EXHIBIT 99.1
RPM
RPM International Inc.
Quarterly Report
Nine-Month Report
February 28, 2003
- Third Quarter
- Record Sales + 6%
- Earnings +49%
- Earnings Per Share +33%
- Record Nine Months
- Sales + 5%
- Earnings +22%
- Earnings Per Share + 8%
TO OUR SHAREHOLDERS:
For the period ended February 28, 2003, RPM reported continued growth in sales,
net income and earnings per share for both the third quarter and nine months of
fiscal 2003.
THIRD-QUARTER RESULTS
Record net sales for the third quarter totaled $433.6 million, an increase of 6
percent compared with sales of $407.5 million in the fiscal 2002 third quarter.
Consumer segment sales were essentially flat, reflective of the recently
softened retail environment, while industrial segment sales grew 11 percent,
mainly from continued strength of services sales. This growth includes several
small acquisitions and favorable foreign exchange rates, which contributed
approximately 3 percent sales growth to each segment.Net income improved by 49
percent, to $4.9 million, and earnings per share grew 33 percent to $0.04,
compared with net income of $3.3 million and earnings per share of $0.03 in the
fiscal 2002 third quarter. This year's results reflect reduced interest expense
in addition to solid earnings improvements in both operating segments. The 11.5
million common shares issued in connection with the March 2002 follow-on equity
offering did not have a dilutive effect on earnings per share in this year's
third quarter.
NINE-MONTH RESULTS
For the first nine months of fiscal 2003, RPM reported record net sales of
$1,493.9 million, a 5 percent improvement compared with sales of $1,428.7
million in the first nine months of fiscal 2002. The industrial and consumer
segments reported sales growth of 5 percent and 4 percent, respectively,
including 1 percent contribution to each segment from small acquisitions and
favorable foreign exchange rates.Record nine-month net income of $78.7 million
strengthened by 22 percent compared with net income of $64.3 million in the
first nine months of fiscal 2002, while record earnings per share of $0.68
climbed 8 percent compared with earnings per share of $0.63 in the prior year
period. The 11.5 million common shares issued in connection with the March 2002
follow-on equity offering had a dilutive effect on earnings per share of
approximately $0.05 in the fiscal 2003 nine-month period.Through nine months,
RPM has generated $51 million of free cash flow after capital expenditures and
dividends, enabling the internal funding of several acquisitions, totaling $20
million, and debt reduction of $15 million.
SHARE REPURCHASE PLAN
On February 13, 2003, RPM's board of directors authorized the repurchase of up
to 10 million shares of RPM Common Stock over the next 12 months. Repurchase of
shares under this program may be made in the open market or in private
transactions at times and in amounts and prices that management deems
appropriate. The company may terminate or limit the repurchase program at any
time. As a result of certain temporary blackout restrictions associated with the
company's 401(k) Retirement Plan, there were no share repurchases under this
program as of the end of the third quarter.
CASH DIVIDEND
On April 4, 2003, RPM's board of directors approved the company's current
quarterly cash dividend of $0.13 per share, payable April 30, 2003, to
shareholders of record as of April 14, 2003. This payment represents a 4 percent
increase over the quarterly cash dividend paid at this time last year. RPM's
latest cash dividend increase in October 2002 marked its 29th consecutive year
of increased cash dividends paid to its shareholders.
OUTLOOK
We are pleased that we were able to maintain our positive momentum in the third
quarter, which is historically RPM's weakest quarter because of seasonal
effects. Our ability to grow income at record levels reflects the leverage
gained from strategic actions over the past several years to lower our costs and
strengthen our capital structure, as well as the focus and determination of RPM
employees worldwide.Separately, as we have previously communicated, based on
recent asbestos claims activity, our third party insurance may be depleted in
the coming months. In view of this situation and while keeping a watchful eye on
federal and state legislative activities, we have begun a formal process to
estimate the cost of our future asbestos liabilities. The timing of this effort
is uncertain, but we hope to complete this process with the reporting of our
fiscal 2003 year-end results. At the conclusion of this process, we would
anticipate accruing a material liability sufficient to cover those estimated
future costs.As we have reported for many years, RPM has been the subject of
asbestos lawsuits principally associated with a product line of our Bondex
subsidiary, which was discontinued over 25 years ago. Thousands of otherwise
healthy and vibrant companies in the United States have come under financial
pressure as a result of the massive increase in asbestos-related claims in
recent years, mostly on behalf of people who are not sick. This situation has
impacted enough companies, enough employees, and enough of America's investor
base to have a noticeable, detrimental effect on our entire economy.
Accordingly, Congress is considering legislation that would appropriately direct
resources to those individuals who are truly suffering from asbestos-related
diseases, while bringing an end to this unneccesary strain on a significant
portion of America's industrial economy. We urge you to write your Senators and
U.S. House Representatives requesting that they complete their work on asbestos
legislation and send a bill to the President to resolve this financial quagmire
for American companies.In the meantime, as a result of our performance to date,
and in spite of a still weak economic outlook, we remain confident that our
operations will continue to deliver strong results through the end of our fiscal
year. We appreciate the dedicated efforts of our employees, and the continuing
support and confidence of our shareholders.
Sincerely yours,
/s/ Frank C. Sullivan
Frank C. Sullivan
President and Chief Executive Officer
April 30, 2003
RPM International Inc.
P.O. Box 777, Medina, Ohio 44258
330-273-5090
FAX 330-225-8743
800-776-4488
http://www.rpminc.com
E-mail: rpmcorp@rpminc.com
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(Unaudited)
In thousands, except per share data
Nine Months Ended Three Months Ended
February 28, February 28,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
NET SALES ....................... $1,493,943 $1,428,693 $ 433,562 $ 407,538
Cost of sales ................... 813,639 777,415 246,610 228,902
---------- ---------- ---------- ----------
Gross profit .................... 680,304 651,278 186,952 178,636
Selling, general & administrative
expenses ...................... 538,944 521,720 173,338 166,025
Interest expense, net ........... 20,290 32,083 6,102 7,660
---------- ---------- ---------- ----------
Income before income taxes ...... 121,070 97,475 7,512 4,951
Provision for income taxes ...... 42,374 33,142 2,629 1,677
---------- ---------- ---------- ----------
NET INCOME ...................... $ 78,696 $ 64,333 $ 4,883 $ 3,274
========== ========== ========== ==========
Basic earnings per share of
common stock .................. $ 0.68 $ 0.63 $ 0.04 $ 0.03
========== ========== ========== ==========
Diluted earnings per share of
common stock .................. $ 0.68 $ 0.63 $ 0.04 $ 0.03
========== ========== ========== ==========
Average shares of common
stock outstanding - basic ..... 115,193 102,346 115,583 102,508
========== ========== ========== ==========
Average shares of common
stock outstanding - diluted ... 116,022 102,857 116,121 103,720
========== ========== ========== ==========
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
In thousands
Nine Months Ended
February 28,
----------------------
2003 2002
--------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income ......................... $ 78,696 $ 64,333
Depreciation and amortization ...... 42,285 41,785
Items not affecting cash and other . 563 (8,716)
Changes in operating working capital (4,237) 34,037
--------- ---------
117,307 131,439
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures ............... (22,017) (16,241)
Acquisition of new businesses,
net of cash acquired .............. (19,547) --
--------- ---------
(41,564) (16,241)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) in debt ................. (14,922) (63,033)
Cash dividends ..................... (44,123) (38,167)
Exercise of stock options .......... 3,286 4,932
--------- ---------
(55,759) (96,268)
--------- ---------
Net Increase in Cash and Short-Term
Investments ....................... $ 19,984 $ 18,930
========= =========
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
In thousands
February 28,
-----------------------
2003 2002
---------- ----------
ASSETS
Current assets .................. $ 766,196 $ 736,735
Property, plant & equipment (net) 357,164 345,326
Other assets .................... 894,423 886,134
---------- ----------
Total Assets ................... $2,017,783 $1,968,195
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities ............. $ 302,314 $ 385,952
Long-term debt, less current
maturities ..................... 694,774 814,606
Other liabilities ............... 101,241 103,009
---------- ----------
TOTAL LIABILITIES .............. 1,098,329 1,303,567
Stockholders' equity ............ 919,454 664,628
---------- ----------
TOTAL LIABILITIES &
STOCKHOLDERS' EQUITY .......... $2,017,783 $1,968,195
========== ==========
Cautionary statement for purposes of the Safe Harbor provisions of The Private
Securities Litigation Reform Act of 1995: Statements in this quarterly report
that are not strictly historical may be forward-looking statements which involve
risks and uncertainties. Risk factors include general economic and industry
conditions, effects of leverage, legal and environmental matters, technological
developments, product pricing, raw material cost changes, and international
operations, among others, which are set forth in the company's SEC filings.