RPM International Inc. (RPM, NYSE)
Industry: Basic Materials / Specialty Chemicals
Annual report, fiscal year 2019


## BUILDING
THE FOUNDATION
2019 ANNUAL REPORT
& MAP TO GROWTH: YEAR 1

## RPM

BUILDING A BETTER WORLD



<table><tr><td colspan="4">SELECTED FINANCIAL DATA (In thousands, except per share and percent data)</td></tr><tr><td>All financial data based on fiscal years ended May 31,</td><td></td><td>2019 \( ^{1} \)</td><td>2018 \( ^{2} \)</td></tr><tr><td rowspan="3">RESULTS FROM OPERATIONS</td><td>Net sales</td><td>$ 5,564,551</td><td>$ 5,321,643</td></tr><tr><td>Income before income taxes</td><td>339,845</td><td>417,048</td></tr><tr><td>Net income attributable to RPM International Inc. stockholders</td><td>266,558</td><td>337,770</td></tr><tr><td rowspan="2">PERFORMANCE MEASURES</td><td>Return on sales % \( ^{11} \)</td><td>4.8</td><td>6.3</td></tr><tr><td>Return on total RPM International Inc. stockholders&#x27; equity % \( ^{11} \)</td><td>17.6</td><td>22.0</td></tr><tr><td rowspan="6">PER SHARE DATA</td><td>Basic earnings per common share attributable to RPM International Inc. stockholders</td><td>$ 2.03</td><td>$ 2.55</td></tr><tr><td>Diluted earnings per common share attributable to RPM International Inc. stockholders</td><td>2.01</td><td>2.50</td></tr><tr><td>Cash dividends declared per share</td><td>1.370</td><td>1.260</td></tr><tr><td>Total RPM International Inc. stockholders&#x27; equity per share \( ^{11} \)</td><td>10.77</td><td>12.43</td></tr><tr><td>Total RPM International Inc. stockholders&#x27; equity</td><td>$ 1,405,952</td><td>$ 1,630,773</td></tr><tr><td>Retained earnings</td><td>1,425,052</td><td>1,342,736</td></tr><tr><td rowspan="3">BALANCE SHEET HIGHLIGHTS</td><td>Working capital</td><td>978,687</td><td>1,464,205</td></tr><tr><td>Total assets</td><td>5,441,355</td><td>5,271,822</td></tr><tr><td>Long-term debt</td><td>1,973,462</td><td>2,170,643</td></tr><tr><td rowspan="3">OTHER DATA</td><td>Cash flows from operating activities</td><td>$ 292,941</td><td>$ 390,383</td></tr><tr><td>Depreciation and amortization</td><td>141,742</td><td>128,499</td></tr><tr><td>Average shares outstanding</td><td>130,552</td><td>131,179</td></tr></table>

5-YEAR AND 10-YEAR

COMPARISON OF CUMULATIVE TOTAL RETURN

(Among RPM International Inc., the S&P 500 Index and a Customized Peer Group)





The graphs above compare the cumulative five- and ten-year total return provided stockholders on RPM International Inc.'s common stock relative to the cumulative total returns of the S&P 500 Index and a customized peer group of companies that includes: AkzoNobel N.V., Axalta Coating Systems Ltd., Ferro Corporation, GCP Applied Technologies Inc., H.B. Fuller Company, Masco Corporation, PPG Industries, Inc. and The Sherwin-Williams Company. An investment of $100 (with reinvestment of all dividends) is assumed to have been made in RPM common stock, the peer group, and the index on 5/31/2014 and 5/31/2009, and their relative performance is tracked through 5/31/2019.

Reflects the pretax impact of (i) $20.0 million in charges resulting from more proactive management of inventory, partially offset by a true-up of prior year inventory write-offs at our Consumer Segment and charges related to restructuring activities at our Industrial Segment (See Note A10) to the Consolidated Financial Statements); (ii) $242.3 million for restructuring expense (See Note B to the Consolidated Financial Statements); (iii) $5.4 million in accelerated depreciation expense related to the shortened useful lives of facilities currently operating, but in the process of being prepared for closure; (iv) $6.4 million of expenses reflecting the net increase in allowance for doubtful accounts deemed uncollectible as a result of a change in market and leadership strategy; (v) $6.4 million of implementation costs associated with an ERP consolidation plan; (vi) $25.9 million in charges related to professional fees in connection with our restructuring plan; (vii) $3.0 million in costs related to fiscal 2019 acquisitions, including inventory disposals and step-ups recorded in gross profit and acquisition-related professional fees recorded in SG&A; (viii) $0.3 million of losses resulting from the redemption of our convertible notes incurred during the second quarter of fiscal 2019; (ix) $2.4 million of fair value adjustments to contingent earnout obligations recorded during fiscal 2019; (x) $0.5 million of expense associated with a change in ownership of a business in South Africa, as required by local legislation in order to qualify for doing business in South Africa; (xi) $10.5 million of unusual compensation costs recorded resulting from executive departures unrelated to our 2020 MAP to Growth initiatives, including equity compensation and severance expense; and (xii) $7.6 million of investments resulting from realized net gains and losses on sales of investments and unrealized net gains and losses on equity securities pursuant to new accounting rules beginning in fiscal 2019. * Reflects the pretax impact of (i) $4.2 million in charges related to the decision to exit FlowCreate China; (ii) $17.5 million for restructuring expense incurred during the fourth quarter of fiscal 2018 (See Note B to the Consolidated Financial Statements); (iii) $37.7 million for inventory-related charges associated with product line and SKU optimization and related obsolete inventory identification at our Consumer Segment and accelerated depreciation expense related to the shortened useful lives of facilities currently operating, but in the process of being prepared for closure; (iv) $4.2 million in charges related to the decision to exit FlowCreate China; (v) $1.4 million of implementation costs associated with an ERP consolidation plan incurred during the fourth quarter of fiscal 2018 by our Specialty Segment; and (vi) $10.1 million of investment gains resulting from realized net gains and losses on sales of investments. * Reflects the pretax impact of (i) $123.2 million in charges related to FlowCreate's decision to exit the Middle East; (ii) $15.0 million in severance expense incurred during the fourth quarter of fiscal 2017 pursuant to a plan to reduce future SG&A expense; and (iii) goodwill and other intangible asset impairment charges of $188.3 million related to our Kering reporting unit. * Reflects (i) the reconsideration of Specialty Products Holding Corp. (SPHC) effective January 1, 2015; and (ii) adjustments related to the recognition of an ASC 740-tax liability for the potential reacquisition of foreign earnings and related impact on net income attributable to noncontrolling interests. * Reflects (iv) revised cost estimates and exit costs of unprofitable contracts related to the Industrial Segment totaling $11.0 million ($8.4 million after-tax), (ii) the write-off of the company's various investments in Kemrok Industries and Exports Ltd. totaling $78.6 million ($75.0 million after-tax), (iii) the loss on the settlement between the Building Solutions Group and the GSA for $65.1 million ($46.1 million after-tax), (iv) the strategic repositioning of certain operations in Brazil for $6.1 million ($1.6 million benefit after-tax), and (v) restructuring expense for $23.9 million ($14.8 million after-tax). * Reflects the losses recorded upon deconsolidation of SPHC and assuming that the restructuring expense for $23.9 million ($14.8 million after-tax) and the costs incurred prior to fiscal 2010, pro-forma results for fiscal 2010 would have resulted in consolidated net sales of $3.12 billion, income before income taxes of $260.2 million, net income attributable to RPM International Inc. stockholders of $162.9 million and diluted earnings per share ("EPS") of $1.26. * Reflects the impact of goodwill and other intangible asset impairment charge of $15.5 million ($15.3 million after-tax) in 2009. * Fiscal 2014 excludes pretax investment gains of $7.3 million ($4.9 million after-tax) resulting from realized net gains and losses on sales of investments, with a (0.04) impact on diluted EPS. Fiscal 2015 excludes (i) adjustments related to the recognition of an ASC 740-tax liability for the potential reacquisition of foreign earnings and related after-tax impact on net income attributable to noncontrolling interests of $83.5 million and an impact on diluted earnings per share of $0.80; and (ii) pretax investment gains of $0.37 million ($5.8 million after-tax) resulting from realized net gains and losses on sales of investments, with a (0.04) impact on diluted EPS. Fiscal 2016 excludes (i) the reversal of contingent obligations for earnout targets that were not met at our Kering reporting unit for $14.5 million ($9.2 million after-tax) with a (0.04) impact on diluted EPS, and (ii) pretax investment gains of $6.4 million ($4.5 million after-tax) resulting from realized net gains and losses on sales of investments, with a $0.09 impact on diluted EPS; (iii) a pretax charge of $168.3 million ($129.0 million after-tax) of goodwill and intangible asset impairment losses related to our Kering reporting unit with a 0.94 impact on diluted EPS; (iv) pretax impairment of $12.2 million after-tax) for severance charges incurred during the fourth quarter of fiscal 2017 pursuant to a plan to reduce future SG&A expense with a 0.30 impact on diluted EPS; and (v) pretax investment gains of $9.2 million ($5.7 million after-tax) for severance charges incurred during the fourth quarter of fiscal 2017 pursuant to a plan to reduce future SG&A expense with a 0.30 impact on diluted EPS.



<table><tr><td>2017 \( ^{3} \)</td><td>2016</td><td>2015 \( ^{4} \)</td><td>2014</td><td>2013 \( ^{5} \)</td><td>2012</td><td>2011</td><td>2010 \( ^{6,7} \)</td><td>2009 \( ^{8} \)</td></tr><tr><td>$ 4,958,175</td><td>$ 4,813,649</td><td>$ 4,594,550</td><td>$ 4,376,353</td><td>$ 4,078,655</td><td>$ 3,777,416</td><td>$ 3,381,841</td><td>$ 3,412,716</td><td>$ 3,368,167</td></tr><tr><td>244,333</td><td>483,466</td><td>453,253</td><td>424,487</td><td>176,891</td><td>328,289</td><td>295,053</td><td>268,454</td><td>180,868</td></tr><tr><td>181,823</td><td>354,725</td><td>239,484</td><td>291,660</td><td>98,603</td><td>215,936</td><td>189,058</td><td>180,037</td><td>119,616</td></tr><tr><td>3.7</td><td>7.4</td><td>5.2</td><td>6.7</td><td>2.4</td><td>5.7</td><td>5.6</td><td>5.3</td><td>3.6</td></tr><tr><td>12.9</td><td>26.6</td><td>17.9</td><td>22.6</td><td>8.3</td><td>17.7</td><td>16.1</td><td>16.2</td><td>10.5</td></tr><tr><td>$ 1.37</td><td>$ 2.70</td><td>$ 1.81</td><td>$ 2.20</td><td>$ 0.75</td><td>$ 1.65</td><td>$ 1.46</td><td>$ 1.40</td><td>$ 0.93</td></tr><tr><td>1.36</td><td>2.63</td><td>1.78</td><td>2.18</td><td>0.74</td><td>1.65</td><td>1.45</td><td>1.39</td><td>0.93</td></tr><tr><td>1.175</td><td>1.085</td><td>1.020</td><td>0.945</td><td>0.890</td><td>0.855</td><td>0.835</td><td>0.815</td><td>0.790</td></tr><tr><td>10.99</td><td>10.61</td><td>9.94</td><td>10.68</td><td>9.31</td><td>9.24</td><td>9.91</td><td>8.50</td><td>9.05</td></tr><tr><td>$ 1,436,061</td><td>$ 1,372,335</td><td>$ 1,291,392</td><td>$ 1,382,844</td><td>$ 1,200,858</td><td>$ 1,183,656</td><td>$ 1,263,164</td><td>$ 1,079,473</td><td>$ 1,143,671</td></tr><tr><td>1,172,442</td><td>1,147,371</td><td>936,996</td><td>833,691</td><td>667,774</td><td>686,818</td><td>583,035</td><td>502,562</td><td>427,955</td></tr><tr><td>1,162,042</td><td>1,133,157</td><td>1,193,612</td><td>1,122,386</td><td>955,856</td><td>1,011,177</td><td>1,171,509</td><td>817,444</td><td>702,653</td></tr><tr><td>5,090,449</td><td>4,764,969</td><td>4,680,062</td><td>4,365,657</td><td>4,110,019</td><td>3,553,733</td><td>3,510,852</td><td>2,995,541</td><td>3,402,181</td></tr><tr><td>1,836,437</td><td>1,635,260</td><td>1,639,859</td><td>1,333,257</td><td>1,358,349</td><td>1,104,873</td><td>1,095,970</td><td>915,826</td><td>754,555</td></tr><tr><td>$ 386,127</td><td>$ 474,706</td><td>$ 330,448</td><td>$ 278,149</td><td>$ 368,454</td><td>$ 294,872</td><td>$ 238,166</td><td>$ 203,936</td><td>$ 266,995</td></tr><tr><td>116,773</td><td>111,039</td><td>99,176</td><td>90,069</td><td>86,336</td><td>76,023</td><td>75,656</td><td>84,253</td><td>85,144</td></tr><tr><td>130,662</td><td>129,383</td><td>129,933</td><td>128,956</td><td>128,130</td><td>127,403</td><td>127,047</td><td>126,373</td><td></td></tr></table>

RPM
(as adjusted)



Net Sales
$ in billions



Net Income \( ^{10} \) 
$ in millions



Diluted Earnings \( ^{9,10} \) 
$ per share

## INDUSTRIAL



Net Sales
$ in billions



Earnings Before Interest & Taxes \( ^{10} \) 
$ in millions



Identifiable Assets
$ in billions

## SEGMENTS
(as reported)
CONSUMER



Net Sales
$ in billions



Earnings Before Interest & Taxes \( ^{10} \) 
$ in millions



Identifiable Assets
$ in billions

## SPECIALTY



Net Sales
$ in millions



Earnings Before Interest & Taxes \( ^{10} \) 
$ in millions



Identifiable Assets
$ in millions

million after-tax) resulting from realized net gains and losses on sales of investments, with a $0.04) impact on diluted EPS. Fiscal 2018 excluded (i) charges of $4.2 million related to the decision to exit Flowcrete China with a $0.03 impact on diluted EPS; (ii) a pretax charge of $17.5 million ($12.1 million after-tax) for restructuring expense incurred during the fourth quarter of fiscal 2018 with a $0.09 impact on diluted EPS (See Note 4) and related obsolete inventory identification at our Consumer Segment and inventory write-offs in connection with restructuring activities at our Industrial Segment, with a $0.19 impact on diluted EPS (See Note 4) to the Consolidated Financial Statements), (iv) charges of $1.5 million ($1.0 million after-tax) related to professional fees incurred during the fourth quarter of fiscal 2018 in connection with the negotiation of a cooperation agreement, with a $0.01 impact on diluted EPS; (v) charges of $1.4 million ($1.0 million after-tax) related to professional fees in connection with the negotiation of a cooperation agreement, with a $0.01 impact on diluted EPS; (vi) charges of $1.4 million ($1.0 million after-tax) resulting from realized net gains and losses on sales of investments, with a ($0.08) impact on diluted EPS; and (vii) an adjustment to tax expense for $16.1 million for a discrete tax adjustment related to a foreign legal entity realignment and corresponding tax planning strategy, with a ($0.13) impact on diluted EPS. Fiscal 2019 excluded (i) a pretax charge of $20.0 million ($16.7 million after-tax) resulting from more proactive management of inventory, partially offset by a true-up of prior year inventory write-offs at our consumer segment and charges related to restructuring activities at our Industrial Segment, with a $0.12 impact on diluted EPS (See Note 4) to the Consolidated Financial Statements), (ii) a pretax charge of $42.3 million ($32.5 million after-tax) for restructuring expense, with a $0.23 impact on diluted EPS (See Note 5) to the Consolidated Financial Statements), (iii) a pretax charge of $3.4 million ($4.3 million after-tax) resulting from accelerated depreciation related to the decision to use limited lives of facilities to generate revenue, with a $0.23 impact on diluted EPS (See Note 6) to the Consolidated Financial Statements), (iv) a pretax charge of $1.4 million ($4.3 million after-tax) resulting from accelerated depreciation related to the decision to use limited lives of facilities to generate revenue, with a $0.23 impact on diluted EPS (See Note 7) to the Consolidated Financial Statements), (v) a pretax charge of $6.4 million ($4.8 million after-tax) associated with the implementation of an ERP consolidation plan, with a $0.04 impact on diluted EPS; (vi) a pretax charge of $25.9 million ($19.9 million after-tax) related to professional fees in connection with our restructuring plan, with a $0.15 impact on diluted EPS; (vii) a pretax charge of $3.0 million ($2.2 million after-tax) related to fiscal 2019 acquisitions, including inventory dispositions and step-ups recorded in gross profit and acquisition-related professional fees recorded in SG&A, with a $0.03 impact on diluted EPS; (viii) a pretax charge of $0.9 million ($0.7 million after-tax) of loss resulting from the redemption of our convertible notes incurred during the second quarter of fiscal 2019, having no effect on diluted EPS; (ix) a pretax charge of $2.4 million ($1.8 million after-tax) of fair value adjustments to contingent earnout obligations recorded during fiscal 2019 with a $0.01 impact on diluted EPS; (x) a pretax charge of $0.5 million ($0.4 million after-tax) associated with a change in ownership of a business in South Africa, as required by local legislation in order to qualify for doing business in South Africa, having no effect on diluted EPS; (xii) a pretax charge of $10.5 million ($7.8 million after-tax) related to unusual compensation costs recorded resulting from executive departures unrelated to our 2020 MAP for touchinitiatives, including equity compensation and severance expense, with a $0.06 impact on diluted EPS; (xiii) a pretax increase of $0.7 million ($0.7 million after-tax) resulting from realized net gains and losses on sales of investments and unrealized net gains and losses on equity securities pursuant to new accounting rules beginning in fiscal 2019, which are adjusted due to their inherent volatility, with a $0.06 impact on diluted EPS; and (xiv) an adjustment to tax expense for ($10.0 million for U.S. tax reform with a $0.08 impact on diluted EPS." Earnings Before Interest & Taxes for business segments is reconciled to Income (Loss) Before Income Taxes on page 18 for each of the three years ended May 31, 2019. Further, we have provided Adjusted Net Income and Adjusted EPS in the table above as certain items are not necessarily representative of the core operations of our business and, accordingly, we have provided adjusted results that we believe are useful to investors in evaluating the core operations of our business and are used in the management of the business, including decisions concerning the allocation of resources and assessment of performance. " + Return on sales % is calculated as Net income (loss) attributable to RPM International Inc. stockholders divided by Net sales; Return on total RPM International Inc. stockholders' equity % is calculated as Net income (loss) attributable to RPM International Inc. stockholders divided by the average of the current and prior year Total RPM International Inc. stockholders' equity and Total RPM International Inc. stockholders' equity divided by Average shares outstanding. + Acquisitions made by the company during the periods presented may impact comparability from year to year (See Note A13) to the Consolidated Financial Statements. * Certain reclassifications have been made to prior-year amounts to conform to the current-year presentation. * See Notes to Consolidated Financial Statements.

Refer to the consolidated figures in the table above for a-reported data, as well as explanatory footnotes discussing the impact of one-time items.



QUICK FACTS

Founded

1947

Corporate Headquarters

Medina, Ohio

Stock Listing

NYSE (Symbol: RPM)

Stockholders
(percent of total shares)

Institutional: 81% Individual: 19%
693 Institutions | 139,431 Individuals

## COMPANY
OVERVIEW

RPM International Inc. is a $5.6 billion, multinational company with subsidiaries that are world leaders in specialty coatings, sealants, building materials and related services. From homes and workplaces, to infrastructure and precious landmarks, RPM's brands are trusted by consumers and professionals worldwide to beautify structures, protect them from harsh environments, prolong their lifecycles and enhance their sustainability.

GLOBAL SALES: $5.6 BILLION

% AND $ BY REGION

EUROPE
19% - $1.0 billion

NORTH AMERICA
73% - $4.1 billion

ASIA/PACIFIC
3% - $178 million

AFRICA/MIDDLE EAST
1% - $72 million

SOUTH AMERICA
4% - $219 million



Letter to Shareholders 01
2020 MAP to Growth 06
Increasing Operational Efficiency 07
Organizing to Execute 08
Maintaining Our Entrepreneurial Growth Culture 10
Financial Section 13
Management's Discussion and Analysis 14
Consolidated Financial Statements 25
Notes to Consolidated Financial Statements 30
Quarterly Stock Price and Dividend Information 63
Management's Report on Internal Control 64
Auditor's Reports 65
Stockholder Information 67
Directors and Officers 68
FOLD-OUT COVER
Selected Financial Data
Comparison of Cumulative Total Return
RPM Consolidated and Segment Charts

# TO THE SHAREHOLDERS, ASSOCIATES AND CUSTOMERS OF RPM:



Frank C. Sullivan
Chairman and Chief Executive Officer

In last year’s letter to you, I laid out the blueprint of an operational improvement plan, the 2020 MAP to Growth (Margin Acceleration Plan) program, that we were about to undertake in order to position RPM for continued growth and profitability. We had achieved decades of success under our decentralized business model and, over this time, the company grew in size, scale and complexity. We recognized that RPM had reached the point where a center-led approach in select areas of the business was required to get it to the next level of growth.

The primary elements of the 2020 MAP to Growth program are to increase the efficiency of our operations – particularly in the areas of manufacturing, procurement and administration – and to streamline our operating structure and leadership, all while maintaining our successful entrepreneurial growth culture. The plan focuses on scale in order to unlock more resources to better serve our customers, while creating greater value for our shareholders.

## 2020 MAP to Growth Wave 1 Savings Ahead of Plan

We have implemented the foundational elements of the 2020 MAP to Growth operating improvement plan that we announced last year with great success. We moved with urgency and have made significant progress toward the cost saving and share repurchase targets we laid out on November 28 of last year. Over the course of the plan, we targeted $290 million in annualized savings across three waves set to conclude in December of 2020. The first wave, which was completed on May 31, 2019, targeted $83 million in annualized cost savings. We are on pace to exceed that target by 23% with annualized savings of $102 million. Approximately $52.7 million of that amount was realized in our fiscal 2019 financial statements.

In addition, we are ahead of schedule with the goal we laid out to repurchase $1.0 billion of stock by May 31, 2021. With two years remaining to achieve that target, we are halfway there via stock repurchases and the redemption of our $205 million, 2.25% convertible bond.

You can read more about our 2020 MAP to Growth achievements on pages 6-12 of this report.

## New Chief Restructuring Officer to Spearhead 2020 MAP to Growth

Taking the reins from me on leading our operating improvement initiatives will be Mike Sullivan, who is our new vice president of operations and chief restructuring officer. He joined RPM on June 24, 2019. While I certainly appreciate his last name, we are unrelated. Mike replaces Steve Knoop, who passed away recently after a brief, but courageous, battle with cancer. Steve was the key architect of our operating improvement plan. Moving forward, we’re in very good hands with Mike, as he was closely involved in the analysis and development of our 2020 MAP to Growth program while working as a consultant. I’m confident that through his leadership we will successfully complete our 2020 MAP to Growth plan and drive continuous improvements across RPM for years to come.




FIGHT
FIND THE
POSITIVE
REPEAT

Steve was an inspiring leader
with a truly unique combination of skills –
courageous in vision, sound in judgment,
decisive in action and Dutch in temperament.

## RPM REMEMBERS STEVE KNOOP

It is with a very heavy heart that RPM announces the passing of Stephen J. Knoop, our dear friend and colleague, after a brief battle with cancer. During his battle, his family found inspiration in the motto, “fight, find the positive and repeat.” Steve thought that motto was also appropriate for RPM as we take on the daily challenges of implementing our operating improvement plan.

Steve, known as RPM’s go-to problem solver for the company’s biggest challenges, had been serving as our Head of Group Restructuring. In this role, he was the chief architect and leader behind our 2020 MAP to Growth operating improvement program, which is positioning RPM for long-term sustained growth.

Steve has been a vital part of the RPM family since he joined the company in 1996 as director of corporate development. In this position, Steve took on the responsibility for our acquisition growth strategy and went on to lead this function for 23 years. During this timeframe, Steve was instrumental in completing more than 180 transactions and brought thousands of employees around the globe into the RPM family of companies.

He later accepted the position of CEO of our Specialty Products Holding Corp. (SPHC), where he helped achieve the resolution of a legacy liability. Following the reconsolidation of SPHC into RPM in January 2015, Steve led the RPM Specialty Products Group as president. During his tenure with RPM, the company grew from a $1 billion business to $5.6 billion in revenue today.

Throughout his career at RPM, Steve was an inspiring leader with a truly unique combination of skills – courageous in vision, sound in judgment, decisive in action and Dutch in temperament. He was fiercely loyal to his colleagues, friends and family. While he is gone too soon, his spirit remains in the hearts of his family, friends and colleagues.

## BOARD TRANSITIONS

After many years of illustrious service to RPM and our shareholders, two of our independent directors, General John P. Abizaid and Craig Morford, stepped down from the board this fiscal year to take on other positions.



Abizaid resigned on April 12, 2019, following his confirmation to serve as the U.S. ambassador to Saudi Arabia, a role of significant national and international importance. As a director, he brought a unique perspective to RPM, particularly in the areas of strategy, operations, international affairs and leadership development. Abizaid was elected to the RPM board of directors in 2008 after a distinguished military career during which he rose from an infantry platoon leader to become a four-star general and the longest-serving commander of U.S. Central Command. After retiring from the U.S. Army in 2007, he served as senior partner of JPA Partners LLC, a Nevada-based strategic and analytic consulting firm.



Morford stepped down on May 1, 2019, after retiring from Cardinal Health as chief legal and compliance officer and accepting a new executive position at ExxonMobil, which does not have senior leaders serving on other public company boards. Morford had served on the RPM board of directors since his election in 2013. During his time as a director, Morford’s business acumen and deep experience in a variety of legal and compliance matters brought valuable insight to our organization. He joined Cardinal Health in 2008 following a distinguished 20-year career with the U.S. Department of Justice.

We’re grateful for the significant contributions that John and Craig made while serving on RPM’s board, and we wish them the best.

Following their departure, our board will be comprised of 12 members. With the appointments of Kirk Andrews and John Ballbach last year, we believe RPM’s board remains sufficiently staffed in the key skill sets and expertise that are necessary for strong corporate governance.




## 2019 Fiscal Results Benefit from 2020 MAP to Growth

For fiscal 2019, our consolidated sales increased 4.6% over the prior year to $5.56 billion. In achieving this, our operating companies did what they do best – they grew the top line despite challenging economic conditions in Europe, our second-largest market, and an exceptionally wet spring that slowed painting and construction activity in North America, our largest market.

Impacting the bottom line during the fiscal year were higher costs for raw materials, freight, labor and energy. Benefits of the 2020 MAP to Growth operating improvement plan began to be realized during the fourth quarter and provided earnings leverage to the bottom line. On an adjusted basis, which excludes restructuring and other charges, our EBIT (earnings before interest and taxes) increased slightly to $567.5 million from $563.4 million a year ago. Excluding restructuring and other charges, as well as investment gains and losses, adjusted net income increased 2.0% to $360.7 million and adjusted diluted EPS increased 3.4% to $2.71 versus $2.62 last fiscal year. Please refer to our Management’s Discussion and Analysis on pages 14-24 for more information on our financial results, including details by segment.

## Acquisitions Support Growth Objectives

During fiscal 2019 and early in fiscal 2020, we acquired businesses and product lines with combined net annualized sales of approximately $135 million. These acquisitions include the Mean Green product line; licensing for Roto-Rooter products; Strathmore and American Coatings product lines; Nudura Corporation; Siamons International Inc.; Schul International Co., LLC and Willseal LLC. These businesses are all strategic fits within our portfolio. More information about our acquisition program can be found on page 12. As part of RPM, we will accelerate their growth by leveraging our global sales, marketing and distribution networks, while also applying the principles of continuous improvement from our 2020 MAP to Growth initiative.

## Generating Value for Shareholders

Last October, our board of directors increased our cash dividend by 9.4% to $1.40 on an annualized basis. This marked the 45 \( ^{th} \)  consecutive year we have increased our dividend to shareholders, a record only 41 other companies can match, according to the 2019 edition of the Mergent Handbook of Dividend Achievers. Annually increasing our dividend is one primary way we reward our long-term shareholders. This practice is reflected in our total shareholder return, comprised of share price appreciation and reinvested dividends, which has outpaced the S&P 500 by 27% over the past 10 years.

## Reclassification of Shipping

Beginning in the first quarter of fiscal 2020, we will change our classification of shipping costs paid to third-party shippers, by reclassifying these costs from selling, general and administrative expenses (SG&A) into cost of goods sold. This change will not impact EBIT. It puts RPM in line with how our peers and most other manufacturers classify shipping costs and will provide investors with a better point of comparison. Had this change been in effect in fiscal 2019, on an as-reported basis, our cost of goods sold would have increased by $173.6 million to $3.48 billion, while SG&A expenses would have decreased by the same amount to $1.60 billion. The result would have been a reduction of our gross profit margins by 310 basis points to 37.5% and an improvement in SG&A as a percent of sales by 310 basis points to 28.7%, which is on par with our peers.

## Segment Realignment to Drive Growth & Efficiency

Starting with our 2020 fiscal year, instead of reporting in three segments (Industrial, Consumer and Specialty), we will be reporting in four segments (Construction Products, Performance Coatings, Consumer and Specialty Products). This is a change that we mentioned would be coming in our annual report last year. The leaders of these businesses now have much of their compensation tied to the consolidated results of RPM, rather than the individual results of their business units. Under this structure, our group presidents and CFOs are more connected to the board, our investors and the overall strategy of the business. This improved alignment is critical to our future growth and success and better enables us



to compete in the markets we serve. In addition, it provides our investors with greater transparency into the business and better comparability among our peers. We expect that this realignment will result in improved approaches to the market, increased sales and meaningful margin improvement. If these segments had been in place during fiscal 2019, their proforma sales would have been $1.9 billion in the Consumer Group, $0.7 million in the Specialty Products Group, $1.9 billion in the Construction Products Group and $1.1 billion in the Performance Coatings Group. You can learn more about our four segments on page 9.

## Fiscal 2020 Outlook Positive

For fiscal 2020, we anticipate Consumer Group sales to increase in the mid-single-digit range as a result of modest organic volume growth, the rollover impact of acquisitions and fiscal 2019 price increases, along with market share gains.

Specialty Products Group sales are expected to grow in the low-single-digit range due to projected geographic expansion and account penetration in our wood finishes businesses, which will be offset by flat growth in our edible coatings and restoration businesses.

Sales in the Construction Products Group are anticipated to grow in the mid-single-digit range, with higher growth expected in innovative technologies such as roof coatings, insulated concrete forms and differentiated service offerings. Offsetting this growth will be lost revenues as we rationalize lower-margin international businesses and product lines.

In the Performance Coatings Group, revenue is expected to increase in the low-single-digit range, driven by continued strength in corrosion control coatings, predominantly in North America, coupled with rollover impacts of price increases enacted in fiscal 2019. This is projected to be offset by general weakness in international markets and the impact of exiting certain product lines.

We will provide more detail on sales, EBIT and adjusted EBIT for our new segments as fiscal 2020 unfolds, quarter by quarter, starting with our fiscal 2020 first-quarter results, which will be reported on October 2, 2019.

For the 2020 fiscal year, we will continue to have significant restructuring activity related to our operating improvement plan. As we did in fiscal 2019, we will continue to adjust EBIT and EPS for restructuring and other related costs to provide a clear view of our operating performance.
On a consolidated basis, we project modest revenue growth in the range of 2.5% to 4% for fiscal 2020. While sales growth is anticipated to be relatively modest, largely due to global macroeconomic factors, we view this growth rate to be above market. It is expected that this sales growth will drive strong leverage to the bottom line as our operating improvement initiatives continue to take hold and we benefit from fiscal 2019 price increases. Further, we expect raw material cost inflation that has been persistent in recent years to begin to moderate. These factors are anticipated to result in adjusted EBIT growth in the 20% to 24% range and adjusted diluted EPS between $3.30 and $3.42 for fiscal 2020.

## Strong Foundation Established for Fiscal 2020

During fiscal 2019, we built the foundation for a very exciting future through our 2020 MAP to Growth plan. However, there’s much more work to be done. A year from now, we will have raised the framework on our operating improvement plan by having executed on most of its key structural elements. Looking ahead to fiscal 2021, we will be putting in place the finishing touches necessary to complete the 2020 MAP to Growth operating improvement program.

It’s an exciting time to be a part of RPM. Moving forward, we are committed to maintaining the entrepreneurial approach to the market that has been the hallmark of our growth and success. When combined with our vision to be a more connected and efficient company focused on operational excellence and continuous improvement, we are transforming RPM into a more competitive business with the ability to generate even greater returns for our shareholders.

I would like to express my gratitude to our associates worldwide for continuing to grow our business, while also taking on the challenges of implementing our operating improvement plan. It is your efforts, day in and day out, that drive our success. I would also like to thank our shareholders for their ongoing trust, support and investment in RPM.

Very truly yours,



Frank C. Sullivan
Chairman and Chief Executive Officer

August 27, 2019

## DELIVERING SHAREHOLDER RETURNS

## 10-YEAR CUMULATIVE TOTAL RETURN VS S&P 500

This bar chart compares the cumulative total return provided stockholders on RPM International Inc.'s common stock relative to the cumulative total return of the S&P 500 Index.

An investment of $1,000 (with reinvestment of all dividends) is assumed to have been made in RPM common stock and the index on 5/31/2009, and their relative performance is tracked through 5/31/2019.

$4,686

$3,689

S&P 500

OUTPERFORMING

27

percent by which RPM's 10-year total return has outperformed the S&P 500

RETURNING

2.1

percent approximate dividend yield

INCREASING

45

consecutive years of cash dividend increases



RPM conducts a strategic acquisition program that creates shareholder value by attracting successful entrepreneurial companies and product lines, while applying a disciplined approach to investing in their continued growth.

A major driving force behind its growth, RPM pioneers cutting-edge product innovations that are designed to penetrate new markets, drive incremental sales growth and solve problems for its customer base.

RPM promotes a culture of collaboration among its operating companies—a strategy that has resulted in increased market penetration, improved efficiencies in manufacturing and distribution, and shared technological resources.

RPM continues to expand its global footprint through strategic acquisitions, joint ventures and partnerships between its operating companies. These initiatives have led to increased sales and market share gains.

RPM drives continuous improvement and operational excellence across its business segments—a long-term strategy that positions the company for sustained growth and profitability.
CUSTOMERS: Innovative, problem-solving products backed by extraordinary customer service and technical support.

ENTREPRENEURS: Capital, distribution, connections and expertise to grow their businesses and honor their legacies.

ASSOCIATES: Exceptional benefits, opportunities for advancement, and a work culture that values innovation, collaboration and professional growth.

SHAREHOLDERS: Superior, long-term returns on their investments through stock appreciation and a consistently increasing dividend.

COMMUNITIES: Good corporate stewardship that makes a positive impact through sustainable products, practices and community involvement.

## The Value of 168

RPM believes that values create value. By taking care of its employees, they will be empowered to take great care of RPM’s customers—and that creates long-term shareholder value.



## M.A.P
TO
GROWTH

Through implementation of its 2020 MAP to Growth initiative, RPM is focused on scale in order to unlock more resources and drive greater efficiencies across the enterprise.

PURPOSE

To position RPM for sustained, profitable growth, thereby creating superior value for its customers, entrepreneurs, associates and shareholders.

VISION

To transform RPM into a more connected and efficient company focused on operational excellence and continuous improvement, while maintaining the strengths of its entrepreneurial growth culture.

## STRATEGIC PRIORITIES



INCREASE
OPERATIONAL
EFFICIENCY



ORGANIZE
TO EXECUTE



MAINTAIN
ENTREPRENEURIAL
GROWTH CULTURE

RPM is instituting manufacturing excellence and continuous improvement disciplines across the organization. It is also optimizing its procurement process and creating more efficient back-office operations.
RPM is realigning the business from six groups reporting in three segments into four segments led by experienced presidents who will report directly to the CEO. It is also forming centers of excellence in the areas of manufacturing, supply chain and administration.
RPM will preserve its entrepreneurial, growth-oriented culture by keeping customer-focused functions at the operating level, allowing the company to sustain organic, top-line growth.



## INCREASING OPERATIONAL EFFICIENCY

RPM’s efforts to increase operational efficiency and reduce costs as part of its 2020 MAP to Growth program are focused on three core areas of the business: manufacturing, procurement and administration. These initiatives are rolling out in three waves, which are planned to conclude on December 31, 2020. The first wave targeted $83 million in annualized cost savings and was completed at the end of this fiscal year on May 31, 2019. RPM exceeded that target by 23% and generated annualized savings of $102 million.



* $7 million originally targeted in manufacturing was reclassified to G&A



## Manufacturing Facilities and Processes Optimized

Approximately $25 million of the first-wave annualized savings are in manufacturing. RPM initiated the closing of 12 plants and intends to close approximately 19 more over the remainder of the 2020 MAP to Growth program. The company also launched MS 168, a manufacturing system that has fundamentally changed the way its plants are managed by identifying and executing on opportunities that drive greater manufacturing efficiencies, reduce operating costs and improve speed to market. Rolled out to 16 plants so far, this new system has already resulted in millions of dollars of cost savings across the enterprise. At the same time, RPM is instilling a continuous improvement mindset into its culture so the benefits of the 2020 MAP to Growth initiative are sustained well beyond its completion.

## Procurement Efforts Streamlined

In the area of procurement, RPM has pulled together a strong team of leaders, most of whom came from the company’s operations. Utilizing a center-led approach, the procurement team has made great strides in its plan to streamline supply chain activities in order to drive greater value. Wave 1 procurement savings were $36 million on an annualized basis, which is ahead of the original target of $20 million. Through consolidation of RPM’s global volume and internal procurement data, the company is highly focused on optimizing supplier relationships, driving more strategic sourcing decisions and improving category management on both a regional and global level.

## G&A Functions Consolidated

In general and administrative (G&A) business functions, RPM identified and executed on $41 million in annualized cost savings during Wave 1. This is a significant portion of the total G&A savings target over the course of the entire 2020 MAP to Growth program. Actions included the closure of more than 20 warehouses and non-plant locations and the reduction of hundreds of positions across the company. RPM is consolidating its data centers and migrating more than 70 ERP instances across the organization into four group-level IT platforms. As a result, this is enabling the company to reduce its infrastructure footprint, as well as standardize IT processes, systems and technical support for its business segments—ultimately leading to significant cost savings companywide.



## ORGANIZING TO EXECUTE

During fiscal 2019, RPM began the process of creating four shared service centers in the areas of manufacturing and operations; procurement and supply chain; information systems and technology; and finance, legal and benefits administration. The aim of this center-led approach is to create greater connectivity and economies of scale in the business that result in improved efficiency.

Additionally, for fiscal 2020, RPM has realigned its operating structure into four reportable segments that will be led by four proven operating presidents: Paul Hoogenboom for Construction Products, Dave Dennsteadt for Performance Coatings, Terry Horan for Consumer, and Ronnie Holman for Specialty Products. Each of these group leaders has decades of experience at RPM and within the industry. Reorganizing into these four groups will enable RPM to better manage its assets and improve synergies across the enterprise.



PICTURED LEFT TO RIGHT: Terry Horan, Paul Hoogenboom, Ronnie Holman, Dave Dennsteadt






RPM’s Construction Products Group is comprised of businesses that manufacture construction sealants and adhesives, coatings and chemicals, roofing systems, concrete admixture and repair products, building envelope solutions, insulated cladding, flooring systems and waterproofing solutions. They are used for industrial, commercial and infrastructure applications. Market-leading brands include Tremco, illbruck, Flowcrete, Nullifire, Euclid Chemical, Vandex and Dryvit. The group’s products are sold to distributors, contractors and end-users over a large geographic footprint that spans approximately 150 countries and territories. About 34% of RPM’s net sales are generated by the Construction Products Group.





CONSUMER
GROUP

RPM’s Consumer Group includes businesses that make leading paints, coatings and sealants that are used by professionals and do-it-yourselvers for home maintenance and improvement. Among its market-leading brands are Rust-Oleum, DAP, Zinsser and Varathane. Its products are marketed primarily in North America, with an increasing presence in Europe, Australia, South Africa and South America. Sold through home improvement centers, hardware and paint stores, mass merchants and craft shops, these brands can be found on nearly every garage or basement shelf throughout the U.S. and Canada. Approximately 34% of RPM’s net sales are generated by the Consumer Group.





RPM’s Performance Coatings Group provides maintenance and protection products, including high-performance flooring solutions, corrosion control and fireproofing coatings, fiberglass reinforced plastic grating and infrastructure repair systems for industrial and commercial use. Leading brands include Stonhard, Carboline, Fibergrate and USL. Its products are sold worldwide to contractors and distributors, as well as directly to end-users with a unique supply-and-apply model serving manufacturers, public institutions and other commercial customers. The Performance Coatings Group generates approximately 20% of RPM’s total sales.







SPECIALTY
PRODUCTS GROUP

RPM’s Specialty Products Group is comprised of businesses that produce industrial cleaners, restoration services equipment, colorants, edible coatings and other specialty OEM coatings. Market-leading brands include Day-Glo, Legend Brands, Mohawk, Kop-Coat and Pettit. Its products are marketed primarily in the United States, with a growing presence throughout Europe. They are sold to contractors and distributors, as well as directly to end-users such as manufacturers, public institutions and other commercial customers. The Specialty Products Group generates about 12% of RPM’s total sales.







## MAINTAINING OUR ENTREPRENEURIAL
GROWTH CULTURE

As RPM executes on its plan to maximize operational efficiency as part of the 2020 MAP to Growth initiative, it is focused on maintaining the key aspects of its entrepreneurial growth culture that drive its top line, keeping its customer-focused functions at the operating level, including sales, marketing, research and development, customer service and technical support. Doing so enables RPM to remain responsive to customer needs, flexible to shifting market conditions, innovative in product development, and focused on competing and winning in the markets it serves.

During fiscal 2019, RPM’s growth culture was evidenced by the launch of innovative new products and the acquisition of businesses and product lines that broaden its offerings and market share. From game-changing innovations to sustainable solutions, RPM’s brand-name products help customers solve their biggest challenges and, ultimately, build a better world.











## Strategic Acquisitions Penetrate New Markets

Acquisitions are a key element of RPM’s overall growth strategy. The company has focused on acquiring market-leading brands and product lines that grow the business and deliver shareholder value. In fiscal 2019 and early fiscal 2020, RPM acquired businesses and product lines with combined annualized net sales of $135 million.

Among its acquisitions was Nudura Inc., a leading manufacturer and distributor of insulated concrete forms (ICF). Nudura’s ICF wall systems consist of foam boards made from expanded polystyrene (EPS) and integral hinged plastic webs that hold both sides of the boards together. Concrete is then poured into the forms to make insulated concrete wall systems. A niche and emerging product in the building materials industry, ICFs provide labor savings, enhanced energy efficiency and superior insulation, as well as greater resistance to fire, hurricanes, earthquakes and flooding, compared to traditional construction methods. This transaction expands the product offerings of RPM’s Construction Products Group, allowing for enhanced cross-selling opportunities. At the same time, Nudura’s production footprint will be leveraged for efficiencies in manufacturing.

RPM also completed several transactions that further expanded Rust-Oleum’s portfolio of brands in the consumer cleaning products category. Among the additions was the Concribium Mold Control brand of non-toxic specialty cleaners, the Mean Green branded line of specialty cleaners and exclusive North American licensing for Roto-Rooter branded drain care solutions. These acquisitions enhance Rust-Oleum’s ability to offer a one-stop shopping solution to its retail partners, positioning it as a global leader in the specialty cleaning market.





Designed to Withstand Mother Nature’s Worst Nudura’s insulated concrete forms build walls designed to withstand winds of up to 250 mph. A Florida house constructed with Nudura remained virtually untouched after Hurricane Michael ripped through Mexico Beach, leaving the surrounding community in shambles.






FINANCIAL SECTION
Management's Discussion and Analysis 14
Consolidated Financial Statements 25
Notes to Consolidated Financial Statements 30
Quarterly Stock Price and Dividend Information 63
Management's Report on Internal Control 64
Auditor's Reports 65
Stockholder Information 67






# 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 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; inventories; allowances for recoverable taxes; uncertain tax positions; useful lives of property, plant and equipment; goodwill and other intangible assets; environmental, warranties and other contingent liabilities; income tax valuation allowances; pension plans; and the fair value of financial instruments. We base our estimates on historical experience, our most recent facts and other assumptions that we believe to be reasonable under the circumstances. These estimates form the basis for making judgments about the carrying values of our assets and liabilities. Actual results, which are shaped by actual market conditions, may differ materially from our estimates.

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

## Goodwill

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

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

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

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

• an adverse action or assessment by a regulator;

• unanticipated competition;

• a loss of key personnel; and

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

We assess these qualitative factors to determine whether it is necessary to perform the two-step quantitative goodwill impairment test. The traditional two-step quantitative process is required only if we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount. However, we have an unconditional option to bypass a qualitative assessment and proceed directly to performing the traditional two-step quantitative analysis.
In applying the first step of the quantitative test, we compare the fair value of a reporting unit to its carrying value. Calculating the fair value of a reporting unit requires our use of estimates and assumptions. We use significant judgment in determining the most appropriate method to establish the fair value of a reporting unit. We estimate the fair value of a reporting unit by employing various valuation techniques, depending on the availability and reliability of comparable market value indicators, and employ methods and assumptions that include the application of third-party market value indicators and the computation of discounted future cash flows for 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 an average 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.

We evaluate discounted future cash flows for a reporting unit's projected EBITDA. Under this approach, we calculate the fair value of a reporting unit based on the present value of estimated future cash flows. If the fair value of the reporting unit exceeds the carrying value of the net assets of the reporting unit, goodwill is not impaired. An indication that goodwill may be impaired results when the carrying value of the net assets of a reporting unit exceeds the fair value of the reporting unit. At that point, the second step of the impairment test is performed, which requires a fair value estimate of each tangible and intangible asset in order to determine the implied fair value of the reporting unit's goodwill. If the carrying value of a reporting unit's goodwill exceeds its implied fair value, then we record an impairment loss equal to the difference.

In applying the discounted cash flow methodology, we rely on a number of factors, including future business plans, actual and forecasted operating results, and market data. The significant assumptions employed under this method include discount rates; revenue growth rates, including assumed terminal growth rates; and operating margins used to project future cash flows for a reporting unit. The discount rates utilized reflect market-based estimates of capital costs and discount rates adjusted for management's assessment of a market participant's view with respect to other risks associated with the projected cash flows of the individual reporting unit. Our estimates are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable. We believe we incorporate ample sensitivity ranges into our analysis of goodwill impairment testing for a reporting unit, such that actual experience would need to be materially out of the range of expected assumptions in order for an impairment to remain undetected.

During the second quarter of fiscal 2017, we performed an interim impairment test for goodwill and, accordingly, we recorded a loss totaling $188.3 million for the impairment of goodwill and intangibles at our Kirker reporting unit. Refer to Note C, “Goodwill and Other Intangible Assets,” for further discussion.



In connection with our 2020 MAP to Growth initiatives, during the third fiscal quarter ended February 28, 2019, we changed the composition of certain of our reporting units that are included in our industrial reportable segment. Accordingly, we performed an interim impairment test for each reporting unit that changed in accordance with ASC 350, "Intangibles – Goodwill and Other." Our interim goodwill impairment assessments did not indicate the presence of any goodwill impairment for any of the reporting units tested. However, the interim impairment test for our Construction Products Group – Europe, which has approximately $125.0 million of goodwill, resulted in an excess of fair value over carrying value of approximately 9% using the income approach. Our annual goodwill impairment test, which considered both the income and market approach, resulted in a substantial excess of fair value over carrying value due to planned operational efficiencies and synergies for this newly formed reporting unit.

Our required annual goodwill impairment analysis for fiscal 2019 and 2018, performed as of March 1st each year, did not result in any indicators of impairment. Should the future earnings and cash flows at our reporting units decline and/or discount rates increase, future impairment charges to goodwill and other intangible assets may be required.

## Other Long-Lived Assets

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

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

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

• significant changes in the strategy for our overall business; 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. Our required annual impairment tests of each of our indefinite-lived intangible assets performed during fiscal 2019, 2018 and 2017 did not result in any additional impairment loss.

## Income Taxes

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

In determining the adequacy of valuation allowances, we consider cumulative and anticipated amounts of domestic and international earnings or losses of the appropriate character, anticipated amounts of foreign source income, as well as the anticipated taxable income resulting from the reversal of future taxable temporary differences. We intend to maintain any recorded valuation allowances until sufficient positive evidence (for example, cumulative positive foreign earnings or capital gain income) exists to support a reversal of the tax valuation allowances.

Further, at each interim reporting period, we estimate an effective income tax rate that is expected to be applicable for the full year. Significant judgment is involved regarding the application of global income tax laws and regulations and when projecting the jurisdictional mix of income. Additionally, interpretation of tax laws, court decisions or other guidance provided by taxing authorities influences our estimate of the effective income tax rates. As a result, our actual effective income tax rates and related income tax liabilities may differ materially from our estimated effective tax rates and related income tax liabilities. Any resulting differences are recorded in the period they become known.

## Contingencies

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

Our environmental-related accruals are similarly established and/or adjusted as more information becomes available upon which costs can be reasonably estimated. Actual costs may vary from these estimates because of the inherent uncertainties involved, including the identification of new sites and the development of new information about contamination. Certain sites are still being investigated; therefore, we have been unable to fully evaluate the ultimate costs for those sites. As a result, accruals have not been estimated for certain of these sites and costs may ultimately exceed existing estimated accruals for other sites. We have received indemnities for



potential environmental issues from purchasers of certain of our properties and businesses and from sellers of some of the properties or businesses we have acquired. If the indemnifying party fails to, or becomes unable to, fulfill its obligations under those agreements, we may incur environmental costs in addition to any amounts accrued, which may have a material adverse effect on our financial condition, results of operations or cash flows.

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

Additionally, our operations are subject to various federal, state, local and foreign tax laws and regulations that govern, among other things, taxes on worldwide income. The calculation of our income tax expense is based on the best information available, including the application of currently enacted income tax laws and regulations, and involves our significant judgment. The actual income tax liability for each jurisdiction in any year can ultimately be determined, in some instances, several years after the financial statements have been published.
We also maintain accruals for estimated income tax exposures for many different jurisdictions. Tax exposures are settled primarily through the resolution of audits within each tax jurisdiction or the closing of a statute of limitation. Tax exposures and actual income tax liabilities can also be affected by changes in applicable tax laws, retroactive tax law changes or other factors, which may cause us to believe revisions of past estimates are appropriate. Although we believe that appropriate liabilities have been recorded for our income tax expense and income tax exposures, actual results may differ materially from our estimates.

## Pension and Postretirement Plans

We sponsor qualified defined benefit pension plans and various other nonqualified postretirement plans. The qualified defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding, (ii) cause volatility in the net periodic pension cost, and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plans could have an adverse impact on our cash flow.

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, 2019 information, the following tables reflect the impact of a 1% change in the key assumptions applied to our defined benefit pension plans in the U.S. and internationally:

<table><tr><td rowspan="2"></td><td colspan="3">U.S.</td><td colspan="3">International</td></tr><tr><td>1% Increase</td><td>1% Decrease</td><td>1% Increase</td><td>1% Increase</td><td>1% Decrease</td><td></td></tr><tr><td>(Dollars in millions)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Discount Rate</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Increase (decrease) in expense in FY 2019</td><td>$ (4.6)</td><td>$ 5.6</td><td>$ (1.2)</td><td>$ 1.6</td><td></td><td></td></tr><tr><td>Increase (decrease) in obligation as of May 31, 2019</td><td>$ (54.9)</td><td>$ 65.4</td><td>$ (29.8)</td><td>$ 38.5</td><td></td><td></td></tr><tr><td>Expected Return on Plan Assets</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Increase (decrease) in expense in FY 2019</td><td>$ (4.6)</td><td>$ 4.6</td><td>$ (1.8)</td><td>$ 1.8</td><td></td><td></td></tr><tr><td>Increase (decrease) in obligation as of May 31, 2019</td><td>N/A</td><td>N/A</td><td>N/A</td><td>N/A</td><td></td><td></td></tr><tr><td>Compensation Increase</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Increase (decrease) in expense in FY 2019</td><td>$ 5.7</td><td>$ (5.0)</td><td>$ 1.0</td><td>$ (0.8)</td><td></td><td></td></tr><tr><td>Increase (decrease) in obligation as of May 31, 2019</td><td>$ 28.6</td><td>$ (25.5)</td><td>$ 6.4</td><td>$ (5.6)</td><td></td><td></td></tr></table>

Based upon May 31, 2019 information, the following table reflects the impact of a 1% change in the key assumptions applied to our various postretirement health care plans:

<table><tr><td rowspan="2"></td><td colspan="3">U.S.</td><td colspan="3">International</td></tr><tr><td>1% Increase</td><td>1% Decrease</td><td>1% Increase</td><td>1% Increase</td><td>1% Decrease</td><td></td></tr><tr><td>(Dollars in millions)</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Discount Rate</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Increase (decrease) in expense in FY 2019</td><td>$ -</td><td>$ -</td><td>$ (0.6)</td><td>$ 0.8</td><td></td><td></td></tr><tr><td>Increase (decrease) in obligation as of May 31, 2019</td><td>$ (0.3)</td><td>$ 0.4</td><td>$ (6.2)</td><td>$ 8.3</td><td></td><td></td></tr><tr><td>Healthcare Cost Trend Rate</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Increase (decrease) in expense in FY 2019</td><td>$ -</td><td>$ -</td><td>$ 0.7</td><td>$ (0.5)</td><td></td><td></td></tr><tr><td>Increase (decrease) in obligation as of May 31, 2019</td><td>$ 0.1</td><td>$ (0.1)</td><td>$ 8.3</td><td>$ (6.4)</td><td></td><td></td></tr></table>



## BUSINESS SEGMENT INFORMATION

During the first quarter of fiscal 2019, we made the determination to streamline certain businesses and management structures within our industrial reportable segment. As a result, our former tremco illbruck Group, Tremco Group and several components from our Performance Coatings Group, including our Euclid and Flowcrete businesses, were combined to form a new Construction Products Group. There were no changes in the composition of any of our reportable segments and, therefore, previously reported business segment information remains unchanged.

We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by organizing our businesses and product lines into three reportable segments: the industrial reportable segment, the consumer reportable segment and the specialty reportable segment. Within each reportable segment, we aggregate operating segments or product lines that consist of individual companies or groups of companies and product lines, which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities. Our six 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 six 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") as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations.

Our industrial reportable segment products are sold throughout North America and also account for the majority of our international sales. Our industrial product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The industrial reportable segment comprises two separate operating segments: Construction Products Group and Performance Coatings Group. Products and services within this reportable segment include construction chemicals, roofing systems, weatherproofing and other sealants, and polymer flooring.

Our consumer reportable segment manufactures and markets professional use and do-it-yourself ("DIY") products for a variety of mainly consumer applications, including home improvement and personal leisure activities. Our consumer segment's major manufacturing and distribution operations are located primarily in North America, along with a few locations in Europe and other parts of the world. Our consumer reportable segment products are primarily sold directly to mass merchandisers, home improvement centers, hardware stores, paint stores, craft shops, cosmetic companies and through distributors. This reportable segment comprises three operating segments: Rust-Oleum Group, DAP Group and SPG-Consumer Group. Products within this reportable segment include specialty, hobby and professional paints; nail enamels; caulks; adhesives; silicone sealants; cleaners; floor sealers and wood stains.

Our specialty reportable segment products are sold throughout North America and a few international locations, primarily in Europe. Our specialty product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The specialty reportable segment is a single operating segment, which offers products that include industrial cleaners, restoration services equipment, colorants, exterior finishes, edible coatings and specialty glazes for pharmaceutical and food industries, and other specialty OEM coatings.

In addition to our three 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, interest expense and earnings before interest and taxes.

We reflect income from our joint ventures on the equity method and receive royalties from our licensees.

Effective June 1, 2019, we realigned certain businesses and management structure to recognize how we allocate resources and analyze the operating performance of our operating segments. This realignment did not change our reportable segments at May 31, 2019. Rather, our periodic filings, beginning with our first quarter ending August 31, 2019, will include historical segment results reclassified to reflect the effect of this realignment. See Note A(20) of Notes to Consolidated Financial Statements.

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.



<table><tr><td>(In thousands) Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Net Sales</td><td></td><td></td><td></td></tr><tr><td>Industrial</td><td>$ 2,889,822</td><td>$ 2,814,755</td><td>$ 2,564,202</td></tr><tr><td>Consumer</td><td>1,887,767</td><td>1,754,339</td><td>1,680,384</td></tr><tr><td>Specialty</td><td>786,962</td><td>752,549</td><td>713,589</td></tr><tr><td>Total</td><td>$ 5,564,551</td><td>$ 5,321,643</td><td>$ 4,958,175</td></tr><tr><td>Income Before Income Taxes (a)</td><td></td><td></td><td></td></tr><tr><td>Industrial Segment</td><td></td><td></td><td></td></tr><tr><td>Income Before Income Taxes (a)</td><td>$ 243,234</td><td>$ 270,792</td><td>$ 243,335</td></tr><tr><td>Interest (Expense), Net (b)</td><td>(8,815)</td><td>(10,507)</td><td>(7,985)</td></tr><tr><td>EBIT (c)</td><td>$ 252,049</td><td>$ 281,299</td><td>$ 251,320</td></tr><tr><td>Consumer Segment</td><td></td><td></td><td></td></tr><tr><td>Income Before Income Taxes (a)</td><td>$ 215,002</td><td>$ 171,874</td><td>$ 58,726</td></tr><tr><td>Interest (Expense), Net (b)</td><td>(481)</td><td>(713)</td><td>(323)</td></tr><tr><td>EBIT (c)</td><td>$ 215,483</td><td>$ 172,587</td><td>$ 59,049</td></tr><tr><td>Specialty Segment</td><td></td><td></td><td></td></tr><tr><td>Income Before Income Taxes (a)</td><td>$ 101,441</td><td>$ 123,307</td><td>$ 107,904</td></tr><tr><td>Interest Income, Net (b)</td><td>368</td><td>876</td><td>526</td></tr><tr><td>EBIT (c)</td><td>$ 101,073</td><td>$ 122,431</td><td>$ 107,378</td></tr><tr><td>Corporate/Other</td><td></td><td></td><td></td></tr><tr><td>(Expense) Before Income Taxes (a)</td><td>$ (219,832)</td><td>$ (148,925)</td><td>$ (165,632)</td></tr><tr><td>Interest (Expense), Net (b)</td><td>(92,734)</td><td>(73,761)</td><td>(75,188)</td></tr><tr><td>EBIT (c)</td><td>$ (127,098)</td><td>$ (75,164)</td><td>$ (90,444)</td></tr><tr><td>Consolidated</td><td></td><td></td><td></td></tr><tr><td>Net Income</td><td>$ 267,687</td><td>$ 339,257</td><td>$ 184,671</td></tr><tr><td>Add: (Provision) for Income Taxes</td><td>(72,158)</td><td>(77,791)</td><td>(59,662)</td></tr><tr><td>Income Before Income Taxes (a)</td><td>339,845</td><td>417,048</td><td>244,333</td></tr><tr><td>Interest (Expense)</td><td>(102,392)</td><td>(104,547)</td><td>(96,954)</td></tr><tr><td>Investment Income, Net</td><td>730</td><td>20,442</td><td>13,984</td></tr><tr><td>EBIT (c)</td><td>$ 441,507</td><td>$ 501,153</td><td>$ 327,303</td></tr></table>

(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) Interest (expense), net includes the combination of interest (expense) and investment (expense) income, 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, or adjusted EBIT, as a performance evaluation measure because interest expense is essentially related to acquisitions, 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.

## RESULTS OF OPERATIONS

## Fiscal 2019 Compared with Fiscal 2018

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

Industrial segment net sales for fiscal 2019 grew by 2.7% to $2.89 billion, from net sales of $2.81 billion during fiscal 2018. The improvement was primarily due to organic growth of 4.1% during fiscal 2019 resulting from improved performance by our industrial coatings businesses and our North American concrete admixture businesses. Recent acquisitions contributed 1.4% to net sales during fiscal 2019. Unfavorable foreign exchange impacted the industrial segment net sales by 2.8% during fiscal 2019.
Consumer segment net sales for fiscal 2019 grew by 7.6% to $1.89 billion, from $1.75 billion in fiscal 2018. Organic growth provided 7.0% of the growth in sales, which was driven primarily by new accounts, market share gains and price increases, while recent acquisitions provided 2.1% during the current period. Unfavorable foreign currency impacted net sales in the consumer segment by 1.5% during fiscal 2019 versus fiscal 2018.

Specialty segment net sales for fiscal 2019 grew by 4.6% to $787.0 million, from $752.5 million. Recent acquisitions provided 4.2% of the growth in net sales, while organic growth provided 1.2% during fiscal 2019. This growth in sales occurred despite the decrease in sales by our businesses serving the water damage restoration and equipment markets that responded to more damaging hurricane activity during fiscal 2018 than this year. Organic growth in net sales was driven by our businesses providing marine coatings and decorative and protective wood coatings. Foreign currency had an unfavorable impact on specialty segment net sales during fiscal 2019 by 0.8%.



Gross Profit Margin Our consolidated gross profit margin of 40.6% of net sales for fiscal 2019 compares to a consolidated gross profit margin of 41.0% for the comparable period a year ago. This was a gross profit decline of approximately 0.4% of net sales, or 40 basis points (“bps”). This decline was a result of an unfavorable mix of products sold. Throughout the first nine months of fiscal 2019, raw material prices continued to rise over prior-year levels, which we worked to offset with higher selling prices. We anticipate raw material prices will continue to fluctuate due to higher petrochemical costs, rising global demand and recent changes in the international trade duties and policies, which could materially impact the cost of our raw materials. Specifically, recently imposed tariffs, including tariffs on steel imports into the U.S., will likely have an unfavorable impact on the cost of our cans and packaging, and proposed additional tariffs could result in additional cost increases.

Selling, General and Administrative (“SG&A”) Expenses Our consolidated SG&A expense increased by approximately $110.7 million during fiscal 2019 versus fiscal 2018, and increased to 31.9% of net sales for fiscal 2019 from 31.3% of net sales for fiscal 2018. As we continued to make progress on our 2020 MAP to Growth plan throughout fiscal 2019, in connection with the plan, we incurred $4.6 million for ERP implementation and consolidation expenses, increases in allowance for doubtful accounts, and professional fees totaling approximately $24.3 million. Also, during fiscal 2019, we incurred higher costs of approximately $5.1 million related to unfavorable legal settlements, when compared with fiscal 2018. Additional SG&A expense incurred from companies acquired during the previous 12 months approximated $28.1 million during fiscal 2019. There was also higher distribution and commission expense on higher sales volume during fiscal 2019. Lastly, warranty expense for fiscal 2019 increased by approximately $3.0 million from the amount recorded during fiscal 2018, and it is typical that warranty expense will fluctuate from period to period.

Our industrial segment SG&A was approximately $22.3 million higher for fiscal 2019 versus fiscal 2018, but was slightly lower as a percentage of net sales. The increased expense was mainly due to increased allowance for doubtful accounts associated with accounts deemed uncollectible as a result of changes in our market and leadership strategy, which approximated $6.4 million. Additionally, there was also higher distribution expense related to the current-year increase in sales volume. Further contributing to these increases was approximately $7.1 million of additional SG&A expense generated from companies acquired during the past 12 months.

Our consumer segment SG&A increased by approximately $34.7 million during fiscal 2019 versus fiscal 2018, and was flat as a percentage of net sales. This was primarily attributable to an increase of approximately $7.4 million in unfavorable legal settlements incurred during fiscal 2019, when compared to fiscal 2018. Additional SG&A expense from recent acquisitions approximated $12.3 million during fiscal 2019. Lastly, there was higher distribution expense due to freight and labor inflation on higher sales volume.

Our specialty segment SG&A was approximately $14.1 million higher during fiscal 2019 versus fiscal 2018, and increased as a percentage of net sales. The increase in SG&A expense is mainly attributable to the $8.8 million of additional SG&A expense generated from recent acquisitions. There was also the added expense associated with the ERP consolidation plan associated with our 2020 MAP to Growth, increased distribution costs and increased expenses related to new product initiatives.

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

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

We expect that pension and postretirement expense will fluctuate on a year-to-year basis, depending primarily upon the investment performance of plan assets and potential changes in interest rates, which may have a material impact on our consolidated financial results in the future. A decrease of 1% in the discount rate or the expected return on plan assets assumptions would result in $8.0 million and $6.4 million higher expense, respectively. The assumptions and estimates used to determine the discount rate and expected return on plan assets are more fully described in Note N, “Pension Plans,” and Note O, “Postretirement Benefits,” to our Consolidated Financial Statements. Further discussion and analysis of the sensitivity surrounding our most critical assumptions under our pension and postretirement plans is discussed on page 16 of this report under, “Critical Accounting Policies and Estimates — Pension and Postretirement Plans.”

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

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



“Restructuring,” to the consolidated financial statements, for further detail surrounding our 2020 MAP to Growth restructuring plan.

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

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

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

Income Before Income Taxes (“IBT”) Our consolidated pretax income for fiscal 2019 of $339.8 million compares with pretax income of $417.0 million for fiscal 2018.

Our industrial segment recorded pretax income of $243.2 million, or 8.4% of net sales, for fiscal 2019, versus pretax income of $270.8 million, or 9.6% of net sales, for fiscal 2018. Our industrial segment results were impacted by higher raw material costs, restructuring and other restructuring-related activities and an unfavorable translation impact on foreign earnings. Our consumer segment pretax income approximated $215.0 million, or 11.4% of net sales, for fiscal 2019, compared to a pretax income for fiscal 2018 of $171.9 million, or 9.8% of net sales. The current period results include market share gains, as demonstrated by the increase in sales volume, and lower restructuring-related charges, which were more than offset by rising raw material costs, unfavorable legal settlements and higher distribution costs, while the prior year included $36.5 million of charges related to product line and SKU rationalization and related obsolete inventory identification. Our specialty segment had pretax income of $101.4 million, or 12.9% of net sales, for fiscal 2019, versus pretax income of $123.3 million, or 16.4% of net sales, for fiscal 2018, reflecting rising raw material costs, higher distribution costs, restructuring and other restructuring-related charges including the costs associated with the ERP consolidation plan.
Income Tax Rate On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the "Act"). The income tax effects of changes in tax laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and modifications with varying effective dates. Provisions of the Act that impact fiscal 2018 include reducing the corporate income tax rate from 35% to 21%, creating a territorial tax system (with a one-time mandatory transition tax on unremitted earnings of foreign subsidiaries), and a provision allowing for immediate capital expensing of certain qualified property. The corporate tax rate reduction was effective for RPM as of January 1, 2018 and, accordingly, reduced our fiscal year 2018 federal statutory rate to a blended rate of approximately 29.2%. The significant provisions of the Act that impact us for fiscal 2019 include the full federal statutory rate reduction to 21% and the repeal of the domestic production activities deduction. Also effective for fiscal 2019 are provisions of the Act that subject us to current U.S. tax on global intangible low-taxed income ("GILTI") earned by certain foreign subsidiaries and allows a benefit for foreign-derived intangible income ("FDII").

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

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

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

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



by the provisional expense recorded for the transition tax on unremitted foreign earnings and the impact of state and local income taxes.

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

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

## Fiscal 2018 Compared with Fiscal 2017

For our results of operations for fiscal 2018 compared with fiscal 2017, see the discussion beginning on page 27 of Exhibit 13.1 to our Annual Report on Form 10-K for the year ended May 31, 2018, as filed with the SEC on July 23, 2018.

## LIQUIDITY AND CAPITAL RESOURCES

## Operating Activities

## Fiscal 2019 Compared with Fiscal 2018

For the 2019 fiscal year, cash from operations was $292.9 million compared to $390.4 million in fiscal 2018. The current-year reduction in cash from operations resulted from certain of our 2020 MAP to Growth initiatives, including the enhancement of margin in our consumer segment by discontinuing the practice of discounting early cash payments. This had the effect of delaying approximately $100 million in receipts from the 2019 fiscal fourth quarter to the first fiscal quarter of 2020. Additionally, as we have centralized our procurement function and enter into new supply contracts, in some cases payment terms have been shortened to achieve more favorable terms. These outcomes were expected and are in line with our longer-term approach to improving margins and effectively managing working capital.

The change in accounts receivable during fiscal 2019 used approximately $25.0 million more cash than fiscal 2018. Days sales outstanding ("DSO") at May 31, 2019 increased to 65.7 days from 60.8 days at May 31, 2018, due to a reduction in activity for customers taking early payment discounts.

During fiscal 2019, we spent approximately $17.3 million less cash for inventory compared to our spending during fiscal 2018. This resulted from the combination of timing of purchases by retail customers and a systematic reduction of inventory levels at certain businesses in our consumer segment in connection with product rationalization initiatives. Days inventory outstanding ("DIO") at May 31, 2019 increased to 82.6 days from 79.9 days at May 31, 2018. This increase in DIO was a result of increasing inventory levels in order to accommodate and maintain anticipated customer service levels, in advance of plant closings associated with our 2020 MAP to Growth initiatives.

## Fiscal 2018 Compared with Fiscal 2017

For our operating activities for fiscal 2018 compared with fiscal 2017, see the discussion beginning on page 31 of Exhibit 13.1 to our Annual Report on Form 10-K for the year ended May 31, 2018, as filed with the SEC on July 23, 2018.

## Investing Activities

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. During fiscal 2019, we paid $168.2 million for acquisitions, net of cash acquired, versus $112.4 million during fiscal 2018 and $254.2 million during fiscal 2017. Capital expenditures of $136.8 million during fiscal 2019 compared with depreciation of $94.0 million. During fiscal 2018, capital expenditures of $114.6 million compared with depreciation of $82.0 million. During fiscal 2017, capital expenditures of $126.1 million compared with depreciation of $71.9 million. We increased our capital spending in fiscal 2019 in an effort to more aggressively invest in our internal growth initiatives, especially in overseas markets, and consolidate ERP systems and production resulting from plant closings. We anticipate that additional shifts at our production facilities, coupled with the capacity added through acquisition activity and our planned increase in future capital spending levels, will enable us to meet increased demand throughout fiscal 2020 and beyond.

Our captive insurance companies invest their excess cash in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in the amounts related to these activities on a year-over-year basis are primarily attributable to differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At May 31, 2019 and 2018, the fair value of our investments in marketable securities totaled $112.5 million and $168.1 million, respectively. During fiscal 2019, we liquidated $60.0 million of our captives' investment portfolio, as a result of good claims experience and favorable investment performance. We used the $60.0 million in proceeds from the sale of investments to pay down a portion of our outstanding balance on our Revolving Credit Agreement. The fair value of our portfolio of marketable securities is based on quoted market prices for identical, or similar, instruments in active or non-active markets or model-derived-valuations with observable inputs. We have no marketable securities whose fair value is subject to unobservable inputs.

As of May 31, 2019, approximately $205.8 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with approximately $214.1 million as of May 31, 2018. Undistributed earnings held at our foreign subsidiaries that are considered permanently reinvested will be used, for instance, to expand operations organically or for acquisitions in foreign jurisdictions. Further, our operations in the U.S. generate sufficient cash flow to satisfy U.S. operating requirements. Refer to Note H, "Income Taxes," to the Consolidated Financial Statements for additional information regarding unremitted foreign earnings.

## Financing Activities

Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $1.28 billion at May 31, 2019, compared with $1.01 billion at May 31, 2018. Our debt-to-capital ratio was 64.2% at May 31, 2019, compared with 57.1% at May 31, 2018.

## 4.550% Notes due 2029

On February 27, 2019, we closed an offering for $350.0 million aggregate principal amount of 4.550% Notes due 2029 (the "2029 Notes"). The proceeds from the 2029 Notes were used to repay a portion of the outstanding borrowings under our revolving credit facility and for general corporate purposes. Interest on the 2029 Notes accrues from February 27, 2019.



and is payable semiannually in arrears on March 1st and September 1st of each year, beginning September 1, 2019, at a rate of 4.550% per year. The 2029 Notes mature on March 1, 2029. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.

## 4.250% Notes due 2048

On December 20, 2017, we closed an offering for $300.0 million aggregate principal amount of 4.250% Notes due 2048 (the "2048 Notes"). The proceeds from the 2048 Notes were used to repay $250.0 million in principal amount of unsecured 6.50% senior notes due February 15, 2018, and for general corporate purposes. Interest on the 2048 Notes accrues from December 20, 2017 and is payable semiannually in arrears on January 15th and July 15th of each year, beginning July 15, 2018, at a rate of 4.250% per year. The 2048 Notes mature on January 15, 2048. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.

## 5.250% Notes due 2045 and 3.750% Notes due 2027

On March 2, 2017, we issued $50.0 million aggregate principal amount of 5.250% Notes due 2045 (the "2045 Notes") and $400.0 million aggregate principal amount of 3.750% Notes due 2027 (the "2027 Notes"). The 2045 Notes are a further issuance of the $250 million aggregate principal amount of 5.250% Notes due 2045 initially issued by us on May 29, 2015. Interest on the 2045 Notes is payable semiannually in arrears on June 1st and December 1st of each year at a rate of 5.250% per year. The 2045 Notes mature on June 1, 2045. Interest on the 2027 Notes is payable semiannually in arrears on March 15th and September 15th of each year, at a rate of 3.750% per year. The 2027 Notes mature on March 15, 2027. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.

## Revolving Credit Agreement

During the quarter ended November 30, 2018, we replaced our previous $800.0 million revolving credit agreement, which was set to expire on December 5, 2019, with a $1.3 billion unsecured 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. Accordingly, during October 2019, it is likely we will utilize available funds from our Revolving Credit Facility to repay our unsecured 6.125% senior notes, which mature on October 15, 2019. At May 31, 2019, the outstanding balance on our 6.125% senior notes approximated $450.5 million, which is included in the current portion of long-term debt on our consolidated balance sheets.
The Revolving Credit Facility requires us to comply with various customary affirmative and negative covenants, including a leverage covenant and interest coverage ratio, which are calculated in accordance with the terms as defined by the credit agreement. Under the terms of the leverage covenant, we may not permit our leverage ratio for total indebtedness to be consolidated EBITDA for the four most recent fiscal quarters to exceed 3.75 to 1.0. During certain periods and per the terms of the Revolving Credit Facility, this ratio may be increased to 4.25 to 1.0 in the event of an acquisition for which the aggregate consideration is $100.0 million or greater. The minimum required consolidated interest coverage ratio for EBITDA to interest expense is 3.50 to 1. The interest coverage ratio is calculated at the end of each fiscal quarter for the four fiscal quarters then ended. For purposes of these computations, EBITDA is defined in the Revolving Credit Facility.

As of May 31, 2019, we were in compliance with all financial covenants contained in our Revolving Credit Facility, including the leverage and interest coverage ratio covenants. At that date, our leverage ratio was 3.15 to 1, while our interest coverage ratio was 7.46 to 1. Our available liquidity under our Revolving Credit Facility stood at $959.1 million at May 31, 2019.

Our access to funds under our Revolving Credit Facility is dependent on the ability of the financial institutions that are parties to the Revolving Credit Facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of the financial institutions under our Revolving Credit Facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.

## Accounts Receivable Securitization Program

On May 9, 2014, we entered into a $200.0 million accounts receivable securitization facility (the "AR Program"). The AR Program, which expires on May 8, 2020, was entered into pursuant to (1) a second amended and restated receivables sales agreement, dated as of May 9, 2014, and subsequently amended on August 29, 2014; November 3, 2015; December 31, 2016; and March 31, 2017 (the "Sale Agreement"), among certain of our subsidiaries (the "Originators"), and RPM Funding Corporation, a special purpose entity (the "SPE") whose voting interests are wholly owned by us, and (2) an amended and restated receivables purchase agreement, dated as of May 9, 2014 and subsequently amended on February 25, 2015 and May 2, 2017 (the "Purchase Agreement"), among the SPE, certain purchasers from time to time party thereto (the "Purchasers"), and PNC Bank, National Association as administrative agent.

Under the Sale Agreement, the Originators may, during the term thereof, sell specified accounts receivable to the SPE, which may in turn, pursuant to the Purchase Agreement, transfer an undivided interest in such accounts receivable to the Purchasers. Once transferred to the SPE, such receivables are owned in their entirety by the SPE and are not available to satisfy claims of our creditors or creditors of the originating subsidiaries until the obligations owing to the participating banks have been paid in full. We indirectly hold a 100% economic interest in the SPE and will, along with our subsidiaries, receive the economic benefit of the AR Program. The transactions contemplated by the AR Program do not constitute a form of off-balance sheet financing, and will be fully reflected in our financial statements.



The maximum availability under the AR Program is $200.0 million. Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $200.0 million of funding available under the AR Program. As of May 31, 2019, the outstanding balance under the AR Program was $100.0 million, which compares with the maximum availability on that date of $200.0 million.

The interest rate under the Purchase Agreement is based on the Alternate Base Rate, LIBOR Market Index Rate, one-month LIBOR or LIBOR for a specified tranche period, as selected by us, plus in each case a margin of 0.80%. In addition, as set forth in an Amended and Restated Fee Letter, dated May 2, 2017 (the "Fee Letter"), the SPE is obligated to pay a monthly unused commitment fee to the Purchasers based on the daily amount of unused commitments under the Agreement, which ranges from 0.30% to 0.50% based on usage. The AR Program contains various customary affirmative and negative covenants, 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.

## 2.25% Convertible Senior Notes due 2020

On December 9, 2013, we issued $205 million of 2.25% Convertible Senior Notes due 2020 (the “Convertible Notes”). We paid interest on the Convertible Notes semi-annually on June 15th and December 15th of each year.

We completed the redemption of all $205.0 million aggregate principal amount of our outstanding Convertible Notes on November 27, 2018 (the “Redemption Date”). The redemption price for the Convertible Notes was equal to 100% of the principal amount of the Convertible Notes to be redeemed plus accrued and unpaid interest until, but excluding, the Redemption Date. As a result of the issuance of the notice of redemption, the Convertible Notes became convertible at any time prior to the close of business on November 26, 2018. The conversion rate was 19.221062 shares of RPM common stock per $1,000 original principal amount of the Convertible Notes, which is equivalent to a conversion price of approximately $52.12 per share (subject to adjustment in accordance with the terms of the Indenture). In accordance with the provisions of the indenture for the Convertible Notes, we elected to settle the Convertible Notes surrendered for conversion through a combination settlement of cash and shares of RPM common stock. In settlement of those conversions, we paid an aggregate of approximately $204.6 million in cash, including cash in lieu of fractional shares, and issued 598,601 shares of RPM common stock in the aggregate.

The following table summarizes our financial obligations and their expected maturities at May 31, 2019, and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.

Contractual Obligations

<table><tr><td rowspan="2">(In thousands)</td><td rowspan="2">Total Contractual Payment Stream</td><td colspan="4">Payments Due In</td></tr><tr><td>2020</td><td>2021-22</td><td>2023-24</td><td>After 2024</td></tr><tr><td>Long-term debt obligations</td><td>$ 2,525,908</td><td>$ 552,446</td><td>$ 87</td><td>$ 635,727</td><td>$1,337,648</td></tr><tr><td>Capital lease obligations</td><td>1,096</td><td>584</td><td>205</td><td>160</td><td>147</td></tr><tr><td>Operating lease obligations</td><td>328,258</td><td>58,579</td><td>89,865</td><td>60,354</td><td>119,460</td></tr><tr><td>Other long-term liabilities \( ^{(1)} \) :</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Interest payments on long-term debt obligations</td><td>1,116,381</td><td>83,556</td><td>139,550</td><td>124,025</td><td>769,250</td></tr><tr><td>Contributions to pension and postretirement plans \( ^{(2)} \)</td><td>377,200</td><td>8,400</td><td>34,500</td><td>136,600</td><td>197,700</td></tr><tr><td>Total</td><td>$ 4,348,843</td><td>$ 703,565</td><td>$ 264,207</td><td>$ 956,866</td><td>$2,424,205</td></tr></table>

(1) Excluded from other long-term liabilities are our gross long-term liabilities for unrecognized tax benefits, which totaled $11.5 million at May 31, 2019. Currently, we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities related to these liabilities.

(2) These amounts represent our estimated cash contributions to be made in the periods indicated for our pension and postretirement plans, assuming no actuarial gains or losses, assumption changes or plan changes occur in any period. The projection results assume the required minimum contribution will be contributed.

The U.S. dollar fluctuated throughout the year, and was stronger against other major currencies where we conduct operations at the fiscal year end versus the previous year end, causing an unfavorable change in the accumulated other comprehensive income (loss) (refer to Note K to the Consolidated Financial Statements) component of stockholders' equity of $70.5 million this year versus a favorable change of $8.4 million last year. The change in fiscal 2019 was in addition to unfavorable net changes of $54.2 million related to adjustments required for minimum pension and other postretirement liabilities, favorable changes of $4.5 million related to derivatives and unfavorable changes of $0.2 million related to unrealized gains on securities.

## Stock Repurchase Program

On January 9, 2008, we announced our authorization of a stock repurchase program under which we may repurchase shares of RPM International Inc. common stock at management's discretion. As announced on November 28, 2018, our goal is to return $1.0 billion in capital to stockholders by May 31, 2021 through share repurchases. On April 16, 2019, after taking into account share repurchases under our existing stock repurchase program to date, our Board of Directors authorized the repurchase of the remaining $600.0 million in value of RPM International Inc. common stock by May 31, 2021. As a result, we may repurchase shares from time to time in the open market or in private transactions at various times and in amounts and for prices that our management deems appropriate, subject to insider trading rules and other securities law restrictions. The timing of our purchases will depend upon prevailing market conditions, alternative uses of capital and other factors. We may limit or terminate the repurchase program at any time. During the fiscal year ended May 31, 2019, we repurchased 3,286,907 shares of our common stock at a cost of approximately $200.2 million, or an average cost of $60.92 per share, under this program. During the fiscal years ended May 31, 2018 and 2017, we did not repurchase any shares of our common stock under this program.



## Off-Balance Sheet Arrangements

We do not have any off-balance sheet financings, other than the minimum operating lease commitments included in the above Contractual Obligations table and further described in Note M, "Leases," to the Consolidated Financial Statements. 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.

## QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates and foreign currency exchange rates because we fund our operations through long- and short-term borrowings and denominate our business transactions in a variety of foreign currencies. We utilize a sensitivity analysis to measure the potential loss in earnings based on a hypothetical 1% increase in interest rates and a 10% change in foreign currency rates. A summary of our primary market risk exposures follows.

## Interest Rate Risk

Our primary interest rate risk exposure results from our floating rate debt, including various revolving and other lines of credit (refer to Note G, "Borrowings," to the Consolidated Financial Statements). At May 31, 2019, approximately 21.5% of our debt was subject to floating interest rates.

If interest rates were to increase 100 bps from May 31, 2019 and, assuming no changes in debt from the May 31, 2019 levels, the additional annual interest expense would amount to approximately $5.4 million on a pretax basis. A similar increase in interest rates in fiscal 2018 would have resulted in approximately $3.4 million in additional interest expense.

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

## Foreign Currency Risk

Our foreign sales and results of operations are subject to the impact of foreign currency fluctuations (refer to Note A, "Summary of Significant Accounting Policies," to the Consolidated Financial Statements). Because our Consolidated Financial Statements are presented in U.S. dollars, increases or decreases in the value of the U.S. dollar relative to other currencies in which we transact business could materially adversely affect our net revenues, net income and the carrying values of our assets located outside the U.S. Global economic uncertainty continues to exist. Strengthening of the U.S. dollar relative to other currencies may adversely affect our operating results. However, our foreign debt is denominated in the respective foreign currency, thereby eliminating any related translation impact on earnings.
If the U.S. dollar were to strengthen, our foreign results of operations would be unfavorably impacted, but the effect is not expected to be material. A 10% change in foreign currency exchange rates would not have resulted in a material impact to net income for the years ended May 31, 2019 and 2018. We do not currently use financial derivative instruments for trading purposes, nor do we engage in foreign currency, commodity or interest rate speculation.

## FORWARD-LOOKING STATEMENTS

The foregoing discussion includes forward-looking statements relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents, and other natural gas- and oil-based materials; packaging, including plastic and metal containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) the timing of and the realization of anticipated cost savings from restructuring initiatives and the ability to identify additional cost savings opportunities; (j) risks related to the adequacy of our contingent liability reserves; and (k) other risks detailed in our filings with the SEC, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2019, 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.



## Consolidated Financial Statements

<table><tr><td>May 31,</td><td>2019</td><td>2018</td></tr><tr><td>Assets</td><td></td><td></td></tr><tr><td>Current Assets</td><td></td><td></td></tr><tr><td>Cash and cash equivalents</td><td>$ 223,168</td><td>$ 244,422</td></tr><tr><td>Trade accounts receivable (less allowances of $54,748 and $46,344, respectively)</td><td>1,232,350</td><td>1,113,818</td></tr><tr><td>Inventories</td><td>841,873</td><td>834,461</td></tr><tr><td>Prepaid expenses and other current assets</td><td>220,701</td><td>278,230</td></tr><tr><td>Total current assets</td><td>2,518,092</td><td>2,470,931</td></tr><tr><td>Property, Plant and Equipment, at Cost</td><td>1,662,859</td><td>1,575,875</td></tr><tr><td>Allowance for depreciation</td><td>(843,648)</td><td>(795,569)</td></tr><tr><td>Property, plant and equipment, net</td><td>819,211</td><td>780,306</td></tr><tr><td>Other Assets</td><td></td><td></td></tr><tr><td>Goodwill</td><td>1,245,762</td><td>1,192,174</td></tr><tr><td>Other intangible assets, net of amortization</td><td>601,082</td><td>584,272</td></tr><tr><td>Deferred income taxes</td><td>34,908</td><td>21,897</td></tr><tr><td>Other</td><td>222,300</td><td>222,242</td></tr><tr><td>Total other assets</td><td>2,104,052</td><td>2,020,585</td></tr><tr><td>Total Assets</td><td>$ 5,441,355</td><td>$ 5,271,822</td></tr><tr><td>Liabilities and Stockholders&#x27; Equity</td><td></td><td></td></tr><tr><td>Current Liabilities</td><td></td><td></td></tr><tr><td>Accounts payable</td><td>$ 556,696</td><td>$ 592,281</td></tr><tr><td>Current portion of long-term debt</td><td>552,446</td><td>3,501</td></tr><tr><td>Accrued compensation and benefits</td><td>193,345</td><td>177,106</td></tr><tr><td>Accrued losses</td><td>19,899</td><td>22,132</td></tr><tr><td>Other accrued liabilities</td><td>217,019</td><td>211,706</td></tr><tr><td>Total current liabilities</td><td>1,539,405</td><td>1,006,726</td></tr><tr><td>Long-Term Liabilities</td><td></td><td></td></tr><tr><td>Long-term debt, less current maturities</td><td>1,973,462</td><td>2,170,643</td></tr><tr><td>Other long-term liabilities</td><td>405,040</td><td>356,892</td></tr><tr><td>Deferred income taxes</td><td>114,843</td><td>104,023</td></tr><tr><td>Total long-term liabilities</td><td>2,493,345</td><td>2,631,558</td></tr><tr><td>Commitments and contingencies (Note P)</td><td></td><td></td></tr><tr><td>Stockholders&#x27; Equity</td><td></td><td></td></tr><tr><td>Preferred stock, par value $0.01; authorized 50,000 shares; none issued</td><td></td><td></td></tr><tr><td>Common stock, par value $0.01; authorized 300,000 shares;</td><td></td><td></td></tr><tr><td>issued 142,439 and outstanding 130,995 as of May 2019;</td><td></td><td></td></tr><tr><td>issued 141,716 and outstanding 133,647 as of May 2018</td><td>1,310</td><td>1,336</td></tr><tr><td>Paid-in capital</td><td>994,508</td><td>982,067</td></tr><tr><td>Treasury stock, at cost</td><td>(437,290)</td><td>(236,318)</td></tr><tr><td>Accumulated other comprehensive (loss)</td><td>(577,628)</td><td>(459,048)</td></tr><tr><td>Retained earnings</td><td>1,425,052</td><td>1,342,736</td></tr><tr><td>Total RPM International Inc. stockholders&#x27; equity</td><td>1,405,952</td><td>1,630,773</td></tr><tr><td>Noncontrolling Interest</td><td>2,653</td><td>2,765</td></tr><tr><td>Total equity</td><td>1,408,605</td><td>1,633,538</td></tr><tr><td>Total Liabilities and Stockholders&#x27; Equity</td><td>$ 5,441,355</td><td>$ 5,271,822</td></tr></table>



<table><tr><td colspan="4">(In thousands, except per share amounts)</td></tr><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Net Sales</td><td>$ 5,564,551</td><td>$ 5,321,643</td><td>$ 4,958,175</td></tr><tr><td>Cost of Sales</td><td>3,302,644</td><td>3,140,431</td><td>2,792,487</td></tr><tr><td>Gross Profit</td><td>2,261,907</td><td>2,181,212</td><td>2,165,688</td></tr><tr><td>Selling, General and Administrative Expenses</td><td>1,769,630</td><td>1,663,143</td><td>1,643,520</td></tr><tr><td>Restructuring Expense</td><td>42,310</td><td>17,514</td><td>-</td></tr><tr><td>Goodwill and Other Intangible Asset Impairments</td><td>4,190</td><td>-</td><td>193,198</td></tr><tr><td>Interest Expense</td><td>102,392</td><td>104,547</td><td>96,954</td></tr><tr><td>Investment (Income), Net</td><td>(730)</td><td>(20,442)</td><td>(13,984)</td></tr><tr><td>Other Expense (Income), Net</td><td>4,270</td><td>(598)</td><td>1,667</td></tr><tr><td>Income Before Income Taxes</td><td>339,845</td><td>417,048</td><td>244,333</td></tr><tr><td>Provision for Income Taxes</td><td>72,158</td><td>77,791</td><td>59,662</td></tr><tr><td>Net Income</td><td>267,687</td><td>339,257</td><td>184,671</td></tr><tr><td>Less: Net Income Attributable to Noncontrolling Interests</td><td>1,129</td><td>1,487</td><td>2,848</td></tr><tr><td>Net Income Attributable to RPM International Inc. Stockholders</td><td>$ 266,558</td><td>$ 337,770</td><td>$ 181,823</td></tr><tr><td>Average Number of Shares of Common Stock Outstanding:</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>130,552</td><td>131,179</td><td>130,662</td></tr><tr><td>Diluted</td><td>134,333</td><td>137,171</td><td>135,165</td></tr><tr><td>Earnings per Share of Common Stock Attributable to RPM International Inc. Stockholders:</td><td></td><td></td><td></td></tr><tr><td>Basic</td><td>$ 2.03</td><td>$ 2.55</td><td>$ 1.37</td></tr><tr><td>Diluted</td><td>$ 2.01</td><td>$ 2.50</td><td>$ 1.36</td></tr></table>

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Net Income</td><td>$ 267,687</td><td>$ 339,257</td><td>$ 184,671</td></tr><tr><td>Other Comprehensive Income, Before Tax:</td><td></td><td></td><td></td></tr><tr><td>Foreign Currency Translation Adjustments</td><td>(73,594)</td><td>10,857</td><td>(20,402)</td></tr><tr><td>Pension and Other Postretirement Benefit Liabilities</td><td></td><td></td><td></td></tr><tr><td>Net (Loss) Gain Arising During the Period</td><td>(87,525)</td><td>(3,489)</td><td>38,679</td></tr><tr><td>Prior Service Cost Arising During the Period</td><td>22</td><td>61</td><td>196</td></tr><tr><td>Less: Amortization of Prior Service Cost Included in Net Periodic Pension Cost</td><td>(132)</td><td>(121)</td><td>(41)</td></tr><tr><td>Less: Amortization of Net Loss and Settlement Recognition Effect of Exchange Rates on Amounts Included for Pensions</td><td>14,848</td><td>16,738</td><td>25,444</td></tr><tr><td></td><td>2,002</td><td>(1,814)</td><td>1,986</td></tr><tr><td>Pension and Other Postretirement Benefit Liability Adjustments</td><td>(70,785)</td><td>11,375</td><td>66,264</td></tr><tr><td>Unrealized Gains on Available-For-Sale Securities</td><td></td><td></td><td></td></tr><tr><td>Unrealized Holding Gains (Losses) During the Period</td><td>458</td><td>(1,459)</td><td>8,250</td></tr><tr><td>Less: Reclassification Adjustments for Losses (Gains) Included in Net Income</td><td>1,626</td><td>(1,835)</td><td>(2,248)</td></tr><tr><td>Unrealized Gain (Loss) on Securities</td><td>2,084</td><td>(3,294)</td><td>6,002</td></tr><tr><td>Unrealized Gain (Loss) on Derivatives</td><td>4,713</td><td>(359)</td><td>16</td></tr><tr><td>Other Comprehensive (Loss) Income, Before Tax</td><td>(137,582)</td><td>18,579</td><td>51,880</td></tr><tr><td>Income Tax Expense (Benefit) Related to Components of Other Comprehensive Income</td><td>19,068</td><td>(3,773)</td><td>(23,863)</td></tr><tr><td>Other Comprehensive (Loss) Income, After Tax</td><td>(118,514)</td><td>14,806</td><td>28,017</td></tr><tr><td>Comprehensive Income</td><td>149,173</td><td>354,063</td><td>212,688</td></tr><tr><td>Less: Comprehensive Income Attributable to Noncontrolling Interests</td><td>1,195</td><td>1,354</td><td>2,804</td></tr><tr><td>Comprehensive Income Attributable to RPM International Inc. Stockholders</td><td>$ 147,978</td><td>$ 352,709</td><td>$ 209,884</td></tr></table>



CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Cash Flows From Operating Activities:</td><td></td><td></td><td></td></tr><tr><td>Net income</td><td>$ 267,687</td><td>$ 339,257</td><td>$ 184,671</td></tr><tr><td>Adjustments to reconcile net income to net cash provided by operating activities:</td><td></td><td></td><td></td></tr><tr><td>Depreciation</td><td>94,043</td><td>81,976</td><td>71,870</td></tr><tr><td>Amortization</td><td>47,699</td><td>46,523</td><td>44,903</td></tr><tr><td>Restructuring charges, net of payments</td><td>8,072</td><td>17,514</td><td></td></tr><tr><td>Goodwill, intangible and other asset impairments</td><td>4,190</td><td></td><td>193,198</td></tr><tr><td>Fair value adjustments to contingent earnout obligations</td><td>1,918</td><td>3,400</td><td>3,000</td></tr><tr><td>Other-than-temporary impairments on marketable securities</td><td></td><td></td><td>420</td></tr><tr><td>Deferred income taxes</td><td>5,434</td><td>(10,690)</td><td>24,049</td></tr><tr><td>Stock-based compensation expense</td><td>31,154</td><td>25,440</td><td>32,541</td></tr><tr><td>Other non-cash interest expense</td><td>1,552</td><td>6,187</td><td>9,986</td></tr><tr><td>Realized/unrealized losses (gains) on sales of marketable securities</td><td></td><td></td><td></td></tr><tr><td>Loss on extinguishment of debt</td><td>7,613</td><td>(10,076)</td><td>(8,174)</td></tr><tr><td>Other</td><td>3,051</td><td></td><td></td></tr><tr><td>Changes in assets and liabilities, net of effect from purchases and sales of businesses:</td><td></td><td></td><td></td></tr><tr><td>(Increase) in receivables</td><td>(131,204)</td><td>(106,179)</td><td>(5,690)</td></tr><tr><td>(Increase) in inventory</td><td>(16,829)</td><td>(34,102)</td><td>(70,726)</td></tr><tr><td>(Increase) decrease in prepaid expenses and other current and long-term assets</td><td>(14,826)</td><td>3,348</td><td>(38,130)</td></tr><tr><td>(Decrease) increase in accounts payable</td><td>(29,628)</td><td>51,641</td><td>16,247</td></tr><tr><td>Increase (decrease) in accrued compensation and benefits</td><td>19,241</td><td>(5,010)</td><td>(4,577)</td></tr><tr><td>(Decrease) in accrued loss reserves</td><td>(1,803)</td><td>(10,387)</td><td>(3,422)</td></tr><tr><td>(Decrease) in other accrued liabilities</td><td>(5,232)</td><td>(6,612)</td><td>(64,322)</td></tr><tr><td>Other</td><td>4,097</td><td>(706)</td><td>3</td></tr><tr><td>Cash Provided By Operating Activities</td><td>292,941</td><td>390,383</td><td>386,127</td></tr><tr><td>Cash Flows From Investing Activities:</td><td></td><td></td><td></td></tr><tr><td>Capital expenditures</td><td>(136,757)</td><td>(114,619)</td><td>(126,109)</td></tr><tr><td>Acquisition of businesses, net of cash acquired</td><td>(168,205)</td><td>(112,442)</td><td>(254,200)</td></tr><tr><td>Purchase of marketable securities</td><td>(19,787)</td><td>(181,953)</td><td>(38,062)</td></tr><tr><td>Proceeds from sales of marketable securities</td><td>69,743</td><td>138,803</td><td>76,588</td></tr><tr><td>Other</td><td>6,760</td><td>9,018</td><td>2,118</td></tr><tr><td>Cash (Used For) Investing Activities</td><td>(248,246)</td><td>(261,193)</td><td>(339,665)</td></tr><tr><td>Cash Flows From Financing Activities:</td><td></td><td></td><td></td></tr><tr><td>Additions to long-term and short-term debt</td><td>628,083</td><td>351,082</td><td>597,633</td></tr><tr><td>Reductions of long-term and short-term debt</td><td>(273,109)</td><td>(276,406)</td><td>(154,348)</td></tr><tr><td>Cash dividends</td><td>(181,409)</td><td>(167,476)</td><td>(156,752)</td></tr><tr><td>Repurchase of common stock</td><td>(200,222)</td><td></td><td></td></tr><tr><td>Shares of common stock returned for taxes</td><td>(21,758)</td><td>(17,152)</td><td>(21,948)</td></tr><tr><td>Payments of acquisition-related contingent consideration</td><td>(4,066)</td><td>(3,945)</td><td>(4,284)</td></tr><tr><td>Payments for 524(g) trust</td><td></td><td>(123,567)</td><td>(221,638)</td></tr><tr><td>Other</td><td>(1,361)</td><td>(1,912)</td><td>(2,692)</td></tr><tr><td>Cash (Used For) Provided By Financing Activities</td><td>(53,842)</td><td>(239,376)</td><td>35,971</td></tr><tr><td>Effect of Exchange Rate Changes on Cash and Cash Equivalents</td><td>(12,107)</td><td>4,111</td><td>2,912</td></tr><tr><td>Net Change in Cash and Cash Equivalents</td><td>(21,254)</td><td>(106,075)</td><td>85,345</td></tr><tr><td>Cash and Cash Equivalents at Beginning of Period</td><td>244,422</td><td>350,497</td><td>265,152</td></tr><tr><td>Cash and Cash Equivalents at End of Period</td><td>$ 223,168</td><td>$ 244,422</td><td>$ 350,497</td></tr><tr><td>Supplemental Disclosures of Cash Flows Information:</td><td></td><td></td><td></td></tr><tr><td>Cash paid during the year for:</td><td></td><td></td><td></td></tr><tr><td>Interest</td><td>$ 101,415</td><td>$ 97,295</td><td>$ 78,685</td></tr><tr><td>Income taxes, net of refunds</td><td>$ 68,357</td><td>$ 83,460</td><td>$ 71,236</td></tr><tr><td>Supplemental Disclosures of Non-Cash Investing and Financing Activities:</td><td></td><td></td><td></td></tr><tr><td>Conversion of Debt to Equity</td><td>$ 38,239</td><td>$</td><td>$</td></tr></table>



## CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)

<table><tr><td rowspan="2"></td><td colspan="3">Common Stock</td></tr><tr><td>Number of Shares</td><td>Par/Stated Value</td><td>Paid-In Capital</td></tr><tr><td>Balance at June 1, 2016</td><td>132,944</td><td>$ 1,329</td><td>$ 921,956</td></tr><tr><td>Net income</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other comprehensive income</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Dividends declared and paid ($1.175 per share)</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other noncontrolling interest activity</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Stock compensation expense, shares granted less shares returned for taxes</td><td>619</td><td>7</td><td>32,535</td></tr><tr><td>Balance at May 31, 2017</td><td>133,563</td><td>1,336</td><td>954,491</td></tr><tr><td>Net income</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other comprehensive income</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Dividends declared and paid ($1.26 per share)</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other noncontrolling interest activity</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes</td><td>84</td><td>-</td><td>27,576</td></tr><tr><td>Balance at May 31, 2018</td><td>133,647</td><td>1,336</td><td>982,067</td></tr><tr><td>Cumulative-effect adjustment upon adoption of ASU 2014-09</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Net income</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other comprehensive income</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Dividends declared and paid ($1.37 per share)</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Other noncontrolling interest activity</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Share repurchases under repurchase program</td><td>(3,287)</td><td>(33)</td><td>33</td></tr><tr><td>Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes</td><td>36</td><td>1</td><td>35,437</td></tr><tr><td>Convertible bond redemption</td><td>599</td><td>6</td><td>(23,029)</td></tr><tr><td>Balance at May 31, 2019</td><td>130,995</td><td>$ 1,310</td><td>$ 994,508</td></tr></table>



<table><tr><td></td><td>Treasury Stock</td><td>Accumulated Other Comprehensive Income (Loss)</td><td>Retained Earnings</td><td>Total RPM International Inc. Equity</td><td>Noncontrolling Interests</td><td>Total Equity</td></tr><tr><td>$ (196,274)</td><td>$ (502,047)</td><td>$ 1,147,371</td><td>$ 1,372,335</td><td>$ 2,413</td><td>$ 1,374,748</td><td></td></tr><tr><td></td><td>-</td><td>-</td><td>181,823</td><td>181,823</td><td>2,848</td><td>184,671</td></tr><tr><td></td><td>-</td><td>28,061</td><td>-</td><td>28,061</td><td>(44)</td><td>28,017</td></tr><tr><td></td><td>-</td><td>-</td><td>(156,752)</td><td>(156,752)</td><td>-</td><td>(156,752)</td></tr><tr><td></td><td>-</td><td>-</td><td>-</td><td>-</td><td>(2,578)</td><td>(2,578)</td></tr><tr><td>(21,948)</td><td>-</td><td>-</td><td>-</td><td>10,594</td><td>-</td><td>10,594</td></tr><tr><td>(218,222)</td><td>(473,986)</td><td>1,172,442</td><td>1,436,061</td><td>2,639</td><td>1,438,700</td><td></td></tr><tr><td></td><td>-</td><td>-</td><td>337,770</td><td>337,770</td><td>1,487</td><td>339,257</td></tr><tr><td></td><td>-</td><td>14,938</td><td>-</td><td>14,938</td><td>(132)</td><td>14,806</td></tr><tr><td></td><td>-</td><td>-</td><td>(167,476)</td><td>(167,476)</td><td>-</td><td>(167,476)</td></tr><tr><td></td><td>-</td><td>-</td><td>-</td><td>-</td><td>(1,229)</td><td>(1,229)</td></tr><tr><td>(18,096)</td><td>-</td><td>-</td><td>-</td><td>9,480</td><td>-</td><td>9,480</td></tr><tr><td>(236,318)</td><td>(459,048)</td><td>1,342,736</td><td>1,630,773</td><td>2,765</td><td>1,633,538</td><td></td></tr><tr><td></td><td>-</td><td>-</td><td>(2,833)</td><td>(2,833)</td><td>-</td><td>(2,833)</td></tr><tr><td></td><td>-</td><td>-</td><td>266,558</td><td>266,558</td><td>1,129</td><td>267,687</td></tr><tr><td></td><td>-</td><td>(118,580)</td><td>-</td><td>(118,580)</td><td>66</td><td>(118,514)</td></tr><tr><td></td><td>-</td><td>-</td><td>(181,409)</td><td>(181,409)</td><td>-</td><td>(181,409)</td></tr><tr><td></td><td>-</td><td>-</td><td>-</td><td>-</td><td>(1,307)</td><td>(1,307)</td></tr><tr><td>(200,222)</td><td>-</td><td>-</td><td>-</td><td>(200,222)</td><td>-</td><td>(200,222)</td></tr><tr><td>(20,965)</td><td>-</td><td>-</td><td>-</td><td>14,473</td><td>-</td><td>14,473</td></tr><tr><td>20,215</td><td>-</td><td>-</td><td>-</td><td>(2,808)</td><td>-</td><td>(2,808)</td></tr><tr><td>$ (437,290)</td><td>$ (577,628)</td><td>$ 1,425,052</td><td>$ 1,405,952</td><td>$ 2,653</td><td>$ 1,408,605</td><td></td></tr></table>



# Notes to Consolidated Financial Statements
May 31, 2019, 2018, 2017

## NOTE A — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

## 1) Consolidation, Noncontrolling Interests and Basis of Presentation

Our financial statements include all of our majority-owned subsidiaries. We account for our investments in less-than-majority-owned joint ventures, for which we have the ability to exercise significant influence, under the equity method. Effects of transactions between related companies are eliminated in consolidation.

Noncontrolling interests are presented in our Consolidated Financial Statements as if parent company investors (controlling interests) and other minority investors (noncontrolling interests) in partially owned subsidiaries have similar economic interests in a single entity. As a result, investments in noncontrolling interests are reported as equity in our Consolidated Financial Statements. Additionally, our Consolidated Financial Statements include 100% of a controlled subsidiary's earnings, rather than only our share. Transactions between the parent company and noncontrolling interests are reported in equity as transactions between stockholders, provided that these transactions do not create a change in control.

Our business is dependent on external weather factors. Historically, we have experienced strong sales and net income in our first, second and fourth fiscal quarters comprising the three-month periods ending August 31, November 30 and May 31, respectively, with weaker performance in our third fiscal quarter (December through February).

## 2) Use of Estimates

The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

## 3) Acquisitions/Divestitures

We account for business combinations and asset acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date.

During the fiscal year ended May 31, 2019, we completed a total of five acquisitions among our three reportable segments. During fiscal 2019, our industrial reportable segment completed two acquisitions, which included the following: a provider of hygienic flooring solutions for the U.K. food and beverage industry headquartered in the U.K.; and a distributor of concrete admixture products throughout Puerto Rico, the Dominican Republic and Panama. Within our consumer reportable segment, we acquired a brand line of specialty cleaning products and the exclusive North American licensing for a brand line of drain care products based in Cincinnati, Ohio; and a manufacturer of non-toxic specialty cleaners based in Ontario, Canada. Lastly, we acquired a leading manufacturer and distributor of insulated concrete forms in North America, based in Ontario, Canada, which reports through our specialty reportable segment.

During the fiscal year ended May 31, 2018, we completed a total of seven acquisitions among our three reportable segments. During fiscal 2018, our industrial reportable segment completed three acquisitions, which included the following: a manufacturer of high-performance spray applied polyurea waterproofing systems, as well as a range of polymer flooring systems located in Norway; a manufacturer and marketer of terrazzo and resinous flooring, wall coating systems and other concrete repair and maintenance materials headquartered in Batavia, Ohio; and a manufacturer and installer of a range of specialty bridge bearings and expansion joints, as well as custom engineered solutions for bridges, wind turbines and other structures located in the U.K. Within our consumer reportable segment, we acquired a manufacturer of sealers, cleaners, polishes and related products primarily for tile and natural stone based in Arcadia, California; and a manufacturer and marketer of specialty cleaners for rust stain removal based in Eldora, Iowa. Lastly, we acquired the assets of a manufacturer of adjuvants, which are used to enhance the productivity of herbicides for farming and forest protection programs located in Australia; and the assets of a distributor of high-performance wood finishes located in the U.K., both of which report through our specialty reportable segment.

The purchase price for each acquisition has been allocated to the estimated fair values of the assets acquired and liabilities assumed as of the date of acquisition. We have finalized the purchase price allocation for our fiscal 2018 acquisitions, and there were no material changes from the prior year disclosure. While the valuations of consideration transferred, total assets acquired and liabilities assumed are substantially complete, the primary areas that remain preliminary relate to the fair values of deferred income taxes for acquisitions completed during fiscal 2019. Acquisitions are aggregated by year of purchase in the following table:

Fiscal 2019 Acquisitions

<table><tr><td rowspan="2">(In thousands)</td><td colspan="2">Fiscal 2019 Acquisitions</td><td colspan="2">Fiscal 2018 Acquisitions</td></tr><tr><td>Weighted-Average Intangible Asset Amortization Life (In Years)</td><td>Total</td><td>Weighted-Average Intangible Asset Amortization Life (In Years)</td><td>Total</td></tr><tr><td>Current assets</td><td></td><td>29,734</td><td></td><td>28,939</td></tr><tr><td>Property, plant and equipment</td><td></td><td>22,607</td><td></td><td>10,875</td></tr><tr><td>Goodwill</td><td>N/A</td><td>77,459</td><td>N/A</td><td>43,656</td></tr><tr><td>Trade names - indefinite lives</td><td>N/A</td><td>14,033</td><td>N/A</td><td>15,096</td></tr><tr><td>Other intangible assets</td><td>10</td><td>59,748</td><td>12</td><td>36,450</td></tr><tr><td>Other long-term assets</td><td></td><td>3,095</td><td></td><td>81</td></tr><tr><td>Total Assets Acquired</td><td></td><td>206,676</td><td></td><td>135,097</td></tr><tr><td>Liabilities assumed</td><td></td><td>(36,083)</td><td></td><td>(19,369)</td></tr><tr><td>Net Assets Acquired</td><td></td><td>170,593 \( ^{(1)} \)</td><td></td><td>115,728 \( ^{(2)} \)</td></tr></table>

(1) Figure includes cash acquired of $2.3 million.

(2) Figure includes cash acquired of $3.3 million.



Our Consolidated Financial Statements reflect the results of operations of acquired businesses as of their respective dates of acquisition. Pro-forma results of operations for the years ended May 31, 2019 and 2018 were not materially different from reported results and, consequently, are not presented.

## 4) Foreign Currency

The functional currency for each of our foreign subsidiaries is its principal operating currency. Accordingly, for the periods presented, assets and liabilities have been translated using exchange rates at year end, while income and expense for the periods have been translated using a weighted-average exchange rate.

The resulting translation adjustments have been recorded in accumulated other comprehensive income (loss), a component of stockholders' equity, and will be included in net earnings only upon the sale or liquidation of the underlying foreign investment, neither of which is contemplated at this time. Transaction gains and losses increased during the last three fiscal years due to the strengthening of the U.S. dollar, resulting in net transactional foreign exchange losses for fiscal 2019, 2018 and 2017 of approximately $4.8 million, $12.3 million and $6.4 million, respectively.

## 5) Cash and Cash Equivalents

We consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. We do not believe we are exposed to any significant credit risk on cash and cash equivalents. The carrying amounts of cash and cash equivalents approximate fair value.

## 6) Property, Plant & Equipment

<table><tr><td>May 31,</td><td>2019</td><td>2018</td></tr><tr><td>(In thousands)</td><td></td><td></td></tr><tr><td>Land</td><td>$ 88,638</td><td>$ 85,007</td></tr><tr><td>Buildings and leasehold improvements</td><td>459,542</td><td>445,017</td></tr><tr><td>Machinery and equipment</td><td>1,114,679</td><td>1,045,851</td></tr><tr><td>Total property, plant and equipment, at cost</td><td>1,662,859</td><td>1,575,875</td></tr><tr><td>Less: allowance for depreciation and amortization</td><td>843,648</td><td>795,569</td></tr><tr><td>Property, plant and equipment, net</td><td>$ 819,211</td><td>$ 780,306</td></tr></table>

We review long-lived assets for impairment when circumstances indicate that the carrying values of these assets may not be recoverable. For assets that are to be held and used, an impairment charge is recognized when the estimated undiscounted future cash flows associated with the asset or group of assets are less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value, and a loss is recorded for the difference between the carrying value and the fair value. Fair values are determined based on quoted market values, discounted cash flows, internal appraisals or external appraisals, as applicable. Assets to be disposed of are carried at the lower of their carrying value or estimated net realizable value.

Depreciation is computed primarily using the straight-line method over the following ranges of useful lives:

<table><tr><td>Land improvements</td><td>1 to 50 years</td></tr><tr><td>Buildings and improvements</td><td>1 to 50 years</td></tr><tr><td>Machinery and equipment</td><td>1 to 33 years</td></tr></table>

Total depreciation expense for each fiscal period includes the charges to income that result from the amortization of assets recorded under capital leases.

## 7) Revenue Recognition

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The majority of our revenue is recognized at a point in time. However, we also record revenues generated under construction contracts, mainly in connection with the installation of specialized roofing and flooring systems and related services. For certain polymer flooring installation projects, we account for our revenue using the output method, as we consider square footage of completed flooring to be the best measure of progress toward the complete satisfaction of the performance obligation. In contrast, for certain of our roofing installation projects, we account for our revenue using the input method, as that method was the best measure of performance as it considers costs incurred in relation to total expected project costs, which essentially represents the transfer of control for roofing systems to the customer. In general, for our other construction contracts, we record contract revenues and related costs as our contracts progress on an over-time model.

Effective June 1, 2018, we adopted Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” and all the related amendments included within Accounting Standards Codification 606 (“ASC 606”). Refer to Note A(19) for further information regarding the new revenue recognition standard.

## 8) Shipping Costs

Shipping costs paid to third-party shippers for transporting products to customers are included in SG&A expenses. For the years ended May 31, 2019, 2018 and 2017, shipping costs were $173.6 million, $164.7 million and $148.9 million, respectively.

## 9) Allowance for Doubtful Accounts Receivable

An allowance for anticipated uncollectible trade receivable amounts is established using a combination of specifically identified accounts to be reserved and a reserve covering trends in collectibility. These estimates are based on an analysis of trends in collectibility and past experience, but are primarily made up of individual account balances identified as doubtful based on specific facts and conditions. Receivable losses are charged against the allowance when we determine uncollectibility. Actual collections of trade receivables could differ from our estimates due to changes in future economic or industry conditions or specific customer's financial conditions. For the periods ended May 31, 2019, 2018 and 2017, bad debt expense approximated $18.6 million, $9.1 million and $16.0 million, respectively. The bad debt expense during fiscal 2017 reflected our reassessment of the collectibility of accounts receivable, particularly in emerging markets. The increase in bad debt expense during fiscal 2019 was primarily due to write-offs associated with our 2020 MAP to Growth initiatives. Refer to Note B, “Restructuring,” for further information.

## 10) Inventories

Inventories are stated at the lower of cost or net realizable value, cost being determined on a first-in, first-out (FIFO) basis and net realizable value being determined on the basis of replacement cost. Inventory costs include raw materials, labor and manufacturing overhead. We review the net realizable value of our inventory in detail on an on-going basis, with consideration given to various factors, which include our estimated reserves for excess, obsolete, slow-moving or distressed inventories. If actual market conditions differ from our projections, and our estimates prove to be inaccurate, write-downs of inventory values and adjustments to cost of sales may be required. Historically, our inventory reserves have approximated actual experience. During fiscal 2019, we recorded $10.5 million in charges resulting from more proactive management of inventory at our consumer segment and $10.0 million of inventory charges related to



restructuring activities at our industrial segment. During fiscal 2018, our consumer reportable segment businesses were impacted by tighter inventory management at many of their top customers and, starting in mid-April, we made the determination to consolidate several divisions within certain consumer segment businesses, close two manufacturing facilities and eliminate approximately 154 positions. These actions were taken by new leadership in place at our Rust-Oleum business in order to streamline processes, reduce overhead, improve margins and reduce working capital. In relation to these initiatives, our consumer segment recognized $36.5 million of charges related to product line and SKU rationalization and related obsolete inventory identification during the fourth quarter of fiscal 2018. Additionally, during fiscal 2018, we incurred $1.2 million in inventory write-offs in connection with restructuring activities at our industrial reportable segment.

Inventories were composed of the following major classes:

<table><tr><td>May 31,</td><td>2019</td><td>2018</td></tr><tr><td>(In thousands)</td><td></td><td></td></tr><tr><td>Raw material and supplies</td><td>$ 296,493</td><td>$ 288,201</td></tr><tr><td>Finished goods</td><td>545,380</td><td>546,260</td></tr><tr><td>Total Inventory</td><td>$ 841,873</td><td>$ 834,461</td></tr></table>

## 11) Goodwill and Other Intangible Assets

We account for goodwill and other intangible assets in accordance with the provisions of ASC 350 and account for business combinations using the acquisition method of accounting and, accordingly, the assets and liabilities of the entities acquired are recorded at their estimated fair values at the acquisition date. Goodwill represents the excess of the purchase price paid over the fair value of net assets acquired, including the amount assigned to identifiable intangible assets.

We performed the required annual goodwill impairment assessments as of the first day of our fourth fiscal quarter at the reporting unit level. Our reporting units have been identified at the component level, which is the operating segment level or one level below. First, we 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. The traditional two-step quantitative process is required only if we conclude that it is more likely than not that a reporting unit's fair value is less than its carrying amount. However, we have an unconditional option to bypass a qualitative assessment and proceed directly to performing the traditional two-step quantitative analysis. We applied both the qualitative and traditional two-step quantitative processes during our annual goodwill impairment assessment performed during the fourth quarters of fiscal 2019, 2018 and 2017.

The traditional two-step quantitative goodwill impairment assessment involves estimating the fair value of a reporting unit and comparing it with its carrying amount. If the carrying amount of the reporting unit exceeds its fair value, additional steps are followed to determine and recognize, if appropriate, an impairment loss. Calculating the fair value of the reporting units requires our significant use of estimates and assumptions. We estimate the fair values of our reporting units by applying a combination of third-party market-value indicators, when observable market data is available, and discounted future cash flows to each of our reporting unit's projected EBITDA or adjusted EBITDA, which adjusts for one-off items impacting revenues and/or expenses that are not considered by management to be indicative of ongoing operations. In applying this methodology, we rely on a number of factors, including actual and forecasted operating results and market data.

As a result of the annual impairment assessments performed for fiscal 2019 and 2018, there were no goodwill impairments, including no reporting units that were at risk of failing step one of the traditional two-step quantitative analysis. During fiscal 2017, we recorded a loss totaling $188.3 million for the impairment of goodwill and intangibles at our Kirker reporting unit within our consumer reportable segment.

Additionally, we test all indefinite-lived intangible assets for impairment annually. We perform the required annual impairment assessments as of the first day of our fourth fiscal quarter. We may elect to first assess qualitative factors to determine whether it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount before applying traditional quantitative tests. We applied both qualitative and quantitative processes during our annual indefinite-lived intangible asset impairment assessments performed during the fourth quarters of fiscal 2019, 2018 and 2017.

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. As a result of the assessments performed for fiscal 2019 and 2018, there were no impairments. Results of intangible asset impairment assessments performed during fiscal 2017 are outlined below.

As described further in Note C, “Goodwill and Other Intangible Assets,” during fiscal 2019, as a result of interim impairment tests, we recorded other intangible asset impairment losses totaling $4.2 million, of which $2.0 million was recorded by our industrial reportable segment for impairment losses on trade names and approximately $2.2 million was recorded by our specialty reportable segment for impairment losses on customer-related intangibles. During fiscal 2017, we recorded a loss totaling $4.9 million for a trade name impairment in our consumer reportable segment.

Should the future earnings and cash flows at our reporting units decline and/or discount rates increase, future impairment charges to goodwill and other intangible assets may be required.

## 12) Advertising Costs

Advertising costs are charged to operations when incurred and are included in SG&A expenses. For the years ended May 31, 2019, 2018 and 2017, advertising costs were $57.5 million, $58.0 million and $52.3 million, respectively.

## 13) Research and Development

Research and development costs are charged to operations when incurred and are included in SG&A expenses. The amounts charged to expense for the years ended May 31, 2019, 2018 and 2017 were $71.6 million, $69.7 million and $64.9 million, respectively.

## 14) Stock-Based Compensation

Stock-based compensation represents the cost related to stock-based awards granted to our employees and directors, which may include restricted stock and stock appreciation rights ("SARs"). We measure stock-based compensation cost at the date of grant, based on the estimated fair value of the award. We recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the related vesting period. Refer to Note J, "Stock-Based Compensation," for further information.



## 15) Investment (Income), Net

Investment (income), net, consists of the following components:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Interest (income)</td><td>$ (4,885)</td><td>$ (5,003)</td><td>$ (4,620)</td></tr><tr><td>Net loss (gain) on marketable securities</td><td>8,366</td><td>(11,704)</td><td>(8,174)</td></tr><tr><td>Other-than-temporary impairment on securities</td><td></td><td></td><td>420</td></tr><tr><td>Dividend (income)</td><td>(4,211)</td><td>(3,735)</td><td>(1,610)</td></tr><tr><td>Investment (income), net</td><td>$ (730)</td><td>$ (20,442)</td><td>$ (13,984)</td></tr></table>

## Net Loss (Gain) on Marketable Securities

During fiscal 2019, we recognized realized losses on sales of available-for-sale securities of $3.0 million, realized gains on trading securities of $0.5 million and unrealized losses on trading securities of $1.3 million. Also during the year ended May 31, 2019, we recognized unrealized losses of $4.6 million on marketable equity securities as a result of our adoption of ASU 2016-01. During fiscal 2018, we recognized gross realized gains and losses on sales of marketable securities of $11.9 million and $1.8 million, respectively. During fiscal 2017, we recognized gross realized gains and losses on sales of marketable securities of $12.6 million and $4.4 million, respectively.

## 16) Other Expense (Income), Net

Other expense (income), net, consists of the following components:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Royalty expense (income), net</td><td>$ (96)</td><td>$ 404</td><td>$ 2,680</td></tr><tr><td>(Income) related to unconsolidated equity affiliates</td><td>(332)</td><td>(1,002)</td><td>(1,013)</td></tr><tr><td>Pension non-service costs</td><td>1,647</td><td></td><td></td></tr><tr><td>Loss on extinguishment of debt \( ^{(a)} \)</td><td>3,051</td><td></td><td></td></tr><tr><td>Other expense (income), net</td><td>$ 4,270</td><td>$ (598)</td><td>$ 1,667</td></tr></table>

(a) In connection with the redemption of all of our outstanding 2.25% convertible senior notes in November 2018, we recognized a loss of $3.1 million, due to the fair value remeasurement on the date of conversion.

## 17) Income Taxes

The provision for income taxes is calculated using the asset and liability method. Under the asset and liability method, deferred income taxes are recognized for the tax effect of temporary differences between the financial statement carrying amount of assets and liabilities and the amounts used for income tax purposes and for certain changes in valuation allowances. Valuation allowances are recorded to reduce certain deferred tax assets when, in our estimation, it is more likely than not that a tax benefit will not be realized.

## 18) Earnings Per Share of Common Stock

Earnings per share (EPS) is computed using the two-class method. The two-class method determines EPS for each class of common stock and participating securities according to dividends and dividend equivalents and their respective participation rights in undistributed earnings. Our unvested share-based payment awards that contain rights to receive non-forfeitable dividends are considered participating securities. Basic EPS of common stock is computed by dividing net income by the weighted-average number of shares of common stock outstanding for the period. Diluted EPS of common stock is computed on the basis of the weighted-average number of shares of common stock, plus the effect of dilutive potential shares of common stock outstanding during the period using the treasury stock method. Dilutive potential shares of common stock include outstanding SARS, restricted stock awards and convertible notes. See Note L, "Earnings Per Share of Common Stock," for additional information.

## 19) Other Recent Accounting Pronouncements

Effective June 1, 2018, we adopted ASU 2014-09, “Revenue from Contracts with Customers,” and all the related amendments included within ASC 606, using the modified retrospective method of adoption. Under the modified retrospective method, comparative periods are not restated. The new standard requires an entity to recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This update creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes (i) identifying the contract(s) with the customer, (ii) identifying the separate performance obligations in the contract, (iii) determining the transaction price, (iv) allocating the transaction price to the separate performance obligations, and (v) recognizing revenue when each performance obligation is satisfied. As a result of our adoption procedures, we determined that revenue recognition for our broad portfolio of products and services will remain largely unchanged. Accordingly, our adoption of the new standard did not have a material impact on our overall Consolidated Financial Statements. Refer to Note Q, “Revenue,” and Note R, “Segment Information,” for additional information.

In January 2016, the FASB issued ASU No. 2016-01, "Recognition and Measurement of Financial Assets and Financial Liabilities," which provides amended guidance for certain aspects of recognition, measurement and disclosure of financial instruments. The main provisions of the standard impact how we account for changes in the fair value of our marketable securities currently classified as available-for-sale. Unrealized gains and losses on available-for-sale equity securities are required to be recognized in earnings rather than in other comprehensive income. Our adoption of the new standard during fiscal 2019 did not have a material effect on our overall Consolidated Financial Statements. See Note D, "Marketable Securities," and Note A(15), "Investment Expense (Income), Net," for additional information.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which increases lease transparency and comparability among organizations. Under the new standard, lessees will be required to recognize all assets and liabilities arising from leases on the balance sheet, with the exception of leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In March 2018, the FASB approved an alternative transition method to the modified retrospective approach, which eliminates the requirement to restate prior period financial statements and requires the cumulative effect of the retrospective allocation to be recorded as an adjustment to the opening balance of retained earnings at the date of adoption.

We will adopt the new leasing standard on the required effective date of June 1, 2019 using the alternative transition method as described above. We elected the “package of practical expedients” and have decided not to elect the “Hindsight” practical expedient. As a result, we will measure the right of use asset and lease liability for operating leases upon adoption using the remaining portion of the lease term. A cross-functional implementation team is finalizing policy elections, the discount rate to be used based on June 1, 2019 data, and business processes and controls to support recognition and disclosure under the new standard. The primary impact upon adoption will



be the recognition of the right of use assets and lease liabilities, on a discounted basis, of our minimum lease obligations, as disclosed in Note M, “Leases.” As a result of our adoption procedures, we have determined that the new guidance will have a material impact on our Consolidated Balance Sheets and will not have a material effect on our Consolidated Statements of Income.

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses,” which requires an organization to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates. Additionally, the standard amends the current available-for-sale security other-than-temporary impairment model for debt securities. The guidance is effective for fiscal years beginning after December 15, 2019 and for interim periods therein. Early adoption is permitted beginning after December 15, 2018. We are currently reviewing, but adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.

In August 2018, the SEC issued Final Rule Release No. 33-10532, "Disclosure Update and Simplification," which makes a number of changes meant to simplify interim disclosures. The new rule requires a presentation of changes in stockholders' equity and noncontrolling interest in the form of a reconciliation, either as a separate financial statement or in the notes to the financial statements, for the current and comparative year-to-date interim periods. The additional elements of this release did not have a material impact on our overall Consolidated Financial Statements. We adopted the new disclosure requirements in our Form 10-Q for the period ended February 28, 2019.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which makes a number of changes meant to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. Our June 1, 2018 adoption of the new guidance, which we applied retrospectively to all periods presented, did not have a material impact on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business,” with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or of businesses. We adopted the new guidance as of June 1, 2018 and do not expect this revised guidance to have a material impact on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to eliminate step two from the goodwill impairment test in order to simplify the subsequent measurement of goodwill. The guidance is effective for fiscal years beginning after December 15, 2019. Early application is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Our June 1, 2018 adoption of the new guidance did not have a material impact on our Consolidated Financial Statements.
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820), – Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement amongst or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted upon issuance of the update. We do not expect our adoption of this guidance to have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-14, “Compensation—Retirement Benefits—Defined Benefit Plans—General (Subtopic 715-20), Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with employers that sponsor defined benefit or other postretirement plans. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early adoption is permitted for all entities and the amendments in this update are required to be applied on a retrospective basis to all periods presented. We are currently reviewing, but adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.

In August 2018, the FASB issued ASU 2018-15, “Intangible—Goodwill and Other- Internal-Use Software (Subtopic 350-40), Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.” The update makes a number of changes meant to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement (hosting arrangement), by providing guidance in determining when the arrangement includes a software license. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Our early adoption of this revised guidance as of June 1, 2018 did not have a material impact on our Consolidated Financial Statements.

## 20) Subsequent Event

## Business Segment Information

We report the results of our operations through three reportable segments: the industrial reportable segment, the consumer reportable segment and the specialty reportable segment. Effective June 1, 2019, we realigned certain businesses and management structure to recognize how we allocate resources and analyze the operating performance of our operating segments. This realignment did not change our reportable segments at May 31, 2019. Rather, our periodic filings beginning with our first quarter ending August 31, 2019 will include historical segment results reclassified to reflect the effect of this realignment under four reportable segments, including: Construction Products Group, Performance Coatings Group, Consumer Group and Specialty Products Group.

## Acquisition Information

Subsequent to the end of the current fiscal year, on June 12, 2019, we acquired the stock of Schul International Co., LLC, a manufacturer of joint sealants for commercial construction, and Willseal LLC, a business that markets and sells Schul products. Both companies are headquartered in Hudson, New Hampshire, and have combined annual net sales of approximately $15.0 million. This fiscal 2020 acquisition will report through our new Construction Products Group reportable segment.

## Share Repurchases

From June 1, 2019 through July 19, 2019, we have repurchased 1,656,616 shares of RPM common stock since May 31, 2019, at a cost of approximately $100 million, or an average of $60.40 per share, under the stock repurchase program described further in Note I, “Common Stock.”



## NOTE B — RESTRUCTURING

We record restructuring charges associated with management-approved restructuring plans to either reorganize one or more of our business segments, or to remove duplicative headcount and infrastructure associated with our businesses. Restructuring charges can include severance costs to eliminate a specified number of employees, infrastructure charges to vacate facilities and consolidate operations, and contract cancellation costs. Restructuring charges are recorded based upon planned employee termination dates and site closure and consolidation plans. The timing of associated cash payments is dependent upon the type of restructuring charge and can extend over a multi-year period. We record the short-term portion of our restructuring liability in Other Accrued Liabilities and the long-term portion, if any, in Other Long-Term Liabilities in our Consolidated Balance Sheets.

## 2020 MAP to Growth

Between May and August 2018, we approved and implemented the initial phases of a multi-year restructuring plan, the 2020 Margin Acceleration Plan (“2020 MAP to Growth”). The initial phases of our 2020 MAP to Growth affected all of our reportable segments, as well as our corporate/nonoperating segment, and focused on margin improvement by simplifying business processes; reducing inventory categories and rationalizing SKUs; eliminating underperforming businesses; reducing headcount and working capital; and improving operating efficiency. The majority of the activities included in the initial phases of the restructuring activities have been completed.

During the second quarter ended November 30, 2018, we formally announced the final phases of our 2020 MAP to Growth. This multi-year restructuring is expected to increase operational efficiency while maintaining our entrepreneurial growth culture and will include three additional phases between September 2018 and December 2020. Our execution of the 2020 MAP to Growth will continue to drive the de-layering and simplification of management and businesses associated with group realignment. We are implementing four center-led functional areas including manufacturing and operations; procurement and supply chain; information technology; and accounting and finance.

Our 2020 MAP to Growth will optimize our manufacturing facilities and will ultimately provide more efficient plant and distribution facilities. In the first phase of the restructuring plan, we initiated the closure of twelve plants and seven warehouses. We also expect to incur additional severance and benefit costs as part of our planned closure of these facilities.

Throughout the additional phases of our 2020 MAP to Growth initiative, we will continue to assess and identify areas of improvement and cost savings. As such, the final implementation of the aforementioned phases and total expected costs are subject to change. In addition to the announced plan, we have continued to broaden the scope of our 2020 MAP to Growth initiative, specifically in consolidation of the general and administrative areas, potential outsourcing, as well as additional future plant closures and consolidations, the estimated costs of which have not yet been finalized. The current total expected costs associated with this plan are outlined in the table below and increased by approximately $13.1 million compared to our prior quarter estimate, primarily attributable to an increase in expected severance and benefit costs within our industrial and specialty segments, in addition to facility closure and other related costs within our consumer and specialty segments. Most activities under our 2020 MAP to Growth are anticipated to be completed by the end of calendar year 2020.

A summary of the charges recorded in connection with restructuring by reportable segment during is as follows:

<table><tr><td>(In thousands)</td><td>Year Ended May 31, 2019</td><td>Year Ended May 31, 2018</td><td>Cumulative Costs to Date</td><td>Total Expected Costs</td></tr><tr><td>Industrial Segment:</td><td></td><td></td><td></td><td></td></tr><tr><td>Severance and benefit costs (a)</td><td>$ 14,032</td><td>$ 2,169</td><td>$ 16,201</td><td>$ 21,123</td></tr><tr><td>Facility closure and other related costs</td><td>5,398</td><td>1,045</td><td>6,443</td><td>10,532</td></tr><tr><td>Other asset write-offs</td><td>569</td><td>1,373</td><td>1,942</td><td>2,873</td></tr><tr><td>Total Charges</td><td>$ 19,999</td><td>$ 4,587</td><td>$ 24,586</td><td>$ 34,528</td></tr><tr><td>Consumer Segment:</td><td></td><td></td><td></td><td></td></tr><tr><td>Severance and benefit costs (b)</td><td>$ 2,516</td><td>$ 5,652</td><td>$ 8,168</td><td>$ 8,168</td></tr><tr><td>Facility closure and other related costs</td><td>2,445</td><td>5,139</td><td>7,584</td><td>12,200</td></tr><tr><td>Other asset write-offs</td><td>998</td><td>-</td><td>998</td><td>1,212</td></tr><tr><td>Total Charges</td><td>$ 5,959</td><td>$ 10,791</td><td>$ 16,750</td><td>$ 21,580</td></tr><tr><td>Specialty Segment:</td><td></td><td></td><td></td><td></td></tr><tr><td>Severance and benefit costs (c)</td><td>$ 5,987</td><td>$ -</td><td>$ 5,987</td><td>$ 8,488</td></tr><tr><td>Facility closure and other related costs</td><td>352</td><td>-</td><td>352</td><td>4,351</td></tr><tr><td>Other asset write-offs</td><td>29</td><td>-</td><td>29</td><td>347</td></tr><tr><td>Total Charges</td><td>$ 6,368</td><td>$ -</td><td>$ 6,368</td><td>$ 13,186</td></tr><tr><td>Corporate/Other Segment:</td><td></td><td></td><td></td><td></td></tr><tr><td>Severance and benefit costs (d)</td><td>$ 9,984</td><td>$ 2,136</td><td>$ 12,120</td><td>$ 12,120</td></tr><tr><td>Total Charges</td><td>$ 9,984</td><td>$ 2,136</td><td>$ 12,120</td><td>$ 12,120</td></tr><tr><td>Consolidated:</td><td></td><td></td><td></td><td></td></tr><tr><td>Severance and benefit costs</td><td>$ 32,519</td><td>$ 9,957</td><td>$ 42,476</td><td>$ 49,899</td></tr><tr><td>Facility closure and other related costs</td><td>8,195</td><td>6,184</td><td>14,379</td><td>27,083</td></tr><tr><td>Other asset write-offs</td><td>1,596</td><td>1,373</td><td>2,969</td><td>4,432</td></tr><tr><td>Total Charges</td><td>$ 42,310</td><td>$ 17,514</td><td>$ 59,824</td><td>$ 81,414</td></tr></table>

a) Fiscal 2019 and 2018 charges of $14.0 million and $2.2 million, respectively, are associated with the elimination of 199 and 28 positions during fiscal 2019 and 2018, respectively. Additionally, $0.2 million included in the current-year charges are associated with the prior elimination of one position within the legal function during fiscal 2018.

b) Fiscal 2019 and 2018 charges of $2.5 million and $5.7 million, respectively, are associated with the elimination of 66 and 155 positions during fiscal 2019 and 2018, respectively.

c) Fiscal 2019 charges of $6.0 million are associated with the elimination of 109 positions. There were no such charges in fiscal 2018.

d) Reflects current-year charges related to the severance of two corporate executives, as well as accelerated vesting of equity awards for two corporate executives, four specialty segment executives and three industrial segment executives in connection with the aforementioned restructuring activities.



A summary of the activity in the restructuring reserves related to the 2020 MAP to Growth plan is as follows:

<table><tr><td>(In thousands)</td><td>Severance and Benefits Costs</td><td>Facility Closure and Other Related Costs</td><td>Other Asset Write-Offs</td><td>Total</td></tr><tr><td>Balance at June 1, 2017</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td></tr><tr><td>Additions charged to expense</td><td>9,957</td><td>6,184</td><td>1,373</td><td>17,514</td></tr><tr><td>Balance at May 31, 2018</td><td>$ 9,957</td><td>$ 6,184</td><td>$ 1,373</td><td>$ 17,514</td></tr><tr><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td>Severance and Benefits Costs</td><td>Facility Closure and Other Related Costs</td><td>Other Asset Write-Offs</td><td>Total</td></tr><tr><td>Balance at June 1, 2018</td><td>$ 9,957</td><td>$ 6,184</td><td>$ 1,373</td><td>$ 17,514</td></tr><tr><td>Additions charged to expense</td><td>32,519</td><td>8,195</td><td>1,596</td><td>42,310</td></tr><tr><td>Cash payments charged against reserve</td><td>(31,219)</td><td>(3,019)</td><td>-</td><td>(34,238)</td></tr><tr><td>Non-cash charges included above (a)</td><td>(6,420)</td><td>(3,503)</td><td>(2,969)</td><td>(12,892)</td></tr><tr><td>Balance at May 31, 2019</td><td>$ 4,837</td><td>$ 7,857</td><td>$ -</td><td>$ 12,694</td></tr></table>

(e) Non-cash charges primarily include accelerated vesting of equity awards and asset-write offs.

In connection with our 2020 MAP to Growth, during fiscal 2019, we incurred approximately $10.0 million and $2.1 million of inventory-related charges at our industrial and consumer segments, respectively. The inventory-related charges are partially offset by a favorable adjustment of approximately $0.2 million to the previous write-off at our consumer segment. All of the aforementioned inventory-related charges are recorded in cost of sales in our Consolidated Statements of Income. These inventory charges were the result of product line and SKU rationalization initiatives in connection with our overall plan of restructuring.
In connection with the 2020 MAP to Growth plan, during fiscal 2018, we incurred approximately $36.5 million of inventory-related charges at our consumer segment and approximately $1.2 million at our industrial segment, all of which were recorded in cost of sales in our Consolidated Statements of Income. These inventory charges were the result of product line and SKU rationalization that was initiated in the fourth quarter of fiscal 2018 by new leadership within the consumer segment. Refer to Note A(10) for additional information.

## NOTE C — GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill, by reportable segment, for the years ended May 31, 2019 and 2018, are as follows:

<table><tr><td>(In thousands)</td><td>Industrial Segment</td><td>Consumer Segment</td><td>Specialty Segment</td><td>Total</td></tr><tr><td>Balance as of June 1, 2017</td><td>$ 516,335</td><td>$ 453,600</td><td>$ 173,978</td><td>$ 1,143,913</td></tr><tr><td>Acquisitions</td><td>19,736</td><td>21,277</td><td>2,643</td><td>43,656</td></tr><tr><td>Translation adjustments</td><td>1,247</td><td>2,841</td><td>517</td><td>4,605</td></tr><tr><td>Balance as of May 31, 2018</td><td>537,318</td><td>477,718</td><td>177,138</td><td>1,192,174</td></tr><tr><td>Acquisitions</td><td>5,826</td><td>25,994</td><td>45,639</td><td>77,459</td></tr><tr><td>Translation adjustments</td><td>(16,725)</td><td>(4,325)</td><td>(2,821)</td><td>(23,871)</td></tr><tr><td>Balance as of May 31, 2019</td><td>$ 526,419</td><td>$ 499,387</td><td>$ 219,956</td><td>$ 1,245,762</td></tr></table>

Total accumulated goodwill impairment losses were $156.3 million at May 31, 2019. Of the accumulated balance, $141.4 million was recorded during the fiscal year ended May 31, 2017 by our consumer segment, and $14.9 million was recorded during the fiscal year ended May 31, 2009 by our industrial reportable segment. There were no impairment losses recorded during fiscal 2019 or 2018.



Other intangible assets consist of the following major classes:

<table><tr><td>(In thousands)</td><td>Amortization Period (In Years)</td><td>Gross Carrying Amount</td><td>Accumulated Amortization</td><td>Net Other Intangible Assets</td></tr><tr><td>As of May 31, 2019</td><td></td><td></td><td></td><td></td></tr><tr><td>Amortized intangible assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Formulae</td><td>9 to 33</td><td>$ 227,208</td><td>$ (150,091)</td><td>$ 77,117</td></tr><tr><td>Customer-related intangibles</td><td>5 to 33</td><td>413,475</td><td>(172,238)</td><td>241,237</td></tr><tr><td>Trademarks/names</td><td>5 to 40</td><td>32,998</td><td>(16,867)</td><td>16,131</td></tr><tr><td>Other</td><td>1 to 33</td><td>36,709</td><td>(26,599)</td><td>10,110</td></tr><tr><td>Total Amortized Intangibles</td><td></td><td>710,390</td><td>(365,795)</td><td>344,595</td></tr><tr><td>Indefinite-lived intangible assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Trademarks/names</td><td></td><td>256,487</td><td></td><td>256,487</td></tr><tr><td>Total Other Intangible Assets</td><td></td><td>$ 966,877</td><td>$ (365,795)</td><td>$ 601,082</td></tr><tr><td>As of May 31, 2018</td><td></td><td></td><td></td><td></td></tr><tr><td>Amortized intangible assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Formulae</td><td>10 to 33</td><td>$ 221,812</td><td>$ (140,160)</td><td>$ 81,652</td></tr><tr><td>Customer-related intangibles</td><td>5 to 33</td><td>369,687</td><td>(147,831)</td><td>221,856</td></tr><tr><td>Trademarks/names</td><td>5 to 40</td><td>36,671</td><td>(17,998)</td><td>18,673</td></tr><tr><td>Other</td><td>2 to 30</td><td>37,589</td><td>(24,946)</td><td>12,643</td></tr><tr><td>Total Amortized Intangibles</td><td></td><td>665,759</td><td>(330,935)</td><td>334,824</td></tr><tr><td>Indefinite-lived intangible assets</td><td></td><td></td><td></td><td></td></tr><tr><td>Trademarks/names</td><td></td><td>249,448</td><td></td><td>249,448</td></tr><tr><td>Total Other Intangible Assets</td><td></td><td>$ 915,207</td><td>$ (330,935)</td><td>$ 584,272</td></tr></table>

The aggregate intangible asset amortization expense for the fiscal years ended May 31, 2019, 2018 and 2017 was $45.1 million, $43.2 million and $41.9 million, respectively. For the next five fiscal years, we estimate annual intangible asset amortization expense related to our existing intangible assets to approximate the following: 2020 — $43.0 million, 2021 — $39.9 million, 2022 — $38.6 million, 2023 — $34.9 million and 2024 — $31.5 million.

The gross amount of other intangible asset accumulated impairment losses at May 31, 2017 totaled $53.6 million, of which $0.6 million was recorded during the fiscal year ended May 31, 2009 by our industrial reportable segment and $53.0 million was recorded during fiscal 2017 by our consumer reportable segment. For the year ended May 31, 2019, we recorded other intangible asset impairment losses of approximately $4.2 million, of which $2.0 million was recorded by our industrial reportable segment for impairment losses on trade names and approximately $2.2 million was recorded by our specialty reportable segment for impairment losses on customer-related intangibles. There were no impairment losses recorded during fiscal 2018.

## NOTE D — MARKETABLE SECURITIES

The following tables summarize marketable securities held at May 31, 2019 and 2018 by asset type:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="5">Available-For-Sale Securities</td></tr><tr><td>Amortized Cost</td><td>Gross Unrealized Gains</td><td>Gross Unrealized Losses</td><td>Fair Value (Net Carrying Amount)</td><td></td></tr><tr><td>May 31, 2019</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Fixed maturity:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. treasury and other government</td><td>$ 24,483</td><td>$ 372</td><td>$ (308)</td><td>$ 24,547</td><td></td></tr><tr><td>Corporate bonds</td><td>422</td><td>43</td><td>(3)</td><td>462</td><td></td></tr><tr><td>Total available-for-sale securities</td><td>$ 24,905</td><td>$ 415</td><td>$ (311)</td><td>$ 25,009</td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td></td><td></td><td></td><td colspan="3">Available-For-Sale Securities</td></tr><tr><td></td><td></td><td></td><td>Gross</td><td>Gross</td><td>Fair Value</td></tr><tr><td></td><td></td><td></td><td>Unrealized</td><td>Unrealized</td><td>(Net Carrying</td></tr><tr><td></td><td></td><td></td><td>Gains</td><td>Losses</td><td>Amount)</td></tr><tr><td>May 31, 2018</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Equity securities:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Mutual funds - foreign</td><td>$ 46,123</td><td>$ 1,839</td><td>$ (1,197)</td><td>$ 46,765</td><td></td></tr><tr><td>Mutual funds - domestic</td><td>99,833</td><td>727</td><td>(2,770)</td><td>97,790</td><td></td></tr><tr><td>Total equity securities</td><td>145,956</td><td>2,566</td><td>(3,967)</td><td>144,555</td><td></td></tr><tr><td>Fixed maturity:</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. treasury and other government</td><td>23,562</td><td>39</td><td>(552)</td><td>23,049</td><td></td></tr><tr><td>Corporate bonds</td><td>432</td><td>43</td><td>(8)</td><td>467</td><td></td></tr><tr><td>Total fixed maturity securities</td><td>23,994</td><td>82</td><td>(560)</td><td>23,516</td><td></td></tr><tr><td>Total</td><td>$ 169,950</td><td>$ 2,648</td><td>$ (4,527)</td><td>$ 168,071</td><td></td></tr></table>



Marketable securities, included in other current and long-term assets totaling $8.6 million and $16.4 million at May 31, 2019, respectively, and included in other current and long-term assets totaling $97.4 million and $70.7 million at May 31, 2018, respectively, are composed of available-for-sale securities and are reported at fair value. We carry a portion of our marketable securities portfolio in long-term assets since they are generally held for the settlement of our general and product liability insurance claims processed through our wholly owned captive insurance subsidiaries.

Marketable securities include available-for-sale securities and are reported at fair value. Realized gains and losses on sales of investments are recognized in net income on the specific identification basis. Changes in the fair values of securities that are considered temporary are recorded as unrealized gains and losses, net of applicable taxes, in accumulated other comprehensive income (loss) within stockholders' equity. Other-than-temporary declines in market value from original cost are reflected in investment income, net in the period in which the unrealized losses are deemed other than temporary. In order to determine whether other-than-temporary declines in market value have occurred, the duration of the decline in value and our ability to hold the investment are considered in conjunction with an evaluation of the strength of the underlying collateral and the extent to which the investment's amortized cost or cost, as appropriate, exceeds its related market value.

During fiscal 2019, we adopted ASU 2016-01, “Recognition and Measurement of Financial Assets and Liabilities,” which requires all unrealized gains and losses on marketable equity securities to be recognized in earnings. Prior to adoption, equity securities were included in our available-for-sale portfolio and unrealized gains and losses were recognized through other comprehensive (loss) income until realized, at which point we recorded a gain or loss on sale. As of May 31, 2019, we held approximately $87.5 million in equity securities. Additionally, as of May 31, 2019 and 2018, we held approximately $12.3 million and $9.9 million, respectively, in trading securities in relation to our deferred compensation plan.

Unrealized gains and losses, as well as realized gains and losses, on sales of marketable securities are included in investment (income), net in the Consolidated Statements of Income. Refer to Note A(15), “Investment (Income), Net,” for further details.

Summarized below are the available-for-sale securities we held at May 31, 2019 and 2018 that were in an unrealized loss position and that were included in accumulated other comprehensive income (loss), aggregated by the length of time the investments had been in that position:

<table><tr><td rowspan="2"></td><td colspan="2">May 31, 2019</td><td colspan="2">May 31, 2018</td></tr><tr><td>Fair Value</td><td>Gross Unrealized Losses</td><td>Fair Value</td><td>Gross Unrealized Losses</td></tr><tr><td>Total investments with unrealized losses</td><td>$ 11,508</td><td>$ (311)</td><td>$ 106,253</td><td>$ (4,527)</td></tr><tr><td>Unrealized losses with a loss position for less than 12 months</td><td>806</td><td>(2)</td><td>68,376</td><td>(1,570)</td></tr><tr><td>Unrealized losses with a loss position for more than 12 months</td><td>10,702</td><td>(309)</td><td>37,877</td><td>(2,957)</td></tr></table>

We have reviewed all of the securities included in the table above and have concluded that we have the ability and intent to hold these investments until their cost can be recovered, based upon the severity and duration of the decline. Therefore, we did not recognize any other-than-temporary impairment losses on these investments. The unrealized losses generally relate to investments whose fair values at May 31, 2019 and 2018 were less than 15% below their original cost. From time to time, we may experience significant volatility in general economic and market conditions. If we were to experience unrealized losses that were to continue for longer periods of time, or rise to more significant levels of unrealized losses within our portfolio of investments in marketable securities in the future, we may recognize additional other-than-temporary impairment losses. Such potential losses could have a material impact on our results of operations in any given reporting period. As such, we continue to closely evaluate the status of our investments and our ability and intent to hold these investments.

The net carrying values of available-for-sale debt securities at May 31, 2019, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

<table><tr><td>(In thousands)</td><td>Amortized Cost</td><td>Fair Value</td></tr><tr><td>Due:</td><td></td><td></td></tr><tr><td>Less than one year</td><td>$ 8,594</td><td>$ 8,563</td></tr><tr><td>One year through five years</td><td>10,886</td><td>10,836</td></tr><tr><td>Six years through ten years</td><td>4,468</td><td>4,582</td></tr><tr><td>After ten years</td><td>957</td><td>1,028</td></tr><tr><td></td><td>$ 24,905</td><td>$ 25,009</td></tr></table>

## NOTE E — FAIR VALUE MEASUREMENTS

Financial instruments recorded in the balance sheet include cash and cash equivalents, trade accounts receivable, marketable securities, notes and accounts payable, and debt.

An allowance for anticipated uncollectible trade receivable amounts is established using a combination of specifically identified accounts to be reserved, and a reserve covering trends in collectibility. These estimates are based on an analysis of trends in collectibility and past experience, but are primarily made up of individual account balances identified as doubtful based on specific facts and conditions. Receivable losses are charged against the allowance when we confirm uncollectibility.

All derivative instruments are recognized in our Consolidated Balance Sheets and measured at fair value. Changes in the fair values of derivative instruments that do not qualify as hedges and/or any ineffective portion of hedges are recognized as a gain or (loss) in our Consolidated Statements of Income in the current period. Changes in the fair value of derivative instruments used effectively as cash flow hedges are recognized in other comprehensive income (loss), along with the change in the value of the hedged item. We do not hold or issue derivative instruments for speculative purposes.



The valuation techniques utilized for establishing the fair values of assets and liabilities are based on observable and unobservable inputs. Observable inputs reflect readily obtainable data from independent sources, while unobservable inputs reflect management’s market assumptions. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value, as follows:

Level 1 Inputs — Quoted prices for identical instruments in active markets.
Level 2 Inputs — Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.

Level 3 Inputs — Instruments with primarily unobservable value drivers.

The following tables present our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

<table><tr><td>(In thousands)</td><td>Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td>Significant Other Observable Inputs (Level 2)</td><td>Significant Unobservable Inputs (Level 3)</td><td>Fair Value at May 31, 2019</td></tr><tr><td>Available-for-sale debt securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>U.S. Treasury and other government</td><td>$ -</td><td>$ 24,547</td><td>$ -</td><td>$ 24,547</td></tr><tr><td>Corporate bonds</td><td></td><td>462</td><td></td><td>462</td></tr><tr><td>Total available-for-sale debt securities</td><td></td><td>-</td><td>25,009</td><td>-</td></tr><tr><td>Trading and other equity securities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Mutual funds - foreign</td><td></td><td>32,082</td><td></td><td>32,082</td></tr><tr><td>Mutual funds - domestic</td><td></td><td>67,739</td><td></td><td>67,739</td></tr><tr><td>Total trading and other equity securities</td><td></td><td>99,821</td><td>-</td><td>99,821</td></tr><tr><td>Contingent consideration</td><td></td><td></td><td>(21,551)</td><td>(21,551)</td></tr><tr><td>Total</td><td>$ -</td><td>$ 124,830</td><td>$ (21,551)</td><td>$ 103,279</td></tr><tr><td>(In thousands)</td><td>Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td>Significant Other Observable Inputs (Level 2)</td><td>Significant Unobservable Inputs (Level 3)</td><td>Fair Value at May 31, 2018</td></tr><tr><td>U.S. Treasury and other government</td><td>$ -</td><td>$ 23,049</td><td>$ -</td><td>$ 23,049</td></tr><tr><td>Corporate bonds</td><td></td><td>467</td><td></td><td>467</td></tr><tr><td>Mutual funds - foreign</td><td></td><td>47,410</td><td></td><td>47,410</td></tr><tr><td>Mutual funds - domestic</td><td></td><td>107,017</td><td></td><td>107,017</td></tr><tr><td>Contingent consideration</td><td></td><td></td><td>(17,998)</td><td>(17,998)</td></tr><tr><td>Total</td><td>$ -</td><td>$ 177,943</td><td>$ (17,998)</td><td>$ 159,945</td></tr></table>

Our investments in available-for-sale securities, trading and other equity securities are valued using a market approach. The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors, including the type of instrument, whether the instrument is actively traded and other characteristics particular to the transaction. For most of our financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment.

The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with recent acquisitions that is contingent upon the achievement of certain performance milestones. We estimated the fair value using expected future cash flows over the period in which the obligation is expected to be settled, and applied a discount rate that appropriately captures a market participant's view of the risk associated with the obligation, which are considered to be Level 3 inputs. During fiscal 2019, we paid approximately $5.2 million for settlements of contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during the current year and recorded an increase in the accrual for approximately $3.0 million and $5.8 million related to fair value adjustments and new acquisitions, respectively. During fiscal 2018, we paid approximately $3.9 million for settlements of contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during fiscal 2018, and we increased our accrual by $3.4 million related to acquisitions completed during fiscal 2018 and $0.5 million related to fair value adjustments. These amounts are reported in payments of acquisition-related contingent consideration in the Consolidated Statements of Cash Flows.

The carrying value of our current financial instruments, which include cash and cash equivalents, marketable securities, trade accounts receivable, accounts payable and short-term debt, approximates fair value because of the short-term maturity of these financial instruments. At May 31, 2019 and 2018, the fair value of our long-term debt was estimated using active market quotes, based on our current incremental borrowing rates for similar types of borrowing arrangements, which are Level 2 inputs. Based on the analysis performed, the fair value and the carrying value of our financial instruments and long-term debt as of May 31, 2019 and 2018 are as follows:

At May 31, 2019

<table><tr><td>(In thousands)</td><td>Carrying Value</td><td>Fair Value</td></tr><tr><td>Cash and cash equivalents</td><td>$ 223,168</td><td>$ 223,168</td></tr><tr><td>Marketable equity securities</td><td>87,525</td><td>87,525</td></tr><tr><td>Marketable debt securities</td><td>25,009</td><td>25,009</td></tr><tr><td>Long-term debt, including current portion</td><td>2,525,908</td><td>2,526,817</td></tr></table>



<table><tr><td></td><td colspan="2">At May 31, 2018</td></tr><tr><td>(In thousands)</td><td>Carrying Value</td><td>Fair Value</td></tr><tr><td>Cash and cash equivalents</td><td>$ 244,422</td><td>$ 244,422</td></tr><tr><td>Marketable equity securities</td><td>144,555</td><td>144,555</td></tr><tr><td>Marketable debt securities</td><td>23,516</td><td>23,516</td></tr><tr><td>Long-term debt, including current portion</td><td>2,174,144</td><td>2,215,458</td></tr></table>

## NOTE F — DERIVATIVES AND HEDGING

## Derivative Instruments and Hedging Activities

We are exposed to market risks, such as changes in foreign currency exchange rates and interest rates. To manage the volatility related to these exposures, from time to time, we enter into various derivative transactions. We use various types of derivative instruments, including forward contracts and swaps. We formally assess, designate and document, as a hedge of an underlying exposure, each qualifying derivative instrument that will be accounted for as an accounting hedge at inception. Additionally, we assess, both at inception and at least quarterly thereafter, whether the financial instruments used in the hedging transaction are effective at offsetting changes in either the fair values or cash flows of the underlying exposures.

## Net Investment Hedge

In October 2017, as a means of mitigating the impact of currency fluctuations on our Euro investments in foreign entities, we executed a fair value hedge and two cross currency swaps, in which we will pay variable rate interest in Euros and receive fixed-rate interest in U.S. dollars with a combined notional amount of approximately €85.25 million ($100 million U.S. dollar equivalent), and which have a maturity date of November 2022. This effectively converts a portion of our U.S. dollar denominated fixed-rate debt to Euro denominated variable rate debt. The fair value hedge is recognized at fair value in our Consolidated Balance Sheets, while changes in the fair value of the hedge are recognized in interest expense in our Consolidated Statements of Income. We designated the swaps as net investment hedges of our net investment in our European operations under ASU 2017-12 and applied the spot method to these hedges. The changes in fair value of the derivative instruments that are designated and qualify as hedges of net investments in foreign operations are recognized in accumulated other comprehensive income (“AOCI”) to offset the changes in the values of the net investments being hedged. Amounts released from AOCI and reclassified into interest expense did not have a material effect on our Consolidated Financial Statements for any period.

## Derivatives Designated as Cash Flow Hedging Instruments

We have designated certain forward contracts as hedging instruments pursuant to ASC No. 815 (“ASC 815”), “Derivatives and Hedging.” Changes in the fair value of these highly effective hedges are recorded as a component of AOCI. During the period in which a forecasted transaction affects earnings, amounts previously recorded as a component of AOCI are reclassified into earnings as a component of cost of sales. Amounts released from AOCI and reclassified into earnings did not have a material impact on our Consolidated Financial Statements for any period presented. As of May 31, 2019, there are no contracts held to sell international currencies. As of May 31, 2018, the notional amount of the forward contracts held to sell international currencies was $8.7 million.

## Derivatives Not Designated as Hedges

At May 31, 2019 and 2018, we held one and four foreign currency forward contracts, respectively, which were designed to reduce our exposure to changes in the cash flows of intercompany foreign-currency-denominated loans related to changes in foreign currency exchange rates by fixing the functional currency cash flows. These contracts have not been designated as hedges; therefore, the changes in fair value of these derivatives are recognized in earnings as a component of other (income) expense. Amounts recognized in earnings did not have a material impact on our Consolidated Financial Statements for any period presented. As of May 31, 2019 and May 31, 2018, the notional amounts of the forward contracts held to purchase foreign currencies was $38.7 million and $147.4 million, respectively.

## Disclosure About Derivative Instruments

All of our derivative assets and liabilities measured at fair value are classified as Level 2 within the fair value hierarchy. We determine the fair value of our derivatives based on valuation methods, which project future cash flows and discount the future amounts to present value using market-based observable inputs, including interest rate curves, foreign currency rates, as well as future and basis point spreads, as applicable.

The fair values of qualifying and non-qualifying instruments used in hedging transactions as of May 31, 2019 and May 31, 2018 are as follows:

<table><tr><td colspan="3">(In thousands)</td><td colspan="2">Fair Value</td></tr><tr><td>Derivatives Designated as Hedging Instruments</td><td>Balance Sheet Location</td><td>May 31, 2019</td><td>May 31, 2018</td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign Currency Exchange (Cash Flow)</td><td>Other Current Assets</td><td>-</td><td>133</td><td></td></tr><tr><td>Interest Rate Swap (Fair Value)</td><td>Other Current Assets</td><td>513</td><td>-</td><td></td></tr><tr><td>Cross Currency Swap (Net Investment)</td><td>Other Current Assets</td><td>2,482</td><td>2,580</td><td></td></tr><tr><td>Cross Currency Swap (Net Investment)</td><td>Other Assets (Long-Term)</td><td>6,163</td><td>1,986</td><td></td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Interest Rate Swap (Fair Value)</td><td>Other Accrued Liabilities</td><td>230</td><td>441</td><td></td></tr><tr><td>Cross Currency Swap (Net Investment)</td><td>Other Long-Term Liabilities</td><td>4,276</td><td>5,293</td><td></td></tr><tr><td>Interest Rate Swap (Fair Value)</td><td>Other Long-Term Liabilities</td><td>-</td><td>2,634</td><td></td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td><td></td></tr><tr><td>Derivatives Not Designated as Hedging Instruments</td><td>Balance Sheet Location</td><td>May 31, 2019</td><td>May 31, 2018</td><td></td></tr><tr><td>Assets:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign Currency Exchange</td><td>Other Current Assets</td><td>51</td><td>7</td><td></td></tr><tr><td>Liabilities:</td><td></td><td></td><td></td><td></td></tr><tr><td>Foreign Currency Exchange</td><td>Other Accrued Liabilities</td><td>-</td><td>2,985</td><td></td></tr></table>



## NOTE G — BORROWINGS

A description of long-term debt follows:

<table><tr><td>May 31,</td><td>2019</td><td>2018</td></tr><tr><td>(In thousands)</td><td></td><td></td></tr><tr><td>Revolving credit facility with a syndicate of banks, through October 31, 2023 (1)</td><td>$ 336,442</td><td>$ 235,774</td></tr><tr><td>Accounts receivable securitization program with two banks, through May 8, 2020 (2)</td><td>99,887</td><td>-</td></tr><tr><td>Unsecured 6.125% senior notes due October 15, 2019 (3)</td><td>450,454</td><td>451,658</td></tr><tr><td>Unsecured $205,000 face value at maturity 2.25% senior convertible notes due December 15, 2020</td><td>-</td><td>196,865</td></tr><tr><td>Unsecured 3.45% senior notes due November 15, 2022</td><td>299,257</td><td>295,596</td></tr><tr><td>Unsecured 3.75% notes due March 15, 2027 (4)</td><td>396,586</td><td>396,110</td></tr><tr><td>Unsecured 4.55% senior notes due March 1, 2029 (5)</td><td>346,006</td><td>-</td></tr><tr><td>Unsecured 5.25% notes due June 1, 2045 (6)</td><td>298,589</td><td>298,514</td></tr><tr><td>Unsecured 4.25% notes due January 15, 2048 (7)</td><td>296,467</td><td>296,344</td></tr><tr><td>Other obligations, including capital leases and unsecured notes payable at various rates of interest due in installments through 2021</td><td>2,220</td><td>3,283</td></tr><tr><td>Less: current portion</td><td>2,525,908</td><td>2,174,144</td></tr><tr><td>Total Long-Term Debt, Less Current Maturities</td><td>552,446</td><td>3,501</td></tr></table>

(1) Interest at May 31, 2019 was tied to LIBOR and averaged 3.6805% for USD denominated debt ($14,268), 2.69% for AUD denominated debt ($34,558), 3.23% on CAD denominated debt ($131,738) and 1.25% on EUR denominated debt ($159,745). Interest was tied to AUD at May 31, 2018, and averaged 2.925% for AUD denominated debt ($23,309) and 0.675% on EUR denominated debt ($213,708). At May 31, 2019 and 2018, the revolving credit facility is adjusted for debt issuance costs, net of amortization, for approximately $3.9 million and $1.2 million, respectively.

(2) At May 31, 2019, the accounts receivable securitization program is adjusted for debt issuance cost, net of amortization, for approximately $0.1 million.

(3) Includes the combination of the October 2009 initial issuance of $300.0 million aggregate principal amount and the May 2011 issuance of an additional $150.0 million aggregate principal amount of these notes. The effective interest rate on the notes issued in October 2009, including the amortization of the discount, is 6.139%. The additional $150.0 million aggregate principal amount of the notes due 2019 issued in May 2011 is adjusted for the unamortized premium received at issuance, which approximated $0.7 million and $2.3 million at May 31, 2019 and 2018, respectively. The premium effectively increased the proceeds from the financing. The effective interest rate on the $150.0 million notes issued in May 2011 is 4.934%. At May 31, 2019 and 2018, the notes are adjusted for debt issuance costs, net of amortization, for approximately $0.2 million and $0.6 million, respectively.

(4) The $400.0 million face amount of the notes due 2027 is adjusted for the amortization of the original issue discount, which approximated $0.4 million and $0.5 million at May 31, 2019 and 2018, respectively. The original issue discount effectively reduced the ultimate proceeds from the financing. The effective interest rate on the notes, including the amortization of the discount, is 3.767%. At May 31, 2019 and 2018, the notes are adjusted for debt issuance costs, net of amortization, for approximately $3.0 million and $3.4 million, respectively.

(5) The $350.0 million aggregate principal amount of the notes due 2029 is adjusted for the amortization of the original issue discount, which approximated $0.5 million at May 31, 2019. The original issue discount effectively reduced the ultimate proceeds from the financing. The effective interest rate on the notes, including the amortization of the discount, was 4.568%. At May 31, 2019, the notes were adjusted for debt issuance costs, net of amortization, for approximately $3.5 million.

(6) The $250.0 million face amount of the notes due 2045 is adjusted for the amortization of the original issue discount, which approximated $1.4 million at May 31, 2019 and 2018. The original issue discount effectively reduced the ultimate proceeds from the financing. The effective interest rate on the notes, including the amortization of the discount, is 5.29%. In March 2017, as a further issuance of the 5.25% notes due 2045, we closed an offering of $50.0 million aggregate principal, which is adjusted for the unamortized premium received at issuance, which approximated $3.0 million at May 31, 2019 and 2018. The premium effectively increased the proceeds from the financing. The effective interest rate on the $50.0 million notes issued March 2017 is 4.839%. At May 31, 2019 and 2018, the notes are adjusted for debt issuance costs, net of amortization, for approximately $3.0 million and $3.1 million, respectively.

(7) The $300.0 million face amount of the notes due 2048 is adjusted for the debt issuance cost, net of amortization, which approximated $3.5 million and $3.6 million at May 31, 2019 and 2018, respectively. The effective interest rate on the notes is 4.25%.

The aggregate maturities of long-term debt for the five years subsequent to May 31, 2019 are as follows: 2020 — $552.4 million; 2021 — $0.1 million; 2022 — $0.1 million; 2023 — $299.3 million; 2024 — $336.4 million and thereafter $1,337.6 million. Additionally, at May 31, 2019, we had unused lines of credit totaling $1,059.1 million.

Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $1.28 billion at May 31, 2019. Our debt-to-capital ratio was 64.2% at May 31, 2019, compared with 57.1% at May 31, 2018.

## 4.550% Notes due 2029

On February 27, 2019, we closed an offering for $350.0 million aggregate principal amount of 4.550% Notes due 2029 (the "2029 Notes"). The proceeds from the 2029 Notes were used to repay a portion of the outstanding borrowings under our revolving credit facility and for general corporate purposes. Interest on the 2029 Notes accrues from February 27, 2019 and is payable semiannually in arrears on March 1st and September 1st of each year, beginning September 1, 2019, at a rate of 4.550% per year. The 2029 Notes mature on March 1, 2029. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.

## 4.250% Notes due 2048

On December 20, 2017, we closed an offering for $300.0 million aggregate principal amount of 4.250% Notes due 2048 (the "2048 Notes"). The proceeds from the 2048 Notes were used to repay $250.0 million in principal amount of unsecured 6.50% senior notes due February 15, 2018, and for general corporate purposes. Interest on the 2048 Notes accrues from December 20, 2017 and is payable semiannually in arrears on January 15th and July 15th of each year, beginning July 15, 2018, at a rate of 4.250% per year. The 2048 Notes mature on January 15, 2048. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.



## 5.250% Notes due 2045 and 3.750% Notes due 2027

On March 2, 2017, we issued $50.0 million aggregate principal amount of 5.250% Notes due 2045 (the "2045 Notes") and $400.0 million aggregate principal amount of 3.750% Notes due 2027 (the "2027 Notes"). The 2045 Notes are a further issuance of the $250 million aggregate principal amount of 5.250% Notes due 2045 initially issued by us on May 29, 2015. Interest on the 2045 Notes is payable semiannually in arrears on June 1st and December 1st of each year at a rate of 5.250% per year. The 2045 Notes mature on June 1, 2045. Interest on the 2027 Notes is payable semiannually in arrears on March 15th and September 15th of each year, at a rate of 3.750% per year. The 2027 Notes mature on March 15, 2027. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.

## Revolving Credit Agreement

During the quarter ended November 30, 2018, we replaced our previous $800.0 million revolving credit agreement, which was set to expire on December 5, 2019, with a $1.3 billion unsecured 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. Accordingly, during October 2019, we intend to utilize available funds from our Revolving Credit Facility to repay our unsecured 6.125% senior notes, which mature on October 15, 2019. At May 31, 2019, the outstanding balance on our 6.125% senior notes, including all amortizable cost, approximated $450.5 million, which is included in the current portion of long-term debt on our consolidated balance sheets.

The Revolving Credit Facility requires us to comply with various customary affirmative and negative covenants, including a leverage covenant and interest coverage ratio, which are calculated in accordance with the terms as defined by the credit agreement. Under the terms of the leverage covenant, we may not permit our leverage ratio for total indebtedness to be considered EBITDA for the four most recent fiscal quarters to exceed 3.75 to 1.0. During certain periods and per the terms of the Revolving Credit Facility, this ratio may be increased to 4.25 to 1.0 in the event of an acquisition for which the aggregate consideration is $100.0 million or greater. The minimum required consolidated interest coverage ratio for EBITDA to interest expense is 3.50 to 1. The interest coverage ratio is calculated at the end of each fiscal quarter for the four fiscal quarters then ended using an EBITDA as defined in the Revolving Credit Facility.

As of May 31, 2019, we were in compliance with all financial covenants contained in our Revolving Credit Facility, including the leverage and interest coverage ratio covenants. At that date, our leverage ratio was 3.15 to 1, while our interest coverage ratio was 7.46 to 1. Our available liquidity under our Revolving Credit Facility stood at $959.1 million at May 31, 2019.

Our access to funds under our Revolving Credit Facility is dependent on the ability of the financial institutions that are parties to the Revolving Credit Facility to meet their funding commitments. Those financial institutions may not be able to meet their funding commitments if they experience shortages of capital and liquidity or if they experience excessive volumes of borrowing requests within a short period of time. Moreover, the obligations of the financial institutions under our Revolving Credit Facility are several and not joint and, as a result, a funding default by one or more institutions does not need to be made up by the others.

## Accounts Receivable Securitization Program

On May 9, 2014, we entered into a $200.0 million accounts receivable securitization facility (the "AR Program"). The AR Program, which expires on May 8, 2020, was entered into pursuant to (1) a second amended and restated receivables sales requirement, dated as of May 9, 2014, and subsequently amended on August 29, 2014; November 3, 2015; December 31, 2016; and March 31, 2017 (the "Sale Agreement"), among certain of our Subsidiaries (the "Originators"), and RPM Funding Corporation, a special purpose entity (the "SPE") whose voting interests are wholly owned by us, and (2) an amended and restated receivables purchase agreement, dated as of May 9, 2014 and subsequently amended on February 25, 2015 and May 2, 2017 (the "Purchase Agreement"), among the SPE, certain purchasers from time to time party thereto (the "Purchasers"), and PNC Bank, National Association as administrative agent.

Under the Sale Agreement, the Originators may, during the term thereof, sell specified accounts receivable to the SPE, which may in turn, pursuant to the Purchase Agreement, transfer an undivided interest in such accounts receivable to the Purchasers. Once transferred to the SPE, such receivables are owned in their entirety by the SPE and are not available to satisfy claims of our creditors or creditors of the originating subsidiaries until the obligations owing to the participating banks have been paid in full. We indirectly hold a 100% economic interest in the SPE and will, along with our subsidiaries, receive the economic benefit of the AR Program. The transactions contemplated by the AR Program do not constitute a form of off-balance sheet financing and will be fully reflected in our financial statements.

The maximum availability under the AR Program is $200.0 million. Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and, therefore, at certain times, we may not be able to fully access the $200.0 million of funding available under the AR Program. As of May 31, 2019, there was $100.0 million outstanding balance under the AR Program, which compares with the maximum availability on that date of $200.0 million.

The interest rate under the Purchase Agreement is based on the Alternate Base Rate, LIBOR Market Index Rate, one-month LIBOR or LIBOR for a specified tranche period, as selected by us, plus in each case, a margin of 0.8%. In addition, as set forth in an Amended and Restated Fee Letter, dated May 2, 2017 (the "Fee Letter"), the SPE is obligated to pay a monthly unused commitment fee to the Purchasers based on the daily amount of unused commitments under the Agreement, which ranges from 0.30% to 0.50% based on usage. The AR Program contains various customary affirmative and negative covenants and also contains customary default and termination provisions.

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. 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.



## 2.25% Convertible Senior Notes due 2020

On December 9, 2013, we issued $205 million of 2.25% Convertible Senior Notes due 2020 (the "Convertible Notes"). We paid interest on the Convertible Notes semi-annually on June 15th and December 15th of each year.

We completed the redemption of all $205.0 million aggregate principal amount of our outstanding Convertible Notes on November 27, 2018 (the "Redemption Date"). The redemption price for the Convertible Notes was equal to 100% of the principal amount of the Convertible Notes to be redeemed, plus accrued and unpaid interest until, but excluding, the Redemption Date. As a result of the issuance of the notice of redemption, the Convertible Notes became convertible at any time prior to the close of business on November 26, 2018. The conversion rate was 19.221062 shares of RPM common stock per $1,000 original principal amount of the Convertible Notes, which is equivalent to a conversion price of approximately $52.12 per share (subject to adjustment in accordance with the terms of the Indenture). In accordance with the provisions of the indenture for the Convertible Notes, we elected to settle the Convertible Notes surrendered for conversion through a combination settlement of cash and shares of RPM common stock. In settlement of those conversions, we paid an aggregate of approximately $204.6 million in cash, including cash in lieu of fractional shares, and issued 598,601 shares of RPM common stock in the aggregate.

## NOTE H — INCOME TAXES

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act ("Act"). The income tax effects of changes in tax laws are recognized in the period when enacted. The Act provides for numerous significant tax law changes and modifications with varying effective dates. Generally, the more significant provisions of the Act that impacted us for the year ended May 31, 2018 include the reduction in the U.S. corporate income tax rate from 35% to 21%, the creation of a territorial tax system (with a one-time mandatory tax on previously unremitted foreign earnings) and allowing for immediate capital expensing of certain qualified property. The corporate tax rate reduction was effective for RPM as of January 1, 2018 and, accordingly, reduced our fiscal year 2018 federal statutory tax rate to a blended rate of approximately 29.2%. The significant provisions of the Act that impact us for fiscal 2019 include the full federal statutory rate reduction to 21% and the repeal of the domestic production activities deduction. Also effective for fiscal 2019 are provisions of the Act that subject us to current U.S. tax on global intangibles low-taxed income ("GLTI") earned by certain foreign subsidiaries and allows a benefit for foreign-derived intangible income ("FDII"). The estimated net tax impact related to GLTI and FDII for the year ended May 31, 2019 is not material to our consolidated financial results.

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

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

For the year ended May 31, 2019, the provision for income taxes is calculated in accordance with ASC 740, which requires the recognition of deferred income taxes using the asset and liability method.

Income before income taxes as shown in the Consolidated Statements of Income is summarized below for the periods indicated.

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>United States</td><td>$ 215,201</td><td>$ 228,976</td><td>$ 133,356</td></tr><tr><td>Foreign</td><td>124,644</td><td>188,072</td><td>110,977</td></tr><tr><td>Income Before Income Taxes</td><td>$ 339,845</td><td>$ 417,048</td><td>$ 244,333</td></tr></table>

Provision (benefit) for income taxes consists of the following for the periods indicated:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Current:</td><td></td><td></td><td></td></tr><tr><td>U.S. federal</td><td>$ 20,388</td><td>$ 27,206</td><td>$ 3,024</td></tr><tr><td>State and local</td><td>8,623</td><td>8,617</td><td>5,115</td></tr><tr><td>Foreign</td><td>37,713</td><td>52,658</td><td>27,474</td></tr><tr><td>Total Current</td><td>66,724</td><td>88,481</td><td>35,613</td></tr><tr><td>Deferred:</td><td></td><td></td><td></td></tr><tr><td>U.S. federal</td><td>15,298</td><td>(8,054)</td><td>15,553</td></tr><tr><td>State and local</td><td>1,414</td><td>4,832</td><td>1,928</td></tr><tr><td>Foreign</td><td>(11,278)</td><td>(7,468)</td><td>6,568</td></tr><tr><td>Total Deferred</td><td>5,434</td><td>(10,690)</td><td>24,049</td></tr><tr><td>Provision for Income Taxes</td><td>$ 72,158</td><td>$ 77,791</td><td>$ 59,662</td></tr></table>



The significant components of deferred income tax assets and liabilities as of May 31, 2019 and 2018 were as follows:

<table><tr><td>(In thousands)</td><td>2019</td><td>2018</td></tr><tr><td>Deferred income tax assets related to:</td><td></td><td></td></tr><tr><td>Inventories</td><td>$ 8,970</td><td>$ 12,491</td></tr><tr><td>Allowance for losses</td><td>7,524</td><td>5,349</td></tr><tr><td>Accrued compensation and benefits</td><td>14,364</td><td>14,812</td></tr><tr><td>Accrued other expenses</td><td>17,036</td><td>14,427</td></tr><tr><td>Other long-term liabilities</td><td>15,947</td><td>15,921</td></tr><tr><td>Credit and net operating and capital loss carryforwards</td><td>63,395</td><td>52,687</td></tr><tr><td>Net unrealized loss on securities</td><td>12,391</td><td>10,236</td></tr><tr><td>Pension and other postretirement benefits</td><td>42,991</td><td>39,863</td></tr><tr><td>Total Deferred Income Tax Assets</td><td>182,618</td><td>165,786</td></tr><tr><td>Less: valuation allowances</td><td>(55,274)</td><td>(51,540)</td></tr><tr><td>Net Deferred Income Tax Assets</td><td>127,344</td><td>114,246</td></tr><tr><td>Deferred income tax (liabilities) related to:</td><td></td><td></td></tr><tr><td>Depreciation</td><td>(72,387)</td><td>(62,202)</td></tr><tr><td>Amortization of intangibles</td><td>(116,097)</td><td>(114,284)</td></tr><tr><td>Unremitted foreign earnings</td><td>(18,795)</td><td>(19,886)</td></tr><tr><td>Total Deferred Income Tax (Liabilities)</td><td>(207,279)</td><td>(196,372)</td></tr><tr><td>Deferred Income Tax Assets (Liabilities), Net</td><td>$ (79,935)</td><td>$ (82,126)</td></tr></table>

At May 31, 2019, we had U.S. capital loss carryforwards of approximately $47.0 million, of which $43.4 million will expire if not used by the end of our fiscal year 2022, with the balance expiring if unused by the end of our fiscal year 2024. Also, as of May 31, 2019, we had foreign tax credit carryforwards of $8.3 million, which expire in fiscal 2029. Additionally, as of May 31, 2019, we had approximately $2.4 million of tax benefits associated with state net operating loss carryforwards and state tax credit carryforwards of $2.4 million, both of which expire at various dates beginning in 2020. Also, as of May 31, 2019, we had foreign net operating loss carryforwards of approximately $182.8 million, of which approximately $27.1 million will expire at various dates beginning in 2020 and approximately $155.7 million that have an indefinite carryforward period. Additionally, as of May 31, 2019, we had foreign capital loss carryforwards of approximately $29.6 million that can be carried forward indefinitely.

When evaluating the realizability of deferred income tax assets, we consider, among other items, whether a jurisdiction has experienced cumulative pretax losses and whether a jurisdiction will generate the appropriate character of income to recognize a deferred income tax asset. More specifically, if a jurisdiction experiences cumulative pretax losses for a period of three years, including the current fiscal year, or if a jurisdiction does not have sufficient income of the appropriate character in the relevant carryback or projected carryforward periods, we generally conclude that it is more likely than not that the respective deferred tax asset will not be realized unless factors such as expected operational changes, availability of prudent and feasible tax planning strategies, reversal of taxable temporary differences or other information exists that would lead us to conclude otherwise. If, after we have evaluated these factors, the deferred income tax assets are not expected to be realized within the carryforward or carryback periods allowed for that jurisdiction, we would conclude that a valuation allowance is required.

Total valuation allowances of approximately $55.3 million and $51.5 million have been recorded as of May 31, 2019 and 2018, respectively. These recorded valuation allowances relate to foreign and U.S. capital losses, certain foreign net operating losses, net foreign deferred tax assets and foreign tax credit carryforwards. The year-over-year increase in valuation allowances are primarily attributable to unrealized and realized domestic capital losses, foreign tax credit carryforwards and certain foreign net operating loss carryforwards. Those increases were partially offset, primarily, as a result of translational foreign currency changes.

The following table reconciles income tax expense (benefit) computed by applying the U.S. statutory federal income tax rate against income (loss) before income taxes to the provision (benefit) for income taxes:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands, except percentages)</td><td></td><td></td><td></td></tr><tr><td>Income tax expense at the U.S. statutory federal income tax rate</td><td>$ 71,367</td><td>$ 121,812</td><td>$ 85,517</td></tr><tr><td>Impact of foreign operations</td><td>(1,571)</td><td>(16,276)</td><td>(20,156)</td></tr><tr><td>State and local income taxes, net</td><td>7,224</td><td>9,520</td><td>4,734</td></tr><tr><td>Impact of global intangible low-taxed income</td><td>5,772</td><td></td><td></td></tr><tr><td>Domestic manufacturing deduction</td><td>-</td><td>(4,839)</td><td>(2,537)</td></tr><tr><td>Nondeductible business expense</td><td>2,259</td><td>2,473</td><td>2,394</td></tr><tr><td>Valuation allowance</td><td>7,021</td><td>(5,235)</td><td>933</td></tr><tr><td>Deferred tax liability for unremitted foreign earnings</td><td>-</td><td>(77,970)</td><td>(621)</td></tr><tr><td>Changes in unrecognized tax benefits</td><td>(8,480)</td><td></td><td></td></tr><tr><td>Other</td><td>1,195</td><td>737</td><td>1,476</td></tr><tr><td>Equity-based compensation</td><td>(4,496)</td><td>(4,652)</td><td>(12,078)</td></tr><tr><td>Transition tax liability</td><td>(1,868)</td><td>67,899</td><td>-</td></tr><tr><td>Remeasurement of U.S. deferred income taxes</td><td>(6,265)</td><td>(15,678)</td><td>-</td></tr><tr><td>Provision for Income Tax Expense</td><td>$ 72,158</td><td>$ 77,791</td><td>$ 59,662</td></tr><tr><td>Effective Income Tax Rate</td><td>21.2%</td><td>18.7%</td><td>24.4%</td></tr></table>



Uncertain income tax positions are accounted for in accordance with ASC 740. The following table summarizes the activity related to unrecognized tax benefits:

<table><tr><td>(In millions)</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Balance at June 1</td><td>$14.1</td><td>$13.2</td><td>$13.7</td></tr><tr><td>Additions based on tax positions related to current year</td><td>0.1</td><td>5.1</td><td>0.2</td></tr><tr><td>Additions for tax positions of prior years</td><td>2.0</td><td>-</td><td>2.9</td></tr><tr><td>Reductions for tax positions of prior years</td><td>(7.9)</td><td>(4.5)</td><td>(3.2)</td></tr><tr><td>Foreign currency translation</td><td>(0.2)</td><td>0.3</td><td>(0.4)</td></tr><tr><td>Balance at May 31</td><td>$8.1</td><td>$14.1</td><td>$13.2</td></tr></table>

The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $7.7 million at May 31, 2019, $13.6 million at May 31, 2018 and $4.6 million at May 31, 2017.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. At May 31, 2019, 2018 and 2017, the accrual for interest and penalties was $3.0 million, $2.8 million and $3.1 million, respectively. Unrecognized tax benefits, including interest and penalties, have been classified as other long-term liabilities unless expected to be paid in one year.

We file income tax returns in the U.S. and in various state, local and foreign jurisdictions. The Internal Revenue Service has substantially completed an examination of our 2015 and 2016 federal income tax returns and the statutory audit period has expired for all years through 2013. The 2015 and 2016 examinations have thus far resulted in an inconsequential reduction to our 2015 federal income tax liability and no changes to our 2016 federal income tax liability, and no further proposed adjustments are expected. Further, with limited exceptions, we are generally subject to state and local or non-U.S. income tax examinations by tax authorities for the fiscal years 2012 through 2018.

We are currently under examination, or have been notified of an upcoming tax examination, for various non-U.S. and domestic state and local jurisdictions. Although it is possible that certain tax examinations could be resolved during the next 12 months, the timing and outcomes are uncertain.

Our deferred tax liability for unremitted foreign earnings was adjusted to $19.9 million as of May 31, 2018. The $19.9 million deferred tax liability represented our estimate of the foreign tax cost associated with the remittance of $549.8 million of foreign earnings that were not considered to be permanently reinvested. As of May 31, 2019, the amount of these earnings has been reduced to approximately $413.3 million and the related deferred tax liability, which represents the estimated tax cost to repatriate these earnings, was adjusted to $18.8 million to reflect the impact of foreign exchange. The reduction to the earnings amounts no longer permanently reinvested is due principally to distributions made during this fiscal year, which were not subject to foreign withholding taxes.
We have not provided for U.S. income taxes or foreign withholding taxes on the remaining $1.1 billion of foreign unremitted earnings because such earnings have been retained and reinvested by the foreign subsidiaries as of May 31, 2019. Accordingly, no provision has been made for U.S. income taxes or foreign withholding taxes, which may become payable if the remaining unremitted earnings of foreign subsidiaries were distributed to the U.S. Due to the uncertainties and complexities involved in the various options for repatriation of foreign earnings, it is not practical to calculate the deferred taxes associated with the remaining foreign earnings.

## NOTE I — COMMON STOCK

On January 8, 2008, we announced our authorization of a stock repurchase program under which we may repurchase shares of RPM International Inc. common stock at management's discretion. As announced on November 28, 2018, our goal is to return $1.0 billion in capital to stockholders by May 31, 2021 through share repurchases. On April 16, 2019, after taking into account share repurchases under our existing stock repurchase program to date, our Board of Directors authorized the repurchase of the remaining $600.0 million in value of RPM International Inc. common stock by May 31, 2021. As a result, we may repurchase shares from time to time in the open market or in private transactions at various times and in amounts and for prices that our management deems appropriate, subject to insider trading rules and other securities law restrictions. The timing of our purchases will depend upon prevailing market conditions, alternative uses of capital and other factors. We may limit or terminate the repurchase program at any time. During the fiscal year ended May 31, 2019, we repurchased 3,286,907 shares of our common stock at a cost of approximately $200.2 million, or an average cost of $60.92 per share, under this program. During the fiscal years ended May 31, 2018 and 2017, we did not repurchase any shares of our common stock under this program.

## NOTE J — STOCK-BASED COMPENSATION

Stock-based compensation represents the cost related to stock-based awards granted to our employees and directors; these awards include restricted stock, restricted stock units, performance stocks, performance stock units and SARs. We grant stock-based incentive awards to our employees and/or our directors under various share-based compensation plans. Plans that are active or provide for stock option grants or share-based payment awards include the Amended and Restated 2004 Omnibus Equity and Incentive Plan (the "2004 Omnibus Plan") and the 2014 Omnibus Equity and Incentive Plan (the "2014 Omnibus Plan"), which includes provisions for grants of restricted stock, restricted stock units, performance stock, performance stock units and SARs. Other plans, which provide for restricted stock grants only, include the 2003 Restricted Stock Plan for Directors (the "2003 Plan") and the 2007 Restricted Stock Plan (the "2007 Plan").

We measure stock-based compensation cost at the date of grant, based on the estimated fair value of the award. We recognize the cost as expense on a straight-line basis (net of estimated forfeitures) over the related vesting period.



The following table represents total stock-based compensation expense included in our Consolidated Statements of Income:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Stock-based compensation expense, included in SG&amp;A</td><td>$ 31,154</td><td>$ 25,440</td><td>$ 32,541</td></tr><tr><td>Stock-based compensation expense, included in restructuring expense</td><td>4,283</td><td>2,136</td><td>-</td></tr><tr><td>Total stock-based compensation cost</td><td>35,437</td><td>27,576</td><td>32,541</td></tr><tr><td>Income tax (benefit)</td><td>(6,937)</td><td>(7,178)</td><td>(10,159)</td></tr><tr><td>Total stock-based compensation cost, net of tax</td><td>$ 28,500</td><td>$ 20,398</td><td>$ 22,382</td></tr></table>

## SARs

SARs are awards that allow our employees to receive shares of our common stock at a fixed price. We grant SARs at an exercise price equal to the stock price on the date of the grant. The fair value of SARs granted is estimated as of the date of grant using a Black-Scholes option-pricing model. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected life of options granted is derived from the input of the option-pricing model and represents the period of time that options granted are expected to be outstanding. Expected volatility rates are based on historical volatility of shares of our common stock.

The following is a summary of our weighted-average assumptions related to SARs grants made during the last three fiscal years:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Risk-free interest rate</td><td>2.9%</td><td>2.2%</td><td>1.5%</td></tr><tr><td>Expected life of option</td><td>6.5 yrs</td><td>7.0 yrs</td><td>7.0 yrs</td></tr><tr><td>Expected dividend yield</td><td>2.1%</td><td>2.2%</td><td>2.2%</td></tr><tr><td>Expected volatility rate</td><td>25.2%</td><td>26.2%</td><td>25.7%</td></tr></table>

The 2014 Omnibus Plan was approved by our stockholders on October 9, 2014. The 2014 Omnibus Plan provides us with the flexibility to grant a wide variety of stock and stock-based awards, as well as dollar-denominated performance-based awards, and is intended to be the primary stock-based award program for covered employees. This plan replaces the 2004 Omnibus Plan, which expired under its own terms on October 7, 2014. A wide variety of stock and stock-based awards, as well as dollar-denominated performance-based awards, may be granted under these plans. SARs are issued at fair value at the date of grant, have up to ten-year terms and have graded-vesting terms over four years. Compensation cost for these awards is recognized on a straight-line basis over the related vesting period. Currently all SARs outstanding are to be settled with stock. As of May 31, 2019, there were 3,097,500 SARs outstanding.

The following table summarizes option and share-based payment activity (including SARs) under these plans during the fiscal year ended May 31, 2019:

<table><tr><td rowspan="2">Share-Based Payments</td><td colspan="2">2019</td></tr><tr><td>Weighted Average Exercise Price</td><td>Number of Shares Under Option</td></tr><tr><td>(Shares in thousands)</td><td></td><td></td></tr><tr><td>Balance at June 1, 2018</td><td>$ 43.36</td><td>3,207</td></tr><tr><td>Options granted</td><td>60.01</td><td>480</td></tr><tr><td>Options exercised</td><td>40.74</td><td>(590)</td></tr><tr><td>Balance at May 31, 2019</td><td>46.44</td><td>3,097</td></tr><tr><td>Exercisable at May 31, 2019</td><td>$ 41.87</td><td>2,085</td></tr><tr><td>SARs</td><td>2019</td><td>2018</td></tr><tr><td>(In millions, except per share amounts)</td><td></td><td></td></tr><tr><td>Weighted-average grant-date fair value per SAR</td><td>$ 14.08</td><td>$ 12.90</td></tr><tr><td>Intrinsic value of options exercised</td><td>$ 9.29</td><td>$ 11.10</td></tr><tr><td>Tax benefit from options exercised</td><td>$ 3.21</td><td>$ 3.40</td></tr><tr><td>Fair value of SARs vested</td><td>$ 9.30</td><td>$ 6.50</td></tr></table>

At May 31, 2019, the aggregate intrinsic value and weighted-average remaining contractual life of options outstanding was $25.9 million and 5.66 years, respectively, while the aggregate intrinsic value and weighted-average remaining contractual life of options exercisable was $24.9 million and 4.4 years, respectively.
At May 31, 2019, the total unamortized stock-based compensation expense related to SARs that were previously granted was $8.6 million, which is expected to be recognized over 2.52 years. We anticipate that approximately 3.1 million shares at a weighted-average exercise price of $46.38 and a weighted-average remaining contractual term of 5.6 years will ultimately vest under these plans.



## Restricted Stock Plans

We also grant stock-based awards, which may be made in the form of restricted stock, restricted stock units, performance stock and performance stock units. These awards are granted to eligible employees or directors, and entitle the holder to shares of our common stock as the award vests. The fair value of the awards is determined and fixed based on the stock price at the date of grant. A description of our restricted stock plans follows.

Under the 2004 Omnibus Plan, a total of 12,000,000 shares of our common stock were subject to awards. Of the 12,000,000 shares of common stock issuable under the 2004 Omnibus Plan, up to 6,000,000 shares were subject to “full-value” awards such as restricted stock, restricted stock unit, performance stock and performance stock unit awards.

Under the 2014 Omnibus Plan, a total of 6,000,000 shares of our common stock may be subject to awards. Of those issuable shares, up to 3,000,000 shares of common stock may be subject to “full-value” awards similar to those issued under the 2014 Omnibus Plan.

The following table summarizes the share-based performance-earned restricted stock (“PERs”) and performance stock units (“PSUs”) activity during the fiscal year ended May 31, 2019:

<table><tr><td>Shares (in thousands)</td><td>Weighted-Average Grant-Date Fair Value</td><td>2019</td></tr><tr><td>Balance at June 1, 2018</td><td>$ 48.97</td><td>1,047</td></tr><tr><td>Shares granted</td><td>60.36</td><td>440</td></tr><tr><td>Shares forfeited</td><td>57.99</td><td>(34)</td></tr><tr><td>Shares vested</td><td>48.65</td><td>(624)</td></tr><tr><td>Balance at May 31, 2019</td><td>$ 54.90</td><td>829</td></tr></table>

The weighted-average grant-date fair value was $60.36, $52.26 and $50.84 for the fiscal years ended May 31, 2019, 2018 and 2017, respectively. The restricted stock and performance stock cliff vest after three years. Nonvested restricted shares of common stock under the 2004 and 2014 Omnibus Plans are eligible for dividend payments, while performance stock units are not eligible for dividend payments. At May 31, 2019, remaining unamortized deferred compensation expense for performance-earned restricted stock totaled $11.7 million, all of which is associated with the 2014 Plan. The remaining amount is being amortized over the applicable vesting period each participant.

On July 31, 2015, our Compensation Committee approved contingent awards of PCRS, (the "2015 PCRS"), for certain executives. During July 2015, 329,000 shares were granted at a weighted-average grant-date price of $46.87. The awards were contingent upon the level of attainment of performance goals for the three-year performance period from June 1, 2015 ending May 31, 2018. Vesting of 67% of the 2015 PCRS related to an increase in EBIT for the period, and vesting of the remaining 33% related to an increase in EBIT margin for the period. Compensation cost for these awards was recognized on a straight-line basis over the related performance period, with consideration given to the probability of attaining the performance goals. Although there were 301,000 2015 PCRS shares outstanding as of May 31, 2018, the contingent performance goals were not met and, therefore, these awards did not vest and were cancelled in fiscal 2019.

On October 3, 2018, our Compensation Committee granted in the aggregate 192,000 Performance Stock Units (the "2018 PSUs") to certain executives at a weighted-average grant-date price of $60.50 per PSU. The awards are contingent upon the level of attainment of performance goals for the three-year performance period from June 1, 2018 ending May 31, 2021. Vesting of 50% of the 2018 PSUs relates to compounded annualized growth rates in adjusted revenue for the period, and the vesting of the remaining 50% relates to an increase in EBIT margin, measured at the end of the three-year performance period. The number of PSUs that may vest with respect to the achievement of the performance goals may range from 0% to 200% of the PSUs granted under this program. Compensation cost for these awards has been recognized on a straight-line basis over the related performance period, with consideration given to the probability of attaining the performance goals. As of May 31, 2019, there were 166,000 2018 PSUs outstanding and $5.6 million unamortized stock-based compensation, which is expected to be recognized over a weighted average period of 2.0 years.

The 2003 Plan was approved on October 10, 2003 by our stockholders, and was established primarily for the purpose of recruiting and retaining directors, and to align the interests of directors with the interests of our stockholders. Only directors who are not our employees are eligible to participate. Under the 2003 Plan, up to 500,000 shares of our common stock may be awarded, with awards cliff vesting over a three-year period. The following table summarizes the share-based activity under the 2003 Plan during fiscal 2019:

<table><tr><td>Shares (in thousands)</td><td>Weighted-Average Grant-Date Fair Value</td><td>2019</td></tr><tr><td>Balance at June 1, 2018</td><td>$ 48.56</td><td>67</td></tr><tr><td>Shares granted to directors</td><td>60.50</td><td>23</td></tr><tr><td>Shares vested</td><td>47.21</td><td>(35)</td></tr><tr><td>Balance at May 31, 2019</td><td>$ 54.56</td><td>55</td></tr></table>

The weighted-average grant-date fair value was $60.50, $51.63 and $50.61 for the fiscal years ended May 31, 2019, 2018 and 2017, respectively. Unamortized deferred compensation expense relating to restricted stock grants for directors of $1.4 million at May 31, 2019, is being amortized over the applicable remaining vesting period for each director. Nonvested restricted shares of common stock under the 2003 Plan are eligible for dividend payments. As of May 31, 2019, there were 30,300 shares available for future grant.

During fiscal 2019, a total of 38,946 shares were awarded under the 2014 Omnibus Plan to certain employees as supplemental retirement benefits, generally subject to forfeiture. The shares vest upon the latter of attainment of age 55 and the fifth anniversary of the May 31st immediately preceding the date of the grant. The following table sets forth such awards for the year ended May 31, 2019:

<table><tr><td>Shares (in thousands)</td><td>Weighted-Average Grant-Date Fair Value</td><td>2019</td></tr><tr><td>Balance at June 1, 2018</td><td>$ 26.42</td><td>702</td></tr><tr><td>Shares granted</td><td>60.01</td><td>39</td></tr><tr><td>Shares forfeited</td><td>-</td><td>-</td></tr><tr><td>Shares exercised</td><td>26.12</td><td>(309)</td></tr><tr><td>Balance at May 31, 2019</td><td>$ 31.73</td><td>432</td></tr></table>

The weighted-average grant-date fair value was $60.01, $55.19 and $50.99 for the fiscal years ended May 31, 2019, 2018 and 2017, respectively. As of May 31, 2019, no shares remain available for future grant under the 2007 Plan, and future issuances of shares as supplemental retirement benefits are made under the 2014 Omnibus Plan. At May 31, 2019, unamortized stock-based compensation expense of $1.2 million, $0.07 million and $2.1 million relating to the 2007 Plan, the Restricted Stock Units and the 2014 Omnibus Plan, respectively, are being amortized over the applicable vesting period associated with each participant.



The following table summarizes the activity for all nonvested restricted shares during the year ended May 31, 2019:

<table><tr><td>(Shares in thousands)</td><td>Weighted-Average Grant-Date Fair Value</td><td>Number of Shares</td></tr><tr><td>Balance at June 1, 2018</td><td>$ 45.85</td><td>1,755</td></tr><tr><td>Granted</td><td>60.34</td><td>503</td></tr><tr><td>Vested</td><td>45.44</td><td>(833)</td></tr><tr><td>Forfeited</td><td>47.98</td><td>(334)</td></tr><tr><td>Balance at May 31, 2019</td><td>$ 52.35</td><td>1,091</td></tr></table>

The remaining weighted-average contractual term of nonvested restricted shares at May 31, 2019 is the same as the period over which the remaining cost of the awards will be recognized, which is approximately 2.24 years. The fair value of the nonvested restricted share awards have been calculated using the market value of the shares on the date of issuance. For the years ended May 31, 2019, 2018 and 2017, the weighted-average grant-date fair value for restricted share grants was $60.34, $52.62 and $50.84, respectively. The total fair value of shares that vested during the years ended May 31, 2019, 2018 and 2017 was $37.8 million, $29.9 million and $20.3 million, respectively. We anticipate that approximately 1.09 million shares at a weighted-average grant-date fair value of $52.35 and a weighted-average remaining contractual term of 2.24 years will ultimately vest, based upon the unique terms and participants of each plan. Approximately 832,717 shares of restricted stock were vested at May 31, 2019, with 360,762 restricted shares vested as of May 31, 2018. The total intrinsic value of restricted shares converted during the years ended May 31, 2019, 2018 and 2017 was $58.1 million, $7.6 million and $9.0 million, respectively.

Total unrecognized compensation cost related to all nonvested awards of restricted shares of common stock was $24.7 million as of May 31, 2019. That cost is expected to be recognized over a weighted-average period of 2.24 years. We did not receive any cash from employees as a result of employee vesting and release of restricted shares for the year ended May 31, 2019.

## NOTE K — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (loss) consists of the following components:

<table><tr><td>(In thousands)</td><td>Foreign Currency Translation Adjustments</td><td>Pension And Other Postretirement Benefit Liability Adjustments, Net of Tax</td><td>Unrealized Gain (Loss) On Derivatives, Net of Tax</td><td>Unrealized Gain (Loss) On Securities, Net of Tax</td><td>Total</td></tr><tr><td>Balance at June 1, 2016</td><td>$ (291,233)</td><td>$ (208,206)</td><td>$ -</td><td>$ (2,608)</td><td>$ (502,047)</td></tr><tr><td>Reclassification adjustments for gains included in net income, net of taxes of $401</td><td></td><td></td><td>-</td><td>(1,847)</td><td>(1,847)</td></tr><tr><td>Other comprehensive income</td><td>(20,358)</td><td>66,264</td><td>16</td><td>7,849</td><td>53,771</td></tr><tr><td>Deferred taxes</td><td>3,176</td><td>(24,782)</td><td>-</td><td>(2,257)</td><td>(23,863)</td></tr><tr><td>Balance at May 31, 2017</td><td>(308,415)</td><td>(166,724)</td><td>16</td><td>1,137</td><td>(473,986)</td></tr><tr><td>Reclassification adjustments for gains included in net income, net of taxes of $591</td><td></td><td></td><td>-</td><td>(1,244)</td><td>(1,244)</td></tr><tr><td>Other comprehensive income</td><td>10,989</td><td>11,375</td><td>(359)</td><td>(2,050)</td><td>19,955</td></tr><tr><td>Deferred taxes</td><td>(2,587)</td><td>(2,146)</td><td>212</td><td>748</td><td>(3,773)</td></tr><tr><td>Balance at May 31, 2018</td><td>(300,013)</td><td>(157,495)</td><td>(131)</td><td>(1,409)</td><td>(459,048)</td></tr><tr><td>Reclassification adjustments for losses included in net income, net of taxes of $151</td><td></td><td></td><td></td><td>1,777</td><td>1,777</td></tr><tr><td>Other comprehensive income</td><td>(73,660)</td><td>(70,785)</td><td>4,713</td><td>307</td><td>(139,425)</td></tr><tr><td>Deferred taxes</td><td>3,178</td><td>16,635</td><td>(203)</td><td>(542)</td><td>19,068</td></tr><tr><td>Balance at May 31, 2019</td><td>$ (370,495)</td><td>$ (211,645)</td><td>$ 4,379</td><td>$ 133</td><td>$ (577,628)</td></tr></table>



## NOTE L — EARNINGS PER SHARE

The following table sets forth the reconciliation of the numerator and denominator of basic and diluted earnings per share for the years ended May 31, 2019, 2018 and 2017:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands, except per share amounts)</td><td></td><td></td><td></td></tr><tr><td>Numerator for earnings per share:</td><td></td><td></td><td></td></tr><tr><td>Net income attributable to RPM International Inc. stockholders</td><td>$ 266,558</td><td>$ 337,770</td><td>$ 181,823</td></tr><tr><td>Less: Allocation of earnings and dividends to participating securities</td><td>(1,514)</td><td>(3,858)</td><td>(2,795)</td></tr><tr><td>Net income available to common shareholders - basic</td><td>265,044</td><td>333,912</td><td>179,028</td></tr><tr><td>Add: Undistributed earnings reallocated to unvested shareholders</td><td></td><td></td><td>2</td></tr><tr><td>Reverse: Allocation of earnings and dividends to participating securities</td><td>1,514</td><td>3,858</td><td></td></tr><tr><td>Add: Income effect of contingently issuable shares</td><td>3,655</td><td>5,673</td><td>5,457</td></tr><tr><td>Net income available to common shareholders - diluted</td><td>$ 270,213</td><td>$ 343,443</td><td>$ 184,487</td></tr><tr><td>Denominator for basic and diluted earnings per share:</td><td></td><td></td><td></td></tr><tr><td>Basic weighted average common shares (1)</td><td>130,552</td><td>131,179</td><td>130,662</td></tr><tr><td>Average diluted options</td><td>1,838</td><td>2,064</td><td>598</td></tr><tr><td>Net issuable common share equivalents (2)</td><td>1,943</td><td>3,928</td><td>3,905</td></tr><tr><td>Total shares for diluted earnings per share (1), (3)</td><td>134,333</td><td>137,171</td><td>135,165</td></tr><tr><td>Earnings Per Share of Common Stock Attributable to RPM International Inc. Stockholders:</td><td></td><td></td><td></td></tr><tr><td>Basic Earnings Per Share of Common Stock</td><td>$ 2.03</td><td>$ 2.55</td><td>$ 1.37</td></tr><tr><td>Diluted Earnings Per Share of Common Stock</td><td>$ 2.01</td><td>$ 2.50</td><td>$ 1.36</td></tr></table>

(1) For the year ended May 31, 2019 and 2018, basic and diluted earnings per share are calculated under the two-class method and the treasury method, respectively, as those methods resulted in the most dilutive earnings per share. For the year ended May 31, 2017, basic and diluted earnings per share are calculated using the two-class method.

(2) Represents the number of shares that would be issued if our contingently convertible notes had been converted. We included these shares in the calculation of diluted EPS as the conversion of the notes were eligible to be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock. On November 27, 2018, we redeemed all of our 2.25% convertible senior notes due 2020, primarily for cash, but also issued 598,601 shares of our common stock in the transaction.

(3) For the years ended May 31, 2019, 2018 and 2017, approximately 862,500, 799,362 and 606,048 shares of stock, respectively, granted under stock-based compensation plans were excluded from the calculation of diluted EPS, as the effect would have been anti-dilutive.

## NOTE M — LEASES

We lease certain property, plant and equipment under long-term operating lease agreements, some of which provide for increased rental payments based upon increases in the cost-of-living index. The following table illustrates our future minimum lease commitments under all non-cancelable lease agreements, for each of the next five years and in the aggregate, as of May 31, 2019:

May 31,

<table><tr><td>(In thousands)</td><td></td></tr><tr><td>2020</td><td>$ 59,163</td></tr><tr><td>2021</td><td>49,731</td></tr><tr><td>2022</td><td>40,339</td></tr><tr><td>2023</td><td>32,798</td></tr><tr><td>2024</td><td>27,716</td></tr><tr><td>Thereafter</td><td>119,607</td></tr><tr><td>Total Minimum Lease Commitments</td><td>$ 329,354</td></tr></table>

Total rental expense for all operating leases amounted to $64.9 million, $64.3 million and $61.3 million for the fiscal years ended May 31, 2019, 2018 and 2017, respectively.

## NOTE N — PENSION PLANS

We sponsor several pension plans for our employees, including our principal plan (the “Retirement Plan”), which is a non-contributory defined benefit pension plan covering substantially all domestic non-union employees. Pension benefits are provided for certain domestic union employees through separate plans. Employees of our foreign subsidiaries receive pension coverage, to the extent deemed appropriate, through plans that are governed by local statutory requirements.

The Retirement Plan provides benefits that are based upon years of service and average compensation with accrued benefits vesting after five years. Benefits for union employees are generally based upon years of service, or a combination of years of service and average compensation. Our pension funding policy considers contributions in an amount on an annual basis that can be deducted for federal income tax purposes, using a different actuarial cost method and different assumptions from those used for financial reporting. For the fiscal year ending May 31, 2020, we expect to contribute approximately $0.9 million to the retirement plans in the U.S. and approximately $6.4 million to our foreign plans. During February 2019, we contributed an additional $56.5 million to the RPM International Inc. Retirement Plan in the U.S. than what had been planned at the beginning of the fiscal year.



Net periodic pension cost consisted of the following for the year ended May 31:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="3">U.S. Plans</td><td colspan="3">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Service cost</td><td>$ 37,528</td><td>$ 37,859</td><td>$ 37,603</td><td>$ 4,693</td><td>$ 4,620</td><td>$ 4,070</td></tr><tr><td>Interest cost</td><td>21,987</td><td>17,518</td><td>17,323</td><td>5,420</td><td>5,025</td><td>4,614</td></tr><tr><td>Expected return on plan assets</td><td>(33,867)</td><td>(32,342)</td><td>(25,007)</td><td>(7,907)</td><td>(8,270)</td><td>(7,109)</td></tr><tr><td>Amortization of:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Prior service cost</td><td>118</td><td>117</td><td>217</td><td>(30)</td><td>(31)</td><td>(24)</td></tr><tr><td>Net actuarial losses recognized</td><td>13,087</td><td>14,470</td><td>22,160</td><td>1,229</td><td>1,758</td><td>2,150</td></tr><tr><td>Curtailment/settlement losses</td><td></td><td></td><td></td><td>89</td><td>128</td><td>904</td></tr><tr><td>Net Pension Cost</td><td>$ 38,853</td><td>$ 37,622</td><td>$ 52,296</td><td>$ 3,494</td><td>$ 3,230</td><td>$ 4,605</td></tr></table>

The changes in benefit obligations and plan assets, as well as the funded status of our pension plans at May 31, 2019 and 2018, were as follows:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="3">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td></td><td>2019</td><td>2018</td></tr><tr><td>Benefit obligation at beginning of year</td><td>$ 617,255</td><td>$ 591,948</td><td></td><td>$ 194,149</td><td>$ 195,884</td></tr><tr><td>Service cost</td><td>37,528</td><td>37,859</td><td></td><td>4,693</td><td>4,620</td></tr><tr><td>Interest cost</td><td>21,987</td><td>17,518</td><td></td><td>5,420</td><td>5,025</td></tr><tr><td>Benefits paid</td><td>(45,917)</td><td>(34,368)</td><td></td><td>(7,488)</td><td>(6,545)</td></tr><tr><td>Participant contributions</td><td></td><td></td><td></td><td>1,003</td><td>980</td></tr><tr><td>Plan amendments</td><td>11</td><td></td><td></td><td>(33)</td><td>(61)</td></tr><tr><td>Plan settlements/curtailments</td><td></td><td></td><td></td><td>(607)</td><td>(2,984)</td></tr><tr><td>Actuarial (gains)/losses</td><td>29,413</td><td>4,298</td><td></td><td>17,286</td><td>(9,523)</td></tr><tr><td>Premiums paid</td><td></td><td></td><td></td><td>(97)</td><td>(106)</td></tr><tr><td>Currency exchange rate changes</td><td></td><td></td><td></td><td>(8,359)</td><td>6,859</td></tr><tr><td>Benefit Obligation at End of Year</td><td>$ 660,277</td><td>$ 617,255</td><td></td><td>$ 205,967</td><td>$ 194,149</td></tr><tr><td>Fair value of plan assets at beginning of year</td><td>$ 487,233</td><td>$ 437,481</td><td></td><td>$ 188,960</td><td>$ 179,928</td></tr><tr><td>Actual return on plan assets</td><td>(2,272)</td><td>30,291</td><td></td><td>6,737</td><td>3,166</td></tr><tr><td>Employer contributions</td><td>57,821</td><td>53,829</td><td></td><td>6,770</td><td>7,460</td></tr><tr><td>Participant contributions</td><td></td><td></td><td></td><td>1,003</td><td>980</td></tr><tr><td>Benefits paid</td><td>(45,917)</td><td>(34,368)</td><td></td><td>(7,488)</td><td>(6,545)</td></tr><tr><td>Premiums paid</td><td></td><td></td><td></td><td>(97)</td><td>(106)</td></tr><tr><td>Plan settlements/curtailments</td><td></td><td></td><td></td><td>(580)</td><td>(2,267)</td></tr><tr><td>Currency exchange rate changes</td><td></td><td></td><td></td><td>(8,193)</td><td>6,344</td></tr><tr><td>Fair Value of Plan Assets at End of Year</td><td>$ 496,865</td><td>$ 487,233</td><td></td><td>$ 187,112</td><td>$ 188,960</td></tr><tr><td>(Deficit) of plan assets versus benefit obligations at end of year</td><td>$ (163,412)</td><td>$ (130,022)</td><td></td><td>$ (18,855)</td><td>$ (5,189)</td></tr><tr><td>Net Amount Recognized</td><td>$ (163,412)</td><td>$ (130,022)</td><td></td><td>$ (18,855)</td><td>$ (5,189)</td></tr><tr><td>Accumulated Benefit Obligation</td><td>$ 553,392</td><td>$ 510,984</td><td></td><td>$ 192,533</td><td>$ 181,462</td></tr></table>

The fair value of the assets held by our pension plans has increased at May 31, 2019 since our previous measurement date at May 31, 2018, due primarily to our plan contributions. Total plan liabilities have increased due to increased benefit accruals and a decrease in the discount rate used to value the liability. We have increased our recorded liability for the net underfunded status of our pension plans. Due to lower discount rates, we expect pension expense in fiscal 2020 to be higher when compared to our fiscal 2019 expense level. Any future declines in the value of our pension plan assets or increases in our plan liabilities could require us to increase our recorded liability for the net underfunded status of our pension plans and could also require accelerated and higher cash contributions to our pension plans.

Amounts recognized in the Consolidated Balance Sheets for the years ended May 31, 2019 and 2018 are as follows:

<table><tr><td></td><td colspan="3">U.S. Plans</td></tr><tr><td>(In thousands)</td><td>2019</td><td>2018</td><td></td></tr><tr><td>Noncurrent assets</td><td>$ -</td><td>$ -</td><td></td></tr><tr><td>Current liabilities</td><td>(8)</td><td>(7)</td><td></td></tr><tr><td>Noncurrent liabilities</td><td>(163,404)</td><td>(130,015)</td><td></td></tr><tr><td>Net Amount Recognized</td><td>$ (163,412)</td><td>$ (130,022)</td><td></td></tr></table>

<table><tr><td colspan="3">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td></td></tr><tr><td>$ 9,047</td><td>$ 10,483</td><td></td></tr><tr><td>(435)</td><td>(421)</td><td></td></tr><tr><td>(27,467)</td><td>(15,251)</td><td></td></tr><tr><td>$ (18,855)</td><td>$ (5,189)</td><td></td></tr></table>



The following table summarizes the relationship between our plans' benefit obligations and assets:

<table><tr><td rowspan="3">(In thousands)</td><td colspan="4">U.S. Plans</td></tr><tr><td colspan="2">2019</td><td colspan="2">2018</td></tr><tr><td>Benefit Obligation</td><td>Plan Assets</td><td>Benefit Obligation</td><td>Plan Assets</td></tr><tr><td>Plans with projected benefit obligations in excess of plan assets</td><td>$ 660,277</td><td>$ 496,865</td><td>$ 617,255</td><td>$ 487,233</td></tr><tr><td>Plans with accumulated benefit obligations in excess of plan assets</td><td>553,392</td><td>496,865</td><td>510,984</td><td>487,233</td></tr><tr><td>Plans with assets in excess of projected benefit obligations</td><td>-</td><td>-</td><td>-</td><td>-</td></tr><tr><td>Plans with assets in excess of accumulated benefit obligations</td><td>-</td><td>-</td><td>-</td><td>-</td></tr></table>

<table><tr><td rowspan="3">(In thousands)</td><td colspan="4">Non-U.S. Plans</td></tr><tr><td colspan="2">2019</td><td colspan="2">2018</td></tr><tr><td>Benefit Obligation</td><td>Plan Assets</td><td>Benefit Obligation</td><td>Plan Assets</td></tr><tr><td>Plans with projected benefit obligations in excess of plan assets</td><td>$ 162,824</td><td>$ 134,921</td><td>$ 152,533</td><td>$ 136,861</td></tr><tr><td>Plans with accumulated benefit obligations in excess of plan assets</td><td>149,390</td><td>134,921</td><td>43,054</td><td>29,855</td></tr><tr><td>Plans with assets in excess of projected benefit obligations</td><td>43,143</td><td>52,191</td><td>41,616</td><td>52,099</td></tr><tr><td>Plans with assets in excess of accumulated benefit obligations</td><td>43,143</td><td>52,191</td><td>138,408</td><td>159,105</td></tr></table>

The following table presents the pretax net actuarial loss and prior service (costs) recognized in accumulated other comprehensive income (loss) not affecting retained earnings:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Net actuarial loss</td><td>$ (250,286)</td><td>$ (197,821)</td><td>$ (51,184)</td><td>$ (35,668)</td></tr><tr><td>Prior service (costs) credits</td><td>(28)</td><td>(135)</td><td>224</td><td>224</td></tr><tr><td>Total recognized in accumulated other comprehensive income not affecting retained earnings</td><td>$ (250,314)</td><td>$ (197,956)</td><td>$ (50,960)</td><td>$ (35,444)</td></tr></table>

The following table includes the changes recognized in other comprehensive income:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Changes in plan assets and benefit obligations recognized in other comprehensive income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Prior service cost</td><td>$ 11</td><td>$ -</td><td>$ (33)</td><td>$ (61)</td></tr><tr><td>Net loss (gain) arising during the year</td><td>65,552</td><td>6,349</td><td>18,456</td><td>(5,098)</td></tr><tr><td>Effect of exchange rates on amounts included in AOCI</td><td></td><td></td><td>(1,593)</td><td>1,517</td></tr><tr><td>Amounts recognized as a component of net periodic benefit cost:</td><td></td><td></td><td></td><td></td></tr><tr><td>Amortization or curtailment recognition of prior service (cost) benefit</td><td>(118)</td><td>(117)</td><td>30</td><td>18</td></tr><tr><td>Amortization or settlement recognition of net (loss)</td><td>(13,087)</td><td>(14,470)</td><td>(1,345)</td><td>(1,912)</td></tr><tr><td>Total recognized in other comprehensive loss (income)</td><td>$ 52,358</td><td>$ (8,238)</td><td>$ 15,515</td><td>$ (5,536)</td></tr></table>

The following table presents the amounts in accumulated other comprehensive income (loss) as of May 31, 2019 that have not yet been recognized in net periodic pension cost, but are expected to be recognized in our Consolidated Statements of Income during the fiscal year ending May 31, 2020:

<table><tr><td>(In thousands)</td><td>U.S. Plans</td><td>Non-U.S. Plans</td></tr><tr><td>Net actuarial loss</td><td>$ (17,973)</td><td>$ (2,091)</td></tr><tr><td>Prior service (cost) credit</td><td>$ (8)</td><td>$ 35</td></tr></table>

In measuring the projected benefit obligation and net periodic pension cost for our plans, we utilize actuarial valuations. These valuations include specific information pertaining to individual plan participants, such as salary, age and years of service, along with certain assumptions. The most significant assumptions applied include discount rates, expected return on plan assets and rate of compensation increases. We evaluate these assumptions, at a minimum, on an annual basis, and make required changes, as applicable. In developing our expected long-term rate of return on pension plan assets, we consider the current and expected target asset allocations of the pension portfolio, as well as historical returns and future expectations for returns on various categories of plan assets. Expected return on assets is determined by using the weighted-average return on asset classes based on expected return for the target asset allocations of the principal asset categories held by each plan. In determining expected return, we consider both historical performance and an estimate of future long-term rates of return. Actual experience is used to develop the assumption for compensation increases.



The following weighted-average assumptions were used to determine our year-end benefit obligations and net periodic pension cost under the plans:

<table><tr><td rowspan="2">Year-End Benefit Obligations</td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Discount rate</td><td>3.64%</td><td>4.12%</td><td>2.61%</td><td>3.09%</td></tr><tr><td>Rate of compensation increase</td><td>3.80%</td><td>3.80%</td><td>2.86%</td><td>2.85%</td></tr><tr><td rowspan="2">Net Periodic Pension Cost</td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Discount rate</td><td>4.12%</td><td>3.81%</td><td>3.85%</td><td>3.09%</td></tr><tr><td>Expected return on plan assets</td><td>7.40%</td><td>7.89%</td><td>7.89%</td><td>4.30%</td></tr><tr><td>Rate of compensation increase</td><td>3.80%</td><td>3.80%</td><td>3.80%</td><td>2.85%</td></tr></table>

The following tables illustrate the weighted-average actual and target allocation of plan assets:

<table><tr><td rowspan="2"></td><td colspan="2">U.S. Plans</td><td colspan="4">Non-U.S. Plans</td></tr><tr><td>Target Allocation as of May 31, 2019</td><td>Actual Asset Allocation</td><td>(Dollars in millions)</td><td>Target Allocation as of May 31, 2019</td><td>Actual Asset Allocation</td><td></td></tr><tr><td>(Dollars in millions)</td><td>as of May 31, 2019</td><td>2019</td><td>2018</td><td></td><td>2019</td><td>2018</td></tr><tr><td>Equity securities</td><td>55%</td><td>$ 295.1</td><td>$ 309.3</td><td>Equity securities</td><td>41%</td><td>$ 79.9</td></tr><tr><td>Fixed income securities</td><td>25%</td><td>83.8</td><td>76.5</td><td>Fixed income securities</td><td>42%</td><td>79.3</td></tr><tr><td>Multi-class</td><td>20%</td><td>78.1</td><td>72.8</td><td>Cash</td><td></td><td>0.1</td></tr><tr><td>Cash (1)</td><td></td><td>39.7</td><td>28.4</td><td>Property and other</td><td>17%</td><td>27.8</td></tr><tr><td>Other</td><td></td><td>0.2</td><td>0.2</td><td>Total assets</td><td>100%</td><td>$ 187.1</td></tr><tr><td>Total assets</td><td>100%</td><td>$ 496.9</td><td>$ 487.2</td><td></td><td></td><td></td></tr></table>

(1) The larger than target cash position at May 31, 2019 results from our February 2019 contribution to the RPM International Inc. Retirement Plan because of our plans to invest the February contribution over a period of time, due to dollar cost averaging.

The following tables present our pension plan assets as categorized using the fair value hierarchy at May 31, 2019 and 2018:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="4">U.S. Plans</td></tr><tr><td>Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td>Significant Other Observable Inputs (Level 2)</td><td>Significant Unobservable Inputs (Level 3)</td><td>Fair Value at May 31, 2019</td></tr><tr><td>U.S. Treasury and other government</td><td>$ -</td><td>$ 13,854</td><td>$ -</td><td>$ 13,854</td></tr><tr><td>State and municipal bonds</td><td></td><td>386</td><td></td><td>386</td></tr><tr><td>Foreign bonds</td><td></td><td>1,031</td><td></td><td>1,031</td></tr><tr><td>Mortgage-backed securities</td><td></td><td>20,075</td><td></td><td>20,075</td></tr><tr><td>Corporate bonds</td><td></td><td>26,204</td><td></td><td>26,204</td></tr><tr><td>Stocks - mid cap</td><td>13,392</td><td></td><td></td><td>13,392</td></tr><tr><td>Stocks - small cap</td><td>15,720</td><td></td><td></td><td>15,720</td></tr><tr><td>Mutual funds - equity</td><td></td><td>265,969</td><td></td><td>265,969</td></tr><tr><td>Mutual funds - multi-class</td><td></td><td>78,143</td><td></td><td>78,143</td></tr><tr><td>Mutual funds - fixed</td><td></td><td>22,215</td><td></td><td>22,215</td></tr><tr><td>Cash and cash equivalents</td><td>39,704</td><td></td><td></td><td>39,704</td></tr><tr><td>Limited partnerships</td><td></td><td></td><td>172</td><td>172</td></tr><tr><td>Total</td><td>$ 68,816</td><td>$ 427,877</td><td>$ 172</td><td>$ 496,865</td></tr></table>



<table><tr><td></td><td>Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td>Significant Other Observable Inputs (Level 2)</td><td>Significant Unobservable Inputs (Level 3)</td><td>Fair Value at May 31, 2019</td></tr><tr><td>(Pounds)</td><td></td><td></td><td></td><td></td></tr><tr><td>Pooled equities</td><td>$ -</td><td>$ 78,733</td><td>$ -</td><td>$ 78,733</td></tr><tr><td>Pooled fixed income</td><td></td><td>79,061</td><td></td><td>79,061</td></tr><tr><td>Foreign bonds</td><td></td><td>227</td><td></td><td>227</td></tr><tr><td>Insurance contracts</td><td></td><td></td><td>27,843</td><td>27,843</td></tr><tr><td>Mutual funds</td><td></td><td>1,125</td><td></td><td>1,125</td></tr><tr><td>Cash and cash equivalents</td><td>123</td><td></td><td></td><td>123</td></tr><tr><td>Total</td><td>$ 123</td><td>$ 159,146</td><td>$ 27,843</td><td>$ 187,112</td></tr></table>

<table><tr><td></td><td>Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td>Significant Other Observable Inputs (Level 2)</td><td>Significant Unobservable Inputs (Level 3)</td><td>Fair Value at May 31, 2018</td></tr><tr><td>(U.S. Treasury and other government</td><td>$ -</td><td>$ 10,197</td><td>$ -</td><td>$ 10,197</td></tr><tr><td>State and municipal bonds</td><td></td><td>605</td><td></td><td>605</td></tr><tr><td>Foreign bonds</td><td></td><td>1,748</td><td></td><td>1,748</td></tr><tr><td>Mortgage-backed securities</td><td></td><td>26,081</td><td></td><td>26,081</td></tr><tr><td>Corporate bonds</td><td></td><td>17,413</td><td></td><td>17,413</td></tr><tr><td>Stocks - large cap</td><td>1,927</td><td></td><td></td><td>1,927</td></tr><tr><td>Stocks - mid cap</td><td>11,748</td><td></td><td></td><td>11,748</td></tr><tr><td>Stocks - small cap</td><td>18,419</td><td></td><td></td><td>18,419</td></tr><tr><td>Stocks - international</td><td>3,333</td><td></td><td></td><td>3,333</td></tr><tr><td>Mutual funds - equity</td><td></td><td>273,893</td><td></td><td>273,893</td></tr><tr><td>Mutual funds - multi-class</td><td></td><td>72,802</td><td></td><td>72,802</td></tr><tr><td>Mutual funds - fixed</td><td></td><td>20,516</td><td></td><td>20,516</td></tr><tr><td>Cash and cash equivalents</td><td>28,371</td><td></td><td></td><td>28,371</td></tr><tr><td>Limited partnerships</td><td></td><td></td><td>180</td><td>180</td></tr><tr><td>Total</td><td>$ 63,798</td><td>$ 423,255</td><td>$ 180</td><td>$ 487,233</td></tr></table>

<table><tr><td></td><td>Quoted Prices in Active Markets for Identical Assets (Level 1)</td><td>Significant Other Observable Inputs (Level 2)</td><td>Significant Unobservable Inputs (Level 3)</td><td>Fair Value at May 31, 2018</td></tr><tr><td>(Pounds)</td><td></td><td></td><td></td><td></td></tr><tr><td>Pooled equities</td><td>$ -</td><td>$ 88,540</td><td>$ -</td><td>$ 88,540</td></tr><tr><td>Pooled fixed income</td><td></td><td>70,180</td><td></td><td>70,180</td></tr><tr><td>Foreign bonds</td><td></td><td>182</td><td></td><td>182</td></tr><tr><td>Insurance contracts</td><td></td><td></td><td>28,268</td><td>28,268</td></tr><tr><td>Mutual funds</td><td></td><td>1,334</td><td></td><td>1,334</td></tr><tr><td>Cash and cash equivalents</td><td>456</td><td></td><td></td><td>456</td></tr><tr><td>Total</td><td>$ 456</td><td>$ 160,236</td><td>$ 28,268</td><td>$ 188,960</td></tr></table>

The following table includes the activity that occurred during the years ended May 31, 2019 and 2018 for our Level 3 assets:

<table><tr><td rowspan="2">(In thousands)</td><td rowspan="2">Balance at Beginning of Period</td><td colspan="5">Actual Return on Plan Assets For:</td></tr><tr><td>Assets Still Held at Reporting Date</td><td>Assets Sold During Year</td><td>Purchases, Sales and Settlements, net (1)</td><td>Balance at End of Period</td><td></td></tr><tr><td>Year ended May 31, 2019</td><td>$ 28,448</td><td>1,228</td><td></td><td>(1,661)</td><td>$ 28,015</td><td></td></tr><tr><td>Year ended May 31, 2018</td><td>30,387</td><td>(65)</td><td>-</td><td>(1,874)</td><td>28,448</td><td></td></tr></table>

(1) Includes the impact of exchange rate changes during the year.

The primary objective for the investments of the Retirement Plan is to provide for long-term growth of capital without undue exposure to risk. This objective is accomplished by utilizing a strategy of equities, fixed-income securities and cash equivalents in a mix that is conducive to participation in a rising market, while allowing for adequate protection in a falling market. Our Investment Committee oversees the investment allocation process, which includes the selection and evaluation of investment managers, the determination of investment objectives and risk guidelines, and the monitoring of actual investment performance. In order to manage investment risk properly, Plan policy prohibits short selling, securities lending, financial futures, options and other specialized investments, except for certain alternative investments specifically approved by the Investment Committee. The Investment Committee reviews, on a quarterly basis, reports of actual Plan investment performance provided by independent third parties, in addition to its review of the Plan investment policy on an annual basis. The investment objectives are similar for our plans outside of the U.S., subject to local regulations.



The goals of the investment strategy for pension assets include: the total return of the funds shall, over an extended period of time, surpass an index composed of the MSCI World Stock Index (equity), the Barclays Aggregate Bond Index (fixed income), and 30-day Treasury Bills (cash), weighted appropriately to match the asset allocation of the plans. The equity portion of the funds shall surpass the MSCI World Stock Index over a full market cycle, while the fixed-income portion shall surpass Barclays Aggregate Bond Index over a full market cycle. The purpose of the core fixed-income fund is to increase return in the form of cash flow, provide a hedge against inflation and to reduce the volatility of the fund overall. Therefore, the primary objective of the core fixed-income portion is to match the Barclays Aggregate Bond Index. The purpose of including opportunistic fixed-income assets such as, but not limited to, global and high-yield securities in the portfolio is to enhance the overall risk-return characteristics of the Fund.

## NOTE 0 — POSTRETIREMENT BENEFITS

In addition to the defined benefit pension plans discussed above, we also sponsor employee savings plans under Section 401(k) of the Internal Revenue Code, which cover most of our employees in the U.S. We record expense for defined contribution plans for any employer-matching contributions made in conjunction with services rendered by employees. The majority of our plans provide for matching contributions made in conjunction with services rendered by employees. Matching contributions are invested in the same manner that the participants invest their own contributions. Matching contributions charged to income were $19.4 million, $18.7 million and $17.4 million for the years ending May 31, 2019, 2018 and 2017, respectively.

We expect to pay the following estimated pension benefit payments in the next five years (in millions): $60.7 in 2020, $57.3 in 2021, $62.3 in 2022, $62.8 in 2023 and $62.1 in 2024. In the five years thereafter (2025-2029), we expect to pay $320.0 million.

We sponsor several unfunded-healthcare-benefit plans for certain of our retired employees, as well as postretirement life insurance for certain key former employees. Eligibility for these benefits is based upon various requirements. The following table illustrates the effect on operations of these plans for the three years ended May 31, 2019:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="3">U.S. Plans</td><td colspan="3">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td>2017</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>Service cost - benefits earned during the period</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ 1,507</td><td>$ 1,307</td><td>$ 1,097</td></tr><tr><td>Interest cost on the accumulated obligation</td><td>192</td><td>173</td><td>229</td><td>1,122</td><td>939</td><td>854</td></tr><tr><td>Amortization of:</td><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Prior service (credit)</td><td>(219)</td><td>(220)</td><td>(235)</td><td></td><td></td><td></td></tr><tr><td>Net actuarial (gains) losses</td><td>(26)</td><td>24</td><td></td><td>442</td><td>332</td><td>230</td></tr><tr><td>Net Postretirement Benefit (Income) Cost</td><td>$ (53)</td><td>$ (23)</td><td>$ (6)</td><td>$ 3,071</td><td>$ 2,578</td><td>$ 2,181</td></tr></table>

The changes in benefit obligations of the plans at May 31, 2019 and 2018 were as follows:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="3">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td></td><td>2019</td><td>2018</td></tr><tr><td>Accumulated postretirement benefit obligation at beginning of year</td><td>$ 5,368</td><td>$ 5,892</td><td></td><td>$ 33,281</td><td>$ 27,868</td></tr><tr><td>Service cost</td><td></td><td></td><td></td><td>1,507</td><td>1,307</td></tr><tr><td>Interest cost</td><td>192</td><td>173</td><td></td><td>1,122</td><td>939</td></tr><tr><td>Benefit payments</td><td>(287)</td><td>(297)</td><td></td><td>(664)</td><td>(604)</td></tr><tr><td>Actuarial (gains) losses</td><td>(283)</td><td>(400)</td><td></td><td>3,801</td><td>2,638</td></tr><tr><td>Currency exchange rate changes</td><td></td><td></td><td></td><td>(1,384)</td><td>1,133</td></tr><tr><td>Accumulated and accrued postretirement benefit obligation at end of year</td><td>$ 4,990</td><td>$ 5,368</td><td></td><td>$ 37,663</td><td>$ 33,281</td></tr></table>

In determining the postretirement benefit amounts outlined above, measurement dates as of May 31 for each period were applied.



Amounts recognized in the Consolidated Balance Sheets for the years ended May 31, 2019 and 2018 are as follows:

<table><tr><td></td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>(In thousands)</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Current liabilities</td><td>$ (423)</td><td>$ (427)</td><td>$ (741)</td><td>$ (696)</td></tr><tr><td>Noncurrent liabilities</td><td>(4,567)</td><td>(4,941)</td><td>(36,922)</td><td>(32,585)</td></tr><tr><td>Net Amount Recognized</td><td>$ (4,990)</td><td>$ (5,368)</td><td>$ (37,663)</td><td>$ (33,281)</td></tr></table>

The following table presents the pretax net actuarial gain (loss) and prior service credits recognized in accumulated other comprehensive income (loss) not affecting retained earnings:

<table><tr><td></td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>(In thousands)</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Net actuarial gain (loss)</td><td>$ 381</td><td>$ 124</td><td>$ (12,891)</td><td>$ (9,951)</td></tr><tr><td>Prior service credits</td><td>667</td><td>887</td><td></td><td></td></tr><tr><td>Total recognized in accumulated other comprehensive income not affecting retained earnings</td><td>$ 1,048</td><td>$ 1,011</td><td>$ (12,891)</td><td>$ (9,951)</td></tr></table>

The following table includes the changes recognized in other comprehensive income:

<table><tr><td></td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>(In thousands)</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Changes in plan assets and benefit obligations recognized in other comprehensive income:</td><td></td><td></td><td></td><td></td></tr><tr><td>Prior service cost</td><td>$ -</td><td>$ -</td><td>$ -</td><td>$ -</td></tr><tr><td>Net loss (gain) arising during the year</td><td>(283)</td><td>(400)</td><td>3,801</td><td>2,638</td></tr><tr><td>Effect of exchange rates on amounts included in AOCI</td><td></td><td></td><td>(419)</td><td>291</td></tr><tr><td>Amounts recognized as a component of net periodic benefit cost:</td><td></td><td></td><td></td><td></td></tr><tr><td>Amortization or curtailment recognition of prior service credit (cost)</td><td>219</td><td>220</td><td></td><td></td></tr><tr><td>Amortization or settlement recognition of net gain (loss)</td><td>26</td><td>(24)</td><td>(442)</td><td>(332)</td></tr><tr><td>Total recognized in other comprehensive loss (income)</td><td>$ (38)</td><td>$ (204)</td><td>$ 2,940</td><td>$ 2,597</td></tr></table>

The following weighted-average assumptions were used to determine our year-end benefit obligations and net periodic postretirement benefit costs under the plans:

<table><tr><td></td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>Year-End Benefit Obligations</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Discount rate</td><td>3.44%</td><td>4.03%</td><td>3.22%</td><td>3.70%</td></tr><tr><td>Current healthcare cost trend rate</td><td>7.29%</td><td>7.86%</td><td>5.77%</td><td>6.02%</td></tr><tr><td>Ultimate healthcare cost trend rate</td><td>4.36%</td><td>4.36%</td><td>3.70%</td><td>4.20%</td></tr><tr><td>Year ultimate healthcare cost trend rate will be realized</td><td>2037</td><td>2037</td><td>2040</td><td>2032</td></tr></table>

<table><tr><td></td><td colspan="2">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>Net Periodic Postretirement Cost</td><td>2019</td><td>2018</td><td>2019</td><td>2018</td></tr><tr><td>Discount rate</td><td>4.03%</td><td>3.61%</td><td>3.76%</td><td>3.70%</td></tr><tr><td>Healthcare cost trend rate</td><td>7.86%</td><td>14.75%</td><td>10.37%</td><td>6.02%</td></tr><tr><td>Ultimate healthcare cost trend rate</td><td>4.36%</td><td>4.36%</td><td>4.36%</td><td>4.20%</td></tr><tr><td>Year ultimate healthcare cost trend rate will be realized</td><td>2037</td><td>2037</td><td>2032</td><td>2030</td></tr></table>



We utilize a sensitivity analysis to measure the potential impact of changes in our healthcare cost trend rate on our Consolidated Financial Statements. Increasing or decreasing current healthcare cost trend rates by 1% would affect our accumulated postretirement benefit obligation and net postretirement expense by the following amounts for the years ended May 31, 2019 and 2018:

<table><tr><td rowspan="2">(In thousands)</td><td colspan="3">U.S. Plans</td><td colspan="2">Non-U.S. Plans</td></tr><tr><td>2019</td><td>2018</td><td></td><td>2019</td><td>2018</td></tr><tr><td>1% Increase in Healthcare Cost Trend Rate</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Accumulated benefit obligation</td><td>$ 124</td><td>$ 185</td><td></td><td>$ 8,300</td><td>$ 6,978</td></tr><tr><td>Postretirement cost</td><td>7</td><td>7</td><td></td><td>731</td><td>673</td></tr><tr><td>1% Decrease in Healthcare Cost Trend Rate</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Accumulated benefit obligation</td><td>$ (112)</td><td>$ (163)</td><td></td><td>$ (6,390)</td><td>$ (5,391)</td></tr><tr><td>Postretirement cost</td><td>(6)</td><td>(6)</td><td></td><td>(539)</td><td>(493)</td></tr></table>

We expect to pay approximately $1.2 million to $1.5 million in estimated postretirement benefits in each of the next five years. In the five years thereafter (2025-2029), we expect to pay a cumulative total of $9.0 million.

## NOTE P — CONTINGENCIES AND OTHER ACCRUED LOSSES

Accrued loss reserves consist of the following:

<table><tr><td>May 31,</td><td></td><td>2019</td><td>2018</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Accrued product liability reserves</td><td></td><td>$ 11,739</td><td>$ 12,900</td></tr><tr><td>Accrued warranty reserves</td><td></td><td>7,013</td><td>8,088</td></tr><tr><td>Accrued environmental reserves</td><td></td><td>1,147</td><td>1,144</td></tr><tr><td>Total Accrued Loss Reserves - Current</td><td></td><td>$ 19,899</td><td>$ 22,132</td></tr><tr><td>Accrued product liability reserves - noncurrent</td><td></td><td>$ 29,942</td><td>$ 29,902</td></tr><tr><td>Accrued warranty liability - noncurrent</td><td></td><td>3,401</td><td>3,633</td></tr><tr><td>Accrued environmental reserves - noncurrent</td><td></td><td>4,211</td><td>3,571</td></tr><tr><td>Total Accrued Loss Reserves - Noncurrent</td><td></td><td>$ 37,554</td><td>$ 37,106</td></tr></table>

We provide, through our wholly owned insurance subsidiaries, certain insurance coverage, primarily product liability coverage, to our other subsidiaries. Excess coverage is provided by third-party insurers. Our product liability accruals provide for these potential losses, as well as other uninsured claims. Product liability accruals are established based upon actuarial calculations of potential liability using industry experience, actual historical experience and actuarial assumptions developed for similar types of product liability claims, including development factors and lag times. To the extent there is a reasonable possibility that potential losses could exceed the amounts already accrued, we believe that the amount of any such additional loss would be immaterial to our results of operations, liquidity and consolidated financial position.

We also offer warranties on many of our products, as well as long-term warranty programs at certain of our businesses, and have established product warranty liabilities. We review these liabilities for adequacy on a quarterly basis and adjust them as necessary. The primary factors that could affect these liabilities may include changes in performance rates, as well as costs of replacement. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted, as required, to reflect actual experience. It is probable that we will incur future losses related to warranty claims we have received but that have not been fully investigated and related to claims not yet received. While our warranty liabilities represent our best estimates at May 31, 2019, we can provide no assurances that we will not experience material claims in the future or that we will not incur significant costs to resolve such claims beyond the amounts accrued or beyond what we may recover from our suppliers. Product warranty expense is recorded within selling, general and administrative expense.

Also, due to the nature of our businesses, the amount of claims paid can fluctuate from one period to the next. While our warranty liabilities represent our best estimates of our expected losses at any given time, from time to time we may revise our estimates based on our experience relating to factors such as weather conditions, specific circumstances surrounding product installations and other factors.

The following table includes the changes in our accrued warranty balances:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Beginning Balance</td><td>$ 11,721</td><td>$ 19,149</td><td>$ 13,314</td></tr><tr><td>Deductions \( ^{(1)} \)</td><td>(22,262)</td><td>(26,199)</td><td>(18,269)</td></tr><tr><td>Provision charged to SG&amp;A expense</td><td>20,955</td><td>17,924</td><td>23,862</td></tr><tr><td>Acquisitions</td><td></td><td>847</td><td>242</td></tr><tr><td>Ending Balance</td><td>$ 10,414</td><td>$ 11,721</td><td>$ 19,149</td></tr></table>

(1) Primarily claims paid during the year.



In addition, like other companies participating in similar lines of business, some of our subsidiaries are involved in several proceedings relating to environmental matters. It is our policy to accrue remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. During our fiscal year ended May 31, 2018, we recorded an environmental reserve for approximately $1.7 million related to our estimate of remediation costs that may be required in relation to one of our facilities identified for sale and closure in connection with our ongoing restructuring activities. In general, our environmental accruals are undiscounted liabilities, which are exclusive of claims against third parties, and are not material to our financial statements during any of the periods presented.

We were notified by the SEC on June 24, 2014, that we are the subject of a formal investigation pertaining to the timing of our disclosure and accrual of loss reserves in fiscal 2013 with respect to the previously disclosed U.S. Department of Justice (the "DOJ") and the U.S. General Services Administration (the "GSA") Office of Inspector General investigation into compliance issues relating to Tremco Roofing Division's GSA contracts. As previously disclosed, our Audit Committee completed an investigation into the facts and circumstances surrounding the timing of our disclosure and accrual of loss reserves with respect to the GSA and DOJ investigation, and determined that it was appropriate to restate our financial results for the first, second and third quarters of fiscal 2013. These restatements had no impact on our audited financial statements for the fiscal years ended May 31, 2013 or 2014. The Audit Committee's investigation concluded that there was no intentional misconduct on the part of any of our officers.

In connection with the foregoing, on September 9, 2016, the SEC filed an enforcement action against us and our General Counsel. We have cooperated with the SEC's investigation and believe the allegations in the complaint mischaracterize both our and our General Counsel's actions in connection with the matters related to our quarterly results in fiscal 2013 and are without merit. Both we and our General Counsel filed motions to dismiss the complaint on February 24, 2017. Those motions to dismiss the complaint were denied by the Court on September 29, 2017. We and our General Counsel filed answers to the complaint on October 16, 2017. Formal discovery commenced in January 2018, and closed as of June 3, 2019, other than one remaining discovery dispute. The parties engaged in written discovery, and several fact witnesses were deposed. The dispositive motion briefing schedule was vacated by the Court on July 2, 2019, due to the remaining discovery dispute, and will be reset once this dispute is fully resolved. We intend to continue to contest the allegations in the complaint vigorously.

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

The action by the SEC could result in sanctions against us and/or our General Counsel and could impose substantial additional costs and distractions, regardless of its outcome. We have determined that it is probable that we will incur a loss relating to this matter and have estimated a range of potential loss. We have accrued at the low end of the range of loss, as no amount within the range is more likely to occur, and no amount within the estimated range of loss would have a material impact on our consolidated financial condition, results of operations or cash flows.
With respect to a previously disclosed case pending against one of our subsidiaries in which both trade secret and trademark infringement had been alleged, during fiscal 2019, we agreed to settle the case for $6.5 million.

## NOTE Q — REVENUE

We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings and roofing systems, sealants and adhesives. We disaggregate revenues from the sales of our products and services based upon geographical location by each of our reportable segments, which are aligned by similar economic factors, trends and customers, which best depict the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. See Note R, "Segment Information," for further details regarding our disaggregated revenues, as well as a description of each of the unique revenue streams related to each of our three reportable segments.

Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The majority of our revenue is recognized at a point in time. However, we also record revenues generated under construction contracts, mainly in connection with the installation of specialized roofing and flooring systems and related services. For certain polymer flooring installation projects, we account for our revenue using the output method, as we consider square footage of completed flooring to be the best measure of progress toward the complete satisfaction of the performance obligation. In contrast, for certain of our roofing installation projects, we account for our revenue using the input method, as that method was the best measure of performance as it considers costs incurred in relation to total expected project costs, which essentially represents the transfer of control for roofing systems to the customer. In general, for our construction contracts, we record contract revenues and related costs as our contracts progress on an over-time model.

We have elected to apply the practical expedient to recognize revenue net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental authorities. Payment terms and conditions vary by contract type, although our customers' payment terms generally include a requirement to pay within 30 to 60 days of fulfilling our performance obligations. In instances where the timing of revenue recognition differs from the timing of invoicing, we have determined that our contracts generally do not include a significant financing component. We have elected to apply the practical expedient to treat all shipping and handling costs as fulfillment costs, as a significant portion of these costs are incurred prior to control transfer.

## Significant Judgments

Our contracts with customers may include promises to transfer multiple products and/or services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately versus together may require significant judgment. For example, judgment is required to determine whether products sold in connection with the sale of installation services are considered distinct and accounted for separately, or not distinct and accounted for together with installation services and recognized over time.



We provide customer rebate programs and incentive offerings, including special pricing and co-operative advertising arrangements, promotions and other volume-based incentives. These customer programs and incentives are considered variable consideration. We include in revenue variable consideration only to the extent that it is probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the variable consideration is resolved. In general, this determination is made based upon known customer program and incentive offerings at the time of sale, and expected sales volume forecasts as it relates to our volume-based incentives. This determination is updated each reporting period. Certain of our contracts include contingent consideration that is receivable only upon the final inspection and acceptance of a project. We include estimates of such variable consideration in our transaction price. Based on historical experience, we consider the probability-based expected value method appropriate to estimate the amount of such variable consideration.

Our products are generally sold with a right of return and we may provide other credits or incentives, which are accounted for as variable consideration when estimating the amount of revenue to recognize. Returns and credits are estimated at contract inception and updated at the end of each reporting period as additional information becomes available. We record a right of return liability to accrue for expected customer returns. Historical actual returns are used to estimate future returns as a percentage of current sales. Obligations for returns and refunds were not material individually or in the aggregate.

We offer assurance type warranties on our products as well as separately sold warranty contracts. Revenue related to warranty contracts that are sold separately is recognized over the life of the warranty term. Warranty liabilities for our assurance type warranties are discussed further in Note P, “Contingencies and Other Accrued Losses.”

## Contract Balances

Timing of revenue recognition may differ from the timing of invoicing customers. Our contract assets are recorded for products and services that have been provided to our customer but have not yet been billed, and are included in prepaid expenses and other current assets in our consolidated balance sheets. Our short-term contract liabilities consist of advance payments, or deferred revenue, and are included in other accrued liabilities in our consolidated balance sheets.

Accounts receivable, net of allowances, and net contract assets (liabilities) consisted of the following:

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>$ Change</td><td>% Change</td></tr><tr><td>(In thousands, except percents)</td><td></td><td></td><td></td><td></td></tr><tr><td>Accounts receivable, less allowance</td><td>$1,232,350</td><td>$1,113,818</td><td>$ 118,532</td><td>10.6%</td></tr><tr><td>Contract assets</td><td>$ 21,628</td><td>$ 18,212</td><td>$ 3,416</td><td>18.8%</td></tr><tr><td>Contract liabilities - short-term</td><td>(25,896)</td><td>(23,335)</td><td>(2,561)</td><td>11.0%</td></tr><tr><td>Net Contract Liabilities</td><td>$ (4,268)</td><td>$ (5,123)</td><td>$ 855</td><td>-16.7%</td></tr></table>

The allowance for doubtful accounts reflects our best estimate of probable losses inherent in the accounts receivable balance. We determine the allowance based on known troubled accounts, historical experience and other currently available evidence. The $0.9 million change in our net contract liabilities from May 31, 2018 to May 31, 2019 resulted primarily from the timing and volume of construction jobs in progress during fiscal 2019 versus last year, in part due to weather delays in our roofing services business during the fourth quarter of fiscal 2019, as well as the timing of revenue recognition under the new standard. We also record long-term deferred revenue, which amounted to $66.5 million and $64.1 million as of May 31, 2019 and 2018, respectively. The long-term portion of deferred revenue is related to assurance type warranty contracts and is included in other long-term liabilities in our consolidated balance sheets.

We have elected to adopt the practical expedient to not disclose the aggregate amount of transaction price allocated to performance obligations that are unsatisfied as of the end of the reporting period for performance obligations that are part of a contract with an original expected duration of one year or less.

We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. As our contract terms are primarily one year or less in duration, we have elected to apply a practical expedient to expense costs as incurred for costs to obtain a contract with a customer when the amortization period would have been one year or less. These costs include our internal sales force compensation program and certain incentive programs as we have determined annual compensation is commensurate with annual sales activities.

## NOTE R — SEGMENT INFORMATION

During the first quarter of fiscal 2019, we made the determination to streamline certain businesses and management structures within our industrial reportable segment. As a result, our former tremoci ilbruck Group, Tremco Group and several components from our Performance Coatings Group, including our Euclid and Flowcrete businesses, were combined to form a new Construction Products Group. There were no changes in the composition of any of our reportable segments and, therefore, previously reported business segment information remains unchanged.

We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by organizing our businesses and product lines into three reportable segments: the industrial reportable segment, the specialty reportable segment and the consumer reportable segment. Within each reportable segment, we aggregate operating segments or product lines that consist of individual companies or groups of companies and product lines, which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities. Our six 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 six 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”) as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations.

Our industrial reportable segment products are sold throughout North America and also account for the majority of our international sales. Our industrial product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The industrial reportable segment comprises two separate operating segments – Construction Products Group and Performance Coatings Group. Products and services within this reportable segment include construction chemicals, roofing systems, weatherproofing and other sealants, and polymer flooring.

Our consumer reportable segment manufactures and markets professional use and do-it-yourself (“DIY”) products for a variety of mainly consumer applications, including home improvement and personal leisure activities. Our consumer segment’s major manufacturing and distribution operations are located primarily in North America, along with a few locations in Europe and other parts of the world. Products are primarily sold directly to mass merchandisers, home improvement centers, hardware stores, paint stores, craft shops, cosmetic companies and through distributors. This reportable segment comprises three operating segments: Rust-Oleum Group, DAP Group and SPG-Consumer Group. Products within this reportable segment include specialty, hobby and professional paints; nail enamels; caulks; adhesives; silicone sealants; cleaners; floor sealers and wood stains. Sales to The Home Depot, Inc. represented less than 10% of our consolidated net sales for fiscal 2019, 2018 and 2017, 29% of our consumer segment net sales for the fiscal year ended May 31, 2019 and 28% for each of the fiscal years ended May 31, 2018 and 2017.
Our specialty reportable segment products are sold throughout North America and a few international locations, primarily in Europe. Our specialty product lines are sold directly to contractors, distributors and end-users, such as industrial manufacturing facilities, public institutions and other commercial customers. The specialty reportable segment is a single operating segment, which offers products that include industrial cleaners, restoration services equipment, colorants, exterior finishes, edible coatings and specialty glazes for pharmaceutical and food industries, and other specialty OEM coatings.

In addition to our three 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, interest expense and earnings before interest and taxes; as well as identifiable assets, capital expenditures, and depreciation and amortization.

We reflect income from our joint ventures on the equity method, and receive royalties from our licensees.

Effective June 1, 2019, we realigned certain businesses and management structure to recognize how we allocate resources and analyze the operating performance of our operating segments. This realignment did not change our reportable segments at May 31, 2019. Rather, our periodic filings, beginning with our first quarter ending August 31, 2019, will include historical segment results reclassified to reflect the effect of this realignment. See Note A(20) of Notes to Consolidated Financial Statements.



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.

<table><tr><td>Year Ended May 31,</td><td>2019</td><td>2018</td><td>2017</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td></td><td></td><td></td></tr><tr><td>Industrial</td><td>$ 2,889,822</td><td>$ 2,814,755</td><td>$ 2,564,202</td></tr><tr><td>Consumer</td><td>1,887,767</td><td>1,754,339</td><td>1,680,384</td></tr><tr><td>Specialty</td><td>786,962</td><td>752,549</td><td>713,589</td></tr><tr><td>Total</td><td>$ 5,564,551</td><td>$ 5,321,643</td><td>$ 4,958,175</td></tr><tr><td>Income (Loss) Before Income Taxes</td><td></td><td></td><td></td></tr><tr><td>Industrial</td><td>$ 243,234</td><td>$ 270,792</td><td>$ 243,335</td></tr><tr><td>Consumer</td><td>215,002</td><td>171,874</td><td>58,726</td></tr><tr><td>Specialty</td><td>101,441</td><td>123,307</td><td>107,904</td></tr><tr><td>Corporate/Other</td><td>(219,832)</td><td>(148,925)</td><td>(165,632)</td></tr><tr><td>Total</td><td>$ 339,845</td><td>$ 417,048</td><td>$ 244,333</td></tr><tr><td>Identifiable Assets</td><td></td><td></td><td></td></tr><tr><td>Industrial</td><td>$ 2,322,511</td><td>$ 2,422,799</td><td>$ 2,382,784</td></tr><tr><td>Consumer</td><td>1,984,332</td><td>1,859,381</td><td>1,821,190</td></tr><tr><td>Specialty</td><td>860,125</td><td>740,952</td><td>759,822</td></tr><tr><td>Corporate/Other</td><td>274,387</td><td>248,690</td><td>126,653</td></tr><tr><td>Total</td><td>$ 5,441,355</td><td>$ 5,271,822</td><td>$ 5,090,449</td></tr><tr><td>Capital Expenditures</td><td></td><td></td><td></td></tr><tr><td>Industrial</td><td>$ 54,514</td><td>$ 60,145</td><td>$ 65,083</td></tr><tr><td>Consumer</td><td>54,444</td><td>38,921</td><td>45,690</td></tr><tr><td>Specialty</td><td>26,364</td><td>14,958</td><td>14,104</td></tr><tr><td>Corporate/Other</td><td>1,435</td><td>595</td><td>1,232</td></tr><tr><td>Total</td><td>$ 136,757</td><td>$ 114,619</td><td>$ 126,109</td></tr><tr><td>Depreciation and Amortization</td><td></td><td></td><td></td></tr><tr><td>Industrial</td><td>$ 62,435</td><td>$ 57,267</td><td>$ 51,529</td></tr><tr><td>Consumer</td><td>41,882</td><td>38,037</td><td>33,374</td></tr><tr><td>Specialty</td><td>32,379</td><td>27,457</td><td>26,453</td></tr><tr><td>Corporate/Other</td><td>5,046</td><td>5,738</td><td>5,417</td></tr><tr><td>Total</td><td>$ 141,742</td><td>$ 128,499</td><td>$ 116,773</td></tr></table>



<table><tr><td>Year Ended May 31, 2019</td><td>Industrial Segment</td><td>Consumer Segment</td><td>Specialty Segment</td><td>Consolidated</td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales (based on shipping location) (a)</td><td></td><td></td><td></td><td></td></tr><tr><td>United States</td><td>$ 1,570,891</td><td>$ 1,487,205</td><td>$ 618,408</td><td>$ 3,676,504</td></tr><tr><td>Foreign</td><td></td><td></td><td></td><td></td></tr><tr><td>Canada</td><td>229,386</td><td>117,305</td><td>43,508</td><td>390,199</td></tr><tr><td>Europe</td><td>717,659</td><td>218,021</td><td>93,344</td><td>1,029,024</td></tr><tr><td>Latin America</td><td>189,627</td><td>28,020</td><td>1,397</td><td>219,044</td></tr><tr><td>Asia Pacific</td><td>118,393</td><td>29,170</td><td>30,305</td><td>177,868</td></tr><tr><td>Other Foreign</td><td>63,866</td><td>8,046</td><td></td><td>71,912</td></tr><tr><td>Total Foreign</td><td>1,318,931</td><td>400,562</td><td>168,554</td><td>1,888,047</td></tr><tr><td>Total</td><td>$ 2,889,822</td><td>$ 1,887,767</td><td>$ 786,962</td><td>$ 5,564,551</td></tr><tr><td>Year Ended May 31, 2018</td><td></td><td></td><td></td><td></td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales (based on shipping location) (a)</td><td></td><td></td><td></td><td></td></tr><tr><td>United States</td><td>$ 1,480,189</td><td>$ 1,351,065</td><td>$ 600,780</td><td>$ 3,432,034</td></tr><tr><td>Foreign</td><td></td><td></td><td></td><td></td></tr><tr><td>Canada</td><td>236,594</td><td>106,460</td><td>22,295</td><td>365,349</td></tr><tr><td>Europe</td><td>715,754</td><td>228,046</td><td>96,618</td><td>1,040,418</td></tr><tr><td>Latin America</td><td>197,859</td><td>27,834</td><td>1,514</td><td>227,207</td></tr><tr><td>Asia Pacific</td><td>112,712</td><td>32,493</td><td>31,342</td><td>176,547</td></tr><tr><td>Other Foreign</td><td>71,647</td><td>8,441</td><td></td><td>80,088</td></tr><tr><td>Total Foreign</td><td>1,334,566</td><td>403,274</td><td>151,769</td><td>1,889,609</td></tr><tr><td>Total</td><td>$ 2,814,755</td><td>$ 1,754,339</td><td>$ 752,549</td><td>$ 5,321,643</td></tr><tr><td>Year Ended May 31, 2017</td><td></td><td></td><td></td><td></td></tr><tr><td>(In thousands)</td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales (based on shipping location) (a)</td><td></td><td></td><td></td><td></td></tr><tr><td>United States</td><td>$ 1,357,945</td><td>$ 1,355,262</td><td>$ 556,193</td><td>$ 3,269,400</td></tr><tr><td>Foreign</td><td></td><td></td><td></td><td></td></tr><tr><td>Canada</td><td>216,218</td><td>86,773</td><td>18,705</td><td>321,696</td></tr><tr><td>Europe</td><td>625,399</td><td>174,304</td><td>109,096</td><td>908,799</td></tr><tr><td>Latin America</td><td>195,502</td><td>23,407</td><td>1,427</td><td>220,336</td></tr><tr><td>Asia Pacific</td><td>100,389</td><td>33,528</td><td>28,168</td><td>162,085</td></tr><tr><td>Other Foreign</td><td>68,749</td><td>7,110</td><td></td><td>75,859</td></tr><tr><td>Total Foreign</td><td>1,206,257</td><td>325,122</td><td>157,396</td><td>1,688,775</td></tr><tr><td>Total</td><td>$ 2,564,202</td><td>$ 1,680,384</td><td>$ 713,589</td><td>$ 4,958,175</td></tr></table>

(a) It is not practicable to obtain the information needed to disclose revenues attributable to each of our product lines.

(b) Long-lived assets include all non-current assets, excluding non-current deferred income taxes.



## NOTE S — QUARTERLY INFORMATION (UNAUDITED)

The following is a summary of the quarterly results of operations for the years ended May 31, 2019 and 2018:

<table><tr><td rowspan="2">(In thousands, except per share amounts)</td><td colspan="5">For Quarter Ended</td></tr><tr><td>August 31</td><td>November 30</td><td>February 28</td><td>May 31</td><td></td></tr><tr><td>2019</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td>$ 1,459,989</td><td>$ 1,362,531</td><td>$ 1,140,630</td><td>$ 1,601,401</td><td></td></tr><tr><td>Gross Profit</td><td>$ 594,042</td><td>$ 537,969</td><td>$ 446,140</td><td>$ 683,756</td><td></td></tr><tr><td>Net Income Attributable to</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>RPM International Inc. Stockholders (a)</td><td>$ 69,764</td><td>$ 49,224</td><td>$ 14,190</td><td>$ 133,380</td><td></td></tr><tr><td>Basic Earnings Per Share</td><td>$ 0.52</td><td>$ 0.37</td><td>$ 0.11</td><td>$ 1.03</td><td></td></tr><tr><td>Diluted Earnings Per Share</td><td>$ 0.52</td><td>$ 0.37</td><td>$ 0.11</td><td>$ 1.02</td><td></td></tr><tr><td>Dividends Per Share</td><td>$ 0.320</td><td>$ 0.350</td><td>$ 0.350</td><td>$ 0.350</td><td></td></tr><tr><td></td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>(In thousands, except per share amounts)</td><td>August 31</td><td>November 30</td><td>February 28</td><td>May 31 (b)</td><td></td></tr><tr><td>2018</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>Net Sales</td><td>$ 1,345,394</td><td>$ 1,315,416</td><td>$ 1,102,677</td><td>$ 1,558,156</td><td></td></tr><tr><td>Gross Profit</td><td>$ 572,008</td><td>$ 551,015</td><td>$ 439,493</td><td>$ 618,696</td><td></td></tr><tr><td>Net Income Attributable to</td><td></td><td></td><td></td><td></td><td></td></tr><tr><td>RPM International Inc. Stockholders</td><td>$ 116,416</td><td>$ 95,463</td><td>$ 40,227</td><td>$ 85,664</td><td></td></tr><tr><td>Basic Earnings Per Share</td><td>$ 0.87</td><td>$ 0.72</td><td>$ 0.30</td><td>$ 0.65</td><td></td></tr><tr><td>Diluted Earnings Per Share</td><td>$ 0.86</td><td>$ 0.70</td><td>$ 0.30</td><td>$ 0.63</td><td></td></tr><tr><td>Dividends Per Share</td><td>$ 0.300</td><td>$ 0.320</td><td>$ 0.320</td><td>$ 0.320</td><td></td></tr></table>

(a) Reflects inventory-related charges of $10.5 million in our consumer reportable segment resulting from more proactive management of inventory and $10.0 million in inventory reductions related to restructuring activities in our industrial reportable segment. Reflects restructuring charges totaling $42.3 million that were incurred throughout fiscal 2019, as further described in Note B, "Restructuring."

(b) Reflects inventory-related charges of $36.5 million in our consumer reportable segment for product line rationalization and related obsolete inventory identification and $1.2 million in inventory reductions related to restructuring activities in our industrial reportable segment. Additional restructuring charges totaling $17.5 million were incurred during the fourth quarter of fiscal 2018, as further described in Note B, "Restructuring." We also incurred charges in our industrial segment totaling $4.2 million in connection with the decision to exit Flowcrete China.

Quarterly earnings per share may not total to the yearly earnings per share due to the weighted-average number of shares outstanding in each quarter.



## Quarterly Stock Price and Dividend Information

Shares of our common stock are traded on the New York Stock Exchange under the symbol RPM. The high and low sales prices for the shares of common stock, and the cash dividends paid on the common stock, for each quarter of the two most recent fiscal years are set forth in the table below.

## Range of Sales Prices and Dividends Paid

<table><tr><td>Fiscal 2019</td><td>High</td><td>Low</td><td>Dividends paid per share</td><td>Fiscal 2018</td><td>High</td><td>Low</td><td>Dividends paid per share</td></tr><tr><td>First Quarter</td><td>$68.13</td><td>$49.02</td><td>0.32</td><td>First Quarter</td><td>$56.48</td><td>$47.87</td><td>0.30</td></tr><tr><td>Second Quarter</td><td>$68.11</td><td>$57.52</td><td>0.35</td><td>Second Quarter</td><td>$55.66</td><td>$48.52</td><td>0.32</td></tr><tr><td>Third Quarter</td><td>$67.00</td><td>$51.95</td><td>0.35</td><td>Third Quarter</td><td>$54.73</td><td>$46.80</td><td>0.32</td></tr><tr><td>Fourth Quarter</td><td>$64.13</td><td>$53.40</td><td>0.35</td><td>Fourth Quarter</td><td>$52.65</td><td>$46.36</td><td>0.32</td></tr></table>

Source: New York Stock Exchange

Cash dividends are payable quarterly, upon authorization of the Board of Directors. Regular payment dates are approximately the last day of July, October, January and April.

The number of holders of record of our common stock as of June 1, 2019 was approximately 20,245, in addition to 119,186 beneficial holders.



# Management’s Report on Internal Control Over Financial Reporting

The management of RPM International Inc. is responsible for establishing and maintaining adequate internal control over financial reporting for the Company, as such term is defined in Rule 13a-15(f) under the Securities Exchange Act of 1934. RPM's internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Consolidated Financial Statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements and even when determined to be effective, can only provide reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management assessed the effectiveness of RPM’s internal control over financial reporting as of May 31, 2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control-Integrated Framework (2013 Framework). Based on this assessment, management concluded that, as of May 31, 2019, RPM’s internal control over financial reporting is effective.

The independent registered public accounting firm Deloitte & Touche LLP, has also audited the Company’s internal control over financial reporting as of May 31, 2019 and their report thereon is included on page 66 of this report.





Frank C. Sullivan
Chairman and Chief Executive Officer

Russell L. Gordon
Vice President and Chief Financial Officer

July 24, 2019



# Reports of Independent Registered Public Accounting Firm

TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RPM INTERNATIONAL INC.

## Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of RPM International Inc. and subsidiaries (the "Company") as of May 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, cash flows and stockholders' equity for each of the three years in the period ended May 31, 2019, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of May 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated July 24, 2019, expressed an unqualified opinion on the Company's internal control over financial reporting.

## Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

## Deloitte & Touche LLP

Cleveland, Ohio

July 24, 2019

We have served as the Company’s auditor since 2016.



# TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF RPM INTERNATIONAL INC.

## Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of RPM International Inc. and subsidiaries (the "Company") as of May 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of May 31, 2019, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended May 31, 2019, of the Company and our report dated July 24, 2019, expressed an unqualified opinion on those financial statements.

## Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

## Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

## Deloitte & Touche LLP

Cleveland, Ohio

July 24, 2019



## World Headquarters

RPM International Inc.
2628 Pearl Road
P.O. Box 777
Medina, OH 44258
Telephone: 330-273-5090 or 800-776-4488
Fax: 330-225-8743
Website: www.rpminc.com
E-mail: info@rpminc.com

## Annual Meeting

RPM stockholders are invited to attend RPM’s Annual Meeting, which will be held at 2:00 p.m. EDT on Thursday, October 3, 2019 at the Crownea Plaza Cleveland Airport Hotel, 7230 Engle Road, Middleburg Heights, Ohio. Directions can be found on the RPM website.

## Form 10-K and Other Financial Information

Investors may obtain, at no charge, a copy of the RPM Annual Report to the Securities and Exchange Commission on Form 10-K, a corporate video and other investor information by contacting Kathie M. Rogers, RPM's Manager of Investor Relations, at 800-776-4488.

Form 10-K, other public financial reports and news releases may also be obtained electronically through the website at www.rpminc.com.

## Corporate Governance

Copies of the RPM Board of Directors Corporate Governance Guidelines, as well as the Committee Charters and RPM's Governance Documents, are available on the company's website at www.rpminc.com, under "About RPM/Corporate Governance." Copies of these materials are also available, without charge, upon written request to the Secretary of RPM.

## Institutional Investor and Security Analyst Inquiries

Security analysts and investment professionals with questions regarding RPM should contact Russell L. Gordon, Vice President and Chief Financial Officer, at 330-273-5090 or rgordon@rpminc.com.

## Dividend Payments

Common stock cash dividends are payable quarterly, upon authorization of the Board of Directors. Regular payment dates are typically the 31st of July, October and January and the 30th of April. RPM has increased the cash dividend payments to its stockholders for 45 consecutive years.

## Stock Exchange Listing

RPM International Inc. is listed on the New York Stock Exchange under the ticker symbol "RPM."

RPM
LISTED
NYSE

## Stock Transfer Agent, Registrar and Dividend Disbursing Agent

EQ maintains RPM’s stockholder records and is responsible for disbursing dividend checks. Questions concerning your account, change of address, transfer of ownership, lost certificates, safekeeping of stock certificates, dividend payments, direct deposit of dividends and other related items should be directed to:

EQ Shareowner Services
P.O. Box 64854
St. Paul, MN 55164-0854
Telephone: 800-988-5238 or
651-450-4064 (outside the United States)
Fax: 651-450-4085
Website: www.shareowneronline.com

Certified/Overnight Mail:
EQ Shareowner Services
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120-4100

## Internet Account Access

Stockholders of record may access their accounts via the internet to view their account holdings, change address, complete certain transactions and get answers to other stock-related inquiries through EQ Shareowner Online at www.shareowneronline.com.

## Direct Stock Purchase and Dividend Reinvestment Plan

RPM offers a direct stock purchase and dividend reinvestment plan administered by EQ. The plan allows new investors to purchase RPM common stock directly, and existing stockholders to increase their holdings. There is no commission cost for shares purchased. The minimum initial investment is $200. Additional cash investments must be at least $25 and not more than $5,000 per month. For more details on the plan or questions concerning existing Dividend Reinvestment accounts, please contact EQ Shareholder Services (see above).

## Independent Registered Public Accounting Firm

Deloitte & Touche LLP, Cleveland, Ohio

## Counsel

Calfee, Halter & Griswold LLP, Cleveland, Ohio

## The RPM App

For up-to-date investment information on RPM, download the RPM app for Apple and Android devices. Scan this QR code or visit your app market.






## OFFICERS

Frank C. Sullivan
Chairman and Chief Executive Officer

Edward W. Moore
Senior Vice President, General Counsel
and Chief Compliance Officer

Russell L. Gordon
Vice President and Chief Financial Officer

Janene B. Kastner
Vice President – Corporate Benefits
and Risk Management

Kenneth M. Armstrong
Vice President – Environmental,
Health and Safety

Tracy D. Crandall
Vice President, Associate General Counsel
and Assistant Secretary

Lonny R. DiRusso
Vice President and Chief Information Officer

Matthew Franklin
Vice President – Information Technology

Gordon Hyde
Vice President – Operations

Timothy R. Kinser
Vice President – Operations

John F. Kramer
Vice President – Corporate Development

Randell McShepard
Vice President – Public Affairs and
Chief Talent Officer

Matthew T. Ratajczak
Vice President – Global Tax and Treasurer

Keith R. Smiley
Vice President – Finance and Controller

Michael H. Sullivan
Vice President – Operations and
Chief Restructuring Officer

Thomas C. Sullivan, Jr.
Vice President – Corporate Development

# BOARD
OF DIRECTORS

Kirkland B. Andrews (2), (5*)
Appointed 2018; Chief Financial Officer of NRG Energy, Inc., Houston, Texas (an integrated power company)

John M. Ballbach (4), (5)
Appointed 2018; former Chairman and CEO, VWR International, LLC, Radnor, Pennsylvania (a global laboratory supply and distribution company)

Bruce A. Carbonari (1), (4*), (6)
Elected 2002; retired Chairman and Chief Executive Officer, Fortune Brands, Inc., Deerfield, Illinois (a leading consumer brands company)

David A. Daberkko (1), (3*)
Elected 2007; retired Chairman and Chief Executive Officer, National City Corporation, Cleveland, Ohio, now part of PNC Financial Services Group, Inc. (a financial holding company)

Jennifer D. Deckard (2)
Elected 2015; former President and Chief Executive Officer, Covia Holdings Corporation, Independence, Ohio (a provider of minerals and materials solutions)

Salvatore D. Fazzolari (1), (2*)
Elected 2013; former Chairman, President and Chief Executive Officer, Harcco Corporation, Camp Hill, Pennsylvania (a diversified global industrial company)
(1) Executive Committee
(2) Audit Committee
(3) Compensation Committee
(4) Governance & Nominating Committee
(5) Operating Improvement Committee
(6) Lead Director
* Chairman of the Committee

Thomas S. Gross (3), (5)
Elected 2012; retired Vice Chairman and
Chief Operating Officer, Electrical Sector of
Eaton Corporation plc, Dublin, Ireland (a global
diversified power management company)

Julie A. Lagacy (2)
Elected 2017; Vice President, Global Information Services and Chief Information Officer, Caterpillar Inc., Peoria, Illinois (a global manufacturer of construction and mining equipment)

Robert A. Livingston (1), (3), (5*)
Elected 2017; retired President and Chief Executive Officer, Dover Corporation, Downers Grove, Illinois (a diversified global industrial manufacturer)

Frederick R. Nance (4)
Elected 2007; Global Managing Partner,
Squire Patton Boggs (US) LLP, Cleveland, Ohio
(attorneys at law)

Frank C. Sullivan (1*)
Elected 1995; Chairman and Chief Executive Officer, RPM International Inc.

William B. Summers, Jr. (3)
Elected 2004; retired Chairman and Chief Executive Officer, McDonald Investments Inc., Cleveland, Ohio, now part of KeyBanc Capital Markets Inc. (an investment banking and securities firm)

## TRADEMARKS APPEARING IN THIS ANNUAL REPORT:

2X ULTRA COVER® • ADT™ • Alex® • Alex Plus® • American Accents® • American Coatings™ • API™ • AMPED™ • Arnette Polymers, LLC® • Blackfriar™ • Bullis Eye 1-2-3® • Carboline® • Carboguick® • CHEMTRON® • Croncobrium® • CONCROBIUM MOLD CONTROL® • DAP® • Day-Glo® • DRI-EAZ® • DryDex® • Dryvit® • Dynamic® • DYNAFLEX® • DYNAGRIP® • EKSPAN™ • Endure® • EpoxyShield® • Euclid Chemical™ • EUCO® • Firebergrate® • FinishWorks™ • Flowcrete® • Furniture Transformations® • G Guardian Protection Products, Inc.® • HiChem™ • Hotton Food Products® • ilbruck® • INTUMASTIC® • ADL • KRC Key Resin Company® • Kirker® • Kop-Coat® • Krud-Kutter® • KWIK SEAL® • KWIK SEAL ULTRA® • Legend Brands® • M/M Modern Masters® • MATHYS® • Mean Green® • Miracle Sealants™ • McHawk® • Morrells® • Nature Seal® • NEWBRICK® • NUDURA® • NULLIFRE® • Painter's Touch® • Pettit™ • Plastie® • PlasticWood® • POWERPLY® • PRIME RESINS® • PROCHEM® • PROTECTS FROM WITHIN™ • Radiant Color® • RECOLORM™ • RockSolid® • Rust-Oleum® • SPC® • ShimmerStone® • SMARTBOND® • SPRAYMATE® • Stonhard® • Stops Rust® • Strathmore® • Super Diamond Clear™ • CTi™ • Testors® • The Euclid Chemical Company® • The Value of 168® • The World's Toughest Coatings™ • TOR® • TOUCH ™ • FONAM® • TREMCLAD® • Tremco™ • TURBO SPRAY SYSTEM® • ULTRA CLEAR™ • Universal® • USLTM • ValvTect® • Vandex® • Varathane® • ViaFix™ • ViaPop™ • Vulken® • Warehouse Flooring Toolkit™ • Wacto® • WELDWOOD® • XIM® • Zinsser® • NeverWet® is a registered trademark of Ross Nanotechnology LLC used under a license by subsidiary corporations of RPM International Inc. • Wipe New® is a registered trademark of Wipe New LLC used under a license by subsidiary corporations of RPM International Inc. • Wolman® is a registered trademark of Arch Wood Protection Inc. used under a license by subsidiary corporations of RPM International Inc. • Roto Rooter® is a registered trademark of Roto-Rooter Corporation used under a license by subsidiary corporations of RPM International Inc. • Any marks appearing in this annual report that are not the trademarks of RPM International Inc. or its subsidiaries are the property of their respective owners.




PICTURED LEFT TO RIGHT: Salvatore D. Fazzolari
Robert A. Livingston
Kirkland "Kirk" B. Andrews
William B. Summers, Jr.
John M. Ballbach
David A. Daberkro
Thomas S. Gross
Frank C. Sullivan
Bruce A. Carbonari
Julie A. Lagacy
Jennifer D. Deckard
Frederick R. Nance



## 5 REASONS TO INVEST
IN RPM INTERNATIONAL INC.



GROWTH STRATEGY



PROFIT MARGIN
EXPANSION



STRATEGIC BALANCE



LONG-TERM PERFORMANCE



DIVIDEND
RECORD

RPM is a compelling, long-term investment. Shares of the company’s common stock are traded on the New York Stock Exchange under the symbol RPM and are owned by more than 690 institutional investors and 139,000 individuals. RPM’s track record of 45 consecutive annual cash dividend increases places it in an elite category of less than half of one percent of all publicly traded U.S. companies. During this timeframe, the company has returned approximately $2.4 billion in cash dividends to its shareholders.

Learn more at www.rpminc.com/investor-information/why-invest

RPM
LISTED
NYSE



BUILDING A BETTER WORLD



2628 Pearl Road, P.O. Box 777 Medina, Ohio 44258 Phone: 330-273-5090 Fax: 330-225-8743 E-mail: info@RPMinc.com Web: www.RPMinc.com