| 3. | DISCONTINUED OPERATIONS AND DIVESTITURES |
WhiteWave and Morningstar
WhiteWave Spin-Off — As discussed in Note 2, on May 23, 2013, we completed the WhiteWave spin-off through a tax-free distribution to our stockholders. Following the WhiteWave spin-off, we retained 34.4 million shares of WhiteWave’s Class A common stock, or approximately 19.9% of WhiteWave’s economic interest. While we are a party to a separation and distribution agreement and various other agreements relating to the separation, including a transitional services agreement, an amended and restated tax matters agreement, an employee matters agreement and certain other commercial agreements, we have determined that the continuing cash flows generated by these agreements (which generally are not expected to extend beyond December 2014), and the retention and subsequent monetization of our investment in WhiteWave common stock in July 2013 as discussed in Note 2 and below, did not constitute significant continuing involvement in the operations of WhiteWave. Accordingly, the net assets, operating results and cash flows of WhiteWave, previously reported in the WhiteWave segment, were reclassified to discontinued operations beginning in the second quarter of 2013 and have accordingly been separately reflected as discontinued operations for all periods presented herein.
No gain or loss was recognized in connection with the WhiteWave spin-off, but subsequent unrealized gains or losses on our investment in WhiteWave common stock through the date of disposition of our remaining interest in WhiteWave common stock on July 25, 2013 were recognized as a component of other comprehensive income (see Note 14). No related deferred tax impact was recorded as the disposition of our remaining investment in WhiteWave common stock was completed in July 2013 in the tax-free debt-for-equity transaction described in Note 2 and Note 10. Following the closing of the debt-for-equity exchange, we no longer owned any shares of WhiteWave’s common stock. During the third quarter of 2013, as a result of the tax-free disposition of our investment in WhiteWave common stock, we recorded a gain in continuing operations of $415.8 million, which included $385.6 million of unrealized holding gains that were previously recorded as a component of accumulated other comprehensive income as of June 30, 2013. The gain was recorded in the gain on disposition of WhiteWave common stock line item in our Consolidated Statements of Operations.
From January 1, 2013 through May 23, 2013 (the date of the WhiteWave spin-off), our net sales to WhiteWave totaled $10.3 million and our purchases from WhiteWave totaled $33.2 million. These transactions, which were previously eliminated in consolidation prior to the spin-off, are now reflected as third-party transactions in our Consolidated Statements of Operations. At December 31, 2013, accounts receivable from, and accounts payable to, WhiteWave are presented as third-party balances in our Consolidated Balance Sheets.
WhiteWave is a stand-alone public company which separately reports its financial results. Due to differences between the basis of presentation for discontinued operations and the basis of presentation as a stand-alone company, the financial results of WhiteWave included within discontinued operations may not be indicative of the actual financial results of WhiteWave as a stand-alone company.
Morningstar Divestiture — On December 2, 2012, we entered into an agreement to sell our Morningstar division to a third party. Morningstar is a leading manufacturer of dairy and non-dairy extended shelf-life and cultured products, including creams and creamers, ice cream mixes, whipping cream, aerosol whipped toppings, iced coffee, half and half, value-added milks, sour cream and cottage cheese. The sale of our Morningstar division closed on January 3, 2013 and we received net proceeds of approximately $1.45 billion, a portion of which was used to retire outstanding debt under our prior senior secured credit facility. See Note 10 “ —Prior Amended & Restated Senior Secured Credit Facility (Terminated Effective July 2, 2013)”. We recorded a gain of $868.8 million ($491.9 million, net of tax) on the sale of Morningstar during the year ended December 31, 2013, which excludes $22.9 million of transaction costs recognized in discontinued operations during the year ended December 31, 2012. Although we are a party to a transitional services agreement and certain other commercial agreements associated with the divestiture, the continuing cash flows generated by these agreements (which generally are not expected to extend beyond December 2014) are not material. The operating results of our Morningstar division, previously reported within the Morningstar segment, have been reclassified as discontinued operations for the years ended December 31, 2013, 2012 and 2011 and as of December 31, 2012.
The following is a summary of assets and liabilities attributable to discontinued operations as of December 31, 2012:
| WhiteWave | Morningstar | Total | ||||||||||
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Assets |
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Current assets |
$ | 353,155 | $ | 154,211 | $ | 507,366 | ||||||
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Property, plant and equipment, net |
624,642 | 176,582 | 801,224 | |||||||||
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Goodwill |
765,586 | 306,095 | 1,071,681 | |||||||||
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Identifiable intangibles and other assets, net |
377,236 | 36,101 | 413,337 | |||||||||
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Assets of discontinued operations |
$ | 2,120,619 | $ | 672,989 | $ | 2,793,608 | ||||||
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Liabilities |
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Accounts payable and accrued expenses |
$ | 290,987 | $ | 94,188 | $ | 385,175 | ||||||
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Debt |
780,550 | 97 | 780,647 | |||||||||
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Other long-term liabilities |
293,352 | 7,047 | 300,399 | |||||||||
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Liabilities of discontinued operations |
$ | 1,364,889 | $ | 101,332 | $ | 1,466,221 | ||||||
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The following is a summary of operating results and certain other directly attributable expenses, including interest expense, which are included in discontinued operations for the years ended December 31, 2013, 2012 and 2011
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| 2013 | 2012 | 2011 | ||||||||||||||||||||||||||||||||||
| WhiteWave | Morningstar | Total | WhiteWave | Morningstar | Total | WhiteWave | Morningstar | Total | ||||||||||||||||||||||||||||
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Operations: |
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Net sales |
$ | 940,431 | $ | 5,919 | $ | 946,350 | $ | 2,187,615 | $ | 1,438,371 | $ | 3,625,986 | $ | 1,925,443 | $ | 1,414,302 | $ | 3,339,745 | ||||||||||||||||||
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Income / (Loss) before income taxes |
57,126 | (28 | ) | 57,098 | 152,164 | 69,513 | 221,677 | 111,796 | 87,443 | 199,239 | ||||||||||||||||||||||||||
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Income tax |
(54,306 | )(1) | 11 | (54,295 | ) | (58,566 | ) | (23,832 | ) | (82,398 | ) | (33,967 | ) | (32,777 | ) | (66,744 | ) | |||||||||||||||||||
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Net income / (loss) |
$ | 2,820 | $ | (17 | ) | $ | 2,803 | $ | 93,598 | $ | 45,681 | $ | 139,279 | $ | 77,829 | $ | 54,666 | $ | 132,495 | |||||||||||||||||
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| (1) |
The income tax expense attributable to WhiteWave during the year ended December 31, 2013 includes approximately $31.1 million related to certain deferred intercompany transactions which were recognized upon the completion of the WhiteWave spin-off. Because these liabilities arose as a direct result of the spin-off of WhiteWave, we have reflected the income statement impact of such liabilities as a component of discontinued operations. |
The following is a summary of directly attributable transaction expenses which are included in discontinued operations for the years ended December 31, 2013, 2012 and 2011:
| Year Ended
December 31, (in thousands) |
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| 2013 | 2012 | 2011 | ||||||||||
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WhiteWave |
$ | 12,464 | $ | 18,835 | $ | — | ||||||
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Morningstar |
437 | 22,875 | — | |||||||||
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Total |
$ | 12,901 | $ | 41,710 | $ | — | ||||||
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During the years ended December 31, 2013, 2012 and 2011 we incurred an immaterial amount of expense related to other transactional activities, which is recorded in general and administrative expenses in our Consolidated Statements of Operations.
Other Activity in Discontinued Operations
In July 2012, pursuant to a settlement reached with respect to certain contingent obligations that we retained in connection with the 2006 sale of our Iberian operations, we paid a total of €5.7 million ($7.2 million), which was inclusive of accrued interest and related fees and expenses, and incurred charges of $2.5 million, net of tax, which were in addition to amounts we had previously accrued in connection with these contingent obligations. The additional charges recorded during 2012 were included in gain (loss) on sale of discontinued operations, net of tax in our Consolidated Statements of Operations.
In September 2011, we recorded an additional gain of $3.6 million, net of tax, on the sale of Rachel’s, which was part of our former WhiteWave segment, as a result of a final working capital cash settlement pursuant to the sale agreement, which was recorded in gain (loss) on sale of discontinued operations, net of tax in our Consolidated Statements of Operations.
Other Divestiture Activities
In the first quarter of 2011, we completed the divestiture of our Mountain High and private label yogurt operations, with all sales proceeds applied towards debt reduction. Additionally, in 2011, we sold the fluid milk operations at our manufacturing facility in Waukesha, Wisconsin (“Waukesha”) as a result of the settlement of the United States Department of Justice (“DOJ”) civil action related to our acquisition of the Consumer Products Division of Foremost Farms USA in April 2009. We recorded a net pre-tax gain of $13.8 million during the year ended December 31, 2011 related to our divestitures. The gain was recorded in other operating (income) loss in our Consolidated Statements of Operations.