-314-
Mr. Crawford’s expert report addresses two questions: (1)
Whether unused NOLs of a target company are taken into account in
determining its value to a hypothetical willing buyer and
hypothetical willing seller; and (2) whether unused NOLs of SMHC
(totaling $260,098,293) had potential value to that company and
the amount of that value as of December 11, 1996. Mr. Crawford
concluded that based on his research and experience: (1) Unused
NOLs of a target company are taken into account in determining
the value of a target to an acquirer; and (2) NOLs of SMHC would
have had value to a hypothetical willing buyer and hypothetical
willing seller of that company prior to the transactions that
occurred on December 11, 1996. He concluded that the NOLs in
SMHC would have had a value in the range of $620,000 to
$1,245,000. In arriving at this range, Mr. Crawford first
propounded a reasonable, projected utilization of NOLs by a
hypothetical acquirer; second, he applied a present value
analysis to the projected utilization of NOLs back to December
11, 1996, using a rate (10 percent) that estimated the weighted
average cost of capital during that period; and third, he applied
a 98- to 99-percent risk-related discount to that result.215
215 In calculating the present value of the NOLs, Mr.
Crawford discounted one year too many, causing his calculations
to be off by one year. Although this error would serve to
increase the range of values that Mr. Crawford determined, it
leads us to question the reliability of his valuation as a whole.
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