DELPHI 2011 Annual Report Download - page 95

Table of Contents
1. Cash and cash equivalents acquired is as follows:
(in millions)
Cash from issuance of Class A membership interests $ 1,689
Cash from issuance of Class B membership interests 209
Cash acquired from the Predecessor 862
Proceeds from issuance of 5-Year Note 41
Total cash and cash equivalents acquired $ 2,801
2. Inventory is recorded at fair value. Raw materials were valued at current replacement costs and work-in-process was valued at the estimated selling
prices of finished goods less the sum of costs to complete, costs of disposal and reasonable profit allowances for completing and selling efforts based on
profits for similar finished goods. Finished goods were valued at estimated selling prices less the sum of costs of disposal and reasonable profit
allowances for the selling efforts.
3. Property, plant and equipment are recorded at fair value giving consideration to their highest and best use. Key assumptions used in the valuation of the
Company's property, plant and equipment were based on a combination of the cost or market approach, depending on whether market data was
available.
4. Identifiable intangible assets are recorded at fair value and include customer relationships, trade names, patents and in-process research and
development ("IPR&D"). The following approaches were considered in valuing the identifiable intangible assets:
• Relief from Royalty ("RFR") Method: This form of the income approach determines the value of an intangible asset by capitalizing future royalty
payments (income) that are avoided (earned) since the intangible asset is owned rather than licensed. Royalty payments are estimated at the
amount that a company would be willing to pay in the form of a royalty for the use of the intangible asset, assuming an outside party owned the
rights to the intangible asset. The relief from royalty method is generally used to value trademarks, trade names, and some technologies. This
methodology is most reliable when there are observable royalty rates charged for the use of comparable intangible assets.
• Excess Earnings ("EE") Method: Similar to the DCF method described above, the EE method calculates the value of an intangible asset by
discounting its future cash flows. Cash flow is calculated by first estimating after-tax income, which is adjusted for non-cash charges. A
contributory asset charge is also applied to reflect the costs associated with the use of other assets to generate the cash flow. The excess earnings
method is often used to value customer relationships, technologies, and IPR&D. The EE method is the best approach to use when future
economic benefits of the intangible asset can be reasonably estimated but need to be segregated from one or more assets that contribute to the
production of the cash flow.
The following table summarizes the estimated fair values as of the Acquisition Date of the identifiable intangible assets, the method and significant
assumptions used to estimate the fair values and the weighted average amortization period of definite-lived intangible assets:
Identifiable Intangible Asset
Valuation
Approach Royalty Rate Discount Rate
Weighted
Average
Amortization
Period
Acquisition
Date Fair
Value
(Years) (in millions)
Patents RFR 0.7%-1.2% 14.4%-22.0% 13 $ 442
Customer relationships EE N/A 14.5%-22.4% 6 140
Trade names RFR 0.2%-1.0% 14.5%-21.4% 20 97
IPR&D EE N/A 22.4%-39.5% N/A 87
Total identifiable intangible assets $ 766
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