RPM INTERNATIONAL INC/DE/ - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2004, OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ___________________
TO ___________________.

COMMISSION FILE NO. 1-14187

RPM INTERNATIONAL INC.
- -------------------------------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 02-0642224
- ------------------------------- ---------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)

P.O. BOX 777; 2628 PEARL ROAD; MEDINA, OHIO 44258
- -------------------------------------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (330) 273-5090
- -------------------------------------------------------------------------------

INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO THE FILING
REQUIREMENTS FOR THE PAST 90 DAYS.

YES X NO .
----- -----

INDICATE BY CHECK MARK WHETHER THE REGISTRANT IS AN ACCELERATED FILER (AS
DEFINED IN RULE 12B-2 OF THE EXCHANGE ACT).

YES X NO .
----- -----

AS OF OCTOBER 4, 2004
116,389,021 SHARES OF RPM INTERNATIONAL INC. COMMON STOCK WERE OUTSTANDING.

RPM INTERNATIONAL INC. AND SUBSIDIARIES*

INDEX

PAGE NO.
--------
PART I. FINANCIAL INFORMATION
- ------------------------------

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
CONSOLIDATED BALANCE SHEETS 3
CONSOLIDATED STATEMENTS OF INCOME 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 14

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 25

ITEM 4. CONTROLS AND PROCEDURES 25

PART II. OTHER INFORMATION
- ---------------------------

ITEM 1. LEGAL PROCEEDINGS 26

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES
AND USE OF PROCEEDS 30

ITEM 6. EXHIBITS 31

SIGNATURES 33

* As used herein, the terms "RPM" and the "Company" refer to RPM International
Inc. and its subsidiaries, unless the context indicates otherwise.

3

PART I. -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTS

RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)

August 31, 2004 May 31, 2004
--------------- ------------
ASSETS

Current Assets
Cash and short-term investments $ 56,415 $ 38,561
Trade accounts receivable (less allowances of
$18,497 and $18,147, respectively) 465,348 484,847
Inventories 295,938 289,359
Deferred income taxes 52,943 51,164
Prepaid expenses and other current assets 140,567 130,686
----------- -----------
Total current assets 1,011,211 994,617
----------- -----------

Property, Plant and Equipment, at Cost 768,992 767,072
Less allowance for depreciation and amortization (392,528) (386,017)
----------- -----------
Property, plant and equipment, net 376,464 381,055
----------- -----------

Other Assets
Goodwill 650,879 648,243
Other intangible assets, net of amortization 285,044 282,372
Other 45,410 46,832
----------- -----------
Total other assets 981,333 977,447
----------- -----------

Total Assets $ 2,369,008 $ 2,353,119
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
Accounts payable $ 208,993 $ 205,092
Current portion of long-term debt 233,562 991
Accrued compensation and benefits 57,304 88,670
Accrued loss reserves 53,628 56,699
Asbestos-related liabilities 47,500 47,500
Other accrued liabilities 70,536 72,222
Income taxes payable 18,190 6,319
----------- -----------
Total current liabilities 689,713 477,493
----------- -----------

Long-Term Liabilities
Long-term debt, less current maturities 490,284 718,929
Asbestos-related liabilities 24,101 43,107
Other long-term liabilities 59,658 59,910
Deferred income taxes 86,961 78,388
----------- -----------
Total long-term liabilities 661,004 900,334
----------- -----------

Stockholders' Equity
Preferred stock, par value $0.01; authorized 50,000 shares;
none issued
Common stock, par value $0.01 authorized 300,000 shares; issued and
outstanding 116,271 as of August 2004;
issued and outstanding 116,122 as of May 2004 1,163 1,161
Paid-in capital 515,606 513,986
Treasury stock, at cost -- --
Accumulated other comprehensive loss (737) (3,881)
Retained earnings 502,259 464,026
----------- -----------
Total stockholders' equity 1,018,291 975,292
----------- -----------

Total Liabilities and Stockholders' Equity $ 2,369,008 $ 2,353,119
=========== ===========

The accompanying notes to consolidated financial statements are an integral part
of these statements.

4

RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

(In thousands, except per share amounts)

Three Months Ended August 31,
-----------------------------
2004 2003
--------- --------

Net Sales $661,513 $581,023

Cost of Sales 366,626 313,980
-------- --------

Gross Profit 294,887 267,043

Selling, General and Administrative Expenses 202,442 186,850

Interest Expense, Net 7,970 6,283
-------- --------

Income Before Income Taxes 84,475 73,910

Provision For Income Taxes 29,989 26,238
-------- --------

Net Income $ 54,486 $ 47,672
======== ========

Average Number of Shares of Common Stock Outstanding:

Basic 116,163 115,557
======== ========

Diluted 117,078 116,233
======== ========

Basic and Diluted Earnings Per Share of Common Stock $ 0.47 $ 0.41
======== ========

Cash Dividends Per Share of Common Stock $ 0.140 $ 0.130
======== ========

The accompanying notes to consolidated financial statements are an integral part
of these statements.

5

RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

(In thousands)

Three Months Ended August 31,
-----------------------------
2004 2003
-------- --------

Cash Flows From Operating Activities:
Net income $ 54,486 $ 47,672
Depreciation and amortization 16,275 15,127
Items not affecting cash and other 3,043 (2,177)
Changes in operating working capital (20,901) (24,908)
Changes in asbestos-related liabilities, net of tax (11,879) (4,829)
-------- --------

41,024 30,885
-------- --------

Cash Flows From Investing Activities:
Capital expenditures (7,413) (6,808)
Acquisition of businesses, net of cash acquired (9,900) (13,000)
Proceeds from the sale of assets 4,500
Other 908 (4,166)
-------- --------

(11,905) (23,974)
-------- --------

Cash Flows From Financing Activities:
Additions to long-term and short-term debt 3,926 4,042
Cash dividends (16,253) (15,019)
Exercise of stock options 1,062 853
-------- --------

(11,265) (10,124)
-------- --------

Increase (Decrease) in Cash and Short-Term Investments 17,854 (3,213)

Cash and Short-Term Investments at Beginning of Period 38,561 50,725
-------- --------

Cash and Short-Term Investments at End of Period $ 56,415 $ 47,512
======== ========

The accompanying notes to consolidated financial statements are an integral part
of these statements.

6

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

NOTE A - BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared
in accordance with the instructions to Form 10-Q and do not include all of the
information and notes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all adjustments
(consisting of normal, recurring accruals) considered necessary for a fair
presentation have been included for the three month periods ended August 31,
2004 and 2003. For further information, refer to the Consolidated Financial
Statements and notes included in our Annual Report on Form 10-K for the year
ended May 31, 2004.

Our business is dependent on external weather factors. Historically, we have
experienced strong sales and net income in our first, second and fourth fiscal
quarters comprised of the three month periods ending August 31, November 30 and
May 31, respectively, with weaker performance in our third fiscal quarter
(December through February).

Certain reclassifications have been made to prior year amounts to conform to the
current year presentation (see Note G).

NOTE B - INVENTORIES

Inventories were composed of the following major classes:

AUGUST 31, 2004 MAY 31, 2004
--------------- ------------
(IN THOUSANDS)

Raw materials and supplies $113,707 $ 95,378
Finished goods 182,231 193,981
-------- --------
$295,938 $289,359
======== ========

NOTE C - COMPREHENSIVE INCOME

Other comprehensive income includes foreign currency translation adjustments,
minimum pension liability adjustments and unrealized gains or losses on
securities. Total comprehensive income, comprised of net income and other
comprehensive income, amounted to $57.6 million and $38.1 million during the
first quarter of fiscal years 2005 and 2004, respectively.

7

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

NOTE D - STOCK BASED COMPENSATION

Effective June 1, 2004, we voluntarily adopted the preferable fair value
recognition provisions of Statement of Financial Accounting Standards ("SFAS")
No. 123, "Accounting for Stock-Based Compensation," for our stock-based employee
compensation plans. As outlined by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure," we chose to apply the modified
prospective method in adopting this accounting change. Under this method,
stock-based employee compensation expense recognized in fiscal 2005 is the same
as that which would have been recognized had the fair value recognition
provisions of SFAS No. 123 been applied to account for all employee awards from
its original effective date. Results of prior periods have not been restated.

The adoption of SFAS No. 123 impacted net income and earnings per share, both
basic and fully diluted, for the three months ended August 31, 2004 by
approximately $0.5 million and $0.005 per share, respectively. The following
table illustrates the effect on net income and earnings per share for the three
month period ended August 31, 2003, as if compensation cost for stock options
granted had been determined in accordance with the fair value method prescribed
by SFAS No. 123:

THREE MONTHS ENDED AUGUST 31, 2003
----------
(In thousands, except per share amounts)

Net income, as reported $ 47,672

Add: Stock-based employee compensation expense
from restricted stock plans included in reported
net income, net of related tax effects 333

Deduct: Total stock-based employee compensation
determined under fair value-based method for
all awards, net of related tax effects (798)

----------
Pro Forma Net Income $ 47,207
==========
Earnings per Share:
Basic, as Reported $ 0.41
==========
Diluted, as Reported $ 0.41
==========
Basic, Pro Forma $ 0.41
==========
Diluted, Pro Forma $ 0.41
==========

8

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

NOTE E - PENSION AND POSTRETIREMENT HEALTH CARE BENEFITS

We offer defined benefit pension plans, defined contribution pension plans, as
well as several unfunded health care benefit plans primarily for certain of our
retired employees. The following tables provide the retirement-related benefit
plans' impact on income before income taxes for the three month periods ended
August 31, 2004 and 2003:

PENSION BENEFITS U.S. PLANS NON-U.S. PLANS
----------------------------- -----------------------------
(In thousands) THREE MONTHS ENDED AUGUST 31, THREE MONTHS ENDED AUGUST 31,
----------------------------- -----------------------------
2004 2003 2004 2003
------------------------ ------------------------

Service cost $ 2,808 $ 2,469 $ 539 $ 424

Interest cost 1,870 1,807 1,088 903

Expected return on plan assets (2,440) (1,846) (1,029) (797)

Amortization of:

Prior service cost 74 74

Net gain on adoption of SFAS No. 87 (1) (6)
Net actuarial (gains) losses recognized 375 636 333 309

- ----------------------------------------------- ------------------------ ------------------------
NET PERIODIC BENEFIT COST $ 2,686 $ 3,134 $ 931 $ 839
- ----------------------------------------------- ------------------------ ------------------------

POSTRETIREMENT BENEFITS U.S. PLANS NON-U.S. PLANS
----------------------------- -----------------------------
(In thousands) THREE MONTHS ENDED AUGUST 31, THREE MONTHS ENDED AUGUST 31,
----------------------------- -----------------------------
2004 2003 2004 2003
------------------------ ------------------------

Service cost $ 3 $ 3 $ 61 $ 46

Interest cost 165 158 109 89

Net actuarial (gains) losses recognized 7 7

- ----------------------------------------------- ------------------------ ------------------------
NET PERIODIC BENEFIT COST $ 175 $ 161 $ 177 $ 135
- ----------------------------------------------- ------------------------ ------------------------

The Medicare Prescription Drug, Improvement and Modernization Act (the "Act")
was enacted on December 8, 2003. The Act introduces a prescription drug benefit
under Medicare Part D, in addition to a federal subsidy to sponsors of
postretirement benefit plans that provide a prescription drug benefit that is at
least actuarially equivalent to Medicare Part D. In accordance with FASB Staff
Position No. FAS 106-1, "Accounting and Disclosure Requirements Related to the
Medicare Prescription Drug, Improvement and Modernization Act of 2003," we have
elected to defer recognition of the Act. Therefore, the effects of this Act have
not been reflected in the accumulated postretirement benefit obligation or net
periodic postretirement benefit cost.

9

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

NOTE F - ASBESTOS-RELATED LIABILITIES

Certain of our wholly owned subsidiaries, principally Bondex International, Inc.
(Bondex), along with many other U.S. companies, are and have been involved in a
large number of asbestos-related suits filed primarily in state courts during
the past two decades. These suits principally allege personal injury resulting
from exposure to asbestos-containing products. The alleged claims relate
primarily to products that Bondex sold through 1977. In many cases, plaintiffs
are unable to demonstrate that they have suffered any compensable loss as a
result of such exposure or that injuries incurred resulted from exposure to
Bondex products.

The rate at which plaintiffs filed asbestos-related suits against Bondex
increased in the fourth quarter of 2002 and the first two quarters of 2003,
influenced by the bankruptcy filings of numerous other defendants in
asbestos-related litigation. Based on the significant increase in asbestos
claims activity, which in many cases disproportionately increased Bondex's
exposure in joint and several liability law states, our third-party insurance
was depleted within the first fiscal quarter of 2004, as previously reported.
Our third-party insurers historically had been responsible, under various
cost-sharing arrangements, for the payment of approximately 90% of the indemnity
and defense costs associated with our asbestos litigation. Prior to this sudden
precipitous increase in loss rates, the combination of book loss reserves and
insurance coverage was expected to adequately cover asbestos claims for the
foreseeable future. We have reserved our rights with respect to various of our
third-party insurers' claims of exhaustion, and in late calendar 2002 commenced
reviewing our known insurance policies to determine whether other insurance
limits may be available to cover our asbestos liabilities. As a result of this
examination and as previously disclosed, certain of our subsidiaries filed a
complaint for declaratory judgment, breach of contract and bad faith against
various third-party insurers, challenging their assertion that their policies
covering asbestos-related claims have been exhausted. Since the July 3, 2003
filing in Ohio, this action was combined with a related case and, pursuant to a
December 9, 2003 case management order, the parties are to complete discovery by
April 30, 2005. The court order provides other deadlines for various stages of
the case, including dispositive motions, and the court has established a trial
date of March 6, 2006. It is possible that these dates may be modified as the
case progresses. We are unable at the present time to predict the timing or
ultimate outcome of this litigation. Consequently, we are unable to predict
whether, or to what extent, any additional insurance may be available to cover a
portion of our asbestos liabilities. We have not included any potential benefits
from this litigation either in our financial statements or in calculating the
$140.0 million reserve, which was established in the fourth quarter of fiscal
2003. Our wholly owned captive insurance companies have not provided any
insurance or re-insurance coverage of any asbestos-related claims.

During the last seven months of 2003, new state liability laws were enacted in
three states (Ohio, Mississippi and Texas) where more than 80% of the claims
against Bondex were pending.

10

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

Effective dates for the last two of the law changes were April 8, 2003 and July
1, 2003. The changes generally provided for liability to be determined on a
"proportional cause" basis, thereby limiting Bondex's responsibility to only its
share of the alleged asbestos exposure. At the end of 2003, the ultimate impact
of these initial state law changes was difficult to predict given the limited
time following enactment. The full influence of these initial state law changes
on legal settlement values was not expected to be significantly visible until
the latter part of fiscal 2004. Claims in the three subject states at the
quarter ended August 31, 2004, coupled with Florida, now comprise approximately
80% of aggregate claims. During the third and fourth quarters of 2004, two of
the three previously mentioned states that adopted "proportional cause"
liability in 2003 passed additional legislation impacting asbestos liability
lawsuits. Among the recent changes are enhanced medical criteria and product
identification to be presented by plaintiffs in litigation. While there have
been some changes in the type of claims filed in certain of these states, the
ultimate influence these law changes may have on future claims activity and
settlement values remains uncertain.

At the end of 2002 and through the third quarter of 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 due to a number of reasons,
including its lack of sufficient comparable loss history from which to assess
either the number or value of future asbestos-related claims. During the fourth
quarter of 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 in various state
laws.

Bondex provided the consultants with all relevant data regarding
asbestos-related claims filed against Bondex through May 31, 2003. Management,
with the consultants' input, 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, which hindered the consultants' and Bondex's
ability to project future claim volumes and resolution costs included the
following:

o The bankruptcies of other companies facing large asbestos liability
were a likely contributing cause of a sharp increase in filings
against many defendants, including Bondex.

o 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.

o 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.

11

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

At this time, we cannot estimate the liability that will result from all pending
or future claims. We established a reserve at May 31, 2003 for those pending
cases that had progressed to a stage where the cost to dispose of these cases
could reasonably be estimated. The estimation of even pending cases was and is
always difficult due to the dynamic nature of asbestos litigation. The estimated
range of potential loss covering measurable known asbestos claims and a
provision for future claims that were estimable at May 31, 2003 was $140.0
million to $145.0 million. Accordingly, we established a reserve equal to the
lower end of this range of potential loss by taking an asbestos charge to 2003
operations of $140.0 million. We believed then and continue to believe that the
asbestos reserve would be sufficient to cover asbestos-related cash flow
requirements over the estimated three-year life of the reserve. The $140.0
million charge also includes $15.0 million in total projected defense costs over
the estimated three-year life of the reserve. Additionally, Bondex's share of
costs (net of then-available third-party insurance) for asbestos-related product
liability was $6.7 million and $2.8 million for the years ended May 31, 2003 and
2002, respectively.

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 the last 18 months of state law changes and pending federal
legislation on prospective asbestos claims. Subject to the foregoing variables,
including the timing and impact of such variables, our asbestos reserve should
be sufficient to cover asbestos-related cash flow requirements through fiscal
2006. It is, however, reasonably possible that our actual costs for claims could
differ from current estimates but, based upon information presently available,
such future costs are not expected to have a material effect on our competitive
or financial position or our ongoing operations. However, our existing reserve
will not likely be adequate to cover the costs of future claims beyond the
three-year period contemplated by the reserve. Accordingly, it is probable that
an additional charge will be required in some future period as those
unforeseeable claims (as of the time the reserve was established) become
measurable. Any such future charge, when taken, could therefore have a material
impact on our results in such period.

In conjunction with outside advisors, we continue to study our asbestos-related
exposure 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. We will continue to explore all feasible alternatives
available to resolve our asbestos-related exposure in a manner consistent with
the best interests of our Stockholders.

The following table illustrates the movement of current and long-term
asbestos-related liabilities through August 31, 2004:

12

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

ASBESTOS LIABILITY MOVEMENT
(CURRENT AND LONG-TERM)
- -------------------------------------------------------------------------------

Additions
Charged to
Balance at Selling Deductions Balance at
Beginning General and (Primarily End of
(In thousands) of Period Administrative Claims Paid) Period
- -------------------------------------------------------------------------------------------------------------------

Three Months Ended August 31, 2004 $ 90,607 $ 19,006 $ 71,601

Year Ended May 31, 2004 144,583 53,976 90,607

Year Ended May 31, 2003 3,377 $ 146,650 5,444 144,583

- -------------------------------------------------------------------------------------------------------------------

Due to the uncertainty inherent in the loss reserve estimations process, we are
unable to estimate an additional range of loss in excess of our accruals. It is
at least reasonably possible that actual costs will differ from estimates but,
based upon information presently available, such future 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.

NOTE G - ACCOUNTING RECLASSIFICATION

During the first quarter of fiscal 2005, we changed our accounting
classification for cooperative advertising by reflecting the amounts paid as a
reduction of sales, as opposed to a component of selling, general and
administrative ("SG&A") expenses and have reclassified the previous year's first
quarter. The reclassification impacts classifications in our consumer business
segment and to a lesser degree the consolidated totals. We believe that it is
preferable to classify the amounts paid as a reduction of our sales in light of
recent developments in industry trends relating to accounting classifications
applied to such arrangements by both vendors and retailers - as a reduction of
sales and a reduction of cost of sales, respectively. The new classification
represents only a movement of expense and therefore has no impact on our
earnings or earnings per share.

With respect to the impact of the accounting reclassification on consolidated
full fiscal 2004 results, annual net sales will be decreased by approximately
1.5% (3.2% for the consumer segment), gross profit margin decreased by
approximately 0.8% (1.8% for the consumer segment), and SG&A expense as a
percent of net sales decreased by approximately 1.0% (2.2% for the consumer
segment). As set forth previously, our earnings and earnings per share are not
affected by this account reclassification. With respect to the impact of the
accounting change on consolidated first quarter results for fiscal 2004, net
sales decreased by approximately 1.5% (3.3% for the consumer segment), gross
profit margin decreased by approximately 0.8% (1.8% for the consumer segment);
and SG&A expense as a percent of net sales decreased by 1.0% (2.4% for the
consumer segment). There was no impact of the change on the quarterly and

13

RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2004
(UNAUDITED)
- -------------------------------------------------------------------------------

annual results for the industrial segment for fiscal 2004. The year-over-year
rates of change in gross profit and SG&A expenses under the old and new
classifications are essentially unchanged. Here again, there is no change in
earnings or earnings per share.

NOTE H - SUBSEQUENT EVENT

Subsequent to quarter end, on September 30, 2004, we issued and sold $200
million of 4.45% Senior Unsecured Notes due 2009, which we concurrently swapped
back to floating interest rate debt. The total net proceeds of the offering of
the Senior Notes will be used to refinance existing indebtedness. More
specifically, we plan to use a portion of the net proceeds to refinance portions
of our current outstanding floating rate indebtedness and anticipate holding the
remainder as cash or short-term investments until such time that it can be used
to pay some or all of our indebtedness under our $15.0 million 6.12% Senior
Notes due 2004, which mature on November 15, 2004, and our $150.0 million 7.0%
Senior Notes due 2005, which mature on June 15, 2005.

14

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

- -------------------------------------------------------------------------------

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements include the accounts of RPM International
Inc. and its majority-owned subsidiaries. Preparation of our financial
statements requires the use of estimates and assumptions that affect the
reported amounts of our assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. We continually evaluate these estimates, including those
related to allowances for doubtful accounts; inventories; allowances for
recoverable taxes; useful lives of property, plant and equipment; goodwill;
environmental and other contingent liabilities; income tax valuation allowances;
pension plans; and the fair value of financial instruments. We base our
estimates on historical experience and other assumptions, which we believe to be
reasonable under the circumstances. These estimates form the basis for making
judgments about the carrying value of our assets and liabilities. Actual results
may differ from these estimates under different assumptions and conditions.

We have identified below the accounting policies that are critical to our
financial statements.

REVENUE RECOGNITION

Revenues are recognized when realized or realizable, and when earned. In
general, this is when title and risk of loss pass to the customer. Further,
revenues are realizable when we have persuasive evidence of a sales arrangement,
the product has been shipped or the services have been provided to the customer,
the sales price is fixed or determinable, and collectibility is reasonably
assured. We reduce our revenues for estimated customer returns and allowances,
certain rebates, sales incentives and promotions in the same period the related
sales are recorded.

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 weighted 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). Translation adjustments will be
included in net earnings in the event of a sale or liquidation of any of our
underlying foreign investments, or in the event that we distribute the
accumulated earnings of consolidated foreign subsidiaries. If we determined that
the functional currency of any of our foreign subsidiaries should be the U.S.
dollar, our financial statements would be affected. Should this occur, we would
adjust our reporting to appropriately account for such change(s).

15

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

- -------------------------------------------------------------------------------

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 intercompany
loans are recorded in accumulated other comprehensive income (loss). If we were
to determine that the functional currency of any of our subsidiaries should be
the U.S. dollar, we would no longer record foreign exchange gains or losses on
such intercompany loans.

GOODWILL

We apply the provisions of Statement of Financial Accounting Standards ("SFAS")
No. 141, "Business Combinations," which addresses the initial recognition and
measurement of goodwill and intangible assets acquired in a business
combination. We also apply the provisions of SFAS No. 142, "Goodwill and Other
Intangible Assets," which requires that goodwill be tested on an annual basis,
or more frequently as impairment indicators arise. We have elected to perform
the required impairment tests, which involve the use of estimates related to the
fair market values of the business operations with which goodwill is associated,
at the end of our first quarter. Calculating the fair market value of the
reporting units requires significant estimates and assumptions by management. We
estimate the fair value of our reporting units by applying third-party market
value indicators to the respective reporting unit's annual projected earnings
before interest, taxes, depreciation and amortization. In applying this
methodology, we rely on a number of factors, including future business plans,
actual operating results and market data. In the event that our calculations
indicate that goodwill is impaired, a fair value estimate of each tangible and
intangible asset would be established. This process would require the
application of discounted cash flows expected to be generated by each asset in
addition to independent asset appraisals, as appropriate. Cash flow estimates
are based on our historical experience and our internal business plans, and
appropriate discount rates are applied. Losses, if any, resulting from goodwill
impairment tests would be reflected in operating income in our income statement.

OTHER LONG-LIVED ASSETS

We assess identifiable non-goodwill intangibles and other long-lived assets for
impairment whenever events or changes in facts and circumstances indicate the
possibility that the carrying value may not be recoverable. Factors considered
important, which might trigger an impairment evaluation, include the following:

o significant under-performance relative to historical or projected
future operating results;

o significant changes in the manner of our use of the acquired assets;

o significant changes in the strategy for our overall business; and

o significant negative industry or economic trends.

16

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

- -------------------------------------------------------------------------------

Measuring a potential impairment of non-goodwill intangibles and other
long-lived assets requires various estimates and assumptions, including
determining which cash flows are directly related to the asset being evaluated,
the useful life over which those cash flows will occur, their amount and the
asset's residual value, if any. If we determine that the carrying value of these
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. The
determination of impairment loss would be based on the best information
available, including internal discounted cash flows, quoted market prices when
available and independent appraisals as appropriate to determine fair value.
Cash flow estimates would be based on our historical experience and our internal
business plans, with appropriate discount rates applied. We have not incurred
any such impairment loss to date.

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 to
our Consolidated Financial Statements included in our Annual Report on Form 10-K
for the year ended May 31, 2004. 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. Estimating
probable losses requires analysis of multiple forecasted factors that often
depend on judgments about potential actions by third parties such as regulators,
courts and state and federal legislatures. Changes in the 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 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.

17

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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REPORTABLE SEGMENT INFORMATION

We operate a portfolio of businesses that manufacture and sell a variety of
specialty paints, protective coatings and roofing systems, sealants and
adhesives. We manage our portfolio by organizing our businesses into two
operating segments - industrial and consumer - based on the nature of business
activities; products and services; the structure of management; and the
structure of information as presented to the Board of Directors. Within each
segment, individual operating companies or groups of companies generally address
common markets, utilize similar technologies, and can share manufacturing or
distribution capabilities. We evaluate the profit performance of our segments
based on income before income taxes, but also look to earnings before interest
and taxes ("EBIT") as a performance evaluation measure because interest expense
is essentially related to corporate acquisitions, as opposed to segment
operations.

In addition to the two operating segments, there are certain business
activities, referred to as corporate/other, that do not constitute an operating
segment, including corporate headquarters and related administrative expenses,
results of our captive insurance companies, gains or losses on the sales of
certain assets and other expenses not directly associated with either operating
segment. Related assets consist primarily of investments, prepaid expenses,
deferred pension assets, and headquarters' property and equipment. These
corporate and other expenses reconcile operating segment data to total
consolidated net sales, income before income taxes and identifiable assets.
Comparative first quarter results on this basis are illustrated in the following
table.

18

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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QUARTER ENDED AUGUST 31,
-----------------------------------
(In thousands) 2004 2003
----------- -----------

NET SALES
Industrial $ 365,508 $ 316,194
Consumer 296,005 264,829
----------- -----------
CONSOLIDATED $ 661,513 $ 581,023
=========== ===========
Income Before Income Taxes (a)
Industrial Segment
Income Before Income Taxes (a) $ 56,136 $ 47,020
Interest (Expense), Net 11 (25)
----------- -----------
EBIT (b) $ 56,125 $ 47,045
=========== ===========
Consumer Segment
Income Before Income Taxes (a) $ 46,355 $ 42,146
Interest (Expense), Net 49 11
----------- -----------
EBIT (b) $ 46,306 $ 42,135
=========== ===========
Corporate/Other
(Loss) Before Income Taxes (a) $ (18,016) $ (15,256)
Interest (Expense), Net (8,030) (6,269)
=========== ===========
EBIT (b) $ (9,986) $ (8,987)
=========== ===========
CONSOLIDATED
Income Before Income Taxes (a) $ 84,475 $ 73,910
Interest (Expense), Net (7,970) (6,283)
----------- -----------
EBIT (b) $ 92,445 $ 80,193
=========== ===========

IDENTIFIABLE ASSETS August 31, 2004 May 31, 2004
--------------- ------------

Industrial $ 1,134,942 $ 1,111,978
Consumer 1,077,534 1,087,239
Corporate/Other 156,531 153,902
----------- -----------
CONSOLIDATED $ 2,369,008 $ 2,353,119
=========== ===========

(a) The presentation includes a reconciliation of Income Before Income Taxes, a
measure defined by Generally Accepted Accounting Principles ("GAAP") in the
U.S., to EBIT.

(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.

19

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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RESULTS OF OPERATIONS

THREE MONTHS ENDED AUGUST 31, 2004

NET SALES

Net sales on a consolidated basis for the first quarter of fiscal 2005 of $661.5
million improved 13.9 percent, or $80.5 million, over last year's first quarter
net sales of $581.0 million. Reflected in net sales for both periods is the
reclassification of cooperative advertising expense, as discussed in Note G to
the Financial Statements. Contributing to this improvement over last year was
the continued growth in organic sales of approximately 11.3 percent, or $65.5
million, plus 5 small acquisitions, net of one small divestiture, supplying
another 1.4 percent growth in sales, or $8.2 million. Net favorable foreign
exchange rates, relating primarily to the Canadian dollar and the euro, provided
the remaining 1.2 percent, or $6.8 million, of the growth in sales over last
year's first quarter.

Industrial segment net sales for the first quarter grew 15.6 percent to $365.5
million from last year's $316.2 million, comprising 55.3 percent of the current
quarter's consolidated net sales. This segment's net sales growth comes
primarily from organic sales growth of 11.9 percent, another 1.6 percent from
net favorable foreign exchange differences, and 4 small acquisitions during the
past 12 months, net of one small divestiture, which added the remaining 2.1
percent of growth to industrial sales. The roofing services business continued
to lead this segment's sales growth over last year's first quarter, and there
were notable sales improvements among the specialty businesses and in
construction sealants and chemicals, with some of this growth related to
increased U.S. commercial construction activity.

Consumer segment net sales for the first quarter grew 11.8 percent to $296.0
million from last year's $264.8 million, comprising 44.7 percent of the current
quarter's consolidated net sales. Double-digit growth in organic sales,
particularly from this segment's Wood Finishes, Testors, Rust-Oleum, DAP and
Zinsser product lines, added 11.2 percent to the consumer segment sales total,
including 0.7 percent from favorable foreign exchange differences. One small
bolt-on product line acquisition during the past 12 months provided the
remaining 0.6 percent of sales growth in this segment over last year.

GROSS PROFIT MARGIN

Consolidated gross profit margin of 44.6 percent of net sales this first quarter
declined from 46.0 percent a year ago. The combination of continued higher costs
of petroleum-based raw materials, which amounted to approximately 1.1 percent of
net sales, or 110 basis points ("bps"), in addition to approximately 70 bps
negative margin effect from the growth of roofing services sales, which carry
lower gross margins, more than offset the margin benefits generated primarily
from the leverage of higher product sales volume and price increases being
initiated by our businesses.

Industrial segment gross profit margin for the first quarter declined to 45.9
percent of net sales from 47.3 percent last year. Gross profit margin in this
segment declined principally as the result of the continued strong growth of the
lower-margin roofing services

20

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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business, which had a negative margin impact of approximately 130 bps this
quarter, while continued higher raw material costs impacted margins by 30 bps.
Initial price increases favorably offset these costs by approximately 20 bps.

Consumer segment gross profit margin for this first quarter declined to 43.0
percent of net sales from 44.4 percent last year. Despite the margin leverage
from the higher organic sales volume and initial price increases initiated this
quarter, there was approximately 220 bps of negative impact from certain higher
raw material and packaging costs that caused the overall 140 bps decline in this
segment's gross margin from last year.

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")

Consolidated SG&A expense levels improved 160 bps to 30.6 percent of net sales
compared with 32.2 percent a year ago. The reclassification of cooperative
advertising expense is reflected in both periods presented (see Note G for
additional information). The leverage of solid sales growth over last year was
the primary contributing factor to the improvement (220 bps), in addition to the
previously discussed increase in roofing services sales (60 bps), which require
lower SG&A support levels. However, the higher cost of fuel, which contributed
to higher fuel-related distribution costs over last year (30 bps), this year's
adoption of SFAS No. 123 (refer to Note D), and certain promotional and
growth-related investments partially offset these gains.

Industrial segment SG&A improved by 190 bps, to 30.5 percent of net sales this
first quarter from 32.4 percent a year ago. In addition to improvements in
cost-containment and other savings programs that continued into this year's
first quarter, other contributors to SG&A improvements were leverage of solid
sales growth (190 bps) and the increase in roofing services sales (100 bps),
which require lower SG&A support levels. These improvements were partially
offset by higher distribution costs (30 bps) and growth-related investments (70
bps).

Consumer segment SG&A improved by 120 bps, to 27.3 percent of net sales this
first quarter compared with 28.5 percent a year ago. Here again, solid growth in
sales over last year provided leverage benefits along with continued cost
containment and other savings programs (220 bps). Partly offsetting these
benefits were increased advertising and other growth-related investments made in
this segment, in addition to increased fuel-related distribution costs (100
bps).

Corporate/Other costs increased during this year's first quarter to $10.0
million from $9.0 million during last year's first quarter. Higher costs related
to this year's adoption of SFAS No. 123, approximating $0.6 million, combined
with increased compensation cost, approximating $0.6 million, and additional
costs related to last year's establishment of our European development office,
approximating $0.2 million, were favorably offset, in part, by lower insurance
costs this year, approximating $0.6 million.

License fee and joint venture income of $0.3 million and $0.1 million for the
quarters ended August 31, 2004 and 2003, respectively, are reflected as
reductions of consolidated SG&A expenses.

We recorded total net periodic pension and postretirement benefit cost of $4.0
million and $4.3 million for the quarters ended August 31, 2004 and 2003,
respectively. This decreased pension expense of $0.3 million

21

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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was largely attributable to a net improvement in the expected return on plan
assets, approximating $0.8 million, combined with decreased net actuarial losses
recognized, which positively impacted quarter-over-quarter expense by
approximately $0.2 million. Offsetting those benefits were increased pension
service and interest cost totaling approximately $0.7 million. We expect that
pension expense will fluctuate on a year-to-year basis depending upon the
performance of plan assets, but such changes are not expected to be material as
a percent of income before income taxes.

INCOME BEFORE INCOME TAXES ("IBT")

Consolidated IBT for this year's first quarter grew by $10.6 million, or 14.3
percent, to $84.5 million from $73.9 million during last year's first quarter,
with slight margin improvement to 12.8 percent of net sales from 12.7 percent a
year ago. This growth reflects the positive impact from the higher sales volume
overcoming the approximate 110 bps impact of higher material costs, higher
fuel-related distribution costs and the continuation of certain marketing and
growth-related investments this first quarter in both operating segments.

Industrial segment IBT grew by $9.1 million, or 19.4 percent, to $56.1 million
from last year's $47.0 million, mainly from the higher organic sales volume.
Consumer segment IBT grew by $4.3 million, or 10.2 percent, to $46.4 million
from last year's $42.1 million, mainly from the organic sales growth leverage in
this segment less the impact from higher material costs and continued planned
spending on growth-related initiatives. Combined operating IBT growth totaled
$13.4 million, or 15.0 percent, over last year. In addition to the benefits from
the factors outlined above, this combined operating growth includes an
approximate benefit of $1.0 million each from acquisitions and net favorable
foreign exchange rates.

NET INTEREST EXPENSE

Net interest expense was $1.7 million higher this first quarter than a year ago.
Interest rates averaged 4.7 percent during this first quarter, approximately 120
bps higher than a year ago, accounting for $2.2 million of the interest cost
increase. This increase is primarily due to our floating to fixed-rate debt
refinancings (Refer to "Liquidity and Capital Resources" Section) during the
past 18 months, including the $200 million 6.25% Senior Notes issued last
December. Higher average net borrowings this year, associated with recent
acquisitions, of approximately $33.2 million added $0.3 million of interest
cost, while investment income performance improved year-over-year, providing
$0.4 million of additional income. Debt repayments during the past year, which
averaged approximately $40.0 million, saved approximately $0.4 million during
the quarter.

INCOME TAX RATE

For the quarters ended August 31, 2004 and 2003, the effective income tax rate
was 35.5 percent. Our geographic mix of earnings has remained relatively
consistent for both periods.

22

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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NET INCOME

This year's first quarter net income of $54.5 million increased $6.8 million, or
14.3 percent, from last year's $47.7 million. Margin on sales held steady at 8.2
percent of sales for both periods presented, despite the approximate 110 bps
pre-tax impact from higher material costs. Earnings per common share increased
by 14.6 percent, to $0.47 from $0.41 a year ago.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOWS FROM:

OPERATING ACTIVITIES

There was $41.0 million of cash generated from operations during the first three
months of fiscal 2005 compared with $30.9 million generated during the same
period a year ago, or a net increase of $10.1 million. Cash flow from operations
was positively impacted by $8.0 million in combined period-over-period increases
in net income and depreciation and amortization. "Items not affecting cash and
other" and "changes in operating working capital" combined reflect a net
positive generation of cash flow period-over-period of $9.2 million. Changes in
trade accounts receivable generated a period-over-period increase in cash flow
of $3.7 million, net of foreign exchange differences, principally due to a 2.5
day reduction in day sales outstanding, year-over-year. Inventories required an
additional $7.3 million of operating cash, net of foreign exchange differences,
as a result of the increased sales volume and the associated inventory required
to support those levels. Accounts payable had a positive period-over-period
effect on cash flow of $22.4 million, net of foreign exchange differences,
mostly as a result of timing of payments and receipts of materials. All other
remaining balance sheet changes related to "items not affecting cash and other"
and "changes in operating working" had a net negative impact of $9.6 million,
primarily the result of payments received from insurance companies during the
first quarter of fiscal 2004, which did not repeat during the current fiscal
quarter. 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.

In other areas, long-term and short-term asbestos-related reserves, net of
taxes, resulted in an increase in the period over period additional usage of
cash of approximately $7.0 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 the disproportionate impact of joint and several
liability laws in several states on our Bondex subsidiary caused our third-party
insurance to be depleted during the first quarter of fiscal 2004. Accordingly,
we are now required to fund costs previously covered by third-party insurance
through cash from operations. We anticipate that cash flows from operations and
other sources will be sufficient to meet all asbestos-related obligations on a
short-term and long-term basis.

Cash provided from operations remains our primary source of financing internal
growth, with limited use of short-term debt.

23

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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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 three months of fiscal 2005 of $7.4 million compare with
depreciation of $12.3 million, well within the maintenance level of spending. We
are not a capital intensive business and capital expenditures generally do not
exceed depreciation in a given year. Capital spending is expected to approximate
our depreciation levels for the next several years as additional capacity is
brought on-line to support our continued growth. With additional minor plant
expansions, we believe there will be adequate production capacity to meet our
needs for the next several years at normal growth rates.

During the first three months of fiscal 2005, we invested a total of $9.9
million for one product line acquisition and received proceeds of $4.5 million
from the sale of assets.

FINANCING ACTIVITIES

In December 2003, we issued and sold $200 million of 6.25% Senior Notes due 2013
as a means of refinancing. The Notes were offered to qualified institutional
buyers under Rule 144A and to persons outside the United States under Regulation
S. The entire net proceeds of $197 million from this offering were used to repay
in full the $128 million of then-outstanding borrowings under our $500 million
revolving credit facility and $69 million of the then-outstanding $72 million
balance under our asset securitization program. On July 13, 2004, we completed
an exchange offer pursuant to which holders exchanged the initial notes for
notes registered under the Securities Act of 1933.

Our debt-to-capital ratio was 41.5 percent at August 31, 2004, down from 42.5
percent at May 31, 2004.

The following table summarizes our financial obligations and their expected
maturities at August 31, 2004 and the effect such obligations are expected to
have on our liquidity and cash flow in the periods indicated.

CONTRACTUAL OBLIGATIONS
(In thousands)
- -------------------------------------------------------------------------------------------------------------
Total
Contractual Payments Due In
Payment ----------------------------------------------------
Stream 2005 2006-07 2008-09 After 2009
- -------------------------------------------------------------------------------------------------------------

Long-term debt obligations $ 723,846 $ 233,562 $ 57 $ 10,059 $ 480,168
Operating lease obligations 71,379 20,002 26,297 10,769 14,311
Other long-term liabilities* 144,200 11,300 16,000 27,100 89,800
- -------------------------------------------------------------------------------------------------------------
TOTAL $ 939,425 $ 264,864 $ 42,354 $ 47,928 $ 584,279
- -------------------------------------------------------------------------------------------------------------

* These amounts represent our estimated cash contributions to be made in the
periods indicated for our pension and postretirement plans in the U.S. and
Canada, assuming no actuarial gains or losses, assumption change or plan
changes occur in any period. Projections for our other non-U.S. plans are not
currently determinable.

Subsequent to quarter end, on September 30, 2004, we issued and sold $200
million aggregate principal amount of 4.45% Senior Notes due 2009, which we
concurrently swapped back to floating interest rate debt. The 4.45% Senior
Notes were offered only to qualified institutional buyers under Rule 144A of the
Securities Act of 1933. The total estimated net proceeds of $197.7 million
(after payment of expenses and the initial purchasers' discount) from this
offering

24

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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will be used to refinance portions of our current outstanding floating rate
indebtedness and we currently anticipate that the remainder will be held in cash
and short-term investments to be available to satisfy some or all of our
indebtedness under our $15.0 million 6.12% Senior Notes due 2004, which mature
November 15, 2004, and our $150.0 million 7.0% Senior Notes due 2005, which
mature on June 15, 2005.

We maintain excellent relations with our banks and other financial institutions
to provide continual access to financing for future growth opportunities.

OFF-BALANCE SHEET ARRANGEMENTS

We do not have any off-balance sheet financings. We have no subsidiaries that
are not included in our financial statements, nor do we have any interests in or
relationships with any special purpose entities that are not reflected in our
financial statements.

OTHER MATTERS

ENVIRONMENTAL MATTERS

Environmental obligations continue to be appropriately addressed and, based upon
the latest available information, it is not anticipated that the outcome of such
matters will materially affect the Company's results of operations of financial
condition. Our critical accounting policies and estimates set forth above
describe our method of establishing and adjusting environmental-related accruals
and should be read in conjunction with this disclosure. (For additional
information, refer to Note H to the Consolidated Financial Statements contained
in our Annual Report on Form 10-K for the year ended May 31, 2004.)

FORWARD-LOOKING STATEMENTS

The foregoing discussion includes forward-looking statements relating to the
business of the Company. These forward-looking statements, or other statements
made by the Company, are made based on management's expectations and beliefs
concerning future events impacting the Company and are subject to uncertainties
and factors (including those specified below), which are difficult to predict
and, in many instances, are beyond the control of the Company. As a result,
actual results of the Company could differ materially from those expressed in or
implied by any such forward-looking statements. These uncertainties and factors
include (a) general economic conditions; (b) the price and supply of raw
materials, particularly titanium dioxide, certain resins, aerosols and solvents;
(c) continued growth in demand for the Company's products; (d) legal,
environmental and litigation risks inherent in the Company's construction and
chemicals businesses and risks related to the adequacy of the Company's
insurance coverage for such matters; (e) the effect of changes in interest
rates; (f) the effect of fluctuations in currency exchange rates upon the
Company's foreign operations; (g) the effect of non-currency risks of investing
in and conducting operations in foreign countries, including those relating to
domestic and international political, social, economic and regulatory factors;
(h) risks and uncertainties

25

RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2004

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associated with the Company's ongoing acquisition and divestiture activities;
(i) risks related to the adequacy of its contingent liability reserves,
including for asbestos-related claims; and other risks detailed in the Company's
other reports and statements filed with the Securities and Exchange Commission,
including the risk factors set forth in the Company's prospectus and prospectus
supplement included as part of the Company's Registration Statement on Form S-4
(File No. 333-114259), as the same may be amended from time to time. The Company
does not undertake any obligation to publicly update or revise any
forward-looking statements to reflect future events, information or
circumstances that arise after the filing date of this document.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in 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, 2004.

ITEM 4. CONTROLS AND PROCEDURES

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

The Company's Chief Executive Officer and Chief Financial Officer,
after evaluating the effectiveness of the Company's disclosure controls and
procedures (as defined in Exchange Act Rule 13a-15(e)) as of August 31, 2004
(the "Evaluation Date"), have concluded that as of the Evaluation Date, the
Company's disclosure controls and procedures were effective in ensuring that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission's rules and forms.

(b) CHANGES IN INTERNAL CONTROL.

There were no changes in the Company's internal control over
financial reporting that occurred during the fiscal quarter ended August 31,
2004 that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.

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ITEM 1. LEGAL PROCEEDINGS

EIFS LITIGATION

As previously reported, Dryvit is a defendant or co-defendant in numerous
exterior insulated finish systems ("EIFS") related lawsuits. As of August 31,
2004, Dryvit was a defendant or co-defendant in approximately 264 single family
residential EIFS cases, the majority of which are pending in the southeastern
region of the country. Dryvit is also defending EIFS lawsuits involving
commercial structures, townhouses and condominiums. The vast majority of
Dryvit's EIFS lawsuits seek monetary relief for water intrusion related property
damages, although some claims in certain lawsuits allege personal injuries from
exposure to mold.

As previously reported, Dryvit is a defendant in an attempted state class action
filed on November 14, 2000 in Jefferson County, Tennessee styled Bobby R. Posey,
et al. v. Dryvit Systems, Inc. (formerly styled William J. Humphrey, et al. v.
Dryvit Systems, Inc.) (Case No. 17,715-IV) ("Posey"). As previously reported, a
preliminary approval order was entered on April 8, 2002 in the Posey case for a
proposed nationwide class action settlement covering, "All Persons who, as of
June 5, 2002, own a one- or two-family residential dwelling or townhouse in any
State other than North Carolina clad, 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 to determine whether the proposed settlement is
fair, reasonable and adequate and an order and judgment granting final approval
of the settlement was entered on January 14, 2003. Notices of appeal were filed
by persons seeking to challenge certain provisions of the proposed settlement
including challenging the trial court's denial of certain builders and one
homeowner's right to appear at the fairness hearing and intervene in the
underlying action. On March 22, 2004, the Tennessee Court of Appeals dismissed
the homeowner's appeal but ruled that the builders should be allowed to
intervene to determine their rights and obligations, if any, under the proposed
national settlement. Dryvit has urged the trial court to expeditiously address
this issue on remand so the settlement can be finalized.

During the pendency of the foregoing issues, the court has allowed claims to be
processed under the proposed Posey settlement. As of August 31, 2004,
approximately 7,100 total claims have been filed. Of these 7,100 claims,
approximately 3,300 claims have been rejected or closed for various reasons
under the terms of the settlement. An additional 1,000 claims are under review
for potential filing deficiencies. The approximately 2,800 remaining claims are
at various stages of review and processing under the terms of the proposed
settlement. As of August 31, 2004, approximately 250 claims have been paid a
total of approximately $2.6 million.

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Although Dryvit's claims experience under Posey is still evolving and it is
possible that future claims and payments may vary from management's current
expectations, Dryvit believes that its reserves and available third party excess
insurance will be adequate to cover the anticipated costs of the Posey
settlement.

Certain of Dryvit's insurers have paid or are currently paying a portion of
Dryvit's defense costs in the individual commercial and residential EIFS
lawsuits and are contributing to the settlement of claims. Under current
cost-sharing agreements, the terms of which are subject to periodic
renegotiations, Dryvit's insurers cover various portions of Dryvit's indemnity
and defense costs. Dryvit has and is expected to continue to assume a greater
share of the costs depending on the type of claim and applicable date of
construction. Management believes Dryvit's current EIFS lawsuits will not have a
material adverse effect on the Company's consolidated financial condition,
results of operations or cash flows.

ASBESTOS LITIGATION

As previously reported, certain of the Company's wholly-owned subsidiaries,
principally Bondex International, Inc. (collectively referred to as "the
Subsidiaries"), are defendants in various asbestos-related bodily injury
lawsuits filed in various state courts with the vast majority of current claims
pending in five states - Illinois, Ohio, Mississippi, Texas and Florida. These
cases generally seek unspecified damages for asbestos-related diseases based on
alleged exposures to asbestos-containing products previously manufactured by 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 Subsidiaries are 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
Subsidiaries generally settle 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 a particular case at the time.

As of August 31, 2004, the Company's Subsidiaries had a total of 6,820 active
asbestos cases compared to a total of 2,131 cases as of August 31, 2003. The
vast majority of the increase in cases involved non-malignant claimants. The
Company's Subsidiaries are vigorously defending these non-malignant cases. Based
upon past experience, these non-malignant claims are typically dismissed without
payment. For the quarter ended August 31, 2004, the Company's Subsidiaries
secured dismissals and/or settlements of 181 claims and made total payments of
$19.0 million, which included defense costs. For the comparable period ended
August 31, 2003, dismissals and/or settlements covered 131 claims and total
payments were $17.1 million, which included defense costs. In some
jurisdictions, cases may involve more than one individual claimant. As a result,
settlement or

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dismissal statistics on a per case basis are not necessarily reflective of the
payment amounts on a per claimant basis and will vary widely depending on a
variety of factors including the mix of malignancy and non-malignancy claims and
defense costs involved.

The rate at which plaintiffs filed asbestos-related suits against Bondex has
increased since the fourth quarter of 2002, influenced by the bankruptcy filings
of numerous other defendants in asbestos-related litigation. Based on the
significant increase in asbestos claims activity which, in many cases
disproportionately increased Bondex's exposure in joint and several liability
law states, our third-party insurance was depleted within the first fiscal
quarter of 2004, as previously reported. Our third-party insurers historically
had been responsible, under various cost-sharing arrangements, for the payment
of approximately 90% of the indemnity and defense costs associated with our
asbestos litigation. Prior to this sudden precipitous increase in loss rates,
the combination of book loss reserves and insurance coverage was expected to
adequately cover asbestos liabilities 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 other insurance limits may be available to cover
our asbestos liabilities. As a result of this examination and as previously
disclosed, certain of our Subsidiaries filed a complaint for declaratory
judgment, breach of contract and bad faith against various third party insurers
challenging their assertion that their policies covering asbestos-related claims
have been exhausted. Since the July 3, 2003 filing in Ohio, this action was
combined with a related case and, pursuant to a December 9, 2003 case management
order, the parties are to complete discovery by April 30, 2005. The court order
provides other deadlines for various stages of the case, including dispositive
motions, and the court has established a trial date of March 6, 2006. It is
possible that these dates may be modified as the case progresses. We are unable
at the present time to predict the timing or ultimate outcome of this
litigation. Consequently, we are unable to predict whether, or to what extent,
any additional insurance may be available to cover a portion of our
Subsidiaries' asbestos liabilities. We have not included any potential benefits
from this litigation either in our financial statements or in calculating the
$140.0 million reserve, which was established in the fourth quarter of fiscal
year 2003. Our wholly owned captive insurance companies have not provided any
insurance or re-insurance coverage of any of the Company's Subsidiaries'
asbestos-related claims.

During the last seven months of 2003, new state liability laws were enacted in
three states (Ohio, Mississippi and Texas) where more than 80% of the claims
against Bondex were pending. Effective dates for the last two of the law changes
were April 8, 2003 and July 1, 2003. The changes generally provided for
liability to be determined on a "proportional cause" basis, thereby limiting
Bondex's responsibility to only its share of the alleged asbestos exposure. At
the end of 2003, the ultimate impact of these initial state law changes were
difficult to predict given the limited time following enactment. The full
influence of these initial state law changes on legal settlement values was not
expected to be significantly visible until the latter part of fiscal 2004.
Claims in the three subject states at the quarter ended August 31, 2004, coupled
with Florida, now comprise approximately 80% of aggregate claims. During the
third and fourth quarters of 2004, two of the three previously-mentioned states
that adopted "proportional cause" liability in 2003, passed additional
legislation impacting asbestos liability lawsuits. Among the recent

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changes are enhanced medical criteria and product identification to be presented
by plaintiffs in litigation. Where there has been some changes in the type of
claims filed in certain of these states, the ultimate influence these law
changes may have on future claims activity and settlement values remains
uncertain.

At the end of 2002 and through the third quarter of 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 due to a number of reasons,
including its lack of sufficient comparable loss history from which to assess
either the number or value of future asbestos-related claims. During the fourth
quarter of 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 in various state
laws.

Bondex provided the consultants with all relevant data regarding
asbestos-related claims filed against Bondex through May 31, 2003. Management,
with the consultants' input, 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. Estimating the future cost of these asbestos related contingent
liabilities was and continues to be 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, if any, available to cover such claims, including the outcome of
coverage litigation against the Subsidiaries' third party insurers, (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
outcome of any such trials including judgments or jury verdicts, as a result of
the Company's more aggressive defense posture which includes taking selective
cases to trial, (viii) the lack of specific information in many cases concerning
exposure to the Subsidiaries' products and the claimants' diseases, (ix)
potential changes in applicable federal and/or state law, (x) and the potential
impact of various pending structured settlement transactions concerning other
defendants.

At May 31, 2003, we could not estimate the liability that would result from all
future claims. We established a reserve 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 was and is always difficult
due to the dynamic nature of asbestos litigation. The estimated range of
potential loss covering measurable known asbestos claims and a provision for
future claims that were estimable at May 31, 2003 was $140.0 million to $145.0
million. Accordingly, we established a reserve equal to the lower end of this
range of potential loss by taking an asbestos charge to 2003 operations of
$140.0 million. We believed then and continue to believe that the asbestos
reserve would be sufficient to cover asbestos-related cash flow requirements
over the estimated three-year life of the reserve. The $140.0 million charge
also includes $15.0 million in

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total projected defense costs over the estimated three year life of the reserve.
Additionally, Bondex's share of costs (net of then-available third-party
insurance) for asbestos-related product liability were $6.7 million and $2.8
million for the years ended May 31, 2003 and 2002, respectively.

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 the last eighteen months of state law changes and pending
federal legislation on prospective asbestos claims. Subject to the foregoing
variables, including the timing and impact of such variables, our asbestos
reserves should be sufficient to cover asbestos-related cash flow requirements
through fiscal 2006. It is, however, reasonably possible that our actual costs
for claims could differ from current estimates, but, based upon information
presently available, such future costs are not expected to have a material
effect on our competitive or financial position or our ongoing operations.
However, our existing reserve will not likely be adequate to cover the costs of
future claims beyond the three year period contemplated by the reserve.
Accordingly, it is probable that an additional charge will be required in some
future period as those unforeseeable claims (as of the time the reserve was
established) become measurable. Any such future charge, when taken, could,
therefore, have a material impact on our results in such period.

In conjunction with outside advisors, we will continue to study our
asbestos-related exposure 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. We will continue to explore all feasible
alternatives available to resolve our asbestos-related exposure in a manner
consistent with the best interests of our Stockholders.

ENVIRONMENTAL PROCEEDINGS

As previously reported, several of the Company's subsidiaries are, from time to
time, identified as a "potentially responsible party" under the Comprehensive
Environmental Response, Compensation and Liability Act and similar state
environmental statutes. In some cases, the Company's Subsidiaries are
participating in the cost of certain clean-up efforts or other remedial actions.
The Company's share of such costs, however, has not been material and management
believes that these environmental proceedings will not have a material adverse
effect on the Company's consolidated financial condition or results of
operations. See "Business-Environmental Matters," in the Company's Annual Report
on Form 10-K for the year ended May 31, 2004.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

(a) Recent Sales of Unregistered Securities

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No securities of the Company that were not registered under the Securities Act
of 1933 have been issued or sold by the Company during the period covered by
this Quarterly Report on Form 10-Q other than the following:

On July 14, 2004, the Company issued 39,493 shares of Common Stock to certain of
its officers and other employees pursuant to the RPM International Inc. 1997
Restricted Stock Plan (the "Restricted Stock Plan"). Such shares are restricted
pursuant to the terms of the Restricted Stock Plan. Shares granted under the
Restricted Stock Plan directly reduce and replace the cash amount of
supplemental retirement restoration benefits and supplemental deal restoration
benefits owed to participants under the Benefit Restoration Plan. The Benefit
Restoration Plan was frozen on June 1, 1997. All prior accruals of supplemental
retirement restoration benefits and death restoration benefits under the Benefit
Restoration Plan have been replaced by prior grants of shares under the
Restricted Stock Plan. All current grants of shares are in an amount
equivalent to the accruals of supplemental retirement restoration benefits and
death restoration benefits required under the Benefit Restoration Plan if it
were not frozen. Consequently, no additional consideration was received by the
Company for such issuance. The dollar value of the restricted share awards was
based on the closing price of the Company's Common Stock on April 23, 2004, of
$15.70 per share. Registration under the Securities Act of 1933 was not effected
with respect to the transaction described above in reliance upon the exemption
from the registration contained in Section 4(2) of the Securities Act of 1933.

(b) Not applicable.

(c) The following table shows the Company's purchases of its Common Stock during
the first quarter of fiscal 2005.

ISSUER PURCHASES OF EQUITY SECURITIES

- ---------------------------------------------------------------------------------------------------------
Maximum Number (or
Total Total Number of Shares Approximate Dollar Value)
Number Average Purchased as Part of of Shares that May Yet Be
of Shares Price Paid Publicly Announced Plans Purchased Under the Plans
Period Purchased Per Share or Programs or Programs
- ---------------------------------------------------------------------------------------------------------

June 1-30, 2004 -- -- -- --
- ---------------------------------------------------------------------------------------------------------
July 1-31, 2004 840(1) $14.22 -- --
- ---------------------------------------------------------------------------------------------------------
August 1-31, 2004 -- -- -- --
- ---------------------------------------------------------------------------------------------------------
Total 840 $14.22 -- --
- ---------------------------------------------------------------------------------------------------------

(1) The 840 shares purchased were not part of a publicly announced repurchase
plan or program. These shares were tendered by a retiring director of the
Company in connection with the mandatory sale of such shares to pay the tax
withholding obligations of such director resulting from the lapsing of
restrictions on restricted stock granted pursuant the RPM International Inc.
2003 Restricted Stock Plan for Directors.

ITEM 6 -- EXHIBITS

(A) EXHIBITS

EXHIBIT NO EXHIBIT DESCRIPTION
---------- -------------------

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)

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EXHIBIT NO EXHIBIT DESCRIPTION
---------- -------------------
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.

33

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: OCTOBER 12, 2004