Rayovac 2010 Annual Report Download - page 117

SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
The pre-tax gain on the cancellation of debt was calculated as follows:
Extinguishment of Predecessor Company senior subordinated notes ......... $1,049,885
Extinguishment of Predecessor Company accrued interest on senior
subordinated notes .............................................. 40,497
Issuance of Successor Company 12% Notes (fair value) .................. (218,731)
Issuance of Successor Company common stock ......................... (725,096)
Pre-tax gain on the cancellation of debt ............................... $ 146,555
(l) Pursuant to the Plan, the adjustment eliminates treasury stock of $76,891 of the Predecessor Company.
Fresh-Start Valuation Adjustments
(m) Reflects the adjustment of assets and liabilities to estimated fair value, or other measurement specified by
SFAS 141, in conjunction with the adoption of fresh-start reporting. Significant adjustments are summarized
as followed:
•Inventories – An adjustment of $48,762 was recorded to adjust inventory to fair value. Raw materials
were valued at current replacement cost, work-in-process was valued at estimated selling prices of
finished goods less the sum of costs to complete, cost of disposal and a reasonable profit allowance for
completing and selling effort based on profit for similar finished goods. Finished goods were valued at
estimated selling prices less the sum of costs of disposal and a reasonable profit allowance for the
selling effort.
•Property, plant and equipment, net – An adjustment of $34,699 was recorded to adjust the net book
value of property, plant and equipment to 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.
•Current maturities of long-term debt and Long-term debt, net of current maturities – An adjustment of
$79,658 ($4,329 to Current maturities of long-term debt and $75,329 to Long-term debt, net of current
maturities) was recorded to adjust the book value of debt to fair value. This adjustment included a
decrease of $84,001 which was based on quoted market prices of certain debt instruments as of the
Effective Date, offset by an increase of $4,343 related to debt instruments not traded which was
calculated giving consideration to the terms of the underlying agreements, using a risk adjusted interest
rate of 12%.
•Employee benefit obligations, net of current portion – An adjustment of $18,712 was recorded to
measure the employee benefit obligations as of the Effective Date. This adjustment primarily reflects
the difference between the expected return on plan assets as compared to the fair value of the plan
assets as of the Effective Date and the change in the duration weighted discount rate associated with the
payment of the benefit obligations from the prior measurement date and the Effective Date. The
weighted average discount rate change from 6.75% at September 30, 2008 to 5.75% at August 30,
2009.
(n) Reflects the tax effects of the fresh-start adjustments at statutory tax rates applicable to such adjustments,
net of adjustments to the valuation allowance.
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