Rayovac 2013 Annual Report Download - page 137

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SPECTRUM BRANDS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
(Amounts in thousands, except per share figures)
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 annual expected growth rate of 2.5%-15.5%. The
Company assumed a customer retention rate of approximately 95%, which was supported by
historical retention rates. Income taxes were estimated at 17%-35% and amounts were discounted
using a rate of 12%. The customer relationships were valued at $90,000 under this approach and
will be amortized over 20 years.
• The Company valued indefinite-lived trade names and trademarks 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 trade name was not owned.
Royalty rates were selected based on consideration of several factors, including prior transactions
of the HHI Business, 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 3%-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 subject 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 2.5%-5% annually with a terminal year growth rate of 2.5%.
Income taxes were estimated at 35% and amounts were discounted using a rate of 12%. Trade
name and trademarks were valued at $331,000 under this approach.
• The Company valued definite lived trade names 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 trade name was not owned. Royalty rates were selected based
on consideration of several factors, including prior transactions of the HHI Business, 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. The royalty rates used in
the determination of the fair values of the trade names ranged from 1%-3.5% of expected net sales
related to the respective trade name. The Company assumed an 8 year useful life of the trade name. In
estimating the fair value of the trade name, Net sales for the trade name were estimated to grow at a
rate of 2.5%-15.5% annually. Income taxes were estimated at 17%-35% and amounts were discounted
using a rate of 12%. The trade names were valued at $4,100 under this approach.
• The Company valued a trade name license agreement 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 trade name was not owned. Royalty rates
were selected based on consideration of several factors, including prior transactions of the HHI
Business, 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. The royalty rate used in the determination of the fair value of the trade name license
agreement was 4% of expected Net sales related to the respective trade name. In estimating the
fair value of the trade name license agreement, Net sales were estimated to grow at a rate of 2.5%-
5% annually. The Company assumed a 5 year useful life of the trade name license agreement.
Income taxes were estimated at 35% and amounts were discounted using a rate of 12%. The trade
name license agreement was valued at $13,000 under this approach.
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