DISCONTINUED OPERATIONS AND THE FORMATION OF ARDENT MILLS

6 Months Ended

Nov. 29, 2015

Discontinued Operations and Disposal Groups [Abstract]

DISCONTINUED OPERATIONS AND THE FORMATION OF ARDENT MILLS

DISCONTINUED OPERATIONS AND THE FORMATION OF ARDENT MILLS

Private Brands Operations

In the first quarter of fiscal 2016, we announced our intent to divest our Private Brands operations. On November 1, 2015, we entered into a stock purchase agreement with TreeHouse Foods, Inc. ("Treehouse") pursuant to which TreeHouse agreed to purchase our Private Brands operations for $2.7 billion in cash on a cash-free, debt-free basis, subject to working capital and other adjustments. The obligation of the parties to close the transaction is subject to customary closing conditions, including, among others, (i) the receipt of antitrust clearance in the United States and Canada; and (ii) the absence of legal restraints or prohibitions. The obligation of each party to close the transaction is also conditioned upon the other party’s representations and warranties being true and correct (subject to certain materiality exceptions) and the other party having performed in all material respects its obligations under the stock purchase agreement.

We expect the sale to be complete in the first quarter of calendar year 2016. As a result of the expected purchase price, we concluded that the net assets held for sale were further impaired. We recognized a pre-tax impairment charge of $86.3 million ($79.0 million after-tax) and $1.90 billion ($1.42 billion after-tax) in the second quarter and first half of fiscal 2016, respectively, to write-down the goodwill and long-lived assets of the Private Brands business to the estimated sales price, less costs to sell. These amounts reflect management's current estimates. The consummation of the sale of these assets could result in further adjustments to this impairment. We reflected the results of these operations as discontinued operations for all periods presented. The assets and liabilities of the discontinued business have been reclassified as assets and liabilities held for sale within our Condensed Consolidated Balance Sheets for all periods presented.

In connection with classifying the Private Brands operations as assets held for sale, we recognized, in the first half of fiscal 2016, a deferred tax asset of $1.65 billion on the outside basis difference of our investment in this business. A valuation allowance was created, as we have not met the accounting requirements for recognition of a benefit at this time.  In the second quarter of fiscal 2016, we recognized an income tax benefit of $17 million due to a reduction of the valuation allowance, resulting from prior period capital gains. 

In the second quarter of fiscal 2015, we recorded a $210.9 million impairment of goodwill and $30.0 million of impairment charges to write-down three small brands, which are reflected in discontinued operations.

Milling Operations

On May 29, 2014, the Company, Cargill, Incorporated, and CHS, Inc. completed the formation of the Ardent Mills joint venture ("Ardent Mills"). In connection with the formation, we contributed all of the assets of ConAgra Mills, our milling operations, including $49.0 million of cash, to Ardent Mills, we received a 44% ownership interest in Ardent Mills, and Ardent Mills distributed $391.4 million in cash to us as a return of capital. The contribution of the assets of ConAgra Mills in exchange for a non-controlling interest in the joint venture was required to be accounted for at fair value, and accordingly, we recognized a gain of $625.6 million ($375.9 million after-tax) in the first half of fiscal 2015 in income from discontinued operations to reflect the excess of the fair value of our interest over its carrying value at the time of the transfer. As part of the formation of Ardent Mills, in the fourth quarter of fiscal 2014, pursuant to an agreement with the U.S. Department of Justice, we sold three flour milling facilities to Miller Milling Company LLC for $163.0 million. We received the cash proceeds from the sale of these flour milling facilities in the first quarter of fiscal 2015. In the first quarter of fiscal 2015, we used the net cash proceeds from the Ardent Mills transaction to repay debt. The operating results of our legacy milling business, including the disposition of three mills aforementioned, are included as discontinued operations within our Condensed Consolidated Statements of Operations.

We recognized the 44% ownership interest in Ardent Mills at fair value, as of the date of the formation of the joint venture. We now recognize our proportionate share of the earnings of Ardent Mills under the equity method of accounting within results of continuing operations. Due to differences in fiscal reporting periods, we recognized the equity method earnings on a lag of approximately one month; and as a result, we recognized only five months of earnings from Ardent Mills during the first half of fiscal 2015. At November 29, 2015, the carrying value of our equity method investment in Ardent Mills was $749.7 million, which is included in Other Assets.

We entered into transition services agreements in connection with our contribution to Ardent Mills and recognized $2.8 million and $5.7 million, respectively, of income for the performance of transition services during the second quarter and first half of fiscal 2016 and 3.5 million and 7.3 million, respectively, during the second quarter and first half of fiscal 2015, classified within selling, general and administrative expenses.

The summary comparative financial results of discontinued operations were as follows:

	Thirteen weeks ended						Twenty-six weeks ended
	November 29, 2015			November 23, 2014			November 29, 2015			November 23, 2014
Net sales	$	961.4		$	1,013.6		$	1,855.6		$	1,967.8
Net gain on sale of businesses	$	—		$	0.8		$	—		$	627.3
Goodwill and long-lived asset impairment charges	(86.3		)	(240.9		)	(1,898.6		)	(240.9		)
Income from operations of discontinued operations before income taxes and equity method investment earnings	85.6			33.5			106.3			34.9
Income (loss) before income taxes	(0.7		)	(206.6		)	(1,792.3		)	421.3
Income tax expense (benefit)	5.8			(3.8		)	(466.2		)	235.8
Income (loss) from discontinued operations, net of tax	$	(6.5	)	$	(202.8	)	$	(1,326.1	)	$	185.5

Assets and Liabilities Held for Sale

The assets and liabilities classified as held for sale reflected in our Condensed Consolidated Balance Sheets were as follows:

	November 29, 2015		May 31, 2015
Cash and cash equivalents	$	32.5	$	18.4
Receivables, less allowance for doubtful accounts of $0.5 and $0.5	227.0		199.2
Inventories	501.4		480.1
Prepaid expenses and other current assets	16.9		41.7
Current assets held for sale	$	777.8	$	739.4
Property, plant and equipment, net	$	940.4	$	920.4
Goodwill	913.2		1,600.8
Brands, trademarks and other intangibles, net	522.6		1,716.6
Other assets	3.0		2.6
Noncurrent assets held for sale	$	2,379.2	$	4,240.4
Accounts payable	$	241.1	$	219.5
Accrued payroll	4.7		—
Other accrued liabilities	68.6		75.0
Current liabilities held for sale	$	314.4	$	294.5
Other noncurrent liabilities	$	234.7	$	709.3
Noncurrent liabilities held for sale	$	234.7	$	709.3