Kodak 2014 Annual Report Download - page 122

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(25)
This adjustment eliminated the Predecessor goodwill balance of $56 million and records Successor goodwill of $88 million, which represents the reorganizational
value of assets in excess of amounts allocated to identified tangible and intangible assets, as follows:
Refer to Note 5, “Goodwill and Other Intangible Assets” for Successor goodwill by reportable segment.
Successor
(in millions)
As of
September 1,
2013
Reorganization value of Successor assets
$
3,463
Less: Fair value of Successor assets (excluding goodwill)
3,375
Reorganization value of Successor assets in excess of fair value - Successor goodwill
$
88
(26)
The net adjustment of $192 million reflects the write-
off of existing intangibles of $43 million and an adjustment of $235 million to record the fair value of intangibles,
determined as follows:
a.
Trade names of $54 million were valued using the income approach, specifically the relief from royalty method based on the following significant assumptions:
i. Forecasted revenues attributable to the trade names ranging from September 1, 2013 to December 31, 2023, including a terminal year with growth rates
ranging from 0% to 3%;
ii.
Royalty rates ranging from .5% to 1% of expected net sales determined with regard to comparable market transactions and profitability analysis;
iii.
Discount rates ranging from 27% to 32%, which were based on the after
-
tax weighted
-
average cost of capital; and
iv.
Kodak anticipates using its trade name for an indefinite period.
b. Technology based intangibles of $131 million were valued using the income approach, specifically the relief from royalty method based on the following
significant assumptions:
i.
Forecasted revenues attributable to the respective technologies for the period ranging from September 1, 2013 to December 31, 2025;
ii.
Royalty rates ranging from 1% to 16% determined with regard to comparable market transactions and cash flows of the respective technologies;
iii.
Discount rates ranging from 29% to 34%, based on the after
-
tax weighted
-
average cost of capital; and
iv.
Economic lives ranging from 4 to 12 years.
c. Customer related intangibles of $39 million were valued using the income approach, specifically the multi-period excess earnings approach based on the
following significant assumptions:
i.
Forecasted revenues and profit margins attributable to the current customer base for the period ranging from September 1, 2013 to December 31, 2024;
ii.
Attrition rates ranging from 2.5% to 20%;
iii.
Discount rates ranging from 29% to 38%, based on the after
-
tax weighted
-
average cost of capital; and
iv.
Economic lives ranging from 3 to 10 years.
d. In-process research and development of $9 million was determined using the income approach, specifically the multi-period excess earnings method based on the
following significant assumptions:
i.
Forecasted revenues attributable to the respective research and development projects for the period of September 1, 2013 to December 31, 2019;
ii.
Discount rate of 40% based on the after
-
tax weighted
-
average cost of capital adjusted for perceived risks inherent in the individual assets; and
iii.
Economic life of 6 years.
e. In addition, the Company recorded the fair value of other intangibles of $2 million primarily related to favorable contracts and leasehold improvements that were
favorable relative to available market terms.
119