The sun., 1919-07-17
SOUTHERN PACIFIC
NET INCOME DROPS
Annual Report for 1918 Shows
$28,684,916-In 1917 1t
Was S49,129,416.
SURPLUS IS $11,P3,295
In Message to Stockholders
Kruttschnitt Arraigns
Federal Operation.

The annual report OF the Southern
Pacific Company, covering operations Of
the road during 1918, was made public
yesterday and disclosed net income,
after all charges and taxes, of s2s.6e4.-
916, or S10.ss earned on each share of
the S276,442.96S outstanding capital
stock Net earnings were $40, 1873, 416,
or s1765 a share, In 1917. The report
shows earnings Of s11.2s a share. with
the inclusion of a net debit balance of
S2.63S,000 arising from settlement Of
revenue for the period prior to January
/. 1918, which Is properly a charge
against the profit and loss surplus rather
than against current earnings.
The Government income account Of
operation shows a profit of s7.757,s35
over rental. which. after allowing 10 per
cent for income tax, would be equal to
S2.53 a share on the stock and bring the
net earnings on the same basis. II under
private operation. to $13.S2 a share, sub
ject to adjustment on account of excess
profits tax.
The Southern Pacific Company was
granted a standard return OF s4s,167,-
3i2, which. with a miscellaneous operat-
Ing income OF $4.317,197 and Il
incorporating income of s7.9S9,742.
brought the gross income for the year
TO s60,7b72sl. Deductions of s31,7s9.-
ass for rentals, war taxes, interest, &c,
reduced the net income Of the corpora
ton to ,S2S, 6s4, 916, from which was paid
SIG. 404.9Se In dividends and $997.112
for sinking fund purposes making the
surplus for the year s11.2s3.295. against
s4s,l51.320 in the preceding year. when
dividends were paid out of accumulated
surplus.
The Federal income account for 1918
shows IN
tho administration OF s221.611 .206.
against operating expenses of s162.722.-
372 leaving net revenue of $5S.SSS S34.
Tax charges exceeded $4,000. 900 and
uncollectible revenue was more than
$4,000. making operating income for
Federal account s49,430,477. Other In
come from equipment and Joint facility
rents totalled nearly 100000. and
more than $2,500,000 for miscellaneous
income and expenses in excess of reve-
nues prior to January 1, 1918. charged
against the corporation. making the
total Federal income $s5.s25.277.
Scores Federal Control.
Federal operation was given a scath-
ing arraignment in the remarks OF Julius
kruttschnltt, president and chairman of
the executive committed accompanying
the report. Tho Increase of s42l2O,549
not only all of the increase in revenue,
but over $4,000. 900 more. resulting in
a decrease in net revenue from railway
operations of $14.4S0.S32, or 1914 per
cent In other words, II cost S1.52 to
earn every additional dollar OF operating
revenues. The very heavy increase In
operating expenses Is attributable largely
to advances made In the rates OF pay of
employees and to increases in the cost OF
materials. These increases ltemized are:
pr,ess Maid Tor
Increased prices paid for other
materials '''''''.....''..''' Aess'ooo
Total increases IN wages and
material prices ............S i.s3s. o0L
The difference between the total of
these items and the total incxease of
S42,l20.549 in operating expenses was
caused in the main by reductions in
hours OF service. fall in efficiency. sc.
Tho effect of increases in rates on
revenues was felt in the last half of the
year only. Many OF the increases In
rates OF pay were made retroactive to
January 1. 1918, but as many demands
for increased pay were pending at the
close of the year and have since been
granted in whole or in part, 1t Is evil
dent from tho net income derived from
the operation Of your properties by thu
United States Railroad Administration In
the first quarter OF 1919 that the in
creases In passenger and freight rates
made In 1918 are not sufficient now. and
probably will not be sufficient when ths
properties are returned to their owners
to pay operating expenses. fixed charges.
taxes and reasonable dividends. A fur
Their increase IL necessary unless tho
volume Of traf1o should increase to an
extent that cannot reasonably be ak
pected-
TN making its certincats tho Inter
state Commerce Commission has arbi-
trarily reduced thu amount Of the stand
and return OF the Southern Pacific sys-
tenn lines Of ss2S,%S7.23 on account OF
war taxes, and by $65.569.S3 on Rc-
count Of payments to employees under
the Adamson law. or a total deduction of
$394,057.05. Although these deductions
represent amounts entered In the ac-
counts subsequent to the test period. tho
commission takes the position that such
amounts are applicable to that period
As q determination of these amounts
was not possible during the test period
and as the same action was taken by the
commission with respect to the standard
return of all railroads under Federal con-
troll, vigorous protest was made at
public hearing against the making OF
these deductions. This arbitrary act
will have the effect OF reducing the COM
pensation OF your company by 1884,
o57.O5 for every year of Federal control
Standard Return S47,O50,S9s.
Average annual
railway operat-
inE income,
years ended
Iuna 40 1915