above. The operations of the Spanish subsidiaries were profitable during the "middle '30's" but such operations have been conducted at a loss during the past few years and particularly since the beginning of the present war. Moreover, by reason of Spanish governmental restrictions upon foreign exchange transactions it has been legally impossible, even if it had been otherwise practicable, for the two Spanish companies to make any remittances to Islands since a date shortly prior to the outbreak of the war in Europe. The operations of the Haitian and Dominican subsidiaries resulted in gross income of $61,143 and $395,530, respectively, for the 12 months ended November 30, 1943. However, dividends are not presently being declared by these companies, largely because of the potential impact of United States income and excess profits taxes. 8

As a result of the factors mentioned, not only are the assets of Islands impossible of accurate evaluation at the present time, but the corporate income of Islands is negligible, gross income being $30,300 for the year ended December 31, 1943.

THE PRESENTLY PROPOSED TRANSACTION

As stated hereinbefore, International G. E. has entered into an agreement with Consolidated and Islands whereby International G. E. has agreed to accept 85 percent of the principal amount of the $2,500,000 6% demand note of Islands which it holds in full satisfaction of that note and of Consolidated's guaranty of the note, provided payment is made in full of such agreed amount before February 1, 1944.

By reason of recent sales of the assets of certain of the subsidiaries of Consolidated and the deposit of the proceeds of such sales with the trustee of the indenture securing the Consolidated bonds, approximately $650,000 is, or presently will be, lying idle in the hands of such trustee and available for purposes authorized by the indenture, including not only retirement of Consolidated's bonds but also the acquisition or satisfaction of indebtedness of subsidiaries of Consolidated held outside the system. The record is further to the effect that free cash in the treasury of Consolidated and not needed as working capital will be available for use in connection with the proposed transaction in the approximate amount of $500,000. In addition to this aggregate amount of $1,150,000, Consolidated anticipates the receipt of some $2,000,000 from those of its subsidiaries which join with it in the filing of consolidated income and excess profits tax returns in connection with tax savings resulting to the system and to such subsidiaries from sales of assets, during the year 1943, incident to the liquidation program of the parent company. 9 9 Consolidated proposes to effect the purchase of the note and satis

7 Gross income figures are given as Islands owns all the debt of these subsidiaries in addition to all the equity securities.

8 A witness for the declarants stated that by reason of the tax position of the Consolidated system any dividends which might have been paid up by Haiti or Santo Domingo would, under present tax rates, have resulted in additional taxes to the system of 81 percent of the amount so paid.

9 Such payment was authorized by us by an order of December 30, 1943, supra, footnote 1.

faction of the guaranty held by International G. E. with funds derived from the sources mentioned.

The record is to the effect that the indebtedness presently evidenced by the International G. E. note originated prior to the acquisition of control of Islands by Consolidated, that it was based upon a valid consideration, that the guaranty by Consolidated is similarly valid, that no affiliation exists between International G. E. and the Consolidated system companies, and that the price arrived at was a result of arm's length bargaining.

It is proposed that the note be continued in force as an obligation of Islands for the present because of certain provisions of the Consolidated indenture which may require that the note when acquired be deposited thereunder.

No fees or commission are to be paid in connection with the transaction and expenses are stated to be nominal.

CONCLUSIONS

In our opinion, the transaction proposed is a desirable further step in the liquidation of Consolidated and of Islands and is in the interest of the security holders of Consolidated.

Obviously it is not in the interest of the security holders of Consolidated that the funds which it presently proposes to use in acquiring the International G. E. note should lie idle. It does not appear that any of Consolidated's subsidiaries presently need these funds, or will need them in the near future, for expansion, or otherwise. Consequently, the logical conclusion is that such monies should be used for the retirement of Consolidated's debt. The only question left is as to what particular debt securities should be retired.

The Federated bonds and the Southern Cities bonds bear interest at a lower rate than does the International G. E. note. The Consolidated bonds presently bear interest at the same rate as does the note, 6%. As stated above, the proposal accepted by International G. E. is for the satisfaction of the note in full by the payment of 85% of the principal amount thereof plus accrued interest to the date of payment. The record indicates that elimination of a similar amount of Consolidated debt could not be effected upon such a favorable basis by the acquisition and retirement of bonds. 10 The note held by International G. E. is a demand obligation placing the holder thereof (and no restriction exists against transfer of the note) in a position to call for payment at any time. On the other hand, the several bond issues do not mature for some years.

We think the proposed transaction is not detrimental to the remaining security holders of Consolidated. It is in the interest

10 The testimony is to the effect that on or about the date of the hearing herein on December 29, 1943, the Consolidated bonds were selling "around 89-90," the Federated bonds at from 100-100%, and the Southern Cities bonds around 86-87, and that, in each case, market prices had risen with substantial consistency throughout the year 1943. The testimony further indicates that any large scale purchases by Consolidated might reasonably be expected to cause an advance in such market prices, while the agreement with International G. E. guarantees a firm price for the entire indebtedness evidenced by the note if the transaction is closed by February 1, 1944.

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of the holders of both debt and equity securities of the company that, consistent with principles of fairness, the reduction of debt made possible by the present cash resources of Consolidated be as large as possible for the amount to be expended and that fixed charges against the income of Consolidated be reduced as much as possible. Both of these results appear to be best achieved by the elimination of the International G. E. note as proposed. The asset coverage and the interest coverage of the remaining debt securities of Consolidated will be improved by the transaction, and it does not appear prejudicial to their interests in any other respect.

The proposed acquisition of the note by Consolidated requires our approval under Sections 9 and 10 of the Act. We make no adverse findings under Section 10 and find that the affirmative requirements of that section are satisfied. The discharge of the Consolidated guaranty, the guaranty being a security of Consolidated within the statutory definition, requires our authorization under Section 12 (c) and our Rule U-42. No adverse findings are required under Section 12 (c) and the declaration under that section and the cited rule will be permitted to become effective. The proposed use, to the extent necessary, of the monies to be received by Consolidated from certain of its subsidiaries in connection with tax adjustments concerning which use we reserved jurisdiction by our above cited order of December 30, 1943, appears to us appropriate and jurisdiction over the use of such money will be released to the extent necessary to permit such proposed application thereof to be made.

We find no reason for the imposition of any terms or conditions other than those prescribed by Rule U-24 and the continuation in force of the reservation of jurisdiction contained in our order of December 30, 1943 over the employment of the monies to be received by Consolidated pursuant to the authorization contained in that order to the extent that such monies are not expended in connection with the subject note transaction. An appropriate order will issue.

By the Commission: (Chairman Purcell and Commissioners Pike and McConnaughey) Commissioners Healy and O'Brien being absent and not participating.

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[No. 2004]

IN THE MATTER OF

STANDARD OIL COMPANY (NEW JERSEY)

File No. 30-206. Promulgated January 31, 1944

(Public Utility Holding Company Act of 1935-Section 5 (d))

MEMORANDUM FINDINGS AND OPINION OF THE
COMMISSION

Standard Oil Company (New Jersey) ("Standard"), a registered holding company, has filed an application pursuant to Section 5 (d) of the Public Utility Holding Company Act of 1935 for an order declaring that it has ceased to be a holding company.

After appropriate notice, a public hearing was held, and the Commission, having considered the record, makes the following findings:

Standard, a corporation organized under the laws of New Jersey, registered as a holding company under Section 5 of the Act on August 12, 1943, at which time it owned all of the capital stock of four gas utility subsidiaries, namely, Hope Natural Gas Company, The East Ohio Gas Company, The Peoples Natural Gas Company and The River Gas Company. 1

On October 11, 1943, the Commission approved a plan filed by Standard and Consolidated Natural Gas Company ("Consolidated"), a registered holding company, pursuant to Section 11 (e) and other sections of the Act, which provided, among other things, for the transfer of all the outstanding capital stock of the above four gas utility subsidiaries and of New York State Natural Gas Corporation, a nonutility pipe line subsidiary, to Consolidated in exchange for all of the outstanding voting securities of the latter company, the securities thus received by Standard to be disposed of by a distribution thereof to Standard's stockholders and otherwise. Subsequently, on December 23, 1943, Standard and Consolidated filed a certificate of notification with the Commission, stating that the transactions contemplated in

1 By order dated February 5, 1942, the Commission denied an application by Standard for exemption from the provisions of the Act. The application was filed under Section 8 (a) (3) of the Act and sought exemption on the asserted ground that Standard was "only incidentally a holding company." (Standard Oil Company (New Jersey), 10 S.E.C. 1122 (1942).) By subsequent orders, the effective date of the denial order was extended to February 1, 1944 as to all provisions of the Act other than Sections 4, 5 and 11, and to August 12, 1943 as to the provisions of Sections 4, 5 and 11.

the Section 11 (e) plan had been consummated. Standard now represents that neither it nor any of its subsidiaries directly or indirectly own or hold with power to vote any voting securities of Consolidated or of any public utility company or public utility holding company, and that, except in one temporary instance, none of the officers and directors of Standard are officers or directors of Consolidated, or vice versa, nor of any other public utility holding company or public utility company. The exception referred to is Frank H. Lerch, Jr., the president of Consolidated, and also temporarily president of Interstate Natural Gas Company, Incorporated ("Interstate"), a nonutility subsidiary of Standard, with which company he has been associated for several years. Due to his familiarity with the general policies, operations and contractural relationships of Interstate, which is engaged in work essential to the war, and Standard's inability to replace him during the existing emergency, it is proposed that Lerch continue in his present capacity with respect to both companies for the duration of the war. Standard represents that this is the only connection that Lerch has with any subsidiary of Standard and that this relationship will be terminated as soon as practicable, but in any event at the end of the war. While the relationship exists, Interstate will pay Consolidated the actual cost of services rendered by Lerch.

In view of the foregoing and the record in this proceeding, we find that Standard has ceased to be a holding company. Accordingly, an appropriate order so declaring and providing that the registration of Standard as a holding company shall cease to be in effect will issue. We do not find the imposition of any terms and conditions necessary for the protection of investors in connection with the termination of such registration. However, we deem it advisable that the interlocking relationship of Lerch in Consolidated and Interstate be terminated as promptly as practicable, and our order is without prejudice to the entry of a further order in these proceedings if deemed necessary with respect to the foregoing interlocking relationship, and jurisdiction to this extent is reserved.

By the Commission: (Chairman Purcell and Commissioners Pike and McConnaughey) Commissioners Healy and O'Brien not participating.

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