Download the
RPM Investor App
Sun Sun

News Release


Printer Friendly Version

RPM Completes Year of Record Growth with Strong Results

  • Full year sales increase 11%
  • Fourth-quarter sales growth accelerates, increasing 12%
  • Record net income, excluding asbestos charges, increases 9%
  • Continuing record growth expected for fiscal 2006

MEDINA, Ohio, July 25 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported record sales for the fiscal 2005 fiscal year and fourth quarter, ended May 31. Net income and earnings per share declined compared with the 2004 fiscal year and fourth quarter, due to continued asbestos liability costs. Excluding these costs, the company generated record earnings.

Fiscal 2005 Results

RPM achieved record net sales of $2.556 billion for its 2005 fiscal year, a 10.8% improvement compared with fiscal 2004. The year-over-year sales growth was the result of +8.1% organic growth, +1.4% favorable foreign currency translation, and +1.3% from acquisition activity.

Reported net income of $105.0 million and diluted earnings per share of $0.86 compared with fiscal 2004 net income of $141.9 million and diluted earnings per share of $1.16. Excluding the asbestos charges taken during 2005, adjusted net income of $154.5 million this year increased 8.9% compared with last year, while adjusted diluted earnings per share of $1.25 rose 7.8% above fiscal 2004 diluted earnings of $1.16 per share. During the 2005 third fiscal quarter, the company retrospectively adopted the provisions of Emerging Issues Task Force Issue 04-8, "The Effects of Contingently Convertible Debt on Diluted Earnings Per Share" ("EITF 04-8"). Net income for fiscal 2004 was unchanged by this retrospective application of EITF 04-8, but diluted earnings per share decreased by $0.06.

Notably, RPM's early adoption of FAS 123 ("Accounting for Stock-Based Compensation") in the first quarter of fiscal 2005, in conjunction with its new omnibus equity incentive plan approved by RPM stockholders at its annual meeting in October 2004, reduced fiscal 2005 earnings by approximately $0.03 per diluted share compared with fiscal 2004.

Consolidated earnings before interest and taxes (EBIT) of $199.1 million compared with $246.6 million last year. Excluding the asbestos charges, adjusted EBIT comparatively increased year over year by 12.4%, to $277.1 million. This increase is despite the added costs of the early adoption of FAS 123, as well as significantly higher raw material costs, partially offset by ongoing pricing initiatives and programs to improve productivity.

RPM's industrial segment sales, which accounted for 56.4% of 2005 consolidated sales, increased 13.3% to $1.442 billion. This year-over-year sales growth was +9.4% organic, +1.9% favorable foreign exchange translation, and +2.0% from acquisitions, net of a small divestiture. The industrial segment EBIT advanced 19.6% to $168.0 million, strengthening this segment's EBIT margin by 70 basis points, to 11.7%, compared with the prior year.

Consumer segment sales, which accounted for 43.6% of consolidated sales, grew 7.7% to $1.114 billion. This year-over-year sales growth was +6.6% organic, +0.8% net favorable foreign exchange translations, and the balance from an acquisition. The consumer segment EBIT grew 3.1% to $147.2 million, an EBIT margin of 13.2% compared with $142.7 million, a 13.8% margin, a year ago, reflecting the higher material costs this year that particularly impacted this segment.

Fiscal 2005 cash flow from operations was $157.4 million, an increase of $3.4 million compared with fiscal 2004 cash flow. Capital expenditures of $55.6 million compared with depreciation of $49.8 million. Total debt increased $120.5 million, including the net refinancing proceeds less subsequent debt paydowns, from the $200 million 4.45% Senior Notes due 2009 sold in September 2004. The excess cash from these Notes was being held at year end in cash and short-term investments toward satisfying RPM's indebtedness under its $150 million 7.0% Senior Notes, which matured on June 15, 2005. Accordingly, RPM's net (of cash) debt-to-capital ratio improved to 38.5% from 41.3% at the end of fiscal 2004.

Asbestos Charges

After-tax asbestos-related payments during fiscal 2005 totaled $42.8 million versus last year's $33.7 million; however, last year had the benefit of the remaining third-party insurance supplement, amounting to $9.4 million on a pre-tax basis. Before taxes and before insurance, total asbestos-related payments of $67.4 million ($47 million indemnity) this year compared with $63.4 million ($55 million indemnity) last year.

RPM evaluates the adequacy of its asbestos liability reserves each quarter and adjusts these reserves when appropriate. Accordingly, the company took an additional $16.0 million pre-tax asbestos charge in the fourth quarter of 2005, bringing the total pre-tax charges to $78 million for the fiscal year. This fourth-quarter charge brings RPM balance sheet reserves for asbestos liability to $101.2 million at May 31, 2005. The company believes this level sufficiently supports a conservatively estimated valuation of existing claims in light of the company's more aggressive defense strategy, which entails higher legal costs but has produced ultimately lower resolution costs. The company reaffirmed its commitment to this strategy for managing this liability, and that its outlook is in line with current reserve assumptions.

"While our asbestos challenges and costs are far from over, we believe that the greater public awareness of the abuses of our legal system and, in some cases, outright fraud surrounding asbestos litigation are key factors in our outlook of a flattening cost profile and our belief that these costs will begin to decline over the long run," said Frank C. Sullivan, president and CEO. "Nonetheless, investors should anticipate volatility in future period filings and costs as the various factors surrounding this liability, including state and federal reform, changes in court proceedings and a more aggressive defense strategy, create greater near-term uncertainty in this significant element of our cash flow."

Fourth-Quarter Sales and Earnings

RPM reported consolidated record net sales of $754.4 million for the fiscal 2005 fourth quarter, a 12.4% increase compared with last year's fourth-quarter. The year-over-year sales growth was comprised of +10.3% organic, +1.5% favorable foreign exchange translation, and +0.6% from acquisition activity.

The company reported net income of $46.2 million, or $0.37 per diluted share, compared with net income of $53.0 million, or $0.43 per diluted share, in the fiscal 2004 fourth quarter. Excluding the asbestos charges taken during the 2005 fourth quarter, adjusted net income of $57.0 million this year increased 7.7% compared with last year, while adjusted earnings per share of $0.46 increased 7.0% compared with the 2004 fourth-quarter diluted earnings of $0.43 per share. The retrospective application of EITF 04-8 reduced fourth-quarter 2004 diluted earnings per share by $0.02.

RPM's early adoption of FAS 123, in conjunction with its new omnibus equity incentive plan, reduced fourth-quarter 2005 earnings by approximately $0.01 per share.

Consolidated EBIT of $84.2 million compared with $88.0 million in the year-ago quarter. Excluding the asbestos charges, adjusted EBIT comparatively increased year over year by 13.9%, to $100.2 million. This increase mainly reflects the leverage benefits from the sales volume strength during the quarter, despite the added costs of the early adoption of FAS 123, as well as continued higher raw material costs, partially offset by ongoing pricing initiatives and programs to improve productivity.

RPM's industrial segment sales, which accounted for 55.4% of 2005 fourth-quarter consolidated sales, exhibited strength nearly throughout the segment, increasing 15.6% to $418.0 million. This year-over-year sales growth was +12.5% organic, +2.0% favorable foreign exchange translation, and +1.1% from acquisitions, net of a small divestiture. The industrial segment EBIT expanded 20.5% to $53.8 million, strengthening this segment's EBIT margin by 60 basis points, to 12.9%, compared with the year-ago quarter.

Consumer segment sales, which accounted for 44.6% of consolidated sales, grew 8.7% to $336.4 million. This year-over-year sales growth was +7.7% organic, + 0.9% net favorable foreign exchange translation, and the balance from an acquisition. The consumer segment EBIT improved 11.5% to $56.7 million, strengthening this segment's EBIT margin by 50 bps, to 16.9%, reflecting leveraged earnings from the higher sales volume.

Reconciliations of EBIT and adjusted net income to the most comparable Generally Accepted Accounting Principles (GAAP) measures, an explanation of how RPM uses EBIT in managing its businesses and a reconciliation of reported results to results excluding the impact of the asbestos charge are provided in the supplemental data accompanying this release.

Business Outlook

"We're very pleased with our overall operating performance this past year, particularly in light of a sharply rising material cost environment," said Sullivan. "Our companies have been able to narrow the margin gap brought on by these higher costs through spending controls, productivity improvements and pricing initiatives. We will continue to focus on each of these elements of profitability in anticipation of continuing raw material cost challenges. We are also benefiting from efforts to cross-market our products and services and by the introduction of innovative new products and services to the markets we serve. Additionally, we are pleased with the acquisition progress we've made these past few years, and will continue to target complementary acquisitions both here in North America and in Europe. We expect to continue to capitalize on the fundamental strengths of our businesses to further our earnings and cash flow goals. For our 2006 fiscal year, we are anticipating revenue growth in the 6% to 8% range, generating earnings growth of 8% to 10%, before asbestos costs or the positive impact of any acquisition activity."

Webcast Information

RPM 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 888-396-2369 or 617-847-8710 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 noon Eastern time on July 25 until 8:00 p.m. Eastern time on August 1, 2005. The replay can be accessed by dialing 888-286-8010 or 617-801-6888. The access code is 77574714. 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.

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, 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 of finance and communications, at 330-273-8820 or ghasman@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 price and supply of raw materials, particularly titanium dioxide, certain resins, aerosols and solvents; (c) continued growth in demand for the company's products; (d) legal, environmental and litigation risks inherent in the company's construction and chemicals businesses and risks related to the adequacy of the company's insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon the company's 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 the company's ongoing acquisition and divestiture activities; (i) risks related to the adequacy of its contingent liability reserves, including for asbestos-related claims; and other risks detailed in the company's other reports and statements filed with the Securities and Exchange Commission, including the risk factors set forth in the company's prospectus and prospectus supplement included as part of the company's Registration Statement on Form S-4 (File No. 333-114259), as the same may be amended 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

                                                   AS REPORTED
                                         Year Ended        Three Months Ended
                                     May 31,     May 31,    May 31,   May 31,
                                      2005        2004       2005      2004

    Net Sales                      $2,555,735  $2,307,553  $754,416  $671,011
    Cost of sales                   1,449,184   1,276,372   424,557   368,251
    Gross profit                    1,106,551   1,031,181   329,859   302,760
    Selling, general &
     administrative expenses          829,445     784,620   229,696   214,810
    Asbestos charges                   78,000                16,000
    Interest expense, net              35,378      28,945     9,893     8,184
    Income before income taxes        163,728     217,616    74,270    79,766
    Provision for income taxes         58,696      75,730    28,064    26,793
    Net Income                       $105,032    $141,886   $46,206   $52,973

    Basic earnings per share of
     common stock                       $0.90       $1.23     $0.39     $0.46

    Diluted earnings per share of
     common stock (b)                   $0.86       $1.16     $0.37     $0.43

    Average shares of common stock
     outstanding - basic              116,899     115,777   117,489   116,045

    Average shares of common stock
     outstanding - diluted (b)        126,364     124,744   126,973   125,125

    (a)  Adjusted figures presented remove the impact of the additional
         asbestos charges taken during the second, third and fourth quarters
         of fiscal 2005.

    (b)  Amounts for all periods presented include the effect of our
         contingently issuable shares, as required by EITF Issue No. 04-8.



                       CONSOLIDATED STATEMENTS OF INCOME
                       In thousands, except per share data

                                                  ADJUSTED (a)
                                         Year Ended        Three Months Ended
                                     May 31,     May 31,    May 31,   May 31,
                                      2005        2004       2005      2004

    Net Sales                      $2,555,735  $2,307,553  $754,416  $671,011
    Cost of sales                   1,449,184   1,276,372   424,557   368,251
    Gross profit                    1,106,551   1,031,181   329,859   302,760
    Selling, general &
     administrative expenses          829,445     784,620   229,696   214,810
    Asbestos charges
    Interest expense, net              35,378      28,945     9,893     8,184
    Income before income taxes        241,728     217,616    90,270    79,766
    Provision for income taxes         87,194      75,730    33,237    26,793
    Net Income                       $154,534    $141,886   $57,033   $52,973

    Basic earnings per share of
     common stock                       $1.32       $1.23     $0.49     $0.46

    Diluted earnings per share of
     common stock (b)                   $1.25       $1.16     $0.46     $0.43

    Average shares of common stock
     outstanding - basic              116,899     115,777   117,489   116,045

    Average shares of common stock
     outstanding - diluted (b)        126,364     124,744   126,973   125,125

    (a)  Adjusted figures presented remove the impact of the additional
         asbestos charges taken during the second, third and fourth quarters
         of fiscal 2005.

    (b)  Amounts for all periods presented include the effect of our
         contingently issuable shares, as required by EITF Issue No. 04-8.



                        SUPPLEMENTAL SEGMENT INFORMATION
                                  In thousands

                                                 AS REPORTED
                                         Year Ended        Three Months Ended
                                     May 31,     May 31,    May 31,   May 31,
                                      2005        2004       2005      2004
    Net Sales:
       Industrial Segment          $1,441,548  $1,272,781  $418,008  $361,529
       Consumer Segment             1,114,187   1,034,772   336,408   309,482
           Total                   $2,555,735  $2,307,553  $754,416  $671,011

    Income Before Income Taxes (b):
       Industrial Segment
         Income Before
          Income Taxes (b)           $168,578    $140,706   $54,015   $44,716
         Interest (Expense), Net          532         192       255       107
         EBIT (c)                    $168,046    $140,514   $53,760   $44,609
       Consumer Segment
         Income Before
          Income Taxes (b)           $147,601    $142,852   $56,894   $50,921
         Interest (Expense), Net          415         104       148        16
         EBIT (c)                    $147,186    $142,748   $56,746   $50,905
       Corporate/Other
         Income Before
          Income Taxes (b)          $(152,451)   $(65,942) $(36,639) $(15,871)
         Interest (Expense), Net      (36,325)    (29,241)  (10,296)   (8,307)
         EBIT (c)                   $(116,126)   $(36,701) $(26,343)  $(7,564)
         Consolidated
           Income Before Income
            Taxes (b)                $163,728    $217,616   $74,270   $79,766
           Interest (Expense), Net    (35,378)    (28,945)   (9,893)   (8,184)
           EBIT (c)                  $199,106    $246,561   $84,163   $87,950

    (a)  Adjusted figures presented remove the impact of the additional
         asbestos charges taken during the second, third and fourth quarters
         of fiscal 2005.

    (b)  The presentation includes a reconciliation of Income Before Income
         Taxes, a measure defined by Generally Accepted Accounting Principles
         (GAAP) in the United States, to EBIT.

    (c)  EBIT is defined as earnings 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.



                        SUPPLEMENTAL SEGMENT INFORMATION
                                  In thousands

                                                   ADJUSTED (a)
                                         Year Ended        Three Months Ended
                                     May 31,     May 31,    May 31,   May 31,
                                      2005        2004       2005      2004
    Net Sales:
       Industrial Segment          $1,441,548  $1,272,781  $418,008  $361,529
       Consumer Segment             1,114,187   1,034,772   336,408   309,482
           Total                   $2,555,735  $2,307,553  $754,416  $671,011

    Income Before Income Taxes (b):
       Industrial Segment
           Income Before
            Income Taxes (b)         $168,578    $140,706   $54,015   $44,716
           Interest (Expense), Net        532         192       255       107
         EBIT (c)                    $168,046    $140,514   $53,760   $44,609
       Consumer Segment
         Income Before
          Income Taxes (b)           $147,601    $142,852   $56,894   $50,921
         Interest (Expense), Net          415         104       148        16
         EBIT (c)                    $147,186    $142,748   $56,746   $50,905
       Corporate/Other
         Income Before
          Income Taxes (b)           $(74,451)   $(65,942) $(20,639) $(15,871)
         Interest (Expense), Net      (36,325)    (29,241)  (10,296)   (8,307)
         EBIT (c)                    $(38,126)   $(36,701) $(10,343)  $(7,564)
         Consolidated
           Income Before Income
            Taxes (b)                $241,728    $217,616   $90,270   $79,766
           Interest (Expense), Net    (35,378)    (28,945)   (9,893)   (8,184)
           EBIT (c)                  $277,106    $246,561  $100,163   $87,950

    (a)  Adjusted figures presented remove the impact of the additional
         asbestos charges taken during the second, third and fourth quarters
         of fiscal 2005.

    (b)  The presentation includes a reconciliation of Income Before Income
         Taxes, a measure defined by Generally Accepted Accounting Principles
         (GAAP) in the United States, to EBIT.

    (c)  EBIT is defined as earnings 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

    Assets                                     May 31, 2005       May 31, 2004

    Current Assets
         Cash and short-term investments          $184,140            $34,559
         Trade accounts receivable                 571,649            506,286
         Allowance for doubtful accounts           (18,565)           (18,147)
         Net trade accounts receivable             553,084            488,139
         Inventories                               334,404            289,359
         Deferred income taxes                      40,876             40,919
         Prepaid expenses and
          other current assets                     158,991            138,613
         Total current assets                    1,271,495            991,589

    Property, Plant and Equipment, at Cost         775,564            767,072
         Allowance for depreciation and
          amortization                            (385,586)          (386,017)
         Property, plant and equipment, net        389,978            381,055

    Other Assets
         Goodwill                                  663,224            648,243
         Other intangible assets, net
          of amortization                          275,744            282,372
         Other                                      55,804             46,832
         Total other assets                        994,772            977,447

    Total Assets                                $2,656,245         $2,350,091

    Liabilities and Stockholders' Equity

    Current Liabilities
         Accounts payable                         $274,573           $205,092
         Current portion of long-term debt              97                991
         Accrued compensation and benefits          95,667             88,670
         Accrued loss reserves                      65,452             56,699
         Asbestos-related liabilities               55,000             47,500
         Other accrued liabilities                  84,550             75,513
         Total current liabilities                 575,339            474,465

    Long-Term Liabilities
         Long-term debt, less current maturities   837,948            718,929
         Asbestos-related liabilities               46,172             43,107
         Other long-term liabilities                71,363             59,910
         Deferred income taxes                      78,914             78,388
         Total long-term liabilities             1,034,397            900,334
           Total liabilities                     1,609,736          1,374,799

    Stockholders' Equity
         Preferred stock; none issued
         Common stock outstanding 117,554;
          116,122)                                   1,176              1,161
         Paid-in capital                           535,204            513,986
         Treasury stock, at cost
         Accumulated other comprehensive
          income (loss)                             10,004             (3,881)
         Retained earnings                         500,125            464,026
         Total stockholders' equity              1,046,509            975,292

    Total Liabilities and
     Stockholders' Equity                       $2,656,245         $2,350,091



                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   In thousands
                                                       Year Ended May 31,
                                                    2005               2004
    Cash Flows From Operating Activities
        Net income                               $105,032           $141,886
        Depreciation and amortization              65,992             63,277
        Items not affecting cash and other          5,160            (10,812)
        Changes in operating working capital      (26,406)            (6,581)
        Changes in asbestos-related
         liabilities, net of tax                    7,574            (33,735)
                                                  157,352            154,035
    Cash Flows From Investing Activities
        Capital expenditures                      (55,609)           (51,253)
        Acquisition of businesses, net
         of cash acquired                         (20,100)           (37,703)
        Proceeds from the sale of assets            5,426              3,664
        Other                                      (5,685)           (17,254)
                                                  (75,968)          (102,546)
    Cash Flows From Financing Activities
        Additions to (reductions of) long-term
         and short-term debt                      120,488             (6,278)
        Cash dividends                            (68,933)           (63,651)
        Exercise of stock options                  12,543              5,796
                                                   64,098            (64,133)

    Effect of Exchange Rate on Cash and
     Short-Term Investments                         4,099                234

    Increase in Cash and Short-Term
     Investments                                 $149,581           $(12,410)

SOURCE RPM International Inc.
07/25/2005
/CONTACT: Glenn R. Hasman, vice president of finance and communications
of RPM International Inc., +1-330-273-8820, or ghasman@rpminc.com /
/Web site: http://www.rpminc.com/
(RPM)


©2017 RPM International Inc. Terms of Use | Privacy Policy 2628 Pearl Road - P.O. Box 777 - Medina, Ohio 44258 | Phone: 330.273.5090 | Email: info@RPMinc.com