© 2009 CONSOR© 2009 CONSOR 11

Brand Values and Valuation in the Current Economic Downturn

IP Business CongressChicago, IllinoisJune 21-23, 2009

Presented by:Weston Anson, Chairman

CONSOR Intellectual Asset Managementwanson@consor.com

www.consor.com

© 2009 CONSOR© 2009 CONSOR 22

Market Trends: IP Specific

Increasingly, valuable IP assets used as a financing vehicle

Mergers and strategic alliances based on IP assets Leveraging the full bundle of IP rights Unused brand value as a source of working capital Accurate valuation of brands and IP grows in

importance Global awareness of market value of IP / IT Financial reorganization impacts brand values

© 2009 CONSOR© 2009 CONSOR 33

Brand Value Issues

Deteriorating economic conditions Retail turmoil and consolidation Consumer indifference WalMart-ism Manufacturer consolidation Shifting social values Quicker cycles, shorter lives House brands and other constraints Private label / store label growth

© 2009 CONSOR© 2009 CONSOR 44

New Issue: Bankruptcy

Mervyns Goody’s Gottschalk KB Toys Circuit City

Linens ‘N Things Fortunoff GM Chrysler Tower

© 2009 CONSOR© 2009 CONSOR 55

Bundles of Intangible Assets

FormulaeData warehousesMarketing umbrella

Packaging technology and sourcesMaster licensesSub-brand names

Shapes and sizesSource codeCore brand

Process technologyDatabasesWorldwide trademark registration

Design technologyData miningCopyrights

Proprietary test resultsDomain names / URLsSecondary trademarks

Plant and production designe-Commerce sitesPackaging design and copyrights

Product specificationsThird party software toolsTrade dress

Operating platformsCredit/payment systemsCharacters

Trade secretsCustom applicationsCorporate name and logo

Key patentsEnterprise solutionsPrimary trademark

Technical BundleIT BundleBrand / Marketing Bundle

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Case Study – Tower Records

Inventory and investigative audit Logical groupings Triage

Benchmark valuation Context specific Going concern value v. liquidation discount

Identify potential buyers / influencers Domestic International

Market assets / close transactions Brokers E-commerce listings End users

© 2009 CONSOR© 2009 CONSOR 77

Who Cares About Maximizing IP Value?

Merger and Acquisition

Interests

Shareholders

Tax Authorities

Auditors

Wall Street Analysts

Other Stakeholders

Internal Asset Managers

Partners

International Affiliates

The Media

Finders of Fact

© 2009 CONSOR© 2009 CONSOR 88

Value Maximization Alternatives

Licensing Auction Sale Collateralization Securitization Competitive Disposition IP Holding Companies Joint Venture

© 2009 CONSOR© 2009 CONSOR 99

Value is Context Specific

Valuation is context specific and time critical Going concern Reorganization Orderly disposal Liquidation

CONTEXT + TIME = VALUE

© 2009 CONSOR© 2009 CONSOR 1010

Context Continuum™

A simple graph that illustrates what the CONSOR “Context Continuum” is. In the most basic of terms, it is a projection of relative values of a piece of intellectual property, measured along two dimensions:

1. The vertical scale establishes the conditions under which the asset is being disposed, such as liquidation, fire sale, orderly disposal, reorganization or going concern.

2. The horizontal scale measures time in monthly increments.

© 2009 CONSOR© 2009 CONSOR 1111

Traditional Valuation Methods

Market Approach Sales of comparable assets

Cost Approach Cost to develop to current status

Income Approach Projection of revenue / income attributable to

the IP Price Premium Relief from Royalty Technology Factor

© 2009 CONSOR© 2009 CONSOR 1212

1.7%1.0MM60MMLinens ‘N Things

6.5%2.6MM40MMTower Records

23.2%232MM1.0BMarvel

5.0%>250K5.0+MMAmherst Fiber Optics

11.4%Average

14%14MM100MMCircuit City

14.7%31MM210MMBoston Market

15.0%60 MM400MM+Polaroid

Proportion

Disposal or

Liquidation

Going Concern ValueCase

Going Concern v. Disposal or Liquidation

© 2009 CONSOR© 2009 CONSOR 1313

Case Study - Budget Group, Inc.

Relief from RoyaltyConcept of Value:

Comparable sales

Discounted royalty rates

Approach:

Loan Securitization / Sale of companyCause:

Core trademark

Franchise rights

Reservation system

Customer databases

Airport concession rights

Components:

BankruptcyContext:

Budget Group, Inc.Company:

© 2009 CONSOR© 2009 CONSOR 1414

Case Study - Budget Group, Inc.IP Valuation Summary

$ 70,949,000 – 97,308,000$ 466,488,000 – 479,392,000TOTAL VALUE

729,000 – 2,912,0003,645,000 – 5,823,000Mailing List and Database

07,177,000 – 17,943,000Airport Concession Rights

1,927,000 – 5,780,00038,535,000Reservation System (Global)

938,000 – 1,407,0009,377,000Ryder Truck License

5,280,000 – 7,920,00044,002,000Franchise Rights (International)

6,789,000 – 10,183,00056,571,000Budget Trademark (International)

6,870,000 – 8,587,00038,166,000Franchise Rights (North America)

$ 48,416,000 – 60,519,000$ 268,975,000Budget Trademark (North America)

Liquidation ValueGoing-Concern ValueDescription

© 2009 CONSOR© 2009 CONSOR 1515

Value Extraction Strategies

Disposition

Liquefaction

Leverage

© 2009 CONSOR© 2009 CONSOR 1616

Disposition

Auction

Sale

Competitive Disposition

Merger & Acquisition

© 2009 CONSOR© 2009 CONSOR 1717

Liquefaction

Collateralization

Securitization

IP Holding Company

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Leverage

Traditional Licensing

Other Licensing Models

Joint Venture

© 2009 CONSOR© 2009 CONSOR 1919

Licensing Issues

Lower RRs Smaller guarantees Less upfront More renegotiations Much wider range of RRs (TMs = 2-12%) More flexibility in marketing contributions Shorter term

© 2009 CONSOR© 2009 CONSOR 2020

Licensing Royalty Rates

There is no typical royalty rate.

The most frequent rate is 5%

39% of agreements are for less

42% of agreements are for more.

Source: RoyaltyStat.com02468

101214161820

% o

f agr

eem

ents

1% 3 5 7 9 11 13 15 >

Annual Rate

Royalty Rate Distribution

© 2009 CONSOR© 2009 CONSOR 2121

Value Maximization Case Studies

Circuit City,

Tower Records Auction

Chiquita Brands Holding Company

Dunkin Brands, Gloria Vanderbilt

Securitization

Polaroid, Delphi Collateralization

Collins & Aikman, Jenny Craig

Sale

IBM, Kmart Licensing

© 2009 CONSOR© 2009 CONSOR 2222

Five Critical Elements of Value Maximization

1. Know where maximum strategic and realizable value is to be found in the asset portfolio

2. Establish a realistic current market value for the assets

3. Understand how to extract maximum value from the assets

4. Select the best possible intellectual property / intangible asset strategy for the situation

5. Manage the process

© 2009 CONSOR© 2009 CONSOR 2323

Brand Valhalla

ElevatorChesterfield

EscalatorBlatz

CellophaneOldsmobile

DodgePan Am