EX-99.1 2 l17719exv99w1.htm EX-99.1: PRESS RELEASE EX-99.1
 

Exhibit 99.1
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, OH — January 5, 2006 — 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.
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CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
IN THOUSANDS, EXCEPT PER SHARE DATA
                                                                   
    AS REPORTED       ADJUSTED (a)  
    Six Months Ended     Three Months Ended       Six Months Ended     Three Months Ended  
    November 30,     November 30,     November 30,     November 30,       November 30,     November 30,     November 30,     November 30,  
    2005     2004     2005     2004       2005     2004     2005     2004  
Net Sales
  $ 1,486,702     $ 1,284,982     $ 739,350     $ 623,469       $ 1,486,702     $ 1,284,982     $ 739,350     $ 623,469  
Cost of sales
    871,324       719,407       440,091       352,781         871,324       719,407       440,091       352,781  
 
                                                 
Gross profit
    615,378       565,575       299,259       270,688         615,378       565,575       299,259       270,688  
Selling, general & administrative expenses
    461,668       404,476       246,808       202,034         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         18,429       16,885       9,854       8,915  
 
                                                 
Income before income taxes
    105,281       97,214       27,597       12,739         135,281       144,214       42,597       59,739  
Provision for income taxes
    36,793       33,616       9,070       3,627         47,651       51,241       14,285       21,252  
 
                                                 
Net Income
  $ 68,488     $ 63,598     $ 18,527     $ 9,112       $ 87,630     $ 92,973     $ 28,312     $ 38,487  
 
                                                 
 
                                                                 
Basic earnings per share of common stock
  $ 0.59     $ 0.55     $ 0.16     $ 0.08       $ 0.75     $ 0.80     $ 0.24     $ 0.33  
 
                                                 
 
Diluted earnings per share of common stock (b)
  $ 0.55     $ 0.52     $ 0.15     $ 0.08       $ 0.70     $ 0.75     $ 0.23     $ 0.31  
 
                                                 
 
Average shares of common stock outstanding — basic
    116,626       116,413       116,710       116,659         116,626       116,413       116,710       116,659  
 
                                                 
 
Average shares of common stock outstanding — diluted (b)
    127,400       125,719       127,542       126,318         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       ADJUSTED (a)  
    Six Months Ended     Three Months Ended       Six Months Ended     Three Months Ended  
    November 30,     November 30,     November 30,     November 30,       November 30,     November 30,     November 30,     November 30,  
    2005     2004     2005     2004       2005     2004     2005     2004  
Net Sales:
                                                                 
Industrial Segment
  $ 896,436     $ 730,396     $ 465,597     $ 364,888       $ 896,436     $ 730,396     $ 465,597     $ 364,888  
Consumer Segment
    590,266       554,586       273,753       258,581         590,266       554,586       273,753       258,581  
 
                                                 
Total
  $ 1,486,702     $ 1,284,982     $ 739,350     $ 623,469       $ 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       $ 115,468     $ 102,075     $ 50,389     $ 45,939  
Interest (Expense), Net
    (535 )     24       (504 )     13         (535 )     24       (504 )     13  
 
                                                 
EBIT (c)
  $ 116,003     $ 102,051     $ 50,893     $ 45,926       $ 116,003     $ 102,051     $ 50,893     $ 45,926  
 
                                                 
Consumer Segment
                                                                 
Income Before Income Taxes (b)
  $ 72,493     $ 77,666     $ 26,057     $ 31,311       $ 72,493     $ 77,666     $ 26,057     $ 31,311  
Interest (Expense), Net
    175       108       43       59         175       108       43       59  
 
                                                 
EBIT (c)
  $ 72,318     $ 77,558     $ 26,014     $ 31,252       $ 72,318     $ 77,558     $ 26,014     $ 31,252  
 
                                                 
Corporate/Other
                                                                 
(Loss) Before Income Taxes (b)
  $ (82,680 )   $ (82,527 )   $ (48,849 )   $ (64,511 )     $ (52,680 )   $ (35,527 )   $ (33,849 )   $ (17,511 )
Interest (Expense), Net
    (18,069 )     (17,017 )     (9,393 )     (8,987 )       (18,069 )     (17,017 )     (9,393 )     (8,987 )
 
                                                 
EBIT (c)
  $ (64,611 )   $ (65,510 )   $ (39,456 )   $ (55,524 )     $ (34,611 )   $ (18,510 )   $ (24,456 )   $ (8,524 )
 
                                                 
Consolidated
                                                                 
Income Before Income Taxes (b)
  $ 105,281     $ 97,214     $ 27,597     $ 12,739       $ 135,281     $ 144,214     $ 42,597     $ 59,739  
Interest (Expense), Net
    (18,429 )     (16,885 )     (9,854 )     (8,915 )       (18,429 )     (16,885 )     (9,854 )     (8,915 )
 
                                                 
EBIT (c)
  $ 123,710     $ 114,099     $ 37,451     $ 21,654       $ 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
IN THOUSANDS
                         
    November 30, 2005     November 30, 2004     May 31, 2005  
    (Unaudited)     (Unaudited)        
Assets
                       
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)
IN THOUSANDS
                 
    Six Months Ended November 30,  
    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