RPM RPM International Inc

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 8-K

 

 

CURRENT REPORT

Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) January 7, 2015

 

 

RPM INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware		1-14187		02-0642224
(State or other jurisdiction of incorporation)		(Commission File Number)		(IRS Employer Identification No.)

 

2628 Pearl Road, P.O. Box 777, Medina, Ohio		44258
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (330) 273-5090

(Former name or former address, if changed since last report.)

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

¨	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

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Item 2.02 Results of Operations and Financial Condition.

On January 7, 2015, the Company issued a press release announcing its second quarter results, which provided detail not included in previously issued reports. A copy of the press release is furnished with this Current Report on Form 8-K as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits.

 

Exhibit Number		Description
99.1		Press release of the Company, dated January 7, 2015, announcing the Company’s second quarter results.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

						RPM International Inc.
						(Registrant)
Date January 7, 2015						/s/ Edward W. Moore
						Edward W. Moore
						Senior Vice President, General Counsel and Chief Compliance Officer

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Exhibit Index

 

Exhibit Number		Description
99.1		Press release of the Company, dated January 7, 2015, announcing the Company’s second quarter results.

Exhibit 99.1

RPM Reports Fiscal 2015 Second-Quarter Results

 

•

Second-quarter net income improves 10% on flat sales

 

•

Reconsolidation of SPHC subsidiaries will add $400 million to annualized sales, and will be reflected in subsequent quarterly results

 

•

EPS guidance for FY 2015 reduced to a range of $2.25 to $2.30

MEDINA, OH – January 7, 2015 – RPM International Inc. (NYSE: RPM) today reported a 10% increase in net income and an 8% increase in earnings per diluted share on flat sales for its fiscal 2015 second quarter ended November 30, 2014.

Second-Quarter Results

Net sales of $1.07 billion were flat compared to last year. Consolidated EBIT (earnings before interest and taxes) increased 3.2%, to $120.1 million from $116.4 million in the fiscal 2014 second quarter. Fiscal 2015 second-quarter net income was up 9.8% to $69.8 million from $63.6 million in the fiscal 2014 second quarter. Earnings per diluted share increased 8.3% to $0.52 from $0.48 a year ago.

“Second-quarter operating performance was mixed, with stronger sales in our businesses serving the U.S. commercial construction market offset by weaker results in Europe, a continued unfavorable year-over-year trend from our Kirker nail enamels business and the negative impact of foreign currency,” stated Frank C. Sullivan, chairman and chief executive officer.

Second-Quarter Segment Sales and Earnings

During the fiscal 2015 second quarter, industrial segment sales grew 1.4% to $718.3 million from $708.7 million in the fiscal 2014 second quarter. Organic sales improved 0.7%, including 3.3% in foreign exchange translation losses, while acquisition growth added 0.7%. Industrial segment EBIT declined 5.9% to $79.0 million from $83.9 million in the same period a year ago.

“Most of our European businesses are experiencing a challenging economic climate, negatively impacting our results. Additionally, the strong dollar has negatively impacted all of our international results upon translation. However, we had strong positive performance by our concrete admixture and commercial sealants companies, which serve the U.S. commercial construction market, and our line of remediation equipment for water and smoke damage. Additionally, our South American businesses are generating good results in their local currencies,” Sullivan stated.

RPM’s fiscal 2015 second-quarter consumer segment sales declined 2.8% to $352.8 million from $362.8 million a year ago. Organic sales declined 4.2%, including foreign exchange losses of 1.3%, while acquisition growth added 1.4%. Consumer segment EBIT improved 19.1%, to $61.6 million from $51.7 million a year ago. The improvement in EBIT for RPM’s consumer segment is primarily due to the reversal of a $17 million ‘earn-out’ accrual relating to the Kirker acquisition.

“As stated in the first quarter, Kirker continues to be challenged by a comparison to extremely strong prior-year performance. In anticipation of potential volatility in Kirker’s earnings, our acquisition deal structure allows for performance-related payments to offset any shortfall in earnings. As a result, we

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RPM Reports Fiscal 2015 Second-Quarter Results

January 7, 2015

Page 2 of 4

 

reversed the $17 million earn-out accrual into income when it became clear that Kirker would not be able to meet its performance objectives this year,” stated Sullivan. “Additionally, our large retail customers made aggressive inventory adjustments due to the harsh weather faced in early November. This was in reaction to last year’s severe winter when they were caught off-guard and held excess inventory. We expect to benefit from a return to more normal inventory levels by our retail customers in the second half of the fiscal year.”

Unusual non-operating costs in this year’s second quarter totaled $2.8 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 Specialty Products Holding Corp. (SPHC) settlement, and a voluntary self-disclosure agreement with the state of Delaware for unclaimed property.

Cash Flow and Financial Position

For the first half of fiscal 2015, cash from operations was $55.3 million compared to $21.8 million a year ago. During last year’s first quarter, the company made a contingent payment to the General Services Administration of approximately $45 million after-tax. Capital expenditures of $26.5 million compare to $34.6 million during the first half of last year. Total debt at November 30, 2014 was $1.43 billion, compared to $1.37 billion at November 30, 2013 and $1.35 billion at May 31, 2014. RPM’s net (of cash) debt-to-total capitalization ratio was 44.8%, compared to 46.4% at November 30, 2013. At November 30, 2014, liquidity stood at $1.01 billion, including cash of $297 million and $718 million in long-term committed available credit.

First-Half Sales and Earnings

Fiscal 2015 first-half net sales improved 1.7% to $2.28 billion from $2.24 billion during the first six months of fiscal 2014. Consolidated EBIT increased 1.2% to $283.7 million from $280.4 million during the first six months of fiscal 2014. Net income was up 1.3% to $168.8 million from $166.7 million in the fiscal 2014 first half. Diluted earnings per share were $1.24, compared to $1.25 a year ago.

First-Half Segment Sales and Earnings

RPM’s industrial segment fiscal 2015 first-half sales improved 3.6%, to $1.49 billion from $1.44 billion in the fiscal 2014 first half. Organic sales increased 2.6%, including net foreign exchange translation losses of 1.6%, while acquisition growth added 1.0%. Industrial segment EBIT was flat to last year at $184.1 million.

First-half sales for the consumer segment declined 1.7% to $782.8 million from $796.2 million a year ago. Organic sales decreased 3.0%, including net foreign exchange losses of 0.5%, and acquisition growth added 1.3%. Consumer segment EBIT increased 2.9% to $138.2 million from $134.4 million in the first half of fiscal 2014.

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RPM Reports Fiscal 2015 Second-Quarter Results

January 7, 2015

Page 3 of 4

 

SPHC Reconsolidation

The financial results of the company’s SPHC subsidiary and its business units will be reconsolidated with RPM’s results starting in the third quarter of fiscal 2015. The reconsolidation occurred as a result of the consummation of a plan of reorganization, which resulted in the formation of a trust under Section 524(g) of the United States Bankruptcy Code for the benefit of current and future asbestos personal injury claimants, as previously disclosed. The trust assumes all liability and responsibility for current and future asbestos claims against the entities emerging from bankruptcy.

SPHC originally filed for bankruptcy protection on May 31, 2010 to permanently resolve asbestos claims against its Bondex International Inc. subsidiary. While RPM has continued to own SPHC and its subsidiaries during the bankruptcy process, their financial results were not consolidated with RPM’s during that time.

The trust was funded with an initial contribution of $450.0 million in cash from the Company’s revolving line of credit. Payments to the trust, including this initial $450.0 million, will total $797.5 million in pre-tax contributions over the next four years and have a present value, after tax, of $485.0 million.

The reconsolidated SPHC operating subsidiaries include:

 

•

Chemical Specialties Manufacturing Corp., a producer of commercial cleaning products;

 

•

Day-Glo Color Corp., a leading manufacturer of fluorescent colorants and pigments;

 

•

Dryvit Systems, Inc., a leading manufacturer of exterior insulation finish systems;

 

•

Kop-Coat, Inc., a leading producer of wood treatments for lumber and coatings for the marine market;

 

•

RPM Wood Finishes Group (Mohawk Finishing Products, CCI and Guardian Protection Products, Inc.), a primary supplier of wood coatings to the furniture industry;

 

•

TCI, Inc., a leading producer of powdered metal coatings; and

 

•

ValvTect Petroleum Products, a producer of fuel additives.

Business Outlook

“For the second half of our fiscal year, we expect our consumer segment to benefit from a return to more normal inventory levels at our retail customers with continued growth in consumer DIY spending, and anticipate that the decline in nail polish enamel sales will be much less severe. In our industrial segment, we do not see a near-term turnaround in the European economies and expect continued strengthening of the U.S. dollar to continue negatively impacting results on translation,” stated Sullivan.

“Based on these factors, for the second half of fiscal 2015, we expect to generate 6% sales growth in our consumer segment, driving an EBIT increase of 10% to 12%, and 2% to 3% sales growth in our industrial segment, driving an EBIT increase of 4% to 5%. Additionally, we will benefit from the reconsolidation of our SPHC businesses, which should add approximately $170 million in sales and $0.05 per diluted share to our fiscal 2015 second-half results.”

“Taking all of these elements into consideration, we have reduced our diluted EPS guidance for the year to $2.25 to $2.30. From a longer-term perspective, we are optimistic given the return of our SPHC businesses and the elimination of their asbestos liability. We can now accelerate growth investments in our businesses and more aggressively return capital to shareholders when appropriate,” stated Sullivan. “Looking forward to fiscal 2016, our consolidated EPS guidance is a range of $2.70 to $2.80 per share.”

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RPM Reports Fiscal 2015 Second-Quarter Results

January 7, 2015

Page 4 of 4

 

Webcast and Conference Call Information

Management will host a conference call to further discuss these results beginning at 10:00 a.m. EST today. The call can be accessed by dialing 888-771-4371 or 847-585-4405 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. EST today until 11:59 p.m. EST on January 14, 2015. The replay can be accessed by dialing 888-843-7419 or 630-652-3042 for international callers. The access code is 38349283. 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.

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, Day-Glo, Dryvit 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 Rust-Oleum, DAP, Zinsser, 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; and (j) 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, 2014, 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.

# # #

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CONSOLIDATED STATEMENTS OF INCOME

IN THOUSANDS, EXCEPT PER SHARE DATA

(Unaudited)

 

		Three Months Ended								Six Months Ended
		November 30,								November 30,
		2014				2013				2014				2013
Net Sales		$	1,071,128			$	1,071,487			$	2,275,024			$	2,236,161
Cost of sales			617,185				613,542				1,312,688				1,279,144
Gross profit			453,943				457,945				962,336				957,017
Selling, general & administrative expenses			334,889				343,048				681,414				678,507
Interest expense			19,404				20,809				38,819				41,534
Investment (income), net			(5,058	)			(2,005	)			(8,861	)			(5,899	)
Other (income), net			(1,042	)			(1,491	)			(2,864	)			(1,925	)
Income before income taxes			105,750				97,584				253,828				244,800
Provision for income taxes			31,894				29,170				75,133				69,497
Net income			73,856				68,414				178,695				175,303
Less: Net income attributable to noncontrolling interests			4,090				4,852				9,850				8,643
Net income attributable to RPM International Inc. Stockholders		$	69,766			$	63,562			$	168,845			$	166,660
Earnings per share of common stock attributable to RPM International Inc. Stockholders:
Basic		$	0.52			$	0.48			$	1.27			$	1.26
Diluted		$	0.52			$	0.48			$	1.24			$	1.25
Average shares of common stock outstanding—basic			130,028				129,426				130,061				129,385
Average shares of common stock outstanding—diluted			134,966				130,418				135,000				130,359

SUPPLEMENTAL SEGMENT INFORMATION

IN THOUSANDS

(Unaudited)

 

		Three Months Ended November 30,								Six Months Ended November 30,
		2014				2013				2014				2013
Net Sales:
Industrial Segment		$	718,347			$	708,713			$	1,492,233			$	1,439,939
Consumer Segment			352,781				362,774				782,791				796,222
Total		$	1,071,128			$	1,071,487			$	2,275,024			$	2,236,161
Income Before Income Taxes (a):
Industrial Segment
Income Before Income Taxes (a)		$	77,109			$	81,394			$	179,573			$	178,975
Interest (Expense), Net (b)			(1,898	)			(2,528	)			(4,531	)			(5,062	)
EBIT (c)		$	79,007			$	83,922			$	184,104			$	184,037
Consumer Segment
Income Before Income Taxes (a)		$	61,562			$	51,720			$	138,231			$	134,437
Interest (Expense), Net (b)			(4	)			26				(12	)			65
EBIT (c)		$	61,566			$	51,694			$	138,243			$	134,372
Corporate/Other
(Expense) Before Income Taxes (a)		$	(32,921	)		$	(35,530	)		$	(63,976	)		$	(68,612	)
Interest (Expense), Net (b)			(12,444	)			(16,302	)			(25,415	)			(30,638	)
EBIT (c)		$	(20,477	)		$	(19,228	)		$	(38,561	)		$	(37,974	)
Consolidated
Income Before Income Taxes (a)		$	105,750			$	97,584			$	253,828			$	244,800
Interest (Expense), Net (b)			(14,346	)			(18,804	)			(29,958	)			(35,635	)
EBIT (c)		$	120,096			$	116,388			$	283,786			$	280,435

 

(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.

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CONSOLIDATED BALANCE SHEETS

IN THOUSANDS

 

		November 30, 2014				November 30, 2013				May 31, 2014
		(Unaudited)				(Unaudited)
Assets
Current Assets
Cash and cash equivalents		$	296,527			$	224,172			$	332,868
Trade accounts receivable			833,378				802,453				901,587
Allowance for doubtful accounts			(26,605	)			(30,024	)			(27,641	)
Net trade accounts receivable			806,773				772,429				873,946
Inventories			637,932				597,660				613,644
Deferred income taxes			20,280				38,146				22,281
Prepaid expenses and other current assets			198,301				181,220				219,556
Total current assets			1,959,813				1,813,627				2,062,295
Property, Plant and Equipment, at Cost			1,172,307				1,144,947				1,191,676
Allowance for depreciation and amortization			(662,329	)			(645,594	)			(658,871	)
Property, plant and equipment, net			509,978				499,353				532,805
Other Assets
Goodwill			1,118,444				1,125,460				1,147,374
Other intangible assets, net of amortization			441,556				461,555				459,536
Deferred income taxes, non-current			7,582				5,623				7,943
Other			159,880				170,526				168,412
Total other assets			1,727,462				1,763,164				1,783,265
Total Assets		$	4,197,253			$	4,076,144			$	4,378,365
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		$	379,874			$	370,993			$	525,680
Current portion of long-term debt			151,358				4,835				5,662
Accrued compensation and benefits			111,032				127,150				173,846
Accrued loss reserves			18,537				22,120				27,487
Other accrued liabilities			208,701				208,983				204,411
Total current liabilities			869,502				734,081				937,086
Long-Term Liabilities
Long-term debt, less current maturities			1,275,875				1,365,115				1,345,965
Other long-term liabilities			411,922				436,335				466,659
Deferred income taxes			48,476				46,753				50,061
Total long-term liabilities			1,736,273				1,848,203				1,862,685
Total liabilities			2,605,775				2,582,284				2,799,771
Stockholders’ Equity
Preferred stock; none issued
Common stock (outstanding 133,748; 133,174; 133,273)			1,337				1,332				1,333
Paid-in capital			806,898				776,363				790,102
Treasury stock, at cost			(94,354	)			(80,370	)			(85,400	)
Accumulated other comprehensive (loss)			(259,267	)			(147,740	)			(156,882	)
Retained earnings			935,773				772,637				833,691
Total RPM International Inc. stockholders’ equity			1,390,387				1,322,222				1,382,844
Noncontrolling interest			201,091				171,638				195,750
Total equity			1,591,478				1,493,860				1,578,594
Total Liabilities and Stockholders’ Equity		$	4,197,253			$	4,076,144			$	4,378,365

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CONSOLIDATED STATEMENTS OF CASH FLOWS

IN THOUSANDS

(Unaudited)

 

		Six Months Ended
		November 30,				November 30,
		2014				2013
Cash Flows From Operating Activities:
Net income		$	178,695			$	175,303
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			30,132				29,128
Amortization			16,015				15,776
Reversal of contingent consideration obligations			(18,080	)
Deferred income taxes			2,170				(8,500	)
Stock-based compensation expense			15,706				9,622
Other			(1,222	)			(1,229	)
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
Decrease in receivables			44,564				21,971
(Increase) in inventory			(41,392	)			(44,020	)
Decrease (increase) in prepaid expenses and other current and long-term assets			1,306				(750	)
(Decrease) in accounts payable			(133,960	)			(111,598	)
(Decrease) in accrued compensation and benefits			(57,837	)			(28,152	)
(Decrease) in accrued loss reserves			(8,471	)			(5,488	)
(Decrease) in contingent payment							(61,894	)
Increase in other accrued liabilities			37,229				38,304
Other			(9,599	)			(6,641	)
Cash Provided By Operating Activities			55,256				21,832
Cash Flows From Investing Activities:
Capital expenditures			(26,498	)			(34,603	)
Acquisition of businesses, net of cash acquired			(33,355	)			(20,827	)
Purchase of marketable securities			(14,308	)			(33,770	)
Proceeds from sales of marketable securities			19,205				19,672
Other			6,515				1,546
Cash (Used For) Investing Activities			(48,441	)			(67,982	)
Cash Flows From Financing Activities:
Additions to long-term and short-term debt			83,312				2,776
Reductions of long-term and short-term debt			(6,501	)			(6,071	)
Cash dividends			(66,763	)			(61,796	)
Repurchase of stock			(8,954	)			(7,877	)
Payments of acquisition related contingent consideration			(24,750	)			(5,000	)
Other			1,048				3,670
Cash (Used For) Financing Activities			(22,608	)			(74,298	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents			(20,548	)			1,066
Net Change in Cash and Cash Equivalents			(36,341	)			(119,382	)
Cash and Cash Equivalents at Beginning of Period			332,868				343,554
Cash and Cash Equivalents at End of Period		$	296,527			$	224,172