John E. Wall - Page 40




                                       - 40 -                                         

               Problems With the Guideline Company Approaches                         
               Although Ms. Walker’s guideline company approach was                   
          thorough and clear, deserves careful consideration, and is                  
          entitled to some weight, we believe it systematically understated           
          Demco’s value.  First, it did not adequately take account of the            
          value of the $1,080,000 media note.  Second, it used erroneous              
          measures of Demco’s projected income for 1992.  Third, it did not           
          use all the guideline company multiples but instead picked and              
          chose among the lowest.                                                     
               Treatment of Media Note                                                
               As noted above, Ms. Walker adjusted Demco’s historical                 
          performance and forecasted earnings measures to eliminate income            
          attributable to the media division; that division was sold on               
          June 1, 1991, in exchange for cash and the media note.  However,            
          Ms. Walker did not then readjust Demco’s measures to include pro            
          forma interest amounts on the media note, or any other amounts              
          reflecting the media division’s income from 1987 until the date             
          of sale.  As a result, the only income attributable to the media            
          note reflected in the measures calculated by Ms. Walker was the 6           
          months’ worth of interest that accrued on the note from the sale            
          date to the end of 1991 and the interest projected to be received           
          in 1992.                                                                    
               Demco’s performance measures, as calculated by Ms. Walker,             







Page:  Previous  30  31  32  33  34  35  36  37  38  39  40  41  42  43  44  45  46  47  48  49  Next

Last modified: May 25, 2011