SEC Document


Investment (Income), Net Net investment income of approximately $14.0 million for fiscal 2017 compares to net investment income of $10.4 million during fiscal 2016. Dividend and interest income totaled $6.2 million and $7.7 million for fiscal 2017 and 2016, respectively. Net realized gains on the sales of investments totaled $8.2 million during fiscal 2017, while those gains were $6.5 million during fiscal 2016. Impairments recognized on securities that management has determined are other-than-temporary declines in value approximated $0.4 million and $3.8 million during fiscal 2017 and 2016, respectively.

Other Expense (Income), Net Other expense of $1.7 million for fiscal 2017 compared with other income of $1.3 million for fiscal 2016. Other expense (income), net includes net royalty expense of approximately $2.7 million for fiscal 2017, while fiscal 2016 net royalty expense was $2.0 million. Also included in this balance is our equity in earnings of unconsolidated affiliates totaling approximately $1.0 million and $2.1 million for fiscal 2017 and 2016, respectively. Additionally, during the fourth quarter of fiscal 2016, we incurred a legal settlement charge of approximately $9.3 million, which was in relation to certain deck coating products. Lastly, during fiscal 2016 we acquired the remaining 51% interest in our Chinese joint venture, Carboline Dalian Paint Production Co., Ltd (“Carboline Dalian”), which increased our ownership to 100%. During the fourth quarter of fiscal 2016, we retained an independent, third-party valuation firm to assist us in determining the fair value of Carboline Dalian, and as proscribed by ASC 805, we recorded a remeasurement gain for approximately $8.0 million during fiscal 2016.

Income Before Income Taxes (“IBT”) Our consolidated pretax income for fiscal 2017 of $244.3 million compares with $483.5 million for fiscal 2016.

Our industrial segment had pretax income of $243.3 million, or 9.5% of net sales, for fiscal 2017, versus pretax income of $257.2 million, or 10.3% of net sales, for fiscal 2016. Our specialty segment had pretax income of $107.9 million, or 15.1% of net sales, for fiscal 2017, versus pretax income of $107.5 million, or 15.7% of net sales, for fiscal 2016. During the first half of fiscal 2018, an edible coatings patent will be expiring in the U.S., and as a result, we currently anticipate the impact of the patent expiration on fiscal 2018 IBT to approximate at least $10.0 million. Our consumer segment pretax income of $58.7 million for fiscal 2017 compares with fiscal 2016 pretax income of $268.2 million, primarily as a result of fiscal 2017 goodwill and other intangible asset impairment charges totaling $193.2 million, as discussed previously.

Income Tax Rate The effective income tax rate was 24.4% for fiscal 2017 compared to an effective income tax rate of 26.1% for fiscal 2016. The decrease in the effective income tax rate is primarily due to a discrete benefit resulting from the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2017. Refer to Note A(20) - “Other Recent Accounting Pronouncements” for additional discussion regarding adoption of the standard. This benefit was partially offset by a decrease in the domestic manufacturing deduction and the unfavorable impact due to increases in valuation allowances, as compared to fiscal 2016.

Net Income Net income of $184.7 million for the year ended May 31, 2017 compares to net income of $357.5 million for the year ended May 31, 2016. During fiscal 2017 and 2016, we had net income attributable to noncontrolling interests of $2.9 million and $2.7 million, respectively. Net income attributable to RPM International Inc. stockholders for fiscal 2017 was $181.8 million, or 3.7% of consolidated net sales, which compared to net income of $354.7 million, or 7.4% of consolidated net sales for fiscal 2016.

Diluted earnings per share of common stock for the year ended May 31, 2017 of $1.36 compares with diluted earnings per share of common stock of $2.63 for year ended May 31, 2016.

Fiscal 2016 Compared with Fiscal 2015

Net Sales Consolidated net sales of $4.81 billion for fiscal 2016 grew by approximately 4.8% from net sales of $4.59 billion for fiscal 2015. Organic sales improved 2.8%, while acquisitions added 6.7%. Our SPHC businesses, all of which are included in our specialty segment, were reconsolidated as of January 1, 2015. Therefore, year-to-date results through December 2015 for the SPHC group are reflected in fiscal 2016 acquisition growth. Consolidated net sales for fiscal 2016 were offset by an unfavorable foreign exchange impact of 4.7%.

Industrial segment net sales declined by 3.5%, to $2.49 billion for fiscal 2016 versus net sales of $2.58 billion during fiscal 2015. The decline was due to unfavorable foreign exchange, which impacted net sales by 6.6% during fiscal 2016. Many of our international businesses continued to feel the impact of the strengthening of the U.S. dollar against most foreign currencies throughout fiscal 2016. Additionally, there was a continued slowdown during fiscal 2016 in net sales for our industrial segment businesses serving the energy sector. The impact of these unfavorable items was partially offset by organic growth in net sales of 2.5%, which included growth throughout fiscal 2016 in our North American-based industrial companies serving the commercial construction market. Lastly, recent acquisitions contributed 0.6% to net sales during fiscal 2016.

Specialty segment net sales for fiscal 2016 grew by 67.3% to $684.6 million, primarily due to acquisition growth of 67.6%, which includes the reconsolidated SPHC businesses and a few other small product line acquisitions during the year. Organic growth in net sales provided 2.1% to the specialty segment during fiscal 2016, while foreign currency negatively impacted net sales for fiscal 2016 by 2.4%.

Consumer segment net sales for fiscal 2016 grew by 2.1% to $1.64 billion from $1.60 billion during fiscal 2015, primarily reflecting organic growth in sales of 3.3%, which relate to new product introductions and strategic product placements early in the year. The consumer segment benefited from continued strength in the U.S. housing market and sales growth at many of our major retail customers. Despite an overall decline in demand in the nail enamel market year-over-year, we saw growth during the last quarter of fiscal 2016. Acquisitions provided 0.9% growth in net sales for fiscal 2016 in the consumer segment. Foreign currency negatively impacted consumer segment net sales for fiscal 2016 by 2.1%.

Gross Profit Margin Our consolidated gross profit margin improved to 43.4% of net sales for fiscal 2016 from a consolidated gross profit margin of 42.3% for fiscal 2015. The fiscal 2016 improvement reflects a favorable impact from selling price increases of approximately 0.4% and lower manufacturing costs of approximately 1.1% during fiscal 2016 versus fiscal 2015. Unfavorable foreign exchange impacted fiscal 2016 gross profit margin by approximately 0.4%. Foreign exchange had a significant impact upon the costs of sales, since several of our foreign operations pay their suppliers in U.S. dollars. Additionally, although certain petroleum-based raw materials have eased lately, the costs of the raw materials we use are under generally upward pressure, and over the longer term we expect raw materials costs to increase, due to escalating energy and related feedstock costs, increased levels of global demand, and improved levels of supplier pricing discipline.

 

 

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