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RPM Reports Record First-Quarter Net Income, Earnings Per Share and Cash Flow

- Consumer segment drives higher sales; industrial segment lags, as expected

MEDINA, Ohio, Oct. 5 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today reported record first-quarter net income, earnings per share and cash flow for the period ended August 31, 2009. During the fiscal 2010 first quarter, the company's consumer segment earnings before interest and taxes (EBIT) more than offset the decline in industrial segment EBIT, as compared to the fiscal 2009 first quarter. Earnings in both business segments benefited from expense reductions implemented during the prior fiscal year and improving gross profit margins.

First-Quarter Results

First-quarter net sales of $916.0 million were 7.1% below the $985.5 million reported a year ago. Core growth declined 3.2% with the balance of 3.9% attributable to negative foreign exchange translation.

Net income of $73.0 million was a first-quarter record, up 5.0% from last year's record $69.5 million. Record first-quarter diluted earnings per share were $0.57, a 7.5% increase over the $0.53 reported a year ago.

"The advantage of our deliberate strategic balance between consumer and industrial markets was evident in the quarter as our consumer segment sales and EBIT growth offset continued weakness in our industrial segment. It was a solid quarter for RPM, reflecting the benefits of the aggressive actions we took last year to lower our cost base, resulting in net income that was ahead of last year's record first quarter," stated Frank C. Sullivan, chairman and chief executive officer.

Consolidated EBIT was a record $120.6 million, an 8.8% improvement over the record EBIT of $110.9 million in the first quarter of fiscal 2009. The company's gross profit margin improved by 200 basis points, while selling, general and administrative expenses as a percent of sales increased 10 basis points on the lower sales volume, yet declined in absolute terms by 6.6%.

First-Quarter Segment Sales and Earnings

The company's consumer segment, accounting for 34.5% of consolidated first-quarter sales, posted core growth of 12.5% with a negative foreign exchange impact of 2.6%. Consumer sales rose to $316.2 million from $287.9 million a year ago. Consumer segment EBIT increased 54.1% to $53.3 million in the fiscal 2010 first quarter from $34.6 million in the fiscal 2009 first period.

"We were pleased to see how well our consumer businesses performed during the quarter. Volume growth, coupled with our aggressive cost reduction actions last year, is producing excellent operating leverage. While overall consumer spending remains modest, it is clear that our low-cost, high-value maintenance, repair and redecoration products are getting more traction across our retail base," Sullivan stated. "Our history of developing innovative products that meet consumers' demand for value at all price points also enabled our consumer businesses to secure share during this past year's market contraction," he stated.

Sales for RPM's industrial segment, representing 65.5% of the company's consolidated first-quarter sales, declined 14.0% to $599.7 million from $697.6 million a year ago. Core sales growth declined 9.6% and the balance of 4.4% resulted from the negative impact of foreign exchange. Segment EBIT fell 10.3% to $81.9 million from $91.3 million in the fiscal 2009 first quarter.

"As anticipated, our industrial segment continues to face a depressed commercial construction environment and reduced capital spending in many markets. Despite the lack of top-line growth, the impact of aggressive cost reduction actions, coupled with a more stable raw material environment, enabled our industrial companies to generate sequentially higher EBIT that was well ahead of last year's fourth quarter," stated Sullivan.

Cash Flow and Financial Position

During the fiscal 2010 first quarter, cash from operations was a record $52.1 million, compared to negative cash from operations of $12.3 million a year ago. Capital expenditures were $3.3 million in the quarter, down from $12.2 million in the fiscal 2009 first quarter. Depreciation was $15.6 million during the first quarter of fiscal 2010.

Total debt at August 31, 2009 of $906.7 million compares to $930.8 million at May 31, 2009 and $972.5 million at the end of last year's first quarter. Net (of cash) debt-to-total capital was 34.7%, versus 37.9% at the end of last year's first quarter and 37.2% at the end of the prior fiscal year. Asbestos indemnity and defense cash costs were $18.6 million in the first quarter of fiscal 2010, as compared to $16.0 million a year ago. The company's total accrued asbestos liability was $471.8 million. Liquidity, including cash, was $635.1 million, as compared to $548.0 million a year ago and $622.0 million at May 31, 2009. "Throughout this extraordinary period of capital market volatility, RPM has improved on an already strong capital structure and liquidity position. As a result, we are well prepared to fund operations, pursue acquisitions and continue our dividend program," Sullivan stated.

Business Outlook

"Our first-quarter results were better than we anticipated, which certainly gives us a good start to the fiscal year. The sequential increase in sales from the fiscal 2009 fourth quarter of 6.8% is a marked change from previous years where the first quarter is typically lower than the fourth quarter. We see this as a bullish sign of a slowly improving economy. The strength of our first quarter makes us more comfortable that we will be at the higher end of our previously stated guidance of full-year earnings per share growth of 5% to 25% over the adjusted $1.05 earned in fiscal 2009," 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 800-573-4754 or 617-224-4325 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 1:00 p.m. EDT on October 5, 2009 until 11:59 p.m. EDT on October 12, 2009. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 94758585. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at

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 - administration and chief financial officer, at 330-273-5090 or

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, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, 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 liability reserves, 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, 2009, 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.


                                                         Three Months Ended
                                                             August 31,
                                                           2009      2008
                                                         --------  --------

    Net Sales                                            $915,953  $985,465
    Cost of sales                                         522,123   581,876
                                                          -------   -------
    Gross profit                                          393,830   403,589
    Selling, general & administrative expenses            273,199   292,690
    Interest expense                                       12,797    14,756
    Investment (income), net                               (1,094)   (4,170)
                                                           ------    ------
    Income before income taxes                            108,928   100,313
    Provision for income taxes                             35,903    30,796
                                                           ------    ------
    Net Income                                            $73,025   $69,517
                                                          =======   =======

    Basic earnings per share of common stock                $0.57     $0.55
                                                            =====     =====

    Diluted earnings per share of common stock              $0.57     $0.53
                                                            =====     =====

    Average shares of common stock outstanding - basic    126,774   124,935
                                                          =======   =======

    Average shares of common stock outstanding - diluted  127,098   129,426
                                                          =======   =======

    (a) The above information reflects our June 1, 2009 adoption of FSP EITF
        03-6-1, "Determining Whether Instruments Granted in Share-Based
        Payment Transactions are Participating Securities."  Our unvested
        restricted stock awards pay dividends and therefore qualify as
        participating securities.  In accordance with EITF 03-6-1, Net income,
        for the purposes of the computations of basic and diluted net income
        per share of common stock for the three months ended August 31, 2009
        and 2008, is reduced by  approximately $1.1 million and $0.9 million,
        respectively, for a presumed hypothetical distribution of earnings to
        the holders of the unvested restricted stock.


                                                          Three Months Ended
                                                              August 31,
                                                            2009      2008
                                                          --------  --------

    Net Sales:
      Industrial Segment                                  $599,712  $697,582
      Consumer Segment                                     316,241   287,883
                                                           -------   -------
           Total                                          $915,953  $985,465
                                                          ========  ========

    Gross Profit:
      Industrial Segment                                  $264,672  $291,775
      Consumer Segment                                     129,158   111,814
                                                           -------   -------
           Total                                          $393,830  $403,589
                                                          ========  ========

    Income Before Income Taxes (b):
      Industrial Segment
           Income Before Income Taxes (b)                  $81,741   $91,236
           Interest (Expense), Net (c)                        (131)      (59)
                                                              ----       ---
           EBIT (d)                                        $81,872   $91,295
                                                           =======   =======
      Consumer Segment
           Income Before Income Taxes (b)                  $53,334   $33,265
           Interest (Expense), Net (c)                                (1,342)
                                                           -------    ------
           EBIT (d)                                        $53,334   $34,607
                                                           =======   =======
           (Expense) Before Income Taxes (b)              $(26,147) $(24,188)
           Interest (Expense), Net (c)                     (11,572)   (9,185)
                                                           -------    ------
           EBIT (d)                                       $(14,575) $(15,003)
                                                          ========  ========
                Income Before Income Taxes (b)            $108,928  $100,313
                Interest (Expense), Net (c)                (11,703)  (10,586)
                                                           -------   -------
                EBIT (d)                                  $120,631  $110,899
                                                          ========  ========

    (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) Interest (expense), net includes the combination of interest (expense)
        and investment income/(expense), net.
    (d) 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.


                                           August 31,   August 31,    May 31,
                                              2009         2008        2009
                                           ----------   ----------  ----------
                                          (Unaudited)  (Unaudited)
    Current Assets
      Cash and cash equivalents             $255,840     $201,368    $253,387
      Trade accounts receivable          664,711      758,326     661,593
      Allowance for doubtful accounts    (24,239)     (22,626)    (22,934)
                                             -------      -------     -------
      Net trade accounts receivable          640,472      735,700     638,659
      Inventories                            435,174      509,314     406,175
      Deferred income taxes                   44,299       37,620      44,540
      Prepaid expenses and other
       current assets                        209,432      207,441     210,155
                                             -------      -------     -------
      Total current assets                 1,585,217    1,691,443   1,552,916
                                           ---------    ---------   ---------

    Property, Plant and
     Equipment, at Cost                    1,055,935    1,045,614   1,056,555
      Allowance for depreciation and
       amortization                         (597,420)    (562,461)   (586,452)
                                            --------     --------    --------
      Property, plant and
       equipment, net                        458,515      483,153     470,103
                                             -------      -------     -------
    Other Assets
      Goodwill                               860,554      890,211     856,166
      Other intangible assets, net of
       amortization                          353,820      370,256     358,097
      Deferred income taxes, non-
       current                                82,446       95,461      92,500
      Other                                   87,318       87,641      80,139
                                              ------       ------      ------
      Total other assets                   1,384,138    1,443,569   1,386,902
                                           ---------    ---------   ---------

    Total Assets                          $3,427,870   $3,618,165  $3,409,921
                                          ==========   ==========  ==========

    Liabilities and Stockholders' Equity
    Current Liabilities
      Accounts payable                      $291,658     $338,064    $294,814
      Current portion of long-term debt      169,314        7,041     168,547
      Accrued compensation and benefits       99,825       96,151     124,138
      Accrued loss reserves                   75,559       72,002      77,393
      Asbestos-related liabilities            75,000       65,000      65,000
      Other accrued liabilities              134,002      134,846     119,270
                                             -------      -------     -------
      Total current liabilities              845,358      713,104     849,162
                                             -------      -------     -------

    Long-Term Liabilities
      Long-term debt, less current
       maturities                            737,414      965,423     762,295
      Asbestos-related liabilities           396,772      478,709     425,328
      Other long-term liabilities            195,686      174,545     205,650
      Deferred income taxes                   28,331       24,472      23,815
                                              ------       ------      ------
      Total long-term liabilities          1,358,203    1,643,149   1,417,088
                                           ---------    ---------   ---------
         Total liabilities                 2,203,561    2,356,253   2,266,250
                                           ---------    ---------   ---------

    Stockholders' Equity
      Preferred stock; none issued
      Common stock (outstanding
       129,097; 129,101; 128,501)              1,291        1,291       1,285
      Paid-in capital                        794,254      788,315     796,441
      Treasury stock, at cost                (42,990)     (29,691)    (50,453)
      Accumulated other comprehensive
       income (loss)                          (3,525)      44,916     (31,557)
      Retained earnings                      475,279      457,081     427,955
                                             -------      -------     -------
      Total stockholders' equity           1,224,309    1,261,912   1,143,671
                                           ---------    ---------   ---------

    Total Liabilities and
     Stockholders' Equity                 $3,427,870   $3,618,165  $3,409,921
                                          ==========   ==========  ==========

                                                           Three Months Ended
                                                               August 31,
                                                             2009      2008
                                                           --------  --------

    Cash Flows From Operating Activities:
      Net income                                           $73,025   $69,517
      Adjustments to reconcile net income to net
       cash provided by operating activities:
                   Depreciation                             15,557    16,385
                   Amortization                              5,449     5,824
                   Other-than-temporary impairments on
                    marketable securities                      118       730
                   Deferred income taxes                    11,370    (2,108)
                   Other                                     2,018     2,411
      Changes in assets and liabilities, net of effect
       from purchases and sales of businesses:
                   (Increase) decrease in receivables       (1,814)   83,267
                   (Increase) in inventory                 (28,999)  (31,922)
                   (Increase) in prepaid expenses and other
                        current and long-term assets        (9,135)   (1,259)
                   (Decrease) in accounts payable           (3,156)  (74,736)
                   (Decrease) in accrued compensation and
                    benefits                               (24,313)  (55,342)
                   (Decrease) increase in accrued loss
                    reserves                                (1,834)       21
                   Increase (decrease) in other accrued
                    liabilities                             33,410    (1,854)
                   Payments made for asbestos-related
                    claims                                 (18,556)  (16,036)
                   Other                                    (1,004)   (7,228)
                                                            ------    ------
                        Cash From (Used For) Operating
                         Activities                         52,136   (12,330)
                                                            ------   -------
    Cash Flows From Investing Activities:
         Capital expenditures                               (3,262)  (12,199)
         Acquisition of businesses, net of cash acquired      (349)   (1,849)
         Purchase of marketable securities                  (4,077)  (29,924)
         Proceeds from sales of marketable securities          897    29,110
         Other                                                 501     7,910
                                                               ---     -----
                        Cash (Used For) Investing
                         Activities                         (6,290)   (6,952)
                                                            ------    ------
    Cash Flows From Financing Activities:
         Additions to long-term and short-term debt            817    49,373
         Reductions of long-term and short-term debt       (25,290)     (813)
         Cash dividends                                    (25,701)  (24,751)
         Repurchase of stock                                         (24,585)
         Exercise of stock options                           2,692     1,086
                                                             -----     -----
                         Cash From (Used For) Financing
                          Activities                       (47,482)      310
                                                           -------       ---

    Effect of Exchange Rate Changes on Cash and
     Cash Equivalents                                        4,089   (10,911)
                                                             -----   -------

    Net Change in Cash and Cash Equivalents                  2,453   (29,883)

    Cash and Cash Equivalents at Beginning of Period       253,387   231,251
                                                           -------   -------

    Cash and Cash Equivalents at End of Period            $255,840  $201,368
                                                          ========  ========

SOURCE RPM International Inc.

P. Kelly Tompkins, executive vice president - administration and chief financial officer, +1-330-273-5090,

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