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Specialty Products Holding Corp. ("SPHC") | 6 Months Ended
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Nov. 30, 2014
Specialty Products Holding Corp. ("SPHC") | NOTE 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 have accounted for our investment in SPHC under the cost method. We had a net receivable from SPHC at May 31, 2010, that we expect may change before the bankruptcy proceedings have been finalized. The potential change relates to our indemnification of an insurer on appeal bonds pertaining to Bondex’s appeal of two asbestos cases that had been underway prior to the bankruptcy filing, neither of which are material in amount. During our fiscal 2012, one of the appeal bonds was satisfied, and during fiscal 2013, the remaining appeal bond was satisfied. Included in the net amount due from SPHC are receivables and payables, which we concluded we have the right to report as a net amount based on several factors, including the fact that all amounts are determinable, the balances are due to and from our subsidiaries, and we have been given reasonable assurance that netting the applicable receivables and payables would remain legally enforceable. 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 collectability 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 are based upon assumptions we believe to be reasonable, but which by nature are uncertain and unpredictable. As a result of this analysis, we determined that the carrying value of our retained interest in SPHC approximated zero. 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. No changes have been made to these amounts through November 30, 2014. 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 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. Subsequent to the end of the current fiscal quarter, 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 three promissory notes, bearing no interest and maturing on or before the fourth anniversary of the Effective Date (the “Bankruptcy Notes”). A portion of the payments due under the Bankruptcy Notes is secured by a right to the equity of Bondex and the other chapter 11 debtor entities. The Bankruptcy Plan provides for the following 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.
At November 30, 2014, no amounts were accrued for the funding of the Trust, as the Bankruptcy Plan was subject to the approval of the claimants, as well as the Bankruptcy Court and the U.S. District Court. 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, will account for the event as a business combination. As such, financial results of SPHC’s operating subsidiaries, which have not been included in our financial reports since the bankruptcy filing, will be reconsolidated with our results for most of the second half of fiscal 2015 forward. Further, as a result of the confirmation of the Bankruptcy Plan on December 10, 2014, which provided for additional future contributions to the Trust of $347.5 million, we reassessed our permanent investment assertion under ASC 740-30 regarding a portion of our unremitted foreign earnings, which were previously considered to be indefinitely reinvested outside the U.S. More specifically, in the third quarter of this fiscal year, we concluded that it is possible that $347.5 million of unremitted foreign earnings could be repatriated to the U.S. in the foreseeable future to fund the aforementioned Trust contributions. Consistent with ASC 740-30, a provision for deferred income taxes for the full estimated U.S. tax cost, net of related foreign tax credits, associated with remitting these earnings back to the U.S. will be required. Our preliminary estimate of the deferred income tax liability associated with these future repatriations, which will be recognized in total in the third quarter of this fiscal year, is in the range of $100.0 million to $110.0 million. The net impact of the items discussed above, and any potential gain or loss associated with the reconsolidation, will be finalized and reported with our results for our fiscal third quarter ending February 28, 2015.

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- Definition Description of the gain or loss recognized by the parent and included in its attributable portion of net income for the period due to deconsolidation of a subsidiary by other than a nonreciprocal transfer to owners, such as a spin-off. The gain or loss recognized and included in the net income attributable to the parent for the period is generally computed as the difference between: (a) the aggregate of: (1) the fair value of any consideration received; (2) the fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary was deconsolidated; and (3) the carrying amount of any noncontrolling interest in the former subsidiary (including any accumulated other comprehensive income attributable to the noncontrolling interest) at the date the subsidiary was deconsolidated and (b) the carrying amount of the former subsidiary's assets and liabilities. + References No definition available. + Details
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