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Krause Fund Research
Fall 2016
Materials
Recommendation: Hold
Analysts
Ryan Gersowsky
ryan-gersowsky@uiowa.edu
Mark McLaughlin
mark-mcLaughlin@uiowa.edu
Company Overview
RPM International (RPM) is a multinational holding
company specializing in coatings, sealants, building
materials, and related services. They have global operations
in Asia/Pacific, South/Latin America, Europe, and
Africa/Middle East. RPM International had 1.347 billion
dollars in global sales last year along 3.467 billion in North
American sales. Their FY 2016 Net Income was 357
million an increase of over 129 million from the previous
fiscal year.
Stock Performance Highlights
52 week High $55.92
52 week Low $36.78
Beta Value 1.1122
Average Daily Volume 589 t
Share Highlight
Market Capitalization $6.85 b
Shares Outstanding 129 m
Book Value per share $4.78
EPS (FY 2016) $2,76
P/E Ratio 64.52
Dividend Yield 2.25%
Dividend Payout Ratio 40%
Company Performance Highlights
ROA 7.6%
ROE 27.6%
Sales $4.814 b
Financial Ratios
Current Ratio 2.13
Debt to Equity 1.20
RPM International Inc.
(NYSE:RPM)
November 15, 2016
Current Price $52.27
Target Price $51.00-57.00
RPM Demonstrates Reliable Cash Flows
Leader in product markets:
RPM remains a market leader in most of their niche market
products. Examples include Rust-Oleum specialty paint, DAP
caulk and sealant, and Tremco roofing. Because of their market
position as market leaders, they are able to command higher
margins for their products, putting them in a good position for
continued success. Further acquisitions in their specialty segment,
commanding higher margins than industrial and consumer
segments, should also increase profitability.
Market expansion:
At RPM, 72% of 2016 revenue comes from North America and
19% from Europe. Management has expressed Asia as a prime
target for future growth. RPM’s most recent acquisition,
Carboline Dalian Paint, has allowed the company another
foothold along with Flowcrete, which will allow the company to
further, make their products available to Asian consumers.
Reliable cash flows:
According to management, around 70% of RPM International’s
revenue comes from repair and maintenance. This means even in
cycle downturns or reduced capital expenditures by companies
and reduced spending by consumers, RPM has limited exposure
since repairs and maintenance are still needed.
Diversified product mix:
RPM International has a diversified revenue stream of hundreds
of products serving many different markets. This has allowed
RPM to effectively weather downtowns in certain industries since
others in in portfolios might still be doing well. RPM’s product
categories are divided into 3 streams based on end use. These are
industrial, consumer, and specialty.
2
One-Year Stock Performance
Source: marketwatch.com iv
We are issuing a hold rating for RPM International Inc.
(RPM) for the Krause Fund Portfolio. This decision is
based upon our opinion that RPM is fairly priced at its
current valuations and future growth estimates have
already been priced in. RPM trades at a premium because
of its stable cash flows and well run business with
excellent management. At a market cap now of $6.85B,
as RPM grows larger they will find it increasingly
difficult to find and make acquisitions of market leading
niche companies at good prices like they have in the past.
This, we believe will ultimately have an effect on how
quickly they can grow relative to making sure their
margins are not squeezed.
Our valuation model backs up our thesis by increasing
revenue modestly from historic levels to show decreasing
revenue growth for the company as it becomes larger and
matures. We have gross margins and SG&A as a % of
revenue remaining at steady historical levels representing
our thesis that RPM will maintain its dominant market
position in its niche markets while continuing to expand
into new niche markets and absorbing overhead by
centralizing the accounting and other management costs
to its headquarters. We believe these key factors will
ultimately materialize leading RPM’s stock to have an
intrinsic value of $51.00-57.00.
US Gross Domestic Product
The gross domestic product is a measure of goods and
services produced in a country during a given period,
adjusted for inflation. GDP growth is vital for the specialty
chemicals sub industry because the industrial & consumer
segments will be boosted by an increase in spending by an
increase in both their customer bases. Architectural coatings
as well as OEM coatings sales are largely dependent on
maintenance of homes and personal goods. Therefore,
minor growth in GDP does not hinder consumer’s
maintenance and repair spending.
Since 2009 when the GDP decreased 2.77% the real GDP
growth in the United States has fallen relatively flat.
Between 2010 and 2015 yearly GDP growth has increased
by between 1.6% and 2.6% annually. We believe, that the
small growth in Real GDP does not hurt RPM
International’s primary source of revenue. It would be
preferable if real GDP grew at a faster pace, we feel that
small growth in GDP does not obstruct consumer’s and
business’s maintenance and repair expenses.
U.S. Annual Real GDP Growth
Source : FREDii
US Interest Rates
In 2008, when the United States economy entered a
recession, the Federal Reserve underwent a policy of
quantitative easing to help stimulate the economy.
Quantitative Easing is when a Central Bank buys financial
assets from financial institutions; thus raising prices of the
financial assets, while lowering the yields. Currently the
Fed Funds Rates is 0.25%-0.5%. This rate rose .25 basis
points in December of 2015 and has a direct relationship
with interest rates xx, xvi
. The Federal Reserve is cautiously
optimistic that they will be able to raise rates in December
of 2016, creating a higher yield amongst U.S. interest rates.
Macroeconomic Outlook
Executive Summary
3
U.S. 10 Year Treasury Yield
Source: FREDiii
Our team believes that the fed funds rate will increase two
hikes of 25 basis points a year. Therefore, interest rates will
remain lower for longer, but will rise hesitantly. We feel
this is a huge positive for the Chemicals industry because it
is a capital-intensive industry and requires large initial cash
outflows. Chemical companies therefore, take on a lot of
debt due to large-scale projects. The low interest rates make
it easier to pay back their debt. On the other hand specialty
chemicals are less capital intensive however, we view the
large amount of unique, low-volume products that need
distribution and manufacturing sites are in RPM
International’s product line. Lower interest rates positively
affect specialty chemical consumers since borrowing for
capital expenditures or to buy homes has become cheaper.
Exchange Rates
RPM International Inc. is in fact a truly international
company. They own operating and manufacturing facilities
in 24 different countries along with having their products
available in 170 different countries. Since RPM is a U.S.
based company they have to report their assets in U.S.
dollars not local currencies. This places extreme importance
on the exchange rate between U.S. dollars and foreign
currencies. A dollar strengthening against foreign
currencies will cause international companies to report
smaller potential profits. RPM International has been
negatively affected by the strengthening dollar against
foreign currencies. The two major areas where foreign
manufacturing and sales are produced are China and
Europe.
A few of RPM International’s manufacturing sites in their
industrial product segments are located in China. China is
currently undertaking a policy of devaluing its currency. In
June of 2016, the Chinese stock market crashed and the
Chinese growth rate fell to 7% in 2016 from an average of
10.6% in 2010. The main tool China has used to depreciate
the yuan was increasing their exports. China’s products are
cheaper due to the depreciation of their currency and
because of that it is a cost effective option for countries to
import Chinese products VI
. Currently the USD to CNY
exchange rate is 6.81195. In January of 2014, the exchange
rate hovered around 6.04. This shows the dramatic effect
that the yuan devaluation policy is having. The appreciating
USD vs. the Yuan will have a negative impact to U.S. based
companies that have to report earnings in dollars.
5 Year Exchange Rate USD vs. CNY
Source: XE.comVII
Outside of the United States a large area of manufacturing
takes place in Europe. RPM International manufactures its
products in fourteen different countries inside of Europe.
Unfortunately, for companies operating inside Europe, 2016
presents a time of uncertainty inside the European Union.
On June 23rd
, 2016 the United Kingdom voted to leave the
European Union leaving the entire area in political
uncertainty. The results of the vote caused the Euro to fall
4.7 percent the next day. This places extreme doubt in the
value of the euro in the future. The United Kingdom has 2
years to determine the terms in which they will leave the
European Union VIII
. The U.S. dollar was already
appreciating against the Euro before this vote, but the
results really jolted the value of the dollar versus the Euro.
In the future we expect that the dollar will continue to
appreciate because other countries like Scotland are
contemplating leaving the European Union and in two years
when the United Kingdom leaves it will create an uncertain
political and economic future for the continent IX
.
5 Year Exchange Rate USD vs. EURO
4
Source: XE.com X
Oil Prices
Oil Prices currently are at a relatively low level in 2016.
The current selling price is hovering around $43 a barrel.
This is a significant decrease from the $100 dollars it was
just two years previous. It has rallied a bit since the
beginning of the year, but it is still at a very low level by
historical standards.
The effects of low oil prices have had both a positive and
negative affect on the industry. A lower price on oil has
had a positive effect on the coating industry because it
lowered the prices of raw materials as inputs. This means
it is cheaper to manufacture products, thus increasing the
margins by not passing on cost savings to consumers
through price reductions. Another positive is that oil
importing countries experience higher levels of disposable
income for consumers, which theoretically boosts
spending on construction and consumer goods. This will
help companies like RPM International with their foreign
sales because they do produce a significant amount of
consumer products that benefit from increases in
construction and consumer goods spending. There is also a
negative impact for US based specialty chemical
companies as well. In the United States companies rely
more on natural gas for production, whereas foreign
companies rely more on oil for their production. Due to the
low global price of oil, the competitive production cost
advantages the United States companies rely on has been
taken away.
Oil Prices Over Last 5 Years
Source: NASDAQ XXVII
It is our expectation that oil prices will remain very volatile.
Our team believes that oil prices will likely average out
between $45-60. As a team, we feel that the low prices of
oil will have more of a positive impact than a negative one
on the industry. Lower oil prices will have more of a
positive advantage for RPM International because the low
prices of oil will lower the inputs of their products as well
as increasing a boost in foreign sales. The increase in
foreign sales is a major positive for RPM International Inc.
Market Outlook
The market this year has experienced record low volatility
with drastic spikes as economic and political news is
released. With the elections over and a candidate chosen,
our group believes this should relieve some of the
uncertainty that was stirring the market and their future
predictions. We expect markets to continue to have sudden
spikes of high volatility as more news is released on the
president’s choices for handling trade and foreign policy as
well as if/when Janet Yellen and the Federal Reserve decide
to raise interest rates and how quickly.
Overview
Our team identifies RPM International to be operating in
the coatings and sealants industry. The coatings and
sealants industry falls within the specialty chemical sub-
industry.
The major product categories are used to create a
protective/decorative layers in houses, offices, etc. The
creations of products within the industry require several
substances including resins, solvents, additives, pigments,
and diluents. There are main product lines in the Painting
and Coatings industry: architectural, original equipment
Industry Analysis
5
manufacturing coatings, special purpose coatings, and
miscellaneous coatings. 36.9% of product segmentation in
the in the industry comes from architectural coatings while
25.2 % comes from Industrial coatings.
Product Segmentation Coatings Industry
Source: IBISworld.com i
Industry Trends
Government Regulation of VOC’s
A major development industry trend is the shift away from
products with a high level of Volatile Organic Compounds
(VOC’s). VOC’s are released into the air as the coating
dries. The major VOC found in coatings is Formaldehyde.
It is known to cause headaches, dizziness, and is a
potential carcinogen. Due to the health risks that come
with VOC’s the US government regulated its use with the
Clean Air Act. The Clean Air Act entails that companies
reduce their VOC emissions by 3% per year xv
. This has
caused coating companies to shift toward low VOC
products. Major companies already making low VOC
products include Sherwin Williams, Benjamin Moore and
Behr xix
.
In the past few years, governments all over the world have
implemented standards to try and limit VOC production.
In China, manufactures now have a 5% tax for VOC’s
above a limit set at 400 g/l. In the United States, the OHSA
created a new system called Implementation of the
Globally Harmonized System. This creates a standard of
transparency between companies and consumers. Stricter
standards have been placed on what to include on warning
labels for consumer products. This has created an incentive
for companies in the coating industry to shift away from
VOC products. However, manufacturing VOC products is
cheaper than non-VOC products XXV
. This is an obvious
negative trend for companies in the industry as more
expensive manufacturing is going to lead to lower margins
or price increases for consumers. In addition, companies
in the industry have to spend money on developing new
technologies that are safer for the environment. This
creates a lot of sunk costs for companies.
Use of Nanotechnology in Products
The use of Nanotechnology in coating products is a recent
trend within the product segments. Nanotechnology in this
industry is adding metallic or ceramic particles to products
in order to specialize them xxx
. It is vital for manufacturers
to adopt the use of Nanotechnology because it allows
coatings to perform at longer lasting levels xxxi
.
Nanotechnology allows coating companies to put out a
superior product. RPM International Inc. does not
currently use nanotechnology but in the future, if it wants
to remain viable in the specialty coating market, it must
start adapting to the new technology and create superior
products.
Porters Five Forces
1. Threat of New Entrants: Moderate
In 2016, the top four firms will combine to make up 51.7%
of the total industry revenue. This shows a dramatic 5-year
shift since in 2011, the top four firms accounted for 43.1%
of the total industry revenue. This shows that there is a lot
of consolidation currently taking place within the industry.
Brand recognition is becoming crucial because without it,
it’s becoming increasingly difficult to remain viable in the
market.
2. Threat of Substitutes: Low
Specialty chemicals operate in smaller niche markets. The
specialty chemicals are used in many every day products
used by consumers and businesses. This is not expected to
change in the near future.
3. Power of Suppliers: High
The specialty chemical industry suppliers are firms that
provide raw materials. This means the industry is full of
downstream price takers since raw materials make up a
large percentage of their inputs. This gives suppliers a lot
of bargaining powers.
4. Power of Buyers: Medium
The main buyers in this industry are customers and the
industrial segment. Both consumers and the industrial
segment are relatively price sensitive however, with
limited options customers bargaining power is not as high.
5. Industry Rivalry: High
The industry rivalry is very high due to it being an already
large industry with a lot of competitors with similar
products. Each company has tried to specialize and take
leads in specific subsectors, but there is still a very intense
rivalry among industry leaders.
6
Catalyst for Growth and Change
Emerging Markets
An area for extreme growth in the specialty coatings
industry is in emerging markets.
Source: IHS XXIX
As seen in the chart, the Chinese and the North American
markets dominate the consumption of specialty chemicals.
When it comes to the painting and coatings industry some
of the largest consumers of specialty chemicals will
experience the highest growth. According to IHS Markit, an
information services company in London, growth of
demand for coatings in China is expected to continue
growing at 8% per year, 4-5% in Indonesia, and 11% in
India xxx
. This provides a very exciting opportunity for
painting and coating chemicals to expand into the Asia
Pacific region. Multinational coating companies such as
PPG, Sherwin-Williams, and RPM International will
continue to establish themselves in these markets.
Competitive Analysis
The best way to do competitive analysis is to compare
RPM with their top competitors in a few key financial
metrics. Since RPM International is a holding company
and has many different products used in a lot of different
industries, it is difficult to come up with a perfect metric
comparing RPM to it’s main competitors in the coating
industry. The metrics our team decided on were: Operating
Margin, Profit Margin, ROE, and P/E.
Profit Margin
Our team chose to use profit margin as a metric to analyze
the top competitors in the industry because it shows us how
much of the company’s revenues it is able to keep after all
expenses are accounted for. RPM is currently in the middle
of the industry leaders with the profit margin of 7.2%.
Although they are trailing SHW and VAL, they are ahead
of the leader in revenue in the industry, PPG.
Operating Margin
Operating margin was a metric we chose to use when
comparing industry leaders because a good indicator of
financial health and how much a company can make off of
revenue before non-operating expenses. RPM has the worst
operating margin of 11.6%. All the other industry leaders
are well above 14%. This is red flag when analyzing RPM
because it shows that their business operations are not as
profitable.
ROE
We used the return on equity metric to compare companies
because it is important to investors to see what portion of a
company’s net income is returned to the shareholders. RPM
International currently has a Return on Equity of 27.6%.
This is in the middle of the three peer companies. Our team
finds that a healthy rate with their current leverage of 1.2
Debt to Equity.
Forward P/E
The last metric we chose to use was the forward P/E Ratio.
We chose to use this ratio because as a team we preferred to
use forecasted earnings because the market is forward
thinking. RPM International is average in their forward P/E
Ratio amongst peers currently at 18.67. The highest
amongst peers is Sherwin Williams Co. at 21.53. Their
middle of the road P/E ratio given the industry is a good
indicator that RPM is trading at a fair price.
Source: Yahoo22-24
General Information
Overview
RPM International Inc. is a holding company that owns
diverse businesses that produce specialty chemicals,
sealants, and coatings. These products primarily are used
for maintenance and improvement purposes. RPM
International Inc. manufactures in 24 different countries and
Company Analysis
7
their products are sold in over 170 countries. Frank C.
Sullivan founded Republic Powdered Metals in 1947. RPM
is headquartered in Medina, Ohio. RPM became a public
company on January 13th
, 1978 xviii
.
Financial Summary & Foreign Sales
In 2016, consolidated sales grew by 4.8%. These sales were
driven positively by +2.8% organic growth, +6.7% from
acquisitions, and negatively -4.7% from unfavorable
exchange rates. Sales for RPM the past 5 years have had a
CAGR of 7.3%. Over the past 5 years, average sales growth
in industrials, consumer, and specialty segments have been
3%, 8.1% and 39.2% respectively. Our team expects slow
growth in the industrial sector. Our team expects between a
2.6% to 3.3% growth in this sector as they continue to face
headwinds from the hurting energy sector, slowing capital
expenditures from the industrial sector, and a strengthening
dollar.
From the Consumer and Specialty sectors we expect a high
growth with tailwinds from a recovering housing and
commercial real estate market and continued repair and
maintenance. For the consumer sector we expect an average
of growth 1.7% over the next five years. For the specialty
segment we expect a growth of 20.4% on average over the
next five years. Operating margins in industrial, consumer,
and specialty markets in 2016 were 10.6%, 16.4%, and
15.2%. Consolidated operating Margin was 13.3%,
relatively higher than the 10 Year Average of 9.96% and
has been trending upwards the past 3 years. We believe this
trend to continue as the industrial segment improves.
RPM International’s foreign revenue has drastically
improved as they have made their products available in
more countries. The past decade, RPM has made their
products available in 20 more countries and their foreign
sales account for 11% more of their total revenue. North
America still made up the vast majority of RPM
International’s total revenue at 72.02%, meaning their
success is heavily dependent on North American sales.
However, there are other regions that provide significant
revenue to RPM. Europe provided 19.6% of RPM’s total
revenue. However, in the future we believe that RPM will
continue to focus on expanding their influence in the
Asia/Pacific region. Despite only having 2.62% of their
revenue coming from that region, we expect them to try and
obtain a stronger presence. In 2008, RPM acquired
Flowcrete, a manufacturer of resin flooring for industrial
and commercial uses. Flowcrete was their only stronghold
in the Asia/Pacific area until May of 2016, when they
acquired Carboline Dalian Paint xvi
. This transaction shows
that that RPM is committed to playing a more prominent
role in the Asia/Pacific markets. We expect that RPM will
continue to pursue acquisitions to grow their international
sales.
Source: RPM International 2016 Annual Report XII
Corporate Strategy
RPM’s strategy is based on the acquisition of small bolt-on
companies that dominate niche markets and command high
margins. RPM International has 5 different strategies on
how to grow their revenue: Acquisitions, New Product
Development, “Value of 168”, Connections, and
International Expansion.
RPM has already used some of these strategies to help grow
their revenues substantially. The main strategy RPM is
using is Acquisitions of subsidiaries with the intention of
growing their revenue internationally. RPM has already
acquired over 150 new companies. This has allowed RPM
to enter markets along with providing new products from
their existing businesses. The results have been very
positive. Between the years of 2005 and 2015, sales in
Europe increased from $251 million to $942 million dollars.
These results are shown across the rest of the continents as
well. In every continent in the past 10 years, RPM has at
least doubled their sales. Overall international sales have
gone up from $354 million in 2005 to $1.4 billion dollars in
annual sales. That is a 395% increase in annual
international sales in ten years. Currently, RPM products
are sold in over 170 countries and international sales
accounts for 36% of the companies $4.8 billion dollars in
sales. The Connections Strategy has helped RPM with
R&D as well as entering new markets. This strategy is
essential for RPM due to their high number of operating
companies.
2016 Acquisitions
On November 2nd
, 2016 RPM International acquired
Adhere Industrial Tapes LTD. Their product line includes
single and double-sided tape used for various construction
and industrial purposes. The company is based in the
United Kingdom and has annual sales of $6 million. XXV
On September 12th
, 2016, RPM acquired Specialty Polymer
Coatings, Inc. This is a high performance gas and pipeline
coating company based in Canada. SPC has annual sales of
$26 million. xxxvi
8
On July 5th
, 2016 RPM acquired Duram Industries Pty
Limited, an Australian company specializing in commercial
waterproofing products. The annual sales are approximately
$6 million. xxxviii
On May 18th
, 2016 RPM acquired the remaining 51%
interest in Carboline, Dalian Paint Production Co. This
company has a wide variety of corrosion control coatings,
with annual sales of around $11 million.xxxix
On March 3rd
, 2016 RPM acquired Seal-Krete, a US
manufacture of concrete care coatings and sealants. This is
a U.S. based company with annual sales of over 10 million.
xxviii
Products and Markets
RPM International operates numerous product lines. Their
product lines are segmented into 3 different revenue
streams depending on uses and end users. The lines are
Industrial, Consumer, and Specialty.
Source: RPM International 2016 Annual Report XII
The industrial market specializes in serving mostly
commercial aftermarket customers in areas such as
maintenance and protection products for roofing and
waterproofing systems, industrial flooring, passive fire
protection, corrosion control and other construction
chemicals. This segment includes companies such as
Tremco, Illbruck group, and RPM Performance Coatings to
name the biggest contributors. The Industrial Segment is
responsible for 51% of RPM’s total revenue. The Consumer
segment’s products are used for rust-preventative, special
purpose and decorative paints, caulks, sealants, primers,
nail enamels, cement and Wood Care coatings, and other
branded consumer products. Companies in this segment
include: Rust-Oleum, DAP, and SPG. Consumer segment
makes up 34% of net sales. The specialty segment assists
many industries in areas of industrial cleaners, restoration
services, equipment, colorants, exterior finishes, edible
coatings, and other specialty OEM coatings. The Specialty
makes up 15% of Revenue. Companies include: Day-Glo,
Dryvit, and Mohawk xxiii
.
According to Christopher Perrella, a BI Industry analyst,
15% of RPM sales in the past three fiscal years come from
new products. Tremco, a Roofing and Building
maintenance operating company continues to grow at a fast
rate due to their new product lines. Tremco’s new line of
roof coatings, Another products, Alphaguard has helped
lead RPM to secure the Repair and Maintenance market in
the consumer and Industrial segment and is responsible for
70 percent of their annual revenue xxviii
.
RPM’s Revenue Breakdown
Source: RPM 2016 Annual Report XII
Life Cycle
RPM International is very different from a lot of other
company’s in the coating industry. Due to their wide variety
of products and their revenue breakdown, RPM
International is a relatively non-cyclical company. 70
percent of RPM’s revenue comes from repair and
maintenance in their consumer and industrial product lines.
These costs are not cyclical in nature because they occur in
all economic conditions.
Production and Distribution
RPM International has 50 operating companies (BI Primer).
RPM International currently has more than 13,000
employees manufacturing in 120 facilities in 24 different
countries. Production is worldwide due to them acquiring
operating companies all over the world. The majority of the
production plants are in the United States, but there are
plants in South Africa, the United Kingdom, New Zealand
amongst others xxi
.
RPM International’s distribution is mainly done through
two channels. The first channel of distribution is through
home improvement retail chains. The main retail chains are
Home Depot and Lowe’s. They distribute the products from
the consumer segment for “Do it yourself” consumers. In
2016, Home Depot was responsible for 10 percent of the
consolidated net sales xiii
. The industrial and specialty
product lines are sold directly to contractors, distributors,
end users, and other commercial customers.
9
Key Catalysts for Growth/ Change
Housing Starts
A major catalyst for the specialty chemical sub industry is
housing starts. Housing starts have skyrocketed over the
past five years. From January 2011 to January 2016 there
has been a 12% increase in housing starts. Housing starts
plummeted 72% from January 2006 to January 2011.
Housing Starts in the United States
Source: Fred V
Housing Starts will increase the demand for specialty
chemicals. The product category it has the greatest affect on
is the consumer segment. Housing starts increase the
demand for specialty coatings such as garage and basement
coatings. The rise in housing starts benefits some of RPM’s
market leading brands in the consumer segment. Most
notably Rust-Oleum, a specialty paint product that is rust
preventative, should see an increase in sales. It also is a
great indicator for a number of their other products that
involve home maintenance and repair. The more people
moving into houses the more optimistic our team feels
about the future revenue of RPM.
Rising Auto Sales
Global sales for automobiles have accelerated since 2012.
In the twelve years before 2012 the number of automobiles
sold was 52.57 million. In 2012, that trend changed, that
year alone 68.85 million cars were sold globally and in
2016 that number increased to 75.24 million. That is a
9.28% increase in car sales in the past four years.
Global Car Sales Since 1990
Source: Statista.com xxiii
Global car sales affect RPM’s coatings sales through their
specialty OEM coatings as well as their automobile coating
divisions. RPM International has tried to gain a larger
market share in the automobile coating industry in recent
years through acquisitions. Most notably, RPM in 2013
acquired an Australian automotive coatings company:
HiChem Paint Technologies.xxxiii
An increase in
international sales will increase demand for their
automobile coating product line. It will also help sales in a
high-growth segment for RPM: the specialty segment. The
specialty segment contains specialty OEM coating products
that are used on machinery that help manufacture cars. As
the increase in demand for cars increase, so will the demand
for the specialty OEM coating products. The affects of the
rise in global auto sales are already being felt for the fiscal
year 2017. For the first quarter of 2017 specialty segment
which includes OEM coatings, net sales increased 3.8% to
$176.3 Million from $169.9 million from the first quarter of
the fiscal year of 2016.xxxiv
Competition
The industry that provides the most competition for RPM
is the coating industry. RPM has acquired a substantial
amount of operating companies in niche markets, thus
RPM has been able remain dominant and command higher
margins in these industries. Our team identified PPG
Industries, Sherwin Williams Co, Valspar, and AzkoNobel
as three of the main competitors of RPM International Inc.
Our team expects RPM to continue to steer clear of the
crowded marketplace by continuing their acquisitions
toward products in which they can dominate the market.
S.W.O.T Analysis
Strengths:
RPM International is involved in a lot of niche markets,
therefore they are able to dominate and control the price
points within the industry. This is a result of lack of
competition within the industry. Due to the lack of
10
competition and superior products, they are able to
command a higher margin. 70% of RPM’s revenue comes
from Repair and maintenance in the consumer and
industrial products market. Repair and maintenance
provides stable and predictable cash flows even during
economic downturns. The large United States presence can
be seen as another strength of RPM. The dollar is
strengthening compared to the emerging markets making it
easier to avoid foreign turmoil.
Weaknesses:
A major weakness for RPM International is their corporate
strategy of relying on international acquisitions. It is an
investor’s preference for internal growth rather than a heavy
reliance on international acquisition to obtain growth. A
second weakness is the pending lawsuits against RPM for
asbestos product related lawsuits. Although potential
settlement amounts are unknown, there is a strong
likelihood that settlement amounts will be substantial.
Opportunities:
The major opportunities will be in their strategic acquisition
into the Asia and Pacific market. RPM’s strategy of
entering new markets through acquisitions is working as
international sales have increased by 345% in the past ten
years. Only $126 million of the $1.4 billion dollars in
international sales come from Asian markets. This equates
to 9 percent of their international sales. RPM is already
capitalizing on this opportunity. On July 5th
, 2016 RPM
acquired Duram Industries Pty Limited. Duram is an
Australian Based company with a wide range of
waterproofing products xvii
. Growth going forward is
heavily dependent on RPM’s ability to successfully enter
the Asia and Pacific Market.
Threats:
The weakening foreign currency to the US dollar threatens
potential earnings with their given international expansion
corporate strategy. According to RPM, their current sales
were up 4.8%, but the actual growth was up about 10%
against previous year currencies. Therefore growth is not as
strong as it should be. This is a huge problem given their
international acquisition strategy. RPM’s growth in the
future can be inhibited if foreign currencies continue their
negative trend in comparison to the dollar.
Revenue Decomposition
Unfortunately, RPM International was not greatly
transparent in their revenue decomposition and this made it
hard to make accurate predictions of future revenue based
on specific drivers. RPM divided their revenue into three
categories based on the end use of consumers. The
industrial segment is their largest stream making up 51% of
revenues. The products in industrial are used by contractors
and direct end users for use in manufacturing, public
institutions and other commercial applications. The
consumer segment is composed of 34% of total revenue.
Consumer products include paints, primers, caulks &
sealers, deck and driveway coatings to name a few. The
specialty segment makes up 15% of sales and its products
include florescent pigments, powder and marine coatings,
cleaning solutions. From management discussion, we
learned that the Industrial segment has recently undergone
challenges and has been face with squeezed margins
because of the hurting oil & gas industry. We believe that
as oil prices rise from historic lows and the energy industry
recovers, RPM International will gain tailwinds from
increased expenditures and maintenance from that industry.
The consumer segment is primarily bought in North
America, but has a growing presence in Europe and the
United Kingdom. We believe that as RPM’s international
market grows, there are a lot of great opportunities to grow
this segment overseas, especially in Asia. The specialty
segment in our opinion overall is the hardest to value
considering it is made up of such a large variety of
products, serving different industries. This product line is
also a valuable one for RPM since it has the highest
margins of any of the other industries. A lot of their
products serve very niche markets such as marine coatings
and therefore are able to command higher margins. We see
RPM picking up a lot more specialty companies going
forward as they look for more strong acquisition growth,
buying up market leading companies. We couldn’t
decompose revenue by product line, because RPM only
released revenue and EBIT values for each segment, not
disclosing COGS, SG&A, or any other important factors
associated with valuing each division separately. Therefore,
we attached a safe growth rate from historical levels starting
at 5% and slowly dropping until left at 3% before their
continual value growth rate of 2.5% 10 years out.
Gross Margin
Valuation Analysis
11
We chose 44.41% as our Gross Profit Margin % going
forward in our model. Since 2009, Gross Margin % has
been trending upwards. Margins from the consumer
segment and specialty segment have been historically
strongest. Although we believe headwinds from the
hurting oil & gas sector have been hurting the industrial
segment, which will recover going into the future and thus
expand margins.
SG&A
SG&A has remained relatively stable between about 32.5%
and 31% over the past 10 years. We remain confident it will
stay in this range and chose 31% so reflect the average of
the last 5 years. In management notes, the management
discussed initiatives for cost cutting going into the future.
As RPM acquires more companies, management hopes that
taking marketing, accounting, and other overhead
expenditures in-house at headquarters will overall allow
SG&A to decrease as a % of total sale.
Profit Margin
Profit Margin has trended upwards over the past 10 years.
In the last 5 years, if taken out the anomally of contingency
fees and other non-operating expenses, margins would have
steadily grown through 2016 as well. Our group predicts
and our model shows profit margins rising slowly, but
steadily over the foreseable future. Boosted primarily by
increasing sales over RPM’s fixed costs and if it is able to
lower SG&A as a % of total revenue.
Depreciation
Annual Depreciation expense was taken as a % of net book
PP&E value from the beginning of the year. We averaged
the past 5 years and came up with 12% which we flatlined
across the remaining forecasted years.
Capital Expenditures
There was no management guidance on future capital
expenditures. In order to forecast, we calculated capital
expenditures as a % of gross PP&E. The average capex
over the past 10 years as a % of PPE was 6.5% so we
flatlined that going into the foreseable future and the
numbers seemed reasonable and accurate.
WACC
Cost of Equity: To find the Cost of Equity, our group
decided to use the CAPM model for its simplicity and
universal understanding. We found the beta by looking up
raw beta from a bloomberg terminal. We found the 2 year
raw beta seemed the best fit after toggling between 1 year,
2 year, and 5 year weekly betas. Our risk free rate of
2.52% was a proxied yield on the 30 year treasury bill. Our
market Equity Risk Premium of 5% was taken from
Damodaran, a valuation proffessor from NYU and his
suggested amount. This data was used to come up with a
Cost of Equity of 8.13%.
Cost of Debt: Using a Bloomberg terminal, we found
RPM’s corporate bonds maturing in the year 2045 to have
a yield of 5.14%. We chose the 2045 maturity because 29
years maturity was the closest we could find to the 30-year
treasury bill yield we used as a proxy for the risk-free rate.
Capital Structure: After checking management notes, we
found no information on capital structure going forward.
We then assumed the weights of equity and debt would
stay the same.
Discounted Cash Flow and Economic Profit Model:
We believe that the Discounted Cash flow and Economic
Profit model are the most accurate models we created in
valuing the intrinsic value of RPM International’s stock.
Both models predicted the same intrinsic value of a share
at $53.82. Into the forecasted ROIC became small starting
at 20% in 2016 and slowly dropping down to 16%, but this
also follows the narrative of the companies ROIC being
squeezed back all the way since 2006 average around 24%
12
range. An ROIC of 15.27% is still well above RPM
International’s WACC of 7.10% thus they are still
generating a positive economic profit and free cash flow.
Dividend Discount Model (DDM)
The Dividend Discount Model provided us with an
intrinsic stock price of $20.69. This intrinsic stock price is
well below RPM’s current trading price of around $51.00.
RPM’s dividend payout ratio is only around 40% which is
what we forecasted them to continue to pay into the future.
RPM is still a growing company through organic and
strong acquisition growth and therefore tends to not pay as
high of a dividend as they could or will in their maturing
stage. Since their dividend is low and the company puts an
emphasis on growth rather than steady growing dividends
rates, we put less emphasis on this model.
Relative P/E & PEG Ratio
The Relative P/E Ratio produced an intrinsic stock value of
$48.94 in respect to foreward 2017EPS and $49.20 in
respect to foreward 2018EPS. We compared the P/E Ratios
of 3 similair companies to RPM International. The Relative
PEG produced an intrinsic stock value of $42.36 using
2017EPS and $42.70 using 2018EPS. It was hard picking
similair companies to RPM since they are a holding
company and their product lines and customers are so
diverse. RPM International does have a large exposure to
the painting and coating industry in their portfolio and has
similair growth. Out of competing paint and coatings
companies we chose Sherwin-Williams, PPG Industries,
and Valspar corpoation. Because of the difficulty choosing
direct competitors and since the relative P/E and PEG
models’ tendency to be short-sighted only looking as far as
2 years in advance, we put less emphasis on this model
than the DCF and EP models. Although it is a good check
figure for current pricing of the shares since they are very
close to the models prices.
COGS% of Sales Vs. SGA % of Sales
The sensitivity between these two metrics are moderate
relative to our stock price. An increase of twenty-five basis
points will lead to a $1.61 decrease in our intrinsic stock
price. On the other hand a decrease will lead to a price
increase of $1.56. SG&A sensitivity has a very similar
effect on our models price. A rise of twenty-five basis points
leads to a decrease in price of $1.58 while a decrease leads
to $1.59 increase in price.
WACC Vs. CV NOPLAT
WACC and CV NOPLAT are key metrics when coming up
with our target price range. Both values are crucial in the
DCF and EP models. WACC is critical in the DCF and EP
Model because it discounts the cash flows back to the
present value. An increase in the WACC will lower the PV
of FCF, thus lowering the intrinsic stock price. CV of
NOPLAT is a key metric because the higher the growth rate
of NOPLAT the higher PV of FCF will be thus increasing
the intrinsic stock price. Raising the WACC 10 basis points
will decrease the stock price by $1.83 while lowering it will
raise the price by $2.05. Increasing the CV NOPLAT by 25
basis points will lead to a $2.25 change in price while a
decrease will lead to a $2.83 decrease in price.
Marginal Tax Rate Vs. Pretax Cost of Debt:
The pretax cost of debt we used RPM corparate bond debt
yielding in 29 years. Both of these metrics have a
significant impact on our intrinsic stock value. Pretax cost
of debt has a direct effect on RPM’s WACC. The marginal
tax rate affects the NOPLAT when adjusting accumulated
taxes as well as the WACC because it affects the after tax
cost debt. Changing the Marginal Tax rate and the Pretax
cost of debt by fifty basis points led to very minor changes
to the intrinsic value of the stock. Increasing the marginal
tax rate led to a $0.23 decrease in price while a decrease
led to a $0.23 increase in price. Adjusting the Pre Tax Cost
of Debt had very similar afftect. Raising the Pre Tax Cost
of Debt increased the stock price by $0.85. Decreasing the
Pretax Rd lowered our value by $0.86.
Sensitivity Analysis
13
CV ROIC Vs. CV NOPLAT
CV ROIC is an extremly important metric when analyzing
RPM International because we used the DCF Model as our
primary valuation model. The CV of ROIC impacts the CV
of futrue cash flows therefore, it has a direct correlation to
our our intrinsic stock price. Increasing CV NOPLAT
twenty five basis points will lead to an increase of $2.25
while a decrease will lead to a $2.02 decreae. Adjusting the
CV ROIC will also have an impact on our price. An
increase of twenty-five basis points will lead to a $0.19
increase and a decreaes will cause a $0.29 decrease in price.
Beta Vs. Pre Tax Cost of Debt
We analyzed these two metrics because they are important
figures in the calculation of WACC. On one side of the
equation you have Beta, which is a significant factor in
calculating the cost of equity. On the other hand, the cost of
debt affects the the value of debt in the WACC calculation.
Our team wanted insight on how these two metrics
interacted. Raising beta by .05 decreased the price by $3.58
while decreasing raised it by $3.89. Manipulating the pretax
Rd by fifty basis points had an affect on the price as well.
Rasing Rd increased the price by $0.85 and decreasing the
Rd decreased the instrinsic price by $0.86.
Important Disclaimer
This report was created by students enrolled in the
Security Analysis (6F: 112) class at the University
of Iowa. The report was originally created to offer
an internal investment recommendation for the
University of Iowa Krause Fund and its advisory
board. The report also provides potential
employers and other interested parties an example
of the students’ skills, knowledge and abilities.
Members of the Krause Fund are not registered
investment advisors, brokers or officially licensed
financial professionals. The investment advice
contained in this report does not represent an offer
or solicitation to buy or sell any of the securities
mentioned. Unless otherwise noted, facts and
figures included in this report are from publicly
available sources. This report is not a complete
compilation of data, and its accuracy is not
guaranteed. From time to time, the University of
Iowa, its faculty, staff, students, or the Krause
Fund may hold a financial interest in the
companies mentioned in this report
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RPM International Inc.
Key Assumptions of Valuation Model
Ticker Symbol RPM
Current Share Price $52.27
Current Model Date 9/30/2016
Fiscal Year End 31‐May
Pre‐Tax Cost of Debt 5.14%
Beta 1.122
Risk‐Free Rate 2.52%
Equity Risk Premium 5.00%
CV Growth of NOPLAT 2.50%
CV Growth of EPS 2.50%
Current Dividend Yield 2.08%
Payout Ratio 40.38%
Marginal Tax Rate 35%
Effective Tax Rate
Average Cash % of Revenue 6.83%
Intrinsic Value of Stock Price 53.82
WACC 7.1037%
SG&A % of Net Sales 31.501%
COGS % of Net Sales 55.59%
Cost of Equity 8.13%
CV of ROIC 15.27%
RPM International Inc.
Revenue Decomposition
Fiscal Years Ending 425212014201520162017E2018E2019E2020E2021E2022E2023E2024E2025E2026E
Industrial Segment:
Revenue$2,464,266$2,533,476$2,444,120$2,529,664$2,611,878$2,690,235$2,770,942$2,854,070$2,939,692$3,027,883$3,118,719$3,212,281$3,308,649
% Growth ‐6.5%2.8%‐3.5%3.5%3.3%3.0%3.0%3.0%3.0%3.0%3.0%3.0%3.0%
EBIT244,605255,187258,768$278,263$280,777$295,926$304,804$313,948$323,366$333,067$343,059$353,351$363,951
Operating Margin 9.9%10.1%10.6%11.0%10.8%11.0%11.0%11.0%11.0%11.0%11.0%11.0%11.0%
Interest Expense‐10,482.00‐8,190.00‐5,987.00
Pretax Income$234,123.00$246,997.00$252,781.00
Consumer Segment:
Revenue$1,606,696$1,603,829$1,637,438$1,677,555$1,712,784$1,834,392$1,727,997$1,772,925$1,842,246$1,993,310$2,087,195$2,048,582$2,098,363
% Growth 11.4%‐0.2%2.1%2.5%2.1%7.1%‐5.8%2.6%3.9%8.2%4.7%‐1.9%2.4%
EBIT251,107273,967268,178251,633248,354255,898221,184251,755292,917295,010317,254329,822272,787
Operating Margin15.6%17.1%16.4%15.0%14.5%14.0%12.8%14.2%15.9%14.8%15.2%16.1%13.0%
Interest Income/Expense1223440
Pretax Income$251,229.00$274,001.00$268,218.00
Specialty Segment:
Revenue$305,391$457,245$732,091$1,098,137$1,372,671$1,537,391$1,675,756$1,776,302$1,865,117$1,956,507$2,042,594$2,140,638$2,230,545
% Growth 49.7%60.1%50.0%25.0%12.0%9.0%6.0%5.0%4.9%4.4%4.8%4.2%
EBIT61,373.0067,806.00111,215.00170,211210,019247,520278,176245,130264,847254,092241,639262,228292,201
Operating Margin 20.1%14.8%15.2%15.5%15.3%16.1%16.6%13.8%14.2%13.0%11.8%12.3%13.1%
Interest Income/Expense255534730
Pretax Income$61,628$68,340$111,945
Consolidated: 
Revenue$4,376,353$4,594,550$4,813,649$5,305,356$5,697,333$6,062,017$6,174,695$6,403,296$6,647,055$6,977,701$7,248,508$7,401,501$7,637,557
% Growth7.30%4.99%4.77%10.21%7.39%6.40%1.86%3.70%3.81%4.97%3.88%2.11%3.19%
EBIT557085596960638161700108739149799343804163810833881130882169901952945401928940
Intrest Expense
Pretax Income557,085$       596,960$       638,161$       700,108$    739,149$    799,343$    804,163$    810,833$    881,130$    882,169$    901,952$    945,401$    928,940$    
RPM International Inc.
Income Statement
For the year ended May 31, 20162014201520162017E2018E2019E2020E2021E2022E2023E2024E2025E2026E
Net Sales$4,376,353$4,594,550$4,813,6495,054,331$        5,307,048$        5,545,865$        5,795,429$        6,027,246$        6,268,336$        6,487,728$        6,714,798$        6,916,242$        7,123,730$        
Cost of Sales2,410,5162,554,0052,615,5622,809,587           2,950,066           3,082,819           3,221,546           3,350,408           3,484,424           3,606,379           3,732,602           3,844,581           3,959,918           
Gross Profit1,965,837$   2,040,545$   2,198,087$   2,244,744$        2,356,982$        2,463,046$        2,573,883$        2,676,838$        2,783,912$        2,881,349$        2,982,196$        3,071,662$        3,163,812$        
Selling, General and Administrative Expenses1,390,1281,422,9441,520,9771,592,173           1,671,781           1,747,012           1,825,627           1,898,652           1,974,598           2,043,709           2,115,239           2,178,696           2,244,057           
Depreciation58,54362,18866,73277,421                  108,026               136,872               164,067               189,898               214,392               237,788               260,048               281,373               301,674               
Amortization31,52636,98844,30716,440                  16,440                  16,440                  16,440                  16,440                  16,440                  16,440                  16,440                  16,440                  16,440                  
Asbestos Charges (Settlement Income)0000000000000
Goodwill and Other Intangible Asset Impairment0000000000000
Net Loss Upon Deconsolidation of SPHC0000000000000
Estimated Loss on Contingency0000000000000
Restructuring Expense0000000000000
Interest Expense80,95187,61591,68384,864                  94,332                  100,736               106,752               112,636               118,166               123,593               128,665               133,645               138,256               
Investment (Income), Net‐15,715‐18,577‐10,3650000000000
Other Expense (Income), Net‐4,083‐3,8661,2870000000000
Income Before Income Taxes424,487$       453,253$       483,466$       473,847$            466,403$            461,986$            460,997$            459,212$            460,315$            459,818$            461,804$            461,507$            463,384$            
Provision for Income Taxes118,503224,925126,008165,846$            163,241$            161,695$            161,349$            160,724$            161,110$            160,936$            161,631$            161,528$            162,185$            
Net Income305,984$       228,328$       357,458$       308,000$            303,162$            300,291$            299,648$            298,488$            299,205$            298,882$            300,172$            299,980$            301,200$            
Less: Net Income (Loss) Attributable to14,324‐11,1562,7332,955                     3,195                     3,455                     3,736                     4,040                     4,368                     4,723                     5,108                     5,523                     5,972                     
Noncontrolling Interests
Net Income Attributable to RPM International$291,660$239,484$354,725305,045$            299,966$            296,836$            295,912$            294,448$            294,836$            294,158$            295,065$            294,457$            295,228$            
Inc. Stockholders
Average Number of Shares of Common Stock
Outstanding:
Basic129,438129,933129,383129,273129,210129,189129,207129,262129,350129,469129,618129,792129,992
Diluted132,288134,893136,716
Earnings per Share of Common Stock Attributable
to RPM International Inc. Stockholders:
Basic2.201.812.702.36                        2.32                        2.30                        2.29                        2.28                        2.28                        2.27                        2.28                        2.27                        2.27                        
Diluted2.181.782.63
Cash Dividends Declared per Share of Common$0.95$1.02$1.090.95$                     0.94$                     0.93$                     0.93$                     0.92$                     0.93$                     0.92$                     0.93$                     0.92$                     0.93$                     
RPM International Inc.
Fiscal Years Ending 425212014201520162017E2018E2019E2020E2021E2022E2023E2024E2025E2026E
Assets
Current Assets
Cash and cash equivalents332,868$                174,711$                265,152$                 $                140,880  $                170,830  $                206,915  $                250,224  $                299,310  $                355,095  $                416,058  $                483,244  $                555,050  $                632,627 
Net Trade accounts receivable873,946                   956,211                   963,092                   1,011,247               1,061,809               1,109,590               1,159,522               1,205,903               1,254,139               1,298,034               1,343,465               1,383,769               1,425,282               
Inventories613,644                   674,205                   685,818                   720,109                   756,114                   790,139                   825,696                   858,724                   893,073                   924,330                   956,682                   985,382                   1,014,944               
Deferred income taxes22,281                     29,892                     ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            
Prepaid expenses and other current assets219,556                   264,827                   224,280                   285,392                   299,661                   313,146                   327,237                   340,327                   353,940                   366,328                   379,149                   390,524                   402,240                   
Total current assets2,062,295$             2,099,846$             2,138,342$             2,157,627$             2,288,415$             2,419,790$             2,562,679$             2,704,264$             2,856,247$             3,004,750$             3,162,540$             3,314,725$             3,475,092$             
Property, Plant and Equipment, at Cost1,191,676               1,258,304               1,344,830               1,671,075               2,013,631               2,371,603               2,745,684               3,134,728               3,539,333               3,958,100               4,391,524               4,837,950               5,297,769               
Allowance for depreciation(658,871)                 (668,658)                 (715,377)                 (792,798)                 (900,823)                 (1,037,696)              (1,201,762)              (1,391,660)              (1,606,053)              (1,843,841)              (2,103,888)              (2,385,261)              (2,686,935)              
Property, plant and equipment, net532,805                   589,646                   629,453                   878,277                   1,112,808               1,333,908               1,543,922               1,743,067               1,933,281               2,114,260               2,287,635               2,452,689               2,610,835               
Other Assets:
Goodwill1,147,374               1,215,688               1,219,630               1,219,630               1,219,630               1,219,630               1,219,630               1,219,630               1,219,630               1,219,630               1,219,630               1,219,630               1,219,630               
Other intangible assets, net of amortization459,536                   604,130                   575,401                   558,961                   542,521                   526,081                   509,641                   493,201                   476,761                   460,321                   443,881                   427,441                   411,001                   
Deferred income taxes, non‐current7943568519771‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            
Other168,412                   179,245                   193,444                   199,337                   209,303                   218,722                   228,565                   237,707                   247,216                   255,868                   264,823                   272,768                   280,951                   
Total other assets1,783,265               2,004,748               2,008,246               1,977,928               1,971,454               1,964,433               1,957,836               1,950,538               1,943,606               1,935,819               1,928,334               1,919,839               1,911,582               
Total Assets4,378,365$             4,694,240$             4,776,041$             5,013,831$             5,372,677$             5,718,131$             6,064,436$             6,397,869$             6,733,134$             7,054,829$             7,378,510$             7,687,253$             7,997,509$             
Liabilities and Stockholders Equity
Current Liabilities
Accounts payable525,680$                512,165$                500,506$                536,284$                563,098$                588,437$                614,917$                639,514$                665,094$                688,373$                712,466$                733,840$                755,855$                
Current portion of long‐term debt5,662                        2,038                        4,713                        56,770                     61,327                     65,466                     69,359                     73,173                     76,751                     80,268                     83,550                     86,778                     89,760                     
Accrued compensation and benefits173,846                   169,370                   183,768                   205,264                   215,527                   225,225                   235,361                   244,775                   254,566                   263,476                   272,697                   280,878                   289,305                   
Accrued losses27,487                     22,016                     35,290                     
Abestos‐related liabilities000‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            
Other accrued liabilities204,411                   197,647                   277,914                   220,806                   231,847                   242,280                   253,182                   263,310                   273,842                   283,427                   293,347                   302,147                   311,211                   
Total current liabilities937,087$                903,237$                1,002,192$             1,019,124$             1,071,798$             1,121,408$             1,172,819$             1,220,771$             1,270,253$             1,315,543$             1,362,059$             1,403,643$             1,446,130$             
Long‐Term Liabilities:
Long‐term debt, less current maturities1,345,965               1,654,037               1,646,332               1,778,473               1,898,510               2,011,420               2,122,004               2,225,781               2,327,782               2,422,941               2,516,554               2,603,029               2,687,949               
Abestos‐related liabilities000‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            ‐                            
Other long‐term liabilities466,659                   752,821                   702,979                   655,547                   688,325                   719,299                   751,668                   781,734                   813,004                   841,459                   870,910                   897,037                   923,948                   
Other long‐term liabilities % of sales10.7%16.4%14.6%13.0%13.0%13.0%13.0%13.0%13.0%13.0%13.0%13.0%13.0%
Deferred income taxes50,061                     90,681                     49,791                     33,022                     36,324                     39,957                     43,952                     48,348                     53,182                     58,500                     64,351                     70,786                     77,864                     
Total long‐term liabilities1,862,685$             2,497,540$             2,399,103$             2,467,042$             2,623,158$             2,770,676$             2,917,624$             3,055,863$             3,193,968$             3,322,901$             3,451,814$             3,570,851$             3,689,761$             
Commitments and contingencies (Note N)
Stockholders Equity
Preferred stock, par value $0.01; authorized
50,000 shares; none issued
Common stock, par value $0.01; authorized1,333                        1,332                        1,329                        1,293                        1,292                        1,292                        1,292                        1,293                        1,294                        1,295                        1,296                        1,298                        1,300                        
300,000 shares;
issued 140,195 and outstanding 132,944
as of May 2016;
issued 138,828 and outstanding 133,203
as of May 2015
Paid‐in capital790,102                   872,127                   921,956                   921,956                   921,956                   921,956                   921,956                   921,956                   921,956                   921,956                   921,956                   921,956                   921,956                   
Treasury stock, at cost(85,400)                    (124,928)                 (196,274)                 (228,242)                 (260,210)                 (292,178)                 (324,146)                 (356,114)                 (388,082)                 (420,050)                 (452,018)                 (483,986)                 (515,954)                 
Accumulated other comprehensive (loss)(156,882)                 (394,135)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 (502,047)                 
Retained earnings833,691                   936,996                   1,147,371               1,332,171               1,514,068               1,694,243               1,874,032               2,053,124               2,232,647               2,411,976               2,592,079               2,772,067               2,952,787               
Total RPM International Inc. stockholders1,382,844$             1,291,392$             1,372,335$             1,525,131$             1,675,059$             1,823,266$             1,971,087$             2,118,212$             2,265,767$             2,413,130$             2,561,267$             2,709,288$             2,858,042$             
Equity
Noncontrolling Interest195,750                   2,073                        2,413                        2,534                        2,660                        2,780                        2,905                        3,021                        3,142                        3,252                        3,366                        3,467                        3,571                        
Total equity1,578,594$             1,293,465$             1,374,748$             1,527,665               1,677,720               1,826,046               1,973,992               2,121,233               2,268,910               2,416,382               2,564,633               2,712,755               2,861,613               
Total Liabilities and Stockholders Equity4,378,366$             4,694,241$             4,776,042$             5,013,831$             5,372,676$             5,718,130$             6,064,435$             6,397,867$             6,733,132$             7,054,826$             7,378,506$             7,687,249$             7,997,505$             
RPMInternational
Key Assumptions of Valuation Model
Cash Flow Statement
Fiscal Years Ending 2017E2018E2019E2020E2021E2022E2023E2024E2025E2026E
Cash Flow from Operating Activities 
NetIncome308,000$           303,162$           300,291$           299,648$           298,488$           299,205$           298,882$           300,172$           299,980$           301,200$           
AdjustmenttoReconcileNetIncometoNetCash
Add:Depreciation77,421               108,026             136,872             164,067             189,898             214,392             237,788             260,048             281,373             301,674             
Add:Amortization16,440               16,440               16,440               16,440               16,440               16,440               16,440               16,440               16,440               16,440               
IncreaseinDeferredTaxLiabilities3,002                  3,302                  3,632                  3,996                  4,395                  4,835                  5,318                  5,850                  6,435                  7,079                  
ChangesinWorkingCapitalAccounts
IncreaseInRecievables(48,155)              (50,562)              (47,781)              (49,932)              (46,381)              (48,236)              (43,895)              (45,431)              (40,304)              (41,513)              
IncreaseinInventories(34,291)              (36,005)              (34,025)              (35,556)              (33,028)              (34,349)              (31,258)              (32,352)              (28,700)              (29,561)              
IncreaseinPrepaidExpenses(61,112)              (14,270)              (13,485)              (14,092)              (13,089)              (13,613)              (12,388)              (12,821)              (11,374)              (11,716)              
IncreaseinAccountsPayables35,778               26,814               25,339               26,480               24,597               25,581               23,278               24,093               21,374               22,015               
Increaseinaccruedcompensation21,496               10,263               9,699                  10,135               9,414                  9,791                  8,910                  9,222                  8,181                  8,426                  
IncreaseinAccruedlosses(35,290)              ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      
Increaseinotheraccruedliabilities(57,108)              11,040               10,433               10,903               10,127               10,532               9,584                  9,920                  8,800                  9,064                  
Increase(decrease)inothernoncurrentliabilites(47,432)              32,777               30,975               32,368               30,067               31,269               28,455               29,451               26,127               26,911               
NetCashProvidedbyoperatingactivities178,750             410,987             438,390             464,457             490,928             515,847             541,115             564,592             588,331             610,019             
CashflowfromInvestingActivities
(Purchase)Saleofshortterminvestments‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      
CapitalExpenditures(326,245)           (342,557)           (357,972)           (374,081)           (389,044)           (404,606)           (418,767)           (433,424)           (446,426)           (459,819)           
Capitalizationofintangibleassets‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      
(Purchase)Saleofotherassets(5,893)                (9,967)                (9,419)                (9,842)                (9,143)                (9,508)                (8,653)                (8,955)                (7,945)                (8,183)                
Netcashusedforinvestingactivities(332,137)           (352,524)           (367,391)           (383,923)           (398,186)           (414,114)           (427,419)           (442,379)           (454,371)           (468,002)           
CashFlowFinancingActivities
ProceedsfromissuanceofnotespayableSTDebt52,057               4,557                  4,139                  3,893                  3,813                  3,579                  3,517                  3,281                  3,228                  2,982                  
ProceedsfromissuanceofLTDebt132,141             120,036             112,910             110,584             103,778             102,001             95,159               93,613               86,475               84,920               
PaymentofDividends(123,200)           (121,265)           (120,116)           (119,859)           (119,395)           (119,682)           (119,553)           (120,069)           (119,992)           (120,480)           
Proceedsfromissuanceofcommonstock(36)                      (1)                        (0)                        0                          1                          1                          1                          1                          2                          2                          
Changeinnon-controllinginterest121                     127                     120                     125                     116                     121                     110                     114                     101                     104                     
ChangeinAOCI‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      
RepurchasesofCommonStock(31,968)              (31,968)              (31,968)              (31,968)              (31,968)              (31,968)              (31,968)              (31,968)              (31,968)              (31,968)              
NetCashProvidedbyFinanceActviity29,115               (28,513)              (34,915)              (37,224)              (43,655)              (45,948)              (52,733)              (55,027)              (62,154)              (64,439)              
NetIncrease(Decrease)incash(124,272)           29,950               36,084               43,310               49,086               55,785               60,963               67,186               71,806               77,578               
CashBeginningofYear265,152             140,880             170,830             206,915             250,224             299,310             355,095             416,058             483,244             555,050             
CashEndofYear140,880             170,830             206,915             250,224             299,310             355,095             416,058             483,244             555,050             632,627             
RPM International Report
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RPM International Report
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RPM International Report

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