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Venezuela
12 Months Ended
Dec. 31, 2015
Foreign Currency [Abstract]  
Venezuela
VENEZUELA
Venezuela Devaluation
Based on our participation in Venezuela’s Complementary System of Foreign Currency Administration (SICAD I) auction process during the Successor year ended December 31, 2014, we changed the exchange rate we used to remeasure our Venezuelan subsidiary’s bolivar denominated monetary assets and liabilities into U.S. dollars to an exchange rate of 12.0 Venezuelan bolivars to 1.0 U.S. dollar at December 31, 2014 from the Official Rate of 6.3 Venezuelan bolivars to 1.0 U.S. dollar.
In February 2015, the Venezuelan government enacted additional changes to its foreign currency exchange regime. The changes maintain a three-tiered system which remains in place at December 31, 2015, including the Official Rate determined by CENCOEX, which remains at 6.3 Venezuelan bolivars to 1.0 U.S. dollar, and the SICAD I rate, which remains at 12.0 Venezuelan bolivars to 1.0 U.S. dollar. There was a third market, SICAD II, which has since been eliminated and replaced by a new, alternative currency market, the Marginal Foreign Exchange System ("SIMADI").
SIMADI is intended to provide limited access to a free market rate of exchange. The only way to obtain U.S. dollars through SIMADI is through the supply and demand available within the Venezuelan financial institutions. We believe that significant uncertainty still exists regarding the exchange mechanisms in Venezuela, including how any such mechanisms will operate in the future and the availability of U.S. dollars under each mechanism. At June 30, 2015, we changed the exchange rate we used to remeasure our Venezuelan bolivars to the SIMADI rate of 197.7 Venezuelan bolivars to 1.0 U.S. dollar. We believed it was appropriate to move from using the SICAD I rate to using the SIMADI floating rate at this date based on the culmination of relevant facts and circumstances, including our expectation that future dividend remittances would be made at the SIMADI rate. As of December 31, 2015, we continue to believe that SIMADI is the appropriate rate to use in the remeasurement of the monetary assets and liabilities of our Venezuelan subsidiary.
The devaluations of the exchange rates for the Successor year ended December 31, 2014 resulted in net gains of $17.0 million primarily due to our determination at December 31, 2014 to change from the CENCOEX rate to SICAD I and our Venezuelan operations being in a net monetary liability position.
As a result of the devaluing exchange rates, we recorded currency exchange losses of $53.2 million for the Successor year ended December 31, 2015.
Venezuela Financial Results
As a result of moving exchange rates from SICAD I to SIMADI at June 30, 2015 and the associated devaluation of our translation rates, we concluded an impairment indicator existed. In conjunction with the devaluation, we evaluated the carrying value of the long-lived assets of our Venezuelan subsidiary for impairment at June 30, 2015. Due to the continued economic uncertainty as of December 31, 2015, we re-evaluated the carrying value of long-lived assets for our Venezuelan subsidiary. Based on an analysis of estimated undiscounted future cash flows expected to result from the use of our productive long-lived assets with finite lives, we determined that their carrying values were recoverable at June 30, 2015 and December 31, 2015. The recoverability is heavily dependent on continued demand and price assumptions of our local operations which continued to be robust for the full year ended December 31, 2015. Our price assumptions and the associated increases are expected to continue and are intended to allow us to keep pace with the changes in exchange rates and inflation. We believe these price increases are feasible given our market share, customer base and historical success of implementing price increases in similar situations in the past. With the exception of intercompany inventory purchases, our operations in Venezuela were and are expected to be entirely self-funded. Due to the ability of our Venezuelan operations to procure raw materials through Axalta subsidiaries, we do not foresee any impact on our Venezuelan subsidiary's ability to operate. We have no current need or intention to repatriate Venezuelan earnings and remain committed to the business for the foreseeable future based on our current expectations.
If our assumptions regarding continued demand and our ability to successfully implement and sustain price increases differ from actual results, or our ability to control the operations of our Venezuelan subsidiary change as a result of economic uncertainty or political instability, there is risk that our productive long-lived assets may be impaired. This could result in a material unfavorable impact to our results of operations and financial condition.
At June 30, 2015, we separately evaluated the carrying value of our real estate investment as it is not part of our core operational activities. Based on this evaluation, we concluded that the carrying value of the real estate investment of $52.6 million was no longer recoverable as a result of the current real estate market prices and movement of our translation rate from 12.0 Venezuelan bolivars to 1.0 U.S. dollar to 197.7 Venezuelan bolivars to 1.0 U.S. dollar. We recorded an impairment to write down the carrying value of the asset to its fair value of $22.0 million, which is recorded within other assets. The impairment of $30.6 million was recorded within other expense, net for the Successor year ended December 31, 2015. The method used to determine fair value of the real estate investment included using Level 2 inputs in the form of observable market quotes from local real estate broker service firms. At December 31, 2015, we formally re-assessed the fair value and we concluded the carrying value of our real estate investment was recoverable.
At December 31, 2015 and 2014, our Venezuelan subsidiary had total assets of $152.9 million and $197.8 million, respectively, and total liabilities of $42.2 million and $57.0 million, respectively. Total liabilities includes $9.2 million and $4.4 million of intercompany trade liabilities designated in U.S. dollars as of December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, total non-monetary assets, net, were $112.4 million and $149.6 million, respectively. Our Venezuela operations represent less than 4% of our consolidated assets and liabilities. For the Successor year ended December 31, 2015 and 2014, our Venezuelan subsidiary's net sales represented $131.2 million and $136.5 million of the Company's consolidated net sales, respectively.