RPM International Inc (RPM) 2015 Q1 法說會逐字稿

Welcome to RPM International's conference call for the FY15 first quarter. Today's call is being recorded. This call is also being webcast, and can be accessed live or replayed on the RPM website at www.rpminc.com.

Comments made on this call may include forward-looking statements based on current expectations that involve risks and uncertainties which could cause actual results to be materially different. For more information on these risks and uncertainties, please review RPM's reports filed with the SEC.

During this conference call, references may be made to non-GAAP financial measures. To assist you in understanding these non-GAAP terms, RPM has posted reconciliations to the most directly comparable GAAP financial measures on the RPM website.

(Operator Instructions)

At this time, I would like to turn the call over to RPM's Chairman and CEO, Mr. Frank Sullivan, for opening remarks. Please go ahead, sir.

Thank you, Darren. Good morning. Welcome to the RPM International Inc. fiscal 2015 first-quarter investor conference call for the period ended August 31, 2014. On the call with me today are Rusty Gordon, RPM's vice president and chief financial officer, and Barry Slifstein, RPM's vice president of investor relations and planning.

While our results are somewhat mixed in the first quarter, we are essentially on our internal operating plan for the year, which we believe will get us to our previously communicated full-year guidance of $2.38 to $2.42 per share for the 2015 fiscal year. It is important to note that in last year's first quarter, in our consumer segment, we had two significant events, which we did not expect or plan for to be repeated in this year's first quarter.

Last year, our Kirker fingernail enamel business had a huge first-quarter rollout, direct with a national retail chain. Our Synta business, acquired a few quarters earlier by Rust-Oleum, also had a national rollout across Rust-Oleum's entire customer base during last year's first quarter, essentially going from a Restore brand distribution and one national customer to broad distribution across Rust-Oleum's multiple customers and multiple channels in a three-month period.

These two events last year resulted in a first-quarter consumer segment performance of sales up 26% and EBIT up 41%. We did not expect that either of these extraordinary one-time rollouts would reoccur; and of course, they did not. When you strip away the Kirker and Synta results year over year, fundamentally, our consumer segment is continuing to perform well, with core growth of 7% driving mid-double-digit EBIT growth in the teens.

So, our industrial segment performed better in this year's first quarter than our consumer segment. In fact, we are experiencing mixed results with significant deterioration in sales and earnings in many of our European businesses, a reversal of the strong European performance generated last year, as well as a number of product and geographic mix issues that resulted in a slight decline in industrial segment EBIT margin. These factors were the cause of the lower profit leverage from an otherwise pretty solid segment core growth.

Subsequent to quarter end, on September 26, 2014, Specialty Products Holding Corp. filed its plan of reorganization in the Delaware bankruptcy court. The plan outlines the steps required to establish a 524(g) bankruptcy trust, and receive final confirmation of the plan of reorganization. The results of which will be the emergence of SPHC and its operating companies from bankruptcy, and its reconsolidation into the financial results of RPM. We anticipate the planned confirmation and reconsolidation of the SPHC businesses to occur in our 2015 third quarter, essentially sometime in the December 2014 through February 2015 time frame.

While the impact of the completion of this transaction on RPM's 2015 fiscal year will be dependent on the specific timing and related transaction costs, we think it is worth noting that SPHC is operating this year on an annualized revenue run rate of approximately $400 million. While we are not in a position to provide the details of the impact of the reconsolidation, as we are still confirming the many moving parts of this transaction, particularly from the balance sheet perspective, we hope to be in a position to provide more details at our January second-quarter investor conference call.

Having said that, when the smoke has cleared, we believe that, including expected forward momentum in sales and earnings as previously communicated in July for RPM, combined with our expectation of the sales and earnings impact on a full-year basis of the reconsolidation of the SPHC businesses, that our 2016 fiscal year earnings per share will likely be in a range of $2.70 to $2.90. In essence, this will be the equivalent of a nicely accretive acquisition with minimal due diligence or other risk issues, in combination with a permanent and final resolution of what has been a significant contingent liability issue. We are excited about putting this decade-long challenge behind us, and bringing these good businesses, well known to RPM, back into the family of RPM companies on a basis that will be positive for our shareholders.

I would like to now turn the call over to Barry Slifstein, who will provide you with details on our first-quarter results.

Thanks, Frank. And good morning, everyone. Thank you for joining us on today's call. I'll review the results of operations for our fiscal 2015 first quarter, then cover some August 31, 2014, balance sheet and cash flow items. I'll then turn the call over to Rusty Gordon, who will discuss the outlook for the balance of fiscal 2015.

First-quarter consolidated net sales of $1.2 billion increased 3.4% year over year due to organic growth of 2.1% and acquisition growth of 1.3%. Included in organic growth was favorable foreign currency translation of 0.1%.

Industrial segment sales increased 5.8% year over year to $773.9 million due to organic growth of 4.5% and acquisition growth of 1.3%. Included in organic growth was favorable foreign currency translation of 0.1%.

Consumer segment sales decreased 0.8% to $430 million due to a decline in organic sales of 2%, which was partially offset by acquisition growth of 1.2%. Foreign currency translation was favorable by 0.1%.

Our consolidated gross profit increased 1.9% to $508.4 million from $499.1 million last year. As a percent of net sales, gross profit decreased from 42.9% last year to 42.2% this year, representing a decrease of 70 basis points.

Consolidated SG&A increased 3.3% to $346.5 million from $335.5 million last year. As a percent of net sales, SG&A was flat to last year at 28.8%. Approximately $5.6 million related to legal and other professional fees associated with the ongoing SEC investigation, proposed SPHC settlement, and a voluntary self-disclosure agreement with the state of Delaware for unclaimed property reviews. The balance of the increase relates to higher distribution, compensation and benefit expenses.

Consolidated earnings before interest and taxes, EBIT, decreased 0.2% to $163.7 million from $164 million last year. At the industrial segment, EBIT increased 5% to $105.1 million from $100.1 million last year on higher sales volumes. Consumer segment EBIT decreased 7.3% to $76.7 million from $82.7 million last year due to lower sales volumes.

Corporate/other expenses of $18.1 million were below last year's amount of $18.7 million, and include most of the legal and professional fees associated with the SEC investigation, the proposed SPHC settlement, and the voluntary self-disclosure agreement with the state of Delaware for unclaimed property reviews. Interest expense decreased from $20.7 million last year to $19.4 million this year, primarily due to the retirement of a 6.25%, $200-million bond in December 2013 upon the issuance of a 2.25%, $205-million convertible bond and the resulting lower effective interest rate.

Investment income of $3.8 million for the quarter was relatively flat to last year, and for both years was due primarily to gains on sales of marketable securities.

Our income tax rate for the first quarter increased from an effective tax rate of 27.4% last year to 29.2% this year. The change in the quarterly income tax rate was due, in part, to comparative differences in forecasted pre-tax income, changes in the estimated jurisdictional mix of earnings, and the relative impact of quarter-versus-quarter adjustments to valuation allowances associated with foreign tax credits.

Net income declined 3.9% to $99.1 million from $103.1 million last year. Diluted EPS of $0.73 per share was below last year's EPS of $0.77 per share. Excluding the dilution attributable to the convertible bond issued last December, EPS for the first quarter of fiscal 2015 would have been $0.74 per share.

And now a quick look at the cash flows and balance sheet. Cash used from operating activities was $125.2 million compared to $129.5 million last year. The slight improvement was driven primarily by the contingent payment to the GSA in fiscal 2014 of $61.9 million, partially offset by the decrease in accounts payable, and accrued compensation and benefits.

Depreciation and amortization expense was $23.3 million compared to $22.3 million last year. CapEx of $12.1 million this year compared to $10.7 million last year. Our accounts receivable DSO was 67 days this year compared to 63 days last year. Days of inventory increased to 81 days this year compared to 77 days last year.

Finally, a few comments on our capital structure and overall liquidity: As of August 31, 2014, total debt was $1.48 billion compared to last year at $1.42 billion. Our net-debt-to-capital ratio was 46.6% at August 31, 2014, compared to 49.1% last year. Our long-term liquidity at August 31, 2014, was $893 million, with $225 million in cash, and $668 million available through our bank revolver and AR securitization facilities.

On December 9, 2013, RPM completed the issuance of $205 million, 2.25% convertible senior notes due 2020. Substantially all of the net proceeds from the sale were used to repay $200 million in principal amount of unsecured senior notes due December 15, 2013, which carried an interest rate of 6.25%. Following the sale of these notes, virtually all of RPM's total debt is fixed with an average interest rate approximating 5%. On May 9, 2014, we replaced our existing $150-million accounts receivable securitization facility with a three-year $200-million accounts receivable securitization facility that expires on May 8, 2017.

With that, I'll turn the call over to Rusty Gordon.

Thank you, Barry. I would like to briefly cover our outlook for the rest of the fiscal 2015 year. As we disclosed through an 8-K last month, RPM's earnings plan was for flat performance in Q1 due to the extraordinary Synta and Kirker revenues in the prior year. To provide some context, RPM's consensus estimate was $0.71 per share in the first quarter of FY14 versus $0.64 in the same quarter of FY13.

We actually had a blow-out quarter last year, with actual EPS of $0.77 versus the $0.71 consensus estimate. As a result, we planned our first quarter this year to be flat versus last year's extraordinary performance, after accounting for $0.01 of dilution related to last December's convertible bond offering, but still growing versus a more normalized level of operating performance in the prior year.

As Barry mentioned earlier, in our first quarter of this year, there was $5.6 million of unplanned costs associated with three categories: the ongoing SEC investigation, the proposed SPHC settlement, and a voluntary self-disclosure agreement with the state of Delaware. Absent the $5.6 million for these expenses, RPM was basically right on its Q1 earnings plan, and flat to last year, after accounting for the dilution mentioned earlier.

I should mention that we expect more costs for these three categories in Q2 and Q3. Absent the unplanned non-recurring costs for these three categories, RPM expects, at this point in time, to reach its annual EPS guidance of $2.38 per share to $2.42 per share that was issued on July 28. As a reminder, this guidance does not include reconsolidation of SPHC.

After our first quarter's performance, it is logical to ask what we expect will change in the remaining quarters. On the positive side, we expect the following: Number one, Synta Restore comparisons get easier for our last three quarters of the year. Based upon some exciting new product introductions planned for next spring, we expect Restore to gain momentum and grow in the back half of fiscal 2015. Besides Restore, there are other exciting new products from Rust-Oleum, which are expected to keep the business growing nicely for the remainder of this year.

Number two, it appears that our U.S. construction and industrial businesses have seen a recent acceleration of sales during the first quarter, especially in our construction, chemical, flooring and industrial coatings businesses.

Number three, more normal winter weather should help us in Q3 this year.

On the negative side, we are concerned about: Number one, the weak euro, since this will unfavorably impact our translation of sales and earnings. Overall, our European outlook is mixed, with regional differences in performance. We have experienced some weakness in eastern and central Europe. On the other hand, our performance in the UK and Scandinavia have been better.

Number two, the potential impact of the strong U.S. dollar, since current exchange rates indicate unfavorable translation versus the prior year in Brazil, South Africa and Canada, in addition to the euro discussed earlier.

Number three, for Kirker, the year-over-year comparisons will continue to be negative in Q2, then will be fairly flat to prior year in the back half of fiscal 2015. We expect the net result of the positives and negatives mentioned to be that RPM's growth will resume for the balance of the year.

This concludes our formal remarks, and we are now pleased to answer your questions.

(Operator Instructions)

Your first question comes from the line of Rosemarie Morbelli from Gabelli & Company.

Good morning, all. Frank or Rusty, I'd just like a clarification. When you are looking at your $2.30 to $2.42, did you say that you included the additional costs that you experienced in the first quarter, or is it excluding them that you can reach your target?

Yes, what I said was excluding the costs in those three categories, which were the SEC investigation, the SPHC settlement, and the Delaware voluntary disclosure. We would expect to be, at this point, at the $2.38 to $2.42 guidance.

And of that $5.6 million in non-recurring, how much do you think we should expect either for the second quarter or for the balance of the year if they last all year?

We don't know at this point.

It could be roughly in the same range, Rosemarie.

For the second quarter, Rusty, or for the next three quarters?

Again, I think that somewhere in the low single-digit millions in the second quarter. And then in the third quarter, in relationship to the SPHC transaction finalization -- and we'll report the details -- we could have a lot of moving targets there, transaction costs, inventory step-up, because you would treat, on reconsolidation, much of the assets like you would an acquisition. And, so, those are the items that we're referring to and that we will outline on future quarterly calls.

And to your earlier question, the guidance that Rusty provided excludes the $5.6 million of extraordinary legal expenses in the first quarter, and will exclude, if they occur in the second quarter and particularly in the third quarter around SPHC, any other extraordinary one-time items, which we will outline on the calls.

Okay, thanks. And if I may, could you give us a better feel for, you talked about the first quarter, vis-a-vis Synta and Kirker have been impacted by two things, first of all the strong first quarter last year, which you talked about, but also the change in seasonality. So, could you give us, can you split the two and give us a better feel for seasonality going forward since we won't have any of those distribution centers?

Sure. The vast majority of the Synta outperformance last year was in the first quarter. As I indicated, we had a huge rollout that was planned for and well executed at Rust-Oleum, going from essentially a one-customer account to multiple channels, multiple customers.

So, in the coming three quarters, the comparisons will be more normalized for the Synta and Restore products, both in sales and earnings. And we would expect to have positive sales and earnings growth on a comparative basis. We've got some new products that we have commitments for in the spring, and so we might have actually some nice results in the spring above an ordinary sales and earnings growth.

On Kirker, Kirker was really running hard because of what was an extraordinary growth in the fingernail polish business. And at the same time in last year's first four months, we had a huge roll out direct to a nationwide retailer of a private label program that really had a huge impact in the first three to four months of Kirker's performance last year. That was part of what Rusty explained.

Going forward, I think for the balance of the year, we'll be roughly flat at Kirker because the extraordinary growth rates in the high single digits, low double digits of that whole category have cooled off, and the underlying core growth in that product category is flat to slightly down.

So, it sounds as though there's no seasonality change, it is mostly the difference in all of the going-ons last year versus this year, as opposed to a change in seasonality in your company-wide or even consumer operations. Am I correct?

I think that's correct. We are on plan. It doesn't look like a very good quarter relative to original expectations. I think we could have communicated better in July about the seasonality of our first quarter, but I think that's correct.

I think the only area of real concern for us that we're paying attention to is weakness in a number of our core European businesses, particularly in big markets like Germany and France. Otherwise we're pretty much on track.

Okay, thanks. I'll get back in line.

The next question is from the line of Ghansham Panjabi from Baird.

Hi guys, good morning. Just to clarify Rosemarie's question, on the $5.6 million non-recurring, Rusty, where did that flow through from a line item basis? Was it purely corporate expense?

Yes, a lot of it is corporate expense and it's in the SG&A category.

So it's not allocated by segment in any meaningful way, then?

There is a bit but the predominant share is at corporate.

Okay. And then, Frank, can you characterize the world as you see it today? Lots of mix, macro data points certainly out of Europe. But what about North America and commercial construction and in particular housing, as well, what are you seeing there?

Sure. Commercial construction for us in the product lines that serve that look pretty good, whether it's in our Euclid chemical product lines, concrete admixtures. And they go a little bit into housing. Tremco sealants, our Carboline industrial coatings, industrial flooring, all of those product categories are doing generally pretty good in North America.

It's a little bit of the reverse of what we saw last year. A number of those product categories are not doing as well in core big European markets. But we're seeing a continued steady improvement in the construction markets and we would expect that to continue for the balance of the year.

The other thing that's part of our planning this year that impacts both construction markets as well as product lines like Synta is, we have not planned for, a four-and-a-half month winter, which, though we had a good third quarter last year, was below our operating plan. And we're expecting a significant improvement in this year's third quarter both in terms of revenues and earnings. As you'll recall, the percentage gains will be impressive but it's on a seasonally weak quarter, so you have to keep that in mind.

And LatAm, any change there?

I'm sorry?

On Latin America, what are you seeing there?

No, Latin America is still doing quite well for us. We are challenged with the Brazilian/U. S. dollar exchange. Excluding that, our Brazilian businesses are doing really nicely.

In the quarter we acquired a company called Betumat, which is another roofing, asphalt and waterproofing business in the northern part of Brazil, and are working on integrating that into our Viapol business. So, on a local currency basis those businesses are very well managed, and they are performing well on the top and bottom line.

The rest of Latin America is also doing pretty well for us. Again, regionally we're seeing a little bit of weakness in the Middle East/Africa region as we look at it, and a more pronounced weakness in part because it's larger in Europe.

Okay, that's helpful. And just one final one, on the share count, why did it jump so much year over year, almost 5 million shares?

The share count jumped specifically because of the convert we issued last year and the underlying shares on that. One of the things that we're excited about -- and this is not a commitment of anything, it's stuff we'll review with our Board, but certainly things that investors should expect -- when you look for the fiscal year ended May 31, 2014, our total shareholder return was 39% versus the S&P of about 20%. Over the last decade we've outperformed our peer group and doubled the return of the S&P 500. And we did that with what essentially will become the third quarter. $1.4 billion of our pretax capital paid out associated with this asbestos mess.

When we put this behind us, we're really excited about the fact that 100% of the capital that our businesses generate will be able to be used by us to support growth or return of capital to our shareholders. And, so, I say that historically we are big believers in a growing dividend. We have our annual meeting of shareholders tomorrow. It's at 2:00 at the Strongsville Holiday Inn in Ohio. And we'll get about 1,000 shareholders. And our Board will consider, as it does annually, our dividend action. And we are still big believers in a growing dividend.

That's a long-winded way of saying post SPHC resolution we would expect to have, relatively speaking, more cash flow to either support our growth strategies or be more of a stock repurchaser than we have in the past given the unproductive diversion of a chunk of our capital over the last decade.

Okay, that's helpful. Thanks so much.

Your next question comes from the line of Mike Ritzenthaler from Piper Jaffrey.

Good morning. Just a couple from us. With the tough Kirker and Synta comps aside, can you just provide a little bit more depth around which pockets in consumer are working and which ones are maybe coming up a little short?

In most of our coatings categories, small project paint, a lot of the new product areas for Rust-Oleum. Our consumer segment international presence tends to be Mexico, a little bit Latin America and Europe, mostly in the UK. So, all of that's doing well.

In the caulks and sealants category we're relatively flat year over year. And as I indicated in our prepared comments, when you add all that up together, excluding the extraordinary results of Kirker and Synta, on a core basis we generated about 7% growth and mid teens in EBIT growth. So, the core of those businesses are doing pretty well. It's around new product introductions.

We have our first shipments of the NeverWet into OEM customers. And as I indicated, we also are seeing some improvement in some of the international markets, part of which is introducing products like NeverWet and a couple other product categories into international markets where we had not introduced them before.

Okay. The NeverWet to OEM application, that's something that's slated for the spring?

We are through some tests and we are shipping some categories. Interestingly enough, I'm not familiar with the customer who we have our first shipments to because our Rust-Oleum team is under a secrecy agreement on that. But once that gets rolling we'll be in a better position to talk about details. But there are some exciting possibilities for that product and its performance. Right now it's exclusively a DIY product.

Okay, excellent. Just one last one for me, then, on the SPHC. I know there's probably not a lot of detail that you want to go into about it, but is it fair to think about, as we look into 2016, low double-digit EPS growth and SPHC being in the neighborhood of $0.10 or $0.15? Is that reasonable? Are you able to hone us in a little bit more on the puts and takes into 2016?

No, I think beyond the guidance that we provided today, which is a little earlier than we typically would for the next fiscal year. But I think we're comfortable in that $2.70 to $2.90 range. And we'll see as the year progresses, we'll update people on that. But we don't want to get into details for a number of reasons. There's a lot of moving parts on the balance sheet on reconsolidation relative to liability, deferred tax asset, inventory step-up, which we believe will hit the P&L.

And then what we would like to do is, once we have that detail and this is actually done, is provide in detail what we think the impact will be in the fourth quarter of fiscal 2015. And then people can get a sense of both the underlying growth of RPM for fiscal 2016 and the incremental additional growth that we would expect from the SPHC businesses.

Just to recalculate, we're running at about $400 million. When these businesses went into bankruptcy May 31, 2010 they were about $300 million. 100% of that growth has been organic and it's leveraged to the bottom line pretty nicely.

Okay. Just for our expectations, when the reconsolidation comes in there will be certain costs that you'll be backing out of the GAAP P&L?

That's correct. As Rusty indicated, we have certain legal expenses that we're incurring in terms of transaction costs, some of which are now occurring at RPM international as opposed to only in the bankrupt entities. So, we will call those out specifically because they are one-time in nature related to the transaction. There will be some expenses upon consummation, like we believe an inventory step up charge. We will call those out in detail when the transaction is finalized.

Fair enough. Thanks, Frank.

Your next question comes from the line of Vincent Andrews from Morgan Stanley.

Hi, and thank you. Good morning, everyone. Just a quick question on my part. Just looking at the balance sheet, it looks like inventories and accounts receivable grew a little faster than sales. Is there anything going on there or is that just the seasonality, or how should we be thinking about that?

On inventory, there's really at August 31, we got inventory billed for higher sales than were realized. We were projecting more robust sales growth in the first quarter and as a result we have some extra inventory sitting on the balance sheet on August 31. Also new products, we have a lot that we mentioned before that are in the pipeline, and as a result we're beginning to build inventories of those.

On receivables, it really related to more of our business and country mix in terms of the higher than prior year figure for DSO. So, I hope that answers it.

That's great. Thanks very much, I'll pass it along.

Your next question comes from the line of Eugene Fedotoff from KeyBanc.

Thanks for taking my question. Just wanted to follow up on the weakness that you're seeing in Europe. Can you provide a little bit more details on the sales decline that you saw in the quarter in that particular geography? And was it across the board or any particular markets that are especially weak?

I don't know that we would provide specifics on any of our business units but I can tell you geographically the UK and Scandinavia are doing okay, were up somewhat from last year. But our core two big markets there, Germany and France, both of which performed quite well for us across a number of business categories, are very weak. We're seeing mid single-digit revenue declines and a concurring negative impact on earnings.

Okay, thanks. And can you talk about business conditions in September versus August both in the industrial and consumer, and if you can break it down U.S. versus Europe?

I don't have the details geographically on September but I can tell you our September is performing, as we've indicated on this call, with easier comps on the Synta product lines and relatively flat to slightly down results in Kirker. We expect both of those to perform in that manner for the balance of the year.

That takes away the extraordinary nature of the issues in the first quarter. And the underlying businesses are good solid fundamentals in consumer, good solid fundamentals in construction-related products and industrial products in North America, and continued concern for the balance of the year on Europe and the impact of currency translation.

Okay. And just to follow-up on that, what are your expectations as far as FX headwinds for the year?

They are certainly going to hurt us in the coming quarters. They were relatively neutral in the first quarter, but with the strength of the dollar now versus the euro and Canadian dollar and some other currencies, it will be a headwind for us. At this point I believe that we'll be able to overcome that relative to our expectations, but we will certainly monitor that as the year goes on.

And we do just shy of $1 billion in Europe and a pretty good slug of hundreds of millions of dollars in Canada, and then $300 million-plus in Latin America, $50 million to $100 million Middle East and Africa. So, all those are areas that we'll pay attention to.

Got it. Thank you.

Your next question comes from the line of Jason Rogers from Great Lakes Review.

Good morning. I wondered if you could update us on the capacity expansion in Tuf-Strand?

Tuf-Strand is continuing to go well. We are expanding two plant facilities, I believe one in Georgia and looking at one in Canada. And we are selling what we can make.

And then as far as acquisitions, just wondering what the outlook is there as far as opportunities that you're seeing.

Yes, we have a pretty robust pipeline right now. It's all small- to medium-sized transactions. I think we've done $40 million worth of transactions this year. Krud Kutter, which was a product line we acquired with Rust-Oleum, that Rust-Oleum is actually very excited about, it's a great product line, real strong leader there. It's a crowded category that we believe Rust-Oleum's category management expertise can be used, both to better serve their big retail customers and help us expand both the category and our share in it. And then Betumat, as I mentioned earlier, which is a waterproofing business in Brazil.

Those are the type of acquisitions that I think we're likely to see completed for the balance of this year in the $20 million to $30 million range. And there's a real good pipeline of that. We're not looking at any big transactions. There's a number of $0.5 billion of size, roughly, give or take a little, private equity-run auctions in our space. We haven't paid 11 times EBITDA for anything and don't plan to.

The last comment I'd make on M&A, and what we're really excited about, is fundamentally the reconsolidation of SPHC is going to be a very nice, very accretive M&A transaction in form, which we're very excited about. And I can tell you the diligence risk and the understanding of the businesses is pretty good.

Your next question comes from the line of Christopher Perrella from Bloomberg Intelligence.

Good morning, gentlemen. Thanks for taking my call. A quick question on SPHC. When you do the reconsolidation, is that the same time you'll make the cash payment to fund the asbestos trust?

We provided a release, I believe, back in July on that. When the plan is confirmed and the transaction finalized we will make a $450 million cash payment. And then we will have remaining on our balance sheet another $340 some-million of future payments that are paid in the second, third and fourth anniversary.

Those payments, because they are essentially payments of a contingent liability, are tax deductible. And, so, using both the spread of time and the tax deduction, I think we calculate currently the net present value of the transaction at about $485 million after tax, which I think is one way to put in light of the $400 million in growing revenue base that we're acquiring, again if you want to use the acquiring analogy. But, yes, $450 million of the payment we've made upon confirmation.

All right, thank you very much. That's it for me.

The next question comes from the line of Greg Halter from Great Lakes Review.

Good morning. I wonder if you could comment on the outlook for input costs. Obviously you benefited the last few years and we've got oil and some of these other things going down recently, and just want to get your thoughts there.

Sure. We are continuing to experience a pretty benign or flat raw material environment. We're not yet seeing what I would hope, which would be some further declines in certain core raw materials relative to where oil prices are going. But we're also not seeing much in the way of increases in raw material costs.

One of the categories, if the decline in oil prices is sustained and continues, that will be helpful to us will be in freight. The combination of freight in and freight out is probably 5% of our P&L, or a little shy of that. And certainly the biggest cost factor in terms of how that cost category rises or falls is fuel cost.

Okay, great. And what should your tax rate be for the full year of fiscal 2015?

The tax rate should probably be not too far off from what you saw in the first quarter. It's probably going to be in the 29% to 30% range.

Okay. And then, finally, regarding new products, you talked about some new things that you have coming out in the spring. Can you discuss any of those at this point?

Yes. Just to give you a few, Rust-Oleum has introduced a shellac-free primer, which retails for less, sells to the retailer for less, but has better margins for the retailer as well as for Rust-Oleum. They are introducing a product called SpraySmart which is a marking paint with a new delivery system that has pouches so that you don't have as much waste.

DAP has introduced a product called SmartBond, which is a subfloor adhesive, also with a unique delivery system that eliminates one canister of SmartBond, eliminates eight cartridges of subfloor adhesive. Of course we have the Tuf-Strand macrofibers, which is probably one of RPM's fastest growing SKUs. We're selling it here and we're selling it in Brazil. That's extremely exciting.

And our Carboline division has introduced a product called Pyroclad X1, which is a product used in offshore oil rigs for jet fire protection. Those are explosions, fires that could escalate to a couple thousand degrees in a relatively short period of time. Unfortunately the BP rig in the Gulf didn't have that kind of protection at the time. So, that's just a few of the exciting products that we're launching.

All right. And I do have one more for you. How much business are you doing in China? I know it's been an area of where you've talked about cautiously. Just wonder if there's been any change there.

We do about roughly $50 million a year, and that goes up or down a little bit, into China itself. It's almost exclusively product exported into China in our industrial segment business based on specifications by our major global customers. So, we do all of the Intel floors in the world and that is included, a lot of their space, in China.

We've done work with oil or oil-related industry entities with Carboline in China. Carboline actually manufactures at Dalian in a joint venture. So, it's really our only one area of significant manufacturing in China. But our presence there is still pretty much industrial and on the back of global customer specifications.

All right, thank you.

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

Good morning. Thanks for taking my question. With regard to the SPHC platform, I think in the past you'd indicated that the margins in that business, at least when you put them into bankruptcy, were roughly comparable to the overall corporate average. Is there any reason to think that that would have changed over the past few years on a relative to the rest of the RPM platform basis?

I'll give you two pieces to that question. It's a really good question. A number of the businesses like Day-Glo, like our Kop-Coat wood finishes, our Kop-Coat marine, a number of those businesses have had margins that are at or slightly above the RPM averages. And they have seen some margin improvement over the last four years.

The largest piece of SPHC, or the single largest business unit of the five, is Dryvit. And Dryvit is almost entirely new construction, commercial new construction-driven. So, when they went into bankruptcy, the whole entity, in the spring, in May of 2010, what you had were recession-reduced revenues and earnings at Dryvit. They have come back, but not to the peaks they were, so there's still some growth in margin enhancement there.

The last thing I'd note is that geographically, all of the SPHC businesses are U.S. businesses. None of the foreign-affiliated entities were part of the bankruptcy that accounts for the non-controlling interest you see in our income statement. Their growth in the quarter, on their own, although it's not reflected in our results yet, is somewhat better in the top and bottom line than the growth that we've reflected in the first quarter.

Great, thanks very much for the color.

Your next question comes from the line of Rosemarie Morbelli from Gabelli & Company.

Thank you. Sorry, I have a couple of quick follow-ups. Why do you think that other income of $1.8 million is higher than it usually is?

You're looking at other income on the P&L statement?

Yes.

The reason it's higher is principally related to higher royalty income that we receive on using the names of DAP and Rust-Oleum on other companies' products. For example, Rust-Oleum has license agreements where its name may appear on locks or in car washes that utilize the Rust-Oleum name. But we don't actually get the sales. We get royalty income on the license agreement.

Okay, that is helpful. And then any bad debt especially in Europe given the environment you just talked about in France and Germany?

No, we don't see anything out of the ordinary in terms of bad debt other than what's the typical experience across our businesses at this point in time.

All right. And then moving on, the new sales -- you did at some point but I forgot -- the size of Synta and Kirker?

We have not disclosed the size of Synta and Kirker specifically. When we did the acquisition of Kirker, we identified it then as a $100 million business. It has grown since then.

And I think a year ago we talked about Synta that was -- again we've typically disclosed revenue size in an acquisition -- we disclosed $30 million. And we indicated last year that the Synta revenues more than doubled. And that is information that we had communicated previously. But as a habit we do not provide updates on the particular revenues of our particular product lines unless it's relevant to a specific issue.

Sure. This is helpful. It was my memory lapse so I appreciate the facts.

And when you are paying down or putting that $450 million into the asbestos fund, is that going -- obviously you now have $225 million of cash, another $600 million, or maybe $400 million, I forget already, in available credit. Is that going to impact your ability to make acquisitions over the short term?

No. We would fund the $450 million payment with a combination of existing cash and credit facilities. We have more than adequate resources to do that. And I think relative to a bank agreement, debt capital ratio covenant of about 60% we would have $300 million or $400 million worth of room.

As I indicated, we have got a really robust pipeline but it has been in the space and the place that we have proven successful. Which is the $10 million to $200 million space where we can attract a privately owned business, typically with a family management team that would stay on and run the business as part of RPM.

Or, what we've gotten much better at, is smaller acquisitions -- Krud Kutter is a good example, Synta is a good example -- where we can accelerate their growth and improve profitability by incrementally putting them into an existing RPM business.

Thank you, Frank. And on the CapEx side, how much do you think, how much do you expect for 2015 and how much more including SPHC? Can you share that with us?

Sure. Our existing plan without SPHC was for CapEx in the mid $90 millions. And maybe that will come in in the low $90 million range, somewhere in that range. SPHC's CapEx needs we haven't looked at at this time so I don't have a number for that.

Do you have the number for when they were under your umbrella?

No. I could give you a quick swag, Rosemarie. I would expect in the $10 million to $15 million range. But we don't have the specifics on that. And on reconsolidation, obviously when we provide more details on FY16, we will also provide some more details on our expectations for CapEx going forward.

Thank you. And my last one, regarding revenues 2016 adding SPHC, I am looking at a balance of $5 billion in revenue top line. Is that a good number?

Again, I think that we would stick to our original guidance this year, which I believe for our industrial segment is about 6% to 8% and consumer 5% to 7% versus fiscal 2014. That does not, as Rusty indicated, include SPHC. And so it's really hard to say the impact of SPHC on 2015.

It's very dependent on whether -- there's a remote possibility it could be resolved in December, a more likely possibility that it could be concluded in January or February. It is a court process, which is not entirely in our control. So, there could be some slippage there. But we anticipate it hitting our third quarter. And when it hits, it will have, we believe, a positive impact on the fourth quarter of fiscal 2015. And then we'll provide the details from there beyond that.

Okay, thank you very much.

Your next question comes from the line of Eugene Fedotoff from KeyBanc.

Just a quick follow-up. It seems this year we have seen increase in product introduction and overall marketing and promotional activity from some of the competitors at big boxes for restoration-like products. Are you seeing any impact on your share or your sales?

No. It's been a good growing category. Unfortunately, for better or for worse, that has been our experience.

I think the good news about our big box customers is they have great respect for Rust-Oleum and DAP and Zinsser as to being the innovators in their product categories. And to the extent that they have captive paint suppliers, the typical model has been for Rust-Oleum, for instance, to introduce and market on the garage floor coating, which they did with EPOXYSHIELD. Took a $5 million product category, turned it into a $40 million product line for Rust-Oleum. That's now an $80 million, rough, category.

And the balance is typically a Valspar follow-on product at Lowe's, and a Behr follow-on product at Home Depot. We've seen similar catch-up introductions in the acrylic deck coating product category. The real driver of that was Rust-Oleum's marketing and promotion of Restore after we acquired Synta. And there have been other paint competitors who have followed up with copycat products. And so it's a certainly more crowded category than it was but it's still continuing to grow.

Thank you.

Your next question comes from the line Richard O'Reilly from Revere Associates.

Thank you. A quick question. Frank, in your opening comments about the consumer business, I think you said the core growth was 7%.

That's correct.

That was correct -- okay. And are you just referring to excluding Kirker and Synta, or do you have a different definition?

Excluding Kirker and Synta. Our consumer segment had good performance, which has been going on for a couple of years, continues, with core growth of about 7% and underlying EBIT growth in the mid teens.

Okay, I just wanted to clarify that. Thank you. That's it.

That concludes our question-and-answer session. I will now turn the conference back to Frank Sullivan for closing remarks.

Thank you, Kim. We look forward to providing you with the details of our second-quarter results when they are announced on January 7, 2015, and hopefully being able to be in a position to provide you more details about the SPHC transaction finalization and its impact on our 2015 fourth-quarter and 2016 full-fiscal year.

Tomorrow we will welcome more than 1,000 RPM shareholders to our annual meeting of shareholders, where we will review our fiscal 2014 results, which was our fifth year in a row of adjusted double-digit earnings growth, and where we will announce our Board's action on RPM's dividend, and answer questions, as we do every year, of our shareholders. All are welcome to join us. It's at the Holiday Inn in Strongsville, Ohio at 2:00.

We greatly appreciate your participation in our investor call today. Thank you for your investment in RPM. And have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. And have a great day.