Rayovac 2010 Annual Report Download - page 119

SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
• The Company valued technology using the income approach, specifically the relief from royalty
method. Under this method, the asset value was determined by estimating the hypothetical royalties
that would have to be paid if the technology was not owned. Royalty rates were selected based on
consideration of several factors including industry practices, the existence of licensing agreements
(licensing in and licensing out), and importance of the technology and profit levels, among other
considerations. Royalty rates used in the determination of the fair values of technologies ranged from
7%-8% of expected net sales related to the respective technology. The Company anticipates using these
technologies through the legal life of the underlying patent and therefore the expected life of these
technologies was equal to the remaining legal life of the underlying patents ranging from 8 to 17 years.
In estimating the fair value of the technologies, nets sales were estimated to grow at a rate of 0%-14%
annually. Income taxes were estimated at 35% and amounts were discounted using rates between
12%-13%. The technology assets were valued at $63,500 under this approach.
(p) The fresh-start adjustment of $17,957 eliminates the debt issuance costs related to assumed debt, that is, the
(senior secured term credit facility).
(q) The Predecessor Company’s accumulated deficit and accumulated other comprehensive income is
eliminated in conjunction with the adoption of fresh-start reporting. The Predecessor Company recognized a
gain of $1,087,566 related to the fresh-start reporting adjustments as follows:
Gain on fresh-start
reporting
adjustments
Establishment of Successor Company’s goodwill ................... $ 528,060
Elimination of Predecessor Company’s goodwill .................... (238,905)
Establishment of Successor Company’s other intangible assets ......... 1,459,500
Elimination of Predecessor Company’s other intangible assets ......... (677,050)
Debt fair value adjustments ..................................... 79,658
Elimination of debt issuance costs ............................... (17,957)
Property, plant and equipment fair value adjustment ................. 34,699
Deferred tax adjustment ....................................... (104,881)
Inventory fair value adjustment ................................. 48,762
Employee benefit obligations fair value adjustment .................. (18,712)
Other fair value adjustments .................................... (5,608)
$1,087,566
(3) Significant Accounting Policies and Practices
(a) Principles of Consolidation and Fiscal Year End
The consolidated financial statements include the financial statements of Spectrum Brands Holdings, Inc. and its
subsidiaries and are prepared in accordance with GAAP. All intercompany transactions have been eliminated.
The Company’s fiscal year ends September 30. References herein to Fiscal 2010, 2009 and 2008 refer to the
fiscal years ended September 30, 2010, 2009 and 2008, respectively.
(b) Revenue Recognition
The Company recognizes revenue from product sales generally upon delivery to the customer or the shipping
point in situations where the customer picks up the product or where delivery terms so stipulate. This represents
the point at which title and all risks and rewards of ownership of the product are passed, provided that: there are
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