Practical App of Intangible Asset Val Approaches …

1 Portland, Oregon Chicago, Illinois Atlanta, GeorgiaPractical Application of Intangible Asset valuation Approaches and MethodsValuation Products and Services WebinarTuesday, April 29, 2014 Robert F. Reilly, CPAM anaging DirectorWillamette Management AssociatesChicago, Illinois Management Associates1 Discussion OutlineThis discussion will encompass the following topics: Identification of Intangible assets and intellectual property Understanding the valuation assignment Analyst data gathering and due diligence procedures Generally accepted valuation Approaches and methods valuation synthesis and conclusion procedures Cost approach illustrative example Income approach illustrative example Market approach illustrative example Reporting and defending the value conclusionWillamette Management Associates2 Robert F.

2 Reilly, CPAR obert Reilly has been a managing director of Willamette Management Associates for over 23 years. Willamette Management Associates provides business valuation , forensic analysis, and financial opinion services for transaction, financing, taxation, bankruptcy, litigation, and planning purposes. Robert frequently provides valuation , economic damages, and intercompany transfer price analyses related to intellectual property and other Intangible assets. Robert has testified in both federal and state courts on numerous occasions on intellectual property valuation , damages, and transfer price holds a BA in economics and an MBA in finance, both from Columbia University. He is a certified public accountant, accredited in business valuation , and certified in financial forensics.

3 He is also a chartered financial analyst, chartered global management accountant, certified management accountant, certified business appraiser, and certified valuation has served as a member of the AICPA forensic and valuation services executive committee (FVSEC), business valuation committee (BVC), and consulting services executive committee (CSEC). He is an inductee into the AICPA business valuation hall of is the co-author of 12 valuation books including Guide to Intangible Asset valuation (published in 2013 by the AICPA) and Practical Guide to Bankruptcy valuation (published in 2013 by the American Bankruptcy Institute).Robert can be reached at (773) 399-4318 or at Management Associates3 What is an Intangible Asset ?

4 It must be an Asset , and it must be Intangible FASB Statement of Financial Accounting Concepts No. 5 (CON 5) provides guidance on what is an Asset : It must provide probable future economic benefits The owner/operator must be able to receive the benefit and restrict others from access to the benefit The event that provide the right to receive the benefit has occurred Intangible means something that lacks physical substance For an Intangible Asset , Intangible means that the economic benefit of the Asset does not come from its physical substance Intangible Asset value is based on the rights and privileges to which it entitles the owner/operatorWillamette Management Associates4 Intangible Asset Attributes An Intangible Asset should have the following attributes It is subject to a specific identification and recognizable description It is subject to legal existence and legal protection It is subject to the rights of private ownership.

5 And that private ownership should be transferable There is some tangible evidence or manifestation of the existence of the Intangible Asset It is created or it comes into existence at an identifiable time or as the result of an identifiable event It is subject to being destroyed or to a termination of existence at an identifiable time or as the result of an identifiable event There should be a specific bundle of legal rights associated with the Intangible assetWillamette Management Associates5 The Four Categories of Business Assets From a valuation perspective, all business assets can be grouped into one of these four categories: Realty Assets Personalty Assets Tangible Assets Tangible Real Estate Tangible Personal Property Intangible Assets Intangible Real Property Intangible Personal Property Willamette Management Associates6 Examples of the Four Categories ofBusiness Assets[a] leasehold improvements are considered Intangible assets for GAAP purposes but tangible assets for many other purposes[b]

6 Financial assets are excluded from Intangible assets for GAAP purposes but included for many other purposes Realty Assets Personalty Assets Tangible Assets land land improvements building components building structures machinery and equipment trucks and autos computers office equipment Intangible Assets leaseholds [a] easements and rights of way mining and mineral rights air and water rights financial assets [b] general Intangible assets intellectual property goodwill Intangible value Willamette Management Associates7 Identifiable Intangible Assets ASC Topic 805 Considerations FASB ASC 805-30-20 Glossary:Identifiable Intangible AssetsThe acquirer recognizes separately from goodwill the identifiable Intangible assets acquired in a business combination.

7 An Intangible Asset is identifiable if it meets either (1) the separability criterion or (2) the contractual-legal criterion described in the definition of Management Associates8 Identifiable Intangible AssetsASC Topic 805 Considerations FASB ASC 805-30-20 Glossary:IdentifiableAn Asset is identifiable if it meets either of the following criteria:1. It is separable, that is, capable of being separated or divided from the entity and sold, transferred, licensed, rented, or exchanged, either individually or together with a related contract, identifiable assets, or liability, regardless of whether the entity intends to do It arises from contractual or other legal rights, regardless of whether those rights are transferable or separable from the entity or from other rights and AssetsAssets (not including financial assets) that lack physical substance.

8 (The term Intangible assets refers to Intangible assets other than goodwill.)Willamette Management Associates9 ASC Topic 805 Categories of Identifiable Intangible Assets ASC 805-20-55 presents five categories of identifiable Intangible assets: Marketing-related Intangible assets Customer-related Intangible assets Artistic Intangible assets Contract-related Intangible assets Technology-related Intangible assets According to ASC 805, goodwill is also an Intangible Asset , although it is not an identifiable Intangible assetWillamette Management Associates10 ASC 805 Marketing-RelatedIntangible Assets Examples of marketing-related Intangible assets: Newspaper mastheads Trademarks, service marks, trade names, collective marks, certification marks Trade dress Internet domain name Noncompetition agreementsWillamette Management Associates11 ASC 805 Customer-RelatedIntangible Assets Examples of customer-related Intangible assets: Customer lists Customer contracts and related customer relationships Noncontractual customer relationships Order or production backlogsWillamette Management Associates12 ASC 805 Artistic-RelatedIntangible Assets Examples of artistic-related Intangible assets.

9 Plays, operas, ballets Books, magazines, newspaper, and other literary works Musical works such as composition, song lyrics, and advertising jingles Photographs, drawings, and clip art Audiovisual material including motion pictures, music videos, television programsWillamette Management Associates13 ASC 805 Contract-RelatedIntangible Assets Examples of contract-based Intangible assets: License, royalty, standstill agreements Advertising contracts Lease agreements Construction permits Construction contracts Construction management, service, or supply contracts Broadcast rights Franchise rights Operating rights Use rights Servicing contracts Employment contractsWillamette Management Associates14 ASC 805 Technology-RelatedIntangible Assets Examples of technology-based Intangible assets: Patented or copyrighted software Mask works Unpatented technology Databases Trade secretsWillamette Management Associates15 Internal Revenue Code Section 197 List of Intangible Assets The term section 197 Intangible means.

10 Goodwill, going concern value, any of the following: workforce in place, business books and records, operating systems, or any other information base, any patent, copyright, formula, process, design, pattern, knowhow, format, or other similar item, any customer-based Intangible , any supplier-based Intangible , and any other similar item any license, permit, or other right granted by a government agency, any covenant not to compete any franchise, trademark, or trade Management Associates16 Intellectual Property Intellectual property assets represent a small subset of general Intangible assets Intellectual property includes the following four Intangible assets only: Patents Copyrights Trademarks Trade secretsWillamette Management Associates17 Patents and Related Intangible Assets Common types of patents Utility patents Design patents Plant patents Process/method patents Related Intangible assets Technology sharing agreements Unpatented proprietary technology Technology development rights Engineering drawings and designs Schematics and technical documentation Regulatory approvals and licenses ( , FDA approvals, OSHA approvals)