SEC Document

 

Our consumer segment SG&A increased by approximately $7.4 million during the second quarter of fiscal 2018 versus the same period last year, but decreased as a percentage of net sales, reflecting overall tighter cost controls during the current quarter and the benefit from severance actions taken during fiscal 2017. Additionally, the consumer segment recorded lower employee compensation expense as well as slightly lower distribution expense during the current quarter. Recent acquisitions increased SG&A expense in this segment by approximately $5.9 million.    

Our specialty segment SG&A was approximately $1.2 million lower during the second quarter of fiscal 2018 versus the comparable prior year period, and decreased as a percentage of net sales, which reflects this segment’s 7.4% growth in net sales combined with overall tighter cost controls during the current quarter and the benefit from severance actions taken during fiscal 2017.  This segment also benefited from lower SG&A in connection with the fiscal 2017 closure of an unprofitable European manufacturing facility.  During the current quarter, recent acquisitions increased SG&A expense in this segment by approximately $1.0 million.  

SG&A expenses in our corporate/other category of $18.0 million during the second quarter of fiscal 2018 decreased by $11.0 million from $29.0 million recorded during last year’s second quarter, resulting primarily from lower healthcare and pension expense, as well as lower legal and acquisition-related professional fees.  

We recorded total net periodic pension and postretirement benefit costs of $10.8 million and $14.7 million for the second quarter of fiscal 2018 and 2017, respectively. The $3.9 million decrease in pension expense resulted from an approximate $2.0 million decline in net actuarial losses recognized during the current quarter versus last year’s second quarter, principally from a change in estimate for lump sum valuations, which were updated to incorporate future expectations of interest rates.  There was also a higher expected return on increased plan assets during the current quarter versus the same period last year for approximately $1.9 million. We expect that pension expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, but such changes are not expected to be material to our consolidated financial results.

Goodwill and Other Intangible Asset Impairments As described in Note 3, “Goodwill and Other Intangible Assets,” to the consolidated financial statements, we recorded impairment charges related to a reduction of the carrying value of goodwill and other intangible assets totaling $188.3 million during last year’s second quarter ended November 30, 2016.  For additional information, refer to Note 3 to the consolidated financial statements.

Interest Expense  Interest expense was $26.4 million for the second quarter of fiscal 2018 versus $22.9 million for the same period a year ago. Higher average borrowings, related to recent acquisitions, increased interest expense during this year’s second quarter by approximately $1.1 million versus the same period a year ago.  Excluding acquisition-related borrowings, lower average borrowings year-over-year decreased interest expense by approximately $0.1 million. Lastly, higher interest rates, which averaged 4.37% overall for the second quarter of fiscal 2018 compared with 4.21% for the same period of fiscal 2017, increased interest expense by approximately $2.5 million during the current quarter versus the same period last year.

Investment (Income), Net  Net investment income of approximately $3.7 million for the second quarter of fiscal 2018 compares to net investment income of $2.4 million during the same period last year.  Dividend and interest income totaled $1.7 million and $1.5 million for the second quarter of fiscal 2018 and 2017, respectively.  Net realized gains on the sales of investments totaled $2.0 million during the second quarter of fiscal 2018, while those gains were $1.1 million during the same period a year ago.  Impairments recognized on securities that management has determined are other-than-temporary declines in value approximated $0.2 million during the second quarter of fiscal 2017, while there were no such losses during the second quarter of the current fiscal year.  

Income (Loss) Before Income Taxes (“IBT”)  Our consolidated pretax income for the second quarter of fiscal 2018 of $109.2 million compares with pretax loss of $106.9 million for the same period a year ago.

Our industrial segment had IBT of $67.7 million, or 9.6% of net sales, for the quarter ended November 30, 2017, versus IBT of $50.3 million, or 7.9% of net sales, for the same period a year ago. Our industrial segment results reflect the impact of 5.4% growth in organic sales during the current quarter, offset primarily by the impact from higher raw material costs, distribution expense and unfavorable transactional foreign exchange expense.  Our consumer segment IBT approximated $45.1 million, or 10.9% of net sales, for the second quarter of fiscal 2018, versus the prior year second quarter pretax loss of $140.6 million.  During last year’s second quarter, we recorded goodwill and other intangible asset impairment charges of $188.3 million relating to this segment’s Kirker nail enamel business. The current quarter was challenging for our consumer segment, and we expect that to continue throughout the last half of the current fiscal year.  As a result, we currently anticipate an increase in our spending on advertising and promotions during the last half of the year.  Our specialty segment had pretax income of $34.4 million, or 17.5% of net sales for the quarter ended November 30, 2017, versus pretax income of $31.2 million, or 17.0% of net sales, for the same period a year ago, reflecting leverage on 2.8% growth in organic sales during the quarter, combined with the benefit from the closure of an unprofitable European manufacturing facility and severance actions taken during fiscal 2017.

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