August 10, 2022

Beat Schermerhorn

Home Improvement

RPM Reports Fiscal 2022 Second-Quarter Results

MEDINA, Ohio–(BUSINESS WIRE)–RPM International Inc. (NYSE: RPM), a world leader in specialty coatings and sealants, today announced its financial results for its fiscal 2022 second quarter ended November 30, 2021.

Second-Quarter Consolidated Results

Fiscal 2022 second-quarter net sales were a record $1.64 billion, up 10.3% over the $1.49 billion reported a year ago. Net income was $124.9 million, a decrease of 2.2% compared to $127.7 million reported in the year-ago period when net income increased 65.7%. Diluted earnings per share (EPS) were $0.96, a decrease of 2.0% versus the $0.98 reported in the prior-year quarter. Income before income taxes (IBT) was $163.2 million compared to $167.0 million reported a year ago. RPM’s consolidated earnings before interest and taxes (EBIT) were up 4.6% to $187.0 million compared to $178.7 million reported in the year-ago period. During the quarter, RPM realized high-single-digit price increases on average across the company to partially offset the impact of inflation.

The second quarter of fiscal 2022 and 2021 included certain restructuring and other items that are not indicative of RPM’s ongoing operations. These items are detailed in the tables herein titled Supplemental Segment Information and Reconciliation of Reported to Adjusted Amounts. Among the items was a $41.9 million gain during the fiscal 2022 second quarter associated with the sale and leaseback of a facility in the Construction Products Group (CPG). Excluding these items, RPM’s adjusted EBIT was $157.3 million, a decrease of 21.0% compared to $199.3 million during the year-ago period. The company has excluded the impact of gains and losses from marketable securities from adjusted EPS, as their inherent volatility is outside of management’s control and cannot be predicted with any level of certainty.1 Excluding these items, adjusted diluted EPS was $0.79, a decrease of 25.5% compared to $1.06 in the second quarter of fiscal 2021.

“Robust demand for our paints, coatings, sealants and other building materials led to strong double-digit sales growth at three of our four operating segments and drove consolidated top-line performance that was ahead of our projections. In fact, top-line growth could have been even better if not for supply chain challenges that limited access to certain raw materials and cost us roughly $200 million in sales during the quarter,” stated Frank C. Sullivan, RPM chairman and CEO. “The decline in adjusted EBIT was in line with our outlook and was a result of continued material, wage and freight inflation, as well as supply chain disruptions that were exacerbated by Hurricane Ida and increased our conversion costs. These challenges were partially offset by price increases and operational improvements from our MAP to Growth program that led to $19 million of incremental year-over-year savings. It’s also worth noting that we faced a difficult comparison to the prior year when consolidated adjusted EBIT increased 29.7%.

“We remain focused on long-term growth and continue to invest in initiatives that will drive the business forward, including operational improvements, the development of innovative new products, acquisitions and manufacturing capacity expansions, as demonstrated by the 178,000-square-foot chemical manufacturing facility we purchased in September.

“I would like to commend our associates around the world for their extraordinary efforts to meet our customers’ needs and collaborate with our suppliers as we continue to execute and invest in strategies that will drive RPM’s long-term growth and success,” Sullivan concluded.

Second-Quarter Segment Sales and Earnings

Construction Products Group

During the fiscal 2022 second quarter, CPG net sales increased 22.0% to an all-time record of $614.2 million from $503.5 million a year ago. Organic sales growth was 19.9%, foreign currency translation provided a 0.3% tailwind and acquisitions contributed 1.8%. Segment IBT was $130.4 million, up from $71.8 million a year ago. EBIT increased 78.5% to $132.0 million from $74.0 million in the fiscal 2021 second quarter. Excluding certain items not indicative of ongoing operations, including the aforementioned $41.9 million gain, fiscal 2022 second-quarter adjusted EBIT increased 16.5% to a record $91.4 million from adjusted EBIT of $78.5 million reported during the year-ago period.

CPG’s market-leading revenue growth and positive mix were primarily driven by innovation in its high-performance building solutions, market share gains and strong demand in North America for its construction and maintenance products. Businesses that experienced the highest growth included those providing insulated concrete forms, roofing systems, concrete admixtures and repair products, and commercial sealants. Performance in international markets was mixed, with Europe fairly flat, while emerging markets showed signs of recovery. The segment’s adjusted EBIT increased due to volume growth, operational improvements and selling price increases, which helped to offset raw material inflation.

Performance Coatings Group

Fiscal 2022 second-quarter Performance Coatings Group (PCG) net sales increased 16.9% to a record $302.5 million from $258.8 million a year ago, reflecting organic growth of 12.2%, a foreign currency translation tailwind of 0.8% and a 3.9% contribution from acquisitions. Segment IBT was $37.9 million, up from $24.0 million a year ago. EBIT increased 56.4% to $37.6 million from $24.0 million in the fiscal 2021 second quarter. Excluding charges not indicative of ongoing operations, adjusted EBIT increased 41.3% to a record $39.6 million during the second quarter of fiscal 2022 from adjusted EBIT of $28.0 million during the year-ago period.

Sales increased at nearly all of PCG’s primary business units largely due to the catch-up of maintenance previously deferred by industrial customers, particularly as Covid restrictions relaxed and contractor access to construction sites improved. Sales growth was also facilitated by price increases and improved product mix, driven by new decision support tools that helped improve salesforce efficiencies and product mix. Leading the way were the segment’s largest businesses providing polymer flooring systems and corrosion control coatings. Sales also remained strong at its recently acquired Bison raised flooring business and in emerging markets. Adjusted EBIT increased as a result of pricing, volume growth, operational improvements and product mix.

Specialty Products Group

During the second quarter of fiscal 2022, the Specialty Products Group (SPG) reported record sales of $193.6 million, an increase of 10.0% compared to $176.1 million in the year-ago period. Organic sales increased 9.0%, recent acquisitions added 0.4% and foreign currency translation increased sales by 0.6%. Segment IBT was $20.6 million compared with $28.4 million in the prior-year period. EBIT was $20.6 million, a decrease of 27.6% from $28.5 million in the fiscal 2021 second quarter. Adjusted EBIT, which excludes restructuring-related expenses, was $20.9 million in the fiscal 2022 second quarter, a decrease of 29.4% compared to $29.6 million in the year-ago period.

Following recent management changes, sales continued to grow at SPG. Performing particularly well were the segment’s businesses that serve the outdoor recreation, furniture and OEM markets. SPG’s fluorescent pigments business also generated good top-line growth. Adjusted EBIT was impacted by higher raw material and conversion costs due to supply disruptions, especially semiconductor chip shortages impacting the segment’s disaster restoration equipment business, which drove an unfavorable product mix. Additionally, the segment experienced higher expenses stemming from SPG’s investments in future growth initiatives and higher legal expenses, which were partially offset by operational improvements.

Consumer Group

Consumer Group sales were $529.2 million, a decrease of 3.3% from the $547.5 million reported in the fiscal 2021 second quarter. Organic sales decreased 3.5%, while foreign currency translation increased sales by 0.2%. Segment IBT was $33.1 million compared with $88.4 million in the prior-year period. EBIT was $33.0 million, a decrease of 62.6% compared to $88.4 million in the fiscal 2021 second quarter. Excluding charges not indicative of ongoing operations, adjusted EBIT was $33.6 million for the fiscal 2022 second quarter, a decrease of 62.9% versus adjusted EBIT of $90.7 million for the year-ago period.

Severe raw material shortages experienced by the Consumer Group during the fiscal 2022 first quarter persisted during the second quarter. The resulting production outages adversely impacted segment sales by approximately $100 million. Despite this challenge, the segment’s fiscal 2022 second-quarter sales were still 17.3% above pre-pandemic levels of the second quarter of fiscal 2020. Demand for its products remains high and inventories in many of its channels are low. Lost sales are expected to be recovered when conditions normalize. The Consumer Group also faced a challenging comparison to the prior-year period when sales increased 21.4% and adjusted EBIT increased 65.8% due to continued high demand for its home improvement products during the first phase of the pandemic. Earnings declined during the fiscal 2022 second quarter as a result of inflation in materials, freight and labor, as well as the unfavorable impact of supply shortages on productivity. These factors were partially offset by price increases and operational improvements. The segment continues to add capacity to meet demand and build resiliency in its supply chain to secure the raw materials it requires.

Cash Flow and Financial Position

For the first half of fiscal 2022, cash from operations was $159.4 million compared to $579.5 million a year ago. The decrease is primarily a result of the need to build inventory in the current uncertain supply chain environment, reduced margins and higher year-end bonus payments. Capital expenditures of $101.4 million compared to $70.9 million during the first half of last year as the company made investments to add manufacturing capacity to respond to increased demand. Total debt at November 30, 2021 was $2.47 billion, compared to $2.30 billion at November 30, 2020 and $2.38 billion at May 31, 2021. Per the terms of RPM’s bank agreements, the company’s calculated net leverage ratio was 2.61 on November 30, 2021 as compared to 2.16 a year ago.

Total liquidity, including cash and committed revolving credit facilities, was $1.32 billion at November 30, 2021, compared to $1.46 billion at May 31, 2021. Liquidity remains high, enabling the company to manage supply chain challenges and continue investing in operational improvements, acquisitions and manufacturing capacity expansions. During the first half of fiscal 2022, the company returned $113.2 million to shareholders through cash dividends and share repurchases.

Business Outlook

Looking toward the fiscal 2022 third quarter, the company expects that the robust demand for its paints, coatings, sealants and other building materials will continue. However, supply chain challenges and raw material shortages have persisted so far in December, further compounded by disruptions from the Covid-19 Omicron variant on RPM’s operations and those of its supplier base. These factors are expected to put pressure on revenues and productivity.

Despite these challenges, RPM expects to generate double-digit consolidated sales growth in the fiscal 2022 third quarter versus last year’s record third-quarter sales, which grew 8.1%. The company anticipates high-double-digit sales growth in its CPG and PCG segments, along with margin accretion. SPG sales are expected to be up low-double digits as compared to last year’s third quarter. The Consumer Group faces a tough comparison to the prior-year period when its sales increased 19.8% and, as a result, its sales are anticipated to increase by low-single digits.

Consolidated adjusted EBIT for the third quarter of fiscal 2022 is expected to decrease 5% to 15% versus the same period last year, when adjusted EBIT was up 29.7%. The company anticipates that earnings will be affected by ongoing raw material, freight and wage inflation, as well as the impact on sales volumes from operational disruptions caused by the surging Omicron variant of Covid-19 and raw material shortages. These challenges will disproportionately impact the Consumer Group. RPM continues to work to offset these challenges by implementing price increases, improving operational efficiencies and bringing on additional manufacturing capacity.

The company remains focused on managing through the challenges stemming from the pandemic, while optimally positioning the business to deliver long-term growth and increased value for its stakeholders.

Webcast and Conference Call Information

Management will host a conference call to discuss these results beginning at 10:00 a.m. EST today. The call can be accessed by dialing 833-323-0996 or 236-712-2462 for international callers. Participants are asked to call the assigned number approximately 10 minutes before the conference call begins. The call, which will last approximately one hour, will be open to the public, but only financial analysts will be permitted to ask questions. The media and all other participants will be in a listen-only mode.

For those unable to listen to the live call, a replay will be available from approximately 1:00 p.m. EST on January 5, 2022 until 11:59 p.m. EST on January 12, 2022. The replay can be accessed by dialing 800-585-8367 or 416-621-4642 for international callers. The access code is 8485405. The call also will be available both live and for replay, and as a written transcript, via the RPM website at www.RPMinc.com.

About RPM

RPM International Inc. owns subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services. The company operates across four reportable segments: consumer, construction products, performance coatings and specialty products. RPM has a diverse portfolio with hundreds of market-leading brands, including Rust-Oleum, DAP, Zinsser, Varathane, Day-Glo, Legend Brands, Stonhard, Carboline, Tremco and Dryvit. From homes and workplaces, to infrastructure and precious landmarks, RPM’s brands are trusted by consumers and professionals alike to help build a better world. The company employs approximately 15,500 individuals worldwide. Visit www.RPMinc.com to learn more.

For more information, contact Russell L. Gordon, vice president and chief financial officer, at 330-273-5090 or [email protected]

Footnote

1 These investments resulted in a net after-tax loss of $1.5 million for the second quarter of fiscal 2022 and a net after-tax gain of $5.8 million during the same quarter last year.

Use of Non-GAAP Financial Information

To supplement the financial information presented in accordance with Generally Accepted Accounting Principles in the United States (“GAAP”) in this earnings release, we use EBIT, adjusted EBIT and adjusted earnings per share, which are all non-GAAP financial measures. EBIT is defined as earnings (loss) before interest and taxes, with adjusted EBIT and adjusted earnings per share provided for the purpose of adjusting for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations. 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 expense is essentially related to acquisitions, as opposed to segment operations. For that reason, we believe EBIT is also useful to investors 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 and investment income or expense 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. See the financial statement section of this earnings release for a reconciliation of EBIT and adjusted EBIT to income before income taxes, and adjusted earnings per share to earnings per share. We have not provided a reconciliation of our third-quarter fiscal 2022 adjusted EBIT guidance because material terms that impact such measures are not in our control and/or cannot be reasonably predicted, and therefore a reconciliation of such measures is not available without unreasonable effort.

Forward-Looking Statements

This press release contains “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 effect of changes in interest rates, 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 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; and (m) 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, 2021, 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 date of this release.

CONSOLIDATED STATEMENTS OF INCOME
IN THOUSANDS, EXCEPT PER SHARE DATA
(Unaudited)
 

Three Months Ended

Six Months Ended

November 30,

November 30,

November 30,

November 30,

2021

2020

2021

2020

 
Net Sales

$

1,639,538

 

$

1,485,915

 

$

3,289,959

 

$

3,092,586

 

Cost of Sales

 

1,056,924

 

 

899,743

 

 

2,093,994

 

 

1,852,759

 

Gross Profit

 

582,614

 

 

586,172

 

 

1,195,965

 

 

1,239,827

 

Selling, General & Administrative Expenses

 

437,709

 

 

399,418

 

 

856,676

 

 

795,370

 

Restructuring Expense

 

2,977

 

 

4,918

 

 

3,988

 

 

9,151

 

Interest Expense

 

21,002

 

 

21,266

 

 

42,111

 

 

43,011

 

Investment Expense (Income), Net

 

2,816

 

 

(9,519

)

 

(2,934

)

 

(22,281

)

(Gain) on Sales of Assets, Net

 

(42,124

)

 

 

 

(42,242

)

 

 

Other (Income) Expense, Net

 

(2,920

)

 

3,133

 

 

(6,259

)

 

6,251

 

Income Before Income Taxes

 

163,154

 

 

166,956

 

 

344,625

 

 

408,325

 

Provision for Income Taxes

 

38,038

 

 

39,072

 

 

84,714

 

 

99,655

 

Net Income

 

125,116

 

 

127,884

 

 

259,911

 

 

308,670

 

Less: Net Income Attributable to Noncontrolling Interests

 

241

 

 

225

 

 

454

 

 

416

 

Net Income Attributable to RPM International Inc. Stockholders

$

124,875

 

$

127,659

 

$

259,457

 

$

308,254

 

 
Earnings per share of common stock attributable to RPM International Inc. Stockholders:
Basic

$

0.97

 

$

0.98

 

$

2.01

 

$

2.38

 

Diluted

$

0.96

 

$

0.98

 

$

2.00

 

$

2.37

 

 
Average shares of common stock outstanding – basic

 

128,022

 

 

128,500

 

 

128,058

 

 

128,459

 

Average shares of common stock outstanding – diluted

 

128,494

 

 

129,090

 

 

128,537

 

 

129,078

 

 
SUPPLEMENTAL SEGMENT INFORMATION
IN THOUSANDS
(Unaudited)
 
Three Months Ended Six Months Ended
November 30, November 30, November 30, November 30,

2021

2020

2021

2020

Net Sales:
CPG Segment

$

614,190

 

$

503,520

 

$

1,258,552

 

$

1,051,210

 

PCG Segment

 

302,527

 

 

258,833

 

 

588,122

 

 

518,622

 

SPG Segment

 

193,624

 

 

176,054

 

 

375,679

 

 

334,078

 

Consumer Segment

 

529,197

 

 

547,508

 

 

1,067,606

 

 

1,188,676

 

Total

$

1,639,538

 

$

1,485,915

 

$

3,289,959

 

$

3,092,586

 

 
Income Before Income Taxes:
CPG Segment
Income Before Income Taxes (a)

$

130,368

 

$

71,832

 

$

244,725

 

$

170,182

 

Interest (Expense), Net (b)

 

(1,649

)

 

(2,141

)

 

(3,519

)

 

(4,251

)

EBIT (c)

 

132,017

 

 

73,973

 

 

248,244

 

 

174,433

 

MAP to Growth & other cost-savings related initiatives (d)

 

1,272

 

 

4,794

 

 

2,224

 

 

6,659

 

Adjustment to Exit Flowcrete China (g)

 

 

 

(305

)

 

 

 

(305

)

(Gain) on Sales of Assets, Net (i)

 

(41,906

)

 

 

 

(41,906

)

 

 

Adjusted EBIT

$

91,383

 

$

78,462

 

$

208,562

 

$

180,787

 

PCG Segment
Income Before Income Taxes (a)

$

37,854

 

$

24,047

 

$

72,932

 

$

52,561

 

Interest Income (Expense), Net (b)

 

247

 

 

9

 

 

331

 

 

(22

)

EBIT (c)

 

37,607

 

 

24,038

 

 

72,601

 

 

52,583

 

MAP to Growth & other cost-savings related initiatives (d)

 

1,537

 

 

3,999

 

 

3,734

 

 

6,325

 

Acquisition-related costs (e)

 

 

 

 

 

339

 

 

 

Unusual executive costs, net of insurance proceeds (f)

 

472

 

 

 

 

472

 

 

 

Adjusted EBIT

$

39,616

 

$

28,037

 

$

77,146

 

$

58,908

 

SPG Segment
Income Before Income Taxes (a)

$

20,591

 

$

28,406

 

$

45,147

 

$

48,855

 

Interest (Expense), Net (b)

 

(29

)

 

(73

)

 

(64

)

 

(155

)

EBIT (c)

 

20,620

 

 

28,479

 

 

45,211

 

 

49,010

 

MAP to Growth & other cost-savings related initiatives (d)

 

296

 

 

1,140

 

 

632

 

 

4,683

 

Adjusted EBIT

$

20,916

 

$

29,619

 

$

45,843

 

$

53,693

 

Consumer Segment
Income Before Income Taxes (a)

$

33,104

 

$

88,368

 

$

79,019

 

$

221,089

 

Interest Income (Expense), Net (b)

 

73

 

 

(64

)

 

149

 

 

(127

)

EBIT (c)

 

33,031

 

 

88,432

 

 

78,870

 

 

221,216

 

MAP to Growth & other cost-savings related initiatives (d)

 

570

 

 

1,055

 

 

860

 

 

4,999

 

Acquisition-related costs (e)

 

 

 

1,178

 

 

 

 

1,178

 

Unusual executive costs, net of insurance proceeds (f)

 

12

 

 

 

 

776

 

 

 

Adjusted EBIT

$

33,613

 

$

90,665

 

$

80,506

 

$

227,393

 

Corporate/Other
(Loss) Before Income Taxes (a)

$

(58,763

)

$

(45,697

)

$

(97,198

)

$

(84,362

)

Interest (Expense), Net (b)

 

(22,460

)

 

(9,478

)

 

(36,074

)

 

(16,175

)

EBIT (c)

 

(36,303

)

 

(36,219

)

 

(61,124

)

 

(68,187

)

MAP to Growth & other cost-savings related initiatives (d)

 

6,274

 

 

6,641

 

 

10,158

 

 

13,809

 

Acquisition-related costs (e)

 

800

 

 

 

 

800

 

 

 

Unusual executive costs, net of insurance proceeds (f)

 

1,046

 

 

49

 

 

2,265

 

 

56

 

Settlement for SEC Investigation & Enforcement Action (h)

 

 

 

2,000

 

 

 

 

2,000

 

Adjusted EBIT

$

(28,183

)

$

(27,529

)

$

(47,901

)

$

(52,322

)

TOTAL CONSOLIDATED
Income Before Income Taxes (a)

$

163,154

 

$

166,956

 

$

344,625

 

$

408,325

 

Interest (Expense)

 

(21,002

)

 

(21,266

)

 

(42,111

)

 

(43,011

)

Investment (Expense) Income, Net

 

(2,816

)

 

9,519

 

 

2,934

 

 

22,281

 

EBIT (c)

 

186,972

 

 

178,703

 

 

383,802

 

 

429,055

 

MAP to Growth & other cost-savings related initiatives (d)

 

9,949

 

 

17,629

 

 

17,608

 

 

36,475

 

Acquisition-related costs (e)

 

800

 

 

1,178

 

 

1,139

 

 

1,178

 

Unusual executive costs, net of insurance proceeds (f)

 

1,530

 

 

49

 

 

3,513

 

 

56

 

Adjustment to Exit Flowcrete China (g)

 

 

 

(305

)

 

 

 

(305

)

Settlement for SEC Investigation & Enforcement Action (h)

 

 

 

2,000

 

 

 

 

2,000

 

(Gain) on Sales of Assets, Net (i)

 

(41,906

)

 

 

 

(41,906

)

 

 

Adjusted EBIT

$

157,345

 

$

199,254

 

$

364,156

 

$

468,459

 

(a) The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by Generally Accepted Accounting Principles in the United States (GAAP), to EBIT and Adjusted EBIT.
(b) Interest Income (Expense), Net includes the combination of Interest Income (Expense) and Investment Income (Expense), Net.
(c) EBIT is defined as earnings (loss) before interest and taxes, with Adjusted EBIT provided for the purpose of adjusting for items impacting earnings that are not considered by management to be indicative of ongoing operations. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT, or adjusted EBIT, as a performance evaluation measure because interest expense is essentially related to corporate functions, as opposed to segment operations. For that reason, we believe EBIT is also useful to investors 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 and investment income or expense 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.
(d) Reflects restructuring and other charges, almost all of which have been incurred in relation to our Margin Acceleration Plan initiatives, as follows:

“Inventory-related charges,” all of which have been recorded in Cost of Goods Sold;
“Headcount reductions, closures of facilities and related costs, and accelerated vesting of equity awards,” all of which have been recorded in Restructuring Expense;
“Accelerated Expense – Other,” “Receivable writeoffs (recoveries),” “ERP consolidation plan,” “Professional Fees,” “Unusual costs triggered by executive departures,” “Divestitures,” & “Discontinued Product Line,” all of which have been recorded in Selling, General & Administrative Expenses.

(e) Acquisition costs reflect amounts included in gross profit for inventory step-ups, as well as external consulting costs associated with due diligence activities related to potential acquisition targets.
(f) Reflects unusual compensation costs, net of insurance proceeds, recorded unrelated to our MAP to Growth initiative, including stock and deferred compensation plan arrangements.
(g) In FY18, we added back a charge to exit our Flowcrete China business. Included in that charge from FY18 was an accrual for a contingent liability. During Q2 2021, the contingent liability was resolved, and a favorable adjustment of ~ $0.3 million was recognized.
(h) On December 22, 2020, the Court entered its Final Judgment resolving the legacy “SEC Investigation & Enforcement Action.” We agreed to pay a civil monetary penalty of $2.0 million under Section 21(d)(3) of the Exchange Act. The settlement amount was accrued for in our consolidated financial statements as of the period ending November 30, 2020, and paid during the period ending February 28, 2021.
(i) Reflects the net gain associated with the sale of certain real property assets within our CPG segment during Q2 2022.
 
SUPPLEMENTAL INFORMATION
RECONCILIATION OF “REPORTED” TO “ADJUSTED” AMOUNTS
(Unaudited)
 

Three Months Ended

Six Months Ended

November 30,

November 30,

November 30,

November 30,

2021

2020

2021

2020

 
Reconciliation of Reported Earnings per Diluted Share to Adjusted Earnings per Diluted Share (All amounts presented after-tax):
Reported Earnings per Diluted Share

$

0.96

 

$

0.98

 

$

2.00

 

$

2.37

 

MAP to Growth & other cost-savings related initiatives (d)

 

0.06

 

 

0.11

 

 

0.11

 

 

0.22

 

Acquisition-related costs (e)

 

0.01

 

 

0.01

 

 

0.01

 

 

0.01

 

Unusual executive costs, net of insurance proceeds (f)

 

0.01

 

 

 

 

0.02

 

 

 

Settlement for SEC Investigation & Enforcement Action (h)

 

 

 

0.01

 

 

 

 

0.01

 

(Gain) on Sales of Assets, Net (i)

 

(0.28

)

 

 

 

(0.28

)

 

 

Investment returns (j)

 

0.03

 

 

(0.05

)

 

0.01

 

 

(0.11

)

Adjusted Earnings per Diluted Share (k)

$

0.79

 

$

1.06

 

$

1.87

 

$

2.50

 

(d) Reflects restructuring and other charges, almost all of which have been incurred in relation to our Margin Acceleration Plan initiatives, as follows:

“Inventory-related charges,” all of which have been recorded in Cost of Goods Sold;
“Headcount reductions, closures of facilities and related costs, and accelerated vesting of equity awards,” all of which have been recorded in Restructuring Expense;
“Accelerated Expense – Other,” “Receivable writeoffs (recoveries),” “ERP consolidation plan,” “Professional Fees,” “Unusual costs triggered by executive departures,” “Divestitures,” & “Discontinued Product Line,” all of which have been recorded in Selling, General & Administrative Expenses.

(e) Acquisition costs reflect amounts included in gross profit for inventory step-ups, as well as external consulting costs associated with due diligence activities related to potential acquisition targets.
(f) Reflects unusual compensation costs, net of insurance proceeds, recorded unrelated to our MAP to Growth initiative, including stock and deferred compensation plan arrangements.
(h) On December 22, 2020, the Court entered its Final Judgment resolving the legacy “SEC Investigation & Enforcement Action.” We agreed to pay a civil monetary penalty of $2.0 million under Section 21(d)(3) of the Exchange Act. The settlement amount was accrued for in our consolidated financial statements as of the period ending November 30, 2020, and paid during the period ending February 28, 2021.
(i) Reflects the net gain associated with the sale of certain real property assets within our CPG segment during Q2 2022.
(j) Investment returns include realized net gains and losses on sales of investments and unrealized net gains and losses on equity securities, which are adjusted due to their inherent volatility. Management does not consider these gains and losses, which cannot be predicted with any level of certainty, to be reflective of the Company’s core business operations.
(k) Adjusted EPS is provided for the purpose of adjusting diluted earnings per share for items impacting earnings that are not considered by management to be indicative of ongoing operations.
 
CONSOLIDATED BALANCE SHEETS
IN THOUSANDS
(Unaudited)
       
  November 30, 2021   November 30, 2020   May 31, 2021
Assets      
Current Assets      
Cash and cash equivalents  

$

192,851

 

 

$

272,945

 

 

$

246,704

 

Trade accounts receivable  

 

1,224,426

 

 

 

1,135,383

 

 

 

1,336,728

 

Allowance for doubtful accounts  

 

(50,932

)

 

 

(53,542

)

 

 

(55,922

)

Net trade accounts receivable  

 

1,173,494

 

 

 

1,081,841

 

 

 

1,280,806

 

Inventories  

 

1,040,923

 

 

 

829,617

 

 

 

938,095

 

Prepaid expenses and other current assets  

 

352,153

 

 

 

268,029

 

 

 

316,399

 

Total current assets  

 

2,759,421

 

 

 

2,452,432

 

 

 

2,782,004

 

Property, Plant and Equipment, at Cost  

 

2,035,005

 

 

 

1,851,794

 

 

 

1,967,482

 

Allowance for depreciation  

 

(1,011,928

)

 

 

(962,395

)

 

 

(1,002,300

)

Property, plant and equipment, net  

 

1,023,077

 

 

 

889,399

 

 

 

965,182

 

Other Assets      
Goodwill  

 

1,338,465

 

 

 

1,300,777

 

 

 

1,345,754

 

Other intangible assets, net of amortization  

 

611,427

 

 

 

620,399

 

 

 

628,693

 

Operating lease right-of-use assets  

 

302,701

 

 

 

297,695

 

 

 

300,827

 

Deferred income taxes, non-current  

 

23,368

 

 

 

37,154

 

 

 

26,804

 

Other  

 

196,440

 

 

 

192,352

 

 

 

203,705

 

Total other assets  

 

2,472,401

 

 

 

2,448,377

 

 

 

2,505,783

 

Total Assets  

$

6,254,899

 

 

$

5,790,208

 

 

$

6,252,969

 

Liabilities and Stockholders’ Equity      
Current Liabilities      
Accounts payable  

$

655,502

 

 

$

540,678

 

 

$

717,176

 

Current portion of long-term debt  

 

302,719

 

 

 

75,709

 

 

 

1,282

 

Accrued compensation and benefits  

 

180,549

 

 

 

161,515

 

 

 

258,380

 

Accrued losses  

 

25,283

 

 

 

23,717

 

 

 

29,054

 

Other accrued liabilities  

 

319,536

 

 

 

331,074

 

 

 

325,522

 

Total current liabilities  

 

1,483,589

 

 

 

1,132,693

 

 

 

1,331,414

 

Long-Term Liabilities      
Long-term debt, less current maturities  

 

2,163,274

 

 

 

2,224,627

 

 

 

2,378,544

 

Operating lease liabilities  

 

259,962

 

 

 

256,045

 

 

 

257,415

 

Other long-term liabilities  

 

404,548

 

 

 

560,749

 

 

 

436,176

 

Deferred income taxes  

 

105,770

 

 

 

65,651

 

 

 

106,395

 

Total long-term liabilities  

 

2,933,554

 

 

 

3,107,072

 

 

 

3,178,530

 

Total liabilities  

 

4,417,143

 

 

 

4,239,765

 

 

 

4,509,944

 

Stockholders’ Equity      
Preferred stock; none issued  

 

 

 

 

 

 

 

 

Common stock (outstanding 129,677; 130,106; 129,573)  

 

1,297

 

 

 

1,301

 

 

 

1,295

 

Paid-in capital  

 

1,073,039

 

 

 

1,035,539

 

 

 

1,055,400

 

Treasury stock, at cost  

 

(675,471

)

 

 

(595,851

)

 

 

(653,006

)

Accumulated other comprehensive (loss)  

 

(573,745

)

 

 

(649,819

)

 

 

(514,884

)

Retained earnings  

 

2,010,991

 

 

 

1,756,571

 

 

 

1,852,259

 

Total RPM International Inc. stockholders’ equity  

 

1,836,111

 

 

 

1,547,741

 

 

 

1,741,064

 

Noncontrolling interest  

 

1,645

 

 

 

2,702

 

 

 

1,961

 

Total equity  

 

1,837,756

 

 

 

1,550,443

 

 

 

1,743,025

 

Total Liabilities and Stockholders’ Equity  

$

6,254,899

 

 

$

5,790,208

 

 

$

6,252,969

 

     
CONSOLIDATED STATEMENTS OF CASH FLOWS    
IN THOUSANDS    
(Unaudited)    
 

Six Months Ended

 

November 30,

 

November 30,

 

2021

 

2020

     
Cash Flows From Operating Activities:    
Net income  

$

259,911

 

 

$

308,670

 

Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Depreciation and amortization  

 

75,975

 

 

 

72,506

 

Restructuring charges, net of payments  

 

(2,107

)

 

 

(2,291

)

Fair value adjustments to contingent earnout obligations  

 

2,470

 

 

 

2,712

 

Deferred income taxes  

 

(6,130

)

 

 

1,786

 

Stock-based compensation expense  

 

17,010

 

 

 

21,118

 

Net loss (gain) on marketable securities  

 

1,817

 

 

 

(20,172

)

Net (gain) on sales of assets  

 

(42,242

)

 

 

 

Other  

 

(7

)

 

 

(194

)

Changes in assets and liabilities, net of effect from purchases and sales of businesses:
Decrease in receivables  

 

80,510

 

 

 

91,027

 

(Increase) decrease in inventory  

 

(124,941

)

 

 

21,655

 

(Increase) decrease in prepaid expenses and other current and long-term assets  

 

(15,165

)

 

 

8,782

 

(Decrease) increase in accounts payable  

 

(29,291

)

 

 

8,331

 

(Decrease) in accrued compensation and benefits  

 

(73,449

)

 

 

(28,919

)

(Decrease) increase in accrued losses  

 

(3,322

)

 

 

3,377

 

Increase in other accrued liabilities  

 

18,316

 

 

 

89,020

 

Other  

 

 

 

 

2,095

 

Cash Provided By Operating Activities  

 

159,355

 

 

 

579,503

 

Cash Flows From Investing Activities:    
Capital expenditures  

 

(101,416

)

 

 

(70,943

)

Acquisition of businesses, net of cash acquired  

 

(114,231

)

 

 

(113,618

)

Purchase of marketable securities  

 

(9,476

)

 

 

(23,292

)

Proceeds from sales of marketable securities  

 

6,179

 

 

 

21,189

 

Proceeds from sales of assets  

 

50,599

 

 

 

 

Other  

 

(55

)

 

 

703

 

Cash (Used For) Investing Activities  

 

(168,400

)

 

 

(185,961

)

Cash Flows From Financing Activities:    
Additions to long-term and short-term debt  

 

104,377

 

 

 

15

 

Reductions of long-term and short-term debt  

 

(733

)

 

 

(256,096

)

Cash dividends  

 

(100,725

)

 

 

(96,019

)

Repurchases of common stock  

 

(12,500

)

 

 

 

Shares of common stock returned for taxes  

 

(9,959

)

 

 

(15,729

)

Payments of acquisition-related contingent consideration  

 

(5,714

)

 

 

(2,218

)

Other  

 

(710

)

 

 

 

Cash (Used For) Financing Activities  

 

(25,964

)

 

 

(370,047

)

     
Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

(18,844

)

 

16,034

 

     
Net Change in Cash and Cash Equivalents  

 

(53,853

)

 

 

39,529

 

     
Cash and Cash Equivalents at Beginning of Period  

 

246,704

 

 

 

233,416

 

     
Cash and Cash Equivalents at End of Period  

$

192,851

 

 

$

272,945