Pine Bluff daily graphic. (Pine Bluff, Ark.) 1893-1942, 1916-05-21
CAPITALIZATION
Of RAILROADS
lis TOO GREAT
Trainmen Point Out How
Revenues of Railways
Could Be Conserved.

Cleveland, Ohio, May 20.-ln a
statement issued today by the -four
railroad brotherhood organizations
that are concertedly demanding a
shorter work day for freight train
crews, attention is called to state
ments made by railroad officials, that
raods cannot afford any increase in
train operation.
The employees challenge the sim
cerity of these statements and have
pointed out several ways in which
railway revenues could be conserved,
which are now wasted or given away.
Stockholders of railroads were
never better off than they are now,
and stockholders of good many
roads have participated in the "cut-
ting" of a good many "melons" in
recent years.
During the period of 190O-1910, ten
Western railroads alone issued new
stock for $250,584,961 less than it's
market value, or practically gave
away this enormous amount in bon
uses to stockholders.
In other words, in addition to cash
dividends, together with appropria-
tions to property and reserves for the
benefit of stockholders, the stock
holders of these ten transportation
companies had conferred upon them
in the shape of rights to subscribe for
new stock issues at less than prevail
ing market prices, more than quar-
ter Ola billion dollars.
From the standpoint Of the finan
cial administration of the railroads,
this method of finance also had an
added significance. If the new stock
issues had been disposed of at market
tirices-4the prices which could have
been obtained in the open market by
these companies, if they had not given
these special bonuses to stockholders
they epuld have secured the same
amount ofcash by an issue of $173,-
122,796 less, capital stock.
The Transportation companies,
therefore, lost the use of this much
capital which they could otherwise
have had, or considered from another
angle, they increased their capital
stock unnecessarily $173, 122, 796 with
0ut;sadding a dollar to the earning
capacity Of their properties. -.
The dividends paid on these ficti-
amounted to $11,276,495.
The increased productive efficiency
Of train crews, which largely was re-
sponsible for the big revenue gains,
was used to pay dividends charges
upon unnecessary stock issues, which
were arbitrarily created for the bene-
fit of the stockholders; and did not
represent capital actually invested in
the railroads.
Huge Funded Debt.
During this same period of ten
years, the same ten railroads gave
away in underwriting commissions,
$9,12O,124. The total par value of
funded debt issued by them for cash
during these years was $S85,016, 683.
The cash proceeds were only $841,
326,307; the market value of these
bonds, however, was $3.50. 446, 431; and
the excess of market value of these
securities over the net proceeds to the
railroad companies was $9,l2O,124.
This amount represented an actual
loss to the railroads. These transac-
tions also represented an unnecessary
increase in the funded debt of the ten
railroads of $9,455, 952, for the reason
that if the bonds had been placed in
the open market at the prices obtain
ing at the time of each issue, the cash
actually realized could have been
secured by $9,455,9 1852 less in par value
bonds.
Assuming that the interest charge
now being paid upon these bonds
average 4 per cent per annum, more
than $375, 900 of the earnings of these
transportation companies is now being
absorbed by the interest requirements
upon this unnecessary capitalization
This amount, if bonds had been sold
by proper methods, would have beer
available, in addition to the dividends
now being paid upon excess issues Of
capital stock, to pay any increase in
operation expense on account of 8
shorter work day for employees.
The employees contend that there
will be little or no overtime used on
account of the eight-hour day anC
that the increase in the cost of opera.
ton will be so slight, as to be negli-
gible quantity.
The employees can see no justice in
having to do increased work and put
in excessively long hours in order that
all the increased revenues should go tc
the bankers and ''insiders."
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