Notes to Consolidated Financial Statements
May 31, 2017, 2016, 2015
NOTE A SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1) Consolidation, Noncontrolling Interests and Basis of Presentation
Our financial statements include all of our majority-owned subsidiaries, except for certain subsidiaries that were deconsolidated for the period from May 31, 2010
through December 31, 2014 (refer to Note A). We account for our investments in less-than-majority-owned joint ventures, for which we have the ability to exercise significant influence, under the equity method. Effects of transactions between
related companies are eliminated in consolidation.
Noncontrolling interests are presented in our Consolidated Financial Statements as if parent company investors
(controlling interests) and other minority investors (noncontrolling interests) in partially owned subsidiaries have similar economic interests in a single entity. As a result, investments in noncontrolling interests are reported as equity in our
Consolidated Financial Statements. Additionally, our Consolidated Financial Statements include 100% of a controlled subsidiarys earnings, rather than only our share. Transactions between the parent company and noncontrolling interests are
reported in equity as transactions between stockholders, provided that these transactions do not create a change in control.
Our business is dependent on external
Historically, we have experienced strong sales and net income in our first, second and fourth fiscal quarters comprising the three-month periods
ending August 31, November 30 and May 31, respectively, with weaker performance in our third fiscal quarter (December through February).
prior-year amounts have been reclassified to conform with current-year presentation. See Note A(20), Other Recent Accounting Pronouncements, for discussion relating to the reclassification of deferred debt issuance costs. Also, see Note
O, Segment Information, for discussion surrounding the change in composition of operating and reportable segments during fiscal 2017.
2) Specialty Products Holding Corp. (SPHC)
Prior to May 31, 2010, Bondex International, Inc. (Bondex) and
its parent, SPHC, were defendants in various asbestos-related bodily injury lawsuits filed in various state courts. These cases generally sought unspecified damages for asbestos-related diseases based on alleged exposures to asbestos-containing
products. On May 31, 2010, Bondex and SPHC, filed voluntary petitions in the United States Bankruptcy Court for the District of Delaware (the Bankruptcy Court) to reorganize under chapter 11 of the Bankruptcy Code. SPHC and Bondex
took this action in an effort to permanently and comprehensively resolve all pending and future asbestos-related liability claims associated with Bondex and SPHC.
Similarly, Republic Powdered Metals, Inc. (Republic) and NMBFiL, Inc. (NMBFiL), both of which are indirect wholly owned subsidiaries of RPM
International Inc. (RPM), filed to reorganize under chapter 11 of the Bankruptcy Code in August 2014 to resolve all their pending and future asbestos-related liability claims. Both Republic and NMBFiL remained consolidated subsidiaries
of RPM, considering the short-term nature of the bankruptcy and that RPM maintained control of them from a participating rights perspective.
On December 10,
2014 the Bankruptcy Plan was confirmed, and, effective as of December 23, 2014, Bondex, SPHC, Republic and NMBFiL emerged from bankruptcy. In accordance with the Bankruptcy Plan, the Trust was established and funded
with first installments. Pursuant to the Bankruptcy Plan, the Trust assumed all liability and responsibility for current
and future asbestos personal injury claims of Bondex, SPHC, Republic and NMBFiL, and such entities will have no further liability or responsibility for, and will (along with affiliates) be permanently protected from, such asbestos claims. See Note
E, Borrowings, for further discussion of the details regarding the timing and funding of contributions to the Trust.
Effective with the filing of the
Notice of Entry of Order confirming the Bankruptcy Plan, which required the funding of the Trust, we regained control of SPHC and its subsidiaries, and accordingly, we have accounted for the event as a business combination. The funding of the Trust
represents the total consideration transferred in the transaction, or $772.6 million. The opening balance sheets are based upon closing balances as of December 31, 2014 and results of operations have been included in our Consolidated
Financial Statements beginning on January 1, 2015 (the Accounting Effective Date) forward, as we concluded that the activity occurring between the date control was obtained (December 23, 2014) and the Accounting Effective Date was
The fair values of SPHC and its subsidiaries were determined as of January 1, 2015. Additionally, the fair value of RPM Holdco, of which SPHC
owns 21.39% of the outstanding common stock, was determined in order to account for our increase in ownership of the noncontrolling interest as an equity transaction. The total consideration was allocated on a relative fair value basis between the
noncontrolling interest in RPM Holdco, or approximately $208.4 million, and the net assets of SPHC, or approximately $564.2 million. The difference between the fair value of the noncontrolling interest in RPM Holdco and the carrying value
of the noncontrolling interest was recorded as an equity transaction. The portion of the transaction accounted for as a business combination resulted in goodwill of $118.7 million and intangible assets of $176.0 million. The acquired
intangible assets totaling $176.0 million comprise the following: $118.7 million of customer and distributor relationships, $2.0 million of definite-lived tradenames, $52.7 million of indefinite-lived tradenames and
$2.6 million of formulas. Income tax assets of $271.7 million were recorded in connection with the deductibility of current and future contributions to the Trust. Additionally, deferred tax liabilities of $72.3 million were recorded
for the excess of the fair value book basis of certain assets over the corresponding tax basis. The fair values of net tangible assets, intangible assets and the noncontrolling interest were based upon valuations, which required our significant use
of estimates and assumptions.
3) Use of Estimates
The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial statements, and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
We account for
business combinations and asset acquisitions using the acquisition method of accounting and, accordingly, the assets and liabilities of the acquired entities are recorded at their estimated fair values at the acquisition date.
During the fiscal year ended May 31, 2017, we completed acquisitions within each of our three reportable segments. Two of the current-year acquisitions report
through our consumer
36 RPM International Inc. and Subsidiaries
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.
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