Acquisitions, Divestitures and Discontinued Operations

9 Months Ended

Sep. 30, 2020

Acquisitions, Divestitures and Discontinued Operations

Acquisitions

The Company acquired several businesses for approximately $77,393 and $642,468, net of cash acquired, during the nine months ended September 30, 2020 and September 30, 2019, respectively. The Company has not recognized any significant measurement period adjustments from finalizing acquisition accounting during the three and nine months ended September 30, 2020.

Inenco

The Company acquired the remaining 65% equity investment in Inenco in July 2019. Inenco is one of Australasia's leading industrial distributors of key product categories such as bearings, power transmission and seals and it generates estimated annual revenues of approximately $400,000. Prior to the 65% acquisition, the Company accounted for its 35% investment under the equity method of accounting. The acquisition-date fair value of the 35% investment was $123,385 and is included in the measurement of the consideration transferred. The difference between the acquisition-date fair value and the carrying amount of the equity method investment resulted in the recognition of a gain of $38,663 on the acquisition date. The acquisition-date fair value was determined using a market and income approach with the assistance of a third party valuation firm. The gain is included within other non-operating expenses (income) on the condensed consolidated statement of income and comprehensive income for the three and nine months ended September 30, 2019.

Divestitures

The Company received cash proceeds from divestitures of businesses totaling $382,737 and $416,784 for the nine months ended September 30, 2020 and September 30, 2019, respectively.

Grupo Auto Todo

On March 7, 2019, the Company sold all of its equity in Grupo Auto Todo, a Mexican subsidiary within the Automotive Parts Group. Grupo Auto Todo contributed annual revenues of approximately $15,900 for the year ended December 31, 2019. The Company incurred realized currency losses of $27,037 from this transaction during the nine months ended September 30, 2019. These losses are included within other non-operating expenses (income) on the condensed consolidated statements of income.

EIS

On September 30, 2019, the Company sold all of its equity in EIS, a wholly owned subsidiary within the Industrial Parts Group. EIS contributed $588,031 for the year ended December 31, 2019. The Company incurred realized currency losses of $7,664 from this transaction, which are included in the line item "other" within non-operating (income) expenses on the condensed consolidated statement of income for the three and nine months ended September 30, 2019.

Discontinued Operations

Business Products Group

Effective June 30, 2020, the Company completed the divestiture of its Business Products Group by selling Supply Source Enterprises, Inc. ("SSE") and S.P. Richards Company ("SPR") in separate transactions. The Company has recognized $3,165 during the three months ended September 30, 2020 of additional loss on divestiture, classified as discontinued operations, as part of customary post-transaction working capital adjustments, among other things. These divestitures are part of the Company's long-term strategic initiative to streamline its operations and optimize its portfolio so that it can drive shareholder value by focusing on its global Automotive and Industrial Parts Groups. The Business Products Group was previously a reportable segment of the Company. These divestitures, together with prior period divestitures of Garland C. Norris (effective December 13, 2019), SPR Canada (effective January 1, 2020) and Safety Zone Canada (effective March 2, 2020), represent a single plan to exit the Business Products Group segment and are considered a strategic shift that will have a major effect on the Company’s operations and financial results. Therefore, the results of operations, financial position and cash flows for the Business Products Group are reported as discontinued operations for all periods presented.

The Company maintains an immaterial investment in SPR and has concluded that SPR is a variable interest entity. The Company also remains involved with SPR for a limited period of time through various lease, sublease, freight distribution and transition service agreements. The Company is not the primary beneficiary and therefore does not consolidate SPR. Among other things, the Company does not have any voting rights and does not have the power to direct the activities that most significantly affect SPR's economic performance.

For a limited period of time as SPR completes its transition away from the Company’s shared services platform, the Company continues to pay certain payables on SPR’s behalf and at SPR’s direction with full, weekly reimbursement from SPR under the terms of a transition services agreement.

The Company’s results of operations for discontinued operations were:


	Three Months Ended September 30,						Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales	$	—	$	489,739	$	846,944	$	1,443,772
Cost of goods sold	—		370,546		632,007		1,093,332
Gross profit	—		119,193		214,937		350,440
Operating and non-operating expenses	—		98,539		179,461		289,359
Loss on divestiture	3,165		—		223,483		1,000
(Loss) income before income taxes	(3,165)		20,654		(188,007)		60,081
Income taxes (1)	2,222		5,423		4,062		15,373
Net (loss) income from discontinued operations	$	(5,387)	$	15,231	$	(192,069)	$	44,708

(1) The effective income tax rate was negative 2.2% for the nine months ended September 30, 2020, compared to 25.6% for the same period in 2019. The rate decrease for the nine months ended September 30, 2020 is primarily due to a non-deductible loss on divestiture.

The Company’s assets and liabilities for discontinued operations, by major class, were:


	December 31, 2019
Assets
Trade accounts receivable, net	$	194,903
Merchandise inventories, net	387,307
Prepaid expenses and other current assets	132,041
Other intangible assets, less accumulated amortization	76,829
Operating lease assets	80,302
Other assets	91,640
Total assets of discontinued operations	$	963,022

Liabilities
Trade accounts payable	$	158,163
Other current liabilities	59,954
Long-term liabilities	68,906
Total liabilities of discontinued operations	$	287,023