Rayovac 2015 Annual Report Download - page 119

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SPECTRUM BRANDS HOLDINGS, INC.
SB/RH HOLDINGS, LLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(CONTINUED)
• 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 12.1%. The Company assumed a
customer retention rate of approximately 92.5%, which is supported by historical retention rates.
Income taxes were estimated at 38% and amounts were discounted using a rate of 12% to 13%.
• Non-compete agreement—The Company valued the non-compete agreement using the income
approach that compares the prospective cash flows with and without the non-compete agreement in
place. The value of the non-compete agreement is the difference between the discounted cash flows of
the business under each of these two alternative scenarios, considering both tax expenditure and tax
amortization benefits.
The Salix acquisition was not considered individually significant to the consolidated results of the Company
and therefore pro forma results are not presented.
European IAMS and Eukanuba
On December 31, 2014, the Company completed the acquisition of European IAMS and Eukanuba, leading
premium brands for dogs and cats. The results of European IAMS and Eukanuba’s operations since
December 31, 2014 are included in the Company’s Consolidated Statements of Operations and as part of the
Global Pet Supplies 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 December 31, 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,
105