Opinion ID: 1483191
Heading Depth: 1
Heading Rank: 13

Heading: 2a Prospective Earnings.

Text: In his petition to modify, petitioner Rosenberger requested the Commission to state, in a supplemental report, the following: (a) The average annual earning figure we adopted and for what period; (b) our finding for excess maintenance for any pertinent period we have relied on in arriving at true earning power; (c) the extent to which the earnings for the year 1941 have figured in our appraisal of the debtor's earnings power; (d) the prospective earning figures we relied on for the next few years; and (e) the value of the debtor's property and the earning formula we used in arriving at said figures. In its supplemental report, the Commission stated, as to these requests, as follows: Except as shown in our prior report or elsewhere herein, the Commission has made no such findings, and sees no reason to make such findings now. Neither the total new capitalization approved nor the plan as a whole is based on a formula. Our agreement as to conclusions does not imply that all of us reached the conclusions by the same route, or were to the same extent affected by every one of the many considerations which moved us to those conclusions. Nor is it to be expected that the court, if it shall reach the same conclusions, will, in such a complex matter, necessarily follow precisely the same line of reasoning as any one of us. In reorganization proceedings, the Commission is not required to formalize its determination of valuation into findings upon the data which results in its conclusion. Group of Institutional Investors et al. v. Chicago, M., St. P. & P. Railroad Co., 318 U.S. 523, 539, 63 S.Ct. 727, 87 L.Ed. 959. The Commission had before it evidence of past earnings and past financial condition with voluminous evidence bearing thereon. The report shows that earnings up to and including at least the first six months of 1941 were before the Commission. Also, the prospective war earnings were urged upon the Commission and denied as a basis for the long time requirements of a reorganization valuation, although the United States had been in the war for three months when the Supplemental Report was filed. What were then prospective earnings for the last half of 1941 to 1944, inclusive, have now become actualities. Tables showing (1917 to 1944, inclusive) gross operating revenues and net railway operating income and (1923 to 1944, inclusive) income available for fixed charges are in the footnote. [17] While statistics of almost every kind are subject to explanations which sometimes vitally affect the worth of deductions from them, yet a series covering many successive years of a business are quite likely to reveal, on their face, significant matters. A long series furnishes fairly solid foundation for deductions as to normals, abnormals and averages. Since reorganization proceedings must have the long range in view, such deductions are valuable. The statistics in the footnote are long range experience of the Debtor. They reveal clearly the abnormal character of the years 1942, 1943 and 1944. A jump from $28,256,046 in 1941 to $48,714,197 in 1942 and the further drastic rises in 1943 and 1944 speak for themselves. The average annual gross revenue for the twentyeight years is, roundly, $26,103,000. The average, excluding 1942, 1943 and 1944, is $21,808,000, further reflecting the abnormal effect of those three years. The war effects began to manifest themselves in 1941 but did not reach real stride until 1942, after we entered the war. The sole cause of these enormous increases is, for most part if not entirely, the war. This cause was temporary. That the end of hostilities would result in a pronounced decrease to peace-time normalcy is a certainty. That this decrease will not be immediate but will taper off for a few years because of war aftermath transportation needs is likely. That tax refunds for a couple of years may help is true. But that this change from war to peace levels and conditions of railway transportation, including Debtor, will take place within a very few years seems certain. It is urged that though there will be a falling off in revenue at the end of the war, yet there will be an increase of business for Debtor over that before war. The argument is that the increase of population into this territory during the war will result in many of these newcomers remaining; and that many of the numerous war industries established there will be converted into peace time uses. These results may occur but the measure of them is not even estimated. Such uncertain elements can find no place in estimated future earning for reorganization valuation purposes. Also, it is suggested by Mr. Meyer that post war building and other recovery from war conditions will result in increased business for Debtor. This seems quite probable. However, such occurrences are but moves back to normal peace conditions and, therefore, are temporary and they are inestimable. Whatever may be the effects of these war-time revenues in other relations, they are too abnormal and too temporary to be taken as any gauge of prospective earning of Debtor during the long sweep of years intended by Congress to be planned for in a reorganization proceeding. As stated by Mr. Justice Douglas (Group of Institutional Investors et al. v. Chicago, M., St. P. & P. Railroad Co., 318 U.S. 523, 543, 63 S.Ct. 727, 739, 87 L.Ed. 959): As we have noted the Commission conceived as its responsibility the devising of a plan which would serve `as a basis for the company's financial structure for the indefinite future.' We cannot assume that the figures of war earnings could serve as a reliable criterion for that `indefinite future.' As some of the bondholders point out, the bulge of war earnings per se is unreliable for use as a norm unless history is to be ignored; and numerous other considerations, present here as in former periods, make them suspect as a standard for any reasonably likely future normal year. Among these are the great increase in taxes and in certain costs of operation and the decrease in water and truck competition.