Discontinued Operations and Sale of Assets

6 Months Ended

Jun. 29, 2013

Discontinued Operations and Sale of Assets

Discontinued Operations and Sale of Assets

Note 2.  Discontinued Operations and Sale of Assets

Discontinued Operations

On January 29, 2013, we entered into an agreement to sell our OCP and DES businesses to CCL Industries Inc. (“CCL”).  As part of the agreement with CCL, we agreed to enter into a supply agreement with CCL at closing, pursuant to which CCL would purchase certain pressure-sensitive label stock, adhesives and other base material products for up to six years after closing.  Additionally, we agreed to enter into a transition services agreement (“TSA”) at closing, under which certain transitional services would be provided primarily by us to CCL for up to 15 months after closing. The purpose of these services would be to provide short-term assistance to CCL in assuming the operations of the OCP and DES businesses.  While the TSA and supply agreement are expected to continue generating revenues and cash flows from the OCP and DES businesses, our continuing involvement in the OCP and DES operations is not expected to be significant to us as a whole.

On July 1, 2013, subsequent to the end of the second quarter of 2013, we and CCL amended certain provisions of the agreement, primarily related to working capital, employee matters and indemnification and completed the sale for a total purchase price of $500 million in cash, subject to customary closing adjustments expected to be finalized by October 1, 2013.  The completion of this transaction will be reflected in our financial statements in the third quarter of 2013.

The operating results of the DES business, which were previously reported in other specialty converting businesses, have been classified as discontinued operations in the unaudited Consolidated Statements of Income for all periods presented.

The operating results of these discontinued operations were as follows:

	Three Months Ended					Six Months Ended
(In millions)	June 29, 2013			June 30, 2012		June 29, 2013			June 30, 2012
Net sales	$	218.7		$	224.3	$	380.6		$	425.0
(Loss) income before taxes, including divestiture-related and restructuring costs	$	(4.1	)	$	22.0	$	(14.7	)	$	21.8
(Benefit from) provision for income taxes	(2.1		)	6.9		(3.7		)	7.4
(Loss) income from discontinued operations, net of tax	$	(2.0	)	$	15.1	$	(11.0	)	$	14.4

The loss from discontinued operations, net of tax, in both the second quarter and first six months of 2013 compared to the income from discontinued operations, net of tax, in the same periods last year reflected lower net sales, loss on a contract, curtailment and settlement losses associated with the Avery Dennison Pension Plan and Benefit Restoration Plan, and higher divestiture-related costs, partially offset by the cessation of depreciation and amortization following the classification of the assets of the DES business as “held for sale.”  Refer to Note 6, “Pension and Other Postretirement Benefits,” for further information on the pension curtailment and settlement losses.

The loss from discontinued operations, net of tax, also reflected the elimination of certain corporate cost allocations for both the three and six months ended June 29, 2013 and June 30, 2012.

Net sales from continuing operations to discontinued operations were $24.4 million and $44 million for the three and six months ended June 29, 2013, respectively, and $22.4 million and $48.1 million for the three and six months ended June 30, 2012, respectively.  These sales have been included in “Net sales” in the unaudited Consolidated Statements of Income.

The assets and liabilities of the OCP business were classified as “held for sale” at December 29, 2012, as we continued to pursue the sale of this business through the end of 2012 and into 2013.  The assets and liabilities of the DES business were classified as “held for sale” during the first quarter of 2013 in connection with our agreement to sell both businesses to CCL, as discussed above.  The carrying values of the major classes of assets and liabilities of the OCP and DES businesses that were classified as “held for sale” were as follows:

(In millions)	June 29, 2013		December 29, 2012
Assets
Cash and cash equivalents	$	16.2	$	–
Trade accounts receivable, net	150.0		119.0
Inventories, net	100.5		57.2
Other current assets	5.2		7.7
Total current assets	271.9		183.9
Property, plant and equipment, net	125.0		79.5
Goodwill	168.7		167.9
Other intangibles resulting from business acquisitions, net	32.4		32.5
Other assets	11.4		8.4
	$	609.4	$	472.2
Liabilities
Accounts payable	$	61.5	$	31.2
Other current liabilities	80.9		113.1
Total current liabilities	142.4		144.3
Non-current liabilities	28.2		16.2
	$	170.6	$	160.5

Sale of Assets

In March 2013, we entered into an agreement to sell the property and equipment of our corporate headquarters in Pasadena, California for approximately $20 million.  In April 2013, we completed the sale and recognized a pre-tax gain of $10.9 million in “Other (income) expense, net” in the unaudited Consolidated Statements of Income.   In conjunction with the sale, we entered into a short-term leaseback arrangement with the buyer.  The initial term of the lease is nine months with two optional three-month extensions.  Refer to Note 15, “Commitments and Contingencies,” for information regarding the lease of our new corporate headquarters.