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DISCONTINUED OPERATIONS | 3 Months Ended
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Mar. 31, 2018
DISCONTINUED OPERATIONS | NOTE 4. DISCONTINUED OPERATIONS In the third quarter of 2016, the Company’s Board of Directors approved a plan to sell substantially all of the International Operations through four disposal groups (Europe, South Korea, Australia and New Zealand, and mainland China). Collectively, these dispositions represented a strategic shift that had a major impact on the Company’s operations and financial results and have been accounted for as discontinued operations. The Company is presenting the operating results and cash flows of these disposal groups within discontinued operations through their respective dates of disposal, including all prior periods. The assets and liabilities of the disposal groups remaining at the end of each period are presented as current assets and liabilities of discontinued operations in the Condensed Consolidated Balance Sheets. Certain portions of the former International Division assets and operations are being retained and, therefore, remain in continuing operations. The retained global sourcing operations are presented as Other in Note 13, Segment Information. As of the end of Fiscal 2017, the Company sold its European, South Korean and mainland China businesses. In April 2017, the Company entered into a definitive sale and purchase agreement to sell the Company’s Australian and New Zealand business operations, subject to regulatory approval. In November 2017, the Australian Competition and Consumer Commission announced that it would not oppose the sale, however, the Commerce Commission of New Zealand (the “Commerce Commission”) filed proceedings in the High Court at Auckland to enjoin the contemplated transaction. As a result of the delay in gaining regulatory approval in New Zealand, in February 2018, the Company and the purchaser amended the sale and purchase agreement to sell the Australian and New Zealand businesses in two separate transactions. The sale of the Company’s business in Australia was completed on February 5, 2018. The transaction was structured and accounted for as an equity sale. The Company agreed to provide certain transitional services to the purchaser until the sale of the New Zealand business was settled. Prior to the sale, the Company had recorded an aggregate reduction of $44 million in 2017 and 2016 to the carrying amount of its Australia Business based on its updated estimates of fair value less cost to sell. The disposition of the business in Australia resulted in a pre-tax loss on sale of $1 million during the first quarter of 2018, which has been reflected in the Net loss on sale of discontinued operations in the table below, resulting in a cumulative loss of $45 million. The purchaser placed in escrow $7 million in connection with the amendment of the sale and purchase agreement. In addition, the purchaser had previously paid the Company $8 million in 2017 to extend the original purchase agreement which was to be applied to the purchase price when the transaction was completed or, if not successfully completed, be treated as a break fee. This amount is presented in Accrued expenses and other current liabilities in the Condensed Consolidated Balance Sheets. Both the $7 million in escrow and the previous $8 million received by the Company will be applied to the purchase price of New Zealand when the transaction is completed. In April 2018, subsequent to the end of the Company’s first quarter of 2018, the Commerce Commission withdrew its objection to the sale of the Company’s New Zealand business to the purchaser, and on May 4, 2018, the Company completed the sale of its New Zealand business. Prior to its sale on May 4, 2018, the Company recorded an adjustment of $1 million in the first quarter of 2018 to its carrying amount of the New Zealand business that is held for sale based on its updated estimate of fair value less cost to sell. The adjustment resulted in an increase in the related valuation allowance and is included in the Net (increase) reduction of loss on discontinued operations held for sale in the table below. The adjusted carrying amount does not exceed the carrying amount at the time these operations were initially classified as held for sale. Until the closing date, the Company operated the New Zealand businesses in the ordinary course. Associated with the Company’s sale of its European business operations in 2016, the sale and purchase agreement (the “SPA”) contained customary warranties of the Company and the purchaser, with the Company’s warranties limited to an aggregate of EUR 10 million. The Company monitors its estimated exposure to liabilities under the warranties under the SPA, and as of March 31, 2018, the Company believes it has made adequate provisions for its potential exposures related to these warranties. The Company will continue to provide various transition and product sourcing services to the purchaser of the European business operations for a period of up to 24 months following the closing date of December 31, 2016, under a separate agreement. The proceeds and related costs from these services are not material and are presented in Other income, net as part of continuing operations in the Condensed Consolidated Statements of Operations. The Company also retains certain guarantees in place with respect to the liabilities or obligations of the European business and remains contingently liable for these obligations. However, the purchaser must indemnify and hold the Company harmless for any losses in connection with these guarantees. The Company currently does not believe it is probable it would be required to perform under any of these guarantees or any of the underlying obligations. The major components of Discontinued operations, net of tax presented in the Condensed Consolidated Statements of Operations are presented below. The results include the operations of the businesses sold up to the dates of sale.
|  | First Quarter |
(In millions) |  | 2018 |  |  | 2017 |
Sales |  | $ | 94 |  |  | $ | 168 |
Cost of goods sold and occupancy costs |  |  | 72 |  |  |  | 136 |
Operating expenses |  |  | 17 |  |  |  | 27 |
Restructuring charges |  |  | — |  |  |  | 1 |
Other income (expense), net |  |  | (2 | ) |  |  | 1 |
Net (increase) reduction of loss on discontinued operations held for sale |  |  | (1 | ) |  |  | 38 |
Net loss on sale of discontinued operations |  |  | 1 |  |  |  | — |
Income tax expense (benefit) |  |  | (7 | ) |  |  | 1 |
Discontinued operations, net of tax |  | $ | 8 |  |  | $ | 42 |
Assets and liabilities of discontinued operations presented in the Condensed Consolidated Balance Sheets as of March 31, 2018, and December 30, 2017 are included in the following table. The sale of the business in Australia was completed in February 2018, and therefore the assets and liabilities of this business are not included in the March 31, 2018 period presented below.
(In millions) |  | March 31, 2018 |  |  | December 30, 2017 |
Assets |  |  |  |  |  |  |  |
Cash and cash equivalents |  | $ | 37 |  |  | $ | 14 |
Receivables, net |  |  | 26 |  |  |  | 64 |
Inventories |  |  | 31 |  |  |  | 78 |
Prepaid expenses and other current assets |  |  | 1 |  |  |  | 4 |
Property and equipment, net |  |  | 14 |  |  |  | 31 |
Other assets |  |  | 2 |  |  |  | 3 |
Valuation allowance |  |  | (13 | ) |  |  | (55 | )
Current assets of discontinued operations |  | $ | 98 |  |  | $ | 139 |
Liabilities |  |  |  |  |  |  |  |
Trade accounts payable |  | $ | 15 |  |  | $ | 38 |
Accrued expenses and other current liabilities |  |  | 10 |  |  |  | 24 |
Deferred income taxes and other long-term liabilities |  |  | 2 |  |  |  | 5 |
Current liabilities of discontinued operations |  | $ | 27 |  |  | $ | 67 |

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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