UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended November 30, 2019,

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. 1-14187

RPM International Inc.

(Exact name of Registrant as specified in its charter)

Delaware	02-0642224
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
P.O. BOX 777; 2628 PEARL ROAD; MEDINA, Ohio (Address of principal executive offices)	44258 (Zip Code)

(330) 273-5090

(Registrant’s telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01	RPM	New York Stock Exchange

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.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

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 January 3, 2020, the registrant had 129,766,609 shares of common stock, $0.01 par value per share, outstanding.

RPM INTERNATIONAL INC. AND SUBSIDIARIES*

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements:
	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	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds	44
Item 6.	Exhibits	45
Signatures		46

* 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)

	November 30, 2019			May 31, 2019
Assets
Current Assets
Cash and cash equivalents	$	208,173		$	223,168
Trade accounts receivable (less allowances of $59,824 and $54,748, respectively)		1,047,813			1,232,350
Inventories		883,722			841,873
Prepaid expenses and other current assets		220,557			220,701
Total current assets		2,360,265			2,518,092
Property, Plant and Equipment, at Cost		1,712,511			1,662,859
Allowance for depreciation		(890,736	)		(843,648	)
Property, plant and equipment, net		821,775			819,211
Other Assets
Goodwill		1,259,556			1,245,762
Other intangible assets, net of amortization		595,311			601,082
Operating lease right-of-use assets		284,852			-
Deferred income taxes		34,719			34,908
Other		224,520			222,300
Total other assets		2,398,958			2,104,052
Total Assets	$	5,580,998		$	5,441,355
Liabilities and Stockholders' Equity
Current Liabilities
Accounts payable	$	475,288		$	556,696
Current portion of long-term debt		102,136			552,446
Accrued compensation and benefits		139,403			193,345
Accrued losses		21,646			19,899
Other accrued liabilities		245,595			217,019
Total current liabilities		984,068			1,539,405
Long-Term Liabilities
Long-term debt, less current maturities		2,421,339			1,973,462
Operating lease liabilities		243,863			-
Other long-term liabilities		415,838			405,040
Deferred income taxes		112,590			114,843
Total long-term liabilities		3,193,630			2,493,345
Commitments and contingencies (Note 15)
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 143,021 and outstanding 129,767 as of November 30, 2019;    issued 142,439 and outstanding 130,995 as of  May 31, 2019		1,298			1,310
Paid-in capital		1,007,554			994,508
Treasury stock, at cost		(547,683	)		(437,290	)
Accumulated other comprehensive (loss)		(576,707	)		(577,628	)
Retained earnings		1,516,230			1,425,052
Total RPM International Inc. stockholders' equity		1,400,692			1,405,952
Noncontrolling Interest		2,608			2,653
Total equity		1,403,300			1,408,605
Total Liabilities and Stockholders' Equity	$	5,580,998		$	5,441,355

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)

	Three Months Ended						Six Months Ended
	November 30,			November 30,			November 30,			November 30,
	2019			2018			2019			2018
Net Sales	$	1,401,292		$	1,362,531		$	2,874,056		$	2,822,520
Cost of Sales		871,894			868,800			1,769,904			1,779,436
Gross Profit		529,398			493,731			1,104,152			1,043,084
Selling, General and Administrative Expenses		403,357			385,842			803,923			800,895
Restructuring Charges		4,801			7,724			11,423			27,800
Interest Expense		26,341			23,127			54,658			47,533
Investment (Income) Expense, Net		(8,805	)		7,033			(14,190	)		4,600
Other Expense, Net		1,951			3,412			3,736			3,725
Income Before Income Taxes		101,753			66,593			244,602			158,531
Provision for Income Taxes		24,431			17,420			60,784			39,172
Net Income		77,322			49,173			183,818			119,359
Less:  Net Income (Loss) Attributable to Noncontrolling Interests		292			(51	)		600			371
Net Income Attributable to RPM International Inc. Stockholders	$	77,030		$	49,224		$	183,218		$	118,988
Average Number of Shares of Common Stock Outstanding:
Basic		128,393			131,058			128,639			131,467
Diluted		129,079			131,667			129,294			133,278
Earnings per Share of Common Stock Attributable to RPM International Inc.    Stockholders:
Basic	$	0.60		$	0.37		$	1.42		$	0.90
Diluted	$	0.59		$	0.37		$	1.41		$	0.89

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)

	Three Months Ended						Six Months Ended
	November 30,			November 30,			November 30,			November 30,
	2019			2018				2019			2018
Net Income	$	77,322		$	49,173		$	183,818		$	119,359
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments		20,967			(12,245	)		(7,467	)		(52,935	)
Pension and other postretirement benefit liability adjustments    (net of tax of $1,015; $1,108; $2,119 and $2,090, respectively)		3,404			3,428			7,027			6,483
Unrealized (loss) gain on securities and other (net of tax of $0; $124; $1 and $543, respectively)		(155	)		(1,515	)		216			962
Unrealized gain on derivatives (net of tax of $305; $234; $274 and $249, respectively)		381			2,349			1,165			3,271
Total other comprehensive income (loss)		24,597			(7,983	)		941			(42,219	)
Total Comprehensive Income		101,919			41,190			184,759			77,140
Less:  Comprehensive Income Attributable to Noncontrolling Interests		343			40			620			204
Comprehensive Income Attributable to RPM International Inc. Stockholders	$	101,576		$	41,150		$	184,139		$	76,936

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)

	Six Months Ended
	November 30,			November 30,
	2019			2018
Cash Flows From Operating Activities:
Net income	$	183,818		$	119,359
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization		77,572			73,025
Restructuring charges, net of payments		(1,713	)		7,464
Payments of contingent earnout obligations in excess of fair value		-			1,558
Deferred income taxes		(5,426	)		(1,400	)
Stock-based compensation expense		13,034			12,896
Other non-cash interest expense		-			1,552
Realized/unrealized (gains) losses on marketable securities		(8,741	)		7,496
Loss on extinguishment of debt		-			3,051
Other		(705	)		2,349
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
Decrease in receivables		183,782			92,398
(Increase) in inventory		(41,129	)		(49,020	)
Decrease (increase) in prepaid expenses and other current and long-term assets		8,524			(942	)
(Decrease) in accounts payable		(70,712	)		(117,678	)
(Decrease) in accrued compensation and benefits		(53,589	)		(41,470	)
Increase in accrued losses		1,894			1,131
Increase in other accrued liabilities		13,644			33,422
Other		(90	)		3,098
Cash Provided By Operating Activities		300,163			148,289
Cash Flows From Investing Activities:
Capital expenditures		(71,393	)		(57,775	)
Acquisition of businesses, net of cash acquired		(36,281	)		(127,848	)
Purchase of marketable securities		(14,332	)		(13,276	)
Proceeds from sales of marketable securities		13,100			35,426
Other		2,183			(2,394	)
Cash (Used For) Investing Activities		(106,723