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To: TimbaBear who wrote (13857)	2/4/2002 11:10:00 PM
From: Bob Rudd	Read Replies (1) \| Respond to of 78751

Operating Leases & Enterprise value - This is what I've come to so far: If operating leases aren't a substantial part of the business, just ignore them. If they are then look at a lease adjusted version of EV/EBITDA that reflects addition of the present value of the leases in EV+L AND adjusts EBITDA TO reflect adding back of rent which is the normal return on the leases. Just as enterprise value that includes debt has, as a denominator income that includes interest [Earnings BEFORE Interest] as payment for the debt capital, the rent expense would be added back to earnings as payment for the lease capital. So we get EVL/EBITDAR: Not as a universal substitute for the EV/EBITDA multiple, since there's no published comparables, but as another way to look at a business where operating leases are important.

To: TimbaBear who wrote (13857)	2/5/2002 3:27:34 AM
From: Don Earl	Read Replies (2) \| Respond to of 78751

<<<If I am attempting to arrive at a total liabilities number in a bankruptcy situation, then I would factor in the long term leases>>> Actually, bankruptcy law allows the debtor to reject leases without penalty. Where lease obligations start looking like debt is when a company is forced to down size to curb expenses. A good example is SCNT, which I don't own, trade sometimes, and am not overly impressed with at the moment because of their recent merger and cash burn. Scient was one of Wall Street's darlings during the Internet boom and was experiencing huge growth. As a result of their rapid growth and mass hiring, they assumed huge commitments for lease space to accommodate their expansion. When the bottom fell out of their market, and they laid off around 80% of their employees, they were stuck with a huge overhead in unused space with long term leases. In a healthy company lease obligations are basically just normal operating expenses quarter to quarter. Where leases start looking like debt is a situation like SCNT where they have to either pay for space they are unable to utilize or negotiate some kind of a settlement to cancel the lease.