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 NOVEMBER 30, 2003, 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
DELAWARE 02-0642224
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(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
P.O. BOX 777; 2628 PEARL ROAD; MEDINA, OHIO 44258
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO THE FILING REQUIREMENTS FOR THE PAST 90 DAYS.
INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).
AS OF JANUARY 6, 2004
115,788,334 SHARES OF RPM INTERNATIONAL INC. COMMON STOCK WERE OUTSTANDING.
PAGE NO.
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PART I. FINANCIAL INFORMATION
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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
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ITEM 1. LEGAL PROCEEDINGS 25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS 28
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 30
SIGNATURES 31
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* As used herein, the terms "RPM" and the "Company" refer to RPM International Inc. and its subsidiaries, unless the context indicates otherwise.
ASSETS
November 30, 2003 May 31, 2003
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Current Assets
Cash and short-term investments $ 48,498 $ 50,725
Trade accounts receivable (less allowances of
$18,304 and $17,297, respectively) 424,045 439,623
Inventories 264,341 253,204
Deferred income taxes 54,143 51,285
Prepaid expenses and other current assets 139,446 133,257
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Total current assets 930,473 928,094
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Property, Plant and Equipment, at Cost 737,781 714,009
Allowance for depreciation and amortization (368,929) (343,220)
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Property, plant and equipment, net 368,852 370,789
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Other Assets
Goodwill 648,364 631,253
Other intangible assets, net of amortization 277,471 282,949
Other 36,074 34,126
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Total other assets 961,909 948,328
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Total Assets $2,261,234 $2,247,211
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 150,785 $ 171,956
Current portion of long-term debt 1,615 1,282
Accrued compensation and benefits 67,997 77,577
Accrued loss reserves 57,759 64,230
Asbestos-related liabilities 49,203 41,583
Other accrued liabilities 66,265 59,759
Income taxes payable (2,024) 11,263
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Total current liabilities 391,600 427,650
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Long-Term Liabilities
Long-term debt, less current maturities 721,620 724,846
Asbestos-related liabilities 69,035 103,000
Other long-term liabilities 60,480 59,951
Deferred income taxes 73,159 54,756
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Total long-term liabilities 924,294 942,553
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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 115,731 and outstanding 115,702 as of November 2003;
issued 115,596 and outstanding 115,496 as of May 2003 1,157 1,156
Paid-in capital 509,999 508,397
Treasury stock, at cost (337) (1,167)
Accumulated other comprehensive loss (2,958) (17,169)
Retained earnings 437,479 385,791
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Total stockholders' equity 945,340 877,008
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Total Liabilities and Stockholders' Equity $2,261,234 $2,247,211
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The accompanying notes to consolidated financial statements are an integral part of these statements.
(In thousands, except per share amounts)
SIX MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
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2003 2002 2003 2002
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NET SALES $ 1,179,925 $ 1,060,381 $ 589,834 $ 517,968
COST OF SALES 637,946 569,499 323,966 285,197
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GROSS PROFIT 541,979 490,882 265,868 232,771
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 400,466 363,136 204,548 180,122
INTEREST EXPENSE, NET 12,994 14,188 6,711 6,984
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INCOME BEFORE INCOME TAXES 128,519 113,558 54,609 45,665
PROVISION FOR INCOME TAXES 45,624 39,745 19,386 16,025
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NET INCOME $ 82,895 $ 73,813 $ 35,223 $ 29,640
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AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING:
BASIC 115,613 115,001 115,670 115,240
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DILUTED 116,335 115,981 116,443 116,201
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BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.72 $ 0.64 $ 0.30 $ 0.26
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DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.71 $ 0.64 $ 0.30 $ 0.26
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CASH DIVIDENDS PER SHARE OF COMMON STOCK $ 0.2700 $ 0.2550 $ 0.1400 $ 0.1300
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The accompanying notes to consolidated financial statements are an integral part of these statements.
(In thousands)
Six Months Ended November 30,
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2003 2002
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Cash Flows From Operating Activities:
Net income $ 82,895 $ 73,813
Depreciation and amortization 30,925 28,081
Items not affecting cash and other (11,074) (2,872)
Changes in operating working capital (36,883) (8,489)
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65,863 90,533
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Cash Flows From Investing Activities:
Capital expenditures (15,457) (13,702)
Acquisition of businesses, net of cash acquired (20,000) (9,387)
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(35,457) (23,089)
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Cash Flows From Financing Activities:
Reductions of long-term and short-term debt (2,893) (22,900)
Cash dividends (31,208) (29,111)
Exercise of stock options 1,468 2,828
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(32,633) (49,183)
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(Decrease) Increase in Cash and Short-Term Investments (2,227) 18,261
Cash and Short-Term Investments at Beginning of Period 50,725 42,172
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Cash and Short-Term Investments at End of Period $ 48,498 $ 60,433
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The accompanying notes to consolidated financial statements are an integral part of these statements.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2003
(UNAUDITED)
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 six month periods ended November 30, 2003 and 2002. 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.
Inventories were composed of the following major classes:
NOVEMBER 30, 2003 MAY 31, 2003
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(IN THOUSANDS)
Raw materials and supplies $100,280 $ 80,517
Finished goods 164,061 172,687
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$264,341 $253,204
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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 $59.0 million and $31.0 million during the second quarter of fiscal years 2004 and 2003, respectively, and $97.1 million and $75.9 million for the six-month periods ended November 30, 2003 and 2002, respectively.
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
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2003
(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.
At November 30, 2003, 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:
Six Months Ended Three Months Ended
November 30, November 30,
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2003 2002 2003 2002
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(In thousands, except per share amounts)
Net Income, as reported $82,895 $73,813 $35,223 $29,640
Add: Stock-based employee compensation expense from
restricted stock plans included in reported
net income, net of related tax effects 666 585 333 341
Deduct: Total stock-based compensation expense determined
under fair value-based method for all awards, net of
related tax effects (2,018) (1,940) (1,220) (1,104)
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Pro Forma Net Income $81,543 $72,458 $34,336 $28,877
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Earnings per Share, as reported:
Basic $ 0.72 $ 0.64 $ 0.30 $ 0.26
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Diluted $ 0.71 $ 0.64 $ 0.30 $ 0.26
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Pro Forma Earnings per Share:
Basic $ 0.71 $ 0.63 $ 0.30 $ 0.25
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Diluted $ 0.70 $ 0.62 $ 0.29 $ 0.25
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RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2003
(UNAUDITED)
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 fund asbestos loss payments 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. The ultimate impact of these new laws is difficult to predict given the limited time following enactment, because the full influence of these law changes on legal settlement values is 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.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2003
(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 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 and a provision for the future claims that can presently be estimated. We believed then and continue to believe that the asbestos reserve would be sufficient to cover asbestos-related cash flow requirements through 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 and legislation, both state and/or federal, may alter our estimates of both pending and future claims. 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 November 30, 2003, 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
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2003
(UNAUDITED)
costs will differ from estimates, but, based upon information presently available, such future 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.
Subsequent to quarter end, on December 4, 2003, the Company issued and sold $200 million aggregate principal amount of 6.25% Senior Notes due 2013. The total net proceeds of this offering were used to pay in full the $128 million outstanding balance of the Company's $500 million revolving credit agreement and $69 million of the outstanding $72 million balance of the Company's asset securitization program.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
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
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
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.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
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.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
SIX MONTHS ENDED NOVEMBER 30, QUARTER ENDED NOVEMBER 30,
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(In thousands) 2003 2002 2003 2002
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NET SALES:
Industrial Segment $ 646,498 $ 578,562 $ 330,304 $ 286,317
Consumer Segment 533,427 481,819 259,530 231,651
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TOTAL $ 1,179,925 $ 1,060,381 $ 589,834 $ 517,968
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INCOME BEFORE INCOME TAXES (a):
Earnings Before Interest and Taxes (EBIT) (b)
Industrial Segment $ 85,957 $ 79,580 $ 38,912 $ 34,543
Consumer Segment 74,165 68,439 32,030 28,890
Corporate/Other (18,609) (20,273) (9,622) (10,784)
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Total EBIT 141,513 127,746 61,320 52,649
Consolidated Interest Expense, Net (12,994) (14,188) (6,711) (6,984)
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TOTAL $ 128,519 $ 113,558 $ 54,609 $ 45,665
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IDENTIFIABLE ASSETS: NOVEMBER 30, 2003 MAY 31, 2003
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Industrial Segment $ 1,090,589 $ 1,067,916
Consumer Segment 1,024,201 1,038,350
Corporate/Other 146,444 140,945
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TOTAL $ 2,261,234 $ 2,247,211
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(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.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
NET SALES
Net sales on a consolidated basis for the second quarter of fiscal 2004 of $589.8 million improved 13.9 percent, or $71.8 million, over last year's second quarter net sales of $518.0 million. Growth in organic sales, resulting from continued solid demand for consumer/do-it-yourself ("DIY") products, rapid growth of roofing maintenance services and generally increased demand for industrial products, contributed 7.1 percent of this improvement, or $36.7 million, while acquisitions of seven smaller product lines contributed 3.8 percent or $19.8 million. Lastly, favorable foreign exchange rates, relating principally to the Canadian dollar and the euro, provided almost 3.0 percent, or $15.3 million, of increased sales quarter over quarter.
Industrial segment net sales for the second quarter amounted to 56.0 percent of the RPM total, and grew 15.4 percent to $330.3 million from last year's $286.3 million. This segment's net sales growth comes primarily from organic sales growth of 9.9 percent, including 3.9 percent from net favorable foreign exchange differences. Three smaller product line acquisitions during the past 12 months added the remaining 5.5 percent to industrial sales. Excluding the foreign exchange effect, organic sales growth in the industrial segment was approximately 6.0 percent, as the sales from lower-margin roofing maintenance services continued to grow rapidly, and demand for industrial products increased in general as the economy improved. We continue to secure new business and grow market share in many of our industrial segment operations.
Consumer segment net sales for the second quarter amounted to 44.0 percent of the RPM total, and grew 12.0 percent to $259.5 million from last year's $231.7 million. This segment's net sales growth comes primarily from organic growth among the main consumer product lines (DAP, Rust-Oleum, Zinsser), which added 10.2 percent to consumer sales, including favorable foreign exchange differences, and from four smaller product line acquisitions during the past 12 months, which added the remaining 1.8 percent to consumer segment sales.
GROSS PROFIT MARGIN
Consolidated gross profit margin of 45.1 percent of net sales this second quarter improved from 44.9 percent a year ago. The benefits derived from leveraging higher organic sales volume plus improved productivity and higher margins from acquisitions were slightly offset by a continued number of higher raw material and packaging costs, including oil-derivative materials such as acetones and solvents, which impacted gross margin by 70 basis points. Additionally, we experienced continued growth in certain strategic but lower-margin product lines and services.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
Industrial segment gross profit margin for the second quarter improved to 45.4 percent of net sales from 45.0 percent last year, as a result of leveraging the volume improvements plus acquisitions, which more than offset the effect of continued, lower-margin growth from services business.
Consumer segment gross profit margin for this second quarter declined to 44.7 percent of net sales from 44.9 percent last year, despite the positive leverage from higher organic sales volume, primarily due to certain higher raw material and packaging costs, as well as in planned-for growth in certain lower-margin product lines. The impact of higher raw material costs experienced this quarter is not expected to be as significant for the remainder of this fiscal year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A expense levels improved to 34.7 percent of net sales compared with 34.8 percent a year ago. This improvement is attributable in large part to positive leverage from the sales growth, especially in industrial services that require much lower SG&A support, and lower cost acquisitions. Additionally, certain marketing and growth-related investments continued this second quarter in both operating segments, partly offsetting these sales volume benefits on SG&A.
Industrial segment SG&A of 33.6 percent of net sales this second quarter compared to 32.9 percent a year ago. Higher volume benefits were more than offset by growth-related investments made in this segment, higher product liability 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 during the second quarter.
Consumer segment SG&A of 32.3 percent of net sales this second quarter compared favorably against 32.4 percent a year ago, fully attributable to the sales growth, partly offset by increased advertising and other growth-related investments made in this segment as well.
Corporate/Other costs decreased during this year's second quarter to $9.6 million from $10.8 million during last year's second quarter. Product liability costs of $2.2 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 legal costs related primarily to corporate governance issues affecting essentially all U.S. publicly held companies.
License fee and joint venture income of $0.3 million during each of the second quarters ended November 30, 2003 and 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
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
our financial statements. Requests for operating performance measures received from research analysts, 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 second quarter grew by $8.7 million, or 16.5 percent, to $61.3 million from $52.6 million during last year's second quarter, with margin improvement to 10.4 percent of net sales from 10.2 percent a year ago. This growth reflects the positive impact from higher sales volume, including accretive acquisitions, despite the 70 basis points negative impact from higher material costs.
Industrial segment EBIT grew by $4.4 million, or 12.7 percent, to $38.9 million from last year's $34.5 million, mainly from the higher sales volume and the accretive results of its recent acquisitions.
Consumer segment EBIT grew by $3.1 million, or 10.9 percent, to $32.0 million from last year's $28.9 million, mainly from the net profitability of the organic sales growth in this segment less the impact from higher material costs.
NET INTEREST EXPENSE
Net interest expense was $0.3 million lower this second quarter than a year ago. Interest rates averaged 3.49 percent during this second quarter, 59 basis points lower than a year ago, accounting for $0.8 million of the interest savings. Higher average net borrowings this year, primarily associated with recent acquisitions, of approximately $51 million added $0.2 million of interest cost, and investment income performance declined by $0.3 million year-over-year.
INCOME TAX RATE
The effective income tax rate this year of 35.5 percent compares with 35.1 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, the slight changes in our geographic mix of earnings have increased the current year tax rate.
NET INCOME
This year's second quarter net income of $35.2 million increased $5.6 million, or 18.8 percent, from last year's $29.6 million. Margin on sales strengthened to 6.0 percent of sales from last year's 5.7 percent despite the 70 basis points (pre-tax) impact from higher material costs. Earnings per common share increased by 15.4 percent, to $0.30 from $0.26 a year ago.
NET SALES
Net sales on a consolidated basis for the first six months of fiscal 2004 of $1.180 billion improved 11.3 percent, or $119.5 million, over last year's first half net sales of $1.060 billion. Growth in
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
organic demand contributed 5.0 percent of this improvement, or $53.0 million, while acquisitions of nine small product lines contributed 3.6 percent or $38.2 million. Lastly, favorable foreign exchange rates relating principally to the Canadian dollar and the euro provided almost 2.7 percent, or $28.3 million, of increased sales over last year.
Industrial segment net sales for these first six months amounted to 54.8 percent of RPM consolidated net sales, and grew 11.7 percent to $646.5 million from last year's $578.6 million. This segment's net sales growth comes from five small product line acquisitions during the past 12 months, which added $29.9 million or 5.1 percent to industrial sales, and from organic sales growth of 6.6 percent, which includes 3.4 percent growth from net favorable foreign exchange differences. Excluding the foreign exchange effect, organic sales growth in the industrial segment was approximately $18.2 million or 3.1 percent better than the prior year, as the sales from roofing maintenance services continued to grow rapidly and the demand for industrial products increased in general as the economy 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 six months amounted to 45.2 percent of RPM consolidated net sales, and grew 10.7 percent to $533.4 million from last year's $481.8 million. This segment's net sales growth comes primarily from organic growth among the main consumer product lines, including DAP, Rust-Oleum, and Zinsser, which added 9.0 percent to consumer sales, including 1.8 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 margin of 45.9 percent of net sales this first half declined from 46.3 percent a year ago. The positive impacts of improvements in sales volume, productivity, and accretive acquisitions over the last 12 months could not overcome the combination of 60 basis points negative impact from increased raw material and packaging costs, and continued growth in certain strategic, but lower-margin, product lines and services.
By segment, the industrial gross profit margin for the first six months of fiscal 2004 declined to 46.3 percent of net sales from 46.5 percent last year, primarily from the continued growth of lower-margin maintenance service businesses.
Gross profit margin for the consumer segment also declined these first six months of fiscal 2004, to 45.5 percent of net sales from 46.0 percent last year. While this segment has experienced positive leverage from increased sales volume, productivity gains and benefits from ongoing cost reduction efforts, higher material costs, planned-for growth in certain strategic, but lower-margin product lines, and lower-margin acquisitions over the last 12 months have more than offset these benefits. The impact of higher raw material costs experienced these first six months is not expected to be as significant for the remainder of this fiscal year.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A)
Consolidated SG&A expense levels for the first six months of fiscal 2004 improved to 33.9 percent of net sales compared with 34.2 percent a year ago, 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 this first half, partly offsetting these benefits.
Industrial segment SG&A as a percent of net sales for this first half of 33.0 percent compares to 32.8 percent a year ago. The leverage benefits from improved sales volume were more than offset by certain growth-related investments made these first six months, higher product liability 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 this first half of 31.6 percent compares favorably against 31.8 percent a year ago, fully attributable to the sales growth, partly offset by growth-related investments made in this segment as well.
Corporate/Other costs decreased during this year's first half to $18.6 million from $20.3 million last year. Product liability costs of $4.0 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 legal costs related primarily to corporate governance issues affecting essentially all U.S. publicly held companies.
License fee and joint venture income of $0.4 and $0.5 million during the first six months ended November 30, 2003 and 2002, respectively, are reflected as reductions of consolidated SG&A expenses.
EARNINGS BEFORE INTEREST AND TAXES (EBIT)
Consolidated EBIT for this year's first half grew by $13.8 million, or 10.8 percent, to $141.5 million from $127.7 million during last year's first half, while margins held steady at 12.0 percent of sales. Growth in consolidated EBIT reflects the positive impact of net sales improvements year-over-year, including recent accretive acquisitions, despite the 60 basis point negative impact of increased raw material and packaging costs.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
By segment, Industrial EBIT grew by $6.4 million, or 8.0 percent, to $86.0 million from last year's $79.6 million. Consumer segment EBIT grew this first half by $5.7 million, or 8.4 percent, to $74.2 million from last year's $68.4 million. This growth in operating EBIT reflects solid growth in net sales, including accretive acquisitions over the last twelve months, offset partially by increases in material costs and growth-related initiatives.
NET INTEREST EXPENSE
Net interest expense was $1.2 million lower these first six months than a year ago. Interest rates averaged 3.52 percent during the first half of this year, 52 basis points lower than a year ago, accounting for $1.3 million of the interest savings. Additionally, investment income improved slightly over last year's performance, by approximately $0.1 million, combined with debt repayments over the past year which saved an additional $0.5 million in interest cost. Offsetting these savings were approximately $0.8 million of added interest costs associated with recent acquisitions.
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, the slight changes in our geographic mix of earnings have increased the current year tax rate.
NET INCOME
Net income of $82.9 million for this year's first half increased $9.1 million, or 12.3 percent, from last year's $73.8 million. Earnings per common share increased by 10.9 percent, to $0.71 from $0.64 a year ago. Margin on sales has held at 7.0 percent, despite the 60 basis points (pre-tax) impact from higher material costs.
CASH FLOWS FROM:
OPERATING ACTIVITIES
There was $65.9 million of cash generated from operations during the first six months of fiscal 2004 compared with $90.5 million generated during the same period a year ago, or a net decrease of $24.6 million. Cash flow from operations was positively impacted by $11.9 million from an increase in net income of $9.1 million and depreciation and amortization of $2.8 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 $17.6 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 our cash from operations. Trade accounts receivable generated a
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
year-over-year decrease in cash flow of $13.5 million which was principally associated with an increase in sales in this year's second quarter versus last year. In addition, as it relates to accounts receivable during the first six months of fiscal 2004, there was $3.9 million negative effect due to exchange rates caused by a weakening U.S. dollar since May 31, 2003. Inventories also required an additional $11.2 million of operating cash as a result of the increased sales volume and the associated inventory required to support these levels. Here on inventory similarly to accounts receivable, there was $2.8 million negative effect due to exchange rates in this year's first six months. 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 $4.2 million while all other remaining balance sheet changes related to cash flows had a net positive impact of $1.6 million. Since quarter's end, approximately $30 million of cash from operations was realized as the heavy second quarter sales in accounts receivable at quarter's end were collected.
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 six months of fiscal 2004 of $15.5 million compare with depreciation of $23.3 million, well within the maintenance level of spending. We are not capital intensive and capital expenditures generally do not exceed depreciation in a given year. Capital spending is expected to hold at approximately the maintenance level of $40 million to $50 million annually for the next several years.
During the first six months of fiscal 2004, we invested a total of $20.0 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 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
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
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 November 30, 2003, $72 million was outstanding 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 November 30, 2003, we had repurchased 100,000 of our shares at an average price of $11.67 per share.
In May 2003, we issued $297 million face value at maturity unsecured 2.75% Senior Convertible Notes ("2.75% Notes") due May 13, 2033. 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 November 30, 2003, there was $115.6 million outstanding under this CP program.
Our debt-to-capital ratio was 43% at November 30, 2003, down from 45% at May 31, 2003.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
The following table summarizes our financial obligations and their expected maturities at November 30, 2003 and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.
Less than After
Total 1 year 1-3 years 3 years
----- -------- --------- -------
($ in millions)
Current portion of long-term debt $ 1.6 $ 1.6 $ - $ -
Long-term debt 721.6 - 431.4 290.2
Non-cancelable operating lease obligations(1) 72.8 16.8 23.9 32.1
------ ------ ------ ------
$796.0 $ 18.4 $455.3 $322.3
====== ====== ====== ======
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(1) We calculate non-cancelable operating lease obligations on an annual basis and consequently such information is not available at November 30, 2003. 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.
Subsequent to quarter end, on December 4, 2003, the Company issued and sold $200 million aggregate principal amount of 6.25% Senior Notes due 2013. The total net proceeds of this offering were used to pay in full the $128 million outstanding balance of the Company's $500 million revolving credit agreement and $69 million of the outstanding $72 million balance of the Company's asset securitization program.
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.
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.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2003
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.
(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-14) as of November 30, 2003 (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 November 30, 2003 that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
As previously reported, Dryvit is a defendant or co-defendant in numerous exterior insulated finish systems ("EIFS") related lawsuits. As of November 30, 2003, Dryvit was a defendant or co-defendant in approximately 370 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 settled the North Carolina class action styled Ruff, et al. v. Parex, Inc., et al. ("Ruff"). As of November 30, 2003, a cumulative total of 728 claims had been submitted to the Ruff claims administrator for verification and validation since the January 17, 2000 notice to the Ruff class. Of these 728 claims, 338 claims were rejected and 375 claims were paid in the aggregate amount of approximately $6.1 million pursuant to funding arrangements with Dryvit's historical insurers. The claim period for filing claims in the Ruff class action expired on January 17, 2003. The remaining submitted claims are at various stages of review by the Ruff claims administrator. Based on the funding commitments in place to cover the Ruff claims, Dryvit does not expect the costs of resolving the residual claims to be material.
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. Dryvit believes the persons challenging the settlement have no standing to complain about the settlement. Dryvit is vigorously challenging this appeal and expects that the Final Order will be upheld.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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 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.
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 four states - 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 November 30, 2003, the Company had a total of 2,737 active asbestos cases compared to a total of 1,490 cases as of November 30, 2002. For the quarter ended November 30, 2003, the Company's dismissals and/or settlements covered 208 cases for a total of $18.6 million of gross settlement and defense costs. For the comparable period ended November 30, 2002, the Company's dismissals and/or settlements covered 1,086 cases for a total of $13.4 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.
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 higher settlement demands in certain jurisdictions due primarily to the insolvency of other co-
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
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 and a provision for some future claims that are estimable. After payments made during the first two quarters of this fiscal year, the remaining amount of the reserve is $118 million. We believe this asbestos reserve will be sufficient to cover our Subsidiaries' asbestos-related cash flow requirements into fiscal 2006.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
The Company recognizes that future facts, events and legislation (both state and/or federal) may alter its estimates of both its pending and future claims. 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 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 outcome of this recently filed action.
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.
The Annual Meeting of Stockholders of RPM International Inc. was held on October 10, 2003. The following matters were voted on at the meeting.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
1. Election of Bruce A. Carbonari, James A. Karman, Donald K. Miller and Joseph P. Viviano as Directors of the Company. The nominees were elected as Directors with the following votes:
Bruce A. Carbonari
------------------
For 93,471,705
Withheld 5,072,519
Broker non-votes -0-
James A. Karman
---------------
For 91,712,094
Withheld 6,832,130
Broker non-votes -0-
Donald K. Miller
----------------
For 92,851,013
Withheld 5,693,211
Broker non-votes -0-
Joseph P. Viviano
-----------------
For 93,662,411
Withheld 4,881,813
Broker non-votes -0-
|
In addition to the Directors above, the following Directors' terms of office continued after the Annual Meeting of Stockholders: Dr. Max D. Amstutz, Edward B. Brandon, E. Bradley Jones, William A. Papenbrock, Albert B. Ratner, Frank C. Sullivan, Thomas C. Sullivan and Dr. Jerry Sue Thornton.
2. The proposal to approve the 2003 Restricted Stock Plan for Directors was approved with the following votes:
For 63,416,987 Against 7,468,382 Abstain 2,524,488 Broker non-votes -0- |
For information on how the votes for the above matters were tabulated, see the Company's definitive Proxy Statement used in connection with the Annual Meeting of Stockholders on October 10, 2003.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
(a) EXHIBITS
--------
EXHIBIT NUMBER EXHIBIT DESCRIPTION
------------- -------------------
*10.1 RPM International Inc. 2003 Restricted Stock Plan for
Directors. (x)
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.
(i) We furnished to the SEC a Current Report on Form 8-K, dated October 8, 2003, regarding the Company's financial results for the first quarter ended August 31, 2003.
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: JANUARY 14, 2004
|
EXHIBIT 10.1
RPM INTERNATIONAL INC.
2003 RESTRICTED STOCK PLAN
FOR DIRECTORS
Effective Date: October 10, 2003
TABLE OF CONTENTS
ARTICLE ONE -- NAME AND PURPOSE...................................... A-1 1.1 Name........................................................ A-1 1.2 Purpose..................................................... A-1 ARTICLE TWO -- DEFINITIONS........................................... A-1 2.1 Beneficiary................................................. A-1 2.2 Board of Directors.......................................... A-1 2.3 Code........................................................ A-1 2.4 Committee................................................... A-2 2.5 Common Stock................................................ A-2 2.6 Company..................................................... A-2 2.7 Continuous Directorship..................................... A-2 2.8 Date of Grant............................................... A-2 2.9 Deferred Compensation Plan.................................. A-2 2.10 Director.................................................... A-2 2.11 Effective Date.............................................. A-2 2.12 Eligible Director........................................... A-2 2.13 Grant....................................................... A-3 2.14 Grantee..................................................... A-3 2.15 Normal Retirement Date...................................... A-3 2.16 Plan........................................................ A-3 2.17 Plan Year................................................... A-3 2.18 Restricted Stock............................................ A-3 2.19 Restricted Stock Agreement.................................. A-4 2.20 Rule 16b-3.................................................. A-4 2.21 Stock Power................................................. A-4 |
2.22 Stockholder................................................. A-4 2.23 Subsidiary.................................................. A-4 2.24 Termination of Directorship................................. A-4 ARTICLE THREE -- ADMINISTRATION...................................... A-5 3.1 Plan Administration......................................... A-5 3.2 Powers and Duties of the Committee.......................... A-5 3.3 Governance of the Committee................................. A-6 3.4 Limitation of Liability..................................... A-6 3.5 Administrative Plan Years................................... A-6 ARTICLE FOUR -- PARTICIPATION........................................ A-7 4.1 Participation............................................... A-7 4.2 Grantees.................................................... A-7 ARTICLE FIVE -- STOCK AVAILABLE FOR GRANTS........................... A-7 5.1 Available Stock............................................. A-7 5.2 Source of Stock............................................. A-8 ARTICLE SIX -- RESTRICTED STOCK GRANTS............................... A-8 6.1 Granting of Restricted Stock................................ A-8 6.2 Restricted Stock Agreements................................. A-8 6.3 Stock Power................................................. A-9 6.4 Rights of Grantees.......................................... A-9 ARTICLE SEVEN -- STOCK RESTRICTIONS.................................. A-9 7.1 Transfer Restrictions....................................... A-9 7.2 Other Restrictions.......................................... A-10 ARTICLE EIGHT -- LAPSE OF RESTRICTIONS............................... A-10 8.1 Events Triggering Lapse of Restrictions..................... A-10 |
8.2 Mandatory Sale of Shares of Restricted Stock to Satisfy
Grantee's Tax Obligations................................... A-11
8.3 Delivery of Restricted Stock and Sale Proceeds Upon Lapse of
Restrictions................................................ A-11
8.4 Definition of "Change in Control"........................... A-12
ARTICLE NINE -- FORFEITURE OF RESTRICTED STOCK....................... A-14
9.1 Termination of Directorship Before Lapse of Restrictions.... A-14
ARTICLE TEN -- ESCROW AGREEMENT AND LEGENDS.......................... A-15
10.1 Escrow Agreements........................................... A-15
10.2 Legends..................................................... A-15
ARTICLE ELEVEN -- BENEFICIARY DESIGNATION............................ A-16
11.1 Procedures for Beneficiary Designation...................... A-16
11.2 Default Beneficiaries....................................... A-16
ARTICLE TWELVE -- AMENDMENTS......................................... A-16
12.1 Plan May Be Amended......................................... A-16
12.2 Limitations on Plan Amendment............................... A-16
ARTICLE THIRTEEN -- TERMINATION...................................... A-17
13.1 Plan Termination............................................ A-17
13.2 Stockholder Approval........................................ A-17
ARTICLE FOURTEEN -- COORDINATION WITH DEFERRED COMPENSATION PLAN..... A-17
14.1 Surrender and Cancellation of Shares of Restricted Stock.... A-17
14.2 Vesting of Surrendered and Canceled Shares of Restricted
Stock....................................................... A-18
ARTICLE FIFTEEN -- MISCELLANEOUS..................................... A-18
15.1 Consents.................................................... A-18
15.2 Non-Uniform Determinations and Restricted Stock
Agreements.................................................. A-19
15.3 Other Payments or Awards.................................... A-19
15.4 Section Headings............................................ A-19
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15.5 Number...................................................... A-20 15.6 Waiver...................................................... A-20 15.7 Governing Law............................................... A-20 |
ARTICLE ONE
NAME AND PURPOSE
1.1 Name. The name of this Plan shall be: RPM International Inc. 2003 Restricted Stock Plan for Directors.
1.2 Purpose. The Plan is maintained to advance the interests of the Company and its Stockholders by affording to Eligible Directors of the Company an opportunity to acquire or increase their proprietary interest in the Company and thereby bringing total Director compensation to a competitive level. By encouraging Eligible Directors to become owners of Company stock, the Company seeks to further align their interests with Stockholders, to increase their incentive for enhancing Stockholder value and to motivate, recruit and retain those highly competent individuals upon whose judgment, initiative, leadership and continued efforts the success of the Company in large measure depends.
ARTICLE TWO
DEFINITIONS
2.1 Beneficiary. "Beneficiary" means the person, persons, entity or entities so designated, or deemed to be designated, by a Grantee pursuant to Article 11.
2.2 Board of Directors. "Board of Directors" means the Board of Directors of the Company, as constituted from time to time.
2.3 Code. "Code" means the Internal Revenue Code of 1986, as amended, and any lawful regulations or pronouncements thereunder. Whenever reference is made to a specific Code Section, such reference shall be deemed to be a reference to any successor Code Section or Sections with the same or similar purpose.
2.4 Committee. "Committee" means the Compensation Committee of the Board of Directors, as constituted from time to time, which shall:
(a) consist of at least three (3) Directors, each of whom shall be an
"outside director" of the Company (within the meaning of Code Section
162(m)) and a "non-employee director" of the Company (within the meaning of
Rule 16b-3); and
(b) be authorized by the Board to exercise all authority granted to it under this Plan and any Board actions.
2.5 Common Stock. "Common Stock" means shares of common stock of RPM International Inc., with par value of one cent ($0.01) per share.
2.6 Company. "Company" means RPM International Inc., a Delaware corporation, or any corporation or entity that is a successor to RPM International Inc. or substantially all of the assets of RPM International Inc., that assumes the obligations of RPM International Inc. under this Plan by operation of law or otherwise.
2.7 Continuous Directorship. "Continuous Directorship" means an uninterrupted period during which a Grantee is and remains an Eligible Director.
2.8 Date of Grant. "Date of Grant" means the date the Committee makes a Grant to an Eligible Director as specified in the Restricted Stock Agreement.
2.9 Deferred Compensation Plan. "Deferred Compensation Plan" means the RPM International Inc. Deferred Compensation Plan and any related trust, each as amended from time to time, and any similar deferred compensation plan of the Company and any related trust.
2.10 Director. "Director" means a member of the Board of Directors.
2.11 Effective Date "Effective Date" means the effective date of the Plan which is, contingent upon approval of the Company's Stockholders, October 10, 2003.
2.12 Eligible Director. "Eligible Director" means a Director who is:
(a) not a common law employee of the Company or any of its Subsidiaries; and
(b) entitled to participate in the Plan pursuant to Section 4.1.
A Director who is also a common law employee of the Company or any of its Subsidiaries shall become eligible to participate in this Plan only after termination of such employment.
2.13 Grant. "Grant" means a grant of Restricted Stock which is nontransferable, subject to a substantial risk of forfeiture and subject to the terms and conditions of this Plan and any related Restricted Stock Agreement.
2.14 Grantee. "Grantee" means an Eligible Director to whom a Grant has been made in accordance with Article 6.
2.15 Normal Retirement Date. "Normal Retirement Date" means the last date of the Grantee's directorship term which includes that date on which the Grantee attains age 75, or at such other time at which the Grantee attains "retirement age" under the Company's informal retirement policies then in effect or as formalized in the Company's Corporate Governance Guidelines.
2.16 Plan. "Plan" means the RPM International Inc. 2003 Restricted Stock Plan for Directors, as amended from time to time.
2.17 Plan Year. "Plan Year" means the Company's annual accounting period, which is presently the twelve (12) month period ending on May 31. The first Plan Year shall be a short Plan Year beginning October 10, 2003 and ending May 31, 2004.
2.18 Restricted Stock. "Restricted Stock" means shares of Common Stock which have been granted to a Grantee in accordance with, and subject to, the terms and conditions of this Plan.
2.19 Restricted Stock Agreement. "Restricted Stock Agreement" means a written agreement executed by the Company and a Grantee effecting, and establishing the terms and conditions of, a Grant of Restricted Stock to such Grantee under this Plan.
2.20 Rule 16b-3. "Rule 16b-3" means Rule 16b-3 promulgated under the Securities Exchange Act of 1934 and any successor rule or rules with the same or similar purpose.
2.21 Stock Power. "Stock Power" means a power of attorney executed by an Eligible Director and delivered to the Company which authorizes the Company to transfer ownership of Restricted Stock or Common Stock from the Grantee to the Company or a third party.
2.22 Stockholder. "Stockholder" means an individual or entity that owns one (1) or more shares of Common Stock.
2.23 Subsidiary. "Subsidiary" means any corporation in which the Company owns, directly or indirectly, stock possessing at least eighty percent (80%) or more of the total combined voting power of all classes of stock entitled to vote or at least eighty percent (80%) of the total value of shares of all classes of stock of such corporation as determined pursuant to Section 1563(a)(1) of the Code, but only during the period any such corporation would be so defined.
2.24 Termination of Directorship. "Termination of Directorship" means the termination of an individual's status as a Director for any reason whatever, whether voluntarily or involuntarily.
ARTICLE THREE
ADMINISTRATION
3.1 Plan Administration. Unless otherwise specified by the Board of Directors, this Plan shall be administered by the Committee. The Board of Directors may, in its sole discretion, at any time and from time to time, by an official action, resolve to administer the Plan effective as of a date specified in such action. In the event the Board of Directors exercises its discretion to administer the Plan, all references to the "Committee" herein shall be deemed to be references to the "Board of Directors."
3.2 Powers and Duties of the Committee. The Committee shall have the sole and exclusive authority to: (i) exercise all powers granted to it under the Plan and under any Board of Directors action; (ii) construe, interpret, and implement the Plan, any Restricted Stock Agreement and related documents; (iii) cause the Company to enter into Restricted Stock Agreements with Eligible Directors (including, but not limited to, the authority to determine the number of shares of Restricted Stock awarded to each Eligible Director, the price or prices at which shares shall be awarded to each Eligible Director, the time or times when such shares may be awarded and to prescribe the form of such Restricted Stock Agreements and the legend, if any, to be affixed to the certificates representing such shares issued under this Plan); (iv) prescribe, amend and rescind rules and interpretations relating to the Plan; (v) make all determinations necessary or advisable in administering the Plan; (vi) correct any defect, supply any omission and reconcile any inconsistency in or between the Plan, any Restricted Stock Agreement and related documents; and (vii) designate one or more persons or agents to carry out any or all of its administrative duties hereunder (provided that none of the duties required to be performed by the Committee under Rule 16b-3 or Article 6 may be delegated to any other person
or agent). The Company shall furnish the Committee with such clerical and other assistance as is necessary for the performance of the Committee's duties under this Plan.
3.3 Governance of the Committee. All actions of the Committee with respect to the Plan shall require the affirmative vote of a majority of its members present at a meeting at which a quorum is present (in person, telephonically, electronically or as otherwise permitted by the Company's governing documents). The determination of the Committee on all matters relating to the Plan, any Restricted Stock Agreement or related documents shall be conclusive.
3.4 Limitation of Liability. No member of the Committee or any of its designees who are employees of the Company shall be liable for any action or determination made in good faith with respect to the Plan, any Restricted Stock Agreement or related documents.
3.5 Administrative Plan Years. The Plan shall be administered and operated on the basis of the Plan Year. In the event that the Company changes its annual accounting period, the Plan Year shall automatically change and the Committee may make such adjustments to the operation of the Plan as appropriate to reflect any short Plan Years, adjustments to the dates that shares of Restricted Stock are granted, adjustments to the dates that restrictions lapse hereunder or any other adjustments the Committee deems necessary or appropriate to reflect the change in the Plan Year.
ARTICLE FOUR
PARTICIPATION
4.1 Participation. The Committee shall determine, from time to time and in its sole and exclusive discretion, which Eligible Directors shall participate in the Plan and be eligible to receive Grants pursuant to Article 6.
4.2 Grantees. An Eligible Director designated pursuant to Section 4.1 shall be deemed to be a Grantee upon execution of a Restricted Stock Agreement between such Eligible Director and the Company in accordance with Article 6. An Eligible Director shall remain a Grantee until such time as he or she no longer has any Restricted Stock subject to the terms of this Plan or any Restricted Stock Agreement, including, but not limited to, as a result of the terms of Articles 8 or 9 which result in either the lapse of restrictions on the Restricted Stock or the forfeiture of the Restricted Stock.
ARTICLE FIVE
STOCK AVAILABLE FOR GRANTS
5.1 Available Stock. Five hundred thousand (500,000) shares of Common Stock may be granted under this Plan. In the event that the number or kind of outstanding shares of Common Stock of the Company shall be changed by reason of recapitalization, reorganization, redesignation, merger, consolidation, stock split, stock dividend, combination or exchange of shares, exchange for other securities, or the like, the number and kind of shares of Common Stock which may thereafter be issued under this Plan may be appropriately adjusted as determined by the Committee so as to reflect such change. In accordance with (and without limitation upon) the foregoing, shares of Common Stock available under this Plan and covered
by Grants which expire, terminate, are forfeited or are canceled for any reason whatever (except as provided in Article 14) shall again become available for Grants under this Plan.
5.2 Source of Stock. The Restricted Stock which may be granted under this Plan shall be made available from authorized and unissued shares or treasury shares of Common Stock of the Company.
ARTICLE SIX
RESTRICTED STOCK GRANTS
6.1 Granting of Restricted Stock. The Committee is authorized to make Grants of Restricted Stock to any Eligible Director. Any such Grant shall be subject to the terms of this Plan, a Restricted Stock Agreement and such other terms and conditions as the Committee shall deem necessary or appropriate.
6.2 Restricted Stock Agreements. The granting of Restricted Stock to an Eligible Director under this Plan shall be contingent on such Eligible Director executing a Restricted Stock Agreement in the form prescribed by the Committee. Each Restricted Stock Agreement shall: (i) indicate the number of shares of Restricted Stock which will be granted to the Eligible Director; (ii) indicate the effective date of the Grant; (iii) include provisions reflecting the transfer restrictions imposed upon Restricted Stock and the provisions for lapse of those restrictions under this Plan; (iv) include provisions reflecting the forfeiture provisions under this Plan; (v) include provisions prohibiting the Grantee from making an election pursuant to Code Section 83(b); (vi) include provisions requiring the sale of shares of Restricted Stock to satisfy the Grantee's federal, state and local income tax liability arising from lapse of restrictions on such shares; and (vii) include any other terms, conditions or restrictions the Committee deems necessary or appropriate.
6.3 Stock Power. The Committee shall require Eligible Directors to execute and deliver to the Company one or more Stock Powers in blank with respect to Restricted Stock granted to such Eligible Directors.
6.4 Rights of Grantees. Subject to the terms, conditions and restrictions specified under this Plan and any applicable Restricted Stock Agreement, the Restricted Stock granted under this Plan shall be considered issued and outstanding and fully-paid and non-assessable for all purposes. Notwithstanding retention of Restricted Stock certificates by an escrow agent or the Company, Grantees shall have all rights with respect to Restricted Stock granted to them (but subject to the terms, conditions and restrictions specified under this Plan and any applicable Restricted Stock Agreement) including:
(a) Title. Subject to the Grantee's execution of a Stock Power, any Restricted Stock granted under this Plan shall be held by an escrow agent or the Company under the Grantee's name.
(b) Voting Rights. Subject to the Grantee's execution of a Stock Power, a Grantee shall be entitled to vote any Restricted Stock granted to him or her under this Plan.
(c) Dividends. Dividends paid on any shares of Restricted Stock granted under this Plan shall be paid to: (i) the Grantee in whose name the shares of Restricted Stock are held; or (ii) in the event the Grantee has made a surrender election pursuant to Section 14.1, the Grantee's Restricted Stock Account.
ARTICLE SEVEN
STOCK RESTRICTIONS
7.1 Transfer Restrictions. Restricted Stock shall not be sold, transferred or otherwise disposed of and shall not be pledged or otherwise hypothecated (any such sale, transfer or other disposition, pledge or other hypothecation is hereinafter referred to as "to dispose of" or a "disposition") until the earliest of: (i) the date the restrictions on such Restricted Stock lapse in
accordance with Article 8; (ii) the date such Restricted Stock is forfeited in accordance with Article 9; or (iii) termination of the Plan.
7.2 Other Restrictions. The Committee may impose restrictions on Restricted Stock in addition to, or different from, those described in this Plan, as it deems necessary or appropriate. Grants to different Grantees may be made upon different terms with different conditions or restrictions. Grants may vary from time to time and from Grantee to Grantee.
ARTICLE EIGHT
LAPSE OF RESTRICTIONS
8.1 Events Triggering Lapse of Restrictions. If a Grantee remains in Continuous Directorship from a Date of Grant until the earliest of:
(a) the date of his or her death;
(b) the date the Committee determines, in its sole discretion, that he or she is totally disabled (within the meaning of the Company's group long-term disability plan or its successor);
(c) the last day of the month in which occurs the third anniversary of the Date of Grant;
(d) his or her Normal Retirement Date;
(e) the date he or she fails to be re-elected to the Board of Directors after being duly nominated;
(f) the date he or she resigns or retires from the Board of Directors upon the approval of at least eighty percent (80%) of the disinterested Directors; or
(g) the date of a Change in Control (within the meaning of Section 8.4);
then, subject to the terms of this Plan and any applicable Restricted Stock Agreement, all restrictions imposed upon Restricted Stock awarded to him or her pursuant to the Restricted Stock Agreement shall lapse and be of no further force and effect. In the event of Termination of
Directorship for reasons other than those described in this Section, the status of the restrictions on such Grantee's Restricted Stock shall be governed by Article 9.
8.2 Mandatory Sale of Shares of Restricted Stock to Satisfy Grantee's Tax Obligations. The Committee shall notify a Grantee of the lapse of restrictions on shares of Restricted Stock awarded to him or her under the Plan within an administratively practicable time after the lapse of restrictions. Provided that the Grantee has not surrendered such shares of Restricted Stock
at least six (6) months before the date of the lapse of restrictions in accordance with Article 14, the Company or the escrow agent (as the case may be) shall sell the fewest number of shares of Common Stock with respect to which restrictions have lapsed necessary for the proceeds of such sale to equal (or exceed by not more than the actual sale price of a single share of Common Stock) the Grantee's projected tax liability determined by multiplying (A) the aggregate maximum marginal federal and applicable state and local income tax rates on the date of the lapse of restrictions; by (B) the total number of shares of Common Stock with respect to which restrictions have lapsed. The Company or the escrow agent (as the case may be) shall withhold the proceeds of such sale for purposes of satisfying the Grantee's federal, state and local income taxes resulting from the lapse of restrictions. Prior to any such sale, the Committee shall cause new certificates for such shares to be issued, with any legend making reference to the restrictions imposed hereunder removed. The Grantee shall provide the Committee, the Company and/or the escrow agent with such Stock Powers and additional information or documents as may be necessary for the Committee, the Company and/or the escrow agent to discharge their obligations under this Section.
8.3 Delivery of Restricted Stock Upon Lapse of Restrictions. As promptly as practicable following the sale of a portion of a Grantee's Restricted Stock in accordance with
Section 8.2, if it has not already done so, the Committee shall cause certificates for all Restricted Stock which have been held in escrow or by the Company to be issued to the Grantee, with any legend making reference to the various restrictions imposed hereunder removed. In addition, the Committee shall cause the Company or escrow agent to deliver the proceeds of the sale of shares of the Grantee's Restricted Stock pursuant to Section 8.2 to the Internal Revenue Service and/or other taxing authority in satisfaction of the Grantee's tax liability, arising from the issuance of the certificates. In the event of a Grantee's death, such certificates shall be delivered to the Grantee's Beneficiary, determined in accordance with Article 11.
8.4 Definition of "Change in Control". A "Change in Control" shall be deemed to have occurred upon the occurrence of any of the following events:
(a) The Company is merged or consolidated or reorganized into or with another corporation or other legal person or entity, and as a result of such merger, consolidation or reorganization less than a majority of the combined voting power of the then-outstanding securities of such corporation, person or entity immediately after such transaction are held in the aggregate by the holders of the then-outstanding securities entitled to vote generally in the election of Directors (the "Voting Stock") immediately prior to such transaction;
(b) The Company sells or otherwise transfers all or substantially all of its assets to any other corporation or other legal person or entity, and less than a majority of the combined voting power of the then-outstanding securities of such corporation, person or entity immediately after such sale or transfer is held in the aggregate by the holders of Voting Stock immediately prior to such sale or transfer;
(c) There is a report filed on Schedule 13D or Schedule TO (or any successor schedule, form or report), each as promulgated pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange Act"), disclosing that any person (as the term "person" is used in Section 13(d)(3) or Section 14(d)(2) of the Exchange Act) has become the beneficial owner (as the term "beneficial owner" is defined under Rule 13d-3 or any successor rule or regulation promulgated under the Exchange Act) of securities
representing 15% or more of the total votes relating to the then-outstanding securities entitled to vote generally in the election of Directors (the "Voting Power");
(d) The Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing in response to Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then-existing contract or transaction;
(e) During any period of two consecutive years, individuals, who at the beginning of any such period, constitute the Directors cease for any reason to constitute at least a majority thereof, unless the nomination for election by the Company's Stockholders of each new Director was approved by a vote of at least two-thirds of the Directors then in office who were Directors at the beginning of any such period; or
(f) Such event as the Board of Directors, in the good faith exercise of its discretion, shall determine to be a "Change in Control."
Notwithstanding the foregoing provisions of paragraphs (c) and (d) of this definition, a "Change in Control" shall not be deemed to have occurred for purposes of this Plan (i) solely because (A) the Company, (B) a Subsidiary of the Company, or (C) any Company-sponsored employee stock ownership plan or other employee benefit plan of the Company or any Subsidiary, or any entity holding shares of Voting Stock for or pursuant to the terms of any such plan, either files or becomes obligated to file a report or proxy statement under or in response to Schedule 13D, Schedule TO, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of Voting Stock or because the Company reports that a change in control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership, (ii) solely because any other person or entity either files or becomes obligated to file a report on Schedule 13D or Schedule TO (or any successor schedule, form or report) under the Exchange
Act, disclosing beneficial ownership by it of shares of Voting Stock, but only if both (A) the transaction giving rise to such filing or obligation is approved in advance of consummation thereof by the Company's Board of Directors and (B) at least a majority of the Voting Power immediately after such transaction is held in the aggregate by the holders of Voting Stock immediately prior to such transaction, or (iii) solely because of a change in control of any Subsidiary of the Company.
ARTICLE NINE
FORFEITURE OF RESTRICTED STOCK
9.1 Termination of Directorship Before Lapse of Restrictions. If a Grantee experiences a Termination of Directorship before the occurrence of at least one of the following events:
(a) his or her death;
(b) the Committee's determination, in its sole discretion, that he or she is totally disabled (within the meaning of the Company's group long-term disability plan or its successor);
(c) the last day of the month in which occurs the third anniversary of the Date of Grant;
(d) his or her Normal Retirement Date;
(e) his or her failure to be re-elected to the Board of Directors after being duly nominated;
(f) his or her resignation or retirement from the Board of Directors with the approval of at least eighty percent (80%) of the disinterested Directors; or
(g) a Change in Control (within the meaning of Section 8.4);
then, any Restricted Stock granted to such Grantee which remains subject to restrictions hereunder shall be forfeited and returned to the Company pursuant to a Stock Power and shall be available for future Grants as provided in Section 5.1.
ARTICLE TEN
ESCROW AGREEMENT AND LEGENDS
10.1 Escrow Agreements. In order to enforce the restrictions imposed upon Restricted Stock issued hereunder, the Committee shall require all Grantees to enter into escrow agreements providing that the certificates representing Restricted Stock issued pursuant to this Plan shall remain in the physical custody of an escrow agent or the Company until the restrictions imposed upon such Restricted Stock pursuant to this Plan have lapsed. The Committee may impose such additional restrictions on any Restricted Stock awarded pursuant to the Plan as it may deem necessary or appropriate including, without limitation, restrictions under the Securities Act of 1933, as amended, or other securities laws, the requirements of NASDAQ, the New York Stock Exchange or any other stock exchange or transaction reporting system upon which such Restricted Stock is then listed or quoted and any state "blue sky" laws applicable to such Restricted Stock.
10.2 Legends. The Committee shall cause a legend to be placed on any certificates representing Restricted Stock granted under this Plan which shall make appropriate reference to the various restrictions on such Restricted Stock and any other restrictions the Committee deems necessary or appropriate.
ARTICLE ELEVEN
BENEFICIARY DESIGNATION
11.1 Procedures for Beneficiary Designation. A Grantee may designate a Beneficiary or Beneficiaries to receive any shares of Restricted Stock or other amounts that become payable on account of the Grantee's death, in such manner as the Committee may require.
11.2 Default Beneficiaries. If a Grantee has not designated a Beneficiary or Beneficiaries in accordance with Section 11.1, any shares of Restricted Stock or other amounts that become unrestricted on account of the death of the Grantee shall be distributed to the person or persons in the first of the following classes in which there are any survivors of such Grantee:
(a) his or her spouse at the time of death;
(b) his or her issue per stirpes;
(c) his or her parents; and
(d) the executor or administrator of his or her estate.
ARTICLE TWELVE
AMENDMENTS
12.1 Plan May Be Amended. Subject to Section 12.2, the Board of Directors may amend this Plan for any reason and at any time.
12.2 Limitations on Plan Amendment. Except as otherwise provided in
Section 5.1, no amendment shall increase the maximum number of shares of Common
Stock that may be granted under this Plan without the further approval of the
Stockholders. Furthermore, any amendment to this Plan meeting the definition of
a "material revision" under the New York Stock Exchange rules must be approved
by the Stockholders. No amendment to this Plan shall materially and adversely
modify or impair the then existing rights of Grantees without such individual's
written consent.
ARTICLE THIRTEEN
TERMINATION
13.1 Plan Termination. The Board of Directors may terminate this Plan for any reason and at any time. Except as otherwise provided in Section 13.2, Plan termination shall not materially and adversely modify or impair the then existing rights of Grantees without such individual's written consent.
13.2 Stockholder Approval. This Plan shall immediately terminate if the Plan is not approved by a majority of the outstanding shares of Common Stock present (in person, telephonically, electronically, by proxy or its equivalent or as otherwise permitted by the Company's governing documents) and entitled to vote at the October 2003 meeting of Stockholders of the Company. Notwithstanding any Plan provision to the contrary, in the event of such a termination, all Grants of Restricted Stock under the Plan, if any, shall be revoked and the Plan shall be deemed null and void ab initio. In the event of such a termination, the Company, the Board of Directors, the Committee and the Subsidiaries shall not be liable for any Grants under this Plan.
ARTICLE FOURTEEN
COORDINATION WITH DEFERRED COMPENSATION PLAN
14.1 Surrender and Cancellation of Shares of Restricted Stock. A Grantee may elect to surrender any or all of the shares of Restricted Stock granted to him or her under this Plan and any dividends attributable thereto. The Grantee shall automatically have the same number of shares of Restricted Stock credited to his or her Restricted Stock Account under the Deferred Compensation Plan. In addition, any dividends attributable to such shares of Restricted Stock on or after the date of surrender shall be credited to the Grantee's Restricted Stock Account under the Deferred Compensation Plan.
For a surrender election to be valid, it must be made in accordance with terms and conditions imposed by the Committee and under the Deferred Compensation Plan. A surrender election must be delivered to and accepted by the Committee at least six (6) months prior to the date of lapse of the restrictions with respect to the shares of Restricted Stock that are the subject of that surrender election.
14.2 Vesting of Surrendered and Canceled Shares of Restricted Stock. A Grantee shall be vested in shares of Restricted Stock credited to his or her account under the Deferred Compensation Plan as a result of surrender or cancellation of shares of Restricted Stock under this Plan on the date restrictions on the surrendered or cancelled shares of Restricted Stock would have lapsed under this Plan (the Grantee's "Deemed Lapse Date"). As soon as practicable after a Grantee's Deemed Lapse Date, the Committee shall advise the trustee or administrator of the Deferred Compensation Plan that the Grantee has become vested with respect to shares of Restricted Stock under the Deferred Compensation Plan.
ARTICLE FIFTEEN
MISCELLANEOUS
15.1 Consents. If the Committee shall at any time determine that any Consent (as defined below) is necessary or desirable as a condition to, or in connection with, any Grant under the Plan, the issuance of shares of Common Stock or other rights thereunder or the taking of any other action thereunder (each such action being hereinafter referred to as a "Plan Action"), then such Plan Action shall not be taken, in whole or in part, unless and until such Consent shall have been effected or obtained to the full satisfaction of the Committee, or the Committee may require that such Plan Action be taken only in such manner as to make such Consent unnecessary.
The term "Consent" as used herein with respect to any Plan Action means:
(i) any and all listings, registrations or qualifications in respect thereof
upon any securities exchange or under any federal, state or local law, rule or
regulation; (ii) any and all written agreements and representations by the
Grantee with respect to the acquisition or disposition of shares of Common
Stock, or with respect to any other matter, which the Committee shall deem
necessary or desirable to comply with the terms of any such listing,
registration or qualification or to obtain an exemption from the requirement
that any such listing, qualification or registration be made; and (iii) any and
all consents, clearances and approvals by any governmental or other regulatory
bodies.
15.2 Non-Uniform Determinations and Restricted Stock Agreements. The Company's, Board of Director's or Committee's determinations under the Plan need not be uniform and may be made selectively among Directors who receive, or are eligible to receive, Grants under the Plan (whether or not such persons are similarly situated). Without limiting the generality of the foregoing, the Company, Board of Directors and Committee shall be entitled, among other things, to make non-uniform and selective determinations, and to enter into non-uniform and selective Restricted Stock Agreements as to: (i) the persons to receive Grants under the Plan; and (ii) the terms, conditions and restrictions of Grants under the Plan.
15.3 Other Payments or Awards. Nothing contained in the Plan shall be deemed to in any way limit or restrict the Company, any Subsidiary, the Board of Directors or the Committee from making any award or payment to any person under any other plan, arrangement or understanding, whether now existing or hereafter in effect.
15.4 Section Headings. The section headings contained herein are for purposes of convenience only and are not intended to define or limit the contents of said sections.
15.5 Number. The singular herein shall include the plural, or vice versa, wherever the context so requires.
15.6 Waiver. No waiver of any term or provision of this Plan by the Company, any Subsidiary, Board of Directors or Committee will constitute a waiver of the same term or provision in any subsequent case.
15.7 Governing Law. This Plan shall be governed by, construed and enforced in accordance with the internal laws of the State of Delaware, without reference to principles of conflict of laws.
IN WITNESS WHEREOF, RPM International Inc., by an officer duly authorized, has caused this RPM International Inc. 2003 Restricted Stock Plan for Directors to be executed as of this 16th day of October, 2003.
RPM INTERNATIONAL, INC.
By: /s/ Ronald A. Rice
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RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPUTATIONS OF EARNINGS
PER SHARE AND SHARE EQUIVALENTS
(UNAUDITED)
EXHIBIT 11.1
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
SIX MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, NOVEMBER 30,
--------------------------- -----------------------------
2003 2002 2003 2002
-------- -------- -------- --------
SHARES OUTSTANDING
FOR COMPUTATION OF BASIC EARNINGS PER
SHARE OF COMMON STOCK
WEIGHTED AVERAGE SHARES 115,613 115,001 115,670 115,240
-------- -------- -------- --------
TOTAL SHARES FOR BASIC EARNINGS
PER SHARE 115,613 115,001 115,670 115,240
FOR COMPUTATION OF DILUTED EARNINGS
PER SHARE OF COMMON STOCK
NET ISSUABLE COMMON SHARE EQUIVALENTS 722 980 773 961
-------- -------- -------- --------
TOTAL SHARES FOR DILUTED EARNINGS
PER SHARE 116,335 115,981 116,443 116,201
-------- -------- -------- --------
NET INCOME
NET INCOME APPLICABLE TO SHARES OF COMMON
STOCK FOR BASIC EARNINGS PER SHARE $ 82,895 $ 73,813 $ 35,223 $ 29,640
======== ======== ======== ========
NET INCOME APPLICABLE TO SHARES OF COMMON
STOCK FOR DILUTED EARNINGS PER SHARE $ 82,895 $ 73,813 $ 35,223 $ 29,640
======== ======== ======== ========
BASIC EARNINGS PER SHARE $ 0.72 $ 0.64 $ 0.30 $ 0.26
======== ======== ======== ========
DILUTED EARNINGS PER SHARE $ 0.71 $ 0.64 $ 0.30 $ 0.26
======== ======== ======== ========
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The accompanying notes to consolidated financial statements are an integral part of these statements.
EXHIBIT NO. 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Frank C. Sullivan, President and Chief Executive Officer of RPM International Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of RPM International Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: January 14, 2004
/s/ Frank C. Sullivan
---------------------------------------------
Frank C. Sullivan
President and Chief Executive Officer
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EXHIBIT NO. 31.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Robert L. Matejka, Vice President, Chief Financial Officer and Controller of RPM International Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of RPM International Inc. (the "registrant");
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the controls and procedures, as of the end of the period covered by this report based on such evaluation; and
c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting;
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Dated: January 14, 2004
/s/ Robert L. Matejka
------------------------------------------------------
Robert L. Matejka
Vice President, Chief Financial Officer and Controller
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EXHIBIT NO. 32.1
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of RPM International Inc., a Delaware corporation (the "Company"), does hereby certify, to such officer's knowledge, that the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.
Dated: January 14, 2004
/s/ Frank C. Sullivan
--------------------------------------
Frank C. Sullivan
President and Chief Executive Officer
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The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-Q or as a separate disclosure document.
EXHIBIT NO. 32.2
CERTIFICATION
Pursuant to 18 U.S.C. Section 1350, the undersigned officer of RPM International Inc., a Delaware corporation (the "Company"), does hereby certify, to such officer's knowledge, that the Company's Quarterly Report on Form 10-Q for the quarter ended November 30, 2003 (the "Form 10-Q") fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934 and that the information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company as of, and for, the periods presented in the Form 10-Q.
Dated: January 14, 2004
/s/ Robert L. Matejka
--------------------------------------------------
Robert L. Matejka
Vice President, Chief Financial Officer and
Controller
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The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-Q or as a separate disclosure document.