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Divestitures | 9 Months Ended
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Jun. 30, 2019
Divestitures [Abstract] |
Divestitures | NOTE 3 – DIVESTITURES The following table summarizes the components of Income from Discontinued Operations, Net of Tax in the accompanying Condensed Consolidated Statement of Income for the three and nine month periods ended June 30, 2019 and 2018.
|  | Three Month Periods Ended |  | Nine Month Periods Ended
(in millions) |  | June 30, 2019 |  | June 30, 2018 |  | June 30, 2019 |  | June 30, 2018
(Loss) income from discontinued operations before income taxes - GBL |  | $ | (5.7) |  | $ | (9.7) |  | $ | 975.7 |  | $ | 17.9
Income (loss) from discontinued operations before income taxes - GAC |  |  | 0.8 |  |  | 37.5 |  |  | (114.7) |  |  | 55.2
Income from discontinued operations before income taxes - HRG Insurance Operations |  |  | — |  |  | — |  |  | — |  |  | 476.4
(Loss) income from discontinued operations before income taxes |  |  | (4.9) |  |  | 27.8 |  |  | 861.0 |  |  | 549.5
Income tax (benefit) expense from discontinued operations |  |  | (3.7) |  |  | (6.0) |  |  | 161.9 |  |  | 23.0
(Loss) income from discontinued operations, net of tax |  |  | (1.2) |  |  | 33.8 |  |  | 699.1 |  |  | 526.5
Income from discontinued operations, net of tax attributable to noncontrolling interest |  |  | — |  |  | 11.1 |  |  | — |  |  | 32.8
(Loss) income from discontinued operations, net of tax attributable to controlling interest |  | $ | (1.2) |  | $ | 22.7 |  | $ | 699.1 |  | $ | 493.7
GBL On January 2, 2019, the Company completed the sale of its GBL business pursuant to the GBL acquisition agreement with Energizer for cash proceeds of $1,956.2 million, resulting in a pre-tax gain on sale of $990.6 million, including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness, recognition of tax and legal indemnifications under the acquisition agreement and an estimated contingent purchase price adjustment for the settlement of the planned divestiture of the Varta® consumer batteries business by Energizer. The results of operations and gain on sale for disposal of the GBL business are recognized as a component of discontinued operations. The GBL acquisition agreement provides for a purchase price adjustment that is contingent upon the completion of the divestiture of the Varta® consumer battery, chargers, portable power and portable lighting business in the EMEA region by Energizer, including manufacturing and distribution facilities in Germany. The purchase price adjustment includes a potential downward adjustment equal to 75% of the difference between the divestiture sale price and the target sale price of $600 million, not to exceed $200 million, or a potential upward adjustment equal to 25% of the excess purchase price. On May 29, 2019, Energizer entered into an agreement to sell the Varta® consumer batteries business and, in accordance with the terms and conditions of the GBL acquisition agreement, Spectrum will contribute USD $200.0 million to Energizer in connection with the sale of the Varta® consumer batteries business. The Company and Energizer have agreed to indemnify each other for losses arising from certain breaches of the GBL acquisition agreement and for certain other matters. Spectrum has agreed to indemnify Energizer for certain liabilities relating to the assets retained by Spectrum, and Energizer has agreed to indemnify Spectrum for certain liabilities assumed by Energizer, in each case as described in the acquisition agreement. The Company has recognized $50.4 million related to indemnifications in accordance with the acquisition agreement. As of June 30, 2019, the Company has recognized an estimated net settlement payable of $235.4 million in Other Current Liabilities and $18.9 million in Other Long-Term Liabilities on the Company’s Condensed Consolidated Financial Statements associated with the GBL acquisition agreement, including the subsequent settlement of customary purchase price adjustments for working capital and assumed indebtedness, tax and legal indemnifications, contingent purchase price adjustment for the settlement of the planned Varta® consumer batteries business and other agreed-upon funding in accordance with the agreement. Spectrum and Energizer entered into related agreements that became effective upon the consummation of the acquisition including a customary transition services agreement (“TSA”) and reverse TSA. The TSA and reverse TSA are recognized as a component of continuing operations for periods following the completion of the GBL sale. See Note 17 – Related Party Transactions for additional discussion. The following table summarizes the assets and liabilities of GBL classified as held for sale as of September 30, 2018.
(in millions) |  | September 30, 2018
Assets |  |  |
Trade receivables, net |  | $ | 99.3
Other receivables |  |  | 17.9
Inventories |  |  | 127.8
Prepaid expenses and other current assets |  |  | 23.0
Property, plant and equipment, net |  |  | 160.5
Deferred charges and other |  |  | 13.4
Goodwill |  |  | 226.6
Intangible assets, net |  |  | 304.0
Total assets of business held for sale |  | $ | 972.5
Liabilities |  |  |
Current portion of long-term debt |  |  | 6.3
Accounts payable |  |  | 124.1
Accrued wages and salaries |  |  | 25.0
Other current liabilities |  |  | 82.6
Long-term debt, net of current portion |  |  | 45.0
Deferred income taxes |  |  | 20.9
Other long-term liabilities |  |  | 60.6
Total liabilities of business held for sale |  | $ | 364.5
NOTE 3 – DIVESTITURES (continued) The following table summarizes the components of income from discontinued operations before income taxes associated with the GBL divestiture in the accompanying Consolidated Statements of Operations for the three and nine month periods ended June 30, 2019 and 2018 with the close of the GBL divestiture on January 2, 2019.
|  | Three Month Period Ended |  | Nine Month Period Ended
(in millions) |  | June 30, 2019 |  | June 30, 2018 |  | June 30, 2019 |  | June 30, 2018
Net sales |  | $ | — |  | $ | 187.6 |  | $ | 249.0 |  | $ | 645.7
Cost of goods sold |  |  | — |  |  | 118.7 |  |  | 164.6 |  |  | 410.0
Gross profit |  |  | — |  |  | 68.9 |  |  | 84.4 |  |  | 235.7
Operating expenses |  |  | — |  |  | 63.6 |  |  | 57.0 |  |  | 177.4
Operating income |  |  | — |  |  | 5.3 |  |  | 27.4 |  |  | 58.3
Interest expense |  |  | — |  |  | 13.8 |  |  | 23.3 |  |  | 39.0
Other non-operating expense, net |  |  | — |  |  | 1.2 |  |  | 0.5 |  |  | 1.4
Loss (Gain) on sale |  |  | 5.7 |  |  | — |  |  | (990.6) |  |  | —
Reclassification of accumulated other comprehensive income |  |  | — |  |  | — |  |  | 18.5 |  |  | —
(Loss) income from discontinued operations before income taxes |  | $ | (5.7) |  | $ | (9.7) |  | $ | 975.7 |  | $ | 17.9
Beginning in January 2018, the Company ceased the recognition of depreciation and amortization of long-lived assets associated with GBL therefore no depreciation and amortization was recognized during the three and nine month periods ended June 30, 2019. For the nine month period ended June 30, 2018, the depreciation and amortization expense of $8.3 million was recognized. Interest expense consists of interest from debt directly held by subsidiaries of the business held for sale, including interest from capital leases, and interest on Term Loans required to be paid down using proceeds received on disposal on sale of a business. The Company paid down the Term Loans after the completion of the GBL divestiture. See Note 11 – Debt for further discussion. No impairment loss was recognized as the proceeds from the disposal of the business were more than the carrying value. During the nine month period ended June 30, 2019, the Company incurred transaction costs of $12.9 million associated with the divestiture, which were recognized as a component of income from discontinued operations. During the three month period ended June 30, 2019, the Company recognized adjustments to gain on sale for changes to the estimated settlement of customary purchase price adjustment, tax and legal indemnifications, and other agreed-upon funding under the acquisition agreement. During the three and nine month periods ended June 30, 2018, the Company incurred transaction costs of $21.0 million and $40.4 million, respectively. Transaction costs were expensed as incurred and include fees for investment banking services, legal, accounting, due diligence, tax, valuation and various other services necessary to complete the transaction. After the completion of the divestiture, the Company incurred incremental costs to facilitate separation of shared operations, development of transferred shared service operations, platforms and personnel transferred under the transaction which have been recognized as Transaction Related Charges as part of continuing operations on the Company’s Condensed Consolidated Statement of Income. See Note 2 – Basis of Presentation & Significant Accounting Policies for further detail. GAC On January 28, 2019, the Company completed the sale of its GAC business pursuant to the GAC acquisition agreement with Energizer for $938.7 million in cash proceeds and $242.1 million in stock consideration of common stock of Energizer, resulting in the write-down of net assets held for sale of $110.0 million during the nine month period ended June 30, 2019, including the estimated settlement of customary purchase price adjustments for working capital and assumed indebtedness, and recognition of tax and legal indemnifications in accordance with the GAC acquisition agreement. The results of operations and write-down of net assets held for sale for the disposal of the GAC business were recognized as a component of discontinued operations. The Company and Energizer have agreed to indemnify each other for losses arising from certain breaches of the GAC acquisition agreement and for certain other matters. Spectrum has agreed to indemnify Energizer for certain liabilities relating to the assets retained by Spectrum, and Energizer has agreed to indemnify Spectrum for certain liabilities assumed by Energizer, in each case as described in the acquisition agreement. As of June 30, 2019, the Company has recognized an estimated net settlement receivable of $4.0 million in Non-Trade Receivables on the Company’s Condensed Consolidated Financial Statements associated with GAC acquisition agreement, including the subsequent settlement of customary purchase price adjustments for working capital and assumed indebtedness, tax and legal indemnifications, and other agreed-upon funding in accordance with the agreement. The Company and Energizer entered into related agreements ancillary to the GAC acquisition that became effective upon the consummation of the acquisition, including a TSA and reverse TSA, a supply agreement with the Company’s H&G business, as well as a shareholder agreement. The TSA and reverse TSA are recognized as a component of continuing operations for periods following the completion of the GAC sale. The supply agreement with the Company’s H&G business is recognized as a component of net sales and continuing operations. Sales from the Company’s H&G segment to GAC discontinued operations prior to the divestiture have been recognized as a component of net sales and continuing operations for all comparable periods. See Note 17 – Related Party Transactions for additional discussion. ‎ NOTE 3 – DIVESTITURES (continued) The following table summarizes the assets and liabilities of GAC classified as held for sale as of September 30, 2018.
(in millions) |  | September 30, 2018
Assets |  |  |
Trade receivables, net |  | $ | 55.2
Other receivables |  |  | 4.1
Inventories |  |  | 72.8
Prepaid expenses and other current assets |  |  | 2.9
Property, plant and equipment, net |  |  | 58.2
Deferred charges and other |  |  | 10.7
Goodwill |  |  | 841.8
Intangible assets, net |  |  | 384.4
Total assets of business held for sale |  | $ | 1,430.1
Liabilities |  |  |
Current portion of long-term debt |  |  | 0.4
Accounts payable |  |  | 50.6
Accrued wages and salaries |  |  | 3.2
Other current liabilities |  |  | 13.3
Long-term debt, net of current portion |  |  | 31.5
Deferred income taxes |  |  | 71.6
Other long-term liabilities |  |  | 2.5
Total liabilities of business held for sale |  | $ | 173.1
The following table summarizes the components of income from discontinued operations before income taxes associated with the GAC divestiture in the accompanying Condensed Consolidated Statements of Operations for the three and nine month periods ended June 30, 2019 and 2018, with the close of the GAC divestiture on January 28, 2019.
|  | Three Month Period Ended |  | Nine Month Period Ended
(in millions) |  | June 30, 2019 |  | June 30, 2018 |  | June 30, 2019 |  | June 30, 2018
Net sales |  | $ | — |  | $ | 175.2 |  | $ | 87.7 |  | $ | 362.4
Cost of goods sold |  |  | — |  |  | 101.3 |  |  | 52.5 |  |  | 217.8
Gross profit |  |  | — |  |  | 73.9 |  |  | 35.2 |  |  | 144.6
Operating expenses |  |  | — |  |  | 35.5 |  |  | 35.7 |  |  | 87.8
Operating income (loss) |  |  | — |  |  | 38.4 |  |  | (0.5) |  |  | 56.8
Interest expense |  |  | — |  |  | 0.5 |  |  | 0.7 |  |  | 1.5
Other non-operating expense, net |  |  | — |  |  | 0.4 |  |  | 0.2 |  |  | 0.1
Write-down of assets of business held for sale to fair value less cost to sell |  |  | (0.8) |  |  | — |  |  | 110.0 |  |  | —
Reclassification of accumulated other comprehensive income |  |  | — |  |  | — |  |  | 3.3 |  |  | —
Income (loss) from discontinued operations before income taxes |  | $ | 0.8 |  | $ | 37.5 |  | $ | (114.7) |  | $ | 55.2
The three and nine month periods ended June 30, 2018, included depreciation and amortization of $4.3 million and $12.1 million, respectively. Beginning in November 2018, the Company ceased the recognition of depreciation and amortization of long-lived assets associated with GAC, resulting in $1.4 million of depreciation and amortization recognized during the nine month period ended June 30, 2019. Interest expense consists of interest from debt directly held by subsidiaries of the business held for sale, including interest from capital leases. During the nine month period ended June 30, 2019, the Company recognized a $110.0 million write-down on net assets held for sale associated with the GAC divestiture attributable to the expected fair value to be realized from the sale, net of transaction costs. During the three month period ended June 30, 2019, the Company recognized adjustments to the write-down on net assets held for sale to fair value less cost to sell for changes to the estimated settlement of customary purchase price adjustments, tax and legal indemnifications, and other agreed-upon funding under the acquisition agreement. During the nine month period ended June 30, 2019, the Company incurred transaction costs of $8.8 million associated with the divestiture which have been recognized as a component of income from discontinued operations on the Condensed Consolidated Statements of Income. No transaction costs were recognized in component of income from discontinued operations in the current quarter. Transaction costs are expensed as incurred and include fees for investment banking services, legal, accounting, due diligence, tax, valuation and various other services necessary to complete the transactions. After the completion of the divestiture, the Company incurred incremental costs to facilitate separation of shared operations, development of transferred shared service operations, platforms and personnel transferred under the transaction which have been recognized as Transaction Related Charges as part of continuing operations on the Company’s Condensed Consolidated Statement of Income. See Note 2 – Basis of Presentation & Significant Accounting Policies for further detail. ‎ NOTE 3 – DIVESTITURES (continued) HRG - Insurance Operations On November 30, 2017, Fidelity and Guaranty Life (“FGL”) completed the FGL Merger pursuant to which, except for certain shares specified in the FGL Merger Agreement, each issued and outstanding share of common stock of FGL was automatically canceled and converted into the right to receive $31.10 in cash, without interest. The total consideration received by HRG Group Inc. (“HRG”) as a result of the completion of the FGL Merger was $1,488.3 million. Also, on November 30, 2017, Front Street Re (Delaware) Ltd. (“Front Street”) sold to CF Corporation and its related entities (collectively, the “CF Entities”) all the issued and outstanding shares of Front Street for $65 million, which was subject to reduction for customary transaction expenses. In addition, $6.5 million of the purchase price was deposited in escrow for a period of 15 months to support any indemnification claims that might be made (if any) by the CF entities. The operations of FGL were classified as discontinued operations through November 30, 2017 in the accompanying Condensed Consolidated Statements of Operations and Condensed Consolidated Statements of Cash Flows. The following table summarizes the components of income from discontinued operations from discontinued operations from the HRG Insurance Operations divestiture in the accompanying Condensed Consolidated Statements of Income for the three and nine month periods ended June 30, 2018, with completion of divestiture on November 30, 2017.
(in millions) |  | Two Months Ended November 30, 2017
Revenues |  |  |
Insurance premiums |  | $ | 6.8
Net investment income |  |  | 181.9
Net investment gains |  |  | 154.8
Other |  |  | 35.1
Total revenues |  |  | 378.6
Operating costs and expenses |  |  |
Benefits and other changes in policy reserves |  |  | 241.3
Selling, acquisition, operating and general expenses |  |  | 52.8
Amortization of intangibles |  |  | 35.8
Total operating costs and expenses |  |  | 329.9
Operating income |  |  | 48.7
Interest expense and other |  |  | 4.0
Write-down of assets of business held for sale to fair value less cost to sell |  |  | (14.2)
Reclassification of accumulated other comprehensive income |  |  | 445.9
Income from discontinued operations before income taxes |  | $ | 476.4
Property, Plant, and Equipment and long-lived assets classified as held for sale were measured at the lower of their carrying value or fair value less cost to sell. As of September 30, 2017, the carrying value of HRG’s interest in FGL and Front Street exceeded their respective estimated fair value less cost to sell by $402.2 million and $19.0 million, respectively. The higher carrying value of FGL was primarily due to the increase in unrealized gains, net of offsets in FGL’s investment portfolio, with the effects of the unrealized gains, net of offsets, being recorded in accumulated other comprehensive income. Upon the completion of the FGL Merger, HRG deconsolidated its ownership interest in FGL, which resulted in the reclassification of $445.9 million of accumulated other comprehensive income attributable from FGL to income from discontinued operations in the fiscal year 2018. Additionally, after the close of the FGL Merger, the Company recognized a $5.9 million tax benefit allocated to HRG insurance discontinued operations during the third quarter of fiscal year 2018, associated with the reversal of valuation allowance realized with the completion of the Spectrum Merger. ‎ NOTE 3 – DIVESTITURES (continued) HPC In December 2017, the Company entered into a plan to divest its HPC division as a component of its GBA business, and was actively marketing the HPC business, including discussions with third parties for the potential sale of the HPC business. As a result, the HPC business met the criteria for recognition as assets held for sale and was reported as held for sale and included as a component of discontinued operations. Subsequently, in November 2018, the Company made a strategic decision to cease pursuing a sale of the HPC division and to continue to manage and operate the business for continued use. As a result, the HPC net assets were reclassified as held for use and the operating results and cash flows are included within the Company’s income from continuing operations for both the three and nine month periods ended June 30, 2019 and 2018. Upon recognition of the Company’s change in plan to sell HPC, the net assets were measured at the carrying amount before HPC was classified as held for sale and adjusted for depreciation and amortization expense that would have been recognized had the business been continuously classified as held and used. There was no impairment or loss recognized when the decision to not sell was made. Amounts previously reported as discontinued operations for the three and nine month periods ended June 30, 2018 have been reclassified as part of the Company’s income from continuing operations and assets held for use to conform with the current period. The following tables summarize the effect of the change in plan to sell the HPC business and reclassification of the GAC business to discontinued operations on the previously reported condensed consolidated statements of income for the three and nine month periods ended June 30, 2018.
|  | Three Months Period Ended June 30, 2018
(in millions) |  | As Previously Reported |  | Effect of HPC Reclassification From Held For Sale to Held and Used |  | After HPC Reclassification |  | Effect of GAC Reclassification From Held and Used to Held For Sale |  | After GAC Reclassification
Net sales |  | $ | 945.5 |  | $ | 254.4 |  | $ | 1,199.9 |  | $ | 170.5 |  | $ | 1,029.4
Cost of goods sold |  |  | 590.9 |  |  | 172.4 |  |  | 763.3 |  |  | 96.6 |  |  | 666.7
Gross profit |  |  | 354.6 |  |  | 82.0 |  |  | 436.6 |  |  | 73.9 |  |  | 362.7
Operating expenses |  |  | 228.3 |  |  | 63.1 |  |  | 291.4 |  |  | 35.5 |  |  | 255.9
Operating income |  |  | 126.3 |  |  | 18.9 |  |  | 145.2 |  |  | 38.4 |  |  | 106.8
Interest expense |  |  | 63.5 |  |  | 0.3 |  |  | 63.8 |  |  | 0.5 |  |  | 63.3
Other non-operating (income) expense, net |  |  | (2.3) |  |  | 1.5 |  |  | (0.8) |  |  | 0.4 |  |  | (1.2)
Income from operations before income taxes |  | $ | 65.1 |  | $ | 17.1 |  | $ | 82.2 |  | $ | 37.5 |  | $ | 44.7
|  | Nine Months Period Ended June 30, 2018
(in millions) |  | As Previously Reported |  | Effect of HPC Reclassification From Held For Sale to Held and Used |  | After HPC Reclassification |  | Effect of GAC Reclassification From Held and Used to Held For Sale |  | After GAC Reclassification
Net sales |  | $ | 2,358.1 |  | $ | 827.5 |  | $ | 3,185.6 |  | $ | 351.3 |  | $ | 2,834.3
Cost of goods sold |  |  | 1,494.4 |  |  | 559.2 |  |  | 2,053.6 |  |  | 206.7 |  |  | 1,846.9
Gross profit |  |  | 863.7 |  |  | 268.3 |  |  | 1,132.0 |  |  | 144.6 |  |  | 987.4
Operating expenses |  |  | 682.9 |  |  | 202.7 |  |  | 885.6 |  |  | 87.8 |  |  | 797.8
Operating income |  |  | 180.8 |  |  | 65.6 |  |  | 246.4 |  |  | 56.8 |  |  | 189.6
Interest expense |  |  | 206.6 |  |  | 1.3 |  |  | 207.9 |  |  | 1.5 |  |  | 206.4
Other non-operating (income) expense, net |  |  | (4.6) |  |  | 2.7 |  |  | (1.9) |  |  | 0.1 |  |  | (2.0)
(Loss) income from operations before income taxes |  | $ | (21.2) |  | $ | 61.6 |  | $ | 40.4 |  | $ | 55.2 |  | $ | (14.8)
During the first quarter of fiscal year 2019, the Company recognized $29.0 million of incremental depreciation and amortization expenses included in General and Administrative Expenses on the Company’s Condensed Consolidated Statements of Income associated with long-lived assets that had ceased depreciating or amortizing during the period in which the assets were held for sale in order to reflect the carrying value of HPC net assets as if they had been held for use during that period.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 360 -URI http://asc.fasb.org/topic&trid=2155823 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 205 -SubTopic 20 -URI http://asc.fasb.org/subtopic&trid=2122178 + Details
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