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Full Valuation Summary Report
Full Valuation Summary Report
- 1 -
VALUATION REPORT
NIGHT SYSTEMS, INC.
MARCH 10, 2010
VALUATION REPORT
The purpose of this valuation is to determine the fair market value of this property to be
used for equitable distribution purposes in the matter of Stafford v. Stafford.
The scope of work for this assignment is that of a valuation engagement as defined in the
SSVS No. 1 promulgated by the American Institute of Certified Public Accountants. The
report is in a summary format in an effort to reduce the overall cost of this assignment. As
such, this report is restricted to the use of the clients (and respective counsel) only and may
not be distributed to any other person.
The most commonly used definition of fair market value is located in Revenue Ruling 59-
60. This revenue ruling defines fair market value as
...the price at which the property would change hands between a willing
buyer and a willing seller when the former is not under any compulsion to buy
and the latter is not under any compulsion to sell, both parties having
reasonable knowledge of relevant facts. Court decisions frequently state in
addition that the hypothetical buyer and seller are assumed to be able, as
well as willing, to trade and to be well informed about the property and
concerning the market for such property.
We have considered all applicable approaches to value. We will discuss this in more detail
shortly.
Among other factors, this appraiser considered all elements listed in Internal Revenue
Service Ruling 59-60 which provides guidelines for the valuation of closely-held stocks.
Revenue Ruling 59-60 states that all relevant factors should be taken into consideration,
including the following:
August 10, 2010
1. The nature of the business and the history of the enterprise from its
inception.
Mr. John M. Stafford
1234 Main Dr.
City, FL2.12345
The economic outlook in general and the condition and outlook of the
specific industry in particular.
Ms. Joanne Stafford
5678 Harm Court
City, FL3.12345
The book value of the stock and financial condition of the business.
Re: Valuation
4. Theofearning
Night Systems, Inc.
capacity of the company.
Dear Mr. and Ms. Stafford:
5. The dividend paying capacity of the company.
Pursuant to your request, we have performed a valuation of the common stock of Night
Systems,
6. Inc.Whether
as of theor
March 10,enterprise
not the 2010. has goodwill or other intangible value.
The purpose
7. of this of
Sales valuation
the stock is and
to determine
the size ofthe thefair market
block valuetoofbethis
of stock property to be
valued.
used for equitable distribution purposes in the matter of Stafford v. Stafford.
8. The market price of stocks of corporations engaged in the same or
The scope of worksimilar forline
thisofassignment
business havingis that of a valuation
their engagement
stocks actively tradedas in defined
a free in the
SSVS No. 1 promulgated
and open market by the American
either on an Institute
exchange of or
Certified Public
over the Accountants. The
counter.
report is in a summary format in an effort to reduce the overall cost of this assignment. As
such,
Since this report is restricted
determining to the use
the fair market valueof of
theaclients
business (andisrespective
the questioncounsel) onlyone
at issue, andmust
may
not be distributed
understand to any other person.
the circumstances of this business. There is no set formula to the approach
to be used that will be applicable to the different valuation issues that arise. Often, an
The most commonly
appraiser will find wide used definition of
differences of opinion
fair marketas value
to the isfair
located
market in value
Revenue of aRuling 59-
particular
60. This revenue
business or business ruling definesIn
interest. fair market value
resolving as
such differences, one should recognize that
valuation is not an exact science. Revenue Ruling 59-60 states that “a sound valuation will
be based...the price
on all at which
relevant the
facts, butproperty
the elementswouldofchange
common hands
sense,between
informeda judgment
willing and
buyer and a willing seller when the former is not under
reasonableness must enter into the process of weighing those facts and determiningany compulsion to buy their
and the latter is not under any compulsion to sell, both parties having
aggregate significance.”
reasonable knowledge of relevant facts. Court decisions frequently state in
addition that the hypothetical buyer and seller are assumed to be able, as
well ashas
Our valuation willing,
beentobased
tradeon and thetofollowing
be well information:
informed about the property and
concerning the market for such property.
1. Financial statements for Night Systems, Inc. as of December 31, 2006 and 2005
We have considered all applicable approaches to value. We will discuss this in more detail
compiled by Green, Roberts & Jackson, P.C.
shortly.
-3-
-4-
Among
2. other factors,
Financial this appraiser
statements for Nightconsidered all elements
Systems, Inc. listed in31,
as of December Internal Revenue
2007 and 2006
Servicecompiled
Ruling 59-60 whichRoberts
by Green, provides guidelinesP.C.
& Jackson, for the valuation of closely-held stocks.
Revenue Ruling 59-60 states that all relevant factors should be taken into consideration,
including
3. the following:
Financial statements for Night Systems, Inc. as of December 31, 2008 and 2007
compiled by Green, Roberts & Jackson, P.C.
1. The nature of the business and the history of the enterprise from its
4. inception.
Financial statements for Night Systems, Inc. as of December 31, 2009 and 2008
compiled by Green, Roberts & Jackson, P.C.
2. The economic outlook in general and the condition and outlook of the
5. specific
Financial industry
statements forinNight
particular.
Systems, Inc. as of February 28, 2010 and 2009.
compiled by Green, Roberts & Jackson, P.C.
3. The book value of the stock and financial condition of the business.
6. Form 1120S, U.S. Income Tax Return for an S corporation for 2005.
4. The earning capacity of the company.
7. Form 1120S, U.S. Income Tax Return for an S corporation for 2006.
5. The dividend paying capacity of the company.
8. Form 1120S, U.S. Income Tax Return for an S corporation for 2007.
6. Whether or not the enterprise has goodwill or other intangible value.
9. Form 1120S, U.S. Income Tax Return for an S corporation for 2008.
7. Sales of the stock and the size of the block of stock to be valued.
10. Form 1120S, U.S. Income Tax Return for an S corporation for 2009.
8. The market price of stocks of corporations engaged in the same or
11. similar line
Aged accounts of business
receivable having
listing as of their stocks
February 28,actively
2010. traded in a free
and open market either on an exchange or over the counter.
12. Inventory listing as of February 28, 2010.
Since determining the fair market value of a business is the question at issue, one must
understand
13. Fixedthe circumstances
asset schedule forof2008.
this business. There is no set formula to the approach
to be used that will be applicable to the different valuation issues that arise. Often, an
appraiser
14. willasset
Fixed find wide differences
schedule for 2009. of opinion as to the fair market value of a particular
business or business interest. In resolving such differences, one should recognize that
valuation
15. is not
Fixed an exact
asset science.
schedule Revenue Ruling 59-60 states that “a sound valuation will
for 2010.
be based on all relevant facts, but the elements of common sense, informed judgment and
reasonableness
16. Accounts must enter
payable into theas
schedule process of weighing
of February those facts and determining their
28, 2010.
aggregate significance.”
17. Note payable to J. Stafford in the amount of $1.5 million.
Our valuation has been based on the following information:
18. Organization chart.
1. Financial statements for Night Systems, Inc. as of December 31, 2006 and 2005
19. compiled
List of fiveby Green,
largest Roberts &from
customers Jackson,
AugustP.C.
to December 2008.
24.
4. Meeting
FinancialMinutes for Night
statements Systems,
for Night Inc. dated
Systems, March
Inc. as 5, 2003. 31, 2009 and 2008
of December
compiled by Green, Roberts & Jackson, P.C.
25. Meeting Minutes for Night Systems, Inc. dated March 28, 2006.
5. Financial statements for Night Systems, Inc. as of February 28, 2010 and 2009.
26. Employment contractRoberts
compiled by Green, for Jamie Smith dated
& Jackson, P.C.April 15, 2005.
27.
6. Employment
Form 1120S,contract for John
U.S. Income TaxStafford dated
Return for April
an S 15, 2005.for 2005.
corporation
28.
7. Employment
Form 1120S,contract for Edward
U.S. Income Smithfor
Tax Return dated
an SApril 15, 2005.for 2006.
corporation
29.
8. Various QuickU.S.
Form 1120S, Books reports
Income TaxforReturn
2008, 2009
for anand early 2010.for 2007.
S corporation
30.
9. Various stock U.S.
Form 1120S, certificates
IncomeandTaxstock transfer
Return for anrestrictions for 2003,
S corporation 2006, 2007 and
for 2008.
2008.
10. Form 1120S, U.S. Income Tax Return for an S corporation for 2009.
31. Vehicle roster for Night Systems, Inc. as of March 2010.
11. Aged accounts receivable listing as of February 28, 2010.
32. Other items referenced throughout the report.
12. Inventory listing as of February 28, 2010.
33. In addition, a site inspection took place. At that time, management was interviewed.
13. Information
Fixed asset obtained
scheduleatforthis interview became an integral part of this report.
2008.
Night
16. Systems,
AccountsInc. (“Night”
payable or “The as
schedule Company”) was28,
of February incorporated
2010. in the State of Florida on
November 15, 2002 and elected to be taxed as a Subchapter S corporation on the same
date.
17. The Company
Note payableistoaJ.provider
Staffordofinadvanced wiring
the amount and home
of $1.5 million.security primarily to home
builders.
18. Organization chart.
Night Systems was founded by John Stafford in City, Florida. Prior to the formation of The
Company,
19. Mr.five
List of Stafford
largestwas semi-retired
customers after operating
from August a separate
to December 2008. wiring and home
security business in Michigan which began operations approximately 25-years ago. Mr.
20. List of five largest customers for 2009.
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-- 56 --
Stafford had a desire to start a similar business in Florida and was able to convince his
Stafford had a desire to start a similar business in Florida and was able to convince his
daughter and son-in-law to move to Florida with him to start this business. After personally
21. Listand
daughter of five largest to
son-in-law suppliers
move tofrom August
Florida to December
with him to start this2008.
business. After personally
obtaining a security and fire alarm contracting license, Mr. Stafford started Night Systems,
obtaining a security and fire alarm contracting license, Mr. Stafford started Night Systems,
Inc. and The Company commenced operations.
22. List
Inc. and Theof Company
five largestcommenced
suppliers foroperations.
2009.
Early on in its operations, Night benefitted from a booming real estate market in City and
23. Meeting
Early on Minutes forNight
in its operations, Nightbenefitted
Systems, fromInc. dated November
a booming 13, 2002.
real estate market in City and
The Company grew to about 55 to 60 employees. However, the real estate market would
The Company grew to about 55 to 60 employees. However, the real estate market would
eventually crash and The Company was forced to downsize significantly. As of the
24. Meeting
eventually crashMinutes for Night
and The Systems,
Company was Inc. dated
forced to March
downsize 5, 2003.
significantly. As of the
valuation date, there were 15 employees working for The Company.
valuation date, there were 15 employees working for The Company.
25. Meeting Minutes for Night Systems, Inc. dated March 28, 2006.
Night is a provider of advanced wiring and home security. The Company’s services include
Night is a provider of advanced wiring and home security. The Company’s services include
structured wiring, home network, multi-room audio, home theater, audio/video components,
26. Employment
structured contract
wiring, home for Jamie
network, Smith
multi-room datedhome
audio, Apriltheater,
15, 2005.
audio/video components,
intercom, surveillance and central vacuum. According to management, The Company has
intercom, surveillance and central vacuum. According to management, The Company has
experienced
27.
slow revenue
Employment
growth
contract
in its securitydated
for John
systems service line, while its audio, home
experienced slow revenue growth in itsStafford
security systemsAprilservice
15, 2005.
line, while its audio, home
theater and structured wiring and monitoring service lines have accounted for the majority
theater and structured wiring and monitoring service lines have accounted for the majority
of The Company’s revenue
28. growth in recent years.
of The Employment contractgrowth
Company’s revenue for Edward Smith
in recent dated April 15, 2005.
years.
Night’s primary Quick
29. market is home builders and as a result, demand for its services is primarily
Night’sVarious
primary marketBooks
is homereports for 2008,
builders and as2009 anddemand
a result, early 2010.
for its services is primarily
derived from home building activity. The Company’s top customers from August to
derived from home building activity. The 1 Company’s top customers from August to
December
30. 2008stock
Various and certificates
calendar yearand 2009 1 are
stock presented
transfer in Table
restrictions for 1.
2003, 2006, 2007 and
December 2008 and calendar year 2009 are presented in Table 1.
2008.
The Company
unable changed
to provide computerized
any detailed accounting
information systems
from prior in the summer of 2008 and was
periods.
unable to provide any detailed information from prior periods.
7 -
- 6
competing
Stafford hadprimarily
a desirefortolow-end
start a consumers and two
similar business other companies
in Florida and was ablecompeting for high-
to convince his
daughter and son-in-law
end consumers. to move to Florida
These competitors are allwith him to start this business. After personally
privately-owned.
obtaining a security and fire alarm contracting license, Mr. Stafford started Night Systems,
Inc. and The Company
Management notes thatcommenced operations.
Night has various advantages and disadvantages in comparison
to its competitors. The Company’s primary advantages are that they are a step ahead
Early on in its operations,
technologically in comparisonNightto benefitted fromCompany
others as The a booming real estate
adapts market
to changes in City and
in technology
The
fasterCompany
than the grew to addition,
rest. In about 55 Theto 60Company
employees.has However, the real regarding
a good reputation estate market would
the quality
eventually
of crashNight’s
its services. and The Company
primary was forced
disadvantage to downsize
is that significantly.
it will not go As ofprice
below a certain the
valuation
unless thedate, there is
customer were 15 employees
a large homebuilder working
such asforCentex.
The Company.
Night is marketing
Night’s a provider activities
of advanced
are wiring
minimal and home
and security.
consist The Company’s
of brochures services contact
and face-to-face include
structured
with homewiring, homeBuilding
builders. network,amulti-room
relationship audio,
withhome theater,
the head audio/videofor
of purchasing components,
the home
intercom,issurveillance
builders essential forand centralinvacuum.
success According Iftoamanagement,
the marketplace. customer’s head The Company has
of purchasing
experienced
leaves, Nightslow
has revenue growth
to establish in its security
a relationship systems
with the new service
head line, while its audio,
of purchasing home
in order to
theaterthat
retain andcustomer.
structured wiring and monitoring service lines have accounted for the majority
of The Company’s revenue growth in recent years.
According to management, Night has various suppliers, each with a specific purpose. The
Night’s primary
Company’s top market is home
five suppliers builders
from August andtoas a result, demand
December 2008 and forcalendar
its services is 2009
year primarily
are
derived from
presented home2.building activity. The Company’s top customers from August to
in Table
December 2008 and calendar year 20091 are presented in Table 1.
TABLE 2
TOP SUPPLIERS
TABLE 1
August-
LARGEST CUSTOMERS
December
Supplier Name 2008 2009
August-
December
ADI $ 62,094 $ 143,689
Builder Name
Audio America 2008
62,847 2009
138,070
Direct Connect 82,948 124,822
Centex
GE Homes
Security $ 373,455
58,284 $ 600,405
121,673
Stock Construction
Control 14 Inc. 228,338
30,117 246,745
81,750
London Bay Homes
AVAD 57,096
22,302 104,496
131,372
Freshwater Construction - 5,409
Slocum Christian 19,662 27,967
Sunset Builders 32,594 44,978
Management notes that it would be difficult to replace any of its suppliers at the same price
points. Although alternative sources exist, The Company would have to pay more for their
According
products intothe
management,
event it had The Company
to change does not sell to existing homeowners unless it
suppliers.
receives a referral. The Company’s target market stretches from Town1, Florida to Town2,
Florida.
Night is The competitive
located at 2468 homeowner market
Sunrise Drive, City.isThe
relatively concentrated
Company operateswith
outtwo
of acompanies
one-story
building consisting of two office units and two inventory/installer rooms. The current facility
is too large for The Company’s operating needs; there is a large amount of unused space.
1
The Company changed computerized accounting systems in the summer of 2008 and was
unable to provide any detailed information from prior periods.
-- 87 --
Night has 15
competing employees
primarily including
for low-end six installers,
consumers andtwotwotechnicians,
other companies three competing
salespeople, forthree
high-
office people andThese
end consumers. Mr. Stafford who are
competitors serves as the President of The Company, and is
all privately-owned.
currently acting as purchasing manager. The key employees of Night are as follows:
Management notes that Night has various advantages and disadvantages in comparison
Tom
to its Stafford - Mr.The
competitors. Stafford is the primary
Company’s President of Night Systems
advantages are that andtheyisare
responsible
a step ahead for
purchasing and in
technologically general oversight
comparison of Theas
to others Company.
The Company Mr. Stafford
adapts is tothe only individual
changes with
in technology
a security
faster thanand
thefire alarm
rest. contracting
In addition, Thelicense
Company andhas
if heawere
goodto leave Theregarding
reputation Company, another
the quality
individual would Night’s
of its services. have toprimary
obtain that license or someone
disadvantage withnot
is that it will a license
go belowwould have toprice
a certain be
hired.
unless the customer is a large homebuilder such as Centex.
Ed Smith
Night’s - Mr. Smith
marketing serves
activities areas the Senior
minimal Vice President
and consist of Builder
of brochures Relations and
and face-to-face has
contact
more than builders.
with home 10 years Building
of relevant experience.with
a relationship Mr.theSmith
headmaintains all offorthe
of purchasing thebuilder
home
relationships, and is considered
builders is essential for successto inbe
thekey to the success
marketplace. If a of The Company.
customer’s head of purchasing
leaves, Night has to establish a relationship with the new head of purchasing in order to
Robyn Ford
retain that - Ms. Ford serves as the Vice President of Operations and handles
customer.
accounting, customer service and installation scheduling.
According to management, Night has various suppliers, each with a specific purpose. The
As of the valuation
Company’s top five date, the owners
suppliers of The
from August to Company
Decemberwere 2008Mr.andStafford,
calendarMr.year Smith
2009and
are
Debra Stafford. Ownership
presented in Table 2. interests were as follows:
Tom Stafford
TABLE 2 50.1%
Debra Stafford 39.9%
TOP SUPPLIERS
Ed Smith 10.0%
August-
Total 100.0%
December
Supplier Name 2008 2009
According to Stock Restriction Agreements entered into on August 25, 2008 and January
ADI $ 62,094 $ 143,689
15, 2007 for Ms. Stafford
Audio and Mr. Smith, respectively,
America Mr. Stafford
62,847 has a right of first refusal
138,070
if either Ms. StaffordDirect
or Mr. Smith desire to sell their
Connect interests. 124,822
82,948
GE Security 58,284 121,673
Control 14 Inc. 30,117 81,750
Looking forward, Night
AVAD
is attempting to rebound
22,302
from 131,372
the economic downturn.
Management anticipates that The Company could begin to see improved performance
during either the fourth quarter of 2010 or early 2011.
Management notes that it would be difficult to replace any of its suppliers at the same price
points. Although alternative sources exist, The Company would have to pay more for their
ECONOMY/INDUSTRY
products in the event it had to change suppliers. ANALYSIS
Night is located at 2468 Sunrise Drive, City. The Company operates out of a one-story
National Economy
building consisting of two office units and two inventory/installer rooms. The current facility
is too large for The Company’s operating needs; there is a large amount of unused space.
The information reviewed at the January 26-27 Federal Open Market Committee (FOMC)
meeting suggested that economic activity continued to strengthen in recent months.
- 9 -
-- 89 --
Consumer spending was well maintained in the fourth quarter and business expenditures
Night has 15
Consumer employees
spending wasincluding six installers,
well maintained in the two technicians,
fourth quarter and three salespeople,
business three
expenditures
on equipment and software appeared to expand substantially. However, improvement in
office people and
on equipment Mr. Stafford
and software who serves
appeared to expandas the President of
substantially. The Company,
However, and is
improvement in
the housing market slowed, and spending on nonresidential structures continued to fall.
currently
the housingacting as purchasing
market slowed, and manager.
spending The onkey employees of
nonresidential Night arecontinued
structures as follows:to fall.
Recent data suggested that the pace of inventory liquidation diminished considerably last
Recent data suggested that the pace of inventory liquidation diminished considerably last
quarter,
Tom providing
Stafford a sizable
- Mr. boost
Stafford to economic
is the activity,
Presidentactivity,
of Night and industrial
Systems andproduction advanced
is responsible for
quarter, providing a sizable boost to economic and industrial production advanced
at a solid
purchasing pace. In the
and general labor market,
oversight layoffs
of The subsided
Company. noticeably in the final months of last
at a solid pace. In the labor market, layoffs subsidedMr. Stafford is
noticeably in the
the only
final individual
months ofwith
last
year,
a but
security the unemployment
andunemployment rate
fire alarm contracting remained
license andelevated and
if he were hiring
to leavestayed weak.
The Company, Meanwhile,
another
year, but the rate remained elevated and hiring stayed weak. Meanwhile,
increases
individual in energy prices pushed up headline consumer price inflation even as core
increases would haveprices
in energy to obtain that license
pushed or
up headline
2
2
someone
consumerwithprice
a license would
inflation have
even astocore
be
consumer
hired. price inflation remained subdued. 2
consumer price inflation remained subdued.
According
Ed Smith -toMr.forecasts released
Smith serves bySenior
as the Consensus Economics,
Vice President Inc. on
of Builder March 8,
Relations and2010,
has
According to forecasts released by Consensus Economics, Inc. on March 8, 2010,
economic
more activity
thanactivity is
10 years expected to
of relevantcontinue to strengthen
experience. throughout
Mr. Smith 2010
maintains and continue into
economic is expected to continue to strengthen throughout 2010all
andof continue
the builder
into
2011. Table
relationships, 3 presents Consensus Economics’ forecasts of key economic indicators.
2011. Table 3and is considered
presents Consensusto beEconomics’
key to the success
forecastsofofThe
keyCompany.
economic indicators.
The information
2
2 reviewed at the January 26-27 Federal Open Market Committee (FOMC)
Federal Open Market Committee, Minutes of the Federal Open Market Committee, January
meeting suggested
2
Federal that 9.economic
Open
26-27, 2010: activity
Market Committee, continued
Minutes to strengthen
of the Federal in Committee,
Open Market recent months.
January
26-27, 2010: 9.
- 10 -
-- 10
9 --
Reuters/University of Michigan Survey of Consumers reported that the number of
Reuters/University
Consumer spendingofwas Michigan Survey in
well maintained ofthe
Consumers
fourth quarterreported that theexpenditures
and business number of
respondents who expected home prices to increase continued to exceed the number who
respondents
on equipmentwho andexpected
software home
appearedprices
to to increase
expand continued to
substantially. exceed the
However, number who
improvement in
expected prices to decrease. Sales of existing single-family homes rose strongly from July
expected
the housingprices to decrease.
market slowed, and Sales of existing
spending on single-family
nonresidential homes rose strongly
structures continued fromto July
fall.
to November but fell in December, a pattern that suggested sales were pulled ahead in
to November
Recent but fell in that
data suggested December,
the pacea ofpattern that liquidation
inventory suggesteddiminished
sales wereconsiderably
pulled aheadlast in
anticipation of the originally scheduled expiration of the first-time home buyer credit on
anticipation of theaoriginally
quarter, providing scheduled
sizable boost expiration
to economic of the
activity, andfirst-time
industrialhome buyeradvanced
production credit on
November 30. Still, existing home sales remained above their level in earlier quarters.
November 30. Still,
at a solid pace. In theexisting home sales
labor market, layoffsremained
subsidedabove their inlevel
noticeably in earlier
the final months quarters.
of last
Sales of new homes also turned down in November and December, retracing part of their
Sales of new
year, but homes also turned
the unemployment ratedown in November
remained elevated andand December,
hiring stayed retracing part of their
weak. Meanwhile,
recovery earlier in the year. Similarly, starts of single-family homes retreated a little from
recovery
increasesearlier in theprices
in energy year. pushed
Similarly,upstarts of single-family
headline consumer price homesinflation
retreated
evena little
as from
core
June to December after advancing briskly last 2 spring. The pace of construction was slow
June to December
consumer after advancing
price inflation briskly last spring. The pace of construction was slow
remained subdued.
enough that even the modest pace of new home sales was sufficient to further reduce the
enough that even the modest pace of new home sales was sufficient to further reduce the
overhang of unsold new single-family houses.33
overhang
Accordingoftounsold new single-family
forecasts released by houses.
Consensus Economics, Inc. on March 8, 2010,
economic activity is expected to continue to strengthen throughout 2010 and continue into
According to the National Association of Homebuilders (NAHB) housing starts are expected
According
2011. Table to the NationalConsensus
3 presents Association Economics’
of Homebuilders (NAHB)
forecasts housing
of key starts indicators.
economic are expected
to rise 24 percent in 2010 to 695,000. This would still represent a production level 22
to rise 24 percent in 2010 to 695,000. This would still represent a production level 22
percent below 2008's 900,000 homes. According to Bernard Markstein, head of the
percent below 2008's 900,000 homes.TABLE According
3 to Bernard Markstein, head of the
NAHB’s forecasting group, the recovery in home building will be slow due to excessively
NAHB’s forecasting group, theQUARTERLYrecovery in home building will be slow due to excessively
FORECASTS
high mortgage approval requirements, non-comparable appraisals and naggingly high
high mortgage approval requirements, non-comparable appraisals and naggingly high
unemployment. However, some 2009 of these negatives 2010should lessen during 2011 2010, setting up
unemployment. However, some of4ththese1stnegatives 2nd should
3rd 4lessen
th
1stduring
2nd 2010,rd setting
th up
2011 for a big recovery. The NAHB predicts a 50 percent surge in starts in 32011.44
2011 for a big recovery. The NAHB Qtr. predicts
Qtr. a 50 percent
Qtr. Qtr. Qtr.surgeQtr.in starts
Qtr. inQtr.
2011.Qtr.
Real Gross Domestic Product* 5.9 2.8 3.1 2.8 3.1 2.9 3.2 3.3 3.3
Overall, theGross
economic outlook appears positive as projections indicate increasing economic
Overall, the economic
Nominal Domesticoutlook
Product appears
6.4 positive
4.4 as
4.3projections
4.3 4.6indicate
4.8 increasing
4.9 5.1economic
5.1
andReal
home building
Disposable activity.
Personal However,
Income* 1.9 factors
1.5 such3.1 as2.4
tight 3.1
credit and
0.9 high
2.8 unemployment
2.9 2.9
andReal
home building
Personal activity. However, factors
Consumption* such as2.4
tight 2.5
credit and
2.3 high
2.6 unemployment
could continue to hinder economic1.7 growth2.4in the
2.3near term. 2.7 2.7
could continue
Real to hinder economic6.6
Business Investment* growth1.0in the
4.0near5.2
term.6.7 7.2 8.3 9.3 9.1
Industrial Production* 6.8 6.3 5.2 4.9 4.9 4.6 4.4 4.4 4.2
Regional
ConsumerEconomy
Prices* 2.7 1.9 1.5 2.8 1.9 2.2 1.9 2.2 2.2
Regional
ProducerEconomy
Prices 7.2 5.5 0.6 1.2 1.6 2.1 1.7 2.5 2.6
Unemployment Rate, % 10.0 9.8 9.7 9.7 9.6 9.4 9.2 9.1 8.9
Florida fell Treasury
3-Month into recession before the0.1rest of0.1the country,
Bill Rate,% 0.2 0.4and 0.7
its economic
1.1 activity
1.4 1.8may2.2
have
Florida fellTreasury
10-Year into recession
Bond before
Yield, % the3.8rest of3.7the country,
3.8 4.0and 4.2
its economic
4.4 activity
4.6 4.7may4.9
have
bottomed out earlier. Although conditions remain challenging, there are indications that
bottomed out earlier. Although conditions remain challenging, there are indications that
economic activity
* % change hasquarter,
from prior stabilized andadjusted
seasonally that aannual
recovery
rate. got underway by the middle of last
economic activity has stabilized and thatEconomics
a recovery got underway by the middle of last
year. IHS Global Insight estimates that Florida’s real
Source: Consensus Forecasts-USA, Consensus GDP8,grew
Inc., March at an annualized rate of
2010: 5.
year. IHS Global Insight estimates that Florida’s real GDP grew at an annualized rate of
1.9 percent in the third quarter of 2009 and by 5.1 percent in the year’s final quarter. If
1.9 percent in the third quarter of 2009 and by 5.1 percent in the year’s final quarter. If
these trends continue, Florida should see positive GDP growth of 2.5 and 2.1 percent
these trendsEconomics’
Consensus continue, Florida should
forecasts see positive
indicate GDP growth of 2.5 and 2.1 percent
respectively, in the first two quarters of this that
year.anForeconomic recovery
all of 2010, should
Florida’s continue
economy to
is set
respectively,
strengthen in the
throughout first two
2010 quarters
and of this year. For all of 2010, Florida’s economy is set
to expand by 2.7 percent, then by2011.
anotherHowever,
2.9 percentunemployment
next year.55 is expected to remain
to expand by 2.7 percent, then
high throughout the forecast period. by another 2.9 percent next year.
According to the FOMC, the recovery in the housing market slowed in the second half of
2009, even
3 though
Ibid.
a number of factors supported housing demand. Interest rates for
conforming 30-year
Ibid. fixed-rate mortgages remained historically low. In addition, the
3
4
Boyce Thompson, “2010 Housing Forecast,” Builder Online <www.buildderonline.com/
4
Boyce Thompson, “2010 Housing Forecast,”
housing-starts/2010-housing-forecast.aspx> Builder July
(accessed 19, <www.buildderonline.com/
Online 2010).
housing-starts/2010-housing-forecast.aspx> (accessed July 19, 2010).
2
5 Federal Open
Enterprise Market
Florida, Committee,
Florida Minutes
Economic of the
Bulletin, Federal
Winter Open
2010: 1. Market Committee, January
5
Enterprise Florida,
26-27, 2010: 9. Florida Economic Bulletin, Winter 2010: 1.
- 11 -
- 10
11 -
Florida’s labor market is recovering more slowly, and so far there is little evidence of a
Reuters/University
Florida’s labor market of isMichigan Survey
recovering moreofslowly,
Consumers
and so far reported
there is that
littlethe numberof of
evidence a
return to positive growth. Moreover, the structural shifts in the state’s economy mean that
respondents whogrowth.
return to positive expected home prices
Moreover, to increase
the structural continued
shifts to exceed
in the state’s the number
economy mean whothat
many of the 303,000 non farm jobs lost last year are unlikely to be reinstated. Instead,
expected
many of theprices to decrease.
303,000 non farm Sales
jobsoflost
existing single-family
last year are unlikelyhomes to berose strongly from
reinstated. July
Instead,
future job growth is likely to occur in different, innovative sectors of the state’s economy.
to November
future job growthbut isfelllikely
in December,
to occur inadifferent,
pattern that suggested
innovative sectorssalesof were pulledeconomy.
the state’s ahead in
At 11.9 percent in January 2010, Florida’s statewide unemployment rate is a couple of
anticipation of the
At 11.9 percent in originally
January 2010,scheduled expiration
Florida’s statewide of the first-time home
unemployment ratebuyer credit on
is a couple of
percentage points higher than that of the entire U.S. Still, monthly data show modest
November
percentage30. Still,higher
points existing
thanhome
that sales
of theremained
entire U.S. above
Still,their level data
monthly in earlier
showquarters.
modest
employment increases in select industries such as healthcare and education, government,
Sales of newincreases
employment homes also turnedindustries
in select down in November and December,
such as healthcare retracinggovernment,
and education, part of their
wholesale and retail trade, transportation, and professional services. IHS Global Insight
recovery
wholesaleearlier in thetrade,
and retail year. transportation,
Similarly, startsandof single-family
professional homes services. retreated
IHS Global a little from
Insight
expects more broad-based job growth in Florida to resume in the second quarter of this
June to December
expects after advancing
more broad-based briskly
job growth last spring.
in Florida The pace
to resume in theof second
construction wasofslow
quarter this
year. For all of 2010, Florida will see a 0.7 percent decline in payroll employment, not
enough
year. Forthatalleven the modest
of 2010, Floridapace of new
will see a 0.7home sales
percent
6 was sufficient
decline in payrollto further reduce the
employment, not
reaching pre-recession levels until 2013 or 2014. 3 6
overhang of unsold newlevels
reaching pre-recession single-family
until 2013houses.
or 2014.
Night operates within the Southwest Florida region ranging as far north as Town1 and as
According to thewithin
Night operates National
theAssociation of Homebuilders
Southwest Florida (NAHB)
region ranging ashousing
far northstarts are expected
as Town1 and as
far south as Town2. Population forecasts for each county located within this region are
to
farrise 24as
south percent
Town2. in Population
2010 to 695,000.
forecastsThis
for would still represent
each county located awithin
production level are
this region 22
presented in Table 4.
percent
presentedbelow 2008's
in Table 4. 900,000 homes. According to Bernard Markstein, head of the
NAHB’s forecasting group, the recovery in home building will be slow due to excessively
TABLE 4
high mortgage approval requirements, TABLE non-comparable
4 appraisals and naggingly high
POPULATION FORECASTS
unemployment. However, some of these negatives
POPULATION should lessen during 2010, setting up
FORECASTS
2011 for a big recovery.
Year TheCounty1
NAHB predicts a 50 percent
County2 County3 surge in starts in 2011.4
Couty4
Year County1 County2 County3 Couty4
Overall, the economic2009
2009
165,990 positive
outlook appears
165,990
332,386 621,029 indicate
as projections
332,386 621,029
391,374
increasing economic
391,374
2010 167,598 331,811 622,940 396,035
and home building activity.
2010
2020 However,
192,213factors
167,598 such as622,940
331,811
400,684 tight credit396,035
789,598 and high unemployment
458,914
2020
could continue to hinder 192,213
2030economic 400,684
growth471,989
216,958 789,598
in the near957,111
term. 458,914
522,663
2030 216,958 471,989 957,111 522,663
Source: Florida Office of Economic and Demographic Research.
Regional Economy
Source: Florida Office of Economic and Demographic Research.
Florida fell into recession before the rest of the country, and its economic activity may have
The severity and length of the global recession are expected to slow regional and statewide
The severity
bottomed outand lengthAlthough
earlier. of the global recession
conditions are expected
remain challenging,to slow regional
there and statewide
are indications that
population growth.77 However, each county in which The Company operates is forecasted
populationactivity
economic growth.has However, each
stabilized andcounty
that ainrecovery
which ThegotCompany
underwayoperates is forecasted
by the middle of last
to have solid population growth over the long term.
to haveIHS
year. solid population
Global Insightgrowth overthat
estimates theFlorida’s
long term.
real GDP grew at an annualized rate of
1.9 percent in the third quarter of 2009 and by 5.1 percent in the year’s final quarter. If
The impact that the economic downturn had on the southwest Florida region can be seen
The impact
these trendsthat the economic
continue, Floridadownturn
should see hadpositive
on the southwest
GDP growth Florida region
of 2.5 and can
2.1 be seen
percent
in the unemployment data as indicated in the data in Table 5.
in the unemployment
respectively, data
in the first twoas indicated
quarters in the
of this dataFor
year. in all
Table 5. Florida’s economy is set
of 2010,
to expand by 2.7 percent, then by another 2.9 percent next year.5
3
Ibid.
6
Ibid.
4
6
Boyce
Ibid. Thompson, “2010 Housing Forecast,” Builder Online <www.buildderonline.com/
7 housing-starts/2010-housing-forecast.aspx> (accessed
Florida Gulf Coast University, Southwest Florida JulyEconomic
Regional 19, 2010).Indicators, Regional
7
Florida Gulf Coast University,
Economic Research Institute: 20. Southwest Florida Regional Economic Indicators, Regional
5
Enterprise Florida, Florida
Economic Research Economic
Institute: 20. Bulletin, Winter 2010: 1.
- 12 -
- 11
12 -
TABLE 5
Florida’s labor market is recovering more TABLE slowly,5 and so far there is little evidence of a
UNEMPLOYMENT RATES
return to positive growth. Moreover, the structural shifts
UNEMPLOYMENT RATES in the state’s economy mean that
many of the 303,000Date non farm jobs lost last
County1 year areCounty3
County2 unlikely toCounty4
be reinstated. Instead,
Date County1 County2 County3 County4
future job growth is likely to occur in different, innovative sectors of the state’s economy.
At 11.9 percentOctober
October
2009 2010,12.9
in January
2009 12.9
12.9
Florida’s statewide
12.9
13.6
unemployment
13.6
12.3 rate is a couple of
12.3
November 2010 12.8 12.3 13.4 12.0
percentage points higher
November than
2010
December 2020 that of
12.8
12.8 the entire
12.3
12.0 U.S. Still,
13.4
13.4 monthly
12.2data show modest
12.0
December
employment increases
January in 2020 12.8
select industries
2030 13.9 such 12.0 13.4
as healthcare
12.7 12.2
14.2 and education,
13.4 government,
January
February 2030
2010 13.9
13.7 12.7
12.7 14.2
14.0 13.4
13.1
wholesale and retail trade, transportation,
February 2010 13.7
and professional
12.7 14.0
services.
13.1
IHS Global Insight
expects more broad-based
Source: Bureaujob growth
of Labor in Florida
Statistics - Local to resume
Area in the Statistics
Unemployment second quarter of this
Source:
year. For all ofDatabase.Bureau of Labor Statistics - Local Area Unemployment Statistics
2010, Florida will see a 0.7 percent decline in payroll employment, not
Database.
reaching pre-recession levels until 2013 or 2014.6
Total single-family
Night home
operates within the permits
Southwestremained
Floridahistorically low for
region ranging asthe
far region asTown1
north as a resultand
of the
as
Total single-family home permits remained historically low for the region as a result of the
economic
far recession
south as Town2. and the impact
Population of many
forecasts existing
for each homes
county selling
located below
within replacement
this region are
economic
8 recession and the impact of many existing homes selling below replacement
cost.8 Single-family
presented in Table 4.permit data for each county is shown in Table 6.
cost. Single-family permit data for each county is shown in Table 6.
TABLE 4
TABLE
POPULATION 6
FORECASTS
TABLE 6
SINGLE-FAMILY BUILDING PERMITS
YearSINGLE-FAMILY
County1
(REPORTED
BUILDING
County2
NUMBER
PERMITS
County3
OF UNITS) Couty4
(REPORTED NUMBER OF UNITS)
Year
2009 County1 332,386
165,990 County2 621,029
County3 391,374
County4
Year
2010 County1 331,811
167,598 County2 622,940
County3 396,035
County4
October 2009
2020 192,2130 61
400,684 68
789,598 46
458,914
October
November2009
2030 2009 216,958 0
1 61
45
471,989 68
56
957,111 46
30
522,663
November 2009
December 2009 11 45
103 56
54 30
140
December 2009 Office 15
Source:2010
January Florida of1Economic and
103 54Research.140
122 Demographic
106 55
January 2010
February 2010 154 122
211 106
147 55
55
February 2010 4 211 147 55
Source: U.S. Census Bureau: Building Permit Data.
Source: U.S. Census Bureau: Building Permit Data.
The severity and length of the global recession are expected to slow regional and statewide
population growth.7 However, each county in which The Company operates is forecasted
to
Ashave solid by
indicated population
the datagrowth over
in Table 6, the long term.
County2 and County3 have experienced increased
As indicated by the data in Table 6, County2 and County3 have experienced increased
activity in recent months which could be a good sign for those counties going forward.
activity
The in recent
impact months
that the whichdownturn
economic could behad
a good sign
on the for those Florida
southwest counties goingcan
region forward.
be seen
in the unemployment
Regional economic data data as indicated
indicates in the
a mixed data for
outlook in Table 5.
The Company. The counties within
Regional economic data indicates a mixed outlook for The Company. The counties within
the southwest Florida region have extremely high unemployment rates. This has been a
the southwest Florida region have extremely high unemployment rates. This has been a
statewide issue and Enterprise Florida notes that there are no signs of a recovery in
statewide issue and Enterprise Florida notes that there are no signs of a recovery in
Florida’s labor markets. This could keep people from buying new homes. On the positive
Florida’s labor markets. This could keep people from buying new homes. On the positive
side however, Florida is expected to see positive GDP growth in the near term. In addition,
side however, Florida is expected to see positive GDP growth in the near term. In addition,
the counties within the southwest Florida region are expected to experience stable
the counties within the southwest Florida region are expected to experience stable
6
Ibid.
7
8 Florida
Ibid: 10.Gulf Coast University, Southwest Florida Regional Economic Indicators, Regional
8
Economic
Ibid: 10. Research Institute: 20.
- 13 -
- 13
12 -
population growth over the long-term and have experienced an increased number of
population growth over the long-term and TABLEhave5 experienced an increased number of
building permits in recent months. These factors point to increased single-family
building permits in recent months. These factors
UNEMPLOYMENT point to increased single-family
RATES
construction activity. Clearly, the builders believe that the economy is strengthening;
construction activity. Clearly, the builders believe that the economy is strengthening;
however, it is unclear how that will translate
Date into home sales or additional revenues for
however, it is unclear how that County1 County2
will translate County3
into home sales orCounty4
additional revenues for
Night.
Night. October 2009 12.9 12.9 13.6 12.3
November 2010 12.8 12.3 13.4 12.0
Industry9 December 2020 12.8 12.0 13.4 12.2
Industry9
January 2030 13.9 12.7 14.2 13.4
According to Security
FebruaryDealer
2010 Magazine
13.7 (SDM)total
12.7 annual
14.0 security
13.1 industry
revenues
According to Security Dealer Magazine (SDM) total annual security industry revenues
declined 7.8 percent in Bureau
2009 to $44.67 billion.- Local
Revenues in 2010 have been forecast to fall
declined 7.8 percent in 2009 to
Source: of $44.67 billion. Revenues
Labor Statistics in 2010 have
Area Unemployment been forecast to fall
Statistics
an additional 1.6 percent to $43.9 billion. This is the first time in the history of SDM’s
Database.
an additional 1.6 percent to $43.9 billion. This is the first time in the history of SDM’s
Industry Forecast Study that a decrease has been recorded.
Industry Forecast Study that a decrease has been recorded.
SDM’s Industry Forecast
Total single-family Study indicates
home permits remainedthat the economy
historically low foris the
the region
numberasone factorofthat
a result the
SDM’s Industry Forecast Study indicates that the economy is the number one factor that
will affect sales
economic over and
recession the next three years
the impact and existing
of many that the homes
numberselling
one challenge to security
below replacement
will affect
8 sales over the next three years and that the number one challenge to security
businesses is increasing
cost. Single-family permitsales.
data Aforby-product
each countyof the declining
is shown economy
in Table 6. is that it is forcing
businesses is increasing sales. A by-product of the declining economy is that it is forcing
security businesses to shift their plans and market focus, which then changes the game for
security businesses to shift their plans and market focus, which then changes the game for
other integrators.
other integrators.
TABLE 6
With less demand in theSINGLE-FAMILY
residential market, one wouldPERMITS
BUILDING have expected pricing discounts
With less demand in the residential market, one would have expected pricing discounts
along with that. The SDM Industry Forecast
(REPORTED NUMBERStudy measures pricing of traditional
OF UNITS)
along with that. The SDM Industry Forecast Study measures pricing of traditional
residential systems and mass-marketed
Year mass-marketed
systems.
County1 systems.
County2 In
In the massCounty4
County3
market segments, the
residential systems and the mass market segments, the
average price of a residential system declined $50, to $348 in 2009. In the traditional
average price ofOctober
a residential system declined $50, to $348 in 2009. In the traditional
market, however the average2009 price of0a residential61 security 68 system increased
46 approximately
market, howeverNovember
the average
2009price of1a residential
45 security 56 system increased
30 approximately
$100 to $1,738. A large percentage of respondents expect no change in these average
$100 to $1,738.December
A large 2009
percentage1 of respondents
103 expect54 no change140 in these average
prices in 2010. January 2010 15 122 106 55
prices in 2010.
February 2010 4 211 147 55
Most companiesSource:
also did
U.S.not increase
Census Bureau:rates forPermit
Building monitoring
Data. or other recurring fees last year,
Most companies also did not increase rates for monitoring or other recurring fees last year,
according to the survey. As many as 60 percent of survey respondents indicated they did
according to the survey. As many as 60 percent of survey respondents indicated they did
not implement a rate increase. The average monthly monitoring fee for residential
not implement a rate increase. The average monthly monitoring fee for residential
customers
As indicated is by
$26;
thefor non-residential customers is County3
$37; and for remote video monitoring
customers is $26; fordata in Table 6, County2
non-residential customers andis $37; andhave experienced
for remote increased
video monitoring
customers is $83.months which could be a good sign for those counties going forward.
activity in recent
customers is $83.
Some topeconomic
Regional responses to various questions
a mixedasked in SDM’s
for Theindustry survey
Theare summarized
Some top responsesdata indicates
to various questions outlook
asked in SDM’s Company.
industry survey counties
are within
summarized
below.
the southwest Florida region have extremely high unemployment rates. This has been a
below.
statewide issue and Enterprise Florida notes that there are no signs of a recovery in
Florida’s labor markets. This could keep people from buying new homes. On the positive
side however, Florida is expected to see positive GDP growth in the near term. In addition,
the counties within the southwest Florida region are expected to experience stable
9
Much of this section is adapted from Security Dealer Magazine’s 2010 Industry Outlook,
9
Much
Laura of this section
Stefanek, is adapted
“Preparing for from
a BetterSecurity Dealer Magazine’s
Economy,” SDM Magazine, 2010 January
Industry Outlook,
1, 2010
Laura
< www Stefanek,
. s d m m“Preparing
a g . c o mfor
/ A ar t Better
i c l e sEconomy,”
/ C o v e r _SDM r y / B N P _January
s t o Magazine, G U I D 1,
_ 92010
-5-
< w w w . s d m m a g . c o m / A r t (accessed
2005_A_10000000000000734823> i c l e s / C July
o v e20,
r _2010).
story/BNP_GUID_9-5-
8
2005_A_10000000000000734823>
Ibid: 10. (accessed July 20, 2010).
- 14 -
-- 13
14
14 --
Factors Affecting
Factors Affecting Sales
Sales for
for the Next
Next Three
Three Years:
Years:
population growth
Factors over Sales
Affecting for the
the long-term andThree
the Next have Years:
experienced an increased number of
1)
1) Economic conditions
Economic conditions
building permits
1) in Economic
recent months. These factors point to increased single-family
conditions
2)
2) Capital spending
Capital spending by by business
business
construction activity.
2) Clearly,
Capital the builders
spending believe that the economy is strengthening;
by business
3)
3) Crime
Crime
however, it is 3)
unclear how that will translate into home sales or additional revenues for
Crime
Night.
Challenges During the
Challenges the Next ThreeThree Years:
Challenges During
During the Next
Next Three Years:Years:
9 1)
1) Increasing sales
Increasing sales
Industry 1) Increasing sales
2)
2) Protecting profit margins
Protecting margins
2) Protecting profit
profit margins
3) Controlling costs
costs
According to 3) Security
3) Controlling
Dealer Magazine
Controlling costs (SDM) total annual security industry revenues
declined 7.8 percent in 2009 to $44.67 billion. Revenues in 2010 have been forecast to fall
Strongest Residential
Strongest Residential Markets:
Markets:
an additional
Strongest 1.6Residential
percent to Markets:
$43.9 billion. This is the first time in the history of SDM’s
1)
1) Middle market
Middle market homes
homes -- existing
existing
Industry Forecast1) Study thatmarket
Middle a decreasehomes has been recorded.
- existing
2)
2) High end
High end homes
homes -- existing
existing
2) High end homes - existing
3)
3) Multi-unit dwellings
Multi-unit dwellings
SDM’s Industry 3) Forecast indicates that the economy is the number one factor that
Studydwellings
Multi-unit
will affect sales over the next three years and that the number one challenge to security
A major factor
A factor that
that will
will impact Night’s
Night’s future
future performance is is construction activity.
activity. According
According
A major
businesses
major factoris that will impact
increasing sales.
impact Night’s future performance
A by-product is construction
of the declining
performance economyactivity.
construction is that itAccording
is forcing
to Electric
to Electric Contractor
Contractor Magazine
Magazine (ECM), leading construction
(ECM), leading construction experts
experts and
and economists
economists agree
agree
security businesses
to Electric ContractortoMagazine
shift their(ECM),
plans and market
leading focus, which
construction then and
experts changes the game
economists for
agree
that the
that the economy
economy is is emerging
emerging from from thethe economic
economic recession.
recession. ECM projects that
ECM projects that
other integrators.
that the economy is emerging from the economic recession. ECM projects that
construction activity
construction activity will increase
increase modestly in in 2010 before
before expanding at at a faster
faster pace in in
construction
10 activity will
will increase modestly
modestly in 20102010 before expanding
expanding at a a faster pace
pace in
2011.10 Construction
2011. 10
Construction forecasts
forecasts for
for the United States from ECM are presented in Table 7.
With
2011.less demand in the
Construction forecasts for the
residential United
market,
the UnitedoneStates from
would
States from ECM
have
ECM are
are presented
expected pricingin
presented Table
Table 7.
indiscounts7.
along with that. The SDM Industry Forecast Study measures pricing of traditional
residential systems and mass-marketed systems. In the mass market segments, the
TABLE
TABLE 7
average price of a residential system declined TABLE 7 7$50, to $348 in 2009. In the traditional
CONSTRUCTION
CONSTRUCTION FORECASTS
FORECASTS ($BILLIONS)
($BILLIONS)
market, however the average price of a residential
CONSTRUCTION FORECASTS security system increased approximately
($BILLIONS)
$100 to $1,738. A large percentage of respondentsAnnual Annual
expectFigures
no change in these average
Figures
Actuals
Actuals Annual Figures
Forecasts
Forecasts
prices in 2010. Type of
Type of Construction
Construction Actuals
2007
2007 2008
2008 2009 Forecasts
2009 2010
2010 2011
2011
Type of Construction 2007 2008 2009 2010 2011
New
New Residential
Residential $
$ 362.3
362.3 $ $ 237.5
237.5 $
$ 143.4
143.4 $$ 155.1
155.1 $$ 193.0
193.0
Most companies
New
(% Changealso
Residential
(% Change vs. did not Year)
vs. Previous
Previous increase$rates
Year) -24.0%
-24.0%for $monitoring
362.3 -34.4%
-34.4% or143.4
other$ recurring
237.5 $ -39.6%
-39.6% 8.1% fees
155.1
8.1% $ -24.5%last year,
193.0
-24.5%
(%
according Change vs.
to the survey.Previous Year) -24.0%
As many as 60 percent -34.4%
of121.0 -39.6%
survey respondents 8.1% -24.5%
indicated
Residential
Residential Improvements*
Improvements* 140.1
140.1 121.0 115.1
115.1 121.6
121.6 127.8they did
127.8
Residential
(% Change Improvements*
vs. Previous Year) 140.1
-3.9% 121.0
-13.6% 115.1
-4.9% 121.6
0.0% 127.8
5.1%
(% Change
not implement vs.
a vs. Previous
rate Year)
increase. -3.9%
The average -13.6% -4.9%
monthly -4.9%
monitoring 0.0%
fee for5.1%
residential
(% Change Previous
Nonresidential Building
Building Year) -3.9%
407.7 -13.6%
445.0 419.7 0.0%
398.7 5.1%
423.8
Nonresidential 407.7 445.0 419.7 398.7 423.8
customers
(%
is $26;vs.
Nonresidential
(% Change
Change forBuilding
vs. non-residential
Previous
Previous Year)
Year)
customers
407.7
19.2%
19.2%
is445.0
$37; and
9.1%
9.1%
for remote
419.7
-5.7%
-5.7%
398.7video
-5.0%
-5.0%
monitoring
423.8
6.3%
6.3%
(%
customers Change
Nonis vs. Previous
$83. (Heavy
building Year)
(Heavy Engineering)
Engineering) 19.2%
240.9 9.1%
268.2 -5.7%
271.4 -5.0%
271.8 6.3%
284.8
Non building 240.9 268.2 271.4 271.8 284.8
Non
(% buildingvs.
Change (Heavy Engineering)
Previous Year) 240.9
17.5% 268.2
11.3% 271.4
1.2% 271.8
0.1% 284.8
4.8%
(% Change vs. Previous Year) 17.5% 11.3% 1.2% 0.1% 4.8%
(% Change vs. Previous Year) 17.5% 11.3% 1.2% 0.1% 4.8%
Some top responses
Total to various questions
$ asked in SDM’s industry survey are summarized
Total $ 1,151.1
1,151.1 $ $ 1,071.8
1,071.8 $ $ 949.6
949.6 $$ 947.1
947.1 $$ 1,029.0
1,029.0
below. Total
% Change vs. Previous
% Change vs. Previous Year Year $ 1,151.1
-1.6%
-1.6%
$ 1,071.8
-6.9%
-6.9%
$ -11.4%
949.6 $ -0.3%
-11.4%
947.1 $ 1,029.0
-0.3% 8.7%
8.7%
% Change vs. Previous Year -1.6% -6.9% -11.4% -0.3% 8.7%
*Residential
*Residential improvements
improvements include
include remodeling,
remodeling, renovation
renovation and
and replacement
replacement work.
work.
*Residential
Source: improvements
Electric Contractor include remodeling, renovation and replacement work.
Magazine.
Source: Electric Contractor Magazine.
Source: Electric Contractor Magazine.
9
10 Much
JosephofM.
this
M. section
Kelly, is adapted
“2010 from Outlook:
Construction Security A Dealer
Slow Magazine’s
From 2010
Climb From Rock Industry
Bottom,”Outlook,
Electric
10
Joseph
Laura Kelly,
Stefanek, “2010 Construction
“Preparing for2010 Outlook:
a Better A Slow
Economy,” Climb
SDM Magazine, Rock Bottom,”
January Electric
1, 2010
10
Joseph M.
Contractor
Contractor Kelly, “2010
Magazine,
Magazine, Construction
January
January 2010 Outlook: A Slow Climb From Rock
<www.ecmag.com/index.cfm?fa=articleID=
<www.ecmag.com/index.cfm?fa=articleID= Bottom,”=11070>
Electric
=11070>
< w w w . sJuly
Contractor
(accessed d m20,
m a2010).
Magazine, g .January
com/A r t i c<www.ecmag.com/index.cfm?fa=articleID=
2010 l e s / C o v e r _ s t o r y / B N P _ G U I D=11070>
_9-5-
(accessed July 20, 2010).
2005_A_10000000000000734823> (accessed July 20, 2010).
(accessed July 20, 2010).
-- 15 -
- 15
14 --
15
An
An analysis
analysis of
of the
the industry
industry suggests
suggests that
that The
The Company
Company will
will operate
operate in
in a
a challenging
challenging
An analysis
Factors
environment of
for the
theindustry
Affecting Salessuggests
remainder for the
of that
Next
2010 The
Three
beforeCompany
Years:
the will operate
anticipated in
turnarounda challenging
in 2011.
environment
environment for
for
1) the
the remainder
remainder
Economic of
of 2010
2010
conditions before
before the
the anticipated
anticipated turnaround
turnaround in
in 2011.
2011.
Forecasts
Forecasts from
from SDM
SDM suggest
suggest that
that industry
industry revenues
revenues will
will decline
decline again
again in
in 2010
2010 before
before
Forecasts
gaining from
speed 2)inSDM
2011. suggest
Capital thatthe
spending
However, industry revenues
by business
economy in will decline
southwest Floridaagain
is lessinrobust
2010 than
before
in
gaining
gaining speed
speed in
in
3) 2011.
2011. However,
However,
Crime the
the economy
economy in
in southwest
southwest Florida
Florida is
is less
less robust
robust than
than in
in
the
the U.S.
U.S. as
as a
a whole
whole with
with considerably
considerably higher
higher unemployment.
unemployment. Therefore,
Therefore, Night
Night might
might not
not
the U.S.
see as a whole
improvement as with considerably
quickly as other higher unemployment.
companies in the industry.Therefore, Night might not
see improvement
see improvement
Challengesas as quickly
quickly
During as
theas other
other
Next companies
companies
Three in the industry.
Years: in the industry.
1) Increasing sales
2) Protecting profit marginsANALYSIS
FINANCIAL
3) FINANCIAL
FINANCIAL ANALYSIS
Controlling costs ANALYSIS
In this Strongest
section of Residential
our report, weMarkets:
analyze the financial condition, and historic trends of Night.
In
In this
this section
section of
of
1) our
our report,
report,
Middle we
we analyze
analyze
market homesthe
the financial
financial
- existingcondition,
condition, and
and historic
historic trends
trends of
of Night.
Night.
This
This analysis
analysis allows
allows the
the appraiser
appraiser to
to understand
understand the
the financial
financial condition
condition of
of the
the subject
subject
This analysis
business. allowsHigh
2)
Normally, thefinancial
the appraiser
end homes to- understand
analysis existing
of a the also
business financial condition
includes of thecompany
comparing subject
business. Normally,
business.results
Normally, the financial
the financial
3) to industry
Multi-unit analysis
analysis
dwellings of a business
of a business also
also includes
includes comparing
comparing company
company
financial
financial results to industry data.
data. We
We located
located two
two SIC
SIC codes
codes that
that best
best describe
describe The
The
financial
Company: results
SIC to
code industry
1731 data.
which We
includeslocated
all two SIC
specialty codes
trade that best
contractors describe
who The
perform
Company:
Company:
A major factorSIC code
SICthat
code
will 1731
1731and
impact which
which
Night’sincludes
includes
future7382 all specialty
all specialty
performance trade
istrade contractors
contractors
construction who
who
activity. perform
perform
According
electrical
electrical work
work at
at a
a site,
site, and SIC
SIC code
code 7382 which
which includes
includes establishments
establishments primarily
primarily
electrical
engaged work
to Electricin at a site,
Contractor
monitoring and
Magazine
and SIC
(ECM),code
maintaining 7382construction
leading
security which includes
systems, such asestablishments
experts and economists
burglar and fireprimarily
agree
alarms.
engaged
engaged
that the inin monitoring
monitoring
economy and
is and maintaining
maintaining
emerging from security
security
the was systems,
systems,
economic such as
such as
recession. burglar
burglar
ECM and
and fire alarms.
fire alarms.
projects that
Therefore,
Therefore, a
a comparative
comparative financial
financial analysis
analysis was not
not performed
performed as
as The
The Company’s
Company’s entire
entire
Therefore,
construction
operation anot
is comparative
activity
accurately financial
will increase
describedanalysis
modestly
by any was
in not
2010
one SICperformed
before
code. as Theat
expanding Company’s
a faster paceentire
in
operation
operation
10 is not accurately
is not accurately
2011. Construction described
described
forecasts by
for theby any one
any one
United SIC code.
SICfrom
States code. ECM are presented in Table 7.
An
An analysis
analysis of
of The
The Company
Company was
was performed
performed as
as of
of December
December 31,
31, 2009
2009 using
using the
the historical
historical
An analysis
financial of The
statements Company was
contained inperformed
Schedules as1of December
and 2 of 31,
this 2009
report. using the
Although historical
we were
financial
financial statements
statements contained
contained in
in Schedules
Schedules
TABLE 1
1 and
and
7 2
2 of
of this
this report.
report. Although
Although we
we were
were
provided
provided with
with financial
financial statements
statements for
for the
the two-month
two-month period
period ended
ended February
February 28,
28, 2010,
2010, we
we
provided
did not with
include financial
it in the statements
CONSTRUCTION
analysis for
because the two-month
FORECASTS
nothing period ended
($BILLIONS)
material happened February
during 28,
that 2010,
period we
that
did not include
did not include it in the analysis
it in the analysis because
because nothing
nothing material
material happened
happened during that
during that period
period that
that
affected
affected the
the analysis.
analysis. A
A historic
historic common
common size
size balance
balance sheet
Annual is presented
Figures
sheet is presented in
in Table
Table 8.
8.
affected the analysis. A historic common size balance sheet is Forecasts
Actuals presented in Table 8.
Type of Construction 2007 2008 2009 2010 2011
TABLE 8
New Residential $ TABLE
362.3 $ 8
TABLE 8 237.5 SHEET
$ 143.4 $ 155.1 $ 193.0
COMMON
COMMON
(% Change vs. Previous Year) SIZE
SIZE BALANCE
BALANCE
-24.0% -34.4% SHEET
-39.6% 8.1% -24.5%
COMMONOF SIZE BALANCE31, SHEET
Residential Improvements* AS DECEMBER
140.1
AS OF DECEMBER 31, 121.0 115.1 121.6 127.8
(% Change vs. Previous Year)AS OF DECEMBER
-3.9% -13.6%31, -4.9% 0.0% 5.1%
Nonresidential Building 2005
407.7 2006
445.0 2007
419.7 2008
398.7 2009
423.8
Current Assets 2005
2005 2006
2006 2007
2007 2008
2008 2009
2009
(%
Current
Current Change
Assets
Cash Assets vs. Previous Year) 19.2%
22.14% 9.1%
5.60% -5.7%
0.07% -5.0%
8.16% 6.3%
12.45%
Cash
Non building
Accounts
Cash (Heavy Engineering)
Receivable 22.14%
240.9
41.94%
22.14% 5.60%
268.2
35.03%
5.60% 0.07%
271.4
29.42%
0.07% 8.16%
271.8
31.28%
8.16% 12.45%
284.8
31.27%
12.45%
Accounts
Inventories Receivable 41.94%
8.88% 35.03%
21.43% 29.42%
17.66% 31.28%
21.24% 31.27%
21.04%
(% Change
Accounts
Inventories vs. Previous
Receivable Year) 17.5%
41.94%
8.88% 11.3%
35.03%
21.43% 1.2%
29.42%
17.66% 0.1%
31.28%
21.24% 4.8%
31.27%
21.04%
Prepaid Expenses
Inventories 0.28%
8.88% 0.00%
21.43% 0.00%
17.66% 1.25%
21.24% 0.00%
21.04%
Prepaid Expenses
Prepaid Expenses 0.28%
0.28% 0.00%
0.00% 0.00%
0.00% 1.25%
1.25% 0.00%
0.00%
Total
Total
Total
Current Assets
Current Assets
$ 1,151.1
73.24% $ 1,071.8
73.24%
62.07% $ 47.16%
62.07%
949.6 $ 947.1
47.16%
61.94%$ 1,029.0
61.94%
64.76%
64.76%
Total Current
% Assets
Fixed Assets
Change vs. Previous Year 73.24%
-1.6% 62.07%
-6.9% 47.16%
-11.4% 61.94%
-0.3% 64.76%
8.7%
Fixed
Fixed Assets
Building & Improvements
Assets 0.00% 4.39% 5.85% 7.04% 11.91%
Building
Machinery
Building &
& Improvements
& Equipment
Improvements 0.00%
0.00% 4.39%
0.00%
4.39% 5.85%
0.39% work.7.04%
5.85% 0.47%
7.04% 11.91%
0.79%
11.91%
*Residential
Machinery & improvements
Equipment include remodeling,
0.00% renovation and
0.00% replacement
0.39% 0.47% 0.79%
Office Equipment
Machinery & Equipment 1.56%
0.00% 1.16%
0.00% 26.45%
0.39% 31.95%
0.47% 54.23%
0.79%
Office
Source:
Office Equipment
Furniture Electric
& Fixtures
Equipment Contractor Magazine. 1.56%
1.65%
1.56% 1.16%
2.03%
1.16% 26.45%
3.93%
26.45% 31.95%
4.73%
31.95% 54.23%
7.99%
54.23%
Furniture
Vehicles & Fixtures
Furniture & Fixtures 1.65%
54.26%
1.65% 2.03%
48.27%
2.03% 3.93%
49.60%
3.93% 4.73%
42.12%
4.73% 7.99%
63.89%
7.99%
Vehicles
Vehicles 54.26%
54.26% 48.27%
48.27% 49.60%
49.60% 42.12%
42.12% 63.89%
63.89%
Gross Fixed Assets 57.47% 55.86% 86.22% 86.31% 138.81%
Gross
Gross Fixed
Accumulated Assets
Depreciation
FixedJoseph
Assets 57.47%
30.89%
57.47% 55.86%
17.98%
55.86% 86.22%
33.73%
86.22% 86.31%
48.67%
86.31% 138.81%
104.28%
138.81%
10
Accumulated M. Kelly, “2010 Construction
Accumulated Depreciation
Depreciation 30.89%
30.89%
Outlook:
17.98%
17.98%
A Slow33.73%
Climb From
33.73%
Rock Bottom,”
48.67%
48.67% 104.28%
104.28%
Electric
Contractor Magazine, January26.58%
Net Fixed Assets 2010 <www.ecmag.com/index.cfm?fa=articleID=
37.88% 52.49% 37.64% 34.52%=11070>
Net
Net Fixed
Fixed Assets 26.58% 37.88% 52.49% 37.64% 34.52%
(accessed July 20, 2010).
Assets 26.58% 37.88% 52.49% 37.64% 34.52%
- 15
16 -
For this reason, the appraiser analyzes the TABLE 8 financial statements with an eye toward
historic
probable future earnings that COMMON SIZE BALANCE
can be generated by TheSHEET
Company.
AS OF DECEMBER 31,
Night’s income statements for the past five years are presented in Schedule 2 at the end
2005 2006 2007 2008 2009
of this report.
Other Assets After increasing steadily in 2005 and 2006, The Company’s revenues
declined in 2007,
Security 2008, and 2009 due to 0.18%
Deposits the deterioration
0.05% of0.11%
the economy.
0.14% The0.23%
Company
Prepaid Rent 0.00% 0.00% 0.24% 0.29% 0.49%
has incurred significant losses in each year since 2006. In order to further analyze The
Total Other Assets 0.18% 0.05% 0.35% 0.42% 0.71%
Company’s financial performance, we examined The Company’s common size income
TOTAL ASSETS 100.00% 100.00% 100.00% 100.00% 100.00%
statement which appears in Table 9.
Current Liabilities
Accounts Payable 18.48% 12.82% 7.21% 9.16% 9.87%
Long-Term Debt - Current Portion 10.43% 8.85% 15.30% 16.45% 28.24%
Notes Payable 0.00% 27.18% 0.00% 0.00% 0.00%
Accrued Expenses TABLE
0.00% 9 1.81% 1.84% 2.98% 2.37%
Sales Taxes Payable 0.00% 0.85% 0.79% 0.28% 1.33%
Customer Deposits COMMON SIZE INCOME0.00%
34.44% STATEMENT 0.00% 0.00% 1.60%
Retirement Plan Payable 0.09% 0.00% 0.00% 0.00% 0.00%
Officer Loan Payable FOR THE0.00% YEARS43.16%
ENDED101.59% 145.40% 245.74%
Bank Overdraft 0.00% 0.00% 2.65% 0.00% 0.00%
Total Current Liabilities 63.45% December
94.66% 31,
129.39% 174.27% 289.15%
2005 2006 2007 2008 2009
Total Long-Term Liabilities 29.02% 29.72% 39.09% 25.91% 13.68%
Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00%
Total Liabilities 92.46% 124.38% 168.48% 200.19% 302.83%
Total Cost of Sales
Stockholders' Equity 36.40% 61.17% 69.49% 56.46% 60.99%
Common Stock 0.04% 0.01% 0.01% 0.01% 0.02%
Gross Profit Earnings
Retained -24.39% 30.51%
63.60% 7.50% 38.83% 43.54%
-68.49% -100.19% 39.01%
-202.84%
TotalOperating
Total Stockholders' Equity
Expenses 61.68% 7.54% 48.93%
-24.38% 44.40%
-68.48% -100.19%
45.71% -202.83%
41.77%
TOTAL LIABILITIES AND
Operating Income (Loss)
STOCKHOLDERS' EQUITY 1.92%
100.00%-10.10%
100.00% -13.89%
100.00% -2.17%
100.00% -2.76%
100.00%
Interest Expense
Note: Figures 0.46%
may not add due to rounding. 1.42% 3.28% 4.95% 5.54%
For
Thethis
nextreason,
step in the appraiser
analysis isanalyzes the historic
the normalization of financial statements
The Company’s withbalance
historic an eye toward
sheets
probable
and income future earnings that
statements. can be generated
Normalization by The Company.
is the process where the appraiser restates the
financial statements on an economic basis that the willing buyer would expect to see as a
Night’s
result ofincome
normalstatements
operations.for the past five years are presented in Schedule 2 at the end
of this report. After increasing steadily in 2005 and 2006, The Company’s revenues
declined
The balancein 2007,
sheet2008,
was and 2009 due
normalized bytomaking
the deterioration of the
the following economy. The Company
adjustments:
has incurred significant losses in each year since 2006. In order to further analyze The
Company’s financial performance, we examined The Company’s common size income
statement which appears in Table 9. TABLE 10
BALANCE SHEET ADJUSTMENTS
TABLE 9 Adjusted
December 31, December 31,
COMMON SIZE INCOME2009 STATEMENT
Adjustments 2009
Current Assets
Cash FOR THE YEARS
$ ENDED
81,485 $ - $ 81,485
Accounts Receivable 204,767 - 204,767
Inventories 137,785
December 31, - 137,785
Total Current Assets 2005 $ 2006424,037 2007
$ - 2008
$ 2009
424,037
Fixed Assets
Total Revenues 100.00% 100.00% 100.00% 100.00% 100.00%
Building & Improvements $ 77,955 $ - $ 77,955
Machinery
Total Cost of Sales & Equipment 36.40% 5,169
61.17% 69.49% - 56.46% 5,16960.99%
Office Equipment1 355,073 (246,811) 108,262
Gross ProfitFurniture2 & Fixtures 63.60% 52,330
38.83% 30.51% - 43.54% 52,33039.01%
Vehicles 418,299 (155,659) 262,640
Total Operating Expenses
Gross Fixed Assets 61.68% $ 48.93%
908,826 $ 44.40% 45.71%
(402,470) $ 506,35641.77%
Accumulated Depreciation 682,797 (348,149) 334,648
Operating Income (Loss) 1.92% -10.10% -13.89% -2.17% -2.76%
Net Fixed Assets $ 226,029 $ (54,321) $ 171,708
Interest Other
ExpenseAssets 0.46% 1.42% 3.28% 4.95% 5.54%
Security Deposits $ 1,500 $ - $ 1,500
Total OtherPrepaid
Income Rent
(Expenses) 0.00% 0.00%
3,180 0.08% - 0.96% 3,180 0.05%
Total Other Assets
Pretax Income 1.46% $ -11.52%
4,680 $-17.09% - $
-6.16% 4,680-8.25%
TOTAL ASSETS $ 654,746 $ (54,321) $ 600,425
Current Liabilities
As indicated Accounts
in the data in Table 9, Night’s
Payable $ gross profit
64,646 $ margin has
(15,959) $ fluctuated
48,687 over the
Long-Term
analysis period Debt - Current Portion
ranging from 30.51 to 63.60 percent. 184,893 (184,893)
Operating and- net profit -
margins have
Accrued Expenses 15,540 15,540
fluctuated throughout
Sales Taxesthe analysis period and have8,676
Payable been negative in - each year since 2006.
8,676
Customer Deposits 10,452 - 10,452
Officer Loan Payable 1,609,000 (1,609,000) -
We also performed
Total Currenta Liabilities
ratio analysis to analyze $ trends that
1,893,207 $ have taken$ place83,355
(1,809,852) in the financial
performance ofLong-Term
Total the business.LiabilitiesThe Company’s liquidity
89,556 ratios, in particular, its current
(89,556) - and
quick ratiosTotal
have remained low throughout $the 1,982,763
Liabilities analysis $period. However,
(1,899,408) $ this is primarily
83,355
due to the Stockholders'
large short-term
Equity debt obligation on The Company’s balance sheet. Night’s
Common Stock $ 100 $ - $ 100
turnover ratios and measures
Retained Earnings of asset utilization have
(1,328,117) shown mixed
1,845,086 signals.
516,969 While The
Company’sTotalaccounts receivable
Stockholders' Equity turnover ratio has remained
$ (1,328,017) relatively
$ 1,845,086 $ stable, its cash
517,069
turnover and inventory
TOTAL turnover
LIABILITIES AND ratios have fluctuated over the past three years. Night’s
STOCKHOLDERS'
fixed asset and total asset ratios EQUITY $ 654,746
have been relatively $ since
stable (54,321) $ but
2007, 600,425
both increased
in 2009.
-- 19
18 --
1. Allstep
The next equipment and corresponding
in the analysis depreciation
is the normalization of The of the Microsoft
Company’s computer
historic balancesystem
sheets
were written
and income off because
statements. The Company
Normalization is the is no longer
process utilizing
where these assets.
the appraiser restates the
financial statements on an economic basis that the willing buyer would expect to see as a
2. Asnormal
result of of theoperations.
valuation date, Night owns six vehicles that were not being used.
Therefore, these vehicles along with related depreciation were written off and
classified
The balance sheetas was
non-operating
normalizedassets. The fair
by making the market values
following of these vehicles will be
adjustments:
added to the value of the operating entity in our final reconciliation of values.
Current Liabilities
NormalizationAccounts
of the income
Payable statement was $also performed
64,646 $ to(15,959)
reflect$the economic
48,687 income
Long-Term Debt - Current Portion 184,893 (184,893) -
that a willing Accrued
buyer would
Expenses anticipate The Company could generate.
15,540 - In our normalization
15,540
Sales Taxes Payable 8,676 - 8,676
of income, we focused
Customer our analysis on the fiscal10,452
Deposits years ended December
- 31, 2008 and
10,452
December 31, 2009.
Officer One reason for this is1,609,000
Loan Payable that certain financial records- were only
(1,609,000)
available as far back as August 2008 as The Company changed computerized
Total Current Liabilities $ 1,893,207 $ (1,809,852) $ 83,355accounting
systems atTotal
thatLong-Term
time. In addition,
Liabilities we believe that 2008
89,556 and 2009 are best reflective
(89,556) - of The
Total Liabilities $ 1,982,763 $ (1,899,408)
Company’s future performance because they reflect the decline in revenues after the$ 83,355
collapse ofStockholders'
the
Common Stock
Equity market and a reduction in expenses due to the reduction in
real estate $ 100 $ - $ 100
revenues. Table 11 Earnings
Retained reflects the normalization(1,328,117)
process. 1,845,086 516,969
Total Stockholders' Equity $ (1,328,017) $ 1,845,086 $ 517,069
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 654,746 $ (54,321) $ 600,425
- 20
19 -
December 31,
2. As of the valuation date, Night owns six vehicles 2008 that were2009 not being used.
Therefore, these vehicles along with related depreciation were written off and
Historic Net Income (Schedule 2) $ (195,928) $ (219,382)
classified as non-operating
Adjustments assets. The fair market values of these vehicles will be
Interest Expense1 157,503 147,364
added toDepreciation/Amortization
the value of the operating
Expense2 entity in our final reconciliation
134,667 of values.
103,875
Officers' Compensation - Addback3 153,846 167,605
Officers' Compensation - Reasonable4 (209,409) (217,576)
3. Night had outstanding
Rent accounts
Expense - Condo
6
5
payable to Mr. and Ms. Stafford60,079
60,000 related to interest
Rent Expense - Office 44,530 33,907
payments on officerExpenses
Entertainment loans 7and rent payments for20,904 a condominium22,424owned by Mr.
Stafford in Somecity, Florida. In addition, The Company had payables 17,014 outstanding
8
Auto Expense - Leased Vehicles 18,115
Auto Lease Payments9 20,512 24,409
to Mr. Stafford and Ms.
Auto Expense Stafford
- Unused and
Vehicles 10
for meals, fuel expenses,
61,260 auto repair and other
25,646
Gain on the Sale of Assets11 (28,578) (1,319)
miscellaneous expenses. These payables were all removed from the balance sheet
as they are non-operating
ADJUSTED PRETAX NET in nature.
INCOME $ 237,423 $ 164,046
Income Taxes12 65,850 45,499
4. Officers’ loans payable
ADJUSTED HISTORICinNET
theINCOME
amount of $1,609,000
$ were written
171,573 $ off and reclassified
118,548
as equity. Night was initially capitalized with $100. This is not sufficient capital with
which to start a new entity. Had The Company been properly capitalized at
inception, stockholder loans would not have been necessary. Therefore, these
funds were treated as equity contributions, rather than loans.
1. Interest expense was added back in its entirety as all of The Company’s interest
expense relates to the officer loans and the Microsoft loan, both of which were
5. All outstanding debt related to the Microsoft loan was written off due to its non-
removed from the balance sheet.
operating nature. However, the balance is still a valid obligation of Night and will be
deducted at the end of the analysis.
2. Depreciation expense related to the Microsoft equipment, unused vehicles and
vehicles that were sold between December 31, 2009 and March 10, 2010 was
As a result of our adjustments to the balance sheet, stockholders’ equity was estimated to
added back as these expenses relate to either non-operating assets or assets no
be $516,969.
longer owned by The Company.
Normalization of the income statement was also performed to reflect the economic income
3. Officers’ compensation was added back as a more reasonable level of officers’
that a willing buyer would anticipate The Company could generate. In our normalization
compensation was deducted in number 4 below.
of income, we focused our analysis on the fiscal years ended December 31, 2008 and
December 31, 2009. One reason for this is that certain financial records were only
4. In order to determine a reasonable level of officers’ compensation, we reviewed
available as far back as August 2008 as The Company changed computerized accounting
Personal Administrative Services (PAS) Inc.’s 2010 Executive Compensation Survey
systems at that time. In addition, we believe that 2008 and 2009 are best reflective of The
for Contractors. In reviewing the survey, it was determined that the appropriate
Company’s future performance because they reflect the decline in revenues after the
classification for Mr. Stafford was President. PAS describes the role of President
collapse of the real estate market and a reduction in expenses due to the reduction in
as follows:
revenues. Table 11 reflects the normalization process.
Officer responsible for the day to day direction of the organization.
Formulates plans and policies to achieve overall corporate objectives.
- 21- 20
- -
TABLE
We also determined that the appropriate 11
classification for Mr. Smith is Executive
NORMALIZATION OF INCOME
Vice President. PAS describes the role of the Executive Vice president as follows:
December 31,
Number two operating officer accountable 2008for the full
2009range of
operations or Income
Historic Net major(Schedule
segment 2) of the company.
$ (195,928) $ (219,382)
Adjustments
Interest Expense1 157,503 147,364
Depreciation/Amortization Expense2 134,667
The categories of Compensation
Officers' President - Addback
and Executive Vice
3 President 103,875
153,846 have numerous
167,605
Officers' Compensation - Reasonable4 (209,409) (217,576)
subcategoriesRent including
Expense -type
Condoof 5 construction, contractor
60,000type, organizational
60,079 type
and total revenues. In analyzing these different subcategories it becomes apparent
6
Rent Expense - Office 44,530 33,907
Entertainment Expenses7 20,904 22,424
that the size ofAuto
theExpense
firm is- Leased
a major factor in the level of
Vehicles 8
compensation.
18,115 17,014
Auto Lease Payments9 20,512 24,409
Auto Expense - Unused Vehicles10 61,260 25,646
Gain on the Sale of Assets11 (28,578) (1,319)
To account for the fact that Night is small compared to many of the companies in the
survey, andADJUSTED PRETAX NET
has performed INCOME
poorly $ few
over the past 237,423
years,$25th 164,046
percentile figures
were used forIncome
eachTaxes
subcategory. To account for all 65,850
12
of the various subcategories
45,499
Another factor that had to be accounted for is the fact that Mr. Stafford does not
1. Interest
work for expense was
The Company on added back basis.
a full-time in its entirety as all ofMr.
In actuality, TheStafford
Company’s
onlyinterest
works
expense relates
approximately to theofofficer
25 percent loansweek
the work and the
andMicrosoft loan, both of
should therefore, which
earn onlywere
25
removed from the balance sheet.
percent of the compensation presented in the PAS survey. However, since Mr.
Stafford holds the license that is needed for The Company to operate, we used 50
2. Depreciation expense related to the Microsoft equipment, unused vehicles and
percent of the reasonable compensation amount to account for payment for the
vehicles that were sold between December 31, 2009 and March 10, 2010 was
license.
added back as these expenses relate to either non-operating assets or assets no
longer owned by The Company.
For Mr. Smith, we utilized an annual compensation amount. Details of these
calculations
3. arecompensation
Officers’ presented below.
was added back as a more reasonable level of officers’
compensation was deducted in number 4 below.
President
th
4. In order to determine a reasonable level# of 25
of officers’ compensation, we reviewed
Subcategory Executives Percentile
Personal Administrative Services (PAS) Inc.’s 2010 Executive Compensation Survey
for Construction
Contractors.Type - Other
In reviewing the survey,30it was determined
$ 129,250
that the appropriate
Contractor Type - Electrical 32 164,950
classification for Mr. Stafford was President. PAS describes the role of President
Organizational Type - S Corp. 122 168,500
as follows:
Total Revenues - Up to $5 Million 27 97,408
Average $
Officer responsible for the day to day direction of140,027
the organization.
50%Formulates
of Average plans and policies to achieve overall
$ corporate
70,014 objectives.
- 22 -
- 21 -
Executive
We also determined that the Vice President
appropriate classification for Mr. Smith is Executive
# of 25th
Vice President. PAS describes the role of
Subcategory the Executive
Executives Vice president as follows:
Percentile
Construction Type - Other 11 $ 126,750
Number twoType
Contractor operating
- Electricalofficer accountable
14 for 148,500
the full range of
Organizational Type - S Corp. 69 146,600
operations or major segment of the company.
Total Revenues - Up to $5 Million 8 90,000
Average $ 127,963
The categories of President and Executive Vice President have numerous
subcategories
Totalincluding type
President and of construction,
Executive contractor
Vice President $ type,
197,976organizational type
and total revenues. In analyzing these different subcategories it becomes apparent
that the size of the firm is a major factor in the level of compensation.
Accounting for all of the relevant factors included in the PAS survey results in a total
Toofficers’
accountsalary of fact
for the $197,976. However,
that Night thiscompared
is small figure represents
to many a national average. To
of the companies in the
adjust this figure to reflect the amount that contractors in City would
th
survey, and has performed poorly over the past few years, 25 percentile figures make, a cost
of living
were usedadjustment of 1.099 was applied.
for each subcategory. This represents
To account thevarious
for all of the additional amounts
subcategories
paid in the Florida region according to PAS. As a result, officers’ compensation in
that determine compensation for contractors, an average of the four subcategories
2009 is $217,576. This amount was deflated by the percentage salary increase
was taken.
recorded by PAS for prior years to obtain compensation for 2008.
11. Since
Gains on the sale of100
approximately assets wereofremoved
percent as these pretax
the normalized were determined
earnings have to bebeen
non-
recurring.historically, we used this amount in our model. Recalculating the net
distributed
Since
amountapproximately
available to the 100 percent ofafter
shareholder thetaxes
normalized
considerspretax earnings
the benefits or have been
detriments
12. distributed
of Since
the S Nighthistorically, Forwethe
is a12passthrough
election. used this for
entity
purpose amount
of income in tax
our purposes,
this valuation, model. Recalculating
the valuation
the shareholder the net
analyst
should be
amount available
recalculated
placed in the same to
income the shareholder
taxes. Over after
the taxes
past considers
several the
years, benefits
the or
business
position that he would be in after paying tax as an S corporation detriments
valuation
12
of the S
communityelection.
has
shareholder. In the above For theanalysis,
acknowledged purpose ofthe
thatthis this valuation,
wouldthe
conventional
amount be shareholder
wisdom should
$61.43.of Therefore,
taxing be
thesein
placed in the
passthrough same position
entities as that
if theyhe would
were be in
taxpaying afterCpaying tax
corporations
order for the shareholder of Night to be placed in a neutral tax position, a 27.74 as an
is S
nocorporation
longer an
shareholder.
automatic
percent tax rateInisthe
thing to above
do. analysis,
In fact,
appropriate. thisthe
the United
This was amount
States would
Tax
rate that be
Court
was used$61.43.
opened
in theupTherefore,
this issue in
normalization
order for the
several
process. shareholder
court cases. 11
of Night
Since to time,
that be placed
manyinauthors
a neutral
havetaxcontributed
position, a to 27.74
the
valuation
percent literature
tax rate with ideas This
is appropriate. about washow thetorate
treatthat
these
wasnon-taxpaying enterprises.
used in the normalization
process.
In this instance, we are assuming that Night will continue to be operated as an S
corporation. This means that the shareholders will continue to enjoy the benefits of
the S election. Furthermore, the shareholders have not expressed any intentions
to sell The Company. Therefore, we will proceed with the calculation of taxes based
on the reality of the situation.
Historically, Night has not paid distributions to shareholders, however, The Company
has paid various perquisites to officers that can be classified as distributions.
12
This model
Therefore, does
total not take into consideration
distributions were calculatedthe added
by benefit that thethe
summing shareholders
shortfall will
in
receive as a result of the undistributed income of the companies. Since income taxes are
compensation
paid, and in and excess
this model perquisites.
calculated, on the available earnings, regardless of whether they are
12
This model does not take into consideration the added benefit that the shareholders will
actually
receive asdistributed
a result or
of not,
the the shareholders
undistributed of theofS the
income corporation
companies.can remove the undistributed
Since income taxes are
profits
paid, and in this model calculated, on the available earnings, regardless of whether theythey
without taxation in subsequent periods. If they do not remove the distributions, are
receive
actually adistributed
step-up inorthe
not,basis
the of their investment
shareholders of the Sand will pay less
corporation cancapital
remove
th
gains,
the if and when
undistributed
11
Gross
they sell v. Commissioner,
their interest ininTheT.C. Memo. 1999-254,
Company. affd. 272
In our opinion, F.3d 333 (6 Cir. 2001), Heck v.
profits without
Commissioner, taxation
T.C. Memo. subsequent
2002-34,periods. doany
If they 5,
Filed February notpotential
2002,remove benefit appears
the distributions,
and Adams
tothey
v. Commissioner,
be
diminimus.
receive a step-up in the basis of their28,
investment
T.C. Memo. 2002-80, Filed March 2002. and will pay less capital gains, if and when
they sell their interest in The Company. In our opinion, any potential benefit appears to be
diminimus.
25 -
- 24
After normalizing
Based on ourthe income statement,
calculations, thedistributed
Night has economicanincome of The
average Company
of 101.02 wasofas
percent its
follows:
pretax income over the past two years. This level of distributions in excess of
earnings cannot be sustained over the long run as The Company would be
liquidating. Therefore, 100 percent was
2008 $ determined
171,573 to be the best indication of The
Company’s future distribution
2009
policy. This is118,548
the amount of distributions that will be
used to recalculate the effective tax rate of Night. The result is as follows:
Average $ 145,060
S Corp.
C Corp. S Corp. Valuation
TABLE
merger and acquisition transaction method. We12eliminated the guideline public company
method as we were unable to locatePRATT’S STATS
any public companies that could be used as a proxy
to develop a value of Night. SUMMARY STATISTICS
MVIC to
In order to locate merger and acquisition activity thatEBIT
has taken place in the public and
private markets, we searched threeAnalysis:
Statistical databases for mergers and acquisitions in SIC codes
Count 8
1731 and 7382. The databases
Mean used were: 6.72
Standard Deviation 6.73
Coefficient of Variation 1.00
1. Pratt’s Stats™
2. Public Stats™ 90th Percentile 12.28
75th Percentile 7.32
3. Mergerstat™ Median 3.97
25th Percentile 3.31
10th Percentile 2.33
Pratt’s Stats™
R2 0.34
We searched the Pratt’s Stats database for transactions of businesses classified in SIC
As indicated
codes 1731 and by 7382
the data
that in Table 12,
occurred thethe
within R-Squared statisticThe
past five years. of the eight
Pratt’s transactions
Stats database
located was 0.34. This indicates a poor level of statistical reliability in
returned 26 transactions that included asset sales of companies and 14 transactions thatthe data sample as
this statistic
involved stockshould
salesbe close to one.After
of companies. Therefore, thistransactions
eliminating methodology can only
involving be used as
companies a
that
th
sanity check totoother
were dissimilar valuation
Night, four stockmethods.
transactionsWe and
determined
nine assetthat a 10 percentile
transactions MVIC
remained. Dueto
EBIT
to themultiple
low number wouldofbe appropriate
stock as The
transactions Company
located, has a poor
we focused our recent
analysis historic
on thefinancial
Pratt’s
record and operates in an area that was heavily battered by the economic
Stats transactions that involved asset sales. These transactions involved a combination downturn.
Applying
of electrical 10th percentile
the contractors andMVIC to EBIT
security multiple to
installation The
and Company’s
monitoring EBIT, and adding
companies. Detailsthe of
value of The Company’s
these transactions appear below.retained assets that would not transfer in a sale, results in the
following calculation:
EBIT
Business Type $ 164,046
Sale Date Revenues
Multiple 2.33
Electric Contractor 6/28/2007 $ 993,467
Indication of Value
Electric Contractor $ 382,228
12/1/2005 750,000
Plus
Electric Contractor Net Retained Assets 207,577
10/1/2006 3,040,000
Electric Contractor
Indication of Value $ 2/1/2005
589,805 1,435,885
Electric Contractor 2/24/2006 942,005
Home Theater Sales and Installation
Rounded $ 6/2/2008
590,000 441,000
Installation and Monitoring Company 9/9/2005 1,100,000
Security Monitoring Contracts 6/4/2005 1,086,327
Reconciliation
SecurityofSystems,
ValuesSales Service and Monitoring 8/31/2005 465,942
In this report, three methods were used to determine the value of Night. These values are
Wefollows:
as focused our analysis on the MVIC to EBIT multiple as it considers the profitability of a
company without the impact of financing decisions, while also considering an estimate of
capital expenditures. A statistical summary of the EBIT multiples appears in Table 12.13
13
One of the transactions did not include enough information from which to calculate EBIT.
- 27
28 -
Reconciliation of Values
In this report, three methods were used to determine the value of Night. These values are
as follows:
- 28
29 -
Now that we derived the value of the operating entity, we must add back the net value of
Night’s non-operating assets to derive the value of the equity. Night’s non-operating assets
consist of six parked vehicles. The fair market values of these six vehicles were
determined to be $76,150 based on the values of the vehicles as derived by the National
Auto Dealers Association. In addition to the six parked vehicles, Night also has a non-
operating liability related to the loan for the Microsoft equipment. The current and long-
term portions of this liability amounted to $274,449. Therefore, the value of the equity is
derived as follows:
NIGHT SYSTEMS,
SYSTEMS,INC.
INC.
INCOME STATEMENT
INCOME STATEMENT
FOR THE
THE YEARS
YEARSENDED
ENDED
December
December31,
31,
2005
2005 2006
2006 2007
2007 2008
2008 2009
2009
Revenues
Builder
OtherConsumers
Income $ 881,322 $ 2,010,853 $ 2,732,213 $ 1,664,850 $ 1,488,623
239,556 319,861 780,249 1,401,732 892,346
Interest
Change Income
in Customer Deposits $ -
(97,000) $ 97,118 - $ 3,367
- $ - - $ - -
Gain
ServiceSale of Assets
on -
34,235 81,199 - 260,603 - 28,578
122,118 1,319
278,603
Other
MetroIncome
Trade -
4,036 1,496 - 74
- 1,905
- - -
Refunds and Adjustments 94 (834) - (7,291) (700)
Total Other Income $ - $ - $ 3,441 $ 30,483 $ 1,319
Total Revenues $ 1,062,243 $ 2,509,693 $ 3,773,065 $ 3,181,409 $ 2,658,872
Other Expenses
Interest
Cost Expense
of Sales $ 4,896 $ 35,648 $ 123,812 $ 157,503 $ 147,364
Penalty
Purchases $ 380,942- $ 1,143,5508 $ 1,418,365
467$ 1,051,857 -$ 1,044,430 -
Cost of Labor - 549,617 1,068,896 631,301 469,111
TotalFreight
Other Expenses $ 4,896- $ 35,656
- $ 124,279
- $ 15,205
157,503 $ 11,788
147,364
Monitoring 4,994 11,802 32,609 49,296 60,017
TotalOutside Services
Other Income (Expenses) $ 688 $
(4,896) 110 $ (120,838)
(35,656) 14,618 (14)
$ (127,020) -
$ (146,045)
Payroll Taxes - 40,347 81,771 48,295 35,887
NET Customer Repair
INCOME (LOSS) $ 15,490- $ (289,058)
200 $ (644,884)
50 -
$ (195,928) 232
$ (219,382)
Change in Inventory - (210,413) - - -
Small Tools and Supplies - - 5,452 245 257
Operating Expenses
Advertising $ 11,113 $ 19,176 $ 13,787 $ 888 $ 1,206
Auto Expense 36,037 113,552 190,278 186,214 107,545
Bad Debts - - 13,082 - 56,441
Charitable Contributions 1,005 525 650 - 100
Depreciation 26,736 110,461 252,043 247,162 180,087
Officers' Compensation 78,154 122,442 145,212 153,846 167,605
Insurance - General 42,799 99,329 118,178 163,950 58,024
Licenses & Fees 5,521 19,504 20,335 12,861 11,851
Office Expenses 12,684 49,144 60,131 81,940 56,341
Professional Fees 4,416 8,651 9,407 9,850 9,845
Rents 86,538 129,638 139,407 149,060 127,893
Repairs and Maintenance 5,685 16,259 26,115 8,214 (1,822)
Salaries & Wages - 201,606 457,367 320,747 228,994
Taxes - Other 91 79 2,245 805 672
Taxes - Payroll 6,224 27,450 46,582 38,442 34,468
Telephone 12,389 28,943 41,357 40,385 34,424
Travel 14,193 33,771 42,184 26,415 24,616
Utilities 10,078 17,278 15,247 10,781 9,287
Employee Leasing 301,570 222,999 - - -
Human Resource Expenses - 4,729 6,080 1,656 814
Dues and Subscriptions - 1,642 1,193 863 1,334
Consulting Services - 704 - - -
Computer Support - - 63,570 - -
Moving Expense - - 6,401 - -
Uniforms - - 4,499 53 762
3. Public information and industry and statistical information have been obtained
from sources we believe to be reliable. However, we make no representation as
to the accuracy or completeness of such information and have performed no
procedures to corroborate the information.
5. The conclusion of value arrived at herein is based on the assumption that the
current level of management expertise and effectiveness would continue to be
maintained, and that the character and integrity of the enterprise through any
sale, reorganization, exchange, or diminution of the owners’ participation would
not be materially or significantly changed.
6. This report and the conclusion of value arrived at herein are for the exclusive use
of our client for the sole and specific purposes as noted herein. They may not be
used for any other purpose or by any other party for any purpose. Furthermore
the report and conclusion of value are not intended by the author and should not
be construed by the reader to be investment advice in any manner whatsoever.
The conclusion of value represents the considered opinion of Trugman Valuation
Associates, Inc., based on information furnished to them by the subject company
and other sources.
-- 36
34 -- Appendix
Appendix 11
STATEMENT OF ASSUMPTIONS
ASSUMPTIONS AND
AND LIMITING
LIMITING CONDITIONS
CONDITIONS
19.
7. The conclusion
Neither reached
all nor any in this
part of report is based
the contents of thison the standard
report of value
(especially as stated
the conclusion
and defined
of value, theinidentity
the body of the
of any report. specialist(s),
valuation An actual transaction in with
or the firm the business
which such or
business interest may be concluded at a higher value or lower value,
valuation specialists are connected or any reference to any of their professionaldepending
on the circumstances
designations) should surrounding
be disseminatedthe company, the appraised
to the public business interest
through advertising media,
and/or
public relations, news media, sales media, mail, direct transmittal, or any time.
the motivations and knowledge of both the buyers and sellers at that other
Trugman Valuation Associates, Inc. makes no guarantees
means of communication without the prior written consent and approval ofas to what values
individual buyers and
Trugman Valuation sellers mayInc.
Associates, reach in an actual transaction.
20.
8. No opinion
Future is intended
services to be
regarding theexpressed for matters
subject matter of thisthat require
report, legal orbut
including, other
not
specialized expertise, investigation or knowledge beyond that customarily
limited to testimony or attendance in court, shall not be required of Trugman
employed by appraisers
Valuation Associates, valuing
Inc. unlessbusinesses.
previous arrangements have been made in
writing.
10. Trugman Valuation Associates, Inc. has not determined independently whether
the subject company is subject to any present or future liability relating to
environmental matters (including, but not limited to CERCLA/Superfund liability)
nor the scope of any such liabilities. Trugman Valuation Associates, Inc.’s
valuation takes no such liabilities into account, except as they have been
reported to Trugman Valuation Associates, Inc. by the subject company or by an
environmental consultant working for the subject company, and then only to the
extent that the liability was reported to us in an actual or estimated dollar
amount. Such matters, if any, are noted in the report. To the extent such
information has been reported to us, Trugman Valuation Associates, Inc. has
relied on it without verification and offers no warranty or representation as to its
accuracy or completeness.
11. Trugman Valuation Associates, Inc. has not made a specific compliance survey
or analysis of the subject property to determine whether it is subject to, or in
compliance with, the American Disabilities Act of 1990, and this valuation does
not consider the effect, if any, of noncompliance.
- 36
35 -- Appendix
Appendix 11
STATEMENT OF ASSUMPTIONS
ASSUMPTIONS AND
AND LIMITING
LIMITING CONDITIONS
CONDITIONS
19.
12. The conclusion
No change reached
of any item in this report is based
appraisal reportonshall
the standard
be madeofby value as stated
anyone other
and
thandefined
Trugman in Valuation
the body of the report.Inc.,
Associates, Anand
actual
we transaction in responsibility
shall have no the business for
or
business interest may be
any such unauthorized change.concluded at a higher value or lower value, depending
on the circumstances surrounding the company, the appraised business interest
13. and/or
Unlessthe motivations
otherwise and no
stated, knowledge
effort hasof both
beenthe buyers
made and sellersthe
to determine at that time.
possible
Trugman Valuation
effect, if any, on theAssociates, Inc. makes
subject business due no
to guarantees as tostate,
future Federal, what or
values
local
individual buyers and sellers may reach in an actual transaction.
legislation, including any environmental or ecological matters or interpretations
thereof.
20. No opinion is intended to be expressed for matters that require legal or other
14. specialized expertise,interviews
We have conducted investigation
with or
theknowledge beyond thatof customarily
current management the subject
employed by appraisers valuing businesses.
company concerning the past, present, and prospective operating results of the
company. Except as noted, we have relied on the representations of these
individuals.
16. All facts and data set forth in the report are true and accurate to the best of the
appraiser's knowledge and belief. We have not knowingly withheld or omitted
anything from our report affecting our value estimate.
17. Possession of this report, or a copy thereof, does not carry with it the right of
publication of all or part of it, nor may it be used for any purpose without the
previous written consent of the appraiser, and in any event only with proper
authorization. Authorized copies of this report will be signed in blue ink by a
director of Trugman Valuation Associates, Inc. Unsigned copies, or copies not
signed in blue ink, should be considered to be incomplete.
18. Unless otherwise provided for in writing and agreed to by both parties in
advance, the extent of the liability for the completeness or accuracy of the data,
opinions, comments, recommendations and/or conclusions shall not exceed the
amount paid to the appraisers for professional fees and, then, only to the party(s)
for whom this report was originally prepared.
- 36 - Appendix 1
19. The conclusion reached in this report is based on the standard of value as stated
and defined in the body of the report. An actual transaction in the business or
business interest may be concluded at a higher value or lower value, depending
on the circumstances surrounding the company, the appraised business interest
and/or the motivations and knowledge of both the buyers and sellers at that time.
Trugman Valuation Associates, Inc. makes no guarantees as to what values
individual buyers and sellers may reach in an actual transaction.
20. No opinion is intended to be expressed for matters that require legal or other
specialized expertise, investigation or knowledge beyond that customarily
employed by appraisers valuing businesses.
- 37 - Appendix 2
• the statements of fact contained in this report are true and correct.
• the reported analyses, opinions, and conclusions are limited only by the reported assumptions
and limiting conditions and are our personal, impartial, and unbiased professional analyses,
opinions, and conclusions.
• we have no present or prospective interest in the property that is the subject of this report, and
we have no personal interest with respect to the parties involved.
• we have no bias with respect to the property that is the subject of this report or to the parties
involved with this assignment.
• our engagement in this assignment was not contingent upon developing or reporting
predetermined results.
• our compensation for completing this assignment is not contingent upon the development or
reporting of a predetermined value or direction in value that favors the cause of the client, the
amount of the value opinion, the attainment of a stipulated result, or the occurrence of a
subsequent event directly related to the intended use of this appraisal.
• our analyses, opinions, and conclusions were developed and this report has been prepared in
conformity with the Statement on Standards for Valuation Services No. 1, promulgated by the
American Institute of Certified Public Accountants, the Uniform Standards of Professional
Appraisal Practice, promulgated by the Appraisal Foundation, the business valuation standards
of The Institute of Business Appraisers Inc. and the American Society of Appraisers.
• The American Institute of Certified Public Accountants, The American Society of Appraisers, and
The Institute of Business Appraisers, Inc. have a mandatory recertification program for all of its
senior accredited members. All senior accredited members of our firm are in compliance with all
of these organizations’ programs.
• no one provided significant business and/or intangible asset appraisal assistance to the person
signing this certification other than William Harris.
38 -
- 53 Appendix 3
Experience
Technical Reviewer
•Vice President
GaryofR.Trugman
Trugman. Understanding
Valuation Business
Associates, Inc., aValuation: A Practical
firm specializing Guide tovaluation
in business Valuing
Small to Medium-Sized Businesses, American Institute of Certified
and litigation support services. Business valuation experience includes a wide variety Public
of
assignments Accountants, First Edition
including closely-held (1998) Second
businesses, Edition (2002),
professional Third
practices andEdition (2008).public
thinly traded
companies. Industries include security, automotive, funeral homes, health care, securities
• Gary R. Trugman. Essentials of Valuing a Closely Held Business, American Institute
brokerage and financial institutions, retail, manufacturing, service, and professional business
of Certified Public Accountants, 2008.
establishments.
• Shannon Pratt. The Lawyer’s Business Valuation Handbook, American Bar
Association,
Business valuation 2010. support services have been rendered for a variety of purposes
and litigation
including, but not limited to family law matters, business damages, lender liability litigation, buy-
sell agreements, shareholder litigation, estate and gift tax matters, buying and selling
businesses, malpractice litigation, wrongful death, sexual discrimination, age discrimination,
wrongful termination, and breach of contract. Representation in litigation includes plaintiff,
defendant, mutual, and court-appointed neutral.
Court Testimony. Has been qualified as an expert witness in State Courts of New Jersey and
Florida.
Court Appearances. Has appeared in the following court: New Jersey • Passaic; Essex.
Professional Designations
• CPA: Licensed in Florida (2003) and New Jersey (1987).
• ABV: Accredited in Business Valuation designated by The American Institute of
Certified Public Accountants (1998). Reaccredited in 2008.
• MCBA: Master Certified Business Appraiser designated by The Institute of Business
Appraisers, Inc. (2005). Original certification (CBA) in 1995. Reaccredited in 2009.
• ASA: Accredited Senior Appraiser designated by the American Society of Appraisers
(1997). Reaccredited in 2007.
Education
• Masters in Business Administration - Fairleigh Dickinson University (1986).
• Bachelor of Science - University of North Carolina (1978).
Faculty
• National Judicial College, Reno, Nevada since 2001.
-- 53
39
39 -- Appendix 3
Appendix 3
LINDA B.
LINDA B. TRUGMAN,
TRUGMAN, C.P.A./A.B.V.,
C.P.A./A.B.V., M.C.B.A.,
M.C.B.A., A.S.A.,
A.S.A., M.B.A.
M.B.A.
PROFESSIONAL QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Appraisal Education
AppraisalReviewer
Technical Education
•• The NACVA/IBA
Gary R. Trugman. 2010
The NACVA/IBA
Annual Consultants’
Understanding
2010
Conference,
Business Valuation:
Annual Consultants’
Miami Guide
A Practical
Conference,
Beach, FL,
Miami Beach,toFL,
The
Valuing
The
NationaltoAssociation
Small of Certified
Medium-Sized Valuation
Businesses, Analysts Institute
American and The Institute
of of Business
Certified Public
National Association of Certified Valuation Analysts and The Institute of Business
Appraisers, 2010.
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
Appraisers, 2010.
•• Valuing
Gary
ValuingR. Tiered
Tiered
Partnership
Trugman. Structures,
Essentials
Partnership
Webinar,
of Valuing
Structures,
Business
a Closely
Webinar,
Valuation
Held Business,
Business Valuation
Resources,
American
Resources,
LLC,
Institute
LLC,
2010.
of Certified Public Accountants, 2008.
2010.
•• FICPA Valuation,
Shannon
FICPA Valuation,
Forensic
Pratt. The Accounting
Lawyer’s
Forensic Business
Accounting
andValuation
Litigation Services Conference,
and LitigationHandbook, American Bar
Services Conference,
Ft.
Ft.
Lauderdale, FL,
Association, Florida Institute of CPAs, 2010.
2010.
Lauderdale, FL, Florida Institute of CPAs, 2010.
• AICPA National Business Valuation Conference, AICPA, San Francisco, CA, 2009.
• AICPA National Business Valuation Conference, AICPA, San Francisco, CA, 2009.
• 28thth Annual Advanced Business Valuation Conference, American Society of
• 28 Annual Advanced Business Valuation Conference, American Society of
Appraisers, Boston, MA, 2009.
Appraisers, Boston, MA, 2009.
• 2nd Annual Business Valuation and Tax Conference, University of San Diego Law
• 2nd Annual Business Valuation and Tax Conference, University of San Diego Law
School, San Diego, CA, 2009.
School, San Diego, CA, 2009.
• FCG Fall Conference Program 2009 Live Seminar, Financial Consulting Group, San
• FCG Fall Conference Program 2009 Live Seminar, Financial Consulting Group, San
Diego, CA, 2009.
Diego, CA, 2009.
• NACVA and the IBA’s 2009 Annual Consultants’ Conference, Boston, MA, NACVA
• NACVA and the IBA’s 2009 Annual Consultants’ Conference, Boston, MA, NACVA
and IBA, 2009.
and IBA, 2009.
• IRS New Rules: Pension Protection Act and Beyond, Webinar, Business Valuation
• IRS New Rules: Pension Protection Act and Beyond, Webinar, Business Valuation
Resources, LLC, 2009.
Resources, LLC, 2009.
• FICPA Valuation, Forensic Accounting and Litigation Services Conference, Ft.
• FICPA Valuation, Forensic Accounting and Litigation Services Conference, Ft.
Lauderdale, FL, Florida Institute of CPAs, 2009.
Lauderdale, FL, Florida Institute of CPAs, 2009.
• 2008 AICPA/ASA National Business Valuation Conference, Las Vegas, NV, American
• 2008 AICPA/ASA National Business Valuation Conference, Las Vegas, NV, American
Institute of CPAs and American Society of Appraisers, 2008.
Institute of CPAs and American Society of Appraisers, 2008.
• Discount for Lack of Marketability Workshop, San Diego, CA, Business Valuation
• Discount for Lack of Marketability Workshop, San Diego, CA, Business Valuation
Resources, LLC, 2008.
Resources, LLC, 2008.
• NJ Law & Ethics, Webcast, NJ Society of CPAs, 2008.
• NJ Law & Ethics, Webcast, NJ Society of CPAs, 2008.
• Valuation of Intangible Assets for Financial Reporting Purposes. Arlington, VA,
• Valuation of Intangible Assets for Financial Reporting Purposes. Arlington, VA,
American Society of Appraisers, 2008.
American Society of Appraisers, 2008.
• Exploring the Longstaff Model and Abbott Liquidity Factor for Enhanced Marketability
• Exploring the Longstaff Model and Abbott Liquidity Factor for Enhanced Marketability
Discount Determinations. Teleconference, American Institute of CPAs, 2008.
Discount Determinations. Teleconference, American Institute of CPAs, 2008.
• FICPA Valuation, Accounting and Litigation Services Conference. Ft. Lauderdale, FL,
• FICPA Valuation, Accounting and Litigation Services Conference. Ft. Lauderdale, FL,
Florida Institute of Certified Public Accountants, 2008.
Florida Institute of Certified Public Accountants, 2008.
• AICPA National Business Valuation Conference. New Orleans, LA, American Institute
• AICPA National Business Valuation Conference. New Orleans, LA, American Institute
of CPAs, 2007.
of CPAs, 2007.
40 -
- 53 Appendix 3
AppraisalReviewer
Technical Education
• Gary
FCG R. Trugman. New
Conference. Understanding Business
Orleans, LA, Valuation:
Financial A Practical
Consulting Guide to Valuing
Group, 2007.
Small to Medium-Sized Businesses, American Institute of Certified Public
• ASA Advanced BV Conference. San Diego, CA, American Society of Appraisers,
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
2007.
• Gary R. Trugman. Essentials of Valuing a Closely Held Business, American Institute
• Impact of the Pension Protection Act of 2006. American Institute of CPAs, 2007.
of Certified Public Accountants, 2008.
• Quantification of Company Specific Risk: Theory and Applications. Business
• Shannon Pratt. The Lawyer’s Business Valuation Handbook, American Bar
Valuation Resources, 2007.
Association, 2010.
• BV Standards: AICPA, IRS and Beyond - Where Are We Headed? Business
Valuation Resources, 2007.
• AICPA National Business Valuation Conference. Austin, American Institute of
Certified Public Accountants, 2006.
• FCG Conference. Austin, TX, Financial Consulting Group, 2006.
• CICBV/ASA Sixth Joint Business Valuation Conference. Toronto, American Society
of Appraisers, 2006.
• Ask the IRS. Business Valuation Resources, 2006.
• Tax Affecting. Business Valuation Resources, 2006.
• FICPA Valuation, Accounting and Litigation Services Conference. Ft. Lauderdale, FL,
Florida Institute of Certified Public Accountants, 2006.
• Valuation2.. Las Vegas, NV, American Institute of Certified Public Accountants and
American Society of Appraisers, 2005.
• AICPA National Business Valuation Conference. Orlando, FL, American Institute of
Certified Public Accountants, 2004.
• 23rd Annual Advanced Business Valuation Conference. San Antonio, TX, American
Society of Appraisers, 2004.
• New Jersey Law and Ethics Course. Parsippany, NJ, New Jersey Society of Certified
Public Accountants, 2004.
• 2004 FICPA Business Valuation & Litigation Conference. Fort Lauderdale, FL,
Florida Institute of CPAs, 2004.
• 22nd Annual Advanced Business Valuation Conference. Chicago, IL, American
Society of Appraisers, 2003.
• AICPA National Business Valuation Conference. New Orleans, LA, American Institute
of Certified Public Accountants, 2002.
- 41 - Appendix 3
41 -
- 53 Appendix 3
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
LINDA B. TRUGMAN, C.P.A./A.B.V.,
PROFESSIONAL M.C.B.A., A.S.A., M.B.A.
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Appraisal Education
AppraisalReviewer
Technical Education
• Annual Member Firm Conference. Denver, CO, Financial Consulting Group, LC,
• Gary
2002.R. Member
Annual Trugman.Firm Understanding
Conference.Business
Denver,Valuation: A Practical
CO, Financial GuideGroup,
Consulting to Valuing
LC,
Small
2002. to Medium-Sized Businesses, American Institute of Certified Public
• Brown v. Brown:
Accountants, FirstThe Most(1998)
Edition Important Equitable
Second Distribution
Edition Decision
(2002), Third Since
Edition Painter.
(2008).
• Fairfield, NJ, New Jersey Institute for Continuing Legal Education, 2002. Painter.
Brown v. Brown: The Most Important Equitable Distribution Decision Since
• Gary R. Trugman.
Fairfield, NJ, New Essentials of Valuing
Jersey Institute a Closely Legal
for Continuing Held Business,
Education,American
2002. Institute
• 2001
of National
Certified Business
Public Valuation
Accountants, Conference. Las Vegas, NV, American Institute
2008.
• 2001 National
of Certified Business
Public Valuation
Accountants, Conference. Las Vegas, NV, American Institute
2001.
• Shannon
of thCertifiedPratt.
PublicThe Business Valuation Handbook, American Bar
Lawyer’s 2001.
Accountants,
• 20 Annual Advanced
Association, 2010. Business Valuation Conference. Seattle, WA, American
th
• 20 Annual
Society Advanced2001.
of Appraisers, Business Valuation Conference. Seattle, WA, American
Society of Appraisers, 2001.
• 2001 Share the Wealth Conference. Orlando, FL, The Institute of Business
• 2001 Share2001.
Appraisers, the Wealth Conference. Orlando, FL, The Institute of Business
Appraisers, 2001.
• 2000 National Conference on Business Valuation. Miami, FL, American Institute of
• 2000 National
Certified PublicConference
Accountants, Business Valuation. Miami, FL, American Institute of
on2000.
Certified Public Accountants, 2000.
• 19th Annual Advanced Business Valuation Conference. Philadelphia, PA, American
th
• 19 Annual
Society Advanced Business
of Appraisers, 2000. Valuation Conference. Philadelphia, PA, American
Society of Appraisers, 2000.
• Hot Issues in Estate and Gift Tax Returns: What do the Auditors Look For? New
• Hot Issues NJ,
Brunswick, in Estate and Gift
New Jersey Tax Returns:
Institute What do
for Continuing the Education,
Legal Auditors Look
2000.For? New
Brunswick, NJ, New Jersey Institute for Continuing Legal Education, 2000.
• Pulling Ahead of the Pack - The Institute of Business Appraisers’ 2000 National
• Pulling Ahead
Conference. of the Pack
Phoenix, - The
AZ, The Institute
Institute of Business
of Business Appraisers’
Appraisers, 2000.2000 National
Conference. Phoenix, AZ, The Institute of Business Appraisers, 2000.
• Business Valuation Conference. Las Vegas, NV, American Institute of Certified Public
• Business
Accountants, 1999.Conference. Las Vegas, NV, American Institute of Certified Public
Valuation
Accountants, 1999.
• 1999 International Appraisal Conference. Boston, MA, American Society of
• 1999 1999. Appraisal Conference. Boston, MA, American Society of
International
Appraisers,
Appraisers, 1999.
• 1999 Annual Conference. Boston, MA, American Society of Appraisers, 1999.
• 1999 Annual Conference. Boston, MA, American Society of Appraisers, 1999.
• Chartered Financial Analyst Level II Self Study Program, 1999.
• Chartered Financial Analyst Level II Self Study Program, 1999.
• 1999 Annual Conference: The Future of Business Valuation. Orlando, FL, The
• 1999 Annual
Institute Conference:
of Business The Future
Appraisers, of Business Valuation. Orlando, FL, The
Inc., 1999.
Institute of Business Appraisers, Inc., 1999.
• 1998 Joint Business Valuation Conference. Montreal, Canada, American Society of
• 1998 Joint Business
Appraisers Valuation
and Canadian Conference.
Institute Montreal,
of Chartered Canada,
Business American
Valuators, 1998. Society of
Appraisers and Canadian Institute of Chartered Business Valuators, 1998.
• Chartered Financial Analyst Level I Self Study Program, 1998.
• Chartered Financial Analyst Level I Self Study Program, 1998.
• The Future of Business Valuation Annual Conference. San Antonio, TX, The Institute
• The Future ofAppraisers,
of Business Business Valuation Annual Conference. San Antonio, TX, The Institute
Inc., 1998.
of Business Appraisers, Inc., 1998.
• Business Valuation Conference. San Diego, CA, American Institute of Certified
• Business
Public Conference. San Diego, CA, American Institute of Certified
Valuation 1997.
Accountants,
Public Accountants, 1997.
42 -
- 53 Appendix 3
AppraisalReviewer
Technical Education
• Gary R. Trugman.
16th Annual Understanding
Advanced Business
Business Valuation Valuation: San
Conference. A Practical Guide
Francisco, CA,to Valuing
American
Small to Medium-Sized
Society of Appraisers, 1997.Businesses, American Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
• Quantifying Marketability Discounts. San Francisco, CA, Mercer Capital, 1997.
• Gary R. Trugman. Essentials of Valuing a Closely Held Business, American Institute
• Advanced Research Analysis. Roseland, NJ, NJ Society of Certified Public
of Certified Public Accountants, 2008.
Accountants, 1997.
• Shannon Pratt. The Lawyer’s Business Valuation Handbook, American Bar
• 1997 Business Valuation Conference. New Brunswick, NJ, NJ Society of Certified
Association, 2010.
Public Accountants, 1997.
• National Conference on Appraising Closely-Held Businesses. San Diego, CA, The
Institute of Business Appraisers, Inc., 1997.
• National Business Conference. Phoenix, AZ, American Institute of Certified Public
Accountants, 1996.
• 15th Annual Business Valuation Conference. Memphis, TN, American Society of
Appraisers, 1996.
• 1996 Business Valuation Conference. Holmdel, NJ, NJ Society of Certified Public
Accountants, 1996.
• National Conference on Appraising Closely-Held Businesses. Orlando, FL, The
Institute of Business Appraisers, Inc., 1996.
• The 1995 National Business Valuation Conference. New Orleans, LA, American
Institute of Certified Public Accountants, 1995.
• 1995 Advanced Business Valuation Conference. Boston, MA, American Society of
Appraisers, 1995.
• ASA International Appraisal Conference. Denver, CO, American Society of
Appraisers, 1995.
• National Conference on Business Valuation. San Diego, CA, American Institute of
Certified Public Accountants and The Institute of Business Appraisers, Inc., 1995.
• First Annual Business Valuation Conference. Holmdel, NJ, NJ Society of Certified
Public Accountants, 1995.
• National Conference. Las Vegas, NV, The Institute of Business Appraisers, Inc.,
1995.
• Business Valuation in a Changing International Environment. San Diego, CA,
American Society of Appraisers, 1994.
• 1994 International Conference. Chicago, IL, American Society of Appraisers, 1994.
43 -
- 53 Appendix 3
AppraisalReviewer
Technical Education
• Gary R. Trugman.
Principles Understanding
of Valuation-Business BusinessSelected
Valuation: Valuation: A Practical
Advanced Guide
Topics. LostoAngeles,
Valuing
Small to Medium-Sized Businesses,
CA, American Society of Appraisers, 1994. American Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
• Principles of Valuation-Business Valuation: Appraisal of Small Businesses and
• Gary R. Trugman.
Professional Essentials
Practices. of Valuing
Atlanta, a Closely
GA, American Held Business,
Society American
of Appraisers, 1994.Institute
of Certified Public Accountants, 2008.
• National Conference of Appraising Closely-Held Businesses. Orlando, FL, The
• Shannon
Institute ofPratt. TheAppraisers,
Business Lawyer’s Inc., 1994. Valuation Handbook, American Bar
Business
Association, 2010.
• Principles of Valuation-Business Valuation Case Study. Washington, DC, American
Society of Appraisers, 1993.
• 1993 International Conference. Seattle, WA, American Society of Appraisers, 1993.
• Uniform Standards of Professional Appraisal Practice and Professional Appraisal
Ethics. Seattle, WA, American Society of Appraisers, 1993.
• Principles of Valuation–Business Valuation Methodology. Washington, DC, American
Society of Appraisers, 1993.
• National Conference. San Diego, CA, The Institute of Business Appraisers, Inc.,
1993.
• Developing Your Business Valuation Skills: An Engagement Approach. Iselin, NJ,
NJ Society of Certified Public Accountants, 1992.
• Advanced Business Valuation Seminar. San Francisco, CA, The Institute of Business
Appraisers, Inc., 1992.
• Principles of Valuation–Introduction to Business Valuation. Washington, DC,
American Society of Appraisers, 1992.
• Business Valuation for Accountants. Newark, NJ, The Institute of Business
Appraisers Inc., 1992.
• Has performed extensive reading and research on business valuations and business
valuation related topics.
Lecturer
• Fair Market Value versus Fair Value -What’s the Difference, Coral Gables, FL,
American Institute of CPAs, AICPA Small Business Practitioners’ Tax Conference,
2010.
• Business Valuation During Crazy Economic Times, Tampa, FL, Florida Institute of
CPAs, FABExpo, 2010.
• Pitchbook – A First Look, Webinar, Business Valuation Resources, LLC, 2010.
44 -
- 53 Appendix 3
Lecturer Reviewer
Technical
• Gary R. Trugman.
The Income Understanding
Approach – It’s Not AllBusiness
About theValuation: A Practical
Cost of Capital, MiamiGuide
Beach,to FL,
Valuing
The
Small to Medium-Sized Businesses, American
NACVA/IBA 2010 Annual Consultants’ Conference, 2010. Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
• Valuation Issues in Estate & Gift Tax, Webinar, Business Valuation Resources, LLC,
• Gary
2010.R. Trugman. Essentials of Valuing a Closely Held Business, American Institute
of Certified Public Accountants, 2008.
• Controversial Issues in Business Valuation, Ft. Lauderdale, FL, FICPA Valuation,
• Shannon Pratt. Theand
Forensic Accounting Lawyer’s
LitigationBusiness
Services Valuation
Conference,Handbook,
2010. American Bar
Association, 2010.
• Hardball with Hitchner, San Francisco, CA, AICPA National Business Valuation
Conference, 2009.
• Valuation for Tax Purposes, San Francisco, CA, AICPA National Business Valuation
Conference, 2009.
• Qualitative and Quantitative DLOM Analysis, San Francisco, CA, AICPA National
Business Valuation Conference, 2009.
• Valuations of FLPs and FLLCs, Washington Twsp., NJ, Greater NJ Estate Planning
Council, 2009.
• Valuations for Tax Purposes, Overland Park, KS, 2009 Business Valuation and
Litigation Support Conference, 2009.
• FLPs and FLLCs - What’s An Appraiser to Do? Golden Valley, MN, Business
Valuation Conference, 2009.
• Ask the Experts Panel, San Diego, CA, 2nd Annual Business Valuation and Tax
Conference, 2009.
• How to Apply and Reconcile the Various Qualitative and Quantitative DLOM Models
and Databases, San Diego, CA, 2nd Annual Business Valuation and Tax Conference,
2009.
• Ask the Experts Panel. San Diego, CA, FCG Fall Conference Program 2009 Live
Seminar, 2009.
• FLPs and FLLCs - What’s An Appraiser to Do? Baltimore, MD, CPA Associates
International BV Conference, 2009.
• Valuations of FLPs, Ft. Lauderdale, FL, Ft. Lauderdale Trusts and Estates
Roundtable, 2009.
• Guideline Public Company Method Workshop Highlights, Business Valuation
Resources, 2009.
• Fundamentals of Business Valuation and SSVS #1, Seattle, WA, AICPA Small
Business Practitioners Tax Conference, 2009.
45 -
- 53 Appendix 3
Lecturer Reviewer
Technical
• Gary
FLPsR.and Trugman. Understanding
FLLCs - What’s Business
An Appraiser Valuation:
to Do? Chicago,AIL,Practical Guide to
2009 Business Valuing
Valuation
Small to Medium-Sized
Conference, 2009. Businesses, American Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
• Valuation for Tax Purposes, Ft. Lauderdale, FL, FICPA Valuation, Forensic
• Gary R. Trugman.
Accounting Essentials
and Litigation of Valuing
Services Held Business, American Institute
a Closely2009.
Conference,
of Certified Public Accountants, 2008.
• Pass Through Investment Holding Company Entities - FLPs, Las Vegas, NV, 2008
• Shannon
AICPA/ASA Pratt. The Business
National Lawyer’sValuation
Business Handbook, American Bar
Valuation 2008.
Conference,
Association, 2010.
• Family Limited Partnerships, Washington, DC, 2008 National AICPA National Tax
Conference, 2008.
• The Valuation of FLPs and FLLCs: What Does the Tax Practitioner Need to
Know? Las Vegas, NV, 2008 AICPA Small Business Practitioners Tax
Conference, 2008.
• Basic Business Valuation, Detroit, MI, MACPA’s 2008 Litigation & Business
Valuation Conference, 2008.
• Current Issues in Business Valuation and Litigation Support... And the Beat Goes
On, Detroit, MI, MACPA’s 2008 Litigation & Business Valuation Conference, 2008.
• Valuing Family Limited Partnerships and LLC, Teleconference, Institute of Business
Appraisers, 2008.
• Discounts for Lack of Marketability Panel Discussion – Who’s on First, What’s on
Second, I Don’t Know’s on Third, New Orleans, LA, AICPA National Business
Valuation Conference, 2007.
• A Family Limited Partnership (FLP) Valuation Example. New Orleans, LA, AICPA
National Business Valuation Conference, 2007.
• Financial Valuation: Applications and Methods, Lansing, MI, Michigan Accounting and
Auditing Conference, 2007.
• Business Valuation for the Non-Valuation Professional, Atlanta, GA, AICPA’s Small
Practitioner’s Tax Conference, 2007.
• Specific Company Risk: Qualitative or Quantitative? A New Look at an Old Topic,
Washington, DC, NACVA’s Fourteenth Annual Consultants’ Conference, 2007.
• Personal Goodwill: Does the Non-Propertied Spouse Really Lose the Battle? Ft.
Lauderdale, FL, Florida Bar Family Law Section, 2007.
• Business Valuation Reports: How to Evaluate Them & The Appraiser, St. Louis, MO,
St. Louis Estate Planning Council, 2007.
- 46 - Appendix 3
46 -
- 53 Appendix 3
LINDA B. TRUGMAN, C.P.A./A.B.V., M.C.B.A., A.S.A., M.B.A.
LINDA B. TRUGMAN, C.P.A./A.B.V.,
PROFESSIONAL M.C.B.A., A.S.A., M.B.A.
QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Lecturer
Lecturer Reviewer
Technical
• Business Valuation, Ft. Lauderdale, FL, Nova Southeastern University Law School,
• Gary R.
Business
2006, Trugman.
2007, 2009. Understanding
Valuation, Ft. Lauderdale,Business
FL, NovaValuation: A Practical
Southeastern Guide
University Lawto Valuing
School,
Small to Medium-Sized
2006, 2007, 2009. Businesses, American Institute of Certified Public
• Case Study for Estate and Gift Tax Purposes. Ft. Lauderdale, FL,
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).FICPA Valuation,
• Case Study and
Accounting for Estate andServices
Litigation Gift Tax Purposes.
Conference, Ft.2006.
Lauderdale, FL, FICPA Valuation,
• Gary R. Trugman.
Accounting Essentials
and Litigation of Valuing
Services Held Business, American Institute
a Closely2006.
Conference,
• Report
of Writing.
Certified PublicLas Vegas, NV,2008.
Accountants, Valuation2, American Institute of Certified Public
2
• Report andLas
Writing.
Accountants Vegas,Society
American NV, Valuation , American
of Appraisers, 2006.Institute of Certified Public
• Shannon
Accountants Pratt. The Lawyer’s
and American SocietyBusiness 2006.Handbook, American Bar
Valuation
of Appraisers,
• ESOPs for 2010.
Association, Auditors. Las Vegas, NV, American Institute of Certified Public
• ESOPs EmployeeLas
for Auditors.
Accountants’ Vegas,
Benefit NV, American
Conference, 2005. Institute of Certified Public
Accountants’ Employee Benefit Conference, 2005.
• Discount for Lack of Marketability. Orlando, FL, The Institute of Business Appraisers’
• Discount for Lack ofValuation
National Business Marketability. Orlando,2005.
Conference, FL, The Institute of Business Appraisers’
National Business Valuation Conference, 2005.
• The Market Approach to Business Valuation. Ft. Lauderdale, FL, Florida Institute of
• The Market
Certified Approach
Public to Business
Accountants’ Valuation.
Valuation Ft. Lauderdale,
& Litigation FL, Florida Institute
Services Conference, 2005. of
Certified Public Accountants’ Valuation & Litigation Services Conference, 2005.
• Meet the Thought Leaders. Orlando, FL, American Institute of Certified Public
• Meet the Thought
Accountants National BusinessOrlando,
Leaders. ValuationFL, American 2004.
Conference, Institute of Certified Public
Accountants National Business Valuation Conference, 2004.
• Court Case Decisions: Okerlund and Blount. Telephone Conference, CPAmerica,
• Case Decisions: Okerlund and Blount. Telephone Conference, CPAmerica,
Court2004.
Inc.,
Inc., 2004.
• The Income Approach. Phoenix, AZ, American Institute of Certified Public
• The Income National
Accountants Approach. Phoenix,
Business AZ, Conference,
Valuation American Institute
2003. of Certified Public
Accountants National Business Valuation Conference, 2003.
• What’s Happening in the Courts? St. Paul, MN, Minnesota Society of CPAs, 2003.
• What’s Happening in the Courts? St. Paul, MN, Minnesota Society of CPAs, 2003.
• The Transaction Method - How Do You Really Use It? Overland Park, KS, Kansas
• The Transaction
Society 2003. - How Do You Really Use It? Overland Park, KS, Kansas
of CPAs,Method
Society of CPAs, 2003.
• Professional Practice Valuations. Miami, FL, The Florida Bar - Family Law Section,
• Professional
2003. Practice Valuations. Miami, FL, The Florida Bar - Family Law Section,
2003.
• Valuing Family Limited Partnerships. Las Vegas, NV, CPAmerica International, 2003.
• Valuing Family Limited Partnerships. Las Vegas, NV, CPAmerica International, 2003.
• Business Valuation: There’s a “Right” Way and a “Wrong” Way to Do It! Orlando, FL,
• Business
Florida Valuation:&There’s
Accounting a “Right”
Business Expo,Way
2003.and a “Wrong” Way to Do It! Orlando, FL,
Florida Accounting & Business Expo, 2003.
• Business Valuation Basics. Miami, FL, Florida International University, 2003.
• Business Valuation Basics. Miami, FL, Florida International University, 2003.
• Valuing Family Limited Partnerships. Fort Lauderdale, FL, Fort Lauderdale Tax
• Valuing
PlanningFamily
Council, 2003. Partnerships. Fort Lauderdale, FL, Fort Lauderdale Tax
Limited
Planning Council, 2003.
• To Tax or Not to Tax? Issues Relating to S Corps and Built-In Gains Taxes.
• To Tax or Not
Washington, DC,toInternal
Tax? Revenue
Issues Relating
Service,to2003.
S Corps and Built-In Gains Taxes.
Washington, DC, Internal Revenue Service, 2003.
• Fundamentals of Valuing a Family Limited Partnership. Ft. Lauderdale, FL, Florida
• Fundamentals
Institute of Valuing
of Certified PublicaAccountants,
Family Limited Partnership. Ft. Lauderdale, FL, Florida
2003.
Institute of Certified Public Accountants, 2003.
-- 53
47
47 -- Appendix 3
Appendix 3
LINDA B.
LINDA B. TRUGMAN,
TRUGMAN, C.P.A./A.B.V.,
C.P.A./A.B.V., M.C.B.A.,
M.C.B.A., A.S.A.,
A.S.A., M.B.A.
M.B.A.
PROFESSIONAL QUALIFICATIONS
PROFESSIONAL QUALIFICATIONS
Lecturer
Lecturer Reviewer
Technical
•• Valuation
Gary of
of FLPs
FLPs and
R. Trugman.
Valuation LLCs. Neptune,
LLCs.
Understanding
and NJ,
NJ, Estate
Business
Neptune, and
and Financial
Valuation:
Estate Planning
A Practical
Financial Guide to
Planning Council of
Valuing
Council of
Central
Small Jersey,
to 2002.
Medium-Sized
Central Jersey, 2002. Businesses, American Institute of Certified Public
•• Accountants, FirstFLPs
Edition (1998) SecondVegas,
Edition (2002), Third Edition (2008).
Fundamentals
Fundamentals of of FLPs and FLLCs. Las
and FLLCs. Las Vegas, NV,
NV, American
American Institute
Institute of
of Certified
Certified
• Public
Gary Accountants,
PublicR.Accountants, 2001.
Trugman. Essentials
2001. of Valuing a Closely Held Business, American Institute
•• of Certified Public Accountants, 2008.
Market
Market Data Method. Las
Data Method. Las Vegas,
Vegas, NV,
NV, American
American Institute
Institute of
of Certified
Certified Public
Public
• Accountants,
Shannon
Accountants, 2001.
Pratt. The Lawyer’s Business Valuation Handbook, American Bar
2001.
•• Association, 2010.
The
The FLP
FLP Written Report. Orlando,
Written Report. Orlando, FL,
FL, The
The Institute
Institute of
of Business
Business Appraisers,
Appraisers, 2001.
2001.
•• What’s
What’s Happening
Happening in
in the Courts? Ft.
the Courts? Ft. Lauderdale,
Lauderdale, FL,
FL, Florida
Florida Institute
Institute of
of Certified
Certified
Public
Public Accountants,
Accountants, 2001.
2001.
Instructor
Instructor
•• Introduction
Introduction to
to Business Valuation, American
Business Valuation, American Institute
Institute of
of Certified
Certified Public
Public Accountants,
Accountants,
Roseland, NJ, 2010.
Roseland, NJ, 2010.
•• AICPA
AICPA National
National Business
Business Valuation School, American
Valuation School, American Institute
Institute of
of Certified
Certified Public
Public
Accountants, Chicago, IL, 2009, Atlanta, GA, 2010.
Accountants, Chicago, IL, 2009, Atlanta, GA, 2010.
•• Essentials
Essentials of
of Business Appraisal. The
Business Appraisal. The Institute
Institute of
of Business
Business Appraisers,
Appraisers, Ft.
Ft.
Lauderdale, FL, 2008.
Lauderdale, FL, 2008.
•• Principles
Principles of
of Valuation:
Valuation: Business
Business Valuation
Valuation Case Study. American
Case Study. American Society
Society of
of
Appraisers,
Appraisers, Chicago, IL
Chicago, IL 2007, 2008; Arlington, VA 2008, Manhattan Beach, CA,
2007, 2008; Arlington, VA 2008, Manhattan Beach, CA,
2010.
2010.
•• Principles
Principles of
of Valuation:
Valuation: The
The Market Approach. American
Market Approach. American Society
Society of
of Appraisers,
Appraisers,
Herndon,
Herndon, VA 2006, 2007; Brooklyn, NY 2007; Manhattan Beach, CA, 2008; Atlanta,
VA 2006, 2007; Brooklyn, NY 2007; Manhattan Beach, CA, 2008; Atlanta,
GA, 2009.
GA, 2009.
•• Business
Business Valuation
Valuation Essentials:
Essentials: Reports,
Reports, Standards
Standards and
and Tax Valuations. American
Tax Valuations. American
Institute of Certified Public Accountants, Tennessee, 2006.
Institute of Certified Public Accountants, Tennessee, 2006.
•• Business
Business Valuation
Valuation Essentials:
Essentials: Valuation
Valuation of
of Specialized Areas. American
Specialized Areas. American Institute
Institute
of Certified Public Accountants, Rhode Island, 2006; Tennessee, 2006.
of Certified Public Accountants, Rhode Island, 2006; Tennessee, 2006.
•• Business
Business Valuation
Valuation Essentials
Essentials Case Study. American
Case Study. American Institute
Institute of
of Certified
Certified Public
Public
Accountants, Rhode Island, 2006; Tennessee, 2006.
Accountants, Rhode Island, 2006; Tennessee, 2006.
•• Business
Business Valuation
Valuation Essentials:
Essentials: Income
Income Approach
Approach and
and Cost
Cost of Capital. American
of Capital. American
Institute of Certified Public Accountants, Georgia, 2005, 2006.
Institute of Certified Public Accountants, Georgia, 2005, 2006.
•• Business
Business Valuation
Valuation Essentials: Introduction. American
Essentials: Introduction. American Institute
Institute of
of Certified
Certified Public
Public
Accountants, Georgia, 2005, 2006; North Carolina, 2006.
Accountants, Georgia, 2005, 2006; North Carolina, 2006.
48 -
- 53 Appendix 3
InstructorReviewer
Technical
• Gary
SmallR. Trugman.
Business Understanding
Valuation: A RealBusiness
Life CaseValuation: A Practical
Study. American GuideoftoCertified
Institute Valuing
Small to Medium-Sized Businesses, American Institute of Certified
Public Accountants, Iowa, 2005; Indiana, 2005; Florida, 2006; New Jersey, 2009. Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
• Business Valuation Essentials: Market Approach and Discounts and Premiums.
• Gary R. Trugman.
American Institute Essentials
of CertifiedofPublic
Valuing a Closely Held
Accountants, Business,
Florida, American Institute
2005; Tennessee, 2006.
of Certified Public Accountants, 2008.
• Valuation of Specialized Areas. Financial Consulting Group, Georgia, 2005.
• Shannon Pratt. The Lawyer’s Business Valuation Handbook, American Bar
• Valuing Family Limited Partnerships. Rhode Island Society of CPAs, Rhode Island,
Association, 2010.
2004.
• Report Writing. Rhode Island Society of CPAs, Rhode Island, 2004.
• Principles of Valuation: The Income Approach. American Society of Appraisers,
Illinois, 2004.
• Valuing Goodwill and Intangible Assets. American Institute of Certified Public
Accountants, New Jersey, 2004, Iowa, 2005.
• Small Business Valuation Case Study: Let’s Work Through the Issues! American
Institute of Certified Public Accountants, New Jersey, 2004.
• Small Business Case Study. The Institute of Business Appraisers, Inc., Florida,
2004.
• Valuing Family Limited Partnerships. The Institute of Business Appraisers, Inc., New
York, 2003, Florida, 2005.
• Principles of Valuation: Introduction to Business Valuation - Section A. American
Society of Appraisers, Illinois, 2003.
• Business Appraisal in Divorce. The Institute of Business Appraisers, Inc.,
Massachusetts, 2002; New York, 2003.
• Splitting Up is Hard to Do: Advanced Valuation Issues in Divorce and Other Litigation
Disputes. American Institute of Certified Public Accountants. Atlanta, GA, 2002;
Louisville, KY, 2002.
• The Nuances of Appraising Interests in Family Limited Partnerships. 2002 Annual
Business Valuation Conference, Washington, DC, The Institute of Business
Appraisers, 2002.
! Financial Statements in the Courtroom (Business Valuation Component). American
Institute of Certified Public Accountants for the National Judicial College. New York,
2001; California, 2002.
! How to Write Business Valuation Appraisal Reports. The Institute of Business
Appraisers, Inc. Missouri, 2001; Massachusetts, 2002.
49 -
- 53 Appendix 3
InstructorReviewer
Technical
•! Gary R. Trugman.
Application of the Understanding Business
Market Approach. TheValuation:
Institute ofA Business
Practical Guide to Valuing
Appraisers, Inc.
Small to Medium-Sized
Missouri, 2001. Businesses, American Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
! Fundamentals of Business Appraisal. The Institute of Business Appraisers, Inc.
• Gary R. Trugman.
Missouri, 2001. Essentials of Valuing a Closely Held Business, American Institute
of Certified Public Accountants, 2008.
! Preparing for the Certified Business Appraiser Written Exam. The Institute of
• Shannon Pratt. The Inc.
Business Appraisers, Lawyer’s Business2000;
Massachusetts, Valuation
Florida,Handbook,
2005. American Bar
Association, 2010.
! Preparing for AICPA’s Examination Review Course. American Institute of Certified
Public Accountants. North Carolina, 2000; Illinois, 2000, 2008, 2009; Maryland,
2001; Minnesota, 2001; Indiana, 2002; New York, 2003, 2004, 2005, 2007; Georgia,
2004; Florida 2004, 2008; Rhode Island, 2005; Connecticut 2006; Texas, 2009.
! Fundamentals of Business Valuation - Part 2. American Institute of Certified Public
Accountants. Kansas, 2000; Minnesota, 2001; North Carolina, 2002; Maryland 2004.
! Fundamentals of Business Valuation - Part 1. American Institute of Certified Public
Accountants. Kansas, 2000; Texas, 2000; California, 2001; New York, 2001; Florida,
2004.
! Business Valuation Approaches and Methods. Oregon, 2000; Ohio, 2000.
Author
! The Valuation of FLPs: What Does the Tax Practitioner Need to Know? The Tax
Advisor, AICPA (Vol. 41, No.1) January 2010: 38-45.
! Can Your Appraiser Support Her Discounts, Valuations Plus, Summer 2009.
! Are Family Limited Partnerships and LLCs Still Viable Planning Tools?, Valuations
Plus, Winter 2008.
! Does Your Valuation Professional Qualify as a Qualified Appraiser?, Valuations Plus,
Winter 2007.
50 -
- 53 Appendix 3
Author Reviewer
Technical
•! Gary
If YouR.Buy
Trugman.
or SellUnderstanding
Shares of theBusiness
Company,Valuation:
With theA Agreement
Practical Guide to Valuing
Withstand the
Small to Medium-Sized Businesses, American
Scrutiny of the IRS, Valuations Plus, Summer 2007. Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
! Should Your Appraiser Tax-Effect an S Corporation? Valuations Plus, Winter 2007.
• Gary R. Trugman. Essentials of Valuing a Closely Held Business, American Institute
! Debt vs. Equity: How Do You Know? Valuations Plus, Fall 2006.
of Certified Public Accountants, 2008.
! Using Subsequent Information: What Was Known or Knowable?, Valuations Plus,
• Shannon Pratt. The Lawyer’s Business Valuation Handbook, American Bar
Spring 2005.
Association, 2010.
• Co-author of Financial Valuation: Applications and Models 1st edition, Wiley Finance
(2003) and 2nd edition (2006).
• Co-author of course entitled Splitting Up is Hard to Do: Advanced Valuation Issues
in Divorce and Other Litigation Disputes. American Institute of Certified Public
Accountants (2002).
• Course entitled Fundamentals of Business Appraisal. The Institute of Business
Appraisers, Inc.(2000).
Organizations
• The Institute of Business Appraisers, Inc.
• American Society of Appraisers
• American Institute of Certified Public Accountants
• New Jersey Society of Certified Public Accountants
• Florida Institute of Certified Public Accountants
Committee Service
• Co-Chair - 2010 ASA-CICBV Joint Business Valuation Conference, American Society
of Appraisers.
• Secretary - Business Valuation Committee. American Society of Appraisers.
• Chair - Business Valuation Education Committee. American Society of Appraisers.
• Secretary - ASA Educational Foundation. American Society of Appraisers.
• Governor at Large, The Institute of Business Appraisers.
• Business Valuation/Forensic & Litigation Services Advisory Board to the Journal of
Accountancy. American Institute of Certified Public Accountants.
• Vice Chair - Relations with the Florida Bar Committee. Florida Institute of Certified
Public Accountants.
51 -
- 53 Appendix 3
Past Committee
Technical Service
Reviewer
• Gary
ChairR. Trugman.
- 2009 Understanding
Valuation Forensic andBusiness Valuation:
Litigation A Practical Guide
Services Conference, to Institute
Florida Valuing
Small to Medium-Sized Businesses,
of Certified Public Accountants. American Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
• Business Valuation/Forensic & Litigation Services Executive Committee. American
• Gary R. Trugman.
Institute Essentials
of Certified of Valuing a Closely Held Business, American Institute
Public Accountants.
of Certified Public Accountants, 2008.
• Business Valuation Committee. American Institute of Certified Public
• Shannon
Accountants. Pratt. The Lawyer’s Business Valuation Handbook, American Bar
Association, 2010.
• Chair - 2002 AICPA Business Valuation Conference. American Institute of Certified
Public Accountants, Member of Committee for 2001 and 2009 Conferences.
• International Board of Examiners. American Society of Appraisers.
• Qualifications Review Committee. The Institute of Business Appraisers, Inc
• Joint AICPA/ASA 2005 Conference Committee. American Institute of Certified Public
Accountants.
• Steering Committee of Valuation Forensic and Litigation Services Section. Florida
Institute of Certified Public Accountants.
Editor
• Former Editor of the AICPA ABV E-Alert.
• Editorial Board of Financial Valuation & Litigation Expert, Valuation Products &
Services, LC.
• Former Editorial Advisor for BV Q&A, Business Valuation Resources, Inc.
• Former Editor of Business Appraisal Practice, The Institute of Business Appraisers,
Inc.
Professional Achievements
• Presented with the “Jerry F. Larkins Volunteer Service Award 2009-2010" by the
American Society of Appraisers for exception, devoted and invaluable volunteer
service to the American Society of Appraisers.
• Presented with the “Hall of Fame Award” by the American Institute of Certified Public
Accountants in 2009 for outstanding service the goals of the business valuation
profession.
• Presented with the “Volunteer of the Year Award” by the American Institute of
Certified Public Accountants in 2008 for outstanding service the goals of the business
valuation profession.
52 -
- 53 Appendix 3
Professional
Technical Achievements
Reviewer
• Gary R. Trugman.
Presented with theUnderstanding
“Fellow Award”Business Valuation:
by The Institute A PracticalAppraisers,
of Business Guide to Valuing
Inc. in
Small to Medium-Sized Businesses, American
May 2002 for contributions made to the profession. Institute of Certified Public
Accountants, First Edition (1998)- Second
53 - Edition (2002), Third Edition (2008).
Appendix 3
• Instructor of the Year Award - The Institute of Business Appraisers.
• Gary R.B.
LINDA Trugman. Essentials of Valuing a Closely Held Business, American Institute
• Winner of TRUGMAN, C.P.A./A.B.V.,
the J. H. Cohn Award in 1987 for M.C.B.A.,
outstanding A.S.A.,
performanceM.B.A.
on the C.P.A.
of Certified Public Accountants, 2008.
PROFESSIONAL QUALIFICATIONS
licensing examination.
• Shannon Pratt. The Lawyer’s Business Valuation Handbook, American Bar
TechnicalAssociation,
Reviewer 2010.
• Gary R. Trugman. Understanding Business Valuation: A Practical Guide to Valuing
Small to Medium-Sized Businesses, American Institute of Certified Public
Accountants, First Edition (1998) Second Edition (2002), Third Edition (2008).
• Gary R. Trugman. Essentials of Valuing a Closely Held Business, American Institute
of Certified Public Accountants, 2008.
• Shannon Pratt. The Lawyer’s Business Valuation Handbook, American Bar
Association, 2010.
- 54 - Appendix 3
WILLIAM HARRIS
PROFESSIONAL QUALIFICATIONS
Experience
Valuation Analyst at Trugman Valuation Associates, Inc. specializing in business valuation.
Experience includes a variety of assignments including closely-held businesses, professional
practices and thinly traded public companies. Industries include, health care, retail,
manufacturing, distributors, and service.
Business valuation services have been rendered for a variety of purposes including, but not
limited to business damages, estate and gift tax matters, and family law matters.
Education
• M.S., Finance, Chapman Graduate School of Business at Florida International University,
2007.
• B.S., Business Administration, Belk College of Business at the University of North
Carolina at Charlotte, 2006.
Appraisal Education
• AICPA National Business Valuation Conference, AICPA, San Francisco, CA, 2009.
• The Market Approach, Skokie, IL, American Society of Appraisers, 2009.
• The Income Approach, Orlando, FL, American Society of Appraisers, 2009.
• Introduction to Business Valuation, Minneapolis, MN, American Society of Appraisers,
2008.
• CFA Candidate, Passed Level 1 and Level 2 of the Chartered Financial Analyst
Curriculum.
Author
• Author of “Trugman Valuation Associates, Inc. (TVA) Restricted Stock Study,” Business
Valuation Review (Fall 2009).
• Co-Author of “How Should You Value Closely Held Businesses During These Crazy
Times?,” Business Valuation Update (August 2009).