RPM INTERNATIONAL INC/DE/ Management’s discussion and analysis of financial condition and results of operations. (Form 10-K)

MANAGEMENT REPORT AND ANALYSIS OF THE FINANCIAL SITUATION AND OPERATING RESULTS

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 most critical accounting policies and estimates for our financial statements.

Good will


We test our goodwill balances at least annually, or more frequently as
impairment indicators arise, at the reporting unit level. Our annual impairment
assessment date has been designated as the first day of our fourth fiscal
quarter. Our reporting units have been identified at the component level, which
is one level below our operating segments.

We follow the Financial Accounting Standards Board ("FASB") guidance found in
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 a quantitative goodwill impairment test.

We assess qualitative factors in each of our reporting units that have goodwill. Among other relevant events and circumstances that impact the fair value of our reporting units, we assess individual factors such as:

a material adverse change in legal factors or the business climate;

adverse action or review by a regulatory body;

•
unanticipated competition;

•
a loss of key personnel; and

•

a more likely than not expectation that a business unit or substantial portion of a business unit will be sold or otherwise disposed of.


We assess these qualitative factors to determine whether it is necessary to
perform the quantitative goodwill impairment test. The quantitative process is
required only if we conclude that it is more likely than not that a reporting
unit's fair value is less than its carrying amount. However, we have an
unconditional option to bypass a qualitative assessment and proceed directly to
performing the quantitative analysis. We applied the quantitative process during
our annual goodwill impairment assessments performed during the fourth quarters
of fiscal 2022, 2021 and 2020.

In applying the quantitative test, we compare the fair value of a reporting unit
to its carrying value. If the calculated fair value is less than the current
carrying value, then impairment of the reporting unit exists. Calculating the
fair value of a reporting unit requires our use of estimates and assumptions. We
use significant judgment in determining the most appropriate method to establish
the fair value of a reporting unit. We estimate the fair value of a reporting
unit by employing various valuation techniques, depending on the availability
and reliability of comparable market value indicators, and employ methods and
assumptions that include the application of third-party market value indicators
and the computation of discounted future cash flows determined from estimated
cashflow adjustments to a reporting unit's annual projected earnings before
interest, taxes, depreciation and amortization ("EBITDA"), or adjusted EBITDA,
which adjusts for one-off items impacting revenues and/or expenses that are not
considered by management to be indicative of ongoing operations. Our fair value
estimations may include a combination of value indications from both the market
and income approaches, as the income approach considers the future cash flows
from a reporting unit's ongoing operations as a going concern, while the market
approach considers the current financial environment in establishing fair value.

In applying the market approach, we use market multiples derived from a set of
similar companies. In applying the income approach, we evaluate discounted
future cash flows determined from estimated cashflow adjustments to a reporting
unit's projected EBITDA. Under this approach, we calculate the fair value of a
reporting unit based on the present value of estimated future cash flows. In
applying the discounted cash flow methodology utilized in the income approach,
we rely on a number of factors, including future business plans, actual and
forecasted operating results, and market data. The significant assumptions
employed under this method include discount

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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.

Changes in the composition of reporting units during the 2020 financial year


On June 1, 2019, the composition of our reportable segments was revised. 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 the annual goodwill impairment tests during the fourth quarter of fiscal
2020, 2021 and 2022.

Also, in connection with our 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 business realignment 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.

Conclusion on the annual goodwill impairment tests

Following the annual impairment tests carried out for the financial years 2022, 2021 and 2020, there was no impairment of goodwill.

Other long-term 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:

material underperformance of historical or expected future operating results;

material changes in how we use acquired assets;

significant changes in our overall business strategy; and

significant negative industry or economic trends.


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 quantitative processes
during our annual indefinite-lived intangible asset impairment assessments
performed during the fourth quarters of fiscal 2022, 2021 and 2020.

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 mandatory annual impairment test of each of our indefinite-lived intangible assets performed during fiscal years 2022, 2021 and 2020 did not result in any impairment charge.

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Although no impairment charge was recorded during these periods related to the
annual impairment test, we did record intangible impairment charges in fiscal
2020. In fiscal 2020, in connection with 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. Refer to Note C "Goodwill and Other Intangible Assets" for additional
details on this indefinite-lived intangible asset impairment charge.

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.

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.

Contingencies

We are party to various claims and lawsuits arising in the normal course of
business. Although we cannot precisely predict the amount of any liability that
may ultimately arise with respect to any of these matters, we record provisions
when we consider the liability probable and estimable. Our provisions are based
on historical experience and legal advice, reviewed quarterly and adjusted
according to developments. In general, our accruals, including our accruals for
environmental and warranty liabilities, discussed further below, represent the
best estimate of a range of probable losses. Estimating probable losses requires
the analysis of multiple factors that often depend on judgments about potential
actions by third parties, such as regulators, courts, and state and federal
legislatures. Changes in the amounts of our loss provisions, which can be
material, affect our Consolidated Statements of Income. To the extent there is a
reasonable possibility that potential losses could exceed the amounts already
accrued, we believe that the amount of any such additional loss would be
immaterial to our results of operations, liquidity and consolidated financial
position. We evaluate our accruals at the end of each quarter, or sometimes more
frequently, based on available facts, and may revise our estimates in the future
based on any new information that becomes available.

Our environmental-related accruals are similarly established and/or adjusted as
more information becomes available upon which costs can be reasonably estimated.
Actual costs may vary from these estimates because of the inherent uncertainties
involved, including the identification of new sites and the development of new
information about contamination. Certain sites are still being investigated;
therefore, we have been unable to fully evaluate the ultimate costs for those
sites. As a result, accruals have not been estimated for certain of these sites
and costs may ultimately exceed existing estimated accruals for other sites. We
have received indemnities for potential environmental issues from purchasers of
certain of our properties and businesses and from sellers of some of the
properties or businesses we have acquired. If the indemnifying party fails to,
or becomes unable to, fulfill its obligations under those agreements, we may
incur environmental costs in addition to any amounts accrued, which may have a
material adverse effect on our financial condition, results of operations or
cash flows.

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We offer warranties on many of our products, as well as long-term warranty
programs at certain of our businesses, and thus have established corresponding
warranty liabilities. Warranty expense is impacted by variations in local
construction practices, installation conditions, and geographic and climate
differences. Although we believe that appropriate liabilities have been recorded
for our warranty expense, actual results may differ materially from our
estimates.

Pension and post-retirement 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.

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, 2022 information, the following
tables reflect the impact of a 1% change in the key assumptions applied to our
defined benefit pension plans in the United States and internationally:

                                                       U.S.                            International
                                           1% Increase       1% Decrease       1% Increase       1% Decrease
(In millions)
Discount Rate
(Decrease) increase in expense in FY
2022                                      $        (5.8 )   $         7.1     $        (0.4 )   $         1.8
(Decrease) increase in obligation as of
May 31, 2022                              $       (54.5 )   $        64.4     $       (22.7 )   $        27.1
Expected Return on Plan Assets
(Decrease) increase in expense in FY
2022                                      $        (6.4 )   $         6.4     $        (2.2 )   $         2.2
(Decrease) increase in obligation as of
May 31, 2022                                        N/A               N/A               N/A               N/A
Compensation Increase
Increase (decrease) in expense in FY
2022                                      $         4.7     $        (7.4 )   $         1.0     $        (1.2 )
Increase (decrease) in obligation as of
May 31, 2022                              $        25.5     $       (22.9 )   $         4.8     $        (4.3 )



Based upon May 31, 2022 information, the following table reflects the impact of
a 1% change in the key assumptions applied to our various postretirement health
care plans:

                                                      U.S.                            International
                                          1% Increase       1% Decrease       1% Increase       1% Decrease
(In millions)
Discount Rate
(Decrease) increase in expense in FY
2022                                     $           -     $           -     $        (0.4 )   $         0.8
(Decrease) increase in obligation as
of May 31, 2022                          $        (0.1 )   $         0.2     $        (4.6 )   $         5.9




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SEGMENT INFORMATION


We operate a portfolio of businesses and product lines that manufacture and sell
a variety of specialty paints, protective coatings, roofing systems, flooring
solutions, sealants, cleaners and adhesives. We manage our portfolio by
organizing our businesses and product lines into four reportable segments as
outlined below, which also represent our operating segments. Within each
operating segment, we manage product lines and businesses which generally
address common markets, share similar economic characteristics, utilize similar
technologies and can share manufacturing or distribution capabilities. Our four
operating segments represent components of our business for which separate
financial information is available that is utilized on a regular basis by our
chief operating decision maker in determining how to allocate the assets of the
company and evaluate performance. These four operating segments are each managed
by an operating segment manager, who is responsible for the day-to-day operating
decisions and performance evaluation of the operating segment's underlying
businesses. We evaluate the profit performance of our segments primarily based
on income before income taxes, but also look to earnings (loss) before interest
and taxes ("EBIT"), and/or adjusted EBIT, which adjusts for one-off items
impacting revenues and/or expenses that are not considered by management to be
indicative of ongoing operations, as a performance evaluation measure because
interest expense is essentially related to corporate functions, as opposed to
segment operations.

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 and concrete forms, 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
reportable 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; cleaners, sandpaper and other abrasives; 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 revenues from our joint ventures using 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.

SEGMENT INFORMATION
(In thousands)
Year Ended May 31,                      2022            2021            2020
Net Sales
CPG Segment                          $ 2,486,486     $ 2,076,565     $ 1,880,105
PCG Segment                            1,188,379       1,028,456       1,080,701
Consumer Segment                       2,242,047       2,295,277       1,945,220
SPG Segment                              790,816         705,990         600,968
Total                                $ 6,707,728     $ 6,106,288     $ 5,506,994
Income Before Income Taxes (a)
CPG Segment
Income Before Income Taxes (a)       $   396,509     $   291,773     $   209,663
Interest (Expense), Net (b)               (6,673 )        (8,030 )        (8,265 )
EBIT (c)                             $   403,182     $   299,803     $   217,928

PCG Segment
Income Before Income Taxes (a)       $   139,068     $    90,687     $   102,345
Interest Income, Net (b)                     575             128              18
EBIT (c)                             $   138,493     $    90,559     $   102,327

Consumer Segment
Income Before Income Taxes (a)       $   175,084     $   354,789     $   198,024
Interest Income (Expense), Net (b)           266            (242 )          (272 )
EBIT (c)                             $   174,818     $   355,031     $   198,296

SPG Segment
Income Before Income Taxes (a)       $   121,937     $   108,242     $    57,933
Interest (Expense), Net (b)                  (86 )          (284 )           (62 )
EBIT (c)                             $   122,023     $   108,526     $    57,995

Corporate/Other
(Loss) Before Income Taxes (a)       $  (225,799 )   $  (177,053 )   $  (160,201 )
Interest (Expense), Net (b)              (89,605 )       (32,522 )       (82,683 )
EBIT (c)                             $  (136,194 )   $  (144,531 )   $   (77,518 )

Consolidated
Net Income                           $   492,466     $   503,500     $   305,082

Add: (Provision) for income taxes (114,333 ) (164,938 ) (102,682 ) Profit before income tax (a)

           606,799         668,438         

407,764

Interest (Expense)                       (87,928 )       (85,400 )      (101,003 )
Investment (Expense) Income, Net          (7,595 )        44,450           9,739
EBIT (c)                             $   702,322     $   709,388     $   499,028



(a)
The presentation includes a reconciliation of Income (Loss) Before Income Taxes,
a measure defined by Generally Accepted Accounting Principles ("GAAP") in the
United States, to EBIT.

(b)

Interest (expense), net includes the combination of interest (expense) and investment income (expense), net.

(vs)

EBIT is a non-GAAP measure, and is defined as earnings (loss) before interest
and taxes. We evaluate the profit performance of our segments based on income
before income taxes, but also look to EBIT, or adjusted EBIT, as a performance
evaluation measure because interest expense is essentially related to corporate
functions, as opposed to segment operations. We believe EBIT is useful to
investors for this purpose as well, using EBIT as a metric in their investment
decisions. EBIT should not be considered an alternative to, or more meaningful
than, income before income taxes as determined in accordance with GAAP, since
EBIT omits the impact of interest in determining operating performance, which
represent items necessary to our continued operations, given our level of
indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our
fixed income investors, rating

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agencies and the banking community, all of whom believe, and we concur, that
this measure is critical to the capital markets' analysis of our segments' core
operating performance. We also evaluate EBIT because it is clear that movements
in EBIT impact our ability to attract financing. Our underwriters and bankers
consistently require inclusion of this measure in offering memoranda in
conjunction with any debt underwriting or bank financing. EBIT may not be
indicative of our historical operating results, nor is it meant to be predictive
of potential future results.

RESULTS OF OPERATIONS

The following discussion includes a comparison of Results of Operations and
Liquidity and Capital Resources for the years ended May 31, 2022 and 2021. For
comparisons of the years ended May 31, 2021 and 2020, see Management's
Discussion and Analysis of Financial Condition and Results of Operations in Part
II, Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended
May 31, 2021 as filed on July 26, 2021.

Net sales

                      Fiscal year ended May 31,
(In millions,                                            Total         Organic       Acquisition     Foreign Currency
except                  2022               2021          Growth       Growth(1)        Growth        Exchange Impact
percentages)
CPG Segment         $     2,486.5       $  2,076.5           19.7 %          19.3 %           1.4 %               -1.0 %
PCG Segment               1,188.4          1,028.5           15.5 %          12.7 %           3.2 %               -0.4 %
Consumer Segment          2,242.0          2,295.3           -2.3 %          -3.0 %           1.0 %               -0.3 %
SPG Segment                 790.8            706.0           12.0 %          11.7 %           0.5 %               -0.2 %
Consolidated        $     6,707.7       $  6,106.3            9.8 %           8.9 %           1.4 %               -0.5 %
(1) Organic growth includes the impact of price
and volume.


Our CPG segment generated significant organic growth in nearly all business
units. This increase was driven mainly by strong demand in North America for our
construction and maintenance products, including insulated concrete forms,
roofing systems, concrete admixtures and repair products, and commercial
sealants, due to strong public funding and emphasis on renovation. Additionally,
we experienced strong demand in our international markets as a result of pent-up
demand being released after Covid restrictions were lifted.

Our PCG segment generated organic growth in nearly all business units,
particularly our businesses providing polymer flooring systems, protective
coatings, and FRP grating. This increase was facilitated mainly by recovery in
energy markets and a significant amount of deferrals of flooring and coating
projects from the prior fiscal year due to restrictions associated with Covid.
In addition, this increase was aided by price increases, increased industrial
maintenance spending and improved product mix, driven by new sales management
systems that helped improve salesforce efficiencies.

Our Consumer segment experienced organic declines in comparison to the prior
year, which benefited from unprecedented demand worldwide for our DIY home
improvement and cleaning products, as a result of the Covid pandemic. In
addition, sales in the current year were impacted by inconsistent supply of raw
material due to supply chain disruptions, especially on alkyd-based products.
These declines were partially offset by price increases.

Our SPG segment generated organic growth in nearly all business units,
particularly those serving the OEM coatings and food coatings and additives
markets. In addition, our new business development efforts accelerated as a
result of a number of management changes. Additionally, our disaster restoration
equipment business rebounded by securing a supply of semiconductor chips and
reconfiguring its products to accommodate them after experiencing declines due
to the global semiconductor chip shortage during the first half of fiscal 2022.

Gross Profit Margin Our consolidated gross profit margin of 36.3% of net sales
for fiscal 2022 compares to a consolidated gross profit margin of 39.4% for the
comparable period a year ago. This gross profit decrease of approximately 3.1%
of net sales resulted primarily from inflation in raw materials, freight and
wages during fiscal 2022. This decrease was partially offset by a combination of
MAP to Growth savings, which includes improved operating discipline, as well as
increases in selling prices.

Overall, we experienced inflation in raw materials, freight and wages during
fiscal 2022. As indicated below, several macroeconomic factors resulted in
inflation. We expect that these increased costs will continue to be reflected in
our results into fiscal 2023. We plan to continue to offset these increased
costs with commensurate increases in selling prices. Furthermore, "force
majeures" remain in effect for some of our material suppliers, which may impact
our ability to timely meet customer demand in certain of our businesses and
across certain product categories.

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The macroeconomic factors identified above include, but are not limited to, the
following: (i) strained supply chains as inventories have not fully recovered
from Winter Storm Uri in February 2021; (ii) intermittent supplier plant
shutdowns due to the Covid pandemic; (iii) significant worldwide demand during
the Covid pandemic for key items such as packaging, solvents, and chemicals;
(iv) availability of transportation and elevated costs to transport products
which has been exacerbated as a result of increased Covid infections and
associated restrictions; (v) high global demand as markets reopen and economic
stimulus drives growth; and (vi) the Russian invasion of Ukraine and subsequent
boycott of materials and energy of Russian origin.

Selling, general and administrative (“SG&A”) expenses Our consolidated SG&A expenses increased by approximately $124.3 million in fiscal 2022 compared to fiscal 2021, but decreased to 26.7% of net sales in fiscal 2022 from 27.3% of net sales in fiscal 2021. $25.8 million in fiscal year 2022.


Our CPG segment SG&A was approximately $78.0 million higher for fiscal 2022
versus fiscal 2021 mainly due to higher commission expense associated with
higher roofing sales, increases in distribution costs with higher volume,
restoration of travel, and continued investment in growth initiatives, which
more than offset the incremental MAP to Growth savings generated during the
year. Lastly, acquisitions generated additional SG&A expense of approximately
$11.0 million. As a percentage of net sales, SG&A decreased by 120 basis points
("bps") due to increased sales revenues, and the incremental MAP to Growth
savings.

Our PCG segment SG&A was approximately $36.7 million higher for fiscal 2022
versus fiscal 2021 but decreased by 110 bps as a percentage of net sales, mainly
due to the favorable leveraging impact resulting from the increase in sales year
over year. The increase in SG&A was primarily attributable to restoring costs to
more normalized levels during fiscal 2022 after taking aggressive cost reduction
in response to the economic downturn during fiscal 2021. In addition, there were
higher commission incentive compensation and distribution costs associated with
higher volume. Travel expenses were also restored to more normalized levels and
IT spending increased due to investment in new ERP and customer relationship
management systems during fiscal 2022. Finally, additional SG&A generated from
companies recently acquired totaled approximately $9.3 million.

Our Consumer segment SG&A decreased by approximately $18.1 million during fiscal
2022 versus fiscal 2021, and decreased by 30 bps as a percentage of net sales.
The year-over year decrease in SG&A was primarily attributable to decreases in
incentive compensation costs as a result of lower volume and decreases in
advertising and promotional expenses as a result of supply shortages. Lastly,
acquisitions contributed approximately $4.3 million of additional SG&A expense
during the current period.

Our SPG segment SG&A was approximately $16.3 million higher during fiscal 2022
versus fiscal 2021, but decreased by 60 bps as a percentage of sales, driven
mainly by the 12.0% sales growth in the current year. The increase in SG&A
expense is mainly attributable to increased variable costs, restoration of
travel, and investments in growth initiatives. Lastly, acquisitions generated
additional SG&A expense of $1.2 million. These increases were partially offset
by incremental MAP to Growth savings.

SG&A expenses in our corporate/other category of $143.8 million during fiscal
2022 increased by $11.4 million from $132.4 million recorded during fiscal 2021.
The increase in SG&A was primarily attributable to higher legal, consulting, and
medical costs, in addition to the restoration of travel expenses during fiscal
2022.

The following table summarizes the retirement-related benefit plans' impact on
income before income taxes for the fiscal years ended May 31, 2022 and 2021, as
the service cost component has a significant impact on our SG&A expense:


                                                  Fiscal year ended May 31,
(In millions)                                      2022               2021           Change
Service cost                                   $       54.3       $       52.8     $      1.5
Interest cost                                          21.5               21.9           (0.4 )
Expected return on plan assets                        (49.2 )            (40.4 )         (8.8 )
Amortization of:
Prior service (credit)                                 (0.3 )             (0.3 )            -
Net actuarial losses recognized                        17.5               33.0          (15.5 )
Curtailment/settlement losses                             -                0.4           (0.4 )
Total Net Periodic Pension & Postretirement
Benefit Costs                                  $       43.8       $       

67.4 $(23.6)



We expect that pension and postretirement expense will fluctuate on a
year-to-year basis, depending upon the investment performance of plan assets and
potential changes in interest rates, both of which are difficult to predict in
light of the lingering macroeconomic uncertainties associated with inflation,
but which may have a material impact on our consolidated financial results in
the future. A decrease of 1% in the discount rate or the expected return on plan
assets assumptions would result in $9.7 million and $8.6 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 O, "Pension
Plans," and Note P, "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."

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Restructuring Expense
                                               Fiscal year ended May 31,
(In millions)                                 2022                  2021
Severance and benefit costs                $       1.9         $          9.4
Facility closure and other related costs           4.4                    8.0
Other restructuring costs                            -                    0.7
Total Restructuring Costs                  $       6.3         $         18.1


These charges are associated with closures of certain facilities as well as the
elimination of duplicative headcount and infrastructure associated with certain
of our businesses and are the result of the continued implementation of our MAP
to Growth, which focuses upon strategic shifts in operations across our entire
business.

Our current expectation of future additional restructuring costs is summarized
in the table below.
                                            As of May 31,
(In millions)                                   2022
Severance and benefit costs                $           1.5
Facility closure and other related costs               1.0
Other restructuring costs                                -
Future Expected Restructuring Costs        $           2.5


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. However, the disruption caused by the
outbreak of the Covid pandemic delayed the finalization of our MAP to Growth
past the original target completion date of December 31, 2020. We utilized the
remainder of fiscal 2021 to drive toward achieving the goals originally set
forth in our MAP to Growth. On May 31, 2021, we formally concluded our MAP to
Growth. However, certain projects identified prior to May 31, 2021 will not be
completed until fiscal 2023, and as such, we have incurred costs in fiscal 2022
and plan to continue recognizing restructuring expense throughout fiscal 2023.
The final implementation and total expected costs are subject to change as we
complete these projects.

See Note B, “Restructuring”, to the consolidated financial statements, for further details regarding our growth plan.

Interest charges

                                                            Fiscal year ended May 31,
(In millions, except percentages)                          2022                   2021
Interest expense                                      $         87.9         $          85.4
Average interest rate (a)                                       3.16 %                  3.30 %
(a) The interest rate decrease was a result of
lower market rates on the variable cost borrowings.



                                              Change in interest
(In millions)                                      expense
Acquisition-related borrowings               $                2.3
Non-acquisition-related average borrowings                    0.8
Change in average interest rate                              (0.6 )
Total Change in Interest Expense             $                2.5


Capital Expenditure (Revenue), Net

See Note A, “Summary of Significant Accounting Policies – Investment Expenses (Income), Net”, to the Consolidated Financial Statements for further details.

(Gain) on sale of assets, net

See Note N, “(Gain) on sale of assets, net”, to the consolidated financial statements for further details.

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Income before income taxes (“IBT”)

                                               Fiscal year ended May 31,
                                      2022      % of net        2021      % of net
(In millions, except percentages)                sales                     sales
CPG Segment                         $  396.5         15.9 %   $  291.8         14.1 %
PCG Segment                            139.1         11.7 %       90.7          8.8 %
Consumer Segment                       175.1          7.8 %      354.8         15.5 %
SPG Segment                            121.9         15.4 %      108.2         15.3 %
Non-Op Segment                        (225.8 )          -       (177.1 )          -
Consolidated                        $  606.8                  $  668.4


Our CPG segment results reflect market share gains, higher selling prices, gain
on sale of certain real property assets, and the favorable leverage of sales
volume increases. Our PCG segment results reflect gross margin improvements
through selling price increases, leverage of sales volume increases and recovery
in the energy markets. Our Consumer segment results reflect a decrease in sales
and related volume deleveraging impact on margins, inflation, and the
unfavorable impact of supply chain shortages on production. Our SPG segment
results reflect sales price increases, in addition to incremental operating
improvement program savings.

Income Tax Rate The effective income tax rate was 18.8% for fiscal 2022 compared
to an effective income tax rate of 24.7% for fiscal 2021. Refer to Note H,
"Income Taxes," to the Consolidated Financial Statements for the components of
the effective income tax rates.

Net revenue

                                                       Fiscal year ended May 31,
(In millions, except percentages and per       2022      % of net        2021      % of net
share amounts)                                             sales                     sales
Net income                                  $    492.5         7.3 %   $   503.5         8.2 %
Net income attributable to RPM
International Inc. stockholders                  491.5         7.3 %       502.6         8.2 %
Diluted earnings per share                        3.79                      3.87

CASH AND CAPITAL RESOURCES

Operational activities


Approximately $178.7 million of cash was provided by operating activities during
fiscal 2022, compared with $766.2 million of cash provided by operating
activities during fiscal 2021. The net change in cash from operations includes
the change in net income, which decreased by $11.0 million year over year.

The change in accounts receivable during fiscal 2022 used approximately $98.7
million more cash than fiscal 2021. This resulted from the timing of sales which
increased sharply at the end of fiscal 2022 compared to fiscal 2021. Days sales
outstanding ("DSO") at May 31, 2022 decreased to 61.1 days from 62.2 days at May
31, 2021.

During fiscal 2022, we spent approximately $235.4 million more cash for
inventory compared to our spending during fiscal 2021. This resulted from higher
raw material costs due to inflation and efforts to build safety stocks as a
result of supply chain outages. Days inventory outstanding ("DIO") at May 31,
2022 increased to 87.6 days from 80.3 days at May 31, 2021.

The change in accounts payable during fiscal 2022 used approximately $50.2
million more cash than during fiscal 2021. Days payables outstanding ("DPO")
decreased by approximately 7.2 days from 89.9 days at May 31, 2021 to 82.7 days
at May 31, 2022. The shorter DPO is a direct result of higher material costs due
to inflation and the build up of safety inventory stocks.

The change in other accrued liabilities during fiscal 2022 used approximately
$93.7 million more cash than during fiscal 2021 due principally to the decrease
in taxes payable. 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 and ultimately preserve jobs.
Some of this legislation, such as the Coronavirus Aid, Relief, and Economic
Security (CARES) Act in the United States, enables employers to postpone the
payment of various types of taxes over varying time horizons. As of May 31,
2021, we had deferred $27.1 million of such government payments, $13.5 million
of which we paid during fiscal 2022. As of May 31, 2022, we have a total of
$13.6 million accrued for such government payments that would have normally been
paid already. We expect to pay off the remaining balance during the third
quarter of fiscal 2023.

Investing activities


For fiscal 2022, cash used for investing activities decreased by $66.9 million
to $259.5 million as compared to $326.4 million in the prior year period. This
year-over-year decrease in cash used for investing activities was mainly driven
by $76.6 million more cash generated from sales of assets and a reduction in
cash used for acquisitions of $37.8 million in fiscal 2022 as compared to fiscal
2021. This was partially offset by an increase in capital expenditures.

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We utilized $65.2 million more cash in fiscal 2022 related to capital
expenditures. Capital expenditures 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 $222.4 million, $157.2 million, and $147.8 million
during the periods ended May 31, 2022, 2021 and 2020, respectively. We continued
to increase our capital spending in fiscal 2022 in order to expand capacity to
meet growing product demand and continue our growth initiatives.

Our captive insurance companies invest their excess cash in marketable
securities in the ordinary course of conducting their operations, and this
activity will continue. Differences in the amounts related to these activities
on a year-over-year basis are primarily attributable to the rebalancing of the
portfolio, along with differences in the timing and performance of their
investments balanced against amounts required to satisfy claims. At May 31, 2022
and 2021, the fair value of our investments in marketable securities totaled
$144.4 million and $168.8 million, respectively.

As of May 31, 2022, approximately $187.1 million of our consolidated cash and
cash equivalents were held at various foreign subsidiaries, compared with
approximately $221.1 million as of May 31, 2021. Undistributed earnings held at
our foreign subsidiaries that are considered permanently reinvested will be
used, for instance, to expand operations organically or for acquisitions in
foreign jurisdictions. Further, our operations in the United States generate
sufficient cash flow to satisfy U.S. operating requirements. Refer to Note H,
"Income Taxes," to the Consolidated Financial Statements for additional
information regarding unremitted foreign earnings.

Fundraising activities


For fiscal 2022, cash provided by financing activities increased by $517.0
million to $57.4 million as compared to $459.6 million used for financing
activities in the prior year period. The overall increase in cash provided by
financing activities was driven principally by debt-related activities. We had
$437.6 of additions to long term or short-term debt during fiscal 2022 compared
to no additions in fiscal 2021. In addition, we used $86.8 million less cash to
paydown existing debt in fiscal 2022 as compared to fiscal 2021. 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 2022 and
2021, significant components of our debt, and our available liquidity.

The following table summarizes our financial obligations and their expected maturities as of May 31, 2022and the effect these obligations are expected to have on our liquidity and cash flows during the periods indicated.

Contractual Obligations
                                        Total
                                     Contractual                         Payments Due In
                                       Payment
(In thousands)                          Stream          2023         2024-25       2026-27      After 2027
Long-term debt obligations           $  2,696,183     $ 602,233     $ 443,784     $ 399,704     $ 1,250,462
Finance lease obligations                   5,746         1,563         3,053         1,053              77
Operating lease obligations          $    376,076        67,339       101,027        70,354         137,356
Other long-term liabilities (1):
Interest payments on long-term
debt obligations                          987,221        78,896       136,550       136,550         635,225
Contributions to pension and
postretirement plans (2)                  445,200         7,400        16,400        76,300         345,100
Total                                $  4,510,426     $ 757,431     $ 700,814     $ 683,961     $ 2,368,220



(1)

Excluded from other long-term liabilities are our gross long-term liabilities for unrecognized tax benefits, which totaled $9.5 million at May 31, 2022. Currently, we cannot predict with reasonable reliability the timing of cash settlements to the respective tax authorities related to these liabilities.

(2)

These amounts represent our estimated cash contributions payable during the periods indicated for our pension and post-retirement plans, assuming that no actuarial gain or loss, change in assumptions or change in plan occurs during of a period. The projection results assume that the required minimum contribution will be made.


The U.S. dollar fluctuated throughout the year, and was stronger against other
major currencies where we conduct operations at May 31, 2022 versus May 31,
2021, 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
$95.1 million this year versus a favorable change of $140.4 million last year.
The change in fiscal 2022 was in addition to favorable net changes of $37.2
million related to adjustments required for minimum pension and other
postretirement liabilities, favorable changes of $37.2 million related to
derivatives and unfavorable changes of $1.7 million related to unrealized losses
on fixed income securities.

Stock Repurchase Program

Refer to Note I “Share Buyback Program” in Section 8 “Financial Statements and Supplementary Data” below for a discussion of our share buyback program.

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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.

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