1. Subsidiary of Olsen Thielen & Co., Ltd. CPA Valuation De-mystified John Gurley Randy Schostag

2. Objective Give a better understanding of valuation: –When they may be required –Who should perform the valuation –What is the process –What are the results –Why should I care

3. Introductions John Gurley –Principal and head of the Business Valuation Group at Berry, Dunn, McNeil & Parker Randy Schostag –Founder of Minnesota Business Valuation Group and President

4. When should I get an appraisal? Gift & EstateESOPsTransactionsAccountingLitigation

5. When do I get an appraisal?

6. Why is that? Common perceptions of valuation reports: –Expensive –Complicated –No relationship to book value –Have no idea where the number comes from Our goal is to help you get more value out of the valuation process

7. What questions are answered by a valuation? Value to whom? Value on what date? Value for what purpose? What is the subject interest is being valued? Only then can we answer – what is the value?

8. Who should perform the valuation? What to look for in a valuation professional: –Credible –Credentialed –Experienced –Independent (?) Determine if you need an advocate or an independent appraisal

9. Independence and Valuation Valuation services for attest clients have to be performed in keeping with the AICPA Code of Professional Conduct Independence would be impaired if the results of the valuation would be material to the financial statements

10. Independence Case Studies CEO wants to gift a substantial portion of stock to children –Asks the auditor to value the shares –Can they do the work? Majority shareholder wants to sell his shares to an unrelated third party –Asks the auditor if the CPA firm can value the shares –Can they do the work?

11. More Independence Case Studies Telco wants to issue new shares to outside investor –Telco President asks accounting firm to opine as to the value of the shares –Can they do the work? Company wants to issue shares to key employee –Company CEO asks accounting firm to value the stock –Can they do the work?

12. What is the valuation process? Assessment of Company Risk Company Information Industry Information Economic Information

13. What is the valuation process? (continued) Cost Approach Market Approach Income Approach

14. How does SFAS 157 change things? The definition of fair value is now based on market participants: –“The price that an asset would receive or that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date.” –Market participants are buyers and sellers in the principal or most advantageous market who are independent, knowledgeable, and willing and able to complete the transaction

15. SFAS 157 is applied to all entities as of 2009 Application to assets –Assumes highest and best use In use – maximum value for an asset working in combination with other assets installed and configured for use In exchange – highest and best use is as a stand-alone, or the carve out of a certain business unit –Which definition depends on market participants Application to liabilities –Assumes non-performance risk is the same before and after the transaction and was taken into consideration in the price

16. Fair Value on initial recognition Assets acquired or liabilities assumed in a transaction represent an “entry” price Fair Value is now defined as the “exit” price – the price received to sell the asset or paid to transfer the liability For financial assets in a high volume market, may be the same Auction analogy may apply for non-financial assets

17. Combination of assets under SFAS 141(R)

18. The difference between “book value” and the equity value of the business. Increased value of equity. BALANCE SHEET MUST BALANCE

19. What are identifiable intangible assets? Obtain total Company Fair Value Ascertain value of tangible & financial assets –Must apply FASB 157 to all assets –May create surprises for tangible assets Difference between adjusted book and fair value Remainder is ‘Blue Sky’ –Intangible Assets –Goodwill

20. Example

22. Appraisal = $1,525,000 Book Value = $700,000 Blue Sky = $825,000 Example

23. What are identifiable intangible assets? PREVIOUSLY SIMPLY CALLED ‘BLUE SKY’

24. Example

27. Contractual-Legal Criterion-Intangible assets arising from a distinct contractual or other legal basis, or Separability Criterion-Intangible assets that do not arise from contractual or other legal rights, but are capable of being separated from the acquired entity and sold, transferred, licensed, rented or otherwise exchanged. Sold, Licensed, Transferred, Rented, or Exchanged (SLERT) What are identifiable intangible assets?

28. Contractual or Other Legal Right? Yes No Recognized Separately From Goodwill Recognized Separately From Goodwill Recognized Separately From Goodwill Recognized As Goodwill Yes No Separable What are identifiable intangible assets?

29. EXHIBIT 1: TREATMENT OF INTANGIBLE ASSETS Acquired Intangible Assets Internally Arising from Contractual or Legal Rights Generated Intangible AssetsGoodwill Finite LivesIndefinite Lives Not RecognizedRecorded at Fair Value/ Not AmortizedAmortized/Not Amortized Impairment Test (SFAS 142)(SFAS 144)(SFAS 142) What are identifiable intangible assets?

30. Combination of assets under SFAS 141(R) Goodwill becomes the “remaining piece” only after all other tangible and intangible assets have been indentified & valued

31. Intangible Assets = Sold Exchanged Rented Transferred What are identifiable intangible assets? SLERT

32. Intangible Assets = Marketing Artistic Contract Customer Technology What are identifiable intangible assets? MACCT

33. Example

34. Intangibles = $800,000 Goodwill = $25,000 Blue Sky = $825,000 Example

38. Telephone Company Adjustments Fair Value of Tangible Assets –Equipment –Real Estate Fair Value of Investments –Investment in wireless –Investment in directory publishing –Other Fair Value of Intangible Assets –Customer Lists –Licensing –Trade name –Technology –Joint ventures

39. Take Aways / Take Home Valuing your telephone company Purpose – Multiple Standard of Value From an Accounting Perspective – SFAS 157 Using SFAS 141(R) Adjusting Assets Identifying Intangible Assets What goodwill really means

40. QUESTIONS?

41. THANK YOU!!!