RPM Reports Record Sales and Net Income for Fiscal 2007 Third Quarter

MEDINA, Ohio, April 5 /PRNewswire-FirstCall/ -- RPM International Inc. today reported record sales, record net income and record diluted earnings per share for its fiscal 2007 third quarter ended February 28, 2007. Strong sales momentum in the company's larger industrial segment continued, while consumer segment sales and earnings increased significantly over the third quarter a year ago.

Third-Quarter Results

RPM's record net sales of $679.5 million were up 10.9% from the $612.5 million reported in the fiscal 2006 third quarter. Organic sales growth accounted for 8.3% of the increase, with 1.3% of that amount representing net foreign exchange gains. Net acquisition growth was 2.6% of the total.

Record net income for the quarter was $10.1 million, compared to a $2.7 million loss a year ago, while record diluted earnings per share were $0.08, compared to a loss of $0.02 in the year-ago third quarter. The 2007 third quarter included non-recurring gains of $2.1 million, or $0.02 cents per diluted share, related to the resolution of prior years' tax liabilities. The 2006 third-quarter net loss included a pre-tax asbestos reserve charge of $15.0 million. Excluding the 2006 asbestos charge, net income grew 47.9% to $10.2 million from $6.9 million a year ago, while diluted earnings per share increased 50.0% to $0.09 from $0.06 in the fiscal 2006 third quarter.

The one-time tax benefit reflected in the fiscal 2007 third quarter resulted in a lower tax rate for this quarter of 10.2% versus 28.9% in the prior year, as adjusted for asbestos. Despite this significantly lower tax rate, the full fiscal year's tax rate is not expected to materially differ from the year-to-date tax rate reflected in the company's nine-month results, before the one-time tax benefit, of 34.0%.

"As anticipated, RPM's third-quarter operating results showed significant year-over-year improvement despite continuing challenges on the raw materials front," said Frank C. Sullivan, president and chief executive officer. "As we head into our seasonally stronger fourth quarter with good top line growth momentum, our challenge will be to ensure that this sales growth is carried to the bottom line, particularly in our core industrial products such as roofing and sealants," he said.

Consolidated earnings before interest and taxes (EBIT) reached $22.5 million, an improvement over the $4.7 million reported a year ago. Excluding the 2006 asbestos charge, EBIT increased 14.4%, to $22.5 million from $19.7 million.

Third-Quarter Segment Sales and Earnings

The company's industrial segment posted a 12.5% sales increase to $425.7 million from $378.3 million in the year-ago third quarter. Organic sales increased 9.9% of which 1.9% resulted from net foreign exchange gains. Acquisitions accounted for the remaining 2.6% of the increase. Industrial segment EBIT for the third quarter was flat at $18.1 million compared to last year. "Industrial segment sales growth was solid across most product lines, with particular strength internationally," said Sullivan.

"Some of our businesses, particularly wood treatments, industrial coatings, fiberglass composite structures and most international businesses generated double-digit sales growth in the quarter. Strong demand outside of the U.S. was aided by growth from new products and market share gains. Most of our remaining industrial product lines had solid sales growth this quarter, which is our seasonally slowest." Sullivan added that "Industrial segment earnings did not keep pace with revenues, due to unusually strong earnings in the prior-year period as hurricane rebuilding efforts took hold, along with continuing raw material price pressure this third quarter. In most respects, the raw material environment has improved; however, certain materials such as zinc, copper and epoxy resins put pressure on profit margins in several product lines. Our operations have responded with good expense controls and we expect to realize price increases to offset some of these pressures going forward."

Sales by RPM's consumer segment increased 8.4% to $253.8 million from $234.2 million a year ago. Of the growth in sales, 5.8% was organic and the remaining growth was through acquisitions. Segment EBIT grew 15.0% to $16.9 million from $14.7 million in the fiscal 2006 third quarter, benefiting in part from weaker earnings in the prior-year period as a result of inventory adjustments by retailers.

"Led by very strong third-quarter results in small package paints, primer- sealers and specialty food coatings, our consumer segment had a good quarter," Sullivan said. "Despite a challenging year, we are well poised to meet future demand with an impressive array of new products for the home improvement market."

Asbestos Update

During the quarter, RPM drew down $18.2 million of its 10-year pre-tax asbestos reserve established in the fourth quarter of fiscal 2006 to cover indemnity and defense costs. Comparable costs were $17.1 million during the fiscal 2006 third quarter. The total asbestos reserve balance stood at $372.9 million at February 28, 2007. "The higher year-over-year asbestos costs in the quarter reflected the favorable resolution of a greater number of claims than last year. The rate of new case filings continues to run below prior-year levels, which is also encouraging," said Sullivan.

Cash Flow and Financial Position

For the first nine months of fiscal 2007, after-tax cash from operations was $133.8 million, up 20.1% from $111.4 million a year ago. Capital expenditures were $34.1 million, compared to depreciation of $44.3 million over the same period. Total debt at the end of February 2007 was $936.5 million, compared to $876.6 at the end of fiscal 2006, mostly as a result of acquisitions. The company's net (of cash) debt-to-total capitalization ratio was 43.7%, compared to 45.3% at May 31, 2006.

Nine-Month Sales and Earnings

Sales, net income and earnings per share were all records for the nine- month period ended February 28, 2007.

RPM's net sales for the fiscal 2007 first nine months were up 11.1%, to $2.3 billion from $2.1 billion a year ago. Net income for the first nine months was $124.3 million, up 89.0% from the $65.8 million reported in the comparable period of fiscal 2006. Diluted per share earnings for the period increased 83.3%, to $0.99 from $0.54 a year ago. Prior-year net income included a $45.0 million pre-tax asbestos charge, while the 2007 first nine months included a $15.0 million pre-tax gain from the settlement of asbestos- related claims against an insurance carrier. Excluding these asbestos items, net income for the first nine months increased 21.2%, to $114.6 million, from $94.5 million in fiscal 2006, with diluted earnings per share improving to $0.91 from $0.76, a 19.7% increase.

Nine-month EBIT was $221.4 million, up 72.4% from the $128.4 million reported a year ago, including asbestos-related items. Excluding asbestos items, EBIT increased 19.0%, to $206.4 million from $173.4 million last year.

RPM's industrial segment sales grew 17.6% in the fiscal 2007 first nine months, to $1.5 billion from $1.3 billion a year ago. Acquisitions represented 7.0% of this growth, with organic growth adding 10.6% of which 1.6% was from foreign exchange gains. Industrial segment EBIT increased 16.7% to $156.4 million from $134.1 million in the fiscal 2006 nine months.

Nine-month sales for the consumer segment were $833.6 million, a 1.1% increase from the $824.5 million reported in the same period of fiscal 2006. Organic sales declined by 0.2%, including a foreign exchange gain of 0.6%, while acquisitions contributed 1.3%. Consumer segment EBIT declined by 1.0%, from $87.0 million in fiscal 2006 to $86.2 million in the current fiscal year.

Rust-Oleum Completes Acquisition

Subsequent to the end of the third quarter, RPM announced on March 2, 2007 that Tor Coatings Limited, a specialty coatings producer based in Birtley, England, had been acquired and will be operated as part of the company's Rust- Oleum subsidiary. Tor has revenue of approximately $45 million per year, and is expected to be accretive to earnings within one year.

Business Outlook

"We remain confident in our fiscal 2007 guidance of overall sales growth in the 8% to 10% range and net income growth of 10% to 12%, excluding the affect of asbestos" Sullivan said. "For the fourth quarter, we anticipate strong operating income growth in our industrial segment offset somewhat by less robust operating income performance in the consumer segment, which had a very strong final period in fiscal 2006. Having just completed our annual growth and strategy sessions, during which our operating companies laid out their plans for organic and acquisition growth in the coming years, I am excited about our future prospects as we build upon a solid finish to this fiscal year."

Webcast and Conference Call Information

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 800-901-5213 or 617-786-2962 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. Eastern time on April 5 until 11:59 p.m. Eastern time on April 12, 2007. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 36726360. 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 P. Kelly Tompkins, Executive Vice President and Chief Administrative Officer at 330-273-5090 or ktompkins@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 filings with the Securities and Exchange Commission, including the risk factors set forth in the company's Annual Report on Form 10-K for the year ended May 31, 2006, as the same may be updated 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 February 28, February 28, 2007 2006 2007 2006 Net Sales $2,333,041 $2,099,177 $679,494 $612,475 Cost of sales 1,398,412 1,242,494 416,009 369,096 Gross profit 934,629 856,683 263,485 243,379 Selling, general & administrative expenses 728,264 683,290 240,964 223,696 Asbestos (income)/charge (15,000) 45,000 15,000 Interest expense, net 35,664 28,391 11,146 9,962 Income (loss) before income taxes 185,701 100,002 11,375 (5,279) Provision for income taxes 61,367 34,201 1,323 (2,592) Net Income (Loss) $124,334 $65,801 $10,052 $(2,687) Basic earnings (loss) per share of common stock $1.06 $0.56 $0.08 $(0.02) Diluted earnings (loss) per share of common stock $0.99 $0.54 $0.08 $(0.02) Average shares of common stock outstanding - basic 117,817 116,710 118,430 116,881 Average shares of common stock outstanding - diluted 128,371 127,533 129,001 116,881 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) IN THOUSANDS, EXCEPT PER SHARE DATA ADJUSTED (a) Nine Months Ended Three Months Ended February 28, February 28, 2007 2006 2007 2006 Net Sales $2,333,041 $2,099,177 $679,494 $612,475 Cost of sales 1,398,412 1,242,494 416,009 369,096 Gross profit 934,629 856,683 263,485 243,379 Selling, general & administrative expenses 728,264 683,290 240,964 223,696 Asbestos (income)/charge Interest expense, net 35,664 28,391 11,146 9,962 Income (loss) before income taxes 170,701 145,002 11,375 9,721 Provision for income taxes 56,082 50,461 1,156 2,810 Net Income (Loss) $114,619 $94,541 $10,219 $6,911 Basic earnings (loss) per share of common stock $0.97 $0.81 $0.09 $0.06 Diluted earnings (loss) per share of common stock $0.91 $0.76 $0.09 $0.06 Average shares of common stock outstanding - basic 117,817 116,710 118,430 116,881 Average shares of common stock outstanding - diluted 128,371 127,533 129,001 119,772 (a) Adjusted figures presented remove the impact of the additional asbestos (income)/charges taken during each period presented. SUPPLEMENTAL SEGMENT INFORMATION (UNAUDITED) IN THOUSANDS AS REPORTED Nine Months Ended Three Months Ended February 28, February 28, 2007 2006 2007 2006 Net Sales: Industrial Segment $1,499,478 $1,274,722 $425,655 $378,286 Consumer Segment 833,563 824,455 253,839 234,189 Total $2,333,041 $2,099,177 $679,494 $612,475 Income (Loss) Before Income Taxes (b): Industrial Segment Income Before Income Taxes (b) $156,131 $133,466 $17,936 $17,998 Interest (Expense), Net (276) (603) (167) (68) EBIT (c) $156,407 $134,069 $18,103 $18,066 Consumer Segment Income Before Income Taxes (b) $83,881 $87,026 $16,010 $14,533 Interest (Expense), Net (2,271) 31 (871) (144) EBIT (c) $86,152 $86,995 $16,881 $14,677 Corporate/Other (Expense) Before Income Taxes (b) $(54,311) $(120,490) $(22,571) $(37,810) Interest (Expense), Net (33,117) (27,819) (10,108) (9,750) EBIT (c) $(21,194) $(92,671) $(12,463) $(28,060) Consolidated Income (Loss) Before Income Taxes (b) $185,701 $100,002 $11,375 $(5,279) Interest (Expense), Net (35,664) (28,391) (11,146) (9,962) EBIT (c) $221,365 $128,393 $22,521 $4,683 ADJUSTED (a) Nine Months Ended Three Months Ended February 28, February 28, 2007 2006 2007 2006 Net Sales: Industrial Segment $1,499,478 $1,274,722 $425,655 $378,286 Consumer Segment 833,563 824,455 253,839 234,189 Total $2,333,041 $2,099,177 $679,494 $612,475 Income (Loss) Before Income Taxes (b): Industrial Segment Income Before Income Taxes (b) $156,131 $133,466 $17,936 $17,998 Interest (Expense), Net (276) (603) (167) (68) EBIT (c) $156,407 $134,069 $18,103 $18,066 Consumer Segment Income Before Income Taxes (b) $83,881 $87,026 $16,010 $14,533 Interest (Expense), Net (2,271) 31 (871) (144) EBIT (c) $86,152 $86,995 $16,881 $14,677 Corporate/Other (Expense) Before Income Taxes (b) $(69,311) $(75,490) $(22,571) $(22,810) Interest (Expense), Net (33,117) (27,819) (10,108) (9,750) EBIT (c) $(36,194) $(47,671) $(12,463) $(13,060) Consolidated Income (Loss) Before Income Taxes (b) $170,701 $145,002 $11,375 $9,721 Interest (Expense), Net (35,664) (28,391) (11,146) (9,962) EBIT (c) $206,365 $173,393 $22,521 $19,683 (a) Adjusted figures presented remove the impact of the additional asbestos (income)/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 IN THOUSANDS February 28, February 28, May 31 2007 2006 2006 Assets (unaudited) (unaudited) Current Assets Cash and short-term investments $137,697 $93,077 $108,616 Trade accounts receivable 501,726 464,361 671,197 Allowance for doubtful accounts (19,810) (20,742) (20,252) Net trade accounts receivable 481,916 443,619 650,945 Inventories 453,285 397,282 399,014 Deferred income taxes 56,286 40,323 48,885 Prepaid expenses and other current assets 190,568 165,042 161,758 Total current assets 1,319,752 1,139,343 1,369,218 Property, Plant and Equipment, at Cost 909,844 834,149 887,276 Allowance for depreciation and amortization (471,341) (421,803) (442,584) Property, plant and equipment, net 438,503 412,346 444,692 Other Assets Goodwill 792,854 734,749 750,635 Other intangible assets, net of amortization 336,884 325,625 321,942 Other 91,593 73,870 93,731 Total other assets 1,221,331 1,134,244 1,166,308 Total Assets $2,979,586 $2,685,933 $2,980,218 Liabilities and Stockholders' Equity Current Liabilities Accounts payable $250,775 $210,851 $333,684 Current portion of long-term debt 3,514 18,600 6,141 Accrued compensation and benefits 112,127 87,230 136,384 Accrued loss reserves 68,434 64,396 66,678 Asbestos-related liabilities 57,925 55,000 58,925 Other accrued liabilities 104,363 76,033 111,688 Total current liabilities 597,138 512,110 713,500 Long-Term Liabilities Long-term debt, less current maturities 933,027 860,897 870,415 Asbestos-related liabilities 314,935 44,156 362,360 Other long-term liabilities 102,215 97,599 108,002 Deferred income taxes 2,878 95,411 Total long-term liabilities 1,353,055 1,098,063 1,340,777 Total liabilities 1,950,193 1,610,173 2,054,277 Stockholders' Equity Preferred stock; none issued Common stock (outstanding 120,772; 118,474; 118,743) 1,208 1,185 1,187 Paid-in capital 574,932 538,339 545,422 Treasury stock, at cost Accumulated other comprehensive income 40,375 25,757 29,839 Retained earnings 412,878 510,479 349,493 Total stockholders' equity 1,029,393 1,075,760 925,941 Total Liabilities and Stockholders' Equity $2,979,586 $2,685,933 $2,980,218 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) IN THOUSANDS Nine Months Ended February 28, 2007 2006 Cash Flows From Operating Activities Net income $124,334 $65,801 Depreciation and amortization 59,046 53,216 Items not affecting cash and other (4,975) (1,123) Changes in operating working capital (13,575) (5,633) Changes in asbestos-related liabilities, net of tax (30,991) (872) 133,839 111,389 Cash Flows From Investing Activities Capital expenditures (34,111) (31,194) Acquisition of businesses, net of cash acquired (75,018) (162,241) Purchases of marketable securities (69,539) (46,637) Proceeds from the sale of marketable securities 52,026 36,500 Proceeds from the sale of assets 10,575 Other 1,158 1,349 (125,484) (191,648) Cash Flows From Financing Activities Additions to long-term and short- term debt 308,375 188,914 Reductions of long-term and short-term debt (252,833) (151,841) Cash dividends (60,949) (55,447) Exercise of stock options 23,933 7,101 18,526 (11,273) Effect of Exchange Rate Changes on Cash and Short-Term Investments 2,200 469 Increase (Decrease) in Cash and Short-Term Investments $29,081 $(91,063)