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The Seaway pipeline became operational on November 23,
1976. Petitioner used the pipeline to transport approxi-
mately 50 percent of the crude oil processed at its
Coffeyville refinery, which was connected to the Cushing
terminal by another pipeline owned by petitioner. The
Seaway pipeline also gave petitioner access to foreign
crude oil needed to operate its refineries.
For financial accounting purposes, petitioner, through
CRA, recorded its Seaway stock on its balance sheet in an
account labeled “Other Investments”. Neither petitioner
nor CRA recorded the Seaway stock in an account identified
as an “inventory”, “fixed assets”, “hedge”, or “hedging”
account. Petitioner did not hold its stock in Seaway for
sale in the ordinary course of business and did not sell
any Seaway stock or receive any stock dividends. For
financial reporting purposes, petitioner’s share of
Seaway’s annual earnings or losses was reflected as
adjustments to a balance sheet asset account and a balance
sheet schedule entitled “Investments in Equity and Earnings
of, and Dividends Received from Affiliates and Other
Persons--(A) Capital Stock”.
Although Seaway incurred operating losses in 1976,
1977, and 1979, it had sufficient pipeline transportation
revenues and cash reserves in each of those years to pay
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