Get the metrics: The 2012 Borrowman Baker-BVR Salary Survey is the only source of detailed, reliable compensation data on the BV profession. Its survey methodology is consistent with standards used by the leading compensation study firms—and it’s open for participation now. The more firms that participate, the more complete, valid, and reliable the results will be. High-security protocols protect data input to assure confidentiality; no data will be reported in any way that would identify any sources.

To participate—and lock in your complete copy of the final 2012 BV benchmark report—click here.

To “raise global awareness of BV standards,” RICS is launching a new route to membership, Valuation of Business and Intangible Assets, at its BV conference this week. RICS also plans to introduce a new edition of its Red Book (international valuation standards) and “guidance notes” in business valuation and the valuation of intangible assets this year.

To clarify, the recently proposed ASU 2012-12 extends the qualitative “step zero” testing for goodwill impairment to indefinite-lived assets—or “those assets for which the remaining useful life cannot be determined and therefore are not currently being amortized for financial reporting purposes,” Zyla now tells BVWire. “Under ASC 350, these assets are currently tested for impairment by comparing the fair value as of the test date to the carrying value—which differs from how goodwill or long-lived, amortizable assets are tested for impairment.”

Reminder: Last fall, the AICPA’s Financial Reporting Executive Committee (FinREC) also issued its working draft of Testing Goodwill for Impairment (see BVWire #110-2). The exposure draft is “still open for comment,” says Zyla, a member of the task force that developed the guidance. “One area that we would particularly be interested in is the section and discussions on ‘Step Zero’.” As a BV practitioner, what guidance would you want to see in that area? For preparers, “what additional guidance would you like to see as far as the qualitative factors, beyond what was provided in the actual ASU and to help codify Topic 350?” Zyla asked. Comments are due March 15, 2012; for more information, click here.

• Form 3921, required when an employee (or former employee) exercises an incentive stock option (ISO); and,

• Form 3922, required when a corporation records a transfer of legal title of shares acquired under an employee stock purchase plan (ESPP) (including to a broker or other financial institution) when either (a) the purchase price of the shares was less than the fair market value of the shares of stock on the date of grant or (b) the purchase price was not fixed or determinable on the date of grant,

The alert lists the information required by the new forms, including, respectively, the fair market value of a share of stock on the date the ISO was exercised and the fair market value of the stock on the date of purchase by the transferor under the ESPP. A good, continuing business opportunity for BV appraisers: In its “closing note,” the alert advises corporations to (i) discuss the FMV of common stock throughout the year with employees, to assist with estimated tax determinations on exercising an ISO, and (ii) value common stock delivered on the exercise of a non-qualified stock option for withholding tax purposes.

The IVSC is currently seeking volunteers for a working group to advise the Board and help move the project forward, according to the IVSC’s January 2012 e-newsletter. “Applications are welcome from valuation firms active in the sector . . . and other users of valuations in the sector such as analysts,” the Council says. For a copy of the Project Brief and an application form, interested parties may contact the IVSC Technical Director,Chris Thorne, by clicking here.

The IVSC also notes that comments on the exposure draft, “A Competency Framework for Professional Valuers,” published last December, are due no later than February 28, 2012.

Lucent Technologies, Inc. v. Microsoft Corp., 2011 U.S. Dist. LEXIS 130571 (Nov. 10, 2011)

Federal district court reverses $70 million award based on expert’s failure to apportion damages between the patented and unpatented features of the accused product, finding that, at most, the evidence supported $26 million based on proper apportionment                                   

Experts:  Raymond Sims

Judge:  Huff

State/Jurisdiction: federal / California

Court: U.S. district court

Type of case: IP

SIC code and industry: 7372 Prepackaged Software (software publishing) – Specific categories –

In re Marriage of Rodenback, 2011 Ore. App. LEXIS 1500 (Nov. 9, 2011)

Appellate court disavows day-of-trial valuation by expert that used the husband’s “off the cuff” forecasts, preferring value based on historical earnings, without consideration of the tax burden the husband would have to bear in making the equalization payment to the wife.                                  

Experts: [last names only] Gilbert (husband) and Sickler (wife)

Judge:  Armstrong

State/Jurisdiction:   Oregon

Court: Court of Appeals

Type of case:  marital dissolution

SIC code and industry: 7371 Computer Programming Services

Dataquill Ltd. v. High Tech Computer Corp. 2011 U.S. Dist. LEXIS 138565 (Dec. 1, 2011)

Court excludes portions of expert’s damages analysis that fails to show economic comparability of patents-in-suit to prior licenses, but permits his calculations based on the entire market value rule upon adequate showing that the patented technology helped secure the defendant’s competitive market position.                                  

Experts: Joseph Gemini

Judge:  Gonzalez

State/Jurisdiction: federal/California

Court: U.S. District Court

Type of case:  IP

SIC code and industry:  7372 Prepackaged Software (software publishing)

Spine Solutions, Inc. v. Medtronic Sofamor Danek, Inc, No. 2:07-02175-JPM-dkv (W.D. Tenn.)(Nov. 23, 2011)

Court grants new trial on damages, based on Federal Circuit’s decision in Uniloc abolishing the 25% Rule in calculating reasonable royalty for patent infringement.

Experts: unnamed

Judge:  McCalla

State/Jurisdiction: federal/ Tennessee

Court: U.S. District Court

Type of case:  IP

SIC code and industry: 3841 Surgical and Medical Instruments and Apparatus (except tranquilizer guns and operating room tables)

In re Village at Camp Bowie I, L.P., 2011 Bankr. LEXIS 3033 (Aug. 4, 2011)

Bankruptcy court finds “cramdown” interest rate equals at least 6.4%, based on current commercial lending “realities” as well as expert’s application of debtor-specific risk factors, including benefits of bankruptcy and single lender.                                   

Experts: Allyn Bryant Needham (debtor); Paul French (lender)

Judge:  Lynn

State/Jurisdiction: federal/New York

Court: U.S. Bankruptcy Court

Type of case:  bankruptcy

SIC code and industry: 6552 Land Subdividers and Developers, Except Cemeteries

Beijing Tong Ren Tang (USA), Corp. v. TRT USA Corp., 2011 U.S. Dist. LEXIS 135471 (Nov. 23, 2011)

Court vacates over $2 million in lost profits for new venture, finding the damages expert relied solely on “grandiose” and unrealistic business plans.                                   

Experts: Victor Republicano

Judge:  Whyte

State/Jurisdiction: federal/California

Court: U.S. District Court

Type of case:  contract

SIC code and industry: 5122: Drugs, Drug Proprietaries, And Druggists’ Sundries

• The ability of the seller to compete after closing the sale, which may implicate the seller’s age, health, professional standing, etc.;
• The derivation of the non-compete; and
• The losses the buyer (the company) would suffer if the seller, in fact, competed.

In most cases, the first step in valuing a CNC is to determine its “economic legitimacy,” a concept that courts have attempted to define over the years (apart from a CNC’s legal enforceability, which is a separate issue). For instance, in Thompson v. Commissioner, T.C. Memo 1996-468 (available at BVLaw), the Tax Court set forth an 11-factor test to determine a CNC’s economic reality. “Clearly, the facts and circumstances in any individual case are important to consider,” Trugman writes, but Thompson’s 11-point checklist furnishes a good basis for assessing the CNC’s legitimacy as well as the probability of the seller’s competition. Download a complete copy of Trugman’s article, “Valuing Covenants Not-to-Compete: an 11-Factor Checklist,” at BVR’s free resources page.

As always, the ASA intro courses provide intensive  training on business valuation methods and standards. This IIBV version promises that, “by the end of the training attendees will be confident in performing a share or business valuation under the market, cost, and income approaches.”

Reminder on the nature of IIBV.  The International Institute of Business Valuers, founded by the ASA and Canadian Institute of Chartered Business Valuers, is an umbrella organization of business valuation organizations. Working together internationally, the IIBV member associations strive to increase the pre-eminence of the business valuation field, to develop a strong voice for the business valuation profession, to promote the sharing of best practices in business valuation globally and to manage the profession.

the value of any nonbusiness assets held by the [passive] entity shall be determined as if the transferor had transferred such assets directly to the  transferee (and no valuation discount shall be allowed with respect to such nonbusiness assets).

Few authorities predict that H.R. 3467 will pass as currently drafted. However, most pundits agree that tax reform in 2012 is as certain as—well—taxes, and that any proposal will attempt to capture the enormous wealth transfer of aging baby boomers. Stay tuned…