MEDINA, Ohio - RPM International Inc. (NYSE: RPM) today said that unusually strong performance in its prior-year first quarter dampened comparative results for the fiscal 2015 first quarter ended August 31, 2014, but that the company is maintaining its full-year earnings guidance for fiscal 2015 issued July 28, 2014. Full-year guidance for the fiscal year ending May 31, 2015 anticipates growth in diluted earnings per share of 9% to 11%, or a range of $2.38 to $2.42 per diluted share.

First-Quarter Results

Fiscal 2015 first-quarter net sales of $1.204 billion increased 3.4% over the $1.165 billion reported a year ago. RPM's consolidated earnings before interest and taxes (EBIT) declined 0.2% to $163.7 million from $164.0 million reported in the fiscal 2014 first quarter. First-quarter net income declined 3.9% to $99.1 million from $103.1 million in the year-ago period, and diluted earnings per share declined 5.2% to $0.73 from $0.77 in the fiscal 2014 first quarter.

"As we announced in an 8-K filing on September 4, 2014, we anticipate that quarterly results during fiscal 2015 will follow a different pattern compared to fiscal 2014, particularly in the first quarter. During last year's first quarter, our Synta and Kirker subsidiaries had exceptionally strong performance due to highly successful new product introductions and distribution expansion since being acquired by RPM," stated Frank C. Sullivan, chairman and chief executive officer. "We expect to resume improved financial performance for the remainder of this fiscal year."

Non-recurring costs in this year's first quarter totaled $5.6 million pre-tax, and were related primarily to legal expenses incurred in conjunction with a Securities and Exchange Commission investigation of timing of expense accruals in the 2013 fiscal year, which did not affect full-year earnings, along with the proposed Specialty Products Holding Corp. (SPHC) settlement, and a voluntary self-disclosure agreement with the state of Delaware for unclaimed property.

First-Quarter Segment Sales and Earnings

RPM's consumer segment, which includes both the Kirker and Synta business units, reported a 0.8% decrease in sales to $430.0 million from $433.4 million in the fiscal 2014 first quarter. Organic sales declined 2.0%, including favorable foreign exchange of 0.1%, while acquisition growth contributed 1.2%. Consumer segment EBIT declined 7.3% to $76.7 million from $82.7 million in the fiscal 2014 first quarter.

"While performance for both Kirker and Synta during the first quarter of fiscal 2015 was down significantly from the prior year, the balance of our consumer segment showed a sales increase in the mid-single digits, with EBIT growth in the mid-teens, which is consistent with continued market share gains, and the recovery in the U.S. housing market," stated Sullivan. "Clearly, the tough comparisons to last year for Synta and Kirker had a significant impact on the segment's overall performance this quarter."

The company's industrial segment net sales improved 5.8%, to $773.9 million from $731.2 million reported a year ago, with 4.5% in organic growth, including 0.1% in favorable foreign exchange, while acquisitions added 1.3%. Industrial segment EBIT grew 5.0% to $105.1 million from $100.1 million in the fiscal 2014 first quarter.

"We continue to see improvement in the U.S. commercial construction market, which is reflected in solid sales growth in concrete admixtures, commercial sealants and industrial and commercial polymer flooring. In Europe, growth has been more modest in comparison to the rebound in performance last year, as anticipated," stated Sullivan.

Cash Flow and Financial Position

During the fiscal 2015 first quarter, cash from operations was a negative $125.2 million compared to a negative $129.5 million a year ago. Capital expenditures were $12.1 million in the quarter, compared to $10.7 million in the year-ago period. Depreciation was $15.0 million during the first quarter of fiscal 2015, compared to $14.4 million for the same period last year.

Total debt at August 31, 2014 of $1.5 billion compares to $1.4 billion at May 31, 2014 and $1.4 billion at the end of last year's first quarter. Net (of cash) debt-to-total capital was 46.6%, versus 49.1% at the end of last year's first quarter and 42.4% at the end of the prior fiscal year. Liquidity, including cash, was $893 million, compared to $896 million a year ago and $1.1 billion at May 31, 2014.

"RPM's strong cash and liquidity position enables us to continue our support of a growing cash dividend, our acquisition program, and the first installment of $450 million to fund the 524(g) trust as part of the SPHC settlement anticipated later this fiscal year," Sullivan stated. "RPM's debt-to-total capital ratio remains within our traditional range, and we continue to pursue acquisitions that complement our core growth strategies."

SPHC Files Plan of Reorganization

On September 26, 2014, SPHC filed its plan of reorganization in Delaware Bankruptcy Court. The plan memorializes the settlement in principle reached with representatives of current and future asbestos claimants. The financial terms of that settlement were previously disclosed in an investor communication of July 28, 2014. As previously reported, on the effective date of the plan, a trust will be established to resolve all current and future Bondex asbestos claims, an injunction will be issued by the court that will permanently protect SPHC, RPM International Inc., their affiliates, and other parties from current and future asbestos claims, and SPHC will emerge from bankruptcy and will be reconsolidated with RPM. RPM currently anticipates that the plan's effective date and the reconsolidation of SPHC's financial results will occur in RPM's fiscal 2015 third quarter (December 2014 – February 2015), but the actual timeline could change based on a variety of factors beyond the control of SPHC and RPM. The impact of the completion of this transaction on RPM's 2015 fiscal year will be dependent on specific timing and related transaction costs. On an annualized basis, SPHC has revenues of approximately $400 million.

"We look forward to plan confirmation for SPHC and its emergence from bankruptcy. While the amounts required to fund a 524(g) trust are substantial from a financial perspective, this transaction will be good for RPM shareholders, both in terms of our ongoing operations and as a process which will bring finality to the Bondex asbestos liability. On a reconsolidated basis, excluding estimated transaction costs, we believe that RPM will be in a position to deliver $2.70 to $2.90 in diluted earnings per share for the fiscal year ending May 31, 2016. We hope to be in a position to provide greater detail on both the impact of the SPHC reconsolidation on fiscal 2015 and our guidance for fiscal 2016 when we talk to investors during our second quarter earnings conference call in January 2015," stated Sullivan.

Business Outlook

"Our full-year outlook for fiscal 2015 remains the same as previously announced, with industrial sales increasing 6% to 8%, consumer sales increasing 5% to 7% and consolidated sales increasing 6% to 8%, which is expected to translate into net income and diluted earnings per share growth over the prior year of 9% to 11%, or $2.38 to $2.42," Sullivan stated.

 

CONSOLIDATED STATEMENTS OF INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA

(Unaudited)

Three Months Ended

August 31,

2014

2013

Net Sales

$                  1,203,896

$                  1,164,674

Cost of sales

695,503

665,602

Gross profit

508,393

499,072

Selling, general & administrative expenses

346,525

335,459

Interest expense

19,415

20,725

Investment (income), net

(3,803)

(3,894)

Other (income), net

(1,822)

(434)

Income before income taxes

148,078

147,216

Provision for income taxes

43,239

40,327

Net income

104,839

106,889

Less:  Net income attributable to noncontrolling interests

5,760

3,791

Net income attributable to RPM International Inc. Stockholders

$                       99,079

$                     103,098

Earnings per share of common stock attributable to

RPM International Inc. Stockholders:

Basic

$                           0.74

$                           0.78

Diluted

$                           0.73

$                           0.77

Average shares of common stock outstanding - basic 

130,094

129,344

Average shares of common stock outstanding - diluted

135,032

130,294

SUPPLEMENTAL SEGMENT INFORMATION

IN THOUSANDS

(Unaudited)

Three Months Ended

August 31,

2014

2013

Net Sales:

Industrial Segment

$                     773,886

$                     731,226

Consumer Segment

430,010

433,448

     Total

$                  1,203,896

$                  1,164,674

Income Before Income Taxes (a):

Industrial Segment

     Income Before Income Taxes (a)

$                     102,464

$                       97,581

     Interest (Expense), Net (b)

(2,633)

(2,534)

     EBIT (c)

$                     105,097

$                     100,115

Consumer Segment

     Income Before Income Taxes (a)

$                       76,669

$                       82,717

     Interest (Expense), Net (b)

(8)

39

     EBIT (c)

$                       76,677

$                       82,678

Corporate/Other

     (Expense) Before Income Taxes (a)

$                      (31,055)

$                      (33,082)

     Interest (Expense), Net (b)

(12,971)

(14,336)

     EBIT (c)

$                      (18,084)

$                      (18,746)

     Consolidated

          Income Before Income Taxes (a)

$                     148,078

$                     147,216

          Interest (Expense), Net (b)

(15,612)

(16,831)

          EBIT (c)

$                     163,690

$                     164,047

 

(a)

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

(b)

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

(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. For that reason, we believe EBIT is also useful to investors 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

August 31, 2014

August 31, 2013

May 31, 2014

(Unaudited)

(Unaudited)

Assets

Current Assets

Cash and cash equivalents

$             225,025

$             204,903

$             332,868

Trade accounts receivable

976,084

891,002

901,587

Allowance for doubtful accounts

(29,197)

(29,082)

(27,641)

Net trade accounts receivable

946,887

861,920

873,946

Inventories

628,463

572,148

613,644

Deferred income taxes

22,251

38,427

22,281

Prepaid expenses and other current assets

216,848

172,410

219,556

Total current assets

2,039,474

1,849,808

2,062,295

Property, Plant and Equipment, at Cost

1,193,599

1,126,641

1,191,676

Allowance for depreciation and amortization

(664,064)

(641,494)

(658,871)

Property, plant and equipment, net

529,535

485,147

532,805

Other Assets

Goodwill

1,152,318

1,108,387

1,147,374

Other intangible assets, net of amortization

460,579

461,717

459,536

Deferred income taxes, non-current

7,882

5,643

7,943

Other

156,934

158,052

168,412

Total other assets

1,777,713

1,733,799

1,783,265

Total Assets

$          4,346,722

$          4,068,754

$          4,378,365

Liabilities and Stockholders' Equity

Current Liabilities

Accounts payable

$             408,961

$             394,138

$             525,680

Current portion of long-term debt

1,677

4,537

5,662

Accrued compensation and benefits

102,335

108,248

173,846

Accrued loss reserves

19,016

26,966

27,487

Other accrued liabilities

223,012

226,287

204,411

Total current liabilities

755,001

760,176

937,086

Long-Term Liabilities

Long-term debt, less current maturities

1,476,349

1,419,607

1,345,965

Other long-term liabilities

428,576

423,321

466,659

Deferred income taxes

52,428

41,923

50,061

Total long-term liabilities

1,957,353

1,884,851

1,862,685

   Total liabilities

2,712,354

2,645,027

2,799,771

Stockholders' Equity

Preferred stock; none issued

Common stock (outstanding 133,511; 132,923; 133,273)

1,335

1,329

1,333

Paid-in capital

796,041

770,726

790,102

Treasury stock, at cost

(90,095)

(76,497)

(85,400)

Accumulated other comprehensive (loss)

(171,829)

(174,909)

(156,882)

Retained earnings

900,782

741,035

833,691

     Total RPM International Inc. stockholders' equity

1,436,234

1,261,684

1,382,844

Noncontrolling interest

198,134

162,043

195,750

     Total equity

1,634,368

1,423,727

1,578,594

Total Liabilities and Stockholders' Equity

$          4,346,722

$          4,068,754

$          4,378,365

 

 

CONSOLIDATED STATEMENTS OF CASH FLOWS

IN THOUSANDS

(Unaudited)

Three Months Ended

August 31,

August 31,

2014

2013

Cash Flows From Operating Activities:

  Net income

$        104,839

$        106,889

  Adjustments to reconcile net income to net

          cash provided by operating activities:

               Depreciation

15,048

14,431

               Amortization

8,246

7,882

               Deferred income taxes

1,984

(11,505)

               Stock-based compensation expense

5,700

4,826

               Other 

(605)

(701)

  Changes in assets and liabilities, net of effect

          from purchases and sales of businesses:

               (Increase) in receivables

(72,292)

(76,455)

               (Increase) in inventory

(17,338)

(23,439)

               (Increase) in prepaid expenses and other

                    current and long-term assets

(2,307)

(7,201)

               (Decrease) in accounts payable

(115,686)

(83,264)

               (Decrease) in accrued compensation and benefits

(70,880)

(46,001)

               (Decrease) in accrued loss reserves

(8,311)

(499)

               (Decrease) in contingent payment

(61,894)

               Increase in other accrued liabilities

29,911

47,701

               Other

(3,542)

(232)

                    Cash (Used For) Operating Activities

(125,233)

(129,462)

Cash Flows From Investing Activities:

     Capital expenditures

(12,050)

(10,696)

     Acquisition of businesses, net of cash acquired

(33,472)

(12,328)

     Purchase of marketable securities

(5,034)

(20,152)

     Proceeds from sales of marketable securities

7,512

17,786

     Other

(319)

3,092

                    Cash (Used For) Investing Activities

(43,363)

(22,298)

Cash Flows From Financing Activities:

     Additions to long-term and short-term debt

131,907

53,218

     Reductions of long-term and short-term debt

(5,468)

(1,936)

     Cash dividends

(31,987)

(29,836)

     Repurchase of stock

(4,695)

(4,004)

     Payments of acquisition related contingent consideration

(24,750)

     Other

244

(2,388)

                    Cash Provided By Financing Activities

65,251

15,054

Effect of Exchange Rate Changes on Cash and 

     Cash Equivalents

(4,498)

(1,945)

Net Change in Cash and Cash Equivalents

(107,843)

(138,651)

Cash and Cash Equivalents at Beginning of Period

332,868

343,554

Cash and Cash Equivalents at End of Period

$        225,025

$        204,903

Source: RPM International Inc.

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