RPM Reports Record Third Quarter Results
o Sales increase 19%
o Excluding asbestos charges, earnings increase 53%
o Record earnings anticipated for full fiscal year 2006, excluding asbestos charges
MEDINA, Ohio, April 6 /PRNewswire-FirstCall/ -- RPM International Inc.
(NYSE: RPM) today reported record sales of $612.5 million for its fiscal third
quarter ended February 28, 2006, an 18.6% increase over sales of $516.3
million in the year-ago third period.
RPM's third-quarter 2006 net loss for the seasonally-weak third quarter
was $2.7 million, a 43.7% improvement versus the year-earlier loss of $4.8
million. The loss per diluted share improved by 50.0%, to ($0.02) from
($0.04). Both periods include $15.0 million in pre-tax reserve charges for
asbestos liability. Excluding the asbestos charges, RPM's third-quarter 2006
net income was up 52.6% to $6.9 million, from $4.5 million a year ago, and
earnings per diluted share grew 50.0% to $0.06 from $0.04.
Third-quarter earnings before interest and taxes (EBIT) were $4.7 million
compared with EBIT of $0.8 million a year ago. Excluding asbestos charges,
EBIT grew 24.2%, to $19.7 million from $15.8 million in the 2005 third
quarter.
"We continue to be encouraged by what we're seeing in our top line," said
Frank C. Sullivan, president and chief executive officer. "Strong demand
continues to drive organic sales throughout the business, producing 10.0% of
our growth this quarter. Acquisition growth was 9.0%, reflecting mainly the
purchase of illbruck Sealant Systems ("illbruck") on August 31, 2005, as well
as the sale of Thibaut Inc. on January 11, 2006," he said.
"During this period, RPM's gross margins began to recover as our own
higher pricing was able to offset higher raw material costs, many of which
have begun to moderate. With strong sales momentum carrying into our fourth
quarter and with our margins recovering, we expect to achieve record sales and
earnings for the full fiscal year ending May 31, 2006, excluding asbestos
charges," stated Sullivan.
Third-Quarter Segment Sales and Earnings
Sales for RPM's industrial segment grew 29.0%, to $378.3 million in the
fiscal 2006 third quarter from $293.1 million a year ago. Of this increase,
15.9% was the result of the illbruck acquisition and four smaller
acquisitions. Organic growth for this segment was 14.2%, reflecting continued
strong demand across all industrial markets. Foreign exchange differences
reduced industrial sales growth by 1.1% during the third quarter. Industrial
EBIT increased 47.7% for the quarter, to $18.1 million from $12.2 million a
year ago.
Consumer segment sales increased 4.9%, reflecting solid organic growth of
6.1%, partly offset by the sale of Thibaut and foreign exchange differences.
Almost every consumer segment product line participated in 5% or higher sales
growth during the quarter. RPM's consumer segment EBIT grew 13.9%, to $14.7
million in the 2006 third quarter from $12.9 million a year ago.
RPM's corporate/other segment expenses before interest and taxes increased
$3.8 million over the 2005 second quarter, reflecting primarily higher health
care costs for the company's U.S. and Canadian employees. Despite this
increase, total SG&A expenses improved, declining to 36.7% of sales from 37.8%
a year ago.
Asbestos Liability
The company took an additional $15.0 million pre-tax charge in the third
quarter to increase its asbestos liability reserves, which now total $99.2
million on RPM's balance sheet. The charge for this third quarter matches a
similar charge taken a year ago. On a year-to-date basis, RPM has taken $45.0
million in pre-tax charges to increase asbestos liability reserves, compared
with $62.0 million in the first nine months of fiscal 2005. Before tax
asbestos-related payments were $17.1 million in the third quarter, bringing
total payments for the first nine months of fiscal 2006 to $47.0 million,
which compares favorably to $56.3 million paid during the first nine months of
fiscal 2005. During the quarter, the company retained a third-party
consultant to assist in a review of its potential liability for future,
unasserted asbestos claims and expects to complete this evaluation in the
coming months.
"While asbestos remains a challenge, we are pleased with our year over
year progress in managing this issue, which has resulted in reduced settlement
costs, increased dismissal rates, and lower total costs on an annual basis.
Our defense strategy, coupled with the benefit of an improving legal
environment at the state level and greater scrutiny of the abuses inherent in
this litigation at several levels, should continue to favorably impact our
annual costs," Sullivan said.
Business Transactions
During the third quarter, two RPM business units made acquisitions to
further their market penetration. Both are expected to be accretive to
earnings within a year.
On January 1, 2006, Euclid Chemical Company, part of RPM's Tremco Group,
acquired Tamm's Industries, a $20.0 million producer of high-performance
restoration, protection and waterproofing products for the concrete
construction industry.
On February 13, 2006, DAP acquired Custom Building Products' ready-to-use
(pre-mix) patch and repair product line, further extending DAP's product line.
On January 11, 2006, RPM sold its non-core Thibaut Inc. wallcovering
business to its management and The Riverside Company, a private equity firm.
Cash Flow and Financial Position
Cash generated by RPM operations amounted to $111.4 million through the
first nine months of fiscal 2006, up 29.9% from $85.7 million a year ago.
Capital expenditures to date in 2006 were $31.2 million, compared with
depreciation of $40.9 million during the same period. RPM's total debt was
$879.5 million at the end of the third quarter, compared to $838.0 million at
the end of fiscal 2005. The increase is due primarily to acquisition costs,
mainly illbruck, offset by the retirement of $150.0 million in 7.0% bonds that
matured on June 15, 2005. As of February 28, 2006, RPM's debt-to-
capitalization ratio was 45.0% compared with 44.7% at May 31, 2005 and 45.0%
one year ago.
Nine-Month Sales and Earnings
For the first nine months of fiscal 2006, net sales increased 16.5%, to
$2.1 billion from $1.8 billion a year ago. Nine-month EBIT increased 11.7% to
$128.4 million from $114.9 million a year ago. Nine-month net income was up
11.9% to $65.8 million from $58.8 million in the prior year. Diluted earnings
per share were $0.54, up 12.5% from $0.48 earned in the first nine months of
2005.
Excluding asbestos charges, nine-month 2006 net income of $94.5 million
declined 3.0% from 2005 nine-month net income of $97.5 million, EBIT declined
2.0% to $173.4 million from $176.9 million and diluted earnings per share
declined 3.8% to $0.76 from $0.79. These declines are principally the result
of the impact of the Gulf Coast hurricanes last fall and the $10.2 million
($0.05 per diluted share) of one-time costs incurred during this year's second
quarter, mostly related to the September 2005 finalization of the Dryvit
national residential class action settlement.
Industrial segment sales grew 24.5% during this year's first nine months,
to $1.27 billion from $1.02 billion in fiscal 2005. Of this growth, 13.1% was
organic and 11.3% was acquisition-related. The segment's EBIT for the period
increased 17.3%, to $134.1 million from $114.3 million.
Consumer segment sales grew organically 6.0%, to $824.5 million from
$777.8 million in the first nine months of fiscal 2005. EBIT declined 3.8%,
to $87.0 million from $90.4 million a year ago, due primarily to net higher
raw material costs not fully offset by higher selling prices.
Business Outlook
"Business conditions remain strong, evidenced by our unit sales growth,
which continues to build. We are gaining relief from the sharp raw material
cost increases we've been experiencing, as reflected by the third quarter's
improving gross margins. Following the negative impact of hurricanes in our
second quarter, Gulf Coast rebuilding efforts already have become a slight
positive for RPM in the third quarter, and will likely continue to boost sales
through this year. All of these improvements, coupled with the passage of
one-time cost events that uniquely impacted this year's second quarter, bode
well for a strong finish to this year, with continued momentum into 2007,"
Sullivan said.
Webcast and Conference Call Information
Management will host a conference call to further discuss these results
and the fiscal year outlook beginning at 10:00 a.m. EDT today. The call can
be accessed by dialing 800-798-2796 or 617-614-6204 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. EDT on April 6 until 11:59 p.m. EDT on April 13,
2006. The replay can be accessed by dialing 888-286-8010 or 617-801-6888.
The access code is 99715453. 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 www.rpminc.com.
RPM International Inc., a holding company, owns subsidiaries that are
world leaders in specialty coatings and sealants serving both industrial and
consumer markets. RPM's industrial products include roofing systems, sealants,
corrosion control coatings, flooring coatings and specialty chemicals.
Industrial brands include Stonhard, Tremco, illbruck, Carboline, Day-Glo, Euco
and Dryvit. RPM's consumer products are used by professionals and do-it-
yourselfers for home maintenance and improvement, automotive and boat repair
and maintenance, and by hobbyists. Consumer brands include Zinsser, Rust-
Oleum, DAP, Varathane, Bondo and Testors.
For more information, contact Glenn R. Hasman, vice president - finance
and communications, at 330-273-8820 or ghasman@rpminc.com.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
IN THOUSANDS, EXCEPT PER SHARE DATA
AS REPORTED
Nine Months Ended Three Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
Net Sales $2,099,177 $1,801,319 $612,475 $516,337
Cost of sales 1,239,459 1,024,627 368,135 305,220
Gross profit 859,718 776,692 244,340 211,117
Selling, general &
administrative expenses 686,325 599,749 224,657 195,273
Asbestos charges 45,000 62,000 15,000 15,000
Interest expense, net 28,391 25,485 9,962 8,600
Income (loss) before income
taxes 100,002 89,458 (5,279) (7,756)
Provision for income taxes 34,201 30,632 (2,592) (2,984)
Net Income (Loss) $65,801 $58,826 $(2,687) $(4,772)
Basic earnings (loss) per
share of common stock $0.56 $0.50 $(0.02) $(0.04)
Diluted earnings (loss) per
share of common stock $0.54 $0.48 $(0.02) $(0.04)
Average shares of common stock
outstanding - basic 116,710 116,700 116,881 117,284
Average shares of common stock
outstanding - diluted 127,533 126,206 116,881 117,284
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
IN THOUSANDS, EXCEPT PER SHARE DATA
ADJUSTED (a)
Nine Months Ended Three Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
Net Sales $2,099,177 $1,801,319 $612,475 $516,337
Cost of sales 1,239,459 1,024,627 368,135 305,220
Gross profit 859,718 776,692 244,340 211,117
Selling, general &
administrative expenses 686,325 599,749 224,657 195,273
Asbestos charges
Interest expense, net 28,391 25,485 9,962 8,600
Income (loss) before income
taxes 145,002 151,458 9,721 7,244
Provision for income taxes 50,461 53,957 2,810 2,716
Net Income (Loss) $94,541 $97,501 $6,911 $4,528
Basic earnings (loss) per
share of common stock $0.81 $0.84 $0.06 $0.04
Diluted earnings (loss) per
share of common stock $0.76 $0.79 $0.06 $0.04
Average shares of common stock
outstanding - basic 116,710 116,700 116,881 117,284
Average shares of common stock
outstanding - diluted 127,533 126,206 119,772 119,152
(a) Adjusted figures presented remove the impact of the additional
asbestos charges taken during each period presented.
SUPPLEMENTAL SEGMENT INFORMATION
(Unaudited)
IN THOUSANDS
AS REPORTED
Nine Months Ended Three Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
Net Sales:
Industrial Segment $1,274,722 $1,023,540 $378,286 $293,144
Consumer Segment 824,455 777,779 234,189 223,193
Total $2,099,177 $1,801,319 $612,475 $516,337
Income (Loss) Before Income
Taxes (b):
Industrial Segment
Income Before Income
Taxes (b) $133,466 $114,563 $17,998 $12,488
Interest (Expense), Net (603) 277 (68) 253
EBIT (c) $134,069 $114,286 $18,066 $12,235
Consumer Segment
Income Before Income
Taxes (b) $87,026 $90,707 $14,533 $13,041
Interest (Expense), Net 31 267 (144) 159
EBIT (c) $86,995 $90,440 $14,677 $12,882
Corporate/Other
(Loss) Before Income
Taxes (b) $(120,490) $(115,812) $(37,810) $(33,285)
Interest (Expense), Net (27,819) (26,029) (9,750) (9,012)
EBIT (c) $(92,671) $(89,783) $(28,060) $(24,273)
Consolidated
Income (Loss)
Before Income
Taxes (b) $100,002 $89,458 $(5,279) $(7,756)
Interest
(Expense), Net (28,391) (25,485) (9,962) (8,600)
EBIT (c) $128,393 $114,943 $4,683 $844
SUPPLEMENTAL SEGMENT INFORMATION
(Unaudited)
IN THOUSANDS
ADJUSTED (a)
Nine Months Ended Three Months Ended
Feb. 28, Feb. 28, Feb. 28, Feb. 28,
2006 2005 2006 2005
Net Sales:
Industrial Segment $1,274,722 $1,023,540 $378,286 $293,144
Consumer Segment 824,455 777,779 234,189 223,193
Total $2,099,177 $1,801,319 $612,475 $516,337
Income (Loss) Before Income
Taxes (b):
Industrial Segment
Income Before Income
Taxes (b) $133,466 $114,563 $17,998 $12,488
Interest (Expense), Net (603) 277 (68) 253
EBIT (c) $134,069 $114,286 $18,066 $12,235
Consumer Segment
Income Before Income
Taxes (b) $87,026 $90,707 $14,533 $13,041
Interest (Expense), Net 31 267 (144) 159
EBIT (c) $86,995 $90,440 $14,677 $12,882
Corporate/Other
(Loss) Before Income
Taxes (b) $(75,490) $(53,812) $(22,810) $(18,285)
Interest (Expense), Net (27,819) (26,029) (9,750) (9,012)
EBIT (c) $(47,671) $(27,783) $(13,060) $(9,273)
Consolidated
Income (Loss)
Before Income
Taxes (b) $145,002 $151,458 $9,721 $7,244
Interest
(Expense), Net (28,391) (25,485) (9,962) (8,600)
EBIT (c) $173,393 $176,943 $19,683 $15,844
(a) Adjusted figures presented remove the impact of the additional
asbestos charges taken during each period presented.
(b) The presentation includes a reconciliation of Income (Loss) Before
Income Taxes, a measure defined by Generally Accepted Accounting
Principles (GAAP) in the United States, to EBIT.
(c) EBIT is defined as earnings (loss) before interest and taxes. We
evaluate the profit performance of our segments based on income before
income taxes, but also look to EBIT as a performance evaluation
measure because interest expense is essentially related to corporate
acquisitions, as opposed to segment operations. We believe EBIT is
useful to investors for this purpose as well, using EBIT as a metric
in their investment decisions. EBIT should not be considered an
alternative to, or more meaningful than, operating income as
determined in accordance with GAAP, since EBIT omits the impact of
interest and taxes in determining operating performance, which
represent items necessary to our continued operations, given our level
of indebtedness and ongoing tax obligations. Nonetheless, EBIT is a
key measure expected by and useful to our fixed income investors,
rating agencies and the banking community all of whom believe, and we
concur, that this measure is critical to the capital markets' analysis
of our segments' core operating performance. We also evaluate EBIT
because it is clear that movements in EBIT impact our ability to
attract financing. Our underwriters and bankers consistently require
inclusion of this measure in offering memoranda in conjunction with
any debt underwriting or bank financing. EBIT may not be indicative
of our historical operating results, nor is it meant to be predictive
of potential future results.
CONSOLIDATED BALANCE SHEETS February 28, February 28, May 31,
IN THOUSANDS 2006 2005 2005
Assets (Unaudited) (Unaudited)
Current Assets
Cash and short-term investments $93,077 $165,719 $184,140
Trade accounts receivable 464,361 421,266 571,649
Allowance for doubtful accounts (20,742) (20,242) (18,565)
Net trade accounts receivable 443,619 401,024 553,084
Inventories 397,282 337,562 334,404
Deferred income taxes 40,323 43,683 40,876
Prepaid expenses and other current
assets 165,042 156,301 156,491
Total current assets 1,139,343 1,104,289 1,268,995
Property, Plant and Equipment, at Cost 834,149 801,789 775,564
Allowance for depreciation and
amortization (421,803) (416,930) (385,586)
Property, plant and equipment, net 412,346 384,859 389,978
Other Assets
Goodwill 734,749 660,760 663,224
Other intangible assets, net of
amortization 325,625 279,005 275,744
Other 73,870 44,894 49,534
Total other assets 1,134,244 984,659 988,502
Total Assets $2,685,933 $2,473,807 $2,647,475
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable $210,851 $172,076 $274,573
Current portion of long-term debt 18,600 3,425 97
Accrued compensation and benefits 87,230 69,077 95,667
Accrued loss reserves 64,396 51,605 65,452
Asbestos-related liabilities 55,000 50,000 55,000
Other accrued liabilities 76,033 71,134 84,550
Total current liabilities 512,110 417,317 575,339
Long-Term Liabilities
Long-term debt, less current
maturities 860,897 835,625 837,948
Asbestos-related liabilities 44,156 46,318 46,172
Other long-term liabilities 97,599 68,891 71,363
Deferred income taxes 95,411 80,206 78,914
Total long-term liabilities 1,098,063 1,031,040 1,034,397
Total liabilities 1,610,173 1,448,357 1,609,736
Stockholders' Equity
Preferred stock; none issued
Common stock (outstanding 118,474;
117,452; 117,554) 1,185 1,175 1,176
Paid-in capital 538,339 523,704 526,434
Treasury stock, at cost
Accumulated other comprehensive
income 25,757 29,034 10,004
Retained earnings 510,479 471,537 500,125
Total stockholders' equity 1,075,760 1,025,450 1,037,739
Total Liabilities and Stockholders'
Equity $2,685,933 $2,473,807 $2,647,475
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited) Nine Months Ended February 28,
IN THOUSANDS 2006 2005
Cash Flows From Operating Activities
Net income $65,801 $58,826
Depreciation and amortization 53,216 48,930
Items not affecting cash and other (1,123) 11,290
Changes in operating working capital (5,633) (36,890)
Changes in asbestos-related
liabilities, net of tax (872) 3,569
111,389 85,725
Cash Flows From Investing Activities
Capital expenditures (31,194) (34,453)
Acquisition of businesses, net of
cash acquired (162,241) (9,900)
Purchases of marketable securities (46,637) (38,552)
Proceeds from the sale of
marketable securities 36,500 32,071
Proceeds from the sale of assets 10,575 4,500
Other 1,349 1,584
(191,648) (44,750)
Cash Flows From Financing Activities
Additions to long-term and short-
term debt 188,914 200,000
Reductions of long-term and
short-term debt (151,841) (76,168)
Cash dividends (55,447) (51,314)
Exercise of stock options 7,101 10,741
(11,273) 83,259
Effect of Exchange Rate Changes on
Cash and Short-Term Investments 469 6,926
Increase (Decrease) in Cash and
Short-Term Investments $(91,063) $131,160
SOURCE RPM International Inc.
04/06/2006
CONTACT: Glenn R. Hasman, vice president - finance and communications of
RPM International, +1-330-273-8820 or ghasman@rpminc.com
Web site: www.rpminc.com/
