Venezuela Currency Remeasurement

3 Months Ended

Mar. 31, 2015

Foreign Currency [Abstract]

Venezuela Currency Remeasurement

17. Venezuela Currency Remeasurement

Since January 1, 2010, the three-year cumulative inflation for Venezuela using the blended Consumer Price Index and National Consumer Price Index has exceeded 100%. As a result, Venezuela’s economy is considered highly inflationary and the financial statements of the Company’s Venezuelan subsidiaries are remeasured as if the functional currency were the U.S. Dollar. Prior to March 31, 2014, the financial statements were remeasured based on the official rate determined by the government of Venezuela. On February 8, 2013, the government of Venezuela changed its primary fixed exchange rate from 4.3 Bolivars per U.S. Dollar to 6.3 Bolivars per U.S. Dollar, devaluing the Bolivar by 32%.

During the first quarter of 2014, the Venezuelan government expanded the operation of the Supplementary System for the Administration of Foreign Currency (“SICAD 1”) currency exchange mechanism for use with certain transactions. In addition, the Venezuelan government also began operating the SICAD 2 exchange which the government indicated was available to all entities for all transactions.  The Venezuelan government indicated that the official rate of 6.3 Bolivars per U.S. Dollar would be reserved only for settlement of U.S. Dollar denominated purchases of “essential goods and services.” While there was considerable uncertainty as to the nature, amount and timing of transactions that could be settled through SICAD 1 and SICAD 2, beginning March 31, 2014, certain assets of the Company’s Venezuelan subsidiaries were remeasured at the SICAD 2 rate as the Company believed those assets would ultimately be utilized to settle U.S. Dollar denominated liabilities using SICAD 2.  Remaining net monetary assets were remeasured at the SICAD 1 rate, as the Company believed SICAD 1 would be applicable for future transactions, and dividend remittances, if any, from the Company’s Venezuelan subsidiaries.  As of March 31, 2014, the SICAD 1 and SICAD 2 exchange rates were 10.7 and 49.8 Bolivars per U.S. Dollar, respectively.

In February 2015, the Venezuelan government discontinued the SICAD 2 rate and introduced a new currency exchange rate mechanism (“SIMADI”).   While considerable uncertainty still exists as to the nature, amount and timing of transactions that could be settled through the various currency exchange rate mechanisms, as of February 28, 2015, monetary assets and liabilities of the Company’s Venezuelan subsidiaries were remeasured at the SIMADI rate as the Company believes the SIMADI is the exchange rate mechanism most likely to be available to the Company’s Venezuelan subsidiaries to settle U.S. Dollar denominated transactions.  As of March 31, 2015 the SIMADI rate was 193.0.

As a result of the remeasurement at the SIMADI rate and the related impact of the devaluation, during the three months ended March 31, 2015, a pre-tax loss of $29.9 million ($26.3 million after-tax) was recognized in net investment and other expense, of which $10.3 million was included in loss attributable to noncontrolling interests.

The exchange rate available through SIMADI will fluctuate, causing additional remeasurements of the Company’s Venezuelan subsidiaries’ local currency-denominated net monetary assets and further impact ongoing results. The operating results of the Venezuelan subsidiaries, one of which is the operating entity and a 50.1% owned joint venture, are not significant to the Company’s consolidated results of operations.

On April 29, 2015, the Company sold its 50.1% interest in the Venezuelan operating entity. The Company estimates that it will recognize a net loss of approximately $15.0 million, in net investment and other expense in the Consolidated Statements of Operations during the second quarter of 2015. The operations of the Venezuela business were included in the International segment.