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News Release

RPM Reports Strong 2004 Fourth-Quarter and Full-Year Results

  • Fourth-quarter sales set record, up 15.5%
  • Full-year sales rise 12% to record $2.3 billion
  • Fourth-quarter and full-year net incomes set new records
  • Profit margins strengthen
  • Outlook provided for 2005

MEDINA, Ohio, July 26 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM), a leading specialty coatings and sealants manufacturer, today announced record results in sales, earnings and earnings per share for its fourth quarter and fiscal year ended May 31, 2004.

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"Our fourth quarter capped off a strong year, with growth generated from a host of new and innovative products and services developed over the last several years and from the benefits of a number of acquired product lines," stated Frank C. Sullivan, president and chief executive officer. "We were especially pleased to see our industrial segment revenues accelerate toward the end of the year in the midst of the economic recovery, which enabled us to exceed our top- and bottom-line expectations for the year."

Fourth-Quarter Sales and Earnings

RPM reported record net sales of $680.9 million for the fourth quarter of fiscal 2004, a 15.5 percent increase over last year's fourth quarter. Organic unit growth totaled 11 percent, while acquisitions and net favorable foreign exchange rates contributed 2.5 percent and 2 percent, respectively, to sales growth.

Net income reached a record $53.0 million, compared with last year's fourth-quarter net loss of ($43.4) million, while diluted earnings per common share reached a record $0.45, compared with the fourth quarter loss a year ago of ($0.38) per share.

Excluding the $88 million after-tax charge taken in 2003, net income grew 20 percent compared with last year's fourth-quarter pro forma earnings of $44.1 million. The net income margin on sales also improved to 7.8 percent of sales from last year's 7.5 percent of sales on a pro forma basis. Diluted earnings per common share increased 18 percent over $0.38 earned in the year- ago quarter on a pro forma basis.

Consolidated earnings before interest and taxes (EBIT) grew 20 percent to $88.0 million, compared with last year's $73.2 million excluding the $140 million pre-tax charge taken in the fourth quarter of 2003. This growth reflects the strong sales volume, productivity gains and accretive acquisitions, which more than compensated for higher material costs. The EBIT margin also improved to 12.9 percent of sales from 12.4 percent a year ago.

Both operating segments strengthened year-over-year during the fourth quarter, particularly RPM's industrial segment, where organic growth has lagged for several years. Industrial segment net sales grew 19 percent, of which 12 percent was purely organic. All three business groups within this segment achieved double-digit growth. The industrial segment was also able to capitalize on strong earnings leverage from its surge in organic sales volume this quarter, growing EBIT by 31 percent.

Consumer segment net sales grew 12 percent over fourth-quarter 2003, 10 percent of which was organic, reflecting solid retail demand across all of the product lines in this segment. Consumer segment EBIT grew by 10 percent, with higher material costs partly offsetting this segment's earnings leverage from increased sales.

All references to EBIT are tied to the supplemental segment data attached to this release which provides a reconciliation of EBIT to the most comparable GAAP measure, income before income taxes.

Fiscal 2004 Results

RPM achieved record net sales of $2.3 billion for its 2004 fiscal year, a 12 percent improvement over the prior year. Organic growth, acquisitions and favorable exchange rates contributed approximately 7 percent, 3 percent and 2 percent of growth, respectively.

Net income increased 302 percent to a record $141.9 million compared with last year's $35.3 million, while diluted earnings per common share reached a record $1.22, an increase of 307 percent over $0.30 earned last year.

Excluding the $88 million after-tax charge taken in 2003, net income increased 15.5 percent compared with last year's pro forma net income of $122.8 million, the margin on sales improved to 6.1 percent from last year's pro forma 5.9 percent of sales, and diluted earnings per common share increased 15 percent over $1.06 earned last year on a pro forma basis.

Consolidated EBIT grew $32.0 million to $246.6 million, an increase of 15 percent over last year's $214.6 million excluding the $140 million pre-tax charge taken in 2003. This growth reflects the improvements in organic sales and accretive acquisitions, partly offset by higher raw material costs. The EBIT margin improved to 10.5 percent of sales from 10.3 percent of sales a year ago.

The industrial and consumer operating segments achieved solid growth of 14 percent and 11 percent, respectively, primarily from organic growth, but including net favorable foreign exchange differences and the impact of acquisitions. The industrial segment grew EBIT by 15 percent to $140.5 million from last year's $122.3 million, while the consumer segment grew EBIT by 9 percent to $142.7 million from last year's $131.4 million.

All references to EBIT are tied to the supplemental segment data attached to this release which provides a reconciliation of EBIT to the most comparable GAAP measure, income before income taxes.

Cash flow from operations was $153.0 million, representing an overall decrease from fiscal 2003 of $7.6 million, or less than 5 percent. The company attributed the decline to after-tax asbestos-related payments during the year of $33.7 million, which exceeded the cash flow benefits from the improved operating performance. Capital expenditures of $51.3 million during the year compared with depreciation of $47.8 million. RPM anticipates that capital expenditures will continue to approximate depreciation levels over the next several years. Despite $37.7 million in acquisitions during the year, total debt declined $6.3 million to $719.9 million, and the debt-to-capital ratio improved to 42 percent from 45 percent at the end of fiscal 2003.

Business Outlook

"RPM remains focused on generating strong cash flow to fund continued growth through innovation, acquisitions and investments that will further boost our productivity and our competitive position," Sullivan stated.

"We are very pleased with our accelerating performance in fiscal 2004. For 2005, we expect raw material costs to continue to run higher and asbestos liabilities to remain a challenge. Despite these challenges, we expect to be able to produce high-single digit growth in revenues, and low double-digit growth in earnings, generating another year of record growth and margin improvement from our operations."

Webcast Information

RPM will host a conference call at 10:00 a.m. Eastern time on Monday, July 26, 2004. The call may be accessed by dialing 800-901-5241 or over the Internet through RPM's web site at . Please access approximately 10 minutes before the call to complete registration. A replay will be available from approximately 12:00 Eastern time on July 26 until 8:00 p.m. Eastern time on August 2, 2004, on RPM's web site or by dialing 888-286-8010 and citing access code 89942115. A transcript of the call will also be posted on the web site as soon as possible.

About RPM

RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings serving both industrial and consumer markets. RPM's industrial products include roofing systems, sealants, corrosion control coatings, flooring coatings and specialty chemicals. 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. Leading industrial brands include Stonhard, Tremco, Carboline, Day-Glo, Euco and Dryvit. Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane, Bondo and Testors.

For more information, contact Glenn R. Hasman, vice president - finance and communications for RPM, at 330-273-8820 or

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 existing reserves and 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 inherent in its contingent liability reserves, including asbestos; 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-3 (File No. 333-108647), 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.

                     In thousands, except per share data

                                                          Three Months
                              Year Ended May 31,          Ended May 31,
                               2004        2003          2004       2003

    Net Sales               $2,341,572  $2,083,489     $680,878   $589,546
    Cost of sales            1,276,372   1,134,207      368,251    316,526
    Gross profit             1,065,200     949,282      312,627    273,020
    Selling, general &
     administrative expenses   818,639     734,717      224,677    199,815
    Asbestos charge                        140,000                 140,000
    Interest expense, net       28,945      26,712        8,184      6,422
    Income before income taxes 217,616      47,853       79,766    (73,217)
    Provision for income taxes  75,730      12,526       26,793    (29,848)
    Net Income                $141,886     $35,327      $52,973   $(43,369)

    Basic earnings per
     share of common stock       $1.23       $0.31        $0.46     $(0.38)

    Diluted earnings per
     share of common stock       $1.22       $0.30        $0.45     $(0.38)

    Average shares of common
     stock outstanding - basic 115,777     115,294      116,045    115,593

    Average shares of
     common stock
     outstanding - diluted     116,710     115,986      117,091    115,911

                                 In thousands
                                                          Three Months
                               Year Ended May 31,         Ended May 31,
                                2004        2003         2004       2003
    Net Sales:
      Industrial Segment    $1,272,781  $1,117,877     $361,529   $304,122
      Consumer Segment       1,068,791     965,612      319,349    285,424
        Total               $2,341,572  $2,083,489     $680,878   $589,546

    Income Before Income
     Taxes (a):
      Industrial Segment
        Income Before Income
         Taxes (a)            $140,706    $122,568      $44,716    $34,517
        Interest (Expense),
         Net                       192         253          107        362
        EBIT (b)              $140,514    $122,315      $44,609    $34,155
      Consumer Segment
        Income Before Income
         Taxes (a)            $142,852    $131,100      $50,921    $45,932
         Net                       104        (284)          16       (350)
        EBIT (b)              $142,748    $131,384      $50,905    $46,282
        Income Before Income
         Taxes (a)            $(65,942)  $(205,815)(c) $(15,871) $(153,666)(c)
        Interest (Expense),
         Net                   (29,241)    (26,681)      (8,307)    (6,434)
        EBIT (b)              $(36,701)  $(179,134)     $(7,564) $(147,232)
          Income Before
           Income Taxes (a)   $217,616     $47,853      $79,766   $(73,217)
           Net                 (28,945)    (26,712)      (8,184)    (6,422)
          EBIT (b)            $246,561     $74,565      $87,950   $(66,795)

    (a)  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.

    (b)  EBIT is defined as earnings before interest and taxes.  We believe
         that EBIT provides one of the best comparative measures of pure
         operating performance, and it is a widely accepted financial
         indicator used by certain investors and analysts to analyze and
         compare companies.  EBIT is not intended to represent cash flows for
         the period, nor is it presented as an alternative to operating income
         or as an indicator of operating performance.  EBIT should not be
         considered in isolation, but with GAAP, and it is not indicative of
         operating income or cash flow from operations as determined by those
         principles.  Our method of computation may or may not be comparable
         to other similarly titled measures of other companies.  EBIT may not
         be indicative of our historical operating results, nor is it meant to
         be predictive of potential future results.

    (c)  The asbestos charge, reflected in Corporate/Other, relates to our
         Bondex International, Inc. subsidiary.

                                  In thousands
                                                        Year Ended May 31,
                                                      2004              2003
    Cash Flows From Operating Activities
      Net income                                   $141,886           $35,327
      Depreciation and amortization                  63,277            58,674
      Items not affecting cash and other            (11,236)            8,067
      Changes in operating working capital           (7,195)          (35,137)
      Changes in asbestos-related liabilities,
       net of tax                                   (33,735)           93,698
                                                    152,997           160,629

    Cash Flows From Investing Activities
      Capital expenditures                          (51,253)          (41,814)
      Acquisition of businesses, net of
       cash acquired                                (37,703)          (65,994)
      Other                                         (12,306)           (2,593)
                                                   (101,262)         (110,401)

    Cash Flows From Financing Activities
      Reductions of long-term and short-term debt    (6,278)           11,101
       Cash dividends                               (63,651)          (59,139)
       Exercise of stock options                      5,796             3,286
       Repurchase of stock                                             (1,167)
                                                    (64,133)          (45,919)

    Effect of Exchange Rate Changes on
     Cash and Short-Term Investments                    234             4,244

    (Decrease) Increase in Cash and
     Short-Term Investments                        $(12,164)           $8,553

                         CONSOLIDATED BALANCE SHEETS
                                 In thousands

                                                    May 31,           May 31,
    Assets                                           2004              2003
    Current Assets
      Cash and short-term investments               $38,561           $50,725
      Trade accounts receivable                     502,994           456,920
      Allowance for doubtful accounts               (18,147)          (17,297)
      Net trade accounts receivable                 484,847           439,623
      Inventories                                   289,359           253,204
      Deferred income taxes                          51,164            51,285
      Prepaid expenses and other current assets     130,686           133,257
      Total current assets                          994,617           928,094

    Property, Plant and Equipment, at Cost          767,072           714,009
      Less allowance for depreciation
       and amortization                            (386,017)         (343,220)
      Property, plant and equipment, net            381,055           370,789

    Other Assets
      Goodwill                                      648,243           631,253
      Other intangible assets, net of amortization  282,372           282,949
      Other                                          46,832            34,126
      Total other assets                            977,447           948,328

    Total Assets                                 $2,353,119        $2,247,211

    Liabilities and Stockholders' Equity

    Current Liabilities
      Accounts payable                             $205,092          $171,956
      Current portion of long-term debt                 991             1,282
      Accrued compensation and benefits              88,670            77,577
      Accrued loss reserves                          56,699            64,230
      Asbestos-related liabilities                   47,500            41,583
      Other accrued liabilities                      72,222            59,759
      Income taxes payable                            6,319            11,263
      Total current liabilities                     477,493           427,650

    Long-Term Liabilities
      Long-term debt, less current maturities       718,929           724,846
      Asbestos-related liabilities                   43,107           103,000
      Other long-term liabilities                    59,910            59,951
      Deferred income taxes                          78,388            54,756
      Total long-term liabilities                   900,334           942,553
        Total liabilities                         1,377,827         1,370,203

    Stockholders' Equity
      Preferred stock; none issued
      Common stock (outstanding 116,122; 115,496)     1,161             1,156
      Paid-in capital                               513,986           508,397
      Treasury stock, at cost                                          (1,167)
      Accumulated other comprehensive loss           (3,881)          (17,169)
      Retained earnings                             464,026           385,791
      Total stockholders' equity                    975,292           877,008

    Total Liabilities and Stockholders' Equity   $2,353,119        $2,247,211

SOURCE RPM International Inc.

Glenn R. Hasman, vice president - finance and communications of RPM
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