CIRCULAR. To the Bondholders and Stockholders of the Pittsburgh, Fort Wayne and Chicago Railway Company : The undersigned, Commissioners to carry into effect the recent financial arrangement between the bondholders and stockholders, deem it proper to communicate to you this statement: 1. The applications of earnings of the railroad to improvements of the property, in the nature of construction, have been, according to the books During the receivership, under the order entered ..$1,007,650.06 During the six months from Nov., 1861, to May 1, 1862.... 236,694.60 From May 1, 1862, when the present Company went into possession, to Dec. 31, 1862. . . . 970,147.56 (Of which $536,673 were for Depot and Bridge Bonds.) During 1863........ 1,517,162.25 $3,731,654.47 Which investment is now bearing good interest, in the shape of enlarged earnings, and virtually increases the intrinsic value of the stock full, $3,500,000. 2. This expenditure has been made without increasing the debt or stock of the Company, as re-organized. Net earnings, over interest, supplied a million last year, and large sums before; and the residue has been provided for by remission of interest, made in conformity to the agreement for re-organization, and by surpluses in the hands of the Bondholders' Committee, resulting from provident adjustments. 3. Before the late financial arrangement, the Company had provided for $1,912,000, to be expended for improvements during the present year, most of which was to have been furnished by net earnings, and the residue from the other resources mentioned. It was not contemplated in the execution of this work, to increase the capital stock, or to incur any additional bonded debt, or any floating debt. No doubt was entertained, that the net earnings, after paying interest, would have been sufficient for these purposes. Neither the officers of the Company, nor the Committee of the Bondholders, felt any hesitation in acting upon this conviction. 4. The purchase and construction of new equipment has formed an important share of these expenditures. Among them was a provision for 95 new locomotives. The cars have been proportionately increased; contracts for iron have also been advantageously made; the track has been greatly improved; it needs still further expenditure; the equipment received is still inadequate to the business which offers. The savings on this work, as compared with the present range of prices, will be nearly two millions of dollars. 5. It was in this condition of things, that the desire of the Board to proceed more rapidly with the improvements contemplated, and the demand of the stockholders for the application of the net earnings to dividends, led to a conference, between these interests and the bondholders, which has resulted in some modifications of the financial plan, fixed in 1859 by the agreement of re-organization. These modifications are substantially the following: To the bondholders is accorded 1. An extinguishment of the right of the Company, after July 1st, 1867, to require them to accept six per cent. bonds, or to receive payment of the principal: a change which leaves all the bonded debt of the Company irredeemable until July 1st, 1912. 2. The establishment of sinking funds for the first and second mortgages, having priority over dividends, and the application of their incomes to the purchase of the bonds, at their market value. 3. Incidentally, an increase of their security, by a large additional expenditure of new capital upon the property. 4. An enlargement of the voting power of the first and second mortgage bondholders, from one vote on every $200 to one vote on every $100, of par value. 5. The payment of interest on the third mortgage bonds, semiannually, instead of annually. To the stockholders, upon these conditions, is accorded: 1. The power to provide for all new construction by issues of new capital stock. 2. A release of the provisions of the trust deeds, which require all net earnings, over 6 per cent. on the original $6,500,000 of capital, to be applied as sinking funds to purchase in the bonds, or, in some cases, to new improvements. The practical result of these measures is, to leave the net earnings in each year, after paying interest and sinking funds, at the disposal of the Company, for dividends upon the stock; and the policy may now be deemed to be settled, by the unanimous action of the stockholders and bondholders, to apply such surplus of net earnings to dividends, as far as prudence and sound discretion will warrant. 6. The annual charge for interest and sinking funds will be as follows: 8 per cent. on $5,250,000 of 7 per cent. first mortgage bonds.. 8 per cent. on $5,160,000 of 7 per cent. second mortgage bonds... $420,000 412,800 7 per cent. on $2,000,000 of third mortgage or income bonds... 140,000 On Bridge bonds, and Chicago depot bonds. 30,950 $1,003,750 Total... 7. The net earnings for 1863, as stated in the President's Annual Report, were $2,106,623.18, which would have been sufficient to pay the interest on the bonds and the instalments of the two new sinking funds, and to leave a surplus of $1,103,873.18, which, if the new financial arrangement had then existed, would have been applicable to dividends on $6,500,000 of stock, being over 16.96 per cent. This was, in the main, without the benefit of the $1,517,162 of new capital expended on the road and equipment, during that year, and with an equipment very inadequate to the business which offered. The President's estimate of net earnings for the present year, made also in the Annual Report, is $2,500,000, and, in a special report, he stated, that the net earnings for March, after deducting the proportion for interest and the new sinking funds, were over 2 per cent. on the present amount of the stock. Thus far, the receipts for April are quite equal to those of March. 8. In judging of the value and productiveness of your property, it is to be noted- That it is a direct and continuous line, without branches or dependencies, between great industrial and commercial centres; 468 miles long, every part having a through business and an abundant local traffic, rapidly increasing, with easy grades, and slight curves, more than two-thirds of the distance being straight line, traversing a grain growing region of unsurpassed fertility, as yet but partially developed. That the investment of capital in bonds and stock is less than that of any other leading line of equal, or even similar, productive capacity, by more than one-third. That the present affluence of earnings is mainly due to these permanent causes. If the business capacity of the line be properly sustained and developed, there is no reason to doubt, in the judgment of the undersigned, that it will maintain its dividends, in every condition of circumstances which will allow of dividends in similar enterprises. It must be borne in mind, also, that as none of the bonds are payable for 48 years, and none of them are convertible into stock, the whole increase of net earnings, arising from a natural and permanent growth of business, inures to the stock, which forms at present but one-third of the invested capital. The less permanent effect of an inflated currency will operate, during its continuance, in the same manner. The undersigned, in the exercise of the discretion intrusted to them by the bondholders and stockholders, will not now press the sale of any new issue of stock under the new arrangement; they see no cause for a premature issue. That measure can be deferred until an easier condition of the money market; and the gradual and general distribution among permanent investors of the present stock, will enable us more nearly to obtain its real value. Dated New York, April 27, 1864. JAMES F. D. LANIER, Commissioners. NOTE.-The following is a copy of the Special Report made by the President, hereinbefore referred to: NEW YORK, April 8, 1864. GENTLEMEN: The unanimous action of the stock and bondholders has liberated the net income of the railway, after paying interest and sinking fund, so as to place it at the disposal of the Board of Directors, for the purposes of dividends, surplus funds, and other objects consistent with the interests of the corporation. 12 The first and second mortgage bonds, being § (five-sixths) of the whole funded debt, were so arranged in monthly instalments of (one-twelfth) each month. Two years having confirmed the theory upon which the plan was adopted, it might now be well, to assimilate to it the plan of paying dividends on the capital stock by paying quarter-annual dividends, instead of annual or semi-annual dividends, as is generally customary with other corporations. I herewith submit an approximate statement of the earnings, expenses and disbursements for the months of January, February and March past, which is sufficiently near correct to justify the Board acting upon it with a view of making a dividend, if it is thought best to declare one at this time: |