Selective Active Publicly-traded Companies, Considered Comparable-
Under S.I.C. Codes: 5331 (Variety Stores); 5399 (Misc. General
Merchandise Stores); and 5719 (Misc. Home Furnishings)
This case involved a
multi-million dollar company engaged in commercial real estate development,
ownership and management plus general merchandise importing and multiple
retail operations in Portland Oregon. It was a company formed by a
grandfather to be used to support his family and subsequent generations.
The grandfather passed away leaving his "empire" to two sons who
successfully ran the business until one subsequently died.
Below is part of the comparable companies' analyses that EMCO/Hanover undertook to prove "mismanagement" and the company's ability to adequately pay and sustain a dividend policy.
H. Naito Corporation (Naito)
Three key financial ratios: dividend capacity tests
(Proforma at June 30, 1999)
Conclusion: No matter how one conseratively analyzes the proforma financial statements for Naito at June 30, 1999 there is minimally $3.8 million available for dividend distribution.
Interest Burden Coverage: using 2:1 conservative standard
Earnings Before Taxes $ 4,181,870
Interest (I) 4,018,304
Less: I x 2 ($ 4,018,304 x 2) ( 8,036,608)
Available for Dividends $ 3,829,824
Cash Flow Coverage: using 1:5 conservative standard
Earnings After Taxes $ 3,822,226
Plus: Depreciation 3,665,260
Less: Additions to Property (2,303,473)
Sub-total $ 5,184,013
Less: Net Borrowings Repayment
( $ 682,896 x 1.5) (1,024,344)
Available for Dividends $ 4,159,669
Total Liquid Assets to Current Liabilities: using 2:1 conservative standard
Cash $ 10,257,321
Accounts Receivables - net 2,349,092
Sub-total $ 12,606,413
Less: Total Current Liabilities x 2*
( $ 2,091,061 x 2) (4,182,122)
Available for Dividends $ 8,424,291
* 2 is more than conservative when compared to a normal 60-day working capital, coverage ratio when one calculates Account Payable Days, including Accrued Expenses, in terms of Costs of Goods Sold and Operating Expenses since one is dealing with a combination of a real estate and retail operating company : ($ 684,696 + $ 243,696 + $ 273,800) divided by ($ 8,787,192 + $ 14,810,753) =.051 x 365 = 18.615 days versus the 60-day standard used above.