The Topeka state journal. [volume] (Topeka, Kansas) 1892-1980, 1916-10-04

record of governmental con- plldHce
with the wishes of union labor, you
will realize that it is not going to be
an easy thing to get the necessary re-
medal legislation when that will pc
violently opposed by union labor we
must expect the labor unions to use
in the future all the political power
they can command just as they nave
done in the past.
/ do not need to take up your time
in pointing out how the foundations
of sound railroad securities have been
slowly undermined by the accumuiat-
ing and conflicting regulations OF
forty-eight states in addition to the
regulations of the federal government.
Railroad securities are not issued in
fragments according to state boun-
daries but are issued whole. They
depend for their soundness upon the
railroad company's present and pros
pective net income as whole. Yet
that single and indivisible net income
is being eaten away by state action
miscellaneous. disjointed. independent
and inordinated-thru reductions in
rates and increases in expenses. The
| horizon of each state is circumscribed
| by its own boundaries and it acts with
reference to its own local interests,
/ altho nearly all of its railroad regu-
lations have direct and injurious eff
| feet upon the general welfare of each
railroad company affected.
Governed by States.
! The general welfare of each rail-
road in this country is a matter of
| national concern, and yet it is affected
| in countless ways by state authorities
| who do not and can not look at the
| matter from a national standpoint.
| The dangerous consequences of having
| a single matter which is primarily of
national concern regulated and i'm
| paired by forty-eight different states,
no one of which has a national hori-
zon or responsibility, are now gener-
| ally appreciated. But your help is
needed in emphasizing still further the
necessity for adequate national action
to supersede this destructive patch
| work of reductions in rates and in
creases in costs.
Bonds to be sound and attractive
must be protected by a wide margin of
safety. If rs per cent of a railroad
companys normal annual net income
must be used to pay bond interest, it
is obvious that a loss of rs per cent
of net income IN any year thru bus
mess depression exceptional dis
aster will bring the company to the
| brink of insolvency. But if only 40
per cent of the railroad company's
normal annual net income is required
for bond interest, it would take a re-
duction of so per cent in that normal
net income to bring its solvency in
question. This margin of safety. or
the annual surplus of ret income over
and above fixed charges. is the funda-
mental element of security and attrac-
tiveness in railroad bonds.
We all know that railroad COM
panies must continue to spend hum
dreds of millions of dollars for the
further improvement and Enlargement
of their properties. This money must
|. be raised either by the So lie of bonds
, or by the sale of stock. To the extent
, that this money can be raised by the
sale of stock. the margin of safety will
be increased, beca use stock entails no
obligation for fixed charges But to
the extent that these hundreds of mil
lions must be raised by the sale OF
bonds, the margin of safety will be
impaired, because every time a bond
: is sold there is an increase in the com
, pany's fixed charges.
Stocks Sell Below Par.
All you gentlemen know that in re-
cent years conditions have been such
that hardly any of the railroad com
: fpan1es in this country could raise new
, , money by the sale of stock This has
been true because with very few ex-
: ceptions railroad stocks have beer
l sold below par and generally speak
Y at or above par. Even in cases whers
I railroad stocks have been selling
t above par the excess over par has
t been so slight that the offering of {
large block of forty or fifty million
= dollars of new stock would have de
pressed the price below par. Under
such conditions the railroad com
panies almost without exception have
j. been forced to raise all the none.
| they needed thru the sale of bonds. II
other words, the railroad industry ha
:, had to do nearly all its new business
on borrowed money. This has mean
the increasing of their fixed charge
and consequently the diminishing o
their margin of safety.
Every time this margin of safety i
:. reduced thru the disproportionate in
crease of new fixed charges, a blow i
struck at the attractiveness of tina
company's bonds both those now out
standing and those to be issued in tn
future.
The establishment CT nationa
method of regulation which will b
unified and consistent will he calcu
lated to remove from the railroa'
situation the present fear that thei
net income will be regulated down Z
a basis so low that it will be out o
the question for stockholders to Loo
forward with confidence to a continu
ance of dividends sufficient to max
the stock an attra ctive investment.
Here, too, you gentlemen are in
position of peculiar strength in de
veloping public sentiment While yo
and your customers are primarily in
terested in the sale Of bonds. you an
they are profoundly interested in Their
- being ar adequate basis to secur
" those bonds You know. and you ca
:. make it clear to them. that that basi
= cannot exist unless railroad ret in
= come is sufficient to enable railroa
T. companies TO do a large part of thei
IN new financing through the issue @
stock and unless the laws are so sim
~ plified AID unified TO adrit of tn
~ Issue of stock under appropriate ma
y tional supervision.
Is PREPARE R0YS E0RWAE