SEC Document

 

Net Income  Net income of $116.9 million for the quarter ended August 31, 2017 compares to net income of $113.4 million for the comparable prior year period.  Net income attributable to noncontrolling interests approximated $0.5 million and $0.6 million for the first quarter of fiscal 2018 and 2017, respectively.  Net income attributable to RPM International Inc. stockholders for the first quarter of fiscal 2018 was $116.4 million, or 8.7% of consolidated net sales, which compared to net income of $112.8 million, or 9.0% of consolidated net sales for the comparable prior year period.

Diluted income per share of common stock for the quarter ended August 31, 2017 of $0.86 compares with diluted earnings per share of common stock of $0.83 for the quarter ended August 31, 2016.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Approximately $26.1 million of cash was used by operating activities during the first three months of fiscal 2018, compared with $6.5 million of cash provided operating activities during the same period last year.

The net change in cash from operations includes the change in net income, which increased by $3.5 million during the first three months of fiscal 2018 versus the same period during fiscal 2017.  Changes in working capital accounts and all other accruals used approximately $46.7 million more cash flow during the first three months of 2018 versus the same period last year.

The change in accounts receivable during the first three months of fiscal 2018 provided approximately $27.0 million less cash than during the same period a year ago.  Days sales outstanding at August 31, 2017 increased to 64.2 days from 63.3 days sales outstanding at August 31, 2016.  

During the first three months of fiscal 2018, we spent approximately $4.0 million more cash for inventory purchases compared to our spending during the same period a year ago.  This resulted from the combination of timing of purchases by retail customers, the building of additional inventory to service customers’ needs and also geographic expansion. Days of inventory outstanding at August 31, 2017 increased to 99.1 days from 93.7 days of inventory outstanding at August 31, 2016.

The change in accounts payable during the first three months of fiscal 2018 used cash of $72.7 million versus $70.6 million of cash used during the same period a year ago, or approximately $2.1 million more cash than fiscal 2017, resulting principally from the timing of certain payments.  Accrued compensation and benefits used approximately $8.7 million less cash during the first three months of fiscal 2018 versus fiscal 2017, due to lower bonus accruals made during fiscal 2018 versus fiscal 2017.  Other accruals and prepaids, including those for other short-term and long-term items and changes in accrued loss reserves, used $10.5 million more cash during fiscal 2018 versus fiscal 2017, primarily from the timing of customer rebates and payments related to fiscal 2017 severance agreements.

Cash provided from operations, along with the use of available credit lines, as required, remain our primary sources of liquidity.

Investing Activities

Capital expenditures, other than for ordinary repairs and replacements, are made to accommodate our continued growth to achieve production and distribution efficiencies, expand capacity, introduce new technology, improve environmental health and safety capabilities, improve information systems, and enhance our administration capabilities. During the first three months of fiscal 2018, we paid $36.2 million for acquisitions, net of cash acquired, versus $17.3 million during the comparable prior year period. Capital expenditures of $17.5 million during the first three months of fiscal 2018 compare with depreciation of $19.9 million. In the comparable prior year period, capital expenditures were $17.0 million, which compared with depreciation of $17.7 million. We are increasing our capital spending in fiscal 2018 in an effort to more aggressively invest in our internal growth initiatives, especially in overseas markets.  We anticipate that additional shifts at our production facilities, coupled with the capacity added through acquisition activity and our planned increase in future capital spending levels, will enable us to meet increased demand throughout fiscal 2018 and beyond.

Our captive insurance companies invest their excess cash in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in the amounts related to these activities on a year-over-year basis are primarily attributable to differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At August 31, 2017, the fair value of our investments in marketable securities totaled $145.9 million, of which investments with a fair value of $44.1 million were in an unrealized loss position.  At May 31, 2017, the fair value of our investments in marketable securities totaled $164.5 million, of which investments with a fair value of $60.0 million were in an unrealized loss position.  The fair value of our portfolio of marketable securities is based on quoted market prices for identical, or similar, instruments in active or non-active

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