At May 31, 2007, we had U.S. federal foreign tax credit carryforwards of approximately $16.6 million which expire starting in 2012. Additionally we had approximately $20.5 million of state net operating loss carryforwards that expire at various dates beginning in 2008 and foreign net operating loss carryforwards of approximately $43.7 million at May 31, 2007, of which approximately $2.2 million will expire at various dates beginning in 2008 and approximately $41.5 million that have an indefinite carryforward period. These net operating loss and foreign tax credit carryforwards may be used to offset a portion of future taxable income and, thereby, reduce or eliminate our U.S. federal, state or foreign income taxes otherwise payable.

Management has determined, based on the available evidence, that it is uncertain whether future taxable income of certain of our foreign subsidiaries as well as anticipated foreign source income will be significant enough to recognize certain of these deferred tax assets. As a result, valuation allowances of approximately $21.8 million and $19.0 million have been recorded as of May 31, 2007 and 2006, respectively.

Valuation allowances relate to U.S. federal foreign tax credit carryforwards, certain foreign net operating losses and net foreign deferred tax assets. A portion of the valuation allowance is associated with deferred tax assets recorded in purchase accounting. Any reversal of a valuation allowance that was recorded in purchase accounting would reduce goodwill. In the current year, a reversal of approximately $0.6 million of valuation allowance was allocated to goodwill.

The following table reconciles the U.S. statutory federal income tax expense (benefit) rate to the effective income tax expense(benefit) rate:

NOTE D- COMMON STOCK

Basic earnings per share are computed by dividing income available to common stockholders by the weighted-average number of shares of common stock outstanding during each year. To compute diluted earnings per share, the weightedaverage number of shares of common stock outstanding during each year was increased by common stock options with exercisable prices lower than the average market prices of common stock during each year and reduced by the number of

shares assumed to have been purchased with proceeds from the exercised options. Additionally, shares related to our convertible securities are also considered in our calculation of fully diluted earnings per share.

Our Stockholder Rights Plan provides existing stockholders the right to purchase stock of RPM International Inc. at a discount in certain circumstances as defined by the Plan. The rights are not exercisable at May 31, 2007 and expire in May 2009.