Valuation for Financial Reporting : Fair Value Measurements and ...

More documents

Recommendations

Info

Case Study 1: Determining Goodwill and Other Intangible Assets 97Exhibit 3.13 Target Company Valuation of Customer Base as of December 31, 2006 ($000s)Cash Flows Actual Projections2006 2007 2008 2009 2010 2011 2012 2013(1) Net Sales-Existing Customers $60,000 $63,000 $66,150 $69,458 $72,931 $76,578 $80,407 $84,427Cost of Sales 24,000 25,200 25,799 27,089 28,443 29,865 31,359 32,927Gross Profit 36,000 37,800 40,352 42,369 44,488 46,713 49,048 51,500(2) Operating Expenses 12,000 14,490 14,553 15,281 16,045 16,847 17,690 18,574Depreciation (MACRS) 1,750 3,097 5,171 3,961 3,120 2,544 2,649 2,762Total Operating Expenses 13,750 17,587 19,724 19,242 19,165 19,391 20,338 21,336Taxable Income 22,250 20,213 20,628 23,127 25,323 27,321 28,710 30,164Income Taxes 40.0% 8,900 8,085 8,251 9,251 10,129 10,929 11,484 12,066Net Income $13,350 12,128 12,377 13,876 15,194 16,393 17,226 18,099Residual Cash Flow Attributableto Existing Customer Base(3) Less: Returns onDebt-free Net Working Capital 5.0% 671 556 632 703 773 840 904Land and Building 7.0% 1,535 1,527 1,520 1,515 1,511 1,507 1,505Machinery and Equipment, net 8.0% 1,428 1,164 872 668 527 410 290Software 17.0% 1,210 1,210 1,210 1,210 1,210 1,210 1,210Trade Name 16.0% 2,026 2,026 2,026 2,026 2,026 2,026 2,026Noncompete Agreement 16.0% 435 435 435 0 0 0 0Assembled Workforce 16.0% 286 286 286 286 286 286 286Technology 18.0% 2,981 2,981 2,981 2,981 2,981 2,981 2,981IPR&D 20.0% 906 906 906 906 906 906 906Sum of Returns 11,479 11,092 10,869 10,295 10,220 10,167 10,108After-tax Residual Cash Flows $649 $1,285 $3,008 $4,899 $6,173 $7,059 $7,990(4) Survivorship of Customer92.9% 78.6% 64.3% 50.0% 35.7% 21.4% 7.1%Base, RoundedSurviving Excess Cash Flows $603 $1,010 $1,934 $2,450 $2,204 $1,511 $567(5) 17.0% Present Value Factor for0.9245 0.7902 0.6754 0.5772 0.4934 0.4217 0.3604Residual Cash FlowPresent Value of Surviving$557 $798 $1,306 $1,414 $1,087 $637 $204Residual Cash FlowsSum of Present Values, 2007–2013 $6,004Amortization BenefitDiscount Rate 17.0%Tax Rate 40.0%Tax Amortization Period (Years) 15Amortization Benefit 1,089Fair Value of Customer Base, Rounded $7,090Footnotes:(1) Assumes existing sales to existing customers will increase at a rate of 5% (to account for inflation and some real growth), beforeconsidering attrition.(2) Excludes expenses of 7% for the solicitation of potential new customers to reflect that existing customers should not be burdened bythe expense of developing new customers.(3) See Calculation of Contributory Asset Charges (Exhibit 3.10)(4) Assumes 7-year life, straight line (survivorship analysis per management)(5) Based on mid-period assumptionNote: Some amounts may not foot due to rounding.# Copyright 2007 by FVG Holdings, LC and Financial Valuation Solutions, LLC. All rights reserved. Used with permission.
98 Valuation for Financial ReportingExhibit 3.14 Target Company Valuation of Goodwill as of December 31, 2006 ($000s)Cash and Acquisition Costs $150,000Debt-free Current Liabilities 25,000Current Maturities of Long-term Debt 4,000Long-term Debt 30,000Adjusted Purchase Price 209,000Less: Fair Value of Current Assets (41,500)Less: Fair Value of Tangible Assets (41,000)Less: Fair Value of Intangible AssetsSoftware (7,120)Technology (16,560)In-process Research and Development (4,530)Trade Name (12,660)Customer Base (7,090)Noncompete Agreement (2,720)(1) Residual Goodwill $75,820Footnote:(1) Residual Goodwill includes the value of Assembled Workforce of $1.790 million.Note: Some amounts may not foot due to rounding.# Copyright 2007 by FVG Holdings, LC and Financial Valuation Solutions, LLC. All rights reserved. Used with permission.tangible and intangible assets. The remainder or residual amount equates with goodwill.Keep in mind that under GAAP, goodwill includes assembled workforce, whichmust be separately valued to obtain a valid contributory charge for IPR&D, technology,and customer base. As a result and pursuant to SFAS No. 141, the indicated value ofassembled workforce must be added to the indicated value of goodwill to arrive at thefair value of goodwill for financial statement reporting purposes. 19For financial reporting purposes, included in the goodwill value is the fair value ofthe assembled workforce of $1,790,000. Based on our analysis, we concluded that thefair value of goodwill on December 31, 2006, was $75,820,000 (see Exhibit 3.14).ALLOCATION OF PURCHASE PRICEThe summary of values is presented in Exhibit 3.15. In this exhibit, the valuationconclusions are separated into three groups: total current and tangible assets, totalintangible assets, and goodwill. Individual asset valuations are presented within eachgroup.In addition to presenting the summary of values, this schedule provides a sanitycheck in the form of a weighted return calculation. The weighted return calculationemploys the rate of return for each asset weighted according to its fair value relative tothe whole. The weighted return must equal or approximate the overall WACC for thebusiness.
Page 2:
VALUATION FORFINANCIALREPORTINGFair
Page 6 and 7:
VALUATION FORFINANCIALREPORTINGFair
Page 8:
To our familiesnear and faryoung an
Page 12 and 13:
PrefaceThe second edition of this b
Page 14:
AcknowledgmentsTo Deanna Muraki, th
Page 17 and 18:
xivAbout the Authorsappraiser with
Page 20:
Valuation for FinancialReportingFai
Page 23 and 24:
2 Valuation for Financial Reporting
Page 25 and 26:
Page 27 and 28:
Page 29 and 30:
Page 31 and 32:
10 Valuation for Financial Reportin
Page 33 and 34:
Page 35 and 36:
Page 37 and 38:
Page 39 and 40:
Page 41 and 42:
Page 43 and 44:
Appendix 1.2Pronouncements Excluded
Page 45 and 46:
Page 47 and 48:
Page 49 and 50:
Page 51 and 52:
Page 53 and 54:
Page 55 and 56:
Page 57 and 58:
Page 59 and 60:
Page 61 and 62:
Page 63 and 64:
Page 65 and 66:
Page 67 and 68: 46 Valuation for Financial Reportin
Page 71 and 72: Intellectual PropertyAppendix 2.1On
Page 77 and 78: Appendix 2.2Significant Changes in
Page 89 and 90: # Copyright 2007 by FVG Holdings, L
Page 91 and 92: Exhibit 3.4 Target Company Business
Page 93 and 94: Exhibit 3.5 Target Company Business
Page 101 and 102: Exhibit 3.7 Target Company Valuatio
Page 103 and 104: Exhibit 3.7 (Continued)No. Job Titl
Page 105 and 106: Exhibit 3.8 Target Company Valuatio
Page 113 and 114: Exhibit 3.10 Target Company Calcula
Page 117: 96 Valuation for Financial Reportin
Page 121 and 122: 100 Valuation for Financial Reporti
Page 127 and 128: Exhibit 3.16 (Continued)Total Fair
Page 129 and 130: Exhibit 3.17 (Continued)2017 Taxabl
Page 135 and 136: Exhibit 3.19 Target Company Valuati
Page 137 and 138: Exhibit 3.19 (Continued)No. Job Tit
Page 143 and 144: Exhibit 3.22 Target Company Calcula
Page 147 and 148: Exhibit 3.23 (Continued)(5) After-t
Page 149 and 150: Exhibit 3.24 (Continued)Sum of Retu
Page 153 and 154: Exhibit 3.27 Target Company Summary
Page 159 and 160: Exhibit 4.2 Report Standard Compara
Page 161 and 162: Exhibit 4.2 (Continued)StandardNACV
Page 169 and 170:
148 Valuation for Financial Reporti
Page 171 and 172:
Page 173 and 174:
Page 175 and 176:
Page 177 and 178:
Page 179 and 180:
Page 181 and 182:
Page 183 and 184:
Page 185 and 186:
Exhibit 4.3 Target Company Business
Page 187 and 188:
Exhibit 4.4 (Continued)Actual Forec
Page 189 and 190:
Page 191 and 192:
Exhibit 4.8 Target Company Valuatio
Page 193 and 194:
Exhibit 4.9 Target Company Valuatio
Page 195 and 196:
Page 197 and 198:
Page 199 and 200:
Page 201 and 202:
Page 203 and 204:
Page 205 and 206:
Page 207 and 208:
Page 209 and 210:
Page 211 and 212:
Page 213 and 214:
Page 215 and 216:
Page 217 and 218:
Page 219 and 220:
Page 221 and 222:
Page 223 and 224:
Page 225 and 226:
Page 227:
Page 231 and 232:
210 IndexBusiness Enterprise Analys
Page 233 and 234:
212 IndexGoodwill (continued )111,
Page 235 and 236:
214 IndexLong-termcapital, 71debt,
Page 237 and 238:
216 IndexSecurities and Exchange Co
show all

Valuation for Financial Reporting : Fair Value Measurements and ...

You also want an ePaper? Increase the reach of your titles

Delete template?

Save as template?