EX-99.1 2 l25531aexv99w1.htm EXHIBIT 99.1 exv99w1
 

Exhibit 99.1
RPM Reports Record Sales and Net Income for Fiscal 2007 Third Quarter
MEDINA, OH – April 5, 2007 – RPM International Inc. (NYSE: RPM) today reported record sales, record net income and record diluted earnings per share for its fiscal 2007 third quarter ended February 28, 2007. Strong sales momentum in the company’s larger industrial segment continued, while consumer segment sales and earnings increased significantly over the third quarter a year ago.
Third-Quarter Results
RPM’s record net sales of $679.5 million were up 10.9% from the $612.5 million reported in the fiscal 2006 third quarter. Organic sales growth accounted for 8.3% of the increase, with 1.3% of that amount representing net foreign exchange gains. Net acquisition growth was 2.6% of the total.
Record net income for the quarter was $10.1 million, compared to a $2.7 million loss a year ago, while record diluted earnings per share were $0.08, compared to a loss of $0.02 in the year-ago third quarter. The 2007 third quarter included non-recurring gains of $2.1 million, or $0.02 cents per diluted share, related to the resolution of prior years’ tax liabilities. The 2006 third-quarter net loss included a pre-tax asbestos reserve charge of $15.0 million. Excluding the 2006 asbestos charge, net income grew 47.9% to $10.2 million from $6.9 million a year ago, while diluted earnings per share increased 50.0% to $0.09 from $0.06 in the fiscal 2006 third quarter.
The one-time tax benefit reflected in the fiscal 2007 third quarter resulted in a lower tax rate for this quarter of 10.2% versus 28.9% in the prior year, as adjusted for asbestos. Despite this significantly lower tax rate, the full fiscal year’s tax rate is not expected to materially differ from the year-to-date tax rate reflected in the company’s nine-month results, before the one-time tax benefit, of 34.0%.
“As anticipated, RPM’s third-quarter operating results showed significant year-over-year improvement despite continuing challenges on the raw materials front,” said Frank C. Sullivan, president and chief executive officer. “As we head into our seasonally stronger fourth quarter with good top line growth momentum, our challenge will be to ensure that this sales growth is carried to the bottom line, particularly in our core industrial products such as roofing and sealants,” he said.
Consolidated earnings before interest and taxes (EBIT) reached $22.5 million, an improvement over the $4.7 million reported a year ago. Excluding the 2006 asbestos charge, EBIT increased 14.4%, to $22.5 million from $19.7 million.
Third-Quarter Segment Sales and Earnings
The company’s industrial segment posted a 12.5% sales increase to $425.7 million from $378.3 million in the year-ago third quarter. Organic sales increased 9.9% of which 1.9% resulted from net foreign exchange gains. Acquisitions accounted for the remaining 2.6% of the increase. Industrial segment EBIT for the third quarter was flat at $18.1 million compared to last year. “Industrial segment sales growth was solid across most product lines, with particular strength internationally,” said Sullivan.

 

 

RPM Reports Record Sales and Net Income for Fiscal 2007 Third Quarter
April 5, 2007
Page 2 of 4
“Some of our businesses, particularly wood treatments, industrial coatings, fiberglass composite structures and most international businesses generated double-digit sales growth in the quarter. Strong demand outside of the U.S. was aided by growth from new products and market share gains. Most of our remaining industrial product lines had solid sales growth this quarter, which is our seasonally slowest.” Sullivan added that “Industrial segment earnings did not keep pace with revenues, due to unusually strong earnings in the prior-year period as hurricane rebuilding efforts took hold, along with continuing raw material price pressure this third quarter. In most respects, the raw material environment has improved; however, certain materials such as zinc, copper and epoxy resins put pressure on profit margins in several product lines. Our operations have responded with good expense controls and we expect to realize price increases to offset some of these pressures going forward.”
Sales by RPM’s consumer segment increased 8.4% to $253.8 million from $234.2 million a year ago. Of the growth in sales, 5.8% was organic and the remaining growth was through acquisitions. Segment EBIT grew 15.0% to $16.9 million from $14.7 million in the fiscal 2006 third quarter, benefiting in part from weaker earnings in the prior-year period as a result of inventory adjustments by retailers.
“Led by very strong third-quarter results in small package paints, primer-sealers and specialty food coatings, our consumer segment had a good quarter,” Sullivan said. “Despite a challenging year, we are well poised to meet future demand with an impressive array of new products for the home improvement market.”
Asbestos Update
During the quarter, RPM drew down $18.2 million of its 10-year pre-tax asbestos reserve established in the fourth quarter of fiscal 2006 to cover indemnity and defense costs. Comparable costs were $17.1 million during the fiscal 2006 third quarter. The total asbestos reserve balance stood at $372.9 million at February 28, 2007. “The higher year-over-year asbestos costs in the quarter reflected the favorable resolution of a greater number of claims than last year. The rate of new case filings continues to run below prior-year levels, which is also encouraging,” said Sullivan.
Cash Flow and Financial Position
For the first nine months of fiscal 2007, after-tax cash from operations was $133.8 million, up 20.1% from $111.4 million a year ago. Capital expenditures were $34.1 million, compared to depreciation of $44.3 million over the same period. Total debt at the end of February 2007 was $936.5 million, compared to $876.6 at the end of fiscal 2006, mostly as a result of acquisitions. The company’s net (of cash) debt-to-total capitalization ratio was 43.7%, compared to 45.3% at May 31, 2006.
Nine-Month Sales and Earnings
Sales, net income and earnings per share were all records for the nine-month period ended February 28, 2007.

 

 

RPM Reports Record Sales and Net Income for Fiscal 2007 Third Quarter
April 5, 2007
Page 3 of 4
RPM’s net sales for the fiscal 2007 first nine months were up 11.1%, to $2.3 billion from $2.1 billion a year ago. Net income for the first nine months was $124.3 million, up 89.0% from the $65.8 million reported in the comparable period of fiscal 2006. Diluted per share earnings for the period increased 83.3%, to $0.99 from $0.54 a year ago. Prior-year net income included a $45.0 million pre-tax asbestos charge, while the 2007 first nine months included a $15.0 million pre-tax gain from the settlement of asbestos-related claims against an insurance carrier. Excluding these asbestos items, net income for the first nine months increased 21.2%, to $114.6 million, from $94.5 million in fiscal 2006, with diluted earnings per share improving to $0.91 from $0.76, a 19.7% increase.
Nine-month EBIT was $221.4 million, up 72.4% from the $128.4 million reported a year ago, including asbestos-related items. Excluding asbestos items, EBIT increased 19.0%, to $206.4 million from $173.4 million last year.
RPM’s industrial segment sales grew 17.6% in the fiscal 2007 first nine months, to $1.5 billion from $1.3 billion a year ago. Acquisitions represented 7.0% of this growth, with organic growth adding 10.6% of which 1.6% was from foreign exchange gains. Industrial segment EBIT increased 16.7% to $156.4 million from $134.1 million in the fiscal 2006 nine months.
Nine-month sales for the consumer segment were $833.6 million, a 1.1% increase from the $824.5 million reported in the same period of fiscal 2006. Organic sales declined by 0.2%, including a foreign exchange gain of 0.6%, while acquisitions contributed 1.3%. Consumer segment EBIT declined by 1.0%, from $87.0 million in fiscal 2006 to $86.2 million in the current fiscal year.
Rust-Oleum Completes Acquisition
Subsequent to the end of the third quarter, RPM announced on March 2, 2007 that Tor Coatings Limited, a specialty coatings producer based in Birtley, England, had been acquired and will be operated as part of the company’s Rust-Oleum subsidiary. Tor has revenue of approximately $45 million per year, and is expected to be accretive to earnings within one year.
Business Outlook
“We remain confident in our fiscal 2007 guidance of overall sales growth in the 8% to 10% range and net income growth of 10% to 12%, excluding the affect of asbestos” Sullivan said. “For the fourth quarter, we anticipate strong operating income growth in our industrial segment offset somewhat by less robust operating income performance in the consumer segment, which had a very strong final period in fiscal 2006. Having just completed our annual growth and strategy sessions, during which our operating companies laid out their plans for organic and acquisition growth in the coming years, I am excited about our future prospects as we build upon a solid finish to this fiscal year.”
Webcast and Conference Call Information
Management will host a conference call to further discuss these results beginning at 10:00 a.m. Eastern time today. The call can be accessed by dialing 800-901-5213 or 617-786-2962 for international callers. Participants are asked to call the assigned number approximately 10 minutes before the

 

 

RPM Reports Record Sales and Net Income for Fiscal 2007 Third Quarter
April 5, 2007
Page 4 of 4
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 April 5 until 11:59 p.m. Eastern time on April 12, 2007. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 36726360. 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.
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 P. Kelly Tompkins, Executive Vice President and Chief Administrative Officer at 330-273-5090 or ktompkins@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 filings with the Securities and Exchange Commission, including the risk factors set forth in the company’s Annual Report on Form 10-K for the year ended May 31, 2006, as the same may be updated 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       ADJUSTED (a)  
    Nine Months Ended     Three Months Ended       Nine Months Ended     Three Months Ended  
    February 28,     February 28,       February 28,     February 28,  
    2007     2006     2007     2006       2007     2006     2007     2006  
Net Sales
   $ 2,333,041     $ 2,099,177     $ 679,494     $ 612,475       $ 2,333,041     $ 2,099,177     $ 679,494     $ 612,475  
Cost of sales
     1,398,412       1,242,494       416,009       369,096         1,398,412       1,242,494       416,009       369,096  
 
                                                  
Gross profit
     934,629       856,683       263,485       243,379         934,629       856,683       263,485       243,379  
Selling, general & administrative expenses
     728,264       683,290       240,964       223,696         728,264       683,290       240,964       223,696  
Asbestos (income)/charge
     (15,000 )     45,000               15,000                                    
Interest expense, net
     35,664       28,391       11,146       9,962         35,664       28,391       11,146       9,962  
 
                                                  
Income (loss) before income taxes
     185,701       100,002       11,375       (5,279 )       170,701       145,002       11,375       9,721  
Provision for income taxes
     61,367       34,201       1,323       (2,592 )       56,082       50,461       1,156       2,810  
 
                                                  
Net Income (Loss)
   $ 124,334     $ 65,801     $ 10,052     $ (2,687 )     $ 114,619     $ 94,541     $ 10,219     $ 6,911  
 
                                                  
 
                                                                  
Basic earnings (loss) per share of common stock
   $ 1.06     $ 0.56     $ 0.08     $ (0.02 )     $ 0.97     $ 0.81     $ 0.09     $ 0.06  
 
                                                  
 
                                                                  
Diluted earnings (loss) per share of common stock
   $ 0.99     $ 0.54     $ 0.08     $ (0.02 )     $ 0.91     $ 0.76     $ 0.09     $ 0.06  
 
                                                  
 
                                                                  
Average shares of common stock outstanding - basic
     117,817       116,710       118,430       116,881         117,817       116,710       118,430       116,881  
 
                                                  
 
                                                                  
Average shares of common stock outstanding - diluted
     128,371       127,533       129,001       116,881         128,371       127,533       129,001       119,772  
 
                                                  
 
(a)   Adjusted figures presented remove the impact of the additional asbestos (income)/charges taken during each period presented.
SUPPLEMENTAL SEGMENT INFORMATION
(UNAUDITED) IN THOUSANDS
                                                                   
    AS REPORTED       ADJUSTED (a)  
    Nine Months Ended     Three Months Ended       Nine Months Ended     Three Months Ended  
    February 28,     February 28,       February 28,     February 28,  
    2007     2006     2007     2006       2007     2006     2007     2006  
Net Sales:
                                                                  
Industrial Segment
   $ 1,499,478     $ 1,274,722     $ 425,655     $ 378,286       $ 1,499,478     $ 1,274,722     $ 425,655     $ 378,286  
Consumer Segment
     833,563       824,455       253,839       234,189         833,563       824,455       253,839       234,189  
 
                                                  
Total
   $ 2,333,041     $ 2,099,177     $ 679,494     $ 612,475       $ 2,333,041     $ 2,099,177     $ 679,494     $ 612,475  
 
                                                  
 
                                                                  
Income (Loss) Before Income Taxes (b):
                                                                  
Industrial Segment
                                                                  
Income Before Income Taxes (b)
   $ 156,131     $ 133,466     $ 17,936     $ 17,998       $ 156,131     $ 133,466     $ 17,936     $ 17,998  
Interest (Expense), Net
     (276 )     (603 )     (167 )     (68 )       (276 )     (603 )     (167 )     (68 )
 
                                                  
EBIT (c)
   $ 156,407     $ 134,069     $ 18,103     $ 18,066       $ 156,407     $ 134,069     $ 18,103     $ 18,066  
 
                                                  
Consumer Segment
                                                                  
Income Before Income Taxes (b)
   $ 83,881     $ 87,026     $ 16,010     $ 14,533       $ 83,881     $ 87,026     $ 16,010     $ 14,533  
Interest (Expense), Net
     (2,271 )     31       (871 )     (144 )       (2,271 )     31       (871 )     (144 )
 
                                                  
EBIT (c)
   $ 86,152     $ 86,995     $ 16,881     $ 14,677       $ 86,152     $ 86,995     $ 16,881     $ 14,677  
 
                                                  
Corporate/Other
                                                                  
(Expense) Before Income Taxes (b)
   $ (54,311 )   $ (120,490 )   $ (22,571 )   $ (37,810 )     $ (69,311 )   $ (75,490 )   $ (22,571 )   $ (22,810 )
Interest (Expense), Net
     (33,117 )     (27,819 )     (10,108 )     (9,750 )       (33,117 )     (27,819 )     (10,108 )     (9,750 )
 
                                                  
EBIT (c)
   $ (21,194 )   $ (92,671 )   $ (12,463 )   $ (28,060 )     $ (36,194 )   $ (47,671 )   $ (12,463 )   $ (13,060 )
 
                                                  
 
                                                                  
Consolidated
                                                                  
Income (Loss) Before Income Taxes (b)
   $ 185,701     $ 100,002     $ 11,375     $ (5,279 )     $ 170,701     $ 145,002     $ 11,375     $ 9,721  
Interest (Expense), Net
     (35,664 )     (28,391 )     (11,146 )     (9,962 )       (35,664 )     (28,391 )     (11,146 )     (9,962 )
 
                                                  
EBIT (c)
   $ 221,365     $ 128,393     $ 22,521     $ 4,683       $ 206,365     $ 173,393     $ 22,521     $ 19,683  
 
                                                  
 
(a)   Adjusted figures presented remove the impact of the additional asbestos (income)/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 (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
                         
    February 28, 2007     February 28, 2006        
    (unaudited)     (unaudited)     May 31, 2006  
Assets
                        
Current Assets
                        
Cash and short-term investments
   $ 137,697     $ 93,077     $ 108,616  
Trade accounts receivable
     501,726       464,361       671,197  
Allowance for doubtful accounts
     (19,810 )     (20,742 )     (20,252 )
 
                  
Net trade accounts receivable
     481,916       443,619       650,945  
Inventories
     453,285       397,282       399,014  
Deferred income taxes
     56,286       40,323       48,885  
Prepaid expenses and other current assets
     190,568       165,042       161,758  
 
                  
Total current assets
     1,319,752       1,139,343       1,369,218  
 
                  
 
                        
Property, Plant and Equipment, at Cost
     909,844       834,149       887,276  
Allowance for depreciation and amortization
     (471,341 )     (421,803 )     (442,584 )
 
                  
Property, plant and equipment, net
     438,503       412,346       444,692  
 
                  
Other Assets
                        
Goodwill
     792,854       734,749       750,635  
Other intangible assets, net of amortization
     336,884       325,625       321,942  
Other
     91,593       73,870       93,731  
 
                  
Total other assets
     1,221,331       1,134,244       1,166,308  
 
                  
 
                        
Total Assets
   $ 2,979,586     $ 2,685,933     $ 2,980,218  
 
                  
 
                        
Liabilities and Stockholders’ Equity
                        
Current Liabilities
                        
Accounts payable
   $ 250,775     $ 210,851     $ 333,684  
Current portion of long-term debt
     3,514       18,600       6,141  
Accrued compensation and benefits
     112,127       87,230       136,384  
Accrued loss reserves
     68,434       64,396       66,678  
Asbestos-related liabilities
     57,925       55,000       58,925  
Other accrued liabilities
     104,363       76,033       111,688  
 
                  
Total current liabilities
     597,138       512,110       713,500  
 
                  
 
                        
Long-Term Liabilities
                        
Long-term debt, less current maturities
     933,027       860,897       870,415  
Asbestos-related liabilities
     314,935       44,156       362,360  
Other long-term liabilities
     102,215       97,599       108,002  
Deferred income taxes
     2,878       95,411          
 
                  
Total long-term liabilities
     1,353,055       1,098,063       1,340,777  
 
                  
Total liabilities
     1,950,193       1,610,173       2,054,277  
 
                  
 
                        
Stockholders’ Equity
                        
Preferred stock; none issued
                        
Common stock (outstanding 120,772; 118,474; 118,743)
     1,208       1,185       1,187  
Paid-in capital
     574,932       538,339       545,422  
Treasury stock, at cost
                        
Accumulated other comprehensive income
     40,375       25,757       29,839  
Retained earnings
     412,878       510,479       349,493  
 
                  
Total stockholders’ equity
     1,029,393       1,075,760       925,941  
 
                  
 
                        
Total Liabilities and Stockholders’ Equity
   $ 2,979,586     $ 2,685,933     $ 2,980,218  
 
                  
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED) IN THOUSANDS
                 
    Nine Months Ended February 28,  
    2007     2006  
Cash Flows From Operating Activities
                
Net income
   $ 124,334     $ 65,801  
Depreciation and amortization
     59,046       53,216  
Items not affecting cash and other
     (4,975 )     (1,123 )
Changes in operating working capital
     (13,575 )     (5,633 )
Changes in asbestos-related liabilities, net of tax
     (30,991 )     (872 )
 
            
 
     133,839       111,389  
 
            
 
                
Cash Flows From Investing Activities
                
Capital expenditures
     (34,111 )     (31,194 )
Acquisition of businesses, net of cash acquired
     (75,018 )     (162,241 )
Purchases of marketable securities
     (69,539 )     (46,637 )
Proceeds from the sale of marketable securities
     52,026       36,500  
Proceeds from the sale of assets
             10,575  
Other
     1,158       1,349  
 
            
 
     (125,484 )     (191,648 )
 
            
 
                
Cash Flows From Financing Activities
                
Additions to long-term and short-term debt
     308,375       188,914  
Reductions of long-term and short-term debt
     (252,833 )     (151,841 )
Cash dividends
     (60,949 )     (55,447 )
Exercise of stock options
     23,933       7,101  
 
            
 
     18,526       (11,273 )
 
            
 
                
Effect of Exchange Rate Changes on Cash and Short-Term Investments
     2,200       469  
 
            
 
                
Increase (Decrease) in Cash and Short-Term Investments
   $ 29,081     $ (91,063 )