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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED AUGUST 31, 2002, 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
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RPM, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OHIO 34-6550857
- ------------------------------------ ----------------------------------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
P.O. BOX 777; 2628 PEARL ROAD; MEDINA, OHIO 44258
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE (330) 273-5090
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INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS) AND (2) HAS BEEN SUBJECT TO THE FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES X NO .
--- ---
AS OF OCTOBER 7, 2002
114,909,905 RPM INC. COMMON SHARES WERE OUTSTANDING.
RPM, 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 7
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 16
ITEM 4. CONTROLS AND PROCEDURES 16
PART II. OTHER INFORMATION
- --------------------------
ITEM 1. LEGAL PROCEEDINGS 17
ITEM 2. CHANGES IN SECURITIES 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 20
SIGNATURES 22
CERTIFICATION OF CHIEF EXECUTIVE OFFICER 23
CERTIFICATION OF CHIEF FINANCIAL OFFICER 24
3
PART I. -- FINANCIAL INFORMATION
ITEM 1. -- FINANCIAL STATEMENTS
RPM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
ASSETS
August 31, 2002 May 31, 2002
---------------------------- --------------------------
Current Assets
Cash and short-term investments $ 40,247 $ 42,172
Trade accounts receivable (less allowances of
$16,503 and $15,884, respectively) 392,632 397,659
Inventories 254,859 251,446
Prepaid expenses and other current assets 106,325 110,037
---------------------------- --------------------------
Total current assets 794,063 801,314
---------------------------- --------------------------
Property, Plant and Equipment, At Cost 661,600 655,841
Less: accumulated depreciation and amortization (309,882) (300,044)
---------------------------- --------------------------
Property, plant and equipment, net 351,718 355,797
---------------------------- --------------------------
Other Assets
Goodwill 596,250 592,329
Other intangible assets, net of amortization 262,260 264,530
Other 23,116 22,433
---------------------------- --------------------------
Total other assets 881,626 879,292
---------------------------- --------------------------
Total Assets $ 2,027,407 $ 2,036,403
============================ ==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 141,728 $ 160,767
Current portion of long-term debt 6,063 5,876
Accrued compensation and benefits 57,987 80,530
Accrued loss reserves 51,373 51,914
Other accrued liabilities 51,925 58,144
Income taxes payable 16,251 7,483
---------------------------- --------------------------
Total current liabilities 325,327 364,714
---------------------------- --------------------------
Long-Term Liabilities
Long-term debt, less current maturities 710,189 707,921
Other long-term liabilities 51,279 55,458
Deferred income taxes 49,605 50,204
---------------------------- --------------------------
Total long-term liabilities 811,073 813,583
---------------------------- --------------------------
Shareholders' Equity
Common shares, stated value $.015 per share;
authorized 200,000 shares;
outstanding 114,886 shares and
114,696 shares, respectively 1,786 1,786
Paid-in capital 585,737 585,566
Treasury shares, at cost (86,253) (88,364)
Accumulated other comprehensive loss (49,778) (50,485)
Retained earnings 439,515 409,603
---------------------------- --------------------------
Total shareholders' equity 891,007 858,106
---------------------------- --------------------------
Total Liabilities and Shareholders' Equity $ 2,027,407 $ 2,036,403
============================ ==========================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
4
RPM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
THREE MONTHS ENDED
AUGUST 31,
---------------------------------------------------------
2002 2001
----------------------- -----------------------
Net sales $ 542,413 $ 533,275
Cost of sales 283,209 282,601
----------------------- -----------------------
Gross profit 259,204 250,674
Selling, general and administrative expenses 184,107 181,619
Interest expense, net 7,204 13,064
----------------------- -----------------------
Income before income taxes 67,893 55,991
Provision for income taxes 23,720 19,422
----------------------- -----------------------
Net income $ 44,173 $ 36,569
======================= =======================
Average Number of Common
Shares Outstanding:
Basic 114,765 102,211
======================= =======================
Diluted 115,760 102,237
======================= =======================
Basic and diluted earnings per common share $ 0.38 $ 0.36
======================= =======================
Cash dividends per common share $ 0.1250 $ 0.1250
======================= =======================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
5
RPM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Three Months Ended August 31,
---------------------------------------------------
2002 2001
----------------------- -----------------------
Cash Flows From Operating Activities:
Net income $ 44,173 $ 36,569
Depreciation and amortization 14,083 14,549
Items not affecting cash and other (3,055) (4,727)
Changes in operating working capital (33,195) 6,629
----------------------- -----------------------
22,006 53,020
----------------------- -----------------------
Cash Flows From Investing Activities:
Capital expenditures (5,252) (6,998)
Acquisition of new businesses, net of cash acquired (7,595)
----------------------- -----------------------
(12,847) (6,998)
----------------------- -----------------------
Cash Flows From Financing Activities:
Increase (decrease) in debt 2,456 (20,885)
Cash dividends (14,261) (12,716)
Exercise of stock options 721 14
----------------------- -----------------------
(11,084) (33,587)
----------------------- -----------------------
Net (Decrease) Increase in Cash and Short Term Investments (1,925) 12,435
Cash and Short Term Investments at Beginning of Period 42,172 23,926
----------------------- -----------------------
Cash and Short Term Investments at End of Period $ 40,247 $ 36,361
======================= =======================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
6
RPM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 31, 2002
(Unaudited)
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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,
2002 and 2001. For further information, refer to the consolidated financial
statements and notes included in the Company's Annual Report on Form 10-K for
the year ended May 31, 2002.
Certain reclassifications have been made to prior year amounts to conform to the
current year presentation.
NOTE B - INVENTORIES
Inventories were composed of the following major classes:
AUGUST 31, 2002 MAY 31, 2002
--------------- ------------
(IN THOUSANDS)
Raw materials and supplies $ 94,439 $75,080
Finished goods 160,420 176,366
-------------- --------------
$254,859 $251,446
============== ==============
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 $44,880,000 and $42,717,000 during the first
quarter of fiscal years 2002 and 2001, respectively.
NOTE D - SUBSEQUENT EVENT
At the annual shareholders meeting on October 11, 2002, RPM shareholders
approved a plan to change RPM's legal place of incorporation from Ohio to
Delaware. Under the plan, a new legal entity, RPM International Inc., was
incorporated in Delaware and will become the parent holding company of
Ohio-based RPM, Inc. and several other intermediate holding companies and wholly
owned subsidiaries. In addition to the creation of a newly formed Delaware legal
entity, the legal structure of various operating companies will be realigned in
consistency with their respective business objectives. Shareholders of RPM, Inc.
will hold the same number of shares of common stock of RPM International Inc.
upon completion of the reincorporation.
7
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
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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, Inc. and its
majority-owned subsidiaries. Preparation of our financial statements requires
the use of estimates and assumptions that affect the reported amounts of our
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. We continually
evaluate these estimates, including those related to allowances for doubtful
accounts, inventories, allowances for recoverable taxes, useful lives of
property, plant and equipment, goodwill, environmental and other contingent
liabilities, income tax valuation allowances, pension plans and the fair value
of financial instruments. We base our estimates on historical experience and
other assumptions, which we believe to be reasonable under the circumstances.
These estimates form the basis for making judgments about the carrying value of
our assets and liabilities. Actual results may differ from these estimates under
different assumptions and conditions.
We have identified below the accounting policies that are critical to our
financial statements.
REVENUE RECOGNITION
Revenues are recognized when title and risk of loss passes to customers. The
Securities and Exchange Commission's Staff Accounting Bulletin (SAB) No. 101,
"Revenue Recognition," provides guidance on the application of Generally
Accepted Accounting Principles (GAAP) in the U.S. to selected revenue
recognition issues. We have concluded that our revenue recognition policy is
appropriate and in accordance with GAAP and SAB No. 101.
TRANSLATION OF FOREIGN CURRENCY FINANCIAL STATEMENTS AND FOREIGN CURRENCY
TRANSACTIONS
Our reporting currency is the U.S. dollar. However, the functional currency of
all of our foreign subsidiaries is their local currency. We translate the
amounts included in our consolidated statements of income from our foreign
subsidiaries into U.S. dollars at year-to-date average exchange rates, which we
believe are fairly representative of the actual exchange rates on the dates of
the transactions. Our foreign subsidiaries' assets and liabilities are
translated into U.S. dollars from local currency at the actual exchange rates as
of the end of each reporting date, and we record the resulting foreign exchange
translation adjustments in our consolidated balance sheets as a component of
accumulated other comprehensive income (loss). If we determine that the
functional currency of any of our foreign subsidiaries should be the U.S.
dollar, our financial statements would be affected. Should this occur, we would
adjust our reporting to appropriately account for such change(s).
8
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
- --------------------------------------------------------------------------------
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 other comprehensive income (loss). If we were to determine
that the functional currency of any of our subsidiaries should be the U.S.
dollar, we would no longer record foreign exchange gains or losses on such
intercompany loans.
GOODWILL
We adopted two new accounting standards issued by the Financial Accounting
Standards Board in June 2001. Statement of Financial Accounting Standards, or
SFAS, No. 141, "Business Combinations," eliminates the pooling method of
accounting for all business combinations initiated after June 30, 2001, and
addresses the initial recognition and measurement of goodwill and intangible
assets acquired in a business combination. Accordingly, we apply the provisions
of SFAS No. 141 to all business combinations initiated after its effective date.
We also adopted SFAS No. 142, "Goodwill and Other Intangible Assets," effective
June 1, 2001. Goodwill amortization ceased upon adoption of the standard, and
the required initial impairment tests were performed. Results of these
impairment tests have not generated any impairment loss to date.
Prospectively, goodwill will be tested on an annual basis, or more frequently as
impairment indicators arise. Impairment tests, which involve the use of
estimates related to the fair market values of the business operations with
which goodwill is associated, are performed at the end of our first quarter.
Losses, if any, resulting from impairment tests will be reflected in operating
income in our income statement.
OTHER LONG-LIVED ASSETS
We assess for impairment of identifiable non-goodwill intangibles and other
long-lived assets whenever events or changes in facts and circumstances indicate
the possibility that the carrying value may not be recoverable. Factors
considered important which might trigger an impairment evaluation, include the
following:
- significant under-performance relative to historical or projected
future operating results;
- significant changes in the manner of our use of the acquired assets or
the strategy for our overall business; and
- significant negative industry or economic trends.
When we determine that the carrying value of non-goodwill intangibles and other
long-lived assets may not be recoverable based upon the existence of one or more
of the above described indicators, any impairment would be measured based on
projected net cash flows expected from the asset(s), including eventual
disposition.
9
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
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CONTINGENCIES
We are party to claims and lawsuits arising in the normal course of business.
Although we cannot precisely predict the amount of any liability that may
ultimately arise with respect to any of these matters, we record provisions when
we consider the liability probable and reasonably estimable. The provisions are
based on historical experience and legal advice, are reviewed quarterly and are
adjusted according to developments. Changes in the amount of the provisions
affect our consolidated statements of income. Due to the inherent uncertainties
in the loss reserve estimation process, actual results may differ.
Our environmental-related accruals are similarly established and/or adjusted as
information becomes available upon which costs can be reasonably estimated. Here
again, actual costs may vary from these estimates because of the inherent
uncertainties involved, including the identification of new sites and the
development of new information about contamination. Certain sites are still
being investigated and therefore we have been unable to fully evaluate the
ultimate cost for those sites. As a result, reserves have not been taken for
certain of these sites and costs may ultimately exceed existing reserves for
other sites. We have received indemnities for potential environmental issues
from purchasers of certain of our properties and businesses and from sellers of
properties or businesses we have acquired. We have also purchased insurance to
cover potential environmental liabilities at certain sites. If the indemnifying
or insuring party fails to, or becomes unable to, fulfill its obligations under
those agreements or policies, we may incur additional environmental costs in
addition to any amounts reserved, which could have a material adverse effect on
our financial condition, results of operations or cash flows.
10
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
- --------------------------------------------------------------------------------
REPORTABLE SEGMENT INFORMATION
The Company has determined that it has two operating segments -- Industrial and
Consumer -- based on the nature of business activities, products and services;
the structure of management; and the structure of information as presented to
the Board of Directors. Within each segment, individual operating companies or
groups of companies generally address common markets, utilize similar
technologies, and can share manufacturing or distribution capabilities. The
Company evaluates the profit performance of its two operating segments based on
earnings before interest and taxes since interest expense is essentially related
to corporate acquisitions, as opposed to segment operations. In addition to the
two operating segments, there are certain business activities, referred to as
corporate/other, that do not constitute an operating segment, including
corporate headquarters and related administrative expenses, results of our
captive insurance company, gains or losses on the sales of certain assets and
other expenses not directly associated with either operating segment. Related
assets consist primarily of investments, prepaid expenses, deferred pension
assets, and headquarters property and equipment. Comparative first quarter
results on this basis are as follows:
QUARTER ENDED AUGUST 31,
---------------------------------------
(In thousands) 2002 2001
--------------------- ---------------
Net External Sales
Industrial Segment $ 292,245 $ 289,168
Consumer Segment 250,168 244,107
--------------------- ---------------
TOTAL $ 542,413 $ 533,275
===================== ===============
Earnings Before Interest and Taxes (EBIT)(a)
Industrial Segment $ 45,037 $ 42,178
Consumer Segment 39,549 33,980
Corporate/Other (9,489) (7,103)
--------------------- ---------------
TOTAL $ 75,097 $ 69,055
===================== ===============
Identifiable Assets AUGUST 31, 2002 MAY 31, 2002
--------------------- ---------------
Industrial Segment $ 984,716 $ 962,742
Consumer Segment 982,810 1,000,928
Corporate/Other 59,881 72,733
--------------------- ---------------
TOTAL $ 2,027,407 $ 2,036,403
===================== ===============
(a) EBIT is defined as earnings before interest and taxes. EBIT is presented
because it is a widely accepted financial indicator used by certain investors
and analysts to analyze and compare companies on the basis of operating
performance. 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
Generally Accepted Accounting Principles in the U.S., 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
historical operating results nor is it meant to be predictive of potential
future results.
- --------------------------------------------------------------------------------
11
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
- --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Net Sales
Fiscal 2003 first quarter net sales of $542.4 million increased $9.1 million, or
1.7 percent, over last year's first quarter results. This growth is primarily
the result of higher unit volume as pricing adjustments have been negligible.
Sales from several minor product line acquisitions midway through the quarter
were offset by slightly negative year over year foreign exchange differences.
Although foreign exchange differences were minimal overall during the quarter,
the U.S. dollar was weaker against the euro, but stronger against Latin American
and Canadian currencies.
Industrial segment sales grew by 1.1 percent to $292.2 million. This growth in
industrial volume comes after several quarters of flat to declining sales, and
represents a sequential improvement from fourth quarter to first quarter, in
contrast to a sequential decline last year. As reported during the preceding
four quarters, a number of higher cost maintenance and replacement projects have
been delayed during the last 12-18 months, creating pent-up demand for those
maintenance products and services, some of which came through in this first
quarter to help generate the sales increase. Consumer net sales grew 2.5 percent
to $250.2 million during this first quarter, representing continuing solid,
although somewhat slower growth compared to last year's first quarter growth
rate. We continue to anticipate modest growth in industrial volume and solid
sales from our consumer segment throughout the 2003 fiscal year.
Gross Profit Margin
The gross profit margin improved this first quarter to 47.8 percent of sales
from 47.0 percent a year ago. By segment, industrial gross margin held steady at
48.4 percent both years, with the benefits from higher volume and some lower raw
material costs being offset by the effects of lower pricing affecting certain
more competitive product lines within this segment. Consumer gross margin
improved to 47.0 percent from 45.4 percent last year, reflecting positive cost
leverage from the higher sales volume, a number of favorable raw material costs,
and restructuring-related savings from the last plant closure under that fiscal
year end 2000 and 2001 program. Additionally, manufacturing efficiencies from
expanded Class A manufacturing initiatives are being realized.
Selling, General and Administrative Expenses (SG&A)
SG&A expense levels also improved to 33.9 percent of sales from 34.1 percent
during the first quarter last year. By segment, industrial SG&A of 33.0 percent
compares favorably against 33.8 percent the prior year. This improvement
reflects the beginning of benefits from selected cost structure reduction
efforts made during fiscal 2002, and continued cost-containment efforts
throughout the segment. Consumer SG&A of 31.2 percent this year also compares
favorably against 31.5 percent a year ago, as a result of the higher sales
volume and continued cost-containment efforts throughout this segment as well.
Corporate/Other costs also fall within the SG&A category and amounted to $9.5
million this year compared with $7.1 million during the first quarter of last
year. This change reflects increased product liability costs of $1.3 million
and a change in export sales incentive tax legislation that went into effect
this fiscal year. This latter change caused $1 million of the increase in
corporate/other costs this quarter, offset by $0.5 million reductions of
expense in both the industrial and consumer operating segments; consolidated
SG&A is not effected by the tax law change. This approximate difference will
continue each quarter through this fiscal year, as a result of the change in
tax legislation. License fee and joint venture income of $0.3 million during
each of the first quarters of fiscal 2003 and 2002 are reflected as credits to
SG&A expenses.
12
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
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Earnings Before Interest and Taxes (EBIT)
We believe that EBIT best reflects the performance of our operating segments as
interest expense and income taxes are not consistently allocated to operating
segments by the various constituencies utilizing our financial statements.
Requests for operating performance measures received from research analysts,
financial institutions and rating agencies typically focus on EBIT, and we
believe EBIT disclosure is responsive to investors. EBIT increased $6.0 million,
or 8.8 percent, to $75.1 million during the first quarter of fiscal 2003. EBIT
improved in both operating segments, with industrial EBIT of $45.0 million, or
15.4 percent of sales, improving by 6.8 percent on a 1.1 percent growth in
sales, compared to the prior year first quarter EBIT of $42.2 million, or 14.6
percent of sales. Consumer EBIT of $39.5 million, or 15.8 percent of sales,
improved from $34.0 million, or 13.9 percent of sales a year ago, a 16.4 percent
improvement on a 2.5 percent growth in sales. Generally, these EBIT improvements
reflect the combination of the higher sales volume, certain lower raw material
costs and continued cost-containment efforts throughout both operating segments.
Net Interest Expense
Net interest expense was $5.9 million lower than a year ago as a result of a
combination of lower interest rates on the variable debt portion of total debt,
and much lower debt levels year over year. Approximately 70 percent of debt is
based upon variable interest rates. The average effective interest rate during
this first quarter was 4 percent compared with 5.3 percent a year ago, and debt
levels averaged $249.3 million lower this year than during last year's first
quarter, accounting for approximately $3.4 million of the interest savings this
year.
Income Tax Rate
The effective income tax rate this year of 34.9 percent compares with 34.7
percent a year ago. The effective income tax rate will tend to increase as our
earnings grow and the one-time static benefit from the June 1, 2002 adoption of
Statement of Financial Accounting Standards No. 142, related to the elimination
of non-tax deductible goodwill amortization, becomes less and less significant.
Net Income
This year's first quarter net income of $44.2 million and diluted earnings per
common share of $0.38 increased 21 percent and 6 percent, respectively, from
last year's first quarter result.
During March 2002, we sold 11.5 million common shares (see Financing Activities
below) through a follow-on public equity offering, and this transaction had a
dilutive effect of $.04 per share on this year's first quarter earnings. For all
of fiscal 2003, this transaction is expected to have a dilutive effect on
earnings of approximately $.07 per share, based on fiscal 2002 average interest
rates.
13
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
- --------------------------------------------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From:
Operating Activities
There was $22.0 million of cash generated from operations this first quarter
compared with $53.0 million a year ago. This difference resides in the changes
in working capitals. At May 31, 2001, as we completed our restructuring program,
there was an inefficient build-up in accounts receivable and inventory, which we
worked down during the first quarter a year ago, generating an abnormally high
amount of cash from operations. This year, we are back to a more normal
relationship pattern in working capitals relative to sales growth. Additionally,
there was a higher payout of accrued incentives during this first quarter, as
the fiscal year 2002 performance significantly surpassed that of the year ended
May 31, 2001.
Cash provided from operations remains our primary source of financing internal
growth, with limited use of short-term credit.
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 2003 of $5.3 million compare with
depreciation of $11.0 million, well within the maintenance level of spending. We
are not capital intensive and capital expenditures generally do not exceed
depreciation in a given year. Capital spending is expected to hold at
approximately the maintenance level of between $40 and $50 million per year for
the next several years, as many larger spending needs have been accomplished in
recent years, such as to accommodate the restructuring program and to upgrade
several major information technology platforms. We believe there is adequate
production capacity to meet our needs for the next several years at normal
growth rates.
During the first quarter of fiscal 2003, there were investments totaling $7.6
million for several minor product line and minority interest acquisitions.
14
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
- --------------------------------------------------------------------------------
Financing Activities
During the first quarter of fiscal 2002, our $200 million dollar revolving
credit facility was refinanced with a one-year term loan due July 12, 2002.
During March 2002, we sold 11.5 million common shares through a follow-on public
offering at $14.25 per share, closing on April 2, 2002. The entire proceeds of
the offering, $156 million, were used to permanently pay down the outstanding
balance under this $200 million term loan facility, which was then retired.
On November 27, 2001, we issued and sold $30 million aggregate principal amount
of 7.3 percent senior unsecured notes due 2008, $10 million aggregate principal
amount of 6.61 percent senior unsecured notes due 2006, and $15 million
aggregate principal amount of 6.12 percent senior unsecured notes due 2004 to
various insurance companies. The proceeds from these notes were used to reduce
the outstanding balance under the $500 million revolving credit agreement.
On June 6, 2002, we entered into a securitization transaction with several banks
for certain of our subsidiaries, providing for a wholly owned special purpose
entity (SPE) to receive investments of up to $125 million. This securitization
is being accomplished by having certain subsidiaries sell various of their
accounts receivable to the SPE, and by having the SPE then transfer those
receivables to a conduit administered by the banks. This securitization
transaction will not constitute a form of off-balance sheet financing, but will
be fully reflected in our financial statements. This transaction increases our
liquidity and reduces our financing costs by replacing up to $125 million of
existing borrowings at lower interest rates. As of August 31, 2002, $95 million
was securitized under this agreement, which was used to reduce the outstanding
balance of the $500 million revolver to $295 million, leaving $205 million of
liquidity then available under that facility.
Our debt-to-capital ratio remained at 45 percent at August 31, 2002, comparing
with year-end May 31, 2002.
15
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
- --------------------------------------------------------------------------------
The following summarizes our financial obligations and their expected maturities
at August 31, 2002, and the effect such obligations are expected to have on our
liquidity and cash flow in the periods indicated:
Less than After
Total 1 Year 1-3 Years 3 Years
----- ------ --------- -------
($ in millions)
Current portion of long-term debt $ 6.1 $ 6.1 $ - $ -
Long-term debt 710.2 - 570.0 140.2
Non-cancelable operating lease obligations(1) 62.2 16.4 19.3 26.5
-------- ------ ------- -------
$ 778.5 $ 22.5 $ 589.3 $ 166.7
======== ====== ======= =======
(1) We calculate non-cancelable operating lease obligations on an annual basis
and consequently such information is not available at August 31, 2002.
Therefore, the amounts shown above are for the fiscal year end May 31, 2002.
The strength of the U.S. dollar has fluctuated among various foreign currencies,
as mentioned above, with the net effect causing foreign net assets to slightly
increase shareholder's equity compared to this past year end, May 31, 2002. This
trend could continue if the dollar continues to weaken against, principally, the
Canadian dollar or the euro.
We maintain excellent relations with our banks and other financial institutions
to provide continual access to financing for future growth opportunities.
OFF-BALANCE SHEET FINANCINGS
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 or financial
condition. Our critical accounting policies and estimates set forth above
describe our method of establishing and adjusting environmental-related accruals
and should be read in conjunction with this disclosure. (Additionally refer to
Note H to the Consolidated Financial Statements contained in our Annual Report
on Form 10-K for the year ended May 31, 2002).
16
RPM, INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTH PERIOD ENDED AUGUST 31, 2002
- --------------------------------------------------------------------------------
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 insurance and reserves
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
associated with the Company's ongoing acquisition and divestiture activities;
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 recently filed Registration Statement on Form S-3 (File No.
333-77028), as the same may be amended from time to time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates since it funds its operations through long- and short-term
borrowings and denominates its business transactions in a variety of foreign
currencies. There were no material changes in the Company's exposure to market
risk from May 31, 2002.
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-14) as of a date within 90 days
prior to the filing date of this quarterly report (the "Evaluation Date"), have
concluded that as of the Evaluation Date, the Company's disclosure controls and
procedures were effective in ensuring that information required to be disclosed
by the Company in the reports it files or submits under the Exchange Act is
recorded, processed, summarized and reported, within the time periods specified
in the Commission's rules and forms.
(b) Changes in internal controls.
-----------------------------
There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to
the Evaluation Date.
17
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 1. LEGAL PROCEEDINGS
- -------------------------
EIFS LITIGATION
As previously reported, Dryvit is a defendant or co-defendant in numerous
exterior insulated finish systems ("EIFS") related lawsuits. As of August 31,
2002, Dryvit was a defendant or co-defendant in approximately 750 single family
residential EIFS cases, the vast majority of which are pending in North
Carolina, South Carolina and Alabama. Dryvit is also defending EIFS lawsuits
involving office buildings and other commercial structures. The vast majority of
Dryvit's EIFS lawsuits seek monetary relief for water intrusion related property
damages, although some claims also stem from alleged personal injuries from
exposure to mold.
As previously reported, Dryvit settled the North Carolina class action styled
Ruff, et al. v. Parex, Inc., et al. ("Ruff"). As of August 31, 2002,
approximately 628 claims had been submitted to the Ruff claims administrator for
verification and validation since the January 17, 2000 notice to the class. Of
these 628 claims, 126 claims were rejected and 303 claims were paid in the
amount of $4,922,508 pursuant to funding arrangements with Dryvit's insurers.
The remaining claims are at various stages of investigation, review and
validation by the Ruff claims administrator.
As previously reported, Dryvit is a defendant in an attempted state class action
filed 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). The Posey case is an attempted state-wide class
action which seeks various types of damages on behalf of all similarly situated
persons who paid for the purchase of a Dryvit-EIFS-clad structure in the State
of Tennessee during the period beginning November 14, 1990 to the date of the
complaint. As described below, the Posey case is now the subject of a proposed
nationwide class action settlement.
As previously reported, a preliminary approval order was entered in the Posey
case for a nationwide class action settlement of a substantial portion of
Dryvit's residential EIFS litigation. The proposed settlement class covers all
persons in any state (other than North Carolina) who own a one- or two-family
residential dwelling or townhouse clad with Dryvit EIFS installed after January
1, 1989. Nationwide notice to all eligible class members began on or about June
13, 2002. A fairness hearing was held on October 1, 2002, to seek final court
approval of the proposed settlement. The matter is currently under review by the
court with a final decision expected in several months. If the court grants
final approval of the settlement and there are no appeals, the settlement will
result in the dismissal of all other pending attempted state class actions
including cases filed in Madison County, Illinois styled Osborne, et al. v.
Dryvit Systems, Inc. (Case No. 00L000395) and in Mobile County, Alabama styled
Tony Bryan, et al. v. Dryvit Systems, Inc. (Case No. CV-01-00761 JSJ).
Certain of Dryvit's insurers have paid or are currently paying a portion of
Dryvit's defense costs in the class actions, and individual commercial building
and homeowner lawsuits. Dryvit, the Company's wholly-owned captive insurer First
Colonial Insurance Company and certain of Dryvit's umbrella insurers have
entered into cost-sharing agreements to cover both the individual and class
action cases, which have been subject to periodic renegotiations. Under these
cost-
18
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
sharing agreements, Dryvit's insurers have covered a substantial portion of
Dryvit's indemnity and defense costs. Dryvit is currently in discussions with
these insurers to secure funding for the proposed national class action
settlement. Based on consultation with its legal counsel, management believes
that the ultimate costs of the proposed national settlement will be
substantially covered by such insurers and that the proposed settlement 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, the Company and certain of its wholly-owned
subsidiaries, principally Bondex International, Inc. (collectively referred to
as "the Company"), are defendants in various asbestos-related bodily injury
lawsuits. These cases generally seek damages for asbestos-related diseases based
on alleged exposures to asbestos-containing products previously manufactured by
the Company.
The Company continues to vigorously defend all asbestos-related lawsuits. In
many cases, the claimants are unable to demonstrate that any injuries they have
incurred, in fact, resulted from exposure to one of the Company's products. In
such cases, the Company is generally dismissed without payment. With respect to
those cases where compensable disease, exposure and causation are established
with respect to one of the Company's products, the Company generally settles for
amounts that reflect the confirmed disease, the seriousness of the case, the
particular jurisdiction and the number and solvency of other parties in the
case.
As of August 31, 2002, Defendants had a total of 2,154 active asbestos cases
compared to 1,451 as of August 31, 2001. For the quarter ended August 31, 2002,
Defendants secured dismissals and/or settlements of 132 cases, the total cost of
which collectively to Defendants, net of insurer payments and excluding defense
costs, amounted to $1,566,766, which compared to dismissals and/or settlements
of 74 cases and $394,312 for the same quarter ended August 31, 2001. This
increase in the number of claims filed is due, in part, to the bankruptcy
filings of various other asbestos litigation defendants.
The Company's third party insurers have historically been responsible, under a
cost sharing agreement, for the payment of approximately 90% of the indemnity
and defense costs associated with the Company's asbestos litigation. The Company
expects that its insurers will continue to cover a substantial portion of these
costs associated with its asbestos litigation at least into the 2004 fiscal
year. For the estimated costs associated with asbestos litigation which are not
covered by insurance, the Company has established a financial reserve in an
amount which it deems to be adequate.
Based on the Company's existing insurance arrangements and the financial reserve
mentioned above, at the present time management does not believe that the
Company's current asbestos litigation will have a material adverse effect on the
Company's consolidated financial condition or results of operations. However,
the potential cost of liabilities associated with asbestos claims is subject to
many uncertainties, including (i) the ultimate number of claims filed against
the
19
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Company, (ii) the cost of resolving current and future claims, (iii) the amount
of insurance available to cover such claims, (iv) future earnings and cash flow
of the Company, (v) the impact of bankruptcies of other companies whose share of
liability may be imposed on the Company under certain state liability laws, (vi)
the unpredictable aspects of the litigation process, and (vii) potential
legislative changes. Accordingly, management cannot be certain that the future
costs of the Company's asbestos litigation will not have a material adverse
effect on the Company's future business, consolidated financial condition,
results of operations or cash flows.
ENVIRONMENTAL PROCEEDINGS
As previously reported, various 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 statues. 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, 2002.
ITEM 2. CHANGES IN SECURITIES
- -----------------------------
(c) Recent Sales of Unregistered Securities.
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:
(i) Effective as of July 17, 2002, the Company issued 114,906
Common Shares to certain of its officers and other employees
pursuant to the RPM, Inc. 1997 Restricted Stock Plan (the
"Restricted Stock Plan"). Such shares are restricted pursuant
to the terms of the Restricted Stock Plan. The issuance of
such shares was made to individuals who were participants in
the RPM, Inc. Benefit Restoration Plan and such awards were
designed to replace cash benefit payments being canceled under
the RPM, Inc. Benefit Restoration Plan. 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 Shares on
July 17, 2002 (the effective date of the grant), of $13.59 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.
20
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ----------------------------------------
(a) Exhibits
--------
Official Exhibit Number Description
----------------------- ------------
10.1 Receivables Sale Agreement among certain
subsidiaries of the Company, the Company and
RPM Funding Corporation, dated June 6, 2002
10.2 Receivables Purchase Agreement among certain
subsidiaries of the Company, RPM Funding
Corporation and Bank One and Wachovia Bank,
NA, as co-agents and administrative agent
dated June 6, 2002
10.3 Performance Undertaking related to the Bank
One, NA Receivables Sale Agreement and
Receivables Purchase Agreement, dated June
6, 2002
10.4 Assignment, Assumption and Amendment
Agreement, dated as of August 23, 2002,
between the Company, RPM International Inc.
and the holders of Notes under the Private
Placement Note Purchase Agreement, dated as
of November 15, 2001, as the same may be
amended or supplemented from time to time,
between the Company and certain
institutional investors named therein
10.5 Amendment No. 2 to Credit Agreement, dated
as of July 12, 2002, by and among the
Company, the Lender parties thereto and
JPMorgan Chase Bank, as administrative agent
10.6 Second Supplemental Indenture, dated as of
August 26, 2002, by and among the Company,
RPM International Inc. and Bank One, N.A.
(f/k/a The First National Bank of Chicago)
as Trustee, relating to the Indenture, dated
as of June 1, 1995, by and between the
Company and the Trustee
10.7 Amendment No. 1 to RPM, Inc. 401(k) Trust
and Plan, dated as of August 27, 2002
10.8 Amendment No. 1 to RPM, Inc. Union 401(k)
Retirement Savings Trust and Plan, dated as
of August 27, 2002
11.1 Statement regarding computation of per share
earnings
21
RPM, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
(b) Reports on Form 8-K
-------------------
The Company filed the following current reports on Form 8-K
during the three month period ended August 31, 2002:
(i) Current Report on Form 8-K, dated August 29, 2002, in
connection with the filing of sworn statements of its
Principal Executive Officer and Principal Financial Officer,
pursuant to Section 21(a)(1) of the Securities Exchange Act of
1934, as amended; and
(ii) Current Report on Form 8-K, dated August 30, 2002, to
file a news release issued with respect to the Company's
announcement that it will seek shareholder approval of a plan
to reincorporate in Delaware.
22
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, INC.
BY /s/ Frank C. Sullivan
---------------------------------
FRANK C. SULLIVAN
PRESIDENT & CHIEF EXECUTIVE OFFICER
BY /s/ Robert L. Matejka
---------------------------------
ROBERT L. MATEJKA
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER AND CONTROLLER
DATED: OCTOBER 11, 2002
23
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
I, Frank C. Sullivan, President and Chief Executive Officer of RPM, Inc.,
certify that:
1. I have reviewed this quarterly report on Form 10-Q of RPM, Inc. (the
"registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Frank C. Sullivan
Frank C. Sullivan
President and Chief Executive Officer
October 11, 2002
24
CERTIFICATION OF CHIEF FINANCIAL OFFICER
I, Robert L. Matejka, Vice President, Chief Financial Officer and Controller of
RPM, Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of RPM, Inc. (the
"registrant");
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
/s/ Robert L. Matejka
Robert L. Matejka
Vice President, Chief Financial Officer and Controller
October 11, 2002