RPM International HomeThe Value of 168RPM In ActionRPM In ActionRPM In Action
Click HERE for Advanced Search
IR Home
News Releases
Analysts
Corporate Governance
Direct Stock Purchase
Dividends & Splits
Dividend Reinvestment Plan
E-mail Alerts
Estimates
Financial Reports
Frequently Asked Questions
Fundamentals
Information Request
Investor Contacts
Proxy Vote
RPM Videos
SEC Filings
Stock Price/History
Stock Transfer Agent
Upcoming Events
Webcasts & Presentations
 
News Release
Printer Friendly Version View printer-friendly version
<< Back
RPM Reports Record Second-Quarter Sales, Expects Strong Second Half
     - Business fundamentals, including organic sales growth, remain solid

     - Second-quarter results adversely impacted by hurricanes and one-time
       events

     - Expect strong second-half growth, including margin improvement

     - Record earnings anticipated for full fiscal year 2006, excluding
       asbestos charges

MEDINA, Ohio, Jan. 5 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported record sales of $739.4 million for its fiscal 2006 second quarter ended November 30, 2005. Net income for the quarter increased 103% to $18.5 million from $9.1 million a year ago, as a result of lower asbestos related charges year over year. Diluted per share earnings increased to $0.15 from $0.08 in the fiscal 2005 second quarter. Before asbestos charges, comparably adjusted net income and diluted earnings per share both declined 26%.

"Our second-quarter results were impacted by effects associated with the Gulf Coast hurricanes, including higher raw materials costs and slower sales growth, particularly in our consumer segment," said Frank C. Sullivan, president and chief executive officer. "Second-quarter earnings were further impacted by $10.2 million, or $0.05 per diluted share, from unrelated one-time costs. The most significant of these involved the finalization of the Dryvit national residential class action settlement, which amounts to positive news for that business," he said.

"We are encouraged by our top-line growth as we rounded out the first half and the fact that, following the hurricanes early in the second quarter, our sales strength is continuing. As raw materials costs begin to stabilize and higher selling prices take effect, our margins should strengthen in the second half of fiscal 2006, resulting in greater earnings leverage. As a result, we continue to anticipate record earnings, excluding asbestos charges, for the fiscal year ending May 31, 2006," Sullivan said.

Second Quarter Sales and Earnings

RPM's net sales for the second quarter of fiscal 2006 were $739.4 million, an 18.6% increase over the $623.5 million reported a year ago. Excluding asbestos charges, net income declined to $28.3 million from $38.5 million in the year-ago period and diluted earnings per share declined to $0.23 from $0.31 in the fiscal 2005 second period.

Including asbestos charges, earnings before interest and taxes (EBIT) were $37.5 million in the fiscal 2006 second quarter, a 73.0% increase compared to $21.7 million a year ago. Excluding asbestos charges, fiscal 2006 second quarter EBIT was $52.5 million, a 23.6% decrease compared to the $68.7 million reported in the year-ago second quarter.

RPM's industrial segment sales in the second quarter grew to $465.6 million from $364.9 million, up 27.6%. Of this increase, 16.5% was the result of illbruck Sealant Systems, acquired at the end of the fiscal 2006 first quarter, plus three smaller acquisitions. Approximately 11.1% of the industrial segment's growth was organic. A number of industrial businesses posted double-digit sales increases, including corrosion control coatings, fiberglass grating composites, roofing services, exterior insulation finish systems (EIFS), concrete admixtures and powder coatings, as well as many international operations. Industrial segment EBIT increased 10.8% for the quarter, to $50.9 million from $45.9 million.

RPM's consumer segment sales grew 5.9% in the fiscal 2006 second quarter, to $273.8 million from $258.6 million, with virtually all of this growth being organic. Sales of several RPM operating units in the segment were heavily impacted by hurricane disruptions to distribution channels. Despite this impact, several consumer segment businesses still posted sales increases of greater than 5%, including caulks and sealants, confectionary coatings and glazes, small package paints, wood care finishes and auto restoration products.

Consumer segment EBIT declined by 16.8%, to $26.0 million from $31.3 million, due primarily to the hurricanes' impact and the inherent lag in gaining relief for higher raw materials costs through selling prices in this segment. "We expect higher consumer segment sales increases the second half of the year as the hurricane disruptions are behind us, and we expect improving margins in this segment as price increases continue to phase in and further mitigate the higher raw materials costs," said Sullivan.

Asbestos Charge

RPM took a pre-tax charge of $15.0 million in the second quarter of fiscal 2006 to increase its asbestos liability reserves, which now total $101.2 million on the company's balance sheet. In the year-ago second quarter, RPM took a $47 million pre-tax charge for asbestos liabilities. Before tax asbestos-related payments were $13.4 million during the second quarter and $29.9 million in the first half of fiscal 2006, both of which are lower amounts versus the comparable prior year periods and sequentially.

"The company evaluates its asbestos reserves on an ongoing basis to support its more aggressive defense strategy, which is beginning to result in declining total costs," said Sullivan. "It also appears that the U.S. Senate will bring the FAIR Act to the floor in early calendar 2006, which could result in a more permanent resolution to the asbestos litigation crisis facing a host of manufacturers and small businesses," he said.

"Even without Congressional action, we are encouraged by the direction the asbestos issue is taking for us, in terms of reduced settlement costs, increased dismissal rates and declining quality of claims. We are also encouraged by the ongoing Federal investigation into potential plaintiff attorney fraud surrounding the asbestos issue," Sullivan said.

illbruck Assimilation

"We continue to anticipate that our Tremco unit's acquisition of the $190 million illbruck Sealant Systems business on August 31, 2005 will be earnings neutral for the fiscal year ending May 31, 2006, but will be accretive to earnings thereafter, adding $0.03 to $0.05 per diluted share beginning in our 2007 fiscal year," he said. "illbruck has boosted RPM's European sales significantly, adding $55 million in revenue for the second quarter, and will be the strong complement to our Tremco operation that we envisioned," Sullivan said.

Dryvit Settlement

During the second quarter, RPM's Dryvit Systems business unit finalized a national class action lawsuit settlement related to residential EIFS claims dating back several years. To fully provide for the settlement, RPM established additional reserves of $10.0 million, half of which are expected to be covered by insurance. "For all intents and purposes, this settlement puts the residential EIFS issue behind us and allows Dryvit to step up its residential marketing efforts, particularly to its architectural constituency. Dryvit EIFS represent an outstanding combination of insulation and attractive exterior finishes, and we are expecting renewed growth by upscale homebuilders now that this lingering issue has been resolved," said Sullivan.

Other One-Time Costs

The other costs taken during the second quarter, unrelated to ongoing operations, included $2.5 million of one-time pension plan and hurricane- related property-casualty costs. In addition, the company was in negotiations during the second quarter to sell its small, non-core wallpaper business for approximately $10 million in cash, which will result in a loss on sale of approximately $2.7 million. Accordingly, this loss was accounted for during the second quarter, and this sale is expected to close in January 2006.

Cash Flow and Financial Position

At the end of the fiscal 2006 first half, cash from operations was $95.6 million, up from $90.5 million a year ago. Capital expenditures during the first half were $20.4 million, compared to depreciation of $27.0 million during the period. Total debt now stands at $866.4 million, compared to $838.0 million at the end of fiscal 2005. The increase essentially reflects additional indebtedness for acquisitions, particularly illbruck, and the retirement of $150 million in 7.0% bonds that matured on June 15, 2005. RPM's debt-to-capitalization ratio stood at 44.1% at November 30, 2005, down slightly from November 30, 2004 and May 31, 2005.

First Half Sales and Earnings

For the first half of fiscal 2006, net sales increased to $1.5 billion, compared to $1.3 billion a year ago, a 15.7% increase. Six-month net income of $68.5 million, a 7.7% increase over the $63.6 million reported a year ago, includes asbestos charges in both periods. Diluted earnings per share increased 5.8%, to $0.55 compared to $0.52 in the first six months of fiscal 2005. Excluding asbestos charges, first-half net income declined 5.7% to $87.6 million from $93.0 million earned in the fiscal 2005 first half, and diluted earnings per share were $0.70, a 6.7% decline from the $0.75 earned in the fiscal 2005 first half.

First-half EBIT increased 8.4%, to $123.7 million from $114.1 million in the fiscal 2005 first half, including asbestos charges in both periods. Excluding asbestos charges, EBIT for the first six months of fiscal 2006 was $153.7 million, a 4.6% decline from the $161.1 million earned a year ago.

For the six months, industrial segment sales grew 22.7%, to $896.4 million from $730.4 million. Of this growth, 9.4% was acquisition-related and 13.3% was organic. Industrial segment EBIT increased 13.7% in the first six months of fiscal 2006, to $116.0 million from $102.1 million

First-half sales for the consumer segment grew 6.4%, to $590.3 million from $554.6 million a year ago, with nearly all of this growth being internally generated. Consumer segment EBIT for the first half declined by 6.8% to $72.3 million from $77.6 million a year ago, due primarily to higher raw materials costs being only partially offset by higher selling prices.

Business Outlook

"As anticipated and disclosed in our first-quarter earnings report, the second quarter proved challenging. We are expecting substantially improved results going forward, as our operating units continue to post solid top-line growth and the one-time factors that dampened second-quarter results disappear. In particular, we look for further improvement in our gross margins as higher selling prices begin to better recover the sharp raw materials cost increases we incurred during the first half of our 2006 fiscal year. Moreover, while hurricane disruptions negatively impacted our second quarter, we expect several RPM operations to be beneficiaries of the rebuilding efforts in those areas. We are expecting a strong second half of this 2006 fiscal year, which will result in record earnings, prior to asbestos charges, for the full year," Sullivan said.

Webcast and Conference Call Information

Management will host a conference call to further discuss these results and the fiscal year outlook beginning at 10:00 a.m. Eastern time today. The call can be accessed by dialing 800-591-6930 or 617-614-4908 for international callers. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode.

For those unable to listen to the live call, a replay will be available from approximately 12:00 p.m. Eastern time on January 5 until 11:59 p.m. Eastern time on January 12, 2006. The replay can be accessed by dialing 888- 286-8010 or 617-801-6888. The access code is 17609922. The call also will be available both live and for replay, and as a written transcript, via the Internet on the RPM web site at http://www.rpminc.com.

About RPM

RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings and sealants serving both industrial and consumer markets. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. Industrial brands include Stonhard, Tremco, illbruck, Carboline, Day-Glo, Euco and Dryvit. RPM's consumer products are used by professionals and do-it- yourselfers for home maintenance and improvement, automotive and boat repair and maintenance, and by hobbyists. Consumer brands include Zinsser, Rust- Oleum, DAP, Varathane, Bondo and Testors.

For more information, contact Glenn R. Hasman, vice president - finance and communications, at 330-273-8820 or ghasman@rpminc.com.

This press release contains "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, supply and capacity of raw materials, including assorted resins and solvents; packaging, including plastic containers; and transportation services, including fuel surcharges; (c) continued growth in demand for the company's products; (d) legal, environmental and litigation risks inherent in the company's construction and chemicals businesses and risks related to the adequacy of the company's insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon the company's foreign operations; (g) the effect of non- currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with the company's ongoing acquisition and divestiture activities; (i) risks related to the adequacy of its contingent liability reserves, including for asbestos-related claims; and other risks detailed in the company's other reports and statements filed with the Securities and Exchange Commission, including the risk factors set forth in the company's prospectus and prospectus supplement included as part of the company's Registration Statement on Form S-4 (File No. 333-120536), as the same may be amended from time to time. RPM does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.



    CONSOLIDATED STATEMENTS OF INCOME
    (Unaudited)
    IN THOUSANDS, EXCEPT PER SHARE DATA

                                                  AS REPORTED
                                      Six Months Ended     Three Months Ended
                                     Nov. 30,    Nov. 30,   Nov. 30,  Nov. 30,
                                       2005        2004       2005      2004

    Net Sales                      $1,486,702  $1,284,982  $739,350  $623,469
    Cost of sales                     871,324     719,407   440,091   352,781
    Gross profit                      615,378     565,575   299,259   270,688
    Selling, general &
     administrative expenses          461,668     404,476   246,808   202,034
    Asbestos charges                   30,000      47,000    15,000    47,000
    Interest expense, net              18,429      16,885     9,854     8,915
    Income before income taxes        105,281      97,214    27,597    12,739
    Provision for income taxes         36,793      33,616     9,070     3,627
    Net Income                        $68,488     $63,598   $18,527    $9,112

    Basic earnings per share of
     common stock                       $0.59       $0.55     $0.16     $0.08

    Diluted earnings per share of
     common stock (b)                   $0.55       $0.52     $0.15     $0.08

    Average shares of common stock
     outstanding - basic              116,626     116,413   116,710   116,659

    Average shares of common stock
     outstanding - diluted (b)        127,400     125,719   127,542   126,318



    CONSOLIDATED STATEMENTS OF INCOME
    (Unaudited)
    IN THOUSANDS, EXCEPT PER SHARE DATA
                                                  ADJUSTED (a)
                                      Six Months Ended     Three Months Ended
                                     Nov. 30,    Nov. 30,   Nov. 30,  Nov. 30,
                                       2005        2004       2005      2004

    Net Sales                      $1,486,702  $1,284,982  $739,350  $623,469
    Cost of sales                     871,324     719,407   440,091   352,781
    Gross profit                      615,378     565,575   299,259   270,688
    Selling, general &
     administrative expenses          461,668     404,476   246,808   202,034
    Asbestos charges
    Interest expense, net              18,429      16,885     9,854     8,915
    Income before income taxes        135,281     144,214    42,597    59,739
    Provision for income taxes         47,651      51,241    14,285    21,252
    Net Income                        $87,630     $92,973   $28,312   $38,487

    Basic earnings per share of
     common stock                       $0.75       $0.80     $0.24     $0.33

    Diluted earnings per share of
     common stock (b)                   $0.70       $0.75     $0.23     $0.31

    Average shares of common stock
     outstanding - basic              116,626     116,413   116,710   116,659

    Average shares of common stock
     outstanding - diluted (b)        127,400     125,719   127,542   126,318

    (a)  Adjusted figures presented remove the impact of the additional
         asbestos charges taken during each period presented.
    (b)  Amounts for all periods presented include the effect of our
         contingently issuable shares, as required by EITF Issue No. 04-8.



    SUPPLEMENTAL SEGMENT INFORMATION
    (Unaudited)
    IN THOUSANDS
                                                   AS REPORTED
                                      Six Months Ended     Three Months Ended
                                     Nov. 30,    Nov. 30,   Nov. 30,  Nov. 30,
                                       2005        2004       2005      2004
    Net Sales:
      Industrial Segment             $896,436    $730,396  $465,597  $364,888
      Consumer Segment                590,266     554,586   273,753   258,581
           Total                   $1,486,702  $1,284,982  $739,350  $623,469

    Income (Loss) Before Income
     Taxes (b):
      Industrial Segment
           Income Before Income
            Taxes (b)                $115,468    $102,075   $50,389   $45,939
           Interest (Expense), Net       (535)         24      (504)       13
           EBIT (c)                  $116,003    $102,051   $50,893   $45,926
      Consumer Segment
           Income Before Income
            Taxes (b)                 $72,493     $77,666   $26,057   $31,311
           Interest (Expense), Net        175         108        43        59
           EBIT (c)                   $72,318     $77,558   $26,014   $31,252
      Corporate/Other
           (Loss) Before Income
            Taxes (b)                $(82,680)   $(82,527) $(48,849) $(64,511)
           Interest (Expense), Net    (18,069)    (17,017)   (9,393)   (8,987)
           EBIT (c)                  $(64,611)   $(65,510) $(39,456) $(55,524)
           Consolidated
                Income Before
                 Income Taxes (b)    $105,281     $97,214   $27,597   $12,739
                Interest
                 (Expense), Net       (18,429)    (16,885)   (9,854)   (8,915)
                EBIT (c)             $123,710    $114,099   $37,451   $21,654



    SUPPLEMENTAL SEGMENT INFORMATION
    (Unaudited)
    IN THOUSANDS
                                                  ADJUSTED (a)
                                      Six Months Ended     Three Months Ended
                                     Nov. 30,    Nov. 30,   Nov. 30,  Nov. 30,
                                       2005        2004       2005      2004
    Net Sales:
      Industrial Segment             $896,436    $730,396  $465,597  $364,888
      Consumer Segment                590,266     554,586   273,753   258,581
           Total                   $1,486,702  $1,284,982  $739,350  $623,469

    Income (Loss) Before Income
     Taxes (b):
      Industrial Segment
           Income Before Income
            Taxes (b)                $115,468    $102,075   $50,389   $45,939
           Interest (Expense), Net       (535)         24      (504)       13
           EBIT (c)                  $116,003    $102,051   $50,893   $45,926
      Consumer Segment
           Income Before Income
            Taxes (b)                 $72,493     $77,666   $26,057   $31,311
           Interest (Expense), Net        175         108        43        59
           EBIT (c)                   $72,318     $77,558   $26,014   $31,252
      Corporate/Other
           (Loss) Before Income
            Taxes (b)                $(52,680)   $(35,527) $(33,849) $(17,511)
           Interest (Expense), Net    (18,069)    (17,017)   (9,393)   (8,987)
           EBIT (c)                  $(34,611)   $(18,510) $(24,456)  $(8,524)
           Consolidated
                Income Before
                 Income Taxes (b)    $135,281    $144,214   $42,597   $59,739
                Interest
                 (Expense), Net       (18,429)    (16,885)   (9,854)   (8,915)
                EBIT (c)             $153,710    $161,099   $52,451   $68,654

    (a) Adjusted figures presented remove the impact of the additional
        asbestos charges taken during each period presented.
    (b) The presentation includes a reconciliation of Income (Loss) Before
        Income Taxes, a measure defined by Generally Accepted Accounting
        Principles (GAAP) in the United States, to EBIT.
    (c) EBIT is defined as earnings before interest and taxes.  We evaluate
        the profit performance of our segments based on income before income
        taxes, but also look to EBIT as a performance evaluation measure
        because interest expense is essentially related to corporate
        acquisitions, as opposed to segment operations.  We believe EBIT is
        useful to investors for this purpose as well, using EBIT as a metric
        in their investment decisions.  EBIT should not be considered an
        alternative to, or more meaningful than, operating income as
        determined in accordance with GAAP, since EBIT omits the impact of
        interest and taxes in determining operating performance, which
        represent items necessary to our continued operations, given our level
        of indebtedness and ongoing tax obligations.  Nonetheless, EBIT is a
        key measure expected by and useful to our fixed income investors,
        rating agencies and the banking community all of whom believe, and we
        concur, that this measure is critical to the capital markets' analysis
        of our segments' core operating performance.  We also evaluate EBIT
        because it is clear that movements in EBIT impact our ability to
        attract financing.  Our underwriters and bankers consistently require
        inclusion of this measure in offering memoranda in conjunction with
        any debt underwriting or bank financing.  EBIT may not be indicative
        of our historical operating results, nor is it meant to be predictive
        of potential future results.



    CONSOLIDATED BALANCE SHEETS
                                             Nov. 30,    Nov. 30,     May 31,
    IN THOUSANDS                               2005        2004        2005
    Assets                                  (Unaudited) (Unaudited)

    Current Assets
        Cash and short-term investments      $103,332    $207,757    $184,140
        Trade accounts receivable         532,573     462,566     571,649
        Allowance for doubtful accounts   (20,609)    (19,886)    (18,565)
        Net trade accounts receivable         511,964     442,680     553,084
        Inventories                           364,324     314,243     334,404
        Deferred income taxes                  37,598      43,645      40,876
        Prepaid expenses and other current
         assets                               183,720     147,360     158,991
        Total current assets                1,200,938   1,155,685   1,271,495

    Property, Plant and Equipment, at Cost    823,899     794,174     775,564
        Allowance for depreciation and
         amortization                        (409,980)   (408,516)   (385,586)
        Property, plant and equipment, net    413,919     385,658     389,978
    Other Assets
        Goodwill                              717,456     662,968     663,224
        Other intangible assets, net of
         amortization                         318,254     282,310     275,744
        Other                                  67,276      50,716      55,804
        Total other assets                  1,102,986     995,994     994,772

    Total Assets                           $2,717,843  $2,537,337  $2,656,245

    Liabilities and Stockholders' Equity

    Current Liabilities
        Accounts payable                     $228,028    $184,496    $274,573
        Current portion of long-term debt      18,422       4,164          97
        Accrued compensation and benefits      76,898      68,572      95,667
        Accrued loss reserves                  69,530      50,948      65,452
        Asbestos-related liabilities           55,000      50,000      55,000
        Other accrued liabilities              91,557      85,723      84,550
        Total current liabilities             539,435     443,903     575,339

    Long-Term Liabilities
        Long-term debt, less current
         maturities                           848,014     837,926     837,948
        Asbestos-related liabilities           46,244      53,225      46,172
        Other long-term liabilities            82,013      66,630      71,363
        Deferred income taxes                 102,905      77,452      78,914
        Total long-term liabilities         1,079,176   1,035,233   1,034,397
           Total liabilities                1,618,611   1,479,136   1,609,736

    Stockholders' Equity
        Preferred stock; none issued
        Common stock (outstanding 118,257;
         117,146; 117,554)                      1,183       1,172       1,176
        Paid-in capital                       547,517     528,885     535,204
        Treasury stock, at cost
        Accumulated other comprehensive
         income                                18,448      34,251      10,004
        Retained earnings                     532,084     493,893     500,125
        Total stockholders' equity          1,099,232   1,058,201   1,046,509

    Total Liabilities and Stockholders'
     Equity                                $2,717,843  $2,537,337  $2,656,245



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    (Unaudited)                                  Six Months Ended November 30,
    IN THOUSANDS                                     2005              2004
    Cash Flows From Operating Activities
        Net income                                 $68,488           $63,598
        Depreciation and amortization               35,043            32,736
        Items not affecting cash and other          12,247            14,265
        Changes in operating working capital       (20,614)          (28,013)
        Changes in asbestos-related liabilities,
         net of tax                                    398             7,886
                                                    95,562            90,472
    Cash Flows From Investing Activities
        Capital expenditures                       (20,376)          (21,791)
        Acquisition of businesses, net of
         cash acquired                            (135,780)           (9,900)
        Purchases of marketable securities         (25,236)          (17,098)
        Proceeds from the sale of marketable
         securities                                 15,000            19,078
        Proceeds from the sale of assets                               4,500
        Other                                          525               574
                                                  (165,867)          (24,637)
    Cash Flows From Financing Activities
        Additions to long-term and short-term
         debt                                      175,005           200,000
        Reductions of long-term and short-term
         debt                                     (151,937)          (74,431)
        Cash dividends                             (36,529)          (33,730)
        Exercise of stock options                    4,122             7,156
                                                    (9,339)           98,995

    Effect of Exchange Rate Changes on
     Cash and Short-Term Investments                (1,164)            8,368

    Increase (Decrease) in Cash and
     Short-Term Investments                       $(80,808)         $173,198

SOURCE RPM International Inc.

CONTACT: Glenn R. Hasman, vice president - finance and communications of
RPM International Inc., 1-330-273-8820, or ghasman@rpminc.com
Web site: http://www.rpminc.com
(RPM)



© 1997-2011 RPM International Inc.    |    E-Mail: Info@rpminc.com    |    Legal Notice
2628 Pearl Road - P.O. Box 777 - Medina, Ohio 44258
Phone: 330.273.5090 - Fax: 330.225.8743