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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 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


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 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.


RPM Reports Fiscal 2018 Fourth-Quarter and Year-End Results

July 19, 2018

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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 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.


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 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.


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 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.


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  
  

 

 

   

 

 

   

 

 

   

 

 

 

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  
  

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     117,885       185,718       417,048       244,333  

Provision for income taxes

     31,977       56,869       77,791       59,662  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     85,908       128,849       339,257       184,671  

Less: Net income attributable to noncontrolling interests

     244       797       1,487       2,848  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to RPM International Inc. Stockholders

   $ 85,664     $ 128,052     $ 337,770     $ 181,823  
  

 

 

   

 

 

   

 

 

   

 

 

 

Earnings per share of common stock attributable to RPM International Inc. Stockholders:

        

Basic

   $ 0.65     $ 0.96     $ 2.55     $ 1.37  
  

 

 

   

 

 

   

 

 

   

 

 

 

Diluted

   $ 0.63     $ 0.94     $ 2.50     $ 1.36  
  

 

 

   

 

 

   

 

 

   

 

 

 

Average shares of common stock outstanding - basic

     131,186       130,676       131,179       130,662  
  

 

 

   

 

 

   

 

 

   

 

 

 

Average shares of common stock outstanding - diluted

     137,158       135,162       137,171       135,165  
  

 

 

   

 

 

   

 

 

   

 

 

 


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  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

   $ 1,558,156     $ 1,492,846     $ 5,321,643     $ 4,958,175  
  

 

 

   

 

 

   

 

 

   

 

 

 

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
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 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 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