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EX-32.2 - EX-32.2 - RPM INTERNATIONAL INC/DE/rpm-ex322_7.htm
EX-32.1 - EX-32.1 - RPM INTERNATIONAL INC/DE/rpm-ex321_8.htm
EX-31.2 - EX-31.2 - RPM INTERNATIONAL INC/DE/rpm-ex312_9.htm
EX-31.1 - EX-31.1 - RPM INTERNATIONAL INC/DE/rpm-ex311_6.htm
EX-12 - EX-12 - RPM INTERNATIONAL INC/DE/rpm-ex12_10.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 November 30, 2018,

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 January 8, 2019 131,644,681 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

 

7

Item 2.

 

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

 

30

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

40

Item 4.

 

Controls and Procedures

 

41

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

 

Legal Proceedings

 

42

Item 1A.

 

Risk Factors

 

42

Item 2.

 

Unregistered Sale of Equity Securities and Use of Proceeds

 

43

Item 6.

 

Exhibits

 

44

Signatures

 

45

 

*

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)

 

 

 

November 30, 2018

 

 

May 31, 2018

 

Assets

 

 

 

 

 

 

 

 

Current Assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

226,914

 

 

$

244,422

 

Trade accounts receivable (less allowances of

 

 

 

 

 

 

 

 

  $53,678 and $46,344, respectively)

 

 

1,013,030

 

 

 

1,113,818

 

Inventories

 

 

879,633

 

 

 

834,461

 

Prepaid expenses and other current assets

 

 

252,634

 

 

 

278,230

 

Total current assets

 

 

2,372,211

 

 

 

2,470,931

 

Property, Plant and Equipment, at Cost

 

 

1,624,380

 

 

 

1,575,875

 

Allowance for depreciation

 

 

(830,753

)

 

 

(795,569

)

Property, plant and equipment, net

 

 

793,627

 

 

 

780,306

 

Other Assets

 

 

 

 

 

 

 

 

Goodwill

 

 

1,229,476

 

 

 

1,192,174

 

Other intangible assets, net of amortization

 

 

607,212

 

 

 

584,272

 

Deferred income taxes

 

 

17,849

 

 

 

21,897

 

Other

 

 

218,578

 

 

 

222,242

 

Total other assets

 

 

2,073,115

 

 

 

2,020,585

 

Total Assets

 

$

5,238,953

 

 

$

5,271,822

 

Liabilities and Stockholders' Equity

 

 

 

 

 

 

 

 

Current Liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

471,268

 

 

$

592,281

 

Current portion of long-term debt

 

 

453,874

 

 

 

3,501

 

Accrued compensation and benefits

 

 

133,637

 

 

 

177,106

 

Accrued losses

 

 

22,954

 

 

 

22,132

 

Other accrued liabilities

 

 

217,660

 

 

 

211,706

 

Total current liabilities

 

 

1,299,393

 

 

 

1,006,726

 

Long-Term Liabilities

 

 

 

 

 

 

 

 

Long-term debt, less current maturities

 

 

1,918,868

 

 

 

2,170,643

 

Other long-term liabilities

 

 

370,812

 

 

 

356,892

 

Deferred income taxes

 

 

113,834

 

 

 

104,023

 

Total long-term liabilities

 

 

2,403,514

 

 

 

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 142,426 and outstanding 133,136 as of November 30, 2018;  issued 141,716 and outstanding 133,647 as of  May 31, 2018

 

 

1,331

 

 

 

1,336

 

Paid-in capital

 

 

976,345

 

 

 

982,067

 

Treasury stock, at cost

 

 

(313,764

)

 

 

(236,318

)

Accumulated other comprehensive (loss)

 

 

(501,100

)

 

 

(459,048

)

Retained earnings

 

 

1,369,695

 

 

 

1,342,736

 

Total RPM International Inc. stockholders' equity

 

 

1,532,507

 

 

 

1,630,773

 

Noncontrolling Interest

 

 

3,539

 

 

 

2,765

 

Total equity

 

 

1,536,046

 

 

 

1,633,538

 

Total Liabilities and Stockholders' Equity

 

$

5,238,953

 

 

$

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

 

 

Six Months Ended

 

 

 

November 30,

 

 

November 30,

 

 

November 30,

 

 

November 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net Sales

 

$

1,362,531

 

 

$

1,315,416

 

 

$

2,822,520

 

 

$

2,660,810

 

Cost of Sales

 

 

824,562

 

 

 

764,401

 

 

 

1,690,509

 

 

 

1,537,787

 

Gross Profit

 

 

537,969

 

 

 

551,015

 

 

 

1,132,011

 

 

 

1,123,023

 

Selling, General and Administrative Expenses

 

 

430,080

 

 

 

419,599

 

 

 

889,822

 

 

 

814,008

 

Restructuring Charges

 

 

7,724

 

 

 

-

 

 

 

27,800

 

 

 

-

 

Interest Expense

 

 

23,127

 

 

 

26,396

 

 

 

47,533

 

 

 

53,169

 

Investment Expense (Income), Net

 

 

7,033

 

 

 

(3,739

)

 

 

4,600

 

 

 

(8,192

)

Other Expense (Income), Net

 

 

3,412

 

 

 

(422

)

 

 

3,725

 

 

 

(427

)

Income Before Income Taxes

 

 

66,593

 

 

 

109,181

 

 

 

158,531

 

 

 

264,465

 

Provision for Income Taxes

 

 

17,420

 

 

 

13,323

 

 

 

39,172

 

 

 

51,704

 

Net Income

 

 

49,173

 

 

 

95,858

 

 

 

119,359

 

 

 

212,761

 

Less:  Net (Loss) Income Attributable to Noncontrolling Interests

 

 

(51

)

 

 

395

 

 

 

371

 

 

 

882

 

Net Income Attributable to RPM International Inc.

   Stockholders

 

$

49,224

 

 

$

95,463

 

 

$

118,988

 

 

$

211,879

 

Average Number of Shares of Common Stock Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

131,058

 

 

 

131,163

 

 

 

131,467

 

 

 

131,204

 

Diluted

 

 

131,667

 

 

 

135,592

 

 

 

133,278

 

 

 

135,663

 

Earnings per Share of Common Stock Attributable to

   RPM International Inc. Stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.37

 

 

$

0.72

 

 

$

0.90

 

 

$

1.59

 

Diluted

 

$

0.37

 

 

$

0.70

 

 

$

0.89

 

 

$

1.56

 

Cash Dividends Declared per Share of Common Stock

 

$

0.350

 

 

$

0.320

 

 

$

0.670

 

 

$

0.620

 

 

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

 

 

Six Months Ended

 

 

 

November 30,

 

 

November 30,

 

 

November 30,

 

 

November 30,

 

 

 

 

2018

 

 

 

2017

 

 

 

2018

 

 

 

2017

 

Net Income

 

$

49,173

 

 

$

95,858

 

 

$

119,359

 

 

$

212,761

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

(12,245

)

 

 

(8,158

)

 

 

(52,935

)

 

 

36,320

 

Pension and other postretirement benefit liability adjustments

  (net of tax of $1,108; $1,611; $2,090 and $2,257, respectively)

 

 

3,428

 

 

 

3,066

 

 

 

6,483

 

 

 

3,695

 

Unrealized (loss) gain on securities and other (net of tax of $124; $1,176; $543 and $1,027, respectively)

 

 

(1,515

)

 

 

2,549

 

 

 

962

 

 

 

2,471

 

Unrealized gain (loss) on derivatives

 

 

2,349

 

 

 

(2,746

)

 

 

3,271

 

 

 

(3,140

)

Total other comprehensive (loss) income

 

 

(7,983

)

 

 

(5,289

)

 

 

(42,219

)

 

 

39,346

 

Total Comprehensive Income

 

 

41,190

 

 

 

90,569

 

 

 

77,140

 

 

 

252,107

 

Less:  Comprehensive Income Attributable to Noncontrolling Interests

 

 

40

 

 

 

323

 

 

 

204

 

 

 

841

 

Comprehensive Income Attributable to RPM International Inc. Stockholders

 

$

41,150

 

 

$

90,246

 

 

$

76,936

 

 

$

251,266

 

 

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)

 

 

 

Six Months Ended

 

 

 

November 30,

 

 

November 30,

 

 

 

 

2018

 

 

 

2017

 

Cash Flows From Operating Activities:

 

 

 

 

 

 

 

 

Net income

 

$

119,359

 

 

$

212,761

 

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

 

 

 

 

 

 

 

 

Depreciation

 

 

49,589

 

 

 

40,386

 

Amortization

 

 

23,436

 

 

 

23,245

 

Restructuring charges, net of payments

 

 

7,464

 

 

 

-

 

Fair value adjustments to contingent earnout obligations

 

 

1,558

 

 

 

-

 

Deferred income taxes

 

 

(1,400

)

 

 

(32,276

)

Stock-based compensation expense

 

 

12,896

 

 

 

14,429

 

Other non-cash interest expense

 

 

1,552

 

 

 

2,843

 

Realized/unrealized losses (gains) on marketable securities

 

 

7,496

 

 

 

(4,897

)

Loss on extinguishment of debt

 

 

3,051

 

 

 

-

 

Other

 

 

2,349

 

 

 

9

 

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

 

 

 

 

 

 

 

 

Decrease in receivables

 

 

92,398

 

 

 

34,136

 

(Increase) in inventory

 

 

(49,020

)

 

 

(62,923

)

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

 

 

(942

)

 

 

3,919

 

(Decrease) in accounts payable

 

 

(117,678

)

 

 

(95,302

)

(Decrease) in accrued compensation and benefits

 

 

(41,470

)

 

 

(45,464

)

Increase (decrease) in accrued losses

 

 

1,131

 

 

 

(8,490

)

Increase in other accrued liabilities

 

 

33,422

 

 

 

33,304

 

Other

 

 

3,098

 

 

 

(494

)

Cash Provided By Operating Activities

 

 

148,289

 

 

 

115,186

 

Cash Flows From Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(57,775

)

 

 

(45,295

)

Acquisition of businesses, net of cash acquired

 

 

(127,848

)

 

 

(54,647

)

Purchase of marketable securities

 

 

(13,276

)

 

 

(96,039

)

Proceeds from sales of marketable securities

 

 

35,426

 

 

 

58,867

 

Other

 

 

(2,394

)

 

 

469

 

Cash (Used For) Investing Activities

 

 

(165,867

)

 

 

(136,645

)

Cash Flows From Financing Activities:

 

 

 

 

 

 

 

 

Additions to long-term and short-term debt

 

 

447,843

 

 

 

35,036

 

Reductions of long-term and short-term debt

 

 

(247,440

)

 

 

(1,535

)

Cash dividends

 

 

(89,196

)

 

 

(82,878

)

Shares repurchased and shares returned for taxes

 

 

(98,458

)

 

 

(12,125

)

Payments of acquisition-related contingent consideration

 

 

(3,531

)

 

 

(3,359

)

Other

 

 

(391

)

 

 

(1,464

)

Cash Provided By (Used For) Financing Activities

 

 

8,827

 

 

 

(66,325

)

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

(8,757

)

 

 

5,144

 

Net Change in Cash and Cash Equivalents

 

 

(17,508

)

 

 

(82,640

)

Cash and Cash Equivalents at Beginning of Period

 

 

244,422

 

 

 

350,497

 

Cash and Cash Equivalents at End of Period

 

$

226,914

 

 

$

267,857

 

Supplemental Disclosures of Cash Flows Information:

 

 

 

 

 

 

 

 

Cash paid during the period for:

 

 

 

 

 

 

 

 

Interest

 

$

49,687

 

 

$

48,769

 

Income Taxes

 

$

25,311

 

 

$

60,277

 

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 — CONSOLIDATION, NONCONTROLLING INTERESTS AND BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”) for interim financial information and the instructions to Form 10-Q. In our opinion, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included for the three and six month periods ended November 30, 2018 and 2017.  For further information, refer to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended May 31, 2018.

Our financial statements include all of our majority-owned subsidiaries. We account for our investments in less-than-majority-owned joint ventures, for which we have the ability to exercise significant influence, under the equity method.  Effects of transactions between related companies are eliminated in consolidation.

Noncontrolling interests are presented in our consolidated financial statements as if parent company investors (controlling interests) and other minority investors (noncontrolling interests) in partially-owned subsidiaries have similar economic interests in a single entity. As a result, investments in noncontrolling interests are reported as equity in our consolidated financial statements. Additionally, our consolidated financial statements include 100% of a controlled subsidiary’s earnings, rather than only our share. Transactions between the parent company and noncontrolling interests are reported in equity as transactions between stockholders, provided that these transactions do not create a change in control.

Our business is dependent on external weather factors. Historically, we have experienced strong sales and net income in our first, second and fourth fiscal quarters comprising the three month periods ending August 31, November 30 and May 31, respectively, with weaker performance in our third fiscal quarter (December through February).

 

 

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

Effective June 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” and all the related amendments included within Accounting Standards Codification 606 (“ASC 606”), using the modified retrospective method of adoption.  Under the modified retrospective method, comparative periods are not restated. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied.   As a result of our adoption procedures, we determined that revenue recognition for our broad portfolio of products and services will remain largely unchanged.  Accordingly, our adoption of the new standard did not have a material impact on our overall Consolidated Financial Statements.  Refer to Note 16, “Revenue,” and Note 17, “Segment Information,” for additional information.

In January 2016, the FASB issued ASU No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which provides amended guidance for certain aspects of recognition, measurement and disclosure of financial instruments. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods. The main provisions of the standard impact how we account for changes in the fair value of our marketable securities currently classified as available-for-sale.  Unrealized gains and losses on available-for-sale equity securities are required to be recognized in earnings rather than in other comprehensive income. Our adoption of the new standard during fiscal 2019 did not have a material effect on our results of operations, financial condition or liquidity.  See Note 4, “Marketable Securities,” for additional information.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which increases lease transparency and comparability among organizations.  Under the new standard, lessees will be required to recognize all assets and liabilities arising from leases on the balance sheet, with the exception of leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities.  ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In March 2018, the FASB approved an alternative transition method to the modified retrospective approach, which eliminates the requirement to restate prior period financial statements and requires the cumulative effect of the retrospective allocation to be recorded as an adjustment to the opening balance of retained earnings at the date of adoption.  We have selected the alternative transition method for adoption, which we will adopt on June 1, 2019 and are still evaluating the impact this guidance will have on our Consolidated Financial Statements. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted.     

7


RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

In August 2018, the SEC issued Final Rule Release No. 33-10532, “Disclosure Update and Simplification,” which makes a number of changes meant to simplify interim disclosures. The new rule requires a presentation of changes in stockholders’ equity and noncontrolling interest in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current and comparative year-to-date interim periods. We do not believe that any of the additional elements of this release will have a material impact on our consolidated financial statements.  We will adopt the new disclosure requirement beginning with our third quarter Form 10-Q for the period ending February 28, 2019.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which makes a number of changes meant to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows.  Our June 1, 2018 adoption of the new guidance, which we applied retrospectively to all periods presented, did not have a material impact on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business,” with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or of businesses. We adopted the new guidance as of June 1, 2018 and do not expect this revised guidance to have a material impact on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to eliminate step two from the goodwill impairment test in order to simplify the subsequent measurement of goodwill. The guidance is effective for fiscal years beginning after December 15, 2019. Early application is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.  

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.  Our June 1, 2018 adoption of the new guidance did not have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. We do not expect our adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with employers that sponsor defined benefit or other postretirement plans. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all entities and the amendments in this update are required to be applied on a retrospective basis to all periods presented. We are currently reviewing, but adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, “Intangible—Goodwill and Other- Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update makes a number of changes meant to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement), by providing guidance in determining when the arrangement includes a software license.  This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Our early adoption of this revised guidance as of June 1, 2018 did not have a material impact on our Consolidated Financial Statements.

 

8


RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

NOTE 3 — RESTRUCTURING

 

We record restructuring charges associated with management-approved restructuring plans to either reorganize one or more of our business segments, or to remove duplicative headcount and infrastructure associated with our businesses. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, contract cancellation costs and other costs. Restructuring charges are recorded based upon planned employee termination dates and site closure and consolidation plans. The timing of associated cash payments is dependent upon the type of restructuring charge and can extend over a multi-year period. We record the short-term portion of our restructuring liability in Other Accrued Liabilities and the long-term portion, if any, in Other Long-Term Liabilities in our Consolidated Balance Sheets.

 

2020 MAP to Growth

 

Between May and August 2018, we approved and implemented the initial phases of a multi-year restructuring plan, the 2020 Margin Acceleration Plan (“2020 MAP to Growth”).  The initial phases of our plan affected on all of our reportable segments as well as our corporate/nonoperating segment and focused on margin improvement by simplifying business processes; reducing inventory categories and rationalizing SKUs; eliminating underperforming businesses; reducing headcount and working capital; and improving operating efficiency.  The majority of the activities included in the initial phases of the restructuring activities have been completed.

 

During the second quarter ended November 30, 2018, we formally announced the final phases of our 2020 MAP to Growth.  This multi-year restructuring is expected to increase operational efficiency while maintaining our entrepreneurial growth culture and will include three additional phases between September 2018 and December 2020.  Our execution of the restructuring plan will continue to drive the de-layering and simplification of management and businesses associated with group realignment.  We will implement four center-led functional areas including manufacturing and operations; procurement and supply chain; information technology; and accounting and finance.

 

Our restructuring plan will optimize our manufacturing facilities and will ultimately provide more efficient plant and distribution facilities.  In the first phase of the restructuring we are implementing the planned closure of twelve plants and seven warehouses.  We also expect to incur additional severance and benefit costs as part of our planned closure of these facilities.

 

Throughout the additional phases of our MAP to Growth initiative, we will continue to assess and find areas of improvement and cost savings.  As such, the final implementation of the aforementioned phases and total expected costs are subject to change.  In addition to the announced plan, we have continued to broaden the scope of our MAP to Growth initiative, specifically in consolidation of the general and administrative areas, potential outsourcing, as well as additional future plant closures and consolidations; the estimated costs of which have not yet been finalized.  The current total expected costs associated with this plan are outlined in the table below and decreased by approximately $5.7 million compared to our previous estimate, primarily attributable to a reduction in expected facility closure and other related costs within our industrial segment as well as a reduction in the expected severance charges within our consumer segment.  All activities under our 2020 MAP to Growth are anticipated to be completed by the end of calendar year 2020.

9


RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

A summary of the charges recorded in connection with restructuring by reportable segment during fiscal 2019 is as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

Cumulative Costs

 

Total Expected

 

(in thousands)

 

November 30, 2018

 

November 30, 2018

 

to Date

 

Costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and benefit costs (a)

 

$

279

 

$

1,830

 

$

7,482

 

$

8,710

 

Facility closure and other related costs

 

 

170

 

 

170

 

 

5,309

 

 

12,445

 

Other asset write-offs

 

 

2

 

 

2

 

 

2

 

 

2

 

Total Charges

 

$

451

 

$

2,002

 

$

12,793

 

$

21,157

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Industrial Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and benefit costs (b)

 

$

3,407

 

$

9,772

 

$

11,944

 

$

12,396

 

Facility closure and other related costs

 

 

867

 

 

1,303

 

 

2,347

 

 

21,800

 

Other asset write-offs

 

 

149

 

 

727

 

 

2,097

 

 

2,097

 

Total Charges

 

$

4,423

 

$

11,802

 

$

16,388

 

$

36,293

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialty Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and benefit costs (c)

 

$

1,786

 

$

3,933

 

$

3,933

 

$

5,367

 

Facility closure and other related costs

 

 

-

 

 

-

 

 

-

 

 

3,776

 

Other asset write-offs

 

 

3

 

 

3

 

 

3

 

 

3

 

Total Charges

 

$

1,789

 

$

3,936

 

$

3,936

 

$

9,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate/Other Segment:

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and benefit costs (d)

 

$

1,061

 

$

10,060

 

$

12,196

 

$

12,657

 

Total Charges

 

$

1,061

 

$

10,060

 

$

12,196

 

$

12,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consolidated:

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and benefit costs

 

$

6,533

 

$

25,595

 

$

35,555

 

$

39,130

 

Facility closure and other related costs

 

 

1,037

 

 

1,473

 

 

7,656

 

 

38,021

 

Other asset write-offs

 

 

154

 

 

732

 

 

2,102

 

 

2,102

 

Total Charges

 

$

7,724

 

$

27,800

 

$

45,313

 

$

79,253

 

 

(a)

Current quarter charges include $0.3 million associated with elimination of 35 positions.  Current year charges include $1.8 million associated with the elimination of 44 positions.  

(b)

Current quarter charges include $3.4 million associated with the elimination of 54 positions.  Current year charges include $9.6 million associated with the elimination of 148 positions and $0.2 million additional charges associated with the prior elimination of one position within the legal function during fiscal 2018.

(c)

Current quarter charges include $1.8 million associated with the elimination of 60 positions.  Current year charges include $3.9 million associated with the elimination of 107 positions.

(d)

Reflects charges related to the severance of two corporate executives, as well as accelerated vesting of equity awards for two corporate executives, four specialty segment executives and three industrial segment executives in connection with the aforementioned restructuring activities.

10


RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

A summary of the activity in the restructuring reserves related to our 2020 MAP to Growth is as follows:

 

(in thousands)

Severance and Benefits Costs

 

Facility Closure and Other Related Costs

 

Other Asset Write-Offs

 

Total

 

Balance at August 31, 2018

$

10,960

 

$

5,364

 

$

-

 

$

16,324

 

Additions charged to expense

 

6,533

 

 

1,037

 

 

154

 

 

7,724

 

Cash payments charged against reserve

 

(6,013

)

 

(1,330

)

 

-

 

 

(7,343

)

Non-cash charges included above (e)

 

(1,053

)

 

(2,536

)

 

(154

)

 

(3,743

)

Balance at November 30, 2018

$

10,427

 

$

2,535

 

$

-

 

$

12,962

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

Severance and Benefits Costs

 

Facility Closure and Other Related Costs

 

Other Asset Write-Offs

 

Total

 

Balance at June 1, 2018

$

9,957

 

$

6,184

 

$

1,373

 

$

17,514

 

Additions charged to expense

 

25,595

 

 

1,473

 

 

732

 

 

27,800

 

Cash payments charged against reserve

 

(18,588

)

 

(1,748

)

 

 

 

 

(20,336

)

Non-cash charges included above (e)

 

(6,537

)

 

(3,374

)

 

(2,105

)

 

(12,016

)

Balance at November 30, 2018

$

10,427

 

$

2,535

 

$

-

 

$

12,962

 

 

(e)

Non-cash charges primarily include accelerated vesting of equity awards and asset-write offs.

 

In connection with our 2020 MAP to Growth, during the second quarter of fiscal 2019, we incurred approximately $2.6 million and $1.0 million of inventory-related charges at our industrial and consumer segments, respectively.  During the first half of fiscal 2019, we incurred approximately $7.1 million and $1.3 million of inventory-related charges at our industrial and consumer segments, respectively.  The inventory-related charges are partially offset by a favorable adjustment of approximately $0.2 million to the previous write-off at our consumer segment.  All of the aforementioned inventory-related charges are recorded in cost of sales in our Consolidated Statements of Income.  These inventory charges were the result of product line and SKU rationalization initiatives in connection with our overall plan of restructuring. 

 

 

NOTE 4 — MARKETABLE SECURITIES

The following tables summarize available-for-sale marketable securities held at November 30, 2018 and May 31, 2018 by asset type:

 

 

 

Available-For-Sale Securities

 

(In thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

(Net Carrying

Amount)

 

November 30, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fixed maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and other government

 

$

23,292

 

 

$

26

 

 

$

(535

)

 

$

22,783

 

Corporate bonds

 

 

411

 

 

 

29

 

 

 

-

 

 

 

440

 

Total available-for-sale securities

 

$

23,703

 

 

$

55

 

 

$

(535

)

 

$

23,223

 

11


RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

 

 

Available-For-Sale Securities

 

(In thousands)

 

Amortized

Cost

 

 

Gross

Unrealized

Gains

 

 

Gross

Unrealized

Losses

 

 

Fair Value

(Net Carrying

Amount)

 

May 31, 2018

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds - foreign

 

$

46,123

 

 

$

1,839

 

 

$

(1,197

)

 

$

46,765

 

Mutual funds - domestic

 

 

99,833

 

 

 

727

 

 

 

(2,770

)

 

 

97,790

 

Total equity securities

 

 

145,956

 

 

 

2,566

 

 

 

(3,967

)

 

 

144,555

 

Fixed maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

U.S. treasury and other government

 

 

23,562

 

 

 

39

 

 

 

(552

)

 

 

23,049

 

Corporate bonds

 

 

432

 

 

 

43

 

 

 

(8

)

 

 

467

 

Total fixed maturity securities

 

 

23,994

 

 

 

82

 

 

 

(560

)

 

 

23,516

 

Total