SEC Document

 

Our industrial segment SG&A was approximately $18.3 million higher for the first half of fiscal 2018 versus the comparable prior year period, but decreased as a percentage of net sales, which reflects the industrial segment’s solid 9.4% growth in net sales combined with overall tighter cost controls during the current period and the benefit from severance actions taken during fiscal 2017. We will continue to focus on improving operating leverage throughout the industrial segment. As previously discussed, in connection with the decision to exit the Flowcrete Middle East business, during last year’s first half we incurred a loss of $11.4 million for increased bad debt reserves. In addition to higher distribution and commission expense, recent acquisitions increased SG&A expense in this segment by approximately $14.7 million.

Our consumer segment SG&A increased by approximately $9.6 million during the first half 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 period and the benefit from severance actions taken during fiscal 2017. Recent acquisitions increased SG&A expense in this segment by approximately $12.8 million.    

Our specialty segment SG&A was approximately $1.8 million lower during the first half of fiscal 2018 versus the comparable prior year period, and decreased as a percentage of net sales, which reflects this segment’s 7.1% growth in net sales combined with overall tighter cost controls during the current period 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 period, recent acquisitions increased SG&A expense in this segment by approximately $1.7 million.  

SG&A expenses in our corporate/other category of $38.2 million during the first half of fiscal 2018 decreased by $15.0 million from $53.2 million recorded during last year’s first half, 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 $21.6 million and $29.4 million for the first half of fiscal 2018 and 2017, respectively. The $7.8 million decrease in pension expense resulted from an approximate $4.0 million decline in net actuarial losses recognized during the current period versus last year’s first half, 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 period versus the same period last year for approximately $3.8 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 and first half ended November 30, 2016.  For additional information, refer to Note 3 to the consolidated financial statements.

Interest Expense  Interest expense was $53.2 million for the first half of fiscal 2018 versus $45.7 million for the same period a year ago. Higher average borrowings, related to recent acquisitions, increased interest expense during this year’s first half by approximately $2.3 million versus the same period a year ago.  Excluding acquisition-related borrowings, higher average borrowings year-over-year increased interest expense by approximately $0.4 million. Lastly, higher interest rates, which averaged 4.34% overall for the first half of fiscal 2018 compared with 4.20% for the same period of fiscal 2017, increased interest expense by approximately $4.8 million during the current period versus the same period last year.

Investment (Income), Net  Net investment income of approximately $8.2 million for the first half of fiscal 2018 compares to net investment income of $6.3 million during the same period last year.  Dividend and interest income totaled $3.3 million and $3.0 million for the first half of fiscal 2018 and 2017, respectively.  Net realized gains on the sales of investments totaled $4.9 million during the first half of fiscal 2018, while those gains were $3.7 million during the same period a year ago.  Impairments recognized on securities that management has determined are other-than-temporary declines in value approximated $0.4 million during the first half of fiscal 2017, while there were no such losses for the first half of the current fiscal year.  

IBT  Our consolidated pretax income for the first half of fiscal 2018 of $264.5 million compares with pretax income of $41.6 million for the same period a year ago.

Our industrial segment had IBT of $156.6 million, or 10.9% of net sales, for the six months ended November 30, 2017, versus IBT of $139.6 million, or 10.7% of net sales, for the same period a year ago. Our industrial segment results reflect the impact of 9.4% growth in net sales during the current period, offset primarily by the impact from higher raw material costs, distribution expense and disappointing results in Latin America.  Our consumer segment IBT approximated $117.5 million, or 13.9% of net sales, for the first half of fiscal 2018, versus the prior year first half pretax loss of $70.5 million.  During last year’s first half, this segment recorded goodwill and other intangible asset impairment losses of $188.3 million.  Our specialty segment had pretax income of $67.6 million,

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