- Industrial Segment Leads Solid Growth in Sales and EBIT for Quarter and
Year
- Operating Cash Flow Up 16% for Year
- Strong Capital Structure in Place to Fund Future Organic and Acquisition
Growth
- Fiscal 09 Outlook Anticipates Continued Sales and Net Income Improvement
MEDINA, Ohio, July 21 /PRNewswire-FirstCall/ -- RPM International Inc.
(NYSE: RPM) today reported record sales for the fourth quarter and fiscal
year ended May 31, 2008. Net income for the year declined as a result of a
$288.1 million fourth-quarter pre-tax charge for anticipated future
asbestos costs. This charge extends the period covered by the company's
asbestos accrual from 2018 to 2028. Excluding the asbestos charge, sales
and net income reached record levels.
Fourth-Quarter Results
Record net sales of $1.08 billion were up 7.0% from the $1.01 billion
reported in the fiscal 2007 fourth quarter, with strong double-digit gains
in RPM's industrial segment offsetting slight declines in the consumer
segment during the quarter. Of the consolidated sales growth, 4.8% was
organic, including 3.4% in net foreign exchange gains, while 2.2% resulted
from acquisitions made during the fiscal year.
Charges for future asbestos liabilities resulted in a net loss for the
fourth quarter of $87.6 million, or $0.73 per diluted share, compared to
net income of $84.0 million, or $0.65 per diluted share, in the year-ago
period.
Excluding the asbestos charge, net income for the fourth quarter was
$97.5 million, a 16.1% increase over year-ago net income of $84.0 million.
Diluted per share earnings were up 15.4% to $0.75 from $0.65 in fiscal
2007.
The fourth-quarter loss before interest and taxes was $145.0 million,
compared to earnings before interest and taxes (EBIT) of $133.2 million a
year ago. Excluding asbestos adjustments, EBIT grew 7.5% to $143.1 million.
"RPM's business units delivered a strong finish to our fiscal year in
the face of record high raw material prices and a recessionary environment
in our core North American markets," stated Frank C. Sullivan, president
and chief executive officer. "With leading brands, maintenance- and
repair-oriented products, and the positive impact of acquisitions, we once
again demonstrated an ability to profitably grow in a challenging operating
environment," he stated.
Fourth-Quarter Segment Sales and Earnings
RPM's industrial segment sales increased 14.1% in the fiscal 2008
fourth quarter to $685.3 million from $600.9 million. Organic sales
increased 7.1%, of which 4.5% resulted from net foreign exchange gains.
Acquisitions accounted for the remaining 7.0% of the increase. Industrial
segment EBIT for the fourth quarter improved 13.6% to $89.4 million from
$78.7 million a year ago. "Our industrial segment continued to benefit from
strong demand in international markets and solid domestic sales growth,
consistent with the segment's performance over the past three fiscal
years," stated Sullivan.
"Despite record high raw material prices during the year, our
industrial businesses were able to recover most of these higher costs. New
product introductions and market share gains also aided the segment's
top-line and bottom-line results, with worldwide end markets such as
petrochemical, power generation, infrastructure improvement,
pharmaceuticals and health care driving product demand," stated Sullivan.
Consumer segment sales decreased 3.5% to $390.6 million from $404.8
million in the prior year's fourth quarter. Organic sales grew 1.4%,
including net foreign exchange gains of 1.7%. Acquisitions and divestitures
combined for a decline of 4.9%, reflecting the loss of prior-year sales by
the company's Bondo subsidiary, which was sold during the fiscal 2008
second quarter. Segment EBIT declined 2.2% to $66.7 million from $68.2
million in the fourth quarter a year ago.
"Adjusting for the impact of the Bondo divestiture, our consumer
businesses were able to generate growth in sales and earnings despite the
comparison to the prior year's record fourth quarter results. We are
pleased with this performance in the face of dramatic increases in raw
material costs and the weakness in the U.S. housing and retail markets,"
Sullivan stated.
Asbestos Update
RPM paid $15.0 million during the fourth quarter of fiscal 2008 to
cover indemnity and defense costs for asbestos litigation, compared to
$18.6 million during the fiscal 2007 fourth quarter. "These fiscal 2008
fourth-quarter cash costs are more in line with what we expect to
experience on a quarterly basis in fiscal 2009," stated Sullivan. For the
full year, RPM paid $82.6 million in pre-tax asbestos indemnity and defense
costs, compared to total cash costs for the full 2007 fiscal year of $67.0
million. Most of the year-over-year increase resulted primarily from
various one-time defense related transitional expenses that added
approximately $13.0 million to the company's fiscal 2008 outlays.
The $288.1 million fourth-quarter charge extends the company's accrual
for asbestos-related liabilities from 10 to 20 years. Following the fiscal
2008 payments, the company's total accrued asbestos liabilities are $559.7
million. "Our charge for future asbestos liabilities in fiscal 2006 covered
a 10-year horizon. With more experience in hand, we were able to project
our future asbestos exposure over a longer period. This additional charge
will move us yet another step closer to putting the asbestos issue
permanently behind us," Sullivan stated.
Fiscal 2008 Sales and Earnings
Sales in fiscal 2008 increased 9.1% to a record $3.6 billion from $3.3
billion a year ago. Sales growth was 6.9% organic, including 3.1% in net
foreign exchange gains, and 2.2% from acquisitions less divestitures. Net
income for the year was $47.7 million, including asbestos charges, compared
to net income of $208.3 million in fiscal 2007, which included income of
$15.0 million from the settlement of asbestos-related claims against an
insurance carrier during the second quarter of the prior fiscal year.
Earnings per diluted share, including asbestos charges, were $0.39 in
fiscal 2008, compared to $1.64 in earnings per fully diluted share in
fiscal 2007.
Net income, excluding asbestos items in both years, was $232.8 million
in fiscal 2008, a 17.2% improvement over the $198.6 million reported in
fiscal 2007. Earnings per diluted share grew 15.3%, to $1.81 from $1.57 in
the prior year. As a result of lower effective tax rates in a number of
jurisdictions, tax valuation reversals and certain one-time tax benefits,
the tax rate for the full fiscal year decreased to 28.9% from 32.1% a year
ago. "Excluding current-year non-recurring items, we would have posted a
still-healthy 11.0% gain to $1.75 per diluted share, prior to asbestos
items," Sullivan stated.
Fiscal 2008 EBIT was $86.0 million, compared to year-ago EBIT of $354.6
million. Excluding asbestos items, EBIT increased 10.2%, to $374.2 million
from $339.6 million last year. Income before income taxes for the year was
$327.2 million, an 11.8% increase over the $292.5 million reported a year
ago, prior to asbestos items.
RPM's industrial segment sales, 65% of total sales, grew 12.6% in
fiscal 2008, to $2.37 billion from $2.10 billion a year ago. Acquisitions
represented 3.7% of this growth, with organic growth adding 8.9%, of which
3.9% was from net foreign exchange gains. Industrial organic growth was
paced by strong double-digit gains in industrial roofing and related
services, corrosion control coatings, polymer flooring systems and
virtually all international businesses. Industrial segment EBIT increased
11.3% to $261.7 million from $235.1 million in fiscal 2007.
Sales for the consumer segment, 35% of total sales, were $1.28 billion,
a 3.2% increase from the $1.24 billion reported in fiscal 2007, most of
which was organic. The increase included a 1.6% net foreign exchange gain,
while acquisitions less divestitures were a negative 0.2%. Consumer segment
EBIT increased 4.4%, to $161.2 million from $154.4 million in fiscal 2007.
Cash Flow and Financial Position
After-tax cash from operations for fiscal 2008 increased 16.0% to
$234.7 million, up from $202.3 million a year ago. Capital expenditures for
the year were $71.8 million, compared to current year depreciation of $62.2
million. Total debt at May 31, 2008 was $1.1 billion, compared to $988.1
million at the end of fiscal 2007, mostly as a result of acquisitions. The
company's net (of cash) debt-to-total capitalization ratio was 42.6%,
compared to 43.3% at May 31, 2007.
Subsequent to year-end, RPM announced on June 13, 2008 that it had
called for redemption all of its outstanding Senior Convertible Notes due
May 13, 2033. Notes were redeemable for cash or conversion into RPM common
stock on July 14, 2008. "As expected, virtually all of these bonds were
converted to equity and the related shares were issued. On a pro-forma
basis, had the conversion been completed as of May 31, 2008, net (of cash)
debt-to-total capitalization ratio would have been 35.0%," Sullivan stated.
The company's total fully diluted share count was not impacted by this
conversion, as all of the 8,032,543 converted shares were already included
in fully diluted shares outstanding.
"This conversion strengthens our overall capital structure, which is
particularly important given the current difficult credit markets. In
combination with more than $600 million of available cash and committed
unused credit, we are well-positioned with our capital structure and
liquidity to fund our future growth and acquisition needs," stated
Sullivan.
Business Outlook
"The relative stability derived from the maintenance- and
repair-orientation of our industrial and consumer businesses that account
for nearly two-thirds of our revenue, our increasing geographic diversity
and continuing acquisition growth has served RPM well in this challenging
environment. As a result, we anticipate another year of record growth in
both sales and net income for the coming year," stated Sullivan. "From a
fiscal 2008 base of $1.75 per diluted share, which excludes both the impact
of asbestos charges and the lower year-end tax rate, we expect to be in the
range of $1.85 per diluted share in fiscal 2009. Fiscal 2009 will also be
another active year for acquisitions, which will provide upside
opportunities to our core growth outlook," added Sullivan.
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 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 12:00 p.m. Eastern time on July 21 until 11:59 p.m.
Eastern time on July 28, 2008. The replay can be accessed by dialing
888-286-8010 or 617-801-6888 for international callers. The access code is
17131098. 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, boat repair and
maintenance, and by hobbyists. Consumer brands include Zinsser, Rust-Oleum,
DAP, Varathane and Testors.
For more information, contact P. Kelly Tompkins, executive vice
president - administration and chief financial officer, at 330-273-5090 or
ktompkins@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) general economic conditions;
(b) the price, 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 liabilities, including for asbestos-related claims; and
(j) 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, 2007, 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
AS REPORTED
Three Months Ended Year Ended
May 31, May 31,
2008 2007 2008 2007
(Unaudited)
Net Sales $1,075,971 $1,005,723 $3,643,791 $3,338,764
Cost of sales 620,319 579,900 2,145,254 1,978,312
Gross profit 455,652 425,823 1,498,537 1,360,452
Selling, general &
administrative expenses 312,506 292,620 1,124,419 1,020,884
Asbestos-related
(settlement income)/charges 288,100 288,100 (15,000)
Interest expense, net 12,677 11,369 46,964 47,033
Income before income taxes (157,631) 121,834 39,054 307,535
Provision (benefit) for
income taxes (70,067) 37,880 (8,655) 99,246
Net (Loss) Income $(87,564) $83,954 $47,709 $208,289
Basic earnings (loss) per
share of common stock $(0.73) $0.70 $0.40 $1.76
Diluted earnings (loss)
per share of common stock $(0.73) $0.65 $0.39 $1.64
Average shares of common
stock outstanding - basic 120,296 119,167 120,151 118,179
Average shares of common
stock outstanding -
diluted 120,296 129,564 130,539 128,711
ADJUSTED (a)
Three Months Ended Year Ended
May 31, May 31,
2008 2007 2008 2007
(Unaudited)
Net Sales $1,075,971 $1,005,723 $3,643,791 $3,338,764
Cost of sales 620,319 579,900 2,145,254 1,978,312
Gross profit 455,652 425,823 1,498,537 1,360,452
Selling, general &
administrative expenses 312,506 292,620 1,124,419 1,020,884
Asbestos-related
(settlement income)/charges
Interest expense, net 12,677 11,369 46,964 47,033
Income before income taxes 130,469 121,834 327,154 292,535
Provision (benefit) for
income taxes 32,981 37,880 94,393 93,961
Net (Loss) Income $97,488 $83,954 $232,761 $198,574
Basic earnings (loss) per
share of common stock $0.81 $0.70 $1.94 $1.68
Diluted earnings (loss)
per share of common stock $0.75 $0.65 $1.81 $1.57
Average shares of common
stock outstanding - basic 120,296 119,167 120,151 118,179
Average shares of common
stock outstanding -
diluted 130,569 129,564 130,539 128,711
(a) Adjusted figures presented remove the impact of the asbestos-related
settlement (income) recorded during the second fiscal quarter ended
November 30, 2006 and the asbestos-related charge recorded during the
fourth fiscal quarter ended May 31, 2008.
SUPPLEMENTAL SEGMENT INFORMATION
IN THOUSANDS
(UNAUDITED)
AS REPORTED
Three Months Ended Year Ended
May 31, May 31,
2008 2007 2008 2007
(Unaudited)
Net Sales:
Industrial Segment $685,326 $600,908 $2,365,496 $2,100,386
Consumer Segment 390,645 404,815 1,278,295 1,238,378
Total $1,075,971 $1,005,723 $3,643,791 $3,338,764
Income (Loss) Before
Income Taxes (b):
Industrial Segment
Income Before
Income Taxes (b) $89,159 $76,989 $259,452 $233,120
Interest (Expense), Net (225) (1,661) (2,205) (1,937)
EBIT (c) $89,384 $78,650 $261,657 $235,057
Consumer Segment
Income Before
Income Taxes (b) $63,970 $67,615 $155,778 $151,496
Interest (Expense), Net (2,740) (624) (5,434) (2,895)
EBIT (c) $66,710 $68,239 $161,212 $154,391
Corporate/Other
(Expense) Before
Income Taxes (b) $(310,760) $(22,770) $(376,176) $(77,081)
Interest (Expense), Net (9,712) (9,084) (39,325) (42,201)
EBIT (c) $(301,048) $(13,686) $(336,851) $(34,880)
Consolidated
Income Before
Income Taxes (b) $(157,631) $121,834 $39,054 $307,535
Interest
(Expense), Net (12,677) (11,369) (46,964) (47,033)
EBIT (c) $(144,954) $133,203 $86,018 $354,568
ADJUSTED (a)
Three Months Ended Year Ended
May 31, May 31,
2008 2007 2008 2007
(Unaudited)
Net Sales:
Industrial Segment $685,326 $600,908 $2,365,496 $2,100,386
Consumer Segment 390,645 404,815 1,278,295 1,238,378
Total $1,075,971 $1,005,723 $3,643,791 $3,338,764
Income (Loss) Before
Income Taxes (b):
Industrial Segment
Income Before
Income Taxes (b) $89,159 $76,989 $259,452 $233,120
Interest (Expense), Net (225) (1,661) (2,205) (1,937)
EBIT (c) $89,384 $78,650 $261,657 $235,057
Consumer Segment
Income Before
Income Taxes (b) $63,970 $67,615 $155,778 $151,496
Interest (Expense), Net (2,740) (624) (5,434) (2,895)
EBIT (c) $66,710 $68,239 $161,212 $154,391
Corporate/Other
(Expense) Before
Income Taxes (b) $(22,660) $(22,770) $(88,076) $(92,081)
Interest
(Expense), Net (9,712) (9,084) (39,325) (42,201)
EBIT (c) $(12,948) $(13,686) $(48,751) $(49,880)
Consolidated
Income Before
Income Taxes (b) $130,469 $121,834 $327,154 $292,535
Interest
(Expense), Net (12,677) (11,369) (46,964) (47,033)
EBIT (c) $143,146 $133,203 $374,118 $339,568
(a) Adjusted figures presented remove the impact of the asbestos-related
settlement (income) recorded during the second fiscal quarter ended
November 30, 2006 and the asbestos-related charge recorded during the
fourth fiscal quarter ended May 31, 2008.
(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
May 31, 2008 May 31, 2007
(Unaudited)
Assets
Current Assets
Cash and short-term investments $231,251 $159,016
Trade accounts receivable 841,795 763,426
Allowance for doubtful accounts (24,554) (19,167)
Net trade accounts receivable 817,241 744,259
Inventories 476,149 437,759
Deferred income taxes 37,644 39,276
Prepaid expenses and other current
assets 221,690 189,939
Total current assets 1,783,975 1,570,249
Property, Plant and Equipment, at Cost 1,054,719 963,200
Allowance for depreciation and
amortization (556,998) (489,904)
Property, plant and equipment, net 497,721 473,296
Other Assets
Goodwill 908,358 830,177
Other intangible assets, net of
amortization 384,370 353,420
Other 189,143 106,007
Total other assets 1,481,871 1,289,604
Total Assets $3,763,567 $3,333,149
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $411,448 $385,003
Current portion of long-term debt 6,934 101,641
Accrued compensation and benefits 151,493 132,555
Accrued loss reserves 71,981 73,178
Asbestos-related liabilities 65,000 53,000
Other accrued liabilities 139,505 119,363
Total current liabilities 846,361 864,740
Long-Term Liabilities
Long-term debt, less current
maturities 1,066,687 886,416
Asbestos-related liabilities 494,745 301,268
Other long-term liabilities 192,412 175,958
Deferred income taxes 26,806 17,897
Total long-term liabilities 1,780,650 1,381,539
Total liabilities 2,627,011 2,246,279
Stockholders' Equity
Preferred stock; none issued
Common stock (outstanding 122,189;
120,906) 1,222 1,209
Paid-in capital 612,441 584,845
Treasury stock, at cost (6,057)
Accumulated other comprehensive income 101,162 25,140
Retained earnings 427,788 475,676
Total stockholders' equity 1,136,556 1,086,870
Total Liabilities and Stockholders'
Equity $3,763,567 $3,333,149
Consolidated Statements of Cash Flows
IN THOUSANDS
May 31, 2008 May 31, 2007
(Unaudited)
Cash Flows From Operating Activities:
Net income $47,709 $208,289
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 62,238 59,256
Amortization 23,128 22,351
Provision for asbestos-related
liabilities 288,100
Deferred income taxes (73,888) 32,740
Earnings of unconsolidated affiliates (1,645) (914)
Changes in assets and liabilities, net of
effect from purchases and sales of
businesses:
(Increase) in receivables (55,056) (75,185)
(Increase) in inventory (28,361) (23,864)
(Increase) in prepaid expenses and other
current and long-term assets (10,954) (17,777)
Increase in accounts payable 10,654 37,656
Increase (decrease) in accrued
compensation and benefits 15,810 (4,335)
Increase (decrease) in accrued
loss reserves (5,382) 6,501
Increase in other accrued liabilities 38,613 54,879
Payments made for
asbestos-related claims (82,623) (67,017)
Other 6,371 (30,275)
Cash From Operating Activities 234,714 202,305
Cash Flows From Investing Activities:
Capital expenditures (71,840) (70,393)
Acquisition of businesses, net
of cash acquired (123,130) (124,154)
Purchase of marketable securities (110,225) (96,695)
Proceeds from sales of
marketable securities 92,383 78,530
Distributions from
unconsolidated affiliates 30 72
Proceeds from sale of assets and businesses 46,544 1,516
Other (2,976) 2,873
Cash (Used For) Investing Activities (169,214) (208,251)
Cash Flows From Financing Activities:
Additions to long-term and
short-term debt 251,765 153,516
Reductions of long-term and
short-term debt (181,074) (53,560)
Cash dividends (90,638) (82,106)
Repurchase of stock (6,057)
Tax benefit from exercise of stock options 3,792 1,549
Exercise of stock options 10,689 25,833
Cash From (Used For) Financing
Activities (11,523) 45,232
Effect of Exchange Rate Changes on
Cash and Short-Term Investments 18,258 11,114
Net Change in Cash and Short-Term Investments 72,235 50,400
Cash and Short-Term Investments at
Beginning of Year 159,016 108,616
Cash and Short-Term Investments at
End of Year $231,251 $159,016
SOURCE RPM International Inc.
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Related links:
http://www.rpminc.com
CONTACT:
P. Kelly Tompkins, Executive Vice President -
Administration and Chief Financial Officer of RPM International
Inc., +1-330-273-5090, ktompkins@rpminc.com
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