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selected five standard multiples (net sales, operating cash-flow--
EBITDA, operating income--EBIT, net income, and cash flow), (2)
determined the ranges of applicable multiples from the comparable
companies data, and (3) applied the multiple ranges to JPMS'
"normalized" financial data (making adjustments to the financial
data generated in the earnings model).14 From the value ranges thus
derived, Mr. Weiksner determined a comparable companies value range
for JPMS of $85 million to $105 million. He then determined JPMS'
public value15 of $76.5 million to $94.5 million by subtracting from
JPMS' comparable companies value a 10-percent extraordinary risk
discount. This discount accounted for: (1) The approximate cost of
replacing Mr. Mitchell's services that was estimated in the
projections of JPMS' operating expenses; (2) operational
13(...continued)
to valuation. In order to create that set of financial
benchmarks, Mr. Weiksner developed an earnings model for JPMS,
which forecast the company's results for a 5-year period and
"normalized" the actual and projected financial results to
reflect JPMS' profile going forward.
14 Mr. Weiksner used the earnings model to portray how a
hypothetical buyer or seller of the JPMS stock would perceive
JPMS as of the moment of decedent's death, given the information
available at that date. Among other things, Mr. Weiksner's
adjustments to JPMS' historical financial data included: (1) The
removal of Mr. Mitchell's compensation as an expense; (2) adding
an amount equal to 8 percent of net sales as additional sales,
general, and administrative expenses in lieu of Mr. Mitchell's
compensation; and (3) the adjustment of Mr. DeJoria's
compensation to $16 million to reflect his average anticipated
compensation.
15 Public value refers to the estimated value of liquid,
freely trading shares of JPMS as if it had been a public company.
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