SEC Document


SG&A Our consolidated SG&A expense increased by approximately $98.0 million during fiscal 2016 versus fiscal 2015, and increased to 31.6% of net sales from 31.0% of net sales for fiscal 2015. SG&A for fiscal 2016 reflects overall added expenses recorded by our recently acquired businesses, mainly our recent reconsolidation of SPHC and its subsidiaries, all of which are included in our specialty segment. SG&A expense for fiscal 2016 and 2015 was favorably impacted by the reversal of certain contingent consideration obligations relating to recent acquisitions, and totaled $14.5 million and $29.7 million, respectively. During fiscal 2016, there was also higher employee compensation expense, including commissions on higher sales, as well as increases in advertising, promotional and professional services expense. Warranty expense for fiscal 2016 decreased by $3.8 million from the amount recorded during fiscal 2015, and it is typical that warranty expense will fluctuate from period to period.

Our industrial segment SG&A expense was approximately $19.9 million lower during fiscal 2016 versus fiscal 2015, but slightly higher as a percentage of net sales. This reflects the strengthening of the U.S. dollar versus nearly all foreign currencies, which unfavorably impacted fiscal 2016 industrial segment sales by 6.6%.

Our specialty segment SG&A expense was approximately $92.8 million higher during fiscal 2016 versus fiscal 2015, and higher as a percentage of net sales, primarily reflecting the recent reconsolidation of SPHC and its subsidiaries, as well as a few small product line acquisitions.

Our consumer segment SG&A expense was $26.4 million higher during fiscal 2016 versus fiscal 2015, and it was also slightly higher as a percentage of net sales, reflecting higher advertising and promotional expense during fiscal 2016 versus fiscal 2015. Consumer segment SG&A expense for fiscal 2016 and 2015 was favorably impacted by the reversal of certain contingent consideration obligations relating to recent acquisitions, and totaled $14.5 million and $29.7 million, respectively.

SG&A expenses in our corporate/other category of $73.4 million during fiscal 2016 was slightly lower versus $74.7 million during fiscal 2015, reflecting favorable experience in benefit costs.

We recorded total net periodic pension and postretirement benefit costs of $47.6 million and $48.2 million for fiscal 2016 and 2015, respectively. The $0.6 million decrease in pension expense was primarily the result of lower service and interest cost of $2.8 million during fiscal 2016 versus fiscal 2015 combined with a favorable impact of $0.4 million from larger returns on higher plan asset levels during fiscal 2016. The reduction in service and interest cost also impacted deferred actuarial losses to be amortized in future periods. Partially offsetting those reductions in costs was an unfavorable impact of approximately $2.6 million resulting from larger actuarial losses recognized during fiscal 2016 versus fiscal 2015. During fiscal 2016, we elected to change our approach in estimating the service and interest cost components of net periodic benefit expense by applying the split discount rate approach, which reduced pension expense for fiscal 2016 by approximately $6.4 million.

Interest Expense Interest expense was $91.7 million for fiscal 2016 versus $87.6 million for fiscal 2015. Included in interest expense in fiscal 2015 was a $4.0 million make-whole payment related to the early redemption of our 6.7% Senior Notes. Higher average borrowings increased interest expense during fiscal 2016 by approximately $4.6 million versus fiscal 2015. Our average borrowings were higher due to recent acquisitions, primarily from our $450.0 million payment to the 524(g) trust for the reconsolidation of SPHC, which was paid in December 2014. The payment was funded from our New Revolving Credit Facility and AR Program, part of which was ultimately replaced with a 30-year bond issued in May 2015. Despite the decrease

in interest rates, which averaged 4.11% overall for fiscal 2016 compared with 4.26% for fiscal 2015, interest expense increased by approximately $3.5 million due to the overall higher average borrowings outstanding during fiscal 2016 versus fiscal 2015.

Investment (Income), Net Net investment income of approximately $10.4 million for fiscal 2016 compares to net investment income of $18.6 million during fiscal 2015. Dividend and interest income totaled $7.7 million and $9.9 million during fiscal 2016 and 2015, respectively. Net realized gains on the sales of investments totaled $6.5 million during fiscal 2016, while those gains were $8.7 million during fiscal 2015. Impairments recognized on securities that management has determined are other-than-temporary declines in value totaled $3.8 million during fiscal 2016, compared with $0.02 million of such losses recorded during fiscal 2015.

Other Expense (Income), Net Other expense of $1.3 million for fiscal 2016 compared with other income of $3.9 million for fiscal 2015. Items reflected in this balance include net royalty expense of $2.0 million for fiscal 2016 and net royalty income of $1.9 million during fiscal 2015. Also included in this balance is our equity in earnings of unconsolidated affiliates totaling approximately $2.1 million and $2.0 million for fiscal 2016 and 2015, 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. Under ASC 805, a step up to fair value is required when an equity interest changes from a non-controlling interest to a controlling interest. Based on the step up from our 49% to a 100% interest in Carboline Dalian, we recorded a remeasurement gain for approximately $8.0 million during fiscal 2016.

IBT Our consolidated pretax income for fiscal 2016 of $483.5 million compares with $453.3 million for fiscal 2015.

Our industrial segment had IBT of $257.2 million, or 10.3% of industrial net sales, for fiscal 2016, versus IBT of $251.9 million, or 9.8% of industrial net sales, for fiscal 2015. Our industrial segment experienced the continuing impact of unfavorable foreign exchange. Our specialty segment had IBT of $107.5 million, or 15.7% of net sales, during fiscal 2016, versus IBT of $63.4 million, or 15.5% of net sales, for fiscal 2015. Our consumer segment IBT increased to $268.2 million, or 16.4% of net sales for fiscal 2016, compared with $274.0 million, or 17.1% of net sales, for fiscal 2015.

Income Tax Rate The effective income tax rate was 26.1% for fiscal 2016 compared to an effective income tax rate of 49.6% for fiscal 2015. The decrease in the effective tax rate from fiscal 2015 to fiscal 2016 was primarily attributable to a fiscal 2015 deferred income tax charge of $106.2 million for the estimated tax cost associated with unremitted foreign earnings not considered to be permanently reinvested. The comparable provision amount in fiscal 2016 is a benefit of $3.7 million.

 

 

26    RPM International Inc. and Subsidiaries


©2018 RPM International Inc. Terms of Use | Privacy Policy 2628 Pearl Road - P.O. Box 777 - Medina, Ohio 44258 | Phone: 330.273.5090 | Email: info@RPMinc.com