FORM 10-Q
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-Q
|
|
|
þ
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the quarterly period ended
February 28, 2009,
|
or
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to .
|
Commission File
No. 1-14187
RPM International
Inc.
(Exact name of Registrant as
specified in its charter)
|
|
|
DELAWARE
(State or other jurisdiction
of
incorporation or organization)
|
|
02-0642224
(IRS Employer
Identification No.)
|
|
|
|
P.O. BOX 777;
2628 PEARL ROAD;
MEDINA, OHIO
(Address of principal
executive offices)
|
|
44258
(Zip Code)
|
(330) 273-5090
(Registrants telephone
number including area code)
Not Applicable
(Former name, former address and
former fiscal year, if changed since last report)
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 such filing requirements for the past
90 days. Yes þ No o.
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
|
|
|
|
|
|
|
Large accelerated
filer þ
|
|
Accelerated
filer o
|
|
Non-accelerated
filer o
|
|
Smaller reporting
company o
|
|
|
(Do not check if a smaller reporting
company)
|
Indicate by check mark whether the Registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ.
As of April 7, 2009
128,420,774 Shares of RPM International Inc. Common Stock
were outstanding.
RPM
INTERNATIONAL INC. AND SUBSIDIARIES*
INDEX
|
|
|
* |
|
As used herein, the terms RPM and the
Company refer to RPM International Inc. and its
subsidiaries, unless the context indicates otherwise. |
2
PART I.
FINANCIAL INFORMATION
RPM INTERNATIONAL INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
May 31, 2008
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
(In thousands, except per share amounts)
|
|
|
ASSETS
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
205,237
|
|
|
$
|
231,251
|
|
Trade accounts receivable (less allowances of $22,500 and
$24,554, respectively)
|
|
|
502,919
|
|
|
|
817,241
|
|
Inventories
|
|
|
463,613
|
|
|
|
476,149
|
|
Deferred income taxes
|
|
|
37,503
|
|
|
|
37,644
|
|
Prepaid expenses and other current assets
|
|
|
211,224
|
|
|
|
221,690
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,420,496
|
|
|
|
1,783,975
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, at Cost
|
|
|
1,008,251
|
|
|
|
1,054,719
|
|
Allowance for depreciation and amortization
|
|
|
(558,152
|
)
|
|
|
(556,998
|
)
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
450,099
|
|
|
|
497,721
|
|
|
|
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
830,567
|
|
|
|
908,358
|
|
Other intangible assets, net of amortization
|
|
|
347,995
|
|
|
|
384,370
|
|
Other
|
|
|
161,293
|
|
|
|
189,143
|
|
|
|
|
|
|
|
|
|
|
Total other assets
|
|
|
1,339,855
|
|
|
|
1,481,871
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
3,210,450
|
|
|
$
|
3,763,567
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
225,674
|
|
|
$
|
411,448
|
|
Current portion of long-term debt
|
|
|
172,424
|
|
|
|
6,934
|
|
Accrued compensation and benefits
|
|
|
100,543
|
|
|
|
151,493
|
|
Accrued loss reserves
|
|
|
77,505
|
|
|
|
71,981
|
|
Asbestos-related liabilities
|
|
|
65,000
|
|
|
|
65,000
|
|
Other accrued liabilities
|
|
|
117,363
|
|
|
|
139,505
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
758,509
|
|
|
|
846,361
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
810,806
|
|
|
|
1,066,687
|
|
Asbestos-related liabilities
|
|
|
442,549
|
|
|
|
494,745
|
|
Other long-term liabilities
|
|
|
141,024
|
|
|
|
192,412
|
|
Deferred income taxes
|
|
|
17,073
|
|
|
|
26,806
|
|
|
|
|
|
|
|
|
|
|
Total long-term liabilities
|
|
|
1,411,452
|
|
|
|
1,780,650
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity
|
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01; authorized
50,000 shares; none issued
|
|
|
|
|
|
|
|
|
Common stock, par value $0.01 authorized 300,000 shares;
issued and outstanding 128,411 as of February 2009; issued and
outstanding 122,189 as of May 2008
|
|
|
1,284
|
|
|
|
1,222
|
|
Paid-in capital
|
|
|
778,362
|
|
|
|
612,441
|
|
Treasury stock, at cost
|
|
|
(50,283
|
)
|
|
|
(6,057
|
)
|
Accumulated other comprehensive income (loss)
|
|
|
(120,820
|
)
|
|
|
101,162
|
|
Retained earnings
|
|
|
431,946
|
|
|
|
427,788
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
1,040,489
|
|
|
|
1,136,556
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity
|
|
$
|
3,210,450
|
|
|
$
|
3,763,567
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
3
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Net Sales
|
|
$
|
635,396
|
|
|
$
|
731,773
|
|
|
$
|
2,510,826
|
|
|
$
|
2,567,820
|
|
Cost of Sales
|
|
|
400,738
|
|
|
|
440,528
|
|
|
|
1,515,853
|
|
|
|
1,524,935
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
234,658
|
|
|
|
291,245
|
|
|
|
994,973
|
|
|
|
1,042,885
|
|
Selling, General and Administrative Expenses
|
|
|
265,618
|
|
|
|
266,160
|
|
|
|
837,290
|
|
|
|
811,913
|
|
Interest Expense, Net
|
|
|
13,520
|
|
|
|
9,462
|
|
|
|
41,500
|
|
|
|
34,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
(44,480
|
)
|
|
|
15,623
|
|
|
|
116,183
|
|
|
|
196,685
|
|
Provision (Benefit) for Income Taxes
|
|
|
(13,547
|
)
|
|
|
3,473
|
|
|
|
35,873
|
|
|
|
61,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
$
|
(30,933
|
)
|
|
$
|
12,150
|
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares of Common Stock Outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
126,575
|
|
|
|
120,091
|
|
|
|
126,295
|
|
|
|
120,077
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
126,575
|
|
|
|
130,223
|
|
|
|
128,553
|
|
|
|
130,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.64
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.63
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Dividends Declared per Share of Common Stock
|
|
$
|
0.200
|
|
|
$
|
0.190
|
|
|
$
|
0.590
|
|
|
$
|
0.555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
4
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands)
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
47,433
|
|
|
|
46,220
|
|
Amortization
|
|
|
16,709
|
|
|
|
16,182
|
|
Deferred income taxes
|
|
|
6,780
|
|
|
|
30,452
|
|
Earnings of unconsolidated affiliates
|
|
|
(1,004
|
)
|
|
|
(908
|
)
|
Changes in assets and liabilities, net of effect from purchases
and sales of businesses:
|
|
|
|
|
|
|
|
|
Decrease in receivables
|
|
|
317,443
|
|
|
|
181,245
|
|
Decrease (increase) in inventory
|
|
|
17,398
|
|
|
|
(51,889
|
)
|
Decrease in prepaid expenses and other current and long-term
assets
|
|
|
23,641
|
|
|
|
3,965
|
|
(Decrease) in accounts payable
|
|
|
(188,436
|
)
|
|
|
(103,180
|
)
|
(Decrease) in accrued compensation and benefits
|
|
|
(52,486
|
)
|
|
|
(13,973
|
)
|
Increase (decrease) in accrued loss reserves
|
|
|
5,279
|
|
|
|
(4,632
|
)
|
(Decrease) in other accrued liabilities
|
|
|
(72,935
|
)
|
|
|
(24,329
|
)
|
Payments made for asbestos-related claims
|
|
|
(52,196
|
)
|
|
|
(67,595
|
)
|
Other
|
|
|
(13,349
|
)
|
|
|
14,949
|
|
|
|
|
|
|
|
|
|
|
Cash From Operating Activities
|
|
|
134,587
|
|
|
|
161,780
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(37,024
|
)
|
|
|
(29,825
|
)
|
Acquisition of businesses, net of cash acquired
|
|
|
(6,649
|
)
|
|
|
(13,995
|
)
|
Purchase of marketable securities
|
|
|
(71,583
|
)
|
|
|
(74,696
|
)
|
Proceeds from sales of marketable securities
|
|
|
65,452
|
|
|
|
66,422
|
|
Proceeds from the sales of assets or businesses
|
|
|
|
|
|
|
44,800
|
|
Other
|
|
|
777
|
|
|
|
(1,472
|
)
|
|
|
|
|
|
|
|
|
|
Cash (Used For) Investing Activities
|
|
|
(49,027
|
)
|
|
|
(8,766
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
|
Additions to long-term and short-term debt
|
|
|
108,146
|
|
|
|
130,288
|
|
Reductions of long-term and short-term debt
|
|
|
(202,175
|
)
|
|
|
(2,715
|
)
|
Issuance of stock for convertible bond redemption
|
|
|
150,612
|
|
|
|
|
|
Cash dividends
|
|
|
(76,152
|
)
|
|
|
(67,467
|
)
|
Repurchase of stock
|
|
|
(45,188
|
)
|
|
|
(5,940
|
)
|
Exercise of stock options, including tax benefit
|
|
|
1,980
|
|
|
|
6,086
|
|
|
|
|
|
|
|
|
|
|
Cash From (Used For) Financing Activities
|
|
|
(62,777
|
)
|
|
|
60,252
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Cash
Equivalents
|
|
|
(48,797
|
)
|
|
|
18,680
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash and Cash Equivalents
|
|
|
(26,014
|
)
|
|
|
231,946
|
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
231,251
|
|
|
|
159,016
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents at End of Period
|
|
$
|
205,237
|
|
|
$
|
390,962
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are
an integral part of these statements.
5
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
FEBRUARY 28, 2009
(Unaudited)
NOTE A
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements
have been prepared in accordance with the instructions to
Form 10-Q
and do not include all of the information and notes required by
generally accepted accounting principles (GAAP) in
the U.S. for complete financial statements. In our opinion,
all adjustments (consisting of normal, recurring accruals)
considered necessary for a fair presentation have been included
for the three and nine month periods ended February 28,
2009 and February 29, 2008. For further information, refer
to the Consolidated Financial Statements and Notes included in
our Annual Report on
Form 10-K
for the year ended May 31, 2008.
Our business is dependent on external weather factors.
Historically, we have experienced strong sales and net income in
our first, second and fourth fiscal quarters comprising the
three month periods ending August 31, November 30 and
May 31, respectively, with weaker performance in our third
fiscal quarter (December through February).
Certain reclassifications have been made to prior year amounts
to conform to the current year presentation.
NOTE B
MARKETABLE SECURITIES
The following tables summarize marketable securities held at
February 28, 2009 and May 31, 2008 by asset type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair Value
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
(Net Carrying
|
|
February 28, 2009
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Amount)
|
|
|
|
(In thousands)
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
38,831
|
|
|
$
|
245
|
|
|
$
|
(16,786
|
)
|
|
$
|
22,290
|
|
Mutual funds
|
|
|
23,657
|
|
|
|
1
|
|
|
|
(9,181
|
)
|
|
|
14,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
62,488
|
|
|
|
246
|
|
|
|
(25,967
|
)
|
|
|
36,767
|
|
Fixed maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and other government
|
|
|
9,338
|
|
|
|
381
|
|
|
|
(3
|
)
|
|
|
9,716
|
|
Corporate
|
|
|
16,732
|
|
|
|
630
|
|
|
|
(92
|
)
|
|
|
17,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
26,070
|
|
|
|
1,011
|
|
|
|
(95
|
)
|
|
|
26,986
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
88,558
|
|
|
$
|
1,257
|
|
|
$
|
(26,062
|
)
|
|
$
|
63,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-For-Sale Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Fair Value
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
(Net Carrying
|
|
May 31, 2008
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Amount)
|
|
|
|
(In thousands)
|
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stocks
|
|
$
|
40,274
|
|
|
$
|
18,500
|
|
|
$
|
(1,034
|
)
|
|
$
|
57,740
|
|
Mutual funds
|
|
|
18,401
|
|
|
|
2,020
|
|
|
|
(418
|
)
|
|
|
20,003
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities
|
|
|
58,675
|
|
|
|
20,520
|
|
|
|
(1,452
|
)
|
|
|
77,743
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. treasury and other government
|
|
|
19,934
|
|
|
|
394
|
|
|
|
(95
|
)
|
|
|
20,233
|
|
Corporate
|
|
|
12,480
|
|
|
|
144
|
|
|
|
(200
|
)
|
|
|
12,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturity securities
|
|
|
32,414
|
|
|
|
538
|
|
|
|
(295
|
)
|
|
|
32,657
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
91,089
|
|
|
$
|
21,058
|
|
|
$
|
(1,747
|
)
|
|
$
|
110,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities, included in other current and long-term
assets, are composed of available-for-sale securities and are
reported at fair value, based on quoted market prices. Realized
gains and losses on sales of investments are recognized in net
income on the specific identification basis. Changes in the fair
values of securities that are considered temporary are recorded
as unrealized gains and losses, net of applicable taxes, in
accumulated other comprehensive income (loss) within
stockholders equity. Other-than-temporary declines in
market value from original cost are reflected in operating
income in the period in which the unrealized losses are deemed
other than temporary. In order to determine whether an
other-than-temporary decline in market value has occurred, the
duration of the decline in value and our ability to hold the
investment are considered in conjunction with an evaluation of
the strength of the underlying collateral and the extent to
which the investments amortized cost or cost, as
appropriate, exceeds its related market value.
Gross gains and losses realized on sales of investments were
$0.7 million and $0.1 million, respectively, for the
quarter ended February 28, 2009. Gross gains and losses
realized on sales of investments were $4.2 million and
$3.2 million, respectively, for the quarter ended
February 29, 2008. During the third quarter of fiscal 2009
and 2008, we recognized losses of $4.0 million and
$0.7 million, respectively, for securities deemed to have
other-than-temporary impairments. These amounts are included in
net interest expense in the Consolidated Statements of Income.
Gross gains and losses realized on sales of investments were
$4.4 million and $2.5 million, respectively, for the
nine months ended February 28, 2009. Gross gains and losses
realized on sales of investments were $6.9 million and
$3.8 million, respectively, for the nine months ended
February 29, 2008. During the first nine months of fiscal
2009 and 2008, we recognized losses of $7.4 million and
$0.8 million, respectively, for securities deemed to have
other-than-temporary impairments.
7
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Summarized below are the securities we held at February 28,
2009 and May 31, 2008 that were in an unrealized loss
position included in accumulated other comprehensive income,
aggregated by the length of time the investments had been in
that position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
May 31, 2008
|
|
|
|
|
|
|
Gross
|
|
|
|
|
|
Gross
|
|
|
|
Fair
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
Value
|
|
|
Losses
|
|
|
Fair Value
|
|
|
Losses
|
|
|
|
(In thousands)
|
|
|
Total investments with unrealized losses
|
|
$
|
31,974
|
|
|
$
|
(26,062
|
)
|
|
$
|
25,785
|
|
|
$
|
(1,747
|
)
|
Unrealized losses with a loss position for less than
12 months
|
|
|
27,280
|
|
|
|
(21,302
|
)
|
|
|
24,730
|
|
|
|
(1,635
|
)
|
Unrealized losses with a loss position for more than
12 months
|
|
|
4,694
|
|
|
|
(4,760
|
)
|
|
|
1,055
|
|
|
|
(112
|
)
|
Included in the figures above is our investment in Kemrock
Industries, which has a fair value of $3.3 million and an
unrealized loss of $8.9 million at February 28, 2009.
At May 31, 2008, our investment in Kemrock Industries had a
fair value of $20.9 million, and was in an unrealized gain
position. We have reviewed all of the securities included in the
table above and have concluded that we have the ability and
intent to hold these investments until their cost can be
recovered, based upon the severity and duration of the decline.
Therefore, we did not recognize any other-than-temporary
impairment losses on these investments. Unrealized losses at
February 28, 2009 were generally caused by the recent
decline in valuations in the financial markets and the
volatility in the global economy, specifically over the last six
months. If general economic conditions were to continue to
deteriorate, including continued uncertainties surrounding the
volatility in financial markets and the viability of banks and
other financial institutions, and if we were to experience
continuing or significant additional unrealized losses within
our portfolio of investments in marketable securities, we may
recognize additional other-than-temporary impairment losses.
Such potential losses could have a material impact on our
results of operations in any given reporting period. As such, we
continue to closely evaluate the status of our investments and
our ability and intent to hold these investments.
The net carrying value of debt securities at February 28,
2009, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay
obligations without prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Fair Value
|
|
|
|
(In thousands)
|
|
|
Due:
|
|
|
|
|
|
|
|
|
Less than one year
|
|
$
|
1,242
|
|
|
$
|
1,264
|
|
One year through five years
|
|
|
13,816
|
|
|
|
14,345
|
|
Six years through ten years
|
|
|
4,271
|
|
|
|
4,449
|
|
After ten years
|
|
|
6,741
|
|
|
|
6,928
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
26,070
|
|
|
$
|
26,986
|
|
|
|
|
|
|
|
|
|
|
NOTE C
FAIR VALUE MEASUREMENTS
Effective June 1, 2008, we adopted Statement of Financial
Accounting Standard No. 157
(SFAS No. 157), Fair Value
Measurements. SFAS No. 157 clarifies the
definition of fair value, establishes a framework for measuring
fair value based on the inputs used to measure fair value and
expands the disclosures of fair value measurements. In
accordance with Financial Accounting Standards Board Staff
Position
No. FAS 157-2,
Effective Date of FASB Statement
No. 157, we will defer the adoption of
SFAS No. 157 for our nonfinancial assets and
nonfinancial liabilities until June 1, 2009, which is not
expected to have a material impact on our financial
8
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
statements. Our adoption of the portion of
SFAS No. 157 relating to our financial assets and
liabilities did not have a material impact on our financial
statements.
SFAS No. 157 valuation techniques are based on
observable and unobservable inputs. Observable inputs reflect
readily obtainable data from independent sources, while
unobservable inputs reflect managements market
assumptions. The fair value hierarchy has three levels based on
the reliability of the inputs used to determine fair value, as
follows:
Level 1 Inputs Quoted prices for
identical instruments in active markets.
Level 2 Inputs Quoted prices for
similar instruments in active markets; quoted prices for
identical or similar instruments in markets that are not active;
and model-derived valuations whose inputs are observable or
whose significant value drivers are observable.
Level 3 Inputs Instruments with
primarily unobservable value drivers.
The following table presents our assets and liabilities that are
measured at fair value on a recurring basis and are categorized
using the fair value hierarchy.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
Fair Value at
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
February 28, 2009
|
|
|
|
(In thousands)
|
|
|
Marketable securities
|
|
$
|
63,753
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
63,753
|
|
Interest rate swap
|
|
|
|
|
|
|
3,529
|
|
|
|
|
|
|
|
3,529
|
|
Cross-currency swap/interest rate swap
|
|
|
|
|
|
|
(3,231
|
)
|
|
|
|
|
|
|
(3,231
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
63,753
|
|
|
$
|
298
|
|
|
$
|
|
|
|
$
|
64,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE D
INVENTORIES
Inventories were composed of the following major classes:
|
|
|
|
|
|
|
|
|
|
|
February 28, 2009
|
|
|
May 31, 2008
|
|
|
|
(In thousands)
|
|
|
Raw material and supplies
|
|
$
|
147,282
|
|
|
$
|
151,400
|
|
Finished goods
|
|
|
316,331
|
|
|
|
324,749
|
|
|
|
|
|
|
|
|
|
|
Total Inventory
|
|
$
|
463,613
|
|
|
$
|
476,149
|
|
|
|
|
|
|
|
|
|
|
9
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE E
COMPREHENSIVE INCOME
The following table illustrates the components of total
comprehensive income for each of the three and nine month
periods ended February 28, 2009 and February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net income (loss)
|
|
$
|
(30,933
|
)
|
|
$
|
12,150
|
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
Other Comprehensive Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(20,851
|
)
|
|
|
9,705
|
|
|
|
(194,723
|
)
|
|
|
47,082
|
|
Pension and other postretirement benefit liability adjustments,
net of tax
|
|
|
1,314
|
|
|
|
1,637
|
|
|
|
6,302
|
|
|
|
1,637
|
|
Unrealized gain (loss) on securities, net of tax
|
|
|
(1,320
|
)
|
|
|
(7,457
|
)
|
|
|
(29,124
|
)
|
|
|
2,203
|
|
Derivatives income, net of tax
|
|
|
(5,683
|
)
|
|
|
(440
|
)
|
|
|
(4,437
|
)
|
|
|
5,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Income (Loss)
|
|
$
|
(57,473
|
)
|
|
$
|
15,595
|
|
|
$
|
(141,672
|
)
|
|
$
|
191,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE F
CONTINGENCIES AND OTHER ACCRUED LOSSES
Asbestos-related
Contingencies
Certain of our wholly-owned subsidiaries, principally Bondex
International, Inc. (collectively referred to as our
subsidiaries), are defendants in various asbestos-related bodily
injury lawsuits filed in various state courts with the vast
majority of current claims pending in six states
Texas, Florida, Mississippi, Maryland, Illinois and Ohio. These
cases generally seek unspecified damages for asbestos-related
diseases based on alleged exposures to asbestos-containing
products previously manufactured by our subsidiaries or others.
As of February 28, 2009, our subsidiaries had a total of
10,281 active asbestos cases compared to a total of 11,350 cases
as of February 29, 2008. For the quarter ended
February 28, 2009, our subsidiaries secured dismissals
and/or
settlements of 228 cases and made total payments of
$19.8 million, which included defense-related payments of
$6.9 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 225 cases and total payments were
$18.7 million, which included defense-related payments of
$9.4 million. For the nine months ended February 28,
2009, our subsidiaries secured dismissals
and/or
settlements of 2,253 cases and made total payments of
$52.2 million, which included defense-related payments of
$19.7 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 882 cases and total payments were
$67.6 million, which included defense-related payments of
$32.0 million.
Of the 2,253 cases that were dismissed in the nine months ended
February 28, 2009, 1,420 were non-malignancies or unknown
disease cases that had been maintained on an inactive docket in
Ohio and were administratively dismissed by the Cuyahoga County
Court of Common Pleas during our second fiscal quarter ended
November 30, 2008. These claims were dismissed without
prejudice and may be re-filed should the claimants involved be
able to demonstrate disease in accordance with medical criteria
laws established in the state of Ohio.
During the quarter ended February 28, 2009, one payment
totaling $3.6 million was made to satisfy an adverse
judgment in a previous trial that occurred in calendar 2006 in
California. This payment, which included a significant amount of
accrued pre-judgment interest as required by California law, was
made on December 8, 2008, approximately two and a half
years after the adverse verdict and after all post-trial and
appellate remedies had been exhausted. Such satisfaction of
judgment amounts are not included in incurred costs until
available appeals are
10
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exhausted and the final payment amount is determined. As a
result, the timing and amount of any such payments could have a
significant impact on quarterly settlement costs.
During the prior fiscal year, our subsidiaries incurred higher
year-over-year, defense-related payments as a result of
implementing various changes to our management and defense of
asbestos claims, including a transition to a new claims intake
and database service provider. To facilitate that transition and
other related changes, we incurred duplicate defense-related
payments approximating $3.0 million during last years
second fiscal quarter. The transition was completed during the
quarter ended February 29, 2008.
Excluding defense-related payments, the average payment made to
settle or dismiss a case approximated $57,000 and $41,000 for
each of the quarters ended February 28, 2009 and
February 29, 2008, respectively. The amount and timing of
dismissals and settlements can fluctuate significantly from
period to period, resulting in volatility in the average cost to
resolve a case in any given quarter or year. In addition, in
some jurisdictions, cases may involve more than one individual
claimant. As a result, settlement or dismissal payments made on
a per case basis are not necessarily reflective of the payment
amounts on a per claimant basis. For example, the amount paid to
settle or dismiss a case can vary widely depending on a variety
of factors, including the mix of malignancy and non-malignancy
claimants, and the amount of defense expenditures incurred
during the period.
Estimating the future cost of asbestos-related contingent
liabilities was and continues to be subject to many
uncertainties that may change over time, including (i) the
ultimate number of claims filed; (ii) the amounts required
to resolve both currently known and future unknown claims;
(iii) the amount of insurance, if any, available to cover
such claims, including the outcome of coverage litigation
against our subsidiaries third-party insurers;
(iv) future earnings and cash flow of our subsidiaries;
(v) the impact of bankruptcies of other companies whose
share of liability may be imposed on our subsidiaries under
certain state liability laws; (vi) the unpredictable
aspects of the litigation process including a changing trial
docket and the jurisdictions in which trials are scheduled;
(vii) the outcome of any such trials including judgments or
jury verdicts, as a result of our more aggressive defense
posture, which includes taking selective cases to verdict;
(viii) the lack of specific information in many cases
concerning exposure to products for which one of our
subsidiaries is responsible and the claimants diseases;
(ix) potential changes in applicable federal
and/or state
law; and (x) the potential impact of various proposed
structured settlement transactions or subsidiary bankruptcies by
other companies, some of which are the subject of federal
appellate court review, the outcome of which could materially
affect any future asbestos-related liability estimates.
In fiscal 2006, we retained Crawford & Winiarski
(C&W), an independent, third-party consulting
firm with expertise in the area of asbestos valuation work, to
assist us in calculating an estimate of our liability for
unasserted-potential-future-asbestos-related claims. The
methodology used by C&W to project our liability for
unasserted-potential-future-asbestos-related claims included
C&W doing an analysis of: (a) widely accepted forecast
of the population likely to have been exposed to asbestos;
(b) epidemiological studies estimating the number of people
likely to develop asbestos-related diseases; (c) historical
rate at which mesothelioma incidences resulted in the payment of
claims by us; (d) historical settlement averages to value
the projected number of future compensable mesothelioma claims;
(e) historical ratio of mesothelioma-related-indemnity
payments to non-mesothelioma indemnity payments; and
(f) historical defense costs and their relationship with
total indemnity payments.
During fiscal 2006, we recorded a liability for asbestos claims
in the amount of $380.0 million, while paying out
$59.9 million for dismissals
and/or
settlements, which resulted in our accrued liability balance
moving from $101.2 million at May 31, 2005 to
$421.3 million at May 31, 2006. This increase was
based largely upon C&Ws analysis of our total
estimated liability for
unasserted-potential-future-asbestos-related claims through
May 31, 2016. This amount was also calculated on a pre-tax
basis and was not discounted for the time value of money. In
light of the uncertainties inherent in making long-term
projections, we determined at that time that a ten-year period
was the most reasonable time period over which reasonably
accurate estimates might still be made for projecting asbestos
liabilities and defense costs and, accordingly, our accrual did
not include asbestos liabilities for any period beyond ten years.
11
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the fiscal year ended May 31, 2008, we reviewed and
evaluated our ten-year asbestos liability established as of
May 31, 2006. As part of that review and evaluation
process, the credibility of epidemiological studies of our
mesothelioma claims, first introduced to management by C&W
some
two-and-one-half
years ago, was validated. At the core of our evaluation process,
and the basis of C&Ws actuarial work on behalf of
Bondex, is the Nicholson Study. The Nicholson Study
is the most widely recognized reference in bankruptcy trust
valuations, global settlement negotiations and the Congressional
Budget Offices work done on the proposed FAIR Act in 2006.
Based on our ongoing comparison of the Nicholson Study
projections and Bondexs specific actual experience,
which continues to bear an extremely close correlation to the
studys projections, we decided to extend our asbestos
liability projection out to twenty years. C&W assisted us
in calculating an estimate of our liability for
unasserted-potential-future-asbestos-related claims out to that
twenty-year period.
C&W has projected that the cost of extending the asbestos
liability to twenty years, coupled with an updated evaluation of
our current known claims to reflect our most recent actual
experience, would be $288.1 million. Therefore, we added
$288.1 million to our existing asbestos liability, which
brought our total asbestos-related balance sheet liabilities at
May 31, 2008 to $559.7 million. Of that total,
$65.0 million was estimated to be the short-term liability
due in fiscal 2009, with the remaining $494.7 million
balance reflected as a long-term liability. The material
components of the accruals are: (i) the gross number of
open malignancy claims (principally mesothelioma claims) as
these claims have the most significant impact on our asbestos
settlement costs; (ii) historical and current settlement
costs and dismissal rates by various categories;
(iii) analysis of the jurisdiction and governing laws of
the states in which these claims are pending; (iv) outside
defense counsels opinions and recommendations with respect
to the merits of such claims; and (v) analysis of projected
liabilities for unasserted potential future claims.
In determining the amount of our asbestos liability, we relied
on assumptions that are based on currently known facts and
projection models. Our actual expenses could be significantly
higher or lower than those recorded if assumptions used in our
calculations vary significantly from actual results. Key
variables in these assumptions include the period of exposure to
asbestos claims, the number and type of new claims to be filed
each year, the rate at which mesothelioma incidences result in
compensable claims against us, the average cost of disposing of
each such new claim, the dismissal rates each year and the
related annual defense costs. Furthermore, predictions with
respect to these variables are subject to greater uncertainty as
the projection period lengthens. A significant upward or
downward trend in the number of claims filed, depending on the
nature of the alleged injury, the jurisdiction where filed, the
average cost of resolving each such claim and the quality of the
product identification, could change our estimated liability, as
could any substantial adverse verdict at trial. A federal
legislative solution, further state tort reform or a
structured-settlement transaction could also change the
estimated liability.
Subject to the foregoing variables, and based on currently
available data, we believe that our current asbestos liability
is sufficient to cover asbestos-related expenses for our known
pending and unasserted-potential-future-asbestos-related claims
through 2028. However, given the uncertainties associated with
projecting matters into the future and numerous other factors
outside of our control, we believe that it is reasonably
possible we may incur additional material asbestos liabilities
in periods before 2028. Due to the uncertainty inherent in the
process undertaken to estimate our losses, we are unable at the
present time to estimate an additional range of loss in excess
of our existing accruals. While it is reasonably possible that
such excess liabilities could be material to operating results
in any given quarter or year, we do not believe that it is
reasonably possible that such excess liabilities would have a
material adverse effect on our long-term results of operations,
liquidity or consolidated financial position.
During fiscal 2004, certain of our subsidiaries
third-party insurers claimed exhaustion of coverage. On
July 3, 2003, certain of our subsidiaries filed the case of
Bondex International, Inc. et al. v. Hartford Accident and
Indemnity Company et al., Case
No. 1:03-cv-1322,
in the United States District Court for the Northern District of
Ohio, for declaratory judgment, breach of contract and bad faith
against these third-party insurers, challenging their assertion
that their policies covering asbestos-related claims have been
exhausted. The coverage litigation involves, among other
matters, insurance coverage for claims arising out of alleged
exposure to asbestos containing products manufactured by the
previous owner of the Bondex tradename before March 1,
1966. On March 1, 1966, Republic
12
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Powdered Metals Inc. (as it was known then), purchased the
assets and assumed the liabilities of the previous owner of the
Bondex tradename. That previous owner subsequently dissolved and
was never a subsidiary of Republic Powdered Metals, Bondex, RPM,
Inc. or the Company. Because of the earlier assumption of
liabilities, however, Bondex has historically responded, and
must continue to respond, to lawsuits alleging exposure to these
asbestos-containing products. We discovered that the defendant
insurance companies in the coverage litigation had wrongfully
used cases alleging exposure to these pre-1966 products to erode
their aggregate limits. This conduct, apparently known by the
insurance industry based on discovery conducted to date, was in
breach of the insurers policy language. Two of the
defendant insurers have filed counterclaims seeking to recoup
certain monies should the plaintiffs prevail on their claims.
During the second fiscal quarter ended November 30, 2006,
plaintiffs and one of the defendant insurers reached a
settlement of $15.0 million, the terms of which are
confidential by agreement of the parties. The settling defendant
was dismissed from the case.
In 2007, plaintiffs had filed motions for partial summary
judgment against the defendants and defendants had filed motions
for summary judgment against plaintiffs. In addition, plaintiffs
had filed a motion to dismiss the counterclaim filed by one of
the defendants. On December 1, 2008, the court decided the
pending motions for summary judgment and dismissal. The court
denied the plaintiffs motions for partial summary judgment
and granted the defendants motions for summary judgment
against plaintiffs on a narrow ground. The court also granted
the plaintiffs motion to dismiss one defendants
amended counterclaim. In light of its summary judgment rulings,
the court entered judgment as a matter of law on all remaining
claims and counterclaims, including the counterclaim filed by
another defendant, and dismissed the action. The court also
dismissed certain remaining motions as moot. Plaintiffs have
filed a notice of appeal to the United States Sixth Circuit
Court of Appeals and will continue to aggressively pursue their
claims on appeal. At present, the appellate court has not yet
entered a scheduling order in connection with the appeal.
We are unable at the present time to predict the timing or
ultimate outcome of this insurance coverage litigation or
whether there will be any further settlements. Consequently, we
are unable to predict whether, or to what extent, any additional
insurance may be available to cover a portion of our
subsidiaries asbestos liabilities. We have not included
any potential benefits from this litigation in calculating our
current asbestos liability. Our wholly-owned captive insurance
companies have not provided any insurance or reinsurance
coverage for any of our subsidiaries asbestos-related
claims.
The following table illustrates the movement of current and
long-term asbestos-related liabilities through February 28,
2009:
Asbestos
Liability Movement
(Current and Long-Term)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Additions to
|
|
|
|
|
|
Balance at
|
|
|
|
Beginning of
|
|
|
Asbestos
|
|
|
|
|
|
End of
|
|
|
|
Period
|
|
|
Charge
|
|
|
Deductions*
|
|
|
Period
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Nine Months Ended February 28, 2009
|
|
$
|
559,745
|
|
|
|
|
|
|
$
|
52,196
|
|
|
$
|
507,549
|
|
Year Ended May 31, 2008
|
|
|
354,268
|
|
|
$
|
288,100
|
|
|
|
82,623
|
|
|
|
559,745
|
|
Year Ended May 31, 2007
|
|
|
421,285
|
|
|
|
|
|
|
|
67,017
|
|
|
|
354,268
|
|
|
|
|
* |
|
Deductions include payments for defense-related costs and
amounts paid to settle claims. |
Other
Contingencies
We provide, through our wholly-owned insurance subsidiaries,
certain insurance coverage, primarily product liability, to our
other subsidiaries. Excess coverage is provided by third-party
insurers. Our reserves provide for
13
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
these potential losses as well as other uninsured claims. As of
February 28, 2009, the current portion of these reserves
amounted to $61.8 million as compared with
$56.5 million at May 31, 2008, while the total
long-term reserves of $7.0 million at February 28,
2009 compare with $8.5 million at May 31, 2008.
Product warranty expense is recorded within selling, general and
administrative expense. We also offer a warranty program for our
roofing systems and have established a product warranty
liability. We review this liability for adequacy on a quarterly
basis and adjust it as necessary. The primary factors that could
affect this liability may include changes in the historical
system performance rate as well as the costs of replacement.
Provision for estimated warranty costs is recorded at the time
of sale and periodically adjusted, as required, to reflect
actual experience.
In addition, like other companies participating in similar lines
of business, some of our subsidiaries are involved in several
proceedings relating to environmental matters. It is our policy
to accrue remediation costs when it is probable that such
efforts will be required and the related costs can be reasonably
estimated. These liabilities are undiscounted.
NOTE G
PENSION AND POSTRETIREMENT HEALTH CARE BENEFITS
We account for our pension plans and postretirement benefit
plans in accordance with the provisions of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans. We
offer defined benefit pension plans, defined contribution
pension plans, as well as several unfunded health care benefit
plans primarily for certain of our retired employees. The
following tables provide the retirement-related benefit
plans impact on income before income taxes for the three
and nine month periods ended February 28, 2009 and
February 29, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Pension Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
3,680
|
|
|
$
|
3,560
|
|
|
$
|
760
|
|
|
$
|
867
|
|
Interest cost
|
|
|
2,976
|
|
|
|
2,574
|
|
|
|
1,915
|
|
|
|
1,634
|
|
Expected return on plan assets
|
|
|
(3,224
|
)
|
|
|
(3,330
|
)
|
|
|
(1,847
|
)
|
|
|
(1,679
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
85
|
|
|
|
60
|
|
|
|
1
|
|
|
|
6
|
|
Net actuarial losses recognized
|
|
|
663
|
|
|
|
354
|
|
|
|
310
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
4,180
|
|
|
$
|
3,218
|
|
|
$
|
1,139
|
|
|
$
|
1,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Quarter Ended
|
|
|
Quarter Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Postretirement Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
99
|
|
|
$
|
123
|
|
Interest cost
|
|
|
108
|
|
|
|
130
|
|
|
|
189
|
|
|
|
168
|
|
Prior service cost
|
|
|
(7
|
)
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
77
|
|
|
$
|
123
|
|
|
$
|
288
|
|
|
$
|
314
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Pension Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
11,040
|
|
|
$
|
10,680
|
|
|
$
|
2,279
|
|
|
$
|
2,601
|
|
Interest cost
|
|
|
8,930
|
|
|
|
7,722
|
|
|
|
5,745
|
|
|
|
4,902
|
|
Expected return on plan assets
|
|
|
(9,670
|
)
|
|
|
(9,990
|
)
|
|
|
(5,540
|
)
|
|
|
(5,036
|
)
|
Amortization of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost
|
|
|
256
|
|
|
|
180
|
|
|
|
3
|
|
|
|
19
|
|
Net actuarial losses recognized
|
|
|
1,989
|
|
|
|
1,061
|
|
|
|
932
|
|
|
|
1,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
12,545
|
|
|
$
|
9,653
|
|
|
$
|
3,419
|
|
|
$
|
3,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
Non-U.S. Plans
|
|
|
|
Nine Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
Postretirement Benefits
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Service cost
|
|
$
|
|
|
|
$
|
|
|
|
$
|
295
|
|
|
$
|
370
|
|
Interest cost
|
|
|
324
|
|
|
|
391
|
|
|
|
567
|
|
|
|
505
|
|
Prior service cost
|
|
|
(21
|
)
|
|
|
(21
|
)
|
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized
|
|
|
(72
|
)
|
|
|
|
|
|
|
|
|
|
|
67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Periodic Benefit Cost
|
|
$
|
231
|
|
|
$
|
370
|
|
|
$
|
862
|
|
|
$
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We previously disclosed in our financial statements for the
fiscal year ended May 31, 2008 that we expected to
contribute approximately $10.3 million to our retirement
plans in the U.S. and approximately $7.5 million to
plans outside the U.S. during the current fiscal year. At
November 30, 2008, we updated our expected contributions to
the Retirement Plans in the U.S. to be $10.2 million,
and anticipated no change with regard to our foreign plans. As
of February 28, 2009, we do not anticipate any changes to
these contribution levels.
At February 28, 2009, the fair value of the assets held by
our pension plans has declined since our measurement date of
May 31, 2008, due primarily to the recent significant
declines in the stock markets. Assuming that there will be no
significant recovery in the stock markets and that we will not
contribute significant funds to our plans prior to the end of
our current fiscal year ending May 31, 2009, we may be
required to increase our recorded liability for the net
underfunded status of our pension plans, and we would expect
pension expense in fiscal 2010 to increase from fiscal 2009.
Further, a decline in the value of our pension plan assets could
require accelerated and higher cash contributions to our pension
plans. Such amounts are not currently quantifiable because our
required valuation of the assets and obligations of our pension
plans will not occur until May 31, 2009.
We have determined that our postretirement medical plan provides
prescription drug benefits that will qualify for the federal
subsidy provided by the Medicare Prescription Drug, Improvement
and Modernization Act of 2003. For all groups of retirees, we
have assumed that the subsidy will continue indefinitely.
As previously disclosed, we adopted the provisions of
SFAS No. 158, Employers Accounting for
Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and
132(R) beginning with our fiscal year ended May 31,
2008, and transitioned from a measurement date of February 28 to
May 31.
15
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
NOTE
H COST REDUCTION INITIATIVES
During the first nine months of fiscal 2009, we undertook
various actions to lower the fixed cost base of certain of our
businesses in response to the current economic environment. As a
result of these cost reduction measures, which have included
personnel reductions, we have incurred employee separation
costs. During the third quarter, we incurred $14.5 million
of pre-tax charges and $20.3 million year to date in
relation to these actions. We do not anticipate any further
expenses in relation to these particular cost reduction
initiatives. Of the $14.5 million incurred during the third
fiscal quarter ended February 28, 2009, $11.2 million
was related to our industrial reportable segment
(industrial segment) and $3.2 million was
related to our consumer reportable segment (consumer
segment) with the remainder recognized at the nonoperating
level. These costs, all of which are cash costs, are reflected
within selling, general and administrative expenses on our
consolidated statements of income.
NOTE I
EARNINGS PER SHARE
Our basic earnings per share calculation is based on the
weighted-average number of shares of common stock outstanding.
Our diluted earnings per share calculation is based on the
weighted-average number of shares of common stock outstanding
adjusted for the number of additional shares that would have
been outstanding had all potentially dilutive common shares been
issued. Potentially dilutive shares of common stock include
stock options, nonvested share awards and shares issuable under
our employee stock purchase plan, as well as shares of common
stock that would have been issued pursuant to the assumed
conversion of our convertible notes. Since the potentially
dilutive shares related to the convertible notes are included in
the calculation of diluted earnings per share, the related
interest expense, net of tax, is added back to net earnings, as
this interest would not have been paid if the convertible notes
had been converted to common stock. Nonvested market-based stock
awards and nonvested
16
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
performance-based awards are included in the average diluted
shares outstanding each period if established market or
performance criteria have been met at the end of the respective
periods.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands, except per share amounts)
|
|
|
Shares Outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding
|
|
|
126,575
|
|
|
|
120,091
|
|
|
|
126,295
|
|
|
|
120,077
|
|
Net issuable common share equivalents(1)
|
|
|
|
|
|
|
2,099
|
|
|
|
1,134
|
|
|
|
2,298
|
|
Additional shares issuable assuming conversion of convertible
securities
|
|
|
|
|
|
|
8,033
|
|
|
|
1,124
|
|
|
|
8,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shares for diluted earnings per share
|
|
|
126,575
|
|
|
|
130,223
|
|
|
|
128,553
|
|
|
|
130,408
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), basic
|
|
$
|
(30,933
|
)
|
|
$
|
12,150
|
|
|
$
|
80,310
|
|
|
$
|
135,273
|
|
Add: Income effect of convertible securities
|
|
|
|
|
|
|
771
|
|
|
|
280
|
|
|
|
2,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss), diluted
|
|
$
|
(30,933
|
)
|
|
$
|
12,921
|
|
|
$
|
80,590
|
|
|
$
|
137,586
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (Loss) Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings (Loss) Per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.64
|
|
|
$
|
1.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings (Loss) Per Share of Common Stock
|
|
$
|
(0.24
|
)
|
|
$
|
0.10
|
|
|
$
|
0.63
|
|
|
$
|
1.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Conversion of the net issuable common share equivalents for the
three month period ended February 28, 2009 was not assumed,
since the result would have been anti-dilutive as a result of
the net loss incurred for the quarter. |
NOTE J
INCOME TAXES
The effective income tax benefit rate was 30.5% for the three
months ended February 28, 2009 compared to an effective
income tax expense rate of 22.2% for the three months ended
February 29, 2008.
For the three months ended February 28, 2009 and, to a
lesser extent for the three months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally due to decreases in taxes as a result of the impact
of certain foreign operations on our U.S. taxes and the
effect of lower tax rates in certain of our foreign
jurisdictions. The decreases in the effective tax rates were
partially offset by provisions for valuation allowances
associated with losses incurred by certain of our foreign
businesses, state and local income taxes and other
non-deductible business operating expenses.
The effective income tax expense rate was 30.9% for the nine
months ended February 28, 2009 compared to an effective
income tax expense rate of 31.2% for the nine months ended
February 29, 2008.
For the nine months ended February 28, 2009 and, to a
lesser extent for the nine months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally as a result of the impact of certain
17
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
foreign operations on our U.S. taxes and the effect of
lower tax rates in certain of our foreign jurisdictions. The
decreases in the effective tax rates were partially offset by
valuation allowances associated with losses incurred by certain
of our foreign businesses, state and local income taxes and
other non-deductible business operating expenses.
As of February 28, 2009, we have determined, based on the
available evidence, that it is uncertain whether we will be able
to recognize certain deferred tax assets. Therefore, in
accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes, we intend to maintain
the tax valuation allowance recorded at February 28, 2009
for certain deferred tax assets until sufficient positive
evidence (for example, cumulative positive foreign earnings or
additional foreign source income) exists to support the reversal
of the tax valuation allowances. This valuation allowance
relates to U.S. federal foreign tax credit carryforwards,
certain foreign net operating losses and net foreign deferred
tax assets recorded in purchase accounting. Any reversal of the
valuation allowance that was recorded in purchase accounting
would reduce goodwill.
As of February 28, 2009, we had unrecognized tax benefits
of approximately $3.2 million, of which approximately
$2.4 million would impact the effective tax rate, if
recognized. We recognize interest and penalties related to
unrecognized tax benefits in income tax expense. At
February 28, 2009, the accrual for interest and penalties
totaled approximately $1.3 million.
We file income tax returns in the U.S. and various state,
local and foreign jurisdictions. As of February 28, 2009,
we are subject to U.S. federal income tax examinations for
the fiscal years 2006 through 2008. In addition, with limited
exceptions, we are subject to various state and local or
non-U.S. income
tax examinations by tax authorities for the fiscal years 2002
through 2008. We do not anticipate any significant changes to
the total unrecognized tax benefits within the next
12 months.
NOTE K
SEGMENT INFORMATION
We operate a portfolio of businesses and product lines that
manufacture and sell a variety of specialty paints, protective
coatings and roofing systems, sealants and adhesives. We manage
our portfolio by organizing our businesses and product lines
into two reportable segments: the industrial reportable segment
and the consumer reportable segment. Within each reportable
segment, we aggregate three operating segments that consist of
individual groups of companies and product lines, which
generally address common markets, share similar economic
characteristics, utilize similar technologies and can share
manufacturing or distribution capabilities. Our six operating
segments represent components of our business for which separate
financial information is available that is utilized on a regular
basis by our chief executive officer in determining how to
allocate the assets of the Company and evaluate performance.
These six operating segments are each managed by an operating
segment manager, who is responsible for the day-to-day operating
decisions and performance evaluation of the operating
segments underlying businesses.
Our industrial reportable segment products are sold throughout
North America and also account for the majority of our
international sales. Our industrial product lines are sold
directly to contractors, distributors and end-users, such as
industrial manufacturing facilities, public institutions and
other commercial customers. This reportable segment comprises
three separate operating segments our Tremco Group,
StonCor Group, and RPM II/Industrial Group. Products and
services within this reportable segment include construction
chemicals, roofing systems, weatherproofing and other sealants,
flooring and specialty chemicals.
Our consumer reportable segment manufactures and markets
professional use and do-it-yourself (DIY) products
for a variety of mainly consumer applications, including home
improvement and personal leisure activities. Our consumer
segments major manufacturing and distribution operations
are located primarily in North America, along with a few
locations in Europe. Consumer segment products are sold directly
to mass merchandisers, home improvement centers, hardware
stores, paint stores, craft shops and to other smaller customers
through distributors. This reportable segment comprises three
operating segments our DAP Group, Rust-Oleum/
18
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Zinsser Group, and RPM II/Consumer Group. Products within this
reportable segment include specialty, hobby and professional
paints; caulks; adhesives; silicone sealants; wood stains and
specialty confectionary coatings and films.
In addition to our two reportable segments, there is a category
of certain business activities and expenses, referred to as
corporate/other, that does not constitute an operating segment.
This category includes our corporate headquarters and related
administrative expenses, results of our captive insurance
companies, gains or losses on the sales of certain assets and
other expenses not directly associated with either reportable
segment. Assets related to the corporate/other category consist
primarily of investments, prepaid expenses, deferred pension
assets, and headquarters property and equipment. These
corporate and other assets and expenses reconcile reportable
segment data to total consolidated income before income taxes
and identifiable assets. Our comparative three and nine month
results for the periods ended February 28, 2009 and
February 29, 2008, and identifiable assets as of
February 28, 2009 and May 31, 2008 are presented in
segment detail in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
406,691
|
|
|
$
|
467,538
|
|
|
$
|
1,729,851
|
|
|
$
|
1,681,984
|
|
Consumer Segment
|
|
|
228,705
|
|
|
|
264,235
|
|
|
|
780,975
|
|
|
|
885,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
635,396
|
|
|
$
|
731,773
|
|
|
$
|
2,510,826
|
|
|
$
|
2,567,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
156,845
|
|
|
$
|
191,717
|
|
|
$
|
713,029
|
|
|
$
|
701,576
|
|
Consumer Segment
|
|
|
77,813
|
|
|
|
99,528
|
|
|
|
281,944
|
|
|
|
341,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
234,658
|
|
|
$
|
291,245
|
|
|
$
|
994,973
|
|
|
$
|
1,042,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
(21,135
|
)
|
|
$
|
17,718
|
|
|
$
|
141,335
|
|
|
$
|
170,428
|
|
Consumer Segment
|
|
|
2,717
|
|
|
|
19,003
|
|
|
|
50,788
|
|
|
|
91,673
|
|
Corporate/Other
|
|
|
(26,062
|
)
|
|
|
(21,098
|
)
|
|
|
(75,940
|
)
|
|
|
(65,416
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
(44,480
|
)
|
|
$
|
15,623
|
|
|
$
|
116,183
|
|
|
$
|
196,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 28,
|
|
|
May 31,
|
|
Identifiable Assets
|
|
2009
|
|
|
2008
|
|
|
Industrial Segment
|
|
$
|
1,684,468
|
|
|
$
|
2,130,532
|
|
Consumer Segment
|
|
|
1,156,301
|
|
|
|
1,342,572
|
|
Corporate/Other
|
|
|
369,681
|
|
|
|
290,463
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
3,210,450
|
|
|
$
|
3,763,567
|
|
|
|
|
|
|
|
|
|
|
NOTE L
STOCK REPURCHASE PROGRAM
On January 8, 2008, we announced our authorization of a
stock repurchase program under which we may repurchase shares of
RPM International Inc. common stock at managements
discretion for general corporate purposes. Our current intent is
to limit our repurchases only to amounts required to offset
dilution created by stock issued in connection with our
equity-based compensation plans, or approximately one to two
million shares per year. As a result of this authorization, we
may repurchase shares from time to time in the open market or in
private transactions at various times and in amounts and for
prices that our management deems appropriate, subject to
19
RPM
INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
insider trading rules and other securities law restrictions. The
timing of our purchases will depend upon prevailing market
conditions, alternative uses of capital and other factors. We
may limit or terminate the repurchase program at any time.
During the nine month period ended February 28, 2009, we
repurchased approximately 2.4 million shares of our common
stock at a cost of approximately $43.4 million under this
program. There was no activity under this program during the
third quarter of fiscal 2009.
NOTE M
CONVERTIBLE NOTES
As previously reported, during our first fiscal quarter ended
August 31, 2008, our Senior Convertible Notes (the
Convertible Notes) due May 13, 2033 became
eligible for conversion based upon the price of RPM
International Inc. common stock. Subsequent to this event, on
June 13, 2008, we called for the redemption of all of our
outstanding Convertible Notes on the effective date of
July 14, 2008 (the Redemption Date). Prior
to the Redemption Date, virtually all of the holders had
already converted their Convertible Notes into
8,030,455 shares of RPM International Inc. common stock, or
27.0517 shares of common stock for each $1,000 Face Value
Convertible Note they held. Any fractional shares from the
conversion were paid in cash.
NOTE N
SUBSEQUENT EVENT
On April 7, 2009, we replaced our existing
$125.0 million accounts receivable securitization program,
under which we had no outstanding balance at February 28,
2009, and which was set to expire on May 7, 2009, with a
new, three-year, $150.0 million accounts receivable
securitization program (the new program). The new
program, which was established with two banks for certain of our
subsidiaries (originating subsidiaries),
contemplates that the originating subsidiaries will sell certain
of their accounts receivable to RPM Funding Corporation, a
wholly owned special purpose entity (SPE), which
will then transfer undivided interests in such receivables to
the participating banks. Once transferred to the SPE, such
receivables are owned in their entirety by the SPE and are not
available to satisfy claims of our creditors or creditors of the
originating subsidiaries until the obligations owing to the
participating banks have been paid in full. The transactions
contemplated by the new program do not constitute a form of
off-balance sheet financing and will be fully reflected in our
financial statements. Entry into the new program increases our
liquidity by $25.0 million, but increases our financing
costs due to higher market rates. The amounts available under
the program are subject to changes in the credit ratings of our
customers, customer concentration levels or certain
characteristics of the underlying accounts receivable.
NOTE O
NEW ACCOUNTING STANDARDS
In December 2007, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting
Standards (SFAS) No. 141(R), Business
Combinations, and SFAS No. 160, Accounting
and Reporting of Noncontrolling Interests in Consolidated
Financial Statements, an amendment of ARB No. 51.
SFAS No. 141(R) and SFAS No. 160 are
required to be adopted simultaneously and are effective for our
fiscal year ending May 31, 2010. Under
SFAS No. 141(R), upon initially obtaining control of
another entity or business, an acquirer will recognize 100% of
the fair values of assets acquired, including goodwill, and
liabilities assumed, with limited exceptions, even if the
acquirer has not acquired 100% of the target. Also, under
SFAS No. 141(R), transaction costs will no longer be
considered part of the fair value of an acquisition, and will be
expensed as incurred. We are currently evaluating the impact
that the adoption of this statement will have on our financial
statements.
SFAS No. 160 improves the relevance, comparability and
transparency of financial information provided to investors by
requiring all entities to report noncontrolling (minority)
interests in subsidiaries in the same way. Additionally,
SFAS No. 160 eliminates the diversity that currently
exists in accounting for transactions between an entity and
noncontrolling interests by requiring they be treated as equity
transactions. SFAS No. 160 is effective for our fiscal
year ending May 31, 2010. We are currently evaluating the
impact that the adoption of this statement will have on our
financial statements.
20
|
|
ITEM 2.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
CRITICAL
ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements include the accounts of
RPM International Inc. and its majority-owned subsidiaries.
Preparation of our financial statements requires the use of
estimates and assumptions that affect the reported amounts of
our assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. We continually evaluate these
estimates, including those related to our asbestos liability;
allowances for doubtful accounts; inventories; allowances for
recoverable taxes; useful lives of property, plant and
equipment; goodwill and other intangible assets; environmental
and other contingent liabilities; income tax valuation
allowances; pension plans; and the fair value of financial
instruments. We base our estimates on historical experience, our
most recent facts, and other assumptions that we believe to be
reasonable under the circumstances. These estimates form the
basis for making judgments about the carrying values of our
assets and liabilities. Actual results, which are shaped by
actual market conditions, including legal settlements, may
differ materially from our estimates.
We have identified below the accounting policies and estimates
that are the most critical to our financial statements.
Revenue
Recognition
Revenues are recognized when realized or realizable, and when
earned. In general, this is when title and risk of loss pass to
the customer. Further, revenues are realizable when we have
persuasive evidence of a sales arrangement, the product has been
shipped or the services have been provided to the customer, the
sales price is fixed or determinable, and collectibility is
reasonably assured. We reduce our revenues for estimated
customer returns and allowances, certain rebates, sales
incentives and promotions in the same period the related sales
are recorded.
We also record revenues generated under long-term, construction
contracts, mainly in connection with the installation of
specialized roofing and flooring systems, and related services.
In general, we account for long-term, construction contracts
under the percentage-of-completion method, and therefore record
contract revenues and related costs as our contracts progress.
This method recognizes the economic results of contract
performance on a timelier basis than does the completed-contract
method; however, application of this method requires reasonably
dependable estimates of progress toward completion, as well as
other dependable estimates. When reasonably dependable estimates
cannot be made, or if other factors make estimates doubtful, the
completed-contract method is applied. Under the
completed-contract method, billings and costs are accumulated on
the balance sheet as the contract progresses, but no revenue is
recognized until the contract is complete or substantially
complete.
Translation
of Foreign Currency Financial Statements and Foreign Currency
Transactions
Our reporting currency is the U.S. dollar. However, the
functional currency for each of our foreign subsidiaries is its
local currency. We translate the amounts included in our
Consolidated Statements of Income from our foreign subsidiaries
into U.S. dollars at weighted-average exchange rates, which
we believe are representative of the actual exchange rates on
the dates of the transactions. Our foreign subsidiaries
assets and liabilities are translated into U.S. dollars
from local currency at the actual exchange rates as of the end
of each reporting date, and we record the resulting foreign
exchange translation adjustments in our Consolidated Balance
Sheets as a component of accumulated other comprehensive income
(loss). If the U.S. dollar continues to strengthen, we will
continue to reflect the resulting losses as a component of
accumulated other comprehensive income. Conversely, if the
U.S. dollar were to weaken, foreign exchange translation
gains could result, which would favorably impact accumulated
other comprehensive income. Translation adjustments will be
included in net earnings in the event of a sale or liquidation
of any of our underlying foreign investments, or in the event
that we distribute the accumulated earnings of consolidated
foreign subsidiaries. If we determined that the functional
currency of any of our foreign subsidiaries should be the
U.S. dollar, our financial statements would be affected.
Should this occur, we would adjust our reporting to
appropriately account for any such changes.
21
As appropriate, we use permanently invested intercompany loans
as a source of capital to reduce exposure to foreign currency
fluctuations at our foreign subsidiaries. These loans, on a
consolidated basis, are treated as being analogous to equity for
accounting purposes. Therefore, foreign exchange gains or losses
on these intercompany loans are recorded in accumulated other
comprehensive income (loss). If we were to determine that the
functional currency of any of our subsidiaries should be the
U.S. dollar, we would no longer record foreign exchange
gains or losses on such intercompany loans.
Goodwill
We apply the provisions of SFAS No. 141,
Business Combinations, which addresses the initial
recognition and measurement of goodwill and intangible assets
acquired in a business combination. We also apply the provisions
of SFAS No. 142, Goodwill and Other Intangible
Assets, which requires that goodwill be tested at least on
an annual basis, or more frequently as impairment indicators
arise, using a fair-value approach at the reporting unit level.
Our reporting units have been identified at the component level,
or one level below our operating segments. We have elected to
perform our annual required impairment tests, which involve the
use of estimates related to the fair market values of the
reporting units with which goodwill is associated, during our
fourth fiscal quarter. Calculating the fair market values of
reporting units requires our significant use of estimates and
assumptions.
We use significant judgment in determining the most appropriate
method to establish the fair values of each of our reporting
units. We estimate the fair values of our reporting units by
employing various valuation techniques, depending on the
availability and reliability of comparable market value
indicators, and employ methods and assumptions which include the
application of third-party market value indicators and the
computation of discounted future cash flows for each of our
reporting units annual projected earnings before interest,
taxes, depreciation and amortization. In applying this
methodology, we rely on a number of factors, including future
business plans, actual and forecasted operating results, and
market data. Our estimates are based upon assumptions we believe
to be reasonable, but which by nature are uncertain and
unpredictable. We believe we incorporate ample sensitivity
ranges into our analysis of goodwill impairment testing for each
reporting unit, such that actual experience would need to be
materially out of the range of expected assumptions in order for
an impairment to remain undetected. In the event that our
calculations indicate that goodwill is impaired, a fair value
estimate of each tangible and intangible asset would be
established. This process would require the estimation of the
discounted cash flows expected to be generated by each asset in
addition to independent asset appraisals, as appropriate, and,
if impaired, these balances would be written down to fair value.
Our cash flow estimates are based on our historical experience
and our internal business plans, and appropriate discount rates
are applied. Losses, if any, resulting from goodwill impairment
tests would be reflected in pre-tax income in our income
statement. We have not incurred any such impairment losses to
date.
Other
Long-Lived Assets
We assess identifiable, non-goodwill intangibles and other
long-lived assets for impairment whenever events or changes in
facts and circumstances indicate the possibility that the
carrying values of these assets may not be recoverable over
their estimated remaining useful lives. Factors considered
important in our assessment, which might trigger an impairment
evaluation, include the following:
|
|
|
|
|
significant under-performance relative to historical or
projected future operating results;
|
|
|
|
significant changes in the manner of our use of the acquired
assets;
|
|
|
|
significant changes in the strategy for our overall
business; and
|
|
|
|
significant negative industry or economic trends.
|
Additionally, we test all indefinite-lived intangible assets for
impairment at least annually during our fiscal fourth quarter.
Measuring a potential impairment of non-goodwill intangibles and
other long-lived assets requires the use of various estimates
and assumptions, including the determination of which cash flows
are directly related to the assets being evaluated, the
respective useful lives over which those cash flows will occur
and potential residual values, if any. If we determine that the
carrying values of these assets may not be recoverable based
upon the
22
existence of one or more of the above-described indicators or
other factors, any impairment amounts would be measured based on
the projected net cash flows expected from these assets,
including any net cash flows related to eventual disposition
activities. The determination of any impairment losses would be
based on the best information available, including internal
estimates of discounted cash flows, quoted market prices, when
available, and independent appraisals, as appropriate, to
determine fair values. Cash flow estimates would be based on our
historical experience and our internal business plans, with
appropriate discount rates applied. We have not incurred any
such impairment losses to date.
Deferred
Income Taxes
Our provision for income taxes is calculated in accordance with
SFAS No. 109, Accounting for Income Taxes,
which requires the recognition of deferred income taxes using
the liability method. Deferred income taxes reflect the net tax
effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes and certain changes in
valuation allowances. We provide valuation allowances against
deferred tax assets if, based on available evidence, it is more
likely than not that some portion or all of the deferred tax
assets will not be realized.
In determining the adequacy of valuation allowances, we consider
cumulative and anticipated amounts of domestic and international
earnings or losses, anticipated amounts of foreign source
income, as well as the anticipated taxable income resulting from
the reversal of future taxable temporary differences.
We intend to maintain any recorded valuation allowances until
sufficient positive evidence (for example, cumulative positive
foreign earnings or additional foreign source income) exists to
support a reversal of the tax valuation allowances.
Contingencies
We are party to claims and lawsuits arising in the normal course
of business, including the various asbestos-related suits
discussed in Note F to our Consolidated Financial
Statements. Although we cannot precisely predict the amount of
any liability that may ultimately arise with respect to any of
these matters, we record provisions when we consider the
liability probable and reasonably estimable. Our provisions are
based on historical experience and legal advice, are reviewed
quarterly and are adjusted according to developments. Estimating
probable losses requires the analysis of multiple forecasted
factors that often depend on judgments about potential actions
by third parties, such as regulators, courts, and state and
federal legislatures. Changes in the amounts of our loss
provisions, which can be material, affect our Consolidated
Statements of Income. Due to the inherent uncertainties in the
process undertaken to estimate potential losses, we are unable
to estimate an additional range of loss in excess of our
accruals. While it is reasonably possible that such excess
liabilities, if they were to occur, could be material to
operating results in any given quarter or year of their
recognition, we do not believe that it is reasonably possible
that such excess liabilities would have a material adverse
effect on our long-term results of operations, liquidity or
consolidated financial position.
Our environmental-related accruals are similarly established
and/or
adjusted as more information becomes available upon which costs
can be reasonably estimated. Here again, actual costs may vary
from these estimates because of the inherent uncertainties
involved, including the identification of new sites and the
development of new information about contamination. Certain
sites are still being investigated and, therefore, we have been
unable to fully evaluate the ultimate costs for those sites. As
a result, accruals have not been estimated for certain of these
sites and costs may ultimately exceed existing estimated
accruals for other sites. We have received indemnities for
potential environmental issues from purchasers of certain of our
properties and businesses and from sellers of some of the
properties or businesses we have acquired. We have also
purchased insurance to cover potential environmental liabilities
at certain sites. If the indemnifying or insuring party fails
to, or becomes unable to, fulfill its obligations under those
agreements or policies, we may incur environmental costs in
addition to any amounts accrued, which may have a material
adverse effect on our financial condition, results of operations
or cash flows.
Additionally, our operations are subject to various federal,
state, local and foreign tax laws and regulations which govern,
among other things, taxes on worldwide income. The calculation
of our income tax expense is based on the best information
available and involves our significant judgment. The actual
income tax liability for each
23
jurisdiction in any year can be, in some instances, determined
ultimately several years after the financial statements have
been published.
We maintain accruals for estimated income tax exposures for many
different jurisdictions. Tax exposures are settled primarily
through the resolution of audits within each tax jurisdiction or
the closing of a statute of limitation. Tax exposures can also
be affected by changes in applicable tax laws or other factors,
which may cause us to believe a revision of past estimates is
appropriate. We believe that appropriate liabilities have been
established for income tax exposures; however, actual results
may differ materially from our estimates.
Allowance
for Doubtful Accounts Receivable
An allowance for anticipated uncollectible trade receivable
amounts is established using a combination of specifically
identified accounts to be reserved and a reserve covering trends
in collectibility. These estimates are based on an analysis of
trends in collectibility, past experience and individual account
balances identified as doubtful based on specific facts and
conditions. Receivable losses are charged against the allowance
when we confirm uncollectibility. Actual collections of trade
receivables could differ from our estimates due to changes in
future economic or industry conditions or specific
customers financial conditions.
Inventories
Inventories are stated at the lower of cost or market, cost
being determined on a
first-in,
first-out (FIFO) basis and market being determined on the basis
of replacement cost or net realizable value. Inventory costs
include raw materials, labor and manufacturing overhead. We
review the net realizable value of our inventory in detail on an
on-going basis, with consideration given to various factors,
which include our estimated reserves for excess, obsolete, slow
moving or distressed inventories. If actual market conditions
differ from our projections, and our estimates prove to be
inaccurate, write-downs of inventory values and adjustments to
cost of sales may be required. Historically, our inventory
reserves have approximated actual experience.
Marketable
Securities
Marketable securities, included in other current and long-term
assets, are composed of available for sale securities and are
reported at fair value, based on quoted market prices. Realized
gains and losses on sales of investments are recognized in net
income on the specific identification basis. Changes in fair
values of securities that are considered temporary, are recorded
as unrealized gains and losses, net of applicable taxes, in
accumulated other comprehensive income (loss) within
stockholders equity. Other-than-temporary declines in
market value from original cost are reflected in operating
income in the period in which the unrealized losses are deemed
other than temporary. In order to determine whether an
other-than-temporary decline in market value has occurred, the
duration of the decline in value and our ability to hold the
investment to recovery are considered in conjunction with an
evaluation of the strength of the underlying collateral and the
extent to which the investments amortized cost or cost, as
appropriate, exceeds its related market value.
Pension
and Postretirement Plans
We sponsor qualified defined benefit pension plans and various
other nonqualified postretirement plans. The qualified defined
benefit pension plans are funded with trust assets invested in a
diversified portfolio of debt and equity securities and other
investments. Among other factors, changes in interest rates,
investment returns and the market value of plan assets can
(i) affect the level of plan funding; (ii) cause
volatility in the net periodic pension cost; and
(iii) increase our future contribution requirements. A
significant decrease in investment returns or the market value
of plan assets or a significant decrease in interest rates could
increase our net periodic pension costs and adversely affect our
results of operations. A significant increase in our
contribution requirements with respect to our qualified defined
benefit pension plans could have an adverse impact on our cash
flow.
Changes in our key plan assumptions would impact net periodic
benefit expense and the projected benefit obligation for our
defined benefit and various postretirement benefit plans. Based
upon May 31, 2008 information,
24
the following tables reflect the impact of a 1% change in the
key assumptions applied to our defined benefit pension plans in
the U.S. and internationally:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
|
(In millions)
|
|
|
Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
(2.7
|
)
|
|
$
|
2.9
|
|
|
$
|
(2.1
|
)
|
|
$
|
2.3
|
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
(21.2
|
)
|
|
$
|
23.2
|
|
|
$
|
(19.7
|
)
|
|
$
|
23.8
|
|
Expected Return on Plan Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
(1.5
|
)
|
|
$
|
1.5
|
|
|
$
|
(1.0
|
)
|
|
$
|
1.0
|
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
|
$
|
N/A
|
|
Compensation Increase
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
2.4
|
|
|
$
|
(2.1
|
)
|
|
$
|
1.0
|
|
|
$
|
(0.9
|
)
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
9.7
|
|
|
$
|
(8.6
|
)
|
|
$
|
5.4
|
|
|
$
|
(4.8
|
)
|
Based upon May 31, 2008 information, the following tables
reflect the impact of a 1% change in the key assumptions applied
to our various postretirement health care plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
|
International
|
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
1% Increase
|
|
|
1% Decrease
|
|
|
|
(In millions)
|
|
|
Discount Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
|
|
|
$
|
|
|
|
$
|
(0.2
|
)
|
|
$
|
0.3
|
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
(0.5
|
)
|
|
$
|
0.5
|
|
|
$
|
(2.1
|
)
|
|
$
|
2.6
|
|
Healthcare Cost Trend Rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in expense in FY 2008
|
|
$
|
0.0
|
|
|
$
|
(0.0
|
)
|
|
$
|
0.4
|
|
|
$
|
(0.1
|
)
|
Increase (decrease) in obligation as of May 31, 2008
|
|
$
|
0.5
|
|
|
$
|
(0.5
|
)
|
|
$
|
2.9
|
|
|
$
|
(1.9
|
)
|
REPORTABLE
SEGMENT INFORMATION
Our business is divided into two reportable segments: the
industrial reportable segment and the consumer reportable
segment. Within each reportable segment, we aggregate three
operating segments that consist of individual groups of
companies and product lines, which generally address common
markets, share similar economic characteristics, utilize similar
technologies and can share manufacturing or distribution
capabilities. Our six operating segments represent components of
our business for which separate financial information is
available that is utilized on a regular basis by our chief
executive officer in determining how to allocate the assets of
the Company and evaluate performance. These six operating
segments are each managed by an operating segment manager, who
is responsible for the day-to-day operating decisions and
performance evaluation of the operating segments
underlying businesses. We evaluate the profit performance of our
segments primarily based on gross profit, and, to a lesser
extent, income (loss) before income taxes, but also look to
earnings (loss) before interest and taxes (EBIT) as
a performance evaluation measure because interest expense is
essentially related to corporate acquisitions, as opposed to
segment operations.
25
Our industrial reportable segment products are sold throughout
North America and also account for the majority of our
international sales. Our industrial product lines are sold
directly to contractors, distributors and end-users, such as
industrial manufacturing facilities, public institutions and
other commercial customers. This reportable segment comprises
three separate operating segments our Tremco Group,
StonCor Group, and RPM II/Industrial Group. Products and
services within this reportable segment include construction
chemicals, roofing systems, weatherproofing and other sealants,
flooring and specialty chemicals.
Our consumer reportable segment manufactures and markets
professional use and do-it-yourself (DIY) products
for a variety of mainly consumer applications, including home
improvement and personal leisure activities. Our consumer
segments major manufacturing and distribution operations
are located primarily in North America. Consumer segment
products are sold throughout North America directly to mass
merchants, home improvement centers, hardware stores, paint
stores, craft shops and to other smaller customers through
distributors. This reportable segment comprises three operating
segments our DAP Group, Rust-Oleum/Zinsser Group,
and RPM II/Consumer Group. Products within this reportable
segment include specialty, hobby and professional paints;
caulks; adhesives; silicone sealants; wood stains and specialty
confectionary coatings and films.
In addition to our two reportable segments, there is a category
of certain business activities and expenses, referred to as
corporate/other, that does not constitute an operating segment.
This category includes our corporate headquarters and related
administrative expenses, results of our captive insurance
companies, gains or losses on the sales of certain assets and
other expenses not directly associated with either reportable
segment. Assets related to the corporate/other category consist
primarily of investments, prepaid expenses, deferred pension
assets, and headquarters property and equipment. These
corporate and other assets and expenses reconcile reportable
segment data to total consolidated income before income taxes,
interest expense and earnings before interest and taxes.
26
The following table reflects the results of our reportable
segments consistent with our management philosophy, and
represents the information we utilize, in conjunction with
various strategic, operational and other financial performance
criteria, in evaluating the performance of our portfolio of
product lines.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Nine Months Ended
|
|
|
|
February 28,
|
|
|
February 29,
|
|
|
February 28,
|
|
|
February 29,
|
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
406,691
|
|
|
$
|
467,538
|
|
|
$
|
1,729,851
|
|
|
$
|
1,681,984
|
|
Consumer Segment
|
|
|
228,705
|
|
|
|
264,235
|
|
|
|
780,975
|
|
|
|
885,836
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
635,396
|
|
|
$
|
731,773
|
|
|
$
|
2,510,826
|
|
|
$
|
2,567,820
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
$
|
156,845
|
|
|
$
|
191,717
|
|
|
$
|
713,029
|
|
|
$
|
701,576
|
|
Consumer Segment
|
|
|
77,813
|
|
|
|
99,528
|
|
|
|
281,944
|
|
|
|
341,309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
$
|
234,658
|
|
|
$
|
291,245
|
|
|
$
|
994,973
|
|
|
$
|
1,042,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes(a)
|
|
$
|
(21,135
|
)
|
|
$
|
17,718
|
|
|
$
|
141,335
|
|
|
$
|
170,428
|
|
Interest (Expense), Net
|
|
|
(141
|
)
|
|
|
(311
|
)
|
|
|
(237
|
)
|
|
|
(1,968
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
(20,994
|
)
|
|
$
|
18,029
|
|
|
$
|
141,572
|
|
|
$
|
172,396
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes(a)
|
|
$
|
2,717
|
|
|
$
|
19,003
|
|
|
$
|
50,788
|
|
|
$
|
91,673
|
|
Interest (Expense), Net
|
|
|
(1,022
|
)
|
|
|
(855
|
)
|
|
|
(3,438
|
)
|
|
|
(2,705
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
3,739
|
|
|
$
|
19,858
|
|
|
$
|
54,226
|
|
|
$
|
94,378
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expense) Before Income Taxes(a)
|
|
$
|
(26,062
|
)
|
|
$
|
(21,098
|
)
|
|
$
|
(75,940
|
)
|
|
$
|
(65,416
|
)
|
Interest (Expense), Net
|
|
|
(12,357
|
)
|
|
|
(8,296
|
)
|
|
|
(37,825
|
)
|
|
|
(29,614
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
(13,705
|
)
|
|
$
|
(12,802
|
)
|
|
$
|
(38,115
|
)
|
|
$
|
(35,802
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes(a)
|
|
$
|
(44,480
|
)
|
|
$
|
15,623
|
|
|
$
|
116,183
|
|
|
$
|
196,685
|
|
Interest (Expense), Net
|
|
|
(13,520
|
)
|
|
|
(9,462
|
)
|
|
|
(41,500
|
)
|
|
|
(34,287
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT(b)
|
|
$
|
(30,960
|
)
|
|
$
|
25,085
|
|
|
$
|
157,683
|
|
|
$
|
230,972
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The presentation includes a reconciliation of Income (Loss)
Before Income Taxes, a measure defined by generally accepted
accounting principles (GAAP) in the U.S., to EBIT. |
|
(b) |
|
EBIT is defined as earnings (loss) before interest and taxes. We
evaluate the profit performance of our segments based on income
before income taxes, but also look to EBIT as a performance
evaluation measure because interest expense is essentially
related to corporate acquisitions, as opposed to segment
operations. We believe EBIT is useful to investors for this
purpose as well, using EBIT as a metric in their investment
decisions. EBIT should not be considered an alternative to, or
more meaningful than, operating income as determined in
accordance with GAAP, since EBIT omits the impact of interest
and taxes in determining operating performance, which represent
items necessary to our continued operations, given our level of
indebtedness and ongoing tax obligations. Nonetheless, EBIT is a
key measure expected by and useful to our fixed income
investors, rating agencies and the banking community all of whom
believe, and we concur, that this measure is |
27
|
|
|
|
|
critical to the capital markets analysis of our
segments core operating performance. We also evaluate EBIT
because it is clear that movements in EBIT impact our ability to
attract financing. Our underwriters and bankers consistently
require inclusion of this measure in offering memoranda in
conjunction with any debt underwriting or bank financing. EBIT
may not be indicative of our historical operating results, nor
is it meant to be predictive of potential future results. |
RESULTS
OF OPERATIONS
Three
Months Ended February 28, 2009
Net
Sales
On a consolidated basis, net sales of $635.4 million for
the third quarter ended February 28, 2009 declined 13.2%,
or $96.4 million, over net sales of $731.8 million
during the same period last year. The organic decline in sales
amounted to 16.2%, or $118.4 million, of the shortfall in
net sales over the prior year third quarter result, which
includes volume-related declines approximating 13.1% or
$95.9 million, and the impact of net unfavorable foreign
exchange rates year-over-year, which amounted to 6.7%, or
$49.0 million, offset partially by pricing initiatives
representing 3.6% of the prior period sales, or
$26.5 million. These pricing initiatives, including those
across both of our reportable segments, were instituted
primarily during prior periods in order to offset the rising
costs of many of our raw materials. Foreign exchange losses
resulted from the strong dollar against nearly all major foreign
currencies, with the majority of the losses resulting from the
weaker euro and Canadian dollar. Seven small acquisitions
provided 3.0% of sales growth over last year, or
$22.0 million.
Industrial segment net sales, which comprised 64.0% of the
current quarters consolidated net sales, totaled
$406.7 million, a decline of 13.0% from $467.6 million
during last years third quarter. This segments net
sales decline resulted primarily from an overall decline in
organic sales, which accounted for a 17.7% decline over prior
year third quarter sales, and included 8.4% from net unfavorable
foreign exchange differences and volume declines approximating
12.3%, offset partially by 3.0% as a result of prior period
price increases. Six small acquisitions provided 4.7% growth
over the prior year third quarter. The pure unit organic sales
decline in the industrial segment resulted primarily from
declines in exterior insulated finishing systems, sealants and
certain specialty colorant and coatings product lines. There was
slow, but continued growth during the quarter from ongoing
industrial and commercial maintenance and improvement activities
in Canada, Latin America, South Africa and the Middle East. A
few of our industrial segment product lines, including corrosion
control coatings and global roofing products and services,
continued to grow organic sales during the quarter. Despite the
impact of the continuing weak economic environment on certain
sectors of our domestic commercial construction markets, which
we expect will continue throughout the remainder of our current
fiscal year, we continue to secure new business through strong
brand offerings, new product innovations and international
expansion.
Consumer segment net sales, which comprised 36.0% of the current
quarters consolidated net sales, decreased by 13.4% to
$228.7 million from $264.2 million during last
years third quarter. The decline in this segment was
purely organic, including volume declines approximating 14.4%,
in addition to the impact of net unfavorable foreign exchange
rates for approximately 3.6%, offset partially by prior period
price increases, which provided 4.6%. The organic sales volume
decline reflects the continued weakness in the economy,
including sluggish sales for retailers and distributors impacted
by the domestic housing recession. Our consumer segment
continues to increase market penetration at major retail
accounts with various new product launches, some of which
occurred earlier in this fiscal year, while also refocusing
efforts on our various repair and maintenance products.
Gross
Profit Margin
Our consolidated gross profit declined to 36.9% of net sales
this quarter from 39.8% of net sales for the same period a year
ago, reflecting our overall lower overhead absorption resulting
from a 13.1% decline in organic sales volume, which accounted
for approximately 2.8% of sales, or 280 basis points
(bps). Higher raw material costs, which impacted the
current gross profit margin by approximately 280 bps,
reflect the impact of year-over-year increases in oil prices and
energy costs, which had previously put upward pressure on many
of our raw material, packaging and transportation costs. Higher
pricing, which favorably impacted our gross profit margin by
approximately 270 bps, only partially offset the
combination of these year-over-year higher raw materials costs
28
and the impact of declining sales volumes. While many of our key
raw materials costs were higher than they were during the same
period a year ago, such as plasticizers, epoxies, various
solvents and resins, we experienced some relief in certain other
raw material and transportation costs this quarter, as a result
of declines in certain energy prices. We anticipate that these
changes will favorably impact our gross profit margin during the
final quarter of the current fiscal year.
Our industrial segment gross profit for the third quarter of
fiscal 2009 fell by 240 bps, to 38.6% of net sales from
last years third quarter result of 41.0% of net sales.
This segments 12.3% decline in organic sales volume
unfavorably impacted this segments gross margin by
approximately 340 bps during the current period, in
addition to higher raw material costs which had a negative
impact of approximately 130 bps. Higher selling prices
approximating 230 bps slightly offset these costs during
the quarter.
Our consumer segment gross profit for the quarter declined to
34.0% of net sales from 37.7% of net sales for the same period
last year, or approximately 370 bps, mainly as a result of
the approximate 550 bps impact of higher raw material
costs, partially offset by the impact of recent price increases
approximating 370 bps. The remaining 190 bps related
to this segments organic sales volume decline of 14.4%
versus last years third quarter net sales.
Selling,
General and Administrative Expenses
(SG&A)
Our consolidated SG&A increased to 41.8% of net sales for
the current quarter compared with 36.4% a year ago. The
540 bps increase in SG&A as a percent of sales
primarily reflects certain additional strategic initiatives that
were undertaken this quarter in order to reduce our fixed cost
base in light of the worldwide recession, by certain of our
businesses relating to additional headcount reductions, which
resulted in severance costs approximating 230 bps for the
quarter. We anticipate that these strategic reductions will
favorably impact our margins during the fourth fiscal quarter of
this year. The increase in SG&A as a percent of sales also
reflects the impact of the overall unit volume decline in net
sales, combined with additional bad debt, warranty and
unfavorable foreign exchange adjustments over the prior year,
offset partially by lower commissions on declining sales and
lower compensation-related costs.
Our industrial segment SG&A increased to 43.8% of net sales
for the current quarter from 37.1% for the same period last
year, reflecting the impact of certain additional severance
expenses incurred during the current quarter, which approximated
280 bps for this segment. Additionally, there were higher
employment-related costs, including increased compensation and
benefit-related accruals, and additional bad debt and
warranty-related expense. Partially offsetting those items was
the favorable impact of the prior quarter headcount reductions.
Our consumer segment SG&A as a percentage of net sales for
the current quarter increased by 220 bps to 32.4% compared
with 30.2% a year ago, reflecting the unfavorable margin impact
of the sales volume decline in net sales in this segment, in
addition to certain strategic reductions in this segments
workforce which approximated 140 bps.
SG&A expenses in our corporate/other category increased
during the current quarter to $13.7 million from
$12.8 million during the corresponding period last year.
This increase essentially reflects the combination of net
unfavorable foreign currency adjustments and higher legal
expense. Partially offsetting these higher expenses was the
impact of lower compensation-related expenses versus last
years third fiscal quarter.
License fee and joint venture income of approximately
$0.6 million and $0.8 million for each of the quarters
ended February 28, 2009 and February 29, 2008,
respectively, are reflected as reductions of consolidated
SG&A expenses.
We recorded total net periodic pension and postretirement
benefit costs of $5.7 million and $4.9 million for the
quarters ended February 28, 2009 and February 29,
2008, respectively. This increased pension expense of
$0.8 million was primarily the result of higher interest
costs approximating $0.6 million, along with net actuarial
losses incurred of approximately $0.2 million. We expect
that pension expense will fluctuate on a year-to-year basis,
depending primarily upon the investment performance of plan
assets and potential changes in interest rates, but such changes
are not expected to be material to our consolidated financial
results. See Note G, Pension and Postretirement
Health Care Benefits, for additional information regarding
these benefits.
29
Net
Interest Expense
Net interest expense was approximately $4.1 million higher
in the third quarter of fiscal 2009 than in the corresponding
period of fiscal 2008. We currently include interest income and
expense, along with realized gains and losses on the sales of
our marketable securities and
other-than-temporary
impairment losses on our marketable securities in this net
figure.
Interest expense was $12.4 million during this years
third fiscal quarter versus $13.5 million for the
corresponding period a year ago, for a decrease of
$1.1 million. The combination of lower interest rates,
which averaged 4.7% overall during the quarter compared with
4.9% in the prior year period, and lower average borrowings this
quarter reduced interest expense by approximately
$2.3 million versus last years third quarter.
Partially offsetting this reduction was the impact of higher
weighted-average net borrowings associated with recent
acquisitions, approximating $120.6 million during the
quarter, which increased interest expense by approximately
$0.7 million, and other additional interest-related costs
approximating $0.5 million.
Interest and dividend income was $2.2 million during the
third quarter of fiscal 2009 versus $3.7 million during the
corresponding period last year, or a decrease of
$1.5 million. Net realized gains on the sales of
investments resulted in a net gain of $0.6 million for the
quarter ended February 28, 2009 versus a net gain of
$1.0 million for the same period last year. Additionally,
there were impairments recognized on securities that management
has determined are
other-than-temporary
declines in value, which approximated $4.0 million and
$0.7 million for the third fiscal quarter of 2009 and 2008,
respectively. The year over year changes in these items reflect
the current global economic downturn and related declines in the
U.S. financial markets..
Income
(Loss) Before Income Taxes (IBT)
Our consolidated pretax loss for this years third quarter
of $44.5 million compares with last years third
quarter pretax income of $15.6 million, for a negative
margin on net sales of 7.0% versus a profit margin on sales of
2.2% a year ago.
Our industrial segment had a pretax loss of $21.1 million
versus last years pretax income of $17.7 million,
reflecting this segments 12.3% decline in organic sales
volume during the quarter, as previously discussed, in addition
to certain higher raw material costs and additional severance
expense occurring during this years third quarter. Our
consumer segment IBT declined to $2.7 million for the
quarter, from $19.0 million last year, primarily as a
result of the 14.4% organic sales decline combined with
additional severance expenses and certain higher raw material
costs.
Income
Tax Rate
Our effective income tax benefit rate was 30.5% for the three
months ended February 28, 2009 compared to an effective
income tax expense rate of 22.2% for the three months ended
February 29, 2008.
For the three months ended February 28, 2009 and, to a
lesser extent for the three months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally due to decreases in taxes as a result of the impact
of certain foreign operations on our U.S. taxes and the
effect of lower tax rates in certain of our foreign
jurisdictions. The decreases in the effective tax rates were
partially offset by provisions for valuation allowances
associated with losses incurred by certain of our foreign
businesses, state and local income taxes and other
non-deductible business operating expenses.
As of February 28, 2009, we have determined, based on the
available evidence, that it is uncertain whether we will be able
to recognize certain deferred tax assets. Therefore, in
accordance with the provisions of SFAS No. 109,
Accounting for Income Taxes, we intend to maintain
the tax valuation allowance recorded at February 28, 2009
for certain deferred tax assets until sufficient positive
evidence (for example, cumulative positive foreign earnings or
additional foreign source income) exists to support the reversal
of the tax valuation allowances. This valuation allowance
relates to U.S. federal foreign tax credit carryforwards,
certain foreign net operating losses and net foreign deferred
tax assets recorded in purchase accounting. Any reversal of the
valuation allowance that was recorded in purchase accounting
would reduce goodwill.
30
Net
Income (Loss)
Net loss of $30.9 million for the three months ended
February 28, 2009 compares to net income of
$12.2 million for the same period last year, for a negative
net margin on sales of 4.9% for the current quarter compared to
the prior years 1.7% net margin on sales. The decline in
net margin year-over-year resulted from the combined impact of
declining sales volumes in both segments, higher raw material
costs and severance-related expense, offset partially by the
impact of acquisitions and price increases.
Diluted loss per common share for this years third quarter
of $0.24 compares with diluted earnings per share of $0.10 a
year ago.
Nine
Months Ended February 28, 2009
Net
Sales
On a consolidated basis, net sales of $2.51 billion for the
nine months ended February 28, 2009 decreased 2.2%, or
$56.9 million, over net sales of $2.57 billion during
the same period last year. Organic sales declined by 5.5%, or
$139.8 million, from last year, including volume-related
declines approximating 6.3% or $158.6 million, and the
impact of net unfavorable foreign exchange rates year-over-year,
which amounted to 2.4%, or $62.0 million, offset partially
by pricing initiatives representing 3.2%, or $80.8 million.
These pricing initiatives, including those across both of our
reportable segments, were instituted primarily during prior
periods in order to offset the rising costs of many of our raw
materials. Foreign exchange losses resulted from the stronger
dollar against nearly all major foreign currencies, with the
majority of the losses resulting from the weaker euro and
Canadian dollar. Ten small acquisitions, net of the lost revenue
related to the divestiture of our Bondo subsidiary during last
years second fiscal quarter, provided 3.3% of the sales
growth over last year, or $82.9 million.
Industrial segment net sales, which comprised 68.9% of
consolidated net sales for this years first nine months,
totaled $1.73 billion, an increase of 2.8% from
$1.68 billion during last years first nine months.
This segments net sales growth resulted primarily from
eight small acquisitions, which contributed 6.7% of the growth
over the prior year period. Organic sales declined by 3.9% from
the corresponding prior year period, including the combination
of 2.8% from net unfavorable foreign exchange differences and
volume declines approximating 4.2%, offset partially by 3.1%
from favorable pricing.
Consumer segment net sales, which comprised 31.1% of the current
years consolidated net sales, decreased by 11.8% to
$781.0 million from $885.8 million during last
years first nine months. Contributing to this
segments net sales decline was the impact of the
divestiture of our Bondo subsidiary during last years
second fiscal quarter, which was only slightly offset by recent
acquisitions, for a net negative impact of 3.3%. Additionally,
our consumer segment organic sales declined by 8.5%, which
includes the combined impact of net unfavorable foreign exchange
rates for approximately 1.7% and a decline in sales volume
amounting to approximately 10.1%, offset partially by pricing,
which provided approximately 3.3%.
Gross
Profit Margin
Our consolidated gross profit declined to 39.6% of net sales
this first nine months from 40.6% of net sales for the same
period a year ago, reflecting the impact of increased raw
material costs, which were only partially offset by our recent
price increases, for a net negative impact of approximately
80 bps. Additionally, the impact of the 6.3% decline in
organic sales volume, resulting in lower overhead absorption,
provided the remainder of the decline in this years gross
profit margin.
Our industrial segment gross profit for the first nine months of
fiscal 2009 dropped by approximately 50 bps to 41.2% of net
sales from 41.7% of net sales a year ago. Higher raw materials
costs net of higher selling prices during the current year
period resulted in a net unfavorable impact on this
segments gross profit margin of approximately 10 bps,
while the impact of the 4.2% decline in organic sales volume
provided the remainder of the decline.
Our consumer segment gross profit for the first nine months of
fiscal 2009 declined to 36.1% of net sales from 38.5% of net
sales in the corresponding period last year, or approximately
240 bps, mainly as a result of the approximate 460 bps
impact of higher raw material costs, partially offset by recent
price increases approximating
31
250 bps, combined with this segments 10.1% organic
sales volume decline over last year. Partially offsetting the
impact of these items was a favorable mix of sales compared with
the prior year period.
SG&A
Our consolidated SG&A increased to 33.3% of net sales for
the first nine months of fiscal 2009 compared with 31.6% for the
same period a year ago. The 170 bps increase in SG&A
as a percentage of net sales primarily reflects the impact of
certain additional strategic initiatives that were undertaken in
order to reduce our fixed cost base, in light of the worldwide
recession, by some of our businesses relating to further
headcount reductions, which resulted in severance costs that
impacted SG&A as a percentage of net sales by approximately
80 bps for the current year to date period. Also reflected
in this increase was the overall unit volume decline in net
sales, combined with additional bad debt, environmental and
warranty-related expense versus the prior year. These additional
expenses were partially offset by reductions in advertising and
legal expense, and also reflect the favorable impact of declines
in commissions and other compensation reductions that resulted
from the reductions in force previously implemented across both
segments. We anticipate that the additional strategic reductions
taken during the current years third fiscal quarter will
favorably impact our margins during the final fiscal quarter of
2009.
Our industrial segment SG&A increased to 33.0% of net sales
for the first nine months of the current fiscal year from 31.5%
for the same period last year, reflecting certain severance
expenses incurred during the current year to date period, which
approximated 90 bps for this segment. The change also
reflects the impact of higher employment-related costs,
including increased compensation and benefit-related accruals,
higher warranty-related expense, and additional bad debt expense
over the prior year period. Partially offsetting those items was
certain favorable foreign exchange transactions during the
current years first nine months.
Our consumer segment SG&A as a percentage of net sales for
the first nine months of the current fiscal year increased by
130 bps to 29.2% compared with 27.9% a year ago, reflecting
primarily the unit volume decline in net sales in this segment,
in addition to certain strategic reductions in this
segments workforce which approximated 70 bps.
SG&A expenses in our corporate/other category increased
during the current year to date period to $38.1 million
from $35.8 million during the corresponding period last
year. This increase essentially reflects the impact of net
unfavorable foreign currency adjustments and prior year
favorable insurance-related loss reserve adjustments, which did
not recur this year, partially offset by this years lower
legal expenses and lower compensation-related expense versus
last years first nine months.
License fee and joint venture income of approximately
$2.1 million and $1.9 million for each of the first
nine months of fiscal 2009 and 2008, respectively, are reflected
as reductions of consolidated SG&A expenses.
We recorded total net periodic pension and postretirement
benefit costs of $17.1 million and $14.6 million for
the nine month periods ended February 28, 2009 and
February 29, 2008, respectively. This increased pension
expense of $2.5 million was primarily the result of higher
interest costs approximating $2.0 million, along with net
actuarial losses incurred of approximately $0.5 million. We
expect that pension expense will fluctuate on a year-to-year
basis, depending primarily upon the investment performance of
plan assets and potential changes in interest rates, but such
changes are not expected to be material to our consolidated
financial results. See Note G, Pension and
Postretirement Health Care Benefits, for additional
information regarding these benefits.
Net
Interest Expense
Net interest expense was approximately $7.2 million higher
in the first nine months of fiscal 2009 than in the
corresponding period of fiscal 2008. We currently include
interest income and expense, along with realized gains and
losses on the sales of our marketable securities and
other-than-temporary
impairment losses on our marketable securities in this net
figure.
Interest expense was $42.3 million for the first nine
months of fiscal 2009, versus $45.0 million for the
corresponding prior year period, or a decrease of
$2.7 million. Our lower average borrowings during the
current period reduced interest expense by $8.3 million,
while higher interest rates, which averaged 5.4% overall during
the current period, compared with 5.3% in the prior year period,
caused interest expense to increase by approximately
$0.3 million. Additionally, higher weighted-average net
borrowings associated with recent acquisitions, which
32
approximated $126.5 million during the current period,
increased interest expense by approximately $3.9 million,
while other additional interest-related costs increased interest
expense by an additional $1.4 million.
Interest and dividend income was $6.3 million during the
first nine months of fiscal 2009 versus $8.4 million during
the corresponding period last year, or a decrease of
$2.1 million. Net realized gains on the sales of
investments resulted in a net gain of $1.9 million for the
nine months ended February 28, 2009 versus a net gain of
$3.1 million for the same period last year. Additionally,
there were impairments recognized on securities that management
has determined are other-than-temporary declines in value, which
approximated $7.4 million and $0.8 million for the
first nine months of fiscal 2009 and 2008, respectively. The
year over year changes in these items reflect the current global
economic downturn and related declines in the
U.S. financial markets.
IBT
Our consolidated IBT for this years first nine months
declined to $116.2 million versus $196.7 million
during the same period a year ago, for a margin of 4.6% of net
sales versus 7.7% a year ago.
Our industrial segment IBT decreased by 17.1%, to
$141.3 million from last years $170.4 million,
reflecting this segments 4.2% decline in organic sales
over the prior year period, as previously discussed, combined
with additional bad debt and warranty expense,
compensation-related expense and severance expense occurring
during this years first nine months. Our consumer segment
IBT declined by 44.6%, to $50.8 million from
$91.7 million last year, primarily as a result of declining
sales volumes combined with net higher raw material costs and
severance expense versus the prior year to date period.
Income
Tax Rate
The effective income tax expense rate was 30.9% for the nine
months ended February 28, 2009 compared to an effective
income tax expense rate of 31.2% for the nine months ended
February 29, 2008.
For the nine months ended February 28, 2009 and, to a
lesser extent for the nine months ended February 29, 2008,
the effective tax rate differed from the federal statutory rate
principally as a result of the impact of certain foreign
operations on our U.S. taxes and the effect of lower tax
rates in certain of our foreign jurisdictions. The decreases in
the effective tax rates were partially offset by provisions for
valuation allowances associated with losses incurred by certain
of our foreign businesses, state and local income taxes and
other non-deductible business operating expenses.
As described in this Managements Discussion and Analysis
of Financial Condition and Results of Operations for the three
month period ended February 28, 2009, there is uncertainty
as to whether we will be able to recognize certain deferred tax
assets. Refer to that section for further information.
Net
Income
Net income of $80.3 million for the nine months ended
February 28, 2009 compares to $135.3 million for the
same period last year for a net margin on sales of 3.2% for the
current period compared to the prior periods 5.3% net
margin on sales. The decline in net margin year-over-year
resulted from the combined impact of declining sales volumes in
both segments, higher raw material costs and severance expense,
offset partially by the impact of acquisitions and favorable
pricing.
Diluted earnings per common share for this years first
nine months declined by 40.6% to $0.63 from $1.06 a year ago.
LIQUIDITY
AND CAPITAL RESOURCES
Cash
Flows From:
Operating
Activities
Operating activities provided cash flow of $134.6 million
during the first nine months of the current fiscal year compared
with $161.8 million of cash flow provided during the same
period of fiscal 2008.
33
The net decline in cash from operations includes the change in
net income, which declined by approximately $55.0 million
versus last year, in addition to changes in working capital
accounts and other accruals. A lower trade accounts receivable
balance at the end of the current nine month period, resulting
from additional cash collections, provided $317.4 million
in cash versus $181.2 million last year, or approximately
$136.2 million more cash year over year. Inventory balances
provided $17.4 million of cash this year compared with a
use of cash of $51.9 million last year, or
$69.3 million more cash year-over-year. With regard to
accounts payable, we used $85.3 million more during this
years first nine months compared to the same period a year
ago, as a result of a change in the timing of certain payments.
Accrued compensation and benefits used an additional
$38.5 million versus the prior year, while other accruals,
including those for other short-term and long-term items, used
an additional $48.6 million, due to changes in the timing
of such payments.
Cash provided from operations, along with the use of available
credit lines, as required, remain our primary sources of
liquidity.
Investing
Activities
Capital expenditures, other than for ordinary repairs and
replacements, are made to accommodate our continued growth to
achieve production and distribution efficiencies, to expand
capacity and to enhance our administration capabilities. Capital
expenditures of $37.0 million during this years first
nine months compare with current-year depreciation of
$47.4 million. Capital spending is expected to decline to a
level which will trail depreciation expense at least through
fiscal 2010. Due to additional capacity, which has been brought
on-line over the last several years, we believe there is
adequate production capacity to meet our needs based on
anticipated growth rates. Any additional capital expenditures
made over the next few years will likely relate primarily to new
products and technology.
Our captive insurance companies invest their excess cash in
marketable securities in the ordinary course of conducting their
operations, and this activity will continue. Differences in the
amounts related to these activities on a year-over-year basis
are primarily attributable to differences in the timing and
performance of their investments balanced against amounts
required to satisfy claims. At February 28, 2009, the fair
value of our investments in marketable securities totaled
$63.8 million, of which investments with a fair value of
$32.0 million were in an unrealized loss position. At
May 31, 2008, the fair value of our investments in
marketable securities totaled $110.4 million, of which
investments with a fair value of $25.8 million were in an
unrealized loss position. Total unrealized losses recorded in
accumulated other comprehensive income at February 28, 2009
and May 31, 2008 were $26.1 million and
$1.7 million, respectively.
We regularly review our marketable securities in unrealized loss
positions in order to determine whether or not we have the
ability and intent to hold these investments. That determination
is based upon the severity and duration of the decline, in
addition to our evaluation of the cash flow requirements of our
businesses. Unrealized losses at February 28, 2009 were
generally caused by the recent decline in valuations in the
financial sector and the volatility in the global economy,
specifically over the last six months. If general economic
conditions were to continue to deteriorate, including continued
uncertainties surrounding the volatility in financial markets
and the viability of banks and other financial institutions, and
if we were to experience continuing or significant additional
unrealized losses within our portfolio of investments in
marketable securities, we may recognize additional
other-than-temporary impairment losses in future periods. Such
potential losses could have a material impact on our results of
operations. As such, we continue to closely evaluate the status
of our investments and our ability and intent to hold these
investments until their cost can be recovered.
Financing
Activities
On April 7, 2009, we replaced our existing
$125.0 million accounts receivable securitization program,
under which we had no outstanding balance at February 28,
2009, and which was set to expire on May 7, 2009, with a
new, three-year, $150.0 million accounts receivable
securitization program (the new program). The new
program, which was established with two banks for certain of our
subsidiaries (originating subsidiaries),
contemplates that the originating subsidiaries will sell certain
of their accounts receivable to RPM Funding Corporation, a
wholly owned special purpose entity (SPE), which
will then transfer undivided interests in such receivables to
the
34
participating banks. Once transferred to the SPE, such
receivables are owned in their entirety by the SPE and are not
available to satisfy claims of our creditors or creditors of the
originating subsidiaries until the obligations owing to the
participating banks have been paid in full. The transactions
contemplated by the new program do not constitute a form of
off-balance sheet financing and will be fully reflected in our
financial statements. Entry into the new program increases our
liquidity by $25.0 million, but increases our financing
costs due to higher market rates. The amounts available under
the program are subject to changes in the credit ratings of our
customers, customer concentration levels or certain
characteristics of the underlying accounts receivable.
On February 20, 2008 we issued and sold $250.0 million
of 6.50% Notes due February 15, 2018. The proceeds
were used to repay our $100.0 million Senior Unsecured
Notes due March 1, 2008, the outstanding principal under
our $125.0 million accounts receivable securitization
program and $19.0 million in short-term borrowings under
our revolving credit facility. This financing strengthened our
credit profile and liquidity position, as well as lengthened the
average maturity of our outstanding debt obligations.
On December 29, 2006, we replaced our $330.0 million
revolving credit facility with a $400.0 million five-year
credit facility (the Credit Facility). The Credit
Facility is used for working capital needs and general corporate
purposes, including acquisitions. The Credit Facility provides
for borrowings in U.S. dollars and several foreign
currencies and provides sublimits for the issuance of letters of
credit in an aggregate amount of up to $35.0 million and a
swing-line of up to $20.0 million for short-term borrowings
of less than 15 days. In addition, the size of the Credit
Facility may be expanded, subject to lender approval, upon our
request by up to an additional $175.0 million, thus
potentially expanding the Credit Facility to $575.0 million.
Under the terms of the Credit Facility, we are required to
comply with various customary affirmative and negative
covenants. These include financial covenants requiring us to
maintain certain leverage and interest coverage ratios. Under
the terms of the leverage covenant, we may not permit our
consolidated indebtedness at any date to exceed 65% of the sum
of such indebtedness and our consolidated shareholders
equity on such date, and may not permit the indebtedness of our
domestic subsidiaries (determined on a combined basis and
excluding indebtedness to us and indebtedness incurred pursuant
to permitted receivables securitizations) to exceed 15% of our
consolidated shareholders equity. The interest coverage ratio
covenant requires us not to permit the ratio, calculated at the
end of each fiscal quarter for the four fiscal quarters then
ended, of EBITDA, as defined in the Credit Facility, for such
period to interest expense for such period to be less than
3.5:1. Identical leverage and interest coverage ratio covenants
are contained in the documents governing the new accounts
receivable securitization program.
Our failure to comply with these and other covenants contained
in the Credit Facility may result in an event of default under
that agreement, entitling the lenders to, among other things,
declare the entire amount outstanding under the Credit Facility
to be due and payable. The instruments governing our other
outstanding indebtedness generally include cross-default
provisions that provide that under certain circumstances, an
event of default that results in acceleration of our
indebtedness under the Credit Facility will entitle the holders
of such other indebtedness to declare amounts outstanding
immediately due and payable.
As of February 28, 2009, we were in compliance with all
covenants contained in our Credit Facility, including the
leverage and interest coverage ratio covenants. At that date,
our leverage ratio was 48.6% and our interest coverage ratio was
5.78: 1. Additionally, in accordance with these covenants, at
February 28, 2009, our domestic subsidiaries indebtedness
did not exceed 15% of consolidated shareholders equity as
of that date.
Our access to funds under our Credit Facility is dependent on
the ability of the financial institutions that are parties to
those facilities to meet their funding commitments. Those
financial institutions may not be able to meet their funding
commitments if they experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing
requests within a short period of time. Moreover, the
obligations of the financial institutions under our Credit
Facility are several and not joint and, as a result, a funding
default by one or more institutions does not need to be made up
by the others.
We are exposed to market risk associated with interest rates. We
do not use financial derivative instruments for trading
purposes, nor do we engage in foreign currency, commodity or
interest rate speculation. Concurrent with the issuance of our
6.7% Senior Unsecured Notes, RPM United Kingdom G.P.
entered into a cross currency swap,
35
which fixed the interest and principal payments in euros for the
life of the 6.7% Senior Unsecured Notes and resulted in an
effective euro fixed rate borrowing of 5.31%. In addition to
hedging the risk associated with our 6.7% Senior Unsecured
Notes, our only other hedged risks are associated with certain
fixed debt, whereby we have a $163.7 million notional
amount interest rate swap contract designated as a fair value
hedge to pay floating rates of interest, based on six-month
LIBOR that matures in our fiscal year ending May 31, 2010.
Because critical terms of the debt and interest rate swap match,
the hedge is considered perfectly effective against changes in
fair value of debt, and therefore, there is no need to
periodically reassess the effectiveness during the term of the
hedge.
Our available liquidity, including our cash and cash equivalents
and amounts available under our committed credit facilities,
stood at $504.4 million at February 28, 2009. Our
debt-to-capital ratio was 48.6% at February 28, 2009,
unchanged from May 31, 2008.
During the first quarter of fiscal 2009, we called for
redemption all of our outstanding Senior Convertible Notes due
May 13, 2033. Prior to the redemption, virtually all of the
holders converted their Senior Convertible Notes into shares of
our common stock. For additional information, refer to
Note M, Convertible Notes, to the Consolidated
Financial Statements.
The following table summarizes our financial obligations and
their expected maturities at February 28, 2009 and the
effect such obligations are expected to have on our liquidity
and cash flow in the periods indicated.
Contractual
Obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment
|
|
|
Payments Due in
|
|
|
|
Stream
|
|
|
2010
|
|
|
2011-12
|
|
|
2013-14
|
|
|
After 2014
|
|
|
|
(In thousands)
|
|
|
Long-term debt obligations
|
|
$
|
983,231
|
|
|
$
|
172,425
|
|
|
$
|
209,690
|
|
|
$
|
201,407
|
|
|
$
|
399,709
|
|
Capital lease obligations
|
|
|
3,194
|
|
|
|
537
|
|
|
|
964
|
|
|
|
852
|
|
|
|
841
|
|
Operating lease obligations
|
|
|
157,525
|
|
|
|
35,559
|
|
|
|
46,184
|
|
|
|
24,540
|
|
|
|
51,242
|
|
Other long-term liabilities(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest payments on long-term debt obligations
|
|
|
259,281
|
|
|
|
41,258
|
|
|
|
74,341
|
|
|
|
61,841
|
|
|
|
81,841
|
|
Contributions to pension and postretirment plans(2)
|
|
|
213,600
|
|
|
|
18,700
|
|
|
|
38,300
|
|
|
|
52,700
|
|
|
|
103,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,616,831
|
|
|
$
|
268,479
|
|
|
$
|
369,479
|
|
|
$
|
341,340
|
|
|
$
|
637,533
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Excluded from other long-term liabilities is our liability for
unrecognized tax benefits, which totaled $4.7 million at
February 28, 2009. Currently, we cannot predict with
reasonable reliability the timing of cash settlements to the
respective taxing authorities. |
|
(2) |
|
These amounts represent our estimated cash contributions to be
made in the periods indicated for our pension and postretirement
plans, assuming no actuarial gains or losses, assumption changes
or plan changes occur in any period. The projection results
assume $10.2 million will be contributed to the U.S. plans
in fiscal 2009; all other plans and years assume the required
minimum contribution will be contributed. Also included are
expected interest payments on long-term debt. |
Approximately $172.4 million in principal amount of our
outstanding long term debt will become due in the next fiscal
year. We expect that we will need additional financing in the
future to refinance this indebtedness and to provide liquidity
to support our operations. Based on the results of our
operations and financial condition, we believe that under normal
market conditions, we should be able to obtain financing in
amounts necessary to refinance our existing indebtedness as it
matures and to otherwise meet the liquidity needs of our
business. However, the financial markets have been subject to
significant disruption in recent months. Continued weakness in
the general economic conditions
and/or
United States or global financial markets could adversely affect
our ability to raise capital on favorable terms or at all. From
time to time we have relied, and may also rely in the future, on
access to financial markets as a source of liquidity for working
capital requirements, acquisitions and general
36
corporate purposes. Longer term volatility and continued
disruptions in the capital and credit markets as a result of
uncertainty, changing or increased regulation of financial
institutions, reduced alternatives or failures of significant
financial institutions could adversely affect our access to the
liquidity needed for our businesses in the longer term. Such
disruptions could require us to take measures to conserve cash
until the markets stabilize or until alternative credit
arrangements or other funding for our business needs can be
arranged. The disruptions in the capital and credit markets have
also resulted in higher interest rates on publicly issued debt
securities and increased costs under credit facilities.
Continuation of these disruptions would increase our interest
expense and capital costs and could adversely affect our results
of operations and financial position including our ability to
grow our business through acquisitions.
Off-Balance
Sheet Arrangements
We do not have any off-balance sheet financings, other than the
minimum operating lease commitments included per the above
Contractual Obligations table. We have no subsidiaries that are
not included in our financial statements, nor do we have any
interests in or relationships with any special purpose entities
that are not reflected in our financial statements.
OTHER
MATTERS
Environmental
Matters
Environmental obligations continue to be appropriately addressed
and, based upon the latest available information, it is not
anticipated that the outcome of such matters will materially
affect our results of operations or financial condition. Our
critical accounting policies and estimates set forth above
describe our method of establishing and adjusting
environmental-related accruals and should be read in conjunction
with this disclosure. For additional information, refer to
Part II, Item 1. Legal Proceedings.
FORWARD-LOOKING
STATEMENTS
The foregoing discussion includes forward-looking statements
relating to our business. These forward-looking statements, or
other statements made by us, are made based on our expectations
and beliefs concerning future events impacting us and are
subject to uncertainties and factors (including those specified
below), which are difficult to predict and, in many instances,
are beyond our control. As a result, our actual results could
differ materially from those expressed in or implied by any such
forward-looking statements. These uncertainties and factors
include (a) general economic conditions, including
uncertainties surrounding the volatility in financial markets,
the availability of capital and the effect of changes in
interest rates, and the viability of banks and other financial
institutions; (b) the price, supply and capacity of raw
materials, including assorted pigments, resins, solvents, and
other natural gas and oil based materials; packaging, including
plastic containers; and transportation services, including fuel
surcharges; (c) continued growth in demand for our
products; (d) legal, environmental and litigation risks
inherent in our construction and chemicals businesses and risks
related to the adequacy of our insurance coverage for such
matters; (e) the effect of fluctuations in currency
exchange rates upon our foreign operations; (f) the effect
of non-currency risks of investing in and conducting operations
in foreign countries, including those relating to domestic and
international political, social, economic and regulatory
factors; (g) risks and uncertainties associated with our
ongoing acquisition and divestiture activities; (h) risks
related to the adequacy of our contingent liabilities, including
for asbestos-related claims; and (i) other risks detailed
in our filings with the Securities and Exchange Commission,
including the risk factors set forth in our Annual Report on
Form 10-K
for the year ended May 31, 2008, as the same may be updated
from time to time. We do not undertake any obligation to
publicly update or revise any forward-looking statements to
reflect future events, information or circumstances that arise
after the filing date of this document.
|
|
ITEM 3.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
We are exposed to market risk from changes in raw materials
costs, interest rates and foreign exchange rates since we fund
our operations through long- and short-term borrowings and
conduct our business in a variety of foreign currencies. There
were no material potential changes in our exposure to these
market risks since May 31, 2008.
37
|
|
ITEM 4.
|
CONTROLS
AND PROCEDURES
|
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
Our Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act
Rule 13a-15(e))
as of February 28, 2009 (the Evaluation Date),
have concluded that as of the Evaluation Date, our disclosure
controls and procedures were effective in ensuring that
information required to be disclosed by us in the reports we
file or submit under the Exchange Act (1) is recorded,
processed, summarized and reported, within the time periods
specified in the Commissions rules and forms, and
(2) is accumulated and communicated to our management,
including the Chief Executive Officer and the Chief Financial
Officer, as appropriate to allow for timely decisions regarding
required disclosure.
(b) CHANGES IN INTERNAL CONTROL.
There were no changes in our internal control over financial
reporting that occurred during the fiscal quarter ended
February 28, 2009 that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
PART II
OTHER INFORMATION
|
|
ITEM 1.
|
LEGAL
PROCEEDINGS
|
Asbestos
Litigation
Certain of our wholly-owned subsidiaries, principally Bondex
International, Inc. (collectively referred to as our
subsidiaries), are defendants in various asbestos-related bodily
injury lawsuits filed in various state courts with the vast
majority of current claims pending in six states
Texas, Florida, Mississippi, Maryland, Illinois and Ohio. These
cases generally seek unspecified damages for asbestos-related
diseases based on alleged exposures to asbestos-containing
products previously manufactured by our subsidiaries or others.
As of February 28, 2009, our subsidiaries had a total of
10,281 active asbestos cases compared to a total of 11,350 cases
as of February 29, 2008. For the quarter ended
February 28, 2009, our subsidiaries secured dismissals
and/or
settlements of 228 cases and made total payments of
$19.8 million, which included defense-related payments of
$6.9 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 225 cases and total payments were
$18.7 million, which included defense-related payments of
$9.4 million. For the nine months ended February 28,
2009, our subsidiaries secured dismissals
and/or
settlements of 2,253 cases and made total payments of
$52.2 million, which included defense-related payments of
$19.7 million. For the comparable period ended
February 29, 2008, dismissals
and/or
settlements covered 882 cases and total payments were
$67.6 million, which included defense-related payments of
$32.0 million.
Of the 2,253 cases that were dismissed in the nine months ended
February 28, 2009, 1,420 were non-malignancies or unknown
disease cases that had been maintained on an inactive docket in
Ohio and were administratively dismissed by the Cuyahoga County
Court of Common Pleas during our second fiscal quarter ended
November 30, 2008. These claims were dismissed without
prejudice and may be re-filed should the claimants involved be
able to demonstrate disease in accordance with medical criteria
laws established in the state of Ohio.
During the quarter ended February 28, 2009, one payment
totaling $3.6 million was made to satisfy an adverse
judgment in a previous trial that occurred in calendar 2006 in
California. This payment, which included a significant amount of
accrued pre-judgment interest as required by California law, was
made on December 8, 2008, approximately two and a half
years after the adverse verdict and after all post-trial and
appellate remedies had been exhausted. Such satisfaction of
judgment amounts are not included in incurred costs until
available appeals are exhausted and the final payment amount is
determined. As a result, the timing and amount of any such
payments could have a significant impact on quarterly settlement
costs.
During the prior fiscal year, our subsidiaries incurred higher
year-over-year, defense-related payments as a result of
implementing various changes to our management and defense of
asbestos claims, including a transition to a new claims intake
and database service provider. To facilitate that transition and
other related changes, we
38
incurred duplicate defense-related payments approximating
$3.0 million during last years second fiscal quarter.
The transition was completed during the quarter ended
February 29, 2008.
Excluding defense-related payments, the average payment made to
settle or dismiss a case approximated $57,000 and $41,000 for
each of the quarters ended February 28, 2009 and
February 29, 2008, respectively. The amount and timing of
dismissals and settlements can fluctuate significantly from
period to period, resulting in volatility in the average cost to
resolve a case in any given quarter or year. In addition, in
some jurisdictions, cases may involve more than one individual
claimant. As a result, settlement or dismissal payments made on
a per case basis are not necessarily reflective of the payment
amounts on a per claimant basis. For example, the amount paid to
settle or dismiss a case can vary widely depending on a variety
of factors, including the mix of malignancy and non-malignancy
claimants, and the amount of defense expenditures incurred
during the period.
For additional information on our asbestos litigation, including
a discussion of our asbestos related loss contingencies and a
discussion of certain of our subsidiaries complaint against
certain third-party insurers, see Note F of the Notes to
Consolidated Financial Statements.
EIFS
Litigation
As of February 28, 2009, Dryvit, one of our wholly owned
subsidiaries, was a defendant or co-defendant in various single
family residential exterior insulated finish systems
(EIFS) cases, the majority of which are pending in
the southeastern region of the country. Dryvit is also defending
EIFS lawsuits involving commercial structures, townhouses and
condominiums. The vast majority of Dryvits EIFS lawsuits
seek monetary relief for water intrusion related property
damages, although some claims in certain lawsuits allege
personal injuries from exposure to mold.
Third party excess insurers have historically paid varying
shares of Dryvits defense and settlement costs in the
individual commercial and residential EIFS lawsuits under
various cost-sharing agreements. Dryvit has assumed a greater
share of the costs associated with its EIFS litigation as it
seeks funding commitments from our third party excess insurers
and will likely continue to do so pending the outcome of
coverage litigation involving these same third party insurers.
This coverage litigation, Dryvit Systems, Inc. et al. v. Chubb
Custom Insurance Company et al, Case No. CV 05 578004, is
pending in the Cuyahoga County Court of Common Pleas. In
accordance with a Court order, the parties filed dispositive
motions on certain of the coverage issues. Oral argument on
these motions was completed on September 2, 2008. The
parties currently await a ruling on their respective summary
judgment motions, after which they will participate in a
court-ordered and agreed mediation. Discovery is stayed in the
meantime. A trial date has not yet been scheduled. If mediation
is not successful, the parties will resume discovery and a trial
date will be scheduled.
Environmental
Proceedings
As previously reported, several of our subsidiaries are, from
time to time, identified as a potentially responsible
party under the federal Comprehensive Environmental
Response, Compensation and Liability Act and similar state
environmental statutes. In some cases, our subsidiaries are
participating in the cost of certain
clean-up
efforts or other remedial actions. Our share of such costs,
however, has not been material and we believe that these
environmental proceedings will not have a material adverse
effect on our consolidated financial condition or results of
operations. See Item 2. Managements Discussion
and Analysis of Financial Condition and Results of
Operations Other Matters, in Part I of
this Quarterly Report on
Form 10-Q.
You should carefully consider the following risks, in addition
to the other information set forth in this report and the risk
factors disclosed in Item 1A of our Annual Report on
Form 10-K
for the fiscal year ended May 31, 2008.
Our
operations have been adversely affected by recent global market
and economic conditions.
The worldwide recession has had an adverse effect on our
operating results, particularly on our consumer products
segment, where sales and earnings have declined during recent
periods. Our industrial segment has also
39
felt the impact of recession as sales growth has slowed over
prior years levels. We anticipate that our operations will
continue to be adversely affected by global economic conditions
during the remainder of fiscal 2009. The recession has resulted,
and may result in the future, in decreased revenue, gross
margin, earnings or growth rates and difficulty in managing
inventory levels and collection of customer receivables. We also
have experienced, and expect to continue to experience,
increased competitive pricing pressure and customer turnover. In
addition, customer difficulties have resulted, and could result
in the future, in increases in bad debt write-offs and
adjustments to our allowance for doubtful accounts receivable.
We have also incurred severance and other expenses resulting
from adjustments in certain RPM businesses to address the
deteriorating business environment.
We may
not have access to capital in the future due to changes in
general economic conditions.
We expect that we will need additional financing in the future
to provide liquidity to conduct our operations, expand our
business or refinance existing indebtedness. Any sustained
weakness in the general economic conditions
and/or
United States or global financial markets could adversely affect
our ability to raise capital on favorable terms or at all. From
time to time we have relied, and may also rely in the future, on
access to financial markets as a source of liquidity for working
capital requirements, acquisitions and general corporate
purposes. Our access to funds under our Credit Facility is
dependent on the ability of the financial institutions that are
parties to those facilities to meet their funding commitments.
Those financial institutions may not be able to meet their
funding commitments if they experience shortages of capital and
liquidity or if they experience excessive volumes of borrowing
requests within a short period of time. Moreover, the
obligations of the financial institutions under our Credit
Facility are several and not joint and, as a result, a funding
default by one or more institutions does not need to be made up
by the others. Longer term volatility and continued disruptions
in the capital and credit markets as a result of uncertainty,
changing or increased regulation of financial institutions,
reduced alternatives or failures of significant financial
institutions could adversely affect our access to the liquidity
needed for our businesses in the longer term. Such disruptions
could require us to take measures to conserve cash until the
markets stabilize or until alternative credit arrangements or
other funding for our business needs can be arranged. The
disruptions in the capital and credit markets have also resulted
in higher interest rates on publicly issued debt securities and
increased costs under credit facilities. Continuation of these
disruptions would increase our interest expense and capital
costs and could adversely affect our results of operations and
financial position including our ability to grow our business
through acquisitions.
Volatility
in the equity markets or interest rates could substantially
increase our pension costs and required pension
contributions.
We sponsor qualified defined benefit pension plans and various
other nonqualified postretirement plans. The qualified defined
benefit pension plans are funded with trust assets invested in a
diversified portfolio of debt and equity securities and other
investments. Among other factors, changes in interest rates,
investment returns and the market value of plan assets can
(i) affect the level of plan funding; (ii) cause
volatility in the net periodic pension cost; and
(iii) increase our future contribution requirements. A
significant decrease in investment returns or the market value
of plan assets or a significant decrease in interest rates could
increase our net periodic pension costs and adversely affect our
results of operations. A significant increase in our
contribution requirements with respect to our qualified defined
benefit pension plans could have an adverse impact on our cash
flow.
40
|
|
ITEM 2.
|
UNREGISTERED
SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
|
(c) The following table presents information about
repurchases of common stock we made during the third quarter of
fiscal 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maximum
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Number of
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
Shares that
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
|
May Yet be
|
|
|
|
|
|
|
|
|
|
Part of Publicly
|
|
|
Purchased
|
|
|
|
Total Number
|
|
|
|
|
|
Announced
|
|
|
Under the
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Plans or
|
|
|
Plans or
|
|
Period
|
|
Purchased(1)
|
|
|
Paid per Share
|
|
|
Programs
|
|
|
Programs(2)
|
|
|
December 1, 2008 through December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1, 2009 through January 31, 2009
|
|
|
340
|
|
|
$
|
12.31
|
|
|
|
|
|
|
|
|
|
February 1, 2009 through February 28, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total-Third Quarter
|
|
|
340
|
|
|
$
|
12.31
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A total of 340 shares of common stock reported as purchased
are attributable to shares of common stock that were disposed of
back to us in satisfaction of tax obligations related to the
vesting of restricted stock, which was granted under RPM
International Inc.s 2004 Omnibus Equity Plan. |
|
(2) |
|
Refer to Note L of the Notes to Consolidated Financial
Statements for further information regarding our stock
repurchase program. |
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.1
|
|
Seventh Amendment to RPM International Inc. 1997 Restricted
Stock Plan, effective December 31, 2008.(x)
|
|
10
|
.2
|
|
Amendment Number One to RPM International Inc. 2007 Restricted
Stock Plan, effective December 31, 2008.(x)
|
|
10
|
.3
|
|
Amendment Number Two to the RPM International Inc. 2003
Restricted Stock Plan for Directors, effective December 31,
2008.(x)
|
|
10
|
.4
|
|
RPM International Inc. Amended and Restated 2004 Omnibus Equity
and Incentive Plan, effective December 31, 2008.(x)
|
|
10
|
.5
|
|
RPM International Inc. 2005 Deferred Compensation Plan, as
Amended and Restated Generally, effective January 1, 2005.(x)
|
|
10
|
.6
|
|
Amended and Restated Employment Agreement by and between the
Company and Frank C. Sullivan, Chairman and Chief Executive
Officer, effective December 31, 2008.(x)
|
|
10
|
.7
|
|
Form of Amended and Restated Employment Agreement, by and
between the Company and each of Ronald A. Rice, President and
Chief Operating Officer; P. Kelly Tompkins, Executive Vice
President- Administration and Chief Financial Officer; Paul G.P.
Hoogenboom, Senior Vice President- Manufacturing and Operations,
Chief Information Officer; and Stephen J. Knoop, Senior Vice
President- Corporate Development.(x)
|
|
10
|
.8
|
|
Amendment No. 3 to Amended and Restated Receivables
Purchase Agreement, dated February 27, 2009, which is
incorporated by reference to Exhibit 10.1 to the
Companys Current Report on Form 8-K, as filed with
the Securities and Exchange Commission on March 5, 2009
(File No. 001-14187).
|
|
31
|
.1
|
|
Rule 13a-14(a) Certification of the Companys Chief
Executive Officer.(x)
|
|
31
|
.2
|
|
Rule 13a-14(a) Certification of the Companys Chief
Financial Officer.(x)
|
|
32
|
.1
|
|
Section 1350 Certification of the Companys Chief
Executive Officer.(x)
|
|
32
|
.2
|
|
Section 1350 Certification of the Companys Chief
Financial Officer.(x)
|
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
RPM International Inc.
|
|
|
|
By:
|
/s/ Frank
C. Sullivan
|
Frank C. Sullivan
Chairman and Chief Executive Officer
|
|
|
|
By:
|
/s/ P.
Kelly Tompkins
|
P. Kelly Tompkins
Executive Vice President Administration and Chief
Financial Officer
Dated: April 8, 2009
42