| Summary of Significant Accounting Policies | 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 (please refer to Note A[2]). 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.
Our business is dependent on external weather factors.
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).
Certain prior-year amounts have been reclassified to conform with
current-year presentation.
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 subsidiary’s 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.
2) Specialty Products Holding Corp. (“SPHC”)
Deconsolidation
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.
SPHC is our wholly owned subsidiary. In accordance with ASC 810,
when a subsidiary becomes subject to the control of a government,
court, administrator, or regulator, deconsolidation of that
subsidiary is generally required. We therefore deconsolidated SPHC
and its subsidiaries from our balance sheet as of May 31,
2010, and eliminated the results of SPHC’s operations from
our results of operations beginning on that date. As a result of
the chapter 11 reorganization proceedings, we accounted for our
investment in SPHC under the cost method.
We analyzed our net investment in SPHC as of May 31, 2010,
which included a review of our advances to SPHC, an assessment of
the collectibility of our net receivables due from SPHC, and a
computation of the gain to be recorded upon deconsolidation based
on the carrying amount of our investment in SPHC. In accordance
with GAAP, the gain on deconsolidation related to the carrying
amount of net assets of SPHC at May 31, 2010, was calculated
in accordance with ASC 810-10-40-5, as follows:
a) the aggregate of (1) the fair
value of consideration received, (2) the fair value of any
retained noncontrolling investment in the former subsidiary at the
date the subsidiary is deconsolidated, and (3) the carrying
amount of any noncontrolling interest in the former subsidiary;
less
b) the carrying amount of the former
subsidiary’s assets and liabilities.
In determining the carrying value of any retained noncontrolling
investment in SPHC at the date of deconsolidation, we considered
several factors, including analyses of cash flows combined with
various assumptions relating to the future performance of this
entity and a discounted value of SPHC’s recorded
asbestos-related contingent obligations based on information
available to us as of the date of deconsolidation. The discounted
cash flow approach relies primarily on Level 3 unobservable inputs,
whereby expected future cash flows are discounted using a rate that
includes assumptions regarding an entity’s average cost of
debt and equity, incorporates expected future cash flows based on
internal business plans, and applies certain assumptions about risk
and uncertainties due to the bankruptcy filing. Our estimates were
based upon assumptions we believed to be reasonable, but which by
nature were uncertain and unpredictable. As a result of this
analysis, we determined that the carrying value of our retained
interest in SPHC approximated zero. Given the significant
uncertainty related to the ultimate asbestos obligations, the
carrying value remained at zero throughout the bankruptcy process
including and up to the date just prior to the reconsolidation of
SPHC.
As a result of the combined analyses of each of the components of
our net investment in SPHC, we recorded a net loss of approximately
$7.9 million, which was reflected in other expense, net, during the
fourth fiscal quarter of the year ended May 31, 2010.
Reorganization Proceedings of Certain
Subsidiaries
As discussed above, on May 31, 2010, Bondex and SPHC, filed
voluntary petitions in the Bankruptcy Court to reorganize under
chapter 11 of the Bankruptcy Code. 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 July 26, 2014, RPM, Bondex, SPHC, Republic and NMBFiL
entered into settlement term sheets (the “Term Sheets”)
with the representatives of current and future asbestos claimants
(the “asbestos claimants”) setting forth the
parties’ agreement in principal to resolve all present and
future asbestos personal injury claims related to Bondex, SPHC,
Republic and NMBFiL. The Term Sheets contemplated the filing of a
plan or plans of reorganization with the Bankruptcy Court (the
“Bankruptcy Plan”), which filing occurred on
September 26, 2014. The Bankruptcy Plan was subject to
approval of the asbestos claimants as well as the Bankruptcy Court
and the U.S. District Court in Delaware.
The Bankruptcy Plan was confirmed on December 10, 2014 and,
effective as of December 23, 2014 (the “Effective
Date”), Bondex, SPHC, Republic and NMBFiL emerged from
bankruptcy. In accordance with the Bankruptcy Plan, trusts were
established under Section 524(g) of the United States
Bankruptcy Code (together, the “Trust”) 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.
The Trust was funded with $450 million in cash and a promissory
note, bearing no interest and maturing on or before the fourth
anniversary of the Effective Date (the “Bankruptcy
Note”). The net present value of the Bankruptcy Note, or
$328.0 million, is classified as other long-term liabilities in our
Consolidated Financial Statements at May 31, 2015. Borrowings
under our $800.0 million revolving credit facility were used to
fund the initial payment of $450 million, which is classified as
long-term debt in our Consolidated Balance Sheets. A portion of the
payments due under the Bankruptcy Note is secured by a right to the
equity of Bondex and the other chapter 11 debtor entities. The
Bankruptcy Plan, and Bankruptcy Note, provide for the following
additional contributions to the Trust:
• On or before the second anniversary
of the Effective Date, an additional $102.5 million in cash, RPM
stock or a combination thereof (at our discretion in this and all
subsequent cases) will be deposited into the Trust;
• On or before the third anniversary of
the Effective Date, an additional $120 million in cash, RPM stock
or a combination thereof will be deposited into the Trust; and
• On or before the fourth anniversary
of the Effective Date, a final payment of $125 million in cash, RPM
stock or a combination thereof will be deposited into the
Trust.
Total current and future contributions to the Trust are deductible
for U.S. income tax purposes.
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 not significant.
The fair values of SPHC and its subsidiaries have been determined
as of January 1, 2015. Additionally, the fair value of RPM
Holdco, of which SPHC owns 21.39% of the outstanding common stock,
has been determined in order to account for our increase in
ownership of the noncontrolling interest as an equity transaction.
The total consideration has been 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 preliminary goodwill of $118.7
million and intangible assets of $176.0 million. The acquired
intangible assets totaling $176.0 million comprises 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. While the valuations of consideration
transferred and total assets acquired and liabilities assumed are
substantially complete, measurement period adjustments may be
recorded in the future as we finalize certain fair value estimates.
The primary areas that remain preliminary relate to the fair values
of deferred income taxes. Pro forma financial information for the
reconsolidation has not been included because this business
combination, individually or aggregated with our other fiscal 2015
acquisitions, did not have a material impact on our financial
position or results of operations as of and for the year ended
May 31, 2015.
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.
Management has evaluated subsequent events through the date the
Consolidated Financial Statements were filed with the Securities
and Exchange Commission (“SEC”).
4) Acquisitions/Divestitures
We account for business combinations 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.
As described in Note A(2) above, effective January 1, 2015, we
regained control of SPHC and its subsidiaries, and accordingly, we
have accounted for a portion of the transaction as a business
combination, while the other portion of the transaction relating to
our increase in ownership of RPM Holdco has been accounted for as
an equity transaction. The fair values of SPHC and its subsidiaries
that were determined as of January 1, 2015, are described in
more complete detail in Note A(2).
In addition to the reconsolidation of SPHC, during the fiscal year
ended May 31, 2015, we completed six acquisitions. Four of the
current-year acquisitions report through our industrial reportable
segment, which included the following: a waterproofing products
manufacturer in Brazil; a manufacturer of powder construction
products based in Phoenix, Arizona; a manufacturer of firestopping
products for the construction industry based in London, UK; and a
manufacturer of high performance wood finishes based in Manchester,
U.K. The other two acquisitions report through our consumer
reportable segment, including the following: a producer of
specialty cleaners based in Cumming, Georgia and a producer of
aerosol paints based in Johannesburg, South Africa.
During the fiscal year ended May 31, 2014, we completed four
acquisitions. Two of the current-year acquisitions report through
our consumer reportable segment, which included the following: a
producer of specialty primers based in Westlake, Ohio; and a
producer and marketer of premium concrete and wood deck floor
coatings based in St. Paul, Minnesota. The other two product line
acquisitions report through our industrial reportable segment and
included the following: a Nova Scotia limited company that patented
structural fibers used to replace steel fibers, welded wire mesh
and conventional reinforcing bars in a wide variety of
applications; and a producer of terrazzo tile, cork and rubber/cork
floor tiles headquartered in Exton, Pennsylvania.
The purchase price for each acquisition has been allocated to the
estimated fair values of the assets acquired and liabilities
assumed as of the date of acquisition. Final determinations of the
purchase price allocation for these acquisitions have been
completed, and are aggregated by year of purchase in the following
table:
Fiscal 2015 Acquisitions Fiscal 2014 Acquisitions
(In thousands) Weighted- Total Weighted- Total
Current assets $ 27,533 $ 10,874
Property, plant and equipment 11,506 4,234
Goodwill N/A 27,833 N/A 21,296
Tradenames - indefinite lives N/A 7,209 N/A 2,000
Other intangible assets 14 26,781 14 19,462
Other long-term assets 202
—
Total Assets Acquired $ 101,064 $ 57,866
Liabilities assumed (28,363 ) (18,361 )
Net Assets Acquired $ 72,701 (1) $ 39,505 (2)
(1) Figure includes cash acquired of $2.8
million.
(2) Figure includes cash acquired of $0.3
million.
Our Consolidated Financial Statements reflect the results of
operations of acquired businesses as of their respective dates of
acquisition. Pro-forma results of operations for the years ended
May 31, 2015 and May 31, 2014 were not materially
different from reported results and, consequently, are not
presented.
5) Foreign Currency
The functional currency for each of our foreign subsidiaries is its
principal operating currency. Accordingly, for the periods
presented, assets and liabilities have been translated using
exchange rates at year end, while income and expense for the
periods have been translated using a weighted-average exchange
rate.
The resulting translation adjustments have been recorded in
accumulated other comprehensive income (loss), a component of
stockholders’ equity, and will be included in net earnings
only upon the sale or liquidation of the underlying foreign
investment, neither of which is contemplated at this time.
Transaction gains and losses were immaterial during the fiscal year
ended May 31, 2013, but increased during fiscal 2015 and 2014
due to the strengthening of the U.S. dollar, resulting in net
transactional foreign exchange losses for fiscal 2015 and 2014 of
approximately $22.3 million and $17.7 million.
6) Cash and Cash Equivalents
For purposes of the statement of cash flows, we consider all highly
liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. We do not believe we are exposed to
any significant credit risk on cash and cash equivalents. The
carrying amounts of cash and cash equivalents approximate fair
value.
7) Property, Plant & Equipment
May 31, 2015 2014
(In thousands)
Land $ 58,555 $ 50,245
Buildings and leasehold improvements 349,682 328,269
Machinery and equipment 850,067 813,162
Total property, plant and equipment, at cost 1,258,304 1,191,676
Less: allowance for depreciation and amortization 668,658 658,871
Property, plant and equipment, net $ 589,646 $ 532,805
We review long-lived assets for impairment when circumstances
indicate that the carrying values of these assets may not be
recoverable. For assets that are to be held and used, an impairment
charge is recognized when the estimated undiscounted future cash
flows associated with the asset or group of assets are less than
their carrying value. If impairment exists, an adjustment is made
to write the asset down to its fair value, and a loss is recorded
for the difference between the carrying value and the fair value.
Fair values are determined based on quoted market values,
discounted cash flows, internal appraisals or external appraisals,
as applicable. Assets to be disposed of are carried at the lower of
their carrying value or estimated net realizable value.
Depreciation is computed primarily using the straight-line method
over the following ranges of useful lives:
Land improvements 3 to 40 years
Buildings and improvements 3 to 50 years
Machinery and equipment 1 to 30 years
Total depreciation expense for each fiscal period includes the
charges to income that result from the amortization of assets
recorded under capital leases.
8) Revenue Recognition
Revenues are recognized when realized or realizable, and when
earned. In general, this is when title and risk of loss pass to the
customer. Further, revenues are realizable when we have persuasive
evidence of a sales arrangement, the product has been shipped or
the services have been provided to the customer, the sales price is
fixed or determinable, and collectibility is reasonably assured. We
reduce our revenues for estimated customer returns and allowances,
certain rebates, sales incentives, and promotions in the same
period the related sales are recorded.
We also record revenues generated under long-term construction
contracts, mainly in connection with the installation of
specialized roofing and flooring systems, and related services.
Certain long-term construction contracts are accounted for under
the percentage-of-completion method, and therefore we record
contract revenues and related costs as our contracts progress. This
method recognizes the economic results of contract performance on a
timelier basis than does the completed-contract method; however,
application of this method requires reasonably dependable estimates
of progress toward completion, as well as other dependable
estimates. When reasonably dependable estimates cannot be made, or
if other factors make estimates doubtful, the completed-contract
method is applied. Under the completed-contract method, billings
and costs are accumulated on the balance sheet as the contract
progresses, but no revenue is recognized until the contract is
complete or substantially complete.
9) Shipping Costs
Shipping costs paid to third-party shippers for transporting
products to customers are included in selling, general and
administrative expenses. For the years ended May 31, 2015,
2014 and 2013, shipping costs were $142.9 million, $133.0 million
and $125.6 million, respectively.
10) Allowance for Doubtful Accounts Receivable
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. Actual
collections of trade receivables could differ from our estimates
due to changes in future economic or industry conditions or
specific customer’s financial conditions. For the periods
ended May 31, 2015, 2014 and 2013, bad debt expense
approximated $4.9 million, $7.6 million and $18.8 million,
respectively. Included in bad debt expense during fiscal 2013 is
$9.0 million recognized for amounts written off in relation to our
loan to Kemrock.
11) Inventories
Inventories are stated at the lower of cost or market, cost being
determined on a first-in, first-out (FIFO) basis and market being
determined on the basis of replacement cost or net realizable
value. Inventory costs include raw materials, labor and
manufacturing overhead. We review the net realizable value of our
inventory in detail on an on-going basis, with consideration given
to various factors, which include our estimated reserves for
excess, obsolete, slow moving or distressed inventories. If actual
market conditions differ from our projections, and our estimates
prove to be inaccurate, write-downs of inventory values and
adjustments to cost of sales may be required. Historically, our
inventory reserves have approximated actual experience. Inventories
were composed of the following major classes:
May 31, 2015 2014
(In thousands)
Raw material and supplies $ 235,649 $ 213,981
Finished goods 438,556 399,663
Total Inventory $ 674,205 $ 613,644
12) Goodwill and Other Intangible Assets
We account for goodwill and other intangible assets in accordance
with the provisions of ASC 350 and account for business
combinations using the acquisition method of accounting and
accordingly, the assets and liabilities of the entities acquired
are recorded at their estimated fair values at the acquisition
date. Goodwill represents the excess of the purchase price paid
over the fair value of net assets acquired, including the amount
assigned to identifiable intangible assets.
We performed the required annual goodwill impairment assessments as
of the first day of our fourth fiscal quarter at the reporting unit
level. Our reporting units have been identified at the component
level, which is the operating segment level or one level below.
First, we assess qualitative factors to determine whether it is
more likely than not that the fair value of a reporting unit is
less than its carrying amount. The traditional two-step
quantitative process is required only if we conclude that it is
more likely than not that a reporting unit’s fair value is
less than its carrying amount. However, we have an unconditional
option to bypass a qualitative assessment and proceed directly to
performing the traditional two-step quantitative analysis. We
applied both the qualitative and traditional two-step quantitative
processes during our annual goodwill impairment assessment
performed during the fourth quarters of fiscal 2015, 2014 and
2013.
The traditional two-step quantitative goodwill impairment
assessment involves estimating the fair value of a reporting unit
and comparing it with its carrying amount. If the carrying amount
of the reporting unit exceeds its fair value, additional steps are
followed to determine and recognize, if appropriate, an impairment
loss. Calculating the fair value of the reporting units requires
our significant use of estimates and assumptions. We estimate the
fair values of our reporting units by applying a combination of
third-party market-value indicators, when observable market data is
available, and discounted future cash flows to each of our
reporting unit’s projected EBITDA. In applying this
methodology, we rely on a number of factors, including actual and
forecasted operating results and market data. As a result of the
assessments performed for fiscal 2015, 2014 and 2013, there were no
impairments, including no reporting units that were at risk of
failing step one of the traditional two-step quantitative
analysis.
Additionally, we test all indefinite-lived intangible assets for
impairment annually. We perform the required annual impairment
assessments as of the first day of our fourth fiscal quarter.
During fiscal 2013, we adopted new FASB guidance that simplifies
how an entity tests indefinite-lived intangible assets for
impairment. It provides an option to first assess qualitative
factors to determine whether it is more likely than not that the
fair value of an indefinite-lived intangible asset is less than its
carrying amount. We applied both qualitative and quantitative
processes during our annual indefinite-lived intangible asset
impairment assessments performed during the fourth quarters of
fiscal 2015, 2014 and 2013.
The annual impairment assessment involves estimating the fair value
of each indefinite-lived asset and comparing it with its carrying
amount. If the carrying amount of the intangible asset exceeds its
fair value, we record an impairment loss equal to the difference.
Calculating the fair value of the indefinite-lived assets requires
our significant use of estimates and assumptions. We estimate the
fair values of our intangible assets by applying a
relief-from-royalty calculation, which includes discounted future
cash flows related to each of our intangible asset’s
projected revenues. In applying this methodology, we rely on a
number of factors, including actual and forecasted revenues and
market data. As a result of the assessments performed for fiscal
2015, 2014 and 2013, there were no impairments.
Should the future earnings and cash flows at our reporting units
decline and/or discount rates increase, future impairment charges
to goodwill and other intangible assets may be required.
13) Advertising Costs
Advertising costs are charged to operations when incurred and are
included in SG&A expenses. For the years ended May 31,
2015, 2014 and 2013, advertising costs were $40.8 million, $49.6
million and $43.2 million, respectively.
14) Research and Development
Research and development costs are charged to operations when
incurred and are included in selling, general and administrative
expenses. The amounts charged to expense for the years ended
May 31, 2015, 2014 and 2013 were $56.7 million, $54.6 million
and $49.3 million, respectively.
15) Stock-Based Compensation
Stock-based compensation represents the cost related to stock-based
awards granted to our employees and directors, which may include
restricted stock, stock options and stock appreciation rights
(“SARs”). We measure stock-based compensation cost at
the date of grant, based on the estimated fair value of the award.
We recognize the cost as expense on a straight-line basis (net of
estimated forfeitures) over the related vesting period. Refer to
Note I, “Stock-Based Compensation,” for further
information.
16) Investment (Income), Net
Investment (income), net, consists of the following components:
Year Ended May 31, 2015 2014 2013
(In thousands)
Interest (income) $ (8,304 ) $ (6,327 ) $ (6,814 )
(Gain) on sale of marketable securities (8,692 ) (7,353 ) (11,664 )
Other-than-temporary impairment on securities 22 161 14,279
Dividend (income) (1,603 ) (2,196 ) (1,979 )
Investment (income), net $ (18,577 ) $ (15,715 ) $ (6,178 )
17) Other (Income) Expense, Net
Other (income) expense, net, consists of the following
components:
Year Ended May 31, 2015 2014 2013
(In thousands)
Royalty (income), net $ (1,843 ) $ (1,195 ) $ (2,069 )
Loss on Brazil operational repositioning
—
— 6,087
Loss on Kemrock conversion option
—
— 9,030
(Income) loss related to unconsolidated equity affiliates (2,023 ) (2,888 ) 44,671
Other (income) expense, net $ (3,866 ) $ (4,083 ) $ 57,719
Equity in Income of Unconsolidated Affiliates
Beginning with our fiscal year ended May 31, 2007, we began
purchasing shares of Kemrock Industries and Exports Limited
(“Kemrock”) common stock. During our fiscal years ended
May 31, 2011 and 2012, we had purchased additional shares of
Kemrock common stock, and during fiscal 2012 our ownership had
increased to 23% of Kemrock’s outstanding shares. Also during
fiscal 2012, we entered into a GDR Purchase Agreement with Kemrock,
whereby we purchased from Kemrock 693,072 GDRs of Kemrock for an
aggregate purchase price of approximately $7.2 million. Lastly,
during fiscal 2012, we invested $22.7 million in 5.5% convertible
bonds issued by Kemrock. The bonds are convertible into ordinary
shares or GDRs, each representing one ordinary share of Kemrock
stock, and may be converted at any time on or after June 4,
2012 and up to the close of business on June 12, 2017.
Due to the presumption under GAAP that an entity with an ownership
percentage greater than 20% has significant influence, and no other
factors would refute that presumption, beginning in fiscal 2012 we
began accounting for this investment under the equity method.
Adjustments are made to our investment in order to recognize our
share of Kemrock’s earnings as they occur, rather than as
dividends or other distributions are received. Any changes in our
proportionate share of the underlying equity of Kemrock, which
could result from their issuance of additional equity securities,
are recognized as increases or decreases in shareholders’
equity, net of any related tax effects.
We account for our equity method investment in Kemrock under ASC
323, “Investments — Equity Method and Joint
Ventures.” As outlined in ASC 323-10-35-32, a decline in the
quoted market price below the carrying amount, when combined with
other evidence of a loss in value, may be indicative of a loss in
value that is other than temporary. In consideration of all
available evidence to evaluate the realizable value of our equity
investment, including a decline in the market price of shares of
Kemrock stock, the financial condition and near term prospects of
Kemrock, and the overall economic situation in India, we determined
that it was appropriate to record an impairment loss during fiscal
2013 of approximately $55.9 million on our equity method
investment, which is classified in other (income) expense, net, in
our Consolidated Statements of Income. We also recorded a loss of
approximately $13.7 million for the write-down of our investment in
Kemrock convertible bonds, which is classified in investment
(income) expense, net in our Consolidated Statements of Income.
Our investment in Kemrock had no carrying value at May 31,
2015 or 2014.
Loss on Repositioning of Operations in Brazil
During fiscal 2013, we completed a definitive plan to substantially
liquidate our StonCor Brazil subsidiary, a small flooring business
in Brazil with sales, income and assets that amounted to
significantly less than 1% of our consolidated sales, income and
assets in any given year, in order to leverage the substantial
sales force, manufacturing facilities, broad distribution network
and entrepreneurial management team of our Viapol subsidiary, which
was acquired in June 2012. The acquisition of Viapol has given us
the critical mass needed to sell construction products in Brazil,
including RPM’s existing flooring brands such as Stonhard and
Flowcrete. Viapol has the local manufacturing capabilities and
technically skilled salespeople required to sell epoxy and
polyurethane flooring in Brazil where we previously lacked a
significant presence.
As a result of our repositioning of certain of our industrial
segment operations in Brazil, we incurred a loss of approximately
$6.1 million during our fiscal year ended May 31, 2013.
Included in the loss was the impact of an |
