Question. Let us turn to chapter 5. Chapter 5 deals with what? Page 63. Answer. It deals with the investment of the company in Kanata Realty Co., Inc. Question. That is the one that has been referred to as being the conduit company, or being available for the transfer of properties and buildings? Mr. MACHOLD. May I make a suggestion? Mr. CHANTLAND. Yes. Mr. MACHOLD. The use of the words "conduit company" is confused or confusing in regard to utility companies. The words "conduit company" have no reference to the Kanata Realty Co., providing conduits. This is not such kind of a company. This is just what it says, a realty holding company. Mr. CHANTLAND. It has been the wording used here, but it has been a holding company for other companies, has it not? Mr. MACHOLD. I think we understand each other. By Mr. CHANTLAND: Question. But, it is not in itself an operating company? Question. And, therefore, has no particular place in here except to show the picture complete? Answer. That is correct. Question. I will only call attention to one thing. Turning back to page 66, that is the office building, which shows a direct charge of $1,055,208.44 and overhead charges of $188,582.63. Is that correct? Answer. That is correct. Question. But, inasmuch as none of these ever go to utility operating companies, unless it may be for lands which may be charged for, from the operating side of it I do not see that that is any of our concern is it? Answer. No, sir; it is not. Question. And I presume that you do not carry that overhead cost over into the price of electricity? Answer. No, sir. I might state that the company has never operated at a profit; I refer to the Kanata Realty Co. Question. Yes. Answer. And such losses as it has sustained have been distributed by the Utica Gas & Electric Co. and charged to this surplus account. Question. It was charged to surplus rather than to operating facilities? Answer. Yes, that is the one fact only that might be given consideration in connection with the operation of this company. Question. Yes. Answer. In the acquisition of properties which were eventually found to pass into the accounts of the Utica Gas & Electric Co., those properties are usually transferred to the Utica Gas & Electric Co. at cost plus, such carrying charges as might be accumulated between the time of the acquisition of the properties by the Kanata Realty Co. and the time they were transferred/to the Utica Gas & Electric Co. Question. In other words, they carry that into the future, that carrying charge? Answer. They carried that into the future and the result is that no carrying charges ever were found against the Kanata Realty Co. and it becomes a fixed charge against the Utica Co. Mr. MACHOLD. But, there are no charges that have been carried against the Kanata Realty Co. for any extended time? The WITNESS. I have no record of any. By Mr. CHANTLAND: Question. Who fixed that charge? Answer. The directors of the Kanata Realty Co., who are also the directors of the Utica Co. Question. Then there is no question that it is beyond saying that, I take it, in this report, that is not within your province? Examiner BENNETT. This is off the record. (There was a discussion off the record.) By Mr. CHANTLAND: Question. I think the only figure I want to mention here is that on page 70, Mr. Taylor. Under the heading of loans payable to affiliated companies, you discuss this question of loans? Answer. Yes, sir. Question. Tell us about that, as that is a factor that might conceivably have an effect on the rates. Answer. Practically all of the liabilities of the company other than the capital liabilities, are represented by loans payable to the Utica Gas & Electric Co., the parent company. The amount of $1,037,282.70 shown as being due to the Utica Gas & Electric Co. on December 31, 1931, was made up as follows: Advances, $1,263,243.40; Less portion of net losses from operations assumed by Utica Gas & Electric Co. used to reduce loans payable, $225,960.70; Leaving a net balance due of $1,037,282.70. Mr. MACHOLD. I would just like to make a comment that this setup is probably charged to rentals. This whole setup of the Kanata Realty Co. in connection with the direct cost to the electric company was recently, I mean within the last 3 or 4 years, made by the Public Service Commission of the State of New York. I do not see myself what connection can be drawn as to its applying to the rates of the Utica Gas & Electric Co., and I know this Commission has examined their position on that and we have taken it up with the authorities thoroughly. As far as that is concerned, the whole matter is at rest, as far as the rates of the Utica Gas & Electric Co. are concerned. Mr. CHANTLAND. I suggest that the only possible way might be if these loans might be taken over and charged into the operating expenses over and above a minimum, but they would not let you do that, if you tried. Mr. MACHOLD. No, sure they would not. Mr. CHANTLAND. That would be the end of that. By Mr. CHANTLAND: Question. Now, chapter 6. Now, we are getting over on the other side of the ledger, Mr. Taylor? Answer. Yes, sir. Question. Capital liabilities. What was the authorized capital stock in 1931, at the end of the year? Answer. 560,000 shares. Question. Made up of what? Answer. 60,000 shares of 7 percent cumulative preferred stock. Answer. $6 cumulative preferred stock, 100,000 shares, no par value, and 400,000 shares of common stock, no par value. Question. All right. Now, disposing of the stock issues, what was the funded debt? Answer. The funded debt of the company on December 1, 1931, was $15,910,000, and is represented by $13,910,000 of company issues, and $2,000,000 issued of assumed funded liabilities. Question. By "assumed" what do you mean? Answer. By "assumed liabilities" I mean the liabilities of companies merged. Question. Yes; authorized issues; it was outstanding stock? Question. Stock? Answer. The stock; I beg pardon, the stock was $14,000,597.50. Question. Made up of what? Answer. $6,000,000 7-percent cumulative preferred stock, $100 par value; 40,000 shares of $6 no-par-value stock. Question. Wait a minute. What value has that on it? Answer. It had a recorded value of $4,000,597.50. Question. It has to be stated what that is. Is that the stated value or the market value? Answer. That is the realized value. Question. You mean that is what they sold that stock for? Answer. Yes. Question. All right. Answer. And $4,000,000 represented by 400,000 shares of no-parvalue common stock. Question. Sold for that amount? Answer. No; that is the recorded value. Question. Sold for what amount? Answer. That stock was issued, 20,000 shares-originally for the acquisition of stocks of the Utica Light & Power Co. and the Equitable Gas & Electric Co., and 20,000 shares were issued as a stock dividend; later on, the 40,000 shares were changed-they were of $100 par value each, and that was changed to 400,000 shares of no par value, or $10 per share. Question. After that stock had been so issued, the 400,000 shares, do you know what the condition of the reserve was? Answer. The surplus, you mean? Question. Yes; both. Answer. The surplus was in excess of $3,000,000. Mr. MACHOLD. Could the record show that they had at that time $2,000,000 that they transferred from the surplus to capital? Mr. CHANTLAND. I accept that statement. By Mr. CHANTLAND: Question. That is correct, isn't it, Mr. Taylor? Answer. That is correct. Question. The table on page 79 is what? Answer. It is a statement of the total capital liabilities issued and assumed, May 26, 1902, to December 31, 1931, inclusive, and consideration received therefor. Question. That is for the period of this company's existence? Question. Do you summarize that on the next page? Answer. Yes, sir. Question. And what is the total amount of capital liabilities that have been issued and assumed? Answer. $40,412,955,79. Question. And the consideration received, as stated on the books? Answer. $38,885,214.79. Question. Of course, the basis of that consideration that was received at the time the stock was traded for the property of the other company, that you have not been able to go into? Answer. No, sir. Question. All right. The net figure between the stated and the consideration received? Answer. $1,527,741, exclusive of acquired surplus. Mr. MACHOLD. $227,861.19, isn't that it? Mr. CHANTLAND. This is off the record. (There was a discussion off the record.) The WITNESS. $227,861.19. By Mr. CHANTLAND: Question. Was that consideration received-that consideration was much more than the $38,885,000? Answer. Yes. Question. Making the difference there that much, at least? Question. Now, then, there was an excess of stated value over consideration received, including this surplus common stock of $600,000? Answer. Yes, sir. Question. And that was shown there? Answer. Yes. Question. And there was a discount on bonds sold of how much? Answer. $1,023,345 or a total of $1,623,345. Question. Less the premium received, makes what? Answer. Less the premium received on the 7 percent cumulative preferred stock of $95,604 made a difference, a net difference, of $1,527,741. Question. Which is another way of arriving at the same thing? Answer. Yes; that is just the summary. Question. Have there been some retirements of capital liabilities during the period of the existence of the company? Answer. Yes, sir. Question. On the funded debt? Answer. $6,502,358.29. Question. How much common stock? Answer. $4,000,000. Question. How was that retired? Answer. It was retired in exchange for a like amount-it was exchanged for a like book value amount in no par value common stock. Question. Well, that is hardly a retirement. That is merely an exchange. A. No; it is hardly a retirement. Question. I would not think it proper to call it that. It was changed in form? Answer. Yes, sir; but it has to be taken up through this schedule here. Examiner BENNETT. Do you gentlemen want to run through or take a recess now? Mr. CHANTLAND. I think we had better take a recess. (At this point a short recess was taken, after which proceedings were resumed as follows:) By Mr. CHANTLAND: Question. Mr. Taylor, before we leave this little matter that we had up just before recess, the exchange of the common stock par value, for common stock no par value, which you have said was under the heading of retirements, was there any difference in the money situation of the company before and after that deal took place? Answer. No, sir; there was not. Question. What difference was there in the situation, if any at all? Answer. The advantage of voting control. In view of the fact that the 40,000 shares only carried one vote for each share held and by the conversion of it into no par value stock on the basis of $10 per share Question. Gave a 10 to 1 vote? Answer. Gave a 10 to 1 control. Question. And what about the obligation? Answer. Made the obligation less, if anything. Question. In other words, you don't know what obligation there is on the common stock with the par value and it is probably less with the no par? Mr. MACHOLD. None in the State of New York. The stock is full paid and nonassessable. Of course, the record ought to show that the change from the par value to the no par value stock was with the approval of the Public Service Commission of the State of New York. Mr. CHANTLAND. I am perfectly willing that that should be shown. This is off the record. (There was a discussion off the record.) By Mr. CHANTLAND: Question. So that the nominal outstanding capital liabilities at the end of 1931 amounted to $29,910,597.60; is that correct? Answer. Yes, sir. Question. Now, the situation from time to time during the period from 1902 until 1931 varied as shown in the table on the next page; is that right? Answer. Yes, sir. Question. That is the moving picture of it? Answer. Yes; with the comparative ratio of each class of capital liabilities to the total. |