Rayovac 2015 Annual Report Download - page 121

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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
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.
• Customer relationships—The Company 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% to 5.6%. The Company assumed a
customer retention rate of approximately 90% to 100%, which was supported by historical retention
rates. Income taxes were estimated at 25% and amounts were discounted using a rate of 12.5%.
The European IAMS and Eukanuba acquisition was not considered individually significant to the
consolidated results of the Company and therefore pro forma results are not presented.
Tell Manufacturing
On October 1, 2014, the Company completed the acquisition of Tell, a leading manufacturer and distributor
of commercial doors, locks, and hardware. The results of Tell’s operations since October 1, 2014 are included in
the Company’s Consolidated Statements of Operations and as part of the Hardware and Home Improvement
segment for the year ended September 30, 2015.
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 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
(in millions)
Cash consideration .............................. $30.3
107