Discontinued Operations | 5. DISCONTINUED OPERATIONS As described further below, in the second quarter of 2015, management committed to a plan to sell ASA Brazil. In accordance with ASC 205, this portion of the ASA segment met the definition of a disposal group at the time management committed to a plan to sell and, accordingly, the results of operations have been classified as a component of discontinued operations for all periods presented. While the Company was actively marketing the remaining ASA operations in Argentina and Uruguay at the same time as ASA’s Brazilian operations, these businesses did not meet the held-for-sale criteria under ASC 205 during the second quarter of 2015. In the third quarter of 2015, the Company closed on the sale of Pellegrino, as well as reached definitive agreement and closed on the disposition of ASA’s remaining operations in Argentina and Uruguay. In October 2015, the sale of Automotiva was completed. Since ASA was one of the Company’s reportable segments, management has determined that, despite the sale of disposal groups to multiple acquirers the ultimate sale of all of the businesses that comprised the ASA segment represents a strategic shift that will have a major effect on the Company’s operations and financial results. For the year ended December 31, 2014, the ASA segment accounted for 31% of consolidated net sales. Accordingly, the results of operations of the former ASA segment have been classified as a component of discontinued operations for all periods presented. The Consolidated Statements of Cash Flows were not adjusted to reflect this operation as a discontinued operation for any period presented. On June 12, 2015, the Sellers, a wholly-owned indirect subsidiaries of the Company, entered into two separate purchase and sale agreements (the “Purchase Agreements”) to sell their equity interests in each of Pellegrino and Automotiva. The purchasers under the Pellegrino Purchase Agreement are Distribuidora Automotiva S.A. and Car Central De Autopecas e Rolamentos Ltda. (the “Pellegrino Purchasers”) and the purchasers under the Automotiva Purchase Agreement are Auto Norte Distribuidora de Pecas Ltda., Cobra Rolamentos e Autopecas Ltda., Distribuidora Automotiva S.A., Jorge C. Schertel, Pedro Molina Quaresma and Sedim-Administracao e Participacoes Ltda. (the “Automotiva Purchasers”). The purchase price to Sellers for the sale of each of Pellegrino and Automotiva was paid in Brazilian Reals. The Pellegrino purchase price was 215,000,000 Brazilian Reals and the purchase price for the sale of Automotiva was 146,285,000 Brazilian Reals (in each case, the “Base Purchase Price”), and, in each case, plus or minus an adjustment reflecting (i) an estimate of interim profits or losses, as applicable, of the Sellers related to the Pellegrino or Automotiva business, respectively, each calculated in accordance with a process established in the respective Purchase Agreement, and (ii) minus a percentage of certain claims that may arise after signing and before closing. After closing, the parties determined a final purchase price reflecting the actual interim profits and losses and such claims, as well as other adjustments, calculated in accordance with a process established in the respective Purchase Agreement. As discussed above, the sale of Pellegrino was completed in September 2015. Based on the exchange rate in effect on the date of closing, the Company received proceeds of $58 million associated with the sale of Pellegrino and recognized a pre-tax loss of $25 million on sale. This loss was predominately driven by the release of currency translation adjustments that had been previously deferred as a component of accumulated other comprehensive income. A portion of the proceeds from the sale will be used to pay down the Company’s outstanding debt. The tax implications for the sale of Pellegrino were insignificant. Additionally, as discussed above, the sale of the operations in Argentina and Uruguay was completed in September 2015. At closing, the Company received proceeds of $5 million and recognized a pre-tax loss of $20 million on sale. For tax purposes, the sale resulted in a pre-tax loss of $9 million; however, the capital loss is offset by a valuation allowance and resulted in no tax benefit being recorded. The president of the Company’s ASA segment is party to the Pellegrino transaction. In connection with and simultaneous with the closing of the Pellegrino transaction on September 30, 2015, this individual purchased four properties owned by Pellegrino with a net book value of less than $1 million. In order to fund the purchase of the properties, at closing, the Company redeemed all outstanding equity owned by the individual and received net cash proceeds of less than $1 million for the purchase of the real estate. This amount is included in the purchase price consideration discussed above. Additionally, the same individual is also part of the buying group that acquired Automotiva which is further discussed below. On October 30, 2015, the Company completed the previously announced sale of Automotiva. Upon closing, the Company received a purchase price of 148,982,541 in Brazilian Reals, or US $38,596,513 based on the Real/Dollar exchange rate as of October 30, 2015, reflecting a base purchase price of 146,285,000 Brazilian Reals (or $37,897,668 based on the Real/Dollar exchange rate as of October 30, 2015), as adjusted pursuant to the terms of the Agreement to reflect the actual interim profits and losses of the Automotiva business. At closing, the Company received $19,657,726 after deduction of certain expenses and taxes and the placement of 71,000,000 Brazilian Reals in an escrow account with a Brazilian bank. Such escrow covers any amounts that may be owed by Automotiva relating to a Brazilian antitrust investigation commenced on September 25, 2015, and is the sole source of funds that the Buyers may recover from the Sellers as to any amounts that may be owed by Automotiva relating to such investigation. In connection with this investigation, the Company recorded a reserve in the third quarter of 2015 that represents management’s best estimate of the most likely outcome of this matter. This expense is included as a component of (Loss) income from discontinued operations, net of tax, on the Condensed Consolidated Statements of Operations. The following table shows the net sales, cost of sales, gross profit, selling general and administrative expenses, operating profit, income before tax provision, income tax provision and net income that are included within (Loss) income from discontinued operations, net of tax on the Condensed Consolidated Statement of Operations associated with the ASA segment: Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2015 2014 2015 2014 Net sales $ 85 $ 116 $ 265 $ 319 Cost of sales $ (69 ) $ (93 ) $ (214 ) $ (255 ) Gross profit 16 23 51 64 Selling, general and administrative expenses $ (16 ) $ (14 ) $ (38 ) $ (40 ) Operating profit $ — $ 9 $ 13 $ 24 Income from continuing operations before, income tax provision, and noncontrolling interest — 9 14 24 Income tax provision — (2 ) (5 ) (7 ) Net income $ — $ 7 $ 9 $ 17 The following tables shows Automotiva’s asset and liabilities that are included in assets of discontinued operations and liabilities of discontinued operations on the Condensed Consolidated Balance Sheets: September 30, December 31, (Dollars in millions) 2015 2014 Cash and cash equivalents $ 1 $ 19 Trade accounts receivable 11 56 Inventories, net 22 70 Other current assets 5 24 Property, plant, and equipment, net 4 14 Other assets 10 16 Current assets of discontinued operations $ 53 $ 199 Accounts payable 13 39 Other accrued expenses 10 19 Current liabilities of discontinued operations $ 23 $ 58 The following table shows the depreciation, amortization and capital expenditures that are included within the consolidated statement of cash flow associated with the ASA segment. Nine Months Ended September 30, (Dollars in millions) 2015 2014 Depreciation and amortization $ 2 $ 2 Capital expenditures $ 1 $ 1 In the fourth quarter of 2013, management committed to a plan to sell the Chassis group. Pursuant to ASC 205, the Chassis group met the definition of a disposal group at the time management committed to a plan to sell the group and, accordingly, the results of operations of the Chassis group have been classified as a component of discontinued operations. On January 21, 2014, Affinia entered into an Asset Purchase Agreement, as amended, with Federal-Mogul Chassis LLC (formerly known as VCS Quest Acquisition LLC) (“FM Chassis”), an affiliate of Federal-Mogul Corporation, pursuant to which FM Chassis agreed to purchase the Chassis group. This transaction closed on May 1, 2014. The Consolidated Statements of Cash Flows were not adjusted to reflect this group as a discontinued operation for any period presented. Upon the closing of this transaction in May 2014, Affinia received cash proceeds of $140 million, which represented the agreed upon selling price of $150 million less a holdback of consideration of $10 million until completion of certain post-closing performance obligations. In September 2014, the post-closing performance obligations were completed and the Company received $9 million of cash proceeds with the remaining $1 million allocated to a post-closing purchase price adjustment. The Company released an $18 million capital loss valuation allowance as a result of the sale, the tax benefit of which offset the tax expense incurred by the gain on the sale. This resulted in a tax expense of less than $1 million on the sale transaction. The sale of the Chassis group resulted in a pre-tax gain of $32 million, of which $21 million was recorded in the second quarter of 2014 and $11 million was recorded in the third quarter of 2014. These amounts are reflected in the Condensed Consolidated Statements of Operations within (Loss) income from discontinued operations, net of tax. The Company released an $18 million capital loss valuation allowance as a result of the sale, the tax benefit of which offset the tax expense incurred by the gain on the sale. This resulted in a tax expense of less than $1 million on the sale transaction. The following table shows the Chassis group’s net sales, income before tax provision, income tax provision and net income that are included within Income from discontinued operations, net of tax on the Condensed Consolidated Statements of Operations associated with the Chassis disposal group: Three Months Ended September 30, Nine Months Ended September 30, (Dollars in millions) 2015 2014 2015 2014 Net sales $ — $ — $ — $ 64 Income from continuing operations before, income tax provision, and noncontrolling interest — — — 5 Income tax provision — — — 2 Net income $ — $ — $ — $ 3 In addition to the amounts reflected in the tables above associated with the results of operations of ASA and the Chassis Group, (Loss) income from discontinued operations on the Condensed Consolidated Statement of Operations for the periods presented includes the following: · For the three months and nine months ended September 30, 2015, a pre-tax loss of $45 million associated with the sale of the ASA businesses discussed above · For the three months ended September 30, 2015, a tax benefit of $8 million related to the ASA sale, which represents the reversal of a capital gains tax recorded in the second quarter of 2015 · For the three and nine months ended September 30, 2014, a pre-tax gain on the sale of the Chassis group of $11 million and $32 million, respectively, as discussed above · For the three and nine months ended September 30, 2014, a loss of $5 million and $7 million, respectively, associated with other activity related to the Chassis sale |