SEC Document

Our failure to comply with the covenants described above and other covenants contained in the New Revolving Credit Facility could result in an event of default under that agreement, entitling the lenders to, among other things, declare the entire amount outstanding under the Revolving Credit Facility to be due and payable. The instruments governing our other outstanding indebtedness generally include cross-default provisions that provide that under certain circumstances, an event of default that results in acceleration of our indebtedness under the Revolving Credit Facility will entitle the holders of such other indebtedness to declare amounts outstanding immediately due and payable.

2.25% Convertible Senior Notes due 2020

On December 9, 2013, we issued $205 million of 2.25% convertible senior notes due 2020 (the “Convertible Notes”). We pay interest on the Convertible Notes semi-annually on June 15th and December 15th of each year.

The Convertible Notes will be convertible under certain circumstances and during certain periods at an initial conversion rate of 18.8905 shares of RPM common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $52.94 per share of common stock), subject to adjustment in certain circumstances. In April 2017, we declared a dividend in excess of $0.24 per share, and consequently, the adjusted conversion rate at May 31, 2017 was 19.049431. The initial conversion price represents a conversion premium of approximately 37% over the last reported sale price of RPM common stock of $38.64 on December 3, 2013. Prior to June 15, 2020, the Convertible Notes may be converted only upon specified events, and, thereafter, at any time. Upon conversion, the Convertible Notes may be settled, at RPM’s election, in cash, shares of RPM’s common stock, or a combination of cash and shares of RPM’s common stock.

We account for the liability and equity components of the Convertible Notes separately, and in a manner that will reflect our nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The effective interest rate on the liability component is 3.92%. Contractual interest was $4.6 million for both fiscal 2017 and 2016, and amortization of the debt discount was $2.9 million and $2.8 million for fiscal 2017 and 2016, respectively. At May 31, 2017, the remaining period over which the debt discount will be amortized was 3.5

years, the unamortized debt discount was $11.2 million, and the carrying amount of the equity component was $20.7 million.


The provision for income taxes is calculated in accordance with ASC 740, which requires the recognition of deferred income taxes using the asset and liability method.

Income (loss) before income taxes as shown in the Consolidated Statements of Income is summarized below for the periods indicated. Certain foreign operations are branches of RPM International Inc.’s subsidiaries and are therefore subject to income taxes in both the United States and the respective foreign jurisdictions. Accordingly, the provision (benefit) for income taxes by jurisdiction and the income (loss) before income taxes by jurisdiction may not be directly related.


Year Ended May 31,    2017      2016     2015      
(In thousands)                    

United States

   $ 133,356      $ 310,695     $ 273,278       


     110,977        172,771       179,975       

Income Before Income Taxes

   $   244,333      $   483,466     $   453,253       


Provision (benefit) for income taxes consists of the following for the periods indicated:



Year Ended May 31,    2017      2016     2015       
(In thousands)                    



U.S. Federal

   $ 3,024      $ 75,200     $ 77,374       

State and local

     5,115        6,230       4,876       


     27,474        35,179       45,173       

Total Current

     35,613        116,609       127,423       



U.S. Federal

     15,553        17,625       97,112       

State and local

     1,928        1,907       1,494       


     6,568        (10,133     (1,104)      

Total Deferred

     24,049        9,399       97,502       

Provision for Income Taxes

   $   59,662      $   126,008     $   224,925       




The significant components of deferred income tax assets and liabilities as of May 31, 2017 and 2016 were as follows:


(In thousands)    2017       2016       

Deferred income tax assets related to:



   $ 14,207       $ 12,894       

Allowance for losses

     9,148         11,014       

Bankruptcy note liability

     37,850         118,551       

Accrued compensation and benefits

     26,277         22,920       

Accrued other expenses

     21,935         20,310       

Other long-term liabilities

     19,947         18,482       

Net operating loss and credit carryforwards

     89,977         66,438       

Net unrealized loss on securities

     24,300         27,540       

Pension and other postretirement benefits

     68,352         111,875       

Total Deferred Income Tax Assets

     311,993         410,024       

Less: valuation allowances

     (63,686)        (60,103)      

Net Deferred Income Tax Assets

     248,307         349,921       

Deferred income tax (liabilities) related to:



     (81,965)        (64,506)      

Pension and other postretirement benefits


Amortization of intangibles

     (149,546)        (198,940)      

Unremitted foreign earnings

     (94,430)        (98,520)      

Total Deferred Income Tax (Liabilities)

     (325,941)        (379,941)      

Deferred Income Tax Assets (Liabilities), Net

   $ (77,634)      $ (30,020)      


48    RPM International Inc. and Subsidiaries

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