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Management’s Discussion and Analysis
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of Results of Operations and Financial Condition - Page 1
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Segment and Geographic Area Information
RPM has two operating segments - industrial and
consumer - based on the nature of our business activities,
products and services; the structure of management; and
the structure of information as presented to the Board of
Directors. Within each segment, individual operating
companies or groups of companies generally address common markets,
utilize similar technologies, and can share
manufacturing or distribution capabilities. We evaluate the
profit performance of our segments based on earnings
before interest and taxes ("EBIT") because interest expense
is essentially related to corporate acquisitions, as opposed
to segment operations.
Industrial segment products are sold throughout North
America and account for most of RPM ’s sales in Europe,
South America, Asia, South Africa, Australia and the Middle
East. The industrial product line is sold primarily to distributors,
contractors and to end users, such as industrial
manufacturing facilities, educational and governmental
institutions, and commercial establishments. Industrial
segment products reach their markets through a combination
of direct sales, sales representative organizations,
distributor sales and sales of licensees and joint ventures.
Consumer segment products are sold throughout
North America to mass merchandisers, home centers,
hardware stores, paint stores, automotive supply stores and
craft shops. Major customers include Ace Hardware Stores,
Canadian Tire, Cotter & Company, Do It Best, The Home
Depot, Lowe ’s Home Centers, W.W.Grainger and
Wal-Mart. Consumer segment products are sold to retailers
through a combination of direct sales, sales representative
organizations and distributor sales.
The eight largest consumer segment customers represented
approximately 23%, 23% and 19% of consolidated
net sales and approximately 50%, 49% and 41% of consumer
segment sales for 2003, 2002 and 2001, respectively.
The Home Depot represented approximately 12% and 11%
of consolidated net sales and approximately 25% and 24%
of consumer segment sales for the years ended May 31,
2003 and 2002, respectively.
We reflect income from our joint ventures on the
equity method,and receive royalties from our licensees,
both of which minor amounts are reflected as offsets to
selling,general and administrative expenses. Export sales
were less than 10%of net sales for each of the three
years presented.
In addition to the two operating segments, there are
certain business activities,referred to as corporate/other,
that do not constitute an operating segment, including
corporate headquarters and related administrative expenses,
results of our captive insurance companies, gains or losses
on the sales of certain assets and other expenses not
directly associated with either operating segment. Related
assets consist primarily of investments, prepaid expenses,
deferred pension assets,and headquarters ’ property and
equipment. These corporate and other assets and expenses
reconcile operating segment data to total consolidated net
sales, earnings before interest and taxes, identifiable assets,
capital expenditures, and depreciation and amortization.
The following data reflect the adoption of Statement
of Financial Accounting Standards (SFAS)No.142,
"Goodwill and Other Intangible Assets," effective June 1,2001 (refer to Note A [10 ]).
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Segment and Geographic Information
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(In thousands)
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(a) The presentation includes a reconciliation of EBIT to Income Before Income Taxes, a measure defined by Generally Accepted Accounting Principles (“GAAP”) in the U.S.
(b) EBIT is defined as earnings before interest and taxes. We believe that EBIT provides one of the best comparative measures of pure operating performance, and it is a widely accepted financial indicator used by certain investors and analysts to analyze and compare companies. EBIT is not intended to represent cash flows for the period, nor is it presented as an alternative to operating income or as an indicator of operating performance. EBIT should not be
considered in isolation, but with GAAP, and it is not indicative of operating income or cash flow from operations as determined by those principles.
Our method of computation may or may not be comparable to other similarly titled measures of other companies. EBIT may not be indicative of our
historical operating results, nor is it meant to be predictive of potential future results.
(c) The asbestos charge, reflected in Corporate/Other, relates to our Bondex International, Inc. subsidiary.
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