No. MC-F-31021

THE GREYHOUND CORPORATION-CONTROL; PACIFIC GREYHOUND LINES-CONTROL AND MERGER-O. C. & N. STAGES, INC.

Submitted July 29, 1947. Decided November 19, 1947

Acquisition by Pacific Greyhound Lines of control of O. C. & N. Stages, Inc., and M. C. Yahne, Inc., doing business as Inland Stages, through purchase of their capital stock, and merger of their operating rights and property into Pacific Greyhound Lines for ownership, management, and operation, and acquisition of control of such operating rights and property by The Greyhound Corporation through these transactions, approved and authorized, subject to condition. Allan P. Matthew and Gerald H. Trautman for applicants. William M. Kearney and Robert E. Quirk for transferor in No. MC-F-3102.

Herbert Cameron and M. C. Yahne for transferor in No. MC-F-3208. Arthur H. Glanz, Theodore W. Russell, and Donald A. Schafer for protestant.

REPORT OF THE COMMISSION

DIVISION 4, COMMISSIONERS MAHAFFIE, MILLER, AND ROGERS BY DIVISION 4:

An examiner's proposed report has been served in No. MC-F-3102, to which exceptions and a reply have been filed as later indicated. In No. MC-F-3208, the parties agreed to the omission of an examiner's report. The two proceedings involve related interests and issues and have been orally argued on a consolidated basis. For convenience, they will be disposed of in one report.

Pacific Greyhound Lines, of San Francisco, Calif., herein called Pacific Greyhound, by two separate applications in Nos. MC-F-3102 and MC-F-3208, filed February 8 and June 4, 1946, respectively, as amended, seeks authority under section 5 of the Interstate Commerce Act (a) to acquire control of O. C. & N. Stages, Inc., of Alturas, Calif., herein called O. C. & N. Stages, through the purchase of all of its outstanding capital stock for $100,000 and of M. C. Yahne, Inc., doing business as Inland Stages, of Los Angeles, Calif., herein called Inland Stages, through the purchase of 57.17 percent of its outstanding capital stock for $140,000, and (b) to merge into itself the operating rights

1 This report embraces No. MC-F-3208, The Greyhound Corporation-Control; Pacific Greyhound Lines-Control and Merger-M. C. Yahne, Inc., doing business as Inland Stages.

bus service over one of Pacific Greyhound's routes between Los Angeles and Portland.

Pacific Greyhound's balance sheet as of October 31, 1946, shows assets aggregating $31,966,092, consisting of: Current assets $11,103,204, including cash $1,299,392 and temporary cash investments $8,056,931; tangible property, less depreciation, $7,415,942; intangible property, less amortization, $4,002,606; investment securities and advances $669,720; special funds $8,524,949; and deferred debits $249,671. Liabilities were: Current liabilities $11,038,249, principally accounts payable $3,985,952 and taxes accrued $6,192,688; equipment and other long-term obligations $84,737; deferred credits $23,122; reserves $5,061,437; capital stock $5,115,330; and earned surplus $10,643,217. Its income statements for 1944, 1945, and the first 10 months of 1946 show net incomes of $13,960,333, $12,867,063, and $7,026,430, respectively, before provision for income taxes, and, after such provision, net incomes of $2,803,227, $2,458,963 and $3,767,930, respectively.

No. MC-F-3102.-O. C. & N. Stages, a California corporation formed August 23, 1930, has outstanding 2,000 shares of common capital stock, par value $10 each, owned 1,799 shares by Frank Word, 1 share by Orletta Word, his wife, and 200 shares by William Spaletta. They also comprise its officers and board of directors. Pursuant to certificates issued May 27, 1937, and July 14, 1938, in Nos. MC-1361 and MC-1361 (Sub-No. 2), respectively, it operates between Klamath Falls, Oreg., and Reno., serving the intermediate points of Merrill and Malin, Oreg., and Tule Lake, Pickering Junction, Canby, Alturas, Paola, Likely, Madeline, Brockman, Termo, Ravendale, Secret Ranch, Litchfield, Standish, Johnstonville, Janesville, and Doyle, Calif., and the off-route point of Susanville, Calif. It has intrastate rights in California and Oregon. It operates three busses which were purchased in 1945 at a total cost of $30,045.

Under agreement of November 27, 1945, Pacific Greyhound would purchase for $100,000 from the Words and Spaletta all of the outstanding capital stock of O. C. & N. Stages. The purchase price would be financed by Pacific Greyhound from current cash, without borrowing, payable within 30 days after final approval of the transaction by the last regulatory authority having jurisdiction. The agreement provides that, as of the date the purchase price is paid, the properties of O. C. & N. Stages shall consist of its interstate and intrastate operating rights, good will, and the aforesaid three busses, that all indebtedness of O. C. & N. Stages not paid as of that date shall be discharged by the Words and Spaletta, and that any cash or credits due O. C. & N. Stages after that date on transactions occurring prior thereto shall be payable to the Words and Spaletta. Upon payment

1947, Greyhound acquired control of Washington Motor Coach Company, Inc., herein called Washington Motor, which operates in Montana, Idaho, Oregon, and Washington, principally between Butte, Mont., Spokane and Seattle, Wash., and Portland and The Dalles, Oreg. It also owns one-third of the outstanding capital stock of Interstate Transit Lines, Inc., doing business as Overland Greyhound Lines, herein called Overland Greyhound, which operates between Chicago and Los Angeles, Portland, and Spokane via Salt Lake City, Utah.

Pacific Greyhound, a California corporation formed October 25, 1919, is one of the principal companies in the Greyhound system. As of March 20, 1946, its common no-par-value voting stock outstanding was owned 61.01 percent by Greyhound and 33.71 percent by the Southern Pacific Company, a carrier by railroad, herein called the railroad. The remainder of its common stock is widely distributed in blocks of less than 1 percent. Its board of directors consists of 11 members, of which 7 are representatives of Greyhound and 4 are representatives of the railroad. The railroad, on the one hand, and Greyhound and Pacific Greyhound, on the other, have no common officers, employees, terminals, or other facilities, and no concurrences or joint fare arrangements. Upon these and other facts of record, we find that Pacific Greyhound is not controlled by or affiliated with the railroad within the meaning of section 5 (6) and that the evidentiary requirements of the proviso of section 5 (2) (b) are not applicable to the instant transactions. Compare Central Greyhound Lines, Inc.Control and Merger, 45 M. C. C. 33, and the cases cited therein.

Pacific Greyhound operates as a motor common carrier of passengers over regular routes in Arizona, California, Nevada, New Mexico, Oregon, Texas, and Utah, including two routes between Los Angeles and Portland, one via San Francisco and the other via Sacramento, Calif., and a route between San Francisco and Salt Lake City, via Sacramento and Reno, Nev. It controls, through 100 percent stock ownership, the California Parlor Car Tours Company, which has interstate authority to conduct sightseeing and pleasure tours between Los Angeles and San Francisco. It also owns 40 percent of the outstanding capital stock, and exercises actual control, of Dollar Lines, which conducts a second-class reduced-fare

In No. MC-F-1808, Pacific Greyhound Lines, Inc.-Control-Dollar Lines, reported in Dollar Lines—Purchase—United Stages System, Inc., 40 M. C. C. 63, decided November 2, 1944, the application of Pacific Greyhound to purchase the remaining 60 percent of the outstanding capital stock of Dollar Lines was denied on the ground that the circumstances surrounding the operations of Dollar Lines and Pacific Greyhound over duplicate routes were objectionable and should be corrected through merger of the two companies or divestiture by Pacific Greyhound of actual control of Dollar Lines. Subsequently, in No. MC-F-2868, M. C. Yahne, Inc.-Purchase-Dollar Lines, an application was filed by Inland Stages for authority to purchase Dollar Lines, but that application was dismissed at the request of the parties therein by order of February 19, 1946.

bus service over one of Pacific Greyhound's routes between Los Angeles and Portland.

Pacific Greyhound's balance sheet as of October 31, 1946, shows assets aggregating $31,966,092, consisting of: Current assets $11,103,204, including cash $1,299,392 and temporary cash investments $8,056,931; tangible property, less depreciation, $7,415,942; intangible property, less amortization, $4,002,606; investment securities and advances $669,720; special funds $8,524,949; and deferred debits $249,671. Liabilities were: Current liabilities $11,038,249, principally accounts payable $3,985,952 and taxes accrued $6,192,688; equipment and other long-term obligations $84,737; deferred credits $23,122; reserves $5,061,437; capital stock $5,115,330; and earned surplus $10,643,217. Its income statements for 1944, 1945, and the first 10 months of 1946 show net incomes of $13,960,333, $12,867,063, and $7,026,430, respectively, before provision for income taxes, and, after such provision, net incomes of $2,803,227, $2,458,963 and $3,767,930, respectively.

No. MC-F-3102.-O. C. & N. Stages, a California corporation formed August 23, 1930, has outstanding 2,000 shares of common capital stock, par value $10 each, owned 1,799 shares by Frank Word, 1 share by Orletta Word, his wife, and 200 shares by William Spaletta. They also comprise its officers and board of directors. Pursuant to certificates issued May 27, 1937, and July 14, 1938, in Nos. MC-1361 and MC-1361 (Sub-No. 2), respectively, it operates between Klamath Falls, Oreg., and Reno., serving the intermediate points of Merrill and Malin, Oreg., and Tule Lake, Pickering Junction, Canby, Alturas, Paola, Likely, Madeline, Brockman, Termo, Ravendale, Secret Ranch, Litchfield, Standish, Johnstonville, Janesville, and Doyle, Calif., and the off-route point of Susanville, Calif. It has intrastate rights in California and Oregon. It operates three busses which were purchased in 1945 at a total cost of $30,045.

Under agreement of November 27, 1945, Pacific Greyhound would purchase for $100,000 from the Words and Spaletta all of the outstanding capital stock of O. C. & N. Stages. The purchase price would be financed by Pacific Greyhound from current cash, without borrowing, payable within 30 days after final approval of the transaction by the last regulatory authority having jurisdiction. The agreement provides that, as of the date the purchase price is paid, the properties of O. C. & N. Stages shall consist of its interstate and intrastate operating rights, good will, and the aforesaid three busses, that all indebtedness of O. C. & N. Stages not paid as of that date shall be discharged by the Words and Spaletta, and that any cash or credits due O. C. & N. Stages after that date on transactions occurring prior thereto shall be payable to the Words and Spaletta. Upon payment

of the purchase price, Pacific Greyhound, under the application as amended, would merge into itself the operating rights and property of O. C. & N. Stages and would terminate its corporate existence.

O. C. & N. Stages' balance sheet as of October 31, 1946, shows assets aggregating $93,188, consisting of: Current assets $56,455, composed of cash $50,306 and accounts receivable $6,149; tangible property, less depreciation, $16,566; and intangible property $20,167. Liabilities were: Current liabilities $13,472, composed of accounts payable $5,692 and taxes accrued $7,780; capital stock $20,000; and earned surplus $59.716. Its income statements for 1944, 1945, and the first 10 months of 1946 show net incomes of $58,153, $53,982, and $28,419, respectively, before provision for income taxes, and, after such provision, net incomes of $23,124, $25,778, and $20,639, respectively.

Giving effect to the proposed acquisition of control and merger of O. C. & N. Stages as of October 31, 1946, Pacific Greyhound would decrease its cash account $100,000 and would increase its carrier operating property account $18,782 and its intangible property account $81.218. As of the above date, the three busses proposed to be acquired by Pacific Greyhound were carried on the books of O. C. & N. Stages at a depreciated value of $16,566 and the operating rights at $20,167, or $2,216 and $61,051, respectively, less than the amounts proposed to be recorded by Pacific Greyhound on its books. As of December 31, 1945, the stock of O. C. & N. Stages had a net book value of $59,077, inclusive, and $38,910, exclusive, of intangibles, or $40,923 and $61,090, respectively, less than the purchase price thereof. As of October 31, 1946, the corresponding net book value was $79,716 and $59,549. The average annual operating revenue of O. C. & N. Stages for the period January 1, 1944, to October 31, 1946, inclusive, was $121,287, and its average annual net income for that period was $45,725 before, and $24,544 after, provision for income taxes, which would represent a return to Pacific Greyhound of approximately 46 and 25 percent, respectively, on an investment of $100,000.

Frank Word has been the president, general manager, and principal stockholder of O. C. & N. Stages since its incorporation. From the institution of operations in 1930 through 1941, it operated at a loss and Word received no salary or other compensation until 1935. In 1942, its operations began to show a profit, owing principally to the establishment of several relocation centers and military camps along its route. The last of those camps closed in March 1946. Word is apprehensive that, with the anticipated decline in the traffic of O. C. & N. Stages to its prewar level and with the rise in operating costs from 12 cents a bus mile in 1941 to 32 cents a bus mile in 1945, he will be unable to improve the present service of his company and to maintain its operations on a profitable basis. For those reasons and be