Presentation samples

1. INTERNATIONAL TRANSFER PRICING: WHAT EVERY BUSINESSPERSON SHOULD KNOW presented by The Financial Valuation Group Valuation Issues in Transfer Pricing Jim Rigby The Financial Valuation Group 213-362-9991

15. Technology Factor Definition of: Technology Factor is a measure of the extent to which the incremental cash flow derived from the practice of technology is based on the technology asset itself. It is a systematic methodology to allocate the cash flow between the value of the technology and the value of the company’s other tangible and intangible assets. The Technology Factor analysis can also be used to analyze the subject technology as part of selecting the appropriate guideline licensing agreements.

16. Technology Factor Analysis Team Competitive R&D and its impact on the obsolescence of the technology being evaluated R&D Defines the exact boundaries of the protected intellectual property Attorney Strategic fit of technology with long-term business plan Business Management Leads the team and facilitates the generation of the technology factor Appraiser Contribution Team Members

17. Technology Factor Analysis Team Performs market research (royalty rates and cost of capital), analyzes results of the team’s work, and then consolidates all of the known data into the appropriate methodologies to arrive at the technology’s value Appraiser Economic impact (profit/loss of market share or price). Calculates the incremental cash flow and NpV of the products relevant to the technology Business Analyst Product attributes, market application and competitive response Marketing/TS&D Scale-up hurdles and competitive manufacturing processes Technology Center Contribution Team Members

18. Technology Factor Affect of Technology: Percent 0 30 50 100 75 COST (Savings) PRICE (Premium) VOLUME (Increased Market Share) HIGH (Exceptional) MEDIUM (Above Average) LOW (Average) IMPACT

21. Valuation Approach Market The market approach develops a value indication based on the premise of comparable market transactions or market license/royalty agreements of intellectual property or intangible assets. In most instances, intellectual property is usually part of a transaction of an entire entity, and at times, is also acquired or sold as a sole asset. When intellectual property transactions do occur, however, the terms and conditions of a transaction are usually not divulged to the public.

22. Valuation Approach Market Thus, the market approach, which is dependent on market data, is often difficult to apply due to lack of information. Further, even when information is actually available on transactions, establishing comparability is often very difficult due to the fact that the assets are unique, which accounts for the protection as intellectual property in the first place.

23. Valuation Approach Income The income approach develops an indicated value based on the future stream of earnings or cash flow associated with either ownership or exploitation of the intellectual property. “When accurate economic information is available, the income approach is the most reliable approach to valuing an intangible. When valuing an intangible asset, however, it is important to isolate income associated with that particular asset and not include income attributable to other, related intangible or tangible assets.” (Financial Valuation: Businesses and Business Interests, 1996 Update James H. Skin, p. 13B.3[3])

24. Valuation Approach Cost The cost approach develops an indicated value based on the principle of substitution. The market value indication arrived at under this approach is based upon the cost to either reproduce or replace the asset. Adjustments are made to the reproduction or replacement cost of the asset for physical depreciation or functional obsolescence where appropriate. The cost approach, while an effective approach, for such assets as real estate and machinery and equipment, may be the least desirable for intellectual property and intangible assets.

25. Valuation Approach Cost The cost approach does not directly consider the amount of economic benefits that can be achieved nor the time period over which they might continue. It is an inherent assumption with this approach that economic benefits indeed exist and are of sufficient amount and duration to justify the development expenditures. (Valuation of Intellectual Property and Intangible Assets, Gordon V. Smith and Russell L. Parr, p. 223)

26. Preferred Valuation Methods Market Income Cost Assembled work force Cost Market Income Copyrights Cost Market Income Trademarks and brands Cost Market Income Patents and technology Weak Secondary Primary Asset

27. Preferred Valuation Methods Cost Market Income Core deposits Market Income Cost Distribution networks Cost Market Income Computer software Income Market Cost Management information software Weak Secondary Primary Asset

28. Preferred Valuation Methods Market Income Cost Engineering drawing Market Income Cost Corporate practices and procedures Cost Market Income Franchise rights Weak Secondary Primary Asset

35. Relief from Royalties Method Single Period Economic Variables Projection Next year revenues associated with the use of the subject intangible asset $600,000 Projected long-term growth rate in royalties 3% Market-derived royalty rate 5% Company’s cost of capital 13% Expected remaining useful life of the subject Trademark Perpetuity

36. Relief from Royalties Method Relief from Royalty Method A Trademark Valuation Economic Variables Projection Revenues related to intangible asset $600,000 Times: Market-derived royalty rate 5% Equals: Projected royalty income 30,000 Divided by: Capitalization rate (i.e., 13% rate - 3% rate) 10% Equals: Indicated value of the trademark $300,000