Opinion ID: 2604259
Heading Depth: 1
Heading Rank: 18

Heading: UP's Stock Value Calculations

Text: Schoenwald's stock value calculations were based on a single approach in which Schoenwald went directly to the available data concerning outstanding numbers of shares, prices, and the reported earnings of the various UPC subsidiaries. (1) Common stock. Schoenwald estimated the value of UPC common stock by averaging stock prices during the calendar year prior to each assessment date and then applying that average price to the number of shares that were outstanding on the assessment date. Schoenwald justified his use of annual averages, rather than averages taken closer to the assessment dates, because of fluctuations in stock prices over time. This was particularly appropriate for UPC, he testified, because the stock market generally (and UPC stocks in particular) experienced wide swings during the time periods involved. Goodwin and Ifflander used an average derived from the last three months of each year, although they had used longer averages on some other occasions. Use of the fourth quarter average versus annual average did not make much difference for 1984. For 1983, however, the results were quite different. The annual average for UPC shares in 1983 was $39.81 per share; the fourth quarter average was $44.92. Because there were roughly 114.3 million shares outstanding as of the 1983 assessment date, the difference represented about $584 million in value for UPC. (2) Preferred stock. UPC had outstanding on each of the appraisal dates roughly 4.3 million shares of preferred stock. This stock had been issued in order to raise money for the purchase of Missouri Pacific. The stock was convertibleeach share could be exchanged at any time for two shares of common stock of UPC. Despite the purposes for which the preferred stock had been issued, Schoenwald did not differentiate between it and UPC's common stock. He simply added the value of the preferred stock to the value of all other UPC stock in calculating total corporate equity to be allocated among the different UPC subsidiaries. He justified his approach on two grounds: (1) the ready convertibility of the preferred stock to common stock and (2) the fact that, although the purpose in issuing it was to finance an expansion of the railroad subsidiary, the preferred stock was backed by, and its dividends would be paid from, the income of UPC as a whole. Schoenwald determined that the total value of outstanding securities on December 31, 1982 (the day before the 1983 assessment), should be deemed to be $4,932,323,000. He further determined that the total value of outstanding securities on December 31, 1983, should be deemed to be $6,614,986,000. In each case, he took the average stock prices for the preceding year and multiplied them by the number of outstanding shares as of December 31 of that year. Having determined a value for total corporate equity for the two years, Schoenwald then summed the totals with each year's total of other outstanding corporate obligations. This produced a total for each year that Schoenwald called UPC's gross value. He then calculated deductions from the gross value for, inter alia, affiliates and other investments, non-operating subsidiaries ( e.g., Champlin Petroleum), and railroad group non-operating property. After the deductions, the remainder represented his valuation of the railroad system under the stock and debt approach.