*1 1077 and it is is void Finding Association American Home with the to the returned Larry, is to be child, hereby annulled. court’s order to the'trial pursuant worker custody of the social custody temporary his providing for and emergency existed plain- as this trial court insofar hearing. Hearing pending counsel plaintiff’s notice to shall be set tiff is concerned twenty days after the issuance sooner than but not record agreed. Rule Rules unless otherwise procedendo, annulled sustained, proceedings below Procedure. —Writ Civil as indicated.
All Justices concur. Trust Fred W. Woodward al., et trustees of F. W. Woodward Margaret M. 2, appellants, v. Trust No. No. cross-appellant. appellee Quigley, No. 51390. 280) 136 N.W.2d in 133 N.W.2d
(Reported *3 February 9, 1965. Supplemental Opinion Rehearing (on point) one 30, 1965.
June *4 Clewell, Cooney Fuerste, & Dubuque, appellants. of for O’Connor, Thomas, Dubuque, Wright, McDermott & of for appellee.
1081 corporate Telegrapb-Herald, life a of J.—The Stuart, expire Iowa, 31, to newspaper Dubuque, in was due December on a meeting 9, 1960, June special 1961. At a stockholders’ by of duly majority all the stockhold- adopted resolution corporate perpetually. 1200 extending the existence Of the ers outstanding of voted in favor of the renewal shares stock all except Section 491.25 of the the 379 owned defendant. shares provides part: Code
“In all of for renewal, voting cases those stockholders such against purchase renewal real stock voted must at its value the renewal, years such and shall have three the date such for purchase pay action which renewal was taken in to against renewal, purchase the stock voting price shall such percent per bear interest at the rate of five annum from the date such action paid.” renewal until recognize obligation purchase Plaintiffs their the stock statute, under this parties but on agree have unable to been brought “real value” defendant’s stock. This action was by the majority to secure a court determination of stockholders “real its value”. The trial court established value of $1750 share and parties appealed. both have v. Beatty, 80, 18, Robbins Iowa 12, N.W.2d we
define “real value” value, as the “intrinsic determined from a every bearing consideration of question relevant factor on the of value”, including paid, security “the of dividends rate afforded that regularly paid, possibility dividends will be dividends will be diminished, increased or size ac cumulated surplus applicable payment dividends, record the corporation, prospects future, its selling price character, stocks like assets, value of its book values, market conditions, reputation corporation. It is unwise to attempt every to state may factor that bear value of stock particular case.”
I. The three standards that have received uni almost recognition versal appraising the intrinsic under statutes type (1) of this are the stock market value of (2) net asset value of the corporation, (3) value. investment Cyclopedia Corporations Fletcher seq. section 5899 et
1082 in con-
“All factors” referred to the Robbins case can be relevant one or more of these three standards. under sidered stock, possible Market if it is to establish value through open market, factor consid value on the is a to be sales ered, guide worth. dependable but not too as a to intrinsic is subject many fluctuation for reasons other price The market to or the condition of the cor than the worth the stock intrinsic any particular case, no poration. In this there is evidence of admittedly market and no market open sales in This value for stock was established. standard will not be considered here. in
II. While most courts consider “net asset value”
at
tempting
stock,
to arrive at the real
there are wide
computed.
way
it is defined and
Fletcher
differences
de
represents
fines
term as “the
which the stock
in the
share
corporation.
value of the net assets of the
It is a value based
hypothetical
corporate
on a
dissolution and distribution of the
assets, and
appraisal
is one
the factors
be considered
an
proceeding.”
Cyclopedia Corporations 339,
13 Fletcher
section
Michigan
5899.2.
55
692.
See also
Law Review
The Dela
rejected
Supreme
flatly
Court
it
ware
states
has
the dissolution
arriving
corporate
requires
method of
at net value of
assets and
“going
them to be
as
Anderson,
valued
concern”. Felder v.
Clayton Co.,
However,
&
39 Del. Ch.
The co-urt then *6 replacement the cost and by computing at rived “sound value” sufficiently “sound value” was said depreciating it. The court Depreciated replace- warrant its use. close to “actual value” to “going a the value of the assets on place ment cost does not concern” basis. City Stores, Sporberg Specialty court in v.
The Delaware 126, accepted a Inc., Del. 123 A.2d valuation Ch. esti- upon capitalization the real estate which was based valuation percent. This is not a mated net rental income at six accessories) but going (ladies’ apparel and part of a concern property property. as rental valuation of the perceive going how a concern valuation We are unable to earnings. Capitalization of being by can influenced avoid rejected widely to most earnings which seems be the Delaware going Net recognized valuing assets of a concern. method of earnings. by asset not influenced We therefore value should be by prefer determining method of net asset value Fletcher minority protection to the valuing the assets as such. This offers corporation poor earnings stockholder in a with a record. going might such instance the value as a concern be less than It dissolution value of the assets. would not be fair to limit minority by poor earnings, interest to a value influenced minority might prefer liquidate when the to and convert the cash, majority assets into and at in place the same time position liquidate where it could later receive entire greater liquidation benefit will, value. Net value in asset instances, importance most be of far less than the investment stock, value of the because the real value of the stock is still to going However, be determined as in a concern. net asset value by as defined weight Fletcher is a factor to be considered. The given depend upon be this factor will the facts each case. We do not find very the evidence here on the net asset value satisfactory. depend upon Plaintiffs the evidence of Mr. James P. Appraisal McKean of the American Company which he expresses opinion his as to the “real value” of the assets of the corporation. though Even appraisal there is a detailed assets, physical testimony his reveals that his real value was limited, percent. six the.value, 'earnings.capitalized at tbe oí n (cid:127) n (cid:127) , He..testified:, , . ; . : . n Telegraphy tbe net “My appraisal tbe real assets of. Herald, of; $1,649,307, if -amount of 9, I960, tbe as. June di- future, yield. income, would by $99,000, my estimated vided - Money tangible percent; about rate of return on assets of six Telegraph- very percent. Therefore tbe costs are close to six barely adequate tangible on their earns return asr He^ald sets.” - (cid:127) brought It Mr. on cross-examination that McKean’s out . only Telegraph-Herald building and lots was evaluation $50,000 upon placed than the more valuation his assistant they if were valued lots as were vacant. Other vacant lots McKean, considerably them than value placed less *7 stating: by by He the reduction- justified his assistant.. of, qf Telegraph- my opinion, “In tbe value the .assets .. real . Herald, earnings I960,, $1,649,307. of the 9, as of was The -June Telegraph-Herald.do support, higher valuation. Investors not purchase property higher not be attracted to this. would not price would earnings Telegraph:Herald of the .because give-the capital.” on their invested desired return (cid:127) (cid:127) (cid:127), upon earnings is proof his based that .valuation Further . my opinion “In in of KDTH: found his. evaluation radio.station going is in real of the radio-station as a excess value concern opinion I separate of the value of its reflect this evalu- assets. .To in intangibles KDTH ated the license other of radio station and. n ;(cid:127) .$97,000.” ; excess . , his, ,As .the;net assets,was:based corporate valuation upon,, to, capitalization earnings, we least- a. at. .limited or. reject .quoted it as did the reasons above Delaware court for the. their, opinion'in Felder case. the real appraisal-of offered a detailed Defendant personal property by and -Stevens of Chi estate Marshall cago. appraiser prop The arrived at the “sound value” erty .by deducting depreci .computing replacement cost and reached, this, approved figure, ation. A manner was which was in- case,, though the Felder even this method evaluation .was “Sound.-value”, approved. essentially not is insurance eon-
1085! experience' appraisers’: defendant’s A large-proportion-of cept. , .... . purposes. for insurance appraising inwasl -i'¡ -: is help-, -an of' assets suck evaluation -We do not believe that objective-is'to ascertain the. here. Our “real purpose ful for loses of his un the dissenter that which because worth of actual stockholders, is, controlling' that go along with the willingness .to Co., Transit 220 Md. indemnify him.” Warren v. Baltimore suggestion There is no .the. 796, A.2d 799. -It sold for the sound value. is common knowl could be property computed value thus almost- all instances' edge that sound as reason", property. .For- we the market value this exceeds a.proper accept sound value to' not .of do measure the.loss evidence, asset of.net value. There-was dissenter .the standard by. Telegraph-Herald .of the lots the. owned market-value , they vacant, buildings personal appraised were if but as: ' this, (cid:127) on basis. property valued were-not .. ... n particular not seriously In this ease-we are handicapped satisfactory .of net Here; evidence asset value. by the^absence instances, greater in- investment value is of much im most as- more-as; considerably worth portance. would going concern than the amount- which be .realized its liquidation of assets. The-extent which' its fixed assets present operation-can deficient for its and future are will-be determining the investment- value of considered -defendant’s- stock. a- turning
-III. Before to- discussion of the investment stock, dispose- we must- propositions of- defendant’s two. *8 plaintiffs by directly if urged affect s' value.-' real Plain witnessés arrived the tiffs’.-valuation real-value of-defendant’s an-opinion stock’by giving as to the value of-the stock'in the corporation per discounting share and then (1) that-value (2) because a broker’s commission defendant’s repre share minority a argue -interest. Plaintiffs sented these-are- ‘‘rele be determining factors” to considered real vant the value or corporation.’ worth of defendant’s share in'the intrinsic do We n - argument. agree not with-this : Defendant’s stock is-to “going- be valuéd as i-n-a con (cid:127) n We repeatedly urged Plaintiffs -this- propositioh.(cid:127) cern”. 'have-. arguments propositions departure their a believe these two are only in the principle. present from that These would be factors likely to event of a sale of stock and would therefore more be affect market than value. There investment is no to It was reason consider either of these factors here. neces- sary protect consider liquidation to value of the assets to the minority arbitrary by majority. from an action In these paid brokerage instances there are to in fact no commissions be majority subject a minor- handicaps will not be to ity by purchase. stockholder such a
We also believe that consideration of such factors negative would one of the main 491.25. The purposes section original statute was similar enacted in to those most states to modify required the common-law rule which unanimous consent of all the for a change corporate stockholders substantial in the structure. The corporations increase number and stock impracticable. holders made such rule a The statute was enacted permit majority to a to corporate vote to renew life and at dissenting minority same time allow a get to out of the cor poration with the “real value” of its stock. prevented It minority squeezed a being price. out lesser Supreme
The U. S. type Court discussed this statute in v. 535, Voeller Neilston Co., 531, Warehouse 311 U. S. 61 S. Ct. 377, 85 L. 322, 326, Ed. through speaking Justice Black said: law,
“At common pre- unanimous shareholder consent was requisite to changes corporation. fundamental in the This made arbitrary possible minority it for an to establish a nuisance value cooperate. situation, for its shares refusal to To meet the legislatures making changes by majority authorized This, however, opened vote. the door to victimization of the minority. dilemma, To permitting solve the statutes a dissent- ing minority to appraised recover the value of its shares were widely adopted.” Iowa, prior
In the statute as then worded and inter- required majority preted purchase the dissenter’s stock as precedent corporate to the of a condition issuance certificate majority renewal. those instances wdiere was unable to *9 purchase minority stock, finance the minority the the. inwas a position liquidation against majority. to force a the will of the Forty-fifth Assembly, 1933 the chapter 143, General sec- 1, attempted injustice tion to this by adding following correct the sentence: voting years
“Stockholders for renewal shall have three from the date such action for renewal was taken in which to purchase the against renewal, purchase voted such which price eight per shall bear interest at cent annum [now five] * * from the date of paid, such action renewal until
In State ex Shellsburg rel. Robbins v. Grain & Lumber Co., 243 734, 739, Iowa 145, 143, N.W.2d we discuss this * * * development historical saying: object “It is true the purchase minority clause in the is protect statute to stock against roughshod holder part majority tactics of a group.” We conclude that the 1933 to amendment “was enacted protect majority group in voting cor renewal porate charter. gave three-year period It to grace them within arrange payment which to of the real value stock, dissenters’ being judgments without harassed executions.”
We question do not here have a of the issuance of a cer- tificate of renewal by judgment or harassment or executions. We are concerned with the real value of defendant’s stock and the amendment did change not purposes the basic of the statute. majority given right corporation continue the return for the payment to minority of its fair share of the corporation. real value of the It contrary purpose to the the statute discount minority interest it because is a minority. This in effect would majority let the force the minor- ity paying out without it its fair share of the the cor- poration. eases have
No been say cited which outright that there should be no discount a minority because interest is involved. attention, however, Our has been directed to several eases hold, seem to so in effect. In American Corporation General v. Camp, 629, 171 Md. 637, A. Maryland court dissenting stated stockholder was entitled to receive *10 1088 would held shares of which-the .number
“the.aliquot proportion of the amount the net of distribution in the to receive be.entitled be would kind of particular stock his in funds corporate which .< share.” .- entitled 523, Ch. Battye, 31 Del. Corporation v. In Tri-Continental d: court sa i 71, 72, 76, Delaware A.2d the 526, 535, 74 is appraisal statute concept of value-under'-the . “The basic for, which-has. been paid that is to be that-the entitled stockholder going con- in a .viz., proportionate his him, interest taken * * value, stock, common there^ The cern ultimate General’s *.. which-could of:the-fair asset'value reason- percentage fore,-,is'the realized'-by,the some'time, -been to: ably expected, be have nn (cid:127) - '. common stockholder.” 2 Clay, 703, 717, N.W.2d v. 231 Iowa Bank First National fixing the an-arbitration real 85; to set aside award was an action stock,of fraud, grounds of minority the interest on value the Although point directly was not the and misconduct. mistake minority for a would be no discount involved, we assumed there all, figure “After share worth the we each interest when said: corporate property by the by dividing the net value found outstanding at the time of the arbitration.” total shares many have lack tax cases which considered the Plaintiffs--cite minority closely marketability!,of stock interest-in--a- held arriving in at- of- important factor the -value such corporation an is, purposes.. There no-doubt' .the.-market interest for tax average than the -minority interest is less value of such In majority interest is worth more. or that a share the stock it,is purposes proper necessary considering for tax the value minority is-a interest. statu- it The disco-unt'the value because minority in kind tory afforded the interest cases of the protection case, distinguishes As this from the tax cases. wé involved here protect minority designed to statute is above, have stated discounted;-value very result considerations from the minority By guaranteed -is '“real” cases. statute the in the tax - - - . . its stock. value-of , Clayton Co., v. & Del. cited Felder Plaintiffs Anderson apparently court 278, 285, A.2d in'-which the Ch. n n (cid:127) - average multiplier .percent discount from the approved a-ten marketability reasons, lack 'of “for such'ás the certain purpose interpretation stock, etc.”. view of position; court this statute, decline to follow the Delaware we- ' n approves such a discount. it, by- statement, if this to be Among IV. the factors considered determin ing value of defendant’s are shareholders’ the real equity corporation fairly or net worth of reflected on earnings corporation corporate past net as an books earnings. prospective parties 'disagreed indication of as' past earnings. to-both the correct net Worth We must there *11 figures opinion which fairly- fore determine most reflect earning capacity the corporation. net worth and the of the' disagreement parties between the the on amount the- of equity Telegraph-Herald I960,' in the shareholders’ June 9, opinion of of results from the difference the accountants for the- respective over the parties proper treatment of six-'items.' De- accepts the of Ernst; fendant balance sheet Ernst plaintiffs’ & accountants, exceptions: following with the $267,872.
(A) Goodwill, the- purposes For of this discus-' sion, this term is used to all intangibles include about which dispute. there The total up separate is a is made of three items. patents relating registers The cost of to hotel in the amount of purchased in printed $4865 and no longer by the newspaper promotion and circulation costs the in $160,845' amount of curred between 1901 and been 1918-had deducted as expenses from income tax returns. In 1925, approval with the the Department of Internal Eevenue, they capitalized' were to- dé-' profits crease the World War I excess tax dependent' which was capital the structure company. prior' The' returns were amended out to'-take the "previously amounts included'as expenses. The third item was excess cost 'subsequent over the price sales acquired of assets from' the Times-Journal in 1927 $102,522. the amount When purchased;'the Times-Journal operating loss, was at acquisition' however the' of 'the 'assets corporation the Telegraph-Herald left daily only as the newspaper published in Dubuque: The-tangible'assets all' were n only subscription sold or list circulation structufé ' figure retained. The $102,522 representé pr'emiuih by páid monopo subscription list and for the on the com assets were carried items These position.
listic had recom Ernst Ernst & 1960. July 18, until pany’s books year had 1959 and in the audit elimination their mended com not made were which adjusting entries furnished that date. pany until sheet on a balance to settle here is interest
Our It newspaper. financial condition fairly reflects no product for a expired patent how for us to see difficult 1920, and occurring before promotion longer printed, circulation financial enhance the years old can subscription list over properly re were specific items paper. These condition the Tele & Ernst first audited Ernst the books. moved this and felt eligibility for a loan its to determine graph-Herald deceiving It would also be loaning agency. mislead item would say not to that the news This is purchaser. prospective ato subsequent evaluations will value, as the intangible no paper has by other means matter to be determined disclose, this is a but condition the financial intended reflect sheet than a balance fairly represented by good its books. These company as excluded. properly items were will regulations tax Under income bad debts, (B) $9993. Bad directly by setting charged off or handled may either be debts *12 1960, company 9, the used the direct Prior to June up a reserve. in in charge-off $2886 method which varied amount 1960, prior 9, In to the accountants in 1958. June $480 to up and in in accounts receivable addition set charged $4100 off year for in fact totaled $10,000 reserve. Bad debts the whole a As duplication is a is excessive. only The reserve and $3902. $7, in about the cur- account the amount of was a reserve there by $9993. were understated assets rent In the sharing contribution, $8044. Profit October 1960 (C) voluntarily profit sharing plan created a newspaper which was year. the first of the newspaper’s made retroactive to ac- portion prorated year the cost over that of pre- countants the ceding 1960, striking in its 9, June balance. the first instance proper prorate cost, holding it seems to the but such a would voluntarily being in able to place management position the pur- valuation for the the date which create liabilities after thereby the net are to be made reduce poses this statute retroactively. particularly This is true a worth the liability in bene- management such as which will share the this by The current liabilities should be' reduced $8044. fits. contribution, 1960, (D) 9, After $4469. Charitable June in an newspaper the made contributions to its foundation amount, prorated, 9, 1960, when reduced June the balance sheet by surplus profit sharing entry This item is to $4469. similar the subsequent reducing results act the net retro- worth actively. is, however, history of There giving charitable over years the period pre- amount to be in seems with line gifts. We hold this contribution is nature of an vious expense properly prorated. be can Defendant accrued prepared newspaper by that the balance sheet comments August & Ernst on Ernst did not such accrual. show However, completed prior the audit was in October to the time actually properly the contribution was made. This item was in the Ernst & Ernst included balance sheet.
(E) interest, Accrued The newspaper $2482. listed the David promissory Smith, employee, note of L. an asset, an did not interest in $2482, claiming but accrue the amount of it by been had waived officers. It would not proper be to allow company officers of the to waive interest and reduce the net company, nor appear worth does it that a occurred waiver September 28, 1960, in fact. On Smith wrote a letter officer company acknowledged in which paper he owing “principle” which $21,032 is the face amount of plus note by interest. Investment assets accrued should be $2482. increased (F) Subscription liability by $35,666. overstated The Ernst liability paid & Ernst balance shows a subscriptions sheet $68,587.87. pay- in the total amount of represents advance This unexpired subscriptions. mail subscribers on ments Defend- liability argues by $35,666 ant should be reduced which is percent already tax rate on the amount which has been liability. and is as a agree. accrued shown We at- Plaintiffs tempt justify figure by saying this is the amount which *13 newspaper must be refunded to customers if the out of went 1092 any paid This is not accurate because amount would
business. expense and a credit be received from be deductible as would In addition government at the current tax rate. the balance prepared going judgment concern. In sheet should be as a liability duplication this is a of a which results the overstate- by $35,666. of the current liabilities ment summary believe the financial Tele- we condition fairly represented by making following most graph-Herald is adjustments to the Ernst & Ernst balance sheet dated June plaintiffs’ K. 1960, known as exhibit
Assets 932,299 .$ Current assets (1) Increased reduction of 9,993 Bad . Debt Reserve Adjusted total of current 942,292 assets.$ & Other 146,391 Assets.$ Investment (2) Increased by accrued interest on D. L. 2,482 Smith note.
Adjusted total 148,873 . Property, plant equipment. 600,458 adjusted.$ Total assets as 691,623
Liabilities Current liabilities . 265,383 $ Adjusted by: (3) profit Elimination sharing plan contribution 8,044 .$ (4) subscrip- Overstatement of liability tion . 35,666 43,710
Adjusted current ..... liabilities 221,673 ..$ equity Stockholders 1,413,765 $ — Adjustments 1 co co (cid:127)se- — oo fco —3 m*. — 56,185 as c* co Adjusted equity stockholders 1,469,950 . 1,691,623
$ *14 great are of earnings The V. For determining the value of defendant’s stock. importance in they represented fairly accurately as should be that reason about important The most source of information possible. as earnings earnings past of prospective is the record over the sev corporation profit statements of the years. The and loss eral earnings corporation. as the books of the recorded on the reflect comparative operat- Exhibit J is a statement of Plaintiffs’ upon profit from 1950 1959 based the and loss ing income adjusted by have the elimination of cer- statements which been nonrecurring indicated the Defend- tain losses as footnotes. accuracy plaintiffs’ of figures, ant’s accountant concedes the but deducted there are other which should have been claims losses 9, nonrecurring, corporation as as was constituted on June on an operating These consist of losses FM radio station 1960. 1959, 1958, properties disposed on sold in losses rental of operating on radio KDEC sold in and two loss station In- expense by the of Department of travel disallowed items 1956. ternal Revenue in exception expense item, the travel these
With corporation not losses were incurred business ventures operation though 1960. it in its June Even included report perfectly resulting correct to reduced net income repeated a number though and even some were over these losses prospects corporation it years, earning would seem accurately loss eliminating would be more reflected these longer corporation which were no on the on the a burden items question. argument concerning date in Little is raised the travel expenses and it expense proper items would seem exclude proper expenses. We be corporation which were not business adjusted by net income should be the elimination lieve the these losses. I-Q adjustments in- Exhibit to net
Defendant’s
makes these
taxes,
charge-
tax
provides
come before
the additional income
for
adjustments
adjusted
an
net income
able to the
arrives at
accept
representing
an operating
fairly
statement
we
earnings corporation
years
for the
forth.
set
question
period over
is the
time
Another
involved
earnings. Exhibit J and
wbicb we should look at the
0-1 are
ten-year average.
ten-year period
Mr.
A.
and arrive at
John
expert
only
Grimes
witness for defendant used
1959 and the
upon
9, I960, fig
annualized income for 1960
the June
based
conclusion,
It
history
company
ures.
is our
based
factors,
average
past
and other
that the
full
relevant
for the
five
years
fairly
company’s
ten-year
most
earnings.
reflects the
period
long.
is too
In a stable area and in a stable
with
business
*15
growth
little
prospects,
no
there is
reason to limit consideration
to
year.
the most recent
no
in
There is
evidence
the record to
annualizing
indicate that
up
the
of the 1960 income
to June 9
fairly
would
profit
the
year.
reflect
over the whole
The Delaware
five-year
Court used a
average
Sporberg
City Specialty
in
v.
Stores, Inc., 35
560,
Del. Ch.
Defendant paid raises the issue of the salaries officers of corporation majority who are also the stockhold ers. Mr. compensation Grimes testified the averaged to officers $16,100 $18,000 to average more than the newspapers of cor responding adjusted sizes. He the income accordingly. Plain point tiffs out that federal income tax approved audits have salary compensation scale. The of F. W. Woodward rose from $21,825 in $34,100 1950 to in 1959 or an percent. increase of 56 compensation The of F. R. Woodward $22,425 rose from in 1950 $34,100 to in 1959 an percent. increase of 52 Mr. Mark R. Kane became an officer in 1952 and his salary rose from $9880 as of that $13,360 date to- in 1959. percentages These do increases not seem to be substantially out of line in view of the inflation ary times, however, figures of Mr. Grimes while not satisfac tory many respects indicate the salaries are at least liberal. Majority stockholders should by not the device of compensating liberally themselves as position officers be in a to reduce the net operating income of corporation for purposes our We, here. corporation therefore, adjust income of further the net sal- upward adjustment the liberal as a reasonable by $8000 say that the officers by aries received This is not the officers. compensation in these any wrong by receiving have committed profit fairly amounts, in net more but we believe such increase represents corporation. operating income of-the following
The our conclusions page chart on the summarizes adjusted average these matters and sets forth the net income years $106,538, five in the amount of which we will use as earnings figure all'places the net it a factor. where opinions parties testimony VI. Both detailed offered experts. by qualified highly of value defendant’s stock thoroughness presented with which this case was is illustrated by nearly pages. the fact the record consists of We consider, compare testimony must and evaluate the these ex- perts. expert heavily upon figure As each for corpo- relied earnings, they differing rate net earnings used the net figures supplied accountants, comparison their must necessarily if application formulas, any, of their include earnings the net in Division V hereof the amount determined $106,538 *16 plaintiffs’ McKean, The direct examination Mr. one of experts, pages some 267 It his covers of the record. discloses experience appraisal broad field but little firsthand knowl- edge newspaper specifically. valuation He made a detailed study Telegraph-Herald operation and of the area which its a thorough comparable serves. He also made search find to- newspapers the of which stock is sold on the market. The testi- mony supported by some, graphs, numerous charts and course, are based information plaintiffs’ obtained from the opinion accountants & Ernst Ernst. He arrived at an of a real one share of $915 percent minority he discounted for a interest arrive at a value of $732 share the stock of defendant. 1G96
1097 and-weight-' averaging at valuation He arrived tbe “earnings” (1) based on to value approaches different ing seven Five “real value”.' (4) net (3) “book worth” “dividends” (2) comparable depend upon the three approaches of the seven out depend upon what he called' in turn companies he selected and difficulty with- these securities. The value of their the market did a market valrfe is that he not establish approaches five n only isolated comparables. a few of his There were the stock any nó records of amounts. were buy at stated There offers to Regardless near of how completed sell transactions. offers to or might compare selected news with the comparison unless a mar basis for of value papers, there is no Here there was comparables was established. ket value . none. by Mr. Mc- remaining of evaluation used
The two methods earnings” and “real value”. He used “estimated future Kean are figure to10 1 value. ratio of to establish price-earnings This percent for broker’s 15 commission increased was discounted a value the excessive reserve. He arrived at per share for $283 profit dis- By using figure net per share. of $915 following commission, broker’s we make com- regarding the of value: putation = earnings.'..$106,538 $1,065,380 Estimated future 10X 888 share 1200 shares...i
Per n Share of Reserve.:.-.. 1,171 per ..$ Value share III, we do not discount for- As stated Division believe minority proper. interest or broker’s fees is method utilized book of all assets' of the
The other except corporation shown on the Ernst" & Ernst balance sheet $836,000 appraised value” fixed assets which he at a “real His higher fixed assets. $235,540 than the book value of the or $1,649,307 per computed $1374 or share. real value thus appraised of the fixed however, is not the market value This, ‘ $99,000 earnings per- at capitalization but a assets earnings $106,538 per-’ capitalize figure If we cent. $1,775,600 or- share. $1480 arrive at a valuation of cent we just using earnings course, another method of This, *18 disapproved. have a net asset value which method we arrive at II above. Division See Henry majority in the Bradley, D. stockholder St.
Mr. newspaper, expert Missouri, daily for Joseph, testified as computing He had worked out a formula for valu- plaintiffs. paper. purchased he used when he his his ation that interest only purchased he has newspaper and he has never This is the newspapers. or has in- appraiser broker for He been served as kept in methods evaluation has himself informed. terested computing formula in stock to He value of be sold uses By using figures Bradley’s and Mr. for- employees. to his following computation mula we make the of value. 106,538' income .
Estimated _>^_6 (from 639,228 942,292 148,873 Ex. .K) Add: assets . Current Other assets Inv. .1,730,393 Total 221,673
Deduct current liabilities . value .1,508,720 Total
or $1257 about share. presented VII. Defendant witnesses, three evaluation George Cooper, J. John Alden Grimes and Vincent J. Manno. impressive All had qualifications three including experi- broad ence in newspaper the valuation of properties for ap- sale or praisal purposes. Mr. Cooper is a negotiator, ap- broker and praiser newspaper properties. He negotiated has or sold newspapers all country. over the He makes it his business to keep newspapers. advised all sales of He visited the Tele- graph-IIerald properties briefly and used. the audits and ac- counting compiled information accountants, defendant’s Company. Arthur Andersen & He listed all factors he took into in valuing consideration defendant’s placed particular stock and emphasis monopolistic position on the of only daily newspaper published as the Dubuque area. Cross-examination revealed that he only had cursory made study growth of local conditions prospects or of the Tele- any formula but arrived He did use set grapb-Herald. not Telegraph-Herald. $2,800,000 for the $2,700,000 to a value of or a per share total $2187.50 stock at He valued defendant’s slightly of “overreach- is discounted $829,062.50, which .because produce he could purchasers. He testified prospective ing” $2,- newspaper days in 90 for his valuation buyer *19 700,000. takes qualifications. It equally impressive had
Mr. G-rimes he has newspapers list the names of pages the record to four of had infor- he reliable appraised 1935. He testified that since daily news- price of all percent of 85 to mation-on the sales of approach to the value during that time. His papers sold selling price his opinion was based defendant’s will- open market property a free and between the whole adjusted buyers the net and and sellers. He first ing informed opinion earnings proper what in his was the amount to reflect He June was annualized. for 1959 and the income by'17.3 was average earnings of these which multiplied then price news- average price-earnings ratio of sale of three figure comparable. To this he added papers considered he $137,262 capital $385,000 working he called excess and By using figure assets. his formula investment and following earnings at the valuation: we arrive 106,538 Earnings . ratio . 17.3
P/E
1,843,107 working 385,000 cap. Excess Investment assets. 137,262 .2,365,369 Total value 1,971 per .$
or share. ap negotiator, Vincent J. Manno was also a broker and praiser newspaper deposition properties. His taken was Dubuque York. had New He never visited or circulation Telegraph-Herald. any area He did not claim to have particular knowledge of local conditions. His information about through was obtained and ac audits counting supplied by material and the defendant’s accountants by Marshall & n Stevens'
physical'appraisal'made Chicago.- He experience knowledge newspaper- his broad testified from n Telegraph-Herald'had $2,640,000' that a real value- of sales produce buyer -that-price. he could share price- of defendant’s stock at that T.o‘ $2200. value- test his approaches. he used thr'ee different- will evaluation We substi figures appropriate places recompute tute our th& using approaches-.' these valuations (1) profit approach: The consolidated profit $106,538 Net '' Capitalized ..:..$1,331,725 at 8%
n Current assets 942,292 .^.: Invest, 148,873 assets . n " " ' 1,091,165 :........ 221,673 Less liabilities Quick'Assets'. 869,492 Net '869,492 ...,.-..$2,201,217, evaluation Total -Per share . $1834. ... ....... *20 (2) gross approach.. Individual In' approach this the net n quick gross assets are added to the income. was-no'dispute' There - gross over the computation income so the would approximately be the same. method This of valuation reached a'-figure of'-over $2,900,000 or $2432 share.
(3) approach Goodwill based on tangible net assets. Total assets ás adjusted.$1,691,623 adjusted
Less liabilities .(cid:127)..221,673 tangible Net assets. .'....$1,469,950 1' - net tangible assets as incoine 8% attributable to investment.117,596 year 5 average earnings 213,177 taxes ..$ before tq Less income attributable 117,596. investment. from Goodwill Income .95’,581 .:.:....:.(cid:127)..$ - ..Capitalized at. ($95,581 12.5%) 764,648 $ 12%% assets..;....j..:...... tangible Add net 1,469,950 ' n Total value-..:.;.1...'......'.$2,234,598’: n '!: (cid:127) (cid:127) "Per share $1862. 1101 ' - weighted first arriving bis valuation- the. -Mr. Manno in at. the-gross ap- income .percent each approach, 25 third by saying there explained -this percent. He 50- proach n properties that--newspaper are of thumb' pretty well-fixed rule quick' plus the .gross income. least the- assets ’that wofth at- two, making as be T.elegraph-Herald about the- should times much We,do weighting. It agree with this seems gross.' not net on -its the net income newspaper -a which -fallacy say,-that is to- low it theory that should gross on the its sold on the'basis can be upon manage- the blame puts is. all much as.it net twice as :This physical- plant. It does or none on local conditions ment and type made the that Mr. Manno inr in the record appear not We consider support would- such conclusion. vestigation which in- more and realistic approaches third reliable first and - approach. (cid:127) gross income value than dicators n , experts .the valuations of summarize VIII. To using computations upon formulas based and mathematical were following per valu- acceptable us,, we figures shape .to find. the. becomes, spread in valuation less evident the much ations. It n , n figures are used. the same when witnesses : Plaintiffs’
Mr. McKean:' earnings.$1171 future Capitalization of 6%) ... 1480 cap. (earnings,
real .Bradley ..-. fo.rmula witnesses:
Defendant’s Mr. ..... Grimes 197.1 Mr. Manno: (1). earnings ...... consolidated
,(2) .gross approach ... income .2432 ..’........f...,’.... (3) Goodwill in, opinions weakness of defendant’s witnesses *21 they give do not is fact that the-consideration local in the particular of the we conditions situation reeorj justified. graphs full charts, The testi feel is -is. uneon-tested, mony;, show that conditions all- .which are static; growth v.ery is area a slow in the are- There circulation number,.of retail, -The has declined. The population. stores percentage profitable the more advertising shifting is advertising advertising. national to local The circulation of the paper years projections and there are no has been stable ten increasing growth. possibility There is the circulation no metropolitan Dubuque. presses The are obsolete area replaced presses and must be with the not too distant future capable running competition. full color to This will meet require construction, extensive alterations the total cost of which will exceed one million dollars. Dividends have been cut up to build surplus improvements can so these be made. Without evidence, further detailing say it is sufficient to importance these factors are of in arriving some at the real value Telegraph-ITerald and defendant’s therein. IX. There is a similarity marked between the future earn- ings employed by formula Mr. by McKean and formula used Mr. Mr. Grimes. McKean multiplied earnings his by estimated 10 and added disregard defendant’s share of the reserve. We discount for minority interest and broker’s commission. Mr. multiplied earnings by Grimes 17.3, his estimate of the proper price-earnings ratio, and working capi- added the excess tal and investment assets to reach a total value before determin- ing the value share. The main difference in the multiplier is to be price-earnings used or the ratio.
Mr. McKean obtained multiplier his of 10 using the average ratio of comparable his three newspapers. We have P/E not accepted comparables his. because he did not establish price actual sale price, only or offer but price. a bid We have discussed this previously. matter Mr. Grimes obtained his mul- tiplier by taking the average of newspaper three sales he con- comparable sidered in Nyack, New York, Valley, San Gabriel California, and Savannah, Georgia.
We do not believe it is compare realistic to the Telegraph- Dubuque Herald in with newspaper sales in the three cities men- Nyack, tioned. New York, is in rich County, just Westchester north of New City. York Valley San paper Gabriel quite new experienced and has phenomenal subscription growth. These papers two were located in areas of rapid progress and growth. Savannah is in an area of growth, moderate but
1103- Dubuque is population about three times that of news- Telegraph-Herald. paper circulation more than double that of the employed by We Mr. believe formula Grimes is the easi- to guide est understand furnishes a to in this reliable value particular The methods are case. other are useful we not discounting propriety. their As a to our further aid determina- tion of the real of Mr. stock, applied value defendant’s we have figure earnings using multiplier Grimes’ formula 13.5 we Telegraph- which believe to be realistic one Herald, following with the result:
Earnings 106,538 .$ ratio . 13.5 P/E 1,438,263 working Excess cap. 385,000 Investment 137,262 assets. Total value .$1,960,525 $1634.
Per share necessary, We have felt it of the of this because nature case, many figures to use and formulas in arriving as aids at real defendant’s however, stock. We should it clear, make recognize that we this matter cannot by any be exact determined computation mathematical and no one or figure formula bind is ing or many figures conclusive. Too are estimates and all of the formulas contain elements opinion based on the expert. is, The decision in the analysis, judg final matter of ment all based on material evidence and all consideration may relevant factors influence the valuation. It is there opinion, fore our based on all evidence and the consideration all relevant, factors we deem the real value of defendant’s $1650 per share or a total $625,350. The costs are taxed one half to defendant and half one plaintiffs. opinion the district court as so modified is affirmed. n —Modified and affirmed.
All concur. Justices
1104:’ Rehearing June 30, 1965.
Opinion appellants. Dubuque,-for Cooney Fuerste-, Clewell, & *23 Du- Bertsch, all' of Wright, Hammer O’Connor, Thomas, & cross-appellant.'. for'appellee and buque, the rehearing’ upon granted a were J.—Plaintiffs Stuart, 38. 1077, 133 N.W.2d original reported at Iowa opinion arriving- aid- in as an computation used They complain that the be value overstated such at defendant’s the real value earnings. to in the included was income cause investment the and the applied price-earnings ratio was resulting figure. The added to the assets was then investment inflated the value is It is point is a one. obvious .raised valid therefrom, both are income when value of the assets the ratio, ap price-earnings is computation. The used in same improper to included it have and was plied operating to income investment income. income, on generally gross the' investment parties agree
The’ de which should be to the income tax' but differ as amount applied at net investment income. Defendant to -arrive ducted corporaté plaintiffs'applied the'reduced regular tax rates income, éxample; type particular to applicable rates municipal from on bonds. tax was deducted interest no income J; It the income tax conclusion that deducted on Schedule is our opinion, computed in the" réfeíred to initial was the actual'’tax Mr. testimony appearing This is the McKean applicable. rates by of'the and is the' page supported computing record by average this The net income income tax method. investment ' : ’ : approximately $4700-.' such a manner was determined resistance, points out that the Educa- defendant Visual 'in subsidiary, contrary to the our opinion; tion statement five-year period during and we con- used did not' existence computation. worth in or net While sider either income had corporation dissolved, doing not been it was’not business guide time, and the income would not have at the been .useful profits corporation. However, to future net worth of subsidiary been should have included investment assets. par- adjusted in therefore, be two computation, Onr $106,538 (1) earnings are to be reduced ticulars. The (2) in- $101,838 by deducting. income. '$4700 investment jbo $137,262. $149,928 assets be increased from vestment ar.e.to in the amount adding the net worth of Visual Education $12,666. computation- The corrected is as follows: 101,838
Earnings .:... . 13.5 ratio P/E
1,374,813 385,000 149,928 cap... working Excess Inv. Assets .1.1. ..;.1,909,741 Total value $1591;
Per share Plaintiffs; however, place this mathe- too much reliance They de- urge matical us to set the value'of .calculation. would *24 They purpose fendant’s stock at $1591.. misconstrue computation. pointed opin- paragraph As in the last of our out ion, analysis valuation- of the stock in the final is matter judgment based on all material evidence and- the considera- an tion all relevant factors. The formula used is not exact certainty only scientific which the answer is the correct an- many opinions. It swer. Too the elements are estimates , arriving judged was used as an aid in valuation bur important test its reasonableness. Since the formula was judgment-, fáetor in our did final the' errors herein discussed figure, by plaintiffs. urged’’ affect but not .to extent final fairness, however-, We feel be all that the should corrections judgment reflected the final and therefore reduce’ the.value $613,980. $1620 defendant’s stock to share or a total of respects opinion-filed February 9, 1965, is con- other all ’ firmed. ... Defendant’s to retax motion denied. costs All concur. JustiCes