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RPM Reports Record Sales and Net Income for Fiscal 2008 Third Quarter, Nine Months

  • Net income grew 21% on 8% sales increase
  • Growth continued in both industrial and consumer segments in challenging economy
  • Guidance revised upward to 10-12% sales and earnings growth for fiscal 2008

MEDINA, Ohio, April 3, 2008 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported record fiscal third-quarter sales, net income and diluted earnings per share for the quarter ended February 29, 2008. Sales and earnings momentum in the company's larger industrial segment continued, while consumer segment sales and earnings increased significantly over the third quarter a year ago.

Third-Quarter Results

RPM's net sales of $731.8 million were up 7.7% from the $679.5 million reported in the fiscal 2007 third quarter. Organic sales growth accounted for 7.1% of the increase, with 3.2% of that amount representing net foreign exchange gains. Net acquisition growth was 0.6% of the 7.7% total growth in net sales.

Net income for the quarter increased 20.9% to $12.2 million, compared to $10.1 million a year ago, while diluted earnings per share increased 25.0% to $0.10, compared to $0.08 in the year-ago third quarter.

The effective tax rate for this quarter was 22.2% compared to a tax rate of 11.6% in the prior year. The higher effective income tax rate in the current period is primarily due to the absence of a one-time benefit reflected in the third quarter of last year.

"RPM's third-quarter operating results reflected continued robust industrial demand, particularly in European, Canadian and Latin American markets," stated Frank C. Sullivan, president and chief executive officer. "Despite the tough U.S. housing market and domestic economy, our consumer segment performed well, as we benefited from prior-year acquisitions, along with the introduction of new, higher-end products, which drove market share gains at major retail accounts," he stated.

Consolidated earnings before interest and taxes (EBIT) reached $25.1 million, an 11.4% improvement over the $22.5 million reported a year ago.

Third-Quarter Segment Sales and Earnings

The company's industrial segment posted a 9.7% sales increase to $467.1 million from $425.7 million in the year-ago third quarter. Organic sales increased 7.5%, of which 4.1% resulted from net foreign exchange gains. Acquisitions accounted for the remaining 2.2% of the increase in total revenues for the period. Industrial segment EBIT for the third quarter was essentially flat at $18.0 million for the quarter compared to $18.1 million last year. Revenue growth outpaced earnings in the current period due to the EBIT impact of the settlement of a lawsuit by one of RPM's subsidiaries.

"Industrial segment sales growth was led by industrial and commercial flooring, industrial coatings and most international operations," stated Sullivan. "Much of this growth resulted from ongoing industrial and commercial maintenance and improvement activities. There was also a slight increase in new construction abroad in our principal markets, which contributed to increased revenues in the current period. In order to offset overall economic weakness, which is beginning to impact certain sectors of our domestic construction markets, we will continue to secure new business through our strong brand offerings, coupled with international expansion and high value-added product innovations that enhance performance," Sullivan stated.

Sales by RPM's consumer segment increased 4.3% to $264.7 million from $253.8 million a year ago. Of the growth in sales, 6.3% was organic, including 1.7% in net foreign exchange gains. Offsetting the organic growth in this segment was the impact of the divestiture of the company's Bondo subsidiary last quarter. Segment EBIT grew 17.6% to $19.8 million from $16.9 million in the fiscal 2007 third quarter.

"Sales of small project paints and primer-sealers were up significantly during the quarter, offset partially by relatively slower sales of caulks and sealants, which are more dependent on new housing construction in the U.S.," Sullivan stated. "By effectively leveraging this continued growth in sales and combining that leverage with additional productivity improvements, the consumer segment produced considerable growth in EBIT over the 2007 third- quarter performance. Additionally, we continue to benefit from the stable growth supplied by our various repair and maintenance products."

Asbestos Update

During the quarter, RPM paid $18.7 million in pre-tax asbestos-related indemnity and defense costs, compared to payments of $18.2 million made during last year's third fiscal quarter. The total asbestos liability balance stood at $286.7 million at February 29, 2008.

$250 Million, Ten-Year Note Offering

As previously announced on February 14, 2008, RPM sold $250 million of 6.50% Notes due 2018. Proceeds were used to repay, redeem or refinance $100 million in principal amount of the company's unsecured, senior notes due March 1, 2008, $125 million in principal amount outstanding under RPM's accounts receivable securitization program and $19 million in principal amount of short-term borrowings outstanding under the company's revolving credit facility. "We are pleased with the impact of this new financing on our liquidity and the maturity schedule of our outstanding debt. This timely refinancing further strengthens our balance sheet, which is especially important given the unsettled state of the economy. Furthermore, this transaction provides additional liquidity to drive organic growth and support our solid pipeline of acquisition opportunities," stated Sullivan.

Nine-Month Sales and Earnings

Sales, net income and earnings per share were all records for the fiscal nine-month period ended February 29, 2008.

RPM's net sales for the first nine months of fiscal 2008 were up 10.1%, to $2.6 billion from $2.3 billion a year ago. Organic sales growth was 7.9%, including 2.9% in net foreign exchange gains, while net acquisitions accounted for 2.2% of the total increase in net sales. Net income for the first nine months was $135.3 million, up 8.8% from the $124.3 million reported in the comparable period of fiscal 2007. Diluted earnings per share for the period increased 7.1%, to $1.06 from $0.99 a year ago.

The first nine months of fiscal 2007 included a $15.0 million, pre-tax gain from the settlement of asbestos-related claims against an insurance carrier. Excluding this gain, net income for the first nine months of fiscal 2008 increased 18.0% on a pro forma basis, from $114.6 million in fiscal 2007, and diluted earnings per share improved 16.5% on a pro forma basis, from $0.91 during the same period.

Nine-month EBIT was $231.0 million, up 4.3% from the $221.4 million reported a year ago. Excluding the 2007 asbestos-related gain, EBIT increased 11.9% on a pro forma basis, from $206.4 million last year.

RPM's industrial segment sales grew 12.1% in the first nine months of fiscal 2008, to $1.7 billion from $1.5 billion a year ago. Eight small acquisitions represented 2.3% of this growth, with organic growth adding 9.8%, of which 3.7% was from foreign exchange gains. Industrial segment EBIT increased 10.1%, to $172.3 million, from $156.4 million registered in the first nine months of fiscal 2007.

Nine-month sales for the consumer segment were $887.7 million, a 6.5% increase from the $833.6 million reported in the same period of fiscal 2007. Organic sales increased by 4.5%, including a foreign exchange gain of 1.6%, while product line acquisitions contributed 2.0%. Consumer segment EBIT increased by 9.7%, to $94.5 million in fiscal 2007 from $86.2 million in the prior fiscal year.

Cash Flow and Financial Position

For the first nine months of fiscal 2008, cash flow from operations was $161.8 million, up 20.9% from $133.8 million a year ago. Capital expenditures were $29.8 million, compared to depreciation of $46.2 million over the same period. Total debt at the end of February 2008 was $1.1 billion, compared to $988.1 million at the end of fiscal 2007, with most of the increase due to acquisition funding and the new issuance of notes. The company's net (of cash) debt-to-total capitalization ratio was 37.7%, compared to 43.3% at May 31, 2007.

Total cash and short-term investments were $391.0 million at the end of February, and the company had $429.2 million available under its credit facilities for total liquidity of $820.2 million at February 29, 2008. In early March, the company repaid $100.0 million in senior, unsecured Notes due March 1, 2008.

Euclid Chemical and Tremco Close Acquisitions

Subsequent to the end of the third quarter, RPM announced two acquisitions. On March 5, 2008, the company's Tremco illbruck subsidiary purchased Prosytec SAS, a $39 million provider of sealants for the construction and window assembly markets in Southern and Eastern Europe. Additionally, on March 11, RPM's Euclid Chemical subsidiary acquired Increte Systems, Inc. With sales of $15 million, Increte is the nation's leading manufacturer of decorative concrete systems. Both acquisitions are expected to be accretive to earnings within one year.

Business Outlook

"Given our strong results for the quarter and first nine months of the year, we are comfortable increasing our previous guidance of 8-10% growth in sales and earnings to 10-12% growth in both metrics for this fiscal year. As we complete the final quarter of our fiscal year and move into the planning process for fiscal 2009, we will continue to closely monitor overall economic conditions and will be especially focused on domestic construction markets. Consistent with prior years, we will issue guidance for fiscal 2009 when our year-end results are announced in July," 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 866-270-6057 or 617-213-8891 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 3 until 11:59 p.m. EDT on April 10, 2008. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 97516494. 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.

About RPM

RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings and sealants serving both industrial and consumer markets. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. Industrial brands include Stonhard, Tremco, 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 and chief administrative officer at 330-273-5090 or ktompkins@rpminc.com.

This press release contains "forward-looking statements" relating to the business of the company. These forward-looking statements, or other statements made by the company, are made based on management's expectations and beliefs concerning future events impacting the company and are subject to uncertainties and factors (including those specified below) which are difficult to predict and, in many instances, are beyond the control of the company. As a result, actual results of the company could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) general economic conditions; (b) the prices and availability of raw materials, including assorted resins and solvents; 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 existing and future 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. RPM does not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the date of this release.



    CONSOLIDATED STATEMENTS OF INCOME
    IN THOUSANDS, EXCEPT PER SHARE DATA
    (UNAUDITED)

                                                  AS REPORTED

                                   Three Months Ended     Nine Months Ended
                                   February  February   February    February
                                   29, 2008  28, 2007   29, 2008    28, 2007

    Net Sales                      $731,773  $679,494  $2,567,820  $2,333,041
    Cost of sales                   440,528   416,009   1,524,935   1,398,412
    Gross profit                    291,245   263,485   1,042,885     934,629
    Selling, general &
     administrative expenses        266,160   240,964     811,913     728,264
    Asbestos-related settlement
     (income)                                                         (15,000)
    Interest expense, net             9,462    11,146      34,287      35,664
    Income before income taxes       15,623    11,375     196,685     185,701
    Provision for income taxes        3,473     1,323      61,412      61,367
    Net Income                      $12,150   $10,052    $135,273    $124,334

    Basic earnings per share of
     common stock                     $0.10     $0.08       $1.13       $1.06

    Diluted earnings per share of
     common stock                     $0.10     $0.08       $1.06       $0.99

    Average shares of common stock
     outstanding - basic            120,091   118,430     120,077     117,817

    Average shares of common stock
     outstanding - diluted          130,223   120,967     130,408     128,371



                                                  ADJUSTED (a)

                                   Three Months Ended     Nine Months Ended
                                   February  February   February    February
                                   29, 2008  28, 2007   29, 2008    28, 2007

    Net Sales                      $731,773  $679,494  $2,567,820  $2,333,041
    Cost of sales                   440,528   416,009   1,524,935   1,398,412
    Gross profit                    291,245   263,485   1,042,885     934,629
    Selling, general &
     administrative expenses        266,160   240,964     811,913     728,264
    Asbestos-related settlement
     (income)
    Interest expense, net             9,462    11,146      34,287      35,664
    Income before income taxes       15,623    11,375     196,685     170,701
    Provision for income taxes        3,473     1,156      61,412      56,082
    Net Income                      $12,150   $10,219    $135,273    $114,619

    Basic earnings per share of
     common stock                     $0.10     $0.09       $1.13       $0.97

    Diluted earnings per share of
     common stock                     $0.10     $0.08       $1.06       $0.91

    Average shares of common stock
     outstanding - basic            120,091   118,430     120,077     117,817

    Average shares of common stock
     outstanding - diluted          130,223   120,967     130,408     128,371

    (a) Adjusted figures presented remove the impact of the asbestos-related
        settlement (income) recorded during the quarter ended November 30,
        2006.



    SUPPLEMENTAL SEGMENT INFORMATION
    IN THOUSANDS
    (UNAUDITED)

                                                  AS REPORTED

                                   Three Months Ended     Nine Months Ended
                                   February  February   February    February
                                   29, 2008  28, 2007   29, 2008    28, 2007

    Net Sales:
       Industrial Segment          $467,060  $425,655  $1,680,170  $1,499,478
       Consumer Segment             264,713   253,839     887,650     833,563
         Total                     $731,773  $679,494  $2,567,820  $2,333,041

    Income (Loss) Before Income
     Taxes (b):
       Industrial Segment
         Income Before Income
          Taxes (b)                 $17,729   $17,936    $170,293    $156,131
         Interest (Expense), Net       (315)     (167)     (1,980)       (276)
          EBIT (c)                  $18,044   $18,103    $172,273    $156,407
      Consumer Segment
         Income Before Income
          Taxes (b)                 $18,992   $16,010     $91,808     $83,881
         Interest (Expense), Net       (852)     (871)     (2,694)     (2,271)
         EBIT (c)                   $19,844   $16,881     $94,502     $86,152
      Corporate/Other
         (Expense) Before Income
          Taxes (b)                $(21,098) $(22,571)   $(65,416)   $(54,311)
         Interest (Expense), Net     (8,295)  (10,108)    (29,613)    (33,117)
          EBIT (c)                 $(12,803) $(12,463)   $(35,803)   $(21,194)
         Consolidated
            Income Before Income
             Taxes (b)              $15,623   $11,375    $196,685    $185,701
            Interest (Expense),
             Net                     (9,462)  (11,146)    (34,287)    (35,664)
            EBIT (c)                $25,085   $22,521    $230,972    $221,365



                                                  ADJUSTED (a)

                                   Three Months Ended     Nine Months Ended
                                   February  February   February    February
                                   29, 2008  28, 2007   29, 2008    28, 2007

    Net Sales:
       Industrial Segment          $467,060  $425,655  $1,680,170  $1,499,478
       Consumer Segment             264,713   253,839     887,650     833,563
          Total                    $731,773  $679,494  $2,567,820  $2,333,041

    Income (Loss) Before Income
     Taxes (b):
       Industrial Segment
          Income Before Income
           Taxes (b)                $17,729   $17,936    $170,293    $156,131
          Interest (Expense), Net      (315)     (167)     (1,980)       (276)
           EBIT (c)                 $18,044   $18,103    $172,273    $156,407
      Consumer Segment
         Income Before Income
          Taxes (b)                 $18,992   $16,010     $91,808     $83,881
         Interest (Expense), Net       (852)     (871)     (2,694)     (2,271)
          EBIT (c)                  $19,844   $16,881     $94,502     $86,152
      Corporate/Other
         (Expense) Before Income
           Taxes (b)               $(21,098) $(22,571)   $(65,416)   $(69,311)
         Interest (Expense), Net     (8,295)  (10,108)    (29,613)    (33,117)
          EBIT (c)                 $(12,803) $(12,463)   $(35,803)   $(36,194)
         Consolidated
            Income Before Income
             Taxes (b)              $15,623   $11,375    $196,685    $170,701
            Interest (Expense),
             Net                     (9,462)  (11,146)    (34,287)    (35,664)
            EBIT (c)                $25,085   $22,521    $230,972    $206,365

    (a) Adjusted figures presented remove the impact of the asbestos-related
        settlement (income) recorded during the quarter ended November 30,
        2006.
    (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

                                           February 29, February 28,  May 31,
                                              2008         2007        2007
    Assets                                (Unaudited)  (Unaudited)
    Current Assets
       Cash and short-term investments      $390,962     $137,697    $159,016
       Trade accounts receivable         576,097      501,726     763,426
       Allowance for doubtful accounts   (21,154)     (19,810)    (19,167)
       Net trade accounts receivable         554,943      481,916     744,259
       Inventories                           485,302      453,285     437,759
       Deferred income taxes                  41,084       56,286      39,276
       Prepaid expenses and other
        current assets                       206,206      192,579     189,939
       Total current assets                1,678,497    1,321,763   1,570,249

    Property, Plant and Equipment,
     at Cost                                 993,290      909,844     963,200
       Allowance for depreciation and
        amortization                        (534,364)    (471,341)   (489,904)
       Property, plant and equipment, net    458,926      438,503     473,296
    Other Assets
       Goodwill                              854,980      792,854     830,177
       Other intangible assets, net of
        amortization                         347,330      341,186     353,420
       Other                                  94,119      101,127     106,007
       Total other assets                  1,296,429    1,235,167   1,289,604

    Total Assets                          $3,433,852   $2,995,433  $3,333,149

    Liabilities and Stockholders' Equity
    Current Liabilities
       Accounts payable                     $280,195     $250,775    $385,003
       Current portion of long-term debt     101,579        3,514     101,641
       Accrued compensation and benefits     120,055      112,127     132,555
       Accrued loss reserves                  72,731       68,434      73,178
       Asbestos-related liabilities           57,500       57,925      53,000
       Other accrued liabilities             112,333      106,374     119,363
       Total current liabilities             744,393      599,149     864,740

    Long-Term Liabilities
       Long-term debt, less current
        maturities                         1,031,740      933,027     886,416
       Asbestos-related liabilities          229,173      314,935     301,268
       Other long-term liabilities           165,621      102,215     175,958
       Deferred income taxes                  36,095       16,714      17,897
       Total long-term liabilities         1,462,629    1,366,891   1,381,539
          Total liabilities                2,207,022    1,966,040   2,246,279

    Stockholders' Equity
       Preferred stock; none issued
       Common stock (outstanding 121,819;
        120,772; 120,906)                      1,218        1,208       1,209
       Paid-in capital                       600,126      574,932     584,845
       Treasury stock, at cost                (5,940)
       Accumulated other comprehensive
        income                                92,903       40,375      25,140
       Retained earnings                     538,523      412,878     475,676
       Total stockholders' equity          1,226,830    1,029,393   1,086,870

    Total Liabilities and Stockholders'
     Equity                               $3,433,852   $2,995,433  $3,333,149



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    IN THOUSANDS                               Nine Months Ended
    (UNAUDITED)                            February 29, February 28,
                                              2008         2007
    Cash Flows From Operating Activities
       Net income                           $135,273     $124,334
       Depreciation and amortization          62,402       59,046
       Items not affecting cash and other     26,173       (4,975)
       Changes in operating working capital  (18,656)     (13,575)
       Changes in asbestos-related
        liabilities, net of tax              (43,412)     (30,991)
                                             161,780      133,839
    Cash Flows From Investing Activities
       Capital expenditures                  (29,825)     (34,111)
       Acquisition of businesses, net of
        cash acquired                        (13,995)     (75,018)
       Purchases of marketable securities    (74,696)     (69,539)
       Proceeds from the sale of
        marketable securities                 66,422       52,026
       Proceeds from the sale of assets       44,800
       Other                                  (1,472)       1,158
                                              (8,766)    (125,484)
    Cash Flows From Financing Activities
       Additions to long-term and
        short-term debt                      130,288      308,375
       Reductions of long-term and
        short-term debt                       (2,715)    (252,833)
       Cash dividends                        (67,467)     (60,949)
       Exercise of stock options,
        including tax benefit                  6,086       23,933
       Repurchase of stock                    (5,940)
                                              60,252       18,526

    Effect of Exchange Rate Changes on
     Cash and Short-Term Investments          18,680        2,200

    Increase in Cash and Short-Term
     Investments                            $231,946      $29,081

SOURCE RPM International Inc.

CONTACT:
P. Kelly Tompkins
executive vice president and chief administrative officer
RPM International Inc.
+1-330-273-5090
ktompkins@rpminc.com


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