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News Release

RPM's Internal Growth Drives Record First-Quarter Sales and Earnings

  • Fiscal 2005 first-quarter sales rise 14 percent
  • Earnings per share increase 15 percent

MEDINA, Ohio, Oct. 6 /PRNewswire-FirstCall/ -- RPM International Inc. (NYSE: RPM) today announced a record quarter for sales, earnings and earnings per share for its fiscal 2005 first quarter ended August 31, 2004.

"Market demand remained solid in both our industrial and consumer segments during our first quarter," said Frank C. Sullivan, president and CEO. "We continue to successfully supplement underlying growth with the introduction of new products and services, which are quickly gaining market acceptance."

First-Quarter Sales and Earnings

RPM reported net sales of $661.5 million for the fiscal 2005 first quarter, a 13.9 percent increase over last year's first quarter. Organic growth increased sales by $65.5 million, or 11.3 percent. Acquisitions, net of a small divestiture, added $8.2 million, or 1.4 percent, and net favorable foreign exchange rates contributed $6.8 million, or 1.2 percent, to the sales growth. A reclassification of co-op advertising expense was made to better conform with industry practice, which, on a comparative basis, reduced reported fiscal 2004 first-quarter net sales and selling, general and administrative expenses (SG&A) by $9.1 million. This change in classification for co-op advertising expense does not affect earnings before interest and taxes (EBIT), net income or earnings per share.

Net income reached $54.5 million, an improvement of 14.3 percent over last year's first quarter, while diluted earnings per share rose to a record $0.47, a 14.6 percent improvement compared with the fiscal 2004 first quarter. The company elected early adoption of FAS 123 ("Accounting for Stock-Based Compensation") effective June 1, 2004, which reduced fiscal 2005 first-quarter earnings by approximately one-half cent per share.

Consolidated EBIT increased 15.3 percent to $92.4 million compared with last year's $80.2 million. The EBIT margin improved to 14.0 percent of sales from 13.8 percent a year ago. The margin improvement reflects strong growth in sales volume, productivity gains, cost controls, initial price increases and accretive acquisitions, which collectively more than offset the impact of higher raw material costs. The company will continue to implement price increases in an effort to recover higher raw material costs, which have negatively affected gross margins, particularly in the consumer segment.

Both operating segments grew substantially year over year during the first quarter. RPM's industrial segment continued to benefit from the organic growth that began in the second half of fiscal 2004. Industrial segment net sales grew by 15.6 percent, of which 11.9 percent was organic, including strength in roofing services, commercial construction sealants, admixtures, and exterior insulation finishing systems (EIFS), and powder coatings. The industrial segment continued to benefit from earnings leverage on strong sales, boosting EBIT by 19.3 percent.

Consumer segment net sales grew 11.8 percent compared with first-quarter 2004, with 10.5 percent of this growth being organic as strong retail demand continued nearly throughout this segment, including wood care products and EPOXYShield(R) garage floor coatings. Consumer segment EBIT grew by 9.9 percent, with higher raw material costs more than offsetting this segment's earnings leverage from the higher sales.

Reconciliations of EBIT to the most comparable Generally Accepted Accounting Principles (GAAP) measures and an explanation of how RPM uses EBIT in managing its businesses are provided in the supplemental data attached to this release.

Cash flow from operations was $41.0 million, an increase over fiscal 2004 first-quarter cash flow of $30.9 million. After-tax asbestos-related payments during the 2005 first quarter were $11.9 million versus last year's $4.8 million; however, last year's first quarter had the benefit of the remaining third party insurance supplement, amounting to $9.4 million. Therefore, before taxes and insurance, total asbestos-related payments of $19.0 million this year compare with $17.1 million last year. Capital expenditures of $7.4 million during the 2005 quarter compare with depreciation of $12.3 million. Total debt increased by $3.9 million, to $723.8 million, including a $4.5 million note given in a small acquisition during the 2005 quarter. The debt-to-capital ratio remained unchanged from the fiscal year ended May 31, 2004, at 42 percent, but improved from 45 percent one year ago.

Business Outlook

"We are pleased with the strong growth in our first quarter, though it is important to note that we may not be able to sustain this level of sales growth as we face tougher comparisons to the prior year in the coming quarters," Sullivan said. "Additionally, rising raw material prices will continue to be a concern. Despite these challenges, we continue to anticipate high single-digit growth in revenues and 10-12 percent earnings growth for the full 2005 fiscal year."

Webcast Information

RPM will host a conference call at 10:00 a.m. Eastern time on Wednesday, October 6, 2004. The call may be accessed by dialing 800-299-7089 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 noon Eastern time on October 6 until 8:00 p.m. Eastern time on October 13, on RPM's web site or by dialing 888-286-8010 and citing access code 50958063. A transcript of the call will 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 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 - finance and communication, 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 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.

                       In thousands, except per share data

                                                Three Months Ended August 31,
                                                    2004              2003

    Net Sales                                     $661,513          $581,023
    Cost of sales                                  366,626           313,980
    Gross profit                                   294,887           267,043
    Selling, general &
     administrative expenses                       202,442           186,850
    Interest expense, net                            7,970             6,283
    Income before income taxes                      84,475            73,910
    Provision for income taxes                      29,989            26,238
    Net Income                                     $54,486           $47,672

    Basic earnings per share of common stock         $0.47             $0.41

    Diluted earnings per share of common stock       $0.47             $0.41

    Average shares of common stock
     outstanding - basic                           116,163           115,557

    Average shares of common stock
     outstanding - diluted                         117,078           116,233

                                  In thousands
                                                Three Months Ended August 31,
                                                    2004              2003
    Net Sales:
       Industrial Segment                         $365,508          $316,194
       Consumer Segment                            296,005           264,829
            Total                                 $661,513          $581,023

    Income Before Income Taxes (a):
       Industrial Segment
            Income Before Income Taxes (a)         $56,136           $47,020
            Interest (Expense), Net                     11               (25)
            EBIT (b)                               $56,125           $47,045
       Consumer Segment
            Income Before Income Taxes (a)         $46,355           $42,146
            Interest (Expense), Net                     49                11
            EBIT (b)                               $46,306           $42,135
            Income Before Income Taxes (a)        $(18,016)         $(15,256)
            Interest (Expense), Net                 (8,030)           (6,269)
            EBIT (b)                               $(9,986)          $(8,987)
                 Income Before Income Taxes (a)    $84,475           $73,910
                 Interest (Expense), Net            (7,970)           (6,283)
                 EBIT (b)                          $92,445           $80,193

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

    (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.

                                  In thousands
                                                Three Months Ended August 31,
                                                     2004              2003
    Cash Flows From Operating Activities
       Net income                                  $54,486           $47,672
       Depreciation and amortization                16,275            15,127
       Items not affecting cash and other            3,043            (2,177)
       Changes in operating
        working capital                            (20,901)          (24,908)
       Changes in asbestos-related
        liabilities, net of tax                    (11,879)           (4,829)
                                                    41,024            30,885

    Cash Flows From Investing Activities
       Capital expenditures                         (7,413)           (6,808)
       Acquisition of businesses, net of
        cash acquired                               (9,900)          (13,000)
       Proceeds from the sale of assets              4,500
       Other                                           908            (4,166)
                                                   (11,905)          (23,974)

    Cash Flows From Financing Activities
       Additions to long-term and short-
        term debt                                    3,926             4,042
       Cash dividends                              (16,253)          (15,019)
       Exercise of stock options                     1,062               853
                                                   (11,265)          (10,124)

    Increase (Decrease) in Cash and
     Short-Term Investments                        $17,854           $(3,213)

                           CONSOLIDATED BALANCE SHEETS
                                   In thousands

                                           August 31,  August 31, May 31, 2004
    Assets                                    2004        2003
                                          (Unaudited) (Unaudited)
    Current Assets
        Cash and short-term investments       $56,415     $47,512      $38,561
        Trade accounts
         receivable                     483,845     443,782      502,994
        Allowance for
         doubtful accounts              (18,497)    (17,117)     (18,147)
        Net trade accounts receivable         465,348     426,665     484,847
        Inventories                           295,938     255,627     289,359
        Deferred income taxes                  52,943      51,285      51,164
        Prepaid expenses and other current
         assets                               140,567     137,653     130,686
        Total current assets                1,011,211     918,742     994,617

    Property, Plant and Equipment, at Cost    768,992     717,811     767,072
        Less allowance for depreciation
         and amortization                    (392,528)   (350,681)   (386,017)
        Property, plant and equipment, net    376,464     367,130     381,055

    Other Assets
        Goodwill                              650,879     633,820     648,243
        Other intangible assets, net of
         amortization                         285,044     279,881     282,372
        Other                                  45,410      34,705      46,832
        Total other assets                    981,333     948,406     977,447

    Total Assets                           $2,369,008  $2,234,278  $2,353,119

    Liabilities and Stockholders' Equity

    Current Liabilities
        Accounts payable                     $208,993    $154,222    $205,092
        Current portion of long-term debt     233,562       1,802         991
        Accrued compensation and benefits      57,304      52,864      88,670
        Accrued loss reserves                  53,628      59,764      56,699
        Asbestos-related liabilities           47,500      41,583      47,500
        Other accrued liabilities              70,536      61,166      72,222
        Income taxes payable                   18,190      17,628       6,319
        Total current liabilities             689,713     389,029     477,493

    Long-Term Liabilities
        Long-term debt, less
         current maturities                   490,284     728,367     718,929
        Asbestos-related liabilities           24,101      95,274      43,107
        Other long-term liabilities            59,658      58,896      59,910
        Deferred income taxes                  86,961      61,108      78,388
        Total long-term liabilities           661,004     943,645     900,334
           Total liabilities                1,350,717   1,332,674   1,377,827

    Stockholders' Equity
        Preferred stock; none issued
        Common stock
         (outstanding 116,271; 116,122)         1,163       1,156       1,161
        Paid-in capital                       514,777     509,332     513,986
        Treasury stock, at cost                   829        (589)
        Accumulated other
         comprehensive loss                      (737)    (26,739)     (3,881)
        Retained earnings                     502,259     418,444     464,026
        Total stockholders' equity          1,018,291     901,604     975,292

    Total Liabilities and
     Stockholders' Equity                  $2,369,008  $2,234,278  $2,353,119

Glenn R. Hasman
vice president - finance and communication
RPM International Inc.

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