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. A comprehensive discussion of the accounting policies and estimates that are the most critical to our financial statements are set forth in our Annual Report on Form 10-K for the year ended
May 31, 2021. 24 --------------------------------------------------------------------------------
The following tables reflect the results of our reportable segments consistent with our management philosophy, and represent the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of businesses. Three Months Ended August 31, August 31, (In thousands) 2021 2020
Net SalesCPG Segment $ 644,362 $ 547,690PCG Segment 285,595 259,788 Consumer Segment 538,408 641,168 SPG Segment 182,055 158,024 Consolidated $ 1,650,420 $ 1,606,670Income Before Income Taxes (a) CPG Segment Income Before Income Taxes (a) $ 114,357 $ 98,349Interest (Expense), Net (b) (1,870 ) (2,110 ) EBIT (c) $ 116,227 $ 100,459
Profit of the PCG segment before income taxes (a)
Net interest income (expense) (b)
82 (31 ) EBIT (c)
$ 34,995 $ 28,545
Income of the consumer segment before income taxes (a)
Net interest income (expense) (b)
75 (62 ) EBIT (c)
$ 45,840 $ 132,784
SPG segment profit before income taxes (a)
Interest (charges), net (b)
(35 ) (82 ) EBIT (c)
$ 24,591 $ 20,531
Company / Other
(Loss) before income taxes (a)
Interest (charges), net (b)
(13,611 ) (6,697 ) EBIT (c)
$ (24,823 ) $ (31,968 )
$ 134,795 $ 180,785Add: Provision for Income Taxes 46,676 60,584 Income Before Income Taxes (a) 181,471 241,369 Interest (Expense) (21,109 ) (21,745 ) Investment Income, Net 5,750 12,763 EBIT (c) $ 196,830 $ 250,351(a) The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by generally accepted accounting principles ("GAAP") in the U.S., to EBIT.
(b) Net interest (expense) includes the combination of interest (expense) and net investments.
(c) 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, as a performance evaluation measure because Interest (Income) Expense, Net 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 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. 25 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Three months ended
Net SalesThree months ended (in millions, August 31, August 31, Total Organic Acquisition Foreign Currency except percentages) 2021 2020 Growth Growth(1) Growth Exchange Impact CPG Segment $ 644.4 $ 547.717.7 % 15.0 % 0.5 % 2.2 % PCG Segment 285.6 259.8 9.9 % 3.8 % 3.7 % 2.4 % Consumer Segment 538.4 641.2 -16.0 % -20.1 % 3.3 % 0.8 % SPG Segment 182.0 158.0 15.2 % 13.5 % 0.3 % 1.4 % Consolidated $ 1,650.4 $ 1,606.72.7 % -1.0 % 2.1 % 1.6 % (1) Organic growth includes the impact of price and volume. Our CPG segment experienced significant organic growth during the first quarter of fiscal 2022 in nearly all business units in the segment when compared to the same quarter in the prior year. Business units performing particularly well during the quarter were providers of commercial roofing systems, concrete admixtures and repair products, and our insulated concrete forms business. Additionally, European operations generated strong sales growth, due in part to an easier comparison to the prior year first quarter, when shelter-in-place requirements were most severe. Our PCG segment experienced sales growth during the first quarter of fiscal 2022 in nearly all the major business units in the segment when compared to the same quarter in the prior year. This growth was partially aided by the prior year comparison, where there was a significant amount of deferrals of flooring and coating projects as a result of restrictions associated with Covid, which impacted the ability of contractors to gain access to the facilities of our end customers. Our Consumer segment experienced significant organic declines in comparison to the prior year, which benefitted from unprecedented demand worldwide for its "do-it-yourself" home improvement and cleaning products, as a result of the Covid pandemic. Current quarter sales were also impacted by the lack of availability of raw materials, due to supply chain disruptions. Despite these disruptions, underlying demand for these products remains strong, which resulted in fiscal 2022 first quarter sales that were still above the pre-pandemic levels of the first quarter in fiscal 2020. Our SPG segment experienced strong demand for our businesses serving the marine, powder coatings, wood stains and sealers and disaster restoration equipment markets. Additionally, our new business development efforts have accelerated as a result of a number of recent management changes. Gross Profit Margin Our consolidated gross profit margin of 37.2% of net sales for the first quarter of fiscal 2022 compares to a consolidated gross profit margin of 40.7% for the comparable period a year ago. The current quarter gross profit margin decrease of approximately 3.5%, or 350 basis points ("bps"), resulted primarily from lower sales volume, inflationary pressures on raw materials versus the same period a year ago, higher freight costs, and production inefficiencies as a result of supply chain disruption and availability of raw materials. Partially offsetting these decreases were the impact of selling price increases and MAP to Growth savings. Overall, raw material costs were inflationary during the first quarter of fiscal 2022. As indicated previously, several macroeconomic factors resulted in inflation, beginning in the fourth quarter of fiscal 2021. We expect that these increased costs will continue to be reflected in our results throughout fiscal 2022. We plan to continue working to offset these increased costs with commensurate increases in selling prices. Furthermore, we have received "force majeure" notifications from many of our major material suppliers, which may impact our ability to timely meet customer demand in certain of our businesses and across certain product categories. 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) additional significant weather events causing further supply chain disruption, such as Hurricane Ida in August 2021; (iii) intermittent supplier plant shutdowns due to catastrophic failures or as a result of the Covid pandemic; (iv) significant worldwide demand during the Covid pandemic for key items such as packaging, solvents, and chemicals used in cleaning products; (v) availability of transportation and fluctuating costs to transport products; (vi) reduction of global supply of materials as a result of power curtailments in China; and (vii) high global demand as markets reopen and economic stimulus drives growth. SG&A Our consolidated SG&A expense during the period was $22.9 millionhigher versus the same period last year and increased to 25.4% of net sales from 24.6% of net sales for the prior year quarter. Additional SG&A expense recognized by companies we recently 26
Our CPG segment SG&A was approximately
$21.7 millionhigher for the first quarter of fiscal 2022 versus the comparable prior year period but decreased slightly as a percentage of net sales. The increase was mainly due to higher variable expense as a result of higher sales volumes, higher IT costs associated with ongoing ERP implementations, as well as increases in discretionary spending (i.e. meetings, travel, etc.) and restoring salaries which were reduced in the prior year in response to the impact of the Covid pandemic. Additionally, companies recently acquired generated approximately $0.5 millionof additional SG&A expense. Our PCG segment SG&A was approximately $6.5 millionhigher for the first quarter of fiscal 2022 versus the comparable prior year period but decreased as a percentage of net sales. The quarter over quarter increase is mainly due to increased variable expenses as a result of higher sales volumes, higher distribution costs, as well as increases in IT costs associated with ongoing ERP implementations. Additionally, companies recently acquired generated approximately $2.4 millionof additional SG&A expense. Our Consumer segment SG&A decreased by approximately $6.8 millionduring the first quarter of fiscal 2022 versus the same period last year, but increased as a percentage of net sales. The quarter-over-quarter decrease in SG&A was attributable to lower advertising and promotional costs and distribution expenses, as a result of lower sales volumes. Partially offsetting these decreases was approximately $4.3 millionof additional SG&A expense generated from the company recently acquired. Our SPG segment SG&A was approximately $3.4 millionhigher during the first quarter of fiscal 2022 versus the comparable prior year period but decreased as a percentage of net sales. The increase in SG&A expense is attributable to investments in growth initiatives, merit increases, increases in discretionary spending (i.e. meetings, travel, etc.), as well as increased distribution costs quarter over quarter. Additionally, the company recently acquired generated approximately $0.2 millionof additional SG&A expense. SG&A expenses in our corporate/other category decreased by $1.9 millionduring the first quarter of fiscal 2022 as compared to last year's first quarter mainly due to lower incentive compensation. The following table summarizes the retirement-related benefit plans' impact on income before income taxes for the three months ended August 31, 2021and 2020, as this activity has a significant impact on our SG&A expense: Three months ended (in millions) August 31, 2021 August 31, 2020 Change Service cost $ 13.7 $ 13.0 $ 0.7Interest cost 5.4 5.2 0.2 Expected return on plan assets (12.5 ) (9.9 ) (2.6 ) Amortization of: Prior service (credit) (0.1 ) (0.1 ) - Net actuarial losses recognized 4.4 8.2 (3.8 ) Total Net Periodic Pension & Postretirement Benefit Costs $ 10.9 $ 16.4 $ (5.5 )We expect that pension 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, but which may have a material impact on our consolidated financial results in the future. Restructuring Charges Three months ended (in millions) August 31, 2021 August 31, 2020 Severance and benefit costs (credits) $ (0.3 ) $
Facility closure and other related costs 1.3 1.5 Other restructuring costs - 0.2 Total Restructuring Costs $ 1.0 $ 4.2 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 our MAP to Growth, which focuses upon strategic shifts in operations across our entire business.
Our current forecasts for future additional restructuring costs are summarized in the table below.
27 -------------------------------------------------------------------------------- As of August 31, (in millions) 2021 Severance and benefit costs $ 1.7 Facility closure and other related costs 3.1 Other restructuring costs - Future Expected Restructuring Costs $ 4.8 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 millionper 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, 2021are not yet completed. Accordingly, we expect to incur restructuring expense throughout fiscal 2022, as projects related to our MAP to Growth are executed and completed.
See Note 3, “Restructuring” to the Consolidated Financial Statements, for more details regarding our AAP to Growth.
Three months ended (in millions, except percentages) August 31, 2021 August 31, 2020 Interest expense $ 21.1 $ 21.7 Average interest rate (a) 3.15 % 3.38 % (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 $ 0.7 Non-acquisition-related average borrowings (0.8 ) Change in average interest rate (0.5 ) Total Change in Interest Expense $ (0.6 ) Investment (Income), Net Three months ended (in millions) August 31, 2021 August 31, 2020 Dividend & interest (income) $ (2.3 ) $ (1.0 ) (Gains) on marketable securities (3.5 ) (11.8 ) Investment (Income), Net $ (5.8 ) $ (12.8 )
See Note 6, “Investment (income), net”, to the consolidated financial statements for further details.
Income (Loss) Before Income Taxes (“IBT”)
(in millions, except August 31, 2021 % of net sales August 31, 2020 % of net sales percentages) CPG Segment $ 114.4 17.7 % $ 98.3 18.0 % PCG Segment 35.1 12.3 % 28.5 11.0 % Consumer Segment 45.9 8.5 % 132.7 20.7 % SPG Segment 24.5 13.5 % 20.4 12.9 % Non-Op Segment (38.4 ) - (38.5 ) - Consolidated $ 181.5 $ 241.4 Our CPG segment results reflect market share gains, operational improvements, proactive cost controls and selling price increases, which offset production inefficiencies due to supply chain disruptions and material cost inflation. Our PCG segment results reflect improved pricing, incremental savings from operating improvement initiatives and recent acquisitions. Our Consumer segment results reflect the decrease in sales, inflation in materials, freight and labor, as well as the unfavorable impact of supply shortages on productivity. Our SPG segment results reflect higher sales volume and incremental operating improvement program savings, which were partially offset by raw material inflation, inefficiencies due to supply chain disruption and investments in future growth initiatives. 28
-------------------------------------------------------------------------------- Income Tax Rate The effective income tax rate of 25.7% for the three months ended
August 31, 2021, compares to the effective income tax rate of 25.1% for the three months ended August 31, 2020. The effective income tax rates for the three months ended August 31, 2021, and 2020 reflect variances from the 21% statutory rate due primarily to the unfavorable impact of state and local income taxes, non-deductible business expenses and the net tax on foreign subsidiary income resulting from the global intangible low-taxed income provisions, partially offset by tax benefits related to equity compensation. Net Income Three months ended (in millions, except percentages and per August 31, % of net August 31, % of net share amounts) 2021 sales 2020 sales Net income $ 134.88.2 % $ 180.811.3 % Net income attributable to RPM International Inc. stockholders 134.6 8.2 % 180.6 11.2 % Diluted earnings per share 1.04 1.39
LIQUIDITY AND CAPITAL RESOURCES
Fiscal year 2022 compared to fiscal year 2021
$76.1 millionof cash was provided by operating activities during the first three months of fiscal 2022, compared with $318.1 millionof cash provided by operating activities during the same period last year. The net change in cash from operations includes the change in net income, which decreased by $46.0 millionduring the first three months of fiscal 2022 versus the same period during fiscal 2021. Cash provided from operations, along with the use of available credit lines, as required, remain our primary sources of liquidity. The change in accounts receivable during the first three months of fiscal 2022 provided approximately $97.5 millionmore cash than during the same period a year ago. This resulted primarily from the timing of sales, particularly in our Consumer segment. Days sales outstanding ("DSO") at August 31, 2021decreased to 59.8 days from 60.4 days at August 31, 2020. During the first three months of fiscal 2022, the change in inventory used approximately $111.6 millionmore cash compared to our spending during the same period a year ago, which resulted primarily from the timing of purchases by retail customers. Days of inventory outstanding ("DIO") was approximately 86.5 and 74.0 days at August 31, 2021and 2020, respectively. The increase in DIO was driven mainly by the Consumer segment, which resulted from material price inflation and build-up of raw material inventory in order to mitigate supply chain disruptions. The change in accounts payable during the first three months of fiscal 2022 used approximately $47.9 millionmore cash than during the first three months of fiscal 2021 due principally to the timing of purchases, which were restrained at the beginning of fiscal 2021 due to the sharp business downturn caused by pandemic lockdown restrictions. However, days payables outstanding ("DPO") increased by approximately 9.1 days to 84.9 days at August 31, 2021from 75.8 days at August 31, 2020. The longer DPO is a direct result of moving toward a center-led procurement process that includes negotiating modified payment terms. The change in accrued compensation and benefits during the first three months of fiscal 2022 used approximately $44.8 millionmore cash than during the first three months of fiscal 2021 due to higher incentive compensation earned during fiscal 2021 (which was paid out in the first quarter of fiscal 2022) as compared to fiscal 2020 (which was paid out in the first quarter of fiscal 2021). The change in other accrued liabilities during the first three months of fiscal 2022 provided approximately $71.5 millionless cash than during the first three months of fiscal 2021 due principally to the timing of income taxes payable and the increase in customer rebate accruals. 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 defer the payment of various types of taxes over varying time horizons. As of May 31, 2021, we had a remaining deferral of $27.1 millionof such government payments that would have normally been paid during fiscal 2020 and fiscal 2021, but which will be paid in future periods. During the first quarter ended August 31, 2021, we did not defer any additional government payments that would have normally been paid during our first quarter of fiscal 2022. During the prior year first quarter ended August 31, 2020, we deferred $14.8 millionof such government payments that would have normally been paid during our first quarter of fiscal 2021. Of the remaining $27.1 million, at August 31, 2021, we expect to pay approximately half of the balance during our third quarter of fiscal 2022 and approximately half of the balance during our third quarter of fiscal 2023. 29
Investing Activities For the first three months of fiscal 2022, cash used for investing activities increased by
$48.2 millionto $90.5 millionas compared to $42.3 millionin the prior year period. This year-over-year increase in cash used for investing activities was mainly driven by $35.8 millionin more cash spent on acquisitions as we did not have any acquisition activity during the first three months of fiscal 2021. 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 $51.9 millionand $41.5 millionduring the first three months of fiscal 2022 and fiscal 2021, respectively. We have continued to maintain an elevated level of capital spending in fiscal 2022, in an effort to consolidate ERP systems and our plant footprint, as part of the finalization of our 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 August 31, 2021and May 31, 2021, the fair value of our investments in available-for-sale debt securities and marketable equity securities, which includes captive insurance-related assets, totaled $175.6 millionand $168.8 million, respectively. 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 August 31, 2021, approximately $191.3 millionof our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with $221.1 millionat 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 U.S.generate sufficient cash flow to satisfy U.S.operating requirements. Refer to Note 8, "Income Taxes," to the Consolidated Financial Statements for additional information regarding unremitted foreign earnings. Financing Activities For the first three months of fiscal 2022, cash used for financing activities decreased by $261.7 millionto $7.2 millionas compared to $268.9 millionin the prior year period. The overall decrease in cash used for financing activities was driven principally by debt-related activities, as we used approximately $212.6 millionless cash to paydown existing debt and provided approximately $60.4 millionmore cash from additions to short and long-term debt during the first three months of fiscal 2022 as compared to the prior year. See below for further details on the significant components of our debt. The decrease in cash used for debt-related activities was partially offset by a $12.5 millionincrease in cash used for the repurchase of common stock during the first three months of fiscal 2022, as compared to the prior year. This increase was a result of the macroeconomic uncertainty in the prior year caused by the Covid pandemic, which led to the temporary suspension of our stock repurchase program during the fourth quarter of fiscal 2020, which lasted through the second quarter of fiscal 2021. Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $1.38 billionat August 31, 2021, compared with $1.46 billionat May 31, 2021. Significant components of our debt include (refer to "Note G - Borrowings" in our Annual Report on Form 10-K for the fiscal year ended May 31, 2021for more comprehensive details): Revolving Credit Agreement During the quarter ended November 30, 2018, we replaced our previous $800.0 millionrevolving credit agreement, which was set to expire on December 5, 2019, with a $1.3 billionunsecured syndicated revolving credit facility (the "Revolving Credit Facility"), which expires on October 31, 2023. The Revolving Credit Facility includes sublimits for the issuance of swingline loans, which are comparatively short-term loans used for working capital purposes and letters of credit. The aggregate maximum principal amount of the commitments under the Revolving Credit Facility may be expanded upon our request, subject to certain conditions, up to $1.5 billion. The Revolving Credit Facility is available to refinance existing indebtedness, to finance working capital and capital expenditures, and for general corporate purposes. The Revolving Credit Facility requires us to comply with various customary affirmative and negative covenants, including a leverage covenant (i.e., Net Leverage Ratio) and interest coverage ratio, which are calculated in accordance with the terms as defined by the Revolving Credit Facility. Under the terms of the leverage covenant, we may not permit our leverage ratio for total indebtedness to consolidated EBITDA for the four most recent fiscal quarters to exceed 3.75 to 1.00. During certain periods and per the terms of the Revolving Credit Facility, this ratio may be increased to 4.25 to 1.00 in connection with certain "material acquisitions." The acquisition of Ali Industries, LLCoccurred on September 1, 2020and qualifies as a "material acquisition," which enables us to request an increase in the maximum permitted Net Leverage Ratio covenant. We provided such notice to our Administrative Agent to trigger this provision 30 -------------------------------------------------------------------------------- of the agreement during our second quarter of fiscal 2021, and therefore, our Net Leverage Ratio covenant has been increased to 4.25 to 1.00 through August 31, 2021. The minimum required consolidated interest coverage ratio for EBITDA to interest expense is 3.50 to 1.00. The interest coverage ratio is calculated at the end of each fiscal quarter for the four fiscal quarters then ended using EBITDA as defined in the Revolving Credit Facility. As of August 31, 2021, we were in compliance with all financial covenants contained in our Revolving Credit Facility, including the Net Leverage Ratio and Interest Coverage Ratio covenants. At that date, our Net Leverage Ratio was 2.42 to 1.00, while our Interest Coverage Ratio was 11.49 to 1.00. As of August 31, 2021, we had $971.1 millionof borrowing availability on our Revolving Credit Facility. Our access to funds under our Revolving Credit Facility is dependent on the ability of the financial institutions that are parties to the Revolving Credit Facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of the financial institutions under our Revolving Credit Facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.
Accounts Receivable Securitization Program
August 31, 2021, the outstanding balance under our AR Program was $60.0 million, which compares with the maximum availability of $250.0 millionon that date. The maximum availability under the AR Program is $250.0 million, but availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $250.0 millionof funding available under the AR Program. The AR Program contains various customary affirmative and negative covenants, as well as customary default and termination provisions. Our failure to comply with the covenants described above and other covenants contained in the Revolving Credit Facility could result in an event of default under that agreement, entitling the lenders to, among other things, declare the entire amount outstanding under the Revolving Credit Facility to be due and payable immediately. The instruments governing our other outstanding indebtedness generally include cross-default provisions that provide that, under certain circumstances, an event of default that results in acceleration of our indebtedness under the Revolving Credit Facility will entitle the holders of such other indebtedness to declare amounts outstanding immediately due and payable.
Term Loan Facility Credit Agreement
February 21, 2020, we and our subsidiary, RPM Europe Holdco B.V.(formerly " RPM New Horizons Netherlands, B.V.") (the "Foreign Borrower"), entered into an unsecured syndicated term loan facility credit agreement (the "New Credit Facility") with the lenders party thereto and PNC Bank, National Association, as administrative agent for the lenders. The New Credit Facility provides for a $300 millionterm loan to us and a $100 millionterm loan to the Foreign Borrower (together, the "Term Loans"), each of which was fully advanced on the closing date. The Term Loans mature on February 21, 2023, with no scheduled amortization before that date, and the Term Loans may be prepaid at any time without penalty or premium. We agreed to guarantee all obligations of the Foreign Borrower under the New Credit Facility. The proceeds of the Term Loans were used to repay a portion of the outstanding borrowings under our Revolving Credit Facility. See "Revolving Credit Agreement" above for further details. The Term Loans will bear interest at either the base rate or the Eurodollar Rate, at our option, plus a spread determined by our debt rating. We, and the Foreign Borrower, have entered into multicurrency floating to fixed interest rate swap agreements that effectively fix interest payment obligations on the entire principal amount of the Term Loans through their maturity at (a) 0.612% per annum on our Term Loan, and (b) 0.558% per annum on the Foreign Borrower's Term Loan. The New Credit Facility contains customary covenants, including but not limited to, limitations on our ability, and in certain instances, our subsidiaries' ability, to incur liens, make certain investments, or sell or transfer assets. Additionally, we may not permit (i) our consolidated interest coverage ratio to be less than 3.50 to 1.00, or (ii) our leverage ratio (defined as the ratio of total indebtedness, less unencumbered cash and cash equivalents in excess of $50 million, to consolidated EBITDA for the four most recent fiscal quarters) to exceed 3.75 to 1.00. Upon notification to the lenders, however, the maximum permitted leverage ratio can be relaxed to 4.25 to 1.00 for a one-year period in connection with certain material acquisitions. In addition, the agreement was amended on April 30, 2020to allow the maximum permitted Net Leverage Ratio to be increased to 4.25 to 1.00 during certain periods (refer to the "Revolving Credit Agreement" section above). As noted in the "Revolving Credit Agreement" section above, we provided such notice to our Administrative Agent during our second quarter of fiscal 2021, and therefore, our Net Leverage Ratio covenant has been increased to 4.25 to 1.00 through August 31, 2021. The covenants contained in the New Credit Facility are substantially similar to those contained in our Revolving Credit Facility. See "Revolving Credit Agreement" above for details on our compliance with all significant financial covenants at August 31, 2021. 31
Stock Repurchase Program
See Note 10, “Share buyback program” to the consolidated financial statements, for more details regarding our share buyback program.
Off-balance sheet provisions
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. OTHER MATTERS Environmental Matters Environmental obligations continue to be appropriately addressed and, based upon the latest available information, it is not anticipated that the outcome of such matters will materially affect our results of operations or financial condition. Our critical accounting policies and estimates set forth above describe our method of establishing and adjusting environmental-related accruals and should be read in conjunction with this disclosure. For additional information, refer to "Part II, Item 1. Legal Proceedings." 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; (k) risks relating to the Covid pandemic; (l) risks related to adverse weather conditions or the impacts of climate change and natural disasters; and (m) other risks detailed in our filings with the
Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2021, 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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