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(Deluxe); Metrocolor; and CFI, a division of Republic Pictures
Corp.
A. The Preacquisition Review
Prior to the acquisition, Carlton hired Coopers & Lybrand
(C&L) to value Technicolor’s assets. C&L allocated, pursuant to
section 1.338(b)-2T, Temporary Income Tax Regs., 51 Fed. Reg.
3591 (Jan. 29, 1986), in effect during 1988, $619,194,000 of the
proposed purchase price to the basis of Technicolor’s assets.
Section 1.338(b)-2T, Temporary Income Tax Regs., supra, required
that acquired assets be divided into four classes. Class I
assets are cash and cash equivalents. Class II assets are
certain liquid tangible assets including readily marketable
securities. Class III assets are all assets other than those in
classes I, II, and IV. Class IV assets are intangible assets
(i.e., in the nature of goodwill and going concern value) not
allocated to class I, II, or III. The basis allocated to each
successive class is based on the fair market value (FMV) of a
company’s assets.
Because there were no class I or II assets, C&L allocated
the basis attributable to Technicolor’s assets first to class
III. Class III consisted of Technicolor’s tangible assets,
current assets (e.g., accounts receivable), investments in
subsidiaries, and amortizable intangibles. C&L then allocated
the remaining basis to class IV.
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