Harbinger Group Inc.
    Print Page | Close Window

SEC Filings

10-K
HRG GROUP, INC. filed this Form 10-K on 11/23/2016
Entire Document
 << Previous Page | Next Page >>

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 0.0% to 12.1%. Spectrum Brands assumed a customer retention rate of approximately 92.5%, which is supported by historical retention rates. Income taxes were estimated at 38.0% and amounts were discounted using a rate of 12.0% to 13.0%.
Non-compete agreement - Spectrum Brands 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.
European IAMS and Eukanuba
On December 31, 2014, Spectrum Brands completed the acquisition of Proctor & Gamble’s European IAMS and Eukanuba (“European IAMS and Eukanuba”) pet food business, including is brands for dogs and cats. The results of European IAMS and Eukanuba’s operations are included in the Consolidated Statement of Operations.
Spectrum Brands has recorded an allocation of the purchase price to 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 including an experienced research team. The calculation of the purchase price and purchase price allocation is as follows:
 
 
Purchase Price
Cash consideration
 
$
115.7

 
 
 
 
 
Purchase Price Allocation
Inventories, net
 
$
16.3

Properties, plant and equipment, net
 
58.3

Goodwill
 
4.0

Intangibles, net
 
39.6

Other assets
 
2.9

Accounts payable and other accrued liabilities
 
(2.7
)
Other liabilities
 
(2.7
)
Total net assets acquired
 
$
115.7

The purchase price allocation resulted in goodwill of $4.0 which is not deductible for tax purposes. The values allocated to intangible assets and the weighted average useful lives are as follows:
 
 
Carrying Amount
 
Weighted Average Useful Life (Years)
Tradenames
 
$
25.5

 
Indefinite
Technology
 
3.6

 
8
Customer relationships
 
10.5

 
15
Total intangibles acquired
 
$
39.6

 
 
Spectrum Brands performed a valuation of the acquired inventories, property, plant and equipment, tradenames, technology and customer relationships. The following is a summary of significant inputs to the valuation:
Inventories - The replacement cost approach was applied to estimate the fair value of the raw materials inventory. Work-in-process and finished goods inventory were valued at estimated selling price less the sum of costs of disposal and a reasonable profit on the value added in the completion and disposal effort.
Property, plant and equipment - The market approach was used to estimate the fair value of land. The direct cost approach was used to estimate the fair value of property, plant and equipment.
Tradenames - Spectrum Brands valued indefinite-lived trade names 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 trade names were not owned. Royalty rates were selected 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 - Spectrum Brands 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

F-28
 << Previous Page | Next Page >>