SEC Document

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

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 management’s 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.

 

(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

November 30,

2017

 

U.S. Treasury and other government

 

$

-

 

 

$

23,290

 

 

$

-

 

 

$

23,290

 

Corporate bonds

 

 

 

 

 

 

730

 

 

 

 

 

 

 

730

 

Stocks - domestic

 

 

1,877

 

 

 

 

 

 

 

 

 

 

 

1,877

 

Mutual funds - foreign

 

 

 

 

 

 

44,651

 

 

 

 

 

 

 

44,651

 

Mutual funds - domestic

 

 

 

 

 

 

103,211

 

 

 

 

 

 

 

103,211

 

Contingent consideration

 

 

 

 

 

 

 

 

 

 

(14,685

)

 

 

(14,685

)

Total

 

$

1,877

 

 

$

171,882

 

 

$

(14,685

)

 

$

159,074

 

 

(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.

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 half 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 half of fiscal 2017, we paid approximately $4.1 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 half. 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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