For the securities and properties conveyed by the agreement of February 27, 1926, the Gulf Power Co. issued 399,995 shares of no par common and its note payable for $1,350,000. An amount of $11,349,975 was allocated on its books as the value of the securities issued, summarized as follows: Note payable 399,975 shares of no par common stock_ Total. $1, 350, 000 9, 999, 975 11, 349, 975 From the above it will be seen that for an investment by Southeastern Power & Light Co. of $11,663.72 it received common stock of an operating company which carried a value of $9,999,975, a difference of $9,988,311.28. [81] APPRECIATION OF PROPERTY VALUES ON GULF POWER CO. RECORDS As previously stated the net cost to Southeastern Power & Light Co. of properties, securities, and accounts transferred to Gulf Power Co., for the issuance of its securities, was $1,361,663.72. When the Gulf Power Co. acquired these assets it placed a value on same of $11,349,975, a difference of $9,988,311.28. To account for this value the Gulf Power Co. appreciated the property and security values as shown hereunder: As the examiners were not able to determine the allocation of the $26,898,275.47 appreciation, taken on securities acquired from Southern Power Securities Corporation, it can not be stated definitely that the appreciation on the Gulf Power Co.'s books has been taken onto the holding company's books; however, there were acquired from the Southern Power Securities Corporation securities of the Pensacola Electric Co. SALE TO GULF POWER CO. OF PENSACOLA GAS CO. PROPERTIES AND FUNDING OF INDEBTEDNESS TO SOUTHEASTERN POWER & LIGHT CO. The Southeastern Securities Co., in December, 1927, had purchased from United Gas & Improvement Co. the outstanding common stock of Pensacola Gas Co. for $425,000 principal amount of Southeastern Power & Light Co. 100-year debentures. The par value of the Pensacola Gas Co. common stock was $200,000. [82] Under date of March 26, 1928, Southeastern Securities Co. entered into an agreement with Gulf Power Co. (see Appendix No. 19, within commission's Exhibit No. 4724), a summary of which follows: We will 1. Cause to be conveyed to you all property, real, personal, and mixed, franchises, contracts, and all other property of every kind and nature of Pensacola Gas Co. subject to * * * an issue of $200,000 first-mortgage bonds; 2. Pay or cause to be paid, satisfied, and discharged, without cost to you, all your notes, loans, or current accounts payable to us or Southeastern Power & Light Co., aggregating not less than $3,275,000, together with interest thereon to the date of payment; 3. Deliver to you $163,000 in aggregate principal amount of first-mortgage 5 per cent 25-year gold bonds of Pensacola Electric Co.; 4. Pay to you $65,000 in cash; If in consideration thereof you will 1. Assume all contractual and other obligations of Pensacola Gas Co. existing at the time of the transfer of the properties, except the obligation of said com. pany to us, and except the bonds secured by the mortgage deed of trust subject to the lien of which said properties will be conveyed; 2. Issue to us, or upon our order, $2,500,000 in aggregate principal amount of you, first and refunding mortgage gold bonds; 3. Issue to us, or upon or order, 4,872 shares of your $6 preferred stock and 10,000 shares of your second preferred stock, which said stock shall be fully paid and nonassessable. As shown by Exhibit No. 10-B within commission's Exhibit No. 4723, the cost to Southeastern Securities Co. of the properties of Pensacola Gas Co., to gether with the assets, aggregated $523,127.27, and other considerations to be funded by the agreement aggregated $3,620,932.52, or a total of $4,144,059.79, arrived at as follows: [83] Cost of Pensacola Gas Co. stock. Less: Stock returned to company at par Excess cost of stock over book value___ Purchase of assets: $425,000. 00 200, 000, 00 $225,000.00 200,000.00 7,200. 68 523, 127. 27 By cancellation of par value common stock_ Less: Cash received from Pensacola Gas Co---. Net cost of properties----- Funding of indebtedness of Gulf Power Co.: 105, 327.95 Cancellation of advances to Gulf Power Co. including interest 3, 387, 951. 84 Total-- Total cost‒‒‒‒ 72, 200, 68 160, 780.00 3, 620, 932. 52 4, 144, 059. 79 The value placed by the issuing Gulf Power Co. on the securities issued was $4,380,252.50 or an increase of $236,392.71 over the cost to Southeastern Securities Co. COST OF PENSACOLA GAS CO. PROPERTIES The net book value of the properties and assets of Pensacola Gas Co. at time of purchase by Gulf Power Co., as set out on Exhibit No. 10-D within commission's Exhibit No. 4723, was $298.127.27. The assets were placed on the Gulf Power Co. records at $757,353.15 or a difference of $459,225.88, which was reflected in the property account. The difference between the book value of the assets acquired, on the records of the Pensacola Gas Co., and the cost to Southeastern Securities Co. making necessary a charge to fixed capital was as follows: [84] Additional cost over book value paid for Pensacola Gas Co. stock___ Discount on sale of Gulf Power Co. bonds_ Amount set up in reserve for investigation by Securities Co---- Total $225,000.00 112, 500.00 123, 692. 71 2, 220.00 253. 17 459,225.88 From the above it will be noted that the subsidiary company has capitalized the discount on its bonds, together with the additional cost of common stock and an amount estimated to reimburse the Southeastern Securities Co. for any investigational expenses it may incur. At December 31, 1929, amounts charged to the reserve applicable to the amount of $123,692.71, aggregated $24,232 or an overestimate of $99,460.71. EFFECT OF FINANCING UNDER MARCH 26, 1928, AGREEMENT Referring to Exhibit No. 10-B within commission's Exhibit No. 4723, it will be noted that Southeastern Securities Co. when it received securities of Gulf Power Co., under the agreement of March 26, 1928, placed them on its records at the following values: The $6 preferred and bonds were retained by the Southeastern Securities Co. for resale to the public and the 10,000 shares of second preferred together with the "equity in common stock were sold to Southeastern Power & Light Co. at the value shown above. [85] This in effect means that the Southeastern a secondary position with respect to other also advanced approximately $500,000 to the Gulf Power Co. for which no additional common stock was issued, thereby increasing Southeastern Power & Light Co. investment in Gulf Power Co. common stock. Power & Light Co. has taken preferred stockholders and has ACQUISITION OF GULF POWER CO. STOCK IN 1929 Under date of November 29, 1929, the Southeastern Power & Light Co. agreed with the Gulf Power Co. that if the latter company would issue 10,000 shares of its no-par common stock the Southeastern Power & Light Co. would cancel notes payable of the Gulf Co. aggregating $115,000, and return to it 2,190 shares of its $6 preferred stock, at a value of $205,860, as a reduction of its "stockloan account." The above deal was consummated and the Southeastern Power & Light Co. took into its investment account the 10,000 shares of no-par common of Gulf Power Co. at $320,860, the sum of the two items above. The accounting performed by the issuing company for the above transaction was as follows: Accounts payable-affiliated companies Southeastern Securities Co. loan-stock.. $205, 860 account Advances from affiliated companies Southeastern Power & Light Co.. 115,000 Capital stock.. Surplus-capital. $50,000 270, 860 Total.. 320, 860 320, 860 From the above it would appear that the Southeastern Power & Light Co. donated to Gulf Power Co. $270,860 which was credited to its surplus account. [86] COMPARISON OF LEDGER VALUE OF GULF POWER CO. SECURITIES ON ITS BOOKS AND AMOUNT ON SOUTHEASTERN POWER & LIGHT CO. RECORDS No comparison of the value placed on securities issued by the Gulf Power Co. to Southeastern Power & Light Co. and the value as placed by the latter company can be made, as the amount of $1,712,348.72 shown as value on Exhibit No. 10, within Commission's Exhibit No. 4723 at December 31, 1929, is the amount arrived at by the examiner as the actual cost of securities to Southeastern Power & Light Co. and is not the ledger value as carried by Southeastern Power & Light Co. for the reason that included in the Gulf Power Co. securities on hand, at December 31, 1929, are securities which were sold by Southeastern Power & Light Co. to Southern Power Securities Corporation through Southeastern Securities Co. and later reacquired, together with other securities, by Southeastern Power & Light Co., by merger with the Southern Power Securities Corporation (see also chapter on Southern Power Securities Corporation) at which time the value of all securities received were appreciated approximately $27,000,000. The value as shown on Exhibit No. 10, within commission's Exhibit No. 4723, does not give effect to any element of appreciation that may have been taken on the Gulf Power Co. records. For comparison purpose only it is noted that the Gulf Power Co. total capitalization at December 31, 1929, was $12,370,000. As the Southeastern Power & Light Co. or its subsidiary company, Southeastern Securities Co., had acquired the original issue of this capital stock, the following table brings out the difference between cost and ledger value and no doubt some of this difference is included in the appreciation of securities at time of merger with Southern Power Securities Corporation. RATE OF RETURN ON INVESTMENT IN GULF POWER CO. During the year ended December 31, 1929, the Southeastern Power & Light Co. received as earnings, from the Gulf Power Co., amounts aggregating $94,409.17 as follows: The rate of return to Southeastern Power & Light Co. on its investment in Gulf Power Co. common stock, as shown by Exhibit No. 10 E, within commis sion's Exhibit No. 4723, fluctuated in the 4-year period, 1926 to 1929, inclusive, between 2.29 per cent and 435.20 per cent and is summarized below: [87a] In addition to the above investment in common stock the Southeastern Power & Light Co. also had investments in second preferred stocks and unsecured notes of Gulf Power Co. The rate of return to Southeastern Power & Light Co. on its total investment in Gulf Power Co. was as follows: [88] SUMMARY OF INVESTMENTS IN GULF POWER CO. A summary of the investments in Gulf Power Co. by Southeastern Power & Light Co. at December 31, 1929, as shown by Exhibit No. 10, within commission's Exhibit No. 4723, is as follows: Common... Second preferred. Class Shares Ledger value 410,000 $832, 348, 72 880,000.00 There is also an undetermined amount which should be added to the cost of the common stock as the above value is the cost to Southeastern Power & Light Co. and not the ledger value. There was included in Southeastern Power & Light Co. accounts appreciation of approximately $27,000,000, a portion of which may have applied to these securities which were reacquired from Southern Power Securities Corporation. [89] CHAPTER IV.—INVESTMENT IN PUBLIC UTILITY COMPANIES SECTION 6.-Mississippi Power Co. INCORPORATION The Mississippi Power Co. was incorporated under the laws of the State of Maine, November 24, 1924. This corporation acquired the assets of a company known as Mississippi Power Co., which was dissolved on December 1, 1924. The present Mississippi Power Co. was organized by the Southeastern Power & Light Co., which also controlled the predecessor company through its subsidiary Southeastern Securities Co. GROWTH OF MISSISSIPPI POWER CO. The ledger value, at December 31, 1929, of its investment in properties is approximately $33,000,000. The major portion of these properties was acquired shortly after organization by issuance of its securities to Southeastern Power & Light Co. at which time it placed on its books properties at approximately $25,000,000. ACGUISITION OF MISSISSIPPI POWER CO. SECURITIES FOR PROPERTIES Under date of May 15, 1925, the Mississippi Power Co. entered into an agree ment (copy of which is included in this report as Appendix No. 20, within commission's Exhibit No. 4724) with Southeastern Securities Co., which was performed by Southeastern Power & Light Co., whereby there would be conveyed, among other things, properties of Meridian Light & Railway Co., Hattiesburg Traction Co., Laurel Light & Railway Co., Columbia Ice & Power Co., and the electric properties of Gulport & Mississippi Coast Traction Co. For the above the Mississippi Power Co. would issue its securities as follows: [90] First mortgage gold bonds$7 preferred stock_____. Second preferred stock--. No par common stock.. $4, 000, 000 _____shares__ 25, 000 5,000 399, 995 The above companies at or around this date were controlled by Southeastern Power & Light Co., as shown by the following paragraphs: ACQUISITION OF SECURITIES, THE PROPERTIES OF WHICH COMPANIES WERE CONVEYED TO MISSISSIPPI POWER CO. The Southeastern Power & Light Co. and/or its subsidiary, Southeastern Securities Co., had entered into agreements (copies of which are included in this report as Appendices Nos. 21, 22, 23 within commission's Exhibit No. 4724) 102777-S. Doc. 92, 70-1, pt 27-16 |