SEC Document

Increasing or decreasing current healthcare cost trend rates by 1% would affect our accumulated postretirement benefit obligation and net postretirement expense by the following amounts for the years ended May 31, 2017 and 2016:


          U.S. Plans           Non-U.S. Plans  
(In thousands)         2017        2016             2017        2016      

1% Increase in trend rate


Accumulated Benefit Obligation

      $ 229        $ 313            $ 6,410        $ 5,552       

Postretirement Cost

        9          11              547          504       

1% Decrease in trend rate


Accumulated Benefit Obligation

      $     (201      $     (272)           $     (5,016      $   (4,289)      

Postretirement Cost

        (8        (9)             (406        (383)      

We expect to pay approximately $0.9 million to $1.3 million in estimated postretirement benefits in each of the next five years. In the five years thereafter (2023-2027) we expect to pay a cumulative total of $7.6 million.


Accrued loss reserves consist of the following:


May 31,    2017        2016     
(In thousands)                

Accrued product liability reserves

   $ 14,932        $ 25,100      

Accrued warranty reserves

     15,701          9,137      

Accrued environmental reserves

     1,102          1,053      

Total accrued loss reserves - Current

   $ 31,735        $ 35,290      

Accrued product liability reserves - noncurrent

   $ 28,222        $ 29,045      

Accrued warranty liability - noncurrent

     3,448          4,177      

Accrued environmental reserves - noncurrent

     1,747          1,676      

Total accrued loss reserves - Noncurrent

   $     33,417        $     34,898      


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

We also offer warranties on many of our products, as well as long-term warranty programs at certain of our businesses, and have established product warranty liabilities. We review these liabilities for adequacy on a quarterly basis and adjust them as necessary. The primary factors that could affect these liabilities may include changes in performance rates as well as costs of replacement. Provision for estimated warranty costs is recorded at the time of sale and periodically adjusted, as required, to reflect actual experience. It is probable that we will incur future losses related to warranty claims we have received but that have not been fully investigated and related to claims not yet received. While our warranty liabilities represent our best estimates at May 31, 2017, we can provide no assurances that we will not experience material claims in the future or that we will not incur significant costs to resolve such claims beyond the amounts accrued or beyond what we may recover from our suppliers. Product warranty expense is recorded within selling, general and administrative expense.

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


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


Year Ended May 31,    2017     2016     2015      
(In thousands)                   

Beginning Balance

   $ 13,314     $ 11,663     $ 14,741       

Deductions (1)

     (18,269     (18,061     (29,543)      

Provision charged to SG&A expense

     23,862       19,653       23,487       

Acquisitions, including SPHC reconsolidation

     242       59       2,978       

Ending Balance

   $ 19,149     $ 13,314     $ 11,663       


(1) Primarily claims paid during the year.

In addition, like other companies participating in similar lines of business, some of our subsidiaries are involved in several proceedings relating to environmental matters. It is our policy to accrue remediation costs when it is probable that such efforts will be required and the related costs can be reasonably estimated. These liabilities are undiscounted and are not material to our financial statements during any of the periods presented.

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



60    RPM International Inc. and Subsidiaries

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