RPM International Inc (RPM) 2007 Q4 法說會逐字稿

Welcome to the RPM International Conference Call for the Fiscal 2007 Fourth Quarter and Year-End. Today's call is being recorded. This call is also being web cast 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 report 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. 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 CEO, Mr. Frank Sullivan for opening remarks. Please go ahead, sir.

Thank you. Good morning and welcome to RPM's year-end conference call. We are conducting this call from the New York Stock Exchange continuing a 35-year tradition of earnings releases for our year-end from New York. With me this morning are Kelly Tompkins, RPM's executive vice president and chief administrative officer; Bob Matejka, RPM's vice president and chief financial officer; and Ernie Thomas, RPM's senior vice president, and the individual who will be taking over for Bob as chief financial officer on August 1. After my opening comments, Bob Matejka will review the details of our fourth quarter results as well as some comments on our full year, after which we'll be happy to take your questions.

Five-years ago, we laid out a strategic plan that called for growing sales from $1.980 billion to $3.350 billion. Growing earnings, in essence, doubling earnings from $100 million to $200 million and with a greater focus on international growth starting in Europe where we had a $200 million base of business targeting $500 million. We're pleased to be sitting here at the end of that five-year strategic plan period, which ended May 31, 2007, having accomplished these goals.

We finished the year with a very strong fourth quarter, which generated an adjusted 18% year-over-year increase in net income for the full year, driving a 16% increase for the full year in earnings per share again on an adjusted basis. It's important to note that the fourth-quarter results were particularly encouraging when compared to the prior year's fourth quarter where we had huge gains. From a 20% sales increase last year in the fourth quarter, which drove an EBIT increase of 25% and a net income growth last year of 29%. This is particularly true when comparing our consumer segment results this year versus the very strong results they had last year. I'd now like to turn the call over to Bob Matejka to provide the details on our fourth quarter and full year. Bob?

Thank you, Frank. The performance comments that follow will compare our adjusted fourth quarter and full year 2007 and 2006 operating results before any asbestos-related items. (i.e., the charge taken a year ago and the income credit that we realized this year.) I'll begin with the review of the P&L results followed by highlights from our balance sheet and cash flow statements.

Our fiscal 2007 fourth-quarter net sales grew 10.6% year-over-year to a record fourth-quarter sales level of $1.006 billion. Organic sales added 5.9% of growth, foreign exchange also helped increase sales by 1.4% as a result of the stronger Euro, Canadian dollar, Latin American and Asia Pacific currencies. Price increases accounted for approximately 2.1% of our organic growth. We also had seven small acquisitions during the period which added 3.3% to net sales.

Looking at our industrial segment, sales of $600.9 million were 11.9% over last year's fourth quarter. Organic industrial segment growth was 9.6% and that includes 200 basis points from forex. Price increase accounted for approximately 3.2% of the 9.6% organic growth. Five acquisitions completed during the 12-months added 2.3% to our industrial net sales.

The following industrial product lines all registered double-digit growth in our fourth quarter. Flooring coatings, corrosion control coatings, fiberglass reinforced plastic grating composites and every one of our international operations. Within the consumer segment, sales of $404.8 million were up 8.7% from last year's fourth quarter (company corrected after call). Our organic sales growth for this segment was 3.4% and 60 basis points came from foreign exchange. Retail buying behavior improved quarter-over-quarter; however, declines in existing home turnover and to a lesser extent new housing starts have affected several of our product lines in this business. The balance of the consumer segment sales increase of 4.7% came from two product line acquisitions. Consumer pricing was up approximately 0.5% quarter-over-quarter.

At the gross profit level, our margin of 42.3% for this fourth quarter declined 70 basis points from last year's fourth quarter, principally due to continuing high raw material costs. The industrial segment gross profit remained rather steady at 44.2% with some good recovery of higher raw material costs in pricing, which was a nice improvement over this year's third quarter. On the consumer side, gross margin of 39.6% this fourth quarter was off 160 basis points from 41.2% a year ago as higher raw material costs and mix changes kept pressure on margins. Productivity gains from the 3.4% organic unit growth in sales in this segment helped contain some of this margin drop off.

At the SG&A level, spending as a percent to sales improved to 29.1% this year from 29.2% in last year's fourth quarter. This percentage decline reflects leverage benefit from organic sales growth and certain cost-cutting measures and controls on spending. The industrial segment SG&A improved as a percent of sales to 31.1% compared to 31.4 last year and consumer segment SG&A increased to 22.7% from last year's 21.8%. In the corporate and other spending categories, you'll see a decline to $13.7 million this year from $15.7 million last year, essentially reflecting decreases in certain insurance, legal, and benefit-related costs, which more than offset higher pension and compensation related accruals.

Earnings before interest and taxes grew 6.2%, a margin of 13.2% compared with 13.8% last year, reflecting the higher raw material cost at the consumer segment. Industrial segment EBIT of $78.7 million grew from last year's $68.9 million, a 13.1% margin on sales compared to last year's 12.8%. The consumer segment EBIT declined 5.6% realizing a 16.9% margin on sales compared to last year's 19.3%. Interest expense net was down $1.6 million quarter-over-quarter. The change is reflective of acquisition-related debt service offset by rate decreases on our variable debt and additional investment income and debt pay downs year-over-year. Overall, our rates averaged 5.5% this fourth quarter compared to 5.8% last year. Our effective income tax rate was 31.1% this year compared to last year's effective income tax expense rate of 34.6%. The year-over-year change reflects differences in projected U.S. state and local income taxes, lower effective tax rates on foreign earnings, and reduced valuation allowances associated with our foreign net operating losses and U.S. foreign tax credit carryforwards.

Net income of $84 million this year represents a record for our fourth quarter, increasing 14.1% from last year's $73.6 million, before the asbestos charge, with a margin on sales of 8.3% compared to 8.1% a year ago. Diluted earnings per share of $0.65 this year also represent a record fourth-quarter performance up 12.1% compared with last year's $0.58.

Full-year sales. Fiscal 2007 net sales grew 11% year-over-year to a record sales level of $3.339 billion. Organic sales growth amounted to $161.6 million or 5.4%. Net favorable foreign exchange added 1.3% of growth, coming principally from the stronger Canadian dollar and Euro. Of this combined 6.7% organic growth, 200 basis points came from price increases. Ten acquisitions, including illbruck, net of small divestiture, added 4.3% to sales. The industrial segment sales of $2.1 billion grew 15.9% over last year's $1.812 billion. Aggregate organic industrial growth was 10.3% and it includes increases of 270 and 170 basis points from pricing and foreign exchange, respectively. Seven acquisitions during the last 12 months added 5.6% to the industrial sales growth. Consumer segment net sales of $1.238 billion were up 3.5%, from last year's $1.197 billion. Organic sales growth increases in this segment were 110 basis points and included 60 basis points from net favorable foreign exchange. Retail buying behavior continued to fluctuate throughout this year and the declines in existing home turnover, and to a lesser extent new housing starts, have affected several lines of business. The balance of the consumer segment sales increase of 2.4% was from three product line acquisitions, net of a divestiture a year ago.

Gross profit margin for the year of 40.8% was off from 41.5% a year ago. The margin reduction principally resulted from a combination of higher net raw material costs and sales mix, including increased sales on the service side at Tremco's WTI business and also Tremco's illbruck product line, both of which generally have a structurally lower gross profit margin. The industrial segment gross profit margin declined to 42.1% from 43%. Here again, just as you heard on the consolidated view, the change it's the result of higher raw material cost and mix related to illbruck's acquisition and increased service sales at Tremco. The consumer segment gross margin of 38.4% this year is off from 39.2% a year ago, principally a raw material cost issue.

SG&A expenses improved to 30.6% of sales this year from 31.6% in 2006. The percentage decrease reflects the leverage benefit from organic sales growth, last year's second-quarter one-time cost of $10.2 million and spending controls.

The industrial segment SG&A improved significantly as a percent of sales to 30.9% compared to 31.8% and consumer segment SG&A remained steady at 25.9%. Corporate and other expenses declined to $49.8 million this year from $63.4 million last year. The decline essentially reflects the aforementioned $10.2 million of one-time costs that occurred in our second quarter of 2006 along with certain favorable benefit-related cost reductions. These reductions were partially offset by a higher compensation related costs. Earnings before interest and taxes grew 13.6%, resulting in a margin of 10.2% compared to 9.9% last year and reflect the same SG&A improvements previously mentioned. The industrial segment EBIT grew 15.8%, an 11.2% margin on sales, the same experienced last year.

Consumer segment EBIT declined 3.1% resulting in a 12.5% margin on sales off from last year's 13.3%. Interest expense increased $5.7 million over last year's results, and the change reflects acquisition-related debt service and additional borrowings and Fed-driven net rate increases on our variable debt, partially offset by added investment income year-over-year and interest saved on debt pay downs. Additionally, frequent RPM followers will recall that in this year's first quarter we retired our 2008 private placement senior notes at a cost of $1.1 million. Overall, our borrowing rates averaged 5.6% for the year, compared with 5.2% last year. Our tax rate for the year of 32.1% compared with last year's 34.7% effective rate. Similar to the fourth quarter, this year-over-year rate change reflects differences in projected U.S., state, and local income taxes, the effective tax rates on foreign earnings and valuation allowances associated with our net foreign operating losses and U.S. foreign tax credit carry-forwards. Additionally, for the year, our effective tax rate reflects a one-time benefit of approximately 0.7% related to the resolution of several prior-year tax liabilities.

Net income for 2007, of $198.6 million represents record earnings increasing 18.1% from last year's $168 million before the asbestos charge with a margin on sales of 6% compared to 5.6% a year ago (company corrected after call). Our diluted EPS at $1.57 also represents a record, up 16.3% compared to last year's $1.35.

Looking at our balance sheet, I'll talk about the major elements that sit there. Our accounts receivable were up $93.3 million. And as you look at three pieces that contributed to the increase, net acquisitions account for about $18.1 million of the increase, foreign exchange affects the balances by about $10.5 million. And the organic sales increase account for the balance of the increase, $64.7 million or 9.9%. This increase, coupled with our 5.4% organic growth increase results in a modest 2.1-day increase of days sales outstanding year-over-year. Days sales outstanding were 63.7 this May 31. Inventory was up $38.7 million, acquisitions accounted for 15.2% of the increase, foreign exchange, 5.8%, and the remainder $17.7 million or 4.4%, was above last year's level, essentially related to organic business growth, as well as certain strategic inventory builds, plus the effect of recent uneven retail buying behavior. Inventory turnover improved a couple days this year to 67.9 days at May 31. Accounts payable were up $51.3 million. Acquisitions accounting for 13.7% of the increase, foreign exchange 4.6% and the balance in the increase comes from a combination of business growth, timing of payments in both segments, and partially offsets the organic inventory increase year-over-year.

Our combined short- and long-term debt at May 31, stood at $988.1 million, which was up $111.5 million year-over-year. The change mainly reflects $134.8 million of added indebtedness for our acquisitions during the past 12 months, minus $23.3 million of debt repayments that we made. Our composition of debt at May 2007 is roughly 51% fixed and 49% variable. And our available liquidity, including cash, stands at $479.2 million at May 31. Our 43.3% net debt to capital position improved from 45.3% at May 31, 2006, and it provides continued financial flexibility to pursue small- to medium-sized acquisitions.

Liabilities related to asbestos are reflected in two areas on the balance sheet. Our current liability at May 31, 2007 was $53 million. Under long-term liabilities, one finds $301 million of accrued asbestos costs reflecting 10-years of estimated pretax payments required beyond the next 12 months. The aggregate $354.3 million total compares with $421.3 million at 5/31/06, and it reflects $67 million in pretax payments during fiscal 2007, which compares to $59.9 million a year ago (company corrected after call). The payment break down is as follows. Defense costs of $27.7 million this year compare to $24 million last year, while settlement costs of $39.2 million this year are up versus $35.9 million a year ago. Our total cash costs for the fourth quarter were $18.6 million versus $12.9 million for the same period last year. Of the $18.6 million approximately $7.4 million was spent on defense and $11.2 million on settlements, which compared with $7.1 million for defense and $5.8 million for settlements in last year's fourth quarter. Additionally of note, we secured dismissal and or settlements of 608 claims versus 106 in the comparable fourth quarter a year ago. During the fourth quarter, we secured a number of settlements, which while on terms we considered very favorable relative to our 2006 reserve assumptions, nevertheless resulted in higher cash outlays for the period. Our number of active cases at the end of our fourth quarter stood at 10,824, down sequentially from this year's third quarter active case load of 10,846. The average -- this is very important -- the average monthly number of new cases filed this year is approximately 26% below last year's monthly rate of new case filings.

As we noted in past and will continue to caution, there will be some quarter-to-quarter volatility in our total cash costs. Nonetheless, our current accruals are deemed adequate to cover all in-house asbestos claim filings along with those claims actuarially projected to be filed over the next 10 years.

On the cash flow statement, cash from operations reflects income. Our cash flows from operations were $213.9 million compared with last year's $185.5 million, a 15.3% increase year-over-year, primarily as a result of the higher earnings.

At this point, I'll turn the call back over to Frank Sullivan.

Thank you, Bob. For our 2008 fiscal year, we are currently forecasting 8% growth in sales and 8% growth in earnings. We expect the first half of the year to be stronger, both in the sales and earnings side and anticipate a slowing in the second half of the year, particularly in our industrial business activity. We are assuming stable raw material costs for the year versus the current historic high levels, which essentially means that we are not anticipating further increases, nor are we projecting improvement in this area.

As the year unfolds, continuing strength in industrial markets and any raw material price improvement could allow us to exceed these forecasts. Our forecast also includes a higher tax rate for the year of approximately 34.25% versus the 32.1% tax rate we experienced in 2007. The forecast does not include the impact in 2008 of any future acquisition activity. And while we can never count on acquisitions until they're done, our current pipeline suggests that we will complete $100 million to $150 million of transactions during the coming year. These are likely to be neutral to earnings up front but then quickly accretive by the end of 2008, before going into our 2009 fiscal year.

Before we move to your questions, I would like to publicly thank Bob Matejka for his five years of service, six years of service as RPM's Chief Financial Officer. Bob showed up at a time when being a Chief Financial Officer of a public company became substantially more challenging. He guided us through Sarbanes-Oxley, all the requirements that go with that. And also guided us through a transition from a regional accounting firm that had known us for more than 40 years to a major global accounting firm. And for those contributions to our success, along with being a critical part of our leadership team over this five-year strategic planning period, we owe Bob a great thanks and gratitude for your efforts. We look forward to having Ernie Thomas participate in our next quarterly conference call. With those comments, we would now be pleased to answer any questions that you have either on the year, the quarter, or our outlook for 2008.

(OPERATOR INSTRUCTIONS) And your first question comes from the line of Saul Ludwig with KeyBanc. Please proceed.

Good morning, everybody.

Morning.

Couple questions. One, wanted to relate to the results, which were excellent. Do you guys have some sort of five-year plan that was going to result in some special bonuses or stock awards to your executives? Was this the year that that was completed? Or is that still in the hopper? Could you fill us in on that and what the impact of making those payments might be to your results?

This is the year. This was the period of time in which those targets that were set out five years ago had to be met. We did meet those and the cost of those are fully reflected in prior years. Those were restricted shares of stock, mostly, and they were amortized mostly over the five-year period during which they potentially were earned. And the goals were met and the payouts have been made.

Do you have another similar five-year program?

We are in the process of finalizing a three-year strategic plan. And that strategic plan is going to be something we'll be able to publicly communicate this fall.

Next question. Consumer business. What's sort of the strategy to improve that? You have gross margin pressure, you have SG&A pressure. How do you see your consumer business not only in '08, but let's just also talk about it from a longer-term perspective?

Our consumer businesses actually have done quite well in a very challenging market. We have picked up market share in a number of areas. In particular, our Rust-Oleum businesses are doing very well. Our Zinsser operations, which were put underneath the leadership of the Rust-Oleum management team a year ago, are now starting to reflect some of both the synergies as well as the just tremendous experience and industry leadership that Rust-Oleum has exhibited. So we're pretty bullish on that. Our DAP business was our most challenged business this past year. And that simply reflects the fact that you could go into a lot of new homes that were under construction and see cases of DAP caulk. And there were many fewer new homes being built. So as we commented before, DAP and our Tremco Barrier Solutions business and to a lesser extent, Euclid Chemical, have all been negatively impacted by this significant downturn in housing starts. But even at the DAP level, we've introduced some new products that have picked up some shelf space in our major accounts. We think we're in pretty good position to continue to see enhanced sales and earnings growth in our consumer business. You should start to see that this year.

In your outlook comment, are you thinking that consumers actually going to be the horse driving the results more so than industrial in '08?

Not necessarily. I think if you look at last year's first quarter and throughout the year, we had a lower sales in some instances and certainly lower earnings in our consumer segment. We've seen some stabilization, some of the new product introduction, and some of the benefits of the Rust-Oleum team leading our Zinsser businesses, should start to show up in '08. And it's also in comparison to some easier comps because of the challenges that we had in our consumer business in '07. We continue to see good results in our industrial businesses, but in terms of our planning process and how we look at the future, I think there's some anticipation of some slowing commercial activity, in particular in the second half of our fiscal year or as you get into calendar '08.

And just a final quickie.. You made an acquisition recently in Carboline, when does that close? How big was that, and where does it tie in strategically?

It was a small product line acquisition, Saul, and I don't have the exact numbers. F&H, and it's a small product line and I don't know the numbers, but it's less than 10 million bucks.

Right. Thank you very much.

Thank you.

And your next question comes from the line of with Vital Aelion with Banc of America Securities, please proceed.

Good morning, gentlemen. Very quick questions. The dismissal of 608 cases, does it include settlements, as well? Is it an aggregate number of both?

It includes both settlements and dismissal. And as Bob commented, one of the reasons our cash cost was up, we settled or had dismissed almost six times more cases here in the fourth quarter than last year. And I think you'll continue to see an improvement both in terms of our cost to settle cases as well as an acceleration of resolution of a lot of these cases.

My second question is perhaps you could comment on pricing trends by segment as opposed to organic growth overall, simply pricing?

Our pricing for the year and we certainly had price increases in both our consumer and industrial segment. In our industrial segment, price added for the full year about 2.7%. And in our consumer business, price was about 1% on a consolidated basis for the year. In both instances, a little bit more in the fourth quarter.

Understood. And my final question is how should we be thinking about taxes in terms of tax rate for the upcoming fiscal year?

The 8% projection that we have for fiscal '08 includes a tax rate of 34.25% versus this current year of 32.1%.

All right. Thank you very much.

Thank you.

And your next question comes from the line of Jack Russo with Sidoti and Company. Please proceed.

Morning. Good morning, actually, it's Dan Rizzo. I didn't know what you plan to spend on CapEx and how much percent of that is maintenance?

CapEx in '08 should be about $78 million, which is up marginally from mid 70s this year. Probably 30% I'm sorry $30 million of that, $35 million of that is maintenance CapEx. You've got another $10 to $15 million that's primarily health, safety and environmental issues, and the balance of that would be expanded capacity.

Okay and maybe I missed then when you were speaking, the lawsuit versus your insurance carrier, you're still kind of waiting for the summary judgment? Where are we with that?

Sure, with the insurance carrier case, the summary judgment motions from all sides have been completed. It is now sitting with the federal judge in Cleveland. We continue to feel very good about the prospect of the outcome of that in favorable terms to RPM. As you recall a year ago or this past year we had a $15 million settlement with the smallest carrier in terms of exposure. The only recent activity is the judge issued a ruling against one of the carriers requiring that they post bond for the total amount of their potential outstanding indemnity liabilities. So we see that as one additional favorable step in where this case is going. We would anticipate a court date for some time in the end of the calendar year or early '08.

Okay. So the court date, the end of the calendar year, do you know when you'd hear on a summary judgment? Did they indicate that?

That would probably be about that time. End of the calendar year or early spring and again, at this point, there's no further activity from either side's lawyers. We're waiting for the judge to rule. And her decision on the bond against one carrier certainly a positive -- one more positive step to the benefit of RPM, we believe.

Okay. How much was that bond for?

That's not been disclosed.

All right. Thanks, guys.

Thank you.

Your next question comes from the line of Rosemarie Morbelli with Ingalls & Synder. Please proceed.

Morning.

Good morning, all. Congratulations on a very strong fourth quarter. Was there anything special that helped the quarter, Frank?

No. No, we had a continued strong performance in our industrial segment, which we commented on as you'll recall when we released our third-quarter results. And I think we have some good activity in our consumer business as I indicated. I think our results out of the consumer business in the fourth quarter actually reflected more strength than the numbers themselves would indicate because they were in comparison to a year in which our organic sales a year ago were up 11%, which is pretty extraordinary in our consumer business, driving about a 27 or 28% EBIT growth. So on a comparative basis, I think it was a pretty strong performance, particularly given some of the challenges that some of our peer companies and other related product businesses have had in retail markets. And we anticipate an up year in sales and earnings for our consumer segment in '08.

Have you seen -- so does this translate into some change in pattern on the consumer side on the retail buying pattern? Or do you see some change on the housing remodeling side helping this? Can you give us a better feel for where this improvement is coming from?

I think the improvement's coming from two things. It's coming from continued strength with our Rust-Oleum businesses and some improvement, some significant improvement we expect in our Zinsser businesses this year. On the housing front, and our best view of the housing market is our Tremco Barrier Solutions business, which is a very profitable, pure play in residential below/low-grade waterproofing and insulation. So they are pretty pure in terms of new housing construction and holes dug. And we anticipate that the housing market has not hit bottom yet. And our guys believe that it will hit bottom this year and then start to flatten out at a lower level as we get into calendar '08. And so those are kind of the things that reflect where we are. But, again, keeping in mind that we're going to start comparing right away in the first quarter some challenge results last year because of the drop in the housing market and some of the activities that major retail customers. So we think even for businesses like our DAP business that we'll see year-over-year recovery.

Okay. And when you look at the EBIT margin of the consumer, it used to be 19% or at least this is where it was in '06. Is there any particular reason why you can actually go back there? Or is the environment out there such that this is an unreasonable target in the future?

We have had price increases across all of our consumer segment product lines, but obviously not enough to cover the dramatic increases in raw materials. And I think that you'll see us stabilize where we are now. And that's certainly our plan for the year in terms of raw materials and our pricing. And the ability to improve our margin will continue to be a function of being sharper on SG&A both in terms of spending and also where we invest those dollars for growth. And looking for some raw material price recoveries, which will expand our margins. Historically, and it will be true again this time, when you are in the niche areas that we are as opposed to commodities, we will not be giving back price. So we'll see that improvement. That is not something that we anticipate at least as we look to 2008 in our planning process.

So for 2008, while we may see some growth, the growth margin may not necessarily improve that much?

That's correct.

Okay. And lastly if I may, you have now a new 10-year target on the asbestos reserves? Have you added anything?

We have not added anything. But we took a -- we and our outside consultants or auditors are looking at that constantly and have taken a hard look in a very thorough review of dismissal rates, settlement costs, the cash cost of where all that's going. And at this point are comfortable that our current reserves are adequate for a period of 10 years. We will look at that. We look at it every quarter. If we have to make an adjustment, most likely unless there's a dramatic change, positive or negative, we would typically make that adjustment at year-end.

Okay. Thank you.

Thank you.

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed.

Morning.

Hi, good morning. Do you plan to capture any additional integration cost savings from the acquisitions that you've made this year in '08?

I think we certainly do plan to capture some of those. We've completed a couple transactions in the fourth quarter. And they were not additive to earnings. Particularly as it relates to inventory write-up. And we would expect as we get into '08, and a couple of these were down in the UK marketplace and European marketplace with Rust-Oleum, that we should see some earnings benefit as we integrate those. So the answer to that is yes. The timing, whether that impacts us in the first quarter or later in the year, but certainly that will help us.

Second thing is, can your raw materials go up over the last three-months compared to the previous three-months? If you look at it just on a sequential basis?

Two issues there, Jeff. Number one, unlike a lot of our peers, we account for inventory on a FIFO basis. And so while that gives us a little bit of an offset in a rising raw material environment, it also has a little bit of delay in a falling raw material environment. We have seen some declines of some major raw materials. Stabilization in resins, and TiO2, places like that. The areas that hurt us the worst in the last five or six months tended to be metals-related, zinc continues to be a challenging -- that's a particularly important raw material for our Carboline business, copper prices remain at challenged levels, which is particularly important both for Carboline to a lesser extent and very directly with our Kop-Coat marine businesses. So those are the areas that have been frustrating for us. But we are seeing some softening in major raw material categories across certain resins and items like Ti02.

Lastly, when you think about the consumer division, I take it that it's probably pretty hard to get a good price increase until the beginning of calendar '08. And I was wondering whether you thought that the sort of raw material softness that you're beginning to experience would be something that would allow you to begin to report positive operating profit comparisons or what the timing of the positive operating profit comparisons and consumer might be?

We have been, we're hesitant really both in terms of our internal planning and communications publicly to guess anymore at where raw materials are going. It's been a very challenging 2.5 years. As I mentioned, we have gotten price increases across all of our product lines, certainly they've been bigger and easier to pass through in a number of our industrial businesses versus our consumer businesses. But we have basically looked out for the new year and said that we're going to budget as if raw material costs and pricing are static. Obviously as the year goes on, that will not be the case. And so we are, after the last two years of experience, in a little bit of a quandary as to how aggressively we should assume some margin expansion. Conversely, I think we've established the ability to get price when we need it if we see any glimpse on raw material in the coming year. Given all the geo-political issues out there, we've just been hesitant to make any major guesses or bets to the direction of raw material costs.

Okay. Thank you.

Thank you.

(OPERATOR INSTRUCTIONS) And your next question comes from the line of Greg Halter with the Great Lakes Review. Please proceed.

Good morning.

Good morning guys and congratulations on the good results. I wondered if you could comment on the acquisitions you said there were seven small in the quarter. And I'm not sure all those were announced. You have some level of finite detail on some of those levels, that would be helpful.

That comment, seven acquisitions were acquisitions that completed over the last 12 months, not in the quarter.

Okay.

So that hopefully that will clarify that. In the quarter, we did have some acquisition activity, principally related to Rust-Oleum expansion in European marketplace, some of it relates to industrial MRO-type businesses, which has been principally Rust-Oleum presence in Europe. And then the others really are our first entree into the consumer DIY markets, principally in the UK, but a little bit on the continent. And we're pretty excited about that. Rust-Oleum has got a remarkably strong name in North America, but consumer brands tend to be regional. So it's harder for our consumer businesses to grow organically overseas versus our industrial businesses, which are doing that quite well. So we need to acquire a footprint in some of these major markets and we are starting to get to that point. In particular, with Rust-Oleum they've got a lot of activity targeted in that area. And quite honestly whether it's at Tremco, which is our first $1 billion group, or Rust-Oleum, which is now significantly bigger than it was some years ago. We have developed at that company-level the management depth to start to pursue, and more importantly execute, acquisition activities outside of U.S. So we're excited about those prospects.

Okay. And you made a comment in the business outlook section regarding growth investments in developing countries such as India and China.

Correct.

Can you give us some idea on what kind of dollars you're talking about there and what kind of areas you're looking to spend?

They're not big dollars by any means, but for instance, we've talked about our investment in Kemrock in India. This is a manufacturing partner of ours for three or four years. We now have a roughly 15% ownership interest in that business and are pursuing some additional joint ventures in a number of product areas and in particular in one raw material area. And that Kemrock business has gone from a $7 million business to a $35 million business in the last three years. So it's pretty exciting stuff. We are looking at a number of internal investments to really expand our human resource assets in the Chinese market where Stonhard has a presence, where Tremco has a presence, and where our Wood Finishes Group has a presence. And very candidly, we've looked at some acquisitions in China. I don't know that we have the human resource assets in the Chinese market to do sizable acquisitions. And secondly, I'm not sure that acquisitions in our space in China of size -- I'm not sure the market, given our past experiences, brings the type of stability and or certainty in terms of what management does and what you're getting for your dollar. So we will be investing in basically management build in India and in China. And at the same time, continuing to pursue acquisitions in the India marketplace where we've had some good success, in Latin America, where we've had some success and we are staring at some good opportunities and in Europe, as well.

Okay. And question regarding the M&A activity you mentioned $100 to $150 million being contemplated. If you had to put a figure on U.S. versus foreign, how would that play out in your current thought process?

I think if you look at, Greg, our acquisition activity in the last year as well as the comments I just made, you're likely to see more of these transactions to come from foreign geographies than from the U.S. We are very much focused both on building the resource, the human resource base in a lot of these countries and pursuing some good acquisition opportunities particularly in our industrial businesses as we are successfully expanding in Europe and Latin America and elsewhere. So my guess would be that it would be predominantly non-U.S. transactions. But as I said in my comment, at the nature of acquisitions are such that they're not done until they're done. And certainly opportunities could pop up in the next 12 months that would be U.S.-based and change the comments I just made. But if I'd guess, that's where I'd guess.

All right, great and one last one. We know the WTI business has grown very rapidly on the service side, but relative to that translating into product sales, what kind of evidence have you seen or been able to demonstrate out of WTI?

That's a good question that I don't have an answer to right now. The big picture answer is it is generating pass-on product sales for sure. But to what extent, I don't have a good answer for you. We can certainly address that in a future call. But I can tell you that the WTI service opportunities are continuing to expand for us. We are have been challenged by our customers to expand our maintenance service delivery to areas outside of waterproofing and roofing. And we will do that selectively as the time comes. But our Tremco folks in the service side have built a very successful business that's doing a good job for our customers, so much so that every once in a while we get challenged to address an electrical maintenance issue, which is not our area of expertise, for instance. But it's a business that will continue to grow at rates greater than our core product sales growth.

Okay. Thank you. And good to see your stock price over $25.

Thank you. We agree.

I show no further questions in the queue. I would now like to turn the call over to Mr. Frank Sullivan for closing remarks.

Thank you very much. In closing, I'd like to thank RPM's 9,400 worldwide employees and our long-term investors. In a world measured by pennies per share per quarter, we set out a set of five-year goals. And with the great leadership of RPM's operating company presidents and the execution of our employees, we delivered on those five-year goals. And I can't tell you how proud we are, Greg, to your comment, to have achieved these results and see the impact on our stock price, particularly for those long-term investors who have stuck by RPM for many years, including during some challenging years because of the asbestos liability situation. We thank all of you for the participation in our call today. We look forward to hosting a number of analysts and investors at an annual luncheon here at the New York Stock Exchange and to delivering another year of record results for RPM shareholders in 2008. Thank you very much. And have a great day.

This concludes the presentation. You may all now disconnect. Good day.