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Krause Fund Research Fall 2016

Materials Recommendation: Hold Analysts

Ryan Gersowsky ryan-gersowsky@uiowa.edu

Mark McLaughlin mark-mcLaughlin@uiowa.edu

Company Overview RPM International (RPM) is a multinational holding company specializing in coatings, sealants, building materials, and related services. They have global operations in Asia/Pacific, South/Latin America, Europe, and Africa/Middle East. RPM International had 1.347 billion dollars in global sales last year along 3.467 billion in North American sales. Their FY 2016 Net Income was 357 million an increase of over 129 million from the previous fiscal year. Stock Performance Highlights 52 week High $55.92 52 week Low $36.78 Beta Value 1.1122 Average Daily Volume 589 t Share Highlight Market Capitalization $6.85 b Shares Outstanding 129 m Book Value per share $4.78 EPS (FY 2016) $2,76 P/E Ratio 64.52 Dividend Yield 2.25% Dividend Payout Ratio 40% Company Performance Highlights ROA 7.6% ROE 27.6% Sales $4.814 b Financial Ratios Current Ratio 2.13 Debt to Equity 1.20

RPM International Inc. (NYSE:RPM)

November 15, 2016

Current Price $52.27 Target Price $51.00-57.00

RPM Demonstrates Reliable Cash Flows

Leader in product markets: RPM remains a market leader in most of their niche market products. Examples include Rust-Oleum specialty paint, DAP caulk and sealant, and Tremco roofing. Because of their market position as market leaders, they are able to command higher margins for their products, putting them in a good position for continued success. Further acquisitions in their specialty segment, commanding higher margins than industrial and consumer segments, should also increase profitability. Market expansion: At RPM, 72% of 2016 revenue comes from North America and 19% from Europe. Management has expressed Asia as a prime target for future growth. RPM’s most recent acquisition, Carboline Dalian Paint, has allowed the company another foothold along with Flowcrete, which will allow the company to further, make their products available to Asian consumers. Reliable cash flows: According to management, around 70% of RPM International’s revenue comes from repair and maintenance. This means even in cycle downturns or reduced capital expenditures by companies and reduced spending by consumers, RPM has limited exposure since repairs and maintenance are still needed. Diversified product mix: RPM International has a diversified revenue stream of hundreds of products serving many different markets. This has allowed RPM to effectively weather downtowns in certain industries since others in in portfolios might still be doing well. RPM’s product categories are divided into 3 streams based on end use. These are industrial, consumer, and specialty.

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One-Year Stock Performance

Source: marketwatch.com iv

We are issuing a hold rating for RPM International Inc. (RPM) for the Krause Fund Portfolio. This decision is based upon our opinion that RPM is fairly priced at its current valuations and future growth estimates have already been priced in. RPM trades at a premium because of its stable cash flows and well run business with excellent management. At a market cap now of $6.85B, as RPM grows larger they will find it increasingly difficult to find and make acquisitions of market leading niche companies at good prices like they have in the past. This, we believe will ultimately have an effect on how quickly they can grow relative to making sure their margins are not squeezed. Our valuation model backs up our thesis by increasing revenue modestly from historic levels to show decreasing revenue growth for the company as it becomes larger and matures. We have gross margins and SG&A as a % of revenue remaining at steady historical levels representing our thesis that RPM will maintain its dominant market position in its niche markets while continuing to expand into new niche markets and absorbing overhead by centralizing the accounting and other management costs to its headquarters. We believe these key factors will ultimately materialize leading RPM’s stock to have an intrinsic value of $51.00-57.00.

US Gross Domestic Product The gross domestic product is a measure of goods and services produced in a country during a given period, adjusted for inflation. GDP growth is vital for the specialty chemicals sub industry because the industrial & consumer

segments will be boosted by an increase in spending by an increase in both their customer bases. Architectural coatings as well as OEM coatings sales are largely dependent on maintenance of homes and personal goods. Therefore, minor growth in GDP does not hinder consumer’s maintenance and repair spending. Since 2009 when the GDP decreased 2.77% the real GDP growth in the United States has fallen relatively flat. Between 2010 and 2015 yearly GDP growth has increased by between 1.6% and 2.6% annually. We believe, that the small growth in Real GDP does not hurt RPM International’s primary source of revenue. It would be preferable if real GDP grew at a faster pace, we feel that small growth in GDP does not obstruct consumer’s and business’s maintenance and repair expenses.

U.S. Annual Real GDP Growth

Source : FREDii

US Interest Rates In 2008, when the United States economy entered a recession, the Federal Reserve underwent a policy of quantitative easing to help stimulate the economy. Quantitative Easing is when a Central Bank buys financial assets from financial institutions; thus raising prices of the financial assets, while lowering the yields. Currently the Fed Funds Rates is 0.25%-0.5%. This rate rose .25 basis points in December of 2015 and has a direct relationship with interest rates xx, xvi. The Federal Reserve is cautiously optimistic that they will be able to raise rates in December of 2016, creating a higher yield amongst U.S. interest rates.

Macroeconomic Outlook

Executive Summary

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U.S. 10 Year Treasury Yield

Source: FREDiii

Our team believes that the fed funds rate will increase two hikes of 25 basis points a year. Therefore, interest rates will remain lower for longer, but will rise hesitantly. We feel this is a huge positive for the Chemicals industry because it is a capital-intensive industry and requires large initial cash outflows. Chemical companies therefore, take on a lot of debt due to large-scale projects. The low interest rates make it easier to pay back their debt. On the other hand specialty chemicals are less capital intensive however, we view the large amount of unique, low-volume products that need distribution and manufacturing sites are in RPM International’s product line. Lower interest rates positively affect specialty chemical consumers since borrowing for capital expenditures or to buy homes has become cheaper. Exchange Rates RPM International Inc. is in fact a truly international company. They own operating and manufacturing facilities in 24 different countries along with having their products available in 170 different countries. Since RPM is a U.S. based company they have to report their assets in U.S. dollars not local currencies. This places extreme importance on the exchange rate between U.S. dollars and foreign currencies. A dollar strengthening against foreign currencies will cause international companies to report smaller potential profits. RPM International has been negatively affected by the strengthening dollar against foreign currencies. The two major areas where foreign manufacturing and sales are produced are China and Europe. A few of RPM International’s manufacturing sites in their industrial product segments are located in China. China is currently undertaking a policy of devaluing its currency. In June of 2016, the Chinese stock market crashed and the Chinese growth rate fell to 7% in 2016 from an average of 10.6% in 2010. The main tool China has used to depreciate

the yuan was increasing their exports. China’s products are cheaper due to the depreciation of their currency and because of that it is a cost effective option for countries to import Chinese products VI. Currently the USD to CNY exchange rate is 6.81195. In January of 2014, the exchange rate hovered around 6.04. This shows the dramatic effect that the yuan devaluation policy is having. The appreciating USD vs. the Yuan will have a negative impact to U.S. based companies that have to report earnings in dollars.

5 Year Exchange Rate USD vs. CNY

Source: XE.comVII

Outside of the United States a large area of manufacturing takes place in Europe. RPM International manufactures its products in fourteen different countries inside of Europe. Unfortunately, for companies operating inside Europe, 2016 presents a time of uncertainty inside the European Union. On June 23rd, 2016 the United Kingdom voted to leave the European Union leaving the entire area in political uncertainty. The results of the vote caused the Euro to fall 4.7 percent the next day. This places extreme doubt in the value of the euro in the future. The United Kingdom has 2 years to determine the terms in which they will leave the European Union VIII. The U.S. dollar was already appreciating against the Euro before this vote, but the results really jolted the value of the dollar versus the Euro. In the future we expect that the dollar will continue to appreciate because other countries like Scotland are contemplating leaving the European Union and in two years when the United Kingdom leaves it will create an uncertain political and economic future for the continent IX.

5 Year Exchange Rate USD vs. EURO

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Source: XE.com X

Oil Prices

Oil Prices currently are at a relatively low level in 2016. The current selling price is hovering around $43 a barrel. This is a significant decrease from the $100 dollars it was just two years previous. It has rallied a bit since the beginning of the year, but it is still at a very low level by historical standards. The effects of low oil prices have had both a positive and negative affect on the industry. A lower price on oil has had a positive effect on the coating industry because it lowered the prices of raw materials as inputs. This means it is cheaper to manufacture products, thus increasing the margins by not passing on cost savings to consumers through price reductions. Another positive is that oil importing countries experience higher levels of disposable income for consumers, which theoretically boosts spending on construction and consumer goods. This will help companies like RPM International with their foreign sales because they do produce a significant amount of consumer products that benefit from increases in construction and consumer goods spending. There is also a negative impact for US based specialty chemical companies as well. In the United States companies rely more on natural gas for production, whereas foreign companies rely more on oil for their production. Due to the low global price of oil, the competitive production cost advantages the United States companies rely on has been taken away.

Oil Prices Over Last 5 Years

Source: NASDAQ XXVII

It is our expectation that oil prices will remain very volatile. Our team believes that oil prices will likely average out between $45-60. As a team, we feel that the low prices of oil will have more of a positive impact than a negative one on the industry. Lower oil prices will have more of a positive advantage for RPM International because the low prices of oil will lower the inputs of their products as well as increasing a boost in foreign sales. The increase in foreign sales is a major positive for RPM International Inc. Market Outlook The market this year has experienced record low volatility with drastic spikes as economic and political news is released. With the elections over and a candidate chosen, our group believes this should relieve some of the uncertainty that was stirring the market and their future predictions. We expect markets to continue to have sudden spikes of high volatility as more news is released on the president’s choices for handling trade and foreign policy as well as if/when Janet Yellen and the Federal Reserve decide to raise interest rates and how quickly.

Overview Our team identifies RPM International to be operating in the coatings and sealants industry. The coatings and sealants industry falls within the specialty chemical sub-industry. The major product categories are used to create a protective/decorative layers in houses, offices, etc. The creations of products within the industry require several substances including resins, solvents, additives, pigments, and diluents. There are main product lines in the Painting and Coatings industry: architectural, original equipment

Industry Analysis

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manufacturing coatings, special purpose coatings, and miscellaneous coatings. 36.9% of product segmentation in the in the industry comes from architectural coatings while 25.2 % comes from Industrial coatings.

Product Segmentation Coatings Industry

Source: IBISworld.com i

Industry Trends

Government Regulation of VOC’s A major development industry trend is the shift away from products with a high level of Volatile Organic Compounds (VOC’s). VOC’s are released into the air as the coating dries. The major VOC found in coatings is Formaldehyde. It is known to cause headaches, dizziness, and is a potential carcinogen. Due to the health risks that come with VOC’s the US government regulated its use with the Clean Air Act. The Clean Air Act entails that companies reduce their VOC emissions by 3% per year xv. This has caused coating companies to shift toward low VOC products. Major companies already making low VOC products include Sherwin Williams, Benjamin Moore and Behr xix. In the past few years, governments all over the world have implemented standards to try and limit VOC production. In China, manufactures now have a 5% tax for VOC’s above a limit set at 400 g/l. In the United States, the OHSA created a new system called Implementation of the Globally Harmonized System. This creates a standard of transparency between companies and consumers. Stricter standards have been placed on what to include on warning labels for consumer products. This has created an incentive for companies in the coating industry to shift away from VOC products. However, manufacturing VOC products is cheaper than non-VOC products XXV. This is an obvious negative trend for companies in the industry as more expensive manufacturing is going to lead to lower margins or price increases for consumers. In addition, companies in the industry have to spend money on developing new

technologies that are safer for the environment. This creates a lot of sunk costs for companies.

Use of Nanotechnology in Products The use of Nanotechnology in coating products is a recent trend within the product segments. Nanotechnology in this industry is adding metallic or ceramic particles to products in order to specialize them xxx. It is vital for manufacturers to adopt the use of Nanotechnology because it allows coatings to perform at longer lasting levels xxxi. Nanotechnology allows coating companies to put out a superior product. RPM International Inc. does not currently use nanotechnology but in the future, if it wants to remain viable in the specialty coating market, it must start adapting to the new technology and create superior products. Porters Five Forces 1. Threat of New Entrants: Moderate In 2016, the top four firms will combine to make up 51.7% of the total industry revenue. This shows a dramatic 5-year shift since in 2011, the top four firms accounted for 43.1% of the total industry revenue. This shows that there is a lot of consolidation currently taking place within the industry. Brand recognition is becoming crucial because without it, it’s becoming increasingly difficult to remain viable in the market. 2. Threat of Substitutes: Low Specialty chemicals operate in smaller niche markets. The specialty chemicals are used in many every day products used by consumers and businesses. This is not expected to change in the near future. 3. Power of Suppliers: High The specialty chemical industry suppliers are firms that provide raw materials. This means the industry is full of downstream price takers since raw materials make up a large percentage of their inputs. This gives suppliers a lot of bargaining powers. 4. Power of Buyers: Medium The main buyers in this industry are customers and the industrial segment. Both consumers and the industrial segment are relatively price sensitive however, with limited options customers bargaining power is not as high. 5. Industry Rivalry: High The industry rivalry is very high due to it being an already large industry with a lot of competitors with similar products. Each company has tried to specialize and take leads in specific subsectors, but there is still a very intense rivalry among industry leaders.

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Catalyst for Growth and Change

Emerging Markets An area for extreme growth in the specialty coatings industry is in emerging markets.

Source: IHS XXIX

As seen in the chart, the Chinese and the North American markets dominate the consumption of specialty chemicals. When it comes to the painting and coatings industry some of the largest consumers of specialty chemicals will experience the highest growth. According to IHS Markit, an information services company in London, growth of demand for coatings in China is expected to continue growing at 8% per year, 4-5% in Indonesia, and 11% in India xxx. This provides a very exciting opportunity for painting and coating chemicals to expand into the Asia Pacific region. Multinational coating companies such as PPG, Sherwin-Williams, and RPM International will continue to establish themselves in these markets. Competitive Analysis The best way to do competitive analysis is to compare RPM with their top competitors in a few key financial metrics. Since RPM International is a holding company and has many different products used in a lot of different industries, it is difficult to come up with a perfect metric comparing RPM to it’s main competitors in the coating industry. The metrics our team decided on were: Operating Margin, Profit Margin, ROE, and P/E.

Profit Margin Our team chose to use profit margin as a metric to analyze the top competitors in the industry because it shows us how much of the company’s revenues it is able to keep after all expenses are accounted for. RPM is currently in the middle of the industry leaders with the profit margin of 7.2%.

Although they are trailing SHW and VAL, they are ahead of the leader in revenue in the industry, PPG.

Operating Margin Operating margin was a metric we chose to use when comparing industry leaders because a good indicator of financial health and how much a company can make off of revenue before non-operating expenses. RPM has the worst operating margin of 11.6%. All the other industry leaders are well above 14%. This is red flag when analyzing RPM because it shows that their business operations are not as profitable.

ROE We used the return on equity metric to compare companies because it is important to investors to see what portion of a company’s net income is returned to the shareholders. RPM International currently has a Return on Equity of 27.6%. This is in the middle of the three peer companies. Our team finds that a healthy rate with their current leverage of 1.2 Debt to Equity.

Forward P/E The last metric we chose to use was the forward P/E Ratio. We chose to use this ratio because as a team we preferred to use forecasted earnings because the market is forward thinking. RPM International is average in their forward P/E Ratio amongst peers currently at 18.67. The highest amongst peers is Sherwin Williams Co. at 21.53. Their middle of the road P/E ratio given the industry is a good indicator that RPM is trading at a fair price.

Source: Yahoo22-24

General Information

Overview RPM International Inc. is a holding company that owns diverse businesses that produce specialty chemicals, sealants, and coatings. These products primarily are used for maintenance and improvement purposes. RPM International Inc. manufactures in 24 different countries and

Company Analysis

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their products are sold in over 170 countries. Frank C. Sullivan founded Republic Powdered Metals in 1947. RPM is headquartered in Medina, Ohio. RPM became a public company on January 13th, 1978 xviii.

Financial Summary & Foreign Sales

In 2016, consolidated sales grew by 4.8%. These sales were driven positively by +2.8% organic growth, +6.7% from acquisitions, and negatively -4.7% from unfavorable exchange rates. Sales for RPM the past 5 years have had a CAGR of 7.3%. Over the past 5 years, average sales growth in industrials, consumer, and specialty segments have been 3%, 8.1% and 39.2% respectively. Our team expects slow growth in the industrial sector. Our team expects between a 2.6% to 3.3% growth in this sector as they continue to face headwinds from the hurting energy sector, slowing capital expenditures from the industrial sector, and a strengthening dollar. From the Consumer and Specialty sectors we expect a high growth with tailwinds from a recovering housing and commercial real estate market and continued repair and maintenance. For the consumer sector we expect an average of growth 1.7% over the next five years. For the specialty segment we expect a growth of 20.4% on average over the next five years. Operating margins in industrial, consumer, and specialty markets in 2016 were 10.6%, 16.4%, and 15.2%. Consolidated operating Margin was 13.3%, relatively higher than the 10 Year Average of 9.96% and has been trending upwards the past 3 years. We believe this trend to continue as the industrial segment improves. RPM International’s foreign revenue has drastically improved as they have made their products available in more countries. The past decade, RPM has made their products available in 20 more countries and their foreign sales account for 11% more of their total revenue. North America still made up the vast majority of RPM International’s total revenue at 72.02%, meaning their success is heavily dependent on North American sales. However, there are other regions that provide significant revenue to RPM. Europe provided 19.6% of RPM’s total revenue. However, in the future we believe that RPM will continue to focus on expanding their influence in the Asia/Pacific region. Despite only having 2.62% of their revenue coming from that region, we expect them to try and obtain a stronger presence. In 2008, RPM acquired Flowcrete, a manufacturer of resin flooring for industrial and commercial uses. Flowcrete was their only stronghold in the Asia/Pacific area until May of 2016, when they acquired Carboline Dalian Paint xvi. This transaction shows that that RPM is committed to playing a more prominent role in the Asia/Pacific markets. We expect that RPM will continue to pursue acquisitions to grow their international sales.

Source: RPM International 2016 Annual Report XII

Corporate Strategy

RPM’s strategy is based on the acquisition of small bolt-on companies that dominate niche markets and command high margins. RPM International has 5 different strategies on how to grow their revenue: Acquisitions, New Product Development, “Value of 168”, Connections, and International Expansion. RPM has already used some of these strategies to help grow their revenues substantially. The main strategy RPM is using is Acquisitions of subsidiaries with the intention of growing their revenue internationally. RPM has already acquired over 150 new companies. This has allowed RPM to enter markets along with providing new products from their existing businesses. The results have been very positive. Between the years of 2005 and 2015, sales in Europe increased from $251 million to $942 million dollars. These results are shown across the rest of the continents as well. In every continent in the past 10 years, RPM has at least doubled their sales. Overall international sales have gone up from $354 million in 2005 to $1.4 billion dollars in annual sales. That is a 395% increase in annual international sales in ten years. Currently, RPM products are sold in over 170 countries and international sales accounts for 36% of the companies $4.8 billion dollars in sales. The Connections Strategy has helped RPM with R&D as well as entering new markets. This strategy is essential for RPM due to their high number of operating companies.

2016 Acquisitions

On November 2nd, 2016 RPM International acquired Adhere Industrial Tapes LTD. Their product line includes single and double-sided tape used for various construction and industrial purposes. The company is based in the United Kingdom and has annual sales of $6 million. XXV

On September 12th, 2016, RPM acquired Specialty Polymer Coatings, Inc. This is a high performance gas and pipeline coating company based in Canada. SPC has annual sales of $26 million. xxxvi

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On July 5th, 2016 RPM acquired Duram Industries Pty Limited, an Australian company specializing in commercial waterproofing products. The annual sales are approximately $6 million. xxxviii

On May 18th, 2016 RPM acquired the remaining 51% interest in Carboline, Dalian Paint Production Co. This company has a wide variety of corrosion control coatings, with annual sales of around $11 million.xxxix

On March 3rd, 2016 RPM acquired Seal-Krete, a US manufacture of concrete care coatings and sealants. This is a U.S. based company with annual sales of over 10 million. xxviii Products and Markets

RPM International operates numerous product lines. Their product lines are segmented into 3 different revenue streams depending on uses and end users. The lines are Industrial, Consumer, and Specialty.

Source: RPM International 2016 Annual Report XII

The industrial market specializes in serving mostly commercial aftermarket customers in areas such as maintenance and protection products for roofing and waterproofing systems, industrial flooring, passive fire protection, corrosion control and other construction chemicals. This segment includes companies such as Tremco, Illbruck group, and RPM Performance Coatings to name the biggest contributors. The Industrial Segment is responsible for 51% of RPM’s total revenue. The Consumer segment’s products are used for rust-preventative, special purpose and decorative paints, caulks, sealants, primers, nail enamels, cement and Wood Care coatings, and other branded consumer products. Companies in this segment include: Rust-Oleum, DAP, and SPG. Consumer segment makes up 34% of net sales. The specialty segment assists many industries in areas of industrial cleaners, restoration services, equipment, colorants, exterior finishes, edible coatings, and other specialty OEM coatings. The Specialty makes up 15% of Revenue. Companies include: Day-Glo, Dryvit, and Mohawk xxiii.

According to Christopher Perrella, a BI Industry analyst, 15% of RPM sales in the past three fiscal years come from new products. Tremco, a Roofing and Building maintenance operating company continues to grow at a fast rate due to their new product lines. Tremco’s new line of roof coatings, Another products, Alphaguard has helped lead RPM to secure the Repair and Maintenance market in the consumer and Industrial segment and is responsible for 70 percent of their annual revenue xxviii.

RPM’s Revenue Breakdown

Source: RPM 2016 Annual Report XII

Life Cycle

RPM International is very different from a lot of other company’s in the coating industry. Due to their wide variety of products and their revenue breakdown, RPM International is a relatively non-cyclical company. 70 percent of RPM’s revenue comes from repair and maintenance in their consumer and industrial product lines. These costs are not cyclical in nature because they occur in all economic conditions. Production and Distribution RPM International has 50 operating companies (BI Primer). RPM International currently has more than 13,000 employees manufacturing in 120 facilities in 24 different countries. Production is worldwide due to them acquiring operating companies all over the world. The majority of the production plants are in the United States, but there are plants in South Africa, the United Kingdom, New Zealand amongst others xxi. RPM International’s distribution is mainly done through two channels. The first channel of distribution is through home improvement retail chains. The main retail chains are Home Depot and Lowe’s. They distribute the products from the consumer segment for “Do it yourself” consumers. In 2016, Home Depot was responsible for 10 percent of the consolidated net sales xiii. The industrial and specialty product lines are sold directly to contractors, distributors, end users, and other commercial customers.

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Key Catalysts for Growth/ Change

Housing Starts

A major catalyst for the specialty chemical sub industry is housing starts. Housing starts have skyrocketed over the past five years. From January 2011 to January 2016 there has been a 12% increase in housing starts. Housing starts plummeted 72% from January 2006 to January 2011.

Housing Starts in the United States

Source: Fred V

Housing Starts will increase the demand for specialty chemicals. The product category it has the greatest affect on is the consumer segment. Housing starts increase the demand for specialty coatings such as garage and basement coatings. The rise in housing starts benefits some of RPM’s market leading brands in the consumer segment. Most notably Rust-Oleum, a specialty paint product that is rust preventative, should see an increase in sales. It also is a great indicator for a number of their other products that involve home maintenance and repair. The more people moving into houses the more optimistic our team feels about the future revenue of RPM.

Rising Auto Sales

Global sales for automobiles have accelerated since 2012. In the twelve years before 2012 the number of automobiles sold was 52.57 million. In 2012, that trend changed, that year alone 68.85 million cars were sold globally and in 2016 that number increased to 75.24 million. That is a 9.28% increase in car sales in the past four years.

Global Car Sales Since 1990

Source: Statista.com xxiii

Global car sales affect RPM’s coatings sales through their specialty OEM coatings as well as their automobile coating divisions. RPM International has tried to gain a larger market share in the automobile coating industry in recent years through acquisitions. Most notably, RPM in 2013 acquired an Australian automotive coatings company: HiChem Paint Technologies.xxxiii An increase in international sales will increase demand for their automobile coating product line. It will also help sales in a high-growth segment for RPM: the specialty segment. The specialty segment contains specialty OEM coating products that are used on machinery that help manufacture cars. As the increase in demand for cars increase, so will the demand for the specialty OEM coating products. The affects of the rise in global auto sales are already being felt for the fiscal year 2017. For the first quarter of 2017 specialty segment which includes OEM coatings, net sales increased 3.8% to $176.3 Million from $169.9 million from the first quarter of the fiscal year of 2016.xxxiv Competition The industry that provides the most competition for RPM is the coating industry. RPM has acquired a substantial amount of operating companies in niche markets, thus RPM has been able remain dominant and command higher margins in these industries. Our team identified PPG Industries, Sherwin Williams Co, Valspar, and AzkoNobel as three of the main competitors of RPM International Inc. Our team expects RPM to continue to steer clear of the crowded marketplace by continuing their acquisitions toward products in which they can dominate the market. S.W.O.T Analysis Strengths: RPM International is involved in a lot of niche markets, therefore they are able to dominate and control the price points within the industry. This is a result of lack of competition within the industry. Due to the lack of

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competition and superior products, they are able to command a higher margin. 70% of RPM’s revenue comes from Repair and maintenance in the consumer and industrial products market. Repair and maintenance provides stable and predictable cash flows even during economic downturns. The large United States presence can be seen as another strength of RPM. The dollar is strengthening compared to the emerging markets making it easier to avoid foreign turmoil. Weaknesses: A major weakness for RPM International is their corporate strategy of relying on international acquisitions. It is an investor’s preference for internal growth rather than a heavy reliance on international acquisition to obtain growth. A second weakness is the pending lawsuits against RPM for asbestos product related lawsuits. Although potential settlement amounts are unknown, there is a strong likelihood that settlement amounts will be substantial. Opportunities: The major opportunities will be in their strategic acquisition into the Asia and Pacific market. RPM’s strategy of entering new markets through acquisitions is working as international sales have increased by 345% in the past ten years. Only $126 million of the $1.4 billion dollars in international sales come from Asian markets. This equates to 9 percent of their international sales. RPM is already capitalizing on this opportunity. On July 5th, 2016 RPM acquired Duram Industries Pty Limited. Duram is an Australian Based company with a wide range of waterproofing products xvii. Growth going forward is heavily dependent on RPM’s ability to successfully enter the Asia and Pacific Market. Threats: The weakening foreign currency to the US dollar threatens potential earnings with their given international expansion corporate strategy. According to RPM, their current sales were up 4.8%, but the actual growth was up about 10% against previous year currencies. Therefore growth is not as strong as it should be. This is a huge problem given their international acquisition strategy. RPM’s growth in the future can be inhibited if foreign currencies continue their negative trend in comparison to the dollar.

Revenue Decomposition

Unfortunately, RPM International was not greatly transparent in their revenue decomposition and this made it hard to make accurate predictions of future revenue based on specific drivers. RPM divided their revenue into three

categories based on the end use of consumers. The industrial segment is their largest stream making up 51% of revenues. The products in industrial are used by contractors and direct end users for use in manufacturing, public institutions and other commercial applications. The consumer segment is composed of 34% of total revenue. Consumer products include paints, primers, caulks & sealers, deck and driveway coatings to name a few. The specialty segment makes up 15% of sales and its products include florescent pigments, powder and marine coatings, cleaning solutions. From management discussion, we learned that the Industrial segment has recently undergone challenges and has been face with squeezed margins because of the hurting oil & gas industry. We believe that as oil prices rise from historic lows and the energy industry recovers, RPM International will gain tailwinds from increased expenditures and maintenance from that industry. The consumer segment is primarily bought in North America, but has a growing presence in Europe and the United Kingdom. We believe that as RPM’s international market grows, there are a lot of great opportunities to grow this segment overseas, especially in Asia. The specialty segment in our opinion overall is the hardest to value considering it is made up of such a large variety of products, serving different industries. This product line is also a valuable one for RPM since it has the highest margins of any of the other industries. A lot of their products serve very niche markets such as marine coatings and therefore are able to command higher margins. We see RPM picking up a lot more specialty companies going forward as they look for more strong acquisition growth, buying up market leading companies. We couldn’t decompose revenue by product line, because RPM only released revenue and EBIT values for each segment, not disclosing COGS, SG&A, or any other important factors associated with valuing each division separately. Therefore, we attached a safe growth rate from historical levels starting at 5% and slowly dropping until left at 3% before their continual value growth rate of 2.5% 10 years out.

Gross Margin

Valuation Analysis

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We chose 44.41% as our Gross Profit Margin % going forward in our model. Since 2009, Gross Margin % has been trending upwards. Margins from the consumer segment and specialty segment have been historically strongest. Although we believe headwinds from the hurting oil & gas sector have been hurting the industrial segment, which will recover going into the future and thus expand margins.

SG&A

SG&A has remained relatively stable between about 32.5% and 31% over the past 10 years. We remain confident it will stay in this range and chose 31% so reflect the average of the last 5 years. In management notes, the management discussed initiatives for cost cutting going into the future. As RPM acquires more companies, management hopes that taking marketing, accounting, and other overhead expenditures in-house at headquarters will overall allow SG&A to decrease as a % of total sale.

Profit Margin

Profit Margin has trended upwards over the past 10 years. In the last 5 years, if taken out the anomally of contingency fees and other non-operating expenses, margins would have steadily grown through 2016 as well. Our group predicts

and our model shows profit margins rising slowly, but steadily over the foreseable future. Boosted primarily by increasing sales over RPM’s fixed costs and if it is able to lower SG&A as a % of total revenue.

Depreciation

Annual Depreciation expense was taken as a % of net book PP&E value from the beginning of the year. We averaged the past 5 years and came up with 12% which we flatlined across the remaining forecasted years.

Capital Expenditures

There was no management guidance on future capital expenditures. In order to forecast, we calculated capital expenditures as a % of gross PP&E. The average capex over the past 10 years as a % of PPE was 6.5% so we flatlined that going into the foreseable future and the numbers seemed reasonable and accurate.

WACC

Cost of Equity: To find the Cost of Equity, our group decided to use the CAPM model for its simplicity and universal understanding. We found the beta by looking up raw beta from a bloomberg terminal. We found the 2 year raw beta seemed the best fit after toggling between 1 year, 2 year, and 5 year weekly betas. Our risk free rate of 2.52% was a proxied yield on the 30 year treasury bill. Our market Equity Risk Premium of 5% was taken from Damodaran, a valuation proffessor from NYU and his suggested amount. This data was used to come up with a Cost of Equity of 8.13%. Cost of Debt: Using a Bloomberg terminal, we found RPM’s corporate bonds maturing in the year 2045 to have a yield of 5.14%. We chose the 2045 maturity because 29 years maturity was the closest we could find to the 30-year treasury bill yield we used as a proxy for the risk-free rate. Capital Structure: After checking management notes, we found no information on capital structure going forward. We then assumed the weights of equity and debt would stay the same. Discounted Cash Flow and Economic Profit Model: We believe that the Discounted Cash flow and Economic Profit model are the most accurate models we created in valuing the intrinsic value of RPM International’s stock. Both models predicted the same intrinsic value of a share at $53.82. Into the forecasted ROIC became small starting at 20% in 2016 and slowly dropping down to 16%, but this also follows the narrative of the companies ROIC being squeezed back all the way since 2006 average around 24%

12

range. An ROIC of 15.27% is still well above RPM International’s WACC of 7.10% thus they are still generating a positive economic profit and free cash flow.

Dividend Discount Model (DDM) The Dividend Discount Model provided us with an intrinsic stock price of $20.69. This intrinsic stock price is well below RPM’s current trading price of around $51.00. RPM’s dividend payout ratio is only around 40% which is what we forecasted them to continue to pay into the future. RPM is still a growing company through organic and strong acquisition growth and therefore tends to not pay as high of a dividend as they could or will in their maturing stage. Since their dividend is low and the company puts an emphasis on growth rather than steady growing dividends rates, we put less emphasis on this model.

Relative P/E & PEG Ratio

The Relative P/E Ratio produced an intrinsic stock value of $48.94 in respect to foreward 2017EPS and $49.20 in respect to foreward 2018EPS. We compared the P/E Ratios of 3 similair companies to RPM International. The Relative PEG produced an intrinsic stock value of $42.36 using 2017EPS and $42.70 using 2018EPS. It was hard picking similair companies to RPM since they are a holding company and their product lines and customers are so diverse. RPM International does have a large exposure to the painting and coating industry in their portfolio and has similair growth. Out of competing paint and coatings companies we chose Sherwin-Williams, PPG Industries, and Valspar corpoation. Because of the difficulty choosing direct competitors and since the relative P/E and PEG models’ tendency to be short-sighted only looking as far as 2 years in advance, we put less emphasis on this model than the DCF and EP models. Although it is a good check figure for current pricing of the shares since they are very close to the models prices.

COGS% of Sales Vs. SGA % of Sales

The sensitivity between these two metrics are moderate relative to our stock price. An increase of twenty-five basis points will lead to a $1.61 decrease in our intrinsic stock price. On the other hand a decrease will lead to a price increase of $1.56. SG&A sensitivity has a very similar effect on our models price. A rise of twenty-five basis points leads to a decrease in price of $1.58 while a decrease leads to $1.59 increase in price.

WACC Vs. CV NOPLAT

WACC and CV NOPLAT are key metrics when coming up with our target price range. Both values are crucial in the DCF and EP models. WACC is critical in the DCF and EP Model because it discounts the cash flows back to the present value. An increase in the WACC will lower the PV of FCF, thus lowering the intrinsic stock price. CV of NOPLAT is a key metric because the higher the growth rate of NOPLAT the higher PV of FCF will be thus increasing the intrinsic stock price. Raising the WACC 10 basis points will decrease the stock price by $1.83 while lowering it will raise the price by $2.05. Increasing the CV NOPLAT by 25 basis points will lead to a $2.25 change in price while a decrease will lead to a $2.83 decrease in price.

Marginal Tax Rate Vs. Pretax Cost of Debt:

The pretax cost of debt we used RPM corparate bond debt yielding in 29 years. Both of these metrics have a significant impact on our intrinsic stock value. Pretax cost of debt has a direct effect on RPM’s WACC. The marginal tax rate affects the NOPLAT when adjusting accumulated taxes as well as the WACC because it affects the after tax cost debt. Changing the Marginal Tax rate and the Pretax cost of debt by fifty basis points led to very minor changes to the intrinsic value of the stock. Increasing the marginal tax rate led to a $0.23 decrease in price while a decrease led to a $0.23 increase in price. Adjusting the Pre Tax Cost of Debt had very similar afftect. Raising the Pre Tax Cost of Debt increased the stock price by $0.85. Decreasing the Pretax Rd lowered our value by $0.86.

Sensitivity Analysis

13

CV ROIC Vs. CV NOPLAT

CV ROIC is an extremly important metric when analyzing RPM International because we used the DCF Model as our primary valuation model. The CV of ROIC impacts the CV of futrue cash flows therefore, it has a direct correlation to our our intrinsic stock price. Increasing CV NOPLAT twenty five basis points will lead to an increase of $2.25 while a decrease will lead to a $2.02 decreae. Adjusting the CV ROIC will also have an impact on our price. An increase of twenty-five basis points will lead to a $0.19 increase and a decreaes will cause a $0.29 decrease in price.

Beta Vs. Pre Tax Cost of Debt

We analyzed these two metrics because they are important figures in the calculation of WACC. On one side of the equation you have Beta, which is a significant factor in calculating the cost of equity. On the other hand, the cost of debt affects the the value of debt in the WACC calculation. Our team wanted insight on how these two metrics interacted. Raising beta by .05 decreased the price by $3.58 while decreasing raised it by $3.89. Manipulating the pretax Rd by fifty basis points had an affect on the price as well. Rasing Rd increased the price by $0.85 and decreasing the Rd decreased the instrinsic price by $0.86.

Important Disclaimer This report was created by students enrolled in the Security Analysis (6F: 112) class at the University of Iowa. The report was originally created to offer an internal investment recommendation for the University of Iowa Krause Fund and its advisory board. The report also provides potential employers and other interested parties an example of the students’ skills, knowledge and abilities. Members of the Krause Fund are not registered investment advisors, brokers or officially licensed financial professionals. The investment advice contained in this report does not represent an offer or solicitation to buy or sell any of the securities mentioned. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Krause Fund may hold a financial interest in the companies mentioned in this report

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Vii. "CNY per 1 USD - Past 24 Hrs." XE: USD / CNY Currency Chart. US Dollar to Chinese Yuan Renminbi Rates. N.p., n.d. Web. 13 Nov. 2016. viii. "The Euro Struggles to Escape Brexit's Shadow." Financial Times. Financial Times, n.d. Web. 09 Nov. 2016. <https://www.ft.com/content/e4ce2442-3c49-11e6-9f2c-36b487ebd80a>. IX. Martchev, Ivan. "The Brexit Currency Domino Effect Isn't over Yet." MarketWatch. N.p., 06 July 2016. Web. 9 Nov. 2016. <http://www.marketwatch.com/story/the-brexit-currency-domino-effect-isnt-over-yet-2016-07-06>. x. EUR per 1 USD - Past 24 Hrs." XE: USD / EUR Currency Chart. US Dollar to Euro Rates. N.p., n.d. Web. 7 Oct. 2016 <http://www.xe.com/currencycharts/?from=USD&to=EUR&view=5Y>. xi. Radcliffe, Brent. "Quantitative Easing." Investopedia. N.p., 20 Nov. 2013. Web. 29 Sept. 2016. <http://www.investopedia.com/terms/q/quantitative-easing.asp>. xii. RPM International 2016 Annual Report xiii. RPM International Inc. 2016 10-K xiv. Muir, Christopher. "Industry Survey: Chemicals." Net Advantage Standard and Poors. S&P Global Market Intelligence, May 2016. Web. Oct. 2016. <http://www.netadvantage.standardandpoors.com.proxy.lib.uiowa.edu/NASApp/NetAdvantage/showIndustrySurveyPDF.do?task=showIndustrySurvey&code=che&type=pdf> xiv. Weiner, Robert M. Worldwide Cleaning Industry Association (n.d.): n. pag. ISSA. ISSA, 12 Aug. 2015. Web. <Summary of State and Federal VOC Limitations for Institutional and Consumer Products>. xvi. RPM International (RPM) Unit Acquires Carboline Dalian Paint Production." Street Insider. Street Insider, 18 May 2016. Web. 12 Nov. 2016. <http://www.streetinsider.com/Corporate+News/RPM+International+(RPM)+Unit+Acquires+Carboline+Dalian+Paint+Production/11650016.html>. xvii. "Street Insider." RPM International (RPM) Unit Acquires Duram Industries Pty Ltd. Street Insider, 5 July 2016. Web. Oct.-Nov. 2016. <http://www.streetinsider.com/Corporate+News/RPM+International+(RPM)+Unit+Acquires+Duram+Industries+Pty+Ltd./11802442.html>. xviii. "History." RPM International Inc. RPM International Inc, n.d. Web. Oct. 2016. <http://www.rpminc.com/about-rpm/history/>. xix. Moloney, Claire. "Is Low VOC Paint More Expensive?: Cost Benefit Analysis." Green Building Professional Community. Popualar Network, 26 June 2014. Web. 7 Nov. 2016. <https://www.poplarnetwork.com/news/low-voc-paint-more-expensive-cost-benefit-analysis>.

xx. Gillepsie, Patric. "The Fed's Rate Hike...in 2 Minutes." CNNMoney. Cable News Network, 16 Dec. 2015. Web. 22 Oct. 2016. <http://money.cnn.com/2015/12/15/news/economy/fed-rate-hike-2-minutes/>. xxi. "Subsidiaries and Plant Locations." RPM International Inc. -. RPM International Inc, 2008. Web. 13 Nov. 2016. <http://rpminc.com/2008ar/subsidiaries.asp>. xxii. "SHW : Summary for Sherwin-Williams Company (The) - Yahoo Finance." SHW : Summary for Sherwin-Williams Company (The) - Yahoo Finance. Yahoo Finance, n.d. Web. Sept.-Oct. 2016. <http://finance.yahoo.com/quote/SHW?p=SHW>. xxiii. "VAL : Summary for Valspar Corporation (The) Commo - Yahoo Finance." VAL : Summary for Valspar Corporation (The) Commo - Yahoo Finance. Yahoo Finance, n.d. Web. 13 Nov. 2016. <http://finance.yahoo.com/quote/VAL/?p=VAL>. xxiv. "PPG : Summary for PPG Industries, Inc. Common Sto - Yahoo Finance." PPG : Summary for PPG Industries, Inc. Common Sto - Yahoo Finance. Yahoo Finance, n.d. Web. 13 Nov. 2016. <http://finance.yahoo.com/quote/PPG/?p=PPG>. xxv. Challener, Cynthia. "Important Market Trends Impact the Industry in 2016 - American Coatings Association." American Coatings Association. American Coatings Association, n.d. Web. Sept.-Oct. 2016. <http://www.paint.org/article/important-market-trends-impact-the-industry-in-2016/>. xxvi. Irwin, Neil. "Quantitative Easing Is Ending. Here’s What It Did, in Charts." The New York Times. The New York Times, 29 Oct. 2014. Web. 12 Oct. 2016. <http://www.nytimes.com/2014/10/30/upshot/quantitative-easing-is-about-to-end-heres-what-it-did-in-seven-charts.html?_r=0>. xxvii. "Commodities: Latest Crude Oil Price & Chart." NASDAQ.com. NASDAQ, n.d. Web. 13 Nov. 2016. <http://www.nasdaq.com/markets/crude-oil.aspx?timeframe=5y>. xxviii. Bloomberg Terminal xxix. "Overview of the Specialty Chemicals Industry." Specialty Chemicals Industry Update SCUP. IHS Markit, Aug. 2016. Web. Oct. 2016. <https://www.ihs.com/products/specialty-chemicals-industry-scup.html>. xxx. "Paint and Coatings Industry Overview." Chemical Economics Handbook (CEH). IHS Markit, Mar. 2015. Web. Oct.-Nov. 2016. <https://www.ihs.com/products/paint-and-coatings-industry-chemical-economics-handbook.html>. xxxi. Novel Technology Enables Industrial Coatings to Perform at New and Longer-Lasting Levels." PCI Magazine RSS. Painting & Coatings Industry Magazine, 1 Nov. 2016. Web. 14 Nov. 2016. <http://www.pcimag.com/articles/102657-novel-technology-enables-industrial-coatings-to-perform-at-new-and-longer-lasting-levels>.

15

xxxii. Cho, Janet H. "RPM Buys Australian Automotive Coatings Company HiChem Paint Technologies." Cleveland.com. N.p., 4 Apr. 2012. Web. 14 Nov. 2016. <http://www.cleveland.com/business/index.ssf/2012/04/rpm_buys_australian_automotive.html>. xxxiii "Global Car Sales 1990-2016 | Forecast." Statista. N.p., n.d. Web. 15 Nov. 2016. <https://www.statista.com/statistics/200002/international-car-sales-since-1990/>. xxxiv. Cho, Janet H. "RPM Posts Record $1.25 Billion in Sales, $113 Million in Profits for 1st Quarter of Fiscal 2017." Cleveland.com. N.p., 06 Oct. 2016. Web. 15 Nov. 2016. <http://www.cleveland.com/business/index.ssf/2016/10/rpm_posts_record_125_billion_i.html>. xxxvi "News Release." - RPM International Inc. N.p., 12 Sept. 2016. Web. 15 Nov. 2016. <http://www.rpminc.com/news-releases/news-release/?reqid=2201092>. xxxvii "News Release." - RPM International Inc. N.p., 5 July 2016. Web. 15 Nov. 2016. <http://www.rpminc.com/news-releases/news-release/?reqid=2182123>. xxxix "News Release." RPM International. N.p., 3 Mar. 2016. Web. 14 Nov. 2016. <http://www.rpminc.com/news-releases/news-release/?reqid=216946>.

RPM International Inc.

Key Assumptions of Valuation Model

Ticker Symbol RPM

Current Share Price $52.27

Current Model Date 9/30/2016

Fiscal Year End 31‐May

Pre‐Tax Cost of Debt 5.14%

Beta 1.122

Risk‐Free Rate 2.52%

Equity Risk Premium 5.00%

CV Growth of NOPLAT 2.50%

CV Growth of EPS 2.50%

Current Dividend Yield 2.08%

Payout Ratio 40.38%

Marginal Tax Rate 35%

Effective Tax Rate

Average Cash % of Revenue 6.83%

Intrinsic Value of Stock Price 53.82

WACC 7.1037%

SG&A % of Net Sales 31.501%

COGS % of Net Sales 55.59%

Cost of Equity 8.13%

CV of ROIC 15.27%

RPM International Inc.Revenue Decomposition

Fiscal Years Ending 42521 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Industrial Segment:

Revenue $2,464,266 $2,533,476 $2,444,120 $2,529,664 $2,611,878 $2,690,235 $2,770,942 $2,854,070 $2,939,692 $3,027,883 $3,118,719 $3,212,281 $3,308,649

% Growth  ‐6.5% 2.8% ‐3.5% 3.5% 3.3% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0% 3.0%

EBIT 244,605 255,187 258,768 $278,263 $280,777 $295,926 $304,804 $313,948 $323,366 $333,067 $343,059 $353,351 $363,951

Operating Margin  9.9% 10.1% 10.6% 11.0% 10.8% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0% 11.0%

Interest Expense ‐10,482.00 ‐8,190.00 ‐5,987.00

Pretax Income $234,123.00 $246,997.00 $252,781.00

Consumer Segment:

Revenue $1,606,696 $1,603,829 $1,637,438 $1,677,555 $1,712,784 $1,834,392 $1,727,997 $1,772,925 $1,842,246 $1,993,310 $2,087,195 $2,048,582 $2,098,363

% Growth  11.4% ‐0.2% 2.1% 2.5% 2.1% 7.1% ‐5.8% 2.6% 3.9% 8.2% 4.7% ‐1.9% 2.4%

EBIT 251,107 273,967 268,178 251,633 248,354 255,898 221,184 251,755 292,917 295,010 317,254 329,822 272,787

Operating Margin 15.6% 17.1% 16.4% 15.0% 14.5% 14.0% 12.8% 14.2% 15.9% 14.8% 15.2% 16.1% 13.0%

Interest Income/Expense 122 34 40

Pretax Income $251,229.00 $274,001.00 $268,218.00

Specialty Segment:

Revenue $305,391 $457,245 $732,091 $1,098,137 $1,372,671 $1,537,391 $1,675,756 $1,776,302 $1,865,117 $1,956,507 $2,042,594 $2,140,638 $2,230,545

% Growth  49.7% 60.1% 50.0% 25.0% 12.0% 9.0% 6.0% 5.0% 4.9% 4.4% 4.8% 4.2%

EBIT 61,373.00 67,806.00 111,215.00 170,211 210,019 247,520 278,176 245,130 264,847 254,092 241,639 262,228 292,201

Operating Margin  20.1% 14.8% 15.2% 15.5% 15.3% 16.1% 16.6% 13.8% 14.2% 13.0% 11.8% 12.3% 13.1%

Interest Income/Expense 255 534 730

Pretax Income $61,628 $68,340 $111,945

Consolidated: 

Revenue $4,376,353 $4,594,550 $4,813,649 $5,305,356 $5,697,333 $6,062,017 $6,174,695 $6,403,296 $6,647,055 $6,977,701 $7,248,508 $7,401,501 $7,637,557

% Growth 7.30% 4.99% 4.77% 10.21% 7.39% 6.40% 1.86% 3.70% 3.81% 4.97% 3.88% 2.11% 3.19%

EBIT 557085 596960 638161 700108 739149 799343 804163 810833 881130 882169 901952 945401 928940

Intrest Expense

Pretax Income 557,085$        596,960$        638,161$        700,108$     739,149$     799,343$     804,163$     810,833$     881,130$     882,169$     901,952$     945,401$     928,940$    

RPM International Inc.

Income Statement

For the year ended May 31, 2016 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Net Sales $4,376,353 $4,594,550 $4,813,649 5,054,331$         5,307,048$         5,545,865$         5,795,429$         6,027,246$         6,268,336$         6,487,728$         6,714,798$         6,916,242$         7,123,730$        

Cost of Sales 2,410,516 2,554,005 2,615,562 2,809,587            2,950,066            3,082,819            3,221,546            3,350,408            3,484,424            3,606,379            3,732,602            3,844,581            3,959,918           

Gross Profit 1,965,837$    2,040,545$    2,198,087$    2,244,744$         2,356,982$         2,463,046$         2,573,883$         2,676,838$         2,783,912$         2,881,349$         2,982,196$         3,071,662$         3,163,812$        

Selling, General and Administrative Expenses 1,390,128 1,422,944 1,520,977 1,592,173            1,671,781            1,747,012            1,825,627            1,898,652            1,974,598            2,043,709            2,115,239            2,178,696            2,244,057           

Depreciation 58,543 62,188 66,732 77,421                   108,026                136,872                164,067                189,898                214,392                237,788                260,048                281,373                301,674               

Amortization 31,526 36,988 44,307 16,440                   16,440                   16,440                   16,440                   16,440                   16,440                   16,440                   16,440                   16,440                   16,440                  

Asbestos Charges (Settlement Income) 0 0 0 0 0 0 0 0 0 0 0 0 0

Goodwill and Other Intangible Asset Impairment 0 0 0 0 0 0 0 0 0 0 0 0 0

Net Loss Upon Deconsolidation of SPHC 0 0 0 0 0 0 0 0 0 0 0 0 0

Estimated Loss on Contingency 0 0 0 0 0 0 0 0 0 0 0 0 0

Restructuring Expense 0 0 0 0 0 0 0 0 0 0 0 0 0

Interest Expense 80,951 87,615 91,683 84,864                   94,332                   100,736                106,752                112,636                118,166                123,593                128,665                133,645                138,256               

Investment (Income), Net ‐15,715 ‐18,577 ‐10,365 0 0 0 0 0 0 0 0 0 0

Other Expense (Income), Net ‐4,083 ‐3,866 1,287 0 0 0 0 0 0 0 0 0 0

Income Before Income Taxes 424,487$        453,253$        483,466$        473,847$             466,403$             461,986$             460,997$             459,212$             460,315$             459,818$             461,804$             461,507$             463,384$            

Provision for Income Taxes 118,503 224,925 126,008 165,846$             163,241$             161,695$             161,349$             160,724$             161,110$             160,936$             161,631$             161,528$             162,185$            

Net Income 305,984$        228,328$        357,458$        308,000$             303,162$             300,291$             299,648$             298,488$             299,205$             298,882$             300,172$             299,980$             301,200$            

Less: Net Income (Loss) Attributable to 14,324 ‐11,156 2,733 2,955                      3,195                      3,455                      3,736                      4,040                      4,368                      4,723                      5,108                      5,523                      5,972                     

Noncontrolling Interests

Net Income Attributable to RPM International $291,660 $239,484 $354,725 305,045$             299,966$             296,836$             295,912$             294,448$             294,836$             294,158$             295,065$             294,457$             295,228$            

Inc. Stockholders

Average Number of Shares of Common Stock

Outstanding:

Basic 129,438 129,933 129,383 129,273 129,210 129,189 129,207 129,262 129,350 129,469 129,618 129,792 129,992

Diluted 132,288 134,893 136,716

Earnings per Share of Common Stock Attributable

to RPM International Inc. Stockholders:

Basic 2.20 1.81 2.70 2.36                         2.32                         2.30                         2.29                         2.28                         2.28                         2.27                         2.28                         2.27                         2.27                        

Diluted 2.18 1.78 2.63

Cash Dividends Declared per Share of Common $0.95 $1.02 $1.09 0.95$                      0.94$                      0.93$                      0.93$                      0.92$                      0.93$                      0.92$                      0.93$                      0.92$                      0.93$                     

RPM International Inc.

Fiscal Years Ending 42521 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Assets

Current Assets

Cash and cash equivalents 332,868$                 174,711$                 265,152$                  $                140,880   $                170,830   $                206,915   $                250,224   $                299,310   $                355,095   $                416,058   $                483,244   $                555,050   $                632,627 

Net Trade accounts receivable 873,946                    956,211                    963,092                    1,011,247                1,061,809                1,109,590                1,159,522                1,205,903                1,254,139                1,298,034                1,343,465                1,383,769                1,425,282               

Inventories 613,644                    674,205                    685,818                    720,109                    756,114                    790,139                    825,696                    858,724                    893,073                    924,330                    956,682                    985,382                    1,014,944               

Deferred income taxes 22,281                      29,892                      ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                            

Prepaid expenses and other current assets 219,556                    264,827                    224,280                    285,392                    299,661                    313,146                    327,237                    340,327                    353,940                    366,328                    379,149                    390,524                    402,240                   

Total current assets 2,062,295$              2,099,846$              2,138,342$              2,157,627$              2,288,415$              2,419,790$              2,562,679$              2,704,264$              2,856,247$              3,004,750$              3,162,540$              3,314,725$              3,475,092$             

Property, Plant and Equipment, at Cost 1,191,676                1,258,304                1,344,830                1,671,075                2,013,631                2,371,603                2,745,684                3,134,728                3,539,333                3,958,100                4,391,524                4,837,950                5,297,769               

Allowance for depreciation (658,871)                  (668,658)                  (715,377)                  (792,798)                  (900,823)                  (1,037,696)               (1,201,762)               (1,391,660)               (1,606,053)               (1,843,841)               (2,103,888)               (2,385,261)               (2,686,935)              

Property, plant and equipment, net 532,805                    589,646                    629,453                    878,277                    1,112,808                1,333,908                1,543,922                1,743,067                1,933,281                2,114,260                2,287,635                2,452,689                2,610,835               

Other Assets:

Goodwill 1,147,374                1,215,688                1,219,630                1,219,630                1,219,630                1,219,630                1,219,630                1,219,630                1,219,630                1,219,630                1,219,630                1,219,630                1,219,630               

Other intangible assets, net of amortization 459,536                    604,130                    575,401                    558,961                    542,521                    526,081                    509,641                    493,201                    476,761                    460,321                    443,881                    427,441                    411,001                   

Deferred income taxes, non‐current 7943 5685 19771 ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                            

Other 168,412                    179,245                    193,444                    199,337                    209,303                    218,722                    228,565                    237,707                    247,216                    255,868                    264,823                    272,768                    280,951                   

Total other assets 1,783,265                2,004,748                2,008,246                1,977,928                1,971,454                1,964,433                1,957,836                1,950,538                1,943,606                1,935,819                1,928,334                1,919,839                1,911,582               

Total Assets 4,378,365$              4,694,240$              4,776,041$              5,013,831$              5,372,677$              5,718,131$              6,064,436$              6,397,869$              6,733,134$              7,054,829$              7,378,510$              7,687,253$              7,997,509$             

Liabilities and Stockholders Equity

Current Liabilities

Accounts payable 525,680$                 512,165$                 500,506$                 536,284$                 563,098$                 588,437$                 614,917$                 639,514$                 665,094$                 688,373$                 712,466$                 733,840$                 755,855$                

Current portion of long‐term debt 5,662                         2,038                         4,713                         56,770                      61,327                      65,466                      69,359                      73,173                      76,751                      80,268                      83,550                      86,778                      89,760                     

Accrued compensation and benefits 173,846                    169,370                    183,768                    205,264                    215,527                    225,225                    235,361                    244,775                    254,566                    263,476                    272,697                    280,878                    289,305                   

Accrued losses 27,487                      22,016                      35,290                     

Abestos‐related liabilities 0 0 0 ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                            

Other accrued liabilities 204,411                    197,647                    277,914                    220,806                    231,847                    242,280                    253,182                    263,310                    273,842                    283,427                    293,347                    302,147                    311,211                   

Total current liabilities 937,087$                 903,237$                 1,002,192$              1,019,124$              1,071,798$              1,121,408$              1,172,819$              1,220,771$              1,270,253$              1,315,543$              1,362,059$              1,403,643$              1,446,130$             

Long‐Term Liabilities:

Long‐term debt, less current maturities 1,345,965                1,654,037                1,646,332                1,778,473                1,898,510                2,011,420                2,122,004                2,225,781                2,327,782                2,422,941                2,516,554                2,603,029                2,687,949               

Abestos‐related liabilities 0 0 0 ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                             ‐                            

Other long‐term liabilities 466,659                    752,821                    702,979                    655,547                    688,325                    719,299                    751,668                    781,734                    813,004                    841,459                    870,910                    897,037                    923,948                   

Other long‐term liabilities % of sales 10.7% 16.4% 14.6% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0% 13.0%

Deferred income taxes 50,061                      90,681                      49,791                      33,022                      36,324                      39,957                      43,952                      48,348                      53,182                      58,500                      64,351                      70,786                      77,864                     

Total long‐term liabilities 1,862,685$              2,497,540$              2,399,103$              2,467,042$              2,623,158$              2,770,676$              2,917,624$              3,055,863$              3,193,968$              3,322,901$              3,451,814$              3,570,851$              3,689,761$             

Commitments and contingencies (Note N)

Stockholders Equity

Preferred stock, par value $0.01; authorized

50,000 shares; none issued

Common stock, par value $0.01; authorized 1,333                         1,332                         1,329                         1,293                         1,292                         1,292                         1,292                         1,293                         1,294                         1,295                         1,296                         1,298                         1,300                        

300,000 shares;

issued 140,195 and outstanding 132,944

as of May 2016;

issued 138,828 and outstanding 133,203

as of May 2015

Paid‐in capital 790,102                    872,127                    921,956                    921,956                    921,956                    921,956                    921,956                    921,956                    921,956                    921,956                    921,956                    921,956                    921,956                   

Treasury stock, at cost (85,400)                     (124,928)                  (196,274)                  (228,242)                  (260,210)                  (292,178)                  (324,146)                  (356,114)                  (388,082)                  (420,050)                  (452,018)                  (483,986)                  (515,954)                 

Accumulated other comprehensive (loss) (156,882)                  (394,135)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                  (502,047)                 

Retained earnings 833,691                    936,996                    1,147,371                1,332,171                1,514,068                1,694,243                1,874,032                2,053,124                2,232,647                2,411,976                2,592,079                2,772,067                2,952,787               

Total RPM International Inc. stockholders 1,382,844$              1,291,392$              1,372,335$              1,525,131$              1,675,059$              1,823,266$              1,971,087$              2,118,212$              2,265,767$              2,413,130$              2,561,267$              2,709,288$              2,858,042$             

Equity

Noncontrolling Interest 195,750                    2,073                         2,413                         2,534                         2,660                         2,780                         2,905                         3,021                         3,142                         3,252                         3,366                         3,467                         3,571                        

Total equity 1,578,594$              1,293,465$              1,374,748$              1,527,665                1,677,720                1,826,046                1,973,992                2,121,233                2,268,910                2,416,382                2,564,633                2,712,755                2,861,613               

Total Liabilities and Stockholders Equity 4,378,366$              4,694,241$              4,776,042$              5,013,831$              5,372,676$              5,718,130$              6,064,435$              6,397,867$              6,733,132$              7,054,826$              7,378,506$              7,687,249$              7,997,505$             

RPM International Key Assumptions of Valuation Model

Cash Flow Statement

Fiscal Years Ending  2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Cash Flow from Operating Activities Net Income 308,000$            303,162$            300,291$            299,648$            298,488$            299,205$            298,882$            300,172$            299,980$            301,200$           Adjustment to Reconcile Net Income to Net CashAdd: Depreciation 77,421                108,026              136,872              164,067              189,898              214,392              237,788              260,048              281,373              301,674             Add: Amortization 16,440                16,440                16,440                16,440                16,440                16,440                16,440                16,440                16,440                16,440               Increase in Deferred Tax Liabilities 3,002                   3,302                   3,632                   3,996                   4,395                   4,835                   5,318                   5,850                   6,435                   7,079                  Changes in Working Capital AccountsIncrease In Recievables (48,155)               (50,562)               (47,781)               (49,932)               (46,381)               (48,236)               (43,895)               (45,431)               (40,304)               (41,513)              Increase in Inventories (34,291)               (36,005)               (34,025)               (35,556)               (33,028)               (34,349)               (31,258)               (32,352)               (28,700)               (29,561)              Increase in Prepaid Expenses (61,112)               (14,270)               (13,485)               (14,092)               (13,089)               (13,613)               (12,388)               (12,821)               (11,374)               (11,716)              Increase in Accounts Payables 35,778                26,814                25,339                26,480                24,597                25,581                23,278                24,093                21,374                22,015               Increase in accrued compensation 21,496                10,263                9,699                   10,135                9,414                   9,791                   8,910                   9,222                   8,181                   8,426                  Increase in Accrued losses (35,290)               ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                      Increase in other accrued liabilities (57,108)               11,040                10,433                10,903                10,127                10,532                9,584                   9,920                   8,800                   9,064                  Increase (decrease) in other non current liabilites (47,432)               32,777                30,975                32,368                30,067                31,269                28,455                29,451                26,127                26,911               Net Cash Provided by operating activities 178,750              410,987              438,390              464,457              490,928              515,847              541,115              564,592              588,331              610,019             

Cash flow from Investing Activities(Purchase) Sale of short term investments ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                      Capital Expenditures (326,245)            (342,557)            (357,972)            (374,081)            (389,044)            (404,606)            (418,767)            (433,424)            (446,426)            (459,819)           Capitalization of intangible assets ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                      (Purchase) Sale of other assets (5,893)                 (9,967)                 (9,419)                 (9,842)                 (9,143)                 (9,508)                 (8,653)                 (8,955)                 (7,945)                 (8,183)                Net cash used for investing activities (332,137)            (352,524)            (367,391)            (383,923)            (398,186)            (414,114)            (427,419)            (442,379)            (454,371)            (468,002)           

Cash Flow Financing Activities Proceeds from issuance of notes payable ST Debt 52,057                4,557                   4,139                   3,893                   3,813                   3,579                   3,517                   3,281                   3,228                   2,982                  Proceeds from issuance of LT Debt 132,141              120,036              112,910              110,584              103,778              102,001              95,159                93,613                86,475                84,920               Payment of Dividends (123,200)            (121,265)            (120,116)            (119,859)            (119,395)            (119,682)            (119,553)            (120,069)            (119,992)            (120,480)           Proceeds from issuance of common stock (36)                       (1)                         (0)                         0                           1                           1                           1                           1                           2                           2                          Change in non-controlling interest 121                      127                      120                      125                      116                      121                      110                      114                      101                      104                     Change in AOCI ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                       ‐                      Repurchases of Common Stock (31,968)               (31,968)               (31,968)               (31,968)               (31,968)               (31,968)               (31,968)               (31,968)               (31,968)               (31,968)              Net Cash Provided by Finance Actviity 29,115                (28,513)               (34,915)               (37,224)               (43,655)               (45,948)               (52,733)               (55,027)               (62,154)               (64,439)              

Net Increase (Decrease) in cash (124,272)            29,950                36,084                43,310                49,086                55,785                60,963                67,186                71,806                77,578               

Cash Beginning of Year 265,152              140,880              170,830              206,915              250,224              299,310              355,095              416,058              483,244              555,050             Cash End of Year 140,880              170,830              206,915              250,224              299,310              355,095              416,058              483,244              555,050              632,627             

RPM International Inc.

Cash Flow Statement

Fiscal Years Ending 42521 2014 2015 2016

Net income 305,984$         228,328$         357,458$        

Adjustments to reconcile net income to

net cash provided by operating activities:

Depreciation 58,543              62,188              66,732             

Amortization 31,526              36,988              44,307             

Net loss upon deconsolidation of SPHC

Goodwill and other intangible assets impairment

Reversal of contingent consideration (29,665)            (14,500)           

obligations

Impairment on Investment in Kemrock

Asset impairment charge 818                    4,471               

Other‐than‐temporary impairments on 161                    22                       3,811               

Provisions for asbestos‐related liabilities

marketable securities

Deferred income taxes 6,572                97,502              9,399               

Earnings in unconsolidated affiliates

Stock‐based compensation expense 23,568              31,741              31,287             

Other non‐cash interest expense 653                    5,624                9,750               

Gain on remeasurement of joint venture (7,972)              

ownership

Realized (gains) on sales of marketable (7,353)               (8,692)               (6,457)              

securities

Other (1,833)               (1,954)               (15)                    

Changes in assets and liabilities, net

of effect from purchases and sales of businesses:

(Increase) in receivables (79,080)            (90,230)            (24,582)           

(Increase) in inventory (59,001)            (31,348)            (17,733)           

(Increase) in prepaid expenses and other (12,586)            (4,590)               (25,617)           

current and long‐term assets

(Decrease) increase in accounts payable 42,216              (16,249)            (5,958)              

Increase (decrease) in accrued compensation 19,193              (1,297)               17,681             

and benefits

Increase (decrease) in accrued loss reserves (146)                   (7,218)               13,514             

Increase in other accrued liabilities 14,202              51,761              8,011               

(Decrease) in contingent payment (63,014)           

 Payments made for asbestos‐related claims

Other (1,456)               6,719                11,119             

Cash Provided By Operating Activities 278,149$         330,448$         474,706$        

Cash Flows From Investing Activities:

Capital expenditures (93,792)            (85,363)            (117,183)         

Acquisition of businesses, net of cash (39,248)            (467,573)          (51,992)           

acquired

Purchase of marketable securities (83,536)            (61,511)            (32,280)           

Proceeds from sales of marketable securities 70,249              48,971              32,631             

Proceeds from sales of assets and businesses 2,794                4,079                866                   

Decrease in cash due to consolidation

Investment in unconsolidated affiliates

Distributions from unconsolidated affiliates

Other (6,178)               1,944                2,092               

Cash (Used For) Investing Activities (149,711)$       (559,453)$       (165,866)$      

Cash Flows From Financing Activities:

Additions to long‐term and short‐term 208,532           460,560           142,130          

debt

Reductions of long‐term and short‐term (215,011)          (162,318)          (147,155)         

debt

Cash dividends (125,743)          (136,179)          (144,350)         

Dividend payout 41% 60% 40%

Shares of common stock repurchased and (12,906)            (39,528)            (71,346)           

returned for taxes

Payments of acquisition‐related contingent (5,000)               (22,179)            (2,088)              

consideration

Exercise of stock options and awards, including 11,934              8,560                18,540             

tax benefit

Other 951                    1,277                (1,836)              

Cash (Used For) Provided By Financing Activities (137,243)$       110,194$         (206,105)$      

Effect of Exchange Rate Changes on Cash (1,881)               (39,345)            (12,294)           

and Cash Equivalents

Net Change in Cash and Cash Equivalents (10,686)            (158,157)          90,441             

Cash and Cash Equivalents at Beginning of Period 343,554           332,868           174,711          

Cash and Cash Equivalents at End of Period 332,868$         174,711$         265,152$        

Supplemental Disclosures of Cash Flows Information:

Cash paid during the year for:

Interest 81,505              79,371              73,087             

Income taxes 103,338           27,486              63,208             

Debt from business combinations

Share‐based compensation activity

Issue of stock for convertible‐bond redemption

RPM International Inc.

Common Size Income Statement

Fiscal Years Ending 42521 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Sales 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00%

Cost of Sales 55.08% 55.59% 54.34% 55.59% 55.59% 55.59% 55.59% 55.59% 55.59% 55.59% 55.59% 55.59% 55.59%

Gross Profit 44.92% 44.41% 45.66% 44.41% 44.41% 44.41% 44.41% 44.41% 44.41% 44.41% 44.41% 44.41% 44.41%

Selling General and Administrative Expense 31.76% 30.97% 31.60% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50% 31.50%

Goodwill 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Other Operating Income 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

EBIT (Operating Income) 13.15% 13.44% 14.07% 12.91% 12.91% 12.91% 12.91% 12.91% 12.91% 12.91% 12.91% 12.91% 12.91%

Net Interest Expense 1.85% 1.91% 1.90% 1.68% 1.78% 1.82% 1.84% 1.87% 1.89% 1.91% 1.92% 1.93% 1.94%

Other Expense ‐0.45% ‐0.49% ‐0.19% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00%

Earnings Before Taxes 11.76% 12.02% 12.35% 11.23% 11.13% 11.09% 11.07% 11.04% 11.03% 11.01% 10.99% 10.98% 10.97%

Provision For Income Taxes 2.71% 4.90% 2.62% 3.28% 3.08% 2.92% 2.78% 2.67% 2.57% 2.48% 2.41% 2.34% 2.28%

Net Income 9.05% 7.13% 9.73% 7.95% 8.06% 8.18% 8.29% 8.38% 8.46% 8.53% 8.59% 8.64% 8.69%

RPM International Inc.Common Size Balance Sheet

Fiscal Years Ending 42521 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

AssetsCurrent Assets

Cash and Cash Equivalents 7.61% 3.80% 5.51% 2.79% 3.22% 3.73% 4.32% 4.97% 5.66% 6.41% 7.20% 8.03% 8.88%

Trade Receivables  19.97% 20.81% 20.01% 20.01% 20.01% 20.01% 20.01% 20.01% 20.01% 20.01% 20.01% 20.01% 20.01%

Inventories 14.02% 14.67% 14.25% 14.25% 14.25% 14.25% 14.25% 14.25% 14.25% 14.25% 14.25% 14.25% 14.25%

Other Current Assets 5.53% 6.41% 4.66% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65% 5.65%

Total Non Current Assets 47.12% 45.70% 44.42% 42.69% 43.12% 43.63% 44.22% 44.87% 45.57% 46.31% 47.10% 47.93% 48.78%

Property Plant and Equipment 27.23% 27.39% 27.94% 33.06% 37.94% 42.76% 47.38% 52.01% 56.46% 61.01% 65.40% 69.95% 74.37%

Less: Accumlated Depreciation ‐15.06% ‐14.55% ‐14.86% ‐15.69% ‐16.97% ‐18.71% ‐20.74% ‐23.09% ‐25.62% ‐28.42% ‐31.33% ‐34.49% ‐37.72%

Net Properties 12.17% 12.83% 13.08% 17.38% 20.97% 24.05% 26.64% 28.92% 30.84% 32.59% 34.07% 35.46% 36.65%

Goodwill 26.22% 26.46% 25.34% 24.13% 22.98% 21.99% 21.04% 20.24% 19.46% 18.80% 18.16% 17.63% 17.12%

Other Non Current Assets 14.53% 17.17% 16.38% 15.00% 14.17% 13.43% 12.74% 12.13% 11.55% 11.04% 10.55% 10.12% 9.71%

Total Assets 100.05% 102.17% 99.22% 99.20% 101.24% 103.11% 104.64% 106.15% 107.42% 108.74% 109.88% 111.15% 112.27%

Liabilities and SECurrent Liabilites 

Payables and Other Current Liabilities  21.28% 19.61% 20.72% 19.04% 19.04% 19.04% 19.04% 19.04% 19.04% 19.04% 19.04% 19.04% 19.04%

Current Portion of Long Term Debt 0.13% 0.04% 0.10% 1.12% 1.16% 1.18% 1.20% 1.21% 1.22% 1.24% 1.24% 1.25% 1.26%

Total Current Liabilities  21.41% 19.66% 20.82% 20.16% 20.20% 20.22% 20.24% 20.25% 20.26% 20.28% 20.28% 20.29% 20.30%

Deferred Income Taxes 1.14% 1.97% 1.03% 0.65% 0.68% 0.72% 0.76% 0.80% 0.85% 0.90% 0.96% 1.02% 1.09%

Long term debt minus current portion 30.76% 36.00% 34.20% 35.19% 35.77% 36.27% 36.62% 36.93% 37.14% 37.35% 37.48% 37.64% 37.73%

Other Long Term Liabilities  10.66% 16.39% 14.60% 12.97% 12.97% 12.97% 12.97% 12.97% 12.97% 12.97% 12.97% 12.97% 12.97%

Total Liabilities  63.97% 74.02% 70.66% 68.97% 69.62% 70.18% 70.58% 70.96% 71.22% 71.50% 71.69% 71.92% 72.10%

Stockholders Equity Common Stock 18.08% 19.01% 19.18% 18.27% 17.40% 16.65% 15.93% 15.32% 14.73% 14.23% 13.75% 13.35% 12.96%

Accumulated other comprehensive (loss) ‐3.58% ‐8.58% ‐10.43% ‐9.93% ‐9.46% ‐9.05% ‐8.66% ‐8.33% ‐8.01% ‐7.74% ‐7.48% ‐7.26% ‐7.05%

Retained Earnings 19.05% 20.39% 23.84% 26.36% 28.53% 30.55% 32.34% 34.06% 35.62% 37.18% 38.60% 40.08% 41.45%

Total SE before Treasury Stock 33.55% 30.83% 32.59% 34.69% 36.47% 38.14% 39.60% 41.05% 42.34% 43.67% 44.88% 46.17% 47.36%

Less: Treasury Stock ‐1.95% ‐2.72% ‐4.08% ‐4.52% ‐4.90% ‐5.27% ‐5.59% ‐5.91% ‐6.19% ‐6.47% ‐6.73% ‐7.00% ‐7.24%

Non Controlling Interest 4.47% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05% 0.05%

Total Stockholders Equity 36.07% 28.15% 28.56% 30.22% 31.61% 32.93% 34.06% 35.19% 36.20% 37.25% 38.19% 39.22% 40.17%

Total Liabilities and Stockholders Equity  100.05% 102.17% 99.22% 99.20% 101.24% 103.11% 104.64% 106.15% 107.41% 108.74% 109.88% 111.15% 112.27%

RPM International Inc.

Weighted Average Cost of Capital (WACC) Estimation

Risk Free Rate 2.52%

Implied Market Return (from market‐risk‐premia.com) 7.52%

Mark Risk Premium 5.00%

Beta 1.122

Cost of Equity 8.13%

Debt Rating BBB (S&P)

Maturing 06/01/2045 Yield 5.14%

Default Spread 2.62%

Marginal Tax Rate 35%

After‐tax Cost of Debt 3.34%

Market Value of Equity:

Shares Outstanding 136,716,000               

Price per Share 48.77$                         

Market Value of Equity 6,667,639,320$         

Market Value of Debt:

Short‐term Debt 4,713,000                   

Long‐term Debt 1,646,332,000           

PV Operating Leases 167,580,481               

Market Value of Debt: 1,818,625,481$         

Weight of Equity 79%

Weight of Debt 21%

Forward WACC 7.10%

RPM International Inc.

Value Driver Estimation

Fiscal Years Ending 42521 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Marginal Tax Rate ‐39.60% 32.60% ‐26.09% 31.09% 24.08% 22.03% 25.29% 27.05% 28.38% 28.70% 28.03%

NOPLAT

EBITA:

Sales $3,008,338 $3,338,764 $3,643,791 $3,368,167 $3,412,716 $3,381,841 $3,777,416 $4,078,655 $4,376,353 $4,594,550 $4,813,649 $5,054,331 $5,307,048 $5,545,865 $5,795,429 $6,027,246 $6,268,336 $6,487,728 $6,714,798 $6,916,242 $7,123,730

Less: Costs of Goods Sold  $1,682,471       1,837,449        1,997,650        1,867,555        1,831,265        1,855,836        2,109,516        2,236,477        2,351,973         2,491,817         2,548,830       2,809,587        2,950,066       3,082,819       3,221,546       3,350,408       3,484,424       3,606,379       3,732,602       3,844,581       3,959,918 

Less: Selling, General, and Administrative 

Expenses $952,700       1,020,884        1,124,419        1,096,505        1,110,102        1,058,466        1,155,714        1,309,235        1,390,128         1,422,944         1,520,977       1,592,173        1,671,781       1,747,012       1,825,627       1,898,652       1,974,598       2,043,709       2,115,239       2,178,696       2,244,057 

Less Depreciation 59,256             62,238             62,379             61,823             52,385             51,939             55,715             58,543             62,188              66,732              ‐                  ‐                   ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                 

Plus: Implied Interest On Operating Leases $0 4,711               6,465               7,192               6,326               6,853               6,687               8,311               9,385               8,948                8,614                9,295              10,029             10,822            11,678            12,601            13,597            14,672            15,832            17,084            18,434           

EBITA: 373,167$         425,886$         465,949$         348,920$         415,852$         422,007$         466,934$         485,539$         585,094$         626,549$          685,724$          661,866$        695,230$         726,857$        759,934$        790,787$        822,911$        852,312$        882,789$        910,049$        938,189$       

Less Adjusted Taxes:

Income Tax Provision (46,270)$          99,246$           (8,655)$            61,252$           87,327$           91,885$           94,526$           67,040$           118,503$         224,925$          126,008$          165,846$        163,241$         161,695$        161,349$        160,724$        161,110$        160,936$        161,631$        161,528$        162,185$       

Plus Tax Shield on Interest Expense (16,372)            18,985             (15,778)            16,931             14,270             14,410             18,223             21,599             22,975             25,143              25,700              ‐                  ‐                   ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                 

Plus Tax Shield Restructuring Expense ‐                   ‐                   ‐                   ‐                   ‐                   ‐                   ‐                   5,430               ‐                   ‐                    ‐                    ‐                  ‐                   ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                  ‐                 

Less Tax on Investment Income                    ‐                (3,653)              3,525               1,801              (1,824)             (3,454)             (1,059)             (1,671)             (4,460)              (5,331)              (2,905)                   ‐                       ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐   

Plus Tax Shield on Asbestos Litigation         (150,480)             (4,890)           (75,164)                    ‐                       ‐                       ‐                       ‐                       ‐                       ‐                        ‐                        ‐                      ‐                       ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐                      ‐   

Total Adusted Taxes (213,122)$        121,884$         (27,958)$          76,382$           103,421$         109,749$         113,808$         95,740$           145,939$         255,399$          154,614$          165,846$        163,241$         161,695$        161,349$        160,724$        161,110$        160,936$        161,631$        161,528$        162,185$       

Plus: Change in Deferred Taxes

Change in Deffered Taxes (94,286)$          19,451             (61,151)            (6,737)              111,837           18,890             (35,716)            19,546             (3,754)              42,878              (54,976)             3,002              3,302               3,632              3,996              4,395              4,835              5,318              5,850              6,435              7,079             

NOPLAT 492,003$         323,454$         432,757$         265,801$         424,268$         331,147$         317,410$         409,345$         435,402$         414,028$          476,134$          499,022$        535,291$         568,794$        602,580$        634,458$        666,635$        696,694$        727,008$        754,957$        783,083$       

Invested Capital 

Net Operating Working Capital

Current Assets

Normal Cash 205,445$         228,010$         248,841$         230,018$         233,061$         230,952$         257,967$         278,539$         298,869$         313,770$          328,733$          345,170$        362,428$         378,737$        395,780$        411,612$        428,076$        443,059$        458,566$        472,323$        486,493$       

Trade Receivables, net 650,945$         744,259           817,241           638,659           632,485           712,863           745,541           787,517           873,946           956,211            963,092            1,011,247       1,061,809        1,109,590       1,159,522       1,205,903       1,254,139       1,298,034       1,343,465       1,383,769       1,425,282      

Inventories 399,014$         437,759           476,149           406,175           386,982           463,120           489,978           548,680           613,644           674,205            685,818            720,109          756,114           790,139          825,696          858,724          893,073          924,330          956,682          985,382          1,014,944      

Other Current Assets 161,758           189,939           221,690           210,155           194,126           239,212           239,982           169,956           219,556           264,827            224,280            285,392          299,661           313,146          327,237          340,327          353,940          366,328          379,149          390,524          402,240         

Total Current Assets 1,417,162$      1,599,967$      1,763,921$      1,485,007$      1,446,654$      1,646,147$      1,733,468$      1,784,692$      2,006,015$      2,209,013$       2,201,923$       2,361,917$     2,480,012$      2,591,613$     2,708,236$     2,816,565$     2,929,228$     3,031,751$     3,137,862$     3,231,998$     3,328,958$    

Current Liabilities 

Accounts Payables 333,684$         385,003$         411,448$         294,814$         299,596$         358,790$         391,467$         478,185$         525,680$         512,165$          500,506$          536,284$        563,098$         588,437$        614,917$        639,514$        665,094$        688,373$        712,466$        733,840$        755,855$       

Other Current Liabilities  314,750           325,096           362,979           320,801           327,591           373,950           365,741           445,324           405,744           389,033            496,972            426,070          447,373           467,505          488,543          508,085          528,408          546,902          566,044          583,025          600,516         

Total Current Liabilities  648,434           710,099           774,427           615,615           627,187           732,740           757,208           923,509           931,424           901,198            997,478            962,354          1,010,471        1,055,943       1,103,460       1,147,598       1,193,502       1,235,275       1,278,510       1,316,865       1,356,371      

Net Operating Working Capital 768,728$         889,868$         989,494$         869,392$         819,467$         913,407$         976,260$         861,183$         1,074,591$      1,307,815$       1,204,445$       1,399,563$     1,469,541$      1,535,670$     1,604,775$     1,668,967$     1,735,725$     1,796,476$     1,859,352$     1,915,133$     1,972,587$    

Plus PPE,NET 444,692$         473,296$         497,721$         470,103$         382,527$         390,027$         418,832$         492,363$         532,805$         589,646$          629,453$          878,277$        1,112,808$      1,333,908$     1,543,922$     1,743,067$     1,933,281$     2,114,260$     2,287,635$     2,452,689$     2,610,835$    

Plus Non Goodwill Intangible Assets 321,942           353,420           384,370           358,097           303,159           312,867           345,620           459,613           459,536           604,130            575,401            558,961          542,521           526,081          509,641          493,201          476,761          460,321          443,881          427,441          411,001         

Plus PV of Operating Leases 91,662             125,787           139,932           123,084           133,321           130,089           161,690           182,591           174,095            167,580            180,829          195,124           210,550          227,195          245,157          264,538          285,451          308,018          332,368          358,644         

Invested Capital   $   1,535,362   $   1,808,246   $   1,997,372   $   1,837,524   $   1,628,236   $   1,749,622   $   1,870,801   $   1,974,849   $   2,249,523   $    2,675,686   $    2,576,879   $  3,017,629   $   3,319,994   $  3,606,209   $  3,885,533   $  4,150,391   $  4,410,304   $  4,656,507   $  4,898,886   $  5,127,631   $  5,353,066 

NOPLAT  $      492,003   $      323,454   $      432,757   $      265,801   $      424,268   $      331,147   $      317,410   $      409,345   $      435,402   $       414,028   $       476,134   $     499,022   $      535,291   $     568,794   $     602,580   $     634,458   $     666,635   $     696,694   $     727,008   $     754,957   $     783,083 

Beginning Invested Capital        1,272,208        1,535,362        1,808,246        1,997,372        1,837,524        1,628,236        1,749,622        1,870,801        1,974,849         2,249,523         2,675,686       2,576,879        3,017,629       3,319,994       3,606,209       3,885,533       4,150,391       4,410,304       4,656,507       4,898,886       5,127,631 

ROIC 39% 21% 24% 13% 23% 20% 18% 22% 22% 18% 18% 19% 18% 17% 17% 16% 16% 16% 16% 15% 15%

NOPLAT 492,003$         323,454$         432,757$         265,801$         424,268$         331,147$         317,410$         409,345$         435,402$         414,028$          476,134$          499,022$        535,291$         568,794$        602,580$        634,458$        666,635$        696,694$        727,008$        754,957$        783,083$       

Change In Inveseted Captial 263,154           272,884           189,126           (159,849)          (209,288)          121,386           121,178           104,048           274,674           426,164            (98,807)             440,750          302,365           286,215          279,324          264,858          259,913          246,202          242,379          228,745          225,435         

FCF 228,849$         50,569$           243,631$         425,650$         633,556$         209,761$         196,231$         305,297$         160,728$         (12,136)$           574,941$          58,272$          232,926$         282,579$        323,256$        369,600$        406,722$        450,491$        484,629$        526,212$        557,648$       

Beginning Invested Capital 1272207.76 1,535,362$      1,808,246$      1,997,372$      1,837,524$      1,628,236$      1,749,622$      1,870,801$      1,974,849$      2,249,523$       2,675,686$       2,576,879$     3,017,629$      3,319,994$     3,606,209$     3,885,533$     4,150,391$     4,410,304$     4,656,507$     4,898,886$     5,127,631$    

ROIC 39% 21% 24% 13% 23% 20% 18% 22% 22% 18% 18% 19% 18% 17% 17% 16% 16% 16% 16% 15% 15%

WACC 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10% 7.10%

EP $401,629 $214,386 $304,304 $123,914 $293,736 $215,482 $193,122 $276,449 $295,114 $254,229 $286,061 $315,968 $320,927 $332,951 $346,406 $358,441 $371,804 $383,398 $396,223 $406,954 $418,831

RPM International Inc.

Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models

Key Inputs:

     CV Growth 2.50%

     CV ROIC 15%

     WACC 7.10%

     Cost of Equity 8.13%

     Dividend Yield 2.08%

Fiscal Years Ending 42521 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

DCF Model

Periods 1 2 3 4 5 6 7 8 9 9

Free Cash Flow              58,272                  232,926             282,579        323,256        369,600        406,722        450,491        484,629        526,212                   654,892 

CV of FCF             14,225,321 

PV of FCF discounted by WACC  $          54,407   $             203,053   $        229,999   $   245,657   $   262,246   $   269,446   $   278,647   $   279,881   $   283,740   $           7,670,463 

Value of Operating Assets 9,777,539$          

     Add: Excess Cash ‐                        

     Add: Investments ‐                        

     Add: Non‐Operating Assets ‐                        

     Less: ESOP (67,300)                 

    Less: PV of OP Leases (167,580)              

     Less: Short‐Term Debt (56,770)                 

     Less: Long‐Term Debt (1,778,473)           

     Less: Other Current Liabilities (277,914)              

     Less: Other Non‐Current Liabilities (702,979)              

     Less Preferred Stock ‐                        

     Add: Noncontrolling Interest 2,413                    

Value of Equity: 6,728,935$          

Shares Oustanding 129,383                

Intrinsic Stock Price as of 10/10/2016 53.82$                  

Fiscal Years Ending  2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

Economic Profit Model

Periods 1 2 3 4 5 6 7 8 9 9

Economic Profit $315,968 $320,927 $332,951 $346,406 $358,441 $371,804 $383,398 $396,223 $406,954 $418,831

Continuing Value 9,097,691             

PV of FCF Discounted by WACC 295,011           279,768                 270,999           263,249      254,329      246,313      237,148      228,825      219,435      4,905,583             

PV Economic Profit 7,200,659             

+ Beginning Invested Capital (T=0) 2,576,879             

Value of Operating Assets 9,777,539            

     Plus: Excess Cash ‐                        

     Plus: Investments ‐                        

     Add: Non‐Operating Assets ‐                        

     Less: ESOP (67,300)                 

     Less PV of OP Leases (167,580)              

     Less: Short‐Term Debt (56,770)                 

     Less: Long‐Term Debt (1,778,473)           

     Less: Other Current Liabilities (277,914)              

     Less: Other Non‐Current Liabilities (702,979)              

     Less: Preferred Stock ‐                        

     Add: Noncontrolling Interest 2,413                    

Value of Equity: 6,728,935$          

Shares Outstanding 129,383                

Intrinsic Stock Price 53.82$                  

RPM International Inc.

Dividend Discount Model (DDM) or Fundamental P/E Valuation Model

Fiscal Years Ending 42521 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026CV

EPS 2.38$      2.35$      2.32$      2.32$      2.31$      2.31$      2.31$      2.32$      2.31$      2.32$     

Key Assumptions   CV growth 2.50%

   CV ROE 11.70%

   Cost of Equity 8.13%

Future Cash Flows     P/E Multiple (CV Year) 14

     EPS (CV Year) 2.32$     

     Future Stock Price 32.44$   

     Dividends Per Share 0.95         0.94         0.93         0.93         0.92         0.93         0.92         0.93         0.92         0.93        

     Future Cash Flows 0.95$      0.94$      0.93$      0.93$      0.92$      0.93$      0.92$      0.93$      0.92$      32.44$   

     Periods to Discount 1 2 3 4 5 6 7 8 9 9

     Discounted Cash Flows 0.88$      0.80$      0.74$      0.68$      0.62$      0.58$      0.53$      0.50$      0.46$      16.05$   

Intrinsic Value 21.69$   

RPM International Inc.

Key Management Ratios

Fiscal Years Ending 42521 2014 2015 2016 2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E

Liquidity RatiosCurrent Ratio 2.2 2.3 2.1 2.1 2.1 2.2 2.2 2.2 2.2 2.3 2.3 2.4

Quick Ratio 1.5 1.6 1.4 1.4 1.4 1.5 1.5 1.5 1.5 1.6 1.6 1.7

Cash Ratio 0.4 0.2 0.3 0.1 0.2 0.2 0.2 0.2 0.3 0.3 0.4 0.4

Activity or Asset‐Management RatiosInventory Turnover 4.1 4.0 3.8 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0

Receivables Turnover 5.3 5.0 5.0 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1 5.1

Total Asset Turnover 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 0.9 0.9 0.9

Financial Leverage RatiosDebt‐to‐Equity Ratio 0.9 1.3 1.2 1.2 1.2 1.1 1.1 1.1 1.1 1.0 1.0 1.0

Debt Ratio 2.0 2.6 2.5 2.3 2.2 2.1 2.1 2.0 2.0 1.9 1.9 1.8

Interest Coverage Ratio 7.2 7.2 7.5 7.8 7.4 7.2 7.1 7.0 7.0 6.9 6.9 6.8

Profitability RatiosGross Margin 45% 44% 46% 44% 44% 44% 44% 44% 44% 44% 44% 44%

Profit Margin 7.0% 5.0% 7.4% 6.1% 5.7% 5.4% 5.2% 5.0% 4.8% 4.6% 4.5% 4.3%

Return on Assets 7.4% 5.2% 7.6% 6.4% 6.0% 5.6% 5.2% 4.9% 4.7% 4.4% 4.3% 4.1%

Return on Equity 22.6% 14.5% 27.6% 22.4% 19.8% 17.9% 16.4% 15.1% 14.1% 13.2% 12.4% 11.7%

Cash Flow Margin 6.4% 7.2% 9.9% 3.5% 7.7% 7.9% 8.0% 8.1% 8.2% 8.3% 8.4% 8.5%

Payout Policy RatiosPayout Ratio 41% 60% 40% 40% 40% 40% 40% 40% 40% 40% 40% 40%

Dividend Coverage Ratio 2.4                   1.7                   2.5                   2.5                     2.5                     2.5                     2.5                     2.5                     2.5                     2.5                     2.5                     2.5                    

RPM International Inc.Relative Valuation Model

(NASDAQ)Ticker Company Price Eps 2017E EPS 2018E P/E 17 P/E 18 PEG 17 PEG 18SHW Sherwin-Williams Co. 271.78$ 14.08$ 15.71$ 19.3 17.3 11.90% 1.62 1.45PPG PPG Industries Inc. 92.51$ 6.52$ 7.20$ 14.2 12.9 8.68% 1.64 1.48RPM RPM International 48.08$ 2.75$ 3.03$ 17.5 15.9 8.00% 2.18 1.98VAL Valspar Corporation 105.37$ 5.29$ 5.65$ 19.9 18.6 7.90% 2.52 2.35

Average 17.8 16.2 1.93 1.76

Implied Value:Relative P/E (EPS17) 48.94$ Relative P/E (EPS18) 49.20$ PEG Ratio (EPS17) 42.36$ PEG Ratio (EPS18) 42.70$

5 year avg. annual earnings growth

Share Price Share Price

53.82 31.00% 31.25% 31.50% 31.75% 32.00% 53.82 6.90% 7.00% 7.10% 7.20% 7.30%54.09% 66.47 64.89 63.30 61.73 60.14 1.75% 51.72 50.02 48.33 46.81 45.3055.34% 58.56 56.98 55.39 53.81 52.23 2.25% 55.65 53.72 51.80 50.09 48.39

55.59% 56.99 55.41 53.82 52.25 50.66 2.50% 57.95 55.88 53.82 52.00 50.18

55.84% 55.40 53.81 52.22 50.65 49.07 2.75% 60.53 58.29 56.08 54.11 52.1656.09% 53.81 52.23 50.64 49.07 47.48 3.00% 63.44 61.00 58.60 56.48 54.38

Share PriceShare Price 53.82 1.022 1.072 1.122 1.172 1.222

53.82 34.00% 34.50% 35.00% 35.50% 36.00% 4.14% 60.10 55.92 52.10 48.59 45.364.14% 52.60 52.35 52.10 51.85 51.60 4.64% 61.05 56.83 52.97 49.42 46.16

4.64% 53.45 53.21 52.97 52.73 52.48 5.14% 61.98 57.72 53.82 50.25 46.95

5.14% 54.28 54.05 53.82 53.59 53.36 5.64% 62.91 58.60 54.67 51.06 47.74

5.64% 55.11 54.89 54.67 54.45 54.23 6.14% 63.82 59.48 55.51 51.87 48.516.14% 55.93 55.72 55.51 55.30 55.09

Share Price

53.82 2.00% 2.25% 2.50% 2.75% 3.00%14.77% 49.68 51.45 53.41 55.60 58.0515.02% 49.83 51.63 53.62 55.84 58.33

15.27% 49.98 51.80 53.82 56.07 58.60

15.52% 50.12 51.96 54.01 56.30 58.8615.77% 50.25 52.12 54.20 56.52 59.11

CV NOPLAT

CV  ROIC

Pre Tax Cost of 

Debt

WACCSGA% of Sales

COGS % of Sales

Marginal Tax RateBeta

Pre Tax Cost of 

Debt

CV NOPLAT

Present Value of Operating Lease Obligations (2016) Present Value of Operating Lease Obligations (2015) Present Value of Operating Lease Obligations (2014) Present Value of Operating Lease Obligations (2013)

Operating Operating Operating Operating

Fiscal Years Ending 42521 Leases Fiscal Years Ending 42521 Leases Fiscal Years Ending  Leases Fiscal Years Ending  Leases

2017 50828 2016 51182 2015 48695 2014 44021

2018 39191 2017 39597 2016 39054 2015 35870

2019 26204 2018 29649 2017 28971 2016 27198

2020 17240 2019 18021 2018 21459 2017 19428

2021 14359 2020 12689 2019 15405 2018 15282

Thereafter 51783 Thereafter 58199 Thereafter 68280 Thereafter 51834

Total Minimum Payments 199605 Total Minimum Payments 209337 Total Minimum Payments 221864 Total Minimum Payments 193633

Less: Interest 32025 Less: Interest 35242 Less: Interest 39273 Less: Interest 31943

PV of Minimum Payments 167580 PV of Minimum Payments 174095 PV of Minimum Payments 182591 PV of Minimum Payments 161690

Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases Capitalization of Operating Leases

Pre‐Tax Cost of Debt 5.14% Pre‐Tax Cost of Debt 5.14% Pre‐Tax Cost of Debt 5.14% Pre‐Tax Cost of Debt 5.14%

Number Years Implied by Year 6 Payment 3.6 Number Years Implied by Year 6 Payment 4.6 Number Years Implied by Year 6 Payment 4.4 Number Years Implied by Year 6 Payment 3.4

Lease PV Lease Lease PV Lease Lease PV Lease Lease PV Lease

Year Commitment Payment Year Commitment Payment Year Commitment Payment Year Commitment Payment

1 50828 48343.2 1 51182 48679.9 1 48695 46314.4 1 44021 41868.9

2 39191 35452.8 2 39597 35820.1 2 39054 35328.9 2 35870 32448.6

3 26204 22545.7 3 29649 25509.7 3 28971 24926.4 3 27198 23400.9

4 17240 14108.0 4 18021 14747.1 4 21459 17560.5 4 19428 15898.5

5 14359 11175.9 5 12689 9876.1 5 15405 11990.1 5 15282 11894.3

6 & beyond 14359 35954.9 6 & beyond 12689 39462.3 6 & beyond 15405 46470.3 6 & beyond 15282 36178.6

PV of Minimum Payments 167580.5 PV of Minimum Payments 174095.2 PV of Minimum Payments 182590.6 PV of Minimum Payments 161689.9

Effects of ESOP Exercise and Share Repurchases on Common Stock Balance Sheet Account and Number of Shares Outstanding

Number of Options Outstanding (shares):  3,213

Average Time to Maturity (years): 6.40

Expected Annual Number of Options Exercised: 502

Current Average Strike Price: 31.88$            

Cost of Equity: 8.13%

Current Stock Price: $52.27

2017E 2018E 2019E 2020E 2021E 2022E 2023E 2024E 2025E 2026E

Increase in Shares Outstanding: 502 502 502 502 502 502 502 502 502 502

Average Strike Price: 31.88$             31.88$             31.88$             31.88$             31.88$             31.88$             31.88$             31.88$             31.88$             31.88$            

Increase in Common Stock Account: 16,005             16,005             16,005             16,005             16,005             16,005             16,005             16,005             16,005             16,005            

Change in Treasury Stock 31,968,000 31,968,000 31,968,000 31,968,000 31,968,000 31,968,000 31,968,000 31,968,000 31,968,000 31,968,000

Expected Price of Repurchased Shares: 52.27$             56.52$             61.11$             66.08$             71.46$             77.27$             83.55$             90.34$             97.68$             105.63$          

Number of Shares Repurchased: 612                  566                  523                  484                  447                  414                  383                  354                  327                  303                 

Shares Outstanding (beginning of the year) 129,383 129,273 129,210 129,189 129,207 129,262 129,350 129,469 129,618 129,792

Plus: Shares Issued Through ESOP 502 502 502 502 502 502 502 502 502 502

Less: Shares Repurchased in Treasury 612                  566                  523                  484                  447                  414                  383                  354                  327                  303                 

Shares Outstanding (end of the year) 129,273 129,210 129,189 129,207 129,262 129,350 129,469 129,618 129,792 129,992

VALUATION OF OPTIONS GRANTED IN ESOP

Ticker Symbol RPM

Current Stock Price $52.27

Risk Free Rate 2.52%

Current Dividend Yield 2.20%

Annualized St. Dev. of Stock Returns 25.60%

Average Average B‐S Value

Range of Number Exercise Remaining Option of Options

Outstanding Options of Shares Price Life (yrs) Price Granted

Range 1 3,213 31.88 6.40 20.95$         67,300$             

Total 3,213 31.88$         6.40 26.91$         67,300$