(1) Two lots in Los Angeles County, together with all buildings and fixtures thereon and appurtenances thereto.

(2) Motor-vehicle equipment, consisting of 9 trucks, 4 tractors, 2 trailers, and 5 semitrailers.

(3) Warehouse scales and other personal property described in exhibit B of the agreement.

(4) All operating rights held by vendor granted by the Railroad Commission of California in its application No. 18633, and by the Interstate Commerce Commission in No. MC-68567.

(5) All good will appertaining to transportation, storage, packing and shipping of household goods now and heretofore conducted by vendor.

(6) All storage accounts, contracts, and leases which may be active at the time of transfer, provided, however, that vendor shall be entitled to receive and vendee shall promptly pay, as and when collected, 65 percent of all accounts receivable accrued prior to transfer date, and all rental for the unexpired term of a lease heretofore made by W. L. Carpenter to Hodge Van and Storage Company to expire June 30,

1946.

Vendor would deliver to an escrow agent a warranty deed to all real property involved, to be clear of all encumbrances, copies of the operating authority involved, and certificates of ownership covering motor vehicles and other personal property used in vendor's business. The California commission has approved purchase of the intrastate rights.

Under the terms of the agreement, $1,000 paid to vendor for an option to purchase the above-described property would be applied as the initial payment on the purchase price; $21,500 has been placed in escrow; $22,500 would be deposited in cash with the escrow agent upon consummation; and two notes aggregating $105,000, would also then be deposited with the escrow agent. The notes would be dated the date of delivery, would bear interest at 4 percent per annum, and would be payable in annual installments aggregating not less than $15,000 the first year and $10,000 per year thereafter, plus interest on the unpaid balance. Vendee values the real property covered by the agreement at $89,875, the motor-vehicle equipment at $22,432, the warehouse scales and other personal property at $2,880, and the operating rights and good will at $34,813. To secure $80,000 of the $105,000 notes, vendee would execute and deposit with the escrow agent an $80,000 first-trust deed on the lots and building involved. When the escrow agent receives notice of approval by regulatory authorities, and the title to the properties has been cleared, the escrow

agent would then release all payments, notes, and documents and the transfer would be made.

Paragraph X, page 9, of the agreement provides:

It is mutually agreed that Sixty-five Per Cent (65%) of all accounts receivable and cash derived from said business accrued prior to close of business on the date of payment to Seller of the first Nine Thousand Dollars ($9,000.00) on the purchase price, shall belong to Seller, and all liabilities of the company accrued prior to said time shall be borne by Seller.

It is not clear what the parties intend by this paragraph. The $9,000 payment has been made to the escrow agent, and this amount, with the remaining cash and notes, would be delivered to seller upon consummation.

Vendee's balance sheet as of June 30, 1946, shows assets aggregating $187,295, consisting of: Current assets $133,394, composed of cash $47,028, special deposits on purchase price herein $22,500, accounts receivable, less reserve for uncollectible accounts, $44,685, and other current assets $19,181; tangible property, less depreciation, $27,369; intangible property $4,000; investment securities and advances (cash surrender value of life insurance) $16,927; and prepayments $5,605. Liabilities were: Current liabilities $42,852, composed of accounts payable $25,477, taxes accrued $12,273, and other current liabilities $5,102; deferred credits $5,701; capital stock $75,900; and surplus, unearned $27,287 and earned $35,555. Its income statements for 1944, 1945, and the first 6 months of 1946, show net incomes of $65,329, $50,865, and $26,849, respectively, before provision for income taxes, and $19,736, $16,144, and $16,645, after such provision.

Vendor's balance sheet as of June 30, 1946, shows assets aggregating $47,434, consisting of: Current assets $13,791, composed of cash $5,128, special deposits $980, and accounts receivable $7,683; tangible property, less depreciation, $33,418; and prepayments $225. Liabilities were: Current liabilities $7,937, composed of accounts payable $1,872, wages payable $3,797, and taxes accrued $2,268; and sole-proprietorship capital $39,497. His income statements for 1944, 1945, and the first 6 months of 1946, show net incomes of $8,204, $26,254, and $8,229, respectively, before deduction for salary for vendor. The increase in net income in 1945 over 1944 is attributed to Government contracts, now expired, for moving Army and Navy personnel.

Balance sheet of Properties as of June 30, 1946, shows assets aggregating $397,817, including investment in vendee's capital stock $43,962, and tangible property, less depreciation, $275,273. Capital stock, less reacquired shares, was $31,885, and surplus $355,676. When the original application was filed herein, Properties was not a stockholder of vendee, but vendee's liabilities as of March 31, 1946, included advances payable to Properties of $65,100, and vendee issued 257

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shares of its stock to Properties to retire those advances. Properties' primary activity is in the real-estate field.

Vendee's balance sheet giving effect to the proposed purchases as of June 30, 1946, shows assets aggregating $292,295, composed of: Current assets $88,394; tangible property $142,556; intangible property $38,813; investment securities and advances $16,927; and prepayments $5,605. Liabilities were: Current liabilities $42,852; long-term obligations $105,000; deferred credits $5,701; capital stock $75,900; and surplus, unearned $27,287 and earned $35,555. Its giving effect income statements for the first 6 months of 1946 shows a net income, after provision for income taxes, of $21,749 but does not give effect to increased costs in (a) administration formerly furnished by the sole proprietor; and (b) fixed charges from payment of 4-percent interest on long-term obligations of $105,000.

The foregoing giving effect balance sheet reflects the payment of $45,000 of the purchase price in accordance with the terms of the agreement and the recording of long-term obligations of $105,000 for notes issued to cover the remainder. It also reflects the intent of vendee to record the tangible property acquired at $115,187 and the intangible property at $34,813. The purchase price exceeds the net book value of the tangible property as of March 31, 1946, by $116,265, as set out in the following table:

The record does not allocate the accrued depreciation to the individual units of property to be purchased. The 20 units of equipment were appraised by the White Motor Company and the Freuhauf Motor Company at the OPA "warranted ceiling" prices, aggregating $22,432, as compared with the OPA "as is ceiling prices" of $15,900. Some of the units are old models, one being a 1921, one 1928, two 1929, three 1932, two 1933, two 1934, one 1935, two 1937, two 1938, two 1939, and two 1941. Assuming that most of the accrued depreciation is applicable to the vehicles, they would be fully depreciated and have no net book value. It is the intent of the vendee to replace all equipment

with new vehicles to be acquired by purchase, as soon as they are available, with 10 tractors and 10 semitrailers, at an estimated cost of $7,000 per motor vehicle. This would require additional financing of $70,000. The methods, terms, and conditions of such financing and the additional fixed charges that would be involved are not of record. All physical properties, other than the vehicles, were appraised by a firm of valuation engineers. The value assigned to each class of property involved is supported by a valuation report in detail. Values were determined as of a going concern, not liquidating or disposal values, on two bases, "replacement costs" and "sound values." The replacement cost is the engineer's estimate of the cost to reproduce these facilities if new at the present time; and the "sound value" is their estimate of the value of the structures after allowing for normal wear and tear in usage. The value proposed to be used by vendee is the "sound value" of $92,755, not the replacement cost of $115,185. The principal item included in the appraisal is a five-story warehouse containing approximately 170,000 cubic feet carried on vendor's books at $35,000 but appraised at $74,460. Vendor states that its book value has no relation to its real value, but represents an arbitrary amount placed upon his books which was never changed because of tax reasons. In the valuation report, the age is estimated at 19 years. Other items included in the appraisal are a residence, a garage, and the land which they occupy, appraised at $10,748, which are not carried on the books of vendor.

Vendee's headquarters are in Cleveland. The application shows Cleveland as the address of all of its stockholders, directors, and officers. At the hearing, however, it was developed that William C. Neal is now residing in Van Nuys, Calif. The record does not reveal how vendee would conduct the operations of vendor, which are in California, except that they would be conducted as a separate unit from its eastern operations. It is obvious that, in view of the distance which would separate the eastern and western portions of vendee's operations after the purchase, savings or economies in administrative and operating expenses as a result of the unification would be negligible, and integrated operations impractiable.

Vendor's past earning record is not impressive, notwithstanding that no compensation for the sole proprietorship is included in its expenses and that vendor had no fixed charges or long-term obligations to meet. Unless the earnings under vendor's rights could be substantially increased, they would be wholly insufficient to meet the anticipated increase in administrative expenses and the required annual curtailment of the obligations arising from the transaction.

Even on the basis of the combined estimated earnings, vendee would have considerable difficulty in meeting its obligations growing out of

this transaction, including the needed replacement of equipment, without drawing on other resources. It has not been established on this record that these obligations could be assumed by vendee without impairing its ability to continue performance of its common-carrier obligations to the public. Under the circumstances, we are unable to find that the proposed transaction would be consistent with the public interest or that the fixed charges which would be incurred by vendee would not be contrary to the public interest.

We find that the proposed transaction has not been shown to be consistent with the public interest and that the application, accordingly, should be denied.

An appropriate order will be entered.

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