Claymont Investments, Inc., As Successor in Interest to New CCI, Inc. and Subsidiaries - Page 9

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          C&L relied on the 1989 Valuation and the preacquisition review.             
          C&L determined a total value of the customer relationships using            
          a capitalization of earnings approach.  It further determined               
          that the appropriate earnings stream to a potential acquirer of             
          these relationships would be the after-tax earnings generated by            
          each relationship projected into perpetuity.  Thus, it assigned             
          value to the portions of the relationships extending beyond the             
          initial periods Technicolor attributed to the relationships.  In            
          both the 1989 and 1994 valuations, C&L used projected annual                
          pretax earnings to value the Paramount, MCEG, and MGM/UA customer           
          relationships.  After it valued the customer relationships, C&L             
          subtracted the value of the customer relationships (i.e., as                
          modified by the closing agreement) and determined that the values           
          of the Paramount, MCEG, and MGM/UA customer relationships were              
          $27,496,000, $5,569,000, and $2,698,000, respectively.                      
               On July 7, 1997, petitioners filed amended tax returns                 
          relating to fiscal years ending September 30, 1992 and 1993, and            
          claimed deductions based on the 1994 Valuation.  On their amended           
          return for 1992, petitioners reported a $27,496,000 loss                    
          deduction attributable to the alleged termination of the                    
          Paramount relationship.6  Similarly, on their amended return                
          relating to 1993, petitioners reported a $5,569,000 loss                    

               6  The $27,496,000 claimed loss contributed to a net                   
          operating loss that petitioners carried forward and deducted in             
          the fiscal years ending Sept. 30, 1993 and 1994.                            

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