Johann T. and Johanna Hess - Page 21

                                       - 21 -                                         
          adjustment resulted in a significant understatement of the value            
          that Mr. Heebink derived in his valuation analysis.                         
          Nevertheless, we believe Mr. Heebink’s valuation analysis is                
          entitled to some consideration.  Although his valuation analysis            
          should not have included the adjustment for the alleged                     
          understatement of reserves, that analysis provides some                     
          indication of the fair market value of HII stock.  Mr. Heebink’s            
          analysis was thorough, and his investigation leading up to that             
          analysis included a site visit and interviews with HII personnel.           
          Mr. Heebink prepared additional reports to supplement his                   
          principal report.                                                           
               Further, Mr. Heebink’s valuation analysis, unlike Mr.                  
          Engstrom’s analysis, gave consideration to an income-based                  
          method, the discounted cashflow method.  Generally, in valuing              
          the shares of an operating company such as HII, primary                     
          consideration should be given to earnings.  See Rev. Rul. 59-60,            


               21(...continued)                                                       
          HII’s 1995 financial statement had been restated to correct these           
          errors and to account for the understatement of reserves, HII’s             
          pretax income would have been reduced by approximately $3.5                 
          million.  Petitioners fail to convince us that there was a                  
          premature booking of income or that the premature booking of                
          income was known or reasonably foreseeable on the valuation date.           
          Further, it does not appear that these alleged errors were                  
          identified until trial, and Mr. Heebink did not make any                    
          adjustments with respect to any premature booking of income in              
          his reports.  These alleged errors were not discovered by Mr.               
          Gaynor.  HII’s financial statement for 1995 was not restated, and           
          its income tax return for 1995 was not amended to reflect these             
          errors.                                                                     




Page:  Previous  11  12  13  14  15  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  Next

Last modified: May 25, 2011