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RPM Reports Record Third Quarter Results

  • Sales increase 19%
  • Excluding asbestos charges, earnings increase 53%
  • 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 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, 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.

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, supply and capacity of raw materials, including assorted resins and solvents; packaging, including plastic containers; and transportation services, including fuel surcharges; (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. 333-120536), 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
    (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.

CONTACT: Glenn R. Hasman, vice president - finance and communications of RPM International, +1-330-273-8820 or ghasman@rpminc.com


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