EX-99.1 2 l37708exv99w1.htm EX-99.1 exv99w1
Exhibit 99.1
RPM REPORTS RECORD FIRST-QUARTER NET INCOME,
EARNINGS PER SHARE AND CASH FLOW
    Consumer segment drives higher sales; industrial segment lags, as expected
 
    Operating profit margins in both segments benefit from prior-year cost reductions
 
    Strong liquidity and capital structure position RPM for growth as economy improves
Medina, Ohio — October 5, 2009 — RPM International Inc. (NYSE: RPM) today reported record first-quarter net income, earnings per share and cash flow for the period ended August 31, 2009. During the fiscal 2010 first quarter, the company’s consumer segment earnings before interest and taxes (EBIT) more than offset the decline in industrial segment EBIT, as compared to the fiscal 2009 first quarter. Earnings in both business segments benefited from expense reductions implemented during the prior fiscal year and improving gross profit margins.
First-Quarter Results
First-quarter net sales of $916.0 million were 7.1% below the $985.5 million reported a year ago. Core growth declined 3.2% with the balance of 3.9% attributable to negative foreign exchange translation.
Net income of $73.0 million was a first-quarter record, up 5.0% from last year’s record $69.5 million. Record first-quarter diluted earnings per share were $0.57, a 7.5% increase over the $0.53 reported a year ago.
“The advantage of our deliberate strategic balance between consumer and industrial markets was evident in the quarter as our consumer segment sales and EBIT growth offset continued weakness in our industrial segment. It was a solid quarter for RPM, reflecting the benefits of the aggressive actions we took last year to lower our cost base, resulting in net income that was ahead of last year’s record first quarter,” stated Frank C. Sullivan, chairman and chief executive officer.
Consolidated EBIT was a record $120.6 million, an 8.8% improvement over the record EBIT of $110.9 million in the first quarter of fiscal 2009. The company’s gross profit margin improved by 200 basis points, while selling, general and administrative expenses as a percent of sales increased 10 basis points on the lower sales volume, yet declined in absolute terms by 6.6%.
First-Quarter Segment Sales and Earnings
The company’s consumer segment, accounting for 34.5% of consolidated first-quarter sales, posted core growth of 12.5% with a negative foreign exchange impact of 2.6%. Consumer sales rose to $316.2 million from $287.9 million a year ago. Consumer segment EBIT increased 54.1% to $53.3 million in the fiscal 2010 first quarter from $34.6 million in the fiscal 2009 first period.

 


 

RPM Reports Record First-Quarter Net Income on Lower Sales
October 5, 2009
Page 2
“We were pleased to see how well our consumer businesses performed during the quarter. Volume growth, coupled with our aggressive cost reduction actions last year, is producing excellent operating leverage. While overall consumer spending remains modest, it is clear that our low-cost, high-value maintenance, repair and redecoration products are getting more traction across our retail base,” Sullivan stated. “Our history of developing innovative products that meet consumers’ demand for value at all price points also enabled our consumer businesses to secure share during this past year’s market contraction,” he stated.
Sales for RPM’s industrial segment, representing 65.5% of the company’s consolidated first-quarter sales, declined 14.0% to $599.7 million from $697.6 million a year ago. Core sales growth declined 9.6% and the balance of 4.4% resulted from the negative impact of foreign exchange. Segment EBIT fell 10.3% to $81.9 million from $91.3 million in the fiscal 2009 first quarter.
“As anticipated, our industrial segment continues to face a depressed commercial construction environment and reduced capital spending in many markets. Despite the lack of top-line growth, the impact of aggressive cost reduction actions, coupled with a more stable raw material environment, enabled our industrial companies to generate sequentially higher EBIT that was well ahead of last year’s fourth quarter,” stated Sullivan.
Cash Flow and Financial Position
During the fiscal 2010 first quarter, cash from operations was a record $52.1 million, compared to negative cash from operations of $12.3 million a year ago. Capital expenditures were $3.3 million in the quarter, down from $12.2 million in the fiscal 2009 first quarter. Depreciation was $15.6 million during the first quarter of fiscal 2010.
Total debt at August 31, 2009 of $906.7 million compares to $930.8 million at May 31, 2009 and $972.5 million at the end of last year’s first quarter. Net (of cash) debt-to-total capital was 34.7%, versus 37.9% at the end of last year’s first quarter and 37.2% at the end of the prior fiscal year. Asbestos indemnity and defense cash costs were $18.6 million in the first quarter of fiscal 2010, as compared to $16.0 million a year ago. The company’s total accrued asbestos liability was $471.8 million. Liquidity, including cash, was $635.1 million, as compared to $548.0 million a year ago and $622.0 million at May 31, 2009. “Throughout this extraordinary period of capital market volatility, RPM has improved on an already strong capital structure and liquidity position. As a result, we are well prepared to fund operations, pursue acquisitions and continue our dividend program,” Sullivan stated.
Business Outlook
“Our first-quarter results were better than we anticipated, which certainly gives us a good start to the fiscal year. The sequential increase in sales from the fiscal 2009 fourth quarter of 6.8% is a marked change from previous years where the first quarter is typically lower than the fourth quarter. We see this as a bullish sign of a slowly improving economy. The strength of our first quarter makes us more comfortable that we will be at the higher end of our previously stated guidance of full-year earnings per share growth of 5% to 25% over the adjusted $1.05 earned in fiscal 2009,” stated Sullivan.

 


 

RPM Reports Record First-Quarter Net Income on Lower Sales
October 5, 2009
Page 3
Webcast and Conference Call Information
Management will host a conference call to further discuss these results beginning at 10:00 a.m. EDT today. The call can be accessed by dialing 800-573-4754 or 617-224-4325 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 1:00 p.m. EDT on October 5, 2009 until 11:59 p.m. EDT on October 12, 2009. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 94758585. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at 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, boat repair and maintenance, and by hobbyists. Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane and Testors.
For more information, contact P. Kelly Tompkins, executive vice president — administration and chief financial officer, at 330-273-5090 or ktompkins@rpminc.com.
# # #
This press release contains “forward-looking statements” relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us, and are subject to uncertainties and factors (including those specified below) which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents and other natural gas- and oil-based materials; packaging, including plastic containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our 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 our ongoing acquisition and divestiture activities; (i) risks related to the adequacy of our contingent liability reserves, including for asbestos-related claims; and (j) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2009, as the same may be updated from time to time. We do 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
IN THOUSANDS, EXCEPT PER SHARE DATA
(UNAUDITED)
                 
    Three Months Ended  
    August 31,  
    2009     2008  
Net Sales
  $ 915,953     $ 985,465  
Cost of sales
    522,123       581,876  
 
           
Gross profit
    393,830       403,589  
Selling, general & administrative expenses
    273,199       292,690  
Interest expense
    12,797       14,756  
Investment (income), net
    (1,094 )     (4,170 )
 
           
Income before income taxes
    108,928       100,313  
Provision for income taxes
    35,903       30,796  
 
           
Net Income
  $ 73,025     $ 69,517  
 
           
 
               
Basic earnings per share of common stock
  $ 0.57     $ 0.55  
 
           
 
               
Diluted earnings per share of common stock
  $ 0.57     $ 0.53  
 
           
 
               
Average shares of common stock outstanding — basic
    126,774       124,935  
 
           
 
               
Average shares of common stock outstanding — diluted
    127,098       129,426  
 
           
 
(a)   The above information reflects our June 1, 2009 adoption of FSP EITF 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions are Participating Securities.” Our unvested restricted stock awards pay dividends and therefore qualify as participating securities. In accordance with EITF 03-6-1, Net income, for the purposes of the computations of basic and diluted net income per share of common stock for the three months ended August 31, 2009 and 2008, is reduced by approximately $1.1 million and $0.9 million, respectively, for a presumed hypothetical distribution of earnings to the holders of the unvested restricted stock.
SUPPLEMENTAL SEGMENT INFORMATION
IN THOUSANDS
(UNAUDITED)
                 
    Three Months Ended  
    August 31,  
    2009     2008  
Net Sales:
               
Industrial Segment
  $ 599,712     $ 697,582  
Consumer Segment
    316,241       287,883  
 
           
Total
  $ 915,953     $ 985,465  
 
           
 
               
Gross Profit:
               
Industrial Segment
  $ 264,672     $ 291,775  
Consumer Segment
    129,158       111,814  
 
           
Total
  $ 393,830     $ 403,589  
 
           
 
               
Income Before Income Taxes (b):
               
Industrial Segment
               
Income Before Income Taxes (b)
  $ 81,741     $ 91,236  
Interest (Expense), Net (c)
    (131 )     (59 )
 
           
EBIT (d)
  $ 81,872     $ 91,295  
 
           
Consumer Segment
               
Income Before Income Taxes (b)
  $ 53,334     $ 33,265  
Interest (Expense), Net (c)
            (1,342 )
 
           
EBIT (d)
  $ 53,334     $ 34,607  
 
           
Corporate/Other
               
(Expense) Before Income Taxes (b)
  $ (26,147 )   $ (24,188 )
Interest (Expense), Net (c)
    (11,572 )     (9,185 )
 
           
EBIT (d)
  $ (14,575 )   $ (15,003 )
 
           
Consolidated
               
Income Before Income Taxes (b)
  $ 108,928     $ 100,313  
Interest (Expense), Net (c)
    (11,703 )     (10,586 )
 
           
EBIT (d)
  $ 120,631     $ 110,899  
 
           
 
(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)   Interest (expense), net includes the combination of interest (expense) and investment income/(expense), net.
 
(d)   EBIT is defined as earnings (loss) 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
IN THOUSANDS
                         
    August 31, 2009     August 31, 2008     May 31, 2009  
    (Unaudited)     (Unaudited)        
Assets
                       
 
                       
Current Assets
                       
Cash and cash equivalents
  $ 255,840     $ 201,368     $ 253,387  
Trade accounts receivable
    664,711       758,326       661,593  
Allowance for doubtful accounts
    (24,239 )     (22,626 )     (22,934 )
 
                 
Net trade accounts receivable
    640,472       735,700       638,659  
Inventories
    435,174       509,314       406,175  
Deferred income taxes
    44,299       37,620       44,540  
Prepaid expenses and other current assets
    209,432       207,441       210,155  
 
                 
Total current assets
    1,585,217       1,691,443       1,552,916  
 
                 
 
                       
Property, Plant and Equipment, at Cost
    1,055,935       1,045,614       1,056,555  
Allowance for depreciation and amortization
    (597,420 )     (562,461 )     (586,452 )
 
                 
Property, plant and equipment, net
    458,515       483,153       470,103  
 
                 
Other Assets
                       
Goodwill
    860,554       890,211       856,166  
Other intangible assets, net of amortization
    353,820       370,256       358,097  
Deferred income taxes, non-current
    82,446       95,461       92,500  
Other
    87,318       87,641       80,139  
 
                 
Total other assets
    1,384,138       1,443,569       1,386,902  
 
                 
 
                       
Total Assets
  $ 3,427,870     $ 3,618,165     $ 3,409,921  
 
                 
Liabilities and Stockholders’ Equity
                       
Current Liabilities
                       
Accounts payable
  $ 291,658     $ 338,064     $ 294,814  
Current portion of long-term debt
    169,314       7,041       168,547  
Accrued compensation and benefits
    99,825       96,151       124,138  
Accrued loss reserves
    75,559       72,002       77,393  
Asbestos-related liabilities
    75,000       65,000       65,000  
Other accrued liabilities
    134,002       134,846       119,270  
 
                 
Total current liabilities
    845,358       713,104       849,162  
 
                 
Long-Term Liabilities
                       
Long-term debt, less current maturities
    737,414       965,423       762,295  
Asbestos-related liabilities
    396,772       478,709       425,328  
Other long-term liabilities
    195,686       174,545       205,650  
Deferred income taxes
    28,331       24,472       23,815  
 
                 
Total long-term liabilities
    1,358,203       1,643,149       1,417,088  
 
                 
Total liabilities
    2,203,561       2,356,253       2,266,250  
 
                 
Stockholders’ Equity
                       
Preferred stock; none issued
                       
Common stock (outstanding 129,097; 129,101; 128,501)
    1,291       1,291       1,285  
Paid-in capital
    794,254       788,315       796,441  
Treasury stock, at cost
    (42,990 )     (29,691 )     (50,453 )
Accumulated other comprehensive income (loss)
    (3,525 )     44,916       (31,557 )
Retained earnings
    475,279       457,081       427,955  
 
                 
Total stockholders’ equity
    1,224,309       1,261,912       1,143,671  
 
                 
 
                       
Total Liabilities and Stockholders’ Equity
  $ 3,427,870     $ 3,618,165     $ 3,409,921  
 
                 

 


 

CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
(UNAUDITED)
                 
    Three Months Ended  
    August 31,  
    2009     2008  
Cash Flows From Operating Activities:
               
Net income
  $ 73,025     $ 69,517  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    15,557       16,385  
Amortization
    5,449       5,824  
Other-than-temporary impairments on marketable securities
    118       730  
Deferred income taxes
    11,370       (2,108 )
Other
    2,018       2,411  
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
               
(Increase) decrease in receivables
    (1,814 )     83,267  
(Increase) in inventory
    (28,999 )     (31,922 )
(Increase) in prepaid expenses and other current and long-term assets
    (9,135 )     (1,259 )
(Decrease) in accounts payable
    (3,156 )     (74,736 )
(Decrease) in accrued compensation and benefits
    (24,313 )     (55,342 )
(Decrease) increase in accrued loss reserves
    (1,834 )     21  
Increase (decrease) in other accrued liabilities
    33,410       (1,854 )
Payments made for asbestos-related claims
    (18,556 )     (16,036 )
Other
    (1,004 )     (7,228 )
 
           
Cash From (Used For) Operating Activities
    52,136       (12,330 )
 
           
Cash Flows From Investing Activities:
               
Capital expenditures
    (3,262 )     (12,199 )
Acquisition of businesses, net of cash acquired
    (349 )     (1,849 )
Purchase of marketable securities
    (4,077 )     (29,924 )
Proceeds from sales of marketable securities
    897       29,110  
Other
    501       7,910  
 
           
Cash (Used For) Investing Activities
    (6,290 )     (6,952 )
 
           
Cash Flows From Financing Activities:
               
Additions to long-term and short-term debt
    817       49,373  
Reductions of long-term and short-term debt
    (25,290 )     (813 )
Cash dividends
    (25,701 )     (24,751 )
Repurchase of stock
            (24,585 )
Exercise of stock options
    2,692       1,086  
 
           
Cash From (Used For) Financing Activities
    (47,482 )     310  
 
           
 
               
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    4,089       (10,911 )
 
           
 
               
Net Change in Cash and Cash Equivalents
    2,453       (29,883 )
 
               
Cash and Cash Equivalents at Beginning of Period
    253,387       231,251  
 
           
 
               
Cash and Cash Equivalents at End of Period
  $ 255,840     $ 201,368