1. (a)

   1. (1) The stock and debt estimate of market value is calculated by summing the market value of all stock and long-term debt securities.
   2. (2) Accumulated deferred federal income taxes and investment tax credits shall not be included in this approach as a separate item.

2. (b) Market value shall be calculated as follows:

   1. (1) Market value of traded stock.

      1. (A)

3. (i) The market price may be derived from monthly prices from the period of September through December of the year immediately preceding the assessment date.

   1. (ii) Consideration may also be given to prices derived from the same time period in the three (3) years immediately preceding the assessment date.

      1. (B) A premium or discount to the stock may be considered above or below the current market price where evidence warrants;

   2. (2) Market value of nontraded stock.

      1. (A)

         1. (i) In the absence of direct market data, the market value of stock shall be determined by way of a proxy.
         2. (ii) Where a parent-subsidiary company relationship exists and the subsidiary company does not have traded stock, the parent company’s stock may act as the appropriate proxy provided the parent is in the same risk class.
         3. (iii) A parent proxy may not be appropriate if the parent company is engaged in diversified business activities different from the subsidiary.

      2. (B) The estimate of value of the nontraded stock shall be via consideration of:

         1. (i)
4. (a) (a) The percentage relationship of the market to book equity ratio of the parent (proxy) company as applied to the subsidiary book equity.

5. (b) (b) Consideration may also be given to ratios derived from the same time period in the three (3) years immediately preceding the assessment date;

   1. (ii)
6. (a) (a) The price-earnings multiple of the parent or proxy companies multiplied by the net income of the subsidiary, after adjustment for abnormalities.

7. (b) (b) The price-earnings multiple of the parent or proxy companies may be derived from monthly multiples from the period of September through December of the year immediately preceding the assessment date, with consideration given to multiples derived from the same time period in the three (3) years immediately preceding the assessment date, or the price-earnings multiple may be derived using current prices and future earnings estimates made by security analysts.

   1. (c) (c) When employing this technique, comparability is required.

      1. (d) (d) In determining comparability, primary emphasis should be placed on each of the following items:
   2. (1) (1) Industry classes;
   3. (2) (2) Risk;
   4. (3) (3) Growth;
   5. (4) (4) Profitability;
   6. (5) (5) Size and physical characteristics; and

   7. (6) (6) Other characteristics;

      1. (iii) The values/ratios of the subsidiary components in relation to the parent as published by analysts in financial publications generally available to the public; and

         1. (iv) The total subsidiary to total parent ratio of:
8. (a) (a) Gross plant;

9. (b) (b) Net plant;

   1. (c) (c) Gross revenue; and

      1. (d) (d) Net operating income.
      2. (C) For parent-subsidiary companies or other companies not meeting the above requirement, other risk-equivalent companies having traded stock may be used to estimate the market value of nontraded stock;

   2. (3) Market value of long-term debt and preferred stock.

      1. (A) Traded. When a telephone company’s long-term debt and preferred stock are traded, the market price of each debt and preferred issue shall be derived from monthly prices from the period of September through December of the year immediately preceding the assessment date.

      2. (B) Nontraded.

         1. (i) In the absence of direct market data, the market value of debt and preferred stock may be estimated by way of a recognized financial rating such as the required current market rate or the yield to maturity of similarly rated debt securities of similar maturities.
         2. (ii) United States Treasury bonds shall be the proxy for all federally financed debt; and

   3. (4) Nonoperating and nontaxable property.

      1. (A) Any nonoperating property or nontaxable property included within the unit value shall be deducted.
      2. (B) Nonoperating property that can be identified may be deducted directly by the use of a direct adjustment mechanism, which excludes those funding sources from the stock and debt indicator that are not directly related to the actual property subject to valuation.

      3. (C) The estimate of the value of the remaining nonoperating property shall be via consideration of the total remaining nonoperating property to total property ratios of two (2) or more of the following:

         1. (i) Gross plant;
         2. (ii) Depreciated plant;
         3. (iii) Gross revenue; and
         4. (iv) Net operating income.

Codification Notes: This section was promulgated as part of Section II of the Market Valuation Rules for Telephone Companies prior to codification into the Code of Arkansas Rules.