Discontinued Operations and Deconsolidation of Fenco

6 Months Ended

Sep. 30, 2013

Discontinued Operations and Deconsolidation of Fenco [Abstract]

Discontinued Operations and Deconsolidation of Fenco

2. Discontinued Operations and Deconsolidation of Fenco

In May 2011, the Company purchased (i) all of the outstanding equity of Fenwick Automotive Products Limited (“FAPL”), (ii) all of the outstanding equity of Introcan, Inc., a Delaware corporation (“Introcan”), and (iii) 1% of the outstanding equity of Fapco S.A. de C.V., a Mexican variable capital company (“Fapco”) (collectively, “Fenco”). Since FAPL owned 99% of Fapco prior to these acquisitions, the Company owned 100% of Fapco.

Between May 2011 and its bankruptcy in June 2013, Fenco had been attempting to turn around its business. However, revenues generated by its undercar product line segment were not sufficient to enable Fenco to meet its operating expenses and otherwise implement its undercar product line turnaround plan. Fenco had recurring operating losses since the date of acquisition and had a working capital and equity deficiency.

In May 2013, Fenco appointed a new board of independent directors, hired an independent chief restructuring officer and all its previously existing officers resigned from FAPL. As a result of loss of control of Fenco, the Company deconsolidated the assets and liabilities of Fenco from its consolidated financial statements effective May 31, 2013. On June 10, 2013, each of FAPL, Introcan and Introcan’s subsidiaries, Flo-Pro Inc., LH Distribution Inc., Rafko Logistics Inc., Rafko Holdings Inc. and Rafko Enterprises Inc. (collectively, the “Fenco Entities”), filed a voluntary petition for relief under Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code”) in the U.S. Bankruptcy Court for the District of Delaware.

The following table summarizes the effects on the consolidated balance sheet of the deconsolidation of Fenco effective May 31, 2013.

Cash	$	(170,000	)
Accounts receivable — net		(4,377,000	)
Inventory— net		(25,731,000	)
Inventory unreturned		(5,321,000	)
Deferred income taxes		(225,000	)
Prepaid expenses and other current assets		(2,436,000	)
Plant and equipment — net		(4,018,000	)
Long-term core inventory — net		(40,471,000	)
Other assets		(22,000	)
Reduction in total assets	$	(82,771,000	)
Accounts payable	$	(75,454,000	)
Accrued liabilities		(4,759,000	)
Customer finished goods returns accrual		(10,744,000	)
Other current liabilities		(1,761,000	)
Revolving loan - in default		(48,520,000	)
Term loan - in default		(10,000,000	)
Customer core returns accrual		(49,531,000	)
Other liabilities		(97,000	)
Reduction in total liabilties	$	(200,866,000	)
Gain from deconsolidation of Fenco	$	118,095,000

Net sales from discontinued operations during the three and six months ended September 30, 2012 were $53,980,000 and $96,204,000, respectively. A loss of approximately $5,910,000 was incurred from discontinued operations from April 1, 2013 to May 31, 2013. In addition, during the six months ended September 30, 2013, the Company recorded a loss of approximately $20,464,000 in connection with the guarantee of obligations to certain Fenco suppliers and recorded related income tax benefits of $9,156,000.