1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the quarterly period ended August 31, 1999 or
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[_] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____________ to ___________.
Commission File No. 0-5132
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RPM, INC.
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(Exact name of Registrant as specified in its charter)
Ohio 34-6550857
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P.O. Box 777; 2628 Pearl Road; Medina, Ohio 44258
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (330) 273-5090
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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
--- ---
As of October 12, 1999, 108,020,367 RPM, Inc. Common Shares were
outstanding.
2
RPM, INC. AND SUBSIDIARIES
--------------------------
INDEX
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PART I. FINANCIAL INFORMATION Page No.
------------------------------ --------
Consolidated Balance Sheets
August 31, 1999 and May 31, 1999 3
Consolidated Statements of Income
Three Months Ended
August 31, 1999 and August 31, 1998 4
Consolidated Statements of Cash Flows
Three Months Ended
August 31, 1999 and August 31, 1998 5
Notes to Consolidated Financial Statements 6
Management's Discussion and Analysis of Results
For Operations and Financial Condition 8
PART II. OTHER INFORMATION 13
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3
PART I. -- FINANCIAL INFORMATION 3
--------------------------------
ITEM 1. -- FINANCIAL STATEMENTS
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RPM, INC. AND SUBSIDIARIES
--------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
(Unaudited)
(In thousands, except per share amounts)
ASSETS
------
August 31, 1999 May 31, 1999
---------------- ----------------
Current Assets
Cash and short-term investments $ 34,492 $ 19,729
Trade accounts receivable (less allowance for doubtful
accounts $17,009 and $14,248) 392,710 362,611
Inventories 256,362 242,445
Prepaid expenses and other current assets 88,792 80,634
---------------- ----------------
Total current assets 772,356 705,419
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Property, Plant and Equipment, At Cost 635,764 572,690
Less: accumulated depreciation and amortization 243,875 232,993
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Property, plant and equipment, net 391,889 339,697
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Other Assets
Costs of businesses over net assets acquired, net of amortization 586,715 425,951
Intangible assets, net of amortization 330,061 232,556
Other 35,103 33,613
---------------- ----------------
Total other assets 951,879 692,120
---------------- ----------------
Total Assets $ 2,116,124 $ 1,737,236
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities
Current portion of long term debt $ 6,473 $ 3,764
Notes and accounts payable 139,549 131,118
Accrued compensation and benefits 64,533 58,277
Accrued loss reserves 45,373 49,296
Other accrued liabilities 49,677 50,843
Restructuring reserve 40,870
Income taxes payable 3,846 9,251
---------------- ----------------
Total current liabilities 350,321 302,549
---------------- ----------------
Long-term Liabilities
Long-term debt, less current maturities 865,813 582,109
Deferred income taxes 97,211 53,870
Other long-term liabilities 65,450 55,832
---------------- ----------------
Total long-term liabilities 1,028,474 691,811
---------------- ----------------
Shareholders' Equity
Common shares, stated value $.015 per share;
authorized 200,000,000 shares;
outstanding 109,480,000 and
109,443,000 shares, respectively 1,614 1,613
Paid-in capital 423,557 423,204
Treasury shares, at cost (17,118) (17,044)
Accumulated other comprehensive loss (24,159) (23,908)
Retained earnings 353,435 359,011
---------------- ----------------
Total shareholders' equity 737,329 742,876
---------------- ----------------
Total Liabilities And Shareholders' Equity $ 2,116,124 $ 1,737,236
================ ================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
RPM, INC. AND SUBSIDIARIES 4
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CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended August 31,
-----------------------------
1999 1998
-------- --------
Net Sales $495,542 $448,132
Cost of Sales 269,579 243,730
-------- --------
Gross Profit 225,963 204,402
Selling, General and Administrative Expenses 158,762 141,280
Restructuring Charge 45,000
Interest Expense, Net 9,889 9,748
-------- --------
Income Before Income Taxes 12,312 53,374
Provision for Income Taxes 5,048 22,150
-------- --------
Net Income $ 7,264 $ 31,224
======== ========
Basic earnings per common share $ 0.07 $ 0.30
======== ========
Diluted earnings per common share $ 0.07 $ 0.29
======== ========
Dividends per common share $ 0.1175 $ 0.112
======== ========
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
RPM, INC. AND SUBSIDIARIES 5
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CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
(Unaudited)
(In thousands, except per share amounts)
Three Months Ended August 31,
----------------------------
1999 1998
------------ ------------
Cash Flows From Operating Activities:
Net Income $ 7,264 $ 31,224
Depreciation and amortization 17,909 14,273
Items not affecting cash and other (2,803) (2,201)
Changes in working capital 25,788 (10,297)
------------ ------------
48,158 32,999
------------ ------------
Cash Flows From Investing Activities:
Additions to property and equipment (13,407) (8,166)
Acquisition of new businesses, net of cash (292,513) (20,388)
------------ ------------
(305,920) (28,554)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from stock option exercises 354 1,267
Repurchase of common shares (74)
Increase (decrease) in debt 285,085 13,661
Dividends (12,840) (11,637)
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272,525 3,291
------------ ------------
Net Increase (Decrease) in Cash 14,763 7,736
Cash at Beginning of Period 19,729 40,783
------------ ------------
Cash at End of Period $ 34,492 $ 48,519
============ ============
Supplemental Schedule of Non-Cash Investing and Financing Activities:
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Conversion of Debt to Equity $ 157,042
Interest accreted on Convertible Debt Securities $ 1,696
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
RPM, INC. AND SUBSIDIARIES 6
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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AUGUST 31, 1999
---------------
(Unaudited)
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NOTE A - BASIS OF PRESENTATION
- ------------------------------
The accompanying unaudited financial statements have been prepared in accordance
with the instructions to Form 10-Q and do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal, recurring accruals) considered necessary for a fair presentation have
been included for the three months ended August 31, 1999. For further
information, refer to the consolidated financial statements and notes included
in the Company's Annual Report on Form 10-K for the year ended May 31, 1999.
Certain reclassifications have been made to prior year amounts to conform with
the current year presentation.
NOTE B - INVENTORIES
- --------------------
Inventories were composed of the following major classes:
August 31, 1999 (1) May 31, 1999
------------------------- -------------------------
Raw material and supplies $85,467,000 $80,827,000
Finished goods 170,895,000 161,618,000
========================= =========================
$256,362,000 $242,445,000
========================= =========================
(1) Estimated, based on components at May 31, 1999.
NOTE C - ACQUISITIONS
- ---------------------
On August 31, 1999, the Company acquired all of the outstanding shares of DAP
Products Inc. ("DAP"). DAP, headquartered in Baltimore, Maryland, is a leading
manufacturer of sealants, caulks, patch and repair compounds, wood preservatives
and water repellents and adhesives, for the retail do-it-yourself market.
This acquisition has been accounted for by the purchase method of accounting.
The following data summarizes, on an unaudited pro-forma basis, the combined
results of operations of the companies for the three months ended August 31,
1999 and August 31, 1998. The pro-forma amounts give effect to appropriate
adjustments resulting from the combination, but are not necessarily indicative
of future results of operations or of what results would have been for the
combined companies.
Three Months Ended August 31,
--------------------------------------------------------
1999 1998
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Net Sales $ 539,580,000 $ 510,045,000
========================= =========================
Net Income $ 6,950,000 * $ 29,841,000
========================= =========================
Basic earnings per common share $.06 * $.29
========================= =========================
Diluted earnings per common share $.06 * $.27
========================= =========================
* including the $26,550,000 after-tax restructuring charge, or $0.24 per share.
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RPM, INC. AND SUBSIDIARIES 7
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
AUGUST 31, 1999
---------------
(Unaudited)
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NOTE D - COMPREHENSIVE INCOME
As of June 1, 1998, the Company adopted SFAS No. 130 Reporting Comprehensive
Income. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this statement
had no impact on the Company's net income. SFAS No. 130 requires other
comprehensive income to include foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains or losses on
securities which, prior to adoption, were reported separately. Accordingly,
total comprehensive income, comprised of net income and other comprehensive
loss, amounted to $7,013,000, including the $26,550,000 after-tax restructuring
charge, and $29,253,000 during the first quarter of fiscal years 2000 and 1999,
respectively.
NOTE E - RESTRUCTURING CHARGE
In August 1999, the Company recorded a restructuring charge of $45,000,000
($26,550,000 after tax, or $.24 per diluted share). Included in this total are
facility closures and write-downs of property, plant and equipment of
$21,000,000, write-downs of intangibles of $3,400,000, severance and other
employee related costs of $17,000,000, and contract exit and termination costs
of $3,600,000.
As of August 31, 1999, the Company has paid or incurred $4,130,000 related to
these charges. The Company anticipates that substantially all of the remaining
restructuring and plant rationalization costs will be paid or incurred by May
31, 2001.
August 1999 Charge Utilized Through 8/31/99 Balance at 8/31/99
-------------------------- ------------------------- -------------------------
Property, plant and equipment $ 21,000,000 $ 1,001,000 $ 19,999,000
Intangibles 3,400,000 2,851,000 549,000
Severance Costs 17,000,000 278,000 16,722,000
Exit and termination costs 3,600,000 --- 3,600,000
-------------------------- ------------------------- -------------------------
$ 45,000,000 $ 4,130,000 $ 40,870,000
========================== ========================= =========================
The facility closure costs represent estimated losses on the closure and sale of
facilities, primarily in North America. The charge for property, plant and
equipment represents write-downs to net realizable value of less efficient and
duplicate machinery and equipment not needed in the combined restructured
manufacturing operations. The severance and other employee related costs provide
for a reduction of approximately 730 employees related to the facility closures
and the streamlining of operations related to cost reduction initiatives. The
costs of exit and contract termination costs are comprised primarily of
non-cancelable lease obligations on the facilities to be closed. Approximately
$1,900,000 of the property, plant and equipment write-down, $2,700,000 of the
intangible write-down, $1,600,000 of the severance costs to be incurred and
$2,600,000 of the exit and termination costs to be incurred, or approximately
$8,800,000 in total, are related to the purchase of DAP Products Inc. (Note C),
which rendered these assets and contracts redundant.
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ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION THREE MONTHS ENDED AUGUST 31, 1999
Reportable Segment Information
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Financial Accounting Standards (SFAS) No. 131, Disclosures about Segments of an
Enterprise and Related Information, was adopted by the Company effective May 31,
1999. This Standard requires disclosure of segment information using the
management approach, or the basis used internally to evaluate operating
performance and to decide resource allocations. Comparative first quarter
results on this basis are as follows:
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Quarter Ended August 31,
(000s)
---------------------------------------------
1999 1998
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Net External Sales
Industrial Division $302,009 $280,825
Consumer Division 193,533 167,307
---------------------- ----------------------
Totals: $495,542 $448,132
====================== ======================
Earnings Before Interest and Taxes (EBIT)
(2) (1)
Industrial Division $46,873 $32,873 $47,325
Consumer Division 23,375 (5,925) 17,905
Corporate/Other (3,047) (4,747) (2,418)
------------------- ---------------------- ----------------------
Totals: $67,201 $22,201 $62,812
=================== ====================== ======================
Identifiable Assets May 31, 1999
------------
Industrial Division $1,028,030 $1,102,531
Consumer Division 1,038,753 586,846
Corporate/Other 49,341 47,859
---------------------- ----------------------
Totals: $2,116,124 $1,737,236
====================== ======================
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(1) = as reported, including restructuring charge
(2) = pro forma, before restructuring charge
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RESULTS OF OPERATIONS
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The Company's sales and earnings were ahead 11% and 8%, respectively, in the
first quarter compared to last year, before a $45 million pre-tax restructuring
charge, further discussed below. Including the restructuring charge, earnings
were 77% lower than last year's first quarter.
On August 3, 1999, the Company completed its acquisition of DAP Products Inc.
and DAP Canada Corp. (collectively "DAP"), head-quartered in Baltimore,
Maryland. DAP has annual sales of approximately $250 million, and is a leading
North American manufacturer and marketer of caulks and sealants, spackling and
glazing compounds, contact cements, and other specialty adhesives. DAP is
reported within the Consumer Division and is expected to be neutral to the
Company's earnings results in Fiscal Year 2000, but will contribute thereafter.
The DAP acquisition accounted for approximately 45% of the first quarter sales
increase. The Company's existing operations and several product line additions
generated the balance of the sales increase, almost entirely from higher unit
volume as pricing adjustments have been essentially flat. Exchange rate
differences had a very slight negative effect on year-to-year sales. Sales may
continue to be negatively affected if the dollar continues to strengthen.
Internal growth within the Industrial Division continued at the last year rate
of approximately 2.5% through the first quarter. Internal growth within the
Consumer Division improved to nearly 3.5% during the first quarter, mainly from
the timing of orders between periods, despite continued weakness in the
automobile aftermarket. Internal growth in general, however, continued slower
than planned from a slowdown in North American new construction, weak exports to
a number of still-depressed overseas economies, and weather-related factors.
The gross profit margin remained at 45.6% of sales. The Industrial Division
improved to 46.2% from 45.6%, mainly from continuing margin improvements at
Tremco, while the Consumer Division moved from 45.7% a year ago to 44.7% this
quarter, from lower margins at DAP. Raw material price changes have not been a
significant factor this year, and the Company remains confident that raw
material prices will continue to be effectively managed in the foreseeable
future.
Selling, general and administrative expenses of 32.0% of sales compare with
31.6% a year ago. The Industrial Division expenses increased to 30.6% of sales
from 28.7%, while the Consumer Division expenses decreased to 32.6% from 35.0%
in 1999. Both Divisions continued with product and market development,
promotional and other growth-related initiatives to set the stage for stronger
sales growth in the future, including E-Commerce related initiatives within
Corporate/Other. There were also a number of timing differences on certain
expenses between years, such as legal and insurance-related issues having a $2.3
million favorable impact on the Industrial Division a year ago. The Consumer
Division benefited mainly from increased volume coupled with good expense
control, and from a lower SG&A percentage at DAP.
On August 9, 1999, the Company announced a restructuring program to generate
manufacturing, distribution, and administrative efficiencies, and to better
position the Company for increased profitability and long-term growth. This
program is responsible for the $45 million pre-tax ($.24 per share after-tax)
restructuring charge in the first quarter, but the restructuring is expected to
generate annualized pre-tax savings of $23 million ($.13 per share after-tax),
once completed. These savings will phase in over the next two years, with the
full savings expected beginning in fiscal 2002. Through the first quarter, the
Company had paid or incurred $4.1 million of these charges, primarily associated
with the write-down of certain designated property and intangibles (refer to
Note E). The net cash requirements of the restructuring program are estimated to
be approximately $4 million. The Company also plans to divest non-core product
lines with annual sales of
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approximately $100 million over the next two years, but with no net loss
anticipated from these transactions.
Principally because of the restructuring charge, EBIT declined dramatically in
both Divisions and Corporate/Other from last year's first quarter. Without the
restructuring charge, the Consumer Division generated 31% EBIT growth this first
quarter, nearly evenly split between internal growth and from DAP, while the
timing differences within SG&A expenses affected the Industrial Division EBIT,
which declined 1%, and Corporate/Other expenses increased 26%, primarily from
the growth initiatives cited above.
Net interest expense increased $.5 million, primarily from increased
indebtedness to acquire DAP and to repurchase common shares of the Company
(refer to Liquidity and Capital Resources - Financing Activities). These
increases were partly offset by interest saved from the August 10, 1998
redemption of the Company's convertible debt securities, which lowered interest
expense by $1.3 million this quarter, and from slightly lower interest rates
than a year ago.
Before the restructuring charge, earnings increased 8% on the 11% sales
increase, with the margin declining to 6.8% from 7.0% a year ago, primarily from
the impact of DAP and its acquisition costs. Approximately one-half of the
(pre-restructuring charge) growth in diluted earnings per share was internal,
within the Consumer Division, with the balance of growth being
acquisition-related. The issuance of 10.1 million common shares in connection
with the August 10, 1998 redemption of the Company's convertible debt securities
negatively impacted the calculation of basic earnings per share compared with
last year, while the averaging of shares repurchased as of August 31, 1999 had a
favorable impact. The restructuring charge reduced net earnings by $26.5
million, and both basic and diluted earnings per share by $.24.
LIQUIDITY AND CAPITAL RESOURCES
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CASH PROVIDED FROM OPERATIONS
- -----------------------------
The Company generated cash from operations of $48.2 million during the first
quarter, compared with $33 million a year ago. The restructuring charge and its
related current liability are the major impacts to net income and changes in
working capital, respectively, between periods. Other than normal timing
differences within the balance sheet, certain inventories had been built up
during fiscal 1998 and into 1999 to accommodate increased retail business in the
Consumer Division. These built-up inventory levels have since been reduced
significantly, along with accounts receivable and other inventories in both
Divisions, in order to conserve working capital.
The Company's strong cash flow from operations continues to be its primary
source of financing internal growth, with limited use of short-term credit.
INVESTING ACTIVITIES
- --------------------
The Company is not capital intensive, and capital expenditures generally do not
exceed depreciation and amortization in a given year. Capital expenditures are
made primarily to accommodate the Company's continued growth through improved
production and distribution efficiencies and capacity, and to enhance
administration.
The investment of $293 million in new businesses this quarter reflects the
acquisition of DAP, net of cash acquired. The Company historically has acquired
complementary businesses, and this trend is expected to continue.
FINANCING ACTIVITIES
- --------------------
In January 1999, the Company announced the authorization of a share
repurchase program, allowing repurchase of up to 5 million of the Company's
common shares over a period of 12 months. As of October 7, 1999, the Company had
repurchased approximately 2.8 million of its common shares at an average price
of approximately $12.86 per share. On October 8, 1999, the Company announced the
authorized expansion of the repurchase program to a total of 10 million common
shares.
The acquisition of DAP was financed with a bridge loan arranged through one of
the Company's lead banks. This transaction has
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since been refinanced through a $700 million commercial paper program, fully
backed by the Company's existing $300 million revolving credit facility, plus a
new $400 million revolving credit facility. As a result of this transaction, the
Company's debt to capital ratio has increased to 54% from 44% at May 31, 1999.
The stronger dollar effect on the Company's foreign net assets has tended to
reduce shareholders' equity, and this trend could continue if the dollar
continues to strengthen and the growth of foreign net assets continues.
The Company maintains excellent relations with its banks and other financial
institutions to further enable the financing of future growth opportunities.
OTHER MATTERS
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YEAR 2000 READINESS DISCLOSURE
- ------------------------------
The Company has substantially completed its Year 2000 remediation efforts,
including testing, and does not anticipate disruptions in any of its operations
as a result of the Year 2000. In addition, based on polling the Year 2000
preparedness of key third parties, the Company does not anticipate disruptions
in those areas. As a result, the Company does not foresee the need to execute
any contingency plans.
The Company's most reasonably likely worst case scenario, should the Company or
its key suppliers, customers or service providers fail to resolve the Year 2000
issue, would be a short-term slowdown or cessation of manufacturing operations
at one or more of its facilities and a short-term inability of the Company to
process orders and billings in a timely manner, and to deliver product to
customers.
The Company does not expect that any third party material to its business will
be determined not to be Year 2000 compliant. If the Company determines that a
third party with whom the Company has a material relationship is not Year 2000
compliant, the Company will: (a) investigate whether or not such noncompliance
will affect the Company's relationship with such third party, and (b) if such
relationship is materially impaired by a lack of Year 2000 compliance, the
Company will seek a similarly situated party to provide the relevant products,
supplies or services to the Company.
The Company has been able to complete its efforts within the $5,500,000 budget
and does not anticipate any further significant costs in this area. All Year
2000 costs have been and are expected to continue to be funded from the
Company's operating cash flow.
ENVIRONMENTAL MATTERS
- ---------------------
Environmental obligations continue to be appropriately addressed and, based upon
the latest available information, it is not anticipated that the outcome of such
matters will materially affect the Company's results of operations or financial
condition.
FORWARD-LOOKING STATEMENTS
- --------------------------------------------------------------------------------
The foregoing discussion includes forward-looking statements relating to the
business of the Company. These forward-looking statements, or other statements
made by the Company, are made based on management's expectations and beliefs
concerning future events impacting the Company and are subject to uncertainties
and factors (including those specified below) which are difficult to predict
and, in many instances, are beyond the control of the Company. As a result,
actual results of the Company could differ materially from those expressed in or
implied by any such forward-looking statements. These uncertainties and factors
include (a) the price and supply of raw materials, particularly titantium
dioxide, certain resins, aerosols and solvents; (b) continued growth in demand
for the Company's products; (c) environmental liability risks inherent in the
chemical coatings business; (d) the effect of changes in interest rates; (e) the
effect of fluctuations in currency
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12
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exchange rates upon the Company's foreign operations; (f) the potential impact
of the Euro currency conversion; (g) the effect of non-currency risks of
investing in and conducting operations in foreign countries, including those
relating to political, social, economic and regulatory factors; (h) future
acquisitions and the Company's ability to effectively integrate such
acquisitions; (i) the potential future impact of Year 2000 related software
conversion issues; the potential impact of the Company's suppliers, customers
and other third parties ability to identify and resolve their own Year 2000
obligations in such a way as to allow them to continue normal business
operations or furnish raw materials, products, services or data to the Company
and its operating companies without interruption; the potential impact of
manufacturers of the Company's computer systems and software representations as
to their Year 2000 status; and the potential impact of the Company's own Year
2000 investigation, remediation, testing and systems implementation efforts; and
(j) the ability of the Company to realize the projected pre-tax savings
associated with the restructuring and consolidation program, and to divest
non-core product lines.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
- -----------------------------------------------------------------
MARKET RISK
- --------------------------------------------------------------------------------
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates since it funds its operations through long- and short-term
borrowings and denominates its business transactions in a variety of foreign
currencies. There were no material changes in the Company's exposure to market
risk from May 31, 1999.
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RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
PART II
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ITEM 1 -- LEGAL PROCEEDINGS
- ---------------------------
Bondex.
- -------
As previously reported, Bondex International, Inc., a wholly-owned subsidiary of
the Company ("Bondex"), was one of numerous corporate defendants in 395 then
pending asbestos-related bodily injury lawsuits filed on behalf of various
individual in various jurisdictions of the United States. Subsequently, an
additional 104 such cases have been filed and 75 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 424 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, the insurers are responsible for payment of a substantial portion of
defense costs and indemnity payments, if any, with Bondex responsible for the
balance. The Company believes that the ultimate resolution of the matters will
not have a material adverse effect on the Company's financial position or
results of operations.
Dryvit.
- -------
As previously reported, Dryvit Systems, Inc., a wholly-owned subsidiary of the
Company ("Dryvit"), is a defendant or co-defendant in numerous separate but
related lawsuits, 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.
On September 27, 1999, Dryvit reached a tentative settlement of the North
Carolina class-action styled Ruff et al. v. Parex, Inc. et al. The preliminary
settlement is subject to the parties entering into a definitive settlement
agreement; a fairness hearing; and final approval by the North Carolina state
court. Although the court has ordered the parties to maintain confidentiality,
the essential terms of the settlement will provide for a cash payment of $6 per
square foot to eligible North Carolina homeowners who demonstrate the requisite
level of moisture damage as verified by an independent inspection process.
Attorney fees for plaintiffs' counsel will be determined by the court upon
application by class counsel and will be awarded separately from settlement
amounts paid to members of the class. Based upon the material terms of the
proposed settlement and the anticipated final settlement agreement and attorney
fee award, the Company does not believe the Ruff settlement will have a material
adverse effect on the Company's financial position or results of operation.
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RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 2 -- CHANGES IN SECURITIES
- -------------------------------
(c) Recent Sales of Unregistered Securities.
No securities of the Company that were not registered under the
Securities Act of 1933 have been issued or sold by the Company during
the period covered by this Quarterly Report on Form 10-Q other than the
following:
(i) On August 3, 1999, the Company issued 127,068 Common Shares to
certain of its officers and other employees pursuant to the
RPM, Inc. 1997 Restricted Stock Plan (the "Restricted Stock
Plan"). Such shares are restricted pursuant to the terms of
the Restricted Stock Plan. The issuance of such shares was
made to individuals who were participants in the RPM, Inc.
Benefit Restoration Plan and such awards were designed to
replace cash benefit payments being canceled under the RPM,
Inc. Benefit Restoration Plan. Consequently, no additional
consideration was received by the Company for such issuance.
The dollar value of the restricted share awards was based on
the closing price of the Company's Common Shares on April 28,
1999, of $13.0625 per share. Registration under the Securities
Act of 1933 was not effected with respect to the transaction
described above in reliance upon the exemption from the
registration contained in Section 4(2) of the Securities Act
of 1933.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) Exhibits
--------
Official Exhibit Number Description
----------------------- -----------
2.1 Stock Purchase Agreement dated
as of July 9, 1999, by and among
the Company, Wassall DAP
Holdings B.V. and Wassall PLC,
which is incorporated by
reference to Exhibit 2.1 to the
Company's Current Report on Form
8-K, dated August 4, 1999.
4.1 Form of Fixed Rate Promissory
Note by and between the Company
and The Chase Manhattan Bank,
which is incorporated by
15
15
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
reference to Exhibit 4.1 to the
Company's Current Report on Form
8-K, dated August 4, 1999.
10.1 Credit Agreement, dated as of
July 29, 1999, among RPM, Inc.,
the financial institutions
referred to therein and The
Chase Manhattan Bank as
administrative agent.
10.2 Multicurrency Credit Agreement,
dated as of August 24, 1999,
among Carbolinc Europe Ltd.,
Martin Mathys N.V., Radiant
Color N.V., RPM Belgium N.V.,
RPM Europe B.V., RPM Holdings UK
Ltd., RPM/Lux Consult S.A., RPOW
(France) S.A., RPOW UK Ltd.,
Stonhard Deutschland GmbH,
Tremco Ltd., RPM, Inc. and
Deutsche Bank S.A., and Deutsche
Bank AG London
10.3 Commercial Paper Placement
Agency Agreement, dated as of
August 10, 1998, between RPM,
Inc. and Chase Securities, Inc.
(similar forms of agreement were
also executed with Banc One
Capital Markets, Inc. and Banc
of America Securities LLC).
10.4 Retirement Letter Agreement,
dated August 23, 1999, between
John H. Morris and RPM, Inc.
11.1 Statement regarding computation
of per share earnings
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
The Company filed the following Current Reports on Form 8-K,
during the three months ended August 31, 1999:
(i) Current Report on Form 8-K, dated August 4, 1999, to
report the acquisition of DAP Products Inc. and DAP Canada
Corp.; and
(ii) Current Report on Form 8-K, dated August 9, 1999, to file
news releases reporting the financial results for fiscal year
1999, the Company's consolidation and reorganization program,
and the Company's management reorganization.
16
SIGNATURES
----------
Pursuant to the requirements 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.
By /s/ Thomas C. Sullivan
------------------------
Thomas C. Sullivan
Chairman & Chief Executive Officer
By /s/ Glenn R. Hasman
--------------------
Glenn R. Hasman
Vice President - Controller
Date: 10/15/99