Evening star., 1952-06-19
Partial Text of Report on Financial Aspects
Of Capital Transit Co. Operations Since 1912

Of the Lands report on the
Capital Transit Co. relating to
financial results Of operation.
1912 to date, follows:
Since 1947, transit fares in al
categories, save school children
have risen sharply. Four fare in.
creases have successfully beer
awarded to the Capital Transit
Co. These increases, officials OF
the Capital Transit Co. say, are
not enough to give investors a fail
return on their investment. More
increases, it is said, will be needed
or else the Government should
take over these transit facilities
and if the transit system is to be
kept up to adequate standards
guarantee investors an appropri-
ate return on their money. On
the other side of the picture are
the startling facts that the stock
of the Capital Transit Co. rose
from a low of $40 in 1947 to over
$50 in 1852, that dividends in 1850
and 1851 were increased from So
to So and 81 a share respectively,
that an extra dividend Of $40 per
share was paid in 1852, and that
regular dividends in 1852 are being
paid at the rate of $500 a share,
when during the very profitable
war years 81 per share was the
maximum dividend ever paid on
Capital Transit Co. stock. Further
more, since the controlling interest
In Capital Transit Co., the Wolf
son group. bought into Capital
Transit Co. with permission in
1949 at $40 per share. they have
already been returned in dividends
$3.50 per share, and the shares
of stock then acquired now have
a market value of $50 to $50 per
share. In the light of these facts,
residents of the District of Colum-
bia naturally are asking what
justification, if any, exists for
further fare increases and for the
threats made by the president of
Capital Transit Co. that unless the
rate of return is improved, the
transit properties will seriously
suffer.
The answers to this puzzling
question are not simple. They
lie essentially in the fact that
Capital Transit Co. is cutting up
a melon with its stockholders that
was acquired in the war years.
The extent of these excess profits
was unknown to the stockholders
and to the public at that time. An
imaginative and far-seeing Pub
lie Utilities Commission could
have preserved these profits for
the public who created them in q
manner that would have truly
benefited the public. However, it
did not do so.
Enormous difficulties attend any
evaluation of the, financial re-
suits of Capital Transit Co.'S op-
erations over the past decade.
These are due primarily to the
fact of (D obsolete methods of
reporting, (2) diverse methods of
reporting to the various govern
mental agencies. and CD certain
extraordinary recent incidents in
the history of Capital Transit Co.,
which are intrinsically difficult to
reflect in the annual financial
statements.
Chairman Flanagan's figures
0942-1946) which merely recite
the figures as annually reported
by the company to the Public
Utilities Commission, give a very
misleading picture of what the
company earned and netted on it's
extremely profitable. operations
during the war years. Unfortu-
nately. re-adjusted figures for the
net operating income are not
available for years subsequent to
1916, although the commissions S
chief accountant in a rate pro-
ceeding testified that a reported
e:N Of return of the company of
2% in 1949 and $3.50 in 1850 after
appropriate adjustments should
be increased to 3.4cc and 4,6%.
y X xx
OF somewhat minor importance
from the standpoint of debating
net operating income and thus
showing a lesser rate of return,
but OF major Importance from the
standpoint of principle, has been
the consistent practice of Capital
Transit Co. with certain excep-
tionS IN 1851 in charging against
operating revenue a goodly por-
ton of taxes attributable to nom
operating revenue. The Public
Utilities Commission is aware of
this practice, but seems to have
made no effort to require the
company to conform to honest
and good reporting in this respect.
The amount of these taxes is
difficult to determine on the
available data. but the Public
Utilities Commission on two oc-
casions has made a calculation
OF them with the following vary
ing results:
1912 1943 1914 1945
$58,643 1895 $99, ,069
1920 82,668 89,029 $112. .O09
This practice. of course, obvi-
ously distorts net operating in
come although it has no effect
on net income.
A second factor that distorts
the reported net operating in
come figures is the over-accrual of
certain reserves. This has been
particularly true of reserves for
taxes. Over-accruals for taxes in
the years 1942-1945 have been cal
culated by the Public Utilities
Commission on two occasions as
follows:
0vsr-Accrual of D. c. Income Taxes.
Taxes and d, G Gross Reeeipts Tax.
1912 1943 1914 l945
552.049 1S2,063 48,085 $89, 1854
$487 ,526 $141 .085 $58,466
In 1949. the company trans
ferred to earned surplus $500 600
representing an over-accrual OF
fovAe foY. fba x,aorc 1910 10AE ss