- 11 -
discovered, a number of differences in the parties’ analyses
contributing to the difference in value. On brief, petitioner
addressed only the differences in the parties’ treatments of (1)
projected VARI, (2) projected annual capital expenditures, and
(3) a nonoperating asset.
I. VARI
Of the three items the treatment of which the parties
dispute, the one likely to have the most impact on ZSI’s value is
the extent to which ZSI will retain the VARI it receives.
Respondent projected gross VARI to equal 18 percent of gross
sales for each projected year,9 or $1,620,000 for 1993.
Respondent’s projection was based on ZSI’s historical amounts of
gross VARI earned, petitioner’s projected gross sales, and the
parties’ consensus that gross VARI varies directly with gross
sales. Respondent then projected, based on Mr. Rhoads’s
statements, that ZSI would retain 50 percent of the gross VARI
for each projected year.
On the other hand, petitioner projected that ZSI would
retain only $350,000 of gross VARI for 1993,10 without projecting
what gross VARI would be, and that ZSI would retain amounts
proportionate to gross sales thereafter. Petitioner argues that
9Roughly 70 to 75 percent of all sales qualified for the VAR
program.
10Petitioner’s projection equates to 21.60 percent of
respondent’s projected gross VARI. By contrast, respondent
projected ZSI would retain $810,000, or 50 percent, of
respondent’s projected gross VARI.
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Last modified: May 25, 2011