Albaad Massuot Yitzhak Ltd.

Transcription

Purchase Price Allocation (PPA)
June 2012
June 24, 2012
To:
Attn: Mr. Eyal Shechter, CFO
Re:
Purchase Price Allocation
Opinion
Scope of Analysis
We at Eshed Rozin - Tesuot Consultants1 ("Eshed Rozin") were requested by Albaad
Massuot Yitzhak Ltd. (hereinafter: “Albaad”), to perform this analysis, estimating the
fair value of certain assets acquired by Albaad USA, Inc. (hereinafter: “Albaad, USA”)
from Tranzonic Companies, namely it's Personal Care Division (hereinafter:
“Hospeco”), as of June 1, 2012 (the “valuation date”). The purpose of this analysis is
to assist Albaad Inc. in establishing the fair value2 of the acquired intangible assets,
including Goodwill, pursuant to International Reporting Standard (IFRS) No.3 for
financial reporting purposes.
Limiting Conditions
The information and the analysis provided to you are intended for management’s
internal use only, for the purpose of assisting in the purchase price allocation of the
assets being acquired. The report will be used to assist Albaad USA in establishing
its opening balance sheet upon completion of its acquisition of Hospeco assets. The
report can be used only in its entirety and should not be distributed or used for any
other purpose without the prior written authorization of Eshed Rozin. While Eshed
Rozin was provided with certain forecasted financial information by management, we
give no assurance that Hospeco will realize these financial projections. Eshed Rozin
1
"Eshed Rozin – Tesuot Consultants" is an independent consulting firm specializing in 'going concern'
valuations and fair value valuations pursuant to International Reporting Standard (IFRS).
2
Fair value is defined as the “price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date.
will not give any opinion, representation or warranty as to the accuracy,
completeness or achievability of any projected financial information that is provided
to us. We did not, as part of this analysis, perform attest functions to verify the
historical financial results, or subject any forecasted financial results to procedures
which would enable us to form an opinion concerning their achievability. The forecast
information is based on the Hospeco budget for 2012 and Albaad consultants'
assessments for future years. Management has informed us that they consider the
forecasted data used to be both reasonable and accurate, and to their knowledge
none of this information conflicts with the data or its resulting use of such data in this
valuation. Furthermore, due to unexpected circumstances and events, it is likely that
there will be differences between prospective financial information and the actual
results, and these differences may be significant. Accordingly, to the extent that any
of the aforementioned information requires adjustment, the resulting fair value may
vary.
Eshed Rozin worked closely with the senior management of Albaad to complete this
analysis. In regards to rendering this opinion, we did not conduct due diligence but
were not limited to:
1) Interviewing Albaad management regarding the intangible assets acquired
and their competitive position in the industry;
2) Discussing the negotiations and business rationale for the acquisition with the
management;
3) Analyzing certain historical financial information, the majority of which was
based on internal information presented to Albaad management during the
due diligence performed by EY;
4) Analyzing certain financial forecasts and other data provided to us by
management, reviewing assumptions, including growth rates and operating
margins and discussing the rationale of these assumptions with management;
5) Performing such studies, analyses and investigations as we considered
appropriate to enable us to render our opinion.
Results Summary
Based on the working capital acquired, including inventory market price adjustment,
tangible property valuation executed by other appraisals, and our valuation of
intangible assets, we came to the conclusion that the assets purchased are as
follows:
USD thousands
Real estate
Machinery & Equipment
Books
Fair Value(*)
1,154
5,800
522
5,231
Tools & Dies
Working Capital
274
1,950
11,031
6,357
6,817
Useful Life
Y
Tranzonic Agreement
Brands
1,093
145
6
5
Customer List
Intangible Assets
2,232
3,470
8
Total Purchased assets
Purchase Price
8,307
21,318
(14,900)
(14,900)
(*) Deferred taxes were not calculated.
The accompanying report summarizes the principles and procedures that were
applied in this study as well as its findings.
Respectfully submitted,
Eshed Rozin Tesuot Consultants
Albaad Hospeco PPA
Table of Contents
Opinion .....................................................................................................................2
Transaction Summary .............................................................................................6
HOSPECO Personal Care Activity ........................................................................6
Purchase Price Allocation (PPA) - Methodology ................................................ 11
Financial Results ................................................................................................... 15
Intangible Assets ................................................................................................... 17
Attachment A – Real property (land and buildings) .......................................... 24
Attachment B – Machinery and Equipment......................................................... 24
Attachment C – Working Capital as of June 1, 2012 ......................................... 24
Financial Schedules .............................................................................................. 25
Schedule No. 1 - Discount rate ............................................................................ 25
Schedule No. 2 – Customer Relationship Tranzonic ......................................... 27
Schedule No. 3 – Brand Names .......................................................................... 28
Schedule No. 4 – Customer List .......................................................................... 29
Schedule No. 4 – Customer List .......................................................................... 29
Schedule No. 5 – Contributing Assets ................................................................. 30
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Albaad Hospeco PPA
Transaction Summary3
An agreement was signed on May 9, 2012, between Albaad USA and Tranzonic Companies
(hereinafter: “Tranzonic”), for the acquisition of Tranzonic’s assets and activities in the field of
Healthcare, which are manufactured and distributed by the HOSPECO Personal Care division of
the Tranzonic group (hereinafter: “HOSPECO”). The acquisition of the Activity was made through
Albaad USA, which is a wholly owned subsidiary of Albaad. The purchased Activity shall form a
sector under the management of Albaad USA.
HOSPECO Personal Care Activity
The HOSPECO Personal Care Activity includes feminine hygiene products for external use
(pads), constituting approximately 45% of the revenue as well as absorbent products for use by
the adult population, which constitute approximately 40% of the revenue. In addition, and as part
of the acquired Activity, internal feminine hygiene products (tampons), maternity pads and wet
wipes are being distributed, which combined constitute the balance of the revenue.
The Activity includes the manufacturing of products at a factory located in Kentucky, USA, which
shall be purchased as part of the acquisition of the assets, as well as manufacturing through
subcontractors (which includes, inter alia, Albaad, in the manufacturing of tampons). The
marketing of the products is made through retail networks (constituting approximately 55% of the
sales), marketing directly to institutions – old age homes, hospitals, etc. (approximately 37% of
the sales volume) and sales through distributors specializing in marketing for the “away from
home” market (approximately 7% of the sales volume).
The Activity is synergetic to the activities of the Company in the field of feminine hygiene and
hygienic products in general, broadens the Company’s relations with retail networks (a marketing
sector in which, at the time of engaging in the transaction, the Company’s activity is limited) and
in the field of institutions (hospitals, old age homes) in which the Company is active in the
categorical field of wet wipes. The acquisition of this Activity is a continuation of the strategy of
expanding the Company’s operation through the acquisition of existing activities in fields that are
related and complementary to the Company’s field of activities, and in particular in continuation of
Rostam which was completed in 2010.
The Agreement is an agreement for the acquisition of activities and assets, including rights
deriving from the activities and the assets, contractual obligations to suppliers / marketers if any,
3
Albaad announcement to the Israeli stock exchange
[6]
Albaad Hospeco PPA
absorption of Tranzonic employees engaged in the Activity (approximately 130 employees,
most of them long-serving employees with seniority of about 20 years in the field of the Activity),
the acquisition of the structures and land (a plot of an area of approximately 55 dunams, having
structures of a built area of about 20,000 square meters) and the production lines used for the
Activity.
Completion of the transaction was made on June 1, 2012 and the Seller has undertaken to
indemnify the Purchaser for any discrepancies in the representation as customary in similar
agreements. In the period immediately following completion, Albaad USA shall receive
administrative assistance from Tranzonic with respect to administrative services, back office, etc.
(such services were provided by Tranzonic for the Activity prior to the sale) until management of
the Activity under Albaad USA. Albaad shall pay for those services as agreed.
The consideration was determined to be the sum of US $14.9 Million.
The production lines operating at the Kentucky site operate in a scope of approximately 45% on
average and, therefore, expansion of the production does not entail additional investments. The
production lines includes: Eleven External Feminine Hygiene lines, 9 Adult Incontinence Products
lines, 3 OB Special (for women giving birth) lines and one special line aimed for vending machine
products.
In addition to the main Asset Purchase Agreement, two additional agreements were signed:
a. Transition Service Agreement which includes: General management assistant (free of
charge), Purchasing, Human Resources, Marketing and Logistics for the first three months.
Most of these services are not effective other than for the purpose of coordinating the
transaction. In addition, accounting and IT services are provided free of charge for the first
three months, and at market price until 31 March, 2013.
b. Supply Agreement, which Albaad took on a cost + basis for a period of six years; this, in order
to supply Tranzonic with products to be sold through Tranzonic’s vending machine products
service.
Market
The global feminine care market amounts to about US$12.85 billion and is growing by
approximately 3% annually. The European market accounts for about 25% and is growing by 1%
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Albaad Hospeco PPA
annually. In Europe, the market is dominated by pads, representing 50%, while panty liners and
tampons each account for 25%.4
According to New Report by Global Industry Analysts, Inc5, the global market for feminine hygiene
products and is projected to reach US$15.2 billion by 2017. According to the report, the global
market for Feminine Hygiene Products represents one of the most rapidly growing segments in
the FMCG category. Growth is mainly fueled by intense competition, product innovations and
rising health and hygiene awareness among women.
America, Europe and the Asia-Pacific collectively account for over 80% of the feminine hygiene
products market. The Asia-Pacific market with its vast population is one of the fastest growing
regions for feminine care products. Technology innovations and better user safety is driving the
sanitary pads segment as a popular feminine care product worldwide.
There are two main segments in the market: External, including pads and liners which include
approximately 80%-85% of the market and growing at an annual rate of 6%-7% in 2008 and 11%
in 20096 and Internal (Tampons).
The global feminine hygiene market is highly consolidated with major players enjoying sizeable
market shares. Industry bigwigs such as Procter & Gamble, Kimberly-Clark and Johnson &
Johnson dominate the international market. Other noteworthy players include SCA Hygiene
Products, Uni-Charm Corporation, Lil-lets Group Limited, Playtex Products Inc., and Kao
Corporation among others (see table next page).
4
http://www.sca.com/en/about_sca/scas-business-and-operations-worldwide/personal_care/market-sca-feminine-care/
http://www.prweb.com/releases/feminine_hygiene_products/sanitary_pads_towels/prweb9233581.htm
6
Report: Trigger Foresight – source Euromonitor International
5
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Albaad Hospeco PPA
6%
27%
39%
12%
9%
3%
4%
Source: Euromonitor Research – Trigger Foresight
Private Label consists of 6% in the market, with a considerably larger portion in Europe (25%),
mid-size in North America (11%) and almost none in the rest of the world.
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Albaad Hospeco PPA
In the USA, the Private Label share in the Liners and Pads market (the main activity purchased)
is growing rapidly at an 8% CAGR over the last six years.
Players by Market Share - Pads & Liners & PL
Market share
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Albaad Hospeco PPA
Purchase Price Allocation (PPA) - Methodology
A Purchase Price Allocation (PPA) study is carried out in accordance to International Accounting
Standards (IFRS) No. 3 "Business Combinations".
IFRS 3 - Business Combination
The objective of this IFRS is to specify the financial reporting by an entity when it undertakes a
business combination7. A business combination is the bringing together of separate entities or
businesses into one reporting entity. The result of nearly all business combinations is that one
entity, the acquirer, obtains control of one or more other businesses.
The standard:
(a) Requires all business combinations within its scope to be accounted for by applying the
purchase method.
(b) Requires an acquirer to be identified for every business combination within its scope. The
acquirer is the combining entity that obtains control of the other combining entities or
businesses.
(c) Requires an acquirer to measure the cost of a business combination as the aggregate of: the
fair values at the date of exchange, of assets given, liabilities incurred or assumed, and equity
instruments issued by the acquirer, in exchange for control of the acquiree; plus any costs
directly attributable to the combination.
(d) Requires an acquirer to recognize separately, at the acquisition date, the acquiree’s
identifiable assets, liabilities and contingent liabilities that satisfy the following recognition
criteria at that date, regardless of whether they had been previously recognized in the
acquiree’s financial statements:
(i) In the case of an asset other than an intangible asset, it is probable that any associated
future economic benefits will flow to the acquirer, and its fair value can be measured
reliably;
(ii) in the case of a liability other than a contingent liability, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation, and its
fair value can be measured reliably; and
(iii) In the case of an intangible asset or a contingent liability, its fair value can be measured
reliably.
7
http://www.iasb.org/NR/rdonlyres/73E562FE-F581-4DD4-8365-B17E228955C9/0/IFRS3.pdf
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Albaad Hospeco PPA
(e) Requires the identifiable assets, liabilities and contingent liabilities that satisfy the above
recognition criteria to be measured initially by the acquirer at their fair values at the acquisition
date, irrespective of the extent of any minority interest.
(f) Requires goodwill acquired in a business combination to be recognized by the acquirer as an
asset from the acquisition date, initially measured as the excess of the cost of the business
combination over the acquirer’s interest in the net fair value of the acquirer’s identifiable
assets, liabilities and contingent liabilities recognized in accordance with (d) above.
(g) Prohibits the amortization of goodwill acquired in a business combination and instead requires
the goodwill to be tested for impairment annually, or more frequently if events or changes in
circumstances indicate that the asset might be impaired, in accordance with IAS 36
Impairment of Assets.
A PPA study when performed calculates:
a. The purchase price - minus
b. The acquired tangible assets - minus
c. The acquired intangible assets (see IAS 38 below)
d. Recognize the excess of the purchase cost over the acquired assets as Goodwill.
IAS 38 - "Intangible Assets"
The objective of IAS 38 "Intangible Assets"8 is to prescribe the accounting treatment for intangible
assets that are not dealt with specifically in another Standard. This Standard requires an entity to
recognize an intangible asset if, and only if, specified criteria are met. The Standard also specifies
how to measure the carrying amount of intangible assets and requires specified disclosures about
intangible assets.
An intangible asset is an identifiable non-monetary asset without physical substance.
An asset meets the identifiable criterion in the definition of an intangible asset when it:
(a) is separable, or is capable of being separated or divided from the entity and sold, transferred,
licensed, rented or exchanged, either individually or together with a related contract, asset or
liability; or
(b) Arises from contractual or other legal rights, regardless of whether those rights are
transferable or separable from the entity or from other rights and obligations.
An intangible asset shall be recognized if, and only if:
8
http://www.iasb.org/NR/rdonlyres/149D67E2-6769-4E8F-976D-6BABEB783D90/0/ias38sum.pdf
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Albaad Hospeco PPA
(a) It is probable that the expected future economic benefits that are attributable to the asset will
flow to the entity; and
(b) The cost of the asset can be measured reliably.
In accordance with IFRS 3 Business Combinations, if an intangible asset is acquired in a
business combination, the cost of that intangible asset is its fair value at the acquisition date.
Useful life
An entity shall assess whether the useful life of an intangible asset is finite or indefinite and, if
finite, the length of, or number of production or similar units constituting, that useful life. An
intangible asset shall be regarded by the entity as having an indefinite useful life when, based on
an analysis of all of the relevant factors, there is no foreseeable limit to the period over which the
asset is expected to generate net cash inflows for the entity. Useful life is: (a) The period over
which an asset is expected to be available for use by an entity; or (b) The number of production or
similar units expected to be obtained from the asset by an entity.
Following are some categories for Intangible assets:
1. Marketing Assets - Trademarks, trade names, service marks, collective marks and certification
marks, internet domain name, Non-Competition Agreements
2. Customer Related - Customer lists, firmed orders or production backlog, customer contracts &
related customer relations, non-contractual customers.
3. Contractual Assets - Franchise agreements, licensing and royalties.
4. Technological Assets – Patents and know how.
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Albaad Hospeco PPA
Valuation Methodologies
There are three traditional approaches to estimating the fair value of an intangible asset: The
Income Approach, the Market Approach and the Cost Approach. Each of these approaches may
be used to estimate the value of the certain assets. However, the appropriateness of each
approach varies with the type of asset being valued.
The Income Approach
The Income Approach values an asset based on the earnings capacity of the asset. This
approach values an asset based on the future cash flows that could potentially be generated by
the asset over its estimated remaining life. The future cash flows are discounted to their present
value utilizing a discount rate which would provide sufficient return to a potential investor to
estimate the value of the subject asset. The present value of the cash flows over the life of the
asset is summed to equal the estimated value of the asset. The Income Approach was used to
value identifiable intangible assets.
The Market Approach
A Market Approach leads to an estimate of value based on what other purchasers and sellers in
the market have paid for assets comparable to those being appraised. This approach is based on
the principle of substitution. This principle states that the limit of prices, rents and rates tends to
be set by prevailing prices, rents and rates for equally desirable substitutes. When this approach
to value is used, data is collected on the prices paid for assets reasonably comparable to the one
being valued. Adjustments are made to the comparable assets to compensate for differences
between them and the asset being valued. Use of the Market Approach results in an indication of
value based on an estimate of the price(s) one may reasonably expect to realize on the sale of
the subject asset(s). Since intangible assets are generally transferred within the context of a sale
of all the assets and operations of a going business, and market data on the separate sale of
highly specialized technology is not readily available, a Market Approach was not utilized.
The Cost Approach
The Cost Approach is based on the theory that a prudent investor would pay no more than the
cost of constructing a similar asset of like utility at prices applicable at the time of the appraisal.
However, the Cost Approach may not capture the full value of an income-producing asset, and
since value is driven by the income generating ability of the technology employed, the Cost
Approach was not utilized.
[14]
Albaad Hospeco PPA
Financial Results
The acquired segment "Hospeco" did not have audited separate financial reports. The information
provided in this section is based on the Balance Sheet and P&L presented in the financial due
diligence.
12 months ended
29 February
(USD )Thousands
Revenues
2012
2011
51,890
53,598
Material
67.4%
34,967
64.2%
34,386
Salary & Manufacturing Expenses
16.1%
8,372
17.1%
9,152
Transport
6.6%
3,426
6.6%
3,549
90.1%
46,765
87.9%
47,087
Gross Profit
9.9%
5,125
12.1%
6,511
Salaries
3.2%
1,649
3.2%
1,705
Other
Sales & Manufacturing +
General & Administrative
0.4%
205
1.1%
588
3.6%
1,854
4.3%
2,293
Operating Profit
6.3%
3,271
7.9%
4,218
EBITDA
7.8%
9.3%
4,964
Cogs
4,027
We received revenue information for the period beginning March 1st and ending May 31st; this is
considered when evaluating future cash flows.
[15]
Albaad Hospeco PPA
Hospeco Division Balance Sheet
31 May, 2012
(USD 000)
Assets
Accounts Receivable
4,542
Inventory
6,029
Prepaid Expenses / Other Assets
Total Current Assets
Fixed Assets (*)
13
10,584
1,950
Total Assets
12,534
Liabilities
Accounts Payable
3,405
Accrued expenses
Total Operating Liabilities
822
4,227
Net Assets
8,307
(*) Fixed assets were valued at 11,030 K USD.
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Albaad Hospeco PPA
Purchase Price Allocation
Purchase Price - Fourteen million, nine hundred thousand dollars - the purchase price of
$14,900 K, plus or minus any differences of more than $150 K in the working capital target, which
is $6,500 K. According to the Working Capital Closing Certificate, the working capital is $6,357 K
and there is no change in the final purchase price. Part of the payment is to be deposited in an
escrow (in the amount of $1,000 K) for a period of 18 months from the closing date, with the
remainder to be paid on the closing day.
Valuation of Assets Acquired
Tangible Assets –
Fair value of Real Property located at 500 Memorial Drive, Nicholasville, Kentucky 40356, and the
buildings and fixtures located thereupon; appraised at $5,800 K (see Attachment A).
Fair value of Tangible Personal Property - The machinery, equipment, tools, dies, furniture,
fixtures, vehicles, personal computer hardware and software, and other items of tangible personal
property located at the Real Property, in the amount of $5,231 K USD (see Attachment B).
Working Capital in market price in the amount of 6,817 K USD (see Attachment C).
Final working capital was computed by seller and is subject to buyer inspection within a month.
We adjusted the inventory value to fair value, less marketing expenses, based on management
gross margin assumptions as presented below.
All other working capital components such as accounts receivables, account payables and
acquired expenses were examined and assumed to be at fair value.
Intangible Assets
We discussed with management, company advisors and sales representatives how to define the
intangible assets to be recognized. After examining all intangible assets acquired and the
liabilities assumed under the asset purchase agreement, such as contracts, licenses and permits,
intellectual property, trade names, warranties, and backlog, we came to the conclusion that the
intangible assets to be recognized are as follows:
a. Tranzonic Supply Agreement
b. Brand names
c. Customer relationship
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Albaad Hospeco PPA
We used the income approach to evaluate the intangible assets. The Excess Earning Model was
used to evaluate the supply agreement and the customer relationship while the Relief from
Royalty Method was used to evaluate the brand named fair value.
In order to evaluate the specific cash flow for each of the above mentioned intangible assets we
used Albaad forecasts which were adjusted on the purchase day to represent the fair market
valuation of real property (building and equipment) and their influence on the operating profit
before and after tax, and the forecasted decline in sales.
In USD K
Year
2012
2013
2014
2015
2016
2017
Revenue
46,000
46,920
47,858
48,816
49,792
51,286
2%
2%
2%
2%
3%
44,306
43,903
44,773
45,762
46,755
48,214
589
589
589
589
589
589
44,895
44,492
45,362
46,351
47,343
48,803
Operational Profit
1,105
2,428
2,497
2,465
2,449
2,483
Operational Profit %
2.4%
5.2%
5.2%
5.0%
4.9%
4.8%
Growth
Operating Expenses
Depreciation
Total Expenses
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Albaad Hospeco PPA
VALUATION OF CUSTOMER AGREEMENT WITH TRANZONIC
As of the valuation date, it was assumed that there was value attributable to the Tranzonic Supply
agreement, based on the agreement terms as follows:
1. Agreement period – 6 years.
2. Operational Margin over direct costs according the agreement.
3. Direct Costs – material cost + direct labor.
4. Prices are quoted EX- Factory Kentucky site and each pick up will be a full load truck.
5. Tranzonic will provide a three month rolling forecast and the first month forecast will be
binding.
6. Payments within 30 days of each invoice.
We valued the supply contract using the Excess Earning Income Approach, following these
steps:
1. The Company’s estimated future revenues from the contract based on last years'
experience, on average approximately 3 million. Based on past revenues of 4 Million $,
less 25% for products that Tranzonic would prefer buying directly.
2. The margin attributable to the supply contract was then estimated, based on contract
terms (direct costs as defined above).
3. Other production overhead expenses (not including marketing and freight) were calculated
at 4%, and actual depreciation based on machinery value of 270 K USD depreciated over
six years was added to COGS in the P&L. The economic useful life of the equipment is
estimated at 15 years, a period longer than the period in the contract terms. In the below
forecasted cash flow (according to the contract terms) the accounting depreciation minus
the economic depreciation was added to the cash flow.
4. A 40% tax (34% federal tax & 6% state tax) was deducted from the operational profit
before tax.
5. Additional working capital – until now there was no need for WC with other units of
Tranzonic. Starting with the purchase, new WC needs are required to finance the
Tranzonic agreement. Payments under the contract are 30 days from invoice; therefore,
the WC needed is 1/24 of revenues. The additional working capital deduction was
included in the contributing assets and returned at the end of the final year.
6. Contributing Assets – the resulting tax affected cash flow is reduced further by
contributory charges to support the asset’s projected sales, such as working capital, fixed
assets, assembled workforce, and brand name (see Schedule No. 5).
7. The net cash flows were then calculated by subtracting the net contributory assets
charges of tax from net income, then adding the depreciation and working capital needs.
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Albaad Hospeco PPA
The working capital needs are new needs; prior to the acquisition, Tranzonic sales were
intercompany sales.
8. The resulting net cash flows are discounted at a rate commensurate with their risk. A
discount rate equal to 15.1% was utilized for the supply contract which is the WACC of the
business + 2% special risk factor.
9. The discounted cash flows were summed to estimate their fair values.
10. The estimated tax benefits associated with the intangible asset was calculated and this
benefit was included in the value of the supply agreement.
Based on the above, the estimated value of the Supply Agreement equals 1,093 K USD,
rounded, as of 1 June, 2012 (Schedule No. 2 details the fair value of the supply
contract).
VALUATION OF BRAND NAMES
As of the valuation date, it was assumed that there was attributable value to the Company’s
Brand names such as At Ease® ,Maxithins® ,Safe & Soft ® and Precious®, consisting of on
average approximately 20.3% of the company sales, including sales to Tranzonic under the
Supply Agreement (see table below).
Revenues from Branded product sales in K USD
Brands
Total Brands
Total
%
2009
14,081
50,804
27.7%
2010
11,637
53,620
21.7%
2011
9,238
49,703
18.6%
JanMay
2012
3,570
17,211
20.7%
In estimating the value of the brand name, the Relief from Royalty methodology and a four-step
approach was utilized.
1. The Company’s overall revenue projections through 2017 were used. This revenue stream
was then adjusted to reflect the estimated portion of revenue related to brand names
(namely 20.3%) and assumes that the brand names lose their value within five years
unless it is continually supported by promotional activity.
2. An appropriate royalty rate was applied to the forecasted revenue to estimate the pre-tax
income associated with the asset. For this analysis, a royalty rate of 0.5% was then
applied for the use of the brand names, which was based on our discussions with
management, as well as our experience in other analyses. The selected royalty rate is on
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Albaad Hospeco PPA
the lower end of the market range, due to the fact that Tranzonic didn’t invest in
maintaining the brand names and the publicity of the brand was made by small retailers
who treated the branded products as their own private label.
3. Relief from Royalty revenue was projected. The pre-tax income was then tax-affected
assuming a 40% tax rate to estimate the after-tax net income associated with the asset.
4. The after tax net income was discounted to the present value using an appropriate rate of
return that considers both the risk of the asset and the associated cash flow estimates. A
15.1% discount rate was utilized to reflect the inherent risk associated with the revenue
stream of the brand name.
5. The discounted cash flows from the projection period were summed to estimate the fair
value. The tax benefit associated with amortizing the intangible asset was calculated and
this benefit was added to the total value of the brand name.
Based on the above analysis, the fair value of the “trade name” was estimated at 145 K
USD as of June 1, 2012 (Schedule No. 3 details the fair value of the brand names).
VALUATION OF CUSTOMER RELATIONSHIPS
As of the valuation date, it was assumed that there was value attributable to Hospeco’s existing
customer relationships, which is comprised from several significant clients, including major health
care companies (Institutional) and retail chains. The customer relationship valuation does not
include the value of the Tranzonic agreement.
Major clients, both retail and institutional, consist of approximately 62% of total revenues on
average (see ‘Attachment D’ for information on major clients).
Based on our discussions with management, the existing customer relationships were estimated
to have a remaining average economic life of approximately 8 years, with a decline of 12.5% each
year.
We valued the Company’s customer relationships using the excess earning Income Approach as
follows:
1. The Company’s overall revenue projections for five years were used, which was then
extrapolated to reflect the economic life. The revenue attributable to the existing
customers was then estimated based on a decline linear line of 12.5% per year starting on
the second year (first year projections include a huge deduction concerning known
abandonment of customers).
[21]
Albaad Hospeco PPA
2. The operational profit of the business was used for each period in which revenue was
projected in order to evaluate the contribution customer relationships provide to the
operating income.
Adjusted operational profit takes into consideration profits related to the supply agreement
with Tranzonic and is therefore lower than the operational profit presented on page 18.
3. The resulting cash flow is tax affected and reduced further by contributory charges to
support the asset’s projected sales, such as working capital, fixed assets, assembled
workforce, and brand name (see Schedule No.5). The net cash flows were then calculated
by subtracting the contributory assets charges (net of tax) from net income.
4. The resulting net cash flows are discounted at a rate commensurate with their risk. A
discount rate equal to 15.1% was utilized for the customer relationships, which is the
WACC of the business + 2% special risk factor.
5. The discounted cash flows were summed to estimate their fair values. The estimated tax
benefits associated with the intangible asset was calculated and this benefit was included
in the value of the customer relationships.
Based on the above, the estimated fair value of the customer relationships equaled $2,232
K USD, rounded, as of June 1, 2012 (Schedule No. 4 details the fair value of the Company’s
customer relationships).
[22]
Albaad Hospeco PPA
FINAL CONCLUSION
Based upon the working capital acquired, including inventory market price adjustment, other
tangible property valuation executed by other appraisals, and valuation of intangible assets, we
came to the conclusion that the assets purchased are as follows:
USD thousands
Real estate
Machinery & Equipment
Tools & Dies
Working Capital
Books
Fair Value(*)
1,154
5,800
522
5,231
274
1,950
11,031
6,357
6,817
Useful Life
Y
Tranzonic Agreement
Brands
1,093
145
6
5
Customer List
Intangible Assets
2,232
3,470
8
Total Purchased assets
Purchase Price
8,307
21,318
(14,900)
(14,900)
(*) Deferred taxes were not calculated.
[23]
Albaad Hospeco PPA
Attachment A – Real Property (land and buildings)
Attachment B – Machinery and Equipment
Attachment C – Working Capital as of June 1, 2012 (K USD)
Current Assets
Market Price
Final WC
Net Accounts Receivable
4,542
4,542
Inventory (*)
6,489
6,029
13
13
11,044
10,584
3,405
3,405
822
822
Total Operating Liabilities
4,227
4,227
Closing Working Capital
6,817
6,357
Prepaid Expenses / Other Assets
Total Current Assets
Operating Liabilities
Total Accounts Payable
Accrued Expenses
(*) Inventory value at market price see table next page
[24]
Albaad Hospeco PPA
Financial Schedules
Schedule No. 1 - Discount rate
In completing our valuation of identified intangible assets, we applied discount factors to each of
the projected cash flows of the intangible assets in order to determine their respective present
value, based upon discount rates commensurate with the inherent risk and the expected growth
of the subject intangible asset as well as the projected financial results. In determining an
appropriate overall discount rate, the weighted average cost of capital (“WACC”) was calculated
to equal 13.1%, rounded, by selecting market rates at the valuation date for debt and equity that
are reflective of the risks associated with an investment in the subject industry.
Based on the WACC calculation, a discount rate of 15.1% was used for the intangible assets
adding a 2% special risk to the WACC. The risk adjustment is added to the intangible assets to
reflect the assumption that different assets in the company value have a different return on
investment rate. And the total average return on assets is equal to the WACC of the company. In
the asset risk hierarchy the intangible assets usually bare a discount rate higher than the WACC.
Determination of the Discount Rate
Based on our analysis, the following calculation supports the discount rate applicable to Hospeco
as of the June 1, 2012, the valuation date.
The discount rate is estimated by calculating the weighted average cost of capital (“WACC”) of
companies comparable to Hospeco. The WACC is estimated based on the following three-step
procedure:
1. Calculation of required rate of return on debt.
2. Calculation of required return on equity capital.
3. Calculation of WACC.
Each of these steps is discussed in the subsequent sections.
A.1 Required Return on Debt
Albaad is using short term debts to finance investments. Management provided us with the
following information concerning quotes they received from banks:
Short term Libor based + 2%-3%.
[25]
Albaad Hospeco PPA
Long term Libor based 3%-4% (1 year Libor = 1.07%)
We assumed that the long term fixed Libor rate would be higher (at the rate of 5.6%).
A.2 Required Return on Equity Capital
The return on equity required of a company represents the total rate of return investors expect to
earn, through a combination of dividends and capital appreciation, as a reward for risk taking. The
Capital Asset Pricing Model (“CAPM”) is used to calculate the required rate of return on equity
investment by using publicly-traded companies. The CAPM equation is often modified to reflect
the additional risk, and hence higher required returns, associated with small capitalization stocks.
The modified CAPM equation is the following:
Re = Rf + β (Rm) = 18.3%
Where:
Re = Required rate of return on equity;
Rf = Risk-free rate of return- ten & twenty years9 US Treasury Bonds. 2.25%;
β = Beta of company. Unleveraged Market beta "Toilet" sector 1.1210, Leveraged β for the
company (D/E = 55%) 1.48;
Rm = Market Risk premium 11 – 6.54%;
Rs = Small stock risk premium12 - 6.36%
A.3 Company WACCWACC = Rf (1-T) * D/V + Re * E/V = 13.1%
T=40%
E=65%
D=35%
9
http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=longtermrateYear&year=2012
10
Damodaran
Damodaran 01/06/2012.
12
Ibbotson
11
[26]
Albaad Hospeco PPA
Schedule No. 2 – Customer Relationship - Tranzonic (in USD thousands)
Tranzonic Contract
Transzonic
Contract
Customer relationship Tranzonic
Year
Revenues
Operating Profit
Tax
Depreciation- Capex
21.0%
1
3,000
356
142
213
27
21.0%
2
3,000
356
142
213
27
22.0%
3
3,000
376
150
226
27
22.0%
4
3,000
376
150
226
27
23.0%
5
3,000
396
158
238
27
23.0%
6
3,000
396
158
238
27
Free Cash Flow
240
240
253
253
265
265
Total Contributing Assets
Contributing Assets Net of Tax
190
164
65
39
65
39
65
39
65
39
-60
-86
77
202
214
214
226
351
0.50
1.50
2.50
3.50
4.50
5.50
163
150
131
120
162
Net Cash-Flow
PV of Cash-Flow
Cash-flow PV
Tax amortisation benefit
Total Tranzonic Contract Value
71
798
295
1,093
[27]
Albaad Hospeco PPA
Schedule No. 3 – Brand Names (in USD thousands)
Brands
Year
Branded Product Revenue
Operating Profit
Tax
1
9,329
47
19
28
0.50
Cash-flow PV
26
104
42
Total Brands Value
145
2
9,516
48
19
29
3
9,706
49
19
29
4
9,900
50
20
30
5
9,900
50
20
30
1.50
2.50
3.50
4.50
23
20
18
16
[28]
Albaad Hospeco PPA
Schedule No. 4 – Customer List (in USD thousands)
Customer List
Year
Amortization Factor
Revenues
Operating Profit
Tax
1
100.0%
43,000
1,475
590
885
2
87.5%
37,625
1,775
710
1,065
3
75.0%
32,250
1,525
610
915
4
62.5%
26,875
1,225
490
735
5
50.0%
21,500
943
377
566
6
37.5%
16,125
697
279
418
7
25.0%
10,750
465
186
279
8
12.5%
5,375
232
93
139
Contributing Assets
Total Contributing Assets
Contributing Assets Net of Tax
925
555
809
485
693
416
578
347
462
277
347
208
Net Cash-Flow
330
580
499
388
289
210
140
70
0.50
1.50
2.50
3.50
4.50
5.50
6.50
7.50
308
1,696
535
2,232
470
351
237
153
97
56
24
Cash-flow PV
Customer list
[29]
231
139
116
69
Albaad Hospeco PPA
Schedule No. 5 – Contributing Assets
Working Capital –
Working capital needs are assumed to be 12% of total revenue based on historic activity (see
table below). The working capital needs are charged with 4.5% interest rate based on Albaad’s
marginal short term credit expenses.
USD 000
WC
Revenue
%
28/02/2012 28/02/2011 28/02/2010
6,633
6,275
5,625
53,598
51,890
55,065
12.4%
12.1%
10.2%
Assembled Manpower –
Most of Hospeco employees are easy to recruit and train.
According to management they
represent approximately 1.5% of total company revenues. The relative manpower expense was
charged at the company WACC.
Equipment and Fixed Property –
Total machinery and equipment, are valued by an independent appraiser at approximately $5.2
Million.
Land and buildings were also valued by an independent appraiser at $5.8 Million ($1 Million for
the land and $4.8 Million for the buildings).
We charged equipment and machinery, land and buildings according their proportional share from
revenues (23.4%) at an interest rate of 5.6% representing long term debt of the company.
Brand Name –
Approximately 20% of company sales are branded products. The relative revenue related to
branded products was charged with the royalty rate of the Brand, 0.5%.
[30]
9905 Hofelich Lane
Louisville, Kentucky 40291
e-mail: [email protected]
Jesse Lyninger/President – Cell: 502-523-4151
J.P. Lyninger III – Cell: 502-314-7390
August 8, 2012
Hospeco
c/o Mr. Stephen Ruschell
Stites & Harbison
250 West Main Street, Suite 2300
Lexington, KY 40507
MACHINERY & EQUIPMENT APPRAISAL
As requested, the undersigned observed, listed and valued all machinery and equipment of
Hospeco, 500 Memorial Drive, Nicholasville, Kentucky, on May 24 and 25, and June 1, 2012.
This appraisal is exclusively for the use of Albaad USA, Inc. for financial reporting purposes
and for purchase allocation as required under the IFRS3 summary for business combinations
only. Not included are work in progress/process, patents, patented processes, finished products,
inventory, supplies, small desktop items, tools, replacement/repair parts, nor perishable tooling.
It is assumed that all assets made a part of this appraisal report are owned by and belong to
Hospeco, unless otherwise stated. However, no investigation has been made to verify that
ownership nor has such verification been requested by Albaad USA, Inc.
The opinions contained in this report reflect certain significant assumptions and assessments.
These include assessments of the machinery and equipment's normal useful life, physical
deterioration rate, and the soft costs of acquisition such as taxes, freight and installation. They
also include adjustments made to market comparables for age, condition, and capacity. In the
case of the normal useful life, this varies based on the asset category, but for the major
equipment described in this appraisal the normal useful life was assessed at 40 years with a
physical deterioration rate commensurate with this expected life. Taxes were assessed based on
the machinery and equipment's location in the state of Kentucky and assigned at 6%. Freight and
installation were assessed based on research with various third party service providers. The
adjustments made to the market comparables in order to reflect differences with the subject
equipment was also handled on a per-case basis, with an emphasis on selecting comparables that
best matched each subject to ensure minimal adjustment. Value differences based on age were
calculated based on our assessment of average useful life and value differences based on capacity
were calculated based on the cost to capacity model promoted by the ASA. These calculations
were performed using an accelerated depreciation method based upon the age and condition of
the item with an emphasis to loss of value early in a machine's life/deterioration.
The purpose of this appraisal project was for Tritech Appraisals, Inc. to determine a conclusion
of Fair Market Value - In Continued Use of the Subject assets as of the effective date.
However, Tritech Appraisals, Inc. did not reach a conclusion as to the value of all items sold to
one entity or a "turnkey" value. Subsequently, the indicated value conclusion represents an
"aggregate" value based upon all items contained herein but does not intimate that there could
not be any future fluctuation of the value conclusion set forth in this appraisal report as there
could be many factors to change, alter and/or affect this conclusion.
The fee for this appraisal report is for Tritech Appraisals, Inc. expressed value opinion as of the
indicated effective date, and carries with it no warranties or guarantees as to the outcome. This
report sets forth our findings and conclusions based upon an investigation of conditions affecting
value under the Fair Market Value - In Continued Use concept, and is subject to the Statement
of Limiting Conditions, Definitions and Valuation Methodology contained in the body of this
appraisal report. Without reading and understanding these sections, this appraisal report could be
erroneously interpreted.
This appraisal report is delivered via a Summary Format, which is in compliance with the current
Uniform Standards of Professional Appraisal Practice (USPAP), as promulgated by The
Appraisal Foundation and required by The American Society of Appraisers (ASA).
Thank you for the opportunity to be of service in this matter. If there are any questions regarding
the method of appraisal, value concept or indicated values, contact me at (502) 314-7390.
TRITECH APPRAISALS, INC.
JP Lyninger III
Lead Appraiser
Jesse P. Lyninger
President/Appraiser
2
Appraisers Commentary
Report Formats
Complete & Limited Scope Appraisals are available in three formats, which is
dependant upon your individual appraisal needs. As discussed within Tritech's original
proposal, the type of appraisal report requested and provided herein has been identified as
a Complete Appraisal, delivered via a Summary Format, which is in compliance with
the current Uniform Standards of Professional Appraisal Practice (USPAP), as
promulgated by The Appraisal Foundation and required by The American Society of
Appraisers (ASA). Accordingly, the following provides a list and explanation of the
various types of appraisal reports and formats.
APPRAISAL TYPE:
COMPLETE APPRAISAL: An estimate of value performed represents an
assignment whereby the appraiser estimates the value of the Subject without any
atypical assumptions or conditions and "certifies" without reservations.
A Complete Appraisal in Summary Format is the industry norm representing an
unbiased third-party opinion of value, which can be fully supported via
documentation contained in the project file.
LIMITED APPRAISAL: An estimate of value resulting from invoking the
Departure Provision of USPAP - Represents an assignment whereby the appraiser
estimates the value of Subject considering any assumptions or conditions that
would otherwise be atypical, and "certifies" with reservations.
Limited appraisals often do not withstand scrutiny under examination. The
definition implies that it is "something less than a complete appraisal" and,
therefore, has not been documented thoroughly.
An example of a Limited Appraisal is where the appraiser cannot or does not
personally observe the Subject items. This can only be accomplished if the
appraiser is provided adequate information.
APPRAISAL FORMAT:
SUMMARY FORMAT: This format covers all aspects relative to a Complete or
Limited Scope Appraisal. However, the presentation of information is more
concise, all data references are considered and only results of any analyses are
provided. Most appraisals are provided in this format.
3
Report Formats (Continued)
RESTRICTED FORMAT: This format offers a minimum presentation of
information. Its use is restricted to Albaad USA, Inc. and only for the specific
purpose for which it is requested.
SELF-CONTAINED FORMAT: This format provides the most comprehensive
and detailed information available and the most complete analysis as it relates to
the valuation of the assets in review. This format is seldom used.
Scope & Complexity
Specifically regarding the value analysis for the Machinery & Equipment referenced
herein, please note the following:
1.
The Subject Machinery & Equipment is utilized within the production of
padded hygiene and incontinence products industry. Hospeco is privately
held and operates in Nicholasville, Kentucky.
2.
All assets appeared to be in good working condition, unless otherwise
noted. It is not always possible to observe all items while in operation.
3.
Regarding the scope and complexity of this appraisal project, we have
personally observed assets located at the subject facility, unless otherwise
noted. Each major asset has been itemized within the attached listing.
Minor assets have been included when physically attached to, or when
appropriate to be listed with, a major asset within one lot. The following is
a brief description of the majority of assets as contained within this
appraisal report:
Office Furniture and Equipment, Quality Control Equipment,
Machine Shop Equipment, Air Compressors, Production
Equipment, Material Handling, plus all ancillary equipment.
4.
Maintenance is performed on an as needed basis. Major overhauls or
rebuilds extend the life of various Machinery & Equipment. That
information is located in the project file and was taken into consideration
when calculating the value. Normal maintenance is assumed throughout the
life of a machine.
4
Application of Fair Market Value - In Continued Use
The purpose of this report requires one type of value estimate: Fair Market Value - In
Continued Use, defined as follows:
"The estimated amount expressed in terms of money that may
reasonably be expected for property in exchange between a willing
buyer and seller with equity to both, neither under compulsion to
buy nor sell and both fully aware of all relevant facts and including
installation and assuming that the earnings support the value
reported."
Source of Definition: American Society of Appraisers.
This value definition attempts to recapture all costs incurred to make the equipment a
producing asset. The concept implies a purchaser will incur all of these costs to replicate
the existing operation, including soft costs. Specifically, Fair Market Value - In Continued
Use represents the “tangible” value of a producing asset. Goodwill and other intangible
values have not been considered, nor are they included within. Estimated values are
based on a marketing period of six to twelve months within the continental United
States.
Specifically, installation costs (soft costs) include engineering and design fees,
procurement costs, transportation, site improvements, millwright and rigging fees,
electrical connections and power feed wiring, compressed air / water / oil / gas process
piping, start-up costs, permits and license fees, quality assurance certifications,
maintenance certifications, and any other cost necessary for the machine to function
properly.
Each category of cost has been included within each machine’s value, rather than via
category.
1.
Engineering / Design Fees such as production flow and plant layout.
2.
Procurement Costs such as labor and travel.
3.
Transportation such as from the manufacturer, distributor, or supplier to
the facility.
4.
Site Improvements, which would be anything necessary for equipment to
operate such as reinforced foundations, pits, drainage ponds, and
transformer pads.
5.
Millwright Fees / Rigging such as labor, equipment rental to move
equipment from lading dock into position within facility.
5
Application of Fair Market Value - In Continued Use
(Continued)
6.
Plant Process Piping, which includes things such as labor and material for
iron pipe, schedule 80 PVC schedule 40 PVC, schedule 35 PVC, and
copper pipe that services:
•
Gas
•
Water
•
Air
•
Steam
7.
Electrical power feed panels and wiring from sub-station into and
throughout plant, which would include things such as pads, buss duct,
conduit, wire transformers, panels, fuses, and disconnects.
8.
Start-Up costs, which would include things such as technician and
operator training, de-bugging of equipment, and overhead during downtime.
9.
Permits / Licenses / EPA Regulatory Compliance, which would include
things such as fees, consultants, and training.
10.
Quality Assurance Programs, which would include things such as
certification, labor, fees, travel, and training.
11.
Maintenance, which would include things such as classes, certifications,
labor, fees, and travel.
12.
Sales Tax.
6
Research Data
Data includes information necessary for the appraiser to consider both the Cost and
Market approaches to estimating value. New/replacement costs, depreciation rates,
remaining useful life, observed obsolescence, current listings, verified sales, auction
results, and various installation and transportation costs have been considered. Sources
included new and used machinery dealers and distributors, manufacturers, used
equipment brokers, and auction companies. This information was conveyed either by
direct contact, i.e., telephone conversation, published periodicals or via the Internet.
These include, but are not limited to, the manufacturers of the equipment; second party
dealers, brokers and market places such as Wotol, ex-Factory, Machinery Trader, Negia, ,
Bohemia-Grafia, Richer Investments, and ebay.
Transaction
The appraisers will attempt to identify "Arms Length" transactions representative of the
market. Estimated values are based on a marketing period of six to twelve months
within the continental United States. However, valuations reported herein are as of
the effective date of appraisal. Most values change over time.
Value Analysis
All three approaches to value, Cost, Market and Income, have been considered. The Cost
approach is often a reliable indication of value for those items less than five years old, or
less than 25% depreciated, due to the lack of sales data. The Cost Approach becomes
more unrealistic as the item incurs more depreciation due to age and use. The Market
Approach is generally considered to be the most reliable/accurate indication of used
value. However, each comparable sale must be analyzed. Also, market sales activity can
be quite difficult to measure within some industries. The Income Approach was
considered but not used because it would be nearly impossible to determine the value
added to earnings for each item as a result of the use of this equipment on a piecemeal
basis.
7
Industry Review
The Midwest may be as stable as any area in the U.S., as of June 2012. The estimated
values herein reflect the current market conditions as of June 2012. Several economic
indicators reveal the economy to be in a state of flux. Indeed, our commercial banking
contacts have reported they are beginning to loosen credit after the recent real estate
debacle.
Regarding older equipment, please note several observations, each contributing to a
depressed market:
1.
An abundance of equipment on the market;
2.
obsolete controls; and
3.
aggressive pricing from manufacturers for new equipment.
Upon these conditions, and those previously mentioned, we expect the used machinery
market also be in a state of flux due to marketability. Used equipment less than ten years
old should continue to sell well with obvious exceptions such as computers, and related
services are realizing a slower market.
All value analyses, research documentation, original notes, observed obsolescence, and
data received from Hospeco are contained within the Project File.
8
Recapitulation
"Fair Market Value - In Continued Use"
Hospeco
Nicholasville, Kentucky
Effective Date: June 1, 2012
Total Appraised Value
$5,231,390.00
Five Million, Two Hundred Thirty-One
Thousand, Three Hundred Ninety Dollars
For values to continue to have meaning, periodic updating must be performed due to changing
conditions, which includes, but is not limited to: Physical Deterioration, Functional
Obsolescence, Economic Obsolescence and the General Economy. The accuracy of our opinion
could be altered significantly by any change in these assessments or conditions.
9
Assumptions & Statements
of Limiting Conditions
1.
The delivery and acceptance of this appraisal report constitutes fulfillment of the
contract between the field appraisers, any employees, officers or authorized
agents of Tritech Appraisals, Inc. and the entity requesting said appraisal, Albaad
USA, Inc.
2.
The field appraisers, nor any employees, officers or authorized agents of Tritech
Appraisals, Inc. do not accept responsibility for reporting on any possible E.P.A.
and/or O.S.H.A. violations, and are not qualified to render such evaluations. The
appraisers have not been requested nor have they performed an environmental
audit on the Subject addressed within. Neither the appraisers nor anyone
representing Tritech Appraisals, Inc. has yielded an opinion of any kind or nature
regarding the possible existence of piping systems and/or chemicals, solutions and
raw materials. If a question arises regarding potential hazards or contaminates,
pertaining to either substance used on-site, the appraisers recommend that the
reader contact an independent professional environmental engineering and/or
consulting firm to perform an analysis.
3.
Not included are work in progress/process, patents, patented processes, finished
products, inventory, supplies, small desktop items, tools, replacement/repair parts,
nor perishable tooling.
4.
No investigation of legal fee, legal description or title to the Subject Machinery &
Equipment has been made by the field appraisers, any employees, officers or
authorized agents of Tritech Appraisals, Inc. Therefore, any claims by Hospeco
regarding legal fee, legal description or title to the Subject Machinery &
Equipment is assumed to be valid and marketable unless otherwise indicated.
5.
The Subject assets have been personally observed unless otherwise noted.
6.
In most instances, equipment is itemized though in certain cases are listed in a
group estimate. In such cases, the listings are shown in a quantity called a "Lot."
This is usually done in value areas that require general descriptions for
applications elsewhere, or in areas where difficulty of access for total description
would have required additional time not justified by the items being valued. Also,
certain instances not only justify, but also actually mandate, items being grouped
when it would be illogical to list them separately.
10
7.
Description of items made a part of this report are believed correct to the best
ability of the appraisers. Any errors or omissions were unintentional and should
not affect the value assignment. Descriptions are made with the attempt of
allowing reasonable identification though it may not allow specific item
identification in all cases. Examples of this would be in such areas as cabinets,
tables, chairs, shelving, racking, hand tools and equipment unserialized, located
such that they could not be viewed, or without justification for a serial number
search due to associated value and/or time considerations. In some cases,
identification numbers could not be located or were not visible.
8.
The valuation concept used in this report is one chosen by Albaad USA, Inc. and
should not be considered a recommendation by any employee, officer or
authorized agent of Tritech Appraisals, Inc. as to what might result in any later
application of the concept. Concept probability and/or feasibility of occurrence
are beyond the scope of the appraisal. The user of the report is to determine the
probability of occurrence. The appraisal is purchased in order to allow an opinion
of value under an assumed set of circumstances, as requested and mutually agreed
upon by Albaad USA, Inc. and Tritech Appraisals, Inc.
9.
Neither the field appraisers nor any employees, authorized agents or officers of
Tritech Appraisals, Inc. has any financial interest in the Subject Machinery &
Equipment appraised.
10.
The field appraisers and any other employees, officers or authorized agents of
Tritech Appraisals, Inc. reserve the right to recall all copies of this appraisal
report to correct any omission or error.
11.
This appraisal report is in compliance with the strictest interpretation of Standard
8 of The Uniform Standards of Professional Appraisal Practice as well as the
Code of Ethics of The Equipment Appraisers Association of North America and
The American Society of Appraisers. Under this standard, this appraisal report is
submitted as a Summary Format, which covers all aspects relative to a Complete
or Limited Appraisal. However, the presentation of information with a Summary
Format is more concise, all data references are considered and only results of any
analyses are provided.
11
12.
This valuation study has been made by Tritech Appraisals, Inc. and will be held
confidential. It has been prepared by experienced appraisers in accordance with
accepted appraisal practices and reflects the best judgment of the appraisers.
When appropriate, manufacturers, new, and used dealers have been consulted for
comparable prices. Also, catalogs, trade publications and results of sale
comparables have been utilized. For all areas of this study, the assigned values
represent the amount a reputable and qualified appraiser, unaffected by personal
interest, bias or prejudice would recommend to a prospective purchaser as a
proper price or cost within the value concept and in light of prevailing conditions.
13.
An appraisal is an opinion of value and opinions may vary due to differences in
perception and to quality, condition, etc. Therefore, an appraisal is not a guarantee
of value and should not be perceived as such. This appraisal was made under the
conditions which existed at the time this data was gathered. Change in economic
conditions locally and nationally, changes in condition of items appraised,
changes in technology, functional and economic obsolescence are but a few items
which could substantially alter future value. Since conclusions by the appraiser
are based upon judgments, isolation of any single element as the sole basis of
comparison of the whole appraisal may be inaccurate.
14.
The fee for this appraisal report is not contingent upon the values reported. There
have been no guarantees associated with this fee and no liability can be intimated
or assumed in any manner by the field appraisers, any employees, authorized
agents or officers of Tritech Appraisals, Inc.
15.
As this appraisal report has been purchased by the addressee, Tritech Appraisals,
Inc. assumes it is to be used by the addressee in determination of value as of the
effective date of this appraisal report. Use of this appraisal report by others should
be done so with the understanding that no risk or guarantees have been purchased
by the owner of this report nor through the fee paid to the field appraisers,
employees, authorized agents or officers of Tritech Appraisals, Inc.
16.
The physical condition of the Subject Machinery & Equipment described herein
was based upon visual inspection by the field appraisers. No responsibility is
assumed for latent defects of any nature that may affect its value, nor for any
expertise required to disclose such conditions.
12
17.
All opinions regarding the value conclusions are the appraiser's considered
opinion based upon the facts and data set forth in this appraisal report.
18.
This appraisal report is based upon Fair Market Value - In Continued Use
defined as follows:
"The estimated amount expressed in terms of
money that may reasonably be expected for
property in exchange between a willing buyer and
seller with equity to both, neither under compulsion
to buy nor sell and both fully aware of all relevant
facts and including installation and assuming that
the earnings support the value reported."
Source of Definition: American Society of Appraisers
19.
All field notes and relevant documents pertaining to this appraisal report utilized
by the field appraisers, any employees, officers or authorized agents of Tritech
Appraisals, Inc. are secured in our master files for five years.
20.
No additional values or appraisals have been made regarding intangibles such as
patents, rights to manufacture, trademark, goodwill and customer lists.
21.
Tritech Appraisals, Inc. reserves the right to include your company/firm name in
our client list, and will maintain confidentiality of all conversations and
documents provided to us, as well as the contents of this appraisal report.
However, these conditions are subject to any legal or administrative process or
proceedings, and can only be modified by written documents executed by both
parties.
22.
This appraisal report has been prepared in conformity with and is subject to the
requirements of The Principles of Appraisal Practice and Code of Ethics of The
American Society of Appraisers and the Uniform Standards of Professional
Appraisal Practice.
13
23.
Any information furnished by others regarding the Subject Machinery &
Equipment to the field appraisers, any employees, officers or authorized agents of
Tritech Appraisals, Inc. is believed to be reliable, accurately represented and
reasonably correct. However, the field appraisers, nor any employees, officers or
authorized agents of Tritech Appraisals, Inc. issues any warranty or other form of
assurance regarding its accuracy.
24.
The field appraisers, as well as any employees, officers or authorized agents of
Tritech Appraisals, Inc. assumes there to be responsible ownership and
competent management with respect to the Subject Machinery & Equipment.
25.
The field appraisers, as well as any employees, officers or authorized agents of
Tritech Appraisals, Inc. assumes there is full compliance with all applicable
federal, state and local regulations and laws unless the lack of compliance is
stated, defined and considered in this appraisal report.
26.
The contents of this appraisal report shall not be disseminated to the public
through advertising, public relations, news, sales or other media without prior
written consent and approval by Tritech Appraisals, Inc.
27.
Possession of this appraisal report does not carry with it the right of publication
and may not be used for any purpose by any person or entity other than the person
or entity to whom it is addressed without the written consent of Tritech
Appraisals, Inc. Further, if written consent is obtained from Tritech Appraisals,
Inc., use of this appraisal report may only be done so with proper written
qualifications and only in its entirety. This appraisal report is only valid as of the
effective date(s) and purposes specified herein.
28.
By reason of this value opinion, the field appraisers nor any employees, officers
or authorized agents of Tritech Appraisals, Inc. are not required to give testimony
or to be in attendance in court with reference to the Subject Machinery &
Equipment unless arrangements have been previously made. Should these
services be required or requested of the field appraisers, any employees, officers
or authorized agents of Tritech Appraisals, Inc. with regard to testimony or court
appearances, appropriate fee and expenses would apply as these services are in
addition to the original scope of this appraisal report.
14
29.
The field appraisers, nor any employees, officers or authorized agents of Tritech
Appraisals, Inc. do not assume responsibility for any financial reporting
judgments that are those of management. Further, management of Hospeco
accepts the responsibility for any related financial reporting with respect to the
Subject Machinery & Equipment encompassed by this appraisal report.
30.
Neither the appraisal assignment nor the amount of the fee is contingent upon
developing or reporting a predetermined value, requested minimum value, a
direction in the value that favors the cause of Albaad USA, Inc., a specific
valuation, the approval of a loan, the amount of the value estimates or attainment
of a stipulated result. Nor is the compensation of any appraiser, officers or
authorized agent of Tritech Appraisals, Inc. contingent upon an action or event
resulting from the analyses, opinions or conclusions in, or the use of, this
appraisal report, or the occurrence of a subsequent event directly related to the
intended use of this appraisal report.
31.
The maximum liability of Tritech Appraisals, Inc. for the breach of any
obligation in connection with this appraisal assignment or appraisal report, and for
any and all damages of any type or nature, whether in a contract or in a tort and
whether compensatory, consequential or punitive in nature, sustained or claimed
by Hospeco or any other person or entity in connection with this appraisal
assignment or appraisal report, shall be limited to the fee actually paid to and
received by Tritech Appraisals, Inc. In no event or circumstance shall Tritech
Appraisals, Inc. have any liability to Albaad USA, Inc. or any other person or
entity in excess of the fee actually paid to and received by Tritech Appraisals,
Inc.
32.
The summary value indicated in this report represents an "aggregate" value based
upon all items noted herein. For this reason, isolation of any single element as a
sole basis of comparison may be inaccurate and subsequent isolation of any single
item appraised, or group of items appraised, could result in a variance from the
values reported.
33.
If any other limitations apply to this appraisal report, they will be clearly defined
and individually set out at that point in which it would be relative to the Subject
Machinery & Equipment.
15
The opinions contained in this report reflect certain significant assumptions and
assessments. These include assessments of the machinery and equipment's normal
useful life, physical deterioration rate, and the soft costs of acquisition such as
taxes, freight and installation. They also include adjustments made to market
comparables for age, condition, and capacity. In the case of the normal useful life,
this varies based on the asset category, but for the major equipment described in
this appraisal the normal useful life was assessed at 40 years with a physical
deterioration rate commensurate with this expected life. Taxes were assessed
based on the machinery and equipment's location in the state of Kentucky and
assigned at 6%. Freight and installation were assessed based on research with
various third party service providers. The adjustments made to the market
comparables in order to reflect differences with the subject equipment was also
handled on a per-case basis, with an emphasis on selecting comparables that best
matched each subject to ensure minimal adjustment. Value differences based on
age were calculated based on our assessment of average useful life and value
differences based on capacity were calculated based on the cost to capacity model
promoted by the ASA. These calculations were performed using an accelerated
depreciation method based upon the age and condition of the item with an
emphasis to loss of value early in a machine's life/deterioration.
Sensitivity Analysis, Physical Condition/ Freight &
Installation of Diaper & Sanitary Napkin Lines
Physical Condition
Adjustment
34.
Freight & Installation Assessment Adjustment
20% Decrease
20% Increase
F&I
No Change
F&I
-$23,100.00
$0.00
$30,150.00
-10%
$4,193,715.00 $4,216,815.00 $4,246,965.00
-5%
$4,427,982.50 $4,451,082.50 $4,481,232.50
No
Change
$4,662,250.00
$4,685,350.00
$4,715,500.00
5%
$4,896,517.50
$4,919,617.50
$4,949,767.50
10%
$5,130,785.00
$5,153,885.00
$5,184,035.00
16
General Information & Definition
Inspection Review
EFFECTIVE DATE:
June 1, 2012
INSPECTION DATE(S):
May 24 and 25, and June 1, 2012
REPORT DATE:
August 8, 2012
LOCATION(S) INSPECTED:
500 Memorial Drive, Nicholasville, Kentucky
Inspection of the Machinery & Equipment for Hospeco located in Nicholasville,
Kentucky was performed by the signing appraiser(s) for the purpose of ascertaining the
Fair Market Value - In Continued Use of those assets as of the effective date of this
appraisal report.
Purpose of Appraisal
The purpose of this appraisal is to estimate the Fair Market Value - In Continued Use of
the Subject Machinery & Equipment. Tritech Appraisals, Inc. did conduct an audit, a
cursory physical inspection and/or a review of information as supplied by Hospeco of the
Subject Machinery & Equipment, contained in this appraisal report, was conducted by
our field appraisers to assist them in estimating the value opinion set forth in this
appraisal report.
Function of Appraisal
The property interest (rights) appraised is that of ownership in fee simple. The Subject
Machinery & Equipment is appraised as if free and clear, without liens or encumbrances
unless otherwise indicated.
There are proper uses for various concepts of value. However, Albaad USA, Inc. may
determine that the concept of value this appraisal report is based upon fits a particular
need for them and, therefore, could misconstrue or misrepresent the contents of this
appraisal report. As there are generally accepted standard definitions for value concepts,
each value concept, as specifically defined, indicates a conclusion of value that would be
ascertained by Tritech Appraisals, Inc., regardless of Albaad USA, Inc. or their intended
use. Subsequently, it is inherently the responsibility of Albaad USA, Inc. to determine if
the concept of value chosen is proper for its intended use.
17
Function of Appraisal (Continued)
Additionally, Albaad USA, Inc. is not prohibited from investigating value concepts to
determine their typical and known common uses. They are also not prohibited, after their
investigations, from choosing to adapt any concept of value to a use that may be
considered reasonable by their own internal standards. Therefore, the function of this
appraisal report is the use of the report by Albaad USA, Inc., with their knowledge of the
defined circumstances regarding value concepts, typical uses or intended use.
Highest & Best Use
Highest and best use is defined as the reasonably probable and legal use of personal
property, which is physically possible, appropriately supported, financially feasible and
results in the highest value in the appropriate marketplace within the defined value
concept, consistent with the purpose of this appraisal report. As generally understood, the
highest and best use of the Subject is that for which it was designed.
Highest and best use has been considered for the Subject Machinery & Equipment
contained in this appraisal, which is in accordance with Standard 7, Subsection 3(a) of the
Uniform Standards of Professional Appraisal Practice (USPAP).
CLIENT:
Albaad USA, Inc.
SUBJECT:
Hospeco
USER:
Albaad USA, Inc.
INTENDED USE:
Financial reporting purposes and for purchase allocation as
required under the IFRS3 summary for business combinations
DEPRECIATION / OBSOLESCENCE
CONSIDERATIONS:
PHYSICAL DETERIORATION:
Loss in value or usefulness attributable solely to physical causes such as wear and
tear and exposure to the elements.
18
Highest & Best Use (Continued)
FUNCTIONAL OBSOLESCENCE:
Loss in value due to factors inherent in the property itself, which would result in
inadequacy, overcapacity, excess construction, lack of functional utility and excess
operating costs or costs of maintaining utility beyond the Reproduction Cost of an asset,
such as a software platform upon which the current economy may provide an advantage
that outweighs the current operation of older platforms.
Additionally, Albaad USA, Inc. is not prohibited from investigating value concepts to
determine their typical and known common uses. They are also not prohibited, after their
investigations, from choosing to adapt any concept of value to a use that may be
considered reasonable by their own internal standards. Therefore, the function of this
appraisal report is the use of the report by Albaad USA, Inc., with their knowledge of the
defined circumstances regarding value concepts, typical uses or intended use.
.
ECONOMIC OBSOLESCENCE:
ITEM SPECIFIC - Loss in value caused by unfavorable external conditions as a direct
result of factors related to the item.
INDUSTRY SPECIFIC - Loss in value caused by unfavorable external conditions as a direct
result of factors related to the industry.
BUSINESS SPECIFIC - Loss in value caused by unfavorable external conditions as a direct
result of factors related to the business.
INTEREST
APPRAISED:
Fee Simple
Approaches to Value
Values reflected in this appraisal report are primarily based on one or a combination of
the approaches to value below.
19
Approaches to Value (Continued)
COST APPROACH:
This approach is based on the proposition that an informed purchaser would pay no more
for a property than the cost of producing a substitute property with the same utility as the
Subject property. It considers that the maximum value of a property to a knowledgeable
buyer would be the amount currently required to construct or purchase a new asset of
equal utility. When the Subject asset is not new, the current cost new for the Subject must
be adjusted for all forms of depreciation and obsolescence as of the date of the appraisal.
SALES COMPARISON APPROACH:
This approach, also known as the “Market Comparison,” involves the comparison of
comparable recent sales (or offerings) of similar assets to the Subject. If the comparable
sales are not exactly like the Subject, adjustments must be made to the price of the
comparable sales (or offerings.) The adjustments may be either up or down in order to
estimate what the comparable would have sold for if it had the same characteristics as the
Subject. This approach leads to an indication of the most probable selling price for the
assets being appraised.
INCOME APPROACH:
This approach considers value in relation to the present worth of future benefit derived
from ownership and is usually measured through the capitalization of a specific level of
income. This approach is rarely utilized in the valuation of personal property.
Explanation of Approaches Not Used
The Income Approach was not used because it would be nearly impossible to determine
the value added to earnings as a result of the use of this equipment for several reasons.
These include, but are not limited to, a difficulty in assigning value to individual
production assets based on income information which is not parceled out according to
individual production assets; difficulty in assigning value to machinery and equipment as
a category separate from other assets, services and liabilities; and the inability to assess
the value provided by support equipment versus production equipment.
20
Valuation Methodology
The Subject Machinery & Equipment has been described and valued as if installed and
currently operating. In some instances, an entire line of related machinery is designed or
has been modified to perform a particular function as an integral unit and should justify
greater value application as a unit rather than if it were separated out.
Information provided by Hospeco was utilized as an aid by Tritech's field appraisers in
determining how the Subject Personal Property has been maintained. This is an important
issue as there must be an understanding of factors such as:
1.
What portion of the Subject Machinery & Equipment is used or new,
where applicable;
2.
the general physical condition; and
3.
specific obsolescence, where identified.
The balance of forces, which affects value for particular types of machinery or pieces of
equipment, is analyzed by the appraisers and the final value assignment on each item is,
in part, a reflection of this analysis. Therefore, The Fair Market Value - In Continued
Use concept of value requires not only the judgment and ability of the appraisers to
evaluate a specific piece of equipment, but also the experience to anticipate what could
happen under a given set of circumstances based upon actual sales of like or similar
assets, with adjustments made for:
1.
conditions at time of observation;
2.
quantities and desirability;
3.
location;
4.
general appearance;
5.
psychological appeal;
6.
cost of similar or like used and new equipment;
21
Valuation Methodology (Continued)
7.
and degree of specialization or modification.
The reported values are also adjusted for installation considerations such as:
1.
transportation;
2.
wiring;
3.
special foundations, walls, pits;
4.
difficulty of installation;
5.
adaptions; and
6.
plumbing.
The value opinion reflected in this appraisal report was based primarily upon one or a
combination of the preceding Approaches of Value, with heavier emphasis on the Sales
Comparison Approach, when sufficient data was available. In certain instances, as in the
case of custom Machinery & Equipment, a market analysis may be undertaken to
ascertain current demand, marketability, and subsequent value. Market analysis may also
be undertaken if functional or economic obsolescence is a key factor in a major machine
tool or piece of equipment. Additionally, certain categories of Machinery & Equipment
are subject to routine loss in value as a result of physical deterioration. In other instances,
functional obsolescence is determined through a comparison with other items that may
operate more efficiently and cost effectively.
It should be understood that the indicated value in this appraisal report does not consider
an item's replacement in like kind and utility but rather what the specific equipment
observed is worth under the scenario as defined. With all things equal, it is possible that
an exact piece of equipment, if found, could be obtained for the value indicated under the
applied concept of value. Comparisons would have to take into account adjustments for
exacts such as location, installation, condition, industry, locational economics and
possible draw through all "causes and effects" associated with the concept. Realistically,
exact comparables are not always possible; therefore, the only use of this appraisal report
can be applied to the specific equipment at its location. It is not to be used nor is it to be
represented as a valuation as would be applied to replacement or depreciated replacement
for insurance purposes. However, the item description, in most cases, contains specifics
22
Valuation Methodology (Continued)
that would be needed for determining replacement in like kind and utility, though values
may be different than those indicated by this study. It is not probable that if all equipment
were to be replaced within a plant, that every item would be found; therefore, some items
would be replaced at used prices higher or lower than the indicated value, whereas others
would have a requirement for replacement or reproduction cost new due to the inability to
locate this item in the new or used market.
Definition
Consideration of Hospeco Machinery & Equipment is made under the Fair Market
Value - In Continued Use concept as defined below.
"The estimated amount expressed in terms of money that may
reasonably be expected for property in exchange between a willing
buyer and seller with equity to both, neither under compulsion to
buy nor sell and both fully aware of all relevant facts and including
installation and assuming that the earnings support the value
reported."
Source of Definition: American Society of Appraisers
This concept assumes the premise of continued use, which assumes the equipment or
assets will continue to be used for the purpose for which it was designed and built or to
which it is currently adapted. The premise implies that the property will be retained at its
present location for continued operation. It also implies that the equipment or assets are
installed, operating, and an integral part of the entity in which they are employed and
fulfills an economic demand and benefit.
This concept of value takes into consideration any inflationary or depreciable conditions,
which could affect sales such as physical location, difficulty of removal, adaptability of
specialization, marketability, physical condition, overall appearance and psychological
appeal. Further, it considers the ability to draw interested buyers. However, it does not
consider any additional value because of product line or other elements of value under
Fair Market Value - In Continued Use conditions that may be obtained, but could not be
foreseen. It also presupposes the continued utilization of each asset in conjunction with
all other installed assets. As particularly applied to Machinery & Equipment, Fair
Market Value - In Continued Use is the value of a piece of equipment installed, in place,
for continued operation, as utilized as of the effective date stated herein. Therefore, any
23
Definition (Continued)
deletions or additions to the Machinery & Equipment made a part of this appraisal report
could alter the psychological and / or overall appeal necessary to obtain the expressed
value opinion of the signing appraisers. Meaning, any changes could significantly affect
Tritech Appraisals, Inc.'s current value opinion as of the effective date of this appraisal
report.
The assignment for any Fair Market Value In - Continued Use appraisal does not
necessarily indicate the concept as a proper method of disposal if market testing should
be required at a future date. These value concepts and their inherent assumptions are
requested for various uses or guidelines by the addressee shown on the letter of
transmittal. The assumed set of circumstances may not allow the concept to be
recommended when and if sales of assets should be desired or required.
This value concept has been requested by Albaad USA, Inc. and should not be
considered as a recommendation by the field appraisers or any other employees, officers
or authorized agents of Tritech Appraisals, Inc. The applied value concept is considered
fair and reasonable under the assumptions made, but could contain risks due to changing
conditions and the assumed resale of all Machinery & Equipment considered part of this
appraisal report. The overall indicator is the appraiser's value opinion as to the result of a
Fair Market Value - In Continued Use sale of the Subject Machinery & Equipment,
which is based upon averaging.
24
Condition Symbols & Depreciation Codes
The following symbols are used to indicate overall estimated condition & depreciation:
N
-
New, not used before. No loss in value due to physical deterioration.
E
-
Excellent, near new condition. Very little use, recently purchased.
VG
-
Very good condition, with no requirement for repairs and usually
considered above average for an item of like age utility.
G
-
Good condition, usually considered average to that which would be
expected for an item of like age and utility; would require standard
continued maintenance.
F
-
Fair condition, generally considered below average but operable; could
use repairs or improvement; questionable continued or extended use.
P
-
Poor condition, may or may not work and in all likelihood required
maintenance for even the most limited use; needs immediate attention.
SL
-
Salvage condition, not worth the cost or repair, but item components of
individual value may be stripped from the whole property which would
result in value greater than scrap only.
SP
-
Scrap condition, generally considered for material content only; 100%
depreciated by physical condition and/or some form of obsolescence.
25
Qualifications & Experience
JP Lyninger III
Appraiser, Tritech Appraisals
Auctioneer, Tritech Auctions
Clerk, Tritech Auctions
2005 - Present
2005 - Present
2002 - 2005
Seven years experience in the appraisal industry with specific experience in commercial and industrial
areas, with supporting experience in auctions of the same since 2002. Mr. Lyninger has completed four of
the five major accreditation tests with the American Society of Appraisers, including all 4 foundation
courses in Machinery and Equipment and the test on the Uniform Standards of Professional Appraisal
Practice.
EDUCATION
Mr. Lyninger earned his Bachelor of Arts from the University of Louisville (2008) and has also
completed the basic foundation courses offered by the American Society of Appraisers for the specialists
in the field of personal property valuation for commercial and industrial pursuits.
APPRAISAL ASSIGNMENTS
Aggregate/Quarry, Asphalt & Concrete Plants, Automated Manufacturing, Building/Plant, Maintenance,
Chemical Processing, Compressors/ Air & Gas, Construction/ Earth Moving, Electrical/Power,
Electronics, Food Processing, Forestry/Logging/Lumber, Laboratory, Material Handling, Metalworking,
Office Equipment/Furniture, Painting Systems, Plastic/Rubber/Paper, Plant Process Piping, Printing,
Pumps, Recycling/Scrap/Waste, Refrigeration/Air conditioning, Restaurants/Bakeries/Supermarkets,
Sewing/Monogramming/ Embroidery, Surplus Materials, Telecommunications, Testing/Inspection,
Textile, Trucks/Buses/Rolling Stock, Woodworking Machinery, etc.
CONCEPTS OF VALUE EXPERIENCE
Fair Market Value – Intrinsic
Fair Market Value – Installed
Liquidation Value – In Place
Forced Liquidation Value
Scrap Value
Fair Market Value – In Continued Use
Fair Market Value – Removed
Orderly Liquidation Value
Salvage Value
Replacement Cost
26
Qualifications & Experience
Jesse P. Lyninger, Jr., Appraiser
With eight years of experience working with Michael J. Waltrip, ASA,
Jesse has passed the ASA ethics exam, the Uniform Standards of
Professional Appraisal Practice and Appraisal Course 201, 202, and 203
in Machinery & Technical Specialties.
Mr. Lyninger brings
professionalism, and a wide spectrum of useful knowledge to Tritech
Appraisals, Inc. and we are proud of his affiliation with our firm.
President, Tritech Appraisals, Inc.
Mr. Lyninger became President of Tritech Appraisals, Inc. on April 30, 2012. He is responsible
for the day to day operations, office management and all financial dealings of the corporation.
He has worked on over two hundred appraisal assignments including Aggregate / Quarry,
Asphalt & Concrete Plants, Manufacturing, Commercial Vehicles, Construction / Earth Moving
Equipment, Farm Machinery, Food Processing Equipment, Laundry & Dry Cleaning, Material
Handling, Medical, Metalworking, Mining, Office Equipment/Furniture, Packaging, Injection
Molding Machinery, Printing, Restaurants, Bakeries, Supermarkets, Sewing, Embroidery,
Screen Printing, Woodworking Machinery, etc.
President, Tritech Auctions, Inc.
Tritech Auctions, Inc. was incorporated on February 21, 2002 for the purpose of selling
commercial and industrial equipment at auction. Mr. Lyninger is responsible for the day to day
operations, office management and all financial dealings of the corporation. He is a licensed
Principal Auctioneer in both Kentucky (P2468) and Indiana (AU10700067).
Owner, Jessco Equipment and Machinery Movers
Mr. Lyninger started Jessco as a sole proprietorship in November 1995 and operated it until May
2004. As the name implies, Jessco provided equipment and machinery moving and rigging
services to a wide variety of companies in the Louisville area. Jessco was also regularly engaged
in the business of buying, refurbishing and reselling used industrial equipment.
Electronics Industry
Mr. Lyninger has over 20 years experience as a Printed Circuit Designer/Electronics Technician.
designing complex, single, double sided, and multi-layer printed circuit boards for both through
hole and surface mount applications. He has acted as the liaison between engineering and other
departments to ensure the timely completion of many projects from design through production.
27
Certificate of Appraiser
I hereby certify that:
1.
On May 24 and 25, and June 1, 2012 I personally examined the Subject
Machinery & Equipment appraised, unless otherwise indicated;
2.
The statements of fact contained in this report are true and correct;
3.
The field appraisers, employees, authorized agents or officers of Tritech
Appraisals, Inc. have no bias with respect to the property that is the Subject of
this appraisal report or to the parties involved with this assignment;
4.
Tritech Appraisals, Inc.'s engagement in this assignment was not contingent
upon developing or reporting predetermined results;
5.
The reported analyses, opinions and conclusions are limited only by the reported
assumptions and limiting conditions, and are the field appraiser’s personal,
impartial and unbiased professional analyses, opinions and conclusions. Tritech
Appraisals, Inc. has no present or prospective interest in the Subject Machinery &
Equipment contained in this appraisal report and no personal interest with respect
to any parties involved.
6.
Tritech Appraisals, Inc.'s compensation for completing this assignment is not
contingent upon the development or reporting of predetermined value or direction
in value that favors the cause of Albaad USA, Inc., 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;
7.
Tritech Appraisals, Inc.'s analyses, opinion, and conclusions were developed and
have been prepared in conformity with the Uniform Standards of Professional
Appraisal Practice;
8.
Significant assistance was provided by other appraisers. Jesse P. Lyninger gave
significant assistance to list and value certain items. Items appraised by those
rendering significant assistance is documented in the project work file. Also, see
Qualifications and Experience.
Signed this 8th day of August 2012.
JP Lyninger III
Lead Appraiser
28
Certificate of Appraiser
I hereby certify that:
1.
On May 24 and 25, and June 1, 2012 I personally examined the Subject
Machinery & Equipment appraised, unless otherwise indicated;
2.
The statements of fact contained in this report are true and correct;
3.
The field appraisers, employees, authorized agents or officers of Tritech
Appraisals, Inc. have no bias with respect to the property that is the Subject of
this appraisal report or to the parties involved with this assignment;
4.
Tritech Appraisals, Inc.'s engagement in this assignment was not contingent
upon developing or reporting predetermined results;
5.
The reported analyses, opinions and conclusions are limited only by the reported
assumptions and limiting conditions, and are the field appraiser’s personal,
impartial and unbiased professional analyses, opinions and conclusions. Tritech
Appraisals, Inc. has no present or prospective interest in the Subject Machinery &
Equipment contained in this appraisal report and no personal interest with respect
to any parties involved.
6.
Tritech Appraisals, Inc.'s compensation for completing this assignment is not
contingent upon the development or reporting of predetermined value or direction
in value that favors the cause of Albaad USA, Inc., 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;
7.
Tritech Appraisals, Inc.'s analyses, opinion, and conclusions were developed and
have been prepared in conformity with the Uniform Standards of Professional
Appraisal Practice;
8.
Significant assistance was provided by other appraisers. JP Lyninger III gave
significant assistance to list and value certain items. Items appraised by those
rendering significant assistance is documented in the project work file. Also, see
Qualifications and Experience.
Signed this 8th day of August 2012.
Jesse P. Lyninger
Appraiser
29
Scope of Work
To better understand the Scope of Work, the Appraisers Commentary, Statement of Limiting
Conditions and General Information sections must be read in addition to this section.
Appraisers Commentary – Lists appraisal types, type chosen, format types, format chosen,
valuation method, valuation definition, research data, value analysis, industry review and other
information.
Statement of Limiting Conditions – To understand the presentment of this appraisal, this
section must be read thoroughly.
General Information and Definition – Lists the Effective Date of Appraisal, Inspection
Date(s), Report Date, Location(s) Inspected, Purpose of Appraisal, Function of Appraisal, Client,
Subject Being Appraised, Intended User, Intended Use, Highest and Best Use, Approaches to
Value, Approach(es) Not Used, Valuation Methodology, Valuation Method/Valuation Definition
and the Source of Definition.
Assignment – This section hereby completes the issue of Scope of Work by summarizing what
we were to appraise, what we were not to appraise and who, if anyone, contributed significant
assistance to the appraisal process.
We have been requested to inventory and value all machinery and equipment belonging to
Hospeco using the Fair Market Value In Continued Use method. It is our mission in all
appraisals to attempt to correctly list all observed machinery and equipment and through research
to approximate their value under the valuation method chosen.
Our scope of work does not include work in progress/process, patents, patented processes,
finished products, inventory, supplies, small desktop items, tools, replacement/repair parts, nor
perishable tooling. Unless otherwise requested we do not list non-owned/personal or leased items
(except where noted). We always inquire whether items are leased or not owned. We must be
able to rely on the information provided. Items not observed and/or remotely located are duly
noted within the listing (when appropriate). The descriptions and values assigned are dependent
on the information provided by owner personnel.
Whenever a listing is attempted during business operations, it is possible, even likely, that
several lesser items may be duplicated or missed. This is due to their mobility during normal
operations. It is not always practical nor possible to list when operations are idle. However, this
should not significantly affect the overall evaluation. Most valuations are more accurate when
the appraiser can observe machinery and equipment in operation. This description of the Scope
of Work together with the information provided by in the Appraisers Commentary should enable
the client requesting and using this appraisal to better understand its presentation. It is for the
exclusive use of the entity addressed herein and for none other.
The intended use for this appraisal is financial reporting purposes and for purchase allocation
as required under the IFRS3 summary for business combinations only. Said appraisal is for
the sole use only of Albaad USA, Inc.
30

Albaad Massuot Yitzhak Ltd.

Transcription

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