RPM International (RPM) 10-Q 2010 Q2 Quarterly report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-Q

þ	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended November 30, 2009,
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to          .

Commission FileNo. 1-14187

RPM International Inc.

(Exact name of Registrant as specified in its charter)

DELAWARE	02-0642224
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
P.O. BOX 777;	44258
2628 PEARL ROAD; MEDINA, OHIO (Address of principal executive offices)	(Zip Code)

(330) 273-5090

(Registrant’s telephone number including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ     No o.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 ofRegulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” inRule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ Accelerated filer o Non-accelerated filer o Smaller reporting company o

(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined inRule 12b-2 of the Exchange Act).  Yes o     No þ.

As of December 31, 2009
129,495,176 Shares of RPM International Inc. Common Stock were outstanding.

RPM INTERNATIONAL INC. AND SUBSIDIARIES*

INDEX

		Page No.
PART I. FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited):
	Consolidated Balance Sheets		3
	Consolidated Statements of Income		4
	Consolidated Statements of Cash Flows		5
	Notes to Consolidated Financial Statements		6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		39
Item 4.	Controls and Procedures		39
PART II. OTHER INFORMATION
Item 1.	Legal Proceedings		40
Item 1A.	Risk Factors		42
Item 2.	Unregistered Sale of Equity Securities and Use of Proceeds		42
Item 4.	Submission of Matters to a Vote of Security Holders		42
Item 6.	Exhibits		42
Signatures			43
EX-31.1
EX-31.2
EX-32.1
EX-32.2

* As used herein, the terms “RPM” and the “Company” refer to RPM International Inc. and its subsidiaries, unless the context indicates otherwise.

2

PART I. — FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	November 30, 2009			May 31, 2009
	(Unaudited)
	(In thousands, except share and per share amounts)
ASSETS
Current Assets
Cash and cash equivalents	$	363,928		$	253,387
Trade accounts receivable (less allowances of $24,239 and $22,934, respectively)		583,289			638,659
Inventories		434,230			406,175
Deferred income taxes		44,489			44,540
Prepaid expenses and other current assets		204,388			210,155
Total current assets		1,630,324			1,552,916
Property, Plant and Equipment, at Cost		1,070,943			1,056,555
Allowance for depreciation and amortization		(614,989	)		(586,452	)
Property, plant and equipment, net		455,954			470,103
Other Assets
Goodwill		871,393			856,166
Other intangible assets, net of amortization		359,762			358,097
Deferred income taxes, non-current		71,175			92,500
Other		89,931			80,139
Total other assets		1,392,261			1,386,902
Total Assets	$	3,478,539		$	3,409,921
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	249,432		$	294,814
Current portion of long-term debt		2,940			168,547
Accrued compensation and benefits		115,749			124,138
Accrued loss reserves		75,250			77,393
Asbestos-related liabilities		75,000			65,000
Other accrued liabilities		145,682			119,270
Total current liabilities		664,053			849,162
Long-Term Liabilities
Long-term debt, less current maturities		903,285			762,295
Asbestos-related liabilities		377,847			425,328
Other long-term liabilities		225,591			204,021
Deferred income taxes		25,920			23,815
Total long-term liabilities		1,532,643			1,415,459
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 131,670 and outstanding 129,490 as of November 2009; issued 131,230 and outstanding 128,501 as of May 2009		1,295			1,285
Paid-in capital		795,080			796,441
Treasury stock, at cost		(40,237	)		(50,453	)
Accumulated other comprehensive income (loss)		21,069			(29,928	)
Retained earnings		504,636			427,955
Total stockholders’ equity		1,281,843			1,145,300
Total Liabilities and Stockholders’ Equity	$	3,478,539		$	3,409,921

The accompanying notes to consolidated financial statements are an integral part of these statements.

3

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	Three Months Ended					Six Months Ended
	November 30,					November 30,
	2009			2008		2009			2008
	(Unaudited)
	(In thousands, except share and per share amounts)
Net Sales	$	858,658		$	889,965	$	1,774,611		$	1,875,430
Cost of Sales		495,447			533,239		1,017,570			1,115,115
Gross Profit		363,211			356,726		757,041			760,315
Selling, General and Administrative Expenses		270,352			278,982		543,551			571,672
Interest Expense		14,672			15,203		27,469			29,959
Investment Expense (Income), Net		(2,057	)		2,191		(3,151	)		(1,979	)
Income Before Income Taxes		80,244			60,350		189,172			160,663
Provision for Income Taxes		24,351			18,624		60,254			49,420
Net Income	$	55,893		$	41,726	$	128,918		$	111,243
Average Number of Shares of Common Stock Outstanding:
Basic		127,373			127,090		126,868			126,158
Diluted		129,164			127,601		127,378			128,671
Basic Earnings per Share of Common Stock	$	0.44		$	0.33	$	1.00		$	0.87
Diluted Earnings per Share of Common Stock	$	0.43		$	0.33	$	1.00		$	0.86
Cash Dividends Declared per Share of Common Stock	$	0.205		$	0.200	$	0.405		$	0.390

The accompanying notes to consolidated financial statements are an integral part of these statements.

4

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Six Months Ended
	November 30,
	2009			2008
	(Unaudited)
	(In thousands)
Cash Flows From Operating Activities:
Net income	$	128,918		$	111,243
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		31,107			32,175
Amortization		11,128			11,254
Other-than-temporary impairments on marketable securities		146			3,370
Deferred income taxes		18,924			5,034
Other		4,149			3,935
Changes in assets and liabilities, net of effect from purchases and sales of businesses:
Decrease in receivables		59,658			212,078
(Increase) in inventory		(26,394	)		(15,607	)
(Increase) decrease in prepaid expenses and other current and long-term assets		(723	)		18,138
(Decrease) in accounts payable		(47,476	)		(130,500	)
(Decrease) in accrued compensation and benefits		(8,697	)		(48,776	)
(Decrease) increase in accrued loss reserves		(2,141	)		1,693
Increase (decrease) in other accrued liabilities		47,092			(37,428	)
Payments made for asbestos-related claims		(37,481	)		(32,436	)
Other		6,484			(30,125	)
Cash From Operating Activities		184,694			104,048
Cash Flows From Investing Activities:
Capital expenditures		(8,287	)		(24,887	)
Acquisition of businesses, net of cash acquired		(9,042	)		(3,733	)
Purchase of marketable securities		(38,809	)		(69,133	)
Proceeds from sales of marketable securities		36,658			63,612
Other		(322	)		3,296
Cash (Used For) Investing Activities		(19,802	)		(30,845	)
Cash Flows From Financing Activities:
Additions to long-term and short-term debt		304,203			87,209
Reductions of long-term and short-term debt		(327,133	)		(49,576	)
Cash dividends		(52,237	)		(50,470	)
Repurchase of stock					(45,184	)
Exercise of stock options		5,294			1,690
Cash (Used For) Financing Activities		(69,873	)		(56,331	)
Effect of Exchange Rate Changes on Cash and Cash Equivalents		15,522			(42,834	)
Net Change in Cash and Cash Equivalents		110,541			(25,962	)
Cash and Cash Equivalents at Beginning of Period		253,387			231,251
Cash and Cash Equivalents at End of Period	$	363,928		$	205,289

The accompanying notes to consolidated financial statements are an integral part of these statements.

5

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 2009
(Unaudited)

NOTE A — BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions toForm 10-Q and do not include all of the information and notes required by generally accepted accounting principles in the U.S. (“GAAP”) for complete financial statements. In our opinion, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included for the three and six month periods ended November 30, 2009 and 2008. For further information, refer to the Consolidated Financial Statements and Notes included in our Annual Report onForm 10-K for the year ended May 31, 2009.

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).

Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Please refer to Note J, “Segment Information,” for information pertaining to a change in the composition of our reportable segments during the current fiscal quarter ended November 30, 2009.

NOTE B — NEW ACCOUNTING PRONOUNCEMENTS

Accounting Standards Codification —In June 2009, the Financial Accounting Standards Board (the “FASB”) issued the FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles (the “ASC”), which identifies itself as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in conformity with GAAP. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. The ASC became effective for financial statements issued for interim and annual periods ending after September 15, 2009. The ASC does not change GAAP, but is intended to simplify user access to all authoritative GAAP by providing all the authoritative literature related to a particular topic in one place. Effective September 15, 2009, all of our public filings reference the ASC as the sole source of authoritative literature.

Subsequent Events —In April 2009, the FASB issued guidance which establishes general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. Under the new guidance, entities are required to disclose the date through which subsequent events were evaluated, as well as the rationale for why that date was selected. The guidance is effective for interim and annual periods ending after June 15, 2009. We adopted the provisions of this new guidance as of June 1, 2009, which had no impact on our financial position, results of operations or cash flows. Refer to Note M, “Subsequent Events.”

Financial Instruments —In April 2009, the FASB issued new guidance regarding disclosures of the fair values of financial instruments for interim and annual reporting periods. The guidance is effective for interim reporting periods ending after June 15, 2009. We adopted the new guidance as of June 1, 2009. Refer to Note E, “Fair Value Measurements,” for additional discussion.

Consolidation of Noncontrolling Interests —In December 2007, the FASB issued guidance surrounding the accounting and reporting of noncontrolling interests, which requires entities to report noncontrolling (minority) interests in subsidiaries as equity in the Consolidated Financial Statements. Our June 1, 2009 adoption of this new guidance did not have a material impact on our financial statements.

Convertible Debt —In May 2008, the FASB issued guidance which requires the issuer of certain convertible debt instruments that may be settled in cash upon conversion to separately account for liability and equity

6

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. Although we called for redemption all of our outstanding Senior Convertible Notes due May 13, 2033 during the first fiscal quarter of 2009, the FASB’s guidance requires retrospective application to all years presented. We adopted this new guidance effective June 1, 2009, and as a result, recorded additional interest expense of $5.0 million during our fiscal year ended May 31, 2008, which resulted in an after-tax decrease to reported net income of $3.3 million and a reduction of reported basic and diluted earnings per share of $0.03 per share of common stock. The cumulative effect of our adoption of this guidance as of June 1, 2008 was a reduction of retained earnings of approximately $15.5 million. Additionally, our fiscal 2008 financial statements will be restated in our fiscal 2010 Annual Report onForm 10-K. The following table illustrates the retrospective changes made to our comparative financial statements for fiscal 2009:

	May 31, 2009
	As Reported		Adjustment			Restated
	(In thousands)
Paid-in capital	$	780,967	$	15,474		$	796,441
Retained earnings	$	443,429	$	(15,474	)	$	427,955

NOTE C — INVENTORIES

Inventories were composed of the following major classes:

	November 30, 2009		May 31, 2009
	(In thousands)
Raw material and supplies	$	138,100	$	133,708
Finished goods		296,130		272,467
Total Inventory	$	434,230	$	406,175

NOTE D — MARKETABLE SECURITIES

The following tables summarize marketable securities held at November 30, 2009 and May 31, 2009 by asset type:

	Available-For-Sale Securities
								Estimated
			Gross		Gross			Fair Value
	Amortized		Unrealized		Unrealized			(Net Carrying
November 30, 2009	Cost		Gains		Losses			Amount)
Equity securities:
Stocks	$	39,138	$	5,097	$	(415	)	$	43,820
Mutual funds		20,982		4,024		(18	)		24,988
Total equity securities		60,120		9,121		(433	)		68,808
Fixed maturity:
U.S. treasury and other government		19,849		578		(18	)		20,409
Corporate		7,859		1,031		(6	)		8,884
Total fixed maturity securities		27,708		1,609		(24	)		29,293
Total	$	87,828	$	10,730	$	(457	)	$	98,101

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RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	Available-For-Sale Securities
								Estimated
			Gross		Gross			Fair Value
	Amortized		Unrealized		Unrealized			(Net Carrying
May 31, 2009	Cost		Gains		Losses			Amount)
Equity securities:
Stocks	$	36,475	$	1,949	$	(2,686	)	$	35,738
Mutual funds		21,321		804		(963	)		21,162
Total equity securities		57,796		2,753		(3,649	)		56,900
Fixed maturity:
U.S. treasury and other government		9,164		258		(7	)		9,415
Corporate		16,075		1,028		(117	)		16,986
Total fixed maturity securities		25,239		1,286		(124	)		26,401
Total	$	83,035	$	4,039	$	(3,773	)	$	83,301

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

Gross gains and losses realized on sales of investments were $1.4 million and $0.5 million, respectively, for the quarter ended November 30, 2009. Gross gains and losses realized on sales of investments were $0.5 million and $2.1 million, respectively, for the quarter ended November 30, 2008. During the second quarter of fiscal 2009, we recognized losses of $2.6 million for securities deemed to haveother-than-temporary impairments. There were no losses recognized for securities withother-than-temporary impairments during the second quarter of fiscal 2010.

Gross gains and losses realized on sales of investments were $1.4 million and $0.5 million, respectively, for the six months ended November 30, 2009. Gross gains and losses realized on sales of investments were $3.7 million and $2.4 million, respectively, for the six months ended November 30, 2008. During the first six months of fiscal 2010 and 2009, we recognized losses of $0.1 million and $3.4 million, respectively, for securities deemed to haveother-than-temporary impairments. These amounts are included in investment income, net in the Consolidated Statements of Income.

Summarized below are the securities we held at November 30, 2009 and May 31, 2009 that were in an unrealized loss position included in accumulated other comprehensive income, aggregated by the length of time the investments had been in that position:

	November 30, 2009					May 31, 2009
			Gross					Gross
	Fair		Unrealized					Unrealized
	Value		Losses			Fair Value		Losses
			(In thousands)
Total investments with unrealized losses	$	9,468	$	(457	)	$	43,624	$	(3,773	)
Unrealized losses with a loss position for less than 12 months		6,966		(341	)		43,013		(3,721	)
Unrealized losses with a loss position for more than 12 months		2,502		(116	)		611		(52	)

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RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Included in the figures above is our investment in Kemrock Industries, which has a fair value of $11.9 million and an unrealized gain of $0.3 million at November 30, 2009. At May 31, 2009, our investment in Kemrock Industries had a fair value of $9.2 million, and an unrealized loss of $2.0 million. We have reviewed all of the securities included in the table above and have concluded that we have the ability and intent to hold these investments until their cost can be recovered, based upon the severity and duration of the decline. Therefore, we did not recognize anyother-than-temporary impairment losses on these investments. Unrealized losses at November 30, 2009 were generally related to the volatility in valuations over the last several months for a portion of our portfolio of investments in marketable securities. The unrealized losses generally relate to investments whose fair values at November 30, 2009 were less than 15% below their original cost or have been in a loss position for less than six consecutive months. Although we have begun to see recovery in general economic conditions, if we were to experience continuing or significant unrealized losses within our portfolio of investments in marketable securities in the future, we may recognize additionalother-than-temporary impairment losses. Such potential losses could have a material impact on our results of operations in any given reporting period. As such, we continue to closely evaluate the status of our investments and our ability and intent to hold these investments.

The net carrying values of debt securities at November 30, 2009, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

	Amortized Cost		Fair Value
	(In thousands)
Due:
Less than one year	$	3,432	$	3,438
One year through five years		12,583		13,086
Six years through ten years		6,214		6,553
After ten years		5,479		6,216
	$	27,708	$	29,293

NOTE E — FAIR VALUE MEASUREMENTS

Financial instruments recorded on the balance sheet include cash and cash equivalents, accounts receivable, notes and accounts payable, and debt. The carrying amount of cash and cash equivalents, accounts receivable, and notes and accounts payable approximates fair value because of their short-term maturity.

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, past experience, and 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 on the balance sheet and measured at fair value. Changes in the fair values of derivative instruments that do not qualify as hedgesand/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 (losses), along with the change in the value of the hedged item. We do not hold or issue derivative instruments for speculative purposes.

The carrying amount of our debt instruments approximates fair value based on quoted market prices, variable interest rates or borrowing rates for similar types of debt arrangements, with the exception of our contingently-convertible notes due 2033. We called these notes for redemption during fiscal 2009. Please refer to Note K, “Debt,” for further information.

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RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Effective June 1, 2008, we implemented new guidance issued by the FASB relating to fair value accounting. The guidance clarifies the definition of fair value, establishes a framework for measuring fair value based on the inputs used to measure fair value and expands the disclosures of fair value measurements. Effective June 1, 2009, we implemented the portion of this new guidance which pertains to our nonfinancial assets and nonfinancial liabilities. Our implementation of these provisions did not have a material impact on our financial statements.

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 table presents our assets and liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.

	Quoted Prices in					Significant
	Active Markets for		Significant Other			Unobservable
	Identical Assets		Observable Inputs			Inputs	Fair Value at
	(Level 1)		(Level 2)			(Level 3)	November 30, 2009
	(In thousands)
Marketable equity securities	$	68,808	$			$	$	68,808
Marketable debt securities				29,293				29,293
Cross-currency swap				(31,675	)			(31,675	)
Total	$	68,808	$	(2,382	)	$	$	66,426

Our marketable securities are composed of mainlyavailable-for-sale securities, and are valued using a market approach based on quoted market prices for identical instruments. 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.

Our cross-currency swap was designed to fix our interest and principal payments in euros for the life of the debt, which resulted in an effective euro fixed-rate borrowing of 5.31%. The basis for determining the rates for this swap included three legs at the inception of the agreement: the USD fixed rate to a USD floating rate; the euro floating to euro fixed rate; and the dollar to euro basis fixed rate at inception. Therefore, we essentially exchanged fixed payments denominated in USD for fixed payments denominated in fixed euros, paying fixed euros at 5.31% and receiving fixed USD at 6.70%. The ultimate payments are based on the notional principal amounts of 150 million USD and approximately 125 million euros. There will be an exchange of the notional amounts at maturity. The rates included in this swap are based upon observable market data, but are not quoted market prices, and therefore, the cross-currency swap is considered a Level 2 liability on the fair value hierarchy. Additionally, our cross-currency swap has been designated as a hedging instrument, and is classified as other long-term liabilities in our consolidated balance sheets.

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

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RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

short-term maturity of these financial instruments. At November 30, 2009, 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 November 30, 2009 are as follows:

	Carrying Value		Fair Value
	(In thousands)
Cash and cash equivalents	$	363,928	$	363,928
Marketable equity securities		68,808		68,808
Marketable debt securities		29,293		29,293
Long-term debt, including current portion		906,225		949,690

NOTE F — CONTINGENCIES AND OTHER ACCRUED LOSSES

Asbestos-related Contingencies

Certain of our wholly-owned subsidiaries, principally Bondex International, Inc. (collectively referred to as the subsidiaries), are defendants in various asbestos-related bodily injury lawsuits filed in various state courts with the vast majority of current claims pending in six states — Texas, Florida, Maryland, Illinois, Mississippi and Ohio. These cases generally seek unspecified damages for asbestos-related diseases based on alleged exposures to asbestos-containing products previously manufactured by our subsidiaries or others.

As of November 30, 2009, our subsidiaries had a total of 10,531 active asbestos cases, compared to a total of 10,048 cases as of November 30, 2008. For the quarter ended November 30, 2009, our subsidiaries secured dismissalsand/or settlements of 233 cases, compared to a total of 1,824 cases dismissedand/or settled for the quarter ended November 30, 2008. For the six months ended November 30, 2009, our subsidiaries secured dismissalsand/or settlements of 657 cases, compared to a total of 2,025 cases dismissedand/or settled for the six months ended November 30, 2008.

Of the 2,025 cases that were dismissed in the six months ended November 30, 2008, 1,420 were non-malignancies or unknown disease cases that had been maintained on an inactive docket in Ohio and were administratively dismissed by the Cuyahoga County Court of Common Pleas during our second fiscal quarter ended November 30, 2008. These claims were dismissed without prejudice and may be re-filed should the claimants involved be able to demonstrate disease in accordance with medical criteria laws established in the State of Ohio.

For the quarter ended November 30, 2009, our subsidiaries made total cash payments of $18.9 million relating to asbestos cases, which included defense-related payments paid during the quarter of $7.6 million, compared to total cash payments of $16.4 million relating to asbestos cases during the quarter ended November 30, 2008, which included defense-related payments paid during the quarter of $6.1 million. For the six months ended November 30, 2009, our subsidiaries made total cash payments of $37.5 million relating to asbestos cases, which included defense-related payments of $15.1 million, compared to total cash payments of $32.4 million relating to asbestos cases during the six months ended November 30, 2008, which included defense-related payments of $12.8 million.

During the second quarter of fiscal 2009, one payment totaling $3.6 million was made to satisfy an adverse judgment in a previous trial that occurred in calendar 2006 in California. This payment, which included a significant amount of accrued pre-judgment interest as required by California law, was made on December 8, 2008, approximately two and a half years after the adverse verdict and after all post-trial and appellate remedies had been exhausted. Such satisfaction of judgment amounts are not included in incurred costs until available appeals are exhausted and the final payment amount is determined. As a result, the timing and amount of any such payments could have a significant impact on quarterly settlement costs.

Excluding defense-related payments, the average payment made to settle or dismiss a case approximated $48,000 and $6,000 for each of the quarters ended November 30, 2009 and 2008, respectively, and approximated

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

$34,000 and $10,000 for each of the six month periods ended November 30, 2009 and 2008, respectively. As discussed above, there were approximately 1,420 non-malignancies or unknown disease cases that were administratively dismissed during the prior year’s second fiscal quarter. Excluding those dismissed cases, the average payment made to settle or dismiss a case approximated $25,000 for the quarter ended November 30, 2008. The amount and timing of dismissals and settlements can fluctuate significantly from period to period, resulting in volatility in the average cost to resolve a case in any given quarter or year. In addition, in some jurisdictions, cases may involve more than one individual claimant. As a result, settlement or dismissal payments on a per case basis are not necessarily reflective of the payment amounts on a per claimant basis. For example, the average amount paid to settle or dismiss a case can vary widely depending on a variety of factors, including the mix of malignancy and non-malignancy claimants and the amount of defense expenditures incurred during the period.

Estimating the future cost of asbestos-related contingent liabilities was and continues to be subject to many uncertainties that may change over time, including (i) the ultimate number of claims filed; (ii) the amounts required to resolve both currently known and future unknown claims; (iii) the amount of insurance, if any, available to cover such claims, including the outcome of coverage litigation against our subsidiaries’ third-party insurers; (iv) future earnings and cash flow of our subsidiaries; (v) the impact of bankruptcies of other companies whose share of liability may be imposed on our subsidiaries under certain state liability laws; (vi) the unpredictable aspects of the litigation process including a changing trial docket and the jurisdictions in which trials are scheduled; (vii) the outcome of any such trials including judgments or jury verdicts, as a result of our more aggressive defense posture, which includes taking selective cases to verdict; (viii) the lack of specific information in many cases concerning exposure to products for which one of our subsidiaries is responsible and the claimants’ diseases; (ix) potential changes in applicable federaland/or state law; and (x) the potential impact of various proposed structured settlement transactions or subsidiary bankruptcies by other companies, some of which are the subject of federal appellate court review, the outcome of which could materially affect any future asbestos-related liability estimates.

In fiscal 2006, we retained Crawford & Winiarski (“C&W”), an independent, third-party consulting firm with expertise in the area of asbestos valuation work, to assist us in calculating an estimate of our liability for unasserted-potential-future-asbestos-related claims. The methodology used by C&W to project our liability for unasserted-potential-future-asbestos-related claims included C&W doing an analysis of: (a) widely accepted forecast of the population likely to have been exposed to asbestos; (b) epidemiological studies estimating the number of people likely to develop asbestos-related diseases; (c) historical rate at which mesothelioma incidences resulted in the payment of claims by us; (d) historical settlement averages to value the projected number of future compensable mesothelioma claims; (e) historical ratio of mesothelioma-related-indemnity payments to non-mesothelioma indemnity payments; and (f) historical defense costs and their relationship with total indemnity payments.

During fiscal 2006, we recorded a liability for asbestos claims in the amount of $380.0 million, while paying out $59.9 million for dismissalsand/or settlements, which resulted in our accrued liability balance moving from $101.2 million at May 31, 2005 to $421.3 million at May 31, 2006. This increase was based largely upon C&W’s analysis of our total estimated liability for unasserted-potential-future-asbestos-related claims through May 31, 2016. This amount was calculated on a pre-tax basis and was not discounted for the time value of money. In light of the uncertainties inherent in making long-term projections, we determined at that time that a ten-year period was the most reasonable time period over which reasonably accurate estimates might still be made for projecting asbestos liabilities and defense costs and, accordingly, our accrual did not include asbestos liabilities for any period beyond ten years.

During the fiscal year ended May 31, 2008, we reviewed and evaluated our ten-year asbestos liability established as of May 31, 2006. As part of that review and evaluation process, the credibility of epidemiological studies of our mesothelioma claims, first introduced to management by C&W sometwo-and-one-half years earlier, was validated. At the core of our evaluation process, and the basis of C&W’s actuarial work on behalf of Bondex, is theNicholson Study. TheNicholson Study is the most widely recognized reference in bankruptcy trust valuations, global settlement negotiations and the Congressional Budget Offices’ work done on the proposed FAIR Act in 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Based on our ongoing comparison of theNicholson Studyprojections and Bondex’s specific actual experience, which at that time continued to bear an extremely close correlation to the study’s projections, we decided to extend our asbestos liability projection out to the year 2028. C&W assisted us in calculating an estimate of our liability for unasserted-potential-future-asbestos-related claims out to that twenty-year period.

C&W projected that the cost of extending the asbestos liability to 2028, coupled with an updated evaluation of our current known claims to reflect our most recent actual experience, would be $288.1 million. Therefore, we added $288.1 million to our existing asbestos liability, which brought our total asbestos-related balance sheet liabilities at May 31, 2008 to $559.7 million. Of that total, $65.0 million was estimated to be the short-term liability due in fiscal 2009, with the remaining $494.7 million balance reflected as a long-term liability. The material components of the accruals are: (i) the gross number of open malignancy claims (principally mesothelioma claims) as these claims have the most significant impact on our asbestos settlement costs; (ii) historical and current settlement costs and dismissal rates by various categories; (iii) analysis of the jurisdiction and governing laws of the states in which these claims are pending; (iv) outside defense counsel’s opinions and recommendations with respect to the merits of such claims; and (v) analysis of projected liabilities for unasserted potential future claims.

In determining the amount of our asbestos liability, we relied on assumptions that are based on currently known facts and projection models. Our actual expenses could be significantly higher or lower than those recorded if assumptions used in our calculations vary significantly from actual results. Key variables in these assumptions include the period of exposure to asbestos claims, the number and type of new claims to be filed each year, the rate at which mesothelioma incidences result in compensable claims against us, the average cost of disposing of each such new claim, the dismissal rates each year and the related annual defense costs. Furthermore, predictions with respect to these variables are subject to greater uncertainty as the projection period lengthens. A significant upward or downward trend in the number of claims filed, depending on the nature of the alleged injury, the jurisdiction where filed, the average cost of resolving each such claim and the quality of the product identification, could change our estimated liability, as could any substantial adverse verdict at trial. A federal legislative solution, further state tort reform or a structured-settlement transaction could also change the estimated liability.

Subject to the foregoing variables, and based on currently available data, we believe that our current asbestos liability is sufficient to cover asbestos-related expenses for our known pending and unasserted-potential-future-asbestos-related claims through 2028. However, given the uncertainties associated with projecting matters into the future and numerous other factors outside of our control, we believe that it is reasonably possible we may incur additional material asbestos liabilities in periods before 2028. Due to the uncertainty inherent in the process undertaken to estimate our losses, we are unable at the present time to estimate an additional range of loss in excess of our existing accruals. While it is reasonably possible that such excess liabilities could be material to operating results in any given quarter or year, we do not believe that it is reasonably possible that such excess liabilities would have a material adverse effect on our long-term results of operations, liquidity or consolidated financial position.

During fiscal 2004, certain of our subsidiaries’ third-party insurers claimed exhaustion of coverage. On July 3, 2003, certain of our subsidiaries filed the case ofBondex International, Inc. et al. v. Hartford Accident and Indemnity Company et al., CaseNo. 1:03-cv-1322, in the United States District Court for the Northern District of Ohio, for declaratory judgment, breach of contract and bad faith against these third-party insurers, challenging their assertion that their policies covering asbestos-related claims have been exhausted. The coverage litigation involves, among other matters, insurance coverage for claims arising out of alleged exposure to asbestos containing products manufactured by the previous owner of the Bondex tradename before March 1, 1966. On March 1, 1966, Republic Powdered Metals Inc. (as it was known then), purchased the assets and assumed the liabilities of the previous owner of the Bondex tradename. That previous owner subsequently dissolved and was never a subsidiary of Republic Powdered Metals, Bondex, RPM, Inc. or the Company. Because of the earlier assumption of liabilities, however, Bondex has historically responded, and must continue to respond, to lawsuits alleging exposure to these asbestos-containing products. We discovered that the defendant insurance companies in the coverage litigation had wrongfully used cases alleging exposure to these pre-1966 products to erode their aggregate limits. This conduct,

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

apparently known by the insurance industry based on discovery conducted to date, was in breach of the insurers’ policy language. Two of the defendant insurers have filed counterclaims seeking to recoup certain monies should plaintiffs prevail on their claims.

During the second fiscal quarter ended November 30, 2006, plaintiffs and one of the defendant insurers reached a settlement of $15.0 million, the terms of which are confidential by agreement of the parties. The settling defendant was dismissed from the case.

In 2007, plaintiffs had filed motions for partial summary judgment against the defendants and defendants had filed motions for summary judgment against plaintiffs. In addition, plaintiffs had filed a motion to dismiss the counterclaim filed by one of the defendants. On December 1, 2008, the court decided the pending motions for summary judgment and dismissal. The court denied the plaintiffs’ motions for partial summary judgment and granted the defendants’ motions for summary judgment against plaintiffs on a narrow ground. The court also granted the plaintiffs’ motion to dismiss one defendant’s amended counterclaim. In light of its summary judgment rulings, the court entered judgment as a matter of law on all remaining claims and counterclaims, including the counterclaim filed by another defendant, and dismissed the action. The court also dismissed certain remaining motions as moot. Plaintiffs have filed a notice of appeal to the United States Sixth Circuit Court of Appeals and will continue to aggressively pursue their claims on appeal. Certain defendants have filed cross-appeals. On December 17, 2009, the Sixth Circuit Court of Appeals issued a briefing schedule. Plaintiffs’ first brief must be filed by January 26, 2010. All briefing is scheduled to be completed in the Sixth Circuit Court of Appeals by March 29, 2010.

We are unable at the present time to predict the timing or ultimate outcome of this insurance coverage litigation or whether there will be any further settlements. Consequently, we are unable to predict whether, or to what extent, any additional insurance may be available to cover a portion of our subsidiaries’ asbestos liabilities. We have not included any potential benefits from this litigation in calculating our current asbestos liability. Our wholly-owned captive insurance companies have not provided any insurance or reinsurance coverage for any of our subsidiaries’ asbestos-related claims.

The following table illustrates the movement of current and long-term asbestos-related liabilities through November 30, 2009:

Asbestos Liability Movement
(Current and Long-Term)

	Balance at		Additions to				Balance at
	Beginning of		Asbestos				End of
	Period		Charge		Deductions*		Period
			(In thousands)
Six Months Ended November 30, 2009	$	490,328			$	37,481	$	452,847
Year Ended May 31, 2009		559,745				69,417		490,328
Year Ended May 31, 2008		354,268	$	288,100		82,623		559,745

* Deductions include payments for defense-related costs and amounts paid to settle claims.

EIFS Litigation

As of November 30, 2009, Dryvit, one of our wholly owned subsidiaries, was a defendant or co-defendant in various single family residential exterior insulating finishing systems (“EIFS”) cases, the majority of which are pending in the southeastern region of the country. Dryvit is also defending EIFS lawsuits involving commercial structures, townhouses and condominiums. The vast majority of Dryvit’s EIFS lawsuits seek monetary relief for water intrusion related property damages, although some claims in certain lawsuits allege personal injuries from exposure to mold.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Third-party excess insurers have historically paid varying shares of Dryvit’s defense and settlement costs in the individual commercial and residential EIFS lawsuits under various cost-sharing agreements. Dryvit has assumed a greater share of the costs associated with its EIFS litigation as it seeks funding commitments from our third-party excess insurers and will likely continue to do so pending the outcome of coverage litigation involving these same third-party insurers. This coverage litigation,Dryvit Systems, Inc. et al v. Chubb Insurance Company et al, Case No. CV 05 578004, is pending in the Cuyahoga Court of Common Pleas. As previously reported, all parties filed motions for partial summary judgment in 2008. The motions were filed pursuant to an order entered by the trial court on March 17, 2008, which requested the parties to address the following three issues: (1) whether the policies of Defendants contain a duty to defend; (2) whether the policies contain an obligation to reimburse defense costs; and (3) whether Defendants’ policy obligations are triggered through exhaustion of the underlying coverage.

On November 23, 2009, the trial court filed its Journal Entry ruling upon the parties’ motions for partial summary judgment. The trial court decided issues one and two relating to defense coverage in favor of Chubb and Agricultural. The court ruled that Chubb and Agricultural do not have a duty to pay defense costs under their respective 1995 and 1996 policies. As a result, the trial court denied another Defendant’s motion to dismiss the broker negligence and breach of contract claims asserted by RPM and Dryvit.

With respect to the third issue, the trial court ruled that the 1995 Agricultural policy was not properly exhausted because Agricultural did not pay $10 million in indemnity payments to settle claims. The trial court found that the $5.2 million Agricultural paid for defense costs under its 1995 policy did not reduce its aggregate limit of liability. The trial court also determined that the 1995 Chubb excess policy is not required to pay indemnity for Dryvit EIFS claims at this time.

The trial court’s November 23, 2009 Journal Entry is not a final appealable order. The parties may appeal from the trial court’s ruling after other claims and defenses in the litigation are decided by motion or at trial. It is unclear whether any party will be able to take an interlocutory appeal from the trial court’s Journal Entry. Assuming that there are no interlocutory appeals from the November 23, 2009 Journal Entry, the parties are required by court order to engage in settlement negotiations through private mediation. If the mediation is not successful, the parties will complete discovery which will include discovery on damages and expert witnesses in anticipation of filing additional summary judgment motions and conducting a jury trial.

Other Contingencies

We provide, through our wholly-owned insurance subsidiaries, certain insurance coverage, primarily product liability, to our other subsidiaries. Excess coverage is provided by third-party insurers. Our reserves provide for these potential losses as well as other uninsured claims.

We also offer warranty programs at several of our industrial businesses and have established a product warranty liability. We review this liability for adequacy on a quarterly basis and adjust it as necessary. The primary factors that could affect this liability may include changes in the historical system performance rate as well as the 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 claims not yet received, which are not currently estimable due to the significant number of variables contributing to the extent of any necessary remediation. While our warranty liability represents our best estimate at November 30, 2009, 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.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

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

	Quarter Ended						Six Months Ended
	November 30,						November 30,
	2009			2008			2009			2008
	(In thousands)
Beginning Balance	$	16,811		$	7,551		$	18,993		$	8,055
Deductions(1)		(6,997	)		(3,609	)		(14,459	)		(7,657	)
Provision charged to SG&A expense		5,283			3,204			10,563			6,748
Ending Balance	$	15,097		$	7,146		$	15,097		$	7,146

(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. These liabilities are undiscounted.

NOTE G — INCOME TAXES

The effective income tax rate was 30.3% for the three months ended November 30, 2009 compared to an effective income tax rate of 30.9% for the three months ended November 30, 2008. The effective income tax rate was 31.9% for the six months ended November 30, 2009 compared to an effective income tax rate of 30.8% for the same period a year ago.

For the three and six months ended November 30, 2009 and November 30, 2008, respectively, the effective tax rate differed from the federal statutory rate principally due to the impact of certain foreign operations on our U.S. taxes and the effect of lower tax rates in certain of our foreign jurisdictions. These decreases in taxes were partially offset by non-deductible business operating expenses and provisions for valuation allowances associated with losses incurred by certain of our foreign businesses and for foreign tax credit carryforwards.

We file income tax returns in the U.S. and in various state, local and foreign jurisdictions. As of November 30, 2009, the fiscal years 2006 through 2009 are subject to U.S. federal income tax examination. With limited exceptions we are also subject to various state and local ornon-U.S. income tax examinations by tax authorities for the fiscal years 2003 through 2009. Currently, the Internal Revenue Service is examining the fiscal 2007 and 2008 tax years. Also, the Canada Revenue Authority is examining certain 2006 and 2007 Canadian returns and the State of Wisconsin is examining the income tax returns for 2003 through 2006. While it is reasonably possible that these matters could be resolved during the next 12 months, the timing and ultimate outcomes are uncertain.

As of November 30, 2009, we have determined, based on the available evidence, that it is uncertain whether we will be able to recognize certain deferred tax assets. Therefore, we intend to maintain the tax valuation allowances recorded at November 30, 2009 for certain deferred tax assets until sufficient positive evidence (for example, cumulative positive foreign earnings or additional foreign source income) exists to support their reversal. These valuation allowances relate to U.S. foreign tax credit carryforwards, certain foreign net operating losses and net foreign deferred tax assets. A portion of the valuation allowance is associated with deferred tax assets recorded in purchase accounting for prior year acquisitions. A reversal of the valuation allowance that was recorded in purchase accounting may impact earnings.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

NOTE H — PENSION AND POSTRETIREMENT HEALTH CARE BENEFITS

We offer defined benefit pension plans, defined contribution pension plans, as well as several unfunded health care benefit plans primarily for certain of our retired employees. The following tables provide the retirement-related benefit plans’ impact on income before income taxes for the three and six month periods ended November 30, 2009 and 2008:

	U.S. Plans						Non-U.S. Plans
	Quarter Ended						Quarter Ended
	November 30,						November 30,
Pension Benefits	2009			2008			2009			2008
	(In thousands)
Service cost	$	3,337		$	3,654		$	486		$	759
Interest cost		3,523			3,026			1,822			1,915
Expected return on plan assets		(2,448	)		(3,217	)		(1,502	)		(1,846	)
Amortization of:
Prior service cost		88			86			2			1
Net actuarial losses recognized		1,850			767			236			311
Net Periodic Benefit Cost	$	6,350		$	4,316		$	1,044		$	1,140

	U.S. Plans						Non-U.S. Plans
	Quarter Ended						Quarter Ended
	November 30,						November 30,
Postretirement Benefits	2009			2008			2009			2008
	(In thousands)
Service cost	$	1		$	—		$	82		$	98
Interest cost		142			108			160			189
Prior service cost		(7	)		(7	)		—			—
Net actuarial (gains) losses recognized		(35	)		(24	)		(34	)		—
Net Periodic Benefit Cost	$	101		$	77		$	208		$	287

	U.S. Plans						Non-U.S. Plans
	Six Months Ended						Six Months Ended
	November 30,						November 30,
Pension Benefits	2009			2008			2009			2008
	(In thousands)
Service cost	$	7,010		$	7,360		$	973		$	1,519
Interest cost		6,749			5,954			3,644			3,830
Expected return on plan assets		(4,898	)		(6,446	)		(3,004	)		(3,693	)
Amortization of:
Prior service cost		176			171			4			2
Net actuarial losses recognized		3,277			1,326			471			622
Net Periodic Benefit Cost	$	12,314		$	8,365		$	2,088		$	2,280

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

	U.S. Plans						Non-U.S. Plans
	Six Months Ended						Six Months Ended
	November 30,						November 30,
Postretirement Benefits	2009			2008			2009			2008
	(In thousands)
Service cost	$	2		$	—		$	163		$	196
Interest cost		284			216			320			378
Prior service cost		(14	)		(14	)		—			—
Net actuarial (gains) losses recognized		(69	)		(48	)		(67	)		—
Net Periodic Benefit Cost	$	203		$	154		$	416		$	574

We previously disclosed in our financial statements for the fiscal year ended May 31, 2009 that we expected to contribute approximately $10.8 million to our retirement plans in the U.S. and approximately $8.7 million to plans outside the U.S. during the current fiscal year. As of November 30, 2009, we do not anticipate any changes to these contribution levels.

The fair value of the assets held by our pension plans at May 31, 2009 declined from their prior year values due primarily to the significant declines that have taken place in the stock markets over that time. Although we have seen a recovery in the stock markets over the past few months, we cannot be certain that this recent trend will continue. The actuarial assumptions used to calculate our net periodic benefit cost are reviewed annually, most recently as of our May 31, 2009 measurement date. Those actuarial assumptions and related market conditions are reflected in our current fiscal year net periodic benefit costs included above.

NOTE I — EARNINGS PER SHARE

On June 1, 2009, we implemented the provisions of recent guidance issued by the FASB regarding the computation of earnings per share. The FASB’s updated guidance clarifies that unvested share-based payment awards that contain rights to receive non-forfeitable dividends are participating securities. Our unvested restricted shares are considered participating securities. The FASB also updated their guidance on how to allocate earnings to participating securities and compute earnings per share using the two-class method. We have retroactively applied the provisions of this guidance to the financial information included herein, which impacted prior year reported figures by reducing basic earnings per share for the six months ended November 30, 2008 by $0.01 per share, from reported basic earnings per share of $0.88 to as-adjusted basic earnings per share of $0.87. No other prior year figures were impacted by this change.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

The following table sets forth the reconciliation of the numerator and denominator of basic and diluted earnings per share, as calculated using the two-class method, for the three and six month periods ended November 30, 2009 and 2008:

	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2009			2008			2009			2008
	(In thousands, except per share amounts)
Numerator for earnings per share:
Net income	$	55,893		$	41,726		$	128,918		$	111,243
Less: Allocation of earnings and dividends to participating securities		(375	)		(256	)		(1,615	)		(1,416	)
Net income available to common shareholders — basic		55,518			41,470			127,303			109,827
Add: Undistributed earnings reallocated to unvested shareholders(1)		375			—			5			13
Add: Income effect of contingently issuable shares		—			—			—			280
Net income available to common shareholders — diluted	$	55,893		$	41,470		$	127,308		$	110,120
Denominator for basic and diluted earnings per share:
Basic weighted average common shares		127,373			127,090			126,868			126,158
Average diluted options		700			511			510			837
Net issuable common share equivalents(1)		1,091			—			—			—
Additional shares issuable assuming conversion of convertible securities		—			—			—			1,676
Total shares for diluted earnings per share		129,164			127,601			127,378			128,671
Earnings Per Share:
Basic Earnings Per Share of Common Stock	$	0.44		$	0.33		$	1.00		$	0.87
Diluted Earnings Per Share of Common Stock	$	0.43		$	0.33		$	1.00		$	0.86

(1) For the quarter ended November 30, 2009, the treasury stock method was utilized for the purpose of computing diluted earnings per share, as the result under the two-class method would have been anti-dilutive.

NOTE J — 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 two reportable segments: the industrial reportable segment and the consumer reportable segment. Within each reportable segment, we aggregate several operating segments that consist of individual 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 five operating segments represent components of our business for which separate financial information is available that is utilized on a regular basis by our chief executive officer in determining how to allocate the assets of the Company and evaluate performance. These five operating segments are each managed by an operating segment manager, who is responsible for theday-to-day operating decisions and performance evaluation of the operating segment’s underlying businesses. Over the past several years, a number of product lines included within our RPM II/Consumer Group were either sold to third-parties or reassigned to other operating segments within our consumer reportable segment to better align with how management views our business. After a comprehensive review and

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

analysis of the remaining product lines in the RPM II/Consumer Group and the current customer base and markets served, it was determined that these remaining businesses are more appropriately accounted for in our RPM II/Industrial Group. Total net sales for these businesses approximated 3.0% of consolidated net sales for the quarter and six month periods ended November 30, 2008. The financial statements and notes contained herein reflect the reclassification of these product lines to the RPM II/Industrial Group for all periods presented.

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. This reportable segment comprises three separate operating segments — our Building Solutions Group, Performance Coatings Group, and RPM II/Industrial Group. Products and services within this reportable segment include construction chemicals; roofing systems; weatherproofing and other sealants; polymer flooring; wood stains; edible coatings and specialty glazes for pharmaceutical, cosmetic and food industries; and other specialty chemicals.

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. Consumer segment products are sold directly to mass merchandisers, home improvement centers, hardware stores, paint stores, craft shops and to other smaller customers through distributors. This reportable segment comprises two operating segments — our DAP Group and our Rust-Oleum Group. Products within this reportable segment include specialty, hobby and professional paints; caulks; adhesives; silicone sealants; and wood stains.

In addition to our two 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 either reportable segment. Assets related to the corporate/other category consist primarily of investments, prepaid expenses, deferred pension assets, and headquarters’ property and equipment. These corporate and other assets and expenses reconcile reportable segment data to total consolidated income before income taxes and identifiable assets. Our comparative three and six month results for the periods ended November 30, 2009 and 2008, and identifiable assets as of November 30, 2009 and May 31, 2009 are presented in segment detail in the following table.

	Three Months Ended						Six Months Ended
	November 30,			November 30,			November 30,			November 30,
	2009			2008			2009			2008
	(In thousands)
Net Sales
Industrial Segment	$	613,495		$	652,735		$	1,237,523		$	1,377,810
Consumer Segment		245,163			237,230			537,088			497,620
Consolidated	$	858,658		$	889,965		$	1,774,611		$	1,875,430
Gross Profit
Industrial Segment	$	266,576		$	276,348		$	542,951		$	580,332
Consumer Segment		96,635			80,378			214,090			179,983
Consolidated	$	363,211		$	356,726		$	757,041		$	760,315
Income (Loss) Before Income Taxes
Industrial Segment	$	73,921		$	70,996		$	158,747		$	165,073
Consumer Segment		31,828			14,515			82,076			44,939
Corporate/Other		(25,505	)		(25,161	)		(51,651	)		(49,349	)
Consolidated	$	80,244		$	60,350		$	189,172		$	160,663

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RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Identifiable Assets	November 30, 2009		May 31, 2009
Industrial Segment	$	1,958,752	$	1,878,378
Consumer Segment		1,072,162		1,127,285
Corporate/Other		447,625		404,258
Consolidated	$	3,478,539	$	3,409,921

NOTE K — DEBT

On October 9, 2009, we sold $300.0 million aggregate principal amount of 6.125% Notes due 2019 (the “Notes”). The net proceeds from the offering of the Notes were used to repay $163.7 million in principal amount of our unsecured notes due October 15, 2009, and approximately $120.0 million in principal amount of short-term borrowings outstanding under our accounts receivable securitization program. The balance of the net proceeds was used for general corporate purposes.

During our first fiscal quarter ended August 31, 2008, our Senior Convertible Notes (the “Convertible Notes”) due May 13, 2033 became eligible for conversion based upon the price of RPM International Inc. common stock. Subsequent to this event, on June 13, 2008, we called for the redemption of all of our outstanding Convertible Notes on the effective date of July 14, 2008 (the “Redemption Date”). Prior to the Redemption Date, virtually all of the holders had already converted their Convertible Notes into 8,030,455 shares of RPM International Inc. common stock, or 27.0517 shares of common stock for each $1,000 Face Value Convertible Note they held. Any fractional shares from the conversion were paid in cash.

NOTE L — COMPREHENSIVE INCOME

The following table illustrates the components of total comprehensive income for the three and six month periods ended November 30, 2009 and 2008:

	Three Months Ended						Six Months Ended
	November 30,						November 30,
	2009			2008			2009		2008
	(In thousands)
Net income	$	55,893		$	41,726		$	128,918	$	111,243
Other Comprehensive Income:
Foreign currency translation adjustments		30,540			(125,478	)		40,463		(173,722	)
Pension and other postretirement benefit liability adjustments, net of tax		902			3,063			2,216		4,987
Unrealized gain (loss) on securities, net of tax		319			(16,840	)		7,617		(27,804	)
Derivatives income, net of tax		(8,899	)		46			701		1,246
Total Comprehensive Income (Loss)	$	78,755		$	(97,483	)	$	179,915	$	(84,050	)

NOTE M — SUBSEQUENT EVENTS

Events subsequent to November 30, 2009 have been evaluated through January 6, 2010, which is the date of the issuance of these financial statements. During that period, there were no subsequent events requiring recognition in the financial statements, and no non-recognized subsequent events requiring disclosure.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements include the accounts of RPM International Inc. and its majority-owned subsidiaries. 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 asbestos liability; allowances for doubtful accounts; inventories; allowances for recoverable taxes; 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, including legal settlements, 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 thepercentage-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 on 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 local 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 date, 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 continues to strengthen, we will continue to reflect the resulting losses as a component of accumulated other comprehensive income. Conversely, if the U.S. dollar were to weaken, foreign exchange translation gains could result, which would favorably impact accumulated other comprehensive income. Translation adjustments will be included in net earnings in the event of a sale or liquidation of any of our underlying foreign investments, or in the event that we distribute the accumulated earnings of consolidated foreign subsidiaries. If we determined that the functional currency of any of our foreign subsidiaries should be the U.S. dollar, our financial statements would be affected. Should this occur, we would adjust our reporting to appropriately account for any such changes.

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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). If we were to determine that the functional currency of any of our subsidiaries should be the U.S. dollar, we would no longer record foreign exchange gains or losses on such intercompany loans.

Goodwill

We test our goodwill balances at least annually, or more frequently as impairment indicators arise, using a fair-value approach at the reporting unit level. Our reporting units have been identified at the component level, or one level below our operating segments. We perform a two-step impairment test. In the first step, we compare the fair value of each of our reporting units to its carrying value. We have elected to perform our annual required impairment tests, which involve the use of estimates related to the fair market values of the reporting units with which goodwill is associated, during our fourth fiscal quarter. Calculating the fair market values of reporting units requires our use of estimates and assumptions.

We use significant judgment in determining the most appropriate method to establish the fair values of each of our reporting units. We estimate the fair values of our reporting units by employing various valuation techniques, depending on the availability and reliability of comparable market value indicators, and employ methods and assumptions which include the application of third-party market value indicators and the computation of discounted future cash flows for each of our reporting unit’s annual projected earnings before interest, taxes, depreciation and amortization (“EBITDA”). For each of our reporting units, we calculate a break-even multiple based on its carrying value as of the testing date. We then compare each reporting unit’s break-even EBITDA market multiple to guideline EBITDA market multiples applicable to our industry and peer group, the data for which we develop internally and through third-party sources. The result of this analysis provides us with insight and sensitivity as to which reporting units, if any, may have a higher risk for a potential impairment.

We then supplement this analysis with an evaluation of discounted future cash flows for each reporting unit’s projected EBITDA. Under this approach, we calculate the fair value of each 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 each 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 units. 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 each 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.

Our annual goodwill impairment analysis, which we performed during the fourth quarter of fiscal 2009, resulted in an impairment charge related to a reduction in the carrying value of goodwill in the amount of $14.9 million, relating to our Fibergrate reporting unit. The remaining net goodwill balance relating to our Fibergrate unit approximates $23 million. The excess of fair value over carrying value for our other reporting units as of March 1, 2009, ranged from approximately $1.3 million to $249.8 million. In order to evaluate the sensitivity of the fair value calculations of our goodwill impairment test, we applied a hypothetical 5% decrease to the fair values of each reporting unit. This hypothetical 5% decrease would result in excess fair value over carrying value

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ranging from approximately $1.0 million to $231.8 million for our reporting units. Further, we compare the sum of the fair values of our reporting units resulting from our discounted cash flow calculations to our market capitalization as of our valuation date. We use this comparison to further assess the reasonableness of the assumptions employed in our valuation calculations. As of the valuation date, the sum of the fair values we calculated for our reporting units was approximately 15% above our market capitalization.

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

Other Long-Lived Assets

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

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

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

•  significant changes in the strategy for our overall business; and

•  significant negative industry or economic trends.

Additionally, we test all indefinite-lived intangible assets for impairment at least annually during our fiscal fourth quarter. Measuring a potential impairment of non-goodwill 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; 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. Our fiscal 2009 annual impairment tests of each of our indefinite-lived intangible assets resulted in an impairment loss of $0.5 million related to the reduction in carrying value of one of our tradenames. This loss was primarily the result of continued declines in sales and projected sales in one of our businesses which operates primarily in the residential housing market. We also performed a recoverability test with respect to the assets of both of our entities that incurred goodwill or other intangible asset impairments during the current fiscal year. The tests included the comparison of our estimation of undiscounted future cash flows associated with these businesses to their respective book value as of the date of our annual impairment tests. No impairment losses were required as a result of either of these tests for recoverability.

Deferred Income Taxes

Our provision for income taxes is calculated using the 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, anticipated amounts of foreign source income, as well as the anticipated taxable income resulting from the reversal of future taxable temporary differences.

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We intend to maintain any recorded valuation allowances until sufficient positive evidence (for example, cumulative positive foreign earnings or additional foreign source income) exists to support a reversal of the tax valuation allowances.

Contingencies

We are party to claims and lawsuits arising in the normal course of business, including the various asbestos-related suits discussed in Note F to our financial statements. 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 reasonably estimable. Our provisions are based on historical experience and legal advice, reviewed quarterly and adjusted according to developments. Estimating probable losses requires the analysis of multiple forecasted 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. Due to the inherent uncertainties in the process undertaken to estimate potential losses, we are unable to estimate an additional range of loss in excess of our accruals. While it is reasonably possible that such excess liabilities, if they were to occur, could be material to operating results in any given quarter or year of their recognition, we do not believe that it is reasonably possible that such excess liabilities would have a material adverse effect on our long-term results of operations, liquidity or consolidated financial position.

Our environmental-related accruals are similarly establishedand/or adjusted as more information becomes available upon which costs can be reasonably estimated. Here again, 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 and, 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. We have also purchased insurance to cover potential environmental liabilities at certain sites. If the indemnifying or insuring party fails to, or becomes unable to, fulfill its obligations under those agreements or policies, 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.

Several of our industrial businesses offer extended warranty terms and related programs, and thus have established a corresponding warranty liability. Warranty expense is impacted by variations in local construction practices and installation conditions, including geographic and climate differences.

Additionally, our operations are subject to various federal, state, local and foreign tax laws and regulations which govern, among other things, taxes on worldwide income. The calculation of our income tax expense is based on the best information available and involves our significant judgment. The actual income tax liability for each jurisdiction in any year can be, in some instances, determined ultimately several years after the financial statements have been published.

We 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 can also be affected by changes in applicable tax laws or other factors, which may cause us to believe a revision of past estimates is appropriate. We believe that appropriate liabilities have been established for income tax exposures; however, actual results may differ materially from our estimates.

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, past experience and 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.

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Inventories

Inventories are stated at the lower of cost or market, cost being determined on afirst-in, first-out (FIFO) basis and market being determined on the basis of replacement cost or net realizable value. 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 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 operating income in the period in which the unrealized losses are deemed other than temporary. In order to determine whether another-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, 2009 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
	1% Increase			1% Decrease			1% Increase			1% Decrease
	(In millions)
Discount Rate
Increase (decrease) in expense in FY 2009	$	(2.9	)	$	2.9		$	(1.8	)	$	2.0
Increase (decrease) in obligation as of May 31, 2009	$	(19.5	)	$	21.2		$	(12.4	)	$	15.8
Expected Return on Plan Assets
Increase (decrease) in expense in FY 2009	$	(1.5	)	$	1.5		$	(1.0	)	$	1.0
Increase (decrease) in obligation as of May 31, 2009	$	N/A		$	N/A		$	N/A		$	N/A
Compensation Increase
Increase (decrease) in expense in FY 2009	$	2.6		$	(2.3	)	$	0.9		$	(0.8	)
Increase (decrease) in obligation as of May 31, 2009	$	10.1		$	(8.9	)	$	3.3		$	(2.9	)

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Based upon May 31, 2009 information, the following tables reflect the impact of a 1% change in the key assumptions applied to our various postretirement health care plans:

	U.S.						International
	1% Increase			1% Decrease			1% Increase			1% Decrease
	(In millions)
Discount Rate
Increase (decrease) in expense in FY 2009	$	—		$	—		$	(0.2	)	$	0.3
Increase (decrease) in obligation as of May 31, 2009	$	(0.7	)	$	0.8		$	(1.1	)	$	1.4
Healthcare Cost Trend Rate
Increase (decrease) in expense in FY 2009	$	—		$	—		$	0.1		$	(0.3	)
Increase (decrease) in obligation as of May 31, 2009	$	0.5		$	(0.4	)	$	1.4		$	(1.1	)

REPORTABLE SEGMENT INFORMATION

Our business is divided into two reportable segments: the industrial reportable segment and the consumer reportable segment. Within each reportable segment, we aggregate several operating segments that consist of individual 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 five operating segments represent components of our business for which separate financial information is available that is utilized on a regular basis by our chief executive officer in determining how to allocate the assets of the Company and evaluate performance. These five operating segments are each managed by an operating segment manager, who is responsible for theday-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 gross profit, and, to a lesser extent, income (loss) 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 corporate acquisitions, as opposed to segment operations. Over the past several years, a number of product lines included within our RPM II/Consumer Group were either sold to third-parties or reassigned to other operating segments within our consumer reportable segment to better align with how management views our business. After a comprehensive review and analysis of the remaining product lines in the RPM II/Consumer Group and the current customer base and markets served, it was determined that these remaining businesses are more appropriately accounted for in our RPM II/Industrial Group. Total net sales for these businesses approximated 3.0% of consolidated net sales for the quarter and six month periods ended November 30, 2008. The financial statements and notes contained herein reflect the reclassification of these product lines to the RPM II/Industrial Group for all periods presented.

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. This reportable segment comprises three separate operating segments — our Building Solutions Group, Performance Coatings Group, and RPM II/Industrial Group. Products and services within this reportable segment include construction chemicals; roofing systems; weatherproofing and other sealants; polymer flooring; wood stains; edible coatings and specialty glazes for pharmaceutical, cosmetic and food industries; and other specialty chemicals.

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. Consumer segment products are sold throughout North America directly to mass merchants, home improvement centers, hardware stores, paint stores, craft shops and to other smaller customers through distributors. This reportable segment comprises two operating segments — our DAP Group and our Rust-Oleum Group. Products within this reportable segment include specialty, hobby and professional paints; caulks; adhesives; silicone sealants; and wood stains.

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In addition to our two 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 either reportable segment. Assets related to the corporate/other category consist primarily of investments, prepaid expenses, deferred pension assets, 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.

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.

	Quarter Ended						Six Months Ended
	November 30,			November 30,			November 30,			November 30,
	2009			2008			2009			2008
	(In thousands)
Net Sales
Industrial Segment	$	613,495		$	652,735		$	1,237,523		$	1,377,810
Consumer Segment		245,163			237,230			537,088			497,620
Consolidated	$	858,658		$	889,965		$	1,774,611		$	1,875,430
Gross Profit
Industrial Segment	$	266,576		$	276,348		$	542,951		$	580,332
Consumer Segment		96,635			80,378			214,090			179,983
Consolidated	$	363,211		$	356,726		$	757,041		$	760,315
Income (Loss) Before Income Taxes(a)
Industrial Segment
Income Before Income Taxes(a)	$	73,921		$	70,996		$	158,747		$	165,073
Interest (Expense), Net		(258	)		(7	)		(368	)		(36	)
EBIT(b)	$	74,179		$	71,003		$	159,115		$	165,109
Consumer Segment
Income Before Income Taxes(a)	$	31,828		$	14,515		$	82,076		$	44,939
Interest (Expense), Net		(3	)		(1,105	)		(9	)		(2,477	)
EBIT(b)	$	31,831		$	15,620		$	82,085		$	47,416
Corporate/Other
(Expense) Before Income Taxes(a)	$	(25,505	)	$	(25,161	)	$	(51,651	)	$	(49,349	)
Interest (Expense), Net		(12,354	)		(16,282	)		(23,941	)		(25,467	)
EBIT(b)	$	(13,151	)	$	(8,879	)	$	(27,710	)	$	(23,882	)
Consolidated
Income (Loss) Before Income Taxes(a)	$	80,244		$	60,350		$	189,172		$	160,663
Interest (Expense), Net		(12,615	)		(17,394	)		(24,318	)		(27,980	)
EBIT(b)	$	92,859		$	77,744		$	213,490		$	188,643

(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)	EBIT 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

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interest expense is essentially related to corporate 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, operating income as determined in accordance with GAAP, since EBIT omits the impact of interest and taxes in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness and ongoing tax obligations. 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

Three Months Ended November 30, 2009

Net Sales

On a consolidated basis, net sales of $858.7 million for the second quarter ended November 30, 2009 declined 3.5%, or $31.3 million, over net sales of $890.0 million during the same period last year. The organic decline in sales amounted to 4.3%, or $38.0 million, of the shortfall in net sales over the prior year’s second quarter result, which includes volume-related declines approximating 7.1% or $63.4 million, offset partially by the combined impact of net favorable foreign exchange ratesyear-over-year, which amounted to 2.2%, or $19.7 million and pricing initiatives representing 0.6% of the prior period sales, or $5.7 million. These pricing initiatives, including those across both of our reportable segments, were instituted primarily during prior periods in order to offset the escalated costs of many of our raw materials. Foreign exchange gains resulted from the weak dollar against nearly all major foreign currencies, with the majority of the gains resulting from the stronger euro and Canadian dollar. Five small acquisitions over the past year provided 0.8% of sales growth over last year’s second quarter, or $6.7 million.

Industrial segment net sales, which comprised 71.4% of the current quarter’s consolidated net sales, totaled $613.5 million, a decline of 6.0% from $652.7 million during last year’s second quarter. This segment’s net sales decline resulted primarily from an overall decline in organic sales, which accounted for a 7.0% decline over prior year second quarter sales. That 7.0% decline included volume declines approximating 9.8%, offset partially by a gain of 2.5% from net favorable foreign exchange differences and an increase of 0.3% as a result of prior period price increases. Five small acquisitions provided 1.0% growth over the prior year second quarter. The pure unit organic sales decline in the industrial segment resulted primarily from declines in most of our industrial product lines, especially as a result of deterioration in the domestic commercial construction market. A few of our industrial segment product lines, including fluorescent pigments and polymer flooring products, continued to grow organic sales during the quarter. Despite the impact of the continuing weak economic environment on certain sectors of our domestic commercial construction markets, which we expect will continue for the remainder of fiscal 2010, we expect more favorable comparisons in this segment in the second half of the current fiscal year. We continue to secure new business through strong brand offerings, new product innovations and international expansion.

Consumer segment net sales, which comprised 28.6% of the current quarter’s consolidated net sales, increased by 3.3% to $245.2 million from $237.3 million during last year’s second quarter. The improvement in this segment was purely organic, including unit volume growth approximating 0.2%, combined with the impact of prior period price increases, which provided 1.6%, in addition to the impact of net favorable foreign exchange rates for approximately 1.5%. The organic sales volume improvement reflects the success of several new product introductions and stabilized market demand for consumer repair and maintenance products. Our consumer segment continues to increase market penetration at major retail accounts with various new product launches and broader channel penetration, while also maintaining a focus on our existing repair and maintenance oriented products.

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Gross Profit Margin

Our consolidated gross profit improved to 42.3% of net sales this quarter from 40.1% of net sales for the same period a year ago, despite our overall lower overhead absorption resulting from a 7.1% decline in organic sales volume. Theyear-over-year impact of lower raw material costs provided a benefit of approximately 320 basis points (“bps”) to the current quarter’s gross profit margin, reflectingyear-over-year declines in energy costs and demand for raw materials. However, while these costs were lower versus the prior year second quarter, we experienced broad upward pressure in our raw material costs in comparison to our recently completed first fiscal quarter. We have faced historically higher petroleum based input costs since 2005, which has in turn put sustained pressure on our gross margins. Historically higher material costs were driven by certain key factors, including greater divergence of natural gas versus oil prices that drove more refining of the comparatively lower cost natural gas, which in turn reduced the availability of certain oil-derived residual byproducts such as propylene monomer. In addition, the increased refinery use of cokers resulted in reduced availability of residual byproducts such as asphalt and some suppliers have idled capacity to offset reduced demand. Other factors impacting our current quarter gross profit margin were pricing, which favorably impacted our gross profit margin by approximately 40 bps, offset by an unfavorable mix of product sold versus the same period last year, which approximated 140 bps.

Our industrial segment gross profit for the second quarter of fiscal 2010 improved by 120 bps, to 43.5% of net sales from last year’s second quarter result of 42.3% of net sales. Contributing to this improvement was the combination of declines in certain raw material costs, which had a favorable impact of approximately 260 bps, and relatively higher selling prices, as discussed previously in conjunction with our consolidated results, which contributed approximately 20 bps during the quarter. Lower labor costs related to the reduction in force that was initiated during the prior fiscal year had a favorable impact on this segment’s current quarter gross margin by approximately 40 bps versus the same period a year ago. This segment’s sales volume decline of 9.8% translated into an unfavorable impact on gross margins during the current quarter of approximately 30 bps, while increased overhead and mix of sales during the current quarter were unfavorable by approximately 170 bps versus last year’s second quarter.

Our consumer segment gross profit for the quarter improved by approximately 550 bps to 39.4% of net sales from 33.9% of net sales for the same period last year, mainly as a result of the 470 bps impact of lower raw material costs during the current fiscal quarter versus the same period a year ago, combined with prior period price increases which contributed approximately 100 bps, and improved operating leverage at many of our plants attributable to our prior year cost reduction initiatives, which provided approximately 130 bps. Although the price increases were favorable on aquarter-over-quarter basis, our pricing still has not recaptured the significant raw material cost increases we have incurred since 2005, as discussed in conjunction with the discussion of our consolidated gross profit margin above. The remaining 150 bps decline in the consumer segment’s gross profit margin during the current quarter is a result of this segment’s slightly unfavorable mix of sales during the current quarter versus the same period a year ago.

Selling, General and Administrative Expenses (“SG&A”)

Our consolidated SG&A increased slightly to 31.5% of net sales for the current quarter compared with 31.4% a year ago. The 10 bps increase in SG&A as a percent of sales primarily reflects the impact of the overall unit volume decline in net sales on this margin, as overall SG&A expense declined during the current fiscal quarter compared with the same period a year ago. While there were unfavorable increases in employee benefit and warranty expenses during the current quarter versus last year’s second quarter, there were favorable declines in distribution expenses, advertising and other promotional expenses, and bad debt expense, in addition to favorable adjustments to certain environmental accruals versus prior year levels. While prior year expense reduction initiatives reduced headcount for this year’s second quarter, those gains were offset by higher employee incentives, commissions based on the current quarter’s mix of product sales and other employee benefit related expenses incurred during this year’s second quarter versus the same period a year ago.

Our industrial segment SG&A remained flat at 31.4% of net sales for the current quarter versus the same period last year. This segment’s SG&A margin reflects the impact of unfavorable foreign exchange expense, increased warranty expense and higher commissions on sales resulting from the current quarter product mix offset by the

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favorable impact of the headcount reductions completed during the last half of fiscal 2009, in addition to lower distribution and other lower discretionary selling and marketing expenses, including promotional expense.

Our consumer segment SG&A as a percentage of net sales for the current quarter decreased by 90 bps to 26.4% compared with 27.3% a year ago, primarily reflecting this segment’s sales volume improvement over the same period last year. In addition, there was the combined favorable impact of reductions in this segment’s workforce, which took place during the second half of the prior fiscal year, lower distribution expense versus the same period a year ago, and favorable foreign exchange adjustments. Slightly offsetting those gains was the impact of higher incentives and employee benefit related changes during this year’s second quarter versus the same period a year ago.

SG&A expenses in our corporate/other category increased during the current quarter to $13.2 million from $8.9 million during the corresponding period last year. This $4.3 million increase reflects the combination of higher legal, pension and compensation expenses, including stock based compensation, versus last year’s second fiscal quarter, partially offset by net favorable foreign currency adjustments and lower hospitalization expense. Additionally, we recorded a gain of approximately $1.2 million on early redemption of our convertible debt during the second quarter last year which did not recur in the current period.

License fee and joint venture income of approximately $0.5 million and $0.7 million for each of the quarters ended November 30, 2009 and 2008, respectively, are reflected as reductions of consolidated SG&A expenses.

We recorded total net periodic pension and postretirement benefit costs of $7.7 million and $5.8 million for the quarters ended November 30, 2009 and 2008, respectively. This increased pension expense of $1.9 million was primarily the result of a $1.1 million decline in the expected return on plan assets, combined with approximately $1.0 million of additional net actuarial losses incurred this quarter versus the same period a year ago. A decrease in service costs was partially offset by higher interest expense, for a net favorable impact on pension expense of approximately $0.2 million. We expect that pension expense will fluctuate on ayear-to-year basis, depending primarily upon the investment performance of plan assets and potential changes in interest rates, but such changes are not expected to be material to our consolidated financial results. See Note H, “Pension and Postretirement Health Care Benefits,” for additional information regarding these benefits.

Interest Expense

Interest expense was $14.7 million for the second quarter of fiscal 2010 versus $15.2 million for the same period a year ago. Lower average borrowings, net of additional borrowings for acquisitions, reduced interest expense this quarter by approximately $1.3 million versus last year’s second quarter, while higher average interest rates, which averaged 6.34% overall for the second quarter of fiscal 2010 compared with 5.99% for the same period of fiscal 2009, increased interest expense by approximately $0.8 million during the current quarter versus the same period a year ago.

Investment Expense (Income), Net

Net investment income of $2.1 million during the second quarter of fiscal 2010 compares to fiscal 2009 second quarter net investment expense of $2.2 million. Net realized gains on the sales of investments resulted in a net gain of $0.9 million for the quarter ended November 30, 2009 versus a net loss of $1.6 million for the same period during fiscal 2009. Additionally, while there were no impairments recognized on securities that management has determined areother-than-temporary declines in value during the current fiscal quarter, these losses approximated $2.6 million for the second quarter of fiscal 2009. Finally, dividend and interest income totaling $1.2 million during the current quarter compares with $2.1 million of income during last year’s second quarter.

Income Before Income Taxes (“IBT”)

Our consolidated pretax income for this year’s second quarter of $80.2 million compares with last year’s second quarter pretax income of $60.4 million, for a profit margin on net sales of 9.3% versus 6.8% a year ago.

Our industrial segment had IBT of $73.9 million for this year’s second quarter versus last year’s second quarter IBT of $71.0 million, principally reflecting this segment’s tighter cost controls and the more benign raw material cost environment experienced during the current quarter versus the same period a year ago, despite this segment’s

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7.0% decline in organic sales decline during the quarter versus the same period last year. Our consumer segment IBT improved to $31.8 million for the quarter, from $14.5 million last year, primarily from the 3.3% organic sales improvement during the current quarter versus last year’s second quarter, combined with the benefit of the cost reduction actions completed during the prior fiscal year.

Income Tax Rate

The effective income tax rate was 30.3% for the three months ended November 30, 2009 compared to an effective income tax rate of 30.9% for the three months ended November 30, 2008.

For the three months ended November 30, 2009 and, to a greater extent for the three months ended November 30, 2008, the effective tax rate differed from the federal statutory rate principally due to the impact of certain foreign operations on our U.S. taxes and the effect of lower tax rates in certain of our foreign jurisdictions. These decreases in taxes were partially offset by non-deductible business operating expenses and provisions for valuation allowances associated with losses incurred by certain of our foreign businesses and for foreign tax credit carryforwards.

As of November 30, 2009, we have determined, based on the available evidence, that it is uncertain whether we will be able to recognize certain deferred tax assets. Therefore, we intend to maintain the tax valuation allowances recorded at November 30, 2009 for certain deferred tax assets until sufficient positive evidence (for example, cumulative positive foreign earnings or additional foreign source income) exists to support their reversal. These valuation allowances relate to U.S. foreign tax credit carryforwards, certain foreign net operating losses and net foreign deferred tax assets. A portion of the valuation allowance is associated with deferred tax assets recorded in purchase accounting for prior year acquisitions. A reversal of the valuation allowance that was recorded in purchase accounting may impact earnings.

Net Income

Net income of $55.9 million for the three months ended November 30, 2009 compares to $41.7 million for the same period last year, for a net margin on sales of 6.5% for the current quarter compared to the prior year period’s 4.7% net margin on sales. The improvement in this net marginyear-over-year resulted from the benefit of prior year, aggressive cost reduction initiatives, coupled with a more benign raw material environment versus the prior year second quarter.

Diluted earnings per share of common stock for this year’s second quarter of $0.43 compares with $0.33 a year ago.

Six Months Ended November 30, 2009

Net Sales

On a consolidated basis, net sales of $1.8 billion for the six months ended November 30, 2009 declined 5.4%, or $100.8 million, over net sales of $1.9 billion during the same period last year. The organic decline in sales amounted to 6.0%, or $112.6 million, of the shortfall in net sales versus the same period a year ago, which includes volume-related declines approximating 5.8% or $109.9 million, and the impact of net unfavorable foreign exchange ratesyear-over-year, which amounted to 1.0%, or $18.4 million, offset partially by favorable pricing initiatives representing 0.8% of the prior period sales, or $15.7 million. These favorable pricing initiatives, including those across both of our reportable segments, were instituted primarily during prior periods in order to offset the escalated costs of many of our raw materials. Foreign exchange losses resulted from the strong dollar against nearly all major foreign currencies, with the majority of the losses resulting from the weaker euro, Canadian dollar and Latin American currencies. Five small acquisitions over the past year provided 0.6% of sales growth over last year’s first six months, or $11.8 million.

Industrial segment net sales, which comprised 69.7% of consolidated net sales for this year’s first six months, totaled $1.2 billion, a decline of 10.2% from $1.4 billion during last year’s first half. This segment’s net sales decline resulted primarily from an overall decline in organic sales, which accounted for a decline of 11.1% from prior year first half sales levels. That 11.1% decline included a 1.1% decline resulting from net unfavorable foreign exchange

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differences and volume declines approximating 10.5%, offset partially by an increase of 0.5% from prior period price increases. Five small acquisitions provided 0.9% growth over the prior year first half.

Consumer segment net sales, which comprised 30.3% of consolidated net sales for this year’s first six months, totaled $537.1 million, an increase of 7.9% from $497.6 million during last year’s first six months. The improvement in this segment was purely organic, including unit volume growth approximating 6.9%, combined with the impact of prior period price increases, which provided 1.7%, offset partially by the impact of net unfavorable foreign exchange rates for approximately 0.7%.

Gross Profit Margin

Our consolidated gross profit improved to 42.7% of net sales this first half from 40.5% of net sales for the same period a year ago, despite our overall lower overhead absorption resulting from a 5.8% decline in organic sales volume. Raw material costs, which were lower versus the first six months of fiscal 2009, positively impacted the current period’s gross profit margin by approximately 210 bps, reflecting the impact ofyear-over-year declines in energy costs and demand for raw materials, which had previously put upward cost pressure on many of our raw material, packaging and freight costs. Pricing favorably impacted our gross profit margin by approximately 50 bps. The remaining 40 bps decline in gross profit margin resulted primarily from a combination of unfavorable product mix and lower sales volume during the current period versus the same period a year ago.

Our industrial segment gross profit for the first half of fiscal 2010 increased by 180 bps, to 43.9% of net sales from last year’s first half result of 42.1% of net sales. Declines in certain raw material costs had a favorable impact of approximately 180 bps, while relatively higher selling prices, as discussed previously in conjunction with our consolidated results, contributed an additional favorable impact which approximated 30 bps during the first six months of the current fiscal year. The industrial segment’s 11.1% decline in organic sales unfavorably impacted this segment’s gross margin, along with an unfavorable mix of sales and increased overhead expense, however, these higher expenses were partially offset by a decline in labor expenses, for a net unfavorable impact on this segment’s gross margin by approximately 30 bps during the current period versus the same period a year ago.

Our consumer segment gross profit for the first six months improved by approximately 370 bps to 39.9% of net sales from 36.2% of net sales for the same period last year, mainly as a result of the 280 bps favorable impact of lower raw material costs combined with favorable price increases and improved operating leverage at many of our plants attributable to our prior year cost reduction initiatives approximating 100 bps. Although the price increases were favorable on ayear-over-year basis, our pricing has not recaptured the significant raw material cost increases we have incurred over the past several years, as outlined in conjunction with the discussion of our consolidated gross profit margin above. The consumer segment’s gross profit margin during the current period was unfavorably impacted by a less profitable mix of sales during the current year’s first half versus the same period a year ago.

Selling, General and Administrative Expenses (“SG&A”)

Our consolidated SG&A increased to 30.7% of net sales for the first half compared with 30.4% a year ago. The 30 bps increase in SG&A as a percent of sales primarily reflects the impact of the 5.8% unit volume decline in net sales, combined with additional bad debt, warranty, hospitalization and pension expense. Partially offsetting these higher expenses was the combined impact of the prior year expense reduction initiatives, which reduced compensation expense during this year’s first half, combined with favorable foreign exchange adjustments and lower distribution expenses versus the same period a year ago.

Our industrial segment SG&A increased to 31.0% of net sales for the first six months from 30.1% for the same period last year, primarily reflecting the impact of the decline in sales volumeyear-over-year, in addition to increased warranty-related expense, unfavorable foreign exchange expense and higher commissions on sales resulting from the current period product mix. Partially offsetting those items was the favorable impact of the headcount reductions completed during the last half of fiscal 2009, in addition to lower distribution and other lower discretionary selling and marketing expenses, including promotional expense.

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Our consumer segment SG&A as a percentage of net sales for the first half decreased by 210 bps to 24.6% compared with 26.7% a year ago, primarily reflecting the favorable margin impact of the sales volume improvement in this segment, in addition to prior year reductions in this segment’s workforce, lower distribution expense and the impact of favorable foreign exchange adjustments. These gains were partially offset by higher bad debt expense and higher compensation expense, including commissions on higher sales volumes, during the current year’s first six months versus the same period a year ago.

SG&A expenses in our corporate/other category increased during the first six months to $27.7 million from $23.9 million during the corresponding period last year. This $3.8 million increase essentially reflects the combination of higher legal, pension and employee incentive expenses during the current period versus last year’s first six months.

License fee and joint venture income of approximately $1.5 million for each of the six month periods ended November 30, 2009 and 2008 are reflected as reductions of consolidated SG&A expenses.

We recorded total net periodic pension and postretirement benefit costs of $15.0 million and $11.4 million for the first six months ended November 30, 2009 and 2008, respectively. This increased pension expense of $3.6 million was primarily the result of a $2.2 million decline in the expected return on plan assets, combined with $1.7 million of additional net actuarial losses incurred this first half versus the same period a year ago. Lower service costs were partially offset by higher interest costs, for a net favorable impact on pension expense of approximately $0.3 million. We expect that pension expense will fluctuate on ayear-to-year basis, depending primarily upon the investment performance of plan assets and potential changes in interest rates, but such changes are not expected to be material to our consolidated financial results. See Note H, “Pension and Postretirement Health Care Benefits,” for additional information regarding these benefits.

Interest Expense

Interest expense was $27.5 million for the first six months of fiscal 2010 versus $30.0 million for the same period a year ago. Lower average borrowings, net of additional borrowings for acquisitions, reduced interest expense this first half by approximately $2.6 million versus last year’s first half. Higher interest rates, which averaged 5.75% overall for the first half of fiscal 2010 compared with 5.73% for the same period of fiscal 2009, increased interest expense by approximately $0.1 million versus last year’s first half.

Investment Expense (Income), Net

Net investment income of $3.2 million during the first half of fiscal 2010 compares to fiscal 2009 first half net investment income of $2.0 million. Net realized gains on the sales of investments resulted in a net gain of $0.9 million for the first six months ended November 30, 2009 versus a net gain of $1.3 million for the same period during fiscal 2009. Additionally, impairments recognized on securities that management has determined areother-than-temporary declines in value approximated $0.1 million for the first half of fiscal 2010, versus $3.4 million for the same period a year ago. Dividend and interest income totaling $2.4 million during the first half compares with $4.1 million of income during last year’s first half.

Income Before Income Taxes (“IBT”)

Our consolidated pretax income for this year’s first six months of $189.2 million compares with last year’s first six months pretax income of $160.7 million, for a profit margin on net sales of 10.7% versus 8.6% a year ago.

Our industrial segment had IBT of $158.7 million for this year’s first half versus last year’s first half IBT of $165.1 million, principally reflecting this segment’s 10.5% decline in organic unit sales volume during this year’s first half. Our consumer segment IBT improved to $82.1 million for the period, from $44.9 million last year, primarily from the 7.1% organic sales improvement during this year’s first half combined with the impact of the prior year reductions in this segment’s workforce.

Income Tax Rate

The effective income tax rate was 31.9% for the six months ended November 30, 2009 compared to an effective income tax rate of 30.8% for the six months ended November 30, 2008.

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For the six months ended November 30, 2009 and, to a greater extent for the six months ended November 30, 2008, the effective tax rate differed from the federal statutory rate principally due to the impact of certain foreign operations on our U.S. taxes and the effect of lower tax rates in certain of our foreign jurisdictions. These decreases in taxes were partially offset by non-deductible business operating expenses and provisions for valuation allowances associated with losses incurred by certain of our foreign businesses and for foreign tax credit carryforwards.

As described in this Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three month period ended November 30, 2009, there is uncertainty as to whether we will be able to recognize certain deferred tax assets. Refer to the section captioned, “Three Months Ended November 30, 2009 — Income Tax Rate,” for further information.

Net Income

Net income of $128.9 million for the six months ended November 30, 2009 compares to $111.2 million for the same period last year, for a net margin on sales of 7.3% for this year’s first half compared to the prior year period’s 5.9% net margin on sales. The improvement in this net marginyear-over-year resulted from the benefit of prior year, aggressive cost reduction initiatives, coupled with a more benign raw material environment versus the prior year first half.

Diluted earnings per share of common stock for this year’s first half of $1.00 compares with $0.86 a year ago.

LIQUIDITY AND CAPITAL RESOURCES

Cash Flows From:

Operating Activities

Operating activities provided cash flow of $184.7 million during the first six months of the current fiscal year compared with $104.0 million during the same period of fiscal 2009.

The net improvement in cash from operations includes the change in net income, adjusted for non-cash expenses and income, which increased by approximately $27.4 million versus last year, in addition to changes in working capital accounts and other accruals. The current period decrease in accounts receivable since May 31, 2009 provided cash of $59.7 million versus the $212.1 million of cash generated from collections on accounts receivable during the same period last year, or approximately $152.4 million less cash provided year over year. While our collections of accounts receivable have improved, the cash collected during this year’s first half was less than last year’s first half as a result of the relatively lower accounts receivable balance of May 31, 2009 versus May 31, 2008. Inventory balances required the use of $26.4 million of cash during this year’s first half, compared with a use of cash of $15.6 million during last year’s first half, or $10.8 million more cash used year over year. With regard to accounts payable, we used $83.0 million less cash during this year’s first half compared to the same period a year ago, as a result of a change in the timing of certain payments and lower sales volumes during the current period versus the same period a year ago. Accrued compensation and benefits used approximately $40.0 million less cash versus the prior year period, due to lower bonus payments made during this year’s first half versus the same period a year ago, while other accruals, including those for other short-term and long-term items, provided $80.7 million more in cash versus last year’s first half, due to changes in the timing of such payments.

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, to expand capacity and to enhance our administration capabilities. Capital expenditures of $8.3 million during this year’s first half compare with depreciation of $31.1 million. Capital spending is expected to continue to trail depreciation expense at least through the end of the current fiscal year. Due to additional capacity, which has been brought on-line over the last several years, we believe there is adequate production capacity to meet our needs based on anticipated growth rates. Any additional capital expenditures made over the next few years will likely relate primarily to new products and technology. We presently anticipate that

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additional shifts at our production facilities will enable us to meet increased demand during the current fiscal year even with these lower levels of capital spending.

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 ayear-over-year basis are primarily attributable to differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At November 30, 2009, the fair value of our investments in marketable securities totaled $98.1 million, of which investments with a fair value of $9.5 million were in an unrealized loss position. At May 31, 2009, the fair value of our investments in marketable securities totaled $83.3 million, of which investments with a fair value of $43.6 million were in an unrealized loss position. Total pre-tax unrealized losses recorded in accumulated other comprehensive income at November 30, 2009 and May 31, 2009 were $0.5 million and $3.8 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 November 30, 2009 were generally related to the volatility in valuations over the last several months for a portion of our portfolio of investments in marketable securities. The unrealized losses generally relate to investments whose fair values at November 30, 2009 were less than 15% below their original cost or have been in a loss position for less than six consecutive months. Although we have begun to see recovery in general economic conditions, if we were to experience continuing or significant unrealized losses within our portfolio of investments in marketable securities in the future, we may recognize additionalother-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.

Financing Activities

On October 9, 2009, we sold $300.0 million aggregate principal amount of 6.125% Notes due 2019 (the “Notes”). The net proceeds from the offering of the Notes were used to repay $163.7 million in principal amount of our unsecured notes due October 15, 2009, and approximately $120.0 million in principal amount of short-term borrowings outstanding under our accounts receivable securitization program. The balance of the net proceeds was used for general corporate purposes.

On April 7, 2009, we replaced our existing $125.0 million accounts receivable securitization program, which was set to expire on May 7, 2009, with a new, three-year, $150.0 million accounts receivable securitization program (the “AR program”). The AR program, which was established with two banks for certain of our subsidiaries (“originating subsidiaries”), contemplates that the originating subsidiaries will sell certain of their accounts receivable to RPM Funding Corporation, a wholly-owned special purpose entity (“SPE”), which will then transfer undivided interests in such receivables to the participating banks. Once transferred to the SPE, such receivables are owned in their entirety by the SPE and are not available to satisfy claims of our creditors or creditors of the originating subsidiaries until the obligations owing to the participating banks have been paid in full. The transactions contemplated by the AR program do not constitute a form of off-balance sheet financing and will be fully reflected in our financial statements. Entry into the AR program increased our liquidity by $25.0 million, but also increased our financing costs due to higher market rates. The amounts available under the AR program are subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the underlying accounts receivable, and therefore at certain times we may not be able to fully access the $150.0 million of funding available under the AR program. At November 30, 2009, approximately $112.1 million was available under this AR program.

On February 20, 2008 we issued and sold $250.0 million of 6.50% Notes due February 15, 2018. The proceeds were used to repay our $100.0 million Senior Unsecured Notes due March 1, 2008, the outstanding principal under our $125.0 million accounts receivable securitization program and $19.0 million in short-term borrowings under our revolving credit facility. This financing strengthened our credit profile and liquidity position, as well as lengthened the average maturity of our outstanding debt obligations.

On December 29, 2006, we replaced our $330.0 million revolving credit facility with a $400.0 million five-year credit facility (the “Credit Facility”). The Credit Facility is used for working capital needs and general

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corporate purposes, including acquisitions. The Credit Facility provides for borrowings in U.S. dollars and several foreign currencies and provides sublimits for the issuance of letters of credit in an aggregate amount of up to $35.0 million and a swing-line of up to $20.0 million for short-term borrowings of less than 15 days. In addition, the size of the Credit Facility may be expanded, subject to lender approval, upon our request by up to an additional $175.0 million, thus potentially expanding the Credit Facility to $575.0 million.

On May 29, 2009, we entered into an amendment to our Credit Facility agreement with our lenders. Under the amendment, we are required to comply with various customary affirmative and negative covenants. These include financial covenants requiring us to maintain certain leverage and interest coverage ratios. The definition of EBITDA has been amended to add back the sum of all (i) non-cash charges relating to the write-down or impairment of goodwill and other intangibles during the applicable period, (ii) other non-cash charges up to an aggregate of $25.0 million during such applicable period and (iii) one-time cash charges incurred during the period from June 1, 2008 through May 31, 2010, but only up to an aggregate of not more than $25.0 million during such applicable period. The interest coverage ratio is calculated at the end of each fiscal quarter for the four fiscal quarters then ended. The minimum required consolidated interest coverage ratio, EBITDA to interest expense, remains 3.50 to 1 under the amendment, but allowance of the add-backs referred to above has the effect of making this covenant less restrictive. Under the terms of the leverage covenant, we may not permit our consolidated indebtedness at any date to exceed 55% of the sum of such indebtedness and our consolidated shareholders’ equity on such date, and may not permit the indebtedness of our domestic subsidiaries (determined on a combined basis and excluding indebtedness to us and indebtedness incurred pursuant to permitted receivables securitizations) to exceed 15% of our consolidated shareholders’ equity. This amendment also added a fixed charge coverage covenant beginning with our fiscal quarter ended August 31, 2009. Under the fixed charge coverage covenant, the ratio of our consolidated EBITDA for any four-fiscal-quarter-period to the sum of our consolidated interest expense, income taxes paid in cash (other than taxes on non-recurring gains), capital expenditures, scheduled principal payments on our amortizing indebtedness (other than indebtedness scheduled to be repaid at maturity) and dividends paid in cash (or, for testing periods ending on or before May 31, 2010, 70% of dividends paid in cash), in each case for such four-fiscal-quarter period, may not be less than 1.00 to 1. This amendment also included a temporary, one-year restriction on certain mergers, asset dispositions and acquisitions, and contains customary representations and warranties.

We are subject to the same leverage, interest coverage and fixed charge coverage covenants under the AR program as those contained in our Credit Facility. On May 29, 2009, we also entered into an amendment to our AR program. Included in the amendment were the same amendments to the definition of EBITDA, an identical reduction in the maximum consolidated leverage ratio and the same fixed charge coverage covenants as were included in our Credit Facility amendment, as outlined above.

Our failure to comply with these and other covenants contained in the Credit Facility may result in an event of default under that agreement, entitling the lenders to, among other things, declare the entire amount outstanding under the 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 Credit Facility will entitle the holders of such other indebtedness to declare amounts outstanding immediately due and payable.

As of November 30, 2009, we were in compliance with all covenants contained in our Credit Facility, including the leverage, interest coverage ratio and fixed charge coverage covenants. At that date, our leverage ratio was 41.4%, while our interest coverage and fixed charge coverage ratios were 6.48:1 and 1.52:1, respectively. Additionally, in accordance with these covenants, at November 30, 2009, our domestic subsidiaries indebtedness did not exceed 15% of consolidated shareholders’ equity as of that date.

Our access to funds under our Credit Facility is dependent on the ability of the financial institutions that are parties to the 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 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.

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We are exposed to market risk associated with interest rates. We do not use financial derivative instruments for trading purposes, nor do we engage in foreign currency, commodity or interest rate speculation. Concurrent with the issuance of our 6.7% Senior Unsecured Notes, RPM United Kingdom G.P. entered into a cross currency swap, which fixed the interest and principal payments in euros for the life of the 6.7% Senior Unsecured Notes and resulted in an effective euro fixed rate borrowing of 5.31%. In addition to hedging the risk associated with our 6.7% Senior Unsecured Notes, our only other hedged risks are associated with certain fixed debt, whereby we have a $163.7 million notional amount interest rate swap contract designated as a fair value hedge to pay floating rates of interest, based on six-month LIBOR that matures in our fiscal year ending May 31, 2010. Because critical terms of the debt and interest rate swap match, the hedge is considered perfectly effective against changes in fair value of debt, and therefore, there is no need to periodically reassess the effectiveness during the term of the hedge.

Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $853.7 million at November 30, 2009. Ourdebt-to-capital ratio was 41.4% at November 30, 2009, compared with 44.9% May 31, 2009.

During the first quarter of fiscal 2009, we called for redemption all of our outstanding Senior Convertible Notes due May 13, 2033. Prior to the redemption, virtually all of the holders converted their Senior Convertible Notes into shares of our common stock. For additional information, refer to Note K, “Debt,” to the Consolidated Financial Statements.

The following table summarizes our financial obligations and their expected maturities at November 30, 2009 and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.

Contractual Obligations

	Total
	Contractual
	Payment		Payments Due In
	Stream		2010		2011-12		2013-14		After 2014
	(In thousands)
Long-term debt obligations	$	906,225	$	2,940	$	2,178	$	201,538	$	699,569
Capital lease obligations		2,820		546		911		832		531
Operating lease obligations		170,296		38,222		50,214		27,455		54,405
Other long-term liabilities(1):
Interest payments on long-term debt obligations		430,900		55,927		114,202		95,452		165,319
Contributions to pension and postretirement plans(2)		340,400		20,500		61,400		81,500		177,000
Total	$	1,850,641	$	118,135	$	228,905	$	406,777	$	1,096,824

(1)

Excluded from other long-term liabilities is our liability for unrecognized tax benefits, which totaled $4.1 million at November 30, 2009. Currently, we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities.

(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 $10.8 million will be contributed to the U.S. plans in fiscal 2010; all other plans and years assume the required minimum contribution will be contributed.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet financings, other than the minimum operating lease commitments included per the above Contractual Obligations table. We have no subsidiaries that are not included in our financial statements, nor do we have any interests in or relationships with any special purpose entities that are not reflected in our financial statements.

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OTHER MATTERS

Environmental Matters

Environmental obligations continue to be appropriately addressed and, based upon the latest available information, it is not anticipated that the outcome of such matters will materially affect our results of operations or financial condition. Our critical accounting policies and estimates set forth above describe our method of establishing and adjusting environmental-related accruals and should be read in conjunction with this disclosure. For additional information, refer to “Part II, Item 1. Legal Proceedings.”

FORWARD-LOOKING STATEMENTS

The foregoing discussion includes forward-looking statements relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents, and other natural gas and oil based materials; packaging, including plastic 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, including for asbestos-related claims; and (j) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report onForm 10-K for the year ended May 31, 2009, 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.

ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in raw materials costs, interest rates and foreign exchange rates since we fund our operations through long- and short-term borrowings and conduct our business in a variety of foreign currencies. There were no material potential changes in our exposure to these market risks since May 31, 2009.

ITEM 4.   CONTROLS AND PROCEDURES

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.

Our Chief Executive Officer and Chief Financial Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in Exchange ActRule 13a-15(e)) as of November 30, 2009 (the “Evaluation Date”), have concluded that as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that information required to be disclosed by us in the reports we file or submit under the Exchange Act (1) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and (2) is accumulated and communicated to our management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow for timely decisions regarding required disclosure.

(b) CHANGES IN INTERNAL CONTROL.

There were no changes in our internal control over financial reporting that occurred during the fiscal quarter ended November 30, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHER INFORMATION

ITEM 1.   LEGAL PROCEEDINGS

Asbestos Litigation

Certain of our wholly-owned subsidiaries, principally Bondex International, Inc. (collectively referred to as the subsidiaries), are defendants in various asbestos-related bodily injury lawsuits filed in various state courts with the vast majority of current claims pending in six states — Texas, Florida, Maryland, Illinois, Mississippi and Ohio. These cases generally seek unspecified damages for asbestos-related diseases based on alleged exposures to asbestos-containing products previously manufactured by our subsidiaries or others.

As of November 30, 2009, our subsidiaries had a total of 10,531 active asbestos cases, compared to a total of 10,048 cases as of November 30, 2008. For the quarter ended November 30, 2009, our subsidiaries secured dismissalsand/or settlements of 233 cases, compared to a total of 1,824 cases dismissedand/or settled for the quarter ended November 30, 2008. For the six months ended November 30, 2009, our subsidiaries secured dismissalsand/or settlements of 657 cases, compared to a total of 2,025 cases dismissedand/or settled for the six months ended November 30, 2008.

Of the 2,025 cases that were dismissed in the six months ended November 30, 2008, 1,420 were non-malignancies or unknown disease cases that had been maintained on an inactive docket in Ohio and were administratively dismissed by the Cuyahoga County Court of Common Pleas during our second fiscal quarter ended November 30, 2008. These claims were dismissed without prejudice and may be re-filed should the claimants involved be able to demonstrate disease in accordance with medical criteria laws established in the State of Ohio.

For the quarter ended November 30, 2009, our subsidiaries made total cash payments of $18.9 million relating to asbestos cases, which included defense-related payments paid during the quarter of $7.6 million, compared to total cash payments of $16.4 million relating to asbestos cases during the quarter ended November 30, 2008, which included defense-related payments paid during the quarter of $6.1 million. For the six months ended November 30, 2009, our subsidiaries made total cash payments of $37.5 million relating to asbestos cases, which included defense-related payments of $15.1 million, compared to total cash payments of $32.4 million relating to asbestos cases during the six months ended November 30, 2008, which included defense-related payments of $12.8 million.

During the second quarter of fiscal 2009, one payment totaling $3.6 million was made to satisfy an adverse judgment in a previous trial that occurred in calendar 2006 in California. This payment, which included a significant amount of accrued pre-judgment interest as required by California law, was made on December 8, 2008, approximately two and a half years after the adverse verdict and after all post-trial and appellate remedies had been exhausted. Such satisfaction of judgment amounts are not included in incurred costs until available appeals are exhausted and the final payment amount is determined. As a result, the timing and amount of any such payments could have a significant impact on quarterly settlement costs.

Excluding defense-related payments, the average payment made to settle or dismiss a case approximated $48,000 and $6,000 for each of the quarters ended November 30, 2009 and 2008, respectively, and approximated $34,000 and $10,000 for each of the six month periods ended November 30, 2009 and 2008, respectively. As discussed above, there were approximately 1,420 non-malignancies or unknown disease cases that were administratively dismissed during the prior year’s second fiscal quarter. Excluding those dismissed cases, the average payment made to settle or dismiss a case approximated $25,000 for the quarter ended November 30, 2008. The amount and timing of dismissals and settlements can fluctuate significantly from period to period, resulting in volatility in the average cost to resolve a case in any given quarter or year. In addition, in some jurisdictions, cases may involve more than one individual claimant. As a result, settlement or dismissal payments on a per case basis are not necessarily reflective of the payment amounts on a per claimant basis. For example, the average amount paid to settle or dismiss a case can vary widely depending on a variety of factors, including the mix of malignancy and non-malignancy claimants and the amount of defense expenditures incurred during the period.

For additional information on our asbestos litigation, including a discussion of our asbestos related loss contingencies and a discussion of certain of our subsidiaries complaint against certain third-party insurers, see Note F of the Notes to Consolidated Financial Statements.

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EIFS Litigation

As of November 30, 2009, Dryvit, one of our wholly owned subsidiaries, was a defendant or co-defendant in various single family residential exterior insulating finishing systems (“EIFS”) cases, the majority of which are pending in the southeastern region of the country. Dryvit is also defending EIFS lawsuits involving commercial structures, townhouses and condominiums. The vast majority of Dryvit’s EIFS lawsuits seek monetary relief for water intrusion related property damages, although some claims in certain lawsuits allege personal injuries from exposure to mold.

Third-party excess insurers have historically paid varying shares of Dryvit’s defense and settlement costs in the individual commercial and residential EIFS lawsuits under various cost-sharing agreements. Dryvit has assumed a greater share of the costs associated with its EIFS litigation as it seeks funding commitments from our third-party excess insurers and will likely continue to do so pending the outcome of coverage litigation involving these same third-party insurers. This coverage litigation,Dryvit Systems, Inc. et al v. Chubb Insurance Company et al, Case No. CV 05 578004, is pending in the Cuyahoga Court of Common Pleas. As previously reported, all parties filed motions for partial summary judgment in 2008. The motions were filed pursuant to an order entered by the trial court on March 17, 2008, which requested the parties to address the following three issues: (1) whether the policies of Defendants contain a duty to defend; (2) whether the policies contain an obligation to reimburse defense costs; and (3) whether Defendants’ policy obligations are triggered through exhaustion of the underlying coverage.

On November 23, 2009, the trial court filed its Journal Entry ruling upon the parties’ motions for partial summary judgment. The trial court decided issues one and two relating to defense coverage in favor of Chubb and Agricultural. The court ruled that Chubb and Agricultural do not have a duty to pay defense costs under their respective 1995 and 1996 policies. As a result, the trial court denied another Defendant’s motion to dismiss the broker negligence and breach of contract claims asserted by RPM and Dryvit.

With respect to the third issue, the trial court ruled that the 1995 Agricultural policy was not properly exhausted because Agricultural did not pay $10 million in indemnity payments to settle claims. The trial court found that the $5.2 million Agricultural paid for defense costs under its 1995 policy did not reduce its aggregate limit of liability. The trial court also determined that the 1995 Chubb excess policy is not required to pay indemnity for Dryvit EIFS claims at this time.

The trial court’s November 23, 2009 Journal Entry is not a final appealable order. The parties may appeal from the trial court’s ruling after other claims and defenses in the litigation are decided by motion or at trial. It is unclear whether any party will be able to take an interlocutory appeal from the trial court’s Journal Entry. Assuming that there are no interlocutory appeals from the November 23, 2009 Journal Entry, the parties are required by court order to engage in settlement negotiations through private mediation. If the mediation is not successful, the parties will complete discovery which will include discovery on damages and expert witnesses in anticipation of filing additional summary judgment motions and conducting a jury trial.

Environmental Proceedings

In September 2009, the U.S. Environmental Protection Agency, Region III (“EPA Region III”), entered into a Consent Agreement (the “Rust-Oleum Consent Agreement”) with Rust-Oleum Corporation (“Rust-Oleum”) concerning alleged violations by Rust-Oleum of Subtitle C of the Resource Conservation and Recovery Act (“RCRA”) and the State of Maryland’s Hazardous Waste Management Regulations in connection with Rust-Oleum’s facility located at 16410 Industrial Lane, Williamsport, Maryland 21795 (the “Rust- Oleum Facility”). In settlement of EPA Region III’s claims for civil monetary penalties associated with the alleged permitting, storage, management and other violations at the Rust-Oleum Facility, Rust-Oleum has agreed to pay a cash penalty of $147,306.

As previously reported, several of our subsidiaries are, from time to time, identified as a “potentially responsible party” under the federal Comprehensive Environmental Response, Compensation and Liability Act and similar state environmental statutes. In some cases, our subsidiaries are participating in the cost of certainclean-up efforts or other remedial actions. Our share of such costs, however, has not been material and we believe that these environmental proceedings will not have a material adverse effect on our consolidated financial condition

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or results of operations. See “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations — Other Matters,” in Part I of this Quarterly Report onForm 10-Q.

ITEM 1A.   RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the risk factors disclosed in Item 1A of our Annual Report onForm 10-K for the fiscal year ended May 31, 2009.

ITEM 2.   UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS

(c) The following table presents information about repurchases of common stock we made during the second quarter of fiscal 2010:

							Maximum
					Total Number		Number of
					of Shares		Shares that
					Purchased as		May Yet be
					Part of Publicly		Purchased
	Total Number				Announced		Under the
	of Shares		Average Price		Plans or		Plans or
Period	Purchased(1)		Paid per Share		Programs		Programs
September 1, 2009 through September 31, 2009		—		—		—		—
October 1, 2009 through October 31, 2009		100,281	$	17.98		—		—
November 1, 2009 through November 30, 2009		—		—		—		—
Total-Second Quarter		100,281	$	17.98		—		—

(1) All of the shares of common stock reported as purchased in October 2009 are attributable to shares of common stock that were disposed of back to us in satisfaction of tax obligations related to the vesting of restricted stock, which was granted to our Directors and key employees under the RPM International Inc. 2003 Restricted Stock Plan for Directors and 2004 Omnibus Equity Plan.

ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Company previously disclosed the results of the matters voted upon at its Annual Meeting of Stockholders held on October 8, 2009 (the “Annual Meeting”) in a Current Report onForm 8-K filed on October 9, 2009. For the results of the voting at the Annual Meeting, please see the Company’s October 9, 2009Form 8-K.

ITEM 6.   EXHIBITS

Exhibit
Number			Description
	4	.1	Officer’s Certificate and Authentication Order dated October 9, 2009 for the 6.125% Notes due 2019 (which includes the form of Note) issued pursuant to the Indenture dated as of February 14, 2008, between the Company and The Bank of New York Mellon Trust Company, N.A., which is incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K, as filed with the Securities and Exchange Commission on October 9, 2009 (File No. 00-14187)
	31	.1	Rule 13a-14(a) Certification of the Company’s Chief Executive Officer.(x)
	31	.2	Rule 13a-14(a) Certification of the Company’s Chief Financial Officer.(x)
	32	.1	Section 1350 Certification of the Company’s Chief Executive Officer.(x)
	32	.2	Section 1350 Certification of the Company’s Chief Financial Officer.(x)

(x) Filed herewith.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

RPM International Inc.

By:  /s/  Frank C. Sullivan

Frank C. Sullivan

Chairman and Chief Executive Officer

By:  /s/  P. Kelly Tompkins

P. Kelly Tompkins

Executive Vice President and

Chief Financial Officer

Dated: January 6, 2010

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