RPM International Inc. 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|
|
|
þ |
|
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 |
for the quarterly period ended November 30, 2006,
or
|
|
|
o |
|
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 |
for the transition period from to .
Commission File No. 1-14187
RPM International Inc.
(Exact name of Registrant as specified in its charter)
|
|
|
DELAWARE
|
|
02-0642224 |
|
|
|
(State or other jurisdiction of incorporation or organization)
|
|
(IRS Employer Identification No.) |
|
|
|
P.O. BOX 777; 2628 PEARL ROAD; MEDINA, OHIO
|
|
44258 |
|
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants
telephone number including area code (330) 273-5090
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the Registrant was required to file such reports) and (2) has been subject
to the filing requirements for the past 90 days.
Yes þ No o
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated
filer þ Accelerated filer o Non-accelerated filer o.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As
of January 5, 2007
119,617,321 Shares of RPM International Inc. Common Stock were outstanding.
RPM INTERNATIONAL INC. AND SUBSIDIARIES*
INDEX
|
|
|
* |
|
As used herein, the terms RPM and the Company refer to RPM International Inc. and its
subsidiaries, unless the context indicates otherwise. |
3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
November 30, 2006 |
|
|
May 31, 2006 |
|
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
|
Current Assets |
|
|
|
|
|
|
|
|
Cash and short-term investments |
|
$ |
134,504 |
|
|
$ |
108,616 |
|
Trade accounts receivable (less allowances of
$21,510 and $20,252, respectively) |
|
|
554,205 |
|
|
|
650,945 |
|
Inventories |
|
|
434,971 |
|
|
|
399,014 |
|
Deferred income taxes |
|
|
51,677 |
|
|
|
48,885 |
|
Prepaid expenses and other current assets |
|
|
189,414 |
|
|
|
161,758 |
|
|
|
|
|
|
|
|
Total current assets |
|
|
1,364,771 |
|
|
|
1,369,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, at Cost |
|
|
903,160 |
|
|
|
887,276 |
|
Allowance for depreciation and amortization |
|
|
(464,376 |
) |
|
|
(442,584 |
) |
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
438,784 |
|
|
|
444,692 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Assets |
|
|
|
|
|
|
|
|
Goodwill |
|
|
815,125 |
|
|
|
750,635 |
|
Other intangible assets, net of amortization |
|
|
321,002 |
|
|
|
321,942 |
|
Other |
|
|
90,233 |
|
|
|
93,731 |
|
|
|
|
|
|
|
|
Total other assets |
|
|
1,226,360 |
|
|
|
1,166,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
3,029,915 |
|
|
$ |
2,980,218 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
264,743 |
|
|
$ |
333,684 |
|
Current portion of long-term debt |
|
|
4,857 |
|
|
|
6,141 |
|
Accrued compensation and benefits |
|
|
105,297 |
|
|
|
136,384 |
|
Accrued loss reserves |
|
|
69,493 |
|
|
|
66,678 |
|
Asbestos-related liabilities |
|
|
58,458 |
|
|
|
58,925 |
|
Other accrued liabilities |
|
|
120,991 |
|
|
|
111,688 |
|
|
|
|
|
|
|
|
Total current liabilities |
|
|
623,839 |
|
|
|
713,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities |
|
|
|
|
|
|
|
|
Long-term debt, less current maturities |
|
|
944,899 |
|
|
|
870,415 |
|
Asbestos-related liabilities |
|
|
332,626 |
|
|
|
362,360 |
|
Other long-term liabilities |
|
|
103,066 |
|
|
|
108,002 |
|
|
|
|
|
|
|
|
Total long-term liabilities |
|
|
1,380,591 |
|
|
|
1,340,777 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders Equity |
|
|
|
|
|
|
|
|
Preferred stock, par value $0.01; authorized 50,000 shares;
none issued |
|
|
|
|
|
|
|
|
Common stock, par value $0.01 authorized 300,000 shares;
issued and outstanding 119,554 as of November 2006;
issued and outstanding 118,743 as of May 2006 |
|
|
1,196 |
|
|
|
1,187 |
|
Paid-in capital |
|
|
554,689 |
|
|
|
545,422 |
|
Treasury stock, at cost |
|
|
|
|
|
|
|
|
Accumulated other comprehensive income |
|
|
45,708 |
|
|
|
29,839 |
|
Retained earnings |
|
|
423,892 |
|
|
|
349,493 |
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
1,025,485 |
|
|
|
925,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders Equity |
|
$ |
3,029,915 |
|
|
$ |
2,980,218 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these
statements.
4
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
|
November 30, |
|
|
November 30, |
|
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net Sales |
|
$ |
1,653,547 |
|
|
$ |
1,486,702 |
|
|
$ |
809,386 |
|
|
$ |
739,350 |
|
|
Cost of Sales |
|
|
982,403 |
|
|
|
873,398 |
|
|
|
483,315 |
|
|
|
441,065 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
|
671,144 |
|
|
|
613,304 |
|
|
|
326,071 |
|
|
|
298,285 |
|
|
Selling, General and Administrative Expenses |
|
|
487,300 |
|
|
|
459,594 |
|
|
|
249,715 |
|
|
|
245,834 |
|
|
Asbestos (Income)/Charge |
|
|
(15,000 |
) |
|
|
30,000 |
|
|
|
(15,000 |
) |
|
|
15,000 |
|
|
Interest Expense, Net |
|
|
24,518 |
|
|
|
18,429 |
|
|
|
11,315 |
|
|
|
9,854 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes |
|
|
174,326 |
|
|
|
105,281 |
|
|
|
80,041 |
|
|
|
27,597 |
|
|
Provision for Income Taxes |
|
|
60,043 |
|
|
|
36,793 |
|
|
|
27,100 |
|
|
|
9,070 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
114,283 |
|
|
$ |
68,488 |
|
|
$ |
52,941 |
|
|
$ |
18,527 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Number of Shares of Common Stock Outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
117,501 |
|
|
|
116,626 |
|
|
|
117,600 |
|
|
|
116,710 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
128,380 |
|
|
|
127,400 |
|
|
|
128,674 |
|
|
|
127,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share of common stock |
|
$ |
0.97 |
|
|
$ |
0.59 |
|
|
$ |
0.45 |
|
|
$ |
0.16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share of common stock |
|
$ |
0.90 |
|
|
$ |
0.55 |
|
|
$ |
0.42 |
|
|
$ |
0.15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends per share of common stock |
|
$ |
0.335 |
|
|
$ |
0.310 |
|
|
$ |
0.175 |
|
|
$ |
0.160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these
statements.
5
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
|
November 30, |
|
|
|
2006 |
|
|
2005 |
|
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
114,283 |
|
|
$ |
68,488 |
|
Depreciation and amortization |
|
|
37,811 |
|
|
|
35,043 |
|
Items not affecting cash and other |
|
|
3,208 |
|
|
|
29,740 |
|
Changes in operating working capital |
|
|
(44,590 |
) |
|
|
(18,965 |
) |
Changes in asbestos-related liabilities, net of tax |
|
|
(19,326 |
) |
|
|
(18,744 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
91,386 |
|
|
|
95,562 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
(22,203 |
) |
|
|
(20,376 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(79,560 |
) |
|
|
(135,780 |
) |
Purchases of marketable securities |
|
|
(32,222 |
) |
|
|
(25,236 |
) |
Proceeds from the sale of marketable securities |
|
|
27,434 |
|
|
|
15,000 |
|
Other |
|
|
5,061 |
|
|
|
525 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(101,490 |
) |
|
|
(165,867 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
Additions to long-term and short-term debt |
|
|
109,838 |
|
|
|
175,005 |
|
Reductions of long-term and short-term debt |
|
|
(42,024 |
) |
|
|
(151,937 |
) |
Cash dividends |
|
|
(39,883 |
) |
|
|
(36,529 |
) |
Exercise of stock options |
|
|
5,825 |
|
|
|
4,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,756 |
|
|
|
(9,339 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and Short-Term Investments |
|
|
2,236 |
|
|
|
(1,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Short-Term Investments |
|
|
25,888 |
|
|
|
(80,808 |
) |
|
|
|
|
|
|
|
|
|
Cash and Short-Term Investments at Beginning of Period |
|
|
108,616 |
|
|
|
184,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Short-Term Investments at End of Period |
|
$ |
134,504 |
|
|
$ |
103,332 |
|
|
|
|
|
|
|
|
The accompanying notes to consolidated financial statements are an integral part of these
statements.
6
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
NOTE A BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and notes required by
generally accepted accounting principles (GAAP) in the U.S. for complete financial statements.
In the opinion of management, all adjustments (consisting of normal, recurring accruals) considered
necessary for a fair presentation have been included for the three and six month periods ended
November 30, 2006 and 2005. For further information, refer to the Consolidated Financial
Statements and Notes included in our Annual Report on Form 10-K for the year ended May 31, 2006.
Our business is dependent on external weather factors. Historically, we have experienced strong
sales and net income in our first, second and fourth fiscal quarters comprised of the three month
periods ending August 31, November 30 and May 31, respectively, with weaker performance in our
third fiscal quarter (December through February).
Certain reclassifications have been made to prior year amounts to conform to the current year
presentation.
NOTE B NEW ACCOUNTING STANDARDS
In June 2006, the Financial Accounting Standards Board (FASB) issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No. 109 (FIN
48). FIN 48, which clarifies the accounting for uncertainty, if any, in income taxes as recognized
in financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes,
represents a significant change in the accounting and reporting of income taxes.
FIN 48 prescribes the accounting for uncertainty in income taxes by providing guidance on the
recognition threshold and measurement of a position taken in a tax return or a position expected to
be taken in a tax return. Additionally, FIN 48 provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, disclosure, and transition.
The effective date of FIN 48 is for fiscal years beginning after December 15, 2006. Accordingly,
FIN 48 becomes effective for our fiscal year ending May 31, 2008. We are currently evaluating the
impact of the adoption of FIN 48 on our financial statements.
In September 2006, the FASB issued Statement No. 157, Fair Value Measurements. Statement 157
clarifies the definition of fair value, establishes a framework for measuring fair value, and
expands the disclosures on fair value measurements. This statement is effective for fiscal years
beginning after November 15, 2007. We are currently evaluating the impact, if any, the adoption of
this statement will have on our financial statements.
In September 2006, the FASB issued Statement No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and
132(R). Statement 158 requires an employer to recognize a net liability or asset and an
offsetting
7
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
adjustment to accumulated other comprehensive income to report the funded status of
defined benefit pension and other postretirement benefit plans. Statement 158 requires prospective
application, and the recognition and disclosure requirements are effective for our fiscal year
ending May 31, 2007. Additionally, Statement 158 requires employers to measure plan assets and
obligations at their year-end
balance sheet date. In accordance with this requirement, which is effective for our fiscal year
ending May 31, 2009, we will change our current February 28 measurement date to May 31. We are
currently evaluating the impact the adoption of Statement 158 will have on our financial
statements.
Effective June 1, 2004, we voluntarily adopted the preferable fair value recognition provisions of
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation, for our stock-based employee compensation plans by applying the modified prospective
method as outlined by SFAS No. 148, Accounting for Stock-Based Compensation Transition and
Disclosure. On December 16, 2004, the FASB issued FASB Statement No. 123 (revised 2004) (SFAS
No. 123(R)), Share Based Payment, which is a revision of SFAS No. 123. SFAS No. 123(R) also
supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB
Statement No. 95, Statement of Cash Flows. The approach outlined in SFAS No. 123(R) is generally
similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all
share-based payments to employees, including grants of employee stock options, to be recognized in
the income statement based on their fair values.
Effective June 1, 2006, we adopted the provisions of SFAS No. 123(R), utilizing the
modified-prospective method of accounting. Due to our previous adoption of the fair value
recognition provisions under SFAS No. 123, and due to the fact that all unvested awards at the time
of adoption were being recognized under a fair value approach, our adoption of SFAS No. 123(R) did
not impact our operating income or cash flows for the
three and six month periods ended November 30, 2006.
As of November 30, 2006, we had six share-based compensation plans for employees and/or directors
of the company, as further described below. Total compensation expense recognized in the
consolidated statements of income for share-based compensation arrangements was $3.5 million and
$3.0 million for each of the six month periods ended November 30, 2006 and 2005, respectively. The
total income tax benefit recognized for share-based compensation arrangements was approximately
$1.0 million and $0.8 million for each of the six month periods ended November 30, 2006 and 2005,
respectively. There was no compensation cost capitalized as inventory or fixed assets during
either of the six month periods ended November 30, 2006 and 2005.
Effective October 10, 2003, the RPM International Inc. 2003 Restricted Stock Plan for Directors
(the 2003 Plan) was approved by our stockholders. The plan was established primarily for the
purpose of recruiting and retaining directors, and to align the interests of directors with the
interests of our stockholders. Only directors who are not employees of RPM International Inc. are
eligible to participate. Under the 2003 Plan, up to 500,000 shares of
our common stock may
be awarded, with awards vesting over a 3-year period. Nonvested restricted shares of common stock
under the 2003 Plan are eligible for dividend payments.
8
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
On October 8, 2004, our stockholders approved the RPM International Inc. Omnibus Equity and
Incentive Plan (the Omnibus Plan). The Omnibus Plan is intended to be the primary stock-based
award program for covered employees. A wide variety of stock and stock-based awards, as well as
dollar-denominated performance-based awards, may be granted under the Omnibus Plan. A total of
6,000,000 shares of our common stock may be subject to awards under the Omnibus Plan. Of the
6,000,000 shares of common stock issuable under the Omnibus Plan, up to 3,000,000 shares may be
subject to full-value awards such as restricted stock, restricted stock unit, performance stock
and performance stock unit awards. In October 2006, we granted 378,600 shares of
performance-earned
restricted stock under the Omnibus Plan at a weighted-average grant price of $18.80. The restricted
stock cliff vests after three years. Nonvested restricted shares of common stock under the Omnibus
Plan are eligible for dividend payments.
In addition to the restricted shares outstanding under the Omnibus Plan, we have restricted shares
outstanding under two equity compensation plans for employees the Performance Accelerated
Restricted Stock Plan (the PARS Plan) and the 1997 Restricted Stock Plan (1997 Plan). Under
the terms of the PARS plan, up to 1,000,000 shares may be awarded to certain employees, generally
subject to forfeiture until the completion of ten years of service or the attainment of certain
performance goals. No shares were issued under the PARS Plan in fiscal 2006 or during the six
months ended November 30, 2006. Under the 1997 Plan, up to 1,562,500 shares may be awarded to
certain employees, generally subject to forfeiture. The shares vest upon the latter of attainment
of age 55 and the fifth anniversary of the May 31st immediately preceeding the date of
the grant. During the six months ended November 30, 2006, 38,149 shares were awarded under the
1997 Plan at a weighted average price of $18.52. Nonvested restricted shares of common stock under
each of these plans are eligible for dividend payments.
The following table summarizes nonvested restricted share activity under the Plans as of and for
the six month period ended November 30, 2006:
Nonvested Restricted Shares
(Shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Number of |
|
|
|
|
Average |
|
Shares |
|
Weighted Average |
|
|
Grant-Date |
|
Under |
|
Remaining |
|
|
Fair Value |
|
Option |
|
Contractual Term |
|
Nonvested, June 1, 2006 |
|
$ |
14.92 |
|
|
|
1,367 |
|
|
|
|
|
Granted |
|
$ |
18.78 |
|
|
|
444 |
|
|
|
|
|
Vested |
|
$ |
14.10 |
|
|
|
(17 |
) |
|
|
|
|
Forfeited/expired |
|
|
|
|
|
|
(47 |
) |
|
|
|
|
|
Nonvested, November 30, 2006 |
|
$ |
15.99 |
|
|
|
1,747 |
|
|
|
3.96 |
|
|
The fair value of the nonvested restricted share awards have been calculated using the market
value of the shares on the date of issuance. We anticipate that approximately 1.6 million shares
at a weighted-
9
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
average exercise price of $15.83 and a weighted-average remaining contractual term of
4.06 years will ultimately vest, based upon the unique terms and participants of each plan.
Approximately 10,000 shares of restricted stock were vested at June 1, 2006, with no restricted
shares vested as of November 30, 2006. As of November 30, 2006, total unrecognized compensation
cost related to nonvested restricted shares of common stock awards granted was $18.4 million. That
cost is expected to be recognized over a weighted-average period of 4.06 years.
We have options outstanding under the 1996 Key Employees Stock Option Plan, which provides for the
granting of options for up to 9,000,000 shares. Stock options are granted to employees and
directors at an exercise price equal to the fair market value of RPM International Inc. stock at
the date of grant. These
options are generally exercisable cumulatively in equal annual installments commencing one year
from the grant date, and have expiration dates ranging from July 2007 to October 2014. The total
fair value of shares vested during the six months ended November 30, 2006 was $30.9 million.
Shares of common stock under option are not eligible for dividend payments until the shares are
exercised.
We also grant stock appreciation rights (SARs) to employees under the Omnibus Plan. The SARs are
issued at fair value at the date of grant, have up to ten-year terms and vest over four years.
Currently all SARs outstanding are to be settled with stock. SARs granted during the six month
periods ended November 30, 2006 and 2005 were 380,000 shares at a weighted-average grant price of
$18.80 and 560,000 shares at a weighted-average grant price of $17.65, respectively. As of
November 30, 2006, there were 929,500 SARs outstanding. The fair value of stock options and SARs
granted is estimated as of the date of the grant using a Black-Scholes option-pricing model with
the following weighted average assumptions for each of the following years ended May 31:
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
2006 |
|
Risk-free interest rate |
|
|
4.6 |
% |
|
|
4.2 |
% |
Expected life of option |
|
6.7 yrs |
|
|
6.0 yrs |
|
Expected dividend yield |
|
|
3.7 |
% |
|
|
3.6 |
% |
Expected volatility rate |
|
|
27.4 |
% |
|
|
27.7 |
% |
The Black-Scholes option pricing model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and are fully transferable. The risk-free rate
for periods within the contractual life of the option is based on the U.S. Treasury yield curve in
effect at the time of grant. The expected life of options granted is derived from the output of
the option-pricing model and represents the period of time that options granted are expected to be
outstanding. Expected volatilities are based on historical volatility of our shares of common
stock.
10
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
The following table summarizes stock based award activity under the Plans as of and for the six
month period ended November 30, 2006:
Shares Under Option
(Shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Average |
|
Number of |
|
Weighted Average |
|
|
Exercise |
|
Shares Under |
|
Remaining |
|
|
Price |
|
Option |
|
Contractual Term |
|
Outstanding, June 1, 2006 |
|
$ |
14.34 |
|
|
|
6,414 |
|
|
|
|
|
Granted |
|
$ |
18.80 |
|
|
|
380 |
|
|
|
|
|
Canceled/expired |
|
$ |
14.18 |
|
|
|
19 |
|
|
|
|
|
Exercised |
|
$ |
14.07 |
|
|
|
415 |
|
|
|
|
|
|
Outstanding, November 30, 2006 |
|
$ |
14.62 |
|
|
|
6,360 |
|
|
|
5.12 |
|
|
Exercisable, November 30, 2006 |
|
$ |
13.92 |
|
|
|
5,003 |
|
|
|
4.20 |
|
|
The total intrinsic value of options exercised during the six months ended November 30, 2006
and 2005 was $2.1 million and $1.9 million, respectively. As of November 30, 2006, the aggregate
intrinsic value of both outstanding and exercisable options was $31.3 million.
Cash received from option exercises under all share-based payment arrangements for the six month
periods ended November 30, 2006 and 2005 was $5.8 million and $4.1 million, respectively. There
was no tax benefit realized for the tax deductions from option exercises of the share-based payment
for the six months ended November 30, 2006 and 2005, respectively.
The fair value of the nonvested share-based payment awards have been calculated using the market
value of the shares on the date of issuance. We anticipate that
approximately 1.3 million shares
at a weighted-average exercise price of $4.21 and a weighted-average remaining contractual term of
8.52 years will ultimately vest under these plans. A summary of the status of our nonvested
share-based payment awards as of November 30, 2006, and the changes during the six month period
then-ended, is incorporated in the following table.
Nonvested Shares Under Option
(Shares in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
Number of |
|
|
|
|
Average |
|
Shares |
|
Weighted Average |
|
|
Grant-Date |
|
Under |
|
Remaining |
|
|
Fair Value |
|
Option |
|
Contractual Term |
|
Nonvested, June 1, 2006 |
|
$ |
4.16 |
|
|
|
1,829 |
|
|
|
|
|
Granted |
|
$ |
4.34 |
|
|
|
380 |
|
|
|
|
|
Vested |
|
|
|
|
|
|
(840 |
) |
|
|
|
|
Forfeited/expired |
|
$ |
4.20 |
|
|
|
(11 |
) |
|
|
|
|
|
Nonvested, November 30, 2006 |
|
$ |
4.21 |
|
|
|
1,358 |
|
|
|
8.52 |
|
|
11
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
NOTE C INVENTORIES
Inventories were composed of the following major classes:
|
|
|
|
|
|
|
|
|
(In thousands) |
|
November 30, 2006 |
|
May 31, 2006 |
|
Raw material and supplies |
|
$ |
134,092 |
|
|
$ |
124,573 |
|
Finished goods |
|
|
300,879 |
|
|
|
274,441 |
|
|
Total Inventory |
|
$ |
434,971 |
|
|
$ |
399,014 |
|
|
NOTE D COMPREHENSIVE INCOME
Other comprehensive income includes foreign currency translation adjustments, minimum pension
liability adjustments, unrealized gains or losses on securities and income or loss from
derivatives. Total
comprehensive income, comprised of net income and other comprehensive income, amounted to $130.2
million and $76.9 million during the six month periods ended November 30, 2006 and 2005,
respectively, and $65.7 million and $15.7 million for the
three month periods ended November 30, 2006 and 2005, respectively. The following table illustrates the components of total comprehensive income
for each respective period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
Three Months Ended |
|
|
November 30, |
|
November 30, |
(In thousands) |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
Net income |
|
$ |
114,283 |
|
|
$ |
68,488 |
|
|
$ |
52,941 |
|
|
$ |
18,527 |
|
Foreign currency
translation adjustments |
|
|
4,729 |
|
|
|
8,666 |
|
|
|
4,516 |
|
|
|
(2,013 |
) |
Minimum pension
liability adjustments |
|
|
119 |
|
|
|
(967 |
) |
|
|
175 |
|
|
|
(380 |
) |
Unrealized gain (loss)
on securities |
|
|
6,749 |
|
|
|
746 |
|
|
|
6,481 |
|
|
|
(444 |
) |
Derivatives income (loss) |
|
|
4,272 |
|
|
|
|
|
|
|
1,604 |
|
|
|
|
|
|
Total Comprehensive Income |
|
$ |
130,152 |
|
|
$ |
76,933 |
|
|
$ |
65,717 |
|
|
$ |
15,690 |
|
|
NOTE E ACQUISITIONS
On August 31, 2005, Tremco, Inc., a wholly-owned subsidiary of RPM, completed its acquisition of
privately-owned illbruck Sealant Systems, located in Leverkusen, Germany, for approximately $136.6
million, plus debt assumption of approximately $10.3 million, subject to certain post-closing
adjustments. illbruck, a leading manufacturer of high-performance sealants and installation
systems for
12
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
pre-fabricated construction elements and for window and door applications, had sales of
approximately $190.0 million for its fiscal year ended December 31, 2004. The acquisition has
extended Tremcos product line offerings to include joint sealing tapes, flashing tapes, cartridge
sealants and adhesives, strips, foils and accessories marketed under brand names such as illbruck,
Festix, Perennator and Coco.
The purchase price has been allocated to the underlying assets acquired and liabilities assumed
based upon their fair values at the date of acquisition. We have determined the estimated fair
values based on independent appraisals, discounted cash flow analyses, quoted market prices and
estimates made by management. Goodwill has been recorded to the extent the purchase price exceeded
the fair values of the net identifiable tangible and intangible assets acquired. The following
table summarizes the fair values of the assets acquired and liabilities assumed at the date of
acquisition.
|
|
|
|
|
|
|
|
|
Amortization Life |
|
|
(In thousands) |
|
(In Years) |
|
illbruck |
|
Current assets |
|
|
|
$ |
63,740 |
|
Property, plant and equipment |
|
|
|
|
32,562 |
|
Goodwill |
|
N/A |
|
|
53,334 |
|
Tradenames indefinitely lived |
|
N/A |
|
|
27,190 |
|
Tradenames other |
|
12 - 15 |
|
|
1,639 |
|
Other intangible assets |
|
4 - 12 |
|
|
21,805 |
|
|
Total Assets Acquired |
|
|
|
$ |
200,270 |
|
|
Liabilities assumed |
|
|
|
|
(63,633 |
) |
|
Net Assets Acquired |
|
|
|
$ |
136,637 |
|
|
Our consolidated financial statements reflect the results of operations of this business as of
the date of acquisition.
During the current fiscal year, we completed four relatively smaller product line acquisitions. In
July, we acquired the Watco Group, which manufactures and markets industrial coatings and concrete
floor coatings, with annual sales of $20.0 million and
approximate goodwill of $38.6 million. During
November, we completed three separate acquisitions, first acquiring certain assets of Nu-Chem,
Inc., which includes intumescent fireproofing products and epoxy intumescents for petrochemical and
offshore oil markets, and Permaquick Corp., a supplier of a number of waterproofing, epoxy and
sealant products. The combination of these two acquisitions is
expected to add approximately $12.0 million to consolidated sales annually and approximate goodwill of $9.3 million. Additionally,
during November, we acquired the Dane Group in Manchester, England, which manufactures daylight
fluorescent, phosphorescent and thermochromatic pigments, has estimated goodwill of $9.7 million
and is expected to contribute approximately $20.0 million in annual sales.
13
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
NOTE F CONTINGENCIES AND LOSS RESERVES
We provide, through our wholly owned insurance subsidiaries, certain insurance coverage, primarily
product liability, to our other subsidiaries. Excess coverage is provided by third party insurers.
Our reserves provide for these potential losses as well as other uninsured claims. Product
warranty expense is recorded within selling, general and administrative expense. As of November
30, 2006, the current portion of these reserves amounted to $52.1 million as compared with $53.8
million at May 31, 2006 and $61.0 million at November 30, 2005, while the total long-term reserves
of $7.0 million at November 30, 2006 compare with $13.3 million at May 31, 2006 and $11.6 million a
year ago. The changes in the reserve balance have occurred primarily as a result of our continuing
evaluation of our liability under a class action lawsuit settlement covering our Dryvit residential
exterior insulated finish systems product line (EIFS).
Third party excess insurers have historically paid varying shares of Dryvits defense and
settlement costs for individual commercial and residential EIFS lawsuits under various cost-sharing
agreements. Dryvit has assumed a greater share of the costs associated with its EIFS litigation as
it seeks funding commitments from our third party excess insurers and will likely continue to do so
pending the outcome of coverage litigation involving these same third party insurers. One of our
excess insurers filed suit seeking a declaration with respect to its rights and obligations for
EIFS related claims under its applicable policies. During last years fiscal third quarter, the
court granted Dryvits motion to stay the federal filing based on a more complete state court
complaint filed against these same insurers and the Companys insurance broker. The coverage case
will now proceed in state court.
Certain of our wholly-owned subsidiaries, principally Bondex International, Inc. (collectively
referred to as the subsidiaries), are defendants in various asbestos-related bodily injury lawsuits
filed in various state courts with the vast majority of current claims pending in five states -
Illinois, Ohio, Mississippi, Texas and Florida. These cases generally seek unspecified damages for
asbestos-related diseases based on alleged exposures to asbestos-containing products previously
manufactured by our subsidiaries.
Our subsidiaries vigorously defend these asbestos-related lawsuits and in many cases, the
plaintiffs are unable to demonstrate that any injuries they have incurred, in fact, resulted from
exposure to one of our subsidiaries products. In such cases, the subsidiaries are generally
dismissed without payment. With respect to those cases where compensable disease, exposure and
causation are established with respect to one of our subsidiaries products, the subsidiaries
generally settle for amounts that reflect the confirmed disease, the particular jurisdiction,
applicable law, the number and solvency of other parties in the case and various other factors
which may influence the settlement value each party assigns to a particular case at the time.
As of November 30, 2006, our subsidiaries had a total of 11,021 active asbestos cases compared to a
total of 9,501 cases as of November 30, 2005. For the quarter ended November 30, 2006, our
subsidiaries secured dismissals and/or settlements of 324
claims and made total payments of $13.8 million, which included
defense costs paid during the current quarter of $6.6 million. For the
14
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
comparable period ended November 30, 2005, dismissals and/or settlements covered 234 claims and
total payments were $13.4 million, which included defense costs paid during the quarter of $5.2
million. In some jurisdictions, cases may involve more than one individual claimant. As a result,
settlement or dismissal statistics on a per case basis are not necessarily reflective of the
payment amounts on a per claimant basis and the amounts and rates can vary widely depending on a
variety of factors including the mix of malignancy and non-malignancy claims and the amount of
defense costs incurred during the period.
The rate at which plaintiffs filed asbestos-related suits against our subsidiaries, particularly
Bondex, increased since the fourth fiscal quarter of 2002, influenced by the bankruptcy filings of
numerous other defendants in asbestos-related litigation. Based on the significant increase in
asbestos claims activity, which in many cases disproportionately increased Bondexs exposure in
joint and several liability law states, our third-party insurance was depleted within the first
fiscal quarter of 2004. Our third-party insurers historically had been responsible, under various
cost-sharing arrangements, for the payment of approximately 90% of the indemnity and defense costs
associated with our asbestos litigation. Prior to this sudden precipitous increase in loss rates,
the combination of book loss reserves and insurance coverage was expected to adequately cover
asbestos claims for the foreseeable future. We have reserved our rights with respect to several of
our third-party insurers claims of exhaustion, and in late calendar 2002 commenced a review of our
known insurance policies to determine whether other insurance limits may be available to cover our
asbestos liabilities.
As a
result of an examination of our subsidiaries historical insurance, as previously
disclosed, certain of our subsidiaries filed a complaint in July 2003 for declaratory judgment,
breach of contract and bad faith against various third-party insurers, challenging their assertion
that their policies covering asbestos-related claims have been exhausted. The coverage litigation
involves, among other matters, insurance coverage for claims arising out of alleged exposure to
asbestos containing products manufactured by the previous owner of the Bondex tradename before
March 1, 1966. On March 1, 1966, Republic Powdered Metals Inc. (as it was known then), purchased
the assets and assumed the liabilities of the previous owner of the Bondex tradename. That
previous owner subsequently dissolved and was never a subsidiary of Republic Powdered Metals,
Bondex, RPM, Inc. or the Company. Because of the earlier assumption of liabilities, however,
Bondex has historically and must continue to respond to lawsuits alleging exposure to these
asbestos containing products. The Company discovered that the defendant insurance companies in the
coverage litigation had wrongfully used cases alleging exposure to these pre-1966 products to erode
their aggregate limits. This conduct, apparently known by the insurance industry based on
discovery conducted to date, was in breach of the insurers policy language. While this pending
litigation could, in the future, result in third party coverage for a substantial amount of these
future asbestos claims, the Company has not considered any such future recovery in determining the
scope and amount of its reserve for future unknown asbestos claims. Two of the defendant insurers
have filed counterclaims seeking to recoup certain monies should the plaintiffs prevail on their
claims. Pursuant to a case management order, which is subject to
change by the court, the parties have substantially completed all
fact discovery and are nearing completion of the expert discovery
phase of the case. The parties will next file dispositive motions
(including motions for summary judgment) and related briefs. It is
difficult to predict when any such motions will be decided by the
court or when the court will set a definitive trial date, although
the Companys subsidiaries anticipate a trial during the 2007
calendar year.
15
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
During the quarter ended November 30, 2006, Bondex reached a cash settlement of $15.0 million, the
terms of which are confidential by agreement of the parties, with one of the defendant insurers.
The settling defendant has been dismissed from the case. The
Companys subsidiaries are aggressively pursuing their claims against the remaining insurers based on the terms of their
respective policies.
We are unable at the present time to predict the timing or ultimate outcome of this insurance
coverage litigation or whether there will be any further settlements. Consequently, we are unable to predict whether, or to what extent, any
additional insurance may be available to cover a portion of our subsidiaries asbestos liabilities.
We have not included any potential benefits from this litigation in calculating our current asbestos reserve. Our wholly-owned captive insurance companies have
not provided any insurance or reinsurance coverage for any of our subsidiaries asbestos-related
claims.
Claim filings in Mississippi, Ohio, Texas, Florida and Illinois at the quarter ended November 30,
2006, comprise approximately 75% of the total aggregate claims filed against Bondex. Three of
these states (Mississippi, Ohio and Texas) provide for liability to be determined on a
proportional cause basis, thereby limiting Bondexs responsibility to only its share of the
alleged asbestos exposure. Two of the three previously mentioned states have passed additional
legislation impacting medical criteria and product identification in asbestos-related litigation.
While there have been some changes in the type of claims filed in certain of these states, the
ultimate influence these law changes will have on future claims activity and costs is still
developing.
Estimating the future cost of asbestos related contingent liabilities was and continues to be
subject to many uncertainties, including (i) the ultimate number of claims filed; (ii) the cost of
resolving both current known and future unknown claims; (iii) the amount of insurance, if any,
available to cover such claims, including the outcome of coverage litigation against the
subsidiaries third party insurers; (iv) future earnings and cash flow of our subsidiaries; (v) the
impact of bankruptcies of other companies whose share of liability may be imposed on our
subsidiaries under certain state liability laws; (vi) the unpredictable aspects of the litigation
process including a changing trial docket and the jurisdictions in which trials are scheduled;
(vii) the outcome of any such trials including judgments or jury verdicts, as a result of our more
aggressive defense posture which includes taking selective cases to verdict; (viii) the lack of
specific information in many cases concerning exposure to the subsidiaries products and the
claimants diseases; (ix) potential changes in applicable federal and/or state law; and (x) the
potential impact of various proposed structured settlement transactions or subsidiary bankruptcies
by other companies, some of which are the subject of federal appellate court review, the outcome of
which could materially affect any future asbestos-related liability estimates. In addition to the
foregoing, ongoing debate in the Senate concerning the establishment of a trust fund to pay future
asbestos related claims and remove such cases from federal and state courts with industry and
insurers funding the trust continues to be a significant variable that makes it increasingly
difficult to predict with certainty the full exposure of future, unknown asbestos-related claims.
16
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
As part of our ongoing assessment of our asbestos liability exposure, during last years third
fiscal quarter we considered whether (i) our recent verdict experience, (ii) venue reforms, (iii)
medical criteria requirements, and (iv) proportionate share liability and other known tort reforms
provided sufficient relevant and reliable information to reasonably estimate our future liability
for asbestos-related claims. Accordingly, as previously disclosed, we retained Crawford &
Winiarski (C&W), an independent, third-party consulting firm with expertise in the area of
asbestos valuation work, to assist us in calculating an estimate of our liability for unasserted
potential future asbestos-related claims.
The methodology used by C&W to project our liability for unasserted potential future
asbestos-related claims included C&W doing an analysis of (a) widely accepted forecast of the
population likely to have been exposed to asbestos; (b) epidemiological studies estimating the
number of people likely to develop asbestos-related diseases; (c) historical rate at which
mesothelioma incidences resulted in the payment of claims by us; (d) historical settlement averages
to value the projected number of future compensable mesothelioma claims; (e) historical ratio of
mesothelioma related indemnity payments to non-mesothelioma indemnity payments; and (f) historical
defense costs and their relationship with total indemnity payments.
As a result, at the end of fiscal 2006, we increased our reserve for asbestos claims by
approximately $335.0 million, while paying out $12.9 million for dismissals and/or settlements
resulting in our reserve moving from $99.2 million at February 28, 2006 to $421.3 million at May
31, 2006. This reserve increase was based upon C&Ws analysis of our total estimated liability for
pending and unasserted potential future claims through May 31, 2016. This amount was calculated on
a pre-tax basis and was not discounted for the time value of money. As of November 30, 2006, total
reserves were approximately $391.1 million. In light of the uncertainties inherent in making
long-term projections, we have determined that the ten-year period through 2016 is the most
reasonable time period over which reasonably accurate estimates might still be made for projecting
asbestos liabilities and defense costs and, accordingly, the reserve does not include asbestos
liabilities for any period past 2016.
In determining the amount of our asbestos reserves, we relied on assumptions that are based on
currently known facts and projection models. Our actual expenses could be significantly higher or
lower than those recorded if assumptions used in our or C&Ws calculations vary significantly from
actual results. Key variables in these assumptions include the period of exposure to asbestos
claims, the number and type of new claims to be filed each year, the rate at which mesothelioma
incidences result in compensable claims against us, the average cost of disposing of each such new
claim, the dismissal rates each year and the related annual defense costs. Furthermore,
predictions with respect to these variables are subject to greater uncertainty as the projections
period lengthens. A significant upward or downward trend in the number of claims filed, depending
on the nature of the alleged injury, the jurisdiction where filed, the average cost of resolving
each such claim and the quality of the product identification, could change our estimated
liability, as could any substantial adverse verdict at trial. A federal legislative solution,
further state tort reform or structured settlement transaction could also change the estimated
liability.
17
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
Subject to the foregoing variables, based on currently available data and upon the analysis of C&W,
we believe that our current asbestos reserves are sufficient to cover asbestos-related cash flow
requirements for our known pending and unasserted potential future asbestos-related claims.
However, given the uncertainties associated with projecting matters into the future and numerous
other factors outside of our control, we believe that it is reasonably possible we may incur
asbestos liabilities for the period through 2016 and beyond in excess of the C&W projection. While
it is reasonably possible that such excess liabilities could be material to operating results in
any given quarter or year, we do not believe that it is reasonably possible that such excess
liabilities would have a material adverse effect on our long-term results of operations, liquidity
or consolidated financial position.
We recognize that future facts, events and legislation, both state and/or federal, may alter our
estimates of pending claims and can impact our ability to estimate unasserted potential future
claims. With our outside advisors, we will continue to monitor the number and mix (disease type)
of claims filed and paid each period against the estimates calculated by our asbestos liability
model, the impact of state law changes and the evolving nature of federal legislative efforts to
address asbestos litigation including the pending federal criminal investigation into the conduct
of at least three plaintiffs law firms (all of whom have filed claims against our subsidiaries and
many other defendants) with respect to their asbestos claim-filing practices. This federal
investigation, coupled with recent judicial findings in Texas that are being considered by other
judges in other jurisdictions, calls into question from a medical and legal perspective, the
veracity of a significant number of asbestos claims for all defendants, including our subsidiaries.
We will continue to explore all feasible alternatives available to resolve our asbestos-related
exposure in a manner consistent with the best interests of our stockholders.
The following table illustrates the movement of current and long-term asbestos-related liabilities
through November 30, 2006:
Asbestos Liability Movement
(Current and Long-Term)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
|
|
Deductions |
|
Balance at |
|
|
Beginning |
|
Additions to |
|
(Primarily |
|
End of |
(In thousands) |
|
of Period |
|
Asbestos Charge |
|
Claims Paid) |
|
Period |
|
Six Months Ended November 30, 2006 |
|
$ |
421,285 |
|
|
|
|
|
|
$ |
30,201 |
|
|
$ |
391,084 |
|
Year Ended May 31, 2006 |
|
|
101,172 |
|
|
$ |
380,000 |
|
|
|
59,887 |
|
|
|
421,285 |
|
Year Ended May 31, 2005 |
|
|
90,607 |
|
|
|
78,000 |
|
|
|
67,435 |
|
|
|
101,172 |
|
|
18
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
NOTE G PENSION AND POSTRETIREMENT HEALTH CARE BENEFITS
We offer defined benefit pension plans, defined contribution pension plans, as well as several
unfunded health care benefit plans primarily for certain of our retired employees. The following
tables provide the retirement-related benefit plans impact on income before income taxes for the
six and three month periods ended November 30, 2006 and 2005:
Pension Benefits
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
Six Months Ended |
|
Six Months Ended |
|
|
November 30, |
|
November 30, |
|
November 30, |
|
November 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
Service cost |
|
$ |
6,612 |
|
|
$ |
6,635 |
|
|
$ |
1,544 |
|
|
$ |
1,237 |
|
Interest cost |
|
|
4,532 |
|
|
|
4,122 |
|
|
|
2,536 |
|
|
|
2,370 |
|
Expected return on plan assets |
|
|
(5,714 |
) |
|
|
(5,054 |
) |
|
|
(2,521 |
) |
|
|
(2,299 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
96 |
|
|
|
97 |
|
|
|
11 |
|
|
|
|
|
Net gain on adoption of SFAS No. 87 |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized |
|
|
1,199 |
|
|
|
1,187 |
|
|
|
901 |
|
|
|
755 |
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
6,725 |
|
|
$ |
6,986 |
|
|
$ |
2,471 |
|
|
$ |
2,063 |
|
|
|
|
|
|
Postretirement Benefits
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
Six Months Ended |
|
Six Months Ended |
|
|
November 30, |
|
November 30, |
|
November 30, |
|
November 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
220 |
|
|
$ |
168 |
|
Interest cost |
|
|
271 |
|
|
|
307 |
|
|
|
295 |
|
|
|
248 |
|
Prior service cost |
|
|
|
|
|
|
(13 |
) |
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized |
|
|
(14 |
) |
|
|
29 |
|
|
|
45 |
|
|
|
21 |
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
257 |
|
|
$ |
323 |
|
|
$ |
560 |
|
|
$ |
437 |
|
|
|
|
|
|
19
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
Pension Benefits
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
Three Months Ended |
|
Three Months Ended |
|
|
November 30, |
|
November 30, |
|
November 30, |
|
November 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
Service cost |
|
$ |
3,306 |
|
|
$ |
3,318 |
|
|
$ |
772 |
|
|
$ |
619 |
|
Interest cost |
|
|
2,266 |
|
|
|
2,061 |
|
|
|
1,268 |
|
|
|
1,185 |
|
Expected return on plan assets |
|
|
(2,857 |
) |
|
|
(2,527 |
) |
|
|
(1,261 |
) |
|
|
(1,150 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior service cost |
|
|
48 |
|
|
|
48 |
|
|
|
5 |
|
|
|
|
|
Net gain on adoption of SFAS No. 87 |
|
|
|
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized |
|
|
600 |
|
|
|
594 |
|
|
|
450 |
|
|
|
378 |
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
3,363 |
|
|
$ |
3,493 |
|
|
$ |
1,234 |
|
|
$ |
1,032 |
|
|
|
|
|
|
Postretirement Benefits
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
Three Months Ended |
|
Three Months Ended |
|
|
November 30, |
|
November 30, |
|
November 30, |
|
November 30, |
|
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
|
|
|
|
Service cost |
|
$ |
|
|
|
$ |
|
|
|
$ |
110 |
|
|
$ |
84 |
|
Interest cost |
|
|
135 |
|
|
|
154 |
|
|
|
148 |
|
|
|
124 |
|
Prior service cost |
|
|
|
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
Net actuarial (gains) losses recognized |
|
|
(7 |
) |
|
|
15 |
|
|
|
22 |
|
|
|
11 |
|
|
|
|
|
|
Net Periodic Benefit Cost |
|
$ |
128 |
|
|
$ |
162 |
|
|
$ |
280 |
|
|
$ |
219 |
|
|
|
|
|
|
The net periodic benefit cost for the non-U.S. plans for the six-month and three-month periods
ended November 30, 2006 have been adjusted to reflect the May 2006 acquisition of Vandex
International Ltd. The impact on expense for the six-month and three-month periods ended November
30, 2006 is $67,000 and $33,000, respectively.
We previously disclosed in our financial statements for the fiscal year ended May 31, 2006 that we
expected to contribute approximately $11.9 million to the Retirement Plans in the U.S. and
approximately $4.1 million to plans outside the U.S. during the current fiscal year. As of
November 30, 2006, we still expect to contribute $11.9 million to the U.S. plans but now expect to
contribute approximately $7.2 million to plans outside the U.S. The change in expected
contributions reflects the results of the January 1, 2006 valuation performed for the Canada
Registered Plan and the acquisition of Vandex International Ltd.
We have determined that our postretirement medical plan provides prescription drug benefits that
will qualify for the federal subsidy provided by the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act). For our current retirees who are not subject to cost caps,
we have assumed that we will be eligible for the subsidy beginning in 2006 and for all future
years. For our
20
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
current and future retirees who are subject to cost caps, we have assumed that we will be eligible
for the subsidy beginning in 2006 and ending on average in 2012.
NOTE H SEGMENT INFORMATION
We operate a portfolio of businesses that manufacture and sell a variety of specialty paints,
protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by
organizing our businesses into two reportable operating segments industrial and consumer based
on the nature of business activities; products and services; the structure of management; and the
structure of information as presented to the Board of Directors. Within each segment, individual
operating companies or groups of companies generally address common markets, utilize similar
technologies, and can share manufacturing or distribution capabilities.
In addition to the two reportable operating segments, there are certain business activities,
referred to as corporate/other, that do not constitute an operating segment, including corporate
headquarters and related administrative expenses, results of our captive insurance companies, gains
or losses on the sales of certain assets, and other expenses, including asbestos-related charges,
many of which are not directly associated with either reportable operating segment. Related assets
consist primarily of investments, prepaid expenses, deferred pension assets, and headquarters
property and equipment. These corporate and other expenses reconcile reportable operating segment
data to total consolidated income before income taxes and identifiable assets. Comparative six
month and three month results on this basis are illustrated in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
|
November 30, |
|
|
November 30, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment |
|
$ |
1,073,823 |
|
|
$ |
896,436 |
|
|
$ |
528,569 |
|
|
$ |
465,597 |
|
Consumer Segment |
|
|
579,724 |
|
|
|
590,266 |
|
|
|
280,817 |
|
|
|
273,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
1,653,547 |
|
|
$ |
1,486,702 |
|
|
$ |
809,386 |
|
|
$ |
739,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment |
|
$ |
138,195 |
|
|
$ |
115,468 |
|
|
$ |
64,261 |
|
|
$ |
50,389 |
|
Consumer Segment |
|
|
67,871 |
|
|
|
72,493 |
|
|
|
26,513 |
|
|
|
26,057 |
|
Corporate/Other |
|
|
(31,740 |
) |
|
|
(82,680 |
) |
|
|
(10,733 |
) |
|
|
(48,849 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
174,326 |
|
|
$ |
105,281 |
|
|
$ |
80,041 |
|
|
$ |
27,597 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30, 2006 |
|
|
May 31, 2006 |
|
Identifiable Assets |
|
|
|
|
|
|
|
|
Industrial Segment |
|
$ |
1,616,330 |
|
|
$ |
1,628,038 |
|
Consumer Segment |
|
|
1,076,330 |
|
|
|
1,102,687 |
|
Corporate/Other |
|
|
337,255 |
|
|
|
249,493 |
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
3,029,915 |
|
|
$ |
2,980,218 |
|
|
|
|
|
|
|
|
21
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2006
(Unaudited)
NOTE I DEBT
On
December 29, 2006, we refinanced our $330.0 million revolving
credit facility with a $400.0 million
5-year credit facility (the New Facility). The New Facility will be used for working capital
needs, general corporate purposes, including acquisitions and to provide back-up liquidity for the
issuance of commercial paper. The New Facility provides for borrowings in U.S. dollars and several
foreign currencies and provides sublimits for the issuance of letters of credit in an aggregate
amount of up to $35.0 million and a swing-line of up to $20.0 million for short-term borrowings of less
than 15 days. In addition, the size of the New Facility may be expanded upon our request by up to an
additional $175.0 million, thus potentially expanding the New
Facility to $575.0 million, subject to lender
approval.
22
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our Consolidated Financial Statements include the accounts of RPM International Inc. and its
majority-owned subsidiaries. Preparation of our financial statements requires the use of estimates
and assumptions that affect the reported amounts of our assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during the reporting period.
We continually evaluate these estimates, including those related to allowances for doubtful
accounts; inventories; allowances for recoverable taxes; useful lives of property, plant and
equipment; goodwill; environmental and other contingent liabilities; income tax valuation
allowances; pension plans; and the fair value of financial instruments. We base our estimates on
historical experience and other assumptions, which we believe to be reasonable under the
circumstances. These estimates form the basis for making judgments about the carrying value of our
assets and liabilities. Actual results may differ from these estimates under different assumptions
and conditions.
We have identified below the accounting policies that are critical to our financial statements.
Revenue Recognition
Revenues are recognized when realized or realizable, and when earned. In general, this is when
title and risk of loss pass to the customer. Further, revenues are realizable when we have
persuasive evidence of a sales arrangement, the product has been shipped or the services have been
provided to the customer, the sales price is fixed or determinable, and collectibility is
reasonably assured. We reduce our revenues for estimated customer returns and allowances, certain
rebates, sales incentives and promotions in the same period the related sales are recorded.
In general, we account for long-term construction-type contracts under the percentage-of-completion
method, and therefore record contract revenues and related costs as our contracts progress. This
method recognizes the economic results of contract performance on a timelier basis than does the
completed-contract method; however, application of this method requires reasonably dependable
estimates of progress toward completion, as well as other dependable estimates. When reasonably
dependable estimates cannot be made, or if other factors make estimates doubtful, the completed
contract method is applied. Under the completed contract method, billings and costs are
accumulated on the balance sheet as the contract progresses, but no revenue is recognized until the
contract is complete or substantially complete.
Translation of Foreign Currency Financial Statements and Foreign Currency Transactions
Our reporting currency is the U.S. dollar. However, the functional currency of all of our foreign
subsidiaries is their local currency. We translate the amounts included in our consolidated
23
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
statements of income from our foreign subsidiaries into U.S. dollars at weighted average exchange
rates, which we believe are fairly representative of the actual exchange rates on the dates of the
transactions. Our foreign subsidiaries assets and liabilities are translated into U.S. dollars
from local currency at the actual exchange rates as of the end of each reporting date, and we
record the resulting foreign exchange translation adjustments in our consolidated balance sheets as
a component of accumulated other comprehensive income (loss). Translation adjustments will be
included in net earnings in the event of a sale or liquidation of any of our underlying foreign
investments, or in the event that we distribute the accumulated earnings of consolidated foreign
subsidiaries. If we determined that the functional currency of any of our foreign subsidiaries
should be the U.S. dollar, our financial statements would be affected. Should this occur, we would
adjust our reporting to appropriately account for such change(s).
As appropriate, we use permanently invested intercompany loans as a source of capital to reduce
exposure to foreign currency fluctuations at our foreign subsidiaries. These loans are treated as
analogous to equity for accounting purposes. Therefore, foreign exchange gains or losses on these
intercompany loans are recorded in accumulated other comprehensive income (loss). If we were to
determine that the functional currency of any of our subsidiaries should be the U.S. dollar, we
would no longer record foreign exchange gains or losses on such intercompany loans.
Goodwill
We apply the provisions of Statement of Financial Accounting Standards (SFAS) No. 141, Business
Combinations, which addresses the initial recognition and measurement of goodwill and intangible
assets acquired in a business combination. We also apply the provisions of SFAS No. 142, Goodwill
and Other Intangible Assets, which requires that goodwill be tested on an annual basis, or more
frequently as impairment indicators arise. We have elected to perform the required impairment
tests, which involve the use of estimates related to the fair market values of the business
operations with which goodwill is associated, during our fourth fiscal quarter. Calculating the
fair market value of the reporting units requires significant estimates and assumptions by
management. We estimate the fair value of our reporting units by applying third-party market value
indicators to the respective reporting units annual projected earnings before interest, taxes,
depreciation and amortization. In applying this methodology, we rely on a number of factors,
including future business plans, actual operating results and market data. In the event that our
calculations indicate that goodwill is impaired, a fair value estimate of each tangible and
intangible asset would be established. This process would require the application of discounted
cash flows expected to be generated by each asset in addition to independent asset appraisals, as
appropriate. Cash flow estimates are based on our historical experience and our internal business
plans, and appropriate discount rates are applied. Losses, if any, resulting from goodwill
impairment tests would be reflected in operating income in our income statement.
24
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
Other Long-Lived Assets
We assess identifiable non-goodwill intangibles and other long-lived assets for impairment whenever
events or changes in facts and circumstances indicate the possibility that the carrying value may
not be recoverable. Factors considered important, which might trigger an impairment evaluation,
include the following:
|
§ |
|
significant under-performance relative to historical or projected future operating
results; |
|
|
§ |
|
significant changes in the manner of our use of the acquired assets; |
|
|
§ |
|
significant changes in the strategy for our overall business; and |
|
|
§ |
|
significant negative industry or economic trends. |
Additionally, we test all indefinitely-lived intangible assets for impairment annually. Measuring
a potential impairment of non-goodwill intangibles and other long-lived assets requires various
estimates and assumptions, including determining which cash flows are directly related to the asset
being evaluated, the useful life over which those cash flows will occur, their amount and the
assets residual value, if any. If we determine that the carrying value of these assets may not be
recoverable based upon the existence of one or more of the above-described indicators, any
impairment would be measured based on projected net cash flows expected from the asset(s),
including eventual disposition. The determination of impairment loss would be based on the best
information available, including internal discounted cash flows, quoted market prices when
available and independent appraisals as appropriate to determine fair value. Cash flow estimates
would be based on our historical experience and our internal business plans, with appropriate
discount rates applied. We have not incurred any such impairment loss to date.
Deferred Income Taxes
The provision for income taxes is calculated in accordance with Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which requires the recognition of deferred income
taxes using the liability method. Deferred income taxes reflect the net tax effect of temporary
differences between the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes and certain changes in valuation allowances. We
provide valuation allowances against deferred tax assets if, based on available evidence, it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
In determining the adequacy of the valuation allowance management considers cumulative and
anticipated amounts of domestic and international earnings or losses, anticipated amounts of
foreign source income, as well as the anticipated taxable income resulting from the reversal of
future taxable temporary differences.
25
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
We intend to maintain the recorded valuation allowances until sufficient positive evidence (for
example, cumulative positive foreign earnings or additional foreign source income) exists to
support a reversal of the tax valuation allowances.
Contingencies
We are party to claims and lawsuits arising in the normal course of business, including the various
asbestos-related suits discussed in Note F to our Consolidated Financial Statements. Although we
cannot precisely predict the amount of any liability that may ultimately arise with respect to any
of these matters, we record provisions when we consider the liability probable and reasonably
estimable. The provisions are based on historical experience and legal advice, are reviewed
quarterly and are adjusted according to developments. Estimating probable losses requires analysis
of multiple forecasted factors that often depend on judgments about potential actions by third
parties such as regulators, courts and state and federal legislatures. Changes in the amount of
the provisions affect our consolidated statements of income. Due to the inherent uncertainties in
the loss reserve estimation process, we are unable to estimate an additional range of loss in
excess of our accruals. We may incur asbestos costs in addition to any amounts reserved, which may
have a material adverse effect on our financial condition, results of operations or cash flows.
Our environmental-related accruals are similarly established and/or adjusted as information becomes
available upon which costs can be reasonably estimated. Here again, actual costs may vary from
these estimates because of the inherent uncertainties involved, including the identification of new
sites and the development of new information about contamination. Certain sites are still being
investigated and, therefore, we have been unable to fully evaluate the ultimate cost for those
sites. As a result, reserves have not been taken for certain of these sites and costs may
ultimately exceed existing reserves for other sites. We have received indemnities for potential
environmental issues from purchasers of certain of our properties and businesses and from sellers
of some of the properties or businesses we have acquired. We have also purchased insurance to
cover potential environmental liabilities at certain sites. If the indemnifying or insuring party
fails to, or becomes unable to, fulfill its obligations under those agreements or policies, we may
incur environmental costs in addition to any amounts reserved, which may have a material adverse
effect on our financial condition, results of operations or cash flows.
REPORTABLE SEGMENT INFORMATION
We operate a portfolio of businesses that manufacture and sell a variety of specialty paints,
protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by
organizing our businesses into two reportable operating segments industrial and consumer based
on the nature of business activities; products and services; the structure of management; and the
structure of information as presented to the Board of Directors. Within each segment, individual
operating companies or groups of companies generally address common markets,
26
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
utilize similar technologies, and can share manufacturing or distribution capabilities. We
evaluate the profit performance of our segments based on income before income taxes, but also look
to earnings before interest and taxes (EBIT) as a performance evaluation measure because interest
expense is essentially related to corporate acquisitions, as opposed to segment operations.
In addition to the two reportable operating segments, there are certain business activities,
referred to as corporate/other, that do not constitute an operating segment, including corporate
headquarters and related administrative expenses, results of our captive insurance companies, gains
or losses on the sales of certain assets, and other expenses, including asbestos-related charges,
many of which are not directly associated with either operating segment. Related assets consist
primarily of investments, prepaid expenses, deferred pension assets, and headquarters property and
equipment. These corporate and other expenses reconcile reportable operating segment data to total
consolidated net sales, income before income taxes and identifiable assets. Comparative six month
and three month results on this basis are illustrated in the following table.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended |
|
|
Three Months Ended |
|
|
|
November 30, |
|
|
November 30, |
|
(In thousands) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
Net Sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment |
|
$ |
1,073,823 |
|
|
$ |
896,436 |
|
|
$ |
528,569 |
|
|
$ |
465,597 |
|
Consumer Segment |
|
|
579,724 |
|
|
|
590,266 |
|
|
|
280,817 |
|
|
|
273,753 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
1,653,547 |
|
|
$ |
1,486,702 |
|
|
$ |
809,386 |
|
|
$ |
739,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes (a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes (a) |
|
$ |
138,195 |
|
|
$ |
115,468 |
|
|
$ |
64,261 |
|
|
$ |
50,389 |
|
Interest (Expense), Net |
|
|
(109 |
) |
|
|
(535 |
) |
|
|
(34 |
) |
|
|
(504 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT (b) |
|
$ |
138,304 |
|
|
$ |
116,003 |
|
|
$ |
64,295 |
|
|
$ |
50,893 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes (a) |
|
$ |
67,871 |
|
|
$ |
72,493 |
|
|
$ |
26,513 |
|
|
$ |
26,057 |
|
Interest (Expense), Net |
|
|
(1,400 |
) |
|
|
175 |
|
|
|
(820 |
) |
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT (b) |
|
$ |
69,271 |
|
|
$ |
72,318 |
|
|
$ |
27,333 |
|
|
$ |
26,014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expense) Before Income Taxes (a) |
|
$ |
(31,740 |
) |
|
$ |
(82,680 |
) |
|
$ |
(10,733 |
) |
|
$ |
(48,849 |
) |
Interest (Expense), Net |
|
|
(23,009 |
) |
|
|
(18,069 |
) |
|
|
(10,461 |
) |
|
|
(9,393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT (b) |
|
$ |
(8,731 |
) |
|
$ |
(64,611 |
) |
|
$ |
(272 |
) |
|
$ |
(39,456 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes (a) |
|
$ |
174,326 |
|
|
$ |
105,281 |
|
|
$ |
80,041 |
|
|
$ |
27,597 |
|
Interest (Expense), Net |
|
|
(24,518 |
) |
|
|
(18,429 |
) |
|
|
(11,315 |
) |
|
|
(9,854 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
EBIT (b) |
|
$ |
198,844 |
|
|
$ |
123,710 |
|
|
$ |
91,356 |
|
|
$ |
37,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure
defined by Generally Accepted Accounting Principles (GAAP) in the U.S., to EBIT. |
|
(b) |
|
EBIT is defined as earnings 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. |
27
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
RESULTS OF OPERATIONS
Three Months Ended November 30, 2006
Net Sales
On a consolidated basis, net sales of $809.4 million for the second quarter ended November 30, 2006
grew 9.5 percent, or $70.0 million, over net sales of $739.4 million during the same period last
year. Seven small acquisitions contributed 2.0 percent, or $14.4 million, to the growth over last
year, slightly offset by one small divestiture. Organic sales growth of 7.5 percent, or $55.6
million, included 2.2 percent from pricing initiatives and 1.2 percent from net favorable foreign
exchange rates year over year, primarily against the stronger euro and Canadian dollar, offset
slightly by certain weaker Latin American and other currencies.
Industrial segment net sales, which comprised 65.3 percent of the current quarters consolidated
net sales, totaled $528.6 million; growing 13.5 percent from last years $465.6 million. This
segments net sales growth resulted from the combination of five small acquisitions, which
contributed 2.2 percent, plus organic sales growth of 11.3 percent, including 2.9 percent from
pricing and 1.6 percent from net favorable foreign exchange differences. There were significant
organic unit sales improvements virtually throughout this segment, with much of this growth related
to ongoing industrial and commercial maintenance and improvement activities primarily in North
America, but also in Europe, Latin America and other regions of the world, as well as increased new
construction in those sectors. We continue to secure new business and grow market share among our
industrial segment operations.
Consumer segment net sales, which comprised 34.7 percent of the current quarters consolidated net
sales, increased 2.6 percent to $280.8 million from last years $273.8 million. Organic sales
improved 1.0 percent, including 0.9 percent from pricing
and 0.6 percent from net favorable foreign
exchange differences. The weak organic sales performance in this segment is principally the result of
fluctuating order patterns among major retail customers in their efforts to manage their
inventories, as well as declines in existing homes turnover and, to a lesser extent, new housing
starts, which have affected several lines of the business. The balance of the consumer segment
sales increase results from acquisitions of two small product lines,
partly offset by the January 2006
divestiture, for a net contribution of 1.6 percent to sales.
Gross Profit Margin
Consolidated gross profit margin of 40.3 percent of net sales this second quarter was unchanged
from the same period a year ago. While there were continued higher costs of a number of our raw
materials, such as asphalts and various resins, net of higher pricing initiatives, that weighed on
this margin (approximately 120 bps), there were a number of price increases that have been
initiated throughout the operating segments during the past year to help compensate or recover
these higher material costs (approximately 130 bps).
28
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
Industrial segment gross profit margin for the second quarter remained unchanged at 42.0 percent of
net sales from the same period last year. While certain higher raw material costs continued during
the quarter, they were directly offset by higher pricing initiatives.
Productivity gains from 6.8 percent organic unit sales growth offset
increased lower-margin services sales.
Consumer segment gross profit margin for this second quarter slightly declined to 37.1 percent of
net sales from 37.5 percent last year. This slight decline, of approximately 40 bps, results
principally from a change in delivery terms with a major customer.
Selling, General and Administrative Expenses (SG&A)
Consolidated SG&A expense levels improved 230 bps to 30.9 percent of net sales compared with 33.2
percent a year ago. Reflected in the improvement is the leverage from organic sales growth,
including higher pricing, in addition to last years $10.2 million of one-time costs, which
included the finalization of the Dryvit national residential class action settlement, the sale of a
small subsidiary, hurricane-related costs, and certain costs incurred for a European pension plan.
The mix of increased service sales over the prior year, which are characterized by relatively lower
SG&A support requirements, along with a change in delivery terms
with a major customer and spending controls, also contributed to the
improvement.
Industrial segment SG&A improved by 130 bps to 29.8 percent of net sales this second quarter from
31.1 percent a year ago, reflecting principally the leverage of organic sales growth and the
movement in mix.
Consumer segment SG&A as a percent of net sales this second quarter improved by 60 bps to 27.4
percent compared with 28.0 percent a year ago, reflecting effective cost containment and other
savings programs.
Corporate/Other SG&A expenses decreased during this years second quarter to $15.2 million from
$24.5 million during last years second quarter, principally reflecting last years $10.2 million
of one-time costs, as previously discussed. Excluding the one-time costs from the prior year, SG&A
expenses increased by approximately $0.9 million during this years second quarter, mainly as a
result of additional legal and environmental costs, coupled with higher employment-related costs,
including compensation and additional grants made under the October 2004 Omnibus Equity Incentive
Plan.
License fee and joint venture income of approximately $0.5 million for each of the quarters ended
November 30, 2006 and 2005, are reflected as reductions of consolidated SG&A expenses.
29
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
We recorded total net periodic pension and postretirement benefit cost of $5.0 million and $4.9
million for the quarters ended November 30, 2006 and 2005, respectively. This increased pension
expense of $0.1 million was attributable to increased pension service and interest cost
approximating $0.4 million, in combination with additional net actuarial losses incurred of $0.1
million, offset by an improvement in the expected return on plan assets of $0.4 million. We expect
that pension expense will fluctuate on a year-to-year basis depending upon the investment
performance of plan assets, but such changes are not expected to be material as a percentage of
income before income taxes.
Asbestos
Charge (Income)
As described in Note F to the Consolidated Financial Statements, we recorded a pre-tax asbestos
charge during last years second quarter of $15.0 million, and a total of $380.0 million for the
fiscal year ended May 31, 2006 in connection with the completion of a calculation of our liability
for unasserted potential future asbestos-related claims by an independent consulting firm. No
additional charges have been taken or incurred during the current fiscal year. During this years
second fiscal quarter ended November 30, 2006, our Bondex subsidiary reached a settlement with
one of the defendant insurers for $15.0 million, the terms of which are confidential by agreement
of the parties. For additional information, refer to Note F to the Consolidated Financial
Statements.
Net Interest Expense
Net interest expense was $1.5 million higher in the second quarter of fiscal 2007 than 2006.
Interest rates overall averaged 5.5 percent during the quarter, compared with 4.9 percent in the
prior year second quarter, accounting for $1.3 million of the interest cost increase. Higher
average net borrowings of approximately $75.8 million, associated with recent acquisitions,
combined with slight debt increases, added $1.1 million of interest cost, while improved investment
income performance year-over-year provided approximately $0.9 million of additional income.
Income Before Income Taxes (IBT)
Consolidated IBT for this years second quarter improved by $52.4 million, or 190.0 percent, to
$80.0 million from $27.6 million during last years second quarter, with margin comparisons of 9.9
percent of net sales versus 3.7 percent a year ago. Excluding the impact of the prior year $15.0
million pre-tax asbestos charge and the current year $15.0 million asbestos-related settlement
income, IBT for this years second quarter would have improved by 52.7 percent, while current year
margin of 8.0 percent would compare with last years adjusted margin of 5.8 percent.
Industrial segment IBT grew by $13.9 million, or 27.5 percent, to $64.3 million from last years
$50.4 million, primarily from this segments organic unit sales growth. Consumer segment IBT
30
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
improved by 1.8 percent, to $26.5 million from $26.1 million last year, as a result of the
favorable impact of acquisitions, net of a divestiture, in addition to tighter spending controls.
Income Tax Rate
The effective income tax rate was 33.9% for the three months ended November 30, 2006 compared to an
effective income tax rate of 32.9% for the three months ended November 30, 2005.
For the three months ended November 30, 2006 and to a greater extent for the three months ended
November 30, 2005, the effective income tax rate differed from the federal statutory rate due to
decreases in the effective tax rate principally as a result of certain tax credits and by the U.S.
federal tax impact of foreign operations. The decreases in the effective tax rate were partially
offset by valuation allowances associated with losses incurred by certain of our foreign
businesses, valuation allowances related to U.S. federal foreign tax credit carryforwards, state
and local income taxes and other non-deductible business operating expenses.
As of November 30, 2006, we have determined, based on the available evidence, that it is uncertain
whether we will be able to recognize certain deferred tax assets. Therefore, in accordance with
the provisions of Statement of Financial Accounting Standards No. 109, Accounting for Income
Taxes, we intend to maintain the tax valuation allowances recorded at November 30, 2006 for
certain deferred tax assets until sufficient positive evidence (for example, cumulative positive
foreign earnings or additional foreign source income) exists to support the reversal of the tax
valuation allowances.
The valuation allowance relates to U.S. federal foreign tax credit carryforwards, certain foreign
net operating losses and net foreign deferred tax assets recorded in purchase accounting. A
portion of the valuation allowance is associated with deferred tax assets recorded in purchase
accounting. Any reversal of the valuation allowance that was recorded in purchase accounting would
reduce goodwill.
The effective income tax rate for the three months ended November 30, 2006 reflects the impact of a
$15.0 million asbestos liability adjustment related to the cash settlement received by our Bondex
subsidiary. Excluding the asbestos liability adjustment, the effective income tax rate for this
years second quarter would have been adjusted to a pro-forma effective income tax rate of 33.8%.
The effective income tax rate for the three months ended November 30, 2005 reflects the impact of
the $15.0 million asbestos charge recorded during the quarter. Excluding the asbestos charge, the
effective income tax rate for last years second quarter would have been adjusted to a pro-forma
effective income tax rate of 33.5%.
31
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
Net Income
Net income of $52.9 million for the three months ended November 30, 2006 compares to net income of
$18.5 million for the same period last year. Prior year net income reflects the combined impact of
an after-tax asbestos reserve charge of $15.0 million and a number of nonrecurring charges totaling
$10.2 million (as previously discussed), while the current quarter reflects the impact of a cash
settlement received from one of the defendant insurers for $15.0 million, as discussed above.
Excluding the impact of the asbestos-related items, this years second quarter net income would
have reflected an improvement of $14.8 million, or
52.1 percent, to $43.1 million from last years adjusted $28.3
million. Adjusted margin on sales of 5.3 percent this year compares to last years adjusted 3.8
percent, excluding the asbestos-related impact, with this 150 bps margin difference mostly the
result of the combination of higher organic unit sales volume, the
one-time costs a year ago, the impact of pricing initiatives,
and tighter spending controls.
Diluted earnings per common share for this years second quarter improved by 180.0 percent, to
$0.42 from $0.15 a year ago. Excluding the impact of the prior year asbestos charge and current
year asbestos settlement income, diluted earnings per common share for this years second quarter
improved to $0.34, or by 47.8 percent, compared with last years adjusted $0.23.
Six Months Ended November 30, 2006
Net Sales
On a consolidated basis, net sales of $1,653.5 million for the first six months ended November 30,
2006 grew 11.2 percent, or $166.8 million, over net sales of $1,486.7 million during the same
period last year. The August 31, 2005 acquisition of illbruck Sealant Systems (illbruck), plus
seven other smaller acquisitions, slightly offset by one small divestiture, contributed 5.6
percent, or $84.0 million, to the growth over last year. Organic sales growth of 5.6 percent, or
$82.9 million, included 2.4 percent from pricing initiatives and 1.2 percent from net favorable
foreign exchange rates year over year, primarily against the stronger euro and Canadian dollar,
offset slightly by certain weaker Latin American and other currencies.
Industrial segment net sales, which comprised 64.9 percent of the current years consolidated net
sales, totaled $1,073.8 million; growing 19.8 percent from last years $896.4 million. This
segments net sales growth resulted from the combination of the acquisition of illbruck, plus five
other smaller acquisitions, which contributed 8.8 percent, plus organic sales growth of 9.5
percent, including 2.8 percent from pricing. Net favorable
foreign exchange differences provided additional sales growth of 1.5 percent.
Consumer segment net sales, which comprised 35.1 percent of the current years consolidated net
sales, declined 1.8 percent to $579.7 million from last years $590.3 million. Organic sales
declined 2.6 percent, which includes pricing of 1.8 percent and 0.7 percent from net favorable
foreign exchange differences. Contributions to sales from acquisitions of two small product lines
32
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
were offset by the January 2006 divestiture, for a nominal net contribution of 0.8 percent to
sales. The organic decline in this segment is principally the result of fluctuating order patterns
among major retail customers in their efforts to manage their inventories, as well as declines in
existing homes turnover and, to a lesser extent, new housing starts, which have affected several
lines of the business.
Gross Profit Margin
Consolidated
gross profit margin of 40.6 percent of net sales this first half declined from 41.2
percent a year ago. This margin decline of 60 bps is the result of several factors, a main one
being continued higher costs of a number of our raw materials, such as asphalts and various resins,
net of higher pricing initiatives (approximately 20 bps). Numerous price increases have been
initiated throughout the operating segments during the past year to help compensate or recover
these higher material costs, a number of which are beginning to moderate. Several recent
acquisitions, particularly illbruck, also carry inherently lower gross margin structures and
further impacted gross margin this quarter, by approximately 10 bps. In addition, a comparatively
lower-margin mix of sales, including increased services sales which also generate structurally
lower gross margin, further weighed on this margin.
Industrial segment gross profit margin for this years first half declined to 41.8 percent of net
sales from 42.9 percent last year. This 110 bps margin decline in this segment essentially relates
to the illbruck acquisition (approximately 30 bps), higher raw material costs (approximately 40
bps) and the mainly service-driven lower-margin mix of sales
(approximately 20 bps).
Consumer segment gross profit margin for this first half slightly declined to 38.3 percent of net
sales from 38.7 percent last year, principally a function of the organic sales decline in this
segment and the change in delivery terms with a major customer during
this years second quarter.
Selling, General and Administrative Expenses (SG&A)
Consolidated SG&A expense levels decreased 140 bps to 29.5 percent of net sales compared with 30.9
percent a year ago. Reflected in the improvement is the leverage from organic sales growth,
including higher pricing, in addition to last years $10.2 million of one-time costs, as previously
discussed. The mix of increased service sales over the prior year, which are characterized by
relatively lower SG&A support requirements, along with the
change in delivery terms with a major customer during this
years second quarter, and tighter spending controls, also contributed to the improvement.
Industrial segment SG&A improved by 100 bps to 29.0 percent of net sales this first half from 30.0
percent a year ago, reflecting principally the leverage of organic sales growth, the movement in
mix, and the influence of favorable acquisitions.
33
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
Consumer segment SG&A as a percent of net sales this first half remained relatively steady at 26.3
percent compared with 26.5 percent a year ago, reflecting the
change in delivery terms with a major customer, effective cost containment and other
savings programs.
Corporate/Other SG&A expenses decreased during this years first half to $23.7 million from $34.6
million during last years first half, principally reflecting primarily last years $10.2 million
of one-time costs, as previously discussed. Excluding the one-time costs from the prior year, SG&A
expenses increased by approximately $0.7 million during this years first half, mainly as a result
of additional legal and environmental costs, coupled with higher employment-related costs,
including compensation and additional grants made under the Omnibus Plan.
License fee and joint venture income of approximately $1.2 million and $0.9 million for the
quarters ended November 30, 2006 and 2005, respectively, are reflected as reductions of
consolidated SG&A expenses.
We recorded total net periodic pension and postretirement benefit cost of $10.0 million and $9.8
million for the six months ended November 30, 2006 and 2005, respectively. This increased pension
expense of $0.2 million was attributable to increased pension service and interest cost
approximating $0.9 million, in combination with additional net actuarial losses incurred of $0.2
million, offset by an improvement in the expected return on plan assets of $0.9 million. We expect
that pension expense will fluctuate on a year-to-year basis depending upon the investment
performance of plan assets, but such changes are not expected to be material as a percentage of
income before income taxes.
Asbestos Charge (Income)
As described in Note F to the Consolidated Financial Statements, we recorded a pre-tax asbestos
charge during last years first half of $30.0 million, and a total of $380.0 million for the fiscal
year ended May 31, 2006 in connection with the completion of a calculation of our liability for
unasserted potential future asbestos-related claims by an independent consulting firm. There was
no related charge taken or incurred during this years first six months ended November 30, 2006;
however, our Bondex subsidiary reached a cash settlement of $15.0 million during the recently
completed quarter, the terms of which are confidential by agreement of the parties, with one of the
defendant insurers. For additional information, refer to Note F to the Consolidated Financial
Statements.
Net Interest Expense
Net interest expense was $6.1 million higher in the first half of fiscal 2007 than 2006. Included
in this increase is $1.1 million paid in association with the early retirement of our Private
Placement Senior Notes during the quarter ended August 31, 2006 (refer to Liquidity and Capital
Resources Financing Activities, below). Interest rates overall averaged 5.5 percent during the
first half, compared with 4.9 percent in the prior year first half, accounting for $2.7 million of
the
34
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
interest cost increase. Higher average net borrowings of approximately $132.9 million, associated
with recent acquisitions, added $3.8 million of interest cost, while debt reductions and improved
investment income performance year-over-year, provided a combined $1.5 million of additional
income.
Income Before Income Taxes (IBT)
Consolidated IBT for this years first half improved by $69.0 million, or 65.6 percent, to $174.3
million from $105.3 million during last years first half, with margin comparisons of 10.5 percent
of net sales versus 7.1 percent a year ago. Excluding the impact of the prior year $30.0 million
pre-tax asbestos charge and the current year $15.0 million pre-tax asbestos-related settlement
income, IBT for this years first half would have improved by 17.8 percent, while current year
margin of 9.6 percent would compare with last years adjusted margin of 9.1 percent.
Industrial segment IBT grew by $22.7 million, or 19.7 percent, to $138.2 million from last years
$115.5 million, primarily from this segments organic unit sales growth. Consumer segment IBT
declined by 6.4 percent, to $67.9 million from
$72.5 million last year, mainly as a result of organic unit
sales decline, partly offset by spending controls.
Income Tax Rate
The effective income tax rate was 34.4% for the six months ended November 30, 2006 compared to an
effective income tax rate of 34.9% for the six months ended November 30, 2005.
For the six months ended November 30, 2006 and, to a lesser extent for the six months ended
November 30, 2005, the effective tax rate differed from the federal statutory rate due to decreases
in the effective tax rate principally as a result of certain tax credits and by the U.S. federal
tax impact of foreign operations. Furthermore, during the six months ended November 30, 2005, a
decrease in the effective tax rate resulted from a one-time state income tax benefit relating to
changes in Ohio tax laws, including the effect of lower tax rates, enacted on June 30, 2005. The
decreases in the effective tax rate were partially offset by valuation allowances associated with
losses incurred by certain of our foreign businesses, valuation allowances related to U.S. federal
foreign tax credit carryforwards, state and local income taxes and other non-deductible business
operating expenses.
As described in this Managements Discussion and Analysis of Financial Condition and Results of
Operations for the three month period ended November 30, 2006, there is uncertainty as to whether
we will be able to recognize certain deferred tax assets. Refer to the section of this filing
mentioned above for further information.
The effective income tax rate for the six months ended November 30, 2006 reflects the impact of a
$15.0 million asbestos liability adjustment related to the cash settlement received by our
35
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
Bondex subsidiary. Excluding the asbestos liability adjustment, the effective income tax rate for
this years first six months would have been adjusted to a pro-forma effective income tax rate of
34.5%. The effective income tax rate for the six months ended November 30, 2005 reflects the
impact of the $30.0 million asbestos charge. Excluding the asbestos charge, the effective income
tax rate for the first six months of last year would have been adjusted to a pro-forma effective
income tax rate of 35.2%.
Net Income
Net income of $114.3 million for the six months ended November 30, 2006 compares to net income of
$68.5 million for the same period last year. Prior year net income reflects the impact of an
after-tax asbestos reserve charge of $30.0 million, while the current year reflects the impact of a
cash settlement received from one of the defendant insurers for $15.0 million, as discussed
previously. Excluding the impact of the prior year asbestos-related charge and the current year
asbestos-related income, this years first half net income would have reflected an improvement of
$16.8 million, or 19.1 percent, to $104.4 million from last years adjusted $87.6 million. Margin on sales of 6.3
percent this year compares to last years adjusted
5.9 percent, excluding the asbestos items, with
this 40 bps margin difference mostly the result of the combination of higher organic unit sales
volume, the one-time costs a year ago, the movement in sales mix, and the influence of several favorable acquisitions.
Diluted earnings per common share for this years first half improved by 63.6 percent, to $0.90
from $0.55 a year ago. Excluding the asbestos items, diluted earnings
per common share for this years first half improved by
18.6 percent, to $0.83, compared with last years
adjusted $0.70.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows From:
Operating Activities
Operating activities generated positive cash flow of $91.4 million during the first half of fiscal
2007 compared with $95.6 million generated during the same six month period of fiscal 2006. Six
month net income of $114.3 million represents a $45.8 million increase over the first six months of
fiscal 2006 net income of $68.5 million. Adjusted net income (excluding $19.1 after-tax asbestos
charges made through November of fiscal 2006) would have been $87.6 million in November fiscal 2006
resulting in a change of $26.7 million year-over-year, or an increase from 2006 of 30.4 percent.
Cash flow from operations during the first six months was positively impacted by additional
depreciation and amortization of $2.8 million versus the prior period.
Changes in operating working capital required an additional $25.6 million use of cash
period-over-period. More specifically, trade accounts receivable provided $33.3 million in cash
flow. Inventories required $24.5 million in additional operating cash period-over-period as a
result of
36
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
increased days outstanding in inventory since May 31, 2006, primarily related to certain strategic
inventory builds to better accommodate arrangements with overseas production partners and in
consideration of certain regulatory changes ahead. Accounts payable required $11.1 million
additional cash period-over-period, mainly as a result of the higher inventory levels and the
timing of payments. Prepaid and other current assets were a use of cash of approximately $19.2
million primarily related to an increase in insurance receivables. Accrued compensation and
benefits were a cash usage of $11.9 million in cash period-over-period, a large portion of which
resulted from additional compensation expense tied to the improved fiscal 2006 operating
performance. All other remaining balance sheet changes related to changes in working capital had a
net favorable impact of $7.8 million.
Changes in items not affecting cash and other was a use of cash of $7.4 million.
Changes in long-term and short-term asbestos related reserves, net of taxes, of $19.3 million in
the first six months of fiscal 2007 versus $0.4 million in the comparable period of fiscal 2006
reflects the $19.1 million after-tax asbestos charge taken a year ago, as the related payments were
approximately the same each period.
Cash provided from operations remains our primary source of financing internal growth, with limited
use of short-term debt.
Investing Activities
Capital expenditures, other than for ordinary repairs and replacements, are made to accommodate our
continued growth through improved production and distribution efficiencies and capacity, and to
enhance administration. Capital expenditures during the first six months of $22.2 million compare
with depreciation of $28.4 million. While we are not a capital intensive business and capital
expenditures generally do not exceed depreciation in a given year, capital spending is expected to
slightly outpace our depreciation levels for the next several years as additional capacity is
brought on-line to support our continued growth. With this additional minor plant expansion, we
believe there will be adequate production capacity to meet our needs for the next several years at
normal growth rates.
During this years first six months, we invested a total of $79.6 million for acquisitions of
businesses.
Our captive insurance companies invest in marketable securities in the ordinary course of
conducting their operations, and this activity will continue. Differences in these activities
between years are attributable to the timing and performance of their investments.
37
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
Financing Activities
On
December 29, 2006, we refinanced our $330.0 million
revolving credit facility with a $400.0 million
5-year credit facility (the New Facility). The New Facility will be used for working capital
needs, general corporate purposes, including acquisitions and to provide back-up liquidity for the
issuance of commercial paper. The New Facility provides for borrowings in U.S. dollars and several
foreign currencies and provides sublimits for the issuance of letters of credit in an aggregate
amount of up to $35.0 million and a swing-line of up to $20.0 million for short-term borrowings of less
than 15 days. In addition, the size of the New Facility may be expanded upon our request by up to an
additional $175.0 million, thus potentially expanding the New
Facility to $575.0 million, subject to lender
approval.
On July 18, 2006, we prepaid our 6.61% Senior Notes, Series B, due November 15, 2006, and our 7.30%
Senior Notes, Series C, due November 15, 2008 (collectively, the Notes). We paid all amounts due
pursuant to the terms of the Purchase Agreement and did not incur any material early termination
penalties in connection with our termination of the Notes.
In July 2006, we amended both our accounts receivable securitization and revolving credit facility
agreements to redefine EBITDA, effective May 31, 2006.
On October 19, 2005, we issued and sold $150 million aggregated principal amount of 6.7% Senior
Unsecured Notes due 2015 (6.7% Senior Unsecured Notes) of our indirect wholly owned subsidiary,
RPM United Kingdom G.P. RPM International Inc. will fully and unconditionally guarantee the
payment obligations under the 6.7% Senior Unsecured Notes. The net proceeds of the offering of the
6.7% Senior Unsecured Notes were used by RPM United Kingdom G.P. for refinancing $138 million of
revolving credit facility borrowings associated with the August 31, 2005 acquisition of illbruck
and for other general corporate purposes. Concurrent with the issuance of the 6.7% Senior Unsecured
Notes, RPM United Kingdom G.P. entered into a cross currency swap, which fixed the interest and
principal payments in euros for the life of the 6.7% Senior Unsecured Notes and results in an effective
euro fixed rate borrowing of 5.31%. The 6.7% Senior Unsecured Notes were offered to qualified
institutional buyers under Rule 144A of the Securities Act of 1933. The Notes have not been and
will not be registered under the Securities Act of 1933 or any state securities laws.
We are exposed to market risk associated with interest rates. We do not use financial derivative
instruments for trading purposes, nor do we engage in foreign currency, commodity or interest rate
speculation. In addition to the hedge risk associated with our 6.7% Senior Unsecured Notes
discussed above, our only other hedged risks are associated with certain fixed debt whereby we have
a $200 million notional amount interest rate swap contract designated as a fair value hedge to pay
floating rates of interest based on six-month LIBOR that matures in fiscal 2010. Because critical
terms of the debt and interest rate swap match, the hedge is considered perfectly effective against
changes in fair value of debt, and therefore, there is no need to periodically reassess the
effectiveness during the term of the hedge.
38
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
Our
available liquidity beyond our cash balance at November 30, 2006
stood at $296.3 million (subsequent to quarter end, we refinanced our $330.0 million revolving credit facility with a new 5-year, $400.0 million revolving credit facility,
thus increasing our overall liquidity). Our
debt-to-capital ratio was 48.1% at November 30, 2006 compared with 48.6% at May 31, 2006. Had we
been able to reduce our total outstanding debt by all of our cash and short-term investments
available as of November 30, 2006 and May 31, 2006, our adjusted net (of cash) debt-to-capital
ratio would have been 44.3% and 45.3%, respectively.
The following table summarizes our financial obligations and their expected maturities at November
30, 2006 and the effect such obligations are expected to have on our liquidity and cash flow in the
periods indicated.
Contractual Obligations
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
Contractual |
|
|
Payments Due In |
|
|
|
Payment Stream |
|
|
2007 |
|
|
2008-09 |
|
|
2010-11 |
|
|
After 2011 |
|
Long-term debt obligations |
|
$ |
949,756 |
|
|
$ |
4,856 |
|
|
$ |
591,490 |
|
|
$ |
654 |
|
|
$ |
352,756 |
|
Operating lease obligations |
|
|
96,570 |
|
|
|
27,893 |
|
|
|
34,792 |
|
|
|
15,105 |
|
|
|
18,780 |
|
Other long-term liabilities (1) |
|
|
381,061 |
|
|
|
61,924 |
|
|
|
86,186 |
|
|
|
79,546 |
|
|
|
153,405 |
|
|
Total |
|
$ |
1,427,387 |
|
|
$ |
94,673 |
|
|
$ |
712,468 |
|
|
$ |
95,305 |
|
|
$ |
524,941 |
|
|
|
|
|
(1) |
|
These amounts represent our estimated cash contributions to be made in the
periods indicated for our pension and postretirement plans, assuming no actuarial gains or losses,
assumption changes or plan changes occur in any period. The projection results assume $11.9 million
will be contributed to the U.S. plan in fiscal 2007; all other plans and years assume the required
minimum contribution will be contributed. Also included are expected interest payments on long-term
debt. |
We maintain excellent relations with our banks and other financial institutions to provide
continual access to financing for future growth opportunities.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financings, other than the minimum operating lease
commitments. We have no subsidiaries that are not included in our financial statements, nor do we
have any interests in or relationships with any special purpose entities that are not reflected in
our financial statements.
39
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
OTHER MATTERS
Environmental Matters
Environmental obligations continue to be appropriately addressed and, based upon the latest
available information, it is not anticipated that the outcome of such matters will materially
affect the Companys results of operations or financial condition. Our critical accounting
policies and estimates set forth above describe our method of establishing and adjusting
environmental-related accruals and should be read in conjunction with this disclosure. (For
additional information, refer to Part II, Item 1. Legal Proceedings.)
Income Tax Matters
On December 20, 2006 the Tax Relief and Health Care Act of 2006 (the Act) was signed into law.
Included in the Act is a provision retroactively reinstating the research credit. Additionally,
the Act creates an alternative simplified credit method of computing the research credit. In
general, a taxpayer may elect the alternative simplified credit method which computes the research
credit as a percentage of current year qualified research expenses in excess of a base amount.
The effective date of the retroactive reinstatement is for qualifying research amounts paid or
incurred after December 31, 2005. In addition, transitional rules apply for taxpayers with tax
year ends that overlap the 2006 and 2007 calendar year ends. Accordingly, the transitional rules
will be applicable for our fiscal year ending May 31, 2007.
Under Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes (SFAS
109), changes in tax laws are recognized in the period in which the new legislation is enacted. An
allocation of the tax effects to an earlier or later interim period is prohibited. Consistent with
SFAS 109, the potential tax effects of the retroactive reinstatement of the research credit are not
included in our results for the period ended November 30, 2006. Further, on a prospective basis,
we have estimated that potential tax effects of the retroactive reinstatement of the research
credit will not have a material impact on our results for the fiscal year ending May 31, 2007.
40
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
FORWARD-LOOKING STATEMENTS
The foregoing discussion includes 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 managements 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 Companys products; (d) legal, environmental and
litigation risks inherent in the Companys construction and chemicals businesses and risks related
to the adequacy of the Companys insurance coverage for such matters; (e) the effect of changes in
interest rates; (f) the effect of fluctuations in currency exchange rates upon the Companys
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 Companys ongoing
acquisition and divestiture activities; (i) risks related to the adequacy of its contingent
liability reserves, including for asbestos-related claims; and (j) other risks detailed in the
Companys filings with the Securities and Exchange Commission, including the risk factors set forth
in the Companys Annual Report on Form 10-K for the year ended May 31, 2006, as the same may be
updated from time to time. The Company 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 filing date of this document.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and foreign exchange rates since we
fund our operations through long- and short-term borrowings and denominate our business
transactions in a variety of foreign currencies. There were no material changes in our exposure to
market risk since May 31, 2006.
41
RPM INTERNATIONAL INC. AND SUBSIDIARIES
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE AND SIX MONTH PERIODS ENDED NOVEMBER 30, 2006
ITEM 4. CONTROLS AND PROCEDURES
(a) |
|
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. |
The Companys Chief Executive Officer and Chief Financial Officer, after evaluating the
effectiveness of the Companys disclosure controls and procedures (as defined in Exchange Act Rule
13a-15(e)) as of November 30, 2006 (the Evaluation Date), have concluded that as of the
Evaluation Date, the Companys disclosure controls and procedures were effective in ensuring that
information required to be disclosed by the Company in the reports it files or submits under the
Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified
in the Commissions rules and forms, and (2) is accumulated and communicated to the Companys
management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate
to allow for timely decisions regarding required disclosure.
(b) |
|
CHANGES IN INTERNAL CONTROL. |
There were no changes in the Companys internal control over financial reporting that occurred
during the fiscal quarter ended November 30, 2006 that have materially affected, or are reasonably
likely to materially affect, the Companys internal control over financial reporting.
42
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
EIFS Litigation
As of November 30, 2006, Dryvit was a defendant or co-defendant in various single family
residential exterior insulated finish systems (EIFS) cases, the majority of which are pending in
the southeastern region of the country. Dryvit is also defending EIFS lawsuits involving commercial
structures, townhouses and condominiums. The vast majority of Dryvits EIFS lawsuits seek monetary
relief for water intrusion related property damages, although some claims in certain lawsuits
allege personal injuries from exposure to mold.
Dryvit is a defendant in a class action lawsuit filed on November 14, 2000 in Jefferson County,
Tennessee styled Bobby R. Posey, et al. v. Dryvit Systems, Inc. (formerly styled William J.
Humphrey, et al. v. Dryvit Systems, Inc.) (Case No. 17,715-IV) (Posey). A preliminary approval
order was entered on April 8, 2002 in the Posey case for a proposed nationwide class action
settlement which was subsequently approved after several appeals. The deadline for filing claims in
the Posey class action expired on June 5, 2004 and claims have been processed during the pendency
of the various appeals. On September 15, 2005, a final, non-appealable order was entered finally
approving the nationwide class. As of November 30, 2006, approximately 7,198 total claims had been
filed as of the June 5, 2004 claim filing deadline. Of these 7,198 claims, approximately 4,410
claims have been rejected or closed for various reasons under the terms of the settlement.
Approximately 1,222 of the remaining claims are at various stages of review and processing under
the terms of the settlement and it is possible that some of these claims will be rejected or closed
without payment. As of November 30, 2006, a total of 1,566 claims have been paid for a total of
approximately $13.3 million. Additional payments have and will continue to be made under the terms
of the settlement agreement which include inspection costs, third party warranties and class
counsel attorneys fees.
Third party excess insurers have historically paid varying shares of Dryvits defense and
settlement costs in the individual commercial and residential EIFS lawsuits under various
cost-sharing agreements. Dryvit has assumed a greater share of the costs associated with its EIFS
litigation as it seeks funding commitments from the Companys third party excess insurers and will
likely continue to do so pending the outcome of coverage litigation involving these same third
party insurers. One of the Companys excess insurers filed suit in the Northern District of Ohio
(Case No. 1:05CV1903) seeking a declaration with respect to its rights and obligations for EIFS
related claims under its applicable policies. The court granted Dryvits motion to stay the
federal filing based on a more complete state court complaint filed on November 23, 2005 against
these same insurers and the Companys insurance broker in Cuyahoga County Ohio Common Pleas Court
(Case No. CV05 578004). This state court case has been set for
trial for December 2007. The
trial date could change as discovery in the case progresses. For additional information on our
Dryvit EIFS litigation, including a discussion of the existing reserves, see Note F to the
Consolidated Financial Statements.
43
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Asbestos Litigation
Certain of the Companys wholly owned subsidiaries, principally Bondex International, Inc.
(collectively referred to as the subsidiaries), are defendants in various asbestos-related bodily
injury lawsuits filed in various state courts with the vast majority of current claims pending in
five states Illinois, Ohio, Mississippi, Texas and Florida. These cases generally seek
unspecified damages for asbestos-related diseases based on alleged exposures to asbestos-containing
products previously manufactured by the Companys subsidiaries.
The Companys subsidiaries vigorously defend these asbestos-related lawsuits and in many cases, the
plaintiffs are unable to demonstrate that any injuries they have incurred, in fact, resulted from
exposure to one of our subsidiaries products. In such cases, the subsidiaries are generally
dismissed without payment. With respect to those cases where compensable disease, exposure and
causation are established with respect to one of our subsidiaries products, the subsidiaries
generally settle for amounts that reflect the confirmed disease, the particular jurisdiction,
applicable law, the number and solvency of other parties in the case and various other factors
which may influence the settlement value each party assigns to a particular case at the time.
As of November 30, 2006, the Companys subsidiaries had a total of 11,021 active asbestos cases
compared to a total of 9,501 cases as of November 30, 2005. For the quarter ended November 30,
2006, the Companys subsidiaries secured dismissals and/or
settlements of 324 claims and made total
payments of $13.8 million, which included defense costs paid
during the current quarter of $6.6
million. For the comparable period ended November 30, 2005, dismissals and/or settlements covered
234 claims and total payments were $13.4 million, which included defense costs paid during the
quarter of $5.2 million. In some jurisdictions, cases may involve more than one individual
claimant. As a result, settlement or dismissal statistics on a per case basis are not necessarily
reflective of the payment amounts on a per claimant basis and the amounts and rates can vary widely
depending on a variety of factors including the mix of malignancy and non-malignancy claims and the
amount of defense costs incurred during the period.
For additional information on our asbestos litigation, including a discussion of our asbestos
reserve, see Note F of the Notes to Consolidated Financial Statements.
Environmental Proceedings
As previously reported, several of the Companys subsidiaries are, from time to time, identified as
a potentially responsible party under the federal Comprehensive Environmental Response,
Compensation and Liability Act and similar state environmental statutes. In some cases, the
Companys subsidiaries are participating in the cost of certain clean-up efforts or other remedial
actions. The Companys share of such costs, however, has not been material and management believes
that these environmental proceedings will not have a material adverse effect on the Companys
consolidated financial condition or results of operations. See Item 2 -
44
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
Managements Discussion and Analysis of Financial Condition and Results of Operations Other
Matters, in this Quarterly Report on Form 10-Q.
ITEM 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS
(c)
The following table presents information about repurchases of RPM International Inc. common stock
made by us during the second quarter of fiscal 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
Maximum |
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
Number of |
|
|
|
|
|
|
|
|
|
|
as Part of |
|
Shares that May |
|
|
|
|
|
|
|
|
|
|
Publicly |
|
Yet be Purchased |
|
|
Total Number of |
|
Average Price |
|
Announced Plans |
|
Under the Plans |
Period |
|
Shares Purchased(1) |
|
Paid per Share |
|
or Programs |
|
or Programs |
September 1, 2006
through September
30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1, 2006
through October 31,
2006 |
|
|
3,996 |
|
|
$ |
19.15 |
|
|
|
|
|
|
|
|
|
November 1, 2006
through November
30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
3,996 |
|
|
$ |
19.15 |
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The number of shares reported as repurchased are attributable to shares that were disposed of
back to us by certain directors in satisfaction of tax obligations related to the vesting of
restricted stock which was granted to the directors under the RPM International Inc. 2003
Restricted Stock Plan for Directors. |
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Stockholders of RPM International Inc. was held on October 5, 2006. The
following matters were voted on at the meeting.
45
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
1. |
|
Election of Bruce A. Carbonari, James A. Karman, Donald K. Miller and Joseph P. Viviano as
Directors of the Company. The nominees were elected as Directors with the following votes: |
|
|
|
|
|
Bruce A. Carbonari |
|
|
|
|
For |
|
|
101,491,322 |
|
Withheld |
|
|
2,844,637 |
|
Broker non-votes |
|
|
0 |
|
James A. Karman |
|
|
|
|
For |
|
|
100,118,166 |
|
Withheld |
|
|
4,217,793 |
|
Broker non-votes |
|
|
0 |
|
Donald K. Miller |
|
|
|
|
For |
|
|
96,940,220 |
|
Withheld |
|
|
7,395,739 |
|
Broker non-votes |
|
|
0 |
|
Joseph P. Viviano |
|
|
|
|
For |
|
|
100,659,753 |
|
Withheld |
|
|
3,676,206 |
|
Broker non-votes |
|
|
0 |
|
|
|
In addition to the Directors above, the following Directors terms of office continued after
the Annual Meeting of Stockholders: Edward B. Brandon, William A. Papenbrock, Frank C.
Sullivan, Thomas C. Sullivan, Dr. Max D. Amstutz, Charles A. Ratner, William B. Summers, Jr.
and Dr. Jerry Sue Thornton. |
46
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
2. |
|
The proposal to approve and adopt the RPM International Inc. 2007 Restricted Stock Plan was
approved with the following votes: |
|
|
|
|
|
For |
|
|
71,178,905 |
|
Against |
|
|
11,905,294 |
|
Abstain |
|
|
609,126 |
|
Broker Non-Votes |
|
|
20,642,633 |
|
3. |
|
The proposal to approve and adopt the RPM International Inc. 2007 Incentive Compensation Plan
was approved with the following votes: |
|
|
|
|
|
For |
|
|
96,032,779 |
|
Against |
|
|
7,554,013 |
|
Abstain |
|
|
749,164 |
|
Broker Non-Votes |
|
|
0 |
|
For information on how the votes for the above matters were tabulated, see the Companys definitive
Proxy Statement used in connection with the Annual Meeting of Stockholders on October 5, 2006.
ITEM 6. EXHIBITS
|
|
|
Exhibit |
|
|
No. |
|
Exhibit Description |
|
*10.1
|
|
RPM International Inc. 2007 Restricted Stock Plan, which is incorporated
herein by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K, as filed with the Commission on October 12, 2006 (File No.
001-14187). |
|
|
|
*10.2
|
|
RPM International Inc. 2007 Incentive Compensation Plan, which is
incorporated herein by reference to Exhibit 10.2 to the Companys Current
Report on Form 8-K, as filed with the Commission on October 12, 2006
(File No. 001-14187). |
|
|
|
*10.3
|
|
Form of Amended and Restated Employment Agreement, dated as of October 5,
2006, by and between the Company and each of Ronald A. Rice, Executive
Vice President, Chief Operating Officer and Assistant Secretary; P. Kelly
Tompkins, Executive Vice President, Chief Administrative Officer and
Secretary; and Paul G. Hoogenboom, Senior Vice President Manufacturing
and Operations and Chief Information Officer, which is incorporated
herein by reference to Exhibit 10.3 to the Companys Current Report on
Form 8-K, as filed with the Commission on October 12, 2006 (File No.
001-14187). |
|
|
|
11.1
|
|
Computation of Net Income per share of Common Stock. (x) |
47
RPM INTERNATIONAL INC. AND SUBSIDIARIES
PART II OTHER INFORMATION
|
|
|
Exhibit |
|
|
No. |
|
Exhibit Description |
|
23.2
|
|
Consent of Independent Public Accounting Firm. (x) |
|
|
|
31.1
|
|
Rule 13a-14(a) Certification of the Companys Chief Executive Officer. (x) |
|
|
|
31.2
|
|
Rule 13a-14(a) Certification of the Companys Chief Financial Officer. (x) |
|
|
|
32.1
|
|
Section 1350 Certification of the Companys Chief Executive Officer. (x) |
|
|
|
32.2
|
|
Section 1350 Certification of the Companys Chief Financial Officer. (x) |
|
|
|
(x) |
|
Filed herewith. |
|
* |
|
Management contract or compensatory plan or arrangement. |
48
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 thereunto duly authorized.
|
|
|
|
|
|
|
|
|
RPM International Inc. |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ Frank C. Sullivan |
|
|
|
|
|
|
|
|
|
|
|
Frank C. Sullivan |
|
|
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
|
|
|
|
By
|
|
/s/ Robert L. Matejka |
|
|
|
|
|
|
|
|
|
|
|
Robert L. Matejka |
|
|
|
|
Vice President, Chief Financial Officer and Controller |
|
|
Dated: January 9, 2007