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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED FEBRUARY 29, 2004, OR
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 02-0642224
- --------------------------------------------------------------------------------
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION) (IRS EMPLOYER IDENTIFICATION NO.)
P.O. BOX 777; 2628 PEARL ROAD; MEDINA, OHIO 44258
- --------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (330) 273-5090
- --------------------------------------------------------------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO THE FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO .
---- -----
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12b-2 OF THE EXCHANGE ACT).
YES X NO .
---- -----
AS OF APRIL 2, 2004
115,980,870 SHARES OF RPM INTERNATIONAL INC. COMMON STOCK WERE OUTSTANDING.
RPM INTERNATIONAL INC. AND SUBSIDIARIES*
INDEX
PAGE NO.
--------
PART I. FINANCIAL INFORMATION
- ------------------------------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK 24
ITEM 4. CONTROLS AND PROCEDURES 24
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS 25
ITEM 2. CHANGES IN SECURITIES 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 29
SIGNATURES 31
* As used herein, the terms "RPM" and the "Company" refer to RPM International
Inc. and its subsidiaries, unless the context indicates otherwise.
3
PART I. -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTS
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
ASSETS
FEBRUARY 29, 2004 MAY 31, 2003
----------------- ------------
CURRENT ASSETS
CASH AND SHORT-TERM INVESTMENTS $ 50,868 $ 50,725
TRADE ACCOUNTS RECEIVABLE (LESS ALLOWANCES OF
$18,460 AND $17,297, RESPECTIVELY) 355,143 439,623
INVENTORIES 291,908 253,204
DEFERRED INCOME TAXES 54,284 51,285
PREPAID EXPENSES AND OTHER CURRENT ASSETS 137,063 133,257
----------- -----------
TOTAL CURRENT ASSETS 889,266 928,094
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, AT COST 747,977 714,009
ALLOWANCE FOR DEPRECIATION AND AMORTIZATION (381,122) (343,220)
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 366,855 370,789
----------- -----------
OTHER ASSETS
GOODWILL 649,811 631,253
OTHER INTANGIBLE ASSETS, NET OF AMORTIZATION 279,799 282,949
OTHER 38,001 34,126
----------- -----------
TOTAL OTHER ASSETS 967,611 948,328
----------- -----------
TOTAL ASSETS $ 2,223,732 $ 2,247,211
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
ACCOUNTS PAYABLE $ 142,740 $ 171,956
CURRENT PORTION OF LONG-TERM DEBT 2,080 1,282
ACCRUED COMPENSATION AND BENEFITS 68,481 77,577
ACCRUED LOSS RESERVES 55,777 64,230
ASBESTOS-RELATED LIABILITIES 49,579 41,583
OTHER ACCRUED LIABILITIES 62,597 59,759
INCOME TAXES PAYABLE (10,580) 11,263
----------- -----------
TOTAL CURRENT LIABILITIES 370,674 427,650
----------- -----------
LONG-TERM LIABILITIES
LONG-TERM DEBT, LESS CURRENT MATURITIES 709,753 724,846
ASBESTOS-RELATED LIABILITIES 56,370 103,000
OTHER LONG-TERM LIABILITIES 62,578 59,951
DEFERRED INCOME TAXES 81,308 54,756
----------- -----------
TOTAL LONG-TERM LIABILITIES 910,009 942,553
----------- -----------
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 115,963 AND OUTSTANDING 115,952 AS OF FEBRUARY 2004;
ISSUED 115,596 AND OUTSTANDING 115,496 AS OF MAY 2003 1,160 1,156
PAID-IN CAPITAL 512,443 508,397
TREASURY STOCK, AT COST (135) (1,167)
ACCUMULATED OTHER COMPREHENSIVE LOSS 2,295 (17,169)
RETAINED EARNINGS 427,286 385,791
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 943,049 877,008
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,223,732 $ 2,247,211
=========== ===========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
4
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
NINE MONTHS ENDED THREE MONTHS ENDED
---------------------------- ---------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28,
2004 2003 2004 2003
------------ ------------ ------------ ------------
NET SALES $1,660,694 $1,493,943 $ 480,769 $ 433,562
COST OF SALES 908,121 817,681 270,175 248,182
---------- ---------- ---------- ----------
GROSS PROFIT 752,573 676,262 210,594 185,380
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 593,962 534,902 193,496 171,766
INTEREST EXPENSE, NET 20,761 20,290 7,767 6,102
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES 137,850 121,070 9,331 7,512
PROVISION FOR INCOME TAXES 48,937 42,374 3,313 2,629
---------- ---------- ---------- ----------
NET INCOME $ 88,913 $ 78,696 $ 6,018 $ 4,883
========== ========== ========== ==========
AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING:
BASIC 115,687 115,193 115,835 115,583
========== ========== ========== ==========
DILUTED 116,593 116,022 117,351 116,121
========== ========== ========== ==========
BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.77 $ 0.68 $ 0.05 $ 0.04
========== ========== ========== ==========
DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.76 $ 0.68 $ 0.05 $ 0.04
========== ========== ========== ==========
CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 0.4100 $ 0.3850 $ 0.1400 $ 0.1300
========== ========== ========== ==========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
5
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
---------------------------
FEBRUARY 29, FEBRUARY 28,
2004 2003
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 88,913 $ 78,696
DEPRECIATION AND AMORTIZATION 46,784 42,285
ITEMS NOT AFFECTING CASH AND OTHER (12,527) 563
CHANGES IN OPERATING WORKING CAPITAL (14,389) (4,237)
--------- ---------
108,781 117,307
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
CAPITAL EXPENDITURES (26,169) (22,017)
ACQUISITION OF BUSINESSES, NET OF CASH ACQUIRED (24,871) (19,547)
--------- ---------
(51,040) (41,564)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
REDUCTIONS OF LONG-TERM AND SHORT-TERM DEBT (14,295) (14,922)
CASH DIVIDENDS (47,419) (44,123)
EXERCISE OF STOCK OPTIONS 4,116 3,286
--------- ---------
(57,598) (55,759)
--------- ---------
INCREASE IN CASH AND SHORT-TERM INVESTMENTS 143 19,984
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF PERIOD 50,725 42,172
--------- ---------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD $ 50,868 $ 62,156
========= =========
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL PART
OF THESE STATEMENTS.
6
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
(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 for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal, recurring accruals) considered necessary for a fair
presentation have been included for the three and nine month periods ended
February 29, 2004 and February 28, 2003. 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, 2003.
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
NOTE B - INVENTORIES
- --------------------
Inventories were composed of the following major classes:
FEBRUARY 29, 2004 MAY 31, 2003
----------------- ------------
(IN THOUSANDS)
Raw materials and supplies $109,262 $ 80,517
Finished goods 182,646 172,687
-------- --------
$291,908 $253,204
======== ========
NOTE C - COMPREHENSIVE INCOME
- -----------------------------
Other comprehensive income includes foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains or losses on
securities. Total comprehensive income, comprised of net income and other
comprehensive income, amounted to $11.3 million and $19.0 million during the
third quarter of fiscal years 2004 and 2003, respectively, and $108.4 million
and $94.9 million for the nine-month periods ended February 29, 2004 and
February 28, 2003, respectively.
NOTE D - REINCORPORATION
- ------------------------
At the annual shareholders meeting on October 11, 2002, RPM shareholders
approved a plan to change RPM's legal place of incorporation from Ohio to
Delaware. Under the plan, a new legal entity, RPM International Inc., was
incorporated in Delaware and became the parent holding company of Ohio-based
RPM, Inc. and several other intermediate holding companies and wholly owned
subsidiaries. In addition to the creation of a newly formed Delaware legal
entity, the legal structures of various operating companies were realigned in
consistency with their
7
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------
respective business objectives. All of the outstanding treasury shares of RPM,
Inc. were cancelled and retired without any consideration. In addition, each
common share of RPM, Inc. issued and outstanding on October 15, 2002 was
converted into one share of the Company, with a $0.01 par value per share. This
transaction did not have any effect on the book value per share,
post-reincorporation.
NOTE E - STOCK BASED COMPENSATION
- ---------------------------------
At February 29, 2004, we had two stock-based compensation plans accounted for
under the recognition and measurement principles of Accounting Principles Board
Opinion (APBO) No. 25, "Accounting for Stock Issued to Employees," and related
interpretations. Pro forma information regarding the impact of stock-based
compensation on net income and earnings per share is required by SFAS No. 123,
"Accounting for Stock-Based Compensation," and SFAS No. 148, "Accounting for
Stock-Based Compensation-Transition and Disclosure." Such pro forma information,
determined as if we had accounted for our employee stock options under the fair
value recognition provisions of SFAS No. 123, is illustrated in the following
table:
Nine Months Ended Three Months Ended
---------------------------- ----------------------------
February 29, February 28, February 29, February 28,
2004 2003 2004 2003
------------ ------------ ------------ ------------
(In thousands, except per share amounts)
Net Income, as reported $ 88,913 $ 78,696 $ 6,018 $ 4,883
Add: Stock-based employee compensation expense
from restricted stock plans included in
reported net income, net of related tax effects 998 969 333 384
Deduct: Total stock-based compensation expense
determined under fair value-based method
for all awards, net of related tax effects (3,237) (3,247) (1,220) (1,307)
---------- ---------- --------- ---------
Pro Forma Net Income $ 86,674 $ 76,418 $ 5,131 $ 3,960
========== ========== ========= =========
Earnings per Share, as reported:
Basic $ 0.77 $ 0.68 $ 0.05 $ 0.04
========== ========== ========= =========
Diluted $ 0.76 $ 0.68 $ 0.05 $ 0.04
========== ========== ========= =========
Pro Forma Earnings per Share:
Basic $ 0.75 $ 0.66 $ 0.04 $ 0.03
========== ========== ========= =========
Diluted $ 0.74 $ 0.66 $ 0.04 $ 0.03
========== ========== ========= =========
8
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------
NOTE F - ASBESTOS-RELATED LIABILITIES
- -------------------------------------
Certain of our wholly owned subsidiaries, principally Bondex International, Inc.
(Bondex), along with many other U.S. companies, are and have been involved in a
large number of asbestos-related suits filed primarily in state courts during
the past two decades. These suits principally allege personal injury resulting
from exposure to asbestos-containing products.
The rate at which plaintiffs filed asbestos-related suits against Bondex
increased in the fourth quarter of fiscal 2002 and the first three quarters of
fiscal 2003, influenced by the bankruptcy filings of numerous other defendants
in asbestos-related litigation. Based on the significant increase in asbestos
claims activity and inequitable joint and several liability determinations
against Bondex, as previously reported, our third-party insurance was depleted
in the first quarter of this fiscal year. Our third-party insurers historically
have been responsible, under various cost-sharing arrangements, for the payment
of approximately 90% of the indemnity and defense costs associated with our
asbestos litigation. Prior to this sudden precipitous increase in loss rates,
the combination of book loss reserves and insurance coverage was expected to
adequately cover our asbestos claims for the foreseeable future. We have
reserved our rights with respect to various of our third-party insurers' claims
of exhaustion, and in late calendar 2002 commenced reviewing our known insurance
policies to determine whether or not other insurance limits may be available to
cover our asbestos liabilities. As a result of this examination, on July 3,
2003, the Company filed a complaint in Federal Court against several insurance
carriers for declaratory judgment, breach of contract and bad faith. We are
unable at the present time to predict whether, or to what extent, any additional
insurance may cover our asbestos liabilities.
During the last seven months of fiscal 2003, new state liability laws were
enacted in three states where more than 80% of the claims against Bondex are
pending. The changes generally provide for liability to be determined on a
"proportional cause" basis, thereby limiting Bondex's responsibility to only its
share of the alleged asbestos exposure. These state law changes are not expected
to have an impact on asbestos litigation affecting us until the latter part of
fiscal 2004 or early in fiscal 2005.
At the end of fiscal 2002 and through the third quarter of fiscal 2003, Bondex
had concluded it was not possible to estimate its cost of disposing of
asbestos-related claims that might be filed against Bondex in the future. During
the fourth quarter of fiscal 2003, Bondex retained a nationally recognized
consulting firm with broad experience in estimating resolution costs associated
with mass tort litigation, including asbestos, to assist it in analyzing its
loss history data, to evaluate whether it would be possible to estimate the cost
of disposing pending claims in light of both past and recent loss history, and
to assist in determining whether future asbestos-related claims reasonably
expected to be filed against Bondex were measurable, given recent changes of
law.
9
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------
As of May 31, 2003, the consultants concluded that it was not possible to
currently estimate the full range of the cost of resolving future
asbestos-related claims against Bondex because of various uncertainties
associated with those potential future claims. These uncertainties included the
following:
- The bankruptcies in the years 2000 through 2002 of other companies
facing large asbestos liability were a likely contributing cause of
a sharp increase in filings against many defendants, including
Bondex.
- The recent state law changes in states wherein the vast majority of
our claims are pending and have been historically filed are expected
to materially affect future losses and future claim filing activity
and resolution costs.
- The currently proposed federal legislative initiative aimed at
establishment of a federal asbestos trust fund has influenced and
changed the demand behavior of plaintiffs from that of historic
levels, creating further uncertainty in the estimation process.
At this time, we cannot estimate the liability that will result from all pending
or future claims. We established a reserve at May 31, 2003 for those pending
cases that had progressed to a stage where the cost to dispose of these cases
could reasonably be estimated. The estimation of even pending cases is difficult
due to the dynamic nature of asbestos litigation. The reserve was established by
taking an asbestos charge to fiscal 2003 operations of $140.0 million for
measurable known claims as of May 31, 2003 and a provision for some claims that
were estimable. We believe this asbestos reserve will be sufficient to cover our
Subsidiaries' asbestos-related cash flow requirements into fiscal 2006. The
estimates for the $140.0 million asbestos charge were developed in consultation
with our outside consulting firm and defense counsel, taking into account both
historical and current settlement values. We recognize that future facts,
events, litigation outcomes, and legislation, both state and/or federal, may
affect the bases for the reserve, including our assumptions, and therefore alter
our estimates of some future asbestos-related claims that were measurable. We
cannot estimate possible liabilities in excess of those accrued because we
cannot predict the number of additional claims that may be filed in the future,
the grounds for such claims, the damages that may be demanded, the probable
outcome, or the impact of recent state and pending federal legislation on
prospective asbestos claims.
In conjunction with outside advisors, we continue to study our asbestos-related
exposure and evaluate the adequacy of this reserve and the related cash flow
implications in light of actual claims experience, the impact of state law
changes and the evolving nature of federal legislative efforts to address
asbestos litigation. As of February 29, 2004, we believe the underlying facts
and assumptions supporting establishment of the $140.0 million reserve (an
amount adequate to cover approximately three years of cash flow requirements)
have undergone no significant change, other than passage of time.
Due to the uncertainty inherent in the loss reserve estimations process, we are
unable to estimate an additional range of loss in excess of our accruals. It is
at least reasonably possible that actual costs will differ from estimates, but,
based upon information presently available, such future
10
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------
costs are not expected to have a material adverse effect on our competitive or
financial position or ongoing results of operations. However, such costs could
be material to results of operations in a future period.
11
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- -------------------------------------------------------------------------------
ITEM 2. MANAGEMENT'S 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 allowances for doubtful accounts, inventories, allowances for
recoverable taxes, useful lives of property, plant and equipment, goodwill,
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 and other assumptions, which we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying value of our assets and liabilities. Actual results
may differ from these estimates under different assumptions and conditions.
We have identified below the accounting policies that are critical to our
financial statements.
REVENUE RECOGNITION
Revenues are recognized when title and risk of loss passes to customers. The
Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition," provides guidance on the application of Generally
Accepted Accounting Principles (GAAP) in the U.S. to selected revenue
recognition issues. We have concluded that our revenue recognition policy is
appropriate and in accordance with GAAP and SAB No. 101.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Our reporting currency is the U.S. dollar. However, the functional currency of
all of our foreign subsidiaries is their local currency. We translate the
amounts included in our consolidated statements of income from our foreign
subsidiaries into U.S. dollars at year-to-date average exchange rates, which we
believe are fairly 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 we determine 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 such change(s).
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 are treated as analogous to equity for accounting
purposes. Therefore, foreign exchange gains or losses on these
12
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- -------------------------------------------------------------------------------
intercompany loans are recorded in 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 adopted two new accounting standards issued by the Financial Accounting
Standards Board in June 2001. Statement of Financial Accounting Standards, or
SFAS, No. 141, "Business Combinations," eliminates the pooling method of
accounting for all business combinations initiated after June 30, 2001, and
addresses the initial recognition and measurement of goodwill and intangible
assets acquired in a business combination. Accordingly, we apply the provisions
of SFAS No. 141 to all business combinations initiated after its effective date.
We also adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective
June 1, 2001. Goodwill amortization ceased upon adoption of the standard, and
the required initial impairment tests were performed. Results of these
impairment tests have not generated any impairment loss to date.
Prospectively, goodwill will be tested on an annual basis, or more frequently as
impairment indicators arise. Impairment tests, which involve the use of
estimates related to the fair market values of the business operations with
which goodwill is associated, are performed at the end of our first quarter.
Losses, if any, resulting from impairment tests will be reflected in operating
income in our income statement.
OTHER LONG-LIVED ASSETS
We assess for impairment of identifiable non-goodwill intangibles and other
long-lived assets whenever events or changes in facts and circumstances indicate
the possibility that the carrying value may not be recoverable. Factors
considered important 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
or the strategy for our overall business; and
- significant negative industry or economic trends.
When we determine that the carrying value of non-goodwill intangibles and other
long-lived assets may not be recoverable based upon the existence of one or more
of the above described indicators, any impairment would be measured based on
projected net cash flows expected from the asset(s), including eventual
disposition.
13
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- -------------------------------------------------------------------------------
CONTINGENCIES
We are party to claims and lawsuits arising in the normal course of business,
including the various asbestos-related suits discussed herein and in Note H of
our Consolidated Financial Statements included in our Annual Report on Form 10-K
for the year ended May 31, 2003. 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. The provisions are based on historical experience and legal advice,
are reviewed quarterly and are adjusted according to developments. Changes in
the amount of the provisions affect our consolidated statements of income. Due
to the inherent uncertainties in the loss reserve estimation process, we are
unable to estimate an additional range of loss in excess of our accruals.
Our environmental-related accruals are similarly established and/or adjusted as
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 cost for those sites. As a result, reserves have not been taken for
certain of these sites and costs may ultimately exceed existing reserves for
other sites. We have received indemnities for potential environmental issues
from purchasers of certain of our properties and businesses and from sellers of
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 additional environmental costs in
addition to any amounts reserved, which may have a material adverse effect on
our financial condition, results of operations or cash flows.
14
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
REPORTABLE SEGMENT INFORMATION
- ------------------------------
RPM has two operating segments -- Industrial and Consumer -- based on the nature
of business activities, products and services, the structure of management, and
the structure of information as presented to the Board of Directors. Within each
segment, individual operating companies or groups of companies generally address
common markets, utilize similar technologies, and can share manufacturing or
distribution capabilities. We evaluate the profit performance of our operating
segments based on earnings before interest and taxes since interest expense is
essentially related to corporate acquisitions, as opposed to segment operations.
In addition to the two operating segments, there are certain business
activities, referred to as corporate/other, that do not constitute an operating
segment, including 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 operating
segment. Related assets consist primarily of investments, prepaid expenses,
deferred pension assets, and headquarters property and equipment. Comparative
nine-month and third quarter results on this basis are as follows:
NINE MONTHS ENDED QUARTER ENDED
--------------------------------------- --------------------------------------
(In thousands) FEBRUARY 29, 2004 FEBRUARY 28, 2003 FEBRUARY 29, 2004 FEBRUARY 28, 2003
----------------- ----------------- ----------------- -----------------
NET SALES:
Industrial Segment $ 911,252 $ 813,755 $ 264,754 $ 235,193
Consumer Segment 749,442 680,188 216,015 198,369
----------- ----------- ----------- -----------
TOTAL $ 1,660,694 $ 1,493,943 $ 480,769 $ 433,562
=========== =========== =========== ===========
INCOME BEFORE INCOME TAXES (a):
Earnings Before Interest and Taxes (EBIT) (b)
Industrial Segment $ 95,905 $ 88,160 $ 9,948 $ 8,580
Consumer Segment 91,843 85,102 17,678 16,663
Corporate/Other (29,137) (31,902) (10,528) (11,629)
----------- ----------- ----------- -----------
Total EBIT 158,611 141,360 17,098 13,614
Consolidated Interest Expense, Net (20,761) (20,290) (7,767) (6,102)
----------- ----------- ----------- -----------
TOTAL $ 137,850 $ 121,070 $ 9,331 $ 7,512
=========== =========== =========== ===========
IDENTIFIABLE ASSETS: FEBRUARY 29, 2004 MAY 31, 2003
----------------- ------------
Industrial Segment $1,046,431 $1,067,916
Consumer Segment 1,014,368 1,038,350
Corporate/Other 162,933 140,945
---------- ----------
TOTAL $2,223,732 $2,247,211
========== ==========
(a) The presentation includes a reconciliation of EBIT to Income Before Income
Taxes, a measure defined by Generally Accepted Accounting Principles
("GAAP") in the U.S.
(b) EBIT is defined as earnings before interest and taxes. We believe that EBIT
provides one of the best comparative measures of pure operating
performance, and it is a widely accepted financial indicator used by
certain investors and analysts to analyze and compare companies. EBIT is
not intended to represent cash flows for the period, nor is it presented as
an alternative to operating income or as an indicator of operating
performance. EBIT should not be considered in isolation, but with GAAP, and
it is not indicative of operating income or cash flow from operations as
determined by those principles. Our method of computation may or may not be
comparable to other similarly titled measures of other companies. EBIT may
not be indicative of our historical operating results, nor is it meant to
be predictive of potential future results.
15
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
- ---------------------
THREE MONTHS ENDED FEBRUARY 29, 2004
- ------------------------------------
NET SALES
Net sales on a consolidated basis for the third quarter of fiscal 2004 of $480.8
million improved 10.9 percent, or $47.2 million, over last year's third quarter
net sales of $433.6 million. Contributing to this improvement over last year was
the continued growth in organic sales of approximately 4.3 percent, or $18.7
million, plus acquisitions of six small product lines, supplying another 3.8
percent growth in sales, or $16.6 million. Favorable foreign exchange rates,
relating primarily to the Canadian dollar and the euro, provided the remaining
2.8 percent, or $12.0 million, of the growth in sales, quarter over quarter.
Industrial segment net sales for the third quarter grew 12.6 percent to $264.8
million from last year's $235.2 million, comprising 55.1 percent of the current
quarter's consolidated net sales. This segment's net sales growth comes
primarily from organic sales growth of 6.9 percent, which includes 3.6 percent
from net favorable foreign exchange differences, along with four small product
line acquisitions during the past 12 months, which added the remaining 5.7
percent of growth to industrial sales. Net sales from the roofing services
business continued to lead this segment's growth over last year's third quarter,
and there were indications of improvements among the specialty businesses and in
construction sealants and chemicals.
Consumer segment net sales for the third quarter grew 8.9 percent to $216.0
million from last year's $198.4 million, comprising 44.9 percent of the current
quarter's consolidated net sales. Growth in organic sales, particularly from
this segment's Rust-Oleum, DAP and Wood Finishes product lines, added 7.3
percent to the consumer segment total, including 1.7 percent from favorable
foreign exchange differences. Two small product line acquisitions during the
past 12 months provided the remaining 1.6 percent of growth in this segment
over last year.
GROSS PROFIT MARGIN
Consolidated gross profit margin of 43.8 percent of net sales this third quarter
improved from 42.7 percent a year ago. The combination of improved sales volume,
plus productivity gains, certain procurement benefits from the weaker dollar,
and accretive acquisitions more than compensated for an approximate 50 basis
point impact from higher raw material and packaging costs, plus a number of
growth-related investments. Additionally, we experienced continued growth in
certain strategic but lower-margin product lines and services.
Industrial segment gross profit margin for the third quarter improved to 43.5
percent of net sales from 42.3 percent last year. The improvement resulted from
the leverage of organic sales growth, a cost-saving elimination of an
outside tolling arrangement in Europe, and accretive acquisitions, which
more than offset the effect of continued, lower-margin growth from the services
business and approximately 25 basis points impact of higher raw material and
packaging costs.
16
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
Consumer segment gross profit margin for this third quarter improved to 44.2
percent of net sales from 43.3 percent last year. Higher organic sales volume
leverage, significant productivity savings, and certain procurement benefits
from the weaker dollar contributed to this improvement, overcoming approximately
85 basis points of negative impact from certain higher raw material and
packaging costs and planned-for growth in certain lower-margin product lines.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A expense levels amounted to 40.2 percent of net sales compared
with 39.6 percent a year ago. The increase in expense levels primarily reflects
continued marketing and other growth-related investments this third quarter in
both operating segments, increased distribution and other costs related directly
to the higher cost of fuel, and higher insurance and other costs related to
corporate governance issues. Partly offsetting these higher costs were the
positive leverage benefits from the sales growth, especially in industrial
services that require much lower SG&A support.
Industrial segment SG&A of 39.7 percent of net sales this third quarter compared
to 38.7 percent a year ago. Higher volume benefits were more than offset by
growth-related investments made in this segment, higher product liability
reserve accruals associated with our exterior insulating finishing systems, or
EIFS (see Item 1. Legal Proceedings, Part II - Other Information for further
discussion), and increased distribution costs.
Consumer segment SG&A increased to 36.0 percent of net sales this third quarter
compared with 34.9 percent a year ago, attributable to increased advertising and
other growth-related investments made in this segment, in addition to increased
distribution costs.
Corporate/Other costs decreased during this year's third quarter to $10.5
million from $11.6 million during last year's third quarter. Product liability
costs of $2.9 million were accrued for a year ago, associated with our asbestos
exposure (see Item 1. Legal Proceedings, Part II - Other Information for further
discussion), versus none this year, since there was an asbestos charge taken as
of this past fiscal year-end, which was estimated to cover approximately 3 years
worth of related cash costs at that time. Partly offsetting this cost reduction
were higher insurance and other costs related primarily to corporate governance
issues affecting essentially all U.S. publicly held companies, including
Sarbanes-Oxley compliance, and this year's establishment of our European
development office.
License fee and joint venture income of $0.2 million during each of the third
quarters ended February 29, 2003 and February 28, 2002 are reflected as
reductions of consolidated SG&A expenses.
EARNINGS BEFORE INTEREST AND TAXES (EBIT)
We believe that EBIT best reflects the performance of our operating segments, as
interest expense and income taxes are not consistently allocated to operating
segments by the various constituencies utilizing our financial statements.
Requests for operating performance measures received from research analysts,
17
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
financial institutions and rating agencies typically focus on EBIT, and we
believe EBIT disclosure is responsive to our investors.
Consolidated EBIT for this year's third quarter grew by $3.5 million, or 25.6
percent, to $17.1 million from $13.6 million during last year's third quarter,
with margin improvement to 3.6 percent of net sales from 3.1 percent a year ago.
This growth reflects the positive impact from higher sales volume, including
accretive acquisitions, despite approximately 50 basis point impact of higher
material costs and the continuation of certain marketing and growth-related
investments this third quarter in both operating segments.
Industrial segment EBIT grew by $1.4 million, or 15.9 percent, to $9.9 million
from last year's $8.6 million, mainly from the higher sales volume and the
accretive results of its recent acquisitions.
Consumer segment EBIT grew by $1.0 million, or 6.1 percent, to $17.7 million
from last year's $16.7 million, mainly from the organic sales growth leverage in
this segment less the impact from higher material costs and continued planned
spending on growth related initiatives.
NET INTEREST EXPENSE
Net interest expense was $1.7 million higher this third quarter than a year ago.
Interest rates averaged 4.54 percent during this third quarter, 83 basis points
higher than a year ago, accounting for $1.8 million of the interest cost
increase. This increase is primarily due to our floating to fixed-rate debt
refinancings (Refer to "Capital Resources and Liquidity" Section) during the
past 12 months. Higher average net borrowings this year, associated with recent
acquisitions, of approximately $71 million added $0.5 million of interest cost,
while investment income performance improved year-over-year, providing an
additional $0.5 million of interest income. Debt repayments during the past
year, which averaged approximately $17 million, during the quarter, saved
approximately $0.1 million.
INCOME TAX RATE
The effective income tax rate this year of 35.5 percent compares with 35.0
percent a year ago. Reflected in the prior year rate is the accumulation of
several years worth of research tax credits, while in the current year rate, the
research tax credit benefit is limited to the current year. Additionally,
slight changes in our geographic mix of earnings have increased the current year
tax rate.
NET INCOME
This year's third quarter net income of $6.0 million increased $1.1 million, or
23.2 percent, from last year's $4.9 million. Margin on sales strengthened to 1.3
percent of sales from last year's 1.1 percent despite the approximate 50 basis
point impact from higher material costs. Earnings per common share increased by
25.0 percent, to $0.05 from $0.04 a year ago.
18
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
NINE MONTHS ENDED FEBRUARY 29, 2004
- -----------------------------------
NET SALES
Net sales on a consolidated basis for the first nine months of fiscal 2004 of
$1.661 billion improved 11.2 percent, or $166.8 million, over last year's first
nine months net sales of $1.494 billion. This growth is attributed to the
increase in organic demand, which contributed 4.8 percent or $71.6 million, plus
acquisitions of ten small product lines, which contributed 3.7 percent or $54.8
million, to sales growth. Favorable foreign exchange rates, relating primarily
to the Canadian dollar and the euro, provided an additional 2.7 percent, or
$40.3 million, of increased sales over last year.
Industrial segment net sales for these first nine months amounted to 54.9
percent of consolidated net sales, growing 12.0 percent, or $97.5 million, to
$911.3 million from last year's $813.8 million. This segment's net sales growth
comes from organic sales growth of 6.7 percent, which includes 3.5 percent
growth from net favorable foreign exchange differences, and from six small
product line acquisitions during the past 12 months, which added $43.3 million
or 5.3 percent to industrial sales. Roofing services revenues have continued to
grow rapidly, ahead 32% through nine months, and the demand for most industrial
products has increased in general as the economy has improved. Additionally, we
continue to secure new business and grow market share in many of our industrial
segment operations.
Consumer segment net sales for these first nine months amounted to 45.1 percent
of consolidated net sales, growing 10.2 percent, or $69.3 million, to $749.4
million from last year's $680.2 million. Growth in organic sales, particularly
from this segment's Rust-Oleum, Zinsser and DAP product lines, added 8.5
percent to consumer sales, including 1.7 percent from favorable foreign exchange
differences. Also contributing to growth in this segment year-over-year were
four small product line acquisitions during the past 12 months, which added the
remaining 1.7 percent of sales growth.
GROSS PROFIT MARGIN
Consolidated gross profit margins remained steady at 45.3 percent of net sales
for both nine-month periods presented. Organic sales growth benefits, margin
improvements from productivity gains and make vs. buy strategies, purchasing
benefits from the weaker dollar, mainly in Canada, and accretive acquisitions
over the last 12 months were offset by approximately 60 basis points of negative
impact from increased raw material and packaging costs and from continued growth
in certain strategic, but lower-margin, product lines and services.
The industrial segment gross profit margin for the first nine months of fiscal
2004 improved to 45.5 percent of net sales from 45.3 percent last year,
primarily as a result of the six small, accretive acquisitions over the last
twelve months, in addition to the benefits from the growth in organic sales
volume. Partly offsetting those improvements were the continued growth of
lower-margin services
19
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
business and increases in material costs, which had approximately 20 basis
points negative impact these first nine months.
Gross profit margin for the consumer segment declined slightly these first nine
months of fiscal 2004, to 45.1 percent of net sales from 45.2 percent last year.
Offsetting the positive leverage from increased sales volume, productivity
gains, purchasing benefits from the weaker dollar and plant rationalization
savings, were approximately 105 basis points of negative impact from higher
material costs, plus planned-for growth in certain strategic, but lower-margin
product lines, and net lower-margin acquisitions over the last 12 months.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A expense levels for the first nine months of fiscal 2004
were 35.8 percent of net sales for each of the nine month periods presented,
reflecting positive leverage from growth in net sales, especially the growth in
lower-margin services that require much lower SG&A support, and lower cost
structure acquisitions. Certain marketing and growth-related investments were
also made in both segments these first nine months which, along with higher
insurance and other costs related to corporate governance issues, offset these
benefits.
Industrial segment SG&A as a percent of net sales for the current nine month
period of 35.0 percent compares to 34.5 percent a year ago. The leverage
benefits from improved sales volume were more than offset by certain
growth-related investments made these first nine months, higher product
liability reserve accruals associated with our exterior insulating finishing
systems, or EIFS (see Item 1. Legal Proceedings, Part II - Other Information for
further discussion), and last year's $1.6 million insurance recovery.
Consumer segment SG&A as a percent of net sales for the current nine month
period of 32.9 percent compares to 32.7 percent a year ago, attributable to the
increase in planned-for costs associated with a number of growth-related
investments, which exceeded the benefits from the growth in sales.
Corporate/Other costs decreased during this year's first nine months to $29.1
million from $31.9 million last year. Product liability costs of $7.3 million
were accrued for a year ago, associated with our asbestos exposure (see Item 1.
Legal Proceedings, Part II - Other Information for further discussion), versus
none this year, since there was an asbestos charge taken as of this past fiscal
year-end, which was estimated to cover approximately 3 years worth of related
costs at that time. Partly offsetting this cost reduction were higher
insurance and other costs related primarily to corporate governance issues
affecting essentially all U.S. publicly held companies, including Sarbanes-Oxley
compliance, and this year's establishment of our European development office.
License fee and joint venture income of $0.6 and $0.8 million during the first
nine months ended February 29, 2003 and February 28, 2002, respectively, are
reflected as reductions of consolidated SG&A expenses.
20
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
EARNINGS BEFORE INTEREST AND TAXES (EBIT)
Consolidated EBIT for this year's first nine months grew by $17.3 million, or
12.2 percent, to $158.6 million from $141.4 million during last year's first
nine months, while margins held steady at 9.5 percent of sales. Growth in
consolidated EBIT reflects the positive impact of net sales improvements
year-over-year, including recent accretive acquisitions, despite the approximate
60 basis point negative impact from increased material costs.
By segment, industrial segment EBIT grew by $7.7 million, or 8.8 percent, to
$95.9 million from last year's $88.2 million. Consumer segment EBIT grew this
first nine months by $6.7 million, or 7.9 percent, to $91.8 million from last
year's $85.1 million. This growth in operating EBIT reflects solid growth in net
sales, including accretive acquisitions over the last twelve months, offset by
increases in material costs and growth-related initiatives.
NET INTEREST EXPENSE
Net interest expense was $0.5 million greater these first nine months than a
year ago. Interest costs associated with recent acquisitions added $1.2 million
of interest expense this year. Our floating to fixed-rate debt refinancings
(Refer to "Liquidity and Capital Resources" Section) during the past 12 months
have effectively raised our interest rates year over year, costing an additional
$0.5 million in interest expense this year. Net interest expense was reduced by
greater investment income this year, of approximately $0.6 million, while debt
repayments, averaging approximately $22 million year over year, saved $0.6
million in interest cost.
INCOME TAX RATE
The effective income tax rate this year of 35.5 percent compares with 35.0
percent a year ago. Reflected in the prior year rate is the accumulation of
several years worth of research tax credits, while in the current year rate, the
research tax credit benefit is limited to the current year. Additionally,
slight changes in our geographic mix of earnings have increased the current year
tax rate.
NET INCOME
Net income of $88.9 million for this year's first nine months increased $10.2
million, or 13.0 percent, from last year's $78.7 million. Earnings per common
share increased by 11.8 percent, to $0.76 from $0.68 a year ago. Margin on sales
of 5.4 percent improved from last year's 5.3 percent, despite approximately 60
basis points of negative impact from higher material costs.
21
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
CASH FLOWS FROM:
OPERATING ACTIVITIES
There was $108.8 million of cash generated from operations during the first nine
months of fiscal 2004 compared with $117.3 million generated during the same
period a year ago, or a net decrease of $8.5 million. Cash flow from operations
was positively impacted by $14.7 million from an increase in net income of $10.2
million and depreciation and amortization of $4.5 million versus the prior
year's results. The decrease in cash flow from "Changes in operating working
capital" and "Items not affecting cash and other" is mainly a result of
year-over-year changes in long-term and short-term asbestos related reserves,
net of taxes, of approximately $27.6 million. As disclosed in our "Critical
Accounting Policies and Estimates" and our discussion on asbestos litigation
(refer to Item 1. Legal Proceedings, Part II-Other Information), the significant
increase in asbestos claims activity and inequitable joint and several liability
determinations against our Bondex subsidiary caused our related third-party
insurance to be depleted during the first quarter of our current fiscal year.
Accordingly, we are now required to fund costs previously covered by insurance
with cash from operations.
Trade accounts receivable generated a year-over-year increase in cash flow of
$8.9 million which was principally associated with a favorable improvement in
days sales outstanding ("DSO") since May 31, 2003. This improvement compares
favorably to the prior year change in DSO for the first nine months, which was
unfavorable. Inventories required an additional $27.2 million of operating cash
as a result of increased sales volume and the associated inventory required to
support these levels. Exchange rate differences year-over-year had very little
effect on cash flow required by or generated from receivables or inventory.
Management continues to focus on improving accounts receivable collection and
managing inventory levels to lower levels as a result of strengthened
information technology systems and continuous improvements in operating
techniques, such as Class "A" manufacturing. Accounts payable had a positive
year-over-year increase in cash flow of $14.3 million. All other remaining
balance sheet changes related to cash flows had a net positive impact of $8.4
million, mostly due to timing.
Cash provided from operations remains our primary source of financing internal
growth, with limited use of short-term debt.
INVESTING ACTIVITIES
Capital expenditures, other than for ordinary repairs and replacements, are made
to accommodate our continued growth through improved production and distribution
efficiencies and capacity, and to enhance administration. Capital expenditures
during the first nine months of fiscal 2004 of $26.2 million compare with
depreciation of $35.3 million, well within the maintenance level of spending. We
are not a capital intensive business and capital expenditures generally do not
exceed depreciation in a given
22
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
year. Capital spending is expected to be approximately $50 million annually for
the next several years.
During the first nine months of fiscal 2004, we invested a total of $24.9
million for acquisitions.
FINANCING ACTIVITIES
On June 6, 2002, we entered into a $125 million accounts receivable
securitization transaction with several banks through June 4, 2005, which is
subject to continuation by an annual renewal by the banks. The securitized
accounts receivable are owned in their entirety by RPM Funding Corporation, a
wholly owned and consolidated special-purpose entity ("SPE"), and are not
available to satisfy claims of our creditors until the participating banks'
obligations have been paid in full. This securitization is being accomplished by
having certain subsidiaries sell various of their accounts receivable to the
SPE, and by having the SPE then transfer those receivables to a conduit
administered by the banks. This securitization did not constitute a form of
off-balance sheet financing, and is fully reflected in our financial statements.
The amounts available under this program are subject to changes in the credit
ratings of our customers, customer concentration levels and certain
characteristics of the underlying accounts receivable. This transaction
increased our liquidity and reduced our financing costs by replacing up to $125
million of existing borrowing at lower interest rates. As of February 29, 2004,
there were no outstanding balances under this program.
On February 12, 2003, we announced the authorization of a share repurchase
program, allowing the repurchase of up to 10 million shares of RPM common stock
over a period of 12 months. As of February 12, 2004, we had repurchased 100,000
RPM shares at an average price of $11.67 per share under the program.
In May 2003, we issued $297 million face value at maturity unsecured 2.75%
Senior Convertible Notes ("2.75% Notes") due May 13, 2033 as a means of
refinancing. We generated net proceeds of $146 million from the sale of the
2.75% Notes. The 2.75% Notes are convertible into 8,034,355 shares of our common
stock at a price of $18.68 per share, subject to adjustments, during any fiscal
quarter for which the closing price of our common stock is greater than $22.41
per share for a defined duration of time. The 2.75% Notes are also convertible
during any period in which our credit rating is below a specified level, or if
specified corporate transactions have occurred. The 2.75% Notes are redeemable
by the holder for the issuance price plus accrued original issue discount in May
2008, 2013, 2018, 2023, 2028 and 2033. Interest on the 2.75% Notes is payable at
a rate of 2.75% beginning November 13, 2003 until May 13, 2008, depending upon
the market price of the Notes. After that date, cash interest will only accrete
and will not be paid prior to maturity, subject to certain contingencies.
Also in May 2003, we established a $200 million non-rated commercial paper
("CP") program under which borrowings are unsecured for terms of 270 days or
less. This CP program currently allows for lower interest cost than that
available under the Company's $500 million revolving credit facility. The $500
million credit facility is available to back up our CP program to the extent it
is not drawn upon. As of February 29, 2004, there was $54.5 million outstanding
under this CP program.
23
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
In December 2003, we issued and sold $200 million of 6.25% Senior Notes due
2013 as a means of refinancing. The Notes were offered to qualified
institutional buyers under Rule 144A and to persons outside the United States
under Regulation S. The entire net proceeds of $197 million from this offering
were used to repay in full the $128 million of outstanding borrowings under our
$500 million revolving credit facility and $69 million of the then outstanding
$72 million balance under our asset securitization program.
Our debt-to-capital ratio was 43% at February 29, 2004, down from 45% at May 31,
2003.
The following table summarizes our financial obligations and their expected
maturities at February 29, 2004 and the effect such obligations are expected to
have on our liquidity and cash flow in the periods indicated.
Less than After
Total 1 year 1-3 years 3 years
----- ------ --------- -------
($ in millions)
Current portion of long-term debt $ 2.1 $ 2.1 $ -- $ --
Long-term debt 709.7 -- 229.6 480.1
Non-cancelable operating lease obligations(1) 72.8 16.8 23.9 32.1
------ ------ ------ ------
$784.6 $ 18.9 $253.5 $512.2
====== ====== ====== ======
- ---------------
(1) We calculate non-cancelable operating lease obligations on an annual basis
and consequently such information is not available at February 29, 2004. The
amounts shown above are for the fiscal year end May 31, 2003.
We maintain excellent relations with our banks and other financial institutions
to provide continual access to financing for future growth opportunities.
STOCKHOLDERS' EQUITY
- --------------------
Effective October 15, 2002, the Company changed its legal place of incorporation
from Ohio to Delaware, following approval by its shareholders of a plan of
reincorporation at its annual meeting on October 11, 2002. Under the plan, RPM
International Inc. became the parent holding company of Ohio-based RPM, Inc. and
several other intermediate holding companies and wholly-owned subsidiaries. In
addition to the creation of a newly formed Delaware legal entity, the legal
structure of various operating companies were realigned in consistency with
their respective business objectives. In connection with the reincorporation,
shareholders approved and adopted the Company's amended and restated certificate
of incorporation, which authorizes the issuance of up to 300,000,000 shares of
Common Stock and 50,000,000 shares of Preferred Stock, both at a par value of
$0.01 per share. In conjunction with reincorporation, all of the outstanding
treasury shares of RPM, Inc. were cancelled and retired without any
consideration. In addition, each common share of RPM, Inc. issued and
outstanding on October 15, 2002 was converted into one share of the Company,
with a $0.01 par value per share. This transaction did not have any effect on
the book value per share, post-reincorporation.
24
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND NINE MONTH PERIODS ENDED FEBRUARY 29, 2004
- --------------------------------------------------------------------------------
OFF-BALANCE SHEET ARRANGEMENTS
- ------------------------------
We do not have any off-balance sheet financings. 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- --------------------------------------------------------------------
We are exposed to market risk from changes in interest rates and foreign
exchange rates since we fund our operations through long- and short-term
borrowings and denominate our business transactions in a variety of foreign
currencies. There were no material changes in our exposure to market risk since
May 31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
- --------------------------------
(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
The Company's Chief Executive Officer and Chief Financial Officer, after
evaluating the effectiveness of the Company's disclosure controls and procedures
(as defined in Exchange Act Rule 13a-15(e) as of February 29, 2004 (the
"Evaluation Date"), have concluded that as of the Evaluation Date, the Company's
disclosure controls and procedures were effective in ensuring that information
required to be disclosed by the Company in the reports it files or submits under
the Exchange Act is recorded, processed, summarized and reported, within the
time periods specified in the Commission's rules and forms.
(b) CHANGES IN INTERNAL CONTROLS.
There were no changes in the Company's internal controls over financial
reporting that occurred during the fiscal quarter ended February 29, 2004 that
have materially affected, or are reasonably likely to materially affect, the
Company's internal controls over financial reporting.
25
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- ---------------------------
EIFS LITIGATION
- ---------------
As previously reported, Dryvit is a defendant or co-defendant in numerous
exterior insulated finish systems ("EIFS") related lawsuits. As of February 29,
2004, Dryvit was a defendant or co-defendant in approximately [300]
single-family residential EIFS cases, the majority of which are pending in the
Southeastern region of the U.S. Dryvit is also defending EIFS lawsuits involving
commercial structures, townhouses and condominiums. The vast majority of
Dryvit's EIFS lawsuits seek monetary relief for water intrusion related property
damages, although some claims in certain lawsuits allege personal injuries from
alleged exposure to mold.
As previously reported, Dryvit is a defendant in an attempted state class
action filed on November 14, 2000 in Jefferson County, Tennessee styled
Bobby R. Posey, et al. v. Dryvit Systems, Inc. (formerly styled William J.
Humphrey, et al. v. Dryvit Systems, Inc.) (Case No. 17,715-IV) ("Posey").
As previously reported, a preliminary approval order was entered on April
8, 2002 in the Posey case for a proposed nationwide class action
settlement covering, "All Persons who, as of June 5, 2002, in any State
other than North Carolina, in whole or in part, with Dryvit EIFS installed
after January 1, 1989, except persons who (1) prior to June 5, 2002, have
settled with Dryvit, providing a release of claims relating to Dryvit
EIFS; or (2) have not obtained a judgment against Settling Defendant for a
Dryvit EIFS claim, or had a judgment entered against them on such a claim
in Settling Defendants' favor; and (3) any employees of Dryvit."
Nationwide notice to all eligible class members began on or about June 13,
2002. Any person who wished to be excluded from the Posey settlement was
provided an opportunity to individually "opt out" and thus not be bound by
the final Posey order.
A fairness hearing was held on October 1, 2002 (which continued on December 16,
2002), for the court to determine whether the proposed settlement is fair,
reasonable and adequate. An order and judgment granting final approval of the
settlement was entered on January 14, 2003. Subsequent to the final order,
notices of appeal were filed by persons seeking to challenge certain provisions
of the proposed settlement. As previously reported, appellants in the Posey case
were challenging the trial court's denial of their right to appear at the
fairness hearing and the timeliness of motions to intervene in the underlying
action. Appellants were various builders and one individual homeowner. On March
22, 2004, the Tennessee Court of Appeals dismissed the homeowner's appeal but
decided that the builders should be allowed to intervene so the trial court can
determine whether, and if so to what extent, these builders' legal rights and
obligations are impacted by the proposed national settlement. Dryvit and its
counsel are evaluating the appellate court's decision and will urge the trial
court to expeditiously address this issue on remand so the settlement can be
finalized.
Dryvit's insurers have paid or are currently paying a portion of Dryvit's
defense costs in the class actions, and individual commercial and residential
EIFS lawsuits. Dryvit, the Company's wholly-owned captive insurer, First
Colonial Insurance Company, and certain of Dryvit's umbrella insurers have been
parties to cost-sharing agreements the terms of which are subject to periodic
renegotiation. Under current cost-sharing agreements and funding obtained from
one of
26
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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Dryvit's historical carriers, Dryvit's indemnity and defense costs continue to
be substantially covered by insurance; however, Dryvit has recently assumed a
greater share of its EIFS litigation costs. Dryvit has secured insurer funding
commitments to cover a substantial portion of the anticipated costs of the Posey
national settlement. Since Dryvit does not presently have sufficient claims
experience under the proposed Posey settlement, it is possible that the rate of
actual claims may, at some point in the future, exceed management's current
expectations. Based on consultation with counsel, management believes that to
the extent some of the Posey settlement costs are not covered by existing
funding commitments, such amounts will not have a material adverse effect on the
Company's consolidated financial condition, results of operations or cash flows.
ASBESTOS LITIGATION
- -------------------
As previously reported, certain of the Company's wholly-owned subsidiaries,
principally Bondex International, Inc. (collectively referred to as "the
Subsidiaries"), are defendants in various asbestos-related bodily injury
lawsuits filed in various state courts with the vast majority of which are
pending in five states - Florida, Illinois, Ohio, Mississippi and Texas. These
cases generally seek unspecified damages for asbestos-related diseases based on
alleged exposures to asbestos-containing products previously manufactured by one
of the Company's Subsidiaries.
The Company's Subsidiaries vigorously defend these asbestos-related lawsuits and
in many cases, the plaintiffs are unable to demonstrate that any injuries they
have incurred, in fact, resulted from exposure to one of our Subsidiaries'
products. In such cases, the Subsidiary is generally dismissed without payment.
With respect to those cases where compensable disease, exposure and causation
are established with respect to one of our Subsidiaries' products, the
Subsidiary generally settles for amounts that reflect the confirmed disease, the
particular jurisdiction, applicable law, the number and solvency of other
parties in the case and various other factors which may influence the settlement
value each party assigns to the case.
As of February 29, 2004, the Company had a total of 4,659 active asbestos cases
compared to a total of 1,767 cases as of February 28, 2003. During the quarter,
virtually all of the increase in new cases was attributable to cases filed by
one law firm in one state. In these particular cases, one of the Company's
Subsidiaries was added to the list of defendants by an amendment to the original
complaint. All of the cases are non-malignancy filings with no particular
Company Subsidiary products identified. It is expected that these cases will
ultimately be dismissed for no payment. For the quarter ended February 29, 2004,
the Company's dismissals and/or settlements covered 156 cases for a total of
$12.2 million of gross settlement and defense costs. For the comparable period
ended February 28, 2003, the Company's dismissals and/or settlements covered 125
cases for a total of $6.3 million of gross settlement costs which included then
applicable third party insurance contributions during the quarter. In some
jurisdictions, the dismissal or settlement of a case may involve more than one
individual plaintiff.
As previously reported, beginning in the fourth quarter of fiscal 2002
continuing into fiscal 2003, the Company's Subsidiaries (principally Bondex),
incurred higher settlement and defense costs resulting from
27
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
higher settlement demands in certain jurisdictions due primarily to the
insolvency of other co-defendants in the asbestos litigation which, in many
cases, disproportionately increased our Subsidiaries' share of the alleged
liability. The Company expects that it will continue to experience these higher
settlement and defense costs during the current fiscal year. The federal
legislative initiative to establish a trust fund coupled with recent state tort
law changes could significantly alter future settlement values and claim rates.
Based on the significant increase in asbestos claims and the inequitable impact
of joint and several liability laws on Bondex, as previously reported, our
undisputed third-party insurance was depleted during the first quarter of 2004.
Prior to this sudden and precipitous increase in claims and settlement values,
the combination of reserves and available insurance was expected at that time to
adequately cover our asbestos claims for the foreseeable future.
As previously disclosed, during the fourth quarter of fiscal 2003, the Company
engaged an outside advisor to assist its Subsidiaries in evaluating their
asbestos-related liabilities. Estimating the future cost of these asbestos
related contingent liabilities is subject to many uncertainties, including (i)
the ultimate number of claims filed against the Subsidiaries, (ii) the cost of
resolving both current known and future unknown claims, (iii) the amount of
insurance available to cover such claims, (iv) future earnings and cash flow of
the Company's Subsidiaries, (v) the impact of bankruptcies of other companies
whose share of liability may be imposed on the Company's Subsidiaries under
certain state liability laws, (vi) the unpredictable aspects of the litigation
process including the scheduling of trial dates and the jurisdictions in which
trials are scheduled, (vii) the lack of specific information in many cases
concerning exposure to the Subsidiaries' products and the claimants' diseases,
and (viii) potential changes in applicable federal and/or state law. Recently
adopted state tort law changes have created significant uncertainty with respect
to future defense strategies, settlement values and, over time, are expected to
positively impact claim frequency and severity. The changes generally provide
for liability to be determined on a proportional cause basis. These state law
changes are not expected to have an impact on asbestos litigation until the
latter part of fiscal 2004 or early in fiscal 2005. Therefore, at this time, the
Company has concluded that the potential liability that may result from all
known and future unknown claims is not presently estimable.
The Company has, however, established a reserve for those pending cases that
have progressed to a stage where the cost to dispose of these cases can
reasonably be estimated. For those claims for which the Company has been able to
develop estimates, it has done so in consultation with its outside advisor and
defense counsel taking into account disease, dismissal rates and applicable
settlement values experience. The reserve was established by taking an asbestos
charge in fiscal 2003 of $140 million for measurable known claims as of May 31,
2003 and a provision for some future claims that were estimable. After payments
made during the first three quarters of this fiscal year, the remaining amount
of the reserve is $105.9 million. We believe this asbestos reserve will be
sufficient to cover our Subsidiaries' asbestos-related cash flow requirements
into fiscal 2006.
The Company recognizes that future facts, events, litigation outcomes, and
legislation (both state and/or federal) may affect the bases for the reserve,
including our assumptions, and therefore alter its estimates of some future
asbestos-related claims that were estimable. The Company cannot estimate
possible liabilities in excess of those accrued because it cannot predict the
number of additional claims that may be filed against its Subsidiaries in the
future, the grounds for such claims, the damages
28
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- -------------------------------------------------------------------------------
that may be demanded in such claims or the probable outcome of such claims. The
Company, in conjunction with outside advisors, will continue to study its
Subsidiaries' asbestos-related exposures, and regularly evaluate the adequacy of
this reserve and the related cash flow implications in light of actual claims
experience, the impact of state law changes and the evolving nature of federal
legislative efforts to address asbestos litigation.
As previously disclosed, the Company's Subsidiaries' undisputed third party
insurance coverage was depleted during the first quarter of the 2004 fiscal
year. Since the third quarter of fiscal 2003, the Company's Subsidiaries have
been in the process of reviewing their known (and searching for any additional
unknown) insurance policies to determine whether or not other insurance limits
may be available to cover its asbestos liabilities. On July 3, 2003, certain of
the Company's Subsidiaries filed a complaint for declaratory judgment, breach of
contract and bad faith in the U.S. Federal District Court (Northern District of
Ohio, Eastern Division) against several of their third party insurers who had
issued liability insurance policies that provided various types of primary and
excess coverage during various policy periods between 1968 and 1984. Under these
liability insurance policies, the insurers provided defense and/or indemnity
coverage to certain of the Company's Subsidiaries for asbestos bodily injury
claims. This coverage action was filed when these insurers ceased providing
defense and/or indemnity coverage to certain of the Company's Subsidiaries and
wrongfully claimed that aggregate limits of liability of their respective
insurance policies have been exhausted. The Company is unable at the present
time to predict the timing or impact of the ultimate outcome of this insurance
coverage litigation.
ENVIRONMENTAL PROCEEDINGS
- -------------------------
As previously reported, several of the Company's subsidiaries are, from time to
time, identified as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation and Liability Act and similar state
environmental statutes. In some cases, the Company's Subsidiaries are
participating in the cost of certain clean-up efforts or other remedial actions.
The Company's share of such costs, however, has not been material and management
believes that these environmental proceedings will not have a material adverse
effect on the Company's consolidated financial condition or results of
operations. See "Business-Environmental Matters," in the Company's Annual Report
on Form 10-K for the year ended May 31, 2003.
ITEM 2 - CHANGES IN SECURITIES
- ------------------------------
Recent Sales of Unregistered Securities
On December 9, 2003, the Company sold approximately $200.0 million in
aggregate principal amount at maturity of 6.25 percent senior notes due 2013
(the "Notes") to qualified institutional buyers, resulting in approximately
$197 million in gross proceeds to RPM. Each Note was issued at a price of
$986.67. Cash interest on the Notes is payable semi-annually in arrears on
December 15 and June 15 of each year, beginning June 15, 2004. Interest on the
Notes began accruing on December 9, 2003. The Notes are redeemable at any time
and from time to time at a redemption price equal to the greater of 100% of the
principal amount of Notes being redeemed
29
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
and the "make-whole amount" described in the Indenture executed in connection
with the offering (see Exhibit 4.2 to this Form 10-Q).
The offering was made only to qualified institutional buyers in
accordance with Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"). The Company used the entire net proceeds of the offering to
repay in full the $128 million of outstanding borrowings under its $500 million
revolving credit facility and $69 million of the then outstanding $72 million
balance under its asset securitization program. The Notes have not been
registered under the Securities Act of 1933 or any state securities laws, and
unless so registered may not be offered or sold in the United States, except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Pursuant to a Registration Rights Agreement between the Company and the
qualified institutional buyers, the Company was required to prepare and file a
registration statement which allows for the holders of the Notes to exchange the
Notes for notes registered under the Securities Act (the "Exchange Notes"). The
registration statement is not effective at this time. Once effective, the terms
of the Notes and the Exchange Notes will be identical in all material respects,
except that the Exchange Notes will be registered under the Securities Act, and
the transfer restrictions and registration rights relating to the Notes will not
apply to the Exchange Notes.
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K
- ------------------------------------------
(a) EXHIBITS
EXHIBIT NO EXHIBIT DESCRIPTION
---------- -------------------
4.1 Form of 6.25% Senior Note Due 2013 (x).
4.2 Indenture, dated as of December 9, 2003 between the Company, as
issuer, and The Bank of New York, as trustee, which is incorporated
herein by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-4 (Registration No. 333-114259), as filed with the
Commission on April 7, 2004.
4.3 Registration Rights Agreement, dated as of December 9, 2003,
among the Company, Banc One Capital Markets, Inc., Wachovia
Capital Markets, LLC, J.P. Morgan Securities, Inc., Fifth Third
Securities, Inc., Mellon Financial Markets, LLC and U.S. Bancorp
Piper Jaffray Inc. and each of the other Initial Purchasers
named in Schedule A to the Purchase Agreement, which is
incorporated herein by reference to Exhibit 4.3 to the Company's
Registration Statement on Form S-4 (Registration No.
333-114259), as filed with the Commission on April 7, 2004.
30
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
EXHIBIT NO EXHIBIT DESCRIPTION
---------- -------------------
10.1 Purchase Agreement, dated as of December 4, 2003 among the
Company, Banc One Capital Markets, Inc., Wachovia Capital
Markets, LLC, J.P. Morgan Securities, Inc., Fifth Third
Securities, Inc., Mellon Financial Markets, LLC and U.S.
Bancorp Piper Jaffray Inc. and each of the Initial Purchasers
named in Schedule A to the Purchase Agreement, which is
incorporated herein by reference to Exhibit 10.1 to the
Company's Registration Statement on Form S-4 (Registration No.
333-114259), as filed with the Commission on April 7, 2004.
11.1 Computation of Net Income per share of Common Stock (x)
31.1 Rule 13a-14(a) Certification of the Company's Chief Executive
Officer. (x)
31.2 Rule 13a-14(a) Certification of the Company's Chief Financial
Officer. (x)
32.1 Section 1350 Certification of the Company's Chief Executive
Officer. (x)
32.2 Section 1350 Certification of the Company's Chief Financial
Officer (x)
- -------------
(x) Filed herewith.
* Management contract or compensatory plan or arrangement.
(b) REPORTS ON FORM 8-K
(i) We furnished to the SEC a Current Report on Form 8-K, dated
January 8, 2004, regarding the Company's financial results for
the second quarter ended November 30, 2003.
31
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
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BY /s/ Robert L. Matejka
-----------------------------------------
ROBERT L. MATEJKA
VICE PRESIDENT, CHIEF FINANCIAL OFFICER AND
CONTROLLER
DATED: APRIL 8, 2004