The Washington herald. [volume] (Washington, D.C.) 1906-1939, 1907-03-01
BATTLE IS PLANNED
ON HARTMAN LINES
CONTINUED FROM FIRST PAGE.

on other obligations, and out OF the bal
ance was paid that &c. 000 dividend. The
-FOUR Observation-Disclosures Stillman, Schiff.
and GOuld-had put in orders to have
their dividends paid 10 Kuhn. Loeb & Co,
the syndicate managers.
Finds UncapitnIized improvements.
Ilillard said that he had examined the
books and found that the first mention
Of the transs cfion by which the sum Of
S12,447,O00 was discovered by the four
gentlemen and switched to capital ac-
count to justify this extra dividend was
in a report OF the president advising the
four directors that he had found that a
large amount Of money had been applied
out Of the earnings to improvements In
the past and recommending that it should
be capitalized. The minutes then showed
that the four directors voted that the
report of the president be and hereby Is
approved. and the auditor instructed 20
make such entries TO conform the books
Of account with that report"
Hillard said that Of the 12.447,O00 about
ll.000.000 seemed 10 be the losses incurred
by the original stockholders who built the
old Joliet and Alton road. Mr.. Blackstone.
these losses should be capitalized, but
the directors evidently did not approve
such a thing. Kellogg asked HHlard
II the books showed that any such
amount had actually been paid Gus
for Improvements, or whether Il was
simply an estimate made by Blackstone
in 1858 that the ROAD was worth that
much more than ii was valued at on the
companys books.
The Process of sReeustiBg."
4 have not examined into that question
at all. said Hillard. They do not seem
TO have examined into that They simply
started with that sum as a basis"
1t was shown that the losses capitalized
must have occurred prior 10 the year 1863
SO Hillard said, as that was when the
Chicago and Alton Railroad Company
made its first report The balance Of the
So, AZ. o00 was found by "recasting" annual
statements OF the company and taking
out certain items found charged 10 oper-
ating expenses and income account
AS a railroad man. did YOU ever hear
Of such thing?" Kellogg asked.
4 can't say 1 ever did replied the wit
ness, who said that these items that had
been "recasted" had been paid out by the
old management and charged off, the
dividends paid on the road. and the ac-
counts closed every year by order OF the
old directors.
so that said Kellogg, this 812. ~, 900
vas simply taken from an account which
had already been paid out Of the earnings
Of the road and was charged 10 q - OF
property and credited 10 capital account
Is that correct?
bookkeeping Would Cover Deal.
"Yes, they were credited TO this ac-
count which they used really as a capital
account
And then after paying this dividend
out Of the mortgage. out Of the money
borrowed was that 80 per cent dividend
charged against this tenn"
Hillard said that this was correct, and
then it was brought out that there was
also charged against the discovered
capital part Of the discount on tile bonds
issued to the syndicate BY themselves
al 60
kellogg wanted % know what kind OF
bookkeeping this was
HillaTd said that. having done what
they did they had perfect right to have
credited the s12 90 10 profit and loss,
and that then the discount on the bonds
would have been a proper charge against
L.
But charging the discount on the bonds
against this as it stands would cover it
W. would Il not?" he asked.
billiard said that it would, so far as the
public was concerned.
ANY man looking over the books would
see il, but any man looking over the an
nuai report would not" he said.
Mr. Kellogg wanted TO know if il was
proper
ia rather YOU form your own conclu-
sions. said the witness.
Profit and Loss Account JugEIed.
There was another item, then, of $g53,-
AZ. which seemed 10 be coupons on prior
lien bonds. which was charged off and
added to the capital account The profit
and loss account Of the Alton Railroad
Company on June 80 last was only $25l.-
39l. so that if this item. which was trans
ferred in 1905. had been charged to profit
and loss instead, the company apparently
would have had no money to pay divi-
dends and would have bad 100000 def
cit HnIard said that he wasn't an ex-
pert, but ne had never heard Of such a
thing
NO subsequent board can revoke the
action of a previous board" he said.
When a board has acted, It is final. If
another board could revoke their action,
the principle would be Just the same in
appropriation for dividends. Why could
not a subsequent board revoke an appro-
priation for dividends, and why could we
not revoke that 80 per cert special divi-
dend now"
Commissioner Lane said that this was
the point exactly: that one board could
say that q ; per cent dividend paid had
been unreasonahly low; that - per
cent dividend should have been paid. and
then declared a 20 per cent extra dividend
for the accumulation. say. of ten years
OF dividends that had not been paid.
Practice Would Destroy system.
IF these things could be done as the
directorate changes from time 10 time
would not practice of that sort destroy
| the integrity and uniformity of railroad
accounts he asked.
1T would destroy the whole system. -
replied Hillsrd.
When the governments lawyers finished
with Hillard, Cravath. of counsel for
! Kuhn, Loeb s, Co, said that he wanted
10 correct a mistaken impression that
there was a moral or legal improperly
in mortga ging a road that had not been
built
Hillard said that he had not meant 10
! convey that impression. but that IL was
/ the condition of the treasury in having
no money from the bonds sold to build
the road that he had referred to in his
! testimony.
you realize that the question of re-
casting accounts is a legal one. as is the
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