Rayovac 2009 Annual Report Download - page 153

Table of Contents
Index to Financial Statements SPECTRUM BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except per share amounts)
(o) Adjustment eliminated the balance of goodwill and other unamortized intangible assets of the Predecessor Company and records Successor Company
intangible assets, including reorganization value in excess of amounts allocated to identified tangible and intangible assets, also referred to as
Successor Company goodwill. (See Note 7, Goodwill and Intangible Assets, for additional information regarding the Company’s goodwill and other
intangible assets). The Successor Company’s August 30, 2009 statement of financial position reflects the allocation of the business enterprise value to
assets and liabilities immediately following emergence as follows:
Business enterprise value $ 2,275,000
Add: Fair value of non−interest bearing liabilities (non−debt liabilities) 744,071
Less: Fair value of tangible assets, excluding cash (1,031,511)
Less: Fair value of identified intangible assets (1,459,500)
Reorganization value of assets in excess of amounts allocated to identified tangible and intangible assets
(Successor Company goodwill) $ 528,060
The following represent the methodologies and significant assumptions used in determining the fair value of intangible assets, other than goodwill.
Certain indefinite−lived intangible assets which include trade names, trademarks and technology, were valued using a relief from royalty
methodology. Customer relationships were valued using a multi−period excess earnings method. Certain intangible assets are subject to sensitive business
factors of which only a portion are within control of the Company’s management. A summary of the key inputs used in the valuation of these assets are as
follows:
• The Company valued customer relationships using the income approach, specifically the multi−period excess earnings method. In determining
the fair value of the customer relationship, 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 included an expected growth rate of 3%. The Company assumed a customer retention rate of 95% which was
supported by historical retention rates. Income taxes were estimated at a rate 35% and amounts were discounted using rates between 12%−14%.
The customer relationships were valued at $708,000 under this approach.
• The Company valued trade names and trademarks using the income approach, specifically the relief from royalty method. Under this method,
the asset values were 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 consumer product industry practices, the existence of licensing
agreements (licensing in and licensing out), and importance of the trademark and trade name and profit levels, among other considerations.
Royalty rates used in the determination of the fair values of trade names and trademarks ranged from 1% to 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. In estimating the fair value of the trademarks and trade names, nets sales were estimated to grow at a rate of (7)%−10% annually with a
terminal year growth rate of 2%−6%. Income taxes were estimated at a rate of 35% and amounts were discounted using rates between
12%−14%. Trade name and trademarks were valued at $688,000 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
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