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RPM Reports Decline in Sales, Net Income for Fiscal 2009 Second Quarter

- Industrial segment sales continue growth, but EBIT declines as pace slows

- Consumer segment posts declines in sales and EBIT

- Liquidity, capital position and cash flow remain strong

MEDINA, Ohio, Jan. 8 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported lower sales and net income for its fiscal 2009 second quarter ended November 30, 2008.

Second-Quarter Results

RPM's net sales of $890.0 million were down 1.7% from the $905.7 million reported in the fiscal 2008 second quarter. Organic sales declined 4.6%, with 3.8% of that amount representing net foreign exchange losses. Net acquisition growth of 2.9% offset part of the organic decline.

Net income for the quarter decreased 23.9%, to $41.7 million from $54.9 million a year ago, while diluted earnings per share decreased 23.3% to $0.33 from $0.43.

"RPM's second-quarter operating results indicate the impact of the worldwide recession, particularly on our consumer products segment. Our industrial segment, which has been experiencing robust growth for the past several years, also felt the impact of recession as sales continued to grow, albeit at a slower pace," stated Frank C. Sullivan, chairman and chief executive officer.

Consolidated earnings before interest and taxes (EBIT) were $77.7 million, a 16.4% decline from the $93.0 million reported a year ago.

Second-Quarter Segment Sales and Earnings

Sales in the company's industrial segment grew 3.3% to $625.6 million from $605.8 million in the year-ago second quarter. Organic sales declined 2.9%, including 4.3% in net foreign exchange losses as a result of the dollar strengthening against most other worldwide currencies. Growth from acquisitions was 6.2%. Industrial segment EBIT for the second quarter decreased 4.0% to $71.0 million, compared to EBIT of $74.0 million a year ago.

"Industrial segment sales growth slowed across most of our businesses," stated Sullivan. "Sales growth remained brisk in our protective coatings, fiberglass reinforced plastics and international polymer flooring product lines. However, previously high growth lines, such as North American polymer flooring, began feeling the impact of the overall economic decline in the second quarter, while formerly strong international markets reflected the migration of the U.S. recession to Europe and our other overseas markets," Sullivan stated.

Sales by RPM's consumer segment fell 11.8% to $264.4 million from $299.9 million a year ago. Of the decline in sales, 8.0% was organic, including 2.7% in net foreign exchange losses, while acquisitions less divestitures accounted for 3.8% of the decline, largely representing the sale of the company's Bondo subsidiary in the fiscal 2008 second quarter. Consumer segment EBIT declined 48.5% to $15.9 million from $30.8 million in the fiscal 2008 second quarter.

"Our consumer businesses continue to face a difficult retail climate, largely attributable to the lingering effects of the weak domestic housing market that has impacted many of our large retail accounts. New, high value products introduced by both our Rust-Oleum and DAP subsidiaries over the summer months have experienced good market acceptance and are performing consistent with our expectations. Our other consumer product lines are maintaining market share in this difficult retail environment," Sullivan stated.

Asbestos Liability

During the quarter, RPM paid $16.4 million in pre-tax asbestos costs, compared to $26.1 million in the year-ago period. RPM's total asbestos reserve balance stood at $527.3 million at November 30, 2008.

Cash Flow and Financial Position

For the first half of fiscal 2009, cash from operations was $104.0 million, compared to $104.1 million in the fiscal 2008 first half. Capital expenditures were $24.9 million, compared to depreciation of $32.2 million over the same period in fiscal 2009. Total debt at the end of the first half was $962.6 million, compared to $1,073.6 million at the end of fiscal 2008. RPM's net (of cash) debt-to-total capitalization ratio was 40.3%, compared to 42.6% at May 31, 2008, and both are at the low end of the company's historic norms. "At November 30, 2008, liquidity, including cash and long-term committed available credit, stood at a very strong $523.4 million," Sullivan stated.

Stock Repurchase Update

RPM said it purchased 1,239,544 shares of its stock during the quarter at an average cost of $16.62.

First-Half Sales and Earnings

Net sales for the first half of fiscal 2009 increased 2.2% to $1.88 billion from $1.84 billion a year ago. Net income declined 9.6%, from $123.1 million to $111.1 million during the period.

Diluted earnings per share for the first half of fiscal 2009 decreased 10.4%, to $0.86 from $0.96 a year ago. First-half EBIT was $188.6 million, down 8.4% from the $205.9 million reported a year ago.

RPM's industrial segment sales increased 9.0% in the fiscal 2009 first half, to $1.32 billion from $1.21 billion a year ago. Acquisitions represented 7.5% of the sales growth, with organic growth adding 1.5%, including 0.7% of net foreign exchange losses. Industrial segment EBIT increased 5.3% to $162.6 million from $154.4 million in the fiscal 2008 first half.

First-half sales for the consumer segment declined 11.2% to $552.3 million from $621.6 million reported in the first half of fiscal 2008. Organic sales decreased by 6.4%, including net foreign exchange losses of 0.8%, while acquisitions less divestitures accounted for 4.8% of the decline, primarily due to the Bondo sale. Consumer segment EBIT was down 32.3%, to $50.5 million from $74.5 million a year ago.

Business Outlook

"We are likely to experience a loss in our fiscal third quarter, which will end February 28, 2009, due to a combination of factors. The third quarter is RPM's seasonally low period, and our performance will be further impacted by continuing revenue declines, along with employee severance costs resulting from adjustments in certain RPM businesses to address the deteriorating business environment," stated Sullivan.

"As we announced during the second quarter, it is likely that our current fiscal year results will be below those of fiscal 2008, given the significant deterioration of economic conditions worldwide. Also as previously announced, we are discontinuing guidance for the current fiscal year until such time as we see more predictability in overall economic conditions," he stated.

Webcast and Conference Call Information

Management will host a conference call to discuss the results beginning at 10:00 a.m. Eastern time today. The call can be accessed by dialing 866-713-8565 or 617-597-5324 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 January 8, 2009 until 11:59 p.m. Eastern time on January 15, 2009. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 76795536.

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, 2008, 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)


                                   Three Months Ended     Six Months Ended
                                      November 30,          November 30,
                                     2008      2007       2008        2007


    Net Sales                      $889,965  $905,708  $1,875,430  $1,836,047
    Cost of sales                   533,239   537,970   1,115,115   1,084,407
    Gross profit                    356,726   367,738     760,315     751,640
    Selling, general &
     administrative expenses        278,982   274,718     571,672     545,753
    Interest expense, net            17,394    12,107      27,980      24,825
    Income before income taxes       60,350    80,913     160,663     181,062
    Provision for income taxes       18,624    26,058      49,420      57,939
    Net Income                      $41,726   $54,855    $111,243    $123,123

    Basic earnings per share of
     common stock                     $0.33     $0.46       $0.88       $1.03

    Diluted earnings per share of
     common stock                     $0.33     $0.43       $0.86       $0.96

    Average shares of common stock
     outstanding - basic            127,090   120,057     126,158     120,027

    Average shares of common stock
     outstanding - diluted          128,137   130,608     129,197     130,474



    SUPPLEMENTAL SEGMENT INFORMATION
    IN THOUSANDS
    (UNAUDITED)

                                   Three Months Ended    Six Months Ended
                                      November 30,          November 30,
                                     2008      2007       2008        2007

    Net Sales:
      Industrial Segment           $625,578  $605,846  $1,323,160  $1,214,446
      Consumer Segment              264,387   299,862     552,270     621,601
           Total                   $889,965  $905,708  $1,875,430  $1,836,047

    Gross Profit:
      Industrial Segment           $264,409  $254,315    $556,184    $509,859
      Consumer Segment               92,317   113,423     204,131     241,781
           Total                   $356,726  $367,738    $760,315    $751,640

    Income (Loss) Before Income
     Taxes (a):
      Industrial Segment
           Income Before Income
            Taxes (a)               $70,958   $73,058    $162,470    $152,710
           Interest (Expense), Net      (37)     (915)        (96)     (1,657)
           EBIT (b)                 $70,995   $73,973    $162,566    $154,367
      Consumer Segment
           Income Before Income
            Taxes (a)               $14,806   $29,819     $48,071     $72,670
           Interest (Expense), Net   (1,074)     (994)     (2,416)     (1,850)
           EBIT (b)                 $15,880   $30,813     $50,487     $74,520
      Corporate/Other
           (Expense) Before Income
            Taxes (a)              $(25,414) $(21,964)   $(49,878)   $(44,318)
           Interest (Expense), Net  (16,283)  (10,198)    (25,468)    (21,318)
           EBIT (b)                 $(9,131) $(11,766)   $(24,410)   $(23,000)
           Consolidated
                Income Before
                 Income Taxes (a)   $60,350   $80,913    $160,663    $181,062
                Interest
                 (Expense), Net     (17,394)  (12,107)    (27,980)    (24,825)
                EBIT (b)            $77,744   $93,020    $188,643    $205,887

(a) 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.

(b) 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

                                           November 30, November 30, May 31,
                                              2008        2007        2008
                                          (Unaudited) (Unaudited)
    Assets
    Current Assets
       Cash and short-term investments      $205,289    $191,080    $231,251
       Trade accounts receivable             627,653     635,847     841,795
       Allowance for doubtful accounts       (20,464)    (21,382)    (24,554)
       Net trade accounts receivable         607,189     614,465     817,241
       Inventories                           493,241     461,946     476,149
       Deferred income taxes                  36,974      40,612      37,644
       Prepaid expenses and other current
        assets                               194,596     202,615     221,690
       Total current assets                1,537,289   1,510,718   1,783,975

    Property, Plant and Equipment, at
     Cost                                  1,007,208     973,709   1,054,719
       Allowance for depreciation and
        amortization                        (552,053)   (514,529)   (556,998)
       Property, plant and equipment, net    455,155     459,180     497,721
    Other Assets
       Goodwill                              844,980     846,275     908,358
       Other intangible assets, net of
        amortization                         348,770     351,764     384,370
       Other                                 167,008      91,744     189,143
       Total other assets                  1,360,758   1,289,783   1,481,871

    Total Assets                          $3,353,202  $3,259,681  $3,763,567

    Liabilities and Stockholders' Equity
    Current Liabilities
       Accounts payable                     $282,429    $297,099    $411,448
       Current portion of long-term debt     171,247     101,455       6,934
       Accrued compensation and benefits     102,716     101,662     151,493
       Accrued loss reserves                  73,673      69,317      71,981
       Asbestos-related liabilities           65,000      57,500      65,000
       Other accrued liabilities             126,106     111,917     139,505
       Total current liabilities             821,171     738,950     846,361

    Long-Term Liabilities
       Long-term debt, less current
        maturities                           791,364     840,564   1,066,687
       Asbestos-related liabilities          462,309     247,895     494,745
       Other long-term liabilities           137,884     175,883     192,412
       Deferred income taxes                  19,729      25,288      26,806
       Total long-term liabilities         1,411,286   1,289,630   1,780,650
          Total liabilities                2,232,457   2,028,580   2,627,011

    Stockholders' Equity
       Preferred stock; none issued
       Common stock (outstanding 128,381;
        121,782; 122,189)                      1,284       1,218       1,222
       Paid-in capital                       775,459     596,644     612,441
       Treasury stock, at cost               (50,279)     (5,730)     (6,057)
       Accumulated other comprehensive
        income (loss)                        (94,280)     89,456     101,162
       Retained earnings                     488,561     549,513     427,788
       Total stockholders' equity          1,120,745   1,231,101   1,136,556

    Total Liabilities and Stockholders'
     Equity                               $3,353,202  $3,259,681  $3,763,567



    CONSOLIDATED STATEMENTS OF CASH FLOWS
    IN THOUSANDS
    (UNAUDITED)
                                               Six Months Ended November 30,
                                                  2008              2007

    Cash Flows From Operating Activities:
      Net income                                  $111,243          $123,123
      Adjustments to reconcile net income
       to net cash provided by operating
       activities:
                   Depreciation                     32,175            30,962
                   Amortization                     11,254            10,813
                   Deferred income taxes             5,034            20,294
                   Earnings of unconsolidated
                    affiliates                        (931)             (606)
      Changes in assets and liabilities,
       net of effect from purchases and sales of
       businesses:
                   Decrease in receivables         212,078           120,336
                   (Increase) in inventory         (15,607)          (29,130)
                   (Increase) decrease in
                    prepaid expenses and
                    other current and
                    long-term assets                18,138            (4,648)
                   (Decrease) in accounts
                    payable                       (130,500)          (85,437)
                   (Decrease) in accrued
                    compensation and benefits      (48,776)          (32,304)
                   Increase (decrease) in
                    accrued loss reserves            1,693            (6,692)
                   (Decrease) in other
                    accrued liabilities            (37,279)           (4,278)
                   Payments made for
                    asbestos-related claims        (32,436)          (48,873)
                   Other                           (22,038)           10,531
                        Cash From Operating
                         Activities                104,048           104,091
    Cash Flows From Investing Activities:
         Capital expenditures                      (24,887)          (17,477)
         Acquisition of businesses, net
          of cash acquired                          (3,733)           (9,291)
         Purchase of marketable securities         (69,133)          (43,731)
         Proceeds from sales of
          marketable securities                     63,612            41,103
         Proceeds from the sales of
          assets or businesses                                        44,800
         Other                                       3,296              (338)
                        Cash From (Used For)
                         Investing Activities      (30,845)           15,066
    Cash Flows From Financing Activities:
         Additions to long-term and
          short-term debt                           87,209             5,727
         Reductions of long-term and
          short-term debt                          (49,576)          (58,838)
         Cash dividends                            (50,470)          (44,328)
         Repurchase of stock                       (45,184)           (5,730)
         Exercise of stock options,
          including tax benefit                      1,690             5,239
                         Cash (Used For)
                          Financing Activities     (56,331)          (97,930)

    Effect of Exchange Rate Changes on
     Cash and Short-Term Investments               (42,834)           10,837

    Net Change in Cash and Short-Term
     Investments                                   (25,962)           32,064

    Cash and Short-Term Investments at
     Beginning of Period                           231,251           159,016

    Cash and Short-Term Investments at
     End of Period                                $205,289          $191,080

SOURCE RPM International Inc.

CONTACT:
P. Kelly Tompkins
executive vice president - administration and chief financial officer
+1-330-273-5090
ktompkins@rpminc.com


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