RPM International Inc. (RPM) Q3 2013 Earnings Report, Transcript and Summary

Welcome to RPM International Conference Call for the Fiscal 2013 Third 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, Shaquanah. Good morning, and welcome to the RPM investor conference call for the third quarter period ended February 28, 2013. On the call with me this morning are Rusty Gordon, RPM's Vice President and Chief Financial Officer; and Barry Slifstein, RPM's Vice President of Investor Communications and Planning. This morning, we'll provide you with details of our third quarter, some comments on how we see the rest of our 2013 fiscal year unfolding and then answer your questions. Obviously, we have a couple of significant issues in the quarter that masked an otherwise very strong operating performance. RPM's Building Solutions Group is engaged in ongoing settlement discussions related to compliance with certain pricing terms and conditions of roofing work done with various federal government entities under a GSA contract. The company has been fully cooperating with the investigation, which until very recently has been in a fact-finding stage. While the GSA and Justice Department have not made any formal claim, we are in discussions to settle this matter and are hopeful that a final settlement will be reached before our May 31 year end. Sales of roofing products and services under the GSA contract were completed generally over a period of time from 2002 until 2008. The other extraordinary item in the third quarter relates to our decision to discontinue a basically dormant Stonhard polymer flooring business in Brazil in light of our recent acquisition of Viapol. The impact of this closure was a $6 million hit to industrial EBIT and a $7.7 million plus to income taxes as a tax loss carry forward was realized in the third quarter. Both of these items have been removed from our as-adjusted results. We're very excited about the Viapol acquisition and the ability to leverage its manufacturing base, sales force and broad distribution in Brazil for a number of RPM products, starting with a number of our flooring products. Viapol already manufactures epoxy flooring, has broad distribution. With a combination of the technology and Stonhard and Flowcrete brands, we're very excited about what leveraging this asset with its strong leadership in Brazil can do for us in a number of RPM product areas in the future. Our underlying operating performance remains consistent with what we have experienced throughout the year. Strong core consumer business performance, good growth in product line serving commercial construction and good performance from recent acquisitions. In particular in the third quarter, with the southern hemisphere Australian-based HiChem division of Rust-Oleum and the Brazilian-based Viapol subsidiary of our Building Solutions Group, we now have some counter-seasonal business versus RPM's historical seasonal low in the third quarter. Kirker also adds to this as their business is relatively even from month-to-month throughout the year. Our challenges remain what they have been, lower roofing business sales and earnings related to substantial cutbacks in government work in the U.S. and Canada at the national, state and local levels, as well as the impact of our decisions to exit non-North America activity and certain contracting work. Our European operations continue to be challenged by declining economic activity and cutbacks across many sectors from government to business to consumer spending. Fortunately so far this year, our areas of strength, consumer, commercial construction and good growth and performance from recent acquisitions, have more than offset our areas of weaknesses. I'd now like to turn the call over to Barry Slifstein, RPM's Vice President, Investor Communications and Planning, to provide details of the quarter, excluding both the GSA and Brazilian flooring items.

Thanks, Frank, and good morning, everyone. Thank you for joining us on today's call. I'll review the results of operations for our fiscal 2013 third quarter and year-to-date, as Frank said, on an as-adjusted basis, then cover some February 28, 2013, balance sheet and cash flow items. I'll then turn the call over to Rusty Gordon, RPM's Vice President and Chief Financial Officer, who will discuss the outlook for the remainder of fiscal 2013. On an as-adjusted basis, consolidated net sales increased 9.1% year-over-year to $843.7 million, principally due to acquisition growth of 7.2%. Foreign currency translation added 0.9%, pricing added 1.7% and volume decreased sales by 0.7%. Industrial segment net sales of $532.3 million, which accounted for 63% of total sales, increased 6.1% over last year. Acquisitions increased sales by 4.5%, foreign currency translation added 1.2%, pricing added 1.7% and volume decreased sales by 1.3%. At the consumer segment, net sales of $311.4 million increased by 14.6% over the same quarter last year. Acquisitions increased sales by 12.1%, foreign currency translation added 0.3%, pricing added 1.6% and volume added 0.6%. Current quarter organic growth of 2.5% went up against the difficult comparison when last year's extremely mild weather generated 15.1% unit volume growth for this segment. Our consolidated gross profit increased 13.3% to $343.6 million from $303.2 million last year, principally due to higher sales volumes, supply chain initiatives, more favorable product mix and stable raw material costs, resulting in the recovery of margin lost in earlier quarters due to material inflation. As a percent of net sales, gross profit increased from 39.2% last year to 40.7% this quarter, representing an increase of 150 basis points. Consolidated SG&A increased 14.8% to $318.6 million from $277.5 million last year due to additional SG&A from acquisitions, a $6.4 million unfavorable swing in foreign exchange losses on working capital balances at quarter end, principally due to the devaluation of the British pound versus the euro, higher severance charges to reduce overhead at several European-based businesses, higher pension costs, higher advertising, promotional expenses predominantly in the Consumer segment and increases in variable distribution and compensation costs attributable to higher sales volumes. We experienced $4.3 million of unrealized foreign exchange losses this year, due principally to the devaluation of the British pound versus the euro during the quarter, compared to a $2.1 million gain last year. Earnings before interest and taxes decreased 3.1% to $26.3 million from $27.1 million last year, due primarily to the $6.4 million unfavorable swing in foreign exchange losses and $4.1 million in nonoperating expenses. Excluding these 2 items, EBIT would have improved 36%. At the Industrial segment, the EBIT decrease of $12.6 million was caused principally by a $6.4 million unfavorable swing in foreign exchange losses on working capital balances at quarter end, principally related to the devaluation of the British pound and the euro and the $4 million nonoperating expenses mentioned above. The gradual improvement in commercial construction, combined with accretion from the Viapol acquisition, offset continued weakness in Europe and our North American roofing division. Consumer segment EBIT increased to $34.7 million from $21.5 million last year, an increase of 61.6%, driven by higher sales volumes due to new products, a strengthening residential market and strong acquisition performance from HiChem, Synta and Kirker. Corporate/other expenses of $17.1 million increased $1.4 million from last year, primarily due to higher pension expenses and partially offset by favorable foreign exchange gains. Interest expense increased 17 point -- from $17.9 million last year to $20.5 million this year, primarily due to borrowings associated with this year's increased acquisition activity and the issuance of a $300 million bond in October. Investment income was $6.3 million for the quarter, which was approximately $4 million above last year, due to gains on sales of marketable securities and higher interest and dividend income at our captive insurance companies. Our income tax rate of 27.1% for the quarter compared to last year's income tax rate of 30.7%, due in part to changes in the jurisdictional mix of actual and forecasted earnings, the impact of certain foreign operations on our U.S. taxes and adjustments to income tax reserves and valuation allowances. Additionally, given the third quarter's lower seasonal volume and earnings, adjustments recorded in the quarterly income tax provision can contribute to a relatively large quarterly variation in the effective income tax rate. We see a projected fourth quarter fiscal 2013 tax rate in the area of 30% to 31%. Net income increased 30.8% to $8.7 million compared to last year's $6.6 million. Diluted EPS increased 40% to $0.07 per share compared to $0.05 per share last year. With regard to the year-to-date results, consolidated net sales increased 8.8% to $2.91 billion from $2.68 billion last year, principally due to acquisition growth of 7.2%. Price added 1.8%, volume added 1% and foreign currency translation decreased sales by 1.3%. Net income increased 13.9% to $146.0 million compared to last year's $128.2 million. EPS increased 12.2% to $1.10 per share this year compared to $0.98 per share last year. And now a quick look at the balance sheet and cash flows. Cash from operating activities of $170.9 million increased $17.4 million from last year. The improvement was primarily driven by lower decreases in other accrued liabilities of $29.1 million, a decrease in prepaid expenses and other current and long-term assets of $14 million, an increase in accrued loss reserves of $12.2 million and a decrease in receivables of $8.7 million, all of which were partially offset by an increase in inventory of $47.9 million. Depreciation and amortization expense was $62.5 million compared to $54.7 million last year. CapEx of $45.7 million for the first 9 months of this fiscal year compared to $34.4 million for the same period last year. Our accounts receivable DSO was 65 days at quarter end compared to 68 days for the comparable period last year. Days of inventory was 105 days at quarter end compared to 99 days for the comparable period last year. Finally, a few comments on our capital structure and overall liquidity. As of February 28, 2013, total debt was $1.4 billion compared to last year's $1.1 billion. Our net debt-to-capital ratio was 49.8% at February 28, 2013, compared to 39.6% at February 29, 2012. The increase was attributable to additional borrowings to fund acquisitions. Our long-term liquidity at February 28, 2013, was $912 million, with $247 million in cash and $665 million available through our bank revolver and AR securitization facilities. In October 2012, RPM issued a 10-year $300 million bond with an interest rate of 3.45%. With that, I'll turn the call over to Rusty Gordon.

Thank you, Barry. I would like to comment upon our outlook for the remainder of this fiscal year. While we are maintaining our previously stated guidance of 8% to 10% for consolidated sales growth, we now believe that more of this growth will come from our Consumer segment. As conditions continue to improve in the residential sector, our consumer businesses are continuing their success in introducing new products and gaining additional distribution, while the acquisitions of HiChem, Kirker and Synta are providing further accretion. As a result, we now expect consumer sales to grow more rapidly than the previously stated range of 8% to 10%. On the other hand, we now believe that it will be difficult for the Industrial segment to reach the previously stated range of 6% to 10%. While we continue to see the benefits of rebounding commercial construction in most North American businesses, we will be challenged in Europe and with our BSG roofing results. Our FY 2013 guidance calls for earnings growth of 9% to 12%, resulting in a diluted EPS range of $1.80 to $1.85, again prior to adjustments. While this earnings range still appears possible, it is more challenging now for the following reasons: First, we fell short of our third quarter plan by $0.03 per share as a result of the European expenses mentioned earlier related to severance and foreign exchange; second, the continued weakness in Europe in roofing will make it more difficult to make up this Q3 shortfall during the remainder of this year. Although these goals appear to be more challenging, we are working diligently towards achieving them. As is our usual practice, we plan on issuing full year guidance for fiscal 2014 during our year end conference call in late July. This concludes our formal remarks, and we now are pleased to answer your questions.

[Operator Instructions] Your first question comes from the line of Jeff Zekauskas representing JPMorgan.

Good morning, Silke. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: Good morning, Frank. A couple of questions. Various companies have recently preannounced and indicated a weakness in Europe and maybe in some of -- and then maybe in some other end markets. And the commentary always had been that January was okay, February really got weak, March didn't really improve, and it was challenging to tell how volume growth would look for the second calendar quarter. And so I was wondering whether you can just discuss how your own business trends look like, how have you done in March and how is April shaping up?

You know what, the story of our third quarter and what we would expect to see in the fourth quarter is really the theme throughout the year. Weakness in Europe, which is continuing, and so we've experienced weakness throughout the year and it's not getting better. I think one of the challenges that we face in overcoming the severance costs, for instance, that we took in Europe, and there's a possibility of some more severance costs there in the fourth quarter as our businesses there appropriately adjust to lower business volume, is pretty much the same as it's been. So we don't see it really any different than it's been for us, and that will continue in our fourth quarter. We do believe that strength in Consumer, strength in North American construction and other areas of our business are going to continue as well. And so we're pretty hopeful that we're going to have a fourth quarter that looks like each of the quarters this year so far. The big challenge we have in relationship to meeting our goals for the year is really overcoming some of the one-time hits in Europe, like severance costs in the third quarter, of which there may be more of in the fourth, as well as the foreign exchange hit we took principally in our company balances in Europe. Silke Kueck-Valdes - JP Morgan Chase & Co, Research Division: Second, I have one follow-up on the consumer side. Is the -- I thought the consumer results were, I mean, excellent, given the tough comparisons versus last year. Is this RPM-specific benefit from share gains, new product offerings? Or is this -- or do you think other companies will benefit also because foot traffic in stores has picked up that was beyond that?

First of all, I think your comment's spot on. Last year was the most extraordinarily warm weather that we've seen, and we saw traditional kind of early fourth quarter results in our Consumer business fall in to February, so we were very pleased with our Consumer segment results. And there's a couple of comments I would make about that. To your question, some of it is RPM-specific. We have introduced a number of new products, particularly at Rust-Oleum that are at higher price points, restoration products for kitchen counters, kitchen cabinets and those are selling well, a number of new small project paint products. So they are picking up share. A lot through new product introduction to which we're very excited about. I also think we are benefiting from the housing improvement. And again, our products aren't necessarily driven in Consumer by new home construction, but they are driven by housing turnover. So you are seeing a return to a more stable U.S. housing market in terms of sales of existing homes. And that really drives our products, and I presume a lot of other companies' products, because you get the benefit of consumers fixing up their home before they put it in the market, and then fortunately for us, new homeowners that want to come in and do small project redecorating. So we think that, that's more of a macro environment that is helping us and that we expect to continue for at least the next year. One last comment I will make on the third quarter, and this should help us in future years, is for the first time, and we're actually happy to see this, with Brazilian Viapol, Australian HiChem as well as Kirker that's part of our Consumer segment, we now have some businesses that in the southern hemisphere are counter-seasonal to our traditional seasonal low, and Kirker which is spread in terms of sales and earnings evenly throughout the year. So that helped our quarter, and in future years should help our quarter with some solid earnings that aren't impacted by the seasonality that has been traditionally part of RPM's quarterly results.

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

This is Alex Yefremov for Kevin. Frank, could you tell us about your raw material cost trends in the quarter and also what are your expectations going forward?

Our raw material cost trends have been relatively stable, which is a nice experience given the 6 or 8 years of cyclical challenges that our whole industry faced. And we certainly benefited in some areas from lower raw materials versus a couple of years ago. The other thing that's really improving our gross margins is a combination of supply chain issues as we start to source more materials from other than North America, some manufacturing efficiencies that we're continuing to pursue, particularly in places like Rust-Oleum, and product mix. We had a positive product mix in the quarter, and I think you'll see more of that, particularly as it relates to introduction of new products in terms of market share gains.

And you mentioned a number of restructuring activities in Europe and in South America. Could you help us understand if we should expect some benefit in terms of tailwind from cost savings in the future, maybe on an annualized basis? And also related to that, are you planning to exclude prospective severance costs from your EPS and EBIT on adjusted basis or leave it in the numbers?

Let me answer that last piece first. So far, we're not excluding those from our goals, and I think that's the principal reason why we communicated that it's going to be more challenging. I think we should leave it to the market, we'll provide you the details. In the third quarter, we lost the equivalent of $0.05 a share through the British pound-euro exchange rate difference, and that was, quite candidly, basically on internal working capital balances. We have a lot of business activity between U.K. operations and Europe operations, and we have some treasury personnel over there that is going to fix that going forward. So that cost us $6.5 million essentially in the quarter. And while there's no tailwind or benefit from that, it's a situation that we have corrected. So that was a one-time event, but it certainly hurt our third quarter results. The severance issues of $3 million or $4 million in Europe are really the appropriate actions for our European businesses to take in relationship to lower performance. And there could be some more of that in a similar range in the fourth quarter. It's not our expectation to eliminate that from our results like we have with one-time events, but we will communicate those details if there's more of that in the fourth quarter. But excluding that, I think you're seeing the continuing strength of our businesses, as Barry highlighted, excluding that pound-euro foreign exchange hit and the severance cost on a GAAP basis, our consolidated EBIT was up 36%.

And a final question, if I may. Is the GSA investigation impacting your ability to win new business with the U.S. government?

Well, I could give you 2 answers to that. The first answer is we're really not in a position to talk about the GSA investigation in any more detail than what we've disclosed until that's finally settled. We're hopeful that, that could be settled in the next month or 2, and that's our expectation. Secondly, the biggest challenge that our Tremco Roofing business has faced, and they are principally a North American business, and we have exited as we announced in the first quarter non-North American business, which was mostly contracting to get started. We're eliminating some contracting business. But they've done a lot of institutional work in Canada and the U.S. with local governments, with school systems, with state governments and, obviously, with the federal government. There has been little or no federal government work over the last 2 years, and there is substantially less of government work at the local and state level, and most of that has been for budgetary reasons. So the biggest challenges that we face in terms of the business going forward is a significant reduction related to a lot of the federal and state budget issues that you get to read about everyday. That has been true in Canada as well, which has been an important market for us.

And your next question comes from the line of Rosemarie Morbelli representing Gabelli & Company. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Frank, just following up. On the GSA issue, could you give us a better feel as to what the issue is? Because $68.8 million is kind of a big number. So if you could give us a feel for what is happening and what is actually in that particular number that you have taken in the third quarter?

It relates to a contract that we had with the General Service Administration for work we were doing with various federal government entities principally for the period between 2002 and 2008 and is really around certain contract conditions and pricing terms. And we believe that the accrual for a possible settlement that we took in the third quarter is the appropriate number. There's very little of other detail that we can provide at this point and until we reach final settlement. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Is that 60 -- let's call it $69 million, is that the EBITDA number that is in -- being investigated or is it a revenue number?

It is related to certain projects from a period of a number of years ago that we did with the government. And so it's really related to the revenue around those projects and pricing terms and conditions. And again, we'll be in a position to provide more detail when we release earnings in the fourth quarter, we certainly believe. But there's not a lot more detail to it. It kind of is what it is on its face, and we believe the accrual that we have is appropriate. Obviously, that could change depending on our final settlement. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And then if we look at the whole roofing business, obviously excluding Europe, which you eliminated in the first [ph] quarter, what is the size of the roofing business and how much is not linked to government, whether it is federal, state or local?

The roofing business is about a $350 million business, and very little of that has been with GSA work in the last couple of years. We do have a fair amount of federal government and state government and local school system work. And the biggest challenge to that business in the past year has been all kinds of funding issues at the government level, whether it's local or state or federal, or at the institutional level, whether it be higher ed or public school systems. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And if I may ask one question not related to roofing. If I understood what you said, the third quarter produced $0.07, and included in that was a hit of $0.05 from issues in Europe that you have now fixed. Are we to think of this third quarter potential around the $0.10, $0.12 per share going forward? Is that a good way to look at it?

As Rusty highlighted, our plan for the third quarter, our internal plan -- of course, we don't provide quarterly guidance but as the folks who follow us know, we've got a pretty detailed and focused planning process. And our plan for the quarter, which included our core results plus our expectations of some accretive contributions from acquisitions for the reasons I mentioned, was $0.10. And we would have met or exceeded that except for the foreign exchange hit and the severance costs, both of which were in Europe. So I think that, that is a base around $0.10 that is appropriate now. And we're happy to have some contributors to that, that are not as seasonal as RPM's traditional business.

Your next question comes from the line of Charles Dan representing Morgan Stanley.

First, can you just clarify how much of the FX inventory issue and the severance was -- would have been in the cost of sales line?

Well, that impacts SG&A, the FX and the severance. And just to clarify one thing, in the foreign exchange, we talked about $6.4 million being the swing year-over-year consolidated. I think Barry read that off as being the Industrial segment number as well. And the Industrial FX hit was actually $7.5 million year-over-year. Does that answer your question?

Well, I'm just curious. Was it an inventory valuation adjustment or -- because normally we see that come through cost of sales, so I'm trying to understand why...

No, it's not that. What it is, is it relates to intercompany balances and it relates to financing activities. We're a multinational company with businesses that deal outside their functional currency. And as a result of that, there are intercompany and other financing activities used to finance their transactions in other currencies. And every quarter, we recognize a mark-to-market on our current assets and current liabilities in these businesses. And usually in a more robust earnings quarter, which would be spring or summer, you wouldn't even notice this. But in the third quarter, it stands out and that's why we've highlighted it.

The other issue there, Charles, was again on these intercompanies, there's a lot of good activity between our U.K. operations and our European operations in terms of products back and forth. And they weren't always reconciled on a very timely basis. And when you had in lockstep for years and years and years the relationship between the pound and the euro, it didn't matter. The pound went crazy in the last 2.5 months, and so we have taken internal steps to correct that. So that's not a hit that's likely to happen again.

Okay. So just to clarify then, so the gross margin number that we see in the income statement is a clean number?

Yes.

It looks like you're still running at around 150 basis points year-over-year increase. Last quarter, you indicated that, that should continue for some time. Can you give an update on your outlook there? And also, could you give a sense -- I think you also, last quarter, gave a sense for what the Industrial business's organic growth would have been excluding roofing. I think that would be helpful as well.

Well, Charles, this is Barry. I can handle the first question regarding our 150 basis point improvement quarter-over-quarter. Like you said, this is the second consecutive quarter. And we expect that, provided the raw material environment is fairly stable to where it is today, you'll always have some ups and downs, but we would expect to see that year-over-year improvement for at least the next several quarters.

Great. Any comment on what the rest of the Industrial business might have done?

No. Other than -- if you look at the disclosures we made on the Industrial segment, we're up in the quarter about 6.1%. 4%, 4.5% was from acquisitions, and so you've got less than 2% really from organic growth. We have $800 million worth of European-based business, most of which is flat to below last year on the sales and earnings line. And we had a, as I mentioned earlier, a $350 million to $400 million roofing business, which performance at the sales earnings line has been below last year. And so -- and those are annualized numbers, obviously. So I think you can back into what you're trying to get to, which is the core of our businesses, in commercial construction, in sealants and other waterproofing, in polymer flooring, in corrosion control coatings, are all showing solid single-digit and upper single-digit organic growth.

Perfect. And lastly, just if you could comment on the outlook for M&A. It seems like you guys have slowed down executing on new deals. So any comments there would be helpful.

Sure. We've slowed down a little bit as we assimilate the acquisitions that we've done. We're very excited, as I commented, about Viapol. We're hopeful that, that could become a platform for RPM products other than just our Building Solutions Group. And that's starting really now with this transition into polymer flooring. And so it's likely that Viapol will be a licensee of Stonhard or Flowcrete polymer flooring products, both of which are multi-hundred million dollar brands for RPM globally. Great technology, great specifications. Viapol actually has a couple single million dollars worth of epoxy polymer flooring. They have the manufacturing in place. They've got broad distribution. And so we're excited about that. Probably, the next area to come in terms of leveraging existing manufacturing without a lot of technology or specifications will be in concrete admixtures down in Brazil. So that's very exciting for us. Our pipeline of kind of smaller deals remains pretty robust, and we're looking at a number of opportunities that we hope to complete over the next year, none of which would be material, but all of which are continuing to either expand our presence in other parts of the world in North America or bring technologies to our existing businesses like Synta, which is an acquisition we did in the fall, very seasonal part of Rust-Oleum. And we expect that to be, for the first time, a contributor to sales and earnings growth in our fourth quarter.

And your next question comes from the line of Ivan Marcuse representing KeyBanc Capital Markets.

On the Viapol business, how big do you think Brazil and Viapol have the potential to be in the next year or 2?

I don't know the answer to that question other than it's a $100 million business that we bought, and it is growing organically at well above the RPM averages. As you've heard, we're excited about the opportunity to utilize Viapol for other RPM product lines. And they seem to be in a good space in Brazil in terms of serving construction and waterproofing markets, given what's happening with the World Cup and the Olympics. And so we're pretty excited about that. We want to be deliberate so that they can continue to focus on their business, which did quite well before they were part of RPM, and make sure that the introductions of new product technologies are done properly. But I would certainly expect it, based on the dynamics and the markets we're in, in Brazil, as well as the things that we can do to leverage those assets, to grow at probably double or more of the rate of RPM's core organic growth.

Great. And then you mentioned first quarter, second quarter, how there was delays -- or you're seeing some delays in capital spending especially in the U.S. as there's some uncertainty about tax rates and everything else that was going to go through. Now that we've passed the year, do you see a pickup in that business or what's sort of your outlook on capital spending at least in North America going forward?

It's growing but at a modest level. And I think some of that has to do with uncertainty in places like Europe. And it really is a mixed bag. And so if you're in the polymer flooring business or you're in the corrosion control or waterproofing or sealants business on a global basis, you're doing really well in Asia, you're doing okay in North America, and you're losing ground in Europe. And so on par, as I mentioned earlier, we're seeing mid single-digit growth in most of those businesses. But it's a mix of strength in some regions overcoming weakness principally in Europe.

Great. And then on the -- real quick on the roofing business. How much is related to the roofing? I've always thought that the vast majority was repair and maintenance. So wouldn't you expect to -- I mean, roofs -- even if the government doesn't want to spend money, I mean, roofs get leaks every now and then. So is this more of a delay, and you would expect to catch up over the next year or 2? Or is there a fundamental change of what your business is, or is it more new construction that I'm thinking about?

No, no, it's 90%-plus reroofing. But when you think about its core institutional marketplace, whether it's industrial, school systems, things like that, a lot of it has been driven by the ability of school systems to pass levies for building construction or repair and maintenance. And so there's just been less of that. It's been a challenge, a challenged marketplace in relationship to what's happening at federal spending, what's happened at earmarks a few years ago and what's happening at the state and local levels. At the end of the day, leaking roofs or roofs that become saturated have to be replaced. You can reroof them much more cheaply than doing a total tear-off all the way down to your deck. And so a lot of it is deferred. But it's been a challenged marketplace for the last 1.5 years, totally unrelated to the GSA situation.

Great. And then the last question. You haven't done a lot of acquisitions in the past couple of quarters. So if you looked at acquisition costs, were they pretty close to nil this quarter?

They were down a little bit this quarter from last year, but the majority of our -- I think year-over-year, it's not a big deal in terms of quarter-to-quarter, but obviously, they're less than they were in the first and second quarter when we were in the final stages on diligence and legal costs on acquisitions like Viapol and Kirker and Synta.

Great. How much have acquisitions contributed to EBIT this quarter?

We haven't disclosed that in the past, and we won't other than talking about sales and earnings on a segment basis.

Your next question comes from the line of John McNulty representing Credit Suisse.

Yes, this is actually Alina Khaykin sitting in for John. Can you give us a quick update on the legal front related to SPHC and where we are in the progress there?

Sure. We -- The Bondex SPHC and the creditors committee were part of a estimation hearing in federal bankruptcy court in January of this year. And the judge is expected to issue a ruling on that sometime May or June. And the ruling again would be a step in the direction of hopefully driving the parties to a consensual resolution with a 524(g) bankruptcy trust that would fairly recognize the Bondex SPHC liability in a manner that works for all parties. And the judge's ruling in this process is nonbinding, but it certainly is an issue that both parties will take a hard look at. The ruling is appealable by either party. And so at this point, we're in a process of seeing how the judge rules. The Bondex SPHC team made a very compelling case in relationship to its very limited exposure and small market share. And we will wait to find what the judge's ruling is, as will the other side. And I think the next step of what happens then either towards a consensual resolution and a settlement, if you will, in that case or a continuation for 2 or 3 years into an appellate process will be determined some months after that.

Okay, that's helpful. And then also on the guidance, can you just give us some additional color on what leverage you could pull specifically in the Industrial segment to actually hit the range? I mean, are you counting on a pickup in Europe to actually hit the range or is there anything else you could do to come in within the guidance range?

No, we're not counting on a pickup in Europe. I think we need to see the continued strength in commercial construction, and it's possible that, that could accelerate a little bit as we come out of a seasonal low period for a lot of our waterproofing and sealant products and air barrier products, which are still, for the most part, applied in the exterior. It will be interesting to see what happens in our roofing business because our fourth quarter is really its seasonal strongest quarter in relationship to a lot of roofing work that gets done institutionally and in higher ed and schools over summer months. And we are counting on continued strength both from our Consumer businesses, as well as accretion to both sales and earnings growth from the acquisitions we've done in the last 12 months. We are not counting on any improvement in Europe, we're not seeing it, and as far as I can tell, it's not coming anytime soon.

Your next question comes from the line of Greg Halter.

I just wondered what your plans are for capital spending for this year, and if you have any thoughts next year even if it's higher or lower on a sequential basis?

Yes, CapEx this year should come in somewhere around $90 million.

And any thoughts on above or below that for next year?

About the same, maybe slightly higher.

Okay. And relative to new products, you've obviously had some successes there. I just wonder if you could speak to any other new items that you have either launched or are set to launch?

Sure. There's some exciting new products in the Tremco illbruck range in Europe. They've come out with a new patented combo tape foam sealant for the installation of windows and doors, which is, in the long run, a replacement for their leading share there. The benefits of that are not fully reflected in our results. We're excited about it, but it's been introduced in a challenging economic environment in Europe. There are a number of Rust-Oleum products that we referenced. Stonhard Flooring has come out with a new product range called Liquid Elements, which is for the first time targeted at what they call the front of the house. It's actually been in development for the last year, and they're really getting it into the marketplace. So the Stonhard Flooring has always been kitchens, laboratories, chemical processing, food processing, microelectronics and aviation where there would be a static issue. And this Liquid Elements range is really targeted at showrooms and the front of the house and hospitals, things like that. And they're just getting that into market with the Stonhard sales force. And we've had some successes in Europe and in the U.S. in some auto showrooms. So those are just a couple of examples of some of the new product ideas that we have. Our Mantrose-Hauser business is working on some exciting new products. They are the inventor of Nature Seal, which is the patented chemical wash that allows for sliced apples to be sold in stores or sold as apple fries in various fast food places, and that's been a very nice growing business for us. They're looking at other food and vegetable washes that they're working on, that if successful could address some pretty exciting areas around bacterial contamination. So there's a lot of new ideas perking around RPM. And with 50 independent operations, that's just a small smattering of some of the things that are out there.

[Operator Instructions] And your next question is a follow-up question from Rosemarie Morbelli representing Gabelli & Company. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Frank, I know that 49.5%, if that is a magic number, total debt-to-cap is not the highest you have been historically. Can you talk about what the maximum is in your mind that is comfortable given the current economic environment and that would imply, obviously, slowing down maybe the M&A or using stock for it?

Sure. The highest debt-cap ratio we've had in my career here has been about 62%. And it's really not a function of what the debt-cap ratio is. We have been pretty demonstrative about 2 things: number one, using our balance sheet to support an acquisition program, which we have done and will continue to do as aggressively as possible; and maintaining a capital structure that is investment grade. And so I think we're in a good position with the liquidity we have and our ability to fund hundreds of millions of dollars of acquisitions and fall within those criteria. Obviously, if we do some acquisition activity that would challenge that investment grade rating, we would look to fund an acquisition either outright or at some point, afterwards in the capital markets with equity or some form of equity to provide us that balance sheet flexibility to maintain an investment grade rating. And that's something that has been a parameter for us for the last 30 years, and I don't see that changing. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay. And if I understood properly, you are not going to share the magnitude of the Viapol accretion?

No. But to that question, when you look in the third quarter, acquisitions contributed nicely to sales growth. And we are certainly getting a benefit on our bottom line from the acquisitions we've done, both in terms of on a marginal basis incremental cost of capital, that's not how we look at deals when we value them. We look at them in our long-term cost of capital, and also because the acquisitions that we've done in the last year are growing. In all instances, they're growing at a rate equal to or better than the core RPM growth. So they are contributing to our results. The contribution was nice in the third quarter only because in the third quarter, $0.01 per share here and there looks impressive because of the seasonal low. Rosemarie J. Morbelli - Gabelli & Company, Inc.: Okay, that is helpful. And if I may ask one last quick question. D&A for the full year, please, and for next year, do you have that number, given the number of acquisitions you have made, what are we looking at?

Depreciation and amortization for the full year.

Between $85 million and $90 million. Rosemarie J. Morbelli - Gabelli & Company, Inc.: And that includes all of the acquisition, 12 months of them, so it is about the same number next year or is it higher?

For 2014? Rosemarie J. Morbelli - Gabelli & Company, Inc.: Yes.

We'll get a full year of acquisitions that were completed.

You know what, we will get a more definitive answer to that question to you and highlight it in our next call as well.

At this time, I would like to turn the call back over to Mr. Frank Sullivan for closing remarks.

Thank you very much for your participation on our call today. We look forward to reporting our full year 2013 results and to providing our outlook for what should be a solid year of sales and earnings growth, without the one-time challenges we've been hit with this year, when we release results on July 22. Thank you again for your participation and for your investment in RPM. Have a great day.

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