The Company has recorded an allocation of the purchase price to the Company’s tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the May 21, 2015 acquisition date. Measurement period adjustments were recorded subsequent to the acquisition date in the period identified. The excess of the purchase price over the fair value of the net tangible assets and identifiable intangible assets was recorded as goodwill, which includes value associated with the assembled workforce, including an experienced research team. The calculation of purchase price and purchase price allocation, including measurement period adjustments, is as follows:
| | | | | | (in millions) | | Purchase Price | Cash consideration | | $ | 929.3 |
| | | | (in millions) | | Purchase Price Allocation | Cash and cash equivalents | | $ | 30.9 |
| Receivables | | 156.5 |
| Inventories | | 82.5 |
| Prepaid expenses and other current assets | | 8.2 |
| Property, plant and equipment, net | | 37.6 |
| Goodwill | | 975.4 |
| Intangible assets | | 418.0 |
| Deferred charges and other | | 16.5 |
| Accounts payable and accrued liabilities | | (119.2 | ) | Long-term debt | | (540.0) |
| Other long term liabilities | | (137.1 | ) | Net assets acquired | | $ | 929.3 |
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The purchase price allocation resulted in goodwill of $975.4 million of which $4.9 million is deductible for tax purposes. Due to expected synergies in sales of legacy Spectrum branded products through new distribution channels, the Company has allocated $38.9 million of the acquired goodwill to its GBA segment. The remaining $936.5 million of goodwill is allocated to the GAC segment. The values allocated to intangible assets and the weighted average useful lives are as follows:
| | | | | | | | (in millions) | | Carrying Amount | | Weighted Average Useful Life (Years) | Tradenames | | $ | 295.0 |
| | Indefinite | Technology | | 41.0 |
| | 10 | Licensing agreements | | 19.0 |
| | 10 | Customer relationships | | 63.0 |
| | 15 | Total intangibles acquired | | $ | 418.0 |
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The Company performed a valuation of the acquired inventories; property, plant and equipment; tradenames; technologies; licensing agreements; and customer relationships. The following is a summary of significant inputs to the valuation:
| | • | Inventories - The replacement cost approach was applied to estimate the fair value of the raw materials and unbranded finished goods inventory. Branded finished goods were valued based on the comparative sales method, which estimates the expected sales price of the finished goods inventory, reduced for all costs expected to be incurred in its completion or disposition and a profit on those costs. |
| | • | Property, plant and equipment - The market approach was used to estimate the fair value of land. The direct cost approach was used to estimate the fair value of property, plant and equipment. |
| | • | Tradenames - The Company valued indefinite-lived trade names using an income approach, 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 trade names were not owned. Royalty rates were selected based on consideration of several factors, including prior transactions, related trademarks and trade names, other similar trademark licensing and transaction agreements and the relative profitability and perceived contribution of the trade names. |
| | • | Technology - The Company valued technology using an income approach, 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 prior transactions, related licensing agreements and the importance of the technology and profit levels, among other considerations. The Company anticipates using these technologies through the legal life of the underlying patents; therefore, the expected useful life of these technologies is based on the remaining life of the underlying patents. |
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