The producers news., 1927-07-22

ty Tor proof, in support of statements,
Vnat railroads of this country are ov-
ermortgaged, and that railroad stock
mas no physical property behind it.
lhese facts should justify and en-
courage your Honorable Commission
10 eliminate approximately Seven Bill
non Dollars from the present total of
railroad valuation before consenting
10 the consideration of any plan of
consolidation.
Great Northern Issues Watered Bonds
Z. Prominent among the offend
ers, IN the issuance of watered bonds
and watered stocks, are the Northern
Facl1lc, the Great Northern and the
Spokane, Portland & Seattle Railway
companies. The last-named, the S. P.
q y, came into existence as a result
OF a promotion scheme of the N. P.
and the G. N. Railway COMPANIES
Jointly, which companies financed,
built, bonded and stocked the S. P. &
,. The statements of this rail off
spring disclose its inability to meet
the interest on its watered bonds, or
to pay any dividend on its outstanding
S4O,OOO,000 of watered stock. The
ownership of this watered stock is di-
vlded equally between the N. P. and
the y. N, and the statements of these
companies show that each is carry
ing S20,000,O00 of this non-dividend-
paying stock, at 100 cents on the dol
lar. This item appears on the book
OF each, the n. P. and the G. N, as
Investment in affiliated Companies. :"
However, should inquiry be made by
the Interstate Commerce Commits
sion, it will be learned that the N. P.
and the G. N. will not seriously con-
tend that this $40,000,000 of S. P. &
5. stock represents any actual invest
ment whatever.
Inflated Valuations.
8. The figures representing the
valuations of the railroad properties
OF the Northern Pacific and the
Great Northern Railway Companies
indicate that representatives of the
said rail Companies were not far dis
tant from the employees of the Valu-
alton Bureau where appraisements
and corresponding figures were made
In these appraisals for rate-making
purposes there were unheard-of dis
coveries of valuable railroda proper
ties. (a). Discarded box-cars were
ltemized as bunk-houses and inven-
toried at prices ranging from $3.50
to S4OO each (b). Old boilers were
taken from discarded locomotives and
valued at $4,000 each. (c). Sidewalks
around passenger and freight stations
which were resultant from the Dump
ing and spreading of coal cinders
were lnventoried at values equal al
most to that Of concrete. In connec-
tlon with such items ard others of
like Importance, the labor performed
was charged to the maintenance of
way and structures expense account
and during those years when z per
cent dividends We're regularly declar-
ed and paid, and during which years
millions of dollars Of additional accu-
mulated property were credited to
surplus. (d). Another discovery of
property and one which has double
value, is the payment of special i'm
prOvement district taxes, including
street pavements, and after being
charged to expense account, these
items are brought forward and enter
ed as a part of the capital invest
ment. By this method, earnings are
obscured, and fictitious properties are
created and capitalized. And through
such procedure the recapture feature
OF the Transportation Act is defraud-
ed. (e). Generalization of railroad
properties generally may be reflected
through the important item Of relay
steel, of the weight Of Sc pounds.
These rails were on sale here at SO
per ton, in the year 1914. For the
same year this item was given a val
ue by the Bureau of $50 per ton, less
lO per cent. These rails were the
main line trackage of the Northern
Pacific and the Great Northern prior
to 1887. If. Terminals. rights-of
way, and properties similarly situat-
ed, are, in reality, liabilities. For
taxes, up-keep, maintenance and de-
probation, these properties are de-
pendent entirely upon rail operation.
Such properties therefore, should be
given value based upon ascertainable
facts rather than upon theories that
are not susceptive to rational analys-
es.
Railroads Should be Managed by
Business Men
8. Consolidation of rail systems
should not be considered until their
political management will have been
removed from the picture. Watered
stocks and watered bonds are crea-
lures of political power and control
and this character of paper is given
both value and returns through law
yer-strategy and lawyer-management.
The management of railroads by bus
mess men, actuated by business prin-
ciples, would be productive of greater