RPM Reports Results for Fiscal 2018 Fourth Quarter and Year End MEDINA, Ohio
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Record sales reported, increasing 4% in the fourth quarter and 7% for
the fiscal year
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Fourth-quarter net income decreased 33%; adjusted net income increased
3%
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Full-year net income increased 86%; adjusted net income increased 18%
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Implementing operating improvement plan to enhance shareholder value
RPM
International Inc. (NYSE: RPM) today reported record sales for its
fiscal fourth quarter and year ended May 31, 2018. Net income and
diluted earnings per share declined in the fourth quarter due to higher
raw material costs and extended winter weather, which inhibited outdoor
projects, especially in the company’s consumer segment. In addition, the
company recorded restructuring and other charges to reduce expenses and
position RPM for long-term growth, as well as inventory-related charges
in its consumer segment tied to a strategic shift in direction. For the
full 2018 fiscal year, net income and diluted earnings per share
increased over the prior year.
“We began addressing operating improvement opportunities with our board
over a year ago. We were in the early phases of this initiative when a
now major shareholder – Elliott Management – contacted us because they
believed that RPM’s stock was undervalued, particularly in relationship
to opportunities to improve our operating performance and margin
profile. We agree,” stated Frank C. Sullivan, RPM chairman and chief
executive officer.
Fourth-Quarter Consolidated Results
Net sales for the fourth-quarter increased 4.4% to $1.56 billion from
$1.49 billion a year ago. Net income in the quarter decreased to $85.7
million from $128.1 million reported in the fourth quarter of fiscal
2017. Diluted earnings per share (EPS) were $0.63 compared with $0.94 in
the year-ago quarter. Income before income taxes (IBT) was $117.9
million versus $185.7 million a year ago. Consolidated earnings before
interest and taxes (EBIT) were $135.0 million compared with $209.1
million a year ago. The fourth quarter of fiscal 2018 included
restructuring and other charges, including inventory SKU
rationalization, of $62.2 million. The fourth quarter of fiscal 2017
included a severance charge of $15.0 million. Excluding the charges in
both periods, net income was $142.1 million in fiscal 2018 versus $138.3
million in fiscal 2017 and EBIT was $197.3 million compared with $224.1
million a year ago. Diluted EPS excluding the charges increased 2.9% to
$1.05 from $1.02 a year ago.
“We achieved respectable top-line sales growth in the fourth quarter,
particularly in light of the unseasonably cold and rainy spring in North
America that delayed coating and construction projects. Bottom-line
results were adversely affected by rising raw material costs, as well as
the decline in sales in the consumer segment and the resulting lack of
leverage, exacerbated by strategic restructuring initiatives introduced
by new management at Rust-Oleum,” stated Sullivan.
Fourth-Quarter Segment Sales and Earnings
Industrial segment sales for the fiscal 2018 fourth quarter were up
10.8% to $812.9 million from $733.5 million a year ago. Organic sales
improved 6.2%, while acquisition growth added 1.7%. Foreign currency
translation contributed 2.9% to sales. Industrial segment IBT increased
4.7% to $96.4 million from $92.1 million a year ago. EBIT was up 6.4% to
$99.3 million from $93.4 million in the fiscal 2017 fourth quarter. The
fourth quarter included restructuring and related charges of $10.0
million in fiscal 2018 and a $7.7 million severance charge in fiscal
2017. Excluding these charges, industrial segment EBIT was $109.3
million, up 8.1% from $101.1 million a year ago.
“The industrial segment generated strong organic growth for the quarter,
primarily driven by our North American waterproofing business. Our
European operations produced solid sales growth in the mid-single-digit
range and our businesses serving the energy sector generated
upper-single-digit sales growth, which was as expected. In Brazil, our
businesses remain challenged as the economy continues to struggle.
Impacting leverage to our bottom line was raw material inflation and a
lag in our ability to achieve price increases,” stated Sullivan. “During
the quarter, we closed a polymer flooring facility in North America and
an unprofitable business in China. In addition, we reorganized RPM’s
global legal function by reducing headcount at the operating companies,
mostly within the industrial segment, and consolidating functions at
RPM’s corporate headquarters,” Sullivan stated.
Net sales in RPM’s consumer segment were $548.4 million compared with
$565.3 million reported in the fiscal 2017 fourth quarter. Organic sales
were down 5.4%, while acquisition growth added 1.2% and foreign exchange
translation contributed 1.2% to sales. Consumer segment IBT was $25.3
million compared with $99.4 million in the prior year. EBIT in the
fiscal 2018 fourth quarter was $25.5 million versus $99.6 million in
fiscal 2017. The segment recorded $47.3 million in restructuring and
inventory-related charges in the fiscal 2018 fourth quarter and a $4.3
million severance charge in fiscal 2017. Excluding these charges, EBIT
was $72.8 million compared with $103.9 million a year ago.
“Sales growth in our consumer segment was hampered by extremely
unfavorable weather conditions in North America, the segment’s largest
market, which resulted in sluggish consumer takeaway. Our retail
partners reacted to the unfavorable weather by reducing inventory,
further compounding the problem. The lag in our ability to achieve price
increases to offset raw material inflation contributed to the decline in
EBIT. During the quarter, Rust-Oleum eliminated approximately 150
positions, announced the closure of two manufacturing facilities and
simplified its management structure to lower cost. As part of this
initiative, we rationalized product lines, resulting in a $36.5 million
charge. These actions will enable Rust-Oleum to better optimize
manufacturing, focus on key products, and improve working capital going
forward. Also during the quarter, Rust-Oleum was awarded full-chain
distribution of its Varathane interior wood stains at The Home Depot and
product began shipping in June,” stated Sullivan.
Fourth-quarter sales in the company’s specialty segment increased 1.5%
to $196.9 million from $194.0 million in fiscal 2017. Organic sales
declined 0.6%, but were offset by acquisition growth of 0.6% and the
positive impact of 1.5% in foreign currency translation. Specialty
segment IBT increased 5.3% to $32.9 million from $31.2 million last
year. EBIT increased 3.8% to $32.3 million from $31.1 million in the
prior period. The segment reported a $1.4 million enterprise resource
planning (ERP) consolidation charge in the fourth quarter of fiscal 2018
and a $2.9 million severance charge in the fourth quarter of fiscal
2017. Excluding these charges, specialty segment EBIT was $33.7 million
versus $34.0 million in the prior year.
“The specialty segment’s top-line improvement was modest, as expected,
because of sales lost due to a patent expiration in our food coatings
business, which were partially offset by strong sales in our OEM powder
coatings and wood finishes businesses. EBIT declined due to unfavorable
product mix,” stated Sullivan.
Full-Year Consolidated Results
Fiscal 2018 consolidated full-year net sales increased 7.3% to $5.32
billion from $4.96 billion in fiscal 2017. Net income increased 85.8% to
$337.8 million from $181.8 million reported in fiscal 2017. Diluted
earnings per share of $2.50 were up 83.8% from $1.36 a year ago. IBT was
up 70.7% to $417.0 million from $244.3 million in fiscal 2017.
Consolidated EBIT was up 53.1% to $501.2 million from $327.3 million
last year. Fiscal 2018 included restructuring and other charges,
including inventory SKU rationalization, of $62.2 million. Fiscal 2017
included a $12.3 million charge for closing a Middle East facility, a
severance charge of $15.0 million and a goodwill and an intangible
impairment charge of $188.3 million. Excluding these items, net income
for the year increased 18.3% to $394.2 million from $333.4 million in
fiscal 2017 and diluted EPS increased 18.2% to $2.92 from $2.47 last
fiscal year. After excluding these same items, EBIT increased 3.8% for
fiscal 2018 to $563.4 million from $542.9 million a year ago.
Full-Year Segment Sales and Earnings
Fiscal 2018 sales for RPM's industrial segment improved 9.8% to $2.81
billion from $2.56 billion in fiscal 2017. Organic sales increased 4.4%,
with acquisition growth contributing 3.0%. Foreign currency translation
positively impacted sales by 2.4%. The industrial segment’s IBT
increased 11.3% to $270.8 million from $243.3 million in fiscal 2017.
Industrial segment EBIT improved 11.9% to $281.3 million from $251.3
million in fiscal 2017. The segment reported restructuring and related
charges of $10.0 million in fiscal 2018, as well as fiscal 2017 charges
of $12.3 million to exit a Middle East business and $7.7 million for
severance expenses. Excluding these charges, industrial segment EBIT
increased 7.4% to $291.3 million from $271.3 million a year ago.
Consumer segment sales for fiscal 2018 increased 4.4% to $1.75
billion from $1.68 billion in fiscal 2017. Organic sales declined by
1.7%, which was offset by the contribution from acquisitions of 5.2% and
the positive impact of foreign exchange of 0.9%. IBT increased 192.7%
to $171.9 million from $58.7 million in fiscal 2017. Consumer segment
EBIT increased 192.3%, to $172.6 million from $59.0 million a year ago.
The segment reported charges of $47.3 million in the fiscal 2018 fourth
quarter, as well as the fiscal 2017 goodwill and intangible impairment
charge of $188.3 million in the second quarter and a severance charge
of $4.3 million in the fourth quarter. Excluding these charges, consumer
segment EBIT was $219.8 million versus $251.6 million a year ago.
Fiscal 2018 specialty segment sales increased 5.5% to $752.5 million
from $713.6 million in fiscal 2017. Organic sales improved 2.0% and
acquisitions added 2.6%. Foreign currency translation increased sales by
0.9%. Specialty segment IBT was up 14.3% to $123.3 million from $107.9
million a year ago. EBIT was up 14.0% to $122.4 million from $107.4
million in fiscal 2017. The segment reported charges of $1.4 million in
the fiscal 2018 fourth quarter, as well as the fiscal 2017 severance
charge of $2.9 million in the fourth quarter. Excluding these charges,
specialty segment EBIT increased 12.3% to $123.8 million in fiscal 2018
from $110.3 million a year ago.
Cash Flow and Financial Position
For the 2018 fiscal year, cash from operations was $390.4 million
compared to $386.1 million in fiscal 2017. Capital expenditures during
fiscal 2018 of $114.6 million compare to $126.1 million over the same
time in fiscal 2017. Total debt at the end of fiscal 2018 was $2.17
billion compared to $2.09 billion a year ago. RPM’s net (of cash)
debt-to-total capitalization ratio was 54.2% compared to 54.8% at May
31, 2017. RPM’s total liquidity at May 31, 2018, including cash and
long-term committed available credit, was $1.0 billion.
Business Outlook
“During fiscal 2019, we expect the challenging raw material environment
to continue, perpetuating the stress on gross profit margins. All of our
businesses are aggressively pursuing price increases and we expect to
see some of that benefit in our consumer segment this fiscal year.
“The industrial segment should benefit from steady construction activity
and a mostly stable international backdrop outside of
Brazil. Additionally, our industrial coatings business should benefit
from the ongoing oil and gas market recovery. We expect industrial
segment sales in fiscal 2019 to grow in the mid-single-digit range.
“In our consumer segment, we enter fiscal 2019 with a leaner and more
simplified organization structure, along with improved product line
focus. With recent market share gains, a stepped-up advertising campaign
to support new product placements and the recent purchase of Miracle
Sealants, consumer is poised for growth. We expect consumer segment
sales in fiscal 2019 to grow in the mid- to upper- single-digit range.
“In our specialty segment, we will annualize last year’s patent
expiration at the end of our fiscal 2019 first quarter. We also see
extremely difficult year-over-year comparisons for our Legend Brands
restoration business, which experienced a sales boost due to three
hurricanes last fall. Therefore, we expect sales growth in the specialty
segment in fiscal 2019 to be in the low-single-digit range.
“Although, top-line sales will continue to be solid, the first quarter
is expected to be the most difficult in terms of bottom-line leverage
for several reasons. In consumer, there will be a higher first quarter
promotional advertising and load-in spend to support recent market share
gains. Furthermore, the gap between current price increases and raw
material inflation is at its peak, with our consumer businesses finally
realizing some of their price increases now. In our specialty segment,
the first quarter of fiscal 2019 is the last quarter of negative
comparisons relating to the NatureSeal patent expiration last August.
“During fiscal 2019, we intend to adjust out charges relating to our
operational improvement initiative to provide better clarity on the
performance of our core businesses. We have committed to announcing a
comprehensive update to our operating improvement initiative, which we
call our 2020 MAP to Growth, prior to the end of November and have
elected not to provide EPS guidance as we navigate through this
transitional period,” stated Sullivan.
Webcast and Conference Call Information
Management will host a conference call to discuss these results
beginning at 10:00 a.m. EDT today. The call can be accessed by dialing
888-771-4371 or 847-585-4405 for international callers. Participants are
asked to call the assigned number approximately 10 minutes before the
conference call begins. The call, which will last approximately one
hour, will be open to the public, but only financial analysts will be
permitted to ask questions. The media and all other participants will be
in a listen-only mode.
For those unable to listen to the live call, a replay will be available
from approximately 12:30 p.m. EDT on July 19, 2018 until 11:59 p.m. EDT
on July 26, 2018. The replay can be accessed by dialing 888-843-7419 or
630-652-3042 for international callers. The access code is 46126377. The
call also will be available both live and for replay, and as a written
transcript, via the RPM web site at www.RPMinc.com.
About RPM
RPM International Inc. owns subsidiaries that are world leaders in
specialty coatings, sealants, building materials and related services
across three segments. RPM’s industrial products include roofing
systems, sealants, corrosion control coatings, flooring coatings and
other construction chemicals. Industrial companies include Stonhard,
Tremco,
illbruck,
Carboline,
Flowcrete,
Euclid
Chemical and RPM
Belgium Vandex. RPM's consumer products are used by professionals
and do-it-yourselfers for home maintenance and improvement and by
hobbyists. Consumer brands include Rust-Oleum,
DAP,
Zinsser,
Varathane
and Testors.
RPM’s specialty products include industrial cleaners, colorants,
exterior finishes, specialty OEM coatings, edible coatings, restoration
services equipment and specialty glazes for the pharmaceutical and food
industries. Specialty segment companies include Day-Glo,
Dryvit,
RPM
Wood Finishes, Mantrose-Haeuser,
Legend
Brands, Kop-Coat
and TCI.
Additional details can be found at www.rpminc.com
and by following RPM on Twitter at www.twitter.com/RPMintl.
For more information, contact Barry M. Slifstein, vice president –
investor relations, at 330-273-5090 or bslifstein@rpminc.com.
Use of Non-GAAP Financial Information
To supplement the financial information presented in accordance with
Generally Accepted Accounting Principles in the United States (“GAAP”)
in this earnings release, we use EBIT, adjusted EBIT, adjusted net
income and adjusted earnings per share, which are all non-GAAP financial
measures. EBIT is defined as earnings (loss) before interest and taxes,
with adjusted EBIT, adjusted net income and adjusted earnings per share
provided for the purpose of adjusting for one-off items impacting
revenues and/or expenses that are not considered by management to be
indicative of ongoing operations. We evaluate the profit performance of
our segments based on income before income taxes, but also look to EBIT
as a performance evaluation measure because interest expense is
essentially related to acquisitions, as opposed to segment operations.
For that reason, we believe EBIT is also useful to investors as a metric
in their investment decisions. EBIT should not be considered an
alternative to, or more meaningful than, income before income taxes as
determined in accordance with GAAP, since EBIT omits the impact of
interest in determining operating performance, which represent items
necessary to our continued operations, given our level of indebtedness.
Nonetheless, EBIT is a key measure expected by and useful to our fixed
income investors, rating agencies and the banking community all of whom
believe, and we concur, that this measure is critical to the capital
markets' analysis of our segments' core operating performance. We also
evaluate EBIT because it is clear that movements in EBIT impact our
ability to attract financing. Our underwriters and bankers consistently
require inclusion of this measure in offering memoranda in conjunction
with any debt underwriting or bank financing. EBIT may not be indicative
of our historical operating results, nor is it meant to be predictive of
potential future results. See the financial statement section of this
earnings release for a reconciliation of EBIT to income before income
taxes.
Forward-Looking Statements
This press release contains “forward-looking statements” relating to our
business. These forward-looking statements, or other statements made by
us, are made based on our expectations and beliefs concerning future
events impacting us, and are subject to uncertainties and factors
(including those specified below) which are difficult to predict and, in
many instances, are beyond our control. As a result, our actual results
could differ materially from those expressed in or implied by any such
forward-looking statements. These uncertainties and factors include (a)
global markets and general economic conditions, including uncertainties
surrounding the volatility in financial markets, the availability of
capital and the effect of changes in interest rates, and the viability
of banks and other financial institutions; (b) the prices, supply and
capacity of raw materials, including assorted pigments, resins, solvents
and other natural gas- and oil-based materials; packaging, including
plastic containers; and transportation services, including fuel
surcharges; (c) continued growth in demand for our products; (d) legal,
environmental and litigation risks inherent in our construction and
chemicals businesses and risks related to the adequacy of our insurance
coverage for such matters; (e) the effect of changes in interest rates;
(f) the effect of fluctuations in currency exchange rates upon our
foreign operations; (g) the effect of non-currency risks of investing in
and conducting operations in foreign countries, including those relating
to domestic and international political, social, economic and regulatory
factors; (h) risks and uncertainties associated with our ongoing
acquisition and divestiture activities; (i) risks related to the
adequacy of our contingent liability reserves; and (j) other risks
detailed in our filings with the Securities and Exchange Commission,
including the risk factors set forth in our Annual Report on Form 10-K
for the year ended May 31, 2017, as the same may be updated from time to
time. We do not undertake any obligation to publicly update or revise
any forward-looking statements to reflect future events, information or
circumstances that arise after the date of this release.
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CONSOLIDATED STATEMENTS OF INCOME
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IN THOUSANDS, EXCEPT PER SHARE DATA
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(Unaudited)
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Three Months Ended
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Year Ended
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May 31,
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May 31,
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2018
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2017
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2018
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2017
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Net Sales
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$
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1,558,156
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$
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1,492,846
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$
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5,321,643
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$
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4,958,175
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Cost of sales
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939,460
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829,454
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3,140,431
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2,792,487
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Gross profit
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618,696
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663,392
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2,181,212
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2,165,688
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Selling, general & administrative expenses
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466,163
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453,909
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1,663,143
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1,643,520
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Restructuring expense
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17,514
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17,514
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Goodwill and other intangible asset impairments
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193,198
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Interest expense
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23,919
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27,502
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104,547
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96,954
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Investment (income), net
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(6,779
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)
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(4,103
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)
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(20,442
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)
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(13,984
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)
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Other (income) expense, net
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(6
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)
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366
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(598
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)
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1,667
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Income before income taxes
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117,885
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185,718
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417,048
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244,333
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Provision for income taxes
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31,977
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56,869
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77,791
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59,662
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Net income
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85,908
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128,849
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339,257
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184,671
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Less: Net income attributable to noncontrolling interests
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244
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797
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1,487
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2,848
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Net income attributable to RPM International Inc. Stockholders
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$
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85,664
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$
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128,052
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$
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337,770
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|
$
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181,823
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Earnings per share of common stock attributable to
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RPM International Inc. Stockholders:
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Basic
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$
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0.65
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$
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0.96
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$
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2.55
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$
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1.37
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Diluted
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$
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0.63
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$
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0.94
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$
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2.50
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$
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1.36
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Average shares of common stock outstanding - basic
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131,186
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130,676
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131,179
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130,662
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Average shares of common stock outstanding - diluted
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137,158
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|
|
|
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135,162
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|
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137,171
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135,165
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SUPPLEMENTAL SEGMENT INFORMATION
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IN THOUSANDS
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(Unaudited)
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Three Months Ended
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|
|
Year Ended
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|
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May 31,
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May 31,
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|
2018
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2017
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2018
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2017
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Net Sales:
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Industrial Segment
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$
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812,872
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$
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733,530
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$
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2,814,755
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$
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2,564,202
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Consumer Segment
|
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548,394
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565,289
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1,754,339
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1,680,384
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Specialty Segment
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196,890
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194,027
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752,549
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713,589
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Total
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|
$
|
1,558,156
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|
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$
|
1,492,846
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$
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5,321,643
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|
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$
|
4,958,175
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|
|
Income Before Income Taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Industrial Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes (a)
|
|
|
|
$
|
96,390
|
|
|
|
$
|
92,073
|
|
|
|
$
|
270,792
|
|
|
|
$
|
243,335
|
|
Interest (Expense), Net (b)
|
|
|
|
|
(2,935
|
)
|
|
|
|
(1,313
|
)
|
|
|
|
(10,507
|
)
|
|
|
|
(7,985
|
)
|
EBIT (c)
|
|
|
|
|
99,325
|
|
|
|
|
93,386
|
|
|
|
|
281,299
|
|
|
|
|
251,320
|
|
Charge to exit Flowcrete Middle East (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,275
|
|
Charge to exit Flowcrete China (e)
|
|
|
|
|
4,164
|
|
|
|
|
|
|
|
4,164
|
|
|
|
|
Severance expense (f)
|
|
|
|
|
|
|
|
7,721
|
|
|
|
|
|
|
|
7,721
|
|
Inventory-related charges (g)
|
|
|
|
|
1,220
|
|
|
|
|
|
|
|
1,220
|
|
|
|
|
Restructuring expense (h)
|
|
|
|
|
4,587
|
|
|
|
|
|
|
|
4,587
|
|
|
|
|
Adjusted EBIT
|
|
|
|
$
|
109,296
|
|
|
|
$
|
101,107
|
|
|
|
$
|
291,270
|
|
|
|
$
|
271,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) Before Income Taxes (a)
|
|
|
|
$
|
25,298
|
|
|
|
$
|
99,411
|
|
|
|
$
|
171,874
|
|
|
|
$
|
58,726
|
|
Interest (Expense), Net (b)
|
|
|
|
|
(220
|
)
|
|
|
|
(209
|
)
|
|
|
|
(713
|
)
|
|
|
|
(323
|
)
|
EBIT (c)
|
|
|
|
|
25,518
|
|
|
|
|
99,620
|
|
|
|
|
172,587
|
|
|
|
|
59,049
|
|
Severance expense (f)
|
|
|
|
|
|
|
|
4,277
|
|
|
|
|
|
|
|
4,277
|
|
Inventory-related charges (g)
|
|
|
|
|
36,463
|
|
|
|
|
|
|
|
36,463
|
|
|
|
|
Restructuring expense (h)
|
|
|
|
|
10,791
|
|
|
|
|
|
|
|
10,791
|
|
|
|
|
Goodwill and other intangible asset impairments (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,298
|
|
Adjusted EBIT
|
|
|
|
$
|
72,772
|
|
|
|
$
|
103,897
|
|
|
|
$
|
219,841
|
|
|
|
$
|
251,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Segment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes (a)
|
|
|
|
$
|
32,909
|
|
|
|
$
|
31,240
|
|
|
|
$
|
123,307
|
|
|
|
$
|
107,904
|
|
Interest Income, Net (b)
|
|
|
|
|
592
|
|
|
|
|
120
|
|
|
|
|
876
|
|
|
|
|
526
|
|
EBIT (c)
|
|
|
|
$
|
32,317
|
|
|
|
$
|
31,120
|
|
|
|
$
|
122,431
|
|
|
|
$
|
107,378
|
|
Severance expense (f)
|
|
|
|
|
|
|
|
2,926
|
|
|
|
|
|
|
|
2,926
|
|
ERP consolidation plan (j)
|
|
|
|
|
1,416
|
|
|
|
|
|
|
|
1,416
|
|
|
|
|
Adjusted EBIT
|
|
|
|
$
|
33,733
|
|
|
|
$
|
34,046
|
|
|
|
$
|
123,847
|
|
|
|
$
|
110,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate/Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Expense) Before Income Taxes (a)
|
|
|
|
$
|
(36,712
|
)
|
|
|
$
|
(37,006
|
)
|
|
|
$
|
(148,925
|
)
|
|
|
$
|
(165,632
|
)
|
Interest (Expense), Net (b)
|
|
|
|
|
(14,577
|
)
|
|
|
|
(21,997
|
)
|
|
|
|
(73,761
|
)
|
|
|
|
(75,188
|
)
|
EBIT (c)
|
|
|
|
$
|
(22,135
|
)
|
|
|
$
|
(15,009
|
)
|
|
|
$
|
(75,164
|
)
|
|
|
$
|
(90,444
|
)
|
Severance expense (f)
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
77
|
|
Restructuring expense (h)
|
|
|
|
|
2,136
|
|
|
|
|
|
|
|
2,136
|
|
|
|
|
Professional fees for negotiation of cooperation agreement (k)
|
|
|
|
|
1,467
|
|
|
|
|
|
|
|
1,467
|
|
|
|
|
Adjusted EBIT
|
|
|
|
$
|
(18,532
|
)
|
|
|
$
|
(14,932
|
)
|
|
|
$
|
(71,561
|
)
|
|
|
$
|
(90,367
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes (a)
|
|
|
|
$
|
117,885
|
|
|
|
$
|
185,718
|
|
|
|
$
|
417,048
|
|
|
|
$
|
244,333
|
|
Interest (Expense), Net (b)
|
|
|
|
|
(17,140
|
)
|
|
|
|
(23,399
|
)
|
|
|
|
(84,105
|
)
|
|
|
|
(82,970
|
)
|
EBIT (c)
|
|
|
|
|
135,025
|
|
|
|
|
209,117
|
|
|
|
|
501,153
|
|
|
|
|
327,303
|
|
Charge to exit Flowcrete Middle East (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12,275
|
|
Charge to exit Flowcrete China (e)
|
|
|
|
|
4,164
|
|
|
|
|
|
|
|
4,164
|
|
|
|
|
Severance expense (f)
|
|
|
|
|
|
|
|
15,001
|
|
|
|
|
|
|
|
15,001
|
|
Inventory-related charges (g)
|
|
|
|
|
37,683
|
|
|
|
|
|
|
|
37,683
|
|
|
|
|
Restructuring expense (h)
|
|
|
|
|
17,514
|
|
|
|
|
|
|
|
17,514
|
|
|
|
|
Goodwill and other intangible asset impairments (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
188,298
|
|
ERP consolidation plan (j)
|
|
|
|
|
1,416
|
|
|
|
|
|
|
|
1,416
|
|
|
|
|
Professional fees for negotiation of cooperation agreement (k)
|
|
|
|
|
1,467
|
|
|
|
|
|
|
|
1,467
|
|
|
|
|
Adjusted EBIT
|
|
|
|
$
|
197,269
|
|
|
|
$
|
224,118
|
|
|
|
$
|
563,397
|
|
|
|
$
|
542,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a)
|
|
The presentation includes a reconciliation of Income (Loss) Before
Income Taxes, a measure defined by Generally Accepted Accounting
Principles in the United States (GAAP), to EBIT and Adjusted EBIT.
|
(b)
|
|
Interest income (expense), net includes the combination of interest
income (expense) and investment income (expense), net.
|
(c)
|
|
EBIT is defined as earnings (loss) before interest and taxes, with
Adjusted EBIT provided for the purpose of adjusting for one-off
items impacting revenues and/or expenses that are not considered
by management to be indicative of ongoing operations. We evaluate
the profit performance of our segments based on income before
income taxes, but also look to EBIT as a performance evaluation
measure because interest expense is essentially related to
acquisitions, as opposed to segment operations. For that reason,
we believe EBIT is also useful to investors as a metric in their
investment decisions. EBIT should not be considered an alternative
to, or more meaningful than, income before income taxes as
determined in accordance with GAAP, since EBIT omits the impact of
interest in determining operating performance, which represent
items necessary to our continued operations, given our level of
indebtedness. Nonetheless, EBIT is a key measure expected by and
useful to our fixed income investors, rating agencies and the
banking community all of whom believe, and we concur, that this
measure is critical to the capital markets' analysis of our
segments' core operating performance. We also evaluate EBIT
because it is clear that movements in EBIT impact our ability to
attract financing. Our underwriters and bankers consistently
require inclusion of this measure in offering memoranda in
conjunction with any debt underwriting or bank financing. EBIT may
not be indicative of our historical operating results, nor is it
meant to be predictive of potential future results.
|
(d)
|
|
Reflects the charges related to Flowcrete decision to exit the
Middle East.
|
(e)
|
|
Reflects the charges related to Flowcrete decision to exit China.
|
(f)
|
|
Reflects severance expense incurred during the fourth quarter of
fiscal 2017 pursuant to a plan to reduce future SG&A expense.
|
(g)
|
|
Inventory-related charges reflect product line and SKU
rationalization and related obsolete inventory identification at our
Consumer Segment, as well as inventory write-offs in connection with
restructuring activities at our Industrial Segment, all of which
have been recorded in cost of goods sold during the fourth quarter
of fiscal 2018.
|
(h)
|
|
Reflects restructuring expense, including headcount reductions,
closures of facilities and related costs and accelerated vesting of
equity awards in connection with a key executive, all of which were
incurred during the fourth quarter of fiscal 2018.
|
(i)
|
|
Reflects the impact of goodwill and other intangible asset
impairment charges of $188.3 million related to our Kirker reporting
unit.
|
(j)
|
|
Includes implementation costs associated with ERP consolidation
plan, which were incurred during the fourth quarter of fiscal 2018
by our Specialty Segment.
|
(k)
|
|
Comprises professional fees incurred during the fourth quarter of
fiscal 2018 in connection with the negotiation of a cooperation
agreement. Refer to Form 8-K as filed on June 28, 2018.
|
|
|
|
|
SUPPLEMENTAL INFORMATION
|
RECONCILIATION OF "REPORTED" TO "ADJUSTED" AMOUNTS
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
May 31,
|
|
|
May 31,
|
|
|
|
|
|
|
2018
|
|
|
2017
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reconciliation of Reported Earnings per
Diluted Share to Adjusted Earnings
per Diluted Share (All amounts presented after-tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported Earnings per Diluted Share
|
|
|
|
$
|
0.63
|
|
|
$
|
0.94
|
|
|
$
|
2.50
|
|
|
$
|
1.36
|
Charge to exit Flowcrete Middle East (d)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.09
|
Charge to exit Flowcrete China (e)
|
|
|
|
|
0.03
|
|
|
|
|
|
|
0.03
|
|
|
|
Severance expense (f)
|
|
|
|
|
|
|
|
0.08
|
|
|
|
|
|
|
0.08
|
Inventory-related charges (g)
|
|
|
|
|
0.19
|
|
|
|
|
|
|
0.19
|
|
|
|
Restructuring expense (h)
|
|
|
|
|
0.09
|
|
|
|
|
|
|
0.09
|
|
|
|
Goodwill and other intangible asset impairments (i)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.94
|
ERP consolidation plan (j)
|
|
|
|
|
0.01
|
|
|
|
|
|
|
0.01
|
|
|
|
Professional fees for negotiation of cooperation agreement (k)
|
|
|
|
|
0.01
|
|
|
|
|
|
|
0.01
|
|
|
|
Adjustment to tax expense (l)
|
|
|
|
|
0.09
|
|
|
|
|
|
|
0.09
|
|
|
|
Adjusted Earnings per Diluted Share (m)
|
|
|
|
$
|
1.05
|
|
|
$
|
1.02
|
|
|
$
|
2.92
|
|
|
$
|
2.47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(d)
|
|
Reflects the charges related to Flowcrete decision to exit the
Middle East.
|
(e)
|
|
Reflects the charges related to Flowcrete decision to exit China.
|
(f)
|
|
Reflects severance expense incurred during the fourth quarter of
fiscal 2017 pursuant to a plan to reduce future SG&A expense.
|
(g)
|
|
Inventory-related charges reflect product line and SKU
rationalization and related obsolete inventory identification at our
Consumer Segment, as well as inventory write-offs in connection with
restructuring activities at our Industrial Segment, all of which
have been recorded in cost of goods sold during the fourth quarter
of fiscal 2018.
|
(h)
|
|
Reflects restructuring expense, including headcount reductions,
closures of facilities and related costs and accelerated vesting of
equity awards in connection with a key executive, all of which were
incurred during the fourth quarter of fiscal 2018.
|
(i)
|
|
Reflects the impact of goodwill and other intangible asset
impairment charges of $188.3 million related to our Kirker reporting
unit.
|
(j)
|
|
Includes implementation costs associated with ERP consolidation
plan, which were incurred during the fourth quarter of fiscal 2018
by our Specialty Segment.
|
(k)
|
|
Comprises professional fees incurred during the fourth quarter of
fiscal 2018 in connection with the negotiation of a cooperation
agreement. Refer to Form 8-K as filed on June 28, 2018.
|
(l)
|
|
Reflects an adjustment to tax expense for U.S. tax reform and
related guidance subsequently issued by the Internal Revenue Service.
|
(m)
|
|
Adjusted EPS is provided for the purpose of adjusting diluted
earnings per share for one-off items impacting revenues and/or
expenses that are not considered by management to be indicative of
ongoing operations.
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED BALANCE SHEETS
|
IN THOUSANDS
|
(Unaudited)
|
|
|
|
|
|
|
May 31, 2018
|
|
|
May 31, 2017
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
|
$
|
244,422
|
|
|
|
$
|
350,497
|
|
Trade accounts receivable
|
|
|
|
1,160,162
|
|
|
|
1,039,468
|
|
Allowance for doubtful accounts
|
|
|
|
(46,344)
|
|
|
|
(44,138)
|
|
Net trade accounts receivable
|
|
|
|
|
1,113,818
|
|
|
|
|
995,330
|
|
Inventories
|
|
|
|
|
834,461
|
|
|
|
|
788,197
|
|
Prepaid expenses and other current assets
|
|
|
|
|
278,230
|
|
|
|
|
263,412
|
|
Total current assets
|
|
|
|
|
2,470,931
|
|
|
|
|
2,397,436
|
|
|
|
|
|
|
|
|
|
|
Property, Plant and Equipment, at Cost
|
|
|
|
|
1,575,875
|
|
|
|
|
1,484,579
|
|
Allowance for depreciation
|
|
|
|
|
(795,569
|
)
|
|
|
|
(741,893
|
)
|
Property, plant and equipment, net
|
|
|
|
|
780,306
|
|
|
|
|
742,686
|
|
Other Assets
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
1,192,174
|
|
|
|
|
1,143,913
|
|
Other intangible assets, net of amortization
|
|
|
|
|
584,272
|
|
|
|
|
573,092
|
|
Deferred income taxes, non-current
|
|
|
|
|
21,897
|
|
|
|
|
19,793
|
|
Other
|
|
|
|
|
222,242
|
|
|
|
|
213,529
|
|
Total other assets
|
|
|
|
|
2,020,585
|
|
|
|
|
1,950,327
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
|
$
|
5,271,822
|
|
|
|
$
|
5,090,449
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
|
$
|
592,281
|
|
|
|
$
|
534,718
|
|
Current portion of long-term debt
|
|
|
|
|
3,501
|
|
|
|
|
253,645
|
|
Accrued compensation and benefits
|
|
|
|
|
177,106
|
|
|
|
|
181,084
|
|
Accrued losses
|
|
|
|
|
22,132
|
|
|
|
|
31,735
|
|
Other accrued liabilities
|
|
|
|
|
211,706
|
|
|
|
|
234,212
|
|
Total current liabilities
|
|
|
|
|
1,006,726
|
|
|
|
|
1,235,394
|
|
|
|
|
|
|
|
|
|
|
Long-Term Liabilities
|
|
|
|
|
|
|
|
Long-term debt, less current maturities
|
|
|
|
|
2,170,643
|
|
|
|
|
1,836,437
|
|
Other long-term liabilities
|
|
|
|
|
356,892
|
|
|
|
|
482,491
|
|
Deferred income taxes
|
|
|
|
|
104,023
|
|
|
|
|
97,427
|
|
Total long-term liabilities
|
|
|
|
|
2,631,558
|
|
|
|
|
2,416,355
|
|
Total liabilities
|
|
|
|
|
3,638,284
|
|
|
|
|
3,651,749
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
Preferred stock; none issued
|
|
|
|
|
|
|
|
Common stock (outstanding 133,647; 133,563)
|
|
|
|
|
1,336
|
|
|
|
|
1,336
|
|
Paid-in capital
|
|
|
|
|
982,067
|
|
|
|
|
954,491
|
|
Treasury stock, at cost
|
|
|
|
|
(236,318
|
)
|
|
|
|
(218,222
|
)
|
Accumulated other comprehensive (loss)
|
|
|
|
|
(459,048
|
)
|
|
|
|
(473,986
|
)
|
Retained earnings
|
|
|
|
|
1,342,736
|
|
|
|
|
1,172,442
|
|
Total RPM International Inc. stockholders' equity
|
|
|
|
|
1,630,773
|
|
|
|
|
1,436,061
|
|
Noncontrolling interest
|
|
|
|
|
2,765
|
|
|
|
|
2,639
|
|
Total equity
|
|
|
|
|
1,633,538
|
|
|
|
|
1,438,700
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders' Equity
|
|
|
|
$
|
5,271,822
|
|
|
|
$
|
5,090,449
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
IN THOUSANDS
|
(Unaudited)
|
|
|
|
|
|
Year Ended
|
|
|
|
|
May 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Cash Flows From Operating Activities:
|
|
|
|
|
|
|
|
Net income
|
|
|
|
$ 339,257
|
|
|
$ 184,671
|
Adjustments to reconcile net income to net
|
|
|
|
|
|
|
|
cash provided by (used for) operating activities:
|
|
|
|
|
|
|
|
Depreciation
|
|
|
|
81,976
|
|
|
71,870
|
Amortization
|
|
|
|
46,523
|
|
|
44,903
|
Restructuring
|
|
|
|
17,514
|
|
|
|
Goodwill and other intangible asset impairments
|
|
|
|
|
|
|
193,198
|
Adjustments to contingent consideration obligations
|
|
|
|
3,400
|
|
|
3,000
|
Other-than-temporary impairments on marketable securities
|
|
|
|
|
|
|
420
|
Deferred income taxes
|
|
|
|
(10,690)
|
|
|
24,049
|
Stock-based compensation expense
|
|
|
|
25,440
|
|
|
32,541
|
Other non-cash interest expense
|
|
|
|
6,187
|
|
|
9,986
|
Realized (gain) on sales of marketable securities
|
|
|
|
(10,076)
|
|
|
(8,174)
|
Other
|
|
|
|
(1,141)
|
|
|
280
|
Changes in assets and liabilities, net of effect
|
|
|
|
|
|
|
|
from purchases and sales of businesses:
|
|
|
|
|
|
|
|
(Increase) in receivables
|
|
|
|
(106,179)
|
|
|
(5,690)
|
(Increase) in inventory
|
|
|
|
(34,102)
|
|
|
(70,726)
|
Decrease (increase) in prepaid expenses and other
|
|
|
|
|
|
|
|
current and long-term assets
|
|
|
|
3,348
|
|
|
(38,130)
|
Increase in accounts payable
|
|
|
|
51,641
|
|
|
16,247
|
(Decrease) in accrued compensation and benefits
|
|
|
|
(5,010)
|
|
|
(4,577)
|
(Decrease) in accrued losses
|
|
|
|
(10,387)
|
|
|
(3,422)
|
(Decrease) in other accrued liabilities
|
|
|
|
(6,612)
|
|
|
(64,322)
|
Other
|
|
|
|
(706)
|
|
|
3
|
Cash Provided By Operating Activities
|
|
|
|
390,383
|
|
|
386,127
|
Cash Flows From Investing Activities:
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
|
(114,619)
|
|
|
(126,109)
|
Acquisition of businesses, net of cash acquired
|
|
|
|
(112,442)
|
|
|
(254,200)
|
Purchase of marketable securities
|
|
|
|
(181,953)
|
|
|
(38,062)
|
Proceeds from sales of marketable securities
|
|
|
|
138,803
|
|
|
76,588
|
Other
|
|
|
|
9,018
|
|
|
2,118
|
Cash (Used For) Investing Activities
|
|
|
|
(261,193)
|
|
|
(339,665)
|
Cash Flows From Financing Activities:
|
|
|
|
|
|
|
|
Additions to long-term and short-term debt
|
|
|
|
351,082
|
|
|
597,633
|
Reductions of long-term and short-term debt
|
|
|
|
(276,406)
|
|
|
(154,348)
|
Cash dividends
|
|
|
|
(167,476)
|
|
|
(156,752)
|
Shares of common stock repurchased and returned for taxes
|
|
|
|
(17,152)
|
|
|
(21,948)
|
Payments of acquisition-related contingent consideration
|
|
|
|
(3,945)
|
|
|
(4,284)
|
Payments for 524(g) trust
|
|
|
|
(123,567)
|
|
|
(221,638)
|
Other
|
|
|
|
(1,912)
|
|
|
(2,692)
|
Cash (Used For) Provided By Financing Activities
|
|
|
|
(239,376)
|
|
|
35,971
|
|
|
|
|
|
|
|
|
Effect of Exchange Rate Changes on Cash and
|
|
|
|
|
|
|
|
Cash Equivalents
|
|
|
|
4,111
|
|
|
2,912
|
Net Change in Cash and Cash Equivalents
|
|
|
|
(106,075)
|
|
|
85,345
|
Cash and Cash Equivalents at Beginning of Period
|
|
|
|
350,497
|
|
|
265,152
|
Cash and Cash Equivalents at End of Period
|
|
|
|
$ 244,422
|
|
|
$ 350,497
|
|
|
|
|
|
|
|
|
View source version on businesswire.com: https://www.businesswire.com/news/home/20180719005234/en/ Copyright Business Wire 2018
Source: Business Wire
(July 19, 2018 - 6:45 AM EDT)
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