RPM International Inc. (RPM) Q1 2012 Earnings Report, Transcript and Summary

Welcome to RPM International Conference Call for the Fiscal 2012 First Quarter. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.com. Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website. [Operator Instructions] At this time, I would like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Thank you, Shakwana. Good morning, and welcome to the RPM International Inc. investor call for the first quarter of our 2012 fiscal year. On the call with me this morning is Bob Matejka, RPM's Senior Vice President and Chief Financial Officer; and Barry Slifstein, our Vice President and Controller. We are pleased with the results of our first quarter ended August 31, 2011. RPM's entrepreneurial structure and strategy, which allows for quick decisions and adjustments to market conditions and opportunities, combined with a deliberate balance between businesses serving consumer and industrial markets, were both critical elements to our ability to generate double-digit sales and earnings growth despite the choppy economic conditions in our core markets and another quarter of significant raw material cost challenges. Our high-performance industrial coating product lines generated strong growth, given the continuing rebound in Industrial maintenance and capital spending, as well as their broad global market presence. It is clear to us that our Building Solutions Group product lines are gaining market share in a number of areas, as its modest sales and earnings growth in the quarter is much stronger than the underlying fundamentals of the new home and commercial construction markets, both of which remain depressed. New product introductions and certain market share gains led to an uptick in our Consumer segment business growth in the quarter as well. I'd now like to turn the call over to Bob Matejka to provide more details on our first quarter results, after which we'll provide comments on our outlook for the balance of the year and take your questions. Bob?

Thanks, Frank, and good morning, everyone. Thanks for joining us on today's call. I'll review the results of operations and cash flow activities for our fiscal 2012 first quarter, touch upon a few August 31 balance sheet measures, and then I'll turn it back to Frank for closing comments before we take your questions. Starting with fiscal 2012 first quarter results. Consolidated net sales increased 10.2% year-over-year to $985.9 million, driven by price increases of 2.8%, volume improvement of 2.3%, acquisition growth of 1% and favorable foreign exchange rates of 4.1%. The Industrial segment net sales of $667 million, which account for approximately 68% of sales, increased 10.7% over last year with favorable price of 2.6%, volume improvement of 1.5%, acquisition growth of 1.6% and favorable foreign exchange movements of 5%. At the Consumer segment, net sales of $318.9 million increased by over 9% from the prior year, with 4% attributable to unit volume growth, 3.2% from positive price and 2% as a result of favorable foreign exchange rates. Our consolidated gross profit increased to $409.6 million from $375.4 million last year, principally due to volume and price increases. As a percent of sales, gross profit declined by 50 basis points to 41.5% due to continued increases in raw material costs. Consolidated SG&A increased 7.8% to $273.1 million due to variable cost increases associated with our higher sales volumes. As a percent of net sales, SG&A decreased to 27.7% of sales from 28.4% last year, a reduction of 70 basis points, principally due to better overall leverage from the higher net sales. Earnings before interest and taxes increased 11.9% to $136.5 million this year from $122 million last year due to the higher sales volumes, realized price increases and improved SG&A leverage, the combination of which were partially offset by higher raw material costs. As a percent of sales, EBIT improved from 13.6% last year to 13.8% this year. At the Industrial segment, EBIT increased 10.9% to $92.5 million from $83.3 million a year ago driven by 10.7% increase in sales, combined with stable SG&A leverage, which partially offset higher raw material costs. As a percent of net sales, Industrial EBIT improved slightly from 13.8% last year to 13.9% this year. Consumer segment EBIT increased 5% to $51.5 million from $49 million last year. As a percent of sales, Consumer segment EBIT decreased to 16.1% from 16.8% last year as a result of higher raw material costs and an inability to completely offset those higher costs with better SG&A leverage. The corporate and other EBIT costs decreased $7.5 million -- they decreased to $7.5 million for the year from $10.4 million in fiscal 2011, principally due to an insurance reimbursement, which was partially offset by higher compensation and benefit expenses and an increase in acquisition expenses year-over-year. Our interest expense increased from $16 million last year to $17.8 million this year, primarily due to the issuance of an additional $150 million of debt in May of 2011, combined with a higher average interest rate year-over-year. Investment income decreased $2 million year-over-year as a result of net realized losses taken on the sales of investments this year compared to gains recognized for the same period a year ago. The income tax rate of 29.8% for the quarter compared to last year's rate of 30.5% is principally due to changes in jurisdictional mix of actual and forecasted earnings, the impact of certain foreign operations on our U.S. taxes and adjustments to certain tax valuation allowances. Further, the 29.8% rate for the quarter reflects onetime benefits due to net changes in tax reserves and a reduction in the U.K.'s tax rates. For the last 9 months of fiscal 2012, we expect the tax rate to approximate 31%. The bottom line, net income attributable to RPM shareholders increased 11.3% to $76.8 million from -- or $0.59 a share compared to last year's $69 million and $0.53 a share. Looking at balance sheet and cash flows, we find CapEx of $4.9 million for 2012 fiscal year compared to $3.3 million for fiscal 2011. Depreciation and amortization expense decreased slightly to $18.1 million compared to $18.2 million a year ago. Cash from operating activities for the quarter of $7.5 million compared to $41.1 million last year. Increases in working capital attributable to the higher material costs and significantly higher sales growth were the main factors attributable to this decrease. Our accounts receivable DSO was 62.6 days compared to 59.7 last year, and days of inventory was 77.4 compared to 73 days a year ago. Finally, a few comments on our capital structure and overall liquidity. As of August 31, 2011, total debt was $1.1 billion compared to $935.8 million last August. On May 24, 2011, we sold $150 million aggregate principal amount of 6.125% notes, which were a follow-on issuance of our $300 million aggregate principal amount of 6.125% notes due in 2019 and originally issued on October 9, 2009. The offering price was at a premium and had an effective yield to maturity on this $150 million follow-on of 4.934%. The proceeds will continue to be used for general corporate purposes. Our net debt-to-cap ratio was 36% at August 31, 2011, compared to 38.6% a year ago, and our long-term liquidity at quarter's end, August 31, was $834 million with $373 million in cash and $461 million available through our bank revolver and receivable securitization facilities. With that, I'll turn the call back to Frank Sullivan.

Thanks, Bob. Economic conditions remain volatile and uncertain, especially in parts of Europe. Furthermore, while foreign exchange translation was a positive contributor to our first quarter results, the rise of the U.S. dollar against other currencies will likely make foreign exchange translation a negative to our results for the balance of the 2012 fiscal year. On the positive side, we're seeing early signs of a slowdown in what has been a rapid and dramatic increase in raw material costs over the last few years. Additionally, our work over the last 18 months to recharge our acquisition growth is starting to pay off. With the announcement this morning of the Grupo PV fireproofing business acquisition in Europe, in the first 4 months of our 2012 fiscal year, we have completed 4 transactions whose combined annualized sales total about $120 million. We believe any relief in raw material costs, combined with the benefit in the second half of our 2012 fiscal year of these new RPM companies, will more than offset weakness from poor economic conditions or hits from foreign exchange translation. Results so far this fall indicate a second quarter that will show 8% to 10% sales growth. While we should generate good operating earnings growth from the bottom line perspective, you need to keep in mind the $7.5 million of onetime non-operating gains we highlighted in last year's second quarter, which we do not expect to be repeated this year, as well as onetime hits to earnings from the transaction costs and inventory write-ups of the Legend Brands and Grupo PV deals, both of which were completed in the early parts of our second quarter. Given the fact that the 4 transactions completed so far this year were essentially paid for with U.S. and European cash, these acquisitions should be nicely accretive to sales and earnings in the second half of our fiscal year. That concludes our prepared remarks. We'd now be pleased to answer your questions.

[Operator Instructions] And your first question comes from the line of Jeff Zekauskas representing JPMorgan. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: This is Silke Kueck for Jeff. I have a couple of questions. The sales from the recent acquisitions of $120 million would add something like 3% to 4% to sales growth. Is that embedded in the 8% to 10% forecast? Or that would be in addition?

I think that will be in addition to our original forecast, particularly in the second half of the year. And again, that $120 million is an annualized figure. So we ought to have, on a fiscal year basis, about 8 months of those businesses this year. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: Okay. Secondly, how much were your raw material costs up this quarter? And is the expectation that's embedded in the earning guidance, that they’ll just be flat the remainder of the year? Or that, in fact, they’ll step down, and by how much?

As you saw in our gross margin in the quarter, our raw material costs were up pretty significantly again. It really depends on the different categories. We were able to pass on, on average, about 3% in price, which was not enough to cover the raw material cost increases that we received versus last year and maintain our margin. Our expectations for the balance of the year is that raw material costs would remain relatively flat from where they are today, and so that means we're likely to see some year-over-year comparison challenges in the second quarter, but I think we'll start to see some margin improvement in the second half of the year, assuming that we don't see another step up again in raw material cost increases, which, at this point, we do not anticipate, but we also do not anticipate any meaningful reduction in raw materials in our forecast. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: My last question and then I get back into queue, the 4% volume in the Consumer business, can you talk about what the pockets of strength were?

Sure, the -- in our Rust-Oleum business, in particular, we've introduced a number of new products, which are selling well. Some of them at very high retail price levels. Countertop refinishing products, which are kits; kitchen cabinet refinishing products, which are some exciting new product categories that are ticket items in the hundreds of dollars per SKU, which is pretty unique in our space. We've also regained some market share in certain specialty primary areas, as well as taken some market share at a number of retail discount accounts as well.

And your next question comes from the line of John McNulty representing Crédit Suisse. John P. McNulty - Crédit Suisse AG, Research Division: Just 2 quick questions. On the volumes in Industrial, they seemed actually a little bit lighter than I would have expected, especially given some of the strength in parts of the business that you had highlighted, like the high-performance corrosion control, et cetera. So I guess I'm wondering, which parts aren't doing particularly well maybe beyond just the commercial construction-related stuff?

It's a little bit of a mixed bag. We still have a number of high-performance coatings product lines that are growing in the low single digits, which is probably a high single-digit unit and 2% to 3% price. We did have some weakness in a couple of areas in Europe. In particular, our Tremco illbruck business, which had very strong results last year, just had some tough comparisons and is suffering from some regional slowdowns in renovation and construction markets in certain parts of Europe. And the comments that I'd made earlier really relate to the U.S. construction markets, where we're seeing some very low single-digit improvement in sales and earnings, which I think indicates we're picking up some market share, because the underlying dynamics are still pretty depressed. So it's been a little bit of a mixed bag across our businesses, and I would say the biggest weaknesses are in a number of industrial businesses in Europe. John P. McNulty - Crédit Suisse AG, Research Division: Okay, great. And then with regard to the surge in sales that you saw in August that were one of the reasons I guess free cash was a little bit light. What do you think drove all that demand? It just seems odd to see such a big pickup.

Boy, I wish I had a good answer for you, and I know there's good answers out there across all of our businesses. We just saw a good pickup, particularly in our roofing and waterproofing businesses, again, in our Carboline coatings businesses, our Fibergrate business, all of which had strong finishes to the quarter. It's been relatively choppy economic conditions. And so, region by region, we're seeing some differences. And also in the quarter, fortunately, we had 2 good months, but we also had a weak month. As I commented in my prepared remarks, early signs in the fall would indicate on a consolidated basis that we're going to see that 8% to 10% growth here this fall, pretty consistent with the spread and segments that we're talking about. John P. McNulty - Crédit Suisse AG, Research Division: Okay, fair enough. And just one last question just on the Legends Brand group acquisition that you had made.

Yes? John P. McNulty - Crédit Suisse AG, Research Division: When I kind of look through the description of it, it looks like there may be a services component to it as well, and I guess I'm wondering, first of all, if that's true. And then second of all, is this maybe a subtle change in direction? Should we think about further acquisitions kind of tied into the services side of things for RPM going forward?

Sure. When you think about RPM and acquisitions, first of all, after really slowing down during the recession, we spent 18 months trying to reconnect and rebuild that pipeline of what's been a critical part of our growth strategy for 30 years. And I think we're just hitting our stride having completed 4 deals, so far this year. Fundamentally, whether it's a product line or a freestanding business, if it's a North American consumer product, it's likely to be part of DAP or Rust-Oleum. High-performance coatings that serve, in particular, steel or concrete markets, flooring markets will be part of our Performance Coatings Group and then obviously, waterproofing, construction, chemicals sealants would be part of our Building Solutions Group. And so those are all of the typical RPM products and markets that you would know. We have a group called RPM II. Mike Teller [ph], who had spent a good part of his career at RPM, he was at Carboline, came up through those ranks, was Executive Vice President there, ran some businesses for them. And then took over leadership at Rust-Oleum when we acquired Rust-Oleum in '94, retired a few years ago. He came back to run our RPM II Group, with the goal of taking a group of kind of hodgepodge businesses that don't fit those other categories in specialty chemicals in kind of a flavors and fragrances and food business and our MBV business, which is the producer of Nature Seal. So Nature Seal is the reason that you can get sliced apples or apple fries at some of the fast food restaurants. That's our product that is patented in conjunction with the USDA. His goal and our goal is to take that very unique kind of specialty chemical collection of businesses to $1 billion in the next so many years. And so, that is where you're likely to see some categories that are in adjacent areas, but not the most obvious fits with what typically would fit with our other businesses. Legend Brands, I think, is a great example of that. They manufacture equipment and provide services and processes, as well as chemicals for cleaning and restoration for smoke, fire and water damage. And pretty excited about that business. In fact, some of their divisions were actually purchasers of certain specialty Zinsser primers that were used in smoke and fire damage. They were also producers and users of carpet and upholstery cleaning chemicals that we're familiar with from our Chem Spec business and -- but they are in the service and equipment manufacturing for aggressive dehumidification and/or restoration in smoke, fire and water damage circumstances. So it is a new category. You should expect to see us in businesses that are similar or adjacent but quite different from the normal fits of consumer rust preventatives or specialty coatings for concrete or steel, and Legend Brands fits that category.

And your next question comes from the line of Kevin McCarthy representing Bank of America Merrill Lynch.

This is Alex Yefremov for Kevin. Frank, what kind of trends do you see so far in September? Is it typical seasonality, a little better, a little worse?

As I mentioned in my prepared remarks, early signs in the fall are that this kind of 8% to 10% revenue growth is continuing. And so, we're seeing that. I think that while we're seeing some slowdown in raw material increases, the year-over-year comps will still challenge this at the gross margin level. So we're paying sharp attention to SG&A expenses. But so far in the quarter, we are, as of today, we are sitting pretty much the same in the early months of our second quarter that we experienced in the first quarter this year, and that is consistent across both of our segments.

Got it. And your press release mentions fiberglass-reinforced plastics. That product line was strong. Could you talk a little bit about end markets there, and what's driving that strength?

Sure. We wholly own a business called Fibergrate, which has manufacturing in Texas and a small manufacturing facility in Mexico. And we also have a significant investment of about 23% in one of the world's leading composite manufacturers and producers in Kemrock in India. The markets that those serve are oil and gas for platforms, windmills, stair treads, all kinds of structures that you might think of for platforms or around industrial settings, in particular, oil and gas where corrosion is a real issue. The wind market is also an area of support, and then just railings, general industrial type of structures is kind of their end-use market. And so, we're seeing, again, in oil and gas and mining and in general industrial, not only in Fibergrate but across a lot of our businesses, a pickup in Industrial maintenance spending and in industrial capacity expansion. Not so much new bricks and mortar, but capacity expansion in our Industrial markets that we serve globally, and that's what's driving the Fibergrate strength, so far this year.

And a final question, if I may. On consumer pricing, it looks like it picked up to about 3% versus 1.3% last quarter. Was this is a positive mix shift or you actually raised prices?

No, our mix is probably a little bit negative in Consumer, and we've been able to raise prices, but not enough or timely enough to cover our raw material costs. So as you saw in the quarter, we had some further margin deterioration at the gross margin level. It's challenging to get sufficient price increases from major retail customers. We are getting price increases, but it's clearly not at the level to both pass on our raw material costs and maintain our margins. And the other bigger challenge there is timing. There's a process to go through in terms of getting price increases at major retail accounts. In our Industrial businesses, we can change pricing literally daily. And if you overshoot your pricing, particularly in products that are sold through distribution or sold through thousands and thousands of customers, and you sense you're losing some share, you can adjust your pricing rather quickly as well. So we just have more pricing flexibility and more pricing agility in our Industrial segment than we do in our Consumer segment, and that's been true really throughout our history.

And your next question comes from the line of Saul Ludwig representing North Coast Research.

The volume growth that you had in Consumer was very impressive. To what degree do you think that represented true ultimate consumer take out? Or you alluded to a lot of new products, and I wonder if some of that 4% volume growth might have been onetime pipeline filling?

This is just a guess, Saul, but I would bet that about half of it is either market share gains or new products, and the other half of it is consumer takeaway. I think we're seeing after a -- even though the housing market in terms of new construction is still dead, I think we're seeing consumers start to spend on small project redecorating and getting back to the type of regular patch and repair and maintenance around their homes that, in the heat of the recession, shocking to us is small-ticket item, basic maintenance and repair and small project redecorating products, were not moving, and in fact, we're seeing negative comps in ways that we had never seen in our history. And it was just kind of the shock that people are not going to stores. So we think we're slowly getting back to that just kind of regular home maintenance repair and small project redecorating. It's kind of the backbone of our Rust-Oleum and DAP brands. And so, there is positive momentum there, albeit relatively modest, and then the balance is market share gains and new product introductions.

Could you elaborate a little bit on the marketing share gains at big boxes, what products and where?

We have picked up a small project paint, a major retail customer that we did not have before, and we also had picked up some market share gains with a number of our specialty primers in some of our major accounts. And then, we've also -- are picking up some shelf space with some new products, in a couple of cases brand-new products like these countertop refinishing or kitchen cabinet refinishing products. But Rust-Oleum, in particular, has introduced this year some high-end, high-quality and relatively high-priced driveway sealer products, which is pretty exciting for us. They're selling quite well. They're picking up market share from what's kind of older asphalt-based technology that doesn't perform as well. It's at a higher price point, and it's the first SKU in major retailers by Rust-Oleum in their building products area, as opposed to the small project area, small project paint. And so, it's exciting to begin to have some products that have decent consumer takeaway in a whole new segment of some of our major customers.

I have a question for Bob. How much was the onetime tax benefit in dollars that you had in the first quarter?

That would probably be something like a couple million bucks.

$2 million, that was a...

That's a high rounding, say $1.5 million.

Okay. That's about $0.01 a share, right?

Yes. Yes, if you want to get back to -- keep in mind, Saul, our base rate is 31%. We believe we're going to have a 31% rate, and then we had some benefits that knocked it down to 29%, what, 29.8%, I think.

And then when you look at the balance of the year, last year, you had a lot of investment income, as your insurance companies were selling stocks, had gains, and they're certainly in the base of your earnings last year. Given what's going on in the equity markets, how are you sort of, in putting your own forecast together, how should we think about those comparisons in your second, third and fourth quarters where you had big investment income last year, how should we think about that modeling for this year?

I think year-over-year, Saul, we had about $9 million, and it was all in the back half of the year of pretax investment gains, non-operating. It was principally in Q2 and Q4, and we highlighted those in the calls last year. As I just mentioned in my prepared remarks, folks need to keep in mind that there were about $7.5 million of onetime non-operating gains in the second quarter last year that were a combination of investment gains, as well as insurance recoveries. Big picture though, we run these captive insurance businesses, which has been a very smart risk management move for us. And in normalized markets, the gains and losses are relatively non-meaningful, and that's why we haven't talked about them. I suspect we'll get back there. It's worth keeping in mind that the Dow went from what, 13,000 down to 6,500, and that's what drove a year of a lot of negative hits and write-offs and mark-to-markets. And then, once you mark those to market, we had some gains last year, as we had the normal kind of turnover in those portfolios, either for investment balancing and/or creating liquidity to meet various insurance costs. When you – so we won't have that $9 million of gains again this year. But the Dow hasn't been cut in half, and I suspect when we get back to regular swings of up and down, these issues will be nonevents from one quarter to the next as we go forward.

And then just finally, you did mention that the second quarter, you're going to have some costs, inventory markups, et cetera, with regard to the acquisitions. What magnitude of those costs should we be thinking about, including in our second quarter?

I don't know off the top of my head, but certainly, there'll be a couple million dollars of acquisition transaction costs. And in particular, what I don't have a good sense for, but they’re really onetime, would be the required-for-accounting purposes inventory write-up, which you take through your P&L. It's a onetime hit, and I really don't have a good sense in either Legends or Grupo PV, which is a $20 million fireproofing business that we acquired in Europe and announced this morning. So both of those will have some negative impact on the inventory write-up, but that's a onetime hit, which won't impact the second half of the year. And from that perspective, you're looking at acquisitions that will be additive to both sales and earnings, as we've essentially traded non-earning cash in Europe and the U.S. for some nice strategic transactions.

And your next question comes from the line of Edward Yang representing Oppenheimer. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Starting out with a modeling question. Can Bob break out the SG&A and cost of goods sold by Consumer and Industrial?

No, we could give you some color on that, but neither we nor any of our competitors provide segment reporting at the gross profit level. It was brought to our attention that we were the only ones that were doing it for a period of time. It's not required by the SEC, and in fact, few, if any, public companies provide it. We would be happy to provide cost of goods sold by segment and gross profit margins by segment at the point at which you guys thought that, that was appropriate information that all of our competitors should provide. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Well, maybe we could just handle that offline then. We don't need to get it...

No, I think we would -- we could provide you, and I think Bob can provide you now with some of the color that we did provide in terms of raw material costs, pricing and certainly SG&A. I mean our SG&A was restrained and grew at levels less than revenue growth, and that's why we improved our EBIT margins. But as we commented, raw material costs rose more than our ability to pass it on in price and more than we could leverage to the bottom line. And so, you looked at, on a consolidated basis, a gross margin that slipped again. Per our pricing discussions, our gross margins tend to be hit a little bit harder in this type of environment in our Consumer segment than in our Industrial segment. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Okay. And talking about raw materials, Frank, you mentioned in the coming quarter that revenues are tracking up about 8% to 10%. But at the same time, you mentioned some things that could probably hurt you on the EPS side, for example, the $7.5 million in gains that you saw last year. You mentioned the raw materials, I think interest expense should also be up for you year-over-year. So basically, what kind of EPS growth does that show for the fiscal second quarter? Is it going to look kind of flattish versus the 8% to 10% top line growth?

Yes, as you know, Ed, for, boy, since about '02, we've gotten away from quarterly guidance and just stuck with our annual guidance. And I think to your question, as well as to the question asked earlier by Saul Ludwig, when you look at the $1.45 we did last year in our guidance, which is essentially $1.60 to $1.65 for this year, it's stronger originally than it appears because last year did incorporate about $9 million throughout the year of pretax gains, which we don't expect to repeat. And certainly, those $9 million were contributing to the $1.45. I mentioned the $7.5 million of onetime non-operating gains in the second quarter. Just to remind people, we highlighted those last year. We won't repeat them this year. And so, while 8% to 10% sales growth should drive some nice operating profitability, that operating profitability will be negatively impacted on just the straight EPS line by not repeating that $7.5 million of onetime gains, as well as a few million dollars in inventory write-ups, which again are onetime associated with these second quarter acquisitions. I think that's as much color as we'd like to provide as opposed to actually getting into earnings per share for the quarter. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: Got it. On the Industrial side, volumes slowed to 1.5%. It’d been tracking at around 6.5%. Do you expect that to pick up for the rest of the year? How do you get to 8% to 10% revenue growth, if Industrial volumes are 1% to 2% growing?

Well, again, if you look at Industrial as a whole, I think for the quarter, we were up about 9% or 10%. I think we would expect to see unit volume better for the balance of the year than that 1.5%. You are going to see the benefit of price, because we were able to enact some price increases throughout the year last year that have not yet annualized. And the one area where we expect now to get hurt versus our original forecast is, we set FX assumptions about where rates were at the end of our fiscal year. And clearly, with the strength of the dollar, and particularly our exposure to the euro, you're going to see that deteriorate and most likely hurt us instead of help us. So I guess in summarizing, we're going to have price -- it's not new price. It's the annualization of price increases that we got last spring. You'll see better volume than what we show in the first quarter in terms of unit growth, and we believe we'll more than offset the negative impact of foreign exchange hits by the acquisitions that we've announced. And so, just to be very deliberate about that, we're very comfortable that we're going to hit that $1.60 to $1.65. But that is in typical RPM fashion of having some unexpected challenges offset by the typical small- to medium-sized acquisitions that we've been doing pretty much every year for the last 30 years. Edward H. Yang - Oppenheimer & Co. Inc., Research Division: And just finally on Consumer. Consumer revenue was up 9% year-over-year in the quarter, and just understanding the lumpiness of that – well, first of all, did you see any hurricane benefit from that? Or was that -- you mentioned some market share gains there, but could it also be some lumpiness on the order patterns of big-box retailers? Last year, for example, you saw some lumpiness as well?

No, I think first, to the hurricane question, and there was an earlier question about what happened at the end of your first quarter. We did see some benefits, in particular, in our Tremco Roofing business, which is all in renovation and reroofing from some hurricane spending. And so, that's where that would typically show up in roofing or waterproofing products. Not so much that we can track in consumer markets. In fact, if anything, you get a slight hit as stores close or things hit. But it's hard for us to track. I think the thing that's really driving our Consumer business is a combination of the market share gains we talked about, as well as consumers starting to spend on basic household maintenance and repair, patch and repair, and redecoration. The $50,000 new kitchens and the $100,000 additions aren't happening, but people are getting back to redecorating, which is particularly good for us, because our -- we're not in architectural paints. So new home construction or major renovation really wasn't driving our growth, but redecorating and small remodeling are really things that drive the DAP and Rust-Oleum type product lines.

[Operator Instructions] And your next question comes from the line of Greg Halter representing Great Lakes Review.

I don't know if you mentioned this or not, but I believe your corporate expense was down about $3 million year-over-year. If you could walk through that, I'd appreciate it and maybe you did already, I might have missed it.

Yes, we -- if you look at that, it's something like $2.9 million drop, Greg. And we did have an insurance recovery on a fire, which was a one-timer, which more than offset our typical increases that we have. Comp and benefits is an example. You take them and they're probably up over $2 million, perhaps as much as $2.5 million. We did have some benefit from foreign exchange gains within the corporate area. But basically -- and another thing I would mention, too, would be the acquisition costs. This quarter, they were down compared to a year ago, where we cut things back. So at any rate, you had the insurance recovery, which is a few million dollars more than offsetting cost increases. Net value was about $2.9 million expense reduction.

Okay. And last quarter, you mentioned the bankruptcy of I think one of the distributors. Anything new to report there?

No.

Okay. And it seems like there's been more acquisitions in the fire protection area, and I'm just wondering what you view the market size of that opportunity and what kind of growth that area could conceivably deliver?

I don't have any information, Greg, in the market size. I can tell you that it is a strategic growth area in our Performance Coatings Group globally. And so, we have been acquiring or developing new technology and new formulations for thin-film intumescence, as well as commercial-grade and industrial-grade fireproofing products. There is an increased demand for those products globally as a result of some of the tragedies that have occurred over the last decade, whether it's New York or some of the Gulf fires in terms of oil platforms. So there is a higher sensitivity in commercial and industrial markets for intumescent architectural coatings and/or commercial or industrial fireproofing. And we are aggressively developing both a complete line, as well as a global presence in those product categories. And so, we're pretty excited about this Grupo PV acquisition that we announced this morning for Europe, because it complements what we're doing in our Performance Coatings Group and our Carboline business in those product categories.

Okay. And on the price side, obviously, we've been talking about raw material costs stabilizing or, hopefully, at some point, declining for years now. If that were to ever happen, what's RPM's history of giving back price increases that you've earned over the years?

Typically, throughout our history, our margins have suffered in rapid raw material rising environments, and our margins have improved as raw materials have declined. And we seek to regain some, if not all, of the margin that we have lost. And I think it really goes to the nature of our products in terms of their leading brand position. In certain categories, they’re really small-ticket items that aren't price-sensitive. And in other areas, they’re Specialty Products that are a relatively insignificant part of a major construction project, but a critical part. For instance, specialty sealants and gaskets that hold curtain wall, panes of glass in 40-story buildings things like that. So historically, for us, we have seen margins under pressure in a rising raw material environment and seen margins expand as raw materials decline. The 2 caveats to that I would say is that we've never been in a period of time like we have in the last few years, where raw materials have risen as fast and as often as they have. And so, that's in particular pressed our gross margins. And then, the second caveat is in every instance, and this instance won't be any exception, we benefit, if raw materials go down. But again, assuming that they go down slowly, so that we're in an economic environment where our sales are maintained or continue to grow.

Okay. And then as you mentioned, obviously, you have been more active on the M&A front, and just wondered what your outlook is in terms of availability of companies, as well as pricing.

I can tell you that acquisitions have generated about 50% of our growth over the last 30 years. I can also tell you that for 6 or 8 years, I spent a lot of my time and energy dealing with risk management issues, and I'm not doing that anymore. And so we are in an environment kind of post-recession. I think more discipline in the banking market and the private equity market that, quite honestly, had capital structures that were stupid. They were right up there with the ninja mortgage loans. These were covenant light, no covenant, highly levered transactions. And with more discipline in the banking market and having been through the recession, we are back to valuation ranges that have been kind of the 30-year average, and we're spending more time in more places around the globe looking for good strategic acquisitions. The ones that we’ve closed this year are good examples. Multispec is a $5 million product line that we will completely integrate into our Rust-Oleum, very small but should have a great IRR. API is a specialty business that provides globally specialty flooring products and decking products for the cruise ship industry for large ocean-going vessels and military vessels. It's run by third-generation family members. Legend Brands has a management team that has been there before they were owned by private equity, has stayed through that growth, and I believe is very excited to be part of RPM. They also could be a platform themselves for additional acquisitions. And lastly, the Grupo PV business that we announced today will continue to be run by the owner-operators who sold us the business. So these are all right up our alley, good medium-sized transactions, very strategic in terms of the products and markets that we serve. And in light of the fact that we're trading nonearning cash, so far, we're nicely earning businesses. We're pretty excited about their positive impact in the coming years to our sales and earnings growth.

Okay. And one last one, you've talked about the foreign exchange, and obviously, the impact on the top line I think was 4.1% for the company as a whole. How does that translate down into the operating income? Was that also impacted as much as a percentage basis? Or are there some kind of maybe manufacturing offsets or so forth that may make that more or less, I guess?

It really depends on the business unit. It does translate down, to a certain extent, to earnings. We have never disclosed that. Quite candidly, it's really hard to measure. It has virtually no impact on margins because your revenues, your cost of goods sold and your bottom line are all in the same currency in most cases. In some of our European and other foreign area businesses, it's a little harder to manage because they’re doing business in the Middle East. They're doing business in the U.K. They're doing business in the eurozone. And so there is a mix of currency there. So it's hard to measure. I will tell you our expectation for the balance of the year is that the benefit from foreign exchange will disappear pretty quickly. And in fact, if the dollar keeps strengthening, particularly against the euro and the Canadian dollar, it could likely be a hindrance to our results for the balance of the year. As I indicated, I think we have other areas where we can more than offset that negative impact.

And your next question comes from the line of Rosemarie Morbelli representing Gabelli & Company. Rosemarie J. Morbelli - Gabelli & Company, Inc.: I am a little confused about one thing, Frank. I think that you answer one question, saying that your 8% to 10% growth in -- top line growth was excluding acquisitions. That was at the beginning of the call, but then I also think that you mentioned, unless I misunderstood, I also think that you mentioned that the acquisitions will actually offset the negative impact from foreign exchange. So could you clarify this a little bit for me, please?

Sure, I'll clarify our outlook for the year, which started at our expectations that our sales for the year would grow 8% to 10%, and our earnings would be in the $1.60 to $1.65 range. And I think we're still comfortable with both of those forecasts for the year. And it's a result of, in particular, expecting foreign exchange to not only not be a help to our results, but at some point probably be a hindrance to our results, offset by the sales and earnings gains that we would expect, particularly in the second half of the year from acquisitions. And then, whether we do a little bit better than that, really depends on getting a feel for the seasonality of some of these acquisitions and their impact next year, as well as what happens with raw material costs. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And talking about seasonality, are they going to help in the third quarter diminishing this, the negative seasonality you usually have there? Or they have the same -- they are going over on same pattern?

Try as we might, Rosemarie, as we continue to focus on industrial or construction or even consumer products, in every case, they tend to have some exposure to weather. And so, I don't think any of these acquisitions will hurt our normal seasonality. But none of them are going to be a significant booster from a seasonal perspective to our third quarter. Now having said that, they certainly might add sales, and we hope earnings in our third quarter based on just the additional volume and business that we're going to get from these businesses. And the third quarter is a hard one to know, because as you know, we generally break even or make $0.01 or $0.02. So the percentage impact from some of these acquisitions could look meaningful because $0.01 per share or $0.02 per share in the third quarter appears to be a big percentage gain, but it's really just $0.01 per share. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. So I think you have answered my next question, which is that the acquisitions will be accretive on the top line, that is very clear. But will also be accretive to the bottom line in the second half of this year? Or only in fiscal 2013? Usually, they are accretive within 1 year. So I'm just trying to figure out whether this is happening earlier this time.

These will help us in the second half of this fiscal year, principally as I said, because we're trading nonearning euros and nonearning dollars, basically cash in the bank that's earning nothing. So we have I think a pretty good sense of our cost of capital. Some of our compensation programs are geared towards improving our return on assets and targeting our broader cost of capital. But on a pure incremental basis, we've been able to utilize cash to acquire nicely earning businesses. So in the second half of the year, they will be accretive to sales and earnings. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And could you give us a feel as to what Legend Brands’ EBIT was in 2010?

We haven't disclosed that. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. Now could be a good opportunity.

We hope so. Rosemarie J. Morbelli - Gabelli & Company, Inc.: I meant disclosing it now on the call?

No. We, historically, Rosemarie, have not disclosed the earnings of any of our particular subsidiaries. And other than discussing some of the margin profiles and earnings results of RPM on a consolidated basis or on a segment basis, we wouldn't disclose individual subsidiary profit profiles. But suffice it to say, we're interested in acquiring businesses whose margin profiles look like RPM or where possible, better. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And then could you bring us up-to-date on what is happening in India regarding your ownership of the joint venture?

Sure. That's a good question that we didn't comment on. In the first couple of months of this fiscal year, we were able to increase our investment in Kemrock, which is a very quickly growing, highly successful Indian composite company, both in fiberglass reinforced plastics, they’re now in carbon fiber resins and just a really dynamic business and a great partnership and just a fun company to watch grow. And we've increased our ownership from what was about 18% to what today is around 22% or 23%. And so, the good news there is having reached an ownership level in excess of 20%, we'll be able, for the first time this year, to reflect a minority interest through our income statement. And that should add somewhere in the neighborhood of $0.02 per share on an annualized basis. So for this fiscal year, it’ll add, I would think $0.01 or $0.02. And we’ll have a better sense as we begin to consolidate their results, some of which -- not consolidate, but show their results on the equity method. But we do have to make some adjustments between their reported results and U.S. GAAP. So we'll have a better sense of that, I think, in the third quarter, but the best way to think about that is it will add probably a couple cents a share on an annualized basis, as long as we maintain an ownership interest in excess of 20%. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Do you expect that ownership to increase? Or is your offering of buying back stocks done now? When you reach the...

Yes, I -- Rosemarie, we're happy with our 23% ownership interest. If given the opportunity to increase that in the future, we would certainly consider that. But we are very happy to have grown from what was about a 5% ownership interest to what was 14.99% to 18% to now 23%.

And your next question comes from the line of Brian Darobo [ph] representing Whitecap Management LLC.

Could you guys give us an update on SPHC, where you stand with that?

Sure. The SPHC process is ongoing. There's really no material change, as we've indicated in the past. Those results have been de-consolidated from RPM. Those businesses themselves are doing fine. They're generating some sales and earnings growth, which is nice for those businesses and the people that run them. But we are still in a 524G process or they are in a 524G process that is likely from its start at May 31, 2010, to be a 3- to 5-year process. And other than that, there is nothing material to really talk about. Those businesses are not part of our results, and they're not part of our expectations or outlook for our current fiscal year. And a year ago, we disclosed our goal of achieving $5 billion of revenues by 2015, and we believe we can do that without those businesses as well.

Is there any expectation before -- you're saying 3 to 5 years for the whole process, but is there any expectations that you'll be able to provide an update prior to that, because we're about 15 months into this now.

Sure. Well, the wheels of justice grind fine, but they grind slow. I think we would provide an update or some type of release on a timely basis, if and when there's anything material to report. But you're looking at a slow process, which on average for other similar filed circumstances have taken about 4 years. And you're in a long, slow discovery process and motion process by both parties, and I think that's where they are. I would guess that in most of these cases, material action probably happens in the last year of the process. But I really don't know, and there is nothing material to report. And given the way the process is going, we wouldn't expect anything anytime soon.

You have a follow-up question from the line of Rosemarie Morbelli representing Gabelli & Company. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Just quickly, Frank, when do you expect to have news regarding the dividend? Usually, it is in October, when is the board meeting?

Our Board meets tomorrow morning, and we have our Annual Meeting of Stockholders tomorrow afternoon. And that is typically the venue where we address dividend news. And if our Board made the decision to increase our dividend, then we would announce that tomorrow afternoon. And if that were to occur, it would be our 38th consecutive year of increasing our cash dividend to shareholders. And I might add, currently, we have about a 4.5% yield.

At this time, there are no further audio questions. I would now like to turn the call back over to Mr. Sullivan for closing remarks.

Thank you. Tomorrow at 2:00, at the Holiday Inn in Strongsville, Ohio, we'll host nearly 1,000 shareholders for our 2011 annual meeting. At the annual meeting, we will review our 2011 full year and first quarter fiscal 2012 results, as well as communicating, thank you, Rosemarie. Our Board's decision on a possible dividend increase, which would be RPM's 38th consecutive annual increase in cash dividend to shareholders. With a PE of 12, a 4.5% dividend yield and the prospects of another year of sales and earnings growth, we believe RPM is a compelling investment in this turbulent market. Thank you very much for your time on today's call. Thank you to all the RPM employees for your performance that’s delivered these tremendous results, and thank you for your investment in RPM. Have a great day.

Thank you for your participation in today's call. This concludes the presentation. You may now disconnect, and have a great day.