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Hank True testified that during the period 1992 through
1994, Belle Fourche’s business primarily consisted of moving oil
for unrelated companies. Further, Mr. Gustavson observed that
Belle Fourche’s average annual throughput substantially exceeded
the quantities of oil actually produced by the True companies.
Therefore, we are not persuaded that the value of a controlling
interest in Belle Fourche would be diminished by its
interrelatedness with the True companies.
Turning to the Kimball report, we find various errors in the
computation of Belle Fourche’s financial fundamentals,
specifically EBDIT. According to respondent, Mr. Kimball
computed EBDIT by taking ordinary income reported on page 1 of
Form 1120S (line 21) and by adding back interest expense (line
13) and depreciation (line 14c). However, line 14c did not
account for depreciation that was included in the computation of
cost of goods sold, reported on Schedule A. Respondent argues
that total depreciation reported on line 14a, which included
depreciation reported on Schedule A and elsewhere on the return,
should have been added back to arrive at Belle Fourche’s EBDIT.71
71Arguably, it is possible that Mr. Kimball’s computation of
debt-free cash-flow (DFCF) omitted the same adjustment for
depreciation that was included in cost of goods sold. It also
appears that cost of goods sold for some of the years being
analyzed included amortization expense that should have been
added back to DFCF and earnings before depreciation, interest,
and taxes (EBDIT). We do not adjust for these items, however,
because respondent did not raise them and petitioners did not
have the opportunity to respond to them.
(continued...)
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