- 21 -
determined for the close of each of the years in question the
amount of working capital that is reasonably needed to cover a
single operating cycle of petitioner. Petitioner determined the
working capital for one operating cycle to be $3,877,503,
$4,090,630, $3,885,163 in 1995, 1996, and 1997, respectively.
Respondent determined the working capital for one operating cycle
to be $3,735,858, $3,863,008, $3,737,073 in 1995, 1996, and 1997,
respectively. Petitioner used monthly balances to compute the
annual average balances of its inventory and accounts receivable,
whereas respondent used yearend balances to determine the annual
average balances. We adopt respondent’s calculation because the
yearend balances respondent uses have been stipulated by the
parties. The difference in the calculations, however, does not
affect the result in this case for the reasons appearing below.
2. Redemption of Stock of Dissenting Minority Stockholders
Petitioner contends that there was an actual redemption of
stock during the years in issue and a manifest dissent among the
Pedigo stockholders. Petitioner’s officers believed that the
action to remove David Pedigo, a large stockholder, as a
corporate officer and reduce his employment responsibilities
would strain the relations between the Knight and Pedigo families
and could result in the redemption of stock by the Pedigo family.
Respondent argues that it was not a reasonably anticipated
need of the business to accumulate earnings and profits for the
redemption of stock of minority stockholders. Respondent
Page: Previous 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 NextLast modified: May 25, 2011