RPM International Inc: Form 10-Q for the period ended Feb 29, 2024

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

Effective June 1, 2023, in connection with our MAP 2025 operating improvement program, we realigned certain businesses and management structures within our CPG, PCG and SPG segments. As outlined in Note 18, “Segment Information,” our CPG APAC and CPG India businesses, formerly of our Sealants reporting unit within our CPG segment, were transferred to our Platform component within our PCG segment. As a result of this change, we designated the Platform component as a separate reporting unit within our PCG segment. Additionally, within our PCG segment, certain businesses of our USL reporting unit were transferred to our Fibergrate, Carboline and Stonhard reporting units. As a result of this change, USL was no longer designated as a separate reporting unit. Within our SPG segment, two new reporting units were formed as our former DayGlo and Kirker reporting units were combined into one reporting unit: The Color Group, and our former Wood Finishes, Kop-Coat Protection Products, TCI and Modern Recreational Technologies reporting units were combined into one reporting unit: The Industrial Coatings Group.

During the first quarter of fiscal 2024, we performed a goodwill impairment test for the reporting units affected by the business realignment and change in management structure using either a qualitative or a quantitative assessment. We concluded that the estimated fair values exceeded the carrying values for these reporting units, and accordingly, no indications of impairment were identified as a result of these changes.

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, 2023.

BUSINESS SEGMENT INFORMATION

Effective June 1, 2023, certain Asia Pacific businesses and management structure, formerly of our CPG segment, were transferred to our PCG segment to create operating efficiencies and a more unified go-to-market strategy in Asia Pacific. This realignment is reflected in our reportable segments beginning with our first quarter of fiscal 2024. As such, historical segment results have been recast to reflect the impact of this realignment.

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)

(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 29, 2024

Net Sales

(in millions, except percentages)

Our CPG segment generated organic sales growth during the third quarter of fiscal 2024 in nearly all the major business units in the segment when compared to the same quarter in the prior year. Performing particularly well were concrete admixtures and repair businesses which generated growth from increased demand for engineered solutions serving infrastructure and reshoring-related projects. Businesses serving high-performance building construction and remodeling also performed well. International growth was driven by infrastructure-related demand in Latin America.

Our PCG segment generated significant organic sales growth during the third quarter of fiscal 2024 when compared to the same quarter in the prior year. Performing particularly well were businesses that provide engineered solutions for reshoring-related projects. This increase was also facilitated by favorable timing of project completions and strong demand in emerging markets for engineered solutions serving infrastructure projects, partially offset by the divestiture of USL's Bridgecare services division in the first quarter of fiscal 2024.

Our Consumer segment experienced organic sales declines in the third quarter of fiscal 2024 driven by reduced DIY takeaway at retail, destocking by customers and the rationalization of certain lower-margin products. This was partially offset by market share gains.

Our SPG segment experienced sales declines during the third quarter of fiscal 2024, which were driven by several factors. The segment's disaster restoration business benefited from the response to inclement weather in the prior period, compared to limited weather activity in the current period. The divestiture of the non-core furniture warranty business in the third quarter of fiscal year 2023 also reduced sales versus the prior period. Finally, although end markets showed signs of stabilization during the quarter, businesses supplying specialty OEM markets were negatively impacted by lower volumes.

Gross Profit Margin Our consolidated gross profit margin of 39.9% of net sales for the third quarter of fiscal 2024 compares to a consolidated gross profit margin of 35.5% for the comparable period a year ago. The current quarter gross profit margin increase of approximately 4.4%, or 440 basis points (“bps”), resulted primarily from selling price increases and our MAP 2025 initiatives, which resulted in incremental savings in procurement, manufacturing and commercial excellence that favorably impacted our gross margin, in conjunction with benefits generated from the commodity cycle.

We expect year-over-year gross margins to continue improving in the fourth quarter of fiscal 2024 due to MAP 2025 initiatives, including benefits generated from the commodity cycle.

SG&A Our consolidated SG&A expense during the period was $54.7 million higher versus the same period last year and increased to 33.1% of net sales from 29.7% of net sales for the prior year quarter. Variable costs associated with improved results, such as commission expense and incentives, were primary drivers, along with merit increases, higher benefits and insurance costs and investments in growth initiatives, partially offset by reduced professional fees and reduced stock compensation. In addition, the prior period includes the $20.0 million gain on business interruption insurance proceeds as described above in Note 16, "Contingencies and Other Accrued Losses," to the Consolidated Financial Statements.

Our CPG segment SG&A was approximately $24.2 million higher for the third quarter of fiscal 2024 versus the comparable prior year period and increased as a percentage of net sales. The increase in expense was mainly due to variable costs associated with improved results such as commissions, along with merit increases, increased benefits, and increased bad debt and warranty expenses.

Our PCG segment SG&A was approximately $7.6 million higher for the third quarter of fiscal 2024 versus the comparable prior year period and increased slightly as a percentage of net sales. The increase in expense was mainly due to increased commissions as a result of improved results as well as merit increases and increased insurance costs.

Our Consumer segment SG&A increased by approximately $21.6 million during the third quarter of fiscal 2024 versus the same period last year and increased as a percentage of net sales. The quarter-over-quarter increase in SG&A was primarily attributable to the $20.0 million gain on business interruption insurance proceeds received in the prior period, along with merit increases and increased advertising costs, partially offset by a decrease in distribution costs.

Our SPG segment SG&A decreased approximately $0.3 million during the third quarter of fiscal 2024 versus the comparable prior year period but increased as a percentage of net sales. The decrease in SG&A expense is attributable to the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023, partially offset by investments in strategic growth initiatives.

SG&A expenses in our corporate/other category during the third quarter of fiscal 2024 increased approximately $1.6 million versus last year’s third quarter. This was mainly due to increased healthcare, benefits and insurance costs, higher IT expenses and merit increases, partially offset by reduced professional fees related to our MAP 2025 operational improvement initiatives 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 29, 2024 and February 28, 2023, as the service cost component has a significant impact on our SG&A expense:

(in millions)

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

The following table summarizes restructuring charges recorded during the three months ended February 29, 2024 and February 28, 2023, 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:

(in millions)

Most activities under MAP 2025 are anticipated to be completed by the end of fiscal 2025; however, we expect some costs to extend beyond this date. We currently expect to incur approximately $33.9 million of future additional charges related to the implementation of MAP 2025. In addition, we incurred $0.7 million of restructuring costs associated with MAP to Growth for the three months ended February 28, 2023.

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

Interest Expense

(in millions, except percentages)

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

(in millions)

29

Investment (Income), Net

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

Other Expense, Net

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

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

(in millions, except percentages)

On a consolidated basis, our results reflect MAP 2025 benefits, including benefits generated from the commodity cycle. Our CPG segment results reflect volume growth, which resulted in improved fixed-cost utilization, favorable mix and MAP 2025 benefits. Our PCG segment results reflect positive volumes, favorable mix and improved fixed-cost leverage, which were enhanced by MAP 2025 initiatives. In addition, our prior period PCG segment results include 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. Our Consumer segment results reflect gross margin expansion as a result of improved operating efficiencies related to MAP 2025 and rationalization of lower margin products, partially offset by negative fixed-cost absorption. In addition, our prior period Consumer segment results include the $20.0 million gain on business interruption insurance proceeds. Our SPG segment results reflect sales declines, the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023, incremental costs from investments in growth initiatives and reduced fixed cost leverage at plants. In addition, our prior period SPG segment results reflect the $24.7 million gain on the sale of its Guardian business as described above in Note 7, "(Gain) on Sales of Assets and Other Businesses, Net," to the Consolidated Financial Statements. Our Non-Op segment results reflect the favorable swing in investment returns, reduced professional fees related to our MAP 2025 operational improvement initiatives and reduced stock compensation, partially offset by increased benefit costs.

Income Tax Rate The effective income tax rate of 26.4% for the three months ended February 29, 2024 compares to the effective income tax rate of 35.9% for the three months ended February 28, 2023. The effective income tax rates for the three-month periods ended February 29, 2024, and February 28, 2023, reflect variances from the 21% statutory rate due primarily to the unfavorable 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 income tax rate for the three-month period ended February 29, 2024, reflects incremental tax expense related to increases to our net deferred income tax liability for unremitted earnings, unfavorable changes in valuation allowances for certain foreign tax attribute carryforwards, and an adjustment for the tax related to the prior year sale of the furniture warranty business. Additionally, 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 was nondeductible for tax purposes.

Net Income

(in millions, except percentages and per share amounts)

30

Nine Months Ended February 29, 2024

Net Sales

(in millions, except percentages)

Our CPG segment generated significant organic sales growth during the first nine months of fiscal 2024 in all the major business units in the segment when compared to the same prior year period. Performing particularly well were providers of restoration systems for roofing, facades, and parking structures, which benefited from a strategic focus on repair and maintenance and its differentiated service model. Concrete admixtures and repair businesses also generated growth from increased demand for engineered solutions serving infrastructure and reshoring-related projects in addition to businesses serving high-performance building construction and remodeling. This increase was also facilitated by growth in Europe and Latin America.

Our PCG segment generated significant organic sales growth during the first nine months of fiscal 2024 when compared to the same prior year period. Performing particularly well were businesses that provide engineered solutions for reshoring-related projects. This increase was also facilitated by improved pricing, favorable timing of project completions and strong demand in emerging markets.

Our Consumer segment experienced organic sales declines in the first nine months of fiscal 2024 driven by reduced DIY takeaway at retail as consumers focused spending on travel and entertainment and housing turnover hit multi-year lows, reduced inventory levels at retailers, and the rationalization of lower-margin products. This decline is in comparison to a strong prior year, when sales grew 15.3%. These pressures were partially offset by market share gains, strength in international markets and improved pricing to catch up with cost inflation.

Our SPG segment experienced sales declines during the first nine months of fiscal 2024, driven by lower volumes at businesses supplying OEM markets which have been negatively impacted by a slowdown in the residential housing market. The divestiture of the non-core furniture warranty business in the third quarter of fiscal year 2023 also reduced sales versus the prior period. Finally, the segment's disaster restoration business benefited from the response to Hurricane Ian and other inclement weather in the prior period, compared to limited weather activity in the current period. Improved pricing partially offset these volume declines.

Gross Profit Margin Our consolidated gross profit margin of 41.0% of net sales for the first nine months of fiscal 2024 compares to a consolidated gross profit margin of 37.6% for the comparable period a year ago. The current period gross profit margin increase of approximately 3.4%, or 340 bps, resulted primarily from selling price increases and our MAP 2025 initiatives, which resulted in incremental savings in procurement, manufacturing and commercial excellence that favorably impacted our gross margin, in conjunction with benefits generated from the commodity cycle.

We expect year-over-year gross margins to continue improving in the fourth quarter of fiscal 2024 due to MAP 2025 initiatives, including benefits generated from the commodity cycle.

SG&A Our consolidated SG&A expense during the period was $133.1 million higher versus the same period last year and increased to 29.3% of net sales from 27.2% of net sales for the prior year period. Variable costs associated with improved results, such as commission expense and bonuses, were primary drivers, along with merit increases, investments in growth initiatives, increased benefits and insurance costs, and $4.4 million of expense related to the adverse legal ruling. In addition, there was an $8.9 million decrease in the gain on business interruption insurance proceeds received during the current period compared to the prior year. These were partially offset by reduced professional fees and reduced SG&A related to divestitures. See Note 16, "Contingencies and Other Accrued Losses," to the Consolidated Financial Statements for additional information regarding the business interruption proceeds and adverse legal ruling.

Our CPG segment SG&A was approximately $83.3 million higher for the first nine months of fiscal 2024 versus the comparable prior year period and increased as a percentage of net sales. The increase in expense was mainly due to variable costs associated with improved results such as commissions and bonuses, along with merit increases, increased benefits and investments in growth initiatives.

Our PCG segment SG&A was approximately $30.8 million higher for the first nine months of fiscal 2024 versus the comparable prior year period and increased 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 improved results as well as merit increases, increased bad debt expense and the $4.5 million loss on the sale of USL's Bridgecare services division during the period as described above in Note 4, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements.

Our Consumer segment SG&A increased by approximately $19.1 million during the first nine months of fiscal 2024 versus the same period last year and increased slightly as a percentage of net sales. The period-over-period increase in SG&A was primarily attributable to merit increases and insurance costs, in addition to the $8.9 million decrease in gain on business interruption insurance proceeds received in the current period, partially offset by a reduction in variable distribution costs.

Our SPG segment SG&A increased approximately $2.8 million during the first nine months of fiscal 2024 versus the comparable prior year period and increased as a percentage of net sales. The increase in SG&A expense is attributable to the $4.4 million expense related to the adverse legal ruling, pay inflation and investments in strategic growth initiatives, partially offset by the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023, along with a reduction in incentive compensation.

SG&A expenses in our corporate/other category during the first nine months of fiscal 2024 decreased by approximately $2.9 million compared to the prior year period. This was mainly due to reduced professional fees related to our MAP 2025 operational improvement initiatives and reduced stock compensation, partially offset by increased compensation, healthcare costs and IT expenses.

The following table summarizes the retirement-related benefit plans’ impact on income before income taxes for the nine months ended February 29, 2024 and February 28, 2023, as the service cost component has a significant impact on our SG&A expense:

(in millions)

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

The following table summarizes restructuring charges recorded during the nine months ended February 29, 2024 and February 28, 2023, 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:

(in millions)

Most activities under MAP 2025 are anticipated to be completed by the end of fiscal 2025; however, we expect some costs to extend beyond this date. We currently expect to incur approximately $33.9 million of future additional charges related to the implementation of MAP 2025. In addition, we incurred $3.3 million of restructuring costs associated with MAP to Growth for the nine months ended February 28, 2023.

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

Interest Expense

(in millions, except percentages)

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

(in millions)

Investment (Income), Net

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

Other Expense, Net

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

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

(in millions, except percentages)

On a consolidated basis, our results reflect MAP 2025 benefits, including benefits generated from the commodity cycle. Our CPG segment results reflect volume growth, which resulted in improved fixed-cost utilization, and MAP 2025 benefits. Our PCG segment results reflect MAP 2025 benefits and improved pricing, partially offset by the $4.5 million loss on the sale of USL's Bridgecare services division during the period, the impairment of an indefinite-lived intangible asset, and increased bad debt expense. Our prior year PCG segment results include the $39.2 million goodwill and intangible asset impairment charges. Our Consumer segment results reflect improved operating efficiencies related to MAP 2025 and improved pricing, partially offset by the $8.9 million decrease in gain on business interruption insurance proceeds received during the period and negative fixed-cost absorption. Our SPG segment results reflect the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023, the $4.4 million expense related to the adverse legal ruling, unfavorable sales mix, incremental costs from investments in growth initiatives, and reduced fixed cost leverage at plants as a result of reduced volumes. In addition, our prior period SPG segment results reflect the $24.7 million gain on the sale of its Guardian business. Our Non-Op segment results reflect the favorable swing in investment returns and decreased professional fees, partially offset by increased healthcare and IT expenses.

Income Tax Rate The effective income tax rate of 25.5% for the nine months ended February 29, 2024 compares to the effective income tax rate of 25.9% for the nine months ended February 28, 2023. The effective income tax rates for the nine-month periods ended February 29, 2024, and February 28, 2023 reflect variances from the 21% statutory rate due primarily to the unfavorable 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 29, 2024, reflects incremental tax expense related to increases to our net deferred income tax liability for unremitted earnings, unfavorable changes in valuation allowances for certain foreign tax attribute carryforwards, and an adjustment for the tax related to the prior year sale of the furniture warranty business. Additionally, 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 was nondeductible for tax purposes.

Net Income

(in millions, except percentages and per share amounts)

33

LIQUIDITY AND CAPITAL RESOURCES

Fiscal 2024 Compared with Fiscal 2023

Operating Activities

Approximately $941.1 million of cash was provided by operating activities during the first nine months of fiscal 2024, compared with $263.0 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 $80.5 million during the first nine months of fiscal 2024 versus the same period during fiscal 2023.

During the first nine months of fiscal 2024, the change in accounts receivable provided approximately $227.8 million more cash than the first nine months of fiscal 2023. This was primarily due to the timing of sales in our Consumer segment and improved cash collections in the current period. Average days sales outstanding (“DSO”) at February 29, 2024, decreased to 62.7 days from 65.9 days at February 28, 2023.

During the first nine months of fiscal 2024, the change in inventory used approximately $197.2 million less cash compared to spending during the same period a year ago as a result of our operating segments continuing to reduce inventory purchases and use safety stock built up in prior periods in response to supply chain outages and raw material inflation. Average days of inventory outstanding (“DIO”) at February 29, 2024 decreased to 93.5 days from 109.8 days at February 28, 2023.

The change in accounts payable during the first nine months of fiscal 2024 used approximately $111.1 million less cash than during the first nine months of fiscal 2023. This is associated with reduced inventory purchases driven by improved forecasting and coordination between sales and operations. Average days payables outstanding (“DPO”) decreased slightly to 83.2 days at February 29, 2024 from 83.3 days at February 28, 2023.

Investing Activities

For the first nine months of fiscal 2024, cash used for investing activities decreased by $21.5 million to $153.9 million as compared to $175.4 million in the prior year period. This year-over-year decrease in cash used for investing activities was driven by a $32.0 million decrease in cash used for business acquisitions and $41.6 million decrease in cash used for capital expenditures, partially offset by a $47.6 million decrease in proceeds from sales of assets and businesses, net.

We paid for capital expenditures of $138.1 million and $179.7 million during the first nine months of fiscal 2024 and fiscal 2023, respectively. This reduction was the result of decreased capacity expansion projects in comparison to the prior period. 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 invest capital spending in growth initiatives and to improve operational efficiencies in fiscal 2024.

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 29, 2024 and May 31, 2023, the fair value of our investments in available-for-sale debt securities and marketable equity securities, which includes captive insurance-related assets, totaled $172.9 million and $148.3 million, respectively.

As of February 29, 2024, approximately $223.2 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with $196.8 million at May 31, 2023. 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 2024, financing activities used $750.8 million of cash, which compares to cash used for financing activities of $83.3 million during the first nine months of fiscal 2023. The overall increase in cash used for financing activities was driven principally by debt-related activities, as we repaid $175.0 million on our accounts receivable securitization program ("AR Program"), $250.0 million on our term loan, and $85.2 million on our revolving credit facility during the first nine months of fiscal 2024. 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 $1.29 billion and $1.03 billion as of February 29, 2024 and May 31, 2023, 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 benchmark interest rate (i.e. the adjusted Secured Overnight Financing Rate (SOFR) for USD denominated debt), 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 29, 2024, 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 1.69 to 1.00, while our Interest Coverage Ratio was 9.49 to 1.00. As of February 29, 2024, we had $817.3 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 29, 2024, we did not have an outstanding balance under our AR Program, compared to the maximum availability of $222.7 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 29, 2024.

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 29, 2024.

On December 27, 2023, we prepaid the $250.0 million of principal outstanding on our term loan which had a maturity date of August 1, 2025.

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, 2023 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 availability 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 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 a public health crisis similar to the Covid pandemic; (l) risks related to acts of war similar to the Russian invasion of Ukraine; (m) risks related to the transition or physical impacts of climate change and other natural disasters or meeting sustainability-related voluntary goals or regulatory requirements; (n) risks related to our use of technology, artificial intelligence, 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, 2023, 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.

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, 2023.

(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 29, 2024 (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 29, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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, 2023.