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VALUATION OF THE COMMON STOCK
of [@BI203] [@BI206]
Wednesday, September 13, 2017
Client Address
City, State, Zip
Dear :
The enclosed valuation report has been developed for the exclusive and confidential use of .... The report has been prepared by (firm name) and was made by and/or under the direct supervision of the undersigned.
I hereby certify that, to the best of my knowledge and belief, the statements of fact contained in this report are true and correct, and this report has been prepared in
conformity with the Uniform Standards of Professional Appraisal Practice of The Appraisal Foundation and the ... The reported analyses, opinions, and conclusions are limited only by the reported assumptions and limiting conditions, and represent my personal, unbiased, professional analyses, opinions, and conclusions.
Sincerely yours,
FIRM NAME
TABLE OF CONTENTS
INTRODUCTION...6
ASSIGNMENT DEFINITION...6
SUMMARYOFTHE CONCLUSIONOF THIS REPORT...6
PREMISE OF VALUE...6
STATEMENT OF SCOPE AND LIMITATIONS...7
STANDARD OF VALUE...7
COMPETITIVE ENVIRONMENT...8
SUPPLY...8
DESCRIPTION OF FACILITIES...8
PERSONNEL...8
FINANCIAL ANALYSIS...8
NON-PUBLIC PEER GROUP FOR FINANCIAL PERFORMANCE COMPARISON...8
BOOK VALUEAND GENERAL FINANCIAL CONDITIONOFTHE BUSINESS...9
Financial Position and Leverage...9
Adjustments to the Balance Sheet...11
EARNINGS PERFORMANCEAND CAPACITY...12
Reported Revenues and Margins...12
Reported Pre-Tax Income...13
CASH FLOW ANALYSIS...14
Adjustments to Reported Earnings...14
KEY FINANCIAL RATIO ANALYSIS...15
DETERMINATION OF FAIR MARKET VALUE...18
OVERVIEW OF VALUATION APPROACHES...18
VALUATION METHODOLOGIES CONSIDERED BUT REJECTED...18
Book Value Method...18
Adjusted Book Value - Going Concern Method...18
Liquidation Value Method...18
Capitalization of Earnings Method...19
Discounted Cash Flow Method...19
Capitalization of Excess Earnings Method...19
Market Approach Methods...19
Company Transactions Method...19
VALUATION METHODS USED...20
Book Value...20
Adjusted Book - Going Concern Value...20
Adjusted Book - Liquidation Value...21
Discounted Cash Flow Method - Summary Projections...32
Discounted Cash Flow Method - Detailed Projections...45
Excess Earnings Method...54
Market Approach- PubliclyTraded Guideline Company Methods...58
Market Approach- Industry Pricing Ratio Methods...86
Transactions in the Company's Stock...95
CONCLUSION OF VALUE...96
DISCOUNT APPLIED...98
DISCOUNT APPLIED...98
TEST OF REASONABLENESS:...98
APPENDIX A: CONTINGENT AND LIMITING CONDITIONS...100
APPENDIX B: QUALIFICATIONS OF APPRAISER...101
APPENDIX C: SOURCES OF INFORMATION...102
INTRODUCTION
Assignment Definition
(Firm's name) has been retained by .... to render the business appraisal services described below. The following information summarizes our assignment:
Client Name XXX
Business Name [@BI203]
Type of Entity (C-Corporation, S-Corporation, ...)
State of Incorporation/Organization XXX
Principle Business Location XXX
Business Interest Valued [@BI214] interest in ...
Standard of Value (Fair Market Value, Fair Value ...)
Premise of Value (Non-Marketable, Minority Interest, ...)
Effective Date of Appraisal [@BI212]
Purpose and Intended Use of Appraisal [@BI210]
Summary of the Conclusion of This Report
[BLOCKINCLUDE ID{No Per Share} INCLUDEIF{or(CA226=0,CA227=0,AL55=0)}]
The conclusion of the (fair market value, fair value, ...) of a [@BI214]interest in [@BI203]as of [@BI212] is $[@CG168]. This opinion is rendered in the context of the specific assignment described above and is applicable only for the period noted above. The conclusion is expressed on a (non-marketable/marketable, minority/controlling) interest basis.
[ENDBLOCKINCLUDE ID{No Per Share}]
[BLOCKINCLUDE ID{Per Share Include} INCLUDEIF{and(CA226<>0,CA227<>0,AL55<>0)}]
The conclusion of the (fair market value, fair value, ...) of a [@BI214]interest in [@BI203]as of [@BI212]is $[@CG168]($[@CG169]per share of stock). his opinion is rendered in the context of the specific assignment described above and is applicable only for the period noted above. The conclusion is expressed on a (non-marketable/marketable, minority/controlling) interest basis.
[ENDBLOCKINCLUDE ID{Per Share Include}]
Premise of Value
value are respectively:
Controlling interest: the value of the enterprise as a whole
As-if freely tradable minority interest: the value of a minority interest, lacking control, but enjoying the benefit of market liquidity
Non-marketable minority interest: the value of a minority interest, lacking both control and market liquidity
This valuation is prepared on a ... interest basis.
Statement of Scope and Limitations
This valuation report has been prepared in accordance with the (name standards and governing body). In accordance with these standards, a Statement of Contingent and Limiting Conditions is provided as Appendix A and a Statement of Appraiser Qualifications is included in Appendix B.
Preparation of this report involved the review of substantial documentation with respect to the Company, the ... industry and the national economy. Information reviewed relative to the Company is summarized in Appendix C. Sources of information related to the industry and the national economy are cited specifically at appropriate sections of the report.
In conjunction with the preparation of this report, ... of (firm's name) visited with
management of [@BI203]. This visit, together with other conversations with management, provided important perspective to our understanding of the information reviewed and analyzed in the preparation of this valuation opinion.
In all cases we have relied upon the referenced information without independent verification. This report is, therefore, dependent upon the information provided. A material change in critical information relied upon in this report would be cause for a reassessment to determine the effect, if any, upon our conclusion.
Standard of Value
Fair market value is defined as follows:
The amount at which property would change hands between a willing seller and a willing buyer when neither is under compulsion and when both have reasonable knowledge of the relevant facts.
Fair market value is similarly defined in various sections of the Internal Revenue Code, related regulations and interpretations (e.g., Revenue Ruling 59-60). Appendix D includes some further discussion of the standard.
[Fair Value is defined as follows: ...].
THE ECONOMIC OUTLOOK
In conjunction with the preparation of this valuation opinion, we have reviewed and analyzed current economic conditions and how the Company and the industries in which it competes might be impacted.
The National Economy
[For report text and analysis on the national economy by quarter that you can "drop" into your report, call Wiley-ValuSource at 1-800-825-8763]
The Regional Economy
The Local Economy
Industry Outlook
[For industry-specific report text and analysis that you can "drop" into your report, call Wiley-ValuSource at 1-800-825-8763]
OVERVIEW OF THE COMPANY
Brief History
[@BI203] was founded in ... on .... by ...
Management
Products and Markets
Marketing*
Customers
Supply
Description of Facilities
Personnel
FINANCIAL ANALYSIS
Non-Public Peer Group For Financial Performance Comparison
[BLOCKINCLUDE ID{RMA} INCLUDEIF{BZ244=0}]
For purposes of comparison with industry financial measures available from non-public company sources, we reviewed the Annual Statement Studies, published by Robert Morris Associates ("RMA"). RMA compiled average percentage income statement and balance sheets and key financial ratios of [@BZ242] classified under Standard Industrial Classification (SIC) #[@BW242]. The selected RMA group includes [@BW245] companies. We believe the RMA data provide limited comparative perspective and strict comparisons should be made with caution.
[ENDBLOCKINCLUDE ID{RMA}]
[BLOCKINCLUDE ID{IRS} INCLUDEIF{BZ244=1}]
For purposes of comparison with industry financial measures available from non-public company sources, we reviewed the IRS Corporate Records, published by the Internal
Revenue Service ("IRS"). IRS compiled average percentage income statement and balance sheets and key financial ratios of [@BX243] classified under Standard Industrial Classification (SIC) #[@BX242]. The selected IRS group includes [@BX245] companies. We believe the IRS data provide limited comparative perspective and strict comparisons should be made with caution.
[ENDBLOCKINCLUDE ID{IRS}]
Book Value and General Financial Condition of the Business
Financial Position and Leverage
As of [@Balance Sheet!D3], total assets were $[@M392], total liabilities were $[@M402] and reported equity was approximately $[@M403].
The majority of assets include ... As of [@Balance Sheet!D3], the Company had $[@M383] in cash. From ... to ... total asset growth was ...
Historic Balance Sheets
[BLOCKINCLUDE ID{BS ADJ} INCLUDEIF{M429<>M403}]
Adjustments to the Balance Sheet
The Company's reported book value at the date of valuation was $[@M403]. In Schedule ..., we have identified adjustments that are required to restate
shareholders' equity and reflect the net asset value of the Company. The numbered items below correspond to the same adjustments found in Schedule ....
[BLOCKINCLUDE ID{Cash} INCLUDEIF{M383<>M409}]
The Company's cash balance has been adjusted from $[@M383] to $[@M409] due to ...
[ENDBLOCKINCLUDE ID{Cash}]
[BLOCKINCLUDE ID{A/R} INCLUDEIF{M384<>M410}]
The accounts receivable were adjusted to their estimated realizable value as of the [@BI212] date of valuation. In order to quantify the adjustment, the Company's accounts receivable aging report as of [@BI212] were reviewed and discussed with management.
[ENDBLOCKINCLUDE ID{A/R}]
[BLOCKINCLUDE ID{Inventory} INCLUDEIF{M385<>M411}]
Inventory was adjusted to its estimated fair market value as of the [@BI212] date of valuation. The adjustment was based on ...
[ENDBLOCKINCLUDE ID{Inventory}]
[BLOCKINCLUDE ID{Other C/A} INCLUDEIF{M386<>M412}]
Other current assets were adjusted to their estimated fair market values as of the [@BI212] date of valuation. The adjustment was based on ...
[ENDBLOCKINCLUDE ID{Other C/A}]
[BLOCKINCLUDE ID{Fixed Assets} INCLUDEIF{M388<>M414}]
The Company's fixed assets were adjusted to their estimated fair market values as of [@BI212]. The fixed assets' estimated fair market value was determined by ...
[ENDBLOCKINCLUDE ID{Fixed Assets}]
[BLOCKINCLUDE ID{Other noncurrents} INCLUDEIF{M390<>M416}]
Other non-current assets were adjusted to their estimated fair market values as of [@BI212]. Specifically, adjustments were made to ...
[ENDBLOCKINCLUDE ID{Other noncurrents}]
[BLOCKINCLUDE ID{Intangible} INCLUDEIF{M389<>M415}]
Intangible assets were adjusted to their estimated fair market value as of [@BI212]. The adjustment was based on ...
[ENDBLOCKINCLUDE ID{Intangible}]
[BLOCKINCLUDE ID{Nonoperating assets} INCLUDEIF{M391<>M417}]
For valuation purposes, the non-operating assets were adjusted to their estimated fair market value as of [@BI212]. The basis for the adjustments was...
[ENDBLOCKINCLUDE ID{Nonoperating assets}]
[BLOCKINCLUDE ID{A/P} INCLUDEIF{M394<>M420}]
[ENDBLOCKINCLUDE ID{A/P}]
[BLOCKINCLUDE ID{Short Term Notes} INCLUDEIF{M395<>M421}]
The Company's short-term notes payable were adjusted to ...
[ENDBLOCKINCLUDE ID{Short Term Notes}]
[BLOCKINCLUDE ID{CPLTD} INCLUDEIF{M396<>M422}]
The current portion of the Company's long-term debt has been adjusted to ...
[ENDBLOCKINCLUDE ID{CPLTD}]
[BLOCKINCLUDE ID{LTD} INCLUDEIF{M399<>M425}]
Long-term debt has been adjusted to ...
[ENDBLOCKINCLUDE ID{LTD}]
[BLOCKINCLUDE ID{Other NCL} INCLUDEIF{M400<>M426}]
Other non-current liabilities have been adjusted to ...
[ENDBLOCKINCLUDE ID{Other NCL}]
[BLOCKINCLUDE ID{Nonoperating Liabilities} INCLUDEIF{M401<>M427}]
Non-operating liabilities were adjusted to ...
[ENDBLOCKINCLUDE ID{Nonoperating Liabilities}]
As adjusted, total shareholders' equity as of the valuation date was $[@M429].
[ENDBLOCKINCLUDE ID{BS ADJ}]
Adjusted Balance Sheet
[RANGEINCLUDE ID{Adjusted Balance Sheet} RANGE{AJ407:AL430}] [ENDRANGEINCLUDE]
Earnings Performance and Capacity
Reported Revenues and Margins
In [@M381], total revenues were $[@M436] compared to $[@O436] for the prior year. This represented an [increase/decrease] of approximately $[@M113].
Over the ... year period, the Company's gross profit margin averaged about ...% of revenues. The gross profit margin for [@M381] was [@M145]. This compares to [@M62] as reported in the [@M58] data. The gross profit ....
Reported Margin Analysis
[RANGEINCLUDE ID{Reported Margin} RANGE{K141:AE152}] [ENDRANGEINCLUDE]
Reported Pre-Tax Income
The Company's pre-tax income averaged approximately ... per year from ... to ... with a trend that has been generally ...
Historic Income Statement
Cash Flow Analysis
The Company's cash flows have ...
[BLOCKINCLUDE ID{Adjustment to Earnings}
INCLUDEIF{SUM(M447:AE447)<>SUM(M466:AE466)}]
Adjustments to Reported Earnings
Schedule ... adjusts the Company's historical earnings for unusual events, non-recurring items, discretionary expenditures and the like. The adjustments include:
[BLOCKINCLUDE ID{Revenue Adjust} INCLUDEIF{SUM(M436:AE436)<>SUM(M455:AE455)}]
Revenue has been adjusted for ...
[ENDBLOCKINCLUDE ID{Revenue Adjust}]
[BLOCKINCLUDE ID{COGS Adjust} INCLUDEIF{SUM(M437:AE437)<>SUM(M456:AE456)}]
Cost of Goods Sold has been adjusted for ...
[ENDBLOCKINCLUDE ID{COGS Adjust}]
[BLOCKINCLUDE ID{Operating Adjust} INCLUDEIF{SUM(M439:AE439)<>SUM(M458:AE458)}]
The following operating expenses have been adjusted ...
[ENDBLOCKINCLUDE ID{Operating Adjust}]
[BLOCKINCLUDE ID{Officers' Comp Adjust}
INCLUDEIF{SUM(M440:AE440)<>SUM(M459:AE459)}]
Officers' Compensation has been adjusted to ... by ....
[ENDBLOCKINCLUDE ID{Officers' Comp Adjust}]
[BLOCKINCLUDE ID{Depreciation Adjust} INCLUDEIF{SUM(M441:AE441)<>SUM(M460:AE460)}]
Depreciation expense has been adjusted ...
[ENDBLOCKINCLUDE ID{Depreciation Adjust}]
[BLOCKINCLUDE ID{Interest Adjust} INCLUDEIF{SUM(M442:AE442)<>SUM(M461:AE461)}]
Interest expense has been adjusted ...
[ENDBLOCKINCLUDE ID{Interest Adjust}]
[BLOCKINCLUDE ID{Other Inc/Exp Adjust}
INCLUDEIF{SUM(M444:AE444)<>SUM(M463:AE463)}]
Other income/expense has been adjusted ...
[ENDBLOCKINCLUDE ID{Other Inc/Exp Adjust}]
[BLOCKINCLUDE ID{Income Taxes Adjust}
INCLUDEIF{SUM(M446:AE446)<>SUM(M465:AE465)}]
Income taxes have been adjusted ...
[ENDBLOCKINCLUDE ID{Income Taxes Adjust}] [ENDBLOCKINCLUDE ID{Adjustment to Earnings}]
[BLOCKINCLUDE ID{Annualize} INCLUDEIF{BO326<>BO327}]
The .... month period ending .... has been annualized by ...
Key Financial Ratio Analysis
[BLOCKINCLUDE ID{RMA} INCLUDEIF{BZ244=0}]
Schedule ... presents a key financial ratio analysis of [@BI203] and similarly sized businesses operating in the same industry. Five categories of ratios (liquidity, debt coverage, leverage, profitability, and miscellaneous) were used to compare the operating results of [@BI203] with those of the industry median quartile as computed by Robert Morris Associates.
[ENDBLOCKINCLUDE ID{RMA}]
[BLOCKINCLUDE ID{IRS} INCLUDEIF{BZ244=1}]
Schedule ... presents a key financial ratio analysis of [@BI203] and similarly sized businesses operating in the same industry. Five categories of ratios (liquidity, debt coverage, leverage, profitability, and miscellaneous) were used to compare the operating results of [@BI203] with those of the industry median quartile as computed by the Internal Revenue Service.
[ENDBLOCKINCLUDE ID{IRS}]
The liquidity ratios give an indication of the Company's ability to meet its current obligations with the use of current assets. As shown in the comparative ratio analysis, the [@BI203]'s liquidity ratios are ... compared to the industry median. This indicates ...
The coverage ratios indicate the Company's ability to meet its obligations related to interest bearing debt. As shown in the comparative ratio analysis, [@BI203]'s
coverage ratios are ... compared to the industry median. This indicates ...
The leverage ratios indicate the extent to which the Company's assets are funded by debt. As shown in the comparative ratio analysis schedule, [@BI203]'s leverage ratios are ... compared to the industry median. This indicates ...
Ratio Analysis & Comparison
DETERMINATION OF FAIR MARKET VALUE
Overview of Valuation Approaches
Three basic approaches to value are defined in the Business Valuation Standards of the American Society of Appraisers:
Asset Based Approach: A general way of determining a value indication of a business's assets and/or equity using one or more methods based directly on the value of the assets of the business less liabilities.
Income Approach: A general way of determining a value indication of a business's assets and/or equity using one or more methods wherein a value is determined by converting anticipated benefits.
Market Approach: A general way of determining a value indication of a business's assets and/or equity using one or more methods that compare the subject to similar investments that have been sold.
The various methods of valuation that appraisers use in practice are typically considered as subdivisions of these broad approaches. Valuation methods under the Market and Income approaches generally contain common characteristics such as measures of earning power, discount rates and/or capitalization rates and multiples.
[BLOCKINCLUDE ID{Rejected} INCLUDEIF{true}]
Valuation Methodologies Considered but Rejected
In our valuation analysis of a [@BI214] interest in the common stock of [@BI203], the following valuation methodologies were considered but rejected as applicable to the valuation assignment.
[BLOCKINCLUDE ID{Book Value Reject} INCLUDEIF{and(CI145=0,CK145<>"N")}]
Book Value Method
The Company's book value as of [@BI212] was $[@CG145]. Book value is an
accounting value that is calculated by subtracting total liabilities from total assets. Book value was considered for determining the value of [@BI203] because ... It was rejected because ...
[ENDBLOCKINCLUDE ID{Book Value Reject}]
[BLOCKINCLUDE ID{Net Asset Rejected} INCLUDEIF{and(CI146=0,CK146<>"N")}]
Adjusted Book Value - Going Concern Method
The adjusted book value - going concern method develops a valuation indication by adjusting the reported book values of a subject company's assets to their actual or estimated fair market values and subtracting its liabilities (adjusted to fair market value, if appropriate). This method was considered in the valuation of [@BI203] because .... It was rejected because ...
[BLOCKINCLUDE ID{Liquidation Rejected} INCLUDEIF{and(CI147=0,CK147<>"N")}]
Liquidation Value Method
The liquidation value method develops a valuation indication by adjusting the reported book values of a subject company's assets to their actual or estimated fair market values as if they were to be sold in an orderly, piecemeal manner and subtracting liabilities (adjusted to their fair market value, if appropriate). This method was considered in the valuation of [@BI203] because .... It was rejected because ...
[ENDBLOCKINCLUDE ID{Liquidation Rejected}]
[BLOCKINCLUDE ID{Cap of Earnings Rejected} INCLUDEIF{and(CI148=0,CK148<>"N")}]
Capitalization of Earnings Method
The capitalization of earnings method develops a valuation indication by multiplying an earnings or cash flow base by a risk-adjusted capitalization factor. This method was considered in the valuation of [@BI203] because .... It was rejected because ...
[ENDBLOCKINCLUDE ID{Cap of Earnings Rejected}]
[BLOCKINCLUDE ID{DCF Rejected} INCLUDEIF{or(and(CI149=0,ck149<>"N"), and(CI150=0,CK150<>"N"))}]
Discounted Cash Flow Method
The discounted cash flows method develops a valuation indication by discounting a projected earnings or cash flow stream to the present value. This method was considered in the valuation of [@BI203] because .... It was rejected because ...
[ENDBLOCKINCLUDE ID{DCF Rejected}]
[BLOCKINCLUDE ID{Cap of Excess Rejected} INCLUDEIF{and(CI151=0,CK151<>"N")}]
Capitalization of Excess Earnings Method
The capitalization of excess earnings method develops a valuation indication by multiplying an earnings base by an intangible asset capitalization factor and adding tangible assets and liabilities (adjusted to fair market value, if appropriate). This method was considered in the valuation of [@BI203] because .... It was rejected because ...
[ENDBLOCKINCLUDE ID{Cap of Excess Rejected}]
[BLOCKINCLUDE ID{Market Approach Rejected} INCLUDEIF{cn162=1}]
Market Approach Methods
The market approach develops a valuation indication based on valuation factors derived from guideline companies or industry pricing statistics. This method was considered in the valuation of [@BI203] because .... It was rejected because ...
[ENDBLOCKINCLUDE ID{Market Approach Rejected}]
Company Transactions Method
Schedule ... shows recent transactions involving the Company's stock. We have rejected these transactions as indicative of the Company's fair market value as of the date of valuation because ...
[ENDBLOCKINCLUDE ID{Transactions Rejected}]
[BLOCKINCLUDE ID{scratch pad 1 rejected} INCLUDEIF{and(ci162=0,ck162<>"N")}]
[@CA162]
Enter text for scratch pad analysis here.
[ENDBLOCKINCLUDE ID{scratch pad 1 rejected}]
[BLOCKINCLUDE ID{scratch pad 2 rejected} INCLUDEIF{and(ci163=0,ck163<>"N")}]
[@CA163]
Enter text for scratch pad analysis here.
[ENDBLOCKINCLUDE ID{scratch pad 2 rejected}] [ENDBLOCKINCLUDE ID{Rejected}]
Valuation Methods Used
[RANGEINCLUDE ID{Valuation Conclusions} RANGE{CA142:CI168}] [ENDRANGEINCLUDE]
[BLOCKINCLUDE ID{Book Value Used} INCLUDEIF{CI145<>0}]
Book Value
The book value of [@BI203] as of [@BI212] was $[@CG145]. Book value is an
accounting value that is calculated by subtracting total liabilities from total assets. In our opinion, book value is an accurate measure of the Company's fair market value as of because ....
[ENDBLOCKINCLUDE ID{Book Value Used}]
[BLOCKINCLUDE ID{Going Concern Value} INCLUDEIF{CI146<>0}]
Adjusted Book - Going Concern Value
The adjusted book value - going concern method develops a valuation indication by adjusting the reported book values of a subject company's assets to their actual or estimated fair market values and subtracting its liabilities (adjusted to fair market value, if appropriate). The indicated value should not be interpreted as an estimate of liquidation value. Neither an orderly nor a forced liquidation is contemplated.
The estimate of the Company's net asset value is developed in Schedule ..., where required adjustments are applied to reported equity. The specific adjustments were described in the analysis of the balance sheet. The result of adjusting the balance sheet is an adjusted net equity of $[@CU188].
Application of Minority Interest Discount
A minority interest discount is a reduction in the initial indicated value due to a lack of control prerogatives such as declaring dividends, liquidating the company, going public, issuing or buying stock, directing management, setting management's salaries, etc. In our opinion, a minority interest discount of [@CS190] is appropriate because ...
[ENDBLOCKINCLUDE ID{Minority Discount Include}]
[FILEINCLUDE ID{marketability} INCLUDEIF{ca200=1} FILE{MARKET.DOC}] [ENDFILEINCLUDE ID{marketability}]
[BLOCKINCLUDE ID{Marketability Discount Include} INCLUDEIF{CA200=1}]
Discount Applied
In our opinion, a discount of [@CS192] is required for lack of marketability. The discount reflects an expectation for ...
[ENDBLOCKINCLUDE ID{Marketability Discount Include}]
[BLOCKINCLUDE ID{Minority Yes} INCLUDEIF{and(CA199=1,CA200=0)}]
As determined after application of a [@CS190] minority interest discount, the indicated fair market value of the Company's common stock is $[@CU195].
[ENDBLOCKINCLUDE ID{Minority Yes}]
[BLOCKINCLUDE ID{Marketability Yes} INCLUDEIF{and(CA199=0,CA200=1)}]
As determined after application of a [@CS192] discount for lack of marketability, the indicated fair market value of the Company's common stock is $[@CU195].
[ENDBLOCKINCLUDE ID{Marketability Yes}]
[BLOCKINCLUDE ID{Minority and Marketability Yes} INCLUDEIF{and(CA199=1,CA200=1)}]
As determined after application of a [@CS190] minority interest discount and a [@CS192] discount for lack of marketability, the indicated fair market value of the Company's common stock is $[@CU195].
[ENDBLOCKINCLUDE ID{Minority and Marketability Yes}] [ENDBLOCKINCLUDE ID{Going Concern Value}]
[BLOCKINCLUDE ID{Liquidation Value} INCLUDEIF{CI147<>0}]
Adjusted Book - Liquidation Value
The adjusted book value - liquidation method develops a valuation indication by adjusting the reported book values of a subject company's assets to their actual or estimated liquidation values and subtracting its liabilities (adjusted to fair market value, if appropriate).
The estimate of the Company's liquidation value is developed in Schedule ..., where required adjustments are applied to reported equity. The specific adjustments were described in the analysis of the balance sheet. The result of adjusting the balance sheet is an adjusted net equity of $[@CU204].
[BLOCKINCLUDE ID{Minority Discount Include1} INCLUDEIF{CA199=1}]
Application of Minority Interest Discount
of control prerogatives such as declaring dividends, liquidating the company, going public, issuing or buying stock, directing management, setting management's salaries, etc. In our opinion, a minority interest discount of [@CS206] is appropriate because ...
[ENDBLOCKINCLUDE ID{Minority Discount Include1}]
[FILEINCLUDE ID{Marketability Discount1} INCLUDEIF{and(CI146=0,CA200=1)} FILE{MARKET.DOC}]
[ENDFILEINCLUDE ID{Marketability Discount1}]
[BLOCKINCLUDE ID{Marketability Discount Include1} INCLUDEIF{and(CI146=0,CA200=1)}]
Discount Applied
In our opinion, a discount of [@CS208] is required for lack of marketability. The discount reflects an expectation for ...
[ENDBLOCKINCLUDE ID{Marketability Discount Include1}]
[BLOCKINCLUDE ID{Market1} INCLUDEIF{and(CI146<>0,CA200=1)}]
The discount for lack of marketability has been discussed above. In our opinion, a discount of [@cs208] is required for lack of marketability. The discount reflects ...
[ENDBLOCKINCLUDE ID{Market1}]
[BLOCKINCLUDE ID{Minority1 Yes} INCLUDEIF{and(CA199=1,CA200=0)}]
As determined after application of a [@CS206] minority interest discount, the indicated fair market value of the Company's common stock is $[@CU211].
[ENDBLOCKINCLUDE ID{Minority1 Yes}]
[BLOCKINCLUDE ID{Marketability1 Yes} INCLUDEIF{and(CA199=0,CA200=1)}]
As determined after application of a [@CS208] discount for lack of marketability, the indicated fair market value of the Company's common stock is $[@CU211].
[ENDBLOCKINCLUDE ID{Marketability1 Yes}]
[BLOCKINCLUDE ID{Minority and Marketability1 Yes} INCLUDEIF{and(CA199=1,CA200=1)}]
As determined after application of a [@CS206] minority interest discount and a [@CS208] discount for lack of marketability, the indicated fair market value of the Company's common stock is $[@CU211].
[ENDBLOCKINCLUDE ID{Minority and Marketability1 Yes}] [ENDBLOCKINCLUDE ID{Liquidation Value}]
[BLOCKINCLUDE ID{Capitalization of Earnings} INCLUDEIF{CI148<>0}]
Capitalization of Earnings Method
Capitalization of earnings requires estimates of: (1) ongoing earning power and (2) a capitalization rate (or multiple). The capitalization rate is the required rate of return minus the growth rate. The capitalization multiple is the reciprocal of the
capitalization rate. "Capitalization" of earnings effectively determines the present value of the Company's ongoing earning or cash flow power, growing perpetually at a fixed rate and discounted at the required rate of return.
Estimate of Ongoing Earning Power
[BLOCKINCLUDE ID{coe Pretax earnings} INCLUDEIF{and(BU202=1,BU203=1)}]
earnings.
$[@AL77] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL89] Margin-based estimate: Weighted average pre-tax earnings margin ([@AL87]) times weighted average revenues ($[@AL83]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimate of ongoing pre-tax earnings of $[@AL91] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
[ENDBLOCKINCLUDE ID{coe Pretax earnings}]
[BLOCKINCLUDE ID{coe Aftertax earnings} INCLUDEIF{and(bu202=1,bu203=2)}]
The analysis in Schedule .... derives two measures of weighted average pre-tax earnings.
$[@AL77] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL89] Margin-based estimate: Weighted average pre-tax earnings margin ([@AL87]) times weighted average revenues ($[@AL83]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimate of ongoing pre-tax earnings of $[@AL91] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
The ongoing pre-tax earnings are reduced by an estimate of state and federal income taxes to calculate estimated ongoing net earnings of $[@AL98].
[ENDBLOCKINCLUDE ID{coe Aftertax earnings}]
[BLOCKINCLUDE ID{EBIT} INCLUDEIF{and(bu202=1,or(bu203=3,bu203=5))}]
The analysis in Schedule .... derives two measures of weighted average earnings before interest and taxes (EBIT).
$[@AL77] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL89] Margin-based estimate: Weighted average EBIT margin ([@AL87]) times weighted average revenues ($[@AL83]). Sustainable revenues and margins are estimated in the context of .... The analysis provides an estimate of ongoing earnings before interest and taxes of $[@AL91] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
[ENDBLOCKINCLUDE ID{EBIT}]
[BLOCKINCLUDE ID{EBI} INCLUDEIF{and(bu202=1,bu203=5)}]
The ongoing EBIT is reduced by an estimate of state and federal income taxes to calculate estimated debt-free ongoing net earnings of $[@AL98]
[ENDBLOCKINCLUDE ID{EBI}]
[BLOCKINCLUDE ID{EBITDA} INCLUDEIF{and(bu202=1,bu203=4)}]
$[@AL77] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL89] Margin-based estimate: Weighted average EBITDA margin ([@AL87]) times weighted average revenues ($[@AL83]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimate of ongoing EBITDA of $[@AL91] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
[ENDBLOCKINCLUDE ID{EBITDA}]
[BLOCKINCLUDE ID{pretax cash} INCLUDEIF{and(bu202=2,bu203=1)}]
The analysis in Schedule .... derives two measures of weighted average pre-tax cash flows (pre-tax earnings plus depreciation and amortization).
$[@AL113] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL125] Margin-based estimate: Weighted average pre-tax cash flow margin ([@AL123]) times weighted average revenues ($[@AL119]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimate of ongoing pre-tax gross cash flow of $[@AL127] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
To convert the ongoing gross cash flow to an ongoing net cash flow the following adjustments were made:
1. Subtracted estimated ongoing increase of $[@AL128] in working capital. [Discuss how estimate derived]
2. Subtracted estimated ongoing increase of $[@AL129] in capital assets. [Discuss how estimate derived]
3. Added estimated ongoing increase of $[@AL130] in long-term debt. [Discuss how estimate derived]
The result in an estimate of ongoing pre-tax net cash flow of $[@AL131].
[ENDBLOCKINCLUDE ID{pretax cash}]
[BLOCKINCLUDE ID{EBITDA cash} INCLUDEIF{and(bu202=2,bu203=4)}]
The analysis in Schedule .... derives two measures of weighted average earnings before interest, taxes, depreciation and amortization (EBITDA).
$[@AL113] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL125] Margin-based estimate: Weighted average EBITDA margin ([@AL123]) times weighted average revenues ($[@AL119]). Sustainable revenues and margins are estimated in the context of ....
To convert the ongoing gross cash flow to an ongoing net cash flow the following adjustments were made:
1. Subtracted estimated ongoing increase of $[@AL128] in working capital. [Discuss how estimate derived]
2. Subtracted estimated ongoing increase of $[@AL129] in capital assets. [Discuss how estimate derived]
3. Added estimated ongoing increase of $[@AL130] in long-term debt. [Discuss how estimate derived]
The result in an estimate of ongoing EBITDA net cash flow of $[@AL131].
[ENDBLOCKINCLUDE ID{EBITDA cash}]
[BLOCKINCLUDE ID{aftertax cash} INCLUDEIF{and(bu202=2,bu203=2)}]
The analysis in Schedule .... derives two measures of weighted average pre-tax cash flows (pre-tax earnings plus depreciation and amortization).
$[@AL146] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL158] Margin-based estimate: Weighted average pre-tax cash flow margin ([@AL156]) times weighted average revenues ($[@AL152]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimate of ongoing pre-tax gross cash flow of $[@AL160] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
To convert the ongoing pre-tax gross cash flow to an ongoing after-tax net cash flow the following adjustments were made:
1. Subtract depreciation and amortization to derive taxable cash flow base.
2. Subtract estimated state and federal income taxes to derive after-tax gross cash flow base.
3. Add back estimated ongoing depreciation and amortization
4. Subtracted estimated ongoing increase of $[@AL169] in working capital. [Discuss how estimate derived]
5. Subtracted estimated ongoing increase of $[@AL170] in capital assets. [Discuss how estimate derived]
6. Added estimated ongoing increase of $[@AL171] in long-term debt. [Discuss how estimate derived]
The result in an estimate of ongoing after-tax net cash flow of $[@AL172] .
[BLOCKINCLUDE ID{EBI cash} INCLUDEIF{and(bu202=2,bu203=5)}]
The analysis in Schedule .... derives two measures of weighted average earnings before interest, taxes, depreciation and amortization (EBITDA).
$[@AL146] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL158] Margin-based estimate: Weighted average EBITDA margin ([@AL156]) times weighted average revenues ($[@AL152]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimate of ongoing EBITDA of $[@AL160] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
To convert the ongoing gross EBITDA to an ongoing debt-free after-tax net cash flow the following adjustments were made:
1. Subtract depreciation and amortization to derive taxable cash flow base.
2. Subtract estimated state and federal income taxes to derive after-tax gross cash flow base.
3. Add back estimated ongoing depreciation and amortization
4. Subtracted estimated ongoing increase of $[@AL169] in working capital. [Discuss how estimate derived]
5. Subtracted estimated ongoing increase of $[@AL170] in capital assets. [Discuss how estimate derived]
6. Added estimated ongoing increase of $[@AL171] in long-term debt. [Discuss how estimate derived]
The result in an estimate of ongoing debt-free after-tax net cash flow of $[@AL172] .
[ENDBLOCKINCLUDE ID{EBI cash}]
Selection of Earnings Multiple (Capitalization Factor)
There are two primary methods for "building up" a capitalization rate - the build-up method or the capital asset pricing model.
[BLOCKINCLUDE ID{coe buildup} INCLUDEIF{bu204=1}]
The buildup method requires summation of the components of the required rate of return on investment, adjusted by subtraction of the expected long-term earnings or cash flow growth rate. The appropriate capitalization rate components for the
Company include (see Schedule ...):
Current risk-free rate. This is measured as the yield to maturity on long-term U.S. Treasury bonds, which was about [@F209] as of the valuation date.
+ Common stock equity premium (average annual returns for large capitalization stocks minus average annual returns for long-term government bonds). Based on
the common stock equity risk premium averaged [@F210] from 1926 to 19[@CA272] .
+ Small capitalization equity risk premium (average annual returns for small capitalization stocks minus average annual returns for long-term government bonds). Based on Stocks, Bonds, Bills, and Inflation, Yearbook, a publication of Ibbotson & Associates, the small stock risk premium averaged [@F211] from 1926 to 19[@CA272] .
+ Specific company risk premium. Based upon Company-specific factors - cyclical risk, risks of competitive encroachment, size and various operating
concentrations (key-executive dependency, customer concentration, and the like) - the summation requires an additional risk premium of [@F212] .
[ENDBLOCKINCLUDE ID{coe buildup}]
[BLOCKINCLUDE ID{coe buildup cash to earnings} INCLUDEIF{and(bu204=1,f215>0)}]
+ Cash flow to earnings conversion factor. The foregoing factors sum to a cash flow discount rate of [@F213]. To convert the discount rate to an earnings based discount rate, an additional [@F215] is added to the summation to account for the estimated difference between the Company's cash flows and earnings.
[ENDBLOCKINCLUDE ID{coe buildup cash to earnings}]
[BLOCKINCLUDE ID{coe buildup adjust to pretax} INCLUDEIF{and(bu204=1,bu203=1)}]
+ Adjust to a pre-tax basis. The discount rate has been adjusted by [@F218] to convert it to a pre-tax basis.
[ENDBLOCKINCLUDE ID{coe buildup adjust to pretax}]
[BLOCKINCLUDE ID{coe buildup adjust to EBIT} INCLUDEIF{and(bu204=1,bu203=3)}]
+ Adjust to an EBIT basis. The discount rate has been adjusted by [@F218] to convert it to an earnings before interest and taxes basis.
[ENDBLOCKINCLUDE ID{coe buildup adjust to EBIT}]
[BLOCKINCLUDE ID{coe buildup adjust to EBITDA} INCLUDEIF{and(bu204=1,bu203=4)}]
+ Adjust to an EBITDA basis. The discount rate has b een adjusted by [@F218] to convert it to an earnings before interest, taxes, depreciation and amortization basis.
[ENDBLOCKINCLUDE ID{coe buildup adjust to EBITDA}]
[BLOCKINCLUDE ID{coe buildup WACC} INCLUDEIF{and(bu204=1,bu203>2)}]
Because the ongoing [earnings/cash flow] base is on a debt-free basis (i.e., all of the interest expense has been removed), the discount rate must be converted to a weighted-average cost of capital (WACC). The WACC requires the following inputs:
1. The cost of equity (calculated above)
2. The pre-tax cost of debt ([@CB191])
3. The marginal income tax rate ([@CB192]).
4. The percentage of debt ([@CB193]) and the percentage of equity ([@CB194]) in the Company's capital structure (equity plus interest bearing long-term debt).
The formula for calculating the WACC is as follows:
Cost of equity times percentage of equity in capital structure
Using the above formula, the calculated WACC is [@F221].
[ENDBLOCKINCLUDE ID{coe buildup WACC}]
[BLOCKINCLUDE ID{coe buildup growth} INCLUDEIF{bu204=1}]
Expected long-term earnings growth rate. We estimate [@F223] long-term compound annual growth. This [earnings/cash flow] growth estimate is based upon our assessment of the Company's prospects for sustained growth in relationship to the estimate of ongoing [earnings/cash flow] power developed above.
[ENDBLOCKINCLUDE ID{coe buildup growth}]
[BLOCKINCLUDE ID{coe buildup cap factor summary} INCLUDEIF{and(bu204=1,bu205=1,bx205=2)}]
The capitalization rate developed using the buildup method is [@F224]. The reciprocal of this measure (1/[@F224]) provides a capitalization multiple of [@F228].
[ENDBLOCKINCLUDE ID{coe buildup cap factor summary}]
[BLOCKINCLUDE ID{coe buildup cap rate summary} INCLUDEIF{and(bu204=1,bu205=1,bx205=1)}]
The capitalization rate developed using the buildup method is [@F224].
[ENDBLOCKINCLUDE ID{coe buildup cap rate summary}]
[BLOCKINCLUDE ID{coe buildup cap factor summary1} INCLUDEIF{and(bu204=1,bu205=2,bx205=2)}]
The capitalization rate developed using the buildup method is [@F224]. To convert to a capitalization rate to be used for the current [earnings/cash flow] base, this
capitalization rate is divided by one plus the expected long-term growth rate (1+ [@F223]). The result is a capitalization rate of [@F226]. The reciprocal of this measure (1/[@F226]) provides a capitalization multiple of [@F228].
[ENDBLOCKINCLUDE ID{coe buildup cap factor summary1}]
[BLOCKINCLUDE ID{coe buildup cap rate summary1} INCLUDEIF{and(bu204=1,bu205=2,bx205=1)}]
The capitalization rate developed using the buildup method is [@F224]. To convert to a capitalization rate to be used for the current [earnings/cash flow] base, this
capitalization rate is divided by one plus the expected long-term growth rate (1+ [@F223]). The result is a capitalization rate of [@F226].
[ENDBLOCKINCLUDE ID{coe buildup cap rate summary1}]
[BLOCKINCLUDE ID{coe capm} INCLUDEIF{bu204=2}]
The capital asset pricing method (CAPM) requires summation of the components of the required rate of return on investment, adjusted by subtraction of the expected long-term earnings or cash flow growth rate. The appropriate capitalization rate components for the Company include (see Schedule ...):
Current risk-free rate. This is measured as the yield to maturity on long-term U.S. Treasury bonds, which was about [@F235] as of the valuation date.
+ Common stock equity premium (average annual returns for large capitalization stocks minus average annual returns for long-term government bonds). Based on
Stocks, Bonds, Bills, and Inflation, Yearbook, a publication of Ibbotson & Associates, the common stock equity risk premium averaged [@F236] from 1926 to 19[@CA272].
Beta. The beta statistic is a measure of the degree to which returns on a specific investment move in relationship to overall market returns. We apply a beta of
+ Risk adjustment for size (average annual returns for small capitalization stocks minus average annual returns for long-term government bonds). Based on Stocks, Bonds, Bills, and Inflation, Yearbook, a publication of Ibbotson & Associates, the micro-capitalization risk premium averaged [@F240] from 1926 to 19[@CA272].
+ Specific company risk premium. Based upon Company-specific factors - cyclical risk, risks of competitive encroachment, size and various operating
concentrations (key-executive dependency, customer concentration, and the like) - the summation requires an additional risk premium of [@F243].
[ENDBLOCKINCLUDE ID{coe capm}]
[BLOCKINCLUDE ID{coe capm cash to earnings} INCLUDEIF{and(BU204=2,F244>0)}]
+ Cash flow to earnings conversion factor. The foregoing factors sum to a cash flow discount rate. To convert the discount rate to an earnings based discount rate, an additional [@F244] is added to the summation to account for the estimated difference between the Company's cash flows and earnings.
[ENDBLOCKINCLUDE ID{coe capm cash to earnings}]
[BLOCKINCLUDE ID{coe capm adjust to pretax} INCLUDEIF{and(bu204=2,bu203=1)}]
+ Adjust to a pre-tax basis. The discount rate has been adjusted by [@F247] to convert it to a pre-tax basis.
[ENDBLOCKINCLUDE ID{coe capm adjust to pretax}]
[BLOCKINCLUDE ID{coe capm adjust to EBIT} INCLUDEIF{and(bu204=2,bu203=3)}]
+ Adjust to an EBIT basis. The discount rate has been adjusted by [@F247] to convert it to an earnings before interest and taxes basis.
[ENDBLOCKINCLUDE ID{coe capm adjust to EBIT}]
[BLOCKINCLUDE ID{coe capm adjust to EBITDA} INCLUDEIF{and(bu204=2,bu203=4)}]
+ Adjust to an EBITDA basis. The discount rate has been adjusted by [@F247] to convert it to an earnings before interest, taxes, depreciation and amortization basis.
[ENDBLOCKINCLUDE ID{coe capm adjust to EBITDA}]
[BLOCKINCLUDE ID{coe capm WACC} INCLUDEIF{and(bu204=2,bu203>2)}]
Because the ongoing [earnings/cash flow] base is on a debt-free basis (i.e., all of the interest expense has been removed), the discount rate must be converted to a weighted-average cost of capital (WACC). The WACC requires the following inputs:
1. The cost of equity (calculated above)
2. The pre-tax cost of debt ([@CB191])
3. The marginal income tax rate ([@CB192]).
4. The percentage of debt ([@CB193]) and the percentage of equity ([@CB194]) in the Company's capital structure (equity plus interest bearing long-term debt).
The formula for calculating the WACC is as follows:
Cost of equity times percentage of equity in capital structure
+ (Cost of debt times one minus marginal tax rate) times percentage of debt
[ENDBLOCKINCLUDE ID{coe capm WACC}]
[BLOCKINCLUDE ID{coe capm growth} INCLUDEIF{bu204=2}]
Expected long-term earnings growth rate. We estimate [@F252] long-term compound annual growth. This [earnings/cash flow] growth estimate is based upon our assessment of the Company's prospects for sustained growth in relationship to the estimate of ongoing [earnings/cash flow] power developed above.
[ENDBLOCKINCLUDE ID{coe capm growth}]
[BLOCKINCLUDE ID{coe capm cap factor summary} INCLUDEIF{and(bu204=2,bu205=1,bx205=2)}]
The capitalization rate developed using the buildup method is [@F253]. The reciprocal of this measure (1/[@F253]) provides a capitalization multiple of [@F257].
[ENDBLOCKINCLUDE ID{coe capm cap factor summary}]
[BLOCKINCLUDE ID{coe capm cap rate summary} INCLUDEIF{and(bu204=2,bu205=1,bx205=1)}]
The capitalization rate developed using the buildup method is [@F253].
[ENDBLOCKINCLUDE ID{coe capm cap rate summary}]
[BLOCKINCLUDE ID{coe capm cap factor summary1} INCLUDEIF{and(bu204=2,bu205=2,bx205=2)}]
The capitalization rate developed using the buildup method is [@F253]. To convert to a capitalization rate to be used for the current [earnings/cash flow] base, this
capitalization rate is divided by one plus the expected long-term growth rate (1+ [@F252]). The result is a capitalization rate of [@F255]. The reciprocal of this measure (1/[@F255]) provides a capitalization multiple of [@F257].
[ENDBLOCKINCLUDE ID{coe capm cap factor summary1}]
[BLOCKINCLUDE ID{coe capm cap rate summary1} INCLUDEIF{and(bu204=2,bu205=2,bx205=1)}]
The capitalization rate developed using the buildup method is [@F253]. To convert to a capitalization rate to be used for the current [earnings/cash flow] base, this
capitalization rate is divided by one plus the expected long-term growth rate (1+ [@F252]). The result is a capitalization rate of [@F255].
[ENDBLOCKINCLUDE ID{coe capm cap rate summary1}]
Indicated Value
[BLOCKINCLUDE ID{coe no debt no disc/prem no excess} INCLUDEIF{and(bu203<3,bu206=0,bx204=0,bu207=0)}]
Schedule .... presents the conclusions of value using the capitalization of earnings method. The value of the Company is estimated to be $[@F93] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe no debt no disc/prem no excess}]
[BLOCKINCLUDE ID{coe no debt no disc/prem has excess} INCLUDEIF{and(bu203<3,bu206=0,bx204=0,bu207=1)}]
Schedule .... presents the conclusions of value using the capitalization of earnings method. The value of the Company's operating equity is estimated to be $[@F93]. After adding excess assets of $[@F100], the indicated value of the Company's common stock is $[@F101] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe no debt no disc/prem has excess}]
[BLOCKINCLUDE ID{coe no debt has disc/prem}
INCLUDEIF{and(bu203<3,or(bu206<>0,bx204=1,bu207=1))}]
Schedule .... presents the conclusions of value using the capitalization of earnings method. The operating value of the Company is estimated to be $[@F93] before the addition and/or subtraction of premiums, discounts, or excess assets.
[BLOCKINCLUDE ID{coe less debt no disc/prem no excess} INCLUDEIF{and(bu203>2,bu206=0,bx204=0,bu207=0)}]
Schedule .... presents the conclusions of value using the capitalization of earnings method. The operating value of the Company's capital is estimated to be $[@F93]. To calculate the value of the equity, total interest bearing debt of $[@F94] is subtracted from the value of the capital. After subtracting the debt, the estimated value of the equity is $[@F95] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe less debt no disc/prem no excess}]
[BLOCKINCLUDE ID{coe less debt no disc/prem has excess} INCLUDEIF{and(bu203>2,bu206=0,bx204=0,bu207=1)}]
Schedule .... presents the conclusions of value using the capitalization of earnings method. The operating value of the Company's capital is estimated to be $[@F93]. To calculate the value of the equity, total interest bearing debt of $[@F94] is subtracted from the value of the capital. After subtracting the debt, the estimated value of the operating equity is $[@F95]. After adding excess assets of $[@F100], the indicated value of the Company's common stock is $[@F101] which has been rounded to $ [@F103].
[ENDBLOCKINCLUDE ID{coe less debt no disc/prem has excess}]
[BLOCKINCLUDE ID{coe less debt has debt/prem}
INCLUDEIF{and(bu203>2,or(bu206<>0,bx204=1,bu207=1))}]
Schedule .... presents the conclusions of value using the capitalization of earnings method. The operating value of the Company's capital is estimated to be $[@F93]. To calculate the value of the operating equity, total interest bearing debt of $[@F94] is subtracted from the value of the operating capital. After subtracting the debt, the estimated value of the operating equity is $[@F95]
[ENDBLOCKINCLUDE ID{coe less debt has debt/prem}]
[BLOCKINCLUDE ID{coe Control Premium Include1} INCLUDEIF{BU206=1}]
Application of Control Premium
A control premium is an increase to the initial indicated value due to the existence of control prerogatives such as declaring dividends, liquidating the company, going public, issuing or buying stock, directing management, setting management's
salaries, etc. In our opinion, a control premium of [@E96] is appropriate because ...
[ENDBLOCKINCLUDE ID{coe Control Premium Include1}]
[BLOCKINCLUDE ID{coe Minority Discount Include2} INCLUDEIF{BU206=2}]
Application of Minority Interest Discount
A minority interest discount is a reduction to the initial indicated value due to a lack of control prerogatives such as declaring dividends, liquidating the company, going public, issuing or buying stock, directing management, setting management's salaries, etc. In our opinion, a minority interest discount of [@E96] is appropriate because ...
[ENDBLOCKINCLUDE ID{coe Minority Discount Include2}]
[FILEINCLUDE ID{coe marketability discount} INCLUDEIF{and(bx204=1,bt301=0,bt302=0)} FILE{MARKET.DOC}]
[ENDFILEINCLUDE ID{coe marketability discount}]
Discount Applied
In our opinion, a discount of [@E98] is required for lack of marketability. The discount reflects an expectation for ...
[ENDBLOCKINCLUDE ID{coe marketability applied}]
[BLOCKINCLUDE ID{coe marketability discount2} INCLUDEIF{and(bx204=1,or(bt301=1,bt302=1))}]
Application of Discount for Lack of Marketability
The discount for lack of marketability has been discussed above. In our opinion, a discount of [@E98] is required for lack of marketability. The discount reflects ...
[ENDBLOCKINCLUDE ID{coe marketability discount2}]
[BLOCKINCLUDE ID{coe Control Yes Market No Excess No} INCLUDEIF{and(BU206=1,BX204=0,bu207=0)}]
As determined after application of a [@E96] control premium, the indicated fair market value of the Company's common stock is $[@F97] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Control Yes Market No Excess No}]
[BLOCKINCLUDE ID{coe Control Yes Marketability Yes Excess No} INCLUDEIF{and(Bu206=1,bx204=1,bu207=0)}]
As determined after application of a [@E96] control premium and a [@E98] discount for lack of marketability, the indicated fair market value of the Company's common stock is $[@F99] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Control Yes Marketability Yes Excess No}]
[BLOCKINCLUDE ID{coe Control Yes Market No Excess Yes} INCLUDEIF{and(BU206=1,BX204=0,bu207=1)}]
As determined after application of a [@E96] control premium, the indicated fair market value of the Company's operating assets is $[@F97]. After adding excess assets of [@F100], the indicated value of the Company's common stock is $[@F101] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Control Yes Market No Excess Yes}]
[BLOCKINCLUDE ID{coe Control Yes Marketability Yes Excess Yes} INCLUDEIF{and(Bu206=1,bx204=1,bu207=1)}]
As determined after application of a [@E96] control premium and a [@E98] discount for lack of marketability, the indicated value of the company's operating assets is $ [@F99]. After adding excess assets of $[@F100] the fair market value of the Company's common stock is $[@F101] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Control Yes Marketability Yes Excess Yes}]
[BLOCKINCLUDE ID{coe Minority Yes Market No excess no} INCLUDEIF{and(BU206=2,BX204=0,bu207=0)}]
As determined after application of a [@E96] minority interest discount, the indicated fair market value of the Company's common stock is $[@F97] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Minority Yes Market No excess no}]
[BLOCKINCLUDE ID{coe Minority Yes Marketability Yes Excess No} INCLUDEIF{and(Bu206=2,bx204=1,bu207=0)}]
[ENDBLOCKINCLUDE ID{coe Minority Yes Marketability Yes Excess No}]
[BLOCKINCLUDE ID{coe Minority Yes Market No Excess Yes} INCLUDEIF{and(BU206=2,BX204=0,bu207=1)}]
As determined after application of a [@E96] minority interest discount, the indicated fair market value of the Company's operating assets is $[@F97]. After adding excess assets of $[@F100], the indicated value of the Company's common stock is $[@F101] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Minority Yes Market No Excess Yes}]
[BLOCKINCLUDE ID{coe Minority Yes Marketability Yes Excess Yes} INCLUDEIF{and(Bu206=2,bx204=1,bu207=1)}]
As determined after application of a [@E96] minority interest discount and a [@E98] discount for lack of marketability, the indicated value of the company's operating assets is $[@F99]. After adding excess assets of $[@F100] the fair market value of the Company's common stock is $[@F101] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Minority Yes Marketability Yes Excess Yes}]
[BLOCKINCLUDE ID{coe Prem/Disc No Marketability Yes Excess No} INCLUDEIF{and(BU206=0,BX204=1,bu207=0)}]
As determined after application of a [@E98] discount for lack of marketability, the indicated fair market value of the Company's common stock is $[@F99] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Prem/Disc No Marketability Yes Excess No}]
[BLOCKINCLUDE ID{coe Prem/Minority No Marketability Yes Excess Yes} INCLUDEIF{and(Bu206=0,bx204=1,bu207=1)}]
As determined after application of a [@E98] discount for lack of marketability, the indicated value of the company's operating assets is $[@F99]. After adding excess assets of $[@F100] the fair market value of the Company's common stock is $[@F101] which has been rounded to $[@F103].
[ENDBLOCKINCLUDE ID{coe Prem/Minority No Marketability Yes Excess Yes}] [ENDBLOCKINCLUDE ID{Capitalization of Earnings}]
[BLOCKINCLUDE ID{DCF-Summary} INCLUDEIF{CI149<>0}]
Discounted Cash Flow Method - Summary Projections
This method requires an explicit forecast of future cash flows over a reasonably foreseeable period, an appropriate discount rate and an estimate of long-term growth beyond the forecast period.
[BLOCKINCLUDE ID{Manual Earnings} INCLUDEIF{and(BU216=1,BU218=2)}]
Forecast of Future Earnings
Schedule ... indicates the earnings that were projected for each of the [@BU219] years. The projected earnings were estimated by ...
[ENDBLOCKINCLUDE ID{Manual Earnings}]
[BLOCKINCLUDE ID{Manual Cash Flows} INCLUDEIF{and(BU216=2,BU218=2)}]
Forecast of Future Cash Flows
[ENDBLOCKINCLUDE ID{Manual Cash Flows}]
[BLOCKINCLUDE ID{Earnings - Regression} INCLUDEIF{and(BU216=1,BU218=4)}]
Forecast of Future Earnings
Schedule ... indicates the earnings that were projected for each of the [@BU219] years. The projected earnings were estimated by calculating the regression line from ... to ... and applying the regression equation ...
[ENDBLOCKINCLUDE ID{Earnings - Regression}]
[BLOCKINCLUDE ID{Cash Flow - Regress} INCLUDEIF{and(BU216=2,BU218=4)}]
Forecast of Future Cash Flows
Schedule ... indicates the cash flows that were projected for each of the [@BU219] years. The projected cash flows were estimated by ...
[ENDBLOCKINCLUDE ID{Cash Flow - Regress}]
[BLOCKINCLUDE ID{dfe base} INCLUDEIF{and(BU216=1,or(BU218=1,BU218=3))}]
Forecast of Future Earnings
The forecasting of future earnings requires the estimation of two components: (1) an earnings base to project and (2) a growth rate for each year of the projection period.
[ENDBLOCKINCLUDE ID{dfe base}]
[BLOCKINCLUDE ID{dfe pretax} INCLUDEIF{and(bu216=1,bu217=1,or(bu218=1,bu218=3))}]
Pre-Tax Earnings Base:
The analysis in Schedule .... derives two measures of a weighted average pre-tax earnings base.
$[@AL218] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL230] Margin-based estimate: Weighted average pre-tax earnings margin ([@AL228]) times weighted average revenues ($[@AL224]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimated pre-tax earnings base of $[@AL232] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
[ENDBLOCKINCLUDE ID{dfe pretax}]
[BLOCKINCLUDE ID{dfe pretax manual} INCLUDEIF{and(bu218=1,bu216=1,bu217=1)}]
This earnings base has been projected by an estimated growth rate for each year of the projection period. The estimated growth rates used ...
[ENDBLOCKINCLUDE ID{dfe pretax manual}]
[BLOCKINCLUDE ID{dfe pretax historical} INCLUDEIF{and(bu218=3,bu216=1,bu217=1)}]
This earnings base has been projected by an estimated growth rate that is equal to the growth rate in the Company's pretax earnings from [@CB180] through [@CB181] for each year of the projection period. This growth rate has been applied to the
calculated pretax tax earnings base because ...
[ENDBLOCKINCLUDE ID{dfe pretax historical}]
After-Tax Earnings Base:
The analysis in Schedule .... derives two measures of a weighted average pre-tax earnings base.
$[@AL218] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL230] Margin-based estimate: Weighted average pre-tax earnings margin ([@AL228]) times weighted average revenues ($[@AL224]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimated pre-tax earnings base of $[@AL232] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
The estimated pre-tax earnings base is reduced by an estimate of state and federal income taxes to calculate estimated net earnings base of $[@AL239].
[ENDBLOCKINCLUDE ID{dfe Aftertax}]
[BLOCKINCLUDE ID{dfe aftertax manual} INCLUDEIF{and(bu218=1,bu216=1,bu217=2)}]
This earnings base has been projected by an estimated growth rate for each year of the projection period. The estimated growth rates used ...
[ENDBLOCKINCLUDE ID{dfe aftertax manual}]
[BLOCKINCLUDE ID{dfe aftertax historical} INCLUDEIF{and(bu218=3,bu216=1,bu217=2)}]
This earnings base has been projected by an estimated growth rate that is equal to the growth rate in the Company's aftertax earnings from [@CB180] through [@CB181] for each year of the projection period. This growth rate has been applied to the calculated aftertax tax earnings base because ...
[ENDBLOCKINCLUDE ID{dfe aftertax historical}]
[BLOCKINCLUDE ID{dfe ebit base} INCLUDEIF{and(BU216=1,BU217=3,or(bu218=1,bu218=3))}]
EBIT Base:
The analysis in Schedule .... derives two measures of a weighted average earnings before interest and taxes (EBIT) base.
$[@AL218] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL230] Margin-based estimate: Weighted average EBIT margin ([@AL228]) times weighted average revenues ($[@AL224]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimated EBIT base of $[@AL232] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
[ENDBLOCKINCLUDE ID{dfe ebit base}]
[BLOCKINCLUDE ID{dfe EBIT manual} INCLUDEIF{and(bu218=1,bu216=1,bu217=3)}]
This earnings base has been projected by an estimated growth rate for each year of the projection period. The estimated growth rates used ...
[ENDBLOCKINCLUDE ID{dfe EBIT manual}]
This earnings base has been projected by an estimated growth rate that is equal to the growth rate in the Company's earnings before interest and taxes (EBIT) from [@CB180] through [@CB181] for each year of the projection period. This growth rate has been applied to the calculated EBIT base because ...
[ENDBLOCKINCLUDE ID{dfe EBIT historical}]
[BLOCKINCLUDE ID{dfe EBITDA base} INCLUDEIF{and(bu216=1,bu217=4,or(bu218=1,bu218=3))}]
EBITDA Base:
The analysis in Schedule .... derives two measures of a weighted average earnings before interest, taxes, depreciation, and amortization (EBITDA) base.
$[@AL218] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL230] Margin-based estimate: Weighted average EBITDA margin ([@AL228]) times weighted average revenues ($[@AL224]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimated EBITDA base of $[@AL232] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
[ENDBLOCKINCLUDE ID{dfe EBITDA base}]
[BLOCKINCLUDE ID{dfe EBITDA manual} INCLUDEIF{and(bu218=1,bu216=1,bu217=4)}]
This earnings base has been projected by an estimated growth rate for each year of the projection period. The estimated growth rates used ...
[ENDBLOCKINCLUDE ID{dfe EBITDA manual}]
[BLOCKINCLUDE ID{dfe EBITDA historical} INCLUDEIF{and(bu218=3,bu216=1,bu217=4)}]
This earnings base has been projected by an estimated growth rate that is equal to the growth rate in the Company's earnings before interest, taxes, Depreciation, and Amortization (EBITDA) from [@CB180] through [@CB181] for each year of the projection period. This growth rate has been applied to the calculated EBITDA base
because ...
[ENDBLOCKINCLUDE ID{dfe EBITDA historical}]
[BLOCKINCLUDE ID{dfe ebi base} INCLUDEIF{and(bu216=1,bu217=5,or(bu218=1,bu218=3))}]
After-Tax (Debt Free) Base:
The analysis in Schedule .... derives two measures of a weighted average earnings before interest and taxes (EBIT) base.
$[@AL218] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL230] Margin-based estimate: Weighted average EBIT margin ([@AL228]) times weighted average revenues ($[@AL224]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimated EBIT base of $[@AL232] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
[ENDBLOCKINCLUDE ID{dfe ebi base}]
[BLOCKINCLUDE ID{dfe debtfree manual} INCLUDEIF{and(bu218=1,bu216=1,bu217=5)}]
This earnings base has been projected by an estimated growth rate for each year of the projection period. The estimated growth rates used ...
[ENDBLOCKINCLUDE ID{dfe debtfree manual}]
[BLOCKINCLUDE ID{dfe debtfree historical} INCLUDEIF{and(bu218=3,bu216=1,bu217=5)}]
This earnings base has been projected by an estimated growth rate that is equal to the growth rate in the Company's debt-free net earnings from [@CB180] through [@CB181] for each year of the projection period. This growth rate has been applied to the calculated debt-free net earnings base because ...
[ENDBLOCKINCLUDE ID{dfe debtfree historical}]
[BLOCKINCLUDE ID{dcf base} INCLUDEIF{and(BU216=2,or(BU218=1,BU218=3))}]
Forecast of Future Cash Flows
The forecasting of future cash flows requires the estimation of two components: (1) a cash flows base to project and (2) a growth rate for each year of the projection period.
[ENDBLOCKINCLUDE ID{dcf base}]
[BLOCKINCLUDE ID{dcf pretax base} INCLUDEIF{and(bu216=2,bu217=1,or(bu218=1,bu218=3))}]
Pre-Tax Cash Flow Base:
The analysis in Schedule .... derives two measures of a weighted average pre-tax cash flow base (pre-tax earnings plus depreciation and amortization).
$[@AL254] Dollar-based estimate: Weighted average dollar amount which helps to capture the effects of ...
$[@AL266] Margin-based estimate: Weighted average pre-tax cash flow margin ([@AL264]) times weighted average revenues ($[@AL260]). Sustainable revenues and margins are estimated in the context of ....
The analysis provides an estimated pre-tax gross cash flow base of $[@AL268] by [averaging, weight averaging, etc]. the results of the dollar-based and margin-based estimates.
To convert the pre-tax gross cash flow base to a pre-tax net cash flow base the following adjustments were made:
1. Subtracted estimated increase of $[@AL269] in working capital. [Discuss how estimate derived]
2. Subtracted estimated increase of $[@AL270] in capital assets. [Discuss how estimate derived]
3. Added estimated increase of $[@AL271] in long-term debt. [Discuss how estimate derived]
The result in an estimated pre-tax net cash flow base of $[@AL272].
[ENDBLOCKINCLUDE ID{dcf pretax base}]
