Los Angeles herald. [microfilm reel] (Los Angeles [Calif.]) 1900-1911, 1907-07-14


the stock they obtained nearly all of the
bonds Out Of the 65 cents on the dollar
| thus realized by the railroad company
the principal stockholders voted them
selves a dividend of 80 per cent on the
| common and preferred stocks. The total
dividend amounted to $6,669,1S0, and as
| 1t appears they owned more than SO per
cent of the stock they received nearly
all of 1t. This dividend was not reported
to the interstate commerce commission.
There was no other money in the treas
ury outside of the proceeds of these
bonds with which to pay a dividend.
I'm order to find an excuse for bor-
rowing money to pay the dividend Mr.
Hartman, who was in control of the
| financial affairs of the road, caused
| STA 1T to be credited in December, 1899,
| to construction expenditures uncapital-
lied AS a matter of fact, all money
which had been annually appropriated by
the board of directors and charged
against the income of the property, in
addition to paying the dividend; so that
all the money so appropriated had once
been paid out of income and had during
many years been charged off to operat-
| ing expenses.
Covers Up Dividend
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 true state of facts
"The commission cannot say this was
the object, but one expert railroad ac-
countant testified that 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 $4OOOO,0 600
| mortgage was made, $973477 of these
coupons were, from 1901 to 1905. carried
as an asset in the treasury of the Alton
| company under the head of funded in
| terest account and on June 30, 1906
| credited to assets and charged to capital
account of the Chicago & Alton Railway
company. The assets and the profit and
loss account of the company were swelled
| by this transaction to the extent of
$973,4T; thus in fact, turning a debt or
| obligation of the company, which should
have been paid, and cancelled into an
asset and capitalizing the same.
| Transferred Stock
Having acquired the stock of the Chi
cago & Alton Railroad company the syn
| dictate organized the Chicago G. Alton
| Railway company under the laws of ILL
| 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 pretend
| ed contract with the railroad company
! whereby the new company was to buy
from him their stock of the old COM
| pany for the following sums:
| For their 34,722 shares of preferred
stock, which had cost. them sc, 944, AGO. and
on which they had received a special
dividend of $1,0H, $50, according to this
| contract they obtained in cash $4,000 900
| For their 1S3 D0l Of
stock, transferred to the railway COM
pany, which had cost them $50, O04 200 and
on which they had received a special
dividend of s5,496, 100, they received 1914 100
shares of the preferred and 195,42S shares
of common stock a total of 39O,S1S shares
of the new company.
Union Pacific Bought Stock
1t does not appear what they sold
this stock for, but it does appear that
the Union Pacific Railroad company
bought in 1904 1O4, 331 shares of the pre-
ferred at $3.50 a share.
1T appears that Hartman, Schiff,
Gould and Stillman also owned line of
railroad fifty-eight miles long which there
Is some evidence. to show had cost them
very much less than $300O,0OO This rail.
road was also transferred to the inter
, mediary Stanton. who sold it to the new
company for So, 100000 cash. So that by
: | ILLS lldllSdCllOll tiic SylulCdle were &c
receive in cash 49,, 900 900 and all the stock
of the company in exchange for about IS
per cent of the stock of the old COM
pany and the railroad fifty-eight miles
long. i ma
ITO raise the s1S,oOO.OOO in cash the
shares of the old railroad were first mort
gagged for 81, 100000 and the bonds were
nominally sold to Kuhn, Loeb G. Co. for
S13,000,00O cash, or little less than 80
cents on the dollar.
1T was admitted by Mr.. Hartman that
there was about s60,000,O00 of stock and
liabilities issued against which no prop
erty had been acquired and this is I'M
| doubtedly an accurate estimate. 1t fur
Their appears by the testimony of Mr. Hill
lard that since the Hartman control has
ended and the road was turned over to
Il the Rock Island, the company has been
compelled to issue S2,260000 of car trust
notes to acquire equipment needed in the
business of the company; that the pres
ent management found the company with
out any money to buy necessary equip
+ ment or to build thirty-four miles of rail-
road which the company had contem-
plated constructing and on which the
Hartman management had placed a
mortgage. sold the bonds, but had left no
funds in the treasury to complete.
: Excuse Is Given
"By way of justification or excuse we
are told that the methods of the financ-
ing of railroads which prevailed in the
year 1905 are not 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 as many other roads were at
that period.
1.-THE first of these statements is, we
trust, true; the latter statement is not
calculated to uphold the value of Ameri-
can railroad securities.
lit is true, however, as contended, that
) a close examination of the method OF
capitalization adopted in the case of the
Chicago & Alton shows that while the
j total of bonds and stocks was doubled,
J, there was no such proportionate increase
!, in the fixed charges of the railroad. In
der the Blackstone management per cent
was paid on the stock and burt a small
bonded debt rested n the property, the
yearly charges for dividends and interest
amounted to $2,792,9S6, whereas, with the
greatly Increased capitalization the yearly
fixed charges amount to but $S4n,590.
, This, of course, takes no account of the
nrasent common stock llnOn which No