Report of Independent Registered Public Accounting Firm
To the Audit Committee
RPM International Inc. 401(k) Trust and Plan
Medina, Ohio
We have audited the accompanying statements of net
assets available for benefits of the RPM International Inc. 401(k) Trust and Plan (the “Plan”) as of December 31, 2016 and 2015, and the related statement of changes in net assets available for benefits for the year ended December 31,
2016. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Plan is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Plan’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for benefits of the Plan
as of December 31, 2016 and 2015, and the changes in net assets available for benefits for the year ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.
BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by
guarantee, and forms part of the international BDO network of independent member firms.
BDO is the brand name for the BDO network and
for each of the BDO Member Firms.
The accompanying supplemental schedule of assets (held at end of year) as of December 31, 2016 has
been subjected to audit procedures performed in conjunction with the audit of the Plan’s financial statements. The supplemental schedule is the responsibility of the Plan’s management. Our audit procedures included determining whether the
supplemental schedule reconciles to the financial statements or the underlying accounting and other records, as applicable, and performing procedures to test the completeness and accuracy of the information presented in the supplemental schedule. In
forming our opinion on the supplemental schedule, we evaluated whether the supplemental schedule, including its form and content, is presented in conformity with the Department of Labor’s Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. In our opinion, the supplemental schedule is fairly stated, in all material respects, in relation to the financial statements as a whole.
/s/ BDO USA, LLP
Cleveland, Ohio
June 26, 2017
N
otes to Financial Statements
NOTE A – Summary of Significant Accounting Policies
Basis of
Presentation
The accompanying financial statements of the RPM International Inc. 401(k) Trust and Plan (the Plan) have been prepared on the
accrual basis in conformity with accounting principles generally accepted in the United States of America.
Investment Valuation and Income Recognition
Investments are reported at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. See Note C for discussion of fair value measurements.
Purchases and sales
of securities are recorded on a trade-date basis. Interest income is recorded when received. Dividends are recorded on the ex-dividend date.
Notes Receivable
from Participant Accounts
Notes receivable from participants are measured at their unpaid principal balance plus any accrued but unpaid
interest. Delinquent participant loans are reclassified as distributions based upon the terms of the Plan document.
Contributions
Contributions are recorded on the accrual basis.
Payment of
Benefits
Benefits are recorded when paid.
Use of
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have
been made to the 2015 financial statement presentation to correspond to the current year’s format. Total net assets available for benefits are unchanged as a result of these reclassifications.
5
RPM INTERNATIONAL INC. 401(k) TRUST AND PLAN
Notes to Financial Statements
NOTE A – Summary of Significant Accounting Policies (continued)
Recent Accounting Pronouncements
In July 2015, the
Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2015-12, Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare
Benefit Plans (Topic 965): Part (I) Fully Benefit- Responsive Investment Contracts, Part (II) Plan Investment Disclosures, Part (Ill) Measurement Date Practical Expedient. This standard simplifies certain financial statement reporting and
disclosure requirements for employee benefit plans. ASU 2015-12 is effective for the Company for the 2016 plan year, with early adoption permitted. Parts I and II require retrospective application, and Part Ill requires prospective application. The
Company chose to adopt Part II for the 2015 plan year. Parts I and Ill are not applicable to this Plan. The adoption of ASU 2015-12 did not have a material impact on the financial statements.
In May 2015, the FASB issued Accounting Standards Update 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per
Share (or its Equivalent), (“ASU 2015-07”). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy investments for which fair values are estimated using the net asset value practical expedient provided by
Accounting Standards Codification 820, Fair Value Measurement. Disclosures about investments in certain entities that calculate net asset value per share are limited under ASU 2015-07 to those investments for which the entity has elected to estimate
the fair value using the net asset value practical expedient. ASU 2015-07 is effective for entities (other than public business entities) for fiscal years beginning after December 15, 2016, with retrospective application for all periods
presented. The Plan elected to early adopt ASU 2015-07 effective December 31, 2015. As a result of adoption of ASU 2015-07, the Plan retrospectively modified its fair value disclosures.
NOTE B - Description of the Plan
The following description
of the Plan provides only general information. Participants should refer to the Plan document for a more complete description of the Plan’s provisions.
General
The Plan, adopted on June 1, 1996, is a
defined contribution retirement savings plan covering substantially all domestic non-union employees of participating subsidiaries of RPM International Inc. (the Company and Plan Sponsor). The Plan is subject to the Employee Retirement Income
Security Act of 1974 (ERISA), as amended.
Eligibility
Full-time employees, as defined, are eligible to participate in the Plan provided they have worked for the Company for a period of 3 months. Part-time
employees, as defined, are eligible to participate provided they have worked for the Company for a period of 12 months and have met certain hour requirements.
6
RPM INTERNATIONAL INC. 401(k) TRUST AND PLAN
Notes to Financial Statements
NOTE B - Description of the Plan (continued)
Contributions
Participants may contribute up to 50% of their gross annual compensation. Participants who have attained age 50 before the end of the Plan year
are eligible to make catch-up contributions. Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans. Participants direct the investment of their contributions into
various investment options offered by the Plan. The Plan currently offers a variety of investment funds as investment options for participants. The Plan is a Safe Harbor 401(k) plan. The Company matches up to a maximum rate of 100% of the first 3%
and 50% of the next 2% of employee deferrals. The matching Company contribution is invested in the same manner in which the participants invest their own contributions. Contributions are subject to certain limitations, as defined.
Participant Accounts
Each participant’s account
is credited with the participant’s contribution, the Company’s matching contribution and an allocation of Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account
balances, as defined. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
Vesting
Vesting is immediate for contributions, both
for employee and employer, and earnings thereon.
Notes Receivable from Participants
Participants may borrow from their fund accounts a minimum of $1,000 up to a maximum equal to the lesser of $50,000 or 50% of their account balance.
Participants can only have one loan outstanding under the Plan at any time. Loan terms may not exceed five years. The loans are secured by the balance in the participant’s account and bear interest interest at a fixed rate between 4.00% and
10.25% as determined by the Plan Sponsor at the date of issuance. Principal and interest are paid ratably through payroll deductions.
Payment of Benefits
Upon termination of a participant’s employment, including termination by reason of death, disability or retirement, a participant may elect
to receive either a lump-sum amount equal to the value of the participant’s vested interest in his or her accounts or regular installments over any period not to exceed ten years.
In-service withdrawals are available in certain limited circumstances, as defined by the Plan. Hardship withdrawals are allowed for participants
incurring immediate and heavy financial need, as defined by the Plan. Hardship withdrawals are strictly regulated by the Internal Revenue Service (IRS), and a participant must exhaust all available loan options and distributions prior to requesting
a hardship withdrawal.
Plan Expenses
During
2016, certain administrative expenses, and other expenses incurred in connection with the sale, purchase, and management of the assets of the investment funds were paid by the Plan.
7
RPM INTERNATIONAL INC. 401(k) TRUST AND PLAN
Notes to Financial Statements
NOTE C - Fair Value Measurements
The Plan follows the
provisions of Accounting Standards Codification (ASC) 820, Fair Value
Measurements and Disclosures
which defines fair value and provides guidance for measuring fair value and expands disclosures about fair value measurements.
Fair Value
Measurements and Disclosures
does not require any new fair value measurements, but rather applies to all other accounting pronouncements that require or permit fair value measurements.
Fair Value Measurements and Disclosures
establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobserved inputs
(Level 3 measurement). The three levels of the fair value hierarchy are described below:
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Level 1
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Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets
that the Plan has the ability to access.
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Level 2
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Inputs to the valuation methodology include:
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•
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Quoted prices for similar assets or liabilities in active markets;
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•
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Quoted prices for identical or similar assets or liabilities in inactive markets;
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•
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Inputs other than quoted prices that are observable for the asset or liability;
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•
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Inputs that are derived principally from or corroborated by observable market data by correlation or other
means.
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If the asset or liability has a specified (contractual) term, the Level 2 inputs must be observable for substantially the
full term of the asset or liability.
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Level 3
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Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the
lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. Following is a description of the valuation
methodologies used for assets measured at fair value. There have been no changes in the methodologies used at December 31, 2016 and 2015.
Mutual Funds:
Valued at quoted prices from an active market, which represents the net asset value (NAV) of shares held by the Plan at year-end.
Common Stock Fund:
The Common Stock Fund is a unitized fund. The fund consists of common stock and common/collective trusts and is valued at
NAV based on the fair value of the underlying investments held by the fund less its liabilities. The use of NAV as fair value is deemed appropriate as the collective trust funds do not have finite lives, unfunded commitments relating to these types
of investments, or significant restriction on redemptions.
8
RPM INTERNATIONAL INC. 401(k) TRUST AND PLAN
Notes to Financial Statements
NOTE C - Fair Value Measurements (continued)
Common/Collective Trusts:
Valued using the NAV based on the fair value of the underlying investments held by the fund less its liabilities. The
use of NAV as fair value is deemed appropriate as the collective trust funds do not have finite lives, unfunded commitments relating to these types of investments, or significant restrictions on redemptions.
Insurance Contracts:
Valued at cash surrender value, which approximates fair value.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values.
Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in
a different fair value measurement at the reporting date.
The following table sets forth by level, within the fair value hierarchy, the Plan’s
assets at fair value as of December 31, 2016 and 2015:
Assets at Fair Value as of December 31, 2016
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
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$
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570,396,638
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$
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-
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$
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-
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$
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570,396,638
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Insurance Policies
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-
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-
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44,370
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44,370
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Total Assets in the fair value hierarchy
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570,396,638
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-
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44,370
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570,441,008
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Investments measured at NAV (a)
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125,865,803
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Investments at Fair Value
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$
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570,396,638
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$
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-
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$
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44,370
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$
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696,306,811
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Assets at Fair Value as of December 31, 2015
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Level 1
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Level 2
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Level 3
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Total
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Mutual Funds
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$
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526,340,055
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$
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-
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$
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-
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$
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526,340,055
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Insurance Policies
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-
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-
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42,773
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42,773
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Total Assets in the fair value hierarchy
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526,340,055
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-
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42,773
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526,382,828
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Investments measured at NAV (a)
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110,651,027
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Investments at Fair Value
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$
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526,340,055
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$
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-
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$
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42,773
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$
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637,033,855
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(a) In accordance with the Financial Accounting Standards Board (FASB) Accounting Standards Codification Subtopic
820-10, certain investments that were measured at net asset value per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair
value hierarchy to the line items presented in the statements of net assets available for benefits.
9
RPM INTERNATIONAL INC. 401(k) TRUST AND PLAN
Notes to Financial Statements
NOTE C - Fair Value Measurements (continued)
The following
table sets forth a summary of changes in the fair value of the Plan’s Level 3 assets for the year ended December 31, 2016:
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Insurance
Policies
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Balance, beginning of year
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$
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42,773
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Unrealized gains relating to instruments still held at the reporting date
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1,597
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Balance, end of year
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$
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44,370
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NOTE D - Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to
terminate the Plan subject to the provisions of ERISA. Any unallocated assets of the Plan shall be allocated to participant accounts and distributed in such a manner as determined by the Company.
NOTE E - Income Tax Status
The Plan obtained its latest
determination letter on December 17, 2014, in which the IRS stated that the Plan, as then designed, was in compliance with the applicable requirements of the Internal Revenue Code.
Accounting principles require Plan management to evaluate tax positions taken by the Plan and recognize a tax liability (or asset) if the Plan has taken
an uncertain position that more likely than not would not be sustained upon examination by the tax authorities. The Plan administrator has analyzed the tax positions taken by the Plan, and has concluded that, as of December 31, 2016 and 2015,
there are no uncertain positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. The Plan is subject to routine audits by taxing jurisdictions; however, there are
currently no audits for any tax periods in progress.
NOTE F - Related Party and Parties-in-Interest Transactions
The diversified Stable Value Fund is a common trust fund managed by Wells Fargo Bank N.A. Wells Fargo Bank N.A. is the trustee as defined by the Plan
and, therefore, these transactions qualify as party-in-interest transactions. Fees paid by the Plan to the trustee amounted to $352,117 for the year ended December 31, 2016.
10
RPM INTERNATIONAL INC. 401(k) TRUST AND PLAN
Notes to Financial Statements
NOTE F - Related Party Transactions (continued)
In addition,
at December 31, 2016, the Plan held shares of RPM International Inc. common stock valued at $47,041,445. At December 31, 2015, the Plan held shares of RPM International Inc. common stock valued at $40,601,202. Transactions involving these
investments are allowable party-in-interest transactions under ERISA.
NOTE G - Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market, and credit risks.
Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect
participants’ account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
Note H - Evaluation of Subsequent Events
The Plan has evaluated the impact of events that have occurred subsequent to December 31, 2016, through the date the financial statements
were available to be issued, for possible recognition or disclosure in those financial statements. Based on this evaluation, other than as recorded or disclosed within the financial statements and related notes, the Plan has determined that there
were no events that were required to be recognized or disclosed.
11