RPM INTERNATIONAL INC/DE/ - Annual Report: 2020 (Form 10-K)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

Form 10-K

For the fiscal year ended May 31, 2020

OR

For the transition period from        to        

Commission File No. 1-14187

RPM INTERNATIONAL INC.

(Exact Name of Registrant as Specified in its Charter)

Registrant’s telephone number, including area code:

(330) 273-5090

Securities registered pursuant to Section 12(b) of the Act:

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.

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

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

The aggregate market value of the Common Stock of the Registrant held by non-affiliates (based upon the closing price of the Common Stock as reported on the New York Stock Exchange on November 30, 2019, the last business day of the Registrant’s most recently completed second fiscal quarter) was approximately $9,456,281,333.  For purposes of this information, the 1,511,224 outstanding shares of Common Stock which were owned beneficially as of November 30, 2019 by executive officers and Directors of the Registrant were deemed to be the shares of Common Stock held by affiliates.

As of July 23, 2020, 129,859,093 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 8, 2020 (the “2020 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, 2020.

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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, P.O. Box 777, Medina, Ohio 44258, 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, Ekspan, Euclid, EUCO, Fibergrate, Fibregrid, Fibrecrete, Flecto, Flowcrete, 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, 2020, our subsidiaries marketed products in approximately 165 countries and territories and operated manufacturing facilities in approximately 124 locations in the United States, Argentina, Australia, Belgium, Brazil, Canada, Chile, China, Colombia, France, Germany, India, Italy, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, South Africa, South Korea, Spain, Sweden, Turkey, the United Arab Emirates and the United Kingdom. Approximately 31% 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, 2020, we recorded net sales of $5.5 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

Effective June 1, 2019, we realigned certain businesses and management structure to recognize how we allocate resources and analyze the operating performance of our businesses. Among other things, the realignment of certain businesses occurred as a result of the 2020 Margin Acceleration Plan (“2020 MAP to Growth”) that was approved and initiated between May and August 2018.  As we began to execute on our operating improvement initiatives, we identified ways to realign certain businesses, and concluded that moving to an expanded reporting structure could help us to better manage our assets and improve synergies across the enterprise.  

This realignment changed our reportable segments beginning with our first quarter of fiscal 2020.  As such, we now report under four reportable segments instead of our three previous reportable segments.  Our four reporting segments are: 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.  In connection with the realignment, we shifted our Kirker business out of Consumer into SPG, and also shifted our Dryvit and Nudura businesses out of SPG into CPG. The newly formed CPG also includes our Tremco, Tremco illbruck, Euclid Chemical, Viapol, Vandex and Flowcrete businesses. PCG includes Stonhard, Carboline, USL and Fibergrate businesses, while Consumer comprises the Rust-Oleum and DAP businesses.  

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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:

See Note R, “Segment Information,” of the Notes to Consolidated Financial Statements, for financial information relating to our four reportable segments and financial information by geographic area.

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 contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. Our CPG segment generated $1.9 billion in net sales for the fiscal year ended May 31, 2020 and includes the following major product lines and brand names:

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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 $1.1 billion in net sales for the fiscal year ended May 31, 2020 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, South Africa and South America.  Consumer segment products are sold directly to mass merchandisers, home improvement centers, hardware stores, paint stores, craft shops and to other smaller customers through distributors. Our Consumer segment generated $1.9 billion in net sales in the fiscal year ended May 31, 2020 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 many international locations, primarily in Europe and the Asia Pacific region.  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 $0.6 billion in net sales for the fiscal year ended May 31, 2020 and includes the following major product lines and brand names:

Foreign Operations

For the fiscal year ended May 31, 2020, our foreign operations accounted for approximately 31.2% of our total net sales, excluding any direct exports from the United States. Our direct exports from the United States were approximately 1.1% of our total net sales for the fiscal year ended May 31, 2020. 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 manufacturing facilities in Argentina, Australia, Belgium, Brazil, Canada, Chile, China, Colombia, France, Germany, India, Italy, Malaysia, Mexico, The Netherlands, New Zealand, Norway, Poland, South Africa, South Korea, Spain, Sweden, Turkey, the United Arab Emirates and the United Kingdom. We also have sales offices or warehouse facilities in Austria, The Czech Republic, Estonia, Finland, Hong Kong, Hungary, Indonesia, Ireland, Namibia, Peru, Philippines, Qatar, Singapore, Slovakia, Switzerland, Thailand 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; 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 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 the Consumer 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, and Touch’N Foam brand names. Leading manufacturers of home improvement-related coatings, adhesives and sealants market their 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. 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, and water and wastewater treatment plants. 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. 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 and Epoplex brand names.

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.  This remains true today and is what differentiates us versus our competitors’ primary strategy of run-to-failure, followed by a tear-off and replace.  We define the market in two segments: restoration and re-roofing or new roofing.  With the exception of asphalt shingles for new roofing, we market our systems and services for all of the most common roofing applications.  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 highly sustainable materials and systems.

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 methylmethacrylate 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, RPM Belgium, Expanko, Liquid Elements, Hummervoll, Kemtile and API brand names.

FRP Grating and Structural Composites.  Fiberglass reinforced plastic grating, or FRP, is used primarily in industrial and, to a lesser extent, commercial applications. FRP grating exhibits many specialized features, which make it a beneficial alternative to traditional steel or aluminum grating. 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 grating is used for platforms, walkways, stairs and structures for a variety of applications, including those in the food and beverage, chemical processing, water-wastewater, pulp and paper, and offshore oil and gas industries. 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 and Safe-T-Span brand names.

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Sealants, Waterproofing, Concrete and Masonry Products.  Sealants, which are used primarily for commercial buildings, include urethane, silicone, latex, butyl and hybrid technology products, and are designed to be installed in construction joints for the purpose of providing a flexible and air and water-tight seal. Waterproof coatings, usually urethane or asphalt based, are installed in exposed and buried applications to waterproof and protect concrete. 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, OneSeal, PowerPly, TremPly, TremLock, Vulkem, TREMproof, Dymonic, Increte, TUFF-N-DRI, Universal Sealants, Nufins, StructureCare, BridgeCare, 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, Ekspan, Sealtite and HydroStop brand names for this line of business.

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 900 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 Company and some of our other subsidiaries own more than 380 trademark registrations or applications in the United States and numerous other countries covering the products sold by the Carboline Company and related companies, including two United States trademark registrations for the trademark “Carboline^®”.

DAP Products, Inc. and other subsidiaries of the Company own more than 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 Incorporated and some of our other subsidiaries own more than 85 registrations 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 Incorporated 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 570.

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^®, Expanko^®, 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^®, USL^®, 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 are a possibility.  Interruptions in the supply of raw materials could have a significant impact

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on our ability to produce products.  Throughout fiscal 2020, some raw material costs have increased and we have experienced some tightening in supply on some materials.  However, despite the recent outbreak of Covid-19, raw material costs inflation seems to be moderating in a number of our key product categories.  With the exception of some challenges in our Consumer segment, our global supply chain remains strong.  Nearly all of our North American plants are operational and only some of our international plants have been closed temporarily.  Despite these facts, as we cannot predict the duration or scope of the Covid-19 pandemic, the future financial impact to gross profit margin cannot be reasonably estimated, but could be material.

Adequate supply of critical 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 or results of operations.

Additionally, changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact the cost of raw materials.  Any increase in materials that is not offset by an increase in our prices could have an adverse effect on our business, financial position, results of operations or cash flows.

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 23%, 23%, and 22% of our total net sales for each of the fiscal years ended May 31, 2020, 2019, and 2018, 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.

Backlog

We historically have not had a significant backlog of orders believed to be firm, and we did not have a significant backlog of orders believed to be firm at May 31, 2020.

Research and Development

Our research and development work is performed at various laboratory locations. During fiscal years 2020, 2019, and 2018, approximately $76.5 million, $71.6 million, and $69.7 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

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 Other Accrued Losses,” of the Notes to our 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.

Employees

As of May 31, 2020, we employed 14,621 persons, of whom approximately 680 were represented by unions under contracts which expire at varying times in the future.  We believe that all relations with employees and their unions are good.

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Item 1A.  Risk Factors.

You should carefully consider the following risks, 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 because these factors could cause our actual results or financial condition to differ materially from those projected in our forward-looking statements.

Ongoing operating improvement initiatives could cause us to incur significant expenses and impact the trading value of our common stock.

We have implemented, and plan to continue to implement, certain operating improvement initiatives, as described during the investor day we held on November 28, 2018, that we expect will continue to result in changes in our organizational and operational structure impacting most of our companies.  We expect to continue implementation of these initiatives beyond our original target of December 2020 because the Covid-19 pandemic limited our ability to make changes at certain of our facilities as previously planned.  We may take additional actions in furtherance of these objectives during future periods.  As of May 31, 2020, we have incurred a total of $92.9 million in expenses in connection with our operating improvement initiatives, and we anticipate incurring approximately another $18.0 in such expenses as we continue to implement our 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 employee turnover.  The occurrence of any of these or other related events associated with our operating improvement initiatives could adversely affect our operating results and financial condition.  

The Covid-19 pandemic has disrupted our operations, has had an adverse effect on our business, and could adversely affect our business in the future.

The Covid-19 pandemic has had a negative effect on our business, results of operations, cash flows and financial condition.  The Covid-19 pandemic has disrupted our operations and will continue to affect our business, including as a result of temporary facility closures, work-from-home orders and policies, absenteeism in our facilities, inability to efficiently transport our goods, social distancing and other health and safety protocols and reduced customer demand.  Specifically, we have experienced, and expect to continue to experience in the future, temporary facility closures in response to government mandates and for the safety of our employees due to positive diagnoses for Covid-19 in certain facilities.  Temporary facility closures have impacted our productivity and have hampered the implementation of our ongoing operational improvement efforts.  We have implemented work-from-home policies for many employees.  The effects of these work-from-home policies could be negative and could impact productivity, research and development efforts, our ongoing operational improvement efforts, internal control over financial reporting, record keeping and access to books and records, and could lead to increased cyber security or data privacy risks.  We do not yet know when these work-from-home policies will change or how they may develop.  The Covid-19 outbreak has impacted the timing of our operational improvement efforts by limiting our ability to implement planned improvements at several of our facilities.  The Covid-19 outbreak has also disrupted and could adversely impact our ability to secure materials for our products or supplies for our facilities or to provide personal protective equipment for our employees, any of which could adversely affect our operations.  Even after the Covid-19 pandemic 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.  Any or all of these risks could be increased or intensified if there is a resurgence of the Covid-19 virus after the initial outbreak subsides.  As we cannot predict the duration, scope or severity of the Covid-19 pandemic, which continues to develop and change rapidly, the negative financial impact to our results cannot be reasonably estimated, but could be material.

We are the subject of an ongoing SEC enforcement action, which could divert management’s focus, result in substantial investigation expenses and have an adverse impact on our reputation, financial condition, results of operations and cash flows.

We were notified by the SEC on June 24, 2014 that we are the subject of a formal investigation pertaining to the timing of our disclosure and accrual of loss reserves in fiscal 2013 with respect to the previously disclosed Department of Justice (“DOJ”) and General Services Administration (“GSA”) investigation into compliance issues relating to Tremco Roofing Division’s GSA contracts.  As previously disclosed, our audit committee completed an investigation into the facts and circumstances surrounding the timing of our disclosure and accrual of loss reserves with respect to the GSA and DOJ investigations, and determined to restate our financial results for the first, second and third quarters of fiscal 2013.  The restatement shifted accrual amounts among the three quarters, which had the effect of reducing net income by $7.2 million and $10.8 million for the quarterly periods ended August 31, 2012 and November 30, 2012, respectively, and increasing net income for the quarterly period ended February 28, 2013 by $18.0 million. These restatements had no impact on our audited financial results for the fiscal year ended May 31, 2013. The audit committee’s investigation concluded that there was no intentional misconduct on the part of any of our officers.

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In connection with the foregoing, on September 9, 2016, the SEC filed an enforcement action in the U.S. District Court for the District of Columbia against us and our General Counsel.  We have cooperated with the SEC’s investigation and believe the allegations in the complaint mischaracterize both our and our General Counsel’s actions in connection with the matters related to our quarterly results in fiscal 2013 and are without merit.  The complaint seeks disgorgement of gains that may have resulted from the conduct alleged in the complaint, and payment of unspecified monetary penalties from us and our General Counsel pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act.  Further, the complaint seeks to permanently enjoin us from violations of Sections 17(a)(2) and (a)(3) of the Securities Act, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13, and to permanently enjoin our General Counsel from violations of Sections 17(a)(2) and (a)(3) of the Securities Act and Exchange Act Rules 13b2-1 and 13b2-2(a).  Both we and our General Counsel filed motions to dismiss the complaint on February 24, 2017.  Those motions to dismiss the complaint were denied by the Court on September 29, 2017.  We and our General Counsel filed answers to the complaint on October 16, 2017.  Formal discovery commenced in January 2018 and closed as of June 3, 2019, other than some remaining, limited discovery requests.  The parties engaged in written discovery, and several fact witnesses were deposed.  We are currently awaiting further instruction regarding the remaining case schedule. We intend to continue to contest the allegations in the complaint vigorously.  

Also, in connection with the foregoing, a stockholder derivative action was filed in the United States District Court, Northern District of Ohio, Eastern Division, against certain of our directors and officers. The court has stayed this stockholder derivative action pending the completion of the SEC enforcement action.

The action by the SEC could result in sanctions against us and/or our General Counsel and could impose substantial additional costs and distractions, regardless of its outcome. We have determined that it is probable that we will incur a loss relating to this matter and have estimated a range of potential loss. We have accrued at the low end of the range of loss, as no amount within the range is more likely to occur, and no amount within the estimated range of loss would have a material impact on our consolidated financial condition, results of operations or cash flows.

We have incurred significant legal and accounting expenditures in connection with the SEC’s investigation and ongoing enforcement action.  We are unable to predict how long the enforcement action will continue or whether it will result in sanctions against us and/or certain of our officers. A protracted enforcement action could impose substantial additional costs and distractions, regardless of its outcome.  Furthermore, publicity surrounding an enforcement action, even if ultimately resolved favorably for us, could have an adverse impact on our reputation, business, financial condition, results of operations or cash flows.

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 (“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 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 Other 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.  

Our operations have been and could continue to be adversely affected by global market and economic conditions in ways we may not be able to predict or control.

Global economic uncertainty continues to exist, including uncertainty relating to the Covid-19 pandemic and United Kingdom’s exit from the European Union (“Brexit”). Our operations could be adversely affected by global economic conditions if global markets were to decline in the future, whether related to the Covid-19 pandemic, Brexit, recession, strained U.S. trade relations with China, or otherwise. Any future economic declines may result in decreased revenue, gross margin, earnings or growth rates and difficulty in managing inventory levels and collection of customer receivables. We also have experienced, and expect to continue to experience, increased competitive pricing pressure. In addition, customer difficulties in the future could result from economic declines or issues arising from the cyclical nature of their respective businesses 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 doubtful accounts receivable, resulting in material reductions to our revenues and net earnings.

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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.

We may need new or additional financing in the future 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 or more institutions 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 decrease 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.

The results of our annual testing and as-required interim testing of goodwill and other intangible assets have required, and in the future may require that we record impairment charges.

As of May 31, 2020, we had approximately $1.8 billion in goodwill and other intangible assets. The Accounting Standards Codification (“ASC”) section 350 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, which is a subjective process that considers both internal and external factors. Impairment assessment requires the use of significant judgment regarding estimates and assumptions surrounding future results of operations and cash flows.

Our required annual impairment testing for goodwill and other intangible assets, which we performed during the fourth quarter of the fiscal years ended May 31, 2020, 2019, and 2018, did not result in any impairment loss.  For discussion of the approach for and results of our interim and annual impairment testing of 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 A11) 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.  

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Our significant amount of indebtedness could have a material adverse impact on our business.

Our total debt was approximately $2.5 billion at both May 31, 2020 and 2019, which compares with $1.3 billion in stockholders’ equity at May 31, 2020. Our level of indebtedness could have important consequences.  For example, it could:

We cannot assure you that our business always will 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.

Fluctuations in the supply and prices of raw materials may negatively impact our financial results.

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 are a possibility.  Interruptions in the supply of raw materials could have a significant impact on our ability to produce products.  

Adequate supply of critical 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 or results of operations.

Additionally, changes in international trade duties and other aspects of international trade policy, both in the U.S. and abroad, could materially impact the cost of raw materials.  Any increase in materials that is not offset by an increase in our prices could have an adverse effect on our business, financial position, 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 of our product lines. However, any significant increase in competition, as a result of the consolidation of competitors, 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. Companies that compete in our markets include Akzo Nobel, Axalta, Ferro, GCP Applied Technologies, H.B. Fuller, Masco, PPG, and Sherwin-Williams. 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.

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Our success depends upon our ability to attract and retain key employees and the succession of senior management.

Our success largely depends on the performance of our management team and other key employees. If we are unable to attract and retain talented, highly qualified senior management and other key people, 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 executives, 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 number of large 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 segment, face a substantial amount of customer concentration. Our key Consumer segment customers include Ace Hardware, Amazon, CANAC, Do It Best, The Home Depot, Inc., Lowe’s, Menards, Orgill, True Value, and Wal-Mart. Within our Consumer segment, sales to these customers accounted for approximately 64%, 66% and 65% of net sales for the fiscal years ended May 31, 2020, 2019 and 2018, respectively.  On a consolidated basis, sales to these customers across all of our reportable segments accounted for approximately 23%, 23% and 22% of our consolidated net sales for the fiscal years ended May 31, 2020, 2019, and 2018, respectively.  Sales to The Home Depot, Inc. represented less than 10% of our consolidated net sales for fiscal 2020, 2019 and 2018, and 26% of our Consumer segment net sales for fiscal 2020 and 29% and 28% of our Consumer segment net sales for fiscal 2019 and 2018, respectively.  If we were to lose one or more of our key customers, or experience a delay or cancellation of a significant order, or incur a significant decrease in the level of purchases from any of our key customers, or experience difficulty in collecting amounts due from a key customer, our net revenues could decline materially and our operating results could be reduced materially.

The chemical and construction products 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.

As a participant in the chemical and construction products industries, we face an inherent risk of legal claims in the event that the exposure to or 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 of concern in our products, product warranty, the environment, 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 could be subject to future claims, in which significant financial damages are alleged.  These claims could consume material financial resources to defend and be a distraction to management.  Some, but not all, of such claims 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 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, health and safety 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 in the jurisdictions where we conduct business. Governmental and regulatory authorities impose various laws and regulations on us that relate to environmental protection, the use, sale, transportation and export of certain chemicals or hazardous materials, and various health and safety matters, including the 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. These laws and regulations include the Clean Air Act, the Clean Water Act, RCRA, CERCLA, TSCA, 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.

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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, remedial or corrective measures, installing pollution control equipment, or other actions. We have been and also 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. Accordingly, we cannot guarantee that we will not be required to make additional expenditures to remain in or to achieve compliance with environmental, health or safety laws in the future or that any such additional expenditures will not 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, health, safety, tax, competition and anti-trust, trade controls, data security, anti-corruption, anti-money laundering, employment and privacy laws and regulations.  These laws and regulations change from time to time and thus may result in increased 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.

If our efforts in acquiring and integrating other companies or product lines or establishing joint ventures fail, our business may not grow.

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 a number of risks, including, but not limited to:

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 31.2% of our net sales for the fiscal year ended May 31, 2020, not including exports directly from the U.S. which accounted for approximately 1.1% of our net sales for fiscal 2020. We plan to continue to grow our international operations and the growth and maintenance of such operations could be adversely affected by Brexit, the Covid-19 pandemic, changes in 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 and changes in regulatory requirements 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.  

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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 could materially adversely affect our net revenues, operating income and the carrying values of our assets located outside the U.S.  For example, Brexit caused significant volatility in global stock markets and currency exchange rate fluctuations that resulted in the strengthening of the U.S. dollar against foreign currencies in which we conduct business.  Such strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results.

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 (‘‘FCPA’’) and similar anti-bribery laws of other countries generally prohibit companies and their intermediaries from making 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 these anti-bribery laws. We operate in many parts of the world that have experienced governmental 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 (“OFAC”), 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.

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.

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We could be adversely affected by failure to comply with federal, state and local government procurement regulations and requirements.

We 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.

Terrorist activities and other acts of violence or war, pandemics, natural disasters and other disruptions have negatively impacted in the past and could negatively impact in the future the U.S. and foreign countries, the financial markets, the industries in which we compete, our operations and profitability.

Terrorist activities, pandemics, natural disasters and other disruptions have contributed to economic instability in the U.S. and elsewhere, and further acts of terrorism, cyber-terrorism, violence, war, pandemics or natural disasters could affect the industries in which we compete, our ability to purchase raw materials or make, sell or distribute products, which could have a material adverse impact on our financial condition and results of operations.

Data privacy and data security considerations could impact our business.

The interpretation and application of data protection laws, rules and regulations in the U.S., Europe and elsewhere 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.  Further, although we are implementing internal controls and procedures designed to ensure compliance with the Data Protection Laws, there can be no assurance that our controls and procedures will enable us to be fully compliant with all Data Protection Laws.

Despite our efforts to protect sensitive information and confidential and personal data, comply with the Data Protection Laws and implement data security measures, we may be vulnerable to security breaches and other data loss, including cyber-attacks and, in fact, we have experienced data security incidents that have impacted our operations, but have not had a material impact on our financial results.  In addition, it is not possible to predict the impact on our business of the future loss, alteration or misappropriation of information related to us, our employees, former employees, customers, suppliers or others. This could lead to negative publicity, legal claims, 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 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 trademarks 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 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 trademarks, trade secrets and other proprietary rights from unauthorized use or disclosure, other parties may attempt to disclose or use them without our authorization; such unauthorized use or disclosure could negatively impact our business and financial condition.

Similarly, 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 our products’ quality and technological advantages and claims of superior performance. 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.

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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 adverse 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 at rates and with terms and conditions we consider reasonable.

Adverse weather conditions may reduce the demand for some of our products and could have a negative effect on our sales.

From time to time, adverse weather conditions in certain parts of the U.S. and other countries in which we do business have had an adverse effect on our sales of paint, coatings, roofing, construction products and related products. For example, unusually cold and rainy weather, especially during the general construction and exterior painting season, could have an adverse effect on sales of such products. 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.

Item 1B.  Unresolved Staff Comments.

Not Applicable.

Item 2.  Properties.

Our corporate headquarters and a plant and offices for one subsidiary are located on approximately 165 acres, which we own in Medina, Ohio. As of May 31, 2020, our operations occupied a total of approximately 21.1 million square feet, with the majority, approximately 15.9 million square feet, devoted to manufacturing, assembly and storage. Of the approximately 21.1 million square feet occupied, approximately 8.9 million square feet are owned and approximately 12.2 million square feet are occupied under operating leases.

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Set forth below is a description, as of May 31, 2020, of our principal facilities which we believe are material to our operations:

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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” of the Notes to 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.

SEC Investigation and Enforcement Action

We were notified by the SEC on June 24, 2014 that we are the subject of a formal investigation pertaining to the timing of our disclosure and accrual of loss reserves in fiscal 2013 with respect to the previously disclosed Department of Justice (“DOJ”) and General Services Administration (“GSA”) investigation into compliance issues relating to Tremco Roofing Division’s GSA contracts.  As previously disclosed, our audit committee completed an investigation into the facts and circumstances surrounding the timing of our disclosure and accrual of loss reserves with respect to the GSA and DOJ investigations, and determined to restate our financial results for the first, second and third quarters of fiscal 2013.  The restatement shifted accrual amounts among the three quarters, which had the effect of reducing net income by $7.2 million and $10.8 million for the quarterly periods ended August 31, 2012 and November 30, 2012, respectively, and increasing net income for the quarterly period ended February 28, 2013 by $18.0 million. These restatements had no impact on our audited financial results for the fiscal year ended May 31, 2013. The audit committee’s investigation concluded that there was no intentional misconduct on the part of any of our officers.

In connection with the foregoing, on September 9, 2016, the SEC filed an enforcement action in the U.S. District Court for the District of Columbia against us and our General Counsel.  We have cooperated with the SEC’s investigation and believe the allegations in the complaint mischaracterize both our and our General Counsel’s actions in connection with the matters related to our quarterly results in fiscal 2013 and are without merit.  The complaint seeks disgorgement of gains that may have resulted from the conduct alleged in the complaint, and payment of unspecified monetary penalties from us and our General Counsel pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act.  Further, the complaint seeks to permanently enjoin us from violations of Sections 17(a)(2) and (a)(3) of the Securities Act, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13, and to permanently enjoin our General Counsel from violations of Sections 17(a)(2) and (a)(3) of the Securities Act and Exchange Act Rules 13b2-1 and 13b2-2(a).  Both we and our General Counsel filed motions to dismiss the complaint on February 24, 2017.  Those motions to dismiss the complaint were denied by the Court on September 29, 2017.  We and our General Counsel filed answers to the complaint on October 16, 2017.  Formal discovery commenced in January 2018 and closed as of June 3, 2019, other than some remaining, limited discovery requests.  The parties engaged in written discovery, and several fact witnesses were deposed.  We are currently awaiting further instruction regarding the remaining case schedule. We intend to continue to contest the allegations in the complaint vigorously.  

Also, in connection with the foregoing, a stockholder derivative action was filed in the United States District Court, Northern District of Ohio, Eastern Division, against certain of our directors and officers. The court has stayed this stockholder derivative action pending the completion of the SEC enforcement action.

The action by the SEC could result in sanctions against us and/or our General Counsel and could impose substantial additional costs and distractions, regardless of its outcome. We have determined that it is probable that we will incur a loss relating to this matter and have estimated a range of potential loss. We have accrued at the low end of the range of loss, as no amount within the range is more likely to occur, and no amount within the estimated range of loss would have a material impact on our consolidated financial condition, results of operations or cash flows.

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.  

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On August 13, 2019, Kirker Enterprises Inc. received an Administrative Order and Civil Administrative Penalty Assessment letter from the State of New Jersey Department of Environmental Protection Division of Air Enforcement formally notifying it of alleged failures to fulfill all conditions of an air permit applicable to its Patterson, New Jersey facility.  The letter includes a proposed penalty of approximately $192,000.

Carboline Company previously was identified as a potentially responsible party in connection with a matter filed on behalf of the U.S. EPA claiming that Carboline Company, among other potentially responsible parties, violated Section 107 of the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) and seeking reimbursement for response costs incurred in connection with the release or threatened release of hazardous substances at the Lammers Barrel Superfund Site in Beavercreek, Ohio.  During the third quarter of fiscal 2020, Carboline Company agreed in principle to settle this matter for $1.3 million, which amount is subject to final approval and court entry of the proposed consent decree relating to this matter.

Item 4.  Mine Safety Disclosures

Not applicable.

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PART II

Item 5.  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 2020:

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Item 6.  Selected Financial Data.

The following table sets forth our selected consolidated financial data for each of the five years during the period ended May 31, 2020.

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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 of our majority-owned and controlled subsidiaries. Investments in less-than-majority-owned joint ventures over which we have the ability to exercise significant influence are accounted for under the equity method. Preparation of our financial statements requires the use of estimates and assumptions that affect the reported amounts of our assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We continually evaluate these estimates, including those related to our allowances for doubtful accounts; reserves for excess and obsolete inventories; allowances for recoverable sales and/or value-added taxes; uncertain tax positions; useful lives of property, plant and equipment; goodwill and other intangible assets; environmental, warranties and other contingent liabilities; income tax valuation allowances; pension plans; and the fair value of financial instruments. We base our estimates on historical experience, our most recent facts and other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of our assets and liabilities. Actual results, which are shaped by actual market conditions, may differ materially from our estimates.

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 the operating segment level or one level below our operating segments.

We follow the Financial Accounting Standards Board (“FASB”) guidance found in Accounting Standards Codification (“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 the two-step 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 two-step quantitative goodwill impairment test. The traditional two-step 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 traditional two-step quantitative analysis.  We applied the traditional two-step quantitative process during our annual goodwill impairment assessment performed during the fourth quarter of fiscal 2020 and applied both the qualitative and traditional two-step quantitative processes during our annual goodwill impairment assessment performed during the fourth quarters of fiscal 2019 and 2018.

In applying the first step of the quantitative test, we compare the fair value of a reporting unit to its carrying value. 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.  

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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. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired. An indication that goodwill may be impaired results when the carrying value of the net assets of a reporting unit exceeds the fair value of the reporting unit. At that point, the second step of the impairment test is performed, which requires a fair value estimate of each tangible and intangible asset in order to determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference.

In applying the discounted cash flow methodology, 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.

Prior to our fiscal 2019 annual goodwill impairment test, in connection with our 2020 MAP to Growth, during the third fiscal quarter ended February 28, 2019, we changed the composition of certain of our reporting units that were included in our former industrial reportable segment.  Accordingly, we performed an interim impairment test for each reporting unit that changed in accordance with ASC 350, “Intangibles – Goodwill and Other.”  Our interim goodwill impairment assessments did not indicate the presence of any goodwill impairment for any of the reporting units tested.  However, as previously disclosed during the period ended May 31, 2019, we noted that our Construction Product Group – Europe, which had $125.0 million of goodwill at February 28, 2019, had an excess of fair value over carrying value of approximately 9% using the income approach.  Our annual goodwill impairment test for fiscal year 2019, which considered both the income and market approach, resulted in a substantial excess of fair value over carrying value.  We continued to monitor the performance of this reporting unit during fiscal 2020, and did not note any interim indicators of impairment.  Furthermore, our annual goodwill impairment test for fiscal 2020 resulted in a substantial excess of fair value over carrying value.

On June 1, 2019 (i.e., at the beginning of fiscal 2020), the composition of our reportable segments was revised, as further discussed in Note R, “Segment Information.”  Prior to implementing the revised segment reporting structure beginning in fiscal 2020, our previously disclosed Industrial segment comprised two operating segments, the CPG operating segment and the PCG operating segment.  Each of these operating segments comprised several reporting units, all of which were tested during our last annual goodwill impairment test during the fourth quarter of fiscal 2019 and again during the fourth quarter of fiscal 2020.  

Also, in connection with our 2020 Map to Growth, we realigned certain businesses and management structure within our SPG segment.  As such, our former Wood Finishes Group reporting unit was split into two separate reporting units: Guardian and Wood Finishes Group.  Additionally, our former Kop-Coat Group reporting unit was split into two reporting units:  Kop-Coat Industrial Protection Products and Kop-Coat Group.  We performed an interim goodwill impairment test for each of the new reporting units upon the change in reportable segments, business realignment and management structure using a quantitative assessment.  We concluded that the estimated fair values exceeded the carrying values for these new reporting units, and accordingly, no indications of impairment were identified as a result of these changes during the first quarter of fiscal 2020.

As a result of the annual impairment assessments performed for fiscal 2020, 2019 and 2018, there were no goodwill impairments, including no reporting units that were at risk of failing step one of the traditional two-step quantitative analysis.

Other Long-Lived Assets

We assess identifiable, amortizable intangibles 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:

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Measuring a potential impairment of amortizable intangibles 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 both qualitative and quantitative processes during our annual indefinite-lived intangible asset impairment assessments performed during the fourth quarters of fiscal 2020, 2019 and 2018.

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 required annual impairment tests of each of our indefinite-lived intangible assets performed during fiscal 2020, 2019, and 2018 did not result in any additional impairment loss.  No impairment losses were recorded as a result of our annual impairment tests, however, we did record an impairment charge in both fiscal 2020 and fiscal 2019.  In fiscal 2020, in connection with 2020 Map to Growth, we recorded an impairment charge of $4.0 million included in restructuring expense in our Consumer reportable segment for impairment losses on indefinite-lived trade names.  In fiscal 2019, we recorded an impairment charge of $4.2 million, of which $2.0 million was recorded by our CPG reportable segment for impairment losses on indefinite-lived trade names and approximately $2.2 million was recorded by our SPG reportable segment for impairment losses on definite-lived customer-related intangibles.  Refer to Note C “Goodwill and Other Intangible Assets” for additional details on these indefinite-lived intangible asset impairment charges.

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. 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.

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, warranty and tax liabilities, discussed further

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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.

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.

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.

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 decrease 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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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, 2020 information, the following tables reflect the impact of a 1% change in the key assumptions applied to our defined benefit pension plans in the U.S. and internationally:

Based upon May 31, 2020 information, the following table reflects the impact of a 1% change in the key assumptions applied to our various postretirement health care plans:

BUSINESS SEGMENT INFORMATION

Effective June 1, 2019, we realigned certain businesses and management structure to recognize how we allocate resources and analyze the operating performance of our businesses. Among other things, the realignment of certain businesses occurred as a result of the 2020 MAP to Growth that was approved and initiated between May and August 2018.  As we began to execute on our operating improvement initiatives, we identified ways to realign certain businesses, and concluded that moving to an expanded reporting structure could help us to better manage our assets and improve synergies across the enterprise.  

This realignment changed our reportable segments beginning with our first quarter of fiscal 2020.  As such we now report under four reportable segments instead of our three previous reportable segments.  Our four reporting segments are: the CPG reportable segment, PCG reportable segment, Consumer reportable segment and SPG reportable segment.  In connection with the realignment, we shifted our Kirker business out of Consumer into SPG, and also shifted our Dryvit and Nudura businesses out of SPG into CPG. The newly-formed CPG also includes our Tremco, Tremco illbruck, Euclid Chemical, Viapol, Vandex and Flowcrete businesses. PCG includes Stonhard, Carboline, USL and Fibergrate businesses, while Consumer comprises the Rust-Oleum and DAP businesses.  

We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by organizing our businesses and product lines into four reportable segments as outlined above, 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, as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations.

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Our CPG reportable segment products are sold throughout North America and also account for the majority of our international sales. Our construction product lines 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 construction sealants and adhesives, coatings and chemicals, roofing systems, concrete admixture and repair products, building envelope solutions, insulated cladding, flooring systems, and weatherproofing solutions.  

Our PCG reportable segment products 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, fiberglass reinforced plastic gratings and drainage systems.  

Our Consumer reportable segment manufactures and markets professional use and do-it-yourself (“DIY”) products for a variety of mainly consumer 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 and other parts of the world. 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; silicone sealants and wood stains.

Our SPG reportable segment products are sold throughout North America and a few international locations, 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 industrial cleaners, restoration services equipment, colorants, nail enamels, exterior finishes, edible coatings and specialty glazes for pharmaceutical and food industries, and other specialty original equipment manufacturer (“OEM”) coatings.

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 certain assets 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.

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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.  Information for all periods presented has been recast to reflect the current year change in reportable segments.  

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RESULTS OF OPERATIONS

Fiscal 2020 Compared with Fiscal 2019

Net Sales  Consolidated net sales of $5.51 billion for fiscal 2020 declined by approximately 1.0% from net sales of $5.56 billion for fiscal 2019. Acquisitions added 1.1%, while organic sales, which include the impact of price and volume, declined by 0.8%.  Consolidated net sales for fiscal 2020 also reflect an unfavorable foreign exchange impact of 1.3%.

CPG segment net sales for fiscal 2020 declined by 1.0% to $1.88 billion, from net sales of $1.90 billion during fiscal 2019. The decrease was primarily due to organic declines of 1.1% during fiscal 2020 resulting from the decrease in sales due to the Covid-19 pandemic and an unfavorable foreign exchange impact on the CPG segment of approximately 1.8%.  Partially offsetting these declines, recent acquisitions contributed 1.9% to net sales during fiscal 2020.  The modest decline in net sales within CPG was driven mainly by performance in international markets, especially during our fourth quarter of fiscal 2020, where construction was not considered to be an “essential” business in many countries outside of the U.S..  The overall decline in net sales within CPG was mitigated by year-over-year growth in the U.S. roofing business, which was generally considered to be an “essential” business and which completes its projects outdoors, and therefore was able to continue operations with only modest interruption from the pandemic.

PCG segment net sales for fiscal 2020 declined by 4.9% to $1.08 billion, from net sales of $1.14 billion during fiscal 2019. The decrease was primarily due to organic declines of 3.7% during fiscal 2020 primarily resulting from the negative effect on sales of the Covid-19 pandemic along with unfavorable foreign exchange, which impacted the PCG segment net sales by 1.6%.  The decline in net sales within PCG during fiscal 2020 was driven by PCG’s bridge joint business as well as business in emerging markets in which the lockdown orders were the strictest.  Some of the primary customers in food, beverage, and pharmaceuticals were classified as essential in the U.S., but would not grant our installers access to their facilities in response to Covid-19.  Partially offsetting these declines were net sales contributed by recent acquisitions, during fiscal 2020, of approximately 0.4%.

Consumer segment net sales for fiscal 2020 grew by 4.7% to $1.95 billion, from $1.86 billion in fiscal 2019.  Organic growth provided 5.1% of the growth in sales, which was driven primarily by market share gains and price increases, while recent acquisitions provided 0.5% during the current period.  Unfavorable foreign currency impacted net sales in the Consumer segment by 0.9% during fiscal 2020 versus fiscal 2019.  The Consumer segment had strong top-line growth in fiscal 2020, and in particular during our fourth fiscal quarter, as home improvement retailers and hardware stores remained open and end customers were spending more time on repair and maintenance projects as a result of stay-at-home orders in response to Covid-19.  This strong performance was mitigated somewhat internationally, where there were stricter lockdown orders on retail, as compared to the U.S.

SPG segment net sales for fiscal 2020 declined by 10.3% to $601.0 million, from $670.2 million.  Organic sales declined 11.4% during fiscal 2020, as a result of decreases in our fluorescent pigments business due to reduced fire retardant orders and restoration equipment business due to fewer significant weather events in the current year as compared to the prior year, as these weather events have a favorable impact on sales, as well as the negative impact of the Covid-19 pandemic.  More specifically, the furniture and marine distribution channels that the segment serves were closed for an extended period of time in the U.S. during our fourth quarter of fiscal 2020, because they were not classified as being “essential” industries.  Furthermore, edible coatings sales were lower due to the shutdown of schools.  Additionally, foreign currency exchange had an unfavorable impact on SPG segment net sales during fiscal 2020 of 0.6%.  Partially offsetting these decreases were sales from acquisitions, which contributed 1.7%.  

In our Quarterly Report on Form 10-Q for our third fiscal quarter ended February 29, 2020, we noted that we expected our net sales in the fourth quarter of fiscal year 2020 to decrease in comparison to the prior year quarter, as a result of the disruption and uncertainty that Covid-19 is having on the global economy.  Our actual net sales for the fourth quarter of fiscal 2020 decreased by 8.9% to $1.46 billion as compared to $1.60 billion during the prior year quarter.

It continues to be difficult to predict the future financial impact on net sales, as we cannot predict the duration or scope of the pandemic, but the impact could be material.  Future performance in net sales is dependent on several factors, including but not limited to: (i) the ability of our customers to continue operations; (ii) continued organic growth in DIY sales, as people spend more time at home; (iii) a potential for organic growth in professional and consumer cleaning and disinfectant brands, some of which are effective

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against Covid-19; and (iv) the nature and extent of facility closures as a result of Covid-19.  With that being said, while we accurately forecasted a net sales decrease during the fourth quarter of 2020, we anticipate that net sales during the first quarter of fiscal 2021 will be more in line with the results from the prior year quarter, absent any further widespread lockdown orders as a result of Covid-19 outbreaks.

Gross Profit Margin  Our consolidated gross profit margin of 38.0% of net sales for fiscal 2020 compares to a consolidated gross profit margin of 37.5% for the comparable period a year ago, after giving effect to the change in classification of shipping and handling costs.  Last year’s reported gross profit margin of 40.6% has been recast to 37.5% in order to reflect the current year change in accounting principle related to shipping and handling costs, which were previously recognized in SG&A expenses and are now recognized in cost of sales.  This gross profit increase of approximately 0.5% of net sales reflects an improvement resulting from a combination of increases in selling prices and 2020 MAP to Growth savings, partially offset by the impact of volume decreases, unfavorable mix of product sold versus last year and higher raw material costs across RPM.  Additionally, supply chain challenges specifically in our Consumer segment negatively affected our gross profit margin.  

Despite the recent outbreak of Covid-19, raw material costs inflation seems to be moderating in a number of our key product categories.  With the exception of the challenges noted above in our Consumer segment, our global supply chain remains strong.  Nearly all of our plants are operational.  Despite these facts, as we cannot predict the duration or scope of the Covid-19 pandemic, the future financial impact to gross profit margin cannot be reasonably estimated, but could be material.    

Selling, General and Administrative (“SG&A”) Expenses  Our consolidated SG&A expense decreased by approximately $47.4 million during fiscal 2020 versus fiscal 2019, and decreased to 28.1% of net sales for fiscal 2020 from 28.7% of net sales for fiscal 2019.  Last year’s reported SG&A percentage of net sales of 31.8% has been recast to 28.7% in order to reflect the current year change in accounting principle related to shipping and handling costs, which were previously recognized in SG&A expenses and are now recognized in cost of sales.  During fiscal 2020, we continued our 2020 MAP to Growth and have generated incremental savings within SG&A of approximately $19.4 million. Our consolidated decrease in SG&A is the result of 2020 MAP to Growth savings, reductions in commission expense on lower sales volume during fiscal 2020, as well as decreased advertising expense.  Additional SG&A expense incurred from companies recently acquired approximated $12.6 million during fiscal 2020.  Lastly, warranty expense for fiscal 2020 increased by approximately $0.5 million from the amount recorded during fiscal 2019, and it is typical that warranty expense will fluctuate from period to period.  

Our CPG segment SG&A was approximately $5.0 million lower for fiscal 2020 versus fiscal 2019 mainly due to incremental 2020 MAP to Growth savings as compared to prior year.  Partially offsetting the lower SG&A, there was higher commission expense associated with higher roofing sales and approximately $7.9 million of additional SG&A expense generated from companies recently acquired.  As a percentage of net sales, SG&A increased slightly by 10 bps as the decrease in net sales outpaced the decrease in SG&A.

Our PCG segment SG&A was approximately $21.0 million lower for fiscal 2020 versus fiscal 2019 and decreased by 40 bps as a percentage of net sales, mainly due to incremental 2020 MAP to Growth savings in the current year as compared to the prior year, lower bad debt expense in fiscal 2020 as compared to fiscal 2019 when we had higher bad debt expense as a result of strategic decisions to exit unprofitable product offerings and regions, and unfavorable transactional foreign exchange that occurred in the prior year.  These decreases were slightly offset by approximately $0.6 million of additional SG&A expense generated from companies recently acquired.

Our Consumer segment SG&A increased by approximately $17.1 million during fiscal 2020 versus fiscal 2019, but decreased slightly by 10 bps as a percentage of net sales.  The increase in SG&A was primarily attributable to increases in distribution costs and incentives directly associated with higher sales volume.  In addition, during the second quarter of our current fiscal year, we decided to no longer pursue a product line targeted for OEM markets, resulting in a $6.9 million charge based on the results of a recoverability assessment for certain prepaid assets associated with this product line.  Additional SG&A expense from recent acquisitions approximated $1.8 million during fiscal 2020.  These increases were partially offset by incremental 2020 MAP to Growth savings as compared to the prior year.  

Our SPG segment SG&A was approximately $2.4 million higher during fiscal 2020 versus fiscal 2019, and increased by 340 bps as a percentage of sales.  The increase in SG&A expense is mainly attributable to recent acquisitions, which generated additional SG&A expense of $2.4 million during fiscal 2020.  Additional costs associated with the ERP consolidation plan and the consolidation of certain accounting/finance functions associated with our 2020 MAP to Growth were offset by incremental 2020 MAP to Growth savings as compared to the prior year and other cost control measures associated with lower sales volumes.   

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SG&A expenses in our corporate/other category of $71.7 million during fiscal 2020 decreased by $40.9 million from $112.6 million recorded during fiscal 2019, as professional fees in connection with our 2020 MAP to Growth were $11.2 million lower in fiscal 2020 ($14.3 million) when compared to the prior year period ($25.5 million).  Additionally, after the outbreak of Covid-19, medical costs for our associates were lower, management incentives were reversed, travel by associates was banned, and the use of external consultants was curtailed.

We recorded total net periodic pension and postretirement benefit costs of $52.5 million and $45.4 million for fiscal 2020 and 2019, respectively. The $7.1 million increase in pension expense resulted from an approximate $6.4 million increase in net actuarial losses recognized during fiscal 2020 versus fiscal 2019, in addition to increases in service cost of approximately $2.8 million during fiscal 2020.  These increases were partially offset by lower interest costs during the current period versus the same period last year for approximately $2.2 million.

We expect that pension and postretirement expense will fluctuate on a year-to-year basis, depending primarily 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 Covid-19, 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 $9.0 million and $6.4 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.”

As we cannot predict the duration or scope of the Covid-19 pandemic, the future financial impact to SG&A cannot be reasonably estimated, but could be material.  As previously disclosed, the disruption caused by the outbreak of Covid-19 is expected to delay the finalization of our 2020 MAP to Growth past the original target completion date of December 31, 2020, which may impact our near-term ability to drive further reduction in SG&A as a percentage of sales.  However, this will be offset to some degree by lower variable SG&A, such as reduced travel-related expenses incurred by our associates, due to travel restrictions in place because of the Covid-19 outbreak.

Restructuring Expense  We recorded restructuring charges of $33.1 million during fiscal 2020, compared with $42.3 million during fiscal 2019, which were the result of our continued implementation of our 2020 MAP to Growth, which focuses on strategic shifts in operations across our entire business.  On a consolidated basis, we incurred $19.7 million of severance and benefit costs, $8.5 million of facility closure and other related costs, and $4.8 million of other asset write-offs during fiscal 2020, which compares to fiscal 2019 charges of $32.5 million, $8.2 million, and $1.6 million, respectively.  These charges were associated with closures of certain facilities as well as the elimination of duplicative headcount and infrastructure associated with certain of our businesses.

We expect to incur approximately $18.0 million of future additional charges in relation to this initiative.  These additional charges include approximately $10.2 million of severance and benefit costs and $7.3 million of facility closure and other related charges, as well as $0.4 million of other asset write-offs.  We previously expected these charges to be incurred by the end of calendar year 2020, upon which we expected to achieve an annualized pretax savings of approximately $290 million per year.  Recently, however, the disruption caused by the outbreak of Covid-19 is expected to delay the finalization of our 2020 MAP to Growth past the original target completion date of December 31, 2020.  See Note B, “Restructuring,” to the Consolidated Financial Statements, for further detail surrounding our 2020 MAP to Growth.  

Goodwill and Other Intangible Asset Impairments  During fiscal 2020, we recorded a charge of $4.0 million, which was classified in restructuring expense within our Consumer reportable segment, for impairment losses on indefinite-lived trade names, as a result of a decision to exit an unprofitable business and abandon a tradename in connection with 2020 MAP to Growth.  This compares to $4.2 million of losses recorded during fiscal 2019, of which $2.0 million were recorded by our CPG reportable segment for impairment losses on indefinite-lived trade names and approximately $2.2 million were recorded by our SPG reportable segment for impairment losses on definite-lived customer-related intangibles.  For additional information, refer to Note C, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements.    

Interest Expense Interest expense was $101.0 million for fiscal 2020 versus $102.4 million for fiscal 2019. The main driver of this $1.4 million net year-over-year decrease in interest expense was $6.2 million of savings associated with lower interest rates.  Interest rates averaged 3.73% overall for fiscal 2020 compared with 4.01% for fiscal 2019 due to a maturity of higher cost debt in fiscal 2019.  The impact of lower interest rates in fiscal 2020 were somewhat offset by an unfavorable comparison to the prior year, when we had a $2.1 million favorable impact from reversing accrued interest associated with the redemption of our convertible bonds.  The lower interest rates in the current year were further offset by higher average borrowings related to recent acquisitions, which increased interest expense during fiscal 2020 by approximately $2.7 million versus fiscal 2019.  

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Investment (Income), Net  Net investment income of approximately $9.7 million for fiscal 2020 compares to net investment income of $0.7 million during fiscal 2019.  Dividend and interest income totaled $8.1 million and $9.1 million for fiscal 2020 and 2019, respectively.  Net gains on marketable securities totaled $1.6 million during fiscal 2020, compared to net losses on marketable securities of $8.4 million during fiscal 2019.    

Income Before Income Taxes (“IBT”)  Our consolidated IBT for fiscal 2020 of $407.8 million compares with IBT of $339.8 million for fiscal 2019.  Our CPG segment had IBT of $209.7 million, or 11.2% of net sales, for fiscal 2020, versus IBT of $178.8 million, or 9.4% of net sales, for fiscal 2019. Our CPG segment results reflect 2020 MAP to Growth savings, selling price increases and increased earnings from recent acquisitions.  Our PCG segment had IBT of $102.3 million, or 9.5% of net sales, for fiscal 2020, versus IBT of $77.4 million, or 6.8% of net sales, for the same period a year ago.  Our PCG segment results reflect 2020 MAP to Growth savings and selling price increases.  Our Consumer segment IBT approximated $198.0 million, or 10.2% of net sales, for fiscal 2020, compared to IBT for fiscal 2019 of $217.4 million, or 11.7% of net sales.  Our Consumer segment results reflect selected inflationary pressures, elevated inventory write-offs during fiscal 2020 and supply chain challenges during the current year, partially offset by savings associated with our 2020 MAP to Growth.  Our SPG segment had IBT of $57.9 million, or 9.6% of net sales, for fiscal 2020, versus IBT of $86.0 million, or 12.8% of net sales, for fiscal 2019, reflecting declines in sales volume in our fluorescent pigment, restoration equipment and specialty coatings businesses.  

Income Tax Rate  The effective income tax rate was 25.2% for fiscal 2020 compared to an effective income tax rate of 21.2% for fiscal 2019. The effective income tax rate for fiscal 2020 reflects unfavorable variances from the 21% statutory rate due primarily to the impact of state and local taxes and an increase in valuation allowances primarily related to foreign tax credits.  These unfavorable variances from the statutory rate were partially offset by a decrease in the deferred tax liability recorded for unremitted foreign earnings, a benefit related to equity compensation and a favorable adjustment related to the global intangible low-tax provisions, resulting from final Treasury Regulations issued during the year and as reported on our U.S. federal income tax return for fiscal 2019.

The effective income tax rate of 21.2% for fiscal 2019 reflects variances from the 21% statutory rate due primarily to the benefit resulting from the completion of our accounting for the impact of the tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”), a reduction in a liability for unrecognized tax benefits and a benefit related to equity compensation. These favorable variances from the statutory rate were offset primarily by the impact of state and local taxes and an increase in valuation allowances associated with certain deferred tax assets.

Net Income Net income of $305.1 million for fiscal 2020 compares to net income of $267.7 million for fiscal 2019.  Net income attributable to noncontrolling interests approximated $0.7 million and $1.1 million for fiscal 2020 and 2019, respectively.  Net income attributable to RPM International Inc. stockholders for fiscal 2020 was $304.4 million, or 5.5% of consolidated net sales, which compares to net income of $266.6 million, or 4.8% of consolidated net sales, for fiscal 2019.

Diluted earnings per share of common stock for fiscal 2020 of $2.34 compares with diluted earnings per share of common stock of $2.01 for fiscal 2019.

Fiscal 2019 Compared with Fiscal 2018

Net Sales  Consolidated net sales of $5.56 billion for fiscal 2019 grew by approximately 4.6% from net sales of $5.32 billion for fiscal 2018. Acquisitions added 2.0%, while organic sales, which include the impact of price and volume, improved by 4.7%.  Consolidated net sales for fiscal 2019 also reflect an unfavorable foreign exchange impact of 2.1%.

CPG segment net sales for fiscal 2019 grew by 3.4% to $1.90 billion, from net sales of $1.84 billion during fiscal 2018. The improvement was primarily due to organic growth of 4.1% during fiscal 2019 resulting from improved performance by our roofing, commercial sealants and waterproofing, and North American concrete admixture businesses.  Recent acquisitions contributed 2.2% to net sales during fiscal 2019. Unfavorable foreign exchange impacted the CPG segment net sales by 2.9% during fiscal 2019.

PCG segment net sales for fiscal 2019 grew by 4.4% to $1.14 billion, from net sales of $1.09 billion during fiscal 2018. The improvement was primarily due to organic growth of 4.1% during fiscal 2019 resulting from improved performance by our industrial coatings businesses.  Recent acquisitions contributed 2.7% to net sales during fiscal 2019. Unfavorable foreign currency exchange impacted the PCG segment net sales by 2.4% during fiscal 2019.

Consumer segment net sales for fiscal 2019 grew by 7.9% to $1.86 billion, from $1.72 billion in fiscal 2018.  Organic growth provided 7.3% of the growth in sales, which was driven primarily by new accounts, market share gains and price increases, while recent acquisitions provided 2.2% during the current period.  Unfavorable foreign currency impacted net sales in the Consumer segment by 1.5% during fiscal 2019 versus fiscal 2018.  

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SPG segment net sales for fiscal 2019 decreased by 0.5% to $670.2 million, from $673.5 million. The decline in fiscal 2019 was primarily due to foreign currency exchange, which had an unfavorable impact of 0.8%.  This decrease was partially offset by organic sales growth of 0.2%, which resulted from growth in net sales by our businesses providing marine coatings and decorative and protective wood coatings, partially offset by sales decreases in our businesses serving the water damage restoration and equipment markets that responded to more damaging hurricane activity during fiscal 2018 than fiscal 2019.  Additionally, recent acquisitions provided 0.1% sales growth during fiscal 2019.  

Gross Profit Margin  Our consolidated gross profit margin of 37.5% of net sales for fiscal 2019 compares to a consolidated gross profit margin of 37.9% for fiscal 2018.  In order to reflect the fiscal 2020 change in accounting principle related to shipping costs, which were previously recognized in SG&A expense and are now recognized in cost of sales, we have recast the reported gross profit margin for fiscal 2019 from 40.6% to 37.5% and reported gross profit margin for fiscal 2018 from 41.0% to 37.9%.  This was a gross profit decline of approximately 0.4% of net sales, or 40 basis points (“bps”). This decline in gross profit during fiscal 2019 as compared to fiscal 2018 was a result of an unfavorable mix of products sold.  Throughout the first nine months of fiscal 2019, raw material prices continued to rise over prior-year levels, which we worked to offset with higher selling prices.  

SG&A Expenses  Our consolidated SG&A expense increased by approximately $97.6 million during fiscal 2019 versus fiscal 2018, and increased to 28.7% of net sales for fiscal 2019 from 28.2% of net sales for fiscal 2018.  In order to reflect the fiscal 2020 change in accounting principle related to shipping costs, which were previously recognized in SG&A expense and are now recognized in cost of sales, we have recast the reported SG&A percentage of net sales for fiscal 2019 from 31.8% to 28.7% and reported SG&A percentage of net sales for fiscal 2018 from 31.3% from 28.2%.  As we continued to make progress on our 2020 MAP to Growth throughout fiscal 2019, in connection with the plan, we incurred $4.6 million for ERP implementation and consolidation expenses, increases in allowance for doubtful accounts, and professional fees totaling approximately $24.3 million.  Also, during fiscal 2019, we incurred higher costs of approximately $5.1 million related to unfavorable legal settlements, when compared with fiscal 2018.  Additional SG&A expense incurred from companies recently acquired approximated $23.6 million during fiscal 2019.  There was also higher distribution and commission expense on higher sales volume during fiscal 2019.  Lastly, warranty expense for fiscal 2019 increased by approximately $3.0 million from the amount recorded during fiscal 2018, and it is typical that warranty expense will fluctuate from period to period.  

Our CPG segment SG&A was approximately $6.4 million higher for fiscal 2019 versus fiscal 2018, but was slightly lower as a percentage of net sales.  The increased expense was mainly due to approximately $8.9 million of additional SG&A expense generated from companies recently acquired, which was partially offset by savings associated with 2020 MAP to Growth.  

Our PCG segment SG&A was approximately $20.0 million higher for fiscal 2019 versus fiscal 2018, and increased as a percentage of net sales.  The increased expense was mainly due to increased allowance for doubtful accounts associated with accounts deemed uncollectible as a result of changes in our market and leadership strategy.  Additionally, there was also higher distribution expense related to the current year increase in sales volume.  Further contributing to these increases was approximately $4.2 million of additional SG&A expense generated from companies recently acquired.

Our Consumer segment SG&A increased by approximately $28.3 million during fiscal 2019 versus fiscal 2018, but decreased slightly as a percentage of net sales.  This was primarily attributable to an increase of approximately $7.4 million in unfavorable legal settlements incurred during fiscal 2019, when compared to fiscal 2018.  Additional SG&A expense from recent acquisitions approximated $10.0 million during fiscal 2019.  Lastly, there was higher distribution expense due to freight and labor inflation on higher sales volume.

Our SPG segment SG&A was approximately $3.3 million higher during fiscal 2019 versus fiscal 2018, and increased as a percentage of net sales.  The increase was primarily attributable to the added expense associated with the ERP consolidation plan that is a component of 2020 MAP to Growth, increased distribution costs and increased expenses related to new product initiatives.  Further contributing to these increases was approximately $0.5 million of additional SG&A expense generated from companies recently acquired.

SG&A expenses in our corporate/other category of $112.6 million during fiscal 2019 increased by $39.6 million from $73.0 million recorded during fiscal 2018, resulting primarily from professional fees in connection with our 2020 MAP to Growth and the negotiation of an activist shareholder cooperation agreement, which approximated $24.8 million.  Additionally, there were increases in expense related to executive departures during fiscal 2019, as well as higher pension expense, hospitalization costs and legal fees.  Finally, in the prior year, we reversed $4.3 million of long-term incentive compensation when it became clear that the targeted goals would not be reached.  

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We recorded total net periodic pension and postretirement benefit costs of $45.4 million and $43.4 million for fiscal 2019 and 2018, respectively. The $2.0 million increase in pension expense resulted from an approximate $5.1 million increase in interest cost, partially offset by the combination of lower net actuarial losses recognized during fiscal 2019 versus fiscal 2018 for approximately $1.9 million and a higher expected return on increased plan assets during the current period versus the same period last year for approximately $1.2 million.

We expect that pension and postretirement expense will fluctuate on a year-to-year basis, depending primarily upon the investment performance of plan assets and changes in interest rates, 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 $6.4 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 under the heading, “Critical Accounting Policies and Estimates — Pension and Postretirement Plans.”

Restructuring Expense  We recorded restructuring charges of $42.3 million during fiscal 2019, compared with $17.5 million during fiscal 2018, which were the result of our continued implementation of a multi-year restructuring plan, 2020 MAP to Growth, which focuses on strategic shifts in operations across our entire business.  On a consolidated basis, we incurred $32.5 million of severance and benefit costs, $8.2 million of facility closure and other related costs, and $1.6 million of other asset write-offs during the period.  These charges were associated with closures of certain facilities as well as the elimination of duplicative headcount and infrastructure associated with certain of our businesses.

We expect to incur approximately $21.6 million of future additional charges in relation to this initiative.  These additional charges include approximately $12.7 million of facility closure and other related charges, $7.4 million of severance and benefit costs, as well as $1.5 million of other asset write-offs.  We expect these charges to be incurred by the end of calendar year 2020, upon which we expect to achieve an annualized pretax savings of approximately $290 million per year.  Additionally, upon the completion of this initiative, we have targeted $230.0 million of improvement in working capital, and believe that, assuming 3% organic growth and approximately $150 million to $200 million annually in acquisitions of businesses, our fiscal year 2021 cash flow from operations will improve to approximately $872.0 million.  In addition, we have continued to assess and find areas of improvement and cost savings as part of our 2020 MAP to Growth.  As such, the final implementation and expected costs of our plan are subject to change.  Most notably, we have broadened the scope of our announced plan to include the consolidation of the general and administrative areas, potential outsourcing, as well as additional future plant closures and consolidations, the estimated future costs of which have not yet been determined.  See Note B, “Restructuring,” to the consolidated financial statements, for further detail surrounding our 2020 MAP to Growth.

Goodwill and Other Intangible Asset Impairments  During fiscal 2019, we recorded other intangible asset impairment losses totaling $4.2 million, of which $2.0 million were recorded by our CPG reportable segment for impairment losses on indefinite-lived trade names and approximately $2.2 million were recorded by our SPG reportable segment for impairment losses on definite-lived customer-related intangibles.  For additional information, refer to Note C to the Consolidated Financial Statements.    

Interest Expense Interest expense was $102.4 million for fiscal 2019 versus $104.5 million for fiscal 2018. Higher average borrowings, related to recent acquisitions, increased interest expense during fiscal 2019 by approximately $5.5 million versus fiscal 2018.  The redemption of our convertible bonds during our fiscal 2019 third quarter decreased interest expense by approximately $2.1 million during fiscal 2019 versus fiscal 2018.  Excluding acquisition-related borrowings, which carried higher average interest financing costs, lower average borrowings year-over-year decreased interest expense by approximately $2.2 million during fiscal 2019 compared with fiscal 2018.  Lower interest rates, which averaged 4.01% overall for fiscal 2019 compared with 4.21% for fiscal 2018, which was due to a maturity of higher cost debt in fiscal 2018, resulted in lower interest expense by approximately $3.3 million during fiscal 2019 versus fiscal 2018.  

Investment (Income), Net  Net investment income of approximately $0.7 million for fiscal 2019 compares to net investment income of $20.4 million during fiscal 2018.  During fiscal 2019, we adopted Accounting Standards Updates (“ASU”) 2016-01, “Recognition and Measurement of Financial Assets and Liabilities,” which requires gains and losses on marketable equity securities to be recognized in earnings rather than in other comprehensive income.  Prior to adoption, unrealized changes in the fair value of equity securities, designated as available for sale securities, were recognized through other comprehensive (loss) income until realized. Dividend and interest income totaled $9.1 million and $8.7 million for fiscal 2019 and 2018, respectively.  Net losses on marketable securities totaled $8.4 million during fiscal 2019, compared to net realized gains on the sales of marketable securities of $11.7 million during fiscal 2018.    

IBT  Our consolidated pretax income for fiscal 2019 of $339.8 million compares with pretax income of $417.0 million for fiscal 2018.

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Our CPG segment recorded pretax income of $178.8 million, or 9.4% of net sales, for fiscal 2019, versus pretax income of $174.0 million, or 9.5% of net sales, for fiscal 2018. Our CPG segment results were impacted by higher raw material costs, as well as restructuring and other restructuring-related activities.  Our PCG segment recorded pretax income of $77.4 million, or 6.8% of net sales, for fiscal 2019, versus pretax income of $112.6 million, or 10.3% of net sales, for fiscal 2018. Our PCG segment results were impacted by unfavorable product mix, restructuring and other restructuring-related activities and an unfavorable translation impact on foreign earnings.  Our Consumer segment pretax income approximated $217.4 million, or 11.7% of net sales, for fiscal 2019, compared to a pretax income for fiscal 2018 of $171.9 million, or 10.0% of net sales.  The current period results include market share gains, as demonstrated by the increase in sales volume, and lower restructuring-related charges, which were more than offset by rising raw material costs, unfavorable legal settlements and higher distribution costs, while the prior year included $36.5 million of charges related to product line and SKU rationalization and related obsolete inventory identification. Our SPG segment had pretax income of $86.0 million, or 12.8% of net sales, for fiscal 2019, versus pretax income of $107.5 million, or 16.0% of net sales, for fiscal 2018, reflecting rising raw material costs, higher distribution costs, restructuring and other restructuring-related charges including the costs associated with the ERP consolidation plan.  

Income Tax Rate  On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Act”).  The income tax effects of changes in tax laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and modifications with varying effective dates. Provisions of the Act that impact fiscal 2018 include reducing the corporate income tax rate from 35% to 21%, creating a territorial tax system (with a one-time mandatory transition tax on unremitted earnings of foreign subsidiaries), and a provision allowing for immediate capital expensing of certain qualified property. The corporate tax rate reduction was effective for RPM as of January 1, 2018 and, accordingly, reduced our fiscal year 2018 federal statutory rate to a blended rate of approximately 29.2%.  The significant provisions of the Act that impact us for fiscal 2019 include the full federal statutory rate reduction to 21% and the repeal of the domestic production activities deduction. Also effective for fiscal 2019 are provisions of the Act that subject us to current U.S. tax on global intangible low-taxed income (“GILTI”) earned by certain foreign subsidiaries and allows a benefit for foreign-derived intangible income (“FDII”).

Subsequent to the enactment of the Act, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 118 (“SAB 118”), which provides guidance on accounting for the tax effects of the Act.  SAB 118 provides a measurement period that should not extend beyond one year from the Act’s enactment date for companies to complete the applicable accounting under ASC 740. In accordance with SAB 118 and based on the information available as of May 31, 2018, we recorded a net provisional income tax expense of $7.3 million in accordance with the applicable provisions of the Act. The net provisional income tax expense was comprised of a benefit of $15.7 million related to the provisional remeasurement of our U.S. deferred tax assets and liabilities at the reduced U.S. corporate tax rates, a provisional expense of $67.9 million for the transition tax on unremitted earnings from foreign subsidiaries, and a provisional benefit of $44.9 million for the partial reversal of existing deferred tax liabilities recorded for the estimated tax cost associated with unremitted foreign earnings not considered permanently reinvested.  

During our fiscal 2019 third quarter, we completed our assessment of the accounting for the impact of the Act, which included analysis based on related legislative updates and technical interpretations of the Act.  As a result, and consistent with SAB 118, during the three months ended February 28, 2019, we recorded an income tax benefit of $8.1 million, which was comprised of a $6.3 million benefit for the remeasurement of certain U.S. deferred tax assets and liabilities and a $1.8 million benefit resulting from the reduction of the transition tax on unremitted earnings from foreign subsidiaries. No other SAB 118 adjustments for the impact of the Act were recorded this fiscal year.

The effective income tax rate was 21.2% for fiscal 2019 compared to an effective income tax rate of 18.7% for fiscal 2018. The effective income tax rate for fiscal 2019 reflects favorable variances from the 21% statutory rate due primarily to the above noted benefit resulting from the completion of our accounting for the impact of the Act and a benefit related to equity compensation. These favorable variances from the statutory rate were offset primarily by the impact of state and local taxes and an increase in valuation allowances associated with certain deferred tax assets.

The effective income tax rate of 18.7% for fiscal 2018 reflects variances from the 29.2% statutory rate due primarily to the reversal of deferred tax liabilities recorded for the estimated tax cost associated with unremitted foreign earnings, the favorable effective tax rate impact of foreign operations and the impact of the provisional re-measurement of U.S. deferred tax assets described above. These favorable variances were partially offset by the provisional expense recorded for the transition tax on unremitted foreign earnings and the impact of state and local income taxes.

Net Income Net income of $267.7 million for fiscal 2019 compares to net income of $339.3 million for fiscal 2018.  Net income attributable to noncontrolling interests approximated $1.1 million and $1.5 million for fiscal 2019 and 2018, respectively.  Net income attributable to RPM International Inc. stockholders for fiscal 2019 was $266.6 million, or 4.8% of consolidated net sales, which compares to net income of $337.8 million, or 6.3% of consolidated net sales, for fiscal 2018.

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Diluted earnings per share of common stock for fiscal 2019 of $2.01 compares with diluted earnings per share of common stock of $2.50 for fiscal 2018.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Fiscal 2020 Compared with Fiscal 2019

For the 2020 fiscal year, cash from operations was $549.9 million compared to $292.9 million in fiscal 2019. The net change in cash from operations includes changes in working capital accounts, which accounted for an improvement of approximately $253.9 million year over year and the change in net income, which increased by $37.4 million during fiscal 2020 versus fiscal 2019.  .  The current year increase in cash from operations resulted from certain of our 2020 MAP to Growth initiatives, including the enhancement of margin in our Consumer segment by discontinuing the practice of offering a discount for early cash payments.  This had the effect of delaying approximately $100 million in receipts from the fiscal fourth quarter of 2019 to the first fiscal quarter of 2020.  This strategy is in line with our longer-term approach to improving margins and effectively managing working capital.  During fiscal 2020, we recorded $33.1 million in restructuring charges and made cash payments of $26.3 million related to our 2020 MAP to Growth, as further described in Note B, “Restructuring.”  

Additionally, certain government entities located where we have operations have enacted various pieces of legislation designed to help businesses weather the economic impact of Covid-19 and ultimately preserve jobs.  Some of this legislation, such as the Coronavirus Aid, Relief, and Economic Security (CARES) Act here in the U.S., enables employers to postpone the payment of various types of taxes over varying time horizons.  As of May 31, 2020, RPM has deferred $17.7 million of such government payments that would have normally been paid during our fourth quarter of fiscal 2020, but which will be paid in future periods.

The change in accounts receivable during fiscal 2020 provided approximately $213.3 million more cash than fiscal 2019.  This was the direct result of the improved margin initiatives noted above that shifted approximately $100.0 million in receipts from the fourth quarter of fiscal 2019 to the first quarter of fiscal 2020.  Days sales outstanding (“DSO”) at May 31, 2020 increased to 66.3 days from 65.7 days at May 31, 2019, as some of our customers have been somewhat slower to pay in light of Covid-19, especially internationally.  

During fiscal 2020, we spent approximately $38.1 million less cash for inventory compared to our spending during fiscal 2019.  This resulted from the combination of timing of purchases by retail customers and a systematic reduction of inventory levels at certain businesses in our Consumer segment in connection with product rationalization initiatives.  Days inventory outstanding (“DIO”) at May 31, 2020 increased to 80.6 days from 78.5 days at May 31, 2019.  While our Consumer segment has showed improvement in DIO due to various actions taken in conjunction with our 2020 MAP to Growth to streamline manufacturing process and improve fill rates, this improvement was more than offset by increases in DIO at each of our CPG, PCG & SPG segments, as a result of lower year-over-year sales volumes in each of these segments.

The change in accounts payable during the fiscal 2020 used approximately $2.5 million less cash than during fiscal 2019.  Days payables outstanding (“DPO”) increased by approximately 4.8 days from 76.3 days at May 31, 2019 to 81.1 days at May 31, 2020, resulting principally from the timing of certain payments as we continue to move toward a center-led procurement process that includes negotiating modified payment terms.  Cash provided from operations, along with the use of available credit lines, as required, remain our primary sources of liquidity.  

As we cannot predict the duration or scope of the Covid-19 pandemic and its impact on our customers and suppliers, any negative financial impact to our results cannot be reasonably estimated, but could be material.  We are actively managing the business to maintain cash flow and we have significant liquidity.  We believe that these factors will allow us to meet our anticipated funding requirements.

Fiscal 2019 Compared with Fiscal 2018

For our operating activities for fiscal 2019 compared with fiscal 2018, see the discussion beginning on page 29 of Exhibit 13.1 to our Annual Report on Form 10-K for the year ended May 31, 2019, as filed with the SEC on July 24, 2019.

Investing Activities

Fiscal 2020 Compared with Fiscal 2019

For the 2020 fiscal year, cash used for investing activities decreased by $38.6 million to $209.6 million as compared to $248.2 million in the prior year period.  This year-over-year decrease in cash used for investing activities was mainly driven by $103.3 million in less cash spent on acquisitions as we acquired fewer businesses in fiscal 2020 (3 acquisitions) as compared to fiscal 2019 (5 acquisitions).  While we utilized less cash in fiscal 2020 related to acquisitions, we utilized $47.5 million more in cash related to purchases and sales of marketable securities associated with our captive insurance companies and $11.0 million more in cash related to capital expenditures.

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Capital expenditures, other than for ordinary repairs and replacements, are made to accommodate our continued growth 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 paid for capital expenditures of $147.8 million, $136.8 million, and $114.6 million during the periods ended May 31, 2020, 2019, and 2018, respectively.  Throughout fiscal 2020 and 2019, we have been increasing our capital spending in an effort to consolidate ERP systems and our plant footprint, as part of our 2020 MAP to Growth.

Our captive insurance companies invest their excess cash in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in the amounts related to these activities on a year-over-year basis are primarily attributable to differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At May 31, 2020 and 2019, the fair value of our investments in marketable securities totaled $114.0 million and $112.5 million, respectively.  During fiscal 2020, we liquidated $10.0 million of our captives’ investment portfolio, as a result of good claims experience and favorable investment performance.  We used the $10.0 million in proceeds from the sale of investments to pay down a portion of our outstanding balance on our Revolving Credit Agreement.  The fair value of our portfolio of marketable securities is based on quoted market prices for identical, or similar, instruments in active or non-active markets or model-derived-valuations with observable inputs. We have no marketable securities whose fair value is subject to unobservable inputs.

As of May 31, 2020, approximately $199.6 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with approximately $205.8 million as of May 31, 2019.  Undistributed earnings held at our foreign subsidiaries that are considered permanently reinvested will be used, for instance, to expand operations organically or for acquisitions in foreign jurisdictions.  Further, our operations in the U.S. generate sufficient cash flow to satisfy U.S. operating requirements.  Refer to Note H, “Income Taxes,” to the Consolidated Financial Statements for additional information regarding unremitted foreign earnings.

Fiscal 2019 Compared with Fiscal 2018

For our investing activities for fiscal 2019 compared with fiscal 2018, see the discussion beginning on page 21 of Exhibit 13.1 to our Annual Report on Form 10-K for the year ended May 31, 2019, as filed with the SEC on July 24, 2019.

Financing Activities

Fiscal 2020 Compared with Fiscal 2019

For the 2020 fiscal year, cash used for financing activities increased by $263.0 million to $316.8 million as compared to $53.8 million in the prior year period.  The overall increase in cash used for financing activities was driven principally by debt-related activities, as we received $142.8 million less cash related to new debt and used $197.9 million more cash to paydown existing debt in fiscal 2020 as compared to fiscal 2019.  Refer to Note G “Borrowings” in Item 8 “Financial Statements and Supplementary Data” below for a discussion of significant debt-related activity that occurred in fiscal 2020 and 2019, significant components of our debt, and our available liquidity.

The increase in cash used for financing activities generated by debt-related activities was somewhat offset by a $75.2 million decrease in cash used for the repurchase of common stock during fiscal 2020, as compared to fiscal 2019, as we suspended our stock repurchase program during the fourth quarter of fiscal 2020, given recent macroeconomic uncertainty resulting from the Covid-19 pandemic.  Refer to Note I “Stock Repurchase Program” in Item 8 “Financial Statements and Supplementary Data” below for further details on the Company’s stock repurchase program.  

Fiscal 2019 Compared with Fiscal 2018

For our financing activities for fiscal 2019 compared with fiscal 2018, see the discussion beginning on page 29 of Exhibit 13.1 to our Annual Report on Form 10-K for the year ended May 31, 2019, as filed with the SEC on July 24, 2019.

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The following table summarizes our financial obligations and their expected maturities at May 31, 2020, and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.

The U.S. dollar fluctuated throughout the year, and was stronger against other major currencies where we conduct operations at May 31, 2020 versus May 31, 2019, causing an unfavorable 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 $70.2 million this year versus a unfavorable change of $70.5 million last year. The change in fiscal 2020 was in addition to unfavorable net changes of $66.1 million related to adjustments required for minimum pension and other postretirement liabilities, unfavorable changes of $4.5 million related to derivatives and favorable changes of $0.9 million related to unrealized gains on securities.

Stock Repurchase Program

Refer to Note I “Stock Repurchase Program” in Item 8 “Financial Statements and Supplementary Data” below 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). In addition to our revolving credit facility borrowings, the Company also manages interest rate risk with the use of various derivatives and hedges (refer to Note F, “Derivatives and Hedging,” to the Consolidated Financial Statements) to synthetically covert variable interest rate borrowings to fixed rate borrowings. The variable rate borrowings under these derivative contracts were $400.0 million and $100.0 million at May 31, 2020 and 2019, respectively. 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 $5.0 million and $5.4 million for 2020 and 2019, respectively, including the impact of the swap agreements. The Company’s primary exposure to interest rate risk is movements in the LIBOR, which is consistent with prior periods.  At May 31, 2020, approximately 19.9% of our debt was subject to floating interest rates, inclusive of synthetically swapped borrowings.  

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All derivative instruments are recognized on the balance sheet and measured at fair value. Changes in the fair values of derivative instruments that do not qualify as hedges and/or any ineffective portion of hedges are recognized as a gain or loss in our Consolidated Statement of Income in the current period. Changes in the fair value of derivative instruments used effectively as fair value hedges are recognized in earnings, along with the change in the value of the hedged item. Such derivative transactions are accounted for in accordance with ASC 815, “Derivatives and Hedging.” We do not hold or issue derivative instruments for speculative purposes.  Refer to Note F, “Derivatives and Hedging,” to the Consolidated Financial Statements for additional information.

Foreign Currency Risk

Our foreign sales and results of operations are subject to the impact of foreign currency fluctuations (refer to Note A, “Summary of Significant Accounting Policies,” 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 U.S.  Global economic uncertainty continues to exist.  Strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results.  However, our foreign debt is denominated in the respective foreign currency, thereby eliminating any related translation impact on earnings.

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, 2020 and 2019. 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 markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents, and other natural gas- and oil-based materials; packaging, including plastic and metal containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities; (j) risks related to the adequacy of our contingent liability reserves; and (k) risks relating to the recent outbreak of the coronavirus (Covid-19); and (l) other risks detailed in our filings with the SEC, including the risk factors set forth in our Form 10-K for the year ended May 31, 2020, 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.

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Item 8.  Financial Statements and Supplementary Data.

RPM INTERNATIONAL INC. AND SUBSIDIARIES

Consolidated Balance Sheet

(In thousands, except per share amounts)

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

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Consolidated Statements of Income

(In thousands, except per share amounts)

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

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Consolidated Statements of Comprehensive Income

(In thousands)