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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.
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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 Depreciation 3,665,260 Sub-total $11,865,434 Less: “I” x 2 ($ 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.
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