Brewer Quality Homes, Inc. - Page 64

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               To determine the base salary for 1995 and 1996, Hakala                 
          increased the 1994 theoretical base salary of $207,000 by 4                 
          percent per year.  Thus, the base salary for 1995 and 1996 would            
          have been $215,280 (207,000 x 1.04) and $223,891 (215,280 x                 
          1.04), respectively.  Hakala then determined the bonus amounts              
          based on a percentage of the operating income before officers’              
          compensation.  In his expert witness report, Hakala explains as             
          follows:                                                                    
               The bonus percentage is solved based on the projected 4% per           
               annum rate of growth, the expected operating expenses before           
               officers’ compensation in each future year and a required              
               average net operating return on operating assets of 18.18%.            
               Based on our analysis we calculate that the reasonable                 
               compensation for Mr. Brewer to achieve a 18.18% investor               
               return is $544,419 in 1995 and $448,620 in 1996.  This                 
               corresponds to a bonus of $329,568 in 1995, which would be             
               65.8% of theoretical operating income, and a bonus of                  
               $225,022 in 1996, which would be 31.9% of theoretical                  
               operating income.                                                      
               In his rebuttal report, Hakala noted that his revised                  
          adjusted average required operating return on net operating                 
          assets (16.77 percent, rather than 18.18 percent) resulted in his           
          increasing the recommended compensation level for each year, as             
          described supra.  However, he attributed this change entirely to            
          recalculation of the weights for debt and equity.                           
               Hakala’s discussion of the Panel/Aspen data described supra            
          does not seem to affect his conclusions at all, except as to how            


               21(...continued)                                                       
                    A.  Correct.                                                      




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