RPM International Inc (RPM) 2006 Q1 法說會逐字稿

Good day and welcome to the RPM International conference call for the fiscal 2006 first quarter. Today's call is being recorded. This call is also being web-cast live and can be accessed through the RPM website at www.rpminc.com. A taped telephone replay will be available two hours after the call concludes until 8 PM Eastern Time on Thursday, October 13, and can be accessed by dialing 888-286-8010 or 617-801-6888. The confirmation code is 47015080.

A web-cast replay and written transcript will also be made available through the RPM website. The web-cast replay will be available approximately two hours after this call ends. The written transcript will be available within 24 hours after this call concludes.

Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties, which could cause the results of RPM to differ materially from management's current expectations. For more information on these risks and uncertainties, please review RPM's quarterly earnings releases and periodic reports filed with the Securities and Exchange Commission.

The information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor statement and may continue to be used while this call remains on the active portion of the RPM website.

During this conference call, RPM spokespersons may reference non-GAAP financial measures to assist you in understanding such non-GAAP terms, as well as to comply with SEC requirements. RPM has posted reconciliations to the most directly comparable GAAP financial measures, including disclosure on the reasons for the use of non-GAAP measures on the company website and the Investor Relations section under Web-cast Presentations.

Following today's presentation, there will be a question-and-answer session. (Operator Instructions). At this time, I would like to turn the call over to RPM's President and Chief Executive Officer, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Thank you, Beverly, and good morning. Welcome to RPM's first-quarter conference call for the quarter ended August 31, 2005. We're pleased to report a good start to our 2006 fiscal year, with strong growth in our first quarter, especially in our industrial businesses, which are continuing.

We are facing continuing raw material cost issues and are pursuing associated price increases across all RPM product lines and companies. On August 31, we completed the acquisition of illbruck Sealants. While illbruck had no impact on the first-quarter income statement or cash flow, the illbruck acquisition is fully reflected in our August 31, 2005, balance sheet, which was attached as part of our earnings release and will be also included in detail in our 10-Q, filed at the end of the week.

Glenn Hasman and I had a very good investor roadshow in the UK, where RPM formerly had a very strong investor base, and we welcome a number of those investors or potential investors to this call.

Before Glenn provides the details on our first-quarter results, I would like to provide an update on our asbestos liability situation. As we have indicated in previous quarters, there has been and will continue to be some volatility in our asbestos costs on a quarter-by-quarter basis. This variability is the reason why we evaluate and, as necessary, adjust our reserves on a quarterly basis, taking into account our most recent experience during the quarter and our outlook.

Despite the ebb and flow of quarter-to-quarter activity, these factors are going in the right direction and are producing meaningful results, with lower resolution costs, higher dismissal rates and the types of spikes that make us believe that our asbestos costs are flattening out. You'll see in our upcoming Form 10-Q filing the active cases for the first quarter of 2006 were 9093 versus roughly 8600 in the last quarter and 6820 at the same quarter end last year.

Florida, Illinois, Ohio, Mississippi and Texas still account for over 80% of our active claim volume. Our gross costs for the third quarter were 16.4 million versus $19 million in last year's first quarter. It's a year-over-year decline of about 14%. We secured dismissals or settlements of 392 claims versus 181 claims in the comparable period last year. Of the $16.4 million cost this quarter, $4.5 million was spent in defense and $11.9 million on settlements.

Based on this most recent experience and factoring in the new cases received during the quarter, we took a $15 million pretax charge in the quarter to increase asbestos reserves. This brings our total asbestos reserves to approximately $99.7 million, which we believe adequately covers the expected resolution cost for our existing pool of known claims.

We will continue to communicate to you about our cases and cost activity each quarter and the basis for any quarterly reserve adjustments based on our most recent experience. It continues to be our expectation that you will see the quarterly reserve charge and our total level of reserves decline over time, but we cannot say with any certainty whether or not this will come quickly via federal legislation, certain legal action or more slowly with a longer tail over time as this contingent liability begins to decline.

Last week, Senators Specter and Leahy issued a letter to their colleagues asserting their belief there was time to get the FAIR Act federal asbestos reform legislation to the Senate floor for a vote at the end of October, and we'll stay tuned to see if that actually occurs. We're also encouraged by the announced inquiry by the U.S. attorney's office in New York with respect to a criminal fraud investigation involving three of the largest plaintiff’s firms, as well as findings in a Texas federal court related to possible fraudulent asbestos filings. Regardless of these activities, we will continue to manage this issue in the best long-term interest of RPM shareholders and keep you fully appraised as to significant developments.

I'd now like to turn the call over to Glenn Hasman, RPM's Vice President of Finance and Communication, to provide you with the details of our first-quarter performance, after which we will answer your questions.

Thank you very much, Frank. Good morning, everyone. A few housekeeping items to begin with. We first want to remind all of you that our reported comparative results for this first quarter and the comments that will follow reflect two accounting changes since last year. The first is our retrospective adoption of EITF 04-8 relating to our contingently convertible debt, which had the effect of reducing first-quarter fiscal 2005 diluted earnings per share by $0.03 to an adjusted $0.44 from the originally reported $0.47.

The second and more recent change is prospective only in the way we account for certain consumer merchandising services, which began toward the end of last fiscal year. The income statement effect of this change is a reduction of net sales along with gross profit with a related reduction of SG&A expenses.

Also, since Frank has further reviewed the asbestos charge that we've taken this quarter and fiscal year, the comments that follow refer to only our adjusted operating results before these charges. I will begin with a review of the P&L, followed by highlights from our balance sheet and then the cash flow statement.

First-quarter net sales -- this year's first-quarter sales grew 13% year over year to a record first-quarter sales level of $747.4 million. Our organic sales growth amounted to 10.8% of that, with pricing 3.5%. Five product line acquisitions added 1.4% to net sales growth, and net favorable foreign exchange contributed the remaining 0.8%, mainly against the Canadian dollar and the Latin American currencies.

Our industrial segment net sales reached $430.8 million this quarter. That's up 17.9% over a year ago. The organic industrial segment growth was 14.4%, with pricing equal to 3.2% of that, plus 1.1% growth from foreign exchange.

Of note, the following industrial product lines all registered 10% or stronger organic growth for the first quarter -- concrete admixtures and related construction chemicals, corrosion control coatings, roofing, powder coatings and fiberglass-reinforced plastic grating composites, or FRP. The balance of our industrial segment growth came from four small product line acquisitions.

The consumer segment net sales reached $316.5 million this quarter, which was up 6.9% from a year ago.

The organic consumer growth was 6.2%, with pricing equal to 4% of that, plus another 0.5% from net favorable foreign exchange. Of note, were it not for the charge that was mentioned in merchandising services during this past six months, organic growth in the consumer segment was actually up 7.7%.

The following consumer product lines all registered 5% or stronger organic growth during the quarter -- confectionary and pharmaceutical coatings and glazes, wall coverings and coordinated fabrics, caulks and sealants, automotive restorative products and finishes, small project paints and coatings, and primer sealers and mold and mildew prevention products. The balance of our consumer growth was from one small product line acquisition during the past year.

Our gross profit margin was 42.3% this quarter, off from 44.6% a year ago. This margin reduction is largely the result of higher material costs in both segments, with the balance of the margin reduction due to differences in sales mix, which included increased services sales, such as Tremco's WTI and Rust-Oleum's at-home services, which both carry lower gross margins.

Our higher material costs, many of which are petrochemically based, continue to affect our year-over-year results, as Frank has mentioned. However, our own price increases are having a more mitigating effect. Additional price increases will be phased in in the coming months to help compensate or recover higher costs as necessary.

Our industrial segment gross margin declined quarter over quarter to 43.9% from 45.9%, and the consumer segment gross margin declined to 40.2% from 43%, both for the reasons just discussed.

Moving to SG&A expenses, these were improved 190 basis points on sales to 28.7% this year from 30.6% last year in the first quarter. And this improvement mainly reflects the net leverage benefit from the organic sales growth, including pricing, plus the change in our accounting for merchandising services. Both segments' SG&A improved as a percentage of sales -- industrial to 28.8%, compared with 30.5% a year ago, and consumer to 25.5%, compared to last year's 27.3%.

Our corporate/other expenses increased to $10.1 million this quarter from $9.9 million last year. This primarily reflects added costs connected with our October 2004 omnibus equity plan, partly offset by certain lower insurance costs.

Our EBIT, or earnings before interest and taxes -- the adjusted total EBIT grew 9.5% this quarter, and that reflects the leveraged earnings from the 7.9% higher organic sales volume, excluding the higher pricing, foreign exchange differences and the change regarding merchandising services.

Our EBIT margin declined to 13.6% of sales from 14% last year, which essentially reflects the net impact of the higher material costs. Our industrial segment EBIT was up 16%, a 15.1% margin of sales compared to last year's 15.4%, and our consumer segment EBIT was flat year over year for a 14.6% margin on sales, compared to last year's 15.6%.

Interest expense, net was up $600,000 during the quarter. This reflects acquisition-related debt and Fed-driven net rate increases on our variable debt during the past year. Our average rates overall this year were 4.79%, compared to last year's 4.66%.

Our tax rate was 36% this year, comparing to 35.5% last year. This mainly reflects changes in our international mix of earnings, resulting in valuation allowance requirements based on limitations on our ability to utilize foreign tax credits.

Our net income as adjusted reached a record $59.3 million. That's up 8.9% from last year. And our diluted earnings per share as adjusted reached a record $0.47 per share, versus last year's $0.44 or ahead 6.8%.

Some comments on the balance sheet -- and again, given our seasonality, I make these comparisons back to the previous August. Our net accounts receivable were up $88.1 million. Acquisitions accounted for $33.1 million of that. Foreign exchange translation accounted for another $6.4 million, and sales increases in both of our segments accounted for the balance of that increase of $48.6 million, 10.4%, and compared with our 10.8% organic sales growth during the first quarter, days-sales-outstanding were essentially flat year over year.

Our inventory was up $67.5 million, with acquisitions accounting for $27.3 million, foreign exchange translation $4.5 million of that, and the remaining increase of $35.7 million or 12.1% compares with 15.2% organic cost of sales increase during this first quarter, which meant that in fact our days outstanding in inventory actually decreased, about 1.9 days overall.

Accounts payable were up $48.4 million year over year, acquisitions accounting for $19.4 million of that, foreign exchange translation, $2.6 million, and the balance of the increase, or $26.4 million, 12.6%, is from the combination of business growth and timing of payments in both segments, which partly offset the $35.7 million organic inventory increase year over year.

Our total debt at August 31 this year stood at $870 million, including the short term, which was up $146 million year over year, reflecting $160 million of additional debt for our acquisitions, less $14 million net debt repayments during this past year.

The composition of our debt at August 31 was approximately 45% fixed, 55% variable. Our available liquidity, including our cash balance, stood at $356 million. Our debt to capital of 44% at August 31 compares with 41% a year ago, reflecting mainly the illbruck acquisition, which closed August 31, as Frank mentioned.

Moving to the cash flows, our cash flows from operations were behind last year's first quarter, primarily reflecting a timing difference in our accounts payable payments year over year. The new businesses acquired since May 31 were A/D Fire Protection on June 1 and illbruck Sealant Systems on August 31, with the related debt reflected under our financing activities, along with the retirement of the $150 million 7% bonds, which matured June 15.

I will now turn the call back over to Frank.

Thank you, Glenn. I would like to provide a few comments on what we see in the coming months before we get to your questions. Our second quarter is likely to be a challenging one as a result of the impact of the hurricanes on the Gulf Coast states region. We have seen a temporary slowdown in the beginning of the quarter and the fall in a number of our consumer areas for some simple reasons. This includes the fact that more than 100 stores or outlets of a number of our major retail customers were closed for a period, in some cases up to a couple of weeks.

There's also been a disruption of supply at these retail customers, and it's possible that this will continue, although we would fully expect to make this up in the coming months as a number of our consumer product lines will be heavily used in restoration and repair.

It's also possible that RPM will experience some raw material price spikes or even some temporary supply shortages, though we're not experiencing any of these at this time. Any expected problems should become evident in the next 30 to 45 days. Our industrial business activity and growth remains very strong as we enter the fall months. As I mentioned a minute ago, many RPM companies and products are well-positioned to play a role in the repair, renovation and restructuring.

I'll give you a couple examples. Zinsser, for the last five years, has been developing strong mold and mildew either restoration, repair or prevention products, both at the contractor and DIY level, and we are now shipping significant quantities of these products into the Gulf Coast region through our major customers. Our Fibergrate business, which is based in Texas, has already been receiving some unscheduled extraordinary orders into the oil offshore platform area, and we expect this to continue as it relates to rebuilding and renovation.

Lastly, our Carboline business, which has a major factory in Lake Charles, Louisiana, is back up and running on a full-time basis. The leadership at this business, as well as the dedicated employees, did an extraordinary job of getting our plant up and running at full capacity within one week of Hurricane Rita.

I commented on illbruck earlier. We expect illbruck, which closed on August 31, 2005, to add approximately $130 million in revenues for our current 2006 fiscal year. It's important to note that illbruck is a seasonal company, much like RPM. In fact, their season really begins to pick up in May through the summer and through the month we just completed. There will be acquisition-related costs we're absorbing up front. And additionally, there will be some charges associated with operational consolidation, which is likely to result in no or slightly negative earnings impact on the current fiscal year.

For 2007, we believe that the illbruck acquisition will be $0.03 to $0.05 accretive based on cost synergies alone. This could be better, depending on the timing and magnitude of market synergies, and we will give you an update on our activity and progress with illbruck at each conference call throughout the year.

With those comments, we would be pleased to answer any questions that you have about RPM's first-quarter results or our outlook for the balance of the fiscal year.

(Operator Instructions). Saul Ludwig, KeyBanc.

Question on pricing. We've compared the gross margins this year to last year, but if you go back, let's say, the year before, you are off about 400 basis points in your gross margins in both segments. Is there anything that you can do more aggressively on pricing to begin to move that needle in a more positive direction?

Saul, we're getting price increases at all of our businesses. On average, we're looking at, on a consolidated basis, somewhere between 3.5 and 4%. Obviously, it's higher or lower in certain different businesses. If you look at our history, I think you will come to see what we are pretty excited about. We are continuing to invest probably better than we ever have in terms of our process in internal growth programs, and that's part of what's driving our high rates of internal growth, and we expect that to continue.

And yet, at the same time, because we've got our process honed down and we're benefiting from the leverage of higher sales, we've improved our SG&A by about 250 basis points. Over the cycle, the nature of our products has been that we do not have to give price back. Certainly, as we've indicated earlier, on the catch-up side, we tend to be about a three-month lag time in our industrial businesses and anywhere from a nine- to 12-month lag time in our consumer businesses. So I think we're going to continue to play catch-up.

Interestingly enough, we were seeing some softening in raw materials at the beginning of the summer for the first time in probably 18 to 24 months. And obviously, the impact of the hurricanes have ended that softening pretty sharply. So I think over the cycle, you are going to see RPM end up with EBIT margins that are higher than when we started because we will regain a lot of the lost gross profit margin through the price increases that we're getting today, and we have improved our SG&A efficiency. For the balance of this year, we're going to play catch-up.

And then a question about asbestos. You gave us the number of cases outstanding. I missed that.

The number of cases outstanding for asbestos at quarter end were 9093.

And the split between defense and settlements -- in the last couple of quarters, weren't the defense costs much higher than the settlements, and is the amount related to settlements any surprise to you?

No. I think we're pleased that year over year, our settlement costs are down, and year over year, our total costs are down. They would've been down more, but again, our defense costs are increasing, as we've indicated. A year ago, our settlement costs were about $14.3 million. Again, we are down year over year, and the details of that will be in our Q.

And then just finally, normally, as is your practice, you don't typically want to comment on the quarterly results. But we have a very unusual situation this year with Katrina and its ramifications. Should we be expecting this to be kind of a down quarter for the company because of the factors that are sort of one-time in nature, or is there enough goodies in there that could mitigate the downward effects?

It's really hard to say. As we sit here at this point in time, it looks as if -- we will certainly have a strong quarter in terms of revenue growth. We're seeing continuing excellent revenue growth in our industrial businesses. We're seeing slower but continuing positive revenue growth in our consumer businesses. And then, of course, we will begin in the second quarter to have the positive impact of this $130 million of estimated fiscal 2006 revenues from illbruck.

As we sit here today, I think that we will also be reporting, adjusted for any asbestos charges, positive year-over-year earnings growth, even with some of the things we anticipate. As I indicated, while we don't see any particular shortages impacting our business as we speak, and we're not aware of any that are coming, Our strong belief from our operating people is that the next 30 to 45 days are going to be pretty critical, and that's the time frame in which if there's going to be any shortages or supply disruptions, we will see them, and if we get past the next month, month and a half without those -- barring any additional weather-related problems in the Gulf Coast region -- then we will get through this second quarter in pretty good shape.

Craig Kennison, Robert W. Baird.

Following up on the EPS commentary you provided, what is the comparable Q2 fiscal '05 EPS number that you're using?

Craig, this is Glenn. Before the CoCos, you're saying?

Adjusted for CoCos, asbestos. When Frank says -- just want to make sure we're on the same page.

The adjustment for the CoCos will be almost two pennies. It will be $0.31 diluted EPS compared to the reported $0.33.

And Frank, your commentary is relative to that $0.31 number?

Commentary on--?

You mentioned that in Q2, you would still expect that you could show growth in EPS, excluding asbestos.

That's correct, and again, that's our expectation as we sit here today. And, you know, from a revenue perspective, we're in pretty good shape. What would change our expectation is if we bump into any significant raw material supply issues that impact our supply and delivery to our customers. Some people are seeing that. We're not seeing it now, although we certainly anticipate some temporary price spikes.

The issue that we're facing isn't so much a shortage of raw materials yet, and again, we're not anticipating it, but it could come. We are seeing some raw material availability at higher prices, and it's take it or leave it. There's not a lot of price negotiation in certain product categories.

And given that this is perceived as perhaps a temporary price spike, are you having a more difficult time convincing your customers that a price increase is necessary, given that it could be perceived as a permanent price increase?

No. We've been fighting for price increases across all our product lines for the last 12 months. And you know, the temporary spikes or even raw material shortage issues here are not the basis for pricing negotiations. It's an oil price, for instance, that's gone in the last 18 months from $30-something a barrel to $60-something a barrel and the anticipation that it's going to remain there. It is freight rates that because of oil prices and freight industry consolidation have gone up dramatically.

So the underlying raw material pricing issues, many of which we feel are permanent, are the basis for our price increase negotiations. Whether it's in our consumer businesses or our industrial businesses, we have worked hard to make sure that retail prices can be adjusted accordingly and/or prices to distributors who are in our industrial markets for the end users are adjusted accordingly as well.

So we're working with retail customers and/or distributors in essence to try and move along the whole supply chain -- the portion of what we believe is permanent increases in certain categories that has nothing to do with the temporary price spikes that we're seeing now.

Thank you. And relative to illbruck, could you discuss the growth and operating margin profile of that business?

Not in any specifics, but I can tell you generally the gross margins are somewhat lower than the RPM average gross margins. And it's really the results of a mix -- part of their business is high-performance sealants and tapes that go into the construction industry, a lot of it renovation, some of it new construction, and then also just the construction and maintenance area -- doors, windows, construction sealants. And then there's a portion of it that is PU foam.

The tapes and sealants business tend to be at regular RPM-type gross margins and the PU foam business tends to be substantially lower than what we're used to seeing. And then at the operating level, their operating margins are somewhat lower than RPM's as well.

We expect to improve both of those margins in the coming year through a number of different initiatives, some of which is consolidating some manufacturing capacity in Europe, some of which is consolidating some distribution. There are some raw material synergies that, despite the challenges we're facing today, we're benefiting from already and that we'll benefit more from in the event that you see raw material prices cycle back downward. Some administrative synergies, including just rolling them into our insurance programs.

So there are a number of areas where we see hard dollar opportunities to improve profitability and profit margins, either through rolling them into RPM programs or through some operational consolidations.

Then, the area that we're less certain about but pretty excited about are the market synergies. illbruck brings with them leading positions in a number of major European countries. They have a sales force in excess of 200 people and the ability to take some of our existing product range in Europe, which is relatively small, about a $50 million presence, and principally focused on the UK and Scandinavia and is very complementary to the illbruck range. And put them together, we hope, holds out some exciting opportunities for revenue growth, and that would be gravy on top of the accretion that we're comfortable in telling people we expect out of this a year from now.

And finally, on the asbestos front, could you just comment on when do you expect to see a decline in the number of active cases? Is that something you are anticipating in the short run?

In the short run, no. In the long run, -- and not even the long run -- in the intermediate run, I think we're starting to see both cases and costs flatten out. Our dismissal rates are up pretty dramatically, and it's a combination of a more aggressive defense posture and also, the quality of the cases which isn't very good. And so there is certainly a core, particularly mesothelioma cases, that are driving most of our costs.

As state law begins to take effect, it becomes easier and easier to isolate our costs. over 40% of our costs over the past year and a half are coming out of Madison County, Illinois. And so while you don't see it in the caseload numbers, our cost profile in states like Ohio and Texas and Mississippi have improved,, and we expect that to continue.

Texas is still somewhat of a challenge and will be for another year, after which, under the new law, we expect to see significant improvement there. And even in Madison County, with the new judge, at the very least we're starting to see proper dismissals on venue grounds.

And so we're -- unlike the prior five years, we feel pretty strongly that we are in a situation where caseloads and actual costs have flattened out, and I think the real question from an investor perspective is if we are now in a flattening or resolution mode, is that resolution going to come relatively quickly with some federal legislation? Maybe it's going to drop pretty quickly with findings of fraud associated with some of these federal court inquiries or federal prosecutor investigations. Or are we going to be dealing with the contingent liability tail that's going to last for the next five or seven or 10 years? We don't have a good answer to that yet.

Rosemarie Morbelli, Ingalls & Snyder.

Could you give us a better feel as to which raw materials shortages you could be seeing over the next month and a half?

I'll comment without getting into too much detail on our supplier base or specific raw materials. Let me just give you a few examples and also refer you to a report that we look at. Styrene, for instance, is an area where there's a lot of capacity shutdown right now and is something that we're looking at and concerned about. Conversely, as a result of trying to manage raw material increases for the last five years very effectively with our purchasing action group and in earnest over the last year and a half, we are I think in better position than some of our peers, and I'll give you a few examples.

We are one of the largest purchasers of epoxy resins in the United States. We were among the first people to establish supply, about five years ago, from the Pacific region, and we have reinitiated that in the past year. We have supply, actually, in parts of the Middle East in terms of epoxy resins, and so that's an area that's critical to RPM where while certainly there are price issues, we don't expect supply issues, and we think we've managed that pretty well.

Acetone is an area of concern to people today. That is another area, for price reasons, where as recently as a year ago, we purchased acetone through a master distributor, a major chemical company. Today, we are a bulk buyer of acetone and we are a buyer of acetone from sources not only domestically, but offshore.

And then the last thing I would comment on is there's a report that all of you may be familiar with. It's the CMAI -- it's the Chemical Manufacturers Association report -- and they are doing a hurricane update that they update daily, and it literally talks company by company, plant by plant, platform by platform, and what's running, what's shut down, what's restarting, and what percent of capacity they represent in the United States.

And we watch this very closely. And in a couple key areas, we've just been lucky. There's a couple of key areas where two-thirds of the Gulf area capacity is shut or not up to full capacity yet, and in a couple instances, fortunately, the one-third that either never closed or was quickly up and running tends to be suppliers to RPM. So it's an area that we pay a lot of attention to anyway, and certainly intensely in the last two weeks, and I think that's about as much detail as I would like to get into.

And since you'll be facing shortages in one area or another, do you have the possibility of moving to a replacement type of raw material?

The simple answer to that is yes. However, we've talked about that. I don't think that the substitute raw materials, for instance, in packaging or other areas, I don't think we would make that change in time to benefit from what we think is going to be temporary. I mean, if this is a challenge for us, A., we're going to know in the next 30 to 45 days, and if we get through that without any shortages, I think we will be in good shape. And B., if those shortages pop up, they are likely to last anywhere from a month to three or four months.

By the time we go through the process of changing in certain areas, we anticipate that the problem that we were trying to avoid will have been resolved. I do want to reemphasize the fact that as we sit here today, we do not currently have raw material supply shortage or allocation problems.

Thanks. Could you talk about illbruck a little more? Have you put a dollar amount as to the savings that you can get out of the few steps you just talked about in response to the prior question?

You know, we have done a pretty strong analysis of illbruck, and so obviously we have that information internally. We have not made that information publicly available, other than we expect about $130 million of sales in this fiscal year. At current exchange rates on an annualized basis, illbruck is about a $190 million business, and so in '07, we would expect it, barring any change in the exchange rates, to operate at about that level, depending again on revenue growth.

And in 2007 -- and you can back into these numbers either net or pretax, Rosemary -- we expect about $0.03 to $0.05 of accretion to RPM as a whole, and that accretion is really based on our expectations for near-term cost savings.

So that was only -- I did do the calculation, and that is only $5 million, which on $190 million in revenues, if there is no growth, is not a lot. So I was trying to figure out what was the ultimate potential on that $190 million of sales.

As we begin to realize the benefits of some of this consolidation and get comfortable, if and when there are any higher amounts, we'll certainly share that with you. I think the one thing that makes us hesitant to commit to higher cost savings at this point is that we are in a pretty extraordinary raw material situation, which we're very cognizant of, and depending on how that situation plays out over the next six or nine months, that $0.03 to $0.05 will be a pretty rock-solid number or that $0.03 to $0.05 will appear to be relatively conservative and relatively easy to beat. But we've owned this business for all of 34 days. So as we get more into it and as we realize the consolidations that we're talking about, we will share that detail on a more public basis.

Did you talk about the growth -- topline growth potential for illbruck? Did I miss it? Or you didn't talk about it?

We did not talk about it in general. I know illbruck has continued to grow anywhere from 2 to 5% over the last couple of years, which by itself isn't terribly exciting growth. But when you look at its core Continental Europe market, about 30% of its market is in Germany. The balance is spread throughout Continental Europe. They are experiencing some significant growth on a very small base in Eastern Europe, and we expect that to become bigger.

But if you look at the economic dynamics in the European marketplace over the last few years, 3 to 5% growth is not bad. And we hope that that will accelerate somewhat with the combination of our existing business -- Tremco business in Europe. In essence, we're consolidating our existing Tremco European business, which is about a $50 million business, and the illbruck business into a combined Tremco Europe illbruck operation, and we've got some expectations that we're going to benefit on the topline from that as well.

But the proof's in the pudding on that one. We know the action plans we have in mind for the market. Putting hard dollars to revenue growth associated with that is a tougher thing to do than hard dollars on plant consolidation or insurance and raw material issues.

Okay, and just a couple of quick questions. What would be a reasonable interest expense amount for the next few quarters, considering all of the restructuring you have done, paying down debt, paying back bonds, acquiring illbruck?

I think the interest expense, which Glenn can highlight again, in this quarter is probably a good reflection of what we will see. The bond that we had and the excess cash -- the bond was retired on June 15. So the quarter itself had a relatively solid interest expense number in it. Then you'll have to add $138 million purchase price of illbruck at let's say a 4 to 5% pretax interest cost.

Did you pick up some debt from the acquisition as well, in addition to the purchase price, or is that included?

Very small. I mean, it's essentially a $138 million purchase price. And you know, depending on how we decide to fund it, either short term or long term, you're looking at rates that are in a 4% to 5% range. If you use a 4% to 5% interest cost on a pretax basis plus our interest costs in the first quarter, I think that will give you a pretty good sense.

Okay, and I noticed that your doubtful accounts, you have increased the allowance for those. Are you expecting some additional problems because of the impact of the hurricanes on some of your customers?

No, I think that while the dollar increase is not insignificant, it's really -- the combination of both the acquisition activity, particularly illbruck, because again, you have to remember that the August 31 balance sheet fully reflects the illbruck acquisition in terms of purchase price allocation, both the debt, goodwill, receivables, inventory -- everything we bought because we closed it on August 31, but there's absolutely no impact in the P&L or cash flow for the first quarter.

And then the second issue is just the expected increase in our allowance for doubtful accounts and in other balance sheet categories, given the pretty strong revenue growth we've had year over year.

Jeffrey Zekauskas, J.P. Morgan.

A few questions. The $100 million in -- roughly $100 million in reserves for asbestos on the balance sheet -- what time period is that for?

It generally covers a period of two years. It takes about 18 to 24 months for our existing known claims to be resolved, and so if the world stops today in terms of asbestos claims and costs, we believe that we would be adequately covered for the claims that we have in-house.

So is the meaning of taking the additional $15 million reserve -- is that the value of the claims that came in this quarter?

It's the combination of the value of the claims that come in and our outlook both for settlement costs and defense costs of those and other existing claims. And you know, the challenge of going out beyond valuing any of our existing claims is really not understanding where this whole thing is going. We have defense counsel that believes firmly that within a matter of months -- 12 months, nine months, 15 months -- our costs that are being driven in Texas by old law cases are going to drop.

I suspect investors who have been hearing that for more than a year are skeptical, and so am I. But under the new laws there, new cases are not being filed at the rate of old cases. Our costs to dismiss new cases are substantially below these old cases. And so there's a number of instances where our legal counsel believes you are going to see drops in states that have historically driven our costs.

The FAIR Act would cost RPM and our shareholders approximately $12.5 million of a fixed payment per year over a 27-year period. That's in sharp contrast to the $50 to $60 million that we're spending at our current rate. And it will be very interesting to see what if any the outcome of the federal judge and federal court issues with fraudulent asbestos filings in Texas and the fact that the U.S. federal prosecutors for the district of Manhattan have now opened a criminal investigation into the three largest asbestos plaintiffs' firms related to a number of areas.

Well, if you think your asbestos claims are going to come down, why did you increase your reserve?

I don't have the short answer to that here, other than I can tell you that Kelly Tompkins, our Senior Vice President and General Counsel, Bob Matejka, who is, as you know, our CFO, and outside counsel have developed a matrix by law firm, by state, by disease category that helps them determine our estimates of future costs for existing claims. And I don't have it in front of me, Jeff, whether it's defense costs they anticipate, whether it's upcoming cases, which so far we are six for six in terms of, in essence, favorable verdicts.

But someone asked earlier, in some quarters, our defense costs are up a lot. It cost a lot more to actually work up a jury case and go in front of a jury in Texas or in Illinois, both of which we've done in the last couple of months, versus reaching agreement on a settlement, which doesn't drive a lot of defense costs.

And I guess -- I mean, I don't mean to beat this into the ground, but it is -- I mean, essentially, your asbestos cases are up about 33% year over year. I mean --

That's correct. They are up about 4% quarter over quarter. And if you look at our dismissal rates, our dismissal rates across all of our cases exceed 70%. And so I think the quality of these claims that are walking in the door are such that they are not going to drive up our costs. What continues to drive our costs, very candidly, at this point in time are two things -- old law cases -- these are cases filed in the state of Texas prior to July of '03 -- and Madison County, Illinois.

Well, I mean, your asbestos costs have been above $50 million pretax annually for I think three years, and the last two years have been above $60 million. And you are reserving at a quarterly rate of $15 million. So it just seems that -- I guess I'm a little puzzled as to why your reserve for the next two years is only $100 million.

Again, we're very confident that if we cut off -- if the whole asbestos world stopped right now and all we had to do was take care of the cases that are in-house, that that $99 million reserve would be more than adequate to cover this, okay? And if you look at the last five years and what was a dramatic run-up in cases and costs, and then you look at the last 18 months, and when you break that out between indemnity costs and defense costs, you see over an 18-month period our indemnity costs are actually declining. We are actually now in a position to get in front of juries and win.

And none of this is certain. We have a quarter now which is a $15 million quarter, which if you multiplied times four, says we've got a $60 million problem. We had a quarter in our fourth quarter that was roughly $10 million. If you multiply it times four, it said we had a $40 million problem. And quite honestly, less than $5 million of that fourth quarter total was indemnity costs, which would suggest that our indemnity costs are going to be down to less than $20 million a year.

We are at that level, you know, where I think the worst is behind us. But as I said earlier, from one quarter to the next, our indemnity costs or our defense costs are so dramatically different, it's hard to predict with any certainty whatsoever where we would be a year or two from now. And that's really the best we can tell you. You throw in the next federal legislation, which is possible but probably not likely this year, you throw into that mix federal prosecutor investigations, and the outcome of either of those can only be positive.

I apologize for sort of the delay of all that. Can you just talk about why your industrial business is so strong -- sort of what do you make of that in that?

I think that our underlying growth in our industrial businesses and in our consumer businesses continues to be relatively strong for a couple of reasons. Four or five years ago, we went -- and you are aware of this -- we went from 30-plus independent reporting units to RPM to this group structure. And in that process, we really looked at and initiated a change in our planning process, where historically our planning process used to be in essence 30-plus individual day-long budget meetings where our President would show up with his CFO and we would pound out a budget that was pretty much focused on expense.

Five years ago, we incorporated what we called growth and strategy conferences, which precede our budgeting process, and they were really dog-and-pony shows by our companies both to a collection of corporate as well as operating leadership to talk about how we're going to grow and where we're going to make investments.

And out of that process has come a greater process, ability and willingness to invest internally. So for instance, out of that process came a decision to build from scratch a Tremco fireproofing product line. We had all the products. We weren't present in the fireproofing category for fire stops and sealants that were focused there. We took what products we had. We developed some new products and we bought from a third party other products. And that's a product line that went from nothing to $1 million, to $3 million, to $5 million, and is currently growing at a 25% internal rate of growth.

Services are another area that we very deliberately looked at. I think you've heard a lot about our Tremco roofing services and contracting business, which is now in excess of $120 million. Rust-Oleum has partnered with one of its major retail customers in an at-home service effort, which we hope will drive somewhere in the neighborhood of $15 to $20 million of revenue this year -- probably not profitable, but if we can establish a profitable means of being involved in service and application business in the retail area, that will be very helpful as well.

And without going on and on, I think the last area that's really helping our internal growth is the focus of our acquisition activity. More and more, what you will see out of RPM is acquisitions of product lines that we are able to integrate into an existing business such that in the second or third year, when we are then calculating that revenue as internal growth, you are really seeing the benefit of taking an epoxy shield into Rust-Oleum five years ago at a $2 million revenue rate, and we classify that $2 million in the first year as acquisition growth, and here we are five years later and we'll do in excess of $25 million in that product category. That's the garage floor coatings. And all of that after the first year is internal growth. So -- or at least how we measure it.

So I think it's those two things that are accelerating our internal growth and why we feel that that will continue, because we started it five years ago. It took a couple years just to get some legs, and we're pretty pleased with the fact that we are right in the meat of some of these investment programs, and I think there's more to come.

So the industrial business, it looks like it's in pretty good shape. So right now, it seems that there are a lot of acrylic price increases, there's TiO2 price increases, there are solvents increases. I take it that at least over a shorter term, your concern is more with the consumer operations.

That's correct.

Right, because the big box retailers, it's sort of my understanding is that they let their suppliers increase price sort of once a year. Is that a fair characterization, and so do you have to wait until the next calendar year to get price relief?

Well, traditionally, that's been true. Of late, that's less true, because we and many of our competitors were seeking price increases last fall. We were seeking a second round of price increases in the spring, and in many instances, we're seeking price increases now. And in most every instance, we're getting price increases.

Now, also in almost every instance, we are, as evidenced by these efforts, we're not getting enough. We are playing catch-up. So we're getting price increases, particularly at retail, three or six months after it was apparent that we needed them. The reason I think that these will continue is that I think that there is a belief across a lot of broad product categories that in certain areas, these new higher pricing levels are permanent. And secondly, with a couple of our major accounts, we have had to raise -- work with them to raise retail prices and demonstrate that retail prices at higher levels are sustainable. And then we go get -- then we are able to get our price increases, and so far that's holding.

But your assumption is absolutely correct. We're getting price increases at retail accounts and across our retail businesses. But clearly, as evidenced by our margin deterioration, the price increases that we're getting are not sufficient to cover the cost increases that we've also gotten.

If you look at our history and you look at the nature of our product lines, what I'm very confident about is when this raw material pricing cycle starts to move back down, we will pretty quickly recover the lost gross margin, first and foremost at our industrial businesses, but also at our consumer businesses, and if you look at our ability to accelerate internal growth in the 250 basis points of more efficient SG&A cost structure and balance sheet, I think down the road, and this -- the big assumption is that somewhere down the road we're going to see raw material price relief, you are going to see in some businesses full margin recovery, in other businesses higher margins than when this whole raw material cycle started.

Frank, this is Silke Kueck-Valdes, follow-up question to that. So the -- if I remember right, the year-end guidance that you had given a quarter ago was that you expect your earnings to grow in the range of like 8 to 10%. In the first quarter, I think you grew 6 to 7%. And with things getting more difficult for the next one or two quarters, is this still like a rate of earnings growth you think you can achieve?

I think at this stage, barring any supply disruptions that might occur in the next month or two, assuming those don't happen, at this point, when we look out over the balance of the year, I think that this 8 to 10% earnings growth before any asbestos costs is something that we're still comfortable in achieving.

You're going to see a -- we also gave out guidance of I think 7 to 8% revenue growth. You're going to see 10 to 12 to 13% revenue growth necessary to generate that 8 to 10% earnings growth because year over year, and you can clearly see it through our first quarter, we are going to suffer some gross margin deterioration because of raw material costs.

So yes, we're still comfortable that we can achieve that, but I think our guidance has clearly changed from a revenue perspective. You're likely to see 10 to 12% revenue growth, and that is before the impact of illbruck, which again will be for the nine months $130 million or thereabouts.

And is this mainly due to price increases?

It will be due to two things -- price increases and a continuation of a little bit healthier internal real growth in our industrial businesses than we originally planned for.

Michael Schecter, Mentor.

I know we've been harping on this, but the next 30 to 40 days -- what is it about the next 30 to 40 days? Is it just supply that was left in the pipeline?

I think the supply that was left in the pipeline, and I think being smart in certain product categories because we're moving to different sources, in some cases offshore, in response to raw material spikes or raw material increases in the last 18 months, has helped us. Part of it, and I referenced this CMAI report, part of it has just been luck. Again, there are some product categories where we have been in and two-thirds of the capacity is shut, and fortunately, we happen to be supplied by the companies that are in that one-third of the capacity that is not shut.

But the principal reason is just, talking to our operating people, none of them can tell us with any certainty that they're past problems, and so I say, well, what can you tell me with certainty? And what they can tell us with certainty is if they're going to bump into any problems, barring another hurricane in that area in the next month, but all things being equal, their view is, look, if we get through the next 30 to 45 days, we think we will have gotten through the worst of it. If there's going to be any issues, they're going to show up here in the next 30 days or so related to raw material supply disruptions. And that's really the best answer I've got.

So it sounds like gut feel?

Well, it's not gut feel. Again, it's looking at this CMAI report, which is a report that will tell you company by company, platform by platform, chemical processing by chemical processing -- I've got one in front of me. It talks about LDPE production. It talks about polypropylene production. It talks about SBR production. It talks about benzene, styrene, phenol. We look at all of the plants and all of our suppliers and all of these -- in some cases, not necessarily directly related to us, but feedstock raw materials into our suppliers to understand -- this report will tell you, shut down, restarting, running -- shut down, restarting, running but on limited capacity, literally site by site by site.

And so it's that, it's communications with our suppliers, and in some cases, it's confidence in supply that has nothing to do with the Gulf region that kind of builds up to this point. But we have some categories, as I mentioned, where two-thirds of capacity is out. If the one-third of the capacity has a hiccup, we're going to have a problem. In those instances, I think as much as anything, we're just lucky that our suppliers in the Gulf area of certain chemical raw materials are not shut down. That's the best I can do.

I appreciate it.

George Nissan, Merrill Lynch.

Sounds like you guys still are on the right track for good revenue growth, even though we have a very challenging economy with the raw material costs. A couple of things regarding raw materials. A lot of your competitors over the last year in this very challenging economy and I'm just wondering, as I can (ph) -- new strategic initiatives reduce their raw material costs by looking at the supply chain as a whole and really establishing better collaborative techniques with their supplier base. I'm very interested if you can provide some color as to what you guys are planning on doing, because you sound like you're on the right track today as what you guys are doing by looking at your supply chain as a whole and collaborating better and more efficiently with your suppliers (technical difficulty) raw materials.

And we're doing that. I had referenced earlier acetone. Historically, we were buying acetone from the major chemical companies. We acted as a distributor. A year ago, because we're getting smarter and better at purchasing raw materials on a global basis, and also because as we get bigger, our usage gets to a level where we can look at supply chain issues in certain categories differently, we are now a bulk buyer of acetone. We buy our own barges. We act as our own distributor to our various companies, and we have accessed in the last year acetone supply outside of domestic supply for the first time in our history.

We are in certain resin areas in the last year actually partnering as either a capital partner or in some cases even a joint venture partner with resin producers to address exactly the types of issues that you are commenting on, and I think it's a level of sophistication that we have today that we didn't have years ago. Some of it is the advent of information technology and our ability to manage information flow across all of RPM as opposed to one company at a time, as we did in the past, and then the other aspect of it is strictly having the size to be of interest to suppliers as a partner or having the capability to look at supply chain differently because we're a user of enough volume to be able to do so.

One thing I've noticed over the last five years by following your company is quality has always been a top driver, a top metric with you guys -- checking your company results on and why you have been able to distinguish yourself from the competition. How are you guys making sure that your suppliers now are going to meet your strict quality standards? Are you going to be scorecarding them? Are you going to meet with them through global supplier forums? What are you doing to make sure that they are meeting your strict guidelines so you can hit your numbers?

That's a great question, and I don't know the answer to that specifically with our suppliers. That's handled through our purchasing action group, which is run by our VP of Manufacturing and really functionally run by the key purchasing managers of a number of our largest companies. And then at each operation itself, they all have their incoming quality control processes, which I assume won't change.

If you've seen our latest Annual Report that was put out in August, the theme of that is brand trust. And I can tell you from our perspective, we have our annual management meetings in November, and one of the key things that we're going to hit on exactly to your point -- and if this costs us some margin in the near term, so be it -- is that I want to make sure all of our businesses get the message that in a raw material-challenged environment, one thing we won't do is cheapen the quality of our products because it might be in the short term a smart decision, but in the long term, it really can erode that high-end quality that come with our company's products.

And so that's the message that we're preaching loudly to our operations because it's an easy thing for companies, our businesses, competitors or whatever, to look to in the raw material environment that we're in.

For the remainder of this year and next year, what are still some of the raw materials that are still concerning to you?

As I mentioned earlier, styrene appears to be a pretty challenged raw material relative with what's happened in the Gulf coast. As was mentioned earlier, we're big purchasers of all kinds of resins -- epoxy resins, acrylic resins, vinyl ester resins -- and so all of those are an issue, less at this stage on supply and more on price. But we try and keep our eyes on all those things.

The plastic packaging at one point was an issue. I think we're in pretty good shape there. But whether it's tubes or pails or whatever else, that's an issue, both in terms of price, and I think at one point a few weeks ago, we thought perhaps supply, but we're in pretty good shape now and we're anxious to get through the next 30 days without any problems.

Final question -- I really like what I'm hearing from you guys -- it sounds like you guys have a lot of good initiatives on the table. What's been your supplier feedback? I mean, you guys have all these initiatives going, and when are you saying, look, you need to perform up to those strict guidelines? Are they willing to work with you? Are some of them kind of feeling like they're being squeezed? What's been their feedback?

I think we've had tremendous support from our supplier base. I think we have good relationships with our supplier base and that's going really well. Our VP of Manufacturing and Operations here, a gentleman named Paul Hoogenboom, that was not a position that existed at RPM before, and he has guided philosophically the team of operating purchasing people that really run this, and they are very cognizant of making sure that we can leverage the right price for RPM's benefit, but do so in a manner that is partnering as it relates to our needs down the road.

So I'm sure there's a couple of categories where we have had some rough-and-tumble discussions on pricing. But we try and be good about that. Except for this near-term price spike or perhaps even temporary raw material availability issue, your question is not one that concerns me on an ongoing basis. The next month or so is going to be interesting only related to the impact of hurricanes.

Great. Thank you very much. Congratulations on a good quarter and continued success down the road.

Jason Rodgers, Great Lakes Review.

Looking at your different segments right now, clearly the growth is in the industrial versus the consumer segment. Going forward, is there anything on the horizon that you would expect to maybe increase the organic growth on the consumer side? I noticed there was an article today in the Wall Street Journal about caulks being the hottest thing in home remodeling. Just wondered what you're seeing on the consumer side to maybe increase organic growth there as well.

There was a story in the Wall Street Journal, and one thing I maybe haven't hit on hard enough, whether it's our DAP subsidiary in caulks and sealants, patch and repair products, or our Zinsser operation, who has been a leader at retail to the point of getting some resistance with some customers in putting together a mold and mildew section as opposed to just having products in the stores, I think we are in real good position, come a few months down the road, to be a player in the repair and the restoration and renovation and reconstruction in terms of the use of waterproofing products, caulks and sealants.

Also, on the industrial market, again, I can't emphasize how proud I am of our Carboline people. I mean, we had people sleeping on cots in a warehouse because they couldn't get back into their homes in Lake Charles, Louisiana, but they got back to our plant to get that up and running. That plant principally serves -- actually, it serves the whole United States, but its core market is the Gulf states area and the Gulf petrochemical and chemical space. So we are up and running and I think we're going to be a partner with a lot of these folks in rebuilding.

Our Fibergrate business, which is fiberglass-reinforced plastic, this month has received some extraordinary orders just from offshore oil customers that are anticipating repairs and rebuilding. And so whether it's in the consumer segment or our industrial segment, I think we will benefit from some of this repair and rebuilding because we've got the right products in the right place.

Rosemarie Morbelli, Ingalls & Snyder.

Just quickly, can you update us on the Dryvit ramp-up on the residential side?

A couple of things on Dryvit. You asked about residential. Number one, I am pleased to report that the long-contested national class-action settlement on Dryvit, which was finalized almost two years ago and then contested, has been finally finalized this month. And so that's good news. Dryvit has, as you know, put together a product package that is much more user-friendly at the residential level, where you may not -- where we learned the hard way I think that you can't expect to have the same quality of door or window installations or roofing flashings, and we're working with an insurance industry that dropped the insurance for Dryvit Residential and now are reinsuring this new system.

We are working with housing code departments at state and local levels, and so we're putting in place the pieces and parts to get Dryvit back into what was a very nicely growing residential siding market because it's a great waterproofing insulation package, and architecturally there's a lot you can do with it.

Assuming that we are in for a long run of relatively higher energy costs, whether it is Dryvit or DAP caulks and sealants, and as you saw in this morning's Wall Street Journal in the Personal section, I think there's going to be a renewed emphasis on energy efficiency, and if we do the right things, we should benefit from that.

Okay. And you were ramping up last quarter. You talked about a ramp-up, and I don't remember what it was about. Could you bring us up to date on that? Was it on the industrial side of Dryvit? Were you (multiple speakers)

Rosemary, you know, we've got a number of initiatives. Perhaps the one that we talked about in the last quarter was the at-home services business for Rust-Oleum. We are ramping that up. We are in -- we did test markets of three or four markets. And we're now in 24-plus markets, so we are ramping that up nicely. We do not expect it to be profitable this year, and we're learning a lot about which markets are going to be profitable for us and our retail partner and which markets are not. And it's new for us. It's going to be impacted by seasonal issues. It's going to be impacted by demographics. And that's pretty much it.

And that was mostly for garage flooring, right?

That's correct.

Okay. Could you also give us a feel -- SG&A looks awfully high. Do you have a goal of -- I realize that it is already down 250 basis points, but do you have a goal which would make sense over the long term? Could you get it down, I mean, into -- it was almost 29% in the first quarter. How low can it get?

You know, I don't know the answer to that, and that's probably not a very good answer to you, other than we have had a specific goal of getting our EBITDA margins back into the 15 to 16% range. We were on target to do that up until a year ago, when we really started suffering the raw material increases that we are seeing and we are fighting to catch up with. And we're meeting our SG&A goals.

Our businesses are both more efficient in their spending, and I think because of the processes that I talked about earlier, we are more efficient in how we allocate capital to our investment programs. So our goal at this stage is to continually be smart about allocating resources to internal growth opportunities, while at the same time maintaining or reducing our investment in SG&A. And we've been able to do that, and I'm real pleased with the efforts of our businesses to do that over the last couple of years.

Have you instituted some new programs in order to get productivity increases, whether it is at the manufacturing level or whether it deals with administration, and enough to offset the raw material cost increases, and therefore on top of the price increases that you are instituting?

Other than the ongoing Class A manufacturing focus, which is again something that started five or six years ago and is now starting to take hold, we are doing things smarter and different today than we used to do, in part just because the nature of our marketplace and competition demands it and because the advent of information technology allows us to do it. And I think we're starting to reap the benefits from that.

And they are ongoing. I mean, I think we learned the hard way that these are the types of productivity -- productivity improvement happens when you measure it, you focus it, and less than setting out specific targets, you just have a mentality that says incrementally we're going to get better every year. And I think that's the mentality that we are in today, and we didn't have that focus at the manufacturing level five or seven years ago. We started it really in '99 and 2000, and I think we're benefiting from it, finally, over the last couple of years. And you should see that incrementally continue, as well as the benefits of higher sales growth and just the leverage effect of that.

One thing that many companies talk about in terms of lowering costs and improving efficiencies at all levels is lean six sigma, and you guys don't talk about it. Is that something you are considering? Have you looked at it and decided it wasn't for you?

Yes, this Class A manufacturing initiative, what our operating folks call MRP2 Class A, essentially is the same thing. But given the nature of RPM's business and, you know, the still independent and autonomous nature of many of our operations, it's not our philosophy to drive some top-down overall initiative where everybody has to accomplish in the same manner.

So the different initiatives for productivity are ongoing in all our businesses, but they are very different from one company to the next, depending on the types of manufacturing they do and how manufacturing-intensive they are. Some of them are more intensive than the others.

So there's not one program to look at per se, but I can tell you, Rosemarie, a revelation to me three or four years ago as a finance guy is when the person who really is driving this at RPM had a conversation with me and talked about what they were doing to measure blocks of time and efficiency, and I kept telling them I wanted to see the dollar improvements and the margin improvements, and from a manufacturing perspective, they finally convinced me that, look, if we quit focusing on dollars and start focusing on blocks of time, in terms of raw materials walking in the door and how long they sit, cash processing time, when a batch is done, what's the time from that to filling -- all the type of issues that are related to Class A manufacturing to lean manufacturing to six sigma, that we would see the benefits in higher productivity that would show up in our P&L, and both in terms of dollar savings and margins, and he was right. So I'll let our manufacturing people focus on the productivity issues and how they want to drive it, and that's really been successful for us.

Okay, fair enough. Thank you.

With that, we would just like to close by thanking everybody for your participation today. Tomorrow is RPM's annual meeting. It will be held at the Holiday Inn in Strongsville, Ohio. We anticipate about 750 or 800 shareholders will be there, and they will get a report on RPM's recent progress. Certainly, it's an outlook along the lines of what we talked about today. We will address our dividend program, and we look forward to seeing as many of you who are able to attend as possible.

Thank you, again, for your interest in RPM and for participating in today's conference call. Have a great day.

Again, ladies and gentlemen, thank you for your participation in today's conference. This concludes your presentation. You may now disconnect. Good day, everyone.