accordance with ASC Topic 805, Business Combinations (“ASC 805”), the Company accounts for acquisitions by applying the acquisition method of accounting. The acquisition method of accounting requires, among other things, that the assets acquired and liabilities assumed in a business combination be measured at their fair values as of the closing date of the acquisition. The fair values assigned to the assets acquired and liabilities assumed are based on valuations using management’s best estimates and assumptions and are preliminary pending the completion of the valuation analysis of selected assets and liabilities. During the measurement period (which is not to exceed one year from the acquisition date), the Company is required to retrospectively adjust the provisional assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets or liabilities as of that date.

Consumer Products Segment

Significant Acquisitions

Armored AutoGroup

On May 21, 2015, Spectrum Brands completed the acquisition of AAG, a consumer products company consisting primarily of Armor All and STP products brands in the automotive aftermarket appearance products and performance chemicals categorizes, respectively, and the AC/PRO brand of do-it-yourself automotive air conditioner recharge products. The results of AAG’s operations since May 21, 2015 are included in the Company’s Consolidated Statements of Operations for Fiscal 2016 and 2015.

Spectrum Brands recorded an allocation of the purchase price to 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:



	Purchase Price
Cash consideration	$	929.3

	Purchase Price Allocation
Cash and cash equivalents	$	30.9
Receivables, net	156.5
Inventories, net	82.5
Properties, plant and equipment net	37.6
Goodwill	975.4
Intangibles, net	418.0
Other assets	24.7
Accounts payable and other current liabilities	(119.2		)
Debt	(540.0		)
Other liabilities	(137.1		)
Total net assets acquired	$	929.3

The purchase price allocation resulted in goodwill of $975.4 of which $4.9 is deductible for tax purposes. The values allocated to intangible assets and the weighted average useful lives are as follows:



	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

Spectrum Brands 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 utilized to estimate the fair value of land. The direct cost approach was utilized to estimate the fair value of property, plant and equipment.

Trade names - Spectrum Brands 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 - Spectrum Brands 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. Spectrum Brands 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.

Licensing agreements - Spectrum Brands valued licensing agreements using the income approach. Under this method, the asset value was determined by estimating the revenue stream over the implied life of the agreements.

Customer relationships - Spectrum Brands valued customer relationships using an income approach, the multi-period excess earnings method. In determining the fair value of the customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. Only expected sales from current customers were used, which are estimated using annual expected growth rates of 2.0% to 12.1%. Spectrum Brands assumed a customer retention rate of approximately 95.0%, which is supported by historical retention rates. Income taxes were estimated at 38.0% and amounts were discounted using a 9.5% rate.

The following unaudited pro forma combined financial information presents the Company’s pro forma results for Fiscal 2015 had the results of AAG been combined as of October 1, 2013:



	Fiscal
	2015			2014
	(Unaudited)
Pro forma revenues	$	4,985.5		$	5,078.0
Pro forma net loss	(517.5		)	(71.4		)
Pro forma net loss per common share attributable to controlling interest - basic	(2.61		)	(0.44		)
Pro forma net loss per common share attributable to controlling interest - diluted	(2.61		)	(0.44		)

The Fiscal 2015 unaudited pro forma combined financial results exclude (i) a non-recurring interest expense of $35.7 related to the extinguishment of AAG debt recognized in connection with the acquisition; (ii) $47.3 of acquisition and integration related charges incurred as a result of the acquisition; (iii) $18.8 of non-recurring expense related to the fair value adjustment to acquisition date inventory and (iv) $10.4 of accelerated share based compensation costs incurred as a result of the acquisition.

Insignificant acquisitions

Salix

On January 16, 2015, Spectrum Brands completed the acquisition of Salix Animal Health LLC (“Salix”), a vertically integrated producer and distributor of premium, natural rawhide dog chew, treats and snacks. The results of Salix’s operations are included in the Consolidated Statements of Operations.

Spectrum Brands recorded an allocation of the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the January 16, 2015 acquisition date. 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 the purchase price and purchase price allocation is as follows:



	Purchase Price
Cash consideration	$	146.8
Contingent consideration	1.5
Total purchase price	$	148.3

	Purchase Price Allocation
Cash and cash equivalents	$	0.5
Receivables, net	10.7
Inventories, net	17.0
Properties, plant and equipment net	1.2
Goodwill	71.5
Intangibles, net	55.5
Other assets	2.5
Accounts payable and other current liabilities	(8.5		)
Other liabilities	(2.1		)
Total net assets acquired	$	148.3

The purchase price allocation resulted in goodwill of $71.5 of which $24.7 is deductible for tax purposes. The values allocated to intangible assets and the weighted average useful lives are as follows:



	Carrying Amount		Weighted Average Useful Life (Years)
Tradenames	$	17.0	Indefinite
Technology	2.1		17
Definite-lived tradenames	1.0		13
Customer relationships	35.4		13
Total intangibles acquired	$	55.5

Spectrum Brands performed a valuation of the acquired inventories, property, plant and equipment, tradenames, customer relationships and non-compete agreement. A summary of the significant inputs to the valuation is as follows:

Property, plant and equipment - The cost approach was utilized to estimate the fair value of approximately 98.0% of the property, plant and equipment. The sales comparison approach was used to estimate the fair value of the remaining 2.0% of the property, plant and equipment.

Tradenames - Spectrum Brands 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.

Customer relationships - Spectrum Brands valued customer relationships using an income approach, the multi-period excess earnings method. In determining the fair value of the customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. Only expected sales from current customers were used, which are estimated using annual expected growth rates of 0.0% to 12.1%. Spectrum Brands assumed a customer retention rate of approximately 92.5%, which is supported by historical retention rates. Income taxes were estimated at 38.0% and amounts were discounted using a rate of 12.0% to 13.0%.

Non-compete agreement - Spectrum Brands valued the non-compete agreement using the income approach that compares the prospective cash flows with and without the non-compete agreement in place. The value of the non-compete agreement is the difference between the discounted cash flows of the business under each of these two alternative scenarios, considering both tax expenditure and tax amortization benefits.

European IAMS and Eukanuba

On December 31, 2014, Spectrum Brands completed the acquisition of Proctor & Gamble’s European IAMS and Eukanuba (“European IAMS and Eukanuba”) pet food business, including is brands for dogs and cats. The results of European IAMS and Eukanuba’s operations are included in the Consolidated Statement of Operations.

Spectrum Brands has recorded an allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the December 31, 2014 acquisition date. 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 the purchase price and purchase price allocation is as follows:



	Purchase Price
Cash consideration	$	115.7

	Purchase Price Allocation
Inventories, net	$	16.3
Properties, plant and equipment, net	58.3
Goodwill	4.0
Intangibles, net	39.6
Other assets	2.9
Accounts payable and other accrued liabilities	(2.7		)
Other liabilities	(2.7		)
Total net assets acquired	$	115.7

The purchase price allocation resulted in goodwill of $4.0 which is not deductible for tax purposes. The values allocated to intangible assets and the weighted average useful lives are as follows:



	Carrying Amount		Weighted Average Useful Life (Years)
Tradenames	$	25.5	Indefinite
Technology	3.6		8
Customer relationships	10.5		15
Total intangibles acquired	$	39.6

Spectrum Brands performed a valuation of the acquired inventories, property, plant and equipment, tradenames, technology 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 inventory. Work-in-process and finished goods inventory were valued at estimated selling price less the sum of costs of disposal and a reasonable profit on the value added in the completion and disposal effort.

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.

Customer relationships - Spectrum Brands valued customer relationships using an income approach, the multi-period excess earnings method. In determining the fair value of the customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. Only expected sales from current customers were used, which are estimated using annual expected growth rates of 0.0% to 5.6%. Spectrum Brands assumed a customer retention rate of approximately 90.0% to 100.0%, which was supported by historical retention rates. Income taxes were estimated at 25.0% and amounts were discounted using a rate of 12.5%.

Tell Manufacturing

On October 1, 2014, Spectrum Brands completed the acquisition of Tell Manufacturing, Inc. (“Tell”), a manufacturer and distributor of commercial doors, locks, and hardware. The results of Tell’s operations are included in the Consolidated Statement of Operations.

Spectrum Brands has recorded an allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the October 1, 2014 acquisition date. 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 the purchase price and purchase price allocation is as follows:



	Purchase Price
Cash consideration	$	30.3

	Purchase Price Allocation
Cash and cash equivalents	$	1.1
Receivables. net	6.0
Inventories, net	7.2
Property, plant and equipment, net	1.5
Intangibles. net	12.5
Goodwill	7.1
Other assets	0.6
Accounts payable and other current liabilities	(5.7		)
Total net assets acquired	$	30.3

The purchase price allocation resulted in goodwill of $7.1 which is deductible for tax purposes. The values allocated to intangible assets and the weighted average useful lives are as follows:

Spectrum Brands performed a valuation of the acquired inventories, property, plant and equipment, tradenames 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 inventory. Finished goods were valued at estimated selling price less the sum of costs of disposal and a reasonable profit on the value added in the completion and disposal effort.

Property, plant and equipment - The cost approach was used to estimate the fair value of approximately 97.0% of the property, plant and equipment. The sales comparison approach was utilized to estimate the fair value of the remaining 3.0% of the property, plant and equipment.

Tradenames - Spectrum Brands valued indefinite-lived tradenames 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 name was not owned. Royalty rates were selected based on consideration of several factors, including prior transactions of Tell, related trademarks and trade names, other similar trademark licensing and transaction agreements and the relative profitability and perceived contribution of the trade names.

Customer relationships - Spectrum Brands valued customer relationships using an income approach, the multi-period excess earnings method. In determining the fair value of the customer relationships, the multi-period excess earnings approach values the intangible asset at the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. The incremental after-tax cash flows attributable to the subject intangible asset are then discounted to their present value. Only expected sales from current customers were used, which are estimated using annual expected growth rates of 2.5% to 7.1%. Spectrum Brands assumed a customer retention rate of approximately 90.0%, which was supported by historical retention rates. Income taxes were estimated at 38.0% and amounts were discounted using a rate of 20.0%.

Liquid Fence

On January 2, 2014, Spectrum Brands completed the acquisition of the Liquid Fence Company, Inc. (“Liquid Fence”), a producer of animal repellents. The results of Liquid Fence’s operations since January 2, 2014 are included in the Consolidated Statements of Operations for Fiscal 2016, 2015 and 2014.

Spectrum Brands has recorded an allocation of the purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their fair values as of the January 2, 2014 acquisition date. 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 the purchase price and purchase price allocation is as follows:



	Purchase Price
Cash consideration	$	24.8
Promissory note	9.5
Contingent consideration	1.5
Total purchase price	$	35.8

	Purchase Price Allocation
Cash and cash equivalents	$	0.1
Receivables. net	1.1
Inventories, net	2.1
Property, plant and equipment, net	0.1
Goodwill	7.1
Intangibles. net	26.9
Accounts payable and other current liabilities	(1.6		)
Total net assets acquired	$	35.8

The purchase price included a promissory note to sellers and contingent consideration related to additional payments that may be made to the selling company subsequent to the acquisition date. The promissory note was paid in four semi-annual installments over 24 months from the close of the transaction and was paid in full during Fiscal 2015. The contingent consideration is calculated based upon the probability weighted present value of expected payments based upon the achievement of specific revenue milestones through both January 1, 2015 and January 1, 2016. A contingent liability of $1.5 was also recognized for the projected payments. The purchase price allocation resulted in goodwill of $7.1 which is deductible for tax purposes. The values allocated to intangible assets and the weighted average useful lives are as follows:



	Carrying Amount		Weighted Average Useful Life (Years)
Tradenames	$	5.1	Indefinite
Technology	20.5		17
Customer relationships	1.3		15
Total intangibles acquired	$	26.9

Spectrum Brands performed a valuation of the acquired tradenames, technology and customer relationships. The following is a summary of significant inputs to the valuation:

Tradenames - Spectrum Brands valued the tradename 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 name was not owned. Royalty rates were selected based on consideration of several factors, including prior transactions, related trademarks and tradenames, other similar trademark licensing and transaction agreements and the relative profitability and perceived contribution of the trademarks and tradenames.

Technology - Spectrum Brands valued the technology assets related to formulas and processes using an income approach, the excess earnings method. Under this method, the asset value was determined by estimating the earnings attributable to the technology assets, adjusted for contributory asset charges. In estimating the fair value of the technology, net sales and associated earnings were forecasted and adjusted for a technical obsolescence factor to isolate the forecasted sales and earnings attributable to the acquired technology assets. The forecasted technology earnings were discounted to present value to arrive at the fair value. The useful life was determined by assessing the time period in which substantially all of the discounted cash flows are expected to be generated.

Customer Relationships - Spectrum Brands valued customer relationships using the distributor approach. Under this method, the asset value was determined by estimating the hypothetical earnings before interest and taxes (“EBIT”) that a comparable distributor would earn, further adjusted for contributory asset charges. In determining the fair value of the customer relationships, the distributor approach values the intangible asset at the present value of the incremental after-tax cash flows.

Insurance Segment

Ability Re

On November 3, 2014, Front Street Cayman purchased Ability Reinsurance (Bermuda) Limited (“Ability Re”) from Ability Re Holdings for $19.2 in cash. Upon the purchase, Ability Re was concurrently merged into Front Street Cayman, where Front Street Cayman was the surviving entity. The Ability Re acquisition consisted of approximately $368.0 of assets supporting two closed block long-term care reinsurance agreements and the associated capital. The acquired reinsurance agreements complement Front Street Cayman’s existing in force long-duration insurance liabilities.

The Company elected to use October 31, 2014 as the closing date for accounting purposes as Ability Re’s accounting close process is based on a month end close, there were zero business days between October 31 and November 3 and no material transactions took place between the accounting close date and November 3, 2014.

The following table summarizes the consideration paid by Front Street Cayman for Ability Re:



	Purchase Price
Cash paid at November 3, 2014 close	$	17.9
Cash purchase price adjustments	(1.5		)
Contingent consideration premium increase benefit	2.8
Total purchase price	$	19.2

	Purchase Price Allocation
Cash and cash equivalents	$	8.5
Funds withheld receivables	359.5
Insurance reserves	(346.9		)
Other liabilities	(1.9		)
Total net assets acquired	$	19.2

The Company performed a valuation of the assets acquired and liabilities assumed at October 31, 2014. A summary of key inputs is as follows:

Funds withheld receivables - The fair value of the funds withheld assets was based on the fair values of the securities in the underlying funds withheld portfolio held in trust by the cedant.

Insurance reserves - The fair value of insurance reserves was determined based on a discounted cash flow model, which included assumptions related to future premium rates and benefit costs, including assumptions for lapse, mortality, maintenance expense and a margin for potential adverse deviations. The discount rate was based on prevailing risk free rates adjusted for credit spreads and expected return on capital.

Acquisition and Integration Costs

The following table summarizes acquisition and integration related charges incurred by the Company for Fiscal 2016, 2015 and 2014:



	Fiscal
	2016		2015		2014
Armored AutoGroup	$	14.6	$	21.8	$	—
HHI Business	13.3		12.0		11.1
European IAMS and Eukanuba	3.5		9.3		—
Salix	2.1		10.7		—
Other	3.8		7.3		13.3
Total acquisition and integration related charges	$	37.3	$	61.1	$	24.4

Carrying Amount

Weighted Average Useful Life (Years)

Tradenames

Indefinite

Customer relationships

Total intangibles acquired