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DISCONTINUED OPERATIONS
 6 Months Ended
Jun. 30, 2012
DISCONTINUED OPERATIONS  
DISCONTINUED OPERATIONS

2.  DISCONTINUED OPERATIONS

 

In May 2009, the Venezuelan government enacted a law that reserves to the State of Venezuela certain assets and services related to hydrocarbon activities, which included substantially all of our assets and services in Venezuela. The law provides that the reserved activities are to be performed by the State, by the State-owned oil company, Petroleos de Venezuela S.A. (“PDVSA”), or its affiliates, or through mixed companies under the control of PDVSA or its affiliates. The law authorizes PDVSA or its affiliates to take possession of the assets and take over control of those operations related to the reserved activities as a step prior to the commencement of an expropriation process, and permits the national executive of Venezuela to decree the total or partial expropriation of shares or assets of companies performing those services.

 

In June 2009, PDVSA commenced taking possession of our assets and operations in a number of our locations in Venezuela and by the end of the second quarter of 2009, PDVSA had assumed control over substantially all of our assets and operations in Venezuela.

 

While the law provides that companies whose assets are expropriated in this manner may be compensated in cash or securities, we are unable to predict what, if any, compensation we ultimately will receive or when we may receive any such compensation. We reserve and will continue to reserve the right to seek full compensation for any and all expropriated assets and investments under all applicable legal regimes, including investment treaties and customary international law, as well as to seek resolution through direct discussions with Venezuela and/or PDVSA, which could result in us recording a gain on our investment in future periods. In June 2009, our Spanish subsidiary delivered to the Venezuelan government and PDVSA an official notice of dispute relating to the seized assets and investments under the Agreement between Spain and Venezuela for the Reciprocal Promotion and Protection of Investments and under Venezuelan law. In March 2010, our Spanish subsidiary filed a request for the institution of an arbitration proceeding against Venezuela with the International Centre for Settlement of Investment Disputes (“ICSID”) related to the seized assets and investments, which was registered by ICSID in April 2010. The arbitration hearing occurred in July 2012 and a decision from the arbitration tribunal is not expected until 2013.

 

We maintained insurance for the risk of expropriation of our investments in Venezuela, subject to a policy limit of $50 million. During the year ended December 31, 2009, we recorded a receivable of $50 million related to this insurance policy because we determined that recovery under this policy of a portion of our loss was probable. We collected the $50 million under our policy in January 2010. Under the terms of the insurance policy, certain compensation we may receive from the Venezuelan government or PDVSA for our expropriated assets, receivables and operations will be applied first to the reimbursement of out-of-pocket expenses incurred by us and the insurance company, second to the insurance company until the $50 million payment has been repaid and third to us.

 

As a result of PDVSA taking possession of substantially all of our assets and operations in Venezuela, we recorded asset impairments during the year ended December 31, 2009 totaling $329.7 million ($379.7 million excluding the insurance proceeds of $50 million). These charges primarily related to receivables, inventory, fixed assets and goodwill, and are reflected in Income (loss) from discontinued operations. We believe the fair value of our seized Venezuelan operations substantially exceeds the historical cost-based carrying value of the assets, including the goodwill allocable to those operations; however, GAAP requires that our claim be accounted for as a gain contingency with no benefit being recorded until resolved. Accordingly, we did not include any compensation we may receive for our seized assets and operations from Venezuela in recording the loss on expropriation.

 

The expropriation of our business in Venezuela meets the criteria established for recognition as discontinued operations under accounting standards for presentation of financial statements. Therefore, our Venezuela contract operations and aftermarket services businesses are now reflected as discontinued operations in our condensed consolidated statements of operations.

 

In June 2012, we committed to a plan to sell our contract operations and aftermarket services businesses in Canada as part of our continued emphasis on simplification and focus on our core business. We expect this sale to be completed within the next twelve months.  Our Canadian contract operations and aftermarket services businesses are now reflected as discontinued operations in our condensed consolidated financial statements, including all periods prior to June 2012.  These operations were previously included in our North American contract operations and aftermarket services business segments.  In conjunction with the planned disposition, we recorded an impairment of intangible assets and long-lived assets that totaled $40.8 million during the three months ended June 30, 2012.  The impairment charges are reflected in Loss from discontinued operations.

 

The table below summarizes the operating results of the discontinued operations (in thousands):

 

 

 

Three months ended June 30,

 

Three months ended June 30

 

 

 

2012

 

2011

 

 

 

Venezuela

 

Canada

 

Total

 

Venezuela

 

Canada

 

Total

 

Revenue

 

$

—

 

$

13,966

 

$

13,966

 

$

—

 

$

13,504

 

$

13,504

 

Expenses and selling, general and administrative

 

271

 

13,826

 

14,097

 

135

 

14,492

 

14,627

 

Loss attributable to expropriation and impairments

 

1,568

 

40,813

 

42,381

 

148

 

—

 

148

 

Other (income) loss, net

 

—

 

860

 

860

 

(69

)

(94

)

(163

)

Provision for income taxes

 

823

 

(1,304

)

(481

)

355

 

1,613

 

1,968

 

Loss from discontinued operations, net of tax

 

$

(2,662

)

$

(40,229

)

$

(42,891

)

$

(569

)

$

(2,507

)

$

(3,076

)

 

 

 

Six months ended June 30,

 

Six months ended June 30,

 

 

 

2012

 

2011

 

 

 

Venezuela

 

Canada

 

Total

 

Venezuela

 

Canada

 

Total

 

Revenue

 

$

—

 

$

25,240

 

$

25,240

 

$

—

 

$

25,055

 

$

25,055

 

Expenses and selling, general and administrative

 

443

 

27,677

 

28,120

 

591

 

28,723

 

29,314

 

Loss attributable to expropriation and impairments

 

1,581

 

40,813

 

42,394

 

1,461

 

—

 

1,461

 

Other (income) loss, net

 

—

 

174

 

174

 

(150

)

(431

)

(581

)

Provision for (benefit from) income taxes

 

1,263

 

(2,658

)

(1,395

)

805

 

67

 

872

 

Loss from discontinued operations, net of tax

 

$

(3,287

)

$

(40,766

)

$

(44,053

)

$

(2,707

)

$

(3,304

)

$

(6,011

)

 

The table below summarizes the balance sheet data for discontinued operations (in thousands):

 

 

 

June 30, 2012

 

December 31, 2011

 

 

 

Venezuela

 

Canada

 

Total

 

Venezuela

 

Canada

 

Total

 

Cash

 

$

480

 

$

94

 

$

574

 

$

304

 

$

135

 

$

439

 

Accounts receivable

 

9

 

14,432

 

14,441

 

9

 

13,973

 

13,982

 

Inventory

 

1,017

 

19,436

 

20,453

 

1,017

 

19,590

 

20,607

 

Other current assets

 

2,210

 

2,327

 

4,537

 

2,683

 

953

 

3,636

 

Total current assets associated with discontinued operations

 

3,716

 

36,289

 

40,005

 

4,013

 

34,651

 

38,664

 

Property, plant and equipment

 

—

 

22,035

 

22,035

 

—

 

69,788

 

69,788

 

Intangible and other long-term assets

 

—

 

7,053

 

7,053

 

—

 

9,432

 

9,432

 

Total assets associated with discontinued operations

 

$

3,716

 

$

65,377

 

$

69,093

 

$

4,013

 

$

113,871

 

$

117,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

561

 

$

5,195

 

$

5,756

 

$

589

 

$

5,515

 

$

6,104

 

Accrued liabilities

 

3,922

 

1,997

 

5,919

 

4,295

 

3,924

 

8,219

 

Deferred revenues

 

1,499

 

698

 

2,197

 

1,499

 

320

 

1,819

 

Total current liabilities associated with discontinued operations

 

5,982

 

7,890

 

13,872

 

6,383

 

9,759

 

16,142

 

Other long-term liabilities

 

15,390

 

951

 

16,341

 

14,140

 

548

 

14,688

 

Total liabilities associated with discontinued operations

 

$

21,372

 

$

8,841

 

$

30,213

 

$

20,523

 

$

10,307

 

$

30,830