DIVESTITURES

6 Months Ended

Apr. 02, 2023

Discontinued Operations and Disposal Groups [Abstract]

The following table summarizes the components of Income from Discontinued Operations, Net of Tax in the accompanying Condensed Consolidated Statements of Income for the three and six month periods ended April 2, 2023 and April 3, 2022:


	Three Month Periods Ended				Six Month Periods Ended
(in millions)	April 2, 2023		April 3, 2022		April 2, 2023		April 3, 2022
Income from discontinued operations before income taxes – HHI	$	59.5	$	71.0	$	104.4	$	130.9
Loss from discontinued operations before income taxes – Other	(1.4)		(3.1)		(2.0)		(3.4)

Interest on corporate debt allocated to discontinued operations	17.8		11.0		34.0		21.4
Income from discontinued operations before income taxes	40.3		56.9		68.4		106.1
Income tax expense from discontinued operations	18.9		15.8		27.5		26.2
Income from discontinued operations, net of tax	21.4		41.1		40.9		79.9
Net income from discontinued operations attributable to noncontrolling interest	—		0.1		0.2		0.5
Net income from discontinued operations attributable to controlling interest	$	21.4	$	41.0	$	40.7	$	79.4

Interest from corporate debt allocated to discontinued operations includes interest expense from Term Loans required to be paid down using proceeds received on disposal on sale of a business, and interest expense from corporate debt not directly attributable to or related to other operations based on the ratio of net assets of the disposal group held for sale to the consolidated net assets of the Company plus consolidated debt, excluding debt assumed in the transaction, required to be repaid, or directly attributable to other operations of the Company. Corporate debt, including Term Loans required to be paid down, are not classified as held for sale as they are not directly attributable to the identified disposal group.

Hardware and Home Improvement ("HHI")

On September 8, 2021, the Company entered into a definitive Asset and Stock Purchase Agreement (the "ASPA") with ASSA ABLOY AB ("ASSA") to sell its HHI segment for cash proceeds of $4.3 billion, subject to customary purchase price adjustments (the "HHI Transaction"). The Company's assets and liabilities associated with the HHI disposal group have been classified as held for sale, and the respective operations have been classified as discontinued operations and reported separately for all periods presented.

The ASPA provides that ASSA will purchase the equity of certain subsidiaries of the Company, and acquire certain assets and assume certain liabilities of other subsidiaries used or held for the purpose of the HHI business. The Company and ASSA have made customary representations and warranties and have agreed to customary covenants relating to the acquisition. Among other things, prior to the consummation of the acquisition, the Company will be subject to certain business conduct restrictions with respect to its operation of the HHI business. The Company and ASSA have agreed to indemnify each other for losses arising from certain breaches of the ASPA and for certain other matters. In particular, the Company has agreed to indemnify ASSA for certain liabilities relating to the assets retained by the Company, and ASSA has agreed to indemnify the Company for certain liabilities assumed by ASSA, in each case as described in the ASPA. The Company and ASSA have agreed to enter into related agreements ancillary to the acquisition that will become effective upon the consummation of the acquisition, including a customary transition services agreement and providing for both forward and reverse transition services.

The consummation of the acquisition is subject to certain customary conditions, including, among other things, (i) the absence of a material adverse effect on HHI, (ii) the expiration or termination of required waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iii) the receipt of certain other antitrust approvals in certain specified foreign jurisdictions (the conditions contained in (ii) and (iii) together, the “Antitrust Conditions”), (iv) the accuracy of the representations and warranties of the parties generally subject to a customary material adverse effect standard (as described in the ASPA) or other customary materiality qualifications), (v) the absence of governmental restrictions on the consummation of the acquisition in certain jurisdictions, and (vi) material compliance by the parties with their respective covenants and agreements under the ASPA. The consummation of the acquisition is not subject to any financing condition.

The ASPA also contains certain termination rights, including the right of either party to terminate the ASPA if the consummation of the acquisition has not occurred on or before December 8, 2022 (the “Termination Date”). Further, if the acquisition has not been consummated by the Termination Date and all conditions precedent to ASSA's obligation to consummate the acquisition have otherwise been satisfied except for one or more of the Antitrust Conditions, then ASSA would be required to pay the Company a termination fee of $350 million.

On July 14, 2022, the parties entered into an amendment to the ASPA (the “Amendment”) pursuant to which the Termination Date was extended to June 30, 2023. Except for the foregoing amendment to the Termination Date, the ASPA remains in full force and effect as written, including with respect to the termination fee of $350 million. On September 15, 2022, the Department of Justice ("DOJ") filed a complaint seeking to enjoin the transaction and block the acquisition of the HHI division by ASSA. On December 2, 2022, ASSA announced an agreement to sell its Emtek and the Smart Residential Business in the U.S. and Canada to Fortune Brands in response to competitive concerns raised by the DOJ in their complaint. On May 5, 2023, the Company agreed to a stipulation with the DOJ to settle the DOJ's challenge of the HHI transaction, pursuant to which ASSA will proceed with the divestment of Emtek and its Smart Residential business in the U.S.and Canada to Fortune Brands. Approval of the Mexican competition authority is the only outstanding regulatory approval. The Company continues to recognize the HHI division as held for sale and as a component of our discontinued operations. The parties are committed to closing the HHI transaction, and the Company and ASSA both continue to expect that the HHI transaction will close on or prior to June 30, 2023.

The following table summarizes the assets and liabilities of the HHI disposal group classified as held for sale as of April 2, 2023 and September 30, 2022:


(in millions)	April 2, 2023		September 30, 2022
Assets
Trade receivables, net	$	143.4	$	135.5
Other receivables	3.9		6.7
Inventories	286.9		327.1
Prepaid expenses and other current assets	34.2		33.1
Property, plant and equipment, net	176.2		166.6
Operating lease assets	64.2		63.6
Deferred charges and other	14.4		11.7
Goodwill	701.6		698.6
Intangible assets, net	374.8		373.8
Total assets of business held for sale	$	1,799.6	$	1,816.7
Liabilities
Current portion of long-term debt	$	1.4	$	1.4
Accounts payable	190.0		224.7
Accrued wages and salaries	22.4		32.7
Other current liabilities	67.1		79.9
Long-term debt, net of current portion	53.9		54.6
Long-term operating lease liabilities	42.7		46.9
Deferred income taxes	10.4		10.1
Other long-term liabilities	13.9		13.4
Total liabilities of business held for sale	$	401.8	$	463.7

The following table summarizes the components of income from discontinued operations before income taxes associated with the HHI divestiture in the accompanying Condensed Consolidated Statements of Operations for the three and six month periods ended April 2, 2023 and April 3, 2022:


	Three Month Periods Ended				Six Month Periods Ended
(in millions)	April 2, 2023		April 3, 2022		April 2, 2023		April 3, 2022
Net sales	$	383.3	$	420.8	$	746.1	$	795.4
Cost of goods sold	253.3		275.4		498.0		520.4

Gross profit	130.0		145.4		248.1		275.0
Operating expenses	68.9		72.3		140.0		139.5
Operating income	61.1		73.1		108.1		135.5
Interest expense	0.8		0.8		1.7		1.7
Other non-operating expense, net	0.8		1.3		2.0		2.9
Income from discontinued operations before income taxes	$	59.5	$	71.0	$	104.4	$	130.9

Beginning in September 2021, the Company ceased the recognition of depreciation and amortization of long-lived assets associated with the HHI disposal group classified as held for sale. Interest expense consists of interest from debt directly attributable to HHI operations that primarily consist of interest from finance leases. No impairment loss was recognized on the assets held for sale as the purchase price of the business less estimated cost to sell is more than its carrying value. The following table presents significant non-cash items and capital expenditures of discontinued operations from the HHI divestiture for the three and six month periods ended April 2, 2023 and April 3, 2022:


	Three Month Periods Ended				Six Month Periods Ended
(in millions)	April 2, 2023		April 3, 2022		April 2, 2023		April 3, 2022

Share based compensation	$	0.3	$	1.2	$	1.1	$	4.1
Purchases of property, plant and equipment	4.4		7.5		8.0		12.4

Other

Loss from discontinued operations before income taxes – other includes incremental pre-tax loss for changes to tax and legal indemnifications and other agreed-upon funding under the acquisition agreements for the sale and divestiture of the Global Batteries & Lighting ("GBL") and Global Auto Care ("GAC") divisions to Energizer Holdings, Inc. ("Energizer") during the year ended September 30, 2019. The Company and Energizer agreed to indemnify each other for losses arising from certain breaches of the acquisition agreement and for certain other matters, in each case as described in the acquisition agreements. Subsequently, effective January 2, 2020, Energizer closed its divestitures of the European based Varta® consumer battery business in the EMEA region to Varta AG and transferred all respective rights and indemnifications attributable to the Varta® consumer battery business provided by the GBL sale to Varta AG. As of April 2, 2023 and September 30, 2022, the Company recognized $24.6 million and $22.3 million, respectively, related to indemnification payables in accordance with the acquisition agreements, primarily attributable with uncertain tax benefit obligations and outstanding settlements with tax authorities that were transferred and indemnified in accordance with the acquisition agreement, including $9.0 million and $7.0 million within Other Current Liabilities, respectively, and $15.6 million and $15.3 million, within Other Long-Term Liabilities, respectively, on the Company’s Condensed Consolidated Statements of Financial Position.