Discontinued Operations

6 Months Ended

Jun. 30, 2020

Discontinued Operations and Disposal Groups [Abstract]

Discontinued Operations

Discontinued OperationsDuring the fourth quarter of 2019, we entered into an agreement to sell the Fairbanks Morse division, which comprised our entire Power Systems segment. The sale of Fairbanks Morse closed on January 21, 2020 to an affiliate of funds managed by private equity firm Arcline Investment Management for a sales price of $450.0 million. The preliminary pre-tax gain on the disposition of Fairbanks Morse was $274.3 million ($206.5 million, net of tax). We have reported, for all periods presented, the

financial condition, results of operations, and cash flows of Fairbanks Morse as discontinued operations in the accompanying financial statements.

Tax expense of $67.8 million on discontinued operations was recorded for the six months ended June 30, 2020. This is an increase in tax expense of $3.2 million in the quarter ended June 30, 2020, which was primarily due to a reduction in the foreign tax credit benefit because of a decrease in tax on the global intangible low-taxed income (“GILTI”) tax. The GILTI decrease was driven by the reduction in projected calendar 2020 pre-tax income in foreign jurisdictions in the second quarter.

For the quarters and six months ended June 30, 2020 and 2019, the results of operations from Fairbanks Morse, prior to sale on January 21, 2020, were as follows:

	Quarters Ended   June 30,				Six Months Ended   June 30,
	2020		2019		2020		2019
	(in millions)
Net sales	$	—	$	70.5	$	7.6	$	128.4
Cost of sales	—		53.9		7.6		98.2
Gross profit	—		16.6		—		30.2
Operating expenses:
Selling, general, and administrative expenses	—		7.0		1.5		13.3
Other	—		—		(0.1)		—
Total operating expenses	—		7.0		1.4		13.3
Income (loss) from discontinued operations before income tax	—		9.6		(1.4)		16.9
Income tax benefit (expense)	—		(2.3)		0.3		(4.3)
Income (loss) from discontinued operations, net of taxes	—		7.3		(1.1)		12.6
Gain (loss) from sale of discontinued operations, net of taxes	(3.2)		—		206.5		—
Income (loss) from discontinued operations, net of taxes	$	(3.2)	$	7.3	$	205.4	$	12.6

The major classes of assets and liabilities for Fairbanks Morse as of December 31, 2019 are shown below:

(in millions)
Assets:
Accounts receivable	$	107.8
Inventories	60.2
Property, plant, and equipment	63.0
Goodwill	11.8
Other assets	11.3
Total assets of discontinued operations	$	254.1
Liabilities:
Accounts payable	$	36.9
Accrued expenses	48.2
Other liabilities	4.4
Total liabilities of discontinued operations	$	89.5