Los Angeles herald., 1910-09-20
OFFICIALS PROBE
RAILWAY DEALS
Controller of the Illinois Central
Yields Disclosures Before
Interstate Commission
ASSOCIATED Pressl

sums OF money WITHOUT putting III the
companys record any reference of
more than passing fair dividends, was
the subject into which the interstate
commerce commission delved today at
it's continuation of the hearing, pending
the suspension of the freight rates of
western lines scheduled to take effect
September /.
The stock manipulation feature of
the inquiry was suggested by Commits
sioner Clements, and was Immediately
taken up by the commission attorney
Frank NJ. Lyon, and Attorney Atwood
of Kansas City, who appeared for the
general shippers committee, which is
fighting the increase.
Controller Blauvelt of the Illinois
Central railroad was the witness from
whom the disclosures which followed
were obtained.
Commissioner Clements called the
witness attention to figures he had
furnished on direct examination by the
railroads counsel. The commissioner
said:
AMAZING RISE IN FIGURES
'"You say, Mr.. Blauvelt, that in 1891
your capital stock was S40,000,000 on
2S75 miles of road, and in 1910 on only
about 100 miles more 1t was S109, 100000.
Also that In 1891 the bonded indebted
ness was only $62,000,000. while in 1910
it had reached $176000,OOO. Why is
this?"
well" was the answer, what
would appear to be the excess went
to improve the roadway and for equip
ment and purchase OF other roads"
"And how was the stock raised for
these purposes sold?" continued the
commissioner. "Was it on the open
market?"
part of it was. But most of it was
sold to the stockholders at par"
"yVas there ever declared a stock
dividend?"
81 am sure there was not. That
would amount to the same as any
other dividend, you see. That Illinois
Central stock sales represent real val
ues, you must see, in dollars ana
cents"
Here Attorney Lyon sought to have
the witness differentiate between CIV
ing stockholders stock dlVldend OF
giving them stock worth more than
par at parity. The controller insisted
there was a vast difference, even If
the result were the same in cash TO
the stockholders, which he admitted.
STOCK TRANSFER METHODS
This part of the testimony opened
a new question of the disposition OF
a corporations stock and Commissioners
Lane, after asking if 1t was to make
the stock value approach the casn
value, and being informed it would
not, allowed the attorney to delve into
the par stock deals.
"If your stock sold at 150 in open
market" asked the attorney, "and you
gave 1t to your stockholders at 100,
what became of the extra so per cent
of it's value?"
"Why, it went to the stockholders"
was the answer.
"TLen the upshot of it was your
company added to its capital stock by
letting stock go to par when it needed
money, when it could have sold less
its needs and kept the capital stock
down, giving less capital to figure div
idends upon; isn't that so?"
Controller BlauVelt was unwilling
such an impression should prevail, he
said, and he explained by saying:
"Supposing we dumped S15,0OO,OOO IN
stock on the market at once, 1t would
send its value way below par. con,
slider it a good business policy to sell
where we were sure it would bring
par and keep control of the road where
it was"
FORTY-NINE MILLIONS SOLD
Attorney Atwood asked how much of
the company's $2S5, 900 in stocks
and bonds had thus been sold at par
since 1900.
The reply caused other attorneys for
the shippers to examine the records
that had been submitted by the COM
pany.
Mr.. sBlauvelt answered: II find the
sum was $4,000, 900 par value"
THAT, sold in small dabs on the
market, or if it all could have been
sold at market prices would have
amounted to about third or a half
more? Half or more in addition to
that figure, wouldn't it?"
'I don't know" replied the witness.
ST think 1 can help you" answered
the attorney. He read from stock
and bond companys pamphlet, which
quoted the high and low market prices
in the period covered as between l22
and 174, with an average of about $50. |
Commissioner Clements interposed an
inquiry that directed the questioning
along a new line, that of the uses to
which stock sale money was put, and
the possibility of actual gains OF the
company being hidden in It's owning
stock and bonds in subsidiary com
panies.
The controller answered this ques- |
tion by insisting that when the parent
company paid out maintenance costs
for subsidiary companies and the sub
sidiaries paid back dividends, those
returns were not properly sources of
income to be considered in computing
dividends.
The commissioner asked: "Some of
this additional property which your
company acquired was purchased by
earnings, wasn't it?"
"It was" was the reply.
"Then," interrupted Attorney Lyons,
"does the income include returns from
these outside companies?"
'No, certainly not" was the reply
of the controller. Few of them pay
any dividends and return revenue is
consumed in payment of expenses on
their separate lines and doesn't fur
nish the parent company with any ex-
cess for income"
Attorney Clifford Thorne of a far
mers' cooperative accusation then
sought to show by the witness that
the present years high cost OF main !
tenance was abnormal, and would not
be expected next year, hence increase
of rates on that account was not nee
essary.
The controller did not have the spe-
cific information he sought.
WILL OFFER MEASURE TO