Rayovac 2010 Annual Report Download - page 175

SPECTRUM BRANDS HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
were selected based on consideration of several factors, including prior transactions of Russell
Hobbs related trademarks and trade names, other similar trademark licensing and transaction
agreements and the relative profitability and perceived contribution of the trademarks and trade
names. Royalty rates used in the determination of the fair values of trade names and trademarks
ranged from 2.0% to 5.5% of expected net sales related to the respective trade names and
trademarks. The Company anticipates using the majority of the trade names and trademarks for an
indefinite period as demonstrated by the sustained use of each subjected trademark. In estimating
the fair value of the trademarks and trade names, Net sales for significant trade names and
trademarks were estimated to grow at a rate of 1%-14% annually with a terminal year growth rate
of 3%. Income taxes were estimated at a range of 30%-38% and amounts were discounted using
rates between 15.5%-16.5%. Trade name and trademarks were valued at $170,930 under this
approach.
• The Company valued a trade name license agreement using the income approach, specifically the
multi-period excess earnings method. In determining the fair value of the trade name license
agreement, 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 trade name license agreement
after deducting contributory asset charges. The incremental after-tax cash flows attributable to the
subject intangible asset are then discounted to their present value. In estimating the fair value of
the trade name license agreement net sales were estimated to grow at a rate of (3)%-1% annually.
The Company assumed a twelve year useful life of the trade name license agreement. Income
taxes were estimated at 37% and amounts were discounted using a rate of 15.5%. The trade name
license agreement was valued at $149,200 under this approach.
• 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 prior transactions of Russell Hobbs related
licensing agreements and the importance of the technology and profit levels, among other
considerations. Royalty rates used in the determination of the fair values of technologies were 2%
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 9 to 11
years. In estimating the fair value of the technologies, net sales were estimated to grow at a rate of
3%-12% annually. Income taxes were estimated at 37% and amounts were discounted using the
rate of 15.5%. The technology assets were valued at $4,100 under this approach.
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