RPM INTERNATIONAL INC/DE/ (RPM)

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Goodwill

As outlined in Note 16, "Segment Information", in August 2026, management approved the realignment of certain businesses and management structures within our CPG, Consumer and PCG segments to create operating efficiencies and a more unified go-to-market strategy in Latin America. As a result, certain CPG and Consumer Latin America businesses, formerly of our Euclid and Rust-Oleum reporting units within our CPG and Consumer segments, were transferred to our Platform reporting unit within our PCG segment.

We performed a goodwill impairment test for the reporting units affected by the business realignment and change in management structure using a qualitative assessment. We concluded that the estimated fair values exceeded the carrying values for these reporting units, and accordingly, no indications of impairment were identified as a result of these changes during the first quarter of fiscal 2027.

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, 2026.

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BUSINESS SEGMENT INFORMATION

Effective June 1, 2026, certain Latin America businesses and management structures, formerly of our CPG and Consumer segments, were transferred to our PCG segment to create operating efficiencies and a more unified go-to-market strategy in Latin America. This realignment is reflected in our reportable segments beginning with our first quarter of fiscal 2027. As such, historical segment results have been recast to reflect the impact of this realignment.

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.

(a) The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by GAAP, to EBIT.

(b) Interest Income (Expense), Net includes the combination of Interest Income (Expense) and Investment Income (Expense), Net.

(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. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.

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RESULTS OF OPERATIONS

Three Months Ended August 31, 2026

Net Sales

Our CPG segment experienced organic sales decline during the first quarter of fiscal 2027 driven by delayed sales resulting from a slowdown in healthcare and education markets, as well as supplier raw material availability issues affecting certain products, partially offset by pricing actions in response to inflation. The overall sales increase was driven by prior period acquisitions.

Our PCG segment generated organic sales growth during the first quarter of fiscal 2027, driven by broad-based growth, with particular strength in engineered solutions for high-performance buildings, energy and infrastructure projects, including in emerging markets, as well as food coatings and ingredients. Price increases to offset inflation, prior period acquisitions and favorable foreign currency translation also contributed to the sales increase.

Our Consumer segment generated organic sales growth in the first quarter of fiscal 2027 driven by solid growth across all businesses, and were aided by shelf space wins, new product introductions and pricing to offset inflation, which was higher in the quarter.

Gross Profit Margin Our consolidated gross profit margin of 41.3% of net sales for the first quarter of fiscal 2027 compares to a consolidated gross profit margin of 42.3% for the comparable period a year ago. The current quarter gross profit margin decrease of approximately 1.0%, or 100 basis points, was driven by cost inflation, inclusive of the net tariff-related impacts, and warranty expenses, partially offset by improved pricing to recover inflation and our MAP 2025 initiatives, which generated incremental savings in procurement, manufacturing and commercial excellence.

We expect that the inflationary headwinds noted above, including the impact from geopolitical-driven inflation, will be reflected in our results throughout fiscal 2027.

SG&A Our consolidated SG&A expense during the first quarter was $13.8 million lower versus the same period last year and decreased to 25.3% of net sales from 27.1% of net sales for the prior year period. The decrease was driven by reduced commission expenses, a $10.8 million net gain on the sale of a Consumer property that was closed as part of our MAP 2025 program, a $4.9 million gain on a fair value adjustment of the earnout liability primarily associated with an acquisition completed during fiscal 2025, decreased healthcare costs and MAP 2025 benefits and savings from 2026 restructuring actions. This was partially offset by $8.3 million of additional SG&A from prior period acquisitions, increased bonus expense, $4.4 million of bad debt expense in the CPG segment related to a customer bankruptcy and higher stock compensation expense.

Our CPG segment SG&A decreased approximately $2.6 million during the first quarter of fiscal 2027 versus the comparable prior year period and decreased as a percentage of net sales. The decrease was due to reduced commission expenses, $4.7 million gain on a fair value adjustment of the earnout liability associated with an acquisition completed during fiscal 2025, MAP 2025 savings and savings from 2026 restructuring actions, partially offset by $4.4 million of bad debt expense related to a customer bankruptcy and $5.1 million of additional SG&A from prior period acquisitions.

Our PCG segment SG&A increased approximately $3.9 million during the first quarter of fiscal 2027 versus the comparable prior year period but decreased as a percentage of net sales. The increase in expense was driven by $2.9 million of additional SG&A from prior period acquisitions, increased bonus expense and increased distribution costs, partially offset by MAP 2025 savings and savings from 2026 restructuring actions.

Our Consumer segment SG&A decreased by approximately $9.7 million during the first quarter of fiscal 2027 versus the same period last year and decreased as a percentage of net sales. The decrease in expense was due to a $10.8 million net gain on the sale of a property that was closed as part of our MAP 2025 program, MAP 2025 savings and savings from 2026 restructuring actions partially offset by higher distribution costs.

SG&A expenses in our corporate/other category during the first quarter of fiscal 2027 decreased approximately $5.4 million versus the same period last year. This was mainly due to decreased healthcare costs and savings from 2026 restructuring actions, partially offset by higher stock compensation expense.

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The following table summarizes the retirement-related benefit pla

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

We have identified below the accounting policies and estimates that are the most critical to our financial statements.

Goodwill

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

We follow the Financial Accounting Standards Board (“FASB”) guidance found in ASC 350 that simplifies how an entity tests goodwill for impairment. It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, and whether it is necessary to perform a quantitative goodwill impairment test.

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

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

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an adverse action or assessment by a regulator;

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unanticipated competition;

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a loss of key personnel; and

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a more-likely-than-not expectation that a reporting unit or a significant portion of a reporting unit will be sold or otherwise disposed.

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 2026, 2025 and 2024.

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

In applying the market approach, we use market multiples derived from a set of similar companies. In applying the income approach, we evaluate discounted future cash flows determined from estimated cashflow adjustments to a reporting unit’s projected EBITDA. Under this approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. In applying the discounted cash flow methodology utilized in the income approach, we rely on a number of factors, including future business plans, actual and forecasted operating results, and market data. The significant assumptions employed under this method include discount rates; revenue growth rates, including assumed terminal growth rates; and operating margins used to project future cash flows for a reporting unit. The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management’s assessment of a market

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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. Refer to Note A(11), “Summary of Significant Accounting Policies - Goodwill and Other Intangible Assets” and Note C, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements for additional information regarding our annual goodwill impairment assessments and the results of our annual goodwill impairment tests.

Other Long-Lived Assets

We assess identifiable, amortizable intangible and other long-lived assets for impairment whenever events or changes in facts and circumstances indicate the possibility that the carrying values of these assets may not be recoverable over their estimated remaining useful lives. Factors considered important in our assessment, which might trigger an impairment evaluation, include the following:

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significant under-performance relative to historical or projected future operating results;

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significant changes in the manner of our use of the acquired assets;

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significant changes in the strategy for our overall business; and

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significant negative industry or economic trends.

Measuring a potential impairment of amortizable intangible and other long-lived assets requires the use of various estimates and assumptions, including the determination of which cash flows are directly related to the assets being evaluated, the respective useful lives over which those cash flows will occur and potential residual values, if any. If we determine that the carrying values of these assets may not be recoverable based upon the existence of one or more of the above-described indicators or other factors, any impairment amounts are 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 are 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 are based on our historical experience and our internal business plans, with appropriate discount rates applied.

Additionally, we test indefinite-lived intangible assets for impairment at least annually during our fiscal fourth quarter. We follow the guidance provided by ASC 350 that simplifies how an entity tests indefinite-lived intangible assets for impairment. It provides an option to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying traditional quantitative tests. We applied both the qualitative and quantitative processes during our annual indefinite-lived intangible asset impairment assessments performed during the fourth quarter of fiscal 2026, and applied only the quantitative process during the fourth quarters of fiscal 2025 and 2024.

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.

Refer to Note C, "Goodwill and Other Intangible Assets," to the Consolidated Financial Statements for further discussion.

Income Taxes

Our provision for income taxes is calculated using the asset and liability method, which requires the recognition of deferred income taxes. Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain changes in valuation allowances. We provide valuation allowances against deferred tax assets if, based on available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

In determining the adequacy of valuation allowances, we consider cumulative and anticipated amounts of domestic and international earnings or losses of an 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.

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Additionally, our operations are subject to various federal, state, local and foreign tax laws and regulations that gove

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