The CHAIRMAN. Is that surplus represented in these three years cumulative or is it used up within the period that you are antici pating? Mr. SHRIVER. There has been a gradual accumulation with these carriers of some surplus; that is, they have more surplus now than they had 10 years ago. Senator MCLEAN. What was the average dividend paid? Mr. SHRIVER. 4.36 per cent, the average for the three years. Senator TOWNSEND. I do not quite understand your disposition of your discounts that you have made. Do you deduct those discounts out of surplus? Mr. SHRIVER. It has been the practice on the Baltimore & Ohio Railroad, and I think with the roads generally, whenever we sold bonds, if there was a 1 per cent or a 2 per cent discount, and if we paid any commission in negotiating the debt, to charge that to profit and loss. In other words, we might issue bonds bearing 5 per cent interest, and, sold at a discount, the actual interest might have been 5 per cent, that is, if we amortize the discount through the life of the bond, the interest might have averaged 51 per cent. That discount representing the one-fourth per cent has been charged off in profit and loss, so that the carrier in the future has but the 5 per cent interest to pay. In other words, it has the effect of anticipating your interest and reducing the interest the future will pay. That has generally been considered the conservative method, and has been followed, I think, by a great many of these roads. Senator TOWNSEND. That discount does not represent any actual cash payment of yours, does it, at any time? Mr. SHRIVER. It represents this, that you have sold $100,000 of bonds and having allowed 2 per cent discount on them you have gotten $98,000 from the bankers. Now, if you put that into your property you will be paying interest on $100,000 in the future, having only $98,000 invested in the property; so the carrier, instead of doing that, makes up that $2,000 out of surplus. The investment therefore that has gone into the property is 100 per cent, and the carrier or the stockholder has contributed sufficient to make up the discount out of his apparent earnings. The CHAIRMAN. That is all that you desire to explain? Mr. SHRIVER. I was now going to show how that affected the present proposition. Senator CUMMINS. That makes it necessary, in order to make the showing complete, at least from my standpoint, to ask you this question: I will show you a table. The table to which I now refer has been offered in evidence, and it shows for the 38 systems a net operating income per cent of property investment of 5.71. Senator POMERENE. Will you allow me to understand your question, Senator? You say a net income based on property investment? Senator CUMMINS. Yes; that is the percentage of the net operating income as compared with the property investment, brought down to the 30th day of June, 1917. Mr. SHRIVER. That is for the year to June 30, 1917, is it not? Senator CUMMINS. That is the fiscal year 1917. That is right, is it not? Mr. SHRIVER. The fiscal year 1917? Senator CUMMINS. Yes; that is right, is it not? Mr. SHRIVER. That is right. Senator CUMMINS. The next column of this table shows the net income plus interest deduction-per cent of total capital obligations, 6.18. That is right, is it not? Mr. SHRIVER. That is correct, sir. Senator CUMMINS. Yesterday you showed that the percentage of net operating income, brought down and compared with the property investment on December 31, 1917, was 5.33 per cent. Mr. SHRIVER. That is the average earnings for the three years to June 30, 1917, related to the property at December 31, 1917, gave a return of 5.33 per cent, as against this 5.71 for the year June 30, 1917? Senator CUMMINS. Yes. Mr. SHRIVER. Yes, sir. Senator CUMMINS. Will you now give me a like figure representing the net income plus interest deduction-per cent of total capital obligations, brought down to the 1st of January, 1918? Mr. SHRIVER. I can not do that, because I do not have the figures from the roads as to the period between January 30 and December 31. Senator CUMMINS. You have nothing to show the amount of capital obligations issued after the 30th of June, 1917? Mr. SHRIVER. I have not; no sir. Senator CUMMINS. Your answer would be the same, I infer, then, so far as the next column is concerned, which is the net income per cent of capital stock outstanding. Mr. SHRIVER. That is the same situation. These are the last official figures I have. Senator CUMMINS. Can you furnish that without trouble? Mr. SHRIVER. I would have to go to the roads to get it, but we will do that and submit a statement just as promptly as we can. Senator CUMMINS. I would be very glad to have that information. Senator KELLOGG. Senator, do I understand this that page 2 of volume 2 of the statements of property investment and net income account from 1903 and 1917 has been put in evidence? Senator CUMMINS. I do not think it has. Senator KELLOGG. I thought you said page was put in evidence. Senator CUMMINS. Of these 38 systems? Senator KELLOGG. Yes. Senator CUMMINS. Oh, yes; it shows the investment account from 1900. Senator POMERENE. Senator Cummins, I do not believe you put that in when Mr. Kruttschnitt was on the stand. He said he was not familiar with it, and you said you would identify it by some other means. Senator CUMMINS. I think that is true. I remember now that that has not yet been introduced in evidence. Senator POMERENE. It ought to be in. Senator Cummins knows that is a correct exhibit, and I suggest that it be admitted. Senator CUMMINGS. Mr. Shriver knows that it is. Mr. Shriver wants to explain what may be an error in this sheet. If he desires. to do it I will be very glad to have him do it. (Mr. Shriver then filed a copy of the statement in question, entitled "Combined statement of 38 systems' property investment and income, years 1900 to 1917, inclusive," being page 2, volume 2, of Carriers Exhibit in Fifteen Per Cent Case.) |