Exhibit 99.1
RPM Reports Results for
Fiscal 2018 Fourth Quarter and Year End
| • | Record sales reported, increasing 4% in the fourth quarter and 7% for the fiscal year |
| • | Fourth-quarter net income decreased 33%; adjusted net income increased 3% |
| • | Full-year net income increased 86%; adjusted net income increased 18% |
| • | Implementing operating improvement plan to enhance shareholder value |
MEDINA, OH – July 19, 2018 –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 theyear-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 respectabletop-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
RPM Reports Fiscal 2018 Fourth-Quarter and Year-End Results
July 19, 2018
Page 2
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 themid-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’stop-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.
RPM Reports Fiscal 2018 Fourth-Quarter and Year-End Results
July 19, 2018
Page 3
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.
RPM Reports Fiscal 2018 Fourth-Quarter and Year-End Results
July 19, 2018
Page 4
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 themid-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, astepped-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 themid- 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 thelow-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 andload-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.
RPM Reports Fiscal 2018 Fourth-Quarter and Year-End Results
July 19, 2018
Page 5
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 dialing888-771-4371 or847-585-4405 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 dialing888-843-7419 or630-652-3042 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 atwww.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 includeStonhard,Tremco,illbruck,Carboline,Flowcrete,Euclid Chemical andRPM Belgium Vandex. RPM’s consumer products are used by professionals anddo-it-yourselfers for home maintenance and improvement and by hobbyists. Consumer brands includeRust-Oleum,DAP,Zinsser,Varathane andTestors. 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 includeDay-Glo,Dryvit,RPM Wood Finishes,Mantrose-Haeuser,Legend Brands,Kop-Coat andTCI. Additional details can be found atwww.rpminc.comand by following RPM on Twitter atwww.twitter.com/RPMintl.
For more information, contact Barry M. Slifstein, vice president – investor relations, at330-273-5090 orbslifstein@rpminc.com.
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Use ofNon-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 allnon-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 forone-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.
RPM Reports Fiscal 2018 Fourth-Quarter and Year-End Results
July 19, 2018
Page 6
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 naturalgas- andoil-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 ofnon-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 Form10-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.
CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(Unaudited)
| Three Months Ended | Year Ended | |||||||||||||||
| May 31, | May 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Sales | $ | 1,558,156 | $ | 1,492,846 | $ | 5,321,643 | $ | 4,958,175 | ||||||||
Cost of sales | 939,460 | 829,454 | 3,140,431 | 2,792,487 | ||||||||||||
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Gross profit | 618,696 | 663,392 | 2,181,212 | 2,165,688 | ||||||||||||
Selling, general & administrative expenses | 466,163 | 453,909 | 1,663,143 | 1,643,520 | ||||||||||||
Restructuring expense | 17,514 | 17,514 | ||||||||||||||
Goodwill and other intangible asset impairments | 193,198 | |||||||||||||||
Interest expense | 23,919 | 27,502 | 104,547 | 96,954 | ||||||||||||
Investment (income), net | (6,779 | ) | (4,103 | ) | (20,442 | ) | (13,984 | ) | ||||||||
Other (income) expense, net | (6 | ) | 366 | (598 | ) | 1,667 | ||||||||||
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Income before income taxes | 117,885 | 185,718 | 417,048 | 244,333 | ||||||||||||
Provision for income taxes | 31,977 | 56,869 | 77,791 | 59,662 | ||||||||||||
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Net income | 85,908 | 128,849 | 339,257 | 184,671 | ||||||||||||
Less: Net income attributable to noncontrolling interests | 244 | 797 | 1,487 | 2,848 | ||||||||||||
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Net income attributable to RPM International Inc. Stockholders | $ | 85,664 | $ | 128,052 | $ | 337,770 | $ | 181,823 | ||||||||
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Earnings per share of common stock attributable to RPM International Inc. Stockholders: | ||||||||||||||||
Basic | $ | 0.65 | $ | 0.96 | $ | 2.55 | $ | 1.37 | ||||||||
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Diluted | $ | 0.63 | $ | 0.94 | $ | 2.50 | $ | 1.36 | ||||||||
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Average shares of common stock outstanding - basic | 131,186 | 130,676 | 131,179 | 130,662 | ||||||||||||
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Average shares of common stock outstanding - diluted | 137,158 | 135,162 | 137,171 | 135,165 | ||||||||||||
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SUPPLEMENTAL SEGMENT INFORMATION
IN THOUSANDS
(Unaudited)
| Three Months Ended | Year Ended | |||||||||||||||
| May 31, | May 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
Net Sales: | ||||||||||||||||
Industrial Segment | $ | 812,872 | $ | 733,530 | $ | 2,814,755 | $ | 2,564,202 | ||||||||
Consumer Segment | 548,394 | 565,289 | 1,754,339 | 1,680,384 | ||||||||||||
Specialty Segment | 196,890 | 194,027 | 752,549 | 713,589 | ||||||||||||
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Total | $ | 1,558,156 | $ | 1,492,846 | $ | 5,321,643 | $ | 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 | ) | ||||||||
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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 | ||||||||||||||
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Adjusted EBIT | $ | 109,296 | $ | 101,107 | $ | 291,270 | $ | 271,316 | ||||||||
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Consumer Segment | ||||||||||||||||
Income (Loss) Before Income Taxes (a) | $ | 25,298 | $ | 99,411 | $ | 171,874 | $ | 58,726 | ||||||||
Interest (Expense), Net (b) | (220 | ) | (209 | ) | (713 | ) | (323 | ) | ||||||||
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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 | |||||||||||||||
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Adjusted EBIT | $ | 72,772 | $ | 103,897 | $ | 219,841 | $ | 251,624 | ||||||||
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Specialty Segment | ||||||||||||||||
Income Before Income Taxes (a) | $ | 32,909 | $ | 31,240 | $ | 123,307 | $ | 107,904 | ||||||||
Interest Income, Net (b) | 592 | 120 | 876 | 526 | ||||||||||||
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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 | ||||||||||||||
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Adjusted EBIT | $ | 33,733 | $ | 34,046 | $ | 123,847 | $ | 110,304 | ||||||||
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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 | ) | ||||||||
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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 | ||||||||||||||
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Adjusted EBIT | $ | (18,532 | ) | $ | (14,932 | ) | $ | (71,561 | ) | $ | (90,367 | ) | ||||
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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 | ) | ||||||||
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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 | ||||||||||||||
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Adjusted EBIT | $ | 197,269 | $ | 224,118 | $ | 563,397 | $ | 542,877 | ||||||||
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| (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 forone-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 Form8-K as filed on June 28, 2018. |
SUPPLEMENTAL INFORMATION
RECONCILIATION OF “REPORTED” TO “ADJUSTED” AMOUNTS
(Unaudited)
| Three Months Ended May 31, | Year Ended May 31, | |||||||||||||||
| 2018 | 2017 | 2018 | 2017 | |||||||||||||
Reconciliation of Reported Earnings per Diluted Share to Adjusted Earnings per Diluted Share(All amounts presentedafter-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 | ||||||||||||||
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Adjusted Earnings per Diluted Share (m) | $ | 1.05 | $ | 1.02 | $ | 2.92 | $ | 2.47 | ||||||||
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| |||||||||
| (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 Form8-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 forone-off items impacting revenues and/or expenses that are not considered by management to be indicative of 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 | ) | ||||
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Net trade accounts receivable | 1,113,818 | 995,330 | ||||||
Inventories | 834,461 | 788,197 | ||||||
Prepaid expenses and other current assets | 278,230 | 263,412 | ||||||
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Total current assets | 2,470,931 | 2,397,436 | ||||||
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Property, Plant and Equipment, at Cost | 1,575,875 | 1,484,579 | ||||||
Allowance for depreciation | (795,569 | ) | (741,893 | ) | ||||
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Property, plant and equipment, net | 780,306 | 742,686 | ||||||
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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 | ||||||
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Total other assets | 2,020,585 | 1,950,327 | ||||||
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Total Assets | $ | 5,271,822 | $ | 5,090,449 | ||||
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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 | ||||||
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Total current liabilities | 1,006,726 | 1,235,394 | ||||||
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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 | ||||||
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| |||||
Total long-term liabilities | 2,631,558 | 2,416,355 | ||||||
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Total liabilities | 3,638,284 | 3,651,749 | ||||||
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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 | ||||||
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Total RPM International Inc. stockholders’ equity | 1,630,773 | 1,436,061 | ||||||
Noncontrolling interest | 2,765 | 2,639 | ||||||
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Total equity | 1,633,538 | 1,438,700 | ||||||
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| |||||
Total Liabilities and Stockholders’ Equity | $ | 5,271,822 | $ | 5,090,449 | ||||
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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 | ||||||
Othernon-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 | |||||
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Cash Provided By Operating Activities | 390,383 | 386,127 | ||||||
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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 | ||||||
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Cash (Used For) Investing Activities | (261,193 | ) | (339,665 | ) | ||||
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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 | ) | ||||
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| |||||
Cash (Used For) Provided By Financing Activities | (239,376 | ) | 35,971 | |||||
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| |||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents | 4,111 | 2,912 | ||||||
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| |||||
Net Change in Cash and Cash Equivalents | (106,075 | ) | 85,345 | |||||
Cash and Cash Equivalents at Beginning of Period | 350,497 | 265,152 | ||||||
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Cash and Cash Equivalents at End of Period | $ | 244,422 | $ | 350,497 | ||||
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