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| 8-K - FORM 8-K - RPM INTERNATIONAL INC/DE/ | d570079d8k.htm |
Exhibit 99.1
RPM REPORTS FOURTH-QUARTER AND YEAR-END
RESULTS FOR FISCAL 2013
| - | Fourth-quarter sales increase 6% over prior year |
| - | Net income for the quarter up 16% over prior year, on an as-adjusted basis |
| - | Fiscal 2013 sales increase 8% over prior year |
| - | Fiscal 2013 net income up 15% over prior year, on an as-adjusted basis |
| - | Free cash flow improves 43% |
Medina, Ohio – July 22, 2013 – RPM International Inc. (NYSE: RPM) today reported financial results for its fiscal 2013 fourth quarter and year ended May 31, 2013, which reflected strong operating performance offset by non-operating adjustments for both the quarter and full year.
Fourth-Quarter Results
On an as-reported basis, fourth-quarter net sales increased 6.3% to $1.17 billion from $1.10 billion. Consolidated earnings before interest and taxes (EBIT) declined 9.6% to $126.1 million, from $139.5 million a year ago. As-reported net income for the fourth quarter was $65.4 million, down 20.8% from the $82.6 million reported in the fourth quarter of fiscal 2012. As-reported diluted earnings per share were $0.49, off 22.2% from $0.63 a year ago.
One-time pre-tax adjustments totaling $42.7 million during the quarter included a $22.5 million write down of RPM’s remaining financial investments in Kemrock Industries and Exports Limited in India, which continues to struggle in the face of a difficult Indian economy and significant debt. As of the end of fiscal 2013, RPM has no remaining investment on its books in Kemrock. The second adjustment related to an agreement in principle between RPM’s roofing division and the U.S. General Services Administration (GSA), which resulted in a $3.7 million reversal of the third-quarter estimated accrual of $68.8 million and a related $4.5 million restructuring charge. The GSA investigation related to roofing contracts with the GSA, principally between 2002 and 2008. The last adjustment of $19.4 million was for restructuring related write-offs, resulting from two plant closings within the Rust-Oleum Group to better align production capacity with demand and eliminate overhead in its hobby and European businesses.
On an as-adjusted basis, net sales grew 6.3% to $1.17 billion from $1.10 billion in the fiscal 2012 fourth quarter. EBIT grew 11.3%, to $155.2 million from $139.5 million a year ago. As-adjusted net income was up 15.5% to $95.4 million, or $0.72 per diluted share, from $82.6 million, or $0.63 per diluted share, in the fiscal 2012 final period.
“Our overall operating results for both the quarter and year were strong, especially given the headwinds in Europe and previously reported difficulties in our roofing division,” stated Frank C. Sullivan, chairman and chief executive officer. “Net sales, net income and diluted earnings
RPM Reports Fourth-Quarter and Year-End Results for Fiscal 2013
July 22, 2013
Page 2
per share experienced significant growth, on an as-adjusted basis, as our consumer segment continued its robust performance and many industrial segment businesses posted gains.”
Fourth-Quarter Segment Sales and Earnings
On an as-reported basis, fiscal 2013 fourth-quarter industrial segment sales declined 2.1% to $709.2 million from $724.8 million a year ago. Organic sales declined 5.0% and foreign exchange translation was unfavorable 1.0%, while acquisition growth added 3.9%. As-reported industrial segment EBIT declined 4.7% to $86.1 million from $90.4 million in the prior year. The as-adjusted industrial segment EBIT for the fourth quarter of fiscal 2013 was $91.0 million, up 0.6% from the $90.4 million reported a year ago.
“Most of our North American industrial businesses, particularly those serving the commercial construction markets, performed well in the quarter. We experienced good growth in our flooring, waterproofing, admixture and restoration product lines. Given the deep recession in most of Europe, we are pleased that our industrial units operating there experienced only a modest sales decline. Our North American roofing business struggled, as a result of exiting unprofitable projects during the year, combined with a steep drop in demand from the public sector due to spending constraints attributable to cutbacks by federal, state and local governments,” stated Sullivan.
As-reported net sales for RPM’s consumer segment grew 22.4% to $461.6 million from $377.0 million in the fiscal 2012 fourth quarter. Organic sales were up 9.6% and foreign exchange translation was unfavorable 0.5%, while acquisition growth added 13.3%. As-reported consumer segment EBIT decreased 3.0% in fiscal 2013 from $60.3 million to $58.5 million, which reflected the impact of facility closings within the Rust-Oleum Group, including a Testors factory in Rockford, Illinois and a factory in Roosendaal, The Netherlands. Both of these actions were taken to eliminate overhead in Rust-Oleum’s hobby and European businesses. On an as-adjusted basis, consumer segment EBIT improved 29.2% to $78.0 million from $60.3 million in the fourth quarter of fiscal 2012.
“Our traditional consumer product lines are benefiting from continued gains in market share, along with the ongoing recovery in the North American housing market. Further, our newer consumer products, many of which are sold at price points beyond our traditional lines for both our retail partners and us, continue to enjoy brisk retail take away. The consumer segment also benefited from strong performance by three recently acquired businesses: Kirker and Synta in fiscal 2013 and Hi-Chem towards the end of fiscal 2012,” stated Sullivan.
Cash Flow and Financial Position
For fiscal 2013, cash from operations increased 25.0% to $368.5 million, compared to $294.9 million in fiscal 2012. Capital expenditures during the year were $91.4 million, while depreciation was $55.7 million. Total debt at the end of fiscal 2013 was $1.37 billion, compared to $1.12 billion at the end of fiscal 2012. RPM’s net (of cash) debt-to-total capitalization ratio was 46.2%, compared to 40.3% at May 31, 2012. Free cash flow increased 43.5% in fiscal 2013 to $159.4 million, from $111.1 million a year ago.
RPM Reports Fourth-Quarter and Year-End Results for Fiscal 2013
July 22, 2013
Page 3
“We are comfortable with RPM’s capital position. Free cash flow was very strong and will continue to help fund our acquisition program, internal growth initiatives and a growing cash dividend. In addition, we enhanced our capital structure during the second quarter of fiscal 2013 when we sold $300 million aggregate principal amount of 3.450% Notes due November 15, 2022, thereby lowering the effective average interest rate on our long-term debt from 6.1% to 5.0%. Proceeds from this offering were used to repay a portion of outstanding borrowings under RPM’s revolving credit facility. At May 31, 2013, RPM had $1.1 billion in liquidity, including cash and long-term committed available credit, which we believe easily covers financing requirements for any of the acquisition candidates that are on our horizon,” Sullivan stated.
Fiscal 2013 Consolidated Sales and Earnings
On an as-reported basis, fiscal 2013 consolidated net sales increased 8.0% to $4.08 billion from $3.78 billion in fiscal 2012. Consolidated EBIT decreased 36.8% to $250.6 million from $396.1 million in fiscal 2012. Net income declined 54.3% to $98.6 million from $215.9 million in fiscal 2012. Diluted earnings per share fell 55.2% to $0.74 from $1.65 a year ago.
Fiscal 2013 Adjustments
Pre-tax adjustments during the 2013 fiscal year included the following:
| • | Kemrock Industries and Exports Limited – RPM made an initial equity investment in this Indian manufacturer of fiberglass reinforced composites in 2006. In September 2011, RPM increased its equity ownership above the 20% threshold, requiring RPM to recognize its equity in Kemrock’s earnings in RPM’s income statement. As a result, RPM reported a one-time gain of $5.2 million, or $0.04 per diluted share, in the second quarter of fiscal 2012. This rapidly growing business performed well for several years until a declining Indian economy and stock market, combined with significant debt, reversed its fortunes. RPM’s one-time adjustments regarding this business in fiscal 2013 included: a $55.9 million write-down of equity investments in Kemrock, a $13.7 million write-down of a Kemrock convertible bond and a $9.0 million write-down of a past-due receivable. These fiscal 2013 charges were all non-cash charges, and RPM no longer has any financial exposure to Kemrock. |
| • | Building Solutions Group – An adjustment related to an agreement in principle between the roofing division and the GSA resulted in a $3.7 million reversal of the third quarter estimated accrual of $68.8 million. Other charges included $11.0 million related to closing an unprofitable overseas effort in the roofing division and other restructuring of $4.5 million relating to the GSA investigation. |
| • | Performance Coatings Group – Charges include $6.1 million attributable to a strategic repositioning of RPM’s existing flooring business in Brazil in light of the Viapol acquisition, which also resulted in a $7.7 million tax benefit. |
| • | Rust-Oleum Group – The combination of restructuring expenses and inventory write-offs at two plants were $19.5 million. |
On an as-adjusted basis, RPM’s EBIT grew 7.9% to $421.7 million from $390.9 million in fiscal 2012. As-adjusted net income increased 14.5% to $241.3 million in fiscal 2013 from $210.7 million a year
RPM Reports Fourth-Quarter and Year-End Results for Fiscal 2013
July 22, 2013
Page 4
ago, and as-adjusted earnings per share increased 13.0% to $1.82 per share from $1.61 per share in fiscal 2012.
Fiscal 2013 Segment Sales and Earnings
On an as-reported basis, sales for RPM’s industrial segment increased 4.0% to $2.64 billion from $2.54 billion in fiscal 2012. Organic sales decreased 0.2% and foreign exchange translation was unfavorable 1.5%, with acquisition growth contributing 5.8%. As-reported industrial segment EBIT declined 38.1% to $174.9 million from $282.4 million in fiscal 2012. As-adjusted industrial segment EBIT decreased 0.7% to $275.4 million from $277.2 million in fiscal 2012.
As-reported consumer segment sales for fiscal 2013 increased 16.1% to $1.44 billion from $1.24 billion reported last year. Organic sales increased by 6.6% and acquisition growth added 10.0%, which were partially offset by unfavorable foreign currency translation of 0.5%. As-reported consumer segment EBIT increased 19.1%, to $190.6 million from $160.1 million a year ago. As-adjusted consumer segment EBIT grew 31.2% to $210.1 million from $160.1 million in fiscal 2012.
Business Outlook
“We anticipate 5% to 7% growth in consolidated net sales, with the consumer segment trending towards the higher end of the range and the industrial segment trending towards the lower end. Net income is expected to increase 9% to 13%, resulting in diluted earnings per share in the range of $1.98 to $2.05 for fiscal 2014. This expectation is predicated on continued robust growth within our consumer segment, as a result of continued recovery in the North American housing market, market share gains and market acceptance of new products at higher price points than our traditional consumer product lines. In the industrial segment, we expect modest overall growth, with stronger performances by our businesses serving the North American commercial construction market. We anticipate that the roofing division and our European businesses will continue to experience deterioration through the first half of fiscal 2014, with improving performance during the second half, resulting in fairly flat year-over-year performance for these businesses,” Sullivan stated.
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 866-270-6057 or 617-213-8891 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 p.m. EDT today until 11:59 p.m. EDT on July 29, 2013. The replay can be accessed by dialing 888-286-8010 or 617-801-6888 for international callers. The access code is 49666464. The call also will be available both live and for replay, and as a written transcript, via the RPM web site at www.rpminc.com.
RPM Reports Fourth-Quarter and Year-End Results for Fiscal 2013
July 22, 2013
Page 5
About RPM
RPM International Inc., a holding company, owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services 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, Flowcrete, Universal Sealants and Euco. RPM’s consumer products are used by professionals and do-it-yourselfers for home maintenance and improvement and by hobbyists. Consumer brands include Zinsser, Rust-Oleum, DAP, Varathane and Testors. Additional details can be found at www.RPMinc.com and by following RPM on Twitter at www.twitter.com/RPMintl.
For more information, contact Barry M. Slifstein, vice president – investor relations and planning, at 330-273-5090 or bslifstein@rpminc.com.
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) global markets and 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; (j) risks and uncertainties associated with the SPHC bankruptcy proceedings; and (k) 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, 2012, 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.
# # #
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
| AS REPORTED | ADJUSTED (a) | |||||||||||||||||||||||||||||||
| Three Months Ended | Year Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||
| May 31, | May 31, | May 31, | May 31, | May 31, | May 31, | May 31, | May 31, | |||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
| Net Sales |
$ | 1,170,779 | $ | 1,101,770 | $ | 4,078,655 | $ | 3,777,416 | $ | 1,170,779 | $ | 1,101,770 | $ | 4,081,533 | $ | 3,777,416 | ||||||||||||||||
| Cost of sales |
670,505 | 641,354 | 2,375,936 | 2,235,153 | 666,638 | 641,354 | 2,369,528 | 2,235,153 | ||||||||||||||||||||||||
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| Gross profit |
500,274 | 460,416 | 1,702,719 | 1,542,263 | 504,141 | 460,416 | 1,712,005 | 1,542,263 | ||||||||||||||||||||||||
| Selling, general & administrative expenses |
353,896 | 322,161 | 1,309,235 | 1,155,714 | 349,853 | 322,161 | 1,294,604 | 1,155,714 | ||||||||||||||||||||||||
| Estimated loss contingency |
(3,712 | ) | — | 65,134 | — | — | — | — | — | |||||||||||||||||||||||
| Restructuring expense |
20,072 | — | 20,072 | — | — | — | — | — | ||||||||||||||||||||||||
| Interest expense |
21,042 | 18,433 | 79,846 | 72,045 | 21,042 | 18,433 | 79,846 | 72,045 | ||||||||||||||||||||||||
| Investment expense (income), net |
8,477 | (927 | ) | (6,178 | ) | (4,186 | ) | (5,193 | ) | (927 | ) | (19,848 | ) | (4,186 | ) | |||||||||||||||||
| Other expense (income), net |
3,889 | (1,230 | ) | 57,719 | (9,599 | ) | (911 | ) | (1,230 | ) | (4,260 | ) | (4,389 | ) | ||||||||||||||||||
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| Income before income taxes |
96,610 | 121,979 | 176,891 | 328,289 | 139,350 | 121,979 | 361,663 | 323,079 | ||||||||||||||||||||||||
| Provision for income taxes |
28,521 | 33,399 | 67,040 | 94,526 | 39,419 | 33,399 | 105,615 | 94,526 | ||||||||||||||||||||||||
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| Net income |
68,089 | 88,580 | 109,851 | 233,763 | 99,931 | 88,580 | 256,048 | 228,553 | ||||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests |
2,711 | 6,011 | 11,248 | 17,827 | 4,565 | 6,011 | 14,708 | 17,827 | ||||||||||||||||||||||||
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| Net income attributable to RPM International Inc. Stockholders |
$ | 65,378 | $ | 82,569 | $ | 98,603 | $ | 215,936 | $ | 95,366 | $ | 82,569 | $ | 241,340 | $ | 210,726 | ||||||||||||||||
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| Earnings per share of common stock attributable to RPM International Inc. Stockholders: |
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| Basic |
$ | 0.49 | $ | 0.63 | $ | 0.75 | $ | 1.65 | $ | 0.72 | $ | 0.63 | $ | 1.83 | $ | 1.61 | ||||||||||||||||
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| Diluted |
$ | 0.49 | $ | 0.63 | $ | 0.74 | $ | 1.65 | $ | 0.72 | $ | 0.63 | $ | 1.82 | $ | 1.61 | ||||||||||||||||
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| Average shares of common stock outstanding – basic |
129,121 | 128,301 | 128,956 | 128,130 | 129,121 | 128,301 | 128,956 | 128,130 | ||||||||||||||||||||||||
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| Average shares of common stock outstanding – diluted |
130,021 | 129,005 | 129,801 | 128,717 | 130,021 | 129,005 | 129,801 | 128,717 | ||||||||||||||||||||||||
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| (a) | Refer to the attached page for a reconciliation of as reported figures to adjusted figures presented above. |
SUPPLEMENTAL SEGMENT INFORMATION
IN THOUSANDS
| AS REPORTED | ADJUSTED (a) | |||||||||||||||||||||||||||||||
| Three Months Ended | Year Ended | Three Months Ended | Year Ended | |||||||||||||||||||||||||||||
| May 31, | May 31, | May 31, | May 31, | May 31, | May 31, | May 31, | May 31, | |||||||||||||||||||||||||
| 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | 2013 | 2012 | |||||||||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||||||||||
| Net Sales: |
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| Industrial Segment |
$ | 709,229 | $ | 724,759 | $ | 2,635,976 | $ | 2,535,238 | $ | 709,229 | $ | 724,759 | $ | 2,638,854 | $ | 2,535,238 | ||||||||||||||||
| Consumer Segment |
461,550 | 377,011 | 1,442,679 | 1,242,178 | 461,550 | 377,011 | 1,442,679 | 1,242,178 | ||||||||||||||||||||||||
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| Total |
$ | 1,170,779 | $ | 1,101,770 | $ | 4,078,655 | $ | 3,777,416 | $ | 1,170,779 | $ | 1,101,770 | $ | 4,081,533 | $ | 3,777,416 | ||||||||||||||||
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| Income Before Income Taxes (b): |
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| Industrial Segment |
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| Income Before Income Taxes (b) |
$ | 83,422 | $ | 89,484 | $ | 164,578 | $ | 278,676 | $ | 88,239 | $ | 89,484 | $ | 265,070 | $ | 273,466 | ||||||||||||||||
| Interest (Expense), Net (c) |
(2,724 | ) | (914 | ) | (10,318 | ) | (3,770 | ) | (2,724 | ) | (914 | ) | (10,318 | ) | (3,770 | ) | ||||||||||||||||
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| EBIT (d) |
$ | 86,146 | $ | 90,398 | $ | 174,896 | $ | 282,446 | $ | 90,963 | $ | 90,398 | $ | 275,388 | $ | 277,236 | ||||||||||||||||
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| Consumer Segment |
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| Income Before Income Taxes (b) |
$ | 58,542 | $ | 60,303 | $ | 190,611 | $ | 160,099 | $ | 77,995 | $ | 60,303 | $ | 210,064 | $ | 160,099 | ||||||||||||||||
| Interest (Expense), Net (c) |
24 | (33 | ) | (10 | ) | 18 | 24 | (33 | ) | (10 | ) | 18 | ||||||||||||||||||||
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| EBIT (d) |
$ | 58,518 | $ | 60,336 | $ | 190,621 | $ | 160,081 | $ | 77,971 | $ | 60,336 | $ | 210,074 | $ | 160,081 | ||||||||||||||||
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| Corporate/Other |
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| (Expense) Before Income Taxes (b) |
$ | (45,354 | ) | $ | (27,808 | ) | $ | (178,298 | ) | $ | (110,486 | ) | $ | (26,884 | ) | $ | (27,808 | ) | $ | (113,471 | ) | $ | (110,486 | ) | ||||||||
| Interest (Expense), Net (c) |
(26,819 | ) | (16,559 | ) | (63,340 | ) | (64,107 | ) | (13,149 | ) | (16,559 | ) | (49,670 | ) | (64,107 | ) | ||||||||||||||||
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| EBIT (d) |
$ | (18,535 | ) | $ | (11,249 | ) | $ | (114,958 | ) | $ | (46,379 | ) | $ | (13,735 | ) | $ | (11,249 | ) | $ | (63,801 | ) | $ | (46,379 | ) | ||||||||
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| Consolidated |
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| Income Before Income Taxes (b) |
$ | 96,610 | $ | 121,979 | $ | 176,891 | $ | 328,289 | $ | 139,350 | $ | 121,979 | $ | 361,663 | $ | 323,079 | ||||||||||||||||
| Interest (Expense), Net (c) |
(29,519 | ) | (17,506 | ) | (73,668 | ) | (67,859 | ) | (15,849 | ) | (17,506 | ) | (59,998 | ) | (67,859 | ) | ||||||||||||||||
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| EBIT (d) |
$ | 126,129 | $ | 139,485 | $ | 250,559 | $ | 396,148 | $ | 155,199 | $ | 139,485 | $ | 421,661 | $ | 390,938 | ||||||||||||||||
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| (a) | Refer to the attached page for a reconciliation of as reported figures to adjusted figures presented above. |
| (b) | 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. |
| (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. 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 STATEMENTS OF INCOME
RECONCILIATION OF “AS REPORTED” TO “ADJUSTED”
IN THOUSANDS, EXCEPT PER SHARE DATA
| Three Months Ended May 31, 2013 | ||||||||||||
| AS REPORTED | Adjustments | ADJUSTED | ||||||||||
| (Unaudited) | ||||||||||||
| Net Sales |
$ | 1,170,779 | $ | — | $ | 1,170,779 | ||||||
| Cost of sales |
670,505 | (3,867 | ) | 666,638 | ||||||||
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|||||||
| Gross profit |
500,274 | 3,867 | (1) | 504,141 | ||||||||
| Selling, general & administrative expenses |
353,896 | (4,043 | )(2) | 349,853 | ||||||||
| Estimated loss contingency |
(3,712 | ) | 3,712 | (3) | — | |||||||
| Restructuring expense |
20,072 | (20,072 | )(4) | — | ||||||||
| Interest expense |
21,042 | 21,042 | ||||||||||
| Investment expense (income), net |
8,477 | (13,670 | )(5) | (5,193 | ) | |||||||
| Other expense (income), net |
3,889 | (4,800 | )(6) | (911 | ) | |||||||
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|
|
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|
|
|||||||
| Income before income taxes |
96,610 | 42,740 | 139,350 | |||||||||
| Provision for income taxes |
28,521 | 10,898 | 39,419 | |||||||||
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|
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|
|
|||||||
| Net income |
68,089 | 31,842 | 99,931 | |||||||||
| Less: Net income attributable to noncontrolling interests |
2,711 | 1,854 | 4,565 | |||||||||
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|
|||||||
| Net income attributable to RPM International Inc. Stockholders |
$ | 65,378 | $ | 29,988 | $ | 95,366 | ||||||
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| Earnings per share attributable to RPM International Inc. Stockholders: |
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|||||||||||
| Basic |
$ | 0.49 | $ | 0.23 | $ | 0.72 | ||||||
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| Diluted |
$ | 0.49 | $ | 0.23 | $ | 0.72 | ||||||
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| (1) | Inventory write downs in conjunction with restructuring at the Rust-Oleum Group (consumer segment); see note (4) below. |
| (2) | Bad debt write-off for a past due receivable from Kemrock of $4,043 (industrial segment) |
| (3) | Adjustment to the fiscal 2013 third quarter estimated accrual of $68,846 at the Roofing division for an agreement in principle with the General Services Administration (GSA). The final expense of $65,134 is comprised of settlement costs and related legal fees (industrial segment). |
| (4) | Restructuring charges related to rationalizing production at the Rust-Oleum Group, both for Testors and Roosendaal, for $15,586 (Consumer Segment), and restructuring charges at BSG for $4,486 (industrial segment). |
| (5) | Write-off of Kemrock FCCB convertible bonds issued by Kemrock of $13,670 (non-operating segment). |
| (6) | Write-off of remaining investment in Kemrock relating to foreign exchange changes. |
| Year Ended May 31, 2013 | Year Ended May 31, 2012 | |||||||||||||||||||||||
| AS REPORTED | Adjustments | ADJUSTED | AS REPORTED | Adjustments | ADJUSTED | |||||||||||||||||||
| (Unaudited) | (Unaudited) | |||||||||||||||||||||||
| Net Sales |
$ | 4,078,655 | $ | 2,878 | $ | 4,081,533 | $ | 3,777,416 | $ | — | $ | 3,777,416 | ||||||||||||
| Cost of sales |
2,375,936 | (6,408 | ) | 2,369,528 | 2,235,153 | 2,235,153 | ||||||||||||||||||
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| Gross profit |
1,702,719 | 9,286 | (7), (1) | 1,712,005 | 1,542,263 | 1,542,263 | ||||||||||||||||||
| Selling, general & administrative expenses |
1,309,235 | (14,631 | )(8), (2) | 1,294,604 | 1,155,714 | 1,155,714 | ||||||||||||||||||
| Estimated loss contingency |
65,134 | (65,134 | )(3) | — | ||||||||||||||||||||
| Restructuring expense |
20,072 | (20,072 | )(4) | — | ||||||||||||||||||||
| Interest expense |
79,846 | — | 79,846 | 72,045 | 72,045 | |||||||||||||||||||
| Investment (income), net |
(6,178 | ) | (13,670 | )(5) | (19,848 | ) | (4,186 | ) | (4,186 | ) | ||||||||||||||
| Other expense (income), net |
57,719 | (61,979 | )(9), (6) | (4,260 | ) | (9,599 | ) | 5,210 | (10) | (4,389 | ) | |||||||||||||
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|||||||||||||
| Income before income taxes |
176,891 | 184,772 | 361,663 | 328,289 | (5,210 | ) | 323,079 | |||||||||||||||||
| Provision for income taxes |
67,040 | 38,575 | 105,615 | 94,526 | 94,526 | |||||||||||||||||||
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| Net income |
109,851 | 146,197 | 256,048 | 233,763 | (5,210 | ) | 228,553 | |||||||||||||||||
| Less: Net income attributable to noncontrolling interests |
11,248 | 3,460 | 14,708 | 17,827 | 17,827 | |||||||||||||||||||
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| Net income attributable to RPM International Inc. Stockholders |
$ | 98,603 | $ | 142,737 | $ | 241,340 | $ | 215,936 | $ | (5,210 | ) | $ | 210,726 | |||||||||||
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| Earnings per share attributable to RPM International Inc. Stockholders: |
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| Basic |
$ | 0.75 | $ | 1.08 | $ | 1.83 | $ | 1.65 | $ | (0.04 | ) | $ | 1.61 | |||||||||||
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| Diluted |
$ | 0.74 | $ | 1.08 | $ | 1.82 | $ | 1.65 | $ | (0.04 | ) | $ | 1.61 | |||||||||||
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| (7) | Represents an adjustment for revised cost estimates in the Roofing Division in conjunction with unprofitable contracts outside of North America of $5,419 during the first quarter of fiscal 2013 (industrial segment). |
| (8) | Adjustment includes $5,588 in Roofing exit costs and $5,000 of bad debt charges relating to a Kemrock receivable during the first quarter of fiscal 2013 (industrial segment). |
| (9) | Adjustments include the write-downs of Kemrock investments, including $35,538 at Corporate and $4,735 at RPM’s Performance Coatings Group (industrial segment) during the first quarter of fiscal 2013 and an additional $10,819 write-down at Corporate in the second quarter of fiscal 2013. Adjustments also reflect the $6,087 impact of the loss on repositioning of certain industrial segment subsidiaries in Brazil. Included in the loss was the impact of an adjustment for accumulated foreign currency translation losses that were previously recorded as an unrealized foreign exchange loss in the currency translation account as a component of other comprehensive income. |
| (10) | Adjustment removes the income recognized by the industrial segment related to RPM’s equity method investment in Kemrock recognized during the second quarter of fiscal 2012 of $5,210, which included a $4,631 cumulative catch-up. Adjustment excludes approximately $0.4 million of net earnings recognized by the industrial segment for its share of Kemrock’s earnings during the third quarter of fiscal 2012. |
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
| May 31, 2013 | May 31, 2012 | |||||||
| Assets |
||||||||
| Current Assets |
||||||||
| Cash and cash equivalents |
$ | 343,554 | $ | 315,968 | ||||
| Trade accounts receivable |
816,421 | 772,048 | ||||||
| Allowance for doubtful accounts |
(28,904 | ) | (26,507 | ) | ||||
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| Net trade accounts receivable |
787,517 | 745,541 | ||||||
| Inventories |
548,680 | 489,978 | ||||||
| Deferred income taxes |
36,565 | 18,752 | ||||||
| Prepaid expenses and other current assets |
169,956 | 167,080 | ||||||
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| Total current assets |
1,886,272 | 1,737,319 | ||||||
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| Property, Plant and Equipment, at Cost |
1,128,123 | 1,050,965 | ||||||
| Allowance for depreciation and amortization |
(635,760 | ) | (632,133 | ) | ||||
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| Property, plant and equipment, net |
492,363 | 418,832 | ||||||
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| Other Assets |
||||||||
| Goodwill |
1,113,831 | 849,346 | ||||||
| Other intangible assets, net of amortization |
459,613 | 345,620 | ||||||
| Other |
163,447 | 210,696 | ||||||
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| Total other assets |
1,736,891 | 1,405,662 | ||||||
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| Total Assets |
$ | 4,115,526 | $ | 3,561,813 | ||||
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| Liabilities and Stockholders’ Equity |
||||||||
| Current Liabilities |
||||||||
| Accounts payable |
$ | 478,185 | $ | 391,467 | ||||
| Current portion of long-term debt |
4,521 | 2,584 | ||||||
| Accrued compensation and benefits |
154,844 | 157,298 | ||||||
| Accrued loss reserves |
27,591 | 28,880 | ||||||
| Other accrued liabilities |
262,889 | 144,911 | ||||||
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| Total current liabilities |
928,030 | 725,140 | ||||||
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| Long-Term Liabilities |
||||||||
| Long-term debt, less current maturities |
1,369,176 | 1,112,952 | ||||||
| Other long-term liabilities |
417,160 | 381,619 | ||||||
| Deferred income taxes |
46,227 | 28,119 | ||||||
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|
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| Total long-term liabilities |
1,832,563 | 1,522,690 | ||||||
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| Total liabilities |
2,760,593 | 2,247,830 | ||||||
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| Stockholders’ Equity |
||||||||
| Preferred stock; none issued |
||||||||
| Common stock (outstanding 132,596; 131,555) |
1,326 | 1,316 | ||||||
| Paid-in capital |
763,505 | 742,895 | ||||||
| Treasury stock, at cost |
(72,494 | ) | (69,480 | ) | ||||
| Accumulated other comprehensive (loss) |
(159,253 | ) | (177,893 | ) | ||||
| Retained earnings |
667,774 | 686,818 | ||||||
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| Total RPM International Inc. stockholders’ equity |
1,200,858 | 1,183,656 | ||||||
| Noncontrolling interest |
154,075 | 130,327 | ||||||
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| Total equity |
1,354,933 | 1,313,983 | ||||||
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| Total Liabilities and Stockholders’ Equity |
$ | 4,115,526 | $ | 3,561,813 | ||||
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CONSOLIDATED STATEMENTS OF CASH FLOWS
IN THOUSANDS
| Year Ended | ||||||||
| May 31, | May 31, | |||||||
| 2013 | 2012 | |||||||
| Cash Flows From Operating Activities: |
||||||||
| Net income |
$ | 109,851 | $ | 233,763 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||
| Depreciation |
55,715 | 51,939 | ||||||
| Amortization |
28,029 | 21,759 | ||||||
| Impairment loss on investment in Kemrock |
51,092 | |||||||
| Estimated loss contingency |
65,134 | |||||||
| Asset impairment charge |
7,416 | |||||||
| Other than temporary impairments on marketable securities |
14,279 | 1,604 | ||||||
| Deferred income taxes |
(40,991 | ) | (7,088 | ) | ||||
| Stock-based compensation expense |
17,145 | 13,904 | ||||||
| Other |
(2,190 | ) | (6,590 | ) | ||||
| Changes in assets and liabilities, net of effect from purchases and sales of businesses: |
||||||||
| (Increase) decrease in receivables |
(7,639 | ) | 980 | |||||
| (Increase) decrease in inventory |
(40,039 | ) | 7,115 | |||||
| Decrease in prepaid expenses and other current and long-term assets |
7,045 | 14,948 | ||||||
| Increase in accounts payable |
72,070 | 13,635 | ||||||
| (Decrease) increase in accrued compensation and benefits |
(7,402 | ) | 3,016 | |||||
| (Decrease) in accrued loss reserves |
(1,873 | ) | (5,712 | ) | ||||
| Increase in other accrued liabilities |
28,474 | 47,508 | ||||||
| Other |
12,338 | (95,909 | ) | |||||
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|
|||||
| Cash From Operating Activities |
368,454 | 294,872 | ||||||
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|
|||||
| Cash Flows From Investing Activities: |
||||||||
| Capital expenditures |
(91,367 | ) | (71,615 | ) | ||||
| Acquisition of businesses, net of cash acquired |
(397,425 | ) | (163,414 | ) | ||||
| Purchase of marketable securities |
(106,301 | ) | (69,824 | ) | ||||
| Proceeds from sales of marketable securities |
103,501 | 51,415 | ||||||
| Proceeds from sales of assets or businesses |
128 | 2,171 | ||||||
| Investments in unconsolidated affiliates |
(31,842 | ) | ||||||
| Other |
14,060 | 15,787 | ||||||
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|
|||||
| Cash (Used For) Investing Activities |
(477,404 | ) | (267,322 | ) | ||||
|
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|
|||||
| Cash Flows From Financing Activities: |
||||||||
| Additions to long-term and short-term debt |
300,902 | 27,894 | ||||||
| Reductions of long-term and short-term debt |
(49,376 | ) | (36,128 | ) | ||||
| Cash dividends |
(117,647 | ) | (112,153 | ) | ||||
| Repurchase of stock |
(3,013 | ) | (6,985 | ) | ||||
| Other |
7,284 | 9,931 | ||||||
|
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|
|||||
| Cash Provided By (Used For) Financing Activities |
138,150 | (117,441 | ) | |||||
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|
|||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents |
(1,614 | ) | (29,152 | ) | ||||
|
|
|
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|
|||||
| Net Change in Cash and Cash Equivalents |
27,586 | (119,043 | ) | |||||
| Cash and Cash Equivalents at Beginning of Period |
315,968 | 435,011 | ||||||
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|
|||||
| Cash and Cash Equivalents at End of Period |
$ | 343,554 | $ | 315,968 | ||||
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