RPM(US:RPM)2023-01-05 20:36PART I. FINANCIAL INFORMATION Financial Statements This section presents RPM International Inc.'s unaudited consolidated financial statements for Q2 FY2023, including key financial statements and notes Consolidated Balance Sheets Total assets increased to $6.85 billion, driven by inventories, while liabilities rose to $4.76 billion due to debt, and equity reached $2.09 billion Consolidated Balance Sheet Highlights (in thousands) | Account | Nov 30, 2022 | May 31, 2022 | | :--- | :--- | :--- | | Total Assets | $6,849,513 | $6,707,706 | | Inventories | $1,389,591 | $1,212,618 | | Goodwill | $1,341,580 | $1,337,868 | | Total Liabilities | $4,757,428 | $4,723,878 | | Current portion of long-term debt | $3,713 | $603,454 | | Long-term debt, less current maturities | $2,841,066 | $2,083,155 | | Total Equity | $2,092,085 | $1,983,828 | Consolidated Statements of Income Net sales for Q2 FY2023 increased 9.3% to $1.79 billion, with net income rising to $131.3 million, and six-month net sales grew 13.2% to $3.72 billion, reaching $300.4 million in net income Key Income Statement Data (in thousands, except per share amounts) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Sales | $1,791,708 | $1,639,538 | $3,724,028 | $3,289,959 | | Gross Profit | $690,391 | $582,614 | $1,434,862 | $1,195,965 | | Income Before Income Taxes | $175,135 | $163,154 | $400,256 | $344,625 | | Net Income Attributable to RPM | $131,344 | $124,875 | $300,357 | $259,457 | | Diluted EPS | $1.02 | $0.96 | $2.33 | $2.00 | Consolidated Statements of Cash Flows Operating cash flow increased to $190.9 million for the six months ended November 30, 2022, with investing activities using $164.0 million and financing activities providing $14.2 million, ending with $232.1 million in cash Six Months Ended Cash Flow Summary (in thousands) | Activity | Nov 30, 2022 | Nov 30, 2021 | | :--- | :--- | :--- | | Cash Provided by Operating Activities | $190,915 | $159,355 | | Cash (Used for) Investing Activities | ($164,007) | ($168,400) | | Cash Provided by (Used for) Financing Activities | $14,193 | ($25,964) | | Net Change in Cash and Cash Equivalents | $30,446 | ($53,853) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial data, covering the 'MAP to Growth' plan, fair value measurements, income taxes, inventory, borrowing activities, stock repurchases, and segment performance - The 'MAP to Growth' restructuring plan, formally concluded on May 31, 2021, incurred costs of $2.6 million for the six months ended Nov 30, 2022. Total expected costs are $121.3 million, with $119.9 million incurred to date3233 - On November 15, 2022, the company repaid the $300.0 million principal on its 3.45% Notes. It also amended and extended its Revolving Credit Facility to $1.35 billion and its Term Loan to August 2025495051 - During the six months ended Nov 30, 2022, the company repurchased 303,079 shares for $25.0 million. Approximately $342.3 million remained available for repurchase under the program55 Segment Net Sales (Six Months Ended Nov 30, in thousands) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | CPG Segment | $1,363,811 | $1,258,552 | | PCG Segment | $675,585 | $588,122 | | Consumer Segment | $1,269,851 | $1,067,606 | | SPG Segment | $414,781 | $375,679 | Segment Income Before Income Taxes (Six Months Ended Nov 30, in thousands) | Segment | 2022 | 2021 | | :--- | :--- | :--- | | CPG Segment | $184,655 | $244,725 | | PCG Segment | $92,248 | $72,932 | | Consumer Segment | $210,562 | $79,019 | | SPG Segment | $55,316 | $45,147 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance for Q2 and six months ended November 30, 2022, highlighting consolidated net sales growth, improved gross profit margin, segment performance, liquidity, and the new 'MAP 2025' initiative Results of Operations Q2 consolidated net sales rose 9.3% to $1.79 billion with 12.4% organic growth and gross profit margin increased to 38.5%, while six-month net sales grew 13.2% to $3.72 billion with 16.0% organic growth and improved gross margin Q2 FY2023 Net Sales Growth vs. Q2 FY2022 | Segment | Total Growth | Organic Growth | Acquisition Growth | FX Impact | | :--- | :--- | :--- | :--- | :--- | | CPG Segment | 3.2% | 6.9% | 1.5% | -5.2% | | PCG Segment | 10.8% | 15.4% | 0.6% | -5.2% | | Consumer Segment | 15.3% | 17.5% | 0.4% | -2.6% | | SPG Segment | 9.5% | 11.5% | 0.9% | -2.9% | | Consolidated | 9.3% | 12.4% | 1.0% | -4.1% | Six Months FY2023 Net Sales Growth vs. Six Months FY2022 | Segment | Total Growth | Organic Growth | Acquisition Growth | FX Impact | | :--- | :--- | :--- | :--- | :--- | | CPG Segment | 8.4% | 11.4% | 1.8% | -4.8% | | PCG Segment | 14.9% | 19.4% | 0.3% | -4.8% | | Consumer Segment | 18.9% | 20.8% | 0.4% | -2.3% | | SPG Segment | 10.4% | 12.2% | 0.8% | -2.6% | | Consolidated | 13.2% | 16.0% | 1.0% | -3.8% | - Consolidated gross profit margin for Q2 FY23 increased by 300 bps to 38.5% from 35.5% YoY, driven by production efficiencies, improved raw material supply, and higher selling prices109 - Consolidated SG&A expense increased by $52.9 million in Q2 FY23 versus the prior year, rising to 27.3% of net sales from 26.7%, due to variable costs, pay inflation, and professional fees for MAP 2025 initiatives111 Liquidity and Capital Resources The company maintained strong liquidity with $880.0 million available, generated $190.9 million in operating cash flow, strategically increased inventory, amended its credit facilities, and remained in compliance with all debt covenants - Available liquidity was $880.0 million as of November 30, 2022, including cash and availability under committed credit facilities158 - Inventory levels increased, using $64.5 million more cash in the first six months of FY2023 compared to the prior year, due to material price inflation and strategic inventory buildup149 - The company was in compliance with all financial covenants, with a Net Leverage Ratio of 2.53 to 1.00 (well below the 3.75 to 1.00 limit) and an Interest Coverage Ratio of 10.64 to 1.00 (well above the 3.50 to 1.00 minimum)161 Quantitative and Qualitative Disclosures About Market Risk The company reports no material changes in market risk exposure since May 31, 2022, regarding raw material costs, interest rates, and foreign exchange rates, despite acknowledging recent inflationary pressures - There were no material potential changes in exposure to market risks (raw materials, interest rates, foreign exchange) since May 31, 2022172 Controls and Procedures As of November 30, 2022, the CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes in internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of the evaluation date, November 30, 2022173 - No changes occurred during the fiscal quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting174 PART II. OTHER INFORMATION Legal Proceedings The company is involved in typical environmental matters, not expecting a material adverse effect, and reports no proceedings exceeding its $1 million disclosure threshold - The company has adopted a quantitative threshold of $1 million for disclosing environmental proceedings and is not aware of any matters that exceed this threshold as of the filing date177 Risk Factors No new risk factors are presented in this report, with the company referring readers to its Annual Report on Form 10-K for the fiscal year ended May 31, 2022 - The report directs readers to the risk factors disclosed in the company's Annual Report on Form 10-K for the fiscal year ended May 31, 2022178 Unregistered Sale of Equity Securities and Use of Proceeds During Q2 FY2023, 29,616 shares were repurchased to satisfy tax obligations from restricted stock vesting, separate from the public repurchase program - In Q2 FY2023, 29,616 shares were returned to the company to satisfy tax obligations from vesting restricted stock, not as part of the public repurchase program179 - As of November 30, 2022, the maximum dollar amount that may yet be repurchased under the company's stock repurchase program was approximately $342.3 million180 Exhibits This section lists exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL documents Signatures The report is duly signed by Frank C. Sullivan, Chairman and CEO, and Russell L. Gordon, VP and CFO, on January 5, 2023