rpm-10q_20190228.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2019,

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File No. 1-14187

 

RPM International Inc.

(Exact name of Registrant as specified in its charter)

 

 

DELAWARE

 

02-0642224

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

 

P.O. BOX 777;

2628 PEARL ROAD;

MEDINA, OHIO

(Address of principal executive offices)

 

44258

(Zip Code)

 

 

(330) 273-5090

(Registrant’s telephone number including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

 

 

Non-accelerated filer

 

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

Emerging growth company

 

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  .

As of April 5, 2019 131,075,271 Shares of RPM International Inc. Common Stock were outstanding.

 

 

 

 

 


 

RPM INTERNATIONAL INC. AND SUBSIDIARIES*

INDEX

 

 

 

 

 

Page No.

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Financial Statements:

 

 

 

 

Consolidated Balance Sheets

 

3

 

 

Consolidated Statements of Income

 

4

 

 

Consolidated Statements of Comprehensive Income

 

5

 

 

Consolidated Statements of Cash Flows

 

6

 

 

Notes to Consolidated Financial Statements

 

9

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

30

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

42

Item 4.

 

Controls and Procedures

 

42

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

43

Item 1A.

 

Risk Factors

 

43

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

44

Item 6.

 

Exhibits

 

45

Signatures

 

46

 

*

As used herein, the terms “RPM” and the “Company” refer to RPM International Inc. and its subsidiaries, unless the context indicates otherwise.

 

 

2


 

PART I. – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

 

 

 

February 28, 2019

 

 

May 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

195,169

 

 

$

244,422

 

Trade accounts receivable (less allowances of

 

 

 

 

 

 

 

 

  $54,460 and $46,344, respectively)

 

 

961,628

 

 

 

1,113,818

 

Inventories

 

 

916,361

 

 

 

834,461

 

Prepaid expenses and other current assets

 

 

226,553

 

 

 

278,230

 

Total current assets

 

 

2,299,711

 

 

 

2,470,931

 

Property, Plant and Equipment, at Cost

 

 

1,652,071

 

 

 

1,575,875

 

Allowance for depreciation

 

 

(850,019

)

 

 

(795,569

)

Property, plant and equipment, net

 

 

802,052

 

 

 

780,306

 

Other Assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,262,326

 

 

 

1,192,174

 

Other intangible assets, net of amortization

 

 

620,453

 

 

 

584,272

 

Deferred income taxes

 

 

21,098

 

 

 

21,897

 

Other

 

 

213,796

 

 

 

222,242

 

Total other assets

 

 

2,117,673

 

 

 

2,020,585

 

Total Assets

 

$

5,219,436

 

 

$

5,271,822

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

425,170

 

 

$

592,281

 

Current portion of long-term debt

 

 

453,501

 

 

 

3,501

 

Accrued compensation and benefits

 

 

143,160

 

 

 

177,106

 

Accrued losses

 

 

23,424

 

 

 

22,132

 

Other accrued liabilities

 

 

224,956

 

 

 

211,706

 

Total current liabilities

 

 

1,270,211

 

 

 

1,006,726

 

Long-Term Liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

2,070,717

 

 

 

2,170,643

 

Other long-term liabilities

 

 

318,969

 

 

 

356,892

 

Deferred income taxes

 

 

117,272

 

 

 

104,023

 

Total long-term liabilities

 

 

2,506,958

 

 

 

2,631,558

 

Commitments and contingencies (Note 14)

 

 

 

 

 

 

 

 

Stockholders' Equity

 

 

 

 

 

 

 

 

Preferred stock, par value $0.01; authorized 50,000 shares; none issued

 

 

-

 

 

 

-

 

Common stock, par value $0.01; authorized 300,000 shares; issued 142,433 and outstanding 131,544 as of February 28, 2019;  issued 141,716 and outstanding 133,647 as of  May 31, 2018

 

 

1,315

 

 

 

1,336

 

Paid-in capital

 

 

984,358

 

 

 

982,067

 

Treasury stock, at cost

 

 

(406,367

)

 

 

(236,318

)

Accumulated other comprehensive (loss)

 

 

(477,657

)

 

 

(459,048

)

Retained earnings

 

 

1,337,545

 

 

 

1,342,736

 

Total RPM International Inc. stockholders' equity

 

 

1,439,194

 

 

 

1,630,773

 

Noncontrolling Interest

 

 

3,073

 

 

 

2,765

 

Total equity

 

 

1,442,267

 

 

 

1,633,538

 

Total Liabilities and Stockholders' Equity

 

$

5,219,436

 

 

$

5,271,822

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

3


 

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

February 28,

 

 

February 28,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net Sales

 

$

1,140,630

 

 

$

1,102,677

 

 

$

3,963,150

 

 

$

3,763,487

 

Cost of Sales

 

 

694,490

 

 

 

663,184

 

 

 

2,384,999

 

 

 

2,200,971

 

Gross Profit

 

 

446,140

 

 

 

439,493

 

 

 

1,578,151

 

 

 

1,562,516

 

Selling, General and Administrative Expenses

 

 

410,871

 

 

 

382,972

 

 

 

1,300,693

 

 

 

1,196,980

 

Restructuring Charges

 

 

8,679

 

 

 

-

 

 

 

36,479

 

 

 

-

 

Interest Expense

 

 

26,525

 

 

 

27,459

 

 

 

74,058

 

 

 

80,628

 

Investment (Income), Net

 

 

(4,726

)

 

 

(5,471

)

 

 

(126

)

 

 

(13,663

)

Other Expense (Income), Net

 

 

327

 

 

 

(165

)

 

 

4,052

 

 

 

(592

)

Income Before Income Taxes

 

 

4,464

 

 

 

34,698

 

 

 

162,995

 

 

 

299,163

 

(Benefit) Provision for Income Taxes

 

 

(10,032

)

 

 

(5,890

)

 

 

29,140

 

 

 

45,814

 

Net Income

 

 

14,496

 

 

 

40,588

 

 

 

133,855

 

 

 

253,349

 

Less:  Net Income Attributable to Noncontrolling Interests

 

 

306

 

 

 

361

 

 

 

677

 

 

 

1,243

 

Net Income Attributable to RPM International Inc.

   Stockholders

 

$

14,190

 

 

$

40,227

 

 

$

133,178

 

 

$

252,106

 

Average Number of Shares of Common Stock Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

130,105

 

 

 

131,178

 

 

 

131,019

 

 

 

131,195

 

Diluted

 

 

131,889

 

 

 

131,178

 

 

 

132,829

 

 

 

135,657

 

Earnings per Share of Common Stock Attributable to

   RPM International Inc. Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.11

 

 

$

0.30

 

 

$

1.01

 

 

$

1.90

 

Diluted

 

$

0.11

 

 

$

0.30

 

 

$

1.00

 

 

$

1.87

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

4


 

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

 

 

 

Three Months Ended

 

 

Nine Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

February 28,

 

 

February 28,

 

 

 

 

2019

 

 

 

2018

 

 

 

2019

 

 

 

2018

 

Net Income

 

$

14,496

 

 

$

40,588

 

 

$

133,855

 

 

$

253,349

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

20,823

 

 

 

31,133

 

 

 

(32,111

)

 

 

67,453

 

Pension and other postretirement benefit liability adjustments

  (net of tax of $711; $1,319; $2,801 and $3,576, respectively)

 

 

2,479

 

 

 

2,279

 

 

 

8,962

 

 

 

5,974

 

Unrealized gain (loss) on securities and other (net of tax of $0; $(1,070); $543 and $43, respectively)

 

 

221

 

 

 

(2,380

)

 

 

1,183

 

 

 

91

 

Unrealized (loss) gain on derivatives

 

 

(604

)

 

 

(2,137

)

 

 

2,667

 

 

 

(5,277

)

Total other comprehensive income (loss)

 

 

22,919

 

 

 

28,895

 

 

 

(19,299

)

 

 

68,241

 

Total Comprehensive Income

 

 

37,415

 

 

 

69,483

 

 

 

114,556

 

 

 

321,590

 

Less:  Comprehensive (Loss) Income Attributable to Noncontrolling Interests

 

 

(219

)

 

 

393

 

 

 

(14

)

 

 

1,234

 

Comprehensive Income Attributable to RPM International Inc. Stockholders

 

$

37,634

 

 

$

69,090

 

 

$

114,570

 

 

$

320,356

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

5


 

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

 

 

 

Nine Months Ended

 

 

 

February 28,

 

 

February 28,

 

 

 

 

2019

 

 

 

2018

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

133,855

 

 

$

253,349

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

71,869

 

 

 

61,078

 

Amortization

 

 

35,677

 

 

 

35,123

 

Restructuring charges, net of payments

 

 

9,296

 

 

 

-

 

Fair value adjustments to contingent earnout obligations

 

 

1,558

 

 

 

-

 

Deferred income taxes

 

 

(8,747

)

 

 

(42,885

)

Stock-based compensation expense

 

 

20,892

 

 

 

17,698

 

Other non-cash interest expense

 

 

1,552

 

 

 

4,275

 

Realized/unrealized losses (gains) on marketable securities

 

 

5,906

 

 

 

(6,833

)

Loss on extinguishment of debt

 

 

3,051

 

 

 

-

 

Other

 

 

179

 

 

 

(71

)

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

 

 

 

 

 

 

 

 

Decrease in receivables

 

 

152,622

 

 

 

138,942

 

(Increase) in inventory

 

 

(80,686

)

 

 

(121,095

)

Decrease in prepaid expenses and other current and long-term assets

 

 

11,593

 

 

 

14,307

 

(Decrease) in accounts payable

 

 

(166,951

)

 

 

(112,888

)

(Decrease) in accrued compensation and benefits

 

 

(32,503

)

 

 

(45,873

)

Increase (decrease) in accrued losses

 

 

1,578

 

 

 

(11,001

)

(Decrease) in other accrued liabilities

 

 

(20,952

)

 

 

(42,895

)

Other

 

 

5,716

 

 

 

(483

)

Cash Provided By Operating Activities

 

 

145,505

 

 

 

140,748

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(84,491

)

 

 

(72,769

)

Acquisition of businesses, net of cash acquired

 

 

(167,712

)

 

 

(59,991

)

Purchase of marketable securities

 

 

(16,644

)

 

 

(139,641

)

Proceeds from sales of marketable securities

 

 

67,550

 

 

 

97,624

 

Other

 

 

1,294

 

 

 

6,766

 

Cash (Used For) Investing Activities

 

 

(200,003

)

 

 

(168,011

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Additions to long-term and short-term debt

 

 

596,222

 

 

 

340,106

 

Reductions of long-term and short-term debt

 

 

(253,343

)

 

 

(264,051

)

Cash dividends

 

 

(135,535

)

 

 

(125,672

)

Shares repurchased and shares returned for taxes

 

 

(191,056

)

 

 

(15,065

)

Payments of acquisition-related contingent consideration

 

 

(3,598

)

 

 

(3,825

)

Other

 

 

(640

)

 

 

(1,911

)

Cash Provided By (Used For) Financing Activities

 

 

12,050

 

 

 

(70,418

)

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

(6,805

)

 

 

11,570

 

Net Change in Cash and Cash Equivalents

 

 

(49,253

)

 

 

(86,111

)

Cash and Cash Equivalents at Beginning of Period

 

 

244,422

 

 

 

350,497

 

Cash and Cash Equivalents at End of Period

 

$

195,169

 

 

$

264,386

 

Supplemental Disclosures of Cash Flows Information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

70,548

 

 

$

69,239

 

Income Taxes, net of refunds

 

$

33,859

 

 

$

79,441

 

Supplemental Disclosures of Non-Cash Investing and Financing Activities:

 

 

 

 

 

 

 

 

Conversion of Debt to Equity

 

$

38,239

 

 

$

-

 

 

The accompanying notes to consolidated financial statements are an integral part of these statements.

 

 

6


 

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

 

 

 

Total RPM

 

 

 

 

 

 

 

 

 

 

 

of

 

 

Par/Stated

 

 

Paid-In

 

 

Treasury

 

 

Comprehensive

 

 

Retained

 

 

International

 

 

Noncontrolling

 

 

Total

 

 

 

Shares

 

 

Value

 

 

Capital

 

 

Stock

 

 

Income (Loss)

 

 

Earnings

 

 

Inc. Equity

 

 

Interests

 

 

Equity

 

Balance at June 1, 2018

 

 

133,647

 

 

$

1,336

 

 

$

982,067

 

 

$

(236,318

)

 

$

(459,048

)

 

$

1,342,736

 

 

$

1,630,773

 

 

$

2,765

 

 

$

1,633,538

 

Cumulative-effect adjustment upon adoption of ASU 2014-09

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(2,834

)

 

 

(2,834

)

 

 

-

 

 

 

(2,834

)

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

69,764

 

 

 

69,764

 

 

 

422

 

 

 

70,186

 

Other comprehensive (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(33,978

)

 

 

-

 

 

 

(33,978

)

 

 

(258

)

 

 

(34,236

)

Dividends paid ($0.32 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(42,714

)

 

 

(42,714

)

 

 

-

 

 

 

(42,714

)

Other noncontrolling interest activity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3

 

 

 

3

 

Share repurchases under repurchase program

 

 

(103

)

 

 

(1

)

 

 

1

 

 

 

(6,994

)

 

 

-

 

 

 

-

 

 

 

(6,994

)

 

 

-

 

 

 

(6,994

)

Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes

 

 

(136

)

 

 

(1

)

 

 

10,018

 

 

 

(13,587

)

 

 

-

 

 

 

-

 

 

 

(3,570

)

 

 

-

 

 

 

(3,570

)

Balance at August 31, 2018

 

 

133,408

 

 

 

1,334

 

 

 

992,086

 

 

 

(256,899

)

 

 

(493,026

)

 

 

1,366,952

 

 

 

1,610,447

 

 

 

2,932

 

 

 

1,613,379

 

Net income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

49,224

 

 

 

49,224

 

 

 

(51

)

 

 

49,173

 

Other comprehensive (loss) income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(8,074

)

 

 

-

 

 

 

(8,074

)

 

 

91

 

 

 

(7,983

)

Dividends paid ($0.35 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,481

)

 

 

(46,481

)

 

 

-

 

 

 

(46,481

)

Other noncontrolling interest activity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

567

 

 

 

567

 

Share repurchases under repurchase program

 

 

(1,145

)

 

 

(11

)

 

 

11

 

 

 

(74,998

)

 

 

-

 

 

 

-

 

 

 

(74,998

)

 

 

-

 

 

 

(74,998

)

Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes

 

 

274

 

 

 

2

 

 

 

7,277

 

 

 

(2,082

)

 

 

-

 

 

 

-

 

 

 

5,197

 

 

 

-

 

 

 

5,197

 

Convertible bond redemption

 

 

599

 

 

 

6

 

 

 

(23,029

)

 

 

20,215

 

 

 

-

 

 

 

-

 

 

 

(2,808

)

 

 

-

 

 

 

(2,808

)

Balance at November 30, 2018

 

 

133,136

 

 

 

1,331

 

 

 

976,345

 

 

 

(313,764

)

 

 

(501,100

)

 

 

1,369,695

 

 

 

1,532,507

 

 

 

3,539

 

 

 

1,536,046

 

Net income

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

14,190

 

 

 

14,190

 

 

 

306

 

 

 

14,496

 

Other comprehensive income (loss)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23,443

 

 

 

-

 

 

 

23,443

 

 

 

(524

)

 

 

22,919

 

Dividends paid ($0.35 per share)

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(46,340

)

 

 

(46,340

)

 

 

-

 

 

 

(46,340

)

Other noncontrolling interest activity

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(248

)

 

 

(248

)

Share repurchases under repurchase program

 

 

(1,571

)

 

 

(16

)

 

 

16

 

 

 

(91,230

)

 

 

-

 

 

 

-

 

 

 

(91,230

)

 

 

-

 

 

 

(91,230

)

Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes

 

 

(21

)

 

 

-

 

 

 

7,997

 

 

 

(1,373

)

 

 

-

 

 

 

-

 

 

 

6,624

 

 

 

-

 

 

 

6,624

 

Balance at February 28, 2019

 

 

131,544

 

 

$

1,315

 

 

$

984,358

 

 

$

(406,367

)

 

$

(477,657

)

 

$

1,337,545

 

 

$

1,439,194

 

 

$

3,073

 

 

$

1,442,267

 

 

7


 

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other

 

 

 

&nbs