Charles A. and Marian L. Derby, et al. - Page 55




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          valuation process."  In petitioners' view, because the Dutcher              
          appraisal computed the value of petitioners' intangible assets as           
          being essentially the discounted present value of SWMG's "future            
          distributable earnings" (less the value of tangible assets and an           
          amount for implied working capital), and those future earnings              
          were net of physician compensation expense and all other                    
          operational expenses, the amount claimed as a contribution for              
          intangible assets should not be offset by physician salaries or             
          any other benefit petitioners received in connection with their             
          providing services to SMF.  The "value of the physicians' future            
          salaries is already netted out of the value of the contribution",           
          petitioners argue.                                                          
               We disagree.  First, we do not believe the Dutcher appraisal           
          fully accounts for petitioners' compensation from SMF.  Presumably          
          because SWMG was newly formed and there existed no historical data          
          on its physician compensation expense, Mr. Dutcher assumed when             
          computing future distributable earnings that SWMG's physician               
          compensation expense (computed as a percentage of revenue) would            
          be equal to the median physician compensation expense for the               
          medical specialties comprising SWMG, or 45.18 percent of revenue.           
          In fact, SMF agreed to pay compensation to the SWMG physicians of           
          at least 47 to 55.75 percent of revenue.  Moreover, because Mr.             
          Dutcher treated SWMG's physician compensation expense as equal to           
          the 45.18 percent median, his computation of physician                      







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