UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended May 31, 2024
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.) |
2628 Pearl Road, Medina, Ohio |
44256 |
(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s telephone number, including area code:
(330) 273-5090
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
Common Stock, par value $0.01 |
RPM |
New York Stock Exchange |
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Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
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, 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 |
☑ |
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Accelerated filer |
☐ |
Non-accelerated filer |
☐ |
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Smaller reporting company |
☐ |
Emerging growth company |
☐ |
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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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the Common Stock held by non-affiliates of the Registrant at November 30, 2023 was approximately $13,091,662,068.
As of July 22, 2024, 128,797,008 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive Proxy Statement to be used in connection with the Registrant’s Annual Meeting of Stockholders to be held on October 3, 2024 (the “2024 Proxy Statement”) are incorporated by reference into Part III of this Annual Report on Form 10-K.
Except as otherwise stated, the information contained in this Annual Report on Form 10-K is as of May 31, 2024.
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PART I |
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Item 1. |
3 |
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Item 1A. |
11 |
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Item 1B. |
18 |
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Item 1C. |
19 |
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Item 2. |
19 |
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Item 3. |
21 |
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Item 4. |
21 |
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PART II |
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Item 5. |
22 |
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Item 7. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 7A. |
34 |
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Item 8. |
36 |
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Item 9. |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure |
84 |
Item 9A. |
84 |
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Item 9B. |
84 |
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Item 9C. |
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections |
84 |
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PART III |
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Item 10. |
85 |
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Item 11. |
86 |
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Item 12. |
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters |
86 |
Item 13. |
Certain Relationships and Related Transactions, and Director Independence |
86 |
Item 14. |
86 |
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PART IV |
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Item 15. |
87 |
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88 |
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93 |
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94 |
2
PART I
Item 1. Business.
THE COMPANY
RPM International Inc., a Delaware corporation, succeeded to the reporting obligations of RPM, Inc., an Ohio corporation, following a 2002 reincorporation transaction. RPM, Inc. was originally incorporated in 1947 under the name Republic Powdered Metals, Inc. and changed its name to RPM, Inc. in 1971.
As used herein, the terms “RPM,” the “Company,” “we,” “our” and “us” refer to RPM International Inc. and all our consolidated subsidiaries, unless the context indicates otherwise. Our principal executive offices are located at 2628 Pearl Road, Medina, Ohio 44256, and our telephone number is (330) 273-5090.
BUSINESS
Our subsidiaries manufacture, market and sell various specialty chemical product lines, including high-quality specialty paints, infrastructure rehab and repair products, protective coatings, roofing systems, sealants and adhesives, focusing on the maintenance and improvement needs of the industrial, specialty and consumer markets. Our family of products includes those marketed under brand names such as API, Carboline, CAVE, DAP, Day-Glo, Dri-Eaz, Dryvit, Euclid, EUCO, Fibergrate, Fibregrid, Fibrecrete, Flecto, Flowcrete, Gator, Grupo PV, Hummervoll, illbruck, Kemtile, Key Resin, Nudura, Mohawk, Prime Resins, Rust-Oleum, Specialty Polymer Coatings, Stonhard, Strathmore, TCI, Toxement, Tremco, Tuf-Strand, Universal Sealants, Viapol, Watco and Zinsser. As of May 31, 2024, our subsidiaries marketed products in approximately 159 countries and territories and operated manufacturing facilities in approximately 119 locations in Argentina, Australia, Belgium, Brazil, Canada, Chile, Colombia, France, Germany, India, Italy, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, South Africa, South Korea, Spain, the United Arab Emirates, the United Kingdom, and the United States. Approximately 30% of our sales are generated in international markets through a combination of exports to and direct sales in foreign countries. For the fiscal year ended May 31, 2024, we recorded net sales of $7.3 billion.
Available Information
Our Internet website address is www.rpminc.com. We make available free of charge on or through our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these reports, as soon as reasonably practicable after such reports are electronically filed with, or furnished to, the Securities and Exchange Commission.
Segment Information
Our business is divided into four reportable segments: the Construction Products Group (“CPG”) reportable segment, Performance Coatings Group (“PCG”) reportable segment, Consumer Group (“Consumer”) reportable segment and Specialty Products Group (“SPG”) reportable segment. These four reportable segments also represent our operating segments.
Within each operating segment, we manage product lines and businesses which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities. The table below describes the breakdown of the percentage of consolidated net sales and description of the product lines/business for each of our four reportable segments:
Name of Reportable |
Percentage of |
Description of Product Lines/Businesses |
CPG |
Approximately 37% |
Construction sealants and adhesives, coatings and chemicals, roofing systems, concrete admixture and repair products, building envelope solutions, parking decks, insulated cladding, firestopping, flooring systems, and weatherproofing solutions |
PCG |
Approximately 20% |
High-performance flooring systems, corrosion control and fireproofing coatings, infrastructure repair systems, fiberglass reinforced plastic ("FRP") structures, and raised-flooring systems for outdoor environments |
Consumer |
Approximately 33% |
Rust-preventative, special purpose, and decorative paints, caulks, sealants, primers, contact cement, cleaners, flooring systems and sealers, woodcare coatings, abrasives and other branded consumer products |
SPG |
Approximately 10% |
Restoration services equipment, colorants, nail enamels, factory applied industrial coatings, preservation products and edible coatings and specialty glazes for pharmaceutical and food industries. |
See Note R, “Segment Information,” to the Consolidated Financial Statements, for financial information relating to our four reportable segments and financial information by geographic area.
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CPG Segment
Our CPG segment products and services are sold throughout North America and also account for the majority of our international sales. Our construction product lines and services are sold directly to manufacturers, contractors, distributors and end-users, including industrial manufacturing facilities, concrete and cement producers, public institutions and other commercial customers. Our CPG segment generated $2.7 billion in net sales for the fiscal year ended May 31, 2024 and includes the following major product lines and brand names:
4
PCG Segment
Our PCG segment products and services are sold throughout North America, as well as internationally, and are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. Our PCG segment generated $1.5 billion in net sales for the fiscal year ended May 31, 2024 and includes the following major product lines and brand names:
Consumer Segment
Our Consumer segment manufactures and markets professional use and do-it-yourself (“DIY”) products for a variety of mainly residential applications, including home improvement and personal leisure activities. Our Consumer segment’s major manufacturing and distribution operations are located primarily in North America, along with a few locations in Europe, Australia and South America. Consumer segment products are sold directly to mass merchandisers, home improvement centers, hardware stores, residential construction suppliers, paint stores, craft shops and to other customers through distributors. Our Consumer segment generated $2.5 billion in net sales in the fiscal year ended May 31, 2024 and is composed of the following major product lines and brand names:
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SPG Segment
Our SPG segment products are sold throughout North America and internationally, primarily in Europe. Our SPG product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The SPG segment generated $0.7 billion in net sales for the fiscal year ended May 31, 2024 and includes the following major product lines and brand names:
Foreign Operations
For the fiscal year ended May 31, 2024, our foreign operations accounted for approximately 29.3% of our total net sales, excluding any direct exports from the United States. Our direct exports from the United States were approximately 0.8% of our total net sales for the fiscal year ended May 31, 2024. In addition, we receive license fees and royalty income from numerous international license agreements, and we also have several joint ventures, which are accounted for under the equity method, operating in various foreign countries. We have foreign manufacturing facilities in Argentina, Australia, Belgium, Brazil, Canada, Chile, Colombia, France, Germany, India, Italy, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, South Africa, South Korea, Spain, the United Arab Emirates and the United Kingdom. We also have foreign sales offices or warehouse facilities in China, Costa Rica, the Czech Republic, the Dominican Republic, Estonia, Finland, Guatemala, Hong Kong, Hungary, Indonesia, Ireland, Namibia, Pakistan, Panama, Peru, Philippines, Puerto Rico, Qatar, Singapore, Slovakia, Sweden, Switzerland, Thailand, Turkey and Vietnam. Information concerning our foreign operations is set forth in Management’s Discussion and Analysis of Results of Operations and Financial Condition.
Competition
We conduct our business in highly competitive markets, and all of our major products face competition from local, regional, national and multi-national firms. Our markets, however, are fragmented, and we do not face competition across all of our products from any one competitor in particular. Several of our competitors have access to greater financial resources and larger sales organizations than we do. While third-party figures are not necessarily available with respect to the size of our position in the market for each of our products, we believe that we are a major producer of caulks, sealants, insulating foams, patch-and-repair products for the general consumer as well as for the residential building trade; roofing systems; urethane sealants and waterproofing materials; aluminum coatings; cement-based coatings; hobby paints; small project paints; industrial-corrosion-control products; firestopping; fireproofing; consumer rust-preventative coatings; polymer floorings; fluorescent coatings and pigments; fiberglass-reinforced-plastic gratings; nail polish; water and fire damage restoration products; carpet cleaning truck-mount systems and shellac-based coatings. However, we do not believe that we have a significant share of the total protective coatings market (on a world-wide basis). The following is a summary of the competition that our key products face in the various markets in which we compete:
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Paints, Coatings, Adhesives and Sealants Products
The market for paints, coatings, adhesives and sealants has experienced significant consolidation over the past several decades. However, the market remains fragmented, which creates further consolidation opportunities for industry participants. Many leading suppliers tend to focus on coatings, while other companies focus on adhesives and sealants. Barriers to market entry are relatively high for new market entrants due to the lengthy intervals between product development and market acceptance, the importance of brand identity and the difficulty in establishing a reputation as a reliable supplier of these products. Most of the suppliers, including us, who provide these items have a portfolio of products that span across a wide variety of applications.
Consumer Home Improvement Products. Within our Consumer reportable segment, we generally serve the home improvement market with products designed for niche architectural, rust-preventative, decorative and special purpose paint and caulking and sealing applications. The products we sell for home improvement include those sold under our Rust-Oleum, Varathane, Watco, Zinsser, DAP, Touch’N Foam and Gator brand names. As a leading manufacturer of home improvement-related coatings, adhesives and sealants, we market products to DIY users and contractors through a wide range of distribution channels. These distribution channels include direct sales to home improvement centers, mass merchandisers, hardware and paint stores, and sales through distributors and sales representative organizations. Competitors in this market generally compete for market share by marketing and building upon brand recognition, providing customer service and developing new products based on customer needs.
Industrial Protective Coatings Products. Anti-corrosion protective coatings and fireproofing must withstand the destructive elements of nature and operating processes under harsh environments and conditions. Our protective industrial coating products are marketed primarily under our Carboline, Specialty Polymer Coatings, Plasite, Nullifire, Firefilm, Charflame, A/D Fire, Strathmore, Thermo-lag, Perlifoc, Epoplex, Farbocustic, and Southwest brand names. Some of the larger consumers of high-performance protective and corrosion control coatings, fireproofing and intumescent steel coatings are the oil and gas, pulp and paper, petrochemical, shipbuilding, high-rise building construction, public utility and bridge and highway industries, water and wastewater treatment plants, and electronics manufacturing facilities. These markets are highly fragmented. We and our competitors compete for market share by supplying a wide variety of high-quality products and by offering customized solutions.
Roofing Systems Products
In the roofing industry, re-roofing applications have historically accounted for over three-quarters of U.S. demand, with the remainder generated by new roofing applications. Our primary roofing brand, Tremco, was founded in 1928 on the principle of “keeping good roofs good,” and then, by extension, ensuring “roofing peace of mind” for our customers. We define the market in three segments: (a) restoration (b) re-cover and (c) new construction. We create and drive the market through our innovative solutions that provide exceptional value for the customer. Our roofing systems and services provide high performance and value. High performance ensures a long service life and ease of maintenance. High value ensures low total cost of ownership due to ease of installation, landfill avoidance, roof longevity, elimination of facility and occupant disruption, and utilization of sustainable materials and systems. Whether a project is a restoration, re-cover or new construction, our goal is always to help create a facility that is safe, dry, comfortable, and energy efficient for its occupants.
Construction Products
Flooring Systems Products. Polymer flooring systems are used in industrial, commercial and, to a lesser extent, residential applications to provide a smooth, seamless surface that is impervious to penetration by water and other substances while being easy to clean and maintain. These systems are particularly well-suited for clean environments such as pharmaceutical, food and beverage and healthcare facilities. In addition, the fast installation time and long-term durability of these systems and products make them ideal for industrial floor repair and restoration. Polymer flooring systems are based on epoxy, polyurethane and methyl methacrylate resins. Most of these flooring systems are applied during new construction, but there is also a significant repair and renovation market. Key performance attributes in polymer flooring systems that distinguish competitors for these applications include static control, chemical resistance, contamination control, durability and aesthetics. We market our flooring systems under the Stonhard, Flowcrete, Key Resin, Euclid, Liquid Elements, Hummervoll, Kemtile, API and Dudick brand names.
FRP Grating and Structural Composites. FRP grating and railings are used primarily in industrial and, to a lesser extent, commercial applications. FRP exhibits many specialized features, which make it a beneficial alternative to traditional steel or aluminum. These include a high strength-to-weight ratio, high corrosion resistance, electrical and thermal non-conductivity, and molded-in color, which eliminates the need for repainting. FRP is used for rooftop safety, platforms, walkways and stairs for a variety of applications, including those in the food and beverage, chemical processing, water and wastewater, pulp and paper, commercial roofing, commercial sealants and waterproofing, and offshore oil and gas industries. Structural composites include high-density polypropylene pedestal systems for raised flooring applications in outdoor environments. Key attributes that differentiate competitors in these markets include product quality, depth of product line, and design-and-fabrication services. Our products for these applications are sold under our Fibergrate, Chemgrate, Corgrate, Fibregrid, Safe-T-Span and Bison brand names.
Sealants, Waterproofing, Concrete and Masonry Products. Sealants, which include urethane, silicone, latex, butyl and hybrid technology products, are designed to be installed in construction joints for the purpose of providing a flexible air and water-tight seal. Waterproof coatings, usually urethane or asphalt based, are installed in exposed and buried applications to waterproof and protect concrete.
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Structural and traffic tolerant membranes, expansion joints and bearings are used in a variety of applications for bridge deck construction and restoration and the protection and preservation of balconies, pedestrian walkways and parking structures. In the concrete and masonry additives market, a variety of chemicals and fibers can be added to concrete and masonry to improve the processability, performance, or appearance of these products. Chemical admixtures for concrete are typically grouped according to their functional characteristics, such as water-reducers, set controllers, superplasticizers and air-entraining agents. Curing and sealing compounds, structural grouts, epoxy adhesives, injection resins, floor hardeners and toppings, joint fillers, industrial and architectural coatings, decorative color/stains/stamps, and a comprehensive selection of restoration materials are used to protect, repair or improve new or existing concrete structures used in the construction industry, and rehabilitation and repair of roads, highways, bridges, pipes and other infrastructure. The key attributes that differentiate competitors for these applications include quality assurance, on-the-job consultation and value-added, highly engineered products. We primarily offer products marketed under our Tremco, EUCO, Toxement, Viapol, Betumat, CAVE, Vandex, illbruck, Tamms, AlphaGuard, AlphaGrade, OneSeal, PowerPly, TremPly, TremLock, Vulkem, TREMproof, Dymonic, Increte, TUFF-N-DRI, Nufins, Pitchmastic PMB, Visul, Fibrecrete, Texacrete, Fibrejoint, Samiscreed, Prime Rez, Prime Gel, Prime Guard, Prime Coat, Prime Bond, Prime Flex, Logiball, Watchdog Waterproofing, PSI, Tuf-Strand, Sealtite and HydroStop brand names for this line of business.
Building Wall, Cladding and Envelope Systems. CPG's collective products and systems are a single source for new construction, renovation and restoration. We take a fully tested systems approach in standing behind its whole building warranty, providing a single point of responsibility for customer peace of mind.
Intellectual Property
Our intellectual property portfolios include valuable patents, trade secrets and know-how, domain names, trademarks, trade and brand names. In addition, through our subsidiaries, we continue to conduct significant research and technology development activities. Among our most significant intangibles are our Rust-Oleum®, Carboline®, DAP®, illbruck® and Tremco® trademarks.
Rust-Oleum Corporation and some of our other subsidiaries own more than 890 trademark registrations or applications in the United States and numerous other countries for the trademark “Rust-Oleum®” and other trademarks covering a variety of rust-preventative, decorative, general purpose, specialty, industrial and professional products sold by Rust-Oleum Corporation and related companies.
Carboline Global, Inc. and some of our other subsidiaries own more than 500 trademark registrations or applications in the United States and numerous other countries covering the products sold by the Carboline Global Inc. and related companies, including two United States trademark registrations for the trademark “Carboline®”.
DAP Global, Inc. and other subsidiaries of the Company own nearly 400 trademark registrations or applications in the United States and numerous other countries for the “DAP®” trademark, the “Putty Knife design” trademark and other trademarks covering products sold under the DAP brand and related brands.
Tremco CPG Inc. and some of our other subsidiaries own more than 90 registrations or applications for the trademark “Tremco®” in the United States and numerous countries covering a variety of roofing, sealants and coating products. There are also many other trademarks of Tremco CPG Inc. and some of our other subsidiaries that are the subject of registrations or applications in the United States and numerous other countries, bringing the total number of registrations and applications covering products sold under the Tremco brand and related brands to more than 1,000.
Our other principal product trademarks include: 2X Ultra Cover®, AlphaGuard®, Alumanation®, Betumat™, B-I-N®, Bitumastic®, Bulls Eye 1-2-3®, Chemgrate®, Dri-Eaz®, Dymonic®, EnerEDGE®, Enviro-Dri®, EUCO®, ExoAir®, Flecto™, Fibergrate®, Floquil™, Paraseal®, Permaroof®, Plasite®, Proglaze®, Sanitile®, Sealtite™, Solargard®, Spectrem®, Stonblend®, Stonclad®, Stonhard®, Stonlux®, Stonshield®, Testors®, TREMproof®, TUFF-N-DRI®, Varathane®, Viapol™, Vulkem®, Watchdog Waterproofing®, Woolsey®, Zinsser® and Z-Spar®; and, in Europe, API®, Perlifoc®, Hummervoll®, Nufins®, Pitchmastic PMB®, Visul®, Flowcrete®, Nullifire®, Radglo® and Martin Mathys™. Our trademark registrations are valid for a variety of different terms of up to 15 years, and may be renewable as long as the trademarks continue to be used and all other local conditions for renewal are met. Our trademark registrations are maintained and renewed on a regular basis as required.
Raw Materials
The cost and availability of raw materials, including packaging, materially impact our financial results. We obtain raw materials from a number of suppliers. Many of our raw materials are petroleum-based derivatives, minerals and metals. The cost of raw materials has in the past experienced, and likely will continue to experience, periods of volatility which could increase the cost of manufacturing our products. Under normal market conditions, these materials are generally available on the open market from a variety of producers; however, shortages have occurred and continue to be a possibility. Interruptions in the supply of raw materials could have a significant impact on our ability to produce products.
Throughout fiscal 2024, we experienced modest deflation in many of our raw materials. While costs of raw materials have generally stabilized, we expect that inflation of some materials will potentially create headwinds impacting our results in fiscal 2025.
Additionally, changes in international trade duties and other aspects of international trade policy, both in the United States and abroad, could materially impact the cost and availability of raw materials. Any increase in material costs that are not offset by an increase in our prices could have an adverse effect on our business, financial position, results of operations or cash flows.
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Seasonal Factors
Our business is dependent, to a significant extent, on external weather factors. We historically experience stronger sales and operating results in our first, second and fourth fiscal quarters, which are the three-month periods ending August 31, November 30 and May 31, respectively, while we have experienced weaker performance in our third fiscal quarter.
Customers
Sales to our ten largest Consumer segment customers, such as DIY home centers, on a combined basis represented approximately 24%, 25%, and 22% of our total net sales for each of the fiscal years ended May 31, 2024, 2023 and 2022, respectively. Except for sales to these customers, our business is not dependent upon any one customer or small group of customers but is largely dispersed over a substantial number of customers.
Research and Development
Our research and development work is performed at various laboratory locations. During fiscal years 2024, 2023 and 2022, approximately $92.2 million, $86.6 million and $80.5 million, respectively, was charged to expense for research and development activities. In addition to this laboratory work, we view our field technical service as being integral to the success of our research activities. Our research and development activities and our field technical service costs are both included as part of our selling, general and administrative expenses.
Environmental Matters
Our Building a Better World program is the core of our sustainability strategy that helps us create sustainable solutions that add value to our businesses, drive growth, and prioritize the people and communities where we live and work. It is structured around three pillars of Our Products, Our People and Our Processes and is built on a foundation of Our Governance.
Our Building a Better World Oversight Committee supports our ongoing commitment to responsibly serve and engage our associates, customers and stakeholders on critical sustainability matters. Oversight Committee members report to the Governance and Nominating Committee of the Board of Directors. The Oversight Committee includes, among others, Vice President – Corporate Benefits & Risk Management; Vice President – Environmental, Health and Safety; and Vice President – Operations. The Building a Better World Oversight Committee is chaired by the Vice President – Investor Relations and Sustainability.
The Oversight Committee reviews and identifies sustainability and climate-related risks and the processes for developing and managing sustainability related goals. The Chair of the Building a Better World Oversight Committee reports to the Governance and Nominating Committee of the Board to seek insight with respect to important sustainability and climate-related issues. Dedicated teams of subject matter experts focus on addressing and managing risks, opportunities and strategies as well as developing initiatives and programming in support of our Building a Better World program pillars.
We are subject to a broad range of laws and regulations dealing with environmental, health and safety issues for the various locations around the world in which we conduct our business. These laws and regulations include, but are not limited to, the following major areas:
For information regarding environmental accruals, see Note P, “Contingencies and Accrued Losses,” to the Consolidated Financial Statements. For more information concerning certain environmental matters affecting us, see “Item 3 — Legal Proceedings — Environmental Proceedings” in this Annual Report on Form 10-K.
Human Capital
We understand that our company is only as strong as the team behind it. With the consistent support and dedication of leadership at all levels, we foster a workplace that supports our associates as individuals and helps them thrive in their current positions and strive to accomplish their future aspirations. Our human capital management strategy includes sustainable best practices in professional development, benefits, health and safety, and community involvement in an effort to continue to hire the best associates and retain them throughout the course of their careers. We measure satisfaction through our annual Engagement Survey, through which participants are able to express their opinion and provide comments and suggestions.
Talent Development
It is critical to our long-term success to develop our internal talent. Our Global Organizational Leadership Development (“GOLD”) Team is charged with creating a leadership-led learning culture across RPM. The GOLD Team has developed several training programs to support development which include Leadership Accelerator, Leaders of the Future, RPM University, Strategic Leader Staff Rides, and partnering with the Center for Creative Leadership.
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Benefits
Our leadership has long understood that to attract and retain top talent, and to share the benefits of a successful business, we must maintain a premium benefits program for our associates. For U.S. associates, we offer an attractive benefits package, including defined benefit pension plans, medical, telehealth, tuition reimbursement and an employer-matched 401(k). We also offer an Employee Assistance Program (“EAP”) which focuses on behavioral health and provides resources for financial and legal matters. Mental health support is key to associates, who may get support through the EAP as well as through telehealth and our health plans.
Similar ancillary benefits are offered to our Canadian associates, and associates of our other foreign subsidiaries receive benefits coverage, to the extent deemed appropriate, through plans that meet local requirements.
Diversity & Inclusion
At RPM, we are committed to fostering, cultivating and preserving a culture of diversity and inclusion. We support this commitment and provide associate resources through Respect at RPM, a program that reinforces our core values of operating with transparency, trust and respect. The program emphasizes the importance of diversity and inclusion at RPM and across all our operations; and supports associate growth and development. We have built our workforce with a commitment to create a diverse and inclusive culture. We recruit, select, hire and develop individuals based on their qualifications and skills. All associates and other parties involved in the employment relationship are required to comply with RPM’s Code of Conduct and are prohibited from discriminating against individuals during all stages of employment or hiring, including decisions involving recruitment, promotion, transfer, assignment, training, termination and lay-offs, working conditions, wage and salary administration, associate benefits and application of policies. We prohibit any inappropriate conduct or behavior against others, including discrimination perpetrated by associates, supervisors, customers or vendors, and strictly prohibit retaliation and harassment, as set forth in our Code of Conduct and Hotline and Non-Retaliation Policy.
Health & Safety
We follow many best practices to ensure our associates come to work feeling empowered to safely do their jobs. As part of our EH&S management system, we continuously educate and train to institutionalize our health and safety values, set and monitor health and safety objectives, conduct regular risk assessments and process hazard and root cause analysis, and actively enforce incident prevention and reporting policies. In addition, we conduct EH&S compliance audits annually that are prioritized based on high-risk processes, facilities with recent expansion or process changes and to cover any new acquisitions.
Associates
As of May 31, 2024, we employed 17,207 persons. Approximately 347 U.S. employees were represented by unions under contracts which expire at varying times in the future. We believe that all relations with associates and their unions are good.
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Item 1A. Risk Factors.
As a global company of paint, coatings, roofing, construction and related products, we operate in a business environment that includes risks. Each of the risks described in this section could adversely affect the results of our operations, our financial position and/or our liquidity. Additionally, while the following factors are considered to be the more significant risk factors, no such list should be considered to be a complete statement of all potential risks and uncertainties. Unlisted risk factors may present significant additional obstacles which may adversely affect our businesses and our results. Therefore, you should carefully consider these risk factors, as well as the other information contained in this Annual Report on Form 10-K, in evaluating us, our business and your investment in us as they could cause our actual results or financial condition to differ materially from those projected in our forward-looking statements.
ECONOMIC AND STRATEGIC RISKS
Our operations and financial condition have been and could continue to be adversely affected by global and regional economic conditions in ways we may not be able to predict or control.
Our operations and financial condition have been and could continue to be adversely affected by global or regional economic conditions and trends if markets decline in the future in ways we may not be able to predict or control, whether related to a public health crisis similar to the Covid pandemic, civil unrest similar to the Russian invasion of Ukraine, higher inflation or interest rates, economic recession, natural disasters, impacts of and issues related to climate change, business disruptions, our ability to adequately staff operations or otherwise. Commercial building utilization and the continued shift in consumer spending to online shopping and remote work may negatively impact residential and commercial construction. Additionally, escalation in interest rates, in conjunction with banking failures, may lead to financial institutions being more prudent with capital deployment and tightening lending, especially in relation to construction and real estate development. As a result, future construction activity could decrease due to a lack of financing availability. Financial distress in this sector could be further exacerbated by a lack of refinancing options available for existing real estate loans when they mature. Any future economic declines may result in decreased revenue, gross margins, earnings or growth rates or difficulty in managing inventory levels or collecting customer receivables. We also have experienced, and could continue to experience, labor inflation, increased competitive pricing pressure, raw material inflation and availability issues resulting in difficulties meeting customer demand. In addition, customer difficulties in the future could result from economic declines, decreased purchasing power, public health crisis similar to the Covid pandemic, the cyclical nature of their respective businesses, such as in the oil and gas industry, or otherwise and, in turn, result in decreases in product demand, increases in bad debt write-offs, decreases in timely collection of accounts receivable and adjustments to our allowance for credit losses, resulting in material reductions to our revenues and net earnings.
Global economic and capital market conditions may cause our access to capital to be more difficult in the future and/or costs to secure such capital more expensive.
In the future, we may need new or additional financing to provide liquidity to conduct our operations, expand our business or refinance existing indebtedness. Any sustained weakness in general economic conditions and/or U.S. or global capital markets could adversely affect our ability to raise capital on favorable terms or at all. From time to time we have relied, and we may also rely in the future, on access to financial markets as a source of liquidity for working capital requirements, acquisitions and general corporate purposes. Our access to funds under our credit facility is dependent on the ability of the financial institutions that are parties to that facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of the financial institutions under our credit facility are several and not joint and, as a result, a funding default by one institution does not need to be made up by the others. Longer term volatility and continued disruptions in the capital and credit markets as a result of uncertainty, changing or increased regulation of financial institutions, reduced alternatives or failures of significant financial institutions could adversely affect our access to the liquidity needed for our businesses in the longer term. Such disruptions could require us to take measures to conserve cash until the markets stabilize or until alternative credit arrangements or other funding for our business needs can be arranged.
Volatility in the equity markets or interest rates could substantially increase our pension costs and required pension contributions.
We sponsor qualified defined benefit pension plans and various other nonqualified postretirement plans. The qualified defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding; (ii) cause volatility in the net periodic pension cost; and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant change in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plans could have an adverse impact on our cash flow.
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A public health crisis could cause disruptions to our operations which could adversely affect our business in the future.
A significant public health crisis could cause disruptions to our operations similar to the effects of the Covid pandemic. The Covid pandemic had a negative effect on our business, results of operations, cash flows and financial condition. The effect on our business was a result of the overall impact on the global economy, including its effects on transportation networks, raw material availability, worker availability, production efforts and customer demand for our products. Our ability to predict and respond to future changes resulting from potential health crisis is uncertain. Even after any future public health crisis subsides, there may be long-term effects on our business practices and customers in economies in which we operate that could severely disrupt our operations and could have a material adverse effect on our business, results of operations, cash flows and financial condition.
Terrorist activities and other acts of violence or war and other disruptions have negatively impacted in the past, and could negatively impact in the future, the United States and foreign countries, the financial markets, the industries in which we compete, and our operations and profitability.
Terrorist activities, acts of violence or war and other disruptions have contributed to economic instability in the United States and elsewhere, and acts of terrorism, cyber-terrorism, violence or war could negatively affect the industries in which we compete, our ability to purchase raw materials, adequately staff our operations, manufacture products or sell or distribute products, which could have a material adverse impact on our financial condition and results of operations.
Severe weather conditions and natural disasters, including those related to the impacts of climate change, may reduce the demand for some of our products, impair our ability to meet our demand for such products or cause supply chain disruptions which could have a negative effect on our operations and sales.
From time to time, severe weather conditions, including natural disasters, and those related to the impacts of climate change, have had a negative effect on our operations and sales. Events such as destructive wildfires, tornados, extreme storms or temperatures and increased flooding or other natural disasters could and have in the past caused damage to our facilities, leading to production or distribution challenges which have in the past and could in the future have a negative effect on our sales. Unusually cold or rainy weather, especially during the general construction and exterior painting season, may also have an adverse effect on sales. Furthermore, the impacts of these risks to our suppliers may have a detrimental effect on the sales, manufacturing, and distribution of our products, including supply chain disruptions, raw material shortages and increased costs.
As a result, we have historically experienced weaker sales and net income in our third fiscal quarter (December through February) in comparison to our performance during our other fiscal quarters. Any such effect on sales may result in a reduction in earnings or cash flow.
Significant foreign currency exchange rate fluctuations may harm our financial results.
We conduct business in various regions throughout the world and are therefore subject to market risk due to changes in the exchange rates of foreign currencies in relation to the U.S. dollar. Because our Consolidated Financial Statements are presented in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies in which we transact business have in the past and could in the future have a materially adverse effect on our net revenues and earnings, and the carrying values of our assets located outside the United States.
FINANCIAL RISKS
The use of accounting estimates involves judgment and could impact our financial results.
The preparation of financial statements in conformity with Generally Accepted Accounting Principles in the U.S. (“GAAP”) requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Our most critical accounting estimates are described in Item 7 under Management’s Discussion and Analysis of Financial Condition and Results of Operations under “Critical Accounting Policies and Estimates.” Additionally, as discussed in Note P, “Contingencies and Accrued Losses,” of the Notes to Consolidated Financial Statements, we make certain estimates, including decisions related to legal proceedings and various loss reserves. These estimates and assumptions involve the use of judgment, and therefore, actual financial results may differ.
The results of our annual and, as-required, interim testing of goodwill and other long-lived assets have required, and in the future may result in additional substantial impairment charges.
As of May 31, 2024, we had approximately $1.8 billion in goodwill and other intangible assets. The Accounting Standards Codification (“ASC”) section 350, "Intangibles – Goodwill and Other," requires that goodwill be tested at least on an annual basis, or more frequently as impairment indicators arise, using either a qualitative assessment or a fair-value approach at the reporting unit level. We perform our annual required impairment tests, which involve the use of estimates related to the fair market values of the reporting units with which goodwill is associated, as of the first day of our fourth fiscal quarter. The evaluation of our long-lived assets for impairment includes determining whether indicators of impairment exist, this is a subjective process that considers both internal and external factors. The impairment assessment evaluation requires the use of significant judgment regarding estimates and assumptions surrounding future results of operations and cash flows.
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For discussion of the approach for, and results of, our interim and annual impairment testing for goodwill and indefinite lived intangible assets for all periods presented, please refer to the headings entitled “Goodwill” and “Other Long-Lived Assets” within the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Critical Accounting Policies and Estimates” sections located in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation” as well as Note A(11), "Summary of Significant Accounting Policies - Goodwill and Other Intangible Assets," and Note C, "Goodwill and Other Intangible Assets," to our Consolidated Financial Statements as presented below.
In the future, if global economic conditions were to decline significantly, or if our reporting units experience significant declines in business, we may incur additional, substantial goodwill and other intangible asset impairment charges. The amount of any such impairment charge could have a material adverse effect on our results of operations.
Our significant amount of indebtedness could have a material adverse impact on our business.
Our total debt was approximately $2.1 billion and $2.7 billion at May 31, 2024 and 2023, respectively, which compares with $2.5 billion and $2.1 billion in stockholders’ equity at May 31, 2024 and 2023, respectively. Our level of indebtedness could adversely impact out business. For example, it could:
We cannot guarantee that our business will always be able to make timely or sufficient payments of our debt. Should we fail to comply with covenants in our debt instruments, such failure could result in an event of default which, if not cured or waived, would have a material adverse effect on us.
OPERATIONAL RISKS
Operating improvement initiatives could cause us to incur significant expenses and impact the trading value of our common stock.
On May 31, 2021, we formally concluded our 2020 Margin Acceleration Plan ("MAP to Growth") operating improvement program, which resulted in significant changes in our organizational and operational structure impacting most of our companies. In August 2022, we approved and announced our Margin Achievement Plan 2025 ("MAP 2025"). MAP 2025 is a multi-year restructuring plan to build on the achievements of MAP to Growth. Our MAP 2025 operating improvement program is designed to result in significant changes in our organizational and operational structure. We have taken actions and may continue to take additional actions during future periods, in furtherance of these or other operating improvement initiatives. We may incur further expenses as a result of these actions, and we also may experience disruptions in our operations, decreased productivity and unanticipated associate turnover. Further, the objectives of our operating improvement initiatives may not be achieved. The occurrence of any of these, our failure to succeed in our MAP 2025 operating improvement plan, or other related events associated with our operating improvement initiatives could adversely affect our operating results and financial condition.
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Fluctuations in the supply and cost of raw materials may negatively impact our financial results.
The cost and availability of raw materials, including packaging, has in the past and could in the future materially impact our financial results. We obtain raw materials from many suppliers. Many of our raw materials are petroleum-based derivatives, minerals and metals. The cost of raw materials has in the past experienced, and likely will continue to experience, periods of volatility which have, and could in the future, increase the cost of manufacturing our products. Under normal market conditions, raw materials are generally available on the open market from a variety of sources; however, our suppliers may be impacted by social and environmental regulations and expectations, including regulations related to climate change, adverse weather conditions, pandemics, trade policy, labor, energy availability or civil unrest, which could result in shortages and price volatility. Interruptions in the supply of raw materials or sources of energy have in the past and could in the future have a significant impact on our ability or cost to produce products.
Cost and adequate supply of raw materials is managed by establishing contracts, procuring from multiple sources, and identifying alternative materials or technology; however, the unavailability of raw materials or increased prices of raw materials that we are unable to pass along to our customers could have a material adverse effect on our business, financial condition, results of operations or cashflows.
Additionally, changes in international trade duties, tariffs, sanctions and other aspects of international trade policy, both in the United States and abroad, has in the past and could in the future materially impact the cost of raw materials. Any increase in materials that is not offset by an increase in our prices could have a material adverse effect on our business, financial condition, results of operations or cash flows.
The markets in which we operate are highly competitive and some of our competitors are much larger than we are and may have greater financial resources than we do.
The markets in which we operate are fragmented, and we do not face competition from any one company across all our product lines. However, any significant increase in competition, resulting from the consolidation of competitors or otherwise, may cause us to lose market share or compel us to reduce prices to remain competitive, which could result in reduced gross profit margins. Increased competition may also impair our ability to grow or to maintain our current levels of revenues and earnings. Some companies that compete in our markets include Akzo Nobel, Axalta Coating Systems Ltd., Carlisle Companies Inc., H.B. Fuller, Masco Corporation, PPG Industries, Inc., The Sherwin-Williams Company and Sika AG. Several of these companies are much larger than we are and may have greater financial resources than we do. Increased competition with these or other companies could prevent the institution of price increases or could require price reductions or increased spending to maintain our market share, any of which could adversely affect our results of operations.
Our success depends upon our ability to identify, attract, retain and develop key associates and the succession of senior management.
Our success largely depends on the performance of our management team and other key associates. If we are unable to identify, attract, retain, and develop talented, highly qualified senior management and other key associates (including the ability to identify, attract, retain and develop key international associates), our business, results of operations, cash flows and financial condition could be adversely affected. In addition, if we are unable to effectively provide for the succession of senior management, including our Chief Executive Officer, our business, results of operations, cash flows and financial condition may be adversely affected. While we follow a disciplined, ongoing succession planning process and have succession plans in place for senior management and other key associates, these do not guarantee that the services of qualified senior executives will continue to be available to us at particular moments in time.
We depend on a few key customers for a significant portion of our net sales and, therefore, significant declines in the level of purchases by any of these key customers could harm our business.
Some of our operating companies, particularly in the Consumer reportable segment, face a substantial amount of customer concentration. For example, our key customers in the Consumer reportable segment include Ace Hardware, Amazon, Do It Best, The Home Depot, Inc., Lowe’s, Menards, Orgill, True Value, W.W. Grainger, and Wal-Mart. Within our Consumer segment, sales to these customers accounted for approximately 67%, 67% and 64% of net sales for the fiscal years ended May 31, 2024, 2023 and 2022, respectively. On a consolidated basis, sales to these customers across all of our reportable segments accounted for approximately 24%, 25% and 22% of our consolidated net sales for the fiscal years ended May 31, 2024, 2023 and 2022, respectively. Sales to The Home Depot, Inc. represented less than 10% of our consolidated net sales for fiscal 2024, 2023, and 2022, and 23%, 23% and 25% of our Consumer segment net sales for fiscal 2024, 2023 and 2022, respectively. If we were to lose one or more of our key customers, experience a delay or cancellation of a significant order, incur a significant decrease in the level of purchases, or experience difficulty in collecting amounts due from any of our key customers, our net revenues could decline materially and our operating results could be reduced materially.
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If our efforts in acquiring and integrating other companies or product lines fail or we encounter difficulties associated with divestitures our business may not grow or realize anticipated benefits from these acquisitions or divestitures.
As an important part of our growth strategy, we intend to continue pursuing acquisitions of complementary businesses or products and creating joint ventures. Our ability to continue to grow in this manner depends upon our ability to identify, negotiate and finance suitable acquisitions or joint venture arrangements. Execution of our acquisition strategy with respect to some companies or product lines could fail or could result in unanticipated costs to us that were not apparent despite our due diligence efforts, either of which could hinder our growth or adversely impact our results of operations. In addition, acquisitions and their subsequent integration involve many risks, including, but not limited to:
Furthermore, we may make strategic divestitures because of portfolio rationalization which may impact our future growth. Divestitures may result in continued financial involvement in the divested business, such as through indemnities or retained liabilities, which could result in financial obligations imposed upon us and could affect our future financial condition, results of operations and cash flows.
We derive a significant amount of our revenues from foreign markets, which subjects us to additional business risks that could adversely affect our results of operations.
Our foreign manufacturing operations accounted for approximately 29.3% of our net sales for the fiscal year ended May 31, 2024, not including exports directly from the United States which accounted for approximately 0.8% of our net sales for fiscal 2024. We plan to continue to grow our international operations and the growth and maintenance of such operations could be adversely affected by a public health crisis, civil unrest, invasions and conflicts like the Russian invasion of Ukraine, war, changes in social, political and economic conditions, inflation rates, trade protection measures, restrictions on foreign investments and repatriation of earnings, changing intellectual property rights, difficulties in staffing and managing foreign operations, changes in regulatory requirements, and other events that restrict the sales of our products or increase our costs. Our ability to effectively manage our foreign operations may pose significant risks that could adversely affect our results of operations, cash flow, liquidity or financial condition.
Cybersecurity, data privacy and artificial intelligence considerations could impact our business.
We rely on information technology systems, products and applications to conduct our business, including recording and processing transactions, administering human resource activities and associate benefits, manufacturing, marketing, and selling our products, researching and developing new products, maintaining and growing our businesses, and supporting and communicating with our associates, customers, suppliers and other stakeholders. The importance of such systems has increased due to many of our associates working remotely. Some of these systems and applications are operated by third parties. If we do not allocate and effectively manage the resources necessary to build, sustain, and protect an appropriate information technology infrastructure, we do not effectively implement system upgrades in a timely manner, or our due diligence regarding third-party providers fails our businesses, our business or financial results could be negatively impacted.
Additionally, we, ourselves and through our third parties, digitally collect and process different types of information including personal, confidential, proprietary, and sensitive data about our business, which may include information about our customers, associates, suppliers, distributors and others. Some of this data is stored, accessible or transferred internationally.
The interpretation and application of cybersecurity, artificial intelligence, biometric, and privacy laws, rules and regulations around the world applicable to our business (collectively, the “Data Protection Laws”) are uncertain and evolving. It is possible that the Data Protection Laws may be interpreted and applied in a manner that is inconsistent with our data practices. Complying with these various laws is difficult and could cause us to incur substantial costs or require us to change our business practices in a manner adverse to our business. In addition, some of our systems, tools and resources use, integrate or will integrate some form of artificial intelligence which has the potential to result in bias, miscalculations, data errors, intellectual property infringement and other unintended consequences. It is possible that the information technology tools we use may negatively affect our reputation, disrupt our operations, or have a material impact on our financial results.
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Further, although we have implemented internal controls and procedures designed to manage compliance with the Data Protection Laws and protect our data, there can be no assurance that our controls will prevent a breach or that our procedures will enable us to be fully compliant with all Data Protection Laws. Cyber-attacks or breaches due to security vulnerabilities, associate error, supplier or third-party error, malfeasance or other disruptions may still occur. We have been and may in the future be subject to attempts to gain unauthorized access to our data, information technology systems and/or applications.
We have in the past experienced data security incidents that have disrupted our operations, but which did not have a material impact on our financial results.
These risks have and may in the future be increased as a result of remote work, a public health crisis similar to the Covid pandemic or foreign affairs such as war or civil unrest. Future loss, inaccessibility, alteration or misappropriation of information related to us, our associates, former associates, customers, suppliers or others may have a negative impact on our business. A violation of, or failure to comply with, the Data Protection Laws by us, our suppliers, or other third parties, a cyber-attack or a security breach of our systems or that of one of our key suppliers or third parties could lead to negative publicity, legal claims, extortion, ransom, theft, modification or destruction of proprietary information or key information, damage to or inaccessibility of critical systems, manufacture of defective products, production downtimes, operational disruptions, data breach claims, privacy violations and other significant costs, which could adversely affect our reputation, financial condition and results of operations.
Our business and financial condition could be adversely affected if we are unable to protect our material intellectual property and other proprietary information or there is a loss in the actual or perceived value of our brands.
We have numerous valuable patents, trade secrets and know-how, domain names, trademarks, trade dress, and trade names, including certain marks that are significant to our business, which are identified under Item 1 of this Annual Report on Form 10-K. Despite our efforts to protect our intellectual property and other proprietary information and rights from unauthorized use or disclosure, other parties may attempt to obtain, disclose or use them without our authorization; such unauthorized action, use or disclosure could negatively impact our business and financial condition.
Similarly, the value of our brands may be impacted by reputational damage. The reputations of our branded products depend on numerous factors, including the successful advertising and marketing of our brand names, consumer acceptance, continued trademark validity, the availability of similar products from our competitors, and our ability to maintain product quality, technological advantages and claims of superior performance. Furthermore, the prevalence of social media, online reviews and other digital public forums increases our risk of receiving negative commentary that could damage the perception of our brands resulting in a decreased perception of value. A loss of a brand or in the actual or perceived value of our brands could limit or reduce the demand for our products and could negatively impact our business and financial condition.
Although we have insurance, it may not cover every potential risk associated with our operations.
Although we maintain insurance of various types to cover many of the risks and hazards that apply to our operations, our insurance may not cover every potential risk associated with our operations. The occurrence of a significant event, the risks of which are not fully covered by insurance, could have a material adverse effect on our financial condition and results of operations. Moreover, no assurance can be given that we will be able to maintain adequate insurance in the future.
If our efforts to achieve stated sustainability goals, targets or objectives fail, or we fail to effectively respond to changing regulatory requirements related to climate change, our business and reputation may be adversely affected.
We might fail to effectively address increased attention or expectations from the media, stockholders, activists and other stakeholders on climate change and related environmental or other sustainability matters. Such failure, or the perception that we have failed to act responsibly with respect to such matters or to effectively respond to new or additional regulatory requirements related to climate change, whether or not valid, could result in adverse publicity and negatively affect our business and reputation. In addition, we have established and publicly announced goals to reduce our impact on the environment and, in the future may establish and publicly announce other goals or commitments associated with our sustainability initiatives. Our ability to achieve any stated goal, target or objective is subject to numerous factors and conditions, many of which are outside of our control, including evolving regulatory requirements. Furthermore, standards for tracking and reporting such matters continue to evolve. Our selection of voluntary disclosure frameworks and standards, and the interpretation or application of those frameworks and standards, may change from time to time or differ from those of others. Methodologies for reporting this data may be updated and previously reported data may be adjusted to reflect improvement in availability and quality of data, changing assumptions, changes in the nature and scope of our operations and other changes in circumstances, which could result in significant revisions to our current goals, reported progress in achieving such goals, or ability to achieve such goals in the future. If we fail to achieve, are perceived to have failed, or are delayed in achieving these goals and commitments, it could negatively affect investor confidence in us, as well as expose us to government enforcement actions and private litigation.
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LEGAL AND REGULATORY RISKS
The industries in which we operate expose us to inherent risks of legal and warranty claims and other litigation-related costs, which could adversely impact our business.
We face an inherent risk of legal claims if the exposure to, or the failure, use, or misuse of our products results, or is alleged to result, in bodily injury and/or property damage. In the course of our business, we are subject to a variety of inquiries and investigations by regulators, as well as claims and lawsuits by private parties, including those related to product liability, product claims regarding asbestos or other chemicals or materials that are or were in our products, whether intentionally added or resulting from contamination, warranties, the environment, employment matters, contracts, intellectual property and commercial matters, which due to their uncertain nature may result in losses, some of which may be material. We are defending claims and class action lawsuits, and could be subject to future claims and lawsuits, in which significant financial damages are alleged. These matters could consume material financial resources to defend and be a distraction to management. Some, but not all, of such matters are insured. We offer warranties on many of our products, as well as long term warranty programs at certain of our businesses and, as a result, from time to time we may experience higher levels of warranty expense, which is typically reflected in selling, general and administrative expenses. The nature and extent to which we use reactive chemistry or hazardous or flammable materials in our manufacturing processes creates risk of damage to persons and property that, if realized, could be material.
Compliance with environmental, sustainability, health and safety and other laws and regulations could subject us to unforeseen future expenditures or liabilities, which could have a material adverse effect on our business.
We are subject to numerous, complicated and often increasingly stringent environmental, health and safety laws and regulations, including those developed in response to climate change, in the jurisdictions where we conduct business and sell our products. Governmental and regulatory authorities impose various laws and regulations on us that relate to environmental protection, the use, sale, transportation, import and export of certain chemicals or hazardous materials, and various health and safety matters, including the preparation, storage, and sale of food products, discharge of pollutants into the air and water, the handling, use, treatment, storage and clean-up of solid and hazardous wastes, the use of certain chemicals in product formulations, and the investigation and remediation of soil and groundwater affected by hazardous substances and those related to climate change. These laws and regulations include the Clean Air Act, the Clean Water Act, RCRA, CERCLA, TSCA, DSL, REACH and many other federal, state, provincial, local and international statutes. These laws and regulations often impose strict, retroactive and joint and several liability for the costs of, and damages resulting from, not addressing our, or our predecessors’ past or present facilities and third-party disposal sites. We are currently undertaking remedial activities at a number of our properties and could be subject to future liability as yet unknown, but that could be material.
We have not always been and may not always be in full compliance with all environmental, health and safety laws and regulations in every jurisdiction in which we conduct our business. In addition, if we violate or fail to comply with environmental, health and safety laws (including related to permitting), we could be fined or otherwise sanctioned by regulators, including enjoining or curtailing operations or sales, remedial or corrective measures, installing pollution control equipment, or other actions. We have been and could in the future be liable for consequences arising out of human exposure to hazardous substances or chemicals of concern relating to our products or operations. We may be required to make additional expenditures to remain in or to achieve compliance with environmental, health or safety laws or changes in stakeholder preferences or expectations in the future and any such additional expenditures may have a material adverse effect on our business, financial condition, results of operations or cash flows. If regulatory permits or registrations are delayed, restricted, or rejected, subsequent operations at our businesses could be delayed or restricted, which could have an adverse effect on our results of operations.
Our businesses are subject to varying domestic and foreign laws and regulations that may restrict or adversely impact our ability to conduct our business.
Our businesses are subject to varying domestic and foreign laws and regulations that may restrict or adversely impact our ability to conduct our business. These include securities, environmental, sustainability, health, safety, tax, competition and anti-trust, insurance, service contract and warranty, trade controls, data security, anti-corruption, anti-money laundering, labor, wage and hour employment and privacy laws and regulations. These laws and regulations change from time to time and thus may result in increased risk and costs to us related to our compliance therewith. From time-to-time regulators review our compliance with applicable laws. We have not always been, and may not always be, in full compliance with all laws and regulations applicable to our business and, thus enforcement actions, fines and private litigation claims and damages, which could be material, may occur, notwithstanding our belief that we have in place appropriate risk management and compliance programs to mitigate these risks.
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We could be adversely affected by violations of the U.S. Foreign Corrupt Practices Act and similar anti-bribery laws of other countries, as well as trade sanctions administered by the office of Foreign Assets Control and the Department of Commerce.
The U.S. Foreign Corrupt Practices Act and similar anti-bribery laws of other countries generally prohibit companies and their intermediaries from making or receiving improper payments to governmental officials or others for the purpose of obtaining or retaining business or for other unfair advantage. Our policies mandate compliance with anti-bribery laws. We operate in many parts of the world that have experienced corruption to some degree and, in certain circumstances, strict compliance with anti-bribery laws may conflict with local customs and practices.
We are required to comply with U.S. regulations on trade sanctions and embargoes administered by the U.S. Department of the Treasury, Office of Foreign Assets Control, the Commerce Department and similar multi-national bodies and governmental agencies worldwide, which are complex and often changing. A violation thereof could subject us to regulatory enforcement actions, including a loss of export privileges and significant civil and criminal penalties and fines.
Although we have internal controls and procedures designed to ensure compliance with these laws, there can be no assurance that our controls and procedures will prevent a violation of these laws. Violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our results of operations, financial condition, and cash flows.
We could be adversely affected by or incur liability for the actions or inaction of our third parties.
We vet and monitor our customers, suppliers, services providers and other parties that we engage in an effort to ensure that the business practices of those third parties are in compliance with applicable laws and regulations and industry best practices, including applying appropriate technical security measures, safeguarding data privacy and human rights and preventing illegal trade and corruption. In the event one of our third parties experiences a data breach, is found to have violated applicable laws or regulations, or the business practices of the third party come under scrutiny, we could be subject to legal claims, fines and reputational damage related to the third-party relationship. In the event any third-party claim, legal violation or business practice requires us to sever the third-party relationship, we could also experience an impact on our services, operations or our ability to obtain raw materials for our products.
Our operations are subject to the effect of global tax law changes, some of which have been, and may be in the future, retroactive in application.
Our operations are subject to various federal, state, local and foreign tax laws and regulations which govern, among other things, taxes on worldwide income. Any potential tax law changes may, for example, increase applicable tax rates, have retroactive application, or impose stricter compliance requirements in the jurisdictions in which we operate, which could reduce our consolidated net earnings.
In response to, for instance, an economic crisis or recession, governments may revise tax laws, regulations or official interpretations in ways that could have a significant impact on us, including modifications that could, for example, reduce the profits that we can effectively realize from our non-U.S. operations, or that could require costly changes to those operations, or the way in which they are structured. If changes in tax laws, regulations or interpretations were to significantly increase the tax rates on non-U.S. income, our effective tax rate could increase, our profits could be reduced, and if such increases were a result of our status as a U.S. company, could place us at a disadvantage to our non-U.S. competitors if those competitors remain subject to lower local tax rates.
We could be adversely affected by failure to comply with federal, state and local government procurement regulations and requirements.
Some of our companies have contracts with and supply product to federal, state and local governmental entities and their contractors, and are required to comply with specific procurement regulations and other requirements relating to those contracts and sales. Requirements in our contracts and those requirements flowed down to us in our capacity as a subcontractor or supplier, although customary in government contracts, may impact our performance and compliance costs. Failure to comply with these regulations and requirements or to make required disclosures under contract could result in reductions of the value of contracts, contract modifications or termination for cause, adverse past performance ratings, actions under a federal or state false claims statutes, suspension or debarment from government contracting or subcontracting for a period of time and the assessment of penalties and fines, any of which could negatively impact our results of operations and financial condition and could have a negative impact on our reputation and ability to procure other government contracts in the future.
Item 1B. Unresolved Staff Comments.
Not Applicable.
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Item 1C. Cybersecurity.
Our cyber-security risk strategy includes policies and procedures for assessing, identifying and managing material cybersecurity threats. Our program is based on the U.S. National Institute for Standards and Technology (NIST) cybersecurity framework and other applicable industry frameworks. Our cybersecurity posture is risk based, focused on the areas of higher risk to the company and associates. Our cybersecurity policies, standards and practices are integrated into our enterprise risk management approach, and cybersecurity risks are among the enterprise risks that are subject to oversight by the Board of Directors acting through the Audit Committee of the Board of Directors.
We use third party vendors to perform ongoing security monitoring, reporting and forensic analysis, as necessary including annual external penetration testing. Security standards are established and defined with respect to administrator accounts, backups, encryption, passwords, website certifications, antivirus software, endpoint management, firewalls, wi-fi networks, vulnerability scanning, server protection, patching, privacy by design, and data breach reporting. We perform ongoing employee cybersecurity awareness and training activities, which includes frequent phishing testing, and we maintain cyber insurance to provide coverage in the event a material cybersecurity incident arises.
We conduct annual internal audits to ensure compliance with its technology policies, security procedures and controls. Our third-party technology providers, consultants and vendors are vetted by our information security teams to assess cybersecurity risk and mitigation measures, where applicable.
We have significantly increased our cybersecurity investments over the last few years and continue to implement additional cybersecurity safeguards designed to detect and prevent cybersecurity incidents. Notwithstanding our increased cybersecurity investments and preparedness activities, threat actors and cybersecurity incidents still pose a risk to the security of our systems, facilities, and networks and to the confidentiality, availability and integrity of our data, including but not limited to intellectual property, confidential information and personal data. For more information on how a cybersecurity incident may impact the Company, refer to the risk factor titled “Data privacy, cybersecurity, and artificial intelligence considerations could impact our business,” in Item 1A of this Form 10-K.
While we have experienced data security incidents that have disrupted our operations in the past, to date, no data security incidents have had or are materially likely to have, a material impact on RPM.
Cybersecurity incidents are investigated and remediated in accordance with our incident response procedures and other policies and procedures. Cybersecurity is overseen by the Audit Committee of the Board of Directors. The Senior Director - Information Security coordinates with and directs cybersecurity initiatives through information technology and cybersecurity personnel throughout RPM.
The Senior Director - Information Security has over 15 years’ experience in the information technology and cybersecurity field, including previous roles in security architecture, audit and governance. The Senior Director - Information Security recently completed a CISO Academy Workshop, where he gained valuable insights to help improve our cybersecurity posture and program while also better aligning it to our overall business strategy and operating model. He received a BA in math and computer science from Ohio Wesleyan University and holds an Information Systems Auditor certification.
The Audit Committee regularly receives information and reports from the Senior Director - Information Security and other executives responsible for identifying and assessing the scope, nature and impact of cybersecurity risks, incidents and mitigation efforts.
In addition to the Audit Committee, the full Board of Directors receives regular annual reports on the status of our cybersecurity risk, incidents and mitigation efforts. We utilize a technology-based reporting system to identify and log data-related events.
Cybersecurity incidents are assessed for actual or potential impact on the business and any relevant data subjects. Materiality of cybersecurity incidents is assessed and determined by the Cybersecurity Team, which has been assigned this responsibility by our Disclosure Committee. The Cybersecurity Team consists of the Chief Financial Officer, the General Counsel, the Vice President - Commercial Excellence, the Vice President - Global Systems and the Senior Director - Information Security. The Senior Director - Information Security reports regularly to our Disclosure Committee. In the event a cybersecurity incident is determined to have, or is likely to have, a material impact on RPM, the Chair of the Audit Committee of the Board of Directors is directly notified by the General Counsel in coordination with the Chief Financial Officer and Senior Director - Information Security.
Item 2. Properties.
Our corporate headquarters and a plant and offices for one subsidiary are located on approximately 180 acres, which we own in Medina, Ohio. As of May 31, 2024, our operations occupied a total of approximately 19.9 million square feet, with the majority, approximately 16.7 million square feet, devoted to manufacturing, assembly and storage. Of the approximately 19.9 million square feet occupied, approximately 9.5 million square feet are owned and approximately 10.4 million square feet are occupied under operating leases.
19
Set forth below is a description, as of May 31, 2024, of our principal owned facilities which we believe are material to our operations:
|
|
|
|
Approximate |
|
|
|
|
|
|
Square Feet Of |
|
|
Location |
|
Business/Segment |
|
Floor Space |
|
|
Hertogenbosch, Netherlands |
|
Rust-Oleum (Consumer) |
|
|
517,627 |
|
Cacapava, Brazil |
|
Euclid (CPG) |
|
|
383,777 |
|
Pleasant Prairie, Wisconsin |
|
Rust-Oleum (Consumer) |
|
|
261,000 |
|
Fairborn, Ohio |
|
Rust-Oleum (Consumer) |
|
|
258,886 |
|
Cleveland, Ohio |
|
Day-Glo (SPG) |
|
|
224,624 |
|
LaFayette, Georgia |
|
Euclid (CPG) |
|
|
201,109 |
|
Corsicana, Texas |
|
Tremco (CPG) |
|
|
185,578 |
|
Dayton, Nevada |
|
Carboline (PCG) |
|
|
185,400 |
|
Cleveland, Ohio |
|
Euclid (CPG) |
|
|
180,378 |
|
Zelem, Belgium |
|
Rust-Oleum (Consumer) |
|
|
172,137 |
|
Cleveland, Ohio |
|
Tremco (CPG) |
|
|
160,300 |
|
Bodenwoehr, Germany |
|
CPG Europe (CPG) |
|
|
156,184 |
|
Lierstranda, Norway |
|
Carboline (PCG) |
|
|
151,300 |
|
Coaldale, Alberta, Canada |
|
Nudura (CPG) |
|
|
150,705 |
|
Baltimore, Maryland |
|
DAP (Consumer) |
|
|
144,200 |
|
Hagerstown, Maryland |
|
Rust-Oleum (Consumer) |
|
|
143,000 |
|
Tipp City, Ohio |
|
DAP (Consumer) |
|
|
140,000 |
|
Arkel, Netherlands |
|
CPG Europe (CPG) |
|
|
138,542 |
|
El Marques, Mexico |
|
Fibergrate (PCG) |
|
|
136,950 |
|
Attleboro, Massachusetts |
|
Rust-Oleum (Consumer) |
|
|
133,650 |
|
Hudson, North Carolina |
|
Wood Finishes Group (SPG) |
|
|
132,300 |
|
Ellaville, Georgia |
|
TCI (SPG) |
|
|
129,600 |
|
Wigan, Lancashire, United Kingdom |
|
CPG Europe (CPG) |
|
|
122,000 |
|
Tocancipa, Columbia |
|
Euclid (CPG) |
|
|
114,849 |
|
Johannesburg, South Africa |
|
Stonhard (PCG) |
|
|
112,956 |
|
Birtley, United Kingdom |
|
Rust-Oleum (Consumer) |
|
|
112,231 |
|
Lesage, West Virginia |
|
Rust-Oleum (Consumer) |
|
|
112,000 |
|
Somerset, New Jersey |
|
Rust-Oleum (Consumer) |
|
|
110,000 |
|
Lake Charles, Louisiana |
|
Carboline (PCG) |
|
|
109,617 |
|
Candeias, Brazil |
|
Euclid (CPG) |
|
|
107,792 |
|
Richmond, Missouri |
|
Stonhard (PCG) |
|
|
91,911 |
|
Maple Shade, New Jersey |
|
Stonhard (PCG) |
|
|
80,606 |
|
Kirkland, Illinois |
|
Euclid (CPG) |
|
|
78,825 |
|
Tultitlan, Mexico |
|
Euclid (CPG) |
|
|
75,422 |
|
Dallas, Texas |
|
DAP (Consumer) |
|
|
74,000 |
|
Medina, Ohio |
|
Tremco (CPG) |
|
|
72,300 |
|
Cleveland, Ohio |
|
Tremco (CPG) |
|
|
66,100 |
|
Alghero, Italy |
|
Stonhard (PCG) |
|
|
62,776 |
|
Pacific, Missouri |
|
DAP (Consumer) |
|
|
60,000 |
|
Woodlake, California |
|
Dryvit (CPG) |
|
|
41,475 |
|
Vallirana, Spain |
|
Carboline (PCG) |
|
|
39,439 |
|
Columbus, Georgia |
|
Dryvit (CPG) |
|
|
39,200 |
|
Saint Apollinaire, France |
|
CPG Europe (CPG) |
|
|
37,619 |
|
Sand Springs, Oklahoma |
|
Dryvit (CPG) |
|
|
36,998 |
|
Twistringen, Germany |
|
CPG Europe (CPG) |
|
|
32,873 |
|
Fort Wayne, Indiana |
|
Stonhard (PCG) |
|
|
26,700 |
|
Pasadena, Texas |
|
Euclid (CPG) |
|
|
23,360 |
|
20
Set forth below is a description, as of May 31, 2024, of our principal leased facilities which we believe are material to our operations:
|
|
|
|
Approximate |
|
|
|
|
|
|
Square Feet Of |
|
|
Location |
|
Business/Segment |
|
Floor Space |
|
|
Martinsburg, West Virginia |
|
Rust-Oleum (Consumer) |
|
|
921,712 |
|
Kenosha, Wisconsin |
|
Rust-Oleum (Consumer) |
|
|
850,243 |
|
Cleveland, Ohio |
|
Tremco (CPG) |
|
|
583,565 |
|
Toronto, Ontario, Canada |
|
Tremco (CPG) |
|
|
400,551 |
|
Fairborn, Ohio |
|
Rust-Oleum (Consumer) |
|
|
340,292 |
|
Riverside, California |
|
Rust-Oleum (Consumer) |
|
|
309,535 |
|
Vaughan, Ontario, Canada |
|
Rust-Oleum (Consumer) |
|
|
272,767 |
|
Granby, Quebec, Canada |
|
Nudura (CPG) |
|
|
246,926 |
|
Baltimore, Maryland |
|
DAP (Consumer) |
|
|
244,495 |
|
Columbus, Georgia |
|
Nudura (CPG) |
|
|
216,129 |
|
North Kingstown, Rhode Island |
|
Dryvit (CPG) |
|
|
162,735 |
|
Elgin, Illinois |
|
Profile Foods (SPG) |
|
|
135,490 |
|
Gateshead, Tyne, United Kingdom |
|
Rust-Oleum (Consumer) |
|
|
135,000 |
|
Garland, Texas |
|
DAP (Consumer) |
|
|
130,900 |
|
Serendah, Malaysia |
|
Platform (PCG) |
|
|
121,245 |
|
Burlington, Washington |
|
Legend Brands (SPG) |
|
|
113,875 |
|
Lake Charles, Louisiana |
|
Carboline (PCG) |
|
|
100,035 |
|
Leicester, Leicestershire, United Kingdom |
|
CPG Europe (CPG) |
|
|
95,977 |
|
Sriperumbudur, India |
|
Platform (PCG) |
|
|
68,000 |
|
Louisa, Virginia |
|
Carboline (PCG) |
|
|
60,000 |
|
We lease certain of our properties under long-term leases. Some of these leases provide for increased rent based on an increase in the cost-of-living index. For information concerning our rental obligations, see Note M, “Leases,” to the Consolidated Financial Statements. Under many of our leases, we are obligated to pay certain varying insurance costs, utilities, real property taxes and other costs and expenses.
We believe that our manufacturing plants and office facilities are well maintained and suitable for our operations.
Item 3. Legal Proceedings.
Environmental Matters
Like other companies participating in similar lines of business, some of our subsidiaries are identified as a “potentially responsible party” under the federal Comprehensive Environmental Response, Compensation and Liability Act and similar local environmental statutes or are participating in the cost of certain clean-up efforts or other remedial actions relating to environmental matters. Our share of such costs to date, however, has not been material and management believes that these environmental proceedings will not have a material adverse effect on our consolidated financial condition or results of operations. See “Item 1 — Business — Environmental Matters,” in this Annual Report on Form 10-K.
As permitted by SEC Rules and given the size of our operations, we have elected to adopt a quantitative disclosure threshold for environmental proceedings of $1 million. As of the date of this filing, we are not aware of any matters that exceed this threshold and meet the definition for disclosure.
Item 4. Mine Safety Disclosures Item 5.
Not applicable.
21
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The following table presents information about repurchases of RPM International Inc. Common Stock made by us during the fourth quarter of fiscal 2024:
Period |
|
Total Number |
|
|
Average |
|
|
Total Number |
|
|
Maximum |
|
||||
March 1, 2024 through March 31, 2024 |
|
|
2,268 |
|
|
$ |
118.95 |
|
|
|
— |
|
|
|
— |
|
April 1, 2024 through April 30, 2024 |
|
|
690 |
|
|
$ |
107.15 |
|
|
|
— |
|
|
|
— |
|
May 1, 2024 through May 31, 2024 |
|
|
177,177 |
|
|
$ |
111.45 |
|
|
|
157,242 |
|
|
|
— |
|
Total - Fourth Quarter |
|
|
180,135 |
|
|
$ |
111.53 |
|
|
|
157,242 |
|
|
|
— |
|
22
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our financial statements include all our majority-owned and controlled subsidiaries. Investments in less-than-majority-owned joint ventures over which we have the ability to exercise significant influence are accounted for under the equity method. Preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate these estimates, including those related to our allowances for doubtful accounts; reserves for excess and obsolete inventories; allowances for recoverable sales and/or value-added taxes; uncertain tax positions; useful lives of property, plant and equipment; goodwill and other intangible assets; environmental, warranties and other contingent liabilities; income tax valuation allowances; pension plans; and the fair value of financial instruments. We base our estimates on historical experience, our most recent facts and other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of our assets and liabilities. Actual results, which are shaped by actual market conditions, may differ materially from our estimates.
We have identified below the accounting policies and estimates that are the most critical to our financial statements.
Goodwill
We test our goodwill balances at least annually, or more frequently as impairment indicators arise, at the reporting unit level. Our annual impairment assessment date has been designated as the first day of our fourth fiscal quarter. Our reporting units have been identified at the component level, which is one level below our operating segments.
We follow the Financial Accounting Standards Board (“FASB”) guidance found in ASC 350 that simplifies how an entity tests goodwill for impairment. It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, and whether it is necessary to perform a quantitative goodwill impairment test.
We assess qualitative factors in each of our reporting units that carry goodwill. Among other relevant events and circumstances that affect the fair value of our reporting units, we assess individual factors such as:
We assess these qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The quantitative process is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. However, we have an unconditional option to bypass a qualitative assessment and proceed directly to performing the quantitative analysis. We applied the quantitative process during our annual goodwill impairment assessments performed during the fourth quarters of fiscal 2024, 2023 and 2022.
In applying the quantitative test, we compare the fair value of a reporting unit to its carrying value. If the calculated fair value is less than the current carrying value, then impairment of the reporting unit exists. Calculating the fair value of a reporting unit requires our use of estimates and assumptions. We use significant judgment in determining the most appropriate method to establish the fair value of a reporting unit. We estimate the fair value of a reporting unit by employing various valuation techniques, depending on the availability and reliability of comparable market value indicators, and employ methods and assumptions that include the application of third-party market value indicators and the computation of discounted future cash flows determined from estimated cashflow adjustments to a reporting unit’s annual projected earnings before interest, taxes, depreciation and amortization (“EBITDA”), or adjusted EBITDA, which adjusts for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations. Our fair value estimations may include a combination of value indications from both the market and income approaches, as the income approach considers the future cash flows from a reporting unit’s ongoing operations as a going concern, while the market approach considers the current financial environment in establishing fair value.
In applying the market approach, we use market multiples derived from a set of similar companies. In applying the income approach, we evaluate discounted future cash flows determined from estimated cashflow adjustments to a reporting unit’s projected EBITDA. Under this approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. In applying the discounted cash flow methodology utilized in the income approach, we rely on a number of factors, including future business plans, actual and forecasted operating results, and market data. The significant assumptions employed under this method include discount rates; revenue growth rates, including assumed terminal growth rates; and operating margins used to project future cash flows for a reporting unit. The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows of the individual reporting unit.
23
Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable.
Conclusion on Annual Goodwill Impairment Tests
As a result of the annual impairment assessments performed for fiscal 2024, 2023 and 2022, there were no goodwill impairments. Our fiscal 2024 annual impairment test for our Color Group reporting unit in our SPG Segment, which has approximately $11.0 million of goodwill, resulted in an excess of fair value over carrying value of approximately 18%. The lower fair value of this reporting unit is related to declining volumes in OEM markets. If planned sales growth initiatives for this business are not achieved, impairment of intangible assets, including goodwill, and other long-lived assets, could result.
Changes in the Composition of our Segments and Reporting Units in the First Quarter of Fiscal 2024
Effective June 1, 2023, in connection with our MAP 2025 operating improvement program, we realigned certain businesses and management structures within our CPG, PCG and SPG segments. As outlined in Note R, “Segment Information,” our CPG APAC and CPG India businesses, formerly of our Sealants reporting unit within our CPG segment, were transferred to our Platform component within our PCG segment. As a result of this change, we designated the Platform component as a separate reporting unit within our PCG segment. Within our SPG segment, two new reporting units were formed as our former DayGlo and Kirker reporting units were combined into one reporting unit: The Color Group, and our former Wood Finishes, Kop-Coat Protection Products, TCI and Modern Recreational Technologies reporting units were combined into one reporting unit: The Industrial Coatings Group.
Additionally, effective June 1, 2023, certain businesses of our Universal Sealants ("USL") reporting unit were transferred to our Fibergrate, Carboline and Stonhard reporting units within our PCG segment. As a result of this change, USL was no longer designated as a separate reporting unit and any remaining goodwill was transferred to the reporting units noted above.
During the first quarter of fiscal 2024, we performed a goodwill impairment test for the reporting units affected by the USL restructuring and the changes in the composition of our segments and reporting units using either a qualitative or a quantitative assessment. We concluded that the estimated fair values exceeded the carrying values for these reporting units, and accordingly, no indications of impairment were identified as a result of these changes.
Given these USL restructuring actions, we performed an interim impairment assessment of a remaining USL indefinite-lived tradename. Calculating the fair value of the tradename required the use of various estimates and assumptions. We estimated the fair value by applying a relief-from-royalty calculation, which included discounted future cash flows related to projected revenues impacted by this decision. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data. As the carrying amount of the tradename exceeded its fair value, an impairment loss of $3.3 million was recorded for the three months ended August 31, 2023. This impairment loss was classified as restructuring expense within our PCG segment.
Impairment Charge Recorded in the Third Quarter of Fiscal 2023
Although no impairment charge was recorded during fiscal 2024, 2023 and 2022 related to the annual impairment test, we did record a goodwill impairment charge in fiscal 2023. We announced our MAP 2025 operational improvement initiative in August 2022. Due to the challenged macroeconomic environment, we evaluated certain business restructuring actions, specifically our go to market strategy for operating in Europe. During the third quarter ended February 28, 2023, due to declining profitability and regulatory headwinds, management decided to restructure the USL reporting unit within our PCG segment and explored strategic alternatives for our infrastructure services business within the U.K., which represented approximately 30% of annual revenues of the reporting unit.
Due to this decision, we determined that an interim goodwill impairment assessment was required, as well as an impairment assessment for our other long-lived assets. Accordingly, we recorded an impairment loss totaling $36.7 million for the impairment of goodwill in our USL reporting unit during fiscal 2023. Refer to Note C, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements for additional details on this goodwill impairment charge.
Changes in the Composition of Reporting Units in the Fourth Quarter of Fiscal 2023
Subsequent to our annual impairment assessment, in the fourth quarter of fiscal 2023 and in connection with our MAP 2025 initiative, the Viapol business within our CPG segment was realigned from our Sealants reporting unit to our Euclid reporting unit. We performed an interim goodwill impairment assessment for both of the impacted reporting units using a quantitative assessment. Based on this assessment, we concluded that the estimated fair values exceeded the carrying values for these reporting units, and accordingly, no goodwill impairment was identified as a result of this realignment.
24
Other Long-Lived Assets
We assess identifiable, amortizable intangible and other long-lived assets for impairment whenever events or changes in facts and circumstances indicate the possibility that the carrying values of these assets may not be recoverable over their estimated remaining useful lives. Factors considered important in our assessment, which might trigger an impairment evaluation, include the following:
Measuring a potential impairment of amortizable intangible and other long-lived assets requires the use of various estimates and assumptions, including the determination of which cash flows are directly related to the assets being evaluated, the respective useful lives over which those cash flows will occur and potential residual values, if any. If we determine that the carrying values of these assets may not be recoverable based upon the existence of one or more of the above-described indicators or other factors, any impairment amounts would be measured based on the projected net cash flows expected from these assets, including any net cash flows related to eventual disposition activities. The determination of any impairment losses would be based on the best information available, including internal estimates of discounted cash flows; market participant assumptions; quoted market prices, when available; and independent appraisals, as appropriate, to determine fair values. Cash flow estimates would be based on our historical experience and our internal business plans, with appropriate discount rates applied.
Additionally, we test all indefinite-lived intangible assets for impairment at least annually during our fiscal fourth quarter. We follow the guidance provided by ASC 350 that simplifies how an entity tests indefinite-lived intangible assets for impairment. It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying traditional quantitative tests. We applied quantitative processes during our annual indefinite-lived intangible asset impairment assessments performed during the fourth quarters of fiscal 2024, 2023 and 2022.
The annual impairment assessment involves estimating the fair value of each indefinite-lived asset and comparing it with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, we record an impairment loss equal to the difference. Calculating the fair value of the indefinite-lived assets requires our significant use of estimates and assumptions. We estimate the fair values of our intangible assets by applying a relief-from-royalty calculation, which includes discounted future cash flows related to each of our intangible asset’s projected revenues. In applying this methodology, we rely on a number of factors, including actual and forecasted revenues and market data.
Our annual impairment test of our indefinite-lived intangible assets performed during fiscal 2024 resulted in a $1.0 million impairment charge for an indefinite-lived tradename in our Consumer segment. This impairment loss was classified as selling, general and administrative ("SG&A") expenses within our Consumer segment. Our annual impairment test of our indefinite-lived intangible assets performed during fiscal 2023 and 2022 did not result in an impairment charge.
Although no impairment losses were recorded during fiscal 2023 and 2022 related to the annual impairment test, we did record an intangible asset impairment charge during the third quarter of fiscal 2023. In connection with MAP 2025 and related to the goodwill impairment charge noted above, we determined that an interim impairment assessment for our other long-lived assets was required following management's decision to restructure the USL reporting unit within our PCG segment. Accordingly, we recorded an impairment loss totaling $2.5 million for the impairment of an indefinite-lived tradename in our USL reporting unit during fiscal 2023. We did not record any impairments for our definite-lived long-lived assets as a result of this assessment. Refer to Note C, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements for further discussion.
Income Taxes
Our provision for income taxes is calculated using the asset and liability method, which requires the recognition of deferred income taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in valuation allowances. We provide valuation allowances against deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
In determining the adequacy of valuation allowances, we consider cumulative and anticipated amounts of domestic and international earnings or losses of the appropriate character, anticipated amounts of foreign source income, as well as the anticipated taxable income resulting from the reversal of future taxable temporary differences. We intend to maintain any recorded valuation allowances until sufficient positive evidence (for example, cumulative positive foreign earnings or capital gain income) exists to support a reversal of the tax valuation allowances.
Further, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income.
25
Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates. As a result, our actual effective income tax rates and related income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the period they become known.
Additionally, our operations are subject to various federal, state, local and foreign tax laws and regulations that govern, among other things, taxes on worldwide income. The calculation of our income tax expense is based on the best information available, including the application of currently enacted income tax laws and regulations, and involves our significant judgment. The actual income tax liability for each jurisdiction in any year can ultimately be determined, in some instances, several years after the financial statements have been published.
Our provision for income tax expense is allocated between continuing operations and other income categories, such as other comprehensive income (loss). We release the income tax effects from accumulated other comprehensive income ("AOCI") to income from continuing operations at the current tax rates when the related pretax changes are recognized. Disproportionate tax effects in AOCI are released to income tax expense only when circumstances upon which they are based cease to exist.
We also maintain accruals for estimated income tax exposures for many different jurisdictions. Tax exposures are settled primarily through the resolution of audits within each tax jurisdiction or the closing of a statute of limitation. Tax exposures and actual income tax liabilities can also be affected by changes in applicable tax laws, retroactive tax law changes or other factors, which may cause us to believe revisions of past estimates are appropriate. Although we believe that appropriate liabilities have been recorded for our income tax expense and income tax exposures, actual results may differ materially from our estimates.
Contingencies
We are party to various claims and lawsuits arising in the normal course of business. Although we cannot precisely predict the amount of any liability that may ultimately arise with respect to any of these matters, we record provisions when we consider the liability probable and estimable. Our provisions are based on historical experience and legal advice, reviewed quarterly and adjusted according to developments. In general, our accruals, including our accruals for environmental and warranty liabilities, discussed further below, represent the best estimate of a range of probable losses. Estimating probable losses requires the analysis of multiple factors that often depend on judgments about potential actions by third parties, such as regulators, courts, and state and federal legislatures. Changes in the amounts of our loss provisions, which can be material, affect our Consolidated Statements of Income. To the extent there is a reasonable possibility that potential losses could exceed the amounts already accrued, we believe that the amount of any such additional loss would be immaterial to our results of operations, liquidity and consolidated financial position. We evaluate our accruals at the end of each quarter, or sometimes more frequently, based on available facts, and may revise our estimates in the future based on any new information that becomes available.
Our environmental-related accruals are similarly established and/or adjusted as more information becomes available upon which costs can be reasonably estimated. Actual costs may vary from these estimates because of the inherent uncertainties involved, including the identification of new sites and the development of new information about contamination. Certain sites are still being investigated; therefore, we have been unable to fully evaluate the ultimate costs for those sites. As a result, accruals have not been estimated for certain of these sites and costs may ultimately exceed existing estimated accruals for other sites. We have received indemnities for potential environmental issues from purchasers of certain of our properties and businesses and from sellers of some of the properties or businesses we have acquired. If the indemnifying party fails to, or becomes unable to, fulfill its obligations under those agreements, we may incur environmental costs in addition to any amounts accrued, which may have a material adverse effect on our financial condition, results of operations or cash flows.
We offer warranties on many of our products, as well as long-term warranty programs at certain of our businesses, and thus have established corresponding warranty liabilities. Warranty expense is impacted by variations in local construction practices, installation conditions, and geographic and climate differences. Although we believe that appropriate liabilities have been recorded for our warranty expense, actual results may differ materially from our estimates.
Pension and Postretirement Plans
We sponsor qualified defined benefit pension plans and various other nonqualified postretirement plans. The qualified defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding, (ii) cause volatility in the net periodic pension cost and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant change in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plans could have an adverse impact on our cash flow.
26
Changes in our key plan assumptions would impact net periodic benefit expense and the projected benefit obligation for our defined benefit and various postretirement benefit plans. Based upon May 31, 2024 information, the following tables reflect the impact of a 1% change in the key assumptions applied to our defined benefit pension plans in the United States and internationally:
|
|
U.S. |
|
|
International |
|
||||||||||
|
|
1% Increase |
|
|
1% Decrease |
|
|
1% Increase |
|
|
1% Decrease |
|
||||
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Discount Rate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Decrease) increase in expense in FY 2024 |
|
$ |
(4.9 |
) |
|
$ |
5.8 |
|
|
$ |
(1.1 |
) |
|
$ |
1.5 |
|
(Decrease) increase in obligation as of May 31, 2024 |
|
$ |
(51.6 |
) |
|
$ |
60.0 |
|
|
$ |
(18.3 |
) |
|
$ |
22.5 |
|
Expected Return on Plan Assets |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Decrease) increase in expense in FY 2024 |
|
$ |
(6.0 |
) |
|
$ |
6.0 |
|
|
$ |
(1.7 |
) |
|
$ |
1.7 |
|
(Decrease) increase in obligation as of May 31, 2024 |
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Compensation Increase |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Increase (decrease) in expense in FY 2024 |
|
$ |
5.5 |
|
|
$ |
(4.9 |
) |
|
$ |
1.0 |
|
|
$ |
(0.9 |
) |
Increase (decrease) in obligation as of May 31, 2024 |
|
$ |
22.7 |
|
|
$ |
(20.5 |
) |
|
$ |
3.3 |
|
|
$ |
(3.0 |
) |
Based upon May 31, 2024 information, the following table reflects the impact of a 1% change in the key assumptions applied to our various postretirement health care plans:
|
|
U.S. |
|
|
International |
|
||||||||||
|
|
1% Increase |
|
|
1% Decrease |
|
|
1% Increase |
|
|
1% Decrease |
|
||||
(In millions) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Discount Rate |
|
|
|
|
|
|
|
|
|
|
|
|
||||
(Decrease) increase in expense in FY 2024 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
(0.7 |
) |
|
$ |
0.7 |
|
(Decrease) increase in obligation as of May 31, 2024 |
|
$ |
(0.1 |
) |
|
$ |
0.1 |
|
|
$ |
(3.7 |
) |
|
$ |
4.7 |
|
27
BUSINESS SEGMENT INFORMATION
We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings, roofing systems, flooring solutions, sealants, cleaners and adhesives. We manage our portfolio by organizing our businesses and product lines into four reportable segments as outlined below, which also represent our operating segments. Within each operating segment, we manage product lines and businesses which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities. Our four operating segments represent components of our business for which separate financial information is available that is utilized on a regular basis by our chief operating decision maker in determining how to allocate the assets of the company and evaluate performance. These four operating segments are each managed by an operating segment manager, who is responsible for the day-to-day operating decisions and performance evaluation of the operating segment’s underlying businesses. We evaluate the profit performance of our segments primarily based on income before income taxes, but also look to earnings (loss) before interest and taxes (“EBIT”), and/or adjusted EBIT, which adjusts for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations, as a performance evaluation measure because interest income (expense), net is essentially related to corporate functions, as opposed to segment operations.
Effective June 1, 2023, certain Asia Pacific businesses and management structure, formerly of our CPG segment, were transferred to our PCG segment to create operating efficiencies and a more unified go-to-market strategy in Asia Pacific. This realignment is reflected in our reportable segments beginning with fiscal 2022. As such, historical segment results have been recast to reflect the impact of this change.
Our CPG reportable segment products and services are sold throughout North America and also account for a significant portion of our international sales. Our construction product lines are sold directly to manufacturers, contractors, distributors and end-users, including industrial manufacturing facilities, concrete and cement producers, public institutions and other commercial customers. Products and services within this reportable segment include construction sealants and adhesives, coatings and associated chemicals, roofing systems, concrete admixture and repair products, building envelope solutions, parking decks, insulated cladding, firestopping, flooring systems, and weatherproofing solutions.
Our PCG reportable segment products and services are sold throughout North America, as well as internationally, and are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. Products and services within this reportable segment include high-performance flooring solutions, corrosion control and fireproofing coatings, infrastructure repair systems and FRP structures.
Our Consumer reportable segment manufactures and markets professional use and DIY products for a variety of mainly residential applications, including home improvement and personal leisure activities. Our Consumer reportable segment’s major manufacturing and distribution operations are located primarily in North America, along with a few locations in Europe, Australia and South America. Our Consumer reportable segment products are primarily sold directly to mass merchandisers, home improvement centers, hardware stores, paint stores, craft shops and to other customers through distributors. The Consumer reportable segment offers products that include specialty, hobby and professional paints; caulks; adhesives; cleaners, sandpaper and other abrasives; silicone sealants and wood stains.
Our SPG reportable segment products are sold throughout North America and internationally, primarily in Europe. Our SPG product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The SPG reportable segment offers products that include restoration services equipment, colorants, nail enamels, factory applied industrial coatings, preservation products, and edible coatings and specialty glazes for pharmaceutical and food industries.
In addition to our four reportable segments, there is a category of certain business activities and expenses, referred to as corporate/other, that does not constitute an operating segment. This category includes our corporate headquarters and related administrative expenses, results of our captive insurance companies, gains or losses on investments and other expenses not directly associated with any reportable segment. Assets related to the corporate/other category consist primarily of investments, prepaid expenses and headquarters’ property and equipment. These corporate and other assets and expenses reconcile reportable segment data to total consolidated income before income taxes and identifiable assets.
We reflect income from our joint ventures on the equity method and receive royalties from our licensees.
The following table reflects the results of our reportable segments consistent with our management philosophy, and represents the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of product lines.
28
SEGMENT INFORMATION |
|
|
|
|
|
|
|
|
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Net Sales |
|
|
|
|
|
|
|
|
|
|||
CPG Segment |
|
$ |
2,702,466 |
|
|
$ |
2,508,805 |
|
|
$ |
2,402,497 |
|
PCG Segment |
|
|
1,462,460 |
|
|
|
1,433,634 |
|
|
|
1,272,368 |
|
Consumer Segment |
|
|
2,457,949 |
|
|
|
2,514,770 |
|
|
|
2,242,047 |
|
SPG Segment |
|
|
712,402 |
|
|
|
799,205 |
|
|
|
790,816 |
|
Total |
|
$ |
7,335,277 |
|
|
$ |
7,256,414 |
|
|
$ |
6,707,728 |
|
Income Before Income Taxes (a) |
|
|
|
|
|
|
|
|
|
|||
CPG Segment |
|
|
|
|
|
|
|
|
|
|||
Income Before Income Taxes (a) |
|
$ |
385,339 |
|
|
$ |
300,971 |
|
|
$ |
389,443 |
|
Interest (Expense), Net (b) |
|
|
(5,170 |
) |
|
|
(8,580 |
) |
|
|
(6,540 |
) |
EBIT (c) |
|
$ |
390,509 |
|
|
$ |
309,551 |
|
|
$ |
395,983 |
|
|
|
|
|
|
|
|
|
|
|
|||
PCG Segment |
|
|
|
|
|
|
|
|
|
|||
Income Before Income Taxes (a) |
|
$ |
199,951 |
|
|
$ |
142,469 |
|
|
$ |
146,134 |
|
Interest Income, Net (b) |
|
|
4,642 |
|
|
|
1,630 |
|
|
|
442 |
|
EBIT (c) |
|
$ |
195,309 |
|
|
$ |
140,839 |
|
|
$ |
145,692 |
|
|
|
|
|
|
|
|
|
|
|
|||
Consumer Segment |
|
|
|
|
|
|
|
|
|
|||
Income Before Income Taxes (a) |
|
$ |
408,200 |
|
|
$ |
378,157 |
|
|
$ |
175,084 |
|
Interest Income (Expense), Net (b) |
|
|
2,561 |
|
|
|
(3,372 |
) |
|
|
266 |
|
EBIT (c) |
|
$ |
405,639 |
|
|
$ |
381,529 |
|
|
$ |
174,818 |
|
|
|
|
|
|
|
|
|
|
|
|||
SPG Segment |
|
|
|
|
|
|
|
|
|
|||
Income Before Income Taxes (a) |
|
$ |
43,784 |
|
|
$ |
103,279 |
|
|
$ |
121,937 |
|
Interest Income (Expense), Net (b) |
|
|
204 |
|
|
|
68 |
|
|
|
(86 |
) |
EBIT (c) |
|
$ |
43,580 |
|
|
$ |
103,211 |
|
|
$ |
122,023 |
|
|
|
|
|
|
|
|
|
|
|
|||
Corporate/Other |
|
|
|
|
|
|
|
|
|
|||
(Loss) Before Income Taxes (a) |
|
$ |
(249,437 |
) |
|
$ |
(275,494 |
) |
|
$ |
(225,799 |
) |
Interest (Expense), Net (b) |
|
|
(75,232 |
) |
|
|
(99,013 |
) |
|
|
(89,605 |
) |
EBIT (c) |
|
$ |
(174,205 |
) |
|
$ |
(176,481 |
) |
|
$ |
(136,194 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Consolidated |
|
|
|
|
|
|
|
|
|
|||
Net Income |
|
$ |
589,442 |
|
|
$ |
479,731 |
|
|
$ |
492,466 |
|
Add: (Provision) for Income Taxes |
|
|
(198,395 |
) |
|
|
(169,651 |
) |
|
|
(114,333 |
) |
Income Before Income Taxes (a) |
|
|
787,837 |
|
|
|
649,382 |
|
|
|
606,799 |
|
Interest (Expense) |
|
|
(117,969 |
) |
|
|
(119,015 |
) |
|
|
(87,928 |
) |
Investment Income (Expense), Net |
|
|
44,974 |
|
|
|
9,748 |
|
|
|
(7,595 |
) |
EBIT (c) |
|
$ |
860,832 |
|
|
$ |
758,649 |
|
|
$ |
702,322 |
|
29
RESULTS OF OPERATIONS
The following discussion includes a comparison of Results of Operations and Liquidity and Capital Resources for the years ended May 31, 2024 and 2023. For comparisons of the years ended May 31, 2023 and 2022, see Management’s Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended May 31, 2023 as filed on July 26, 2023.
Net Sales
|
|
Fiscal year ended May 31, |
|
|
|
|
|
|
|
|
|
|
|||||||||
(In millions, except percentages) |
|
2024 |
|
|
2023 |
|
|
Total |
|
Organic |
|
Acquisition & Divestiture |
|
Foreign Currency |
|
||||||
CPG Segment |
|
$ |
2,702.5 |
|
|
$ |
2,508.8 |
|
|
|
7.7 |
% |
|
6.6 |
% |
|
0.6 |
% |
|
0.5 |
% |
PCG Segment |
|
|
1,462.5 |
|
|
|
1,433.6 |
|
|
|
2.0 |
% |
|
3.4 |
% |
|
(0.4 |
%) |
|
(1.0 |
%) |
Consumer Segment |
|
|
2,457.9 |
|
|
|
2,514.8 |
|
|
|
(2.3 |
%) |
|
(1.8 |
%) |
|
0.0 |
% |
|
(0.5 |
%) |
SPG Segment |
|
|
712.4 |
|
|
|
799.2 |
|
|
|
(10.9 |
%) |
|
(9.6 |
%) |
|
(1.6 |
%) |
|
0.3 |
% |
Consolidated |
|
$ |
7,335.3 |
|
|
$ |
7,256.4 |
|
|
|
1.1 |
% |
|
1.3 |
% |
|
(0.1 |
%) |
|
(0.1 |
%) |
(1) Organic growth includes the impact of price and volume. |
|
|
|
|
|
|
|
|
|
|
Our CPG segment generated significant organic sales growth during the current year in all the major business units in the segment when compared to the prior year. Performing particularly well were providers of restoration systems for roofing, facades and parking structures, which benefited from a strategic focus on repair and maintenance and its differentiated service model. Concrete admixtures and repair businesses also generated growth from increased demand for engineered solutions serving infrastructure and reshoring-related projects, including those that lower the carbon footprint of projects, in addition to businesses serving high-performance building construction and remodeling. This increase was also facilitated by growth in Latin America.
Our PCG segment generated sales growth during fiscal 2024 when compared to the prior year. Performing particularly well were businesses that provide engineered solutions for reshoring-related projects. This increase was also facilitated by improved pricing and strong demand in emerging markets, which was partially offset by unfavorable foreign exchange translation and the divestiture of USL's Bridgecare services division in the first quarter of fiscal 2024.
Our Consumer segment experienced organic sales declines in the current year driven by reduced inventory levels at retailers, the rationalization of lower-margin products and reduced DIY takeaway at retail as consumers focused spending on travel and entertainment and housing turnover hit multi-year lows. This decline is in comparison to a strong prior year, when sales grew 12.2%. These pressures were partially offset by market share gains, strength in international markets and improved pricing to catch up with cost inflation.
Our SPG segment experienced sales declines during the current year, driven by lower volumes at businesses supplying OEM markets which have been negatively impacted by a slowdown in the residential housing market. The divestiture of the non-core furniture warranty business in the third quarter of fiscal year 2023 also reduced sales versus the prior year. Finally, the segment's disaster restoration business declined due to a lack of inclement weather in comparison to the strong prior year results, which included the response to Hurricane Ian and other inclement weather. Improved pricing partially offset these volume declines.
Gross Profit Margin Our consolidated gross profit margin of 41.1% of net sales for fiscal 2024 compares to a consolidated gross profit margin of 37.9% for the comparable period a year ago. This gross profit margin increase of approximately 320 basis points ("bps") resulted primarily from our MAP 2025 initiatives, which resulted in incremental benefits in procurement, manufacturing and commercial excellence that favorably impacted our gross margin, in conjunction with benefits generated from the commodity cycle. Selling price increases also aided in the margin expansion.
While costs of raw materials have generally stabilized, we expect that inflation of some materials will potentially create headwinds impacting our results in fiscal 2025.
SG&A Expenses Our consolidated SG&A expense increased by approximately $157.5 million during fiscal 2024 versus fiscal 2023 and increased to 28.8% of net sales for fiscal 2024 from 27.0% of net sales for fiscal 2023. Variable costs associated with improved results, such as commission expense and bonuses, were primary drivers, along with merit increases, investments in growth initiatives and increased benefits, insurance and healthcare costs. In addition, as described further below in Note P, "Contingencies and Other Accrued Losses," to the Consolidated financial statements, there was an $8.9 million decrease in the gain on business interruption insurance proceeds received during the current year at our Consumer segment compared to the prior year. These were partially offset by reduced professional fees and reduced SG&A related to divestitures.
Our CPG segment SG&A was approximately $108.2 million higher for fiscal 2024 versus fiscal 2023 and increased by 210 bps as a percentage of net sales. The increase in expense was mainly due to variable costs associated with improved results such as commissions and bonuses, along with merit increases, increased benefits and investments in growth initiatives.
30
Our PCG segment SG&A was approximately $35.0 million higher for fiscal 2024 versus fiscal 2023 and increased by 180 bps as a percentage of net sales. The increase in expense as compared to the prior year period is mainly due to increased commissions as a result of improved results as well as merit increases, increased insurance costs and bad debt expense and the $4.5 million loss on the sale of USL's Bridgecare services division during the period as described below in Note C, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements.
Our Consumer segment SG&A increased by approximately $17.3 million during fiscal 2024 versus fiscal 2023 and increased by 110 bps as a percentage of net sales. The year-over-year increase in SG&A was primarily attributable to merit increases and insurance costs, in addition to the $8.9 million decrease in gain on business interruption insurance proceeds received in the current year, partially offset by a reduction in variable distribution costs and a $3.6 million gain that is associated with the sale of a facility.
Our SPG segment SG&A was approximately $1.6 million higher during fiscal 2024 versus fiscal 2023 and increased by 340 bps as a percentage of sales. The increase in SG&A expense is attributable to higher research and development costs, pay inflation and investments in strategic growth initiatives, partially offset by the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023, along with a reduction in incentive compensation.
SG&A expenses in our corporate/other category of $163.4 million during fiscal 2024 decreased by $4.6 million from $168.0 million recorded during fiscal 2023. This was mainly due to reduced professional fees related to our MAP 2025 operational improvement initiatives and reduced stock compensation, partially offset by increased compensation, healthcare costs and IT expenses.
The following table summarizes the retirement-related benefit plans’ impact on income before income taxes for the fiscal years ended May 31, 2024 and 2023, as the service cost component has a significant impact on our SG&A expense:
|
|
Fiscal year ended May 31, |
|
|
|
|
||||||
(In millions) |
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
Service cost |
|
$ |
49.4 |
|
|
$ |
49.1 |
|
|
$ |
0.3 |
|
Interest cost |
|
|
45.3 |
|
|
|
36.8 |
|
|
|
8.5 |
|
Expected return on plan assets |
|
|
(51.6 |
) |
|
|
(44.7 |
) |
|
|
(6.9 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|||
Prior service (credit) |
|
|
(0.1 |
) |
|
|
(0.2 |
) |
|
|
0.1 |
|
Net actuarial losses recognized |
|
|
17.6 |
|
|
|
18.4 |
|
|
|
(0.8 |
) |
Curtailment/settlement losses |
|
|
(0.1 |
) |
|
|
0.1 |
|
|
|
(0.2 |
) |
Total Net Periodic Pension & Postretirement Benefit Costs |
|
$ |
60.5 |
|
|
$ |
59.5 |
|
|
$ |
1.0 |
|
We expect that pension and postretirement expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, both of which are difficult to predict in light of the lingering macroeconomic uncertainties associated with inflation, but which may have a material impact on our consolidated financial results in the future. A decrease of 1% in the discount rate or the expected return on plan assets assumptions would result in $8.0 million and $7.7 million higher expense, respectively. The assumptions and estimates used to determine the discount rate and expected return on plan assets are more fully described in Note N, “Pension Plans,” and Note O, “Postretirement Benefits,” to our Consolidated Financial Statements. Further discussion and analysis of the sensitivity surrounding our most critical assumptions under our pension and postretirement plans is discussed above in “Critical Accounting Policies and Estimates — Pension and Postretirement Plans.”
Restructuring Expense
The following table summarizes restructuring charges recorded during the years ended May 31, 2024 and 2023, related to our MAP 2025 initiative, which is a multi-year restructuring plan to build on the achievements of MAP to Growth and designed to improve margins by streamlining business processes, reducing working capital, implementing commercial initiatives to drive improved mix, pricing discipline and salesforce effectiveness and improving operating efficiency:
|
|
Fiscal year ended May 31, |
|
|||||
(In millions) |
|
2024 |
|
|
2023 |
|
||
Severance and benefit costs |
|
$ |
24.0 |
|
|
$ |
8.5 |
|
Facility closure and other related costs |
|
|
1.4 |
|
|
|
0.7 |
|
Other restructuring costs |
|
|
4.6 |
|
|
|
2.5 |
|
Total Restructuring Costs |
|
$ |
30.0 |
|
|
$ |
11.7 |
|
Most activities under MAP 2025 are anticipated to be completed by the end of fiscal 2025; however, we expect some costs to extend beyond this date. We currently expect to incur approximately $39.8 million of future additional charges related to the implementation of MAP 2025. In addition, we incurred $3.8 million of restructuring costs associated with MAP to Growth for the year ended May 31, 2023.
For further information and details about MAP 2025, see Note B, “Restructuring,” to the Consolidated Financial Statements.
31
Interest Expense
|
|
Fiscal year ended May 31, |
|
|||||
(In millions, except percentages) |
|
2024 |
|
|
2023 |
|
||
Interest expense |
|
$ |
118.0 |
|
|
$ |
119.0 |
|
Average interest rate (1) |
|
|
4.73 |
% |
|
|
4.08 |
% |
(1) The interest rate increase was a result of higher market rates on the variable cost borrowings. |
|
|
|
|
|
|
(In millions) |
|
Change in interest |
|
|
Acquisition-related borrowings |
|
$ |
1.2 |
|
Non-acquisition-related average borrowings |
|
|
(17.9 |
) |
Change in average interest rate |
|
|
15.7 |
|
Total Change in Interest Expense |
|
$ |
(1.0 |
) |
Investment (Income) Expense, Net
See Note A(15), "Summary of Significant Accounting Policies - Investment (Income) Expense, Net," to the Consolidated Financial Statements for details.
(Gain) on Sales of Assets and Business, Net
See Note A(3), "Summary of Significant Accounting Policies - Acquisitions/Divestitures," and Note M, "Leases," to the Consolidated Financial Statements for details.
Other Expense (Income), Net
See Note A(16), "Summary of Significant Accounting Policies - Other Expense (Income), Net," to the Consolidated Financial Statements for details.
Income Before Income Taxes (“IBT”)
|
|
Fiscal year ended May 31, |
|
|||||||||||
(In millions, except percentages) |
|
2024 |
|
% of net |
|
|
2023 |
|
% of net |
|
||||
CPG Segment |
|
$ |
385.3 |
|
|
14.3 |
% |
|
$ |
301.0 |
|
|
12.0 |
% |
PCG Segment |
|
|
199.9 |
|
|
13.7 |
% |
|
|
142.5 |
|
|
9.9 |
% |
Consumer Segment |
|
|
408.2 |
|
|
16.6 |
% |
|
|
378.1 |
|
|
15.0 |
% |
SPG Segment |
|
|
43.8 |
|
|
6.1 |
% |
|
|
103.3 |
|
|
12.9 |
% |
Non-Op Segment |
|
|
(249.4 |
) |
|
— |
|
|
|
(275.5 |
) |
|
— |
|
Consolidated |
|
$ |
787.8 |
|
|
|
|
$ |
649.4 |
|
|
|
On a consolidated basis, our results reflect MAP 2025 benefits, in conjunction with benefits generated from the commodity cycle. Our CPG segment results reflect volume growth, which resulted in improved fixed-cost utilization, and MAP 2025 benefits. Our PCG segment results reflect MAP 2025 benefits and improved pricing, partially offset by the $4.5 million loss on the sale of USL's Bridgecare services division during the year, the impairment of an indefinite-lived intangible asset, and increased bad debt expense. Our prior year PCG segment results include the $39.2 million goodwill and intangible asset impairment charges. Our Consumer segment results reflect improved operating efficiencies related to MAP 2025 and improved pricing and a $3.6 million gain that is associated with the sale of a facility, partially offset by the $8.9 million decrease in gain on business interruption insurance proceeds received during the year and negative fixed-cost absorption due to lower volumes. Our SPG segment results reflect the divestiture of the non-core furniture warranty business in the third quarter of fiscal 2023, unfavorable sales mix, incremental costs from investments in growth initiatives, and reduced fixed cost leverage at plants as a result of reduced volumes. In addition, our prior year SPG segment results reflect the $24.7 million gain on the sale of its non-core furniture warranty business. Our Non-Op segment results reflect the favorable swing in investment returns and decreased professional fees, partially offset by increased healthcare and IT expenses.
Income Tax Rate The effective income tax rate was 25.2% for fiscal 2024 compared to an effective income tax rate of 26.1% for fiscal 2023. Refer to Note H, “Income Taxes,” to the Consolidated Financial Statements for the components of the effective income tax rates.
Net Income
|
|
Fiscal year ended May 31, |
|
|||||||||||
(In millions, except percentages and per share amounts) |
|
2024 |
|
% of net |
|
|
2023 |
|
% of net |
|
||||
Net income |
|
$ |
589.4 |
|
|
8.0 |
% |
|
$ |
479.7 |
|
|
6.6 |
% |
Net income attributable to RPM International Inc. stockholders |
|
|
588.4 |
|
|
8.0 |
% |
|
|
478.7 |
|
|
6.6 |
% |
Diluted earnings per share |
|
|
4.56 |
|
|
|
|
|
3.72 |
|
|
|
32
LIQUIDITY AND CAPITAL RESOURCES
Operating Activities
Approximately $1.12 billion of cash was provided by operating activities during fiscal 2024, compared with $577.1 million of cash provided by operating activities during fiscal 2023. The net change in cash from operations includes the change in net income, which increased by $109.7 million year over year.
The change in accounts receivable during fiscal 2024 provided approximately $177.5 million more cash than fiscal 2023. This was primarily due to the timing of sales in our PCG and Consumer segments and improved cash collections in the current period. Average days sales outstanding (“DSO”) at May 31, 2024 decreased to 63.0 days from 66.9 days at May 31, 2023.
During fiscal 2024, the change in inventory used approximately $113.0 million less cash compared to our spending during fiscal 2023 as a result of our operating segments continuing to reduce inventory purchases and use safety stock built up in prior periods in response to supply chain outages and raw material inflation. Average days inventory outstanding (“DIO”) at May 31, 2024 decreased to 91.1 days from 106.0 days at May 31, 2023.
The change in accounts payable during fiscal 2024 used approximately $91.6 million less cash than during fiscal 2023. This is associated with significant payments made in the prior year related to inventory builds and raw material inflation. Additionally, we have reduced inventory purchases because of improved forecasting and coordination between sales and operations. Average days payables outstanding (“DPO”) at May 31, 2024 increased to 83.0 days from 80.5 days at May 31, 2023.
Investing Activities
For fiscal 2024, cash used for investing activities decreased by $43.3 million to $206.4 million as compared to $249.7 million in the prior year period. This year-over-year decrease in cash used for investing activities was mainly driven by a $40.5 million decrease in capital expenditures and a $32.0 million decrease in cash used for business acquisitions, partially offset by a $51.4 million decrease in proceeds from sales of assets and businesses, net.
We paid for capital expenditures of $214.0 million and $254.4 million during the periods ended May 31, 2024 and 2023, respectively. This reduction was the result of decreased capacity expansion projects in comparison to the prior period. Our capital expenditures facilitate our continued growth, allow us to achieve production and distribution efficiencies, expand capacity, introduce new technology, improve environmental health and safety capabilities, improve information systems, and enhance our administration capabilities. We continued to invest capital spending in growth initiatives and to improve operational efficiencies in fiscal 2024.
Our captive insurance companies invest their excess cash in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in the amounts related to these activities on a year-over-year basis are primarily attributable to the rebalancing of the portfolio, along with differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At May 31, 2024 and 2023, the fair value of our investments in marketable securities totaled $154.3 million and $148.3 million, respectively.
As of May 31, 2024, approximately $215.2 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with approximately $196.8 million as of May 31, 2023. Undistributed earnings held at our foreign subsidiaries that are considered permanently reinvested will be used, for instance, to expand operations organically or for acquisitions in foreign jurisdictions. Further, our operations in the United States generate sufficient cash flow to satisfy U.S. operating requirements. Refer to Note H, “Income Taxes,” to the Consolidated Financial Statements for additional information regarding unremitted foreign earnings.
Financing Activities
For fiscal 2024, cash used for financing activities increased by $588.8 million to $890.0 million as compared to $301.2 million used for financing activities in the prior year period. The overall increase in cash used for financing activities was driven principally by debt-related activities, as we repaid $273.4 million on our revolving credit facility, $250.0 million on our term loan, and $45.0 million on our accounts receivable securitization program ("AR Program") during fiscal 2024. Refer to Note G, “Borrowings,” to the Consolidated Financial Statements for a discussion of significant debt-related activity that occurred in fiscal 2024 and 2023, significant components of our debt, and our available liquidity.
33
The following table summarizes our financial obligations and their expected maturities at May 31, 2024, and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.
Contractual Obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Total Contractual |
|
|
Payments Due In |
|
||||||||||||||
(In thousands) |
|
Payment Stream |
|
|
2025 |
|
|
2026-27 |
|
|
2028-29 |
|
|
After 2029 |
|
|||||
Long-term debt obligations |
|
$ |
2,125,092 |
|
|
$ |
130,212 |
|
|
$ |
400,148 |
|
|
$ |
694,732 |
|
|
$ |
900,000 |
|
Finance lease obligations |
|
|
14,723 |
|
|
|
5,957 |
|
|
|
6,269 |
|
|
|
1,271 |
|
|
|
1,226 |
|
Operating lease obligations |
|
|
416,834 |
|
|
|
78,528 |
|
|
|
126,943 |
|
|
|
77,201 |
|
|
|
134,162 |
|
Other long-term liabilities (1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Interest payments on long-term debt obligations |
|
|
840,050 |
|
|
|
68,275 |
|
|
|
136,550 |
|
|
|
106,550 |
|
|
|
528,675 |
|
Contributions to pension and postretirement plans (2) |
|
|
513,000 |
|
|
|
5,900 |
|
|
|
13,000 |
|
|
|
117,000 |
|
|
|
377,100 |
|
Total |
|
$ |
3,909,699 |
|
|
$ |
288,872 |
|
|
$ |
682,910 |
|
|
$ |
996,754 |
|
|
$ |
1,941,163 |
|
The U.S. dollar fluctuated throughout the year and was weaker against other major currencies where we conduct operations at May 31, 2024 versus May 31, 2023, causing a favorable change in the accumulated other comprehensive income (loss) (refer to Note K, “Accumulated Other Comprehensive Income (Loss),” to the Consolidated Financial Statements) component of stockholders’ equity of $3.5 million this year versus an unfavorable change of $69.9 million last year. The change in fiscal 2024 was in addition to a favorable net change of $64.1 million related to adjustments required for minimum pension and other postretirement liabilities.
Stock Repurchase Program
Refer to Note I, “Stock Repurchase Program,” to the Consolidated Financial Statements for a discussion of our stock repurchase program.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet financings. We have no subsidiaries that are not included in our financial statements, nor do we have any interests in, or relationships with, any special-purpose entities that are not reflected in our financial statements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risk from changes in interest rates and foreign currency exchange rates because we fund our operations through long- and short-term borrowings and denominate our business transactions in a variety of foreign currencies. We utilize a sensitivity analysis to measure the potential loss in earnings based on a hypothetical 1% increase in interest rates and a 10% change in foreign currency rates. A summary of our primary market risk exposures follows.
Interest Rate Risk
Our primary interest rate risk exposure results from our floating rate debt, including various revolving and other lines of credit (refer to Note G, “Borrowings,” to the Consolidated Financial Statements). If there was a 100-bps increase or decrease in interest rates it would have resulted in an increase or decrease in interest expense of $7.9 million and $10.8 million for fiscal 2024 and 2023, respectively. Our primary exposure to interest rate risk is movements in the Secured Overnight Financing Rate (SOFR) and European Short-Term Rate (ESTR). At May 31, 2024, approximately 22.3% of our debt was subject to floating interest rates.
Foreign Currency Risk
Our foreign sales and results of operations are subject to the impact of foreign currency fluctuations (refer to Note A(4), “Summary of Significant Accounting Policies - Foreign Currency,” to the Consolidated Financial Statements). Because our Consolidated Financial Statements are presented in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies in which we transact business could materially adversely affect our net revenues, net income and the carrying values of our assets located outside the United States. Global economic uncertainty continues to exist. Strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results.
34
If the U.S. dollar were to strengthen, our foreign results of operations would be unfavorably impacted, but the effect is not expected to be material. A 10% change in foreign currency exchange rates would not have resulted in a material impact to net income for the years ended May 31, 2024 and 2023. We do not currently use financial derivative instruments for trading purposes, nor do we engage in foreign currency, commodity or interest rate speculation.
FORWARD-LOOKING STATEMENTS
The foregoing discussion includes forward-looking statements relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global and regional markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the viability of banks and other financial institutions; (b) the prices, supply and availability of raw materials, including assorted pigments, resins, solvents, and other natural gas- and oil-based materials; packaging, including plastic and metal containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) the timing of and the realization of anticipated cost savings from restructuring initiatives, the ability to identify additional cost savings opportunities, and the risks of failing to meet any other objectives of our improvement plans; (j) risks related to the adequacy of our contingent liability reserves; (k) risks relating to a public health crisis similar to the Covid pandemic; (l) risks related to acts of war similar to the Russian invasion of Ukraine; (m) risks related to the transition or physical impacts of climate change and other natural disasters or meeting sustainability-related voluntary goals or regulatory requirements; (n) risks related to our or our third parties' use of technology including artificial intelligence, data breaches and data privacy violations; (o) the shift to remote work and online purchasing and the impact that has on residential and commercial real estate construction; and (p) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Form 10-K for the year ended May 31, 2024, as the same may be updated from time to time. We do not undertake any obligation to publicly update or revise any forward-looking statements to reflect future events, information or circumstances that arise after the filing date of this document.
35
Item 8. Financial Statements and Supplementary Data.
RPM INTERNATIONAL INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(In thousands, except per share amounts)
May 31, |
|
2024 |
|
|
2023 |
|
||
Assets |
|
|
|
|
|
|
||
Current Assets |
|
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
237,379 |
|
|
$ |
215,787 |
|
Trade accounts receivable (less allowances of $48,763 and $49,482, respectively) |
|
|
1,419,445 |
|
|
|
1,503,040 |
|
Inventories |
|
|
956,465 |
|
|
|
1,135,496 |
|
Prepaid expenses and other current assets |
|
|
282,059 |
|
|
|
329,845 |
|
Total current assets |
|
|
2,895,348 |
|
|
|
3,184,168 |
|
Property, Plant and Equipment, at Cost |
|
|
2,515,847 |
|
|
|
2,332,916 |
|
Allowance for depreciation |
|
|
(1,184,784 |
) |
|
|
(1,093,440 |
) |
Property, plant and equipment, net |
|
|
1,331,063 |
|
|
|
1,239,476 |
|
Other Assets |
|
|
|
|
|
|
||
Goodwill |
|
|
1,308,911 |
|
|
|
1,293,588 |
|
Other intangible assets, net of amortization |
|
|
512,972 |
|
|
|
554,991 |
|
Operating lease right-of-use assets |
|
|
331,555 |
|
|
|
329,582 |
|
Deferred income taxes |
|
|
33,522 |
|
|
|
15,470 |
|
Other |
|
|
173,172 |
|
|
|
164,729 |
|
Total other assets |
|
|
2,360,132 |
|
|
|
2,358,360 |
|
Total Assets |
|
$ |
6,586,543 |
|
|
$ |
6,782,004 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
|
||
Current Liabilities |
|
|
|
|
|
|
||
Accounts payable |
|
$ |
649,650 |
|
|
$ |
680,938 |
|
Current portion of long-term debt |
|
|
136,213 |
|
|
|
178,588 |
|
Accrued compensation and benefits |
|
|
297,249 |
|
|
|
257,328 |
|
Accrued losses |
|
|
32,518 |
|
|
|
26,470 |
|
Other accrued liabilities |
|
|
350,434 |
|
|
|
347,477 |
|
Total current liabilities |
|
|
1,466,064 |
|
|
|
1,490,801 |
|
Long-Term Liabilities |
|
|
|
|
|
|
||
Long-term debt, less current maturities |
|
|
1,990,935 |
|
|
|
2,505,221 |
|
Operating lease liabilities |
|
|
281,281 |
|
|
|
285,524 |
|
Other long-term liabilities |
|
|
214,816 |
|
|
|
267,111 |
|
Deferred income taxes |
|
|
121,222 |
|
|
|
90,347 |
|
Total long-term liabilities |
|
|
2,608,254 |
|
|
|
3,148,203 |
|
Contingencies and Accrued Losses (Note P) |
|
|
|
|
|
|
||
Stockholders' Equity |
|
|
|
|
|
|
||
Preferred stock, par value $0.01; authorized 50,000 shares; none issued |
|
|
- |
|
|
|
- |
|
Common stock, par value $0.01; authorized 300,000 shares; |
|
|
1,286 |
|
|
|
1,288 |
|
Paid-in capital |
|
|
1,150,751 |
|
|
|
1,124,825 |
|
Treasury stock, at cost |
|
|
(864,502 |
) |
|
|
(784,463 |
) |
Accumulated other comprehensive (loss) |
|
|
(537,290 |
) |
|
|
(604,935 |
) |
Retained earnings |
|
|
2,760,639 |
|
|
|
2,404,125 |
|
Total RPM International Inc. stockholders' equity |
|
|
2,510,884 |
|
|
|
2,140,840 |
|
Noncontrolling Interest |
|
|
1,341 |
|
|
|
2,160 |
|
Total equity |
|
|
2,512,225 |
|
|
|
2,143,000 |
|
Total Liabilities and Stockholders' Equity |
|
$ |
6,586,543 |
|
|
$ |
6,782,004 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
36
Consolidated Statements of Income
(In thousands, except per share amounts)
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Net Sales |
|
$ |
7,335,277 |
|
|
$ |
7,256,414 |
|
|
$ |
6,707,728 |
|
Cost of Sales |
|
|
4,320,688 |
|
|
|
4,508,370 |
|
|
|
4,274,675 |
|
Gross Profit |
|
|
3,014,589 |
|
|
|
2,748,044 |
|
|
|
2,433,053 |
|
Selling, General and Administrative Expenses |
|
|
2,113,585 |
|
|
|
1,956,040 |
|
|
|
1,788,284 |
|
Restructuring Expense |
|
|
30,008 |
|
|
|
15,465 |
|
|
|
6,276 |
|
Goodwill Impairment |
|
|
- |
|
|
|
36,745 |
|
|
|
- |
|
Interest Expense |
|
|
117,969 |
|
|
|
119,015 |
|
|
|
87,928 |
|
Investment (Income) Expense, Net |
|
|
(44,974 |
) |
|
|
(9,748 |
) |
|
|
7,595 |
|
(Gain) on Sales of Assets and Business, Net |
|
|
- |
|
|
|
(28,632 |
) |
|
|
(51,983 |
) |
Other Expense (Income), Net |
|
|
10,164 |
|
|
|
9,777 |
|
|
|
(11,846 |
) |
Income Before Income Taxes |
|
|
787,837 |
|
|
|
649,382 |
|
|
|
606,799 |
|
Provision for Income Taxes |
|
|
198,395 |
|
|
|
169,651 |
|
|
|
114,333 |
|
Net Income |
|
|
589,442 |
|
|
|
479,731 |
|
|
|
492,466 |
|
Less: Net Income Attributable to Noncontrolling Interests |
|
|
1,045 |
|
|
|
1,040 |
|
|
|
985 |
|
Net Income Attributable to RPM International Inc. Stockholders |
|
$ |
588,397 |
|
|
$ |
478,691 |
|
|
$ |
491,481 |
|
Average Number of Shares of Common Stock Outstanding: |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
|
127,767 |
|
|
|
127,507 |
|
|
|
127,948 |
|
Diluted |
|
|
128,340 |
|
|
|
128,816 |
|
|
|
129,580 |
|
Earnings per Share of Common Stock Attributable to RPM International Inc. |
|
|
|
|
|
|
|
|
|
|||
Basic |
|
$ |
4.58 |
|
|
$ |
3.74 |
|
|
$ |
3.81 |
|
Diluted |
|
$ |
4.56 |
|
|
$ |
3.72 |
|
|
$ |
3.79 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
37
Consolidated Statements of Comprehensive Income
(In thousands)
Year Ended May 31 |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Net Income |
|
$ |
589,442 |
|
|
$ |
479,731 |
|
|
$ |
492,466 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|
|||
Foreign currency translation adjustments, net of tax |
|
|
3,547 |
|
|
|
(69,918 |
) |
|
|
(95,214 |
) |
Pension and other postretirement benefit liability adjustments, net of tax |
|
|
64,117 |
|
|
|
4,619 |
|
|
|
37,227 |
|
Unrealized (loss) on securities and other, net of tax |
|
|
- |
|
|
|
(549 |
) |
|
|
(1,725 |
) |
Unrealized (loss) gain on derivatives, net of tax |
|
|
- |
|
|
|
(1,766 |
) |
|
|
37,153 |
|
Total other comprehensive income (loss) |
|
|
67,664 |
|
|
|
(67,614 |
) |
|
|
(22,559 |
) |
Total Comprehensive Income |
|
|
657,106 |
|
|
|
412,117 |
|
|
|
469,907 |
|
Less: Comprehensive Income Attributable to Noncontrolling Interests |
|
|
1,064 |
|
|
|
1,024 |
|
|
|
879 |
|
Comprehensive Income Attributable to RPM International Inc. Stockholders |
|
$ |
656,042 |
|
|
$ |
411,093 |
|
|
$ |
469,028 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
38
Consolidated Statements of Cash Flows
(In thousands)
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Cash Flows From Operating Activities: |
|
|
|
|
|
|
|
|
|
|||
Net income |
|
$ |
589,442 |
|
|
$ |
479,731 |
|
|
$ |
492,466 |
|
Adjustments to reconcile net income to net cash provided by operating |
|
|
|
|
|
|
|
|
|
|||
Depreciation and amortization |
|
|
171,251 |
|
|
|
154,949 |
|
|
|
153,074 |
|
Restructuring charges, net of payments |
|
|
- |
|
|
|
- |
|
|
|
(2,516 |
) |
Goodwill impairment |
|
|
- |
|
|
|
36,745 |
|
|
|
- |
|
Fair value adjustments to contingent earnout obligations |
|
|
- |
|
|
|
- |
|
|
|
3,253 |
|
Deferred income taxes |
|
|
(5,638 |
) |
|
|
6,236 |
|
|
|
(25,067 |
) |
Stock-based compensation expense |
|
|
25,925 |
|
|
|
28,673 |
|
|
|
40,114 |
|
Net (gain) loss on marketable securities |
|
|
(19,914 |
) |
|
|
2,086 |
|
|
|
17,706 |
|
Net (gain) on sales of assets and businesses |
|
|
(971 |
) |
|
|
(28,632 |
) |
|
|
(51,983 |
) |
Other |
|
|
2,226 |
|
|
|
1,683 |
|
|
|
(66 |
) |
Changes in assets and liabilities, net of effect from purchases and sales of |
|
|
|
|
|
|
|
|
|
|||
Decrease (increase) in receivables |
|
|
82,895 |
|
|
|
(94,585 |
) |
|
|
(187,299 |
) |
Decrease (increase) in inventory |
|
|
179,843 |
|
|
|
66,805 |
|
|
|
(304,197 |
) |
Decrease (increase) in prepaid expenses and other current and long-term assets |
|
|
23,426 |
|
|
|
1,364 |
|
|
|
(13,040 |
) |
(Decrease) increase in accounts payable |
|
|
(24,439 |
) |
|
|
(116,053 |
) |
|
|
101,223 |
|
Increase (decrease) in accrued compensation and benefits |
|
|
39,891 |
|
|
|
(2,643 |
) |
|
|
9,737 |
|
Increase (decrease) in accrued losses |
|
|
5,958 |
|
|
|
2,231 |
|
|
|
(3,956 |
) |
Increase (decrease) in other accrued liabilities |
|
|
52,410 |
|
|
|
38,515 |
|
|
|
(50,718 |
) |
Cash Provided By Operating Activities |
|
|
1,122,305 |
|
|
|
577,105 |
|
|
|
178,731 |
|
Cash Flows From Investing Activities: |
|
|
|
|
|
|
|
|
|
|||
Capital expenditures |
|
|
(213,970 |
) |
|
|
(254,435 |
) |
|
|
(222,403 |
) |
Acquisition of businesses, net of cash acquired |
|
|
(15,549 |
) |
|
|
(47,542 |
) |
|
|
(127,457 |
) |
Purchase of marketable securities |
|
|
(32,981 |
) |
|
|
(18,674 |
) |
|
|
(15,032 |
) |
Proceeds from sales of marketable securities |
|
|
46,689 |
|
|
|
12,731 |
|
|
|
21,533 |
|
Proceeds from sales of assets and businesses |
|
|
6,921 |
|
|
|
58,288 |
|
|
|
76,590 |
|
Other |
|
|
2,450 |
|
|
|
(72 |
) |
|
|
7,222 |
|
Cash (Used For) Investing Activities |
|
|
(206,440 |
) |
|
|
(249,704 |
) |
|
|
(259,547 |
) |
Cash Flows From Financing Activities: |
|
|
|
|
|
|
|
|
|
|||
Additions to long-term and short-term debt |
|
|
- |
|
|
|
341,720 |
|
|
|
437,564 |
|
Reductions of long-term and short-term debt |
|
|
(575,408 |
) |
|
|
(355,463 |
) |
|
|
(101,505 |
) |
Cash dividends |
|
|
(231,883 |
) |
|
|
(213,912 |
) |
|
|
(204,394 |
) |
Repurchase of common stock |
|
|
(54,978 |
) |
|
|
(50,000 |
) |
|
|
(52,500 |
) |
Shares of common stock returned for taxes |
|
|
(24,548 |
) |
|
|
(17,047 |
) |
|
|
(11,549 |
) |
Payments of acquisition-related contingent consideration |
|
|
(1,142 |
) |
|
|
(3,765 |
) |
|
|
(5,774 |
) |
Other |
|
|
(2,075 |
) |
|
|
(2,689 |
) |
|
|
(4,452 |
) |
Cash (Used For) Provided By Financing Activities |
|
|
(890,034 |
) |
|
|
(301,156 |
) |
|
|
57,390 |
|
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
|
|
(4,239 |
) |
|
|
(12,130 |
) |
|
|
(21,606 |
) |
Net Change in Cash and Cash Equivalents |
|
|
21,592 |
|
|
|
14,115 |
|
|
|
(45,032 |
) |
Cash and Cash Equivalents at Beginning of Period |
|
|
215,787 |
|
|
|
201,672 |
|
|
|
246,704 |
|
Cash and Cash Equivalents at End of Period |
|
$ |
237,379 |
|
|
$ |
215,787 |
|
|
$ |
201,672 |
|
Supplemental Disclosures of Cash Flows Information: |
|
|
|
|
|
|
|
|
|
|||
Cash paid during the year for: |
|
|
|
|
|
|
|
|
|
|||
Interest |
|
$ |
116,650 |
|
|
$ |
113,953 |
|
|
$ |
81,838 |
|
Income taxes, net of refunds |
|
$ |
203,607 |
|
|
$ |
134,436 |
|
|
$ |
172,254 |
|
Supplemental Disclosures of Noncash Investing Activities: |
|
|
|
|
|
|
|
|
|
|||
Capital expenditures accrued within accounts payable at year-end |
|
$ |
24,632 |
|
|
$ |
34,470 |
|
|
$ |
27,237 |
|
The accompanying notes to consolidated financial statements are an integral part of these statements.
39
Consolidated Statements of Stockholders' Equity
|
|
Common Stock |
|
|
|
|
|
|
|
|
Accumulated |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Number |
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
Total RPM |
|
|
|
|
|
|
|
|||||||||
|
|
of |
|
|
Par/Stated |
|
|
Paid-In |
|
|
Treasury |
|
|
Comprehensive |
|
|
Retained |
|
|
International |
|
|
Noncontrolling |
|
|
Total |
|
|||||||||
(In thousands) |
|
Shares |
|
|
Value |
|
|
Capital |
|
|
Stock |
|
|
Income (Loss) |
|
|
Earnings |
|
|
Inc. Equity |
|
|
Interests |
|
|
Equity |
|
|||||||||
Balance at June 1, 2021 |
|
|
129,573 |
|
|
$ |
1,295 |
|
|
$ |
1,055,400 |
|
|
$ |
(653,006 |
) |
|
$ |
(514,884 |
) |
|
$ |
1,852,259 |
|
|
$ |
1,741,064 |
|
|
$ |
1,961 |
|
|
$ |
1,743,025 |
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
491,481 |
|
|
|
491,481 |
|
|
|
985 |
|
|
|
492,466 |
|
Other comprehensive (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(22,453 |
) |
|
|
- |
|
|
|
(22,453 |
) |
|
|
(106 |
) |
|
|
(22,559 |
) |
Dividends declared and paid ($1.58 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(204,394 |
) |
|
|
(204,394 |
) |
|
|
- |
|
|
|
(204,394 |
) |
Other noncontrolling interest activity |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,441 |
) |
|
|
(1,441 |
) |
Share repurchases under repurchase program |
|
|
(601 |
) |
|
|
(6 |
) |
|
|
6 |
|
|
|
(52,500 |
) |
|
|
- |
|
|
|
- |
|
|
|
(52,500 |
) |
|
|
- |
|
|
|
(52,500 |
) |
Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes |
|
|
227 |
|
|
|
3 |
|
|
|
40,741 |
|
|
|
(11,513 |
) |
|
|
- |
|
|
|
- |
|
|
|
29,231 |
|
|
|
- |
|
|
|
29,231 |
|
Balance at May 31, 2022 |
|
|
129,199 |
|
|
|
1,292 |
|
|
|
1,096,147 |
|
|
|
(717,019 |
) |
|
|
(537,337 |
) |
|
|
2,139,346 |
|
|
|
1,982,429 |
|
|
|
1,399 |
|
|
|
1,983,828 |
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
478,691 |
|
|
|
478,691 |
|
|
|
1,040 |
|
|
|
479,731 |
|
Other comprehensive (loss) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(67,598 |
) |
|
|
- |
|
|
|
(67,598 |
) |
|
|
(16 |
) |
|
|
(67,614 |
) |
Dividends declared and paid ($1.66 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(213,912 |
) |
|
|
(213,912 |
) |
|
|
- |
|
|
|
(213,912 |
) |
Other noncontrolling interest activity |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(263 |
) |
|
|
(263 |
) |
Share repurchases under repurchase program |
|
|
(598 |
) |
|
|
(6 |
) |
|
|
6 |
|
|
|
(50,000 |
) |
|
|
- |
|
|
|
- |
|
|
|
(50,000 |
) |
|
|
- |
|
|
|
(50,000 |
) |
Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes |
|
|
165 |
|
|
|
2 |
|
|
|
28,672 |
|
|
|
(17,444 |
) |
|
|
- |
|
|
|
- |
|
|
|
11,230 |
|
|
|
- |
|
|
|
11,230 |
|
Balance at May 31, 2023 |
|
|
128,766 |
|
|
|
1,288 |
|
|
|
1,124,825 |
|
|
|
(784,463 |
) |
|
|
(604,935 |
) |
|
|
2,404,125 |
|
|
|
2,140,840 |
|
|
|
2,160 |
|
|
|
2,143,000 |
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
588,397 |
|
|
|
588,397 |
|
|
|
1,045 |
|
|
|
589,442 |
|
Other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
67,645 |
|
|
|
- |
|
|
|
67,645 |
|
|
|
19 |
|
|
|
67,664 |
|
Dividends declared and paid ($1.80 per share) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(231,883 |
) |
|
|
(231,883 |
) |
|
|
- |
|
|
|
(231,883 |
) |
Other noncontrolling interest activity |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(1,883 |
) |
|
|
(1,883 |
) |
Share repurchases under repurchase program and related excise tax |
|
|
(526 |
) |
|
|
(5 |
) |
|
|
5 |
|
|
|
(55,002 |
) |
|
|
- |
|
|
|
- |
|
|
|
(55,002 |
) |
|
|
- |
|
|
|
(55,002 |
) |
Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes |
|
|
389 |
|
|
|
3 |
|
|
|
25,921 |
|
|
|
(25,037 |
) |
|
|
- |
|
|
|
- |
|
|
|
887 |
|
|
|
- |
|
|
|
887 |
|
Balance at May 31, 2024 |
|
|
128,629 |
|
|
$ |
1,286 |
|
|
$ |
1,150,751 |
|
|
$ |
(864,502 |
) |
|
$ |
(537,290 |
) |
|
$ |
2,760,639 |
|
|
$ |
2,510,884 |
|
|
$ |
1,341 |
|
|
$ |
2,512,225 |
|
The accompanying notes to consolidated financial statements are an integral part of these financial statements.
40
NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1) Consolidation, Noncontrolling Interests and Basis of Presentation
The accompanying Consolidated Financial Statements have been prepared in accordance with GAAP and the instructions to Form 10-K. In our opinion, all adjustments (consisting of normal, recurring accruals) considered necessary for fair presentation have been included for the periods ended May 31, 2024, 2023, and 2022.
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).
2) Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3) Acquisitions/Divestitures
We account for business combinations and asset acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date.
During the fiscal year ended May 31, 2024, we completed a total of two acquisitions which are included in our CPG reportable segment.
During the fiscal year ended May 31, 2023, we completed a total of six acquisitions across our four reportable segments. Most notably, within our Consumer reportable segment, we acquired a distributor of branded chalk paints, primarily targeting the upscale décor market in the U.K. and Ireland.
In addition, on January 20, 2023, we completed the divestiture of our non-core furniture warranty business, Guardian, for proceeds of approximately $49.2 million, net of cash disposed. In connection with the divestiture, we recognized a gain of $24.7 million during fiscal 2023, which is included in (gain) on sales of assets and business, net in our Consolidated Statements of Income.
Guardian, headquartered in Hickory, North Carolina, was a reporting unit included in our SPG segment and is a seller of furniture protection plans and protection products for fabric, leather, and wood applications. The sale of Guardian did not represent a strategic shift that had a major effect on our operations and therefore was not presented as discontinued operations in our financial results.
The purchase price for each acquisition has been allocated to the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. We have finalized the purchase price allocation for our fiscal 2023 acquisitions. For acquisitions completed during fiscal 2024, the valuations of consideration transferred, total assets acquired, and liabilities assumed are substantially complete. The primary areas that remain open relate to working capital adjustments. Acquisitions are aggregated by year of purchase in the following table:
|
|
Fiscal 2024 Acquisitions |
|
|
Fiscal 2023 Acquisitions |
|
|
||||||
(In thousands) |
|
Weighted-Average |
|
Total |
|
|
Weighted-Average |
|
Total |
|
|
||
Current assets |
|
|
|
$ |
6,010 |
|
|
|
|
$ |
17,508 |
|
|
Property, plant and equipment |
|
|
|
|
1,427 |
|
|
|
|
|
3,605 |
|
|
Goodwill |
|
N/A |
|
|
11,993 |
|
|
N/A |
|
|
25,407 |
|
|
Trade names - indefinite lives |
|
N/A |
|
|
- |
|
|
N/A |
|
|
3,168 |
|
|
Other intangible assets |
|
10 |
|
|
2,562 |
|
|
10 |
|
|
14,965 |
|
|
Other long-term assets |
|
|
|
|
4 |
|
|
|
|
|
1,647 |
|
|
Total Assets Acquired |
|
|
|
$ |
21,996 |
|
|
|
|
$ |
66,300 |
|
|
Liabilities assumed |
|
|
|
|
(5,712 |
) |
|
|
|
|
(12,287 |
) |
|
Net Assets Acquired |
|
|
|
$ |
16,284 |
|
(1) |
|
|
$ |
54,013 |
|
(2) |
41
Our Consolidated Financial Statements reflect the results of operations of acquired businesses as of their respective dates of acquisition. Pro-forma results of operations for the years ended May 31, 2024 and 2023 were not materially different from reported results and, consequently, are not presented.
4) Foreign Currency
The functional currency for each of our foreign subsidiaries is its principal operating currency. Accordingly, for the periods presented, assets and liabilities have been translated using exchange rates at year end, while income and expense for the periods have been translated using a weighted-average exchange rate.
The resulting translation adjustments have been recorded in accumulated other comprehensive income (loss), a component of stockholders’ equity, and will be included in net earnings only upon the sale or liquidation of the underlying foreign investment, neither of which is contemplated at this time. For the periods ended May 31, 2024, 2023 and 2022, transactional losses approximated $6.6 million, $8.9 million and $4.3 million, respectively.
5) Cash and Cash Equivalents
We consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. We do not believe we are exposed to any significant credit risk on cash and cash equivalents. The carrying amounts of cash and cash equivalents approximate fair value.
6) Property, Plant & Equipment
May 31, |
|
2024 |
|
|
2023 |
|
||
(In thousands) |
|
|
|
|
|
|
||
Land |
|
$ |
93,842 |
|
|
$ |
92,954 |
|
Buildings and leasehold improvements |
|
|
674,580 |
|
|
|
552,775 |
|
Machinery and equipment |
|
|
1,747,425 |
|
|
|
1,687,187 |
|
Total property, plant and equipment, at cost |
|
|
2,515,847 |
|
|
|
2,332,916 |
|
Less: allowance for depreciation and amortization |
|
|
1,184,784 |
|
|
|
1,093,440 |
|
Property, plant and equipment, net |
|
$ |
1,331,063 |
|
|
$ |
1,239,476 |
|
We review long-lived assets for impairment when circumstances indicate that the carrying values of these assets may not be recoverable. For assets that are to be held and used, an impairment charge is recognized when the estimated undiscounted future cash flows associated with the asset or group of assets are less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded for the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, internal appraisals or external appraisals, as applicable. Assets to be disposed of are carried at the lower of their carrying value or estimated net realizable value.
Depreciation is computed primarily using the straight-line method over the following ranges of useful lives:
Buildings and leasehold improvements |
|
1 to 50 years |
Machinery and equipment |
|
1 to 40 years |
Total depreciation expense for each fiscal period includes the charges to income that result from the amortization of assets recorded under finance leases. For the periods ended May 31, 2024, 2023 and 2022, we recorded depreciation expense of $129.8 million, $108.4 million, and $104.3 million, respectively.
7) Revenue Recognition
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The majority of our revenue is recognized at a point in time. However, we also record revenues generated under construction contracts, mainly in connection with the installation of specialized roofing and flooring systems and related services. For certain polymer flooring installation projects, we account for our revenue using the output method, as we consider square footage of completed flooring to be the best measure of progress toward the complete satisfaction of the performance obligation. In contrast, for certain of our roofing installation projects, we account for our revenue using the input method, as that method is the best measure of performance as it considers costs incurred in relation to total expected project costs, which essentially represents the transfer of control for roofing systems to the customer. In general, for our construction contracts, we record contract revenues and related costs as our contracts progress on an over-time model.
8) Shipping Costs
We identify shipping and handling costs as costs paid to third-party shippers for transporting products to customers, and we include these costs in cost of sales in our Consolidated Statements of Income.
42
9) Allowance for Credit Losses
Our primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the trade accounts receivable balance to the estimated net realizable value equal to the amount that is expected to be collected. The allowance is established using assessments of current creditworthiness of customers, historical collection experience, the aging of receivables and other currently available evidence. Trade accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowances for doubtful collection of accounts are included in SG&A expenses. Actual collections of trade receivables could differ from our estimates due to changes in future economic or industry conditions or specific customers' financial conditions.
For the periods ended May 31, 2024, 2023 and 2022, bad debt expense approximated $18.4 million, $13.6 million and $4.3 million, respectively.
10) Inventories
Inventories are stated at the lower of cost or net realizable value, cost being determined on a first-in, first-out (FIFO) basis and net realizable value being determined on the basis of replacement cost. Inventory costs include raw materials, labor and manufacturing overhead. We review the net realizable value of our inventory in detail on an on-going basis, with consideration given to various factors, which include our estimated reserves for excess, obsolete, slow-moving or distressed inventories. If actual market conditions differ from our projections, and our estimates prove to be inaccurate, write-downs of inventory values and adjustments to cost of sales may be required. Historically, our inventory reserves have approximated actual experience.
During fiscal 2024, we did not record any significant inventory charges related to product line rationalization. During fiscal 2023, we recorded $7.6 million of inventory charges within our SPG Segment related to product line and SKU rationalization and related obsolete inventory identification.
Inventories were composed of the following major classes:
May 31, |
|
2024 |
|
|
2023 |
|
||
(In thousands) |
|
|
|
|
|
|
||
Raw materials and supplies |
|
$ |
354,428 |
|
|
$ |
451,504 |
|
Finished goods |
|
|
602,037 |
|
|
|
683,992 |
|
Total Inventory |
|
$ |
956,465 |
|
|
$ |
1,135,496 |
|
11) Goodwill and Other Intangible Assets
We account for goodwill and other intangible assets in accordance with the provisions of ASC 350 and account for business combinations using the acquisition method of accounting and, accordingly, the assets and liabilities of the entities acquired are recorded at their estimated fair values at the acquisition date.
Goodwill
Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets. Goodwill is assigned to reporting units that are expected to benefit from the synergies of the business combination as of the acquisition date. Once goodwill has been allocated to the reporting units, it no longer retains its identification with a particular acquisition and becomes identified with the reporting unit in its entirety. Accordingly, the fair value of the reporting unit as a whole is available to support the recoverability of its goodwill. We evaluate our reporting units when changes in our operating structure occur, and if necessary, reassign goodwill using a relative fair value allocation approach.
We test our goodwill balances at least annually, or more frequently as impairment indicators arise, at the reporting unit level. Our annual impairment assessment date has been designated as the first day of our fourth fiscal quarter. Our reporting units have been identified at the component level, which is one level below our operating segments.
We follow the FASB guidance found in ASC 350 that simplifies how an entity tests goodwill for impairment. It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, and whether it is necessary to perform a quantitative goodwill impairment test.
We assess qualitative factors in each of our reporting units that carry goodwill. We assess these qualitative factors to determine whether it is necessary to perform the quantitative goodwill impairment test. The quantitative process is required only if we conclude that it is more likely than not that a reporting unit’s fair value is less than its carrying amount. However, we have an unconditional option to bypass a qualitative assessment and proceed directly to performing the quantitative analysis. We applied the quantitative process during our annual goodwill impairment assessments performed during the fourth quarters of fiscal 2024, 2023 and 2022.
In applying the quantitative test, we compare the fair value of a reporting unit to its carrying value. If the calculated fair value is less than the current carrying value, then impairment of the reporting unit exists. Calculating the fair value of a reporting unit requires our use of estimates and assumptions. We use significant judgment in determining the most appropriate method to establish the fair value of a reporting unit.
43
We estimate the fair value of a reporting unit by employing various valuation techniques, depending on the availability and reliability of comparable market value indicators, and employ methods and assumptions that include the application of third-party market value indicators and the computation of discounted future cash flows determined from estimated cashflow adjustments to a reporting unit’s annual projected EBITDA, or adjusted EBITDA, which adjusts for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations. Our fair value estimations may include a combination of value indications from both the market and income approaches, as the income approach considers the future cash flows from a reporting unit’s ongoing operations as a going concern, while the market approach considers the current financial environment in establishing fair value.
In applying the market approach, we use market multiples derived from a set of similar companies. In applying the income approach, we evaluate discounted future cash flows determined from estimated cashflow adjustments to a reporting unit’s projected EBITDA. Under this approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. In applying the discounted cash flow methodology utilized in the income approach, we rely on a number of factors, including future business plans, actual and forecasted operating results, and market data. The significant assumptions employed under this method include discount rates; revenue growth rates, including assumed terminal growth rates; and operating margins used to project future cash flows for a reporting unit. The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market participant’s view with respect to other risks associated with the projected cash flows of the individual reporting unit. Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable. We believe we incorporate ample sensitivity ranges into our analysis of goodwill impairment testing for a reporting unit, such that actual experience would need to be materially out of the range of expected assumptions in order for an impairment to remain undetected.
Conclusion on Annual Goodwill Impairment Tests
As a result of the annual impairment assessments performed for fiscal 2024, 2023 and 2022, there were no goodwill impairments. Our fiscal 2024 annual impairment test for our Color Group reporting unit in our SPG Segment, which has approximately $11.0 million of goodwill, resulted in an excess of fair value over carrying value of approximately 18%. The lower fair value of this reporting unit is related to declining volumes in OEM markets. If planned sales growth initiatives for this business are not achieved, impairment of intangible assets, including goodwill, and other long-lived assets, could result.
Changes in the Composition of our Segments and Reporting Units in the First Quarter of Fiscal 2024
Effective June 1, 2023, in connection with our MAP 2025 operating improvement program, we realigned certain businesses and management structures within our CPG, PCG and SPG segments. As outlined in Note R, “Segment Information,” our CPG APAC and CPG India businesses, formerly of our Sealants reporting unit within our CPG segment, were transferred to our Platform component within our PCG segment. As a result of this change, we designated the Platform component as a separate reporting unit within our PCG segment. Within our SPG segment, two new reporting units were formed as our former DayGlo and Kirker reporting units were combined into one reporting unit: The Color Group, and our former Wood Finishes, Kop-Coat Protection Products, TCI and Modern Recreational Technologies reporting units were combined into one reporting unit: The Industrial Coatings Group.
Additionally, effective June 1, 2023, certain businesses of our USL reporting unit were transferred to our Fibergrate, Carboline and Stonhard reporting units within our PCG segment. As a result of this change, USL was no longer designated as a separate reporting unit and any remaining goodwill was transferred to the reporting units noted above.
During the first quarter of fiscal 2024, we performed a goodwill impairment test for the reporting units affected by the USL restructuring and the changes in the composition of our segments and reporting units using either a qualitative or a quantitative assessment. We concluded that the estimated fair values exceeded the carrying values for these reporting units, and accordingly, no indications of impairment were identified as a result of these changes.
Given these USL restructuring actions, we performed an interim impairment assessment of a remaining USL indefinite-lived tradename. Calculating the fair value of the tradename required the use of various estimates and assumptions. We estimated the fair value by applying a relief-from-royalty calculation, which included discounted future cash flows related to projected revenues impacted by this decision. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data. As the carrying amount of the tradename exceeded its fair value, an impairment loss of $3.3 million was recorded for the three months ended August 31, 2023. This impairment loss was classified as restructuring expense within our PCG segment.
Impairment Charge Recorded in the Third Quarter of Fiscal 2023
Although no impairment charge was recorded during fiscal 2024, 2023 and 2022 related to the annual impairment test, we did record a goodwill impairment charge in fiscal 2023. As previously reported, we announced our MAP 2025 operational improvement initiative in August 2022. Due to the challenged macroeconomic environment, we evaluated certain business restructuring actions, specifically our go to market strategy for operating in Europe. During the third quarter ended February 28, 2023, due to declining profitability and regulatory headwinds, management decided to restructure the USL reporting unit within our PCG segment, and explored strategic alternatives for our infrastructure services business within the U.K., which represented approximately 30% of annual revenues of the reporting unit.
44
Due to this decision, we determined that an interim goodwill impairment assessment was required, as well as an impairment assessment for our other long-lived assets. Accordingly, we recorded an impairment loss totaling $36.7 million for the impairment of goodwill in our USL reporting unit during fiscal 2023. Refer to Note C, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements for additional details on this goodwill impairment charge.
Changes in the Composition of Reporting Units in the Fourth Quarter of Fiscal 2023
Subsequent to our annual impairment assessment, in the fourth quarter of fiscal 2023 and in connection with our MAP 2025 initiative, the Viapol business within our CPG segment was realigned from our Sealants reporting unit to our Euclid reporting unit. We performed an interim goodwill impairment assessment for both of the impacted reporting units using a quantitative assessment. Based on this assessment, we concluded that the estimated fair values exceeded the carrying values for these reporting units, and accordingly, no goodwill impairment was identified as a result of this realignment.
Indefinite-Lived Intangible Assets
Additionally, we test all indefinite-lived intangible assets for impairment at least annually during our fiscal fourth quarter. We follow the guidance provided by ASC 350 that simplifies how an entity tests indefinite-lived intangible assets for impairment. It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying traditional quantitative tests. We applied quantitative processes during our annual indefinite-lived intangible asset impairment assessments performed during the fourth quarters of fiscal 2024, 2023 and 2022.
The annual impairment assessment involves estimating the fair value of each indefinite-lived asset and comparing it with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, we record an impairment loss equal to the difference. Calculating the fair value of the indefinite-lived assets requires our significant use of estimates and assumptions. We estimate the fair values of our intangible assets by applying a relief-from-royalty calculation, which includes discounted future cash flows related to each of our intangible asset’s projected revenues. In applying this methodology, we rely on a number of factors, including actual and forecasted revenues and market data.
Our annual impairment test of our indefinite-lived intangible assets performed during fiscal 2024 resulted in a $1.0 million impairment charge for an indefinite-lived tradename in our Consumer segment. This impairment loss was classified as SG&A expenses within our Consumer segment. Our annual impairment test of our indefinite-lived intangible assets performed during fiscal 2023 and 2022 did not result in an impairment charge.
Although no impairment losses were recorded during fiscal 2023 and 2022 related to the annual impairment test, we did record an intangible asset impairment charge in the third quarter of fiscal 2023. In connection with MAP 2025 and related to the goodwill impairment charge noted above, we determined that an interim impairment assessment for our other long-lived assets was required following management's decision to restructure the USL reporting unit within our PCG segment. Accordingly, we recorded an impairment loss totaling $2.5 million for the impairment of an indefinite-lived tradename in our USL reporting unit during fiscal 2023. We did not record any impairments for our definite-lived long-lived assets as a result of this assessment. Refer to Note C, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements for further discussion.
Definite-Lived Intangible Assets
In accordance with the guidance provided by ASC 360, "Property, Plant, and Equipment," we assess identifiable, amortizable intangible assets for impairment whenever events or changes in facts and circumstances indicate the possibility that the carrying values of these assets may not be recoverable over their estimated remaining useful lives. Factors considered important in our assessment, which might trigger an impairment evaluation, include the following:
Measuring a potential impairment of amortizable intangible assets requires the use of various estimates and assumptions, including the determination of which cash flows are directly related to the assets being evaluated, the respective useful lives over which those cash flows will occur and potential residual values, if any. If we determine that the carrying values of these assets may not be recoverable based upon the existence of one or more of the above-described indicators or other factors, any impairment amounts would be measured based on the projected net cash flows expected from these assets, including any net cash flows related to eventual disposition activities. The determination of any impairment losses would be based on the best information available, including internal estimates of discounted cash flows; market participant assumptions; quoted market prices, when available; and independent appraisals, as appropriate, to determine fair values. Cash flow estimates would be based on our historical experience and our internal business plans, with appropriate discount rates applied.
We did not record any impairment charges related to our definite-lived intangible assets during fiscal 2024, 2023 and 2022.
45
12) Advertising Costs
Advertising costs are charged to operations when incurred and are included in SG&A expenses. For the years ended May 31, 2024, 2023 and 2022, advertising costs were $64.7 million, $62.0 million and $45.4 million, respectively.
13) Research and Development
Research and development costs are charged to operations when incurred and are included in SG&A expenses. The amounts charged to expense for the years ended May 31, 2024, 2023 and 2022 were $92.2 million, $86.6 million and $80.5 million, respectively.
14) Stock-Based Compensation
Stock-based compensation represents the cost related to stock-based awards granted to our associates and directors, which may include restricted stock and stock appreciation rights (“SARs”). We measure stock-based compensation cost at the date of grant, based on the estimated fair value of the award. We recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the related vesting period. Refer to Note J, “Stock-Based Compensation,” to the Consolidated Financial Statements for further information.
15) Investment (Income) Expense, Net
Investment (income) expense, net, consists of the following components:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Interest (income) |
|
$ |
(20,947 |
) |
|
$ |
(9,250 |
) |
|
$ |
(4,435 |
) |
Net (gain) loss on marketable securities |
|
|
(19,914 |
) |
|
|
2,086 |
|
|
|
17,706 |
|
Dividend (income) |
|
|
(4,113 |
) |
|
|
(2,584 |
) |
|
|
(5,676 |
) |
Investment (income) expense, net |
|
$ |
(44,974 |
) |
|
$ |
(9,748 |
) |
|
$ |
7,595 |
|
Net (Gain) Loss on Marketable Securities
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Unrealized (gains) losses on marketable equity securities |
|
$ |
(19,703 |
) |
|
$ |
2,667 |
|
|
$ |
19,164 |
|
Realized (gains) on marketable equity securities |
|
|
(290 |
) |
|
|
(551 |
) |
|
|
(1,488 |
) |
Realized losses (gains) on available-for-sale debt securities |
|
|
79 |
|
|
|
(30 |
) |
|
|
30 |
|
Net (gain) loss on marketable securities |
|
$ |
(19,914 |
) |
|
$ |
2,086 |
|
|
$ |
17,706 |
|
16) Other Expense (Income), Net
Other expense (income), net, consists of the following components:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Pension non-service costs (credits) |
|
$ |
11,046 |
|
|
$ |
10,381 |
|
|
$ |
(10,581 |
) |
Other |
|
|
(882 |
) |
|
|
(604 |
) |
|
|
(1,265 |
) |
Other expense (income), net |
|
$ |
10,164 |
|
|
$ |
9,777 |
|
|
$ |
(11,846 |
) |
17) Income Taxes
The provision for income taxes is calculated using the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the tax effect of temporary differences between the financial statement carrying amount of assets and liabilities and the amounts used for income tax purposes and for certain changes in valuation allowances. Valuation allowances are recorded to reduce certain deferred tax assets when, in our estimation, it is more likely than not that a tax benefit will not be realized.
18) Earnings Per Share of Common Stock
Earnings per share (EPS) is computed using both the treasury stock and two-class method, as our unvested share-based payment awards contain rights to receive non-forfeitable dividends and, therefore, are considered participating securities. We calculate both Basic and Diluted EPS under each method and compare the results, reporting the method that is most dilutive.
Basic EPS of common stock is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS of common stock is computed on the basis of the weighted-average number of shares of common stock, plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method. Dilutive potential shares of common stock include outstanding SARS and restricted stock awards. The treasury stock method also assumes that we use the proceeds from the hypothetical exercise of the stock compensation awards to repurchase common stock at the average market price during the period.
The two-class method determines EPS for each class of common stock and participating securities according to dividends and dividend equivalents and their respective participation rights in undistributed earnings.
See Note L, “Earnings Per Share,” to the Consolidated Financial Statements for additional information.
46
19) Supply Chain Financing
During the fourth quarter of 2024, we began offering a supplier finance program with a financial institution, in which suppliers may elect to receive early payment from the financial institution on invoices issued to RPM. The financial institution enters into separate arrangements with suppliers directly to participate in the program. We do not determine the terms or conditions of such arrangements or participate in the transactions between the suppliers and the financial institution. There are no assets pledged by RPM under the supplier finance program. Our responsibility is limited to making payments to the financial institution based on payment terms originally negotiated with the suppliers, regardless of whether the financial institution pays the supplier in advance of the original due date. The range of payment terms RPM negotiates with suppliers are consistent, regardless of whether a supplier participates in the supply chain finance program. RPM or the financial institution may terminate participation in the program upon at least 30 days’ notice.
The total amount due to the financial institution to settle supplier invoices under the supply chain finance program was $32.9 million as of May 31, 2024. We did not have any amounts due under the program as of May 31, 2023. These amounts are included within accounts payable on the Consolidated Balance Sheets.
20) Recent Accounting Pronouncements
New Pronouncements Adopted
In September 2022, the FASB issued Accounting Standard Update ("ASU") 2022-04, "Liabilities - Supplier Finance Programs (Subtopic 405-50)," which is intended to establish disclosures that enhance the transparency of a supplier finance program used by an entity in connection with the purchase of goods and services. This guidance requires annual and interim disclosure of the key terms of outstanding supplier finance programs, the amount outstanding under such programs including where they are recorded on the balance sheet, and a roll-forward of the related obligations. The new standard does not affect the recognition, measurement, or financial statement presentation of the supplier finance program obligations. These amendments are effective for fiscal years beginning after December 15, 2022, except for the amendment on roll-forward information, which is effective for fiscal years beginning after December 15, 2023. We adopted the new standard on June 1, 2023, on a retrospective basis other than the roll-forward guidance, which we plan to adopt on a prospective basis beginning with our fiscal 2025 annual financial statements. As of adoption on June 1, 2023, we did not have any material supplier finance program obligations; however, we began such an arrangement during the fourth quarter of fiscal 2024. Refer to Note A(19), “Summary of Significant Accounting Policies – Supply Chain Financing,” to the Consolidated Financial Statements.
New Pronouncements Issued
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures," which requires a public business entity to disclose specific categories in its annual effective tax rate reconciliation and disaggregated information about significant reconciling items by jurisdiction and by nature. The ASU also requires entities to disclose their income tax payments (net of refunds) to international, federal, and state and local jurisdictions. The guidance makes several other changes to income tax disclosure requirements. This guidance is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. Early adoption is permitted. We are currently evaluating this ASU to determine its impact on our disclosures.
In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures," which expands disclosures about a public business entity's reportable segments and provides for more detailed information about a reportable segment's expenses. This guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, and requires retrospective application to all prior periods presented in the financial statements. Early adoption is permitted. We are currently evaluating this ASU to determine its impact on our disclosures.
NOTE B — 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 associates, infrastructure charges to vacate facilities and consolidate operations, contract cancellation costs and other costs. 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.
During 2018, we approved and implemented the initial phases of a multi-year restructuring plan, which is referred to as MAP to Growth. We incurred $3.8 million and $6.3 million of restructuring costs associated with this plan for the years ended May 31, 2023 and 2022, respectively. We did not incur any restructuring costs for the year ended May 31, 2024, and we do not expect to incur any further costs associated with this plan.
In August 2022, we approved and announced MAP 2025, which is a multi-year restructuring plan to build on the achievements of MAP to Growth and designed to improve margins by streamlining business processes, reducing working capital, implementing commercial initiatives to drive improved mix, pricing discipline and salesforce effectiveness and improving operating efficiency. Most activities under MAP 2025 are anticipated to be completed by the end of fiscal 2025; however, we expect some costs to extend beyond this date.
47
The current total expected costs associated with this plan are outlined below and increased approximately $21.9 million compared to our prior quarter estimate, attributable to an increase in expected severance and benefit charges of $19.5 million and an increase in expected facility closure and other related costs of $2.4 million. Throughout our MAP 2025 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.
Following is a summary of the charges recorded in connection with MAP 2025 by reportable segment for the years ended May 31, 2024 and 2023, as well as the total expected costs related to projects identified to date:
|
|
Year Ended |
|
Year Ended |
|
Cumulative |
|
Total |
|
||||
(In thousands) |
|
May 31, 2024 |
|
May 31, 2023 |
|
to Date |
|
Costs |
|
||||
CPG Segment: |
|
|
|
|
|
|
|
|
|
||||
Severance and benefit costs |
|
$ |
9,111 |
|
$ |
6,092 |
|
$ |
15,203 |
|
$ |
20,114 |
|
Facility closure and other related costs |
|
|
608 |
|
|
- |
|
|
608 |
|
|
16,942 |
|
Total Charges |
|
$ |
9,719 |
|
$ |
6,092 |
|
$ |
15,811 |
|
$ |
37,056 |
|
|
|
|
|
|
|
|
|
|
|
||||
PCG Segment: |
|
|
|
|
|
|
|
|
|
||||
Severance and benefit costs |
|
$ |
2,711 |
|
$ |
1,148 |
|
$ |
3,859 |
|
$ |
4,777 |
|
Facility closure and other related costs |
|
|
172 |
|
|
- |
|
|
172 |
|
|
643 |
|
Other restructuring costs (1) |
|
|
4,555 |
|
|
2,537 |
|
|
7,092 |
|
|
7,092 |
|
Total Charges |
|
$ |
7,438 |
|
$ |
3,685 |
|
$ |
11,123 |
|
$ |
12,512 |
|
|
|
|
|
|
|
|
|
|
|
||||
Consumer Segment: |
|
|
|
|
|
|
|
|
|
||||
Severance and benefit costs |
|
$ |
9,266 |
|
$ |
507 |
|
$ |
9,773 |
|
$ |
17,087 |
|
Facility closure and other related costs |
|
|
156 |
|
|
621 |
|
|
777 |
|
|
3,675 |
|
Total Charges |
|
$ |
9,422 |
|
$ |
1,128 |
|
$ |
10,550 |
|
$ |
20,762 |
|
|
|
|
|
|
|
|
|
|
|
||||
SPG Segment: |
|
|
|
|
|
|
|
|
|
||||
Severance and benefit costs |
|
$ |
2,894 |
|
$ |
805 |
|
$ |
3,699 |
|
$ |
4,672 |
|
Facility closure and other related costs |
|
|
535 |
|
|
- |
|
|
535 |
|
|
6,557 |
|
Total Charges |
|
$ |
3,429 |
|
$ |
805 |
|
$ |
4,234 |
|
$ |
11,229 |
|
|
|
|
|
|
|
|
|
|
|
||||
Corporate/Other Segment: |
|
|
|
|
|
|
|
|
|
||||
Severance and benefit (credits) |
|
$ |
- |
|
$ |
(50 |
) |
$ |
(50 |
) |
$ |
(50 |
) |
Total Charges |
|
$ |
- |
|
$ |
(50 |
) |
$ |
(50 |
) |
$ |
(50 |
) |
|
|
|
|
|
|
|
|
|
|
||||
Consolidated: |
|
|
|
|
|
|
|
|
|
||||
Severance and benefit costs |
|
$ |
23,982 |
|
$ |
8,502 |
|
$ |
32,484 |
|
$ |
46,600 |
|
Facility closure and other related costs |
|
|
1,471 |
|
|
621 |
|
|
2,092 |
|
|
27,817 |
|
Other restructuring costs |
|
|
4,555 |
|
|
2,537 |
|
|
7,092 |
|
|
7,092 |
|
Total Charges |
|
$ |
30,008 |
|
$ |
11,660 |
|
$ |
41,668 |
|
$ |
81,509 |
|
A summary of the activity in the restructuring reserves related to MAP 2025 is as follows:
(In thousands) |
Severance and |
|
Facility |
|
Other Asset |
|
Total |
|
||||
Balance at June 1, 2022 |
$ |
- |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
Additions charged to expense |
|
8,502 |
|
|
621 |
|
|
2,537 |
|
|
11,660 |
|
Cash payments charged against reserve |
|
(5,486 |
) |
|
(121 |
) |
|
- |
|
|
(5,607 |
) |
Non-cash charges and other adjustments |
|
(299 |
) |
|
(500 |
) |
|
(2,537 |
) |
|
(3,336 |
) |
Balance at May 31, 2023 |
$ |
2,717 |
|
$ |
- |
|
$ |
- |
|
$ |
2,717 |
|
Additions charged to expense |
|
23,982 |
|
|
1,471 |
|
|
4,555 |
|
|
30,008 |
|
Cash payments charged against reserve |
|
(9,381 |
) |
|
(1,423 |
) |
|
- |
|
|
(10,804 |
) |
Non-cash charges and other adjustments |
|
33 |
|
|
(30 |
) |
|
(4,555 |
) |
|
(4,552 |
) |
Balance at May 31, 2024 |
$ |
17,351 |
|
$ |
18 |
|
$ |
- |
|
$ |
17,369 |
|
48
NOTE C — GOODWILL AND OTHER INTANGIBLE ASSETS
The changes in the carrying amount of goodwill, by reportable segment, for the years ended May 31, 2024 and 2023, are as follows:
|
|
CPG |
|
|
PCG |
|
|
Consumer |
|
|
SPG |
|
|
|
|
|||||
(In thousands) |
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Segment |
|
|
Total |
|
|||||
Balance as of June 1, 2022 |
|
$ |
453,651 |
|
|
$ |
201,815 |
|
|
$ |
515,597 |
|
|
$ |
166,805 |
|
|
$ |
1,337,868 |
|
Acquisitions |
|
|
7,306 |
|
|
|
868 |
|
|
|
16,952 |
|
|
|
281 |
|
|
|
25,407 |
|
Divestitures |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(15,723 |
) |
|
|
(15,723 |
) |
Impairments |
|
|
- |
|
|
|
(36,745 |
) |
|
|
- |
|
|
|
- |
|
|
|
(36,745 |
) |
Translation adjustments & other |
|
|
(10,402 |
) |
|
|
(4,206 |
) |
|
|
(1,322 |
) |
|
|
(1,289 |
) |
|
|
(17,219 |
) |
Balance as of May 31, 2023 |
|
|
450,555 |
|
|
|
161,732 |
|
|
|
531,227 |
|
|
|
150,074 |
|
|
|
1,293,588 |
|
Acquisitions |
|
|
11,993 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
11,993 |
|
Transfers |
|
|
(11,414 |
) |
|
|
11,414 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Translation adjustments & other |
|
|
333 |
|
|
|
670 |
|
|
|
1,751 |
|
|
|
576 |
|
|
|
3,330 |
|
Balance as of May 31, 2024 |
|
$ |
451,467 |
|
|
$ |
173,816 |
|
|
$ |
532,978 |
|
|
$ |
150,650 |
|
|
$ |
1,308,911 |
|
Total accumulated goodwill impairment losses were $193.0 million at May 31, 2024. Of the accumulated balance, $141.4 million is included in our SPG segment, $14.9 million is included in our CPG segment, and $36.7 million is included in our PCG segment. There were no impairment losses recorded during fiscal 2024.
Changes in the Composition of our Segments in the First Quarter of Fiscal 2024
Effective June 1, 2023, certain Asia Pacific businesses and management structure, formerly of our CPG segment, were transferred to our PCG segment to create operating efficiencies and a more unified go-to-market strategy in Asia Pacific. As a result of this business realignment, $11.4 million of goodwill was reassigned from the CPG segment to the PCG segment using a relative fair value allocation approach.
USL Restructuring in the First Quarter of Fiscal 2024
Effective June 1, 2023, certain businesses of our USL reporting unit were transferred to our Fibergrate, Carboline and Stonhard reporting units within our PCG segment. As a result of this change, USL was no longer designated as a separate reporting unit and any remaining goodwill was transferred to the reporting units noted above. Additionally, during the three-month period ended August 31, 2023, we recognized a loss on sale of $4.5 million in connection with the divestiture of Universal Sealants' (USL) Bridgecare services division, which is a contracting business focused on the installation of joints and waterproofing in the U.K. The loss on this sale is included in SG&A in our Consolidated Statements of Income and net (gain) on sales of assets and businesses in our Consolidated Statements of Cash Flows.
Given these USL restructuring actions, we performed an interim impairment assessment of a remaining USL indefinite-lived tradename. Calculating the fair value of the tradename required the use of various estimates and assumptions. We estimated the fair value by applying a relief-from-royalty calculation, which included discounted future cash flows related to projected revenues impacted by this decision. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data. As the carrying amount of the tradename exceeded its fair value, an impairment loss of $3.3 million was recorded for the three months ended August 31, 2023. This impairment loss was classified as restructuring expense within our PCG segment.
USL Impairment Charges Recorded in the Third Quarter of Fiscal 2023
As part of our MAP 2025 operational improvement initiative and given the challenged macroeconomic environment, we evaluated certain business restructuring actions, specifically our go to market strategy for operating in Europe. During the third quarter ended February 28, 2023, due to declining profitability and regulatory headwinds, management decided to restructure the USL reporting unit within our PCG segment and correspondingly explored strategic alternatives for our USL infrastructure services business within the U.K., which represented approximately 30% of annual revenues of the reporting unit.
Due to this decision, we determined that an interim goodwill impairment assessment was required, as well as an impairment assessment for our other long-lived assets. Accordingly, we recorded an impairment loss totaling $36.7 million for the impairment of goodwill and $2.5 million for the impairment of an indefinite-lived tradename in our USL reporting unit during the third quarter of fiscal 2023. We did not record any impairments for our definite-lived long-lived assets as a result of this assessment.
Our goodwill impairment assessment included estimating the fair value of our USL reporting unit and comparing it with its carrying amount at February 28, 2023. Since the carrying amount of the USL reporting unit exceeded its fair value, we recognized an impairment loss. We estimated the fair value of the USL reporting unit using both the income and the market approaches. For the income approach, we estimated the fair value of our USL reporting unit by applying a discounted future cash flow calculation to USL’s projected EBITDA. In applying this methodology, we relied on a number of factors, including actual and forecasted operating results, future operating margins, and market data.
49
The discounted cash flow used in the goodwill impairment test for USL assumed discrete period revenue growth through fiscal 2027 for the ongoing USL businesses in the U.K. and North America as well as probability-weighted cash flows that were dependent on the methodology utilized in determining strategic alternatives for the U.K. infrastructure services business. In applying the market approach, we used market multiples derived from a set of companies similar to USL.
After recording the goodwill impairment charge of $36.7 million, $1.1 million of goodwill remained on the USL balance sheet as of May 31, 2023.
Calculating the fair value of the USL’s indefinite-lived tradenames required the use of various estimates and assumptions. We estimated the fair value of USL’s indefinite-lived tradenames by applying a relief-from-royalty calculation, which included discounted future cash flows related to projected revenues for those USL tradenames impacted by this decision. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data. As the carrying amount of one of the tradenames exceeded its fair value, an impairment loss of $2.5 million was recorded during fiscal 2023. This impairment loss was classified in restructuring expense within our PCG segment.
The impairment assessment for our long-lived assets, such as property and equipment and purchased intangibles subject to amortization, involved estimating the fair value of USL’s long-lived assets and comparing it with its carrying amount. Measuring a potential impairment of long-lived assets requires the use of various estimates and assumptions, including the determination of which cash flows are directly related to the assets being evaluated, the respective useful lives over which those cash flows will occur and potential residual values, if any. The results of our testing indicated that the carrying values of these assets were recoverable, as such we did not record an impairment of our long-lived assets during fiscal 2023.
Other intangible assets consist of the following major classes:
|
|
|
|
Gross |
|
|
|
|
|
Net Other |
|
|||
|
|
Amortization |
|
Carrying |
|
|
Accumulated |
|
|
Intangible |
|
|||
(In thousands) |
|
Period (In Years) |
|
Amount |
|
|
Amortization |
|
|
Assets |
|
|||
As of May 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|||
Amortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|||
Formulae |
|
9 to 33 |
|
$ |
238,671 |
|
|
$ |
(200,846 |
) |
|
$ |
37,825 |
|
Customer-related intangibles |
|
5 to 33 |
|
|
508,398 |
|
|
|
(302,783 |
) |
|
|
205,615 |
|
Trademarks/names |
|
5 to 40 |
|
|
35,476 |
|
|
|
(24,848 |
) |
|
|
10,628 |
|
Other |
|
3 to 30 |
|
|
25,060 |
|
|
|
(23,200 |
) |
|
|
1,860 |
|
Total Amortized Intangibles |
|
|
|
|
807,605 |
|
|
|
(551,677 |
) |
|
|
255,928 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|||
Trademarks/names |
|
|
|
|
257,044 |
|
|
|
- |
|
|
|
257,044 |
|
Total Other Intangible Assets |
|
|
|
$ |
1,064,649 |
|
|
$ |
(551,677 |
) |
|
$ |
512,972 |
|
As of May 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|||
Amortized intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|||
Formulae |
|
9 to 33 |
|
$ |
236,486 |
|
|
$ |
(190,981 |
) |
|
$ |
45,505 |
|
Customer-related intangibles |
|
5 to 33 |
|
|
506,618 |
|
|
|
(275,369 |
) |
|
|
231,249 |
|
Trademarks/names |
|
5 to 40 |
|
|
35,374 |
|
|
|
(23,792 |
) |
|
|
11,582 |
|
Other |
|
3 to 30 |
|
|
32,583 |
|
|
|
(27,329 |
) |
|
|
5,254 |
|
Total Amortized Intangibles |
|
|
|
|
811,061 |
|
|
|
(517,471 |
) |
|
|
293,590 |
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
|
|
|||
Trademarks/names |
|
|
|
|
261,401 |
|
|
|
- |
|
|
|
261,401 |
|
Total Other Intangible Assets |
|
|
|
$ |
1,072,462 |
|
|
$ |
(517,471 |
) |
|
$ |
554,991 |
|
The aggregate intangible asset amortization expense for the fiscal years ended May 31, 2024, 2023 and 2022 was $39.1 million, $43.5 million and $45.7 million, respectively. For the next five fiscal years, we estimate annual intangible asset amortization expense related to our existing intangible assets to approximate the following: fiscal 2025 — $43.3 million, fiscal 2026 — $30.3 million, fiscal 2027 — $28.7 million, fiscal 2028 — $26.3 million and fiscal 2029 — $25.1 million.
50
NOTE D — MARKETABLE SECURITIES
The following tables summarize available-for-sale debt securities held at May 31, 2024 and 2023 by asset type:
|
|
Available-For-Sale Debt Securities |
|
|||||||||||||||||
(In thousands) |
|
Amortized |
|
|
|
Gross |
|
|
|
Gross |
|
|
Fair Value |
|
||||||
May 31, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Fixed maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
U.S. treasury and other government |
|
$ |
28,338 |
|
|
- |
|
$ |
5 |
|
|
- |
|
$ |
(1,784 |
) |
|
$ |
26,559 |
|
Corporate bonds |
|
|
146 |
|
|
- |
|
|
4 |
|
|
- |
|
|
(12 |
) |
|
|
138 |
|
Total available-for-sale debt securities |
|
$ |
28,484 |
|
|
|
$ |
9 |
|
|
|
$ |
(1,796 |
) |
|
$ |
26,697 |
|
|
|
Available-For-Sale Debt Securities |
|
|||||||||||||
(In thousands) |
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
Fair Value |
|
||||
May 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Fixed maturity: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. treasury and other government |
|
$ |
28,841 |
|
|
$ |
23 |
|
|
$ |
(1,843 |
) |
|
$ |
27,021 |
|
Corporate bonds |
|
|
147 |
|
|
|
6 |
|
|
|
(12 |
) |
|
|
141 |
|
Total available-for-sale debt securities |
|
$ |
28,988 |
|
|
$ |
29 |
|
|
$ |
(1,855 |
) |
|
$ |
27,162 |
|
Marketable securities are composed of available-for-sale debt securities and marketable equity securities and all marketable securities are reported at fair value. We carry a portion of our marketable securities portfolio in long-term assets since they are generally held for the settlement of our general and product liability insurance claims processed through our wholly owned captive insurance subsidiaries.
Available-for-sale debt securities are included in other current and long-term assets totaling $6.5 million and $20.2 million at May 31, 2024, respectively, and included in other current and long-term assets totaling $5.1 million and $22.1 million at May 31, 2023, respectively. Realized gains and losses on sales of available-for-sale debt securities are recognized in net income on the specific identification basis. Changes in the fair values of available-for-sale debt securities that are determined to be holding gains or losses are recorded through accumulated other comprehensive income (loss), net of applicable taxes, within stockholders' equity. In assessing whether a credit loss exists, we evaluate our ability to hold the investment, the strength of the underlying collateral and the extent to which the investment's amortized cost or cost, as appropriate, exceeds it related fair value.
As of May 31, 2024 and 2023, we held approximately $127.6 million and $121.2 million in marketable equity securities, respectively. Realized and unrealized gains and losses on marketable equity securities are included in Investment (Income) Expense, Net in the Consolidated Statements of Income. Refer to Note A(15), “Summary of Significant Accounting Policies - Investment (Income) Expense, Net,” to the Consolidated Financial Statements for further details.
Summarized below are the available-for-sale debt securities we held at May 31, 2024 and 2023 that were in an unrealized loss position and that were included in accumulated other comprehensive income (loss), aggregated by the length of time the investments had been in that position:
|
|
May 31, 2024 |
|
|
May 31, 2023 |
|
||||||||||
(In thousands) |
|
Fair Value |
|
|
Gross |
|
|
Fair Value |
|
|
Gross |
|
||||
Total investments with unrealized losses |
|
$ |
25,464 |
|
|
$ |
(1,796 |
) |
|
$ |
24,245 |
|
|
$ |
(1,855 |
) |
Unrealized losses with a loss position for less than 12 months |
|
|
4,866 |
|
|
|
(36 |
) |
|
|
6,285 |
|
|
|
(72 |
) |
Unrealized losses with a loss position for more than 12 months |
|
|
20,598 |
|
|
|
(1,760 |
) |
|
|
17,960 |
|
|
|
(1,783 |
) |
We have reviewed all the securities included in the table above and have concluded that we have the ability and intent to hold these investments until their cost can be recovered, based upon the severity and duration of the decline. The decline in fair value is largely due to changes in interest rates and other market conditions. We have evaluated these securities and have determined no allowance for credit losses is necessary for these investments.
51
The net carrying values of available-for-sale debt securities at May 31, 2024, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
(In thousands) |
|
Amortized Cost |
|
|
Fair Value |
|
||
Due: |
|
|
|
|
|
|
||
Less than one year |
|
$ |
6,589 |
|
|
$ |
6,502 |
|
One year through five years |
|
|
16,548 |
|
|
|
15,816 |
|
Six years through ten years |
|
|
2,929 |
|
|
|
2,638 |
|
After ten years |
|
|
2,418 |
|
|
|
1,741 |
|
|
|
$ |
28,484 |
|
|
$ |
26,697 |
|
NOTE E — FAIR VALUE MEASUREMENTS
Financial instruments recorded in the Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, marketable securities, notes and accounts payable, and debt.
An allowance for credit losses is established for trade accounts receivable using assessments of current creditworthiness of customers, historical collection experience, the aging of receivables and other currently available evidence. Trade accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowance for doubtful collection of accounts are included in SG&A.
All derivative instruments were recognized in our Consolidated Balance Sheets and measured at fair value. Changes in the fair values of derivative instruments that did not qualify as hedges and/or any ineffective portion of hedges were recognized as a gain or (loss) in our Consolidated Statements of Income in the current period. Changes in the fair value of derivative instruments used effectively as cash flow hedges were recognized in other comprehensive income (loss), along with the change in the value of the hedged item. We do not hold or issue derivative instruments for speculative purposes.
The valuation techniques utilized for establishing the fair values of assets and liabilities are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect management’s market assumptions. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value, as follows:
Level 1 Inputs — Quoted prices for identical instruments in active markets.
Level 2 Inputs — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs — Instruments with primarily unobservable value drivers.
The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy. In addition, with respect to our derivative assets and liabilities measured at fair value, refer to Note F, "Derivatives and Hedging," to the Consolidated Financial Statements for discussion of their classification within the fair value hierarchy.
(In thousands) |
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value at |
|
||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and other government |
|
$ |
- |
|
|
$ |
26,559 |
|
|
$ |
- |
|
|
$ |
26,559 |
|
Corporate bonds |
|
|
- |
|
|
|
138 |
|
|
|
- |
|
|
|
138 |
|
Total available-for-sale debt securities |
|
|
- |
|
|
|
26,697 |
|
|
|
- |
|
|
|
26,697 |
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stocks-foreign |
|
|
1,518 |
|
|
|
- |
|
|
|
- |
|
|
|
1,518 |
|
Stocks-domestic |
|
|
9,028 |
|
|
|
- |
|
|
|
- |
|
|
|
9,028 |
|
Mutual funds - foreign |
|
|
- |
|
|
|
39,114 |
|
|
|
- |
|
|
|
39,114 |
|
Mutual funds - domestic |
|
|
- |
|
|
|
77,966 |
|
|
|
- |
|
|
|
77,966 |
|
Total marketable equity securities |
|
|
10,546 |
|
|
|
117,080 |
|
|
|
- |
|
|
|
127,626 |
|
Contingent consideration |
|
|
- |
|
|
|
- |
|
|
|
(2,229 |
) |
|
|
(2,229 |
) |
Total |
|
$ |
10,546 |
|
|
$ |
143,777 |
|
|
$ |
(2,229 |
) |
|
$ |
152,094 |
|
52
(In thousands) |
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value at |
|
||||
Available-for-sale debt securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
U.S. Treasury and other government |
|
$ |
- |
|
|
$ |
27,021 |
|
|
$ |
- |
|
|
$ |
27,021 |
|
Corporate bonds |
|
|
- |
|
|
|
141 |
|
|
|
- |
|
|
|
141 |
|
Total available-for-sale debt securities |
|
|
- |
|
|
|
27,162 |
|
|
|
- |
|
|
|
27,162 |
|
Marketable equity securities: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Stocks-foreign |
|
|
786 |
|
|
|
- |
|
|
|
- |
|
|
|
786 |
|
Stocks-domestic |
|
|
5,009 |
|
|
|
- |
|
|
|
- |
|
|
|
5,009 |
|
Mutual funds - foreign |
|
|
- |
|
|
|
40,074 |
|
|
|
- |
|
|
|
40,074 |
|
Mutual funds - domestic |
|
|
- |
|
|
|
75,284 |
|
|
|
- |
|
|
|
75,284 |
|
Total marketable equity securities |
|
|
5,795 |
|
|
|
115,358 |
|
|
|
- |
|
|
|
121,153 |
|
Contingent consideration |
|
|
- |
|
|
|
- |
|
|
|
(2,686 |
) |
|
|
(2,686 |
) |
Total |
|
$ |
5,795 |
|
|
$ |
142,520 |
|
|
$ |
(2,686 |
) |
|
$ |
145,629 |
|
Our investments in available-for-sale debt securities and marketable equity securities are valued using a market approach. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors, including the type of instrument, whether the instrument is actively traded and other characteristics particular to the transaction. For most of our financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.
The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with recent acquisitions that is contingent upon the achievement of certain performance milestones. We estimated the fair value using expected future cash flows over the period in which the obligation is expected to be settled which is considered to be a Level 3 input. During fiscal 2024, we paid approximately $1.1 million to satisfy contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during the year. During fiscal 2023, we increased our accrual by $2.6 million related to fair value adjustments and paid approximately $10.4 million for settlements of contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during fiscal 2023. In the Consolidated Statements of Cash Flows, payments of acquisition-related contingent consideration for the amount recognized at fair value as of the acquisition date are reported in cash flows from financing activities, while payment of contingent consideration in excess of fair value as of the acquisition date, are reported in cash flows from operating activities within accrued liabilities.
The carrying value of our current financial instruments, which include cash and cash equivalents, marketable securities, trade accounts receivable, accounts payable and short-term debt, approximates fair value because of the short-term maturity of these financial instruments. At May 31, 2024 and 2023, the fair value of our long-term debt was estimated using active market quotes, based on our current incremental borrowing rates for similar types of borrowing arrangements, which are Level 2 inputs. Based on the analysis performed, the fair value and the carrying value of our financial instruments and long-term debt as of May 31, 2024 and 2023 are as follows:
|
|
At May 31, 2024 |
|
|||||
(In thousands) |
|
Carrying Value |
|
|
Fair Value |
|
||
Cash and cash equivalents |
|
$ |
237,379 |
|
|
$ |
237,379 |
|
Long-term debt, including current portion |
|
|
2,127,148 |
|
|
|
1,979,359 |
|
|
|
|
|
|
|
|
||
|
|
At May 31, 2023 |
|
|||||
(In thousands) |
|
Carrying Value |
|
|
Fair Value |
|
||
Cash and cash equivalents |
|
$ |
215,787 |
|
|
$ |
215,787 |
|
Long-term debt, including current portion |
|
|
2,683,809 |
|
|
|
2,490,863 |
|
53
NOTE F — DERIVATIVES AND HEDGING
Derivative Instruments and Hedging Activities
We are exposed to market risks, such as changes in foreign currency exchange rates and interest rates. To manage the volatility related to these exposures, from time to time, we enter into various derivative transactions. We use various types of derivative instruments, including forward contracts and swaps. We formally assess, designate and document, as a hedge of an underlying exposure, each qualifying derivative instrument that will be accounted for as an accounting hedge at inception. Additionally, we assess, both at inception and at least quarterly thereafter, whether the financial instruments used in the hedging transaction are effective at offsetting changes in either the fair values or cash flows of the underlying exposures.
Derivatives Designated as Hedges
In February 2020, as a means of mitigating the impact of currency fluctuations on our Euro investments in foreign entities, we executed a cash flow hedge and two cross currency swap agreements, in which we paid fixed rate interest in Euros and received variable rate interest in U.S. Dollars with a combined notional amount of approximately €277.73 million ($300 million U.S. Dollar equivalent), and which had a maturity date of February 2023. This effectively converted our U.S. Dollar denominated variable rate debt to Euro denominated fixed rate debt. The cash flow hedge was recognized at fair value in our Consolidated Balance Sheets, while changes in the fair value of the hedge were recognized in AOCI when the hedged items affected earnings. Amounts recognized in AOCI were recognized in earnings in interest expense when the hedged interest payment was accrued. We designated the swaps as net investment hedges of our net investment in our European operations under ASU 2017-12 and applied the spot method to these hedges. The changes in fair value of the derivative instruments that were designated and qualified as hedges of net investments in foreign operations were recognized in AOCI to offset the changes in the values of the net investments being hedged.
In addition, in February 2020, as a means of mitigating the variability of the functional-currency-equivalent cash flows associated with the U.S. Dollar denominated term loan facility (referred to as Foreign Borrower’s Term Loan), we executed a cash flow hedge, in which we paid fixed rate interest in Euros and received variable rate interest in U.S. Dollars with a notional amount of approximately €92.52 million ($100 million U.S. Dollar equivalent), and which had a maturity date of February 2023. This effectively converted our U.S. Dollar denominated variable rate debt to Euro denominated fixed rate debt. The cash flow hedge was recognized at fair value in our Consolidated Balance Sheets, while changes in the fair value of the hedge were recognized in AOCI when the hedged items affected earnings. Amounts recorded in AOCI were recognized in earnings in interest expense when the hedged interest payment was accrued. In addition, since this currency swap was a hedge of variability of the functional-currency-equivalent cash flows of a recognized liability to be remeasured at spot exchange rates under ASC 830, "Foreign Currency Matters," an amount that offset the gain or loss arising from the remeasurement of the hedged liability was reclassified each period from AOCI to earnings as foreign exchange gain/(loss), which is a component of SG&A expenses.
In May 2022, the cash flow hedges and cross-currency swaps were terminated, and we received cash in the amount of $11.6 million, representing the fair value of the swap and interest accrued through the date of termination. Accordingly, hedge accounting was discontinued. For the cash flow hedges, a hedge accounting reserve balance within AOCI of $1.9 million remained and was amortized to interest expense in the Consolidated Statements of Income through the original termination date of the underlying hedged debt in February 2023. Changes in the fair value of the cross-currency swaps were recorded as cumulative translation adjustment within AOCI and will remain in AOCI until either the sale or substantially complete liquidation of the hedged subsidiaries. As such, there were no assets or liabilities recognized in the Consolidated Balance Sheets as of May 31, 2024 and May 31, 2023 for derivatives designated as hedges.
The following table summarizes the location and effects of our derivatives instruments on the Consolidated Statements of Comprehensive Income and Consolidated Statements of Income for gains or losses initially recognized in AOCI in the Consolidated Balance Sheets:
|
|
Pretax gain/(loss) recognized |
|
|
|
|
Pretax gain/(loss) reclassified |
|
||||||||||||||
(In thousands) |
|
Year Ended May 31, |
|
|
|
|
Year Ended May 31, |
|
||||||||||||||
Derivatives in hedging |
|
2024 |
|
2023 |
|
2022 |
|
|
Income Statement Location |
|
2024 |
|
2023 |
|
2022 |
|
||||||
Interest Rate Swap |
|
$ |
- |
|
$ |
- |
|
$ |
4,508 |
|
|
Interest (Expense) Income |
|
$ |
- |
|
$ |
- |
|
$ |
(3,272 |
) |
Cross Currency Swap |
|
|
- |
|
|
- |
|
|
15,494 |
|
|
Interest Income |
|
|
- |
|
|
1,766 |
|
|
611 |
|
Cross Currency Swap |
|
|
- |
|
|
- |
|
|
- |
|
|
Foreign Exchange (Loss) |
|
|
- |
|
|
- |
|
|
14,758 |
|
Cross Currency Swap |
|
|
- |
|
|
- |
|
|
40,471 |
|
|
Gain or (loss) on sale of subsidiary |
|
|
- |
|
|
- |
|
|
- |
|
Total |
|
$ |
- |
|
$ |
- |
|
$ |
60,473 |
|
|
|
|
$ |
- |
|
$ |
1,766 |
|
$ |
12,097 |
|
54
Derivatives Not Designated as Hedges
At May 31, 2024 and 2023, we held one foreign currency forward contract at each period end designed to reduce our exposure to changes in the cash flows of intercompany foreign-currency-denominated loans related to changes in foreign currency exchange rates by fixing the functional currency cash flows. These contracts have not been designated as hedges; therefore, the changes in fair value of the contracts are recognized in earnings as a component of SG&A expenses. Amounts recognized in earnings and in the Consolidated Balance Sheets did not have a material impact on our Consolidated Financial Statements for any period presented. As of May 31, 2024, and May 31, 2023, the notional amounts of the forward contract held to purchase foreign currencies was $113.7 million and $43.6 million, respectively.
Disclosure About Derivative Instruments
All of our derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy. We determine the fair value of our derivatives based on valuation methods, which project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves, foreign currency rates, as well as future and basis point spreads, as applicable. Cash flows related to derivatives that are designated as hedges are classified in the same manner as the item being hedged.
NOTE G — BORROWINGS
A description of long-term debt follows:
May 31, |
|
2024 |
|
|
2023 |
|
||
(In thousands) |
|
|
|
|
|
|
||
Revolving credit facility with a syndicate of banks, through August 1, 2027 (1) |
|
$ |
342,630 |
|
|
$ |
610,947 |
|
Accounts receivable securitization program with two banks, through May 19, 2025 (2) |
|
|
129,813 |
|
|
|
174,885 |
|
Unsecured term loan due August 1, 2025 (3) |
|
|
- |
|
|
|
249,772 |
|
Unsecured 3.75% notes due March 15, 2027 (4) |
|
|
398,728 |
|
|
|
398,292 |
|
Unsecured 4.55% senior notes due March 1, 2029 (5) |
|
|
348,082 |
|
|
|
347,686 |
|
Unsecured 2.95% notes due January 15, 2032 (6) |
|
|
297,176 |
|
|
|
296,815 |
|
Unsecured 5.25% notes due June 1, 2045 (7) |
|
|
298,987 |
|
|
|
298,913 |
|
Unsecured 4.25% notes due January 15, 2048 (8) |
|
|
297,080 |
|
|
|
296,962 |
|
Other obligations, including finance leases and unsecured notes payable at various rates |
|
|
14,652 |
|
|
|
9,537 |
|
|
|
|
2,127,148 |
|
|
|
2,683,809 |
|
Less: current portion |
|
|
136,213 |
|
|
|
178,588 |
|
Total Long-Term Debt, Less Current Maturities |
|
$ |
1,990,935 |
|
|
$ |
2,505,221 |
|
Interest as of May 31, 2023 was 6.2600% for the USD denominated swingline account, which is tied to SOFR; 6.3600% for the USD denominated revolver, which is tied to SOFR; 4.2926% on EUR denominated debt which is tied to ESTR; 5.5607% on GBP denominated debt, which is tied to the Sterling Overnight Index Average; and 4.9200% on AUD denominated debt, which is tied to the Reserve Bank of Australia rate. The debt balances outstanding, excluding deferred financing fees, as of May 31, 2023 for the USD denominated swingline, USD denominated revolver, EUR denominated revolver, GBP denominated debt, and AUD denominated debt were as follows: $8.2 million, $30.0 million, $527.6 million, $46.7 million, and $1.2 million.
As of May 31, 2024 and 2023, the revolving credit facility is adjusted for debt issuance costs, net of amortization, for approximately $2.1 million and $2.8 million, respectively.
55
The aggregate maturities of long-term debt for the five years subsequent to May 31, 2024 are as follows: fiscal 2025 — $136.2 million; fiscal 2026 — $4.2 million; fiscal 2027 — $402.2 million; fiscal 2028 — $345.6 million; fiscal 2029 — $350.4 million and thereafter $901.2 million. Additionally, at May 31, 2024, we had unused lines of credit totaling $1,125.3 million.
Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $1,362.6 million at May 31, 2024. Our debt-to-capital ratio was 45.9% at May 31, 2024, compared with 55.5% at May 31, 2023.
Revolving Credit Agreement
During the quarter ended August 31, 2022, we amended our $1.3 billion unsecured syndicated revolving credit facility (the "Revolving Credit Facility"), which was set to expire on October 31, 2023. The amendment extended the expiration date to August 1, 2027 and increased the borrowing capacity to $1.35 billion. The Revolving Credit Facility bears interest at either the base rate or the adjusted SOFR, as defined, at our option, plus a spread determined by our debt rating. The Revolving Credit Facility includes sublimits for the issuance of swingline loans, which are comparatively short-term loans used for working capital purposes and letters of credit. The Revolving Credit Facility is available to refinance existing indebtedness, to finance working capital and capital expenditures, and for general corporate purposes.
The Revolving Credit Facility requires us to comply with various customary affirmative and negative covenants, including a leverage covenant (i.e. Net Leverage Ratio) and interest coverage ratio, which are calculated in accordance with the terms as defined by the Revolving Credit Facility. Under the terms of the leverage covenant, we may not permit our leverage ratio for total indebtedness to consolidated EBITDA for the four most recent fiscal quarters to exceed 3.75 to 1.00. During certain periods and per the terms of the Revolving Credit Facility, this ratio may be increased to 4.25 to 1.00 upon delivery of a notice to our lender requesting an increase to our maximum leverage or in connection with certain “material acquisitions.” The minimum required consolidated interest coverage ratio for EBITDA to interest expense is 3.50 to 1.00. The interest coverage ratio is calculated at the end of each fiscal quarter for the four fiscal quarters then ended using EBITDA as defined in the Revolving Credit Facility.
As of May 31, 2024, we were in compliance with all financial covenants contained in our Revolving Credit Facility, including the leverage and interest coverage ratio covenants. At that date, our leverage ratio was 1.61 to 1, while our interest coverage ratio was 10.18 to 1. Our available liquidity under our Revolving Credit Facility stood at $1,005.3 million at May 31, 2024.
Our access to funds under our Revolving Credit Facility is dependent on the ability of the financial institutions that are parties to the Revolving Credit Facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of the financial institutions under our Revolving Credit Facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.
Accounts Receivable Securitization Program
On May 9, 2014, we entered into a $200.0 million accounts receivable securitization facility (the “AR Program”). On March 18, 2021, we amended the AR Program to a maximum availability of $250 million during all borrowing periods and an extended facility termination date of May 21, 2024, which was subsequently extended to May 19, 2025. The AR Program was entered into pursuant to
56
(1) a second amended and restated receivables sales agreement, dated as of May 9, 2014, and subsequently amended on August 29, 2014; November 3, 2015; December 31, 2016; March 31, 2017; and June 5, 2020 (the “Sale Agreement”), among certain of our subsidiaries (the “Originators”), and RPM Funding Corporation, a special purpose entity (the “SPE”) whose voting interests are wholly owned by us, and (2) an amended and restated receivables purchase agreement, dated as of May 9, 2014 and subsequently amended on February 25, 2015 and May 2, 2017, May 22, 2020, March 18, 2021, and March 23, 2023 (the “Purchase Agreement”), among the SPE, certain purchasers from time to time party thereto (the “Purchasers”), and PNC Bank, National Association as administrative agent.
Under the Sale Agreement, the Originators may, during the term thereof, sell specified accounts receivable to the SPE, which may in turn, pursuant to the Purchase Agreement, transfer an undivided interest in such accounts receivable to the Purchasers. Once transferred to the SPE, such receivables are owned in their entirety by the SPE and are not available to satisfy claims of our creditors or creditors of the originating subsidiaries until the obligations owing to the participating banks have been paid in full. We indirectly hold a 100% economic interest in the SPE and will, along with our subsidiaries, receive the economic benefit of the AR Program. The transactions contemplated by the AR Program do not constitute a form of off-balance sheet financing and will be fully reflected in our financial statements.
The maximum availability under the AR Program is $250.0 million. Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $250.0 million of funding available under the AR Program. As of May 31, 2024, there was $130.0 million outstanding under the AR Program, which compares with the maximum availability on that date of $250.0 million.
The interest rate under the Purchase Agreement through May 31, 2023 was based on the Alternate Base Rate, LIBOR Market Index Rate, one-month LIBOR or LIBOR for a specified tranche period, as selected by us, plus in each case, a margin of 0.85%. Effective June 1, 2023, as set forth in Amendment No. 8 to the Purchase Agreement dated March 23, 2023, the interest rate was amended from LIBOR to be based on the SOFR. In addition, as set forth in an Amended and Restated Fee Letter, dated March 18, 2021 (the “Fee Letter”), the SPE is obligated to pay a monthly unused commitment fee to the Purchasers based on the daily amount of unused commitments under the Agreement, which ranges from 0.30% to 0.50% based on usage. The AR Program contains various customary affirmative and negative covenants and also contains customary default and termination provisions.
As set forth in Amendment No. 9 to the Purchase Agreement effective May 20, 2024, we extended the AR Program termination date from May 21, 2024 to May 19, 2025. As a result of Amendment No. 9, there were no changes to the interest rate or the monthly unused commitment fee to the Purchasers.
Our failure to comply with the covenants described in the Revolving Credit Facility section above could result in an event of default under that agreement, entitling the lenders to, among other things, declare the entire amount outstanding under the Revolving Credit Facility to be due and payable. The instruments governing our other outstanding indebtedness generally include cross-default provisions that provide that, under certain circumstances, an event of default that results in acceleration of our indebtedness under the Revolving Credit Facility will entitle the holders of such other indebtedness to declare amounts outstanding immediately due and payable.
Term Loan Facility Credit Agreement
On February 21, 2020, we and our subsidiary, RPM Europe Holdco B.V. (formerly “RPM New Horizons Netherlands, B.V”) (the “Foreign Borrower”), entered into an unsecured syndicated term loan facility credit agreement (the “New Credit Facility”) with the lenders party thereto and PNC Bank, National Association, as administrative agent for the lenders. The New Credit Facility provided for a $300.0 million term loan to us and a $100.0 million term loan to the Foreign Borrower (together, the “Term Loans”), each of which was fully advanced on the closing date. In May of 2022, we paid down the $100.0 million term loan to the Foreign Borrower.
On August 1, 2022, we amended the New Credit Facility and paid down the borrowings outstanding on the term loan to $250.0 million. On December 27, 2023, we prepaid the $250.0 million of principal outstanding on our term loan which had a maturity date of August 1, 2025.
5.250% Notes due 2045 and 3.750% Notes due 2027
On March 2, 2017, we issued $50.0 million aggregate principal amount of 5.250% Notes due 2045 (the “2045 Notes”) and $400.0 million aggregate principal amount of 3.750% Notes due 2027 (the “2027 Notes”). The 2045 Notes are a further issuance of the $250.0 million aggregate principal amount of 5.250% Notes due 2045 initially issued by us on May 29, 2015. Interest on the 2045 Notes is payable semiannually in arrears on June 1st and December 1st of each year at a rate of 5.250% per year. The 2045 Notes mature on June 1, 2045. Interest on the 2027 Notes is payable semiannually in arrears on March 15th and September 15th of each year, at a rate of 3.750% per year. The 2027 Notes mature on March 15, 2027. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.
57
4.550% Notes due 2029
On February 27, 2019, we closed an offering for $350.0 million aggregate principal amount of 4.550% Notes due 2029 (the “2029 Notes”). The proceeds from the 2029 Notes were used to repay a portion of the outstanding borrowings under our revolving credit facility and for general corporate purposes. Interest on the 2029 Notes accrues from February 27, 2019 and is payable semiannually in arrears on March 1st and September 1st of each year, beginning September 1, 2019, at a rate of 4.550% per year. The 2029 Notes mature on March 1, 2029. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.
2.950% Notes due 2032
On January 25, 2022, we closed an offering for $300.0 million aggregate principal amount of 2.950% Notes due 2032. The proceeds from the 2032 notes were used to repay a portion of the outstanding borrowings under our revolving credit facility and for general corporate purposes. Interest on the Notes accrues from January 25, 2022 and will be payable semiannually in arrears on January 15 and July 15 of each year, beginning July 15, 2022, at a rate of 2.950% per year. The notes mature on January 15, 2032. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.
4.250% Notes due 2048
On December 20, 2017, we closed an offering for $300.0 million aggregate principal amount of 4.250% Notes due 2048 (the “2048 Notes”). The proceeds from the 2048 Notes were used to repay $250.0 million in principal amount of unsecured 6.50% senior notes due February 15, 2018, and for general corporate purposes. Interest on the 2048 Notes accrues from December 20, 2017 and is payable semiannually in arrears on January 15th and July 15th of each year, beginning July 15, 2018, at a rate of 4.250% per year. The 2048 Notes mature on January 15, 2048. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.
NOTE H — INCOME TAXES
The provision for income taxes is calculated in accordance with ASC 740, "Income Taxes," which requires the recognition of deferred income taxes using the asset and liability method.
Income before income taxes as shown in the Consolidated Statements of Income is summarized below for the periods indicated.
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
625,167 |
|
|
$ |
557,401 |
|
|
$ |
342,834 |
|
Foreign |
|
|
162,670 |
|
|
|
91,981 |
|
|
|
263,965 |
|
Income Before Income Taxes |
|
$ |
787,837 |
|
|
$ |
649,382 |
|
|
$ |
606,799 |
|
Provision (benefit) for income taxes consists of the following for the periods indicated:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
$ |
109,869 |
|
|
$ |
91,749 |
|
|
$ |
60,818 |
|
State and local |
|
|
31,996 |
|
|
|
25,972 |
|
|
|
19,495 |
|
Foreign |
|
|
62,168 |
|
|
|
45,694 |
|
|
|
59,087 |
|
Total Current |
|
|
204,033 |
|
|
|
163,415 |
|
|
|
139,400 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
U.S. federal |
|
|
(2,263 |
) |
|
|
16,969 |
|
|
|
(24,025 |
) |
State and local |
|
|
618 |
|
|
|
4,359 |
|
|
|
2,489 |
|
Foreign |
|
|
(3,993 |
) |
|
|
(15,092 |
) |
|
|
(3,531 |
) |
Total Deferred |
|
|
(5,638 |
) |
|
|
6,236 |
|
|
|
(25,067 |
) |
Provision for Income Taxes |
|
$ |
198,395 |
|
|
$ |
169,651 |
|
|
$ |
114,333 |
|
58
The significant components of deferred income tax assets and liabilities as of May 31, 2024 and 2023 were as follows:
|
|
2024 |
|
|
2023 |
|
||
(In thousands) |
|
|
|
|
|
|
||
Deferred income tax assets related to: |
|
|
|
|
|
|
||
Inventories |
|
$ |
17,772 |
|
|
$ |
18,811 |
|
Accrued compensation and benefits |
|
|
17,649 |
|
|
|
18,331 |
|
Accrued other expenses |
|
|
19,058 |
|
|
|
21,037 |
|
Deferred income and other long-term liabilities |
|
|
31,204 |
|
|
|
30,239 |
|
Credit, net operating, interest and capital loss carryforwards |
|
|
87,590 |
|
|
|
75,366 |
|
Net unrealized loss on securities |
|
|
- |
|
|
|
3,373 |
|
Research and development |
|
|
33,076 |
|
|
|
17,360 |
|
Pension and other postretirement benefits |
|
|
- |
|
|
|
11,813 |
|
Total Deferred Income Tax Assets |
|
|
206,349 |
|
|
|
196,330 |
|
Less: valuation allowances |
|
|
(30,021 |
) |
|
|
(30,033 |
) |
Net Deferred Income Tax Assets |
|
|
176,328 |
|
|
|
166,297 |
|
Deferred income tax (liabilities) related to: |
|
|
|
|
|
|
||
Depreciation |
|
|
(132,007 |
) |
|
|
(123,421 |
) |
Amortization of intangibles |
|
|
(125,553 |
) |
|
|
(116,763 |
) |
Unremitted foreign earnings |
|
|
(4,055 |
) |
|
|
(990 |
) |
Net unrealized gain on securities |
|
|
(1,305 |
) |
|
|
- |
|
Pension and other postretirement benefits |
|
|
(1,108 |
) |
|
|
- |
|
Total Deferred Income Tax (Liabilities) |
|
|
(264,028 |
) |
|
|
(241,174 |
) |
Deferred Income Tax Assets (Liabilities), Net |
|
$ |
(87,700 |
) |
|
$ |
(74,877 |
) |
As of May 31, 2024, we had foreign tax credit carryforwards of $38.3 million, which expire at various dates through fiscal 2034. Additionally, as of May 31, 2024, we had approximately $0.7 million of net tax benefits associated with state net operating loss carryforwards and state tax credit carryforwards, some of which expire at various dates beginning in fiscal 2025.
As of May 31, 2024, we had foreign net operating losses of approximately $95.0 million and interest deduction carryforwards of approximately $74.1 million, totaling approximately $169.1 million. Of these carryforward amounts, approximately $17.2 million will expire at various dates beginning in fiscal 2025 and approximately $151.9 million have an indefinite carryforward period. Additionally, as of May 31, 2024, we had foreign capital loss carryforwards of approximately $24.1 million that can be carried forward indefinitely.
When evaluating the realizability of deferred income tax assets, we consider, among other items, whether a jurisdiction has experienced cumulative pretax losses and whether a jurisdiction will generate the appropriate character of income to recognize a deferred income tax asset. More specifically, if a jurisdiction experiences cumulative pretax losses for a period of three years, including the current fiscal year, or if a jurisdiction does not have sufficient income of the appropriate character in the relevant carryback or projected carryforward periods, we generally conclude that it is more likely than not that the respective deferred tax asset will not be realized unless factors such as expected operational changes, availability of prudent and feasible tax planning strategies, reversal of taxable temporary differences or other information exists that would lead us to conclude otherwise. If, after we have evaluated these factors, the deferred income tax assets are not expected to be realized within the carryforward or carryback periods allowed for that jurisdiction, we would conclude that a valuation allowance is required.
Total valuation allowances approximating $30.0 million have been recorded as of May 31, 2024 and 2023, respectively. These recorded valuation allowances relate primarily to certain foreign interest expense deductions and foreign net operating losses, certain state net operating losses, and net foreign deferred tax assets.
59
The following table reconciles income tax expense (benefit) computed by applying the U.S. statutory federal income tax rate against income (loss) before income taxes to the provision (benefit) for income taxes:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands, except percentages) |
|
|
|
|
|
|
|
|
|
|||
Income tax expense at the U.S. statutory federal income tax rate |
|
$ |
165,446 |
|
|
$ |
136,370 |
|
|
$ |
127,428 |
|
Foreign rate differential and other foreign tax adjustments |
|
|
4,342 |
|
|
|
1,535 |
|
|
|
6,278 |
|
State and local income taxes, net |
|
|
28,000 |
|
|
|
22,017 |
|
|
|
20,393 |
|
Impact of GILTI provisions |
|
|
3,548 |
|
|
|
4,217 |
|
|
|
1,709 |
|
Nondeductible business expense |
|
|
1,944 |
|
|
|
1,257 |
|
|
|
532 |
|
Valuation allowance |
|
|
(754 |
) |
|
|
1,199 |
|
|
|
(32,720 |
) |
Deferred tax liability for unremitted foreign earnings |
|
|
3,658 |
|
|
|
- |
|
|
|
(10,686 |
) |
Changes in unrecognized tax benefits |
|
|
2,209 |
|
|
|
(3,334 |
) |
|
|
(1,682 |
) |
Equity-based compensation |
|
|
(5,496 |
) |
|
|
(3,482 |
) |
|
|
(1,776 |
) |
Nondeductible goodwill impairment |
|
|
- |
|
|
|
7,264 |
|
|
|
- |
|
Other |
|
|
(4,502 |
) |
|
|
2,608 |
|
|
|
4,857 |
|
Provision for Income Tax Expense |
|
$ |
198,395 |
|
|
$ |
169,651 |
|
|
$ |
114,333 |
|
Effective Income Tax Rate |
|
|
25.2 |
% |
|
|
26.1 |
% |
|
|
18.8 |
% |
Uncertain income tax positions are accounted for in accordance with ASC 740. The following table summarizes the activity related to unrecognized tax benefits:
(In millions) |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Balance at June 1 |
|
$ |
2.9 |
|
|
$ |
5.7 |
|
|
$ |
7.5 |
|
Additions for tax positions of prior years |
|
|
3.4 |
|
|
|
0.1 |
|
|
|
- |
|
Reductions for tax positions of prior years |
|
|
(1.4 |
) |
|
|
(2.8 |
) |
|
|
(1.7 |
) |
Settlements |
|
|
(0.5 |
) |
|
|
- |
|
|
|
- |
|
Foreign currency translation |
|
|
- |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
Balance at May 31 |
|
$ |
4.4 |
|
|
$ |
2.9 |
|
|
$ |
5.7 |
|
The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, at May 31, 2024, 2023 and 2022 was $4.4 million, $2.9 million and $5.6 million, respectively.
We recognize interest and penalties related to unrecognized tax benefits in income tax expense. At May 31, 2024, 2023 and 2022, the accrual for interest and penalties was $3.0 million, $2.2 million and $3.2 million, respectively. Unrecognized tax benefits, including interest and penalties, have been classified as other long-term liabilities unless expected to be paid in one year.
We file income tax returns in the United States and in various state, local and foreign jurisdictions. With limited exceptions, we are subject to federal, state and local, or non-U.S. income tax examinations by tax authorities for fiscal 2017 through 2024. We are currently under examination, or have been notified of an upcoming tax examination, for various non-U.S. and domestic state and local jurisdictions. Although it is possible that certain tax examinations could be resolved during the next 12 months, the timing and outcomes are uncertain.
Our deferred tax liability for unremitted foreign earnings was $4.1 million as of May 31, 2024, which represents our estimate of the net tax cost associated with the deemed remittance of $285.6 million of foreign earnings that are not considered to be permanently reinvested.
We have not provided for U.S. income taxes or foreign withholding taxes on the remaining $1.2 billion of foreign unremitted earnings because such earnings have been retained and reinvested by the foreign subsidiaries as of May 31, 2024. Accordingly, no provision has been made for U.S. income taxes or foreign withholding taxes, which may become payable if the remaining unremitted earnings of foreign subsidiaries were distributed to the United States. Due to the uncertainties and complexities involved in the various options for repatriation of foreign earnings, it is not practical to calculate the deferred taxes associated with the remaining foreign earnings.
The Organization for Economic Co-operation and Development (OECD) has proposed a framework comprised of rules and models, collectively referred to as Pillar Two (P2), that are designed to ensure that certain multi-national enterprises pay a minimum tax rate of 15% on reported profits arising in each jurisdiction where they operate. Although the OECD provided a framework for applying the minimum tax, individual countries have and may continue to enact P2 rules that are different than the OECD framework. Generally, P2 will have first effect for us in fiscal 2026. While we continue to monitor P2 developments, we do not anticipate that P2 will have a material impact on our long-term financial position.
60
NOTE I — STOCK REPURCHASE PROGRAM
On January 8, 2008, we announced our authorization of a stock repurchase program under which we may repurchase shares of RPM International Inc. common stock at management’s discretion. As announced on November 28, 2018, our goal was to return $1.0 billion in capital to stockholders by May 31, 2021 through share repurchases and the retirement of our convertible note during fiscal 2019. On April 16, 2019, after taking into account share repurchases under our existing stock repurchase program to date, our Board of Directors authorized the repurchase of the remaining $600.0 million in value of RPM International Inc. common stock by May 31, 2021.
As previously announced, given macroeconomic uncertainty resulting from the Covid pandemic, we had suspended stock repurchases under the program, but in January 2021, our Board of Directors authorized the resumption of the stock repurchases. At the time of resuming the program, $469.7 million of shares of common stock remained available for repurchase. The Board of Directors also extended the stock repurchase program beyond its original May 31, 2021 expiration date until such time that the remaining $469.7 million of capital has been returned to our stockholders.
As a result, we may repurchase shares from time to time in the open market or in private transactions at various times and in amounts and for prices that our management deems appropriate, subject to insider trading rules and other securities law restrictions. The timing of our purchases will depend upon prevailing market conditions, alternative uses of capital and other factors. We may limit or terminate the repurchase program at any time.
During the fiscal year ended May 31, 2024, we repurchased 526,113 shares of our common stock at a cost of approximately $55.0 million, or an average cost of $104.50 per share, under this program. During the fiscal year ended May 31, 2023, we repurchased 598,653 shares of our common stock at a cost of approximately $50.0 million, or an average cost of $83.52 per share, under this program. During the fiscal year ended May 31, 2022, we repurchased 601,155 shares of our common stock at a cost of approximately $52.5 million, or an average cost of $87.33 per share, under this program. The maximum dollar amount that may yet be repurchased under our stock repurchase program was approximately $262.3 million at May 31, 2024.
NOTE J — STOCK-BASED COMPENSATION
Stock-based compensation represents the cost related to stock-based awards granted to our associates and directors; these awards include restricted stock, restricted stock units, performance stocks, performance stock units and SARs. We grant stock-based incentive awards to our associates and our directors under various share-based compensation plans. The plan that is active or provides for stock option grants or share-based payment awards is the Amended and Restated 2014 Omnibus Equity and Incentive Plan (the “2014 Omnibus Plan”), which includes provisions for grants of restricted stock, restricted stock units, performance stock, performance stock units and SARs. Other plans, which provide for restricted stock grants only, include the 2003 Restricted Stock Plan for Directors (the “2003 Plan”) and the 2007 Restricted Stock Plan (the “2007 Plan”). The shares available for grant out of the 2003 Plan and the 2007 Plan have been exhausted, and all future grants will be issued from the 2014 Omnibus Plan.
We measure stock-based compensation cost at the date of grant, based on the estimated fair value of the award. We recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the related vesting period.
The following table represents total stock-based compensation expense included in our Consolidated Statements of Income:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Stock-based compensation expense, included in SG&A |
|
$ |
25,925 |
|
|
$ |
28,723 |
|
|
$ |
40,114 |
|
Stock-based compensation expense, included in restructuring expense |
|
|
- |
|
|
|
(50 |
) |
|
|
630 |
|
Total stock-based compensation cost |
|
|
25,925 |
|
|
|
28,673 |
|
|
|
40,744 |
|
Income tax (benefit) |
|
|
(3,627 |
) |
|
|
(4,234 |
) |
|
|
(5,621 |
) |
Total stock-based compensation cost, net of tax |
|
$ |
22,298 |
|
|
$ |
24,439 |
|
|
$ |
35,123 |
|
SARs
SARs are awards that allow our associates to receive shares of our common stock at a fixed price. We grant SARs at an exercise price equal to the stock price on the date of the grant. The fair value of SARs granted is estimated as of the date of grant using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of options granted is derived from the input of the option-pricing model and represents the period of time that options granted are expected to be outstanding. Expected volatility rates are based on historical volatility of shares of our common stock.
61
The following is a summary of our weighted-average assumptions related to SARs grants made during the last three fiscal years:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
Risk-free interest rate |
|
|
3.9 |
% |
|
|
3.0 |
% |
|
|
0.9 |
% |
Expected life of option - years |
|
6.0 |
|
|
6.0 |
|
|
6.0 |
|
|||
Expected dividend yield |
|
|
1.8 |
% |
|
|
2.0 |
% |
|
|
1.8 |
% |
Expected volatility rate |
|
|
24.6 |
% |
|
|
23.6 |
% |
|
|
24.1 |
% |
The 2014 Omnibus Plan was approved by our stockholders on October 9, 2014, and amendments to the 2014 Omnibus Plan were subsequently approved by our stockholders in 2018 and 2019. The 2014 Omnibus Plan provides us with the flexibility to grant a wide variety of stock and stock-based awards, as well as dollar-denominated performance-based awards, and is intended to be the primary stock-based award program for covered associates. SARs are issued at fair value at the date of grant, have up to ten-year terms and have graded-vesting terms over four years. Compensation cost for these awards is recognized on a straight-line basis over the related vesting period. Currently all SARs outstanding are to be settled with stock. As of May 31, 2024, there were 1,989,900 SARs outstanding.
The following tables summarize option and share-based payment activity (including SARs) under these plans during the fiscal year ended May 31, 2024:
|
|
2024 |
|
|||||
Share-Based Payments |
|
Weighted |
|
|
Number of |
|
||
(Shares in thousands) |
|
|
|
|
|
|
||
Balance at June 1, 2023 |
|
$ |
68.19 |
|
|
|
2,288 |
|
Options granted |
|
|
93.51 |
|
|
|
300 |
|
Options exercised |
|
|
56.42 |
|
|
|
(598 |
) |
Balance at May 31, 2024 |
|
|
75.54 |
|
|
|
1,990 |
|
Exercisable at May 31, 2024 |
|
$ |
67.98 |
|
|
|
1,180 |
|
SARs |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|||
Weighted-average grant-date fair value per SAR |
|
$ |
24.04 |
|
|
$ |
18.09 |
|
|
$ |
16.72 |
|
Fair value of SARS vested |
|
$ |
15.28 |
|
|
$ |
14.19 |
|
|
$ |
13.49 |
|
Intrinsic value of options exercised |
|
$ |
12.37 |
|
|
$ |
11.26 |
|
|
$ |
13.77 |
|
Tax benefit from options exercised |
|
$ |
6,049 |
|
|
$ |
3,292 |
|
|
$ |
88 |
|
At May 31, 2024, the aggregate intrinsic value and weighted-average remaining contractual life of options outstanding was $72.7 million and 6.39 years, respectively, while the aggregate intrinsic value and weighted-average remaining contractual life of options exercisable was $52.1 million and 5.21 years, respectively.
At May 31, 2024, the total unamortized stock-based compensation expense related to SARs that were previously granted was $10.7 million, which is expected to be recognized over 2.48 years. We anticipate that approximately 2.0 million shares at a weighted-average exercise price of $75.52 and a weighted-average remaining contractual term of 6.38 years are vested or expected to vest under these plans.
Restricted Stock Plans
We also grant stock-based awards, which may be made in the form of restricted stock, restricted stock units, performance stock and performance stock units. These awards are granted to eligible associates or directors and entitle the holder to shares of our common stock as the award vests. The fair value of the awards is determined and fixed based on the stock price at the date of grant. A description of our restricted stock plans follows.
Under the 2014 Omnibus Plan, a total of 6,000,000 shares of our common stock may be subject to awards. Of those issuable shares, up to 3,000,000 shares of common stock may be subject to “full-value” awards. In October 2019, shareholders approved an amendment to the 2014 Omnibus Plan making an additional 5,000,000 shares of common stock subject to awards. Of those additional issuable shares, 2,250,000 shares may be subject to “full-value” awards similar to those issued under the 2014 Omnibus Plan.
62
The following table summarizes the share-based performance-earned restricted stock (“PERS”) and performance stock units (“PSUs”) activity during the fiscal year ended May 31, 2024:
|
|
Weighted-Average |
|
|
|
|
||
|
|
Grant-Date |
|
|
|
|
||
|
|
Fair Value |
|
|
2024 |
|
||
(Shares in thousands) |
|
|
|
|
|
|
||
Balance at June 1, 2023 |
|
$ |
83.17 |
|
|
|
906 |
|
Shares granted |
|
|
93.74 |
|
|
|
344 |
|
Shares forfeited |
|
|
85.97 |
|
|
|
(17 |
) |
Shares vested |
|
|
81.07 |
|
|
|
(357 |
) |
Balance at May 31, 2024 |
|
$ |
88.13 |
|
|
|
876 |
|
The weighted-average grant-date fair value was $93.74, $81.03 and $86.88 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively. The restricted stock and performance stock cliff vest after three years. Nonvested restricted shares of common stock under the 2014 Omnibus Plan are eligible for dividend payments, while performance stock units are not eligible for dividend payments. At May 31, 2024, remaining unamortized deferred compensation expense for performance-earned restricted stock totaled $13.1 million. The remaining amount is being amortized over the applicable vesting period for each participant.
The Performance Stock Units (“PSU”) have been granted to certain executives and the awards are contingent upon the level of attainment of performance goals for the three-year performance period. Vesting of 50% of the PSUs relates to compounded annualized growth rates in adjusted revenue for the period, and the vesting of the remaining 50% relates to an increase in EBIT margin, measured at the end of the three-year performance period. The number of PSUs that may vest with respect to the achievement of the performance goals may range from 0% to 200% of the PSUs granted under this program. Compensation cost for these awards has been recognized on a straight-line basis over the related performance period, with consideration given to the probability of attaining the performance goals.
The following table sets forth such awards for the year ended May 31, 2024:
Performance Stock Units ("PSUs") |
|
Shares Granted |
|
|
Weighted-Average Grant Date Fair Value |
|
|
Shares Outstanding as of May 31, 2024 |
|
|
Unamortized Expense, as of May 31, 2024 |
|
||||
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2021 PSUs (1) |
|
|
158 |
|
|
$ |
86.93 |
|
|
|
134 |
|
|
$ |
— |
|
2022 PSU's (2) |
|
|
162 |
|
|
$ |
81.01 |
|
|
|
151 |
|
|
$ |
1,584 |
|
2023 PSU's (3) |
|
|
176 |
|
|
$ |
93.51 |
|
|
|
174 |
|
|
$ |
8,212 |
|
The 2003 Plan was approved on October 10, 2003 by our stockholders and was established primarily for the purpose of recruiting and retaining directors and to align the interests of directors with the interests of our stockholders. Only directors who are not our associates are eligible to participate. Under the 2003 Plan, up to 500,000 shares of our common stock may be awarded, with awards cliff vesting over a three-year period. The shares available for grant out of the 2003 Plan have been exhausted, and all future grants will be issued from the 2014 Omnibus Plan. The following table summarizes the share-based activity under the 2003 Plan and 2014 Omnibus Plan related to directors during fiscal 2024:
|
|
Weighted-Average |
|
|
|
|
||
|
|
Grant-Date |
|
|
|
|
||
|
|
Fair Value |
|
|
2024 |
|
||
(Shares in thousands) |
|
|
|
|
|
|
||
Balance at June 1, 2023 |
|
$ |
87.75 |
|
|
|
52 |
|
Shares granted to directors |
|
|
98.61 |
|
|
|
18 |
|
Shares vested |
|
|
87.35 |
|
|
|
(19 |
) |
Balance at May 31, 2024 |
|
$ |
91.70 |
|
|
|
51 |
|
63
The weighted-average grant-date fair value was $98.61, $92.87 and $81.53 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively. Unamortized deferred compensation expense relating to restricted stock grants for directors of $2.4 million at May 31, 2024, is being amortized over the applicable remaining vesting period for each director. Nonvested restricted shares of common stock under the 2003 Plan are eligible for dividend payments. The shares available for grant out of the 2003 Plan have been exhausted, and all future grants will be issued from the 2014 Omnibus Plan.
During fiscal 2024, a total of 25,643 shares were awarded under the 2014 Omnibus Plan to certain associates as supplemental retirement benefits, generally subject to forfeiture. The shares vest upon the latter of attainment of age 55 and the fifth anniversary of the May 31st immediately preceding the date of the grant. The following table sets forth such awards for the year ended May 31, 2024:
|
|
Weighted-Average |
|
|
|
|
||
|
|
Grant-Date |
|
|
|
|
||
|
|
Fair Value |
|
|
2024 |
|
||
(Shares in thousands) |
|
|
|
|
|
|
||
Balance at June 1, 2023 |
|
$ |
41.37 |
|
|
|
390 |
|
Shares granted |
|
|
93.51 |
|
|
|
26 |
|
Shares exercised |
|
|
43.78 |
|
|
|
(32 |
) |
Balance at May 31, 2024 |
|
$ |
44.82 |
|
|
|
384 |
|
The weighted-average grant-date fair value was $93.51, $81.01 and $86.93 for the fiscal years ended May 31, 2024, 2023 and 2022, respectively. As noted above, no shares remain available for future grant under the 2007 Plan, and future issuances of shares as supplemental retirement benefits are made under the 2014 Omnibus Plan. At May 31, 2024, unamortized stock-based compensation expense of $4.6 million relating to the 2014 Omnibus Plan is being amortized over the applicable vesting period associated with each participant.
The following table summarizes the activity for all nonvested restricted shares during the year ended May 31, 2024:
|
|
Weighted-Average |
|
|
|
|
||
|
|
Grant-Date Fair |
|
|
Number of |
|
||
|
|
Value |
|
|
Shares |
|
||
(Shares in thousands) |
|
|
|
|
|
|
||
Balance at June 1, 2023 |
|
$ |
81.66 |
|
|
|
1,078 |
|
Granted |
|
|
93.95 |
|
|
|
388 |
|
Vested |
|
|
77.86 |
|
|
|
(421 |
) |
Forfeited |
|
|
85.97 |
|
|
|
(17 |
) |
Balance at May 31, 2024 |
|
$ |
87.80 |
|
|
|
1,028 |
|
The fair value of the nonvested restricted share awards have been calculated using the market value of the shares on the date of issuance. Total unrecognized compensation cost related to all nonvested awards of restricted shares of common stock was $29.9 million as of May 31, 2024. The remaining weighted-average contractual term of nonvested restricted shares at May 31, 2024 is the same as the period over which the remaining cost of the awards will be recognized, which is approximately 2.47 years. We did not receive any cash from associates as a result of associate vesting and release of restricted shares for the year ended May 31, 2024.
The following table summarizes the grant date and vested values of restricted shares during the last three fiscal years:
Year Ended May 31, |
|
Weighted-Average Grant Date Fair Value |
|
|
Fair Value of Restricted Shares Vested |
|
|
Shares of Restricted Stock Vested |
|
|
Intrinsic Value of Restricted Shares Vested |
|
||||
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
2022 |
|
$ |
86.68 |
|
|
$ |
27,163 |
|
|
|
441 |
|
|
$ |
33,032 |
|
2023 |
|
$ |
81.95 |
|
|
$ |
28,553 |
|
|
|
432 |
|
|
$ |
33,186 |
|
2024 |
|
$ |
93.95 |
|
|
$ |
32,842 |
|
|
|
421 |
|
|
$ |
38,608 |
|
64
NOTE K — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Accumulated other comprehensive income (loss) consists of the following components:
|
|
|
|
|
Pension And |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|||||
|
|
Foreign |
|
|
Postretirement |
|
|
Unrealized |
|
|
Unrealized |
|
|
|
|
|||||
|
|
Currency |
|
|
Benefit |
|
|
Gain |
|
|
Gain (Loss) |
|
|
|
|
|||||
|
|
Translation |
|
|
Liability |
|
|
(Loss) On |
|
|
On |
|
|
|
|
|||||
(In thousands) |
|
Adjustments |
|
|
Adjustments (1) |
|
|
Derivatives (2) |
|
|
Securities |
|
|
Total |
|
|||||
Balance at May 31, 2021 |
|
$ |
(300,365 |
) |
|
$ |
(190,610 |
) |
|
$ |
(23,982 |
) |
|
$ |
73 |
|
|
$ |
(514,884 |
) |
Current period comprehensive (loss) income |
|
|
(98,834 |
) |
|
|
31,802 |
|
|
|
60,669 |
|
|
|
(1,785 |
) |
|
|
(8,148 |
) |
Income taxes associated with current period comprehensive (loss) income |
|
|
3,726 |
|
|
|
(7,763 |
) |
|
|
(14,491 |
) |
|
|
3 |
|
|
|
(18,525 |
) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
- |
|
|
|
17,276 |
|
|
|
(12,097 |
) |
|
|
59 |
|
|
|
5,238 |
|
Income taxes reclassified into earnings |
|
|
- |
|
|
|
(4,088 |
) |
|
|
3,072 |
|
|
|
(2 |
) |
|
|
(1,018 |
) |
Balance at May 31, 2022 |
|
|
(395,473 |
) |
|
|
(153,383 |
) |
|
|
13,171 |
|
|
|
(1,652 |
) |
|
|
(537,337 |
) |
Current period comprehensive (loss) income |
|
|
(71,772 |
) |
|
|
(12,242 |
) |
|
|
- |
|
|
|
(482 |
) |
|
|
(84,496 |
) |
Income taxes associated with current period comprehensive (loss) income |
|
|
1,870 |
|
|
|
2,785 |
|
|
|
- |
|
|
|
4 |
|
|
|
4,659 |
|
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
- |
|
|
|
18,363 |
|
|
|
(1,766 |
) |
|
|
(67 |
) |
|
|
16,530 |
|
Income taxes reclassified into earnings |
|
|
- |
|
|
|
(4,287 |
) |
|
|
- |
|
|
|
(4 |
) |
|
|
(4,291 |
) |
Balance at May 31, 2023 |
|
|
(465,375 |
) |
|
|
(148,764 |
) |
|
|
11,405 |
|
|
|
(2,201 |
) |
|
|
(604,935 |
) |
Current period comprehensive income (loss) |
|
|
3,276 |
|
|
|
66,592 |
|
|
|
- |
|
|
|
205 |
|
|
|
70,073 |
|
Income taxes associated with current period comprehensive income (loss) |
|
|
252 |
|
|
|
(15,769 |
) |
|
|
- |
|
|
|
(56 |
) |
|
|
(15,573 |
) |
Amounts reclassified from accumulated other comprehensive income (loss) |
|
|
- |
|
|
|
17,416 |
|
|
|
- |
|
|
|
(165 |
) |
|
|
17,251 |
|
Income taxes reclassified into earnings |
|
|
- |
|
|
|
(4,122 |
) |
|
|
- |
|
|
|
16 |
|
|
|
(4,106 |
) |
Balance at May 31, 2024 |
|
$ |
(461,847 |
) |
|
$ |
(84,647 |
) |
|
$ |
11,405 |
|
|
$ |
(2,201 |
) |
|
$ |
(537,290 |
) |
65
NOTE L — EARNINGS PER SHARE
The following table sets forth the reconciliation of the numerator and denominator of basic and diluted earnings per share for the years ended May 31, 2024, 2023 and 2022:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands, except per share amounts) |
|
|
|
|
|
|
|
|
|
|||
Numerator for earnings per share: |
|
|
|
|
|
|
|
|
|
|||
Net income attributable to RPM International Inc. stockholders |
|
$ |
588,397 |
|
|
$ |
478,691 |
|
|
$ |
491,481 |
|
Less: Allocation of earnings and dividends to participating securities |
|
|
(2,630 |
) |
|
|
(2,156 |
) |
|
|
(3,924 |
) |
Net income available to common shareholders - basic |
|
|
585,767 |
|
|
|
476,535 |
|
|
|
487,557 |
|
Reverse: Allocation of earnings and dividends to participating securities |
|
|
- |
|
|
|
2,156 |
|
|
|
3,924 |
|
Add: Undistributed earnings reallocated to unvested shareholders |
|
|
8 |
|
|
|
- |
|
|
|
- |
|
Net income available to common shareholders - diluted |
|
$ |
585,775 |
|
|
$ |
478,691 |
|
|
$ |
491,481 |
|
Denominator for basic and diluted earnings per share: |
|
|
|
|
|
|
|
|
|
|||
Basic weighted average common shares |
|
|
127,767 |
|
|
|
127,507 |
|
|
|
127,948 |
|
Average diluted options and awards |
|
|
573 |
|
|
|
1,309 |
|
|
|
1,632 |
|
Total shares for diluted earnings per share (1) |
|
|
128,340 |
|
|
|
128,816 |
|
|
|
129,580 |
|
Earnings Per Share of Common Stock Attributable to |
|
|
|
|
|
|
|
|
|
|||
RPM International Inc. Stockholders: |
|
|
|
|
|
|
|
|
|
|||
Basic Earnings Per Share of Common Stock |
|
$ |
4.58 |
|
|
$ |
3.74 |
|
|
$ |
3.81 |
|
Method used to calculate basic earnings per share |
|
Two-Class |
|
|
Two-Class |
|
|
Two-Class |
|
|||
Diluted Earnings Per Share of Common Stock |
|
$ |
4.56 |
|
|
$ |
3.72 |
|
|
$ |
3.79 |
|
Method used to calculate diluted earnings per share |
|
Two-Class |
|
|
Treasury |
|
|
Treasury |
|
NOTE M — LEASES
We have leases for manufacturing facilities, warehouses, office facilities, equipment, and vehicles, which are primarily classified and accounted for as operating leases. Some leases include one or more options to renew, generally at our sole discretion, with renewal terms that can extend the lease term from one to five years or more. In addition, certain leases contain termination options, where the rights to terminate are held by either us, the lessor, or both parties. These options to extend or terminate a lease are included in the lease terms when it is reasonably certain that we will exercise that option. We have made an accounting policy election not to recognize right-of-use ("ROU") assets and lease liabilities for leases with a term of twelve months or less, with no renewal option that we are reasonably certain to exercise. ROU assets and lease liabilities are recognized based on the present value of the fixed and in-substance fixed lease payments over the lease term at the commencement date. The ROU assets also include any initial direct costs incurred and lease payments made at or before the commencement date and are reduced by lease incentives. We use our incremental borrowing rate as the discount rate to determine the present value of the lease payments for leases, as our leases do not have readily determinable implicit discount rates. Our incremental borrowing rate is the rate of interest that we would have to borrow on a collateralized basis over a similar term and amount in a similar economic environment. We determine the incremental borrowing rates for our leases by adjusting the local risk-free interest rate with a credit risk premium corresponding to our credit rating.
Operating lease expense is recognized on a straight-line basis over the lease term. For a small portfolio of finance leases, lease expense is recognized as a combination of the amortization expense for the ROU assets and interest expense for the outstanding lease liabilities using the discount rate discussed above. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Our lease agreements do not contain any significant residual value guarantees or material restrictive covenants. Income from subleases was not significant for any period presented.
66
The following represents our lease costs as of May 31, 2024, 2023 and 2022:
May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Operating lease expense |
|
$ |
87,225 |
|
|
$ |
78,783 |
|
|
$ |
78,479 |
|
Variable lease expense |
|
|
15,305 |
|
|
|
13,550 |
|
|
|
10,795 |
|
Short-term lease expense |
|
|
2,104 |
|
|
|
1,960 |
|
|
|
2,132 |
|
The following represents our supplemental cash flow, balance sheet, and other required disclosures as of May 31, 2024 and 2023:
May 31, |
|
2024 |
|
|
2023 |
|
||
(In thousands) |
|
|
|
|
|
|
||
Operating cash outflows from operating leases |
|
$ |
81,540 |
|
|
$ |
74,251 |
|
Leased assets obtained in exchange for operating lease obligations |
|
|
69,749 |
|
|
|
90,399 |
|
|
|
|
|
|
|
|
||
Current portion of operating leases within other accrued liabilities |
|
$ |
66,298 |
|
|
$ |
59,590 |
|
|
|
|
|
|
|
|
||
Weighted average remaining lease term for operating leases (in years) |
|
|
7.7 |
|
|
|
8.5 |
|
Weighted average discount rate for operating leases |
|
|
4.2 |
% |
|
|
3.9 |
% |
The following represents our future undiscounted cash flows for each of the next five years and thereafter and reconciliation to the lease liabilities, as of May 31, 2024:
(In thousands) |
|
|
|
|
Year ending May 31, |
|
Operating Leases |
|
|
2025 |
|
$ |
78,528 |
|
2026 |
|
|
69,604 |
|
2027 |
|
|
57,339 |
|
2028 |
|
|
44,471 |
|
2029 |
|
|
32,730 |
|
Thereafter |
|
|
134,162 |
|
Total lease payments |
|
$ |
416,834 |
|
Less imputed interest |
|
|
69,255 |
|
Total present value of lease liabilities |
|
$ |
347,579 |
|
Sale Leaseback Agreement
During the fiscal year ended May 31, 2022, we recognized net gains of $52.0 million on the sales of certain real property assets. Most significantly, certain real property assets for the Toronto, Ontario location, within our CPG segment, were sold on September 15, 2021 for $49.8 million. We received $48.0 million of net proceeds after adjustments and expenses and recognized a gain on sale of $41.9 million. The purpose of the transaction was to generate cash by monetizing a real estate market opportunity.
In conjunction with the sale, we executed a leaseback agreement commencing September 15, 2021 and expiring on September 14, 2024. During the second quarter of fiscal 2022, the lease was classified as an operating lease with total future minimum payments during the initial term of the lease of approximately $3.4 million. An incremental borrowing rate of 1.3% was used to determine the ROU asset. We recorded a $3.7 million operating lease right-of-use asset and corresponding liabilities in our Consolidated Balance Sheets during the second quarter of fiscal 2022. During the second quarter of fiscal 2024, the lease was renewed through September 14, 2026.
NOTE N — PENSION PLANS
We sponsor several pension plans for our associates, including our principal plan (the “Retirement Plan”), which is a non-contributory defined benefit pension plan covering substantially all domestic non-union associates. Pension benefits are provided for certain domestic union associates through separate plans. Associates of our foreign subsidiaries receive pension coverage, to the extent deemed appropriate, through plans that are governed by local statutory requirements.
The Retirement Plan provides benefits that are based upon years of service and average compensation with accrued benefits vesting after five years. Benefits for union associates are generally based upon years of service, or a combination of years of service and average compensation. Our pension funding policy considers contributions in an amount on an annual basis that can be deducted for federal income tax purposes, using a different actuarial cost method and different assumptions from those used for financial reporting. For the fiscal year ending May 31, 2025, we are required, based on minimum funding rules, to contribute approximately $5.7 million to our foreign plans. Required contributions, based on minimum funding rules, to the retirement plans in the United States for fiscal 2025 are immaterial. During the year, we will evaluate whether to make contributions in excess of the minimum required amounts. During fiscal 2024, we contributed $41.9 million to the pension plans in the United States which was in excess of the required contribution of $0.7 million but serves to improve the funded status of the plans.
67
Net periodic pension cost consisted of the following for the year ended May 31:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||||||||
(In thousands) |
|
2024 |
|
2023 |
|
2022 |
|
|
2024 |
|
2023 |
|
2022 |
|
||||||
Service cost |
|
$ |
43,652 |
|
$ |
43,558 |
|
$ |
47,655 |
|
|
$ |
3,534 |
|
$ |
3,633 |
|
$ |
5,023 |
|
Interest cost |
|
|
35,967 |
|
|
28,692 |
|
|
15,366 |
|
|
|
7,667 |
|
|
6,619 |
|
|
4,948 |
|
Expected return on plan assets |
|
|
(42,072 |
) |
|
(38,144 |
) |
|
(41,544 |
) |
|
|
(9,588 |
) |
|
(6,581 |
) |
|
(7,691 |
) |
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Prior service cost (credit) |
|
|
2 |
|
|
1 |
|
|
5 |
|
|
|
(127 |
) |
|
(116 |
) |
|
(139 |
) |
Net actuarial losses recognized |
|
|
16,822 |
|
|
17,948 |
|
|
16,900 |
|
|
|
833 |
|
|
473 |
|
|
465 |
|
Curtailment/settlement (gains) losses |
|
|
- |
|
|
(3 |
) |
|
16 |
|
|
|
(50 |
) |
|
188 |
|
|
7 |
|
Net Pension Cost |
|
$ |
54,371 |
|
$ |
52,052 |
|
$ |
38,398 |
|
|
$ |
2,269 |
|
$ |
4,216 |
|
$ |
2,613 |
|
The changes in benefit obligations and plan assets, as well as the funded status of our pension plans at May 31, 2024 and 2023, were as follows:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Benefit obligation at beginning of year |
|
$ |
697,173 |
|
$ |
703,735 |
|
|
$ |
158,812 |
|
$ |
182,534 |
|
Service cost |
|
|
43,652 |
|
|
43,558 |
|
|
|
3,534 |
|
|
3,633 |
|
Interest cost |
|
|
35,967 |
|
|
28,692 |
|
|
|
7,667 |
|
|
6,619 |
|
Benefits paid |
|
|
(40,540 |
) |
|
(44,604 |
) |
|
|
(8,102 |
) |
|
(8,676 |
) |
Participant contributions |
|
|
- |
|
|
- |
|
|
|
1,149 |
|
|
1,221 |
|
Plan amendments |
|
|
- |
|
|
4 |
|
|
|
(2 |
) |
|
(97 |
) |
Plan settlements/curtailments |
|
|
- |
|
|
(137 |
) |
|
|
(1,090 |
) |
|
(2,852 |
) |
Actuarial (gains) losses |
|
|
(16,589 |
) |
|
(34,075 |
) |
|
|
3,461 |
|
|
(16,004 |
) |
Premiums paid |
|
|
- |
|
|
- |
|
|
|
(83 |
) |
|
(108 |
) |
Currency exchange rate changes |
|
|
- |
|
|
- |
|
|
|
714 |
|
|
(7,458 |
) |
Benefit Obligation at End of Year |
|
$ |
719,663 |
|
$ |
697,173 |
|
|
$ |
166,060 |
|
$ |
158,812 |
|
Fair value of plan assets at beginning of year |
|
$ |
631,486 |
|
$ |
616,960 |
|
|
$ |
166,120 |
|
$ |
193,375 |
|
Actual gain (loss) on plan assets |
|
|
87,205 |
|
|
(4,294 |
) |
|
|
9,973 |
|
|
(15,239 |
) |
Employer contributions |
|
|
41,928 |
|
|
63,561 |
|
|
|
5,449 |
|
|
6,647 |
|
Participant contributions |
|
|
- |
|
|
- |
|
|
|
1,149 |
|
|
1,221 |
|
Benefits paid |
|
|
(40,540 |
) |
|
(44,604 |
) |
|
|
(8,102 |
) |
|
(8,676 |
) |
Premiums paid |
|
|
- |
|
|
- |
|
|
|
(83 |
) |
|
(108 |
) |
Plan settlements/curtailments |
|
|
- |
|
|
(137 |
) |
|
|
(1,090 |
) |
|
(2,852 |
) |
Currency exchange rate changes |
|
|
- |
|
|
- |
|
|
|
844 |
|
|
(8,248 |
) |
Fair Value of Plan Assets at End of Year |
|
$ |
720,079 |
|
$ |
631,486 |
|
|
$ |
174,260 |
|
$ |
166,120 |
|
Surplus/(Deficit) of plan assets versus benefit obligations at end of year |
|
$ |
416 |
|
$ |
(65,687 |
) |
|
$ |
8,200 |
|
$ |
7,308 |
|
Net Amount Recognized |
|
$ |
416 |
|
$ |
(65,687 |
) |
|
$ |
8,200 |
|
$ |
7,308 |
|
Accumulated Benefit Obligation |
|
$ |
618,413 |
|
$ |
598,094 |
|
|
$ |
156,571 |
|
$ |
148,635 |
|
The fair value of the assets held by our pension plans has increased at May 31, 2024 since our previous measurement date at May 31, 2023, due to contributions and market returns. Total plan liabilities increased slightly due to an increase in interest cost caused by an increase in the discount rate, as well as a smaller actuarial gain than in the prior year. We have recorded an overfunded position for the net status of our pension plans. We expect pension expense in fiscal 2025 to be lower than our fiscal 2024 expense level due to an increase in expected return on plan assets and a reduction in the amortization of the net actuarial loss to be recognized. Any future declines in the value of our pension plan assets or increases in our plan liabilities could require us to increase our recorded liability for the net underfunded status of our pension plans and could also require accelerated and higher cash contributions to our pension plans.
Amounts recognized in the Consolidated Balance Sheets for the years ended May 31, 2024 and 2023 are as follows:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Noncurrent assets |
|
$ |
1,294 |
|
$ |
279 |
|
|
$ |
16,681 |
|
$ |
15,641 |
|
Current liabilities |
|
|
(8 |
) |
|
(8 |
) |
|
|
(362 |
) |
|
(659 |
) |
Noncurrent liabilities |
|
|
(870 |
) |
|
(65,958 |
) |
|
|
(8,119 |
) |
|
(7,674 |
) |
Net Amount Recognized |
|
$ |
416 |
|
$ |
(65,687 |
) |
|
$ |
8,200 |
|
$ |
7,308 |
|
68
The following table summarizes the relationship between our plans' benefit obligations and assets:
|
|
U.S. Plans |
|
|||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||
(In thousands) |
|
Benefit |
|
Plan Assets |
|
|
Benefit |
|
Plan Assets |
|
||||
Plans with projected benefit obligations in excess of plan assets |
|
$ |
712,123 |
|
$ |
711,245 |
|
|
$ |
696,280 |
|
$ |
630,315 |
|
Plans with accumulated benefit obligations in excess of plan assets |
|
|
41 |
|
|
- |
|
|
|
44 |
|
|
- |
|
Plans with assets in excess of projected benefit obligations |
|
|
7,540 |
|
|
8,834 |
|
|
|
893 |
|
|
1,171 |
|
Plans with assets in excess of accumulated benefit obligations |
|
|
618,372 |
|
|
720,079 |
|
|
|
598,050 |
|
|
631,486 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
Non-U.S. Plans |
|
|||||||||||
|
|
2024 |
|
|
2023 |
|
||||||||
(In thousands) |
|
Benefit |
|
Plan Assets |
|
|
Benefit |
|
Plan Assets |
|
||||
Plans with projected benefit obligations in excess of plan assets |
|
$ |
28,469 |
|
$ |
19,988 |
|
|
$ |
26,918 |
|
$ |
18,585 |
|
Plans with accumulated benefit obligations in excess of plan assets |
|
|
25,001 |
|
|
17,730 |
|
|
|
24,837 |
|
|
17,839 |
|
Plans with assets in excess of projected benefit obligations |
|
|
137,591 |
|
|
154,272 |
|
|
|
131,894 |
|
|
147,535 |
|
Plans with assets in excess of accumulated benefit obligations |
|
|
131,570 |
|
|
156,530 |
|
|
|
123,798 |
|
|
148,281 |
|
The following table presents the pretax net actuarial loss and prior service (cost) credits recognized in accumulated other comprehensive income (loss) not affecting retained earnings:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Net actuarial loss |
|
$ |
(126,481 |
) |
$ |
(205,025 |
) |
|
$ |
(32,209 |
) |
$ |
(29,764 |
) |
Prior service (costs) credits |
|
|
(8 |
) |
|
(10 |
) |
|
|
424 |
|
|
530 |
|
Total recognized in accumulated other comprehensive |
|
$ |
(126,489 |
) |
$ |
(205,035 |
) |
|
$ |
(31,785 |
) |
$ |
(29,234 |
) |
The following table includes the changes recognized in other comprehensive income:
|
|
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||||
Changes in plan assets and benefit obligations recognized in other |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Prior service cost (credit) |
|
$ |
- |
|
$ |
4 |
|
|
$ |
(1 |
) |
$ |
(98 |
) |
|
|
Net (gain) loss arising during the year |
|
|
(61,722 |
) |
|
8,363 |
|
|
|
3,075 |
|
|
5,816 |
|
|
|
Effect of exchange rates on amounts included in AOCI |
|
|
- |
|
|
- |
|
|
|
133 |
|
|
(1,405 |
) |
Amounts recognized as a component of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
||||||
|
|
Amortization or curtailment recognition of prior service (cost) benefit |
|
|
(2 |
) |
|
(1 |
) |
|
|
127 |
|
|
115 |
|
|
|
Amortization or settlement recognition of net (loss) |
|
|
(16,822 |
) |
|
(17,945 |
) |
|
|
(783 |
) |
|
(660 |
) |
|
|
Total recognized in other comprehensive (income) loss |
|
$ |
(78,546 |
) |
$ |
(9,579 |
) |
|
$ |
2,551 |
|
$ |
3,768 |
|
In measuring the projected benefit obligation and net periodic pension cost for our plans, we utilize actuarial valuations. These valuations include specific information pertaining to individual plan participants, such as salary, age and years of service, along with certain assumptions. The most significant assumptions applied include discount rates, expected return on plan assets and rate of compensation increases. We evaluate these assumptions, at a minimum, on an annual basis, and make required changes, as applicable. In developing our expected long-term rate of return on pension plan assets, we consider the current and expected target asset allocations of the pension portfolio, as well as historical returns and future expectations for returns on various categories of plan assets. Expected return on assets is determined by using the weighted-average return on asset classes based on expected return for the target asset allocations of the principal asset categories held by each plan. In determining expected return, we consider both historical performance and an estimate of future long-term rates of return. Actual experience is used to develop the assumption for compensation increases.
69
The following weighted-average assumptions were used to determine our year-end benefit obligations and net periodic pension cost under the plans:
|
|
U.S. Plans |
|
Non-U.S. Plans |
|
|
||||||||||||||
Year-End Benefit Obligations |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
||||||||||||
Discount rate |
|
|
5.58 |
% |
|
|
|
5.26 |
% |
|
|
|
4.81 |
% |
|
|
|
4.88 |
% |
|
Rate of compensation increase |
|
|
3.39 |
% |
|
|
|
3.39 |
% |
|
|
|
2.98 |
% |
|
|
|
2.97 |
% |
|
|
|
U.S. Plans |
|
|
|
Non-U.S. Plans |
|
|
||||||||||||||||||||||
Net Periodic Pension Cost |
|
2024 |
|
2023 |
|
2022 |
|
2024 |
|
2023 |
|
2022 |
||||||||||||||||||
Discount rate |
|
|
5.26 |
% |
|
|
|
4.43 |
% |
|
|
|
2.76 |
% |
|
|
|
4.88 |
% |
|
|
|
4.02 |
% |
|
|
|
2.72 |
% |
|
Expected return on plan assets |
|
|
7.00 |
% |
|
|
|
6.50 |
% |
|
|
|
6.50 |
% |
|
|
|
5.79 |
% |
|
|
|
3.58 |
% |
|
|
|
3.46 |
% |
|
Rate of compensation increase |
|
|
3.39 |
% |
|
|
|
3.21 |
% |
|
|
|
3.19 |
% |
|
|
|
2.97 |
% |
|
|
|
2.94 |
% |
|
|
|
2.91 |
% |
|
The following tables illustrate the weighted-average actual and target allocation of plan assets:
|
|
U.S. Plans |
|
||||||||||
|
|
Target Allocation |
|
Actual Asset Allocation |
|
||||||||
(Dollars in millions) |
|
as of May 31, 2024 |
|
2024 |
|
|
2023 |
|
|||||
Equity securities |
|
|
55 |
% |
|
|
$ |
399.0 |
|
|
$ |
340.1 |
|
Fixed income securities |
|
|
20 |
% |
|
|
|
151.2 |
|
|
|
129.2 |
|
Multi-class |
|
|
20 |
% |
|
|
|
141.2 |
|
|
|
125.3 |
|
Cash |
|
|
5 |
% |
|
|
|
28.5 |
|
|
|
36.6 |
|
Other |
|
|
|
|
|
|
|
0.2 |
|
|
|
0.3 |
|
Total assets |
|
|
100 |
% |
|
|
$ |
720.1 |
|
|
$ |
631.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Non-U.S. Plans |
|
||||||||||
|
|
Target Allocation |
|
Actual Asset Allocation |
|
||||||||
(Dollars in millions) |
|
as of May 31, 2024 |
|
2024 |
|
|
2023 |
|
|||||
Equity securities |
|
|
40 |
% |
|
|
$ |
60.4 |
|
|
$ |
61.8 |
|
Fixed income securities |
|
|
48 |
% |
|
|
|
82.9 |
|
|
|
81.5 |
|
Cash |
|
|
|
|
|
|
0.2 |
|
|
|
0.1 |
|
|
Property and other |
|
|
12 |
% |
|
|
|
30.8 |
|
|
|
22.7 |
|
Total assets |
|
|
100 |
% |
|
|
$ |
174.3 |
|
|
$ |
166.1 |
|
The following tables present our pension plan assets as categorized using the fair value hierarchy at May 31, 2024 and 2023:
U.S. Plans |
|
|||||||||||||||
(In thousands) |
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value at |
|
||||
U.S. Treasury and other government |
|
$ |
- |
|
|
$ |
53,751 |
|
|
$ |
- |
|
|
$ |
53,751 |
|
State and municipal bonds |
|
|
- |
|
|
|
210 |
|
|
|
- |
|
|
|
210 |
|
Foreign bonds |
|
|
- |
|
|
|
2,480 |
|
|
|
- |
|
|
|
2,480 |
|
Mortgage-backed securities |
|
|
- |
|
|
|
14,922 |
|
|
|
- |
|
|
|
14,922 |
|
Corporate bonds |
|
|
- |
|
|
|
14,904 |
|
|
|
- |
|
|
|
14,904 |
|
Stocks - large cap |
|
|
44,392 |
|
|
|
- |
|
|
|
- |
|
|
|
44,392 |
|
Mutual funds - equity |
|
|
- |
|
|
|
354,599 |
|
|
|
- |
|
|
|
354,599 |
|
Mutual funds - multi-class |
|
|
- |
|
|
|
141,183 |
|
|
|
- |
|
|
|
141,183 |
|
Mutual funds - fixed |
|
|
- |
|
|
|
2,317 |
|
|
|
- |
|
|
|
2,317 |
|
Cash and cash equivalents |
|
|
28,523 |
|
|
|
- |
|
|
|
- |
|
|
|
28,523 |
|
Limited partnerships |
|
|
- |
|
|
|
- |
|
|
|
74 |
|
|
|
74 |
|
Futures contracts |
|
|
- |
|
|
|
- |
|
|
|
120 |
|
|
|
120 |
|
Investments measured at NAV (1) |
|
|
|
|
|
|
|
|
|
|
|
62,604 |
|
|||
Total |
|
$ |
72,915 |
|
|
$ |
584,366 |
|
|
$ |
194 |
|
|
$ |
720,079 |
|
70
Non-U.S. Plans |
|
|||||||||||||||
(In thousands) |
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value at |
|
||||
Pooled equities |
|
$ |
- |
|
|
$ |
60,455 |
|
|
$ |
- |
|
|
$ |
60,455 |
|
Pooled fixed income |
|
|
- |
|
|
|
81,798 |
|
|
|
- |
|
|
|
81,798 |
|
Foreign bonds |
|
|
- |
|
|
|
1,066 |
|
|
|
- |
|
|
|
1,066 |
|
Insurance contracts |
|
|
- |
|
|
|
- |
|
|
|
20,283 |
|
|
|
20,283 |
|
Mutual funds - Real Estate |
|
|
- |
|
|
|
10,483 |
|
|
|
- |
|
|
|
10,483 |
|
Cash and cash equivalents |
|
|
175 |
|
|
|
- |
|
|
|
- |
|
|
|
175 |
|
Total |
|
$ |
175 |
|
|
$ |
153,802 |
|
|
$ |
20,283 |
|
|
$ |
174,260 |
|
U.S. Plans |
|
|||||||||||||||
(In thousands) |
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value at |
|
||||
U.S. Treasury and other government |
|
$ |
- |
|
|
$ |
49,297 |
|
|
$ |
- |
|
|
$ |
49,297 |
|
State and municipal bonds |
|
|
- |
|
|
|
450 |
|
|
|
- |
|
|
|
450 |
|
Foreign bonds |
|
|
- |
|
|
|
690 |
|
|
|
- |
|
|
|
690 |
|
Mortgage-backed securities |
|
|
- |
|
|
|
8,515 |
|
|
|
- |
|
|
|
8,515 |
|
Corporate bonds |
|
|
- |
|
|
|
17,376 |
|
|
|
- |
|
|
|
17,376 |
|
Stocks - large cap |
|
|
35,467 |
|
|
|
- |
|
|
|
- |
|
|
|
35,467 |
|
Mutual funds - equity |
|
|
- |
|
|
|
304,590 |
|
|
|
- |
|
|
|
304,590 |
|
Mutual funds - multi-class |
|
|
- |
|
|
|
125,345 |
|
|
|
- |
|
|
|
125,345 |
|
Mutual funds - fixed |
|
|
- |
|
|
|
2,553 |
|
|
|
- |
|
|
|
2,553 |
|
Cash and cash equivalents |
|
|
36,573 |
|
|
|
- |
|
|
|
- |
|
|
|
36,573 |
|
Limited partnerships |
|
|
- |
|
|
|
- |
|
|
|
170 |
|
|
|
170 |
|
Futures contracts |
|
|
- |
|
|
|
- |
|
|
|
112 |
|
|
|
112 |
|
Investments measured at NAV (1) |
|
|
|
|
|
|
|
|
|
|
|
50,348 |
|
|||
Total |
|
$ |
72,040 |
|
|
$ |
508,816 |
|
|
$ |
282 |
|
|
$ |
631,486 |
|
Non-U.S. Plans |
|
|||||||||||||||
(In thousands) |
|
Quoted Prices |
|
|
Significant |
|
|
Significant |
|
|
Fair Value at |
|
||||
Pooled equities |
|
$ |
- |
|
|
$ |
61,827 |
|
|
$ |
- |
|
|
$ |
61,827 |
|
Pooled fixed income |
|
|
- |
|
|
|
80,650 |
|
|
|
- |
|
|
|
80,650 |
|
Foreign bonds |
|
|
- |
|
|
|
774 |
|
|
|
- |
|
|
|
774 |
|
Insurance contracts |
|
|
- |
|
|
|
- |
|
|
|
19,136 |
|
|
|
19,136 |
|
Mutual funds - Real Estate |
|
|
- |
|
|
|
3,587 |
|
|
|
- |
|
|
|
3,587 |
|
Cash and cash equivalents |
|
|
146 |
|
|
|
- |
|
|
|
- |
|
|
|
146 |
|
Total |
|
$ |
146 |
|
|
$ |
146,838 |
|
|
$ |
19,136 |
|
|
$ |
166,120 |
|
The following table includes the activity that occurred during the years ended May 31, 2024 and 2023 for our Level 3 assets:
|
|
|
|
|
Actual Return on Plan Assets For: |
|
|
|
|
|
|
|
||||||||
|
|
Balance at |
|
|
Assets Still Held |
|
|
Assets Sold |
|
|
Purchases, Sales and |
|
|
Balance at |
|
|||||
(In thousands) |
|
Beginning of Period |
|
|
at Reporting Date |
|
|
During Year |
|
|
Settlements, net (1) |
|
|
End of Period |
|
|||||
Year ended May 31, 2024 |
|
$ |
19,418 |
|
|
|
1,051 |
|
|
|
- |
|
|
|
8 |
|
|
$ |
20,477 |
|
Year ended May 31, 2023 |
|
|
23,179 |
|
|
|
(2,399 |
) |
|
|
- |
|
|
|
(1,362 |
) |
|
|
19,418 |
|
71
The primary objective for the investments of the Retirement Plan is to provide for long-term growth of capital without undue exposure to risk. This objective is accomplished by utilizing a diversified portfolio strategy of equities, fixed-income securities and cash equivalents in a mix that is conducive to participation in a rising market, while allowing for adequate protection in a falling market. Our Investment Committee oversees the investment allocation process, which includes the selection and evaluation of investment managers, the determination of investment objectives and risk guidelines, and the monitoring of actual investment performance. In order to manage investment risk properly, Plan policy prohibits short selling, securities lending, financial futures, options and other specialized investments, except for certain alternative investments specifically approved by the Investment Committee. The Investment Committee reviews, on a quarterly basis, reports of actual Plan investment performance provided by independent third parties, in addition to its review of the Plan investment policy on an annual basis. The investment objectives are similar for our plans outside of the United States, subject to local regulations.
The goals of the investment strategy for pension assets include: the total return of the funds shall, over an extended period of time, surpass an index composed of the MSCI World Stock Index (equity), the Barclays Long-Term Government/Credit Index (fixed income), and 30-day Treasury Bills (cash), weighted appropriately to match the asset allocation of the plans. The equity portion of the funds shall surpass the MSCI World Stock Index over a full market cycle, while the fixed-income portion shall surpass Barclays Long-Term Government/Credit Index over a full market cycle. The purpose of the fixed-income fund is to reduce the overall volatility of the plan liabilities and provide a hedge against interest rate fluctuations. Therefore, the primary objective of the fixed-income portion is to match the Barclays Long-Term Government/Credit Index.
We expect to pay the following estimated pension benefit payments in the next five years (in millions): $67.0 in 2025, $73.4 in 2026, $76.3 in 2027, $80.0 in 2028 and $86.5 in 2029. In the five years thereafter (2030-2034), we expect to pay $432.5 million.
In addition to the defined benefit pension plans discussed above, we also sponsor associate savings plans under Section 401(k) of the Internal Revenue Code, which cover most of our associates in the United States. We record expense for defined contribution plans for any employer-matching contributions made in conjunction with services rendered by associates. The majority of our plans provide for matching contributions made in conjunction with services rendered by associates. Matching contributions are invested in the same manner that the participants invest their own contributions. Matching contributions charged to income were $29.8 million, $27.6 million and $24.7 million for the years ending May 31, 2024, 2023 and 2022, respectively.
NOTE O — POSTRETIREMENT BENEFITS
We sponsor several unfunded-healthcare-benefit plans for certain of our retired associates, as well as postretirement life insurance for certain former associates. Eligibility for these benefits is based upon various requirements. The following table illustrates the effect on operations of these plans for the three years ended May 31, 2024:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||||||||
(In thousands) |
|
2024 |
|
2023 |
|
2022 |
|
|
2024 |
|
2023 |
|
2022 |
|
||||||
Service cost |
|
$ |
- |
|
$ |
- |
|
$ |
- |
|
|
$ |
2,259 |
|
$ |
1,951 |
|
$ |
1,623 |
|
Interest cost |
|
|
87 |
|
|
84 |
|
|
41 |
|
|
|
1,550 |
|
|
1,374 |
|
|
1,124 |
|
Amortization of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Prior service (credit) |
|
|
- |
|
|
(121 |
) |
|
(161 |
) |
|
|
- |
|
|
- |
|
|
- |
|
Net actuarial (gains) losses |
|
|
(15 |
) |
|
43 |
|
|
61 |
|
|
|
(49 |
) |
|
(51 |
) |
|
121 |
|
Net Postretirement Benefit Cost (Income) |
|
$ |
72 |
|
$ |
6 |
|
$ |
(59 |
) |
|
$ |
3,760 |
|
$ |
3,274 |
|
$ |
2,868 |
|
The changes in benefit obligations of the plans at May 31, 2024 and 2023 were as follows:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Accumulated postretirement benefit obligation at beginning of year |
|
$ |
1,768 |
|
$ |
2,260 |
|
|
$ |
31,037 |
|
$ |
30,645 |
|
Service cost |
|
|
- |
|
|
- |
|
|
|
2,259 |
|
|
1,951 |
|
Interest cost |
|
|
87 |
|
|
84 |
|
|
|
1,550 |
|
|
1,374 |
|
Benefit payments |
|
|
(149 |
) |
|
(207 |
) |
|
|
(674 |
) |
|
(557 |
) |
Actuarial (gains) |
|
|
(85 |
) |
|
(369 |
) |
|
|
(7,983 |
) |
|
(276 |
) |
Currency exchange rate changes |
|
|
- |
|
|
- |
|
|
|
(131 |
) |
|
(2,100 |
) |
Accumulated and accrued postretirement benefit obligation at end of year |
|
$ |
1,621 |
|
$ |
1,768 |
|
|
$ |
26,058 |
|
$ |
31,037 |
|
In determining the postretirement benefit amounts outlined above, measurement dates as of May 31 for each period were applied.
72
Amounts recognized in the Consolidated Balance Sheets for the years ended May 31, 2024 and 2023 are as follows:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Current liabilities |
|
$ |
(194 |
) |
$ |
(207 |
) |
|
$ |
(895 |
) |
$ |
(989 |
) |
Noncurrent liabilities |
|
|
(1,427 |
) |
|
(1,561 |
) |
|
|
(25,163 |
) |
|
(30,048 |
) |
Net Amount Recognized |
|
$ |
(1,621 |
) |
$ |
(1,768 |
) |
|
$ |
(26,058 |
) |
$ |
(31,037 |
) |
The following table presents the pretax net actuarial gain recognized in accumulated other comprehensive income (loss) not affecting retained earnings:
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Net actuarial gain |
|
$ |
170 |
|
$ |
99 |
|
|
$ |
11,785 |
|
$ |
3,838 |
|
The following table includes the changes recognized in other comprehensive loss (income):
|
|
U.S. Plans |
|
|
Non-U.S. Plans |
|
||||||||
(In thousands) |
|
2024 |
|
2023 |
|
|
2024 |
|
2023 |
|
||||
Changes in plan assets and benefit obligations recognized in other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
||||
Net (gain) arising during the year |
|
$ |
(85 |
) |
$ |
(369 |
) |
|
$ |
(7,983 |
) |
$ |
(276 |
) |
Effect of exchange rates on amounts included in AOCI |
|
|
- |
|
|
- |
|
|
|
(13 |
) |
|
265 |
|
Amounts recognized as a component of net periodic benefit cost: |
|
|
|
|
|
|
|
|
|
|
||||
Amortization or curtailment recognition of prior service credit |
|
|
- |
|
|
121 |
|
|
|
- |
|
|
- |
|
Amortization or settlement recognition of net gain (loss) |
|
|
15 |
|
|
(44 |
) |
|
|
49 |
|
|
51 |
|
Total recognized in other comprehensive loss (income) |
|
$ |
(70 |
) |
$ |
(292 |
) |
|
$ |
(7,947 |
) |
$ |
40 |
|
The following weighted-average assumptions were used to determine our year-end benefit obligations and net periodic postretirement benefit costs under the plans:
|
|
U.S. Plans |
|
|
|
Non-U.S. Plans |
|
||||||||||||
Year-End Benefit Obligations |
|
2024 |
|
2023 |
|
2024 |
|
2023 |
|
||||||||||
Discount rate |
|
|
5.50 |
% |
|
|
|
5.20 |
% |
|
|
|
5.03 |
% |
|
|
|
5.10 |
% |
Current healthcare cost trend rate |
|
|
8.90 |
% |
|
|
|
6.00 |
% |
|
|
|
5.21 |
% |
|
|
|
5.53 |
% |
Ultimate healthcare cost trend rate |
|
|
4.04 |
% |
|
|
|
4.03 |
% |
|
|
|
3.70 |
% |
|
|
|
3.70 |
% |
Year ultimate healthcare cost trend rate will be realized |
|
|
2049 |
|
|
|
|
2045 |
|
|
|
|
2040 |
|
|
|
|
2040 |
|
|
|
U.S. Plans |
|
|
|
Non-U.S. Plans |
|
|
||||||||||||||||||||||
Net Periodic Postretirement Cost |
|
2024 |
|
2023 |
|
2022 |
|
2024 |
|
2023 |
|
2022 |
||||||||||||||||||
Discount rate |
|
|
5.20 |
% |
|
|
|
4.36 |
% |
|
|
|
2.47 |
% |
|
|
|
5.10 |
% |
|
|
|
5.13 |
% |
|
|
|
3.51 |
% |
|
Current healthcare cost trend rate |
|
|
6.00 |
% |
|
|
|
6.23 |
% |
|
|
|
6.07 |
% |
|
|
|
5.53 |
% |
|
|
|
5.58 |
% |
|
|
|
5.68 |
% |
|
Ultimate healthcare cost trend rate |
|
|
4.03 |
% |
|
|
|
4.03 |
% |
|
|
|
4.36 |
% |
|
|
|
3.70 |
% |
|
|
|
3.70 |
% |
|
|
|
3.70 |
% |
|
Year ultimate healthcare cost trend rate will be realized |
|
|
2045 |
|
|
|
|
2045 |
|
|
|
|
2037 |
|
|
|
|
2040 |
|
|
|
|
2040 |
|
|
|
|
2040 |
|
|
We expect to pay approximately $1.1 million to $1.4 million in estimated postretirement benefits in each of the next five years. In the five years thereafter (2030-2034), we expect to pay a cumulative total of $8.1 million.
NOTE P — CONTINGENCIES AND ACCRUED LOSSES
Accrued loss reserves consist of the following:
May 31, |
|
2024 |
|
2023 |
|
||
(In thousands) |
|
|
|
|
|
||
Accrued product liability and other loss reserves |
|
$ |
23,353 |
|
$ |
16,995 |
|
Accrued warranty reserves |
|
|
8,017 |
|
|
8,448 |
|
Accrued environmental reserves |
|
|
1,148 |
|
|
1,027 |
|
Total Accrued Loss Reserves - Current |
|
$ |
32,518 |
|
$ |
26,470 |
|
Accrued product liability and other loss reserves - noncurrent |
|
$ |
25,289 |
|
$ |
22,849 |
|
Accrued warranty liability - noncurrent |
|
|
3,604 |
|
|
3,328 |
|
Accrued environmental reserves - noncurrent |
|
|
2,574 |
|
|
6,173 |
|
Total Accrued Loss Reserves - Noncurrent |
|
$ |
31,467 |
|
$ |
32,350 |
|
73
Product Liability Matters
We provide, through our wholly owned insurance subsidiaries, certain insurance coverage, primarily product liability coverage, to our other subsidiaries. Excess coverage is provided by third-party insurers. Our product liability accruals provide for these potential losses, as well as other uninsured claims. Product liability accruals are established based upon actuarial calculations of potential liability using industry experience, actual historical experience and actuarial assumptions developed for similar types of product liability claims, including development factors and lag times. To the extent there is a reasonable possibility that potential losses could exceed the amounts already accrued, we believe that the amount of any such additional loss would be immaterial to our results of operations, liquidity and consolidated financial position.
Warranty Matters
We also offer warranties on many of our products, as well as long-term warranty programs at certain of our businesses, and have established product warranty liabilities. We review these liabilities for adequacy on a quarterly basis and adjust them as necessary. The primary factors that could affect these liabilities may include changes in performance rates, as well as costs of replacement. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted, as required, to reflect actual experience. It is probable that we will incur future losses related to warranty claims we have received but that have not been fully investigated and related to claims not yet received. While our warranty liabilities represent our best estimates at May 31, 2024, we can provide no assurances that we will not experience material claims in the future or that we will not incur significant costs to resolve such claims beyond the amounts accrued or beyond what we may recover from our suppliers. Based upon the nature of the expense, product warranty expense is recorded as a component of cost of sales or within SG&A.
Also, due to the nature of our businesses, the amount of claims paid can fluctuate from one period to the next. While our warranty liabilities represent our best estimates of our expected losses at any given time, from time to time we may revise our estimates based on our experience relating to factors such as weather conditions, specific circumstances surrounding product installations and other factors.
The following table includes the changes in our accrued warranty balances:
Year Ended May 31, |
|
2024 |
|
2023 |
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|||
Beginning Balance |
|
$ |
11,776 |
|
$ |
10,905 |
|
$ |
13,175 |
|
Deductions (1) |
|
|
(34,388 |
) |
|
(27,851 |
) |
|
(26,332 |
) |
Provision charged to expense |
|
|
34,233 |
|
|
28,722 |
|
|
24,062 |
|
Ending Balance |
|
$ |
11,621 |
|
$ |
11,776 |
|
$ |
10,905 |
|
Environmental Matters
Like other companies participating in similar lines of business, some of our subsidiaries are involved in environmental remediation matters. It is our policy to accrue remediation costs when the liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when we have committed to an appropriate plan of action. We also take into consideration the estimated period of time over which payments may be required. The liabilities are reviewed periodically and, as investigation and remediation activities continue, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value. The liabilities are not offset by possible recoveries from insurance carriers or other third parties but do reflect anticipated allocations among potentially responsible parties at federal superfund sites or similar state-managed sites, third party indemnity obligations, and an assessment of the likelihood that such parties will fulfill their obligations at such sites.
Other Contingencies
One of our former subsidiaries in our SPG reportable segment has been the subject of a proceeding in which one of its former distributors brought suit against the subsidiary for breach of contract. Following a June 2017 trial, a jury determined that the distributor was not entitled to any damages on the distributor’s claims. On appeal, the Ninth Circuit Court of Appeals ordered a new trial with respect to certain issues. On December 10, 2021, a new jury awarded $6.0 million in damages to the distributor. Per the parties’ contracts, the distributor was also entitled to seek recovery of some portion of its attorneys’ fees and costs. On July 3, 2023, the Ninth Circuit Court of Appeals issued its decision rejecting the distributor's arguments and denying all appellate relief to the distributor, which also rendered our cross-appeal moot. On November 15, 2023, the U.S. District Court for the Eastern District of California issued an order awarding the distributor approximately $4.4 million in connection with attorney's fees and costs the distributor allegedly incurred throughout the duration of this legal action. As a result of this order, we increased our accrual to $10.4 million as of November 30, 2023. On December 27, 2023, we paid the $6.0 million judgment, and then decreased our accrual to approximately $4.4 million. However, because we strongly disagree with the District Court's order awarding attorneys’ fees and costs to the distributor, we timely filed an appeal of this order with the Ninth Circuit Court of Appeals, which remains pending. We incurred SG&A expense of $4.4 million during fiscal 2024 related to this matter. This contingency remains a liability of the Company.
74
One of our subsidiaries in our Consumer reportable segment has been the subject of a proceeding in which a former supplier of that subsidiary alleges, among other claims, that the subsidiary breached certain contractual obligations. The jury trial in this matter is currently scheduled to occur in September 2024. While we continue to vigorously contest all the former supplier’s claims and alleged damages, the outcome of any legal proceeding is inherently unpredictable and subject to significant uncertainties. Given the stage of the litigation and based upon information presently known to management, we are not currently able to estimate the outcome of this proceeding or a possible range of loss, if any.
Gain on Business Interruption Insurance
In April 2021, there was a significant plant explosion at a key alkyd resin supplier which caused severe supply chain disruptions. As a result of this disruption, the Consumer segment incurred incremental costs and lost sales during fiscal 2021 and 2022. A claim for these losses was submitted under our business interruption insurance policy. The Consumer segment recovered $11.1 million and $20.0 million from insurance during the years ended May 31, 2024 and 2023, respectively. The insurance gain is recorded as a reduction to SG&A expenses in our Consolidated Statements of Income, and the proceeds are included within cash flows from operating activities in our Consolidated Statement of Cash Flows for the years ended May 31, 2024 and 2023.
NOTE Q — REVENUE
We operate a portfolio of businesses that manufacture and sell a variety of product lines that include specialty paints, protective coatings, roofing systems, sealants and adhesives, among other things. We disaggregate revenues from the sales of our products and services based upon geographical location by each of our reportable segments, which are aligned by similar economic factors, trends and customers, which best depict the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. See Note R, “Segment Information,” to the Consolidated Financial Statements for further details regarding our disaggregated revenues, as well as a description of each of the unique revenue streams related to each of our four reportable segments.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The majority of our revenue is recognized at a point in time. However, we also record revenues generated under construction contracts, mainly in connection with the installation of specialized roofing and flooring systems and related services. For certain polymer flooring installation projects, we account for our revenue using the output method, as we consider square footage of completed flooring to be the best measure of progress toward the complete satisfaction of the performance obligation. In contrast, for certain of our roofing installation projects, we account for our revenue using the input method, as that method is the best measure of performance as it considers costs incurred in relation to total expected project costs, which essentially represents the transfer of control for roofing systems to the customer. In general, for our construction contracts, we record contract revenues and related costs as our contracts progress on an over-time model.
We have elected to apply the practical expedient to recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. Payment terms and conditions vary by contract type, although our customers’ payment terms generally include a requirement to pay within 30 to 60 days of fulfilling our performance obligations. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component. We have elected to apply the practical expedient to treat all shipping and handling costs as fulfillment costs, as a significant portion of these costs are incurred prior to control transfer.
Significant Judgments
Our contracts with customers may include promises to transfer multiple products and/or services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For example, judgment is required to determine whether products sold in connection with the sale of installation services are considered distinct and accounted for separately, or not distinct and accounted for together with installation services and recognized over time.
We provide customer rebate programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. These customer programs and incentives are considered variable consideration and recognized as a reduction of net sales. Up-front consideration provided to customers is capitalized as a component of other assets and amortized over the estimated life of the contractual arrangement. We include in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. In general, this determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each reporting period. Certain of our contracts include contingent consideration that is receivable only upon the final inspection and acceptance of a project. We include estimates of such variable consideration in our transaction price. Based on historical experience, we consider the probability-based expected value method appropriate to estimate the amount of such variable consideration.
Our products are generally sold with a right of return, and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. We record a right of return liability to accrue for expected customer returns. Historical actual returns are used to estimate future returns as a percentage of current sales. Obligations for returns and refunds were not material individually or in the aggregate.
75
We offer assurance type warranties on our products as well as separately sold warranty contracts. Revenue related to warranty contracts that are sold separately is recognized over the life of the warranty term. Warranty liabilities for our assurance type warranties are discussed further in Note P, “Contingencies and Accrued Losses,” to the Consolidated Financial Statements.
Contract Balances
Timing of revenue recognition may differ from the timing of invoicing customers. Our contract assets are recorded for products and services that have been provided to our customer but have not yet been billed and are included in prepaid expenses and other current assets in our Consolidated Balance Sheets. Our short-term contract liabilities consist of advance payments, or deferred revenue, and are included in other accrued liabilities in our Consolidated Balance Sheets.
Trade accounts receivable, net of allowances, and net contract assets consisted of the following:
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
$ Change |
|
|
% Change |
|
||||
(In thousands, except percents) |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Trade accounts receivable, less allowances |
|
$ |
1,419,445 |
|
|
$ |
1,503,040 |
|
|
$ |
(83,595 |
) |
|
|
(5.6 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Contract assets |
|
$ |
57,833 |
|
|
$ |
49,188 |
|
|
$ |
8,645 |
|
|
|
17.6 |
% |
Contract liabilities - short-term |
|
|
(44,996 |
) |
|
|
(42,396 |
) |
|
|
(2,600 |
) |
|
|
6.1 |
% |
Net Contract Assets |
|
$ |
12,837 |
|
|
$ |
6,792 |
|
|
$ |
6,045 |
|
|
|
|
The $6.0 million increase in our net contract assets from May 31, 2023 to May 31, 2024, resulted primarily due to the timing and volume of construction jobs in progress at May 31, 2024 versus May 31, 2023. During the years ended May 31, 2024 and May 31, 2023 we recognized $38.8 million and $26.6 million of revenue, which was included in contract liabilities as of May 31, 2023 and 2022, respectively.
We also record long-term deferred revenue, which amounted to $81.7 million and $76.6 million as of May 31, 2024 and 2023, respectively. The long-term portion of deferred revenue is related to warranty contracts and is included in other long-term liabilities in our Consolidated Balance Sheets.
We have elected to adopt the practical expedient to not disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied as of the end of the reporting period for performance obligations that are part of a contract with an original expected duration of one year or less.
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. As our contract terms are primarily one year or less in duration, we have elected to apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales force compensation program and certain incentive programs as we have determined annual compensation is commensurate with annual sales activities.
Allowance for Credit Losses
Our primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the trade accounts receivable balance to the estimated net realizable value equal to the amount that is expected to be collected. The allowance was based on assessments of current creditworthiness of customers, historical collection experience, the aging of receivables and other currently available evidence. Trade accounts receivable balances are written-off against the allowance if a final determination of uncollectibility is made. All provisions for allowances for doubtful collection of accounts are included in SG&A expenses.
The following tables summarize the activity for the allowance for credit losses for the fiscal year ended May 31, 2024:
(In thousands) |
|
|
|
|
Balance at June 1, 2023 |
|
$ |
49,482 |
|
Bad debt provision |
|
|
18,375 |
|
Uncollectible accounts written off, net of recoveries |
|
|
(19,160 |
) |
Translation adjustments |
|
|
66 |
|
Balance at May 31, 2024 |
|
$ |
48,763 |
|
76
NOTE R — SEGMENT INFORMATION
We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings, roofing systems, flooring solutions, sealants, cleaners and adhesives. We manage our portfolio by organizing our businesses and product lines into four reportable segments as outlined below, which also represent our operating segments. Within each operating segment, we manage product lines and businesses which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities. Our four operating segments represent components of our business for which separate financial information is available that is utilized on a regular basis by our chief operating decision maker in determining how to allocate the assets of the company and evaluate performance. These four operating segments are each managed by an operating segment manager, who is responsible for the day-to-day operating decisions and performance evaluation of the operating segment’s underlying businesses. We evaluate the profit performance of our segments primarily based on income before income taxes, but also look to EBIT, as a performance evaluation measure because interest (income) expense, net is essentially related to corporate functions, as opposed to segment operations.
Effective June 1, 2023, certain Asia Pacific businesses and management structure, formerly of our CPG segment, were transferred to our PCG segment to create operating efficiencies and a more unified go-to-market strategy in Asia Pacific. As a result of this business realignment, $11.4 million of goodwill was transferred from the CPG segment to the PCG segment. Additionally, this realignment is reflected in our reportable segments beginning with fiscal 2022. As such, historical segment results have been recast to reflect the impact of this change.
Our CPG reportable segment products and services are sold throughout North America and also account for a significant portion of our international sales. Our construction product lines are sold directly to manufacturers, contractors, distributors and end-users, including industrial manufacturing facilities, concrete and cement producers, public institutions and other commercial customers. Products and services within this reportable segment include construction sealants and adhesives, coatings and chemicals, roofing systems, concrete admixture and repair products, building envelope solutions, parking decks, insulated cladding, firestopping, flooring systems, and weatherproofing solutions.
Our PCG reportable segment products and services are sold throughout North America, as well as internationally, and are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. Products and services within this reportable segment include high-performance flooring solutions, corrosion control and fireproofing coatings, infrastructure repair systems and FRP structures.
Our Consumer reportable segment manufactures and markets professional use and DIY products for a variety of mainly residential applications, including home improvement and personal leisure activities. Our Consumer reportable segment’s major manufacturing and distribution operations are located primarily in North America, along with a few locations in Europe, Australia and South America. Our Consumer reportable segment products are primarily sold directly to mass merchandisers, home improvement centers, hardware stores, paint stores, craft shops and through distributors. The Consumer reportable segment offers products that include specialty, hobby and professional paints; caulks; adhesives; cleaners; sandpaper and other abrasives; silicone sealants and wood stains. Sales to The Home Depot, Inc. represented less than 10% of our consolidated net sales for fiscal 2024, 2023 and 2022, respectively. Furthermore, sales to The Home Depot, Inc. represented 23%, 23% and 25% of our Consumer segment net sales for each of the fiscal years ended May 31, 2024, 2023 and 2022, respectively.
Our SPG reportable segment products are sold throughout North America and internationally, primarily in Europe. Our SPG product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The SPG reportable segment offers products that include restoration services equipment, colorants, nail enamels, factory applied industrial coatings, preservation products, and edible coatings and specialty glazes for pharmaceutical and food industries.
In addition to our four reportable segments, there is a category of certain business activities and expenses, referred to as corporate/other, that does not constitute an operating segment. This category includes our corporate headquarters and related administrative expenses, results of our captive insurance companies, gains or losses on the sales of investments and other expenses not directly associated with any reportable segment. Assets related to the corporate/other category consist primarily of investments, prepaid expenses and headquarters’ property and equipment. These corporate and other assets and expenses reconcile reportable segment data to total consolidated income before income taxes and identifiable assets.
We reflect income from our joint ventures on the equity method and receive royalties from our licensees.
77
The following tables present a disaggregation of revenues by geography, and the results of our reportable segments consistent with our management philosophy, by representing the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of businesses.
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Net Sales |
|
|
|
|
|
|
|
|
|
|||
CPG |
|
$ |
2,702,466 |
|
|
$ |
2,508,805 |
|
|
$ |
2,402,497 |
|
PCG |
|
|
1,462,460 |
|
|
|
1,433,634 |
|
|
|
1,272,368 |
|
Consumer |
|
|
2,457,949 |
|
|
|
2,514,770 |
|
|
|
2,242,047 |
|
SPG |
|
|
712,402 |
|
|
|
799,205 |
|
|
|
790,816 |
|
Total |
|
$ |
7,335,277 |
|
|
$ |
7,256,414 |
|
|
$ |
6,707,728 |
|
Income (Loss) Before Income Taxes |
|
|
|
|
|
|
|
|
|
|||
CPG |
|
$ |
385,339 |
|
|
$ |
300,971 |
|
|
$ |
389,443 |
|
PCG |
|
|
199,951 |
|
|
|
142,469 |
|
|
|
146,134 |
|
Consumer |
|
|
408,200 |
|
|
|
378,157 |
|
|
|
175,084 |
|
SPG |
|
|
43,784 |
|
|
|
103,279 |
|
|
|
121,937 |
|
Corporate/Other |
|
|
(249,437 |
) |
|
|
(275,494 |
) |
|
|
(225,799 |
) |
Total |
|
$ |
787,837 |
|
|
$ |
649,382 |
|
|
$ |
606,799 |
|
Identifiable Assets |
|
|
|
|
|
|
|
|
|
|||
CPG |
|
$ |
2,160,352 |
|
|
$ |
2,206,403 |
|
|
$ |
2,075,213 |
|
PCG |
|
|
1,164,165 |
|
|
|
1,209,819 |
|
|
|
1,200,638 |
|
Consumer |
|
|
2,283,370 |
|
|
|
2,384,782 |
|
|
|
2,405,764 |
|
SPG |
|
|
733,646 |
|
|
|
804,762 |
|
|
|
839,419 |
|
Corporate/Other |
|
|
245,010 |
|
|
|
176,238 |
|
|
|
186,672 |
|
Total |
|
$ |
6,586,543 |
|
|
$ |
6,782,004 |
|
|
$ |
6,707,706 |
|
Capital Expenditures |
|
|
|
|
|
|
|
|
|
|||
CPG |
|
$ |
77,796 |
|
|
$ |
109,878 |
|
|
$ |
92,566 |
|
PCG |
|
|
48,813 |
|
|
|
30,353 |
|
|
|
29,648 |
|
Consumer |
|
|
47,679 |
|
|
|
61,500 |
|
|
|
70,227 |
|
SPG |
|
|
29,720 |
|
|
|
49,801 |
|
|
|
26,939 |
|
Corporate/Other |
|
|
7,868 |
|
|
|
1,979 |
|
|
|
585 |
|
Total |
|
$ |
211,876 |
|
|
$ |
253,511 |
|
|
$ |
219,965 |
|
Depreciation and Amortization |
|
|
|
|
|
|
|
|
|
|||
CPG |
|
$ |
61,427 |
|
|
$ |
49,089 |
|
|
$ |
47,067 |
|
PCG |
|
|
24,787 |
|
|
|
23,968 |
|
|
|
23,229 |
|
Consumer |
|
|
55,199 |
|
|
|
52,081 |
|
|
|
50,857 |
|
SPG |
|
|
25,510 |
|
|
|
24,897 |
|
|
|
26,718 |
|
Corporate/Other |
|
|
4,328 |
|
|
|
4,914 |
|
|
|
5,203 |
|
Total |
|
$ |
171,251 |
|
|
$ |
154,949 |
|
|
$ |
153,074 |
|
78
Year Ended May 31, 2024 |
|
CPG |
|
|
PCG |
|
|
Consumer |
|
|
SPG |
|
|
Consolidated |
|
|||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales (based on shipping location) (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
United States |
|
$ |
1,695,403 |
|
|
$ |
875,713 |
|
|
$ |
2,014,689 |
|
|
$ |
599,812 |
|
|
$ |
5,185,617 |
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Canada |
|
|
265,287 |
|
|
|
90,801 |
|
|
|
165,222 |
|
|
|
5,015 |
|
|
|
526,325 |
|
Europe |
|
|
483,318 |
|
|
|
231,009 |
|
|
|
233,280 |
|
|
|
79,706 |
|
|
|
1,027,313 |
|
Latin America |
|
|
258,458 |
|
|
|
36,675 |
|
|
|
25,072 |
|
|
|
2,576 |
|
|
|
322,781 |
|
Asia Pacific |
|
|
- |
|
|
|
124,627 |
|
|
|
19,686 |
|
|
|
25,293 |
|
|
|
169,606 |
|
Other Foreign |
|
|
- |
|
|
|
103,635 |
|
|
|
- |
|
|
|
- |
|
|
|
103,635 |
|
Total Foreign |
|
|
1,007,063 |
|
|
|
586,747 |
|
|
|
443,260 |
|
|
|
112,590 |
|
|
|
2,149,660 |
|
Total |
|
$ |
2,702,466 |
|
|
$ |
1,462,460 |
|
|
$ |
2,457,949 |
|
|
$ |
712,402 |
|
|
$ |
7,335,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Year Ended May 31, 2023 |
|
CPG |
|
|
PCG |
|
|
Consumer |
|
|
SPG |
|
|
Consolidated |
|
|||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales (based on shipping location) (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
United States |
|
$ |
1,572,060 |
|
|
$ |
861,190 |
|
|
$ |
2,078,519 |
|
|
$ |
680,159 |
|
|
$ |
5,191,928 |
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Canada |
|
|
243,608 |
|
|
|
85,812 |
|
|
|
178,678 |
|
|
|
4,084 |
|
|
|
512,182 |
|
Europe |
|
|
469,064 |
|
|
|
233,872 |
|
|
|
212,558 |
|
|
|
81,260 |
|
|
|
996,754 |
|
Latin America |
|
|
224,073 |
|
|
|
39,395 |
|
|
|
26,315 |
|
|
|
1,720 |
|
|
|
291,503 |
|
Asia Pacific |
|
|
- |
|
|
|
123,301 |
|
|
|
18,700 |
|
|
|
31,982 |
|
|
|
173,983 |
|
Other Foreign |
|
|
- |
|
|
|
90,064 |
|
|
|
- |
|
|
|
- |
|
|
|
90,064 |
|
Total Foreign |
|
|
936,745 |
|
|
|
572,444 |
|
|
|
436,251 |
|
|
|
119,046 |
|
|
|
2,064,486 |
|
Total |
|
$ |
2,508,805 |
|
|
$ |
1,433,634 |
|
|
$ |
2,514,770 |
|
|
$ |
799,205 |
|
|
$ |
7,256,414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Year Ended May 31, 2022 |
|
CPG |
|
|
PCG |
|
|
Consumer |
|
|
SPG |
|
|
Consolidated |
|
|||||
(In thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Net Sales (based on shipping location) (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
United States |
|
$ |
1,423,473 |
|
|
$ |
739,731 |
|
|
$ |
1,829,384 |
|
|
$ |
647,660 |
|
|
$ |
4,640,248 |
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Canada |
|
|
265,933 |
|
|
|
76,085 |
|
|
|
144,032 |
|
|
|
7,208 |
|
|
|
493,258 |
|
Europe |
|
|
509,891 |
|
|
|
235,678 |
|
|
|
221,280 |
|
|
|
99,324 |
|
|
|
1,066,173 |
|
Latin America |
|
|
203,135 |
|
|
|
29,792 |
|
|
|
29,940 |
|
|
|
1,772 |
|
|
|
264,639 |
|
Asia Pacific |
|
|
- |
|
|
|
107,424 |
|
|
|
17,411 |
|
|
|
34,852 |
|
|
|
159,687 |
|
Other Foreign |
|
|
65 |
|
|
|
83,658 |
|
|
|
- |
|
|
|
- |
|
|
|
83,723 |
|
Total Foreign |
|
|
979,024 |
|
|
|
532,637 |
|
|
|
412,663 |
|
|
|
143,156 |
|
|
|
2,067,480 |
|
Total |
|
$ |
2,402,497 |
|
|
$ |
1,272,368 |
|
|
$ |
2,242,047 |
|
|
$ |
790,816 |
|
|
$ |
6,707,728 |
|
Year Ended May 31, |
|
2024 |
|
|
2023 |
|
|
2022 |
|
|||
(In thousands) |
|
|
|
|
|
|
|
|
|
|||
Long-Lived Assets (2) |
|
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
2,591,282 |
|
|
$ |
2,551,717 |
|
|
$ |
2,533,568 |
|
Foreign |
|
|
|
|
|
|
|
|
|
|||
Canada |
|
|
238,027 |
|
|
|
244,182 |
|
|
|
223,793 |
|
Europe |
|
|
383,320 |
|
|
|
357,359 |
|
|
|
324,001 |
|
United Kingdom |
|
|
241,788 |
|
|
|
245,411 |
|
|
|
259,956 |
|
Other Foreign |
|
|
203,256 |
|
|
|
183,697 |
|
|
|
195,665 |
|
Total Foreign |
|
|
1,066,391 |
|
|
|
1,030,649 |
|
|
|
1,003,415 |
|
Total |
|
$ |
3,657,673 |
|
|
$ |
3,582,366 |
|
|
$ |
3,536,983 |
|
79
Management’s Report on Internal Control Over Financials Reporting
The management of RPM International Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. RPM’s internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statements preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of RPM’s internal control over financial reporting as of May 31, 2024. In making this assessment, management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded that, as of May 31, 2024, RPM’s internal control over financial reporting is effective.
The independent registered public accounting firm Deloitte & Touche LLP, has also audited the Company’s internal control over financial reporting as of May 31, 2024, and their report thereon is included below.
/s/ Frank C. Sullivan |
|
/s/ Russell L. Gordon |
Frank C. Sullivan |
|
Russell L. Gordon |
Chairman, President and Chief Executive Officer |
|
Vice President and Chief Financial Officer |
|
|
|
July 25, 2024 |
|
|
80
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of RPM International Inc.
Opinion on Internal Control Over Financial Reporting
We have audited the internal control over financial reporting of RPM International Inc. and subsidiaries (the “Company”) as of May 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2024, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended May 31, 2024, of the Company and our report dated July 25, 2024, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Deloitte & Touche LLP
Cleveland, Ohio
July 25, 2024
81
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of RPM International Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of RPM International Inc. and subsidiaries (the "Company") as of May 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, cash flows, and stockholders’ equity, for each of the three years in the period ended May 31, 2024, and the related notes and schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of May 31, 2024, based on criteria established in Internal Control— Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 25, 2024, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill – Certain Reporting Units - Refer to Note C to the Consolidated Financial Statements
Critical Audit Matter Description
The Company's goodwill is tested annually on March 1st, or more frequently if events or changes in circumstances indicate that the assets might be impaired. The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to their carrying values. The Company determines the fair value of its reporting units using a combination of the income and the market approach. The determination of the fair value using the income approach requires management to make significant estimates and assumptions related to forecasts of future revenues, operating margins, and discount rates. The determination of the fair value using the market approach requires management to make significant assumptions related to earnings before interest, taxes, depreciation, and amortization (EBITDA) and EBITDA multiples. Changes in these assumptions could have significant impacts on either the fair value, the amount of any goodwill impairment charge, or both. The fair value of all reporting units exceeded the carrying values as of the annual measurement date and, therefore, no further impairment was recognized.
We identified goodwill of certain reporting units as a critical audit matter because of the significant judgments made by management to estimate the fair value of the reporting units and the difference between its fair value and carrying value. This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to selection of the discount rate and forecasts of future revenue and operating margin, EBITDA and EBITDA multiples.
82
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts of future revenues, operating margin, discount rate, EBITDA and the selection of EBITDA multiples for the certain reporting units included the following, amongst others:
/s/ Deloitte & Touche LLP
Cleveland, Ohio
July 25, 2024
We have served as the Company's auditor since 2016.
83
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Controls and Procedures.
(a) Evaluation of disclosure controls and procedures.
Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rule 13a-15) as of May 31, 2024 (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (2) is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.
(b) Management’s Report on Internal Control over Financial Reporting.
Management’s Report on Internal Control Over Financial Reporting and the attestation report of Deloitte & Touche LLP, our independent registered public accounting firm, are set forth above.
(c) Changes in internal control over financial reporting.
There were no changes in our internal control over financial reporting that occurred during the fourth fiscal quarter ended May 31, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
(b) Trading Arrangements.
During the year ended May 31, 2024, no Director or Section 16 officer adopted or terminated any Rule 10b5-1 trading arrangements or non-Rule 10b5-1 trading arrangements, nor do any of the Directors or Section 16 officers currently maintain any such arrangements.
Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
84
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Information required by this Item 10 as to our Directors appears under the caption “Proposal One - Election of Directors” in our 2024 Proxy Statement, which information is incorporated herein by reference. Information required by Item 405 of Regulation S-K is set forth in the 2024 Proxy Statement under the heading “Delinquent Section 16(a) Reports,” which information is incorporated herein by reference. Information required by Items 406, 407(c)(3), 407(d)(4) and 407(d)(5) of Regulation S-K is set forth in the 2024 Proxy Statement under the heading “Information Regarding Meetings and Committees of the Board of Directors,” which information is incorporated herein by reference. Information required by Item 408(b) of Regulation S-K is set forth in the 2024 Proxy Statement under the heading "Executive Compensation - Insider Trading Policy," which information is incorporated herein by reference.
The Charters of the Audit Committee, Compensation Committee and Governance and Nominating Committee, the Corporate Governance Guidelines and “The Values & Expectations of 168” (our code of business conduct and ethics) are available on our website at www.rpminc.com and in print to any stockholder who requests a copy. Requests for copies should be directed to Vice President - Investor Relations and Sustainability, RPM International Inc., 2628 Pearl Road, Medina, Ohio 44256. We intend to disclose any amendments to our code of business conduct and ethics, and any waiver of our code of business conduct and ethics granted to any of our Directors or Executive Officers on our website.
The name, age and positions of each of our Executive Officers as of July 25, 2024 are as follows:
Name |
|
Age |
|
Position and Offices Held |
Frank C. Sullivan |
|
63 |
|
Chairman, President and Chief Executive Officer |
Russell L. Gordon |
|
58 |
|
Vice President and Chief Financial Officer |
Edward W. Moore |
|
67 |
|
Senior Vice President, General Counsel and Chief Compliance Officer |
Janeen B. Kastner |
|
57 |
|
Vice President - Corporate Benefits and Risk Management |
Matthew T. Ratajczak |
|
56 |
|
Vice President - Global Tax and Treasurer |
Timothy R. Kinser |
|
61 |
|
Vice President - Operations |
Michael J. Laroche |
|
42 |
|
Vice President, Controller and Chief Accounting Officer |
Frank C. Sullivan was elected Chairman of the Board in 2008 and Chief Executive Officer in 2002. From 1999 to 2008, Mr. Sullivan served as our President, and again was elected President in 2018, and was Chief Operating Officer from 2001 to 2002. From 1995 to 1999, Mr. Sullivan served as Executive Vice President, and was Chief Financial Officer from 1993 to 1999. Mr. Sullivan served as a Vice President from 1991 to 1995. Prior thereto, he served as our Director of Corporate Development from 1989 to 1991. Mr. Sullivan served as Regional Sales Manager from 1987 to 1989 of AGR Company, an Ohio General Partnership formerly owned by us. Prior thereto, Mr. Sullivan was employed by First Union National Bank from 1985 to 1987 and Harris Bank from 1983 to 1985.
Russell L. Gordon was elected Vice President and Chief Financial Officer in 2012. Prior to that time, Mr. Gordon was the Company’s Vice President – Corporate Planning from 2007 to 2012. Mr. Gordon joined the Company as Director of Corporate Development in 1995. Prior to joining the Company, Mr. Gordon held various financial positions in corporate treasury and control as well as in the Specialty Chemicals Division of Goodrich Corporation. He previously was an industrial engineer at VLSI Technology Inc.
Edward W. Moore was elected Senior Vice President, General Counsel, Chief Compliance Officer and Secretary in 2013. He had been the Company’s Vice President, General Counsel and Secretary since 2007, adding the title of Chief Compliance Officer in 2011. From 1982 to 1989, Mr. Moore was an associate attorney, and from 1990 to 2006, a partner at Calfee, Halter & Griswold LLP. While at Calfee, Mr. Moore served in various capacities, including as a member of the Executive Committee, Chair of the Associates Committee, and Co-Chair of the Securities and Capital Markets Group.
Janeen B. Kastner was elected Vice President ― Corporate Benefits and Risk Management in 2007. Ms. Kastner had been our Director of Human Resources and Administration since 2000. Ms. Kastner joined the Company in 1997 as Manager of Benefits and Insurance. Prior to joining the Company, Ms. Kastner was a pension plan consultant with Watson Wyatt & Co.
Matthew T. Ratajczak was elected Vice President – Global Tax and Treasurer in 2012. Mr. Ratajczak joined the Company as director of taxes in 2004 and was elected Vice President – Global Taxes in 2005. Prior to joining the Company, he was Director of Global Tax for Noveon, Inc., a specialty chemicals company, and began his career with Ernst & Young LLP.
Timothy R. Kinser was elected Vice President - Operations in October 2021. He leads the Company's manufacturing, supply chain and environmental, health and safety functions across all business segments. Mr. Kinser most recently held the title of vice president of procurement since June 2018. He previously served as the executive vice president of operations at DAP Global Inc., an RPM operating company. Prior to joining DAP in 2007, he was executive director of manufacturing at a leading North American roofing manufacturer.
Michael J. Laroche was elected Vice President, Controller and Chief Accounting Officer in 2021. Prior to that time, Mr. Laroche was the Chief Financial Officer of the Company's Specialty Products Group. Mr. Laroche joined the Company as Controller of the Specialty Products Group in 2016. Prior to joining the Company, he was a senior manager at PricewaterhouseCoopers LLP.
85
Item 11. Executive Compensation.
The information required by this item is set forth in the 2024 Proxy Statement under the headings “Executive Compensation” and “Director Compensation,” which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this item is set forth in the 2024 Proxy Statement under the headings “Stock Ownership of Principal Holders and Management” and “Equity Compensation Plan Information,” which information is incorporated herein by reference.
The information required by this item is set forth in the 2024 Proxy Statement under the headings “Related Person Transactions” and “Information Regarding Meetings and Committees of the Board of Directors,” which information is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item is set forth in the 2024 Proxy Statement under the heading “Independent Registered Public Accounting Firm Services and Related Fee Arrangements,” which information is incorporated herein by reference.
86
PART IV
Item 15. Exhibits and Financial Statement Schedule.
(a) The following documents are filed as part of this report:
1. Financial Statements. The following financial statements are included in Part II, Item 8:
Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34)
Consolidated Balance Sheets —
May 31, 2024 and 2023
Consolidated Statements of Income —
fiscal years ended May 31, 2024, 2023 and 2022
Consolidated Statements of Comprehensive Income —
fiscal years ended May 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows —
fiscal years ended May 31, 2024, 2023 and 2022
Consolidated Statements of Stockholders’ Equity —
fiscal years ended May 31, 2024, 2023 and 2022
Notes to Consolidated Financial Statements
2. Financial Statement Schedule. Schedule II Valuation and Qualifying Accounts and Reserves for each of the three years in the period ended May 31, 2024
All other schedules have been omitted because they are not applicable or not required, or because the required information is included in the Consolidated Financial Statements or notes thereto.
3. Exhibits. The Exhibits listed on the accompanying index to exhibits are filed as part of this Annual Report on Form 10-K.
87
RPM INTERNATIONAL INC.
Exhibit Index
Exhibit |
|
|
|
Incorporated by reference herein |
||
Number |
|
Description |
|
Form |
|
Date |
3.1 |
|
Amended and Restated Certificate of Incorporation of the Company |
|
Registration Statement on Form S-8 (File No. 333-101501) |
|
November 27, 2002 |
|
|
|
|
|
|
|
3.2 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
January 30, 2024 |
|
|
|
|
|
|
|
|
4.1 |
|
Specimen Certificate of Common Stock, par value $0.01 per share, of the Company |
|
Registration Statement on Form S-8 (File No. 333-101501) |
|
November 27, 2002 |
|
|
|
|
|
|
|
4.2 |
|
Indenture, dated as of April 8, 2014, between the Company and Wells Fargo Bank, National Association |
|
Registration Statement on Form S-3 (File No. 333-195132) |
|
April 8, 2014 |
|
|
|
|
|
|
|
4.3 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
May 29, 2015 |
|
|
|
|
|
|
|
|
4.4 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
March 3, 2017 |
|
|
|
|
|
|
|
|
4.5 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
March 3, 2017 |
|
|
|
|
|
|
|
|
4.6 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
December 20, 2017 |
|
|
|
|
|
|
|
|
4.7 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
February 28, 2019 |
|
|
|
|
|
|
|
|
4.8 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
January 27, 2022 |
|
|
|
|
|
|
|
|
4.9 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 24, 2019 |
|
|
|
|
|
|
|
|
10.1 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
November 6, 2018 |
|
|
|
|
|
|
|
|
88
10.1.1 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
|
10.102 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 25, 2022 |
|
|
|
|
|
|
|
|
10.103 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 25, 2022 |
|
|
|
|
|
|
|
|
10.104 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
October 5, 2022 |
|
|
|
|
|
|
|
|
10.105 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
April 6, 2023 |
|
|
|
|
|
|
|
|
10.106 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.2 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
February 27, 2020 |
|
|
|
|
|
|
|
|
10.2.1 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
|
10.2.2 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 26, 2021 |
|
|
|
|
|
|
|
|
10.2.3 |
|
|
Previously shown as Exhibit 10.103 to Annual Report on Form 10-K (File No. 001-14187) |
|
July 25, 2022 |
|
|
|
|
|
|
|
|
10.2.4 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
October 5, 2022 |
|
|
|
|
|
|
|
|
10.3 |
|
Second Amended and Restated Receivables Sales Agreement dated May 9, 2014 |
|
Current Report on Form 8-K (File No. 001-14187) |
|
May 15, 2014 |
|
|
|
|
|
|
|
10.3.1 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
January 6, 2016 |
|
|
|
|
|
|
|
|
10.3.2 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
January 6, 2016 |
|
|
|
|
|
|
|
|
89
10.3.3 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
April 6, 2017 |
|
|
|
|
|
|
|
|
10.3.4 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
|
10.3.5 |
|
Amendment No. 5 to Second Amended and Restated Receivables Sale Agreement, dated as of June 18, 2018 |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
10.3.6 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
April 8, 2020 |
|
|
|
|
|
|
|
|
10.3.7 |
|
Amendment No. 7 to Second Amended and Restated Receivables Sale Agreement, dated as of June 5, 2020 |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
10.38 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 25, 2022 |
|
|
|
|
|
|
|
|
10.39 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 25, 2022 |
|
|
|
|
|
|
|
|
10.310 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 25, 2022 |
|
|
|
|
|
|
|
|
10.311 |
|
|
|
|
|
|
|
|
|
|
|
|
|
10.4 |
|
Amended and Restated Receivables Purchase Agreement, dated May 9, 2014 |
|
Current Report on Form 8-K (File No. 001-14187) |
|
May 15, 2014 |
|
|
|
|
|
|
|
10.4.1 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
April 8, 2015 |
|
|
|
|
|
|
|
|
10.4.2 |
|
Amendment No. 2 to Amended and Restated Receivables Purchase Agreement, dated as of May 2, 2017 |
|
Current Report on Form 8-K (File No. 001-14187) |
|
May 8, 2017 |
|
|
|
|
|
|
|
10.4.3 |
|
Amendment No. 3 to Amended and Restated Receivables Purchase Agreement, dated as of June 18, 2018 |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
10.4.4 |
|
Amendment No. 4 to Amended and Restated Receivables Purchase Agreement, dated as of May 8, 2020 |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
10.4.5 |
|
Amendment No. 5 to Amended and Restated Receivables Purchase Agreement, dated as of May 22, 2020 |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 27, 2020 |
|
|
|
|
|
|
|
10.4.6 |
|
Amendment No. 6 to Amended and Restated Receivables Purchase Agreement, dated as of March 18, 2021 |
|
Current Report on Form 8-K (File No. 001-14187) |
|
March 24, 2021 |
|
|
|
|
|
|
|
10.47 |
|
Amendment No. 7 to Amended and Restated Receivables Purchase Agreement, dated as of March 1, 2022 |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 25, 2022 |
|
|
|
|
|
|
|
10.48 |
|
Amendment No. 8 to Amended and Restated Receivables Purchase Agreement, dated as of March 23, 2023 |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 26, 2023 |
|
|
|
|
|
|
|
10.49 |
|
Amendment No. 9 to Amended and Restated Receivables Purchase Agreement, dated as of May 20, 2024 (x) |
|
|
|
|
|
|
|
|
|
|
|
10.5 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
May 15, 2014 |
|
|
|
|
|
|
|
|
*10.6 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
April 9, 2009 |
90
|
|
|
|
|
|
|
*10.7 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
October 7, 2011 |
|
|
|
|
|
|
|
|
*10.8 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
January 13, 2003 |
|
|
|
|
|
|
|
|
*10.9 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 26, 2021 |
|
|
|
|
|
|
|
|
*10.9.1 |
|
Master Trust Agreement for RPM International Inc. Deferred Compensation Plan |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
August 29, 2002 |
|
|
|
|
|
|
|
10.10 |
|
Second Amendment and Restated Collection Account Agreement, dated July 29, 2010 |
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
October 6, 2010 |
|
|
|
|
|
|
|
*10.11 |
|
RPM International Inc. 2014 Omnibus Equity and Incentive Plan, effective October 10, 2014 |
|
Definitive Proxy Statement (File No. 001-14187) |
|
August 26, 2014 |
|
|
|
|
|
|
|
*10.11.1 |
|
|
Definitive Proxy Statement (File No. 001-14187) |
|
August 30, 2018 |
|
|
|
|
|
|
|
|
*10.11.2 |
|
|
Definitive Proxy Statement (File No. 001-14187) |
|
August 27, 2019 |
|
|
|
|
|
|
|
|
*10.113 |
|
Form of Performance Stock Unit (PSU) and Escrow Agreement (for awards since 2014) (x) |
|
|
|
|
|
|
|
|
|
|
|
*10.114 |
|
Form of Performance-Earned Restricted Stock (PERS) and Escrow Agreement (for awards since 2014) (x) |
|
|
|
|
|
|
|
|
|
|
|
*10.115 |
|
Form of Stock Appreciation Rights Agreement (for awards since 2014) (x) |
|
|
|
|
|
|
|
|
|
|
|
*10.116 |
|
|
|
|
|
|
|
|
|
|
|
|
|
*10.12 |
|
RPM International Inc. Amended and Restated Incentive Compensation Plan |
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
October 9, 2007 |
|
|
|
|
|
|
|
*10.13 |
|
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 24, 2013 |
|
|
|
|
|
|
|
|
10.14 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
July 31, 2014 |
|
|
|
|
|
|
|
|
10.15 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
December 23, 2014 |
|
|
|
|
|
|
|
|
*10.16 |
|
|
Quarterly Report on Form 10-Q (File No. 001-14187) |
|
October 7, 2015 |
|
|
|
|
|
|
|
|
10.17 |
|
|
Current Report on Form 8-K (File No. 001-14187) |
|
June 28, 2018 |
91
|
|
International, L.P., and Elliott International Capital Advisors Inc. |
|
|
|
|
|
|
|
|
|
|
|
*10.18 |
|
Employment Agreement by and between the Company and Timothy R. Kinser, Vice President – Operations |
|
Annual Report on Form 10-K (File No. 001-14187) |
|
July 26, 2023 |
|
|
|
|
|
|
|
19.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
21.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
23.1 |
|
Consent of Independent Registered Public Accounting Firm (x) |
|
|
|
|
|
|
|
|
|
|
|
31.1 |
|
Rule 13a-14(a) Certification of the Company’s Chief Executive Officer (x) |
|
|
|
|
|
|
|
|
|
|
|
31.2 |
|
Rule 13a-14(a) Certification of the Company’s Chief Financial Officer (x) |
|
|
|
|
|
|
|
|
|
|
|
32.1 |
|
Section 1350 Certification of the Company’s Chief Executive Officer (xx) |
|
|
|
|
|
|
|
|
|
|
|
32.2 |
|
Section 1350 Certification of the Company Chief Financial Officer (xx) |
|
|
|
|
|
|
|
|
|
|
|
97.1 |
|
RPM International Inc. Incentive-Based Compensation Clawback Policy (x) |
|
|
|
|
|
|
|
|
|
|
|
101.INS |
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Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document. |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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101.CAL |
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Incline XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document. |
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104 |
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Cover page Interactive Data File |
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* Management contract or compensatory plan or arrangement.
(x) Filed herewith.
(xx) Furnished herewith.
92
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RPM INTERNATIONAL INC. |
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By: |
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/s/ Frank C. Sullivan |
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Frank C. Sullivan |
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Chairman, President and Chief Executive Officer |
Date: July 25, 2024
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities indicated this 25th day of July, 2024.
Signature |
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Title |
/s/ Frank C. Sullivan |
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Chairman, President, Chief Executive Officer and a Director |
Frank C. Sullivan |
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(Principal Executive Officer) |
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/s/ Russell L. Gordon |
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Vice President and Chief Financial Officer |
Russell L. Gordon |
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(Principal Financial Officer) |
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/s/ Michael J. Laroche |
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Vice President, Controller and Chief Accounting Officer |
Michael J. Laroche |
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(Principal Accounting Officer) |
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/s/ Kirkland B. Andrews |
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Director |
Kirkland B. Andrews |
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/s/ John M. Ballbach |
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Director |
John M. Ballbach |
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/s/ Bruce A. Carbonari |
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Director |
Bruce A. Carbonari |
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/s/ Jenniffer D. Deckard |
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Director |
Jenniffer D. Deckard |
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/s/ Salvatore D. Fazzolari |
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Director |
Salvatore D. Fazzolari |
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/s/ Robert A. Livingston |
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Director |
Robert A. Livingston |
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/s/ Frederick R. Nance |
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Director |
Frederick R. Nance |
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/s/ Ellen M. Pawlikowski |
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Director |
Ellen M. Pawlikowski |
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/s/ William B. Summers, Jr. |
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Director |
William B. Summers, Jr. |
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/s/ Elizabeth F. Whited |
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Director |
Elizabeth F. Whited |
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93
RPM International Inc. and Subsidiaries
Valuation And Qualifying Accounts and Reserves (Schedule II)
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Acquisitions |
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(Disposals) |
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Balance at |
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Additions |
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of Businesses |
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Balance at |
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Beginning |
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Charged to |
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and |
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(Deductions) |
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End |
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(In thousands) |
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of Period |
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Expense |
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Reclassifications |
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Additions |
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of Period |
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Year Ended May 31, 2024 |
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Current: |
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Allowance for credit losses |
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$ |
49,482 |
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$ |
18,375 |
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$ |
— |
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$ |
(19,094 |
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(1) |
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$ |
48,763 |
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Accrued product liability and other loss reserves |
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$ |
16,995 |
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$ |
19,991 |
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$ |
— |
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$ |
(13,633 |
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(2) |
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$ |
23,353 |
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Accrued environmental reserves |
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$ |
1,027 |
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$ |
380 |
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$ |
325 |
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$ |
(584 |
) |
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$ |
1,148 |
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Noncurrent: |
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Accrued product liability and other loss reserves |
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$ |
22,849 |
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$ |
8,803 |
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$ |
— |
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$ |
(6,363 |
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(2) |
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$ |
25,289 |
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Accrued environmental reserves |
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$ |
6,173 |
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$ |
582 |
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$ |
(325 |
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$ |
(3,856 |
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$ |
2,574 |
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Year Ended May 31, 2023 |
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Current: |
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Allowance for credit losses |
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$ |
46,669 |
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$ |
13,557 |
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$ |
— |
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$ |
(10,744 |
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(1) |
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$ |
49,482 |
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Accrued product liability and other loss reserves |
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$ |
16,003 |
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$ |
10,056 |
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$ |
76 |
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$ |
(9,140 |
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(2) |
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$ |
16,995 |
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Accrued environmental reserves |
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$ |
1,055 |
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$ |
932 |
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$ |
— |
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$ |
(960 |
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$ |
1,027 |
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Noncurrent: |
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Accrued product liability and other loss reserves |
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$ |
26,226 |
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$ |
3,055 |
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$ |
— |
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$ |
(6,432 |
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(2) |
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$ |
22,849 |
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Accrued environmental reserves |
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$ |
6,254 |
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$ |
271 |
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$ |
— |
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$ |
(352 |
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$ |
6,173 |
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Year Ended May 31, 2022 |
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Current: |
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Allowance for credit losses |
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$ |
55,922 |
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$ |
4,326 |
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$ |
— |
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$ |
(13,579 |
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(1) |
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$ |
46,669 |
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Accrued product liability and other loss reserves |
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$ |
18,297 |
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$ |
8,358 |
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$ |
— |
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$ |
(10,652 |
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(2) |
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$ |
16,003 |
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Accrued environmental reserves |
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$ |
1,329 |
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$ |
674 |
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$ |
— |
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$ |
(948 |
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$ |
1,055 |
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Noncurrent: |
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Accrued product liability and other loss reserves |
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$ |
26,614 |
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$ |
10,760 |
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$ |
— |
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$ |
(11,148 |
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(2) |
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$ |
26,226 |
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Accrued environmental reserves |
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$ |
6,267 |
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$ |
318 |
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$ |
— |
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$ |
(331 |
) |
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$ |
6,254 |
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94
EXECUTION VERSION
AMENDMENT NO. 9 TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT
This AMENDMENT NO. 9 TO AMENDED AND RESTATED RECEIVABLES PURCHASE AGREEMENT (this “Amendment”), dated as of May 20, 2024, is among RPM FUNDING CORPORATION, a Delaware corporation (“Seller”), RPM INTERNATIONAL INC., a Delaware corporation (“RPM-Delaware”), as servicer and as performance guarantor (in such capacity, the “Performance Guarantor”), WELLS FARGO BANK, NATIONAL ASSOCIATION (“Wells Fargo”), as a Purchaser, PNC BANK, NATIONAL ASSOCIATION (“PNC”), as a Purchaser and as administrative agent for the Purchasers (in such capacity, the “Administrative Agent”), and PNC CAPITAL MARKETS LLC, as structuring agent (in such capacity, the “Structuring Agent”).
RECITALS
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Amendment No. 9 to A&R RPA (RPM) |
4875-3145-6460, v.2
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
765796072 14448925 |
- 2 - |
Amendment No. 9 to A&R RPA (RPM) |
4875-3145-6460, v.2
765796072 14448925 |
- 3 - |
Amendment No. 9 to A&R RPA (RPM) |
4875-3145-6460, v.2
765796072 14448925 |
- 4 - |
Amendment No. 9 to A&R RPA (RPM) |
4875-3145-6460, v.2
[Signature pages to follow]
765796072 14448925 |
- 5 - |
Amendment No. 9 to A&R RPA (RPM) |
4875-3145-6460, v.2
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.
RPM FUNDING CORPORATION,
as Seller
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: Secretary
765796072 14448925 |
S-1 |
Amendment No.9 to A&R RPA (RPM) |
4875-3145-6460, v.2
RPM INTERNATIONAL INC.,
as Servicer and Performance Guarantor
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: Senior Vice President, General Counsel, Chief Compliance Officer and Secretary
765796072 14448925 |
S-2 |
Amendment No.9 to A&R RPA (RPM) |
4875-3145-6460, v.2
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as a Purchaser
By: /s/ Taylor Cloud
Name: Taylor Cloud
Title: Director
765796072 14448925 |
S-3 |
Amendment No.9 to A&R RPA (RPM) |
4875-3145-6460, v.2
PNC BANK, NATIONAL ASSOCIATION,
as a Purchaser and as Administrative Agent
By: /s/ Michael Brown
Name: Michael Brown
Title: Executive Vice President
PNC CAPITAL MARKETS LLC,
as Structuring Agent
By: /s/ Michael Brown
Name: Michael Brown
Title: Managing Director
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765796072 14448925 |
S-4 |
Amendment No.9 to A&R RPA (RPM) |
4875-3145-6460, v.2
EXECUTION VERSION
Exhibit A to Eleventh Amendment to the Second Amended and Restated Receivables Sale Agreement
Exhibit A
SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
dated as of May 9, 2014
among
THE ORIGINATORS FROM TIME TO TIME PARTY HERETO
and
RPM FUNDING CORPORATION,
as Buyer
765800784 14448925
4871-5521-5052, v.3
TABLE OF CONTENTS
Page
ARTICLE I AMOUNTS AND TERMS 2
Section 1.1 [Reserved] 2
Section 1.2 Sales of Receivables 2
Section 1.3 Payment for the Purchases 2
Section 1.4 Purchase Price Credit Adjustments 4
Section 1.5 Payments and Computations, Etc 4
Section 1.6 Transfer of Records 4
Section 1.7 Characterization 5
ARTICLE II REPRESENTATIONS AND WARRANTIES 6
Section 2.1 Representations and Warranties of Originators 6
ARTICLE III CONDITIONS OF PURCHASE 10
Section 3.1 Conditions Precedent to Initial Purchase 10
Section 3.2 Conditions Precedent to Subsequent Payments 10
Section 3.3 Reaffirmation of Representations and Warranties 10
ARTICLE IV COVENANTS10
Section 4.1 Affirmative Covenants of Originators 10
Section 4.2 Negative Covenants of Originators 16
ARTICLE V TERMINATION EVENTS17
Section 5.1 Termination Events 18
Section 5.2 Remedies 19
ARTICLE VI INDEMNIFICATION19
Section 6.1 Indemnities by Originators 19
Section 6.2 Other Costs and Expenses 21
ARTICLE VII MISCELLANEOUS22
Section 7.1 Waivers and Amendments 22
Section 7.2 Notices 22
Section 7.3 Protection of Ownership Interests of Buyer 22
Section 7.4 Confidentiality 23
Section 7.5 Bankruptcy Petition 24
Section 7.6 CHOICE OF LAW 24
Section 7.7 CONSENT TO JURISDICTION 24
Section 7.8 WAIVER OF JURY TRIAL 24
Section 7.9 Integration; Binding Effect; Survival of Terms 24
Section 7.10 Counterparts; Severability; Section References 25
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765800784 14448925
4871-5521-5052, v.3
Exhibits and Schedules
Exhibit I - Definitions
Exhibit II - States of Organization; Chief Executive Offices; Locations of Records; Federal Employer Identification Numbers; Organizational Identification Numbers; Other Names
Exhibit III - Lock-Boxes; Collection Accounts; Collection Banks
Exhibit IV - [Form of] Compliance Certificate
Exhibit V - Credit and Collection Policy
Exhibit VI - [Form of] Subordinated Note
Exhibit VII - [Form of] Receivables Report for Each Originator
Schedule A - Preferred Shares
Schedule B - List of Documents to Be Delivered to Buyer Prior to the initial Purchase
765800784 14448925 ii
4871-5521-5052, v.3
SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
THIS SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT, dated as of May 9, 2014, is by and among each of the parties from time to time party hereto as an Originator (each, an “Originator” and collectively, the “Originators”), and RPM Funding Corporation, a Delaware corporation (“Buyer”). Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I hereto (or, if not defined in Exhibit I hereto, the meanings assigned to such terms in Exhibit I to the Purchase Agreement hereinafter defined).
PRELIMINARY STATEMENTS
Each of the Originators and the Buyer are parties to an Amended and Restated Receivables Sale Agreement dated as of April 7, 2009, as heretofore amended from time to time (the “Existing Agreement”). The parties hereto agree to amend and restate the Existing Agreement on the terms and subject to the conditions hereinafter set forth.
Each of the Originators now owns, and from time to time hereafter will own, Receivables. Each of the Originators wishes to sell and assign to Buyer, and Buyer wishes to purchase from such Originator, all of such Originator’s right, title and interest in and to its Receivables, together with the Related Security and Collections with respect thereto.
Each of the Originators and Buyer intends the transactions contemplated hereby to be true sales of the Receivables from such Originator to Buyer, providing Buyer with the full benefits of ownership of the Receivables originated by such Originator, and none of the Originators or Buyer intends these transactions to be, or for any purpose to be characterized as, loans from Buyer to any Originator.
Buyer will sell undivided interests in the Receivables and in the associated Related Security and Collections pursuant to that certain Amended and Restated Receivables Purchase Agreement dated as of the date hereof (as the same may from time to time hereafter be amended, supplemented, restated or otherwise modified, the “Purchase Agreement”) among Buyer, RPM International Inc., a Delaware corporation (“RPM-Delaware”), as initial Servicer, Wells Fargo Bank, National Association (“Wells Fargo”), and PNC Bank, National Association (“PNC” and each of Wells Fargo and PNC, a “Purchaser” and, collectively, the “Purchasers”), and PNC, in its capacity as administrative agent for the Purchasers (in such capacity, together with its successors and assigns, the “Administrative Agent”).
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
765800784 14448925
4871-5521-5052, v.3
765800784 14448925 2
4871-5521-5052, v.3
first, by delivery of immediately available funds, to the extent of funds available to Buyer from its subsequent sale of an interest in the Receivables to the Administrative Agent for the benefit of the Purchasers under the Purchase Agreement, or other cash on hand; and/or
second, by delivery of the proceeds of a subordinated loan from such Originator to Buyer (a “Subordinated Loan”) in an amount not to exceed the least of (A) the remaining unpaid portion of such Purchase Price, and (B) the maximum Subordinated Loan that could be borrowed without rendering Buyer’s Net Worth less than the Required Capital Amount. Such Originator is hereby authorized by Buyer to endorse on the schedule attached to its Subordinated Note an appropriate notation evidencing the date and amount of each advance thereunder, as well as the date of each payment with respect thereto, provided that the failure to make such notation shall not affect any obligation of Buyer thereunder; and/or
third, by accepting such Receivables as a contribution to Buyer’s preferred equity capital associated with such Originator’s Preferred Shares identified on Schedule A hereto; provided that no such capital contribution shall be made from and after the date on which any Originator notifies Buyer in writing that it has designated a date as such Originator’s Termination Date.
Subject to the limitations set forth in clause second above, each Originator irrevocably agrees to advance each Subordinated Loan requested by Buyer on or prior to such Originator’s Termination Date. The Subordinated Loans shall be evidenced by, and shall be payable in accordance with the terms and provisions of such Originator’s Subordinated Note and shall be payable solely from funds which Buyer is not required under the Purchase Agreement to set aside for the benefit of, or otherwise pay over to, the Administrative Agent or the Purchasers.
765800784 14448925 3
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765800784 14448925 6
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765800784 14448925 7
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765800784 14448925 8
4871-5521-5052, v.3
[Reserved].
[Reserved].
Anti-Terrorism Law Compliance
765800784 14448925 9
4871-5521-5052, v.3
No Sanctions
765800784 14448925 10
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4871-5521-5052, v.3
Each Originator shall use commercially reasonable efforts to ensure that no funds are deposited into any Collection Account other than (i) solely prior to the Subject Receivables End Date, Subject Collections in an amount not to exceed $3,000,000 during any calendar month or (ii) Collections on Receivables. If funds other than Collections are nevertheless deposited into any Collection Account, such Originator shall (or shall instruct the Servicer to) promptly remit such items to the Person identified to it as being the owner of such remittances in accordance with the Receivables Purchase Agreement. In connection with receiving any Subject Collections in any Collection Account: (i) such Originator shall at all times maintain such books and records necessary to (A) identify Subject Collections received from time to time and (B) segregate such Subject Collections from other property of the Buyer and the Purchaser Parties and (ii) each Originator shall provide (or shall instruct the Servicer to provide) such information with respect to Subject Collections deposited into each Collection Account (and any related Lock-Box) as reasonably requested by the Buyer or the Administrative Agent from time to time.
765800784 14448925 16
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765800784 14448925 20
4871-5521-5052, v.3
provided, however, that nothing contained in this sentence shall limit the liability of such Originator or limit the recourse of Buyer to such Originator for amounts otherwise specifically provided to be paid by such Originator under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, but subject to the exclusions in clauses (a), (b) and (c) above, each Originator shall indemnify Buyer for Indemnified Amounts (including, without limitation, losses in respect of uncollectible Receivables, regardless of whether reimbursement therefor would constitute recourse to such Originator) relating to or resulting from:
765800784 14448925 21
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[SIGNATURE PAGES FOLLOW]
765800784 14448925 26
4871-5521-5052, v.3
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof.
RUST-OLEUM CORPORATION
THE EUCLID CHEMICAL COMPANY
WEATHERPROOFING TECHNOLOGIES, INC.
DAP GLOBAL INC.
TREMCO CPG INC.
By:
Name:
Title:
765800784 14448925 S-1 Second A&R Receivables Sale Agreement
4871-5521-5052, v.3
RPM FUNDING CORPORATION
By:
Name:
Title:
765800784 14448925 S-2 Second A&R Receivables Sale Agreement
4871-5521-5052, v.3
Exhibit I
Definitions
This is Exhibit I to the Agreement (as hereinafter defined). As used in the Agreement and the Exhibits and Schedules thereto, capitalized terms have the meanings set forth in this Exhibit I (such meanings to be equally applicable to the singular and plural forms thereof). If a capitalized term is used in the Agreement, or any Exhibit or Schedule thereto, and not otherwise defined therein or in this Exhibit I, such term shall have the meaning assigned thereto in Exhibit I to the Purchase Agreement.
“Administrative Agent” has the meaning set forth in the Preliminary Statements to the Agreement.
“Agreement” means the Second Amended and Restated Receivables Sale Agreement, dated as of May 9, 2014, among the Originators and Buyer, as the same may be amended, restated or otherwise modified.
“Amortization Event” has the meaning set forth in the Purchase Agreement.
“Authorized Officer” means, with respect to each Originator, its president, corporate controller, chief financial officer, treasurer or secretary.
“Buyer” has the meaning set forth in the preamble to the Agreement.
“Calculation Period” means each calendar month or portion thereof which elapses during the term of the Agreement. The first Calculation Period for each Originator shall commence on the date of the initial Purchase of Receivables from such Originator hereunder and the final Calculation Period shall terminate on its Termination Date.
“Change of Control” means (a) the acquisition by any Person (other than Parent), or two or more Persons acting in concert (other than Parent and any Subsidiary of Parent), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of RPM-Delaware (or, once applicable, Parent) or (b) RPM-Delaware (or, once applicable, Parent) ceases to own, directly or indirectly, 100% of the outstanding voting stock of any Originator or Buyer.
“Collections” means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all yield, Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable.
“Credit and Collection Policy” means each Originator’s credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit V, as modified from time to time in accordance with the Agreement.
765800784 14448925 Exhibit I-1
4871-5521-5052, v.3
“Deemed Collections” means the aggregate of all amounts an Originator shall have been deemed to have received as a Collection of a Receivable sold by it. An Originator shall be deemed to have received a Collection (but only to the extent of the reduction or cancellation identified below) of a Receivable sold by it if at any time (i) the Outstanding Balance of any such Receivable is either (x) reduced as a result of any defective or rejected goods or services, any discount or any adjustment or otherwise by such Originator (other than cash Collections on account of the Receivables) or (y) reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (ii) any of the representations or warranties in Article II were not true with respect to such Receivable at the time of its sale hereunder (in which case, such Originator shall be deemed to have received a Collection in an amount equal to the Outstanding Balance of such Receivable).
“Default Fee” means a per annum rate of interest equal to the sum of (i) the Alternate Base Rate, plus (ii) 2% per annum (computed for actual days elapsed on the basis of a year consisting of 360 days).
“Discount Factor” means, with respect to any Receivable, a percentage calculated to provide Buyer with a reasonable return on its investment in such Receivable after taking account of (i) the time value of money based upon the anticipated dates of collection of such Receivable and the cost to Buyer of financing its investment in such Receivable during such period and (ii) the risk of nonpayment by the related Obligor. Each Originator and Buyer may agree from time to time to change the Discount Factor with respect to the Receivables originated by such Originator based on changes in one or more of the items affecting the calculation thereof, provided that any change to the Discount Factor shall take effect as of the commencement of a Calculation Period, shall apply only prospectively and shall not affect the Purchase Price payment in respect of a Purchase which occurred during any Calculation Period ending prior to the Calculation Period during which any Originator and Buyer agree to make such change.
“Excluded Obligor” means AutoZone, Inc.
“Excluded Receivable” means any account or other right to payment arising from the sale of goods or the rendering of services by Rust-Oleum Corporation and the Obligor of which is either (i) Lowe’s Companies, Inc. or its Subsidiaries or (ii) Advance Stores Company, Incorporated or its Subsidiaries.
“Finance Charges” means, with respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract.
“Initial Cutoff Date” means the close of business on June 6, 2002.
“Intended Characterization” means, for income tax purposes, the characterization of the acquisition by the Purchasers of Purchaser Interests under the Purchase Agreement as a loan or loans by the Purchasers to the Seller secured by the Receivables, the Related Security and the Collections.
765800784 14448925 Exhibit I-2
4871-5521-5052, v.3
“Material Adverse Effect” means a material adverse effect on (i) the financial condition or operations of any Originator, or of RPM-Delaware (or, once applicable, Parent) and its Subsidiaries, taken as a whole, (ii) the ability of any Originator to perform its obligations under the Agreement or any other Transaction Document, (iii) the legality, validity or enforceability of the Agreement or any other Transaction Document, (iv) Buyer’s (or any of its assigns’) interest in the Receivables generally or in any significant portion of the Receivables, the Related Security or Collections with respect thereto, or (v) the collectability of the Receivables generally or of any material portion of the Receivables, in each case, relating to Receivables sold by such Originator hereunder.
“Material Indebtedness” means (a) with respect to the Performance Guarantor and its Subsidiaries (other than the Originators), Indebtedness in excess of $75 million in aggregate principal amount and (b) with respect to any Originator, Indebtedness in excess of $20 million in aggregate principal amount.
“Net Worth” means as of the last Business Day of each Calculation Period preceding any date of determination, the excess, if any, of (a) the aggregate Outstanding Balance of the Receivables at such time, over (b) the sum of (i) the Aggregate Capital outstanding at such time, plus (ii) the aggregate outstanding principal balance of the Subordinated Loans (including any Subordinated Loan proposed to be made on the date of determination).
“Obligor” means a Person obligated to make payments pursuant to a Contract.
“Original Balance” means, with respect to any Receivable coming into existence after the Initial Cutoff Date, the Outstanding Balance of such Receivable on the date it was created.
“Originator(s)” has the meaning set forth in the preamble to the Agreement.
“Parent” means any publicly-held corporation, limited liability company or partnership that (a) is formed for the sole purpose of acquiring, directly or indirectly (whether by distribution or otherwise), substantially all of the outstanding voting stock of all classes of RPM-Delaware, (b) is owned immediately after the acquisition described in clause (a) of this definition by the same shareholders as were shareholders of RPM-Delaware immediately prior to the acquisition described in clause (a) of this definition, and (c) hereafter owns, directly or indirectly, all of the outstanding voting stock of all classes of RPM-Delaware.
“Performance Guarantor” means RPM-Delaware (or any Parent that hereafter unconditionally assumes in writing RPM-Delaware’s obligations under the Performance Undertaking in accordance with the Purchase Agreement).
“Performance Undertaking” has the meaning provided in the Purchase Agreement.
“Potential Termination Event” means an event which, without remedial action and with the passage of time or the giving of notice, or both, would constitute a Termination Event.
765800784 14448925 Exhibit I-3
4871-5521-5052, v.3
“Preferred Shares” means shares of Buyer’s Serial Preferred Stock, as defined in Buyer’s Certificate of Incorporation, as amended.
“Purchase” means each purchase pursuant to Section 1.2(a) of the Agreement by Buyer from an Originator of Receivables originated by such Originator and the Related Security and Collections related thereto, together with all related rights in connection therewith.
“Purchase Agreement” has the meaning set forth in the Preliminary Statements to the Agreement.
“Purchase Price” means, with respect to any Receivable, the price to be paid by Buyer to the applicable Originator for such Receivable and the Related Security and Collections with respect thereto in accordance with Section 1.3 of the Agreement, which price shall equal (i) the product of (x) the Original Balance of such Receivable, multiplied by (y) one minus the Discount Factor then in effect, minus (ii) any Purchase Price Credits to be credited against the Purchase Price otherwise payable in accordance with Section 1.4 of the Agreement.
“Purchase Price Credit” has the meaning set forth in Section 1.4 of the Agreement.
“Receivable” means all rights to payment owed to an Originator (at the times it arises, and before giving effect to any transfer or conveyance under the Agreement) or Buyer (after giving effect to the transfers under the Agreement) constituting an account arising in connection with the sale of goods or the rendering of services by such Originator and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto; provided, however, that in no event shall the term “Receivable” include (a) such right to payment arising from any sale of goods or the rendering of services by any Originator to any Excluded Obligor which occurs after the effective date of the amendment designating such Obligor as being an Excluded Obligor or (b) any Excluded Receivable. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided, further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless of whether the account debtor or such Originator treats such indebtedness, rights or obligations as a separate payment obligation.
“Receivables Report” means a report, in substantially the form of Exhibit VII hereto (appropriately completed), furnished by an Originator to the Servicer pursuant to Section 4.1(l).
“Records” means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Security therefor and the related Obligor.
“Related Security” means, with respect to any Receivable:
765800784 14448925 Exhibit I-4
4871-5521-5052, v.3
(i) all of the applicable Originator’s interest in the inventory and goods (including returned or repossessed inventory or goods), if any, the sale of which by such Originator gave rise to such Receivable, and all insurance contracts with respect thereto,
(ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable,
(iii) all guaranties, letters of credit, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise,
(iv) all enforcement rights or rights to receive payment with respect to service contracts and other contracts and agreements associated with such Receivable,
(v) all Records related to such Receivable,
(vi) all of the applicable Originator’s right, title and interest in each Lock-Box and each Collection Account, and
(vii) all proceeds of any of the foregoing.
“Required Capital Amount” means, as of any date of determination, an amount equal to the greater of (i) 3% of the aggregate Outstanding Balance of all Receivables as of such date and (ii) $20,000,000.
“Responsible Officer” means, with respect to any Person, each of the following officers (if applicable) of such Person (or anyone performing substantially the same functions as the following officers typically perform): any of such Person’s Senior Officers, or such Person’s assistant treasurer, credit manager or controller.
“RPM” has the meaning set forth in the Preliminary Statements to the Agreement.
“RPM-Delaware” has the meaning set forth in the Preliminary Statements to the Agreement.
“SEC” means the United States Securities and Exchange Commission or any successor regulatory body.
“Senior Officer” means, as to each Originator, the chief executive officer, president, chief financial officer, vice president, treasurer, or secretary.
“Servicer” means the Person who from time to time is designated as the “Servicer” under and as defined in the Purchase Agreement,
“Subordinated Loan” has the meaning set forth in Section 1.3(b) of the Agreement.
765800784 14448925 Exhibit I-5
4871-5521-5052, v.3
“Subordinated Note” means each promissory note in substantially the form of Exhibit VI hereto as more fully described in Section 1.3 of the Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“Termination Date” means, as to each Originator, the earliest to occur of (i) the Facility Termination Date, (ii) the Business Day immediately prior to the occurrence of a Termination Event set forth in Section 5.1(f) with respect to such Originator or Performance Guarantor, (iii) the Business Day specified in a written notice from Buyer (or its assigns) to such Originator following the occurrence of any other Termination Event with respect to such Originator , and (iv) the date which is thirty (30) days after Buyer’s receipt of written notice from such Originator that it wishes to terminate the facility evidenced by this Agreement.
“Termination Event” has the meaning set forth in Section 5.1 of the Agreement.
“Transaction Documents” means, collectively, this Agreement, each Collection Account Agreement, the Subordinated Notes, the Performance Undertaking and all other instruments, documents and agreements executed and delivered in connection herewith.
“Transfer” means a sale or contribution of Receivables pursuant to the Agreement.
All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.
765800784 14448925 Exhibit I-6
4871-5521-5052, v.3
EXHIBIT II
ORIGINATORS’ PLACES OF BUSINESS AND LOCATIONS OF RECORDS
Name of Originator Address of Chief Executive Office and Records |
State of Incorporation Organization Number |
Federal Employee Identification Number
|
Former Corporate, Trade, or Assumed Names |
DAP Global Inc. 2400 Boston Street, Suite 200 Baltimore, Maryland 21224 |
Delaware 6204145 |
87-2457308 |
DAP Acquisition LLC
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The Euclid Chemical Company 3735 Green Road Beachwood, Ohio 44122 |
Ohio 346416 |
34-0973756 |
Epoxy Chemicals, Inc. Increte Systems |
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Rust-Oleum Corporation 11 Hawthorn Parkway Vernon Hills, Illinois 60061 |
Delaware 6251297 |
36-1716180 |
The Testor Corporation Synta XIM Products Multi Color Specialties ROC Sales, Inc. Rust-Oleum LLC Rust-Oleum Brands Company Zinsser Brands Company
|
Tremco CPG Inc. 3735 Green Road, Beachwood, Ohio 44122 |
Delaware 6204134 |
87-2508379 |
Tremco Acquisition, LLC NUDURA Systems, Inc. Dryvit Systems, Inc. |
Weatherproofing Technologies, Inc. 3735 Green Road Beachwood, Ohio 44122 |
Delaware 0583723 |
34-0930570 |
Tremco Service Corporation |
765800784 14448925 Exhibit II-1
4871-5521-5052, v.3
Exhibit III
Lock-boxes; Collection Accounts; Collection Banks
See Exhibit IV to Purchase Agreement
765800784 14448925 Exhibit III-1
4871-5521-5052, v.3
Exhibit IV
[Form of] Compliance Certificate
This Compliance Certificate is furnished pursuant to that certain Second Amended and Restated Receivables Sale Agreement dated as of May 9, 2014 (as amended, restated or otherwise modified from time to time, the “Agreement”) among DAP Global Inc., a Delaware corporation, The Euclid Chemical Company, an Ohio corporation, Rust-Oleum Corporation, a Delaware corporation, Tremco CPG Inc., a Delaware corporation, Tremco Barrier Solutions, Inc., a Delaware corporation, Weatherproofing Technologies, Inc., a Delaware corporation, and RPM Funding Corporation, a Delaware corporation (“Buyer”). Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ______________ of ________________________ (the “Originator”).
2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Originator and its Subsidiaries during the accounting period covered by the attached financial statements.
3. The examinations described in paragraph 2 did not disclose, and to the best of my knowledge, no condition or event exists which constitutes, a Termination Event or a Potential Termination Event (as each such term is defined under the Agreement) as to the Originator during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below.
4. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Originator has taken, is taking, or proposes to take with respect to each such condition or event: __________________________________
The foregoing certifications, together with the financial statements delivered with this Certificate in support hereof, are made and delivered this ______ day of __________, 200_.
[Name]
On behalf of
in my capacity as an officer thereof
765800784 14448925 Exhibit IV-1
4871-5521-5052, v.3
Exhibit V
Credit and Collection Policy
[attached]
765800784 14448925 Exhibit V-1
4871-5521-5052, v.3
Exhibit VI
[Form of] Subordinated Note
SUBORDINATED NOTE
May 9, 2014
1. Note. FOR VALUE RECEIVED, the undersigned, RPM Funding Corporation, a Delaware corporation (“SPV”), hereby unconditionally promises to pay to the order of ______________________, a(n) __________ corporation (“Originator”), in lawful money of the United States of America and in immediately available funds, on the date following Originator’s Termination Date which is one year and one day after the date on which (i) the Outstanding Balance of all Receivables sold under the “Sale Agreement” referred to below has been reduced to zero and (ii) Originator has paid to the Buyer all indemnities, adjustments and other amounts which may be owed thereunder in connection with the Purchases (the “Collection Date”), the aggregate unpaid principal sum outstanding of all “Subordinated Loans” made from time to time by Originator to SPV pursuant to and in accordance with the terms of that certain Second Amended and Restated Receivables Sale Agreement dated as of May 9, 2014 among Originator and various of its Affiliates and SPV (as amended, restated, supplemented or otherwise modified from time to time, the “Sale Agreement”). Reference to Section 1.3 of the Sale Agreement is hereby made for a statement of the terms and conditions under which the loans evidenced hereby have been and will be made. All terms which are capitalized and used herein and which are not otherwise specifically defined herein shall have the meanings ascribed to such terms in the Sale Agreement.
2. Interest. SPV further promises to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full hereof at a rate equal to the Alternate Base Rate; provided, however, that if SPV shall default in the payment of any principal hereof, SPV promises to pay, on demand, interest at the rate of the Alternate Base Rate plus 2.00% per annum on any such unpaid amounts, from the date such payment is due to the date of actual payment. Interest shall be payable on the first Business Day of each month in arrears; provided, however, that SPV may elect on the date any interest payment is due hereunder to defer such payment and upon such election the amount of interest due but unpaid on such date shall constitute principal under this Subordinated Note. The outstanding principal of any loan made under this Subordinated Note shall be due and payable on the Collection Date and may be repaid or prepaid at any time without premium or penalty.
3. Principal Payments. Originator is authorized and directed by SPV to enter on the grid attached hereto, or, at its option, in its books and records, the date and amount of each loan made by it which is evidenced by this Subordinated Note and the amount of each payment of principal made by SPV, and absent manifest error, such entries shall constitute prima facie evidence of the accuracy of the information so entered; provided that neither the failure of Originator to make any such entry or any error therein shall expand, limit or affect the obligations of SPV hereunder.
765800784 14448925 Exhibit VI-1
4871-5521-5052, v.3
4. Subordination. Originator shall have the right to receive, and SPV shall make, any and all payments relating to the loans made under this Subordinated Note provided that, after giving effect to any such payment, the Adjusted Net Receivables Balance (as such term is defined in the Receivables Purchase Agreement hereinafter referred to) at such time under the Receivables Purchase Agreement exceeds the sum of (a) the Aggregate Capital (as defined in the Receivables Purchase Agreement) at such time under the Receivables Purchase Agreement, plus (b) the Aggregate Reserves (as defined in the Receivables Purchase Agreement) at such time under the Receivables Purchase Agreement. Originator hereby agrees that at any time during which the conditions set forth in the proviso of the immediately preceding sentence shall not be satisfied, Originator shall be subordinate in right of payment to the prior payment of any indebtedness or obligation of SPV owing to the Administrative Agent or any Purchaser under that certain Amended and Restated Receivables Purchase Agreement dated as of May 9, 2014 by and among SPV, RPM International Inc., as initial Servicer, various “Purchasers” from time to time party thereto, and PNC Bank, National Association, as the “Administrative Agent” (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”). The subordination provisions contained herein are for the direct benefit of, and may be enforced by, the Administrative Agent and the Purchasers and/or any of their respective assignees (collectively, the “Senior Claimants”) under the Purchase Agreement. Until the date that is one year and one day following the date on which all “Capital” outstanding under the Purchase Agreement has been repaid in full and all other obligations of SPV and/or the Servicer thereunder and under the “Fee Letter” referenced therein (all such obligations, collectively, the “Senior Claim”) have been indefeasibly paid and satisfied in full, Originator shall not institute against SPV any proceeding of the type described in Section 5.1(f) of the Sale Agreement unless and until the Collection Date has occurred. Should any payment, distribution or security or proceeds thereof be received by Originator in violation of this Section 4, Originator agrees that such payment shall be segregated, received and held in trust for the benefit of, and deemed to be the property of, and shall be immediately paid over and delivered to the Administrative Agent for the benefit of the Senior Claimants.
5. Bankruptcy; Insolvency. Upon the occurrence of any proceeding of the type described in Section 5.1(f) of the Sale Agreement involving SPV as debtor, then and in any such event the Senior Claimants shall receive payment in full of all amounts due or to become due on or in respect of the Aggregate Capital and the Senior Claim (including “Yield” as defined and as accruing under the Purchase Agreement after the commencement of any such proceeding, whether or not any or all of such Yield is an allowable claim in any such proceeding) before Originator is entitled to receive payment on account of this Subordinated Note, and to that end, any payment or distribution of assets of SPV of any kind or character, whether in cash, securities or other property, in any applicable insolvency proceeding, which would otherwise be payable to or deliverable upon or with respect to any or all indebtedness under this Subordinated Note, is hereby assigned to and shall be paid or delivered by the Person making such payment or delivery (whether a trustee in bankruptcy, a receiver, custodian or liquidating trustee or otherwise) directly to the Administrative Agent for application to, or as collateral for the payment of, the Senior Claim until such Senior Claim shall have been paid in full and satisfied.
765800784 14448925 Exhibit VI-2
4871-5521-5052, v.3
6. Amendments. This Subordinated Note shall not be amended or modified except in accordance with Section 7.1 of the Sale Agreement. The terms of this Subordinated Note may not be amended or otherwise modified without the prior written consent of the Administrative Agent for the benefit of the Purchasers.
7. GOVERNING LAW. THIS SUBORDINATED NOTE HAS BEEN MADE AND DELIVERED AT NEW YORK, NEW YORK, AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF NEW YORK. WHEREVER POSSIBLE EACH PROVISION OF THIS SUBORDINATED NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS SUBORDINATED NOTE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS SUBORDINATED NOTE.
8. Waivers. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. Originator additionally expressly waives all notice of the acceptance by any Senior Claimant of the subordination and other provisions of this Subordinated Note and expressly waives reliance by any Senior Claimant upon the subordination and other provisions herein provided.
9. Assignment. This Subordinated Note may not be assigned, pledged or otherwise transferred to any party other than Originator without the prior written consent of the Administrative Agent, and any such attempted transfer shall be void.
RPM FUNDING CORPORATION
By:
Title:
765800784 14448925 Exhibit VI-3
4871-5521-5052, v.3
Schedule
to
SUBORDINATED NOTE
SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL
Date |
Amount of Subordinated Loan |
Amount of Principal Paid |
Unpaid Principal Balance |
Notation made by (initials) |
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765800784 14448925 Exhibit VI-4
4871-5521-5052, v.3
Exhibit VII
[Form of] Receivables Report for Each Originator
[attached]
765800784 14448925 Exhibit VII-1
4871-5521-5052, v.3
Schedule A
Preferred Shares
Weatherproofing Technologies, Inc. 10 shares of Series H Preferred Stock
Rust-Oleum Corporation 10 shares each of Series E, F, I, K, L & M Preferred Stock
The Euclid Chemical Company 10 shares of Series C Preferred Stock
DAP Global Inc. 10 shares of Series B Preferred Stock
Tremco CPG Inc. 10 shares each of Series A, D, G & J Preferred Stock
765800784 14448925 Schedule A-1
4871-5521-5052, v.3
Schedule B
DOCUMENTS TO BE DELIVERED TO BUYER
ON OR PRIOR TO THE PURCHASE
[SEE PART I OF SCHEDULE B TO THE PURCHASE AGREEMENT]
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4875-3145-6460, v.2
SIXTH AMENDMENT TO CREDIT AGREEMENT
THIS SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of June 27, 2024 (the "Effective Date"), is made by and among RPM INTERNATIONAL INC., a Delaware corporation (the "Company"), RPM ENTERPRISES, INC., a Delaware corporation ("Enterprises"), RPM EUROPE UK LIMITED, a limited company incorporated under the laws of England and Wales ("RPM-UK"), RPM EUROPE HOLDCO B.V., a private company with limited liability formed under the laws of the Netherlands ("RPM-Europe"), RPM CANADA, a general partnership registered under the laws of the Province of Ontario ("RPM Canada"), TREMCO ASIA PACIFIC PTY. LIMITED, a corporation incorporated under the laws of the Commonwealth of Australia ("Tremco"), RPM EUROPE FINANCE DESIGNATED ACTIVITY COMPANY, an Irish Designated Activity Company Limited by Shares ("RPM Europe Finance"), RPM CANADA FINANCE COMPANY ULC, an unlimited liability company organized under the laws of the Province of Alberta ("RPM Canada Finance") (each of the foregoing referred to herein as a "Borrower" and collectively referred to as the "Borrowers"), the other LENDERS party hereto(the "Lenders") and PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the Lenders (hereinafter referred to in such capacity as the "Administrative Agent").
W I T N E S S E T H:
WHEREAS, the Borrowers, the Lenders and the Administrative Agent are parties to that certain Credit Agreement, dated as of October 31, 2018, as amended by that certain First Amendment to Credit Agreement, dated as of April 30, 2020, as amended by that certain Second Amendment to Credit Agreement, dated as of December 16, 2021, as amended by that certain Third Amendment to Credit Agreement, dated as of December 30, 2021, as amended by that certain Fourth Amendment to Credit Agreement, dated as of August 1, 2022, as amended by that certain Fifth Amendment to Credit Agreement, dated as of December 19, 2022, to be effective as of August 1, 2022, and as amended hereby (as amended, the "Credit Agreement");
WHEREAS, certain loans, advances and/or other extensions of credit denominated in Canadian Dollars under the Credit Agreement bear interest or are permitted to bear interest, and have fees, commissions or other amounts based on the Canadian Dollar Offered Rate administered by Refinitiv Benchmark Services (UK) Limited ("CDOR") in accordance with the terms and conditions of the Credit Agreement (the "Affected Loans");
WHEREAS, applicable parties under the Credit Agreement have determined that Affected Loans made, continued or converted under the Credit Agreement on or after the Effective Date that would otherwise bear interest and accrue fees and commissions with reference to CDOR, shall bear interest and accrue fees and commissions with reference to a successor rate for all purposes under the Credit Agreement and under any other Loan Document (other than any derivative, swap agreement, hedge agreement or ISDA confirm or other analogous or similar document executed in connection with any interest rate hedging or swap transactions), subject to the terms and conditions set forth in this Amendment; and
WHEREAS, the parties hereto have agreed to (i) join RPM Canada Finance as a new Foreign Borrower under the Credit Agreement, and (ii) make certain amendments and grant certain other accommodations all as hereinafter provided, and, subject to the terms and conditions hereof, the Administrative Agent and Lenders are willing to do so.
NOW, THEREFORE, the parties hereto, in consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, covenant and agree as follows:
4871-2803-0669, v.2
2
4871-2803-0669, v.2
3
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4871-2803-0669, v.2
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] [SIGNATURE PAGES FOLLOW]
5
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Amendment as of the day and year first above written.
BORROWERS:
RPM INTERNATIONAL INC.
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: Senior Vice President, General Counsel, Chief Compliance Officer and Secretary
RPM ENTERPRISES, INC.
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: President and Secretary
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
RPM EUROPE UK LIMITED
By: /s/ Hilde De Backer
Name: Hilde De Backer
Title: Director
RPM EUROPE HOLDCO B.V.
By: /s/ Hilde De Backer
Name: Hilde De Backer
Title: Director
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
RPM CANADA
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: President and Secretary
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
BORROWERS (continued):
TREMCO ASIA PACIFIC PTY. LIMITED
By: /s/ Warren Lee Roberts
Name: Warren Lee Roberts
Title: Director
RPM EUROPE FINANCE DESIGNATED ACTIVITY COMPANY
By: /s/ Hilde De Backer
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
Name: Hilde De Backer
Title: Director
RPM CANADA FINANCE COMPANY ULC
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: President and Secretary
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
PNC BANK, NATIONAL ASSOCIATION, individually and as Administrative Agent
By: /s/ Scott A. Nolan
Name: Scott A. Nolan
Title: Senior Vice President
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
KEYBANK NATIONAL ASSOCIATION
By: /s/ Brian Fox
Name: Brian Fox
Title: Senior Vice President
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
WELLS FARGO BANK, NATIONAL ASSOCIATION
By: /s/ Steven Chen
Name: Steven Chen
Title: Vice President
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
CITIZENS BANK, N.A.
By: /s/ Arianna DeMarco
Name: Arianna DeMarco
Title: Vice President
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
BANK OF AMERICA, N.A.
By: /s/ Bettina Buss
Name: Bettina Buss
Title: Director — EC/GIG
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
MUFG BANK, LTD.
By: /s/ Jorge Georgalos
Name: Jorge Georgalos
Title: Director
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
BMO BANK N.A.
By: /s/ Doug Steen
Name: Doug Steen
Title: Director
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
KBC BANK, NV
By: /s/ Susan M. Silver
Name: Susan M. Silver
Title: Managing Director
By: /s/ William Cavanaugh
Name: Willian Cavanaugh
Title: Managing Director
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
GOLDMAN SACHS LENDING PARTNERS LLC
By: /s/ Priyankush Goswami
Name: Priyankush Goswami
Title: Authorized Signatory
GOLDMAN SACHS BANK USA
By: /s/ Priyankush Goswami
Name: Priyankush Goswami
Title: Authorized Signatory
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Kelsey Hehman
Name: Kelsey Hehman
Title: Vice President
4871-2803-0669, v.2
[SIGNATURE PAGE TO SIXTH AMENDMENT TO
CREDIT AGREEMENT]
FIRST NATIONAL BANK OF PENNSYLVANIA
By: /s/ Jerome Sidley
Name: Jerome Sidley
Title: Assistant Vice President
4871-2803-0669, v.2
Deal CUSIP: 74968VAA4
Facility CUSIP: 74968VAB2
EXHIBIT A
AMENDED CREDIT AGREEMENT
Exhibit A – Sixth Amendment to Credit Agreement
***COMPOSITE***
$1,350,000,000 REVOLVING CREDIT FACILITY CREDIT AGREEMENT
by and among
RPM INTERNATIONAL INC.
RPM ENTERPRISES, INC.
RPM EUROPEUK LIMITED
RPM EUROPE HOLDCO B.V.
RPM CANADA
TREMCO ASIA PACIFIC PTY. LIMITED
RPM EUROPE FINANCE DESIGNATED ACTIVITY COMPANYRPM CANADA FINANCE COMPANY ULC
and
THE LENDERS PARTY HERETO
and
PNC BANK, NATIONAL ASSOCIATION,as Administrative Agent
BANK OF AMERICA, N.A.,andCITIZENS BANK, NATIONAL ASSOCIATION,as Co-Syndication Agents
and
MUFG BANK, LTD., WELLS FARGO BANK, NATIONAL ASSOCIATION, KEYBANK NATIONAL ASSOCIATION, BMO HARRIS BANK N.A.,and U.S. BANK NATIONAL ASSOCIATIONas Co-Documentation Agents
and
DATED AS OF OCTOBER 31, 2018
2
as amended by:
PNC BANK, NATIONAL ASSOCIATION, CITIZENS BANK, NATIONAL ASSOCIATION,andBANK OF AMERICA, N.A.,as Joint Lead Arrangers First Amendment to Credit Agreement dated as of April 30, 2020 and Joinder dated as of April 23, 2021 and Deed of Merger Second Amendment to Credit Agreement dated as of December 16, 2021 Third Amendment to Credit Agreement dated as of December 30, 2021 Fourth Amendment to Credit Agreement dated as of August 1, 2022 Fifth Amendment to Credit Agreement dated as of December 19, 2022, to be effective as of August 1, 2022 Sixth Amendment to Credit Agreement dated as of June 27, 2024
3
TABLE OF CONTENTS
Page
1. CERTAIN DEFINITIONS 2
1.1 Certain Definitions 2
1.2 Construction 42
1.3 Accounting Principles; Changes in GAAP 43
1.4 Euro RateBenchmark Replacement Notification; Rates 44
1.5 Exchange Rates; Currency Equivalents 44
2. REVOLVING CREDIT AND SWING LOAN FACILITIES 45
2.1 Revolving Credit Commitments. 45
2.2 Nature of Lenders' Obligations with Respect to Revolving Credit Loans 48
2.3 Facility Fee 48
2.4 Revolving Credit Loan Requests; Swing Loan Requests. 48
2.5 Making Revolving Credit Loans and Swing Loans; Presumptions by the Administrative Agent; Repayment of Revolving Credit Loans; Borrowings to Repay Swing Loans. 50
2.6 Notes 52
2.7 Use of Proceeds 52
2.8 Letter of Credit Subfacility. 52
2.9 Utilization of Commitments in Optional Currencies. 60
2.10 Provisions Applicable to All Loans. 61
2.11 Defaulting Lenders 61
2.12 Extension of Commitment Expiration Date. 63
3. RESERVED 65
4. INTEREST RATES 65
4.1 Interest Rate Options 65
4.2 Interest Periods 67
4.3 Interest After Default 67
4.4 Rate Unascertainable; Increased Costs; Deposits Not Available; Illegality; Benchmark Replacement Setting. 68
4.5 Selection of Interest Rate Options 72
4.6 Interest Act (Canada) Disclosure 72
4.7 Canadian Usury Provision 72
4.8 Minimum Interest Clause for Swiss Borrowers 73
i
5. PAYMENTS 73
5.1 Payments 73
5.2 Pro Rata Treatment of Lenders 74
5.3 Sharing of Payments by Lenders 74
5.4 Presumptions by Administrative Agent 75
5.5 Interest Payment Dates 75
5.6 Voluntary Prepayments. 76
5.7 Mandatory Prepayments; Cash Collateralization. 78
5.8 Increased Costs. 79
5.9 Taxes. 81
5.10 Indemnity 85
5.11 Settlement Date Procedures 85
5.12 Currency Conversion Procedures for Judgments 86
5.13 Indemnity in Certain Events 86
6. REPRESENTATIONS AND WARRANTIES 86
6.1 Representations and Warranties 86
7. CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT 91
7.1 First Loans and Letters of Credit. 91
7.2 Each Loan or Letter of Credit 92
8. COVENANTS 93
8.1 Affirmative Covenants. 93
8.2 Negative Covenants. 96
8.3 Reporting Requirements 99
9. DEFAULT 101
9.1 Events of Default 101
9.2 Consequences of Event of Default. 103
10. THE ADMINISTRATIVE AGENT 105
10.1 Appointment and Authority 105
10.2 Rights as a Lender 105
10.3 Exculpatory Provisions 105
10.4 Reliance by Administrative Agent 106
10.5 Delegation of Duties 106
10.6 Resignation of Administrative Agent 107
ii
10.7 Removal of Administrative Agent 108
10.8 Non-Reliance on Administrative Agent and Other Lenders 108
10.9 No Other Duties, etc. 108
10.10 [Reserved]. 108
10.11 Administrative Agent's Fee 108
10.12 No Reliance on Administrative Agent's Customer Identification Program 108
10.13 Erroneous Payments. 109
11. GUARANTY 111
11.1 Guaranty by the Company 111
11.2 Additional Undertaking 111
11.3 Guaranty Unconditional 112
11.4 Company Obligations to Remain in Effect; Restoration 112
11.5 Waiver of Acceptance, etc. 113
11.6 Subrogation 113
11.7 Effect of Stay 113
12. MISCELLANEOUS 113
12.1 Modifications, Amendments or Waivers 113
12.2 No Implied Waivers; Cumulative Remedies 114
12.3 Expenses; Indemnity; Damage Waiver. 115
12.4 Holidays 116
12.5 Notices; Effectiveness; Electronic Communication. 117
12.6 Severability 117
12.7 Duration; Survival 118
12.8 Successors and Assigns. 118
12.9 Confidentiality. 122
12.10 Counterparts; Integration; Effectiveness. 123
12.11 CHOICE OF LAW; SUBMISSION TO JURISDICTION; WAIVER OF VENUE; SERVICE OF PROCESS; WAIVER OF JURY TRIAL. 124
12.12 USA PATRIOT Act Notice 125
12.13 Borrower Agent 125
12.14 Foreign Borrowers. 125
12.15 Joinder of Borrowers; Release of Borrowers. 126
12.16 No Fiduciary or Agency Relationship 127
12.17 Certain ERISA Matters. 127
iii
12.18 Acknowledgement and Consent to Bail-in of EEAAffected Financial Institution Institutions 128
12.19 Acknowledgement Regarding Any Supported QFCs. 129
iv
LIST OF SCHEDULES AND EXHIBITS
SCHEDULES
SCHEDULE 1.1(A) - PRICING GRID
SCHEDULE 1.1(B) - COMMITMENTS OF LENDERS AND ADDRESSES FOR NOTICES
SCHEDULE 2.8.1 - EXISTING LETTERS OF CREDIT
SCHEDULE 6.1.2 - SUBSIDIARIES
SCHEDULE 8.2.4 - AFFILIATE TRANSACTIONS
EXHIBITS
EXHIBIT 1.1(A) - ASSIGNMENT AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(B) - BORROWER JOINDER AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(L) - LENDER JOINDER AND ASSUMPTION AGREEMENT
EXHIBIT 1.1(N)(1) - REVOLVING CREDIT NOTE
EXHIBIT 1.1(N)(2) - SWING LOAN NOTE
EXHIBIT 2.4.1 - LOAN REQUEST
EXHIBIT 2.4.2 - SWING LOAN REQUEST
5
CREDIT AGREEMENT
EXHIBIT 8.3.3 - QUARTERLY COMPLIANCE CERTIFICATE THIS CREDIT AGREEMENT (as hereafter amended, the "Agreement") is dated as of October 31, 2018 and is made by and among RPM INTERNATIONAL INC., a Delaware corporation (together with its successors and assigns, to the extent permitted under this Agreement, the "Company"), RPM ENTERPRISES, INC., a Delaware corporation (together with its successors and assigns, to the extent permitted under this Agreement, "Enterprises"), RPM EUROPE UK LIMITED, a limited company incorporated under the laws of England and Wales (together with its successors and assigns, to the extent permitted under this Agreement, "RPM-UK"), RPM EUROPE HOLDCO B.V., a private company with limited liability formed under the laws of the Netherlands (together with its successors and assigns, to the extent permitted under this Agreement, "RPM-Europe"), RPM CANADA, a general partnership registered under the laws of the Province of Ontario (together with its successors and assigns, to the extent permitted under this Agreement, "RPM Canada"), TREMCO ASIA PACIFIC PTY. LIMITED, a corporation incorporated under the laws of the Commonwealth of Australia (together with its successors and assigns, to the extent permitted under this Agreement, "Tremco"), RPM EUROPE FINANCE DESIGNATED ACTIVITY COMPANY, an Irish Designated Activity Company Limited by Shares (together with its successors and assigns, to the extent permitted under this Agreement, "RPM Europe Finance"), RPM CANADA FINANCE COMPANY ULC, an unlimited liability company organized under the laws of the Province of Alberta (together with its successors and assigns, to the extent permitted under this Agreement, "RPM Canada Finance"), and the other Domestic Borrowers and Foreign Borrowers from time to time a party hereto (each of the foregoing referred to herein as a "Borrower" and collectively referred to as the "Borrowers"), the LENDERS (as hereinafter defined) from time to time a party hereto, PNC BANK, NATIONAL ASSOCIATION, in its capacity as administrative agent for the Lenders under this Agreement (hereinafter referred to in such capacity as the "Administrative Agent"), PNC BANK, NATIONAL ASSOCIATION, as a joint lead arranger, CITIZENS BANK, N.A., as a joint lead arranger, BANK OF AMERICA, N.A., as a joint lead arranger, BANK OF AMERICA, N.A., as a co-syndication agent, CITIZENS BANK, NATIONAL ASSOCIATION, as a co-syndication agent, CITIZENS BANK, N.A., as a co-syndication agent, MUFG BANK, LTD., as a co-documentation agent, WELLS FARGO BANK, NATIONAL ASSOCIATION, as a co-documentation agent, KEYBANK NATIONAL ASSOCIATION, as a co-documentation agent, BMO HARRIS BANK N.A., as a co-documentation agent, and U.S. BANK NATIONAL ASSOCIATION, as a co-documentation agent.
The Borrowers, certain of the Lenders, and PNC, as administrative agent for such Lenders, are parties to that certain Credit Agreement dated as of December 5, 2014 (the "Existing Credit Agreement") pursuant to which such Lenders made available to the Borrowers a revolving credit facility in the amount of $800,000,000.
The Borrowers have requested the Lenders to provide a revolving credit facility to the Borrowers in an aggregate principal amount not to exceed $1,300,000,000, as increased to an aggregate principal amount not to exceed $1,350,000,000 pursuant to the Fourth Amendment. In consideration of their mutual covenants and agreements hereinafter set forth and intending to be legally bound hereby, the parties hereto covenant and agree as follows:
Acceptable Insurer shall mean an insurance company that (i) is a Captive Insurance Company, (ii) has an A.M. Best rating of "A-" or better and being in a financial size category of X or larger (as such category is defined as of the date hereof) or (iii) is otherwise acceptable to the Required Lenders.
Administrative Agent shall mean PNC Bank, National Association, and its successors and assigns, in its capacity as administrative agent hereunder.
Administrative Agent's Fee shall have the meaning specified in Section 10.11 [Administrative Agent's Fee].
Administrative Agent's Letter shall have the meaning specified in Section 10.11 [Administrative Agent's Fee].
Affected Currency
Affected Financial Institution means (a) any EEA Financial Institution or (b) any UK Financial Institution.
Affiliate as to any Person shall mean any other Person (i) which directly or indirectly controls, is controlled by, or is under common control with such Person, (ii) which beneficially owns or holds 5% or more of any class of the voting or other equity interests of such Person, or (iii) 5% or more of any class of voting interests or other equity interests of which is beneficially owned or held, directly or indirectly, by such Person. For purposes of this definition, "control" of a Person means the power, directly or indirectly, to direct or cause the direction of the management and policies of such Person, whether by contract or otherwise.
Anti-Corruption Laws means the U.S. Foreign Corrupt Practices Act of 1977, the UK Bribery Act 2010, and the rules and regulations promulgated thereunder, and all other laws, rules, and regulations of any jurisdiction that are applicable to the Borrowers or any of its Subsidiaries concerning or relating to bribery or corruption.
Anti-Terrorism Laws shall mean any Laws relating to terrorism, trade sanctions programs and embargoes, import/export licensing, money laundering or bribery, and any regulation, order, or directive promulgated, issued or enforced pursuant to such Laws, all as amended, supplemented or replaced from time to time.
Applicable Facility Fee Rate shall mean the percentage rate per annum based on the then in effect Debt Rating and corresponding Tier according to the pricing grid on Schedule 1.1(A) below the heading "Facility Fee." Applicable Letter of Credit Fee Rate shall mean the percentage rate per annum based on the then in effect Debt Rating and corresponding Tier according to the pricing grid on Schedule 1.1(A) below the heading "Standby Letter of Credit Fee" or "Commercial Letter of Credit Fee", as applicable.
2
Applicable Margin shall mean, as applicable:
(A) the percentage spread to be added to the Base Rate applicable to Revolving Credit Loans under the Base Rate Option based on the Debt Rating then in effect according to the pricing grid on Schedule 1.1(A) below the heading "Base Rate Loan Spread",
(B) the percentage spread to be added to Daily Simple RFR applicable to Revolving Credit Loans under the Daily Simple RFR Option based on the Debt Rating then in effect according to the pricing grid on Schedule 1.1(A) below the heading "Daily Simple RFR Loan Spread", or
(C) the percentage spread to be added to the Term SOFR Rate or Term RFR applicable to Revolving Credit Loans under the Term Rate Loan Option based on the Debt Rating then in effect according to the pricing grid on Schedule 1.1(A) below the heading "Term Rate Loan Spread".
Any change to the Debt Rating of the Company will immediately change the Applicable Margin as set forth above, effective on the date of such change in the Debt Rating.
Approved Fund shall mean any fund that is engaged in making, purchasing, holding or investing in bank loans and similar extensions of credit in the ordinary course of business and that is administered or managed by (a) a Lender, (b) an Affiliate of a Lender or (c) an entity or an Affiliate of an entity that administers or manages a Lender.
Arrangers shall collectively mean PNC Capital Markets LLC, KeyBanc Capital Markets, Inc., Merrill Lynch, Pierce, Fenner and Smith, Incorporated (any other registered broker-dealer wholly-owned by Bank of America Corporation to which all or substantially all of Bank of America Corporation's or any of its subsidiaries' investment banking, commercial lending services or related businesses may be transferred following the date of this Agreement), Citizens Bank, National Association, and Wells Fargo Securities, LLC.
Assignment and Assumption Agreement shall mean an assignment and assumption agreement entered into by a Lender and an assignee permitted under Section 12.8 [Successors and Assigns], in substantially the form of Exhibit 1.1(A).
Australian Dollars means the lawful currency of Australia.
Authorized Officer shall mean, with respect to any Borrower or the Company, as applicable, the Chief Executive Officer, President, Chief Financial Officer, Controller, Treasurer or Assistant Treasurer of such Borrower or such other individuals, designated by written notice to the Administrative Agent from such Borrower, authorized to execute notices, reports and other documents on behalf of such Borrower required hereunder. The Borrowers may amend such list of individuals from time to time by giving written notice of such amendment to the Administrative Agent.
3
Available Currencies shall mean, at any time, Dollars and all Optional Currencies at such time; individually, an "Available Currency".
Available Tenor shall mean, as of any date of determination and with respect to the then-current Benchmark for any Available Currency, as applicable, if such Benchmark for such Available Currency is a term rate, any tenor for such Benchmark (or component thereof) that is or may be used for determining the length of an interest period pursuant to this Agreement as of such date and not including, for the avoidance of doubt, any tenor of such Benchmark that is then-removed from the definition of "Interest Period" pursuant to Section 4.4.5(d).
Bail-In Action means the exercise of any Write-Down and Conversion Powers by the applicable Resolution Authority in respect of any liability of an Affected Financial Institution.
Bail-In Legislation means (a) with respect to any EEA Member Country implementing Article 55 of Directive 2014/59/EU of the European Parliament and of the Council of the European Union, the implementing law, regulation, rule or requirement for such EEA Member Country from time to time which is described in the EU Bail-In Legislation Schedule and (b) with respect to the United Kingdom, Part I of the United Kingdom Banking Act 2009 (as amended from time to time) and any other law, regulation or rule applicable in the United Kingdom relating to the resolution of unsound or failing banks, investment firms or other financial institutions or their affiliates (other than through liquidation, administration or other insolvency proceedings).
Base Rate shall mean, for any day, a fluctuating per annum rate of interest equal to the highest of (a) the Overnight Bank Funding Rate, plus fifty basis points (0.5%), and (b) the Prime Rate, and (c) the Daily Simple SOFR, plus one hundred basis points (1.0%) so long as Daily Simple SOFR is offered, ascertainable and not unlawful; provided, however, if the Base Rate as determined above would be less than zero, then such rate shall be deemed to be zero. Any change in the Base Rate (or any component thereof) shall take effect at the opening of business on the day such change occurs. Notwithstanding anything to the contrary contained herein, in the case of any event specified in Section 4.4.1 [Unascertainable; Increased Costs; Deposits Not Available] or Section 4.4.2 [Illegality], to the extent any such determination affects the calculation of Base Rate, the definition hereof shall be calculated without reference to clause (c) until the circumstances giving rise to such event no longer exist.
Base Rate Option shall mean the option of the Borrowers to have Loans bear interest at the rate and under the terms set forth in Section 4.1.1(i)(a) [Revolving Credit Base Rate Option].
4
Benchmark shall mean, initially, with respect to Obligations, interest, fees, commissions, or other amounts denominated in, or calculated with respect to, (a) Dollars, SOFR and the Term SOFR Rate, (b) Euros, Sterling, Swiss Francs or Yen, the Daily Simple RFR, (c) Canadian Dollars, the Term RFR, or (d) Australian Dollars, Norwegian Krone, Swedish Krona, or New Zealand Dollars, the Eurocurrency Rate applicable for such Available Currency; provided that if a Benchmark Transition Event has occurred with respect to the then-current Benchmark, then "Benchmark" means the applicable Benchmark Replacement to the extent that such Benchmark Replacement has replaced such prior benchmark rate pursuant to Section 4.4.5 [Benchmark Replacement Settings].
Benchmark Replacement shall mean, with respect to any Benchmark Transition Event, the first applicable alternative set forth in the order below that can be determined by the Administrative Agent for the applicable Benchmark Replacement Date:
(1) Where the Benchmark is the Term SOFR Rate, the sum of: (A) Daily Simple SOFR and (B) the SOFR Adjustment for a 1-month Interest Period; and
(2) [Intentionally Omitted]; and
(3) Where the Benchmark is the Term CORRA Reference Rate, the sum of: (A) the Daily Simple RFR for Canadian Dollars (CORRA) and (B) the related Benchmark Replacement Adjustment; and
(4) the sum of (A) the alternate benchmark rate that has been selected by the Administrative Agent and the Borrower, giving due consideration to (x) any selection or recommendation of a replacement benchmark rate or the mechanism for determining such a rate by the Relevant Governmental Body or (y) any evolving or then-prevailing market convention for determining a benchmark rate as a replacement to the then-current Benchmark for syndicated credit facilities denominated in the applicable Available Currency at such time and (B) the related Benchmark Replacement Adjustment;
provided, that if the Benchmark Replacement as determined pursuant to the foregoing would be less than the Floor, the Benchmark Replacement will be deemed to be the Floor for the purposes of this Agreement and the other Loan Documents; and provided further, that any Benchmark Replacement shall be administratively feasible as determined by the Administrative Agent in its sole discretion.
Benchmark Replacement Adjustment shall mean, with respect to any replacement of the then-current Benchmark with an Unadjusted Benchmark Replacement, the spread adjustment, or method for calculating or determining such spread adjustment, (which may be a positive or negative value or zero) that has been selected by the Administrative Agent and the Borrowers giving due consideration to (a) any selection or recommendation of a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement by the Relevant Governmental Body or (b) any evolving or then-prevailing market convention for determining a spread adjustment, or method for calculating or determining such spread adjustment, for the replacement of such Benchmark with the applicable Unadjusted Benchmark Replacement for syndicated credit facilities denominated in the applicable Available Currency at such time.
5
Benchmark Replacement Date shall mean a date and time determined by the Administrative Agent, which date shall be no later than the earliest to occur of the following events with respect to the then-current Benchmark for any Available Currency:
(1) in the case of clause (1) or (2) of the definition of "Benchmark Transition Event," the later of (a) the date of the public statement or publication of information referenced therein and (b) the date on which the administrator of such Benchmark (or the published component used in the calculation thereof) permanently or indefinitely ceases to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate or is based on a term rate, all Available Tenors of such Benchmark (or such component thereof); or
(2) in the case of clause (3) of the definition of "Benchmark Transition Event," the first date on which such Benchmark (or the published component used in the calculation thereof) has been determined and announced by the regulatory supervisor for the administrator of such Benchmark (or such component thereof) to be non-representative; provided that such non-representativeness will be determined by reference to the most recent statement or publication referenced in such clause (3) and even if any Available Tenor of such Benchmark (or such component thereof) continues to be provided on such date.
For the avoidance of doubt, if such Benchmark is a term rate or is based on a term rate, the "Benchmark Replacement Date" will be deemed to have occurred in the case of clause (1) or (2) with respect to any Benchmark upon the occurrence of the applicable event or events set forth therein with respect to all then-current Available Tenors of such Benchmark (or the published component used in the calculation thereof).
Benchmark Transition Event shall mean the occurrence of one or more of the following events with respect to the then-current Benchmark for any Available Currency:
(1) a public statement or publication of information by or on behalf of the administrator of such Benchmark (or the published component used in the calculation thereof) announcing that such administrator has ceased or will cease to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate or is based on a term rate, all Available Tenors of such Benchmark (or such component thereof), permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide any Available Tenor of such Benchmark (or such component thereof);
6
(2) a public statement or publication of information by an Official Body having jurisdiction over the Administrative Agent, the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof), the Federal Reserve Board, the Federal Reserve Bank of New York, the central bank for the Available Currency applicable to such Benchmark, an insolvency official with jurisdiction over the administrator for such Benchmark (or such component), a resolution authority with jurisdiction over the administrator for such Benchmark (or such component) or a court or an entity with similar insolvency or resolution authority over the administrator for such Benchmark (or such component), which states that the administrator of such Benchmark (or such component) has ceased or will cease to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate or is based on a term rate, all Available Tenors of such Benchmark (or such component thereof) permanently or indefinitely, provided that, at the time of such statement or publication, there is no successor administrator that will continue to provide such Benchmark (or such component thereof) or, if such Benchmark is a term rate or is based on a term rate, any Available Tenor of such Benchmark (or such component thereof); or
(3) a public statement or publication of information by the regulatory supervisor for the administrator of such Benchmark (or the published component used in the calculation thereof) or an Official Body having jurisdiction over the Administrative Agent announcing that such Benchmark (or such component thereof) or, if such Benchmark is a term rate or is based on a term rate, all Available Tenors of such Benchmark (or such component thereof) are not, or as of a specified future date will not be, representative.
For the avoidance of doubt, if such Benchmark is a term rate or is based on a term rate, a "Benchmark Transition Event" will be deemed to have occurred with respect to any Benchmark if a public statement or publication of information set forth above has occurred with respect to each then-current Available Tenor of such Benchmark (or the published component used in the calculation thereof).
Benchmark Unavailability Period shall mean the period (if any) (x) beginning at the time that a Benchmark Replacement Date has occurred if, at such time, no Benchmark Replacement has replaced the then-current Benchmark for any Available Currency for all purposes hereunder and under any Loan Document in accordance with Section 4.4.5 [Benchmark Replacement Setting] and (y) ending at the time that a Benchmark Replacement has replaced the then-current Benchmark for such Available Currency for all purposes hereunder and under any Loan Document in accordance with Section 4.4.5 [Benchmark Replacement Setting].
Beneficial Owner shall mean each of the following: (a) each individual, if any, who, directly or indirectly, owns 25% or more of a Foreign Borrower's equity ownership interests; and (b) a single individual with significant responsibility to control, manage, or direct a Foreign Borrower.
Beneficial Ownership Regulation shall mean 31 C.F.R. § 1010.230.
Benefited Creditors shall mean, with respect to the Company's obligations pursuant to Section 11 [Guaranty], collectively, the Administrative Agent, the Arrangers, the Lenders, the Issuing Lender and PNC, as the Swing Loan Lender, and the respective successors and assigns of each of the foregoing.
Benefit Plan shall mean any of (a) an "employee benefit plan" (as defined in ERISA) that is subject to Title I of ERISA, (b) a "plan" as defined in Section 4975 of the Code or (c) any Person whose assets include (for purposes of ERISA Section 3(42) or otherwise for purposes of Title I of ERISA or Section 4975 of the Code) the assets of any such "employee benefit plan" or "plan".
7
Borrower Joinder shall mean a joinder by a Person as a Borrower under this Agreement and the other Loan Documents in substantially the form of Exhibit 1.1(B).
Borrowers shall mean the Company, Enterprises, RPM-UK, RPM-Europe, RPM Canada, Tremco, RPM Europe Finance, RPM Canada Finance, and any other Foreign Borrowers and Domestic Borrowers (and the successors and assigns of each of the foregoing to the extent permitted under this Agreement).
Borrowing Date shall mean, with respect to any Loan, the date for the making thereof or the renewal or conversion thereof at or to the same or a different Interest Rate Option, which shall be a Business Day.
Borrowing Tranche shall mean specified portions of Loans as the context may require, consisting of simultaneous loans of the same Type in the same Available Currency, and in the case of Term Rate Loans, having the same Interest Period. For the avoidance of doubt, Daily Rate Loans of the same Type and Available Currency shall be considered one Borrowing Tranche.
Business Day shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Pittsburgh, Pennsylvania (or, if otherwise, the lending office of the Administrative Agent); provided that for purposes of any direct or indirect calculation or determination of, or when used in connection with any interest rate settings, fundings, disbursements, settlements, payments, or other dealings with respect to any (i) Term SOFR Rate Loan, the term "Business Day" means any such day that is also a U.S. Government Securities Business Day, (ii) Eurocurrency Rate Loan, the term “Business Day” means any such day that is also a Eurocurrency Banking Day, (iii) RFR Loan, the term "Business Day" means any such day that is also an RFR Business Day, and (iv) Term RFR Loan, the term "Business Day" means any such day that is also a Term RFR Business Day.
Canadian Borrower shall mean any Borrower incorporated or otherwise organized under the laws of Canada or any province or territory thereof.
Canadian Dollars means the lawful currency of Canada.
Canadian Banking Day means a day on which chartered banks are open for over-the-counter business in Toronto, Ontario, and excludes Saturday, Sunday and any other day which is a statutory holiday in Toronto, Ontario.
Capital Lease Obligations shall mean, as to any Person, the obligations of such Person to pay rent or other amounts under a lease of (or other agreement conveying the right to use) real and/or personal property to the extent such obligations are required to be classified and accounted for as a capital lease on a balance sheet of such Person under GAAP and, for purposes of this Agreement, the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.
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Captive Insurance Company shall mean any of First Continental Services Company or RSIF International Limited, each of which are wholly-owned (directly or indirectly) Subsidiaries of the Company, or any other captive insurance company that is a wholly-owned (directly or indirectly) Consolidated Subsidiary of the Company.
Cash Collateralize shall mean to pledge and deposit with or deliver to Administrative Agent, for the benefit of each Issuing Lender and the Lenders, as collateral for the Letter of Credit Obligations, cash or deposit account balances pursuant to documentation satisfactory to Administrative Agent and each Issuing Lender (which documents are hereby consented to by the Lenders). Such cash collateral shall be maintained in blocked, non-interest bearing deposit accounts at the Administrative Agent.
Cash Equivalents shall mean, at any time, any of the following investments which are not subject to a Lien in favor of any Person: (i) Indebtedness with a maturity of one year or less issued or directly and fully guaranteed or insured by the United States or any agency or instrumentality thereof (provided that the full faith and credit of the United States is pledged in support thereof), (ii) certificates of deposit or acceptances with a maturity of one year or less of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500,000,000, (iii) commercial paper with a maturity of 270 days or less issued by a corporation (except an Affiliate of the Borrowers) organized under the laws of any state of the United States or the District of Columbia and rated at least A 1 by Standard & Poor's or at least P 1 by Moody's Investors Services, Inc., (iv) repurchase agreements with institutions described in clause (ii) with respect to investments described in clause (i), (v) money market mutual funds or cash management trusts rated in the highest rating by Standard & Poor's or Moody's Investors Services, Inc. (and not rated other than in the highest rating by Standard & Poor's or Moody's Investors Services, Inc.) or investing solely in investments described in clauses (i) through (iv) above and (vi) in the case of foreign Subsidiaries, investments made locally of a type comparable to those described in clause (i) through (v) of this definition.
Cash Management Agreements shall have the meaning specified in Section 2.5.6 [Swing Loans under Cash Management Agreements].
CERCLA shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and regulations promulgated thereunder.
Certificate of Beneficial Ownership shall mean a certificate in form and substance acceptable to the Administrative Agent (as amended or modified by Administrative Agent from time to time in its sole discretion) regarding beneficial ownership required by the Beneficial Ownership Regulation and certifying, among other things, the Beneficial Owners of the Foreign Borrowers.
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Change in Law shall mean the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any Law, (b) any change in any Law or in the administration, interpretation, implementation or application thereof by any Official Body or (c) the making or issuance of any request, rule, guideline or directive (whether or not having the force of Law) by any Official Body; provided that notwithstanding anything herein to the contrary, (x) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, regulations, guidelines, interpretations or directives thereunder or issued in connection therewith (whether or not having the force of Law) and (y) all requests, rules, regulations, guidelines, interpretations or directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or the United States or foreign regulatory authorities (whether or not having the force of Law), in each case pursuant to Basel III, shall in each case be deemed to be a Change in Law regardless of the date enacted, adopted, issued, promulgated or implemented.
CIP Regulations shall have the meaning specified in Section 10.12 [No Reliance on Administrative Agent's Customer Identification Program].
Closing Date shall mean October 31, 2018.
Co-Documentation Agent shall mean MUFG Bank, Ltd., Fifth Third Bank, Santander Bank, N.A., and The Bank of Nova Scotia.
Co-Syndication Agents shall collectively mean Bank of America, N.A., Citizens Bank, National Association, KeyBank National Association, and Wells Fargo Bank, National Association.
Code shall mean the Internal Revenue Code of 1986, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.
Commercial Letter of Credit shall mean a commercial letter of credit issued in respect of the purchase of goods or services in the ordinary course of business.
Commitment shall mean as to any Lender the aggregate of its Revolving Credit Commitment and, in the case of PNC, its Swing Loan Commitment, and Commitments shall mean the aggregate of the Revolving Credit Commitments and Swing Loan Commitment of all of the Lenders.
Compliance Certificate shall have the meaning specified in Section 8.3.3 [Certificate of the Company].
Conforming Changes means, with respect to the Term SOFR Rate, Daily Simple SOFR, Daily Simple RFR, Term RFR, Eurocurrency Rate or any Benchmark Replacement in relation thereto, any technical, administrative or operational changes (including changes to the definition of "Base Rate," the definition of "Business Day," the definition of "Interest Period," the definition of "U.S. Government Securities Business Day," timing and frequency of determining rates and making payments of interest, timing of borrowing requests or prepayment, conversion or continuation notices, the applicability and length of lookback periods, the applicability of breakage provisions, and other technical, administrative or operational matters) that the Administrative Agent decides may be appropriate to reflect the adoption and implementation of the Term SOFR Rate, Daily Simple SOFR, Daily Simple RFR, Term RFR, Eurocurrency Rate or such Benchmark Replacement and to permit the administration thereof by the Administrative Agent in a manner substantially consistent with market practice (or, if the Administrative Agent decides that adoption of any portion of such market practice is not administratively feasible or if the Administrative Agent determines that no market practice for the administration of the Term SOFR Rate, Daily Simple SOFR, Daily Simple RFR, Term RFR, Eurocurrency Rate or the Benchmark Replacement exists, in such other manner of administration as the Administrative Agent decides is reasonably necessary in connection with the administration of this Agreement and the other Loan Documents).
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Connection Income Taxes shall mean Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes.
Consolidated Subsidiaries shall mean the Subsidiaries of the Company.
CORRA means a rate equal to the Canadian Overnight Repo Rate Average as administered by the CORRA Administrator.
CORRA Administrator means the Bank of Canada (or any successor administrator of the Canadian Overnight Repo Rate Average).
CORRA Administrator’s Website means the Bank of Canada’s website, at https://www.bankofcanada.ca, or any successor source for the Canadian Overnight Repo Rate Average identified as such by the CORRA Administrator from time to time.
Covered Party shall have the meaning assigned to it in Section 12.19 [Acknowledgement Regarding Any Supported QFCs].
Covered Person shall mean (a) the Borrowers and each of the Borrowers' Subsidiaries, (b) each Person that, directly or indirectly, is in control of a Person described in clause (a) above, and (c) the respective directors, officers, employees or agents of each Person described in (a) above. For purposes of this definition, control of a Person shall mean the direct or indirect (x) ownership of, or power to vote, 25% or more of the issued and outstanding equity interests having ordinary voting power for the election of directors of such Person or other Persons performing similar functions for such Person, or (y) power to direct or cause the direction of the management and policies of such Person whether by ownership of equity interests, contract or otherwise.
Daily Rate Loan shall mean a Loan that bears interest at a rate based on the (i) Base Rate or (ii) Daily Simple RFR.
Daily Rate Loan Option shall mean the option of the Borrowers to have Loans bear interest at the rate and under the terms specified in Section 4.1.1(i) [Daily Rate Option] or Section 4.1.1(iii) [Swing Loans], as applicable.
Daily Simple RFR means, for any day (an "RFR Day"), a rate per annum determined by the Administrative Agent, for any Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to any applicable Daily Simple RFR below by dividing (the resulting quotient rounded upwards, at the Administrative Agent’s discretion, to the nearest 1/100 of 1%) (a) the applicable Daily Simple RFR set forth below by (b) a number equal to 1.00 minus the RFR Reserve Percentage:
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(a) Sterling, SONIA for the day (such day, adjusted as applicable as set forth herein, the "SONIA Lookback Day") that is two (2) Business Days prior to (A) if such RFR Day is a Business Day, such RFR Day or (B) if such RFR Day is not a Business Day, the Business Day immediately preceding such RFR Day, in each case, as such SONIA is published by the SONIA Administrator on the SONIA Administrator’s Website;
(b) Euro, €STR for the day (such day, adjusted as applicable as set forth herein, the "€STR Lookback Day") that is two (2) Business Days prior to (A) if such RFR Day is a Business Day, such RFR Day or (B) if such RFR Day is not a Business Day, the Business Day immediately preceding such RFR Day, in each case, as such €STR is published by the €STR Administrator on the €STR Administrator’s Website;
(c) Yen, TONAR for the day (such day, adjusted as applicable as set forth herein, the "TONAR Lookback Day") that is two (2) Business Days prior to (A) if such RFR Day is a Business Day, such RFR Day or (B) if such RFR Day is not a Business Day, the Business Day immediately preceding such RFR Day, in each case, as such TONAR is published by the TONAR Administrator on the TONAR Administrator’s Website; and
(d) Swiss Franc, SARON for the day (such day, adjusted as applicable as set forth herein, the "SARON Lookback Day") that is two (2) Business Days prior to (A) if such RFR Day is a Business Day, such RFR Day or (B) if such RFR Day is not a Business Day, the Business Day immediately preceding such RFR Day, in each case, as such SARON is published by the SARON Administrator on the SARON Administrator’s Website;
(e) Canadian Dollars, CORRA for the day (such day, adjusted as applicable as set forth herein, the "CORRA Lookback Day") that is two (2) Canadian Banking Days prior to (A) if such RFR Day is a Canadian Banking Day, such RFR Day or (B) if such RFR Day is not a Canadian Banking Day, the Canadian Banking Day immediately preceding such RFR Day, in each case, as such CORRA is published by the CORRA Administrator on the CORRA Administrator’s Website;
provided that if the sum of the adjusted rate as determined above plus the applicable RFR Adjustment would be less than the Floor, such rate shall be deemed to be the Floor for purposes of the Agreement. The adjusted Daily Simple RFR rate for each outstanding RFR Loan shall be adjusted automatically as of the effective date of any change in the RFR Reserve Percentage. The Administrative Agent shall give prompt notice to the Borrowers of the adjusted Daily Simple RFR as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.
If by 5:00 pm (local time for the applicable RFR) on the second (2nd) Business Day (or, in the case of CORRA, the second (2nd) Canadian Banking Day) immediately following any Daily Simple RFR Lookback Day, the RFR in respect of such Daily Simple RFR Lookback Day has not been published on the applicable RFR Administrator’s Website and a Benchmark Replacement for the applicable Daily Simple RFR has not been instituted in accordance with the provisions of the Agreement, then the RFR for such Daily Simple RFR Lookback Day will be the RFR as published in respect of the first preceding Business Day (or, in the case of CORRA, the first preceding Canadian Banking Day) for which such RFR was published on the RFR Administrator’s Website; provided that any RFR determined pursuant to this sentence shall be utilized for purposes of calculation of Daily Simple RFR for no more than three (3) consecutive RFR Days.
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Any change in Daily Simple RFR due to a change in the applicable RFR shall be effective from and including the effective date of such change in the RFR without notice to the Borrowers.
Daily Simple RFR Lookback Days means, collectively, SONIA Lookback Day, €STR Lookback Day, TONAR Lookback Day, SARON Lookback Day, and CORRA Lookback Day, and each individually is a Daily Simple RFR Lookback Day.
Daily Simple RFR Option means the option of the Borrowers to have Loans bear interest at the rate and under the terms specified in Section 4.1.1(i)(b) [Daily Simple RFR Option].
Daily Simple SOFR means, for any day (a "SOFR Rate Day"), the interest rate per annum determined by the Administrative Agent by dividing (the resulting quotient rounded upwards, at the Administrative Agent's discretion, to the nearest 1/100th of 1%) (A) SOFR for the day (the "SOFR Determination Date") that is 2 Business Days prior to (i) such SOFR Rate Day if such SOFR Rate Day is a Business Day or (ii) the Business Day immediately preceding such SOFR Rate Day if such SOFR Rate Day is not a Business Day, by (B) a number equal to 1.00 minus the SOFR Reserve Percentage, in each case, as such SOFR is published by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate) on the website of the Federal Reserve Bank of New York, currently at http://www.newyorkfed.org, or any successor source identified by the Federal Reserve Bank of New York or its successor administrator for the secured overnight financing rate from time to time. If Daily Simple SOFR as determined above would be less than the SOFR Floor, then Daily Simple SOFR shall be deemed to be the SOFR Floor. If SOFR for any SOFR Determination Date has not been published or replaced with a Benchmark Replacement by 5:00 p.m. (Pittsburgh, Pennsylvania time) on the second Business Day immediately following such SOFR Determination Date, then SOFR for such SOFR Determination Date will be SOFR for the first Business Day preceding such SOFR Determination Date for which SOFR was published in accordance with the definition of "SOFR"; provided that SOFR determined pursuant to this sentence shall be used for purposes of calculating Daily Simple SOFR for no more than 3 consecutive SOFR Rate Days. If and when Daily Simple SOFR as determined above changes, any applicable rate of interest based on Daily Simple SOFR will change automatically without notice to the Borrower, effective on the date of any such change.
Debt Rating shall mean the Company's debt ratings accorded to the Company's senior unsecured long-term debt by Standard & Poor's, Moody's and Fitch, which ratings shall be used to determine the margin set forth on the pricing grid on Schedule 1.1(A). If the Company is split-rated by the rating agencies, then Debt Rating shall mean the highest rating assigned by the aforementioned rating agencies; provided that, in the case that the ratings assigned by the rating agencies differ by two or more rating tiers, then the pricing set forth on Schedule 1.1(A) shall be based upon the tier which is one level below the tier corresponding to the highest rating assigned by the rating agencies.
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If at any time the debt ratings accorded to the Company's senior unsecured long-term debt is rated by only two of the aforementioned credit rating agencies, then the margin set forth on the pricing grid on Schedule 1.1(A) will be determined by the highest of the ratings except that in the case that the ratings differ by two or more tiers, then the margin set forth on the pricing grid on Schedule 1.1(A) will be based upon the tier one level below the tier corresponding to the higher rating.
Defaulting Lender shall mean any Lender that (a) has failed, within two Business Days of the date required to be funded or paid, to (i) fund any portion of its Loans, (ii) fund any portion of its participations in Letters of Credit or Swing Loans or (iii) pay over to the Administrative Agent, the Issuing Lender, PNC (as the Swing Loan Lender) or any Lender any other amount required to be paid by it hereunder, unless, in the case of clause (i) above, such Lender notifies the Administrative Agent in writing that such failure is the result of such Lender's good faith determination that a condition precedent to funding (specifically identified and including the particular default, if any) has not been satisfied, (b) has notified the Company or the Administrative Agent in writing, or has made a public statement to the effect, that it does not intend or expect to comply with any of its funding obligations under this Agreement (unless such writing or public statement indicates that such position is based on such Lender's good faith determination that a condition precedent (specifically identified and including the particular default, if any) to funding a loan under this Agreement cannot be satisfied) or generally under other agreements in which it commits to extend credit, (c) has failed, within two Business Days after request by the Administrative Agent, acting in good faith, to provide a certification in writing from an authorized officer of such Lender that it will comply with its obligations (and is financially able to meet such obligations) to fund prospective Loans and participations in then outstanding Letters of Credit and Swing Loans under this Agreement, provided that such Lender shall cease to be a Defaulting Lender pursuant to this clause (c) upon the Administrative Agent's and the Company's receipt of such certification in form and substance satisfactory to the Administrative Agent and the Company, (d) has become the subject of a Bankruptcy Event, (e) has failed at any time to comply with the provisions of Section 5.3 [Sharing of the Payments by Lenders] with respect to purchasing participations from the other Lenders, whereby such Lender's share of any payment received, whether by setoff or otherwise, is in excess of its Ratable Share of such payments due and payable to all of the Lenders, or (f) becomes subject to a Bail-In Action.
As used in this definition and in Section 2.11 [Defaulting Lenders], the term "Bankruptcy Event" means, with respect to any Person, such Person or such Person's direct or indirect parent company being deemed insolvent or becoming the subject of a bankruptcy or insolvency proceeding, or having had a receiver, conservator, trustee, administrator, custodian, assignee for the benefit of creditors or similar Person charged with the reorganization or liquidation of its business appointed for it, or, in the good faith determination of the Administrative Agent, has taken any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any such proceeding or appointment, provided that a Bankruptcy Event shall not result solely by virtue of any ownership interest, or the acquisition of any ownership interest, in such Person or such Person's direct or indirect parent company by an Official Body or instrumentality thereof if, and only if, such ownership interest does not result in or provide such Person with immunity from the jurisdiction of courts within the United States or from the enforcement of judgments or writs of attachment on its assets or permit such Person (or such Official Body or instrumentality) to reject, repudiate, disavow or disaffirm any contracts or agreements made by such Person.
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Any determination by the Administrative Agent that a Lender is a Defaulting Lender under any one or more of clauses (a) through (f) above shall be conclusive and binding absent manifest error, and such Lender shall be deemed to be a Defaulting Lender upon delivery of written notice of such determination to the Borrowers, each Issuing Lender, each Swing Loan Lender and each Lender promptly following such a determination.
Delaware LLC shall mean any limited liability company organized or formed under the laws of the State of Delaware.
Delaware Divided LLC shall mean any Delaware LLC which has been formed upon consummation of a Delaware LLC Division.
Delaware LLC Division shall mean the statutory division of any Delaware LLC into two or more Delaware LLCs pursuant to Section 18-217 of the Delaware Limited Liability Company Act.
Disclosure Documents shall mean the Company's annual report on Form 10-K for the fiscal year ended May 31, 2018 and quarterly report on Form 10-Q for the quarterly period ended August 31, 2018, in each case as filed with the Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934.
Dollar, Dollars, U.S. Dollars and the symbol $ shall mean lawful currency of the United States of America.
Dollar Equivalent means, for any amount, at the time of determination thereof, (a) if such amount is expressed in Dollars, such amount, (b) if such amount is expressed in an Optional Currency, the equivalent of such amount in Dollars determined by using the rate of exchange for the purchase of Dollars with the Optional Currency last provided (either by publication or otherwise provided to the Administrative Agent or the Issuing Lender, as applicable) by the applicable Bloomberg source (or such other publicly available source for displaying exchange rates as determined by the Administrative Agent or the Issuing Lender, as applicable, from time to time) on the date that is the applicable Eurocurrency Rate Lookback Day (for amounts relating to Eurocurrency Rate Loans and Letters of Credit denominated in an Optional Currency to which the Eurocurrency Rate would apply), the applicable Daily Simple RFR Lookback Day (for amounts relating to RFR Loans and Letters of Credit denominated in an Optional Currency to which a Daily Simple RFR would apply), the applicable Term RFR Lookback Day (for amounts relating to Term RFR Loans and Letters of Credit denominated in an Optional Currency to which a Term RFR would apply) immediately preceding the date of determination, or otherwise on the date which is two (2) Business Days immediately preceding the date of determination or otherwise with respect to Loans to which any other Interest Rate Option applies, the lookback date applicable thereto (or if such service ceases to be available or ceases to provide such rate of exchange, the equivalent of such amount in Dollars as determined by the Administrative Agent or the Issuing Lender, as applicable using any method of determination it deems appropriate in its sole discretion) and (c) if such amount is denominated in any other currency, the equivalent of such amount in Dollars as determined by the Administrative Agent or the Issuing Lender, as applicable, using any method of determination it deems appropriate in its sole discretion.
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Any determination by the Administrative Agent or the Issuing Lender pursuant to clauses (b) or (c) above shall be conclusive absent manifest error.
Domestic Borrowers shall mean the Borrowers which are organized under the laws of the United States of America, any State thereof or the District of Columbia.
Drawing Date shall have the meaning specified in Section 2.8.3 [Disbursements, Reimbursement].
EBITDA shall mean for any period of four consecutive fiscal quarters, determined on a consolidated basis for the Company and its Consolidated Subsidiaries, (i) the sum of: (A) net income of the Company and its Consolidated Subsidiaries (calculated before provision for income taxes, Interest Expense, extraordinary items, non-recurring gains or losses in connection with asset dispositions, income (loss) attributable to equity in affiliates, all amounts attributable to depreciation and amortization) for such period, (B) non-recurring fees and expenses related to the acquisition of all or substantially all of the assets or capital stock (including by merger or amalgamation) of another Person (or, in the case of assets, of a business unit of a Person) or to any dispositions, investments and debt or equity issuances (whether or not successful) during such period, not to exceed $25,000,000 in the aggregate for such period of four consecutive fiscal quarters, (C) costs, charges, expenses attributable to the undertaking and/or implementation of cost savings initiatives, operating expense reductions and other restructuring or integration costs, not to exceed in the aggregate 12.5% of EBITDA for such period, (D) non-cash charges incurred in such period, (E) professional service expenses related to the Map 2020 and/or Map 2025 Program in an amount not in excess of the amount of such expenses paid or accrued prior to the Fourth Amendment Effective Date plus up to $50,000,000 of additional expenses incurred after the Fourth Amendment Effective Date, and (F) expenses related to the refinancing of the credit facilities of the Borrowers pursuant to this Agreement and the Term Loan Credit Agreement and future amendments of this Agreement and the Term Loan Credit Agreement, minus (ii) non-cash gains for such period. For the purpose of calculating EBITDA for any period, if during such period the Company or any Subsidiary shall have made an acquisition or a disposition on or after the Closing Date, EBITDA for such period shall be calculated after giving pro forma effect to such acquisition or disposition, as if such acquisition or disposition, as the case may be, occurred on the first day of such period.
EEA Financial Institution shall mean (a) any credit institution or investment firm established in any EEA Member Country which is subject to the supervision of an EEA Resolution Authority, (b) any entity established in an EEA Member Country which is a parent of an institution described in clause (a) of this definition, or (c) any financial institution established in an EEA Member Country which is a subsidiary of an institution described in clauses (a) or (b) of this definition and is subject to consolidated supervision with its parent.
EEA Member Country shall mean any of the member states of the European Union, Iceland, Liechtenstein, and Norway.
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EEA Resolution Authority shall mean any public administrative authority or any person entrusted with public administrative authority of any EEA Member Country (including any delegee) having responsibility for the resolution of any EEA Financial Institution.
Environmental Laws shall mean all applicable federal, state, local, tribal, territorial and foreign Laws (including common law), constitutions, statutes, treaties, regulations, rules, ordinances and codes and any consent decrees, settlement agreements, judgments, orders, directives, policies or programs issued by or entered into with an Official Body pertaining or relating to: (i) pollution or pollution control; (ii) protection of human health from exposure to regulated substances; (iii) protection of the environment and/or natural resources; (iv) employee safety in the workplace; (v) the presence, use, management, generation, manufacture, processing, extraction, treatment, recycling, refining, reclamation, labeling, packaging, sale, transport, storage, collection, distribution, disposal or release or threat of release of regulated substances; (vi) the presence of contamination; (vii) the protection of endangered or threatened species; and (viii) the protection of environmentally sensitive areas.
Environmental Liabilities shall mean all liabilities in connection with or relating to the business, assets, presently or previously owned or leased property, activities (including, without limitation, off-site disposal) or operations of the Company and each Consolidated Subsidiary, whether vested or unvested, contingent or fixed, actual or potential, known or unknown, which arise under or relate to matters covered by Environmental Laws.
ERISA shall mean the Employee Retirement Income Security Act of 1974, as the same may be amended or supplemented from time to time, and any successor statute of similar import, and the rules and regulations thereunder, as from time to time in effect.
ERISA Event shall mean (a) with respect to a Pension Plan, a reportable event under Section 4043 of ERISA as to which event (after taking into account notice waivers provided for in the regulations) there is a duty to give notice to the PBGC; (b) a withdrawal by any Borrower or any member of the ERISA Group from a Pension Plan subject to Section 4063 of ERISA during a plan year in which it was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a cessation of operations that is treated as such a withdrawal under Section 4062(e) of ERISA; (c) a complete or partial withdrawal by any Borrower or any member of the ERISA Group from a Multiemployer Plan, notification that a Multiemployer Plan is in reorganization, or occurrence of an event described in Section 4041A(a) of ERISA that results in the termination of a Multiemployer Plan; (d) the filing of a notice of intent to terminate a Pension Plan, the treatment of a Pension Plan amendment as a termination under Section 4041(e) of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension Plan; (e) an event or condition which constitutes grounds under Section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Pension Plan; or (f) the imposition of any liability under Title IV of ERISA, other than for PBGC premiums due but not delinquent under Section 4007 of ERISA, upon any Borrower or any member of the ERISA Group.
ERISA Group shall mean, at any time, the Borrowers and all members of a controlled group of corporations and all trades or businesses (whether or not incorporated) under common control and all other entities which, together with the Borrowers, are treated as a single employer under Section 414 of the Code or Section 4001(b)(1) of ERISA.
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Erroneous Payment has the meaning assigned to it in Section 10.13(a).
Erroneous Payment Deficiency Assignment has the meaning assigned to it in Section 10.13(d).
Erroneous Payment Impacted Class has the meaning assigned to it in Section 10.13(d).
Erroneous Payment Return Deficiency has the meaning assigned to it in Section 10.13(d).
Erroneous Payment Subrogation Rights has the meaning assigned to it in Section 10.13(d).
€STR means a rate equal to the Euro Short Term Rate as administered by the €STR Administrator.
€STR Administrator means the European Central Bank (or any successor administrator of the Euro Short Term Rate).
€STR Administrator’s Website means the European Central Bank’s website, currently at http://www.ecb.europa.eu, or any successor source for the Euro Short Term Rate identified as such by the €STR Administrator from time to time.
EU Bail-In Legislation Schedule means the EU Bail-In Legislation Schedule published by the Loan Market Association (or any successor person), as in effect from time to time.
Euro shall refer to the lawful currency of the Participating Member States.
Eurocurrency Banking Day means any day which is, as applicable, for Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to (i) [reserved]; (ii) Australian Dollars, any day on which banks are open for business in Australia; (iii) New Zealand Dollars, any day on which banks are open for business in New Zealand, (iv) Swedish Krona, any day on which banks are open for business in Sweden, and (v) Norwegian Krone, any day on which banks are open for business in Norway.
Eurocurrency Rate means, with respect to any Eurocurrency Rate Borrowing for any Interest Period, an interest rate per annum determined by Administrative Agent by dividing (the resulting quotient rounded upwards, at the Administrative Agent’s discretion, to the nearest 1/100 of 1%)(a) the applicable Eurocurrency Rate below for such Interest Period by (b) a number equal to 1.00 minus the Eurocurrency Reserve Percentage:
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(a) [reserved];
(b) denominated in Australian Dollars, the rate per annum equal to the Australian Bank Bill Swap Bid Rate or the successor thereto as approved by the Administrative Agent as published by Bloomberg (or on any successor or substitute service providing rate quotations comparable to those currently provided by such service, as determined by the Administrative Agent from time to time) for the applicable Interest Period, rounded upwards, at the Administrative Agent’s discretion, to the nearest 1/100th of 1% per annum at approximately 10:00 a.m. (Sydney, Australia time), two (2) Eurocurrency Banking Days prior to the commencement of such Interest Period, as the rate for deposits in Australian Dollars with a maturity comparable to such Interest Period; provided, that if by such time the Australian Bank Bill Swap Bid Rate in respect of such day has not been so published, or such day is not a Business Day, then the Australian Bank Bill Swap Bid Rate for such day will be the Australian Bank Bill Swap Bid Rate as published in respect of the first preceding Business Day for which such Australian Bank Bill Swap Bid Rate was published thereon; provided further that any Australian Bank Bill Swap Bid Rate so determined based on the first preceding Business Day shall be utilized for purposes of calculation of the Eurocurrency Rate for no more than three (3) consecutive Business Days (any such day, collectively, the "Australian Rate Lookback Day");
(c) denominated in New Zealand Dollars, the rate per annum equal to the NZFMA Bank Bill Reference Rate or the successor thereto as approved by the Administrative Agent as published by Bloomberg (or on any successor or substitute service providing rate quotations comparable to those currently provided by such service, as determined by the Administrative Agent from time to time), rounded upwards, at the Administrative Agent’s discretion, to the nearest 1/100th of 1% per annum at approximately 10:00 a.m.
19
(Auckland, New Zealand time), two (2) Eurocurrency Banking Days prior to the commencement of such Interest Period (such day, the "New Zealand Rate Lookback Day"), as the rate for deposits in New Zealand Dollars with a maturity comparable to such Interest Period; provided, that if by such time the NZFMA Bank Bill Reference Rate in respect of such day has not been so published, or such day is not a Business Day, then the NZFMA Bank Bill Reference Rate for such day will be the NZFMA Bank Bill Reference Rate as published in respect of the first preceding Business Day for which such NZFMA Bank Bill Reference Rate was published thereon; provided further that any NZFMA Bank Bill Reference Rate so determined based on the first preceding Business Day shall be utilized for purposes of calculation of the Eurocurrency Rate for no more than three (3) consecutive Business Days (any such day, collectively, the "New Zealand Rate Lookback Day"); (d) denominated in Norwegian Krone (NOK), the rate per annum equal to the Norwegian Interbank Offered Rate (NIBOR) or the successor thereto as approved by the Administrative Agent which appears on the Bloomberg Page BTMM NO (or on such other substitute Bloomberg page that displays such rate) (or on any successor or substitute service providing rate quotations comparable to those currently provided by such service, as determined by the Administrative Agent from time to time) rounded upwards, to the nearest 1/100th of one percent (1%) per annum, at approximately 11:00 a.m. (Oslo, Norway time), two (2) Eurocurrency Banking Days prior to the commencement of such Interest Period, as the rate for deposits in Norwegian Krone with a maturity comparable to such Interest Period; provided, that if by such time NIBOR in respect of such day has not been so published, or such day is not a Business Day, then NIBOR for such day will be NIBOR as published in respect of the first preceding Business Day for which such rate was published thereon; provided further that NIBOR so determined based on the first preceding Business Day shall be utilized for purposes of calculation of the Eurocurrency Rate for no more than three (3) consecutive Business Days (any such day, collectively, the "NIBOR Lookback Day");
(e) denominated in Swedish Krona, the rate per annum equal to the Stockholm Interbank Offered Rate (STIBOR) or the successor thereto as approved by the Administrative Agent which appears on the Bloomberg Page BTMM SW (or on such other substitute Bloomberg page that displays such rate) (or on any successor or substitute service providing rate quotations comparable to those currently provided by such service, as determined by the Administrative Agent from time to time) rounded upwards, to the nearest 1/100th of one percent (1%) per annum, at approximately 11:00 a.m. (Stockholm, Sweden time), two (2) Eurocurrency Banking Days prior to the commencement of such Interest Period, as the rate for deposits in Swedish Krona with a maturity comparable to such Interest Period; provided, that if by such time STIBOR in respect of such day has not been so published, or such day is not a Business Day, then STIBOR for such day will be STIBOR as published in respect of the first preceding Business Day for which such rate was published thereon; provided further that STIBOR so determined based on the first preceding Business Day shall be utilized for purposes of calculation of the Eurocurrency Rate for no more than three (3) consecutive Business Days (any such day, collectively, the "STIBOR Lookback Day");
provided that if the adjusted Eurocurrency Rate as determined above would be less than the Floor, such rate shall be deemed to be the Floor for purposes of this Agreement. The Eurocurrency Rate for any Loans shall be based upon the Eurocurrency Rate for the Available Currency in which such Loans are requested. The Eurocurrency Rate for each outstanding Eurocurrency Rate Loan shall be adjusted automatically as of the effective date of any change in the Eurocurrency Reserve Percentage. The Administrative Agent shall give prompt notice to the Borrowers of the Eurocurrency Rate as determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.
Eurocurrency Rate Lookback Days means, collectively, Australian Rate Lookback Day, New Zealand Rate Lookback Day, NIBOR Lookback Day and STIBOR Lookback Day and each such day is a "Eurocurrency Rate Lookback Day".
Eurocurrency Rate Borrowing means, as to any Borrowing Tranche, a Eurocurrency Rate Loan comprising such Borrowing Tranche.
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Eurocurrency Rate Loan means a Loan that bears interest at a rate based on the Eurocurrency Rate.
Eurocurrency Rate Option means the option of the Borrowers to have Loans bear interest at the rate and under the terms specified in Section 4.1.1(ii)(c) [Revolving Credit Eurocurrency Rate Option].
Eurocurrency Reserve Percentage means, for any day during any Interest Period, the reserve percentage in effect on such day, whether or not applicable to any Lender, under regulations issued from time to time by the Federal Reserve Board for determining the maximum reserve requirement (including any emergency, special, supplemental or other marginal reserve requirement) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities" in Regulation D) or any other reserve ratio or analogous requirement of any central banking or financial regulatory authority imposed in respect of the maintenance of the Commitments or the funding of the Loans.
Event of Default shall mean any of the events described in Section 9.1 [Events of Default] and referred to therein as an "Event of Default."
Excluded Taxes shall mean any of the following Taxes imposed on or with respect to a Recipient or required to be withheld or deducted from a payment to a Recipient, (i) Taxes imposed on or measured by net income (however denominated), franchise Taxes, and branch profits Taxes, in each case, (a) imposed as a result of such Recipient being organized under the laws of, or having its principal office or, in the case of any Lender, its applicable lending office located in, the jurisdiction imposing such Tax (or any political subdivision thereof) or (b) that are Other Connection Taxes, (ii) in the case of a Lender, U.S. federal withholding Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan or Commitment pursuant to a law in effect on the date on which (a) such Lender acquires such interest in such Loan or Commitment (other than pursuant to an assignment request by the Borrowers under Section 5.6.2 [Replacement of a Lender]) or (b) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 5.9.7 [Status of Lenders], amounts with respect to such Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (iii) Taxes attributable to such Recipient's failure to comply with Section 5.9.7 [Status of Lenders], and (iv) any U.S. federal withholding Taxes imposed under FATCA, (except to the extent imposed due to the failure of the Borrowers to provide documentation or information to the IRS).
Executive Order No. 13224 shall mean the Executive Order No. 13224 on Terrorist Financing, effective September 24, 2001, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.
Existing Credit Agreement shall have the meaning specified in the recitals to this Agreement.
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Expiration Date shall mean, with respect to the Revolving Credit Commitments, the earlier of August 1, 2027, or the date the Revolving Credit Commitments are terminated or accelerated hereunder.
Facility Fee shall mean the fees referred to in Section 2.3 [Facility Fee].
FATCA shall mean Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations or official interpretations thereof and any agreements entered into pursuant to Section 1471(b)(1) of the Code.
Federal Funds Effective Rate for any day shall mean the rate per annum (based on a year of 360 days and actual days elapsed and rounded upward to the nearest 1/100 of 1%, with .005% being rounded up) announced by the Federal Reserve Bank of New York (or any successor) on such day as being the weighted average of the rates on overnight federal funds transactions arranged by federal funds brokers on the previous trading day, as computed and announced by such Federal Reserve Bank (or any successor) in substantially the same manner as such Federal Reserve Bank computes and announces the weighted average it refers to as the "Federal Funds Effective Rate" as of the date of this Agreement; provided, if such Federal Reserve Bank (or its successor) does not announce such rate on any day, the "Federal Funds Effective Rate" for such day shall be the Federal Funds Effective Rate for the last day on which such rate was announced.
Fitch shall mean Fitch Investors Service Inc. and its successors.
Floor means a rate of interest equal to 0.00%.
Foreign Borrowers shall mean the Borrowers organized under the laws of a jurisdiction outside the United States of America, any State thereof or the District of Columbia.
Foreign Lender shall mean any Lender that is organized under the Laws of a jurisdiction other than that in which any Borrower is resident for tax purposes. For purposes of this definition, the United States of America, each State thereof and the District of Columbia shall be deemed to constitute a single jurisdiction.
Fourth Amendment shall mean that certain Fourth Amendment to Credit Agreement, dated as of the Fourth Amendment Effective Date.
Fourth Amendment Effective Date shall mean August 1, 2022.
GAAP shall mean generally accepted accounting principles as are in effect from time to time, subject to the provisions of Section 1.3 [Accounting Principles; Changes in GAAP], and applied on a consistent basis both as to classification of items and amounts.
Guaranty of any Person shall mean any obligation of such Person guaranteeing or in effect guaranteeing any liability or obligation of any other Person in any manner, whether directly or indirectly, including any agreement to indemnify or hold harmless any other Person, any performance bond or other suretyship arrangement and any other form of assurance against loss, except endorsement of negotiable or other instruments for deposit or collection in the ordinary course of business.
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Guidelines shall mean, together, (i) Guideline S-02.123 in relation to interbank loans of September 22, 1986 (Merkblatt "Verrechnungssteuer auf Zinsen von Bankguthaben, deren Gläubiger Banken sind (Interbankguthaben)" vom 22. September 1986), (ii) Guideline S 02.122.1 in relation to bonds of April 1999 (Merkblatt "Obligationen" vom April 1999), (iii) Guideline S-02.128 in relation to syndicated credit facilities of January 2000 (Merkblatt "Steuerliche Behandlung von Konsortialdarlehen, Schuldscheindarlehen, Wechseln und Unterbeteiligungen" vom Januar 2000) and (iv) Guideline S-02.122.2 in relation to deposits of April 1999 (Merkblatt "Kundenguthaben" von April 1999) in each case as issued, amended or substituted from time to time by the Swiss Federal Tax Administration.
Hazardous Substances shall mean any toxic, radioactive, caustic or otherwise hazardous substance, including petroleum, its derivatives, by-products and other hydrocarbons, or any substance having constituted elements displaying any of the foregoing characteristics, regulated under Environmental Laws.
HMRC means HM Revenue & Customs.
HMRC DT Treaty Passport scheme means the Double Taxation Treaty Passport scheme launched by HMRC for overseas corporate lenders.
ICC shall have the meaning specified in Section 12.11.1 [Governing Law].
Increased Net Leverage Ratio Period shall have the meaning specified in Section 8.2.8 [Maximum Leverage Ratio].
Increased Net Leverage Ratio Period Due to Material Acquisition shall have the meaning specified in Section 8.2.8 [Maximum Leverage Ratio].
Increasing Lender shall have the meaning assigned to such term in Section 2.1.2(i) hereof.
Indebtedness shall mean, as to any Person at any time (determined without duplication): (i) indebtedness of such Person for borrowed money (whether by loan or the issuance and sale of debt securities) or for the deferred purchase or acquisition price of property or services, other than accounts payable incurred in the ordinary course of business; (ii) obligations of such Person in respect of letters of credit or similar instruments issued or accepted by banks and other financial institutions for the account of such Person (whether or not such obligations are contingent); (iii) Capital Lease Obligations of such Person; (iv) indebtedness of others of the type described in clause (i), (ii) or (iii) above secured by a Lien on the property of such Person, whether or not the respective obligation so secured has been assumed by such Person; and (v) Guaranties of such Person of indebtedness of others of the type described in clause (i), (ii) or (iii) above.
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Indemnified Taxes shall mean (i) Taxes, other than Excluded Taxes, imposed on or with respect to any payment made by or on account of any obligation of any Borrower under any Loan Document, and (ii) to the extent not otherwise described in the preceding clause (i), Other Taxes.
Indemnitee shall have the meaning specified in Section 12.3.2 [Indemnification by the Borrowers].
Information shall mean all information received from the Company or any of its Consolidated Subsidiaries relating to the Borrowers or any of such Consolidated Subsidiaries or any of their respective businesses, other than any such information that is available to the Administrative Agent, any Lender or the Issuing Lender on a non confidential basis prior to disclosure by the Company or any of its Consolidated Subsidiaries, provided that, in the case of information received from the Company or any of its Consolidated Subsidiaries after the date of this Agreement, such information is clearly identified at the time of delivery as confidential.
Insolvency Proceeding shall mean, with respect to any Person, (a) a case, action or proceeding with respect to such Person (i) before any court or any other Official Body under any bankruptcy, insolvency, reorganization or other similar Law now or hereafter in effect, or (ii) for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of any Borrower or otherwise relating to the liquidation, dissolution, winding-up or relief of such Person, or (b) any general assignment for the benefit of creditors, composition, marshaling of assets for creditors, or other, similar arrangement in respect of such Person's creditors generally or any substantial portion of its creditors; undertaken under any Law.
Interest Expense shall mean, for any period, the sum (determined without duplication) of the aggregate amount of interest accruing during such period on Indebtedness of the Company and its Consolidated Subsidiaries (on a consolidated basis), including the interest portion of payments under Capital Lease Obligations and any capitalized interest, and excluding amortization of debt discount and expense and any non-cash interest expense associated with accretive type debt instruments.
Interest Period shall mean the period of time selected by the Borrowers in connection with (and to apply to) any election permitted hereunder by the Borrowers to have Revolving Credit Loans bear interest under the Term Rate Loan Option. Subject to the last sentence of this definition and subject to availability for the interest rate applicable to the relevant Available Currency, such period for US Dollar denominated Revolving Credit Loans shall be one (1), three (3), or six (6) months. Such Interest Period shall commence on the effective date of such Interest Rate Option, which shall be (i) the Borrowing Date if the Borrowers are requesting new Loans, or (ii) the date of renewal of or conversion to a Term Rate Loan Option if the Borrowers are renewing or converting to the Term Rate Loan Option applicable to outstanding Loans. Notwithstanding the second sentence hereof: (A) any Interest Period which would otherwise end on a date which is not a Business Day shall be extended to the next succeeding Business Day unless such Business Day falls in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day, (B) the Borrowers shall not select, convert to or renew an Interest Period for any portion of the Loans that would end after the Expiration Date, and (C) any Interest Period that commences on the last Business Day of a calendar month (or on a day for which there is no numerically corresponding day in the last calendar month of such Interest Period) shall end on the last Business Day of the last calendar month of such Interest Period.
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Notwithstanding the foregoing, such interest period for Canadian Dollar denominated Revolving Credit Loans bearing interest under the Term RFR Option shall be one (1) and three (3) months.
Interest Rate Option shall mean any Term Rate Loan Option or Daily Rate Loan Option.
Investments shall have the meaning assigned to it in Section 8.2.2 [Loans and Investments].
IOSCO Principles means the International Organization of Securities Commissions’ (IOSCO) Principles for Financial Benchmarks, as the same may be amended or supplemented from time to time.
IRS shall mean the United States Internal Revenue Service.
ISP98 shall have the meaning specified in Section 12.11.1 [Governing Law].
Issuing Lender shall mean PNC, in its individual capacity as issuer of Letters of Credit hereunder, and any other Lender that Borrowers, Administrative Agent and such other Lender may agree may from time to time issue Letters of Credit hereunder.
Law shall mean any law(s) (including common law), constitution, statute, treaty, regulation, rule, ordinance, opinion, issued guidance, release, ruling, order, executive order, injunction, writ, decree, bond, judgment, authorization or approval, lien or award of or any settlement arrangement, by agreement, consent or otherwise, with any Official Body, foreign or domestic.
Lender Joinder shall mean a joinder by a Lender under this Agreement and the other Loan Documents in substantially the form of Exhibit 1.1(L).
Lenders shall mean the financial institutions named on Schedule 1.1(B) and their respective successors and assigns as permitted hereunder, each of which is referred to herein as a Lender. For the purpose of any Loan Document which provides for the granting of a security interest or other Lien to the Lenders or to the Administrative Agent for the benefit of the Lenders as security for the Obligations, "Lenders" shall include any Affiliate of a Lender to which such Obligation is owed.
Letter of Credit shall have the meaning specified in Section 2.8.1 [Issuance of Letters of Credit].
Letter of Credit Borrowing shall have the meaning specified in Section 2.8.3.3 [Disbursements, Reimbursement].
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Letter of Credit Fee shall have the meaning specified in Section 2.8.1.2 [Letter of Credit Fees].
Letter of Credit Obligation shall mean, as of any date of determination, the aggregate Dollar Equivalent amount available to be drawn under all outstanding Letters of Credit on such date (if any Letter of Credit shall increase in amount automatically in the future, such aggregate Dollar Equivalent amount available to be drawn shall currently give effect to any such future increase) plus the aggregate Dollar Equivalent amount of Reimbursement Obligations and Letter of Credit Borrowings on such date.
Letter of Credit Sublimit shall have the meaning specified in Section 2.8.1.1 [Issuance of Letters of Credit].
Lien shall mean any mortgage, deed of trust, pledge, lien, security interest, charge or other encumbrance or security arrangement of any nature whatsoever, whether voluntarily or involuntarily given, including any conditional sale or title retention arrangement, and any assignment, deposit arrangement or lease intended as, or having the effect of, security and any filed financing statement or other notice of any of the foregoing (whether or not a lien or other encumbrance is created or exists at the time of the filing).
Liquid Investments shall mean (i) certificates of deposit maturing within 90 days of the acquisition thereof denominated in Dollars and issued by (A) a Lender (or its parent) or (B) a bank or trust company having combined capital and surplus of at least $500,000,000 and which has (or which is a Subsidiary of a bank holding company which has) publicly traded debt securities rated A- or higher by Standard & Poor's or A3 or higher by Moody's; (ii) obligations issued or guaranteed by the United States of America, with maturities not more than one year after the date of issue; (iii) commercial paper with maturities of not more than 90 days and a published rating of not less than A-1 from Standard & Poor's or P-1 from Moody's; and (iv) municipal and/or corporate bonds rated A or higher from Standard & Poor's or higher from Moody's.
Loan Documents shall mean this Agreement, the Administrative Agent's Letter, the Notes, any Borrower Joinder, any Cash Management Agreements, any documents entered into with respect to a Letter of Credit and any other instruments, certificates or documents delivered in connection herewith or therewith.
Loan Request shall have the meaning specified in Section 2.4.1 [Revolving Credit Loan Requests].
Loans shall mean collectively and Loan shall mean separately all Revolving Credit Loans and Swing Loans or any Revolving Credit Loan or Swing Loan.
Material Adverse Effect shall mean (i) a material adverse effect on the condition (financial or otherwise), results of operations, properties, assets, liabilities (including, without limitation, tax and ERISA liabilities and Environmental Liabilities), business, operations, capitalization, shareholders' equity, or franchises of the Company and its Consolidated Subsidiaries, taken as a whole; or (ii) a material adverse effect on the ability of the Company to perform its obligations under this Agreement.
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Maximum Leverage Increase Notice shall mean a written notice from the Company to the Administrative Agent that the Company is electing the Increased Net Leverage Ratio Period; provided, however that within three (3) Business Days of delivering such Maximum Leverage Increase Notice, the Company will pay to the Administrative Agent for the account of each Lender according to its Ratable Share, a nonrefundable fee equal to ten (10) basis points multiplied by the Revolving Credit Commitments.
Moody's shall mean Moody's Investors Service, Inc. and its successors.
Month, with respect to an Interest Period shall mean the interval between the days in consecutive calendar months numerically corresponding to the first day of such Interest Period. If any Interest Period begins on a day of a calendar month for which there is no numerically corresponding day in the month in which such Interest Period is to end, the final month of such Interest Period shall be deemed to end on the last Business Day of such final month.
Multiemployer Plan shall mean any employee pension benefit plan which is a "multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to which any Borrower or any member of the ERISA Group is then making or accruing an obligation to make contributions or, within the preceding five plan years, has made or had an obligation to make such contributions.
Netherlands Borrower shall mean any Borrower incorporated or otherwise organized under the laws of the Netherlands.
Net Leverage Ratio shall mean ratio of (i) consolidated total Indebtedness of the Company and its Consolidated Subsidiaries minus all Unencumbered Cash, to (ii) EBITDA, calculated as of the end of each fiscal quarter for the four fiscal quarters then ended.
Net Worth of the Company shall mean as of any date of determination total stockholders' equity of the Company and its Consolidated Subsidiaries as of such date determined and consolidated in accordance with GAAP.
New Lender shall have the meaning assigned to such term in Section 2.1.2(i) hereof.
New Zealand Dollars or NZD means the lawful currency of New Zealand.
Non-Consenting Lender shall have the meaning specified in Section 12.1.4 [Modifications, Amendments or Waivers].
Norwegian Krone means the lawful currency of Norway.
Notes shall mean, collectively, and Note shall mean separately, the promissory notes in the form of Exhibit 1.1(N)(1) evidencing the Revolving Credit Loans, in the form of Exhibit 1.1(N)(2) evidencing the Swing Loan.
NYFRB shall mean the Federal Reserve Bank of New York.
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Obligation shall mean any obligation or liability of any of the Borrowers, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, under or in connection with this Agreement, the Notes, the Letters of Credit, the Administrative Agent's Letter or any other Loan Document whether to the Administrative Agent, any of the Lenders or their Affiliates or other persons provided for under such Loan Documents.
Official Body shall mean the government of the United States of America or any other nation, or of any political subdivision thereof, whether state or local, and any agency, authority, instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank) and any group or body charged with setting financial accounting or regulatory capital rules or standards (including, without limitation, the Financial Accounting Standards Board, the Bank for International Settlements or the Basel Committee on Banking Supervision or any successor or similar authority to any of the foregoing).
Optional Currency shall mean the following lawful currencies: Canadian Dollars, Sterling, the Euro, Australian Dollars, New Zealand Dollars, Yen, Swiss Francs, Norwegian Krone (NOK), Swedish Krona (SEK) and any other currency approved by Administrative Agent and all of the Lenders pursuant to Section 2.9.3 [Requests for Additional Optional Currencies] in each case as long as there is a published Daily Simple RFR, Term RFR or Eurocurrency Rate, as applicable, or a Benchmark Replacement effected pursuant to Section 4.4 with respect thereto. Subject to Section 2.9.2 [European Monetary Union], each Optional Currency must be the lawful currency of the specified country.
Optional Currency Equivalent means, at any time, with respect to any amount denominated in Dollars, the equivalent amount thereof in the applicable Optional Currency as determined by the Administrative Agent or the Issuing Lender, as the case may be, in its sole discretion by reference to the applicable Bloomberg page (or such other publicly available service for displaying exchange rates as determined by the Administrative Agent from time to time), to be the exchange rate for the purchase of such Optional Currency with Dollars on the date that is (i) with respect to RFR Loans and Letters of Credit to which an RFR would apply, the applicable Daily Simple RFR Lookback Day, (ii) with respect to Eurocurrency Rate Loans and Letters of Credit to which a Eurocurrency Rate would apply, the applicable Eurocurrency Rate Lookback Day, (iii) with respect to Term RFR Loans and Letters of Credit to which a Term RFR would apply, the applicable Term RFR Lookback Day, and (iv) otherwise, on the date which is two (2) Business Days immediately preceding the date of determination, or otherwise with respect to Loans to which any other Interest Rate Option applies, the lookback date applicable thereto, in each case, prior to the date as of which the foreign exchange computation is made ; provided, however, that if no such rate is available, the "Optional Currency Equivalent" shall be determined by the Administrative Agent or the Issuing Lender, as the case may be, using any reasonable method of determination it deems appropriate in its sole discretion (and such determination shall be conclusive absent manifest error).
Optional Currency Loans shall mean aggregate Dollar Equivalent principal amount of Revolving Credit Loans made in an Optional Currency.
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Order shall have the meaning specified in Section 2.8.9 [Liability for Acts and Omissions].
Original Currency shall have the meaning specified in Section 5.12 [Currency Conversion Procedures for Judgments].
Other Connection Taxes shall mean, with respect to any Recipient, Taxes imposed as a result of a present or former connection between such Recipient and the jurisdiction imposing such Tax (but, without broadening the scope of the foregoing, not including any Tax imposed as a result of such Recipient having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Documents, or sold or assigned an interest in any Loan or Loan Document).
Other Currency shall have the meaning specified in Section 5.12 [Currency Conversion Procedures for Judgments].
Other Taxes shall mean all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document, except any such Taxes that are Other Connection Taxes imposed with respect to an assignment (other than an assignment made pursuant to Section 5.6.2 [Replacement of a Lender]).
Overnight Bank Funding Rate shall mean, for any day, (a) with respect to any amount denominated in Dollars, the rate comprised of both overnight federal funds and overnight eurocurrency borrowings by U.S.-managed banking offices of depository institutions, as such composite rate shall be determined by the NYFRB, as set forth on its public website from time to time, and as published on the next succeeding Business Day as the overnight bank funding rate by the NYFRB (or by such other recognized electronic source (such as Bloomberg) selected by the Administrative Agent for the purpose of displaying such rate); provided, that if such day is not a Business Day, the Overnight Bank Funding Rate for such day shall be such rate on the immediately preceding Business Day; provided, further, that if such rate shall at any time, for any reason, no longer exist, a comparable replacement rate determined by the Administrative Agent at such time (which determination shall be conclusive absent manifest error), provided, further, that if the Overnight Bank Funding Rate determined as above would be less than zero, then such rate shall be deemed to be zero and (b) with respect to any amount denominated in an Optional Currency, an overnight rate determined by the Administrative Agent or the Issuing Lender, as the case may be, in accordance with banking industry rules on interbank compensation (which determination shall be conclusive absent manifest error). The rate of interest charged shall be adjusted as of each Business Day based on changes in the Overnight Bank Funding Rate without notice to the Borrowers.
Overnight Rate shall mean for any day with respect to any Optional Currency Loans, the rate of interest per annum as determined by the Administrative Agent at which overnight deposits in such currency, in an amount approximately equal to the amount with respect to which such rate is being determined, would be offered for such day in the Relevant Interbank Market.
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Participant has the meaning specified in Section 12.8.4 [Participations].
Participant Register shall have the meaning specified in Section 12.8.4 [Participations].
Participating Member State shall mean any member State of the European Communities that adopts or has adopted the euro as its lawful currency in accordance with legislation of the European Community relating to Economic and Monetary Union.
Participation Advance shall have the meaning specified in Section 2.8.3 [Disbursements, Reimbursement].
Payment Date shall mean the first day of January, 2019 and the first day of each calendar quarter thereafter and on the Expiration Date or upon acceleration of the Notes.
Payment In Full and Paid in Full shall mean the indefeasible payment in full in cash of the Loans and other Obligations hereunder, termination of the Commitments and expiration or termination of all Letters of Credit or cash collateralization of all Letters of Credit.
Payment Recipient has the meaning assigned to it in Section 10.13(a).
PBGC shall mean the Pension Benefit Guaranty Corporation established pursuant to Subtitle A of Title IV of ERISA or any successor.
Pension Plan shall mean at any time an "employee pension benefit plan" (as such term is defined in Section 3(2) of ERISA) (including a "multiple employer plan" as described in Sections 4063 and 4064 of ERISA, but not a Multiemployer Plan) which is covered by Title IV of ERISA or is subject to the minimum funding standards under Section 412 or Section 430 of the Code and either (i) is sponsored, maintained or contributed to by any member of the ERISA Group for employees of any member of the ERISA Group or (ii) has at any time within the preceding five years been sponsored, maintained or contributed to by any entity which was at such time a member of the ERISA Group for employees of any entity which was at such time a member of the ERISA Group, or in the case of a "multiple employer" or other plan described in Section 4064(a) of ERISA, has made contributions at any time during the immediately preceding five plan years.
Permitted Liens shall mean:
(i) Liens existing on the Closing Date and securing Indebtedness in an aggregate principal amount not exceeding $35,000,000;
(ii) Liens existing on other assets at the date of acquisition thereof or which attach to such assets concurrently with or within 90 days after the acquisition thereof, securing Indebtedness incurred to finance the acquisition thereof in an aggregate principal amount at any time outstanding not exceeding $150,000,000; (iii) any Lien existing on any asset of any corporation at the time such corporation becomes a Consolidated Subsidiary of the Company or is merged or consolidated with or into the Company or one of its Consolidated Subsidiaries and not created in contemplation of such event;
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(iv) any Lien arising out of the refinancing, extension, renewal or refunding of any Indebtedness secured by any Lien permitted by any of the foregoing clauses of this definition, provided that such Indebtedness is not increased and is not secured by any additional assets;
(v) other Liens arising in the ordinary course of the business of the Company or such Consolidated Subsidiary which are not incurred in connection with the borrowing of money or the obtaining of advances or credit, do not secure any obligation in an amount exceeding, individually or in the aggregate, the greater of (a) $100,000,000 or (b) 10% of the Net Worth of the Company and do not materially detract from the value of its property or assets or materially impair the use thereof in the operation of its business, including in relation to a Netherlands Borrower, any Lien which arises under the general banking conditions of a bank in the Netherlands with which such Netherlands Borrower holds an account;
(vi) Liens not otherwise permitted by the foregoing clauses of this definition securing Indebtedness in an aggregate principal or face amount, together with Liens securing obligations made under item (v) above, at any date not to exceed the greater of (a) $175,000,000 or (b) 10% of the Net Worth of the Company;
(vii) Liens incurred pursuant to receivables securitizations and related assignments and sales of any income or revenues (including Receivables), including Liens on the assets of any Receivables Subsidiary created pursuant to any receivables securitization and Liens granted by the Company and its other Consolidated Subsidiaries on Receivables in connection with the transfer thereof, or to secure obligations owing by them, in respect of any such receivables securitization; provided that the aggregate principal amount of the investments and claims held at any time by all purchasers, assignees or other transferees of (or of interests in) Receivables from any Receivables Subsidiary, and other rights to payment held by such Persons, in all receivables securitizations shall not exceed $600,000,000;
(viii) Liens imposed by any Official Body for Taxes (a) not yet due and delinquent or (b) which are being contested in good faith and by appropriate proceedings and, during such period during which amounts are being so contested, such Liens shall not be executed on or enforced against any of the assets of any Borrower, provided that such Borrower shall have set aside on its books reserves deemed adequate therefor and not resulting in qualification by auditors;
(ix) carrier’s, warehousemen’s, mechanics’, materialmen’s, repairmen’s, construction and other like Liens arising by operation of applicable Law, arising in the ordinary course of business and securing amounts: (a) which are not overdue for a period of more than 30 days, or (b) which are being contested in good faith and by appropriate proceedings and, during such period during which amounts are being so contested, such Liens shall not be executed on or enforced against any of the assets of any Borrower, provided that such Borrower shall have set aside on its books reserves deemed adequate therefor and not resulting in qualification by auditors;
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(x) statutory Liens incurred, or pledges or deposits made, under worker’s compensation, employment insurance and other social security legislation;
(xi) undetermined or inchoate Liens and charges arising or potentially arising under statutory provisions which have not at the time been filed or registered in accordance with applicable Law or of which written notice has not been duly given in accordance with applicable Law or which although filed or registered, relate to obligations not due or delinquent;
(xii) investments made under the Cash Management Agreements or under cash management agreements with any other Lenders; and
(xiii) Liens (if any) in favor of PNC in its capacity as administrative agent, in connection with the Term Loan Credit Agreement
Permitted Non-Qualifying Lender shall mean, as determined with respect to Swiss Borrowers, any bank, financial institution, trust, fund or other entity that is regularly engaged in or established for the purpose of making, purchasing or investing in loans, securities or other financial assets, that:
and which has not ceased to be a Lender or ceased to have any interest in any rights of a Lender hereunder, e.g. through a participation and/or a subparticipation.
Person shall mean any individual, corporation, partnership, limited liability company, association, joint-stock company, trust, unincorporated organization, joint venture, government or political subdivision or agency thereof, or any other entity.
PNC shall mean PNC Bank, National Association, its successors and assigns.
Potential Default shall mean any event or condition which with notice or passage of time, or both, would constitute an Event of Default.
Prime Rate shall mean the interest rate per annum announced from time to time by the Administrative Agent at its Principal Office as its then prime rate, which rate may not be the lowest or most favorable rate then being charged commercial borrowers or others by the Administrative Agent. Any change in the Prime Rate shall take effect at the opening of business on the day such change is announced.
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Principal Office shall mean the main banking office of the Administrative Agent in Pittsburgh, Pennsylvania.
Professional Market Party shall mean a "professional market party" (professionele marktpartij) within the meaning of the Dutch Act on Financial Supervision (Wet op het financieel toezicht) and any regulations promulgated thereunder as amended or replaced from time to time.
PTE shall mean a prohibited transaction class exemption issued by the U.S. Department of Labor, as any such exemption may be amended from time to time.
Published RateMoney Rates
QFC Credit Support shall have the meaning assigned to it in Section 12.19 [Acknowledgement Regarding Any Supported QFCs].
Qualifying Bank shall mean, with respect to Swiss Borrowers, any Person which is recognized as a bank by the banking laws in force in its country of incorporation, or if acting through a branch by the banking laws in force in the country of that branch, and which exercises as its main purpose a true banking activity, having bank personnel, premises, communication devices of its own and the authority of decision-making and has a genuine banking activity, in each case as per the Guidelines.
Ratable Share shall mean the proportion that a Lender's Commitment (excluding the Swing Loan Commitment) bears to the Commitments (excluding the Swing Loan Commitment) of all of the Lenders, provided that in the case of Section 2.11 [Defaulting Lenders] when a Defaulting Lender shall exist, "Ratable Share" shall mean the percentage of the aggregate Commitments (disregarding any Defaulting Lender's Commitment) represented by such Lender's Commitment. If the Commitments have terminated or expired, the Ratable Share shall be determined based upon the Commitments (excluding the Swing Loan Commitment) most recently in effect, giving effect to any assignments.
Receivables shall mean all accounts receivable of the Company or any of its Consolidated Subsidiaries (including any thereof constituting or evidenced by accounts, chattel paper, instruments or general intangibles), and rights (contractual and other) and collateral related thereto and all proceeds thereof.
Receivables Subsidiary shall mean any special purpose, bankruptcy remote Consolidated Subsidiary of the Company that acquires, on a revolving or evergreen basis, Receivables generated by the Company or any of its Consolidated Subsidiaries and that engages in no operations or activities other than those related to receivables securitizations.
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Recipient shall mean (a) the Administrative Agent, (b) any Lender and (c) any Issuing Lender, as applicable.
Reference Time
Reimbursement Obligation shall have the meaning specified in Section 2.8.3 [Disbursements, Reimbursement].
Related Parties shall mean, with respect to any Person, such Person's Affiliates and the partners, directors, officers, employees, agents and advisors of such Person and of such Person's Affiliates.
Release shall mean any discharge, emission or release, including a "RELEASE" as defined in CERCLA at 42 U.S.C. Section 9601(22). The term "Released" shall have a corresponding meaning.
Relevant Governmental Body shall mean (a) with respect to a Benchmark Replacement in respect of Loans denominated in Dollars, the Board of Governors of the Federal Reserve System of the United States and/or the Federal Reserve Bank of New York, or a committee officially endorsed or convened by the Board of Governors of the Federal Reserve System of the United States or the Federal Reserve Bank of New York, or any successor thereto, and (b) with respect to a Benchmark Replacement in respect of Loans denominated in any Optional Currency, (1) the central bank for the Available Currency in which such Benchmark Replacement is denominated or any central bank or other supervisor which is responsible for supervising either (A) such Benchmark Replacement or (B) the administrator of such Benchmark Replacement or (2) any working group or committee officially endorsed or convened by (A) the central bank for the Available Currency in which such Benchmark Replacement is denominated, (B) any central bank or other supervisor that is responsible for supervising either (i) such Benchmark Replacement or (ii) the administrator of such Benchmark Replacement, (C) a group of those central banks or other supervisors or (D) the Financial Stability Board or any part thereto.
Relevant Interbank Market shall mean in relation to Euro, Sterling, Yen or Swiss Francs, the London Interbank Market, and in relation to any other currencies, the applicable offshore interbank market. Notwithstanding the foregoing, the references to the currencies listed in this definition shall only apply if such currencies are or become available as Optional Currencies in accordance with the terms hereof.
Relief Proceeding shall mean, with respect to any Person, any proceeding seeking a decree or order for relief in respect of such Person in a voluntary or involuntary case under any applicable bankruptcy, insolvency, reorganization or other similar law now or hereafter in effect, or for the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator, conservator (or similar official) of such Person for any substantial part of its property, or for the winding-up or liquidation of its affairs, or an assignment for the benefit of its creditors.
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Reportable Compliance Event shall mean that any Borrower or any Subsidiary of a Borrower, or, to the Borrowers' actual knowledge and after due inquiry, any other Covered Person, becomes a Sanctioned Person, or is charged by indictment, criminal complaint or similar charging instrument, arraigned, or custodially detained in connection with any Anti-Terrorism Law or any predicate crime to any Anti-Terrorism Law, or has knowledge of facts or circumstances to the effect that it is reasonably likely that any aspect of its operations is in actual or probable violation of any Anti-Terrorism Law.
Required Lenders shall mean Lenders (other than any Defaulting Lender) having more than 50% of the sum of the aggregate amount of the Revolving Credit Commitments of the Lenders (excluding any Defaulting Lender) or, after the termination of the Revolving Credit Commitments, the outstanding Revolving Credit Loans and Ratable Share of Letter of Credit Obligations of the Lenders (excluding any Defaulting Lender).
Required Share shall have the meaning assigned to such term in Section 5.11 [Settlement Date Procedures].
Resolution Authority means an EEA Resolution Authority or, with respect to any UK Financial Institution, a UK Resolution Authority.
Revaluation Date means (a) with respect to each Borrowing Tranche of a Term Rate Loan denominated in an Optional Currency, (i) each date of a borrowing, renewal, and conversion pursuant to the terms of this Agreement and (ii) such additional dates as the Administrative Agent shall determine or the Required Lenders shall require; (b) with respect to each Borrowing Tranche of a Daily Rate Loan denominated in an Optional Currency, each date such Daily Rate Loan is outstanding; and (c) with respect to any Letter of Credit, each of the following: (i) each date of issuance, amendment or extension of a Letter of Credit denominated in an Optional Currency, (ii) each date of any payment by the Issuing Lender under any Letter of Credit denominated in an Optional Currency, and (iii) such additional dates as the Administrative Agent or the Issuing Lender shall determine or the Required Lenders shall require.
Revolving Credit Commitment shall mean, as to any Lender at any time, the amount initially set forth opposite its name on Schedule 1.1(B) in the column labeled "Amount of Commitment for Revolving Credit Loans," as such Commitment is thereafter assigned or modified and Revolving Credit Commitments shall mean the aggregate Revolving Credit Commitments of all of the Lenders.
Revolving Credit Loans shall mean collectively and Revolving Credit Loan shall mean separately all Revolving Credit Loans or any Revolving Credit Loan made by the Lenders or one of the Lenders to the Borrowers pursuant to Section 2.1 [Revolving Credit Commitments] or 2.8.3 [Disbursements, Reimbursement].
Revolving Facility Usage shall mean at any time the sum of the outstanding Revolving Credit Loans, the outstanding Swing Loans, and the Letter of Credit Obligations.
RFR means, for any Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to, (a) Sterling, SONIA, (b) Euro, €STR, (c) Swiss Francs, SARON, (d) Canadian Dollars, CORRA, and (e) Yen, TONAR.
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RFR Adjustment means with respect to RFR Loans, the adjustment set forth in the table below corresponding to such applicable Optional Currency for the corresponding Daily Simple RFR Option:
Currency |
Adjustment to |
|
Euros |
0.0456% |
|
Sterling |
0.0326% |
|
Swiss Francs |
(0.0571%) |
|
Yen |
(0.02923%) |
|
Canadian Dollars |
0.29547% |
RFR Administrator means the SONIA Administrator, the €STR Administrator, the TONAR Administrator, the CORRA Administrator, or the SARON Administrator, as applicable.
RFR Administrator’s Website means the SONIA Administrator’s Website, the €STR Administrator’s Website, the TONAR Administrator’s Website, CORRA Administrator’s Website, or the SARON Administrator’s Website, as applicable.
RFR Business Day means as applicable, for any Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to (i) Euro, a TARGET Day, (ii) Sterling, a day on which banks are open for general business in London, (iii) Swiss Francs, a day on which banks are open for the settlement of payments and foreign exchange transactions in Zurich, (iv) Canadian Dollars, a Canadian Banking Day, and (v) Yen, a day on which banks are open for general business in Japan.
RFR Loan means a Loan that bears interest at a rate based on Daily Simple RFR.
RFR Reserve Percentage means as of any day, the maximum effective percentage in effect on such day, if any, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to RFR Loans.
Sanctioned Country shall mean a country subject to a sanctions program maintained under any Anti-Terrorism Law.
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Sanctioned Person shall mean any individual person, group, regime, entity or thing listed or otherwise recognized as a specially designated, prohibited, sanctioned or debarred person, group, regime, entity or thing, or subject to any limitations or prohibitions (including but not limited to the blocking of property or rejection of transactions), under any Anti-Terrorism Law.
SARON means a rate equal to the Swiss Average Rate Overnight as administered by the SARON Administrator.
SARON Administrator means the SIX Swiss Exchange AG (or any successor administrator of the Swiss Average Rate Overnight).
SARON Administrator’s Website means SIX Swiss Exchange AG’s website, currently at https://www.six-group.com, or any successor source for the Swiss Average Rate Overnight identified as such by the SARON Administrator from time to time.
Senior Officer shall mean the chief executive officer, president, chief financial officer, chief operating officer or treasurer of the Company.
Settlement Date shall mean the Business Day on which the Administrative Agent elects to effect settlement pursuant Section 5.11 [Settlement Date Procedures].
Significant Subsidiary shall mean at any time any Subsidiary of the Company, except Subsidiaries of the Company which, if aggregated and considered as a single Subsidiary at the time of occurrence with respect to such Subsidiaries of any event or condition of the kind described in Section 9.1.11 [Relief Proceedings] or Section 9.1.7 [Inability to Pay Debts] would not meet the definition of a "significant subsidiary" contained as of the date hereof in Regulation S-X of the Securities and Exchange Commission; provided that for purposes of Section 8.1.1 [Preservation of Existence, Etc.] only, "Significant Subsidiary" shall mean at any time any Subsidiary which would meet the definition of a "significant subsidiary" contained as of the date hereof in Regulation S-X of the Securities and Exchange Commission.
SOFR shall mean, for any day, a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (or a successor administrator of the secured overnight financing rate).
SOFR Adjustment shall mean, the following:
SOFR Adjustment |
Interest Period |
10 basis points (0.10%) |
Daily Simple SOFR |
10 basis points (0.10%) |
For a 1-month Interest Period |
15 basis points (0.15%) |
For a 3-month Interest Period |
25 basis points (0.25%) |
For a 6-month Interest Period |
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SOFR Floor means a rate of interest per annum equal to 0 basis points (0%).
SOFR Reserve Percentage shall mean, for any day, the maximum effective percentage in effect on such day, if any, as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without limitation, supplemental, marginal and emergency reserve requirements) with respect to SOFR funding.
Solvent shall mean, with respect to any Person on any date of determination, taking into account any right of reimbursement, contribution or similar right available to such Person from other Persons, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, (iv) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (v) such Person is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which such Person's property would constitute unreasonably small capital after giving due consideration to the prevailing practice in the industry in which such Person is engaged. In computing the amount of contingent liabilities at any time, it is intended that such liabilities will be computed at the amount which, in light of all the facts and circumstances existing at such time, represents the amount that can reasonably be expected to become an actual or matured liability.
SONIA means a rate equal to the Sterling Overnight Index Average as administered by the SONIA Administrator.
SONIA Administrator means the Bank of England (or any successor administrator of the Sterling Overnight Index Average).
SONIA Administrator’s Website means the Bank of England’s website, currently at http://www.bankofengland.co.uk, or any successor source for the Sterling Overnight Index Average identified as such by the SONIA Administrator from time to time.
Standard & Poor's shall mean Standard & Poor's Ratings Services, a division of The McGraw-Hill Companies, Inc. and its successors.
Statements shall have the meaning specified in Section 6.1.8 [Information].
Sterling or £ mean the lawful currency of the United Kingdom.
Subsidiary of any Person at any time shall mean any corporation, trust, partnership, any limited liability company or other business entity (i) of which more than 50% of the outstanding voting securities or other interests normally entitled to vote for the election of one or more directors or trustees (regardless of any contingency which does or may suspend or dilute the voting rights) is at such time owned directly or indirectly by such Person or one or more of such Person's Subsidiaries, or (ii) which is controlled or capable of being controlled by such Person or one or more of such Person's Subsidiaries.
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Supported QFC shall have the meaning assigned to it in Section 12.19 [Acknowledgement Regarding Any Supported QFCs].
Swedish Krona means the lawful currency of Sweden.
Swing Loan Commitment shall mean PNC's commitment to make Swing Loans to the Borrowers pursuant to Section 2.1.4 [Swing Loan Commitment].
Swing Loan Lender shall mean PNC, in its capacity as lender of Swing Loans.
Swing Loan Note shall mean the Swing Loan Note of the Borrowers in the form of Exhibit 1.1(N)(2) evidencing the Swing Loans, together with all amendments, extensions, renewals, replacements, refinancings or refundings thereof in whole or in part.
Swing Loan Request shall mean a request for Swing Loans made in accordance with Section 2.4.2 [Swing Loan Requests] hereof.
Swing Loan Sublimit shall have the meaning assigned to such term in Section 2.1.4.1 [Swing Loans Generally].
Swing Loans shall mean collectively and Swing Loan shall mean separately all Swing Loans or any Swing Loan made by PNC to the Borrowers pursuant to Section 2.1.4 [Swing Loan Commitment] hereof.
Swiss Bank Rules shall mean together the Swiss Ten Non-Bank Rule and the Swiss Twenty Non-Bank Rule.
Swiss Borrowers shall mean all Borrowers incorporated or otherwise organized under the laws of Switzerland, each of which shall be individually referred to herein as a Swiss Borrower.
Swiss Federal Tax Administration means the Swiss federal tax administration referred to in Article 34 of the Swiss Withholding Tax Act.
Swiss Franc or CHF mean the lawful currency of Switzerland.
Swiss Ten Non-Bank Rule shall mean the rule that the aggregate number of Lenders and Participants in respect of Loans to any Swiss Borrower pursuant to this Agreement that are not Qualifying Banks must not at any time exceed ten, all in accordance with the Guidelines.
Swiss Tranche shall mean that portion of a Loan which can be used by a Swiss Borrower under this Agreement.
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Swiss Twenty Non-Bank Rule shall mean the rule that the aggregate number of lenders (including the Lenders), other than Qualifying Banks, of any Swiss Borrower under all its outstanding debts relevant for classification as debenture (Kassenobligation) (including debt arising under this Agreement, facilities or private placements and intragroup loans, if and to the extent intragroup loans are not exempt in accordance with the ordinance of the Swiss Federal Council of June 18, 2010 amending the Swiss Federal Ordinance on withholding tax and the Swiss Federal Ordinance on stamp duties with effect as of August 1, 2010) must not at any time exceed twenty, all in accordance with the Guidelines.
Swiss Withholding Tax shall mean the withholding tax ("Verrechnungssteuer") imposed by the Swiss federal government on certain payments by Swiss residents to non-Swiss residents under Article 4 of the Swiss Withholding Tax Act.
Swiss Withholding Tax Act shall mean the "Bundesgesetz über die Verrechnungssteuer" enacted into Swiss federal law.
TARGET2 means the Trans-European Automated Real-time Gross Settlement Express Transfer payment system which utilizes a single shared platform and which was launched on November 19, 2007.
TARGET Day means any day on which TARGET2 is open for the settlement of payments in Euros.
Taxes shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Official Body, including any interest, additions to tax or penalties applicable thereto.
Term CORRA Reference Rate means the forward-looking term rate based on CORRA, as administered by the Term CORRA Reference Rate Administrator.
Term CORRA Reference Rate Administrator means CanDeal Benchmark Administration Services Inc. or TSX Inc. (or any successor administrator of the Term CORRA Reference Rate selected by the Administrative Agent in its reasonable discretion).
Term Loan Credit Agreement shall mean that certain Credit Agreement, dated as of February 21, 2020, by and among certain of the Borrowers, certain of the Lenders, and PNC, as administrative agent for such Lenders, pursuant to which such Lenders made available to certain of the Borrowers term loan credit facilities in the aggregate amount of $400,000,000, as the same may from time to time be amended, supplemented, restated or otherwise modified from time to time. The Liens (if any) securing the Term Loan Credit Agreement shall be pari passu with the Liens (if any) securing all other Obligations under this Agreement and the other Loan Documents.
Term Rate Loan means a Loan that bears interest at a rate based on the Term SOFR Rate, Term RFR or Eurocurrency Rate.
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Term Rate Loan Option means the option of the Borrowers to have Loans bear interest at the rate and under the terms specified in Section 4.1.1(ii) [Revolving Credit Term Rate Loan Option].
Term RFR means, for any Term RFR Borrowing for any Interest Period, a rate per annum determined by the Administrative Agent (rounded upwards, at the Administrative Agent’s discretion, to the nearest 1/100 of 1%) equal to, for any Obligations, interest, fees, commissions, or other amounts denominated in, or calculated with respect to:
provided further that if the Term RFR as determined above would be less than the Floor, such rate shall be deemed to be the Floor for purposes of this Agreement. The Term RFR for each outstanding Term RFR Loan shall be adjusted automatically on and as of the first day of each Interest Period without notice to the Borrowers. Determination of the Term RFR by Administrative Agent shall be deemed conclusive absent manifest error.
Term RFR Adjustment means with respect to Term RFR Loans, the applicable adjustment set forth in the table below:
Term RFR |
Interest Period |
Adjustment to |
Term CORRA Reference Rate |
1 month |
0.29547% |
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Term CORRA Reference Rate |
3 month |
0.32138% |
Term RFR Forward Looking Rate
Term RFR Borrowing means, as to any Borrowing Tranche, a Term RFR Loan comprising such Borrowing Tranche.
Term RFR Business Day means as applicable, for any Obligations, interest, fees, commissions or other amounts denominated in, or calculated with respect to Canadian Dollars, a Canadian Banking Day.
Term RFR NoticeLoan means a Loan that bears interest at a rate based on a Term RFR.
Term RFR Lookback Day means the Term CORRA Reference Rate Lookback Day.
Term RFR Option means the option of the Borrowers to have Loans bear interest at the rate and under the terms specified in Section 4.1.1(ii)(b) [Term RFR Option].
Term RFR Transition Date means
Term RFR Transition Event
Term SOFR Administrator means CME Group Benchmark Administration Limited (CBA) (or a successor administrator of the Term SOFR Reference Rate selected by the Administrative Agent in its reasonable discretion).
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Term SOFR Rate shall mean, with respect to any amount to which the Term SOFR Rate Option applies, for any Interest Period, the interest rate per annum determined by the Administrative Agent by dividing (the resulting quotient rounded upwards, at the Administrative Agent's discretion, to the nearest 1/100th of 1%) (A) the Term SOFR Reference Rate for a tenor comparable to such Interest Period, as such rate is published by the Term SOFR Administrator on the day (the "Term SOFR Determination Date") that is two (2) Business Days prior to the first day of such Interest Period, by (B) a number equal to 1.00 minus the SOFR Reserve Percentage. If the Term SOFR Reference Rate for the applicable tenor has not been published or replaced with a Benchmark Replacement by 5:00 p.m. (Pittsburgh, Pennsylvania time) on the Term SOFR Determination Date, then the Term SOFR Reference Rate, for purposes of clause (A) in the preceding sentence, shall be the Term SOFR Reference Rate for such tenor on the first Business Day preceding such Term SOFR Determination Date for which such Term SOFR Reference Rate for such tenor was published in accordance herewith, so long as such first preceding Business Day is not more than three (3) Business Days prior to such Term SOFR Determination Date. If the Term SOFR Rate, determined as provided above, would be less than the SOFR Floor, then the Term SOFR Rate shall be deemed to be the SOFR Floor. The Term SOFR Rate shall be adjusted automatically without notice to the Borrowers on and as of (i) the first day of each Interest Period, and (ii) the effective date of any change in the SOFR Reserve Percentage.
Term SOFR Rate Loan means a Loan that bears interest based on the Term SOFR Rate.
Term SOFR Rate Option means the option of the Borrowers to have Loans bear interest at the rate and under the terms specified in Section 4.1.1(ii)(a) [Term SOFR Rate Option].
Term SOFR Reference Rate shall mean the forward-looking term rate based on SOFR.
TONAR means a rate equal to the Tokyo Overnight Average Rate as administered by the TONAR Administrator.
TONAR Administrator means the Bank of Japan (or any successor administrator of the Tokyo Overnight Average Rate).
TONAR Administrator’s Website means the Bank of Japan’s website, currently at http://www.boj.or.jp, or any successor source for the Tokyo Overnight Average Rate identified as such by the TONAR Administrator from time to time.
Type, when used in reference to any Loan or Borrowing Tranche, refers to whether the rate of interest on such Loan, or on the Loans comprising such Borrowing Tranche, is determined by reference to (a) the Base Rate, (b) Term SOFR Rate, (c) the Daily Simple RFR, (d) the Term RFR, and (e) the Eurocurrency Rate.
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UK Financial Institution means any BRRD Undertaking (as such term is defined under the PRA Rulebook (as amended form time to time) promulgated by the United Kingdom Prudential Regulation Authority) or any person falling within IFPRU 11.6 of the FCA Handbook (as amended from time to time) promulgated by the United Kingdom Financial Conduct Authority, which includes certain credit institutions and investment firms, and certain affiliates of such credit institutions or investment firms.
Unadjusted Benchmark Replacement means the applicable Benchmark Replacement excluding the related Benchmark Replacement Adjustment.
Unencumbered Cash shall mean cash and Cash Equivalents of the Borrowers and their Consolidated Subsidiaries which are not subject to any Lien other than non-consensual Permitted Liens which do not restrict use of the cash or Cash Equivalents by the Borrowers and their Consolidated Subsidiaries.
Unpaid Drawing shall mean, with respect to any Letter of Credit, the aggregate Dollar Equivalent amount of the draws made on such Letter of Credit that have not been reimbursed by the Borrowers.
UCP shall have the meaning specified in Section 12.11.1 [Governing Law].
UK Resolution Authority means the Bank of England or any other public administrative authority having responsibility for the resolution of any UK Financial Institution.
USA Patriot Act shall mean the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, Public Law 107-56, as the same has been, or shall hereafter be, renewed, extended, amended or replaced.
U.S. Borrower shall mean any Borrower that is a U.S. Person.
U.S. Government Securities Business Day shall mean any day except for (a) a Saturday or Sunday or (b) a day on which the Securities Industry and Financial Markets Association recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.
U.S. Person shall mean any Person that is a "United States Person" as defined in Section 7701(a)(30) of the Code.
U.S. Special Resolution Regimes shall have the meaning assigned to it in Section 12.19 [Acknowledgement Regarding Any Supported QFCs].
U.S. Tax Compliance Certificate shall have the meaning specified in Section 5.9.7 [Status of Lenders].
Withholding Agent shall mean any Borrower and the Administrative Agent.
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Write-Down and Conversion Powers means, (a) with respect to any EEA Resolution Authority, the write-down and conversion powers of such EEA Resolution Authority from time to time under the Bail-In Legislation for the applicable EEA Member Country, which write-down and conversion powers are described in the EU Bail-In Legislation Schedule, and (b) with respect to the United Kingdom, any powers of the applicable Resolution Authority under the Bail-In Legislation to cancel, reduce, modify or change the form of a liability of any UK Financial Institution or any contract or instrument under which that liability arises, to convert all or part of that liability into shares, securities or obligations of that person or any other person, to provide that any such contract or instrument is to have effect as if a right had been exercised under it or to suspend any obligation in respect of that liability or any of the powers under that Bail-In Legislation that are related to or ancillary to any of those powers.
Yen or ¥ mean the lawful currency of Japan.
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48
49
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in each case, of a duly completed request therefor substantially in the form of Exhibit 2.4.1 or a request by telephone immediately confirmed in writing by letter, facsimile or telex in such form (each, a "Loan Request"), it being understood that the Administrative Agent may rely on the authority of any individual making such a telephonic request without the necessity of receipt of such written confirmation. Each Loan Request shall be irrevocable and shall specify (A) the aggregate amount of the proposed Loans (expressed in the currency in which such Loans shall be funded) comprising each Borrowing Tranche, and, if applicable, the Interest Period, which amount shall be in (x) integral multiples of $1,000,000 (or the Dollar Equivalent thereof) and not less than $5,000,000 (or the Dollar Equivalent thereof) for each Borrowing Tranche under a Term Rate Loan Option or a Daily Simple RFR Option, and (y) integral multiples of $500,000 and not less than $1,000,000 for each Borrowing Tranche under the Base Rate Option; (B) which Interest Rate Option shall apply to the proposed Dollar denominated Loans comprising the applicable Borrowing Tranche, (C) the currency in which such Revolving Credit Loans shall be funded if a Borrower elects an Optional Currency, the applicable Interest Rate Option, (D) an appropriate Interest Period, and (E) which Borrower is requesting the Revolving Credit Loan. No Loan denominated in any Available Currency may be converted into a Loan with a different Interest Rate Option, or a Loan denominated in a different Available Currency.
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Without limiting the generality of the foregoing, the Issuing Lender and each of its Affiliates (i) may rely on any oral or other communication believed in good faith by the Issuing Lender or such Affiliate to have been authorized or given by or on behalf of the applicant for a Letter of Credit, (ii) may honor any presentation if the documents presented appear on their face substantially to comply with the terms and conditions of the relevant Letter of Credit; (iii) may honor a previously dishonored presentation under a Letter of Credit, whether such dishonor was pursuant to a court order, to settle or compromise any claim of wrongful dishonor, or otherwise, and shall be entitled to reimbursement to the same extent as if such presentation had initially been honored, together with any interest paid by the Issuing Lender or its Affiliate; (iv) may honor any drawing that is payable upon presentation of a statement advising negotiation or payment, upon receipt of such statement (even if such statement indicates that a draft or other document is being delivered separately), and shall not be liable for any failure of any such draft or other document to arrive, or to conform in any way with the relevant Letter of Credit; (v) may pay any paying or negotiating bank claiming that it rightfully honored under the laws or practices of the place where such bank is located; and (vi) may settle or adjust any claim or demand made on the Issuing Lender or its Affiliate in any way related to any order issued at the applicant's request to an air carrier, a letter of guarantee or of indemnity issued to a carrier or any similar document (each an "Order") and honor any drawing in connection with any Letter of Credit that is the subject of such Order, notwithstanding that any drafts or other documents presented in connection with such Letter of Credit fail to conform in any way with such Letter of Credit.
In furtherance and extension and not in limitation of the specific provisions set forth above, any action taken or omitted by the Issuing Lender or its Affiliates under or in connection with the Letters of Credit issued by it or any documents and certificates delivered thereunder, if taken or omitted in good faith, shall not put the Issuing Lender or its Affiliates under any resulting liability to the Borrowers or any Lender.
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If (i) a Bankruptcy Event with respect to a parent company of any Lender shall occur following the date hereof and for so long as such event shall continue, or (ii) PNC or the Issuing Lender has a good faith belief that any Lender has defaulted in fulfilling its obligations under one or more other agreements in which such Lender commits to extend credit, PNC shall not be required to fund any Swing Loan and the Issuing Lender shall not be required to issue, amend or increase any Letter of Credit, unless PNC or the Issuing Lender, as the case may be, shall have entered into arrangements with the Borrowers or such Lender, satisfactory to PNC or the Issuing Lender, as the case may be, to defease any risk to it in respect of such Lender hereunder.
In the event that the Administrative Agent, the Borrowers, PNC and the Issuing Lender agree in writing that a Defaulting Lender has adequately remedied all matters that caused such Lender to be a Defaulting Lender, then the Administrative Agent will so notify the parties hereto, and the Ratable Share of the Swing Loans and Letter of Credit Obligations of the Lenders shall be readjusted to reflect the inclusion of such Lender's Commitment, and on such date such Lender shall purchase at par such of the Loans of the other Lenders (other than Swing Loans) as the Administrative Agent shall determine may be necessary in order for such Lender to hold such Loans in accordance with its Ratable Share, provided that except to the extent otherwise expressly agreed by the affected parties, no change hereunder from Defaulting Lender to Lender will constitute a waiver or release of any claim of any party hereunder arising from that Lender's having been a Defaulting Lender.
(A) Notification by Administrative Agent. The Administrative Agent shall notify the Company of each Lender's determination under this Section no later than the date 15 days prior to such anniversary of the Closing Date (or, if such date is not a Business Day, on the next preceding Business Day).
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(B) Additional Commitment Lenders. The Borrowers shall have the right on or before the Existing Expiration Date to replace each Non Extending Lender with, and add as "Lenders" under this Agreement in place thereof, one or more assignees who are eligible to become Lenders under Section 12.8.2 [Assignment by Lenders] (each, an "Additional Commitment Lender"), and as provided in Section 12.8.2, each of which Additional Commitment Lenders shall have entered into an Assignment and Assumption pursuant to which such Additional Commitment Lender shall undertake a Commitment (and, if any such Additional Commitment Lender is already a Lender, its Commitment shall be in addition to such Lender's Commitment hereunder on such date) and shall agree, with respect to such undertaken Commitment, to such extension. At the Existing Expiration Date in effect prior to such extension, (1) the commitments of Non-Extending Lenders that are not otherwise replaced with an Additional Commitment Lender will be terminated, and the Loans of and other amounts due and payable to such Lenders will be repaid (it being understood that the commitments of the Non-Extending Lenders not consenting to such extension will remain in effect until the Existing Expiration Date originally applicable to such Lenders), and (2) the Borrowers shall make such additional prepayments as shall be necessary in order that the Loans and L/C Obligations hereunder immediately after such Existing Expiration Date will not exceed the Commitments.
(C) Minimum Extension Requirement. If (and only if) the total of the Commitments of the Lenders that have agreed so to extend their Expiration Date and the additional Commitments of the Additional Commitment Lenders shall be more than 50% of the aggregate amount of the Commitments in effect immediately prior to such anniversary of the Closing Date, then, effective as of such anniversary of the Closing Date (the "Extension Effective Date"), the Expiration Date of each extending Lender and of each Additional Commitment Lender shall be extended to the date falling 364 days after the Existing Expiration Date (except that, if such date is not a Business Day, such Commitment Date as so extended shall be the next preceding Business Day) and each Additional Commitment Lender shall thereupon become a "Lender" for all purposes of this Agreement.
(D) Conditions to Effectiveness of Extensions. Notwithstanding the foregoing, the extension of the Expiration Date pursuant to this Section shall not be effective with respect to any Lender unless:
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(E) Amendment; Sharing of Payments. In connection with any extension of the Expiration Date, the Borrowers, the Administrative Agent and each extending Lender may make such amendments to this Agreement as the Administrative Agent determines to be reasonably necessary to evidence the extension. This Section shall supersede Sections 5.3 and 12.1.
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(i) Notwithstanding anything to the contrary herein or in any other Loan Document, if a Benchmark Transition Event and its related Benchmark Replacement Date have occurred prior to any setting of the then-current Benchmark for any Available Currency, then (A) if a Benchmark Replacement is determined in accordance with clause (1) of the definition of "Benchmark Replacement" for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of such Benchmark setting and subsequent Benchmark settings without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document and (B) if a Benchmark Replacement is determined in accordance with clause (2), (3), or (4) of the definition of "Benchmark Replacement" for such Benchmark Replacement Date, such Benchmark Replacement will replace such Benchmark for all purposes hereunder and under any Loan Document in respect of any Benchmark setting at or after 5:00 p.m. (New York City time) on the fifth (5th) Business Day after the date notice of such Benchmark Replacement is provided to the Lenders without any amendment to, or further action or consent of any other party to, this Agreement or any other Loan Document so long as the Administrative Agent has not received, by such time, written notice from Lenders comprising the Required Lenders of objection to (i) with respect to a Benchmark Replacement determined in accordance with clause (2) or (3) of the definition of "Benchmark Replacement", the related Benchmark Replacement Adjustment and (ii) with respect to a Benchmark Replacement determined in accordance with clause (4) of the definition of "Benchmark Replacement", such Benchmark Replacement.
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(ii) [Reserved].
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Notwithstanding that the parties hereto do not anticipate that any payment of interest will be subject to Swiss Withholding Tax, such parties agree that, in the event that (a) Swiss Withholding Tax is imposed on interest payments by any Swiss Borrower and (b) such Swiss Borrower is unable, solely by reason of the Swiss Withholding Tax Act, to comply with Section 5.9.2 [Payments Free of Taxes], then
To the extent that interest payable by a Swiss Borrower under this Agreement becomes subject to Swiss Withholding Tax, at the Borrowers' expense, the Parties shall promptly cooperate in completing any procedural formalities (including submitting forms and documents required by the appropriate Tax authority) to the extent possible and necessary for the specific Swiss Borrower to obtain the tax ruling from Swiss Federal Tax Administration.
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All the other provisions of Section 5.9 [Taxes] shall otherwise apply except for the gross-up requirement provided for under Section 5.9.2 [Payments Free of Taxes].
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Each Borrower consents to the foregoing and agrees, to the extent it may effectively do so under applicable Law, that any Lender acquiring a participation pursuant to the foregoing arrangements may exercise against each Borrower rights of setoff and counterclaim with respect to such participation as fully as if such Lender were a direct creditor of each Borrower in the amount of such participation.
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A notice of prepayment delivered by a Borrower may state that the prepayment contemplated thereby is subject to the effectiveness or funding of other credit facilities, the completion of any debt or equity offering or the completion of any other corporate transaction or event that will provide the proceeds for such repayment or otherwise result in such prepayment being required hereunder. The principal amount of the Loans required, together with interest on such principal amount shall be due and payable on the date specified in such prepayment notice as the date on which the proposed prepayment is to be made. Except as provided in Section 4.4.4 [Administrative Agent's and Lender's Rights], if the Borrowers prepay a Loan but fails to specify the applicable Borrowing Tranche which the Borrowers are prepaying, the prepayment shall be applied (i) first to Revolving Credit Loans to which the Base Rate Option applies, (ii) then to other Revolving Credit Loans denominated in dollars, (iii) then to Revolving Credit Loans to which the Term RFR Loans denominated in an Optional Currency, (iv) then to Eurocurrency Rate Loans, (v) then to Swing Loans to which the Base Rate Option applies, and (vi) then to Swing Loans to which the Term SOFR Rate Option applies. Any prepayment hereunder shall be subject to the Borrowers' Obligation to indemnify the Lenders under Section 5.10 [Indemnity]. Prepayments shall be made in the currency in which such Loan was made, unless otherwise directed by the Administrative Agent. Any amount of Loans paid or prepaid before the Expiration Date may, subject to the terms and conditions of this Agreement, be borrowed, repaid and borrowed again.
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Solely with respect to circumstances described in Sections 5.6.2(i) through 5.6.2(iii), a Lender shall not be required to make any such assignment or delegation if, prior thereto, as a result of a waiver by such Lender or otherwise, the circumstances entitling the Borrowers to require such assignment and delegation cease to apply.
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and the result of any of the foregoing shall be to increase the cost to such Lender or such other Recipient of making, converting to, continuing or maintaining any Loan or of maintaining its obligation to make any such Loan, or to increase the cost to such Lender, the Issuing Lender or such other Recipient of participating in, issuing or maintaining any Letter of Credit (or of maintaining its obligation to participate in or to issue any Letter of Credit), or to reduce the amount of any sum received or receivable by such Lender, the Issuing Lender or other Recipient hereunder (whether of principal, interest or any other amount) then, upon request of such Lender, the Issuing Lender or other Recipient, the Borrowers will pay to such Lender, the Issuing Lender or other Recipient, as the case may be, such additional amount or amounts as will compensate such Lender or the Issuing Lender, as the case may be, for such additional costs incurred or reduction suffered provided that upon the occurrence of any Change in Law imposing a reserve percentage on any interest rate based on SOFR, a Eurocurrency Rate, a Daily Simple RFR, or a Term RFR, the Administrative Agent, in its reasonable discretion, may modify the calculation of each such SOFR, Eurocurrency Rate, Daily Simple RFR, or Term RFR-based interest rate to add (or otherwise account for) such reserve percentage.
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Each Lender agrees that if any form or certification it previously delivered expires or becomes obsolete or inaccurate in any respect, it shall update such form or certification or promptly notify each U.S. Borrower and the Administrative Agent in writing of its legal inability to do so.
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Within thirty (30) days after request by any Lender that holds a passport under the HMRC DT Treaty Passport scheme and which wishes that scheme to apply to this Agreement, the Company shall file a duly completed form DTTP-2 [Notification of a loan from a Double Taxation Treaty Passport Holder] in respect of such Lender, with HM Revenue and Customs and shall promptly provide Lender with a copy of that filing.
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If any Lender sustains or incurs any such loss or expense, it shall from time to time notify the Borrowers of the amount determined in good faith by such Lender (which determination may include such assumptions, allocations of costs and expenses and averaging or attribution methods as such Lender shall deem reasonable) to be necessary to indemnify such Lender for such loss or expense. Such notice shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by the Borrowers to such Lender ten (10) Business Days after such notice is given.
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The Borrowers, their respective Subsidiaries and their respective directors, officers and employees and, to the knowledge of the Borrowers, the agents of the Borrowers and their Subsidiaries, are in compliance with all applicable Anti-Corruptions Laws in all material respects. The Company maintains and will continue to maintain and enforce policies and procedures designed to promote and achieve continued compliance with Anti-Terrorism Laws and Anti-Corruption Laws.
No Borrower is an Affected Financial Institution.
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The obligation of each Lender to make Loans and of the Issuing Lender to issue Letters of Credit hereunder is subject to the performance by each of the Borrowers of their Obligations to be performed hereunder at or prior to the making of any such Loans or issuance of such Letters of Credit and to the satisfaction of the following further conditions:
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The Borrowers, jointly and severally, covenant and agree that until Payment In Full, the Borrowers shall comply at all times with the following covenants:
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The Administrative Agent shall not be liable for any action taken or not taken by it (i) with the consent or at the request of the Required Lenders (or such other number or percentage of the Lenders as shall be necessary, or as the Administrative Agent shall believe in good faith shall be necessary, under the circumstances as provided in Sections 12.1 [Modifications, Amendments or Waivers] and 9.2 [Consequences of Event of Default]) or (ii) in the absence of its own gross negligence or willful misconduct. The Administrative Agent shall be deemed not to have knowledge of any Potential Default or Event of Default unless and until notice describing such Potential Default or Event of Default is given to the Administrative Agent by the Borrowers, a Lender or the Issuing Lender.
The Administrative Agent shall not be responsible for or have any duty to ascertain or inquire into (i) any statement, warranty or representation made in or in connection with this Agreement or any other Loan Document, (ii) the contents of any certificate, report or other document delivered hereunder or thereunder or in connection herewith or therewith, (iii) the performance or observance of any of the covenants, agreements or other terms or conditions set forth herein or therein or the occurrence of any Potential Default or Event of Default, (iv) the validity, enforceability, effectiveness or genuineness of this Agreement, any other Loan Document or any other agreement, instrument or document or (v) the satisfaction of any condition set forth in Section 7 [Conditions of Lending and Issuance of Letters of Credit] or elsewhere herein, other than to confirm receipt of items expressly required to be delivered to the Administrative Agent.
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If PNC resigns as Administrative Agent under this Section 10.6 [Resignation of Administrative Agent], PNC shall also resign as an Issuing Lender. Upon the appointment of a successor Administrative Agent hereunder, such successor shall (i) succeed to all of the rights, powers, privileges and duties of PNC as the retiring Issuing Lender and Administrative Agent and PNC shall be discharged from all of its respective duties and obligations as Issuing Lender and Administrative Agent under the Loan Documents, and (ii) issue letters of credit in substitution for the Letters of Credit issued by PNC, if any, outstanding at the time of such succession or make other arrangement satisfactory to PNC to effectively assume the obligations of PNC with respect to such Letters of Credit.
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(i) (A) in the case of immediately preceding clauses (x) or (y), an error shall be presumed to have been made (absent written confirmation from the Administrative Agent to the contrary) or (B) an error has been made (in the case of immediately preceding clause (z)), in each case, with respect to such payment, prepayment or repayment; and
(ii) such Lender or Issuing Lender shall (and shall cause any other recipient that receives funds on its respective behalf to) promptly (and, in all events, within one Business Day of its knowledge of such error) notify the Administrative Agent of its receipt of such payment, prepayment or repayment, the details thereof (in reasonable detail) and that it is so notifying the Administrative Agent pursuant to this Section 10.13(b).
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provided that no agreement, waiver or consent which would modify the interests, rights or obligations of the Administrative Agent or the Issuing Lender may be made without the written consent of such Administrative Agent or Issuing Lender, as applicable, and provided, further that, if in connection with any proposed waiver, amendment or modification referred to in Sections 12.1.1 through 12.1.4 above, the consent of the Required Lenders is obtained but the consent of one or more of such other Lenders whose consent is required is not obtained (each a "Non-Consenting Lender"), then the Borrowers shall have the right to replace any such Non-Consenting Lender with one or more replacement Lenders pursuant to Section 5.6.2 [Replacement of a Lender]. Notwithstanding anything to the contrary herein, no Defaulting Lender shall have any right to approve or disapprove any amendment, waiver or consent hereunder (and any amendment, waiver or consent which by its terms requires the consent of all Lenders or each affected Lender may be effected with the consent of the applicable Lenders other than Defaulting Lenders), except that (x) the Commitment of any Defaulting Lender may not be increased or extended without the consent of such Lender, and (y) any waiver, amendment or modification requiring the consent of all Lenders or each affected Lender that by its terms affects any Defaulting Lender disproportionately adversely relative to other affected Lenders shall require the consent of such Defaulting Lender.
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Notices sent by hand or overnight courier service, or mailed by certified or registered mail, shall be deemed to have been given when received; notices sent by telecopier shall be deemed to have been given when sent (except that, if not given during normal business hours for the recipient, shall be deemed to have been given at the opening of business on the next Business Day for the recipient). Notices delivered through electronic communications to the extent provided in Section 12.5.2 [Electronic Communications], shall be effective as provided in such Section.
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Subject to acceptance and recording thereof by the Administrative Agent pursuant to Section 12.8.3 [Register], from and after the effective date specified in each Assignment and Assumption Agreement, the assignee thereunder shall be a party to this Agreement and, to the extent of the interest assigned by such Assignment and Assumption Agreement, have the rights and obligations of a Lender under this Agreement, and the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Assumption Agreement, be released from its obligations under this Agreement (and, in the case of an Assignment and Assumption Agreement covering all of the assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto) but shall continue to be entitled to the benefits of Sections 4.4 [Rate Unascertainable; Increased Costs; Deposits Not Available; Illegality; Benchmark Replacement Setting], 5.8 [Increased Costs], and 12.3 [Expenses, Indemnity; Damage Waiver] with respect to facts and circumstances occurring prior to the effective date of such assignment.
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Any assignment or transfer by a Lender of rights or obligations under this Agreement that does not comply with this Section 12.8.2 [Assignments by Lenders] shall be treated for purposes of this Agreement as a sale by such Lender of a participation in such rights and obligations in accordance with Section 12.8.4 [Participations].
Any agreement or instrument pursuant to which a Lender sells such a participation shall provide that such Lender shall retain the sole right to enforce this Agreement and to approve any amendment, modification or waiver of any provision of this Agreement; provided that such agreement or instrument may provide that such Lender will not, without the consent of the Participant, agree (other than as is already provided for herein) to any amendment, modification or waiver with respect to Sections 12.1.1 [Increase of Commitment], 12.1.2 [Extension of Payment, Etc.], or 12.1.3 [Release of Guarantor] that affects such Participant. The Borrowers agree that each Participant shall be entitled to the benefits of Sections 4.4 [Rate Unascertainable; Increased Costs; Deposits Not Available; Illegality; Benchmark Replacement Setting], 5.8 [Increased Costs], 5.10 [Indemnity] and 5.9 [Taxes] (subject to the requirements and limitations therein, including the requirements under Section 5.9.7 [Status of Lenders] (it being understood that the documentation required under Section 5.9.7 [Status of Lenders] shall be delivered to the participating Lender)) to the same extent as if it were a Lender and had acquired its interest by assignment pursuant to Section 12.8.2 [Assignments by Lenders]; provided that such Participant (A) agrees to be subject to the provisions of Section 5.6.2 [Replacement of a Lender] as if it were an assignee under Section 12.8.2 [Assignments by Lenders]; and (B) shall not be entitled to receive any greater payment under Sections 5.8 [Increased Costs] or 5.9 [Taxes], with respect to any participation, than its participating Lender would have been entitled to receive, except to the extent such entitlement to receive a greater payment results from a Change in Law that occurs after the Participant acquired the applicable participation.
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Each Lender that sells a participation agrees, at the Borrowers' request and expense, to use reasonable efforts to cooperate with the Borrowers to effectuate the provisions of Section 5.6.2 [Replacement of a Lender] and Section 5.6.3 [Designation of a Different Lending Office] with respect to any Participant. To the extent permitted by law, each Participant also shall be entitled to the benefits of Section 9.2.3 [Set-off] as though it were a Lender; provided that such Participant agrees to be subject to Section 5.3 [Sharing of Payments by Lenders] as though it were a Lender. Each Lender that sells a participation shall, acting solely for this purpose as a non-fiduciary agent of the Borrowers, maintain a register, on which it enters the name and address of each Participant and the principal amounts (and stated interest) of each Participant's interest in the Loans or other obligations under the Loan Documents (the "Participant Register"); provided that no Lender shall have any obligation to disclose all or any portion of the Participant Register (including the identity of any Participant or any information relating to a Participant's interest in any commitments, loans, letters of credit or its other obligations under any Loan Document) to any Person except to the extent that such disclosure is necessary to establish that such commitment, loan, letter of credit or other obligation is in registered form under Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Participant Register shall be conclusive absent manifest error, and such Lender shall treat each Person whose name is recorded in the Participant Register as the owner of such participation for all purposes of this Agreement notwithstanding any notice to the contrary. For the avoidance of doubt, the Administrative Agent (in its capacity as Administrative Agent) shall have no responsibility for maintaining a Participant Register.
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For the avoidance of doubt, nothing herein prohibits any individual from communicating or disclosing information regarding suspected violations of laws, rules, or regulations to a governmental, regulatory, or self-regulatory authority.
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To the extent that the Loan Documents provide support, through a guarantee or otherwise, for hedge agreements or any other agreement or instrument that is a QFC (such support, “QFC Credit Support” and each such QFC a “Supported QFC”), the parties acknowledge and agree as follows with respect to the resolution power of the Federal Deposit Insurance Corporation under the Federal Deposit Insurance Act and Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act (together with the regulations promulgated thereunder, the “U.S. Special Resolution Regimes”) in respect of such Supported QFC and QFC Credit Support (with the provisions below applicable notwithstanding that the Loan Documents and any Supported QFC may in fact be stated to be governed by the laws of the State of New York and/or of the United States or any other state of the United States):
(a) In the event a Covered Entity that is party to a Supported QFC (each, a “Covered Party”) becomes subject to a proceeding under a U.S. Special Resolution Regime, the transfer of such Supported QFC and the benefit of such QFC Credit Support (and any interest and obligation in or under such Supported QFC and such QFC Credit Support, and any rights in property securing such Supported QFC or such QFC Credit Support) from such Covered Party will be effective to the same extent as the transfer would be effective under the U.S. Special Resolution Regime if the Supported QFC and such QFC Credit Support (and any such interest, obligation and rights in property) were governed by the laws of the United States or a state of the United States. In the event a Covered Party or a BHC Act Affiliate of a Covered Party becomes subject to a proceeding under a U.S. Special Resolution Regime, Default Rights under the Loan Documents that might otherwise apply to such Supported QFC or any QFC Credit Support that may be exercised against such Covered Party are permitted to be exercised to no greater extent than such Default Rights could be exercised under the U.S. Special Resolution Regime if the Supported QFC and the Loan Documents were governed by the laws of the United States or a state of the United States. Without limitation of the foregoing, it is understood and agreed that rights and remedies of the parties with respect to a Defaulting Lender shall in no event affect the rights of any Covered Party with respect to a Supported QFC or any QFC Credit Support.
(b) As used in this Section 12.19, the following terms have the following meanings:
“BHC Act Affiliate” of a party means an “affiliate” (as such term is defined under and interpreted in accordance with 12 U.S.C. 1841(k)) of such party.
“Covered Entity” means any of the following:
a) a “covered entity” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 252.82(b);
b) a “covered bank” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 47.3(b); or
c) a “covered FSI” as that term is defined in, and interpreted in accordance with, 12 C.F.R. § 382.2(b).
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“Default Right” has the meaning assigned to that term in, and shall be interpreted in accordance with, 12 C.F.R. §§ 252.81, 47.2 or 382.1, as applicable.
“QFC” has the meaning assigned to the term “qualified financial contract” in, and shall be interpreted in accordance with, 12 U.S.C. 5390(c)(8)(D).
[SIGNATURE PAGESAND CERTAIN SCHEDULES/EXHIBITS OMITTED]
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1
EXHIBIT B
AMENDED AND RESTATED SCHEDULE 6.1.2 TO CREDIT AGREEMENT
[see attached]
1
Schedule 6.1.2
Subsidiaries
29. Company Name
|
Place of Incorporation |
2002 Perlindustria, S.L.U. |
Spain |
7 Esterbrook Lane, LLC |
Nevada (USA) |
Agpro (N.Z.) Limited |
New Zealand |
AgriCoat NatureSeal Limited (83% JV) |
England & Wales |
Alphakem Global Pty. Ltd. |
Australia |
ALTECO Technik GmbH |
Germany |
AMT Composites Proprietary Limited |
South Africa |
API S.p.A. |
Italy |
Applied Polymerics, Inc. |
North Carolina (USA) |
Argos Gestion, S.L.U. |
Spain |
Arnette Polymers, LLC |
Massachusetts (USA) |
AWCI Insurance Company, Ltd. (27.03% JV) (In liquidation) |
Bermuda |
Bastilox Proprietary Limited |
South Africa |
Carboline Company |
Delaware (USA) |
Carboline (Dalian) Paint Company Ltd. |
China |
Carboline Dubai Corporation |
Missouri (USA) |
Carboline Europe SRL |
Belgium |
Carboline France SAS |
France |
Carboline Global Inc. |
Delaware (USA) |
Carboline Hong Kong Trade Company Limited |
Hong Kong |
Carboline (India) Private Limited |
India |
Carboline International Corporation |
Delaware (USA) |
Carboline International Malaysia Sdn. Bhd. (In liquidation) |
Malaysia |
Carboline Italia S.p.A. |
Italy |
Carboline Korea Ltd. (49% JV) |
Korea |
Carboline Norge AS |
Norway |
Carboline (U.K.) Limited |
England & Wales |
CDS&C B.V. |
Netherlands |
Chemtron International, Inc. |
Canada |
Corgrate Fiberglass Systems, S.A. de C.V. |
Mexico |
DAP Global Holdings, Inc. |
Delaware (USA) |
DAP Global Inc. |
Delaware (USA) |
DAP Holdings, LLC |
Delaware (USA) |
DAP Products Inc. |
Delaware (USA) |
Day-Glo Color Corp. |
Ohio (USA) |
Dryvit Holdings, LLC |
Delaware (USA) |
Dryvit Systems USA (Europe) Sp. zo.o. |
Poland |
Entreprises Prostamp Inc. |
Canada |
Euclid Admixture Canada Inc. |
Canada |
The Euclid Chemical Company |
Ohio (USA) |
Euclid Chemical de Centroamérica, S.A. |
Costa Rica |
Euclid Chemical Panama, S.A. |
Panama |
Euclid Guatemala, S.A. |
Guatemala |
Eucomex, S.A. de C.V. |
Mexico |
FEMA Farben und Putze GmbH (In liquidation) |
Germany |
Fibergrate Composite Structures Incorporated |
Delaware (USA) |
**When a % is noted without JV, the remaining % of shares are held by the directors of the company.
4871-2803-0669, v.2
Fibrecrete Preservation Technologies, Inc. |
North Carolina (USA) |
FibreGrid Limited |
England & Wales |
First Continental Services Co. |
Vermont (USA) |
Flowcrete Africa (Proprietary) Limited |
South Africa |
Flowcrete East Africa Limited (In liquidation) |
Kenya |
Flowcrete Europe Limited (In liquidation) |
England & Wales |
Flowcrete Group Limited |
England & Wales |
Flowcrete International Ltd. |
England & Wales |
Flowcrete Middle East FZCO (In liquidation) |
United Arab Emirates |
Flowcrete S.A. (Proprietary) Limited |
South Africa |
Flowcrete UK Ltd. |
England & Wales |
F.T. Morrell (Ireland) Limited |
Ireland |
GJP Holdings Limited |
England & Wales |
Grandcourt NV |
Netherlands Antilles |
Grupo StonCor, S.A. de C.V. |
Mexico |
GTC Manufacturing, Inc. |
Puerto Rico (US Territory) |
GV2 Veda France SAS |
France |
Hummervoll Industribelegg AS |
Norway |
Inatec, s.r.l. |
Dominican Republic |
Japan Carboline Co. Ltd. (50% JV) |
Japan |
Juárez Inmobiliaria, S.A. |
Mexico |
Kemtile Limited |
England & Wales |
Key Resin Company |
Ohio (USA) |
Kirker Enterprises, Inc. |
Delaware (USA) |
Kirker Europe Limited |
Scotland |
Kop-Coat Australia Pty. Ltd. |
Australia |
Kop-Coat, Inc. |
Ohio (USA) |
Kop-Coat New Zealand Limited |
New Zealand |
KTF Enterprises, Inc. |
Delaware (USA) |
LATAM CAR-BOLINE, S.A. de C.V. |
Mexico |
LBG Holdings, Inc. |
Delaware (USA) |
Legend Brands Europe Holdings Limited |
England & Wales |
Legend Brands, Inc. |
Delaware (USA) |
Logiball Inc. |
Canada |
Mantrose-Haeuser Co., Inc. |
Massachusetts (USA) |
Mantrose UK Limited |
England & Wales |
Martin Mathys NV |
Belgium |
MESA IMMO SC |
France |
Modern Recreational Technologies, Inc. |
Delaware (USA) |
Morrells Woodfinishes Africa Proprietary Limited (50% JV) |
South Africa |
Morrells Woodfinishes Limited |
England & Wales |
NatureSeal, Inc. (83% JV) |
Delaware (USA) |
New Ventures (UK) Limited |
England & Wales |
New Ventures II (UK) Limited |
England & Wales |
Parklin Management Group, Inc. |
New Jersey (USA) |
PCGUSL Holdings Limited |
England & Wales |
PCGUSL International Limited (In liquidation) |
England & Wales |
PCGUSL Limited |
England & Wales |
PDR GmbH (11.545% JV) |
Germany |
PDR Recycling GmbH & Co. KG (22.10% JV) |
Germany |
Performance Coatings Group Global Services, S.A. de C.V. |
Mexico |
Perlita Y Vermiculita, S.L.U. |
Spain |
PITCHMASTIC PMB Insulating Materials Contracting Company (75% JV) |
Kuwait |
Pitchmastic PMB Limited |
England & Wales |
**When a % is noted without JV, the remaining % of shares are held by the directors of the company.
4871-2803-0669, v.2
Pitchmastic PMB LLC (49% JV) |
United Arab Emirates |
Plasite, S.A. de C.V. (In liquidation) |
Mexico |
Prebuck LLC |
Michigan (USA) |
Prime Resins, Inc. |
Georgia (USA) |
Productos Cave S.A. |
Chile |
Profile Food Ingredients, LLC |
Illinois (USA) |
PT Tremco CPG Indonesia |
Indonesia |
Radiant Color NV |
Belgium |
Republic Powdered Metals, Inc. |
Ohio (USA) |
RoofTec Systems, Inc. |
Delaware (USA) |
RPM/Belgium NV |
Belgium |
RPM Canada, a General Partnership |
Canada |
RPM Canada Finance Company ULC |
Canada |
RPM Canada Finance I ULC |
Canada |
RPM Canada Finance II ULC |
Canada |
RPM Canada Holding I ULC |
Canada |
RPM Canada Holding II ULC |
Canada |
RPM CF Holdings, Inc. |
Delaware (USA) |
RPM CF, L.P. |
Delaware (USA) |
RPM Coatings (Dalian) Company Limited |
China |
RPM Consumer Group Argentina S.A. |
Argentina |
RPM Consumer Group Brazil Ltda. |
Brazil |
RPM Consumer Group Chile SpA |
Chile |
RPM Consumer Group, Inc. |
Delaware (USA) |
RPM Consumer Group Mexico, S.A. de C.V. |
Mexico |
RPM Consumer Group Peru S.A.C. |
Peru |
RPM Enterprises, Inc. |
Delaware (USA) |
RPM Europe Finance Designated Activity Company (“dac”) |
Ireland |
RPM Europe Holdco B.V. |
Netherlands |
RPM Europe NV |
Belgium |
RPM Europe UK Limited |
England & Wales |
RPM FCP Belgium BV |
Belgium |
RPM Funding Corporation |
Delaware (USA) |
RPM German Real Estate GmbH & Co. KG |
Germany |
RPM German Real Estate Management GmbH |
Germany |
RPM Global Business Capability Center Private Limited |
India |
RPM Global Holdco, LLC |
Delaware (USA) |
RPM Holdco Corp. |
Delaware (USA) |
RPM Industrial Coatings Group, Inc. |
Nevada (USA) |
RPM Industrial Holding, LLC |
Delaware (USA) |
RPM International Inc. |
Delaware (USA) |
RPM New Horizons, LLC |
Delaware (USA) |
RPM New Horizons UK Limited |
England & Wales |
RPM Performance Coatings Group, Inc. |
Delaware (USA) |
RPM Ventures Netherlands B.V. |
Netherlands |
RPOW (France) SAS |
France |
RSIF International Designated Activity Company (“dac”) |
Ireland |
Rust-Oleum Australia & New Zealand Pty. Ltd. |
Australia |
Rust-Oleum Corporation |
Delaware (USA) |
Rust-Oleum France SAS |
France |
Rust-Oleum GmbH |
Germany |
Rust-Oleum International, LLC |
Delaware (USA) |
Rust-Oleum Netherlands B.V. |
Netherlands |
Rust-Oleum Sales Company, Inc. |
Ohio (USA) |
Rust-Oleum South Africa (Pty.) Ltd. |
South Africa |
**When a % is noted without JV, the remaining % of shares are held by the directors of the company.
4871-2803-0669, v.2
Schul International Co., LLC |
New Hampshire (USA) |
Sofradev SAS |
France |
Specialty Products Holding Corp. |
Ohio (USA) |
SPS B.V. |
Netherlands |
StonCor Africa Educational Trust |
South Africa |
StonCor Africa Proprietary Limited |
South Africa |
Stoncor Benelux B.V. |
Netherlands |
StonCor Corrosion Specialists Group Ltda. |
Brazil |
StonCor Denmark ApS |
Denmark |
StonCor Deutschland GmbH |
Germany |
StonCor España, S.L.U. |
Spain |
StonCor Group Holdings Proprietary Limited |
South Africa |
StonCor Group, Inc. |
Delaware (USA) |
StonCor Group SA Proprietary Limited |
South Africa |
StonCor Ireland Limited |
Ireland |
StonCor Lux S.ár.l |
Luxembourg |
StonCor Middle East LLC (49% JV) |
United Arab Emirates |
StonCor Middle East Trading LLC (49% JV) |
Qatar |
StonCor Namibia Proprietary Limited |
Namibia |
StonCor Peru S.A.C. |
Peru |
StonCor Poland Sp. zo.o. |
Poland |
StonCor South Cone S.A. |
Argentina |
Stonhard de Costa Rica S.A. |
Costa Rica |
Stonhard Nederland B.V. |
Netherlands |
Stonhard SAS |
France |
Stonhard Sweden AB |
Sweden |
TCI, Inc. |
Georgia (USA) |
TCI Powder Coatings de Mexico, S.A. de C.V. |
Mexico |
Tor Coatings Limited |
England & Wales |
Toxement, S.A. |
Colombia |
Tremco Asia Pacific Pty. Limited |
Australia |
Tremco Barrier Solutions, Inc. |
Delaware (USA) |
Tremco CPG Asia Pacific Pte. Ltd. |
Singapore |
Tremco CPG Australia Pty. Ltd. |
Australia |
Tremco CPG Belgium NV |
Belgium |
Tremco CPG Denmark A/S |
Denmark |
Tremco CPG Finland Oy |
Finland |
Tremco CPG France SAS |
France |
Tremco CPG Germany GmbH |
Germany |
Tremco CPG Hong Kong Limited |
Hong Kong |
Tremco CPG Iberia, S.L.U. |
Spain |
Tremco CPG Inc. |
Delaware (USA) |
Tremco CPG (India) Private Limited |
India |
Tremco CPG Italy S.r.l. (Being merged) |
Italy |
Tremco CPG Korea Co., Ltd. |
South Korea |
Tremco CPG Malaysia Sdn. Bhd. |
Malaysia |
Tremco CPG Manufacturing Corp. |
Delaware (USA) |
Tremco CPG Netherlands B.V. |
Netherlands |
Tremco CPG Norway AS |
Norway |
Tremco CPG Poland Sp. zo.o. |
Poland |
Tremco CPG Schweiz AG |
Switzerland |
Tremco CPG s.r.o. |
Czech Republic |
Tremco CPG Structurecare Services Limited |
England & Wales |
Tremco CPG Sweden AB |
Sweden |
Tremco CPG (Thailand) Co., Ltd. |
Thailand |
**When a % is noted without JV, the remaining % of shares are held by the directors of the company.
4871-2803-0669, v.2
Tremco CPG Turkey Diș Ticaret A.S. |
Turkey |
Tremco CPG UK Limited |
England & Wales |
Tremco Holdings, Inc. |
Delaware (USA) |
tremco illbruck Austria GmbH |
Austria |
tremco illbruck Group GmbH |
Germany |
Tremco illbruck kft |
Hungary |
Tremco illbruck L.L.C. (49% JV) (In liquidation) |
United Arab Emirates |
Tremco illbruck ooo (Dormant) |
Russia |
Tremco illbruck Production SAS |
France |
Tremco illbruck Sp. zo.o. (Being merged) |
Poland |
Tremco Incorporated |
Ohio (USA) |
Tremco Roofing & Facility Services Private Limited |
India |
United Construction Products, LLC |
Colorado (USA) |
Universal Sealants (U.K.) Limited |
England & Wales |
Vandex Isoliermittel-Gesellschaft m.b.H |
Germany |
VEDA Espaňa Latino América, S.L.U. |
Spain |
Viapol Ltda. |
Brazil |
Vintiquities Limited |
England & Wales |
Watco GmbH |
Germany |
Watco S.à r.l. |
France |
Watco UK Limited |
England & Wales |
Weatherproofing Technologies Canada, Inc. |
Canada |
Weatherproofing Technologies, Inc. |
Delaware (USA) |
WINCO TECHNOLOGIES SAS |
France |
Wood Repair Products, Inc. |
California (USA) |
Zinsser Holdings, LLC |
Delaware (USA) |
**When a % is noted without JV, the remaining % of shares are held by the directors of the company.
4871-2803-0669, v.2
PSU No.:________
RPM INTERNATIONAL INC.
RPM INTERNATIONAL INC. AMENDED AND RESTATED 2014 OMNIBUS EQUITY AND INCENTIVE PLAN
PERFORMANCE STOCK UNIT (PSU)
THIS PERFORMANCE STOCK UNIT AGREEMENT (this “Agreement”), is entered into as of __________ (the “Effective Date”), by and between RPM International Inc., a Delaware corporation (the “Company”), and __________ (the “Grantee”).
WITNESSETH:
WHEREAS, the Compensation Committee of the Board of Directors (the “Compensation Committee”) administers the RPM International Inc. Amended and Restated 2014 Omnibus Equity and Incentive Plan (the “Plan”); and
WHEREAS, the Compensation Committee has determined to award the Grantee performance-based restricted stock units, the vesting of which is contingent upon attainment of performance goals described in Exhibit A hereto; and
WHEREAS, the Compensation Committee has determined that the award of performance-based restricted stock units will be subject to the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the Company and the Grantee agree as follows:
4881-5253-9340, v.3
2
4881-5253-9340, v.3
3
4881-5253-9340, v.3
4
4881-5253-9340, v.3
RPM International Inc.
P.O. Box 777
2628 Pearl Road
Medina, OH 44258
Attn: Vice President — Corporate Benefits and Risk Management
[Signature Page Follows]
5
4881-5253-9340, v.3
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Grantee has hereunto set his hand, all as of the day and year first above written.
GRANTEE
_____________________________________
|
RPM INTERNATIONAL INC.
By: __________________________________ Frank C. Sullivan Its: Chairman and Chief Executive Officer |
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6
4881-5253-9340, v.3
PERS No.:______
RPM INTERNATIONAL INC.
RPM INTERNATIONAL INC. 2014 OMNIBUS EQUITY AND INCENTIVE PLAN
AMENDED AND RESTRICTED STOCK (PERS)
AND ESCROW AGREEMENT
THIS PERFORMANCE-EARNED RESTRICTED STOCK AND ESCROW AGREEMENT (the “Agreement”), is entered into as of __________ (the “Effective Date”), by and between RPM International Inc., a Delaware corporation (the “Company”), and __________ (the “Grantee”).
WITNESSETH:
WHEREAS, the Compensation Committee of the Board of Directors (the “Compensation Committee”) administers the RPM International Inc. 2014 Omnibus Equity and Incentive Plan (the “Plan”); and
WHEREAS, the Compensation Committee has determined that the Grantee has satisfied previously established applicable performance measures for the fiscal year of the Company ending May 31, _____; and
WHEREAS, as a result of the Grantee’s satisfaction of such performance measures, the Compensation Committee has determined that the Grantee has earned a grant of Restricted Stock under the Plan upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the Company and the Grantee agree as follows:
4875-2463-8412, v.3
4875-2463-8412, v.3
3
4875-2463-8412, v.3
4
4875-2463-8412, v.3
RPM International Inc.
P.O. Box 777
2628 Pearl Road
Medina, OH 44258
Attn: Vice President, Corporate
Benefits and Risk Management
5
4875-2463-8412, v.3
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Grantee has hereunto set his hand, all as of the day and year first above written.
GRANTEE
_____________________________________
|
RPM INTERNATIONAL INC.
By: __________________________________ Frank C. Sullivan Its: Chairman and Chief Executive Officer |
6
4875-2463-8412, v.3
RPM INTERNATIONAL INC.
RPM INTERNATIONAL INC. 2014 OMNIBUS EQUITY AND INCENTIVE PLAN
STOCK APPRECIATION RIGHTS AGREEMENT
THIS STOCK APPRECIATION RIGHTS AGREEMENT (the “Agreement”), is entered into as of __________ (the “Effective Date”), by and between RPM International Inc., a Delaware corporation (the “Company”), and __________ (the “Grantee”).
WITNESSETH:
WHEREAS, the Compensation Committee of the Board of Directors (the “Compensation Committee”) administers the RPM International Inc. 2014 Omnibus Equity and Incentive Plan (the “Plan”); and
WHEREAS, the Committee desires to provide the Grantee with Stock Appreciation Rights under the Plan upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, the Company and the Grantee agree as follows:
Date as of Which SARs |
Percentage of SARs Which May Be Exercised |
On and after |
25% |
On and after |
50% |
On and after |
75% |
On and after |
100% |
So long as the Grantee shall continue to be an employee of the Company, a Subsidiary or Allied Enterprise, the Grantee shall not be considered to have experienced a break in continuous employment because of: (a) any temporary leave of absence approved in writing by the Company, a Subsidiary or Allied Enterprise; or (b) any change of duties or position (including transfer to or from a Subsidiary).
4858-6349-7676, v.3
For purposes of this Agreement, an “Allied Enterprise” means a business enterprise, other than the Company or a Subsidiary, in which the Company or a Subsidiary has an equity interest.
2
4858-6349-7676, v.3
3
4858-6349-7676, v.3
4
4858-6349-7676, v.3
RPM International Inc.
P.O. Box 777
2628 Pearl Road
Medina, OH 44258
Attn: Vice President, Corporate Benefits and Risk Management
5
4858-6349-7676, v.3
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Grantee has hereunto set his hand, all as of the day and year first above written.
GRANTEE
______________________________
|
RPM INTERNATIONAL INC.
By: __________________________________ Frank C. Sullivan Its: Chairman and Chief Executive Officer |
6
4858-6349-7676, v.3
RPM INTERNATIONAL INC.
RPM INTERNATIONAL INC. 2014 OMNIBUS EQUITY AND INCENTIVE PLAN
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
RESTRICTED STOCK AGREEMENT
THIS RESTRICTED STOCK AND ESCROW AGREEMENT (the “Agreement”), is entered into as of __________ (the “Effective Date”), by and between RPM International Inc., a Delaware corporation (the “Company”), and __________ (the “Grantee”).
WITNESSETH:
WHEREAS, the Compensation Committee of the Board of Directors (the “Compensation Committee”) administers the RPM International Inc. 2014 Omnibus Equity and Incentive Plan (the “Plan”); and
WHEREAS, the Grantee has been selected to participate in the Company’s Supplemental Executive Retirement Plan, which provides certain key employees of the Company with supplemental retirement and death benefits in the form of shares of restricted stock.
NOW, THEREFORE, the Company and the Grantee agree as follows:
(a) the later of: (i) Grantee’s attainment of age 55 or (ii) the fifth anniversary of the May 31 immediately preceding the date on which the Restricted Stock Award was granted;
(b) the Grantee’s termination of employment under terms constituting a retirement on or after the attainment of age 65; (c) the Company’s termination of the Plan without the adoption of a similar Plan;
4860-4446-1517, v.1
(d) the Grantee’s termination of employment due to his or her death; or
(e) the Grantee’s termination of employment due to his or her Total Disability.
For purposes of this Agreement, “Total Disability” means a determination of disability under any long-term disability plan sponsored by the Company, Subsidiary or Allied Enterprise in which the Grantee participates.
For purposes of this Agreement, an “Allied Enterprise” means a business enterprise, other than the Company or a Subsidiary, in which the Company or a Subsidiary has an equity interest.
2
4860-4446-1517, v.1
3
4860-4446-1517, v.1
4
4860-4446-1517, v.1
RPM International Inc.
P.O. Box 777
2628 Pearl Road
Medina, OH 44258
Attn: Vice President, Corporate
Benefits and Risk Management
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed on its behalf by its duly authorized officer, and the Grantee has hereunto set his hand, all as of the day and year first above written.
GRANTEE
__________________________
|
RPM INTERNATIONAL INC.
__________________________ Janeen B. Kastner |
5
4860-4446-1517, v.1
EXECUTION VERSION
AMENDMENT NO. 11 TO SECOND AMENDED AND RESTATED
RECEIVABLES SALE AGREEMENT
This AMENDMENT NO. 11 TO SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT (this “Amendment”), dated as of May 20, 2024 (such date, the “Eleventh Amendment Effective Date”), is among RPM FUNDING CORPORATION, a Delaware corporation (“Buyer”), each of the entities listed on the signature pages hereto as a “Remaining Originator” (each, a “Remaining Originator”; and collectively, the “Remaining Originators”), and TREMCO BARRIER SOLUTIONS, INC., a Delaware corporation (the “Released Originator”).
RECITALS
NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:
765772364 14448925 |
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4893-3625-2364, v.2
765772364 14448925 |
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4893-3625-2364, v.2
765772364 14448925 |
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4893-3625-2364, v.2
[Signature pages to follow]
765772364 14448925 |
- 4 - |
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4893-3625-2364, v.2
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date first written above.
REMAINING ORIGINATORS:
DAP GLOBAL INC.
RUST-OLEUM CORPORATION
THE EUCLID CHEMICAL COMPANY
WEATHERPROOFING TECHNOLOGIES, INC.
TREMCO CPG INC.
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: Secretary
765772364 14448925 |
S-1 |
Eleventh Amendment to 2nd A&R RSA (RPM) |
4893-3625-2364, v.2
RELEASED ORIGINATOR:
765772364 14448925 |
S-2 |
Eleventh Amendment to 2nd A&R RSA (RPM) |
4893-3625-2364, v.2
TREMCO BARRIER SOLUTIONS, INC.
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: Secretary
765772364 14448925 |
S-3 |
Eleventh Amendment to 2nd A&R RSA (RPM) |
4893-3625-2364, v.2
RPM FUNDING CORPORATION,
as Buyer
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: President and Secretary
765772364 14448925 |
S-4 |
Eleventh Amendment to 2nd A&R RSA (RPM) |
4893-3625-2364, v.2
Consented and Agreed:
RPM INTERNATIONAL INC.,
as Servicer
By: /s/ Edward W. Moore
Name: Edward W. Moore
Title: Senior Vice President, General Counsel, Chief Compliance Officer and Secretary
765772364 14448925 |
S-5 |
Eleventh Amendment to 2nd A&R RSA (RPM) |
4893-3625-2364, v.2
WELLS FARGO BANK, NATIONAL ASSOCIATION,
as a Purchaser
By: /s/ Taylor Cloud
Name: Taylor Cloud
Title: Director
765772364 14448925 |
S-6 |
Eleventh Amendment to 2nd A&R RSA (RPM) |
4893-3625-2364, v.2
PNC BANK, NATIONAL ASSOCIATION,
as a Purchaser and as Administrative Agent
By: /s/ Michael Brown
Name: Michael Brown
Title: Executive Vice President
765772364 14448925 |
S-7 |
Eleventh Amendment to 2nd A&R RSA (RPM) |
4893-3625-2364, v.2
EXECUTION VERSION
Exhibit A to Eleventh Amendment to the Second Amended and Restated Receivables Sale Agreement
EXHIBIT A
SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
dated as of May 9, 2014
among
THE ORIGINATORS FROM TIME TO TIME PARTY HERETO
and
RPM FUNDING CORPORATION,
as Buyer
765800784 14448925
4871-5521-5052, v.3
TABLE OF CONTENTS
Page
ARTICLE I AMOUNTS AND TERMS 2
Section 1.1 [Reserved] 2
Section 1.2 Sales of Receivables 2
Section 1.3 Payment for the Purchases 2
Section 1.4 Purchase Price Credit Adjustments 4
Section 1.5 Payments and Computations, Etc 4
Section 1.6 Transfer of Records 4
Section 1.7 Characterization 5
ARTICLE II REPRESENTATIONS AND WARRANTIES 6
Section 2.1 Representations and Warranties of Originators 6
ARTICLE III CONDITIONS OF PURCHASE 10
Section 3.1 Conditions Precedent to Initial Purchase 10
Section 3.2 Conditions Precedent to Subsequent Payments 10
Section 3.3 Reaffirmation of Representations and Warranties 10
ARTICLE IV COVENANTS10
Section 4.1 Affirmative Covenants of Originators 10
Section 4.2 Negative Covenants of Originators 16
ARTICLE V TERMINATION EVENTS17
Section 5.1 Termination Events 18
Section 5.2 Remedies 19
ARTICLE VI INDEMNIFICATION19
Section 6.1 Indemnities by Originators 19
Section 6.2 Other Costs and Expenses 21
ARTICLE VII MISCELLANEOUS22
Section 7.1 Waivers and Amendments 22
Section 7.2 Notices 22
Section 7.3 Protection of Ownership Interests of Buyer 22
Section 7.4 Confidentiality 23
Section 7.5 Bankruptcy Petition 24
Section 7.6 CHOICE OF LAW 24
Section 7.7 CONSENT TO JURISDICTION 24
Section 7.8 WAIVER OF JURY TRIAL 24
Section 7.9 Integration; Binding Effect; Survival of Terms 24
Section 7.10 Counterparts; Severability; Section References 25
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-i- |
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765800784 14448925
4871-5521-5052, v.3
Exhibits and Schedules
Exhibit I - Definitions
Exhibit II - States of Organization; Chief Executive Offices; Locations of Records; Federal Employer Identification Numbers; Organizational Identification Numbers; Other Names
Exhibit III - Lock-Boxes; Collection Accounts; Collection Banks
Exhibit IV - [Form of] Compliance Certificate
Exhibit V - Credit and Collection Policy
Exhibit VI - [Form of] Subordinated Note
Exhibit VII - [Form of] Receivables Report for Each Originator
Schedule A - Preferred Shares
Schedule B - List of Documents to Be Delivered to Buyer Prior to the initial Purchase
765800784 14448925 ii
4871-5521-5052, v.3
SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT
THIS SECOND AMENDED AND RESTATED RECEIVABLES SALE AGREEMENT, dated as of May 9, 2014, is by and among each of the parties from time to time party hereto as an Originator (each, an “Originator” and collectively, the “Originators”), and RPM Funding Corporation, a Delaware corporation (“Buyer”). Unless defined elsewhere herein, capitalized terms used in this Agreement shall have the meanings assigned to such terms in Exhibit I hereto (or, if not defined in Exhibit I hereto, the meanings assigned to such terms in Exhibit I to the Purchase Agreement hereinafter defined).
PRELIMINARY STATEMENTS
Each of the Originators and the Buyer are parties to an Amended and Restated Receivables Sale Agreement dated as of April 7, 2009, as heretofore amended from time to time (the “Existing Agreement”). The parties hereto agree to amend and restate the Existing Agreement on the terms and subject to the conditions hereinafter set forth.
Each of the Originators now owns, and from time to time hereafter will own, Receivables. Each of the Originators wishes to sell and assign to Buyer, and Buyer wishes to purchase from such Originator, all of such Originator’s right, title and interest in and to its Receivables, together with the Related Security and Collections with respect thereto.
Each of the Originators and Buyer intends the transactions contemplated hereby to be true sales of the Receivables from such Originator to Buyer, providing Buyer with the full benefits of ownership of the Receivables originated by such Originator, and none of the Originators or Buyer intends these transactions to be, or for any purpose to be characterized as, loans from Buyer to any Originator.
Buyer will sell undivided interests in the Receivables and in the associated Related Security and Collections pursuant to that certain Amended and Restated Receivables Purchase Agreement dated as of the date hereof (as the same may from time to time hereafter be amended, supplemented, restated or otherwise modified, the “Purchase Agreement”) among Buyer, RPM International Inc., a Delaware corporation (“RPM-Delaware”), as initial Servicer, Wells Fargo Bank, National Association (“Wells Fargo”), and PNC Bank, National Association (“PNC” and each of Wells Fargo and PNC, a “Purchaser” and, collectively, the “Purchasers”), and PNC, in its capacity as administrative agent for the Purchasers (in such capacity, together with its successors and assigns, the “Administrative Agent”).
NOW, THEREFORE, in consideration of the premises and the mutual covenants herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:
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first, by delivery of immediately available funds, to the extent of funds available to Buyer from its subsequent sale of an interest in the Receivables to the Administrative Agent for the benefit of the Purchasers under the Purchase Agreement, or other cash on hand; and/or
second, by delivery of the proceeds of a subordinated loan from such Originator to Buyer (a “Subordinated Loan”) in an amount not to exceed the least of (A) the remaining unpaid portion of such Purchase Price, and (B) the maximum Subordinated Loan that could be borrowed without rendering Buyer’s Net Worth less than the Required Capital Amount. Such Originator is hereby authorized by Buyer to endorse on the schedule attached to its Subordinated Note an appropriate notation evidencing the date and amount of each advance thereunder, as well as the date of each payment with respect thereto, provided that the failure to make such notation shall not affect any obligation of Buyer thereunder; and/or
third, by accepting such Receivables as a contribution to Buyer’s preferred equity capital associated with such Originator’s Preferred Shares identified on Schedule A hereto; provided that no such capital contribution shall be made from and after the date on which any Originator notifies Buyer in writing that it has designated a date as such Originator’s Termination Date.
Subject to the limitations set forth in clause second above, each Originator irrevocably agrees to advance each Subordinated Loan requested by Buyer on or prior to such Originator’s Termination Date. The Subordinated Loans shall be evidenced by, and shall be payable in accordance with the terms and provisions of such Originator’s Subordinated Note and shall be payable solely from funds which Buyer is not required under the Purchase Agreement to set aside for the benefit of, or otherwise pay over to, the Administrative Agent or the Purchasers.
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Anti-Terrorism Law Compliance
No Sanctions
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provided, however, that nothing contained in this sentence shall limit the liability of such Originator or limit the recourse of Buyer to such Originator for amounts otherwise specifically provided to be paid by such Originator under the terms of this Agreement. Without limiting the generality of the foregoing indemnification, but subject to the exclusions in clauses (a), (b) and (c) above, each Originator shall indemnify Buyer for Indemnified Amounts (including, without limitation, losses in respect of uncollectible Receivables, regardless of whether reimbursement therefor would constitute recourse to such Originator) relating to or resulting from:
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[SIGNATURE PAGES FOLLOW]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date hereof.
RUST-OLEUM CORPORATION
THE EUCLID CHEMICAL COMPANY
WEATHERPROOFING TECHNOLOGIES, INC.
DAP GLOBAL INC.
TREMCO CPG INC.
By:
Name:
Title:
765800784 14448925 S-1 Second A&R Receivables Sale Agreement
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RPM FUNDING CORPORATION
By:
Name:
Title:
765800784 14448925 S-2 Second A&R Receivables Sale Agreement
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Exhibit I
Definitions
This is Exhibit I to the Agreement (as hereinafter defined). As used in the Agreement and the Exhibits and Schedules thereto, capitalized terms have the meanings set forth in this Exhibit I (such meanings to be equally applicable to the singular and plural forms thereof). If a capitalized term is used in the Agreement, or any Exhibit or Schedule thereto, and not otherwise defined therein or in this Exhibit I, such term shall have the meaning assigned thereto in Exhibit I to the Purchase Agreement.
“Administrative Agent” has the meaning set forth in the Preliminary Statements to the Agreement.
“Agreement” means the Second Amended and Restated Receivables Sale Agreement, dated as of May 9, 2014, among the Originators and Buyer, as the same may be amended, restated or otherwise modified.
“Amortization Event” has the meaning set forth in the Purchase Agreement.
“Authorized Officer” means, with respect to each Originator, its president, corporate controller, chief financial officer, treasurer or secretary.
“Buyer” has the meaning set forth in the preamble to the Agreement.
“Calculation Period” means each calendar month or portion thereof which elapses during the term of the Agreement. The first Calculation Period for each Originator shall commence on the date of the initial Purchase of Receivables from such Originator hereunder and the final Calculation Period shall terminate on its Termination Date.
“Change of Control” means (a) the acquisition by any Person (other than Parent), or two or more Persons acting in concert (other than Parent and any Subsidiary of Parent), of beneficial ownership (within the meaning of Rule 13d-3 of the Securities and Exchange Commission under the Securities Exchange Act of 1934) of 30% or more of the outstanding shares of voting stock of RPM-Delaware (or, once applicable, Parent) or (b) RPM-Delaware (or, once applicable, Parent) ceases to own, directly or indirectly, 100% of the outstanding voting stock of any Originator or Buyer.
“Collections” means, with respect to any Receivable, all cash collections and other cash proceeds in respect of such Receivable, including, without limitation, all yield, Finance Charges or other related amounts accruing in respect thereof and all cash proceeds of Related Security with respect to such Receivable.
“Credit and Collection Policy” means each Originator’s credit and collection policies and practices relating to Contracts and Receivables existing on the date hereof and summarized in Exhibit V, as modified from time to time in accordance with the Agreement.
765800784 14448925 Exhibit I-1
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“Deemed Collections” means the aggregate of all amounts an Originator shall have been deemed to have received as a Collection of a Receivable sold by it. An Originator shall be deemed to have received a Collection (but only to the extent of the reduction or cancellation identified below) of a Receivable sold by it if at any time (i) the Outstanding Balance of any such Receivable is either (x) reduced as a result of any defective or rejected goods or services, any discount or any adjustment or otherwise by such Originator (other than cash Collections on account of the Receivables) or (y) reduced or canceled as a result of a setoff in respect of any claim by any Person (whether such claim arises out of the same or a related transaction or an unrelated transaction) or (ii) any of the representations or warranties in Article II were not true with respect to such Receivable at the time of its sale hereunder (in which case, such Originator shall be deemed to have received a Collection in an amount equal to the Outstanding Balance of such Receivable).
“Default Fee” means a per annum rate of interest equal to the sum of (i) the Alternate Base Rate, plus (ii) 2% per annum (computed for actual days elapsed on the basis of a year consisting of 360 days).
“Discount Factor” means, with respect to any Receivable, a percentage calculated to provide Buyer with a reasonable return on its investment in such Receivable after taking account of (i) the time value of money based upon the anticipated dates of collection of such Receivable and the cost to Buyer of financing its investment in such Receivable during such period and (ii) the risk of nonpayment by the related Obligor. Each Originator and Buyer may agree from time to time to change the Discount Factor with respect to the Receivables originated by such Originator based on changes in one or more of the items affecting the calculation thereof, provided that any change to the Discount Factor shall take effect as of the commencement of a Calculation Period, shall apply only prospectively and shall not affect the Purchase Price payment in respect of a Purchase which occurred during any Calculation Period ending prior to the Calculation Period during which any Originator and Buyer agree to make such change.
“Excluded Obligor” means AutoZone, Inc.
“Excluded Receivable” means any account or other right to payment arising from the sale of goods or the rendering of services by Rust-Oleum Corporation and the Obligor of which is either (i) Lowe’s Companies, Inc. or its Subsidiaries or (ii) Advance Stores Company, Incorporated or its Subsidiaries.
“Finance Charges” means, with respect to a Contract, any finance, interest, late payment charges or similar charges owing by an Obligor pursuant to such Contract.
“Initial Cutoff Date” means the close of business on June 6, 2002.
“Intended Characterization” means, for income tax purposes, the characterization of the acquisition by the Purchasers of Purchaser Interests under the Purchase Agreement as a loan or loans by the Purchasers to the Seller secured by the Receivables, the Related Security and the Collections.
765800784 14448925 Exhibit I-2
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“Material Adverse Effect” means a material adverse effect on (i) the financial condition or operations of any Originator, or of RPM-Delaware (or, once applicable, Parent) and its Subsidiaries, taken as a whole, (ii) the ability of any Originator to perform its obligations under the Agreement or any other Transaction Document, (iii) the legality, validity or enforceability of the Agreement or any other Transaction Document, (iv) Buyer’s (or any of its assigns’) interest in the Receivables generally or in any significant portion of the Receivables, the Related Security or Collections with respect thereto, or (v) the collectability of the Receivables generally or of any material portion of the Receivables, in each case, relating to Receivables sold by such Originator hereunder.
“Material Indebtedness” means (a) with respect to the Performance Guarantor and its Subsidiaries (other than the Originators), Indebtedness in excess of $75 million in aggregate principal amount and (b) with respect to any Originator, Indebtedness in excess of $20 million in aggregate principal amount.
“Net Worth” means as of the last Business Day of each Calculation Period preceding any date of determination, the excess, if any, of (a) the aggregate Outstanding Balance of the Receivables at such time, over (b) the sum of (i) the Aggregate Capital outstanding at such time, plus (ii) the aggregate outstanding principal balance of the Subordinated Loans (including any Subordinated Loan proposed to be made on the date of determination).
“Obligor” means a Person obligated to make payments pursuant to a Contract.
“Original Balance” means, with respect to any Receivable coming into existence after the Initial Cutoff Date, the Outstanding Balance of such Receivable on the date it was created.
“Originator(s)” has the meaning set forth in the preamble to the Agreement.
“Parent” means any publicly-held corporation, limited liability company or partnership that (a) is formed for the sole purpose of acquiring, directly or indirectly (whether by distribution or otherwise), substantially all of the outstanding voting stock of all classes of RPM-Delaware, (b) is owned immediately after the acquisition described in clause (a) of this definition by the same shareholders as were shareholders of RPM-Delaware immediately prior to the acquisition described in clause (a) of this definition, and (c) hereafter owns, directly or indirectly, all of the outstanding voting stock of all classes of RPM-Delaware.
“Performance Guarantor” means RPM-Delaware (or any Parent that hereafter unconditionally assumes in writing RPM-Delaware’s obligations under the Performance Undertaking in accordance with the Purchase Agreement).
“Performance Undertaking” has the meaning provided in the Purchase Agreement.
“Potential Termination Event” means an event which, without remedial action and with the passage of time or the giving of notice, or both, would constitute a Termination Event.
“Preferred Shares” means shares of Buyer’s Serial Preferred Stock, as defined in Buyer’s Certificate of Incorporation, as amended.
“Purchase” means each purchase pursuant to Section 1.2(a) of the Agreement by Buyer from an Originator of Receivables originated by such Originator and the Related Security and Collections related thereto, together with all related rights in connection therewith.
765800784 14448925 Exhibit I-3
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“Purchase Agreement” has the meaning set forth in the Preliminary Statements to the Agreement.
“Purchase Price” means, with respect to any Receivable, the price to be paid by Buyer to the applicable Originator for such Receivable and the Related Security and Collections with respect thereto in accordance with Section 1.3 of the Agreement, which price shall equal (i) the product of (x) the Original Balance of such Receivable, multiplied by (y) one minus the Discount Factor then in effect, minus (ii) any Purchase Price Credits to be credited against the Purchase Price otherwise payable in accordance with Section 1.4 of the Agreement.
“Purchase Price Credit” has the meaning set forth in Section 1.4 of the Agreement.
“Receivable” means all rights to payment owed to an Originator (at the times it arises, and before giving effect to any transfer or conveyance under the Agreement) or Buyer (after giving effect to the transfers under the Agreement) constituting an account arising in connection with the sale of goods or the rendering of services by such Originator and further includes, without limitation, the obligation to pay any Finance Charges with respect thereto; provided, however, that in no event shall the term “Receivable” include (a) such right to payment arising from any sale of goods or the rendering of services by any Originator to any Excluded Obligor which occurs after the effective date of the amendment designating such Obligor as being an Excluded Obligor or (b) any Excluded Receivable. Indebtedness and other rights and obligations arising from any one transaction, including, without limitation, indebtedness and other rights and obligations represented by an individual invoice, shall constitute a Receivable separate from a Receivable consisting of the indebtedness and other rights and obligations arising from any other transaction; provided, further, that any indebtedness, rights or obligations referred to in the immediately preceding sentence shall be a Receivable regardless of whether the account debtor or such Originator treats such indebtedness, rights or obligations as a separate payment obligation.
“Receivables Report” means a report, in substantially the form of Exhibit VII hereto (appropriately completed), furnished by an Originator to the Servicer pursuant to Section 4.1(l).
“Records” means, with respect to any Receivable, all Contracts and other documents, books, records and other information (including, without limitation, computer programs, tapes, disks, punch cards, data processing software and related property and rights) relating to such Receivable, any Related Security therefor and the related Obligor.
“Related Security” means, with respect to any Receivable:
(i) all of the applicable Originator’s interest in the inventory and goods (including returned or repossessed inventory or goods), if any, the sale of which by such Originator gave rise to such Receivable, and all insurance contracts with respect thereto,
(ii) all other security interests or liens and property subject thereto from time to time, if any, purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing statements and security agreements describing any collateral securing such Receivable,
765800784 14448925 Exhibit I-4
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(iii) all guaranties, letters of credit, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise,
(iv) all enforcement rights or rights to receive payment with respect to service contracts and other contracts and agreements associated with such Receivable,
(v) all Records related to such Receivable,
(vi) all of the applicable Originator’s right, title and interest in each Lock-Box and each Collection Account, and
(vii) all proceeds of any of the foregoing.
“Required Capital Amount” means, as of any date of determination, an amount equal to the greater of (i) 3% of the aggregate Outstanding Balance of all Receivables as of such date and (ii) $20,000,000.
“Responsible Officer” means, with respect to any Person, each of the following officers (if applicable) of such Person (or anyone performing substantially the same functions as the following officers typically perform): any of such Person’s Senior Officers, or such Person’s assistant treasurer, credit manager or controller.
“RPM” has the meaning set forth in the Preliminary Statements to the Agreement.
“RPM-Delaware” has the meaning set forth in the Preliminary Statements to the Agreement.
“SEC” means the United States Securities and Exchange Commission or any successor regulatory body.
“Senior Officer” means, as to each Originator, the chief executive officer, president, chief financial officer, vice president, treasurer, or secretary.
“Servicer” means the Person who from time to time is designated as the “Servicer” under and as defined in the Purchase Agreement,
“Subordinated Loan” has the meaning set forth in Section 1.3(b) of the Agreement.
“Subordinated Note” means each promissory note in substantially the form of Exhibit VI hereto as more fully described in Section 1.3 of the Agreement, as the same may be amended, restated, supplemented or otherwise modified from time to time.
“Termination Date” means, as to each Originator, the earliest to occur of (i) the Facility Termination Date, (ii) the Business Day immediately prior to the occurrence of a Termination Event set forth in Section 5.1(f) with respect to such Originator or Performance Guarantor, (iii) the Business Day specified in a written notice from Buyer (or its assigns) to such Originator following the occurrence of any other Termination Event with respect to such Originator , and (iv) the date which is thirty (30) days after Buyer’s receipt of written notice from such Originator that it wishes to terminate the facility evidenced by this Agreement.
765800784 14448925 Exhibit I-5
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“Termination Event” has the meaning set forth in Section 5.1 of the Agreement.
“Transaction Documents” means, collectively, this Agreement, each Collection Account Agreement, the Subordinated Notes, the Performance Undertaking and all other instruments, documents and agreements executed and delivered in connection herewith.
“Transfer” means a sale or contribution of Receivables pursuant to the Agreement.
All accounting terms not specifically defined herein shall be construed in accordance with GAAP. All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.
765800784 14448925 Exhibit I-6
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EXHIBIT II
ORIGINATORS’ PLACES OF BUSINESS AND LOCATIONS OF RECORDS
Name of Originator Address of Chief Executive Office and Records |
State of Incorporation Organization Number |
Federal Employee Identification Number
|
Former Corporate, Trade, or Assumed Names |
DAP Global Inc. 2400 Boston Street, Suite 200 Baltimore, Maryland 21224 |
Delaware 6204145 |
87-2457308 |
DAP Acquisition LLC
|
The Euclid Chemical Company 3735 Green Road Beachwood, Ohio 44122 |
Ohio 346416 |
34-0973756 |
Epoxy Chemicals, Inc. Increte Systems |
|
|
|
|
Rust-Oleum Corporation 11 Hawthorn Parkway Vernon Hills, Illinois 60061 |
Delaware 6251297 |
36-1716180 |
The Testor Corporation Synta XIM Products Multi Color Specialties ROC Sales, Inc. Rust-Oleum LLC Rust-Oleum Brands Company Zinsser Brands Company
|
Tremco CPG Inc. 3735 Green Road, Beachwood, Ohio 44122 |
Delaware 6204134 |
87-2508379 |
Tremco Acquisition, LLC NUDURA Systems, Inc. Dryvit Systems, Inc. |
Weatherproofing Technologies, Inc. 3735 Green Road Beachwood, Ohio 44122 |
Delaware 0583723 |
34-0930570 |
Tremco Service Corporation |
765800784 14448925 Exhibit II-1
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Exhibit III
Lock-boxes; Collection Accounts; Collection Banks
See Exhibit IV to Purchase Agreement
765800784 14448925 Exhibit III-1
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Exhibit IV
[Form of] Compliance Certificate
This Compliance Certificate is furnished pursuant to that certain Second Amended and Restated Receivables Sale Agreement dated as of May 9, 2014 (as amended, restated or otherwise modified from time to time, the “Agreement”) among DAP Global Inc., a Delaware corporation, The Euclid Chemical Company, an Ohio corporation, Rust-Oleum Corporation, a Delaware corporation, Tremco CPG Inc., a Delaware corporation, Tremco Barrier Solutions, Inc., a Delaware corporation, Weatherproofing Technologies, Inc., a Delaware corporation, and RPM Funding Corporation, a Delaware corporation (“Buyer”). Capitalized terms used and not otherwise defined herein are used with the meanings attributed thereto in the Agreement.
THE UNDERSIGNED HEREBY CERTIFIES THAT:
1. I am the duly elected ______________ of ________________________ (the “Originator”).
2. I have reviewed the terms of the Agreement and I have made, or have caused to be made under my supervision, a detailed review of the transactions and conditions of the Originator and its Subsidiaries during the accounting period covered by the attached financial statements.
3. The examinations described in paragraph 2 did not disclose, and to the best of my knowledge, no condition or event exists which constitutes, a Termination Event or a Potential Termination Event (as each such term is defined under the Agreement) as to the Originator during or at the end of the accounting period covered by the attached financial statements or as of the date of this Certificate, except as set forth below.
4. Described below are the exceptions, if any, to paragraph 3 by listing, in detail, the nature of the condition or event, the period during which it has existed and the action which the Originator has taken, is taking, or proposes to take with respect to each such condition or event: __________________________________
The foregoing certifications, together with the financial statements delivered with this Certificate in support hereof, are made and delivered this ______ day of __________, 200_.
[Name]
On behalf of
in my capacity as an officer thereof
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Exhibit V
Credit and Collection Policy
[attached]
765800784 14448925 Exhibit V-1
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Exhibit VI
[Form of] Subordinated Note
SUBORDINATED NOTE
May 9, 2014
1. Note. FOR VALUE RECEIVED, the undersigned, RPM Funding Corporation, a Delaware corporation (“SPV”), hereby unconditionally promises to pay to the order of ______________________, a(n) __________ corporation (“Originator”), in lawful money of the United States of America and in immediately available funds, on the date following Originator’s Termination Date which is one year and one day after the date on which (i) the Outstanding Balance of all Receivables sold under the “Sale Agreement” referred to below has been reduced to zero and (ii) Originator has paid to the Buyer all indemnities, adjustments and other amounts which may be owed thereunder in connection with the Purchases (the “Collection Date”), the aggregate unpaid principal sum outstanding of all “Subordinated Loans” made from time to time by Originator to SPV pursuant to and in accordance with the terms of that certain Second Amended and Restated Receivables Sale Agreement dated as of May 9, 2014 among Originator and various of its Affiliates and SPV (as amended, restated, supplemented or otherwise modified from time to time, the “Sale Agreement”). Reference to Section 1.3 of the Sale Agreement is hereby made for a statement of the terms and conditions under which the loans evidenced hereby have been and will be made. All terms which are capitalized and used herein and which are not otherwise specifically defined herein shall have the meanings ascribed to such terms in the Sale Agreement.
2. Interest. SPV further promises to pay interest on the outstanding unpaid principal amount hereof from the date hereof until payment in full hereof at a rate equal to the Alternate Base Rate; provided, however, that if SPV shall default in the payment of any principal hereof, SPV promises to pay, on demand, interest at the rate of the Alternate Base Rate plus 2.00% per annum on any such unpaid amounts, from the date such payment is due to the date of actual payment. Interest shall be payable on the first Business Day of each month in arrears; provided, however, that SPV may elect on the date any interest payment is due hereunder to defer such payment and upon such election the amount of interest due but unpaid on such date shall constitute principal under this Subordinated Note. The outstanding principal of any loan made under this Subordinated Note shall be due and payable on the Collection Date and may be repaid or prepaid at any time without premium or penalty.
3. Principal Payments. Originator is authorized and directed by SPV to enter on the grid attached hereto, or, at its option, in its books and records, the date and amount of each loan made by it which is evidenced by this Subordinated Note and the amount of each payment of principal made by SPV, and absent manifest error, such entries shall constitute prima facie evidence of the accuracy of the information so entered; provided that neither the failure of Originator to make any such entry or any error therein shall expand, limit or affect the obligations of SPV hereunder.
765800784 14448925 Exhibit VI-1
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4. Subordination. Originator shall have the right to receive, and SPV shall make, any and all payments relating to the loans made under this Subordinated Note provided that, after giving effect to any such payment, the Adjusted Net Receivables Balance (as such term is defined in the Receivables Purchase Agreement hereinafter referred to) at such time under the Receivables Purchase Agreement exceeds the sum of (a) the Aggregate Capital (as defined in the Receivables Purchase Agreement) at such time under the Receivables Purchase Agreement, plus (b) the Aggregate Reserves (as defined in the Receivables Purchase Agreement) at such time under the Receivables Purchase Agreement. Originator hereby agrees that at any time during which the conditions set forth in the proviso of the immediately preceding sentence shall not be satisfied, Originator shall be subordinate in right of payment to the prior payment of any indebtedness or obligation of SPV owing to the Administrative Agent or any Purchaser under that certain Amended and Restated Receivables Purchase Agreement dated as of May 9, 2014 by and among SPV, RPM International Inc., as initial Servicer, various “Purchasers” from time to time party thereto, and PNC Bank, National Association, as the “Administrative Agent” (as amended, restated, supplemented or otherwise modified from time to time, the “Purchase Agreement”). The subordination provisions contained herein are for the direct benefit of, and may be enforced by, the Administrative Agent and the Purchasers and/or any of their respective assignees (collectively, the “Senior Claimants”) under the Purchase Agreement. Until the date that is one year and one day following the date on which all “Capital” outstanding under the Purchase Agreement has been repaid in full and all other obligations of SPV and/or the Servicer thereunder and under the “Fee Letter” referenced therein (all such obligations, collectively, the “Senior Claim”) have been indefeasibly paid and satisfied in full, Originator shall not institute against SPV any proceeding of the type described in Section 5.1(f) of the Sale Agreement unless and until the Collection Date has occurred. Should any payment, distribution or security or proceeds thereof be received by Originator in violation of this Section 4, Originator agrees that such payment shall be segregated, received and held in trust for the benefit of, and deemed to be the property of, and shall be immediately paid over and delivered to the Administrative Agent for the benefit of the Senior Claimants.
5. Bankruptcy; Insolvency. Upon the occurrence of any proceeding of the type described in Section 5.1(f) of the Sale Agreement involving SPV as debtor, then and in any such event the Senior Claimants shall receive payment in full of all amounts due or to become due on or in respect of the Aggregate Capital and the Senior Claim (including “Yield” as defined and as accruing under the Purchase Agreement after the commencement of any such proceeding, whether or not any or all of such Yield is an allowable claim in any such proceeding) before Originator is entitled to receive payment on account of this Subordinated Note, and to that end, any payment or distribution of assets of SPV of any kind or character, whether in cash, securities or other property, in any applicable insolvency proceeding, which would otherwise be payable to or deliverable upon or with respect to any or all indebtedness under this Subordinated Note, is hereby assigned to and shall be paid or delivered by the Person making such payment or delivery (whether a trustee in bankruptcy, a receiver, custodian or liquidating trustee or otherwise) directly to the Administrative Agent for application to, or as collateral for the payment of, the Senior Claim until such Senior Claim shall have been paid in full and satisfied.
6. Amendments. This Subordinated Note shall not be amended or modified except in accordance with Section 7.1 of the Sale Agreement. The terms of this Subordinated Note may not be amended or otherwise modified without the prior written consent of the Administrative Agent for the benefit of the Purchasers.
765800784 14448925 Exhibit VI-2
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7. GOVERNING LAW. THIS SUBORDINATED NOTE HAS BEEN MADE AND DELIVERED AT NEW YORK, NEW YORK, AND SHALL BE INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN ACCORDANCE WITH THE LAWS AND DECISIONS OF THE STATE OF NEW YORK. WHEREVER POSSIBLE EACH PROVISION OF THIS SUBORDINATED NOTE SHALL BE INTERPRETED IN SUCH MANNER AS TO BE EFFECTIVE AND VALID UNDER APPLICABLE LAW, BUT IF ANY PROVISION OF THIS SUBORDINATED NOTE SHALL BE PROHIBITED BY OR INVALID UNDER APPLICABLE LAW, SUCH PROVISION SHALL BE INEFFECTIVE TO THE EXTENT OF SUCH PROHIBITION OR INVALIDITY, WITHOUT INVALIDATING THE REMAINDER OF SUCH PROVISION OR THE REMAINING PROVISIONS OF THIS SUBORDINATED NOTE.
8. Waivers. All parties hereto, whether as makers, endorsers, or otherwise, severally waive presentment for payment, demand, protest and notice of dishonor. Originator additionally expressly waives all notice of the acceptance by any Senior Claimant of the subordination and other provisions of this Subordinated Note and expressly waives reliance by any Senior Claimant upon the subordination and other provisions herein provided.
9. Assignment. This Subordinated Note may not be assigned, pledged or otherwise transferred to any party other than Originator without the prior written consent of the Administrative Agent, and any such attempted transfer shall be void.
RPM FUNDING CORPORATION
By:
Title:
765800784 14448925 Exhibit VI-3
4871-5521-5052, v.3
Schedule
to
SUBORDINATED NOTE
SUBORDINATED LOANS AND PAYMENTS OF PRINCIPAL
Date |
Amount of Subordinated Loan |
Amount of Principal Paid |
Unpaid Principal Balance |
Notation made by (initials) |
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765800784 14448925 Exhibit VI-4
4871-5521-5052, v.3
Exhibit VII
[Form of] Receivables Report for Each Originator
[attached]
765800784 14448925 Exhibit VII-1
4871-5521-5052, v.3
Schedule A
Preferred Shares
Weatherproofing Technologies, Inc. 10 shares of Series H Preferred Stock
Rust-Oleum Corporation 10 shares each of Series E, F, I, K, L & M Preferred Stock
The Euclid Chemical Company 10 shares of Series C Preferred Stock
DAP Global Inc. 10 shares of Series B Preferred Stock
Tremco CPG Inc. 10 shares each of Series A, D, G & J Preferred Stock
765800784 14448925 Schedule A-1
4871-5521-5052, v.3
Schedule B
DOCUMENTS TO BE DELIVERED TO BUYER
ON OR PRIOR TO THE PURCHASE
[SEE PART I OF SCHEDULE B TO THE PURCHASE AGREEMENT]
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4893-3625-2364, v.2
April 2023 Revision
RPM INTERNATIONAL INC.
AND ITS SUBSIDIARIES AND OPERATING COMPANIES
INSIDER TRADING POLICY AND BLACKOUT RESTRICTIONS TC "Insider Trading Policy and Blackout Restrictions" \f C \l "1"
It is and shall continue to be the policy of RPM International Inc. (“RPM”) and its subsidiaries and operating companies (collectively with RPM, the “Company”) that their respective directors, officers and employees fully comply with the federal securities laws and Securities and Exchange Commission (“SEC”) regulations.
Insider trading – trading in securities on the basis of material, nonpublic information regarding the issuer of the securities in breach of confidentiality or other fiduciary obligations – is illegal. Violations of federal securities laws can subject employees and the Company to severe civil and criminal penalties. In addition to responding to the federal securities laws, this policy has been adopted to avoid even the appearance of improper conduct on the part of anyone employed or associated with RPM. We have worked hard over the years to establish our reputation for integrity and ethical conduct. We cannot afford to have it damaged.
Specific Restrictions on Trading Activities
Note: Directors, officers and employees must not pass material, nonpublic information on to others, except within the scope of their duties. If you tip material, inside information to someone (a tippee), who trades based on the information, then both you and the tippee are liable under the federal securities laws. Penalties under the federal securities laws apply whether or not you derive a benefit from the tippee’s actions.
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2
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April 2023 Revision
Pre-Clearance Procedures for Members of the Section 16 Group
Members of the Section 16 Group may not engage in any transaction in RPM Common Stock without first obtaining pre-clearance of the transaction from RPM’s General Counsel. A request for pre-clearance should be submitted to RPM’s General Counsel at least two business days in advance of initiating the proposed transaction.
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Requests for pre-clearance should be directed to RPM’s General Counsel and may be made in-person, telephonically, in writing, or via e-mail.
When a request for pre-clearance is made, the requesting person should carefully consider whether he or she may be aware of any material, nonpublic information about the Company or any of its subsidiaries, and should describe fully those circumstances to RPM’s General Counsel.
The requesting person must:
Subject to the other provisions of this policy (including the prohibition on engaging in any transaction in RPM Common Stock while aware of material, nonpublic information), any transaction pre-approved shall be approved only until the beginning of the next blackout period or such shorter period of time specified by RPM’s General Counsel. While approval will not be unreasonably withheld, RPM’s General Counsel is under no obligation to approve a transaction submitted for pre-clearance and may determine not to permit the transaction. If a person requests pre-clearance and permission to engage in the transaction is denied, then such person must refrain from initiating any transaction in RPM Common Stock and should not inform any other person of the restriction.
Additional Information and Definitions
The restrictions described in this policy apply to family members (and any other individuals) living in your household, partnerships in which you are a general partner, trusts of which you are a trustee and estates of which you are an executor (collectively, “Related Parties”). You are expected to be responsible for compliance by such Related Parties.
In order to guard against release of material, nonpublic information to market participants in a prohibited manner, all inquiries seeking information regarding RPM, its business and financial results, should be referred to RPM’s Chief Financial Officer and RPM’s Senior Director of Investor Relations.
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Avoiding liability for violations of insider trading rules requires consideration of these rules before making a trade. You are responsible for complying with these rules and should consult with your advisor to the extent you deem appropriate. Any questions relating to this policy may be directed to RPM’s General Counsel, Associate General Counsel or outside securities counsel (Calfee, Halter & Griswold LLP).
“Material information” is any information that a reasonable investor would consider important in making a decision to buy, sell or hold securities. Any information that could be expected to affect the Company’s stock price, whether it is positive or negative, should be considered material. There is no bright-line standard for assessing materiality. Rather, materiality is based on an assessment of all of the facts and circumstances and is often evaluated by enforcement authorities with the benefit of hindsight. While it is not possible to define all categories of material information, any development, whether or not arising from transactions in the ordinary course of business, that could reasonably be expected to result in a significant change in the condition, financial or otherwise, or in the earnings, management, business, results of operations or prospects of the Company could be considered material. Some examples of information that ordinarily would be regarded as material are:
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“Material, nonpublic information” therefore is information that a reasonable investor would consider important in a decision to buy, sell or hold stock, but which is not generally known to the public.
“Security” or “securities” means any common stock, preferred stock, note, bond, debenture, or any option or warrant to acquire any of the foregoing. The insider trading rules apply to all RPM securities, held by a director, officer or employee of the Company or any of its subsidiaries whether or not the securities were acquired in any manner before or after employment, or before or after obtaining any inside information.
All employees have a duty to report Policy violations to a superior, the General Counsel or to the Hotline. Any employee who violates any Policy, including the failure to report a Policy violation, or who directs or who knowingly permits a subordinate to violate a Policy shall be subject to disciplinary action up to and including termination. RPM retains the right to report any violations of a Policy that are also illegal to the appropriate authorities.
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EXHIBIT A
Frank Sullivan
Ed Moore
Rusty Gordon
Janeen Kastner
Tim Kinser
Mike Laroche
Matt Ratajczak
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Exhibit 21.1
(5/31/24)
Company Name |
Place of Incorporation |
Arnette Polymers, LLC |
Massachusetts (USA) |
Carboline Company |
Delaware (USA) |
Carboline Global Inc. |
Delaware (USA) |
DAP Global Inc. |
Delaware (USA) |
DAP Products Inc. |
Delaware (USA) |
Day-Glo Color Corp. |
Ohio (USA) |
Dryvit Holdings, LLC |
Delaware (USA) |
Euclid Admixture Canada Inc. |
Canada |
Eucomex, S.A. de C.V. |
Mexico |
Fibergrate Composite Structures Incorporated |
Delaware (USA) |
First Continental Services Co. |
Vermont (USA) |
Flowcrete Group Limited |
England & Wales |
GJP Holdings Limited |
England & Wales |
Key Resin Company |
Ohio (USA) |
Kirker Enterprises, Inc. |
Delaware (USA) |
Kop-Coat, Inc. |
Ohio (USA) |
LBG Holdings, Inc. |
Delaware (USA) |
Legend Brands, Inc. |
Delaware (USA) |
Martin Mathys NV |
Belgium |
Modern Recreational Technologies, Inc. |
Delaware (USA) |
NatureSeal, Inc. (83% JV) |
Delaware (USA) |
New Ventures (UK) Limited |
England & Wales |
New Ventures II (UK) Limited |
England & Wales |
Profile Food Ingredients, LLC |
Illinois (USA) |
Radiant Color NV |
Belgium |
RPM Canada, a General Partnership |
Canada |
RPM Canada Finance Company ULC |
Canada |
RPM Canada Holding I ULC |
Canada |
RPM CF Holdings, Inc. |
Delaware (USA) |
RPM Consumer Group, Inc. |
Delaware (USA) |
RPM Enterprises, Inc. |
Delaware (USA) |
RPM Europe Finance Designated Activity Company (“dac”) |
Ireland |
RPM Europe Holdco B.V. |
Netherlands |
RPM Europe UK Limited |
England & Wales |
RPM Funding Corporation |
Delaware (USA) |
RPM Global Holdco, LLC |
Delaware (USA) |
RPM Holdco Corp. |
Delaware (USA) |
RPM Industrial Coatings Group, Inc. |
Nevada (USA) |
RPM Industrial Holding, LLC |
Delaware (USA) |
RPM International Inc. |
Delaware (USA) |
RPM Performance Coatings Group, Inc. |
Delaware (USA) |
RPM Ventures Netherlands B.V. |
Netherlands |
RSIF International Designated Activity Company (“dac”) |
Ireland |
Rust-Oleum Corporation |
Delaware (USA) |
Schul International Co., LLC |
New Hampshire (USA) |
Specialty Products Holding Corp. |
Ohio (USA) |
SPS B.V. |
Netherlands |
StonCor Africa Proprietary Limited |
South Africa |
StonCor Deutschland GmbH |
Germany |
StonCor Group, Inc. |
Delaware (USA) |
StonCor Middle East LLC (49% JV) |
United Arab Emirates |
TCI, Inc. |
Georgia (USA) |
The Euclid Chemical Company |
Ohio (USA) |
Tor Coatings Limited |
England & Wales |
Toxement, S.A. |
Colombia |
Tremco Asia Pacific Pty. Limited |
Australia |
Tremco CPG Germany GmbH |
Germany |
Tremco CPG Inc. |
Delaware (USA) |
Tremco CPG (India) Private Limited |
India |
Tremco CPG Manufacturing Corp. |
Delaware (USA) |
Tremco CPG Netherlands B.V. |
Netherlands |
Tremco CPG Sweden AB |
Sweden |
Tremco CPG UK Limited |
England & Wales |
Tremco Holdings, Inc. |
Delaware (USA) |
tremco illbruck Group GmbH |
Germany |
Tremco Incorporated |
Ohio (USA) |
Universal Sealants (U.K.) Limited |
England & Wales |
Viapol Ltda. |
Brazil |
Weatherproofing Technologies, Inc. |
Delaware (USA) |
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND REPORT ON SCHEDULE
We consent to the incorporation by reference in:
of our reports dated July 25, 2024, relating to the consolidated financial statements of RPM International Inc. and subsidiaries, and the effectiveness of RPM International Inc. and subsidiaries’ internal control over financial reporting appearing in this Annual Report on Form 10-K of RPM International Inc. for the year ended May 31, 2024.
/s/ Deloitte & Touche LLP I, Frank C. Sullivan, certify that:
Cleveland, Ohio
July 25, 2024
Exhibit No. 31.1
RULE 13a-14(a) CERTIFICATION
1. I have reviewed this Annual Report on Form 10-K of RPM International Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Frank C. Sullivan |
Frank C. Sullivan |
Chairman, President and Chief Executive Officer |
Dated: July 25, 2024
Exhibit No. 31.2
RULE 13a-14(a) CERTIFICATION
I, Russell L. Gordon, certify that:
1. I have reviewed this Annual Report on Form 10-K of RPM International Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
/s/ Russell L. Gordon |
Russell L. Gordon |
Vice President and Chief Financial Officer |
Dated: July 25, 2024
Exhibit 32.1
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of RPM International Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
Date: July 25, 2024
/s/ Frank C. Sullivan |
Frank C. Sullivan |
Chairman, President and Chief Executive Officer |
The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-K or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), the undersigned officer of RPM International Inc., a Delaware corporation (the “Company”), does hereby certify, to such officer’s knowledge, that:
Date: July 25, 2024
/s/ Russell L. Gordon |
Russell L. Gordon |
Vice President and Chief Financial Officer |
The foregoing Certification is being furnished solely pursuant to 18 U.S.C. Section 1350 and is not being filed as part of the Form 10-K or as a separate disclosure document.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
RPM INTERNATIONAL INC.
Incentive-Based Compensation Clawback Policy
(Adopted October 5, 2023)
The Board of Directors (the “Board”) of RPM International Inc. (the “Company”) believes that it is in the best interests of the Company and its stockholders to adopt this Clawback Policy (the “Policy”), which provides for the recovery of certain incentive-based compensation in the event of an Accounting Restatement (as defined herein). This Policy is designed to comply with, and shall be interpreted to be consistent with, Section 10D of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), Rule 10D-1 promulgated under the Exchange Act (“Rule 10D-1”) and Section 303A.14 of the New York Stock Exchange Listed Company Manual (the “Listing Standards”).
Except as specifically set forth herein, this Policy shall be administered by the members of the Executive Committee of the Board, other than the Company’s Chief Executive Officer (together, such members of the Executive Committee of the Board are referred to herein as the “Administrator”). The Administrator is authorized to interpret and construe this Policy and to make all determinations necessary, appropriate or advisable for the administration of this Policy. Any determinations made by the Administrator shall be final and binding on all affected individuals and need not be uniform with respect to each individual covered by the Policy. In the administration of this Policy, the Administrator is authorized and directed to consult with the full Board or such other committees of the Board as may be necessary or appropriate as to matters within the scope of such other committee’s responsibility and authority. Subject to any limitation of applicable law, the Administrator may authorize and empower any officer or employee of the Company to take any and all actions necessary or appropriate to carry out the purpose and intent of this Policy (other than with respect to any recovery under this Policy involving such officer or employee).
As used in this Policy, the following definitions shall apply:
“Accounting Restatement” means an accounting restatement of the Company’s financial statements due to the Company’s material noncompliance with any financial reporting requirement under the securities laws, including any required accounting restatement to correct an error in previously issued financial statements that is material to the previously issued financial statements, or that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period.
“Administrator” has the meaning set forth in Section 1 hereof.
“Applicable Period” means the three completed fiscal years immediately preceding the date on which the Company is required to prepare an Accounting Restatement, as well as any transition period (that results from a change in the Company’s fiscal year) within or immediately following those three completed fiscal years (except that a transition period that comprises a period of at least nine months shall count as a completed fiscal year).
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The “date on which the Company is required to prepare an Accounting Restatement” is the earlier to occur of (a) the date the Board, or such other Company body that has authority to conclude an Accounting Restatement is required, concludes or reasonably should have concluded, that the Company is required to prepare an Accounting Restatement or (b) the date a court, regulator or other legally authorized body directs the Company to prepare an Accounting Restatement, in each case regardless of if or when the restated financial statements are filed.
“Covered Executives” are those persons currently or formerly designated as officers of the Company pursuant to Rule 16a-1(f) under the Exchange Act.
“Erroneously Awarded Compensation” has the meaning set forth in Section 5 of this Policy.
“Financial Reporting Measure” is any measure that is determined and presented in accordance with the accounting principles used in preparing the Company’s financial statements, and any measure that is derived wholly or in part from such measure. Financial Reporting Measures include, but are not limited to, the following (and any measures derived from the following): Company stock price; total stockholder return (“TSR”); revenues; net income; operating income; profitability of one or more reportable segments; financial ratios; earnings before interest and taxes (“EBIT”); adjusted EBIT; earnings before interest, taxes, depreciation and amortization (“EBITDA”); adjusted EBITDA; funds from operations and adjusted funds from operations; liquidity measures (e.g., working capital, operating cash flow); return measures (e.g., return on invested capital, return on assets); and earnings measures (e.g., earnings per share). A Financial Reporting Measure need not be presented within the Company’s financial statements or included in a filing with the Securities and Exchange Commission.
“Incentive-Based Compensation” means any compensation that is granted, earned or vested based wholly or in part upon the attainment of a Financial Reporting Measure. Incentive-Based Compensation is “received” for purposes of this Policy in the Company’s fiscal period during which the Financial Reporting Measure specified in the Incentive-Based Compensation award is attained, even if the payment or grant of such Incentive-Based Compensation occurs after the end of that period.
This Policy applies to Incentive-Based Compensation received by a Covered Executive (a) after beginning services as a Covered Executive; (b) if that person served as a Covered Executive at any time during the performance period for such Incentive-Based Compensation; and (c) while the Company had a listed class of securities on the New York Stock Exchange (the “NYSE”).
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The amount of “Erroneously Awarded Compensation” subject to recovery under the Policy, as determined by the Administrator, is the amount of Incentive-Based Compensation received by the Covered Executive that exceeds the amount of Incentive-Based Compensation that would have been received by the Covered Executive had it been determined based on the restated amounts.
Erroneously Awarded Compensation shall be computed by the Administrator without regard to any taxes paid by the Covered Executive in respect of the Erroneously Awarded Compensation.
By way of example, with respect to any compensation plans or programs that take into account Incentive-Based Compensation, the amount of Erroneously Awarded Compensation subject to recovery hereunder includes, but is not limited to, the amount contributed to any notional account based on Erroneously Awarded Compensation and any earnings accrued to date on that notional amount.
For Incentive-Based Compensation based on stock price or TSR: (a) the Administrator shall determine the amount of Erroneously Awarded Compensation based on a reasonable estimate of the effect of the Accounting Restatement on the stock price or TSR upon which the Incentive-Based Compensation was received; and (b) the Company shall maintain documentation of the determination of that reasonable estimate and provide such documentation to the NYSE.
The Administrator shall determine, in its sole discretion, the timing and method for promptly recouping Erroneously Awarded Compensation hereunder, which may include without limitation (a) seeking reimbursement of all or part of any cash or equity-based award, (b) cancelling prior cash or equity-based awards, whether vested or unvested or paid or unpaid, (c) cancelling or offsetting against any planned future cash or equity-based awards, (d) forfeiture of deferred compensation, subject to compliance with Section 409A of the Internal Revenue Code and the regulations promulgated thereunder and (e) any other method authorized by applicable law or contract. Subject to compliance with any applicable law, the Administrator may affect recovery under this Policy from any amount otherwise payable to the Covered Executive, including amounts payable to such individual under any otherwise applicable Company plan or program, including base salary, bonuses or commissions and compensation previously deferred by the Covered Executive.
The Company is authorized and directed pursuant to this Policy to recoup Erroneously Awarded Compensation in compliance with this Policy unless the Administrator has determined that recovery would be impracticable solely for the following limited reasons, and subject to the following procedural and disclosure requirements:
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Notwithstanding the terms of any indemnification or insurance policy or any contractual arrangement with any Covered Executive that may be interpreted to the contrary, the Company shall not indemnify any Covered Executives against the loss of any Erroneously Awarded Compensation, including any payment or reimbursement for the cost of third-party insurance purchased by any Covered Executives to fund potential clawback obligations under this Policy.
Any members of the Administrator, and any other members of the Board who assist in the administration of this Policy, shall not be personally liable for any action, determination or interpretation made with respect to this Policy and shall be fully indemnified by the Company to the fullest extent under applicable law and Company policy with respect to any such action, determination or interpretation. The foregoing sentence shall not limit any other rights to indemnification of the members of the Board under applicable law or Company policy.
This Policy shall be effective as of October 5, 2023 (the “Effective Date”). The terms of this Policy shall apply to any Incentive-Based Compensation that is received by Covered Executives on or after the Effective Date, even if such Incentive-Based Compensation was approved, awarded, granted or paid to Covered Executives prior to the Effective Date. Without limiting the generality of Section 6 hereof, and subject to applicable law, the Administrator may affect recovery under this Policy from any amount of compensation approved, awarded, granted, payable or paid to the Covered Executive prior to, on or after the Effective Date.
The Board may amend, modify, supplement, rescind or replace all or any portion of this Policy at any time and from time to time in its discretion, and shall amend this Policy as it deems necessary to comply with applicable law or any rules or standards adopted by the NYSE.
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Any right of recoupment under this Policy is in addition to, and not in lieu of, any other remedies or rights of recoupment that may be available to the Company under applicable law or pursuant to the terms of any similar policy in any employment agreement, equity award agreement, or similar agreement and any other legal remedies available to the Company.
Nothing contained in this Policy, and no recoupment or recovery as contemplated by this Policy, shall limit any claims, damages or other legal remedies the Company or any of its affiliates may have against a Covered Executive arising out of or resulting from any actions or omissions by the Covered Executive.
This Policy shall be binding and enforceable against all Covered Executives and their beneficiaries, heirs, executors, administrators or other legal representatives.
A copy of this Policy and any amendments thereto shall be posted on the Company’s website and filed as an exhibit to the Company’s Annual Report on Form 10-K.
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4888-8005-5500, v.1