UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to .
Commission File No.
(Exact name of Registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(IRS Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip Code) |
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(Registrant’s telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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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.
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).
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.
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Accelerated filer |
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Non-accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 25, 2024, the registrant had
RPM INTERNATIONAL INC. AND SUBSIDIARIES*
INDEX
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Page No. |
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Item 1. |
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3 |
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3 |
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4 |
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5 |
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6 |
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7 |
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8 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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29 |
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Item 4. |
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29 |
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Item 1. |
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30 |
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Item 1A. |
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30 |
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Item 2. |
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30 |
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Item 5. |
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30 |
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Item 6. |
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31 |
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32 |
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* As used herein, the terms “RPM” and the “Company” refer to RPM International Inc. and its subsidiaries, unless the context indicates otherwise.
2
PART I. – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands, except per share amounts)
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August 31, 2024 |
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May 31, 2024 |
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Assets |
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Current Assets |
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Cash and cash equivalents |
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$ |
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$ |
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Trade accounts receivable (less allowances of $ |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, Plant and Equipment, at Cost |
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Allowance for depreciation |
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Property, plant and equipment, net |
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Other Assets |
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Goodwill |
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Other intangible assets, net of amortization |
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Operating lease right-of-use assets |
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Deferred income taxes |
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Other |
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Total other assets |
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Total Assets |
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$ |
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$ |
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Liabilities and Stockholders' Equity |
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Current Liabilities |
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Accounts payable |
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$ |
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$ |
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Current portion of long-term debt |
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Accrued compensation and benefits |
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Accrued losses |
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Other accrued liabilities |
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Total current liabilities |
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Long-Term Liabilities |
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Long-term debt, less current maturities |
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Operating lease liabilities |
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Other long-term liabilities |
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Deferred income taxes |
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Total long-term liabilities |
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Stockholders' Equity |
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Preferred stock, par value $ |
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Common stock, par value $ |
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Paid-in capital |
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Treasury stock, at cost |
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Accumulated other comprehensive (loss) |
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Retained earnings |
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Total RPM International Inc. stockholders' equity |
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Noncontrolling Interest |
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Total equity |
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Total Liabilities and Stockholders' Equity |
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$ |
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$ |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
3
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share amounts)
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Three Months Ended |
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August 31, |
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August 31, |
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2024 |
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2023 |
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Net Sales |
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$ |
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$ |
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Cost of Sales |
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Gross Profit |
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Selling, General and Administrative Expenses |
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Restructuring Expense |
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Interest Expense |
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Investment (Income), Net |
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Other (Income) Expense, Net |
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Income Before Income Taxes |
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Provision for Income Taxes |
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Net Income |
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Less: Net Income Attributable to Noncontrolling Interests |
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Net Income Attributable to RPM International Inc. Stockholders |
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$ |
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$ |
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Average Number of Shares of Common Stock Outstanding: |
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Basic |
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Diluted |
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Earnings per Share of Common Stock Attributable to RPM International Inc. Stockholders: |
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Basic |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
4
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(In thousands)
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Three Months Ended |
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August 31, |
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August 31, |
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2024 |
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2023 |
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Net Income |
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$ |
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$ |
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Other comprehensive income (loss), net of tax: |
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Foreign currency translation adjustments, net of tax |
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Pension and other postretirement benefit liability adjustments, net of tax |
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Unrealized gain (loss) on securities, net of tax |
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Total other comprehensive (loss) income |
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Total Comprehensive Income |
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Less: Comprehensive Income Attributable to Noncontrolling Interests |
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Comprehensive Income Attributable to RPM International Inc. Stockholders |
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$ |
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$ |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
5
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
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Three Months Ended |
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August 31, |
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August 31, |
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2024 |
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2023 |
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Cash Flows from Operating Activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash provided by operating activities: |
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Depreciation and amortization |
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Deferred income taxes |
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Stock-based compensation expense |
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Net (gain) on marketable securities |
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Net loss on sales of assets and businesses |
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Other |
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Changes in assets and liabilities, net of effect from purchases and sales of businesses: |
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Decrease in receivables |
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(Increase) decrease in inventory |
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(Increase) in prepaid expenses and other current and long-term assets |
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Increase in accounts payable |
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(Decrease) in accrued compensation and benefits |
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(Decrease) increase in accrued losses |
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Increase in other accrued liabilities |
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Cash Provided by Operating Activities |
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Cash Flows from Investing Activities: |
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Capital expenditures |
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Acquisition of businesses, net of cash acquired |
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Purchase of marketable securities |
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Proceeds from sales of marketable securities |
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Other |
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Cash (Used for) Investing Activities |
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Cash Flows from Financing Activities: |
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Additions to long-term and short-term debt |
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Reductions of long-term and short-term debt |
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Cash dividends |
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Repurchases of common stock |
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Shares of common stock returned for taxes |
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( |
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( |
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Other |
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( |
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( |
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Cash (Used for) Financing Activities |
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( |
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Effect of Exchange Rate Changes on Cash and Cash Equivalents |
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( |
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Net Change in Cash and Cash Equivalents |
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Cash and Cash Equivalents at Beginning of Period |
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Cash and Cash Equivalents at End of Period |
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$ |
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$ |
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Supplemental Disclosures of Cash Flows Information: |
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Cash paid during the period for: |
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Interest |
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$ |
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$ |
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Income Taxes, net of refunds |
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$ |
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$ |
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Supplemental Disclosures of Noncash Investing Activities: |
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Capital expenditures accrued within accounts payable at quarter-end |
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$ |
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$ |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
6
RPM INTERNATIONAL INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)
(In thousands)
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Common Stock |
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Accumulated |
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Number |
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Other |
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Total RPM |
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of |
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Par/Stated |
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Paid-In |
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Treasury |
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Comprehensive |
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Retained |
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International |
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Noncontrolling |
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Total |
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Shares |
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Value |
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Capital |
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Stock |
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(Loss) Income |
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Earnings |
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Inc. Equity |
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Interests |
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Equity |
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Balance at June 1, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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$ |
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Net income |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive (loss) income |
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- |
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- |
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- |
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- |
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( |
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- |
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( |
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( |
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Dividends declared and paid ($ |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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- |
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( |
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Other noncontrolling interest activity |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
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( |
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Share repurchases under repurchase program |
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( |
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( |
) |
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( |
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- |
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- |
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( |
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- |
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( |
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Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes |
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( |
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- |
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- |
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( |
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- |
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Balance at August 31, 2024 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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Common Stock |
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Accumulated |
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Number |
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Other |
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Total RPM |
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of |
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Par/Stated |
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Paid-In |
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Treasury |
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Comprehensive |
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Retained |
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International |
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Noncontrolling |
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Total |
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Shares |
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Value |
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Capital |
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Stock |
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(Loss) Income |
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Earnings |
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Inc. Equity |
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Interests |
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Equity |
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Balance at June 1, 2023 |
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$ |
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$ |
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$ |
( |
) |
$ |
( |
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$ |
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$ |
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$ |
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$ |
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Net income |
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- |
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- |
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- |
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- |
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- |
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Other comprehensive income |
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- |
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- |
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- |
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- |
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- |
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Dividends declared and paid ($ |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
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- |
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( |
) |
Other noncontrolling interest activity |
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- |
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- |
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- |
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- |
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- |
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- |
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- |
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( |
) |
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( |
) |
Share repurchases under repurchase program |
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( |
) |
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( |
) |
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( |
) |
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- |
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- |
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( |
) |
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- |
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( |
) |
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Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes |
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( |
) |
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- |
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- |
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( |
) |
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- |
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( |
) |
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Balance at August 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
( |
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$ |
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$ |
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$ |
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$ |
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The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.
7
RPM INTERNATIONAL INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 —
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, 2024 and 2023. 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, 2024.
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
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 2 —
New Pronouncements Adopted
In September 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standard Update ("ASU") 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50)," which is intended to establish disclosures that enhance the transparency of a supplier finance program used by an entity in connection with the purchase of goods and services. This guidance requires annual and interim disclosure of the key terms of outstanding supplier finance programs, the amount outstanding under such programs including where they are recorded on the balance sheet, and a roll-forward of the related obligations. The new standard does not affect the recognition, measurement, or financial statement presentation of the supplier finance program obligations. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. We
New Pronouncements Issued
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires a public business entity to disclose specific categories in its annual effective tax rate reconciliation and disaggregated information about significant reconciling items by jurisdiction and by nature. The ASU also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions. The guidance makes several other changes to income tax disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. Early adoption is permitted. We are currently evaluating this ASU to determine its impact on our disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which expands disclosures about a public business entity's reportable segments and provides for more detailed information about a reportable segment's expenses. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. We are currently evaluating this ASU to determine its impact on our disclosures.
8
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.
In August 2022, we approved and announced our Margin Achievement Plan 2025 (“MAP 2025”), which is a multi-year restructuring plan designed to improve margins by streamlining business processes, reducing working capital, implementing commercial initiatives to drive improved mix, pricing discipline and salesforce effectiveness and improving operating efficiency. Most activities under MAP 2025 are anticipated to be completed by the end of fiscal 2025; however, we expect some costs to extend beyond this date.
The current total expected costs associated with this plan are outlined below and decreased approximately $
USL Restructuring
During the quarter ended August 31, 2023, we recognized a loss on sale of $
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 $
9
Following is a summary of the charges recorded in connection with MAP 2025 by reportable segment for the three-month periods ending August 31, 2024 and 2023, as well as the total expected costs related to projects identified to date:
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Three Months |
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Three Months |
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Cumulative |
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Total |
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(In thousands) |
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August 31, 2024 |
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August 31, 2023 |
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to Date |
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Costs |
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Construction Products Group ("CPG") Segment: |
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Severance and benefit costs |
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$ |
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$ |
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$ |
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$ |
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Facility closure and other related costs |
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Total Charges |
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$ |
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$ |
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$ |
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$ |
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Performance Coatings Group ("PCG") Segment: |
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Severance and benefit costs |
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$ |
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$ |
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$ |
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$ |
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Facility closure and other related costs |
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Other restructuring costs (a) |
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Total Charges |
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$ |
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$ |
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$ |
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$ |
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Consumer Segment: |
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Severance and benefit costs |
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$ |
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$ |
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$ |
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$ |
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Facility closure and other related costs |
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Total Charges |
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$ |
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$ |
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$ |
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$ |
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Specialty Products Group ("SPG") Segment: |
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Severance and benefit costs |
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$ |
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$ |
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$ |
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$ |
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Facility closure and other related costs |
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Total Charges |
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$ |
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$ |
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$ |
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$ |
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Corporate/Other Segment: |
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Severance and benefit (credits) |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Total Charges |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
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Consolidated: |
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Severance and benefit costs |
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$ |
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$ |
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$ |
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$ |
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Facility closure and other related costs |
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Other restructuring costs |
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Total Charges |
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$ |
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$ |
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$ |
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$ |
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A summary of the activity in the restructuring reserves related to MAP 2025 is as follows:
(in thousands) |
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Severance and |
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Facility |
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Other Asset |
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Total |
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Balance at June 1, 2024 |
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$ |
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$ |
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$ |
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$ |
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Additions charged to expense |
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Cash payments charged against reserve |
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( |
) |
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( |
) |
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( |
) |
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Non-cash charges and other adjustments |
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Balance at August 31, 2024 |
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$ |
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$ |
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$ |
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$ |
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(In thousands) |
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Severance and |
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Facility |
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Other Asset |
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Total |
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Balance at June 1, 2023 |
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$ |
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$ |
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$ |
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$ |
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Additions charged to expense |
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Cash payments charged against reserve |
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( |
) |
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( |
) |
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( |
) |
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Non-cash charges and other adjustments |
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( |
) |
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( |
) |
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( |
) |
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Balance at August 31, 2023 |
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$ |
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$ |
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$ |
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$ |
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NOTE 4 — FAIR VALUE MEASUREMENTS
Financial instruments recorded in the Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, marketable securities, notes and accounts payable, and debt.
An allowance for credit losses is established for trade accounts receivable using assessments of current creditworthiness of customers, historical collection experience, the aging of receivables and other currently available evidence. Trade accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowance for doubtful collection of accounts are included in SG&A expense.
The valuation techniques utilized for establishing the fair values of assets and liabilities are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect management’s market assumptions. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value, as follows:
Level 1 Inputs — Quoted prices for identical instruments in active markets.
Level 2 Inputs — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs — Instruments with primarily unobservable value drivers.
The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
(In thousands) |
Quoted Prices |
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Significant |
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Significant |
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Fair Value at |
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Available-for-sale debt securities: |
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U.S. Treasury and other government |
$ |
- |
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$ |
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$ |
- |
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$ |
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Corporate bonds |
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- |
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- |
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