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“comparable”, did not explain with specificity why the companies
with losses or the remaining limited universe would not be
“reliable”.
Mr. Dorman concluded that Godfrey’s adjusted net book value
was $17,341,379, as of September 15, 1997. That number is close
to Godfrey’s unadjusted balance sheet total shareholders’ equity,
which was $17,160,705 on the valuation date. Mr. Dorman started
with the shareholders’ equity and deducted $126,806 to account
for the partial year. Mr. Dorman explained the deduction as
being attributable to an expectation that shareholders’ equity
would decrease by the end of the year.9 We could find no
foundation for such a deduction. He then converted the book
values to fair market values, resulting in a $2,392,916 increase
or excess of fair market value over book value. Mr. Dorman then
formulated a $1,919,869 deduction for something he labeled
“Environmental Liabilities”. Finally, he deducted $165,566 for
Federal and Indiana tax (ostensibly for the capital gains on
liquidation and/or sale of the assets).
With respect to Mr. Dorman’s net asset approach, we found
his reasoning and/or basis for his conclusions in support of the
adjustments (reductions) to be inadequate and without meaningful
explanation.
9 In the use of a net asset valuation approach, it would be
irrelevant that shareholders’ equity decreases after the
valuation date.
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