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conclusion that the fulfillment obligation assumed by Meredith on
January 3, 1986, was contingent.
The Court calculated petitioner's initial basis in the
subscriber relationships asset as of January 3, 1986, by first
finding that its value was $40,300,000 (including value
attributed to tax savings). This was determined by using the
income approach of petitioner's expert (Grabowski), and by
assuming an exclusion during the first 35 months of a portion of
the advertising revenues of LHJ attributable to the efforts of
the magazine's editor-in-chief (editor advertising exclusion).
Using Grabowski's amortization factor of .37634, we calculated
this value to be approximately $25,133,500 prior to the addition
of tax savings. The Court thereafter decreased this pretax
savings figure by the present value of the stipulated editorial
costs through June 30, 1991 (approximately $18,762,500) since
these costs were contingent, and increased the resulting figure
by the present value of the 35 months of the editor advertising
exclusion (which we computed to be approximately $2,760,000). We
thus found petitioner's initial basis to be $14,641,000, after
the addition of tax savings of $5,510,000. Meredith Corp. &
Subs. v. Commissioner, supra at 463. The Court reasoned that, to
be consistent with the parties' stipulation requiring
capitalization of the editorial costs and with the income
approach, the proper treatment of the amounts was to charge them
against revenues in determining petitioner's initial basis and to
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