RPM(RPM) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Overview of RPM International Inc.'s unaudited consolidated financial statements and management's discussion for the reported periods Item 1. Financial Statements This section presents the unaudited consolidated financial statements of RPM International Inc. and its subsidiaries, including the balance sheets, statements of income, comprehensive income, cash flows, and stockholders' equity, along with detailed notes explaining the accounting policies, significant estimates, and specific financial line items for the reported periods Consolidated Balance Sheets Presents the company's financial position, detailing assets, liabilities, and equity at specific dates Consolidated Balance Sheet Highlights (In thousands): | Item | February 28, 2021 | May 31, 2020 | | :--------------------------------- | :------------------ | :------------- | | Total Assets | $5,792,385 | $5,630,954 | | Total Liabilities | $4,242,715 | $4,366,291 | | Total Equity | $1,549,670 | $1,264,663 | | Cash and cash equivalents | $249,214 | $233,416 | | Trade accounts receivable, net | $998,783 | $1,137,957 | | Inventories | $913,302 | $810,448 | | Current portion of long-term debt | $1,027 | $80,890 | | Long-term debt, less current maturities | $2,310,483 | $2,458,290 | Consolidated Statements of Income Details the company's revenues, expenses, and net income over specific reporting periods Consolidated Statements of Income Highlights (In thousands, except per share amounts): | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Sales | $1,269,395 | $1,173,976 | $4,361,981 | $4,048,033 | | Gross Profit | $471,941 | $434,747 | $1,711,768 | $1,538,900 | | Income Before Income Taxes | $55,860 | $16,308 | $464,185 | $260,909 | | Net Income Attributable to RPM Stockholders | $38,242 | $11,853 | $346,496 | $195,072 | | Basic EPS | $0.30 | $0.09 | $2.68 | $1.51 | | Diluted EPS | $0.29 | $0.09 | $2.66 | $1.50 | Consolidated Statements of Comprehensive Income Reports net income and other comprehensive income components, reflecting total changes in equity Consolidated Statements of Comprehensive Income Highlights (In thousands): | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :------------------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net Income | $38,466 | $12,090 | $347,136 | $195,907 | | Total other comprehensive income (loss) | $26,926 | $(15,325) | $94,673 | $(14,384) | | Total Comprehensive Income (Loss) | $65,392 | $(3,235) | $441,809 | $181,523 | | Comprehensive Income (Loss) Attributable to RPM Stockholders | $65,124 | $(3,464) | $441,057 | $180,674 | Consolidated Statements of Cash Flows Summarizes cash inflows and outflows from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (In thousands, Nine Months Ended): | Item | February 28, 2021 | February 29, 2020 | | :------------------------------------ | :------------------ | :------------------ | | Cash Provided By Operating Activities | $651,906 | $381,177 | | Cash (Used For) Investing Activities | $(217,928) | $(164,080) | | Cash (Used For) Financing Activities | $(439,690) | $(222,039) | | Net Change in Cash and Cash Equivalents | $15,798 | $(10,926) | | Cash and Cash Equivalents at End of Period | $249,214 | $212,242 | Consolidated Statements of Stockholders' Equity Outlines changes in equity accounts, including retained earnings and treasury stock Consolidated Stockholders' Equity Highlights (In thousands): | Item | February 28, 2021 | May 31, 2020 | | :------------------------------------ | :------------------ | :------------- | | Total RPM International Inc. Stockholders' Equity | $1,547,485 | $1,262,445 | | Total Equity | $1,549,670 | $1,264,663 | | Retained earnings | $1,745,375 | $1,544,336 | | Treasury stock, at cost | $(621,836) | $(580,117) | Notes to Consolidated Financial Statements Provides detailed explanations of accounting policies, estimates, and specific financial line items NOTE 1 — CONSOLIDATION, NONCONTROLLING INTERESTS AND BASIS OF PRESENTATION Details the company's consolidation principles and the impact of seasonal business cycles - The company's business is dependent on external weather factors, historically experiencing strong sales and net income in the first, second, and fourth fiscal quarters, with weaker performance in the third fiscal quarter (December through February)[27] NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS Discusses the adoption and evaluation of recent accounting standards and their impact - The adoption of new accounting guidance, including ASU 2016-13 (Credit Losses), ASU 2017-04 (Goodwill Impairment), and ASU 2018-13 (Fair Value Measurement Disclosures), effective June 1, 2020, did not have a material impact on the company's Consolidated Financial Statements or disclosures[28][29][30] - The company is evaluating ASU 2018-14 (Defined Benefit Plans Disclosures) and ASU 2019-12 (Income Taxes) but does not expect their adoption to have a material impact on its Consolidated Financial Statements[31][33] NOTE 3 — RESTRUCTURING Outlines the "MAP to Growth" restructuring plan, its progress, and associated costs - The 'MAP to Growth' restructuring plan, initially delayed by Covid-19, is now expected to be substantially completed by the end of fiscal year 2021, with some projects extending into fiscal year 2022[36] - The plan focuses on margin improvement through simplifying business processes, reducing inventory, eliminating underperforming businesses, reducing headcount, and improving operating efficiency, including the planned closure of 26 plants and 27 warehouses[35][38] Consolidated Restructuring Charges (In thousands): | Item | Three Months Ended Feb 28, 2021 | Nine Months Ended Feb 28, 2021 | Cumulative Costs to Date | Total Expected Costs | | :-------------------------------- | :------------------------------ | :----------------------------- | :----------------------- | :------------------- | | Severance and benefit costs | $574 | $5,187 | $67,410 | $71,181 | | Facility closure and other related costs | $2,615 | $6,424 | $29,351 | $33,493 | | Other restructuring costs | $(60) | $669 | $8,451 | $8,481 | | Total Charges | $3,129 | $12,280 | $105,212 | $113,155 | NOTE 4 — FAIR VALUE MEASUREMENTS Details the fair value of financial instruments and the methodologies used for their measurement Fair Value of Assets and Liabilities (In thousands): | Item | February 28, 2021 | May 31, 2020 | | :--------------------------------- | :------------------ | :------------- | | Total available-for-sale debt securities | $25,628 | $26,922 | | Total marketable equity securities | $127,140 | $96,221 | | Contingent consideration | $(15,258) | $(15,682) | | Total Fair Value | $137,510 | $107,461 | Fair Value vs. Carrying Value of Financial Instruments (In thousands): | Item | Carrying Value (Feb 28, 2021) | Fair Value (Feb 28, 2021) | Carrying Value (May 31, 2020) | Fair Value (May 31, 2020) | | :--------------------------------- | :---------------------------- | :-------------------------- | :---------------------------- | :-------------------------- | | Cash and cash equivalents | $249,214 | $249,214 | $233,416 | $233,416 | | Marketable equity securities | $127,140 | $127,140 | $87,111 | $87,111 | | Available-for-sale debt securities | $25,628 | $25,628 | $26,922 | $26,922 | | Long-term debt, including current portion | $2,311,510 | $2,507,299 | $2,539,180 | $2,618,719 | - Contingent consideration is estimated using expected future cash flows and a discount rate, classified as Level 3 inputs due to unobservable value drivers[55] NOTE 5 — DERIVATIVES AND HEDGING Explains the company's use of derivative instruments to manage market risks - The company uses derivative instruments (forward contracts and swaps) to manage market risks from foreign currency exchange rates and interest rates, formally designating qualifying instruments as accounting hedges[57] Pretax Gain/(Loss) from Derivatives in Hedging Relationships (In thousands): | Item | Three Months Ended Feb 28, 2021 (recognized in AOCI) | Three Months Ended Feb 29, 2020 (recognized in AOCI) | Nine Months Ended Feb 28, 2021 (recognized in AOCI) | Nine Months Ended Feb 29, 2020 (recognized in AOCI) | | :-------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :-------------------------------------------------- | :-------------------------------------------------- | | Interest rate swap (cash flow) | $27 | $(3,077) | $(720) | $(3,077) | | Cross currency swap (cash flow) | $(907) | $(2,355) | $(8,211) | $(2,355) | | Cross currency swap (net investment) | $(4,036) | $(3,314) | $(28,126) | $(1,845) | | Total | $(4,916) | $(8,746) | $(37,057) | $(7,277) | | Item | Three Months Ended Feb 28, 2021 (reclassified from AOCI into income) | Three Months Ended Feb 29, 2020 (reclassified from AOCI into income) | Nine Months Ended Feb 28, 2021 (reclassified from AOCI into income) | Nine Months Ended Feb 29, 2020 (reclassified from AOCI into income) | | :-------------------------------- | :--------------------------------------------------- | :--------------------------------------------------- | :-------------------------------------------------- | :-------------------------------------------------- | | Interest rate swap (cash flow) | $(862) | $22 | $(2,475) | $22 | | Cross currency swap (cash flow) | $147 | $47 | $498 | $47 | | Cross currency swap (cash flow) | $(1,243) | $(1,986) | $(8,623) | $(1,986) | | Total | $(1,958) | $(1,917) | $(10,600) | $(1,917) | - All derivative assets and liabilities are classified as Level 2 within the fair value hierarchy, with fair values determined using valuation methods that project future cash flows and discount them using market-based observable inputs[63] NOTE 6 — INVESTMENT (INCOME) EXPENSE, NET Presents the net investment income and expense, including gains/losses on marketable securities Investment (Income) Expense, Net (In thousands): | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Interest (income) | $(968) | $(1,292) | $(2,409) | $(4,068) | | Net (gain) loss on marketable securities | $(9,480) | $6,918 | $(29,652) | $(3,562) | | Dividend (income) | $(1,006) | $(1,790) | $(1,674) | $(2,724) | | Investment (income) expense, net | $(11,454) | $3,836 | $(33,735) | $(10,354) | Net (Gain) Loss on Marketable Securities (In thousands): | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :--------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Unrealized (gains) losses on marketable equity securities | $(6,650) | $8,079 | $(28,469) | $(2,459) | | Realized (gains) on marketable equity securities | $(2,834) | $(1,153) | $(1,210) | $(1,107) | | Realized (gains) losses on available-for-sale debt securities | $4 | $(8) | $27 | $4 | | Net (gain) loss on marketable securities | $(9,480) | $6,918 | $(29,652) | $(3,562) | NOTE 7 — OTHER EXPENSE, NET Details various other expenses and income, including pension non-service costs Other Expense, Net (In thousands): | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Royalty (income), net | $(313) | $(61) | $(284) | $(155) | | (Income) related to unconsolidated equity affiliates | $(145) | $(150) | $(629) | $(125) | | Pension non-service costs | $1,714 | $1,510 | $8,420 | $4,489 | | Loss on divestiture | — | $123 | — | $949 | | Other expense, net | $1,256 | $1,422 | $7,507 | $5,158 | NOTE 8 — INCOME TAXES Discusses effective income tax rates, deferred tax liabilities, and factors influencing tax variances Effective Income Tax Rates: | Period | February 28, 2021 | February 29, 2020 | | :-------------------------------- | :------------------ | :------------------ | | Three Months Ended | 31.1% | 25.9% | | Nine Months Ended | 25.2% | 24.9% | - Variances from the 21% statutory rate are primarily due to state and local income taxes, non-deductible business expenses, net tax on foreign subsidiary income (GILTI), and increased valuation allowances for foreign net operating losses[69][70] - A $5.3 million discrete charge was recorded in the three and nine months ended February 28, 2021, for an increase to deferred income tax liability on additional unremitted foreign earnings not considered permanently reinvested[69][70] - The deferred tax liability for unremitted foreign earnings was $17.7 million as of February 28, 2021, representing the estimated foreign tax cost on $620.7 million of foreign earnings not permanently reinvested[71] NOTE 9 — INVENTORIES Provides a breakdown of inventory components, net of reserves Inventories, Net of Reserves (In thousands): | Item | February 28, 2021 | May 31, 2020 | | :------------------------ | :------------------ | :------------- | | Raw material and supplies | $370,551 | $282,579 | | Finished goods | $542,751 | $527,869 | | Total Inventory, Net of Reserves | $913,302 | $810,448 | NOTE 10 — STOCK REPURCHASE PROGRAM Details the company's stock repurchase activities and program status - The stock repurchase program, previously suspended due to Covid-19, was authorized to resume in January 2021 and extended beyond its original May 31, 2021 expiration date until the remaining $469.7 million in shares are repurchased[74] Stock Repurchase Activity (Shares and Cost): | Period | Shares Repurchased | Cost (in millions) | Average Price Per Share | | :-------------------------------- | :----------------- | :----------------- | :---------------------- | | Three Months Ended Feb 28, 2021 | 290,174 | $24.6 | $84.87 | | Nine Months Ended Feb 28, 2021 | 290,174 | $24.6 | $84.87 | | Three Months Ended Feb 29, 2020 | 0 | $0 | N/A | | Nine Months Ended Feb 29, 2020 | 1,655,616 | $100.0 | $60.40 | NOTE 11 — EARNINGS PER SHARE Presents basic and diluted earnings per share attributable to RPM stockholders Earnings Per Share (EPS) Attributable to RPM International Inc. Stockholders: | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Basic EPS | $0.30 | $0.09 | $2.68 | $1.51 | | Diluted EPS | $0.29 | $0.09 | $2.66 | $1.50 | | Basic weighted average common shares (in thousands) | 128,447 | 128,426 | 128,455 | 128,572 | | Total shares for diluted EPS (in thousands) | 129,949 | 130,028 | 129,052 | 129,238 | NOTE 12 — PENSION PLANS Outlines net periodic benefit costs and contributions for the company's pension plans Net Periodic Benefit Cost (In thousands): | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | U.S. Pension Benefits | $14,160 | $11,018 | $42,480 | $33,054 | | Non-U.S. Pension Benefits | $1,412 | $1,264 | $4,236 | $3,792 | | U.S. Postretirement Benefits | $(13) | $(34) | $(39) | $(102) | | Non-U.S. Postretirement Benefits | $844 | $869 | $2,532 | $2,607 | - Net periodic pension and U.S. postretirement costs for fiscal 2021 are higher than fiscal 2020 due to lower discount rates[81] - The company contributed $62.1 million to U.S. pension plans during the current quarter and plans an additional $0.2 million, totaling $62.3 million for the fiscal year, significantly higher than the initial expectation of $8.0 million[81] NOTE 13 — CONTINGENCIES AND ACCRUED LOSSES Addresses the SEC investigation, warranty accruals, and environmental remediation costs - The SEC investigation and enforcement action was resolved on December 22, 2020, with the company agreeing to pay a civil monetary penalty of $2.0 million, which was accrued as of November 30, 2020 and paid during the quarter ended February 28, 2021[89] Accrued Warranty Balances (In thousands): | Item | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Beginning Balance | $12,050 | $10,555 | $11,106 | $10,414 | | Deductions (claims paid) | $(4,745) | $(4,622) | $(18,327) | $(16,002) | | Provision charged to expense | $5,473 | $4,804 | $19,999 | $16,325 | | Ending Balance | $12,778 | $10,737 | $12,778 | $10,737 | - Environmental remediation costs are accrued when probable and reasonably estimable, with current liabilities not expected to materially affect results[85][86] NOTE 14 – REVENUE Explains revenue recognition policies, variable consideration, and contract balances - Revenue is recognized upon transfer of control of products or services, with the majority recognized at a point in time, while construction contracts use output or input methods over time[93] - Customer rebate programs and incentives are treated as variable consideration, reducing net sales, and are estimated based on known offerings and expected sales volume[96] Trade Accounts Receivable and Net Contract (Liabilities) (In thousands): | Item | February 28, 2021 | November 30, 2020 | May 31, 2020 | | :-------------------------------- | :------------------ | :------------------ | :------------- | | Trade accounts receivable, less allowances | $998,783 | $1,081,841 | $1,137,957 | | Contract assets | $22,993 | $27,154 | $25,249 | | Contract liabilities - short-term | $(31,918) | $(28,310) | $(25,288) | | Net Contract (Liabilities) | $(8,925) | $(1,156) | $(39) | - The increase in net contract liabilities from November 30, 2020, to February 28, 2021, was primarily due to the timing and volume of construction jobs, reflecting seasonal impacts on unbilled revenue[99] Allowance for Credit Losses Activity (In thousands): | Item | Balance at Nov 30, 2020 | Bad Debt Provision | Uncollectible Accounts Written Off, Net | Translation Adjustments | Balance at Feb 28, 2021 | | :-------------------------------- | :---------------------- | :----------------- | :------------------------------------ | :---------------------- | :---------------------- | | Activity for Three Months Ended Feb 28, 2021 | $53,542 | $3,800 | $(5,661) | $522 | $52,203 | | Item | Balance at Jun 1, 2020 | Bad Debt Provision | Uncollectible Accounts Written Off, Net | Translation Adjustments | Balance at Feb 28, 2021 | | :-------------------------------- | :--------------------- | :----------------- | :------------------------------------ | :---------------------- | :---------------------- | | Activity for Nine Months Ended Feb 28, 2021 | $55,847 | $4,968 | $(11,008) | $2,396 | $52,203 | NOTE 15 — SEGMENT INFORMATION Provides financial data by operating segment and geographical region - The company operates through four reportable segments: Construction Products Group (CPG), Performance Coatings Group (PCG), Consumer, and Specialty Products Group (SPG), along with a corporate/other category[106] Net Sales by Segment and Geography (In thousands, Three Months Ended Feb 28, 2021): | Geography | CPG Segment | PCG Segment | Consumer Segment | SPG Segment | Consolidated | | :---------------- | :------------ | :------------ | :--------------- | :---------- | :----------- | | United States | $195,193 | $132,075 | $381,712 | $139,862 | $848,842 | | Foreign | $200,776 | $94,448 | $96,030 | $29,299 | $420,553 | | Total | $395,969 | $226,523 | $477,742 | $169,161 | $1,269,395 | Net Sales by Segment and Geography (In thousands, Nine Months Ended Feb 28, 2021): | Geography | CPG Segment | PCG Segment | Consumer Segment | SPG Segment | Consolidated | | :---------------- | :------------ | :------------ | :--------------- | :---------- | :----------- | | United States | $784,246 | $436,617 | $1,332,531 | $413,571 | $2,966,965 | | Foreign | $662,933 | $308,528 | $333,887 | $89,668 | $1,395,016 | | Total | $1,447,179 | $745,145 | $1,666,418 | $503,239 | $4,361,981 | Income (Loss) Before Income Taxes by Segment (In thousands): | Segment | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | CPG Segment | $14,431 | $(478) | $184,613 | $139,324 | | PCG Segment | $12,158 | $22,240 | $64,719 | $83,617 | | Consumer Segment | $42,724 | $29,798 | $263,813 | $123,413 | | SPG Segment | $24,560 | $12,942 | $73,415 | $55,031 | | Corporate/Other | $(38,013) | $(48,194) | $(122,375) | $(140,476) | | Consolidated | $55,860 | $16,308 | $464,185 | $260,909 | NOTE 16 — GOODWILL Details the carrying amount of goodwill by segment and impairment testing policy - Goodwill is assessed for impairment annually during the fourth quarter or more frequently if circumstances indicate impairment, with testing performed at the reporting unit level[117] Changes in Carrying Amount of Goodwill by Segment (In thousands): | Segment | Balance as of May 31, 2020 | Acquisitions | Translation Adjustments & Other | Balance as of February 28, 2021 | | :---------------- | :------------------------- | :----------- | :------------------------------ | :------------------------------ | | CPG Segment | $405,354 | — | $25,877 | $431,231 | | PCG Segment | $185,404 | — | $3,238 | $188,642 | | Consumer Segment | $496,218 | $20,126 | $7,175 | $523,519 | | SPG Segment | $163,090 | — | $4,280 | $167,370 | | Total | $1,250,066 | $20,126 | $40,570 | $1,310,762 | NOTE 17 — SUBSEQUENT EVENTS Reports significant events occurring after the balance sheet date, including facility amendments - On March 18, 2021, RPM International Inc. amended and extended its $250.0 million accounts receivable securitization facility to May 21, 2024[119] - As of April 7, 2021, the company repurchased an additional 303,887 shares of common stock at a cost of approximately $25.3 million since February 28, 2021[120] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed discussion and analysis of the company's financial condition and results of operations, focusing on critical accounting policies, segment performance, and liquidity. It highlights the impact of the Covid-19 pandemic, restructuring efforts, and market dynamics on sales, margins, and expenses for the three and nine months ended February 28, 2021 CRITICAL ACCOUNTING POLICIES AND ESTIMATES Discusses key accounting policies and estimates that require significant management judgment - The preparation of financial statements requires estimates and assumptions for areas such as allowances for doubtful accounts, inventory reserves, goodwill, environmental liabilities, warranties, income tax valuation allowances, pension plans, and fair value of financial instruments[121] - Actual results may differ materially from estimates due to actual market conditions[121] BUSINESS SEGMENT INFORMATION Presents net sales and EBIT performance across the company's various business segments Net Sales by Segment (In thousands): | Segment | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | CPG Segment | $395,969 | $372,082 | $1,447,179 | $1,407,697 | | PCG Segment | $226,523 | $255,686 | $745,145 | $845,639 | | Consumer Segment | $477,742 | $398,743 | $1,666,418 | $1,328,974 | | SPG Segment | $169,161 | $147,465 | $503,239 | $465,723 | | Consolidated | $1,269,395 | $1,173,976 | $4,361,981 | $4,048,033 | EBIT by Segment (In thousands): | Segment | Three Months Ended Feb 28, 2021 | Three Months Ended Feb 29, 2020 | Nine Months Ended Feb 28, 2021 | Nine Months Ended Feb 29, 2020 | | :---------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | CPG Segment | $16,505 | $1,652 | $190,938 | $145,555 | | PCG Segment | $12,083 | $22,117 | $64,666 | $83,597 | | Consumer Segment | $42,784 | $29,855 | $264,000 | $123,632 | | SPG Segment | $24,624 | $12,966 | $73,634 | $55,037 | | Corporate/Other | $(30,626) | $(22,474) | $(98,813) | $(78,636) | | Consolidated | $65,370 | $44,116 | $494,425 | $329,185 | RESULTS OF OPERATIONS Analyzes the company's financial performance, including sales, margins, and expenses Three Months Ended February 28, 2021 For the three months ended February 28, 2021, consolidated net sales increased by 8.1% year-over-year, driven by strong organic growth in Consumer and SPG segments, partially offset by declines in PCG due to COVID-19 restrictions. Gross profit margin improved slightly due to MAP to Growth savings and higher sales volume, despite increased freight costs. SG&A expenses increased in absolute terms but decreased as a percentage of sales, benefiting from MAP to Growth savings and reduced discretionary spending Net Sales Growth (Three Months Ended Feb 28, 2021 vs. Feb 29, 2020): | Segment | Total Growth | Organic Growth | Acquisition Growth | Foreign Currency Exchange Impact | | :---------------- | :----------- | :------------- | :----------------- | :----------------------------- | | CPG Segment | 6.4% | 5.4% | — | 1.0% | | PCG Segment | -11.4% | -12.7% | — | 1.3% | | Consumer Segment | 19.8% | 12.7% | 6.1% | 1.0% | | SPG Segment | 14.7% | 13.4% | — | 1.3% | | Consolidated | 8.1% | 4.9% | 2.1% | 1.1% | - CPG segment organic growth was driven by renovation/restoration projects and market share gains in unique construction technologies, despite soft commercial/institutional markets[128] - Consumer segment experienced significant organic growth due to unprecedented demand for DIY home improvement products and increased cleaning product sales during Covid-19 shutdowns[130] - Consolidated gross profit margin increased by 0.2% (20 bps) to 37.2%, primarily due to MAP to Growth savings and higher sales volume, partially offset by higher freight costs[133] - Consolidated SG&A expense increased by $20.3 million but decreased to 31.7% of net sales (from 32.5%), benefiting from $6.3 million in MAP to Growth savings and reduced discretionary spending, partially offset by acquisition-related SG&A and higher volume-driven costs in Consumer[138][139][140][141][142] Restructuring Charges (Three Months Ended, in millions): | Item | February 28, 2021 | February 29, 2020 | | :-------------------------------- | :------------------ | :------------------ | | Severance and benefit costs | $0.6 | $4.8 | | Facility closure and other related costs | $2.6 | $2.2 | | Other restructuring costs | $(0.1) | $0.3 | | Total Restructuring Costs | $3.1 | $7.3 | Net Income and Diluted EPS (Three Months Ended, in millions, except per share amounts): | Item | February 28, 2021 | February 29, 2020 | | :--------------------------------------- | :------------------ | :------------------ | | Net income | $38.5 | $12.1 | | Net income attributable to RPM Stockholders | $38.2 | $11.9 | | Diluted earnings per share | $0.29 | $0.09 | Nine Months Ended February 28, 2021 For the nine months ended February 28, 2021, consolidated net sales increased by 7.8% year-over-year, driven by strong organic growth in Consumer and SPG segments, while PCG experienced declines due to COVID-19 and energy market challenges. Gross profit margin improved by 1.2% (120 bps) due to selling price increases, MAP to Growth savings, and higher sales volume. SG&A expenses increased in absolute terms but decreased as a percentage of sales, reflecting MAP to Growth savings and temporary cost controls Net Sales Growth (Nine Months Ended Feb 28, 2021 vs. Feb 29, 2020): | Segment | Total Growth | Organic Growth | Acquisition Growth | Foreign Currency Exchange Impact | | :---------------- | :----------- | :------------- | :----------------- | :----------------------------- | | CPG Segment | 2.8% | 3.2% | — | -0.4% | | PCG Segment | -11.9% | -12.3% | 0.1% | 0.3% | | Consumer Segment | 25.4% | 21.2% | 3.8% | 0.4% | | SPG Segment | 8.1% | 4.5% | 2.7% | 0.9% | | Consolidated | 7.8% | 6.1% | 1.6% | 0.1% | - CPG segment organic growth was driven by market share gains in construction technologies and improved weather conditions for roofing business[157] - Consumer segment experienced significant organic growth from distribution gains, higher DIY demand, and cleaning product businesses[159] - Consolidated gross profit margin increased by 1.2% (120 bps) to 39.2%, primarily due to selling price increases, MAP to Growth savings, and higher sales volume[162] - Consolidated SG&A expense increased by $11.8 million but decreased to 27.4% of net sales (from 29.3%), driven by $18.7 million in MAP to Growth savings, reduced discretionary spending, and temporary salary cuts, partially offset by acquisition-related SG&A and higher volume-driven costs[165][166][167][168][169][170] Restructuring Charges (Nine Months Ended, in millions): | Item | February 28, 2021 | February 29, 2020 | | :-------------------------------- | :------------------ | :------------------ | | Severance and benefit costs | $5.2 | $11.3 | | Facility closure and other related costs | $6.4 | $6.8 | | Other restructuring costs | $0.7 | $0.7 | | Total Restructuring Costs | $12.3 | $18.8 | Net Income and Diluted EPS (Nine Months Ended, in millions, except per share amounts): | Item | February 28, 2021 | February 29, 2020 | | :--------------------------------------- | :------------------ | :------------------ | | Net income | $347.1 | $195.9 | | Net income attributable to RPM Stockholders | $346.5 | $195.1 | | Diluted earnings per share | $2.66 | $1.50 | LIQUIDITY AND CAPITAL RESOURCES Analyzes the company's cash flows, working capital, available liquidity, and compliance with debt covenants - Cash provided by operating activities increased significantly to $651.9 million for the first nine months of fiscal 2021, up from $381.2 million in the prior year, driven by a $151.2 million increase in net income[180] - Days sales outstanding (DSO) decreased to 65.6 days (from 68.7 days), and days of inventory outstanding (DIO) decreased to 103.1 days (from 111.3 days), reflecting improved working capital management and increased demand[181][182] - Cash used for investing activities increased by $53.8 million to $217.9 million, primarily due to higher acquisition spending ($49.3 million more)[187] - Cash used for financing activities increased by $217.7 million to $439.7 million, mainly due to debt-related activities, including $698.3 million less cash from new debt, partially offset by $414.5 million less cash used to pay down existing debt[191] - Available liquidity, including cash and committed credit facilities, stood at $1.43 billion at February 28, 2021, up from $1.28 billion at May 31, 2020[193] - The company was in compliance with all financial covenants of its Revolving Credit Facility as of February 28, 2021, with a Net Leverage Ratio of 2.13 to 1 (against a maximum of 4.25 to 1) and an interest coverage ratio of 11.94 to 1 (against a minimum of 3.50 to 1)[202][203] OTHER MATTERS Addresses environmental obligations and their anticipated impact on financial results - Environmental obligations are being appropriately addressed and are not anticipated to materially affect the company's results of operations or financial condition[207] FORWARD-LOOKING STATEMENTS Highlights uncertainties and risk factors that could cause actual results to differ from projections - Forward-looking statements are subject to uncertainties and factors that could cause actual results to differ materially, including global economic conditions, raw material prices, interest rates, foreign exchange rates, political/social/economic factors in foreign countries, acquisition/divestiture activities, restructuring initiatives, contingent liability reserves, and risks related to Covid-19[208][209] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from changes in raw material costs, interest rates, and foreign exchange rates. While there were no material potential changes in overall exposure since May 31, 2020, recent macroeconomic factors have created inflationary pressure on certain product categories - The company is exposed to market risks from changes in raw materials costs, interest rates, and foreign exchange rates[210] - No material potential changes in market risk exposure occurred since May 31, 2020, but inflationary cost pressure on certain product categories has been noted[210] Item 4. Controls and Procedures The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of February 28, 2021. There were no material changes in internal control over financial reporting during the fiscal quarter - The CEO and CFO concluded that disclosure controls and procedures were effective as of February 28, 2021[211] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended February 28, 2021[212] PART II. OTHER INFORMATION Presents additional information including legal proceedings, risk factors, equity sales, and exhibits Item 1. Legal Proceedings This section refers to Note 13 for details on the SEC investigation and enforcement action, which has been resolved. It also confirms that environmental proceedings are not expected to have a material adverse effect, noting the company's adoption of a $1 million disclosure threshold for such proceedings - The SEC investigation and enforcement action is resolved; refer to Note 13 for details[215] - Environmental proceedings are not expected to have a material adverse effect on consolidated financial condition or results of operations[216] - The company has adopted a $1 million disclosure threshold for environmental proceedings, in line with the updated SEC rule, and is not aware of any matters exceeding this threshold[217][218] Item 1A. Risk Factors This section directs readers to the comprehensive list of risk factors detailed in Item 1A of the company's Annual Report on Form 10-K for the fiscal year ended May 31, 2020 - Readers should refer to Item 1A of the Annual Report on Form 10-K for the fiscal year ended May 31, 2020, for a comprehensive discussion of risk factors[219] Item 2. Unregistered Sale of Equity Securities and Use of Proceeds This section provides details on the common stock repurchases made during the third quarter of fiscal 2021 under the company's stock repurchase program Common Stock Repurchases (Third Quarter Fiscal 2021): | Period | Total Number of Shares Purchased | Average Price Paid Per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | :--------------------------------------- | :------------------------------- | :--------------------------- | :----------------------------------------------------------------- | | December 1, 2020 through December 31, 2020 | 163 | $86.44 | - | | January 1, 2021 through January 31, 2021 | 15,487 | $86.67 | - | | February 1, 2021 through February 28, 2021 | 290,174 | $84.87 | 290,174 | | Total - Third Quarter | 305,824 | $84.97 | 290,174 | Note: 15,650 shares were disposed of back to the company in satisfaction of tax obligations related to restricted stock vesting The maximum dollar amount that may yet be repurchased under the program was approximately $445.1 million at February 28, 2021 Item 6. Exhibits This section lists the exhibits filed as part of the Form 10-Q, including certifications and XBRL documents - The exhibits include Rule 13a-14(a) Certifications from the CEO and CFO, Section 1350 Certifications from the CEO and CFO, and various Inline XBRL documents[222] Signatures This section contains the duly authorized signatures of the registrant's Chairman and Chief Executive Officer, Frank C. Sullivan, and Vice President and Chief Financial Officer, Russell L. Gordon, confirming the filing of the report