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RPM Achieves Record Second-Quarter and Six-Month Sales and Earnings, Before Asbestos Charge

  • Fiscal 2005 second quarter consolidated sales rise 7.2%

  • Sales growth, cost controls, price increases temper higher raw material and fuel costs

  • Industrial segment momentum provides operating earnings leverage

  • Asbestos charge taken

MEDINA, Ohio, Jan. 6 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported record sales and continued growth in operating results for its fiscal 2005 second quarter (ended November 30, 2004) and six-month performance. A $47 million (pre-tax) charge taken this quarter to increase the company's reserves for known asbestos claims reduced earnings, which otherwise grew to record levels.

(Logo: http://www.newscom.com/cgi-bin/prnh/20010126/RPMLOGO )

"The benefits of RPM's balanced product portfolio were once again evident in the most recent completed quarter," said Frank C. Sullivan, president and CEO. "The strength of sales and earnings leverage from continued momentum in our industrial segment enabled RPM to again realize solid growth in its operating earnings, before the asbestos charge, despite moderate consumer segment sales growth this quarter and ongoing raw material cost pressures."

Second-Quarter Sales and Earnings

RPM reported consolidated net sales of $623.5 million for its fiscal 2005 second quarter, a 7.2% increase over last year's second quarter sales of $581.5 million, with the year-over-year sales growth comprised of organic growth +4.1%, favorable foreign currency translation +1.6%, and acquisitions, net of a small divestiture, +1.5%.

Including the asbestos charge, consolidated earnings before interest and taxes (EBIT) were $21.7 million compared with last year's $61.3 million. Excluding the asbestos charge, adjusted EBIT increased 12% to $68.7 million, and RPM's adjusted EBIT margin during the 2005 second quarter improved 40 basis points to 11% from 10.6% a year ago. This pre-charge margin improvement reflects the leverage benefits from the continued strength of RPM's organic sales growth, and effective cost controls and price increases, which together offset the impact of higher raw material costs and fuel-related distribution costs at the EBIT margin level. The company continues to implement price increases in an effort to recover these higher costs which have negatively affected gross margins in particular, especially in the consumer segment.

Reported net income of $9.1 million and diluted earnings per share of $0.08 compared with net income of $35.2 million and diluted earnings per share of $0.30 in the fiscal 2004 second quarter. Excluding the asbestos charge, adjusted 2005 second-quarter net income of $38.5 million increased 9.3% over last year's second quarter, while adjusted diluted earnings per share of $0.33 registered a 10% increase versus the fiscal 2004 second quarter diluted earnings. It is important to note that during the first quarter of the current fiscal year, the company elected early adoption of FAS 123 ("Accounting for Stock-Based Compensation") effective June 1, 2004. This adoption, in combination with the company's new omnibus equity incentive plan, reduced fiscal 2005 second-quarter earnings by approximately $0.01 per share. In addition, during the past year, RPM strategically approached the capital markets on two separate occasions, including the September 2004 sale of $200 million 4.45% Senior Notes due 2009, in order to strengthen the company's financial position by moving substantial portions of its debt from floating- to fixed-rates. Those deliberate changes in debt structure have resulted in comparatively higher interest costs year over year, which reduced 2005 second quarter earnings by another approximately $0.01 per share.

RPM's industrial segment sales, which accounted for approximately 59% of 2005 second-quarter consolidated sales, increased 10.5% to $364.9 million, with year-over-year sales growth comprised of organic growth +6.0%, acquisitions, net of a small divestiture, +2.4%, and favorable foreign currency translation +2.1%. RPM's industrial segment EBIT increased 18% to $45.9 million, and this segment's EBIT margin strengthened to 12.6%, an 80 basis-point improvement versus year-ago results.

RPM's consumer segment sales, which accounted for approximately 41% of 2005 second-quarter consolidated sales, increased 2.9% to $258.6 million, with year-over-year sales growth comprised of organic growth +1.8%, favorable foreign currency translation +0.9%, and a negligible benefit from acquisitions. Consumer segment sales growth was slower this second quarter as the result of various factors, including the hurricanes which struck the southeastern U.S. in September and the timing of certain order placements year-over-year. Consumer segment EBIT declined slightly to $31.3 million from $32.0 million last year, reflecting principally the segment's more modest organic sales growth during the recent quarter and significantly higher material costs, partly offset by effective cost controls and some pricing benefit this quarter.

Reconciliations of EBIT and adjusted net income to the most comparable Generally Acceptable Accounting Principles (GAAP) measures, an explanation of how RPM uses EBIT in managing its businesses and a reconciliation of reported results to results excluding the impact of the asbestos charge are provided in the supplemental data accompanying this release.

Six-Month Sales and Earnings

RPM reported consolidated net sales of $1.285 billion for the first half of fiscal 2005, a 10.5% increase over last year's six-month sales of $1.163 billion, with the year-over-year sales growth comprised of organic growth +7.7%, net favorable foreign currency translation +1.4%, and acquisitions, net of a small divestiture, +1.4%.

Reported net income of $63.6 million and diluted earnings per share of $0.54 compared with net income of $82.9 million and diluted earnings per share of $0.71 a year ago. Excluding the asbestos charge, adjusted net income of $93.0 million this year increased 12.2% over last year's first six months, while adjusted diluted earnings per share of $0.79 registered an 11.3% increase versus the fiscal 2004 first-half diluted earnings. The company's early adoption of FAS 123, effective June 1, 2004, in combination with the company's new omnibus equity incentive plan, reduced fiscal 2005 first-half earnings by approximately $0.02 per share. In addition, RPM's strategic debt structure changes during the past year, described earlier, which have caused comparatively higher interest costs year over year, reduced fiscal 2005 first- half earnings by another approximately $0.02 per share.

Six-month cash flow from operations was $99.6 million, a 33% increase over fiscal 2004 six-month cash flow of $74.8 million. After-tax asbestos-related payments during the first six months of fiscal 2005 amounted to $21.5 million versus last year's $16.5 million; however, last year had the benefit of the remaining third-party insurance supplement, amounting to $9.4 million on a pre-tax basis. Therefore, before taxes and before insurance, total asbestos- related payments through six months this year of $34.4 million compare favorably with $35.8 million last year and likewise, for the second quarter, pre-tax asbestos-related payments of $15.4 million this year compare favorably with $18.6 million last year. Through six months this year, capital expenditures of $21.8 million compare with depreciation of $24.7 million. Total debt has increased by $125.6 million, including the net refinancing proceeds, less subsequent debt paydowns of approximately $84 million, from the $200 million 4.45% Senior Notes due 2009 sold in September. The excess cash from the 4.45% Senior Notes is being held in cash and short-term investments toward satisfying RPM's indebtedness under its $150 million 7.0% Senior Notes due 2005, which mature on June 15, 2005. Accordingly, RPM's net (of cash) debt-to-capital ratio improved to 37.3% from 41.6% one year ago and from 41.1% this past year-end, May 31, 2004.

Asbestos Charge

Addressing asbestos liability reserves, the company indicated that, dating back to July 2003, it has regularly evaluated the adequacy of these reserves, and has discussed its intention to adjust these reserves when appropriate. As the company has reviewed not only its pending and known claims, but also considered recent significantly increased defense costs, which are expected to continue based on a more aggressive defense strategy, and the manner in which it intends to address new claims, RPM concluded that it was appropriate to take a $47 million pre-tax asbestos charge this quarter, which includes an increase of $32 million related to future defense costs associated with existing claims. This charge brings RPM balance sheet reserves for asbestos liability to $103 million, a level that sufficiently supports a conservatively estimated value summation of existing claims in light of this more aggressive defense strategy and associated higher expected costs.

The company further indicated that it remains unable to reasonably estimate unknown claims for several reasons. First, the net impact of positive legal reforms, such as replacing joint and several liability with proportional liability, that have already taken place in three states where RPM has had significant claims in the past, namely Mississippi, Texas and Ohio, remains unclear at this point. Second, the company's claims experience has seen several positive developments during the past year, such as increased dismissal rates and lower average settlement costs, but RPM believes it is still too soon to assume these positive changes in claims experience are trendable for future valuation purposes. Because of these uncertainties, the company will continue to evaluate this liability reserve position every quarter for existing claims and any new claims received, in light of actual claims experience, the impact of state law changes and the still-evolving nature of federal legislative efforts, and will adjust reserves accordingly each quarter going forward. For the second quarter, these considerations plus new claims received resulted in the additional $15 million charge to income and corresponding increase in asbestos liability reserves. The company believes this to be the most appropriate manner in which to continually assess and successfully manage this liability requirement for RPM and its stockholders.

Business Outlook

"We are pleased with the continued growth in our industrial segment and the improvement in our earnings that largely came from that growth. While we were disappointed by the slower growth in our consumer segment this quarter, we believe that the factors causing this are temporary and that we will see increasing revenue growth in our spring selling season," Sullivan said. "While we have implemented a number of price increases throughout our product lines already and more are coming, raw material cost increases are continuing. Our gross margins are beginning to recover though we expect raw material costs will continue to be a challenge for the rest of the year. In the meantime, we continue to pursue our strategy of complementing our organic growth with attractive acquisitions both here in North America and in Europe, and we continue to anticipate high single-digit growth in revenues and 10 to 12 percent growth in earnings for the full 2005 fiscal year, after adjusting for asbestos reserve charges.

Webcast Information

RPM 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 800-510-0178. 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 6 until 8:00 p.m. Eastern time on January 13, 2005. The replay can be accessed by dialing 888-286-8010. The access code is 78613313. 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, 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 communication, 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 and supply of raw materials, particularly titanium dioxide, certain resins, aerosols and solvents; (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. 333-114259), 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
                                        November 30,          November 30,
                                      2004        2003       2004      2003

    Net Sales                      $1,284,982  $1,162,564  $623,469  $581,541
    Cost of sales                     719,407     637,946   352,781   323,966
    Gross profit                      565,575     524,618   270,688   257,575
    Selling, general &
     administrative expenses          404,476     383,105   202,034   196,255
    Asbestos Charge                    47,000                47,000
    Interest expense, net              16,885      12,994     8,915     6,711
    Income before income taxes         97,214     128,519    12,739    54,609
    Provision for income taxes         33,616      45,624     3,627    19,386
    Net Income                        $63,598     $82,895    $9,112   $35,223

    Basic earnings per share of
     common stock                       $0.55       $0.72     $0.08     $0.30

    Diluted earnings per share of
     common stock                       $0.54       $0.71     $0.08     $0.30

    Average shares of common stock
     outstanding - basic              116,413     115,613   116,659   115,670

    Average shares of common stock
     outstanding - diluted            117,685     116,335   118,284   116,443

    (a)  Adjusted figures presented remove the impact of the asbestos
         charge taken during the second quarter of fiscal 2005.



                     CONSOLIDATED STATEMENTS OF INCOME
                                (Unaudited)
                    In thousands, except per share data

                                                    ADJUSTED (a)
                                      Six Months Ended     Three Months Ended
                                        November 30,          November 30,
                                      2004        2003       2004      2003

    Net Sales                      $1,284,982  $1,162,564  $623,469  $581,541
    Cost of sales                     719,407     637,946   352,781   323,966
    Gross profit                      565,575     524,618   270,688   257,575
    Selling, general &
     administrative expenses          404,476     383,105   202,034   196,255
    Asbestos Charge
    Interest expense, net              16,885      12,994     8,915     6,711
    Income before income taxes        144,214     128,519    59,739    54,609
    Provision for income taxes         51,241      45,624    21,252    19,386
    Net Income                        $92,973     $82,895   $38,487   $35,223

    Basic earnings per share of
     common stock                       $0.80       $0.72     $0.33     $0.30

    Diluted earnings per share of
     common stock                       $0.79       $0.71     $0.33     $0.30

    Average shares of common stock
     outstanding - basic              116,413     115,613   116,659   115,670

    Average shares of common stock
     outstanding - diluted            117,685     116,335   118,284   116,443

    (a)  Adjusted figures presented remove the impact of the asbestos
         charge taken during the second quarter of fiscal 2005.



                     SUPPLEMENTAL SEGMENT INFORMATION
                                (Unaudited)
                                In thousands

                                                   AS REPORTED
                                      Six Months Ended     Three Months Ended
                                        November 30,          November 30,
                                      2004        2003       2004      2003
    Net Sales:
      Industrial Segment             $730,396    $646,498  $364,888  $330,304
      Consumer Segment                554,586     516,066   258,581   251,237
           Total                   $1,284,982  $1,162,564  $623,469  $581,541

    Income Before Income Taxes (a):
      Industrial Segment
           Income Before Income
            Taxes (a)                $102,075     $85,961   $45,939   $38,941
           Interest (Expense), Net         24           4        13        29
           EBIT (b)                  $102,051     $85,957   $45,926   $38,912
      Consumer Segment
           Income Before Income
            Taxes (a)                 $77,666     $74,205   $31,311   $32,059
           Interest (Expense), Net        108          40        59        29
           EBIT (b)                   $77,558     $74,165   $31,252   $32,030
      Corporate/Other
           Income Before Income
            Taxes (a)                $(82,527)   $(31,647) $(64,511) $(16,391)
           Interest (Expense), Net    (17,017)    (13,038)   (8,987)   (6,769)
           EBIT (b)                  $(65,510)   $(18,609) $(55,524)  $(9,622)
           Consolidated
                Income Before
                 Income Taxes (a)     $97,214    $128,519   $12,739   $54,609
                Interest
                 (Expense), Net       (16,885)    (12,994)   (8,915)   (6,711)
                EBIT (b)             $114,099    $141,513   $21,654   $61,320

    (a)  The presentation includes a reconciliation of Income Before Income
         Taxes, a measure defined by Generally Accepted Accounting Principles
         (GAAP) in the United States, to EBIT.

    (b)  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.  EBIT should not be
         considered an alternative to, or more meaningful than, operating
         income or cash flow from operations as determined in accordance with
         GAAP, since EBIT omits the impact of interest and taxes in
         determining operating performance, and the impact of changes in
         working capital and other balance sheet items essential in
         determining operating cash flows.  Nonetheless, we believe disclosing
         EBIT is useful to our fixed income investors and the banking
         community as we believe that it is helpful in analyzing our segments'
         core operating performance and our ability to service debt and
         otherwise meet cash needs.  We also evaluate EBIT because we believe
         movements in EBIT impact our ability to attract financing.  EBIT may
         not be indicative of our historical operating results, nor is it
         meant to be predictive of potential future results.

    (c)  Adjusted figures presented remove the impact of the asbestos
         charge taken during the second quarter of fiscal 2005.



                     SUPPLEMENTAL SEGMENT INFORMATION
                                (Unaudited)
                               In thousands

                                                    ADJUSTED (c)
                                      Six Months Ended     Three Months Ended
                                        November 30,          November 30,
                                      2004        2003       2004      2003
    Net Sales:
      Industrial Segment             $730,396    $646,498  $364,888  $330,304
      Consumer Segment                554,586     516,066   258,581   251,237
           Total                   $1,284,982  $1,162,564  $623,469  $581,541

    Income Before Income Taxes (a):
      Industrial Segment
           Income Before Income
            Taxes (a)                $102,075     $85,961   $45,939   $38,941
           Interest (Expense), Net         24           4        13        29
           EBIT (b)                  $102,051     $85,957   $45,926   $38,912
      Consumer Segment
           Income Before Income
            Taxes (a)                 $77,666     $74,205   $31,311   $32,059
           Interest (Expense), Net        108          40        59        29
           EBIT (b)                   $77,558     $74,165   $31,252   $32,030
      Corporate/Other
           Income Before Income
            Taxes (a)                $(35,527)   $(31,647) $(17,511) $(16,391)
           Interest (Expense), Net    (17,017)    (13,038)   (8,987)   (6,769)
           EBIT (b)                  $(18,510)   $(18,609)  $(8,524)  $(9,622)
           Consolidated
                Income Before
                 Income Taxes (a)    $144,214    $128,519   $59,739   $54,609
                Interest
                 (Expense), Net       (16,885)    (12,994)   (8,915)   (6,711)
                EBIT (b)             $161,099    $141,513   $68,654   $61,320

    (a)  The presentation includes a reconciliation of Income Before Income
         Taxes, a measure defined by Generally Accepted Accounting Principles
         (GAAP) in the United States, to EBIT.

    (b)  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.  EBIT should not be
         considered an alternative to, or more meaningful than, operating
         income or cash flow from operations as determined in accordance with
         GAAP, since EBIT omits the impact of interest and taxes in
         determining operating performance, and the impact of changes in
         working capital and other balance sheet items essential in
         determining operating cash flows.  Nonetheless, we believe disclosing
         EBIT is useful to our fixed income investors and the banking
         community as we believe that it is helpful in analyzing our segments'
         core operating performance and our ability to service debt and
         otherwise meet cash needs.  We also evaluate EBIT because we believe
         movements in EBIT impact our ability to attract financing.  EBIT may
         not be indicative of our historical operating results, nor is it
         meant to be predictive of potential future results.

    (c)  Adjusted figures presented remove the impact of the asbestos
         charge taken during the second quarter of fiscal 2005.



                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                                   In thousands

                                                 Six Months Ended November 30,
                                                     2004              2003
    Cash Flows From Operating Activities
       Net income                                   $63,598           $82,895
       Depreciation and amortization                 32,736            30,925
       Items not affecting cash and other            23,422             8,339
       Changes in operating working
        capital                                     (28,083)          (30,860)
       Changes in asbestos-related
        liabilities, net of tax                       7,886           (16,466)
                                                     99,559            74,833

    Cash Flows From Investing Activities
       Capital expenditures                         (21,791)          (15,457)
       Acquisition of businesses, net of
        cash acquired                                (9,900)          (20,000)
       Proceeds from the sale of assets               4,500
       Other                                          1,836            (8,969)
                                                    (25,355)          (44,426)

    Cash Flows From Financing Activities
       Additions to (reductions of) long-
        term and short-term debt                    125,569            (2,893)
       Cash dividends                               (33,730)          (31,208)
       Exercise of stock options                      7,156             1,468
                                                     98,995           (32,633)

    Increase (Decrease) in Cash and
     Short-Term Investments                        $173,199           $(2,226)



                           CONSOLIDATED BALANCE SHEETS
                                   In thousands

                                           November 30, November 30,  May 31,
    Assets                                     2004        2003        2004
                                           (Unaudited)  (Unaudited)
    Current Assets
        Cash and short-term investments      $211,760     $48,498     $38,561
        Trade accounts receivable             457,909     442,349     502,994
        Allowance for doubtful accounts       (19,886)    (18,304)    (18,147)
        Net trade accounts receivable         438,023     424,045     484,847
        Inventories                           314,243     264,341     289,359
        Deferred income taxes                  53,890      54,143      51,164
        Prepaid expenses and other current
         assets                               139,432     139,446     130,686
        Total current assets                1,157,348     930,473     994,617

    Property, Plant and Equipment, at Cost    794,174     737,781     767,072
        Allowance for depreciation and
         amortization                        (408,516)   (368,929)   (386,017)
        Property, plant and equipment, net    385,658     368,852     381,055

    Other Assets
        Goodwill                              662,968     648,364     648,243
        Other intangible assets, net of
         amortization                         282,310     277,471     282,372
        Other                                  50,716      36,074      46,832
        Total other assets                    995,994     961,909     977,447

    Total Assets                           $2,539,000  $2,261,234  $2,353,119

    Liabilities and Stockholders' Equity

    Current Liabilities
        Accounts payable                     $184,496    $150,785    $205,092
        Current portion of long-term debt       4,164       1,615         991
        Accrued compensation and benefits      68,572      67,997      88,670
        Accrued loss reserves                  50,948      57,759      56,699
        Asbestos-related liabilities           50,000      49,203      47,500
        Other accrued liabilities              76,887      66,265      72,222
        Income taxes payable                   10,499      (2,024)      6,319
        Total current liabilities             445,566     391,600     477,493

    Long-Term Liabilities
        Long-term debt, less current
         maturities                           837,926     721,620     718,929
        Asbestos-related liabilities           53,225      69,035      43,107
        Other long-term liabilities            66,630      60,480      59,910
        Deferred income taxes                  77,452      73,159      78,388
        Total long-term liabilities         1,035,233     924,294     900,334
           Total liabilities                1,480,799   1,315,894   1,377,827

    Stockholders' Equity
        Preferred stock; none issued
        Common stock (outstanding 117,146;
         115,702; 116,122)                      1,172       1,157       1,161
        Paid-in capital                       528,885     509,999     513,986
        Treasury stock, at cost                              (337)
        Accumulated other comprehensive
         income (loss)                         34,251      (2,958)     (3,881)
        Retained earnings                     493,893     437,479     464,026
        Total stockholders' equity          1,058,201     945,340     975,292

    Total Liabilities and Stockholders'
     Equity                                $2,539,000  $2,261,234  $2,353,119

SOURCE: RPM International Inc.

CONTACT: Glenn R. Hasman, vice president - finance and communication of RPM International Inc., +1-330-273-8820, or ghasman@rpminc.com


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