# RPM International Inc: Form 10-Q for the period ended Feb 28, 2023

- Company: [RPM International Inc](/companies/rpm.md) (CIK 110621)
- Form: 10-Q
- Filed: 2023-04-06
- Accepted by EDGAR: Apr 6, 2023, 15:09 ET
- Period: 2023-02-28
- Accession: 0000950170-23-012051
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/110621/000095017023012051/rpm-20230228.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/110621/000095017023012051/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-02-28.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2022-12-01 to 2023-02-28 | $1.52bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 9 months, 2022-06-01 to 2023-02-28 | $5.24bn | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2022-12-01 to 2023-02-28 | $978.1m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 9 months, 2022-06-01 to 2023-02-28 | $3.27bn | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2022-12-01 to 2023-02-28 | $538.0m | us-gaap:GrossProfit |
| Gross profit | 9 months, 2022-06-01 to 2023-02-28 | $1.97bn | us-gaap:GrossProfit |
| Selling, general and administrative | 3 months, 2022-12-01 to 2023-02-28 | $450.0m | us-gaap:SellingGeneralAndAdministrativeExpense |
| Selling, general and administrative | 9 months, 2022-06-01 to 2023-02-28 | $1.43bn | us-gaap:SellingGeneralAndAdministrativeExpense |
| Interest expense | 3 months, 2022-12-01 to 2023-02-28 | $30.8m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2022-06-01 to 2023-02-28 | $85.4m | us-gaap:InterestExpense |
| Income tax | 3 months, 2022-12-01 to 2023-02-28 | $15.2m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 9 months, 2022-06-01 to 2023-02-28 | $114.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2022-12-01 to 2023-02-28 | $27.0m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2022-06-01 to 2023-02-28 | $327.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2022-12-01 to 2023-02-28 | $0.21 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 9 months, 2022-06-01 to 2023-02-28 | $2.54 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2022-12-01 to 2023-02-28 | $0.21 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2022-06-01 to 2023-02-28 | $2.55 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2022-12-01 to 2023-02-28 | 128,035,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 9 months, 2022-06-01 to 2023-02-28 | 128,789,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 9 months, 2022-06-01 to 2023-02-28 | $263.0m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 9 months, 2022-06-01 to 2023-02-28 | $179.7m | us-gaap:PaymentsToAcquireProductiveAssets |
| Dividends paid | 9 months, 2022-06-01 to 2023-02-28 | $159.8m | us-gaap:PaymentsOfDividends |
| Share repurchases | 9 months, 2022-06-01 to 2023-02-28 | $37.5m | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2023-02-28 | $193.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2023-02-28 | $3.08bn | us-gaap:AssetsCurrent |
| Total assets | at 2023-02-28 | $6.61bn | us-gaap:Assets |
| Current liabilities | at 2023-02-28 | $1.12bn | us-gaap:LiabilitiesCurrent |
| Current portion of debt | at 2023-02-28 | $3.1m | us-gaap:LongTermDebtCurrent |
| Shareholders' equity | at 2023-02-28 | $2.05bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 51,116 characters.

### CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our financial statements include all of our majority-owned and controlled subsidiaries. Investments in less-than-majority-owned joint ventures over which we have the ability to exercise significant influence are accounted for under the equity method. Preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate these estimates, including those related to our allowances for doubtful accounts; reserves for excess and obsolete inventories; allowances for recoverable sales and/or value-added taxes; uncertain tax positions; useful lives of property, plant and equipment; goodwill and other intangible assets; environmental, warranties and other contingent liabilities; income tax valuation allowances; pension plans; and the fair value of financial instruments. We base our estimates on historical experience, our most recent facts, and other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of our assets and liabilities. Actual results, which are shaped by actual market conditions, may differ materially from our estimates.

### Goodwill

Our annual goodwill impairment analysis for fiscal 2022 did not result in any indicators of impairment.

As previously reported, we announced our MAP 2025 operational improvement initiative. Due to the challenged macroeconomic environment, we evaluated certain business restructuring actions, specifically our go to market strategy for operating in Europe. During the third quarter ended February 28, 2023, due to declining profitability and regulatory headwinds, management decided to restructure the USL reporting unit within our PCG segment, and is correspondingly exploring strategic alternatives for our infrastructure services business within the U.K. which represents approximately 30% of annual revenues of the reporting unit.

Due to this decision, we determined that an interim goodwill impairment assessment was required, as well as an impairment assessment for our other long-lived assets. Accordingly, for the three and nine months ended, February 28, 2023, we recorded an impairment loss totaling $36.7 million for the impairment of goodwill and $2.5 million for the impairment of an indefinite-lived tradename in our USL reporting unit within our PCG segment. We did not record any impairments for our definite-lived long-lived assets as a result of this assessment. Refer to Note 4, “Goodwill and Other Intangible Assets,” for further discussion.

Should future earnings and cash flows at our reporting units decline, discount rates increase, and/or other relevant events and circumstances change that affect the fair value of our reporting units, future impairment charges to goodwill and other intangible assets may be required.

A comprehensive discussion of the accounting policies and estimates that are the most critical to our financial statements are set forth in our Annual Report on Form 10-K for the year ended May 31, 2022.

### BUSINESS SEGMENT INFORMATION

The following tables reflect the results of our reportable segments consistent with our management philosophy, and represent the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of businesses.

*(In thousands)*

| Net Sales | Three Months Ended February 28, 2023 | February 28, 2022 | Nine Months Ended February 28, 2023 | February 28, 2022 |
| --- | ---: | ---: | ---: | ---: |
| CPG Segment | $497,014 | $482,026 | $1,860,825 | $1,740,578 |
| PCG Segment | 299,627 | 270,865 | 975,212 | 858,987 |
| Consumer Segment | 528,531 | 491,617 | 1,798,382 | 1,559,223 |
| SPG Segment | 191,004 | 189,371 | 605,785 | 565,050 |
| **Consolidated** | $1,516,176 | $1,433,879 | $5,240,204 | $4,723,838 |
| **Income Before Income Taxes (a)** |  |  |  |  |
| CPG Segment |  |  |  |  |
| Income Before Income Taxes (a) | $8,181 | $31,498 | $192,836 | $276,223 |
| Interest (Expense), Net (b) | (3,456) | (1,735) | (7,979) | (5,254) |
| EBIT (c) | $11,637 | $33,233 | $200,815 | $281,477 |
| PCG Segment |  |  |  |  |
| (Loss) Income Before Income Taxes (a) | $(8,352) | $24,917 | $83,896 | $97,849 |
| Interest Income, Net (b) | 474 | 76 | 947 | 407 |
| EBIT (c) | $(8,826) | $24,841 | $82,949 | $97,442 |
| Consumer Segment |  |  |  |  |
| Income Before Income Taxes (a) | $68,146 | $16,893 | $278,708 | $95,912 |
| Interest Income, Net (b) | 18 | 62 | 45 | 211 |
| EBIT (c) | $68,128 | $16,831 | $278,663 | $95,701 |
| SPG Segment |  |  |  |  |
| Income Before Income Taxes (a) | $39,482 | $25,881 | $94,798 | $71,028 |
| Interest Income (Expense), Net (b) | 28 | (18) | 23 | (82) |
| EBIT (c) | $39,454 | $25,899 | $94,775 | $71,110 |
| Corporate/Other |  |  |  |  |
| (Loss) Before Income Taxes (a) | $(64,970) | $(58,692) | $(207,495) | $(155,890) |
| Interest (Expense), Net (b) | (25,097) | (24,756) | (72,511) | (60,830) |
| EBIT (c) | $(39,873) | $(33,936) | $(134,984) | $(95,060) |
| **Consolidated** |  |  |  |  |
| Net Income | $27,239 | $33,249 | $328,060 | $293,160 |
| Add: Provision for Income Taxes | 15,248 | 7,248 | 114,683 | 91,962 |
| Income Before Income Taxes (a) | 42,487 | 40,497 | 442,743 | 385,122 |
| Interest (Expense) | (30,756) | (22,016) | (85,385) | (64,127) |
| Investment Income (Expense), Net | 2,723 | (4,355) | 5,910 | (1,421) |
| EBIT (c) | $70,520 | $66,868 | $522,218 | $450,670 |

(a) The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by GAAP, to EBIT.

(b) Interest Income (Expense), Net includes the combination of Interest Income (Expense) and Investment Income (Expense), Net.

(c) EBIT is a non-GAAP measure and is defined as Earnings (Loss) Before Interest and Taxes. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT, as a performance evaluation measure because Interest (Income) Expense, Net is essentially related to corporate functions, as opposed to segment operations. We believe EBIT is useful to investors for this purpose as well, using EBIT as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, income before income taxes as determined in accordance with GAAP, since EBIT omits the impact of interest in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets' analysis of our segments' core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.

### RESULTS OF OPERATIONS

### Three Months Ended February 28, 2023

### Net Sales

*(in millions, except percentages)*

|  | Three months ended February 28, 2023 | February 28, 2022 | Total Growth | Organic Growth(1) | Acquisition & Divestiture Impact | Foreign Currency Exchange Impact |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| CPG Segment | $497.0 | $482.0 | 3.1% | 4.3% | 1.4% | -2.6% |
| PCG Segment | 299.6 | 270.9 | 10.6% | 13.2% | 0.8% | -3.4% |
| Consumer Segment | 528.5 | 491.6 | 7.5% | 8.9% | 0.3% | -1.7% |
| SPG Segment | 191.1 | 189.4 | 0.9% | 2.2% | -0.2% | -1.1% |
| **Consolidated** | $1,516.2 | $1,433.9 | 5.7% | 7.3% | 0.7% | -2.3% |
| (1) Organic growth includes the impact of price and volume. |  |  |  |  |  |  |

Our CPG segment generated organic sales growth during the third quarter of fiscal 2023 when compared to the same quarter in the prior year driven by strength in its concrete admixtures and repair business, which continued to benefit from market share gains along with infrastructure and reshoring-related projects. Improved pricing in response to continued cost inflation and strength in restoration systems for roofing, facades, and parking structures also contributed to sales growth during the quarter. This growth was partially offset by unfavorable foreign exchange translation and deteriorated economic conditions in Europe, along with reduced demand for businesses that serve residential and certain commercial construction markets.

Our PCG segment generated significant organic sales growth during the third quarter of fiscal 2023 in nearly all the major business units in the segment when compared to the same quarter in the prior year. Performing particularly well were businesses that provide fiberglass reinforced plastic grating, protective coatings and flooring systems, all of which were strategically well-positioned to benefit from growing vertical markets such as pharmaceuticals, energy and industries reshoring their manufacturing, which includes semiconductor chip and electric vehicle assembly and battery manufacturing. This increase was also facilitated by improved pricing in response to continued cost inflation.

Our Consumer segment generated significant organic sales growth in comparison to the prior year due to improved pricing to catch up with continued cost inflation. This growth was partially offset by volume declines as customers were cautious on increasing inventory levels and consumer takeaway at retail slowed. The prior year comparison was negatively impacted by supply chain disruptions as a result of reduced raw material supply, particularly of alkyd-based resins.

Our SPG segment generated organic sales growth during the third quarter of fiscal 2023, particularly in its disaster restoration business as operational improvement investments allowed the business to quickly respond to restoration efforts following inclement weather. The segment's businesses serving the food coatings and additives market also generated strong growth as a result of strategically refocusing sales management and selling efforts. Decreased demand at businesses serving OEM markets offset this growth.

***Gross Profit Margin*** Our consolidated gross profit margin of 35.5% of net sales for the third quarter of fiscal 2023 compares to a consolidated gross profit margin of 34.8% for the comparable period a year ago. The current quarter gross profit margin increase of approximately 0.7%, or 70 basis points (“bps”), resulted primarily from higher selling prices in response to continued cost inflation and our MAP 2025 initiatives, which resulted in incremental savings in procurement and manufacturing that favorably impacted our gross margin. Partially offsetting these improvements were continued inflation in raw materials and wages, along with reduced fixed-cost leverage due to lower overall demand and internal initiatives to normalize inventories.

We expect that these headwinds will continue to be reflected in our results throughout the remainder of fiscal 2023. In addition, rising interest rates have negatively impacted construction activity, existing home sales, and overall economic activity, resulting in reduced customer demand which we expect to continue into the fourth quarter.

***SG&A*** Our consolidated SG&A expense during the period was $16.5 million higher versus the same period last year but decreased to 29.7% of net sales from 30.2% of net sales for the prior year quarter. Pay inflation and a $6.7 million increase in professional fees associated with our MAP 2025 initiatives contributed to this increase, which was partially offset by the $20.0 million gain on business interruption insurance proceeds received during the quarter as described above in Note 15, "Contingencies and Other Accrued Losses," to the Consolidated Financial Statements. Additional SG&A expense recognized by companies we recently acquired approximated $3.2 million during the third quarter of fiscal 2023.

Our CPG segment SG&A was approximately $9.7 million higher for the third quarter of fiscal 2023 versus the comparable prior year period and increased as a percentage of net sales. The increase in expense was mainly due to pay inflation, restoration of travel expenses compared to the prior year, increased professional fees and investments in growth initiatives, partially offset by reduced incentives. Additionally, companies recently acquired generated approximately $1.4 million of additional SG&A expense.

Our PCG segment SG&A was approximately $7.8 million higher for the third quarter of fiscal 2023 versus the comparable prior year period but decreased slightly as a percentage of net sales. The increase in expense as compared to the prior year period is mainly due to increased commissions as a result of higher volume as well as pay inflation and increased bad debt expense.

Our Consumer segment SG&A decreased by approximately $7.0 million during the third quarter of fiscal 2023 versus the same period last year and decreased as a percentage of net sales. The quarter-over-quarter decrease in SG&A was primarily attributable to the $20.0 million gain on business interruption insurance primarily offset by pay inflation, as well as increases in advertising, promotional expense, travel expense and distribution costs. Additionally, companies recently acquired generated approximately $0.9 million of additional SG&A expense.

Our SPG segment SG&A was approximately $4.5 million higher during the third quarter of fiscal 2023 versus the comparable prior year period and increased as a percentage of net sales. The increase in SG&A expense is attributable to pay inflation and investments in growth initiatives across each of its business units.

SG&A expenses in our corporate/other category increased by $1.5 million during the third quarter of fiscal 2023 as compared to last year’s third quarter. This increase was mainly due to higher professional fees related to our MAP 2025 operational improvement initiatives, offset by reduced healthcare costs and reduced stock compensation.

The following table summarizes the retirement-related benefit plans’ impact on income before income taxes for the three months ended February 28, 2023 and 2022, as the service cost component has a significant impact on our SG&A expense:

*(in millions)*

|  | Three months ended February 28, 2023 | February 28, 2022 | Change |
| --- | ---: | ---: | ---: |
| Service cost | $12.2 | $13.7 | $(1.5) |
| Interest cost | 9.3 | 5.4 | 3.9 |
| Expected return on plan assets | (11.3) | (12.4) | 1.1 |
| Amortization of: |  |  |  |
| Prior service (credit) | (0.1) | (0.1) | - |
| Net actuarial losses recognized | 4.6 | 4.4 | 0.2 |
| **Total Net Periodic Pension & Postretirement Benefit Costs** | $14.7 | $11.0 | $3.7 |

We expect that pension expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, both of which are difficult to predict, but which may have a material impact on our consolidated financial results in the future.

### Restructuring Charges

We recorded $4.2 million of restructuring charges during the three months ended February 28, 2023, of which $3.4 million related to our MAP 2025 initiative, which is a multi-year restructuring plan to build on the achievements of MAP to Growth and designed to improve margins by streamlining business processes, reducing working capital, implementing commercial initiatives to drive improved mix and salesforce effectiveness and improving operating efficiency. Initial phases of the plan have focused on commercial initiatives, operational efficiencies, and procurement. For the three months ended February 28, 2023, we incurred $0.9 million related to severance and benefit costs associated with MAP 2025 and $2.5 million related to other restructuring costs associated with the impairment of an indefinite-lived tradename as described above in Note 4, “Goodwill and Other Intangible Assets,” of the Consolidated Financial Statements. Most activities under MAP 2025 are anticipated to be completed by the end of fiscal year 2025.

We currently expect to incur approximately $14.7 million of future additional charges related to the implementation of MAP 2025.

For further information and details about MAP 2025, see Note 3, “Restructuring,” to the Consolidated Financial Statements.

### Interest Expense

*(in millions, except percentages)*

|  | Three months ended February 28, 2023 | February 28, 2022 |
| --- | ---: | ---: |
| Interest expense | $30.8 | $22.0 |
| Average interest rate (a) | 4.34% | 3.20% |

(a) The interest rate increase was a result of higher market rates on the variable cost borrowings.

*(in millions)*

|  | Change in interest expense |
| --- | ---: |
| Acquisition-related borrowings | $0.9 |
| Non-acquisition-related average borrowings | 0.1 |
| Change in average interest rate | 7.8 |
| **Total Change in Interest Expense** | $8.8 |

27

### Investment (Income) Expense, Net

See Note 6, “Investment (Income) Expense, Net,” to the Consolidated Financial Statements for details.

### (Gain) on Sales of Assets and Business, Net

See Note 7, "(Gain) on Sales of Assets and Business, Net," to the Consolidated Financial Statements for details.

### Other Expense (Income), Net

See Note 8, “Other Expense (Income), Net,” to the Consolidated Financial Statements for details.

### Income (Loss) Before Income Taxes (“IBT”)

*(in millions, except percentages)*

|  | Three months ended February 28, 2023 | % of net sales | February 28, 2022 | % of net sales |
| --- | ---: | ---: | ---: | ---: |
| CPG Segment | $8.2 | 1.6% | $31.5 | 6.5% |
| PCG Segment | (8.3) | -2.8% | 24.9 | 9.2% |
| Consumer Segment | 68.1 | 12.9% | 16.9 | 3.4% |
| SPG Segment | 39.5 | 20.7% | 25.9 | 13.7% |
| Non-Op Segment | (65.0) | — | (58.7) | — |
| **Consolidated** | $42.5 |  | $40.5 |  |

Our CPG segment, the most internationally concentrated segment, results reflect the negative impact of deteriorated macroeconomic conditions in Europe, unfavorable foreign currency exchange, along with reduced demand for businesses that serve residential and certain commercial construction markets. Our PCG segment results reflect the $39.2 million goodwill and intangible asset impairment charges as described above in Note 4, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements, which was partially offset by improved pricing in response to continued cost inflation, volume growth, and MAP 2025 benefits. Our Consumer segment results reflect improved pricing to catch up to continued cost inflation, improved operating efficiencies related to MAP 2025 and the $20.0 million gain on business interruption insurance proceeds received during the quarter. Our SPG segment results reflect the $24.7 million gain on the sale of its Guardian business, offset by unfavorable sales mix and reduced fixed cost leverage at plants as a result of customer destocking and inventory normalization initiatives that resulted in reduced production. Our Non-Op segment results reflect increased professional fees and interest expense, offset by favorable swings in investment returns.

***Income Tax Rate*** The effective income tax rate of 35.9% for the three months ended February 28, 2023 compares to the effective income tax rate of 17.9% for the three months ended February 28, 2022. The effective income tax rates for the presented periods reflect variances from the 21% statutory rate due primarily to the impact of state and local income taxes, non-deductible business expenses and the net tax on foreign subsidiary income resulting from the global intangible low-taxed income provisions, partially offset by tax benefits related to equity compensation. Further, the effective tax rate for the three-month period ended February 28, 2023, reflects the unfavorable impact of a noncash impairment charge for goodwill that is nondeductible for tax purposes. The effective tax rate impact of the nondeductible impairment charge is magnified by the seasonally lower level of pre-tax income for the period. Additionally, the effective tax rate for the three-month period ended February 28, 2022 reflects net favorable changes in foreign tax credit valuation allowances.

### Net Income

*(in millions, except percentages and per share amounts)*

|  | Three months ended February 28, 2023 | % of net sales | February 28, 2022 | % of net sales |
| --- | ---: | ---: | ---: | ---: |
| Net income | $27.2 | 1.8% | $33.2 | 2.3% |
| Net income attributable to RPM International Inc. stockholders | 27.0 | 1.8% | 33.0 | 2.3% |
| Diluted earnings per share | 0.21 |  | 0.25 |  |

28

### Nine Months Ended February 28, 2023

### Net Sales

*(in millions, except percentages)*

|  | Nine Months Ended February 28, 2023 | February 28, 2022 | Total Growth | Organic Growth(1) | Acquisition & Divestiture Impact | Foreign Currency Exchange Impact |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| CPG Segment | $1,860.8 | $1,740.6 | 6.9% | 9.4% | 1.7% | -4.2% |
| PCG Segment | 975.2 | 859.0 | 13.5% | 17.4% | 0.5% | -4.4% |
| Consumer Segment | 1,798.4 | 1,559.2 | 15.3% | 17.1% | 0.3% | -2.1% |
| SPG Segment | 605.8 | 565.0 | 7.2% | 8.8% | 0.5% | -2.1% |
| **Consolidated** | $5,240.2 | $4,723.8 | 10.9% | 13.3% | 0.9% | -3.3% |
| (1) Organic growth includes the impact of price and volume. |  |  |  |  |  |  |

Our CPG segment generated significant organic sales growth during the first nine months of fiscal 2023 when compared to the same prior year period driven by strength in restoration systems for roofing, facades and parking structures. Additionally, the segment's concrete admixtures and repair business benefited from market share gains. Improved pricing in response to continued cost inflation also contributed to sales growth during the first nine months of the year. This growth was partially offset by deteriorating economic conditions and unfavorable foreign exchange translation in Europe, along with reduced demand for businesses that serve residential and certain commercial construction markets.

Our PCG segment generated significant sales growth during the first nine months of fiscal 2023 in nearly all the major business units in the segment when compared to the same period in the prior year. Performing particularly well were businesses that provide flooring systems, protective coatings, and fiberglass reinforced plastic grating, all of which were strategically well-positioned to benefit from growing vertical markets such as pharmaceuticals, energy and industries reshoring their manufacturing, which includes semiconductor chip and electric vehicle assembly and battery manufacturing. This increase was also facilitated by strong demand in energy markets and price increases in response to continued cost inflation. Internationally, unfavorable foreign exchange translation was a headwind, but growth in emerging markets was strong in local currency.

Our Consumer segment generated significant organic growth during the first nine months of fiscal 2023 in comparison to the prior year period due to improved raw material supply, particularly of alkyd-based resins secured through strategic investment in its supply chain, insourcing, and qualifying new suppliers. In addition, sales growth benefitted from price increases to catch up with continued cost inflation and the prior year comparison when supply chain disruptions impacted raw material supply. This growth was partially offset by volume declines as customers were cautious on increasing inventory levels, consumer takeaway at retail slowed and by unfavorable foreign exchange translation, particularly in Europe.

Our SPG segment generated significant sales growth during the first nine months of fiscal 2023, particularly those businesses serving the food coatings and additives market, as a result of strategically refocusing sales management and selling efforts. The segment's disaster restoration business also benefited from the response to Hurricane Ian and other inclement winter weather. This was partially offset by unfavorable foreign exchange translation.

***Gross Profit Margin*** Our consolidated gross profit margin of 37.6% of net sales for the first nine months of fiscal 2023 compares to a consolidated gross profit margin of 35.9% for the comparable period a year ago. The current period gross profit margin increase of approximately 1.7%, or 170 bps, resulted primarily from higher selling prices catching up with continued cost inflation as well as the realization of production efficiencies due to improved raw material supply, savings from MAP initiatives, and improved sales. Partially offsetting these improvements were continued inflation in raw materials and wages, along with reduced fixed-cost leverage due to lower overall demand and internal initiatives to normalize inventories.

We expect that these headwinds will continue to be reflected in our results throughout the remainder of fiscal 2023. In addition, rising interest rates have negatively impacted construction activity, existing home sales, and overall economic activity, resulting in reduced customer demand which we expect to continue into the fourth quarter.

***SG&A*** Our consolidated SG&A expense during the period was $135.7 million higher versus the same period last year but decreased slightly to 27.2% of net sales from 27.3% of net sales for the prior year period. Variable costs associated with improved results such as commission expense and bonuses were contributing factors. In addition, a $28.6 million increase in professional fees associated with our MAP 2025 initiatives and pay inflation contributed to this increase, which was partially offset by the $20.0 million gain on business interruption insurance proceeds received during the quarter as described above in Note 15, "Contingencies and Other Accrued Losses," to the Consolidated Financial Statements. Additional SG&A expense recognized by companies we recently acquired approximated $10.7 million during the first nine months of fiscal 2023.

Our CPG segment SG&A was approximately $37.5 million higher for the first nine months of fiscal 2023 versus the comparable prior year period and increased slightly as a percentage of net sales. The increase in expense was mainly due to higher distribution costs, higher commission expense associated with higher sales, pay inflation, professional fees, as well as restoration of travel expenses compared to the prior year and investments in growth initiatives. Additionally, companies recently acquired generated approximately $6.0 million of additional SG&A expense.

Our PCG segment SG&A was approximately $31.4 million higher for the first nine months of fiscal 2023 versus the comparable prior year period but decreased slightly as a percentage of net sales. The increase in expense as compared to the prior year period is mainly due to increased commissions, higher distribution costs, pay inflation, increased bad debt expense, along with increased travel expenses and investments in growth initiatives for diversification of its protective coatings business.

Our Consumer segment SG&A increased by approximately $26.0 million during the first nine months of fiscal 2023 versus the same period last year but decreased as a percentage of net sales. The period over period increase in SG&A was attributable to increases in advertising and promotional expense, increased distribution costs, pay inflation, and the restoration of travel expenses, partially offset by the $20.0 million gain on business interruption insurance included in SG&A as described above in Note 15, "Contingencies and Other Accrued Losses," to the Consolidated Financial Statements. Additionally, companies recently acquired generated approximately $2.7 million of additional SG&A expense.

Our SPG segment SG&A was approximately $12.6 million higher during the first nine months of fiscal 2023 versus the comparable prior year period and increased slightly as a percentage of net sales. The increase in SG&A expense is attributable to pay inflation and investments in growth initiatives across each of its business units, partially offset by a charge recorded during the prior year period related to the legal matter that did not recur, as described above in Note 15, "Contingencies and Other Accrued Losses," to the Consolidated Financial Statements.

SG&A expenses in our corporate/other category increased by $28.2 million during the first nine months of fiscal 2023 as compared to last year’s first nine months mainly due to higher professional fees related to MAP 2025 initiatives.

The following table summarizes the retirement-related benefit plans’ impact on income before income taxes for the nine months ended February 28, 2023 and 2022, as the service cost component has a significant impact on our SG&A expense:

*(in millions)*

|  | Nine Months Ended February 28, 2023 | February 28, 2022 | Change |
| --- | ---: | ---: | ---: |
| Service cost | $36.4 | $41.1 | $(4.7) |
| Interest cost | 27.9 | 16.3 | 11.6 |
| Expected return on plan assets | (33.8) | (37.4) | 3.6 |
| Amortization of: |  |  |  |
| Prior service (credit) | (0.2) | (0.2) | - |
| Net actuarial losses recognized | 13.8 | 13.1 | 0.7 |
| **Total Net Periodic Pension & Postretirement Benefit Costs** | $44.1 | $32.9 | $11.2 |

We expect that pension expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, both of which are difficult to predict, but which may have a material impact on our consolidated financial results in the future.

### Restructuring Charges

We recorded $6.8 million of restructuring charges during the nine months ended February 28, 2023, of which $3.4 million relates to our MAP 2025 initiative. These restructuring charges included $0.9 million related to severance and benefit costs related to MAP 2025 and $2.5 million related to other restructuring costs associated with the impairment of an indefinite-lived tradename as described above in Note 4, “Goodwill and Other Intangible Assets,” of the Consolidated Financial Statements.

For further information and details about MAP 2025, see “Restructuring Charges” in Results of Operations - Three Months Ended February 28, 2023, and Note 3, “Restructuring,” to the Consolidated Financial Statements.

### Interest Expense

*(in millions, except percentages)*

|  | Nine Months Ended February 28, 2023 | February 28, 2022 |
| --- | ---: | ---: |
| Interest expense | $85.4 | $64.1 |
| Average interest rate (a) | 3.91% | 3.14% |

(a) The interest rate increase was a result of higher market rates on the variable cost borrowings.

*(in millions)*

|  | Change in interest expense |
| --- | ---: |
| Acquisition-related borrowings | $3.2 |
| Non-acquisition-related average borrowings | 2.2 |
| Change in average interest rate | 15.9 |
| **Total Change in Interest Expense** | $21.3 |

### Investment (Income) Expense, Net

See Note 6, “Investment (Income) Expense, Net,” to the Consolidated Financial Statements for details.

### (Gain) on Sales of Assets and Business, Net

See Note 7, "(Gain) on Sales of Assets and Business, Net," to the Consolidated Financial Statements for details.

### Other Expense (Income), Net

See Note 8, “Other Expense (Income), Net,” to the Consolidated Financial Statements for details.

### Income (Loss) Before Income Taxes (“IBT”)

*(in millions, except percentages)*

|  | Nine Months Ended February 28, 2023 | % of net sales | February 28, 2022 | % of net sales |
| --- | ---: | ---: | ---: | ---: |
| CPG Segment | $192.8 | 10.4% | $276.2 | 15.9% |
| PCG Segment | 83.9 | 8.6% | 97.8 | 11.4% |
| Consumer Segment | 278.7 | 15.5% | 95.9 | 6.2% |
| SPG Segment | 94.8 | 15.6% | 71.0 | 12.6% |
| Non-Op Segment | (207.5) | — | (155.8) | — |
| **Consolidated** | $442.7 |  | $385.1 |  |

On a consolidated basis, our results reflect the unfavorable impact of foreign exchange translation in Europe. Our CPG segment results reflect deteriorated macroeconomic conditions in Europe and reduced demand for businesses that serve residential and certain commercial construction markets. In addition, our prior year CPG segment results include a $41.9 million gain on the sale of certain real property assets. Our PCG segment results reflect improved pricing, volume growth and improved product mix, resulting from digital sales management tools, offset by the $39.2 million goodwill and intangible asset impairment charges. Our Consumer segment results reflect improved material supply which allowed for previously developed operating efficiencies to be realized, improved pricing to catch up with continued cost inflation and the $20.0 million gain on business interruption insurance. Our SPG segment results reflect decreased demand at businesses serving OEM markets, offset by improved pricing, increased operating efficiencies and the $24.7 million gain on the sale of its Guardian business. Our Non-Op segment results reflect the unfavorable swing in pension non-service costs, along with increased interest expense and professional fees.

***Income Tax Rate*** The effective income tax rate of 25.9% for the nine months ended February 28, 2023 compares to the effective income tax rate of 23.9% for the nine months ended February 28, 2022. The effective income tax rates for the presented periods reflect variances from the 21% statutory rate due primarily to the impact of state and local income taxes, non-deductible business expenses and the net tax on foreign subsidiary income resulting from the global intangible low-taxed income provisions, partially offset by tax benefits related to equity compensation. Further, the effective tax rate for the nine-month period ended February 28, 2023, reflects the unfavorable impact of a noncash impairment charge for goodwill that is nondeductible for tax purposes. Additionally, the effective tax rate for the nine-month period ended February 28, 2022 reflects net favorable changes in foreign tax credit valuation allowances.

### Net Income

*(in millions, except percentages and per share amounts)*

|  | Nine Months Ended February 28, 2023 | % of net sales | February 28, 2022 | % of net sales |
| --- | ---: | ---: | ---: | ---: |
| Net income | $328.1 | 6.2% | $293.2 | 6.2% |
| Net income attributable to RPM International Inc. stockholders | 327.3 | 6.2% | 292.5 | 6.2% |
| Diluted earnings per share | 2.54 |  | 2.26 |  |

31

### LIQUIDITY AND CAPITAL RESOURCES

### Fiscal 2023 Compared with Fiscal 2022

### Operating Activities

Approximately $263.0 million of cash was provided by operating activities during the first nine months of fiscal 2023, compared with $156.0 million of cash provided by operating activities during the same period last year. The net change in cash from operations includes the change in net income, which increased by $34.9 million during the first nine months of fiscal 2023 versus the same period during fiscal 2022.

During the first nine months of fiscal 2023, the change in accounts receivable provided approximately $32.2 million more cash than the first nine months of fiscal 2022. This resulted from the timing of sales in our CPG segment, which saw lower sales growth in the current quarter due to deteriorated macroeconomic conditions in Europe and reduced demand for businesses that serve residential and certain commercial construction markets. Average days sales outstanding (“DSO”) at February 28, 2023, increased slightly to 65.9 days from 64.4 days at February 28, 2022.

During the first nine months of fiscal 2023, the change in inventory used approximately $131.5 million less cash compared to our spending during the same period a year ago, as a result of our operating segments beginning to reduce inventory purchases and use safety stock built up in the prior period in response to supply chain outages and raw material inflation. Average days of inventory outstanding (“DIO”) was approximately 109.8 and 92.7 days at February 28, 2023 and 2022, respectively.

The change in accounts payable during the first nine months of fiscal 2023 used approximately $185.2 million more cash than during the first nine months of fiscal 2022. Accounts payable balances have declined throughout the year as raw material purchases have declined due to supply chain improvement and internal initiatives to normalize inventory levels. Average days payables outstanding (“DPO”) increased slightly, however, by approximately 0.4 days to 83.3 days at February 28, 2023 from 82.9 days at February 28, 2022.

The change in other accrued liabilities during the first nine months of fiscal 2023 used approximately $28.2 million less cash than during the first nine months of fiscal 2022 due principally to changes in pension and advertising accruals.

Additionally, certain government entities located where we have operations enacted various pieces of legislation designed to help businesses weather the economic impact of Covid and ultimately preserve jobs. Some of this legislation, such as the Coronavirus Aid, Relief, and Economic Relief Security Act in the United States, enabled employers to postpone the payment of various types of taxes over varying time horizons. As of May 31, 2021, we had deferred $27.1 million of such government payments, $13.5 million of which we paid during fiscal 2022. As of May 31, 2022, we had a total of $13.6 million accrued for such government payments which we paid during the third quarter of fiscal 2023.

### Investing Activities

For the first nine months of fiscal 2023, cash used for investing activities decreased by $46.3 million to $175.4 million as compared to $221.7 million in the prior year period. This year-over-year decrease in cash used for investing activities was mainly driven by a $68.9 million decrease in cash used for business acquisitions.

We paid for capital expenditures of $179.7 million and $152.4 million during the first nine months of fiscal 2023 and fiscal 2022, respectively. Our capital expenditures facilitate our continued growth, allow us to achieve production and distribution efficiencies, expand capacity, introduce new technology, improve environmental health and safety capabilities, improve information systems, and enhance our administration capabilities. We continue to increase capital spending in fiscal 2023 to expand capacity to continue our growth initiatives.

Our captive insurance companies invest their excess cash in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in the amounts related to these activities on a year-over-year basis are primarily attributable to differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At February 28, 2023 and May 31, 2022, the fair value of our investments in available-for-sale debt securities and marketable equity securities, which includes captive insurance-related assets, totaled $143.6 million and $144.4 million, respectively. The fair value of our portfolio of marketable securities is based on quoted market prices for identical, or similar, instruments in active or non-active markets or model-derived-valuations with observable inputs. We have no marketable securities whose fair value is subject to unobservable inputs.

As of February 28, 2023, approximately $176.3 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with $187.1 million at May 31, 2022. Undistributed earnings held at our foreign subsidiaries that are considered permanently reinvested will be used, for instance, to expand operations organically or for acquisitions in foreign jurisdictions. Further, our operations in the U.S. generate sufficient cash flow to satisfy U.S. operating requirements. Refer to Note 9, “Income Taxes,” to the Consolidated Financial Statements for additional information regarding unremitted foreign earnings.

### Financing Activities

For the first nine months of fiscal 2023, financing activities used $83.3 million of cash, which compares to cash provided by financing activities of $27.9 million during the first nine months of fiscal 2022. The overall increase in cash used for financing activities was driven principally by debt-related activities. During the first nine months of fiscal 2023, we paid our $300 million 3.45% Notes due 2022 which was partially offset by additional borrowings of $225.0 million for our accounts receivable securitization program ("AR Program"). See below for further details on the significant components of our debt.

Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $843.5 million and $1.31 billion as of February 28, 2023 and May 31, 2022, respectively.

### Revolving Credit Agreement

During the quarter ended August 31, 2022, we amended our $1.3 billion unsecured syndicated revolving credit facility (the "Revolving Credit Facility"), which was set to expire on October 31, 2023. The amendment extended the expiration date to August 1, 2027 and increased the borrowing capacity to $1.35 billion. The Revolving Credit Facility bears interest at either the base rate or the adjusted Secured Overnight Financing Rate (SOFR), as defined, at our option, plus a spread determined by our debt rating. The Revolving Credit Facility includes sublimits for the issuance of swingline loans, which are comparatively short-term loans used for working capital purposes and letters of credit. The Revolving Credit Facility is available to refinance existing indebtedness, to finance working capital and capital expenditures, and for general corporate purposes.

The Revolving Credit Facility requires us to comply with various customary affirmative and negative covenants, including a leverage covenant (i.e. Net Leverage Ratio) and interest coverage ratio, which are calculated in accordance with the terms as defined by the Revolving Credit Facility. Under the terms of the leverage covenant, we may not permit our leverage ratio for total indebtedness to consolidated EBITDA for the four most recent fiscal quarters to exceed 3.75 to 1.00. During certain periods and per the terms of the Revolving Credit Facility, this ratio may be increased to 4.25 to 1.00 upon delivery of a notice to our lender requesting an increase to our maximum leverage or in connection with certain “material acquisitions.” The minimum required consolidated interest coverage ratio for EBITDA to interest expense is 3.50 to 1.00. The interest coverage ratio is calculated at the end of each fiscal quarter for the four fiscal quarters then ended using EBITDA as defined in the Revolving Credit Facility.

As of February 28, 2023, we were in compliance with all financial covenants contained in our Revolving Credit Facility, including the Net Leverage Ratio and Interest Coverage Ratio covenants. At that date, our Net Leverage Ratio was 2.54 to 1.00, while our Interest Coverage Ratio was 9.79 to 1.00. As of February 28, 2023, we had $645.6 million of borrowing availability on our Revolving Credit Facility.

Our access to funds under our Revolving Credit Facility is dependent on the ability of the financial institutions that are parties to the Revolving Credit Facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of the financial institutions under our Revolving Credit Facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.

### Accounts Receivable Securitization Program

As of February 28, 2023, we had an outstanding balance under our AR Program of $225.0 million, which compares with the maximum availability of $228.9 million. The maximum availability under the AR Program is $250.0 million, but availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $250.0 million of funding available under the AR Program.

The AR Program contains various customary affirmative and negative covenants, as well as customary default and termination provisions. Our failure to comply with the covenants described above and other covenants contained in the Revolving Credit Facility could result in an event of default under that agreement, entitling the lenders to, among other things, declare the entire amount outstanding under the Revolving Credit Facility to be due and payable immediately. The instruments governing our other outstanding indebtedness generally include cross-default provisions that provide that, under certain circumstances, an event of default that results in acceleration of our indebtedness under the Revolving Credit Facility will entitle the holders of such other indebtedness to declare amounts outstanding immediately due and payable. See “Revolving Credit Agreement” above for details on our compliance with all significant financial covenants at February 28, 2023.

### Term Loan Facility Credit Agreement

On August 1, 2022, we amended the term loan credit facility, which was set to expire on February 21, 2023, to extend the maturity date to August 1, 2025, and paid down the borrowings outstanding on the term loan to $250 million. The term loan bears interest at either the base rate or the adjusted SOFR, as defined, at our option, plus a spread determined by our debt rating. The term loan contains customary covenants, including but not limited to, limitations on our ability, and in certain instances, our subsidiaries’ ability, to incur liens, make certain investments, or sell or transfer assets. Additionally, we may not permit (i) our consolidated interest coverage ratio to be less than 3.50 to 1.00, or (ii) our leverage ratio (defined as the ratio of total indebtedness to consolidated EBITDA for the four most recent fiscal quarters) to exceed 3.75 to 1.00. During certain periods this ratio may be increased to 4.25 to 1.0 upon delivery of a notice to our lender requesting an increase to our maximum leverage or in connection with certain “material acquisitions.” See “Revolving Credit Agreement” above for details on our compliance with all significant financial covenants at February 28, 2023.

Refer to Note G, "Borrowings," to the Consolidated Financial Statements, in our Annual Report on Form 10-K for the fiscal year ended May 31, 2022 for more comprehensive details on the significant components of our debt.

### Stock Repurchase Program

See Note 12, “Stock Repurchase Program” to the Consolidated Financial Statements, for further detail surrounding our stock repurchase program.

### Off-Balance Sheet Arrangements

We do not have any off-balance sheet financings. We have no subsidiaries that are not included in our financial statements, nor do we have any interests in, or relationships with, any special purpose entities that are not reflected in our financial statements.

### OTHER MATTERS

### Environmental Matters

Environmental obligations continue to be appropriately addressed and based upon the latest available information, it is not anticipated that the outcome of such matters will materially affect our results of operations or financial condition. Our critical accounting policies and estimates set forth above describe our method of establishing and adjusting environmental-related accruals and should be read in conjunction with this disclosure. For additional information, refer to “Part II, Item 1. Legal Proceedings.”

### FORWARD-LOOKING STATEMENTS

The foregoing discussion includes forward-looking statements relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents, and other natural gas- and oil-based materials; packaging, including plastic and metal containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities; (j) risks related to the adequacy of our contingent liability reserves; (k) risks relating to the Covid pandemic; (l) risks related to adverse weather conditions or the impacts of climate change and natural disasters; (m) risks related to the Russian invasion of Ukraine and other wars; (n) risks related to data breaches and data privacy violations; and (o) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2022, as the same may be updated from time to time. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the filing date of this document.

## Market risk

As filed, 337 characters.

We are exposed to market risk from changes in raw materials costs, interest rates and foreign exchange rates since we fund our operations through long- and short-term borrowings and conduct our business in a variety of foreign currencies. There were no material potential changes in our exposure to these market risks since May 31, 2022.

## Controls and procedures

As filed, 1,123 characters.

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15(e)) as of February 28, 2023 (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (2) is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

(b) CHANGES IN INTERNAL CONTROL.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended February 28, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 210 characters.

In addition to the other information set forth in this report, you should carefully consider the other risk factors disclosed in Item 1A of our Annual Report on Form 10-K for the fiscal year ended May 31, 2022.

Filed Apr 6, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-012051. Last ingested by Listed: Nov 6, 2026, 17:34 ET. No prices; not investment advice.