RPM International Inc (RPM) 2002 Q4 法說會逐字稿

Please stand by we're ready to begin. good day and welcome to RPM conference call, today's call is being recorded. this call is also being Webcast live and can be accessed through the RPM website at www.rpminc.com. a taped telephone replay will be available two hours after this call concludes until 8.00pm Eastern standard time on Monday July 29th and can be accessed by dialing 719-457-0820 and entering confirmation code 698-717. a Webcast replay and written transcript will be also available through our website. the written transcript will be made available 36 hours after the call concludes.

comments made on this call may include forward looking statements based on current expectations that involve risks and uncertainties that could cause results of RPM to differ materially from managements current expectations. for more information regarding these risks please review the factors listed in the discussions contained in RPM's securities and exchange commissions filings including, but not limited to the annual report on file 10K for the year ended May 31st 2001 and a quarterly report on file 10Q for the quarter ended February 28th 2002.

the information in this conference call related to projections or either forward looking statements maybe relied upon, subject to the previous Safe Harbor statements and continue to be used while this call remains on the active portion of the RPM web site at this time I would like to turn the call over to the RPM's Chairman and Chief Executive Thomas Sullivan for opening remarks, please go ahead sir.

thank you and welcome to all of you to RPM conference call covering fiscal year ending May 31 2002 and the fourth quarter for the same period. With me today are Glenn Hasman Vice President of Finances and Communications, Robert Matejka our CFO, Frank Sullivan our President and Chief Operating Officer and James Karman our Vice Chairman.

Glenn Hasman will give you the details of our fiscal year and of the fourth quarter and that will be followed by general comments by myself and James Karman and then will be turned over to Frank Sullivan to answer you questions.

At this time I will call on Glenn Hasman, Glenn.

Thank you I will first cover the full fiscal year result.

this year $1.986 billion or slightly behind last years by one percent or $21.6 million. It was a year ago in March that we invested in commercial unit of depth which had sales of $26.3 million during that year, if you factor our those sales plus the negative effects from foreign exchange differences year over year of about $14 million principal against the Canadian dollar, year over year would have shown a one percent increase.

By segment industrial sales of $1.054 billion where three point seven percent lower year over year and that includes foreign exchange. The industrial economy has being week thought the year including obviously the electronics industry which has caused a number of our customers to push off higher cost maintains or rehab projects such as flooring. That amounts to demand verses any loss of business or market share and we feel this business will certainly be coming back at some point. And that is higher that average margin business, so when that business returns our earning will benefit.

Consumer sales where $932.5 million that was six point two percent ahead year over year at a comparable bases there where through the year and was especially for our gap we product. Gross profit the margin has well improved 45.9 percent this year from 45.1 percent during fiscal 01. By segment industrial margins year over year where slightly off they where 46.9 percent from last year 47.4 percent. That was mainly the volume effect, as sales decline especially in our flooring products was to great to over come the verses the cost base. We did have a number of favorable material costs in this segment, plus some structural saving but there where also some lower margins sales in the mix this year.

Consumer segment margins year over year where ahead 230 bases points, up to 44.8 percent this year from 42 and a half last year, that is mainly restructuring savings about $21 million plus some positive buying effects in a number of raw material costs in this segment as well.

Moving to FG&A our expense here where improved to 36.1 percent of sales this year from 36.8 percent last year. Ad we have being mentioning all year we adopted sales one 42 good will and other assets. On June 1 the beginning of our fiscal year and that is reflected in our SG&A. On a performer bases last years SG&A was under one 42 which would have been $ 25.1 million would have been 35.6 percent of sales. By segment industrial SG&A was at 36.8 percent this year, that compares with 36.3 percent last year and under 142 last year's number would have been 35.2 percent. Again, the lower sales volume, particularly in flooring, which was off at $44 million cost a good bit of that difference. We had some increased distribution costs as well. We've mentioned in our third quarter of the Argentinean peso devaluation, which had about a $2.1 million effect. All of these were probably offset by, what we feel, are very solid cost containment efforts throughout this segment. Our consumer SG&A, we had 32.1 percent this year, that compares to 35.6 percent last year. On a 142 basis, consumer SG&A would have been 134.1 percent last year. The benefit here was higher sales volumes, especially with Rust-Oleum, DAP and Zinsser and the solid cost containment of this throughout this segment, even some reduced freight out costs. Corporate amounted to $30.7 million of expense this year; that compares with $18 million last year. There are a number of increased legal and professional fees, some of which includes some of the divestiture efforts that we've talked about and later decided to cancel. There were some increased product liability costs, which includes the asbestos issues and so forth and the balance with the increase were increased benefit costs from certain other higher costs this year. our interest, our earnings before interest and taxes we earned $194.6 million this year. That compares with $166.7 million last year, that's up almost $28 million, last year would have been $191.8 million at a 142 basis, this year still would have been up $2.8 million. That's what, up one and a half percent on a comparable basis and again that one percent decrease in sales.

By segment the industrial was $107 million this year, comparing with 122 last year; that's down 15 million and last year's would have been in the industrial $133.9 million and the industrial segment would have been down 26.9 million on that basis. Consumer was $118.2 this year by comparison 62.7 last year, up $55.6 million, last years would have been $75.9 million on a 142 basis, still putting just this segment ahead $42.4 million. We've talked about corporate other already. Moving to interest expense, net, that was down $24.7 million year over year. Lower interest rates, which we've talked about, we are keeping in mind we had about 75 to 80 percent on average variable debt throughout the year. The lower interest rates amounted to $2.3 million in savings. Our average rates this year overall, were about 4.5 percent, that compares with 6.9 percent on average from the previous year. We have lower debt levels this year averaging above $63 million lower throughout the year, that saved us $4.4 million in interest costs. The tax rate this year, 34.1 percent, that compares with last years 38 percent, and as we've mentioned, all through this year that is 142 related as the goodwill amortization was previously non-tax deductible. Our net earnings were up $38.6 million, 61 percent, that includes the possible of 142 and a margin in sales up 200 basis points to 5.1 percent from last years 3.1 percent. Deluded earnings per share 97 cents that's up 35 cents, 56 percent. On a pro former basis lest year's earnings per share would have been 83 cents under 142 putting this year's 97 cents still ahead by 14 cents or 17 percent.

Now I'll move to the fourth quarter results, this year's fourth quarter sales were $557.4 million that was ahead of last year by $9.9 million or 1.8 percent. Again if you exclude that divestiture, which sold to $2.7 million during the fourth quarter a year ago, and add that to foreign exchange effects, which was about another $2.4 million comparable sales would have shown a 2.7 percent increase quarter over quarter. By segment industrial sales amounted to $282.1 million, 2.4 percent lower quarter over quarter excluding foreign exchange but sequentially versus the third quarter it was a slight improvement as a percentage change with the comparable industrial sales were off by 2.8 percent during that quarter.

The adverse economic conditions affecting the segment this year persisted. During the fourth quarter although we did note some improvement in our roofing business particularly their services failed during the quarter. Consumer sales continued strong during this fourth quarter at $275.3 million; ahead 8.7 percent on a comparable basis quarter over quarter with every business ahead.

profit, the margin for the fourth quarter improved 100 basis points to 46.8 percent from 45.8 percent a year ago. segment, the industrial margins quarter over quarter held steady at 47.6 percent form 47.7 percent last year. There were a number of favorable raw material costs in this segment with offset by effects from lower sales, and lower sales , and from lower market sales in the mix this year.

Consumer segment margins quarter over quarter were well ahead reaching 46 percent compared with last year's 43.5 percent. Again restructuring benefits this quarter, and favorable raw material costs, and some better margin sales mix.

SG&A was approved this year to 3501 percent of sales from last year's 36.1 percent of sales at a pro former of 142 basis last year's SG&A, which is about $6.9 million that quarter would have made a difference, and brought back the 34.8 percent of sales.

By segment the industrial of the 36.9 percent this year that compares with 36.3 percent last year. Last year would have been 35.2 percent on a 142 basis, again the lower sales volume, and , which is up about $17 million. Increased distribution costs are partly offset by some very solid cost containment efforts again throughout this segment this quarter.

Consumer SG&A was at 29.4 percent this year that compares with 34.9 percent last year, or 33.5 percent on a 142 basis. This segment benefited again from the much higher sales volume throughout solid bump containment efforts, again throughout this segment, and some reduced freight costs.

Corporate other this fourth quarter was at $10.9 million this year, $2.2 million last year, some of those differences were in the areas of again increased legal and professional fees as I mentioned. The increase of increased building costs, and the balance with the new higher benefit costs, and certain other higher corporate related costs.

Going down to , rates before interest and taxes 65 million this year bearing the 53.1 last year up $12 million. Last year would have been $60.1 million on a 142 basis still ahead $5 million over last year. that's a base point of three percent and a comfortable basis and only a three percent increase in sales, that's a great conversion. by segment, industrial even was up $30 point one million comparing with 33 point two last year that's down three million dollars last year would have been 36 and a half million dollars on a point 42 basis and putting that segment down six point four million dollars. consumer was 45 point eight million dollars this year comparing with 22 point one last year, that's up almost $24 million last year would have been $25 point eight million on 142 basis putting the segment still ahead by $20 million even and corporate others we've already discussed.

our interest expense net was down five point seven million dollars quarter over quarter, again the low interest rates where of big benefit this quarter worth about 70 percent variable debt by which you have the pay down in debts from the sale of equity shares in March and now the interest rate of sales is about four million dollars. lower debt levels again where of benefit in that field four point seven million dollars additional in interest costs. cash rate was 34 point three percent during the quarter compared to 38 percent again 142 related. net earnings where up $13 million of 53 percent that again includes the positive affects of and marginal sales where well up 230 basis point to six point seven percent from last years four point four percent. so earnings per share, 33 cents up nine cents or 38 percent, on a four quarter basis last years EPS would have been 29 cents over 142, bringing this years 33 cents still ahead by four cents or 14 percent.

I'm now going to discuss some topics compiled from the balance sheet, our count achievable net ended at 3,397 point seven million dollars that is down 14 point one million dollars from the previous year. inventory ended at $251 point four million that was down $26 million, 160 point eight million dollars that was up eight point five million dollars, total debt $713 point eight million, that was down $249 million. total debts of capital ratio ended at 45 percent down from 60 percent a year ago. cash loans, our cash loan from operations was tremendously improved by $117 million to $191 million this year; about $100 million of that coming from the positive swings in working capital some of which I've mentioned previously. this is the type of cash flow generations could probably expect from us going forward. Cap ex this year was $40 million that's down $14 million and should be able to hold at this level for the next several years as many of our larger spending needs are now behind us and we feel there's adequate capacity levels to meet our needs for the next several years at normal growth rates. I'll now turn the call back over to Tom Sullivan.

Thank you Glenn, just in the way of general advents; three years ago we made a conscious decision to go through our first major restructuring program. we knew at the time it would be disruptive, but we also knew at the time we anticipated this particular fiscal year and we knew that the results of this restructuring would bring this type of financial performance. we're pleased with the all-time record earnings in the financial performance but we are not surprised. the real story for the year is the cash flow which when mentioned from operations 191 million it is a really true indicator of how strong the operations where. That 191 million is up from 74 million last year but perhaps more importantly up from our pervious record cash flow of 118 million.

This has allowed up to reduce death by approximately 85 million from the cash flow added to our under righting as Glenn mentioned our death has been reduced by 250 million to bring the death cap to 45 percent. That assures we can keep of the foreseeable future a strong program the of today of approximately four percent. It also allows us to get back to a very active acquisition program which is now in three parts. First Bulls Eye product lines for our operations particular in the consumer area that is going as we speak. Secondly to bring in good companies that will add to the RPM platform and finally good static larger acquisitions to become part of our .

The other really story is the strong management chain developed over the last couple of years, that will take our that is it's best position in my memory and lead it to what is going to be a very bright future that management chain will be discussed in great length ion this years annual report. This will be the last conference call for James Karman and myself over the past 31 years we have growing the company from 11 million to $2 billion time has gone quickly each time over that past 31 years we have come to New York to announce our year end results in a lunch which we will have after this conference call. We are proud of the financial record over the past 30 year it speaks for it's self , it also has allowed us to have 28 consecutive increases in the annual cash divans a record better than one half of one percent of all publicly owned companies can speak of.

We are proud of the acquisition program over this period of time it has put together a balanced portfolio of industrial maintenance companies and consumer business world wide with the best known names in our industry. No one in our industry has done it any better and our is indeed known as being the best in the industry.

We are proud of the fact over the 31 years that the operating level and a acquisition program and in dealing with the financial community that our integrated has never being in question. I have slept well at night. Of the governance there are going to be signed into launch today 90 percent of those have being practiced by our over the past 25 years. The past 5 years we have resorted in the annual report the effect of stock options which earning general average about two cents lower than the delude shares indicated.

Bottom line all the decision we have made we have done because we felt that they are best for the company. 40 years ago I started in this business with a good friend James Karman we leave together as good friends God willing and our board willing my Frank Sullivan will take over as CEO in the October annual meeting of share holders I can tell you it doesn't get any better than that it has being a great ride and I want to thank all of you for the interest, and support that you've given over the past many year. Jim.

Thank you Tom. I'd also like to welcome all of you joining us, many good friends in this conference call, and particularly those of you who have invested in RPM recently through our recent public offering. It's very good to be here with our associates who are reviewing what we feel the very successful year, and a year, which points out as Thomas summarized towards a great growth we feel this company has in store moving strongly to the future.

Without going into great details we'll cover those in the questions. It's important to know that this year we set some very aggressive goal for ourselves, and for the company, and the reason being after going through our restructuring program, and the 18 months of work, which that entailed in putting our company in great shape we wanted to be sure that we were onto what we called the right track. Everything was in place, and moving strongly as we move it into the next generation of management. Some of those goals were we have record earnings, not only record earnings for the year but a strong pattern or record quarterly earnings since we announced the end of the restructuring a year ago. We since have had five strong quarters showing clearly we are on the right track. We wanted our margins, and our returns, and our evaluations to be pointing toward high-levels. We've achieved high-levels in the past, we're well on the track to high levels again, and constantly improving those areas.

We mentioned our balance sheet. We wanted to strengthen our balance sheet to be in a flexible position to carry out various corporate objectives, and we wanted record cash flow. We achieved that by a wide margin. We wanted to institutionalize the very hard earned savings, and efficiencies, which we produced in creative through our restructuring program, and we wanted to make sure that we had a strong management team in place to carry this company forward. We've achieved all those, and we achieved some other smaller goals but these really do is support our goals. In terms of my goal, which we announced probably three years ago or more that we would like to retire at the end of this counter year. We furthermore said we would not consider retiring unless this company was in excellent shape, in very good shape to grow, and we felt we were leaving it in excellent hands through the benefit of our shareholders, and our company, and our customers. clearly that time has been achieved. Those goals have been achieved. We feel we're in strong condition to grow. We're very growth oriented, and everything is in place.

We have excellent markets, we have leading products within those markets. we're strong positioned, and we have an excellent experience corporate, and operating company management team. With that we fell this has been a key year, it definitely has been a key year. Everybody's worked awfully hard to make sure that we did achieve what we thought we could, and we should. So with that it's Thomas this'll be our last conference call. It's a good one to end on I think I'm very pleased with our team has done, and I think we all are, and we look forward now to answering your questions, and showing you in detail why we have such strong confidence in the future of this company.

I think going forward, and answering those questions will be Frank Sullivan.

Today's question and answer session will be conducted electronically. If you'd like to ask a question you may do so by pressing the star key followed by the digit 1 on your touch-tone phone. We will come to you in the order that you signal, and we'll pause for just one moment to assemble our roster. Again press star one to ask a question. Our first question comes from with Robert W. Baird.

Well thank you, and congratulations on your upcoming retirement gentlemen. First of all I wanted to ask about the current tone of business given that we're two-thirds into the first quarter of the year.

Good morning this if Frank Sullivan.

: Hi Frank.

Business conditions now are pretty much the same as they've been towards the end of last year, our consumer businesses are continuing to show solid growth and our industrial segment continues to be challenged by weak demand in a couple of different areas I think the results that will show from that this year will be a little bit easier because certainly in the industrial segment the comparisons year over year are much easier; as you can see in the fourth quarter we have seen some strengthening in our core revenues but in general there's been no big pick up in the industrial markets yet and we're not counting on a big pick up in terms of our plans for the new fiscal year.

OK and then secondly on Dryvit, could you please provide an update on the class action settlement proposal?

The class action settlement proposal is in front of the court now, we are in a 90 day comment period and we would anticipate having a finalized resolution in October of this year, we have the option of backing out of that agreement if there are a larger umber of opt outs of the class settlement then we would prefer. so far it's going very well, the arrangements for the settlement are such that we would conduct inspections for people who can demonstrate they have a drive at home and then we would share significantly in the cost with a number of people including the home owners and their home owners insurance carriers with the resolution of any problems they have. we anticipate at this point that this would cost us a net of insurance somewhere in the neighborhood of next to nothing of maybe four or five million dollars over the next four or five years, this program will be a pay as you go.

OK and then lastly just on dividends, many people would argue that the current dividend yield is very attractive, if you could just comment on the long term plans to adjust your dividend pay out ratio and then secondly how will the additional shares, given the offering affect your plans to increase the dividends per share?

OK, we have, as you know, increased our dividend, cash dividend payment to our shareholders for 28 consecutive years and I would anticipate with increases in our earnings in future years, we will continue to look to increase that dividend. it has been our stated policy for some time now to increase our dividend in every year in which we have an earnings increase but at a rate that would slowly bring that pay out ratio down and except for the impact and restructuring we've been able to accomplish that. I think the other thing I would count on the dividend is it wasn't too many years ago when a number of folks in the financial community decided that our dividend program was dumb and tax inefficient and I certainly think today that there is a greater appreciation for the return the dividend has provided to the financial markets when you look at the markets from a long term perspective.

Certainly a number of our long term shareholders have a 12 or 15 percent yield on their investment in RPM stock 10 or 15 years ago, and so we would anticipate continuing that dividend increase as long as we can continue to grow our earnings so last comment I'll make on that dividend is, and I think the markets come around to this, is the highlights, the great cash generation nature of RPM businesses; you can't have 28 consecutive years of a growing cash dividend without a 28 year general trend of growing cash flow and that's what you should come to expect from RPM.

Would there be any dilution related to the additional shares.

The dilution will hit our EPS. We anticipate this year that our operations on a relatively mild revenue plan, should be able to hit net income growth somewhere in the mid to upper teens. Certainly, you're going to see a less growth in the EPS results year over year because of the new shares associated with our March equity offering. For the full fiscal year'03 our shares should be approximately 116 million, 115.5, something in that range. :):) unid: Thank you.

Our next question comes from with Merril Lynch.

Hi. Good morning, and let me add my congratulations, and for just a terrific performance over many years. A couple, a couple of questions. It seems that you could maybe flush out a, first of all you mentioned that your roofing business was a little bit better in the fourth quarter, can you talk about why that might have been and whether it's sustainable and your flooring business, which apparently continued weak in the quarter, earlier you had talked about that maybe picking up in the fall, is there any change to the outlook business?

Good morning . Our roofing business is picked up in the spring very nicely and we hope to see that continue. Tremco roofing is not involved in new construction to any extent whatsoever so the extent, to the extent that some of their industrial customers were able to put off re-roofing jobs. That can't last forever. A bigger part of their performance is their involvement in institutional, governmental, school, hospitals, programs like that, which have been less effected by this economic downturn, which has principally hit our industrial and manufacturing base. And the flooring side, we do yet have the same presence in the institutional or governmental markets that we do on roofing. We have introduced, this spring, some new products to get our Stonhard business more into commercial flowing projects. Traditionally they have served, almost exclusively, in an industrial market. They're still the dominant player and are still the market share leader and have not lost share, but they lost a lot of revenue last year from major industries like Aerospace, Microelectronics, where they had a huge market share and were a real leader in products and there was just no spending. We would anticipate the positive impact of some of the commercial flooring efforts to start showing up in the second half of this year, and certainly, we are as well poised on the cost and margin side as we've ever been to see higher revenues hit our bottom line when the economy starts perking up in some of the areas that have been weak over the last year.

I think , you talked about some of the electronics programs that have been postponed showing up in the fall, are you still hearing that, or is there some further push up?

? We have a release on a very large Intel project in Ireland and that is going to go and it certainly could go at the end of this summer or early fall. Unfortunately, right now in that industry that release stands out as a very good size isolated job and we are not yet seeing follow on orders in that industry to any extent.

Yes, it looks like that one's go, but you're not seeing a broader? OK.

That's correct.

OK, and then just one last question on raw material. That was something mentioned as a positive on both of your groups, it is not some thing you tend to talk a lot about but when you talk about perhaps how big of a issue was it in the quarter and what it might look like in the first few fiscal 03?

In the quarter raw materials year over year where relative flat and we anticipated them being flat for the balance of the year but slightly up in a few areas the biggest chunk of our benefits in the gross margin was a reduction in conversion costs, which is a direct result of our restructuring efforts.

Great thank you.

Thank you.

Good morning .

Good morning I will jump on the band wagon for Thomas and James congratulations on amazing career and strong encore by betting fourth quarter expectations, I was sitting there a moment ago thinking about your share holder meeting two years ago when you where both disheartened by investor obsession with of the day approach to investing, so it is going to be particular gratifying to see real companies like RPM come back into favor but with that Frank you talked about 2003 anticipated net income growth but if we jump back up to the top of the what are you budgeting or thinking about internally for sales growth for the two division and how does volume price mix come into play, and then margin expectations compared to the roughly nine point eight percent for the fiscal 02?

we I think have being relatively conservative in our planning for 03 in the revenue side the comparison of birth editions will be some where in the neighborhood of three of four percent and you will se in our budgeting a you will see in the market place today, we would expect that to be a mix of some higher growth out of our consumer division and did not budget for any type of aggressive growth in our industrial division and certainly hope to in the second half of the year. From a margin prospective I think you will continue to se margin improvement at the lines for both of our segments as we benefit from the restructuring and also continues improvement mainly that is really being driven by Paul Hoogenboom of our office into our operations. As you know well back in 97 our margins at the operating level exclusive corporation expense was about 16 percent and we finished this year with margins some where in the 12 and a half to 13 percent range and we have very reason to believe and are going to make sure we get back to those 15 and 16 percent margin levels over the next three, four year hopefully sooner.

Having coming out of the industrial business personal I know that there are very few business like RPM's that are truly focused given the really difficult market in the past 18 months has that actually created a opportunity to possible bring in some acquisitions before we see the recovery cause I think some of the larger holders of those portfolios are quite frustrated?

We are perusing more aggressively than we have certainly for the last two years acquisitions opportunities we currently have lined up about $20 million of some smaller acquisitions, there was one that was recently in the trade press we where able to but a $4 million product line for we bought is with net assets of $125 million and when we are finished integrating a product line into it should pay for itself in one year and so that is just a example of a small transaction that was completed in June. We have about $20 million of small transactions like that lined up that should completed over the next three or four months, and we are pursuing aggressively the opportunities, and continue to be opportunistic for other acquisition opportunities this year. You will see acquisitions impact our top-line, and or bottom line this year, and that has not been the case for the last two years.

That's great news, and then finally since you brought up Day-Glo you had announced at your shareholder meeting a couple of years ago a couple pretty exciting prospects, they were stretch prospects but if they panned out they would be huge. I think largely for computer printers with Day-Glo did that pan out is that still in the works?

It is not in the works now, and it's something at some point that we could revise. The fact of the matter is, is that Hewlett Packard has a legal film , and cartridges on that market, and it's a battle that's being fought by a number of people that are trying knock-offs, so it's actually an anti trust action in Europe, on that very subject as it related to inks and cartridges into the printer market, and we decided not be at the front end of the legal cost and expense of fighting HP over there but we've got some great technology that at the right time could help us and help Day-Glo grow in that area but that's the reason it never took off.

The WWF appreciates your full length and analogy. Thanks guys.

Yes. Cathy?

Our next question comes from with .

Well congratulations for a great quarter, and o both of you on your next projects. We will miss you but we look forward to working with Frank, and his team. So now that I have included everyone could you give us a few more details on what you are planning to do in terms of I cannot call it additional restructuring but you talk about new procurement tools and practices and expanding manufacturing efficiencies. What is it that you haven't done in '02 well over the last couple of years that we are going to do now.

Good morning . We are continuing to pursue from a corporate prospective a real continuous improvement in lean manufacturing initiatives at a number of our companies. Paul Hoogenboom who's our vice-president of Operations and Systems has done an excellent job particularly at a number of our consumer businesses like Rust-Oleum, and improving cycle time, decreasing dwell time in tanks, real simple blocking and tackling. We're continuing to take those initiatives to other of our businesses particularly in our industrial segment. we are pursuing further and we are a pioneer in this in tying in software into procurement, and we're working with an outside vendor on that, and we hope that will help us significantly in our procurement area, in our purchasing, and lastly we're becoming more effective at starting to combine purchasing of a lot of the smaller areas of purchases, materials, and raw materials were as we've been mostly affected over the last five years, and focusing on our larger raw materials. All of those will be ongoing, and we have a disciplined place today particularly in the manufacturing area. We'll continue to drive that, and that did not exist certainly at a number of RPM companies four or five years ago.

Do you have a seal for the savings you can generate from those enterprises?

I don't think we have enough of a field to predict the when's, in terms of when they'll come, but we certainly anticipate seeing improvement there this year and in the coming years. this procurement program should be p at the next level sometime in the second half of this year and a lot of these manufacturing issues again are ongoing and we view them monthly. today we will get operating statistics on a monthly basis along with the financial statistics that we've always looked at, and it's become a real focus for us and as you can see its paying off in our margins and our cost structure.

Will that include, excuse me, on the manufacturing side, will value include combining a few more plans?

No our restructuring efforts in terms of consolidating plans that we did in this last restructuring are over. we are very much focused on getting the greatest efficiency out of the plants that we have now. it certainly doesn't mean particularly in conjunction with the future acquisition that sizable that we wouldn't look to put some businesses together either entirely or operationally. and let me add to that Rosemary, we have a far better capability confidence and experience today in doing that particularly as it relates to a future acquisition than we had in the past having gone through this restructuring.

Yes. I'm sure this was quite a learning experience. could you, well now I've forgot what I wanted to ask. on the, you mentioned that distribution costs where up, could you touch on that as to the reasons why?

I'm sorry the question was, distribution costs?

Yes, yes I think Tom in his opening comments mentioned that those costs where higher than they where in previous years.

In our Carboline operation, we've seen some distribution costs up related to closing a number of remote distribution areas and pulling a lot of that in house, so we've seen some distribution issues there. this last year we had some distribution overlaps on our "wood finishes" group, we are completely out of outside distributors in that group as of June one, so those where the two areas where we had some redundant or excess distribution costs in '02 that you will not see in '03.

And is the "wood finishing" business improving?

Yes it is.

Was this the one with the most problems?

Absolutely, and that business was a contributor, nice leader earnings in '02, they got back half, about half of where they where two years ago so we've got a long way to climb back. we have new president here, the gentleman who has been a leader of their lab and their text service and a lot of their initiatives for the last 20 years and I think we're pretty excited about that business definitely improving year after year because a lot of the distractions in combining manufacturing and combining distribution and dealing with some management issues are now behind us.

And one last question if I may, on the acquisition side, large acquisitions, are you focusing on the consumer more than on the industrial side or is it more or less equal?

I think it's more or less equal but what you're likely to see is more product line acquisitions in our consumer business where we can take advantage of the expertise in distribution of Rust-Oleum, or DAP, or Zinsser in particular, you're more likely to see free standing business units or larger transactions in our industrial sector, as either part of our Group, Tremco or as a free-standing entity in our entrepenarial RPM 2 group of companies.

Thanks a lot.

Thank you.

Over now to with .

. Good morning guys, great , my congratulations as well. You mentioned that the real thing was picking up, did you mean sequentially or do you mean that we're now posting year over year gains?

I think, first of all, year over year gains, but in the spring it was picking up sequentially. We got a, somewhat slower than expected, plan there at the beginning of the year and it was just economic related, yet I know you had earlier, questions about the good weather, but, and that certainly helps our roofing division in a robust economy. If people weren't spending money it doesn't matter what the weather is, so in the spring we were seeing sequential improvement in that business and in the fourth quarter we had a year over year improvement as well and we're hopeful that that will continue in the first quarter and throughout the balance of this year.

You expect year over improvement in the first quarter, good. Then you mentioned that flooring was off, I think, $17 million, was that a fourth quarter commentary or was that a year commentary?

Fourth quarter. The entire Group was blocked year over year by just over $40 million in revenues.

That even includes Carboline and Plasite or is that just the Stonhard division?

Carboline and Plasite is the large majority of that revenue shortfall is in our flooring division. Stonhard, and if you isolate that revenue shortfall and the fact that that unit coactively has gross margins at 50 percent typically, which is better that the RPM average, you can appreciate the impact that shortfall had on our bottom line and I think by isolating it, you can also appreciate the fact that aside from that large group we had a pretty good year in a pretty lousy economy.

Is that business continuing to show, say in the first quarter, will it be down versus the terrible numbers that you had in the first quarter a year ago.

I don't so and, furthermore, for the year, we made a lot of tough decisions in the SG&A side last year in terms of expense reductions and some headcount reductions that we don't need much in the way of revenue increases to show some nice earnings improvement year over year. When that business will really pop for us is when the revenues start coming back and you will see that very nicely on our bottom line.

to revenues. Here we are in the first quarter, are revenues in this division likely to be flat with where they were a year ago in the first quarter?

So far this year revenues are flat year over year.

That's very good. OK. Next question is that, Frank, you mentioned that both your net income for the year would be up in the mid to upper teens.

Correct.

Was there an assumption of some acquisitions embedded in that commentary, or was that from your current hand.

That's from our current hand base on a number of the comments we made about revenues and what we're doing with our margins. It does not incorporate any thinking about acquisitions, and hopefully, acquisitions that we get done this year, certainly if we get done, will be moderately to, certainly our top line and moderately to our bottom line. Of course, 20 or 30 million dollars size acquisitions are not that big to the whole, but we'll get at least that much done this year if not more.

And then just finally. That corporate expense number of 10.9 million, we've never seen a number anywhere near that big in any quarter. Could you come in on what some of the pieces and parts are, and give us some ideas as to what we should be thinking about in the corporate expense number going forward.

Well I can tell you about half of that expense was associated with professional fees and expenses. We looked at number of strategic alternatives for some businesses. We looked at a number of acquisition opportunities, and unlike RPM in the past, and certainly what we'll see in the future when you don't get fields cone those expenses flow right through your PNL, so that was half of it. The other half of it was higher health care costs, a big chunk of which we have absorbed corporate as well we increased our reserves for by about a million $1.5 million relative to this settlement, and you'll see again probably some in that nature going forward for the next couple of years, and our reserve was increased by a $1 million.

How much was the hit income in the fourth quarter?

Well I don't know in the fourth quarter for the full year it was $3 million.

OK, and what should we be thinking about for corporate expense on a quarterly basis going forward for this year?

I think it will be certainly less than last year you know we the big chunk of the professional fees and services will not be repeated, and to the extent we have professional fees and services associated with acquisitions. I expect us to get them done, and they will therefore be capitalized within the cost of the acquisition.

So in the first quarter were last year you had like seven million bucks of corporate expense you should be thinking, and it sounds like maybe this six, seven million range?

I think again I can't exactly tell you how this follows our quarterly but our corporate expense year over year will be less.

Very good thank you very much.

Thank you.

Our next question comes from with .

Hi, and good morning.

Good morning.

: Do you expect your industrial business to grow in your first fiscal quarter?

No. We did not plan for it. We're certainly doing everything we can to beat our budgets for the year but we did not plan for industrial segment growth year over year, and what little growth we planned for is in the second part of the year.

: And all things being equal you do expect your consumer business in the first quarter to continue to grow at a nice ?

That's correct.

: OK thank you very much.

Thank you.

We'll go now to with .

Hi thank you. Just going back to the growth rates I think you indicated there was probably a three to four percent revenues growth rate in '03. I think that was internally. When we last met you internal growth expectations were for about that level internally, and would there be a balance on the acquisition, and then moving ahead let's say the next three to five years what balance of internal versus external growth would you expect to achieve?

Our internal growth grows long-term or in the neighborhood of four to seven percent, and I think that if you look at our ability to generate internal growth over the last 10 years it's averaged right about four and a half to five percent, and that's been in mostly in non inflationary environment, so that's I think what you should expect going forward. Certainly this year our expectations are a little more modest because of the economy and it's impact on our industrial segment in particular. There are no assumptions for acquisitions in those numbers we do not budget for acquisitions from a capital budgeting or operating budget prospective we certainly look at them one by one and the we adjust our budgets according when we get a transition completed.

OK thank you very much.

Thank you.

Actually this is .

Morning Gregg.

How are you guys. I would like to express the appreciation over the last 20 year for who could not be on the call to all the work that you guys have done.

Wondered if you could comment on RPM's corporate issues thinks like options, expensing and revenue and board insider and so forth?

As Thomas mentioned earlier I think from a corporate governance prospective whether it is the recent legation which was recently passed that we support, or the changes in the New York stock exchange listing requirements. We already with 90 percent of them, our board has 12 members there are three insiders Thomas Sullivan, James Karman and myself , the other nine board members are truly outsiders both in terms of their involvement in RPM, as we as in terms of complying with the of what a insider is. Our committee and our composition committee are comprised entirely of outside directors and they have being comprised outside directors since the 70's.

From a option stand point as Thomas indicated we and I think most publicly companies have had a footnote in our annual report in our 10K which highlights the impact of options on our reported EPS and that is in this last fiscal year two cents so if we would have to report options expense on a black soles model it would serve to reduce our earning per share by two cents per share. Revenue for a company like RPM relatively simply. Our company manufactured product and then put them on a truck and they ship them and built them and at that point we reconsiders revenue, so I think the of manufacturing business in general makes revenue issues much easier and much more black and white verses service companies or financial companies or trading companies.

OK great and just one other house keeping. What do you have budget for deprecation and for fiscal 03?

I think about 57, 58 million dollars .

OK thanks.

Gentle at this time there are no further questions I would like to turn the conference back over to Mr Sullivan for any additional or closing remarks.

Once again I would like to say thanks to all of you for your great support over al the years James and I although we are retiring we are still going to be connect RPM in consulting ways clearly I look forward to working with Frank and his team in acquisition and I know James does in investor relations I should say so there will be a lot of fun us. Thank you all. Thank you.

That does conclude today's conference call you may disconnect at this time.