10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐.

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☒.

As of September 28, 2023, the registrant had 128,828,265 shares of common stock, $0.01 par value per share, outstanding.

* As used herein, the terms “RPM” and the “Company” refer to RPM International Inc. and its subsidiaries, unless the context indicates otherwise.

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

NOTE 1 — CONSOLIDATION, NONCONTROLLING INTERESTS AND BASIS OF PRESENTATION

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”) for interim financial information and the instructions to Form 10-Q. In our opinion, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included for the three-month periods ended August 31, 2023, and August 31, 2022. For further information, refer to the Consolidated Financial Statements and Notes included in our Annual Report on Form 10-K for the year ended May 31, 2023.

Our financial statements include all of our majority-owned subsidiaries. We account for our investments in less-than-majority-owned joint ventures, for which we have the ability to exercise significant influence, under the equity method. Effects of transactions between related companies are eliminated in consolidation.

Noncontrolling interests are presented in our Consolidated Financial Statements as if parent company investors (controlling interests) and other minority investors (noncontrolling interests) in partially-owned subsidiaries have similar economic interests in a single entity. As a result, investments in noncontrolling interests are reported as equity in our Consolidated Financial Statements. Additionally, our Consolidated Financial Statements include 100% of a controlled subsidiary’s earnings, rather than only our share. Transactions between the parent company and noncontrolling interests are reported in equity as transactions between stockholders, provided that these transactions do not create a change in control.

Our business is dependent on external weather factors. Historically, we have experienced strong sales and net income in our first, second and fourth fiscal quarters comprising the three-month periods ending August 31, November 30 and May 31, respectively, with weaker performance in our third fiscal quarter (December through February).

NOTE 3 — RESTRUCTURING

We record restructuring charges associated with management-approved restructuring plans to either reorganize one or more of our business segments, or to remove duplicative headcount and infrastructure associated with our businesses. Restructuring charges can include severance costs to eliminate a specified number of associates, infrastructure charges to vacate facilities and consolidate operations, contract cancellation costs and other costs. We record the short-term portion of our restructuring liability in other accrued liabilities and the long-term portion, if any, in other long-term liabilities in our Consolidated Balance Sheets.

During 2018, we approved and implemented the initial phases of a multi-year restructuring plan, which is referred to as the 2020 Margin Acceleration Plan (“MAP to Growth”). We incurred $1.4 million of restructuring costs associated with this plan for the three months ended August 31, 2022. We did not incur any restructuring costs for the three months ended August 31, 2023, and we do not expect to incur any further costs associated with this plan.

In August 2022, we approved and announced our Margin Achievement Plan 2025 (“MAP 2025”), which is a multi-year restructuring plan to build on the achievements of MAP to Growth and designed to improve margins by streamlining business processes, reducing working capital, implementing commercial initiatives to drive improved mix and salesforce effectiveness and improving operating efficiency. Most activities under MAP 2025 are anticipated to be completed by the end of fiscal 2025.

The current total expected costs associated with this plan are outlined below and increased approximately $12.1 million compared to our previous estimate, attributable to increases in expected severance and benefit charges of $7.4 million, expected facility closure and other related costs of $0.1 million and expected other restructuring costs of $4.6 million. Throughout our MAP 2025 initiative, we will continue to assess and find areas of improvement and cost savings. As such, the final implementation of the aforementioned phases and total expected costs are subject to change.

USL Restructuring

As previously disclosed during fiscal 2023, due to the challenged macroeconomic environment, we evaluated certain business restructuring actions, specifically our go to market strategy for operating in Europe. During the quarter ended February 28, 2023, due to declining profitability and regulatory headwinds, management decided to restructure the Universal Sealants (“USL”) reporting unit within our PCG segment and explore strategic alternatives for our USL infrastructure services business within the United Kingdom.

During the quarter ended August 31, 2023, we recognized a loss on sale of $4.5 million in connection with the divestiture of USL’s Bridgecare services division. The Bridgecare division is a contracting business focused on the installation of joints and waterproofing in the UK. The loss on this sale is included in selling, general and administrative ("SG&A") expenses in our Consolidated Statements of Income and net loss on sales of assets and businesses in our Consolidated Statements of Cash Flows.

Additionally, during the quarter ended August 31, 2023, in connection with MAP 2025, we realigned certain businesses and management structures within our segments. Within our PCG segment, certain businesses of our USL reporting unit were transferred to our Fibergrate, Carboline and Stonhard reporting units. As a result of this change in our market strategy, we performed an interim impairment assessment of the USL indefinite-lived tradename. Calculating the fair value of the USL’s indefinite-lived tradename required the use of various estimates and assumptions. We estimated the fair value of USL’s indefinite-lived tradename by applying a relief-from-royalty calculation, which included discounted future cash flows related to projected revenues impacted by this decision. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data. As the carrying amount of the tradename exceeded its fair value, an impairment loss of $3.3 million was recorded for the three months ended August 31, 2023. This impairment loss was classified as restructuring expense within our PCG segment.

Following is a summary of the charges recorded in connection with MAP 2025 by reportable segment as well as the total expected costs related to projects identified to date:


	Three Months Ended		Cumulative Costs		Total Expected
(In thousands)	August 31, 2023		to Date		Costs
Construction Products Group ("CPG") Segment:
Severance and benefit costs	$	415	$	6,507	$	16,564


Delaware		02-0642224
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

2628 PEARL ROAD; MEDINA, Ohio (Address of principal executive offices)		44256 (Zip Code)
		44256 (Zip Code)


		Page No.
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements:	3
	Consolidated Balance Sheets	3
	Consolidated Statements of Income	4
	Consolidated Statements of Comprehensive Income	5
	Consolidated Statements of Cash Flows	6
	Consolidated Statements of Stockholders’ Equity	7
	Notes to Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	27
Item 4.	Controls and Procedures	27

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	28
Item 1A.	Risk Factors	28
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	28
Item 6.	Exhibits	29
Signatures		30


	August 31, 2023			May 31, 2023
Assets
Current Assets
Cash and cash equivalents	$	240,586		$	215,787
Trade accounts receivable (less allowances of $56,584 and $49,482, respectively)		1,418,886			1,503,040
Inventories		1,117,441			1,135,496
Prepaid expenses and other current assets		335,065			329,845
Total current assets		3,111,978			3,184,168
Property, Plant and Equipment, at Cost		2,372,532			2,332,916
Allowance for depreciation		(1,127,209	)		(1,093,440	)
Property, plant and equipment, net		1,245,323			1,239,476
Other Assets
Goodwill		1,300,833			1,293,588
Other intangible assets, net of amortization		541,994			554,991
Operating lease right-of-use assets		324,655			329,582
Deferred income taxes		19,907			15,470
Other		170,587			164,729
Total other assets		2,357,976			2,358,360
Total Assets	$	6,715,277		$	6,782,004
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	684,075		$	680,938
Current portion of long-term debt		6,885			178,588
Accrued compensation and benefits		170,333			257,328
Accrued losses		28,753			26,470
Other accrued liabilities		378,601			347,477
Total current liabilities		1,268,647			1,490,801
Long-Term Liabilities
Long-term debt, less current maturities		2,498,426			2,505,221
Operating lease liabilities		279,632			285,524
Other long-term liabilities		287,087			267,111
Deferred income taxes		98,649			90,347
Total long-term liabilities		3,163,794			3,148,203
Contingencies and Accrued Losses (Note 13)
Stockholders' Equity
Preferred stock, par value $0.01; authorized 50,000 shares; none issued		—			—
Common stock, par value $0.01; authorized 300,000 shares; issued 145,605 and outstanding 128,962 as of August 31, 2023; issued 145,124 and outstanding 128,766 as of May 31, 2023		1,290			1,288
Paid-in capital		1,133,941			1,124,825
Treasury stock, at cost		(812,041	)		(784,463	)
Accumulated other comprehensive (loss)		(593,189	)		(604,935	)
Retained earnings		2,551,142			2,404,125
Total RPM International Inc. stockholders' equity		2,281,143			2,140,840
Noncontrolling Interest		1,693			2,160
Total equity		2,282,836			2,143,000
Total Liabilities and Stockholders' Equity	$	6,715,277		$	6,782,004


	Three Months Ended
	August 31,			August 31,
	2023			2022
Net Sales	$	2,011,857		$	1,932,320
Cost of Sales		1,183,240			1,187,849
Gross Profit		828,617			744,471
Selling, General and Administrative Expenses		531,032			485,205
Restructuring Expense		6,498			1,354
Interest Expense		31,818			26,711
Investment (Income) Expense, Net		(12,439	)		3,664
Other Expense, Net		2,554			2,416
Income Before Income Taxes		269,154			225,121
Provision for Income Taxes		67,841			55,842
Net Income		201,313			169,279
Less: Net Income Attributable to Noncontrolling Interests		231			266
Net Income Attributable to RPM International Inc. Stockholders	$	201,082		$	169,013
Average Number of Shares of Common Stock Outstanding:
Basic		127,633			127,617
Diluted		128,771			128,161
Earnings per Share of Common Stock Attributable to RPM International Inc. Stockholders:
Basic	$	1.57		$	1.31
Diluted	$	1.56		$	1.31


	Three Months Ended
	August 31,			August 31,
	2023			2022
Net Income	$	201,313		$	169,279
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax		8,853			(78,956	)
Pension and other postretirement benefit liability adjustments, net of tax		3,164			4,272
Unrealized (loss) on securities, net of tax		(257	)		(340	)
Unrealized (loss) on derivatives, net of tax		-			(606	)
Total other comprehensive income (loss)		11,760			(75,630	)
Total Comprehensive Income		213,073			93,649
Less: Comprehensive Income Attributable to Noncontrolling Interests		245			204
Comprehensive Income Attributable to RPM International Inc. Stockholders	$	212,828		$	93,445


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


	Common Stock											Accumulated
	Number											Other						Total RPM
	of			Par/Stated			Paid-In		Treasury			Comprehensive			Retained			International			Noncontrolling			Total
	Shares			Value			Capital		Stock			(Loss) Income			Earnings			Inc. Equity			Interests			Equity
Balance at June 1, 2023		128,766		$	1,288		$	1,124,825	$	(784,463	)	$	(604,935	)	$	2,404,125		$	2,140,840		$	2,160		$	2,143,000
Net income		-			-			-		-			-			201,082			201,082			231			201,313
Other comprehensive income		-			-			-		-			11,746			-			11,746			14			11,760
Dividends declared and paid ($0.42 per share)		-			-			-		-			-			(54,065	)		(54,065	)		-			(54,065	)
Other noncontrolling interest activity		-			-			-		-			-			-			-			(712	)		(712	)
Share repurchases under repurchase program		(122	)		(1	)		1		(12,500	)		-			-			(12,500	)		-			(12,500	)
Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes		318			3			9,115		(15,078	)		-			-			(5,960	)		-			(5,960	)
Balance at August 31, 2023		128,962		$	1,290		$	1,133,941	$	(812,041	)	$	(593,189	)	$	2,551,142		$	2,281,143		$	1,693		$	2,282,836


	Three Months Ended
	August 31,			August 31,
	2023			2022
Cash Flows from Operating Activities:
Net income	$	201,313		$	169,279
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		43,539			38,416
Deferred income taxes		2,295			(1,919	)
Stock-based compensation expense		9,118			9,062
Net (gain) loss on marketable securities		(6,451	)		6,606
Net loss on sales of assets and businesses		3,263			-
Other		5,100			111
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
Decrease (increase) in receivables		87,712			(266	)
Decrease (increase) in inventory		22,281			(148,188	)
(Increase) in prepaid expenses and other current and long-term assets		(14,277	)		(36,021	)
Increase in accounts payable		18,840			15,113
(Decrease) in accrued compensation and benefits		(88,460	)		(92,970	)
Increase in accrued losses		2,211			1,873
Increase in other accrued liabilities		72,726			62,459
Cash Provided by Operating Activities		359,210			23,555
Cash Flows from Investing Activities:
Capital expenditures		(52,201	)		(57,818	)
Acquisition of businesses, net of cash acquired		(4,026	)		(36,373	)
Purchase of marketable securities		(16,235	)		(6,440	)
Proceeds from sales of marketable securities		9,443			4,116
Other		1,502			80
Cash (Used for) Investing Activities		(61,517	)		(96,435	)
Cash Flows from Financing Activities:
Additions to long-term and short-term debt		852			250,051
Reductions of long-term and short-term debt		(193,085	)		(75,264	)
Cash dividends		(54,065	)		(51,420	)
Repurchases of common stock		(12,500	)		(25,000	)
Shares of common stock returned for taxes		(14,833	)		(12,430	)
Payments of acquisition-related contingent consideration		-			(3,705	)
Other		(712	)		(2,487	)
Cash (Used for) Provided by Financing Activities		(274,343	)		79,745
Effect of Exchange Rate Changes on Cash and Cash Equivalents		1,449			(10,963	)
Net Change in Cash and Cash Equivalents		24,799			(4,098	)