To the Associates, Customers and Shareholders of RPM

For 61 years after RPM's founding by my grandfather in 1947, the company proved its resilience by producing record growth every year. With a business model that focused on a balance between consumer and industrial businesses, between internal growth and acquisition growth, and, more recently, between domestic and international markets, RPM weathered just about every economic storm imaginable during this time.

But even RPM's resiliency was no match for the current recession. Its speed, depth and severity have not been seen in generations and it is still affecting nearly every business in America. As a result, we did not achieve our 62nd year of record growth for our fiscal year ended May 31, 2009.

We began our 2009 fiscal year with record results in our industrial businesses and slight deterioration in our consumer businesses, resulting in overall sales and net income records for the first quarter. During the second half of the fiscal year, three important drivers of our growth changed dramatically. As nationwide unemployment rates pushed 10 percent and the housing market remained depressed, consumer spending ground to a halt. Moreover, the recession, coupled with a virtual lending paralysis in the banking industry, created a precipitous decline in commercial construction activity. The related 38 percent drop in U.S. non-residential investment in the first quarter of calendar 2009 was a post-World War II record.

This rapid decline in economic conditions prompted decisive action to reduce expenses and enhance cash generation as we neared the end of calendar 2008. In the process, we eliminated a significant amount of discretionary spending, cut work shifts from many manufacturing facilities and reduced our worldwide workforce by approximately 10 percent.

Despite this challenging economic environment and the difficult actions taken in response, there were some major bright spots in fiscal 2009:

• By moving swiftly to adjust the business to existing market conditions, we reduced our costs by some $50 million on an annualized basis, effectively lowering the breakeven point at every RPM business unit;
• We enhanced our strong liquidity and capital structure;
• Cash from operations was at record levels and easily covered our cash dividend and capital expenditure commitments; and
• We prepared ourselves to capitalize fully on the economic recovery when it begins.

To this final point, we have chosen “Capturing Market Opportunities” as the theme of this year's annual report. We've identified five major macroeconomic market trends that we think create enormous growth opportunities for RPM operating companies once overall economic recovery begins. This viewpoint is somewhat different from how we have presented the RPM story to investors in the past. We hope this approach provides additional clarity regarding how certain market forces influence our businesses.

More details about these market opportunities and our strategies to capitalize on them are included in the pages following this letter.

Operating Results Reflect Worldwide Economic Decline

Sales for fiscal 2009 declined 7.6 percent to $3.4 billion from $3.6 billion a year ago. Fiscal 2009 net income was $119.6 million, or $0.93 per diluted share, compared to net income of $47.7 million, or $0.39 per diluted share in fiscal 2008. Fiscal 2008 net income included a $288.1 million pre-tax charge to increase our total accrual for asbestos liabilities, while fiscal 2009 net income included a one-time charge of $15.5 million for goodwill and other intangible asset impairments. Excluding the one-time charges in both years, RPM's fiscal 2009 net income fell 42.1 percent to $134.9 million, or $1.05 per diluted share, from the $232.8 million, or $1.81 per diluted share, earned a year ago.

The strengthening dollar versus other world currencies, particularly the Euro and British Pound, resulted in a negative foreign exchange translation of $123.6 million, eroding 3.4 percent of total sales. Net income was negatively impacted by one-time severance and restructuring costs of $20.3 million, along with $15.1 million in "mark-to-market" write downs in the portfolio of our captive insurance companies, as a result of depressed stock market conditions in the first three quarters of fiscal 2009.

The company's industrial segment sales declined 4.3 percent to $2.3 billion from $2.4 billion in fiscal 2008. Acquisitions represented an increase of 5.2 percent, while organic sales declined 9.5 percent, including foreign exchange translation losses of 4.1 percent. Industrial segment EBIT (earnings before interest and taxes) decreased 32.5 percent, to $176.8 million from $261.8 million in fiscal 2008.

Consumer segment sales declined 13.6 percent to $1.1 billion from $1.3 billion a year ago. Of the decline, foreign exchange translation losses accounted for 2.1 percent and net divestitures accounted for 2.3 percent. EBIT for the consumer segment decreased 33.7 percent to $106.8 million from $161.1 million in fiscal 2008.

Liquidity, Capital Position, Cash Flow Remain Healthy

Despite the difficult economy and its impact on our operating results, our financial metrics remain quite healthy:

• Cash from operations was a record $267 million, a 13.8 percent increase over the $235 million generated in fiscal 2008. We funded an increase in the cash dividend to shareholders for the 35th consecutive year and covered $55 million in capital spending. Following those expenditures, we had $110 million in free cash flow for fiscal 2009, up 52.5 percent over fiscal 2008 levels;
• The net (of cash) debt-to-total capital ratio at year-end was 37.2 percent, an improvement over the 42.6 percent ratio at the end of fiscal 2008, which was already at the low end of our historic norms;
• Available liquidity at year-end was an extraordinarily high $622 million, consisting of cash and long-term credit facilities that are committed, but unused; and
• We maintained our investment grade ratings by Standard & Poor's and by Moody's Investor Services, both of which were upgraded in January 2008.

We have $164 million of unsecured senior notes due October 15, 2009, that are approaching maturity, and will refinance these notes through the bond market if conditions are favorable. If not, we will retire the senior notes with cash and existing credit facilities.

RPM's total asbestos-related indemnity and defense costs declined in fiscal 2009 to $69 million, compared to $83 million in fiscal 2008. Our strategy is to pursue an aggressive defense posture related to these cases. RPM's accrued asbestos liability balance balance stood at $490 million as of May 31, 2009.

During the year, our lawsuit against insurance companies seeking recovery of both past and future asbestos costs was dismissed, and we are currently in the process of appealing this decision. More information on the asbestos issue is contained in Note I to the Consolidated Financial Statements and elsewhere in the financial section of this annual report.

Dividend Increase Bucks Trend

The board of directors increased the quarterly cash dividend to shareholders by 5.3 percent on October 10, 2008, to $0.20 from $0.19 per share. As a result, RPM remains in an elite group of only 68 companies that have increased their dividend for 35 consecutive years or more, according to the 2009 edition of America's Finest Companies.

While many companies have been forced by current economic conditions to reduce or eliminate their dividends, we are pleased that RPM's strong cash flow allows us to continue delivering RPM shareholders a positive cash return on their investment throughout this difficult economic climate and the declining stock market prevalent through most of our 2009 fiscal year.

We expect to maintain the current dividend rate in the upcoming fiscal year. If our expectations of a recovery hold true, we will most likely increase this rate modestly in the second half of fiscal 2010, resulting in 36 consecutive years of higher cash dividends.

Acquisition Growth Continues

RPM subsidiaries continued to build their businesses geographically and add product and service lines through acquisitions during fiscal 2009:

• On February 9, 2009, Tremco illbruck International GmbH acquired Karochemie AG, a leading supplier of sealants to the construction markets in Switzerland and Lichtenstein. With annual sales of more than $13 million, Karochemie's distribution network and sealants expertise is expected to complement Tremco illbruck's strengths in other parts of Europe and to be accretive to earnings in the current fiscal year.
• On February 13, 2009, Carboline Company purchased a 49 percent interest in its Chinese licensee, Carboline Dalian Paint Production Co., Ltd. The remaining 51 percent of the joint venture is owned by UniChemical Company, a longstanding Carboline partner in another joint venture, Carboline Korea Ltd. Carboline Dalian has annual sales of approximately $10 million, and manufactures corrosion control coatings and linings for a variety of industries, including offshore drilling, oil and gas, petrochemical, general manufacturing and electrical generation.
• On April 1, 2009, Tremco Incorporated acquired Canam Building Envelope Specialists Inc., including its Zerodraft weatherproofing division. With annual sales of approximately $6 million, and based in Mississauga, Ontario, Canam is one of the leading building envelope consulting firms in North America. It now operates as part of Tremco's Weatherproofing Technologies Inc. subsidiary. Its Zerodraft division, which provides specialized retrofit weatherstripping and distributes a variety of related insulation and sealant products, is operating as part of Tremco's Commercial Sealants and Waterproofing Division.

The Canam acquisition fits nicely with our existing aggressive promotion of building envelope solutions, which can dramatically reduce building energy consumption, and, therefore, greenhouse gas emissions, and offer rapid payback to building owners in terms of energy savings. This high Performance Building Solutions effort, involving multiple RPM subsidiaries is covered in more detail in the “Capturing Market Opportunities” section of this annual report and on the back cover.

Industrial Group Names Changed to Reflect End Markets

We have changed the names of two of our industrial segment operating groups to better reflect the nature of their businesses and end-market customers, and to better define their platform for further growth, both organically and through acquisitions. They are:

• RPM Building Solutions Group, formerly the Tremco Group, and consisting of Tremco Roofing, Tremco Sealants, Tremco illbruck, Tremco Barrier Solutions, Weatherproofing Technologies Inc., Euclid Chemical Company, Productos Cave, Prosytec, Increte and Compact Technologies; and
• RPM Performance Coatings Group, formerly the StonCor Group, and consisting of Stonhard, Carboline, Fibergrate, Plasite, Flowcrete, Star Maling and StonCor operations in Africa, Asia, Canada, Europe, Latin America and the Middle East.

Kenneth Korach Recognized for Euclid Chemical's Growth

Kenneth Korach, president of Euclid Chemical Company since 1997, retired at the end of fiscal 2009. Under Ken's leadership, Euclid broadened its geographical footprint from its eastern U.S. roots to include all of North America, Latin America and South America. In the process, Euclid's sales grew to more than $210 million from $40 million.

RPM is known as the best home for entrepreneurial companies in our field, and Euclid Chemical is a great case-in-point. The company, run by Ken’s father, Lawrence, since 1951, was acquired by RPM in 1984 when its sales were approximately $10 million. Ken’s brother, Jeff, ran the business until 1997, when he became president of Tremco Incorporated, which we had just acquired from The BFGoodrich Company. Ken picked up the reins at Euclid, where he had been vice president of operations, and pursued a very deliberate and highly successful strategy of geographic expansion coupled with selected product line acquisitions to broaden Euclid’s capabilities. We thank Ken for his decades of service to Euclid and to RPM.

Fiscal 2010 Outlook Anticipates Second-Half Recovery

This past fiscal year tested the mettle of RPM’s 9,700 associates like no other period in our history. We began the fiscal year with continued record high raw material costs, coupled with further escalation in record high fuel costs, before the worldwide recession took hold. By the middle of the fiscal year, business activity was dramatically declining in nearly every market we serve.

I am proud of the extraordinary actions of RPM employees worldwide to respond to the unprecedented economic challenges of the past year. A significant part of that response was the generation of record after-tax cash from operations, allowing us to:

• maintain our employee retirement, health care and benefit plans with no change; and
• maintain our cash dividend to shareholders, unlike so many other companies impacted by this severe recession.

As we begin our 2010 fiscal year, we are encouraged by an improving outlook. Our consumer businesses have turned the corner in this difficult economy. With housing turnover, the sale of foreclosed homes and new home construction beginning to show improvement in various regions of the country, we are seeing an uptick in the sale of our maintenance- and repair-oriented consumer products. With a modest recovery in consumer segment sales, we should realize consistent earnings growth from our consumer businesses as a result of the aggressive expense reductions taken during the past fiscal year.

While our industrial businesses will continue to face economic challenges as a result of weak commercial construction and industrial capital spending activity, our prior-year actions to reduce the breakeven points at these businesses will allow our industrial operations to improve performance compared to the final six months of fiscal 2009. We expect a recovery in our industrial markets sometime in the spring of 2010. Depending on the timing of the industrial market turnaround, we expect earnings per share for RPM to grow in the range of 5 percent to 25 percent on a consolidated basis in fiscal 2010, from the adjusted $1.05 per diluted share earned in fiscal 2009.

Long-term, we are excited about the major global trends outlined in this annual report, coupled with the proven strength of our balanced business model. Taken together, they bode well for RPM’s return to substantial sales and earnings growth in the coming years.

In addition to recognizing the exceptional efforts of RPM associates in weathering this very difficult storm, we appreciate the loyalty of our customers, whose business challenges in this severe recession are every bit as daunting as our own. To our shareholders, we appreciate your continued allegiance as the overall stock market decline, in advance of the recession, took its toll on RPM’s share price. Our ability to maintain and grow the cash dividend in these tough times is one reward for your loyalty. We look forward to reporting to you our improving performance throughout the year ahead.

To our associates, customers and shareholders, thank you for your faith, trust and commitment during this extraordinary time.