- 40 - 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.Page: Previous 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 Next
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