- 64 -
$750,000 downward adjustment yields a value for BCC of $6.75
million, as compared to Mr. Hitchner’s $7 million estimate.
3. Mr. Hitchner’s Estimate of Excess Cash
Mr. Hitchner calculated that BCC had nonoperating assets of
approximately $2.3 million. This figure included $433,572 for
notes receivable and an idle asphalt plant, plus approximately
$1.9 million of “excess cash”; i.e., that portion of BCC’s cash
on hand that Mr. Hitchner considered to be in excess of BCC’s
working capital needs. To determine excess cash, Mr. Hitchner
compared BCC’s ratio of cash to assets as of the valuation date
with the industry average ratio of cash to assets for SIC code
1611 (Contractors--Highway & Street Construction). Using the
industry average ratio for 1997 and BCC’s assets, he determined
that BCC required $1,125,029 of cash and cash equivalents. Since
the cash and cash equivalents BCC had on hand as of the valuation
date ($2,994,970) exceeded this industry average by $1,869,941,
Mr. Hitchner concluded that BCC had excess cash, approximately
equal to the latter figure, which he treated as a nonoperating
asset.
We are persuaded that Mr. Hitchner’s reliance on industry
averages to measure BCC’s cash requirements produces an erroneous
estimate. The uncontested testimony in this case establishes
that BCC required approximately $1.5 million in cash and cash
Page: Previous 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 NextLast modified: May 25, 2011