10-K

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.

Revenue Recognition

Revenues are recognized when realized or realizable, and when earned. In general, this is when title and risk of loss pass to the customer. Further, revenues are realizable when we have persuasive evidence of a sales arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable, and collectibility is reasonably assured. We reduce our revenues for estimated customer returns and allowances, certain rebates, sales incentives and promotions in the same period the related sales are recorded.

We also record revenues generated under long-term construction contracts, mainly in connection with the installation of specialized roofing and flooring systems, and related services. In general, we account for long-term construction contracts under the percentage-of-completion method, and therefore record contract revenues and related costs as our contracts progress. This method recognizes the economic results of contract performance on a timelier basis than does the completed-contract method; however, application of this method requires reasonably dependable estimates of progress toward completion, as well as other dependable estimates. When reasonably dependable estimates cannot be made, or if other factors make estimates doubtful, the completed-contract method is applied. Under the completed-contract method, billings and costs are accumulated in the balance sheet as the contract progresses, but no revenue is recognized until the contract is complete or substantially complete.

Translation of Foreign Currency Financial Statements and Foreign Currency Transactions

Our reporting currency is the U.S. dollar. However, the functional currency for each of our foreign subsidiaries is its principal operating currency. We translate the amounts included in our Consolidated Statements of Income from our foreign subsidiaries into U.S. dollars at weighted-average exchange rates, which we believe are representative of the actual exchange rates on the dates of the transactions. Our foreign subsidiaries’ assets and liabilities are translated into U.S. dollars from local currency at the actual exchange rates as of the end of each reporting period, and we record the resulting foreign exchange translation adjustments in our Consolidated Balance Sheets as a component of accumulated other comprehensive income (loss). If the U.S. dollar strengthens, we reflect the resulting losses as a component of accumulated other comprehensive income (loss). Conversely, if the U.S. dollar weakens, foreign exchange translation gains result, which favorably impact accumulated other comprehensive income (loss). Translation adjustments may be included in net earnings in the event of a sale or liquidation of certain of our underlying foreign investments. If we determine that the functional currency of any of our foreign subsidiaries should be the U.S. dollar, our financial statements will be affected. Should this occur, we will adjust our reporting to appropriately account for any such changes.

As appropriate, we use permanently invested intercompany loans as a source of capital to reduce exposure to foreign currency fluctuations at our foreign subsidiaries. These loans, on a consolidated basis, are treated as being analogous to equity for accounting purposes. Therefore, foreign exchange gains or losses on these intercompany loans are recorded in accumulated other comprehensive income (loss).

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:

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

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an adverse action or assessment by a regulator;

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unanticipated competition;

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a loss of key personnel; and

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

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.

Our required annual goodwill impairment analysis for fiscal 2018 and 2017, 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:

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

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

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significant changes in the strategy for our overall business; and

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significant negative industry or economic trends.

Measuring a potential impairment of amortizable 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. As described further in Note C, “Goodwill and Other Intangible Assets,” we performed an interim impairment test for our Restore tradename during the third quarter of fiscal 2017, which resulted in a loss totaling $4.9 million. Our required annual impairment tests of each of our indefinite-lived intangible assets performed during fiscal 2018 and 2017 did not result in any additional impairment loss.

Derivatives and Hedging

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. The effective portion of the derivative’s net gain or loss is initially reported as a component of accumulated other comprehensive income, and upon occurrence of the forecasted transaction, is subsequently reclassified to the line item in our Consolidated Statements of Income to which the hedged transaction relates.

We also use foreign currency forward contracts to hedge certain balance sheet exposures. These forward contracts are not designated as hedges for accounting purposes, and any net gain or loss associated with these derivatives is reported in other (income) expense on our Consolidated Statements of Income.

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.

Allowance for Doubtful Accounts Receivable

Inventories

Inventories are stated at the lower of cost or net realizable value, with 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.

Marketable Securities

Marketable securities, included in other current and long-term assets, are composed of available-for-sale and trading 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 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 an other-than-temporary decline in market value has occurred, the duration of the decline in

value and our ability to hold the investment to recovery 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.

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, 2018 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:


	U.S.						International
(In millions)	1% Increase			1% Decrease			1% Increase			1% Decrease
Discount Rate
Increase (decrease) in expense in FY 2018	$	(4.5	)	$	5.5		$	(1.4	)	$	1.8
Increase (decrease) in obligation as of May 31, 2018	$	(51.0	)	$	60.7		$	(27.5	)	$	35.3
Expected Return on Plan Assets
Increase (decrease) in expense in FY 2018	$	(4.1	)	$	4.1		$	(1.9	)	$	1.9
Increase (decrease) in obligation as of May 31, 2018		N/A			N/A			N/A			N/A
Compensation Increase
Increase (decrease) in expense in FY 2018	$	5.4		$	(4.8	)	$	1.2		$	(1.1	)
Increase (decrease) in obligation as of May 31, 2018	$	26.4		$	(23.6	)	$	5.8		$	(5.0	)

Based upon May 31, 2018 information, the following table reflects the impact of a 1% change in the key assumptions applied to our various postretirement health care plans:


	U.S.						International
(In millions)	1% Increase			1% Decrease			1% Increase			1% Decrease
Discount Rate
Increase (decrease) in expense in FY 2018	$	-		$	-		$	(0.5	)	$	0.7
Increase (decrease) in obligation as of May 31, 2018	$	(0.4	)	$	0.5		$	(5.5	)	$	7.2
Healthcare Cost Trend Rate
Increase (decrease) in expense in FY 2018	$	-		$	-		$	0.7		$	(0.5	)
Increase (decrease) in obligation as of May 31, 2018	$	0.2		$	(0.2	)	$	7.0		$	(5.4	)

BUSINESS SEGMENT INFORMATION

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 seven 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 seven 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 three separate operating segments: Tremco Group, tremco illbruck 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.

The following table reflects the results of our reportable segments consistent with our management philosophy, and represents the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of product lines. Information for all periods presented has been recast to reflect the current-year change in the composition of our reportable segments.

SEGMENT INFORMATION

(In thousands)


Year Ended May 31,	2018			2017			2016
Net Sales
Industrial	$	2,814,755		$	2,564,202		$	2,491,647
Consumer		1,754,339			1,680,384			1,637,438
Specialty		752,549			713,589			684,564
Total	$	5,321,643		$	4,958,175		$	4,813,649
Income Before Income Taxes ^(a)
Industrial Segment
Income Before Income Taxes ^(a)	$	270,792		$	243,335		$	257,180
Interest (Expense), Net ^(b)		(10,507	)		(7,985	)		(6,071)
EBIT ^(c)	$	281,299		$	251,320		$	263,251
Consumer Segment
Income Before Income Taxes ^(a)	$	171,874		$	58,726		$	268,218
Interest Income (Expense), Net ^(b)		(713	)		(323	)		40
EBIT ^(c)	$	172,587		$	59,049		$	268,178
Specialty Segment
Income Before Income Taxes ^(a)	$	123,307		$	107,904		$	107,546
Interest Income (Expense), Net ^(b)		876			526			814
EBIT ^(c)	$	122,431		$	107,378		$	106,732
Corporate/Other
(Expense) Before Income Taxes ^(a)	$	(148,925	)	$	(165,632	)	$	(149,478)
Interest (Expense), Net ^(b)		(73,761	)		(75,188	)		(76,101)
EBIT ^(c)	$	(75,164	)	$	(90,444	)	$	(73,377)
Consolidated
Income Before Income Taxes ^(a)	$	417,048		$	244,333		$	483,466
Interest (Expense), Net ^(b)		(84,105	)		(82,970	)		(81,318)
EBIT ^(c)	$	501,153		$	327,303		$	564,784

(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 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 represents 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 2018 Compared with Fiscal 2017

Net Sales Consolidated net sales of $5.32 billion for fiscal 2018 grew by approximately 7.3% from net sales of $4.96 billion for fiscal 2017. Acquisitions added 3.6%, while organic sales, which include the impact of price and volume, improved by 2.0%. Consolidated net sales for fiscal 2018 also reflect a favorable foreign exchange impact of 1.7%.

Industrial segment net sales for fiscal 2018 grew by 9.8% to $2.81 billion, from net sales of $2.56 billion during fiscal 2017. The improvement was primarily due to organic growth of 4.4% during fiscal 2018 resulting from improved performance by our roofing and flooring businesses. This performance was slightly offset by a continued downturn in our businesses, which continue to be impacted by recession and political unrest in Brazil, as well as overall flat performance for our companies serving oil and gas markets. Recent acquisitions contributed 3.0% to net sales during fiscal 2018. Favorable foreign exchange impacted net sales by 2.4% during fiscal 2018.

Consumer segment net sales for fiscal 2018 grew by 4.4% to $1.75 billion, primarily due to growth in net sales from recent acquisitions of 5.2%. This segment had a 1.7% decline in organic sales during fiscal 2018 versus fiscal 2017, due to poor spring weather as well as the timing of shipments, inventory adjustments and softer consumer takeaway at our larger retail customers, which continued to impact this segment throughout fiscal 2018. Slightly favorable foreign currency impacted net sales in the consumer segment by 0.9% during fiscal 2018 versus fiscal 2017.

Specialty segment net sales for fiscal 2018 grew by 5.5% to $752.5 million. Recent acquisitions provided 2.6% of the growth in net sales, while organic growth provided 2.0% during fiscal 2018, in spite of the loss of sales associated with the fiscal 2017 closure of an unprofitable European manufacturing facility and reduced revenue associated with a patent expiration. Organic growth in net sales was driven by our businesses serving the water damage restoration and equipment markets, as well as increases in specialty OEM industrial coatings. Foreign currency had a slightly favorable impact on specialty segment net sales during fiscal 2018 by 0.9%.

Gross Profit Margin Our consolidated gross profit margin of 41.0% of net sales for fiscal 2018 compares to a consolidated gross profit margin of 43.7% for the comparable period a year ago. This gross profit decline of approximately 2.7% of net sales primarily reflects current-year margins that were burdened by the impact of overall higher raw material costs for approximately 150 basis points (“bps”). Additionally, in relation to our restructuring initiatives undertaken during the fourth quarter of fiscal 2018, as further described in Note B, “Restructuring,” inventory-related charges totaling 70 bps impacted the current-year gross profit margin, which included product line and SKU rationalization and related obsolete inventory identification at our consumer segment and inventory write-offs in connection with restructuring activities at our industrial segment. The remainder of the decline in gross profit margin resulted from an unfavorable mix of product sold this year versus last year. We anticipate that rising raw material prices will continue to trend upward due to higher petrochemical costs and rising global demand.

Selling, General and Administrative (“SG&A”) Expense Our consolidated SG&A expense increased by approximately $19.6 million during fiscal 2018 versus fiscal 2017, but improved to 31.3% of net sales for fiscal 2018 from 33.1% of net sales for fiscal 2017, resulting primarily from the 7.3% increase in net sales during fiscal 2018, combined with tighter cost controls during fiscal 2018 and the benefit from severance actions taken during fiscal 2017 across each of our segments. During fiscal 2017, we made a decision to exit our Flowcrete polymer flooring business located in the Middle East and, in connection with that decision, we performed an additional review of the collectibility of accounts receivable, which resulted in a loss of $11.4 million for increased bad debt reserves during fiscal 2017. During fiscal 2018, we made a decision to exit our Flowcrete business located in China and, in connection with that decision, we incurred a loss of $4.2 million. Also during fiscal 2018, we incurred approximately $1.5 million of professional fees in connection with the negotiation of an activist shareholder cooperation agreement. Additional SG&A expense incurred from companies acquired during the last 12 months approximated $43.6 million during fiscal 2018. There was also higher distribution and commission expense on higher sales volume during fiscal 2018 versus last year, which was partially offset by lower professional services and bad debt expense. Lastly, warranty expense for fiscal 2018 decreased by approximately $5.9 million from the amount recorded during fiscal 2017, and it is typical that warranty expense will fluctuate from period to period.

Our industrial segment SG&A was approximately $37.7 million higher for fiscal 2018 versus fiscal 2017, due to higher distribution and commission expense, $5.3 million of additional unfavorable transactional foreign exchange expense and recent acquisitions, which increased SG&A expense in this segment by approximately $21.8 million. SG&A decreased as a percentage of net sales, which reflects the industrial segment’s solid 9.8% growth in net sales combined with overall tighter cost controls during fiscal 2018, reduced warranty and bad debt expense, and the benefit from severance actions taken during fiscal 2017. We will continue to focus on improving operating leverage throughout the industrial segment. As previously discussed, in connection with the decision to exit the Flowcrete China and Flowcrete Middle East businesses, we incurred losses of $4.2 million and $11.4 million during fiscal 2018 and 2017, respectively.

Our consumer segment SG&A increased by approximately $7.0 million during fiscal 2018 versus fiscal 2017, due to recent acquisitions and higher advertising and promotional expenses, which increased SG&A expense in this segment by approximately $19.0 million. SG&A decreased as a percentage of net sales, reflecting overall tighter cost controls during fiscal 2018 and the benefit from severance actions taken during fiscal 2017.

Our specialty segment SG&A was approximately $7.6 million lower during fiscal 2018 versus fiscal 2017, and decreased as a percentage of net sales, which reflects this segment’s 5.5% growth in net sales combined with overall tighter cost controls during fiscal 2018 and the benefit from severance actions taken during fiscal 2017. This segment also benefited from lower SG&A in connection with the fiscal 2017 closure of an unprofitable European manufacturing facility. During fiscal 2018, recent acquisitions increased SG&A expense in this segment by approximately $2.7 million.

SG&A expenses in our corporate/other category of $73.0 million during fiscal 2018 decreased by $17.4 million from $90.4 million recorded during fiscal 2017, resulting primarily from lower incentive compensation and pension expense, as well as lower legal and acquisition-related professional fees.

We recorded total net periodic pension and postretirement benefit costs of $43.4 million and $59.1 million for fiscal 2018 and 2017, respectively. The $15.7 million decrease in pension expense resulted from an approximate $8.0 million decline in net actuarial losses recognized during fiscal 2018 versus fiscal 2017, principally from a change in estimate for lump sum valuations, which were updated to incorporate future expectations of interest rates. There was also a higher expected return on increased plan assets during fiscal 2018 versus fiscal 2017 for approximately $8.5 million, which was partially offset by higher service costs of $1.0 million during fiscal 2018.

We expect that pension and postretirement expenses 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 $6.0 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 25 of this report under, “Critical Accounting Policies and Estimates — Pension and Postretirement Plans.”

Restructuring Expense As described in Note B, “Restructuring,” to the Consolidated Financial Statements, during the fourth quarter of fiscal 2018, we recorded restructuring charges of $17.5 million, which were the result of our implementation of the first phase of a multi-year restructuring plan, the 2020 Margin Acceleration Plan (“2020 MAP to Growth”), which initially focused upon strategic shifts in operations at our consumer and industrial segments. These charges were associated with the closure of certain facilities as well as the elimination of duplicative headcount and infrastructure associated with certain of our businesses. For additional information, refer to Note B to the Consolidated Financial Statements.

Goodwill and Other Intangible Asset Impairments As described in Note C, “Goodwill and Other Intangible Assets,” to the Consolidated Financial Statements, we recorded impairment charges related to a reduction of the carrying value of goodwill and other intangible assets totaling $193.2 million during fiscal 2017. For additional information, refer to Note C to the Consolidated Financial Statements.

Interest Expense Interest expense was $104.5 million for fiscal 2018 versus $97.0 million for fiscal 2017. Higher average borrowings, related to recent acquisitions, increased interest expense during fiscal 2018 by approximately $3.6 million versus fiscal 2017. Excluding acquisition-related borrowings, which carried lower average interest financing costs, higher

average borrowings year-over-year increased interest expense by approximately $4.0 million during fiscal 2018 compared with fiscal 2017.

Investment (Income), Net Net investment income of approximately $20.4 million for fiscal 2018 compares to net investment income of $14.0 million during fiscal 2017. Dividend and interest income totaled $8.7 million and $6.2 million for fiscal 2018 and 2017, respectively. Net realized gains on the sales of investments totaled $11.7 million during fiscal 2018, while those gains were $8.2 million during fiscal 2017. Impairments recognized on securities that management has determined are other-than-temporary declines in value approximated $0.4 million during fiscal 2017, while there were no such losses for fiscal 2018.

Income Before Income Taxes (“IBT”) Our consolidated pretax income for fiscal 2018 of $417.0 million compares with pretax income of $244.3 million for fiscal 2017.

Our industrial segment had pretax income of $270.8 million, or 9.6% of net sales, for fiscal 2018, versus pretax income of $243.3 million, or 9.5% of net sales, for fiscal 2017. Our industrial segment results reflect the impact of 9.8% growth in net sales during fiscal 2018, offset primarily by the impact from higher raw material costs, distribution expense and disappointing results in Latin America. Our consumer segment pretax income approximated $171.9 million, or 9.8% of net sales for fiscal 2018, compared to a pretax income for fiscal 2017 of $58.7 million. During fiscal 2017, this segment recorded goodwill and other intangible asset impairment losses of $193.2 million. Our specialty segment had pretax income of $123.3 million, or 16.4% of net sales for fiscal 2018, versus pretax income of $107.9 million, or 15.1% of net sales, for fiscal 2017, reflecting leverage on 5.5% growth in net sales during fiscal 2018, combined with the benefit from the closure of an unprofitable European manufacturing facility and severance actions taken during fiscal 2017. As previously reported, an edible coatings patent expired in the U.S. during August 2017 and, as a result, the unfavorable impact of the patent expiration on fiscal 2018 pretax income approximated $8.0 million. The impact was less than anticipated due to higher customer retention.

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 current fiscal year federal statutory rate to a blended rate of approximately 29.2%.

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 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 as a result of the Act being enacted during this fiscal year. The net provisional income tax expense is 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

previously recorded deferred tax liability for the estimated tax cost associated with unremitted foreign earnings not considered indefinitely reinvested.

The effective income tax rate was 18.7% for fiscal 2018 compared to an effective income tax rate of 24.4% for fiscal 2017. The reduction in the effective tax rate is primarily attributable to the U.S. statutory income tax rate reduction included in the Act, a reduction to our deferred tax liability for foreign unremitted earnings, and the reversal of valuation allowances in fiscal 2018 associated with capital loss carryforwards. The year-over-year reduction in our effective income tax rate was partially offset by a decrease in excess tax benefits associated with equity compensation for this fiscal year, as well as for the provisional expense recorded in fiscal 2018 for the transition tax on previously deferred foreign earnings. Certain of these favorable adjustments are non-recurring and, as a result, we expect the effective income tax rate to increase in fiscal 2019.

Refer to Note H, “Income Taxes,” to the Consolidated Financial Statements for additional disclosures and discussion regarding the Act.

Net Income Net income of $339.3 million for fiscal 2018 compares to net income of $184.7 million for fiscal 2017. Net income attributable to noncontrolling interests approximated $1.5 million and $2.9 million for fiscal 2018 and 2017, respectively. Net income attributable to RPM International Inc. stockholders for fiscal 2018 was $337.8 million, or 6.3% of consolidated net sales, which compares to net income of $181.8 million, or 3.7% of consolidated net sales for fiscal 2017.

Diluted earnings per share of common stock for fiscal 2018 of $2.50 compares with diluted earnings per share of common stock of $1.36 for fiscal 2017.

Fiscal 2017 Compared with Fiscal 2016

Net Sales Consolidated net sales of $4.96 billion for fiscal 2017 grew by approximately 3.0% from net sales of $4.81 billion for fiscal 2016. Organic sales improved 1.6%, while acquisitions added 3.1%. Consolidated net sales for fiscal 2017 were offset by an unfavorable foreign exchange impact of 1.7%, primarily due to the devaluation of the British Pound.

Industrial segment net sales grew by 2.9% to $2.56 billion during fiscal 2017 versus net sales of $2.49 billion during fiscal 2016. Growth in this segment was primarily the result of acquisitions completed during fiscal 2017, which contributed 2.9% to net sales. Organic growth in sales was 2.0%, which was entirely offset by unfavorable foreign exchange, which impacted net sales by 2.0% during fiscal 2017.

Specialty segment net sales for fiscal 2017 grew by 4.2% to $713.6 million, from $684.6 million during fiscal 2016, primarily due to acquisition growth of 3.1% and organic growth of 2.8%. Foreign currency negatively impacted specialty segment net sales for fiscal 2017 by 1.7%.

Consumer segment net sales for fiscal 2017 grew by 2.6% to $1.68 billion, from $1.64 billion during fiscal 2016, due to acquisition growth of 3.4% and organic growth of 0.6%. Unfavorable foreign currency impacted net sales in the consumer segment by 1.4% during fiscal 2017 versus the same period a year ago.

Gross Profit Margin Our consolidated gross profit margin improved slightly to 43.7% of net sales for fiscal 2017 from a consolidated gross profit margin of 43.4% for fiscal 2016. Items that favorably impacted our fiscal 2017 gross profit margin versus fiscal 2016 included overall lower manufacturing costs for 0.3% and an approximate impact of 0.4% from price increases recently implemented, particularly in certain international markets where margins had been unfavorably impacted by

the strengthening U.S. dollar. Items that unfavorably impacted our fiscal 2017 gross profit margin versus fiscal 2016 included the impact of fiscal 2017 acquisitions and associated inventory step-up expense for 0.3%, with the remaining 0.1% impact resulting from unfavorable foreign exchange.

SG&A Expense Our consolidated SG&A expense increased by approximately $122.6 million during fiscal 2017 versus fiscal 2016, and increased to 33.1% of net sales from 31.6% of net sales for fiscal 2016. The main source of the increase was the number of companies acquired during fiscal 2017, which added approximately $36.2 million to SG&A expense. During the second quarter of fiscal 2017, we made the decision to exit the Flowcrete polymer flooring business located in the Middle East. In connection with the decision to exit that business, we determined it was appropriate to reassess the collectibility of accounts receivable and, accordingly, we incurred a loss of $11.4 million for increased bad debt reserves. We also incurred higher severance expense versus fiscal 2016 for approximately $23.1 million, which includes $3.6 million in relation to the closing of a European manufacturing facility. Additionally, during fiscal 2017, SG&A increased due to higher compensation, commissions, distribution expense and professional services expense. Warranty expense for the year ended May 31, 2017 increased by approximately $4.2 million from the amount recorded during fiscal 2016, and it is typical that warranty expense will fluctuate from period to period. Partially offsetting those increased expenses was the impact of approximately $0.3 million of unfavorable transactional foreign exchange during fiscal 2017 versus approximately $7.5 million of expense during fiscal 2016. Additionally, SG&A expense during fiscal 2016 was reduced by a $14.5 million reversal of a contingent consideration obligation.

Our industrial segment SG&A increased by approximately $43.8 million for fiscal 2017 versus fiscal 2016, and increased as a percentage of net sales as well. Acquisitions completed during fiscal 2017 increased SG&A expense in this segment by approximately $19.5 million. During the second quarter of fiscal 2017, we made the decision to exit the Flowcrete polymer flooring business located in the Middle East. In connection with the decision to exit that business, we reassessed the collectibility of accounts receivable and, accordingly, we incurred a loss of $11.4 million for increased bad debt reserves. Additionally, during fiscal 2017, there were increases in compensation, professional services expense and warranty expense. We incurred approximately $16.1 million of higher severance expense during fiscal 2017 versus fiscal 2016. Partially offsetting these increased expenses was the impact of approximately $0.9 million of favorable transactional foreign exchange during fiscal 2017 versus the unfavorable impact of $3.0 million during fiscal 2016.

Our specialty segment SG&A was approximately $7.7 million higher during fiscal 2017 versus fiscal 2016, and was slightly lower as a percentage of net sales. Reflected in the increased expense was higher employee compensation and benefits expense versus fiscal 2016, partially offset by a favorable impact from translational foreign exchange. Acquisitions completed during fiscal 2017 increased SG&A expense in this segment by approximately $5.6 million. Additionally, we incurred severance expense for approximately $3.6 million in relation to the closing of a European manufacturing facility.

Our consumer segment SG&A increased by approximately $54.0 million during fiscal 2017 versus fiscal 2016, and was higher as a percentage of net sales, reflecting higher distribution expense. Acquisitions completed during fiscal 2017 increased SG&A expense in this segment by approximately $11.1 million. Additionally, during fiscal 2017, there was higher compensation and employee benefits expense, higher freight expense, as well as increased professional services expense, some of which related to acquisitions, versus fiscal 2016. Additionally,

severance expense was approximately $5.0 million higher in fiscal 2017 versus fiscal 2016. Lastly, SG&A expense during fiscal 2016 was reduced by a $14.5 million reversal of a contingent consideration obligation.

SG&A expenses in our corporate/other category of $90.4 million during fiscal 2017 increased by $17.0 million from $73.4 million recorded during fiscal 2016, resulting principally from higher pension expense and acquisition costs incurred during fiscal 2017 versus fiscal 2016.

We recorded total net periodic pension and postretirement benefit costs of $59.1 million and $47.6 million for fiscal 2017 and 2016, respectively. The $11.5 million increase in pension expense resulted from higher service and interest cost of $3.7 million during fiscal 2017 versus fiscal 2016. Additionally, there was an unfavorable impact of approximately $5.8 million and $0.8 million resulting from larger actuarial losses and plan settlements, respectively, recognized during fiscal 2017 versus fiscal 2016. Lastly, during fiscal 2017, the expected return on plan assets was approximately $1.2 million lower than during fiscal 2016.

Goodwill and Other Intangible Asset Impairments As described in Note C, “Goodwill and Other Intangible Assets,” to the consolidated financial statements, we recorded impairment charges related to a reduction of the carrying value of goodwill and other intangible assets totaling $193.2 million during the year ended May 31, 2017. For additional information, refer to Note C to the Consolidated Financial Statements and the Critical Accounting Policies discussed herein.

Interest Expense Interest expense was $97.0 million for fiscal 2017 versus $91.7 million for fiscal 2016. Higher average borrowings, related to acquisitions completed during fiscal 2017, increased interest expense during fiscal 2017 by approximately $3.2 million versus fiscal 2016. Excluding acquisition-related borrowings, lower average borrowings year-over-year decreased interest expense by approximately $5.0 million. Higher interest rates, which averaged 4.27% overall for fiscal 2017 compared with 4.11% for fiscal 2016, increased interest expense by approximately $7.1 million during fiscal 2017 versus fiscal 2016.

Investment (Income), Net Net investment income of approximately $14.0 million for fiscal 2017 compares to net investment income of $10.4 million during fiscal 2016. Dividend and interest income totaled $6.2 million and $7.7 million for fiscal 2017 and 2016, respectively. Net realized gains on the sales of investments totaled $8.2 million during fiscal 2017, while those gains were $6.5 million during fiscal 2016. Impairments recognized on securities that management has determined are other-than-temporary declines in value approximated $0.4 million and $3.8 million during fiscal 2017 and 2016, respectively.

Other Expense (Income), Net Other expense of $1.7 million for fiscal 2017 compared with other income of $1.3 million for fiscal 2016. Other expense (income), net includes net royalty expense of approximately $2.7 million for fiscal 2017, while fiscal 2016 net royalty expense was $2.0 million. Also included in this balance is our equity in earnings of unconsolidated affiliates totaling approximately $1.0 million and $2.1 million for fiscal 2017 and 2016, respectively. Additionally, during the fourth quarter of fiscal 2016, we incurred a legal settlement charge of approximately $9.3 million, which was in relation to certain deck coating products. Lastly, during fiscal 2016 we acquired the remaining 51% interest in our Chinese joint venture, Carboline Dalian Paint Production Co., Ltd. (“Carboline Dalian”), which increased our ownership to 100%. During the fourth quarter of fiscal 2016, we retained an independent, third-party valuation firm to assist us in determining the fair value of Carboline Dalian and, as proscribed by ASC 805, we recorded a remeasurement gain for approximately $8.0 million during fiscal 2016.

IBT Our consolidated pretax income for fiscal 2017 of $244.3 million compares with $483.5 million for fiscal 2016.

Our industrial segment had pretax income of $243.3 million, or 9.5% of net sales, for fiscal 2017, versus pretax income of $257.2 million, or 10.3% of net sales, for fiscal 2016. Our specialty segment had pretax income of $107.9 million, or 15.1% of net sales, for fiscal 2017, versus pretax income of $107.5 million, or 15.7% of net sales, for fiscal 2016. During the first half of fiscal 2018, an edible coatings patent expired in the U.S. and, as a result, we anticipated the impact of the patent expiration on fiscal 2018 IBT to approximate at least $10.0 million. Our consumer segment pretax income of $58.7 million for fiscal 2017 compares with fiscal 2016 pretax income of $268.2 million, primarily as a result of fiscal 2017 goodwill and other intangible asset impairment charges totaling $193.2 million, as discussed previously.

Income Tax Rate The effective income tax rate was 24.4% for fiscal 2017 compared to an effective income tax rate of 26.1% for fiscal 2016. The decrease in the effective income tax rate is primarily due to a discrete benefit resulting from the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2017. This benefit was partially offset by a decrease in the domestic manufacturing deduction and the unfavorable impact due to increases in valuation allowances, as compared to fiscal 2016.

Net Income Net income of $184.7 million for the year ended May 31, 2017 compares to net income of $357.5 million for the year ended May 31, 2016. During fiscal 2017 and 2016, we had net income attributable to noncontrolling interests of $2.9 million and $2.7 million, respectively. Net income attributable to RPM International Inc. stockholders for fiscal 2017 was $181.8 million, or 3.7% of consolidated net sales, which compared to net income of $354.7 million, or 7.4% of consolidated net sales for fiscal 2016.

Diluted earnings per share of common stock for the year ended May 31, 2017 of $1.36 compares with diluted earnings per share of common stock of $2.63 for year ended May 31, 2016.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Fiscal 2018 Compared with Fiscal 2017

Approximately $390.4 million of cash was provided by operating activities during fiscal 2018, compared with $386.1 million of cash provided by operating activities during fiscal 2017.

The net change in cash from operations includes the change in net income, which increased by $154.6 million during fiscal 2018 versus fiscal 2017. During fiscal 2018, we recorded $17.5 million of restructuring expense, $36.5 million in charges related to product line and SKU rationalization and related obsolete inventory at our consumer segment and $1.2 million of inventory charges related to restructuring activities at our industrial segment. Also during fiscal 2018, we incurred a loss of $4.2 million in connection with the decision to exit Flowcrete China. During fiscal 2017, we recorded goodwill and other intangible asset impairment charges of $193.2 million, $12.3 million in charges related to the decision to exit the Flowcrete Middle East polymer flooring business and $4.2 million in charges related to the closure of a European manufacturing facility. Changes in working capital accounts and all other accruals provided approximately $62.6 million more cash flow during fiscal 2018 versus fiscal 2017.

The change in accounts receivable during fiscal 2018 used approximately $100.5 million more cash than fiscal 2017. Days sales outstanding (“DSO”) at May 31, 2018 increased to 60.8 days from 56.6 days at May 31, 2017, reflecting the change in mix toward our industrial segment.

During fiscal 2018, we spent approximately $36.6 million less cash for inventory compared to our spending during fiscal 2017. This resulted from the combination of timing of purchases by retail customers and a strategic redirection at certain businesses in our consumer segment, which resulted in product rationalization. Days inventory outstanding (“DIO”) at May 31, 2018 decreased to 79.9 days from 85.5 days at May 31, 2017.

The change in accounts payable during fiscal 2018 provided approximately $35.4 million more cash than during fiscal 2017, resulting principally from the timing of certain payments. Other accruals and prepaids, including those for other short-term and long-term items and changes in accrued loss reserves, provided $92.2 million more cash during fiscal 2018 versus fiscal 2017, primarily from the higher pension contributions during fiscal 2017 and the timing of upfront funds used for certain customer contracts.

Fiscal 2017 Compared with Fiscal 2016

Approximately $386.1 million of cash was provided by operating activities during fiscal 2017, compared with $474.7 million during fiscal 2016.

The net change in cash from operations includes the change in net income, which decreased by $172.8 million during fiscal 2017 versus fiscal 2016. Current-year net income included the goodwill and other intangible asset impairment charges of $193.2 million ($132.2 million after tax), as well as $12.3 million in charges related to the decision to exit the Flowcrete polymer flooring business in the Middle East and $4.2 million in charges related to the closure of a European manufacturing facility. Changes in working capital accounts and all other accruals used approximately $147.1 million more cash flow during fiscal 2017 versus fiscal 2016.

The change in accounts receivable during fiscal 2017 used approximately $18.9 million less cash than during fiscal 2016. DSO at May 31, 2017 decreased to 56.6 days from 57.7 days at May 31, 2016.

During fiscal 2017, we spent approximately $53.0 million more cash for inventory purchases compared to our spending during fiscal 2016. This resulted from the combination of timing of purchases by retail customers, the building of additional inventory to service customers’ needs and also geographic expansion. DIO at May 31, 2017 increased to 85.5 days from 79.2 days at May 31, 2016.

The change in accounts payable during fiscal 2017 provided approximately $22.2 million more cash than fiscal 2016, resulting principally from the timing of certain payments. Accrued compensation and benefits used approximately $22.3 million more cash during fiscal 2017 versus fiscal 2016, due to higher bonus payouts made during fiscal 2017 versus fiscal 2016. Other accruals and prepaids, including those for other short-term and long-term items and changes in accrued loss reserves, used $101.8 million more cash during fiscal 2017 versus fiscal 2016, primarily from the timing of pension plan contributions and upfront funds used for long-term customer contracts.

Cash provided from operations, along with the use of available credit lines, as required, remain our primary sources of liquidity.

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 2018, we paid $112.4 million for acquisitions, net of cash acquired, versus $254.2 million during fiscal 2017 and $52.0 million during fiscal 2016. Capital expenditures of $114.6 million during fiscal

2018 compared with depreciation of $82.0 million. During fiscal 2017, capital expenditures of $126.1 million compared with depreciation of $71.9 million. During fiscal 2016, capital expenditures of $117.2 million compared with depreciation of $66.7 million. During fiscal 2017, we increased our production capacity in our consumer segment, specifically with regard to our DAP operating segment, to meet our needs based on anticipated growth rates. During fiscal 2018, we adjusted our capital spending downward slightly from fiscal 2017, and continued our efforts to more aggressively invest in our internal growth initiatives, especially in overseas markets. We anticipate that additional shifts at our production facilities, coupled with the capacity added through ongoing acquisition activity and our planned increase in future capital spending levels, will enable us to meet increased demand into fiscal 2019 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, 2018, the fair value of our investments in marketable securities totaled $168.1 million, of which investments with a fair value of $106.3 million were in an unrealized loss position. At May 31, 2017, the fair value of our investments in marketable securities totaled $164.5 million, of which investments with a fair value of $60.0 million were in an unrealized loss position. 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. Total pretax unrealized losses recorded in accumulated other comprehensive income at May 31, 2018 and May 31, 2017 were $4.5 million and $3.5 million, respectively.

We regularly review our marketable securities in unrealized loss positions in order to determine whether or not we have the ability and intent to hold these investments. That determination is based upon the severity and duration of the decline, in addition to our evaluation of the cash flow requirements of our businesses. Unrealized losses at May 31, 2018 were generally related to the normal volatility in valuations over the past several months for a portion of our portfolio of investments in marketable securities. The unrealized losses generally relate to investments whose fair values at May 31, 2018 were less than 15% below their original cost or that have been in a loss position for less than six consecutive months. 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 arise 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.

As of May 31, 2018, approximately $214.1 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries, compared with approximately $278.8 million as of May 31, 2017. 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 $1.01 billion at May 31, 2018, compared with $1.15 billion at May 31, 2017. Our debt-to-capital ratio was 57.1% at May 31, 2018, compared with 59.3% at May 31, 2017.

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 fiscal 2015, we entered into an $800.0 million unsecured syndicated revolving credit facility (the “Revolving Credit Facility”), which expires on December 5, 2019. 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 $1.0 billion. The Revolving Credit Facility is available to refinance existing indebtedness, to finance working capital and capital expenditures, to satisfy all or a portion of our obligations relating to the plan of reorganization for our SPHC subsidiary, and for general corporate purposes.

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 consolidated indebtedness as of any fiscal quarter end to exceed 65% of the sum of such indebtedness and our consolidated shareholders’ equity on such date. 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 credit agreement.

As of May 31, 2018, 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 56.9%, while our interest coverage ratio was 7.4 to 1. Our available liquidity under our Revolving Credit Facility stood at $562.4 million at May 31, 2018.

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.

As previously reported, during fiscal 2015, a plan of reorganization was confirmed (the “Bankruptcy Plan”) and, effective as of December 23, 2014, Bondex, SPHC, Republic and NMBFiL emerged from bankruptcy. Accordingly, trusts were established under Section 524(g) of the United States Bankruptcy Code (together, the “Trust”) and were funded with first installments. Borrowings under our Revolving Credit Facility were used to fund the initial trust payment of $450 million, which is classified as long-term debt in our Consolidated Balance Sheets. The Trust was funded with $450 million in cash and a promissory note, bearing no interest and maturing on or before December 23, 2018 (the “Bankruptcy Note”). We prepaid the remaining trust payment for $123.6 million in May 2018 and, therefore, there are no remaining outstanding trust payments as of May 31, 2018.

All of our past contributions to the Trust are deductible for U.S. income tax purposes.

Accounts Receivable Securitization Program

On May 9, 2017, we entered into a three-year, $200.0 million accounts receivable securitization facility (the “AR Program”). 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, 2018, there was no 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 0.70%. In addition, we are obligated to pay a monthly unused commitment fee 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 pay interest on the Convertible Notes semi-annually on June 15th and December 15th of each year.

The Convertible Notes will be convertible under certain circumstances and during certain periods at an initial conversion rate of 18.8905 shares of RPM common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $52.94 per share of common stock), subject to adjustment in certain circumstances. In April 2018, we declared a dividend in excess of $0.24 per share and, consequently, the adjusted conversion rate at May 31, 2018 was 19.159777. The initial conversion price represents a conversion premium of approximately 37% over the last reported sale price of RPM common stock of $38.64 on December 3, 2013. Prior to June 15, 2020, the Convertible Notes may be converted only upon specified events and, thereafter, at any time. Upon conversion, the Convertible Notes may be settled, at RPM’s election, in cash, shares of RPM common stock, or a combination of cash and shares of RPM common stock.

We account for the liability and equity components of the Convertible Notes separately, and in a manner that will reflect our nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The effective interest rate on the liability component is 3.92%. Contractual interest was $4.6 million for both fiscal 2018 and 2017, and amortization of the debt discount was $3.0 million and $2.9 million for fiscal 2018 and 2017, respectively. At May 31, 2018, the remaining period over which the debt discount will be amortized was 2.5 years, the unamortized debt discount was $8.1 million, and the carrying amount of the equity component was $20.7 million.

The following table summarizes our financial obligations and their expected maturities at May 31, 2018, and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.

Contractual Obligations


	Total Contractual		Payments Due In
(In thousands)	Payment Stream		2019		2020-21		2022-23		After 2023
Long-term debt obligations	$	2,174,144	$	3,501	$	884,079	$	295,596	$	990,968
Capital lease obligations		911		227		288		163		233
Operating lease obligations		209,632		57,019		66,667		33,708		52,238
Other long-term liabilities ⁽¹⁾:
Interest payments on long-term debt obligations		1,052,771		86,415		130,706		102,525		733,125
Contributions to pension and postretirement plans ⁽²⁾		387,800		10,600		23,500		139,700		214,000
Total	$	3,825,258	$	157,762	$	1,105,240	$	571,692	$	1,990,564

(1)

Excluded from other long-term liabilities are our gross long-term liabilities for unrecognized tax benefits, which totaled $17.4 million at May 31, 2018. 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 favorable change in the accumulated other comprehensive income (loss) (refer to Note K to the Consolidated Financial Statements) component of stockholders’ equity of $8.4 million this year versus an unfavorable change of $(17.2) million last year. The change in fiscal 2018 was in addition to favorable net changes of $9.2 million related to adjustments required for minimum pension and other postretirement liabilities and unfavorable changes of $(1.3) million related to unrealized gains on securities.

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, 2018, approximately 15.7% of our debt was subject to floating interest rates.

If interest rates were to increase 100 bps from May 31, 2018 and, assuming no changes in debt from the May 31, 2018 levels, the additional annual interest expense would amount to approximately $3.4 million on a pretax basis. A similar increase in interest rates in fiscal 2017 would have resulted in approximately $2.0 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, 2018 and 2017. 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 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) risks related to the adequacy of our contingent liability reserves; and (j) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2018, 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

CONSOLIDATED BALANCE SHEETS

(In thousands, except per share amounts)


May 31,	2018			2017
Assets
Current Assets
Cash and cash equivalents	$	244,422		$	350,497
Trade accounts receivable (less allowances of $46,344 and $44,138, respectively)		1,113,818			995,330
Inventories		834,461			788,197
Prepaid expenses and other current assets		278,230			263,412
Total current assets		2,470,931			2,397,436
Property, Plant and Equipment, at Cost		1,575,875			1,484,579
Allowance for depreciation		(795,569	)		(741,893	)
Property, plant and equipment, net		780,306			742,686
Other Assets
Goodwill		1,192,174			1,143,913
Other intangible assets, net of amortization		584,272			573,092
Deferred income taxes		21,897			19,793
Other		222,242			213,529
Total other assets		2,020,585			1,950,327
Total Assets	$	5,271,822		$	5,090,449
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable	$	592,281		$	534,718
Current portion of long-term debt		3,501			253,645
Accrued compensation and benefits		177,106			181,084
Accrued losses		22,132			31,735
Other accrued liabilities		211,706			234,212
Total current liabilities		1,006,726			1,235,394
Long-Term Liabilities
Long-term debt, less current maturities		2,170,643			1,836,437
Other long-term liabilities		356,892			482,491
Deferred income taxes		104,023			97,427
Total long-term liabilities		2,631,558			2,416,355
Commitments and contingencies (Note P)
Stockholders’ Equity
Preferred stock, par value $0.01; authorized 50,000 shares; none issued
Common stock, par value $0.01; authorized 300,000 shares; issued 141,716 and outstanding 133,647 as of May 2018; issued 141,242 and outstanding 133,563 as of May 2017		1,336			1,336
Paid-in capital		982,067			954,491
Treasury stock, at cost		(236,318	)		(218,222	)
Accumulated other comprehensive (loss)		(459,048	)		(473,986	)
Retained earnings		1,342,736			1,172,442
Total RPM International Inc. stockholders’ equity		1,630,773			1,436,061
Noncontrolling Interest		2,765			2,639
Total equity		1,633,538			1,438,700
Total Liabilities and Stockholders’ Equity	$	5,271,822		$	5,090,449

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


Year Ended May 31,	2018			2017			2016
Cash Flows From Operating Activities:
Net income	$	339,257		$	184,671		$	357,458
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		81,976			71,870			66,732
Amortization		46,523			44,903			44,307
Restructuring		17,514
Goodwill, intangible and other asset impairments					193,198			4,471
Adjustments to contingent consideration obligations		3,400			3,000			(14,500)
Other-than-temporary impairments on marketable securities					420			3,811
Deferred income taxes		(10,690	)		24,049			9,399
Stock-based compensation expense		25,440			32,541			31,287
Other non-cash interest expense		6,187			9,986			9,750
Gain on remeasurement of joint venture ownership								(7,972)
Realized (gains) on sales of marketable securities		(10,076	)		(8,174	)		(6,457)
Other		(1,141	)		280			(15)
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
(Increase) in receivables		(106,179	)		(5,690	)		(24,582)
(Increase) in inventory		(34,102	)		(70,726	)		(17,733)
Decrease (increase) in prepaid expenses and other current and long-term assets		3,348			(38,130	)		(25,617)
Increase (decrease) in accounts payable		51,641			16,247			(5,958)
(Decrease) increase in accrued compensation and benefits		(5,010	)		(4,577	)		17,681
(Decrease) increase in accrued loss reserves		(10,387	)		(3,422	)		13,514
(Decrease) increase in other accrued liabilities		(6,612	)		(64,322	)		8,011
Other		(706)			3			11,119
Cash Provided By Operating Activities		390,383			386,127			474,706
Cash Flows From Investing Activities:
Capital expenditures		(114,619	)		(126,109	)		(117,183	)
Acquisition of businesses, net of cash acquired		(112,442	)		(254,200	)		(51,992	)
Purchase of marketable securities		(181,953	)		(38,062	)		(32,280	)
Proceeds from sales of marketable securities		138,803			76,588			32,631
Proceeds from sales of assets and businesses								866
Other		9,018			2,118			2,092
Cash (Used For) Investing Activities		(261,193	)		(339,665	)		(165,866)
Cash Flows From Financing Activities:
Additions to long-term and short-term debt		351,082			597,633			142,130
Reductions of long-term and short-term debt		(276,406	)		(154,348	)		(147,155	)
Cash dividends		(167,476	)		(156,752	)		(144,350	)
Shares of common stock repurchased and returned for taxes		(17,152	)		(21,948	)		(71,346	)
Payments of acquisition-related contingent consideration		(3,945	)		(4,284	)		(2,088	)
Exercise of stock options and awards, including tax benefit								18,540
Payments for 524(g) trust		(123,567	)		(221,638	)
Other		(1,912	)		(2,692	)		(1,836	)
Cash (Used For) Provided By Financing Activities		(239,376)			35,971			(206,105)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		4,111			2,912			(12,294)
Net Change in Cash and Cash Equivalents		(106,075)			85,345			90,441
Cash and Cash Equivalents at Beginning of Period		350,497			265,152			174,711
Cash and Cash Equivalents at End of Period	$	244,422		$	350,497		$	265,152
Supplemental Disclosures of Cash Flows Information:
Cash paid during the year for:
Interest	$	97,295		$	78,685		$	73,087
Income taxes	$	83,460		$	71,236		$	63,208

The accompanying Notes to Consolidated Financial Statements are an integral part of these statements.

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.

Subsequent to the end of the current fiscal year, on July 11, 2018, we acquired the stock of Kemtile Limited, which is a hygienic flooring solutions provider for the U.K. food and beverage industry, and is headquartered in the U.K. This fiscal 2019 acquisition will report through our industrial 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 include 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.

During the fiscal year ended May 31, 2017, we completed acquisitions within each of our three reportable segments. Two of the fiscal 2017 acquisitions report through our consumer reportable segment, which include the following: the foam division of a corporation based in St. Louis, Missouri, which sells consumer polyurethane foam in the consumer do-it-yourself market as well as the professional industrial market; and a decorative and specialty coatings company located in the Netherlands. There were also several acquisitions during fiscal 2017 that report through our industrial reportable segment, which include the following: a manufacturer of commercial waterproofing products based in Australia; a specialist civil engineering and construction organization focusing on bridges, roads and major structures based in Mount Airy, North Carolina; a manufacturer of specialty high-performance coatings serving the global oil and gas pipeline market headquartered in Langley, British Columbia, Canada; a manufacturer of foam tapes used in construction and industrial applications based in the U.K.; a company based in Richmond, Missouri, which manufactures resins, intermediates, hardeners and curing agents for use in epoxy and polyurethane materials; and a manufacturer of specialty chemicals and equipment for infrastructure construction and repair headquartered in Conyers, Georgia. Lastly, we acquired a product line that reports through our specialty reportable segment, which was a manufacturer of professional equipment and chemicals for cleaning and restoring carpet, upholstery and hard flooring surfaces based in Chandler, Arizona.

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. While the valuations of consideration transferred and total assets acquired and liabilities assumed are substantially complete, the primary areas that remain preliminary relate to the fair values of other current assets and deferred income taxes for acquisitions completed during fiscal 2018. Acquisitions are aggregated by year of purchase in the following table:


	Fiscal 2018 Acquisitions				Fiscal 2017 Acquisitions
(In thousands)	Weighted-Average Intangible Asset Amortization Life (In Years)	Total			Weighted-Average Intangible Asset Amortization Life (In Years)	Total
Current assets		$	28,939			$	78,565
Property, plant and equipment			10,875				59,630
Goodwill	N/A		43,656		N/A		75,361
Tradenames - indefinite lives	N/A		15,096		N/A		12,251
Other intangible assets	12		36,450		14		83,447
Other long-term assets			81				460
Total Assets Acquired		$	135,097			$	309,714
Liabilities assumed			(19,369	)			(51,344	)
Net Assets Acquired		$	115,728	⁽¹⁾		$	258,370	⁽²⁾

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

(2) Figure includes cash acquired of $4.2 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, 2018 and 2017 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 2018, 2017 and 2016 of approximately $12.3 million, $6.4 million and $24.4 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


May 31,	2018		2017
(In thousands)
Land	$	85,007	$	82,184
Buildings and leasehold improvements		445,017		427,304
Machinery and equipment		1,045,851		975,091
Total property, plant and equipment, at cost		1,575,875		1,484,579
Less: allowance for depreciation and amortization		795,569		741,893
Property, plant and equipment, net	$	780,306	$	742,686

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:


Land improvements			1 to 50 years
Buildings and improvements			1 to 50 years
Machinery and equipment			1 to 30 years

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

Revenues are recognized when realized or realizable, and when earned. In general, this is when title and risk of loss pass to the customer. Further, revenues are realizable when we have persuasive evidence of a sales arrangement, the product has been shipped or the services have been provided to the customer, the sales price is fixed or determinable, and collectibility is reasonably assured. We reduce our revenues for estimated customer returns and allowances, certain rebates, sales incentives, and promotions in the same period the related sales are recorded.

We also record revenues generated under long-term construction contracts, mainly in connection with the installation of specialized roofing and flooring systems, and related services. Certain long-term construction contracts are accounted for under the percentage-of-completion method, and therefore we record contract revenues and related costs as our contracts progress. This method recognizes the economic results of contract performance on a timelier basis than does the completed-contract method; however, application of this method requires reasonably dependable estimates of progress toward completion, as well as other dependable estimates. When reasonably dependable estimates cannot be made, or if other factors make estimates doubtful, the completed-contract method is applied. Under the completed-contract method, billings and costs are accumulated on the balance sheet as the contract progresses, but no revenue is recognized until the contract is complete or substantially complete. 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, 2018, 2017 and 2016, shipping costs were $164.7 million, $148.9 million and $145.3 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 confirm 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, 2018, 2017 and 2016, bad debt expense approximated $9.1 million, $16.0 million and $8.7 million, respectively. The increase in bad debt expense during fiscal 2017 was primarily the result of our reassessment of the collectibility of accounts receivable, particularly in emerging markets.

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 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 the fourth quarter of 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:


May 31,	2018		2017
(In thousands)
Raw material and supplies	$	288,201	$	248,426
Finished goods		546,260		539,771
Total Inventory	$	834,461	$	788,197

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 2018, 2017 and 2016.

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. 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 2018 and 2016, there were no goodwill impairments, including no reporting units that were at risk of failing step one of the traditional two-step quantitative analysis, except for our Kirker reporting unit, which had an estimated fair value that exceeded its carrying value by approximately 8% at May 31, 2016.

As described further in Note C, “Goodwill and Other Intangible Assets,” during the second quarter of fiscal 2017, we recorded a loss totaling $188.3 million for the impairment of goodwill and intangibles at our Kirker reporting unit. After recording the goodwill impairment loss, no goodwill remained at the Kirker reporting unit at November 30, 2016. After performing the required annual impairment assessments during the fourth quarter of fiscal 2017, there were no additional goodwill impairments, including no other reporting units that were at risk of failing step one of the traditional two-step quantitative analysis.

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 2018, 2017 and 2016.

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 2018 and 2016, there were no impairments. Results of intangible asset impairment assessments performed during fiscal 2017 are outlined below.

As further described in Note C, “Goodwill and Other Intangible Assets,” during the quarter ended February 28, 2017, we recorded a loss totaling $4.9 million for the impairment of the Restore tradename. After performing the required annual assessments of indefinite-lived intangible assets during the fourth quarter of fiscal 2017, there were no additional impairments.

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, 2018, 2017 and 2016, advertising costs were $58.0 million, $52.3 million and $49.7 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, 2018, 2017 and 2016 were $69.7 million, $64.9 million and $61.5 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:


Year Ended May 31,	2018			2017			2016
(In thousands)
Interest (income)	$	(5,003	)	$	(4,620	)	$	(5,975	)
(Gain) on sale of marketable securities		(11,704	)		(8,174	)		(6,457	)
Other-than-temporary impairment on securities					420			3,811
Dividend (income)		(3,735	)		(1,610	)		(1,744	)
Investment (income), net	$	(20,442	)	$	(13,984	)	$	(10,365	)

16) Other Expense (Income), Net

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


Year Ended May 31,	2018			2017			2016
(In thousands)
Royalty expense (income), net	$	404		$	2,680		$	2,039
Loss on litigation settlement								9,300
(Gain) on remeasurement of joint venture ownership								(7,972	)
(Income) loss related to unconsolidated equity affiliates		(1,002	)		(1,013	)		(2,080	)
Other expense (income), net	$	(598	)	$	1,667		$	1,287

Loss on Litigation Settlement

A consolidated class-action complaint against Rust-Oleum Corporation (“Rust-Oleum”) sought to have a class certified and alleged breach of warranty, breach of contract and other claims regarding certain deck coating products of Rust-Oleum. In May 2016, the parties executed a term sheet outlining the agreed-upon terms of settlement. During fiscal 2017, the court granted final approval of the settlement, and Rust-Oleum deposited $9.3 million into a settlement fund in satisfaction of the claims.

Gain on Remeasurement of Joint Venture Ownership

In May 2016, we acquired the remaining 51% interest in our Chinese joint venture, Carboline Dalian Paint Production Co., Ltd. (“Carboline Dalian”), which increased our ownership to 100%. Based on the step up from our 49% to a 100% interest in Carboline Dalian, we recorded a remeasurement gain for approximately $8.0 million during fiscal 2016.

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

In May 2014, the FASB issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which establishes a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition guidance under GAAP. The new standard prescribes a five-step model for recognizing revenue, which will require significant judgment in its application. This revised guidance 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. The new standard also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract.

We will adopt the new revenue recognition standard as of June 1, 2018 using the modified retrospective method upon transition. We have established our accounting policy, trained our business units, completed certain enhancements to key information systems and finalized our internal controls under the new standard. 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 will not have a material impact on our overall Consolidated Financial Statements.

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 are currently evaluating which transition method we will adopt on June 1, 2019 and the impact this guidance will have on our Consolidated Financial Statements. At a minimum, total assets and total liabilities will increase in the period the ASU is adopted. At May 31, 2018, our total undiscounted future minimum payments outstanding for operating lease obligations approximated $209.6 million.

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. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Upon adoption, entities must apply the guidance retrospectively to all periods presented. We are currently evaluating the impact this guidance will have 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. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently reviewing the impact this revised guidance will have 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. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. We are currently reviewing the impact this guidance will have on our Consolidated Financial Statements.

In August 2017, the FASB issued ASU 2017-12, “Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities,” which simplifies hedge accounting through changes to both designation and measurement requirements. For hedges that qualify as highly effective, the new standard eliminates the requirement to separately measure and record hedge ineffectiveness, resulting in better alignment between the presentation of the effects of the hedging instrument and the hedged item in the financial statements. ASU No. 2017-12 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted in any interim period after issuance of the update. Our early adoption of this pronouncement during fiscal 2018 did not have a material impact on our Consolidated Financial Statements. Refer to Note F, “Derivatives and Hedging,” for further information.

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 – Fiscal 2018 Phases

In May 2018, we approved and implemented the first phases of a multi-year restructuring plan, the 2020 Margin Acceleration Plan (“2020 MAP to Growth”). The first phases of our plan were focused within the consumer and industrial segments. The restructuring plan within the consumer segment, led by new senior leadership, is designed to improve margins by simplifying business processes, reducing inventory categories

and rationalizing SKUs, reducing headcount and working capital, and improving operating efficiency. This restructuring plan allows us to streamline management and focus our attention on faster growing and better performing brands and products within the consumer segment businesses. Payments associated with this initial phase of restructuring activities are expected to be completed during the first seven months of fiscal 2019.

The restructuring plan within the industrial segment is designed to simplify processes, reduce headcount, eliminate underperforming businesses, and deliver better results for customers, employees and stockholders. Payments related to this initial phase of restructuring activities are expected to be completed during the first five months of fiscal 2019.

In addition to the two segment-specific restructuring activities outlined above, we adopted a restructuring plan for the legal function to streamline litigation management. Payments related to this initial phase of restructuring activities are expected to be completed during the first four months of fiscal 2019.

In connection with the 2020 MAP to Growth plan, we are currently in the midst of finalizing a broader, comprehensive, company-wide restructuring plan that is expected to be formalized within the first half of fiscal 2019 and is anticipated to be completed by the end of calendar 2020.

A summary of the charges recorded in connection with restructuring by reportable segment during fiscal 2018 is as follows:


	Fiscal Year Ended May 31, 2018
(In thousands)	Current Year Charges		Cumulative Costs to Date		Total Expected Costs
Consumer Segment:
Severance and benefit costs ^(a)	$	5,652	$	5,652	$	10,552
Facility closure and other related costs		5,139		5,139		7,439
Total Charges	$	10,791	$	10,791	$	17,991
Industrial Segment:
Severance and benefit costs ^(b)	$	2,169	$	2,169	$	14,251
Facility closure and other related costs		1,045		1,045		12,859
Other asset write-offs		1,373		1,373		10,499
Total Charges	$	4,587	$	4,587	$	37,609
Corporate/Other Segment:
Severance and benefit costs ^(c)	$	2,136	$	2,136	$	10,329
Total Charges	$	2,136	$	2,136	$	10,329

a)	Includes current year charges of $5.5 million associated with the elimination of 154 positions at the operating company and $0.2 million related to allocated charges associated with the elimination of one position within the legal function.

b)	Includes current year charges of $1.5 million associated with the elimination of 24 positions at the operating company and $0.7 million related to allocated charges associated with the elimination of four positions within the legal function.

c)	Reflects current year charges related to the accelerated vesting of equity awards for a consumer segment executive 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:


(In thousands)	Severance and Benefits Costs		Facility Closure and Other Related Costs		Other Asset Write-Offs		Total
Balance at June 1, 2017	$	-	$	-	$	-	$	-
Additions charged to expense		9,957		6,184		1,373		17,514
Balance at May 31, 2018	$	9,957	$	6,184	$	1,373	$	17,514
Total Expected Costs	$	41,878	$	22,203	$	10,499	$	74,580

In connection with the 2020 MAP to Growth plan, during the fourth quarter of 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. Additionally, while our specialty reportable segment did not incur any restructuring charges during fiscal 2018, we currently expect to incur approximately $8.7 million in costs in this segment in relation to the 2020 MAP to Growth plan, which are included in the total expected costs presented in the table above.

The changes in the carrying amount of goodwill, by reportable segment, for the years ended May 31, 2018 and 2017, are as follows:

Total accumulated impairment losses were $156.3 million and $14.9 million at May 31, 2017 and 2016. 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 2018.

events, we determined that an interim step-one goodwill impairment assessment was required, as well as an impairment assessment for our intangible and other long-lived assets. Our testing resulted in the preliminary impairment charges reflected above for goodwill and other intangible assets.

Our goodwill impairment assessment included estimating the fair value of our Kirker reporting unit and comparing it with its carrying amount at November 30, 2016. Since the carrying amount of Kirker exceeded its fair value, additional steps were required to determine and recognize a preliminary impairment loss. Calculating the fair value of a reporting unit requires our significant use of estimates and assumptions, which are generally considered Level 3 inputs based on our review of the fair value hierarchy. We estimated the fair value of our Kirker reporting unit by applying a discounted future cash flow calculation to Kirker’s projected EBITDA. In applying this methodology, we relied on a number of factors, including actual and forecasted operating results and market data for the nail enamel industry. In the terminal year, we assumed a long-term earnings growth rate of 3.0%, that we believed was appropriate given the industry specific expectations at that time. As of the valuation date, we utilized a weighted-average cost of capital of 8.0%, which we believed was appropriate as it reflected the relative risk, the time value of money, and was consistent with Kirker’s peer group. After recording the goodwill impairment charge of $140.5 million, no goodwill remained on the Kirker balance sheets as of November 30, 2016.

Our other intangible asset impairment assessment involved estimating the fair value of each of Kirker’s amortizable intangibles and other long-lived assets, as well as the indefinite-lived tradename asset, and comparing it with its carrying amount. 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. As the results of our testing indicated that the carrying values of certain of these assets would not be recoverable, we recorded other intangible asset impairments of approximately $46.0 million during the fiscal year ended May 31, 2017.

Calculating the fair value of the Kirker indefinite-lived tradename required our significant use of estimates and assumptions. We estimated the fair value of Kirker’s indefinite-lived tradename by applying a relief-from-royalty calculation, which included discounted future cash flows related to its projected revenues. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data for the nail enamel industry. As the carrying amount of the

tradename exceeded its fair value, we recorded an impairment loss of approximately $2.1 million during the fiscal year ended May 31, 2017.

Certain assets and liabilities are subject to nonrecurring fair value measurements, which typically are remeasured at fair value as a result of impairment charges. As a result of the impairment testing described above, the fair value of Kirker’s identifiable intangible assets and indefinite-lived tradename were recalculated, and the resulting fair value approximated $5.8 million. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.

During the third quarter of fiscal 2017, we identified certain factors that we considered important in assessing the requirement to perform an interim impairment evaluation for our Restore indefinite tradename asset. First, sales of our Restore product line during the third quarter of fiscal 2017 were below historical and expected operating results and significant downward adjustments were made to sales projections for Restore products. Also at that time, we became aware that it was highly likely that Restore’s largest customer would discontinue sales of the Restore product line in its retail stores, which was evidenced by this customer’s significant reduction in future orders based on its historical order pattern. We determined that this was significant to consider for the purposes of impairment testing, as sales of Restore products to this customer accounted for over 60% of total sales of Restore products for fiscal 2016. After considering the magnitude of the loss in sales volume from this key customer, we determined that it was necessary to perform an interim assessment for the other intangible assets and indefinite-lived tradename related to the Restore product line.

Our impairment assessment involved estimating the fair value of the indefinite-lived tradename and comparing it with its carrying amount. Calculating the fair value of the Restore indefinite-lived tradename required our significant use of estimates and assumptions. We estimated the fair value of the Restore indefinite-lived tradename by applying a relief-from-royalty calculation, which included discounted future cash flows related to its projected revenues. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues for sales of the Restore product line. As the carrying amount of the tradename exceeded its fair value, we recorded an impairment charge of $4.9 million during the fiscal year ended May 31, 2017. Additionally, a further assessment of the remaining useful life of the Restore tradename was performed, which resulted in a change to its remaining economic useful life, from an indefinite-life to a 10-year amortizable life.

NOTE D — MARKETABLE SECURITIES

The following tables summarize marketable securities held at May 31, 2018 and 2017 by asset type:


	Available-For-Sale Securities
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Net Carrying Amount)
May 31, 2018
Equity securities:
Mutual funds - foreign	$	46,123	$	1,839	$	(1,197)	$	46,765
Mutual funds - domestic		99,833		727		(2,770)		97,790
Total equity securities		145,956		2,566		(3,967)		144,555
Fixed maturity:
U.S. treasury and other government		23,562		39		(552)		23,049
Corporate bonds		432		43		(8)		467
Total fixed maturity securities		23,994		82		(560)		23,516
Total	$	169,950	$	2,648	$	(4,527)	$	168,071

Summarized below are the available-for-sale securities we held at May 31, 2018 and May 31, 2017 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:

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.


(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at May 31, 2018
U.S. Treasury and other government	$	-	$	23,049	$	-	$	23,049
Corporate bonds				467				467
Mutual funds - foreign				47,410				47,410
Mutual funds - domestic				107,017				107,017
Contingent consideration						(17,998)		(17,998)
Total	$	-	$	177,943	$	(17,998)	$	159,945

(In thousands)	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Fair Value at May 31, 2017
U.S. Treasury and other government	$	-	$	22,119	$	-	$	22,119
Corporate bonds				797				797
Stocks - domestic		2,467						2,467
Mutual funds - foreign				37,435				37,435
Mutual funds - domestic				101,637				101,637
Contingent consideration						(17,979)		(17,979)
Total	$	2,467	$	161,988	$	(17,979)	$	146,476

Our marketable securities are primarily composed of available-for-sale securities, and 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 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 the current period, and we increased our accrual by $3.4 million related to acquisitions completed during the current period and $0.5 million related to fair value adjustments. During fiscal 2017, we accrued approximately $7.4 million for additional contingent payments related to fiscal 2017 acquisitions, which included the estimated amount for the mandatory purchase of a step-acquisition, and $3.0 million for fair value adjustments to existing accruals. Additionally during fiscal 2017, we paid approximately $4.2 million for settlements of contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during fiscal 2017. 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, 2018 and 2017, 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 considered to be 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, 2018 and 2017 are as follows:


	At May 31, 2018

(In thousands)	Carrying Value		Fair Value
Cash and cash equivalents	$	244,422	$	244,422
Marketable equity securities		144,555		144,555
Marketable debt securities		23,516		23,516
Long-term debt, including current portion		2,174,144		2,215,458

	At May 31, 2017

(In thousands)	Carrying Value		Fair Value
Cash and cash equivalents	$	350,497	$	350,497
Marketable equity securities		141,539		141,539
Marketable debt securities		22,916		22,916
Long-term debt, including current portion		2,090,082		2,243,167

NOTE F — DERIVATIVES AND HEDGING

Derivative Instruments and Hedging Activities

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 impact on our Consolidated Financial Statements for any period presented.

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, 2018 and May 31, 2017, the notional amount of the forward contracts held to sell international currencies was $8.7 million and $9.8 million, respectively.

Derivatives Not Designated as Hedges

At May 31, 2018, we held four foreign currency forward contracts 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, 2018 and May 31, 2017, the notional amounts of the forward contracts held to purchase foreign currencies was $147.4 million and $49.4 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, 2018 and May 31, 2017 are as follows:

(In thousands)

Fair Value

Derivatives Designated as Hedging Instruments

Balance Sheet Location

May 31, 2018

May 31, 2017

Assets:

Foreign Currency Exchange (Cash Flow)

Other Current Assets

133

Cross Currency Swap (Net Investment)

Other Current Assets

2,580

Cross Currency Swap (Net Investment)

Other Assets (Long-Term)

1,986

Liabilities:

Interest Rate Swap (Fair Value)

Other Accrued Liabilities

441

Cross Currency Swap (Net Investment)

Other Long-Term Liabilities

5,293

Interest Rate Swap (Fair Value)

Other Long-Term Liabilities

2,634

(In thousands)

Fair Value

Derivatives Not Designated as Hedging Instruments

Balance Sheet Location

May 31, 2018

May 31, 2017

Assets:

Foreign Currency Exchange

Other Current Assets

Liabilities:

Foreign Currency Exchange

Other Accrued Liabilities

2,985

NOTE G — BORROWINGS

A description of long-term debt follows:


May 31,	2018		2017
(In thousands)
Revolving credit facility with a syndicate of banks, through December 5, 2019 ⁽¹⁾	$	235,774	$	198,280
Unsecured 6.50% senior notes due February 14, 2018 ⁽²⁾				249,555
Unsecured 6.125% senior notes due October 15, 2019 ⁽³⁾		451,658		452,778
Unsecured $205,000 face value at maturity 2.25% senior convertible notes due December 15, 2020		196,865		193,260
Unsecured 3.45% senior notes due November 15, 2022		295,596		298,370
Unsecured 5.25% notes due June 1, 2045 ⁽⁴⁾		298,514		298,433
Unsecured 3.75% notes due March 15, 2027 ⁽⁵⁾		396,110		395,638
Unsecured 4.25% notes due January 15, 2048 ⁽⁶⁾		296,344
Other obligations, including capital leases and unsecured notes payable at various rates of interest due in installments through 2021		3,283		3,768
		2,174,144		2,090,082
Less: current portion		3,501		253,645
Total Long-Term Debt, Less Current Maturities	$	2,170,643	$	1,836,437

(1)

Interest was tied to AUD LIBOR at May 31, 2018, and averaged 2.925% for AUD denominated debt ($23,309) and 0.675% on EUR denominated debt ($213,708). Interest was tied to AUD LIBOR at May 31, 2017, and averaged 2.705% for AUD denominated debt ($17,311), 1.075% on EUR denominated debt ($183,012). At May 31, 2018 and 2017, the revolving credit facility is adjusted for debt issuance costs, net of amortization, for approximately $1.2 million and $2.0 million, respectively.

(2)

The $250.0 million aggregate principal amount of the notes due 2018 is adjusted for the amortization of the original issue discount, which approximated $0.3 million at May 31, 2017. 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 6.704%. At May 31, 2017, the notes were adjusted for debt issuance costs, net of amortization, for approximately $0.2 million. The notes were redeemed on February 14, 2018.

(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 $300.0 million aggregate principal amount of the notes due 2019 from the initial issuance is adjusted for the amortization of the original issue discount, which approximated $0.1 million at May 31, 2017. The original issue discount effectively reduced the ultimate proceeds from the October 2009 financing. 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 $2.3 million and $3.9 million at May 31, 2018 and 2017, 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, 2018 and 2017, the notes are adjusted for debt issuance costs, net of amortization, for approximately $0.6 million and $1.1 million, respectively.

(4)

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 and $1.5 million at May 31, 2018 and 2017, 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 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 and $3.1 million at May 31, 2018 and 2017, respectively. 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, 2018 and 2017, the notes are adjusted for debt issuance costs, net of amortization, for approximately $3.1 million and $3.2 million, respectively.

(5)

The $400.0 million face amount of the notes due 2027 is adjusted for the amortization of the original issue discount, which approximated $0.5 million at May 31, 2018 and 2017. 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, 2018 and 2017, the notes are adjusted for debt issuance costs, net of amortization, for approximately $3.4 million and $3.8 million, respectively.

(6)	The $300.0 million face amount of the notes due 2048 is adjusted for the debt issuance cost, net of amortization, which approximated $3.6 million at May 31, 2018. 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, 2018 are as follows: 2019 — $3.5 million; 2020 — $689.3 million; 2021 — $196.9 million; 2022 — none; 2023 — $296.9 million and thereafter $1,011.1 million. Additionally, at May 31, 2018, we had unused lines of credit totaling $762.4 million.

Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $1.01 billion at May 31, 2018. Our debt-to-capital ratio was 57.1% at May 31, 2018, compared with 59.3% at May 31, 2017.

4.250% Notes due 2048

5.250% Notes due 2045 and 3.750% Notes due 2027

Revolving Credit Agreement

All of our past contributions to the Trust are deductible for U.S. income tax purposes.

Accounts Receivable Securitization Program

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

The Convertible Notes will be convertible under certain circumstances and during certain periods at an initial conversion rate of 18.8905 shares of RPM common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $52.94 per share of common stock), subject to adjustment in certain circumstances. In April 2018, we declared a dividend in excess of $0.24 per share and, consequently, the adjusted conversion rate at May 31, 2018 was 19.159777. The initial conversion price represents a conversion premium of approximately 37% over the last reported sale price of RPM common stock of $38.64 on December 3, 2013. Prior to June 15, 2020, the Convertible Notes may be converted only upon specified events, and, thereafter, at any time. Upon conversion, the Convertible Notes may be settled, at RPM’s election, in cash, shares of RPM common stock, or a combination of cash and shares of RPM common stock.

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 current fiscal year federal statutory tax rate to a blended rate of approximately 29.2%.

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 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 because all detailed information was not available to complete the necessary calculations as of May 31, 2018, we recorded a net provisional income tax expense of $7.3 million as a result of the Act being enacted during this fiscal year. The net provisional income tax expense is 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 a previously recorded deferred tax liability recorded for the estimated tax cost associated with unremitted foreign earnings not considered indefinitely reinvested.

The net provisional income tax expense of $7.3 million is based on estimates as of May 31, 2018 and includes estimates of certain U.S. and foreign tax attributes and tax adjustments that will not be finalized until our fiscal 2018 U.S. and foreign income tax returns are finalized. Further, we expect additional guidance and/or interpretations of the Act to be issued. Any further technical or administrative releases related to the Act, as well as potential updates to our interpretations of the Act, may impact the net provisional income tax expense currently recorded. Any adjustments to the net provisional income tax expense will be recorded in future periods.

As a result of the change to U.S. taxation of unremitted foreign earnings under the Act, we are in the process of evaluating our indefinite reinvestment assertions with respect to unremitted foreign earnings. The above noted provisional deferred tax liability adjustment of $44.9 million includes our preliminary estimate, as of May 31, 2018, of our position with respect to foreign earnings not considered to be indefinitely reinvested.

Certain provisions of the Act will first impact us starting in our fiscal 2019 year. These provisions include, but are not limited to, the base erosion anti-abuse tax, the provision designed to tax global intangible low-taxed income, limitations on the deductibility of certain executive compensation and the repeal of the domestic production activities deduction. We are evaluating the impact of these provisions on future fiscal years.

The significant components of deferred income tax assets and liabilities as of May 31, 2018 and 2017 were as follows:

Total valuation allowances of approximately $51.5 million and $63.7 million have been recorded as of May 31, 2018 and 2017, respectively. These recorded valuation allowances relate to foreign and U.S. capital loss carryforwards, certain foreign net operating losses and net foreign deferred tax assets. The year-over-year change in valuation allowances of $12.2 million

is comprised of reductions of approximately $7.4 million and $6.5 million related to the utilization of capital loss carryforwards and the impact of the corporate tax rate reduction included in the Act, respectively, partially offset by additions to valuation allowances for other foreign deferred tax assets.

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:


Year Ended May 31,	2018			2017			2016
(In thousands)
Income tax expense at the U.S. statutory federal income tax rate	$	121,812		$	85,517		$	169,213
Impact of foreign operations		(16,276	)		(20,156	)		(29,969	)
State and local income taxes, net		9,520			4,734			4,310
Domestic manufacturing deduction		(4,839	)		(2,537	)		(8,030	)
Nondeductible business expense		2,473			2,394			2,224
Valuation allowance		(5,235	)		933			(3,357	)
Deferred tax liability for unremitted foreign earnings		(77,970	)		(621	)		(3,712	)
Non-taxable gain from joint venture		-			-			(2,790	)
Other		737			1,476			(1,881	)
Equity-based compensation		(4,652	)		(12,078	)
Transition tax liability		67,899
Remeasurement of U.S. deferred income taxes		(15,678	)
Provision for Income Tax Expense	$	77,791		$	59,662		$	126,008
Effective Income Tax Rate		18.7%			24.4%			26.1%

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


(In millions)	2018			2017			2016
Balance at June 1	$	13.2		$	13.7		$	12.9
Additions based on tax positions related to current year		5.1			0.2			0.3
Additions for tax positions of prior years		-			2.9			2.6
Reductions for tax positions of prior years		(4.5	)		(3.2	)		(1.4	)
Foreign currency translation		0.3			(0.4	)		(0.7	)
Balance at May 31	$	14.1		$	13.2		$	13.7

The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, was $13.6 million at May 31, 2018, $4.6 million at May 31, 2017 and $2.5 million at May 31, 2016.

We recognize interest and penalties related to unrecognized tax benefits in income tax expense. At May 31, 2018, 2017 and 2016, the accrual for interest and penalties was $2.8 million, $3.1 million and $2.8 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, or our subsidiaries, 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 federal income tax return and the statutory audit period has expired for all years through 2013. The 2015 examination has thus far resulted in an inconsequential reduction to our 2015 federal income tax liability, and no further proposed adjustments are expected. Further, with limited exceptions, we, or our subsidiaries, are generally subject to state and local or non-U.S. income tax examinations by tax authorities for the fiscal years 2011 through 2017.

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.

At May 31, 2017, we determined that it was possible that we could repatriate approximately $324.1 million of unremitted foreign earnings in the foreseeable future. Accordingly, as of May 31, 2017, we recorded a deferred income tax liability of $94.4 million, which represented our estimate of the U.S. income and foreign withholding tax associated with the $324.1 million of unremitted foreign earnings not considered permanently reinvested. As of May 31, 2018, we have provisionally identified $549.8 million of unremitted foreign earnings that are not considered indefinitely reinvested, which may be repatriated. The corresponding deferred tax liability related to unremitted foreign earnings has been reduced from $94.4 million to $19.9 million. The reduction to the deferred tax liability was recorded as a $78.0 million benefit through income tax expense and a $3.5 million charge to Other Comprehensive Income. As noted above, with the change in U.S. taxation of foreign earnings, we are evaluating our position with respect to permanent reinvestment of foreign earnings based on various factors, including future liquidity needs, our global capital structure and the foreign tax implications of future earnings repatriations.

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, 2018. 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.

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

The following table summarizes option and share-based payment activity (including SARs) under these plans during the fiscal year ended May 31, 2018:


	2018
Share-Based Payments	Weighted Average Exercise Price			Number of Shares Under Option
(Shares in thousands)
Balance at June 1, 2017		$	38.77		3,055
Options granted			55.19		540
Options exercised			23.65		(388)

Balance at May 31, 2018			43.36		3,207

Exercisable at May 31, 2018		$	37.74		1,865


SARs	2018			2017			2016
(In millions, except per share amounts)
Weighted-average grant-date fair value per SAR		$	12.90		$	10.90		$	10.73
Intrinsic value of options exercised		$	11.10		$	26.50		$	22.30
Tax benefit from options exercised		$	3.40		$	9.70		$	8.10
Fair value of SARS vested		$	6.50		$	4.60		$	4.00

At May 31, 2018, the aggregate intrinsic value and weighted-average remaining contractual life of options outstanding was $23.6 million and 6.5 years, respectively, while the aggregate intrinsic value and weighted-average remaining contractual life of options exercisable was $22.4 million and 5.3 years, respectively.

At May 31, 2018, the total unamortized stock-based compensation expense related to SARs that were previously granted was $10.2 million, which is expected to be recognized over 3.25 years. We anticipate that approximately 1.3 million shares at a weighted-average exercise price of $51.17 and a weighted-average remaining contractual term of 8.1 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”) activity during the fiscal year ended May 31, 2018:


	Weighted-Average Grant-Date
(Shares in thousands)	Fair Value			2018
Balance at June 1, 2017		$	47.02		1,414
Shares granted			52.26		201
Shares forfeited			48.39		(28)
Shares vested			45.13		(540)

Balance at May 31, 2018		$	48.97		1,047

The weighted-average grant-date fair value was $ 52.26, $50.84 and $45.79 for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. The restricted stock cliff vest after three years. Nonvested restricted shares of common stock under the 2004 Omnibus Plan are eligible for dividend payments. At May 31, 2018, remaining unamortized deferred compensation expense totaled $16.4 million, all of which is associated with the 2014 Plan. The remaining amount is being amortized over the applicable vesting period for 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 are 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 relates to an increase in EBIT for the period, and vesting of the remaining 33% relates to an increase in EBIT margin for the period. 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. 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 will not vest. There is no unamortized stock-based compensation expense related to these awards as of May 31, 2018.

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 2018:


(Shares in thousands)	Weighted-Average Grant-Date Fair Value		2018
Balance at June 1, 2017	$	45.92		70
Shares granted to directors		51.63		24
Shares vested		44.41		(27)
Balance at May 31, 2018	$	48.56		67

The weighted-average grant-date fair value was $51.63, $50.61 and $43.71 for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. Unamortized deferred compensation expense relating to restricted stock grants for directors of $1.6 million at May 31, 2018, 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, 2018, there were 53,700 shares available for future grant.

During fiscal 2018, a total of 36,984 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, 2018:


(Shares in thousands)	Weighted-Average Grant-Date Fair Value		2018
Balance at June 1, 2017	$	25.04		802
Shares granted		55.19		37
Shares forfeited		24.79		(11)
Shares exercised		26.22		(126)
Balance at May 31, 2018	$	26.42		702

The weighted-average grant-date fair value was $55.19, $50.99 and $46.63 for the fiscal years ended May 31, 2018, 2017 and 2016, respectively. As of May 31, 2018, no shares remain available for future grant under the 2007 Plan, and future issuances of shares as supplemental retirement benefits are intended to be made under the 2014 Omnibus Plan. At May 31, 2018, unamortized stock-based compensation expense of $2.9 million, $0.3 million and $1.2 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, 2018:


(Shares in thousands)	Weighted-Average Grant-Date Fair Value		Number of Shares
Balance at June 1, 2017	$	43.32		2,300
Granted		52.62		262
Vested		40.21		(745)
Forfeited		43.71		(62)
Balance at May 31, 2018	$	45.85		1,755

The remaining weighted-average contractual term of nonvested restricted shares at May 31, 2018 is the same as the period over which the remaining cost of the awards will be recognized, which is approximately 2.9 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, 2018, 2017 and 2016, the weighted-average grant-date fair value for restricted share grants was $52.62, $50.84 and $46.17, respectively. The total fair value of shares that vested during the years ended May 31, 2018, 2017 and 2016 was $29.9 million, $20.3 million and $34.2 million, respectively. We anticipate that approximately 1.8 million shares at a weighted-average grant-date fair value of $45.85 and a weighted-average remaining contractual term of 2.9 years will ultimately vest, based upon the unique terms and participants of each plan. Approximately 360,762 shares of restricted stock were vested at May 31, 2018, with 263,857 restricted shares vested as of May 31, 2017. The total intrinsic value of restricted shares converted during the years ended May 31, 2018, 2017 and 2016 was $7.6 million, $9.0 million and $32.3 million, respectively.

Total unrecognized compensation cost related to all nonvested awards of restricted shares of common stock was $22.2 million as of May 31, 2018. That cost is expected to be recognized over a weighted-average period of 2.9 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, 2018.

NOTE K — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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


(In thousands)	Foreign Currency Translation Adjustments				Pension And Other Postretirement Benefit Liability Adjustments, Net of Tax				Unrealized Gain (Loss) On Derivatives, Net of Tax				Unrealized Gain (Loss) On Securities, Net of Tax				Total
Balance at June 1, 2015		$	(231,650	)		$	(168,332	)		$	-			$	5,847			$	(394,135)
Reclassification adjustments for gains included in net income, net of taxes of $946											-				(1,847	)			(1,847)
Other comprehensive income			(65,580	)			(62,520	)			-				(9,995	)			(138,095)
Deferred taxes			5,997				22,646				-				3,387				32,030
Balance at May 31, 2016			(291,233	)			(208,206	)			-				(2,608	)			(502,047)
Reclassification adjustments for gains included in net income, net of taxes of $401											-				(1,847	)			(1,847)
Other comprehensive income			(20,358	)			66,264				16				7,849				53,771
Deferred taxes			3,176				(24,782	)			-				(2,257	)			(23,863)
Balance at May 31, 2017			(308,415	)			(166,724	)			16				1,137				(473,986)
Reclassification adjustments for gains included in net income, net of taxes of $591											-				(1,244	)			(1,244)
Other comprehensive income			10,989				11,375				(359	)			(2,050	)			19,955
Deferred taxes			(2,587	)			(2,146	)			212				748				(3,773)
Balance at May 31, 2018		$	(300,013	)		$	(157,495	)		$	(131	)		$	(1,409)			$	(459,048)

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, 2018, 2017 and 2016:


Year Ended May 31,	2018			2017			2016
(In thousands, except per share amounts)
Numerator for earnings per share:
Net income attributable to RPM International Inc. stockholders	$	337,770		$	181,823		$	354,725
Less: Allocation of earnings and dividends to participating securities		(3,858	)		(2,795	)		(5,770)
Net income available to common shareholders - basic		333,912			179,028			348,955
Add: Undistributed earnings reallocated to unvested shareholders					2
Reverse: Allocation of earnings and dividends to participating securities		3,858						5,770
Add: Income effect of contingently issuable shares		5,673			5,457			5,430
Net income available to common shareholders - diluted	$	343,443		$	184,487		$	360,155
Denominator for basic and diluted earnings per share:
Basic weighted average common shares ⁽¹⁾		131,179			130,662			129,383
Average diluted options		2,064			598			3,445
Net issuable common share equivalents ⁽²⁾		3,928			3,905			3,888
Total shares for diluted earnings per share ^{(1), (3)}		137,171			135,165			136,716
Earnings Per Share of Common Stock Attributable to RPM International Inc. Stockholders:
Basic Earnings Per Share of Common Stock	$	2.55		$	1.37		$	2.70
Diluted Earnings Per Share of Common Stock	$	2.50		$	1.36		$	2.63

(1)

Basic and diluted earnings per share are calculated using the two-class method for the year ended May 31, 2017. For the years ended May 31, 2018 and 2016, 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.

(2)

Represents the number of shares that would be issued if our contingently convertible notes were converted. We include these shares in the calculation of diluted EPS as the conversion of the notes may be settled, at our election, in cash, shares of our common stock, or a combination of cash and shares of our common stock.

(3)	For the years ended May 31, 2018 and 2017, approximately 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.

The changes in benefit obligations and plan assets, as well as the funded status of our pension plans at May 31, 2018 and 2017, were as follows:


	U.S. Plans						Non-U.S. Plans
(In thousands)	2018			2017			2018			2017
Benefit obligation at beginning of year	$	591,948		$	589,046		$	195,884		$	187,064
Service cost		37,859			37,603			4,620			4,070
Interest cost		17,518			17,323			5,025			4,614
Benefits paid		(34,368	)		(28,587	)		(6,545	)		(4,977	)
Participant contributions								980			933
Plan amendments								(61	)		(196	)
Plan settlements/curtailments								(2,984	)		(4,546	)
Actuarial (gains)/losses		4,298			(23,437	)		(9,523	)		16,697
Premiums paid								(106	)		(109	)
Currency exchange rate changes								6,859			(7,666	)
Benefit Obligation at End of Year	$	617,255		$	591,948		$	194,149		$	195,884
Fair value of plan assets at beginning of year	$	437,481		$	314,216		$	179,928		$	169,464
Actual return on plan assets		30,291			44,924			3,166			21,216
Employer contributions		53,829			106,928			7,460			5,753
Participant contributions								980			933
Benefits paid		(34,368	)		(28,587	)		(6,545	)		(4,977	)
Premiums paid								(106	)		(109	)
Plan settlements/curtailments								(2,267	)		(4,471	)
Currency exchange rate changes								6,344			(7,881	)
Fair Value of Plan Assets at End of Year	$	487,233		$	437,481		$	188,960		$	179,928
(Deficit) of plan assets versus benefit obligations at end of year	$	(130,022	)	$	(154,467	)	$	(5,189	)	$	(15,956	)
Net Amount Recognized	$	(130,022	)	$	(154,467	)	$	(5,189	)	$	(15,956	)
Accumulated Benefit Obligation	$	510,984		$	489,918		$	181,462		$	183,038

The fair value of the assets held by our pension plans has increased at May 31, 2018 since our previous measurement date at May 31, 2017, due primarily to gains in the stock market and our plan contributions. Total plan liabilities have increased due to increased benefit accruals. We have decreased our recorded liability for the net underfunded status of our pension plans. The assumptions to value lump sums were updated to incorporate future expectations of the IRS mortality and interest rates. Due

to slightly higher discount rates and increased asset values offset by higher interest cost and lump sum mortality rates, we expect pension expense in fiscal 2019 to be comparable to our fiscal 2018 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, 2018 and 2017 are as follows:


	U.S. Plans						Non-U.S. Plans
(In thousands)	2018			2017			2018			2017
Noncurrent assets	$	-		$	-		$	10,483		$	998
Current liabilities		(7	)		(7	)		(421	)		(512	)
Noncurrent liabilities		(130,015	)		(154,460	)		(15,251	)		(16,442	)
Net Amount Recognized	$	(130,022	)	$	(154,467	)	$	(5,189	)	$	(15,956	)

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

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

The following table presents the amounts in accumulated other comprehensive income (loss) as of May 31, 2018 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, 2019:


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:


	U.S. Plans				Non-U.S. Plans
Year-End Benefit Obligations	2018		2017		2018		2017
Discount rate		4.12%		3.81%		3.09%		2.79%
Rate of compensation increase		3.80%		3.80%		2.85%		3.00%


	U.S. Plans			Non-U.S. Plans
Net Periodic Pension Cost	2018	2017	2016	2018		2017		2016
Discount rate	3.81%	3.85%	4.25%		2.79%		3.13%		3.26%
Expected return on plan assets	7.89%	7.89%	7.90%		4.37%		4.50%		4.49%
Rate of compensation increase	3.80%	3.80%	3.80%		3.00%		2.81%		2.81%

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


U.S. Plans
	Target Allocation		Actual Asset Allocation
(Dollars in millions)	as of May 31, 2018		2018		2017
Equity securities		55%	$	309.3	$	295.2
Fixed income securities		25%		76.5		82.4
Multi-class		20%		72.8
Cash ⁽¹⁾				28.4		59.7
Other				0.2		0.2
Total assets		100%	$	487.2	$	437.5


Non-U.S. Plans
	Target Allocation		Actual Asset Allocation
(Dollars in millions)	as of May 31, 2018		2018		2017
Equity securities		41%	$	90.0	$	83.8
Fixed income securities		42%		70.2		65.9
Cash				0.5
Property and other		17%		28.3		30.2
Total assets		100%	$	189.0	$	179.9

(1)

The cash position at May 31, 2018 results from our acceleration of the planned fiscal 2019 contribution, which was deposited into the RPM International Inc. Retirement Plan during February 2018. The cash position at May 31, 2017 results from our acceleration of the planned fiscal 2018 contribution, which was deposited into the RPM International Inc. Retirement Plan during May 2017.

The following tables present our pension plan assets as categorized using the fair value hierarchy at May 31, 2018 and 2017:


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

The following table includes the activity that occurred during the years ended May 31, 2018 and 2017 for our Level 3 assets:

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.

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 $18.7 million, $17.4 million and $16.3 million for the years ending May 31, 2018, 2017 and 2016, respectively.

We expect to pay the following estimated pension benefit payments in the next five years (in millions): $54.0 in 2019, $58.4 in 2020, $56.2 in 2021, $59.1 in 2022 and $60.4 in 2023. In the five years thereafter (2024-2028), we expect to pay $318.0 million.

NOTE O — POSTRETIREMENT BENEFITS

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, 2018:


	U.S. Plans									Non-U.S. Plans
(In thousands)	2018			2017			2016			2018		2017		2016
Service cost - benefits earned during the period	$	-		$	-		$	-		$	1,307	$	1,097	$	1,061
Interest cost on the accumulated obligation		173			229			235			939		854		832
Amortization of:
Prior service (credit)		(220	)		(235	)		(247	)
Net actuarial (gains) losses		24									332		230		229
Net Postretirement Benefit (Income) Cost	$	(23	)	$	(6	)	$	(12	)	$	2,578	$	2,181	$	2,122

The changes in benefit obligations of the plans at May 31, 2018 and 2017 were as follows:


	U.S. Plans						Non-U.S. Plans
(In thousands)	2018			2017			2018			2017
Accumulated postretirement benefit obligation at beginning of year	$	5,892		$	7,653		$	27,868		$	25,420
Service cost								1,307			1,097
Interest cost		173			229			939			854
Benefit payments		(297	)		(2,383	)		(604	)		(529)
Actuarial (gains) losses		(400	)		393			2,638			1,766
Currency exchange rate changes								1,133			(740)
Accumulated and accrued postretirement benefit obligation at end of year	$	5,368		$	5,892		$	33,281		$	27,868

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, 2018 and 2017 are as follows:

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, 2018 and 2017:


	U.S. Plans		Non-U.S. Plans
(In thousands)	2018	2017	2018	2017
1% Increase in Healthcare Cost Trend Rate
Accumulated benefit obligation	$ 185	$ 229	$ 6,978	$ 6,410
Postretirement cost	7	9	673	547
1% Decrease in Healthcare Cost Trend Rate
Accumulated benefit obligation	$ (163)	$ (201)	$ (5,391)	$ (5,016)
Postretirement cost	(6)	(8)	(493)	(406)

We expect to pay approximately $1.1 million to $1.5 million in estimated postretirement benefits in each of the next five years. In the five years thereafter (2024-2028) we expect to pay a cumulative total of $8.8 million.

NOTE P — CONTINGENCIES AND OTHER ACCRUED LOSSES

Accrued loss reserves consist of the following:


May 31,		2018		2017
(In thousands)
Accrued product liability reserves	$	12,900	$	14,932
Accrued warranty reserves		8,088		15,701
Accrued environmental reserves		1,144		1,102
Total Accrued Loss Reserves - Current	$	22,132	$	31,735
Accrued product liability reserves - noncurrent	$	29,902	$	28,222
Accrued warranty liability - noncurrent		3,633		3,448
Accrued environmental reserves - noncurrent		3,571		1,747
Total Accrued Loss Reserves - Noncurrent	$	37,106	$	33,417

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, 2018, 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:


Year Ended May 31,	2018			2017			2016
(In thousands)
Beginning Balance	$	19,149		$	13,314		$	11,663
Deductions ⁽¹⁾		(26,199	)		(18,269	)		(18,061)
Provision charged to SG&A expense		17,924			23,862			19,653
Acquisitions		847			242			59
Ending Balance	$	11,721		$	19,149		$	13,314

(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. We intend to continue to contest the allegations in the complaint vigorously.

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 case pending against one of our subsidiaries in which there is alleged both trade secret and trademark infringement, during the quarter ended August 31, 2017, the court denied our motion for summary judgment. Based on our current understanding of the claim, we have determined that it is probable that we will incur a loss related to this claim 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.

NOTE Q — SEGMENT INFORMATION

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.

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


Year Ended May 31,	2018		2017		2016
(In thousands)
Net Sales (based on shipping location) ^(a)
United States	$	3,432,034	$	3,269,400	$	3,155,810
Foreign
Canada		365,349		321,696		310,817
Europe		1,040,418		908,799		928,519
Other Foreign		483,842		458,280		418,503
Total Foreign		1,889,609		1,688,775		1,657,839
Total	$	5,321,643	$	4,958,175	$	4,813,649
Long-Lived Assets ^(b)
United States	$	1,807,046	$	1,738,180	$	1,756,012
Foreign
Canada		139,259		137,211		111,524
Europe		361,317		349,979		271,796
United Kingdom		230,071		199,415		257,935
Other Foreign		241,301		248,435		212,583
Total Foreign		971,948		935,040		853,838
Total	$	2,778,994	$	2,673,220	$	2,609,850

(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 R — QUARTERLY INFORMATION (UNAUDITED)

The following is a summary of the quarterly results of operations for the years ended May 31, 2018 and 2017:


	For Quarter Ended
(In thousands, except per share amounts)	August 31		November 30		February 28		May 31 ^(a)
2018
Net Sales	$	1,345,394	$	1,315,416	$	1,102,677	$	1,558,156
Gross Profit	$	572,008	$	551,015	$	439,493	$	618,696
Net Income Attributable to RPM International Inc. Stockholders	$	116,416	$	95,463	$	40,227	$	85,664
Basic Earnings Per Share	$	0.87	$	0.72	$	0.30	$	0.65
Diluted Earnings Per Share	$	0.86	$	0.70	$	0.30	$	0.63
Dividends Per Share	$	0.300	$	0.320	$	0.320	$	0.320
(In thousands, except per share amounts)	August 31		November 30 ^(b)		February 28		May 31
2017
Net Sales	$	1,252,063	$	1,190,770	$	1,022,496	$	1,492,846
Gross Profit	$	552,042	$	521,681	$	428,573	$	663,392
Net Income Attributable to RPM International Inc. Stockholders	$	112,769	$	(70,926)	$	11,928	$	128,052
Basic Earnings Per Share	$	0.85	$	(0.54)	$	0.09	$	0.96
Diluted Earnings Per Share	$	0.83	$	(0.54)	$	0.09	$	0.94
Dividends Per Share	$	0.275	$	0.300	$	0.300	$	0.300

(a)

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.

(b)

Reflects the pretax goodwill and intangible asset impairment losses of $ 188.3 million related to our Kirker reporting unit. Refer to Note C, “Goodwill and Other Intangible Assets,” for further information. Also reflects $ 12.3 million pretax charge relating to the Flowcrete decision to exit the Middle East and $15.0 million in severance expense across all three reportable segments.

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.

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.

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, 2018 was approximately 20,829, in addition to 117,020 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, 2018. 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, 2018, 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, 2018 and their report thereon is included on page 75 of this report.




Frank C. Sullivan Chairman and Chief Executive Officer		Russell L. Gordon Vice President and Chief Financial Officer

July 23, 2018

We have audited the accompanying consolidated balance sheets of RPM International Inc. and subsidiaries (the “Company”) as of May 31, 2018 and 2017, 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, 2018, 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, 2018 and 2017, and the results of its operations and its cash flows for each of the three years in the period ended May 31, 2018, 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, 2018, 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 23, 2018, expressed an unqualified opinion on the Company’s internal control over financial reporting.

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.

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, 2018, 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, 2018, 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, 2018, of the Company and our report dated July 23, 2018, 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.

LOGO

Cleveland, Ohio

July 23, 2018

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 – Change of Venue

RPM stockholders are invited to attend RPM’s Annual Meeting, which will be held at 2:00 p.m. EDT on Thursday, October 4, 2018 at the Crowne Plaza Cleveland Airport Hotel, 7230 Engle Road, Middleburg Heights, Ohio. Note: This is a new venue from previous years. 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, Manager of Investor Relations, at RPM, 800-776-4488.

Form 10-K, other public financial reports and news releases may also be obtained electronically through the website, 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 Barry M. Slifstein, Vice President - Investor Relations, at 330-273-5090 or bslifstein@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 44 consecutive years.

Stock Exchange Listing

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

LOGO

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 inquires 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.

LOGO


Year Ended May 31,	2018		2017		2016
Net Sales	$	5,321,643	$	4,958,175	$	4,813,649
Cost of Sales		3,140,431		2,792,487		2,726,601
Gross Profit		2,181,212		2,165,688		2,087,048
Selling, General and Administrative Expenses		1,663,143		1,643,520		1,520,977
Restructuring Expense		17,514		-		-
Goodwill and Other Intangible Asset Impairments		-		193,198		-
Interest Expense		104,547		96,954		91,683
Investment (Income), Net		(20,442)		(13,984)		(10,365)
Other (Income) Expense, Net		(598)		1,667		1,287
Income Before Income Taxes		417,048		244,333		483,466
Provision for Income Taxes		77,791		59,662		126,008
Net Income		339,257		184,671		357,458
Less: Net Income Attributable to Noncontrolling Interests		1,487		2,848		2,733
Net Income Attributable to RPM International Inc. Stockholders	$	337,770	$	181,823	$	354,725
Average Number of Shares of Common Stock Outstanding:
Basic		131,179		130,662		129,383
Diluted		137,171		135,165		136,716
Earnings per Share of Common Stock Attributable to RPM International Inc. Stockholders:
Basic	$	2.55	$	1.37	$	2.70
Diluted	$	2.50	$	1.36	$	2.63
Cash Dividends Declared per Share of Common Stock	$	1.260	$	1.175	$	1.085
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands)
Year Ended May 31,	2018		2017		2016
Net Income	$	339,257	$	184,671	$	357,458
Other Comprehensive Income, Before Tax:
Foreign Currency Translation Adjustments		10,857		(20,402)		(65,607)
Pension and Other Postretirement Benefit Liabilities
Net (Loss) Gain Arising During the Period		(3,489)		38,679		(83,770)
Prior Service Cost Arising During the Period		61		196		349
Less: Amortization of Prior Service Cost Included in Net Periodic Pension Cost		(121)		(41)		(6)
Less: Amortization of Net Loss and Settlement Recognition		16,738		25,444		18,898
Effect of Exchange Rates on Amounts Included for Pensions		(1,814)		1,986		2,009
Pension and Other Postretirement Benefit Liability Adjustments		11,375		66,264		(62,520)
Unrealized Gains on Available-For-Sale Securities
Unrealized Holding (Losses) Gains During the Period		(1,459)		8,250		(9,049)
Less: Reclassification Adjustments for (Gains) Included in Net Income		(1,835)		(2,248)		(2,793)
Unrealized (Loss) Gain on Securities		(3,294)		6,002		(11,842)
Unrealized (Loss) Gain on Derivatives		(359)		16		-
Other Comprehensive Income (Loss), Before Tax		18,579		51,880		(139,969)
Income Tax (Benefit) Expense Related to Components of Other Comprehensive Income		(3,773)		(23,863)		32,030
Other Comprehensive Income (Loss), After Tax		14,806		28,017		(107,939)
Comprehensive Income		354,063		212,688		249,519
Less: Comprehensive Income Attributable to Noncontrolling Interests		1,354		2,804		2,706
Comprehensive Income Attributable to RPM International Inc. Stockholders	$	352,709	$	209,884	$	246,813


	Common Stock
	Number of Shares		Par/Stated Value		Paid-In Capital
Balance at June 1, 2015		133,203	$	1,332	$	872,127
Net income		-		-		-
Other comprehensive income		-		-		-
Dividends paid		-		-		-
Other noncontrolling interest activity		-		-		-
Shares repurchased		(800)		(8)		8
Stock option exercises		-		-		18,540
Stock compensation expense, shares granted less shares returned for taxes		541		5		31,281
Balance at May 31, 2016		132,944		1,329		921,956
Net income		-		-		-
Other comprehensive income		-		-		-
Dividends paid		-		-		-
Other noncontrolling interest activity		-		-		-
Stock compensation expense, shares granted less shares returned for taxes		619		7		32,535
Balance at May 31, 2017		133,563		1,336		954,491
Net income		-		-		-
Other comprehensive income		-		-		-
Dividends paid		-		-		-
Other noncontrolling interest activity		-		-		-
Stock compensation expense and other deferred compensation, shares granted less shares returned for taxes		84		-		27,576
Balance at May 31, 2018		133,647	$	1,336	$	982,067


Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Retained Earnings		Total RPM International Inc. Equity		Noncontrolling Interests		Total Equity
$	(124,928)	$	(394,135)	$	936,996	$	1,291,392	$	2,073	$	1,293,465
			-		354,725		354,725		2,733		357,458
	-		(107,912)		-		(107,912)		(27)		(107,939)
	-		-		(144,350)		(144,350)		-		(144,350)
	-		-		-		-		(2,366)		(2,366)
	(35,098)		-		-		(35,098)		-		(35,098)
	-		-		-		18,540		-		18,540
	(36,248)		-		-		(4,962)		-		(4,962)
	(196,274)		(502,047)		1,147,371		1,372,335		2,413		1,374,748
	-		-		181,823		181,823		2,848		184,671
	-		28,061		-		28,061		(44)		28,017
	-		-		(156,752)		(156,752)		-		(156,752)
	-		-		-		-		(2,578)		(2,578)
	(21,948)		-		-		10,594		-		10,594
	(218,222)		(473,986)		1,172,442		1,436,061		2,639		1,438,700
	-		-		337,770		337,770		1,487		339,257
	-		14,938		-		14,938		(132)		14,806
	-		-		(167,476)		(167,476)		-		(167,476)
	-		-		-		-		(1,229)		(1,229)
	(18,096)		-		-		9,480		-		9,480
$	(236,318)	$	(459,048)	$	1,342,736	$	1,630,773	$	2,765	$	1,633,538


(In thousands)	Industrial Segment		Specialty Segment		Consumer Segment		Total
Balance as of June 1, 2016	$	475,409	$	171,714	$	572,507	$	1,219,630
Acquisitions		41,268		3,273		30,820		75,361
Impairments						(141,394)		(141,394)
Translation adjustments		(342)		(1,009)		(8,333)		(9,684)
Balance as of May 31, 2017		516,335		173,978		453,600		1,143,913
Acquisitions		19,736		2,643		21,277		43,656
Translation adjustments		1,247		517		2,841		4,605
Balance as of May 31, 2018	$	537,318	$	177,138	$	477,718	$	1,192,174


(In thousands)	Amortization Period (In Years)		Gross Carrying Amount		Accumulated Amortization		Net Other Intangible Assets
As of May 31, 2018
Amortized intangible assets
Formulae		10 to 33	$	221,812		$ (140,160)	$	81,652
Customer-related intangibles		5 to 33		369,687		(147,831)		221,856
Trademarks/names		5 to 40		36,671		(17,998)		18,673
Other		2 to 30		37,589		(24,946)		12,643
Total Amortized Intangibles				665,759		(330,935)		334,824
Indefinite-lived intangible assets
Trademarks/names				249,448				249,448
Total Other Intangible Assets			$	915,207		$ (330,935)	$	584,272
As of May 31, 2017
Amortized intangible assets
Formulae		5 to 33	$	214,677		$ (128,825)	$	85,852
Customer-related intangibles		5 to 33		339,892		(122,772)		217,120
Trademarks/names		5 to 40		36,461		(15,480)		20,981
Other		2 to 20		37,545		(21,288)		16,257
Total Amortized Intangibles				628,575		(288,365)		340,210
Indefinite-lived intangible assets
Trademarks/names				232,882				232,882
Total Other Intangible Assets			$	861,457		$ (288,365)	$	573,092


	Available-For-Sale Securities
(In thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value (Net Carrying Amount)
May 31, 2017
Equity securities:
Stocks - domestic	$	2,391	$	76	$	-	$	2,467
Mutual funds - foreign		35,169		2,470		(204)		37,435
Mutual funds - domestic		102,671		2,084		(3,118)		101,637
Total equity securities		140,231		4,630		(3,322)		141,539
Fixed maturity:
U.S. treasury and other government		22,176		120		(177)		22,119
Corporate bonds		706		97		(6)		797
Total fixed maturity securities		22,882		217		(183)		22,916
Total	$	163,113	$	4,847	$	(3,505)	$	164,455


	May 31, 2018				May 31, 2017
(In thousands)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Total investments with unrealized losses	$	106,253	$	(4,527)	$	59,987	$	(3,505)
Unrealized losses with a loss position for less than 12 months		68,376		(1,570)		40,854		(2,983)
Unrealized losses with a loss position for more than 12 months		37,877		(2,957)		19,133		(522)


(In thousands)	Amortized Cost		Fair Value
Due:
Less than one year	$	7,374	$	7,275
One year through five years		12,520		12,244
Six years through ten years		3,024		2,883
After ten years		1,076		1,114
	$	23,994	$	23,516


		Actual Return on Plan Assets For:
(In thousands)	Balance at Beginning of Period	Assets Still Held at Reporting Date			Assets Sold During Year		Purchases, Sales and Settlements, net ⁽¹⁾			Balance at End of Period
Year ended May 31, 2018	$ 30,387		(65	)		-		(1,874	)		$	28,448
Year ended May 31, 2017	30,673		1,096			-		(1,382	)			30,387


	U.S. Plans						Non-U.S. Plans
Net Periodic Postretirement Cost	2018		2017		2016		2018		2017		2016
Discount rate		3.61%		3.76%		3.95%		3.61%		3.92%		4.00%
Healthcare cost trend rate		14.75%		10.37%		11.34%		5.85%		5.98%		6.06%
Ultimate healthcare cost trend rate		4.36%		4.36%		4.50%		4.20%		4.20%		4.20%
Year ultimate healthcare cost trend rate will be realized		2037		2037		2029		2030		2030		2030


Fiscal 2018	High		Low		Dividends paid per share	Fiscal 2017	High		Low		Dividends paid per share
First Quarter	$	56.48	$	47.87	0.300	First Quarter	$	55.71	$	46.53	0.275
Second Quarter	$	55.66	$	48.52	0.320	Second Quarter	$	55.92	$	46.25	0.300
Third Quarter	$	54.73	$	46.80	0.320	Third Quarter	$	55.33	$	50.79	0.300
Fourth Quarter	$	52.65	$	46.36	0.320	Fourth Quarter	$	56.39	$	50.18	0.300



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