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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, 1999
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. 1-14187
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
Incorporation or Organization) Identification 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:
Common Shares, Without Par Value
--------------------------------
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to the
filing requirements for the past 90 days. Yes x No
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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, 1999, 109,485,957 Common Shares were outstanding, and
the aggregate market value of the Common Shares of the Registrant held by
non-affiliates (based upon the closing price of the Common Shares as reported on
the New York Stock Exchange on August 20, 1999) was approximately
$1,477,463,322. For purposes of this information, the 3,002,114 outstanding
Common Shares which were owned beneficially as of August 20, 1999 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 8, 1999 (the "1999 Proxy Statement") and (ii)
the Registrant's 1999 Annual Report to Shareholders for the fiscal year ended
May 31, 1999 (the "1999 Annual Report to Shareholders").
Except as otherwise stated, the information contained in this Annual
Report on Form 10-K is as of May 31, 1999.
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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
On April 28, 1999, the Company's Board of Directors (the "Board")
adopted a Rights Agreement (the "Rights Plan") that provided for rights to be
issued to shareholders of record on May 11, 1999. Under the Rights Plan, the
rights will initially trade together with RPM Common Shares and will not be
exercisable. In the absence of further action by the Board, the rights generally
will become exercisable and allow the holder to acquire RPM Common Shares at a
discounted price if a person or group acquires 15 percent or more of the
outstanding Common Shares of RPM. Rights held by persons who exceed the
applicable threshold will be void. Under certain circumstances, the rights will
entitle the holder to buy shares in an acquiring entity at a discounted price.
On August 9, 1999, the Company announced the implementation of a
restructuring and consolidation program. Under the program, operating companies
in the Company's Industrial and Consumer Divisions will be realigned to foster
synergies with respect to technology, manufacturing needs, channels of
distribution and customer bases, and to generate manufacturing and distribution
efficiencies. In addition, the Company expects to close a number of facilities,
reduce its workforce approximately 10%, and has implemented changes to its
corporate management team. The Company expects that the program will result in a
$45 million pre-tax charge to earnings for the August 31 first quarter of fiscal
2000.
ACQUISITIONS
Since RPM's offering of Common Shares to the public in September 1969,
the Company has made a number of significant acquisitions that have been
described in previous reports on file with the Securities and Exchange
Commission. RPM's acquisition strategy focuses on companies with high
performance and quality products which are leaders in their respective markets.
RPM expects to continue its acquisition program, although there is no assurance
that any acquisitions will be made.
As part of this acquisition program, on August 3, 1999, the Company
acquired all of the issued and outstanding shares of DAP Products Inc. and DAP
Canada Corp. DAP is a North American manufacturer and marketer of caulks and
sealants, spackling and glazing compounds, contact cements and other specialty
adhesives. Brand names acquired as a result of this transaction include DAP,
Alex Plus, Kwik Seal, Durabond and Weldwood.
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BUSINESS
RPM manufactures and markets protective coatings for use in both
industrial and consumer applications. As of August 20, 1999, RPM markets its
products in approximately 130 countries and operates manufacturing facilities in
72 locations in the United States, Argentina, Belgium, Brazil, Canada, China,
England, Germany, Malaysia, The Netherlands, Poland, Singapore, South Africa and
the United Arab Emirates.
OPERATING SEGMENT INFORMATION
The Company is organized into two operating segments according to the
primary markets served by RPM: the Industrial Division and the Consumer
Division. Reference is made to "Operating Segment Information" on pages 20
through 21 of the Annual Report to Shareholders, which is incorporated herein by
reference, for financial information relating to operating segments.
INDUSTRIAL PRODUCTS
RPM manufactures and markets coatings for various industrial
applications including waterproofing, general maintenance, flooring systems and
coatings, corrosion control, and other specialty chemical applications. RPM's
industrial products represented approximately 61% of the Company's sales for the
fiscal year ended May 31, 1999. In connection with the Company's recently
announced restructuring and consolidation program, the Company's Industrial
Division has been realigned into three product line groups: StonCor Group,
Tremco Group and RPM II Group.
The Company's Tremco Group manufactures a number of products designed
for waterproofing and general maintenance applications. These waterproofing
products include sealants, deck coatings, membranes and water-based coatings for
commercial and industrial maintenance marketed under the Company's Tremco,
Vulken, DYmeric and Monile brands. The Tremco Group 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, as
well as the Euco line of concrete and masonry additives, coatings and repair
products manufactured by The Euclid Chemical Company.
The newly created StonCor Group combines the Company's expertise in
corrosion control coatings and industrial polymer flooring in order to
capitalize on the fact that these product lines are sold to similar specifying
customers. The group's product lines include high-performance polymer floors,
linings and wall systems produced by Stonhard and molded and pultruded
fiberglass reinforced plastic grating products manufactured by the Company's
Fibergrate Composite Structures unit under the brand names of Chemgrate and
Fibergrate. The StonCor industrial product line also includes a broad-line of
high-performance corrosion control coatings marketed primarily under the
Carboline and Plasite brands. Carboline 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.
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The Company's newly created RPM II Group consists of the remaining
industrial product lines and is also the entity that will specialize in the
evaluation and acquisition of smaller entrepreneurial industrial coatings
companies. Product lines currently contained in RPM II include Dryvit coatings
and adhesives for exterior insulating finishing systems and TCI powder coatings
for exterior and interior operations. RPM II also produces a variety of
specialty chemical products within selected niche markets. Products manufactured
for specialty chemical applications include: Day-Glo Color and Radiant Color
fluorescent colorants and pigments; Kop-Coat manufactured compounds and wood
treatment products including Wolman industrial lumber treatments; American
Emulsions dye additives for textile dyeing and finishing; and Chemspec
commercial carpet cleaning solutions.
CONSUMER PRODUCTS
For consumer applications, RPM manufactures do-it-yourself products for
the home maintenance, automotive repair, marine applications and hobby and
leisure items. RPM's consumer do-it-yourself products are marketed through
thousands of mass merchandise, home center and hardware stores throughout North
America. RPM's consumer products represented approximately 39% of the Company's
sales for the fiscal year ended May 31, 1999. The major product line groupings
comprising RPM's Consumer Division include: the Rust-Oleum Group, Zinsser Group,
Wood Finishes Group, Bondo/Petit, Woolsey/Z-Spar Group, DAP/Bondex Group and
Testor Hobby and Leisure Group.
Rust-Oleum manufactures high quality corrosion-resistant, general
purpose, decorative coatings and assorted specialty products for the household
maintenance and light industrial markets. In addition to Rust-Oleum's original
rust preventative coatings, Rust-Oleum markets a full line of small-package
general purpose coatings under the "Painter's Touch by Rust-Oleum" brand name as
well as "American Accents by Rust-Oleum" decorative coatings.
The Company's Zinsser Group manufactures a broad line of specialty
primers and sealants marketed under the B-I-N, Bulls Eye 1-2-3 and Cover Stain
brand names, as well as wallcovering removal and preparation coatings under the
principal brands of DIF, Paper Tiger and Shieldz. Zinsser is also a leader in
mildew removal and resistance, and is the nation's leading producer of shellac
items used as pharmaceutical glazes, confectioner's glazes, citrus fruit
coatings and wood coatings. The Zinsser Group also includes RPM's Wolman deck
coatings, sealants and brighteners and the Richard E. Thibaut line of
do-it-yourself wallcoverings.
The Company's DAP/Bondex Group markets a nationwide line of
do-it-yourself household patch and repair products, including latex and silicone
caulks and sealants, spackling compounds, putty, glazing compounds, textured
ceiling paints, adhesives, basement waterproofing products, wood repair products
and other specialized materials for the home improvement market. In addition to
the DAP and Bondex brands, other leading brands within the group include Alex
Plus, Kwik Seal, Durabond, Weldwood, Woodlife and Plastic Wood.
The Company's Wood Finishes Group includes Mohawk, Star, Chemical
Coatings and Westfield Coatings furniture finishes and repair and restoration
coatings, as well as Flecto interior stains and finishes, marketed under the
Varathane and Watco labels.
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The Company's newly created Bondo/Pettit, Woolsey/Z-Spar Group contains
the Company's automotive aftermarket and pleasure marine products. Bondo
manufactures a variety of auto body paints and repair products for the
automotive aftermarket, including spray paints, body fillers, vinyl colors and
bumper repair products. The Company's line of pleasure marine coatings are
marketed under the Pettit, Woolsey and Z-Spar brand names.
The Company manufactures products for the hobby and leisure markets
including Testor's model kits and accessory products, Aztek brand model kits and
airbrushes 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.
FOREIGN OPERATIONS
The Company's foreign manufacturing operations for the fiscal year
ended May 31, 1999 accounted for approximately 23% of its total sales (which
does not include exports directly from the United States), although it also
receives license fees and royalty income from numerous license agreements and
also has joint ventures accounted for under the equity method in various foreign
countries. The Company has manufacturing facilities in Argentina, Belgium,
Brazil, Canada, China, England, Germany, Malaysia, The Netherlands, Poland,
Singapore, South Africa, and the United Arab Emirates, and sales offices or
public warehouse facilities in Australia, Canada, England, Finland, France,
Germany, Hong Kong, Iberia, Mexico, the Philippines, Russia, Singapore, Sweden
and several other countries. Information concerning the Company's foreign
operations is set forth in Management's Discussion and Analysis of Results of
Operations and Financial Condition, which appears elsewhere in this Annual
Report on Form 10-K.
COMPETITION
The Company is engaged in a highly competitive industry and, with
respect to all of its major products, faces competition from local and national
firms. Several of the companies with which RPM competes have greater financial
resources and sales organizations than the Company. While no accurate figures
are available with respect to the size of or the Company's position in the
market for any particular product, management believes that the Company is a
major producer of aluminum coatings, cement-based paint, hobby paints, pleasure
marine coatings, furniture finishing repair products, automotive repair
products, industrial corrosion control products, consumer rust-preventative
coatings, polymer flooring, fluorescent coatings and pigments, exterior
insulation finish systems, molded and pultruded fiberglass reinforced plastic
grating and shellac-based coatings. However, the Company does not believe that
it has a significant share of the total protective coatings market.
INTELLECTUAL PROPERTY
The intellectual property portfolios of the subsidiaries of the Company
include numerous valuable patents, trade secrets and know-how, trademarks and
trade names. Significant research and technology development continues to be
conducted by the subsidiaries. However, no single patent, trademark, name or
license, or group of these rights, other than the marks Day-Glo(R),
Rust-Oleum(R), Carboline(R) and Tremco(R), are material to the Company's
business.
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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 and name "CARBOLINE(R)."
Carboline Company is also the owner of several other United States registrations
for other trademarks. Renewal of these registrations is done on a regular basis.
Tremco Incorporated, a subsidiary of the Company, which was acquired in
February 1997, is the owner of over 100 registrations for the mark and name
"TREMCO(R)" in numerous countries and the United States for a variety of
sealants and coating products. There are also many other foreign and domestic
registrations for other trademarks of Tremco Incorporated, for a total of over
600 registrations and applications. The registrations are valid for a variety of
terms ranging from one year to 20 years, which terms are renewable as long as
the marks continue to be used. Renewal of the registration is done on a regular
basis.
The Company's other valuable product trademarks also include: ALOX(R),
ALUMANATION(R), AVALON(R), B-I-N(R), BITUMASTIC(R), BONDO(R), BONDEX(R), BULLS
EYE(R), CHEMGRATE(R), DRYVIT(R), DYMERIC(R), DYNALITE(R), DYNATRON(R), EASY
FINISH(R), FLECTO(R), EPOXSTEEL(R), FIBERGRATE(R), FLOQUIL(R), GEOFLEX(R),
LUBRASPIN(TM), MAR-HYDE(R), MOHAWK and DESIGN(R), OUTSULATION(R), PARASEAL(R),
PERMAROOF(R), PETTIT(TM), PLASITE(R), SANITILE(R), STONCLAD(R), STONHARD(R),
STONLUX(R), TALSOL(R), TCI(TM), TESTORS(R), ULTRALITE(TM), VARATHANE(R),
VULKEM(R), WOOLSEY(R), ZINSSER(R) and Z-SPAR(R); and, in Europe, NULLIFIRE(R),
RADGLO(R) and MARTIN MATHYS(R).
RAW MATERIALS
The Company does not have any single source suppliers of raw materials
that are material to its business, and 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.
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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 1999,
1998 and 1997, the Company invested approximately $18.0 million, $15.8 million
and $14.6 million, respectively, on research and development activities. The
customer sponsored portion of such expenditures was not significant.
ENVIRONMENTAL MATTERS
Several of the Company's subsidiaries are involved in various
environmental claims or proceedings relating to facilities currently or
previously owned, operated or used by such subsidiaries, or their predecessors.
In addition, the Company or its subsidiaries, together with other parties, have
been designated as potentially responsible parties ("PRPs") under federal and
state environmental laws for the remediation of hazardous waste at certain
disposal sites (see ITEM 3. LEGAL PROCEEDINGS). In connection with its
evaluation of these PRP sites, the Company's management takes into consideration
the input of outside legal counsel, the number of parties involved at the site,
joint and several liability of other PRPs, and the level of volumetric
contribution which may be attributed to the Company relative to that
attributable to other parties at such sites. Based on the above analysis,
management then assesses, to the extent possible, the estimated restoration or
other clean-up costs and related claims for each site.
The Company's environmental-related accruals are established and/or
adjusted as information becomes available upon which more accurate costs can be
reasonably estimated. Actual costs may vary from these estimates due to the
inherent uncertainties involved. In management's opinion, based upon information
presently available, the outcome of these environmental matters will not have a
material adverse effect on the Company's financial position, results of
operations or liquidity.
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EMPLOYEES
As of May 31, 1999, the Company employed 7,537 persons, of whom 859
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 119-acre site in Medina, Ohio, which is owned by
the Company. As of August 3, 1999, the Company's operations occupy a total of
approximately 7.1 million square feet, with the majority, approximately 5.8
million square feet, devoted to manufacturing, assembly and storage. Of the
approximately 7.1 million square feet occupied, 6.0 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 August 3, 1999, are
as set forth below.
APPROXIMATE
SQUARE FEET
TYPE OF OF LEASED OR
LOCATION FACILITY FLOOR SPACE OWNED
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Pleasant Prairie, Wisconsin Manufacturing and 240,000 Owned
Warehouse (Rust-Oleum
Corporation)
Toronto, Canada Manufacturing 207,000 Owned
and Office (Tremco
Incorporated)
For information concerning the Company's rental obligations, see Note E
(Leases) of Notes to Consolidated Financial Statements, which appear elsewhere
in this Annual Report on Form 10-K. Under all of its leases, the Company is
obligated to pay certain varying insurance costs, utilities, real property taxes
and other costs and expenses.
The Company believes that its manufacturing plants and office
facilities are well maintained and suitable for the operations of the Company.
ITEM 3. LEGAL PROCEEDINGS.
Bondex.
As previously reported, 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 208 such cases have been filed and 132 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 471 such cases pending. Bondex
continues to deny liability in all asbestos-related lawsuits and continues to
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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.
Carboline.
As previously reported, Carboline Company, a wholly-owned subsidiary of
the Company ("Carboline") has been named as one of 30 corporate defendants in
Rufino O. Cavazos, et al., vs. Ceilcote Company, et al.("ROC"), Cause No.
89-CI-12651, in the 73rd Judicial District Court of Bexar County, Texas, filed
in March 1990, and in similar suits subsequently filed on behalf of individuals
(and, where applicable, their spouses and children) employed at the Comanche
Peak Nuclear Plant and the South Texas Nuclear Plant. The workers contend they
were exposed to various solvents during their employment at the facilities,
allegedly resulting in respiratory and neurological ailments. ROC has been
reduced through voluntary dismissals and summary judgments to approximately 700
worker-Plaintiffs. A similar suit, Bernice O. Pierce, et al. v. Southern
Imperial Coatings Corp. et al. ("Pierce"), Case no. 96-CI-12756, in the Judicial
District Court of Bexar County, Texas, involves approximately 200
worker-Plaintiffs. Another case, Mary M. Gunn, et al. v. Carboline Company, et
al. ("Gunn"), Case No. 93-470, in the 4th Judicial District Court of Rusk
County, Texas, involves approximately 200 Plaintiffs. All three (3) cases are in
the discovery phase. ROC and Pierce have been the subject of several recent
motions for summary judgment which have decreased significantly the number of
Plaintiffs involved. None of the cases are set for trial at this time. 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. The Company believes that the ultimate
resolution of ROC, Gunn and Pierce will not have a material adverse effect on
the Company's financial position or results of operations.
As previously reported, Carboline is a defendant in La Gloria Oil & Gas
Company vs. Carboline Company, et al., Cause No. 95-959-C, in the 241st Judicial
District Court of Smith County, Texas. The suit involves allegations by LaGloria
Oil and Gas Company ("LaGloria"), the owner/operator of a refinery in Tyler,
Texas, that Carboline's Pyrocrete 102 as applied to LaGloria's structural steel
and vessel skirts is defective. LaGloria contends the Pyrocrete is excessively
corrosive to steel, and has resulted in millions of dollars of damage to the
steel at the refinery. The court previously granted Carboline a summary
judgment, based upon the applicable statutes of limitation, on several causes of
action. On August 21, 1999, a jury returned a defense verdict in favor of
Carboline dismissing LaGloria's remaining claims for fraud and violation of the
Texas Deceptive Trade Practices Act, Texas Business & Commerce Code Section
17.46, et seq., based on statute of limitations. La Gloria is expected to appeal
the jury verdict and Carboline will continue to vigorously defend the case.
Although there has been diminishment of insurance policy limits available to
Carboline as a result of a prior settlement, the Company believes that the
ultimate resolution of the LaGloria case will not have a material adverse effect
on the Company's financial position or results of operations.
Mac-O-Lac.
As previously reported, the Company has been identified as a
Potentially Responsible Party ("PRP") under CERCLA in connection with the Rose
Township Dump Site,
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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 on July 18, 1989, pursuant to which the PRPs established a $9
million fund to cover costs of remediation. The Company's share, $300,000, has
been paid. With respect to the Springfield Site, the Company and other PRPs
executed in 1992 with the EPA and the Michigan Department of Natural Resources
Administrative Orders on Consent Regarding Selected Response Activities and for
Cost Recovery Settlement, In the Matter of: Springfield Township Site, No.
V-W-92-L-160 + V-W-92-C-146. Based on favorable changes in case law, the Company
withdrew from participation in the Springfield Township PRP Group in 1995. In
January 1999, the remaining members of the Springfield Township PRP Group
demanded that the Company reconsider its decision to withdraw from the PRP Group
and requested $158,000 in past remediation expenses from the Company. The
Company is not participating with the remaining Springfield Township PRPs at
this time. The Company will evaluate its potential liability after receipt of
further documentation from the remaining PRPs. The Company does not believe
either of these sites will 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 18,
1996, the North Carolina Court presiding over one of the state court cases, Ruff
et al. v. Parex, Inc., et al., entered an order certifying a class of North
Carolina owners of single family or multi-family residential dwellings which had
EIFS installed during the period of 1969 to the present. Subsequent to that
ruling, Dryvit and other manufacturers filed a motion to bring a third-party
complaint against the builders of those dwellings to establish that any alleged
damage was the result of poor construction. The trial court denied that motion
but acknowledged that the manufacturers were being denied significant rights
since claims against builders for indemnity and/or contribution were possibly
being extinguished by the running of the statutes of repose and/or statute of
limitations. Dryvit and several other manufacturers appealed the trial court's
decision. On December 1, 1998, the Appellate Court reversed the Ruff trial
court's denial of the EIFS manufacturer's motion to bring a third-party
complaint against builders and others and remanded the case to the trial court
for further proceedings urging it to exercise its discretion and decide whether
or not to grant the manufacturer's motion to add third parties.
On remand, the Ruff trial court ruled on numerous motions filed by both
plaintiffs and defendants. In its June 1999 Order and Opinion, the trial court
denied defendants' motion to decertify the class and denied defendants' motion
to add third-party defendants to the class action. The trial court further
ordered that each defendant EIFS manufacturer will be afforded a separate trial
on liability and damages; that liability and damage issues will be bifurcated
for trial; and scheduled the first liability trial for October 4, 1999 against
Dryvit. The trial court held that plaintiffs should be permitted to proceed with
their class action with respect to only two liability issues: (a) whether
Dryvit's product was defectively designed; and (b) whether Dryvit
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had and subsequently breached a duty to warn homeowners of the hazards inherent
in use of its product.
Similar attempted class actions have been filed in Alabama, Georgia,
New Jersey, Illinois and Texas. Dryvit has also been recently named in an
attempted class action in North Carolina comprised of owners of structures clad
with an EIFS type product manufactured by Dryvit known as Fast Track 4000.
Dryvit intends to vigorously contest class certification and liability in all
cases. In addition, Dryvit and other parties (contractors, architects,
distributors, EIFS applicators, roofers, sealant suppliers, sealant contractors
and window manufacturers) have been named in approximately 350 pending homeowner
and commercial building lawsuits, most of which involve single family
residential structures. The majority of these suits have been filed in North
Carolina, Alabama and South Carolina by individual homeowners who either have
opted out of the Ruff class action or have filed complaints against their
builder, which then brings a third-party action against Dryvit. The Company
believes that the ultimate resolution of these cases will not have a material
adverse effect on the Company's financial position or results of operations.
Certain of Dryvit's insurers have paid or are currently paying a
portion of Dryvit's defense costs in the class actions, and individual
commercial building and homeowner lawsuits involving structures that were built
during or prior to their insurance coverage periods. In addition, these
insurance carriers have regularly funded settlement of the individual homeowner
and commercial building cases when appropriate. Two of Dryvit's primary
insurance carriers have reported that they have exhausted their policy limits
through the payment of settlements. In addition, Dryvit has settled with and
released two of its other primary insurers. As a result, Dryvit has sought
participation in the EIFS litigation from First Colonial Insurance Company, the
Company's wholly-owned captive insurance company ("First Colonial") and certain
umbrella insurance companies. Dryvit, First Colonial and one of Dryvit's
umbrella carriers have recently entered into two defense cost sharing agreements
to cover both the individual and class action cases. Dryvit's insurance carriers
have raised a number of coverage issues in reservation of rights letters, and
coverage litigation could resume in the event of a breach of the cost-sharing
agreements. Dryvit believes that the damages being sought by the plaintiffs in
the EIFS litigation are covered under existing insurance policies and that it
has adequate insurance coverage.
Mohawk and Westfield.
As previously reported, 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. 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 final 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
a PRP at the Old Southington Landfill Superfund Site (the "Landfill") on the
basis that process wastes from the SRS Site were sent to the Landfill prior to
October 1967. In September 1994, the EPA issued a Record of Decision which
selected a source control remedy that consisted of installation of a cap on the
Landfill together with a gas collection system at an estimated cost of $16.1
million. The EPA
12
13
has deferred to a second operable unit the issue of whether to actively
remediate groundwater at the Landfill, but is insisting that certain groundwater
studies be performed which will likely cost several million dollars. Westfield
recently entered into a consent decree with the United States and the State of
Connecticut which resolves Westfield's liability for the first operable unit.
Upon entry of the consent decree by the federal district court in Connecticut,
Westfield will be obligated to contribute $26,476.21 to settle its liability for
the first operable unit. It is expected that additional settlement discussions
between the PRPs and the United States and the State of Connecticut will
commence later in the summer in an effort to try to settle the remaining issues
at 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.
Rust-Oleum.
As previously reported in November 1979, the EPA commenced an action
captioned United States of America v. 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
is alleged to be associated with the MIDCO Sites as a consequence of disposal
waste originating at its former Evanston, Illinois plant in the mid-1970s. 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 completed 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 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. Based upon prior settlement agreements with
insurance carriers for potential costs and remediation liabilities in connection
with the MIDOC Sites, 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.
13
14
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT*.
The name, age and positions of each executive officer of the Company as
of August 20, 1999 are as follows:
Name Age Position and Offices with the Company
- ---- --- -------------------------------------
Thomas C. Sullivan 62 Chairman of the Board and Chief Executive Officer
James A. Karman 62 Vice Chairman
Frank C. Sullivan 38 President
John H. Morris, Jr. 57 Executive Vice President
David P. Reif III 46 Vice President and Chief Financial Officer
P. Kelly Tompkins 42 Vice President, General Counsel and Secretary
Charles P. Brush 63 Vice President - Environmental Affairs
Glenn R. Hasman 45 Vice President - Controller
Gordon M. Hyde 45 Vice President - Operations
Stephen J. Knoop 34 Vice President - Corporate Development
Ronald A. Rice 36 Vice President - Risk Management and Benefits
Keith R. Smiley 37 Vice President - 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
three-year period ending May 31, 2002. Mr. Sullivan is the father of Frank C.
Sullivan, President of the Company.
James A. Karman was elected Vice Chairman on August 5, 1999. From
September 1978 to August 1999, he served as President and Chief Operating
Officer. From October 1982 to October 1993, Mr. Karman also was the Chief
Financial Officer of the Company. From October 1973 through September 1978, Mr.
Karman served as Executive Vice President, Secretary and Treasurer, and, prior
thereto, as Vice President-Finance and Treasurer of the Company. Mr. Karman's
employment with the Company commenced in 1963, and he has been a Director since
1963. Mr. Karman is employed as Vice Chairman under an employment agreement for
a three-year period ending May 31, 2002.
Frank C. Sullivan was elected President on August 5, 1999. From October
1995 to August 1999 he served as Executive Vice President, and was Chief
Financial Officer from October 1993 to August 1999. 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
14
15
Company, an Ohio General Partnership formerly owned by the Company which was
merged into Tremco. Prior thereto, Mr. Sullivan was employed by First Union
National Bank from 1985 to 1986 and Harris Bank from 1983 to 1985. Mr. Sullivan
is employed as President under an employment agreement for a period ending July
31, 2000. Mr. Sullivan is the son of Thomas C. Sullivan, Chairman of the Board
and Chief Executive Officer of the Company.
John H. Morris has been Executive Vice President since January 1981.
Prior to that time, he was Corporate Vice President of the Company, having been
elected to that position in September 1977. Mr. Morris was elected a Director of
the Company in 1981. Mr. Morris has announced that he will take early retirement
from the Company on November 30, 1999.
David P. Reif III was elected Vice President and Chief Financial
Officer on August 5, 1999. He served as Vice President-Corporate Finance from
February 1998 to August 1999. From 1986 to February 1998, Mr. Reif served as
Chief Financial Officer of Stonhard, Inc., a wholly owned subsidiary of the
Company. From 1991 to February 1998, Mr. Reif also served as an Executive Vice
President of Stonhard. From 1978 to 1985, Mr. Reif was controller of Penn
Virginia Inc., and from 1975 to 1978, Mr. Reif was employed by KPMG Peat
Marwick. Mr. Reif is employed as Vice President and Chief Financial Officer
under an employment agreement for a period ending July 31, 2000.
P. Kelly Tompkins has served as Vice President, General Counsel and
Secretary since June 1998. From June 1996 to June 1998, Mr. Tompkins served as
Assistant General Counsel. From 1987 to 1995, Mr. Tompkins was employed by
Reliance Electric Company in various positions including Director of Corporate
Development, Director of Investor Relations and Senior Corporate Counsel. From
1985 to 1987, Mr. Tompkins was employed by Exxon Corporation. Mr. Tompkins is
employed as Vice President, General Counsel and Secretary under an employment
agreement for a period ending July 31, 2000.
Charles P. 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. Mr. Brush is employed as Vice
President-Environmental Affairs under an employment agreement for a period
ending July 31, 2000.
Glenn R. Hasman was elected Vice President-Controller on August 5,
1999. He served as Vice President-Financial Operations from October 1993 to
August 1999. 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
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-Controller under an employment agreement for a period ending July
31, 2000.
Gordon M. Hyde has served as Vice President-Operations of the Company
since April 1999. From August 1998 to April 1999, he served as Vice President -
Operations of the
15
16
Company's Consumer Group. From October 1997 to August 1998, Mr. Hyde was a
self-employed management consultant. From July 1996 to October 1997, Mr. Hyde
was Vice President of Operations for Armor All Products, Inc. From October 1990
to July 1997, Mr. Hyde served as Vice President of Operations of Hi-Port, Inc.
Mr. Hyde also served as Plant Manager of Hi-Port, Inc. from January 1989 to
October 1996. Prior thereto, Mr. Hyde served in various capacities with Airco,
Kinark Corporation and Ford Motor Company. Mr. Hyde is employed as Vice
President-Operations under an employment agreement for a period ending July 31,
2000.
Stephen J. Knoop was elected Vice President-Corporate Development on
August 5, 1999. From June 1996 to August 1999, Mr. Knoop served as Director of
Corporate Development of the Company. From 1990 to May 1996, Mr. Knoop was an
associate at Calfee, Halter & Griswold LLP. Mr. Knoop is employed as Vice
President-Corporate Development under an employment agreement for a period
ending July 31, 2000.
Ronald A. Rice was elected Vice President-Risk Management and Benefits
and Assistant Secretary on August 5, 1999. From 1997 to August 1999, he served
as Director of Risk Management and Employee Benefits, and from 1995 to 1997 he
served as Director of Benefits. From 1985 to 1995, Mr. Rice served in various
capacities with the Wyatt Company, most recently he served as Senior Account
Manager from 1992 to 1995. Mr. Rice is employed as Vice President-Risk
Management and Benefits under an employment agreement for a period ending July
31, 2000.
Keith R. Smiley was elected Vice President on August 5, 1999, and 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. Mr. Smiley is
employed as Vice President-Treasurer under an employment agreement for a period
ending July 31, 2000.
16
17
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
RPM Common Shares, without par value, began trading on the New York
Stock Exchange under the symbol RPM on June 9, 1998. Prior to June 9, 1998, RPM
Common Shares were traded on the Nasdaq National Market. The high and low sales
prices for the Common Shares, and the cash and stock dividends paid on the
Common Shares, for each quarter of the two most recent fiscal years is set forth
in the table below.
RANGE OF SALES PRICES AND DIVIDENDS PAID
Dividends Paid
Fiscal 1999 High Low Per Share
----------- ---- --- --------------
1st Quarter $17-5/8 $12-3/4 $0.1120
2nd Quarter 17 12-7/8 0.1175
3rd Quarter 16-1/2 12-7/8 0.1175
4th Quarter 14-15/16 12-5/8 0.1175
Dividends Paid
Fiscal 1998 High Low Per Share
----------- ---- --- --------------
1st Quarter $16-51/64 $14-3/32 $0.104
2nd Quarter 16-51/64 14-29/32 0.112
3rd Quarter 17-1/4 15 0.112
4th Quarter 18 15-11/16 0.112
- --------------------
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,
1999 was approximately 47,517.
RECENT SALES OF UNREGISTERED SECURITIES
None.
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, 1999. The
data was derived from the annual Consolidated Financial Statements of the
Company which have been audited by Ciulla, Smith & Dale, LLP, independent
accountants.
17
18
FISCAL YEARS ENDED MAY 31,
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
(Amounts in thousands, except per share
and percentage data)
Net sales $1,712,154 $1,615,274 $1,350,537 $1,136,396 $1,030,736
Income before income taxes 159,597 149,556 135,728 119,886 108,492
Net income 94,546 87,837 78,315 68,929 62,616
Return on sales % 5.5% 5.4 5.8 6.1 6.1
Basic earnings per share 0.87 0.89 0.81 0.72 0.68
Diluted earnings per share 0.86 0.84 0.76 0.69 0.65
Shareholders' equity 742,876 567,337 493,398 445,915 350,469
Shareholders' equity per share 6.83 5.75 5.07 4.68 3.83
Return on shareholders' equity % 14.4% 16.6 16.7 17.3 18.8
Average shares outstanding 108,731 98,527 97,285 95,208 91,571
Cash dividends paid 50,446 43,474 39,746 35,597 31,259
Cash dividends per share 0.465 0.440 0.408 0.378 0.352
Retained earnings 359,011 314,911 270,465 231,896 199,527
Working capital 402,870 387,284 478,535 275,722 271,635
Total assets 1,737,236 1,685,917 1,633,228 1,155,076 965,523
Long-term debt 582,109 716,989 784,439 447,654 407,041
Depreciation and amortization 62,135 57,009 51,145 42,562 37,123
- ---------------
Note: Acquisitions made by the Company during the periods presented may impact
comparability from year to year. See Note A(2) of Notes to Consolidated
Financial Statements, which appear elsewhere in this Annual Report on Form 10-K,
for information concerning acquisitions for fiscal years 1999, 1998 and 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this item is set forth at pages 22 through
26 of the 1999 Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates
and foreign currency exchange rates since it funds its operations through
long-and short-term borrowings and denominates its business transactions in a
variety of foreign currencies. A summary of the Company's primary market risk
exposures is presented below.
Interest Rate Risk
The Company's primary interest rate risk exposure results from floating
rate debt including various revolving credit and other lines of credit. At May
31, 1999, approximately 72% of the Company's total long-term debt consisted of
floating rate debt. If interest rates were to increase 100 basis points (1%)
from May 31, 1999 rates, and assuming no changes in long-term debt from the May
31, 1999 levels, the additional annual expense would be approximately $4.2
million on a pre-tax basis. The Company currently does not hedge its exposure to
this floating rate interest rate risk.
18
19
Foreign Currency Risk
The Company's foreign sales and results of operations are subject to
the impact of foreign currency fluctuations. As most of the Company's foreign
operations are in countries with fairly stable currencies, such as the United
Kingdom, Belgium and Canada, this effect has not been material. In addition,
foreign debt is denominated in the respective foreign currency, thereby
eliminating any related translation impact on earnings. If the dollar continues
to strengthen, the Company's foreign results of operations will be negatively
impacted, but the effect is not expected to be material. A 10% adverse change in
foreign currency exchange rates would not have resulted in a material impact on
the Company's net income for the fiscal year ended May 31, 1999. The Company
does not currently hedge against the risk of exchange rate fluctuations.
Euro Currency Conversion
On January 1, 1999, eleven of the fifteen members of the European Union
adopted a new European currency unit (the "Euro") as their common legal
currency. The participating countries' national currencies will remain legal
tender as denominations of the Euro from January 1, 1999 through January 1,
2002, and the exchange rates between the Euro and such national currency units
will be fixed. The Company has assessed the potential impact of the Euro
currency conversion on its operating results and financial condition. The impact
of pricing differences on country-to-country indebtedness is not expected to be
material. The Company converted its European operations to the Euro currency
basis effective June 1, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is set forth at pages 27 through
42 of the 1999 Annual Report to Shareholders, which information is incorporated
herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information required by this item as to the Directors of the Company
appearing under the caption "Election of Directors" in the Company's 1999 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 1999 Proxy Statement under the heading "Section 16(a) Beneficial
Ownership Reporting Compliance," which information is incorporated herein by
reference.
19
20
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is set forth in the 1999 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 1999 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 1999 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 1999 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 1999 Annual Report to Shareholders on pages 27
through 42, are incorporated by reference in Item 8:
Independent Auditors' Report
Consolidated Balance Sheets -
May 31, 1999 and 1998
Consolidated Statements of Income -
years ended May 31, 1999, 1998 and 1997
Consolidated Statements of Shareholders'
Equity - years ended May 31, 1999, 1998
and 1997
Consolidated Statements of Cash Flows -
years ended May 31, 1999, 1998 and 1997
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
20
21
consolidated financial statements of the Company and its subsidiaries included
in the 1999 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, dated April
28, 1999, during the fourth fiscal quarter, to report that its Board of
Directors had adopted a Shareholder Rights Plan.
21
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
RPM, INC.
Date: August 27, 1999 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
- -------------------
/s/ Thomas C. Sullivan Chairman of the Board of
- -------------------------- Directors and Chief Executive
Thomas C. Sullivan Officer (Principal Executive Officer)
/s/ James A. Karman Vice Chairman and a Director
- --------------------------
James A. Karman
/s/ Frank C. Sullivan President and a Director
- --------------------------
Frank C. Sullivan
/s/ David P. Reif III Vice President and Chief Financial Officer
- -------------------------- (Principal Financial Officer)
David P. Reif III
/s/ Glenn R. Hasman Vice President-Controller
- -------------------------- (Principal Accounting Officer)
Glenn R. Hasman
22
23
/s/ Max D. Amstutz Director
- --------------------------
Max D. Amstutz
/s/ Edward B. Brandon Director
- --------------------------
Edward B. Brandon
/s/ Lorrie Gustin Director
- --------------------------
Lorrie Gustin
/s/ E. Bradley Jones Director
- --------------------------
E. Bradley Jones
/s/ Donald K. Miller Director
- --------------------------
Donald K. Miller
/s/ John H. Morris, Jr. Executive Vice President
- -------------------------- and a Director
John H. Morris, Jr.
/s/ Kevin O'Donnell Director
- --------------------------
Kevin O'Donnell
/s/ William A. Papenbrock Director
- --------------------------
William A. Papenbrock
/s/ Albert B. Ratner Director
- --------------------------
Albert B. Ratner
Date: August 27, 1999
23
24
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 4.1 to
the Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998.
4.2 Specimen Note Certificate for 7.0% Senior Notes Due 2005, which
is incorporated herein by reference to Exhibit 4.3 to the
Company's Registration Statement on Form S-4 as filed with the
Commission on August 3, 1995.
4.3 Specimen Note Certificate of Liquid Asset Notes With Coupon
Exchange ("LANCEs(SM)") Due 2008, 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, 1998.
4.4 Rights Agreement by and between RPM, Inc. and Harris Trust and
Savings Bank dated as of April 28, 1999, which is incorporated
herein by reference to Exhibit 4.1 to the Company's Registration
Statement on Form 8-A as filed with the Commission on May 11,
1999.
4.5 Indenture, dated as of June 1, 1995, between RPM, Inc. and The
First National Bank of Chicago, as trustee, with respect to the
7.0% Senior Notes Due 2005, which is incorporated herein by
reference to Exhibit 4.5 to the Company's Registration Statement
on Form S-4 as filed with the Commission on August 3, 1995.
4.6 First Supplemental Indenture, dated as of March 5, 1998 to the
Indenture dated as of June 1, 1995, between RPM, Inc. and The
First National Bank of Chicago, as trustee, with respect to the
Liquid Asset Notes with Coupon Exchange ("LANCEs(SM)") due 2008,
which is incorporated herein by reference to Exhibit 4.6 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1998.
*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.
E-1
25
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.1.1 Amendment to Amended Employment Agreement, dated as of August
5, 1999, 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, Vice Chairman, 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.
*10.2.1 Amendment to Amended Employment Agreement, dated as of August
5, 1999, by and between RPM, Inc. and James A. Karman, Vice
Chairman.
*10.3 Employment Agreement, dated as of July 15, 1992, by and between
RPM, Inc. and Frank C. Sullivan, President, which is incorporated
herein by reference to Exhibit 10.3 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1997.
*10.4 Form of Employment Agreement entered into by and between RPM,
Inc. and each of John H. Morris, Jr., Executive Vice President,
Kenneth M. Evans, Executive Vice President, P. Kelly Tompkins,
Vice President, General Counsel and Secretary, David P. Reif III,
Vice President and Chief Financial Officer, Charles P. Brush,
Vice President - Environmental Affairs, Gordon M. Hyde, Vice
President - Operations, Glenn R. Hasman, Vice President -
Controller, Stephen J. Knoop, Vice President - Corporate
Development, Ronald A. Rice, Vice President - Risk Management and
Benefits and Keith Smiley - Vice President - Treasurer, 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
August 5, 1999, by and between RPM, Inc. and each of Frank C.
Sullivan, President, P. Kelly Tompkins, Vice President, General
Counsel and Secretary, David P. Reif III, Vice President and
Chief Financial Officer and Glenn R. Hasman, Vice President -
Controller.
*10.5 RPM, Inc. 1979 Stock Option Plan, as amended, and form of Stock
Option Agreements used in connection therewith, which is
incorporated herein by reference to Exhibit 10.5 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
1996.
*10.6 RPM, Inc. 1989 Stock Option Plan, as amended, and form of Stock
Option Agreements to be used in connection therewith, which is
incorporated herein by reference to Exhibit 10.6 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
1996.
*10.7 RPM, Inc. 1996 Stock Option Plan, and form of Stock Option
Agreement to be used in connection therewith, which is
incorporated herein by reference to Exhibit 10.7 to the Company's
Annual Report on Form 10-K for the fiscal year ended May 31,
1997.
E-2
26
EXHIBIT NO. DESCRIPTION
----------- -----------
*10.7.1 Amendment No. 1 to RPM, Inc. 1996 Stock Option Plan, which is
incorporated herein by reference to Exhibit 10.7.1 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1998.
*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.
*10.11 RPM, Inc. Deferred Compensation Plan for Key Employees.
*10.12 RPM, Inc. Incentive Compensation Plan, which is incorporated
herein by reference to Exhibit 10.11 to the Company's Annual
Report on Form 10-K for the fiscal year ended May 31, 1996.
*10.13 RPM, Inc. 1997 Restricted Stock Plan, and Form of Acceptance
and Escrow Agreement to be used in connection therewith, which is
incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
November 30, 1997.
*10.14 Form of Indemnification Agreement entered into by and between
the Company and each of its Directors and Executive Officers,
which is incorporated herein by reference to Exhibit 10.12 to the
Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 1996.
10.15 Credit Agreement, dated as of February 3, 1997, between the
Company, the Banks identified on the Signature Pages thereto,
National City Bank as Documentation Agent, and the Chase
Manhattan Bank as Administrative Agent, which is incorporated
herein by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the quarterly period ended February 28,
1997.
11.1 Computation of Net Income per Common Share.
13.1 Financial Statements contained in 1999 Annual Report to
Shareholders.
21.1 Subsidiaries of the Company.
23.1 Consent of Independent Certified Public Accountants.
27.1 Financial Data Schedule.
- ------------------------------
*Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
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27
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 6, 1999, 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, 1999. 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
JULY 6, 1999
S-1
28
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, 1999 --------- -------------- ------------ ---------- ---------
- -----------------------
Allowance for doubtful accounts $ 12,718 $ 6,205 $ 584 $ 5,259 (1) $ 14,248
======== ======== ======== ======== ========
Accrued loss reserves - Current $ 43,332 $ 10,248 $ 363 $ 4,647 (2) $ 49,296
======== ======== ======== ======== ========
Accrued warranty reserves -
Long-term $ 23,496 $ (1,204) $ $ 3,476 (2) $ 18,816
======== ======== ======== ======== ========
Accrued restructuring reserves $ 5,719 $ $ $ 4,081 (3) $ 1,638
======== ======== ======== ======== ========
Year Ended May 31, 1998
- -----------------------
Allowance for doubtful accounts $ 12,006 $ 5,930 $ 642 $ 5,860 (1) $ 12,718
======== ======== ======== ======== ========
Accrued loss reserves - Current $ 37,699 $ 14,545 $ $ 8,912 (2) $ 43,332
======== ======== ======== ======== ========
Accrued warranty reserves -
Long-term $ 14,885 $ 2,741 $ 8,654 $ 2,784 (2) $ 23,496
======== ======== ======== ======== ========
Accrued restructuring reserves $ 648 $ $ 6,841 $ 1,770 (3) $ 5,719
======== ======== ======== ======== ========
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 $ $ $ 15,356 $ 471 (2) $ 14,885
======== ======== ======== ======== ========
Accrued restructuring reserves $ $ $ 1,659 $ 1,011 (3) $ 648
======== ======== ======== ======== ========
(1) Uncollectible accounts written off, net of recoveries
(2) Primarily claims paid during the year
(3) Restructuring initiatives completed during the year
S-2