks
continue to be used. Renewal of these registrations is done on a regular basis.
Carboline Company, a subsidiary of the Company, is the owner
of a United States trademark registration for the mark and name "CARBOLINE(R)."
Carboline Company is also the owner of several other United States registrations
for other trademarks. Renewal of these registrations is done on a regular basis.
Tremco Incorporated, a subsidiary of the Company, which was
acquired in February 1997, is the owner of over 100 registrations for the mark
and name "TREMCO(R)" in numerous countries and the United States for a variety
of sealants and coating products. There are also many other foreign and domestic
registrations for other trademarks of Tremco Incorporated, for a total of over
600 registrations and applications. The registrations are valid for a variety of
terms ranging from one year to 20 years, which terms are renewable as long as
the marks continue to be used. Renewal of the registration is done on a regular
basis.
The Company's other valuable product trademarks also include:
ALOX(R), ALUMANATION(R), AVALON(R), B-I-N(R), BITUMASTIC(R), BONDO(R),
BONDEX(R), BULLS EYE(R), CHEMGRATE(R), DRYVIT(R), DYMERIC(R), DYNALITE(R),
DYNATRON(R), EASY FINISH(R), FLECTO(R) EPOXSTEEL(R), FIBERGRATE(R), FLOQUIL(R),
GEOFLEX(R), LUBRASPIN(TM), MAR-HYDE(R), MOHAWK and DESIGN(R), OUTSULATION(R),
PARASEAL(R), PERMAROOF(R), PETTIT(TM), PLASITE(R), SANITILE(R), STONCLAD(R),
STONHARD(R), STONLUX(R), TALSOL(R), TCI(TM), TESTORS(R), ULTRALITE(TM),
VARATHANE(R), VULKEM(R), WOOLSEY(R), ZINSSER(R) and Z-SPAR(R); and, in Europe,
NULLIFIRE(R), RADGLO(R) and MARTIN MATHYS(R).
RAW MATERIALS
The Company believes that alternate sources of supply of raw
materials are available to the Company for most of its raw materials. Where
shortages of raw materials have occurred, the Company has been able to
reformulate products to use more readily available raw materials. Although the
Company has been able to reformulate products to use more readily available raw
materials in the past, there can be no assurance as to the Company's ability to
do so in the future.
SEASONAL FACTORS
The Company's business is seasonal due to outside weather
factors. The Company historically experiences strong sales and income in its
first, second and fourth fiscal quarters comprised of the three month periods
ending August 31, November 30 and May 31, respectively, with weaker performance
in its third fiscal quarter (December through February).
7
8
CUSTOMERS
No one customer accounted for 10% or more of the Company's
total sales. The Company's business is not dependent upon any one customer or
small group of customers and is dispersed over thousands of customers.
BACKLOG
The Company historically has not had a significant backlog of
orders, nor was there a significant backlog during the last fiscal year.
RESEARCH
The Company's research and development work is performed in
various laboratory locations throughout the United States. During fiscal years
1998, 1997 and 1996, the Company invested approximately $15.8 million, $14.6
million and $13.7 million, respectively, on research and development activities.
The customer sponsored portion of such expenditures was not significant.
ENVIRONMENTAL MATTERS
Several of the Company's subsidiaries are involved in various
environmental claims or proceedings relating to facilities currently or
previously owned, operated or used by such subsidiaries, or their predecessors.
In addition, the Company or its subsidiaries, together with other parties, have
been designated as potentially responsible parties ("PRPs") under federal and
state environmental laws for the remediation of hazardous waste at certain
disposal sites (see ITEM 3. LEGAL PROCEEDINGS). In connection with its
evaluation of these PRP sites, the Company's management takes into consideration
the input of outside legal counsel, the number of parties involved at the site,
joint and several liability of other PRPs, and the level of volumetric
contribution which may be attributed to the Company relative to that
attributable to other parties at such sites. Based on the above analysis,
management then assesses, to the extent possible, the estimated restoration or
other clean-up costs and related claims for each site.
The Company's environmental-related accruals are established
and/or adjusted as information becomes available upon which more accurate costs
can be reasonably estimated. Actual costs may vary from these estimates due to
the inherent uncertainties involved. In management's opinion, based upon
information presently available, the outcome of these environmental matters
will not have a material adverse effect on the Company's financial position,
results of operations or liquidity. However, such costs could be material to
results of operations in a future period.
EMPLOYEES
As of June 30, 1998, the Company employed 6,926 persons, of
whom 788 were represented by unions under contracts which expire at varying
times in the future. The Company believes that its relations with its employees
are good.
8
9
ITEM 2. PROPERTIES.
The Company's corporate headquarters and a plant and offices
for one subsidiary are located on an 80-acre site in Medina, Ohio, which is
owned by the Company. The Company has agreed to purchase an additional 39 acres
adjacent to the 80-acre site from the Estate of Margaret M. Sullivan, the mother
of Thomas C. Sullivan, Chairman and Chief Executive Officer of the Company. The
Company's operations occupy a total of approximately 6.1 million square feet,
with the majority, approximately 5.1 million square feet, devoted to
manufacturing, assembly and storage. Of the approximately 6.1 million square
feet occupied, 5.0 million square feet are owned and 1.1 million square feet are
occupied under operating leases.
For information concerning the Company's rental obligations,
see Note E (Leases) of Notes to Consolidated Financial Statements, which appear
elsewhere in this Annual Report on Form 10-K. Under all of its leases, the
Company is obligated to pay certain varying insurance costs, utilities, real
property taxes and other costs and expenses.
The Company believes that its manufacturing plants and office
facilities are well maintained and suitable for the operations of the Company.
ITEM 3. LEGAL PROCEEDINGS.
Bondex.
-------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, and as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1997, November
30, 1997 and February 28, 1998, Bondex International, Inc., a wholly-owned
subsidiary of the Company ("Bondex"), was one of numerous corporate defendants
in 387 then pending asbestos-related bodily injury lawsuits filed on behalf of
various individuals in various jurisdictions of the United States. Subsequently,
an additional 5 such cases have been filed and 2 such cases which had been filed
were dismissed with prejudice without payment pursuant to summary judgment or
stipulation of the parties, leaving a total of 390 such cases pending. Bondex
continues to deny liability in all asbestos-related lawsuits and continues to
vigorously defend them. Under a cost-sharing agreement among Bondex and its
insurers effected in 1994, the insurers are responsible for payment of a
substantial portion of defense costs and indemnity payments, if any, with Bondex
responsible for a minor portion of each.
Carboline.
----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, Carboline Company, a wholly-owned
subsidiary of the Company ("Carboline") has been named as one of 30 corporate
defendants in Rufino O. Cavazos, et al., vs. Ceilcote Company, et al., Cause No.
89-CI-12651, in the 73rd Judicial District Court of Bexar County, Texas, filed
in March 1990, and in similar suits subsequently filed on behalf of individuals
(and, where applicable, their spouses and children) employed at the Comanche
Peak Nuclear Plant and the South Texas Nuclear Plant. The total number of Bexar
County plaintiffs is approximately 10,000. The trial court has entered a
scheduling order which calls for summary judgment hearings in November 1998.
Carboline, and all other defendants, have sought summary judgment on the
9
10
grounds that Plaintiffs cannot prove a causal connection between their alleged
exposures at the power plants and their alleged physical ailments. Depending on
the results of the summary judgment hearings, summary jury trials, involving
approximately 20 plaintiffs, are anticipated in 1999. Another suit with
virtually identical allegations was filed on December 29, 1993 in Rusk County,
Texas, which involves 155 worker plaintiffs and 82 spouses. All of the suits
allege bodily injury as a result of exposure to defendants' products. The
litigation is continuing in the discovery stage. With respect to the Bexar
County cases, the court has indicated that summary jury trials involving 10
plaintiffs each will be scheduled, although specific trial dates have not been
set. Carboline has denied all liability in these cases and is conducting a
vigorous defense. Several of Carboline's insurance carriers, and Carboline, are
defending the lawsuits under a cost-sharing agreement.
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, in September 1991, Our Lady of the
Lake Hospital, Inc. ("OLOL") filed suit captioned Our Lady of the Lake Hospital,
Inc. vs. Carboline Company, et al, Number 373,498, Division "J", Nineteenth
Judicial District Court, Parish of East Baton Rouge, State of Louisiana,
alleging that a fireproofing product manufactured by Carboline, known as
Pyrocrete 102, caused damage to the structural steel of the hospital which OLOL
owns and operates in Baton Rouge, Louisiana.
Carboline denied the allegations of both OLOL's claims and
vigorously contested them. Carboline's defense was assumed by First Colonial
Insurance Company ("First Colonial"), a wholly-owned insurance subsidiary of the
Company. As previously reported, on July 10, 1996, OLOL, Carboline and Sun
entered into a confidential Settlement Agreement with respect to all claims and
disputes presented in, arising out of, or relating in any way to the claims
filed by OLOL in Case Numbers 373,498; 384,867; and 395,932. OLOL's petitions,
as supplemented and amended, were dismissed with prejudice. Carboline has
entered into confidential settlements with a number of its insurers which funded
the settlement and who have been or will be dismissed from the litigation.
Carboline's third party claims against certain non-settling insurers and other
parties remain pending in Case Number 373,498. Carboline is currently engaged in
settlement negotiations with the remaining third party defendants.
As previously reported, Carboline is a defendant in La Gloria
Oil & Gas Company vs. Carboline Company, et al., Cause No. 95-959-C, in the
241st Judicial District Court of Smith County, Texas. The plaintiff, an owner
and operator of a petroleum refinery in Tyler, Texas, contends that a
fireproofing product previously designed and manufactured by Carboline is
defective and that the product resulted in deterioration and corrosion of
various steel components at the refinery. Additionally, the plaintiff alleges
fraud and civil conspiracy and seeks $25 million in actual damages and up to
four times the amount of actual damages in exemplary damages against Carboline
and Sun, as well as co-defendant Brown & Root, Inc. The case is in the discovery
phase, and is set for trial in early 1999. Pursuant to an agreement between
Carboline and Sun, Carboline is providing a defense for Sun in this litigation.
Carboline has denied all of plaintiff's allegations and is
vigorously defending the lawsuit. Carboline contends that based upon applicable
statutes of limitations, plaintiff's claims are time-barred. Although there has
been diminishment of insurance policy limits available to Carboline as a result
of the previously referenced settlement, the Company believes that the
10
11
ultimate resolution of this matter will not have a material adverse effect on
the Company's financial position or results of operations.
Mac-O-Lac.
----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, the Company has been identified as
a PRP under CERCLA in connection with the Rose Township Dump Site, Rose
Township, Michigan (the "Rose Township Site") and the Springfield Township Dump
Site, Springfield Township, Michigan (the "Springfield Site") as a consequence
of the disposal of waste originating at Mac-O-Lac Paints, Inc., a former
subsidiary of the Company whose assets were sold in February 1982.
With respect to the Rose Township Site, the Company and eleven
other PRPs signed a Consent Decree which, on July 18, 1989, was entered by the
Court in United States of America vs. AKZO Coatings of America, Inc. et al.,
U.S. District Court, Eastern District of Michigan, Southern Division; Civil
Action No. 88-CV-73784-DT. Pursuant to the agreement, the PRPs established a $9
million fund to cover costs of remediation, of which the Company's share,
$300,000, has been paid.
With respect to the Springfield Site, the Company and other
PRPs engaged in negotiations with the EPA and the Michigan Department of Natural
Resources in an effort to reach agreement on mutually acceptable remediation
parameters and have negotiated Administrative Orders on Consent Regarding
Selected Response Activities and for Cost Recovery Settlement.
Dryvit.
-------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1997, November
30, 1997 and February 28, 1998, Dryvit Systems, Inc., a wholly-owned subsidiary
of the Company ("Dryvit"), is a defendant or co-defendant in numerous separate
but related law suits, some of which have sought to certify classes comprised of
owners of structures clad with exterior insulated finish systems ("EIFS")
products manufactured by Dryvit and other EIFS manufacturers. Also as previously
reported, on September 18, 1996, the North Carolina Court presiding over one of
the state court cases, Ruff et al. v. Parex, Inc., et al., entered an order
certifying a class of North Carolina owners of single family or multi-family
residential dwellings which had an EIFS installed during the period of 1969 to
the present. Subsequent to that ruling, Dryvit and other manufacturers filed a
motion to bring a third-party complaint against the builders of those dwellings
to establish that any alleged damage was the result of poor construction. The
trial court denied that motion but acknowledged that the manufacturers were
being denied significant rights since claims against builders for indemnity
and/or contribution were possibly being extinguished by the running of the
statutes of repose and/or statute of limitations. Dryvit and several other
manufacturers' appealed the trial court's decision. The Appellate Court has
agreed to review the manufacturers' appeal and issued a Writ of Prohibition
effectively staying the trial court action. The Appellate decision is expected
by the end of the 1998 calendar year.
11
12
Also as previously reported, on August 11, 1997, Judge Britt
of the U.S. District Court for the Eastern District of North Carolina, issued an
order in the multi-district litigation proceeding styled In Re Stucco Litigation
denying plaintiffs' attempts to certify a national class comprised of owners of
single family and multi-family residences clad with EIFS. Judge Britt's opinion
cited, inter alia, the role of various third parties, including builders,
contractors, architects, subcontractors and window manufacturers, as it relates
to liability, causation and comparative fault determinations as well as
contribution and indemnity considerations.
One of Dryvit's co-defendants in Ruff, Senergy, Inc. and its
affiliate Thoro ("Senergy"), has entered into a tentative settlement agreement
with plaintiffs. The agreement, which has not been approved by the court,
contemplates the certification, for settlement purposes only, of a nationwide
class comprised of owners of single and multi-family residences clad with a
Senergy EIFS and the establishment of a settlement fund to cover eligible repair
claims. The settlement has received preliminary approval by the court and a
formal fairness hearing is scheduled for September 11, 1998. The Senergy
settlement is not expected to prejudice Dryvit's defense of the Ruff case or its
arguments on appeal.
There have been two attempted state class actions filed in
Georgia. The first filed, Hardy, et al v. Dryvit Systems, Inc. et al, seeks to
certify a class comprised of owners of single family and multi-family residences
clad with EIFS constructed since 1969. Oral argument for class certification is
scheduled for September 22, 1998. Dryvit and the other EIFS manufacturers have
filed third party complaints against various third parties which underscores the
inappropriateness of this case for class certification. If the court does
certify a class action against the EIFS manufacturers, the manufacturers will
ask the court to certify a class of defendants comprised of builders,
sub-contractors and window manufacturers. Based on the presence of third parties
and Judge Britt's decision in In Re Stucco, the EIFS manufacturers are confident
class certification will be defeated.
The other attempted class action in Georgia, Stein v. Dryvit
Systems, Inc. seeks to certify a class comprised of owners of all structures
(both residential and commercial) clad with a Dryvit EIFS constructed since
1969. Dryvit has attempted to remove the case to federal court under Judge Britt
as part of the MDL proceeding. Since Judge Britt has already denied an attempted
national class in In Re Stucco Litigation, and those same issues are present in
Stein, Dryvit is confident that if the case remains in federal court, Judge
Britt would deny class certification.
Dryvit was recently named as a defendant in three additional
attempted state class actions relating to EIFS including two virtually identical
class action cases filed in Alabama. The Alabama cases seek to certify a class
comprised of all owners of single family and multi-family residences completed
since 1969 and a class comprised of builders and other third-parties. The other
attempted class action filed in Texas seeks to establish a class comprised of
owners of all types of structures clad with EIFS since 1969. Dryvit intends to
vigorously contest class certification and liability in all three cases.
Dryvit and other parties (contractors, architects,
distributors, EIFS applicators, roofers, sealant suppliers, sealant contractors
and window manufacturers) have been named in approximately 200 additional
homeowner lawsuits. The overwhelming majority of these suits
12
13
have been filed in North Carolina by individual homeowners who either have opted
out of the Ruff class action or have filed complaints against their builder,
which then brings a third-party action against Dryvit. The two other states with
the largest number of homeowner lawsuits are Alabama and South Carolina.
Dryvit's insurers, excluding First Colonial Insurance Company,
the Company's wholly-owned subsidiary ("First Colonial"), are currently paying
Dryvit's defense costs in the class actions and the individual lawsuits
involving structures that were built during or prior to their insurance coverage
periods. In addition, these insurance carriers have been regularly funding
settlement of these individual homeowner cases when appropriate. In the fiscal
year ending May 31, 1998, Dryvit's insurance carriers funded the settlement of
over 40 cases. Dryvit and its insurance carriers, including First Colonial, are
parties to three declaratory judgment actions pending in Rhode Island, New York
and California. The Rhode Island and New York actions have been stayed in favor
of the more complete and earlier filed California action. Dryvit was recently
awarded summary judgment on the issue of defense costs against one of its
insurers. The trial court ruled that there was a duty to defend Dryvit in the
class action litigation and related matters. Dryvit firmly believes that the
damages being sought by the plaintiffs' in the EIFS litigation are covered under
existing insurance policies and that it has adequate insurance coverage. The
Company believes that the ultimate resolution of these cases will not have a
material adverse effect on the Company's financial position or results of
operations.
Mohawk and Westfield.
---------------------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, Mohawk Finishing Products, Inc.
("Mohawk") and Westfield Coatings Corporation ("Westfield"), both wholly-owned
subsidiaries of the Company, were notified by the EPA of their status as PRPs
under CERCLA with respect to environmental contamination at the Solvents
Recovery of New England Site (the "SRS Site") located in Southington,
Connecticut. Since June 1992, the EPA has notified approximately 1,300 entities
as PRPs in connection with the SRS Site. The EPA alleges Mohawk and Westfield
have contributed 459,570 gallons of hazardous substances out of the
approximately 51,383,013 gallons identified as having been shipped by non-
deminimus PRPs. The PRPs have not as yet agreed to any final allocation formula,
whether based on volume or otherwise. The EPA has completed an early de minimis
settlement with almost 1,000 PRPs who had sent less than 10,000 gallons to the
SRS Site. Neither Mohawk nor Westfield qualified for that settlement. To date,
the EPA and the State of Connecticut have expended in excess of $5 million in
connection with the SRS Site but the EPA has not yet selected the final remedial
action. Several hundred PRPs, including Mohawk and Westfield, have consented to
administrative orders to perform non-time critical removal actions to contain
contaminated water in the aquifer at the SRS Site and to perform both the
Remedial Investigation and Feasibility Study. It is not possible at this time to
determine whether Mohawk and Westfield will be eligible to participate in any
subsequent de-minimus settlement nor is it possible to quantify what, if any,
liability share these companies may have for further remediation.
In January 1994, the EPA notified Westfield of its status as
one of approximately 300 PRPs at the Old Southington Landfill Superfund Site
(the "Landfill") on the basis that process wastes from the SRS Site were sent to
the Landfill prior to October 1967. In September 1994, the EPA issued a Record
of Decision which selected a source control remedy that consisted of
13
14
installation of a cap on the Landfill together with a gas collection system at
an estimated cost of $16.1 million. The EPA has deferred to a second operable
unit the issue of whether to actively remediate groundwater at the Landfill, but
is insisting that certain groundwater studies be performed which will likely
cost several million dollars. Westfield recently entered into a consent decree
with the United States and the State of Connecticut which resolves the Company's
liability for the First Operable Unit. Upon entry of the consent decree by the
federal district court in Connecticut, Westfield will be obligated to contribute
$26,476.21 to settle its liability for the First Operable Unit. It is expected
that additional settlement discussions between the PRPs and the United States
and the State of Connecticut will commence later in the summer in an effort to
try to settle the remaining issues at OSL. It is not possible at present to
determine what, if any, liability share of the remaining response costs at OSL
might be assigned to Westfield.
The Company believes that the ultimate resolution of the SRS
Site and the Landfill matters will not have a material adverse effect on the
Company's financial position or results of operations.
Rust-Oleum.
-----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1997, in November 1979, the EPA commenced
an action captioned United States of America vs. Midwest Solvent Recovery, Inc.,
et al.; United States District Court for the Northern District of Indiana,
Eastern Division; Civil No. H-79-556, pertaining to pollution allegedly
occurring at and around real property located at 7400 West Fifteenth Street,
Gary, Indiana ("MIDCO I") and 5900 Industrial Highway, Gary, Indiana ("MIDCO
II") (collectively, the "MIDCO Sites"). The Complaint was subsequently amended
in January 1984 to join Rust-Oleum Corporation, a wholly-owned subsidiary of the
Company ("Rust-Oleum"), and other entities as additional defendants. Rust-Oleum,
one of approximately 130 identified PRPs, is alleged to be associated with the
MIDCO Sites as a consequence of disposal of waste originating at its former
Evanston, Illinois plant in the mid-1970's. The Court approved a Consent Decree
in June 1992 under which Rust-Oleum entered into a Settlement Agreement with the
other settling PRPs for the voluntary cleanup of the MIDCO Sites consistent with
the EPA Record of Decision. All surface hazardous wastes have been removed from
the MIDCO Sites and cleanup is now in the groundwater remediation stage.
Remediation should be complete by the year 2002, with monitoring continuing for
an undetermined period. Total remediation and monitoring costs are currently
estimated to be $35 million. Included in the Consent Decree is an Agreement
between the Settling PRPs, including Rust-Oleum, and third parties who had been
sued for contribution by the generator PRPs, providing for payment by the third
parties of their fair share of the MIDCO Sites remedial and response costs.
Third party funds have been placed into the MIDCO Trust Fund, which has been
created to fund the MIDCO Site remedial actions. Rust-Oleum, as a settling PRP,
has provided financial assurance for its share of the cleanup costs in the form
of a Letter of Credit.
In March 1988, the EPA named Rust-Oleum and 240 other entities
as PRPs under CERCLA in connection with the Ninth Avenue Site at 7537 Ninth
Avenue, Gary, Indiana (the "Ninth Avenue Site"). Rust-Oleum is alleged to be
associated with the Ninth Avenue Site as a consequence of disposal of waste
originating at its former Evanston, Illinois plant in the 1970's. Rust-Oleum has
cooperated with over twenty other PRPs in a voluntary cleanup under Phase I and
Phase II Participation Agreements and Implementation Trust Agreements. Total
Ninth Avenue Site
14
15
remediation and monitoring costs are estimated to be approximately $36 million,
including past costs and the Final Site Remedy, which includes groundwater
remediation planned for completion by 1997 and ongoing monitoring for an
undetermined period. The EPA issued an Amended Record of Decision on September
13, 1994 regarding the Final Site Remedy and an Amended Unilateral
Administrative Order to Rust-Oleum and the other participating PRPs on December
27, 1994 to undertake the Final Site Remedy. Rust-Oleum and eighteen other PRPs
have entered into a Final Participation Agreement for Final Remedial Action at
the Ninth Avenue Site. Rust-Oleum's allocation of cost is currently 6.048%, with
approximately $170,000 remaining to be paid subject, however, to reduction to
the extent settlements are made with non-participating PRPs and funds are made
available from a Trust Fund established by the EPA for de minimis settlors.
Rust-Oleum has provided financial assurance for its share of the Final Site
Remedy in the form of a Letter of Credit.
Based upon prior settlement agreements with insurance carriers
for potential costs and remediation liabilities in connection with the MIDCO
Sites and the Ninth Avenue Site, Rust-Oleum has established appropriate reserves
to cover such costs and liabilities. Accordingly, the Company believes that
ultimate resolution of these matters will not have a material adverse effect on
the Company's financial position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
15
16
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the
Company as of August 18, 1998 are as follows:
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
Thomas C. Sullivan 61 Chairman of the Board and Chief Executive Officer
James A. Karman 61 President
John H. Morris, Jr. 56 Executive Vice President
Frank C. Sullivan 37 Executive Vice President and Chief Financial Officer
Kenneth M. Evans 56 Executive Vice President
Richard E. Klar 65 Vice President
P. Kelly Tompkins 41 Vice President, General Counsel and Secretary
David P. Reif III 45 Vice President - Corporate Finance
Glenn R. Hasman 44 Vice President - Financial Operations
Charles G. Pauli 55 Vice President - Technology
Charles R. Brush 62 Vice President - Environmental Affairs
Keith R. Smiley 36 Treasurer
- -----------------------
<FN>
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
</FN>
Thomas C. Sullivan has been Chairman of the Board and Chief
Executive Officer of the Company since October 1971. From June 1971 through
September 1978, Mr. Sullivan served as President and, prior thereto, as
Executive Vice President of the Company. Mr. Sullivan's employment with the
Company commenced in 1961, and he has been a Director since 1963. Mr. Sullivan
is employed as Chairman and Chief Executive Officer under an employment
agreement for a four-year period ending May 31, 2002. Mr. Sullivan is the father
of Frank C. Sullivan, Executive Vice President and Chief Financial Officer of
the Company.
James A. Karman has been President and Chief Operating Officer
since September 1978. From October 1982 to October 1993, Mr. Karman also was the
Chief Financial Officer of the Company. From October 1973 through September
1978, Mr. Karman served as Executive Vice President, Secretary and Treasurer,
and, prior thereto, as Vice President-Finance and Treasurer of the Company. Mr.
Karman's employment with the Company commenced in 1963, and he has been a
Director since 1963. Mr. Karman is employed as President and Chief Operating
Officer under an employment agreement for a four-year period ending May 31,
2002.
John H. Morris has been Executive Vice President since January
1981. Prior to that time, he was Corporate Vice President of the Company, having
been elected to that position in September 1977. Mr. Morris was elected a
Director of the Company in 1981. Mr. Morris is employed as Executive Vice
President under an employment agreement for a period ending July 31, 1999.
16
17
Frank C. Sullivan was elected Executive Vice President in
October 1995 and has been the Chief Financial Officer of the Company since
October 1993. Mr. Sullivan served as a Vice President from October 1991 to
October 1995. Prior thereto, he served as Director of Corporate Development of
the Company from February 1989 to October 1991. Mr. Sullivan served as Regional
Sales Manager, from February 1988 to February 1989, and as a Technical Service
Representative, from February 1987 to February 1988, of AGR Company, an Ohio
General Partnership formerly owned by the Company which was merged into Tremco.
Prior thereto, Mr. Sullivan was employed by First Union National Bank from 1985
to 1986 and Harris Bank from 1983 to 1985. Mr. Sullivan is employed as Executive
Vice President and Chief Financial Officer under an employment agreement for a
period ending July 31, 1999. Mr. Sullivan is the son of Thomas C. Sullivan,
Chairman of the Board and Chief Executive Officer of the Company.
Kenneth M. Evans was elected Executive Vice President in April
1998. From 1991 to 1996, Mr. Evans served as President, Chief Executive Officer
and Director of Armorall Products Corp. Prior to 1991, Mr. Evans was employed in
a variety of positions at The Sherwin-Williams Company, Thompson & Formby, Inc.
and Kodak, Home Care Products Group. Mr. Evans is employed as Executive Vice
President under an employment agreement for a period ending July 31, 1999.
Richard E. Klar was elected Vice President in October 1981 and
was Treasurer from July 1980 to February 1997. In February 1997, Mr. Klar was
also named Chief Financial Officer of Tremco Incorporated, a wholly-owned
subsidiary which was acquired by the Company in February 1997. He served as
Chief Accounting Officer from July 1980 to October 1990. From 1979 to 1980 Mr.
Klar was Treasurer of Mameco International, Inc., a wholly-owned subsidiary
which was acquired by the Company in February 1979 and later merged into Tremco.
Prior to 1979, Mr. Klar served as Mameco's Controller. Mr. Klar is employed as
Vice President under an employment agreement for a period ending October 31,
1998.
P. Kelly Tompkins was elected Vice President, General Counsel
and Secretary effective June 1, 1998. From June 1996 to June 1998, Mr. Tompkins
served as Assistant General Counsel. From 1987 to 1995, Mr. Tompkins was
employed by Reliance Electric Company in various positions including Director of
Corporate Development, Director of Investor Relations and Senior Corporate
Counsel. From 1985 to 1987, Mr. Tompkins was employed by Exxon Corporation. Mr.
Tompkins is employed as Vice President, General Counsel and Secretary under an
employment agreement for a period ending July 31, 1999.
David P. Reif III has served as Vice President-Corporate
Finance since February 5, 1998. From 1986 to February 1998, Mr. Reif served as
Chief Financial Officer of Stonhard, Inc., a wholly owned subsidiary of the
Company. From 1991 to February 1998, Mr. Reif also served as an Executive Vice
President of Stonhard. From 1978 to 1985, Mr. Reif was controller of Penn
Virginia Inc., and from 1975 to 1978, Mr. Reif was employed by KPMG Peat
Marwick. Mr. Reif is employed as Vice President-Corporate Finance under an
employment agreement for a period ending July 31, 1999.
Glenn R. Hasman has served as Vice President-Financial
Operations since October 1993. From July 1990 to October 1993, Mr. Hasman served
as Controller. From September 1982
17
18
through July 1990, Mr. Hasman served in a variety of management capacities, most
recently Vice President-Operations and Finance, Chief Financial Officer and
Treasurer, of Proko Industries, Inc., a former wholly-owned subsidiary of the
Company. From 1979 to 1982, Mr. Hasman served as RPM's Director of Internal
Audit and from 1976 to 1979 he was associated with Ciulla, Smith & Dale, LLP,
independent accountants. Mr. Hasman is employed as Vice President-Financial
Operations under an employment agreement for a period ending July 31, 1999.
Charles G. Pauli has served as Vice President-Technology since
February 5, 1998. Mr. Pauli also has served as President of Kop-Coat, Inc., a
wholly owned subsidiary of the Company since 1988.
Charles R. Brush has served as Vice President-Environmental
Affairs of the Company since October 1993. From June 1991 to October 1993, he
served as the Company's Director of Environmental & Regulatory Affairs. Prior
thereto, from 1988 to June 1991, he served as Vice President-Environmental &
Risk Management of Kop-Coat, Inc., a wholly-owned subsidiary of the Company.
Prior thereto, he served as Vice President and Manager of Koppers Company,
Inc.'s international environmental consulting business.
Keith R. Smiley has served as Treasurer of the Company since
February 1997. From October 1993 to February 1997, he served as Controller of
the Company. From January 1992 until February 1997, Mr. Smiley also served as
the Company's Internal Auditor. Prior thereto, he was associated with Ciulla,
Smith & Dale, LLP.
18
19
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
RPM Common Shares, without par value, began trading on the New
York Stock Exchange under the symbol RPM on June 9, 1998. Prior to June 9, 1998,
RPM Common Shares were traded on the Nasdaq National Market. The high and low
sales prices for the Common Shares, and the cash and stock dividends paid on the
Common Shares, for each quarter of the two most recent fiscal years is set forth
in the table below.
RANGE OF SALES PRICES AND DIVIDENDS PAID*
-----------------------------------------
Dividends Paid
Fiscal 1998 High Low Per Share
----------- ---- --- ---------
1st Quarter $ 16-13/16 $ 14-1/8 $ 0.104
2nd Quarter 16-13/16 14-15/16 0.112
3rd Quarter 17-1/4 15 0.112
4th Quarter 18 15-11/16 0.112
Dividends Paid
Fiscal 1997 High Low Per Share
----------- ---- --- ---------
1st Quarter $ 13-5/16 $ 11-1/2 $0.096
2nd Quarter 14-5/8 12-5/8 0.104
3rd Quarter 15-1/16 13-3/8 0.104
4th Quarter 15-3/8 12-1/2 0.104
- --------------------
<FN>
* High and low sale prices and dividends paid per share have been adjusted to account for the
5-for-4 stock dividend issued on December 8, 1997, to holders of record on November 17, 1997.
</FN>
Source: The Wall Street Journal
Cash dividends are payable quarterly, upon authorization of
the Board of Directors. Regular payment dates are approximately the 30th day of
July, October, January and April. RPM maintains a Dividend Reinvestment Plan
whereby cash dividends, and a maximum of an additional $5,000 per month, may be
invested in RPM Common Shares purchased in the open market at no commission cost
to the participant.
The number of holders of record of RPM Common Shares as of
August 18, 1998 was approximately 46,510.
RECENT SALES OF UNREGISTERED SECURITIES
On March 31, 1998, in connection with the purchase by RPM and its
wholly owned subsidiary, RPM of Nevada, Inc., of all of the stock of Flecto
International Supply, Inc., a Nevada corporation ("Flecto Supply"), as part of
the larger acquisition of The Flecto Company, Inc., and its affiliates, the
Company issued 1,812,500 Common Shares, valued at $16.00 per share, to John E.
Vetterli, the sole shareholder of Flecto Supply, as consideration for the
purchase price. Registration
19
20
under the Securities Act of 1933 was not effected with respect to the
transaction described above in reliance upon the exemption from registration
contained in Section 4(2) of the Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial
data of the Company for each of the five years during the period ended May 31,
1998. The data was derived from the annual Consolidated Financial Statements of
the Company which have been audited by Ciulla, Smith & Dale, LLP, independent
accountants.
FISCAL YEARS ENDED MAY 31,
--------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
(Amounts in thousands, except per share
and percentage data)
Net sales $1,615,274 $1,350,537 $1,136,396 $1,030,736 $825,292
Income before income taxes 149,556 135,728 119,886 108,492 89,207
Net income 87,837 78,315 68,929 62,616 53,753
Return on sales % 5.4 5.8 6.1 6.1 6.5
Basic earnings per share 0.89 0.81 0.72 0.68 0.59
Diluted earnings per share 0.84 0.76 0.69 0.65 0.57
Shareholders' equity 587,058 493,296 445,833 350,469 316,444
Shareholders' equity per share 5.76 5.07 4.68 3.83 3.49
Return on shareholders' equity % 16.6 16.7 17.3 18.8 19.2
Average shares outstanding 98,527 97,285 95,208 91,571 90,726
Cash dividends paid 43,474 39,746 35,597 31,259 27,949
Cash dividends per share 0.440 0.408 0.378 0.352 0.326
Retained earnings 314,911 270,465 231,896 199,527 169,687
Working capital 386,705 478,535 275,722 271,635 231,684
Total assets 1,683,279 1,633,228 1,155,076 965,523 665,966
Long-term debt 715,689 784,439 447,654 407,041 233,969
Depreciation and amortization 57,009 51,145 42,562 37,123 26,050
<FN>
- ---------------
All per share data has been restated to reflect the 5-for-4 stock dividend on December 8, 1998.
</FN>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The information required by this item is set forth at pages 22
through 24 of the 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not Applicable
20
21
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages 25
through 35 of the 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item as to the Directors of the
Company appearing under the caption "Election of Directors" in the Company's
1998 Proxy Statement is incorporated herein by reference. Information required
by this item as to the Executive Officers of the Company is included as Item 4A
of Part I of this Annual Report on Form 10-K as permitted by Instruction 3 to
Item 401(b) of Regulation S-K. Information required by Item 405 of Regulation
S-K is set forth in the 1998 Proxy Statement under the heading "Section 16(a)
Beneficial Ownership Reporting Compliance," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the 1998
Proxy Statement under the heading "Executive Compensation," which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The information required by this item is set forth in the 1998
Proxy Statement under the heading "Share Ownership of Principal Holders and
Management," which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this item is set forth in the 1998
Proxy Statement under the heading "Election of Directors," which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a) The following documents are filed as part of this 1998 Annual Report on Form
10-K:
21
22
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and its subsidiaries and the report of independent
auditors thereon, included in the 1998 Annual Report to Shareholders on pages 25
through 35, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets -
May 31, 1998 and 1997
Consolidated Statements of Income -
years ended May 31, 1998, 1997 and 1996
Consolidated Statements of Shareholders'
Equity - years ended May 31, 1998, 1997
and 1996
Consolidated Statements of Cash Flows -
years ended May 31, 1998, 1997 and 1996
Notes to Consolidated Financial
Statements (including Unaudited Quarterly
Financial Information)
2. FINANCIAL STATEMENT SCHEDULES. The following consolidated financial
statement schedule of the Company and its subsidiaries and the report of
independent auditors thereon are filed as part of this Annual Report on Form
10-K and should be read in conjunction with the consolidated financial
statements of the Company and its subsidiaries included in the 1998 Annual
Report to Shareholders:
Schedule Page No.
-------- --------
Independent Auditors' Report S-1
Schedule II - Valuation and Qualifying S-2
Accounts and Reserves
All other schedules have been omitted because they are not applicable
or not required, or because the required information is included in the
consolidated financial statements or notes thereto.
22
23
3. Exhibits.
--------
See the Index to Exhibits at page E-1 of this Annual Report on
Form 10-K.
(b) Reports on Form 8-K.
-------------------
The Company filed a Current Report on Form 8-K, dated March
31, 1998, during the fourth fiscal quarter, to report the Company's
acquisition of The Flecto Company, Inc. and affiliates.
23
24
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
RPM, INC.
Date: August 27, 1998 By: /s/ Thomas C. Sullivan
----------------------
Thomas C. Sullivan
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature and Title
- -------------------
Chairman of the Board of
/s/ Thomas C. Sullivan Directors and Chief Executive
- ----------------------------- Officer (Principal Executive Officer)
Thomas C. Sullivan
/s/ James A. Karman President and Chief Operating
- ----------------------------- Officer and a Director
James A. Karman
/s/ Frank C. Sullivan Executive Vice President and Chief
- ----------------------------- Financial Officer (Principal
Frank C. Sullivan Financial Officer) and a Director
/s/ Glenn R. Hasman Vice President-Financial Operations
- ----------------------------- (Principal Accounting Officer)
Glenn R. Hasman
/s/ Max D. Amstutz Director
- -----------------------------
Max D. Amstutz
/s/ Edward B. Brandon Director
- -----------------------------
Edward B. Brandon
24
25
/s/ Lorrie Gustin Director
- -----------------------------
Lorrie Gustin
/s/ E. Bradley Jones Director
- -----------------------------
E. Bradley Jones
/s/ Donald K. Miller Director
- -----------------------------
Donald K. Miller
/s/ John H. Morris, Jr. Executive Vice President
- ----------------------------- and a Director
John H. Morris, Jr.
/s/ Kevin O'Donnell Director
- -----------------------------
Kevin O'Donnell
/s/ William A. Papenbrock Director
- -----------------------------
William A. Papenbrock
/s/ Albert B. Ratner Director
- -----------------------------
Albert B. Ratner
Date: August 27, 1998
25
26
RPM, INC.
EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
----------- -----------
3.1 Amended Articles of Incorporation, as amended, which is
incorporated herein by reference to Exhibit 3.1 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
3.2 Amended Code of Regulations, which is incorporated
herein by reference to Exhibit 3.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
4.1 Specimen Certificate of Common Shares, without par
value, of RPM, Inc.
4.2 Specimen Note Certificate for 7.0% Senior Notes Due
2005, which is incorporated herein by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-4 as filed with the Commission on August 3, 1995.
4.3 Specimen Note Certificate of Liquid Asset Notes With
Coupon Exchange ("LANCEs(SM)") Due 2008.
4.5 Indenture, dated as of June 1, 1995, between RPM, Inc.
and The First National Bank of Chicago, as trustee, with
respect to the 7.0% Senior Notes Due 2005, which is
incorporated herein by reference to Exhibit 4.5 to the
Company's Registration Statement on Form S-4 as filed
with the Commission on August 3, 1995.
4.6 First Supplemental Indenture, dated as of March 5, 1998
to the Indenture dated as of June 1, 1995, between RPM,
Inc. and The First National Bank of Chicago, as trustee,
with respect to the Liquid Asset Notes with Coupon
Exchange ("LANCEs(SM)") due 2008.
*10.1 Amended Employment Agreement, dated as of July 22, 1981,
by and between RPM, Inc. and Thomas C. Sullivan,
Chairman of the Board and Chief Executive Officer, which
is incorporated herein by reference to Exhibit 10.1 to
the Company's Annual Report on Form 10-K for the fiscal
year ended May 31, 1996.
*10.1.1 Amendment to Amended Employment Agreement, dated as of
July 15, 1998, by and between RPM, Inc. and Thomas C.
Sullivan, Chairman of the Board and Chief Executive
Officer.
*10.2 Amended Employment Agreement, dated as of July 22, 1981,
by and between RPM, Inc. and James A. Karman, President
and Chief Operating Officer, which is incorporated
herein by reference to Exhibit 10.2 to the Company's
Annual Report on Form 10-K for the fiscal year ended May
31, 1996.
E-1
27
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.2.1 Amendment to Amended Employment Agreement, dated as of
July 15, 1998, by and between RPM, Inc. and James A.
Karman, President and Chief Operating Officer.
*10.3 Employment Agreement, dated as of July 15, 1992, by and
between RPM, Inc. and Frank C. Sullivan, Executive Vice
President and Chief Financial Officer, which is
incorporated herein by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1997.
*10.4 Form of Employment Agreement entered into by and between
RPM, Inc. and each of John H. Morris, Jr., Executive
Vice President, Kenneth M. Evans, Executive Vice
President, Richard E. Klar, Vice President, P. Kelly
Tompkins, Vice President, General Counsel and Secretary,
David P. Reif III, Vice President-Corporate Finance, and
Glenn R. Hasman, Vice President - Financial Operations,
which is incorporated herein by reference to Exhibit
10.4 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
*10.4.1 Form of Amendments to Employment Agreements, dated as of
July 15, 1998, by and between RPM, Inc. and each of John
H. Morris, Jr., Executive Vice President, David P. Reif
III, Vice President-Corporate Finance, Glenn R. Hasman,
Vice President - Financial Operations, and Frank C.
Sullivan, Executive Vice President and Chief Financial
Officer.
*10.4.2 Amendment to Amended Employment Agreement, dated as of
July 15, 1998, by and between RPM, Inc. and Richard E.
Klar, Vice President.
*10.5 RPM, Inc. 1979 Stock Option Plan, as amended, and form
of Stock Option Agreements used in connection therewith,
which is incorporated herein by reference to Exhibit
10.5 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
*10.6 RPM, Inc. 1989 Stock Option Plan, as amended, and form
of Stock Option Agreements to be used in connection
therewith, which is incorporated herein by reference to
Exhibit 10.6 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1996.
*10.7 RPM, Inc. 1996 Stock Option Plan, and form of Stock
Option Agreement to be used in connection therewith,
which is incorporated herein by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1997.
*10.7.1 Amendment No. 1 to RPM, Inc. 1996 Stock Option Plan.
*10.8 RPM, Inc. Retirement Savings Trust and Plan, as amended,
which is incorporated herein by reference to Exhibit
10.7 to the Company's Annual Report on Form 10-K for the
fiscal year ended May 31, 1996.
*10.9 RPM, Inc. Benefit Restoration Plan, which is
incorporated herein by reference to Exhibit 10.8 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
E-2
28
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.10 RPM, Inc. Board of Directors' Deferred Compensation
Agreement, as amended and restated, which is
incorporated herein by reference to Exhibit 10.9 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1994.
*10.11 RPM, Inc. Deferred Compensation Plan for Key Employees,
which is incorporated herein by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for
the fiscal year ended May 31, 1994.
*10.12 RPM, Inc. Incentive Compensation Plan, which is
incorporated herein by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1996.
*10.13 RPM, Inc. 1997 Restricted Stock Plan, and Form of
Acceptance and Escrow Agreement to be used in connection
therewith, which is incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended November 30, 1997.
*10.14 Form of Indemnification Agreement entered into by and
between the Company and each of its Directors and
Executive Officers, which is incorporated herein by
reference to Exhibit 10.12 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31,
1996.
10.15 Credit Agreement, dated as of February 3, 1997, between
the Company, the Banks identified on the Signature Pages
thereto, National City Bank as Documentation Agent, and
the Chase Manhattan Bank as Administrative Agent, which
is incorporated herein by reference to Exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended February 28, 1997.
11.1 Computation of Net Income per Common Share.
13.1 Financial Statements contained in 1998 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
- ------------------------------
*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
E-3
29
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To The Board of Directors and
Shareholders
RPM, Inc. and Subsidiaries
Medina, Ohio
The audits referred to in our report to the Board of Directors and Shareholders
of RPM, Inc. and Subsidiaries dated July 3, 1998, relating to the consolidated
financial statements of RPM, Inc. and Subsidiaries included the audit of the
schedule listed under Item 14 of Form 10-K for each of the three years in the
period ended May 31, 1998. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion such financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ Ciulla Smith & Dale LLP
Ciulla, Smith & Dale, LLP
S-1
30
RPM, INC. AND SUBSIDIARIES
--------------------------
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES Schedule II
----------------------------------------------
(In thousands)
Additions
Charged To
Balance at Selling and Balance at
Beginning General and End
Of Period Administrative Acquisitions Deductions Of Period
--------- -------------- ------------ ---------- ---------
Year Ended May 31, 1998
Allowance for doubtful accounts $ 12,006 $ 5,930 $ 642 $ 5,860 (1) $ 12,718
=========== =========== ========== ======== ============
Accrued loss reserves - Current 37,699 14,545 8,912 (2) 43,332
====== ====== ======== ===== ======
Accrued warranty reserves - Long-term 17,762 17,266 4,422 (2) 30,606
====== ====== ======== ===== ======
Year Ended May 31, 1997
Allowance for doubtful accounts $ 9,993 $ 4,701 $ 1,620 $ 4,308 (1) $ 12,006
============ =========== ========== ======== ===========
Accrued loss reserves - Current 33,731 14,353 4,908 15,293 (2) 37,699
====== ====== ===== ====== ======
Accrued warranty reserves - Long-term 768 1,755 16,040 801 (2) 17,762
=== ===== ====== === ======
Year Ended May 31, 1996
Allowance for doubtful accounts $ 9,813 $ 3,448 $ 721 $ 3,989 (1) $ 9,993
============ =========== ========== ======== ============
Accrued loss reserves - Current 23,897 12,771 9,096 12,033 (2) 33,731
====== ====== ===== ====== ======
Accrued warranty reserves - Long-Term 755 915 902 (2) 768
=== === ====== === ===
<FN>
(1) Uncollectible accounts written off, net of recoveries
(2) Primarily claims paid during the year
</FN>