RPM International Inc (RPM) 2012 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the RPM International's conference call for the fiscal 2012 third quarter. Today's call is being recorded. This call is also being webcast and can be accessed live or replayed on the RPM website at www.rpminc.com. Comments on this call may include forward-looking statements based on current expectations that involve risks and uncertainties, which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC. During this 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) Please note, only financial analysts will be permitted to ask questions. At this time, I would like to turn the call over to RPM's chairman and chief executive officer, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Thank you, Derek. Good morning, and welcome to the RPM International Inc. conference call for our 2012 fiscal year third quarter for the period ended February 29, 2012. On the call with me today are Bob Matejka, RPM's senior vice president and chief financial officer, Barry Slifstein, RPM's vice president and controller and Rusty Gordon, RPM's vice president of planning and analysis and our soon-to-be next chief financial officer, pending Bob Matejka's retirement.

We are pleased with our performance across almost all RPM operations during the third quarter. Our industrial segment businesses continue to show broad strength across numerous product lines, including corrosion control coatings and fire-proofing products, various industrial and commercial flooring product lines, specialty waterproofing bridge deck coatings and expansion joints. In fact, our strength is coming from nearly all geographies. While in Europe, we are seeing some weakness in Spain and Italy where we have a number of good companies with a strong presence, in general, our industrial segment results across the European geography continue to show positive sales and earnings momentum. Our developing country results are also showing very strong year-over-year gains, though on a relatively small sales base. Even in our more cyclical construction products, sealants and waterproofing areas, we are starting to see some stronger year-over-year sales and earnings growth in relationship to relatively weak comparisons a year ago and growing demand in the repair and maintenance areas, as well as the impact of continuing industrial capital spending and some uptick in commercial activity.

Our consumer segment had an extraordinarily strong year-over-year turnaround, though I would attribute some of this to weather-related issues. While we generally don't like hearing weather-related cause and effect from our operations in relationship to their performance, and I suspect our investors are the same way, clearly, last year's third quarter, in relationship to our consumer segment, was relatively poor due to weak consumer take-away in retail and near-historic winter weather in terms of both cold, snow and longevity. In contrast, this third quarter, the seasonal low period for RPM's businesses, has had a remarkably warm winter and a lack of snow throughout most of North America, and more importantly, a significant uptick in consumer DIY small project paint and patch and repair spending. It is hard to tell how much of this is in relationship to an improvement in consumer spending and attitudes in these areas or the year-over-year weather comparisons, but we feel it is a little bit of both. In any event, we are happy to show an extraordinarily strong quarter with unit volume growth across our consumer lines, up by 15%. I would now like to turn the call over to Bob Matejka, RPM's Senior Vice President and Chief Financial Officer, to provide you more details on our third quarter results. Bob?

Thank you, Frank, and good morning, everyone. Thanks for joining us on today's call, and I will review the results of operations for our fiscal 2012 third quarter. I'll touch on a few February [29] Company corrected after the conference call) balance sheet measures, and I'll talk to cash flow activities through the first nine months of the year. Then I'll turn the call back to Frank for closing comments before we take your questions.

During RPM's fiscal 2012 third quarter, consolidated net sales increased 14% year-over-year to $773.6 million, principally due to volume improvements of 8.5%, price increases of 2.4% and acquisition growth of 4.7%. The increases were partially offset by unfavorable foreign exchange of 1.6%. The industrial segment net sales of $501.9 million, which accounted for 65% of our total sales, increased 11.8% over last year, with acquisition growth adding 6.8%, a volume improvement of 5.2% and price increases adding 1.8%, all of which were partially offset by unfavorable foreign exchange of 2%. At the consumer segment, net sales of $271.7 million increased by 18.2% over the same quarter last year, with 15.1% attributable to unit volume increases, 3.4% from positive price and 0.3% attributable to acquisition growth. Unfavorable foreign exchange of 0.6% partially offset the sales increase drivers.

Our consolidated gross profit increased to $303.2 million from $269.5 million last year, principally due to the higher sales volume and price increases. As a percent of net sales, gross profit declined by 50 basis points to 39.2% due to the continuing high cost of raw materials. Consolidated SG&A increased 8.1% to $277.5 million from $256.7 million last year, generally due to increases in variable costs associated with the higher sales volumes, such as compensation, benefits and distribution costs. As a percent of net sales, SG&A decreased 190 basis points to 35.9% of sales from last year's 37.8% due to the increased leverage on higher sales.

Earnings before interest and taxes, or EBIT, of $27.1 million increased nearly 100% from $13.6 million last year, due principally to the higher sales volumes and improved leverage on SG&A expenses. Partially offsetting these improvements was a continued unfavorable trend of higher raw material costs combined with a price increase lag. At the industrial segment, EBIT increased 56.9% to $21.3 million from $13.6 million a year ago, driven by the increase in sales of 11.8% and improved leverage on SG&A spending. Consumer segment EBIT increased 34.4% to $21.5 million from $16 million last year, driven by the increase in sales of 18.2% and the benefit, as well, from improved leverage on SG&A expenses.

Our corporate and other expenses of $15.6 million were relatively flat to last year. Interest expense increased from $16.5 million last year to $17.9 million this year, primarily due to the issuance of an additional $150 million of debt back in May of 2011 and increased borrowings associated with this year's increased acquisition activity. Our investment income decreased $2.7 million year-over-year due to $3.3 million of gains on sales of marketable securities last year that did not repeat this year. Our income tax rate of 30.7% for the quarter compared to last year's rate of 40% due to changes in the jurisdictional mix of actual and forecasted earnings, the impact of certain foreign operations on our U.S. taxes, and adjustments to certain tax valuation allowances. Additionally, with the third quarter's lower seasonal volume and earnings, any minor updates of our full year's projected rate can contribute to a relatively large quarterly variation ineffective rate. We continue to see a projected fiscal 2012 tax rate in the area of 31% or 32%.

The bottom line net income attributable to RPM shareholders increased $504 million to $6.6 million compared to last year's $1.1 million. Earnings per share increased 400% to $0.05 a share compared to $0.01 last year.

With regard to year-to-date results, consolidated net sales increased 11.5% to $2.68 billion from $2.4 billion last year, principally due to unit volume improvements of 4.9%, price increases of 2.9%, acquisition growth of 2.7% and favorable foreign exchange effects of 1%. EBIT increased 14.1% to $256.6 million this year from $225 million last year, due principally to higher sales volumes and improved leverage on SG&A spending. Partially offsetting these improvements was the continued unfavorable trend of higher raw material costs combined with a price increase lag. The net income attributable to RPM shareholders increased 12.2% to $133.4 million compared to last year's $118.9 million. Earnings per share increased 12.1% to $1.02 this year compared to $0.91 per share last year.

Looking at the balance sheet and nine-month cash flows, we find cash from operating activities for the year of $153.5 million compared to $191 million last year. Declines in accrued compensation and benefit accruals and a comparatively large drop in accounts payable accounted for most of the overall shortfall to last year. These negatives were partially offset by good improvements in other net working capital items. If one carves out our third quarter alone, you would see a year-over-year cash flow improvement of some $35.6 million following shortfalls in each of the first two quarters of the year. Depreciation and amortization expense increased slightly to $54.7 million compared to $54.5 million last year. Our CapEx of $34.4 million for fiscal 2012 compared to $21.7 million for fiscal 2011. Our accounts receivable day sales outstanding was relatively flat to last year at 68 days, and days of inventory was 98.9 days this year, an improvement over the 104 days from last year.

Finally, a few comments on capital structure and overall liquidity. As of February 29, our total debt was $1.1 billion compared to $935.7 million last February. You may recall that on May 24, 2011, we sold $150 million aggregate principle amount of 6.125% notes, which were a follow-on issuance of our $30 million of 6.125% notes due 2019, initially issued back in October of 2009. The 2011 offering was priced at a premium with an effective yield to maturity of 4.934%. The proceeds continue to be used for general corporate purposes.

Our net debt to capital ratio was 39.6% at February 29, 2012 compared to 35.3% in the preceding comparable month end. The increase is primarily attributable to the additional $150 million of new debt issued during May of 2011. Our long-term liquidity at February 28, 2012 was $733.3 million, with $272 million in cash and $461.1 million available through our bank revolver and accounts receivable securitization facilities. With that, I'll turn it back to Frank.

Thanks, Bob. During the quarter, we completed the acquisition of FEMA in Germany. This is a $40 million EIFS business, or exterior insulation finish system business, which will be an extraordinarily good fit with our Tremco illbruck businesses throughout Europe. Subsequent to quarter end, we completed the acquisition of $23 million HiChem, a leading provider of spray paints, touch-up paints and accessory products to the automotive and hardware channels in Australia. This acquisition by our Rust-Oleum subsidiary will be a nice complement to their existing product ranges serving the Australian and New Zealand marketplace. These deals represent the fifth and sixth acquisitions we have completed this fiscal year. On an annualized basis, these six acquisitions represent about $190 million in annualized sales. While a combination of the acquisition costs, all of which were expensed during the year, as well as one-time inventory step-ups at the time of acquisition have served to hurt earnings so far this year. For the most part, these 2012 acquisitions will be accretive to sales and earnings growth in our fourth quarter.

Halfway through our 2012 fourth quarter, we anticipate industrial business growth in the quarter of 11% to 12% and our consumer sales growth in the quarter at a more modest 5% to 6%, all over last year's very strong fourth-quarter results. This continuing positive momentum makes us comfortable in maintaining our original earnings guidance for the year of $1.60 to $1.65 per share. While we will not be providing the details for our outlook for our 2013 fiscal year until our year-end earnings release on July 23, assuming continuing economic improvement in our core North American markets and stable economies throughout Europe, along with the market share gains and momentum shown by the RPM companies and the positive impact in fiscal '13 of our 2012 acquisitions, we are highly confident that next year will be another one of improved sales, earnings and earnings per share growth to record levels for RPM. That concludes our prepared remarks. We would now be happy to take your questions.

(Operator Instructions) And our first question will be coming from the line of Silke Kueck of JPMorgan. Please go ahead.

Good morning, Silke.

Good morning. How are you?

Good.

I was wondering whether you can talk about some of the product lines on the consumer side where you've seen market share gain, whether that's in the low end Rust-Oleum products or in Zinsser or DAP, whether you can give a little bit of color.

I think we picked up some gains in the primer area, with our Zinsser products. We've had real strong performance in a number of new product categories, including some larger-ticket item areas for kitchen counter and kitchen cabinet refurbishment, and those have been very well received, and the take-away is pretty exciting there. I had commented on an earlier call that Rust-Oleum also, with an acrylic-based 10-year guarantee blacktop coating, has seen real good success with that, and that is the first time that Rust-Oleum has had an opportunity in the building materials section of some of its big-box customers. So, that's an exciting kind of new category for us that we hope to expand in.

And then lastly, there's a new product called LeakSeal, which is a product introduced by Rust-Oleum and is one of the fastest-growing new product introductions we've ever had. It is basically a water proofing material that sticks to just about anything. It's an aerosol product today and they are pursuing a brush good as well. So, that would give you some of the highlights of some of the strong growth we had. The other thing I would tell you is it's my belief that we've had some of what traditionally would be March sales, as we get into the strength of our spring selling season, fall into February with the mild weather that we've had pretty much around the country.

And if I can ask one follow-up on pricing. I think during last conference call you said you planned to increase prices maybe another 3% year-over-year in the second half of fiscal '12. And is that proceeding as planned, or are there price increases that have been announced recently?

On a consolidated basis for the year, prices are up about 2.5%, and in the quarter we were up in consumer about 3.4%. We have faced and continue to face a very challenging raw material environment. We've had brief periods of stable raw material prices, only to be followed by increases in certain categories. Unfortunately, that trend continues and so we are continuing to address cost issues and pricing issues where appropriate.

Okay. Thanks. I'll get back into queue.

Thank you.

Your next question is coming from the line of John McNulty from Credit Suisse. Please proceed.

Thank you. Good morning. Congratulations.

Thanks.

Just a couple quick questions. Just on the pricing versus raw material issue, do you feel like you're caught up at this point? Or is there still more that you need to do in order to catch kind of the current raw material environment that we're in?

We are getting caught up in some of our industrial product lines, but we are still a good ways behind the curve in almost every one of our consumer businesses. And so there is more to do and certainly more to do on the raw material cost side as well and so we, like everybody in our industry, are looking at different options and different alternatives in relationship to what's been a very challenging raw material environment for our industry.

Is that the case in the industrial segment as well, or are you pretty well caught up on the industrial side?

We're caught up in a number of our industrial product areas, not all, but in a number of them, we are caught up. So, you have seen over the last year or two and will continue to see, I think, some better gross margin and raw material costs versus price performance out of our industrial segment than what we've been able to achieve in our consumer segment.

Okay, great. And then on the industrial volumes, is there any help from weather in that business? Or are these projects typically more scheduled out so it's not something where an unseasonably warm or dry season is going to matter all that much? How should we think about the potential weather pattern in industrial?

Normally, I would tell you that weather in North America would help some of our Building Solutions Group construction products areas. And certainly, we're seeing some strong improvements year-over-year in concrete admixtures and in a number of water proofing products. But quite candidly, John, versus the last three years in which a lot of these construction products or particularly selling into the commercial market had been very challenged. I think the message that we're seeing there is that we're seeing a steady -- on a lower base, a steady, and it feels pretty solid, improvement in forward momentum in sales and earnings in a lot of our building material and construction products and construction chemical and water proofing categories that were challenged for the last three years. So -- and then beyond that, weather really is not a factor.

For all the mild winter weather we've had in North America, Europe has been crushed. And we still have pretty good gains in most of our high performance coatings, flooring, corrosion control coatings. Most of that is driven by continued expansion or capital spending in kind of our Fortune 1000 customer base. And then also, just an understanding of the nature of some of our businesses. So, for instance, a little less than a year ago, we acquired API. They are a Genoa, Italy-based business. So, you would scratch your head a little bit about where they are located. They actually are the largest provider in the world of polymer flooring for the military and cruise ship industry. So, while they are Italian-based, their market is global. We brought some real good synergies to them in terms of raw material costs. And so those are the types of acquisitions and add-on product lines that we're pursuing that might be located in a challenged geography, but have some pretty good opportunities, both for synergy as well as the more global markets they serve.

Great. And then just one last question on -- with regard to M&A. With some parts of the market looking like it's starting to firm up and yet at the same time, you've got questions about Europe and the growth there and even maybe things slowing in Asia, how should we think about the pipeline for M&A for you? I know you've made a couple of acquisitions just recently, but is the pipeline fuller, or is it a little bit smaller at this point? And in terms of pricing, how should we think about how the multiples are changing based on kind of the current dynamics with regard to demand?

I would say that, as you know, acquisitions have been 40% to 50% of our growth on average over the last 30 years. Our pipeline is better today than it was kind of in the 2005 through 2008 timeframe. We tend not to play in the size space that private equity influences, but they certainly influence price expectations. So, the multiple expectations today are more in the range of the historic norm in which we succeeded for 30 years than in the crazy bank-leveraged, no-covenant multiples of the mid to late 2000s.

So, we're in a better environment value wise. Great pipeline. The only thing I would say is that historically, particularly as it related to U.S. deals, let's say 10 years ago, if we had a signed letter of intent, boy, 80% or 90% of those transactions got done. As we're looking to grow more aggressively, particularly in the developed world, that signed letter of intent to completion feels more like 50/50, as we just bump into diligence issues around taxes or other areas that weren't generally problems in Western Europe or the U.S. So, the hit rate's a little bit less. Valuations are more back at historic norms, and our pipeline is fuller than it's been in probably six or eight years.

Okay, great. Thanks very much for the details.

Certainly.

Your next question is coming from the line of Kevin McCarthy from Bank of America Merrill Lynch. Please proceed.

Yes, good morning.

Good morning.

Frank, just to follow up on your last comment. My recollection is that historically you were able to do bolt-on or smaller acquisitions at maybe 0.8 times sales or so, and I'm going back a number of years. Is that still the case today maybe? Can you just talk a little bit more about where multiples are in the private market in terms of sales or EBITDA?

Yes, I -- we wouldn't -- beyond the comments I just made, I don't think we talked too much about multiples, other than we seem to be back in a range that allowed for us to have a lot of success for 30 years as opposed to the private equity-driven value expectations. If anything, in our space at least, private equity is becoming more of a seller of assets than a buyer of assets, and so that poses some interesting opportunities. Most of our focus tends to be still on private companies and privately negotiated transactions. To say that we're a little suspicious of pumped-up EBITDA numbers of businesses that were owned by private equity for five years and are now for sale would be an understatement.

Okay, thank you. And then moving on to consumer, Frank, I was very impressed with the volume number there, up 15%. You alluded to the weather, or some weather boost as well as fundamental improvement. If I heard you correct, you are looking for sales growth in the segment of 5% to 6% in the fiscal fourth quarter, is that correct?

I think that's right. I think that we'll be somewhere in the mid single digits. That 15% unit volume growth is just not who we are. We would be real pleased with 5% or 6% unit growth in the -- in our consumer segment. That's double GDP. Clearly, clearly, we benefited from the weather.

Our consumer businesses are becoming more international, but still are predominantly North American. And the mild winter versus last year, which was very long, probably accelerated some normally fourth quarter sales into the end of our third quarter. I think that's clear from what we've seen. But you've got better consumer take-away. We introduced some new products we were excited about in 2008 and, as you know, it didn't do much because consumer take-away died. And so we've introduced some new products in the last 6 to 12 months, and because consumers are spending more money on small project redecoration, the reception to and the take-away of these new products is substantially better than what we've had in the last couple of years. And I think that's mostly a function of people spending money again on their home.

That's kind of where I was going. And if sales are 5% to 6%, imagining you get a positive price contribution in there, it doesn't imply a lot of volume growth, and yet the backdrop seems to be improving. Maybe you could just talk a little bit about what you see at the market level for renovation and small project activity.

It's improving. Touch-up and repair, patch and repair, small project decorating, even home remodeling on a modest scale is starting on come back. Some of the newer products that Rust-Oleum introduced were pretty ground breaking. You've got $500 and $600 kits, which are the first of their kind in terms of price points in our kind of small project paint category or kitchen counter restoration and kitchen cabinet restoration. And those products are selling well, both at the DIY level and I think a little bit in kind of the do-it-for-you market where smaller contractors would be applying those kitchen transformation products and bathroom transformation products for homeowners. And so those have been -- it's a way to remodel a kitchen or a bathroom for $1,000 instead of $25,000, and that suggests that people are starting to reinvest in their homes and that's good for us.

Okay. Thank you.

Your next question is coming from the line of Ivan Marcuse from KeyBanc Capital Markets. Please proceed.

Thanks for taking my questions. Real quick, on your -- on the organic business, your demand's been pretty strong for say on the industrial side. So, is there any intention or expectation that at one point outside of acquisitions, you're also going to have to start spending some more money on capital to expand facilities, or do you think right now where you're at, you're pretty well set and you won't need to do anything substantial?

We are spending some new capital as we speak in certain of our industrial areas in our high performance maintenance coatings and corrosion control coatings. We are set to open a new plant in the Middle East here in either the end of this quarter or the first quarter of next year. We have a new plant for the same product lines that we'll be opening up in Nevada here in the next couple of months. And we've been pretty successful in being able to find facilities that were suitable for what we need to do, and so the capital dollars aren't as big as greenfield. Our biggest investment typically is in outfitting the facilities in terms of plant equipment, but we've got some nice expansion going on, mostly on the industrial side. If these volumes continue to increase, this year CapEx will be in the $70 million to $75 million range. I think you could see that uptick next year by another $10 million or more. But we really don't have good details on that. We're in our planning season right now, and we'll have a much better read for that when we release our year-end earnings on July 23. And we'll give you a firmer number about what we think 2013 CapEx will be.

Great. But demand right now, the way you see it, more than a firm number, is that you are going to have to continue to invest capital and expand your -- and you should continue to see some nice organic growth off of that, right?

Absolutely. That's our expectation, for sure. And the $75 million we're spending this year does include some capital expansion for some of our faster-growing product lines, almost all of which so far are in our industrial segment.

Great. And then the last question, on the -- back to the consumer, not to beat a dead horse here, but wasn't the weather fairly wet and snowy, at least in the Midwest and the northeast through March? And I know it was wet in April of last year, so why wouldn't you get sort of the same sort of benefit that you maybe got in the first quarter? Is it just a much lower base, or --

I -- if you'll recall, last year we had one of the earliest, longest, coldest, snowiest winters in many parts of the U.S. that we've had in a long time.

Right.

In fact, it was a lot of headlines about, probably tongue in cheek, about global warming, because it was an epic winter in some parts of the country. Personally, I'm a skier in the Midwest, and it snowed November in upstate New York and Pennsylvania, and you didn't see the ground sometime again until sometime mid-March. This year, it's been just the opposite. Whether it's the gulf stream or airstreams or whatever they call it being higher in Canada, there's been very moderate weather. Much of the Midwest in February had 60- and 70-degree weather, which is unprecedented. And we saw consumer take-away in February, for instance, being much stronger than we would normally see in a February month or end of our third quarter period. And there's little doubt in my mind that some of that February business is business that we would normally see in the fourth quarter in kind of a normal weather pattern.

Right, I get that.

You have to remember, last year was also a relatively weak third quarter.

Right. I get that. So -- but the weather, the bad weather last year continued into March and April, or at least for the most part. So, why wouldn't you get sort of the same sort of volume growth, I guess, because you would assume that weather impacted volume to some degree in March-April months last year. So, why wouldn't it be the same sort of benefit this year? And then on top of that, you're seeing improvement in existing home sales, at least on a sequential basis, and the consumer take-away continues to be stronger. So why would it be a 2% to 3% volume growth be sort of the expectation? Why wouldn't it be higher?

I don't know the answer to that, other than we'll see when the year's over. But my comments about the fourth quarter are not comments meant to do anything but reflect what we're seeing halfway through the quarter.

Great.

We're 45-plus days through the quarter, and I can tell you halfway through the quarter, our consumer businesses are up 5% to 6% and our industrial businesses are up 11% to 12%.

Great.

Hopefully that will accelerate in the last couple months, but that's kind of where we are.

Great. Thanks for taking my questions.

Sure. Thank you.

Your next question is coming from the line of Edward Yang from Oppenheimer. Please proceed.

Thank you.

Good morning, Ed.

Hey, Frank. Most of my questions have been answered, and thank you for giving us the update in terms of how volume and sales trends have been going so far into the fiscal fourth quarter. Looking at consumer again, was there any component of inventory build in that very strong number, or was that all just consumer take-away driven by improving fundamentals and also with some help from the weather?

It's consumer take-away, but it's also some order flow from customer bases in February that we might normally see in March.

Okay.

So again, I think there is -- I think there is an element of better consumer take-away, better sentiment, and I think we're finally firm believers that consumers are spending more on patch and repair, small decorating and even some bigger dollars. But I'm repeating a little bit. I think it's clear to us that there -- both from consumer take-away and kind of customer flow, a bigger February than we'd normally see, and my guess is that impacted March a little bit. So, if you take 15% unit -- or 18% growth in the third quarter and know that February was a big part of that, and you take a more modest 5% or 6% in the first half of this quarter and you average it, is probably a good way to think about it.

Okay. Thank you for the clarification there. On the industrial side of the business, I'm surprised that Europe's been so resilient for you, and just given the economy there. I think you touched on some of the reasons why a lot of, I guess, the products that you classify as European, they're more going into global markets. What do you expect in terms of European industrial in 2013, for example? Fiscal 2013?

We don't have that data yet, and I'm not really prepared to give you much in the way of detail. We would hope to do that as we have traditionally on July 23 when we release our year-end results and we'll have been through our planning season and have a much better read on the 2013 year. I can tell you that when you look at the makeup of our products, for instance, a lot of the products that we produced in Europe are towards global markets. They are driven by kind of a Fortune 1000 customer base, and they are into markets like oil and gas. And so our Carboline products produce corrosion control products and products for structural steel and fireproofing that are going into oil markets from factories in Norway, from factories in Italy, in the flooring area. We're continuing to serve markets that are pharmaceutical food service, food prep. And so a lot of the industries that we serve globally, and this has been true in Europe, are doing fine.

Where we have local business in places like Spain and Italy, we are absolutely seeing weakness. But the vast majority of our products are driven by industrial capital spending into infrastructure, oil and gas, and kind of a Fortune 1000 or global 1000 customer base. It seems to continue to be picking up capital spending from what you have to remember, were dramatically reduced levels in 2009 and still depressed levels in 2010. RPM's a great example, and I've used it before. In 2010, so our 2010 fiscal year, our CapEx was something like $25 million or $30 million. In 2011, we were up to $45 million. This year, we'll be between $70 million and $75 million. We're just now getting back to the capital spending level we had back in 2008 and 2009, and I think that's indicative of our customer base on the coatings and specialty coatings side of our industrial business.

Okay. Thank you, Frank.

Sure, thank you.

(Operator Instructions) Your next question is coming from the line of Greg Halter from Great Lakes Review. Please proceed.

Good morning from sunny Cleveland.

Yes, good morning, Greg.

We certainly are enjoying the warm weather as well for the rest of the country. Question for you on your acquisitions. The expenses, or I guess the costs associated with those six, as well as the inventory step-ups, if you have a figure for that for the quarter, I would appreciate it.

I am looking here. In the quarter, $1.6 million. That was inventory step-up.

Just inventory step-ups, okay.

Yes, so it's a one-time step-up associated, I think mostly with the FEMA acquisition, maybe trailing from some acquisitions we did in the fall.

And there would be additional costs related to you and the others on the staff doing sorts of M&A work out there in the field?

Yes, those are just overhead, corporate wise. The additional costs, and I don't know exactly what they were in the quarter, probably just over $1 million, is outside fees. So legal fees, accounting, due diligence fees, environmental due diligence fees, things like that. And as you'll recall, starting about a year and a half, two years ago, instead of capitalizing those fees in the deal, they are all expensed on a period basis at the time of the transaction.

Right, and wondering if you could discuss any new account wins or channel expansion that you're currently seeing.

Not really beyond what we talked about. I mean, we picked up some market share and shelf space in certain areas over the last year in the automotive channel, which is new to us 2.5 years ago. We're picking up some market share in the UK and a little bit in Europe with Rust-Oleum, who until three years ago, didn't have any presence there. And so that's growing.

New categories, as I mentioned earlier, Rust-Oleum's excited about entering the building material categories in some of its big-box customers, and then some of the new products that we've introduced that are moving well. On the industrial side, I don't have a good sense, because the customer base is very fragmented and projects are -- they come by the thousands. But I can tell you in some of our larger industrial areas, we've had consistent double-digit growth, which is driving some of the capital expansion both in North America and overseas that I talked about earlier.

Okay, and with the HiChem acquisition, is there potential to take any of their products through other geographies?

No, I think the nature, the geographic nature of Australia and New Zealand is such that it's really hard to export from there. It's a relatively new area for us, so I don't know that answer definitively. But we've got about $8 million or $10 million of Rust-Oleum branded business there now, all of which can be better integrated both into manufacturing and the administration of HiChem. And Australia itself is a good size market that we hope to be doing better in.

Probably the country where we have our biggest market share is Canada, and I think if you look at Canada, we do $200 million of sales a year there. The market share that we would have there is something we would gladly aspire to in other parts of the world. I say that because I think the economy, size and dynamics in Australia are similar, and if we could do anything close to that, we got a lot of room to grow across a number of our product lines that are relatively new. In the last three years, we've gotten into the flooring business there. We've got a significant presence now that we can grow on with the Rust-Oleum products. There is a lot of Rust-Oleum technology and know-how that can be exported from the U.S. to the HiChem and the Australian marketplace.

Okay, and one last one for you relative to the LeakSeal, which is being sold at places like Home Depot for about $10. Are you doing any sort of advertising, TV, or any other kind of media advertising for that product?

No, we are not, but there is some good advertising around similar products that you might see.

I've seen that. It's nice to benefit from that. Is there a potential to advertise for the product, or what would explain the very rapid take-off in the product introduction?

It's a great product at a good price point. It solves a lot of problems.

Okay.

And yes, there's certainly an opportunity at some point to consider advertising or other more aggressive marketing.

Thank you.

At this time, I'm showing no further questions in queue. I would like to turn the call back over to the chairman and chief executive officer, Mr. Frank Sullivan, for closing remarks.

Thank you. I would like to conclude our investor call today with comments about our CFO succession and reorganization of our finance department. Immediately following the filing of our third quarter 10-Q on Friday, April 6, Rusty Gordon will assume the role of vice president and chief financial officer of RPM. Rusty completed his undergraduate studies at Cornell University, achieving his B.S. in operations, research and industrial engineering. Following this, he spent two years as an industrial engineer at VLSI Technology before he attended the Kellogg Graduate School of Management at Northwestern University full time to obtain his Master's in Management degree. After receiving his Master's, Rusty spent four years at the BF Goodrich company involved in financial analysis and corporate treasury. He joined RPM in 1995. In his 17 years at RPM, he first supported Jay Morris, RPM's executive vice president and Dick Klar, who at the time was RPM's vice president and treasurer. Rusty then reported to Dave Reif during Dave's tenure as RPM's CFO and over time moved into his current capacity reporting to Ron Rice, who was our president and chief operating officer in the capacity of vice president of corporate planning, where he's developed an extensive knowledge of the RPM individual operating company units, their businesses, markets, products and financial results.

In conjunction with Rusty's promotion to CFO, Keith Smiley, our vice president and treasurer, will move to vice president and controller. This is a position he held at a much smaller, $500 million RPM, and one which today leads the vast majority of the professionals in our finance department. Matt Ratajczak, our vice president of global taxes, will assume a number of Keith's banking and treasury activities, and the title of vice president of tax and treasury. And Barry Slifstein, who many of you know, will assume the title of vice president of investor relations and planning. In this capacity, he'll continue to be actively involved in communicating with our investors and in analyzing our performance, both for external reporting and internal management of our operating companies. Rusty?

Thanks, Frank. I look forward to getting out and meeting the investment community in the upcoming months. I look forward, as well, to working more closely with Matt, Keith, Barry and others in our finance department, and I'm thankful to Bob Matejka, who has served as a great mentor to me and helped me through this transition for the last couple of months. Bob has been a model of integrity around RPM throughout his career and I will have big shoes to fill.

This transition will bring to a close the Bob Matejka era at RPM. Having reached the age of 69 and on his second tour of duty as RPM's chief financial officer, Bob has played an extraordinary role since first joining RPM in 2000 as vice president and controller. When Bob was named RPM's chief financial officer in 2002, revenues were $1.9 billion and net income was $101 million. Since then, revenues have grown by approximately 80%, driving an earnings growth of 90% despite two recessions, a challenging asbestos liability problem, which impacted our income statement, cash flow and balance sheet, and an explosion in regulatory compliance and reporting requirements in conjunction with the advent of the Sarbanes-Oxley and Dodd Frank legislation. On behalf of the more than 10,000 RPM employees worldwide, our leadership team, board of directors, and most importantly, our investors, Bob, thank you very much for your tremendous dedication and service to RPM.

Thank you, Frank. This is the second tour, for two years, which has just been great. Great organization.

I would like to close by thanking the RPM associates worldwide for their dedication and commitment. Your efforts have returned RPM to record levels of growth in sales and earnings, gains in market share and the excitement of many new opportunities for growth and expansion around the world. I would also like to thank our shareholders for your investment in RPM. We are collectively dedicated to making your investment a growing and rewarding one. We look forward to reporting the results of our 2012 fiscal year when we release earnings from the New York Stock Exchange on Monday, July 23, where we will also provide our outlook for the new 2013 fiscal year and beyond. Thank you for your participation in our call today, and have a great day.

Ladies and gentlemen, that concludes today's conference. We thank you for your participation. You may now disconnect. Have a great day.