- 39 -
EBITDA (earnings before interest, taxes, depreciation and
amortization). However, they fail to explain how consideration
of those measures would have influenced or changed Mr. Engstrom’s
conclusions.36 Mr. Engstrom’s explanations were thorough and
complete, and it was his opinion that those measures would not
have affected his analysis. He agreed that significant
differences in interest, taxes, level of debt, etc., might
necessitate adjustments to make the companies more comparable.
However, imposing those adjustments where the differences are not
significant runs the risk of imposing “your judgment over the
actual data that’s in there” and the risk “that your subjective
determination is wrong.”
The P/E ratios for the guideline companies that Mr. Engstrom
selected were based on those companies’ earnings for the two most
recent quarterly filings and the forecasts of the earnings for
the next two cycles.37 The P/E ratio for HII, however, was based
on that company’s financial information for the fiscal year
36Mr. Heebink’s testimony in rebuttal regarding the use of
P/E ratios was somewhat confusing. He could not explain why
these other items are necessarily important or how they might
have influenced or changed Mr. Engstrom’s conclusions. Mr.
Heebink testified in the context of what an “acquirer” would
consider in a “typical mergers-and-acquisitions situation”,
wherein he claims P/E ratios would seldom be used.
37This information was derived from Value Line Investment
Survey, which uses the most recent 6-month period reported to the
Securities & Exchange Commission and an estimate of the next 6-
month period.
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