The Washington times., 1906-02-18

~ tdAt Years InerS nave Deen very
few of the once common issues OF bonds
Tor the purpose of increasing or in
augurating dividends. But there is very
natural and proper opposition whenever
an issue of bonds savors OF that char
acter 1t is just natural that there
should be careful inquiry into the cause
OF every bond issue, to establish It's
purpose. II becomes interesting TO note
the vast number of reasons disclosed for
issuing bonds, aside from the usual pur-
pose to raise money for additions to the
plant and equipment of the company.
If there could be a more accurate un-
derstanding OF the reasons underlying
every bond issue, there would be less
confusion and error in opinions formed
of stock values.
Southern Railways proposed bond
scheme is the most prominent of the
many recent propositions Its analysis
ought to be of use In figuring the infiu-
enCe of other issues. Although South
ern Railway is a long way from paying
a dividend upon its common stock, the
beginning of dividends has never been
conceivable until the roads capital
needs should be financed. Indirectly.
therefore, the bond issue hastens the
dividend period. Sor thern Railway s
leading up to the bono issue are more
than interesting.
Southern's New Issue.
To locate this discussion 1t Is well to
state that the stockholders of South
ern Railway are TO meet on the 18th Of
April to authorize an issue of 500. 900. 600
of bonds. The issue Will be authorized.
it goes without saying. for this bond
scheme is part of the general scheme of
developing and strengthening the lines
of the system as outlined in the circular
of August q. 1902. when the voting
trustees asked to have their steward
ship of the road continued. Only sl5.-
O00, 900 of the new bonds will be issued
at once, $50. 900, 900 are reserved for ac-
quiring specific stocks of leased lines,
S65. coo for refunding other bonds and
for capitalizing equipment trust 0bliga-
tions, and about SEQ 600 600. OF half the
total. are to be used for properties 10 be
hereafter acquired-although 5000. 900 a
year may be used for betterments and
improvements upon the entire system
and for equipment.
The stockholders are to be congratu-
lated that the mana agement believes the
time has come for this extensive capital
adjustment In this case the foun-
dation for the issue is not the road 5
need of capital for that has been press
ing all along but the roads readiness
for the issue Ever since its reorgani-
cation in 1894 Southern Railway has been
so backward that ii has seemed destined
never to catch up with the progress of
the country and of other railroads. It's
capitalization was so high and its con-
dition so deplorable that new capital
could not be attracted although much
needed While Union Pacific AtchisOn
and many other railroads were provided
with plenty OF capital in their reOrgani-
zation. and were given early the ad-
vantage OF pretty thorough reconstruc-
tion through the use of the capital
Southern Railway very much like Erie
and Southern Pacific, has been forced
to the slow process CT securing its
credit by the constant application of
earnings 10 the moderniZing OF fits plant
In such a course, the company natural
ly suffers in earnings. <or If the plant
were made modern at the start the oper-
ating cost would be lower and it would
be possible TO do more business. Since,
however. the capitalization Of improve
ments means added charges, heavy !
charges at the outset compel the avoid !
ance of new obligations. Now that
Southern Railway has developed far
enough by the slow process TO inaugurate |
the broader policy. rs stockholders |
ought shortly to begin 70 reap the fruits |
they have so long awaited. but which |
have always fallen to the .ot of owners |
of other railroads.
Growth in Twelve Years.
In 1894 the Southern Railway operated
about 400 miles of road; it now oper-
ates s.278 miles. besides controlling or
partially controlling five other railroads. |
During the eleven years. $S1. .15S. 900 of
divisional prior lien bonds and SIS O0O, 600
of collateral trust bonds have been is
sued for the purpose of paying for 1888
miles OF the enlarged system These
81, ,15s, 900 bonds are TO be refunded in the
new issue. The smaller system of 1894
depended. for its gradual rehabilitation,
upon 600 of the first mortgage SIS