Flint Industries, Inc. and Subsidiaries - Page 22




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          rejected Celduc's offer and continued to seek other potential               
          purchasers.                                                                 
               Generally, from July 1992 forward, one of petitioner's board           
          members or corporate officers was onsite in Germany to supervise            
          G�nther’s management and keep petitioner informed of                        
          developments.  Despite petitioner’s supervision, G�nther                    
          continued to report operating losses in FYE April 30, 1993 and              
          1994.                                                                       
               In March 1993, petitioner hired Elson Nowell as                        
          gesch�ftsf�hrer.  Upon becoming gesch�ftsf�hrer, Mr. Nowell                 
          discovered that G�nther had inflated the value of its inventory             
          by cycling old inventory through its subsidiaries.17  This                  
          discovery necessitated additional substantial writeoffs in                  
          connection with the preparation of G�nther’s commercial report              
          for its FYE April 30, 1993.                                                 
               On January 21, 1994, in order to make G�nther more appealing           
          to potential purchasers, petitioner arranged an additional waiver           
          of G�nther’s intercompany receivable.  Flint assigned $2,429,665            
          of its intercompany receivable to Flint Electronics, which then             
          waived the receivable, subject to reinstatement.  This second               
          waiver was identical in all practical aspects to the first                  


               17Under accounting principles applicable to an electronics             
          firm such as G�nther, older inventory is written down to                    
          progressively lower values to account for its obsolescence and              
          reduced market value.  G�nther avoided this writedown by                    
          transferring assets among the subsidiaries.                                 





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