Frank Sullivan - Chairman and Chief Executive Officer Rusty Gordon - Vice President and Chief Financial Officer Barry Slifstein - Vice President, Investor Relations and Planning.

John McNulty - Credit Suisse Matt Gingrich - Morgan Stanley Mike Ritzenthaler - Piper Jaffray Ghansham Panjabi - Baird Sabina Chatterjee - Wells Fargo Ivan Marcuse - KeyBanc Capital Markets Rosemarie Morbelli - Gabelli Jason Rodgers - Great Lakes Review Christopher Perrella - Bloomberg Intelligence Clay Ruffner - Northcoast Research.

Welcome to the RPM International’s Conference Call for the Fiscal 2015 Second 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. Following today’s presentation, there will be a question-and-answer session.

[Operator Instructions] Please note that 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 CEO, Mr. Frank Sullivan for opening remarks. Please go ahead, sir..

Thank you, Christine. Good morning. Welcome to the RPM investor call for our 2015 second quarter for the period ended November 30, 2014. On the call with me this morning are Rusty Gordon, RPM’s Vice President and Chief Financial Officer and Barry Slifstein, our Vice President, Investor Relations and Planning.

On our call today, we will discuss our second quarter results, including some detail by Barry and comments on the outlook for the second half of our 2015 fiscal year as well as our 2016 fiscal year.

This will include our expectations for the impact of the reconsolidated Specialty Products Holdco and some longer term comments related to the completion of the SPHC transaction.

To remind everyone, the plan of reorganization for Specialty Products Holdco was consummated by the courts on December 10, 2014 and the transaction was effectively closed with the initial $450 million payment made on December 22. We had a disappointing second quarter performance principally for three reasons.

The first and most significant reason is the underperformance of our European businesses due to economic deterioration, particularly this fall, which began at the beginning of our fiscal year and is continuing. This is particularly pronounced in our largest country markets of Germany and France.

The strengthening of the dollar versus the euro further negatively impacted our European results. The dollar climb also had a negative impact from foreign currency transfer – translation related to our businesses in the UK, Canada, South Africa and throughout Latin America.

Secondly, we underperformed in our core consumer product categories with small project paints, caulks and sealants and patch repair products, principally due to inventory adjustments by our largest customers.

A year ago these customers were caught off guard by the severity of the winter and ended up holding significantly higher inventories and what is our fiscal third quarter period, the December through February period than they would have liked.

Accordingly with this experience in mind and the harsh winter weather in early November almost all of our major big-box and discount store customers cut back aggressively on inventory levels.

We believe that we will be the beneficiary of a return to more normal inventory levels in the late winter and early spring months as we will comment further when we get to our outlook discussion.

One example is point-of-sale data which is much more positive over this timeframe than our second quarter sales and is an indicator of the temporary nature of this inventory issue.

Lastly, our Kirker fingernail enamel business had another disappointing quarterly performance including some temporary challenges in bringing new bottling capacity which in long run will increase both sales and earnings for the Kirker business.

Kirker sales were up more than 14% during last year’s second quarter, all of which has been given back this year and with their strong margin profile they had a significantly negative impact on our bottom line.

Anticipating some volatility in Kirker earnings, our acquisition deal structure allows for performance related payments for this year and next, which in the quarter covered a big amount of the Kirker earnings shortfall. I would now like to turn the call over to Barry Slifstein to provide more details on our sec quarter..

Thanks Frank and good morning everyone. Thank you for joining us on today’s call. I will review the results of operations for our fiscal 2015 second quarter and then cover some November 30, 2014 balance sheet and cash flow items. I will then turn the call over to Rusty, who will discuss the outlook for the balance of fiscal 2015.

Second quarter consolidated net sales of $1.1 billion was flat to last year with the decline in organic sales of 0.9%, offset by acquisition growth of 0.9%. Included in organic sales was unfavorable foreign currency translation of 2.5%.

Industrial segment sales increased 1.4% year-over-year to $718.3 million due to an increase in both organic and acquisition growth of 0.7% each. Included in organic sales was unfavorable foreign currency translation of 3.3%.

Consumer segment sales decreased 2.8% to $352.8 million due to a decline in organic sales of 4.2%, which was partially offset by acquisition growth of 1.4%. Foreign currency translation was unfavorable by 1.3%. Our consolidated gross profit decreased 0.9% to $453.9 million from $457.9 million last year.

As a percent of net sales, gross profit decreased from 42.7% last year to 42.4% this year, representing a decrease of 30 basis points. Consolidated SG&A decreased 2.4% to $334.9 million from $343.0 million last year and as a percent of net sales decreased to 31.3% from 32.0% last year.

During the quarter a $17 million earn-out accrual relating to Kirker was reversed into income as a result of the shortfall to performance objectives established at the time of acquisition.

Partially offsetting this reversal was $2.8 million of higher professional and legal fees associated with the ongoing SEC investigation, SPHC settlement and voluntary self-disclosure agreement with the State of Delaware for unclaimed property reviews.

In addition, we experienced higher distribution long-term non-cash compensation and transactional foreign currency expenses. Consolidated earnings before interest and taxes, EBIT, increased 3.2% to $120.1 million from $116.4 million last year. At the industrial segment, EBIT decreased 5.9% to $79.0 million from $83.9 million last year.

Consumer segment EBIT increased 19.1% to $61.6 million from $51.7 million last year due principally to the Kirker earn-out reversal. Corporate other expenses of $20.5 million were above last year’s amount of $19.2 million due to higher accruals for long-term non-cash compensation.

Interest expense decreased from $20.8 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 $5.1 million for the quarter increased $3.0 million over last year due to higher gains on sales of marketable securities. Our income tax rate for the second quarter was 30.2% compared to 29.9% last year. Net income increased 9.8% to $69.8 million from $63.6 million last year.

Diluted earnings per share of $0.52 per share was $0.04 per share or 8.3% above last year’s EPS of $0.48 per share. Excluding the dilution attributable to convertible bond issued last year, EPS for the second quarter of fiscal 2015 would have increased $0.01 to $0.53 per share. And now a quick look at the cash flows and balance sheet.

Cash provided by operating activities was $55.3 million for the six month period ended November 30, 2014 compared to $21.8 million for the same period last year.

The improvement was driven primarily by the contingent payment to the GSA in fiscal 2014 of $61.9 million, roughly $45 million after-tax partially offset by the decrease in accrued compensation and benefits. Depreciation and amortization expense was $46.1 million compared to $44.9 million last year.

CapEx of $26.5 million this year compared to $34.6 million last year. Our accounts receivable DSO was 64 days this year compared to 61 days last year. Days of inventory increased to 93 days this year compared to 88 days last year. Finally, a few comments on our capital structure and overall liquidity.

As of November 30, 2014, total debt was $1.43 billion compared to last year at $1.37 billion. Our net debt to capital ratio was 44.8% at November 30, 2014 compared to 46.4% last year.

Our long-term liquidity at November 30, 2014 was $1 billion with $297 million in cash and $718 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 proceeds from the sale we used to repay $200 million and 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 3-year $200 million accounts receivable securitization facility that expires on May 8, 2017.

On December 5, 2014 we replaced our existing $600 million revolving credit facility with a new 5-year $800 million facility, which can be expanded upon request to $1 billion. The new facility contains customary covenants, including a leverage ratio not to exceed 65% and an interest coverage ratio not to be below 3.5 to 1.0.

With that, I will turn the call over to Rusty..

Thank you, Barry. I would like to briefly cover our outlook for the rest of fiscal 2015. As discussed earlier, there were three major areas that impacted our second quarter performance Kirker, Europe and inventory reduction at our retail customers.

We believe that the slowdown in our core consumer products area is temporary and that we will benefit from the return to more normal inventory levels at our major customers as well as the sell-in on a number of new product areas in the second half of the fiscal year.

Consumer takeaway continues to be solid and the negative year-over-year decline at Kirker is expected to be less severe in the back half of this fiscal year. All-in-all, we expect sales in our consumer segment for the back half of fiscal 2015 to generate growth of approximately 6% with EBIT growth of 10% to 12%.

While we are experiencing good growth in U.S. construction markets, our industrial segment has nearly half its sales outside the U.S. We do not see a near-term turnaround in the European economies and expect continued strengthening of the U.S. dollar to continue negatively impacting these results on translation.

Accordingly, we expect our industrial segment to generate sales growth of approximately 2% to 3% for the second half of our 2015 fiscal year with 4% to 5% EBIT growth.

In addition, as a result of the reconsolidation of the SPHC businesses, we expect their combined contribution to the second half of our fiscal year on the sales line to be approximately $170 million, ultimately adding approximately $0.05 per share to RPM’s fiscal 2015 second half.

All of these elements will add up to consolidated full year performance in the $2.25 to $2.30 earnings per share range. I will now turn the call back over to Frank..

As we look forward to our 2016 fiscal year, which begins on June 1, 2015, we anticipate continued solid growth in our businesses serving U.S. commercial construction markets. Additionally, the economic drivers of our consumer businesses remain favorable and we expect to return to sales growth and strong earnings leverage at Kirker.

The environment in Europe is a bit more difficult to project at this time, however we would expect the economies to stabilize leading to modest sales and earnings growth versus the very challenged results we have experienced and expect to experience for the rest of 2015. From a longer term perspective we cannot be more excited.

The return of the SPHC businesses bring a number of well-run strong U.S. based businesses back into the fold of RPM. As importantly over the last decade we have paid out approximately $575 million in after tax dollars to a totally non-productive purpose.

We had been able to utilize that cash in a more productive manner over that period, taking into account our average stock price we would have been able to repurchase nearly 15% of our outstanding shares.

Obviously, this leaves us very excited about an opportunity in the coming years to utilize 100% of the cash we generate to supplemental our growth investments and to more aggressively return capital to shareholders when appropriate.

Considering all of these items discussed, our consolidated EPS guidance for fiscal 2016 is in a range of $2.70 to $2.80 per share. That concludes our prepared remarks. We’d now be pleased to answer your questions..

Thank you. [Operator Instructions] And our first question is from John McNulty of Credit Suisse. Please go ahead..

Yes, good morning..

Good morning. Thanks for taking my questions. So, a question on the SPHC, I guess addition back into the portfolio, you highlighted that it’s about $0.05 additive in the second half of ‘15.

Can you give us some color as to how much of that is also being added into the 2016 $2.70 to $2.80 guidance?.

I think on a full year basis, we will get somewhere in the $0.20 to $0.25 per share from SPHC. And so what is in the 2016 guidance is, is that range less the $0.05 we expect to experience for the rest of this year..

Great.

And does that assume any D&A write-up or anything like that I know there were some questions as to whether or not you might be writing up the inventory and/or some of the assets?.

Absolutely. The $0.05 is a net figure for this year. And for accounting purposes, the reconsolidation is treated essentially as an acquisition. So, we are looking at writing up intangibles, goodwill, inventory step up all the types of items that you would typically have in an acquisition..

Okay, great. And then with regard to the industrial segment, when I look at the margins on year-over-year, the margins slipped a bit and that’s despite what looks like at least okay organic growth, I wouldn’t say it was huge, but it was certainly up.

So, I guess what negative mix was impacting the industrial business and I guess how should we see thinking about that going forward?.

Sure. Our industrial businesses biggest challenge is twofold, Europe and foreign currency translation. And I will give you some different points of reference.

So, for instance, the SPHC businesses that were not in our consolidated results in the first half are almost exclusively industrial businesses and that will be reconsolidated into our industrial segment for the rest of this year and they are almost 100% U.S.

And so their sales were up 8% and the earnings were up – operating earnings were up 16% in the first half of the year. We would expect that performance to continue. And then those results are a reasonable barometer of, for instance, our U.S. construction chemical product lines. Latin America is another region that’s very interesting.

Latin America sales were up year-over-year 7%. In their local currencies, we were up 17% in Latin America, big slug of that was Brazil, but that gives you the impact of the rise of the dollar versus Latin American currencies and in particular, the Brazilian real, which has dropped significantly. So, we have got good strength there.

We have good strength in the U.S. We get clobbered in Europe. And what started off as chunky results in our core markets like Germany and France that were very strong year before continued to deteriorate throughout the fall.

And with the drop of the euro, most of our performance issues in industrial are from both the European deterioration and economic challenges and foreign currency translation not only for the euro, but for a number of other currencies. I gave you the sales results. In Europe in the quarter, we were down 7% year-over-year in sales..

Okay, fair enough. And then I guess just one last question on the accrual reversal, I guess I am trying to think about is that a one-time thing.

Do we see – is it a catch-up from kind of the past prior quarters or is this something that we could see this kind of magnitude for the next it sounded like maybe a year or two in terms of when you may have a payback on this?.

Yes.

There is another year left on those types of performance related payments, but again to put that in perspective last year in the first half, our consumer segment EBIT was up 40%, after that was Kirker and it was the volatile earnings flow, very good margins but volatile earnings flow that’s why we had the structure in place and that will continue through next year.

We are in the middle of which actually adds expense for us in terms of expanding some of their capabilities and then also adding capital in terms of expanded bottling capabilities, which will help them both in sales and earnings in the future but that’s in process at this point in time..

Okay.

But if we saw Kirker stay at this level of profitability, would we see another roughly mid-teens million benefit in terms of an accrual reversal for say next quarter and the quarter after or is it more modest than that?.

No, we – the reversal we took this quarter is for this fiscal year. If Kirker stayed at the level of earnings that they are at and then we expect for fiscal ‘15 and fiscal ‘16 you will see another mid-teens reversal next year.

Our expectation in relationship to their business and their profitability as well as some of the CapEx we are doing and our hope is that they will have a significant recovery..

Okay, great..

But in any event we would benefit from those higher earnings or another year of the performance based payment reversal..

Got it. Thanks very much..

Thank you..

Thank you. Our next question is from Vincent Andrews of Morgan Stanley. Please go ahead. Your line is now open, please go ahead..

This is Matt Gingrich on behalf of Vincent.

I was wondering if you can speak to the inventory adjustments made in early November has that normalized at all since or do you anticipate leaner inventories for some time going forward?.

I think it will remain likely through the fiscal year end, which typically are in January of our big retail customers. But as we look forward consumer is not our challenge. There are a number of A and B category products that are just out of stock, that won’t continue.

We have excellent programs for sell-in at a number of major customers in deck coatings, in wood stains and finishes and another new – a number of new categories. So we will have a strong second half in our consumer segment.

And if you look at the POS both in our specific categories and then the overall results of some of our big public retailers, the retail takeaway and the results were much stronger than our sell-in in the second quarter. And that’s simply reflective of the inventory adjustments not consumer sentiment or what we think are the underlying results.

So when you combine that with some new product introductions that are set for the spring, we are pretty confident that our outlook for consumer is something we can meet or beat..

Great. Thanks.

And then on raw materials I was wondering if you had started to see tailwind so far and then your expectations for that going forward, is that baked in at all in your guidance ranges?.

The gross margins in the quarter were down slightly really for a couple of reasons. Number one is the results in Europe, less leverage on some lower sales there, the impact of foreign exchange on various cross-country raw material purchases and mix.

We expect to see improvement in our gross margins in the coming quarters not much of that is baked into our outlook and so we will see where that goes. The other category where it’s been disappointingly stock this fall but we think we will get some benefit in the coming quarters is in freight. Diesel costs are down significantly.

We will begin to benefit from that freight in and out is about 5% of our P&L so that’s a big category and some of that hesitancy to benefit from that has more to do with regulations and what’s happening with rail, but we would expect that to improve and positively impact our bottom line as well..

Great. Thanks guys..

Thank you. Our next question is from Mike Ritzenthaler of Piper Jaffray. Please go ahead..

Yes. Good morning..

Good morning..

I was wondering Frank if you can just – if you can take us through this kind of the next say 6 months, 6 to 12 months on the new product slate that’s out there I know that RPM has been investing in the new product slate, I’d just be curious about where some of those pockets could come?.

They will continue to come from areas that we have talked about over the last, I’d say, 6 or 12 months. We have a number of new sets coming in into wood stains and finishes this spring, some expansion of what currently exists for us. We have a number of new product categories in the small project paint.

While it will show up in our consumer segment, we will be introducing the first meaningful NeverWet OEM sales this spring. And so that’s really in the consumer products area.

One other area there, we have a revamped Synta line and that’s going in with a number of different product categories that are in addition to the core product line from a year ago. And so we are pretty excited about that, all that’s good news. In our roofing area, we have a new line of coatings at Tremco which is selling briskly.

We are adding capacity for that. It’s a product category called AlphaGuard. And lastly, we continue to see both good market share gains and product expansion, particularly in the fiber area for Euclid Chemical and we are expanding a capacity in that as well..

Okay, great. Thanks for that overview.

And then it will be helpful for us to get an update from you on the M&A pipeline, I know RPM is kind of always kicking the tires on a few opportunities, but just your opinions on where valuations might be and just sort of your overview on that market?.

Sure. Our M&A pipeline is as full as it’s been in a long time, lot of good opportunities out there. I’d be disappointed if we didn’t add $100 million plus over the next 12 months. And so there is a good activity out there.

And then secondly as it relates to SPHC and my earlier comments, we are looking at what was $575 million of capital that went to asbestos payments over the last 10 years. That’s an after-tax figure. It was almost $1 billion pre-tax.

And the opportunity to apply that to acquisitions were more aggressively share repurchases is something that we are happy to have and pretty excited about..

Okay, excellent. Thank you..

Thank you. Our next question is from Ghansham Panjabi of Baird. Please go ahead..

Hey, guys. Good morning. Happy New Year..

Happy New Year..

Hey, Frank, can you just expand on what you are seeing in the U.S.

commercial construction as per your comments? Are you seeing any improving trend line versus maybe the last couple of quarters? And then also can you just remind us what percentage of the industrial portfolio has exposure as per your estimates on that market?.

About 40%, I would say and it’s continuing to show good solid kind of mid to high single-digit growth, caulks and sealants, waterproofing products, the fiber business in concrete repair products, admixtures are growing interestingly enough are starting to see some improvement in residential.

Most of what was happening was in new home sales and housing turnover and we are seeing some improvement there with the residential waterproofing, basement waterproofing business that we have. So, all of that business is pretty good. Obviously, the different product lines have different dynamics.

And so the best barometer that I think I could give is the comments I made earlier. I think SPHC while it wasn’t part of our results, 100% U.S., %100 industrial, a little more OEM in the construction, but revenues there were up 8% in the first half of our fiscal year driving a mid-teens earnings growth.

And so I think that’s indicative of what we are seeing in our U.S. construction businesses and I think we expect to see that continue for the balance of the year..

Okay.

And I am sorry if I missed this, but what was the estimate for the write-ups that could impact SPHC for the back half of the year, I guess I am asking because I am trying to bridge ‘015 versus ‘016 from an earnings standpoint?.

Yes. We didn’t provide that. And quite candidly, we don’t know exactly and we will provide data along with a review of the moving pieces and parts in our balance sheet, when we report our third quarter results, because it is a third quarter transaction.

But our best guess is that net of any of the inventory write-ups and any of the other write-ups, SPHC will deliver about $0.05 to this year and that on a full year basis excluding one-time costs, transaction costs, SPHC should contribute somewhere in the $0.20 to $0.25 per share range.

So I would just as you think about ‘16 take that $0.05 off that $0.20 to $0.25 range and that’s what SPHC should contribute to our 2016 results..

And then just finally on your guidance for ’16, what sort of macro scenario are you sort of making into that is that sort of continuation what you are seeing right now, any improvement in Europe, it’s not…?.

Now what – I think the only wildcard factor there is what happens in Europe. Our 2016 expectations for Europe is that we will have slightly positive sales and earnings growth that will be off dramatically lower comparisons as I said through in the second quarter sales were off 7%.

We have seen the euro go from $1.32 to $1.18 and we anticipated to continue to deteriorate. So our 2016 forecast doesn’t assume some big recovery. But it also does not assume an economic disaster. And I think the low of the euro was $0.85. If we are heading that direction then we are going to have a hard time hitting that $2.70 to $2.80..

Okay. Thanks so much..

Thank you..

Thank you. Our next question is from Frank Mitsch of Wells Fargo. Please go ahead..

Good morning..

Good morning..

It’s Sabina Chatterjee in for Frank. Most of my questions have been answered, but just quickly on the Kirker business and thanks for that elaboration on the earn-out.

What exactly is driving the underperformance there relative to your expectations, because it seems – it’s a high margin business, I am just curious why it’s been underperforming?.

Sure, it is the high margin business. Their revenues as I indicated last year in the second quarter were up 14%. We have given all that back in this quarter on a comparative basis. And so incremental dollar of revenue hits the bottom line very nicely and incremental loss of revenue hurts the bottom line.

Last year they had a major retail chain where they did a full nationwide sell-in over about a four months period kind of the June through end of October. And that was not repeated this year. That and the fact that the underlying fingernail enamel business growing in the 8% to 10% range for a couple of years and this year is flat.

And so most of the impact of Kirker will hit us in the first half of the year, we do not anticipate any positive results for the balance of the year on Kirker, but they will be staring at significantly easier comps and they won’t have the comparison of a four months huge nationwide sell-in that was not repeated this year..

Okay. And I know you gave your outlook on 2016, can you talk a bit about U.S. construction but I mean with another month of results under your belt since reporting what are you seeing currently as far as demand, I know Europe looks worrisome to you, what areas in particular are particularly weak in Europe. And is there any other improvement in U.S.

commercial construction you said was better, but I mean is there anything that is presenting more upside or downside than you had originally expected?.

No, I think pretty much in line with the outlook we provided despite some weakness in the second quarter, our consumer segment should be pretty strong in the second half of the year.

And so we are excited about that and a lot of that is in relationship to the inventory adjustments, but also commitments on a number of new product sell-ins, so that will be real strong. Commercial construction continues to be good in the U.S. The biggest problem that surprised us in the quarter versus where we were is Germany and France.

As you recall a year ago we actually had real – two years ago we took some aggressive cost-cutting action in Europe. A year ago we had some pretty solid not big but 4% or 5% revenue growth in Europe. And given what we had done with our expense base that leveraged to the bottom line very nicely.

And it was particularly driven by Germany and France that Germany is our largest country market in Europe where we do about $1 billion in total sales across all of Europe and Germany is the largest piece of that. And Germany and France both went into the tank this fall.

So, you are looking at negative sales exacerbated by a falling euro and that is not improving. That is why – that’s the principal reason why we have reduced our guidance for the balance of the year so much.

I think that a much more modest outlook for industrial in the 2% to 3% revenue growth range driving a 4% to 5% EBIT growth for the back half of the year is really a mix of mid to high single-digit U.S.

construction markets and good leverage to the bottom line and a continued expectation that Europe is going to be a problem and the dollar is going to continue to strengthen..

Right, thank you. I appreciate it..

Thank you. Our next question is from Ivan Marcuse of KeyBanc Capital Markets. Please go ahead..

Hi, thanks for taking my questions.

First one I have is for your – that I was trying to believe the TUF-STRAND I believe the fiber business with Euclid, how big of a business is that and what do you see as sort of if you continue this market share gain that you have had sort of I guess the sales potential if you will looking out the next 1, 2, 3 years for this business?.

Yes. From a standing start of technology that we developed and some technology that we acquired, we have gone from not singles and millions of dollars, a couple of years ago to mid-teens. Our problem right now is capacity. We are continuing to add capacity.

I suspect long-term and this is long-term that could be a $100 million market, particularly as people get more comfortable in replacing Rebar, particularly in horizontal surfaces. And there is opportunities to introduce it into light industrial and perhaps even into some of our more Big Box consumer markets.

So, there is a lot to go there, but the capacity issue is a function of both spending the dollars, but also making sure that we have got the right output, because it’s a little bit of a tricky manufacturing process and so that’s what we are, but any product lines for us that go from a standing start of under $1 million to mid-teens with a prospect of something substantially bigger over the next 3 to 5 years is pretty exciting..

Okay. Thanks for your detail. I appreciate it.

My next question is on SPHC and this is more of I guess cash flow question, how is that going to flow through your cash flows? Is it going to come through like an acquisition? And then on – the other aspect of this question is should we get a tax benefit? So, does that impact your overall tax rate or is that just sort of like a tax return they will receive in your cash flow over some period or is it a lump-sum that’s sort of how do the cash move, if you would?.

Yes, Ivan, it’s really almost like a tax receivable. It wouldn’t affect that income tax rate, the effective tax rate, but it would be a benefit that we would get through reduced withholding taxes as well as getting cash refunds from the government..

Great. And then that’s…..

NOI, our net loss carry-forward that we will be able to go back and capture..

Got it.

And then on the debt that you are adding on to the revolver for this, is your intention to turn this out at one point or to pay it down?.

The intention is to pay it down. And over the next 12 to 18 months, you will see some pretty good cash flow benefits from the tax shield that Rusty talked about..

Okay, thank you..

Thank you. Our next question is from Rosemarie Morbelli of Gabelli. Please go ahead..

Thank you. Good morning and Happy New Year..

Happy New Year..

Frank, when you said that you expected Europe to stabilize in the second half? Did I misunderstand that or are you saying second half of calendar 2015?.

No. We are saying that we would expect Europe to stabilize in our 2016 fiscal year. Our reduced guidance and outlook particularly in industrial is reflective of our belief that Europe will continue to be a problem for us in the third quarter and the fourth quarter that the dollar will continue to strengthen.

And so as I said earlier, the change in our guidance for the industrial segment and its impact on our full year results is really a function of strong North American business and continued expectations for deterioration in the European markets and strengthening of the dollar..

Okay, just wanted to make sure I understood probably which obviously I did not, could you – when you look at your 2016 guidance, can you share with us how much of a share count decline you are anticipating or you don’t have any in that number?.

We don’t have anything in that number..

Okay..

But again as I indicated earlier, we are back on an equal footing in terms of being able to utilize the cash we generate the purposes that makes sense for us and our shareholders..

Okay.

So one could assume that this is a rather conservative number?.

Rosemarie it really depends on Europe. Again I think if Europe stabilizes these are numbers that we can hit. And as I indicated earlier if Europe continues to deteriorate over the next 12 or 18 months and the dollar continues its remarkably rapid strengthening then that could challenge those results.

That’s the only thing we see that’s kind of a wildcard in terms of our ability to meet or beat that $2.70 for 2016..

Okay.

But you could offset some of the continuing deterioration which you don’t expect at the moment by buying back more stock and therefore get within the number even with deterioration or not?.

It’s nice to be in a position to have what is the equivalent of $70 million to $90 million of our cash flow to use in a productive purpose, so that is most certainly possible..

Okay. Thanks. And I was wondering if you are seeing any pickup in the U.S.

infrastructure, are you getting any help from that side or not yet?.

Not really. Most of the construction pickup is in the private sector. Its – we are seeing improvement through distribution networks and on private sector construction and commercial construction improvement in residential. Infrastructure has been challenged, you have got a highway build, it’s about to expire and it’s been pretty modest.

You don’t have much agreement at government levels on big spending and so there is a lot of talk about infrastructure, but it’s not a big – public infrastructure is not a big driver of our results right now..

Alright.

And then looking back at Kirker, you said that you were extending capabilities, is that – so is the decline I know you said you had a bigger order last year which is not coming through this year as well, but yet you are extending those operations and you are adding to bottling, so what is the real issue, is it just the comparison and underlying demand is still there or the demand is not there and yet you are expanding, can you help me understand what is going on there?.

Sure. The core business itself is flat versus what was pretty solid growth for a number of years. And we did not repeat a huge sell-in to a major retail chain. As it relates to bottling, we have the capability of mixing manufacturing, formulating the fingernail enamel products in Europe and also bottling in Europe.

We do not have much in the way of robust bottling capacity in our largest market the U.S. and that’s in the process of being changed..

Alright.

And lastly if I may can you quantify what could be a positive impact from the lower price of oil on your raw materials?.

Hard to do at this point in time, one of the things that we have reminded folks in the calls before is that we are on a FIFO inventory method versus most of our peers that are on LIFO.

So you will typically see the benefit of lower raw material costs show up in our results 60 to 90 days later than it might had we been on a LIFO inventory accounting method. But it most certainly we would expect our gross margins to be improving in the next couple of quarters.

And I think we would also expect to see some significant improvement in the coming quarters or next 6 months or so in freight..

Alright.

And is that enough to help also your working capital lower cost of inventory and such?.

I think so. The two biggest issues in working capital as we sit here in the second quarter are reduction in sales in Europe and so lower sales base and the inventory adjustments at our major retailers, most of it will we believe be adjusted positively in kind of the late winter early spring months..

Okay, thank you..

Thank you..

Thank you. Our next question is from Jason Rodgers of Great Lakes Review. Please go ahead..

Good morning.

I wonder if you could talk about pricing and have you seen any pressure on either the industrial or the consumer side to give up some pricing given the lower oil?.

Typically, that’s not an issue for most of our product categories. And I don’t know that we have had any way and there is not much in the way of price in these numbers, but there is not much in the way of reductions. There is one exception and that was the previously mentioned infrastructure. There is not a lot of infrastructure spending out there.

So, what little projects are out there, whether its highway bridgework or other public projects, there is a lot of competition for those. And so there is pricing pressure on those types of products, but for the most part in the other categories, it’s not an issue for us.

Our challenge in terms of gross margins has really been reduction revenues, product mix and the currency impact on raw materials..

And then what is the estimate for both CapEx and the tax rates for fiscal ‘15?.

Sure. The capital spending should be close to $90 million and the effective tax rate should be below 30%, a little below that..

Thank you very much..

Thank you..

Thank you. Our next question is from Christopher Perrella of Bloomberg Intelligence. Please go ahead..

Good morning. Thank you for taking my call.

In your guidance for the second half of the year, what are you forecasting for currency, are you expecting euro dollar to stay at the current exchange levels and spotting that out for the back half of the year?.

No. I think we expected the euro to be in the low to mid teens, which would forecast some further deterioration. If it accelerates to parity or something like that, then I think that will happen as a result of even further deterioration in the economies and that could pose problematic for us in terms of our industrial businesses..

Okay.

And then in terms of the improving or potential improvement in freight costs and raw material costs, is there any of that in your second half guidance as well or would that be a benefit or potential upside to the range you have outlined?.

There is very little of that in there and it’s a potential upside. Given my comments on FIFO inventory, I would expect to see it in the fourth quarter..

Alright, thank you very much..

Thank you..

Thank you. Our next question is from Kevin Hocevar of Northcoast Research. Please go ahead..

Hi, good morning. This is Clay Ruffner calling on behalf of Kevin Hocevar. Thanks for taking my question. So, it looks like guidance was lowered by about $0.13 for fiscal ‘15.

Just curious if you guys could breakout how much of this change is due to Europe FX, Kirker and any other factors if possible?.

Yes, I think the categories that have really driven it are for Kirker and Synta both had huge first quarter and first kind of half results a year ago in our consumer segment. And those were not repeated. We commented on that in the first quarter and particularly with Kirker it proved to be true again in the second quarter.

The second issue is absolutely particularly pronounced in the second quarter deterioration in the European economies and FX and it’s not just versus the euro, I commented on the significant deterioration in local currencies, we had 17% revenue growth in Latin America and that was reduced by currency impact of 7%. So, that’s the biggest factor.

And then the final area is really just the inventory adjustment impact in the second quarter on our core consumer businesses, which we think is temporary. And all the signs are relative to new programs and where inventory levels are relative to consumer takeaway we think we are going to be in good shape there..

Okay, great. Thank you. And then I have one last question if I may, just the sales guidance for the second half of the year for consumer and industrial kind of implies acceleration from what we saw this quarter, but I would imagine FX should become a bigger headwind going forward.

So just outside of some of the restocking benefits in consumer, just kind of curious on what you guys see as driving this acceleration in sales growth to offset – more than offset these FX headwinds?.

Sure, 90% of our consumer businesses is North American and so the – while the FX headwinds can impact consumer particularly in the UK, in Canada it won’t be nearly as pronounced as [indiscernible]. In our industrial segment about 50% of our revenues are outside of the United States.

So that’s really the area where we anticipate continued strengthening of the dollar, continued weakness in Europe. And this is a repeat of comments earlier, but it’s really a tale of two geographies. We are seeing some good solid growth and nice leverage to the bottom line in our U.S.

industrial segment, construction products categories, OEM categories SPHC will be part of that. And we are anticipating continuing strengthening of the dollar and deterioration in Europe for the rest the year..

Okay, great. Thank you so much..

Thank you..

Thank you. Our next question is from Kevin McCarthy of Bank of America. Please go ahead..

Good morning..

Hi, this is [indiscernible] calling on behalf of Kevin.

Just had a quick question on SPHC sales, you indicated that you are expecting $170 million for the second half of the year and I am comparing that to roughly $400 million on a annualized run rate, so I am just wondering if there is any seasonality in that $170 million for year or are you lowering sales expectations for next year?.

No, it’s five months of results. Really it’s effectively January 1 through May 31. And there is a little bit of seasonality in their business like the rest of our businesses in the third quarter.

So they are December, January, February period is a somewhat – they are not as seasonal as some of our businesses, but seasonally lower than for instance our fourth quarter or our first quarter would be with the SPHC businesses. So those are the two factors. But that business on an annualized basis is at or better than $400 million run rate..

Okay, great.

And then in terms of reconsolidation are there synergies that you anticipate either in terms of cross selling or lower costs?.

I think those are things that we will look at as we get into the end of 2015 and 2016 in terms of what, if anything we can do relative to some cost savings or business combinations, but none of that will impact 2015..

Okay, great. Thank you..

Thank you..

Thank you. We have no further questions. I will now turn the call back over to Frank Sullivan..

Thank you for your participation in our call this morning. While our second quarter results are disappointing, as I indicated earlier it’s actually a very exciting time here after a 10 year fight and a diversion of a significant chunk of our capital. We are happy to have the SPHC businesses rejoin RPM.

We are happy to have available to us and our shareholders 100% of the capital that we generated to put towards productive purposes whether it’s investments in growth or return of capital to shareholders.

And we look forward to reporting sales and earnings growth in the next couple of quarters and to answering your questions throughout the balance of the year. Thank you. Happy New Year and have a great day..

Thank you. And thank you, ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect..