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crisis, and petitioner would not have sold the stock if it
had not experienced financial difficulties.
Petitioner solicited bids for Terra's stock in May
1983. Petitioner required prospective buyers to purchase
100 percent of Terra's stock for cash, and to agree to
grant petitioner a call on Terra's crude oil production.
The Pacific Lighting Corp. (PLC) submitted the highest
bid for the Terra stock. In June 1983, petitioner agreed
to sell the stock to PLC for $298.3 million. PLC regarded
the sale price as reflecting the fair market value of
Terra's crude oil reserves and other assets. The price was
established by evaluating the reserves, projecting Terra's
production schedule 20 years into the future, and
discounting the projected cash flow to present value.
Petitioner's sale of Terra stock was closed on
July 28, 1983. PLC paid approximately 50 percent of the
purchase price at closing, and the balance on September 1,
1983. Petitioner distributed the cash it received from the
sale to the Wichita Bank in partial payment of petitioner's
outstanding loans. This improved petitioner's overall
financial health and benefited its balance sheet and future
years' profit and loss statements.
Petitioner reported the gain from its sale of Terra
stock under the installment method. Petitioner reported
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