NOTE D FAIR VALUE MEASUREMENTS
Financial instruments recorded in the balance sheet include cash and cash equivalents, trade accounts receivable, marketable securities, notes and accounts payable, and
An allowance for anticipated uncollectible trade receivable amounts is established using a combination of specifically identified accounts to be reserved, and
a reserve covering trends in collectibility. These estimates are based on an analysis of trends in collectibility and past experience, but are primarily made up of individual account balances identified as doubtful based on specific facts and
conditions. Receivable losses are charged against the allowance when we confirm uncollectibility.
All derivative instruments are recognized in our Consolidated
Balance Sheets and measured at fair value. Changes in the fair values of derivative instruments that do not qualify as hedges and/or any ineffective portion of hedges are recognized as a gain or (loss) in our Consolidated Statements of Income in the
current period. Changes in the fair value of derivative instruments used effectively as cash flow hedges are recognized in other comprehensive income (loss), along with the change in
the value of the hedged item. We do not hold or issue derivative instruments for speculative purposes.
The valuation techniques utilized for establishing the fair values of assets and liabilities are based on observable and unobservable inputs. Observable inputs reflect
readily obtainable data from independent sources, while unobservable inputs reflect managements market assumptions. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value, as follows:
Level 1 Inputs Quoted prices for identical instruments in active markets.
Level 2 Inputs Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that
are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs
Instruments with primarily unobservable value drivers.
The following tables present our assets and
liabilities that are measured at fair value on a recurring basis and are categorized using the fair value hierarchy.
U.S. Treasury and other government
Stocks - domestic
Mutual funds - foreign
Mutual funds - domestic
in Active Marketsfor IdenticalAssets (Level 1)
Stocks - foreign
Foreign currency forward contract
Our marketable securities are primarily composed of
available-for-sale securities, and are valued using a market approach. The availability of inputs observable in the market varies from instrument to instrument and
depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For most of our financial instruments, pricing inputs are readily observable in the
market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require
At May 31, 2016, we had a foreign currency forward contract with a fair value of approximately $0.2 million, which is classified in
other accrued liabilities in our Consolidated Balance Sheets. The balance for this foreign currency forward contract was not significant at May 31, 2017. Our foreign currency forward contract, which has not been designated as a hedge,
was designed to reduce our exposure to the changes in the cash flows of intercompany foreign-currency-denominated loans
related to changes in foreign currency exchange rates by fixing the functional currency cash flows. The foreign exchange rates included in the forward contract are based upon observable market data, but are not quoted market prices, and therefore,
the forward currency forward contract is considered a Level 2 liability on the fair value hierarchy.
The contingent consideration represents the estimated fair
value of the additional variable cash consideration payable in connection with recent acquisitions that is contingent upon the achievement of certain performance milestones. We estimated the fair value using expected future cash flows over the
period in which the obligation is expected to be settled, and applied a discount rate that appropriately captures a market participants view of the risk associated with the obligation, which are considered to be Level 3 inputs. During
fiscal 2017, we accrued approximately $7.4 million for additional contingent payments related to new acquisitions, which included the estimated
RPM International Inc. and Subsidiaries 45
RPM International Inc. (NYSE: RPM) owns subsidiaries that are world leaders in coatings, sealants, building materials and related services. From homes to precious landmarks worldwide, their brands are trusted by consumers and professionals alike to protect, improve and beautify. Among its leading consumer brands are Rust-Oleum, DAP and Zinsser. Learn more about RPM brands >>
RPM is a compelling long-term investment.
The percent by which RPM's 10-year total return has bested the S&P 500. More reasons >>
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