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DISCONTINUED OPERATIONS | 9 Months Ended
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Sep. 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. 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. 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, net of tax. 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. In August 2012, our Venezuelan subsidiary completed the sale of its previously nationalized assets to PDVSA Gas for a purchase price of approximately $441.7 million. We received an initial payment of $176.7 million in cash at closing, of which we remitted $50.0 million to the insurance company from which we collected $50.0 million in January 2010 under the terms of an insurance policy we maintained for the risk of expropriation. The remaining amount of approximately $265.0 million due to us is payable in quarterly cash installments through the third quarter of 2016. We have not recognized amounts payable to us by PDVSA Gas as a receivable and will therefore recognize quarterly payments received in the future as income from discontinued operations in the periods such payments are received. The proceeds from the sale of assets are not subject to Venezuelan national taxes due to an exemption allowed under the Venezuelan Reserve Law applicable to expropriation settlements. In addition, and in connection with the sale, we and the Venezuelan government agreed to waive rights to assert certain claims against each other. We therefore recorded a reduction in previously unrecognized tax benefits, resulting in a $15.5 million benefit reflected in Income (loss) from discontinued operations, net of tax, in our condensed consolidated statements of operations during the three months ended September 30, 2012. In connection with the sale of these assets, we have agreed to suspend the arbitration proceeding previously filed by our Spanish subsidiary against Venezuela pending payment in full by PDVSA Gas of the purchase price for these nationalized assets. 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 reflected as discontinued operations in our condensed consolidated financial statements. 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 reflected as discontinued operations in our condensed consolidated financial statements. These operations were previously included in our North American contract operations and aftermarket services business segments. In conjunction with the planned disposition, we recorded impairments of long-lived assets, including intangible assets, and inventory, that totaled $27.7 million and $68.5 million during the three and nine months ended September 30, 2012, respectively. The impairment charges are reflected in Income (loss) from discontinued operations, net of tax. The table below summarizes the operating results of discontinued operations (in thousands):
|  | Three months ended September 30, |  | Three months ended September 30, |
|  |  |  | 2012 |  |  |  |  |  | 2011 |  |  |
|  | Venezuela |  | Canada |  | Total |  | Venezuela |  | Canada |  | Total |
Revenue |  | $ | — |  | $ | 12,628 |  | $ | 12,628 |  | $ | — |  | $ | 14,658 |  | $ | 14,658 |
Expenses and selling, general and administrative |  | 406 |  | 10,478 |  | 10,884 |  | 388 |  | 15,917 |  | 16,305 |
Loss (recovery) attributable to expropriation, impairments and inventory write downs |  | (122,862 | ) | 27,700 |  | (95,162 | ) | 677 |  | 487 |  | 1,164 |
Other (income) loss, net |  | — |  | (206 | ) | (206 | ) | — |  | 839 |  | 839 |
Provision for (benefit from) income taxes |  | (14,790 | ) | 986 |  | (13,804 | ) | 437 |  | (851 | ) | (414 | )
Income (loss) from discontinued operations, net of tax |  | $ | 137,246 |  | $ | (26,330 | ) | $ | 110,916 |  | $ | (1,502 | ) | $ | (1,734 | ) | $ | (3,236 | )
|  | Nine months ended September 30, |  | Nine months ended September 30, |
|  |  |  | 2012 |  |  |  |  |  | 2011 |  |  |
|  | Venezuela |  | Canada |  | Total |  | Venezuela |  | Canada |  | Total |
Revenue |  | $ | — |  | $ | 37,868 |  | $ | 37,868 |  | $ | — |  | $ | 39,713 |  | $ | 39,713 |
Expenses and selling, general and administrative |  | 849 |  | 38,155 |  | 39,004 |  | 979 |  | 44,640 |  | 45,619 |
Loss (recovery) attributable to expropriation, impairments and inventory write downs |  | (121,281 | ) | 68,513 |  | (52,768 | ) | 2,138 |  | 487 |  | 2,625 |
Other (income) loss, net |  | — |  | (32 | ) | (32 | ) | (150 | ) | 408 |  | 258 |
Provision for (benefit from) income taxes |  | (13,527 | ) | (1,672 | ) | (15,199 | ) | 1,242 |  | (784 | ) | 458 |
Income (loss) from discontinued operations, net of tax |  | $ | 133,959 |  | $ | (67,096 | ) | $ | 66,863 |  | $ | (4,209 | ) | $ | (5,038 | ) | $ | (9,247 | )
The table below summarizes the balance sheet data for discontinued operations (in thousands):
|  | September 30, 2012 |  | December 31, 2011 |
|  | Venezuela |  | Canada |  | Total |  | Venezuela |  | Canada |  | Total |
Cash |  | $ | 209 |  | $ | 208 |  | $ | 417 |  | $ | 304 |  | $ | 135 |  | $ | 439 |
Accounts receivable |  | 18 |  | 13,186 |  | 13,204 |  | 9 |  | 13,973 |  | 13,982 |
Inventory |  | — |  | 15,313 |  | 15,313 |  | 1,017 |  | 19,590 |  | 20,607 |
Other current assets |  | 37 |  | 2,272 |  | 2,309 |  | 2,683 |  | 953 |  | 3,636 |
Total current assets associated with discontinued operations |  | 264 |  | 30,979 |  | 31,243 |  | 4,013 |  | 34,651 |  | 38,664 |
Property, plant and equipment |  | — |  | 1,959 |  | 1,959 |  | — |  | 69,788 |  | 69,788 |
Intangible and other long-term assets |  | — |  | 7,979 |  | 7,979 |  | — |  | 9,432 |  | 9,432 |
Total assets associated with discontinued operations |  | $ | 264 |  | $ | 40,917 |  | $ | 41,181 |  | $ | 4,013 |  | $ | 113,871 |  | $ | 117,884 |
Accounts payable |  | $ | 539 |  | $ | 3,609 |  | $ | 4,148 |  | $ | 589 |  | $ | 5,515 |  | $ | 6,104 |
Accrued liabilities |  | 4,528 |  | 4,546 |  | 9,074 |  | 4,295 |  | 3,924 |  | 8,219 |
Deferred revenues |  | — |  | 994 |  | 994 |  | 1,499 |  | 320 |  | 1,819 |
Total current liabilities associated with discontinued operations |  | 5,067 |  | 9,149 |  | 14,216 |  | 6,383 |  | 9,759 |  | 16,142 |
Other long-term liabilities |  | 70 |  | 588 |  | 658 |  | 14,140 |  | 548 |  | 14,688 |
Total liabilities associated with discontinued operations |  | $ | 5,137 |  | $ | 9,737 |  | $ | 14,874 |  | $ | 20,523 |  | $ | 10,307 |  | $ | 30,830 |

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- Definition The entire disclosure for the facts and circumstances leading to the completed or expected disposal, manner and timing of disposal, the gain (loss) recognized in the income statement and the income statement caption that includes that gain (loss), amounts of revenues and pretax profit or loss reported in discontinued operations, the segment in which the disposal group was reported, and the classification (whether sold or classified as held for sale) and carrying value of the assets and liabilities comprising the disposal group. Includes all disposal groups, including those classified as components of the entity (discontinued operations). + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1474-107760 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1361-107760 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 144 -Paragraph 43-48 -LegacyDoc This reference is SUPERSEDED by the Accounting Standards Codification effective for interim and annual periods ending after September 15, 2009. This reference is included to help users transition from the previous accounting hierarchy and will be removed from future versions of this taxonomy. Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e957-107759 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1436-107760 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6391110&loc=d3e2941-110230 Reference 7: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -SubTopic 10 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=8077374&loc=d3e2443-110228 Reference 8: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 4 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1012-107759 Reference 9: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 50 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6360339&loc=d3e1510-107760 Reference 10: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -Section 45 -Paragraph 5 -URI http://asc.fasb.org/extlink&oid=6892542&loc=d3e1020-107759 + Details
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