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Divestitures | 3 Months Ended
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Dec. 29, 2019
Divestitures [Abstract] |
Divestitures | NOTE 2 – DIVESTITURES The following table summarizes the components of Income from Discontinued Operations, Net of Tax in the accompanying Consolidated Statement of Income for the three month periods ended December 29, 2019 and December 30, 2018:
|  | Three Month Periods Ended
(in millions) |  | December 29, 2019 |  | December 30, 2018
Income from discontinued operations before income taxes - GBL |  | $ | 2.4 |  | $ | 15.9
Loss from discontinued operations before income taxes - GAC |  |  | — |  |  | (109.2)
Income (loss) from discontinued operations before income taxes |  |  | 2.4 |  |  | (93.3)
Income tax benefit from discontinued operations |  |  | (0.4) |  |  | (10.1)
Income (loss) from discontinued operations, net of tax |  |  | 2.8 |  |  | (83.2)
Income (loss) from discontinued operations, net of tax attributable to controlling interest |  | $ | 2.8 |  | $ | (83.2)
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 $989.8 million during the year ended September 30, 2019, including the 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 during the year ended September 30, 2019. 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 included a 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. Effective January 2, 2020, Energizer closed its divestiture of the Varta® consumer batteries business to Varta Aktiengesellschaft (“Varta AG”) with an aggregate purchase price of €180 million and, in accordance with the terms and conditions of the GBL acquisition agreement, the Company was obligated to contribute up to $200.0 million to Energizer in connection with the sale. The Company subsequently settled the outstanding balance with Energizer for $197.0 million. As of December 29, 2019, the Company recognized $197.0 million in Indemnification Payable to Energizer on the Company’s Condensed Consolidated Statement of Financial Position. 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. The Company has agreed to indemnify Energizer for certain liabilities relating to the assets retained by the Company, and Energizer has agreed to indemnify the Company for certain liabilities assumed by Energizer, in each case as described in the acquisition agreement. As of December 29, 2019, the Company recognized $47.9 million related to indemnifications in accordance with the acquisition agreement, including $33.9 million within Indemnification Payable to Energizer on the Company’s Consolidated Condensed Statement of Financial Position primarily attributable to current income tax indemnifications and $14.0 million within Other Long-Term Liabilities on the Company’s Consolidated Condensed Statement of Financial Position primarily attributable to income tax indemnifications associated with previously recognized uncertain tax benefits. The Company 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. NOTE 2 – DIVESTITURES (continued) The following table summarizes the components of Income from Discontinued Operations, Net of Tax associated with the GBL divestiture in the accompanying Condensed Consolidated Statements of Operations for the three month period ended December 30, 2018:
|  | Three Month Period Ended
(in millions) |  | December 30, 2018
Net sales |  | $ | 249.0
Cost of goods sold |  |  | 161.0
Gross profit |  |  | 88.0
Operating expenses |  |  | 58.3
Operating income |  |  | 29.7
Interest expense |  |  | 13.3
Other non-operating expense, net |  |  | 0.5
Gain on sale |  |  | —
Income from discontinued operations before income taxes |  | $ | 15.9
During the three month period ended December 29, 2019, the Company recognized incremental pre-tax gain on sale of $2.4 million for changes to tax and legal indemnifications and other agreed-upon funding under the acquisition agreement. 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 month period ended December 30, 2018. 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. No impairment loss was recognized as the proceeds from the disposal of the business were more than the carrying value. During the three month ended December 30, 2018, the Company incurred transaction costs of $10.6 million associated with the divestiture, which were recognized as a component of income from discontinued operations. Transaction costs were expensed as incurred and included 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 1 – Basis of Presentation and 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 $111.0 million during the year ended September 30, 2019, including the 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 during the year ended September 30, 2019. 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. The Company has agreed to indemnify Energizer for certain liabilities relating to the assets retained by the Company, and Energizer has agreed to indemnify the Company for certain liabilities assumed by Energizer, in each case as described in the acquisition agreement. As of December 29, 2019, the Company has recognized $1.4 million related to indemnifications in accordance with the acquisition agreement within Other Long-Term Liabilities on the Company’s Condensed Consolidated Statement of Financial Position primarily attributable to income tax indemnifications associated with previously recognized uncertain tax benefits. 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. The following table summarizes the components of income from discontinued operations before income taxes associated with the GAC divestiture in the accompanying Consolidated Statements of Operations for the three month periods ended December 30, 2018:
|  | Three Month Period Ended
(in millions) |  | December 30, 2018
Net sales |  | $ | 65.6
Cost of goods sold |  |  | 39.3
Gross profit |  |  | 26.3
Operating expenses |  |  | 27.8
Operating loss |  |  | (1.5)
Interest expense |  |  | 0.5
Other non-operating expense, net |  |  | —
Write-down of assets of business held for sale to fair value less cost to sell |  |  | 107.2
Loss from discontinued operations before income taxes |  | $ | (109.2)
‎ NOTE 2 – DIVESTITURES (continued) 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 three month period ended December 30, 2018. Interest expense consists of interest from debt directly held by subsidiaries of the business held for sale, including interest from capital leases. During the three month periods ended December 30, 2018, the Company recognized a $107.2 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. The impairment was primarily driven by the change in value of stock consideration to be received as a component of the purchase price from Energizer. During the three month period ended December 30, 2018, the Company incurred transaction costs of $5.8 million associated with the divestiture which have been recognized as a component of income from discontinued operations on the Consolidated Statements of Income. 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 1 – Basis of Presentation and Significant Accounting Policies for further detail. Coevorden Operations On November 29, 2019, the Company entered into a purchase agreement for the disposal of the dog and cat food (“DCF”) production facility and distribution center in Coevorden, Netherlands (“Coevorden Operations”) with United Petfood Producers NV (“UPP”) for a purchase price of €30 million subject to working capital and other typical closing adjustments. The purchase agreement provides that UPP will purchase the equity of a subsidiary of Spectrum consisting of the Coevorden Operations and other net assets associated with its operations. Spectrum and UPP have agreed to enter into related agreements ancillary to the acquisition that will become effective upon the consummation of the acquisition, including a TSA. The Company will continue to operate its commercial DCF business following the divestiture of the Coevorden Operations and will enter into a manufacturing agreement with UPP to supply the continuing DCF business, subject to an incremental tolling charge. Additionally, the Company will lease and operate the distribution center on behalf of UPP for up to 18 months following the divestiture under a lease agreement. As a result of the purchase agreement, the net assets associated with the Coevorden Operations have been classified as held for sale in the accompanying Condensed Consolidated Balance Sheets as of December 29, 2019. The divestiture does not constitute a strategic shift to the Company and therefore is not considered discontinued operations. The commercial DCF business continues to be recognized as a component of the Company’s continuing operations. The divestiture of the Coevorden Operations is defined as a disposal of a business and a component of the GPC segment and reporting unit resulting in the allocation of $10.6 million of GPC goodwill to the disposal group based upon a relative fair-value allocation. Assets held for sale are recognized at their estimated fair value less cost to sell, resulting in the recognition of a loss on assets held for sale during the three month period ended December 29, 2019 of $32.8 million. The proposed sale is expected to close during the second quarter of the year ending September 30, 2020. The following table summarizes the assets and liabilities of the Coevorden Operations held for sale as of December 29, 2019:
(in millions) |  | December 29, 2019
Assets |  |  |
Other receivables |  | $ | 2.8
Inventories |  |  | 1.8
Property, plant and equipment, net |  |  | 46.6
Goodwill |  |  | 10.6
Write-down of assets held for sale to fair value less cost to sell |  |  | (32.8)
Total assets of business held for sale |  | $ | 29.0
Liabilities |  |  |
Accounts payable and other current liabilities |  | $ | 9.2
Debt |  |  | 0.1
Deferred tax liabilities |  |  | —
Total liabilities of business held for sale |  | $ | 9.3

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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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