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WLI’s activities were reported individually for 1991 and 1992 for
financial purposes. Mr. Mitchell testified that he did not
adjust WLI’s net earnings for intercompany profits for 1991 and
1992, despite acknowledging that there were intercompany profits
for those years.35 Mr. Mitchell explained that he used the
earnings figures for 1991 and 1992 that were in the audit of WLI
and that this information is what a shareholder would rely on.
He testified that intercompany profits from a related entity
should not be eliminated from earnings unless it is assumed that
such profits would not continue in the future.
Mr. Mitchell agreed that WLI had intercompany profits for
1991, 1992, and 1993, from transactions with SCC and affiliates
and that it is possible that such transactions could result in
the undervaluation of SCC. If SCC is undervalued as a result of
the transactions with WLI, then it is possible that the
intercompany transactions increasing the profits of WLI could
result in the overvaluation of WLI. After reviewing all the
evidence in the record, we find that respondent has not
established that the intercompany profits did not distort the
value of WLI for 1991, 1992, and 1993, and we are not willing to
rely solely on Mr. Mitchell’s assumption that any intercompany
35In his valuation report, Mr. Mitchell identified sales of
lots and bulk parcels of lands made by WLI to SCC and affiliates.
According to Mr. Mitchell’s report, the difference between the
sales prices and the costs of the properties was $665,247 for
1991 and $788,042 for 1992.
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