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Divestitures and Acquisitions | 6 Months Ended
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Jun. 30, 2015
Divestitures and Acquisitions | Note 2. Divestitures and Acquisitions Divestiture of Coffee Business: On July 2, 2015, we completed transactions to combine our wholly owned coffee businesses (including our coffee portfolio in France) with those of D.E Master Blenders 1753 B.V. (“DEMB”) to create a new company, Jacobs Douwe Egberts (“JDE”). Upon closing, the consideration we received for our coffee businesses was €3.8 billion ($4.2 billion U.S. dollars as of July 2, 2015), a 43.5 percent equity interest in JDE and a $275 million receivable related to an expected payment from JDE one year following the closing related to tax formation costs. We also received $76 million of cash related to the reimbursement of costs we incurred related to separating our coffee businesses. Acorn Holdings B.V., owner of DEMB, holds a 56.5% share in JDE. The cash and equity consideration we received was adjusted from previous estimates to reflect our retaining our interest in a Korea-based joint venture, Dongsuh Foods Corporation. During the second quarter of 2015, we also completed the sale of our interest in a Japanese coffee joint venture, Ajinomoto General Foods, Inc. (“AGF”). In lieu of contributing our interest in the AGF joint venture to JDE, we contributed the net cash proceeds from the sale, and the transaction did not change the consideration received for our global coffee businesses. Please see discussion of the divestiture of AGF below under Other Divestiture and Acquisitions. We are currently in the process of determining the fair value of our investment in JDE as of the closing date. We expect to have a preliminary valuation completed in the third quarter of 2015. The sale proceeds are also subject to further adjustments, including finalization of working capital, net debt and other sale adjustments. We expect to finalize the sales price and related adjustments by the end of the second quarter of 2016. Some of the net asset and equity balances we divest in the third quarter may also change based on information that becomes available in the third quarter following the closing. As a result, the actual amount of consideration we receive and the gain we recognize on the divestiture may change until we conclude these matters. Following the transactions, our snacks net revenues, consisting of biscuits, chocolate, gum and candy, were approximately 85% of our 2014 net revenues excluding coffee net revenues. By retaining a significant stake in JDE, we will also continue to have a significant contribution from the coffee category. We plan to reflect our divested historical coffee results and future equity earnings from JDE in results from continuing operations as the coffee category continues to be a significant part of our strategy and net earnings. To lock in an expected U.S. dollar value of approximately $5 billion related to the estimated €4 billion cash receipt upon closing, we entered into currency exchange forward contracts beginning in May 2014, when the transaction was announced. On February 11, 2015, we monetized these forward contracts and realized total pre-tax gains of $939 million, of which $628 million was recognized in 2014 and $311 million was recognized in the first quarter of 2015. Additionally, we entered into new currency exchange forward contracts, which we monetized on April 17, 2015 and realized total pre-tax gains of $296 million, of which $56 million was recognized in the second quarter of 2015. On that date we executed new currency exchange contracts that generated unrealized losses of $221 million in the three and six months ended June 30, 2015. The currency hedge gains and losses were recorded in interest and other expense, net. The forward contracts were recorded on the consolidated balance sheet, with unrealized gains recorded in other current assets and unrealized losses recorded in other current liabilities. On July 6, 2015, we monetized the forward contracts and realized a $202 million pre-tax loss. Cumulatively over 2014 and through July 6, 2015, we realized aggregate net gains and received cash of approximately $1.0 billion on these currency exchange forward contracts. With the receipt of €3.8 billion on July 2, 2015 ($4.2 billion as of July 2, 2015), we have collected $5.2 billion. During the second quarter of 2015, we also entered into currency exchange forward contracts to hedge a portion of the cash payments to be made to our subsidiaries in multiple countries where coffee net assets and shares were divested. These hedges with a notional value of €1.6 billion generated net unrealized gains of $21 million during the three months ended June 30, 2015. The net unrealized gain was recorded within interest and other expense, net and the forward contracts were recorded within other current assets. During July 2015, we settled these forward contracts and realized total pre-tax net gains of $17 million. Our coffee business results are reflected in our consolidated financial statements through June 30, 2015. The pre-tax earnings of the coffee businesses were:
|  | For the Three Months Ended |  |  | For the Six Months Ended |
|  | June 30, |  |  | June 30, |
|  | 2015 |  |  | 2014 |  |  | 2015 |  |  | 2014 |
|  | (in millions) |
Earnings before income taxes |  | $ | 212 |  |  | $ | 151 |  |  | $ | 342 |  |  | $ | 310 |
We also incurred incremental expenses related to readying our global coffee businesses for the divestiture that totaled $157 million in the three months and $185 million in the six months ended June 30, 2015 and $5 million in the three and six months ended June 30, 2014. These expenses were recorded within asset impairment and exit costs and selling, general and administrative expenses of primarily our Europe and Eastern Europe, Middle East and Africa (“EEMEA”) segments and within general corporate expenses. As of June 30, 2015, we have presented our global coffee businesses as held for sale on the consolidated balance sheet. We cleared the significant pre-closing sale conditions such that the planned divestiture was determined to be probable as of June 30, 2015. We received conditional approval for the transaction from the European Commission following their antitrust evaluation and made significant progress on our consultations with Work Councils and employee representations. The European Commission’s ruling was conditioned upon JDE’s divestiture of our contributed Carte Noire business and DEMB’s Merrild business, primarily in France and Denmark. Those businesses have been transferred and will be sold by JDE. The major classes of the held for sale assets and liabilities consist of:
|  | As of June 30, |
|  | 2015 |
|  | (in millions) |
Assets |  |  |  |
Cash and cash equivalents |  | $ | 442 |
Trade receivables |  |  | 471 |
Other receivables |  |  | 26 |
Inventories, net |  |  | 473 |
Deferred income taxes |  |  | 5 |
Other current assets |  |  | 42 |
Current assets held for sale |  |  | 1,459 |
Property, plant and equipment, net |  |  | 755 |
Goodwill |  |  | 1,672 |
Intangible assets, net |  |  | – |
Other assets |  |  | 12 |
Noncurrent assets held for sale |  |  | 2,439 |
Total assets held for sale |  | $ | 3,898 |
Liabilities |  |  |  |
Accounts payable |  | $ | 439 |
Accrued marketing |  |  | 292 |
Accrued employment costs |  |  | 29 |
Other current liabilities |  |  | 63 |
Current liabilities held for sale |  |  | 823 |
Deferred income taxes |  |  | 28 |
Accrued pension costs |  |  | 179 |
Other liabilities |  |  | 4 |
Noncurrent liabilities held for sale |  |  | 211 |
Total liabilities held for sale |  | $ | 1,034 |
Net assets held for sale |  | $ | 2,864 |
Other Divestiture and Acquisitions: On July 15, 2015, we acquired an 80% interest in a biscuit operation in Vietnam, which is now a subsidiary within our Asia Pacific segment. We will begin to account for the acquisition in the third quarter. Total cash paid to date for the biscuit operation, intellectual property, non-compete and consulting agreements was 11,843 billion Vietnamese dong ($543 million U.S. dollars as of July 15, 2015). We have made or expect to make the following cash payments in connection with the acquisition:
| • |  | On November 10, 2014, we deposited $46 million in escrow upon signing the purchase agreement.
| • |  | On July 15, 2015, we made a 9,122 billion Vietnamese dong ($418 million U.S. dollars as of July 15, 2015) payment for the biscuit operation, a $44 million additional escrow deposit and a 759 billion Vietnamese dong ($35 million U.S. dollars as of July 15, 2015) partial payment for the non-compete and continued consulting agreements.
| • |  | Subject to the satisfaction of final conditions, including the resolution of warranty or other claims or purchase price adjustments, we expect to release previously escrowed funds of $90 million for the remaining 20% interest in the biscuit operation and to make a final payment of 759 billion Vietnamese dong ($35 million U.S. dollars as of July 15, 2015) for the non-compete and consulting agreements. We anticipate resolution of these conditions by the end of the third quarter of 2016.
On April 23, 2015, we completed the divestiture of our 50 percent interest in AGF, our Japanese coffee joint venture, to our joint venture partner which generated cash proceeds of 27 billion Japanese yen ($225 million U.S. dollars as of April 23, 2015) and a pre-tax gain of $13 million (after-tax loss of $9 million). Upon closing, we divested our $99 million investment in the joint venture, $65 million of goodwill and $41 million of accumulated other comprehensive losses. We also incurred approximately $7 million of transaction costs. On February 16, 2015, we acquired a U.S. snacking company, Enjoy Life Foods, within our North America segment. We paid cash and settled debt totaling $81 million in connection with the acquisition. Upon finalizing the valuation of the acquired net assets during the second quarter, as of June 30, 2015, we had recorded an $81 million purchase price allocation of $58 million in identifiable intangible assets, $20 million of goodwill and $3 million of other net assets. The acquisition-related costs and operating results of the acquisition were not material to our condensed consolidated financial statements as of and for the three and six months ended June 30, 2015.

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- Definition The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings. + References No definition available. + Details
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