SEC Document

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

 

(In thousands)

 

Quoted Prices

in Active

Markets for

Identical Assets

(Level 1)

 

 

Significant

Other

Observable

Inputs (Level 2)

 

 

Significant

Unobservable

Inputs (Level 3)

 

 

Fair Value at

May 31,

2017

 

U.S. Treasury and other government

 

$

-

 

 

$

22,119

 

 

$

-

 

 

$

22,119

 

Corporate bonds

 

 

 

 

 

 

797

 

 

 

 

 

 

 

797

 

Stocks - domestic

 

 

2,467

 

 

 

 

 

 

 

 

 

 

 

2,467

 

Mutual funds - foreign

 

 

 

 

 

 

37,435

 

 

 

 

 

 

 

37,435

 

Mutual funds - domestic

 

 

 

 

 

 

101,637

 

 

 

 

 

 

 

101,637

 

Contingent consideration

 

 

 

 

 

 

 

 

 

 

(17,979

)

 

 

(17,979

)

Total

 

$

2,467

 

 

$

161,988

 

 

$

(17,979

)

 

$

146,476

 

 

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 management judgment.

At August 31, 2017, we had a foreign currency forward contract with a fair value of approximately $1.0 million, which is classified in other current assets 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 participant's view of the risk associated with the obligation, which are considered to be Level 3 inputs. During the first quarter of fiscal 2018, we paid approximately $3.3 million for settlements of contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during the current period.  During the first quarter of fiscal 2017, we paid approximately $4.0 million for settlements of contingent consideration obligations relating to certain performance milestones that were established in prior periods and achieved during last year’s first quarter. These amounts are reported in payments of acquisition-related contingent consideration in cash flows from financing activities in the Consolidated Statements of Cash Flows.  

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