SEC Document

RPM INTERNATIONAL INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

 

The carrying value of our current financial instruments, which include cash and cash equivalents, marketable securities, trade accounts receivable, accounts payable and short-term debt approximates fair value because of the short-term maturity of these financial instruments. At November 30, 2017 and May 31, 2017, the fair value of our long-term debt was estimated using active market quotes, based on our current incremental borrowing rates for similar types of borrowing arrangements, which are considered to be Level 2 inputs. Based on the analysis performed, the fair value and the carrying value of our financial instruments and long-term debt as of November 30, 2017 and May 31, 2017 are as follows:

 

 

 

At November 30, 2017

 

(In thousands)

 

Carrying Value

 

 

Fair Value

 

Cash and cash equivalents

 

$

267,857

 

 

$

267,857

 

Marketable equity securities

 

 

149,739

 

 

 

149,739

 

Marketable debt securities

 

 

24,020

 

 

 

24,020

 

Long-term debt, including current portion

 

 

2,136,960

 

 

 

2,272,309

 

 

 

 

 

 

 

 

 

 

 

 

At May 31, 2017

 

(In thousands)

 

Carrying Value

 

 

Fair Value

 

Cash and cash equivalents

 

$

350,497

 

 

$

350,497

 

Marketable equity securities

 

 

141,539

 

 

 

141,539

 

Marketable debt securities

 

 

22,916

 

 

 

22,916

 

Long-term debt, including current portion

 

 

2,090,082

 

 

 

2,243,167

 

 

NOTE 6 - DERIVATIVES AND HEDGING 

Derivative Instruments and Hedging Activities

We are exposed to market risks, such as changes in foreign currency exchange rates and interest rates. To manage the volatility related to these exposures, from time to time, we enter into various derivative transactions. We use various types of derivative instruments including forward contracts and swaps. We formally assess, designate and document, as a hedge of an underlying exposure, each qualifying derivative instrument that will be accounted for as an accounting hedge at inception. Additionally, we assess, both at inception and at least quarterly thereafter, whether the financial instruments used in the hedging transaction are effective at offsetting changes in either the fair values or cash flows of the underlying exposures.

Net Investment Hedge

In October 2017, as a means of mitigating the impact of currency fluctuations on our Euro investments in foreign entities, we executed a fair value hedge and two cross currency swaps, in which we will pay variable rate interest in Euros and receive fixed rate interest in U.S. Dollars with a combined notional amount of approximately €85.25 million ($100 million U.S. Dollar equivalent), and which have a maturity date of November 2022. This effectively converts a portion of our U.S. Dollar denominated fixed rate debt to Euro denominated variable rate debt. The fair value hedge is recognized at fair value in our Consolidated Balance Sheets, while changes in the fair value of the hedge are recognized in interest expense in our Consolidated Statements of Income. We designated the swaps as net investment hedges of our net investment in our European operations under ASU 2017-12 and applied the spot method to these hedges. The changes in fair value of the derivative instruments that are designated and qualify as hedges of net investments in foreign operations are recognized in accumulated other comprehensive income (“AOCI”) to offset the changes in the values of the net investments being hedged.  Amounts released from AOCI and reclassified into interest expense did not have a material impact on our Consolidated Financial Statements for any period presented.

Derivatives Designated as Cash Flow Hedging Instruments

We have designated certain forward contracts as hedging instruments pursuant to ASC No. 815 (“ASC 815”), “Derivatives and Hedging.” Changes in the fair value of these highly effective hedges are recorded as a component of AOCI. During the period in which a forecasted transaction affects earnings, amounts previously recorded as a component of AOCI are reclassified into earnings as a component of cost of sales.  Amounts released from AOCI and reclassified into earnings did not have a material impact on our Consolidated Financial Statements for any period presented. As of November 30, 2017, and May 31, 2017 the notional amount of the forward contracts held to sell international currencies was $14.6 million and $9.8 million, respectively.

13



©2018 RPM International Inc. Terms of Use | Privacy Policy 2628 Pearl Road - P.O. Box 777 - Medina, Ohio 44258 | Phone: 330.273.5090 | Email: info@RPMinc.com