The cost and availability of raw materials materially impact our financial results. We obtain raw materials from a number of suppliers. Many of our raw materials are petroleum-based derivatives, minerals and metals. The cost of raw materials has in the past experienced, and likely will continue to experience, periods of volatility which could increase the cost of manufacturing our products. Under normal market conditions, these materials are generally available on the open market from a variety of producers; however, shortages are a possibility. Interruptions in the supply of raw materials could have a significant impact on our ability to produce products. Recently, some raw material costs have increased significantly and we have experienced some tightening in supply. Adequate supply of critical raw materials is managed by establishing contracts, procuring from multiple sources, and identifying alternative materials or technology; however, the unavailability of raw materials or increased prices of raw materials that we are unable to pass along to our customers could have a material adverse effect on our business, financial condition or results of operations.
Our business is dependent, to a significant extent, on external weather factors. We historically experience stronger sales and net income in our first, second and fourth fiscal quarters, which are the three month periods ending August 31, November 30 and May 31, respectively, while we have experienced weaker performance in our third fiscal quarter.
Ten large consumer segment customers, such as DIY home centers, on a combined basis represented approximately 23% of our total net sales for each of the fiscal years ended May 31, 2017, 2016 and 2015. Except for sales to these customers, our business is not dependent upon any one customer or small group of customers, but is largely dispersed over a substantial number of customers.
We historically have not had a significant backlog of orders, and we did not have a significant backlog at May 31, 2017.
Research and Development
Our research and development work is performed at various laboratory locations. During fiscal years 2017, 2016 and 2015, approximately $64.9 million, $61.5 million and $56.7 million, respectively, was charged to expense for research and development activities. In addition to this laboratory work, we view our field technical service as being integral to the success of our research activities. Our research and development activities and our field technical service costs are both included as part of our selling, general and administrative expenses.
We are subject to a broad range of laws and regulations dealing with environmental, health and safety issues for the various locations around the world in which we conduct our business. These laws and regulations include, but are not limited to, the following major areas:
the sale, export, generation, storage, handling, use and transportation of hazardous materials;
the emission and discharge of hazardous materials into the soil, water and air; and
the health and safety of our employees.
For information regarding environmental accruals, see Note N, “Contingencies and Other Accrued Losses,” of the Notes to our Consolidated Financial Statements, which appears in the 2017 Annual Report to Stockholders, and is incorporated herein by reference. For more information concerning certain environmental matters affecting us, see “Item 3 — Legal Proceedings — Environmental Proceedings” in this Annual Report on Form 10-K.
As of May 31, 2017, we employed 14,318 persons, of whom approximately 879 were represented by unions under contracts which expire at varying times in the future. We believe that all relations with employees and their unions are good.
RPM International Inc. (NYSE: RPM) owns subsidiaries that are world leaders in coatings, sealants, building materials and related services. From homes to precious landmarks worldwide, their brands are trusted by consumers and professionals alike to protect, improve and beautify. Among its leading consumer brands are Rust-Oleum, DAP and Zinsser. Learn more about RPM brands >>
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