Q. Well, the lease was acquired with that stock? A. It also acquired three-quarters of the lease under Contract No. 1. The $12,000,000 represents Q. For the $12,000,000? A. The $12,000,000 represents the cost to the Interborough Company of all the lease rights under Contracts Nos. 1 and 2, so far as they were held by the Construction Company. Q. Was anything ever written off because of the diminishing value of that lease? A. No, sir. Q. It had only eleven years to run at that time? A. There has been nothing written off. Q. You have also capitalized the stock issued to J. B. McDonald and August Belmont for the lease under Contract No. 1, $4,000,000, excess cost of construction, Contract No. 2, $9,368,992; excess cost of construction, Steinway tunnel, over $3,000,000; allowed by the city in Contract No. 3, $7,759,739; contractor's expense, Contracts Nos. 1 and 2, $1,303,817, or a total of $22,431,548. A. That is correct, sir. Q. Now, the value of these assets is dependent upon the profits realizable during the term of the lease, is it not? A. Partly so. Q. And these leases have already run for eleven to fifteen years? A. Yes, they have. Q. Do you know whether during these years any of the profits making up the corporate surplus have been used to write down the value of the leases? A. It has not been. Q. Then the only provision made for their amortization is the sinking fund for the bond issue maturing January 1, 1966? A. That is true. Q. This sinking fund was not set up until 1918? A. It began January 1, 1918. Q. I asked you yesterday - called your attention to that singular circumstance of the payment of the dividends for the fiscal year 1919, where there was a deficit during that year, and yet some three millions of dollars were paid out in dividends? A. Yes. Q. And you said that that could be explained possibly by the fact that you had a surplus? A. Yes. Q. Now, do you recall what was paid in dividends the prior year; 171/2 per cent., was it not? A. Seventeen and a half per cent. is right. Q. And prior to that dividends to the extent of 20 per cent. had been paid? A. (Witness consults papers.) Mr. Curran. - Mr. Burr, may I ask the book you are reading from? A. In 1916 20 per cent. Mr. Burr.- The accountant and I prepared it. A. In 1916 20 per cent. was paid. Q. And the year before that? A. Twenty per cent. Q. Now do you mean to say that in addition to the 1712 per cent. for the fiscal year 1919, the 20 per cent. for the year before and the 20 per cent the year before that, there was still a surplus undistributed? A. I do. Q. Your company must be a Golconda - a gold mine. The Chairman.- You got sixty-six millions of it out of the nickels coming from the subway, did you not; sixty-five or sixty'six millions? The Witness.- Read that, please. (The Chairman's question was read.) The Witness.- For what year, if your honor please? The Chairman. - Oh, for the years of the lease up until June 30, 1919. A. For the year 1916 approximately nineteen millions; for 1918 about eighteen million. The Chairman. - Well, all together. Mr. Quackenbush. - No, Mr. Mayor, he did not get your question. Mr. Burr.- Now, I would like to continue with the witness. The Chairman. - All right, go right on. By Mr. Burr: Q. The capital stock of the Interborough Rapid Transit is $35,000,000? A. That is right, Q. $33,912,800 of that is owned by the Interborough Consolidated Corporation? A. It is. Q. Successor to the Interborough Metropolitan? A. It is. Q. Now the considerations for that issue of stock were as follows: $21,620,000 cash, stock of the par value of $21,400,000 ? A. $21,400,000. Q. $21,400,000? A. Yes, sir; that is right. Q. $6,000,000 capital stock of the Rapid Transit Subway Construction Company, $9,600,000? A. That is right. Q. To J. B. MacDonald and August Belmont for interest in the original leases, etc., $4,000,000? A. That is right. Q. Making the total of $35,000,000? A. That is right. Q. And upon that $35,000,000 you have paid in dividends from June 30, 1904, the sum of $65,625,000? A. A'bout that. Q. Among the fixed charges against the Elevated Division of your company is the guaranteed 7 per cent. dividend to which the Mayor has been making reference, on the $60,000,000 of capital stock? A. Of the Manhattan Railway Company; yes, sir. Q. That amounts to $4,200,000 per annum? A. That is right. Q. Is it not a fact that that dividend payment for the year 1919 more than offset the Elevated division loss, and had it not been necessary to pay it your company would have shown a net profit of $389,660.08? A. For the year 1919? Q. Yes, for the fiscal year? A. It would have shown a profit of Q. $389,660.08? A. No; pardon me, it would have shown a profit of $297,289. Q. Well, there is a slight difference between your figures and mine. Your company began business April 1, 1903? A. The Interborough Company; yes, sir. Q. That is the date of the lease of the Manhattan Elevated Line? A. That is the day we began to operate the subway. Q. (Continuing.) Became operative; and the subway commenced operation on October 27, 1904? A. That is right. April 1st the operation of the elevated line, and in October, 1904, the operation of the subways, is correct. Q. Is it not a fact that the net corporate income of your company during its entire history from April 1, 1903, to June 30, 1919, was as follows: Elevated Division, $13,830,559.31; Subway Division, $65,065,414.52; or a total of $78,895,973.83? A. Those figures sound to me correct. Mr. Quackenbush. - Mr. Burr, I think you have understated the subways. The figures I have before me agree with your statement of the The Chairman (interposing). - If I might make a statement, Mr. Quackenbush; so if the City had operated the subway themselves, and it cost around $48,000,000 in the 16 years' time, they would have more than paid for it, because there was over $65,000,000 turned over from the subway to the Interborough Rapid Transit Company in the 16 years. So you see, municipal ownership and operation would have brought about a great profit for the City and less burden on the taxpayer. Q. Before arriving at the net corporate income of the Elevated Division there had been charged the payments of the 7 per cent. guaranteed dividends to the stockholders of the Elevated Railway Company? A. Right. Q. Which for the entire period amount to $66,926,000; the net corporate income of the Interborough Rapid Transit Company, exclusive of dividends paid on the Manhattan Elevated stock, therefore, amounted to $142,713,092.53 for the entire period, out of which the following dividends were paid: Manhattan Elevated Railway Company capital ...... stock, 7 per cent. income on $60,000,000 $66,936,000 Interborough Rapid Transit Company capital stock, rates ranging from 2 per cent. to 20 per cent. per annum on $35,000,000 65,625,000 ... Or a total dividend payment of......... $132,561,000 and that is what left you the undisputed balance of June 30, 1919, of $10,152,092.53; is that not true? A. The figures are substantially correct. Of course, I have not made any tabulations along those lines. Q. Now, is it not a fact that in the report of the Public Service Commission, prepared by the chief statistician of that Commission, Dr. Weber, the attention of your company was called to the fact that certain investments and advancements to subsidiary companies are carried as assets, as you have testified here this morning, by your company, at figures in excess of their actual worth, and if written down to their real value the free surplus balance of $10,152,092.53 would be more than wiped out? A. I have not testified to that fact. I have not testified to that. Q. Is it a fact? A. Because, as I said, Mr. Burr - Q. What is the fact? A. The fact is that if you reclassify and revalue your assets, if you find Q. Give them value where they have none? A. No, pardon me; but if you find the value and the value is not properly carried into the balance sheet, then you must increase that value if you diminish the others. Q. That is the best answer you can make? A. That is the best answer I can give you. By Mr. LaGuardia: Q. It would always balance, then, would it not? A. I beg your pardon? Q. It will always balance, then, will it not? A. What I have in mind, a company is permitted under all rules of accounting to carry in its assets the property that it buys at cost. Until some power, action of the board of directors or some properly constituted authority, takes up the question of revaluing the assets of the company, the cost values stand according to all approved rules of accounting. Mr. LaGuardia. - That is just what we wanted to analyze, those figures. Mr. Burr.- That is all that I desire to ask at this time. |