New-York tribune. [volume] (New York [N.Y.]) 1866-1924, 1873-04-24

seated the old one by the same tactics Oh
wholesale bribery for which Fisk and Gould
had been notorious, and impartial men have
now for some time been puzzled TO decide
about some actions of the new Board. The
transactions with respect to the divi-
dend of last February have disagreeable
look. 1t is established by recent invesh-
cations that the road at that time was In
great want of money. Not only was the
treasury empty, but there were pressing debts
which there seem to have been no funds to
meet. The great loan was in the hands OF
Bischoffsheim g. Co. in London, but it had
not been negotiated. The dividend enabled
the London bankers to float the loan ana
repay themselves out of the proceeds for the
money they had advanced in Overturn1ng the
Gould directory, while out of the balance the
Company paid the dividend. In other words,
the Directors borrowed million and
quarter and divided it as profits.
We are well aware that the propriety OF this
transaction is defended by great many rail-
way fnanciers. They argue that according to
the Presidents report in December there had
been a large surplus during the previous year
of receipts over current expenditures. There
was no actual surplus in cash, because the
profits had all been spent in improving the
road. The net earnings were carried TO a Con-
struction Account which does not appear III
the published statement of earnings and dis
bursements. Now, they say, since this money
represents permanent addition to the value
of the road, it is only fair that it should be-
come the basis of an addition to the capital
stock, and the stockholders are entitled
to all that remains of the earnings at
ter the payment of the current ex-
penses. The obvious objections to this prac-
tice are several. In the first place, as one of
the Directors remarked, construction accounts
are very elastic, and it is not easy to deter
mine exactly how much should be charged
under that head and how much under ordi-
nary repairs. Repairs of course as rule be-
long to the current expense account, but many
of them might without any violent stretch OF
fancy be interpreted as permanent improve
ments. On the other hand there is a constant
depreciation in the value Of certain parts of
road by wear and tear, and this depreciation
must be set off against the improvements.
How much, therefore, of the Construction Ac-
count represents q real net increase of value,
and how much fictitious one must generally
be matter of conjecture. In the absence OF
detailed statements some of the lctOrs con-
sequenGy opposed tho decaratiohss&a dividend
which they were not satisfied that the Com
pany had earned.
In the second place, this practice opens the
door for an almost unlimited expansion of
stock. Every year the Directors may charge
a few millions of their expenditures to capital
account, ON the ground that they represent
improvements in the permanent way, new
bridges, new sidings, new equipments, &c,
and issue convertible bonds to pay for them.
AS the bonds will probably not sell at par,
the debt thus incurred, even suppOsing the
improvements to have been worth all the
money charged for them, will not represent
proportionate Increase in the value of the
road. and the stock will intrinsically depre-
ciate.
But perhaps the greatest objection to the
policy of the Erie Directors is that it deceives
the public as to the true condition of the Com
pany. 1t attempts to initiate its credit by
fictitious balance sheets, and to convey the
impression that it is making money when it
cannot pay its bills. The February dividend
was declared in order to feign delusive sur
plus in an empty treasury, and 80 to create
market for bonds which would scarcely have
been salable had the true condition of the
COmpanys finances been understood. That is
the real nature of the transaction, stripped of
deceptive phraseolgy; and we leave business
men to form their own opinions about it,