The Salt Lake herald. [volume] (Salt Lake City [Utah]) 1870-1909, 1907-07-14

/ tors was charged against the income OF
the property, in addition TO paving the
dividends; so that all the money so appro-
prlated mad once been paid out of income
and had during many years been charged
off to operating expenses.
/ This manner of accounting would have
| the effect of covering up the payment of
/ the dividend out of the proceeds of the
| mortgage and the discount on the bonds,
so that one reading the annual published
report of the company would not see the
not say this was the object, but one ex-
pert railroad accountant testified that
I this would be the effect
/ Furthermore. instead of paying all OF
! the coupons outstanding on the prior
mortgage bonds and canceling them as
was contemplated when the $40 1000. O0C
mortgage was made, 1918, Az of these cou-
pons were. from 1901 to 1905. carried as an
asset in the treasury of the Alton COM
/ pany under the head of funded interest
| account, and on June 30, 1906, credited to
assets and charged to capital account of
the Chicago Alton Railway company
1 The assets and the profit and loss &C
count of the company were sweiled by
| this transaction to the extent of 1913, All:
thus in fact. turning debt or obligation
of the company, which should have been
! paid and cancelled. into an asset, and
capitalizing the same.
Deal Was Profitable.
Having acquired the stock of the Chi
tdSO ~ AliOH tNd1lTOdQ company, the syn
dictate organized The Chicago & Alton
Railroad company under the laws of Hi
nOis. They transferred their stock Of the
railroad company to an intermediary, one
Louis L. Stanton, who had no interest
therein. Stanton entered into a pretended
contract with the railroad company where
by the new company was to buy from him
| their stock of the old company for the
For their 34722 shares of preferred
stock, which had cost them 1894, 440, and
on which they had received a special div
idend of S1,041, 800, according to this con-
tract, they obtained in cash $4,000, 900.
For their 1924 shares of common
stock, transferred to the railway COM
pany. which had cost them $4,000 200, and
on which they had received a special divi-
dend of s., 1920, they received $50
shares of preferred and 195, 42S shares of
common stock. a total of 3903lS shares of
the new company.
1T does not appear what they sold this
stock for but it does appear that the
Union Pacific Railroad company bought
in 1904, 103.331 shares of the preferred at
$3.50 a share.
1T appears that Hartman, Schiff, Gould
and Stillman also owned a line of railroad
fifty-eight miles long, which there is some
evidence to show had cost them very much
less than 100000. This railroad was also
transferred to the intermediary, Stanton,
who sold it to the new company for 5000,
coo cash. So that by this transaction the
syndicate were to receive In cash 3d.
USO,Ovo and all the STOCK or the new conf
pany in exchange for about IS per cent
of the stock of the old company and the
railroad fifty-eight miles long.
Sale Merely Nominal.
ITO raise the S13,OoO.0OO in cash, the
shares of the old railroad were first
mortgaged for So, 900, 900 and the bonds
were nOminally sold to Kuhn, Loeb & Co
for S13,000-000 cash, or little less than
90 cents on the dollar. AS a matter of
fact it appears by the testimony of Mr..
Hartman that MIR. Stanton never owned
any of the stock of the railroad, but was
a mere intermediary.
What these bonds were worth does
not appear. but it does appear that they
were sold in the market from 1900 down
to the present time at 1872 to S6l2; and
that during two or three years after the
issue thereof they ranged from I3 to S612.
Mr. Hartman testified that he had no
books to show the profit on these bonds
and had no knowledge of what he and
his associates made in the transaction.
During all these years Mr.. Hartman
was chairman of the executive commit
tee of the Chicago & Alton Railroad
company and of the Chicago & Alton
financial affairs and was voted S104, 10
for his services as chairman of the ex-
ecutive committee from 1900 to 1904.
Taking the original cost of the prop
erty as it stood upon the books of the
Alton company December 81, 1898, as
$39, 935, SS7, adding the amount which ap-
pears by the testimony of Mr.. Hartman.
Mr.. FOltOn and Mr.. Hillard to have been
spent upon the property out of the new
capital issued after Mr.. Hartman and
his associates obtained control of the
road, tO-wit, about s1S.0O0.0O0 Including
the cost of fifty-eight miles of the Peoria
road at $1,000, 900. 1t shows that Iiabil-
tiles of over S113,S9l.OO0 were placed upon
property which had originally cost APP
prOximately fifty-eight millions, or an
increase of stock and liabilities upon the
r-raa for afrh Of d1I1n Of = IL
property had been added of practically
$50, 100000.
Wreck Was Complete.
1T was admitted by Mr. Hartman that
there was about sixty millions of stock
and liabilities issued against which no
property had been acquired, and this is
undoubtedly an accurate estimate. IL
further appears by the testimony of Mr.
Hillard that since the Hartman control
has ended and the road was turned over
to the Rock Island, the company has been
compelled to issue s. 250, 900 of car trust
notes to acquire equipment needed in the
business OF the company; that the pres
ent management found the company
without any money to buy necessary
equipment or to build thirty-four miles
of railroad, which the company had con-
templated constructing, and on which the
Hartman management had placed a
mortgage, sold, the bonds, but had left
no funds in the treasury to complete
by way of justifica ton or excuse we
are told that the methods of the financ-
ing of railroads which prevailed in the
year 1906 are now obsolete owing to a
higher degree of conscientiousness among
financiers; and. moreover, that the Chi
cago & Alton should not be regarded as
an isolated instance. inasmuch as il was
dealt with much as many other roads
were at that period.
The first of these statements is we
trust, true: the latter statement is not
calculated to uphold the value of Amer
lean railroad securities.
"High Finance"
1T is true, however. as .contended, that
a close examination of the method of cap
italizatiOn adopted in the case of the Chi |
cagO & Alton shows that while the total
of bonds and stocks was doubled, there
was no such prOpOrtiOnate increase in the
fixed charges of the railroad. Under the /
management per cent was
paid on the stock and but a small bonded i
debt rested on the property, the yearly |
charges for dividends and interest |
amounted to 81, 792, 9S6, whereas with the |
greatly increased present capitalization /
the yearly fixed charges amount to but |
SO, Al, $50. This, of course, takes no ac- /
count of the present common stock, upon /
which no dividends are paid. The plan /
adopted was to substitute long term /
bonds and guaranteed stock bearing an /
exceptionally low rate of interest for |
common stock which paid a large divi- /
dend and for bonds about to mature bear /