SEC Document


INVENTORIES

Inventories are stated at the lower of cost or net realizable value, cost being determined on a first-in, first-out (FIFO) basis and net realizable value being determined on the basis of replacement cost. Inventory costs include raw materials, labor and manufacturing overhead. We review the net realizable value of our inventory in detail on an on-going basis, with consideration given to various factors, which include our estimated reserves for excess, obsolete, slow moving or distressed inventories. If actual market conditions differ from our projections, and our estimates prove to be inaccurate, write-downs of inventory values and adjustments to cost of sales may be required. Historically, our inventory reserves have approximated actual experience.

MARKETABLE SECURITIES

Marketable securities, included in other current and long-term assets, are composed of available-for-sale securities and are reported at fair value. Realized gains and losses on sales of investments are recognized in net income on the specific identification basis. Changes in fair values of securities that are considered temporary are recorded as unrealized gains and losses, net of applicable taxes, in accumulated other comprehensive income (loss) within stockholders’ equity. Other-than-temporary declines in market value from original cost are reflected in investment income, net in the period in which the unrealized losses are deemed other than temporary. In order to determine whether an other-than-temporary decline in market

value has occurred, the duration of the decline in value and our ability to hold the investment to recovery are considered in conjunction with an evaluation of the strength of the underlying collateral and the extent to which the investment’s amortized cost or cost, as appropriate, exceeds its related market value.

PENSION AND POSTRETIREMENT PLANS

We sponsor qualified defined benefit pension plans and various other nonqualified postretirement plans. The qualified defined benefit pension plans are funded with trust assets invested in a diversified portfolio of debt and equity securities and other investments. Among other factors, changes in interest rates, investment returns and the market value of plan assets can (i) affect the level of plan funding, (ii) cause volatility in the net periodic pension cost, and (iii) increase our future contribution requirements. A significant decrease in investment returns or the market value of plan assets or a significant decrease in interest rates could increase our net periodic pension costs and adversely affect our results of operations. A significant increase in our contribution requirements with respect to our qualified defined benefit pension plans could have an adverse impact on our cash flow.

Changes in our key plan assumptions would impact net periodic benefit expense and the projected benefit obligation for our defined benefit and various postretirement benefit plans. Based upon May 31, 2017 information, the following tables reflect the impact of a 1% change in the key assumptions applied to our defined benefit pension plans in the U.S. and internationally:

 

 

     U.S.             International  
(In millions)    1%
Increase
       1%
Decrease
             1%
Increase
       1%
Decrease
 

Discount Rate

                  

Increase (decrease) in expense in FY 2017

   $ (4.6)         $ 5.6           $ (0.9)         $ 2.5    

Increase (decrease) in obligation as of May 31, 2017

   $ (49.3)         $ 58.6           $ (28.4)         $ 36.6    

Expected Return on Plan Assets

                  

Increase (decrease) in expense in FY 2017

   $ (3.2)         $ 3.2           $ (1.6)         $ 1.6    

Increase (decrease) in obligation as of May 31, 2017

     N/A            N/A             N/A            N/A    

Compensation Increase

                  

Increase (decrease) in expense in FY 2017

   $ 5.6          $ (5.0)          $ 0.7          $ (1.1)   

Increase (decrease) in obligation as of May 31, 2017

   $ 25.2          $ (22.8)                $ 6.7          $ (5.9)   

 

Based upon May 31, 2017 information, the following table reflects the impact of a 1% change in the key assumptions applied to our various postretirement health care plans:

 

 

     U.S.             International  
(In millions)    1%
Increase
       1%
Decrease
             1%
Increase
       1%
Decrease
 

Discount Rate

                  

Increase (decrease) in expense in FY 2017

   $ -          $ -           $ (0.4)         $ 0.6    

Increase (decrease) in obligation as of May 31, 2017

   $ (0.5)         $ 0.5           $ (4.7)         $ 6.2    

Healthcare Cost Trend Rate

                  

Increase (decrease) in expense in FY 2017

   $ -          $ -           $ 0.5          $ (0.4)   

Increase (decrease) in obligation as of May 31, 2017

   $ 0.2          $ (0.2)                $ 6.4          $ (5.0)   

 

LOGO

 

 

RPM International Inc. and Subsidiaries     21


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