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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, 1997
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
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(State or Other Jurisdiction of (IRS Employer Identification
Incorporation or Organization) No.)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Shares, Without Par Value
--------------------------------
(Title of Class)
Liquid Yield Option Notes(TM) Due 2012
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(Title of Class)
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
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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 20, 1997, 78,472,777 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 Nasdaq National Market on August 20, 1997) was
approximately $1,577,961,742. For purposes of this information, the 2,426,428
outstanding Common Shares which were owned beneficially as of August 20, 1997 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 17, 1997 (the "1997 Proxy
Statement") and (ii) the Registrant's 1997 Annual Report to Shareholders for the
fiscal year ended May 31, 1997 (the "1997 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this
Annual Report on Form 10-K is as of June 30, 1997.
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(TM)Merrill Lynch & Co., Inc.
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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
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.
ACQUISITIONS
As part of this acquisition program, in February 1997, the Company
acquired all of the issued and outstanding shares of Tremco Incorporated
("Tremco") from The BFGoodrich Company for approximately $236 million in cash.
Tremco manufactures and sells roofing systems, sealants and coatings. Tremco is
headquartered in Cleveland, Ohio and has manufacturing locations in the United
States, Canada, the United Kingdom, and The Netherlands, with offices and joint
ventures in several other countries. The roofing systems, sealants and coatings
manufactured under the Tremco brand name are sold to customers primarily in
building, construction, building maintenance and retail markets. Since the
acquisition and subsequent to May 31, 1997, the Company sold Tremco's Swiggle
Insulating Glass Sealant and Auto Replacement Glass Sealant businesses since
both of these businesses served OEM markets unrelated to the Company's core
business. The divestiture of these two businesses will result in a Tremco annual
revenue base of approximately $230 million and a net purchase price for the
Tremco acquisition of approximately $125 million.
In June 1996, the Company acquired all of the outstanding shares of
Composite Structures International (formerly Okura Holdings, Inc.), a
manufacturer of molded and pultruded fiberglass reinforced plastic grating
products, used for pedestrian walkways, platforms, staircases and similar types
of industrial structures.
In addition to the above acquisitions, in January 1997, the Company's
subsidiary, Bondo/Mar-Hyde, acquired substantially all of the assets of the
Automotive Division of Marson Corporation and Marson Canada Inc. ("Marson
Automotive") in exchange for RPM Common
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Shares. Marson Automotive supplies the automotive paint, body and repair, and
equipment market and manufactures auto body fillers, and distributes a diverse
group of other automotive products and tools.
DISPOSITIONS
Subsequent to the May 31 fiscal year-end, in addition to the sale of
the Tremco businesses discussed previously, the Company received the proceeds
from the sale of its craft and hobby products unit, Craft House. Craft House's
primary products include: paint-by-number-sets, licensed coloring and painting
activities, children's crafts, plastic model kits, chemistry sets, science
activities, and die cast collectibles. The Company's decision to divest Craft
House was driven by its commitment to its core product markets. Other
divestitures during the fiscal year include PCI Industries, Inc., Label Systems,
Inc., and the Hagerstown, Maryland resin facility of Rust-Oleum Corporation.
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 59 locations in the United
States, Argentina, Belgium, Brazil, Canada, China, England, Malaysia, The
Netherlands, Poland, Singapore and South Africa.
INDUSTRIAL PRODUCTS
RPM's industrial products represent approximately 60% 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
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Mameco International, Martin Mathys, Consolidated Coatings, ESPAN, and newly
acquired 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 Composite Structures International (formerly Okura Holdings, Inc.), 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.
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
Rust-Oleum, 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; Mohawk, Star Finishing and Chemical Coatings furniture
repair and restoration coatings; Chemspec commercial carpet cleaning solutions;
ValvTect diesel fuel additives; Wolman industrial lumber treatments; American
Emulsions dye additives for textile dying and finishing; and concrete admixtures
sold by Euclid Chemical, RPM's 50-50 joint venture with Holderbank Group.
CONSUMER PRODUCTS
RPM's consumer products represent approximately 40% 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, Zinsser, Kop-Coat and Bondex International. Rust-Oleum manufactures
high quality corrosion-resistant, general purpose and decorative coatings for
the household maintenance and light industrial markets. 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. Kop-Coat manufactures pleasure marine
coatings and compounds and wood treatment products. Bondex International
produces a nationwide line of household patch and repair products, in addition
to basement waterproofing products. Other consumer do-it-yourself products
include: fabrics, window treatments and wall coverings sold by Design/Craft
Fabric and Richard E. Thibaut; and Wolman deck coatings, sealants and
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brighteners. RPM's consumer do-it-yourself products are marketed through
thousands of mass merchandise, home center and hardware stores throughout North
America.
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 product lines include repair and auto body
paints and specialty products for the automotive aftermarket manufactured by the
Company's Bondo/Mar-Hyde business, which includes the recently acquired
Automotive Division of Marson Corporation. Products marketed by these units
include spray paints, body fillers, vinyl colors, bumper repair products and
other specialty repair products. The Company also manufactures a variety of
products for the marine aftermarket, including Pettit, Woolsey and Z-Spar brands
of coatings.
FOREIGN OPERATIONS
The Company's foreign operations for the fiscal year ended May
31, 1997 accounted for approximately 15% of its total sales, although it also
receives license fees and royalty income from numerous license agreements and
also has joint ventures in various foreign countries. The Company has
manufacturing facilities in Argentina, Belgium, Brazil, Canada, China, England,
Malaysia, The Netherlands, Poland, Singapore and South Africa, and sales offices
or public warehouse facilities in the Czech Republic, England, France, Iberia,
Mexico, the Philippines, Singapore 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. The Company, however, does not believe that
it has a significant share of the total protective coatings market.
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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 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 "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), 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),
VULKEM(R), WOOLSEY(R), ZINSSER(R) and Z-SPAR(R); and, in Europe, RADGLO(R) and
MARTIN MATHYS(R).
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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).
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
1997, 1996 and 1995, the Company invested approximately $14.6 million, $13.7
million and $12.3 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
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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 estimates, to the extent possible, the 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, 1997, the Company employed 6,651 persons, of
whom 772 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.
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'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. The Company's facilities of
200,000 square feet or larger, as of June 30, 1997, are set forth in the table
below.
APPROXIMATE
SQUARE FEET
TYPE OF OF LEASED OR
LOCATION FACILITY FLOOR SPACE OWNED
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Pleasant Prairie, Manufacturing and 298,000 Owned
Wisconsin Warehouse (Rust-Oleum
Corporation)
Toronto, Canada Manufacturing, 207,000 Owned
Warehouse and
Laboratory (Tremco
Incorporated)
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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.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, and as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1996, November
30, 1996 and February 28, 1997, Bondex International, Inc., a wholly-owned
subsidiary of the Company ("Bondex"), was one of numerous corporate defendants
in 455 then pending asbestos-related bodily injury lawsuits filed on behalf of
various individuals in various jurisdictions of the United States. Subsequently,
an additional 26 such cases have been filed and 24 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 457 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.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, Carboline Company, a wholly-owned
subsidiary of the Company ("Carboline") has been named as one of 21 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. Several supplemental
petitions have been filed in Bexar County for the purpose of adding other
spouses and children of the worker plaintiffs, bringing the total number of
Bexar County plaintiffs to 10,556. Another suit with virtually identical
allegations was filed on December 29, 1993 in Rusk County, Texas. That suit,
Mary Gunn, et al. vs. Southern Imperial Coatings Corp., et al, Cause No. 93-470,
in the 4th Judicial District Court, Rusk County, Texas, 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.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, 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. Sun Company, Inc. ("Sun") and
Carboline Company, a Missouri corporation which was merged into Sun pursuant to
a statutory merger in 1980 ("Carboline Missouri") were also named as defendants
in the litigation. OLOL claimed it would cost in excess of $20 million to repair
the damage to the hospital building and also sought damages for lost revenues,
lost profits, punitive damages and attorney fees.
In August 1992, OLOL filed two related suits against Sun
captioned Our Lady of the Lake Hospital, Inc. vs. Sun Company, Inc., Numbers
384,867, and 395,932, Division "I", Nineteenth Judicial District Court, Parish
of East Baton Rouge, State of Louisiana, making allegations similar to the
allegations in Number 373,498, described above, and seeking to recover alleged
damages to the structural steel of the OLOL hospital.
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. Pursuant to an agreement between Carboline and Sun, Carboline provided
a defense for Sun in this litigation.
In May 1995, Carboline filed a Supplemental and Amended Third
Party Demand in Case Number 373,498, against a number of its primary and excess
insurance carriers seeking, among other things, a judgment that the insurance
carriers were obligated to defend and/or indemnify Carboline against the claims
alleged by OLOL. In their Answers to Carboline's Supplemental and Amended Third
Party Complaint, the insurance carriers raised a number of exceptions and
defenses to Carboline's claims for defense and indemnity.
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. The confidential settlement
payment to OLOL was primarily funded with payments and commitments from several
Carboline insurers, along with a contribution by Carboline. Pursuant to the
settlement, OLOL's petitions, as supplemented and amended, in Case Numbers
373,498, 384,867 and 395,932, were dismissed with prejudice.
Carboline has entered into confidential settlements with a
number of its insurers 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. The trial of
Carboline's third party claims is not scheduled at this time.
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In April 1995, the Company and Carboline were joined as
defendants 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. Sun
is also named as a defendant based on its prior ownership of Carboline. In that
case, the plaintiff, an owner and operator of a petroleum refinery in Tyler,
Texas, contends that a fireproofing product previously designed and manufactured
by Carboline, Pyrocrete 102, is defective and not fit for its intended purpose.
More specifically, the plaintiff contends that the product resulted in
deterioration and corrosion of various steel components at the refinery.
Additionally, the plaintiff contends that Carboline has been engaged in fraud
and a civil conspiracy in connection with the alleged failure to disseminate
information concerning Pyrocrete 102. The plaintiff has alleged similar claims
against Sun. In its Fourth Amended Original Petition, plaintiff seek $25 million
in actual damages and up to four times the amount of actual damages in exemplary
damages. The Company was joined in the litigation as a defendant based upon the
contention that it was also involved in fraud and a conspiracy with respect to
the subject product. The Company filed a special appearance, contending that the
Texas court did not have personal jurisdiction over the Company. On July 1,
1996, the court sustained the special appearance and dismissed all claims and
causes of action against the Company. The time period for an appeal has now
expired, and the dismissal in favor of the Company is final. The case continues
against Carboline and Sun, as well as co-defendant Brown & Root, Inc. The case
is in the discovery phase, and is set for trial on November 3, 1997. Pursuant to
an agreement between Carboline and Sun, Carboline is providing a defense for Sun
in this litigation.
Carboline has denied the allegations in the litigation and
intends to vigorously defend the case. Although there has been diminishment of
insurance policy limits available to Carboline as a result of the settlement of
the Our Lady of the Lake Hospital, Inc. v. Carboline Company, et al. litigation,
the Company believes that the 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.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, 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
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agreement on mutually acceptable remediation parameters and have negotiated
Administrative Orders on Consent Regarding Selected Response Activities and for
Cost Recovery Settlement.
Based upon a July 14, 1995 decision of the United States Court
of Appeals for the Sixth Circuit in United States of America vs. Cordova
Chemical Company et al.; Case No. 92-2288, the Company believes it has no
liability under CERCLA with respect to either the Rose Township Site or the
Springfield Township Site, and therefore has declined to participate in any
further PRP efforts at either site. The Cordova Chemical case was reheard by the
Court of Appeals en banc and affirmed May 19, 1997. Accordingly, the Company
maintains the position that it has no liability with respect to either site and
therefore considers these matters closed.
Dryvit.
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As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, and as updated in the Company's
Quarterly Reports on Form 10-Q for the quarters ended August 31, 1996, November
30, 1996 and February 28, 1997, 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 insulation finish systems ("EIFS")
products manufactured by Dryvit and other EIFS manufacturers. On September 18,
1996, the North Carolina court presiding over one of the state court cases,
Ruff, et al. v. Parex, Inc., et al., Case No. 96-CVS-0059, entered an order
certifying a class of North Carolina owners of single family or multi-family
residential dwellings which had an EIFS system installed during the period 1969
to the present. On October 4, 1996, the Judicial Panel on Multi-District
Litigation ordered that the nine pending federal court actions be transferred to
Judge Earl Britt of the Eastern District Court of North Carolina for coordinated
or consolidated pre-trial proceedings. Subsequent to that order, one additional
federal court case, Hillman v. Dryvit Systems, Inc., et al., Case No. 3-96-1096,
was filed in U.S. District Court for the District of Minnesota. Pursuant to the
Multi-District Litigation Rules, that case has been consolidated with the other
nine cases under the designation In re Stucco Litigation. Dryvit is also a
co-defendant in an attempted Georgia class action proceeding Hardy, et al. v.
Dryvit Systems, Inc., et al., Case No. 97-CA-E55319.
On August 11, 1997, Judge Britt issued an Order which denied
Plaintiffs' motion for class certification of a national class in the In re
Stucco Litigation. Judge Britt's opinion cited, inter alia, the role of various
third parties (including builders, contractors, architects, EIFS applicators and
window manufacturers) as it relates to liability, causation, and comparative
fault determinations as well as contribution and indemnity considerations.
Dryvit has also been named in approximately 75 additional lawsuits filed against
Dryvit and other parties (including builders, contractors, architects, EIFS
applicators and window manufacturers) by individual homeowners, claiming
moisture intrusion damages on single family residences. Dryvit is vigorously
defending these individual cases and believes it has meritorious defenses,
counter-claims and claims against third parties.
Dryvit's insurers, excluding the Company's wholly-owned
insurance subsidiary First Colonial Insurance Company ("First Colonial"), are
currently paying Dryvit's defense costs,
13
14
including attorneys' fees and expenses as well as expert witness fees, subject
to a reservation of rights. Dryvit and its insurers (including First Colonial),
are parties to three declaratory judgment actions now pending in California,
Rhode Island and New York, each of which is seeking declaratory judgment as to
the parties' respective defense and indemnity rights and obligations under
various policies issued to Dryvit. Dryvit firmly believes that the damages
sought in these EIFS cases, including Ruff and In re Stucco Litigation, are
covered losses under these policies. The Company believes that the ultimate
resolution of these matters 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, 1996, 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 named in excess of 1,700 entities as
PRPs in connection with the SRS Site. In 1995, the EPA issued a volumetric list
in which Mohawk was assigned a reduced volumetric share of 0.11118% of the waste
sent to the SRS Site and Westfield was assigned a reduced volumetric share of
0.89440%. 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.
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. The EPA has not issued a volumetric list for
the Landfill, although it has issued a volumetric list of PRPs who sent
materials to the SRS Site prior to October 1967. Westfield's share on that list
is 0.90247%. In September 1994, the EPA issued a Record of Decision which
selected a source control remedy that consisted of installation of a cap on the
Landfill together with a gas collection system. The estimated cost of the source
control remedy is $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. The EPA and the PRPs are currently engaged in mediation
in an attempt to reach a settlement with respect to response costs at the
Landfill.
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.
14
15
Rust-Oleum.
-----------
As previously reported in the Company's Annual Report on Form
10-K for the fiscal year ended May 31, 1996, the EPA, in November 1979,
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 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.
15
16
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.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the
Company as of August 15, 1997 are as follows:
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
Thomas C. Sullivan 60 Chairman of the Board and Chief Executive Officer
James A. Karman 60 President and Chief Operating Officer
John H. Morris, Jr. 55 Executive Vice President
Frank C. Sullivan 36 Executive Vice President and Chief Financial Officer
Richard E. Klar 64 Vice President
Paul A. Granzier 70 Vice President, General Counsel and Secretary
Glenn R. Hasman 43 Vice President - Financial Operations and Principal Accounting
Officer
Charles R. Brush 61 Vice President - Environmental Affairs
Keith R. Smiley 35 Treasurer
- -----------------------
* Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
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 five-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
16
17
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 five-year period ending May 31, 2002.
John H. Morris, Jr. 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, 1998.
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 owned by the Company. 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,
1998. Mr. Sullivan is the son of Thomas C. Sullivan, Chairman of the Board and
Chief Executive Officer of the Company.
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. Mr. Klar was Treasurer
of Mameco International, Inc., a wholly-owned subsidiary which was acquired by
the Company in February 1979, from 1979 to 1980 and was Mameco's Controller
prior thereto. Mr. Klar is employed as Vice President under an employment
agreement for a period ending July 31, 1998.
Paul A. Granzier has served as Secretary since July 1988, and
as Vice President and General Counsel since October 1987. Prior thereto, he
served as General Counsel since he joined the Company in May 1985. Mr. Granzier
was engaged in the private practice of law from 1981 until he joined the
Company. Prior thereto, he served as Assistant Corporate Counsel and Assistant
Secretary of Midland-Ross Corporation. Mr. Granzier is employed as Vice
President, General Counsel and Secretary under an employment agreement for a
period ending May 31, 1998.
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 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
17
18
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, 1998.
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, are traded on the Nasdaq
National Market. Common Share prices are quoted daily under the symbol RPOW. The
high and low sales prices for the Common Shares, and the cash 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
Dividends Paid
Fiscal 1997 High Low Per Share
----------- ---- --- ---------
1st Quarter $ 16-5/8 $ 14-3/8 $0.120
2nd Quarter 18-1/4 15-3/4 0.130
3rd Quarter 18-7/8 16-3/4 0.130
4th Quarter 19-1/4 15-5/8 0.130
Dividends Paid
Fiscal 1996 High Low Per Share
------------- ---- --- ---------
1st Quarter $ 16-11/16 $ 15-1/2 $0.112
2nd Quarter 17-3/16 15-5/16 0.120
3rd Quarter 17-1/4 14-3/4 0.120
4th Quarter 16-5/8 14-1/2 0.120
- --------------------
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 20, 1997 was approximately 42,785.
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,
1997. The data was derived from the annual Consolidated Financial Statements of
the Company which have been audited by Ciulla, Smith & Dale, LLP, independent
accountants.
19
20
FISCAL YEARS ENDED MAY 31,
--------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(Amounts in thousands, except per share
and percentage data)
Net sales $1,350,537 $1,136,396 $1,030,736 $825,292 $768,372
Income before income taxes 135,728 119,886 108,492 89,207 66,136
Net income 78,315 68,929 62,616 53,753 39,498
Return on sales % 5.8 6.1 6.1 6.5 5.1
Primary earnings per share 1.00 0.90 0.85 0.74 0.59
Fully diluted earnings per share 0.95 0.86 0.81 0.70 0.57
Shareholders' equity 493,296 445,833 350,469 316,444 243,899
Shareholders' equity per share 6.30 5.82 4.76 4.33 3.66
Return on shareholders' equity % 16.7 17.3 18.8 19.2 16.6
Average shares outstanding 78,315 76,548 73,660 73,003 66,584
Cash dividends paid 39,746 35,597 31,259 27,949 22,370
Cash dividends per share 0.51 0.47 0.44 0.41 0.38
Retained earnings 270,465 231,896 199,527 169,687 146,852
Working capital 478,535 275,722 271,635 231,684 191,872
Total assets 1,633,228 1,155,076 965,523 665,966 648,524
Long-term debt 784,439 447,654 407,041 233,969 258,712
Depreciation and amortization 51,145 42,562 37,123 26,050 22,283
- ---------------
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 24
through 26 of the 1997 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages 26
through 36 of the 1997 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.
20
21
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
1997 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 1997 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 1997
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 1997
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 1997
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 1997 Annual Report on
Form 10-K:
1. FINANCIAL STATEMENTS. The following consolidated financial
statements of the Company and its subsidiaries and the report of independent
auditors thereon, included in the 1997 Annual Report to Shareholders on pages 26
through 36, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets - May 31, 1997 and 1996
Consolidated Statements of Income -
years ended May 31, 1997, 1996 and 1995
21
22
Consolidated Statements of Shareholders'
Equity - years ended May 31, 1997, 1996
and 1995
Consolidated Statements of Cash Flows -
years ended May 31, 1997, 1996 and 1995
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 1997 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.
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/A, dated February 1,
1997, during the fourth fiscal quarter, to provide pro forma financial
information required under Item 2, relating to the Company's acquisition of
Tremco Incorporated. The following financials statements were filed therewith:
22
23
Pro Forma Condensed Combined Financial Statements (Unaudited)
RPM, Inc. and Subsidiaries and Tremco Incorporated
Pro Forma Condensed Combined Statement of Income (Unaudited) for the
Year Ended May 31, 1996
Pro Forma Condensed Combined Statement of Income (Unaudited) for the
Nine Months Ended February 28, 1997
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 28, 1997 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 Execu-
- ------------------------- tive Officer (Principal
Thomas C. Sullivan Executive Officer)
/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 28, 1997
25
26
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 10, 1997, 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, 1997. 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
27
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, 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
======= ======= ========= ======= =======
Year Ended May 31, 1995
- -----------------------
Allowance for doubtful accounts $ 8,198 $ 3,247 $ 1,248 $ 2,880 (1) $ 9,813
======= ======= ========= ======= =======
Accrued loss reserves - Current $12,978 $12,767 $ 5,420 $ 7,268 (2) $23,897
======= ======= ========= ======= =======
Accrued warranty reserves - Long-term $ 738 $ 674 $ $ 657 (2) $ 755
======= ======= ========= ======= =======
(1) Uncollectible accounts written off, net of recoveries
(2) Primarily claims paid during the year
S-2
28
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., which is incorporated herein by reference to
Exhibit 4.3 to the Company's Registration Statement on
Form S-3 (Reg. No. 33-39849).
4.2 Specimen LYONs(TM)Certificate, which is incorporated
herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-3 (Reg. No. 33-50868).
4.3 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.
4.4 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.
4.5 Indenture, dated as of September 15, 1992, between RPM,
Inc. and The First National Bank of Chicago, as trustee,
with respect to the LYONs, which is incorporated herein by
reference to Exhibit 4.3 to the Company's Registration
Statement on Form S-3 (Reg. No. 33-50868).
*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 16, 1997, 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
29
EXHIBIT NO. DESCRIPTION
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*10.2.1 Amendment to Amended Employment Agreement, dated as of
July 16, 1997, 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.
*10.4 Form of Employment Agreement entered into by and between
RPM, Inc. and each of John H. Morris, Jr., Executive Vice
President, Richard E. Klar, Vice President, Paul A.
Granzier, Vice President, General Counsel and Secretary,
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 16, 1997, by and between RPM, Inc. and each of John
H. Morris, Jr., Executive Vice President, 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 16, 1997, by and between RPM, Inc. and Paul A.
Granzier, Vice President, General Counsel and Secretary.
*10.4.3 Amendment to Amended Employment Agreement, dated as of
July 16, 1997, 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.
*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.
*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.
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30
EXHIBIT NO. DESCRIPTION
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*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 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.
10.14 Credit Agreement, dated as of December 14, 1993, by and
between RPM, Inc., RPOW (France) S.A., RPM Europe B.V.,
Radiant Color, N.V., Credit Lyonnais Chicago Branch,
Credit Lyonnais Cayman Island Branch and Credit Lyonnais
Belgium, which is incorporated herein by reference to
Exhibit 4.3 to the Company's Annual Report on Form 10-K
for the fiscal year ended May 31, 1994.
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.
10.16 Stock Purchase Agreement, dated as of October 21, 1996,
between B.F. Goodrich and the Company, which is
incorporated herein by reference to Exhibit 2.1 to the
Company's Current Report on Form 8-K dated February 1,
1997.
10.17 Amendment No. 1 to the Stock Purchase Agreement, dated as
of February 1, 1997, between B.F. Goodrich and the
Company, which is incorporated herein by reference to
Exhibit 2.2 to the Company's Current Report on Form 8-K
dated February 1, 1997.
11.1 Computation of Net Income per Common Share.
13.1 Financial Statements contained in 1997 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
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*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
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