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8-K - FORM 8-K - RPM INTERNATIONAL INC/DE/l42348e8vk.htm
Exhibit 99.1
RPM Reports Sharply Improved Fiscal 2011 Third-Quarter Results
    Third-quarter net sales increase 13% over pro-forma prior year
 
    Positive net income and earnings per share contrast with year-earlier loss in seasonally weak third quarter
 
    Company increases full-year guidance for fiscal 2011
MEDINA, OH — April 7, 2011 — RPM International Inc. (NYSE: RPM) today reported a sharp increase in net sales for its fiscal 2011 third quarter ended February 28, 2011, compared to year-earlier pro-forma net sales. RPM also posted positive net income and earnings per share for the seasonally weak quarter, contrasted with a year-earlier pro-forma loss. Prior-year pro-forma results assume that the deconsolidation of its Specialty Products Holding Corp. (SPHC) and subsidiaries occurred before fiscal 2010. The deconsolidation eliminated approximately $300 million in annual revenues from the company’s industrial segment beginning June 1, 2010.
Third-Quarter Results
Net sales, net income and earnings per share for the third quarter all posted sharp improvements versus prior-year pro-forma results. Net sales grew 12.6% to $678.9 million from a pro-forma $603.1 million, while net income attributable to RPM stockholders was $1.1 million, compared to a year earlier pro-forma loss of $9.7 million. Diluted earnings per share were $0.01, contrasted with a pro-forma loss of $0.08 in the year-ago period. Consolidated earnings before interest and taxes (EBIT) grew 323.8%, to $13.6 million from a pro-forma $3.2 million in the fiscal 2010 third quarter.
“We are extremely pleased with RPM’s performance during the typically weak third quarter and in the face of significantly higher raw material costs coupled with severe winter weather conditions across the U.S. Nearly all of our business units generated strong sales increases and substantially stronger growth in earnings,” stated Frank C. Sullivan, chairman and chief executive officer.
On an as-reported basis, RPM’s net sales of $678.9 million were up 1.8% from the $666.6 million reported in the fiscal 2010 third quarter. Net income attributable to RPM stockholders was $1.1 million, contrasted with a loss of $9.4 million in the third quarter of fiscal 2010, while earnings per diluted share of $0.01 compared to a loss of $0.07 a year ago. Consolidated EBIT increased 375.8% to $13.6 million from $2.9 million in the fiscal 2010 third period.
Third-Quarter Segment Sales and Earnings
On a pro-forma basis, industrial segment sales grew 14.0% to $449.1 million in the fiscal 2011 third quarter from a pro-forma $393.9 million a year ago. Organic sales improved 11.2%, including 0.3% in foreign exchange translation gains, while acquisition growth added 2.8%. Industrial segment EBIT increased 664.1%, to $13.6 million from a pro-forma $1.8 million in the fiscal 2010 third quarter.
“Following two years of depressed demand for our products serving commercial construction markets, we are starting to see some improvement in our businesses that address this sector of the economy,

 


 

RPM Reports Sharply Improved Fiscal 2011 Third-Quarter Results
April 7, 2011
Page 2
both domestically and in Europe. At the same time, our high-performance industrial coatings, maintenance products and polymer flooring systems continued their strong sales performance,” Sullivan stated.
RPM’s consumer segment, largely unaffected by the deconsolidation, had a 9.8% increase in net sales to $229.8 million from a pro-forma $209.2 million in the fiscal 2010 third quarter. Organic sales were up 9.9%, including foreign exchange translation gains of 0.1%, while the divestiture of a small product line reduced organic growth by 0.1%. Consumer segment EBIT improved 30.1%, to $16.0 million from a pro-forma $12.3 million a year ago.
“Our consumer lines benefited from the gradual economic recovery, consumer acceptance of new product introductions and market share gains achieved during the recent downturn,” stated Sullivan.
Cash Flow and Financial Position
For the first nine months of fiscal 2011, cash from operations was $191.0 million, compared to $188.9 million in the first nine months of fiscal 2010. Capital expenditures during the current nine-month period of $21.7 million compare to depreciation of $39.5 million. Total debt at the end of the first nine months was $935.7 million, compared to $928.6 million at the end of fiscal 2010 and $908.1 million at the end of the third quarter of fiscal 2010. RPM’s net (of cash) debt-to-total capitalization ratio was 35.3%, compared to 39.8% at May 31, 2010, and both remain at the low end of the company’s historic norms.
On January 5, 2011, RPM replaced its $400 million bank revolving credit facility, having a December 2011 maturity date, with a new $400 million revolving credit facility, which is due in January 2015. The new facility reduced the cost of RPM’s bank borrowing spread to 2.0% from 2.5% and changed the debt-to-total capitalization ratio limitation to 60% from 55%.
“We are using our strong cash and liquidity position to support a very robust acquisition pipeline, as well as internal investment. At February 28, 2011, liquidity, including cash and long-term committed available credit, stood at $715.7 million,” Sullivan stated.
Nine-Month Sales and Earnings
On a pro-forma basis, fiscal 2011 nine-month net sales, net income and earnings per share all posted gains. Net sales increased 7.6% to $2.4 billion from a pro-forma $2.2 billion during the first nine months of fiscal 2010. Net income attributable to RPM stockholders improved 16.8% to $118.9 million from a pro-forma $101.7 million in the fiscal 2010 first nine months. Diluted earnings per share attributable to RPM stockholders grew 15.2% to $0.91 from a pro-forma $0.79 a year ago. Consolidated EBIT increased 10.6% to $225.0 million from a pro-forma $203.4 million during the first nine months of fiscal 2010.
On an as-reported basis, net sales for the first nine months of fiscal 2011 declined 1.7% to $2.40 billion from the $2.44 billion reported a year ago. Nine-month net income attributable to RPM stockholders also declined 0.5% to $118.9 million from $119.5 million reported during the first nine months of

 


 

RPM Reports Sharply Improved Fiscal 2011 Third-Quarter Results
April 7, 2011
Page 3
fiscal 2010. Diluted earnings per share attributable to RPM stockholders fell 2.2% to $0.91 in the fiscal 2011 first nine months from $0.93 a year ago. Consolidated EBIT was $225.0 million, up 3.7% from the $216.9 million reported in the fiscal 2010 first nine months.
Nine-Month Segment Sales and Earnings
Sales for RPM’s industrial segment increased 10.1%, to $1.63 billion from a pro-forma $1.48 billion in the fiscal 2010 first nine months. The organic sales increase was 6.8%, including net foreign exchange losses of 0.7%, and acquisition growth added 3.3%. Industrial segment EBIT grew 12.2% to $165.6 million from a pro-forma $147.5 million in the first nine months of fiscal 2010.
In the consumer segment, nine-month sales increased 2.7% to $766.2 million from a pro-forma $746.4 million reported in the first nine months of fiscal 2010. Organic sales increased by 2.6%, including net foreign exchange losses of 0.3%, offset by acquisition growth net of a small divestiture of 0.1%. Consumer segment EBIT fell 2.4%, to $92.3 million from a pro-forma $94.7 million in the first nine months a year ago.
Corporate and other expenses were lower for the nine-month period by approximately $5.8 million, due primarily to insurance recoveries of $2.9 million and ongoing expense improvements.
Synthetic Fiber Manufacturer Acquired
On February 10, 2011, RPM announced that its Euclid Chemical Company acquired PSI Packaging, Inc. (PSI), a $6 million producer of micro- and macro-fibers for the ready-mixed and pre-cast concrete market. With headquarters and manufacturing located in LaFayette, GA, PSI will operate as part of Euclid Chemical and will provide both a complementary product line to existing Euclid Chemical fiber products, as well as manufacturing capacity and expertise. Terms of the transaction, which is expected to be accretive to earnings within one year, were not disclosed.
Business Outlook
“As a result of the comparatively strong third-quarter performance in a seasonally weak period, as well as our fourth-quarter outlook, we are increasing our fiscal year 2011 guidance. We now expect sales growth of between 7% and 8% to approximately $3.35 billion from a pro-forma base of $3.12 billion in fiscal 2010 and growth in diluted earnings per share to a range of $1.40 to $1.45, up from a pro-forma $1.26 per share in fiscal 2010. Our original guidance, announced on July 26, 2010, anticipated sales growth of between 4% and 5% to approximately $3.25 billion and growth in diluted earnings per share to a range of $1.35 to $1.40. During the third quarter, we saw signs of improvement in the commercial construction market, while consumer sales also rebounded from a flat first six months. Both price and availability of raw materials remain challenging, and we expect this environment to continue through the fourth quarter and into the 2012 fiscal year,” Sullivan stated.

 


 

RPM Reports Sharply Improved Fiscal 2011 Third-Quarter Results
April 7, 2011
Page 4
Webcast and Conference Call Information
Management will host a conference call to further discuss these results beginning at 10:00 a.m. EST today. The call can be accessed by dialing 866-362-4829 or 617-597-5346 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 April 7, 2011 until 11:59 p.m. EDT on April 14, 2011. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 38917518. 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     Nine Months Ended       Three Months Ended     Nine Months Ended  
    February 28,     February 28,       February 28,     February 28,  
    2011     2010     2011     2010       2010     2010  
Net Sales
  $ 678,920     $ 666,594     $ 2,400,073     $ 2,441,205       $ 603,083     $ 2,230,560  
Cost of sales
    409,402       406,762       1,415,632       1,424,332         366,313       1,295,439  
 
                                     
Gross profit
    269,518       259,832       984,441       1,016,873         236,770       935,121  
Selling, general & administrative expenses
    255,930       256,976       759,421       799,975         233,564       731,679  
Interest expense
    16,502       15,802       49,012       43,271         15,796       43,254  
Investment (income), net
    (4,903 )     (1,833 )     (11,189 )     (4,984 )       (1,802 )     (4,795 )
 
                                     
Income before income taxes
    1,989       (11,113 )     187,197       178,611         (10,788 )     164,983  
Provision for income taxes
    796       (1,949 )     57,507       58,305         (2,332 )     52,659  
 
                                     
Net income
    1,193       (9,164 )     129,690       120,306         (8,456 )     112,324  
Less: Net income attributable to noncontrolling interests
    96       236       10,806       788         1,216       10,581  
 
                                     
Net income attributable to RPM International Inc. Stockholders
  $ 1,097     $ (9,400 )   $ 118,884     $ 119,518       $ (9,672 )   $ 101,743  
 
                                     
 
                                                 
Earnings per share of common stock attributable to RPM International Inc. Stockholders:
                                                 
 
                                                 
Basic
  $ 0.01     $ (0.07 )   $ 0.92     $ 0.93       $ (0.08 )   $ 0.79  
 
                                     
 
                                                 
Diluted
  $ 0.01     $ (0.07 )   $ 0.91     $ 0.93       $ (0.08 )   $ 0.79  
 
                                     
 
                                                 
Average shares of common stock outstanding — basic
    127,166       127,500       127,383       126,940         127,500       126,940  
 
                                     
 
                                                 
Average shares of common stock outstanding — diluted
    129,442       127,500       128,020       127,539         127,500       127,539  
 
                                     
 
(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     Nine Months Ended       Three Months Ended     Nine Months Ended  
    February 28,     February 28,       February 28,     February 28,  
    2011     2010     2011     2010       2010     2010  
Net Sales:
                                                 
Industrial Segment
  $ 449,092     $ 457,683     $ 1,633,914     $ 1,695,206       $ 393,861     $ 1,484,144  
Consumer Segment
    229,828       208,911       766,159       745,999         209,222       746,416  
 
                                     
Total
  $ 678,920     $ 666,594     $ 2,400,073     $ 2,441,205       $ 603,083     $ 2,230,560  
 
                                     
Income Before Income Taxes (b):
                                                 
Industrial Segment
                                                 
Income Before Income Taxes (b)
  $ 12,603     $ 1,442     $ 162,754     $ 160,742       $ 1,737     $ 146,971  
Interest (Expense), Net (c)
    (968 )     (17 )     (2,837 )     (384 )       (39 )     (553 )
 
                                     
EBIT (d)
  $ 13,571     $ 1,459     $ 165,591     $ 161,126       $ 1,776     $ 147,524  
 
                                     
Consumer Segment
                                                 
Income Before Income Taxes (b)
  $ 16,002     $ 12,340     $ 92,381     $ 94,320       $ 12,295     $ 94,655  
Interest (Expense), Net (c)
    3       3       33       (7 )       1       (8 )
 
                                     
EBIT (d)
  $ 15,999     $ 12,337     $ 92,348     $ 94,327       $ 12,294     $ 94,663  
 
                                     
Corporate/Other
                                                 
(Expense) Before Income Taxes (b)
  $ (26,616 )   $ (24,895 )   $ (67,938 )   $ (76,451 )     $ (24,820 )   $ (76,643 )
Interest (Expense), Net (c)
    (10,634 )     (13,955 )     (35,019 )     (37,896 )       (13,956 )     (37,898 )
 
                                     
EBIT (d)
  $ (15,982 )   $ (10,940 )   $ (32,919 )   $ (38,555 )     $ (10,864 )   $ (38,745 )
 
                                     
Consolidated
                                                 
Income Before Income Taxes (b)
  $ 1,989     $ (11,113 )   $ 187,197     $ 178,611       $ (10,788 )   $ 164,983  
Interest (Expense), Net (c)
    (11,599 )     (13,969 )     (37,823 )     (38,287 )       (13,994 )     (38,459 )
 
                                     
EBIT (d)
  $ 13,588     $ 2,856     $ 225,020     $ 216,898       $ 3,206     $ 203,442  
 
                                     
 
(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
                         
    February 28, 2011     February 28, 2010     May 31, 2010  
    (Unaudited)     (Unaudited)          
Assets
                       
Current Assets
                       
Cash and cash equivalents
  $ 275,479     $ 256,199     $ 215,355  
Trade accounts receivable
    566,355       526,460       654,435  
Allowance for doubtful accounts
    (22,485 )     (24,270 )     (20,525 )
 
                 
Net trade accounts receivable
    543,870       502,190       633,910  
Inventories
    472,984       441,578       386,982  
Deferred income taxes
    21,434       44,215       19,788  
Prepaid expenses and other current assets
    217,962       222,689       194,126  
 
                 
Total current assets
    1,531,729       1,466,871       1,450,161  
 
                 
Property, Plant and Equipment, at Cost
    978,169       1,067,577       924,086  
Allowance for depreciation and amortization
    (596,691 )     (622,618 )     (541,559 )
 
                 
Property, plant and equipment, net
    381,478       444,959       382,527  
 
                 
Other Assets
                       
Goodwill
    824,413       882,739       768,244  
Other intangible assets, net of amortization
    314,368       366,127       303,159  
Deferred income taxes, non-current
          62,474        
Other
    103,770       114,195       99,933  
 
                 
Total other assets
    1,242,551       1,425,535       1,171,336  
 
                 
Total Assets
  $ 3,155,758     $ 3,337,365     $ 3,004,024  
 
                 
Liabilities and Stockholders’ Equity
                       
Current Liabilities
                       
Accounts payable
  $ 264,539     $ 230,361     $ 299,596  
Current portion of long-term debt
    2,867       5,534       4,307  
Accrued compensation and benefits
    127,964       121,856       136,908  
Accrued loss reserves
    64,885       74,562       65,813  
Asbestos-related liabilities
          75,000        
Other accrued liabilities
    144,398       132,271       124,870  
 
                 
Total current liabilities
    604,653       639,584       631,494  
 
                 
Long-Term Liabilities
                       
Long-term debt, less current maturities
    932,839       902,563       924,308  
Asbestos-related liabilities
          357,891        
Other long-term liabilities
    256,265       200,924       243,829  
Deferred income taxes
    55,331       28,389       43,152  
 
                 
Total long-term liabilities
    1,244,435       1,489,767       1,211,289  
 
                 
Total liabilities
    1,849,088       2,129,351       1,842,783  
 
                 
Stockholders’ Equity
                       
Preferred stock; none issued Common stock (outstanding 130,430; 129,601; 129,918)
    1,304       1,296       1,299  
Paid-in capital
    745,514       798,721       724,089  
Treasury stock, at cost
    (62,430 )     (40,237 )     (40,686 )
Accumulated other comprehensive (loss)
    (13,122 )     (23,798 )     (107,791 )
Retained earnings
    540,258       468,675       502,562  
 
                 
Total RPM International Inc. stockholders’ equity
    1,211,524       1,204,657       1,079,473  
Noncontrolling interest
    95,146       3,357       81,768  
 
                 
Total equity
    1,306,670       1,208,014       1,161,241  
 
                 
Total Liabilities and Stockholders’ Equity
  $ 3,155,758     $ 3,337,365     $ 3,004,024  
 
                 

 


 

CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
UNAUDITED
                 
    Nine Months Ended  
    February 28,  
    2011     2010  
Cash Flows From Operating Activities:
               
Net income
  $ 129,690     $ 120,306  
Adjustments to reconcile net income to net cash provided by operating activities:
               
Depreciation
    39,482       46,622  
Amortization
    15,049       16,600  
Deferred income taxes
    5,831       23,765  
Stock-based compensation expense
    8,769       7,423  
Other
    (308 )     (1,130 )
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
               
Decrease in receivables
    98,554       154,567  
(Increase) in inventory
    (81,387 )     (27,732 )
(Increase) in prepaid expenses and other current and long-term assets
    (15,564 )     (16,906 )
(Decrease) in accounts payable
    (38,356 )     (72,592 )
(Decrease) in accrued compensation and benefits
    (9,509 )     (10,246 )
(Decrease) in accrued loss reserves
    (958 )     (2,830 )
Increase in other accrued liabilities
    25,284       4,171  
Payments made for asbestos-related claims
            (57,437 )
Other
    14,407       4,292  
 
           
Cash From Operating Activities
    190,984       188,873  
 
           
Cash Flows From Investing Activities:
               
Capital expenditures
    (21,737 )     (14,069 )
Acquisition of businesses, net of cash acquired
    (38,972 )     (63,669 )
Purchase of marketable securities
    (71,556 )     (76,166 )
Proceeds from sales of marketable securities
    63,369       66,375  
Other
    2,347       (186 )
 
           
Cash (Used For) Investing Activities
    (66,549 )     (87,715 )
 
           
Cash Flows From Financing Activities:
               
Additions to long-term and short-term debt
    37,831       304,106  
Reductions of long-term and short-term debt
    (30,739 )     (327,472 )
Cash dividends
    (81,189 )     (78,798 )
Repurchase of stock
    (21,759 )     (1,832 )
Exercise of stock options
    8,053       6,919  
 
           
Cash (Used For) Financing Activities
    (87,803 )     (97,077 )
 
           
 
               
Effect of Exchange Rate Changes on Cash and Cash Equivalents
    23,492       (1,269 )
 
           
 
               
Net Change in Cash and Cash Equivalents
    60,124       2,812  
 
               
Cash and Cash Equivalents at Beginning of Period
    215,355       253,387  
 
           
 
               
Cash and Cash Equivalents at End of Period
  $ 275,479     $ 256,199