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23. At additional meetings in late 2002, Stockman offered to overpay for another McCallum business and for furniture looms McCallum owned, in return for   additional payments from Joan Fabrics.  McCallum agreed to these round-trip transactions, and C&A paid him $4.2 million for Dutton Yarns (which had been appraised at just above $2 million), and $4.7 million for furniture looms (worth about $2 million).  McCallum and Joan Fabrics then made payments to C&A corresponding to the inflated purchase prices, and provided documentation falsely characterizing the payments as rebates on a supply contract between C&A and Joan Fabrics.  

24.In total, C&A recognized approximately $14.8 million in payments from McCallum from 2001 through 2003.  All were round-trip transactions in which McCallum made payments that C&A labeled as rebates but repaid indirectly.  C&A accounted for these payments as reductions in costs, increasing its pre-tax operating income (or reducing its pre-tax operating loss) as shown below, in millions:  

  2001

(4th Q)

   2002

(1st Q)

  2002

(2nd Q)

  2002

(3rd Q)

  2002

(4th Q)

 2003

(1st Q)

Operating income/ (loss) w/o McCallum  payments

($16.3)

$49.4

$79.7

($6.3)

$34.1

$18.0

McCallum

payments

$2.8

$5.0

$1.8

$2.0

$2.0

$1.2

Operating income (loss),

as reported

($13.5)

$54.4

$81.5

($4.3)

$36.1

$19.2

% change due to McCallum payments

17%

10%

2%

32%

6%

7%

25. Stockman personally negotiated the round-trip transactions with McCallum.  Stepp helped arrange and collect the payments from McCallum, while Jones

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