Case Requirements: You have been hired to prepare a business valuation for Branson Trucking Company at the time Dave James (co-owner) left the company. You are to prepare a communication to the remaining owners of the Branson Trucking Company that addresses the following items: 1. The value of the business at the time of Dave lames departure from the business. 2. The value of Dave James' shares of ownership at the time he left the business. 3. List and explain any limitations in your report with respect to the valuation. 4. Include a brief paragraph that discusses your valuation of the business had you been hired by Dave James as opposed to the Branson Family. 5. Attach exhibits that support your business valuation. The valuation should include a detail of assumptions used in the valuation. This report is to be a written report addressing questions 1 - 4 with a minimum of one attached exhibit supporting your business valuation. CASE STUDY 21 Business Valuation of Branson Trucking Company Lester Heitger, Ph.D., CPA LEARNING OBJECTIVES After completing and discussing this case, you should be able to - Develop a business valuation plan. - Analyze the differences between a plaintiff and defendant valuation report. Business valuation. The Branson Trucking Company was started by three broth- crs in Columbus, Ohio in 1977. In 1982. Dave James came into the company primarily for marketing and growth purposes. Soon Dave showed that he was effective at increasing business and making deals that caused the company to grow significantly. Within 10 years, Branson trucking was one of the major regional carriers in the central Midwest. Over the years, the Branson brothers gave stock options to Dave James to keep him happy with the firm and to reflect his contributions to the firm's growth and general success. Dave exercised these options over time, and by 1995, the three Branson brothers and Dave James each owned 25 percent of the stock of the Branson Trucking Company. By the late 1990s, two of the Branson brothers wanted to bring children and their spouses into the trucking business. The role that these new family members would play in the business created significant discussions and some strifc. Dave James in particular was opposed to bringing in family members. Dave threatened to leave, and some of the Bransons thought that was a good idea. After several months of negotiations, it was agreed thar Dave James would receive one year's severance pay, and the three Branson brothers would buy his stock in the company at its fair value. At the end of 2011. Dave James resigned from the trucking company. Branson Trucking Company is a dosdy held company that does not trade in any market. The only stock sales have been directly from the company to the original holders of the stock. Below are income statements for the Branson Truck ing Company for the years 2007-2011. The Branson Trucking Company financial statements are prepared by the Black & Blue CPA Group directly from Branson's 146 Case Studies in Forensic Accounting and Fraud Auditing accounting data. This accounting firm ako prepares all of the Branson Truck ing Company's tax returns. The financial statements are prepared directly from Branson Trucking's accounting data and are not audited by any accounting fum. Dave James received severance pay of $125.000. He is currently employed in a similar marketing position carning $135.000 a year. During the 2007-2011 time period, the average price carnings ratio for similar trucking firms that were traded in open markets were 9. 11. 12. 10, and 8, respectivdy for the five year period. Branson Trucking Company's net income for the years 2012-2013 was $450,000 and 5690,000. respectively, for the two year period. Below is an ap- praisal of the Branson Trucking Company's assets as of December 31, 2011. At that time the firm's total liabilities were $5.100.000. You are hired as a forensic accounting expert. Prepare a business valuation for the Branson Trucking Company at the time that Dave James left the business. Determine what the shares of Dave James were worth at the time of his depar- ture from the company. What limitations, if any, will you list in your report in connection with your valuation of this business? Would your valuation of the business or of the valuc of Dave James's share in the business change depending on whether you were hired as an expert by Dave James or the Branson Family? Dan Willens, Appraiser 4610 E. Washington Street Columbus, Ohio 43218 Ar your request, I have appraised the non-financial assets of the Branson Truck ing Company as of December 31, 2011. In arriving at my valuations of these assets I used industry trade data, aper evaluations, and other sources of valuations, as 1 deemed appropriate under the circumstances. Below is a summary of the results. Guru Cash 210,000 690,000 M5,000 Acounts Recent new and Supplies Prepaid Experts Fixed 141.000 S94.000 650,000 2.9.20.000 230.000 7.800.000 Bulding Fres Holling Stod Investments Bond Sinking Fund Common Stock of dierum Total Vie 340.000 $9.000 0.000 Business Valuation of Branson Trucking Company 947 UNAUDITED Branson Trucking Company Income Statement For the Year Ended December 31, 2007 Sales $17281,000 562000 Less Sales Allowances Net Sales Cost of Sales $16.719.000 12617000 Cross Profit 102.000 4886.000 (784,000) Operating pences Operating Income (Loss) Other Income Cain (lous) on Sale of Assets Income (Les) Before Taves Income Taxes Net Income Loss $38.000 (196.000) . S019600 Branson Trucking Company Statement of Retained Earnings Fort Year Ended December 31, 2007 $145,000 Being Headings Income for the year Wings 512000 148 Case Studies in Forensic Accounting and Fraud Auditing UNAUDITED Branson Trucking Company Income Statement For the Year Ended December 31, 2008 $20.321,000 768.000 Silos Less Sales Allowances Net Sales $19.553.000 12977000 6,576,000 6894000 (318,000) Cost of Sales Gross Profit Operating Expenses Operating income (Loss) Other Income Gain (Loss) on Sak of Assets Income (Loss) Before Taxes come Taxes 671.000 353,000 15.000 5338.000 Net Income Ross Branson Trucking Company Statement of Retained Earnings For the Year Ended December 31, 2008 Retained Earnings $1.250,000 Net Income 2800 1598.000 Less Dividends 120.000 $147200 Retained Earning p. 140 Business Valuation of Branson Trucking Company 149 UNAUDITED Branson Trucking Company Income Statement For the Year Ended December 31, 2009 Sales $22.149,000 Less Sales Allowances 883000 Net Sales Cost of Ses $27.266,000 14122000 214.000 Gross Profit 6452000 692,000 254.000 Operating Expenses Operating Income (Loss) Other Income Gain (Loss) on Sale of Asas" Income (Loss) Before Taxes Income Tawe Net Income foss Switched from ACR (tan) depreciation to straght-line depreciation 946,000 26.000 5660.000 Branson Trucking Company Statement of Retained Earnings For the Year Ended December 31, 2009 Retained Emnings Net Income 51,478,000 660.000 2,138.000 400.000 Les Ordens Meg 51280 150 Case Studies in Forensic Accounting and Fraud Auditing UNAUDITED Branson Trucking Company Income Statement For the Year Ended December 31, 2010 529.258.000 16.000 Sales Less Sales Allowances Net Sales $28.072.000 20346000 Cost of Sales Cross Profit 7225.000 5485.000 1.238.000 Operating Expenses Operating income (Loss) Other Income Gain (los) on Sale of Assets Income (Los) Before Tan Income Taxes Net Income Los 254.000 1.492000 665.000 5827000 Branson Trucking Company Statement of Retained Earnings For the Year Ended December 31, 2010 Retained ang Net Income SU3000 27.000 2.565,000 500.000 $2.0650 Less Dividends Retired Earnings pl Business Valuation of Branson Trucking Company 151 UNAUDITED Branson Trucking Company Income Statement for the Year Ended December 31, 2011 53460,000 2407000 Skes Less Sales Allowances Net Sales $32.202000 21.677000 Cost of Sales Gross Profit 10.526, 000 8738.000 1788,000 Operating Expenses Operating Income (Loss) Other Income Gain (Loss) on Sale of Assets Income (Les) Before awes Income Taxes Net Income (Loss) 344.000 2.132.000 960.000 52172.000 Branson Trucking Company Statement of Retained Earnings For the Year Ended December 31, 2011 Retained Earning Net Income $2.065.000 1172.000 3.237000 Less Dividends 800,000 $242700 Retained Emp