RPM Reports First-Quarter Results

-- Pro-forma sales increase 6%, driving 8% increase in net income and diluted earnings per share

-- Reported sales, net income and diluted earnings per share decline slightly as a result of deconsolidation of Specialty Products Holding Corp. (SPHC) subsidiaries on May 31, 2010

Oct 06, 2010, 07:30 ET from RPM International Inc.

MEDINA, Ohio, Oct. 6 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported slight declines in sales, net income and diluted earnings per share for its fiscal 2011 first quarter ended August 31, 2010.  The declines were primarily attributable to the deconsolidation of Specialty Products Holding Corp. (SPHC) subsidiaries, all of which reported through RPM's industrial segment, at the end of the company's 2010 fiscal year.

The deconsolidation eliminated nearly $300 million in annual revenues from RPM's results, beginning in fiscal 2011. On a pro-forma basis, excluding the effect of the deconsolidation, sales, net income and earnings per diluted share all improved.

First-Quarter Results

On an "as reported" basis, first-quarter net sales of $894.8 million were 2.3% below the $916.0 million reported a year ago.  Net income attributable to RPM stockholders of $69.0 million was off 5.5% from last year's record $73.0 million.  First-quarter diluted earnings per share were $0.53, a 7.0% decrease from the $0.57 reported a year ago.  Consolidated EBIT was $122.0 million, up 1.1% from the $120.7 million in the fiscal 2010 first quarter.

On a pro-forma basis, assuming the deconsolidation of SPHC subsidiaries had been in effect during the first quarter of fiscal 2010, sales increased 6.1%, to $894.8 million from $843.0 million a year ago.  Pro-forma net income attributable to RPM stockholders improved 8.3%, to $69.0 million from $63.7 million in the fiscal 2010 first quarter, while pro-forma diluted earnings per share were up 8.2%, to $0.53 from $0.49. Pro-forma consolidated EBIT grew 7.8%, to $122.0 million from $113.2 million a year ago.  

"As announced last quarter, we will gauge our results going forward from the end of our last fiscal year on a pro-forma basis, taking into account the impact of the SPHC deconsolidation.  On an apples-to-apples basis, we are pleased with our first-quarter results in this challenging economy.  We were especially encouraged by a sharp improvement in sales by our industrial segment," stated Frank C. Sullivan, chairman and chief executive officer.

SPHC subsidiaries were deconsolidated from RPM's financial results when SPHC and its Bondex subsidiary filed Chapter 11 reorganization proceedings on May 31, 2010.  As a result of the filing, Bondex asbestos liabilities are no longer carried on RPM's balance sheet.  SPHC operating subsidiaries include Chemical Specialties Manufacturing Corp.; Day-Glo Color Corp.; Dryvit Systems, Inc.; Guardian Protection Products, Inc.; Kop-Coat, Inc.; RPM Wood Finishes Group, Inc.; and TCI, Inc.  

While RPM continues to own these businesses, they are operating independently and their results are no longer included in RPM's consolidated financial statements.  

First-Quarter Segment Sales and Earnings

The company's consumer segment, which was not affected by the deconsolidation, reported a 0.2% increase in sales to $292.5 million from $292.0 million in the fiscal 2010 first quarter. Organic sales were off 0.4%, including 0.5% in foreign exchange translation losses offset by 0.2% in volume increases and 0.6% in acquisition growth.  Consumer segment EBIT declined 2.4% to $49.0 million in the fiscal 2011 first quarter from $50.2 million in the fiscal 2010 first period.  

"Our consumer segment faced some very tough comparisons in the first quarter, as our year-earlier first quarter had strong double-digit growth in both sales and EBIT.  The segment was also impacted by significant increases in raw material costs, as well as a slowdown in consumer spending over the summer," Sullivan stated.  "Businesses within the segment continued to hold or gain market share, which should serve RPM well as consumer spending picks up," he stated.

On a pro-forma basis, industrial segment sales improved 9.3%, to $602.3 million from $551.0 million a year ago.  Pro-forma segment EBIT grew 7.5%, to $83.3 million from $77.6 million in the fiscal 2010 first quarter.  

"The pro-forma improvements in our industrial segment results reflect growth in industrial capital spending from the depressed levels of the prior year. In addition to continuing strong performance by our polymer flooring and corrosion control coatings, we saw marked improvement in roofing and concrete additives, while sales were flat year-over-year in our domestic and international sealants businesses, which are linked to commercial new construction. Raw material costs were also a challenge across our industrial businesses," stated Sullivan.  

Cash Flow and Financial Position

During the fiscal 2011 first quarter, cash from operations was $41.1 million, compared to $52.1 million a year ago.  Capital expenditures were $3.3 million in the quarter, comparable to the year-ago period.  Depreciation was $13.3 million during the first quarter of fiscal 2011.  During the quarter, the company repurchased approximately 500,000 shares of its common stock at a cost of $8.6 million under RPM's stock repurchase program.

Total debt at August 31, 2010 of $935.8 million compares to $928.6 million at May 31, 2010 and $906.7 million at the end of last year's first quarter. Net (of cash) debt-to-total capital was 38.6%, versus 34.7% at the end of last year's first quarter and 39.8% at the end of the prior fiscal year. Liquidity, including cash, was $717.3 million, as compared to $635.1 million a year ago and $688.5 million at May 31, 2010. "RPM continues to have a strong capital structure and liquidity position that will enable us to bolster our acquisition program, while funding ongoing operating needs and our dividend program," Sullivan stated.  

Turkish Acquisition Completed

On September 28, 2010, RPM announced that its Building Solutions Group has acquired Park Dis Ticaret A.S., a leading supplier of sealants, tapes and membranes to the construction markets in Turkey, Russia and the Middle East.

Based in Istanbul, Turkey, Park has annual sales of approximately $10 million and is currently a Tremco illbruck distributor. Terms of the transaction, which is expected to be accretive to earnings within one year, were not disclosed.

Business Outlook

"Based on our first-quarter results, we are holding to our fiscal 2011 guidance issued with our fiscal 2010 year-end earnings release on July 26, 2010. We continue to anticipate sales growth of between 4% and 5% to approximately $3.25 billion, from a pro-forma base of $3.12 billion in fiscal 2010 and growth in earnings per diluted share to a range of $1.35 to $1.40, up from a pro-forma $1.26 in fiscal 2010," stated Sullivan.  

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 866-271-0675 or 617-213-8892 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 6, 2010 until 11:59 p.m. EDT on October 13, 2010.  The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 20459794.  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, sealants, building materials and related services 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, Euco, Flowcrete and Universal Sealants.  RPM's consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement and by hobbyists.  Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane and Testors.  Additional details are available at www.rpminc.com.

For more information, contact Robert L. Matejka, senior vice president and chief financial officer, at 330-273-5090 or rmatejka@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) global markets and 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; (j) risks and uncertainties associated with the SPHC bankruptcy proceedings; and (k) 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, 2010, 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

AS REPORTED

PRO FORMA (a)

Three Months Ended

Three Months Ended

August 31,

August 31,

2010

2009

2010

2009

Net Sales

$ 894,810

$ 915,953

$ 894,810

$          843,024

Cost of sales

519,384

522,123

519,384

479,084

Gross profit

375,426

393,830

375,426

363,940

Selling, general & administrative expenses

253,421

273,146

253,421

250,773

Interest expense

16,042

12,797

16,042

12,791

Investment (income), net

(1,977)

(1,094)

(1,977)

(970)

Income before income taxes

107,940

108,981

107,940

101,346

Provision for income taxes

32,946

35,903

32,946

33,032

Net income

74,994

73,078

74,994

68,314

Less:  Net income attributable to noncontrolling interests

5,998

53

5,998

4,586

Net income attributable to RPM International Inc. Stockholders

$   68,996

$   73,025

$   68,996

$            63,728

Earnings per share of common stock attributable to RPM International Inc. Stockholders:

Basic

$       0.53

$       0.57

$       0.53

$                0.50

Diluted

$       0.53

$       0.57

$       0.53

$                0.49

Average shares of common stock outstanding - basic

127,787

126,774

127,787

126,774

Average shares of common stock outstanding - diluted

128,254

127,098

128,254

127,098

(a)  Pro forma figures presented for fiscal 2010 reflect results as if the deconsolidation of SPHC had occurred prior to fiscal 2010, including the recording of the non-cash non-controlling interest.  

SUPPLEMENTAL SEGMENT INFORMATION

IN THOUSANDS

UNAUDITED

AS REPORTED

PRO FORMA (a)

Three Months Ended

Three Months Ended

August 31,

August 31,

2010

2009

2010

2009

Net Sales:

Industrial Segment

$ 602,314

$ 624,027

$ 602,314

$   551,037

Consumer Segment

292,496

291,926

292,496

291,987

    Total

$ 894,810

$ 915,953

$ 894,810

$   843,024

Gross Profit:

Industrial Segment

$ 260,362

$ 276,375

$ 260,362

$   246,262

Consumer Segment

115,064

117,455

115,064

117,678

    Total

$ 375,426

$ 393,830

$ 375,426

$   363,940

Income Before Income Taxes (b):

Industrial Segment

    Income Before Income Taxes (b)

$   82,479

$   84,879

$   82,479

$     77,333

    Interest (Expense), Net (c)

(861)

(110)

(861)

(227)

    EBIT (d)

$   83,340

$   84,989

$   83,340

$     77,560

Consumer Segment

    Income Before Income Taxes (b)

$   49,027

$   50,196

$   49,027

$     50,420

    Interest (Expense), Net (c)

10

(6)

10

(5)

    EBIT (d)

$   49,017

$   50,202

$   49,017

$     50,425

Corporate/Other

    (Expense) Before Income Taxes (b)

$ (23,566)

$ (26,094)

$ (23,566)

$    (26,407)

    Interest (Expense), Net (c)

(13,214)

(11,587)

(13,214)

(11,589)

    EBIT (d)

$ (10,352)

$ (14,507)

$ (10,352)

$    (14,818)

    Consolidated

         Income Before Income Taxes (b)

$ 107,940

$ 108,981

$ 107,940

$   101,346

         Interest (Expense), Net (c)

(14,065)

(11,703)

(14,065)

(11,821)

         EBIT (d)

$ 122,005

$ 120,684

$ 122,005

$   113,167

(a) Pro forma figures presented for fiscal 2010 reflect results as if the deconsolidation of SPHC had occurred prior to fiscal 2010, including the recording of the non-cash non-controlling interest.

(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, 2010

August 31, 2009

May 31, 2010

(Unaudited)

(Unaudited)

Assets

Current Assets

Cash and cash equivalents

$          219,312

$          255,840

$     215,355

Trade accounts receivable

645,111

664,711

653,010

Allowance for doubtful accounts

(20,475)

(24,239)

(20,525)

Net trade accounts receivable

624,636

640,472

632,485

Inventories

421,228

435,174

386,982

Deferred income taxes

20,671

44,299

19,788

Prepaid expenses and other current assets

192,488

209,432

194,126

Total current assets

1,478,335

1,585,217

1,448,736

Property, Plant and Equipment, at Cost

934,136

1,055,935

924,086

Allowance for depreciation and amortization

(557,902)

(597,420)

(541,559)

Property, plant and equipment, net

376,234

458,515

382,527

Other Assets

Goodwill

783,685

860,554

768,244

Other intangible assets, net of amortization

308,318

353,820

303,159

Deferred income taxes, non-current

-

82,446

-

Other

112,273

87,318

101,358

Total other assets

1,204,276

1,384,138

1,172,761

Total Assets

$       3,058,845

$       3,427,870

$  3,004,024

Liabilities and Stockholders' Equity

Current Liabilities

Accounts payable

$          283,470

$          291,658

$     299,596

Current portion of long-term debt

2,774

169,314

4,307

Accrued compensation and benefits

100,030

99,825

136,908

Accrued loss reserves

64,412

75,559

65,813

Asbestos-related liabilities

-

75,000

-

Other accrued liabilities

138,824

134,002

124,870

Total current liabilities

589,510

845,358

631,494

Long-Term Liabilities

Long-term debt, less current maturities

932,979

737,414

924,308

Asbestos-related liabilities

-

396,772

-

Other long-term liabilities

249,443

193,954

243,829

Deferred income taxes

50,034

28,331

43,152

Total long-term liabilities

1,232,456

1,356,471

1,211,289

  Total liabilities

1,821,966

2,201,829

1,842,783

Stockholders' Equity

Preferred stock; none issued

Common stock (outstanding 129,493; 129,097; 129,918)

1,295

1,291

1,299

Paid-in capital

725,927

794,254

724,089

Treasury stock, at cost

(49,781)

(42,990)

(40,686)

Accumulated other comprehensive (loss)

(80,734)

(3,525)

(107,791)

Retained earnings

544,930

475,279

502,562

    Total RPM International Inc. stockholders' equity

1,141,637

1,224,309

1,079,473

Noncontrolling interest

95,242

1,732

81,768

    Total equity

1,236,879

1,226,041

1,161,241

Total Liabilities and Stockholders' Equity

$       3,058,845

$       3,427,870

$  3,004,024

CONSOLIDATED STATEMENTS OF CASH FLOWS 

IN THOUSANDS

UNAUDITED

Quarter Ended

August 31,

2010

2009

Cash Flows From Operating Activities:

 Net income

$   74,994

$   73,078

 Adjustments to reconcile net income to net

         cash provided by operating activities:

              Depreciation

13,330

15,557

              Amortization

4,874

5,449

              Other-than-temporary impairments on marketable securities

57

118

              Deferred income taxes

2,321

11,370

              Stock-based compensation expense

2,396

2,621

              Other

(281)

(603)

 Changes in assets and liabilities, net of effect

         from purchases and sales of businesses:

              Decrease (increase) in receivables

10,016

(1,814)

              (Increase) in inventory

(33,603)

(28,999)

              (Increase) in prepaid expenses and other

                   current and long-term assets

(12,102)

(9,135)

              (Decrease) in accounts payable

(16,781)

(3,156)

              (Decrease) in accrued compensation and benefits

(37,281)

(24,313)

              (Decrease) in accrued loss reserves

(1,431)

(1,834)

              Increase in other accrued liabilities

33,696

33,307

              Payments made for asbestos-related claims

(18,556)

              Other

918

(954)

                   Cash From Operating Activities

41,123

52,136

Cash Flows From Investing Activities:

    Capital expenditures

(3,255)

(3,262)

    Acquisition of businesses, net of cash acquired

(9,962)

(349)

    Purchase of marketable securities

(19,296)

(4,077)

    Proceeds from sales of marketable securities

20,676

897

    Other

(3,634)

501

                   Cash (Used For) Investing Activities

(15,471)

(6,290)

Cash Flows From Financing Activities:

    Additions to long-term and short-term debt

9,773

817

    Reductions of long-term and short-term debt

(2,635)

(25,290)

    Cash dividends

(26,629)

(25,701)

    Repurchase of stock

(9,101)

    Exercise of stock options

281

2,692

                    Cash (Used For) Financing Activities

(28,311)

(47,482)

Effect of Exchange Rate Changes on Cash and

    Cash Equivalents

6,616

4,089

Net Change in Cash and Cash Equivalents

3,957

2,453

Cash and Cash Equivalents at Beginning of Period

215,355

253,387

Cash and Cash Equivalents at End of Period

$ 219,312

$ 255,840

SOURCE RPM International Inc.



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