100 PERCENT OF THE COMMON STOCK IN
VOGUE CORP. ON A
MINORITY, NON-MARKETABLE BASIS
VALUATION REPORT
100 PERCENT OF THE COMMON STOCK IN
VOGUE
CORP.
ON A
MARCH
31, 2010
MINORITY, NON-MARKETABLE BASIS
VALUATION REPORT
MARCH 31, 2010
©TRUGMAN VALUATION ASSOCIATES, INC. 2011
August 9, 2011
To the Board of Directors of
Vogue Corp.
4000 Pembroke Blvd.
Plantation, FL 12345
Re: Valuation of 100 percent of the common stock in Vogue Corp. on a minority, nonmarketable basis
Dear Board of Directors:
We have performed a valuation engagement, as that term is defined in the Statement on
Standards for Valuation Services (SSVS) of the American Institute of Certified Public
Accountants of 100 percent of the common stock in Vogue Corp. on a minority, nonmarketable basis as of March 31, 2010. This valuation was performed for corporate
planning purposes; the resulting conclusion of value should not be used for any other
purpose or by any other party for any purpose. This valuation engagement was conducted
in accordance with the SSVS, as well as the standards promulgated by The Appraisal
Foundation, the American Society of Appraisers, and The Institute of Business Appraisers,
Inc. The estimate of value that results from a valuation engagement is expressed as a
conclusion of value.
Based on our analysis, as described in this valuation report, which must be signed in blue
ink by the valuation analyst to be authentic, the conclusion of value of 100 percent of the
common stock in Vogue Corp. on a minority, non-marketable basis as of March 31, 2010
is:
SEVENTY MILLION, SEVEN HUNDRED SEVENTY THOUSAND DOLLARS
($70,770,000)
or
TWO THOUSAND FIVE HUNDRED FORTY-TWO DOLLARS AND
NINETY-FOUR CENT ($2,542.94) PER SHARE
Florida
8751 W. Broward Blvd. • Suite 203 • Plantation, FL 33324
O: 954-424-4343 • F: 954-424-1416
New Jersey
2001 Rte. 46 • Suite 310 • Parsippany, NJ 07054
O: 973-983-9790
844-TRUGMAN
www.trugmanvaluation.com
This conclusion is subject to the Statement of Assumptions and Limiting Conditions found
in Appendix 2 and to the Valuation Analyst’s Representation found in Appendix 3. We have
no obligation to update this report or our conclusion of value for information that comes to
our attention after the date of this report.
Respectfully submitted,
TRUGMAN VALUATION ASSOCIATES, INC.
Linda B. Trugman
CPA/ABV, MCBA, ASA, MBA
LBT/kag
Attachment
TABLE OF CONTENTS
Page
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Description of the Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Definition of Fair Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation Methodologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Going Concern Valuation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Market Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Asset-Based Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenue Ruling 59-60 - Valuation of Closely-Held Stocks . . . . . . . . . . . . . . .
1
1
2
3
3
4
4
5
THE NATURE OF THE BUSINESS AND THE HISTORY OF THE
ENTERPRISE FROM ITS INCEPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
THE ECONOMIC OUTLOOK IN GENERAL AND THE CONDITION AND
OUTLOOK OF THE SPECIFIC INDUSTRY IN PARTICULAR . . . . . . . . . . . 17
National Economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Industry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Summary and Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
THE BOOK VALUE OF THE STOCK AND THE
FINANCIAL CONDITION OF THE BUSINESS . . . . . . . . . . . . . . . . . . . . . . . 36
THE EARNING CAPACITY OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . 50
THE DIVIDEND PAYING CAPACITY OF THE COMPANY . . . . . . . . . . . . . . . . . . . 51
WHETHER OR NOT THE ENTERPRISE HAS GOODWILL OR
OTHER INTANGIBLE VALUE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SALES OF THE STOCK AND THE SIZE OF THE
BLOCK OF STOCK TO BE VALUED . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
THE MARKET PRICE OF STOCKS OF CORPORATIONS
ACTIVELY TRADED IN THE PUBLIC MARKET . . . . . . . . . . . . . . . . . . . . . 55
Guideline Public Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger and Acquisition Transaction Search . . . . . . . . . . . . . . . . . . . . . . . . .
Pratt’s Stats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Public Stats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
55
80
81
81
TABLE OF CONTENTS
Page
VALUATION CALCULATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
The Income Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalization of Future Benefits Method . . . . . . . . . . . . . . . . . . . . . . .
The Market Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Guideline Public Company Method . . . . . . . . . . . . . . . . . . . . . . . . . . .
Merger and Acquisition Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The Asset-Based Approach . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjusted Book Value Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reconciliation of Values . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
82
82
84
84
84
85
85
88
DISCOUNT AND CAPITALIZATION RATES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
PREMIUMS AND DISCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Valuation Premiums and Discounts in General . . . . . . . . . . . . . . . . . . . . . . . 96
Control Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
Minority Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Discount for Lack of Control Applicable to Operating Assets . . . . . . 100
Discount for Lack of Control Applicable to Non-Operating Assets . . 103
Discount for Lack of Marketability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
Restricted Stock Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Initial Public Offering Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
Other Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 134
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
SCHEDULES
Schedule 1 - Vogue Corp. Balance Sheet as of December 31, 2005 through
December 31, 2009.
Schedule 2 - Vogue Corp. Income Statement for the Years Ended December 31,
2005 through December 31, 2009.
Schedule 3 - Vogue Corp. Balance Sheet as of March 31, 2010.
Schedule 4 - Vogue Corp. Income Statement for the Three Months ended March 31,
2010.
TABLE OF CONTENTS
APPENDICES
Sources of Information Utilized
Contingent and Limiting Conditions
Valuation Analyst’s Representation
Professional Qualifications of Appraisers
Page
-1-1-1-
INTRODUCTION
INTRODUCTION
INTRODUCTION
DESCRIPTION OF THE ASSIGNMENT
DESCRIPTION
DESCRIPTION OF
OF THE
THE ASSIGNMENT
ASSIGNMENT
Trugman Valuation Associates, Inc. was retained by the Board of Directors of Vogue Corp.
Trugman
Trugman Valuation
Valuation Associates,
Associates, Inc.
Inc. was
was retained
retained by
by the
the Board
Board of
of Directors
Directors of
of Vogue
Vogue Corp.
Corp.
to appraise 100 percent of the common shares in Vogue Corp. on a minority,
to
to appraise
appraise 100
100 percent
percent of
of the
the common
common shares
shares in
in Vogue
Vogue Corp.
Corp. on
on a
a minority,
minority,
nonmarketable basis as of March 31, 2010.
nonmarketable
nonmarketable basis
basis as
as of
of March
March 31,
31, 2010.
2010.
The purpose of this appraisal is to determine the fair market value of The Company’s
The
The purpose
purpose of
of this
this appraisal
appraisal is
is to
to determine
determine the
the fair
fair market
market value
value of
of The
The Company’s
Company’s
common stock for corporate planning purposes. The scope of work for this appraisal was
common
common stock
stock for
for corporate
corporate planning
planning purposes.
purposes. The
The scope
scope of
of work
work for
for this
this appraisal
appraisal was
was
not limited in any way and all relevant data and methodologies have been considered and
not
not limited
limited in
in any
any way
way and
and all
all relevant
relevant data
data and
and methodologies
methodologies have
have been
been considered
considered and
and
presented in this report. This assignment meets all of the requirements under Statement
presented
presented in
in this
this report.
report. This
This assignment
assignment meets
meets all
all of
of the
the requirements
requirements under
under Statement
Statement
on Standards for Valuation Services No. 1 promulgated by the American Institute of
on
on Standards
Standards for
for Valuation
Valuation Services
Services No.
No. 1
1 promulgated
promulgated by
by the
the American
American Institute
Institute of
of
Certified Public Accountants, as well as the Uniform Standards of Professional Appraisal
Certified
Certified Public
Public Accountants,
Accountants, as
as well
well as
as the
the Uniform
Uniform Standards
Standards of
of Professional
Professional Appraisal
Appraisal
Practice promulgated by the Appraisal Foundation and the standards of the American
Practice
Practice promulgated
promulgated by
by the
the Appraisal
Appraisal Foundation
Foundation and
and the
the standards
standards of
of the
the American
American
Society of Appraisers and the Institute of Business Appraisers.
Society
Society of
of Appraisers
Appraisers and
and the
the Institute
Institute of
of Business
Business Appraisers.
Appraisers.
DEFINITION OF FAIR MARKET VALUE
DEFINITION
DEFINITION OF
OF FAIR
FAIR MARKET
MARKET VALUE
VALUE
The most commonly used definition of fair market value is located in Revenue Ruling 59The
The most
most commonly
commonly used
used definition
definition of
of fair
fair market
market value
value is
is located
located in
in Revenue
Revenue Ruling
Ruling 595960. This revenue ruling defines fair market value as
60.
60. This
This revenue
revenue ruling
ruling defines
defines fair
fair market
market value
value as
as
...the price at which the property would change hands between a willing
...the
at which
the
property
would
hands
between
...the price
price
which
thewhen
property
would ischange
change
hands
between a
a willing
willing
buyer
and a at
willing
seller
the former
not under
any compulsion
to buy
buyer
and
a
willing
seller
when
the
former
is
not
under
any
compulsion
to
buyerthe
andlatter
a willing
seller
whenany
the former
is not to
under
compulsion
to buy
buy
and
is not
under
compulsion
sell,any
both
parties having
and
the
latter
is
not
under
any
compulsion
to
sell,
both
parties
having
and
the
latter
is
not
under
any
compulsion
to
sell,
both
parties
having
reasonable knowledge of relevant facts. Court decisions frequently state in
reasonable
knowledge of
facts.
Court
decisions
frequently
state
in
reasonable
of relevant
relevant
facts.
Court are
decisions
frequently
stateas
in
addition thatknowledge
the hypothetical
buyer
and seller
assumed
to be able,
addition
that
the
hypothetical
buyer
and
seller
are
assumed
to
be
able,
as
addition that the hypothetical buyer and seller are assumed to be able, as
-2-2well as willing, to trade and to be well informed about the property and
well
as willing,
to tradeforand
to property.
be well informed about the property and
concerning
the market
such
concerning the market for such property.
This definition of fair market value is the most widely used in valuation practice. Also
This definition of fair market value is the most widely used in valuation practice. Also
implied in this definition is that the value is to be stated in cash or cash equivalents and that
implied in this definition is that the value is to be stated in cash or cash equivalents and that
the property would have been exposed on the open market for a long enough period of
the property would have been exposed on the open market for a long enough period of
time to allow market forces to interact to establish the value.
time to allow market forces to interact to establish the value.
VALUATION METHODOLOGIES
VALUATION METHODOLOGIES
There are two fundamental bases on which a company may be valued:
There are two fundamental bases on which a company may be valued:
1.
1.
2.
2.
As a going concern, and
As a going concern, and
As if in liquidation.
As if in liquidation.
The value of a company is deemed to be the higher of the two values determined under a
The value of a company is deemed to be the higher of the two values determined under a
going concern or a liquidation premise. This approach is consistent with the appraisal
going concern or a liquidation premise. This approach is consistent with the appraisal
concept of highest and best use, which requires an appraiser to consider the optimal use
concept of highest and best use, which requires an appraiser to consider the optimal use
of the assets being appraised under current market conditions. If a business will command
of the assets being appraised under current market conditions. If a business will command
a higher price as a going concern then it should be valued as such. Conversely, if a
a higher price as a going concern then it should be valued as such. Conversely, if a
business will command a higher price if it is liquidated, then it should be valued as if in
business will command a higher price if it is liquidated, then it should be valued as if in
orderly liquidation. This company will be valued on a going concern basis, as this is its
orderly liquidation. This company will be valued on a going concern basis, as this is its
highest and best use.
highest and best use.
GOING
CONCERN VALUATION
GOING
GOING CONCERN
CONCERN VALUATION
VALUATION
-3-3-3-
Going concern value assumes that the company will continue in business, and looks to the
Going
Going concern
concern value
value assumes
assumes that
that the
the company
company will
will continue
continue in
in business,
business, and
and looks
looks to
to the
the
enterprise's earnings power and cash generation capabilities as indicators of its fair market
enterprise's
enterprise's earnings
earnings power
power and
and cash
cash generation
generation capabilities
capabilities as
as indicators
indicators of
of its
its fair
fair market
market
value. There are many acceptable methods used in business valuation today. The
value.
value. There
There are
are many
many acceptable
acceptable methods
methods used
used in
in business
business valuation
valuation today.
today. The
The
foundation for business valuation arises from what has been used in valuing real estate for
foundation
foundation for
for business
business valuation
valuation arises
arises from
from what
what has
has been
been used
used in
in valuing
valuing real
real estate
estate for
for
many years. The three basic approaches that must be considered by the appraiser are:
many
many years.
years. The
The three
three basic
basic approaches
approaches that
that must
must be
be considered
considered by
by the
the appraiser
appraiser are:
are:
1.
1.
1.
2.
2.
2.
3.
3.
3.
The Market Approach,
The
The Market
Market Approach,
Approach,
The Asset-Based Approach, and
The
The Asset-Based
Asset-Based Approach,
Approach, and
and
The Income Approach.
The
The Income
Income Approach.
Approach.
Within each of these approaches there are many acceptable valuation methods available
Within
Within each
each of
of these
these approaches
approaches there
there are
are many
many acceptable
acceptable valuation
valuation methods
methods available
available
for use by the appraiser. Appraisal standards suggest that an appraiser test as many
for
for use
use by
by the
the appraiser.
appraiser. Appraisal
Appraisal standards
standards suggest
suggest that
that an
an appraiser
appraiser test
test as
as many
many
methods as may be applicable to the facts and circumstances of the property being
methods
methods as
as may
may be
be applicable
applicable to
to the
the facts
facts and
and circumstances
circumstances of
of the
the property
property being
being
appraised. It is then up to the appraiser's informed judgment as to how these values will
appraised.
appraised. It
It is
is then
then up
up to
to the
the appraiser's
appraiser's informed
informed judgment
judgment as
as to
to how
how these
these values
values will
will
be reconciled in deriving a final estimate of value.
be
be reconciled
reconciled in
in deriving
deriving a
a final
final estimate
estimate of
of value.
value.
THE MARKET APPROACH
THE
THE MARKET
MARKET APPROACH
APPROACH
The market approach is fundamental to valuation as fair market value is determined by the
The
The market
market approach
approach is
is fundamental
fundamental to
to valuation
valuation as
as fair
fair market
market value
value is
is determined
determined by
by the
the
market. Under this approach, the appraiser attempts to find guideline companies traded
market.
market. Under
Under this
this approach,
approach, the
the appraiser
appraiser attempts
attempts to
to find
find guideline
guideline companies
companies traded
traded
on a public stock exchange, in the same or similar industry as the appraisal subject, that
on
on a
a public
public stock
stock exchange,
exchange, in
in the
the same
same or
or similar
similar industry
industry as
as the
the appraisal
appraisal subject,
subject, that
that
provides the appraiser with the ability to make a comparison between the pricing multiples
provides
provides the
the appraiser
appraiser with
with the
the ability
ability to
to make
make a
a comparison
comparison between
between the
the pricing
pricing multiples
multiples
that the public company trades at and the multiple that is deemed appropriate for the
that
that the
the public
public company
company trades
trades at
at and
and the
the multiple
multiple that
that is
is deemed
deemed appropriate
appropriate for
for the
the
appraisal subject.
appraisal
appraisal subject.
subject.
Another common variation of this approach is to locate entire companies that have been
Another
Another common
common variation
variation of
of this
this approach
approach is
is to
to locate
locate entire
entire companies
companies that
that have
have been
been
bought and sold in the marketplace, publicly-traded or closely-held, that provide the
bought
bought and
and sold
sold in
in the
the marketplace,
marketplace, publicly-traded
publicly-traded or
or closely-held,
closely-held, that
that provide
provide the
the
-4-4appraiser with the ability to determine the multiples that resulted from the transaction.
appraiser with the ability to determine the multiples that resulted from the transaction.
These multiples can then be applied to the appraisal subject, with or without adjustment,
These multiples can then be applied to the appraisal subject, with or without adjustment,
depending on the circumstances.
depending on the circumstances.
THE ASSET-BASED APPROACH
THE ASSET-BASED APPROACH
The asset-based approach, sometimes referred to as the cost approach, is an assetThe asset-based approach, sometimes referred to as the cost approach, is an assetoriented approach rather than a market-oriented approach. Each component of a business
oriented approach rather than a market-oriented approach. Each component of a business
is valued separately, and summed up to derive the total value of the enterprise.
is valued separately, and summed up to derive the total value of the enterprise.
The appraiser estimates value, using this approach, by estimating the cost of duplicating
The appraiser estimates value, using this approach, by estimating the cost of duplicating
or replacing the individual elements of the business property being appraised, item by item,
or replacing the individual elements of the business property being appraised, item by item,
asset by asset.
asset by asset.
The tangible assets of the business are valued using this approach, although it cannot be
The tangible assets of the business are valued using this approach, although it cannot be
used alone as many businesses have intangible value as well, to which this approach
used alone as many businesses have intangible value as well, to which this approach
cannot easily be applied.
cannot easily be applied.
THE INCOME APPROACH
THE INCOME APPROACH
The income approach, sometimes referred to as the investment value approach, is an
The income approach, sometimes referred to as the investment value approach, is an
income-oriented approach rather than an asset or market-oriented approach. This
income-oriented approach rather than an asset or market-oriented approach. This
approach assumes that an investor could invest in a property with similar investment
approach assumes that an investor could invest in a property with similar investment
characteristics, although not necessarily the same business.
characteristics, although not necessarily the same business.
The computations using the income approach generally determine that the value of the
The computations using the income approach generally determine that the value of the
business is equal to the present value of the future benefit stream to the owners. This is
business is equal to the present value of the future benefit stream to the owners. This is
accomplished by either capitalizing a single period income stream or by discounting a
accomplished by either capitalizing a single period income stream or by discounting a
series of income streams based on a multi-period forecast.
series of income streams based on a multi-period forecast.
-5-5-5Since estimating the future income of a business is at times considered to be speculative,
Since estimating
estimating the
the future
future income
income of
of a
a business
business is
is at
at times
times considered
considered to
to be
be speculative,
speculative,
Since
historic data is used as a starting point in several of the acceptable methods under the
historic data
data is
is used
used as
as a
a starting
starting point
point in
in several
several of
of the
the acceptable
acceptable methods
methods under
under the
the
historic
premise that history will repeat itself. The future cannot be ignored, however, since
premise that
that history
history will
will repeat
repeat itself.
itself. The
The future
future cannot
cannot be
be ignored,
ignored, however,
however, since
since
premise
valuation is a prophecy of the future.
valuation is
is a
a prophecy
prophecy of
of the
the future.
future.
valuation
REVENUE
RULING 59-60
- VALUATION OF
CLOSELY-HELD STOCKS
REVENUE
REVENUE RULING
RULING 59-60
59-60 -- VALUATION
VALUATION OF
OF CLOSELY-HELD
CLOSELY-HELD STOCKS
STOCKS
Among other factors, this appraiser considered all elements listed in Internal Revenue
Among
Among other
other factors,
factors, this
this appraiser
appraiser considered
considered all
all elements
elements listed
listed in
in Internal
Internal Revenue
Revenue
Service Ruling 59-60 which provides guidelines for the valuation of closely-held stocks.
Service
Service Ruling
Ruling 59-60
59-60 which
which provides
provides guidelines
guidelines for
for the
the valuation
valuation of
of closely-held
closely-held stocks.
stocks.
Revenue Ruling 59-60 states that all relevant factors should be taken into consideration,
Revenue
Revenue Ruling
Ruling 59-60
59-60 states
states that
that all
all relevant
relevant factors
factors should
should be
be taken
taken into
into consideration,
consideration,
including the following:
including
including the
the following:
following:
1.
1.
1.
2.
2.
2.
3.
3.
3.
4.
4.
4.
5.
5.
5.
6.
6.
6.
7.
7.
7.
8.
8.
8.
The nature of the business and the history of the enterprise from its
The
The nature
nature of
of the
the business
business and
and the
the history
history of
of the
the enterprise
enterprise from
from its
its
inception.
inception.
inception.
The economic outlook in general and the condition and outlook of the
The
outlook
in
The economic
economic
outlook
in general
general and
and the
the condition
condition and
and outlook
outlook of
of the
the
specific
industry
in particular.
specific
industry
in
particular.
specific industry in particular.
The book value of the stock and financial condition of the business.
The
The book
book value
value of
of the
the stock
stock and
and financial
financial condition
condition of
of the
the business.
business.
The earning capacity of the company.
The
The earning
earning capacity
capacity of
of the
the company.
company.
The dividend paying capacity of the company.
The
The dividend
dividend paying
paying capacity
capacity of
of the
the company.
company.
Whether or not the enterprise has goodwill or other intangible value.
Whether
Whether or
or not
not the
the enterprise
enterprise has
has goodwill
goodwill or
or other
other intangible
intangible value.
value.
Sales of the stock and the size of the block of stock to be valued.
Sales
Sales of
of the
the stock
stock and
and the
the size
size of
of the
the block
block of
of stock
stock to
to be
be valued.
valued.
The market price of stocks of corporations engaged in the same or
The
price
of
of
engaged in
same
or
The market
market
price
of stocks
stocks
of corporations
corporations
in the
the in
same
or
similar
line of
business
having
their stocks engaged
actively traded
a free
similar
line
of
business
having
their
stocks
actively
traded
in
a
free
similar
linemarket
of business
having
their stocks
actively
traded in a free
and open
either on
an exchange
or over
the counter.
and
open
market
either
on
an
exchange
or
over
the
counter.
and open market either on an exchange or over the counter.
Since determining the fair market value of a business is the question at issue, one must
Since
Since determining
determining the
the fair
fair market
market value
value of
of a
a business
business is
is the
the question
question at
at issue,
issue, one
one must
must
understand the circumstances of this business. There is no set formula to the approach
understand
understand the
the circumstances
circumstances of
of this
this business.
business. There
There is
is no
no set
set formula
formula to
to the
the approach
approach
-6-6to be used that will be applicable to the different valuation issues that arise. Often, an
to be used that will be applicable to the different valuation issues that arise. Often, an
appraiser will find wide differences of opinion as to the fair market value of a particular
appraiser will find wide differences of opinion as to the fair market value of a particular
business or business interest. In resolving such differences, one should recognize that
business or business interest. In resolving such differences, one should recognize that
valuation is not an exact science. Revenue Ruling 59-60 states that "a sound valuation will
valuation is not an exact science. Revenue Ruling 59-60 states that "a sound valuation will
be based on all relevant facts, but the elements of common sense, informed judgment and
be based on all relevant facts, but the elements of common sense, informed judgment and
reasonableness must enter into the process of weighing those facts and determining their
reasonableness must enter into the process of weighing those facts and determining their
aggregate significance."
aggregate significance."
The fair market value of specific shares of stock in an unlisted corporation will vary as
The fair market value of specific shares of stock in an unlisted corporation will vary as
general economic conditions change. Uncertainty as to the stability or continuity of the
general economic conditions change. Uncertainty as to the stability or continuity of the
future income from the business decreases its value by increasing the risk of loss in the
future income from the business decreases its value by increasing the risk of loss in the
future. The valuation of shares of stock of a company with uncertain future prospects is a
future. The valuation of shares of stock of a company with uncertain future prospects is a
highly speculative procedure. The judgment must be related to all of the factors affecting
highly speculative procedure. The judgment must be related to all of the factors affecting
the value.
the value.
There is no single formula acceptable for determining the fair market value of a closely-held
There is no single formula acceptable for determining the fair market value of a closely-held
business, and therefore, the appraiser must look to all relevant factors in order to establish
business, and therefore, the appraiser must look to all relevant factors in order to establish
the business’ fair market value as of a given date
the business’ fair market value as of a given date
-7-7-7-
THE NATURE OF THE BUSINESS AND THE
THE
NATURE
OF
AND
THE
THE OF
NATURE
OF THE
THE BUSINESS
BUSINESS
ANDINCEPTION
THE
HISTORY
THE ENTERPRISE
FROM ITS
HISTORY
OF
THE
ENTERPRISE
FROM
ITS
INCEPTION
HISTORY OF THE ENTERPRISE FROM ITS INCEPTION
FORMATION AND PURPOSE
FORMATION
FORMATION AND
AND PURPOSE
PURPOSE
Vogue Corp. (“Vogue” or “The Company”) was founded in 1964 and is primarily engaged
Vogue
Vogue Corp.
Corp. (“Vogue”
(“Vogue” or
or “The
“The Company”)
Company”) was
was founded
founded in
in 1964
1964 and
and is
is primarily
primarily engaged
engaged
in the ownership and leasing of health care facilities that provide nursing and rehabilitative
in the
the ownership
ownership and
in
and leasing
leasing of
of health
health care
care facilities
facilities that
that provide
provide nursing
nursing and
and rehabilitative
rehabilitative
care to the elderly. In addition, Vogue has investments in debt and equity securities, as
care
care to
to the
the elderly.
elderly. In
In addition,
addition, Vogue
Vogue has
has investments
investments in
in debt
debt and
and equity
equity securities,
securities, as
as
well as limited partnerships.
well as
as limited
limited partnerships.
partnerships.
well
The Company was initially located in the State of New York and operated as a company
The
The Company
Company was
was initially
initially located
located in
in the
the State
State of
of New
New York
York and
and operated
operated as
as a
a company
company
that constructed, built and operated nursing homes. In 1965, Vogue went public and in
that
that constructed,
constructed, built
built and
and operated
operated nursing
nursing homes.
homes. In
In 1965,
1965, Vogue
Vogue went
went public
public and
and in
in
1971 decided to concentrate only on the leasing and building of the facilities, and
1971
1971 decided
decided to
to concentrate
concentrate only
only on
on the
the leasing
leasing and
and building
building of
of the
the facilities,
facilities, and
and
discontinued its operation of nursing homes. In 1980, Vogue relocated its headquarters
discontinued
discontinued its
its operation
operation of
of nursing
nursing homes.
homes. In
In 1980,
1980, Vogue
Vogue relocated
relocated its
its headquarters
headquarters
to the State of Florida. In 1981, The Company was reorganized as a Delaware
to
to the
the State
State of
of Florida.
Florida. In
In 1981,
1981, The
The Company
Company was
was reorganized
reorganized as
as a
a Delaware
Delaware
Corporation. In 1985, The Company reverted back to a privately-held company, and in
Corporation.
Corporation. In
In 1985,
1985, The
The Company
Company reverted
reverted back
back to
to a
a privately-held
privately-held company,
company, and
and in
in
1986, The Company elected to be taxed as an S Corporation.
1986,
1986, The
The Company
Company elected
elected to
to be
be taxed
taxed as
as an
an S
S Corporation.
Corporation.
The Company currently leases 24 skilled nursing facilities and one psychiatric center, which
The
The Company
Company currently
currently leases
leases 24
24 skilled
skilled nursing
nursing facilities
facilities and
and one
one psychiatric
psychiatric center,
center, which
which
are located in the States of Florida, New Jersey, North Carolina, Ohio, Texas and Virginia.
are
are located
located in
in the
the States
States of
of Florida,
Florida, New
New Jersey,
Jersey, North
North Carolina,
Carolina, Ohio,
Ohio, Texas
Texas and
and Virginia.
Virginia.
The health care facilities owned by Vogue were built between 1966 and 2000, with the
The
The health
health care
care facilities
facilities owned
owned by
by Vogue
Vogue were
were built
built between
between 1966
1966 and
and 2000,
2000, with
with the
the
majority of the facilities being constructed in the early 1970s. Vogue holds the Certificates
majority
majority of
of the
the facilities
facilities being
being constructed
constructed in
in the
the early
early 1970s.
1970s. Vogue
Vogue holds
holds the
the Certificates
Certificates
of Need for each of its facilities but allows the lessees to use the certificates for the
of
of Need
Need for
for each
each of
of its
its facilities
facilities but
but allows
allows the
the lessees
lessees to
to use
use the
the certificates
certificates for
for the
the
operation of the facilities.
operation
operation of
of the
the facilities.
facilities.
According to management, most of Vogue’s facilities are dated and will need significant
According
According to
to management,
management, most
most of
of Vogue’s
Vogue’s facilities
facilities are
are dated
dated and
and will
will need
need significant
significant
updating in order to remain competitive. However, the timing and amounts are uncertain,
updating
updating in
in order
order to
to remain
remain competitive.
competitive. However,
However, the
the timing
timing and
and amounts
amounts are
are uncertain,
uncertain,
which increases the perceived risk to an investor in The Company because of the
which
which increases
increases the
the perceived
perceived risk
risk to
to an
an investor
investor in
in The
The Company
Company because
because of
of the
the
uncertainty of the future cash flows.
uncertainty
uncertainty of
of the
the future
future cash
cash flows.
flows.
-8-8At the valuation date, Vogue leased 21 skilled nursing facilities to XY Holdings, whose
At the valuation date, Vogue leased 21 skilled nursing facilities to XY Holdings, whose
major stockholders are stockholders of The Company. In total, XY Holdings accounts for
major stockholders are stockholders of The Company. In total, XY Holdings accounts for
approximately 68.4 percent of Vogue’s annual rental income. The leases with XY Holdings
approximately 68.4 percent of Vogue’s annual rental income. The leases with XY Holdings
are for periods of three years, containing four unexercised three-year options. All other
are for periods of three years, containing four unexercised three-year options. All other
leases are month to month or for periods of between three to five years, with options. All
leases are month to month or for periods of between three to five years, with options. All
of Vogue’s leases are triple-net, and the tenant is responsible for the operating costs of the
of Vogue’s leases are triple-net, and the tenant is responsible for the operating costs of the
facility.
facility.
Vogue competes with Real Estate Investment Trusts (REITs), partnerships, health care
Vogue competes with Real Estate Investment Trusts (REITs), partnerships, health care
providers and financial institutions in the acquisition, leasing and financing of health care
providers and financial institutions in the acquisition, leasing and financing of health care
facilities. Many of these competitors are larger, possess greater financial resources and
facilities. Many of these competitors are larger, possess greater financial resources and
have a lower cost of funds than The Company. Operators of these facilities compete on
have a lower cost of funds than The Company. Operators of these facilities compete on
a regional and national level with other operators that provide comparable services. These
a regional and national level with other operators that provide comparable services. These
operators compete on a number of factors including quality of care, reputation, physical
operators compete on a number of factors including quality of care, reputation, physical
appearance, services offered, family preferences, physician referrals, staff and price.
appearance, services offered, family preferences, physician referrals, staff and price.
Lessees of The Company’s facilities must comply with the licensing requirements of
Lessees of The Company’s facilities must comply with the licensing requirements of
federal, state and local health agencies, and with the requirements of municipal building
federal, state and local health agencies, and with the requirements of municipal building
codes, health codes and fire codes. In granting and renewing a facility’s license, the state
codes, health codes and fire codes. In granting and renewing a facility’s license, the state
health agency considers, among other things, the physical buildings and equipment, the
health agency considers, among other things, the physical buildings and equipment, the
qualifications of the administrative personnel and clinical staffs, the quality of health care
qualifications of the administrative personnel and clinical staffs, the quality of health care
programs and compliance with applicable laws.
programs and compliance with applicable laws.
Vogue is at somewhat of a disadvantage relative to its competitors due to the age of its
Vogue is at somewhat of a disadvantage relative to its competitors due to the age of its
facilities. To some extent, customers select long-term care facilities based on appearance.
facilities. To some extent, customers select long-term care facilities based on appearance.
Many of the larger competitors are able to keep the condition of their facilities updated
Many of the larger competitors are able to keep the condition of their facilities updated
because they have better access to financial resources. This allows them to charge higher
because they have better access to financial resources. This allows them to charge higher
rent to lessees (who charge higher fees to their patients). A comparison of Vogue’s rents
rent to lessees (who charge higher fees to their patients). A comparison of Vogue’s rents
per bed to some of its publicly-traded competition is presented in Table 1.
per bed to some of its publicly-traded competition is presented in Table 1.
-9-9TABLE 1
SNF MARKET
RENT1 OVERVIEW
TABLE
SNF MARKET RENT OVERVIEW
Company Name / Stock Symbol
Company Name / Stock Symbol
Ventas (VTR)
Ventas
(VTR)
HealthCare
Reit (HCN)
Beds/Cons
Beds/Cons
22,377
22,377
28,692
Total Rental Income
Total Rental Income
$
179,000,000
$
179,000,000
197,773,956
$Rent/Bed
$Rent/Bed
$
7,999
$
7,999
6,893
HealthCare Health
Reit (HCN)
Nationwide
Properties(NHP)
NationwideHealthcare
Health Properties(NHP)
NorthStar
Investors Inc.
28,692
20,947
20,947
896
197,773,956
102,270,000
102,270,000
5,643,060
6,893
4,882
4,882
6,298
NorthStar
Healthcare Investors Inc.
Sum/Average
Sum/Average
Vogue Corporation-All Facilities
896
18,228
18,228
3,216
5,643,060
121,171,754
121,171,754
11,786,426
6,298
6,518
6,518
3,665
3,216
11,786,426
3,665
Vogue Corporation-All Facilities
The Company’s lower rental rates relative to its competitors will be discussed in more detail
The Company’s lower rental rates relative to its competitors will be discussed in more detail
later in this report.
later in this report.
Many of the facilities operated by The Company’s lessees receive a substantial portion of
Many of the facilities operated by The Company’s lessees receive a substantial portion of
their revenues from the federal Medicare and state Medicaid programs. As a result,
their revenues from the federal Medicare and state Medicaid programs. As a result,
Vogue’s revenues may be directly affected by changes in these programs, and the financial
Vogue’s revenues may be directly affected by changes in these programs, and the financial
ability of lessees to make rent payments may be affected by government regulations such
ability of lessees to make rent payments may be affected by government regulations such
as licensure, certification for participation in government programs, and government
as licensure, certification for participation in government programs, and government
reimbursement. The amount of program payments can be changed by legislative or
reimbursement. The amount of program payments can be changed by legislative or
regulatory actions and by determinations by agents for the programs. As Medicaid
regulatory actions and by determinations by agents for the programs. As Medicaid
programs are funded by both the states and the federal government, the amount of
programs are funded by both the states and the federal government, the amount of
payments can be affected by changes at either level of government. There is no assurance
payments can be affected by changes at either level of government. There is no assurance
that payments under these programs will remain at levels comparable to present levels or
that payments under these programs will remain at levels comparable to present levels or
be sufficient to cover costs allocable to these patients.
be sufficient to cover costs allocable to these patients.
-10-10-
Management
Management
Management of Vogue consists of the following individuals:
Management of Vogue consists of the following individuals:
1.
1.
John Smith, President, is responsible for overall strategic planning.
John Smith, President, is responsible for overall strategic planning.
2.
2.
Joseph Green, CEO and Vice President, is responsible for overall corporate
Joseph Green, CEO and Vice President, is responsible for overall corporate
operations. He sets policy and procedures and assists with strategic planning. Mr.
operations. He sets policy and procedures and assists with strategic planning. Mr.
Green is closely involved with lessee relations.
Green is closely involved with lessee relations.
3.
3.
Robert Brown, CFO and Treasurer, is involved with the day-to-day operations of The
Robert Brown, CFO and Treasurer, is involved with the day-to-day operations of The
Company and is responsible for all financial matters. Mr. Brown has been with
Company and is responsible for all financial matters. Mr. Brown has been with
Vogue since 1983.
Vogue since 1983.
In total, The Company has 10 employees.
In total, The Company has 10 employees.
The Management and shareholders of Vogue are governed by Vogue’s By-Laws (“The ByThe Management and shareholders of Vogue are governed by Vogue’s By-Laws (“The ByLaws”) and by Vogue’s Shareholders’ Agreement (“The Agreement”) entered into on
Laws”) and by Vogue’s Shareholders’ Agreement (“The Agreement”) entered into on
October 26, 2009. The By-Laws generally govern how The Company is to be managed
October 26, 2009. The By-Laws generally govern how The Company is to be managed
and run, while The Agreement governs the rights of shareholders and the transfer of
and run, while The Agreement governs the rights of shareholders and the transfer of
shares.
shares.
According to Article II of The By-Laws, Vogue is to be managed by a Board of Directors,
According to Article II of The By-Laws, Vogue is to be managed by a Board of Directors,
who are elected annually by a plurality of votes by shareholders. Directors do not have to
who are elected annually by a plurality of votes by shareholders. Directors do not have to
be shareholders.
be shareholders.
Article III of The By-Laws states that The Board can designate an Executive Committee of
Article III of The By-Laws states that The Board can designate an Executive Committee of
three or more directors who shall have all the authority of The Board other than:
three or more directors who shall have all the authority of The Board other than:
(a)
(a)
-11-11the submission to shareholders of any action requiring authorization
the submission to shareholders of any action requiring authorization
of shareholders pursuant to statute or the Certificate of Incorporation.
of shareholders pursuant to statute or the Certificate of Incorporation.
(b)
(b)
the filing of vacancies on the Board or in any committee of the Board,
the filing of vacancies on the Board or in any committee of the Board,
including the Executive Committee.
including the Executive Committee.
(c)
(c)
the fixing of compensation of the directors for serving on the Board or
the fixing of compensation of the directors for serving on the Board or
on any committee of the Board, including the Executive Committee.
on any committee of the Board, including the Executive Committee.
(d)
(d)
the amendment or repeal of the By-laws or the adoption of new bythe amendment or repeal of the By-laws or the adoption of new bylaws; and
laws; and
(e)
(e)
the amendment or repeal of any resolution of the Board which by its
the amendment or repeal of any resolution of the Board which by its
terms may be amended or repealed only by the Board.
terms may be amended or repealed only by the Board.
Article IV of The By-Laws states that The Board shall elect the officers of The Company.
Article IV of The By-Laws states that The Board shall elect the officers of The Company.
The officers are to include the Chairman of the Board, the President, one or more Vice
The officers are to include the Chairman of the Board, the President, one or more Vice
Presidents, the Treasurer, and the Secretary. Any two or more offices may be held by the
Presidents, the Treasurer, and the Secretary. Any two or more offices may be held by the
same person, except the offices of President and Secretary. As of the valuation date, the
same person, except the offices of President and Secretary. As of the valuation date, the
officers of The Company were as follows:
officers of The Company were as follows:
John Smith
John
Smith
Joseph
Green
Joseph
Green
Robert Brown
Robert
PatriciaBrown
Jones
Patricia
Jones
Robert Brown
Robert Brown
President
President
Vice
President
Vice
President
Treasurer
Treasurer
Secretary
Secretary
Asst. Secretary
Asst. Secretary
-12-12-
VOTING
VOTING
The Agreement states that voting power of the shareholders is consolidated within a voting
The Agreement states that voting power of the shareholders is consolidated within a voting
trust, which acts on behalf of the shareholders. The voting trust consists of three trustees:
trust, which acts on behalf of the shareholders. The voting trust consists of three trustees:
John Smith, Joseph Green and Robert Brown and a majority vote among the trustees is
John Smith, Joseph Green and Robert Brown and a majority vote among the trustees is
required to act on behalf of the shareholders. The voting trust acts free from shareholder
required to act on behalf of the shareholders. The voting trust acts free from shareholder
control.
control.
DIVIDEND POLICY
DIVIDEND POLICY
Article VIII of The By-Laws governs dividends. This article states:
Article VIII of The By-Laws governs dividends. This article states:
Subject to the provisions of the Certificate of Incorporation relating thereto,
Subject
to the provisions
of the Certificate
of Incorporation
relating
thereto,
if any, dividends
may be declared
by the Board
of Directors at
any regular
or
ifspecial
any, dividends
be declared
the Boardmay
of Directors
regular
or
meeting,may
pursuant
to law.byDividends
be paid at
inany
cash,
bonds,
special meeting,
Dividends
may be
in cash, bonds,
property,
or in thepursuant
shares ofto
thelaw.
capital
stock, subject
to paid
any provisions
of the
property,
or
in
the
shares
of
the
capital
stock,
subject
to
any
provisions
of the
Certificate of Incorporation. Before payment of any dividend, there may
be
Certificate
of Incorporation.
payment ofavailable
any dividend,
there may
be
set
aside out
of any funds ofBefore
the Corporation
for dividends
such
set
out as
of the
anyDirectors
funds of from
the Corporation
for dividends
such
sumaside
or sums
time to time,available
in their absolute
discretion,
sum
or
sums
as
the
Directors
from
time
to
time,
in
their
absolute
discretion,
think proper
a reserve fund to meet contingencies, or for equalizing
think
proper
as repairing
a reserveorfund
to meetany
contingencies,
orCorporation,
for equalizing
dividends,
or for
maintaining
property of the
or
dividends,
or for
repairing
any property
of the Corporation,
or
for such other
purpose
as or
themaintaining
Directors shall
think conducive
to the interest
for
such
other
purpose
as
the
Directors
shall
think
conducive
to
the
interest
of the Corporation, and the Directors may modify or abolish any such reserve
of
and the
Directors
may modify or abolish any such reserve
in the Corporation,
manner in which
it was
created.
in the manner in which it was created.
The Agreement also includes a section discussing The Company’s dividend policy. Article
The Agreement also includes a section discussing The Company’s dividend policy. Article
X states that The Company shall distribute an amount to cover the taxes related to owning
X states that The Company shall distribute an amount to cover the taxes related to owning
shares in The Company.
shares in The Company.
-13-13-
OWNERSHIP INTERESTS
OWNERSHIP INTERESTS
According to the Certificate of Incorporation filed with the Delaware Secretary of State on
According to the Certificate of Incorporation filed with the Delaware Secretary of State on
June 12, 1981, Vogue is authorized to issue up to 3,000,000 shares of common stock with
June 12, 1981, Vogue is authorized to issue up to 3,000,000 shares of common stock with
a par value of $0.10 per share. As of the valuation date, the ownership of Vogue was as
a par value of $0.10 per share. As of the valuation date, the ownership of Vogue was as
follows:
follows:
Stockholder
Stockholder
Susan Johnson 2001 Revocable Trust
Susan
2001Marital
Revocable
SamuelJohnson
A. Johnson
Trust Trust
Samuel
Trust
Samuel A.
A. Johnson
Johnson Marital
Family Trust
Samuel
A. Johnson
Family Lead
Trust Annuity Trust
Susan Johnson
Charitable
Susan
Susan Johnson
Johnson Charitable
Charitable Lead
Lead Annuity
Unitrust Trust
Susan
Johnson Charitable Lead Unitrust
John Smith
John
MonaSmith
Morrison 1994 Trust
Mona
DebbieMorrison
Johnson1994
1994Trust
Trust
Debbie
Johnson 2000
1994 Trust
Trust
Deena Johnson
Deena
Johnson
Ora Smith
2006 2000
Trust Trust
Ora
Smith
20062008
TrustTrust
Michael
Smith
Michael
Smith2008
2008Trust
Trust
Matan Smith
% Ownership
% Ownership
41.35%
41.35%
1.23%
1.23%
0.66%
0.66%
18.54%
18.54%
4.46%
4.46%
0.78%
0.78%
3.15%
3.15%
8.26%
8.26%
7.08%
7.08%
2.58%
2.58%
2.58%
2.58%
2.58%
Matan
Smith 2008
Trust
David Morrison
2008
Trust
David
2008Trust
Trust
Karen Morrison
George 2008
2.58%
2.62%
2.62%
2.62%
Shelly
Blat 2008
2008 Trust
Trust
David Blat
David Blat 2008 Trust
0.09%
0.09%
0.09%
Karen
George 2008
Kayla Manson
1993 Trust
Trust
Kayla
Manson
1993
Trust
Shelly Blat 2008 Trust
Total
Total
2.62%
1.31%
1.31%
0.09%
100.00%
100.00%
Note: Figures may not add due to rounding.
Note: Figures may not add due to rounding.
Within the last five years, there had been several transfers of shares as follows:
Within the last five years, there had been several transfers of shares as follows:
1.
1.
-14-14On December 30, 2005, Susan Johnson transferred all of her shares to the Susan
On December 30, 2005, Susan Johnson transferred all of her shares to the Susan
Johnson 1999 Irrevocable Trust.
Johnson 1999 Irrevocable Trust.
2.
2.
On January 9, 2006, the Trustee of the Susan Johnson 1999 Irrevocable Trust
On January 9, 2006, the Trustee of the Susan Johnson 1999 Irrevocable Trust
distributed all of its shares to Susan Johnson.
distributed all of its shares to Susan Johnson.
3.
3.
On December 21, 2006, the Trustees of The Ora Smith 1993 Trust surrendered its
On December 21, 2006, the Trustees of The Ora Smith 1993 Trust surrendered its
719.25 shares with the request that same be issued to The Ora Smith 2006 Trust.
719.25 shares with the request that same be issued to The Ora Smith 2006 Trust.
4.
4.
On April 30, 2008, the Trustee of the Deena Johnson 2000 Trust gifted 250 shares
On April 30, 2008, the Trustee of the Deena Johnson 2000 Trust gifted 250 shares
to the Kayla Manson 1993 Trust.
to the Kayla Manson 1993 Trust.
5.
5.
The following transfers occurred on June 11, 2008:
The following transfers occurred on June 11, 2008:
Vogue Corporation Stock Transactions June 11, 2008
Vogue Corporation Stock Transactions June 11, 2008
David Morrison 1993 Trust
David
1993Trust
Trust
Karen Morrison
George 1993
729.25
729.25
729.25
David Morrison 2008 Trust
David Morrison
2008Trust
Trust
Karen
George 2008
Matan
Smith
1993
Trust
Shelly Blat
1993
Trust
Shelly
Blat 1993
1993 Trust
Trust
David Blat
719.25
26.25
26.25
26.25
Matan
Smith
2008
Trust
Shelly Blat
2008
Trust
Shelly Blat
Blat 2008
2008 Trust
Trust
David
Karen
George
Michael
Smith 1993
1993 Trust
Trust
Michael
Smith
1993
Trust
Matan Smith 1993 Trust
David Blat 1993 Trust
729.25
719.25
719.25
719.25
26.25
Karen
George
Michael
Smith 2008
2008 Trust
Trust
Michael
Smith
2008
Trust
Matan Smith 2008 Trust
David Blat 2008 Trust
6.
6.
On December 31, 2008, the Trustee of the Deena Johnson 2000 Trust gifted 75
On December 31, 2008, the Trustee of the Deena Johnson 2000 Trust gifted 75
shares to the Kayla Manson 1993 Trust.
shares to the Kayla Manson 1993 Trust.
7.
7.
On January 1, 2010, Susan Johnson transferred 11,508 shares to the Susan
On January 1, 2010, Susan Johnson transferred 11,508 shares to the Susan
Johnson 2001 Revocable Trust.
Johnson 2001 Revocable Trust.
-15-15-
TRANSFER OF SHARES
TRANSFER OF SHARES
According to Article VII of The Agreement, transfers of shares are permitted to family and
According to Article VII of The Agreement, transfers of shares are permitted to family and
trusts for the family’s benefit without restrictions. Transfers between shareholders are
trusts for the family’s benefit without restrictions. Transfers between shareholders are
permitted, but are subject to a right of first refusal by The Company. Transfers of shares
permitted, but are subject to a right of first refusal by The Company. Transfers of shares
to third parties are not permitted.
to third parties are not permitted.
Separately, shareholders have the right sell up to 10 percent of their interests each year
Separately, shareholders have the right sell up to 10 percent of their interests each year
at the book value as of December 31 of the prior year. If the book value of sold shares is
at the book value as of December 31 of the prior year. If the book value of sold shares is
less than $2.5 million, The Company may choose to pay for the subject interest over a fiveless than $2.5 million, The Company may choose to pay for the subject interest over a fiveyear period. Interests with book value greater than $2.5 million may be paid for over a 10year period. Interests with book value greater than $2.5 million may be paid for over a 10year period.
year period.
POWERS OF THE VOTING TRUST
POWERS OF THE VOTING TRUST
Section 1.1 of Article I of Exhibit B of The Agreement states:
Section 1.1 of Article I of Exhibit B of The Agreement states:
1.
1.
Voting Trust.
Voting Trust.
1.1
Creation of Voting Trust. JOHN SMITH, JOSEPH GREEN and
1.1
Creation
Voting Trust.
JOHN SMITH,
JOSEPH
GREEN
and
are hereby
appointed
as Voting
Trustee
ROBERTofBROWN
ROBERT
BROWN
arecreated
herebybyappointed
as Voting
Trustee
under the voting
trust
this Agreement.
During
the
under
voting
trust created
by thisTrust
Agreement.
the
term ofthe
this
Agreement
the Voting
shall actDuring
as voting
term
of
this
Agreement
the
Voting
Trust
shall
act
as
voting
trustee in respect of the Shares with all the powers, rights and
trustee
in respect
of the to
Shares
withconditions
all the powers,
rights and
privileges
and subject
all the
and covenants
privileges
subject
to vote
all the
conditions
and covenants
hereinafterand
set forth.
Any
by the
Voting Trustee
requires
hereinafter
set
forth.
Any
vote
by
the
Voting
Trustee
requires
a majority vote of the two out of three individuals for any
action
a majority
voteTrustee.
of the two out of three individuals for any action
by
the Voting
by the Voting Trustee.
This section of The Agreement vests virtually all control of The Company with the Voting
This section of The Agreement vests virtually all control of The Company with the Voting
Trust.
Trust.
-16-
TERMINATION
The Agreement states that the Shareholders’ Agreement shall terminate on the occurrence
of any of the following:
(a)
Decision of the Voting Trust;
(b)
The dissolution of The Company; or
(c)
At such time that there is only one remaining shareholder.
- 17 -
THE ECONOMIC OUTLOOK IN GENERAL AND THE CONDITION
AND OUTLOOK OF THE SPECIFIC INDUSTRY IN PARTICULAR
Generally, business performance varies in relationship to the economy. Just as a strong
economy can improve overall business performance and value, a declining economy can
have the opposite effect. Businesses can be affected by global, national, and local events.
Changes in regulatory environments, political climate, and market and competitive forces
can also have a significant impact on business. For these reasons, it is important to
analyze and understand the prevailing economic environment when valuing a closely-held
business. Since the appraisal process is a “prophecy of the future,” it is imperative that the
appraiser review the economic outlook as it would impact the appraisal subject.
NATIONAL ECONOMY
Based on information reviewed during the March 16 Federal Open Market Committee
(“FOMC”) meeting, the rate of recovery is expected to be moderate over the next two
years, reflecting continued loose monetary policy and continued recovery in spending and
production.
Available indicators suggested that the labor market might be stabilizing, and consumer
spending is continuing to increase. However, consumer sentiment remained relatively low
and shows little sign of improvement.
-- 18
18 -While GDP
GDP grew
grew 5.7
5.7 percent
percent in
in the
the final
final quarter
quarter of
of 2009,
2009, the
the acceleration
acceleration in
in economic
economic
While
activity is
is largely
largely attributable
attributable to
to the
the rebuilding
rebuilding of
of depleted
depleted inventories
inventories as
as well
well as
as the
the effects
effects
activity
of the
the massive
massive Federal
Federal fiscal
fiscal stimulus.
stimulus.11
of
Consensus
Consensus Economics
Economics expects
expects that
that real
real GDP
GDP growth
growth will
will continue
continue at
at a
a moderate
moderate rate
rate
2
before
before accelerating
accelerating in
in the
the middle
middle of
of 2011.
2011. This
This forecast
forecast is
is presented
presented in
in Table
Table 2.
2.2
TABLE
TABLE 2
2
QUARTERLY
QUARTERLY FORECASTS
FORECASTS
1st
1st
Qtr.
Qtr.
Real Gross Domestic Product*
Real
Gross
Domestic
Product*
Nominal
Gross
Domestic
Product*
Nominal Gross Domestic Product*
Real Disposable Personal Income*
Real
Disposable
Personal Income*
Real Personal
Consumption*
Real
Personal
Consumption*
Real Business Investment*
Real
Business
Investment*
Consumer
Prices*
Consumer
Prices*
Unemployment Rate, %
Unemployment Rate, %
2.8
2.8
4.4
4.4
1.5
1.5
2.4
2.4
1.0
1.0
1.9
1.9
9.8
9.8
2010
2010 3rd
2nd
nd
2
3rd
Qtr.
Qtr.
Qtr.
Qtr.
3.1
3.1
4.3
4.3
3.1
3.1
2.3
2.3
4.0
4.0
1.5
1.5
9.7
9.7
2.8
2.8
4.3
4.3
2.4
2.4
2.4
2.4
5.2
5.2
2.0
2.0
9.7
9.7
4th
4th
Qtr.
Qtr.
3.1
3.1
4.6
4.6
3.1
3.1
2.5
2.5
6.7
6.7
1.9
1.9
9.6
9.6
1st
1st
Qtr.
Qtr.
2011
nd
22011
3rd
nd
2
3rd
Qtr. Qtr.
Qtr. Qtr.
2.9
2.9
4.8
4.8
0.9
0.9
2.3
2.3
7.2
7.2
2.2
2.2
9.4
9.4
3.2
3.2
4.9
4.9
2.8
2.8
2.6
2.6
8.3
8.3
1.9
1.9
9.2
9.2
3.3
3.3
5.1
5.1
2.9
2.9
2.7
2.7
9.3
9.3
2.2
2.2
9.1
9.1
4th
4th
Qtr.
Qtr.
3.3
3.3
5.1
5.1
2.9
2.9
2.7
2.7
9.1
9.1
2.2
2.2
8.9
8.9
* Forecast percent change from prior quarter, seasonally adjusted annual rate.
*Source:
Forecast
percent change
from prior Consensus
quarter, seasonally
adjusted
annual2010:
rate. 5.
Consensus
Forecasts-USA,
Economics
Inc., March
Source: Consensus Forecasts-USA, Consensus Economics Inc., March 2010: 5.
Although
Although the
the forecast
forecast above
above depicts
depicts a
a positive
positive course,
course, consistent
consistent growth
growth at
at what
what
economists
economists consider
consider a
a normal
normal level
level will
will not
not be
be seen
seen until
until the
the initial
initial quarters
quarters of
of 2011.
2011. Growth
Growth
in
in consumer
consumer prices
prices is
is expected
expected to
to fluctuate
fluctuate before
before increasing
increasing in
in 2011.
2011.
Activity
Activity in
in
both
both new
new
the
the housing
housing sector
sector appeared
appeared to
to have
have flattened
flattened out
out
and
and existing
existing homes
homes had
had declined,
declined, while
while starts
starts of
of
in
in recent
recent months.
months. Sales
Sales of
of
single-family
single-family homes
homes were
were
unchanged
unchanged despite
despite the
the substantial
substantial reduction
reduction in
in inventories
inventories of
of unsold
unsold new
new homes.
homes. Some
Some of
of
the
the recent
recent weakness
weakness in
in sales
sales may
may have
have been
been due
due to
to transactions
transactions that
that had
had been
been pulled
pulled
forward
forward in
in anticipation
anticipation of
of the
the originally
originally scheduled
scheduled expiration
expiration of
of the
the tax
tax credit
credit for
for first-time
first-time
1
1
Federal Reserve Board, “Minutes of the Federal Open Market Committee,” (March 16, 2010)
Federal
Reserve Board, “Minutes of the Federal Open Market Committee,”
(March 16,
2010)
<www.federalreserve.gov/monetarypolicy/files/fomcminutes20100316>
(accessed
April
27,
<www.federalreserve.gov/monetarypolicy/files/fomcminutes20100316>
(accessed
April
27,
2010).
2010).
2
2
Consensus Forecasts-USA, “Quarterly Forecasts,” (March 2010).
Consensus Forecasts-USA, “Quarterly Forecasts,” (March 2010).
- 19 - 19 home buyers in November 2009; nonetheless, the underlying pace of housing demand
home buyers in November 2009; nonetheless, the underlying pace of housing demand
likely remained weak.33
likely remained weak.
Over the past year, the major stock indexes have gained over 40 percent and have
Over the past year, the major stock indexes have gained over 40 percent and have
experienced strong weekly gains. Annual and weekly changes in U.S. stock markets are
experienced strong weekly gains. Annual and weekly changes in U.S. stock markets are
presented in Table 3.
presented in Table 3.
TABLE 3
TABLE
3
CLOSING STOCK
MARKET
AVERAgES
CLOSING STOCK MARKET AVERAgES
Dow Jones Industrial AverAge
Dow Jones
AverAge
Standard
& Industrial
Poor’s 500
Standard
Poor’s 500Composite
N.Y.
Stock&Exchange
N.Y. StockComposite
Exchange Composite
NASDAQ
Composite
NASDAQ 100
NASDAQ Stock
100 Exchange Index
American
American Stock Exchange Index
March 24,
March
201024,
2010
March 31,
March
201031,
2010
10836.15
10836.15
1167.72
1167.72
7408.16
7408.16
2398.76
2398.76
1951.84
1951.84
1875.44
1875.44
10856.63
10856.63
1169.43
1169.43
7447.80
7447.80
2397.96
2397.96
1958.34
1958.34
1906.98
1906.98
Source: Value Line Investment Survey - Selection & Opinion, April 9, 2010: 2945.
Source: Value Line Investment Survey - Selection & Opinion, April 9, 2010: 2945.
% Change
%1Change
Week
1 Week
% Change
% Change
12
Months
12 Months
+0.2%
+0.2%
+0.1%
+0.1%
+0.5%
+0.5%
+0.0%
+0.0%
+0.3%
+0.3%
+1.7%
+1.7%
+42.7%
+42.7%
+46.6%
+46.6%
+49.6%
+49.6%
+56.9%
+56.9%
+58.3%
+58.3%
+40.3%
+40.3%
Following the trend of the broader stock markets, Real Estate Investment Trusts (REITS)
Following the trend of the broader stock markets, Real Estate Investment Trusts (REITS)
recovered somewhat from substantial declines experienced in 2009. The performance of
recovered somewhat from substantial declines experienced in 2009. The performance of
the Dow Jones Wilshire REIT index Against the S&P 500 over a one-year period is
the Dow Jones Wilshire REIT index Against the S&P 500 over a one-year period is
presented in Chart 1.
presented in Chart 1.
3
3
Federal Reserve Board, “Minutes of the Federal Open Market Committee,” (March 16, 2010)
Federal Reserve Board, “Minutes of the Federal Open Market Committee,”
(March 16,
2010)
<www.federalreserve.gov/monetarypolicy/files/fomcminutes20100316>
(accessed
April
27,
<www.federalreserve.gov/monetarypolicy/files/fomcminutes20100316>
(accessed April 27,
2010).
2010).
- 20 - 20 CHART 1
CHART
1 OVER ONE-YEAR PERIOD
DJ WILSHIRE REIT INDEX VS.
S&P 500
DJ WILSHIRE REIT INDEX VS. S&P 500 OVER ONE-YEAR PERIOD
Source: Bigcharts.com.
Source: Bigcharts.com.
In the January 15, 2010 edition of the Value Line Investment Survey, Value Line states the
In the January 15, 2010 edition of the Value Line Investment Survey, Value Line states the
following:
following:
The REIT industry is ranked (58) for year-ahead performance, which is
The REIT
industry
is ranked
fortotal
year-ahead
which
is
slightly
below
averAge,
relative(58)
to the
industriesperformance,
covered by The
Value
slightly
below averAge,
to the total
industries
by The half
Value
Line
Investment
Survey.relative
After posting
sharp
declinescovered
in the second
of
Line Investment
After many
posting
sharp stocks
declines
in the
second
half of
2008
and the firstSurvey.
half of 2009,
of these
have
started
to recover.
2008
and
the
first
half
of
2009,
many
of
these
stocks
have
started
to
recover.
Some REITs posted better-than-expected financial results during the
Some REITs
posted
better-than-expected
financial results
duringhave
the
September
quarter.
Moreover,
many of the companies
in this group
September quarter.
Moreover,
many of thepipelines,
companies
this been
groupable
have
dramatically
scaled back
their development
andinhave
to
dramatically
backdebt
their obligations.
developmentHowever,
pipelines,inand
have
beenthis
able
to
address
theirscaled
near-term
some
cases
has
address
their near-term
debt
in equity
some common
cases thisstock
has
meant
reducing
dividends
andobligations.
resorting toHowever,
secondary
meant reducing dividends and resorting to secondary equity common stock
offerings.
offerings.
Although frustrating for long-term shareholders, these factors have helped lift
Althoughconfidence
frustrating for
long-term
shareholders,
these factors
helped
lift
investor
in REITs.
Some
have recovered
sharplyhave
in price
in the
investor half
confidence
REITs.
sharply
in price
in the
second
of 2009.inThere
areSome
a fewhave
that recovered
still trade well
below
their highs,
second
half
of
2009.
There
are
a
few
that
still
trade
well
below
their
highs,
and continue to struggle with large amounts of leverAge and reduced profit
and
continue to
strugglewill
with
large
amounts
of leverAge
and
expectations.
Investors
have
to pick
and choose
among
thereduced
REITs inprofit
this
expectations.
Investors
will have
to pick
and choose
among
the REITs
in this4
group.
As usual,
some REIT
sectors
will probably
perform
better
than others.
group. As usual, some REIT sectors will probably perform better than others.4
4
4
Rosner, Adam, “Real Estate Investment Trusts,” The Value Line Investment Survey, Part 3,
Ratings
Reports,
Issue 8Investment
( January 15,
2010):
1500.
Rosner, and
Adam,
“Real Estate
Trusts,”
The
Value Line Investment Survey, Part 3,
Ratings and Reports, Issue 8 ( January 15, 2010): 1500.
- 21 - 21 National economic data shows mixed indications of an economic recovery. GDP has been
National economic data shows mixed indications of an economic recovery. GDP has been
on a positive and moderate course along with consumer spending. Disposable income and
on a positive and moderate course along with consumer spending. Disposable income and
sales have also shown a moderately rising trend. The Real Estate Investment Trust
sales have also shown a moderately rising trend. The Real Estate Investment Trust
industry is also showing significant improvement from a year Ago and investor confidence
industry is also showing significant improvement from a year Ago and investor confidence
has lifted. However, the unemployment rate remains high and the housing sector remains
has lifted. However, the unemployment rate remains high and the housing sector remains
weak. Ultimately, it is largely believed that a self-sustaining economic recovery can only be
weak. Ultimately, it is largely believed that a self-sustaining economic recovery can only be
possible with improvements in the job market. Thus, while the U.S. macroeconomic outlook
possible with improvements in the job market. Thus, while the U.S. macroeconomic outlook
has improved dramatically over the past year, long-term economic recovery remains
has improved dramatically over the past year, long-term economic recovery remains
uncertain.55
uncertain.
INDUSTRY
INDUSTRY
At 16.2 million employees, health care is one of the largest U.S. industries.66 The Labor
At 16.2 million employees, health care is one of the largest U.S. industries. The Labor
Department’s Bureau of Labor Statistics projects that the industry will hold 17.5 million new
Department’s Bureau of Labor Statistics projects that the industry will hold 17.5 million new
wAge and salary jobs by 2018, more than any other industry. Ten of the 20 fastest growing
wAge and salary jobs by 2018, more than any other industry. Ten of the 20 fastest growing
occupations are health care related.77
occupations are health care related.
In 2009, National Health Expenditures (“NHE”) were projected to have reached $2.5 trillion
In 2009, National Health Expenditures (“NHE”) were projected to have reached $2.5 trillion
and grown 5.7 percent, up from 4.4 percent in 2008. In 2010, NHE growth is expected to
and grown 5.7 percent, up from 4.4 percent in 2008. In 2010, NHE growth is expected to
decelerate to 3.9 percent. Much of the projected slowdown in NHE growth is attributable
decelerate to 3.9 percent. Much of the projected slowdown in NHE growth is attributable
to an expected deceleration in Medicare spending growth (1.5 percent in 2010, from 8.1
to an expected deceleration in Medicare spending growth (1.5 percent in 2010, from 8.1
5
5
6
6
7
7
Enterpise
Florida,
“Florida
Economic
Bulletin,”
(Winter
2010)
E
nterpise
Florida,
“Florida
Economic
Bulletin,”
( W i(accessed
nter
2 0April
10)
<http://www.eflorida.com/intelligencecenter/reports/FEB_Wnter_2010.pdf>
<http://www.eflorida.com/intelligencecenter/reports/FEB_Wnter_2010.pdf>
(accessed April
27,
2010.
27, 2010.
U.S. Bureau of Labor Statistics, Employment, Hours, and Earnings from the Current
U.S.
Bureau Statistics
of LaborSurvey
Statistics,
Employment,
Hours, and Earnings from the Current
Employment
(National)
<http://data.bls.gov/pdq/querytool.jsp?survey=cc>
Employment
Statistics
Survey (National) <http://data.bls.gov/pdq/querytool.jsp?survey=cc>
(accessed
May
31, 2011).
(accessed May 31, 2011).
U.S. Bureau of Labor Statistics, Career Guide to Industries, 2010-2011, “Health
U.S.
Bureau of Labor Statistics, Career Guide to Industries, 2010-2011,
“Health
Care”<http://data.bls.gov/cgi-bin/print.pl/oco/cg/cgs035.htm>(accessed
April 30, 2010).
Care”<http://data.bls.gov/cgi-bin/print.pl/oco/cg/cgs035.htm>(accessed April 30, 2010).
- 22 - 22 percent in 2009) that is driven by a 21.3 percent reduction in Medicare physician payment
percent in 2009) that is driven by a 21.3 percent reduction in Medicare physician payment
rates called for under current law’s Sustainable Growth Rate (SGR) provisions. As a
rates called for under current law’s Sustainable Growth Rate (SGR) provisions. As a
percentAge of GDP, health care is projected to increase to 17.3 percent in 2010 from 16.2
percentAge of GDP, health care is projected to increase to 17.3 percent in 2010 from 16.2
percent in 2008. NHE forecasts released by the Department of Health and Human Services
percent in 2008. NHE forecasts
released by the Department of Health and Human Services
are presented in Table 4.88
are presented in Table 4.
TABLE 4
TABLEEXPENDITURES
4
NATIONAL HEALTH
NATIONAL HEALTH EXPENDITURES
NHE
NHE
NHE
PerNHE
Capita
% Change
AsNHE
a % of
% Change
NHE
Per
Capita
Over
Prior Year
Over
Prior Year
% Change
AsGDP
a % of
% Change
Over Prior Year
GDP
Over Prior Year
2008
4.4%
16.2%
3.5%
2008
4.4%
16.2%
3.5%
2009
5.7%
17.3%
4.8%
2009
5.7%
4.8%
2010
3.9%
17.3%
3.0%
2010
3.9%
3.0%
2011
5.2%
17.3%
4.3%
2011
5.2%
17.3%
4.3%
2012
5.5%
17.2%
4.5%
2012
5.5%
17.2%
4.5%
2013
6.1%
17.3%
5.2%
2013
6.1%
17.3%
5.2%
2014
6.6%
17.4%
5.7%
2014
6.6%
17.4%
5.7%
2015
6.7%
17.7%
5.8%
2015
6.7%
17.7%
5.8%
2016
7.0%
18.1%
6.1%
2016
7.0%
18.1%
6.1%
2017
6.8%
18.5%
5.9%
2017
18.5%
2018
6.8%
18.9%
5.9%
2018
6.8%
18.9%
5.9%
2019
6.6%
19.3%
5.8%
2019
6.6%
19.3%
5.8%
Source: Department of Health and Services National Expenditure
Projections:
2009-2019,
Source: Department
of January
Health 2010.
and Services National Expenditure
Projections: 2009-2019, January 2010.
Over the entire projection period, averAge health spending is projected to grow more
Over the entire projection period, averAge health spending is projected to grow more
rapidly than annual growth in the overall economy and inflation. As shown in Table 4, health
rapidly than annual growth in the overall economy and inflation. As shown in Table 4, health
care spending in the U.S. is expected to comprise 19.3 percent of GDP by 2019, amounting
care spending in the9 U.S. is expected to comprise 19.3 percent of GDP by 2019, amounting
to over $4.4 trillion.9
to over $4.4 trillion.
8
8
9
9
U.S. Department of Health & Human Services, “National Health Expenditure Projections
2009-2019
(January
<http://www.coms.gov/NationalHealthExpendData/downloads/proj
U.S. Department
of2010)
Health
& Human Services, “National Health Expenditure Projections
2009.pdf>
May<http://www.coms.gov/NationalHealthExpendData/downloads/proj
18, 2010).
2009-2019 (accessed
(January 2010)
2009.pdf> (accessed May 18, 2010).
Ibid.
Ibid.
- 23 - 23 Nursing and residential care facilities are described as one of seven segments of the health
Nursing and residential care facilities are described as one of seven segments of the health
care industry. According to the Bureau of Labor Statistics, these facilities:
care industry. According to the Bureau of Labor Statistics, these facilities:
Provide inpatient nursing, rehabilitation, and health-related personal care to
Providewho
inpatient
rehabilitation,
and health-related
personalhospital
care to
those
neednursing,
continuous
nursing care,
but do not require
those whoNursing
need continuous
nursing
care,majority
but do ofnot
require
services.
aides provide
the vast
direct
care.hospital
Other
services.
Nursing
aides
provide
the
vast
majority
of
direct
care.
facilities, such as convalescent homes, help patients who needOther
less
facilities,
such
as
convalescent
homes,
help
patients
who
need
assistance. Residential care facilities provide around-the-clock social less
and
assistance.
Residential
care
provide
around-the-clock
social
and
personal
care
to children,
the facilities
elderly, and
others
who have limited
ability
to
personal
care
to
children,
the
elderly,
and
others
who
have
limited
ability
to
care for themselves. Workers care for residents of assisted-living facilities,
care
for
themselves.
Workers
care
for
residents
of
assisted-living
facilities,
alcohol and drug rehabilitation centers, group homes, and halfway houses.
alcohol and
rehabilitation
centers, group
halfway
houses.
Nursing
anddrug
medical
care, however,
are homes,
not theand
main
functions
of
Nursing
and
medical
care,
however,
are
not
the
main
functions
of
establishments providing residential care, as they are in nursing care
10
establishments providing residential care, as they are in nursing care
facilities.
facilities.10
Trends in the number of employees and the number of establishments in the nursing and
Trends in the number of employees and the number of establishments in the nursing and
residential care facility industry are presented in Table 5.
residential care facility industry are presented in Table 5.
TABLE 5
TABLE 5TRENDS
EMPLOYMENT
EMPLOYMENT TRENDS
March 2003
March 2003
2004
March 2004
2005
2005
March 2006
2006
March 2007
2007
March 2008
2008
March 2009
March
20092009
September
September 2009
Number of Establishments
PrivateNumber
Local
State
Federal
of Establishments
Private
Local
State
Federal
61,995
811
952
7
61,995
811
952
7
63,138
779
986
63,138
779
986
7
63,902
789
979
63,902
789
979
7
65,531
797
957
9
65,531
797
957
66,047
805
975
9
66,047
805
975
67,528
802
999
9
67,528
802
999
68,854
810
979
9
68,854
810
979
9
67,407
808
961
67,407
808
961
9
Number of
Employees
Number of
(Thousands)
Employees
(Thousands)
2,777.9
2,777.9
2,806.6
2,806.6
2,842.0
2,842.0
2,877.0
2,877.0
2,934.5
2,934.5
3,000.9
3,000.9
3,066.7
3,066.7
3,099.0
3,099.0
Source: Bureau of Labor Statistics <http://data.bls.gov/cgi-bin/dsrv> (December 2009)
(accessed
May 4, of
2010).
Source: Bureau
Labor Statistics <http://data.bls.gov/cgi-bin/dsrv> (December 2009)
(accessed May 4, 2010).
By 2018, employment within this sector is expected to reach approximately 3.64 million.11
By 2018, employment within this sector is expected to reach approximately 3.64 million.11
The data in Table 5 indicates that the number of private nursing and residential care
The data in Table 5 indicates that the number of private nursing and residential care
10
10
11
11
U.S. Bureau of Labor Statistics, Career Guide to Industries.
U.S. Bureau of Labor Statistics, Career Guide to Industries.
U.S. Department of Labor, “2008-2018 National Employment Matrix,”
U.S. Department of Labor, “2008-2018 National Employment Matrix,”
<ftp://ftp.bls.gov/pub/special.requests/ep/ind-occ.matrix/ind_pdf/ind_623000.pdf>(accessed
<ftp://ftp.bls.gov/pub/special.requests/ep/ind-occ.matrix/ind_pdf/ind_623000.pdf>(accessed
May 4, 2010).
May 4, 2010).
- 24 - 24 facilities grew substantially between March 2003 and September 2009. Total employees
facilities grew substantially between March 2003 and September 2009. Total employees
within this sector grew comparably over the same period.
within this sector grew comparably over the same period.
A major driver behind the projected growth in health care is the Aging population. The
A major driver behind the projected
growth in health care is the Aging population. The
change in the Age distribution of the U.S. population is presented in Table 6.12
change in the Age distribution of the U.S. population is presented in Table 6.12
12
12
U.S. Census Bureau, National Population Projections, December 16, 2009
<http://www.census.gov/population/www/projections/files/nation/summary/NP2009-T2-C.xls>
U.S. Census Bureau, National Population Projections, December 16, 2009
(accessed
May 31, 2011).
<http://www.census.gov/population/www/projections/files/nation/summary/NP2009-T2-C.xls>
(accessed May 31, 2011).
- 25 TABLE 6
PROJECTIONS OF THE POPULATION BY SELECTED AgE GROUPS AND SEX FOR
THE UNITED STATES: 2010 to 2050
RESIDENT POPULATION AS OF JULY (THOUSANDS)
2010
2015
2020
2025
2030
2035
2040
2045
2050
BOTH SEXES
307,907
321,085
334,123
346,655
358,407
369,339
379,551
389,200
398,528
Under 18 Years
Under 5 Years
5 to 13 Years
14 to 17 Years
18 to 64 Years
18 to 24 Years
25 to 44 Years
45 to 64 Years
65 Years and Over
85 Years and Over
100 Years and Over
74,226
20,909
36,605
16,712
193,558
30,333
82,510
80,715
40,122
5,753
79
76,377
21,707
38,180
16,491
198,137
30,140
84,669
83,327
46,571
6,293
105
79,080
22,237
39,537
17,306
200,746
29,610
87,837
83,299
54,297
6,591
135
81,161
22,567
40,708
17,887
202,416
30,907
89,722
81,786
63,078
7,214
174
82,800
22,869
41,438
18,493
204,767
31,901
91,162
81,704
70,840
8,682
207
84,185
23,337
41,996
18,851
209,403
32,953
92,390
84,060
75,751
11,321
238
85,730
23,926
42,713
19,092
215,047
33,636
94,096
87,314
78,774
13,979
296
87,515
24,460
43,693
19,362
220,537
34,085
97,174
89,278
81,148
16,655
405
89,350
24,864
44,704
19,782
224,978
34,557
99,540
90,880
84,200
18,567
592
Source: U.S. Census Bureau, Population Division, December 16, 2009.
-- 26
26 -Based on
on the
the data
data in
in Table
Table 6,
6, the
the number
number of
of residents
residents Aged
Aged 65-years
65-years and
and older
older is
is expected
expected
Based
to double
double between
between 2010
2010 and
and 2050
2050 and
and account
account for
for 21.1
21.1 percent
percent of
of the
the total
total U.S.
U.S. population.
population.
to
This compares
compares to
to an
an estimate
estimate of
of 12.6
12.6 percent
percent in
in 2009.
2009. According
According to
to the
the Aging
Aging and
and Disability
Disability
This
Resource Center,
Center, approximately
approximately 2.5
2.5 million
million people
people enter
enter nursing
nursing facilities
facilities each
each year.
year. Of
Of
Resource
these 2.5
2.5 million
million people,
people, 88
88 percent
percent are
are Age
Age 65
65 and
and older,
older, while
while 32
32 percent
percent are
are Age
Age 85
85 and
and
these
older.13
13 As these two Age brackets heavily expand over the long-term, the demand for
As these two Age brackets heavily expand over the long-term, the demand for
older.
nursing
nursing and
and residential
residential care
care facilities
facilities should
should remain
remain strong.
strong. Historical
Historical nursing
nursing home
home care
care
expenditures
expenditures and
and future
future projections
projections from
from the
the Department
Department of
of Health
Health and
and Human
Human Services
Services
are
are presented
presented in
in Table
Table 7.
7.
TABLE
TABLE 7
7
NURSING
HOME
NURSING HOME CARE
CARE EXPENDITURES
EXPENDITURES
Year
Year
Billions ($)
Billions ($)
% Change
% Change
% of Total NHE
% of Total NHE
2004
2004
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
2010
2010
2011
2011
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
2017
2017
2018
2018
2019
2019
115.2
115.2
120.7
120.7
125.1
125.1
132.4
132.4
138.4
138.4
144.1
144.1
149.3
149.3
156.2
156.2
163.7
163.7
172.6
172.6
182.7
182.7
193.7
193.7
205.4
205.4
217.8
217.8
231.4
231.4
245.9
245.9
N.A.
N.A.
4.8%
4.8%
3.7%
3.7%
5.8%
5.8%
4.6%
4.6%
4.1%
4.1%
3.6%
3.6%
4.6%
4.6%
4.8%
4.8%
5.4%
5.4%
5.9%
5.9%
6.0%
6.0%
6.1%
6.1%
6.0%
6.0%
6.2%
6.2%
6.3%
6.3%
6.2%
6.2%
6.1%
6.1%
5.9%
5.9%
5.9%
5.9%
5.9%
5.9%
5.8%
5.8%
5.8%
5.8%
5.8%
5.8%
5.7%
5.7%
5.7%
5.7%
5.7%
5.7%
5.6%
5.6%
5.6%
5.6%
5.5%
5.5%
5.5%
5.5%
5.5%
5.5%
Source: Department of Health and Human Services:
Source:
of HealthProjections:
and Human2009-2019,
Services:
National Department
Health Expenditure
National
Health Expenditure Projections: 2009-2019,
January 2010.
January 2010.
13
13
Lisa Alecxih,”Candidates for Nursing Home Transition and Diversion,” Aging & Disability
Lisa
and
& rDisability
R e sAlecxih,”Candidates
ource
C e n t e rfor
, Nursing
J u l y Home
1 2 , Transition
2007,<
w wDiversion,”
w . a d r c -Aging
tae.o
g/tikiR
e
s
o
u
r
c
e
C
e
n
t
e
r
,
J
u
l
y
1
2
,
2
0
0
7
,
<
w
w
w
.
a
d
r
c
t
a
e
.
o
rg/tikidownload_file.php?fileid=26583>(accessed April 30, 2010).
download_file.php?fileid=26583>(accessed April 30, 2010).
- 27 As indicated in the data in Table 7, nursing home care expenditures are expected to
experience stable growth into the future, while declining as a percentAge of total national
health expenditures.
The number of certified nursing facilities in the United States has been declining steadily
in recent years. The number of certified nursing facilities, beds, and patients are shown in
Table 8.
TABLE 8
AHCA TREND IN CERTIFIED NURSING FACILITIES, BEDS AND RESIDENTS
Certified
Beds
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
1,702,961
1,695,446
1,699,647
1,689,937
1,681,917
1,676,413
1,673,085
1,671,238
1,668,895
1,666,797
Patients in
Certified Beds
1,464,503
1,456,499
1,456,586
1,447,222
1,438,866
1,433,435
1,429,622
1,420,217
1,410,902
1,399,900
Certified
Facilities
16,715
16,554
16,441
16,256
16,066
15,965
15,861
15,772
15,711
15,679
Source: Computed by AHCA R&R department using CMS Nursing
Facility OSCAR standard health survey data. American Health Care
Association - Reimbursement and Research Department.
Occupancy rates in nursing facilities have also declined steadily in recent years. Median
facility occupancy rates for nursing care facilities are presented in Table 9.
- 28 TABLE 9
AHCA MEDIAN NURSING FACILITY OCCUPANCY RATE FOR CERTIFIED BEDS
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
88.0%
88.2%
88.2%
88.4%
88.3%
88.7%
89.0%
88.8%
88.3%
87.5%
Source: Computed by AHCA R&R department using CMS Nursing Facility OSCAR
standard health survey data. American Health Care Association - Reimbursement
and Research Department.
Nursing home facilities are facing an increased amount of competition from cheaper
alternatives such as home and community-based health care. Medicaid, the principal
source of funding for long-term nursing facility residents, accounts for about 48 percent of
the industry’s revenue. The basis of Medicaid reimbursement varies by state, with most
states using a cost-based reimbursement system. Some states are actively developing a
reimbursement system based on patient acuity. However, Medicaid has historically paid
less than the cost of care and, according to analysis conducted by the American Healthcare
Association, “75 percent are not keeping up with inflation.”
Medicaid spending on nursing home care is expected to grow at an averAge annualized
rate of only 3.4 percent in the five years through 2009. According to the AHCA, Nursing
Facility Services’ share of Long-Term Care Medicaid Expenditure would have fallen from
57 percent in 2000 to 47 percent in 2007 (while the share held by Home and Community
Based Waiver Services would rise from 18 to 26 percent). The American Recovery and
Reinvestment Act of 2009 included approximately $87 billion in enhanced Medicaid funding
to states (with funding ending on December 31, 2010), although the AHCA is concerned
-- 29
29 -that
that the
the overwhelming
overwhelming majority
majority of
of these
these enhanced
enhanced funds
funds will
will be
be redirected
redirected to
to programs
programs
14
outside
outside of
of long-term
long-term care.
care.14
Looking
Looking forward,
forward, this
this trend
trend in
in the
the growth
growth of
of community
community living
living services
services will
will likely
likely continue.
continue.
A
A Lake
Lake Research
Research Partners
Partners poll
poll in
in June
June 2009
2009 found
found that
that nearly
nearly 80
80 percent
percent of
of adults
adults (Age
(Age
18
18 and
and over)
over) were
were supportive
supportive of
of health
health
community-based
community-based long-term
long-term care.
care. This
This
care
care reform
reform ifif itit included
included improved
improved options
options for
for
means
means creating
creating alternatives
alternatives to
to nursing
nursing home
home
placement,
placement, such
such as
as day-service
day-service programs,
programs, home-care
home-care aides,
aides, meal
meal programs,
programs, senior
senior
centers
centers and
and transportation
transportation services.
services. Several
Several provisions
provisions in
in the
the recent
recent health
health care
care bill
bill seek
seek
15
to
to address
address these
these concerns
concerns15
Another
Another major
major source
source of
of income
income for
for the
the industry
industry is
is derived
derived from
from Medicare
Medicare patients.
patients. While
While
Medicare
Medicare does
does not
not provide
provide long-term
long-term care
care insurance,
insurance, the
the Federal
Federal program
program covers
covers shortshortterm,
term, medically
medically necessary
necessary rehabilitation
rehabilitation services
services
16
qualifications.
qualifications.16 Many
Many long-term
long-term facilities
facilities (including
(including
when
when a
a patient
patient meets
meets certain
certain
those
those of
of Vogue)
Vogue) offer
offer short-term
short-term
rehabilitation
rehabilitation services
services for
for patients
patients being
being discharged
discharged from
from a
a hospital.
hospital. Medicare
Medicare patients
patients are
are
able
able to
to select
select rehabilitation
rehabilitation facilities
facilities following
following hospitalization.
hospitalization. According
According to
to research
research
17
conducted
conducted by
by RAND
RAND Corporation
Corporation for
for the
the Department
Department of
of Health
Health and
and Human
Human Services,
Services,17
consumers
consumers seem
seem to
to select
select nursing
nursing homes
homes based
based on
on appearance,
appearance, age
age and
and amenities,
amenities, rather
rather
than
than quality
quality of
of care,
care, which
which likely
likely gives
gives newer
newer facilities
facilities with
with higher
higher levels
levels of
of funding
funding for
for
property
property improvements
improvements a
a distinct
distinct advantage.
advantage. As
As was
was shown
shown earlier
earlier in
in this
this report,
report, Vogue’s
Vogue’s
averAge
averAge rent
rent per
per bed
bed is
is lower
lower than
than its
its competitors.
competitors. This
This is
is due
due in
in some
some part
part to
to the
the older
older
14
14
Ibisworld,
Ibisworld, “Nursing
“Nursing Care
Care Facilities
Facilities in
in the
the U.S.:62311,”
U.S.:62311,” January
January 25,
25, 2010.
2010.
15
15
Dr.
Dr. Bruce
Bruce Chernof,
Chernof, “Healthcare
“Healthcare Reform
Reform Law
Law Lays
Lays Groundwork
Groundwork for
for New
New Long-term
Long-term Care
Care
System,”
McKnights.com
(March
31,
2010)<http://www.mcknights.com/healthcare-reformSystem,” McKnights.com (March 31, 2010)<http://www.mcknights.com/healthcare-reformlaw-lays-groundwork-for-new-long-term-care-system.html>(accessed
law-lays-groundwork-for-new-long-term-care-system.html>(accessed May
May 3,
3, 2010).
2010).
16
16
The
The Henry
Henry Kaiser
Kaiser Family
Family Foundation,
Foundation, “Talking
“Talking About
About Medicare:
Medicare: Your
Your Guide
Guide to
to Understanding
Understanding
the
Program,
2009,”
October
2008
<http://www.kff.org/medicare/7067/med_longterm.cfm>
the Program, 2009,” October 2008 <http://www.kff.org/medicare/7067/med_longterm.cfm>
(accessed
(accessed July
July 25,
25, 2011).
2011).
17
17
RAND
RAND Health,
Health, “Nursing
“Nursing Home
Home Selection:
Selection: How
How Do
Do Consumers
Consumers Choose?,”
Choose?,” December
December 2006,
2006,
56
56 <http://www.rand.org/conent/class/rand/pubs/working_papers/2007/RAND_WR457.1.pdf>
<http://www.rand.org/conent/class/rand/pubs/working_papers/2007/RAND_WR457.1.pdf>
(accessed
(accessed July
July 25,
25, 2011).
2011).
- 30 - 30 condition of Vogue’s facilities. Based on a memorandum regarding a study conducted by
condition of Vogue’s facilities. Based on a memorandum regarding a study conducted by
Dana Anders of Moore Stephens Lovelace, P.A., a certified public accountants and
Dana Anders of Moore Stephens Lovelace, P.A., a certified public accountants and
Management consutling firm, older Florida-based facilities tend to attract lower amounts
Management consutling firm, older Florida-based facilities tend to attract lower amounts
of Medicare patients and charge a lower level of rent to residents. In general, long-term
of Medicare patients and charge a lower level of rent to residents. In general, long-term
care facilities generate more consistent and higher levels of revenues on a per patient
care facilities generate more consistent and higher levels of revenues on a per patient
basis from Medicare than from Medicaid and private funding.
basis from Medicare than from Medicaid and private funding.
The Nursing Home Transparency Act enhances U.S. families’ access to information about
The Nursing Home Transparency Act enhances U.S. families’ access to information about
the quality of care in nearly 16,000 nursing homes that receive $75 billion a year in
the quality of care in nearly 16,000 nursing homes that receive $75 billion a year in
Medicare and Medicaid funds and improves the government’s ability to ensure quality care
Medicare and Medicaid funds and improves the government’s ability to ensure quality care
and better-trained staff at those facilities. The Independence at Home Act provides homeand better-trained staff at those facilities. The Independence at Home Act provides homebased coordinated care which will further impact the demand for nursing homes.18
based coordinated care which will further impact the demand for nursing homes.18
In addition to competition from home and community-based health care, nursing care
In addition to competition from home and community-based health care, nursing care
facilities also face competition from private and government facilities. The distribution of
facilities also face competition from private and government facilities. The distribution of
nursing facility ownership as of December 2009 is presented in Table 10.
nursing facility ownership as of December 2009 is presented in Table 10.
TABLE 10
TABLE 10
NURSING FACILITY
NURSING FACILITY
OWNERSHIP
OWNERSHIP
For Profit
For Profit
Non-Profit
Non-Profit
Government
Government
66.7%
66.7%
27.2%
27.2%
6.0%
6.0%
Source: IBISWorld Industry Report, Nursing
Source:
IBISWorld
Industry
Report, Nursing
Care
Facilities,
January
25, 2010.
Care Facilities, January 25, 2010.
18
18
Alzheimer’s Foundation of America, “Alzheimer’s Foundation of America Hails Significant
Alzheimer’s
of America,in“Alzheimer’s
Foundation
America(March
Hails Significant
Provisions forFoundation
Dementia Community
Health Reform
Law,” FoxofBusiness
23, 2010)
Provisions
for
Dementia
Community
in
Health
Reform
Law,”
Fox
Business
(March
23, 2010)
<http://www.foxbusiness.com/story/alzheimers-foundation-america-hails-significant-provisi
<http://www.foxbusiness.com/story/alzheimers-foundation-america-hails-significant-provisi
ons-dementia-community/>(accessed May 3,2010).
ons-dementia-community/>(accessed May 3,2010).
- 31 - 31 While competition in the industry is robust, barriers to entry are moderate, making the
While competition in the industry is robust, barriers to entry are moderate, making the
industry fairly difficult to enter. There appear to be some economies of scale and scope,
industry fairly difficult to enter. There appear to be some economies of scale and scope,
allowing larger operators to spread some costs over a larger revenue base and offer a
allowing larger operators to spread some costs over a larger revenue base and offer a
greater range of services. The large number of competitors, including government and nongreater range of services. The large number of competitors, including government and nonprofit companies, discourage new entrants. Lastly, nursing care facilities are highly
profit companies, discourage new entrants. Lastly, nursing care facilities are highly
regulated. Facilities must be accredited and licensed, and are subject to the regulations of
regulated. Facilities must be accredited and licensed, and are subject to the regulations of
federal, state, and local health agencies, as well as the requirements of municipal building
federal, state, and local health agencies, as well as the requirements of municipal building
codes, health codes, and fire departments.19
codes, health codes, and fire departments.19
While pressures to contain government health expenditures and the growth of alternative
While pressures to contain government health expenditures and the growth of alternative
services limits the industry’s growth somewhat, there are other trends that should promote
services limits the industry’s growth somewhat, there are other trends that should promote
growth. The reduction in the number of nursing facilities, as mentioned previously, should
growth. The reduction in the number of nursing facilities, as mentioned previously, should
keep occupancy rates high, promote growth in high-acuity patients, and promote growth
keep occupancy rates high, promote growth in high-acuity patients, and promote growth
in private fees. An aging American population will also be a significant factor promoting
in private fees. An aging American population will also be a significant factor promoting
demand for nursing home care.20
demand for nursing home care.20
Hospitals are also reducing patient length of stay, and this appears to be resulting in more
Hospitals are also reducing patient length of stay, and this appears to be resulting in more
patients being discharged before fully recovering. In addition, the phase in and
patients being discharged before fully recovering. In addition, the phase in and
implementation of the “75% Rule” on rehabilitation hospitals (a rule requiring that effective
implementation of the “75% Rule” on rehabilitation hospitals (a rule requiring that effective
July 1, 2007, rehabilitation hospitals have at least 75 percent of their patients prescribed
July 1, 2007, rehabilitation hospitals have at least 75 percent of their patients prescribed
as medically complex patients in order to receive higher Medicare payments) will result in
as medically complex patients in order to receive higher Medicare payments) will result in
more patients with routine rehabilitative needs receiving care at skilled nursing facilities.
more patients with routine rehabilitative needs receiving care at skilled nursing facilities.
These factors will result in skilled nursing care facilities caring for patients requiring more
These factors will result in skilled nursing care facilities caring for patients requiring more
complex care and longer lengths of stay.21
complex care and longer lengths of stay.21
19
19
Ibisworld.
Ibisworld.
20
20
Ibid.
Ibid.
21
21
Ibid.
Ibid.
-- 32
32 -Due
Due to
to greater
greater uncertainties
uncertainties associated
associated with
with the
the economy
economy and
and government-sponsored
government-sponsored
health
health programs,
programs, acquisitions
acquisitions of
of long-term
long-term care
care facilities
facilities have
have declined
declined in
in recent
recent years.
years.
According
According to
to Irving
Irving Levin
Levin Associates,
Associates, Inc.
Inc. (“ILA”),
(“ILA”), acquisitions
acquisitions of
of long-term
long-term care
care facilities
facilities
have
have declined
declined from
from 146
146 in
in 2006
2006 to
to 90
90 in
in 2009,
2009, with
with the
the decline
decline slowing
slowing in
in 2009.
2009. However,
However,
the
the dollar
dollar value
value of
of acquisitions
acquisitions increased
increased significantly
significantly in
in 2009,
2009, suggesting
suggesting that
that the
the industry
industry
may
may have
have bottomed
bottomed in
in 2008.
2008. Furthermore,
Furthermore, the
the average
average price
price per
per bed
bed increased
increased from
from 2008
2008
22
to
to 2009.
2009.22
Notably,
Notably, ILA
ILA identifies
identifies a
a number
number of
of factors
factors that
that may
may affect
affect transactions
transactions of
of long-term
long-term care
care
facilities
facilities in
in 2009,
2009, including
including size,
size, age
age and
and location.
location. The
The ILA
ILA report
report indicates
indicates that
that the
the largest
largest
percentage
percentage of
of transactions
transactions (55
(55 percent)
percent) involved
involved facilities
facilities between
between 20
20 and
and 40
40 years
years old,
old,
while
while 37
37 percent
percent of
of transactions
transactions involved
involved facilities
facilities older
older than
than 40
40 years.
years. The
The highest
highest price
price
per
per bed
bed was
was paid
paid for
for facilities
facilities in
in the
the Northeast,
Northeast, followed
followed by
by the
the West
West and
and Southeast.
Southeast. Finally,
Finally,
approximately
approximately 75
75 percent
percent of
of transactions
transactions involved
involved facilities
facilities with
with between
between 80
80 and
and 180
180
23
beds.
beds.23
Under
Under the
the current
current economic
economic climate,
climate, the
the demand
demand for
for nursing
nursing care
care facilities
facilities as
as investment
investment
properties
properties could
could potentially
potentially increase
increase as
as investors
investors seek
seek safe
safe low
low risk
risk investments.
investments. Health
Health
care
care REITS
REITS are
are described
described as
as follows:
follows:
Health
Health care
care REITs
REITs build,
build, acquire
acquire and
and lease
lease specialty
specialty buildings
buildings such
such as
as
hospitals,
hospitals, nursing
nursing homes,
homes, medical
medical buildings
buildings and
and assisted-living
assisted-living facilities.
facilities. The
The
REIT
REIT sector
sector is
is fairly
fairly immune
immune to
to recession,
recession, although
although they
they are
are largely
largely
dependent
upon
the
financial
health
of
the
lessee
which,
in
turn,
rely
dependent upon the financial health of the lessee which, in turn, rely on
on the
the
medical
medical reimbursements
reimbursements provided
provided by
by the
the U.S.
U.S. Government.
Government. Federal
Federal changes
changes
in
policy would obviously have a significant affect on health care
in health
health
24 policy would obviously have a significant affect on health care
REITs.
24
REITs.
22
22
Irving Levin Associates, Inc., The Senior Care Acquisition Report, Fifteenth Edition 2010,
Irving
Levin Associates, Inc., The Senior Care Acquisition Report, Fifteenth Edition 2010,
2010:2-3.
2010:2-3.
23
23
Ibid.: 14-15, 19.
Ibid.: 14-15, 19.
24
24
About.com: Investing for Beginners, :”REITS,” <beginnersinvest.about.com/od/reit/a/aa/
About.com:
Investing for Beginners,
:”REITS,”
101404_4.htm?p=1>(accessed
April 30,
2010) <beginnersinvest.about.com/od/reit/a/aa/
101404_4.htm?p=1>(accessed April 30, 2010)
- 33 - 33 Historical total returns from the various classes of REITs are presented in Table 11.25
Historical total returns from the various classes of REITs are presented in Table 11.25
TABLE 11
TABLE 11 BY PROPERTY SECTOR AND
ANNUAL PRICE AND TOTAL RETURNS
ANNUAL PRICE AND TOTALSUBSECTOR
RETURNS BY PROPERTY SECTOR AND
SUBSECTOR
(RETURNS IN
PERCENT, 1994-2009)
(RETURNS IN PERCENT, 1994-2009)
All REIT Index
All REIT Index
Industrial/Office
Office
Industrial/Office
Industrial
Office
Mixed
Industrial
Mixed
Retail
Shopping Centers
Retail
Regional
ShoppingMalls
Centers
Free
Standing
Regional
Malls
Free Standing
Residential
Apartments
Residential
Manufactured
Apartments Homes
Manufactured Homes
Diversified
Diversified
Lodging/Resorts
Lodging/Resorts
Health Care
Health Care
Mortgage
Home Financing
Mortgage
Commercial
Financing
Home Financing
Commercial Financing
Self Storage
Self Storage
Specialty
Specialty
Source: REIT.com.
Source: REIT.com.
2004
Price2004
Total
Price Total
18.42
25.24
16.22
23.28
18.42
25.24
27.78
34.09
16.22
23.28
12.99
19.59
27.78
34.09
12.99
19.59
33.23
40.23
29.63
36.25
33.23
40.23
16.22
45.01
29.63
36.25
26.02
32.87
16.22
45.01
26.02
32.87
24.09
32.72
26.50
34.72
24.09
32.72
-8.40
6.40
26.50
34.72
-8.40
6.40
20.40
29.18
20.40
29.18
28.43
32.16
28.43
32.16
14.01
21.67
14.01
21.67
7.92
18.43
12.88
24.91
7.92
18.43
-0.09
7.45
12.88
24.91
-0.09
7.45
24.03
29.40
24.03
29.40
20.65
26.85
20.65
26.85
2005
Price2005
Total
Price Total
6.71
12.85
6.76
13.11
6.71
12.85
9.26
15.42
6.76
13.11
-0.12
7.40
9.26
15.42
-0.12
7.40
6.60
11.80
3.59
9.27
6.60
11.80
11.76
16.54
3.59
9.27
-5.44
-0.49
11.76
16.54
-5.44
-0.49
8.28
13.67
9.09
14.62
8.28
13.67
-6.05
-2.58
9.09
14.62
-6.05
-2.58
-1.17
4.75
-1.17
4.75
5.61
9.49
5.61
9.49
-4.63
1.77
-4.63
1.77
-30.88 -23.19
-33.94
-30.88 -25.95
-23.19
-22.82
-33.94 -16.06
-25.95
-22.82 -16.06
21.98
26.55
21.98
26.55
5.93
10.44
5.93
10.44
2006
Price2006
Total
Price Total
34.06
39.39
39.76
45.22
34.06
39.39
24.46
28.92
39.76
45.22
22.07
28.27
24.46
28.92
22.07
28.27
24.00
29.01
29.73
34.87
24.00
29.01
19.19
23.83
29.73
34.87
21.13
30.74
19.19
23.83
21.13
30.74
33.81
38.93
34.76
39.95
33.81
38.93
11.57
15.34
34.76
39.95
11.57
15.34
32.11
38.03
32.11
38.03
22.75
28.17
22.75
28.17
35.80
44.55
35.80
44.55
8.44
19.32
3.87
14.75
8.44
19.32
19.61
30.31
3.87
14.75
19.61
30.31
36.66
40.95
36.66
40.95
15.29
23.56
15.29
23.56
2007
Price2007Total
Price
Total
-18.17 -14.86
-22.01 -14.86
-18.96
-18.17
-3.17 -18.96
0.38
-22.01
-36.66
-3.17 -33.09
0.38
-36.66 -33.09
-18.97 -15.77
-20.98
-18.97 -17.68
-15.77
-18.80
-20.98 -15.85
-17.68
-5.26 -15.85
-0.43
-18.80
-5.26
-0.43
-28.08 -25.21
-28.30 -25.21
-25.43
-28.08
-22.24
-28.30 -19.34
-25.43
-22.24 -19.34
-25.40 -22.29
-25.40 -22.29
-25.98 -22.37
-25.98 -22.37
-3.47
2.13
-3.47
2.13
-47.69 -42.35
-43.41
-47.69 -38.23
-42.35
-54.29
-43.41 -48.79
-38.23
-54.29 -48.79
-27.16 -24.82
-27.16 -24.82
9.89
14.56
9.89
14.56
2008
Price2008Total
Price
Total
-53.02 -50.28
-44.02 -50.28
-41.07
-53.02
-69.38
-44.02 -67.47
-41.07
-39.27 -67.47
-33.99
-69.38
-39.27 -33.99
-51.28 -48.36
-42.23
-51.28 -38.84
-48.36
-62.79
-42.23 -60.60
-38.84
-20.32 -60.60
-15.09
-62.79
-20.32 -15.09
-29.08 -24.89
-29.33 -24.89
-25.13
-29.08
-24.06
-29.33 -20.18
-25.13
-24.06 -20.18
-31.84 -28.25
-31.84 -28.25
-62.72 -59.67
-62.72 -59.67
-17.06 -11.98
-17.06 -11.98
-40.46 -31.31
-30.25
-40.46 -20.02
-31.31
-78.24
-30.25 -74.84
-20.02
-78.24 -74.84
1.44
5.05
1.44
5.05
-29.07 -25.70
-29.07 -25.70
2009
Price2009Total
Price
Total
21.40
29.17
28.04
35.55
21.40
29.17
4.84
12.17
28.04
35.55
25.34
34.90
4.84
12.17
25.34
34.90
21.57
27.17
-7.44
-1.66
21.57
27.17
59.53
62.99
-7.44
-1.66
16.15
25.93
59.53
62.99
16.15
25.93
22.81
30.82
22.37
30.40
22.81
30.82
33.33
40.92
22.37
30.40
33.33
40.92
12.77
17.02
12.77
17.02
64.53
67.19
64.53
67.19
15.76
24.62
15.76
24.62
8.25
24.63
11.18
28.19
8.25
24.63
-46.15
11.18 -40.99
28.19
-46.15 -40.99
4.44
8.37
4.44
8.37
24.26
31.46
24.26
31.46
As shown in Table 11, health care REITs experienced a smaller decline in total returns in
As shown in Table 11, health care REITs experienced a smaller decline in total returns in
2008 as compared to other industry REITs. In addition, health care REITs experienced
2008 as compared to other industry REITs. In addition, health care REITs experienced
substantial improvement in returns in 2009.
substantial improvement in returns in 2009.
25
25
REIT.com, “Annual Price and Total Returns by Property Sector and Subsector: Returns in
Percent,
1994-2009,”<http://www.reit.com/tabid/211/Default.aspx>(accessed
AprilReturns
30, 2010).
REIT.com,
“Annual Price and Total Returns by Property Sector and Subsector:
in
Percent, 1994-2009,”<http://www.reit.com/tabid/211/Default.aspx>(accessed April 30, 2010).
- 34 - 34 Value Line attributes the stability of health care REITs in comparison to the broader weak
Value Line attributes the stability of health care REITs in comparison to the broader weak
REIT industry to the fact that these companies are benefitting from a stable operating
REIT industry to the fact that these companies are benefitting from a stable operating
environment. They go on to state that health care REITs will also likely benefit from an
environment. They go on to state that health care REITs will also likely benefit from an
improved acquisition market.26
improved acquisition market.26
One of the most critical components that will be affected by health care reform is
One of the most critical components that will be affected by health care reform is
government reimbursement programs. Medicare and Medicaid payments account for a
government reimbursement programs. Medicare and Medicaid payments account for a
large amount of revenue for health care REITs. If operators are not sufficiently reimbursed,
large amount of revenue for health care REITs. If operators are not sufficiently reimbursed,
they are not able to pay rent to the health care REITs that own facilities.27
Thus, the major
they are not able to pay rent to the health care REITs that own facilities.27 Thus, the major
cuts to Medicare will adversely impact nursing care facilities and health care REITs as a
cuts to Medicare will adversely impact nursing care facilities and health care REITs as a
whole. According to the Congressional Research Service, Medicare payments to skilled
whole. According to the Congressional Research Service, Medicare payments to skilled
nursing facilities for 2010 will be decreased by 1.1 percent ($360 million) from 2009. Some
nursing facilities for 2010 will be decreased by 1.1 percent ($360 million) from 2009. Some
individual providers could experience larger decreases in payments than others due to
individual providers could experience larger decreases in payments than others due to
case-mix utilization.28
Gross cuts in projected payments to insurers, hospitals, nursing
case-mix utilization.28 Gross cuts in projected payments to insurers, hospitals, nursing
homes, and other service providers total $533 billion over 10 years, according to a
homes, and other service providers total $533 billion over 10 years, according to a
preliminary analysis by the Kaiser Family Foundation. About $100 billion will be allocated
preliminary analysis by the Kaiser Family Foundation. About $100 billion will be allocated
to Medicare, leaving a net cut of $428 billion. Medicare spending will continue to grow
to Medicare, leaving a net cut of $428 billion. Medicare spending will continue to grow
under the law, just not as fast. Although the new law improves the lot of many Medicare
under the law, just not as fast. Although the new law improves the lot of many Medicare
beneficiaries, it is likely that broad cuts in projected Medicare payments to insurance plans,
beneficiaries, it is likely that broad cuts in projected Medicare payments to insurance plans,
hospitals, nursing homes and other service providers will adversely affect the industry.29
hospitals, nursing homes and other service providers will adversely affect the industry.29
26
26
The Value Line Investment Survey: 1512.
The Value Line Investment Survey: 1512.
27
27
Ibisworld.
Ibisworld.
28
28
National Conference of State Legislatures, “Medicare programs Changes in Senate-Passed
National
Conference of State Legislatures, “Medicare programs Changes in Senate-Passed
H.R. 3590,”<http://www.ncsl.org/documents/health/MCprogChgs.pdf>(accessed
April 30,
H.R.
2010).3590,”<http://www.ncsl.org/documents/health/MCprogChgs.pdf>(accessed April 30,
2010).
29
29
Washington, “Seniors Anxious Over Health Care Overhaul,” CBS News (March 31,
Washington,
“Seniors Anxious Over Health Care Overhaul,” CBS News (March
31,
2010)<http://www.cbsnews.com/stories/2010/03/31/politics/main6351279.shtml>
(accessed
2010)<http://www.cbsnews.com/stories/2010/03/31/politics/main6351279.shtml>
(accessed
May 3, 2010)
May 3, 2010)
- 35 -
SUMMARY AND OUTLOOK
The prospects for the nursing care facility industry are mixed. Demand for these facilities
is expected to increase as baby boomers age and health care expenditures continue to
rise. Given their historical stability, health care REITs have earned a reputation among riskaverse investors as safe and strong investments. In addition, transaction activity seems to
have improved in 2009 relative to 2008. Most acquisition activity involved facilities that are
newer than those of Vogue, but similar in size. Demand for investments in long-term care
facilities is also expected to be higher within the next decade as more people obtain health
insurance. However, future growth is threatened by the rise in popularity of alternative
services and recent government efforts to promote these cheaper services through various
legislation. Major cuts in projected Medicare payments are expected to have an adverse
effect on the industry in the coming years and may have a negative impact on the
profitability of nursing care facilities.
- 36 -
THE BOOK VALUE OF THE STOCK AND THE
FINANCIAL CONDITION OF THE BUSINESS
A financial analysis of The Company was performed utilizing the historical balance sheets
and income statements that appear as Schedules 1 through 4 at the end of this report.
Vogue’s assets increased from $67.5 million at December 31, 2005 to $81.1 million at
December 31, 2009. In 2008, The Company’s assets declined to $69.1 million due to a
$10.7 million loss in the value of an investment. At March 31, 2010, total assets declined
to $48.7 million as the result of a $35.0 million dividend issued to shareholders, which was
funded with cash.
The largest component of Vogue’s asset base is current assets, which fluctuated in the
same manner as total assets over the period analyzed. Other current assets primarily
include accounts receivable and loans to related parties. The related party loans range in
maturity and interest, but are considered to be performing. The vast majority of cash,
investments and related party receivables are not necessary to The Company’s real estate
operations. Thus, these assets will be removed from Vogue’s balance sheet and treated
separately from The Company’s primary operations.
Vogue’s net fixed assets increased from $15.3 million at December 31, 2005 to $18.9
million at March 31, 2010. The Company completed the renovation of its City, Florida
facility in 2009, resulting in the higher level of net fixed assets at the valuation date.
Other assets were stable over the historical period analyzed and consisted primarily of an
investment in a real estate partnership.
Overall, Vogue carried minimal liabilities in relation to its assets. Current liabilities generally
fluctuated around approximately $500,000 and amounted to $596,719 at March 31, 2010.
- 37 The Company had no long-term liabilities as of the valuation date, and over the preceding
five years, long-term liabilities, made up of customer deposits, amounted to $27,100. Total
liabilities remained below $1 million over the years analyzed.
Vogue is financed almost entirely through stockholders’ equity. As a result, stockholders
equity followed a similar trend as The Company’s total assets; increasing in 2005 through
2007 and in 2009, while declining in 2008 and 2010. In total, stockholders’ equity amounted
to $45.1 million at March 31, 2010.
Overall, The Company’s balance sheet is very strong. Vogue employs very little debt and
The Company’s ample cash and marketable securities’ balances can easily cover its
liabilities. Vogue has been able to grow its assets considerably over the period analyzed,
and since The Company uses so little leverage, stockholders’ equity has grown at a
substantial rate.
However, at March 31, 2010, The Company’s total assets and
stockholders’ equity had declined approximately 40 percent due to a large shareholder
distribution. Despite this, The Company’s balance sheet remained strong.
Before a meaningful analysis can be completed, certain normalization adjustments to the
balance sheet were required. The process of normalization is intended to reflect The
Company’s financial statements on an economic level; to reflect those items that a willing
buyer would expect to see as a result of normal operations.
We started the normalization process by analyzing the balance sheet. This process is
reflected in Table 12.
s
- 38 - 38 -
TABLE 12
BALANCE SHEET
ADJUSTMENTS
TABLE
12
December
2005
mprovements
n in Progress
Assets
Assets
Depreciation
ets
December
2005
Adjusted
2005
December
2006
Adjustments
$ Assets
23,682,393 $ (23,304,661) $
377,732 $
Current
Cash1 15,634,493
$ 23,682,393 $ (23,304,661)
(15,634,493)
- $
1
Marketable Securities
15,634,493
(15,634,493)
427,558
427,558
Accounts Receivable
427,558
1,065
(1,065)
Accrued Interest
Receivable1
1,065
(1,065)
2
1,080,000
(1,080,000)
1,080,000
(1,080,000)
Stockholder
Loans
Miscellaneous Receivables
- -Mortgage and
Real Estate Loans1
703,173
(703,173)
703,173
(703,173)
1
Notes and Bonds
25,000
(25,000)
1 25,000
(25,000)
7,813,175
(7,813,175)
Partnerships
Securities1
eceivable
erest Receivable1
Loans2
us Receivables
nd
tate Loans1
Bonds1
s1
Assets
Adjustments
7,813,175
(7,813,175)
Total Current Assets
$
49,366,857 $
Fixed$Assets
Land3
Building & Improvements
Construction in Progress
$ Fixed
2,805,867
$
Other
Assets
-
49,366,857 $ (48,561,567) $
(48,561,567) $
$
2,805,867 $
32,937,555
1,629,312
- $-
Gross Fixed1,629,312
Assets
Accumulated Depreciation
-
$
37,372,734
$
22,117,709
-
Net Fixed Assets
$
15,255,025 $
32,937,555
$
37,372,734 $
22,117,709
Other Assets
Intangible Assets (Net)
Security
Deposits
$ 15,255,025
$
Excess Cost of Subsidiary
Other Assets
$
-
- $
-
805,290 $
- $
2,805,867-- $
32,937,555
1,629,312- $
--
- $
37,372,734 $
22,117,709
77,736 $
(77,736) $
7,020
- $
- $ 15,255,025
2,788,353
(2,788,353)
-
Adjusted
2005
BALANCE SHEET ADJUSTMENTS
Adjustments
December
2006
Adjusted
2006
December
2007
Adjusted
2006
Adjustments
December
2007
Adjustments
Adjustments
Adjusted
2007
Adjusted
2007
December
2008
December
2008
Adjustments
Adjustments
Adjusted
2008
27,521,645 $ (27,094,699) $
426,946 $ 27,087,253 $ (26,657,386) $
429,867 $ 28,404,942 $ (27,970,378) $
377,732 $ 27,521,645
$ (27,094,699) $
426,946
$24,750,576
27,087,253 $ (26,657,386)
$
429,867 $ 28,404,942
$ (27,970,378)(11,106,853)
$
434,564 $
23,031,222
(23,031,222)
(24,750,576)
11,106,853
23,031,222
(23,031,222) 340,084
24,750,576
(24,750,576)
11,106,853 672,676
(11,106,853)
340,084
406,813
406,813
427,558
340,084
340,084
406,813
406,813
672,676
9,132
866
(866)
- 672,676
762 (762)
(762) 9,132(9,132) (9,132)
866
(866)
762
460,000
(460,000)(460,000)
350,000
(350,000)
- 350,000 350,000
(350,000) 460,000
350,000
(350,000)
(350,000)
- - -- 665,789
25,000
6,626,868
665,789
(665,789)(665,789)
25,000
(25,000)
(25,000)
6,626,868
(6,626,868)
805,290 $
58,679,740 $ (57,912,710) $
58,679,740 $ (57,912,710) $
2,805,867 $
2,805,867 $
32,937,555
34,734,004
1,629,312
147,947
2,805,867
$
-
34,734,004
147,947
37,372,734
$ 37,687,818
22,117,709 - 23,083,209
15,255,025 $
37,687,818
23,083,209
- $
7,020
14,604,609
-
$
14,604,609 $
$
32,406 $
7,020
$2,788,353
(20)
-
-
(6,626,868)
623,916
623,916
25,000
25,000
8,383,532
8,383,532
767,030 $
767,030 $
-
(8,383,532)
61,627,956 $ (60,791,276) $
836,680 $
61,627,956 $ (60,791,276) $
- $
2,805,867 $
34,734,004
147,947
2,805,867
$-
2,805,867 $
34,734,894
2,310,412
2,805,867
- $
- $
-
34,734,004
34,734,894
147,947
- $
37,687,818 $ 2,310,412
39,851,173 $
23,083,209
23,949,621
-
- $
-
37,687,818 $
23,083,209
- $
(623,916)
(623,916)
(25,000)
(25,000)
(8,383,532)
14,604,609 $
- $
(13,984) $
- (2,788,353)
-
2,805,867 $
32,368,645
2,720,577
- -$
2,310,412
2,720,577
39,851,173
$ 37,895,089
$
23,949,621
22,415,380
-
- $
-
- $
37,895,089
22,415,380
-
15,901,552 $
- $
15,479,709 $
- $
9,297 $
(9,297) $
7,020
15,901,552
$(20,080)
15,479,709
$ 2,788,353
(2,788,353)
(8)
-
- $
(20,080)
- -$
-
34,734,894
$
32,368,645
15,479,709 $
39,851,173 $
23,949,621
$
37,895,089 $
22,415,380
-
- $
-
Total $
Other Assets
ssets (Net)
77,736 $
posits
7,020
t of Subsidiary TOTAL ASSETS
2,788,353
s
Current Liabilities
$ (77,736)
2,873,109
7,020
$ $2,827,759
$ (2,820,759)
$
2,809,349
$ $
7,012 $ - 2,777,570
$ 9,297
(2,797,650)
$
(20,080)$$
$ $ (2,866,089)
- $$
32,406
(32,406)
$
-7,000
$ $
13,984 $$ (2,802,337)
(13,984)
$
$
(9,297)
7,020
7,020
7,020
7,020
7,020
(20,080)
$ 67,494,991 $ (51,427,656) $ 16,067,335 $ 76,112,108 $ (60,733,469) $ 15,378,639 $ 80,338,857 $ (63,593,613) $ 16,745,244 $ 69,087,457 $ (52,520,588) $ 16,566,869 $
(2,788,353)
2,788,353
(2,788,353)
2,788,353
(2,788,353)
2,788,353
(2,788,353)
(20)
(20)
(8)
(8)
-
ssets
(2,866,089)
$
389,490
7,020- $
2,827,759
$ 507,112
(2,820,759) $
389,490
9,960
$ (51,427,656)
$
16,067,335- $
9,960
1,595
76,112,108
$ (60,733,469)
$
Accounts Payable
$
2,873,109
Accrued
Expenses
Sales Taxes Payable
Income
Payable
$ Taxes
67,494,991
TS
ties
ayable
penses
s Payable
es Payable
$
$
546,147 $
127
Total Current Liabilities
$
Total Long-Term Liabilities
$
27,100 $
Total Liabilities389,490
$
972,824
$
$
546,147 $
127
Stockholders' Equity
9,960
Common Stock
Paid - In Capital
$
945,724
Retained
Earnings
$
rm Liabilities
Total $
Stockholders'
Equity
27,100
$
s
TOTAL LIABILITIES AND
$
972,824
$
STOCKHOLDERS'
EQUITY
Liabilities
Equity
ock
pital
arnings
$
945,724 $
- $
-
- $
-
- $
546,147- $$
389,490- $
127
9,960
546,147 $
165,494 $
127
127
945,724 $
674,328 $
27,100 $
165,494 $ 27,100 $
507,112
972,824
$
127
1,595
701,428 $
- $
- $
- $
-
165,494 $
7,000
$
507,112
127
197,872 $
2,809,349
291,400 $
127
- $
197,872 $
-
674,328 $
509,156 $
- $
27,100 $
165,494
$
27,100 $
197,872
$
291,400
536,256 $
127
19,757
- $
- $
507,112
- $
701,428 $
127
1,595
114,491 $
- $
114,491 $
(2,802,337)
$ 291,4007,012 224,487
$
2,777,570 $ - (2,797,650)
224,487 $
1,595
19,757 $ (63,593,613)
15,378,639
$ 80,338,857
$
- $
- $
-
127
19,757
16,745,244
$
127
69,087,457
509,156 $
339,105 $
27,100 $
- $
197,872 $
127
19,757
-
114,491 $ - $
2,783 $
3,073,993
127
-
127
$ - (52,520,588) - $
- $
291,400
536,256
$
339,105 224,487
$
2,783 $
3,073,993
36,496,943 $ (36,049,619) $
59,422,099 $ (57,698,864) $
1,107,240 $
50,830,178 $ (49,722,938) $
- $
-
- $
--
434,564 $
339,105 $
- -$$
- $
- $
339,105
-
Adj
20
Adjustments
Adjusted
2009
36,496,943 -$ (36,049,619)
$
447,324
8,494,396
(8,494,396)
8,494,396
(8,494,396)
672,676
1,275,911
1,275,911
7,913 1,275,911- (7,913)
7,913 (7,913)
1,036,931
(1,036,931)
1,036,931 (1,036,931)
26,831 (26,831)
- (26,831)
26,831
50,830,178 $ (49,722,938) $
836,680 $
- $
-- -
15,901,552 $
39,851,173 $
23,949,621
Adjustments
524,485
25,000
11,533,689
2,805,867 $
2,805,867 $
34,734,894
32,368,645
2,720,577
$ 2,310,412
2,805,867
$
2,805,867
-
(32,406) $
- $
13,984 $
7,020
7,020 $
- $ 14,604,609
$ - 15,901,552
(2,788,353)
2,788,353
(20)
(8)
December
2009
December
2009
(577,016)
- 577,016
(577,016) -25,000 577,016
(25,000)
- 9,692,929 25,000
(25,000) (9,692,929)
9,692,929
(9,692,929)
- $
- -
-
Adjusted
2008
-
(524,485)
524,485
(25,000)
25,000
(11,533,689)
2,805,867 $
32,689,010
6,629,845
2,805,867
-
32,368,645
2,720,577 $
42,124,722
23,251,822 -
$
18,872,900 $
37,895,089 $
22,415,380
4,609 $
9,920
15,479,709
2,788,353
2,802,882 -$
(20,080)
-
(524,485)
- (25,000)
(11,533,689)
11,533,689
1,107,240 $
1
1,723,235
59,422,099 $ (57,698,864) $
1,
- $
-
2
32
6
- $
-
42
23
- $
18
- $
2,805,867
32,689,010
6,629,845
2,805,867
$
-
32,689,010
6,629,845
- $ 42,124,722
-23,251,822
- $
18,872,900
42,124,722 $
23,251,822
(4,609) $
$ (2,788,353)
18,872,900
-
-
$ 9,920-
$
$ (2,792,962)
4,609
$ 9,920 (4,609) $
9,920
2,788,35320,606,055
(2,788,353)
-
81,097,881 $ (60,491,826) $
140,200 $
(20,080)
360,408
127
- $
140,200
$
2,802,882
$360,408
(2,792,962) $
-
16,566,869
$
81,097,881
$ (60,491,826)
$
500,735 $
27,100 $
114,491
$
224,487 $
527,835
127
-
-
- $
127
20,
500,735
- $
140,200
$ 27,100
360,408
- $
527,835
127
-
- $
-
2,783 $
- $
3,073,993
- $
945,724 $
63,445,391
(51,427,656)
2,783 $
2,783 $
- $
2,783 $
3,073,993
3,073,993
3,073,993
674,328 72,333,904
$
- $
674,328
$
12,017,735
(60,733,469)
11,600,435
2,783 $
- $
3,073,993
509,156 $ (63,593,613) 76,725,825
$13,132,212
509,15665,671,576
$
339,105
$
(52,520,588)
- $
-
2,783 $
3,073,993
- $
13,150,988
2,783 $
- $
2,783
3,073,993
3,073,993
339,105 $(60,491,826)
500,73517,001,444
$
77,493,270
$
66,522,167
- $ $ (51,427,656)
27,100 $$
15,094,511
$ 75,410,680
$ (60,733,469)
$ 27,100
14,677,211
27,100
$
- $
$ $
79,802,601
27,100 $$ (63,593,613) $-
$ 68,748,352
$ (52,520,588)
$16,208,988
27,100
$
- $ $
16,227,764
- $$
80,570,046 -$ $(60,491,826)
$ 20,078,220
27,100
$
- $
$
- $ $ (51,427,656)
972,824 $$
67,494,991
701,428
$
- $
$ $
16,067,335
$ 76,112,108
$ (60,733,469)
$701,428
15,378,639
536,256 $$ (63,593,613) $80,338,857
$16,745,244
536,256
$
339,105
$ $
$ 69,087,457
$ (52,520,588)
- $$
16,566,869
339,105$ $(60,491,826)
527,835
$
81,097,881
$ 20,606,055
- $
- $
$
2,783 $
- $
3,073,993
63,445,391
(51,427,656)
2,783 $
3,073,993
12,017,735
2,783 $
- $
3,073,993
72,333,904
(60,733,469)
2,783 $
3,073,993
11,600,435
2,783 $
- $
3,073,993
76,725,825
(63,593,613)
2,783 $
3,073,993
13,132,212
2,783 $
- $
3,073,993
65,671,576
(52,520,588)
2,783 $
3,073,993
13,150,988
2,783 $
- $
3,073,993
77,493,270
(60,491,826)
3
17,
lders' Equity
$
66,522,167 $ (51,427,656) $
15,094,511 $
75,410,680 $ (60,733,469) $
14,677,211 $
79,802,601 $ (63,593,613) $
16,208,988 $
68,748,352 $ (52,520,588) $
16,227,764 $
80,570,046 $ (60,491,826) $
20,
LITIES AND
LDERS' EQUITY
$
67,494,991 $ (51,427,656) $
16,067,335 $
76,112,108 $ (60,733,469) $
15,378,639 $
80,338,857 $ (63,593,613) $
16,745,244 $
69,087,457 $ (52,520,588) $
16,566,869 $
81,097,881 $ (60,491,826) $
20,
- 39 1.
Vogue holds substantial investment in cash, marketable securities and equity
interests in privately-held securities. All marketable securities and partnership
investments have been removed as non-operating. A minor amount of cash was
separated from total cash to reflect The Company’s operational cash needs. We
assumed that Vogue would hold enough cash to cover 60 days of expenses. The
remainder was treated as excess. The non-operating assets will be valued
separately from the entity’s operations at the end of the valuation.
2.
The Company had a number of loans receivable from related parties over the
historical period observed. These loans are not a part of The Company’s operations.
To improve the comparability of Vogue to publicly-traded alternative investments,
we removed the related party loans from the balance sheet and will account for their
value at the end of the valuation.
3.
The Company capitalized various development and other costs on its balance sheet.
These capitalized expenses have no realizable value and have been removed from
the balance sheet. In addition, value paid in excess of the net assets of subsidiaries
has been removed as if it has any value, it will be accounted for through the
application of a market and income approach and through the appraisal value of The
Company’s real estate.
After making normalization adjustments to the balance sheet, we have restated it and it is
shown in Table 13.
- 40 TABLE 13
ADJUSTED BALANCE SHEET
AS OF DECEMBER 31,
2005
2006
2007
2008
2009
Current Assets
Cash
Accounts Receivable
$
377,732 $
427,558
426,946 $
340,084
429,867 $
406,813
434,564 $
672,676
447,324
1,275,911
Total Current Assets
$
805,290 $
767,030 $
836,680 $
1,107,240 $
1,723,235
Fixed Assets
Land
Building & Improvements
Construction in Progress
$
2,805,867 $ 2,805,867 $ 2,805,867 $ 2,805,867 $ 2,805,867
32,937,555
34,734,004
34,734,894
32,368,645
32,689,010
1,629,312
147,947
2,310,412
2,720,577
6,629,845
Gross Fixed Assets
Accumulated Depreciation
$ 37,372,734 $ 37,687,818 $ 39,851,173 $ 37,895,089 $ 42,124,722
22,117,709
23,083,209
23,949,621
22,415,380
23,251,822
Net Fixed Assets
$ 15,255,025 $ 14,604,609 $ 15,901,552 $ 15,479,709 $ 18,872,900
Total Other Assets
$
TOTAL ASSETS
$ 16,067,335 $ 15,378,639 $ 16,745,244 $ 16,566,869 $ 20,606,055
Current Liabilities
Accounts Payable
Accrued Expenses
Sales Taxes Payable
Income Taxes Payable
Total Current Liabilities
Stockholders' Equity
Common Stock
Paid - In Capital
Retained Earnings
7,000 $
7,012 $
(20,080) $
9,920
$
546,147 $
389,490
127
9,960
165,494 $
507,112
127
1,595
197,872 $
291,400
127
19,757
114,491 $
224,487
127
-
140,200
360,408
127
-
$
945,724 $
674,328 $
509,156 $
339,105 $
500,735
Total Long-Term Liabilities
Total Liabilities
7,020 $
27,100
$
$
972,824 $
27,100
701,428 $
27,100
536,256 $
339,105 $
27,100
527,835
2,783 $
2,783 $
2,783 $
2,783 $
2,783
3,073,993
3,073,993
3,073,993
3,073,993
3,073,993
12,017,735
11,600,435
13,132,212
13,150,988
17,001,444
Total Stockholders' Equity
$ 15,094,511 $ 14,677,211 $ 16,208,988 $ 16,227,764 $ 20,078,220
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 16,067,335 $ 15,378,639 $ 16,745,244 $ 16,566,869 $ 20,606,055
The adjusted balance sheet reflects a more normal level of assets for the operating
business. The adjusted book value is $20.1 million at December 31, 2009.
- 41 A financial analysis tool used to look at a company’s financial picture is common size
financial statements. A common size balance sheet depicts each item on the balance
sheet as a percentage of total assets. Common size statements are used to look at trends
in a company’s financial position, as well as to compare the company with industry data.
This is also a useful tool to compare companies of different sizes.
In order to compare Vogue to industry data, we had to determine the appropriate Standard
Industrial Classification (SIC) code for The Company. A description of The Company and
the services it provides was included in an earlier section of this report. Based on this
description, we determined that The Company is best described by SIC code 6512 which
is described as follows:
6512 Operators of Non-Residential Buildings
Establishments primarily engaged in the operation of non-residential
buildings.
•
•
•
•
•
•
•
•
Bank buildings, operation of
Insurance buildings, operation of
Lessors of piers, docks, and associated buildings and facilities
Operators of commercial and industrial buildings
Operators of non-residential buildings
Retail establishments, property operation only
Shopping centers, property operation only
Theater buildings (ownership and operation)
We were able to locate benchmarking data for companies in SIC code 6512 with sales
between $10 million and $24.99 million from Integra Information, Inc. However, based on
our review of the data, comparison to Vogue would not be meaningful. As shown above,
SIC code 6512 includes companies that operate a wide range of properties, ranging from
piers and docks to shopping centers and theaters. These different property types can
result in differences in the operating results and financial structures of these companies.
Additionally, the companies in SIC code 6512 use a variety of lease and rental agreements.
Differences in leases can also have a considerable impact on financial structures. As a
- 42 result, few, if any, reasonable conclusions could be drawn from the benchmarking data for
SIC code 6512.
While we felt that SIC code 6512 best described The Company, we also felt that SIC code
6798 included companies that were similar to Vogue. This SIC code is described as
follows:
6798 Real Estate Investment Trusts
Establishments primarily engAged in closed-end investments in real estate
or related mortgage assets operating so that they could meet the
requirements of the Real Estate Investment Trust Act of 1960 as amended.
This act exempts trusts from corporate income and capital gains taxation,
provided they invest primarily in specified assets, pay out most of their
income to shareholders, and meet certain requirements regarding the
dispersion of trust ownership.
•
•
•
•
•
Mortgage investment trusts
Mortgage trusts
Real estate investment trusts (REITs)
Realty investment trusts
Realty trusts
Many of the real estate investment trusts (“REITs”) in SIC code 6798 own and lease real
estate properties. Additionally, REITs are pass-through entities that generally do not pay
corporate level taxes, which is similar to Vogue. For these reasons, we felt that REITs
could also provide guidance and benchmarking data. However, we were unable to locate
any benchmarking data for this SIC code. Therefore, Vogue’s common size balance sheet
which is presented in Table 14 does not include comparative data. However, in a later
section of this report, a comparison between Vogue’s financial performance and similar
public companies will be made.
-- 43
43 -TABLE 14
14
TABLE
ADJUSTED
COMMON
SIZE
BALANCE SHEET
SHEET
ADJUSTED COMMON SIZE BALANCE
AS
OF
DECEMBER
31,
AS OF DECEMBER 31,
2005
2005
2006
2006
2007
2007
2008
2008
2009
2009
Current Assets
Current Assets
Cash
Cash
Accounts Receivable
Accounts Receivable
2.35%
2.35%
2.66%
2.66%
2.78%
2.78%
2.21%
2.21%
2.57%
2.57%
2.43%
2.43%
2.62%
2.62%
4.06%
4.06%
2.17%
2.17%
6.19%
6.19%
Total Current Assets
Total Current Assets
5.01%
5.01%
4.99%
4.99%
5.00%
5.00%
6.68%
6.68%
8.36%
8.36%
Fixed Assets
Fixed Assets
Land
Land
Building & Improvements
Building & Improvements
Construction in Progress
Construction in Progress
17.46%
17.46%
205.00%
205.00%
10.14%
10.14%
18.25%
18.25%
225.86%
225.86%
0.96%
0.96%
16.76%
16.76%
207.43%
207.43%
13.80%
13.80%
16.94%
16.94%
195.38%
195.38%
16.42%
16.42%
13.62%
13.62%
158.64%
158.64%
32.17%
32.17%
Gross Fixed Assets
Gross Fixed Assets
Accumulated Depreciation
Accumulated Depreciation
232.60%
232.60%
137.66%
137.66%
245.07%
245.07%
150.10%
150.10%
237.99%
237.99%
143.02%
143.02%
228.74%
228.74%
135.30%
135.30%
204.43%
204.43%
112.84%
112.84%
94.94%
94.94%
94.97%
94.97%
94.96%
94.96%
93.44%
93.44%
91.59%
91.59%
0.04%
0.04%
0.05%
0.05%
0.04%
0.04%
-0.12%
-0.12%
0.05%
0.05%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Current Liabilities
Current Liabilities
Accounts Payable
Accounts Payable
Accrued Expenses
Accrued Expenses
Income Taxes Payable
Income Taxes Payable
3.40%
3.40%
2.42%
2.42%
0.06%
0.06%
1.08%
1.08%
3.30%
3.30%
0.01%
0.01%
1.18%
1.18%
1.74%
1.74%
0.12%
0.12%
0.69%
0.69%
1.36%
1.36%
0.00%
0.00%
0.68%
0.68%
1.75%
1.75%
0.00%
0.00%
Total Current Liabilities
Total Current Liabilities
5.89%
5.89%
4.38%
4.38%
3.04%
3.04%
2.05%
2.05%
2.43%
2.43%
Total Long-Term Liabilities
Total Long-Term Liabilities
0.17%
0.17%
0.18%
0.18%
0.16%
0.16%
0.00%
0.00%
0.13%
0.13%
Total Liabilities
Total Liabilities
6.05%
6.05%
4.56%
4.56%
3.20%
3.20%
2.05%
2.05%
2.56%
2.56%
Stockholders' Equity
Stockholders' Equity
Common Stock
Common Stock
Paid - In Capital
Paid - In Capital
Retained Earnings
Retained Earnings
0.02%
0.02%
19.13%
19.13%
74.80%
74.80%
0.02%
0.02%
19.99%
19.99%
75.43%
75.43%
0.02%
0.02%
18.36%
18.36%
78.42%
78.42%
0.02%
0.02%
18.56%
18.56%
79.38%
79.38%
0.01%
0.01%
14.92%
14.92%
82.51%
82.51%
Total Stockholders' Equity
Total Stockholders' Equity
93.95%
93.95%
95.44%
95.44%
96.80%
96.80%
97.95%
97.95%
97.44%
97.44%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
100.00%
Net Fixed Assets
Net Fixed Assets
Total Other Assets
Total Other Assets
TOTAL ASSETS
TOTAL ASSETS
TOTAL LIABILITIES AND
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
STOCKHOLDERS' EQUITY
Note: Figures may not add due to rounding.
Note: Figures may not add due to rounding.
Based
Based on
on the
the data
data in
in Table
Table 14,
14, accounts
accounts receivable
receivable increased
increased over
over the
the period
period from
from 2.7
2.7
percent
percent of
of total
total assets
assets at
at December
December 31,
31, 2005
2005 to
to 6.2
6.2 percent
percent at
at December
December 31,
31, 2009.
2009. Total
Total
adjusted
adjusted current
current assets
assets increased
increased over
over the
the period
period to
to 8.4
8.4 percent
percent of
of total
total assets.
assets.
- 44 Fixed assets comprise the majority of total assets, declining from 94.9 percent of total
assets at December 31, 2005 to 91.6 percent at December 31, 2009. Other assets were
minimal during the period analyzed.
Vogue’s liabilities were minimal between December 31, 2005 and 2009 and primarily
consisted of accrued expenses. As noted previously, Vogue has funded its assets almost
entirely through equity financing. At December 31, 2009, equity comprised 97.4 percent of
total liabilities and equity.
An analysis of Vogue’s historical income statements show that Vogue’s revenues have
been fairly stable between 2005 and 2009. The Company experienced a small revenue
decline in 2009 as result of the loss of the tenant at the City, Florida property. Despite
losing a tenant, Vogue suffered a minor 1.4 percent decline in its leasing revenues in 2009.
Following the completion of renovations to the City property the same year, The Company
replaced the lost tenant and expects a modest increase in revenues in 2010. Lease
revenues make up most of The Company’s revenues. These leases tend to be long-term
contracts with lease payment increases written into the contract, resulting in stable
revenues.
Operating expenses increased over the period analyzed to $2.7 million in 2009.
Depreciation of The Company’s real estate and officers’ compensation represent Vogue’s
largest operating expense items. The Company’s operating expenses reveal that Vogue
records bad debt expense on occasion.
Vogue’s other income has fluctuated considerably over the period analyzed. Other income
spiked in 2006 and 2007 due to higher interest and dividend income, and gains on sales
of assets. Other income declined in 2008 and 2009 as a result of declines in the economy
and capital markets. Other income rose as the economy and markets performed well, but
as the economy and markets declined recently, other income has also fallen. Total other
- 45 - 45 expenses were generally minor with the exception of large losses on the sales of various
expenses were generally minor with the exception of large losses on the sales of various
instruments in 2008 and 2009. These losses were related to market declines in those
instruments in 2008 and 2009. These losses were related to market declines in those
years. All other income and expenses are related to Vogue’s non-operating investments.
years. All other income and expenses are related to Vogue’s non-operating investments.
Vogue’s net income fluctuated over the period analyzed, increasing to $12.2 million in 2007
Vogue’s net income fluctuated over the period analyzed, increasing to $12.2 million in 2007
then declining to $5.8 million in 2009. The fluctuations in Vogue’s net income are due
then declining to $5.8 million in 2009. The fluctuations in Vogue’s net income are due
almost entirely to changes in The Company’s other income, as The Company’s revenues
almost entirely to changes in The Company’s other income, as The Company’s revenues
and operating expenses have been stable.
and operating expenses have been stable.
In order to analyze Vogue’s operations, we normalized the income statement. The term
In order to analyze Vogue’s operations, we normalized the income statement. The term
normalization has changed in the recent past in the valuation literature. Z. Christopher
normalization has changed in the recent past in the valuation literature. Z. Christopher
Mercer, ASA, CFA distinguishes between different types of “normalization” adjustments
Mercer, ASA, CFA distinguishes between different types of “normalization” adjustments
from the literature published previously. Mercer takes what used to be grouped as
from the literature published previously. Mercer takes what used to be grouped as
“normalization adjustments” and divides these adjustments into “normalizing adjustments”
“normalization adjustments” and divides these adjustments into “normalizing adjustments”
and “control adjustments.” He distinguishes between these two types of adjustments as
and “control adjustments.” He distinguishes between these two types of adjustments as
follows:
follows:
1.
1.
With normalizing adjustments, we attempt to adjust private company
With normalizing adjustments, we attempt to adjust private company
earnings to a reasonably well-run, public company equivalent basis.
earnings to a reasonably well-run, public company equivalent basis.
Normalizing adjustments can be further divided into two types to
Normalizing adjustments can be further divided into two types to
facilitate discussion and understanding. Normalization adjustments
facilitate discussion and understanding. Normalization adjustments
are not control adjustments.
are not control adjustments.
2.
2.
Control adjustments adjust private company earnings 1) for the
Control adjustments adjust private company earnings 1) for the
economies or efficiencies of the typical financial buyer; and 2) for
economies or efficiencies of the typical financial buyer; and 2) for
synergies or strategies of particular buyers. Control adjustments can
synergies or strategies of particular buyers.
Control adjustments can
therefore also be divided into two types.30
therefore also be divided into two types.30
Further, Mercer states that
Further, Mercer states that
30
30
Mercer, Z. Christopher ASA, CFA, The Integrated Theory of Business Valuation, Peabody
Mercer,
Z. Christopher
ASA, CFA, The Integrated Theory of Business Valuation, Peabody
Publishing,
LP, 2004: 146.
Publishing, LP, 2004: 146.
- 46 - 46 Normalizing adjustments adjust the income statement of a private company
Normalizing adjustments adjust the income statement of a private company
to show the prospective purchaser the return from normal operations of the
to show the prospective purchaser the return from normal operations of the
business and reveal a ‘public equivalent’ income stream. If such adjustments
business and reveal a ‘public equivalent’ income stream. If such adjustments
were not made, something other than a freely traded value indication of value
were not made, something other than a freely traded value indication of value
would be developed by capitalizing the derived earnings stream.31
would be developed by capitalizing the derived earnings stream.31
This process appears in Table 15.
This process appears in Table 15.
TABLE 15
TABLE 15
NORMALIZATION
OF INCOME
NORMALIZATION OF INCOME
Historic Net Income (Schedule 2)
Historic
Net Income (Schedule 2)
Adjustments
Adjustments
Real Estate Partnership Income11
2
Real
EstateInterest
Partnership
Income
Investment
Expense
2
3
Investment
Interest
Expense
Amortization Expense3
Amortization
Expense - Addback4
Officers' Compensation
Officers'
Compensation
Addback54
Non-Recurring Bad Debt- Expense
6Expense5
Non-Recurring
Bad
Debt
Reorganization Expense6
Reorganization
Other Income22 Expense
Other Expenses
Income 2
Other
Other Expenses2
ADJUSTED HISTORIC NET INCOME
ADJUSTED HISTORIC NET INCOME
$
$
$
$
2005
2005
9,630,633
9,630,633
(204,912)
(204,912)
37,57437,574-285,999285,999
(1,708,269)
(1,708,269)
312,104
312,104
8,353,129
8,353,129
December 31,
December
2006
2007 31,
2006
2007
$11,978,772 $12,223,611
$11,978,772 $12,223,611
(213,746)
(224,623)
(213,746)
(224,623)
9,731
78,227
9,731
78,227
37,573
18,423
37,57318,423-75,05675,056-(3,846,899) (4,086,169)
(3,846,899)
(4,086,169)
210,646
410,247
210,646
410,247
$ 8,251,133 $ 8,419,716
$ 8,251,133 $ 8,419,716
2008
2008
$ 4,666,820
$ 4,666,820
(207,273)
(207,273)
103,311
103,311
4,688
4,688-41,78941,789
(1,430,884)
(1,430,884)
5,312,821
5,312,821
$ 8,491,272
$ 8,491,272
2009
2009
$ 5,803,260
$ 5,803,260
(206,115)
(206,115)
19,347
19,347
4,688
4,688
187,295
187,295-(1,023,986)
(1,023,986)
3,470,479
3,470,479
$ 8,254,968
$ 8,254,968
1.
1.
The Company records real estate partnership income as revenue on its income
The Company records real estate partnership income as revenue on its income
statement. This income is pass-through income from investments and was removed
statement. This income is pass-through income from investments and was removed
due to its non-operating nature.
due to its non-operating nature.
2.
2.
Income and expenses associated with The Company’s non-operating assets have
Income and expenses associated with The Company’s non-operating assets have
been removed from the income statement as their values will be accounted for
been removed from the income statement as their values will be accounted for
separately at the end of the valuation.
separately at the end of the valuation.
31
31
Ibid: 149 (Valuation analyst’s note for clarification: The reference to “capitalizing the derived
Ibid:
149 (Valuation
analyst’s
note for
clarification:aThe
reference
to “capitalizing
the
derived
earnings
stream” would
also apply
to discounting
future
benefit stream,
whether
cash
flow
earnings
stream”
would
also
apply
to
discounting
a
future
benefit
stream,
whether
cash
flow
or earnings, since the capitalization model is a shortcut that is derived from a discounting
or
earnings,
since
the
capitalization
model
is
a
shortcut
that
is
derived
from
a
discounting
model).
model).
- 47 3.
Since intangible assets were removed from the balance sheet, we also removed the
associated amortization expense.
4.
Susan Johnson, Vogue’s long-time president, stepped down in 2009 and her
responsibilities were taken over by Zelda and Matan Smith. Officers’ compensation
included salaries to Susan Johnson, as well as Zelda and Matan Smith. Since Ms.
Johnson’s salary will not continue going forward and her duties were reduced in
2009, we made an adjustment of $187,295 in 2009 for her compensation.
Compensation for Vogue’s other officers has been deemed reasonable relative to
comparable data from REITs and lessors of non-residential buildings.
5.
The Company incurred bad debt expense in 2006. This expense was associated
with non-paying tenants. Since this has not been a normal expense due to the
nature of Vogue’s tenants, we have removed this non-recurring expense.
6.
Vogue incurred reorganization costs in 2005 and 2008. These appear to be nonrecurring and have been removed from the income statement.
The Company’s adjusted income statement is presented in Table 16.
TABLE 16
ADJUSTED INCOME STATEMENT
FOR THE
2005
Total Revenues
Total Operating Expenses
NET INCOME
Years Ended December 31,
2006
2007
2008
2009
$ 10,651,001 $ 10,848,389 $ 11,034,743 $ 11,134,872 $ 10,976,190
2,297,872
2,597,256
2,615,027
2,643,600
2,721,222
$ 8,353,129 $ 8,251,133 $ 8,419,716 $ 8,491,272 $ 8,254,968
Note: Figures may not add due to rounding.
- 48 As can be seen above, Vogue has generated stable levels of operating revenues and net
income. The Company’s adjusted common size income statement is presented in Table
17.
TABLE 17
ADJUSTED COMMON SIZE INCOME STATEMENT
FOR THE YEARS ENDED
December 31,
2005
Total Revenues
2006
2007
2008
2009
100.00%
100.00%
100.00%
100.00%
100.00%
Total Operating Expenses
21.57%
23.94%
23.70%
23.74%
24.79%
NET INCOME
78.43%
76.06%
76.30%
76.26%
75.21%
Note: Figures may not add due to rounding.
The data in Table 16 shows that profitability has been relatively consistent between 2005
and 2009. Vogue’s operations generated over 75 percent profit margins over the period
analyzed.
The next step in the analysis is a discussion of The Company’s financial ratios. These are
presented in Table 18.
TABLE 18
FINANCIAL RATIOS
2005
LIQUIDITY / SOLVENCY
Quick Ratio
Current Ratio
Days Accounts Receivables Outstanding
0.85
0.85
26.72
2006
December 31,
2007
2008
1.14
1.14
12.91
1.64
1.64
12.35
3.27
3.27
17.69
2009
3.44
3.44
32.40
- 49 TABLE 18
FINANCIAL RATIOS
2005
TURNOVER
Receivables Turnover
Cash Turnover
Current Asset Turnover
Fixed Asset Turnover
Total Asset Turnover
SG&A to Cash
DEBT
Total Liabilities to Total Assets
Total Liabilities to Equity
Total Assets to Equity
Total Liabilities to Invested Capital
Net Fixed Assets to Equity
PROFITABILITY
EBITDA Return on Total Assets
EBIT Return on Assets
Pretax Return on Assets
Aftertax Return on Assets
Pretax Return on Equity
Aftertax Return on Equity
EBITDA Return on Net Sales
EBIT Return on Net Sales
Pretax Return on Net Sales
Aftertax Return on Net Sales
EBITDA Return on Invested Capital
EBIT Return on Invested Capital
2006
December 31,
2007
2008
2009
13.66
28.21
9.20
0.71
0.66
6.09
28.26
26.96
13.80
0.73
0.69
6.46
29.55
25.76
13.76
0.72
0.69
6.10
20.63
25.76
11.46
0.71
0.67
6.12
11.27
24.89
7.76
0.64
0.59
6.17
0.06
0.06
1.06
0.06
1.01
0.05
0.05
1.05
0.05
1.00
0.03
0.03
1.03
0.03
0.98
0.02
0.02
1.02
0.02
0.95
0.03
0.03
1.03
0.03
0.94
57.72%
51.99%
51.99%
51.99%
55.34%
55.34%
87.07%
78.43%
78.43%
78.43%
61.44%
55.34%
59.98%
53.65%
53.65%
53.65%
56.22%
56.22%
85.03%
76.06%
76.06%
76.06%
62.85%
56.22%
55.46%
50.28%
50.28%
50.28%
51.94%
51.94%
84.15%
76.30%
76.30%
76.30%
57.29%
51.94%
56.51%
51.25%
51.25%
51.25%
52.33%
52.33%
84.07%
76.26%
76.26%
76.26%
57.69%
52.33%
44.12%
40.06%
40.06%
40.06%
41.11%
41.11%
82.83%
75.21%
75.21%
75.21%
45.28%
41.11%
Based on the ratios in Table 18, Vogue’s liquidity is adequate with current assets exceeding
current liabilities by over three times in 2008 and 2009. Receivables have generally been
collected within 30 days and liabilities have comprised a very small portion of The
Company’s capital structure. Profitability has been consistent and strong between 2005 and
2009. Returns on assets and equity were relatively stable between 2005 and 2008, and
then declined in 2009 as assets increased due to renovations of certain real estate
holdings. Nevertheless, asset and equity returns remained strong throughout the period
analyzed. These factors suggest that Vogue’s financial condition is strong.
- 50 -
THE EARNING CAPACITY OF THE COMPANY
As discussed in the previous section, Vogue’s adjusted historic earnings are as shown in
Table 19.
TABLE 19
VOGUE EARNINGS SUMMARY
Net Income
2005
2006
2007
2008
2009
$
8,353,129
8,251,133
8,419,716
8,491,272
8,254,968
Return
on
Sales
78.43%
76.06%
76.30%
76.26%
75.21%
Return
on
Equity
55.34%
56.22%
51.94%
52.33%
41.11%
Return
on
Assets
51.99%
53.65%
50.28%
51.25%
40.06%
LTM = Latest 12 Months.
As seen in Table 19, Vogue has considerable earnings capacity, as The Company has
been very profitable and has generated a strong return on equity and assets. While
Vogue’s earnings were stable, a five-year averAge would eliminate the effect of any yearto-year fluctuations in expenses and rental rates. Therefore, Vogue’s future earnings
capacity is estimated to be $8,254,968.
- 51 -
THE DIVIDEND PAYING CAPACITY OF THE COMPANY
As discussed previously, Vogue’s Shareholder Agreement requires that annual dividends
be paid to at least cover shareholders’ taxes. However, distributions were not made in
2005 as a result of over-distribution in prior years. Relatively small distributions were made
in 2009 ahead of a large $35 million distribution made in 2010.
Vogue’s earnings and distributions are presented in Table 20.
TABLE 20
VOGUE INCOME & DISTRIBUTIONS
Net Income
2005
2006
2007
2008
2009
$
Distributions
8,353,129 $
8,251,133
8,419,716
8,491,272
8,254,968
0
4,000,000
5,750,000
5,000,000
87,306
Distribution
PercentAge
0.00%
48.48%
68.29%
58.88%
1.06%
Distributions from 2006 to 2008 ranged between 48.5 percent and 68.3 percent.
Vogue’s cash flow since 2005, which is The Company’s dividend paying capacity is
presented in Table 21.
- 52 TABLE 21
VOGUE CASH FLOW
Net Income
$
Depreciation and Amortization
Gross Cash Flow
$
Capital Expenditures
Change in Working Capital
Change in Other Assets/Liabilities
Net Cash Flow
$
2005
2006
2007
2008
2009
8,353,129 $
8,251,133 $
8,419,716 $
8,491,272 $
8,254,968
920,950
973,256
866,413
870,077
9,274,079 $
9,224,389 $
9,286,129 $
9,361,349 $
9,091,414
836,446
(1,547,810)
(315,084)
(2,163,355)
(448,235)
(4,229,633)
1,107,405
(233,136)
(234,822)
(440,611)
(454,365)
(39,944)
20
(12)
(8)
(2,900)
8,793,730 $
8,676,189 $
6,887,940 $
8,472,495 $
4,404,516
The data in Table 21 shows that Vogue’s gross cash flow has not been stable since 2005,
and has fluctuated primarily due to changes in The Company’s balance sheet, specifically
in fixed assets. Large capital expenditures made in 2007 and 2009 reduced net cash flow
in those years. In order to measure Vogue’s normal level of dividend-paying capacity, we
calculated a five-year average of net cash flow, which amounts to $7,446,974.
Given the strength of Vogue’s balance sheet, The Company’s strong profitability, and the
stability of Vogue’s operating income and gross cash flows, Vogue’s dividend paying
capacity is strong. However, a minority interest does not have the ability to influence the
amount of cash reinvested in The Company or the amounts distributed to shareholders. A
minority interest investor in Vogue can only expect to receive distributions to cover taxes.
The data in Tables 20 and 21 shows that management has varied considerably in the
amounts distributed and the amounts reinvested in The Company. However, while this
does affect the distributions received by shareholders, a long-term shareholder still benefits
from the reinvested cash flow through the capital appreciation of their shares as a result
of the reinvestment.
- 53 -
WHETHER OR NOT THE ENTERPRISE HAS GOODWILL
OR OTHER INTANGIBLE VALUE
In addition to the value of the physical assets of The Company, it is necessary to determine
whether any goodwill or other intangible assets exist, and if so, what value to place on that
goodwill and/or other intangible assets.
If any quantifiable goodwill is being generated by Vogue, it will be calculated by using an
income or market approach, and deriving a value in excess of the net tangible assets.
- 54 -
SALES OF THE STOCK AND THE SIZE
OF THE BLOCK OF STOCK TO BE VALUED
Revenue Ruling 59-60 suggests that valuation analysts consider whether there have been
any previous sales of the stock, and the size of the block being valued. There have been
no sales of Vogue’s stock.
We are valuing the common shares of Vogue on a minority interest basis. A minority
interest has no control of The Company. This interest is also relatively illiquid, and lacks
the marketability of shares of stock in the public stock market. These factors will be taken
into consideration in the quantification of value.
- 55 -
THE MARKET PRICE OF STOCKS OF CORPORATIONS
ACTIVELY TRADED IN THE PUBLIC MARKET
The final factor of the eight attributes listed in Revenue Ruling 59-60 is a market
comparison between the appraisal subject and other companies that are traded on public
stock exchanges. This is the basis for the market approach to valuation.
GUIDELINE PUBLIC COMPANIES
In an attempt to apply the market approach, we performed computerized searches utilizing
the Alacra Public Companies database and the Yahoo!Finance website to look for
companies that could be considered as guideline companies. Guideline companies will
rarely, if ever, be perfect “comparables,” but they can assist the valuation analyst by
providing guidance about what buyers and sellers are willing to pay for publicly traded
entities in the same or similar lines of business.
In our search for potential guideline companies, we focused our search on owners and
lessors of nursing and health care properties. While there are hundreds of companies that
own and lease real estate, differences in property type can have a significant impact on the
growth drivers and risk of a company. For example, the growth potential and risk of a
residential property lessor would be considerably different from a nursing home or health
care lessor. Nursing and health care revenues are much more stable as a result of
Medicare and Medicaid payments and the necessity of health care, whereas the residential
market was experiencing a myriad of problems at the valuation date. Similarly, government
health care expenditures would not be expected to have the same stabilizing effect on the
commercial or retail real estate markets.
- 56 Therefore, in order to locate potential guideline companies, we conducted the following
searches using the Alacra Public Companies database.
1.
The company was based in the U.S., the company’s SIC code was 6512 (Operators
of Non-Residential Buildings), and the words “nursing,” “health” or “health care” were
contained in its business description.
2.
The company was based in the U.S., the company’s SIC code was 6798 (Real
Estate Investment Trusts), and the words “nursing,” “health” or “health care” were
contained in its business description.
3.
The company was based in the U.S. and the company’s Global Industry
Classification Standard (GICS) code was 40402070 (Specialized Real Estate
Investment Trusts).
In addition to our searches of the Alacra database, we also used the Yahoo!Finance
industry center to locate U.S. companies operating in the REIT health care facilities
industry.
Based on these criteria, we located 40 potential guideline companies, most of which were
REITs. We then performed an initial review of the companies and eliminated 35 companies
based on the following criteria:
1.
The company did not own any health care related properties.
2.
The company had revenues more than 30 times larger than Vogue.
3.
The company was traded at a price less than $2.00 per share indicating a thinlytraded penny stock whose pricing multiple is extremely volatile or the stock does not
trade often.
4.
The company was in liquidation or was not publicly-traded as of the valuation date.
- 57 Five potential guideline companies remained after our initial screening. They are described
in the following sections. The information was obtained from Forms 10-K and 10-Q, filed
with the Securities and Exchange Commission.
LTC PROPERTIES, INC. (LTC): LTC is a self-administered health care real estate
investment trust that commenced operations in 1992. LTC invests primarily in long-term
care and other health care related properties through mortgage loans, property lease
transactions and other investments. Substantially all of LTC’s revenues and sources of
cash flows from operations are derived from operating lease rentals and interest earned
on outstanding loans receivable. For the year ended December 31, 2009, rental income
and interest income from mortgage loans represented 85.9 percent and 12.2 percent,
respectively, of total gross revenues. The data in Table 22 summarizes LTC’s portfolio as
of December 31, 2009:
TABLE 22
LTC INVESTMENT PORTFOLIO
Type
of
Property
Gross
Investments
Percentage
of
Investments
For the
Year Ended
12/31/09
Rental
Income
For the
Year Ended
12/31/09
Interest
Income1
Percentage Number
of
of
Revenues2 Properties
Assisted Living Properties $
Skilled Nursing Properties
Schools
295,421
281,606
13,020
50.1% $
47.7%
2.2%
30,064 $
28,762
1,179
3,075
5,177
306
48.3%
49.5%
2.2%
104
98
2
Totals
590,047
100.0% $
60,005 $
8,558
100.0%
204
1
2
$
Includes Interest Income from Mortgage Loans.
Includes Rental Income and Interest Income from Mortgage Loans.
As of December 31, 2009, LTC’s investments in owned properties are in 23 states
consisting of 62 skilled nursing properties with a total of 7,209 beds, 88 assisted living
properties with a total of 4,076 units, and one school, representing in Aggregate a gross
investment of approximately $519.5 million.
- 58 As part of LTC’s strategy of making long-term investments in properties used in the
provision of long-term health care services, LTC provides mortgage financing on such
properties based on LTC’s established investment underwriting criteria. LTC has also
provided construction loans that by their terms converted into purchase/lease transactions
or permanent financing mortgage loans upon completion of construction. At December 31,
2009, LTC had 40 mortgage loans secured by first mortgages on 36 skilled nursing
properties with a total of 4,110 beds, 16 assisted living residences with 714 units, and one
school. These properties are located in 14 states.
The two schools in LTC’s real estate investment portfolio are charter schools. Charter
schools provide an alternative to the traditional public school, and are generally
autonomous entities authorized by the state or locality to conduct operations independent
from the surrounding public school district. Laws vary by state, but generally charters are
granted by state boards of education either directly or in conjunction with local school
districts or public universities. Operators are granted charters to establish and operate
schools based on the goals and objectives set forth in the charter. Upon receipt of a
charter, schools receive an annuity from the state for each student enrolled.
LTC makes quarterly distributions. Selected financial information for LTC is presented in
Tables 23 and 24.
- 59 - 59 TABLE 23
LTC PROPERTIES
TABLE
23
INCOME
STATEMENT
LTC FOR
PROPERTIES
THE
INCOME STATEMENT
FOR THE
2005
Years Ended December 31,
2006
2007
2008
In Thousands of Dollars
Years Ended December 31,
2006
67,786 $ 2007
70,343 $ 2008
67,270 $
In
Thousands
19,823
21,794 of Dollars
22,051
LTM
March 31,
2009
2010
LTM
March 31,
2009
68,563 $ 2010
68,751
23,116
24,424
Revenues
Operating Expenses
$
2005
64,209 $
19,278
Revenues
Operating Income
Operating
Expenses
Interest Expense
$
$
64,209
44,931 $
$
19,278
8,310
67,786
47,963 $
$
19,823
7,028
70,343
48,549 $
$
21,794
4,957
67,270
45,219 $
$
22,051
4,114
68,563
45,447 $
$
23,116
2,418
68,751
44,327
24,424-
Operating
Net
IncomeIncome
Interest Expense
Preferred
Stock Dividends
$
$
44,931 $
$
36,621
8,310
17,343
47,963 $
$
40,935
7,028
17,157
48,549 $
$
43,592
4,957
16,923
45,219 $
$
41,229
4,114
15,390
45,447 $
$
43,029
2,418
14,515
44,327
44,327
15,141-
Net
NETIncome
INCOME AVAILABLE TO COMMON
Preferred Stock Dividends
$
$
36,621
19,278 $
$
17,343
40,935
23,778 $
$
17,157
43,592
26,669 $
$
16,923
41,229
25,839 $
$
15,390
43,029
28,514 $
$
14,515
44,327
29,186
15,141
Earnings
Per Share
NET INCOME
AVAILABLE TO COMMON
$
$
0.83 $
19,278
$
1.01 $
23,778
$
1.17 $
26,669
$
1.12 $
25,839
$
1.22 $
28,514
$
1.23
29,186
Earnings Per Share
$
0.83 $
1.01 $
1.17 $
1.12 $
1.22 $
1.23
TABLE 24
LTC PROPERTIES
TABLESHEET
24
BALANCE
LTC PROPERTIES
AS OF
BALANCE SHEET
AS OF December 31,
2005
2006
2005
3,436 $
43,393
2007
2008
In Thousands
December
31, of Dollars
2006
3,170 $ 2007
13,101 $ 2008
15,910 $
In
Thousands
21,818
13,654 of Dollars
12,043
2009
3,170
24,988
21,818
385,413
24,988
117,540
385,413
19,273
30,625
11,352
374,280
30,625
70,359
374,280
Accounts Receivable
Other Current Assets
$
Accounts
Receivable
Total Current
Assets
Other Current Assets
Net Property, Plant and Equipment
Total Current Assets
Deposits and Other Assets
Net Property, Plant and Equipment
$
$
TOTAL
DepositsASSETS
and Other Assets
$
571,769 $
149,320
527,941 $
117,540
495,010
91,604 $
Current Portion of Interest Bearing Debt
TOTAL ASSETS
Accounts Payable
Other Current Liabilities
Current Portion of Interest Bearing Debt
Accounts
Payable
Total Current
Liabilities
Other Current Liabilities
Total Long-Term Liabilities
Total Current Liabilities
Total Liabilities
Total Long-Term Liabilities
Minority Interests
Total Liabilities
Stockholders' Equity
Minority Interests
TOTAL LIABILITIES AND EQUITY
Stockholders' Equity
Common Shares Outstanding
TOTAL LIABILITIES AND EQUITY
at End of Year (000)
$
$
16,000
571,769
11,890
12,803
16,000
11,890
40,693
12,803
76,361
40,693
117,054
76,361
3,524
117,054
451,191
3,524
571,769
451,191
527,941
3,423
6,5813,423
10,004
6,581
53,811
10,004
63,815
53,811
3,518
63,815
460,608
3,518
527,941
460,608
495,010
3,406
5,7303,406
9,136
5,730
52,295
9,136
61,431
52,295
3,518
61,431
430,061
3,518
495,010
430,061
Common Shares Outstanding
at End of Year (000)
$
$
$
$
$
$
$
$
$
$
$
$
3,436
46,829
43,393
375,620
46,829
149,320
375,620
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
571,769 $
23,276
23,276
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
527,941 $
23,569
23,569
13,101
26,755
13,654
376,651
26,755
91,604
376,651
$
$
$
$
$
$
$
$
$
$
478,467
78,372 $
$
$ 478,467
3,022
5,266
$
3,022
$
8,288
5,266
$
36,753
$
8,288
$
45,041
$
36,753
3,134
$
45,041
430,292
3,134
$ 478,467
430,292
495,010 $
22,872
22,872
15,910
27,953
12,043
372,142
27,953
78,372
372,142
$
$
$
$
$
$
$
$
$
$
478,467 $
23,136
23,136
March 31,
2010
2009
19,273 $
11,352
$
$
March 31,
2010
19,491
10,279
$
19,491
29,770
10,279
387,949
29,770
68,639
387,949
475,264
70,359 $
486,358
68,639
13,500
475,264
2,967
7,903
13,500
2,967
24,370
7,903
11,910
24,370
36,280
11,910
1,981
36,280
437,003
1,981
475,264
437,003
28,500
486,358
2,967
7,157
28,500
2,967
38,624
7,157
11,371
38,624
49,995
11,371
1,962
49,995
434,401
1,962
486,358
434,401
$
$
$
$
$
$
$
$
$
$
$
$
475,264 $
23,312
23,312
486,358
23,794
23,794
- 60 MEDICAL PROPERTIES TRUST, INC. (MPW): MPW, formed on August 27, 2003, is a
self-advised real estate investment trust that acquires, develops, leases and makes other
investments in health care facilities providing state-of-the-art health care services. MPW
leases facilities to health care operators pursuant to long-term net-leases, which require
the tenant to bear most of the costs associated with the property. MPW also makes longterm, interest only mortgage loans to health care operators, and from time to time, it also
makes operating, working capital and acquisition loans to tenants.
As of February 10, 2010, MPW’s portfolio consisted of 51 properties: 45 facilities that MPW
owns are leased to 14 tenants, three are not under lease, and the remaining are in the
form of mortgage loans to two operators. MPW’s owned facilities consist of 21 general
acute care hospitals, 13 long-term acute care hospitals, and 6 inpatient rehabilitation
hospitals, two medical offices, and six wellness centers. The non-owned facilities on which
MPW has made mortgage loans consist of general acute care facilities. MPW intends to
continue to focus on investments in licensed hospitals as MPW’s primary line of business.
As a REIT, MPW makes quarterly distributions. Select financial information for MPW is
presented in Tables 25 and 26.
TABLE 25
MEDICAL PROPERTIES TRUST
INCOME STATEMENT
FOR THE
2005
Revenues
$
Years Ended December 31,
2006
2007
2008
In Thousands of Dollars
30,453 $
36,403 $
81,786 $
12,200
14,517
26,025
43,856
50,157
51,495
$
18,253 $
1,521
21,886 $
4,418
55,761 $
29,530
72,915 $
39,240
79,594 $
37,663
79,993
37,658
NET INCOME AVAILABLE TO COMMON $
16,732 $
17,468 $
26,231 $
33,675 $
41,931 $
42,335
0.43 $
0.44 $
0.50 $
0.52 $
0.53 $
0.53
Operating Expenses
Operating Income
Interest Expense
Earnings Per Share
$
116,771 $
2009
129,751 $
LTM
March 31,
2010
131,488
- 61 TABLE 26
MEDICAL PROPERTIES TRUST
BALANCE SHEET
AS OF
2005
2006
December 31,
2007
2008
In Thousands of Dollars
2009
March 31,
2010
Accounts Receivable
Other Current Assets
$
9,451 $
104,226
24,581 $
115,388
25,090 $
175,397
32,840 $
125,820
47,384 $
112,027
55,622
92,820
Total Current Assets
$
113,677 $
139,969 $
200,487 $
158,660 $
159,411 $
148,442
Net Property, Plant and Equipment
Intangible Assets
Deposits and Other Assets
$
265,988 $
9,043
47,629
468,254 $
14,490
117,942
515,737 $
38,043
203,178
898,700 $
43,018
199,247
883,254 $
39,919
212,007
916,894
212,177
TOTAL ASSETS
$
436,337 $
740,655 $
957,445 $ 1,299,625 $ 1,294,591 $ 1,277,513
Current Portion of Interest Bearing Debt $
Accounts Payable
Other Current Liabilities
35,474 $
17,611
7,520
43,166 $
30,046
14,957
- $
21,091
20,839
- $
24,718
16,110
- $
29,247
15,350
30,079
10,832
Total Current Liabilities
$
60,605 $
88,169 $
41,930 $
40,828 $
44,597 $
40,911
Long-Term Interest Bearing Debt
Other Long-Term Liabilities
$
65,010 $
11,387
304,962 $
6,854
480,525 $
16,007
630,557 $
13,645
576,678 $
17,048
565,222
18,670
Total Long-Term Liabilities
$
76,397 $
311,816 $
496,532 $
644,202 $
593,726 $
583,892
Total Liabilities
$
137,002 $
399,985 $
538,462 $
685,030 $
638,323 $
624,803
2,174
1,052
77
243
130
126
297,161
339,618
418,905
614,352
656,138
652,584
436,337 $
740,655 $
957,445 $ 1,299,625 $ 1,294,591 $ 1,277,513
Minority Interests
Stockholders' Equity
TOTAL LIABILITIES AND EQUITY
Common Shares Outstanding
at End of Year (000)
$
39,345
39,586
52,133
65,056
78,725
79,882
NATIONAL HEALTH INVESTORS, INC. (NHI): NHI, a Maryland corporation incorporated
in 1991, is a real estate investment trust that invests in income- producing health care
properties primarily in the long-term care industry. These properties include long-term care
facilities, acute care hospitals, medical office buildings, retirement centers and assisted
living facilities. NHI’s revenues are derived primarily from mortgage interest income and
rental income. During 2009, mortgage interest income equaled $9,145,000, while rental
income totaled $55,076,000.
- 62 As of December 31, 2009, NHI had interests in real estate owned and investments in
mortgages, preferred stock and marketable securities resulting in total invested assets of
$377,403,000. As of December 31, 2009, NHI had approximately $318,449,000 in real
estate, mortgages and notes receivable investments.
A summary of NHI’s investment by facility type is presented in Table 27.
TABLE 27
NHI SUMMARY OF FACILITIES BY TYPE
Summary of Facilities by Type
Skilled Nursing Facilities
Assisted Living Facilities
Medical Office Buildings
Independent Living Facilities
Hospitals
Total Real Estate Profile
Properties
PercentAge
of
Total Dollars
78
21
4
4
1
65.6%
27.4%
2.8%
2.3%
1.9%
$
208,630,000
87,129,000
8,739,000
7,177,000
5,998,000
108
100.0%
$
317,673,000
Total
Dollars
Of NHI’s 108 facilities, 41 are leased to National Health Care Corporation (“NHC”), a
publicly-held company and NHI’s largest customer. These 41 facilities include four centers
subleased to and operated by other companies, the lease payments to NHI being
guaranteed by NHC. Sixty-three percent of NHI’s rental income was from facilities leased
by NHC.
NHI’s investments are typically structured as either purchase-leaseback transactions or
mortgage loans. NHI also provides construction loans for facilities for which NHI has
already committed to provide long-term financing or which the operator Agrees to enter into
a lease with NHI upon completion of the construction. NHI’s leases generally have an initial
leasehold term of 10 to 15 years with one or more five-year renewal options. The leases
are triple net leases.
- 63 Consistent with its strategy of diversification, NHI has increased its portfolio so that the
portion of its real estate portfolio leased by NHC has been reduced from 100 percent of its
total portfolio on October 17, 1991 (the date NHI began operations) to 63.2 percent of its
total revenues in 2009, based on the net book value (carrying amount) of these properties.
In 1991, these assets were transferred by NHC to NHI at their then current net book value
in a non-taxable exchange. Many of these assets were substantially depreciated as a result
of having been carried on NHC’s books for as many as 20 years. As a result, NHI believes
that the fair market value of these assets is significantly in excess of their net book value.
NHI makes quarterly distributions. Select financial data for NHI is presented in Tables 28
and 29.
TABLE 28
NATIONAL HEALTH INVESTORS
INCOME STATEMENT
FOR THE
2005
Years Ended December 31,
2006
2007
2008
In Thousands of Dollars
2009
LTM
March 31,
2010
Revenues
Operating Expenses
$
62,231 $
10,065
60,770 $
13,540
57,506 $
14,012
58,005 $
12,605
64,221 $
15,658
69,978
18,666
Operating Income
Interest Expense
$
52,166 $
8,319
47,230 $
8,126
43,494 $
4,625
45,400 $
308
48,563 $
85
51,312
208
NET INCOME AVAILABLE TO COMMON $
43,847 $
39,104 $
38,869 $
45,092 $
48,478 $
51,104
1.58 $
1.41 $
1.40 $
1.63 $
1.75 $
1.85
Earnings Per Share
$
- 64 - 64 TABLE 29
NATIONAL TABLE
HEALTH29INVESTORS
NATIONAL
HEALTH
INVESTORS
BALANCE
SHEET
BALANCE
SHEET
AS OF
AS OF
2005
2005
2006
2006
December 31,
December
2007 31,
2008
2007
In Thousands
of 2008
Dollars
In Thousands of Dollars
2009
2009
March 31,
March
201031,
2010
Accounts Receivable
Accounts
Receivable
Other
Current
Assets
Other Current Assets
$
$
5,581 $
5,581- $
-
8,871 $
8,871- $
-
1,899 $
1,899- $
-
1,734 $
1,734
200 $
200
2,189 $
2,189 $
33,420
33,420
3,701
3,701
33,420
33,420
Total Current Assets
Total Current Assets
$
$
5,581 $
5,581 $
8,871 $
8,871 $
1,899 $
1,899 $
1,934 $
1,934 $
35,609 $
35,609 $
37,121
37,121
Net Property, Plant and Equipment
Net Property, Plant and Equipment
$
$
263,129 $
263,129 $
235,199 $
235,199 $
187,455 $
187,455 $
181,332 $
181,332 $
223,861 $
223,861 $
322,171
322,171
167,200
167,200
150,850
150,850
180,206
180,206
147,004
147,004
132,850
132,850
112,559
112,559
Deposits and Other Assets
Deposits and Other Assets
TOTAL ASSETS
TOTAL ASSETS
$
$
435,910 $
435,910 $
394,920 $
394,920 $
369,560 $
369,560 $
330,270 $
330,270 $
392,320 $
392,320 $
471,851
471,851
Current Portion of Interest Bearing Debt
Current
Portion
of Interest Bearing Debt
Accounts
Payable
Accounts
Payable
Other Current
Liabilities
Other Current Liabilities
$
$
17,453 $
17,453 $
38,995
38,995
6,516
6,516
13,492 $
13,492
49,494 $
49,494
3,541
3,541
9,512 $
9,512 $
44,945
44,945
137
137
3,987 $
3,987 $
23,389
23,389
115
115
- $
20,713- $
20,713
885
885
33,935
33,935
18,584
18,584
1,286
1,286
Total Current Liabilities
Total Current Liabilities
$
$
62,964 $
62,964 $
66,527 $
66,527 $
54,594 $
54,594 $
27,491 $
27,491 $
21,598 $
21,598 $
53,805
53,805
Long-Term Interest Bearing Debt
Long-Term
Interest
Bearing Debt
Other Long-Term
Liabilities
Other Long-Term Liabilities
$
$
100,000 $
100,000- $
-
100,000 $
100,000- $
-
- $
-- $
-
- $
-- $
-
- $
3,150- $
3,150
7,2507,250
Total Long-Term Liabilities
Total Long-Term Liabilities
$
$
100,000 $
100,000 $
100,000 $
100,000 $
- $
- $
- $
- $
3,150 $
3,150 $
7,250
7,250
Total Liabilities
Total Liabilities
$
$
162,964 $
162,964 $
166,527 $
166,527 $
54,594 $
54,594 $
27,491 $
27,491 $
24,748 $
24,748 $
61,055
61,055
272,946
272,946
228,393
228,393
314,966
314,966
302,779
302,779
367,572
367,572
410,796
410,796
435,910 $
435,910 $
394,920 $
394,920 $
369,560 $
369,560 $
330,270 $
330,270 $
392,320 $
392,320 $
471,851
471,851
Stockholders' Equity
Stockholders' Equity
TOTAL LIABILITIES AND EQUITY
TOTAL LIABILITIES AND EQUITY
Common Shares Outstanding
Common
Shares
Outstanding
at End
of Year
(000)
at End of Year (000)
$
$
27,830
27,830
27,752
27,752
27,752
27,752
27,580
27,580
27,630
27,630
27,645
27,645
OMEGA HEALTHCARE INVESTORS, INC. (OHI): OHI was incorporated on March 31,
OMEGA HEALTHCARE INVESTORS, INC. (OHI): OHI was incorporated on March 31,
1992. The company is a self-administered real estate investment trust investing in income1992. The company is a self-administered real estate investment trust investing in incomeproducing health care facilities, principally long-term care facilities located in the United
producing health care facilities, principally long-term care facilities located in the United
States. OHI provides lease or mortgage financing to qualified operators of skilled nursing
States. OHI provides lease or mortgage financing to qualified operators of skilled nursing
facilities and, to a lesser extent, assisted living facilities, independent living facilities,
facilities and, to a lesser extent, assisted living facilities, independent living facilities,
rehabilitation and acute care facilities.
rehabilitation and acute care facilities.
OHI’s portfolio of investments at December 31, 2009 consisted of 295 health care facilities
OHI’s portfolio of investments at December 31, 2009 consisted of 295 health care facilities
located in 32 states and operated by 35 third-party operators. OHI’s gross investment in
located in 32 states and operated by 35 third-party operators. OHI’s gross investment in
- 65 these facilities totaled approximately $1.8 billion at December 31, 2009. This portfolio is
made up of 279 long-term health care facilities, fixed rate mortgages on 14 long-term health
care facilities and two long-term health care facilities that are currently held for sale.
OHI’s portfolio of properties is broadly diversified by geographic location. The majority of
OHI’s 2009 rental and mortgage income was derived from facilities in states that require
state approval for development and expansion of health care facilities. OHI’s Management
believes that such state approvals may limit competition for OHI’s operators and enhance
the value of OHI’s properties. OHI’s facilities are operated by 35 different public and private
health care providers. Except for Sun (12 percent) and CommuniCare (18 percent), which
together hold approximately 30 percent of OHI’s portfolio (by investment), no other single
tenant holds greater than 9 percent of OHI’s portfolio (by investment).
A large portion of OHI’s core portfolio consists of long-term lease and mortgage
Agreements. At December 31, 2009, approximately 82 percent of OHI’s leases and
mortgages had primary terms that expire in 2014 or later. The majority of OHI’s leased real
estate properties are leased under provisions of master lease Agreements. OHI also leases
facilities under single-facility leases. The initial term, on both types of leases, typically range
from five to 15 years, plus renewal options. Substantially all of the leases provide for
minimum annual rentals that are subject to annual increases based upon increases in the
CPI or increases in revenues of the underlying properties, with certain limits. Under the
terms of the leases, the lessee is responsible for all maintenance, repairs, taxes and
insurance on the leased properties.
OHI makes quarterly distributions. Select financial data for OHI is presented in Tables 30
and 31.
- 66 TABLE 30
OMEGA HEALTHCARE INVTRS
INCOME STATEMENT
FOR THE
2005
Years Ended December 31,
2006
2007
2008
In Thousands of Dollars
2009
LTM
March 31,
2010
Revenues
Operating Expenses
$
106,316 $
32,483
131,826 $
46,606
156,737 $
47,114
191,731 $
83,440
194,936 $
79,833
200,619
83,359
Operating Income
Other Income
Interest Expense
$
73,833 $
34,771
85,220 $
2,700
47,611
109,623 $
44,092
108,291 $
39,746
115,103 $
38,549
117,260
43,829
Income Before Income Taxes
Provision for Income Taxes
$
39,062 $
2,348
40,309 $
1,624
65,531 $
(7)
68,545 $
(64)
76,554 $
-
73,431
-
Net Income
Preferred Stock Dividends
$
36,714 $
11,385
38,685 $
9,923
65,538 $
9,923
68,609 $
9,714
76,554 $
9,086
73,431
9,086
NET INCOME AVAILABLE TO COMMON
$
25,329 $
28,762 $
55,615 $
58,895 $
67,468 $
64,345
Earnings Per Share
$
0.45 $
0.48 $
0.82 $
0.71 $
0.76 $
0.71
TABLE 31
OMEGA HEALTHCARE INVTRS
BALANCE SHEET
AS OF
2005
2006
December 31,
2007
2008
In Thousands of Dollars
2009
March 31,
2010
Accounts Receivable
Other Current Assets
$
15,018 $
24,448
51,194 $
20,222
64,992 $
12,270
75,037 $
25,487
81,558 $
29,120
83,690
47,637
Total Current Assets
$
39,466 $
71,416 $
77,262 $
100,524 $
110,678 $
131,327
Net Property, Plant and Equipment
Deposits and Other Assets
$
834,294 $ 1,047,882 $ 1,053,356 $ 1,120,158 $ 1,373,402 $ 1,379,623
142,291
44,707
43,303
132,755
154,740
145,570
TOTAL ASSETS
$
1,016,051 $ 1,164,005 $ 1,173,921 $ 1,353,437 $ 1,638,820 $ 1,656,520
- 67 TABLE 31
OMEGA HEALTHCARE INVTRS
BALANCE SHEET
AS OF
2005
2006
December 31,
2007
2008
In Thousands of Dollars
March 31,
2010
2009
Current Portion of Interest Bearing Debt
Other Current Liabilities
$
58,000 $
28,870
150,000 $
33,775
48,000 $
22,451
63,500 $
28,282
94,100 $
51,657
54,789
Total Current Liabilities
$
86,870 $
183,775 $
70,451 $
91,782 $
145,757 $
54,789
Total Long-Term Liabilities
$
508,229 $
526,141 $
525,709 $
484,697
Total Liabilities
$
595,099 $
709,916 $
596,160 $
420,952
454,089
577,761
Stockholders' Equity
TOTAL LIABILITIES AND EQUITY
$
Common Shares Outstanding
at End of Year (000)
$
644,049
$
781,304
576,479 $
789,806 $
836,093
776,958
849,014
820,427
1,016,051 $ 1,164,005 $ 1,173,921 $ 1,353,437 $ 1,638,820 $ 1,656,520
56,872
59,703
68,114
82,382
88,266
90,778
SENIOR HOUSING PROPERTIES TRUST (SNH): SNH is a real estate investment trust
that was organized in 1998. As of December 31, 2009, SNH owned 298 properties located
in 35 states. On that date, the undepreciated carrying value of SNH properties, net of
impairment losses, was $3.3 billion. SNH invests in age-restricted apartment buildings,
independent living properties, assisted living properties, nursing homes, rehabilitation
hospitals and wellness centers. Some properties combine more than one type of service
in a single building or campus.
At December 31, 2009, 63 properties with an aggregate cost of $904.1 million were
mortgaged or subject to capital lease obligations totaling $660.1 million. A breakdown of
SNH’s portfolio of properties is presented in Table 32.
- 68 TABLE 32
SNH’S PROPERTIES
As of December 31, 2009
Number of
Number
Units/Beds
of
or
Properties Square Feet
Investment
Carrying
Value
% of
Annualized Annualized
% of
Current
Current
Investment
Rent
Rent
Facility Type
Independent Living Communities
Assisted Living Facilities
Skilled Nursing Facilities
Rehabilitation Hospitals
Wellness Centers
MOBs
43
131
56
2
10
56
11,524 $
9,342
5,707
364
812,000 s.f.
2,867,862 s.f.
1,123,315
1,028,239
226,076
61,772
180,017
698,564
33.8%
31.0%
6.8%
1.9%
5.4%
21.1%
$
111,387
94,123
20,273
9,695
17,069
76,227
33.9%
28.6%
6.2%
2.9%
5.2%
23.2%
Total
298
$
3,317,983
100.0%
$
328,774
100.0%
SNH’s uses triple net leases which generally require the tenants to indemnify SNH from
liability which may arise by reason of SNH’s ownership of the properties, to maintain the
leased properties, at their expense, to remove and dispose of hazardous substances in
compliance with applicable law and to maintain insurance for their own and the company’s
benefit.
As of December 31, 2009, SNH generated 57 percent of its annual rent from Five Star
Quality Care, Inc. SNH created Five Star in 2000 to operate nursing homes which SNH
had repossessed from former tenants who defaulted on their leases. SNH distributed
substantially all of its ownership of Five Star to SNH shareholders on December 31, 2001.
One of SNH’s trustees is currently a director of Five Star. At the valuation date, Five Star
was a separate company listed on the American Stock Exchange under the symbol “FVE.”
Since it became a separate public company, Five Star had not been consistently profitable.
However, SNH’s Management believes Five Star has adequate financial resources and
liquidity to continue its business and to meet its obligations to SNH.
SNH makes quarterly distributions. Select financial data for SNH is presented in Tables 33
and 34.
- 69 - 69 -- 69
69 -TABLE 33
TABLE
33
SENIOR
HOUSING
SENIOR
HOUSING
TABLE
33
TABLE
33
INCOME
STATEMENT
INCOME
STATEMENT
SENIOR
HOUSING
SENIOR
FORHOUSING
THE
FOR
THE
INCOME
STATEMENT
INCOME
STATEMENT
FOR
FOR THE
THE
2005
2005
2005
2005
163,187
163,187
54,911
54,911
163,187
163,187
108,276
54,911
54,911
108,276
31
31
46,633
108,276
108,276
46,633
31
31
61,674
46,633
46,633
61,674
61,674
61,674
61,67461,674-
2009
2009
2009
2009
297,780
297,780
113,201
113,201
297,780
297,780
184,579
113,201
113,201
184,579
56,404184,579
184,579
56,404128,175
56,404
56,404
128,175128,175128,175
128,175128,175-
$
$
NET INCOME
INCOME
AVAILABLE TO
TO COMMON
COMMON
Earnings
Per Share
NET
AVAILABLE
Earnings Per Share
$
$
$
61,674
0.86 $
61,674
$
0.86 $
70,068
0.90 $
70,068
$
0.90 $
88,729
1.00 $
88,729
$
1.00 $
114,624
1.00 $
114,624
$
1.00 $
128,175
1.01 $
128,175
$
1.01 $
126,624
0.99
126,624
0.99
Earnings Per
Per Share
Share
Earnings
$
$
0.86 $
$
0.86
0.90 $
$
0.90
1.00 $
$
1.00
1.00 $
$
1.00
1.01 $
$
1.01
0.99
0.99
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
LTM
LTM31,
March
March
31,
2010
LTM
LTM
2010
March
31,
March 31,
2010
2010
$ 309,850
$ 309,850
119,194
119,194
$
309,850
$ 309,850
$ 190,656
119,194
119,194
$ 190,656
21
21
64,042
$
190,656
$ 190,656
64,042
21
21
$ 126,635
64,042
64,042
$ 126,635
11
11
$
126,635
$ 126,635
$ 126,624
11
11
$ 126,624
Revenues
Revenues
Operating Expenses
Operating
Revenues Expenses
Revenues
Operating Income
Expenses
Operating
Expenses
Operating
Income
Other Income
Other
Income
Interest
Expense
Operating
Income
Operating
Income
Interest
Expense
Other
Income
Other Income
Income
Income Taxes
Interest Before
Expense
Interest
Expense
Income
Before
Income
Taxes
Provision
for Income
Taxes
Provision
for Income
Taxes
Income
Before
Income
Taxes
Income Before Income Taxes
NET
INCOME
AVAILABLE
TO COMMON
Provision
for
Income
Taxes
Provision
for Income
Taxes TO COMMON
NET INCOME
AVAILABLE
$
$
$
$
$
$
Years Ended December 31,
Years Ended
December 31,
2006
2007
2008
2006
2007
2008
In Thousands
of31,
Dollars
Years
Ended
December
Years Ended
December
31,
In
Thousands
of
Dollars
2006
2007
2008
2006
2007
2008
174,106 $In Thousands
188,022 $ of Dollars
235,537
In Thousands$ of Dollars
174,106
235,537
57,018 $ 188,022
61,538
80,759
57,018
61,538
80,759
174,106
$
188,022
$
235,537
174,106 $ 188,022 $ 235,537
117,088
$ 126,484
$ 154,778
57,018
61,538
80,759
57,018 $ 126,484
61,538 $ 154,778
80,759
117,088
47,020- $ 126,484
37,755- $ 154,778
40,154117,088
117,088
47,020- $ 126,484
37,755- $ 154,778
40,15470,068
88,729
47,020 $
37,755 $ 114,624
40,154
47,020
37,755
40,154
70,068- $
88,729- $ 114,624- $
70,068
88,729- $
$ 114,624
114,62470,068 $
88,729
70,068- $
88,729- $ 114,62470,068- $
88,729- $ 114,624-
$
$
$
$
$
$
$
$
$
$
$
$
TABLE 34
TABLE
34
SENIOR
HOUSING
SENIOR
HOUSING
TABLE
34
TABLESHEET
34
BALANCE
BALANCE
SHEET
SENIOR
HOUSING
SENIOR
ASHOUSING
OF
AS OF
BALANCE
SHEET
BALANCE
SHEET
AS
OF
AS OF December 31,
2005
2005
Total Current Assets
Total Current Assets
Net Property,
Plant and Equipment
Total
Current
Total
Current Assets
Assets
Net
Property,
Plant and
Equipment
Deposits
and Other
Assets
Deposits
and Other
Assets
Net
Property,
Plant
and
Net Property, Plant and Equipment
Equipment
TOTAL ASSETS
Deposits
and
Other
Assets
Deposits
and
Other
Assets
TOTAL ASSETS
$
$
$
$
$
TOTAL
Current
Portion of Interest Bearing Debt
TOTAL ASSETS
ASSETS
Current
PortionLiabilities
of Interest Bearing Debt
Other Current
Other
Current
Liabilities
Current
Current Portion
Portion of
of Interest
Interest Bearing
Bearing Debt
Debt
Total
Current
Liabilities
Other
Current
Liabilities
OtherCurrent
CurrentLiabilities
Liabilities
Total
Long-Term
Interest
Bearing Debt
Total
Current
Liabilities
Total
Current
Liabilities
Long-Term
Interest
Bearing Debt
Other Long-Term
Liabilities
Other
Long-Term
Liabilities
Long-Term
Interest
Long-Term Interest Bearing
Bearing Debt
Debt
Total Long-Term
Liabilities
Other
Long-Term
Liabilities
Other
Long-Term
Liabilities
Total Long-Term Liabilities
Liabilities Liabilities
Total
Long-Term
Total
Total Long-Term
Liabilities Liabilities
Stockholders'
Equity
Total
Liabilities
Total
LiabilitiesEquity
Stockholders'
TOTAL
LIABILITIES
AND EQUITY
Stockholders'
Equity
Stockholders'
Equity AND EQUITY
TOTAL
LIABILITIES
$
$
$
TOTAL
AND
Common
Shares Outstanding
TOTAL LIABILITIES
LIABILITIES
AND EQUITY
EQUITY
Common
at End Shares
of YearOutstanding
(000)
at End of YearOutstanding
(000)
Common
Common Shares
Shares Outstanding
at
End
of
Year
at End of Year (000)
(000)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2005
2005
8,845
8,845
1,447,138
8,845
8,845
1,447,138
16,861
16,861
1,447,138
1,447,138
1,472,844
16,861
16,861
1,472,844
1,472,844
64,000
1,472,844
64,000
13,089
13,089
64,000
64,000
77,089
13,089
13,089
77,089
492,320
77,089
77,089
492,320
8,048
8,048
492,320
492,320
500,368
8,048
8,048
500,368
577,457
500,368
500,368
577,457
895,387
577,457
577,457
895,387
1,472,844
895,387
895,387
1,472,844
December
2007 31,
2008
2007 31, of 2008
In Thousands
Dollars
December
December
31,
In Thousands
of 2008
Dollars
2006
2007
2006
2007
2008
10,111 $In Thousands
11,388 $ of Dollars
15,042
10,111 $In Thousands
11,388 $ of Dollars
15,042
1,537,851
$ 1,616,456
$ 2,425,917
10,111
11,388
15,042
10,111 $
11,388 $
15,042
1,537,851
16,296 $ 1,616,456
18,867 $ 2,425,917
42,157
16,296
18,867
42,157
1,537,851
1,537,851 $
$ 1,616,456
1,616,456 $
$ 2,425,917
2,425,917
1,564,258
$ 1,646,711
$ 2,483,116
16,296
18,867
42,157
16,296 $ 1,646,711
18,867 $ 2,483,116
42,157
1,564,258
2006
2006
$
$
$
$
$
$
$
$
$
$
112,000 $
$ 1,564,258
1,564,258
$
$ 112,000
11,694 $
11,694
$
$ 112,000
112,000 $
$
$ 123,694
$
11,694
11,694 $
$ 123,694
433,085 $
$
123,694
$
$
$ 123,694
433,085
8,652 $
8,652
$
$ 433,085
433,085 $
$
$ 441,737
$
8,652
8,652
$ 441,737 $
$ 565,431
$
441,737
$ 565,431
441,737 $
$
$
998,827 $
$
$ 565,431
565,431
998,827 $
$ 1,564,258
$
998,827
998,827 $
$ 1,564,258
1,646,711
1,646,71110,84910,84910,849
10,849
10,849
426,852
10,849
10,849
426,852
14,783
14,783
426,852
426,852
441,635
14,783
14,783
441,635
452,484
441,635
441,635
452,484
1,194,227
452,484
452,484
1,194,227
1,646,711
1,194,227
1,194,227
1,646,711
2009
2009
2009
2009
$
17,645
$
17,645
$ 2,863,666
17,645
$ 2,863,666
17,645
$
74,204
74,204
$
$ 2,863,666
2,863,666
$ 2,955,515
74,204
74,204
$ 2,955,515
$
257,000 $
$ 2,483,116
2,483,116
$
$ 257,000
11,121 $
11,121
$
$ 257,000
257,000 $
$
$ 268,121
$
11,121
11,121 $
$ 268,121
473,433 $
$
268,121
$
$
$ 268,121
473,433
23,962 $
23,962
$
$ 473,433
473,433 $
$
$ 497,395
$
23,962
23,962
$ 497,395 $
$ 765,516
$
497,395
$ 765,516
497,395 $
$
$
1,717,600
$
765,516
$ 1,717,600
765,516 $
$
$ 1,717,600
2,483,116 $
$ 1,717,600
2,483,116 $
2,955,515
60,000
2,955,515
60,000
13,693
13,693
60,000
60,000
73,693
13,693
13,693
73,693
982,219
73,693
73,693
982,219
31,364
31,364
982,219
982,219
1,013,583
31,364
31,364
1,013,583
1,087,276
1,013,583
1,013,583
1,087,276
1,868,239
1,087,276
1,087,276
1,868,239
2,955,515
1,868,239
1,868,239
2,955,515
March 31,
March
201031,
2010
March
March 31,
31,
2010
2010
$
$
$$ 2,848,894$$ 2,848,894
106,999
106,999
$
$ 2,848,894
2,848,894
$ 2,955,893
106,999
106,999
$ 2,955,893
$
58,000
$ 2,955,893
2,955,893
$
58,000
10,836
10,836
$
58,000
$
58,000
$
68,836
10,836
10,836
$
68,836
$
$
$
$
$
$
$
$
$
$
$
$
$
$
980,058
68,836
68,836
980,058
31,811
31,811
980,058
980,058
1,011,869
31,811
31,811
1,011,869
1,080,705
1,011,869
1,011,869
1,080,705
1,875,188
1,080,705
1,080,705
1,875,188
2,955,893
1,875,188
1,875,188
2,955,893
1,472,844
1,472,844 $
$ 1,564,258
1,564,258 $
$ 1,646,711
1,646,711 $
$ 2,483,116
2,483,116 $
$ 2,955,515
2,955,515 $
$ 2,955,893
2,955,893
71,812
77,613
88,692
114,543
127,378
127,403
71,812
77,613
88,692
114,543
127,378
127,403
71,812
71,812
77,613
77,613
88,692
88,692
114,543
114,543
127,378
127,378
127,403
127,403
- 70 The next step in the analysis is to compare Vogue’s financial results with the guideline
companies. Selected financial ratios are presented in Table 35. These ratios have been
analyzed in order to make quantitative assessments regarding the similarities and
dissimilarities between the companies.
TABLE 35
FINANCIAL RATIOS
LIQUIDITY / SOLVENCY
Quick Ratio
Current Ratio
Days Accounts Receivables Outstanding
TURNOVER
Receivables Turnover
Cash Turnover
Current Asset Turnover
Working Capital Turnover
Fixed Asset Turnover
Total Asset Turnover
SG&A Expense to Cash
DEBT
Times Interest Earned
Total Liabilities to Total Assets
Total Liabilities to Equity
Short-Term Debt to Equity
Long-Term Debt to Equity
Total Interest-Bearing Debt to Equity
Total Assets to Equity
Total Liabilities to Invested Capital
Net Fixed Assets/Equity
PROFITABILITY
EBITDA Return on Total Assets
EBIT Return on Assets
Pre-Tax Return on Assets
After-Tax Return on Assets
Pre-Tax Return on Equity
After-Tax Return on Equity
EBITDA Return on Net Sales
EBIT Return on Net Sales
Pre-Tax Return on Net Sales
After-Tax Return on Net Sales
EBITDA Return on Invested Capital
EBIT Return on Invested Capital
GROWTH (CAGR - 4 YEARS)
Sales
Operating Income
EBT
Net Income
OTHER
Size of Revenues ($000)
Earnings ($000)
3 Year Compound Growth Rate - Earnings
3 Year Compound Growth Rate - Revenues
NHI
SNH
Vogue
Adjusted
OHI
LTC
MPW
3.08
3.95
150.32
1.17
1.44
102.90
1.62
3.89
142.97
0.55
1.17
15.36
0.15
0.15
10.39
3.44
3.44
32.40
2.43
4.16
1.17
2.81
0.15
0.12
1.73
3.55
4.90
1.36
3.58
0.18
0.14
1.74
2.55
10.07
0.79
1.06
0.15
0.10
3.95
23.76
2.79
0.84
1.55
0.26
0.15
0.75
35.12
24.94
10.30
(7.53)
0.11
0.10
9.60
11.27
24.89
7.76
8.98
0.64
0.59
6.17
2.68
0.48
0.92
0.86
0.86
1.92
0.50
1.52
NM
0.10
0.11
0.06
0.02
0.09
1.11
0.10
0.84
2.12
0.48
0.94
0.85
0.85
1.94
0.51
1.38
246.69
0.12
0.14
0.08
0.08
1.14
0.13
0.74
2.98
0.36
0.57
0.03
0.52
0.55
1.57
0.37
1.51
NM
0.03
0.03
1.03
0.03
0.94
9.52%
6.73%
4.22%
3.70%
8.11%
7.11%
82.60%
58.45%
36.60%
32.07%
9.83%
6.95%
11.58%
8.66%
8.66%
5.70%
9.63%
6.34%
86.26%
64.47%
64.47%
42.45%
11.86%
8.87%
8.76%
6.21%
3.29%
3.29%
6.38%
6.38%
85.80%
60.84%
32.20%
32.20%
9.18%
6.51%
12.20%
10.31%
10.26%
10.26%
11.70%
11.70%
86.78%
73.33%
73.03%
73.03%
12.90%
10.90%
9.33%
6.42%
4.27%
4.26%
6.71%
6.71%
89.31%
61.50%
40.83%
40.83%
9.47%
6.52%
44.12%
40.06%
40.06%
40.06%
41.11%
41.11%
82.83%
75.21%
75.21%
75.21%
45.28%
41.11%
13.79%
10.32%
20.27%
21.80%
0.44%
-2.40%
2.48%
2.48%
48.46%
49.00%
31.31%
31.31%
4.44%
2.58%
8.58%
8.58%
19.41%
16.17%
19.94%
19.93%
0.75%
-0.30%
-0.30%
-0.30%
200,619
64,345
7.34%
3.69%
68,751
29,186
10.23%
1.76%
131,488
42,335
20.09%
9.96%
69,978
51,104
10.53%
16.20%
309,850
126,498
8.20%
24.53%
10,976
8,255
-0.98%
-0.27%
- 71 Looking at these ratios in totality reveals many similarities and differences between Vogue
and the guideline companies. A more comprehensive analysis can be performed by
examining specific ratios, and ranking them from highest to lowest. In this way, the analyst
can observe how Vogue compares to the selected guideline companies.
Size of Revenues
($000)
SNH
OHI
MPW
LTC
NHI
Vogue
309,850
200,619
131,148
69,978
68,751
10,976
Size of Earnings
($000)
SNH
NHI
OHI
MPW
LTC
Vogue
126,498
64,345
51,104
42,335
29,186
5,803
As indicated above, Vogue is smaller than all of the guideline companies. SNH, MPW, and
OHI all have revenues and earnings that are more than 10 times larger than Vogue.
Four-year compound annual growth rates are presented in the next set of tables.
4-Year CAGR
Sales
MPW
SNH
OHI
NHI
Vogue
LTC
48.46%
19.41%
13.79%
4.44%
0.75%
0.44%
4-Year CAGR
Operating Income
MPW
SNH
OHI
NHI
Vogue
LTC
49.00%
16.17%
10.32%
2.58%
-0.30%
-2.40%
Vogue’s revenue and earnings growth has generally been weaker than its industry
counterparts over the preceding period. LTC had revenues and earning growth rates
- 72 closest to Vogue. Though Vogue experienced little growth over the last five years, it is
important to note that The Company’s revenues and net income were much more stable
than the guideline companies. This would reduce the risk associated with an investment
in Vogue.
Several liquidity ratios are compared next.
Quick Ratio
Vogue
OHI
MPW
LTC
NHI
SNH
Current Ratio
3.44
3.08
1.62
1.17
0.55
0.15
OHI
MPW
Vogue
LTC
NHI
SNH
3.95
3.89
3.44
1.44
1.17
0.15
Days Accounts
Receivable
OHI
MPW
LTC
Vogue
NHI
SNH
150.32
142.97
102.90
32.40
15.36
10.39
Vogue has relatively strong liquidity ratios, which indicates that it will have no trouble
meeting its current liabilities. This strong liquidity helps reduce Vogue’s risk as compared
to some of the guideline companies. OHI has the most similar liquidity ratios in terms of the
quick and current ratios, while SNH has the weakest ratios.
Vogue does not carry any long-term debt, and is financed almost entirely by equity. This
differs from the guideline companies. The following tables compare the companies’ capital
structures.
-- 73
73 -Total
Total Liabilities
Liabilities
to
to Total
Total Assets
Assets
MPW
MPW
OHI
OHI
SNH
SNH
NHI
NHI
LTC
LTC
Vogue
Vogue
0.48
0.48
0.48
0.48
0.36
0.36
0.12
0.12
0.10
0.10
0.03
0.03
Total
Total Liabilities
Liabilities
to
to Equity
Equity
MPW
MPW
OHI
OHI
SNH
SNH
NHI
NHI
LTC
LTC
Vogue
Vogue
0.94
0.94
0.92
0.92
0.57
0.57
0.14
0.14
0.11
0.11
0.03
0.03
Interest-Bearing
Interest-Bearing
Debt
Debt
to
to Equity
Equity
OHI
OHI
MPW
MPW
SNH
SNH
LTC
LTC
NHI
NHI
Vogue
Vogue
0.86
0.86
0.85
0.85
0.55
0.55
0.09
0.09
0.08
0.08
--
Total
Total Liabilities
Liabilities
to
to Invested
Invested Capital
Capital
MPW
MPW
OHI
OHI
SNH
SNH
NHI
NHI
LTC
LTC
Vogue
Vogue
As
As seen
seen above,
above, Vogue
Vogue uses
uses less
less debt
debt than
than all
all of
of the
the guideline
guideline companies.
companies.
the
the risk
risk to
to Vogue’s
Vogue’s stockholders.
stockholders. NHI
NHI and
and LTC
LTC use
use the
the least
least debt
debt of
of
0.51
0.51
0.50
0.50
0.37
0.37
0.13
0.13
0.10
0.10
0.03
0.03
This
This reduces
reduces
the
the guideline
guideline
companies.
companies.
Turnover
Turnover ratios
ratios are
are compared
compared next.
next.
Cash
Cash Turnover
Turnover
SNH
SNH
Vogue
Vogue
MPW
MPW
LTC
LTC
OHI
OHI
NHI
NHI
24.94
24.94
24.89
24.89
10.07
10.07
4.90
4.90
4.16
4.16
2.79
2.79
Current
Current
Asset
Asset Turnover
Turnover
SNH
SNH
Vogue
Vogue
LTC
LTC
OHI
OHI
NHI
NHI
MPW
MPW
10.30
10.30
7.76
7.76
1.36
1.36
1.17
1.17
0.84
0.84
0.79
0.79
Total
Total
Asset
Asset Turnover
Turnover
Vogue
Vogue
NHI
NHI
LTC
LTC
OHI
OHI
SNH
SNH
MPW
MPW
0.59
0.59
0.15
0.15
0.14
0.14
0.12
0.12
0.10
0.10
0.10
0.10
Fixed
Fixed
Asset
Asset Turnover
Turnover
Vogue
Vogue
NHI
NHI
LTC
LTC
MPW
MPW
OHI
OHI
SNH
SNH
0.64
0.64
0.26
0.26
0.18
0.18
0.15
0.15
0.15
0.15
0.11
0.11
Vogue’s
Vogue’s cash
cash and
and current
current asset
asset turnover
turnover ratios
ratios are
are higher
higher than
than the
the guideline
guideline companies.
companies.
While higher
higher turnover
turnover would
would suggest
suggest better
better utilization
utilization of
of assets,
assets, it
it is
is important
important to
to note
note that
that
While
The
The Company’s
Company’s fixed
fixed assets
assets are
are heavily
heavily depreciated.
depreciated. The
The high
high level
level of
of depreciation
depreciation
suggests that
suggests
that Vogue
Vogue is
is likely
likely to
to require
require significant
significant capital
capital investment
investment in
in the
the near
near future.
future.
SNH
SNH is
is most
most similar
similar to
to Vogue
Vogue in
in cash
cash and
and current
current asset
asset turnover.
turnover. Vogue’s
Vogue’s fixed
fixed and
and total
total
asset
asset turnover
turnover is
is significantly
significantly higher
higher than
than that
that of
of the
the guideline
guideline companies.
companies.
- 74 From a profitability standpoint, Vogue is stronger than the guideline companies on the basis
of EBIT, but weak in terms of EBITDA as indicated in the following tables.
EBIT Return
on Net Sales
Vogue
NHI
LTC
SNH
MPW
OHI
75.21%
73.33%
64.47%
61.50%
60.84%
58.45%
EBITDA Return
on Assets
SNH
NHI
LTC
MPW
Vogue
OHI
89.31%
86.78%
86.26%
85.80%
82.83%
82.60%
EBIT Return
on Assets
Vogue
NHI
LTC
OHI
SNH
MPW
40.06%
10.31%
8.66%
6.73%
6.42%
6.21%
EBITDA Return on
Total Assets
Vogue
NHI
LTC
OHI
SNH
MPW
44.12%
12.20%
11.58%
9.52%
9.33%
8.76%
As shown above, the guideline companies incurred higher amounts of depreciation
expense relative to Vogue, as evidenced by the differences in profitability between EBIT
and EBITDA. Vogue is generally weaker than the guideline companies on the basis of
EBITDA and most similar to OHI. However, the EBITDA profitability of the guideline
companies and Vogue are relatively close. Vogue’s asset returns are substantially higher
than the guideline companies due to its depreciated fixed asset base.
A comparison of Vogue to each of the guideline companies was also performed to aid in
the determination of the appropriate multiples.
LTC Properties, Inc. (LTC): This company is one of the closest companies in size to
Vogue. LTC's revenues are over 6.0 times greater than Vogue, while its earnings are
roughly 3.5 times larger. LTC has not grown through acquisitions in recent years, and
LTC's revenue and earnings growth rates have been most similar to Vogue, while its assets
have been declining. LTC does not carry very much debt, as it has the second lowest
liabilities to total asset ratio of the guideline companies (0.10). LTC's EBITDA margin was
higher than that of Vogue.
- 75 LTC's portfolio is focused primarily on the long-term care industry. Skilled nursing facilities
generate approximately 50 percent of LTC's revenues, while assisted living properties
generate the other half. A minor amount of revenues are generated by two charter schools
owned by LTC.
Medical Properties Trust, Inc. (MPW): MPW's revenues are roughly 12 times greater than
Vogue, while its earning are roughly five times larger. MPW had grown considerably
through acquisitions in recent years. As a result, MPW’s revenue and earnings have grown
much faster than Vogue. MPW's debt load represents 48 percent of its total assets, and
MPW has the lowest asset returns of all of the guideline companies.
MPW's health care portfolio is concentrated in hospitals.
Although hospitals differ
somewhat from skilled nursing facilities, they are similar in that their revenues are largely
dependent upon government reimbursement. Therefore, guidance can be obtained from
MPW's multiples.
National Health Investors, Inc. (NHI): This company is one of the closest companies in
size to Vogue. NHI's revenues are 6.4 times greater than Vogue, while its earnings are 6.2
times larger. NHI’s growth has been generated organically over the last five years, which
has generated modest revenues and earnings growth. NHI has one of the lowest leverAge
ratios of the guideline companies, as evidenced by its liabilities to total asset ratio of 0.12.
NHI has one of the highest EBITDA margins and asset returns of the guideline companies.
NHI's portfolio is focused primarily on skilled nursing facilities which encompasses 65.6
percent of NHI's investments. The operators of these facilities receive payment from a
combination of private pay sources and government programs such as Medicaid and
Medicare. Approximately 66 percent of NHI's rental income is from facilities leased by
National HealthCare Corporation. National HealthCare Corporation transferred many of
- 76 NHI's real estate assets to NHI in 1991 at their depreciated value. Therefore, NHI has
many substantially depreciated assets on its balance sheet.
Omega Healthcare Investors, Inc. (OHI): OHI's revenues are roughly 20 times greater
than Vogue, while its earnings are roughly 7.8 times larger. OHI completed several
acquisitions through the years and grew substantially over the last five years. OHI's assets
have been heavily funded with debt, as its total liabilities comprise 48 percent of total
assets. OHI's profitability and asset returns were relatively low as compared to Vogue and
the guideline group.
OHI's portfolio is focused on long-term care facilities. In addition to 279 long-term health
care facilities, OHI's portfolio includes fixed rate mortgages on 14 long-term health care
facilities and two long-term health care facilities that are currently held for sale.
Senior Housing Properties Trust (SNH): SNH is the largest guideline company. It grew
substantially over the last five years through numerous acquisitions. As a result, SNH's
revenues and earnings growth rates have been much higher than those of Vogue. SNH
carries the third lowest amount of debt of the guideline companies with a liabilities to total
asset ratio of 0.36. SNH is the most profitable of the guideline companies, but its returns
on assets and equity are among the weakest.
SNH's portfolio is diversified among age-restricted apartment buildings, independent living
properties, assisted living properties, nursing homes, rehabilitation hospitals and wellness
centers. For the year ended December 31, 2009, 33.9 percent of SNH's revenues came
from independent living facilities, 28.6 percent of revenues came from assisted living
facilities, and 6.2 percent came from skilled nursing facilities. Approximately 57 percent of
SNH's rental income is from facilities leased by Five Star Quality Care, Inc, a company
created by SNH in 2000 and subsequently spun off into a public company.
- 77 The next step in the analysis is to determine the appropriate multiple or set of multiples to
use to estimate the market value of Vogue. The valuation analyst looked at two key pricing
multiples in our analysis and these are presented in Table 36.
TABLE 36
LATEST 12 MONTHS
INVESTED CAPITAL MULTIPLES
Company
OHI
LTC
MPW
NHI
SNH
Statistical Analysis:
Mean
Median
Standard Deviation
Coefficient of Variation
MVIC to:
Revenues
EBITDA
13.35
12.77
10.76
15.83
12.46
16.16
14.81
12.54
18.24
13.96
13.04
12.77
1.83
0.14
15.14
14.81
2.17
0.14
MVIC = Market Value of Invested Capital.
The guideline public company method uses these market multiples to determine the value
of the appraisal subject. Once the appraiser analyzes the differences between the subject
company and the guideline companies, appropriate adjustments are made to the market
multiples of the public companies in order to reflect the differences in risk between the
entities. The analyst utilized invested capital multiples, as the guideline companies and
Vogue have very different levels of debt. This will cause the difference in leverage to be
eliminated from the multiples.
In reviewing the guideline company multiples, we have utilized the ratio analysis, as well
as other quantitative and qualitative differences between Vogue and the selected guideline
companies. The market favors certain factors over others in valuing public companies. The
factors most significantly affecting valuation multiples include size, profitability and growth.
-- 78
78 -We
We have
have analyzed
analyzed each
each multiple
multiple on
on a
a company
company by
by company
company basis
basis according
according to
to these
these
factors,
factors, and
and have
have selected
selected the
the multiples
multiples that
that we
we believe
believe to
to be
be applicable
applicable to
to Vogue.
Vogue.
To
To adjust
adjust for
for the
the differences
differences in
in size
size of
of the
the multiples,
multiples, we
we looked
looked at
at the
the relationship
relationship that
that size
size
has
has on
on the
the cost
cost of
of equity
equity by
by looking
looking at
at the
the different
different deciles
deciles in
in Morningstar’s
Morningstar’s Stocks,
Stocks, Bonds,
Bonds,
Bills
Bills and
and Inflation.
Inflation. Using
Using the
the relationship
relationship between
between the
the size
size of
of the
the guideline
guideline company
company and
and
Vogue,
Vogue, the
the various
various multiples
multiples were
were adjusted
adjusted for
for size.
size. These
These recalculated
recalculated multiples
multiples are
are
32
presented
presented in
in Table
Table 37.
37.32
TABLE
TABLE 37
37
LATEST
12
MONTHS
LATEST 12 MONTHS SIZE-ADJUSTED
SIZE-ADJUSTED
INVESTED
INVESTED CAPITAL
CAPITAL MULTIPLES
MULTIPLES
Company
Company
OHI
OHI
LTC
LTC
MPW
MPW
NHI
NHI
SNH
SNH
Statistical Analysis:
Statistical Analysis:
Mean
Mean
Median
Median
MVIC to:
MVIC to:
Revenues
EBITDA
Revenues
EBITDA
6.56
6.56
6.36
6.36
6.72
6.72
6.99
6.99
6.10
6.10
7.94
7.94
7.37
7.37
7.83
7.83
8.06
8.06
6.83
6.83
6.55
6.55
6.56
6.56
7.61
7.61
7.83
7.83
Our
Our analysis
analysis of
of the
the guideline
guideline companies
companies in
in comparison
comparison to
to Vogue
Vogue indicated
indicated that
that the
the
guideline
guideline companies
companies has
has generally
generally seen
seen considerably
considerably faster
faster revenue
revenue and
and earnings
earnings growth
growth
than
than Vogue.
Vogue. In
In addition,
addition, Vogue
Vogue is
is less
less profitable
profitable (in
(in terms
terms of
of EBITDA)
EBITDA) than
than all
all of
of the
the
guideline
guideline companies
companies except
except for
for OHI.
OHI. However,
However, Vogue
Vogue has
has strong
strong liquidity
liquidity and
and little
little financial
financial
leverage.
leverage. Finally,
Finally, The
The Company’s
Company’s historical
historical level
level of
of revenues
revenues and
and net
net income
income was
was stable
stable
over
over the
the last
last five
five years,
years, despite
despite a
a downturn
downturn in
in the
the economy
economy and
and capital
capital markets.
markets. We
We
32
32
Mattson, Michael, Don Shannon and Don M. Drysdale, “Adjusting Guideline Multiples for
Mattson,
Michael,
Don Shannon
and Don
M. <https://checkpoint.riAg.com/app/main/doc?
Drysdale, “Adjusting Guideline Multiples for
Size,” Valuation
Strategies
(Sept./Oct.
2001)
Size,”
Valuation
Strategies
(Sept./Oct.
2001)
<https://checkpoint.riAg.com/app/main/doc?
usid=f6591125258&DocID=i5d6048ce88c211d9a21ec7f8ee2eaa77&collId=T0vlr&docTid
usid=f6591125258&DocID=i5d6048ce88c211d9a21ec7f8ee2eaa77&collId=T0vlr&docTid
=T0VLR%3A816.5dr9&feature=tcheckpoint&lastCpReqId=477955&searchHandle=ia744d
=T0VLR%3A816.5dr9&feature=tcheckpoint&lastCpReqId=477955&searchHandle=ia744d
064000001308ad20ecfa1ed327b?>
064000001308ad20ecfa1ed327b?>
- 79 believe that this stability lessens the perceived investment risk to an equity interest in
Vogue.
The public marketplace tends to put the most importance on revenues and earnings.
Therefore, we used the public company multiples as guides to the selection of multiples to
apply to Vogue’s revenues and EBITDA.
Vogue has the smallest revenues, income, and assets when compared to the guideline
companies. For the selection of multiples, the valuation analyst felt that NHI and LTC were
the guideline companies most similar to Vogue. They were the two smallest guideline
companies and had balance sheets and historic revenue and earnings growth rates most
similar to Vogue.
In determining the multiple to apply to Vogue, we reviewed the multiples for NHI and LTC,
as well as the average and median multiples of all of the selected guideline companies. A
summary of the MVIC to revenues multiples is presented in Table 38.
TABLE 38
MVIC TO REVENUES MULTIPLES
NHI
LTC
Size-Adjusted Multiple
6.99
6.36
Selected Multiple
6.56
NHI & LTC
Mean
Median
6.67
6.67
All Five Guidelines
Mean
Median
6.55
6.56
In selecting the MVIC to revenues multiple we selected the median size-adjusted multiple.
Given the multiples of NHI and LTC, the overall range of multiples, and the risk factors
enumerated earlier, we determined that Vogue would not be considered any more risky
than the typical guideline company.
- 80 A summary of the guideline companies’ MVIC to EBITDA multiples are presented in Table
39.
TABLE 39
MVIC TO EBITDA
NHI
LTC
Size-Adjusted Multiple
7.37
8.06
Selected Multiple
7.83
NHI & LTC
Mean
Median
7.71
7.71
All Five Guidelines
Mean
Median
7.61
7.83
Generally, the guideline companies have grown their cash flow at a faster pace than
Vogue. This would tend to increase the guideline EBITDA multiples relative to Vogue.
However, Vogue’s strong balance sheet, liquidity and stability help to increase its multiple
relative to the guideline companies. Due to the close range of multiples, the multiples of
NHI and LTC, and the risk factors discussed earlier, we applied a multiple equal to the
median to Vogue’s EBITDA.
MERGER AND ACQUISITION TRANSACTIONS
In addition to reviewing market prices of stocks of publicly traded companies, the valuation
analyst reviewed merger and acquisition activity taking place in the public and private
markets.
In order to accomplish this, we searched two databases for information about mergers and
acquisitions in SIC codes 6512 and 6798. The databases utilized were as follows:
•
Pratt’s Stats
•
Public Stats
- 81 -
PRATT’S STATS
Pratt’s Stats contained one transaction for SIC codes 6512 and 6798 between March 31,
2008 and March 31, 2010. However, this transaction was of a business engaged in
unrelated operations.
PUBLIC STATS
We searched this database for transactions in SIC codes 6512 and 6798 between March
31, 2008 and March 31, 2008 and located zero transactions.
- 82 -
VALUATION CALCULATIONS
As indicated previously in this report, the three approaches to valuation to be considered
in an appraisal are:
1.
The Income Approach,
2.
The Market Approach, and
3.
The Asset-Based Approach.
The narrative that follows discusses the appraisal methods employed within each
approach.
THE INCOME APPROACH
The application of the income approach will be accomplished using the capitalization of
future benefits method.
CAPITALIZATION OF FUTURE BENEFITS METHOD
The capitalization of future benefits method is premised on the concept that value is based
on a stabilized benefit stream that is capitalized by an appropriate capitalization rate to
reflect the risk associated with the benefit stream. Mathematically, this is presented in the
following formula:
- 83 -
V=I÷R
Where
V =
Value
I =
Next Year’s Benefit Stream
R=
Capitalization Rate
The use of this formula requires an estimate of income to be made for the subject business.
We have previously determined that five-year average net income best represents probable
future earnings. The amount is estimated as $8,354,044.
The next portion of the application of this method requires the determination of the
appropriate capitalization rate to be used for this level of income. Due to the risk of the
business and the risk of the income stream going forward (as explained in the section of
this report entitled ‘Discount and Capitalization Rates’), we believe that a capitalization rate
of 12.4 percent is appropriate. The value under this methodology is calculated as shown
in Table 40.
TABLE 40
CAPITALIZATION OF FIVE-YEAR AVERAGE
NET INCOME
Five-Year Average Net Income
One Plus the Long-Term Rate of Growth
$
x
Net Income for Capitalization
Capitalization Rate
Indication of Value - Minority, Marketable
1.03
$
÷
1
See “Premiums and Discounts” for explanation of this discount.
8,604,665
12.4%
$
Less: Discount for Lack of Marketability (25%)1
Indication of Value - Minority, Nonmarketable
8,354,044
69,392,460
(17,348,115)
$
52,044,345
- 84 -
THE MARKET APPROACH
GUIDELINE PUBLIC COMPANY METHOD
In the previous section of this report, we discussed the guideline public company search
and selected appropriate multiples. These multiples are now used to calculate the value
of Vogue.
Based on the multiples selected in the “Guideline Public Companies” section of this report,
the indications of value are presented in Table 41
TABLE 41
GUIDELINE PUBLIC COMPANY COMPUTATIONS
Selected Multiple
Vogue Earnings Stream
Estimated Value of Invested Capital
$
6.56
7.83
10,976,190
9,091,414
72,008,520
Less: Interest Bearing Debt
$
-
Estimated Equity Value
$
1
Less: Discount for Lack of Marketability
25.00%
Indication of Value - Minority, Nonmarketable
72,008,520
$
(18,002,130)
$
54,006,390
71,211,865
71,211,865
(17,802,966)
$
53,408,899
1
See “Premiums and Discounts” for explanation of this discount.
Note: Figures may not foot due to rounding.
MERGER AND ACQUISITION METHOD
We were unable to locate an adequate number of transactions from any of the databases
to derive reasonable conclusions of value. Therefore, this methodology was not used.
- 85 -
THE ASSET-BASED APPROACH
As discussed previously, the asset-based approach is generally inappropriate for a minority
interest unless the shareholder has the right to liquidate or sell off the assets and liabilities
of the company. Since minority shareholders cannot realize the value of the net assets,
regardless of the amount of appreciation that may have taken place, it is inappropriate for
the appraiser to apply this methodology for most minority valuations. However, given the
asset-intensive nature of Vogue’s operations, we believe an investor would not ignore the
value of the underlying assets. Therefore, we used the asset-based approach in this
valuation.
ADJUSTED BOOK VALUE METHOD
We previously determined the adjusted book value of Vogue’s operating equity to be $20.1
million as of December 31, 2009. However, certain items on the balance sheet require
further normalization to reflect these items at their fair market values as of the valuation
date. These adjustments are reflected in Table 42
- 86 TABLE 42
BALANCE SHEET FAIR MARKET VALUE ADJUSTMENTS
December 31,
2009
Current Assets
Cash
Accounts Receivable1
Prepaid Expenses1
Adjustments
March 31,
2010
$
447,324 $
1,275,911
-
- $
(662,108)
63,647
447,324
613,803
63,647
Total Current Assets2
$
1,723,235 $
(598,461) $
1,124,774
Fixed Assets2
Land
Building & Improvements
Construction in Progress
$
2,805,867 $
32,689,010
6,629,845
(2,805,867) $
58,193,990
(6,629,845)
90,883,000
-
Gross Fixed Assets
Accumulated Depreciation
$ 42,124,722 $ 48,758,278 $
23,251,822
(23,251,822)
90,883,000
-
Net Fixed Assets
$ 18,872,900 $
90,883,000
Total Other Assets1
$
9,920 $
(9,920) $
TOTAL ASSETS
$ 20,606,055 $
71,401,719 $
92,007,774
Current Liabilities
Accounts Payable1
Accrued Expenses1
Sales Taxes Payable1
$
140,200 $
360,408
127
(42,347) $
$ 138,458
(127)
97,853
498,866
-
$
500,735 $
95,984 $
596,719
Total Current Liabilities
Total Long-term Liabilities
1
Total Liabilities
27,100
72,010,100 $
(27,100)
-
-
$
527,835 $
68,884 $
596,719
$
2,783 $
3,073,993
17,001,444
- $
71,332,835
2,783
3,073,993
88,334,279
Total Stockholders' Equity
$ 20,078,220 $
71,332,835 $
91,411,055
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 20,606,055 $
71,401,719 $
92,007,774
Stockholders' Equity
Common Stock
Paid - In Capital
Retained Earnings3
1.
Certain balance sheet items were adjusted to their book values on the March 31,
2010 balance sheet as book value approximated fair market value at that date.
2.
Vogue’s 26 properties were appraised by Western Valuation Associates, LLC as of
March 31, 2010. In total, the market value of Vogue’s real estate amounts to
$90,883,000 at the valuation date. The individual property values are presented in
Table 43.
- 87 TABLE 43
VOGUE REAL ESTATE APPRAISALS
IMPROVED REAL ESTATE PARCELS
No.
State
1
2
3
4
5
6
7
8
9
10
11
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
FL
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
NC
NC
NC
NC
NC
NC
VA
VA
VA
VA
VA
OH
OH
TX
NJ
Location
County
City
This information was removed for
confidentiality purposes.
Vogue Total
3.
March 31,
2010
Conclusion
$
6,095,000
3,920,000
3,031,000
3,258,000
3,305,000
3,086,000
3,636,000
2,742,000
3,416,000
3,654,000
4,792,000
$
3,010,000
3,377,000
3,289,000
2,721,000
3,101,000
3,138,000
9,220,000
2,045,000
1,640,000
1,660,000
1,670,000
5,650,000
298,000
5,320,000
3,809,000
$
90,883,000
Retained earnings were adjusted to reflect the changes to the balance sheet.
Adjusting the balance sheet for these items results in an adjusted book value of
$91,411,055. This reflects the value of The Company’s operating assets on a control,
marketable basis.
- 88 As we are valuing Vogue on a minority, nonmarketable basis, we must apply a discount for
lack of control, as well as a discount for lack of marketability. These discounts are
discussed in the “Premiums and Discounts” section of this report.
The value under this methodology is presented in Table 44
TABLE 44
ADJUSTED BOOK VALUE METHOD
Indication of Value - Control, Marketable
Less: Discount for Lack of Control
$
20.00%
Indication of Value - Minority, Marketable
Less: Discount for Lack of Marketability
(18,282,211)
$
25.00%
Indication of Value - Minority, Nonmarketable
91,411,055
73,128,844
(18,282,211)
$
54,846,633
RECONCILIATION OF VALUES
In this report, several methods were used to determine the value of the subject interest
in Vogue. These values are as follows:
INCOME APPROACH
Five-Year Average Capitalized Net Income
$
52,044,345
MARKET APPROACH
MVIC to LTM Revenues Multiple
MVIC to LTM EBITDA Multiple
54,006,390
53,408,899
ASSET-BASED APPROACH
Adjusted Book Value Method
54,846,633
- 89 The market approach is normally afforded the greatest amount of weight for a going
concern, since fair market value is determined by the market, and it is the appraiser’s role
to interpret the market. In this valuation, we were able to apply the guideline company
method, which produced relatively consistent results. However, we were only able to locate
five guideline companies and several of them were considerably larger and more diversified
than Vogue. We identified other qualitative differences between Vogue and the guideline
companies, such as the age of facilities, which could affect the selection of multiples but
were unable to support such an adjustment. Therefore, we put less weight on the market
approach.
The income approach utilizes the earnings of a company to arrive at value, which is the
most theoretically correct method to use, as an investor is concerned with the availability
of future earnings and cash flow. Vogue has relatively stable earnings and this is expected
to continue which gave the analyst more confidence in this method. Thus, we have applied
the most weight to the income approach.
As previously discussed, the asset-based approach is typically not appropriate for the
minority interest valuation of an operating entity, as a minority interest investor would not
have access to the underlying assets. However, an investor would not ignore the value of
the assets. Thus, we applied some weight to the asset-based indication of value.
As a result of the analysis, the value of Vogue’s operating entity on a minority,
nonmarketable basis is estimated to be $52,937,462.
Earlier in the valuation process, we removed excess cash, non-operating investments, and
loans to related parties from the balance sheet. These assets had a net book value of
$57,698,864 at December 31, 2009. However, adjustments are necessary to reflect these
assets at their fair market values at the valuation date. The adjustment of these assets to
market value as of March 31, 2010 is presented in Table 45.
- 90 TABLE 45
ADJUSTMENT OF NON-OPERATING ASSETS TO
MARCH 31, 2010 MARKET VALUE
December 31,
2009
Cash1
Marketable Securities
and Partnership Investments2
Stockholder and
Related Party Loans3
$
Total
$
1.
36,049,619 $
Adjustment to
Valuation Date
March 31,
2010
(29,888,431) $
Adjustment to
Market Value
6,161,188 $
- $
March 31
2010
MVBS
6,161,188
20,028,085
(2,050,876)
17,977,209
(208,207)
17,769,002
1,621,160
151,385
1,772,545
-
1,772,545
57,698,864 $
(31,787,922) $
25,910,942 $
(208,207) $
25,702,735
Cash was adjusted to its March 31, 2010 balance less the portion included on the
operation’s balance sheet.
2.
Marketable securities and partnership investments were adjusted to their market
values as of March 31, 2010 per data obtained from brokerage statements, K-1s
and Management estimates.
3.
Stockholder and related party loans were adjusted to their March 31, 2010 values.
Based on the above, Vogue’s non-operating and excess assets were determined to have
a market value of $25,702,735 as of the valuation date. This reflects value on a control,
marketable basis. In order to determine the minority interest value, we separated the nonoperating and excess assets into broad investment categories and applied discounts to
each investment group. These discounts are discussed in the “Premiums and Discounts”
section at the end of the report.
Therefore, the value of 100 percent of the common stock of Vogue Corp. on a minority,
nonmarketable basis as of March 31, 2010 is as follows:
- 91 Fair Market Value of Operating Entity
Non-Operating Assets
$
$
Less: Minority Interest Discount (7.5%)
Minority, Marketable Value Non-Operating Assets
Less: Discount for Lack of Marketability (25%)
52,937,462
25,702,735
(1,925,387)
$
23,777,348
(5,944,337)
Minority, Nonmarketable Value of Non-Operating Assets
17,833,011
Total Value of Equity
$
70,770,473
Rounded
$
70,770,000
Fair Market Value Per Share
$
2,542.94
Note: Figures may not foot due to rounding.
-- 92
92 --
DISCOUNT
DISCOUNT AND
AND CAPITALIZATION
CAPITALIZATION RATES
RATES
Section
Section 6
6 of
of Revenue
Revenue Ruling
Ruling 59-60
59-60 states:
states:
In
In the
the application
application of
of certain
certain fundamental
fundamental valuation
valuation factors,
factors, such
such as
as earnings
earnings
and
dividends,
it
is
necessary
to
capitalize
the
average
or
current
results
and dividends, it is necessary to capitalize the average or current results at
at
some
some appropriate
appropriate rate.
rate. A
A determination
determination of
of the
the proper
proper capitalization
capitalization rate
rate
presents
presents one
one of
of the
the most
most difficult
difficult problems
problems in
in valuation.
valuation.
In
of Revenue
In the
the text
text of
Revenue Ruling
Ruling 68-609,
68-609, capitalization
capitalization rates
rates of
of 15
15 to
to 20
20 percent
percent were
were
mentioned
mentioned as
as an
an example.
example. Many
Many appraisers
appraisers are
are under
under the
the misconception
misconception that
that the
the
capitalization rate
rate must
must stay
stay within
capitalization
within this
this range.
range. In
In reality,
reality, the
the capitalization
capitalization rate
rate must
must be
be
consistent
consistent with
with the
the rate
rate of
of return
return currently
currently needed
needed to
to attract
attract capital
capital to
to the
the type
type of
of investment
investment
in question.
question.
in
There
There are
are various
various methods
methods of
of determining
determining discount
discount and
and capitalization
capitalization rates.
rates. In
In this
this
valuation,
valuation, we
we examined
examined rates
rates of
of return
return from
from REITs.
REITs.
Partnership
Partnership Profiles,
Profiles, Inc.
Inc. publishes
publishes an
an annual
annual Rate
Rate of
of Return
Return
historical
historical income
income returns
returns (as
(as measured
measured by
by net
net income)
income) of
of REITs
REITs
Study,
Study, which
which includes
includes
starting
starting in
in 1972.
1972. While
While
annual
annual returns
returns have
have fluctuated
fluctuated significantly
significantly from
from year
year to
to year,
year, the
the overall
overall income
income returns
returns
of
of REITs
REITs have
have been
been relatively
relatively consistent.
consistent. The
The most
most recent
recent and
and historical
historical REIT
REIT returns
returns are
are
presented
presented in
in Table
Table 46.
46.
TABLE
TABLE 46
46
REIT
REIT RETURNS
RETURNS
Average
Average
2009
2009 REIT
REIT Return
Return
Historical
REIT
Historical REIT Return
Return Since
Since 1972
1972
Average
REIT
Return
(20
Years)
Average REIT Return (20 Years)
Average
Average REIT
REIT Return
Return (25
(25 Years)
Years)
Average
REIT
Return
(30
Average REIT Return (30 Years)
Years)
28.0%
28.0%
13.4%
13.4%
12.1%
12.1%
11.9%
11.9%
13.4%
13.4%
- 93 As we are capitalizing five-year average net income, the REIT returns were deemed most
appropriate in this valuation. We considered the historical returns over the longest periods
of time in order to reduce the effect of volatile year-to-year income returns. Therefore, the
starting point for developing a real estate-based equity cost of capital is 13.4 percent.
Historical REIT Return
Company Specific Risk Premium
13.4%
2.0%
Cost of Equity Capital
15.4%
In deriving the company specific risk premium, we considered the fact that the REITs are
required to distribute 90 percent of taxable net income to shareholders. There is additional
risk to a minority investor in Vogue because The Company is only required to distribute an
amount to cover the shareholders’ tax liabilities. The REITs also enjoy greater
diversification in the number, location and types of properties relative to Vogue and have
greater depth in Management. Finally, Vogue is smaller than publicly-traded REITs and,
therefore, would be perceived as more risky. These factors are somewhat offset by the
focus of Vogue’s real estate. The operation of skilled nursing facilities is generally
considered less risky than the overall real estate industry. However, Vogue’s facilities are
dated and will require renovating in the near future. The cost to The Company for these
renovations will likely be significant and are not accounted for through the capitalization of
net income. An investor would consider upcoming capital expenditures as a risk to future
distributions. In addition, an investor would also consider the risks associated with current
levels of government funding for Medicare and Medicaid programs in light of budgetary
deficits and the level of the national debt. However, Vogue has enjoyed stable net income
over the last eight years. Considering all of these factors, an additional 2 percent risk
premium was deemed appropriate.
- 94 As a sanity check on our 15.4 percent discount rate, we reviewed the discount rates of
similar public companies by consulting the 2009 and 2010 editions of Morningstar’s Cost
of Capital Yearbook shown in Table 47.
TABLE 47
MORNINGSTAR DISCOUNT RATES
SIC 6798
Real Estate
Investment Trusts
SIC 80
Health
Services
SIC 805
Nursing and
SIC 8051
Personal Care Skilled Nursing
Facilities
Care Facilities
2009
Median Size Adjusted Cost of Equity
12.36%
12.46%
11.59%
11.94%
Median Size Adjusted WACC
13.27%
12.91%
11.06%
10.87%
Small Composite Size Adjusted Cost of Equity
14.08%
12.53%
N/A
N/A
Small Composite Size adjusted WACC
14.12%
12.52%
N/A
N/A
23
64
6
5
Median Size Adjusted Cost of Equity
17.08%
14.34%
16.36%
N/A
Median Size Adjusted WACC
11.94%
13.30%
N/A
N/A
Small Composite Size Adjusted Cost of Equity
13.19%
16.61%
14.31%
N/A
9.76%
15.64%
N/A
N/A
104
64
6
*
Number of Companies
2010
Small Composite Size Adjusted WACC
Number of Companies
*SIC 8051 was not included in the 2010 edition of Morningstar’s Cost of Capital Yearbook.
N/A = not available.
The data in Table 47 shows that equity discount rates ranged from 11.6 percent to 17.1
percent. Based on the data from Morningstar, the 15.4 percent discount rate derived for
Vogue is at the higher end of the range of public company discount rates. This reflects the
fact that The Company is smaller, will require significant capital expenditures in the near
future, is less diversified and has less Management depth than its public counterparts.
Overall, the public company discount rates help support the 15.4 percent discount rate
selected.
- 95 As seen above, health care operations have generally had lower costs of capital relative
to REITs. Thus, Vogue’s real estate focus would likely reduce the perceived risk to a
minority interest investor in The Company.
The mathematical formula to distinguish between a discount rate and a capitalization rate
is the subtraction of the present value of long-term sustainable growth from the discount
rate. The present value of long-term sustainable growth has been included at a rate of 3.0
percent of Vogue. This rate of growth reflects expected economic growth and inflation in
the long-term.
As an additional sanity check, we reviewed capitalization rates noted by ILA in the 2010
Senior Care Acquisition Report. ILA identified a median capitalization rate for 2009 of 13.3
percent applicable to EBITDA. The capitalization rate of 12.4 percent that is being used
in this analysis is applicable to net income. To see the relevance to the ILA data, the
analyst calculated the implied EBITDA capitalization rate for Vogue in Table 48.
TABLE 48
SANITY CHECK OF CAPITALIZATION RATE
Five-Year AverAge EBITDA
Divided By: Minority, Marketable Value Determined Under Income Approach
EBITDA-Equivalent Capitalization Rate
$
9,247,472
69,392,460
13.3%
Note: This calculation is a modified version of that described earlier in this report.
The EBITDA-equivalent capitalization rate used in this analysis is consistent with that
identified by the ILA. Therefore, a capitalization rate applicable to net income of 12.4
percent appears to be reasonable.
- 96 -
PREMIUMS AND DISCOUNTS
VALUATION PREMIUMS AND DISCOUNTS IN GENERAL
The final value reached in the appraisal of a closely-held business may be more or less
than the value that was calculated using the various methods of appraisal that are
available. The type and size of the discount(s) or premium(s) will vary depending on the
starting point, which will depend on which methods of valuation were used during the
appraisal as well as other factors such as the sources of the information used to derive
multiples or discount rates, and normalization adjustments.
CONTROL PREMIUM
In a fair market value appraisal, the prorata value of a controlling interest in a closely-held
company is said to be worth more than the value of a minority interest, due to the
prerogatives of control that follow the controlling shares. An investor will generally pay
more (a premium) for the rights that are considered to be part of the controlling interest.
Valuation professionals recognize these prerogatives of control, and they continue to hold
true today. These rights are considered in assessing the size of a control premium. They
include:
1.
2.
3.
4.
Appoint or change operational Management.
Appoint or change members of the board of directors.
Determine Management compensation and perquisites.
Set operational and strategic policy and change the course of
business.
- 97 - 97 5.
5.
6.
6.
7.
7.
8.
8.
9.
9.
10.
10.
11.
11.
12.
12.
13.
13.
14.
14.
15.
15.
16.
16.
17.
17.
18.
18.
19.
19.
20.
20.
Acquire, lease, or liquidate business assets, including plant, property
Acquire, lease, or liquidate business assets, including plant, property
and equipment.
and equipment.
Select suppliers, vendors, and subcontractors with whom to do
Select suppliers, vendors, and subcontractors with whom to do
business and award contracts.
business and award contracts.
Negotiate and consummate mergers and acquisitions.
Negotiate and consummate mergers and acquisitions.
Liquidate, dissolve, sell out, or recapitalize the company.
Liquidate, dissolve, sell out, or recapitalize the company.
Sell or acquire treasury shares.
Sell or acquire treasury shares.
Register the company’s equity securities for an initial or secondary
Register the company’s equity securities for an initial or secondary
public offering.
public offering.
Register the company’s debt securities for an initial or secondary
Register the company’s debt securities for an initial or secondary
public offering.
public offering.
Declare and pay cash and/or stock dividends.
Declare and pay cash and/or stock dividends.
Change the articles of incorporation or bylaws.
Change the articles of incorporation or bylaws.
Set one’s own compensation (and perquisites) and the compensation
Set one’s own compensation (and perquisites) and the compensation
(and perquisites) of related-party employees.
(and perquisites) of related-party employees.
Select joint venturers and enter into joint venture and partnership
Select joint venturers and enter into joint venture and partnership
Agreements.
Agreements.
Decide what products and/or services to offer and how to price those
Decide what products and/or services to offer and how to price those
products/services.
products/services.
Decide what markets and locations to serve, to enter into, and to
Decide what markets and locations to serve, to enter into, and to
discontinue serving.
discontinue serving.
Decide which customer categories to market to and which not to
Decide which customer categories to market to and which not to
market to.
market to.
Enter into inbound and outbound license or sharing Agreements
Enter into inbound and outbound license or sharing Agreements
regarding intellectual properties.
regarding intellectual properties.
Block any or all of the above actions.33
Block any or all of the above actions.33
A control premium is the opposite of a minority discount. The control premium is used to
A control premium is the opposite of a minority discount. The control premium is used to
determine the control value of a closely-held business when its freely traded minority value
determine the control value of a closely-held business when its freely traded minority value
has been determined. In this assignment, the valuation subject is a minority interest with
has been determined. In this assignment, the valuation subject is a minority interest with
no control over Vogue. Therefore, a control premium is not required.
no control over Vogue. Therefore, a control premium is not required.
33
33
Pratt, Shannon P., Robert F. Reilly and Robert P. Schweihs. Valuing a Business, 4th
Edition
Pratt, York:
Shannon
P., Robert2000):
F. Reilly
and Robert P. Schweihs. Valuing a Business, 4th Edition
(New
McGraw-Hill,
365-366.
(New York: McGraw-Hill, 2000): 365-366.
- 98 -
MINORITY DISCOUNT
In a fair market value appraisal, a minority discount is a reduction in the control value of the
appraisal subject that is intended to reflect the fact that a minority stockholder cannot
control the daily activities or policy decisions of an enterprise, thus reducing its value. The
size of the discount will depend on the size of the interest being appraised, the amount of
control, the stockholder’s ability to liquidate the company, and other factors.
A minority discount is basically the opposite of a premium for control. This type of discount
is used to obtain the value of a noncontrolling interest in the appraisal subject, when a
control value is the starting point. The starting point is determined based on the method
of valuation, the normalization adjustments made, and the source of the discount or
capitalization rates.
There are many factors that may impact the degree of control a minority owner has over
the operations. When the control elements are not available to the ownership interest being
valued, the value is reduced accordingly. The information in Table 49 summarizes some
of the factors that tend to influence the value of minority interests relative to controlling
interests.
TABLE 49
FACTORS AFFECTING THE DEGREE OF CONTROL
Factors That May Increase A Lack of Control Discount or Control Premium
•
The presence of voting interests.
•
An extreme lack of consideration for the interests of minority
owners on the part of the company’s Management, board of
directors, or majority owners.
- 99 TABLE 49
FACTORS AFFECTING THE DEGREE OF CONTROL
Factors That May Decrease a Lack of Control Discount or Control Premium
•
The presence of enough minority interest votes to elect or have
meaningful input on electing one or more directors in a company
with cumulative voting.
•
The presence of enough minority votes to block certain actions.
•
The presence of state statutes granting certain minority ownership
rights.
Factors That May Increase or Decrease a Lack of Control Discount or a Control
Premium.
•
The distribution of other shares (e.g. two shares when 2 others
own 49 shares each are more valuable than 2 shares when 49
others own 2 shares each).
Source: Adapted from Guide to Business Valuations, Practitioners Publishing Company, Inc. 2009:
8-19, 803.17.
In this appraisal, the net asset value of Vogue was used to determine the control value of
the entire company. However, to realize this value, an investor would need to be able to
gain access to, and liquidate, the underlying assets of The Company. If minority members
were afforded this level of control, a minority share would be worth a pro rata share of The
Company’s net asset value. However, this is not the case. The Agreement specifically limits
control.
Use of the net asset value method develops a freely traded, control value of The
Company’s net assets and does not provide a meaningful indication of value for a minority
interest. A lack of control discount is appropriate because a minority interest in Vogue
represents an indirect ownership interest in the underlying assets held by The Company.
The interest is, in fact, a minority interest in that it conveys no control over the day-to-day
conduct of Vogue, has no right or authority to act for or bind The Company, has no control
over policy or investment decisions, cannot control the amount or timing of distributions to
be made, and cannot decide the timing or amount of sale of Vogue’s assets.
- - 100
100 - -
DISCOUNT
DISCOUNT FOR
FOR LACK
LACK OF
OF CONTROL
CONTROL APPLICABLE
APPLICABLE TO
TO OPERATING
OPERATING
ASSETS
ASSETS
InInorder
ordertotodetermine
determinean
anappropriate
appropriatelack
lackofofcontrol
controldiscount
discounttotoapply
applytotoVogue’s
Vogue’soperating
operating
assets,
assets,we
weexamined
examinedreal
realestate
estatelimited
limitedpartnership
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(RELP)data
datacompiled
compiledby
byPartnership
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(PPI)ininits
its2007
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onPartnership
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summariesinclude
includepublicly-registered
publicly-registeredreal
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estateprograms
programswhose
whose
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market.We
Weanalyzed
analyzedtriple-net
triple-netlease
leasereal
realestate
estate
programs
programsfrom
fromthis
thisstudy
studyas
asVogue’s
Vogue’sproperties
propertiesare
areleased
leasedthrough
throughtriple-net
triple-netarrangements
arrangements
with
withits
itstenants.
tenants.These
Theseprograms
programsare
arepresented
presentedininTables
Tables50
50through
through52.
52.
TABLE
TABLE50
50
2010
2010TRIPLE-NET
TRIPLE-NETLEASE
LEASERELPS
RELPS
Partnership
PartnershipName
Name
Implied
Implied
Op
Op
Discount
Discount Borr/NAV
Borr/NAV Yield/NAV
Yield/NAV Supr/Nav
Supr/Nav GCF/NAV
GCF/NAV NCF/NAV
NCF/NAV
AEI
AEIIncome
Income&&Growth
GrowthFund
Fund26
26
32.4%
32.4%
0.00%
0.00%
6.40%
6.40%
6.60%
6.60%
6.60%
6.60%
6.60%
6.60%
AEI
AEIIncome
Income&&Growth
GrowthFund
Fund24
24LLC
LLC
27.5%
27.5%
0.00%
0.00%
5.90%
5.90%
6.10%
6.10%
5.90%
5.90%
5.90%
5.90%
AEI
AEIIncome
Income&&Growth
GrowthFund
Fund25
25
23.4%
23.4%
0.00%
0.00%
6.20%
6.20%
6.40%
6.40%
6.20%
6.20%
6.20%
6.20%
Del
DelTaco
TacoRestaurant
RestaurantProperties
PropertiesIVIV
22.7%
22.7%
0.00%
0.00%
6.20%
6.20%
7.20%
7.20%
7.20%
7.20%
7.20%
7.20%
DiVall
DiVallInsured
InsuredIncome
IncomeProperties
Properties2 2
22.6%
22.6%
0.00%
0.00%
6.50%
6.50%
7.00%
7.00%
7.00%
7.00%
6.80%
6.80%
Del
DelTaco
TacoRestaurant
RestaurantProperties
PropertiesII II
22.1%
22.1%
0.00%
0.00%
6.30%
6.30%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
AEI
AEINet
NetLease
LeaseIncome
Income&&Growth
GrowthFund
FundXX
XX
16.7%
16.7%
0.00%
0.00%
5.80%
5.80%
6.20%
6.20%
6.20%
6.20%
6.20%
6.20%
AEI
AEIIncome
Income&&Growth
GrowthFund
FundXXII
XXII
15.8%
15.8%
0.00%
0.00%
8.00%
8.00%
7.70%
7.70%
7.50%
7.50%
7.50%
7.50%
Del
DelTaco
TacoRestaurant
RestaurantProperties
PropertiesIIIIII
11.7%
11.7%
0.00%
0.00%
7.30%
7.30%
7.80%
7.80%
7.80%
7.80%
7.80%
7.80%
AEI
AEINet
NetLease
LeaseIncome
Income&&Growth
GrowthFund
FundXXI
XXI
0.6%
0.6%
0.00%
0.00%
7.60%
7.60%
7.40%
7.40%
7.50%
7.50%
7.50%
7.50%
AEI
AEINet
NetLease
LeaseIncome
Income&&Growth
GrowthFund
FundXIX
XIX
-3.9%
-3.9%
0.00%
0.00%
6.90%
6.90%
10.20%
10.20%
10.20%
10.20%
10.20%
10.20%
Cole
ColeCredit
CreditProperty
PropertyTrust,
Trust,II II
21.4%
21.4%
96.50%
96.50%
7.80%
7.80%
7.00%
7.00%
7.10%
7.10%
6.90%
6.90%
Corporate
CorporateProperty
PropertyAssociates
Associates14
14
18.6%
18.6% 103.00%
103.00%
6.80%
6.80%
5.80%
5.80%
8.70%
8.70%
8.70%
8.70%
Cole
ColeCredit
CreditProperty
PropertyTrust,
Trust,Inc.
Inc.
36.2%
36.2% 153.00%
153.00%
6.50%
6.50%
9.50%
9.50%
9.50%
9.50%
9.50%
9.50%
Corporate
CorporateProperty
PropertyAssociates
Associates15
15
22.9%
22.9% 224.90%
224.90%
6.80%
6.80%
2.90%
2.90%
8.50%
8.50%
8.30%
8.30%
Corporate
CorporateProperty
PropertyAssociates
Associates16
16
18.5%
18.5% 272.90%
272.90%
7.20%
7.20%
17.20%
17.20%
9.70%
9.70%
9.70%
9.70%
Average
Average
19.3%
19.3%
7.7%
7.7%
7.6%
7.6%
Median
Median
21.8%
21.8%
7.4%
7.4%
7.4%
7.4%
- 101
- 101- TABLE
TABLE
5151
2009
2009
TRIPLE-NET
TRIPLE-NET
LEASE
LEASE
RELPS
RELPS
Partnership
Partnership
Name
Name
Op Op
Discounts
Discounts
Borr/NAV
Borr/NAV
Yield/NAV
Yield/NAV
Supr/Nav
Supr/NavGCF/NAV
GCF/NAVNCF/NAV
NCF/NAV
AEIAEI
Income
Income
& Growth
& Growth
Fund
Fund
24 LLC
24 LLC
40.4%
40.4%
0.00%
0.00%
5.30%
5.30%
4.90%
4.90%
4.70%
4.70%
4.70%
4.70%
AEIAEI
Income
Income
& Growth
& Growth
Fund
Fund
25 25
31.2%
31.2%
0.00%
0.00%
5.60%
5.60%
5.80%
5.80%
5.70%
5.70%
5.70%
5.70%
AEIAEI
Income
Income
& Growth
& Growth
Fund
Fund
XXIIXXII
30.4%
30.4%
0.00%
0.00%
5.90%
5.90%
5.60%
5.60%
5.50%
5.50%
5.50%
5.50%
AEIAEI
NetNet
Lease
Lease
Income
Income
& Growth
& Growth
Fund
Fund
XX XX
40.1%
40.1%
0.00%
0.00%
5.50%
5.50%
6.30%
6.30%
6.30%
6.30%
6.30%
6.30%
AEIAEI
NetNet
Lease
Lease
Income
Income
& Growth
& Growth
Fund
Fund
XXIXXI
37.7%
37.7%
0.00%
0.00%
6.00%
6.00%
6.20%
6.20%
6.20%
6.20%
6.20%
6.20%
Corporate
Corporate
Property
Property
Associates
Associates
14 14
10.4%
10.4% 94.00%
94.00%
6.10%
6.10%
9.80%
9.80%
7.80%
7.80%
7.80%
7.80%
Corporate
Corporate
Property
Property
Associates
Associates
15 15
8.9%
8.9%225.00%
225.00%
6.30%
6.30% 10.90%
10.90%
7.70%
7.70%
7.70%
7.70%
Corporate
Corporate
Property
Property
Associates
Associates
16 16
30.6%
30.6%254.80%
254.80%
6.70%
6.70% 10.70%
10.70%
6.30%
6.30%
6.30%
6.30%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
I I
22.5%
22.5%
0.00%
0.00%
8.20%
8.20%
8.50%
8.50%
8.40%
8.40%
7.40%
7.40%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
II II
27.2%
27.2%
0.00%
0.00%
6.20%
6.20%
6.40%
6.40%
6.30%
6.30%
6.30%
6.30%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
III III
18.2%
18.2%
0.00%
0.00%
7.40%
7.40%
7.70%
7.70%
7.60%
7.60%
7.60%
7.60%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
IV IV
30.3%
30.3%
0.00%
0.00%
7.10%
7.10%
7.10%
7.10%
7.10%
7.10%
7.10%
7.10%
DiVall
DiVall
Insured
Insured
Income
Income
Properties
Properties
2 2
21.1%
21.1%
0.00%
0.00%
6.80%
6.80%
8.80%
8.80%
8.80%
8.80%
8.40%
8.40%
Average
Average
26.8%
26.8%
6.8%
6.8%
6.7%
6.7%
Median
Median
30.3%
30.3%
6.3%
6.3%
6.3%
6.3%
TABLE
TABLE
5252
2008
2008
TRIPLE-NET
TRIPLE-NET
LEASE
LEASE
RELPS
RELPS
Partnership
Partnership
Name
Name
Op Op
Discount
DiscountBorr/NAV
Borr/NAV
Yield/NAV
Yield/NAV
Supr/Nav
Supr/NavGCF/NAV
GCF/NAVNCF/NAV
NCF/NAV
AEIAEI
Income
Income
& Growth
& Growth
Fund
Fund
24 LLC
24 LLC
AEIAEI
Income
Income
& Growth
& Growth
Fund
Fund
25 25
6.1%
6.1%
0.00%
0.00%
6.50%
6.50%
8.20%
8.20%
8.00%
8.00%
8.00%
8.00%
14.7%
14.7%
0.00%
0.00%
6.00%
6.00%
6.50%
6.50%
6.30%
6.30%
6.30%
6.30%
AEIAEI
Income
Income
& Growth
& Growth
Fund
Fund
XXIIXXII
6.4%
6.4%
0.00%
0.00%
5.66%
5.66%
6.50%
6.50%
6.32%
6.32%
6.32%
6.32%
AEIAEI
NetNet
Lease
Lease
Income
Income
& Growth
& Growth
Fund
Fund
XIXXIX
5.5%
5.5%
0.00%
0.00%
5.53%
5.53%
6.50%
6.50%
6.47%
6.47%
6.47%
6.47%
AEIAEI
NetNet
Lease
Lease
Income
Income
& Growth
& Growth
Fund
Fund
XX XX
19.1%
19.1%
0.00%
0.00%
6.55%
6.55%
7.01%
7.01%
6.97%
6.97%
6.97%
6.97%
2.9%
2.9%
AEIAEI
NetNet
Lease
Lease
Income
Income
& Growth
& Growth
Fund
Fund
XXIXXI
0.00%
0.00%
6.17%
6.17%
6.76%
6.76%
6.82%
6.82%
6.82%
6.82%
Corporate
Corporate
Property
Property
Associates
Associates
14 14
10.3%
10.3% 88.15%
88.15%
5.38%
5.38%
8.09%
8.09%
6.48%
6.48%
6.48%
6.48%
Corporate
Corporate
Property
Property
Associates
Associates
15 15
8.0%
8.0%225.79%
225.79%
5.57%
5.57% 10.23%
10.23%
7.95%
7.95%
7.95%
7.95%
Corporate
Corporate
Property
Property
Associates
Associates
16 16
1.6%
1.6%243.68%
243.68%
6.55%
6.55% 17.68%
17.68%
8.10%
8.10%
8.10%
8.10%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
I I
26.8%
26.8%
0.00%
0.00%
7.86%
7.86%
8.03%
8.03%
7.96%
7.96%
7.96%
7.96%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
II II
27.6%
27.6%
0.00%
0.00%
6.48%
6.48%
6.48%
6.48%
6.42%
6.42%
6.42%
6.42%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
III III
25.7%
25.7%
0.00%
0.00%
7.04%
7.04%
7.27%
7.27%
7.20%
7.20%
7.20%
7.20%
DelDel
Taco
Taco
Restaurant
Restaurant
Properties
Properties
IV IV
21.3%
21.3%
0.00%
0.00%
6.21%
6.21%
6.34%
6.34%
6.27%
6.27%
6.27%
6.27%
DiVall
DiVall
Insured
Insured
Income
Income
Properties
Properties
2 2
4.2%
4.2%
0.00%
0.00%
6.75%
6.75%
8.06%
8.06%
8.04%
8.04%
7.59%
7.59%
Average
Average
12.9%
12.9%
7.1%
7.1%
7.1%
7.1%
Median
Median
9.2%
9.2%
6.9%
6.9%
6.9%
6.9%
-- 102
102 -The data
data in
in Tables
Tables 50
50 through
through 52
52 show
show that
that the
the discounts
discounts for
for triple-net
triple-net lease
lease partnerships
partnerships
The
had discounts
discounts ranging
ranging from
from aa premium
premium of
of 3.9
3.9 percent
percent to
to aa discount
discount of
of 40.4
40.4 percent.
percent.
had
Discounts for
for triple
triple net
net lease
lease real
real estate
estate investments
investments in
in 2010
2010 ranged
ranged between
between aa premium
premium
Discounts
of 3.9
3.9 percent
percent and
and aa discount
discount of
of 36.2
36.2 percent,
percent, with
with an
an averAge
averAge and
and median
median of
of 19.3
19.3 percent
percent
of
and 21.8
21.8 percent,
percent, respectively.
respectively. Since
Since 2008,
2008, discounts
discounts were
were as
as high
high as
as 40.4
40.4 percent
percent and
and
and
average and
and median
median discounts
discounts ranged
ranged between
between 9.2
9.2 percent
percent and
and 30.3
30.3 percent.
percent. Discounts
Discounts
average
from net
net asset
asset value
value in
in 2009,
2009, which
which considers
considers real
real estate
estate values
values as
as of
of the
the end
end of
of 2008
2008 and
and
from
prices as
as of
of March
March 2009,
2009, were
were considerably
considerably higher
higher due
due to
to market
market conditions
conditions at
at that
that time.
time.
prices
These conditions
conditions are
are considered
considered aberrations.
aberrations. The
The 2008
2008 and
and 2010
2010 markets
markets are
are likely
likely more
more
These
indicative of
of typical
typical discounts
discounts for
for companies
companies holding
holding triple
triple net
net lease
lease properties.
properties.
indicative
In selecting
selecting an
an appropriate
appropriate discount
discount for
for lack
lack of
of control
control for
for Vogue’s
Vogue’s operating
operating assets,
assets, we
we
In
looked at
at aa number
number of
of quantitative
quantitative and
and qualitative
qualitative factors.
factors. We
We noted
noted some
some tendency
tendency for
for
looked
RELPs with
with higher
higher gross
gross and
and net
net cash
cash flow
flow to
to trade
trade at
at lower
lower discounts
discounts from
from net
net asset
asset
RELPs
value, though
though the
the relationship
relationship was
was not
not consistently
consistently apparent
apparent between
between 2008
2008 and
and 2010.
2010.
value,
Nevertheless, we
we compared
compared Vogue’s
Vogue’s gross
gross and
and net
net cash
cash flow
flow returns
returns to
to those
those of
of the
the
Nevertheless,
RELPs, as
as shown
shown in
in Table
Table 53.
53.
RELPs,
TABLE 53
53
TABLE
VOGUE VS.
VS. RELPS
RELPS
VOGUE
GCF/NAV
GCF/NAV
NCF/NAV
NCF/NAV
2010
2010 TNL
TNL Median
Median
2009
2009 TNL
TNL Median
Median
2008
2008 TNL
TNL Median
Median
7.4%
7.4%
6.3%
6.3%
6.9%
6.9%
7.4%
7.4%
6.3%
6.3%
6.9%
6.9%
Vogue
Vogue 2009
2009
Five-Year
Five-Year Average
Average
9.9%
9.9%
10.1%
10.1%
4.8%
4.8%
8.7%
8.7%
-- 103
103 -Vogue
Vogue generally
generally was
was able
able to
to generate
generate aa higher
higher return
return on
on net
net asset
asset value,
value, aa measured
measured by
by
gross
gross and
and net
net cash
cash flow
flow than
than the
the RELPs,
RELPs, which
which would
would suggest
suggest aa lower
lower overall
overall discount.
discount.
However,
However, due
due to
to the
the lack
lack of
of consistency
consistency in
in the
the relationship
relationship between
between returns
returns on
on net
net asset
asset
value
value and
and discounts,
discounts, limited
limited consideration
consideration will
will be
be given
given to
to this
this factor.
factor.
Qualitatively,
Qualitatively, Vogue
Vogue isis unleveraged
unleveraged and
and isis larger
larger than
than many
many of
of the
the triple-net
triple-net lease
lease
partnerships.
partnerships. However,
However, an
an investor
investor would
would anticipate
anticipate that
that significant
significant capital
capital expenditures
expenditures
will
will be
be made
made in
in the
the near
near future
future in
in order
order to
to update
update the
the facilities.
facilities. This
This would
would increase
increase the
the
perceived
perceivedrisk
riskto
toan
aninvestor
investorin
inVogue.
Vogue.In
Inconsidering
consideringall
allthe
thefactors
factorsabove,
above,we
wedeemed
deemedaa
discount
discount of
of 20
20 percent
percent was
was appropriate
appropriate to
to apply
apply to
to Vogue’s
Vogue’s operating
operating assets.
assets.
DISCOUNT
DISCOUNTFOR
FORLACK
LACKOF
OFCONTROL
CONTROLAPPLICABLE
APPLICABLETO
TONON-OPERATING
NON-OPERATING
ASSETS
ASSETS
In
Indetermining
determiningthe
thelack
lackof
ofcontrol
controldiscount
discountapplicable
applicableto
toThe
TheCompany’s
Company’snon-operating
non-operatingand
and
excess
excess assets,
assets, we
we looked
looked at
at closed-end
closed-end mutual
mutual funds
funds (CEFs).
(CEFs). Hundreds
Hundreds of
of closed-end
closed-end
funds
fundsare
areavailable
availablefor
fornumerous
numerousinvestment
investmentoptions.
options.Prices
Pricespaid
paidfor
forpublicly-traded
publicly-tradedshares
shares
in
in aa CEF
CEF represent
represent minority
minority interests
interests in
in fully
fully marketable
marketable securities.
securities. Therefore,
Therefore, ifif the
the net
net
asset
assetvalue
valueof
ofaaCEF
CEFcan
canbe
bedetermined
determinedand
andcompared
comparedwith
withthe
thefreely-traded
freely-tradedprice
priceof
ofthe
the
fund,
fund,ititcan
canbe
bedetermined
determinedwhen
whenand
andunder
underwhat
what conditions
conditionsthe
themarket
marketaffords
affordsaadiscount
discount
(or
(or premium)
premium) to
to the
the net
net asset
asset value
value of
of aa minority
minority interest.
interest.
Unlike
Unlikeopen-end
open-endmutual
mutualfunds,
funds,CEFs
CEFsissue
issueaafixed
fixednumber
numberof
ofshares.
shares.Therefore,
Therefore,investors
investors
must
must buy
buy shares
shares from
from other
other investors,
investors, not
not the
the fund
fund itself.
itself. These
These CEFs
CEFs mirror
mirror the
the
motivations
motivations of
of buyers
buyers and
and sellers,
sellers, and
and offer
offer empirical
empirical evidence
evidence for
for determination
determination of
of the
the
appropriate
appropriate magnitude
magnitude of
of the
the minority
minority interest
interest discount
discount to
to be
be applied.
applied.
-- 104
104 -As
As previously
previously discussed,
discussed, the
the portfolio
portfolio of
of The
The Company
Company consists
consists of
of several
several types
types of
of
instruments.
instruments. Vogue’s
Vogue’s excess
excess and
and non-operating
non-operating assets
assets are
are summarized
summarized as
as follows:
follows:
Asset
Asset
Market
Market Value
Value
Cash
Cash
$$
%
% of
of
Net
Net Assets
Assets
6,885,650
6,885,650
26.8%
26.8%
1,772,545
1,772,545
6.9%
6.9%
14,271,283
14,271,283
55.5%
55.5%
1,421,833
1,421,833
5.5%
5.5%
Marketable
Marketable Securities-Municipal
Securities-Municipal Bonds
Bonds
500,000
500,000
1.9%
1.9%
Marketable
Marketable Securities-Corporate
Securities-Corporate Bonds
Bonds
851,424
851,424
3.3%
3.3%
25,702,735
25,702,735
100.0%
100.0%
Related
Related Party
Party Loans
Loans
Marketable
Marketable Securities-Domestic
Securities-Domestic Equities
Equities
Marketable
Marketable Securities-International
Securities-International Equities
Equities
Total
Total
$$
We
We located
located information
information about
about CEFs
CEFs as
as of
of March
March 26,
26, 2010
2010 in
in the
the March
March 29,
29, 2010
2010 issue
issue of
of
Barron’s.
Barron’s. These
These funds
funds contain
contain investments
investments that
that are
are similar
similar to
to some
some of
of the
the categories
categories of
of
assets
assets owned
owned by
by The
The Company.
Company.
We
Weselected
selectedclosed-end
closed-endfunds
fundsbased
basedon
onthe
thesimilarities
similaritiesbetween
betweentheir
theirinvestment
investmentfocus
focusand
and
that
thatof
ofeach
eachof
ofVogue’s
Vogue’sinvestment
investmentgroups.
groups.Details
Detailsregarding
regardingthe
theCEFs
CEFsused
usedin
inour
ouranalysis
analysis
are
are presented
presented in
in Tables
Tables 54
54 through
through 57.
57.
General
General equity
equity funds
funds invest
invest primarily
primarily in
in domestic
domestic equity
equity securities.
securities. These
These funds
funds are
are
presented
presented in
in Table
Table 54.
54.
TABLE
TABLE 54
54
U.S.
U.S. GENERAL
GENERAL EQUITY
EQUITY FUNDS
FUNDS
NAV/Share
NAV/Share
Price/Share
Price/Share
Discount
Discount
Adams
Adams Express
Express (ADX)
(ADX)
12.51
12.51
10.56
10.56
-15.6%
-15.6%
AdvntClymrEnhG&I
AdvntClymrEnhG&I (LCM)
(LCM)
12.35
12.35
11.57
11.57
-6.3%
-6.3%
BlackRock
BlackRock Div
Div Achvrs
Achvrs (BDV)
(BDV)
9.82
9.82
9.08
9.08
-7.5%
-7.5%
BlckRk
BlckRk Str
Str Div
Div Achvr
Achvr (BDT)
(BDT)
10.86
10.86
9.56
9.56
-12.0%
-12.0%
- 105 TABLE 54
U.S. GENERAL EQUITY FUNDS
NAV/Share
Price/Share
Discount
Blue Chip Value Fd (BLU)
3.88
3.31
-14.7%
Boulder Growth &Income (BIF)
7.29
6.39
-12.3%
Boulder Tot Rtn (BTF)
17.7
14.92
-15.7%
Central Secs (CET)
23.71
19.75
-16.7%
DrmnClayDivInco (DCS)
16.42
13.94
-15.1%
CohenStrsCEOppFd (FOF)
13.64
12.51
-8.3%
CohenStrsDivMaj (DVM)
13.23
11.19
-15.4%
CornerstoneProgreRet (CFP)
6.04
7.21
19.4%
Cornerstone Str Val (CLM)
8.16
11.38
39.5%
Cornerstone Total Return (CRF)
7.13
10.4
45.9%
DenaliFund (DNY)
17.84
15.71
-11.9%
DWSDremanValueIncomeEdge (DHG)
14.73
12.94
-12.2%
7.63
6.39
-16.3%
17.11
16.03
-6.3%
EAgle Capital Growth (GRF)
EVTxAdvDivIncm (EVT)
Engex (EGX)
4.15
4.15
0.0%
Foxby Corp (FXBY)
1.69
1.12
-33.7%
GabelliDiv&IncTr (GDV)
15.94
13.7
-14.1%
Gabelli Equity Tr (GAB)
5.31
5.08
-4.3%
General American (GAM)
28.89
24.66
-14.6%
JHancockTaxAdvDiv (HTD)
15.06
14.03
-6.8%
Librty AllStr Eq (USA)
5.41
4.75
-12.2%
Librty AllStr Gr (ASG)
4.21
3.73
-11.4%
NuvTaxAdvTRStrat (JTA)
11.93
11.56
-3.1%
OldMut/ClayLS (OLA)
9.29
8.75
-5.8%
RENN Glbl Entrepreneurs (RCG)
3.98
2.6
-34.7%
Royce Focus Trust (FUND)
7.41
6.64
-10.4%
Royce Micro-Cap Tr (RMT)
9.61
8.19
-14.8%
Royce Value Trust (RVT)
13.89
11.77
-15.3%
Source Capital (SOR)
52.78
45.73
-13.4%
SunAmericaFocAlphAgr (FGF)
15.88
14.4
-9.3%
SunAmericaFocAlphaLC (FGI)
15.31
14.14
-7.6%
Tri-Continental (TY)
14.47
12.26
-15.3%
3.83
3.5
-8.6%
Zweig (ZF)
Average
-8.6%
Median
-12.0%
106
--- 106
106 --As
can
be
seen
the
data
Table
54,
U.S.
General
Equity
Funds
were
trading
at
average
As
Ascan
canbe
beseen
seeninin
inthe
thedata
datainin
inTable
Table54,
54,U.S.
U.S.General
GeneralEquity
EquityFunds
Fundswere
weretrading
tradingat
ataverage
average
and
median
discounts
of
8.6
and
12.0
percent,
respectively,
as
of
March
31,
2010.
and
andmedian
mediandiscounts
discountsof
of8.6
8.6and
and12.0
12.0percent,
percent,respectively,
respectively,as
asof
ofMarch
March31,
31,2010.
2010.
We
also
examined
CEFs
invested
international
equity
securities.
These
funds
are
We
We also
also examined
examined CEFs
CEFs invested
invested inin
in international
international equity
equity securities.
securities. These
These funds
funds are
are
presentedinin
inTable
Table55.
55.
presented
presented
Table
55.
TABLE55
55
TABLE
TABLE
55
INTERNATIONALEQUITY
EQUITY
INTERNATIONAL
INTERNATIONAL
EQUITY
NAV/Share
Price/Share
NAV/Share
NAV/Share Price/Share
Price/Share
AbrdnAusEq
(IAF)
AbrdnAusEq
AbrdnAusEq(IAF)
(IAF)
AlpineGlobDynamicDiv
(AgD)
AlpineGlobDynamicDiv
AlpineGlobDynamicDiv(AgD)
(AgD)
AlpineTotalDynDivFun
(AOD)
AlpineTotalDynDivFun
AlpineTotalDynDivFun(AOD)
(AOD)
AsiaPacFd
(APB)
AsiaPacFd
AsiaPacFd(APB)
(APB)
Asia
Tigers
(GRR)
Asia
AsiaTigers
Tigers(GRR)
(GRR)
BlckRk
S&P
Qual
Rnk
Gl
(BQY)
BlckRk
BlckRkS&P
S&PQual
QualRnk
RnkGl
Gl(BQY)
(BQY)
Calamos
GloDynInc
(CHW)
Calamos
CalamosGloDynInc
GloDynInc(CHW)
(CHW)
CalamosGlbTotRet
(CGO)
CalamosGlbTotRet
CalamosGlbTotRet(CGO)
(CGO)
Cdn
Genl
Inv
(CGI)
Cdn
CdnGenl
GenlInv
Inv(CGI)
(CGI)
Cdn
Wrld
Fd
Ltd
(T.CWF)
Cdn
CdnWrld
WrldFd
FdLtd
Ltd(T.CWF)
(T.CWF)
Central
Europe
&Russia
(CEE)
Central
CentralEurope
Europe&Russia
&Russia(CEE)
(CEE)
Chile
(CH)
Chile
Chile(CH)
(CH)
China
(CHN)
China
China(CHN)
(CHN)
CloughGlobAlloc
(GLV)
CloughGlobAlloc
CloughGlobAlloc(GLV)
(GLV)
CloughGlobalEquity
(GLQ)
CloughGlobalEquity
CloughGlobalEquity(GLQ)
(GLQ)
CloughGlobalOpprty
(GLO)
CloughGlobalOpprty
CloughGlobalOpprty(GLO)
(GLO)
Delaware
Enh
Gl
Div
&In
(DEX)
Delaware
DelawareEnh
EnhGl
GlDiv
Div&In
&In(DEX)
(DEX)
EV
TxAdvGlbDivInc
(ETG)
EV
EVTxAdvGlbDivInc
TxAdvGlbDivInc(ETG)
(ETG)
EtnVncTxAdvOpp
(ETO)
EtnVncTxAdvOpp
EtnVncTxAdvOpp(ETO)
(ETO)
Economic
Inv
Tr
(EVT.T)
Economic
EconomicInv
InvTr
Tr(EVT.T)
(EVT.T)
11.89
11.89
11.89
7.18
7.18
7.18
6.72
6.72
6.72
10.86
10.86
10.86
20.23
20.23
20.23
14.16
14.16
14.16
9.11
9.11
9.11
35.25
35.25
35.25
17.71
17.71
17.71
-11.0%
-11.0%
-11.0%
-2.8%
-2.8%
-2.8%
16.1
16.1
16.1
14.5
14.5
14.5
14.38
14.38
14.38
12.97
12.97
12.97
-10.7%
-10.7%
-10.7%
-10.6%
-10.6%
-10.6%
21.74
21.74
21.74
84.29
84.29
84.29
20.69
20.69
20.69
62.02
62.02
62.02
-4.8%
-4.8%
-4.8%
-26.4%
-26.4%
-26.4%
30.39
30.39
30.39
16.72
16.72
16.72
12.42
12.42
12.42
14.66
14.66
14.66
10.72
10.72
10.72
20.54
20.54
20.54
The
Ibero-America
Fund
(SNF)
The
TheIbero-America
Ibero-AmericaFund
Fund(SNF)
(SNF)
-6.9%
-6.9%
-6.9%
-12.7%
-12.7%
-12.7%
4.89
4.89
4.89
39.62
39.62
39.62
18.22
18.22
18.22
14.74
14.74
14.74
20.58
20.58
20.58
FT
Active
Div
Inc
Fd
(FAV)
FT
FTActive
ActiveDiv
DivInc
IncFd
Fd(FAV)
(FAV)
FirstTrAbEmergOp
(FEO)
FirstTrAbEmergOp
FirstTrAbEmergOp(FEO)
(FEO)
GreaterChinaFund
(GCH)
GreaterChinaFund
GreaterChinaFund(GCH)
(GCH)
Herzfeld
Caribb
(CUBA)
Herzfeld
HerzfeldCaribb
Caribb(CUBA)
(CUBA)
18.84
18.84
18.84
12.36
12.36
12.36
33.8%
33.8%
33.8%
-9.8%
-9.8%
-9.8%
-11.9%
-11.9%
-11.9%
1.4%
1.4%
1.4%
19.11
19.11
19.11
7.6
7.6
7.6
Gabelli
Global
Deal
(GDL)
Gabelli
GabelliGlobal
GlobalDeal
Deal(GDL)
(GDL)
GlbInc&Currency
(GCF)
GlbInc&Currency
GlbInc&Currency(GCF)
(GCF)
8.99
8.99
8.99
9.8
9.8
9.8
3.7%
3.7%
3.7%
45.5%
45.5%
45.5%
8.03
8.03
8.03
14.95
14.95
14.95
Emer
Mkts
Tel
(ETF)
Emer
EmerMkts
MktsTel
Tel(ETF)
(ETF)
European
Equity
Fund
Inc
(EEA)
European
EuropeanEquity
EquityFund
FundInc
Inc(EEA)
(EEA)
Evergreen
Glbl
Div
Oppty
(EOD)
Evergreen
EvergreenGlbl
GlblDiv
DivOppty
Oppty(EOD)
(EOD)
First
Israel
(ISL)
First
FirstIsrael
Israel(ISL)
(ISL)
12.33
12.33
12.33
10.45
10.45
10.45
Discount
Discount
Discount
10.49
10.49
10.49
17.83
17.83
17.83
15.62
15.62
15.62
15.65
15.65
15.65
14.25
14.25
14.25
6.8
6.8
6.8
7.3
7.3
7.3
16.1
16.1
16.1
3.34
3.34
3.34
27.49
27.49
27.49
15.78
15.78
15.78
12.3
12.3
12.3
13.86
13.86
13.86
16.68
16.68
16.68
6.5
6.5
6.5
10.6
10.6
10.6
16.14
16.14
16.14
13.58
13.58
13.58
19.04
19.04
19.04
14.29
14.29
14.29
14.45
14.45
14.45
11.9
11.9
11.9
6.52
6.52
6.52
6.54
6.54
6.54
-21.8%
-21.8%
-21.8%
-31.7%
-31.7%
-31.7%
-9.5%
-9.5%
-9.5%
-5.6%
-5.6%
-5.6%
-1.0%
-1.0%
-1.0%
-5.5%
-5.5%
-5.5%
-12.7%
-12.7%
-12.7%
-14.5%
-14.5%
-14.5%
1.0%
1.0%
1.0%
-9.5%
-9.5%
-9.5%
26.7%
26.7%
26.7%
-7.3%
-7.3%
-7.3%
-8.5%
-8.5%
-8.5%
-7.7%
-7.7%
-7.7%
-16.5%
-16.5%
-16.5%
-4.1%
-4.1%
-4.1%
-10.4%
-10.4%
-10.4%
- 107 - 107 TABLE 55
TABLE 55 EQUITY
INTERNATIONAL
INTERNATIONAL EQUITY
NAV/Share Price/Share
Discount
NAV/Share Price/Share
Discount
India Fund (IFN)
India Fund (IFN)
Indonesia (IF)
Indonesia (IF)
ING Infr, Indus and Matr (IDE)
ING Infr, Indus and Matr (IDE)
JHancockTaxAdv Gl Sh Yld (HTY)
JHancockTaxAdv Gl Sh Yld (HTY)
Japan Equity (JEQ)
Japan Equity (JEQ)
Japan Smaller Cap (JOF)
Japan Smaller Cap (JOF)
JF China Region Fund (JFC)
JF China Region Fund (JFC)
Korea Equity (KEF)
Korea Equity (KEF)
Korea (KF)
Korea (KF)
Latin Amer Eq (LAQ)
Latin Amer Eq (LAQ)
LatAmDiscy (LDF)
LatAmDiscy (LDF)
LazardGlbTotRetInc (LGI)
LazardGlbTotRetInc (LGI)
LazardWorldDiv&IncFd (LOR)
LazardWorldDiv&IncFd (LOR)
MalaysaFd (MAY)
MalaysaFd (MAY)
MexicoEqandIncmFd (MXE)
MexicoEqandIncmFd (MXE)
Mexico (MXF)
Mexico (MXF)
MS Asia (APF)
MS Asia (APF)
MS ChinaShrFd (CAF)
MS ChinaShrFd (CAF)
MS EstEur (RNE)
MS EstEur (RNE)
MS EmgMkt (MSF)
MS EmgMkt (MSF)
Morg Stan Frontier Em Mk (FFD)
Morg Stan Frontier Em Mk (FFD)
MS India (IIF)
MS India (IIF)
New Germany (GF)
New Germany (GF)
New Ireland (IRL)
New Ireland (IRL)
Nich-App Gl Eq &Cnv Inc (NGZ)
Nich-App Gl Eq &Cnv Inc (NGZ)
NuveenGlblValOptyFd (JGV)
NuveenGlblValOptyFd (JGV)
Singapore (SGF)
Singapore (SGF)
Swiss Helvetia (SWZ)
Swiss Helvetia (SWZ)
Taiwan (TWN)
Taiwan (TWN)
Taiwan Greater China (TFC)
Taiwan Greater China (TFC)
Templeton DrAgon (TDF)
Templeton DrAgon (TDF)
Templeton Em Mkt (EMF)
Templeton Em Mkt (EMF)
Templeton Russia &E Eur (TRF)
Templeton Russia &E Eur (TRF)
ThaiFd (TTF)
ThaiFd (TTF)
Third Canadian (THD)
Third Canadian (THD)
TurkishFd (TKF)
TurkishFd (TKF)
United Corps Ltd (UNC.T)
United Corps Ltd (UNC.T)
Average
Average
Median
Median
34.12
34.12
11.64
11.64
20.24
20.24
12.4
12.4
6.43
6.43
8.7
8.7
14.88
14.88
10.65
10.65
40.4
40.4
43.2
43.2
17.98
17.98
17.41
17.41
13.29
13.29
9.79
9.79
10.51
10.51
28.33
28.33
17.51
17.51
29.19
29.19
18.33
18.33
15.02
15.02
13.48
13.48
25.36
25.36
14.71
14.71
8.46
8.46
16.19
16.19
18.74
18.74
14.84
14.84
13.7
13.7
15.77
15.77
6.84
6.84
28.76
28.76
20.11
20.11
20.16
20.16
11.45
11.45
36.3
36.3
15.28
15.28
67.24
67.24
31.17
31.17
10.77
10.77
20
20
13.02
13.02
5.83
5.83
8.75
8.75
13.15
13.15
9.4
9.4
35.97
35.97
39.31
39.31
16.72
16.72
15.51
15.51
12.2
12.2
8.38
8.38
9.09
9.09
25.19
25.19
14.99
14.99
27.45
27.45
16.22
16.22
13.81
13.81
12.04
12.04
23.1
23.1
12.57
12.57
7.31
7.31
14.76
14.76
18.73
18.73
13.16
13.16
11.67
11.67
13.83
13.83
6.3
6.3
25.55
25.55
19.41
19.41
20.15
20.15
9.62
9.62
28.77
28.77
13.71
13.71
48.75
48.75
-8.6%
-8.6%
-7.5%
-7.5%
-1.2%
-1.2%
5.0%
5.0%
-9.3%
-9.3%
0.6%
0.6%
-11.6%
-11.6%
-11.7%
-11.7%
-11.0%
-11.0%
-9.0%
-9.0%
-7.0%
-7.0%
-10.9%
-10.9%
-8.2%
-8.2%
-14.4%
-14.4%
-13.5%
-13.5%
-11.1%
-11.1%
-14.4%
-14.4%
-6.0%
-6.0%
-11.5%
-11.5%
-8.1%
-8.1%
-10.7%
-10.7%
-8.9%
-8.9%
-14.5%
-14.5%
-13.6%
-13.6%
-8.8%
-8.8%
-0.1%
-0.1%
-11.3%
-11.3%
-14.8%
-14.8%
-12.3%
-12.3%
-7.9%
-7.9%
-11.2%
-11.2%
-3.5%
-3.5%
0.0%
0.0%
-16.0%
-16.0%
-20.7%
-20.7%
-10.3%
-10.3%
-27.5%
-27.5%
-7.7%
-7.7%
-9.5%
-9.5%
-- 108
108 -The
The average
average and
and median
median discounts
discounts of
of the
the international
international equity
equity CEFs
CEFs were
were 7.7
7.7 and
and 9.5
9.5
percent,
percent,respectively.
respectively.
The
The Company’s
Company’s municipal
municipal bonds
bonds have
have no
no single
single state
state concentration.
concentration. Thus,
Thus, we
we used
used
national
national bond
bond funds
funds invested
invested inin municipal
municipal debt
debt issued
issued throughout
throughout the
the U.S.
U.S. This
This data
data isis
presented
presentedininTable
Table56.
56.
TABLE
TABLE56
56
NATIONAL
NATIONALMUNICIPAL
MUNICIPALBOND
BONDFUNDS
FUNDS
NAV/Share
NAV/Share
AllBerNatlMunInc
AllBerNatlMunInc(AFB)
(AFB)
Price/Share
Price/Share
Discount
Discount
13.9
13.9
13.91
13.91
0.1%
0.1%
13.83
13.83
14.43
14.43
4.3%
4.3%
9.05
9.05
8.91
8.91
-1.5%
-1.5%
BlckRk
BlckRkIns
InsMuni
MuniInc
Inc(BYM)
(BYM)
13.95
13.95
14.04
14.04
0.6%
0.6%
BlckRk
BlckRkIns
InsMuni
MuniInc
IncInv
Inv(BAF)
(BAF)
14.26
14.26
14.21
14.21
-0.4%
-0.4%
BlckRk
BlckRkIns
InsMuni
Muni(BMT)
(BMT)
10.13
10.13
10.04
10.04
-0.9%
-0.9%
BlckRk
BlckRkInv
InvQual
QualMuni
MuniInc
Inc(RFA)
(RFA)
11.99
11.99
12.4
12.4
3.4%
3.4%
Amer
AmerMuni
MuniIncome
Income(XAA)
(XAA)
BR
BRApexMuni
ApexMuniFd
Fd(APX)
(APX)
BlckRk
BlckRkInv
InvQQMun
Mun(BKN)
(BKN)
13.37
13.37
13.86
13.86
3.7%
3.7%
BlckRk
BlckRkL-T
L-TMuni
MuniAdv
Adv(BTA)
(BTA)
11.07
11.07
10.42
10.42
-5.9%
-5.9%
BR
BRMu
MuInDur
InDur(MUI)
(MUI)
14.55
14.55
13.97
13.97
-4.0%
-4.0%
BR
BRMuniNY
MuniNYIntDu
IntDu(MNE)
(MNE)
14
14
12.7
12.7
-9.3%
-9.3%
BRMHInsurInv
BRMHInsurInv(MFL)
(MFL)
13.89
13.89
13.34
13.34
-4.0%
-4.0%
BlckRk
BlckRkMuni
Muni2018
2018(BPK)
(BPK)
14.59
14.59
15.5
15.5
6.2%
6.2%
BlackRock
BlackRockMuni
Muni2020
2020(BKK)
(BKK)
14.29
14.29
14.95
14.95
4.6%
4.6%
BlckRk
BlckRkMun
MunBd
BdInv
Inv(BIE)
(BIE)
14.6
14.6
14.11
14.11
-3.4%
-3.4%
BlackRock
BlackRockMun
MunBd
Bd(BBK)
(BBK)
14.21
14.21
14.6
14.6
2.7%
2.7%
BlackRock
BlackRockMuni
Muni(BFK)
(BFK)
12.99
12.99
13.5
13.5
3.9%
3.9%
BlackRock
BlackRockMuni
MuniIIII(BLE)
(BLE)
13.74
13.74
13.55
13.55
-1.4%
-1.4%
BlckRk
BlckRkMun
MunInc
IncInv
Inv(BBF)
(BBF)
13.55
13.55
13.36
13.36
-1.4%
-1.4%
BR
BRMuniAssets
MuniAssetsFd
Fd(MUA)
(MUA)
12.42
12.42
12.37
12.37
-0.4%
-0.4%
BR
BRMuniEnhanced
MuniEnhanced(MEN)
(MEN)
10.75
10.75
10.47
10.47
-2.6%
-2.6%
BR
BRMuniHoldng2
MuniHoldng2(MUH)
(MUH)
14.36
14.36
14.13
14.13
-1.6%
-1.6%
BR
BRMH
MHInsured
Insured(MUS)
(MUS)
13.15
13.15
13.21
13.21
0.5%
0.5%
BR
BRMH
MHInsured2
Insured2(MUE)
(MUE)
13.28
13.28
13.2
13.2
-0.6%
-0.6%
BR
BRMH
MHNY
NYInsur
Insur(MHN)
(MHN)
14.22
14.22
13.89
13.89
-2.3%
-2.3%
BR
BRMuniHoldngs
MuniHoldngs(MHD)
(MHD)
15.43
15.43
15.05
15.05
-2.5%
-2.5%
BR
BRMuniVest
MuniVestFd
Fd(MVF)
(MVF)
9.44
9.44
9.27
9.27
-1.8%
-1.8%
BR
BRMuniVest
MuniVest22(MVT)
(MVT)
14.11
14.11
14.32
14.32
1.5%
1.5%
BR
BRMuniYield
MuniYieldFd
Fd(MYD)
(MYD)
13.57
13.57
13.45
13.45
-0.9%
-0.9%
- 109
- 109 TABLE
5656
TABLE
NATIONAL
MUNICIPAL
BOND
NATIONAL MUNICIPAL
BONDFUNDS
FUNDS
NAV/Share
NAV/Share
Price/Share
Price/Share
BR MuniYield
(MQY)
BR MuniYield
Qlty Qlty
(MQY)
BR MuniYld
(MQT)
BR MuniYld
Qlty2Qlty2
(MQT)
BRMuniYldInsurInv
(MFT)
BRMuniYldInsurInv
(MFT)
BR
MuniYldInv
(MYF)
BR MuniYldInv (MYF)
BlckRk
NYMuni
Ins Muni
Inc (BSE)
BlckRk
NY Ins
Inc (BSE)
BlckRk
Str Muni
(BSD)
BlckRk
Str Muni
(BSD)
Del Inv Natl Muni Income (VFL)
Del Inv Natl Muni Income (VFL)
Dreyfus Income (DMF)
Dreyfus Income (DMF)
Dreyfus Str Muni (DSM)
Dreyfus Str Muni (DSM)
Dreyfus St Munis (LEO)
Dreyfus St Munis (LEO)
DTF Tax-Free Income (DTF)
DTF Tax-Free Income (DTF)
DWSMuni Inc (KTF)
DWSMuni Inc (KTF)
DWS Strat Mun (KSM)
DWS Strat Mun (KSM)
Eaton Vance MA Muni Bd (MAB)
EatonEVMuniBd
Vance MA(EIM)
Muni Bd (MAB)
EVMuniBd
(EIM) (EIV)
EVMuniBdII
EVMuniBdII
(EIV) (EVN)
EVMuniIncm
EVMuniIncm
(EVN) (EOT)
EVNatMuniOpp
EVNatMuniOpp
(EOT)
Eaton Vance
NY Muni Bd (ENX)
EatonEaton
Vance
NY
Muni
Bd (ENX)
Vance NY Muni
Bd 2 (NYH)
Vance
OH Muni
(EIO)
EatonEaton
Vance
NY Muni
Bd 2Bd
(NYH)
EatonFedPremIntMuInc
Vance OH Muni (FPT)
Bd (EIO)
FedPremMuInc
(FMN)
FedPremIntMuInc (FPT)
MFS HgIncMuniTr
FedPremMuInc
(FMN) (CXE)
HgYldMuniTr
(CMU)
MFS MFS
HgIncMuniTr
(CXE)
MFS
Inv
Gr
(CXH)
MFS HgYldMuniTr (CMU)
Muni
Inco (MFM)
MFS MFS
Inv Gr
(CXH)
MS Ins Bd (IMC)
MFS Muni Inco (MFM)
MS Ins Mun Inc (IIM)
MS Ins Bd (IMC)
MS Ins Sec (IMS)
MS Ins Mun Inc (IIM)
MS Ins Tr (IMT)
MS Ins Sec (IMS)
MS Muni Op II (OIB)
MS Ins Tr (IMT)
MS Muni Op III (OIC)
MS Muni Op II (OIB)
MS Muni Op (OIA)
MS Muni
Op IIIPrem
(OIC)
MS Muni
(PIA)
MS Muni
Op
(OIA)
MS Qual Inc (IQI)
MS Muni
PremInv
(PIA)
MS Qual
(IQT)
MS Qual
Inc (IQI)
MS Qual
Sec (IQM)
MS Qual Inv (IQT)
13.34
13.34
13.56
13.56
14.46
14.46
12.55
12.55
13.57
13.57
13.86
13.86
14.06
14.06
12.73
12.73
13.06
13.06
9.15
9.15
8.06
8.06
8.3
8.3
15.89
15.89
12.12
12.12
12.34
12.34
13.82
13.82
12.35
12.35
12.17
12.17
11.4
11.4
21.21
21.21
13.09
13.09
12.92
12.39
12.92
13.44
12.39
13.52
13.44
4.85
13.52
4.33
4.85
9.54
4.33
6.67
9.54
14.17
6.67
14.81
14.17
14.25
14.81
14.16
14.25
7.38
14.16
7.98
7.38
6.67
7.98
8.28
6.67
12.8
8.28
13.39
12.8
14.14
13.39
12.9
12.9
12.48
12.48
13.79
13.79
12.2
12.2
13.4
13.4
13.19
13.19
14.24
14.24
12.62
12.62
12.2
12.2
8.94
8.94
8.03
8.03
8.49
8.49
14.96
14.96
11.95
11.95
13
13
14.46
14.46
12.85
12.85
13.6
13.6
12.35
12.35
20.19
20.19
13.79
13.7914
13.34
14
13.4
13.34
14.94
13.4
4.96
14.94
4.53
4.96
9.44
4.53
6.77
9.44
13.34
6.77
14.11
13.34
13.57
14.11
13.7
13.57
6.99
13.7
7.6
6.99
6.34
7.6
8.06
6.34
12.59
8.06
13.08
12.59
13.45
13.08
-3.3%
-3.3%
-8.0%
-8.0%
-4.6%
-4.6%
-2.8%
-2.8%
-1.3%
-1.3%
-4.8%
-4.8%
1.3%
1.3%
-0.9%
-0.9%
-6.6%
-6.6%
-2.3%
-2.3%
-0.4%
-0.4%
2.3%
2.3%
-5.9%
-5.9%
-1.4%
-1.4%
5.3%
5.3%
4.6%
4.6%
4.0%
4.0%
11.8%
11.8%
8.3%
8.3%
-4.8%
-4.8%
5.3%
5.3%
8.4%
7.7%
8.4%
-0.3%
7.7%
10.5%
-0.3%
2.3%
10.5%
4.6%
2.3%
-1.0%
4.6%
1.5%
-1.0%
-5.9%
1.5%
-4.7%
-5.9%
-4.8%
-4.7%
-3.2%
-4.8%
-5.3%
-3.2%
-4.8%
-5.3%
-4.9%
-4.8%
-2.7%
-4.9%
-1.6%
-2.7%
-2.3%
-1.6%
-4.9%
-2.3%
MS Qual Sec (IQM)
14.14
13.45
-4.9%
BR MuniYld
InsurInsur
(MYI)
BR MuniYld
(MYI)
BR MuniYld
NY Insur
(MYN)
BR MuniYld
NY Insur
(MYN)
Discount
Discount
- 110 - 110 TABLE 56
TABLE 56 BOND FUNDS
NATIONAL MUNICIPAL
NATIONAL MUNICIPAL BOND FUNDS
NeubrgrBrmCA (NBW)
NeubrgrBrmCA
NeubrgrBrm (NBW)
(NBH)
NeubrgrBrm
(NBH) (NBO)
NeubrgeBrmNY
NeubrgeBrmNY
(NBO)(NAD)
Nuveen Div Advtg
Nuveen
Advtg
(NAD)
Nuv Div Adv
2 (NXZ)
NuvNuv
Div Div
AdvAdv
2 (NXZ)
3 (NZF)
NuvNuveen
Div AdvEnh
3 (NZF)
Muni Val (NEV)
Nuveen
Enh Muni Val (NEV)
NuvInsDivdAdvMu
(NVG)
Nuveen Ins MA (NVG)
TF Adv (NGX)
NuvInsDivdAdvMu
Nuveen
(NIO)
Nuveen
Ins Ins
MA Opp
TF Adv
(NGX)
NuvInsNYDivdAdvMu
Nuveen
Ins Opp (NIO) (NKO)
Nuveen Ins NY (NNF)
NuvInsNYDivdAdvMu
(NKO)
Nuveen
TF Adv (NRK)
Nuveen
Ins Ins
NY NY
(NNF)
Nuveen
Ins
Pr
2
(NPX)
Nuveen Ins NY TF Adv
(NRK)
NuvInsTxFAdvMu
(NEA)
Nuveen Ins Pr 2 (NPX)
Nuveen Ins Qual
(NQI)
NuvInsTxFAdvMu
(NEA)
Nuveen
Qual
(NQM)
Nuveen
Ins Inv
Qual
(NQI)
Nuveen
Muni
Adv
(NMA)
Nuveen Inv Qual (NQM)
NuvMuniHiIncOpp
(NMZ)
Nuveen
Muni Adv (NMA)
NuvMunHIOppZ(NMZ)
(NMD)
NuvMuniHiIncOpp
Nuveen Muni (NMD)
Inc (NMI)
NuvMunHIOppZ
Nuveen
Muni
Mkt
(NMO)
Nuveen Muni Inc (NMI)
Nuveen
Muni
(NUV)
Nuveen
Muni
MktVal
(NMO)
Nuveen Muni Value 2 (NUW)
Nuveen Muni Val (NUV)
Nuveen NY Inv (NQN)
Nuveen Muni Value 2 (NUW)
Nuveen NY Qual (NUN)
Nuveen NY Inv (NQN)
Nuveen NY Sel (NVN)
Nuveen NY Qual (NUN)
Nuveen Perf Plus (NPP)
Nuveen NY Sel (NVN)
Nuveen Pr (NPI)
Nuveen Perf Plus (NPP)
Nuveen Pr 2 (NPM)
Nuveen Pr (NPI)
Nuveen Pr 4 (NPT)
Nuveen Pr 2 (NPM)
Nuveen Pr Ins (NIF)
Nuveen Pr 4 (NPT)
Nuveen Pr Mun (NPF)
Nuveen Pr Ins (NIF)
Nuveen Qual (NQU)
Nuveen Pr Mun (NPF)
Nuveen Sel Mat (NIM)
Nuveen Qual (NQU)
Nuveen Sel Qual (NQS)
Nuveen Sel Mat (NIM)
Nuveen Sel TF (NXP)
Nuveen Sel Qual (NQS)
Nuveen Sel TF 2 (NXQ)
Nuveen Sel TF (NXP)
Nuveen Sel TF 3 (NXR)
Nuveen
SelMuniInc
TF 2 (NXQ)
PIMCO
(PMF)
Nuveen Sel TF 3 (NXR)
PIMCO MuniInc (PMF)
NAV/Share
Price/Share
NAV/Share
Price/Share
14.7
13.7
14.7
13.7
14.42
14.4
14.42
14.4
14.37
14.19
14.37
14.19
14.11
13.94
14.11
13.94
14.64
14.5
14.64
14.5
14.33
14.01
14.33
14.01
14.09
13.93
14.09
13.93
14.82
14.25
14.48
14.82
14.2516
14.41
13.89
14.48
16
14.87
13.8
14.41
13.89
15.05
13.85
14.87
13.8
14.91
13.92
15.05
13.85
13.09
12.72
14.91
13.92
14.5
14.34
13.09
12.72
13.92
14.27
14.5
14.34
14.51
14.15
13.92
14.27
14.19
14.37
14.51
14.15
11.59
12.81
14.19
14.37
11.35
12.32
11.59
12.81
10.54
11.05
11.35
12.32
13.77
14.19
10.54
11.05
9.59
9.82
13.77
14.19
16.21
16.24
9.59
9.82
14.84
14.35
16.21
16.24
14.89
13.83
14.84
14.35
15.11
13.88
14.89
13.83
14.72
14.33
15.11
13.88
13.9
13.72
14.72
14.33
14.38
13.69
13.9
13.72
12.74
12.51
14.38
13.69
14.52
14.39
12.74
12.51
14.11
13.36
14.52
14.39
14.36
14.14
14.11
13.36
10.23
10.49
14.36
14.14
14.24
14.64
10.23
10.49
14.24
14.7
14.24
14.64
13.59
13.8
14.24
14.7
14.09
14.27
13.59
13.8
11.52
13.63
14.09
14.27
11.52
13.63
Discount
Discount
-6.8%
-6.8%
-0.1%
-0.1%
-1.3%
-1.3%
-1.2%
-1.2%
-1.0%
-1.0%
-2.2%
-2.2%
-1.1%
-1.1%
-3.8%
10.5%
-3.8%
-3.6%
10.5%
-7.2%
-3.6%
-8.0%
-7.2%
-6.6%
-8.0%
-2.8%
-6.6%
-1.1%
-2.8%
2.5%
-1.1%
-2.5%
2.5%
1.3%
-2.5%
10.5%
1.3%
8.5%
10.5%
4.8%
8.5%
3.1%
4.8%
2.4%
3.1%
0.2%
2.4%
-3.3%
0.2%
-7.1%
-3.3%
-8.1%
-7.1%
-2.6%
-8.1%
-1.3%
-2.6%
-4.8%
-1.3%
-1.8%
-4.8%
-0.9%
-1.8%
-5.3%
-0.9%
-1.5%
-5.3%
2.5%
-1.5%
2.8%
2.5%
3.2%
2.8%
1.5%
3.2%
1.3%
1.5%
18.3%
1.3%
18.3%
- 111 -- 111
111 -TABLE 56
TABLE
TABLE56
56BOND FUNDS
NATIONAL MUNICIPAL
NATIONALMUNICIPAL
MUNICIPALBOND
BONDFUNDS
FUNDS
NATIONAL
PIMCOMuniIncII (PML)
PIMCOMuniIncII
PIMCOMuniIncII(PML)
(PML)
Pimco Muni III (PMX)
Pimco
PimcoMuni
MuniIIIIII(PMX)
(PMX)
PioneerHilncAdv (MAV)
PioneerHilncAdv
PioneerHilncAdv(MAV)
(MAV)
PioneerMunHiIcmT (MHI)
PioneerMunHiIcmT
PioneerMunHiIcmT(MHI)
(MHI)
Putnam Mgd Inc (PMM)
Putnam
PutnamMgd
MgdInc
Inc(PMM)
(PMM)
Putnam Muni Opp (PMO)
Putnam
PutnamMuni
MuniOpp
Opp(PMO)
(PMO)
VKAdvMuIncTrII (VKI)
VKAdvMuIncTrII
VKAdvMuIncTrII(VKI)
(VKI)
VKMuOppTr (VMO)
VKMuOppTr
VKMuOppTr(VMO)
(VMO)
VKMuTr (VKQ)
VKMuTr
VKMuTr(VKQ)
(VKQ)
VKSelSecMuTr (VKL)
VKSelSecMuTr
VKSelSecMuTr(VKL)
(VKL)
VKTrInsrMu (VIM)
VKTrInsrMu
VKTrInsrMu(VIM)
(VIM)
VKTrInvGrMu (VGM)
VKTrInvGrMu
VKTrInvGrMu(VGM)
(VGM)
Western Asset Int Muni (SBI)
Western
WesternAsset
AssetInt
IntMuni
Muni(SBI)
(SBI)
Western Asset Mgd Muni (MMU)
Western
WesternAsset
AssetMgd
MgdMuni
Muni(MMU)
(MMU)
Western Asset Mun Hi Inc (MHF)
Western
WesternAsset
AssetMun
MunHiHiInc
Inc(MHF)
(MHF)
WstAstMuniPrtnrs (MNP)
WstAstMuniPrtnrs
WstAstMuniPrtnrs(MNP)
(MNP)
Westn Asst Mu Def Opp Tr (MTT)
Westn
WestnAsst
AsstMu
MuDef
DefOpp
OppTrTr(MTT)
(MTT)
Average
Average
Average
Median
Median
Median
NAV/Share
NAV/Share
NAV/Share
10.43
10.43
10.43
9.66
9.66
9.66
12.23
12.23
12.23
13.69
13.69
13.69
7.26
7.26
7.26
11.8
11.8
11.8
11.73
11.73
11.73
13.18
13.18
13.18
13.14
13.14
13.14
11.64
11.64
11.64
13.12
13.12
13.12
13.77
13.77
13.77
9.65
9.65
9.65
12.82
12.82
12.82
7.53
7.53
7.53
14.6
14.6
14.6
21.52
21.52
21.52
Price/Share
Price/Share
Price/Share
11.1
11.1
11.1
10.95
10.95
10.95
13.11
13.11
13.11
14.34
14.34
14.34
7.15
7.15
7.15
11.41
11.41
11.41
12.16
12.16
12.16
13.99
13.99
13.99
13.7
13.7
13.7
12.2
12.2
12.2
13.29
13.29
13.29
14.17
14.17
14.17
9.42
9.42
9.42
12.68
12.68
12.68
7.47
7.47
7.47
13.71
13.71
13.71
21.55
21.55
21.55
Discount
Discount
Discount
6.4%
6.4%
6.4%
13.4%
13.4%
13.4%
7.2%
7.2%
7.2%
4.7%
4.7%
4.7%
-1.5%
-1.5%
-1.5%
-3.3%
-3.3%
-3.3%
3.7%
3.7%
3.7%
6.1%
6.1%
6.1%
4.3%
4.3%
4.3%
4.8%
4.8%
4.8%
1.3%
1.3%
1.3%
2.9%
2.9%
2.9%
-2.4%
-2.4%
-2.4%
-1.1%
-1.1%
-1.1%
-0.8%
-0.8%
-0.8%
-6.1%
-6.1%
-6.1%
0.1%
0.1%
0.1%
0.0%
0.0%
0.0%
-1.0%
-1.0%
-1.0%
Based on the data in Table 56, the National Municipal Bond Funds exhibited an average
Based
Basedon
onthe
thedata
dataininTable
Table56,
56,the
theNational
NationalMunicipal
MunicipalBond
BondFunds
Fundsexhibited
exhibitedan
anaverage
average
discount of zero percent and a median discount of 1.0 percent.
discount
discountofofzero
zeropercent
percentand
andaamedian
mediandiscount
discountofof1.0
1.0percent.
percent.
Finally, we examined CEFs invested in investment grade bonds. This data is provided in
Finally,
Finally,we
weexamined
examinedCEFs
CEFsinvested
investedinininvestment
investmentgrade
gradebonds.
bonds.This
Thisdata
dataisisprovided
providedinin
Table 57.
Table57.
57.
Table
TABLE 57
TABLE
57BOND FUNDS
TABLE
57
INVESTMENT
GRADE
INVESTMENTGRADE
GRADEBOND
BONDFUNDS
FUNDS
INVESTMENT
AllianceBernInc (ACG)
AllianceBernInc
AllianceBernInc(ACG)
(ACG)
BlRck Core Bond (BHK)
BlRck
BlRckCore
CoreBond
Bond(BHK)
(BHK)
BR Enhcd Govt (EGF)
BR
BREnhcd
EnhcdGovt
Govt(EGF)
(EGF)
BlackRock Income Opp (BNA)
BlackRock
BlackRockIncome
IncomeOpp
Opp(BNA)
(BNA)
EVLmtDurIncm (EVV)
EVLmtDurIncm
EVLmtDurIncm(EVV)
(EVV)
NAV/Share
NAV/Share
NAV/Share
8.49
8.49
8.49
12.86
12.86
12.86
16.77
16.77
16.77
10
10
10
16.38
16.38
16.38
Price/Share
Price/Share
Price/Share
8.12
8.12
8.12
12.17
12.17
12.17
16.5
16.5
16.5
9.48
9.48
9.48
15.89
15.89
15.89
Discount
Discount
Discount
-4.4%
-4.4%
-4.4%
-5.4%
-5.4%
-5.4%
-1.6%
-1.6%
-1.6%
-5.2%
-5.2%
-5.2%
-3.0%
-3.0%
-3.0%
112 --- 112
TABLE 57
57
TABLE
INVESTMENT GRADE
GRADE BOND
BOND FUNDS
FUNDS
INVESTMENT
NAV/Share
NAV/Share
NAV/Share
Federated
Enh
Treas
Inc
(FTT)
Federated
FederatedEnh
EnhTreas
TreasInc
Inc(FTT)
(FTT)
FtDearborn
DearbornInc
Inc
(FDI)
Ft
Ft
Dearborn
Inc(FDI)
(FDI)
JHan
Han
Income
(JHS)
JJ
HanIncome
Income(JHS)
(JHS)
Hartford
Income
(HSF)
Hartford
HartfordIncome
Income(HSF)
(HSF)
18.85
18.85
18.85
16.17
16.17
16.17
Price/Share
Price/Share
Price/Share
19.95
19.95
19.95
14.73
14.73
14.73
Discount
Discount
Discount
5.8%
5.8%
5.8%
-8.9%
-8.9%
-8.9%
13.8
13.8
13.8
6.2
6.2
6.2
13.71
13.71
13.71
5.67
5.67
5.67
-0.7%
-0.7%
-0.7%
-8.5%
-8.5%
-8.5%
MS
Income
Secs
(ICB)
MS
MSIncome
IncomeSecs
Secs(ICB)
(ICB)
PIMCOCorp
Corp
Opp
(PTY)
PIMCO
PIMCO
CorpOpp
Opp(PTY)
(PTY)
17.44
17.44
17.44
15.02
15.02
15.02
17.2
17.2
17.2
16.38
16.38
16.38
-1.4%
-1.4%
-1.4%
9.1%
9.1%
9.1%
VKBond(VBF)
(VBF)
VKBond
VKBond
(VBF)
WesternAsset
Asset
Income
(PAI)
Western
Western
AssetIncome
Income(PAI)
(PAI)
19.45
19.45
19.45
13.57
13.57
13.57
19.77
19.77
19.77
13.07
13.07
13.07
WstAstClymrInfLnkOpp(WIW)
(WIW)
WstAstClymrInfLnkOpp
WstAstClymrInfLnkOpp
(WIW)
WstAstClymrInfLnkSec
(WIA)
WstAstClymrInfLnkSec
WstAstClymrInfLnkSec(WIA)
(WIA)
12.93
12.93
12.93
12.83
12.83
12.83
MFSGovt
Govt
Mkts
(MGF)
MFS
MFS
GovtMkts
Mkts(MGF)
(MGF)
MFSIntmdt
Intmdt
(MIN)
MFS
MFS
Intmdt(MIN)
(MIN)
RivusBond
Bond
(BDF)
Rivus
Rivus
Bond(BDF)
(BDF)
TransamInco
(TAI)
TransamInco
TransamInco(TAI)
(TAI)
WstAstInftMgt
(IMF)
WstAstInftMgt
WstAstInftMgt(IMF)
(IMF)
WesternAssetPremBd
(WEA)
WesternAssetPremBd
WesternAssetPremBd(WEA)
(WEA)
Westn
Asst
IG
Def
Opp
Tr
(IGI)
Westn
WestnAsst
AsstIG
IGDef
DefOpp
OppTr
Tr(IGI)
(IGI)
Average
Average
Average
Median
Median
Median
7.18
7.18
7.18
6.78
6.78
6.78
19.03
19.03
19.03
22.08
22.08
22.08
7.66
7.66
7.66
6.9
6.9
6.9
6.7%
6.7%
6.7%
1.8%
1.8%
1.8%
17.12
17.12
17.12
22.64
22.64
22.64
-10.0%
-10.0%
-10.0%
2.5%
2.5%
2.5%
17.6
17.6
17.6
13
13
13
15.98
15.98
15.98
14.01
14.01
14.01
-9.2%
-9.2%
-9.2%
7.8%
7.8%
7.8%
20.57
20.57
20.57
20.31
20.31
20.31
11.83
11.83
11.83
12.08
12.08
12.08
1.6%
1.6%
1.6%
-3.7%
-3.7%
-3.7%
-8.5%
-8.5%
-8.5%
-5.8%
-5.8%
-5.8%
-1.3%
-1.3%
-1.3%
-1.9%
-1.9%
-1.9%
-2.3%
-2.3%
-2.3%
TheInvestment
InvestmentGrade
GradeBond
BondFunds
Fundsexhibited
exhibitedaverage
averageand
andmedian
mediandiscounts
discountsof
of1.9
1.9and
and2.3
2.3
The
percent, respectively.
respectively.
percent,
The Investment
Investment Grade
Grade Bond
Bond Funds
Funds were
were also
also used
used to
to derive
derive aa discount
discount for
for the
the related
related
The
party loans
loans and
and receivables
receivables as
as they
they were
were deemed
deemed the
the most
most similar
similar based
based on
on investment
investment
party
characteristics.
characteristics.
Using the
the information
information on
on the
the previous
previous pages,
pages, aa blended
blended or
or weighted
weighted discount
discount for
for lack
lack of
of
Using
control was
was calculated
calculated using
using the
the median
median discounts
discounts of
of the
the various
various asset
asset classes.
classes. The
The
control
mediandiscounts
discountswere
wereselected
selectedfrom
fromthe
theCEF
CEFdata
dataas
asthis
thiseliminates
eliminatesthe
theoutliers
outliersfrom
fromthe
the
median
datathat
thatcould
couldskew
skewthe
theresults.
results.The
TheCompany’s
Company’scash
cashbalance
balancewas
wasnot
notdiscounted
discounteddue
dueto
to
data
itslow
lowlevel
levelof
ofrisk.
risk.The
Therelated
relatedparty
partyloans
loansand
andreceivables
receivableswere
werediscounted
discountedbased
basedon
onthe
the
its
113 ----- 113
113
Investment
Grade
Bond
Funds
plus
small
additional
discount
for
the
higher
risk
of
Investment Grade
Grade Bond
Bond Funds
Funds plus
plus aa
a small
small additional
additional discount
discount for
for the
the higher
higher risk
risk of
of
Investment
nonperformance
of
these
assets.
nonperformance of
of these
these assets.
assets.
nonperformance
The
calculation
of
the
discount
presented
in
Table
58.
The calculation
calculation of
of the
the discount
discount isis
is presented
presented in
in Table
Table 58.
58.
The
TABLE
58
TABLE 58
58
TABLE
DISCOUNT
FOR
LACK
OF
CONTROL
DISCOUNT FOR
FOR LACK
LACK OF
OF CONTROL
CONTROL
DISCOUNT
Asset
Asset
Asset
Cash
Cash
Cash
Related
Party
Loans
Related
RelatedParty
PartyLoans
Loans
MarketableSecurities-Domestic
Securities-DomesticEquities
Equities
Marketable
Marketable
Securities-Domestic
Equities
Marketable
Securities-International
Equities
Marketable
MarketableSecurities-International
Securities-InternationalEquities
Equities
Marketable
Securities-Municipal
Bonds
Marketable
MarketableSecurities-Municipal
Securities-MunicipalBonds
Bonds
Marketable
Securities-Corporate
Bonds
Marketable
MarketableSecurities-Corporate
Securities-CorporateBonds
Bonds
Total
Total
Total
%
of
Net
%
%of
ofNet
Net
Assets
Assets
Assets
26.8%
26.8%
26.8%
6.9%
6.9%
6.9%
55.5%
55.5%
55.5%
5.5%
5.5%
5.5%
1.9%
1.9%
1.9%
3.3%
3.3%
3.3%
100.0%
100.0%
100.0%
Discount
Discount
Discount
Weighted
Weighted
Weighted
Average
Average
Average
0.0%
0.0%
0.0%
-3.0%
-3.0%
-3.0%
0.0%
0.0%
0.0%
-0.2%
-0.2%
-0.2%
-1.0%
-1.0%
-1.0%
-2.3%
-2.3%
-2.3%
0.0%
0.0%
0.0%
-0.1%
-0.1%
-0.1%
-12.0%
-12.0%
-12.0%
-9.5%
-9.5%
-9.5%
-6.7%
-6.7%
-6.7%
-0.5%
-0.5%
-0.5%
-7.5%
-7.5%
-7.5%
There
are
number
of
differences
between
the
closed-end
funds
and
The
Company,
There
There are
are aa
a number
number of
of differences
differences between
between the
the closed-end
closed-end funds
funds and
and The
The Company,
Company,
including
but
not
limited
to
size,
Management
and
distributions
that
may
justify
higher
including
including but
but not
not limited
limited to
to size,
size, Management
Management and
and distributions
distributions that
that may
may justify
justify aa
a higher
higher
discount.
However,
there
no
quantitative
methodology
to
support
greater
discount.
discount.
discount. However,
However, there
there isis
is no
no quantitative
quantitative methodology
methodology to
to support
support aa
a greater
greater discount.
discount.
Therefore,
based
on
the
analysis
performed,
discount
for
lack
of
control
of
7.5
percent
Therefore,
Therefore, based
based on
on the
the analysis
analysis performed,
performed, aa
a discount
discount for
for lack
lack of
of control
control of
of 7.5
7.5 percent
percent
was
deemed
appropriate.
was
was deemed
deemed appropriate.
appropriate.
DISCOUNT
FOR
LACK
OF
MARKETABILITY
DISCOUNT
DISCOUNT FOR
FOR LACK
LACK OF
OF MARKETABILITY
MARKETABILITY
A discount
discount for
for lack
lack of
of marketability
marketability (DLOM)
(DLOM) isis
is used
used to
to compensate
compensate for
for the
the difficulty
difficulty of
of
AA
discount
for
lack
of
marketability
(DLOM)
used
to
compensate
for
the
difficulty
of
selling
shares
of
stock
that
are
not
traded
on
stock
exchange
compared
with
those
that
selling
selling shares
shares of
of stock
stock that
that are
are not
not traded
traded on
on aa
a stock
stock exchange
exchange compared
compared with
with those
those that
that
can
betraded
tradedpublicly.
publicly. IfIf
Ifan
aninvestor
investorowns
ownsshares
sharesin
inaa
apublic
publiccompany,
company,he
heor
orshe
shecan
canpick
pick
can
canbe
be
traded
publicly.
an
investor
owns
shares
in
public
company,
he
or
she
can
pick
114
--- 114
114 --up
the
telephone,
call
broker,
and
generally
convert
the
investment
into
cash
within
three
up
upthe
thetelephone,
telephone,call
callaa
abroker,
broker,and
andgenerally
generallyconvert
convertthe
theinvestment
investmentinto
intocash
cashwithin
withinthree
three
days. That
That isis
is not
not the
the case
case with
with an
an investment
investment in
in aa
a closely-held
closely-held business.
business. Therefore,
Therefore,
days.
days.
That
not
the
case
with
an
investment
in
closely-held
business.
Therefore,
publicly-traded stocks
stocks
have
an
element
of
liquidity
that closely-held
closely-held shares
shares do
do not
not have.
have.
publicly-traded
publicly-traded
stocks have
have an
an element
element of
of liquidity
liquidity that
that
closely-held
shares
do
not
have.
This isis
is the
the reason
reason that
that aa
a DLOM
DLOM will
will be
be applied.
applied. ItIt
It isis
is intended
intended to
to reflect
reflect the
the market’s
market’s
This
This
the
reason
that
DLOM
will
be
applied.
intended
to
reflect
the
market’s
perceived reduction
reduction in
in value
value for
for not
not providing
providing liquidity
liquidity to
to the
the shareholder.
shareholder.
perceived
perceived
reduction
in
value
for
not
providing
liquidity
to
the
shareholder.
A DLOM
DLOM may
may also
also be
be appropriate
appropriate when
when the
the shares
shares have
have either
either legal
legal or
or contractual
contractual
AA
DLOM
may
also
be
appropriate
when
the
shares
have
either
legal
or
contractual
restrictions placed
placed upon
upon them.
them. This
This may
may be
be the
the result
result of
of restricted
restricted stock,
stock, buy-sell
buy-sell
restrictions
restrictions
placed
upon
them.
This
may
be
the
result
of
restricted
stock,
buy-sell
Agreements, bank
bank loan
loan restrictions
restrictions or
or other
other types
types of
of contracts
contracts that
that restrict
restrict the
the sale
sale of
of the
the
Agreements,
Agreements,
bank
loan
restrictions
or
other
types
of
contracts
that
restrict
the
sale
of
the
shares. Even
Even when
when aa
a 100
100 percent
percent interest
interest isis
is the
the valuation
valuation subject,
subject, aa
a DLOM
DLOM may
may be
be
shares.
shares.
Even
when
100
percent
interest
the
valuation
subject,
DLOM
may
be
appropriate ififif the
the owner
owner cannot
cannot change
change the
the restrictions
restrictions on
on the
the stock.
stock.
appropriate
appropriate
the
owner
cannot
change
the
restrictions
on
the
stock.
RESTRICTED
STOCK
STUDIES
RESTRICTED
RESTRICTED STOCK
STOCK STUDIES
STUDIES
The
most
commonly
used
sources
of
data
for
determining
an
appropriate
level
of
DLOM
The
Themost
mostcommonly
commonlyused
usedsources
sourcesof
ofdata
datafor
fordetermining
determiningan
anappropriate
appropriatelevel
levelof
ofaa
aDLOM
DLOM
are
studies
involving
restricted
stock
purchases
or
initial
public
offerings.
Revenue
Ruling
are
arestudies
studiesinvolving
involvingrestricted
restrictedstock
stockpurchases
purchasesor
orinitial
initialpublic
publicofferings.
offerings. Revenue
RevenueRuling
Ruling
34
which
addresses
restricted
stock
77-287
references
the
Institutional
Investor
Study,
which addresses
addresses restricted
restricted stock
stock
77-287
77-287 references
references the
the Institutional
Institutional Investor
Investor Study,
Study,3434 which
issues.
Many
studies
have
updated
this
one.
issues.
issues. Many
Many studies
studies have
have updated
updated this
this one.
one.
Restricted
stock
(or
letter
stock
as
sometimes
called)
stock
issued
by
corporation
Restricted
Restrictedstock
stock(or
(orletter
letterstock
stockas
asitititisis
issometimes
sometimescalled)
called)isis
is stock
stockissued
issuedby
byaa
acorporation
corporation
that
not
registered
with
the
Securities
and
Exchange
Commission
(SEC)
and
cannot
be
that
thatisis
isnot
notregistered
registeredwith
withthe
theSecurities
Securitiesand
andExchange
ExchangeCommission
Commission(SEC)
(SEC)and
andcannot
cannotbe
be
readily
sold
into
the
public
market.
The
stock
usually
issued
when
corporation
first
readily
readilysold
soldinto
intothe
thepublic
publicmarket.
market. The
Thestock
stockisis
isusually
usuallyissued
issuedwhen
whenaa
acorporation
corporationisis
isfirst
first
going
public,
making
an
acquisition,
or
raising
capital.
The
main
reasons
that
corporations
going
goingpublic,
public,making
makingan
anacquisition,
acquisition,or
orraising
raisingcapital.
capital. The
Themain
mainreasons
reasonsthat
thatcorporations
corporations
issue
restricted
stock,
rather
than
tradable
stock,
are
to
avoid
dilution
of
their
stock
price
issue
issue restricted
restricted stock,
stock, rather
rather than
than tradable
tradable stock,
stock, are
are to
to avoid
avoid dilution
dilution of
of their
their stock
stock price
price
34
34
34
From
“Discounts
Involved
Purchases
of
Common
Stock
(1966
1969),”
Institutional
From
From “Discounts
“Discounts Involved
Involved inin
in Purchases
Purchases of
of Common
Common Stock
Stock (1966
(1966 --- 1969),”
1969),” Institutional
Institutional
Investor
Study
Report
of
the
Securities
and
Exchange
Commission.
H.R.
Doc.
No.
64,
Part
Investor
InvestorStudy
StudyReport
Report
of
ofthe
theSecurities
Securitiesand
andExchange
ExchangeCommission.
Commission. H.R.
H.R.Doc.
Doc.No.
No.64,
64,Part
Part
st
Sess.
1971:
2444-2456.
5,
92d
Cong.,
Sess. 1971:
1971:2444-2456.
2444-2456.
5,
5,92d
92dCong.,
Cong.,11
1ststSess.
- 115 with an excessive number of shares available for sale at any one time and to avoid the
costs of registering the securities with the SEC.
The registration exemption on restricted stocks is granted under Section 4(2) of the 1933
Securities Act. The intent of Section 4(2) is to allow “small” corporations the ability to raise
capital without incurring the costs of a public offering. Regulation D, a safe harbor
regulation, which became effective in 1982, falls under section 4(2) of the Act and provides
uniformity in federal and state securities laws regarding private placements of securities.
Securities bought under Regulation D are subject to restrictions, the most important being
that the securities cannot be resold without either registration under the Act or an
35
35
The exemptions for these securities are granted under Rule 144.
exemption.35
Rule 144 allows the limited resale of unregistered securities after a minimum
holding period of two years. Resale is limited to the higher of 1 percent of
outstanding stock or average weekly volume over a 4 week period prior to
the sale, during any three month period. There is no quantity limitation after
36
36
a four year holding period.36
Therefore, a holder of restricted stock must either register their securities with the SEC or
qualify for a Rule 144 exemption in order to sell their stock on the public market. A holder
of restricted stock can, however, trade the stock in a private transaction. Historically when
traded privately, the restricted stock transaction was usually required to be registered with
the SEC. However, in 1990, the SEC adopted Rule 144a which relaxed the SEC filing
restrictions on private transactions. The rule allows qualified institutional investors to trade
37
37 Effective
unregistered securities among themselves without filing registration statements.37
35
35
35
Kasim L. Alli, Ph.D. and Donald J. Thompson, Ph.D. “The Value of the Resale Limitation on
Restricted Stock: An Option Theory Approach,” American Society of Appraisers: Valuation,
March 1991: 22-23.
36
36
36
Ibid.
37
37
37
Richard A. Brealey and Steward C. thMyers, “How Corporations Issue Securities,” Chapter 14,
Principles of Corporate Finance, 5thth Edition, McGraw-Hill, Inc. 1996: 399-401.
- 116 April 1997, the two year holding period was reduced to one year. This holding period was
reduced to six months in December 2007.
The overall effect of these regulations on restricted stock, is that when issued, the
corporation is not required to disclose a price and, on some occasions, even when traded,
the value of restricted securities is still not a matter of public record.
A summary of the familiar studies regarding restricted stock is presented in Table 59.
TABLE 59
RESTRICTED STOCK STUDIES
Years Covered
AverAge Discount
Study
in Study
(%)
a
SEC Overall Average
1966-1969
25.8
a
1966-1969
32.6
SEC Non-Reporting OTC Companies
b
1968-1970
33.0
Gelman
c
1968-1972
33.5i
Trout
h
Moroneyd
35.6
e
1969-1973
35.4
Maher
1978-1982
45.0i
Standard Research Consultantsf
Willamette Management Associatesg
1981-1984
31.2i
Silber Studyj
1981-1988
33.8
k
1979 - April 1992
23.0
FMV Study
l
1980 -1997
22.3
FMV Restricted Stock Study
m
1980-1995
27.7
Management Planning
n
1991-1995
20.0
Bruce Johnson
o
1996-February 1997
21.0
Columbia Financial Advisors
o
May 1997-1998
13.0
Columbia Financial Advisors
p
2007-2008
18.1
Trugman Valuation Associates
Notes:
a
From “Discounts Involved in Purchases of Common Stock (1966-1969),” Institutional
Investor Study Report of the Securities and Exchange Commission. H.R. Doc. No. 64,
Part 5, 92d Cong., 1st Sess. 1971: 2444-2456.
b
From Milton Gelman, “An Economist-Financial Analyst’s Approach to Valuing Stock of
a Closely Held Company,” Journal of Taxation, June 1972: 353-354.
- 117 c
From Robert R. Trout, “Estimation of the Discount Associated with the Transfer of
Restricted Securities,” Taxes, June 1977: 381-385.
d
From Robert E. Moroney, “Most Courts Overvalue Closely Held Stock,” Taxes, March
1973: 144-154.
e
From J. Michael Maher, “Discounts for Lack of Marketability for Closely-Held Business
Interests,” Taxes, September 1976: 562-571.
f
From “Revenue Ruling 77-287 Revisited,” SRC Quarterly Reports, Spring 1983: 1-3.
From Willamette Management Associates study (unpublished).
g
h
Although the years covered in this study are likely to be 1969-1972, no specific years
were given in the published account.
I
Median discounts.
j
From William L. Silber, “Discounts on Restricted Stock: The Impact of Illiquidity on Stock
Prices,” Financial Analysts Journal, July-August 1991: 60-64.
k
Lance S. Hall and Timothy C. Polacek, “Strategies for Obtaining the Largest Discount,”
Estate Planning, January/February 1994: 38-44. In spite of the long time period covered,
this study analyzed only a little over 100 transactions involving companies that were
generally not the smallest capitalization companies. It supported the findings of the SEC
Institutional Investor Study in finding that the discount for lack of marketability was higher
for smaller capitalization companies.
l
Espen Robak and Lance S. Hall, “Bringing Sanity to Marketability Discounts: A New Data
Source,” Valuation Strategies, July/August 2001: 6-13, 45-46.
m
Robert P. Oliver and Roy H. Meyers, “Discounts Seen in Private Placements of
Restricted Stock: The Management Planning, Inc. Long-Term Study (1980-1995)”
published in Chapter 5 of Robert F. Reilly and Robert P. Schweihs, eds. The Handbook
of Advanced Business Valuation (New York: McGraw-Hill, 2000).
n
Bruce Johnson, “Restricted Stock Discounts, 1991-1995,” Shannon Pratt’s Business
Valuation Update, March 1999: 1-3. Also, “Quantitative Support for Discounts for Lack
of Marketability,” Business Valuation Review, December 1999: 152-155.
o
Kathryn Aschwald, “Restricted Stock Discounts Decline as a Result of 1-Year Holding
Period,” Shannon Pratt’s Business Valuation Update, May 2000: 1-5. This study focuses
on the change in discounts as a result of the holding period reduction from two years to
one year.
p
William Harris, “Trugman Valuation Associates, Inc. Restricted Stock Study,” Business
Valuation Review, Fall 2009: 128-139.
- 118 - 118 SEC INSTITUTIONAL INVESTOR STUDY
SEC INSTITUTIONAL INVESTOR STUDY
As part of a major study of institutional investor actions performed by the Securities and
As part of a major study of institutional investor actions performed by the Securities and
Exchange Commission (SEC), the amount of discount at which transactions in restricted
Exchange Commission (SEC), the amount of discount at which transactions in restricted
stock took place compared to the prices of otherwise identical but unrestricted stock on the
stock took place compared to the prices of otherwise identical but unrestricted stock on the
open market was addressed. The report introduced the study with the following discussion
open market was addressed. The report introduced the study with the following discussion
about restricted stock:
about restricted stock:
Restricted securities are usually sold at a discount from their coeval market
Restricted securities are usually sold at a discount from their coeval market
price, if any, primarily because of the restrictions on their resale. With the
price, if any, primarily because of the restrictions on their resale. With the
information supplied by the respondents on the purchase prices of the
information supplied by the respondents on the purchase prices of the
common stock and the dates of transaction, the Study computed the implied
common stock and the dates of transaction, the Study computed the implied
discounts in all cases in which it was able to locate a market price for the
discounts in all cases in which it was able to locate
a market price for the
respective security on the date of the transaction.38
38
respective security on the date of the transaction.
A reproduction of Table XIV-45 of the SEC Institutional Investor Study showing the size of
A reproduction of Table XIV-45 of the SEC Institutional Investor Study showing the size of
discounts at which restricted stock transactions took place compared with the prices, as of
discounts at which restricted stock transactions took place compared with the prices, as of
the same date, of the freely-traded but otherwise identical stocks is contained in Table 58.39
the same date, of the freely-traded but otherwise identical stocks is contained in Table 58.39
The data in Table 60 shows that about half of the transactions, in terms of real dollars, took
The data in Table 60 shows that about half of the transactions, in terms of real dollars, took
place at discounts ranging from 20 to 40 percent.
place at discounts ranging from 20 to 40 percent.
The discounts were lowest for those stocks that would be tradable when the restrictions
The discounts were lowest for those stocks that would be tradable when the restrictions
expired on the New York Stock Exchange and highest for those stocks that could be traded
expired on the New York Stock Exchange and highest for those stocks that could be traded
in the over-the-counter market when the restrictions expired. For those whose market
in the over-the-counter market when the restrictions expired. For those whose market
would be over-the-counter when the restrictions expired, the average discount was
would be over-the-counter when the restrictions expired, the average discount was
approximately 35 percent. When considering closely-held companies whose shares have
approximately 35 percent. When considering closely-held companies whose shares have
no prospect of any market, the discount would have to be higher.
no prospect of any market, the discount would have to be higher.
38
38
39
39
“Discounts Involved in Purchases of Common Stock (1966-1969),” Institutional Investor Study
“Discounts
Involved
in Purchases
of Common
Stock (1966-1969),”
Institutional
Study
Report of the
Securities
and Exchange
Commission,
H.R. Doc. No.
64, Part Investor
5, 92nd
Cong.,
st
Report
of the1971:
Securities
and Exchange Commission, H.R. Doc. No. 64, Part 5, 92nd Cong.,
1st Session.,
2444-2456.
1 Session., 1971: 2444-2456.
Ibid.
Ibid.
- 119 The research from the SEC Institutional Investor Study was the foundation for the SEC
Accounting Series Release No. 113, dated October 13, 1969, and No. 118, dated
December 23, 1970, which require investment companies registered under the Investment
Company Act of 1940 to disclose their policies about the cost and valuation of their
restricted securities. As a result of the study, there is now an ongoing body of data about
the relationship between restricted stock prices and their freely tradable counterparts. This
body of data can provide empirical benchmarks for quantifying marketability discounts.
120 -- -120
TABLE 60
SEC INSTITUTIONAL
STUDY
TABLEINVESTOR
60
SEC INSTITUTIONAL INVESTOR STUDY
Discount
-15.0% to 0.0%
No. of
Trans- to 0.0%
Value of
-15.0%
actions
Trading Market
No. of
TransNew York Stock
ding MarketExchange actions
Unknown
n
American Stock
Exchange
rk Stock
nge
Over-the-Counter
(Reporting Companies)
7
n Stock
nge
1
Over-the-Counter (NonReporting Companies)
TOTAL
2
Purchases
0.1% to 10.0%
No. of
No. of
Trans-0.1%Value
Transof
to 10.0%
actions
actions
Purchases
of 2
TransValue of
Purchases
actions
7
3,760,663
13
1
$ 1,500,000No.
$ 1,500,000
2
7,263,060
11 3,760,663
13,828,757
5
26
8,329,369
2
4
13 39
7,263,060
4
$ 34,681,849
Discount
9
67
$ 2,496,583
Value of
Purchases
15,111,798
$ 2,496,583
Value
of
10.1%
Purchases
No.
of $
1
Transactions
13
15,850,000
11
13,613,676
15,111,798
35
5,265,925
18
$ 52,337,982
78
15,850,000
10.1% to 20.0%
1
13
11
205,000
20.1% to 30.0%
No. of
Transto 20.0%
actions
0
Value of
Purchases
24,503,988
10
$
14,548,750
205,000
20
Value of
Purchases
$No.
of 0
Transactions
17,954,085
0
46,200,677
38,585,259
30
24,503,988
35,479,946
10
25,122,024
17
11,229,155
$ 102,965,021
77
$ 110,863,863
14,548,750
20.1% to 3
Value
Purcha
$
17,954
20
46,200
e-Counter
rting Companies)
11
13,828,757
39
13,613,676
35
38,585,259
30
35,479
e-Counter (Nonting Companies)
5
8,329,369
9
5,265,925
18
25,122,024
17
11,229
26
$ 34,681,849
67
$ 52,337,982
78
$ 102,965,021
77
$ 110,863
121 -- -121
TABLE 60
SEC INSTITUTIONAL
STUDY
TABLEINVESTOR
60
SEC INSTITUTIONAL INVESTOR STUDY
Discount
30.1% to 40.0%
No. of
Trading Market
Trans30.1% to
40.0% Value of
actions
No. of
TransNew York Stock
ding MarketExchange actions
Unknown
Purchases
$
rk Stock
nge
Over-the-Counter
(Reporting Companies)
3
30
58,689,328
11,102,501
Over-the-Counter (NonReporting Companies)
25
29,423,584
TOTAL
67
$ 123,621,711
n Stock
nge
7
No. of
$
7
3,332,000
21,074,298
No. of
Transactions
Purchases
actions
3,332,000No.
American Stock
Exchange
50.1% to 80.0%
0
1
1 13
21,074,298
1
$
0
Value of
Purchases
1,400,000
$
Total
Discount
Value of
Trans- to 50.0%
40.1%
of 0
TransValue of
actions1
Purchases
3
11,102,501
2
n
2
40.1% to 50.0%
44,250
0
Purchases
No.
of $
1
Transactions
4
4
9,284,047
1,400,000
21
20
11,377,431
18
35
$ 22,105,728
48
44,250
No. of
Value
50.1%
toof80.0%Trans-
1
4
4
actions
1,259,995
7
Value of
Purchases
5,005,068
51
$
1,259,995
4,802,404
49
8,996,406
179
5,005,068
Value of
Purchases
Total
of
$No.
8,793,578
Transactions
78,838,103
7
109,783,439
178,477,419
51
13,505,545
112
104,253,033
$ 33,569,418
398
$ 480,145,572
4,802,404
Value o
Purchas
$
8,793
78,838
49
109,783
e-Counter
rting Companies)
30
58,689,328
13
9,284,047
21
8,996,406
179
178,477
e-Counter (Nonting Companies)
25
29,423,584
20
11,377,431
18
13,505,545
112
104,253
67
$ 123,621,711
35
$ 22,105,728
48
$ 33,569,418
398
$ 480,145
- 122 - 122 GELMAN STUDY
GELMAN STUDY
In 1972, Milton Gelman, with National Economic Research Associates, Inc., published the
In 1972, Milton Gelman, with National Economic Research Associates, Inc., published the
results of his study of prices paid for restricted securities by four closed-end investment
results of his study of prices paid for restricted securities by four closed-end investment
companies specializing in restricted securities investments.40
Gelman used data from 89
companies specializing in restricted securities investments.40 Gelman used data from 89
transactions between 1968 and 1970, and found that both the average and median
transactions between 1968 and 1970, and found that both the average and median
discounts were 33 percent and that almost 60 percent of the purchases were at discounts
discounts were 33 percent and that almost 60 percent of the purchases were at discounts
of 30 percent and higher. This data is consistent with the SEC study.
of 30 percent and higher. This data is consistent with the SEC study.
MORONEY STUDY
MORONEY STUDY
An article published in the March 1973 issue of Taxes,41
authored by Robert E. Moroney
An article published in the March 1973 issue of Taxes,41 authored by Robert E. Moroney
of the investment banking firm Moroney, Beissner & Co., contained the results of a study
of the investment banking firm Moroney, Beissner & Co., contained the results of a study
of the prices paid for restricted securities by 10 registered investment companies. The
of the prices paid for restricted securities by 10 registered investment companies. The
study included 146 purchases at discounts ranging from 3 to 90 percent. The average
study included 146 purchases at discounts ranging from 3 to 90 percent. The average
discount was approximately 33 percent. Despite the pretty broad range, the average
discount was approximately 33 percent. Despite the pretty broad range, the average
discount was once Again in line with the other studies.
discount was once Again in line with the other studies.
In this article, Moroney compared the evidence of actual cash transactions with the lower
In this article, Moroney compared the evidence of actual cash transactions with the lower
average discounts for lack of marketability determined in some previous estate and gift tax
average discounts for lack of marketability determined in some previous estate and gift tax
cases. He stated that there was no evidence available about the prices of restricted stocks
cases. He stated that there was no evidence available about the prices of restricted stocks
at the times of these other cases that could have been used as a benchmark to help
at the times of these other cases that could have been used as a benchmark to help
quantify these discounts. However, he suggested that higher discounts for lack of
quantify these discounts. However, he suggested that higher discounts for lack of
marketability should be allowed in the future as more relevant data becomes available. He
marketability should be allowed in the future as more relevant data becomes available. He
stated:
stated:
40
40
Milton Gelman, “Economist-Financial Analyst’s Approach to Valuing Stock of a Closely Held
Milton
Gelman,
“Economist-Financial
Approach to Valuing Stock of a Closely Held
Company,”
Journal
of Taxation, June Analyst’s
1972: 353-4.
Company,” Journal of Taxation, June 1972: 353-4.
41
41
Robert E. Moroney, “Most Courts Overvalue Closely-Held Stock,” Taxes, March 1973: 144Robert E. Moroney, “Most Courts Overvalue Closely-Held Stock,” Taxes, March 1973: 14456.
56.
- 123 - 123 Obviously the courts in the past have overvalued minority interest in closelyObviously the courts in the past have overvalued minority interest in closelyheld companies for federal tax purposes. But most (probably all) of those
held companies for federal tax purposes. But most (probably all) of those
decisions were handed down without benefit of the facts of life recently made
decisions were handed down without benefit of the facts of life recently made
available for all to see.
available for all to see.
Some appraisers have for years had a strong gut feeling that they should use
Some appraisers have for years had a strong gut feeling that they should use
far greater discounts for non-marketability than the courts had allowed. From
far greater discounts for non-marketability than the courts had allowed. From
now on those appraisers need not stop at 35 percent merely because it’s
now on those appraisers need not stop at 35 percent merely because it’s
perhaps the largest discount clearly approved in a court decision. Appraisers
perhaps the largest discount clearly approved in a court decision. Appraisers
can now cite a number of known arm’s-length transactions in which the
can now cite a number of known42 arm’s-length transactions in which the
discount ranged up to 90 percent.42
discount ranged up to 90 percent.
Approximately four years later, Moroney authored another article in which he stated that
Approximately four years later, Moroney authored another article in which he stated that
courts have started to recognize higher discounts for lack of marketability:
courts have started to recognize higher discounts for lack of marketability:
The thousands and thousands of minority holders in closely-held corporations
The thousands and thousands of minority holders in closely-held corporations
throughout the United States have good reason to rejoice because the courts
throughout the United States have good reason to rejoice because the courts
in recent years have upheld illiquidity discounts in the 50 percent area.*
in recent years have upheld illiquidity discounts in the 50 percent area.*
*Edwin A. Gallun, 33 T.C.M. 1316 (1974), allowed 55 percent. Est. of
*Edwin A. Gallun, 33 T.C.M. 1316 (1974), allowed 55 percent. Est. of
Maurice Gustave Heckscher, 63 T.C. 485 (1975), allowed 48 percent.
Maurice Gustave Heckscher, 63 T.C. 485 (1975), allowed 48 percent.
Although Est. of Ernest E. Kirkpatrick, 34 T.C.M. 1490 (1975) found perAlthough Est. of Ernest E. Kirkpatrick, 34 T.C.M. 1490 (1975) found pershare values without mentioning discount, expert witnesses for both sides
share values without mentioning discount, expert witnesses for both sides
used 50 percent–the first time a government witness recommended 50
used 50 percent–the first time a43government witness recommended 50
percent. A historic event, indeed!43
percent. A historic event, indeed!
MAHER STUDY
MAHER STUDY
J. Michael Maher, with Connecticut General Life Insurance Co., conducted another
J. Michael Maher, with Connecticut General Life Insurance Co., conducted another
interesting study on lack of marketability discounts for closely-held business interests. The
interesting study on lack of marketability discounts for closely-held business interests. The
results of this well documented study were published in the September 1976 issue of
results of this well documented study were published in the September 1976 issue of
42
42
Ibid.: 151.
Ibid.: 151.
43
43
Robert E. Moroney, “Why 25 Percent Discount for Nonmarketability in One Valuation, 100
Robert
25 May
Percent
Discount
PercentE.
in Moroney,
Another?”“Why
Taxes,
1977:
320. for Nonmarketability in One Valuation, 100
Percent in Another?” Taxes, May 1977: 320.
-- 124
124 -44
Taxes.
Using an
an approach
approach that
that was
was similar
similar to
to Moroney’s,
Moroney’s, Maher
Maher compared
compared prices
prices paid
paid
Taxes.44 Using
for
for restricted
restricted stocks
stocks with
with the
the market
market prices
prices of
of their
their unrestricted
unrestricted counterparts.
counterparts. The
The data
data
used
used covered
covered the
the five-year
five-year period
period 1969
1969 through
through 1973.
1973. The
The study
study showed
showed that
that “the
“the mean
mean
45
discount
discount for
for lack
lack of
of marketability
marketability for
for the
the years
years 1969
1969 to
to 1973
1973 amounted
amounted to
to 35.43
35.43 percent.”
percent.”45
In
In an
an attempt
attempt to
to eliminate
eliminate abnormally
abnormally high
high and
and low
low discounts,
discounts, Maher
Maher eliminated
eliminated the
the top
top and
and
bottom
bottom 10
10 percent
percent of
of the
the purchases.
purchases. The
The results
results ended
ended up
up with
with an
an average
average discount
discount of
of
34.73
34.73 percent,
percent, almost
almost the
the exact
exact same
same discount
discount that
that was
was derived
derived without
without the
the top
top and
and bottom
bottom
items
items removed.
removed.
Maher’s
Maher’s remarks
remarks are
are a
a good
good learning
learning tool,
tool, as
as he
he distinguished
distinguished between
between a
a discount
discount for
for lack
lack
of
of marketability
marketability and
and a
a discount
discount for
for a
a minority
minority interest.
interest. He
He said:
said:
The
The result
result II have
have reached
reached is
is that
that most
most appraisers
appraisers underestimate
underestimate the
the proper
proper
discount
discount for
for lack
lack of
of marketability.
marketability. The
The results
results seem
seem to
to indicate
indicate that
that this
this
discount
should
be
about
35
percent.
Perhaps
this
makes
sense
because
discount should be about 35 percent. Perhaps this makes sense because
by
by committing
committing funds
funds to
to restricted
restricted common
common stock,
stock, the
the willing
willing buyer
buyer (a)
(a) would
would
be
be denied
denied the
the opportunity
opportunity to
to take
take advantage
advantage of
of other
other investments,
investments, and
and (b)
(b)
would
continue
to
have
his
investment
at
the
risk
of
the
business
until
the
would continue to have his investment at the risk of the business until the
shares
shares could
could be
be offered
offered to
to the
the public
public or
or another
another buyer
buyer is
is found.
found.
The
The 35
35 percent
percent discount
discount would
would not
not contain
contain elements
elements of
of a
a discount
discount for
for a
a
minority
interest
because
it
is
measured
against
the
current
fair
market
value
minority interest because it is measured against the current fair market value
of
of securities
securities actively
actively traded
traded (other
(other minority
minority interests).
interests). Consequently,
Consequently,
appraisers
should
also
consider
a
discount
for
a
minority
interest
in those
appraisers should also consider a discount for a minority
46 interest in those
closely-held
corporations
where
a
discount
is
applicable.
46
closely-held corporations where a discount is applicable.
44
44
J. Michael Maher, “Discounts for Lack of Marketability for Closely-Held Business Interests,”
J.
Michael
Maher, “Discounts
for Lack of Marketability for Closely-Held Business Interests,”
Taxes,
September
1976: 562-71.
Taxes, September 1976: 562-71.
45
45
Ibid.: 571.
Ibid.: 571.
46
46
Ibid.
Ibid.
- 125 TROUT STUDY
The next study was performed by Robert R. Trout. Trout was with the Graduate School of
Administration, University of California, Irvine and Trout, Shulman & Associates. Trout’s
study of restricted stocks covered the period 1968 to 1972 and addressed purchases of
these securities by mutual funds. Trout attempted to construct a financial model which
47
would provide an estimate of the discount appropriate for a private company’s stock.47
Creating a multiple regression model involving 60 purchases, Trout measured an average
discount of 33.45 percent for restricted stock from freely-traded stock.
STANDARD RESEARCH CONSULTANTS STUDY
In 1983, Standard Research Consultants analyzed private placements of common stock
48 Standard Research studied
to test the current applicability of the SEC Institutional Study.48
28 private placements of restricted common stock from October 1978 through June 1982.
Discounts ranged from 7 percent to 91 percent, with a median of 45 percent, a bit higher
than seen in the other studies.
Only four of the 28 companies studied had unrestricted common shares traded on either
the American Stock Exchange or the New York Exchange, and their discounts ranged from
25 percent to 58 percent, with a median of 47 percent, which was not significantly different
from the 45 percent median of the remaining companies that traded in the over-the-counter
market.
47
47
Robert R. Trout, “Estimation of the Discount Associated with the Transfer of Restricted
Securities,” Taxes, June 1977: 381-5.
48
48
“Revenue Ruling 77-287 Revisited,” SRC Quarterly Reports, Spring 1983: 1-3.
- 126 - 126 - 126 - 126 WILLAMETTE MANAGEMENT ASSOCIATES, INC. STUDY
WILLAMETTE MANAGEMENT ASSOCIATES, INC. STUDY
WILLAMETTE MANAGEMENT ASSOCIATES, INC. STUDY
WILLAMETTE MANAGEMENT ASSOCIATES, INC. STUDY
Willamette Management Associates analyzed private placements of restricted stocks for
Willamette Management Associates analyzed private placements of restricted stocks for
Willamette Management Associates analyzed private
49 placements of restricted stocks for
Willamette
Management
Associates
analyzed
private
placements
restricted
stocks for
the
period January
1, 1981
through May
31, 1984.
In
discussingofthe
study, Willamette
the period January 1, 1981 through May 31, 1984.49
49 In discussing the study, Willamette
the period January 1, 1981 through May 31, 1984.49 In discussing the study, Willamette
the
period
1981
through
May 31,study
1984.
In discussing
study,
states
that January
the early 1,
part
of this
unpublished
overlapped
the lastthe
part
of theWillamette
Standard
states that the early part of this unpublished study overlapped the last part of the Standard
states that the early part of this unpublished study overlapped the last part of the Standard
states thatstudy,
the early
of were
this unpublished
study overlapped
the
last part
of the
Research
butpart
there
very few transactions
that took
place
during
the Standard
period of
Research study, but there were very few transactions that took place during the period of
Research study, but there were very few transactions that took place during the period of
Research According
study, but there
very fewoftransactions
took place
during the
period
of
overlap.
to thewere
discussion
the study inthat
Valuing
a Business,
most
of the
overlap. According to the discussion of the study in Valuing a Business, most of the
overlap. According to the discussion of the study in Valuing a Business, most of the
overlap. According
to the
discussion
of the study in Valuing a Business, most of the
transactions
in the study
took
place in 1983.
transactions in the study took place in 1983.
transactions in the study took place in 1983.
transactions in the study took place in 1983.
Willamette identified 33 transactions during this time period that could be classified with
Willamette identified 33 transactions during this time period that could be classified with
Willamette identified 33 transactions during this time period that could be classified with
Willamette identified
33 transactions
during
this time period
could be
reasonable
confidence
as arm’s-length
transactions,
and that
for which
theclassified
price of with
the
reasonable confidence as arm’s-length transactions, and for which the price of the
reasonable confidence as arm’s-length transactions, and for which the price of the
reasonable
confidence
arm’s-length
transactions,
and
for which
the priceidentical
of the
restricted shares
could beascompared
directly
with the price
of trades
in otherwise
restricted shares could be compared directly with the price of trades in otherwise identical
restricted shares could be compared directly with the price of trades in otherwise identical
restricted
sharesshares
could be
compared
directly with
thesame
price time.
of trades
otherwise
identical
but
unrestricted
of the
same company
at the
Theinmedian
discount
for
but unrestricted shares of the same company at the same time. The median discount for
but unrestricted shares of the same company at the same time. The median discount for
but unrestricted
shares
the same company
at the
time. The
median
discount
for
the
33 restricted
stockoftransactions
compared
to same
the prices
of their
freely
tradable
the 33 restricted stock transactions compared to the prices of their freely tradable
the 33 restricted stock transactions compared to the prices of their freely tradable
the 33 restricted
stockpercent,
transactions
to the
of theirbut
freely
tradable
counterparts
was 31.2
a little compared
bit lower than
the prices
other studies,
substantially
counterparts was 31.2 percent, a little bit lower than the other studies, but substantially
counterparts was 31.2 percent, a little bit lower than the other studies, but substantially
counterparts
31.2
little bit lower than the other studies, but substantially
lower
than thewas
study
by percent,
Standarda Research.
lower than the study by Standard Research.
lower than the study by Standard Research.
lower than the study by Standard Research.
In Valuing a Business, Pratt attributed the slightly lower average percentage discounts for
In Valuing a Business, Pratt attributed the slightly lower average percentage discounts for
In Valuing a Business, Pratt attributed the slightly lower average percentage discounts for
In Valuing
a Business,
Prattthis
attributed
slightly lower
average percentage
for
private
placements
during
time to the somewhat
depressed
prices in thediscounts
public stock
private placements during this time to the somewhat depressed prices in the public stock
private placements during this time to the somewhat depressed prices in the public stock
private placements
time to the
somewhat
depressed
prices
in the public
stock
economic
conditions
prevalent
market,
which in turnduring
were this
in response
to the
recessionary
market, which in turn were in response to the recessionary economic conditions prevalent
market, which in turn were in response to the recessionary economic conditions prevalent
market,most
which
turn
wereofinthe
response
the recessionary
economic conditions
during
ofin
the
period
study. to
Taking
this into consideration,
the studyprevalent
basically
during most of the period of the study. Taking this into consideration, the study basically
during most of the period of the study. Taking this into consideration, the study basically
during
most
the period
of the discount
study. Taking
this into for
consideration,
study basically
supports
theof
long-term
average
of 35 percent
transactionsthe
in restricted
stock
supports the long-term average discount of 35 percent for transactions in restricted stock
supports the long-term average discount of 35 percent for transactions in restricted stock
supports
long-term
average
of 35 percent
for transactions in restricted stock
comparedthe
with
the prices
of theirdiscount
freely tradable
counterparts.
compared with the prices of their freely tradable counterparts.
compared with the prices of their freely tradable counterparts.
compared with the prices of their freely tradable counterparts.
SILBER RESTRICTED STOCK STUDY
SILBER RESTRICTED STOCK STUDY
SILBER RESTRICTED STOCK STUDY
SILBER RESTRICTED STOCK STUDY
In 1991, another study of restricted stock was published which included transactions during
In 1991, another study of restricted stock was published which included transactions during
In 1991, another study of restricted stock was published which included transactions during
In
another
of restricted
stock
wasby
published
included
transactions
the1991,
period
1981 study
through
1988. This
study,
William which
L. Silber,
substantiated
the during
earlier
the period 1981 through 1988. This study, by William L. Silber, substantiated the earlier
the period 1981 through 1988. This study, by William L. Silber, substantiated the earlier
the period 1981 through 1988. This study, by William L. Silber, substantiated the earlier
49
49
49
49
Shannon P. Pratt, et al., Valuing a Business, Third Edition.
Shannon P. Pratt, et al., Valuing a Business, Third Edition.
Shannon P. Pratt, et al., Valuing a Business, Third Edition.
Shannon P. Pratt, et al., Valuing a Business, Third Edition.
- 127 50 Silber
restricted stock studies, finding an average price discount of 33.75 percent.50
identified 69 private placements involving common stock of publicly traded companies. The
restricted stock in this study could be sold under Rule 144 after a two-year holding period.
Silber, similar to Trout, tried to develop a statistical model to explain the price differences
between securities that differ in resale provisions. Silber concluded that the discount on
restricted stock varies directly with the size of the block of restricted stock relative to the
amount of publicly traded stock issued by the company. He found that the discounts were
larger when the block of restricted stock was large compared to the total number of shares
outstanding. Silber also noted that the size of the discount was inversely related to the
credit-worthiness of the issuing company.
FMV STUDY
As indicated in the table, it is important to emphasize that this study analyzes just over 100
transactions involving companies tending to have larger capitalization. As reported in other
studies, such discounts tend to be higher among smaller companies, and conversely, lower
with larger companies.
Management PLANNING INC. STUDY
The primary criteria for the Management Planning study was to identify companies that had
made private placements of unregistered common shares which would, except for the
restrictions on trading, have similar characteristics to that company’s publicly traded shares.
Companies included in the study had to have in excess of $3 million in annual sales and
be profitable for the year immediately prior to the private placement. It was required that
the company be a domestic corporation, not considered to be in “a development stage,”
and the common stock of the issuing company must sell for at least $2 per share.
50
50
William L. Silber, “Discounts on Restricted Stock: The Impact of Illiquidity on Stock Prices,”
Financial Analysts Journal, July - August 1991: 60-64.
-- 128
128 -Management
Management Planning
Planning analyzed
analyzed 200
200 private
private transactions
transactions involving
involving companies
companies with
with publicly
publicly
traded
traded shares.
shares. Of
Of the
the 200,
200, 49
49 met
met the
the base
base criteria
criteria described.
described. Of
Of these,
these, the
the average
average mean
mean
51
discount
discount was
was 27.7
27.7 percent,
percent, while
while the
the average
average median
median discount
discount was
was 28.8
28.8 percent.
percent.51
A
A more
more detailed
detailed analysis
analysis of
of the
the Management
Management Planning
Planning Study
Study indicated
indicated a
a large
large range
range of
of
discounts
discounts relative
relative to
to the
the sample
sample companies
companies due
due to
to varying
varying degrees
degrees of
of revenues,
revenues, earnings,
earnings,
market
market share,
share, price
price stability
stability and
and earnings
earnings stability.
stability. The
The average
average revenues
revenues for
for the
the
companies
companies selected
selected for
for review
review were
were $47.5
$47.5 million,
million, however,
however, the
the median
median revenue
revenue figure
figure was
was
$29.8
$29.8 million,
million, indicating
indicating that
that the
the average
average sales
sales figure
figure was
was impacted
impacted by
by a
a few
few companies
companies
that
that were
were significantly
significantly larger
larger than
than the
the others
others studied.
studied. The
The average
average discount
discount for
for companies
companies
with
with revenues
revenues under
under $10
$10 million
million was
was 32.9
32.9 percent.
percent.
Likewise,
Likewise, the
the average
average reported
reported earnings
earnings of
of the
the study
study group
group were
were skewered
skewered by
by 20
20
companies in
companies
in the
the study
study whose
whose earnings
earnings exceeded
exceeded $1
$1 million,
million, and
and in
in fact
fact had
had a
a median
median
earnings
earnings figure
figure of
of $2.9
$2.9 million.
million. Twenty-nine
Twenty-nine of
of the
the companies
companies studied
studied earned
earned less
less than
than $1
$1
million,
million, while
while the
the median
median earnings
earnings of
of all
all of
of the
the companies
companies in
in the
the sample
sample was
was $0.7
$0.7 million.
million.
The
The following
following chart
chart indicates
indicates that
that fourth
fourth quartile
quartile companies
companies reflected
reflected private
private placement
placement
median
median discounts
discounts compared
compared to
to the
the shares
shares traded
traded in
in the
the open
open markets
markets ranging
ranging from
from 34.6
34.6
percent
percent to
to 44.8
44.8 percent,
percent, based
based upon
upon the
the factors
factors considered.
considered. The
The average
average discount
discount of
of
sample
sample companies
companies in
in the
the fourth
fourth quartile
quartile for
for the
the five
five factors
factors considered
considered was
was 39.3
39.3 percent.
percent.
51
51
Z.
Z. Christopher
Christopher Mercer,
Mercer, Quantifying
Quantifying Marketability
Marketability Discounts,
Discounts, Peabody
Peabody Publishing
Publishing L.P.;
L.P.;
Memphis,
Memphis, TN;
TN; 1997:
1997: 345-363.
345-363.
- 129 First
Quartile
Factors Considered
In the Analysis
Second
Quartile
Third
Quartile
Fourth
Quartile
Original Expectations Re: Discounts
Restricted Stock Discounts
Revenues
Earnings
Market Price/Share
Price Stability
Earnings Stability
Medians
18.7%
22.2%
31.5%
36.6%
Means
21.8%
23.9%
31.9%
34.7%
Medians
16.1%
30.5%
32.7%
39.4%
Means
18.0%
30.0%
30.1%
34.1%
Medians
23.3%
22.2%
29.5%
41.0%
Means
23.3%
24.5%
27.3%
37.3%
Medians
34.6%
31.6%
9.2%
19.4%
Means
34.8%
33.3%
21.0%
22.0%
Medians
14.1%
26.2%
30.8%
44.8%
Means
16.4%
28.8%
27.8%
39.7%
Higher revenues, lower discounts
Higher earnings, lower discounts
Higher the price, lower discounts
Lower stability, higher discounts
Higher earnings stability, lower discounts
BRUCE JOHNSON STUDY
Bruce Johnson studied 72 private placement transactions that occurred in 1991 through
1995. The range was a 10 percent premium to a 60 percent discount with an average
discount for these 72 transactions of 28 percent. This study covered the first half decade
after the Rule 144 restrictions were relaxed. The results seem to indicate that discounts
are lower when the holding period is shorter.
COLUMBIA FINANCIAL ADVISORS, INC. RESTRICTED STOCK STUDY (1996-1997)
Columbia Financial Advisors, Inc. (CFAI) conducted an analysis of restricted securities in
the United States. These were private common equity placements that were done from
January 1, 1996 to April 30, 1997. Using 23 transactions (eight involving restricted
securities, and 15 involving private placements with no registration rights), the average
discount was 21 percent, with a median of 14 percent. The 1990 adoption of Rule 144A
seems to have had an effect on these discounts.
- 130 COLUMBIA FINANCIAL ADVISORS, INC. RESTRICTED STOCK STUDY (1997-1998)
CFAI conducted another restricted stock study to assess the effects of another alteration
to Rule 144. Mandatory holding periods, as of April 29, 1997, were reduced from two years
to one year. CFAI used 15 transactions whose stock was privately-placed. The average
discount for this group was 13 percent, with a median of 9 percent. These discounts are
clearly impacted by the shorter holding period.
TRUGMAN VALUATION ASSOCIATES, INC. RESTRICTED STOCK STUDY
Trugman Valuation Associates, Inc. (TVA) conducted an analysis of private placements of
restricted stock for the years 2007 and 2008. Using 80 transactions, the average discount
was 18.1 percent and the median discount was 14.4 percent. The TVA Restricted Stock
Study was the first study published after the Rule 144 holding period was reduced to six
months, which became effective on February 15, 2008.
TVA performed a more detailed analysis of the 80 private placement transactions by
examining the impact that certain variables had on the magnitude of the implied discounts.
The study analyzed variables related to risk, liquidity, size, earning capacity and contractual
rights.
The first part of the analysis included an examination of the linear relationships between
the different variables and the magnitude of the implied discounts.
These linear
relationships were measured by performing a correlation analysis, which is a statistical
technique that can show how strongly pairs of variables are related. The correlation
analysis revealed that stock price volatility, which in this instance was measured by the
stock’s one-year annualized, historical daily price volatility, had a solid linear relationship
with the magnitude of the implied discount. In this instance, stock price volatility had an Rsquared statistic of 0.60 which means that 60 percent of the variation in the implied
-- 131
131 -discounts
discounts
security.
security.
included
included in
in the
the sample
sample are
are explained
explained by
by the
the price
price volatility
volatility of
of the
the underlying
underlying
Other
Other variables
variables that
that had
had notable
notable relationships
relationships with
with the
the size
size of
of the
the discount
discount
included
included the
the exchange
exchange the
the stock
stock was
was traded
traded on,
on, the
the number
number of
of shares
shares placed
placed in
in relation
relation to
to
the
the stock’s
stock’s trading
trading volume
volume and
and the
the period
period of
of time
time in
in which
which the
the stock
stock remained
remained
unmarketable.
unmarketable. Stocks
Stocks traded
traded on
on
transactions
transactions with
with a
a large
large number
number of
of
the
the Over
Over the
the
shares
shares placed
placed
Counter
Counter Bulletin
Bulletin
in
in relationship
relationship to
to
Board
Board Exchange,
Exchange,
the
the stock’s
stock’s trading
trading
volume,
volume, and
and stocks
stocks that
that remained
remained unmarketable
unmarketable for
for longer
longer periods
periods of
of time
time had
had higher
higher
discounts,
discounts, on
on average.
average.
The
The second
second part
part of
of the
the analysis
analysis performed
performed by
by TVA
TVA consisted
consisted of
of dividing
dividing the
the data
data into
into four
four
quartiles
quartiles based
based on
on the
the different
different variables.
variables. This
This analysis
analysis revealed
revealed that
that discounts
discounts tend
tend to
to be
be
higher
higher for
for transactions
transactions with
with longer
longer holding
holding periods,
periods, transactions
transactions involving
involving financially
financially
distressed
distressed companies
companies and
and transactions
transactions involving
involving illiquid
illiquid offerings.
offerings.
TVA
TVA concluded
concluded that
that although
although the
the 18.1
18.1 percent
percent average
average implied
implied discount
discount falls
falls below
below the
the
range
range of
of previous
previous studies,
studies, various
various company-specific
company-specific and
and transaction-specific
transaction-specific factors
factors can
can
warrant
warrant a
a discount
discount significantly
significantly higher
higher or
or lower
lower than
than the
the average.
average.
REVENUE
REVENUE RULING
RULING 77-287
77-287
In
In 1977,
1977, in
in Revenue
Revenue Ruling
Ruling 77-287,
77-287, the
the Internal
Internal Revenue
Revenue Service
Service specifically
specifically recognized
recognized
the
the relevance
relevance of
of the
the data
data on
on discounts
discounts for
for restricted
restricted stocks.
stocks. The
The purpose
purpose of
of the
the ruling
ruling was
was
“to
“to provide
provide information
information and
and guidance
guidance to
to taxpayers,
taxpayers, Internal
Internal Revenue
Revenue Service
Service personnel
personnel and
and
others
others concerned
concerned with
with the
the valuation,
valuation, for
for Federal
Federal tax
tax purposes,
purposes, of
of securities
securities that
that cannot
cannot be
be
immediately
immediately resold
resold because
because they
they are
are restricted
restricted from
from resale
resale pursuant
pursuant to
to Federal
Federal security
security
52
laws.”
The ruling
ruling specifically
specifically acknowledges
acknowledges the
the conclusions
conclusions of
of the
the SEC
SEC Institutional
Institutional
laws.”52 The
Investor
Investor Study
Study and
and the
the values
values of
of restricted
restricted securities
securities purchased
purchased by
by investment
investment companies
companies
52
52
Revenue Ruling 77-287 (1977-2 C.B. 319), Section I.
Revenue Ruling 77-287 (1977-2 C.B. 319), Section I.
- 132 as part of the “relevant facts and circumstances that bear upon the worth of restricted
stock.”
All of the studies concerning restricted stock generally deal with minority blocks of stock in
public companies. Therefore, the restricted stock studies may be a useful guide in
assessing a discount for lack of marketability for a minority interest. However, a control
value may also need to reflect a DLOM, although it probably would be smaller than a
DLOM attributable to minority shares. Since a minority interest is more difficult to sell than
a controlling interest, the DLOM is usually larger for minority interests. The average DLOM
ranges between 25 and 45 percent based on the studies discussed previously. Larger
discounts may be appropriate if the starting point is a marketable, minority interest value
based on public guideline company methods.
INITIAL PUBLIC OFFERING STUDIES
Another manner in which the business appraisal community and users of its services
determines discounts for lack of marketability is with the use of closely-held companies that
underwent an initial public offering (IPO) of its stock. In these instances, the value of the
closely-held stock is measured before and after the company went public.
ROBERT W. BAIRD & CO. STUDIES
Robert W. Baird & Co., a regional investment banking firm has conducted 11 studies over
time periods ranging from 1980 through 2000, comparing the prices in closely-held stock
transactions when no public market existed with the prices of subsequent IPOs in the same
stocks. Based on the studies, the average discount has been 47 percent, while the median
discount is 48 percent.
-- 133
133 -WILLAMETTE MANAGEMENT
MANAGEMENT ASSOCIATES
ASSOCIATES STUDY
STUDY
WILLAMETTE
A similar
similar private,
private, unpublished
unpublished study
study has
has been
been performed
performed by
by Willamette
Willamette Management
Management
A
Associates. Based
Based on
on these
these studies,
studies, which
which were
were performed
performed from
from 1975
1975 through
through 2002,
2002, the
the
Associates.
average discounts
discounts ranged
ranged from
from a
a low
low of
of 8
8 percent
percent to
to a
a premium
premium of
of 195.8
195.8 percent.
percent.
average
VALUATION ADVISORS’
ADVISORS’ LACK
LACK OF
OF MARKETABILITY
MARKETABILITY DISCOUNT
DISCOUNT STUDY
STUDY
VALUATION
Studies published
published by
by Valuation
Valuation Advisors
Advisors break
break down
down the
the discount
discount for
for lack
lack of
of marketability
marketability
Studies
based on
on the
the amount
amount of
of time
time that
that transactions
transactions occur
occur prior
prior to
to the
the IPO.
IPO. This
This data
data is
is presented
presented
based
in
in Table
Table 61.
61.
TABLE
TABLE 61
61
VALUATION
ADVISOR’S
LACK
OF
VALUATION ADVISOR’S LACK OF MARKETABILITY
MARKETABILITY DISCOUNT
DISCOUNT STUDY™
STUDY™
TRANSACTION
SUMMARY
RESULTS
BY
YEAR
FROM
1999-2009
TRANSACTION SUMMARY RESULTS BY YEAR FROM 1999-2009
Time of Transaction
TimeBefore
of Transaction
IPO
Before IPO
1999 Results
1999 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2000 Results
2000 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2001 Results
2001 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2002 Results
2002 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2003 Results
2003 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2004 Results
2004 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2005 Results
2005 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2006 Results
2006 Results
Number of Transactions
Number of Transactions
Median Discount
Median Discount
2007 Results
2007 Results
Number of Transactions
Number
of Transactions
Median Discount
Median Discount
1-90
1-90
Days
Days
91-180
91-180
Days
Days
181-270
181-270
Days
Days
271-365
271-365
Days
Days
1-2
1-2
Years
Years
149
149
30.8%
30.8%
175
175
53.9%
53.9%
103
103
75.0%
75.0%
92
92
76.9%
76.9%
175
175
82.0%
82.0%
129
129
28.7%
28.7%
176
176
45.1%
45.1%
116
116
61.2%
61.2%
91
91
68.9%
68.9%
141
141
76.6%
76.6%
15
15
14.7%
14.7%
17
17
33.2%
33.2%
18
18
33.4%
33.4%
17
17
52.1%
52.1%
48
48
51.6%
51.6%
9
9
6.2%
6.2%
12
12
17.3%
17.3%
7
7
21.9%
21.9%
16
16
39.5%
39.5%
36
36
55.0%
55.0%
12
12
28.8%
28.8%
22
22
22.2%
22.2%
24
24
38.4%
38.4%
21
21
39.7%
39.7%
44
44
61.4%
61.4%
37
37
16.7%
16.7%
74
74
22.7%
22.7%
63
63
40.0%
40.0%
59
59
56.3%
56.3%
101
101
57.9%
57.9%
18
18
14.8%
14.8%
59
59
26.1%
26.1%
58
58
41.7%
41.7%
62
62
46.1%
46.1%
99
99
45.5%
45.5%
25
25
20.7%
20.7%
76
76
20.8%
20.8%
69
69
40.2%
40.2%
72
72
46.9%
46.9%
106
106
57.2%
57.2%
46
46
11.1%
11.1%
76
76
29.4%
29.4%
92
92
36.3%
36.3%
79
79
47.5%
47.5%
124
124
53.1%
53.1%
- 134 TABLE 61
VALUATION ADVISOR’S LACK OF MARKETABILITY DISCOUNT STUDY™
TRANSACTION SUMMARY RESULTS BY YEAR FROM 1999-2009
Time of Transaction
Before IPO
1-90
Days
2008 Results
Number of Transactions
Median Discount
2009 Results
Number of Transactions
Median Discount
1999-2009 Transaction Results
Number of Transactions
Average Discount
91-180
Days
181-270
Days
271-365
Days
1-2
Years
4
20.3%
4
19.2%
7
45.9%
8
40.4%
9
49.3%
11
7.7%
18
30.0%
9
26.8%
3
47.1%
0
N/A
498
25.0%
755
37.5%
564
48.5%
483
57.6%
715
58.7%
Source: The Valuation Advisors’ Discount for Lack of Marketability Database (September 28, 2010).
The data above clearly reflects that the longer the period of time before a liquidity event
(the IPO), the greater the discount. The liquidity of a minority interest in a closely-held
company can take a considerable amount of time if a sale of the company is not planned.
Therefore, it seems that the discounts from this study approximate 60 percent.
OTHER CONSIDERATIONS
Another consideration in determining a discount for lack of marketability is the cost of
flotation of a public offering. These costs are generally significant and will frequently
include payments to attorneys, accountants, and investment bankers.
The costs
associated with smaller offerings can be as much as 25 to 30 percent of a small company’s
equity.
--- 135
135
135 ---
CONCLUSION
CONCLUSION
CONCLUSION
As
As
far
back
as
1977,
through
Revenue
Ruling
77-287,
the
Internal
Revenue
Service
As far
far back
back as
as 1977,
1977, through
through Revenue
Revenue Ruling
Ruling 77-287,
77-287, the
the Internal
Internal Revenue
Revenue Service
Service
recognized
recognized
the
effectiveness
of
restricted
stock
study
data
in
providing
useful
information
recognized the
the effectiveness
effectiveness of
of restricted
restricted stock
stock study
study data
data in
in providing
providing useful
useful information
information
for
for
the
quantification
of
discounts
for
lack
of
marketability.
The
Baird,
Willamette
and
for the
the quantification
quantification of
of discounts
discounts for
for lack
lack of
of marketability.
marketability. The
The Baird,
Baird, Willamette
Willamette and
and
Valuation
Valuation
Advisors’
studies
of
transactions
in
closely-held
stocks
did
not
exist
at
that
time,
Valuation Advisors’
Advisors’ studies
studies of
of transactions
transactions in
in closely-held
closely-held stocks
stocks did
did not
not exist
exist at
at that
that time,
time,
but
but the
the IRS
IRS and
and the
the courts
courts have
have been
been receptive
receptive to
to using
using this
this data
data to
to assist
assist in
in quantifying
quantifying
but
the
IRS
and
the
courts
have
been
receptive
to
using
this
data
to
assist
in
quantifying
discounts
discounts
for
lack
of
marketability.
discounts for
for lack
lack of
of marketability.
marketability.
The
The
IPO
studies
are
proof
that
larger
discounts
can
be
justified
than
those
quoted
from
the
The IPO
IPO studies
studies are
are proof
proof that
that larger
larger discounts
discounts can
can be
be justified
justified than
than those
those quoted
quoted from
from the
the
restricted
restricted stock
stock studies.
studies. One
One of
of the
the best
best explanations
explanations of
of why
why a
a DLOM
DLOM varies
varies from
from case
case to
to
restricted
stock
studies.
One
of
the
best
explanations
of
why
a
DLOM
varies
from
case
to
case
case
was
included
in
an
article
published
by
Robert
E.
Moroney
entitled
“Why
25%
case was
was included
included in
in an
an article
article published
published by
by Robert
Robert E.
E. Moroney
Moroney entitled
entitled “Why
“Why 25%
25%
53
53
Discount
Discount
for
Nonmarketability
in
One
Valuation,
100%
in
Another?”
In
Moroney’s
article,
Discount for
for Nonmarketability
Nonmarketability in
in One
One Valuation,
Valuation, 100%
100% in
in Another?”
Another?”53 In
In Moroney’s
Moroney’s article,
article,
he
he
points
out
11
different
factors
that
should
be
considered
in
the
application
of
a
DLOM.
he points
points out
out 11
11 different
different factors
factors that
that should
should be
be considered
considered in
in the
the application
application of
of a
a DLOM.
DLOM.
These
factors
are
as
follows:
These
These factors
factors are
are as
as follows:
follows:
1.
1.
1.
High
Companies
that
pay
dividends
to
High
dividend
yield:
tend
be
more
High dividend
dividend yield:
yield: Companies
Companies that
that pay
pay dividends
dividends tend
tend to
to be
be more
more
marketable
than
companies
that
do
not.
marketable
than
companies
that
do
not.
marketable than companies that do not.
2.
2.
2.
Bright
Companies
that
have
bright
Bright
growth
prospects:
growth
Bright growth
growth prospects:
prospects: Companies
Companies that
that have
have bright
bright growth
growth
prospects
are
easier
to
sell
than
companies
that
do
not.
This
prospects
are
easier
to
sell
than
companies
that
do
not.
This
makes
prospects are easier to sell than companies that do not. This makes
makes
them
more
marketable.
them more
more marketable.
marketable.
them
3.
3.
3.
Swing
Swing
value:
If
a
block
of
stock
has
swing
value,
it
may
be
more
Swing value:
value: If
If a
a block
block of
of stock
stock has
has swing
swing value,
value, it
it may
may be
be more
more
marketable
than
the
typical
small
block
of
stock.
This
swing
value
marketable than
marketable
than the
the typical
typical small
small block
block of
of stock.
stock. This
This swing
swing value
value
could
could
include
a
premium.
This
can
be
emphasized
where
a
2
percent
could include
include a
a premium.
premium. This
This can
can be
be emphasized
emphasized where
where a
a2
2 percent
percent
interest
exists
with
two
49
percent
interests.
The
2
percent
interest
exists
with
two
49
percent
interests.
The
2
percent
interest
interest exists with two 49 percent interests. The 2 percent interest
interest
can
be
worth
quite
a
bit
to
either
49
percent
interest
if
it
will
give
can
be
worth
quite
a
bit
to
either
49
percent
interest
if
it
will
give
that
can be worth quite a bit to either 49 percent interest if it will give that
that
interest
control
of
the
company.
interest
control
of
the
company.
interest control of the company.
4.
4.
4.
Restrictions
Restrictions
on
transfer:
Restrictions
on
transfer
make
the
stock
less
Restrictions on
on transfer:
transfer: Restrictions
Restrictions on
on transfer
transfer make
make the
the stock
stock less
less
marketable
due
to
the
difficulty
in
selling
them.
marketable
due
to
the
difficulty
in
selling
them.
marketable due to the difficulty in selling them.
53
53
53
Taxes,
May 1977.
Taxes,
Taxes, May
May 1977.
1977.
-- 136
136 -5.
5.
Buy-sell
go either
either way.
Buy-sell Agreements:
Agreements: Buy-sell
Buy-sell Agreements
Agreements can
can go
way. The
The
Agreement
can
create
a
market
for
the
stock,
making
it
more
Agreement can create a market for the stock, making it more
marketable,
marketable, or
or the
the Agreement
Agreement can
can restrict
restrict the
the sale
sale making
making itit less
less
marketable.
marketable.
6.
6.
Stock’s
Stock’s quality
quality grade:
grade: The
The better
better the
the quality
quality of
of the
the stock,
stock, the
the more
more
marketable
marketable itit will
will be.
be. This
This can
can be
be evidenced
evidenced by
by comparing
comparing the
the subject
subject
company
company to
to others
others for
for supporting
supporting strengths
strengths and
and weaknesses.
weaknesses.
7.
7.
Controlling
honesty: The
Controlling shareholder’s
shareholder’s honesty:
The integrity
integrity of
of the
the controlling
controlling
shareholder
can
make
a
big
difference
regarding
the
ability
shareholder can make a big difference regarding the ability to
to sell
sell a
a
partial
interest
in
a
company.
If
the
controlling
shareholder
tends
to
partial interest in a company. If the controlling shareholder tends to
deal
deal with
with the
the other
other shareholders
shareholders honestly,
honestly, the
the other
other interests
interests in
in that
that
company
tend
to
be
more
marketable.
company tend to be more marketable.
8.
8.
Controlling
Controlling shareholder’s
shareholder’s friendliness:
friendliness: Similar
Similar to
to the
the shareholder’s
shareholder’s
honesty,
the
manner
in
which
he
or
she
deals
with
others
honesty, the manner in which he or she deals with others can
can make
make
the
stock
more
marketable.
the stock more marketable.
9.
9.
Prospects
Prospects for
for the
the corporation:
corporation: If
If a
a corporation
corporation has
has good
good prospects
prospects for
for
the
future,
it
will
generally
be
more
marketable.
the future, it will generally be more marketable.
10.
10.
Prospects
Prospects for
for the
the industry:
industry: A
A company
company that
that is
is in
in an
an industry
industry with
with good
good
prospects
will
also
generally
be
more
marketable.
prospects will also generally be more marketable.
11.
11.
Mood
Mood of
of the
the investing
investing public:
public: When
When the
the investing
investing public
public is
is bullish,
bullish, they
they
are
more
readily
willing
to
make
an
investment.
This
can
increase
are more readily willing to make an investment. This can increase the
the
marketability.
marketability.
In this
this assignment,
assignment, we
we are
are appraising
appraising a
a minority
minority interest
interest that
that has
has no
no control.
control. Most
Most of
of the
the
In
marketability
marketability studies
studies have
have supported
supported discounts
discounts of
of 35
35 to
to 40
40 percent.
percent. These
These studies
studies relate
relate
to
to minority
minority interests
interests in
in companies
companies that
that are
are either
either public,
public, with
with restrictions
restrictions under
under Rule
Rule 144,
144,
or
or private,
private, but
but about
about to
to go
go public.
public. Therefore,
Therefore, an
an argument
argument can
can easily
easily be
be made
made to
to support
support
a
a higher
higher discount
discount for
for an
an interest
interest in
in a
a closely-held
closely-held company
company that
that is
is not
not going
going public.
public. The
The
points
points that
that we
we have
have taken
taken into
into consideration
consideration with
with respect
respect to
to the
the Moroney
Moroney factors
factors include
include
the
the following:
following:
1.
1.
The
The Company
Company has
has made
made substantial
substantial but
but erratic
erratic dividend
dividend payments
payments historically.
historically. At
At
a
a minimum,
minimum, dividends
dividends are
are issued
issued to
to shareholders
shareholders to
to cover
cover taxes,
taxes, as
as required
required per
per
- 137 The Agreement. Distributions are particularly important to an investor in an S
corporation, as the investor is responsible for the pass-through tax burden. The
requirement for Vogue to pay dividends sufficient to satisfy pass-through tax
liabilities is a positive factor, which would decrease the discount for lack of
marketability.
2.
Vogue has a stable long-term outlook, although growth is expected to be lower than
that of publicly-traded alternatives in 2011 and 2012. The Company is likely to
continue to generate stable levels of revenues and net income, which should make
the stock more marketable.
3.
No swing value exists for a minority interest in Vogue. All decisions governing Vogue
are made through a voting trust.
4.
Transfers of the shares in Vogue are not permitted except to family members and
other shareholders. This makes the stock less marketable.
5.
There are no buy-sell Agreements as of the valuation date. The lack of an
Agreement would make this stock interest less marketable.
6.
The financial condition of The Company is strong. This would make the stock more
marketable.
7.
There is no reason to believe that the controlling shareholder would be less than
honest with a minority investor. This factor is neutral.
8.
There is no reason to believe that the controlling shareholder would not be friendly
to a minority investor. This factor is neutral.
- 138 9.
While growth prospects for Vogue are limited, The Company has been and expects
to continue to generate stable results. The relatively low level of risk associated with
Vogue’s earnings should drive The Company’s short-term growth. This factor makes
the stock more marketable.
10.
Health care REITs have historically been more stable than other REIT sectors. This
is a positive factor for The Company.
11.
The investing public remains relatively uncertain about the strength and
sustainability of the economic recovery.
The studies described on the previous pages indicate that when an investor does not have
access to an active, liquid market, his investment is worth less. An investor in The
Company does not have access to an active, liquid market and therefore, these studies are
relevant, as they are objective information and data that measures the loss in value due to
illiquidity.
A seller on the other hand would gain liquidity and the ability to determine his or her own
investments. The ability to obtain control and liquidity has value to a seller that might cause
him to reduce the selling price.
As an additional methodology, consideration was given to the Black-Scholes option pricing
model. David B.H. Chaffe III reflects on the use of option pricing models to estimate the
costs of marketability as follows:
When provided with an option to sell, otherwise nonmarketable shares are
given marketability (for instance, we see this type of provisions in Employee
Share Ownership Plans, where, in such cases, marketable level values are
found).
-- 139
139 -Following
Following this
this logic,
logic, the
the cost
cost or
or price
price of
of the
the option
option to
to sell
sell (a
(a put
put option)
option)
represents
all
(or
a
major
portion)
of
the
discount
to
be
taken
from
represents all (or a major portion) of the discount 54to be taken from the
the
marketable
price
to
price
the
nonmarketable
shares.
54
marketable price to price the nonmarketable shares.
This
This writer
writer indicates
indicates that
that the
the cost
cost of
of marketability
marketability is
is similar
similar to
to buying
buying a
a put
put option
option on
on the
the
underlying
underlying security.
security. The
The put
put option
option gives
gives the
the investor
investor the
the right
right to
to sell
sell a
a stock
stock at
at some
some point
point
in
in the
the future,
future, which
which reflects
reflects marketability.
marketability. J.
J. Michael
Michael Julius
Julius and
and Matthew
Matthew R.
R. Crow
Crow of
of Mercer
Mercer
Capital,
Capital, Inc.
Inc. agree
agree in
in their
their article
article titled,
titled, “Why
“Why Not
Not Black-Scholes
Black-Scholes Rather
Rather Than
Than The
The QMDM?”
QMDM?”
where
where they
they state:
state:
We
We find
find the
the Black-Scholes
Black-Scholes option
option pricing
pricing model
model useful
useful when
when valuing
valuing options
options
on
publicly
traded
securities
and
restricted
stocks
with
registered
on publicly 55traded securities and restricted stocks with registered
counterparts.
counterparts.55
In
In the
the case
case of
of Vogue,
Vogue, the
the stock
stock has
has not
not been
been restricted
restricted by
by the
the SEC,
SEC, but
but instead
instead by
by The
The
Company
Company itself.
itself. The
The restrictions
restrictions on
on the
the stock
stock are
are based
based on
on the
the shareholders’
shareholders’ agreement,
agreement,
and
and its
its closely-held
closely-held status.
status. While
While this
this is
is not
not a
a pure
pure case
case of
of where
where a
a stock
stock option
option model
model
applies,
applies, we
we believe
believe that
that itit can
can provide
provide us
us with
with a
a reasonable
reasonable basis
basis for
for a
a discount.
discount.
In
In calculating
calculating the
the value
value of
of a
a put
put option
option on
on The
The Company,
Company, we
we used
used the
the Black-Scholes
Black-Scholes option
option
pricing
pricing model
model with
with the
the following
following inputs:
inputs:
Minority, Marketable Price Per Unit56
Minority, Marketable Price Per Unit56
Exercise Price
Exercise Price
Term (Years)
Term (Years)
Volatility
Volatility
Dividend Yield
Dividend Yield
Risk Free Rate
Risk Free Rate
= $
= $
=
=
=
=
=
=
=
=
=
=
2,673
2,673
2,673
2,673
Various
Various
Various
Various
0%
0%
Various
Various
54
54
David B.H. Chaffe III, “Option Pricing as a Proag for Discount for Lack of Marketability in
David
ChaffeValuations,”
III, “Option Business
Pricing asValuation
a Proag Review,
for Discount
for No.
Lack
of Marketability
in
PrivateB.H.
Company
Vol. 12,
4 (December
1993):
Private
Company
Valuations,”
Business
Valuation
Review,
Vol.
12,
No.
4
(December
1993):
182.
182.
55
55
J. Michael Julius, ASA, CFA and Matthew R. Crow, A.M., “Why Not The Black-Scholes
J.
Michael
Julius,
ASA,Rather
CFA and
Matthew
R. Crow,Z.A.M.,
“Why NotMercer,
The Black-Scholes
Option
Pricing
Model
Than
The QMDM,”
Christopher
ASA, CFA,
Option
Pricing
Model
Rather
Than
The
QMDM,”
Z.
Christopher
Mercer,
ASA, CFA,
Quantifying Marketability Discounts (Memphis: Peabody, 1997): 403.
Quantifying Marketability Discounts (Memphis: Peabody, 1997): 403.
56
56
Based on the minority, marketable value determined in this valuation and 27,830 shares of
Based
onstock
the minority,
marketable
value31,
determined
in this valuation and 27,830 shares of
common
outstanding
as of March
2010.
common stock outstanding as of March 31, 2010.
- 140 Since no empirical data exists on the time it takes to sell minority interests, we looked at
various holding periods for the put option. Longer holding periods were analyzed since an
interest in a closely-held company cannot be converted to cash immediately and the
holding periods tend to be lengthy. The results of our Black-Scholes pricing analysis are
presented in Table 62.
TABLE 62
BLACK-SCHOLES RESULTS
6 Month
1 Year
2 Years
3 Years
5 Years
7.68%
16.40%
30.79%
31.96%
29.35%
The discounts shown in Table 60 serve as a proag for the cost of liquidity for an investor
in an industry related to Vogue. The option pricing model indicates that the cost of liquidity
ranged from 7.68 to 31.96 percent, depending on the holding period.
The largest assumption in the option pricing model is that the future volatility of the
guideline companies will resemble the past. In the near term, volatility in the REIT market
will remain somewhat low due to the overall stability of this market. Lower volatility would
increase the liquidity of an investment in a closely-held entity.
Another factor considered is that the volatility calculated using the option pricing model
reflects the volatility of a number of large publicly-traded guideline companies, each
operating a number of health care facilities. The diversification inherent to holding multiple
investments reduces the volatility, and therefore increases the liquidity of an investment in
these companies in comparison to an investment in The Company. In addition, Vogue is
subject to a higher level of risk, thus increasing its potential volatility and reducing liquidity.
- 141 Finally, the holding period for an investment in The Company is expected to be longer than
five years as there is no liquidity event anticipated.
Based on the data gathered through the numerous restricted stock studies discussed
previously and the indicated marketability discounts suggested by the Black-Scholes option
pricing model, we concluded a 25 percent DLOM is appropriate for an investment in Vogue.
- 142 - 142 VOGUE CORP.
VOGUE CORP.
BALANCE
SHEET
BALANCE
SHEET
AS OF
AS OF
Current Assets
CashAssets
Current
Marketable Securities
Cash
Accounts
Receivable
Marketable
Securities
Stockholder
Loans
Accounts Receivable
Accrued Interest
Receivable
Stockholder
Loans
Mortgage
and Real
Estate Loans
Accrued Interest
Receivable
Notes
andand
Bonds
Mortgage
Real Estate Loans
Partnerships
Notes and Bonds
Miscellaneous Receivables
Partnerships
Miscellaneous Receivables
Total Current Assets
Total
Fixed Current
Assets Assets
Land
Fixed
Assets
Building
& Improvements
Land
Construction
in Progress
Building & Improvements
Construction in Progress
Gross Fixed Assets
Accumulated
Depreciation
Gross Fixed Assets
Accumulated Depreciation
Net Fixed Assets
Net
Fixed
Assets
Other
Assets
Intangible
Other Assets Assets (Net)
Security
IntangibleDeposits
Assets (Net)
Excess
of Subsidiary
SecurityCost
Deposits
Other Assets
Excess
Cost of Subsidiary
Other Assets
Total Other Assets
Total Other Assets
TOTAL ASSETS
TOTAL ASSETS
Current Liabilities
Accounts
Payable
Current
Liabilities
Accrued
AccountsExpenses
Payable
Sales
Taxes
Payable
Accrued
Expenses
Income
TaxesPayable
Payable
Sales Taxes
Income Taxes Payable
Total Current Liabilities
Total Current Liabilities
Total Long-Term Liabilities
Total Long-Term Liabilities
Total Liabilities
Total
LiabilitiesEquity
Stockholders'
Common Stock
Stockholders'
Equity
Paid
- In Capital
Common
Stock
Retained
Earnings
Paid
- In Capital
Retained Earnings
Total Stockholders' Equity
Total Stockholders' Equity
TOTAL LIABILITIES AND
STOCKHOLDERS'
EQUITY
TOTAL
LIABILITIES AND
STOCKHOLDERS' EQUITY
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2005
2005
23,682,393
15,634,493
23,682,393
427,558
15,634,493
1,080,000
427,558
1,065
1,080,000
703,173
1,065
25,000
703,173
7,813,175
25,000
7,813,17549,366,857
49,366,857
2,805,867
32,937,555
2,805,867
1,629,312
32,937,555
1,629,312
37,372,734
22,117,709
37,372,734
22,117,709
15,255,025
15,255,025
77,736
7,020
77,736
2,788,353
7,020
2,788,3532,873,109
2,873,109
67,494,991
67,494,991
546,147
389,490
546,147
127
389,490
9,960
127
9,960
945,724
945,724
27,100
27,100
972,824
972,824
2,783
3,073,993
2,783
63,445,391
3,073,993
63,445,391
66,522,167
66,522,167
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
Schedule 1
Schedule 1
December 31,
2006
2007 31,
December
2006
2007
27,521,645 $ 27,087,253 $
23,031,222 $ 24,750,576
27,521,645
27,087,253 $
340,084
406,813
23,031,222
24,750,576
460,000
350,000
340,084
406,813
9,132
866
460,000
350,000
665,789
623,916
9,132
866
25,000
25,000
665,789
623,916
6,626,868
8,383,532
25,000
25,000
6,626,8688,383,53258,679,740 $ 61,627,956 $
58,679,740 $ 61,627,956 $
2,805,867 $ 2,805,867 $
34,734,004
2,805,867 $ 34,734,894
2,805,867 $
147,947
2,310,412
34,734,004
34,734,894
147,947
2,310,412
37,687,818 $ 39,851,173 $
23,083,209 $ 23,949,621
37,687,818
39,851,173 $
23,083,209
23,949,621
14,604,609 $ 15,901,552 $
14,604,609 $ 15,901,552 $
32,406 $
13,984 $
7,020 $
7,020 $
32,406
13,984
2,788,353
2,788,353
7,020
7,020
(20)
(8)
2,788,353
2,788,353
(20)
(8)
2,827,759 $ 2,809,349 $
2,827,759 $ 2,809,349 $
76,112,108 $ 80,338,857 $
76,112,108 $ 80,338,857 $
2008
2008
28,404,942
11,106,853
28,404,942
672,676
11,106,853
350,000
672,676
762
350,000
577,016
762
25,000
577,016
9,692,929
25,000
9,692,92950,830,178
50,830,178
2,805,867
32,368,645
2,805,867
2,720,577
32,368,645
2,720,577
37,895,089
22,415,380
37,895,089
22,415,380
15,479,709
15,479,709
9,297
(20,080)
9,297
2,788,353
(20,080)
2,788,3532,777,570
2,777,570
69,087,457
69,087,457
165,494
507,112
165,494
127
507,112
1,595
127
1,595
674,328
674,328
27,100
27,100
701,428
701,428
2,783
3,073,993
2,783
72,333,904
3,073,993
72,333,904
75,410,680
75,410,680
114,491
224,487
114,491
127
224,487
127339,105
339,105
339,105
339,105
2,783
3,073,993
2,783
65,671,576
3,073,993
65,671,576
68,748,352
68,748,352
$
$
$
$
$
$
$
$
$
$
197,872
291,400
197,872
127
291,400
19,757
127
19,757
509,156
509,156
27,100
27,100
536,256
536,256
2,783
3,073,993
2,783
76,725,825
3,073,993
76,725,825
79,802,601
79,802,601
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2009
2009
36,496,943
8,494,396
36,496,943
1,275,911
8,494,396
1,036,931
1,275,911
7,913
1,036,931
524,485
7,913
25,000
524,485
11,533,689
25,000
26,831
11,533,689
26,831
59,422,099
59,422,099
2,805,867
32,689,010
2,805,867
6,629,845
32,689,010
6,629,845
42,124,722
23,251,822
42,124,722
23,251,822
18,872,900
18,872,900
4,609
9,920
4,609
2,788,353
9,920
2,788,3532,802,882
2,802,882
81,097,881
81,097,881
140,200
360,408
140,200
127
360,408
127500,735
500,735
27,100
27,100
527,835
527,835
2,783
3,073,993
2,783
77,493,270
3,073,993
77,493,270
80,570,046
80,570,046
$ 67,494,991 $ 76,112,108 $ 80,338,857 $ 69,087,457 $ 81,097,881
$ 67,494,991 $ 76,112,108 $ 80,338,857 $ 69,087,457 $ 81,097,881
To be used only in conjunction with valuation report as of March 31, 2010.
To be used only in conjunction with valuation report as of March 31, 2010.
- 142 - 143 VOGUE CORP.
VOGUE CORP.
BALANCE
SHEET
INCOME STATEMENT
AS OF
FOR
THE
Schedule 1
Schedule 2
December
31, 31,
Years Ended
December
2006
2007
2008
2006
2007
2008
2005
2005
2009
2009
Current Assets
Revenues
Revenues
Cash
Marketable
SecuritiesIncome
Real
Estate Partnership
$ $10,651,001
11,034,743 $$ 28,404,942
11,134,872 $$ 36,496,943
10,976,190
23,682,393$ $ 10,848,389
27,521,645 $ $ 27,087,253
15,634,493
23,031,222
24,750,576
11,106,853
8,494,396
204,912
213,746
224,623
207,273
206,115
TotalStockholder
Revenues Loans
$
Accounts Receivable
Accrued Interest Receivable
Operating Expenses
Mortgage and Real Estate Loans$
Accounting
Notes and Bonds
Amortization
Partnerships
Bad
Debts
Miscellaneous
Receivables
Charitable
Contributions
Data Processing
Total
Current Assets
Depreciation
Employee Benefit Programs
Fixed
Assets
Entertainment
Land Compensation
Officers'
Building -&General
Improvements
Insurance
Construction
in Progress
Legal
Fees
Miscellaneous
Penalties
Gross
Fixed Assets
Postage & Delivery
Accumulated
Depreciation
Professional Fees
Rents
Net
Fixed Assets
Repairs and Maintenance
Other
Assets
Salaries
& Wages
Intangible
Assets (Net)
Seminars
& Meetings
Telephone
Security Deposits
Travel
Excess Cost of Subsidiary
Utilities
Other Assets
Dues and Subscriptions
Supplies
Total Other Assets
Messenger Service
Miscellaneous General
TOTALand
ASSETS
Admin. Expenses
Taxes - Real Estate
Current Liabilities
TotalAccounts
Operating Payable
Expenses
Accrued Expenses
Operating
SalesIncome
Taxes(Loss)
Payable
Income
Other Income Taxes Payable
Interest Income
Total
Current
Liabilities
Dividend
Income
427,558
10,855,913
1,080,000$
1,065
703,173
17,499 $
25,000
37,574
7,813,175
39 9,223
9,132
665,789
25,284 $
25,000
37,573
6,626,868
75,056
71 9,763
Royalties
Loss on Sale of Assets
15,135
7,913
524,485
$
25,000
4,688
11,533,689 26,831 8
9,724
99,043
1,589
118,556
1,488
167,645
1,619
120,825
498
211,132
3,252
277,601
10,177
1,281
2,532
8,457
37,701
38,615
38,360
24,914
49,070
$
$
3,684
418,918
77,736 $
6,736
7,914
7,020
21,895
2,788,353
- 2,519
6,364
2,873,109
$
2,116
7,978
452,144
32,406
4,603 $
8,098
7,020
24,695
2,788,353
15,317
(20)
3,004
6,590
2,827,759 $
2,657
2,549
5,532
458,962
499,009
13,984
9,297
2,369 $
3,074 $
7,712
7,992
7,020
(20,080)
36,227
27,499
2,788,353
2,788,353
20,135
(8)
-3,276
3,476
7,714 $ 2,777,570
7,073 $
2,809,349
2,896
2,254
2,749
540,599
4,609
6,853
9,411
9,920
68,654
2,788,353
-3,994
11,319
2,802,882
2,002
$ 67,494,991
$ 76,112,108
4,521
4,894 $ 80,338,857
11,345 $ 69,087,457
27,163 $ 81,097,881
21,177
164,176
389,490
8,234,468
127$
9,960
$
291,149
507,112
8,352,250
127 $
1,595
468,169 $
1,042,019 $
945,724 $ 1,094,532
674,328 $
593,643
681,627
1,420,904
27,100
27,100
(35,170)
289,442
2
972,824
$
701,428
- $
316,491
2,633,450
197,872 $$
291,400
8,625,916
127 $
19,757
1,130,206 $
509,156 $
1,407,837
1,584,850
27,100
(37,615)
891
536,256- $
241,055
2,690,077
114,491 $$
224,487
8,652,068
127 $
-
589,428 $
339,105
836,464 $
(17,507)
930
339,105
21,569 $
194,999
2,913,205
140,200
360,408
8,269,100
127
189,874
500,735
485,170
-
27,100
340,982
64
527,835
7,896
1,430,884 $
1,023,986
$ 1,708,269
2,783$ $ 3,846,899
2,783 $ $ 4,086,169
2,783 $$
2,783 $
2,783
3,073,993
3,073,993
3,073,993
3,073,993
3,073,993
72,333,904
$ 63,445,391
- $
9,731 $ 76,725,825
78,227 $ 65,671,576
103,311 $ 77,493,270
19,347
-
Total
Stockholders'
Equity
Intangible
Drilling Costs
762
577,016
$
25,000
4,688
9,692,929115
70,750
76,939 $ 15,901,552
80,658 $ 15,479,709
78,809 $ 18,872,900
77,417
$ 15,255,025
$ 14,604,609
$
$
19,689
1,275,911
5
- $ 39,851,173
10,205 $ 37,895,089
1,931 $ 42,124,722
72
$ 37,372,734
$ 37,687,818
5,572
4,280
1,509
3,853
2,966
22,117,709
23,083,209
23,949,621
22,415,380
23,251,822
$
Gain on Sale of Assets
866
623,91625,000
18,423
8,383,532
25-
672,676
11,342,145
11,182,305
350,000 $ 1,036,931
$ 2,805,867
$ 2,805,867
483,749
501,001 $ 2,805,867
547,655 $ 2,805,867
694,338 $ 2,805,867
844,430
32,937,555
34,734,004
34,734,894
32,368,645
32,689,010
11,389
11,102
10,262
4,349
3,786
1,629,312
147,947
2,310,412
2,720,577
6,629,845 9,918
5,595
30
43,886
$ $ 2,621,445
546,147$ $ 2,709,885
165,494 $ $
$
406,813
11,259,366
350,000 $
$ 49,366,857
$ 58,679,740
920,950
973,256 $ 61,627,956
866,413 $ 50,830,178
870,077 $ 59,422,099
836,446
Total
Long-Term
Other
Income Liabilities
Total
Liabilities
Section
1231 Gain
Stockholders' Equity
Total Other Income
Common Stock
- In Capital
OtherPaid
Expenses
Retained
Earnings
Interest
Expense
340,084
11,062,135
460,000 $
-
-
4,889,288
3,186,566
$ 66,522,167
$ 75,410,680
475
2,185 $ 79,802,601
- $ 68,748,352- $ 80,570,046 -
Other Expenses
297,035
195,219
384,941
400,125
273,034
100
2,363
2,403
311
14,494
13,242 $ 80,338,857
22,943 $ 69,087,457
21,005 $ 81,097,881
10,568
$ 67,494,991
$ 76,112,108
TOTAL
AND
SectionLIABILITIES
59(E)(2) Expenditures
Foreign
Taxes
STOCKHOLDERS'
EQUITY
Total Other Expenses
$
312,104 $
220,377 $
488,474 $
5,416,132 $
3,489,826
Total Other Income (Expenses)
$
1,396,165 $
3,626,522 $
3,597,695 $
(3,985,248) $
(2,465,840)
NET INCOME
$
9,630,633 $
11,978,772 $
12,223,611 $
4,666,820 $
5,803,260
To be used only in conjunction with valuation report as of March 31, 2010.
To be used only in conjunction with valuation report as of March 31, 2010.
- 142 - 144 VOGUE CORP.
VOGUE CORP.
BALANCE
SHEET
BALANCE SHEET
AS OF 31, 2010
AS OF MARCH
2005
2006
Schedule 1
Schedule 3
December 31,
2007
2008
2009
Current Assets Current Assets
Cash
$ 6,608,512
Cash
$ 23,682,393 $ 27,521,645 $ 27,087,253
$ 28,404,942 $ 36,496,943
Marketable Securities
15,634,493
23,031,222
24,750,57617,775,430
11,106,853
8,494,396
Marketable Securities
Accounts Receivable
427,558
340,084
406,813
672,676
1,275,911
Accounts Receivable
613,803
Stockholder Loans
1,080,000
460,000
350,000
350,000
1,036,931
Prepaid Expenses
63,647762
Accrued Interest Receivable
1,065
9,132
866
7,913
Mortgage and Real
Estate Loans
665,789
623,916 1,772,545
577,016
524,485
Stockholder
Loans 703,173
Notes and Bonds
25,000
Partnerships
7,813,175
Current Assets
Miscellaneous Total
Receivables
-
25,000
6,626,868
-
25,000
25,000
8,383,532
9,692,929
$ -26,833,937 -
25,000
11,533,689
26,831
Total Current Assets
$ 49,366,857 $ 58,679,740 $ 61,627,956 $ 50,830,178 $ 59,422,099
Fixed Assets
Fixed Assets
Land
$ 2,805,867
Land
$ 2,805,867 $ 2,805,867 $ 2,805,867 $ 2,805,867 $ 2,805,867
Building & Improvements
Building & Improvements
32,937,555
34,734,004
34,734,89439,695,140
32,368,645
32,689,010
Construction in Progress
(99,264)
Construction in Progress
1,629,312
147,947
2,310,412
2,720,577
6,629,845
Gross Fixed Assets
$ 37,895,089 $ 42,124,722
Gross Fixed Assets$ 37,372,734 $ 37,687,818 $ 39,851,173
$ 42,401,743
Accumulated Depreciation
22,117,709
23,083,209
23,949,621
22,415,380
23,251,822
Accumulated Depreciation
23,479,180
Net Fixed Assets
$ 15,255,025 $ 14,604,609 $ 15,901,552 $ 15,479,709 $ 18,872,900
Other Assets
Net Fixed Assets
$ 18,922,563
Intangible Assets (Net)
$
77,736 $
32,406 $
13,984 $
9,297 $
4,609
Security Deposits
7,020
7,020
7,020
(20,080)
9,920
Assets
Excess Cost ofOther
Subsidiary
2,788,353
2,788,353
2,788,353
2,788,353
2,788,353
Excess
Cost of Subsidiary $(8) 2,788,353 Other Assets
(20)
Total Other Assets
Investment in Real Estate Joint Venture
201,779
$ 2,873,109 $ 2,827,759 $ 2,809,349 $ 2,777,570 $ 2,802,882
$ 2,990,132
TOTAL ASSETS Total Other Assets $ 67,494,991 $ 76,112,108 $ 80,338,857
$ 69,087,457 $ 81,097,881
Current Liabilities TOTAL ASSETS
Accounts Payable
$
Accrued Expenses
Sales Taxes Payable
Current Liabilities
Income Taxes Payable
546,147 $
389,490
127
9,960
165,494 $
507,112
127
1,595
197,872 $
291,400
127
19,757
Total Current Liabilities
$
Accrued Expenses
945,724 $
674,328 $
509,156 $ 498,866
339,105 $
Accounts Payable
Total Long-Term Liabilities
Total Current Liabilities
27,100
27,100
$ 48,746,632
114,491 $
$
27,100
$
224,487
127
-
97,853
596,719
-
140,200
360,408
127
500,735
27,100
Total Liabilities
$
972,824 $
701,428 $
536,256 $
339,105 $
527,835
Stockholders' Equity
Stockholders' Equity
Common Stock
$
2,783 $
2,783 $
2,783 $
2,783 $
2,783
$
2,783
Paid - In Capital Common Stock
3,073,993
3,073,993
3,073,993
3,073,993
3,073,993
Retained EarningsPaid - In Capital 63,445,391
72,333,904
76,725,825 3,073,993
65,671,576
77,493,270
Retained Earnings
Total Stockholders' Equity
45,073,137
$ 66,522,167 $ 75,410,680 $ 79,802,601 $ 68,748,352 $ 80,570,046
TOTAL LIABILITIES
AND
Total
Stockholders' Equity
$ 48,149,913
STOCKHOLDERS' EQUITY
$ 67,494,991 $ 76,112,108 $ 80,338,857 $ 69,087,457 $ 81,097,881
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 48,746,632
To be used only in conjunction with valuation report as of March 31, 2010.
To be used only in conjunction with valuation report as of March 31, 2010.
- 142 - 145 VOGUE CORP.
VOGUE CORP.
BALANCE
SHEET
INCOME STATEMENT
AS OF
FOR THE THREE MONTHS
ENDED MARCH 31, 2010
2005
December 31,
2007
2008
2009
$ 3,042,833
Current Assets
Cash
$ 23,682,393 $ 27,521,645 $ 27,087,253 $ 28,404,942 $ 36,496,943
Marketable Securities
8,494,396
Operating Expenses 15,634,493 23,031,222 24,750,576 11,106,853
Accounts Receivable
427,558
340,084
406,813
672,676
1,275,911
Depreciation
$
273,710
Stockholder Loans
1,080,000
460,000
350,000
350,000
1,036,931
Miscellaneous General1,065
and Admin Expenses
Accrued Interest Receivable
9,132
866 732,434762
7,913
Mortgage and Real Estate Loans
703,173
665,789
623,916
577,016
524,485
Notes and Bonds
25,000
25,000
25,000
25,000
25,000
Total Operating Expenses
$ 1,006,144
Partnerships
7,813,175
6,626,868
8,383,532
9,692,929
11,533,689
Miscellaneous Receivables
26,831
Revenues
Operating Income
Total Current Assets
$
Fixed Assets
Other Income
Land
Interest Income $
Building & Improvements
Other Income
Construction in Progress
2006
Schedule 1
Schedule 4
$
2,036,689
49,366,857 $ 58,679,740 $ 61,627,956 $ 50,830,178 $ 59,422,099
2,805,867 $ 2,805,867 $ 2,805,867 $ 2,805,867 $ 2,805,867
$
16,116
32,937,555
34,734,004
34,734,894
32,368,645
32,689,010
46,500
1,629,312
147,947
2,310,412
2,720,577
6,629,845
Gross Fixed Assets
$ 37,895,089
$ 42,124,722
Total Other Income$ 37,372,734 $ 37,687,818 $ 39,851,173
$
62,616
Accumulated Depreciation
22,117,709
23,083,209
23,949,621
22,415,380
23,251,822
Net Fixed Assets Total Other Expenses
$ 15,255,025 $ 14,604,609 $ 15,901,552 $597,748
15,479,709 $ 18,872,900
Other Assets
Intangible Assets
(Net)
77,736 $
32,406 $
13,984
$
9,297 $
4,609
Total
Other Income$(Expenses)
$
(535,132)
Security Deposits
7,020
7,020
7,020
(20,080)
9,920
Excess Cost of Subsidiary
2,788,353
2,788,353
2,788,353
2,788,353
2,788,353
$ (8)1,501,557 Other Assets NET INCOME
(20)
Total Other Assets
$ 2,873,109 $ 2,827,759 $ 2,809,349 $ 2,777,570 $ 2,802,882
TOTAL ASSETS
$ 67,494,991 $ 76,112,108 $ 80,338,857 $ 69,087,457 $ 81,097,881
Current Liabilities
Accounts Payable
Accrued Expenses
Sales Taxes Payable
Income Taxes Payable
Total Current Liabilities
$
546,147 $
389,490
127
9,960
165,494 $
507,112
127
1,595
197,872 $
291,400
127
19,757
114,491 $
224,487
127
-
140,200
360,408
127
-
$
945,724 $
674,328 $
509,156 $
339,105 $
500,735
Total Long-Term Liabilities
27,100
701,428 $
27,100
536,256 $
339,105 $
27,100
Total Liabilities
Stockholders' Equity
Common Stock
Paid - In Capital
Retained Earnings
$
Total Stockholders' Equity
$ 66,522,167 $ 75,410,680 $ 79,802,601 $ 68,748,352 $ 80,570,046
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY
$ 67,494,991 $ 76,112,108 $ 80,338,857 $ 69,087,457 $ 81,097,881
$
972,824 $
27,100
527,835
2,783 $
2,783 $
2,783 $
2,783 $
2,783
3,073,993
3,073,993
3,073,993
3,073,993
3,073,993
63,445,391
72,333,904
76,725,825
65,671,576
77,493,270
To be used only in conjunction with valuation report as of March 31, 2010.
To be used only in conjunction with valuation report as of March 31, 2010.
-- 146
146 --
Appendix
Appendix 1
1
SOURCES
SOURCES OF
OF INFORMATION
INFORMATION UTILIZED
UTILIZED
Several sources
sources of
of information
information were
were used
used to
to complete
complete this
this appraisal.
appraisal. These
These were
were as
as
Several
follows:
follows:
1.
1.
Vogue Corporation’s
Corporation’s internal
internal financial
financial statements
statements for
for the
the three
three months
months ended
ended March
March
Vogue
31,
2010
and
the
year
ended
December
31,
2009.
31, 2010 and the year ended December 31, 2009.
2.
2.
Vogue Corporation’s
Corporation’s audited
audited financial
financial statements
statements for
for the
the year
year ended
ended December
December 31,
31,
Vogue
2005.
2005.
3.
3.
Vogue Corporation’s
Corporation’s Form
Form 1120S,
1120S, U.S.
U.S. Income
Income Tax
Tax Returns
Returns for
for an
an S
S Corporation
Corporation
Vogue
for
the
years
ended
December
31,
2005
through
2009.
for the years ended December 31, 2005 through 2009.
4.
4.
Certificate of
of Incorporation
Incorporation of
of Vogue
Vogue Corporation
Corporation filed
filed June
June 10,
10, 1981.
1981.
Certificate
5.
5.
Certificate of
of Merger
Merger of
of Vogue
Vogue Corporation,
Corporation, a
a New
New York
York Corporation,
Corporation, into
into Vogue
Vogue
Certificate
Corporation,
a
Delaware
Corporation,
filed
April
12,
1981.
Corporation, a Delaware Corporation, filed April 12, 1981.
6.
6.
By-Laws of
of Vogue
Vogue Corporation.
Corporation.
By-Laws
7.
7.
Vogue Corporation’s
Corporation’s Shareholder’s
Shareholder’s Agreement
Agreement executed
executed on
on October
October 26,
26, 2009.
2009.
Vogue
8.
8.
Shareholder listing
listing as
as of
of the
the valuation
valuation date.
date.
Shareholder
9.
9.
Vogue Corporation’s
Corporation’s notes
notes receivable
receivable summary.
summary.
Vogue
10.
10.
Promissory notes
notes and
and loan
loan details
details from
from all
all stockholders
stockholders and
and related
related parties.
parties.
Promissory
11.
11.
Update of
of company
company background
background and
and history
history as
as of
of the
the valuation
valuation date.
date.
Update
12.
12.
Summary of
of values
values worksheet
worksheet for
for Vogue
Vogue Corporation’s
Corporation’s real
real estate
estate holdings.
holdings.
Summary
13.
13.
Real estate
estate appraisals
appraisals of
of all
all properties
properties Western
Western Valuation
Valuation Associates
Associates as
as of
of March
March
Real
31, 2010.
2010.
31,
14.
14.
Sample leases
leases with
with Vanguard.
Vanguard.
Sample
15.
15.
Property leases
leases for
for the
the New
New Jersey,
Jersey, Ohio,
Ohio, Virginia
Virginia and
and Texas
Texas properties.
properties.
Property
16.
16.
Vogue Corporation’s
Corporation’s depreciation
depreciation schedules
schedules for
for the
the years
years ended
ended December
December 31,
31,
Vogue
2005
through
2009.
2005 through 2009.
17.
17.
Listing of
of dates
dates and
and amounts
amounts of
of shareholders’
shareholders’ distributions
distributions made
made by
by Vogue
Vogue
Listing
Corporation from
from 2006
2006 through
through the
the valuation
valuation date.
date.
Corporation
18.
18.
Vogue Corporation’s
Corporation’s Board
Board Minutes
Minutes and
and Resolutions
Resolutions from
from January
January 10,
10, 2007;
2007;
Vogue
January
4,
2007;
June
5,
2007;
October
30,
2007;
September
28,
2007;
December
January 4, 2007; June 5, 2007; October 30, 2007; September 28, 2007; December
-- 147
146 --
Appendix
Appendix11
SOURCES OF INFORMATION
INFORMATION UTILIZED
UTILIZED
2007; October
28, 2006;
2006; May
2006; April
3, 2006
Several14,
sources
of information
wereAugust
used to4, complete
this26,appraisal.
These
wereand
as
January 10, 2005.
follows:
19.
Vogue Corporation’s officers’ payroll detail for 2006 through 2009.
1.
20.
Vogue Corporation’s
internal
statements
for thedetail
three for
months
March
Miscellaneous
general
and financial
administrative
expense
the ended
year ended
31,
2010
and
the
year
ended
December
31,
2009.
December 31, 2008.
2.
21.
22.
3.
23.
Vogue Corporation’s
financial
statements
forfrom
the year
December 31,
Vogue
Corporation’s audited
miscellaneous
expense
detail
2007ended
to 2009.
2005.
Professional background of Matan and Zelda Smith.
Vogue Corporation’s Form 1120S, U.S. Income Tax Returns for an S Corporation
for
yearsCorporate
ended December
31, 2005
through
Thethe
Pacific
Group Private
Equity
Fund,2009.
LP 2009 Schedule K-1.
4.
24.
Certificate
IncorporationFund,
of Vogue
Corporation
filed
June 10, 1981.
Seix
Creditof
Opportunities
LLC 2009
Schedule
K-1.
5.
25.
Certificate
of MergerLimited
of Vogue
Corporation,
New YorkK-1.
Corporation, into Vogue
Johnson
Investment
Partnership
2009a Schedule
Corporation, a Delaware Corporation, filed April 12, 1981.
Johnson Investment Limited Partnership 2009 Schedule K-1.
By-Laws of Vogue Corporation.
Johnson Investment Limited Partnership II 2009 Schedule K-1.
Vogue Corporation’s Shareholder’s Agreement executed on October 26, 2009.
Johnson Investment Limited Partnership II 2009 Schedule K-1.
Shareholder listing as of the valuation date.
Investment Vista fair market value estimate per Management.
Vogue Corporation’s notes receivable summary.
Sun Trust brokerage statement for the period ended March 31, 2010 for account
Promissory
notes and loan details from all stockholders and related parties.
number
1234567.
26.
6.
27.
7.
28.
8.
29.
9.
30.
10.
11.
31.
12.
32.
13.
33.
14.
15.
34.
16.
35.
17.
36.
18.
Update of company
background
and history
as of the
MorganStanley,
SmithBarney
brokerage
statement
for valuation
the perioddate.
ended March 31,
2010 for account number 123-56789.
Summary of values worksheet for Vogue Corporation’s real estate holdings.
MorganStanley, SmithBarney brokerage statement for the period ended March 31,
Real estate
appraisals
of all
properties Western Valuation Associates as of March
2010
for account
number
123-82937.
31, 2010.
TD Ameritrade Apex brokerage statement for the period ended March 31, 2010 for
Sample leases
Vanguard.
account
numberwith
894-938475.
Property leasesbrokerage
for the New
Jersey, Ohio,
Virginia
TexasMarch
properties.
Oppenheimer
statement
for the
periodand
ended
31, 2010 for
account number V73-0129572.
Vogue Corporation’s depreciation schedules for the years ended December 31,
2005
throughbrokerage
2009.
Openheimer
statement for the period ended March 31, 2010 for account
number V73-1393827.
Listing of dates and amounts of shareholders’ distributions made by Vogue
Corporation from
2006 through
theforvaluation
date.
Creditsuisse
brokerage
statement
the period
ended March 31, 2010 for account
number 345-92847.
Vogue Corporation’s Board Minutes and Resolutions from January 10, 2007;
January 4, 2007; June 5, 2007; October 30, 2007; September 28, 2007; December
-- 146
148 --
Appendix
Appendix 11
SOURCES OF INFORMATION
INFORMATION UTILIZED
UTILIZED
Several
sources
of information
were bond
used market
to complete
37.
State
of Israel
Jubilee 10-year
value.this appraisal. These were as
follows:
38.
Care Investment Trust, Inc. Form 10-K filed March 16, 2010.
39.
1.
Valuation
of 250 common
shares
of Vogue
Corp.for
asthe
of three
April 30,
2008ended
prepared
by
Vogue
Corporation’s
internal
financial
statements
months
March
Trugman
Valuation
Associates,
Inc. under
31,
2010 and
the year
ended December
31,cover
2009.letter dated January 9, 2009.
40.
2.
Other items
referenced
throughout
this
report. for the year ended December 31,
Vogue
Corporation’s
audited
financial
statements
2005.
In addition to the written documentation provided, a telephonic management interview was
3.
Vogue Corporation’s Form 1120S, U.S. Income Tax Returns for an S Corporation
conducted.
Information
gathered
at this
became
an integral part of this report.
for the
years ended
December
31,interview
2005 through
2009.
4.
Certificate of Incorporation of Vogue Corporation filed June 10, 1981.
5.
Certificate of Merger of Vogue Corporation, a New York Corporation, into Vogue
Corporation, a Delaware Corporation, filed April 12, 1981.
6.
By-Laws of Vogue Corporation.
7.
Vogue Corporation’s Shareholder’s Agreement executed on October 26, 2009.
8.
Shareholder listing as of the valuation date.
9.
Vogue Corporation’s notes receivable summary.
10.
Promissory notes and loan details from all stockholders and related parties.
11.
Update of company background and history as of the valuation date.
12.
Summary of values worksheet for Vogue Corporation’s real estate holdings.
13.
Real estate appraisals of all properties Western Valuation Associates as of March
31, 2010.
14.
Sample leases with Vanguard.
15.
Property leases for the New Jersey, Ohio, Virginia and Texas properties.
16.
Vogue Corporation’s depreciation schedules for the years ended December 31,
2005 through 2009.
17.
Listing of dates and amounts of shareholders’ distributions made by Vogue
Corporation from 2006 through the valuation date.
18.
Vogue Corporation’s Board Minutes and Resolutions from January 10, 2007;
January 4, 2007; June 5, 2007; October 30, 2007; September 28, 2007; December
- 149 -
Appendix 2
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
This appraisal is subject to the following assumptions and limiting conditions:
1.
The conclusion of value arrived at herein is valid only for the stated purpose as
of the date of the valuation.
2.
Financial statements and other related information provided by the business or
its representatives, in the course of this engagement, have been accepted
without any verification as fully and correctly reflecting the enterprise’s business
conditions and operating results for the respective periods, except as specifically
noted herein. Trugman Valuation Associates, Inc. has not audited, reviewed, or
compiled the financial information provided to us and, accordingly, we express
no audit opinion or any other form of assurance on this information.
3.
Public information and industry and statistical information have been obtained
from sources we believe to be reliable. However, we make no representation as
to the accuracy or completeness of such information and have performed no
procedures to corroborate the information.
4.
We do not provide assurance on the achievability of the results forecasted by or
for the subject company because events and circumstances frequently do not
occur as expected; differences between actual and expected results may be
material; and achievement of the forecasted results is dependent on actions,
plans, and assumptions of Management.
5.
The conclusion of value arrived at herein is based on the assumption that the
current level of Management expertise and effectiveness would continue to be
maintained, and that the character and integrity of the enterprise through any
sale, reorganization, exchange, or diminution of the owners’ participation would
not be materially or significantly changed.
6.
This report and the conclusion of value arrived at herein are for the exclusive use
of our client for the sole and specific purposes as noted herein. They may not be
used for any other purpose or by any other party for any purpose. Furthermore
the report and conclusion of value are not intended by the author and should not
be construed by the reader to be investment advice in any manner whatsoever.
The conclusion of value represents the considered opinion of Trugman Valuation
Associates, Inc., based on information furnished to them by the subject company
and other sources.
7.
Neither all nor any part of the contents of this report (especially the conclusion
of value, the identity of any valuation specialist(s), or the firm with which such
valuation specialists are connected or any reference to any of their professional
designations) should be disseminated to the public through advertising media,
public relations, news media, sales media, mail, direct transmittal, or any other
means of communication without the prior written consent and approval of
Trugman Valuation Associates, Inc.
- 150
149 -
Appendix 2
STATEMENT OF ASSUMPTIONS AND LIMITING CONDITIONS
8. appraisal
Future
servicestoregarding
the assumptions
subject matter
this report,
including, but not
This
is subject
the following
andoflimiting
conditions:
limited to testimony or attendance in court, shall not be required of Trugman
Valuation
Associates,
unless
previous
arrangements
have
been
made as
in
1.
The conclusion
of valueInc.
arrived
at herein
is valid
only for the
stated
purpose
writing.
of the date of the valuation.
9.
2.
Trugman statements
Valuation Associates,
Inc. is
not an environmental
Financial
and other related
information
provided by theconsultant
business or
auditor,
and it takes in
nothe
responsibility
actual or potential
environmental
its representatives,
course of for
thisany
engagement,
have been
accepted
liabilities.
Any
person entitled
relycorrectly
on this report,
wishing
know whether
such
without any
verification
as fullytoand
reflecting
the to
enterprise’s
business
liabilities
or the scope
and
effect on periods,
the value
of the
is
conditionsexist,
and operating
results
fortheir
the respective
except
asproperty,
specifically
encouraged
obtain Valuation
a professional
environmental
assessment.
Trugman
noted herein. to
Trugman
Associates,
Inc. has not
audited, reviewed,
or
Valuation
Associates,
Inc. doesprovided
not conduct
or accordingly,
provide environmental
compiled the
financial information
to us and,
we express
assessments
andorhas
performed
one for theon
subject
property.
no audit opinion
anynot
other
form of assurance
this information.
10.
3.
Trugman
Valuationand
Associates,
not determined
independently
whether
Public information
industry Inc.
and has
statistical
information
have been obtained
the
is tosubject
to any
presentwe
ormake
futurenoliability
relating as
to
fromsubject
sourcescompany
we believe
be reliable.
However,
representation
environmental
(including, but
not limited
to CERCLA/Superfund
liability)
to the accuracymatters
or completeness
of such
information
and have performed
no
nor
the scope
of any such
Trugman Valuation Associates, Inc.’s
procedures
to corroborate
theliabilities.
information.
valuation takes no such liabilities into account, except as they have been
reported
toprovide
Trugman
Valuationon
Associates,
Inc. byof
the
subject
or by
We
do not
assurance
the achievability
the
resultscompany
forecasted
byan
or
environmental
working for
the subject
company, and
then onlydo
to not
the
for the subject consultant
company because
events
and circumstances
frequently
extent
that
the liability
was reported
to actual
us in an
or estimated
dollar
occur as
expected;
differences
between
andactual
expected
results may
be
amount.
Such
matters, if of
any,
noted inresults
the report.
To the extent
such
material; and
achievement
theare
forecasted
is dependent
on actions,
information
has been reported
to us, Trugman Valuation Associates, Inc. has
plans, and assumptions
of Management.
relied on it without verification and offers no warranty or representation as to its
accuracy
or completeness.
The conclusion
of value arrived at herein is based on the assumption that the
current level of Management expertise and effectiveness would continue to be
Trugman
Valuation
Associates,
Inc. and
has not
madeofa the
specific
compliance
survey
maintained,
and that
the character
integrity
enterprise
through
any
or
analysis
of the subject
property
to determine
whether
is subject to,would
or in
sale,
reorganization,
exchange,
or diminution
of the
owners’it participation
compliance
with, or
thesignificantly
American Disabilities
not be materially
changed. Act of 1990, and this valuation does
not consider the effect, if any, of noncompliance.
This report and the conclusion of value arrived at herein are for the exclusive use
No
change
in this
appraisal
reportasshall
beherein.
made They
by anyone
other
of our
client of
forany
the item
sole and
specific
purposes
noted
may not
be
than
Valuation
Associates,
and
we shall
have
no responsibility
for
usedTrugman
for any other
purpose
or by anyInc.,
other
party
for any
purpose.
Furthermore
any
such unauthorized
change.
the report
and conclusion
of value are not intended by the author and should not
be construed by the reader to be investment advice in any manner whatsoever.
Unless
otherwise
stated,
no effortthe
has
been made
to determine
theValuation
possible
The
conclusion
of value
represents
considered
opinion
of Trugman
effect,
if any,
onbased
the subject
business
due to to
future
state,company
or local
Associates,
Inc.,
on information
furnished
themFederal,
by the subject
legislation,
including any environmental or ecological matters or interpretations
and other sources.
thereof.
Neither all nor any part of the contents of this report (especially the conclusion
We
have the
conducted
interviews
with the
current Management
of the
subject
of value,
identity of
any valuation
specialist(s),
or the firm with
which
such
company
concerningare
theconnected
past, present,
andreference
prospective
operating
of the
valuation specialists
or any
to any
of theirresults
professional
company.
Except
asbe
noted,
we havetorelied
on thethrough
representations
these
designations)
should
disseminated
the public
advertisingofmedia,
individuals.
public relations, news media, sales media, mail, direct transmittal, or any other
means of communication without the prior written consent and approval of
Except
noted, we
have relied
TrugmanasValuation
Associates,
Inc. on the representations of the owners,
Management, and other third parties concerning the value and useful condition
of all equipment, real estate, investments used in the business, and any other
4.
5.
11.
6.
12.
13.
7.
14.
15.
-- 151
149 --
Appendix
Appendix 22
STATEMENT OF ASSUMPTIONS
ASSUMPTIONS AND
AND LIMITING
LIMITING CONDITIONS
CONDITIONS
assets
or liabilities,
except
as specifically
stated
the contrary
in this report. We
This appraisal
is subject
to the
following
assumptions
andtolimiting
conditions:
have not attempted to confirm whether or not all assets of the business are free
and
clear of liens
and encumbrances
entity
hasstated
goodpurpose
title to all
1.
The conclusion
of value
arrived at hereinoristhat
validthe
only
for the
as
assets.
of the date of the valuation.
16.
2.
17.
3.
18.
4.
19.
5.
All
facts and
data set and
forthother
in therelated
report information
are true andprovided
accurateby
tothe
thebusiness
best of the
Financial
statements
or
appraiser's
knowledge
belief. We
haveengagement,
not knowinglyhave
withheld
omitted
its representatives,
in and
the course
of this
beenoraccepted
anything
from
our reportasaffecting
value estimate.
without any
verification
fully andour
correctly
reflecting the enterprise’s business
conditions and operating results for the respective periods, except as specifically
Possession
this report,
or a copy
thereof, does
notnot
carry
with itreviewed,
the right of
noted herein.ofTrugman
Valuation
Associates,
Inc. has
audited,
or
publication
of
all
or
part
of
it,
nor
may
it
be
used
for
any
purpose
without
the
compiled the financial information provided to us and, accordingly, we express
previous
written or
consent
of the
appraiser,
and in
only with proper
no audit opinion
any other
form
of assurance
onany
this event
information.
authorization. Authorized copies of this report will be signed in blue ink by a
director
of Trugmanand
Valuation
Inc. information
Unsigned copies,
or copies
not
Public information
industryAssociates,
and statistical
have been
obtained
signed
in bluewe
ink,
shouldtobe
to be incomplete.
from sources
believe
beconsidered
reliable. However,
we make no representation as
to the accuracy or completeness of such information and have performed no
Unless
otherwise
providedthe
forinformation.
in writing and Agreed to by both parties in
procedures
to corroborate
advance, the extent of the liability for the completeness or accuracy of the data,
opinions,
recommendations
and/or conclusions
shallforecasted
not exceedbythe
We do notcomments,
provide assurance
on the achievability
of the results
or
amount
paid to the
appraisers
for professional
and, then, only
to the party(s)
for the subject
company
because
events andfees
circumstances
frequently
do not
for
whom
this report differences
was originally
prepared.
occur
as expected;
between
actual and expected results may be
material; and achievement of the forecasted results is dependent on actions,
The
conclusion
reached in
report is based on the standard of value as stated
plans,
and assumptions
ofthis
Management.
and defined in the body of the report. An actual transaction in the business or
business
interestofmay
be arrived
concluded
at a higher
valueon
orthe
lower
value, depending
The conclusion
value
at herein
is based
assumption
that the
on
the
circumstances
surrounding
the
company,
the
appraised
business
interest
current level of Management expertise and effectiveness would continue to be
and/or
the motivations
andcharacter
knowledge
of both
the buyers
sellers through
at that time.
maintained,
and that the
and
integrity
of the and
enterprise
any
Trugman
Valuation
Associates,
Inc.
makes
no
guarantees
as
to
what
sale, reorganization, exchange, or diminution of the owners’ participationvalues
would
individual
buyers or
and
sellers maychanged.
reach in an actual transaction.
not be materially
significantly
20.
6.
No
is intended
to be expressed
for matters
that
require
or other
Thisopinion
report and
the conclusion
of value arrived
at herein
are
for thelegal
exclusive
use
specialized
expertise,
investigation
or
knowledge
beyond
that
customarily
of our client for the sole and specific purposes as noted herein. They may not be
employed
by other
appraisers
valuing
used for any
purpose
or bybusinesses.
any other party for any purpose. Furthermore
the report and conclusion of value are not intended by the author and should not
be construed by the reader to be investment advice in any manner whatsoever.
The conclusion of value represents the considered opinion of Trugman Valuation
Associates, Inc., based on information furnished to them by the subject company
and other sources.
7.
Neither all nor any part of the contents of this report (especially the conclusion
of value, the identity of any valuation specialist(s), or the firm with which such
valuation specialists are connected or any reference to any of their professional
designations) should be disseminated to the public through advertising media,
public relations, news media, sales media, mail, direct transmittal, or any other
means of communication without the prior written consent and approval of
Trugman Valuation Associates, Inc.
- 152 -
Appendix 3
Appraisal of 100 percent of the common stock in Vogue Corp. on a minority, nonmarketable basis.
VALUATION ANALYST’S REPRESENTATION
We represent that, to the best of our knowledge and belief:
•
the statements of fact contained in this report are true and correct.
•
the reported analyses, opinions, and conclusions are limited only by the reported assumptions
and limiting conditions and are our personal, impartial, and unbiased professional analyses,
opinions, and conclusions.
•
we have no present or prospective interest in the property that is the subject of this report, and
we have no personal interest with respect to the parties involved.
•
we have no bias with respect to the property that is the subject of this report or to the parties
involved with this assignment.
•
our engagement in this assignment was not contingent upon developing or reporting
predetermined results.
•
our compensation for completing this assignment is not contingent upon the development or
reporting of a predetermined value or direction in value that favors the cause of the client, the
amount of the value opinion, the attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this appraisal.
•
our analyses, opinions, and conclusions were developed and this report has been prepared in
conformity with the Statement on Standards for Valuation Services No. 1, promulgated by the
American Institute of Certified Public Accountants, the Uniform Standards of Professional
Appraisal Practice, promulgated by the Appraisal Foundation, the business valuation standards
of The Institute of Business Appraisers Inc. and the American Society of Appraisers.
•
The American Institute of Certified Public Accountants, The American Society of Appraisers, and
The Institute of Business Appraisers, Inc. have a mandatory recertification program for all of its
senior accredited members. All senior accredited members of our firm are in compliance with all
of these organizations’ programs.
•
no one provided significant business and/or intangible asset appraisal assistance to the person
signing this certification other than Raymond K. Bratcher.
•
we performed a previous business valuation of an interest in Vogue Corp. within the three-year
period immediately preceding acceptance of this assignment.
- 153 -
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Experience
Vice President of Trugman Valuation Associates, Inc., a firm specializing in business valuation
and litigation support services. Business valuation experience includes a wide variety of
assignments including closely-held businesses, professional practices and thinly traded public
companies. Industries include security, automotive, funeral homes, health care, securities
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
Business valuation and litigation support services have been rendered for a variety of purposes
including, but not limited to family law matters, business damAges, lender liability litigation, buysell Agreements, shareholder litigation, estate and gift tax matters, buying and selling
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
wrongful termination, and breach of contract. Representation in litigation includes plaintiff,
defendant, mutual, and court-appointed neutral.
Court Testimony. Has been qualified as an expert witness in State Courts of New Jersey and
Florida.
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
Professional Designations
•
CPA: Licensed in Florida (2003) and New Jersey (1987).
•
ABV: Accredited in Business Valuation designated by The American Institute of
Certified Public Accountants (1998). Reaccredited in 2008.
•
MCBA: Master Certified Business Appraiser designated by The Institute of Business
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
•
ASA: Accredited Senior Appraiser designated by the American Society of Appraisers
(1997). Reaccredited in 2007.
Education
•
Masters in Business Administration - Fairleigh Dickinson University (1986).
•
Bachelor of Science - University of North Carolina (1978).
-- 154
154 -153
Appendix
Appendix 4
4
LINDA
LINDA B.
B. TRUGMAN,
TRUGMAN, C.P.A./A.B.V.,
C.P.A./A.B.V., M.C.B.A.,
M.C.B.A., A.S.A.,
A.S.A., M.B.A.
M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Faculty
Faculty
Experience
•
National Judicial College, Reno, Nevada since 2001.
•
Vice
President
National
of Trugman
JudicialValuation
College, Reno,
Associates,
Nevada
Inc.,
since
a firm
2001.
specializing in business valuation
and litigation support services. Business valuation experience includes a wide variety of
assignments including closely-held businesses, professional practices and thinly traded public
companies.
Industries include security, automotive, funeral homes, health care, securities
Appraisal
Education
Appraisal
Education
brokerAge and
financial institutions, retail, manufacturing, service, and professional business
•establishments.
Explanation of the NICE Method, Business Valuation Webinar, American Society of
•
Explanation
of the NICE Method, Business Valuation Webinar, American Society of
Appraisers, 2011.
Appraisers,
2011.
Business valuation and litigation support services have been rendered for a variety of purposes
•including, but
Valuation,
Forensic
Accounting
and
Litigation
Serviceslender
Conference,
Institute
of
not limited
to family
law matters,
business
damAges,
liability FL
litigation,
buy•
Valuation,
Forensic
Accounting
and
Litigation
Services
Conference,
FL
Institute
of
Certified
Public
Accountants,
Ft.
Lauderdale,
FL
2011.
sell Agreements,
litigation,Ft.estate
and gift
tax matters, buying and selling
Certifiedshareholder
Public Accountants,
Lauderdale,
FL 2011.
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
•
Advanced and
Summit
on ofBusiness
Resolving
Tax &includes
Legal Issues,
wrongful
termination,
breach
contract. Valuation:
Representation
in litigation
•
Advanced
Summit
onWashington,
Business
Valuation:
Resolving
Tax & Legal plaintiff,
Issues,
BVR/Georgetown
Law,
DC,
2010.
defendant, BVR/Georgetown
mutual, and court-appointed
neutral. DC, 2010.
Law, Washington,
•
AICPA National
Business
Conference,
DC,ofAmerican
Institute
Court
Testimony.
Has been
qualifiedValuation
as an expert
witness Washington,
in State Courts
New Jersey
and
•
AICPA
National
Business
Valuation
Conference,
Washington,
DC, American
Institute
of
Certified
Public
Accountants,
2010.
Florida.
of Certified Public Accountants, 2010.
•
2010 ASA-CICBV Business Valuation Conference, South Beach Miami, FL, American
•
2010
ASA-CICBV
Business
Valuation
Conference,
South
Beach
Miami,
FL,
American
Court
Appearances.
appeared
the following
court:of New
Jersey
• Passaic;
Essex.
Society
of Has
Appraisers
andinCanadian
Institute
Certified
Business
Valuers,
2010.
Society of Appraisers and Canadian Institute of Certified Business Valuers, 2010.
•
The NACVA/IBA 2010 Annual Consultants’ Conference, Miami Beach, FL, The
•
The
NACVA/IBA
2010
Annual Consultants’
Conference,
Miami
Beach,
FL, The
Professional
Designations
National
Association
of Certified
Valuation Analysts
and The
Institute
of Business
National
Association
of
Certified
Valuation
Analysts
and
The
Institute
of
Business
Appraisers, 2010.
Appraisers,
2010.
•
CPA:
Licensed
in Florida (2003) and New Jersey (1987).
•
Valuing Tiered Partnership Structures, Webinar, Business Valuation Resources, LLC,
Valuing
Tiered Partnership
Structures,
Webinar,
Business
Resources,
LLC,
•
ABV:
in Business
Valuation
designated
by Valuation
The American
Institute
of
2010. Accredited
2010.
Certified
Public Accountants (1998). Reaccredited in 2008.
•
FICPA Valuation, Forensic Accounting and Litigation Services Conference, Ft.
•
FICPA Valuation,
Forensic
Accounting
Litigationby
Services
Conference,
Ft.
MCBA:
Master
Business
designated
The Institute
of Business
Lauderdale,
FL,Certified
Florida
Institute
ofAppraiser
CPAs,and
2010.
Lauderdale,
FL,
Florida
Institute
of
CPAs,
2010.
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
•
AICPA National Business Valuation Conference, AICPA, San Francisco, CA, 2009.
•
AICPAAccredited
National Business
Valuation
Conference,
AICPA,
San Francisco,
CA, 2009.
ASA:
Senior Appraiser
designated
by the
American
Society of Appraisers
th
(1997).
Reaccredited
in
2007.
Annual
Advanced
Business
Valuation
Conference,
American
Society
of
•
28
th
AnnualBoston,
Advanced
Business Valuation Conference, American Society of
•
28
Appraisers,
MA, 2009.
Appraisers, Boston, MA, 2009.
Education
•
2nd
nd Annual Business Valuation and Tax Conference, University of San Diego Law
Annual
Valuation
•
2
School,
SanBusiness
Diego, CA,
2009. and Tax Conference, University of San Diego Law
School,
San
Diego,
CA,
2009.
•
Masters in Business Administration
- Fairleigh Dickinson University (1986).
•
FCG Fall Conference Program 2009 Live Seminar, Financial Consulting Group, San
FCG
Fall
Conference
2009
Live Seminar,
Financial Consulting Group, San
••
Bachelor
of 2009.
Science - Program
University
of North
Carolina (1978).
Diego,
CA,
Diego, CA, 2009.
•
NACVA and the IBA’s 2009 Annual Consultants’ Conference, Boston, MA, NACVA
•
NACVA
the IBA’s 2009 Annual Consultants’ Conference, Boston, MA, NACVA
and IBA,and
2009.
and IBA, 2009.
•
IRS New Rules: Pension Protection Act and Beyond, Webinar, Business Valuation
•
IRS
New Rules:
Resources,
LLC,Pension
2009. Protection Act and Beyond, Webinar, Business Valuation
Resources, LLC, 2009.
•
FICPA Valuation, Forensic Accounting and Litigation Services Conference, Ft.
•
FICPA
Valuation,
Forensic
Accounting
Litigation Services Conference, Ft.
Lauderdale,
FL, Florida
Institute
of CPAs,and
2009.
Lauderdale, FL, Florida Institute of CPAs, 2009.
•
2008 AICPA/ASA National Business Valuation Conference, Las Vegas, NV, American
•
2008
AICPA/ASA
National
Business
Valuation
Conference,
Las Vegas, NV, American
Institute
of CPAs and
American
Society
of Appraisers,
2008.
Institute of CPAs and American Society of Appraisers, 2008.
- 155
153 -
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Appraisal
Experience
Education
•Vice President
Discount
for Lack
of Marketability
Workshop,
San
Diego, CA,inBusiness
of Trugman
Valuation
Associates,
Inc., a firm
specializing
business Valuation
valuation
Resources,
LLC,
2008.
and litigation support services. Business valuation experience includes a wide variety of
assignments including closely-held businesses, professional practices and thinly traded public
•companies.NJIndustries
Law & Ethics,
Webcast,
NJ automotive,
Society of CPAs,
2008.
include
security,
funeral
homes, health care, securities
brokerAge
and
financial
institutions,
retail,
manufacturing,
service,
professional
business
•
Valuation of Intangible Assets for Financial Reporting and
Purposes.
Arlington,
VA,
establishments.
American Society of Appraisers, 2008.
and
support
have
been rendered
a varietyMarketability
of purposes
•Business valuation
Exploring
thelitigation
Longstaff
Model services
and Abbott
Liquidity
Factor forfor
Enhanced
including, but
not
limited
to
family
law
matters,
business
damAges,
lender
liability
litigation,
Discount Determinations. Teleconference, American Institute of CPAs, 2008. buysell Agreements, shareholder litigation, estate and gift tax matters, buying and selling
malpractice
litigation,
wrongful
death, sexual
discrimination,
discrimination,
•businesses,FICPA
Valuation,
Accounting
and Litigation
Services
Conference.Age
Ft. Lauderdale,
FL,
wrongful termination,
and breach
of contract.
Representation
Florida Institute
of Certified
Public Accountants,
2008.in litigation includes plaintiff,
defendant, mutual, and court-appointed neutral.
•
AICPA National Business Valuation Conference. New Orleans, LA, American Institute
of CPAs,
2007.
Court Testimony.
Has
been qualified as an expert witness in State Courts of New Jersey and
Florida.
•
FCG Conference. New Orleans, LA, Financial Consulting Group, 2007.
Court
Appearances.
Has appeared
in the following
court:CA,
New
Jersey •Society
Passaic;
•
ASA Advanced
BV Conference.
San Diego,
American
of Essex.
Appraisers,
2007.
Professional
Designations
•
Impact
of the Pension Protection Act of 2006. American Institute of CPAs, 2007.
••
•
•
•
•
•
•
CPA:
Licensedofin Company
Florida (2003)
and New
(1987).
Quantification
Specific
Risk:Jersey
Theory
and Applications. Business
Valuation
Resources,
2007.
ABV: Accredited in Business Valuation designated by The American Institute of
Certified
Public Accountants
Reaccredited
in 2008.
BV Standards:
AICPA, IRS (1998).
and Beyond
- Where
Are We Headed? Business
Valuation
Resources,
2007.
MCBA: Master Certified Business Appraiser designated by The Institute of Business
Appraisers,
Inc. (2005).
Original
certification
(CBA) inAustin,
1995. Reaccredited
in 2009.
AICPA National
Business
Valuation
Conference.
American Institute
of
Certified
Public
Accountants,
2006.
ASA: Accredited Senior Appraiser designated by the American Society of Appraisers
(1997).
Reaccredited
in 2007.
FCG Conference.
Austin,
TX, Financial Consulting Group, 2006.
•
CICBV/ASA Sixth Joint Business Valuation Conference. Toronto, American Society
••
Masters
in Business
Administration
- Fairleigh2006.
Dickinson University (1986).
Ask the IRS.
Business
Valuation Resources,
••
Bachelor
of Science
- University
of Resources,
North Carolina
(1978).
Tax Affecting.
Business
Valuation
2006.
•
FICPA Valuation, Accounting and Litigation Services Conference. Ft. Lauderdale, FL,
Florida Institute of Certified Public Accountants, 2006.
•
2..
Valuation2.
Las Vegas, NV, American Institute of Certified Public Accountants and
American Society of Appraisers, 2005.
•
AICPA National Business Valuation Conference. Orlando, FL, American Institute of
Certified Public Accountants, 2004.
•
rd Annual Advanced Business Valuation Conference. San Antonio, TX, American
23rd
Society of Appraisers, 2004.
Education
of Appraisers, 2006.
156 - 153
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Appraisal Education
Experience
•
NewofJersey
LawValuation
and EthicsAssociates,
Course. Parsippany,
New Jersey
Society ofvaluation
Certified
Vice
President
Trugman
Inc., a firmNJ,
specializing
in business
Public
Accountants,
and litigation
support
services.2004.
Business valuation experience includes a wide variety of
assignments including closely-held businesses, professional practices and thinly traded public
•companies.2004
FICPA include
Business
Valuation
& Litigation
Conference.
Fort Lauderdale,
FL,
Industries
security,
automotive,
funeral
homes, health
care, securities
Florida
Institute
of
CPAs,
2004.
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
•
22nd Annual Advanced Business Valuation Conference. ChicAgo, IL, American
Society of
Appraisers,
2003. services have been rendered for a variety of purposes
Business valuation
and
litigation support
including,
but
not limited
to family
lawValuation
matters, business
damAges,
lender LA,
liability
litigation,
buy•
AICPA
National
Business
Conference.
New Orleans,
American
Institute
sell Agreements,
shareholder
litigation,
estate
and
gift
tax
matters,
buying
and
selling
of Certified Public Accountants, 2002.
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
wrongful
termination,
and breach
of contract. Denver,
Representation
in litigation
includes
plaintiff,
•
Annual Member
Firm Conference.
CO, Financial
Consulting
Group,
LC,
defendant, 2002.
mutual, and court-appointed neutral.
Court
Testimony.
Has
beenThe
qualified
an expert
witnessDistribution
in State Courts
of New
Jersey
and
•
Brown v.
Brown:
Most as
Important
Equitable
Decision
Since
Painter.
Florida.
Fairfield, NJ, New Jersey Institute for Continuing Legal Education, 2002.
•
2001 National
Conference.
Las Vegas,
American
Institute
Court
Appearances.
Has Business
appearedValuation
in the following
court: New
Jersey NV,
• Passaic;
Essex.
of Certified Public Accountants, 2001.
Advanced Business Valuation Conference. Seattle, WA, American
•
20th Annual
Professional
Designations
•
•
•
•
•
•
•
•
Society of Appraisers, 2001.
CPA: Licensed in Florida (2003) and New Jersey (1987).
2001 Share the Wealth Conference. Orlando, FL, The Institute of Business
Appraisers,
2001. in Business Valuation designated by The American Institute of
ABV:
Accredited
Certified Public Accountants (1998). Reaccredited in 2008.
2000 National Conference on Business Valuation. Miami, FL, American Institute of
CertifiedMaster
PublicCertified
Accountants,
2000.
MCBA:
Business
Appraiser designated by The Institute of Business
Appraisers,
Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
th
19 Annual Advanced Business Valuation Conference. Philadelphia, PA, American
Society
of Appraisers,
ASA:
Accredited
Senior2000.
Appraiser designated by the American Society of Appraisers
(1997). Reaccredited in 2007.
Hot Issues in Estate and Gift Tax Returns: What do the Auditors Look For? New
Brunswick, NJ, New Jersey Institute for Continuing Legal Education, 2000.
Education
•
Pulling Ahead of the Pack - The Institute of Business Appraisers’ 2000 National
•
••
Conference.
Phoenix,Administration
AZ, The Institute
of Business
Appraisers,
2000.
Masters
in Business
- Fairleigh
Dickinson
University
(1986).
Business Valuation
Vegas,
NV, American
Bachelor
of ScienceConference.
- UniversityLas
of North
Carolina
(1978).Institute of Certified Public
Accountants, 1999.
•
1999 International Appraisal Conference. Boston, MA, American Society of
Appraisers, 1999.
•
1999 Annual Conference. Boston, MA, American Society of Appraisers, 1999.
•
Chartered Financial Analyst Level II Self Study Program, 1999.
•
1999 Annual Conference: The Future of Business Valuation. Orlando, FL, The
Institute of Business Appraisers, Inc., 1999.
- 153
157 -
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Appraisal Education
Experience
•
1998ofJoint
Business
Valuation
Conference.
Canada,inAmerican
of
Vice
President
Trugman
Valuation
Associates,
Inc., aMontreal,
firm specializing
businessSociety
valuation
Appraisers
Canadian
Institute
of Chartered
Business
Valuators,
1998.
and litigation
support and
services.
Business
valuation
experience
includes
a wide
variety of
assignments including closely-held businesses, professional practices and thinly traded public
•companies.Chartered
Financial
Level
I Self Study
Program,
1998.
Industries
includeAnalyst
security,
automotive,
funeral
homes,
health care, securities
brokerAge and financial institutions, retail, manufacturing, service, and professional business
•establishments.
The Future of Business Valuation Annual Conference. San Antonio, TX, The Institute
of Business Appraisers, Inc., 1998.
litigationConference.
support services
been
rendered
for aInstitute
variety of
•Business valuation
Businessand
Valuation
Sanhave
Diego,
CA,
American
ofpurposes
Certified
including, but
not
limited
to
family
law
matters,
business
damAges,
lender
liability
litigation,
buyPublic Accountants, 1997.
sell Agreements, shareholder litigation, estate and gift tax matters, buying and selling
th
litigation,
wrongfulValuation
death, sexual
discrimination,
Age discrimination,
Annual Advanced
Business
Conference.
San Francisco,
CA, American
•businesses,16malpractice
wrongful termination,
and breach1997.
of contract. Representation in litigation includes plaintiff,
Society of Appraisers,
defendant, mutual, and court-appointed neutral.
•
Quantifying Marketability Discounts. San Francisco, CA, Mercer Capital, 1997.
Court Testimony. Has been qualified as an expert witness in State Courts of New Jersey and
•Florida.
Advanced Research Analysis. Roseland, NJ, NJ Society of Certified Public
Accountants, 1997.
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
•
1997 Business Valuation Conference. New Brunswick, NJ, NJ Society of Certified
Public Accountants, 1997.
Professional
Designations
National Conference on Appraising Closely-Held Businesses. San Diego, CA, The
•
•
••
Institute
of Business
Appraisers,
1997.Jersey (1987).
CPA: Licensed
in Florida
(2003) Inc.,
and New
National
Business in
Conference.
Phoenix, designated
AZ, American
of Certified
Public
ABV: Accredited
Business Valuation
by Institute
The American
Institute
of
Accountants,
1996.
Certified Public Accountants (1998). Reaccredited in 2008.
••
15th
Annual
Business
Memphis,
of
MCBA:
Master
CertifiedValuation
BusinessConference.
Appraiser designated
byTN,
TheAmerican
Institute ofSociety
Business
Appraisers,
1996.
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
••
1996
Valuation
Conference.
Holmdel,
NJ,American
NJ Society
of Certified
Public
ASA: Business
Accredited
Senior Appraiser
designated
by the
Society
of Appraisers
Accountants,
1996.
(1997). Reaccredited in 2007.
•
National Conference on Appraising Closely-Held Businesses. Orlando, FL, The
Institute of Business Appraisers, Inc., 1996.
Education
•
•
••
The 1995 National Business Valuation Conference. New Orleans, LA, American
Masters of
in Business
Administration
- Fairleigh
Institute
Certified Public
Accountants,
1995. Dickinson University (1986).
Bachelor
of Science
- University
of North
CarolinaBoston,
(1978). MA, American Society of
1995
Advanced
Business
Valuation
Conference.
Appraisers, 1995.
Denver, CO, American Society of
•
ASA International Appraisal Conference.
Appraisers, 1995.
•
National Conference on Business Valuation. San Diego, CA, American Institute of
Certified Public Accountants and The Institute of Business Appraisers, Inc., 1995.
•
First Annual Business Valuation Conference. Holmdel, NJ, NJ Society of Certified
Public Accountants, 1995.
- 158 - 153
158 -
Appendix 4
Appendix 4
LINDA
LINDA B.
B. TRUGMAN,
TRUGMAN, C.P.A./A.B.V.,
C.P.A./A.B.V., M.C.B.A.,
M.C.B.A., A.S.A.,
A.S.A., M.B.A.
M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Appraisal
Appraisal Education
Experience
Education
•
National Conference. Las Vegas, NV, The Institute of Business Appraisers, Inc.,
•
National
Conference.
LasAssociates,
Vegas, NV,Inc.,
Thea Institute
of Business
Appraisers,
Inc.,
Vice
President
of Trugman
Valuation
firm specializing
in business
valuation
1995.
1995.
and litigation
support services. Business valuation experience includes a wide variety of
includingValuation
closely-held
and thinly
•assignments
Business
in abusinesses,
Changing professional
International practices
Environment.
Santraded
Diego,public
CA,
•companies.Business
Valuation
in
a
Changing
International
Environment.
San
Diego,
CA,
Industries
include
security,
automotive,
funeral
homes,
health
care,
securities
American Society of Appraisers, 1994.
American
Society
of
Appraisers,
1994.
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
•
1994 International Conference. ChicAgo, IL, American Society of Appraisers, 1994.
•
1994 International Conference. ChicAgo, IL, American Society of Appraisers, 1994.
•Business valuation
Principles
of Valuation-Business
Valuation:
Advanced
Angeles,
and
litigation support services
haveSelected
been rendered
for Topics.
a varietyLos
of purposes
•
Principles
of Valuation-Business
Valuation:
Selected
Advanced
Topics.
Los
Angeles,
CA,
American
Society
of
Appraisers,
1994.
including, but
not
limited toSociety
family law
matters, business
CA,
American
of Appraisers,
1994. damAges, lender liability litigation, buysell Agreements, shareholder litigation, estate and gift tax matters, buying and selling
•
Principles
of Valuation-Business
Valuation:
Appraisal
of Small
Businesses
and
businesses,
malpractice
litigation, wrongful death,
sexual
discrimination,
Age
discrimination,
•
Principles
of Practices.
Valuation-Business
Valuation:
Appraisal
ofAppraisers,
Small
Businesses
and
Professional
Atlanta,
GA,
American
Society
of
1994.
wrongful termination,
and
breach of
contract.
Representation
in oflitigation
includes
Professional
Practices.
Atlanta,
GA, American
Society
Appraisers,
1994.plaintiff,
defendant,
mutual, and
court-appointed
neutral. Closely-Held Businesses. Orlando, FL, The
•
National
Conference
of Appraising
•
National
Conference
of
Appraising
Businesses. Orlando, FL, The
Institute of Business Appraisers, Inc.,Closely-Held
1994.
Court Testimony.
been qualified
as an Inc.,
expert
witness in State Courts of New Jersey and
InstituteHas
of Business
Appraisers,
1994.
Florida.
•
Principles of Valuation-Business Valuation Case Study. Washington, DC, American
•
Principles
Valuation-Business
Valuation Case Study. Washington, DC, American
Society of of
Appraisers,
1993.
Society
of
Appraisers,
1993.
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
•
1993 International Conference. Seattle, WA, American Society of Appraisers, 1993.
•
1993 International Conference. Seattle, WA, American Society of Appraisers, 1993.
•
Uniform
Standards of Professional Appraisal Practice and Professional Appraisal
Professional
Designations
•
Uniform
Standards
Professional
Appraisal
Practice1993.
and Professional Appraisal
Ethics. Seattle,
WA,ofAmerican
Society
of Appraisers,
Ethics.
Seattle,
WA,
American
Society
of
Appraisers,
1993.
•
CPA: Licensed in Florida (2003) and New Jersey (1987).
•
Principles of Valuation–Business Valuation Methodology. Washington, DC, American
Principles
Valuation–Business
Valuationdesignated
Methodology.
DC,Institute
American
••
ABV:
in Business
by Washington,
The American
of
SocietyAccredited
of of
Appraisers,
1993. Valuation
Society
of
Appraisers,
1993.
Certified Public Accountants (1998). Reaccredited in 2008.
•
National Conference. San Diego, CA, The Institute of Business Appraisers, Inc.,
National
Conference.
Diego,Appraiser
CA, The designated
Institute of by
Business
Appraisers,
Inc.,
••
MCBA:
CertifiedSan
Business
The Institute
of Business
1993. Master
1993.
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
•
Developing Your Business Valuation Skills: An EngAgement Approach. Iselin, NJ,
Developing
Your
Business
Valuation
Skills: 1992.
An
Iselin, NJ,
••
ASA:
Accredited
Senior
Appraiser
designated
byEngAgement
the AmericanApproach.
Society of Appraisers
NJ Society
of
Certified
Public
Accountants,
NJ
Society
of
Certified
Public
Accountants,
1992.
(1997). Reaccredited in 2007.
•
Advanced Business Valuation Seminar. San Francisco, CA, The Institute of Business
•
Advanced
Valuation Seminar. San Francisco, CA, The Institute of Business
Appraisers,Business
Inc., 1992.
Appraisers,
Inc.,
1992.
Education
•
Principles of Valuation–Introduction to Business Valuation. Washington, DC,
•
Principles
of Valuation–Introduction
to Business Valuation. Washington, DC,
AmericaninSociety
of Appraisers,
1992.
•
Masters
Business
Administration
- Fairleigh Dickinson University (1986).
American Society
of Appraisers,
1992.
•
•
•
•
Lecturer
Lecturer
•
•
•
•
Business ofValuation
Accountants.
NJ, The Institute of Business
Bachelor
Science -for
University
of North Newark,
Carolina (1978).
Business
AppraisersValuation
Inc., 1992.for Accountants. Newark, NJ, The Institute of Business
Appraisers Inc., 1992.
Has performed extensive reading and research on business valuations and business
Has
performed
extensive
valuation
related
topics. reading and research on business valuations and business
valuation related topics.
The Use and Application of Data for Control Premiums and Discounts, Webinar,
The
Use and
Application
of Data
for2011.
Control Premiums and Discounts, Webinar,
Business
Valuation
Resources,
LLC,
Business Valuation Resources, LLC, 2011.
What’s Happening in the Courts?, FL Institute of Certified Public Accountants, Ft.
What’s Happening
in the Courts?, FL Institute of Certified Public Accountants, Ft.
Lauderdale,
FL 2011.
Lauderdale, FL 2011.
- 159 159 - 153
Appendix 4
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
LINDA B. TRUGMAN,
C.P.A./A.B.V.,
M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Lecturer
Lecturer
Experience
•
What’s Happening in the Courts? SKA, AICPA National Business Valuation
•
What’s
Happening
in theAssociates,
Courts?
SKA,
Business
Valuation
Vice
President
of Trugman
Valuation
Inc.,Institute
a AICPA
firm specializing
business
valuation
Conference,
Washington,
DC,
American
of National
CertifiedinPublic
Accountants,
Conference,
Washington,
DC, American
of Certified
Accountants,
and litigation
support services.
Business
valuationInstitute
experience
includesPublic
a wide
variety of
2010.
2010.
assignments
including closely-held businesses, professional practices and thinly traded public
•companies.Applying
the include
Guideline
Public automotive,
Company Method
SKA, AICPA
National
Industries
security,
funeral (GPCM)
homes, health
care, securities
•brokerAge Business
Applying
the
Guideline
Public
Method
(GPCM)
AICPA
National
Valuation
Conference,
Washington,
DC,
American
Institute
of business
Certified
and financial
institutions,
retail, Company
manufacturing,
service,
and SKA,
professional
Business
Valuation
Conference,
Washington,
DC,
American
Institute
of
Certified
Public
Accountants,
2010.
establishments.
Public Accountants, 2010.
•Business valuation
Valuation
of litigation
Family Limited
Partnerships,
Business
Valuation
of
and
support
services have
been rendered
forWorkshop,
a variety ofSociety
purposes
•including, but
Valuation
of
Family
Limited
Partnerships,
Business
Valuation
Workshop,
Society
of
Louisiana
CPAs,
New
Orleans,
LA,
2010.
not limited to family law matters, business damAges, lender liability litigation, buyLouisiana
CPAs,
New
Orleans,
LA,
2010.
sell Agreements, shareholder litigation, estate and gift tax matters,st buying and selling
Chesapeake
•businesses,Valuation
of a Professional
Practice
as a Tax
Planning
Tool, 41st Annual
malpractice
litigation, wrongful
death,
sexual
discrimination,
Age discrimination,
Annual
Chesapeake
•
Valuation
of a Professional
Practice
as a of
Tax
Planning
Tool, 41
Tax
Conference.
Maryland
Association
CPAs,
Baltimore,
MD,
2010.
wrongful termination,
and breach
of contract.
Representation
in litigation
includes plaintiff,
Tax Conference.
Maryland
Association
of CPAs, Baltimore,
MD, 2010.
mutual,
and court-appointed
neutral.
•defendant, Fair
Market
Value versus Fair
Value -What’s the Difference, Coral Gables, FL,
•
Fair
Market
Value
versus
Fair
Value
-What’s
the Difference,
Gables, FL,
American Institute of CPAs, AICPA
Small
Business
Practitioners’Coral
Tax Conference,
Court Testimony.
Has
been
qualified
as
an
expert
witness
in
State
Courts
of
New
Jersey and
American
Institute
of
CPAs,
AICPA
Small
Business
Practitioners’
Tax
Conference,
2010.
Florida.
2010.
•
Business Valuation During Crazy Economic Times, Tampa, FL, Florida Institute of
Has
appeared
in
the
following
court:
NewTampa,
Jersey
Passaic;
•Court Appearances.
Business
Valuation
During
Economic
Times,
FloridaEssex.
Institute
of
CPAs,
FAB
Expo,
2010,
Ft.Crazy
Lauderdale,
FL.,
2010,
FICPA •FL,
Accounting
Show, Ft.
CPAs, FAB Expo,
2010, Ft. Lauderdale, FL., 2010, FICPA Accounting Show, Ft.
Lauderdale,
FL, 2010.
Lauderdale, FL, 2010.
•Professional
Pitchbook
– A First Look, Webinar, Business Valuation Resources, LLC, 2010.
Designations
•
Pitchbook – A First Look, Webinar, Business Valuation Resources, LLC, 2010.
•
The
Approach
– It’s(2003)
Not Alland
About
Cost of
Capital, Miami Beach, FL, The
CPA:Income
Licensed
in Florida
Newthe
Jersey
(1987).
•
The
Income Approach
– It’s
Not All About
the Cost of2010.
Capital, Miami Beach, FL, The
NACVA/IBA
2010 Annual
Consultants’
Conference,
•
ABV: Accredited
in Business
Valuation
designated2010.
by The American Institute of
NACVA/IBA
2010 Annual
Consultants’
Conference,
•
Valuation
IssuesAccountants
in Estate & Gift
Tax, Reaccredited
Webinar, Business
Valuation Resources, LLC,
Certified Public
(1998).
in 2008.
•
Valuation Issues in Estate & Gift Tax, Webinar, Business Valuation Resources, LLC,
2010.
•
MCBA: Master Certified Business Appraiser designated by The Institute of Business
2010.
•
Controversial
Issues
in Business
Valuation, (CBA)
Ft. Lauderdale,
FL, FICPA Valuation,
Appraisers, Inc.
(2005).
Original certification
in 1995. Reaccredited
in 2009.
•
Controversial
Issues and
in Business
Ft. Lauderdale,
FL, FICPA Valuation,
Forensic
Accounting
LitigationValuation,
Services Conference,
2010.
•
ASA: Accredited
Senior
by the American
Society of Appraisers
Forensic
Accounting
andAppraiser
Litigationdesignated
Services Conference,
2010.
•
Hardball
with Hitchner,
(1997). Reaccredited
in San
2007.Francisco, CA, AICPA National Business Valuation
•
Hardball with2009.
Hitchner, San Francisco, CA, AICPA National Business Valuation
Conference,
Conference, 2009.
•Education
Valuation for Tax Purposes, San Francisco, CA, AICPA National Business Valuation
•
Valuation for 2009.
Tax Purposes, San Francisco, CA, AICPA National Business Valuation
Conference,
Conference,
2009. Administration - Fairleigh Dickinson University (1986).
•
Masters in Business
•
Qualitative and Quantitative DLOM Analysis, San Francisco, CA, AICPA National
•
Qualitative
and
Quantitative
DLOM
Analysis,
San (1978).
Francisco, CA, AICPA National
Business of
Valuation
Conference,
2009.
Bachelor
Science
- University
of
North
Carolina
Business Valuation Conference, 2009.
•
Valuations of FLPs and FLLCs, Washington Twsp., NJ, Greater NJ Estate Planning
•
Valuations
of FLPs and FLLCs, Washington Twsp., NJ, Greater NJ Estate Planning
Council,
2009.
Council, 2009.
•
Valuations for Tax Purposes, Overland Park, KS, 2009 Business Valuation and
•
ValuationsSupport
for TaxConference,
Purposes, Overland
Park, KS, 2009 Business Valuation and
Litigation
2009.
Litigation Support Conference, 2009.
•
FLPs and FLLCs - What’s An Appraiser to Do? Golden Valley, MN, Business
•
FLPs
andConference,
FLLCs - What’s
Valuation
2009. An Appraiser to Do? Golden Valley, MN, Business
Valuation Conference, 2009.
Annual Business Valuation and Tax
•
Ask the Experts Panel, San Diego, CA, 2nd
nd
•
Ask
the Experts
Conference,
2009.Panel, San Diego, CA, 2 Annual Business Valuation and Tax
Conference, 2009.
- 160 - 153
160 -
Appendix 4
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
LINDA B. TRUGMAN,
C.P.A./A.B.V.,
M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Lecturer
Lecturer
Experience
•
How to Apply and Reconcile the Various Qualitative and Quantitative DLOM Models
nd
•
Howof
toTrugman
Apply and
Reconcile
the 2Various
Qualitative
and
Quantitative
DLOM
Models
Vice
President
Valuation
Inc.,
a firm specializing
in
business
valuation
and
Databases,
San
Diego,Associates,
CA,
Annual
Business
Valuation
and
Tax
Conference,
nd
andsupport
Databases,
San Diego,
CA, 2valuation
and litigation
services.
Business
experience
includes
wide
variety of
Annual Business
Valuation
anda Tax
Conference,
2009.
assignments
including closely-held businesses, professional practices and thinly traded public
2009.
•companies.Ask
the Experts
Panel.
San Diego,
CA, FCG
Fall Conference
Program
Live
Industries
include
security,
automotive,
funeral
homes, health
care, 2009
securities
•brokerAge Seminar,
Ask
Experts
Panel. San
Diego,
CA, FCG Fall
Conference
Program 2009
Live
2009.
and the
financial
institutions,
retail,
manufacturing,
service,
and professional
business
Seminar,
2009.
establishments.
•
FLPs and FLLCs - What’s An Appraiser to Do? Baltimore, MD, CPA Associates
•Business valuation
FLPs and
- What’s
Appraiser
Do? rendered
Baltimore,
CPA ofAssociates
International
BV Conference,
2009.
andFLLCs
litigation
supportAn
services
havetobeen
forMD,
a variety
purposes
International
BV
Conference,
2009.
including, but not limited to family law matters, business damAges, lender liability litigation, buy•sell Agreements,
Valuations
of FLPs,litigation,
Ft. Lauderdale,
FL, gift
Ft. Lauderdale
shareholder
estate and
matters, Trusts
buying and
and Estates
selling
•
Valuations
of2009.
FLPs, Ft. Lauderdale,
FL, Ft. tax
Lauderdale
Trusts
and
Estates
Roundtable,
businesses,Roundtable,
malpractice2009.
litigation, wrongful death, sexual discrimination, Age discrimination,
and breach
of contract.
in litigation
includesValuation
plaintiff,
•wrongful termination,
Guideline Public
Company
MethodRepresentation
Workshop Highlights,
Business
mutual,
and
court-appointed
neutral.
•defendant, Guideline
Public
Company
Method
Workshop
Highlights,
Business
Valuation
Resources, 2009.
Resources, 2009.
Has been
an expertand
witness
in State
Courts of
New
Jersey
and
•Court Testimony.
Fundamentals
of qualified
BusinessasValuation
SSVS
#1, Seattle,
WA,
AICPA
Small
•Florida.
Fundamentals
of Business
Valuation and
SSVS #1, Seattle, WA, AICPA Small
Business
Practitioners
Tax Conference,
2009.
Business Practitioners Tax Conference, 2009.
•Court Appearances.
FLPs and FLLCs
- What’s in
Anthe
Appraiser
to court:
Do? ChicAgo,
IL, 2009
Business
Valuation
Has appeared
following
New Jersey
• Passaic;
Essex.
•
FLPs and FLLCs
- What’s An Appraiser to Do? ChicAgo, IL, 2009 Business Valuation
Conference,
2009.
Conference, 2009.
•Professional
Valuation
for Tax Purposes, Ft. Lauderdale, FL, FICPA Valuation, Forensic
Designations
•
Valuation
Purposes,
Ft. Conference,
Lauderdale, 2009.
FL, FICPA Valuation, Forensic
Accountingfor
andTax
Litigation
Services
Accounting
and
Litigation
Services
Conference,
2009.
•
CPA: Licensed in Florida (2003) and New Jersey (1987).
•
Pass Through Investment Holding Company Entities - FLPs, Las Vegas, NV, 2008
•
Pass
Investment
Holding
Company
Entities -by
FLPs,
Vegas,Institute
NV, 2008
AICPA/ASA
National
Business
Valuation
Conference,
2008.
ABV: Through
Accredited
in Business
designated
The Las
American
of
AICPA/ASA
National
Business
Valuation
Conference,
2008.
Certified Public
Accountants
(1998).
Reaccredited
in 2008.
•
Family Limited Partnerships, Washington, DC, 2008 National AICPA National Tax
•
Family
Partnerships,
Washington,
2008 National
Tax
Conference,
2008.
MCBA:Limited
Master
Certified
Business
AppraiserDC,
designated
by TheAICPA
InstituteNational
of Business
Conference,
2008.
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
•
The Valuation of FLPs and FLLCs: What Does the Tax Practitioner Need to
•
The
of FLPs
FLLCs:
What
Does
Practitioner
Need
to
Know?
Las Vegas,
NV,and
2008
AICPA
Small
Business
Practitioners
Tax
ASA:Valuation
Accredited
Senior
Appraiser
designated
bythe
theTax
American
Society
of Appraisers
Know?
Vegas,
Conference,
2008. NV,in2008
(1997). Las
Reaccredited
2007.AICPA Small Business Practitioners Tax
Conference, 2008.
•
Basic Business Valuation, Detroit, MI, MACPA’s 2008 Litigation & Business
•Education
Basic Business
Valuation,
Detroit, MI, MACPA’s 2008 Litigation & Business
Valuation
Conference,
2008.
Valuation Conference, 2008.
••
Current
in Business
Valuation
and Litigation
Support...
And the
Beat Goes
Masters Issues
in Business
Administration
- Fairleigh
Dickinson
University
(1986).
•
Current
Issues
Business2008
Valuation
and &Litigation
Support...
the Beat Goes
On, Detroit,
MI,in
MACPA’s
Litigation
Business
ValuationAnd
Conference,
2008.
On, Detroit,
MI, MACPA’s
2008 Litigation
& Business
Valuation Conference, 2008.
•
Bachelor
of Science
- University
of North Carolina
(1978).
•
Valuing Family Limited Partnerships and LLC, Teleconference, Institute of Business
•
Valuing Family
Limited Partnerships and LLC, Teleconference, Institute of Business
Appraisers,
2008.
Appraisers, 2008.
•
Discounts for Lack of Marketability Panel Discussion – Who’s on First, What’s on
•
DiscountsI for
Lack
of Marketability
Discussion
First, What’s
on
Second,
Don’t
Know’s
on Third, Panel
New Orleans,
LA,– Who’s
AICPA on
National
Business
Second, IConference,
Don’t Know’s
on Third, New Orleans, LA, AICPA National Business
Valuation
2007.
Valuation Conference, 2007.
•
A Family Limited Partnership (FLP) Valuation Example. New Orleans, LA, AICPA
•
A
FamilyBusiness
Limited Partnership
(FLP) Valuation
National
Valuation Conference,
2007.Example. New Orleans, LA, AICPA
National Business Valuation Conference, 2007.
•
Financial Valuation: Applications and Methods, Lansing, MI, Michigan Accounting and
•
FinancialConference,
Valuation: Applications
and Methods, Lansing, MI, Michigan Accounting and
Auditing
2007.
Auditing Conference, 2007.
-- 161
161 -153
Appendix
Appendix 4
4
LINDA
LINDA B.
B. TRUGMAN,
TRUGMAN, C.P.A./A.B.V.,
C.P.A./A.B.V., M.C.B.A.,
M.C.B.A., A.S.A.,
A.S.A., M.B.A.
M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Lecturer
Lecturer
Experience
•Vice
Business
Valuation
for
Non-Valuation
Atlanta,
AICPA’s
Small
•
Business
Valuation
for the
theAssociates,
Non-Valuation
Professional,
Atlanta,
GA,
AICPA’s
Small
President
of Trugman
Valuation
Inc.,Professional,
a firm specializing
in GA,
business
valuation
Practitioner’s
Tax
Conference,
2007.
Practitioner’s
Tax Conference,
and litigation
support services.
Business2007.
valuation experience includes a wide variety of
including
closely-held
businesses,
professional practices
and
thinlyan
traded Topic,
public
••assignments
Specific
Company
Risk:
Qualitative
or
A
Look
Company
Risk:
Qualitative
or Quantitative?
Quantitative?
A New
Newhealth
Look at
at
an Old
Old
Topic,
companies.Specific
Industries
include
security,
automotive,
funeral
homes,
care,
securities
Washington, DC,
NACVA’s
Fourteenth
Annual
Conference,
2007.
NACVA’s
Fourteenth
Annual Consultants’
Consultants’
Conference, business
2007.
brokerAge Washington,
and financial DC,
institutions,
retail,
manufacturing,
service, and professional
establishments.
••
Personal
Personal Goodwill:
Goodwill: Does
Does the
the Non-Propertied
Non-Propertied Spouse
Spouse Really
Really Lose
Lose the
the Battle?
Battle? Ft.
Ft.
Lauderdale,
FL,
Florida
Bar
Family
Law
Section,
2007.
Lauderdale,
FL,
Florida
Bar
Family
Law
Section,
2007.
Business valuation and litigation support services have been rendered for a variety of purposes
including,
but
not limited
to family
law matters,
lender
liability St.
litigation,
••
Business
Valuation
Reports:
How
Evaluate
Them
Appraiser,
Louis,
MO,
Business
Valuation
Reports:
How to
tobusiness
EvaluatedamAges,
Them &
& The
The
Appraiser,
St.
Louis, buyMO,
sell Agreements,
shareholder
litigation,
estate
and
gift
tax
matters,
buying
and
selling
St.
Louis
Estate
Planning
Council,
2007.
St. Louis Estate Planning Council, 2007.
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
••
Business
Ft.
Nova
University
Law
School,
wrongful
termination,
and breach
of contract. FL,
Representation
in litigation
includes
Business Valuation,
Valuation,
Ft. Lauderdale,
Lauderdale,
FL,
Nova Southeastern
Southeastern
University
Law plaintiff,
School,
2006,
2007,
2009.
defendant, 2006,
mutual,
and 2009.
court-appointed neutral.
2007,
••
Case
for
and
Tax
Purposes.
Ft.
FL,
Valuation,
Court
Testimony.
Has been
qualified
as an
expert
witness
State Courts
New Jersey
and
Case Study
Study
for Estate
Estate
and Gift
Gift
Tax
Purposes.
Ft.inLauderdale,
Lauderdale,
FL,ofFICPA
FICPA
Valuation,
Accounting
and
Litigation
Services
Conference,
2006.
Florida.
Accounting and Litigation Services Conference, 2006.
2
2, American Institute of Certified Public
••
Report
Las
NV,
Valuation
, American
Institute
of Certified
Report Writing.
Writing.
Las Vegas,
Vegas,
NV,
Valuation
Court
Appearances.
Has
appeared
in
the
following
court:
New Jersey
• Passaic;
Essex.Public
Accountants
and
American
Society
of
Appraisers,
Accountants and American Society of Appraisers, 2006.
2006.
••
ESOPs
for
ESOPs
for Auditors.
Auditors. Las
Las Vegas,
Vegas, NV,
NV, American
American Institute
Institute of
of Certified
Certified Public
Public
Professional
Designations
Accountants’
Employee
Benefit
Conference,
2005.
Accountants’ Employee Benefit Conference, 2005.
••
CPA:
Licensed
in Florida
(2003) and New FL,
Jersey (1987).
Discount
•
Discount for
for Lack
Lack of
of Marketability.
Marketability. Orlando,
Orlando, FL, The
The Institute
Institute of
of Business
Business Appraisers’
Appraisers’
National
Business
Valuation
Conference,
2005.
National
Business in
Valuation
Conference,
2005.
•
ABV:
Accredited
Business
Valuation designated
by The American Institute of
Certified
Public Accountants
(1998). Reaccredited
in 2008.
••
The
The Market
Market Approach
Approach to
to Business
Business Valuation.
Valuation. Ft.
Ft. Lauderdale,
Lauderdale, FL,
FL, Florida
Florida Institute
Institute of
of
Certified
Public
Accountants’
Valuation
&
Litigation
Services
Conference,
2005.
Certified
Public
Accountants’
Valuation
&
Litigation
Services
Conference,
2005.
•
MCBA: Master Certified Business Appraiser designated by The Institute of Business
Appraisers,
Inc. (2005). Original
certification American
(CBA) in 1995. Reaccredited
in 2009.
••
Meet
Meet the
the Thought
Thought Leaders.
Leaders. Orlando,
Orlando, FL,
FL, American Institute
Institute of
of Certified
Certified Public
Public
Accountants
National
Business
Valuation
Conference,
2004.
Accountants
National
Business
Valuation
Conference,
2004. Society of Appraisers
•
ASA:
Accredited
Senior
Appraiser
designated
by the American
(1997).
Reaccredited inOkerlund
2007.
••
Court
Court Case
Case Decisions:
Decisions: Okerlund and
and Blount.
Blount. Telephone
Telephone Conference,
Conference, CPAmerica,
CPAmerica,
Inc.,
2004.
Inc., 2004.
Education
••
The
The Income
Income Approach.
Approach. Phoenix,
Phoenix, AZ,
AZ, American
American Institute
Institute of
of Certified
Certified Public
Public
Accountants
National
Business
Valuation
Conference,
2003.
Accountants
National
Business
Valuation
Conference,
2003.
•
Masters in Business Administration - Fairleigh Dickinson University (1986).
••
What’s
in the Courts?
Paul,
MN,
Society of CPAs, 2003.
What’s Happening
Happening
Courts?ofSt.
St.
Paul,
MN, Minnesota
Minnesota
•
Bachelor
of Sciencein-the
University
North
Carolina
(1978). Society of CPAs, 2003.
••
The
The Transaction
Transaction Method
Method -- How
How Do
Do You
You Really
Really Use
Use It?
It? Overland
Overland Park,
Park, KS,
KS, Kansas
Kansas
Society
of
CPAs,
2003.
Society of CPAs, 2003.
••
Professional
Professional Practice
Practice Valuations.
Valuations. Miami,
Miami, FL,
FL, The
The Florida
Florida Bar
Bar -- Family
Family Law
Law Section,
Section,
2003.
2003.
••
Valuing
Valuing Family
Family Limited
Limited Partnerships.
Partnerships. Las
Las Vegas,
Vegas, NV,
NV, CPAmerica
CPAmerica International,
International, 2003.
2003.
••
••
Business
Business Valuation:
Valuation: There’s
There’s a
a “Right”
“Right” Way
Way and
and a
a “Wrong”
“Wrong” Way
Way to
to Do
Do It!
It! Orlando,
Orlando, FL,
FL,
Florida
Accounting
&
Business
Expo,
2003.
Florida Accounting & Business Expo, 2003.
Business
Business Valuation
Valuation Basics.
Basics. Miami,
Miami, FL,
FL, Florida
Florida International
International University,
University, 2003.
2003.
- 153
162 -
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Lecturer
Experience
•
Valuing
Family Limited
Partnerships.
Forta Lauderdale,
FL, in
Fort
Lauderdale
Tax
Vice
President
of Trugman
Valuation
Associates, Inc.,
firm specializing
business
valuation
Planning
Council,
2003.
and litigation
support
services.
Business valuation experience includes a wide variety of
assignments including closely-held businesses, professional practices and thinly traded public
•companies.ToIndustries
Tax or Not
to Tax?
Issues
Relating to
S Corps
and health
Built-Incare,
Gains
Taxes.
include
security,
automotive,
funeral
homes,
securities
Washington,
DC,
Internal
Revenue
Service,
2003.
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
•
Fundamentals of Valuing a Family Limited Partnership. Ft. Lauderdale, FL, Florida
Institute and
of Certified
Accountants,
2003.
Business valuation
litigationPublic
support
services have
been rendered for a variety of purposes
including,
but
not
limited
to
family
law
matters,
business
damAges,
lender liability
litigation,
buy•
Valuation of FLPs and LLCs. Neptune, NJ, Estate
and Financial
Planning
Council
of
sell Agreements,
shareholder
litigation,
estate
and
gift
tax
matters,
buying
and
selling
Central Jersey, 2002.
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
andofbreach
of contract.
Representation
in litigation
includes
plaintiff,
•wrongful termination,
Fundamentals
FLPs and
FLLCs. Las
Vegas, NV, American
Institute
of Certified
defendant, Public
mutual,Accountants,
and court-appointed
2001. neutral.
qualifiedLas
as an
expertNV,
witness
in State
Courts of New
Jersey
and
•Court Testimony.
Market Has
Databeen
Method.
Vegas,
American
Institute
Certified
Public
Florida.
Accountants, 2001.
•Court Appearances.
The FLP Written
Report. inOrlando,
FL, The
Institute
Business
Appraisers,
Has appeared
the following
court:
Newof
Jersey
• Passaic;
Essex.2001.
•
What’s Happening in the Courts? Ft. Lauderdale, FL, Florida Institute of Certified
•
CPA: Licensed in Florida (2003) and New Jersey (1987).
•
•
ABV: Accredited in Business Valuation designated by The American Institute of
Introduction
to Business
Valuation:
Part
1, American in
Society
Certified
Public
Accountants
(1998).
Reaccredited
2008.of Appraisers, Bethesda,
MD, 2010.
MCBA: Master Certified Business Appraiser designated by The Institute of Business
Introduction to
Business
American Institute
Certified
Public Accountants,
Appraisers,
Inc.
(2005). Valuation,
Original certification
(CBA) inof1995.
Reaccredited
in 2009.
Roseland, NJ, 2010.
ASA: Accredited Senior Appraiser designated by the American Society of Appraisers
AICPA National
Business
Valuation School, American Institute of Certified Public
(1997).
Reaccredited
in 2007.
Accountants, ChicAgo, IL, 2009, Atlanta, GA, 2010.
PublicDesignations
Accountants, 2001.
Professional
Instructor
•
•
•
•
•
Essentials of Business Appraisal. The Institute of Business Appraisers, Ft.
Education
•
•
•
Lauderdale, FL, 2008.
Masters in Business Administration - Fairleigh Dickinson University (1986).
Principles of Valuation: Business Valuation Case Study. American Society of
Appraisers,
ChicAgo,- University
IL 2007, 2008;
Arlington,
2008, Manhattan Beach, CA,
Bachelor
of Science
of North
CarolinaVA
(1978).
2010.
•
Principles of Valuation: The Market Approach. American Society of Appraisers,
Herndon, VA 2006, 2007; Brooklyn, NY 2007; Manhattan Beach, CA, 2008; Atlanta,
GA, 2009.
•
Business Valuation Essentials: Reports, Standards and Tax Valuations. American
Institute of Certified Public Accountants, Tennessee, 2006.
•
Business Valuation Essentials: Valuation of Specialized Areas. American Institute
of Certified Public Accountants, Rhode Island, 2006; Tennessee, 2006.
- 153
163 -
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Instructor
Experience
•
Business
Valuation
Essentials
Case Study.
American
Institute
of Certified
Public
Vice
President
of Trugman
Valuation
Associates,
Inc., a firm
specializing
in business
valuation
Accountants,
Rhode Island,
2006;
Tennessee,
2006. includes a wide variety of
and litigation
support services.
Business
valuation
experience
assignments including closely-held businesses, professional practices and thinly traded public
•companies.Business
Valuation
Income Approach
Costhealth
of Capital.
Industries
includeEssentials:
security, automotive,
funeral and
homes,
care, American
securities
Institute
of
Certified
Public
Accountants,
Georgia,
2005,
2006.
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
•
Business Valuation Essentials: Introduction. American Institute of Certified Public
Accountants,
Georgia,support
2005, 2006;
North
Carolina,
2006. for a variety of purposes
Business valuation
and litigation
services
have
been rendered
not limited
to family
law matters,
lender liability
litigation,
buy•including, but
Small
Business
Valuation:
A Real business
Life CasedamAges,
Study. American
Institute
of Certified
sell Agreements,
shareholder
litigation,
estate
and
gift
tax
matters,
buying
and
selling
Public Accountants, Iowa, 2005; Indiana, 2005; Florida, 2006; New Jersey, 2009.
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
and breach
of contract.
Representation
in Discounts
litigation includes
plaintiff,
•wrongful termination,
Business Valuation
Essentials:
Market
Approach and
and Premiums.
defendant, American
mutual, and
court-appointed
Institute
of Certifiedneutral.
Public Accountants, Florida, 2005; Tennessee, 2006.
Has
qualified
as anFinancial
expert witness
in State
Courts
of New2005.
Jersey and
•Court Testimony.
Valuation
of been
Specialized
Areas.
Consulting
Group,
Georgia,
Florida.
•
Valuing Family Limited Partnerships. Rhode Island Society of CPAs, Rhode Island,
2004.
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
•
Report Writing. Rhode Island Society of CPAs, Rhode Island, 2004.
Professional
Designations
•
Principles of Valuation: The Income Approach. American Society of Appraisers,
Illinois,Licensed
2004. in Florida (2003) and New Jersey (1987).
CPA:
ValuingAccredited
Goodwill and
Intangible
Assets.designated
Americanby
Institute
of Certified
Public
ABV:
in Business
Valuation
The American
Institute
of
Accountants,
New
Jersey,
2004,
Iowa,
2005.
Certified Public Accountants (1998). Reaccredited in 2008.
••
Small Business
Valuation
Case Study:
Let’sdesignated
Work Through
theInstitute
Issues!of American
MCBA:
Master Certified
Business
Appraiser
by The
Business
Institute
of
Certified
Public
Accountants,
New
Jersey,
2004.
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
••
Small Accredited
Business Case
Thedesignated
Institute ofbyBusiness
Appraisers,
Inc.,
Florida,
ASA:
SeniorStudy.
Appraiser
the American
Society of
Appraisers
2004.
(1997). Reaccredited in 2007.
•
Valuing Family Limited Partnerships. The Institute of Business Appraisers, Inc., New
York, 2003, Florida, 2005.
Education
•
••
•
•
••
Principles of Valuation: Introduction to Business Valuation - Section A. American
Masters
in Appraisers,
Business Administration
Society of
Illinois, 2003.- Fairleigh Dickinson University (1986).
Bachelor
Science - in
University
Business ofAppraisal
Divorce.of North
The Carolina
Institute (1978).
of Business Appraisers, Inc.,
Massachusetts, 2002; New York, 2003.
•
Splitting Up is Hard to Do: Advanced Valuation Issues in Divorce and Other Litigation
Disputes. American Institute of Certified Public Accountants. Atlanta, GA, 2002;
Louisville, KY, 2002.
•
The Nuances of Appraising Interests in Family Limited Partnerships. 2002 Annual
Business Valuation Conference, Washington, DC, The Institute of Business
Appraisers, 2002.
-- 164
164 -153
Appendix
Appendix 4
4
LINDA
LINDA B.
B. TRUGMAN,
TRUGMAN, C.P.A./A.B.V.,
C.P.A./A.B.V., M.C.B.A.,
M.C.B.A., A.S.A.,
A.S.A., M.B.A.
M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Instructor
Instructor
Experience
!
Financial
Statements
in
Courtroom
(Business
Valuation
!
Financial
Statements
in the
theAssociates,
CourtroomInc.,
(Business
Valuation Component).
Component).
American
Vice
President
of Trugman
Valuation
a firm specializing
in business American
valuation
Institute
of
Certified
Public
Accountants
for
the
National
Judicial
York,
Institute
of Certified
Public
Accountants
for the
National includes
Judicial College.
College.
New
York,
and litigation
support
services.
Business
valuation
experience
a wide New
variety
of
2001;
California,
2002.
2001;
California,
2002. businesses, professional practices and thinly traded public
assignments
including
closely-held
companies.How
Industries
include
security, automotive,
funeral homes,
health
care, securities
!
to
Business
Appraisal
The
Institute
!
to Write
Writeinstitutions,
Business Valuation
Valuation
Appraisal Reports.
Reports.
The professional
Institute of
of Business
Business
brokerAge How
and
financial
retail,
manufacturing,
service,
and
business
Appraisers,
Inc.
Missouri,
2001;
Massachusetts,
2002.
Appraisers,
Inc.
Missouri,
2001;
Massachusetts,
2002.
establishments.
!
Application
of
the
Approach.
The
Institute
of
Appraisers,
Inc.
!
Application
of
the Market
Market
Approach.
The been
Institute
of Business
Business
Appraisers,
Inc.
Business valuation
and
litigation
support
services have
rendered
for a variety
of purposes
Missouri,
2001.
Missouri,
2001.
including, but not limited to family law matters, business damAges, lender liability litigation, buysell Agreements,
shareholder
litigation,
estate and
tax matters,
buying
and selling
!
Fundamentals
of
Appraisal.
The
Institute
of
Appraisers,
Inc.
!
Fundamentals
of Business
Business
Appraisal.
The gift
Institute
of Business
Business
Appraisers,
Inc.
businesses,Missouri,
malpractice
litigation,
wrongful
death,
sexual
discrimination,
Age
discrimination,
2001.
Missouri, 2001.
wrongful termination, and breach of contract. Representation in litigation includes plaintiff,
!
the
defendant, Preparing
mutual, andfor
neutral. Appraiser
!
Preparing
forcourt-appointed
the Certified
Certified Business
Business
Appraiser Written
Written Exam.
Exam. The
The Institute
Institute of
of
Business
Appraisers,
Inc.
Massachusetts,
2000;
Florida,
2005.
Business Appraisers, Inc. Massachusetts, 2000; Florida, 2005.
Court Testimony. Has been qualified as an expert witness in State Courts of New Jersey and
!
AICPA
Florida.
!
AICPA ABV
ABV Examination
Examination Review
Review Course.
Course. American
American Institute
Institute of
of Certified
Certified Public
Public
Accountants.
North
Carolina,
2000;
Illinois,
2000,
2008,
2009;
Maryland,
Accountants. North Carolina, 2000; Illinois, 2000, 2008, 2009; Maryland, 2001;
2001;
Minnesota,
2001;
Indiana,
New
2003,
2004,
2005,
2007;
Court Appearances.
appeared
the following
court:
New
Jersey
Essex.2004;
Minnesota,Has
2001;
Indiana,in2002;
2002;
New York,
York,
2003,
2004,
2005,• Passaic;
2007; Georgia,
Georgia,
2004;
Florida
Florida 2004,
2004, 2008;
2008; Rhode
Rhode Island,
Island, 2005;
2005; Connecticut
Connecticut 2006;
2006; Texas,
Texas, 2009,
2009, Atlanta,
Atlanta,
2010.
2010.
Professional
Designations
!
Fundamentals
!
Fundamentals of
of Business
Business Valuation
Valuation -- Part
Part 2.
2. American
American Institute
Institute of
of Certified
Certified Public
Public
Accountants.
Kansas,
2000;
Minnesota,
2001;
North
Carolina,
2002;
Maryland
•
CPA:
Licensed
in Florida
(2003)
and New
Jersey
Accountants.
Kansas,
2000;
Minnesota,
2001;
North(1987).
Carolina, 2002; Maryland 2004.
2004.
!
Fundamentals
of
Valuation
-- Part
1.
of
Public
•
ABV:
Accredited
in Business
Valuation
designated
by Institute
The American
Institute
of
!
Fundamentals
of Business
Business
Valuation
Part
1. American
American
Institute
of Certified
Certified
Public
Accountants.
Kansas,
2000;
Texas,
2000;
California,
2001;
New
York,
2001;
Florida,
Certified Public
Accountants
(1998).2000;
Reaccredited
2008.New York, 2001; Florida,
Accountants.
Kansas,
2000; Texas,
California,in2001;
2004.
2004.
•
MCBA: Master Certified Business Appraiser designated by The Institute of Business
!
Business
Valuation
Approaches
Methods.
Oregon,
2000;
Ohio,
Appraisers,
Inc. (2005).
Original and
certification
(CBA)
in 1995.
Reaccredited
!
Business
Valuation
Approaches
and
Methods.
Oregon,
2000;
Ohio, 2000.
2000. in 2009.
!
•
!
Valuation
Discount
Rates
&
Rates/Premiums
Discounts.
Oregon,
ASA:
Accredited
Senior
Appraiser
designated
by the American&
of Appraisers
Valuation
Discount
Rates
& Capitalization
Capitalization
Rates/Premiums
&Society
Discounts.
Oregon,
2000.
(1997).
Reaccredited
in
2007.
2000.
Report
Report Writing
Writing Workshop.
Workshop. The
The Institute
Institute of
of Business
Business Appraisers,
Appraisers, Inc.
Inc. Arizona,
Arizona, 2000.
2000.
!
!
Education
!
Mastering
!
Mastering Appraisal
Appraisal Skills
Skills for
for Valuing
Valuing the
the Closely
Closely Held
Held Business.
Business. The
The Institute
Institute of
of
Business
Appraisers,
Inc.,
Illinois,
1999;
South
Carolina,
1999;
New
Jersey,
•
Masters
in
Business
Administration
Fairleigh
Dickinson
University
(1986).
Business Appraisers, Inc., Illinois, 1999; South Carolina, 1999; New Jersey, 2000;
2000;
Nevada,
Nevada, 2000.
2000.
•
Bachelor of Science - University of North Carolina (1978).
!
Fundamentals
!
Fundamentals of
of Business
Business Appraisal.
Appraisal. The
The Institute
Institute of
of Business
Business Appraisers,
Appraisers, Inc.,
Inc.,
South
Carolina,
1999;
Missouri,
2001.
South Carolina, 1999; Missouri, 2001.
Author
Author
!
!
!
!
!
!
The
The Valuation
Valuation of
of FLPs:
FLPs: What
What Does
Does the
the Tax
Tax Practitioner
Practitioner Need
Need to
to Know?
Know? The
The Tax
Tax
Advisor,
AICPA
(Vol.
41,
No.1)
January
2010:
38-45.
Advisor, AICPA (Vol. 41, No.1) January 2010: 38-45.
Summer 2009.
2009.
Can
Can Your
Your Appraiser
Appraiser Support
Support Her
Her Discounts,
Discounts, Valuations
Valuations Plus,
Plus, Summer
Are Family
Family Limited
Limited Partnerships
Partnerships and
and LLCs
LLCs Still
Still Viable
Viable Planning
Planning Tools?,
Tools?, Valuations
Valuations
Are
Plus,
Winter
2008.
Plus, Winter 2008.
-- 165
165 -153
Appendix
Appendix 4
4
LINDA
LINDA B.
B. TRUGMAN,
TRUGMAN, C.P.A./A.B.V.,
C.P.A./A.B.V., M.C.B.A.,
M.C.B.A., A.S.A.,
A.S.A., M.B.A.
M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Author
Author
Experience
!
Does
Valuation
Professional
Qualify
as
Qualified
Appraiser?,
Valuations
Plus,
!
Does
Your
Valuation
Professional
Qualify
asaa
afirm
Qualified
Appraiser?,
Valuations
Plus,
Vice
President
ofYour
Trugman
Valuation
Associates,
Inc.,
specializing
in business
valuation
Winter
2007.
Winter
2007.services. Business valuation experience includes a wide variety of
and litigation
support
assignments
businesses,
professional
practices
and thinlyWithstand
traded public
!
If including
You Buy
Buy closely-held
or Sell
Sell Shares
Shares
of the
the Company,
Company,
With
the Agreement
Agreement
the
!
You
or
of
With
the
Withstand
the
companies.If
Industries
include
security,
automotive,
funeral
homes,
health
care,
securities
Summer
2007.
Scrutiny
of
the
IRS,
Valuations
Plus,
of theinstitutions,
IRS, Valuations
Summer 2007.
brokerAge Scrutiny
and financial
retail, Plus,
manufacturing,
service, and professional business
establishments.
!
Should Your
Your Appraiser
Appraiser Tax-Effect
Tax-Effect an
an S
S Corporation?
Corporation? Valuations
Valuations Plus,
Plus, Winter
!
Should
Winter 2007.
2007.
Business
valuation
litigation
have beenPlus,
rendered
for a variety of purposes
Fall
!
Debt
Equity:
How
Do
Know?
!
Debt vs.
vs.and
Equity:
How support
Do You
You services
Know? Valuations
Valuations
Plus,
Fall 2006.
2006.
including, but not limited to family law matters, business damAges, lender liability litigation, buy!
Using
What
Knowable?,
Valuations
Plus,
sell
shareholderInformation:
litigation, estate
and Known
gift taxor
buying
and selling
! Agreements,
Using Subsequent
Subsequent
Information:
What Was
Was
Known
or matters,
Knowable?,
Valuations
Plus,
Spring
2005.
businesses,Spring
malpractice
2005. litigation, wrongful death, sexual discrimination, Age discrimination,
wrongful termination, and breach of contract. Representation in litigation
includes plaintiff,
st
st edition, Wiley Finance
••
Co-author
of
Financial
Valuation:
Applications
and
Models
1
defendant,
mutual, and
neutral.
edition,
Wiley Finance
Co-author
of court-appointed
Financial
Valuation:
Applications
and
Models
1
nd
(2003)
edition (2006).
(2006).
(2003) and
and 2
2nd edition
Court Testimony. Has been qualified as an expert witness in State Courts of New Jersey and
••Florida.
Co-author
Co-author of
of course
course entitled
entitled Splitting
Splitting Up
Up is
is Hard
Hard to
to Do:
Do: Advanced
Advanced Valuation
Valuation Issues
Issues
in
Divorce
and
Other
Litigation
Disputes.
American
Institute
of
in Divorce and Other Litigation Disputes. American Institute of Certified
Certified Public
Public
Accountants
(2002).
Accountants
(2002).
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
••
Course
Course entitled
entitled Fundamentals
Fundamentals of
of Business
Business Appraisal.
Appraisal. The
The Institute
Institute of
of Business
Business
Appraisers,
Inc.(2000).
Appraisers,
Inc.(2000).
Professional
Designations
Organizations
Organizations
•
CPA: Licensed in Florida (2003) and New Jersey (1987).
••
••
••
•
••
•
••
The
of
Appraisers,
Inc.
The Institute
Institute
of Business
Business
Appraisers,
Inc. designated by The American Institute of
ABV:
Accredited
in Business
Valuation
Certified
Public
Accountants
(1998).
Reaccredited
in 2008.
American
American Society
Society of
of Appraisers
Appraisers
MCBA:
Master
Certified
Business
Appraiser
designated by The Institute of Business
American
Institute
of
Public
Accountants
American
Institute
of Certified
Certified
Public
Accountants
Appraisers,
Inc. (2005).
Original
certification
(CBA) in 1995. Reaccredited in 2009.
New
Jersey
Society
of
Certified
Public
Accountants
New
Society
of Certified
Public
Accountants
ASA:Jersey
Accredited
Senior
Appraiser
designated
by the American Society of Appraisers
(1997).
Reaccredited
in
2007.
Florida
Institute
of
Certified
Public
Accountants
Florida Institute of Certified Public Accountants
Committee
Service
Committee
Education Service
••
•
••
••
••
••
••
••
Co-Chair
Co-Chair -- 2010
2010 ASA-CICBV
ASA-CICBV Joint
Joint Business
Business Valuation
Valuation Conference,
Conference, American
American Society
Society
Masters
in
Business
Administration
Fairleigh
Dickinson
University
(1986).
of
Appraisers.
of Appraisers.
Bachelor
Science -Valuation
UniversityCommittee.
of North Carolina
(1978).
Secretary
-- Business
American
Society
Secretaryof
Business
Valuation
Committee.
American
Society of
of Appraisers.
Appraisers.
Chair
Chair -- Business
Business Valuation
Valuation Education
Education Committee.
Committee. American
American Society
Society of
of Appraisers.
Appraisers.
Secretary
Secretary -- ASA
ASA Educational
Educational Foundation.
Foundation. American
American Society
Society of
of Appraisers.
Appraisers.
Governor
Governor at
at Large,
Large, The
The Institute
Institute of
of Business
Business Appraisers.
Appraisers.
Business
Business Valuation/Forensic
Valuation/Forensic &
& Litigation
Litigation Services
Services Advisory
Advisory Board
Board to
to the
the Journal
Journal of
of
Accountancy.
American
Institute
of
Certified
Public
Accountants.
Accountancy. American Institute of Certified Public Accountants.
Vice
Vice Chair
Chair -- Relations
Relations with
with the
the Florida
Florida Bar
Bar Committee.
Committee. Florida
Florida Institute
Institute of
of Certified
Certified
Public
Accountants.
Public Accountants.
166 - 153
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Past Committee Service
Experience
•
Chair
2009 Valuation
Forensic
and Litigation
Services
Conference,
Floridavaluation
Institute
Vice
President
of-Trugman
Valuation
Associates,
Inc., a firm
specializing
in business
of Certified
Accountants.
and litigation
support Public
services.
Business valuation experience includes a wide variety of
assignments including closely-held businesses, professional practices and thinly traded public
•companies.Business
Valuation/Forensic
Litigation Services
Committee.
American
Industries
include security,& automotive,
funeralExecutive
homes, health
care, securities
Institute
of
Certified
Public
Accountants.
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
•
Business Valuation Committee. American Institute of Certified Public
Accountants.
Business valuation
and litigation support services have been rendered for a variety of purposes
including,
but
not
limited
to family
law matters,
business
damAges,
lender liability
litigation,
buy•
Chair - 2002 AICPA
Business
Valuation
Conference.
American
Institute
of Certified
sell Agreements,
shareholder
litigation,
estate
and
gift
tax
matters,
buying
and
selling
Public Accountants, Member of Committee for 2001 and 2009 Conferences.
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
wrongful
termination,
and
breach
of contract.American
Representation
in Appraisers.
litigation includes plaintiff,
•
International
Board
of Examiners.
Society of
defendant, mutual, and court-appointed neutral.
•
Qualifications Review Committee. The Institute of Business Appraisers, Inc
Court Testimony. Has been qualified as an expert witness in State Courts of New Jersey and
•Florida.
Joint AICPA/ASA 2005 Conference Committee. American Institute of Certified Public
Accountants.
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
•
Steering Committee of Valuation Forensic and Litigation Services Section. Florida
Institute of Certified Public Accountants.
Professional Designations
Editor
•
•
•
•
•
•
••
CPA: Licensed in Florida (2003) and New Jersey (1987).
Former Editor of the AICPA ABV E-Alert.
ABV: Accredited in Business Valuation designated by The American Institute of
Editorial
Board Accountants
of Financial (1998).
Valuation
& LitigationinExpert,
Certified Public
Reaccredited
2008. Valuation Products &
Services, LC.
MCBA: Master Certified Business Appraiser designated by The Institute of Business
Former
Editorial
AdvisorOriginal
for BV Q&A,
Business
Valuation
Resources,
Inc. in 2009.
Appraisers,
Inc. (2005).
certification
(CBA)
in 1995.
Reaccredited
Former
Editor of Business
Appraisal
Practice, by
The
of Business
ASA:
Accredited
Senior Appraiser
designated
theInstitute
American
Society ofAppraisers,
Appraisers
Inc.
(1997). Reaccredited in 2007.
Professional Achievements
Education
•
Presented with the “Jerry F. Larkins Volunteer Service Award 2009-2010" by the
•
•
•
AmericaninSociety
of Administration
Appraisers for -exceptional,
devotedUniversity
and invaluable
volunteer
Masters
Business
Fairleigh Dickinson
(1986).
service to the American Society of Appraisers.
Bachelor of Science - University of North Carolina (1978).
Presented with the “Hall of Fame Award” by the American Institute of Certified Public
Accountants in 2009 for outstanding service the goals of the business valuation
profession.
•
Presented with the “Volunteer of the Year Award” by the American Institute of
Certified Public Accountants in 2008 for outstanding service the goals of the business
valuation profession.
•
Presented with the “Fellow Award” by The Institute of Business Appraisers, Inc. in
May 2002 for contributions made to the profession.
•
Instructor of the Year Award - The Institute of Business Appraisers.
167 - 153
Appendix 4
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL QUALIFICATIONS
Professional Achievements
Experience
•
Winner
of the J. Valuation
H. Cohn Award
in 1987
for aoutstanding
performance
on the
C.P.A.
Vice
President
of Trugman
Associates,
Inc.,
firm specializing
in business
valuation
licensing
examination.
and litigation
support
services. Business valuation experience includes a wide variety of
assignments including closely-held businesses, professional practices and thinly traded public
companies. Reviewer
Industries include security, automotive, funeral homes, health care, securities
Technical
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
•
Gary R. Trugman. Understanding Business Valuation: A Practical Guide to Valuing
Small to Medium-Sized Businesses, American Institute of Certified Public
Business valuation
and litigation
support
services
have
been rendered
for aEdition
variety(2008).
of purposes
Accountants,
First Edition
(1998)
Second
Edition
(2002), Third
including, but not limited to family law matters, business damAges, lender liability litigation, buy•sell Agreements,
Gary R. shareholder
Trugman. Essentials
of Valuing
a Closely
Heldmatters,
Business,
American
litigation,
estate and
gift tax
buying
andInstitute
selling
of
Certified
Public
Accountants,
2008.
businesses, malpractice litigation, wrongful death, sexual discrimination, Age discrimination,
wrongful termination, and breach of contract. Representation in litigation includes plaintiff,
•defendant, Shannon
Pratt.
The Lawyer’s
Business Valuation Handbook, American Bar
mutual, and
court-appointed
neutral.
Association, 2010.
Court Testimony. Has been qualified as an expert witness in State Courts of New Jersey and
Florida.
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
Professional Designations
•
CPA: Licensed in Florida (2003) and New Jersey (1987).
•
ABV: Accredited in Business Valuation designated by The American Institute of
Certified Public Accountants (1998). Reaccredited in 2008.
•
MCBA: Master Certified Business Appraiser designated by The Institute of Business
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
•
ASA: Accredited Senior Appraiser designated by the American Society of Appraisers
(1997). Reaccredited in 2007.
Education
•
Masters in Business Administration - Fairleigh Dickinson University (1986).
•
Bachelor of Science - University of North Carolina (1978).
168 --- 153
Appendix 4
K. BRATCHER
LINDA B. TRUGMAN,RAY
C.P.A./A.B.V.,
M.C.B.A., A.S.A., M.B.A.
PROFESSIONAL
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Experience
Experience
Valuation
Analyst
at Trugman
Valuation
Associates,
Inc.,
in business
valuation.
Was
Vice
President
of Trugman
Valuation
Associates,
Inc.,
a specializing
firm specializing
in business
valuation
previously
employed
a nationally
recognized
valuation
firm fromincludes
May 2007
October
2010.
and
litigation
supportwith
services.
Business
valuation
experience
a to
wide
variety
of
Experience including
includes aclosely-held
wide variety
of assignments
including
the valuation
closely-held
assignments
businesses,
professional
practices
and thinlyoftraded
public
businesses, Industries
professional
practices,
thinly
traded public
companies,
and intangible
assets.
companies.
include
security,
automotive,
funeral
homes, health
care, securities
Notable
industry
experience
includes
the
following:
brokerAge and financial institutions, retail, manufacturing, service, and professional business
establishments.
•
Asset
Management
•
Manufacturing
• for
Media
Business
valuation
and litigation support
services have been rendered
a variety of purposes
•
Business
Services
(a)
Aircraft
Parts
•
including, but not limited to family law matters, business damAges, lenderPharmaceuticals
liability litigation,and
buy• Agreements,
Construction shareholder litigation,
(b) Automobile
Research
sell
estate andParts
gift tax matters,
buying and selling
(a)Commercial
andlitigation, wrongful
(c) Chemicals
•
Real
Estate
businesses,
malpractice
death, sexual discrimination,
Age
discrimination,
Industrial
(d)
Industrial
and
Investment
Trust
wrongful termination, and breach of contract. Representation in litigation includes
plaintiff,
(b)Residential
Commercial
•
Retail
defendant, mutual, and court-appointed neutral.
•
Energy
Machinery
•
Security
•
Food
and
BeverAge
(e)
Specialty
Consumer
•
Service
Court Testimony. Has been qualified as an expert witness in State Courts
of New Jersey and
•
Insurance
Goods
•
Technology
Florida.
•
Vegetation
Management
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
Business valuation services have been rendered for a variety of purposes including, but not limited
to
estate and giftDesignations
tax matters, buying and selling businesses, ESOPs and other share-based
Professional
compensation calculations, purchase price allocations and goodwill impairment testing.
•
CPA: Licensed in Florida (2003) and New Jersey (1987).
Education
•
ABV: Accredited in Business Valuation designated by The American Institute of
•
•
Certified Public Accountants (1998). Reaccredited in 2008.
B.S., Business Administration, The College of New Jersey, 2007.
MCBA: Master Certified Business Appraiser designated by The Institute of Business
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
Appraisal Education
•
•
ASA: Accredited Senior Appraiser designated by the American Society of Appraisers
Fundamentals
of Business Valuation
(1997). Reaccredited
in 2007. - Part 2, American Society of Appraisers, Bethesda,
MD, 2011.
•
Fundamentals of Business Valuation - Part 1, American Society of Appraisers, Bethesda,
Education
•
•
MD, 2011.
Masters in Business Administration - Fairleigh Dickinson University (1986).
Bachelor of Science - University of North Carolina (1978).