10-Q 1 rpm-10q_20170228.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended February 28, 2017,

or

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File No. 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; 2628 PEARL ROAD; MEDINA, OHIO (Address of principal executive offices) |  | 44258 (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 ☒ No ☐.

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 of Regulation 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 ☒ No ☐

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” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer |  | ☒ |  | Accelerated filer |  | ☐
Non-accelerated filer |  | ☐ (Do not check if a smaller reporting company.) |  | Smaller reporting company |  | ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒.

As of April 3, 2017 133,573,447 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: |  |
|  | Consolidated Balance Sheets |  | 3
|  | Consolidated Statements of Income |  | 4
|  | Consolidated Statements of Comprehensive Income |  | 5
|  | Consolidated Statements of Cash Flows |  | 6
|  | Notes to Consolidated Financial Statements |  | 7
Item 2. |  | Management’s Discussion and Analysis of Financial Condition and Results of Operations |  | 24
Item 3. |  | Quantitative and Qualitative Disclosures About Market Risk |  | 35
Item 4. |  | Controls and Procedures |  | 35
PART II. OTHER INFORMATION |  |
Item 1. |  | Legal Proceedings |  | 36
Item 1A. |  | Risk Factors |  | 36
Item 2. |  | Unregistered Sale of Equity Securities and Use of Proceeds |  | 37
Item 6. |  | Exhibits |  | 38
Signatures |  | 39

* | 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. – FINANC IAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Unaudited)

(In thousands, except per share amounts)

|  | February 28, 2017 |  |  | May 31, 2016 |
Assets |  |  |  |  |  |  |  |
Current Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 210,796 |  |  | $ | 265,152 |
Trade accounts receivable (less allowances of |  |  |  |  |  |  |  |
$41,357 and $24,600, respectively) |  |  | 788,275 |  |  |  | 963,092 |
Inventories |  |  | 856,461 |  |  |  | 685,818 |
Prepaid expenses and other current assets |  |  | 224,347 |  |  |  | 221,286 |
Total current assets |  |  | 2,079,879 |  |  |  | 2,135,348 |
Property, Plant and Equipment, at Cost |  |  | 1,433,413 |  |  |  | 1,344,830 |
Allowance for depreciation |  |  | (731,279 | ) |  |  | (715,377 | )
Property, plant and equipment, net |  |  | 702,134 |  |  |  | 629,453 |
Other Assets |  |  |  |  |  |  |  |
Goodwill |  |  | 1,133,013 |  |  |  | 1,219,630 |
Other intangible assets, net of amortization |  |  | 579,237 |  |  |  | 575,401 |
Deferred income taxes |  |  | 25,872 |  |  |  | 19,771 |
Other |  |  | 212,084 |  |  |  | 185,366 |
Total other assets |  |  | 1,950,206 |  |  |  | 2,000,168 |
Total Assets |  | $ | 4,732,219 |  |  | $ | 4,764,969 |
Liabilities and Stockholders' Equity |  |  |  |  |  |  |  |
Current Liabilities |  |  |  |  |  |  |  |
Accounts payable |  | $ | 417,730 |  |  | $ | 500,506 |
Current portion of long-term debt |  |  | 383,980 |  |  |  | 4,713 |
Accrued compensation and benefits |  |  | 133,588 |  |  |  | 183,768 |
Accrued losses |  |  | 37,123 |  |  |  | 35,290 |
Other accrued liabilities |  |  | 258,102 |  |  |  | 277,914 |
Total current liabilities |  |  | 1,230,523 |  |  |  | 1,002,191 |
Long-Term Liabilities |  |  |  |  |  |  |  |
Long-term debt, less current maturities |  |  | 1,597,553 |  |  |  | 1,635,260 |
Other long-term liabilities |  |  | 569,859 |  |  |  | 702,979 |
Deferred income taxes |  |  | 48,557 |  |  |  | 49,791 |
Total long-term liabilities |  |  | 2,215,969 |  |  |  | 2,388,030 |
Commitments and contingencies (Note 13) |  |  |  |  |  |  |  |
Stockholders' Equity |  |  |  |  |  |  |  |
Preferred stock, par value $0.01; authorized 50,000 shares; none issued |  |  | - |  |  |  | - |
Common stock, par value $0.01; authorized 300,000 shares; issued 141,220 and outstanding 133,583 as of February 28, 2017; issued 140,195 and outstanding 132,944 as of May 31, 2016 |  |  | 1,336 |  |  |  | 1,329 |
Paid-in capital |  |  | 946,955 |  |  |  | 921,956 |
Treasury stock, at cost |  |  | (216,366 | ) |  |  | (196,274 | )
Accumulated other comprehensive (loss) |  |  | (533,165 | ) |  |  | (502,047 | )
Retained earnings |  |  | 1,084,462 |  |  |  | 1,147,371 |
Total RPM International Inc. stockholders' equity |  |  | 1,283,222 |  |  |  | 1,372,335 |
Noncontrolling Interest |  |  | 2,505 |  |  |  | 2,413 |
Total equity |  |  | 1,285,727 |  |  |  | 1,374,748 |
Total Liabilities and Stockholders' Equity |  | $ | 4,732,219 |  |  | $ | 4,764,969 |

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

3

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

(In thousands, except per share amounts)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Net Sales |  | $ | 1,022,496 |  |  | $ | 988,555 |  |  | $ | 3,465,329 |  |  | $ | 3,387,065 |
Cost of Sales |  |  | 593,923 |  |  |  | 575,593 |  |  |  | 1,963,033 |  |  |  | 1,947,211 |
Gross Profit |  |  | 428,573 |  |  |  | 412,962 |  |  |  | 1,502,296 |  |  |  | 1,439,854 |
Selling, General and Administrative Expenses |  |  | 386,032 |  |  |  | 370,913 |  |  |  | 1,189,611 |  |  |  | 1,096,361 |
Goodwill and Other Intangible Asset Impairments |  |  | 4,900 |  |  |  |  |  |  |  | 193,198 |  |  |  |  |
Interest Expense |  |  | 23,769 |  |  |  | 23,140 |  |  |  | 69,452 |  |  |  | 68,078 |
Investment (Income), Net |  |  | (3,627 | ) |  |  | (2,909 | ) |  |  | (9,881 | ) |  |  | (8,077 | )
Other Expense (Income), Net |  |  | 502 |  |  |  | (88 | ) |  |  | 1,301 |  |  |  | (876 | )
Income Before Income Taxes |  |  | 16,997 |  |  |  | 21,906 |  |  |  | 58,615 |  |  |  | 284,368 |
Provision for Income Taxes |  |  | 4,313 |  |  |  | 2,613 |  |  |  | 2,793 |  |  |  | 80,564 |
Net Income |  |  | 12,684 |  |  |  | 19,293 |  |  |  | 55,822 |  |  |  | 203,804 |
Less: Net Income Attributable to Noncontrolling Interests |  |  | 756 |  |  |  | 711 |  |  |  | 2,051 |  |  |  | 1,974 |
Net Income Attributable to RPM International Inc. Stockholders |  | $ | 11,928 |  |  | $ | 18,582 |  |  | $ | 53,771 |  |  | $ | 201,830 |
Average Number of Shares of Common Stock Outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 130,677 |  |  |  | 129,068 |  |  |  | 130,657 |  |  |  | 129,506 |
Diluted |  |  | 130,677 |  |  |  | 129,068 |  |  |  | 130,657 |  |  |  | 136,848 |
Earnings per Share of Common Stock Attributable to RPM International Inc. Stockholders: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  | $ | 0.09 |  |  | $ | 0.14 |  |  | $ | 0.41 |  |  | $ | 1.53 |
Diluted |  | $ | 0.09 |  |  | $ | 0.14 |  |  | $ | 0.41 |  |  | $ | 1.50 |
Cash Dividends Declared per Share of Common Stock |  | $ | 0.300 |  |  | $ | 0.275 |  |  | $ | 0.875 |  |  | $ | 0.810 |

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

4

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
|  |  | 2017 |  |  |  | 2016 |  |  |  | 2017 |  |  |  | 2016 |
Net Income |  | $ | 12,684 |  |  | $ | 19,293 |  |  | $ | 55,822 |  |  | $ | 203,804 |
Other comprehensive income (loss), net of tax: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | 16,576 |  |  |  | (16,214 | ) |  |  | (46,919 | ) |  |  | (100,634 | )
Pension and other postretirement benefit liability adjustments (net of tax of $1,863; $1,827; $6,626; $5,645, respectively) |  |  | 3,222 |  |  |  | 3,264 |  |  |  | 12,516 |  |  |  | 11,064 |
Unrealized gain (loss) on securities (net of tax of $1,192; $(3,376); $1,968; $(5,971), respectively) |  |  | 2,577 |  |  |  | (7,334 | ) |  |  | 3,286 |  |  |  | (14,049 | )
Total other comprehensive income (loss) |  |  | 22,375 |  |  |  | (20,284 | ) |  |  | (31,117 | ) |  |  | (103,619 | )
Total Comprehensive Income (Loss) |  |  | 35,059 |  |  |  | (991 | ) |  |  | 24,705 |  |  |  | 100,185 |
Less: Comprehensive Income Attributable to Noncontrolling Interests |  |  | 756 |  |  |  | 711 |  |  |  | 2,051 |  |  |  | 1,974 |
Comprehensive Income (Loss) Attributable to RPM International Inc. Stockholders |  | $ | 34,303 |  |  | $ | (1,702 | ) |  | $ | 22,654 |  |  | $ | 98,211 |

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

5

RPM INTERNATIONAL INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

|  | Nine Months Ended |
|  | February 28, |  |  | February 29, |
|  |  | 2017 |  |  |  | 2016 |
Cash Flows From Operating Activities: |  |  |  |  |  |  |  |
Net income |  | $ | 55,822 |  |  | $ | 203,804 |
Adjustments to reconcile net income to net cash provided by (used for) operating activities: |  |  |  |  |  |  |  |
Depreciation |  |  | 53,343 |  |  |  | 49,980 |
Amortization |  |  | 33,497 |  |  |  | 33,151 |
Goodwill and other intangible asset impairments |  |  | 193,198 |  |  |  | - |
Reversal of contingent earnout obligations |  |  | - |  |  |  | (14,500 | )
Deferred income taxes |  |  | (26,996 | ) |  |  | (18,556 | )
Stock-based compensation expense |  |  | 25,005 |  |  |  | 23,000 |
Other non-cash interest expense |  |  | 7,149 |  |  |  | 7,305 |
Realized (gains) on sales of marketable securities |  |  | (5,338 | ) |  |  | (5,438 | )
Other |  |  | 136 |  |  |  | 1,994 |
Changes in assets and liabilities, net of effect from purchases and sales of businesses: |  |  |  |  |  |  |  |
Decrease in receivables |  |  | 190,423 |  |  |  | 179,003 |
(Increase) in inventory |  |  | (143,409 | ) |  |  | (81,837 | )
(Increase) in prepaid expenses and other current and long-term assets |  |  | (26,698 | ) |  |  | (13,347 | )
(Decrease) in accounts payable |  |  | (95,727 | ) |  |  | (133,841 | )
(Decrease) in accrued compensation and benefits |  |  | (50,425 | ) |  |  | (35,202 | )
Increase in accrued losses |  |  | 2,247 |  |  |  | 5,948 |
(Decrease) increase in other accrued liabilities |  |  | (35,135 | ) |  |  | 4,696 |
Other |  |  | (3,613 | ) |  |  | 17,659 |
Cash Provided By Operating Activities |  |  | 173,479 |  |  |  | 223,819 |
Cash Flows From Investing Activities: |  |  |  |  |  |  |  |
Capital expenditures |  |  | (80,110 | ) |  |  | (54,819 | )
Acquisition of businesses, net of cash acquired |  |  | (246,874 | ) |  |  | (28,926 | )
Purchase of marketable securities |  |  | (36,418 | ) |  |  | (21,981 | )
Proceeds from sales of marketable securities |  |  | 36,696 |  |  |  | 18,722 |
Other |  |  | 1,493 |  |  |  | 7,430 |
Cash (Used For) Investing Activities |  |  | (325,213 | ) |  |  | (79,574 | )
Cash Flows From Financing Activities: |  |  |  |  |  |  |  |
Additions to long-term and short-term debt |  |  | 422,521 |  |  |  | 116,578 |
Reductions of long-term and short-term debt |  |  | (78,654 | ) |  |  | (19,419 | )
Cash dividends |  |  | (116,680 | ) |  |  | (107,806 | )
Shares repurchased and returned for taxes |  |  | (20,092 | ) |  |  | (66,765 | )
Payments of acquisition-related contingent consideration |  |  | (4,206 | ) |  |  | (2,006 | )
Payments to 524(g) trust |  |  | (102,500 | ) |  |  |  |
Other |  |  | (2,009 | ) |  |  | (1,239 | )
Cash Provided By (Used For) Financing Activities |  |  | 98,380 |  |  |  | (80,657 | )
Effect of Exchange Rate Changes on Cash and Cash Equivalents |  |  | (1,002 | ) |  |  | (17,587 | )
Net Change in Cash and Cash Equivalents |  |  | (54,356 | ) |  |  | 46,001 |
Cash and Cash Equivalents at Beginning of Period |  |  | 265,152 |  |  |  | 174,711 |
Cash and Cash Equivalents at End of Period |  | $ | 210,796 |  |  | $ | 220,712 |

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

6

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — CONSOLIDATION, NONCONTROLLING INTERESTS AND BASIS OF PRESENTATION

The accompanying unaudited consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the U.S. (“GAAP”) for interim financial information and the instructions to Form 10-Q. In our opinion, all adjustments (consisting of normal, recurring accruals) considered necessary for a fair presentation have been included for the three and nine month periods ended February 28, 2017 and February 29, 2016. For further information, refer to the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended May 31, 2016.

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

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

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

Certain reclassifications have been made to the prior year financial statements to conform to the current year presentation. See Note 2, “New Accounting Pronouncements,” below for discussion relating to the reclassification of deferred debt issuance costs. Also, see Note 15, “Segment Information,” for discussion surrounding the change in composition of operating and reportable segments during fiscal 2017.

NOTE 2 — NEW ACCOUNTING PRONOUNCEMENTS

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers,” which establishes a comprehensive revenue recognition standard for virtually all industries in GAAP. Under the original issuance, the new standard would have applied to annual periods beginning after December 15, 2016, including interim periods therein. However, in August 2015, the FASB issued ASU 2015-14, which extends the standard effective date by one year and includes an option to apply the standard on the original effective date. We are currently reviewing the revised guidance and assessing the potential impacts on each of our different business units’ revenue streams and on our overall Consolidated Financial Statements.

In April 2015, the FASB issued ASU 2015-03, "Interest-Imputation of Interest," which changes the presentation of debt issuance costs in financial statements and specifies that debt issuance costs related to a note shall be reported in the balance sheet as a direct deduction from the face amount of the note. The guidance does not change the current requirements surrounding the recognition and measurement of debt issuance costs, and the amortization of debt issuance costs will continue to be reported as interest expense. The guidance is effective for years and interim periods within those fiscal years beginning after December 15, 2015. Early adoption is allowed for all entities and the new guidance shall be applied to all prior periods retrospectively. We adopted ASU 2015-03 on June 1, 2016. As a result, net deferred debt costs are presented as offsets to the carrying amount of the respective debt on our Consolidated Balance Sheets for each period presented. The net deferred debt costs previously reported in our May 31, 2016 Consolidated Balance Sheet in prepaid expenses and other current assets of $3.0 million and other long-term assets of $8.2 million were reclassified as offsets to long-term debt, less current maturities. There was no impact on our results of operations as a result of our adoption of ASU 2015-03.

In September 2015, the FASB issued ASU No. 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,” which simplifies the treatment of adjustments to provisional amounts recognized in the period for items in a business combination for which the accounting is incomplete at the end of the reporting period. The amendments in this ASU are effective for fiscal years beginning after December 15, 2015 and for interim periods therein. Our adoption of the provisions of ASU 2015-16 beginning on June 1, 2016 did not have a material impact on our Consolidated Financial Statements.

7

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which increases lease transparency and comp arability among organizations. Under the new standard, lessees will be required to recognize all assets and liabilities arising from leases on the balance sheet, with the exception of leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. The new standard requires the recognition and measurement of leases at the beginning of the earliest period presented using a modified retrospective approach, which includes a number of optional practical expedients that entities may elect t o apply. We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which makes a number of changes meant to simplify and improve accounting for share-based payments. The new guidance includes amendments to share-based accounting for income taxes, the related classification in the statement of cash flows and share award forfeiture accounting. ASU 2016-09 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those reporting periods. Early adoption is permitted. We elected to early adopt ASU 2016-09 in the first quarter of fiscal 2017. The primary impact of our adoption was the recognition of excess tax benefits related to equity compensation in our provision for income taxes rather than paid-in capital, which is a change required to be applied on a prospective basis in accordance with the new guidance. Accordingly, we recorded discrete income tax benefits in the consolidated statements of income of $0.2 million and $11.5 million during the three and nine months ended February 28, 2017, respectively, for excess tax benefits related to equity compensation. The corresponding cash flows are reflected in cash provided by operating activities instead of financing activities, as was previously required.

Additionally, under ASU 2016-09, we have elected to continue to estimate equity award forfeitures expected to occur to determine the amount of compensation cost to be recognized in each period. Additional amendments to the accounting for income taxes and minimum statutory withholding tax requirements had no impact on our results of operations. The presentation requirements for cash flows related to employee taxes paid for withheld shares also had no impact to any of the periods presented in our consolidated statements of cash flows since such cash flows have historically been presented as a financing activity.

In August 2016, the FASB issued ASU 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which makes a number of changes meant to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The new guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. Upon adoption, entities must apply the guidance retrospectively to all periods presented. We are currently evaluating the impact this guidance will have on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-01, “Business Combinations: Clarifying the Definition of a Business,” with the objective of adding guidance to assist entities in evaluating whether transactions should be accounted for as acquisitions (disposals) of assets or of businesses. The guidance is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years, with early adoption permitted. We are currently reviewing the impact this revised guidance will have on our Consolidated Financial Statements.

In January 2017, the FASB issued ASU 2017-04, “Simplifying the Test for Goodwill Impairment,” to eliminate Step 2 from the goodwill impairment test in order to simplify the subsequent measurement of goodwill. The guidance is effective for fiscal years beginning after December 15, 2019. Early application is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. Adoption of this guidance is not expected to have a material impact on our Consolidated Financial Statements.

In March 2017, the FASB issued ASU 2017-07, “Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which requires that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. We are currently reviewing the impact this guidance will have on our Consolidated Financial Statements.

8

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 3 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill, by reportable segment, for the nine months ended February 28, 2017 follows:

|  | Industrial |  |  | Specialty |  |  | Consumer |  |  |  |  |
(In thousands) |  | Segment |  |  | Segment |  |  | Segment |  |  | Total |
Balance as of June 1, 2016 |  | $ | 475,355 |  |  | $ | 171,768 |  |  | $ | 572,507 |  |  | $ | 1,219,630 |
Acquisitions |  |  | 39,366 |  |  |  | 3,376 |  |  |  | 30,080 |  |  |  | 72,822 |
Impairment |  |  |  |  |  |  |  |  |  |  | (140,456 | ) |  |  | (140,456 | )
Translation adjustments |  |  | (4,700 | ) |  |  | (1,663 | ) |  |  | (12,620 | ) |  |  | (18,983 | )
Balance as of February 28, 2017 |  | $ | 510,021 |  |  | $ | 173,481 |  |  | $ | 449,511 |  |  | $ | 1,133,013 |

The gross amount of accumulated impairment losses at June 1, 2016 totaled $14.9 million, all of which was recorded during the fiscal year ended May 31, 2009 by our industrial reportable segment. For the nine months ended February 28, 2017, we recognized $140.5 million of preliminary goodwill impairment losses, which was recorded by our consumer reportable segment. At February 28, 2017, accumulated impairment losses totaled $155.4 million.

Other intangible assets as of February 28, 2017 consist of the following major classes:

|  | February 28, 2017 |
|  | Gross Carrying |  |  | Accumulated |  |  | Impairment |  |  | Net Carrying |
(In thousands) |  | Amount |  |  | Amortization |  |  | Charge |  |  | Amount |
Amortized intangible assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Formulae |  | $ | 230,184 |  |  | $ | (126,707 | ) |  | $ | (15,332 | ) |  | $ | 88,145 |
Customer-related intangibles |  |  | 367,024 |  |  |  | (115,255 | ) |  |  | (30,115 | ) |  |  | 221,654 |
Trademarks/names |  |  | 41,948 |  |  |  | (14,567 | ) |  |  |  |  |  |  | 27,381 |
Other |  |  | 37,269 |  |  |  | (20,424 | ) |  |  | (198 | ) |  |  | 16,647 |
Total Amortized Intangibles |  |  | 676,425 |  |  |  | (276,953 | ) |  |  | (45,645 | ) |  |  | 353,827 |
Indefinite-lived intangible assets |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Trademarks/names |  |  | 232,945 |  |  |  |  |  |  |  | (7,535 | ) |  |  | 225,410 |
Total Other Intangible Assets |  | $ | 909,370 |  |  | $ | (276,953 | ) |  | $ | (53,180 | ) |  | $ | 579,237 |

The gross amount of other intangible asset accumulated impairment losses at June 1, 2016 totaled $0.6 million, all of which was recorded during the fiscal year ended May 31, 2009 by our industrial reportable segment. For the three and nine months ended February 28, 2017, we recorded preliminary other intangible asset impairment losses of approximately $4.9 million and $52.6 million, respectively, all of which was recorded by our consumer reportable segment.

As previously reported, we had monitored the performance of our Kirker nail enamel business throughout fiscal 2016. During the third quarter ended February 29, 2016, we reported that performance shortfalls for Kirker were attributable to a delay in new business. We performed our annual goodwill impairment analysis during the fourth quarter of fiscal 2016, which resulted in an excess of fair value over carrying value of 8% for our Kirker reporting unit. During our first quarter ended August 31, 2016, we reported that while Kirker’s first quarter results were below the comparable prior year period, their performance was in line with expectations, and our assessment of the Kirker business did not indicate the presence of any goodwill impairment triggering events.

For the quarter ended November 30, 2016, we identified certain factors that we considered important in assessing the requirement to perform an interim impairment evaluation for our Kirker reporting unit. First, Kirker’s three month operating results for the period ended November 30, 2016 were significantly below historical and expected operating results and downward adjustments were recently made regarding our expectations for Kirker’s performance. In the quarter ended November 30, 2016, Kirker experienced market share losses at several key customers, including the loss of its largest customer, which accounted for over 15% of Kirker’s fiscal 2016 sales. In addition, some problematic customer relationship issues surfaced during the quarter ended November 30, 2016, which resulted in a personnel change in a key leadership position at Kirker. After considering the totality of these recent events, we determined that an interim step one goodwill impairment assessment was required, as well as an impairment assessment for our intangible and other long-lived assets. Our testing resulted in the preliminary impairment charges reflected above for goodwill and other intangible assets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Our goodwill i mpairment assessment included estimating the fair value of our Kirker reporting unit and comparing it with its carrying amount at November 30, 2016. Since the carrying amount of Kirker exceeded its fair value, additional steps were required to determine a nd recognize a preliminary impairment loss. Calculating the fair value of a reporting unit requires our significant use of estimates and assumptions, which are generally considered Level 3 inputs based on our review of the fair value hierarchy. We estimate d the fair value of our Kirker reporting unit by applying a discounted future cash flow calculation to Kirker’s projected earnings before interest, taxes, depreciation and amortization (“EBITDA”). In applying this methodology, we relied on a number of fact ors, including actual and forecasted operating results and market data for the nail enamel industry. Discounted cash flow calculations represent a common measure used to value and buy or sell businesses in our industry. The discounted cash flow used in t he goodwill impairment test for Kirker assumed discrete period revenue growth through fiscal 2021 that was reflective of recent downward revisions to previous expectations for future growth from market opportunities related to contracting with certain reta ilers to fill nail polish for their respective private label brands as well as downward revisions to growth expectations for the Kirker liquid nail polish business below the expected liquid nail polish growth rates for the markets in which Kirker operates. In the terminal year we assumed a long-term earnings growth rate of 3.0% that we believe is appropriate given the current industry specific expectations. As of the valuation date, we utilized a weighted-average cost of capital of 8.0%, which we believe is appropriate as it reflects the relative risk, the time value of money, and is consistent with Kirker’s peer group. After recording the goodwill impairment charge of $140.5 million, no goodwill remained on the Kirker balance sheets as of November 30, 201 6 and February 28, 2017.

Our other intangible asset impairment assessment involved estimating the fair value of each of Kirker’s amortizable intangibles and other long-lived assets as well as the indefinite-lived tradename asset and comparing it with its carrying amount. Measuring a potential impairment of amortizable intangibles and other long-lived assets requires the use of various estimates and assumptions, including the determination of which cash flows are directly related to the assets being evaluated, the respective useful lives over which those cash flows will occur and potential residual values, if any. As the results of our testing indicated that the carrying values of certain of these assets would not be recoverable, as outlined in further detail in the table above, we recorded other intangible asset impairments of approximately $45.7 million during the quarter ended November 30, 2016.

Calculating the fair value of the Kirker indefinite-lived tradename required our significant use of estimates and assumptions. We estimated the fair value of Kirker’s indefinite-live tradename by applying a relief-from-royalty calculation, which included discounted future cash flows related to its projected revenues. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues and market data for the nail enamel industry. As the carrying amount of the tradename exceeded its fair value, the impairment loss of $2.0 million was recorded during the quarter ended November 30, 2016.

Certain assets and liabilities are subject to nonrecurring fair value measurements, which typically are remeasured at fair value as a result of impairment charges. As a result of the impairment testing described above, the fair value of Kirker’s identifiable intangible assets and indefinite-lived tradename were recalculated, and the resulting fair value approximated $5.8 million. Based upon our review of the fair value hierarchy, the inputs used in these fair value measurements were considered Level 3 inputs.
For the quarter ended February 28, 2017, we identified certain factors that we considered important in assessing the requirement to perform an interim impairment evaluation for our Restore indefinite tradename asset. First, sales of our Restore product line during the three month period ended February 28, 2017 were below historical and expected operating results and significant downward adjustments were recently made to sales projections for Restore products. In the quarter ended February 28, 2017, we became aware that it was highly likely that Restore’s largest customer would discontinue sales of the Restore product line in its retail stores, which was evidenced by this customer’s significant reduction in future orders based on its historical order pattern. We determined that this was significant to consider for the purposes of impairment testing, as sales of Restore products to this customer accounted for over 60% of total sales of Restore products for fiscal 2016. After considering the magnitude of the loss in sales volume from this key customer, we determined that it was necessary to perform an interim assessment for the other intangible assets and indefinite-lived tradename related to the Restore product line.
Our impairment assessment involved estimating the fair value of the indefinite-lived tradename and comparing it with its carrying amount. Calculating the fair value of the Restore indefinite-lived tradename required our significant use of estimates and assumptions. We estimated the fair value of the Restore indefinite-lived tradename by applying a relief-from-royalty calculation, which included discounted future cash flows related to its projected revenues. In applying this methodology, we relied on a number of factors, including actual and forecasted revenues for sales of the Restore product line. As the carrying amount of the tradename exceeded its fair value, the preliminary impairment charge of $4.9 million was recorded for the three and nine months ended February 28, 2017. Additionally, a further assessment of the remaining useful life of the Restore tradename was performed, which resulted in a change in to its remaining economic useful life, from an indefinite-life to a 10-year amortizable life.

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We are not able to fina lize our other intangible asset impairment assessments until such time as we finalize our fair value determinations, which we expect to complete during our fourth fiscal quarter ending May 31, 2017. At that time, we will record the necessary adjustments, i f any, to our preliminary impairment charges recorded in the current quarter.

NOTE 4 – MARKETABLE SECURITIES

The following tables summarize marketable securities held at February 28, 2017 and May 31, 2016 by asset type:

|  | Available-For-Sale Securities |
(In thousands) |  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value (Net Carrying Amount) |
February 28, 2017 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stocks - foreign |  | $ | 5,700 |  |  | $ | 231 |  |  | $ | (155 | ) |  | $ | 5,776 |
Stocks - domestic |  |  | 30,690 |  |  |  | 3,054 |  |  |  | (975 | ) |  |  | 32,769 |
Mutual funds - foreign |  |  | 35,144 |  |  |  | 1,001 |  |  |  | (1,765 | ) |  |  | 34,380 |
Mutual funds - domestic |  |  | 64,033 |  |  |  | 1,557 |  |  |  | (2,416 | ) |  |  | 63,174 |
Total equity securities |  |  | 135,567 |  |  |  | 5,843 |  |  |  | (5,311 | ) |  |  | 136,099 |
Fixed maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury and other government |  |  | 22,499 |  |  |  | 76 |  |  |  | (283 | ) |  |  | 22,292 |
Corporate bonds |  |  | 715 |  |  |  | 97 |  |  |  | (8 | ) |  |  | 804 |
Total fixed maturity securities |  |  | 23,214 |  |  |  | 173 |  |  |  | (291 | ) |  |  | 23,096 |
Total |  | $ | 158,781 |  |  | $ | 6,016 |  |  | $ | (5,602 | ) |  | $ | 159,195 |

|  | Available-For-Sale Securities |
(In thousands) |  | Amortized Cost |  |  | Gross Unrealized Gains |  |  | Gross Unrealized Losses |  |  | Fair Value (Net Carrying Amount) |
May 31, 2016 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Equity securities: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Stocks - foreign |  | $ | 5,051 |  |  | $ | 439 |  |  | $ | (247 | ) |  | $ | 5,243 |
Stocks - domestic |  |  | 27,717 |  |  |  | 3,831 |  |  |  | (911 | ) |  |  | 30,637 |
Mutual funds - foreign |  |  | 35,903 |  |  |  | 802 |  |  |  | (4,357 | ) |  |  | 32,348 |
Mutual funds - domestic |  |  | 60,354 |  |  |  | 99 |  |  |  | (4,587 | ) |  |  | 55,866 |
Total equity securities |  |  | 129,025 |  |  |  | 5,171 |  |  |  | (10,102 | ) |  |  | 124,094 |
Fixed maturity: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
U.S. treasury and other government |  |  | 21,704 |  |  |  | 214 |  |  |  | (80 | ) |  |  | 21,838 |
Corporate bonds |  |  | 887 |  |  |  | 137 |  |  |  | - |  |  |  | 1,024 |
Total fixed maturity securities |  |  | 22,591 |  |  |  | 351 |  |  |  | (80 | ) |  |  | 22,862 |
Total |  | $ | 151,616 |  |  | $ | 5,522 |  |  | $ | (10,182 | ) |  | $ | 146,956 |

Marketable securities, included in other current and long-term assets totaling $83.9 million and $75.3 million at February 28, 2017, respectively, and included in other current and long-term assets totaling $74.2 million and $72.8 million at May 31, 2016, respectively, are composed of available-for-sale securities and are reported at fair value. We carry a portion of our marketable securities portfolio in long-term assets since they are generally held for the settlement of our general and product liability insurance claims processed through our wholly owned captive insurance subsidiaries.

Marketable securities 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 the fair values of securities that are considered temporary are recorded as unrealized gains and losses, net of applicable taxes, in accumulated other comprehensive (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 other-than-temporary declines in market value have occurred, the duration of the decline in value and our ability to hold the investment are considered in conjunction

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 realized on sales of investments were $1.7 million and $1.1 million for the quarters ended February 28, 2017 and February 29, 2016, respectively. During the third quarter of fiscal 2017 and 2016, we recognized gross realized losses on sales of investments of $0.1 million and $0.1 million, respectively. During the third quarter of fiscal 2016, we recognized losses of approximately $0.8 million for securities deemed to have other-than-temporary impairments, while such losses were not significant for the current three month period. These amounts are included in investment (income), net in the Consolidated Statements of Income.

Gross gains realized on sales of investments were $6.4 million and $5.7 million for the first nine months of fiscal 2017 and 2016, respectively. During the first nine months of fiscal 2017 and 2016, we recognized gross realized losses on sales of investments of $1.1 million and $0.3 million, respectively. During the first nine months of fiscal 2017 and 2016, we recognized losses of approximately $0.4 million and $3.3 million, respectively, for securities deemed to have other-than-temporary impairments.

Summarized below are the securities we held at February 28, 2017 and May 31, 2016 that were in an unrealized loss position and that were included in accumulated other comprehensive (loss), aggregated by the length of time the investments had been in that position:

|  | February 28, 2017 |  |  | May 31, 2016 |
(In thousands) |  | Fair Value |  |  | Gross Unrealized Losses |  |  | Fair Value |  |  | Gross Unrealized Losses |
Total investments with unrealized losses |  | $ | 94,585 |  |  | $ | (5,602 | ) |  | $ | 89,360 |  |  | $ | (10,182 | )
Unrealized losses with a loss position for less than 12 months |  |  | 32,564 |  |  |  | (1,250 | ) |  |  | 41,762 |  |  |  | (4,856 | )
Unrealized losses with a loss position for more than 12 months |  |  | 62,021 |  |  |  | (4,352 | ) |  |  | 47,598 |  |  |  | (5,326 | )

We have reviewed all of the securities included in the table above and have concluded that we have the ability and intent to hold these investments until their cost can be recovered, based upon the severity and duration of the decline. Therefore, we did not recognize any other-than-temporary impairment losses on these investments. The unrealized losses generally relate to investments whose fair values at February 28, 2017 were less than 15% below their original cost. From time to time, we may experience significant volatility in general economic and market conditions. If we were to experience unrealized losses that were to continue for longer periods of time, or arise to more significant levels of unrealized losses within our portfolio of investments in marketable securities in the future, we may recognize additional other-than-temporary impairment losses. Such potential losses could have a material impact on our results of operations in any given reporting period. As such, we continue to closely evaluate the status of our investments and our ability and intent to hold these investments.

The net carrying values of debt securities at February 28, 2017, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.

(In thousands) |  | Amortized Cost |  |  | Fair Value |
Due: |  |  |  |  |  |  |  |
Less than one year |  | $ | 5,645 |  |  | $ | 5,622 |
One year through five years |  |  | 13,567 |  |  |  | 13,433 |
Six years through ten years |  |  | 2,958 |  |  |  | 2,912 |
After ten years |  |  | 1,044 |  |  |  | 1,129 |
|  | $ | 23,214 |  |  | $ | 23,096 |

NOTE 5 — FAIR VALUE MEASUREMENTS

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

An allowance for anticipated uncollectible trade receivable amounts is established using a combination of specifically identified accounts to be reserved, and a reserve covering trends in collectibility. These estimates are based on an analysis of trends in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

collectibility and past experience, but are primarily made up of individual acc ount balances identified as doubtful based on specific facts and conditions. Receivable losses are charged against the allowance when we confirm uncollectibility.

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

Level 1 Inputs — Quoted prices for identical instruments in active markets.

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

Level 3 Inputs — Instruments with primarily unobservable value drivers.

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

(In thousands) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Fair Value at February 28, 2017 |
U.S. Treasury and other government |  | $ | - |  |  | $ | 22,292 |  |  | $ | - |  |  | $ | 22,292 |
Corporate bonds |  |  |  |  |  |  | 804 |  |  |  |  |  |  |  | 804 |
Stocks - foreign |  |  | 5,776 |  |  |  |  |  |  |  |  |  |  |  | 5,776 |
Stocks - domestic |  |  | 32,769 |  |  |  |  |  |  |  |  |  |  |  | 32,769 |
Cash and cash equivalents |  |  | 1,425 |  |  |  |  |  |  |  |  |  |  |  | 1,425 |
Mutual funds - foreign |  |  |  |  |  |  | 34,380 |  |  |  |  |  |  |  | 34,380 |
Mutual funds - domestic |  |  |  |  |  |  | 63,174 |  |  |  |  |  |  |  | 63,174 |
Foreign currency forward contract |  |  |  |  |  |  | (168 | ) |  |  |  |  |  |  | (168 | )
Contingent consideration |  |  |  |  |  |  |  |  |  |  | (14,541 | ) |  |  | (14,541 | )
Total |  | $ | 39,970 |  |  | $ | 120,482 |  |  | $ | (14,541 | ) |  | $ | 145,911 |

(In thousands) |  | Quoted Prices in Active Markets for Identical Assets (Level 1) |  |  | Significant Other Observable Inputs (Level 2) |  |  | Significant Unobservable Inputs (Level 3) |  |  | Fair Value at May 31, 2016 |
U.S. Treasury and other government |  | $ | - |  |  | $ | 21,838 |  |  | $ | - |  |  | $ | 21,838 |
Corporate bonds |  |  |  |  |  |  | 1,024 |  |  |  |  |  |  |  | 1,024 |
Stocks - foreign |  |  | 5,243 |  |  |  |  |  |  |  |  |  |  |  | 5,243 |
Stocks - domestic |  |  | 30,637 |  |  |  |  |  |  |  |  |  |  |  | 30,637 |
Mutual funds - foreign |  |  |  |  |  |  | 32,348 |  |  |  |  |  |  |  | 32,348 |
Mutual funds - domestic |  |  |  |  |  |  | 55,866 |  |  |  |  |  |  |  | 55,866 |
Foreign currency forward contract |  |  |  |  |  |  | (159 | ) |  |  |  |  |  |  | (159 | )
Contingent consideration |  |  |  |  |  |  |  |  |  |  | (11,771 | ) |  |  | (11,771 | )
Total |  | $ | 35,880 |  |  | $ | 110,917 |  |  | $ | (11,771 | ) |  | $ | 135,026 |

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

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At February 28, 2017, we had a foreign currency forward contract with a fair value of approximately $0.2 million, which is classified in other current liabilities in our Consolidated Balance Shee ts. At May 31, 2016, we had a foreign currency forward contract with a fair value of approximately $0.2 million, which is classified in other accrued liabilities in our Consolidated Balance Sheets. Our foreign currency forward contract, which has not bee n designated as a hedge, was designed to reduce our exposure to the changes in the cash flows of intercompany foreign-currency-denominated loans related to changes in foreign currency exchange rates by fixing the functional currency cash flows. The foreig n exchange rates included in the forward contract are based upon observable market data, but are not quoted market prices, and therefore, the forward currency forward contract is considered a Level 2 liability on the fair value hierarchy.

The contingent consideration represents the estimated fair value of the additional variable cash consideration payable in connection with recent acquisitions that is contingent upon the achievement of certain performance milestones and the amount of currently estimated purchase price for the finalization of a step-acquisition. We estimated the fair value using expected future cash flows over the period in which the obligation is expected to be settled, and applied a discount rate that appropriately captures a market participant's view of the risk associated with the obligation, which are considered to be Level 3 inputs. During fiscal 2017, we accrued an additional approximate $6.9 million for contingent payments related to new acquisitions, including the estimated amount for the mandatory purchase of a step-acquisition, and paid approximately $4.2 million for settlements of contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during the current period, and these amounts are reported in payments of acquisition-related contingent consideration in cash flows from financing activities in the Consolidated Statements of Cash Flows.

The carrying value of our current financial instruments, which include cash and cash equivalents, marketable securities, trade accounts receivable, accounts payable and short-term debt approximates fair value because of the short-term maturity of these financial instruments. At February 28, 2017 and May 31, 2016, 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 February 28, 2017 and May 31, 2016 are as follows:

|  | At February 28, 2017 |
(In thousands) |  | Carrying Value |  |  | Fair Value |
Cash and cash equivalents |  | $ | 210,796 |  |  | $ | 210,796 |
Marketable equity securities |  |  | 136,099 |  |  |  | 136,099 |
Marketable debt securities |  |  | 23,096 |  |  |  | 23,096 |
Long-term debt, including current portion |  |  | 1,981,533 |  |  |  | 2,158,984 |
|  | At May 31, 2016 |
(In thousands) |  | Carrying Value |  |  | Fair Value |
Cash and cash equivalents |  | $ | 265,152 |  |  | $ | 265,152 |
Marketable equity securities |  |  | 124,094 |  |  |  | 124,094 |
Marketable debt securities |  |  | 22,862 |  |  |  | 22,862 |
Long-term debt, including current portion |  |  | 1,639,973 |  |  |  | 1,925,079 |

NOTE 6 - INVESTMENT (INCOME), NET

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
(In thousands) |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Interest (income) |  | $ | (1,599 | ) |  | $ | (2,019 | ) |  | $ | (3,832 | ) |  | $ | (4,602 | )
Net (gain) on sale of marketable securities |  |  | (1,640 | ) |  |  | (1,020 | ) |  |  | (5,338 | ) |  |  | (5,438 | )
Other-than-temporary impairment on securities |  |  | 17 |  |  |  | 839 |  |  |  | 420 |  |  |  | 3,312 |
Dividend (income) |  |  | (405 | ) |  |  | (709 | ) |  |  | (1,131 | ) |  |  | (1,349 | )
Investment (income), net |  | $ | (3,627 | ) |  | $ | (2,909 | ) |  | $ | (9,881 | ) |  | $ | (8,077 | )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 7 - OTHER EXPENSE (INCOME), NET

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
(In thousands) |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Royalty expense, net |  | $ | 744 |  |  | $ | 557 |  |  | $ | 2,080 |  |  | $ | 720 |
(Income) related to unconsolidated equity affiliates |  |  | (242 | ) |  |  | (645 | ) |  |  | (779 | ) |  |  | (1,596 | )
Other expense (income), net |  | $ | 502 |  |  | $ | (88 | ) |  | $ | 1,301 |  |  | $ | (876 | )

NOTE 8 — INCOME TAXES

The effective income tax rate was 25.4% for the three months ended February 28, 2017 compared to an effective income tax rate of 11.9% for the three months ended February 29, 2016. The effective income tax rate was 4.8% for the nine months ended February 28, 2017 compared to an effective income tax rate of 28.3% for the nine months ended February 29, 2016.

The effective tax rate for the three and nine months ended February 28, 2017 and February 29, 2016 reflect variances from the 35% federal statutory rate due to the lower effective tax rate of certain of our foreign subsidiaries, the benefit of the domestic manufacturing deduction and the unfavorable impact of state and local taxes.

Additionally, the effective tax rate for the three and nine months ended February 28, 2017 was favorably impacted as a result of our current year early adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting.” In conjunction with our adoption of the standard, we recorded discrete benefits of $0.2 million and $11.5 million during the three and nine months ended February 28, 2017, respectively, for excess tax benefits related to equity compensation. Please see Note 2, “New Accounting Pronouncements,” for additional discussion regarding our adoption of the standard.

The effective tax rate for the three and nine month periods ended February 29, 2016 was favorably impacted by $3.9 million of discrete tax benefits recorded in the fiscal 2016 third quarter. The discrete benefits were primarily related to the reversal of tax contingency reserves and benefits related to the distribution of foreign earnings that were previously subjected to U.S. tax.

At May 31, 2016, we determined that it was possible that we would repatriate approximately $377.3 million of undistributed foreign earnings in the foreseeable future. Accordingly, as of May 31, 2016, we recorded a deferred income tax liability of $98.5 million, which represented our estimate of the net U.S income and foreign withholding tax associated with the $377.3 million of unremitted foreign earnings. As of February 28, 2017, the amount of undistributed earnings that may be repatriated and the corresponding deferred tax liability has been adjusted to $372.6 million and $96.3 million, respectively. The adjustments are primarily due to foreign currency translation, which was recorded as a component of other comprehensive income. We have not provided for U.S. income and foreign withholding taxes on the remaining foreign subsidiaries’ undistributed earnings because such earnings have been retained and reinvested by the subsidiaries as of February 28, 2017. Accordingly, no provision has been made for U.S. income taxes or foreign withholding taxes, which may become payable if the remaining undistributed earnings of those foreign subsidiaries were paid to us as dividends.

NOTE 9 — INVENTORIES

Inventories, net of reserves, were composed of the following major classes:

|  | February 28, 2017 |  |  | May 31, 2016 |
(In thousands) |  |  |
Raw material and supplies |  | $ | 253,901 |  |  | $ | 227,900 |
Finished goods |  |  | 602,560 |  |  |  | 457,918 |
Total Inventory, Net of Reserves |  | $ | 856,461 |  |  | $ | 685,818 |

15

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 10 — STOCK REPURCHASE PROGRAM

On January 8, 2008, we announced our authorization of a stock repurchase program under which we may repurchase shares of RPM International Inc. common stock at management’s discretion for general corporate purposes. Our current intent is to limit our repurchases only to amounts required to offset dilution created by stock issued in connection with our equity-based compensation plans, or approximately one to two million shares per year. As a result of this authorization, we may repurchase shares from time to time in the open market or in private transactions at various times and in amounts and for prices that our management deems appropriate, subject to insider trading rules and other securities law restrictions. The timing of our purchases will depend upon prevailing market conditions, alternative uses of capital and other factors. We may limit or terminate the repurchase program at any time. During the three and nine months ended February 28, 2017, we did not repurchase any shares of our common stock under this program. During the three and nine months ended February 29, 2016, we repurchased approximately 400,000 shares and 800,000 shares of our common stock under this program, respectively. These shares of common stock were repurchased during the prior year third quarter and nine month period for approximately $17.8 million and $35.1 million, respectively.

NOTE 11 — EARNINGS PER SHARE

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 nine months ended February 28, 2017. For the three months ended February 29, 2016, basic weighted-average shares outstanding and basic net income available to common shareholders are used in calculating diluted earnings per share under the two-class method, as that method resulted in the most-dilutive earnings per share. For the nine months ended February 29, 2016, basic and diluted earnings per share are calculated under the two-class method and the treasury method, respectively, as those methods resulted in the most-dilutive earnings per share.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
(In thousands, except per share amounts) |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
Numerator for earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Net income attributable to RPM International Inc. stockholders |  | $ | 11,928 |  |  | $ | 18,582 |  |  | $ | 53,771 |  |  | $ | 201,830 |
Less: Allocation of earnings and dividends to participating securities |  |  | (232 | ) |  |  | (316 | ) |  |  | (847 | ) |  |  | (3,375 | )
Net income available to common shareholders - basic |  |  | 11,696 |  |  |  | 18,266 |  |  |  | 52,924 |  |  |  | 198,455 |
Add: Undistributed earnings reallocated to unvested shareholders |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Reverse: Allocation of earnings and dividends to participating securities |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,375 |
Add: Income effect of contingently issuable shares |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 4,067 |
Net income available to common shareholders - diluted |  | $ | 11,696 |  |  | $ | 18,266 |  |  | $ | 52,924 |  |  | $ | 205,897 |
Denominator for basic and diluted earnings per share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic weighted average common shares |  |  | 130,677 |  |  |  | 129,068 |  |  |  | 130,657 |  |  |  | 129,506 |
Average diluted options |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,456 |
Additional shares issuable assuming conversion of convertible securities (1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3,886 |
Total shares for diluted earnings per share (2) |  |  | 130,677 |  |  |  | 129,068 |  |  |  | 130,657 |  |  |  | 136,848 |
Earnings Per Share of Common Stock Attributable to |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
RPM International Inc. Stockholders: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic Earnings Per Share of Common Stock |  | $ | 0.09 |  |  | $ | 0.14 |  |  | $ | 0.41 |  |  | $ | 1.53 |
Diluted Earnings Per Share of Common Stock |  | $ | 0.09 |  |  | $ | 0.14 |  |  | $ | 0.41 |  |  | $ | 1.50 |

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

16

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

(2) | Restricted shares totaling 1,676,404 and 919,918 for the three and nine months ended February 29, 2016, respecti vely, were excluded from the calculation of diluted earnings per share because the grant price of the restricted shares exceeded the average market price of the shares during the period and their effect, accordingly, would have been anti-dilutive. There we re no restricted shares identified as being anti-dilutive for the three and nine months ended February 28, 2017. In addition, stock appreciation rights (SARs) totaling 600,000 for the three and nine months ended February 28, 2017 and 1,140,000 for the thre e and nine months ended February 29, 2016 were excluded from the calculation of diluted earnings per share as their effect would have been anti-dilutive.

NOTE 12 — PENSION PLANS

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 nine month periods ended February 28, 2017 and February 29, 2016:

|  | U.S. Plans |  |  | Non-U.S. Plans |
|  | Three Months Ended |  |  | Three Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
Pension Benefits |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 9,401 |  |  | $ | 8,202 |  |  | $ | 1,127 |  |  | $ | 1,067 |
Interest cost |  |  | 4,331 |  |  |  | 4,499 |  |  |  | 1,224 |  |  |  | 1,319 |
Expected return on plan assets |  |  | (6,252 | ) |  |  | (6,437 | ) |  |  | (1,886 | ) |  |  | (1,978 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prior service cost |  |  | 54 |  |  |  | 58 |  |  |  |  |  |  |  |  |
Net actuarial losses recognized |  |  | 5,540 |  |  |  | 4,190 |  |  |  | 573 |  |  |  | 455 |
Net Periodic Benefit Cost |  | $ | 13,074 |  |  | $ | 10,512 |  |  | $ | 1,038 |  |  | $ | 863 |

|  | U.S. Plans |  |  | Non-U.S. Plans |
|  | Three Months Ended |  |  | Three Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
Postretirement Benefits |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | - |  |  | $ | - |  |  | $ | 284 |  |  | $ | 281 |
Interest cost |  |  | 57 |  |  |  | 59 |  |  |  | 222 |  |  |  | 221 |
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prior service (credit) |  |  | (58 | ) |  |  | (62 | ) |  |  |  |  |  |  |  |
Net actuarial (gains) losses recognized |  |  |  |  |  |  |  |  |  |  | 60 |  |  |  | 61 |
Net Periodic Benefit Cost |  | $ | (1 | ) |  | $ | (3 | ) |  | $ | 566 |  |  | $ | 563 |

|  | U.S. Plans |  |  | Non-U.S. Plans |
|  | Nine Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
Pension Benefits |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | 28,203 |  |  | $ | 24,606 |  |  | $ | 3,381 |  |  | $ | 3,201 |
Interest cost |  |  | 12,993 |  |  |  | 13,497 |  |  |  | 3,672 |  |  |  | 3,965 |
Expected return on plan assets |  |  | (18,756 | ) |  |  | (19,311 | ) |  |  | (5,658 | ) |  |  | (5,944 | )
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prior service cost |  |  | 162 |  |  |  | 174 |  |  |  | - |  |  |  | - |
Net actuarial losses recognized |  |  | 16,620 |  |  |  | 12,570 |  |  |  | 1,719 |  |  |  | 1,369 |
Settlement |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 91 |
Net Periodic Benefit Cost |  | $ | 39,222 |  |  | $ | 31,536 |  |  | $ | 3,114 |  |  | $ | 2,682 |

17

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

|  | U.S. Plans |  |  | Non-U.S. Plans |
|  | Nine Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
Postretirement Benefits |  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
(In thousands) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Service cost |  | $ | - |  |  | $ | - |  |  | $ | 852 |  |  | $ | 843 |
Interest cost |  |  | 171 |  |  |  | 177 |  |  |  | 666 |  |  |  | 663 |
Amortization of: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Prior service (credit) |  |  | (174 | ) |  |  | (186 | ) |  |  | - |  |  |  | - |
Net actuarial (gains) losses recognized |  |  | - |  |  |  | - |  |  |  | 180 |  |  |  | 183 |
Net Periodic Benefit Cost |  | $ | (3 | ) |  | $ | (9 | ) |  | $ | 1,698 |  |  | $ | 1,689 |

The current year increases in pension and postretirement benefit cost reflect the impact of our assumptions used to determine net cost. The rate of expected return on plan assets and the effective discount rate applicable to service cost assumptions both decreased from fiscal 2016 to fiscal 2017. We expect that pension expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, but such changes are not expected to be material to our consolidated financial results. We previously disclosed in our financial statements for the fiscal year ended May 31, 2016 that we expected to contribute approximately $54.1 million to our retirement plans in the U.S. and approximately $6.0 million to plans outside the U.S. during the current fiscal year. As of February 28, 2017, this has not changed.

NOTE 13 – CONTINGENCIES AND OTHER ACCRUED LOSSES

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

We also offer warranties on many of our products, as well as long-term warranty programs at certain of our businesses, and have established product warranty liabilities. We review these liabilities for adequacy on a quarterly basis and adjust them as necessary. The primary factors that could affect these liabilities may include changes in performance rates as well as costs of replacement. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted, as required, to reflect actual experience. It is probable that we will incur future losses related to warranty claims we have received but that have not been fully investigated and related to claims not yet received. While our warranty liabilities represent our best estimates at February 28, 2017, 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. Based upon the nature of the expense, product warranty expense is recorded as a reduction of sales, as a component of cost of sales, or within selling, general and administrative expense.

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

18

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
|  | (In thousands) |
Beginning Balance |  | $ | 15,954 |  |  | $ | 9,440 |  |  | $ | 13,314 |  |  | $ | 11,663 |
Deductions (1) |  |  | (3,662 | ) |  |  | (4,268 | ) |  |  | (12,094 | ) |  |  | (13,818 | )
Provision charged to expense |  |  | 7,308 |  |  |  | 8,790 |  |  |  | 18,380 |  |  |  | 16,117 |
Ending Balance |  | $ | 19,600 |  |  | $ | 13,962 |  |  | $ | 19,600 |  |  | $ | 13,962 |

(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 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 and are not material to our financial statements during any of the periods presented.

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

In connection with the foregoing, on September 9, 2016, the SEC filed an enforcement action against us and our General Counsel. We have cooperated with the SEC’s investigation and believe the allegations in the complaint mischaracterize both our and our General Counsel’s actions in connection with the matters related to our quarterly results in fiscal 2013 and are without merit. We intend to contest the allegations in the complaint vigorously, and both we and our General Counsel filed motions to dismiss the complaint on February 24, 2017.

The action by the SEC could result in sanctions against us and/or our General Counsel and could impose substantial additional costs and distractions, regardless of its outcome. We have determined that it is probable that we will incur a loss relating to this matter and have estimated a range of potential loss. We have accrued at the low end of the range of loss, as no amount within the range is more likely to occur, and no amount within the estimated range of loss would have a material impact on our consolidated financial condition, results of operations or cash flows.

In December 2014, we received notice of a claim seeking damages against one of our industrial segment subsidiaries alleging failure of a coating system application on a parking garage in Dubai, UAE. Subsequent to the end of the current quarter, the case settled for an immaterial amount.

A consolidated class-action complaint is pending against Rust-Oleum Corporation (“Rust-Oleum”) seeking to have a class certified and alleging breach of warranty, breach of contract and other claims regarding certain deck coating products of Rust-Oleum. In October 2016, the parties executed a settlement agreement. The court has granted final approval of the settlement. Rust-Oleum will deposit $9.3 million into a settlement fund in satisfaction of the claims. We recorded the amount of the settlement in accrued losses in our Consolidated Balance Sheets and reflected the amount in other expense (income), net, in our Consolidated Statements of Income as of and for the fiscal year ended May 31, 2016.

19

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 14 – EQUITY

The following tables illustrate the components of total equity and comprehensive income for the three months ended February 28, 2017 and February 29, 2016:

(In thousands) |  | Total RPM International Inc. Equity |  |  | Noncontrolling Interest |  |  | Total Equity |
Total equity at November 30, 2016 |  | $ | 1,281,432 |  |  | $ | 1,902 |  |  | $ | 1,283,334 |
Net income |  |  | 11,928 |  |  |  | 756 |  |  |  | 12,684 |
Other Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | 16,576 |  |  |  |  |  |  |  | 16,576 |
Pension and other postretirement benefit liability adjustments, net of tax |  |  | 3,222 |  |  |  |  |  |  |  | 3,222 |
Unrealized gain on securities, net of tax |  |  | 2,577 |  |  |  |  |  |  |  | 2,577 |
Total Other Comprehensive Income, net of tax |  |  | 22,375 |  |  |  | - |  |  |  | 22,375 |
Comprehensive Income |  |  | 34,303 |  |  |  | 756 |  |  |  | 35,059 |
Dividends paid |  |  | (40,076 | ) |  |  |  |  |  |  | (40,076 | )
Other noncontrolling interest activity |  |  |  |  |  |  | (153 | ) |  |  | (153 | )
Shares repurchased and returned for taxes |  |  | (429 | ) |  |  |  |  |  |  | (429 | )
Stock based compensation expense |  |  | 7,992 |  |  |  |  |  |  |  | 7,992 |
Total Equity at February 28, 2017 |  | $ | 1,283,222 |  |  | $ | 2,505 |  |  | $ | 1,285,727 |

(In thousands) |  | Total RPM International Inc. Equity |  |  | Noncontrolling Interest |  |  | Total Equity |
Total equity at November 30, 2015 |  | $ | 1,290,261 |  |  | $ | 1,963 |  |  | $ | 1,292,224 |
Net income |  |  | 18,582 |  |  |  | 711 |  |  |  | 19,293 |
Other Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | (16,214 | ) |  |  |  |  |  |  | (16,214 | )
Pension and other postretirement benefit liability adjustments, net of tax |  |  | 3,264 |  |  |  |  |  |  |  | 3,264 |
Unrealized (loss) on securities, net of tax |  |  | (7,334 | ) |  |  |  |  |  |  | (7,334 | )
Total Other Comprehensive (Loss), net of tax |  |  | (20,284 | ) |  |  | - |  |  |  | (20,284 | )
Comprehensive Income (Loss) |  |  | (1,702 | ) |  |  | 711 |  |  |  | (991 | )
Dividends paid |  |  | (36,530 | ) |  |  |  |  |  |  | (36,530 | )
Other noncontrolling interest activity |  |  |  |  |  |  | (186 | ) |  |  | (186 | )
Shares repurchased and returned for taxes |  |  | (21,473 | ) |  |  |  |  |  |  | (21,473 | )
Stock based compensation expense |  |  | 7,476 |  |  |  |  |  |  |  | 7,476 |
Total Equity at February 29, 2016 |  | $ | 1,238,032 |  |  | $ | 2,488 |  |  | $ | 1,240,520 |

20

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables illustrate the components of total equity and comprehensive income for the nine months ended February 28, 2017 and February 29, 201 6:

(In thousands) |  | Total RPM International Inc. Equity |  |  | Noncontrolling Interest |  |  | Total Equity |
Total equity at May 31, 2016 |  | $ | 1,372,335 |  |  | $ | 2,413 |  |  | $ | 1,374,748 |
Net income |  |  | 53,771 |  |  |  | 2,051 |  |  |  | 55,822 |
Other Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | (46,919 | ) |  |  |  |  |  |  | (46,919 | )
Pension and other postretirement benefit liability adjustments, net of tax |  |  | 12,516 |  |  |  |  |  |  |  | 12,516 |
Unrealized gain on securities, net of tax |  |  | 3,286 |  |  |  |  |  |  |  | 3,286 |
Total Other Comprehensive (Loss), net of tax |  |  | (31,117 | ) |  |  | - |  |  |  | (31,117 | )
Comprehensive Income |  |  | 22,654 |  |  |  | 2,051 |  |  |  | 24,705 |
Dividends paid |  |  | (116,680 | ) |  |  |  |  |  |  | (116,680 | )
Other noncontrolling interest activity |  |  |  |  |  |  | (1,959 | ) |  |  | (1,959 | )
Shares repurchased and returned for taxes |  |  | (20,092 | ) |  |  |  |  |  |  | (20,092 | )
Stock based compensation expense |  |  | 25,005 |  |  |  |  |  |  |  | 25,005 |
Total Equity at February 28, 2017 |  | $ | 1,283,222 |  |  | $ | 2,505 |  |  | $ | 1,285,727 |

(In thousands) |  | Total RPM International Inc. Equity |  |  | Noncontrolling Interest |  |  | Total Equity |
Total equity at May 31, 2015 |  | $ | 1,291,392 |  |  | $ | 2,073 |  |  | $ | 1,293,465 |
Net income |  |  | 201,830 |  |  |  | 1,974 |  |  |  | 203,804 |
Other Comprehensive Income: |  |  |  |  |  |  |  |  |  |  |  |
Foreign currency translation adjustments |  |  | (100,634 | ) |  |  |  |  |  |  | (100,634 | )
Pension and other postretirement benefit liability adjustments, net of tax |  |  | 11,064 |  |  |  |  |  |  |  | 11,064 |
Unrealized (loss) on securities, net of tax |  |  | (14,049 | ) |  |  |  |  |  |  | (14,049 | )
Total Other Comprehensive (Loss), net of tax |  |  | (103,619 | ) |  |  | - |  |  |  | (103,619 | )
Comprehensive Income |  |  | 98,211 |  |  |  | 1,974 |  |  |  | 100,185 |
Dividends paid |  |  | (107,806 | ) |  |  |  |  |  |  | (107,806 | )
Other noncontrolling interest activity |  |  |  |  |  |  | (1,559 | ) |  |  | (1,559 | )
Shares repurchased and returned for taxes |  |  | (66,765 | ) |  |  |  |  |  |  | (66,765 | )
Stock based compensation expense |  |  | 23,000 |  |  |  |  |  |  |  | 23,000 |
Total Equity at February 29, 2016 |  | $ | 1,238,032 |  |  | $ | 2,488 |  |  | $ | 1,240,520 |

NOTE 15 — SEGMENT INFORMATION

We changed the composition of our operating and reportable segments in order to reflect management’s view of the operating results for each segment during our first quarter ended August 31, 2016. Under our new composition, we made the determination to move a group of businesses serving the industrial flooring, concrete repair and specialty waterproofing markets out of our specialty reportable segment into our Performance Coatings Group operating segment, which better aligns with our management structure and reports through our industrial reportable segment. For the fiscal year ended May 31, 2016, this group of businesses represented less than 1% of our consolidated net sales, income before income taxes and identifiable assets. Information for all periods presented has been recast to reflect this change.

We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by organizing our businesses and product lines into three reportable segments: the industrial reportable segment, the specialty reportable segment and the consumer reportable segment. Within each reportable segment, we aggregate operating segments or product lines that consist of individual companies or groups of companies and product lines, which generally address common markets, share similar economic characteristics, utilize similar technologies and

21

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

c an share manufacturing or distribution capabilities. Our seven operating segments represent components of our business for which separate financial information is available that is utilized on a regular basis by our chief operating decision maker in determ ining how to allocate the assets of the company and evaluate performance. These seven operating segments are each managed by an operating segment manager, who is responsible for the day-to-day operating decisions and performance evaluation of the operating segment’s underlying businesses.

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

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

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

In addition to our three reportable segments, there is a category of certain business activities and expenses, referred to as corporate/other, that does not constitute an operating segment. This category includes our corporate headquarters and related administrative expenses, results of our captive insurance companies, gains or losses on the sales of certain assets and other expenses not directly associated with any reportable segment. Assets related to the corporate/other category consist primarily of investments, prepaid expenses and headquarters’ property and equipment. These corporate and other assets and expenses reconcile reportable segment data to total consolidated income before income taxes and identifiable assets.

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

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RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following tables reflect the results of our reportable segments consi stent with our management philosophy, and represent the information we utilize, in conjunction with various strategic, operational and other financial performance criteria, in evaluating the performance of our portfolio of businesses. Information for all periods presented has been recast to reflect the current year change in reportable segments.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
|  | (In thousands) |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Industrial Segment |  | $ | 521,403 |  |  | $ | 492,662 |  |  | $ | 1,830,672 |  |  | $ | 1,793,075 |
Specialty Segment |  |  | 159,659 |  |  |  | 156,909 |  |  |  | 519,562 |  |  |  | 500,395 |
Consumer Segment |  |  | 341,434 |  |  |  | 338,984 |  |  |  | 1,115,095 |  |  |  | 1,093,595 |
Consolidated |  | $ | 1,022,496 |  |  | $ | 988,555 |  |  | $ | 3,465,329 |  |  | $ | 3,387,065 |
Income Before Income Taxes |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Industrial Segment |  | $ | 11,705 |  |  | $ | 486 |  |  | $ | 151,262 |  |  | $ | 148,962 |
Specialty Segment |  |  | 15,000 |  |  |  | 21,729 |  |  |  | 76,664 |  |  |  | 76,496 |
Consumer Segment |  |  | 29,802 |  |  |  | 38,785 |  |  |  | (40,685 | ) |  |  | 170,337 |
Corporate/Other |  |  | (39,510 | ) |  |  | (39,094 | ) |  |  | (128,626 | ) |  |  | (111,427 | )
Consolidated |  | $ | 16,997 |  |  | $ | 21,906 |  |  | $ | 58,615 |  |  | $ | 284,368 |

|  | February 28, 2017 |  |  | May 31, 2016 |
Identifiable Assets |  |  |  |  |  |  |  |
Industrial Segment |  | $ | 2,204,420 |  |  | $ | 2,206,062 |
Specialty Segment |  |  | 759,764 |  |  |  | 754,757 |
Consumer Segment |  |  | 1,674,736 |  |  |  | 1,734,600 |
Corporate/Other |  |  | 93,299 |  |  |  | 69,550 |
Consolidated |  | $ | 4,732,219 |  |  | $ | 4,764,969 |

NOTE 16 – SUBSEQUENT EVENT

Subsequent to the end of the current fiscal quarter, on March 2, 2017, we closed an offering of $50.0 million aggregate principal amount of 5.250% Notes due 2045 and $400.0 million aggregate principal amount of 3.750% Notes due 2027. The proceeds from these notes were used to repay amounts outstanding under our revolving credit facilities.

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

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

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

Goodwill and Other Intangible Assets

Our annual goodwill impairment analysis for fiscal 2016 did not result in any indicators of impairment.

For the quarter ended November 30, 2016, we identified certain factors that we considered important in assessing the requirement to perform an interim impairment evaluation for our Kirker reporting unit. First, Kirker’s three month operating results for the period ended November 30, 2016 were significantly below historical and expected operating results and downward adjustments were recently made regarding our expectations for Kirker’s performance. In the quarter ended November 30, 2016, Kirker experienced market share losses at several key customers, including the loss of its largest customer, which accounted for over 15% of Kirker’s fiscal 2016 sales. In addition, some problematic customer relationship issues surfaced during the quarter ended November 30, 2016, which resulted in a personnel change in a key leadership position at Kirker. After considering the totality of these recent events, we determined that an interim step one goodwill impairment assessment was required, as well as an impairment assessment for our intangible and other long-lived assets. Accordingly, during our second fiscal quarter we recorded a preliminary loss totaling $188.3 million for the impairment of goodwill and intangibles at our Kirker reporting unit.

For the quarter ended February 28, 2017, we identified certain factors that we considered important in assessing the requirement to perform an interim impairment evaluation for our Restore indefinite tradename asset. First, sales of our Restore product line during the three month period ended February 28, 2017 were below historical and expected operating results and significant downward adjustments were recently made to sales projections for Restore products. In the quarter ended February 28, 2017, we became aware that it was highly likely that Restore’s largest customer would discontinue sales of the Restore product line in its retail stores, which was evidenced by this customer’s significant reduction in future orders based on its historical order pattern. We determined that this was significant to consider for the purposes of impairment testing, as sales of Restore products to this customer accounted for over 60% of total sales of Restore products for fiscal 2016. After considering the magnitude of the loss in sales volume from this key customer, we determined that it was necessary to perform an interim assessment for our Restore intangible assets. Accordingly, for the current fiscal quarter we recorded a preliminary loss totaling $4.9 million for the impairment of the Restore tradename.

Refer to Note 3, “Goodwill and Other Intangible Assets,” for further discussion.

A comprehensive discussion of the accounting policies and estimates that are the most critical to our financial statements are set forth in our Annual Report on Form 10-K for the year ended May 31, 2016. There have been no significant changes in critical accounting policies or estimates since May 31, 2016.

BUSINESS SEGMENT INFORMATION

We changed the composition of our operating and reportable segments in order to reflect management’s view of the operating results for each segment during the quarter ended August 31, 2016. Under our new composition, we made the determination to move a group of businesses serving the industrial flooring, concrete repair and specialty waterproofing markets out of our specialty reportable segment into our Performance Coatings Group operating segment, which better aligns with our management structure and reports through our industrial reportable segment. For the fiscal year ended May 31, 2016, this group of businesses represented less than 1% of our consolidated net sales, income before income taxes and identifiable assets. Information for all periods presented has been recast to reflect this change.

We operate a portfolio of businesses and product lines that manufacture and sell a variety of specialty paints, protective coatings and roofing systems, sealants and adhesives. We manage our portfolio by organizing our businesses and product lines into three reportable

24

segments: the industrial reportable segment, the specialty reportable segment and the consumer reportable segment. Within each reportable segment, we aggregate operating segments or product lines that consist of individual companies or groups of companies and product lines, which generally address common markets, share similar economic characteristics, utilize similar technologies and can share manufacturing or distribution capabilities. Our seven operating segments represent components of our business for which separate financial information is available that is utilized on a regular basis by our chief operating decis ion maker in determining how to allocate the assets of the company and evaluate performance. These seven operating segments are each managed by an operating segment manager, who is responsible for the day-to-day operating decisions and performance evaluati on of the operating segment’s underlying businesses. We evaluate the profit performance of our segments primarily based on income before income taxes, but also look to earnings (loss) before interest and taxes (“EBIT”) as a performance evaluation measure b ecause interest expense is essentially related to acquisitions, as opposed to segment operations.

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

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

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

In addition to our three reportable segments, there is a category of certain business activities and expenses, referred to as corporate/other, that does not constitute an operating segment. This category includes our corporate headquarters and related administrative expenses, results of our captive insurance companies, gains or losses on the sales of certain assets and other expenses not directly associated with any reportable segment. Assets related to the corporate/other category consist primarily of investments, prepaid expenses and headquarters’ property and equipment. These corporate and other assets and expenses reconcile reportable segment data to total consolidated income before income taxes, interest expense and earnings before interest and taxes.

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

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The following tables reflect the results of our reportable segments consistent with our management philosophy, and represent the information we utilize, in conjunction with various strategic, operational and other financial performa nce criteria, in evaluating the performance of our portfolio of businesses. Information for all periods presented has been recast to reflect the current year change in reportable segments.

|  | Three Months Ended |  |  | Nine Months Ended |
|  | February 28, |  |  | February 29, |  |  | February 28, |  |  | February 29, |
|  | 2017 |  |  | 2016 |  |  | 2017 |  |  | 2016 |
|  | (In thousands) |
Net Sales |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Industrial Segment |  | $ | 521,403 |  |  | $ | 492,662 |  |  | $ | 1,830,672 |  |  | $ | 1,793,075 |
Specialty Segment |  |  | 159,659 |  |  |  | 156,909 |  |  |  | 519,562 |  |  |  | 500,395 |
Consumer Segment |  |  | 341,434 |  |  |  | 338,984 |  |  |  | 1,115,095 |  |  |  | 1,093,595 |
Consolidated |  | $ | 1,022,496 |  |  | $ | 988,555 |  |  | $ | 3,465,329 |  |  | $ | 3,387,065 |
Income Before Income Taxes (a) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Industrial Segment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income Before Income Taxes (a) |  | $ | 11,705 |  |  | $ | 486 |  |  | $ | 151,262 |  |  | $ | 148,962 |
Interest (Expense), Net (b) |  |  | (2,929 | ) |  |  | (1,468 | ) |  |  | (6,672 | ) |  |  | (4,549 | )
EBIT (c) |  | $ | 14,634 |  |  | $ | 1,954 |  |  | $ | 157,934 |  |  | $ | 153,511 |
Specialty Segment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income Before Income Taxes (a) |  | $ | 15,000 |  |  | $ | 21,729 |  |  | $ | 76,664 |  |  | $ | 76,496 |
Interest Income, Net (b) |  |  | 116 |  |  |  | 208 |  |  |  | 406 |  |  |  | 650 |
EBIT (c) |  | $ | 14,884 |  |  | $ | 21,521 |  |  | $ | 76,258 |  |  | $ | 75,846 |
Consumer Segment |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Loss) Income Before Income Taxes (a) |  | $ | 29,802 |  |  | $ | 38,785 |  |  | $ | (40,685 | ) |  | $ | 170,337 |
Interest Income (Expense), Net (b) |  |  | (92 | ) |  |  | 16 |  |  |  | (114 | ) |  |  | 116 |
EBIT (c) |  | $ | 29,894 |  |  | $ | 38,769 |  |  | $ | (40,571 | ) |  | $ | 170,221 |
Corporate/Other |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Expense) Before Income Taxes (a) |  | $ | (39,510 | ) |  | $ | (39,094 | ) |  | $ | (128,626 | ) |  | $ | (111,427 | )
Interest (Expense), Net (b) |  |  | (17,237 | ) |  |  | (18,987 | ) |  |  | (53,191 | ) |  |  | (56,218 | )
EBIT (c) |  | $ | (22,273 | ) |  | $ | (20,107 | ) |  | $ | (75,435 | ) |  | $ | (55,209 | )
Consolidated |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
(Loss) Income Before Income Taxes (a) |  | $ | 16,997 |  |  | $ | 21,906 |  |  | $ | 58,615 |  |  | $ | 284,368 |
Interest (Expense), Net (b) |  |  | (20,142 | ) |  |  | (20,231 | ) |  |  | (59,571 | ) |  |  | (60,001 | )
EBIT (c) |  | $ | 37,139 |  |  | $ | 42,137 |  |  | $ | 118,186 |  |  | $ | 344,369 |

(a) | The presentation includes a reconciliation of Income (Loss) Before Income Taxes, a measure defined by generally accepted accounting principles ("GAAP") in the U.S., to EBIT.

(b) | Interest (expense), net includes the combination of interest (expense) and investment income/(expense), net.

(c) | EBIT is a non-GAAP measure, and is defined as earnings (loss) before interest and taxes. We evaluate the profit performance of our segments based on income before income taxes, but also look to EBIT as a performance evaluation measure because interest expense is essentially related to acquisitions, as opposed to segment operations. We believe EBIT is useful to investors for this purpose as well, using EBIT as a metric in their investment decisions. EBIT should not be considered an alternative to, or more meaningful than, operating income as determined in accordance with GAAP, since EBIT omits the impact of interest in determining operating performance, which represent items necessary to our continued operations, given our level of indebtedness. Nonetheless, EBIT is a key measure expected by and useful to our fixed income investors, rating agencies and the banking community all of whom believe, and we concur, that this measure is critical to the capital markets' analysis of our segments' core operating performance. We also evaluate EBIT because it is clear that movements in EBIT impact our ability to attract financing. Our underwriters and bankers consistently require inclusion of this measure in offering memoranda in conjunction with any debt underwriting or bank financing. EBIT may not be indicative of our historical operating results, nor is it meant to be predictive of potential future results.

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RESULTS OF OPERATIONS

Three Months Ended February 28, 2017

Net Sales Consolidated net sales of $1,022.5 million for the third quarter of fiscal 2017 grew by approximately 3.4% from net sales of $988.6 million for last year’s third quarter. Organic sales, which include the impact of price and volume, declined 0.1%, while acquisitions added 4.4%. Consolidated net sales for the quarter were offset by an unfavorable foreign exchange impact of 0.9%, which includes the impact of the devaluation of the British Pound. Most of the economies we operate in have had slow growth during the current period.

Industrial segment net sales for the current quarter grew by 5.8% to $521.4 million, from net sales of $492.7 million during the same period a year ago. The improvement was primarily due to recent acquisitions, which contributed 4.1% to net sales during the current quarter. Organic growth of 2.5% improved during the quarter due to improved performance by certain European businesses in local currencies, especially certain U.K. based operations. During the current quarter, our North American-based industrial companies experienced continuing growth in businesses serving the commercial construction market. Sales of industrial coatings continued to decline due to weakness in energy markets. Unfavorable foreign exchange impacted net sales by 0.8% during the current quarter.

Specialty segment net sales for the quarter grew by 1.8% to $159.7 million, primarily due to growth in net sales from recent acquisitions, which provided 3.8%. Organic sales decline by 0.6% during the current quarter due to lower sales volume, which was soft across a number of product lines, with the exception of those that serve the U.S. commercial construction market. Foreign currency negatively impacted specialty segment net sales for the quarter by 1.4%.

Consumer segment net sales for the quarter grew by 0.7% to $341.4 million, from $339.0 million during last year’s third quarter, due to growth in net sales from recent acquisitions of 5.1%. This segment had a decline in organic sales of 3.6% during the quarter versus the same period last year. Our nail enamel product line sales for the current quarter continued to deteriorate from the same period a year ago, and were down by approximately 37% versus the same period last year. Additionally, the order pattern of retailers changed versus the prior year, causing the decrease in the timing of sales volume during the current quarter versus last year. Unfavorable foreign currency impacted net sales in the consumer segment by 0.8% during the current quarter versus the same period a year ago.

Gross Profit Margin Our consolidated gross profit margin of 41.9% of net sales for the third quarter of fiscal 2017 compares to a consolidated gross profit margin of 41.8% for the comparable period a year ago, reflecting current year margins that were burdened by cost of sales increases resulting from inventory step up on a number of recent acquisitions.

Selling, General and Administrative Expenses (“SG&A”) Our consolidated SG&A expense increased by approximately $15.1 million during the current period versus the same period last year, and increased to 37.8% of net sales from 37.5% of net sales for the prior year quarter. The main source of the increase during the quarter was the number of recently acquired companies during the last 12 months, which added approximately $12.0 million in SG&A expense. During the current quarter, we incurred $3.6 million of severance charges for certain personnel in connection with the closure of a European manufacturing facility. We continue to assess unprofitable facilities and businesses and could incur additional charges in the future. During the three months ended February 28, 2017, there was also higher compensation and employee benefits expense, as well as higher acquisition costs relating to recently announced acquisitions. Partially offsetting those increased expenses was the impact of approximately $2.2 million of favorable transactional foreign exchange during this year’s third quarter versus the impact of approximately $3.7 million of unfavorable foreign exchange during last year’s third quarter. Warranty expense for the quarter ended February 28, 2017 decreased by approximately $1.5 million from the amount recorded during the comparable prior year period, and it is typical that warranty expense will fluctuate from period to period.

Our industrial segment SG&A was approximately $2.1 million higher for the third quarter of fiscal 2017 versus the comparable prior year period, but decreased as a percentage of net sales, which reflects the industrial segment’s solid growth. Recent acquisitions increased SG&A expense in this segment by approximately $6.1 million. Favorable transactional foreign exchange impacted the current quarter by approximately $1.8 million versus an unfavorable impact of approximately $2.4 million during the same period a year ago.

Our specialty segment SG&A was approximately $5.9 million higher during the third quarter of fiscal 2017 versus the comparable prior year period, and was higher as a percentage of net sales. During the current quarter, recent acquisitions increased SG&A expense in this segment by approximately $1.6 million. During the current quarter, this segment incurred $3.6 million of severance charges for certain personnel in connection with the closure of a European manufacturing facility.

Our consumer segment SG&A increased by approximately $5.0 million during the third quarter of fiscal 2017 versus the same period last year, and was higher as a percentage of net sales, reflecting additional SG&A expense from recent acquisitions, which contributed approximately $4.3 million. There was also higher distribution, compensation, pension and acquisition-related expense.

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SG&A expenses in our corporate/other category of $22.3 million during the third quarter of fiscal 2017 increased by $2.2 million from $20.1 million recorded during last year’s third quarter, resulting primarily from higher acquisition costs, as well as higher compensation and pension expense.

We recorded total net periodic pension and postretirement benefit costs of $14.7 million and $11.9 million for the third quarter of fiscal 2017 and 2016, respectively. The $2.8 million increase in pension expense resulted from higher service and interest cost of $1.0 million during the third quarter of fiscal 2017 versus the comparable prior year period. Additionally, there was an unfavorable impact of approximately $1.5 million resulting from larger actuarial losses recognized during the current quarter versus last year’s third quarter. Lastly, during the current quarter, the expected return on plan assets was approximately $0.3 million lower than during last year’s third quarter. The current year increases in pension and postretirement benefit cost reflect the impact of our assumptions used to determine net cost. The rate of expected return on plan assets and the effective discount rate applicable to service cost assumptions both decreased from fiscal 2016 to fiscal 2017. We expect that pension expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, but such changes are not expected to be material to our consolidated financial results.

Goodwill and Other Intangible Asset Impairments As described in Note 3, “Goodwill and Other Intangible Assets,” to the consolidated financial statements, we recorded preliminary impairment charges related to a reduction of the carrying value of other intangible assets totaling $4.9 million during the current quarter ended February 28, 2017. For additional information, refer to Note 3 to the consolidated financial statements.

Interest Expense Interest expense was $23.7 million for the third quarter of fiscal 2017 versus $23.1 million for the same period a year ago. Higher average borrowings, related to recent acquisitions, increased interest expense during this year’s third quarter by approximately $1.0 million versus the same period a year ago. Excluding acquisition-related borrowings, lower average borrowings year-over-year decreased interest expense by approximately $0.9 million. Lower interest rates, which averaged 4.04% overall for the third quarter of fiscal 2017 compared with 4.14% for the same period of fiscal 2016, increased interest expense by approximately $0.5 million during the current quarter versus the same period last year.

Investment (Income), Net Net investment income of approximately $3.6 million for the third quarter of fiscal 2017 compares to net investment income of $2.9 million during the same period last year. Dividend and interest income totaled $2.0 million and $2.7 million for the third quarter of fiscal 2017 and 2016, respectively. Net realized gains on the sales of investments totaled $1.6 million during the third quarter of fiscal 2017, while those gains were $1.0 million during the same period a year ago. Impairments recognized on securities that management has determined are other-than-temporary declines in value approximated $0.8 million during the third quarter of fiscal 2016, while such losses were not significant for the third quarter of the current fiscal year.

Other Expense (Income), Net Other expense of $0.5 million for the third quarter of fiscal 2017 compared with other income of $0.1 million for the same period a year ago. Other expense (income), net includes net royalty expense of approximately $0.7 million for the third quarter of fiscal 2017, while prior period net royalty expense was $0.5 million. Also included in this balance is our equity in earnings of unconsolidated affiliates totaling approximately $0.2 million and $0.6 million for the third quarter of fiscal 2017 and 2016, respectively.

Income Before Income Taxes (“IBT”) Our consolidated pretax income for the third quarter of fiscal 2017 of $17.0 million compares with pretax income of $21.9 million for the same period a year ago.

Our industrial segment had pretax income of $11.7 million, or 2.2% of net sales, for the quarter ended February 28, 2017, versus pretax income of $0.5 million, or 0.1% of net sales, for the same period a year ago. Our industrial segment results reflect the impact of solid growth in organic sales during the current quarter. Our specialty segment had pretax income of $15.0 million, or 9.4% of net sales, for the quarter ended February 28, 2017, versus pretax income of $21.7 million, or 13.8% of net sales, for the same period a year ago. During the current quarter, the specialty segment incurred severance charges of $3.6 million and inventory write downs of $0.5 million related to the closure of a European manufacturing facility. Our consumer segment income before tax approximated $29.8 million, or 8.7% of net sales, for the third quarter of fiscal 2017, versus the prior year third quarter IBT of $38.8 million, or 11.4% of net sales. During the current quarter, earnings in this segment were impacted by the continued deterioration of our nail enamel product line. Additionally, we recorded a preliminary intangible asset impairment charge of $4.9 million relating to this segment’s Restore tradename.

Income Tax Rate The effective income tax rate was 25.4% for the three months ended February 28, 2017 compared to an effective income tax rate of 11.9% for the three months ended February 29, 2016. The increase in the current quarter effective income tax rate as compared to the prior quarter rate is primarily due to a discrete benefit recorded in the prior quarter related to the reversal of tax contingency reserves and the favorable impact of the distribution of foreign earnings that were previously subject to U.S. tax.

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Net Income Net income of $12.7 million for the quarter ended February 28, 2017 compares to net income of $19.3 millio n for the comparable prior year period. During each quarter presented, we had net income attributable to noncontrolling interests of approximately $0.8 million and $0.7 million for the third quarter of fiscal 2017 and 2016, respectively. Net income attri butable to RPM International Inc. stockholders for the third quarter of fiscal 2017 was $11.9 million, or 1.2% of consolidated net sales, which compared to net income of $18.6 million, or 1.9% of consolidated net sales for the comparable prior year period.

Diluted income per share of common stock for the quarter ended February 28, 2017 of $0.09 compares with diluted earnings per share of common stock of $0.14 for the quarter ended February 29, 2016.

Nine months ended February 28, 2017

Net Sales Consolidated net sales of $3,465.3 million for the first nine months of fiscal 2017 grew by approximately 2.3% from net sales of $3,387.1 million for last year’s first nine months. Organic sales improved 1.8%, while acquisitions added 2.4%. Consolidated net sales for the first nine months were offset by an unfavorable foreign exchange impact of 1.9%, which includes the impact of the devaluation of the British Pound.

Industrial segment net sales grew, by 2.1% to $1,830.7 million for this year’s first nine months versus net sales of $1,793.1 million during the same period a year ago. This impact was primarily the result of recent acquisitions, which contributed 2.3% to net sales. Organic growth in sales was 1.9% during this year’s first nine months. Unfavorable foreign exchange impacted net sales by 2.1% during this year’s first nine months.

Specialty segment net sales for the first nine months grew by 3.8% to $519.5 million, primarily due to acquisition growth of 3.0% and organic growth of 2.5%. Foreign currency negatively impacted specialty segment net sales for the first nine months by 1.7%.

Consumer segment net sales for the first nine months grew by 2.0% to $1,115.1 million, from $1,093.6 million during last year’s first nine months, due to acquisition growth of 2.1% and organic growth of 1.4%. Unfavorable foreign currency impacted net sales in the consumer segment by 1.5% during this year’s first nine months versus the same period a year ago.

Gross Profit Margin Our consolidated gross profit margin improved to 43.4% of net sales for the first nine months of fiscal 2017 from a consolidated gross profit margin of 42.5% for the comparable period a year ago, reflecting an approximate impact of 0.5% from price increases recently implemented, particularly in certain international markets where margins had been unfavorably impacted by the strengthening U.S. dollar. The remainder of the improvement resulted from more favorable manufacturing costs during this year’s first nine months versus the same period last year.

SG&A Our consolidated SG&A expense increased by approximately $93.3 million during the current period versus the same period last year, and increased to 34.3% of net sales from 32.4% of net sales for the prior year period. The main source of the increase was the number of recently acquired companies during the last 12 months, which added approximately $21.0 million to SG&A expense during the current nine month period. During the second quarter of fiscal 2017, we made the decision to exit the Flowcrete polymer flooring business located in the Middle East. In connection with the decision to exit that business, we determined it was appropriate to perform an additional review of the collectability of accounts receivable, and accordingly, we incurred a loss of $11.4 million for increased bad debt reserves. We also incurred severance expense for approximately $3.6 million in relation to the closure of a European manufacturing facility. The increase in SG&A during this year’s first nine months reflects the higher acquisition-related costs, higher compensation and pension expense, as well as higher professional services expense. Partially offsetting those increased expenses was the impact of approximately $3.7 million of favorable transactional foreign exchange during this year’s first nine months versus the unfavorable impact of approximately $7.8 million of expense during last year’s first nine months. Additionally, the prior period SG&A expense was reduced by a $14.5 million reversal of a contingent consideration obligation. Warranty expense for the first nine months ended February 28, 2017 increased by approximately $2.3 million from the amount recorded during the comparable prior year period, and it is typical that warranty expense will fluctuate from period to period.

Our industrial segment SG&A increased by approximately $23.8 million for the first nine months of fiscal 2017 versus the comparable prior year period, and increased as a percentage of net sales, as well. Recent acquisitions increased SG&A expense during this year’s first nine months in this segment by approximately $11.5 million. During the second quarter of fiscal 2017, we made the decision to exit the Flowcrete polymer flooring business located in the Middle East. In connection with the decision to exit that business, we determined it was appropriate to perform an additional review of the collectability of accounts receivable, and accordingly, we incurred a loss of $11.4 million for increased bad debt reserves. Additionally, during the current year period, there were increases in compensation and warranty expense. Partially offsetting these increased expenses was the impact of approximately $3.9 million of favorable transactional foreign exchange during this year’s first nine months versus the unfavorable impact of $3.3 million during last year’s first nine months.

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Our specialty segment SG&A was approximately $11.2 million higher during the first nine months of fiscal 2017 versus the comparable pri or year period, and was higher as a percentage of net sales, reflecting higher employee compensation and benefits expense versus the comparable prior year period, partially offset by a favorable impact from translational foreign exchange. Recent acquisition s increased SG&A expense during this year’s first nine months in this segment by approximately $4.5 million. Additionally, we incurred severance expense for approximately $3.6 million in relation to the closure of a European manufacturing facility.

Our consumer segment SG&A increased by approximately $38.0 million during the first nine months of fiscal 2017 versus the same period last year, and was higher as a percentage of net sales, reflecting higher distribution expense. Recent acquisitions increased SG&A expense during this year’s first nine months in this segment by approximately $5.0 million. Additionally, during the current year period, there was higher compensation and employee benefits expense, as well as increased professional services expense, some of which related to recent acquisitions, versus the comparable prior year period. Additionally, the prior period SG&A expense was reduced by a $14.5 million reversal of a contingent consideration obligation.

SG&A expenses in our corporate/other category of $75.4 million during the first nine months of fiscal 2017 increased by $20.2 million from $55.2 million recorded during last year’s first nine months, resulting from higher pension expense, employee compensation, benefits and acquisition costs incurred during this year’s first nine months versus the same period last year.

We recorded total net periodic pension and postretirement benefit costs of $44.0 million and $35.9 million for the first nine months of fiscal 2017 and 2016, respectively. The $8.1 million increase in pension expense resulted from higher service and interest cost of $3.0 million during the first nine months of fiscal 2017 versus the comparable prior year period. Additionally, there was an unfavorable impact of approximately $4.3 million resulting from larger actuarial losses recognized during this year’s first nine months versus last year’s first nine months. Lastly, during this year’s first nine months, the expected return on plan assets was approximately $0.8 million lower than during last year’s first nine months. We expect that pension expense will fluctuate on a year-to-year basis, depending upon the investment performance of plan assets and potential changes in interest rates, but such changes are not expected to be material to our consolidated financial results.

Goodwill and Other Intangible Asset Impairments As described in Note 3, “Goodwill and Other Intangible Assets,” to the consolidated financial statements, we recorded preliminary impairment charges related to a reduction of the carrying value of goodwill and other intangible assets totaling $193.2 million during the nine months ended February 28, 2017. For additional information, refer to Note 3 to the consolidated financial statements and the Critical Accounting Policies discussed herein.

Interest Expense Interest expense was $69.5 million for the first nine months of fiscal 2017 versus $68.1 million for the same period a year ago. Higher average borrowings, related to recent acquisitions, increased interest expense during this year’s first nine months by approximately $1.8 million versus the same period a year ago. Excluding acquisition-related borrowings, lower average borrowings year-over-year decreased interest expense by approximately $3.2 million. Higher interest rates, which averaged 4.17% overall for the first nine months of fiscal 2017 compared with 4.13% for the same period of fiscal 2016, increased interest expense by approximately $2.8 million during this year’s first nine months versus the same period last year.

Investment (Income), Net Net investment income of approximately $9.9 million for the first nine months of fiscal 2017 compares to net investment income of $8.1 million during the same period last year. Dividend and interest income totaled $5.0 million and $6.0 million for the first nine months of fiscal 2017 and 2016, respectively. Net realized gains on the sales of investments totaled $5.3 million during the first nine months of fiscal 2017, while those gains were $5.4 million during the same period a year ago. Impairments recognized on securities that management has determined are other-than-temporary declines in value approximated $0.4 million and $3.3 million during the first nine months of fiscal 2017 and 2016, respectively.

Other Expense (Income), Net Other expense of $1.3 million for the first nine months of fiscal 2017 compared with other income of $0.9 million for the same period a year ago. Other expense (income), net includes net royalty expense of approximately $2.1 million for the first nine months of fiscal 2017, while prior period net royalty expense was $0.7 million. Also included in this balance is our equity in earnings of unconsolidated affiliates totaling approximately $0.8 million and $1.6 million for the first nine months of fiscal 2017 and 2016, respectively.

IBT Our consolidated pretax income for the first nine months of fiscal 2017 of $58.6 million compares with $284.4 million for the same period a year ago.

Our industrial segment had pretax income of $151.3 million, or 8.3% of net sales, for the first nine months ended February 28, 2017, versus pretax income of $149.0 million, or 8.3% of net sales, for the same period a year ago. Our specialty segment had pretax income of $76.7 million, or 14.8% of net sales, for the first nine months ended February 28, 2017, versus pretax income of $76.5 million, or 15.3% of net sales, for the same period a year ago. Our consumer segment pretax loss of $40.7 million for the first nine months of

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fiscal 2017 compares to the prior year first nine months pretax income of $1 70.3 million, primarily as a result of current period preliminary goodwill and ot her intangible asset impairment charges totaling $193.2 million, as discussed previously.

Income Tax Rate The effective income tax rate was 4.8% for the nine months ended February 28, 2017 compared to an effective income tax rate of 28.3% for the nine months ended February 29, 2016. The decrease in the effective income tax rate is primarily due to a discrete benefit resulting from the adoption of ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting” in the first quarter of fiscal 2017. Refer to Note 2- “New Accounting Pronouncements” for additional discussion regarding adoption of the standard. The effective tax rate impact of that favorable discrete item, as compared to the prior period, is magnified by the lower level of pre-tax income.

Net Income Net income of $55.8 million for the nine months ended February 28, 2017 compares to net income of $203.8 million for the comparable prior year period. During the first nine months of fiscal 2017 and 2016, we had net income attributable to noncontrolling interests of $2.1 million and $2.0 million, respectively. Net income attributable to RPM International Inc. stockholders for the first nine months of fiscal 2017 was $53.8 million, or 1.6% of consolidated net sales, which compared to net income of $201.8 million, or 6.0% of consolidated net sales for the comparable prior year period.

Diluted earnings per share of common stock for the nine months ended February 28, 2017 of $0.41 compares with diluted earnings per share of common stock of $1.50 for the nine months ended February 29, 2016.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Approximately $173.5 million of cash was provided by operating activities during the first nine months of fiscal 2017, compared with $223.8 million of cash provided operating activities during the same period last year.

The net change in cash from operations includes the change in net income, which decreased by $148.0 million during the first nine months of fiscal 2017 versus the same period during fiscal 2016. The current nine month net income included the preliminary goodwill and other intangible asset impairment charges of $193.2 million ($132.2 million after tax), as well as $12.3 million in charges related to the decision to exit the Flowcrete Middle East polymer flooring business and $4.2 million in charges related to the closure of a European manufacturing facility. Changes in working capital accounts and all other accruals used approximately $105.4 million more cash flow during the first nine months of 2017 versus the same period last year.

The change in accounts receivable during the first nine months of fiscal 2017 provided approximately $11.4 million more cash than during the same period a year ago. Days sales outstanding (“DSO”) at February 28, 2017 increased to 65.4 days from 64.4 days sales outstanding at February 29, 2016.

During the first nine months of fiscal 2017, we spent approximately $61.6 million more cash for inventory purchases compared to our spending during the same period a year ago. This resulted from the combination of timing of purchases by retail customers, the building of additional inventory to service customers’ needs and also geographic expansion. Days of inventory outstanding at February 28, 2017 increased to 129.8 days from 115.7 days of inventory outstanding at February 29, 2016.

The change in accounts payable during the first nine months of fiscal 2017 used cash of $95.7 million versus $133.8 million of cash used during the same period a year ago, or approximately $38.1 million less cash than fiscal 2016, resulting principally from the timing of certain payments. Accrued compensation and benefits used approximately $15.2 million more cash during the first nine months of fiscal 2017 versus fiscal 2016, due to higher bonus accruals made during fiscal 2017 versus fiscal 2016. Other accruals and prepaids, including those for other short-term and long-term items and changes in accrued loss reserves, used $53.2 million more cash during fiscal 2017 versus fiscal 2016, primarily from the timing of pension plan contributions and upfront funds used for long-term customer contracts.

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

Investing Activities

Capital expenditures, other than for ordinary repairs and replacements, are made to accommodate our continued growth to achieve production and distribution efficiencies, expand capacity, introduce new technology, improve environmental health and safety capabilities, improve information systems, and enhance our administration capabilities. During the first nine months of fiscal 2017, we paid $246.9 million for acquisitions, net of cash acquired, versus $28.9 million during the comparable prior year period. Capital expenditures of $80.1 million during the first nine months of fiscal 2017 compare with depreciation of $53.3 million. In the

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comparable prior year period, capital expenditures were $54.8 million, which compared with depreciatio n of $50.0 million. We increased our current production capacity in our consumer segment during fiscal 2017, specifically with regard to our DAP operating segment, to meet our needs based on anticipated growth rates. Besides those capacity additions, we ar e increasing our capital spending in fiscal 2017 in an effort to more aggressively invest in our internal growth initiatives, especially in overseas markets. We anticipate that additional shifts at our production facilities, coupled with the capacity adde d through acquisition activity and our planned increase in future capital spending levels, will enable us to meet increased demand throughout fiscal 2017 and into fiscal 2018 and beyond.

Our captive insurance companies invest their excess cash in marketable securities in the ordinary course of conducting their operations, and this activity will continue. Differences in the amounts related to these activities on a year-over-year basis are primarily attributable to differences in the timing and performance of their investments balanced against amounts required to satisfy claims. At February 28, 2017, the fair value of our investments in marketable securities totaled $159.2 million, of which investments with a fair value of $94.6 million were in an unrealized loss position. At May 31, 2016, the fair value of our investments in marketable securities totaled $147.0 million, of which investments with a fair value of $89.4 million were in an unrealized loss position. The fair value of our portfolio of marketable securities is based on quoted market prices for identical, or similar, instruments in active or non-active markets or model-derived-valuations with observable inputs. We have no marketable securities whose fair value is subject to unobservable inputs. Total pretax unrealized losses recorded in accumulated other comprehensive income at February 28, 2017 and May 31, 2016 were $5.6 million and $10.2 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 February 28, 2017 were generally related to the normal volatility in valuations over the past several months for a portion of our portfolio of investments in marketable securities. The unrealized losses generally relate to investments whose fair values at February 28, 2017 were less than 15% below their original cost or that have been in a loss position for less than six consecutive months. From time to time, we may experience significant volatility in general economic and market conditions. If we were to experience unrealized losses that were to continue for longer periods of time, or arise to more significant levels of unrealized losses within our portfolio of investments in marketable securities in the future, we may recognize additional other-than-temporary impairment losses. Such potential losses could have a material impact on our results of operations in any given reporting period. As such, we continue to closely evaluate the status of our investments and our ability and intent to hold these investments.

As of February 28, 2017, approximately $186.1 million of our consolidated cash and cash equivalents were held at various foreign subsidiaries. Undistributed earnings held at our foreign subsidiaries that are considered permanently reinvested will be used, for instance, to expand operations organically or for acquisitions in foreign jurisdictions. Further, our operations in the U.S. generate sufficient cash flow to satisfy U.S. operating requirements. Refer to Note 8, “Income Taxes,” to the Consolidated Financial Statements for additional information regarding unremitted foreign earnings.

Financing Activities

Our available liquidity, including our cash and cash equivalents and amounts available under our committed credit facilities, stood at $620.0 million at February 28, 2017. Our debt-to-capital ratio was 60.7% at February 28, 2017, compared with 54.4% at May 31, 2016.

5.250% Notes due 2045 and 3.750% Notes due 2027

Subsequent to the end of the current fiscal quarter, on March 2, 2017, we closed our offering of $50.0 million aggregate principal amount of 5.250% Notes due 2045 (the “2045 Notes”) and $400.0 million aggregate principal amount of 3.750% Notes due 2027 (the “2027 Notes” and, together with the 2045 Notes, the “Notes”) pursuant to an Underwriting Agreement (the “Underwriting Agreement”) with Merrill Lynch, Pierce, Fenner & Smith Incorporated and Wells Fargo Securities, LLC, as representatives of the several underwriters named therein (collectively, the “Underwriters”). The 2045 Notes are a further issuance of the $250 million aggregate principal amount of 5.250% Notes due 2045 initially issued by us on May 29, 2015. In connection with the closing, on March 2, 2017, we issued and sold to the Underwriters the Notes pursuant to the Underwriting Agreement. Interest on the 2045 Notes will accrue from December 1, 2016 and will be payable semiannually in arrears on June 1st and December 1st of each year, beginning June 1, 2017, at a rate of 5.250% per year. The 2045 Notes mature on June 1, 2045. Interest on the 2027 Notes will accrue from March 2, 2017 and will be payable semiannually in arrears on March 15th and September 15th of each year, beginning September 15, 2017, at a rate of 3.750% per year. The 2027 Notes mature on March 15, 2027. The indenture governing this indebtedness includes cross-acceleration provisions. Under certain circumstances, where an event of default under our other instruments results in acceleration of the indebtedness under such instruments, holders of the indebtedness under the indenture are entitled to declare amounts outstanding immediately due and payable.

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Proceeds from t he Notes were used to repay amounts outstanding under our revol ving credit facilities.

Revolving Credit Agreement

During fiscal 2015, we entered into an $800.0 million unsecured syndicated revolving credit facility (the “New Revolving Credit Facility”), which expires on December 5, 2019. The New Revolving Credit Facility replaced our prior $600.0 million revolving credit facility.

The New Revolving Credit Facility includes sublimits for the issuance of swingline loans, which are comparatively short-term loans used for working capital purposes and letters of credit. The aggregate maximum principal amount of the commitments under the New Revolving Credit Facility may be expanded upon our request, subject to certain conditions, up to $1.0 billion. The New Revolving Credit Facility is available to refinance existing indebtedness, to finance working capital and capital expenditures, to satisfy all or a portion of our obligations relating to the plan of reorganization for our SPHC subsidiary, and for general corporate purposes.

The New Revolving Credit Facility requires us to comply with various customary affirmative and negative covenants, including a leverage covenant and interest coverage ratio, which are calculated in accordance with the terms as defined by the credit agreement. Under the terms of the leverage covenant, we may not permit our consolidated indebtedness as of any fiscal quarter end to exceed 65% of the sum of such indebtedness and our consolidated shareholders’ equity on such date. The minimum required consolidated interest coverage ratio for EBITDA to interest expense is 3.50 to 1. The interest coverage ratio is calculated at the end of each fiscal quarter for the four fiscal quarters then ended using an EBITDA as defined in the credit agreement.

As of February 28, 2017, we were in compliance with all financial covenants contained in our New Revolving Credit Facility, including the leverage and interest coverage ratio covenants. At that date, our leverage ratio was 59.4%, while our interest coverage ratio was 9.73 to 1. Our available liquidity under our New Revolving Credit Facility stood at $389.2 million at February 28, 2017.

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

As previously reported, during fiscal 2015, a plan of reorganization was confirmed (the “Bankruptcy Plan”) and, effective as of December 23, 2014, Bondex, SPHC, Republic and NMBFiL emerged from bankruptcy. Accordingly, trusts were established under Section 524(g) of the United States Bankruptcy Code (together, the “Trust”) and were funded with first installments. Borrowings under our New Revolving Credit Facility were used to fund the initial trust payment of $450 million, which is classified as long-term debt in our Consolidated Balance Sheets. The Trust was funded with $450 million in cash and a promissory note, bearing no interest and maturing on or before December 23, 2018 (the “Bankruptcy Note”). The net present value of the Bankruptcy Note, or $237.4 million, is classified as other long-term liabilities for $119.7 million and other accrued liabilities for $117.7 million, in our consolidated financial statements at February 28, 2017. A portion of the payments due under the Bankruptcy Note is secured by a right to the equity of SPHC, Republic and Bondex. The Bankruptcy Plan, and Bankruptcy Note, provide for the following additional contributions to the Trust:

| • | On or before December 23, 2016, an additional $102.5 million in cash, RPM stock or a combination thereof (at our discretion in this and all subsequent cases) was required to be deposited into the Trust (and on December 23, 2016, $102.5 million in cash was deposited into the Trust);

| • | On or before December 23, 2017, an additional $120 million in cash, RPM stock or a combination thereof will be deposited into the Trust; and

| • | On or before December 23, 2018, a final payment of $125 million in cash, RPM stock or a combination thereof will be deposited into the Trust.

Total current and future contributions to the Trust are deductible for U.S. income tax purposes.

Accounts Receivable Securitization Program

On May 9, 2014, we entered into a new, three-year, $200.0 million accounts receivable securitization facility (the “AR Program”). The maximum availability under the AR Program is $200.0 million. Availability is further subject to changes in the credit ratings of our customers, customer concentration levels or certain characteristics of the accounts receivable being transferred and therefore at certain times we may not be able to fully access the $200.0 million of funding available under the AR Program.

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As of February 28, 2017, our outstanding balance under the AR Program was $130.0 million, which compares with the maximum availability on that date of $150.0 million. The interest rate under the Purchase Agreement is based on the Alternate Base Rate, LIBOR Market Index Rate, one-month LIBOR or LIBOR for a specified tranche period, as selected by us, plus in each case, a margin of 0.70%. In addition, we are obligated to pay a monthly unused commitment fee based on the daily amount of unused commitments under the Agreement, which fee ranges from 0.30% to 0.50% based on usage. The AR Program contains various customary a ffirmative and negative covenants and also contains customary default and termination provisions.

Our failure to comply with the covenants described above and other covenants contained in the Revolving Credit Facility could result in an event of default under that agreement, entitling the lenders to, among other things, declare the entire amount outstanding under the Revolving Credit Facility to be due and payable. The instruments governing our other outstanding indebtedness generally include cross-default provisions that provide that under certain circumstances, an event of default that results in acceleration of our indebtedness under the Revolving Credit Facility will entitle the holders of such other indebtedness to declare amounts outstanding immediately due and payable.

2.25% Convertible Senior Notes due 2020

On December 9, 2013, we issued $205 million of 2.25% convertible senior notes due 2020 (the “Convertible Notes”). We will pay interest on the Convertible Notes semi-annually on June 15th and December 15th of each year, and began doing so on June 15, 2014. Net proceeds of approximately $200.1 million from the sale were used to refinance $200 million in principal amount of unsecured senior notes due December 15, 2013, which had an interest rate of 6.25%.

The Convertible Notes will be convertible under certain circumstances and during certain periods at an initial conversion rate of 18.8905 shares of RPM common stock per $1,000 principal amount of notes (representing an initial conversion price of approximately $52.94 per share of common stock), subject to adjustment in certain circumstances. In July 2016, we declared a dividend in excess of $0.24 per share, and consequently, the adjusted conversion rate at February 28, 2017 was 19.027264. The initial conversion price represents a conversion premium of approximately 37% over the last reported sale price of RPM common stock of $38.64 on December 3, 2013. Prior to June 15, 2020, the Convertible Notes may be converted only upon specified events, and, thereafter, at any time. Upon conversion, the Convertible Notes may be settled, at RPM’s election, in cash, shares of RPM’s common stock, or a combination of cash and shares of RPM’s common stock.

We account for the liability and equity components of the Convertible Notes separately, and in a manner that will reflect our nonconvertible debt borrowing rate when interest cost is recognized in subsequent periods. The effective interest rate on the liability component is 3.92%. Contractual interest was $1.2 million and amortization of the debt discount was $0.7 million for the third quarter of fiscal 2017 and 2016. Contractual interest was $3.5 million and amortization of the debt discount was $2.2 million for the first nine months of fiscal 2017 and 2016. At February 28, 2017, the remaining period over which the debt discount will be amortized was 3.75 years, the unamortized debt discount was $11.9 million, and the carrying amount of the equity component was $20.7 million.

The following table summarizes our financial obligations and their expected maturities at February 28, 2017 and the effect such obligations are expected to have on our liquidity and cash flow in the periods indicated.

|  | Total Contractual |  |  | Payments Due In |
|  | Payment Stream |  |  | 2018 |  |  | 2019-20 |  |  | 2021-22 |  |  | After 2022 |
|  | (In thousands) |
Long-term debt obligations |  | $ | 1,981,533 |  |  | $ | 381,564 |  |  | $ | 861,446 |  |  | $ | 192,338 |  |  | $ | 546,185 |
Capital lease obligations |  |  | 1,156 |  |  |  | 220 |  |  |  | 411 |  |  |  | 191 |  |  |  | 334 |
Operating lease obligations |  |  | 223,983 |  |  |  | 53,311 |  |  |  | 71,256 |  |  |  | 37,596 |  |  |  | 61,820 |
Other long-term liabilities (1): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest payments on long-term debt obligations |  |  | 553,964 |  |  |  | 18,956 |  |  |  | 135,675 |  |  |  | 68,808 |  |  |  | 330,525 |
Promissory note payments on 524(g) Trust |  |  | 245,000 |  |  |  | 120,000 |  |  |  | 125,000 |  |  |  |  |  |  |  |  |
Contributions to pension and postretirement plans (2) |  |  | 422,400 |  |  |  | 61,100 |  |  |  | 78,900 |  |  |  | 90,700 |  |  |  | 191,700 |
Total |  | $ | 3,428,036 |  |  | $ | 635,151 |  |  | $ | 1,272,688 |  |  | $ | 389,633 |  |  | $ | 1,130,564 |

(1) | Excluded from other long-term liabilities are our gross long-term liabilities for unrecognized tax benefits, which totaled $15.3 million at February 28, 2017. Currently, we cannot predict with reasonable reliability the timing of cash settlements to the respective taxing authorities related to these liabilities.

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

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Off-Balance Sheet Arrangements

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

OTHER MATTERS

Environmental Matters

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

FORWARD-LOOKING STATEMENTS

The foregoing discussion includes forward-looking statements relating to our business. These forward-looking statements, or other statements made by us, are made based on our expectations and beliefs concerning future events impacting us and are subject to uncertainties and factors (including those specified below), which are difficult to predict and, in many instances, are beyond our control. As a result, our actual results could differ materially from those expressed in or implied by any such forward-looking statements. These uncertainties and factors include (a) global markets and general economic conditions, including uncertainties surrounding the volatility in financial markets, the availability of capital and the effect of changes in interest rates, and the viability of banks and other financial institutions; (b) the prices, supply and capacity of raw materials, including assorted pigments, resins, solvents, and other natural gas- and oil-based materials; packaging, including plastic containers; and transportation services, including fuel surcharges; (c) continued growth in demand for our products; (d) legal, environmental and litigation risks inherent in our construction and chemicals businesses and risks related to the adequacy of our insurance coverage for such matters; (e) the effect of changes in interest rates; (f) the effect of fluctuations in currency exchange rates upon our foreign operations; (g) the effect of non-currency risks of investing in and conducting operations in foreign countries, including those relating to domestic and international political, social, economic and regulatory factors; (h) risks and uncertainties associated with our ongoing acquisition and divestiture activities; (i) risks related to the adequacy of our contingent liability reserves; and (j) other risks detailed in our filings with the Securities and Exchange Commission, including the risk factors set forth in our Annual Report on Form 10-K for the year ended May 31, 2016, 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, 2016.

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 Act Rule 13a-15(e)) as of February 28, 2017 (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 February 28, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II — OTHE R INFORMATION

ITEM 1. | LEGAL PROCEEDINGS

SEC Investigation and Enforcement Action

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

In connection with the foregoing, on September 9, 2016, the SEC filed an enforcement action in the U.S. District Court for the District of Columbia against us and our General Counsel. We have cooperated with the SEC’s investigation and believe the allegations in the complaint mischaracterize both our and our General Counsel’s actions in connection with the matters related to our quarterly results in fiscal 2013 and are without merit. The complaint seeks disgorgement of gains that may have resulted from the conduct alleged in the complaint, and payment of unspecified monetary penalties from us and our General Counsel pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act. Further, the complaint seeks to permanently enjoin us from violations of Sections 17(a)(2) and (a)(3) of the Securities Act, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Exchange Act Rules 12b-20, 13a-1, 13a-11 and 13a-13, and to permanently enjoin our General Counsel from violations of Sections 17(a)(2) and (a)(3) of the Securities Act and Exchange Act Rules 13b2-1 and 13b2-2(a). We intend to contest the allegations in the complaint vigorously, and both we and our General Counsel filed motions to dismiss the complaint on February 24, 2017.

Environmental Proceedings

As previously disclosed, following an audit of Rust-Oleum Corporation’s Annual Quantity and Emissions Reports, the State of California’s South Coast Air Quality Management District (the “AQMD”) issued a Notice of Violation to Rust-Oleum alleging violations of AQMD’s Rule 314 (relating to fees for architectural coatings) and Rule 1113 (relating to limits on volatile organic compound content in architectural coatings). Rust-Oleum estimates that it may be subject to excess emission fees, civil penalties and AQMD’s costs in the range of approximately $100,000 to $200,000 in the aggregate, and anticipates that all or a portion of such payments may be offset by a credit for excess amounts that Rust-Oleum has previously paid to AQMD.

As previously disclosed, the U.S. Environmental Protection Agency issued a Notice of Violation to Rust-Oleum Corporation alleging three violations of regulations/permits issued under the Clean Air Act. With respect to this Notice of Violation, Rust-Oleum estimates that it may be subject to a penalty of approximately $181,000.

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 local environmental statutes. In some cases, our subsidiaries are participating in the cost of certain clean-up efforts or other remedial actions. Our share of such costs to date, however, has not been material and management believes that these environmental proceedings will not have a material adverse effect on our consolidated financial condition 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 on Form 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 on Form 10-K for the fiscal year ended May 31, 2016.

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ITEM 2. | UNREGISTERED SALE OF EQUI TY SECURITIES AND USE OF PROCEEDS

(c) The following table presents information about repurchases of common stock we made during the third quarter of fiscal 2017:

|  |  |  |  |  |  |  |  |  |  |  |  |  | Maximum |
|  |  |  |  |  |  |  |  |  | Total Number |  |  | Number of |
|  |  |  |  |  |  |  |  |  | of Shares |  |  | Shares that |
|  |  |  |  |  |  |  |  |  | Purchased as |  |  | May Yet be |
|  |  |  |  |  |  |  |  |  | Part of Publicly |  |  | Purchased |
|  | Total Number |  |  | Average |  |  | Announced |  |  | Under the |
|  | of Shares |  |  | Price Paid |  |  | Plans or |  |  | Plans or |
Period |  | Purchased(1) |  |  | Per Share |  |  | Programs |  |  | Programs(2) |
December 1, 2016 through December 31, 2016 |  |  | 423 |  |  | $ | 52.99 |  |  |  | - |  |  |  | - |
January 1, 2017 through January 31, 2017 |  |  | 6,644 |  |  | $ | 52.39 |  |  |  | - |  |  |  | - |
February 1, 2017 through February 28, 2017 |  |  | 1,133 |  |  | $ | 51.79 |  |  |  | - |  |  |  | - |
Total - Third Quarter |  |  | 8,200 |  |  | $ | 52.34 |  |  |  | - |  |  |  | - |

(1) | Represents 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 under RPM International Inc.'s Amended and Restated 2004 Omnibus Equity and Incentive Plan.

(2) | Refer to Note 10 to the consolidated financial statements for further information regarding our stock repurchase program.

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ITEM 6. | EXHIBITS

Exhibit Number |  | Description
12 |  | Computation of Ratio of Earnings to Fixed Charges. (x)
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)
99.1 |  | Amendment No. 3 to Second Amended and Restated Receivables Sale Agreement, dated as of December 31, 2016. (x)
101.INS |  | XBRL Instance Document.
101.SCH |  | XBRL Taxonomy Extension Schema Document.
101.PRE |  | XBRL Taxonomy Extension Presentation Linkbase Document.
101.DEF |  | XBRL Taxonomy Extension Definition Linkbase Document.
101.CAL |  | XBRL Taxonomy Extension Calculation Linkbase Document.
101.LAB |  | XBRL Taxonomy Extension Label Linkbase Document.

(x) | Filed herewith.

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SIGNAT URES

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/ Russell L. Gordon
|  | Russell L. Gordon
|  | Vice President and
|  | Chief Financial Officer

Dated: April 6, 2017

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