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Petitioner’s Expert
Petitioner’s expert Lawrence P. Gelfond owns his own
certified public accounting and business consulting firm. He has
extensive experience in evaluating commercial enterprises for
business decisions, and he has valued closely held businesses and
professional practices.
Mr. Gelfond opined that the compensation petitioner paid to
Mr. Myers and Mrs. Myers for its year ended July 31, 1996, was
reasonable. Among other things, Mr. Gelfond heavily based his
conclusion on his examination of a 1996 survey of a large number
of concrete contracting companies. In his report, he elaborated
as follows:
The Company [petitioner] realized net profit (before
owner’s compensation and taxes) of 23 percent of
revenues for the tax year ended July 31, 1996. As
previously stated, the Company also realized an average
annual return of 43 percent over the 10 year period
ending July 31, 1996 (“the Operating Period”)--well
above the annual return of a superior mutual fund.[20]
According to Robert Morris Associates Annual Statement
Studies - 1996 (“the Study”), Concrete Contractors
(Standard Industrial Classification Code #1771),
companies within the 75th percentile (implies the
statistic ranks 25th of 100 samples) realized net
profit (before officers’ compensation and taxes) of
12.9 percent of revenues. As the Company realized net
profit of 23.1 percent for the tax year ended July 31,
1996, it is obvious that the Company realized superior
financial performance compared to the companies in the
Study’s data.
20 Mr. Gelfond’s compounded average annual return analysis
is discussed infra pp. 50-52, in connection with our discussion
of petitioner’s financial performance and the independent
investor test.
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