Answer. 6.86. Question. What rate of return did you get in 1930 on the investment in Consumers Gas & Coke Co.? Answer. 21.66. Question. 1931? Answer. 13.46. Question. And for the Florida Public Utilities Co. in 1930? Answer. 17.57 percent. Question. 1931? Answer. 16.27 percent. Question. In the case of the Gastonia Suburban Gas Co., what is the 1930 rate of return? Answer. 12.64 percent. Question. 1931? Answer. 7.14 percent. Question. What was the 1930 rate of return on the common-stock investment of the Georgia Public Utilities Co. in 1930? Answer. 21.08 percent. Question. In 1931? Answer. 9.02 percent. Question. In the case of Georgia Public Utilities Corporation what was the rate of return in 1930? Answer. 7.83 percent. Question. In 1931? Answer. 2.94 percent. Question. In the case of the Huntsville Gas Co., what was the rate of return in 1930? Answer. 1.71 percent. Answer. No return. Question. Does that mean that the company operated at a loss? Answer. Yes, sir. Question. In the case of the Macon Gas Co., what was the rate of return in 1930? Answer. 7.11 percent. Question. What was it in 1931? Answer. 0.22 percent. Question. In the case of the Roanoke Gas Light Co., what was the rate of return in 1930? Answer. 6.89 percent. Question. In 1931? Answer. 8.83 percent. Question. In the case of the Sabine Utilities Co., the 1931 rate of return was what? Answer. On a consolidated basis 42.04 percent. Question. Where does this company operate or where do its subsidiaries operate? Answer. It operates at Port Arthur, Tex. Question. What was the rate of return in 1931? Answer. 70.19 percent on the same basis. Question. To what was this very substantial increase in rate of return due? Answer. Increase in the earnings of the subsidiary operating company. Question. In 1930 what was the rate of return on the con. mon stock investment as computed for the South Carolina Public Service Co.? Answer. 5.46 percent. Answer. 3.61 percent. Question. What was the rate of return on the common-stock investment in Suffolk Gas & Electric Co. in 1930? Answer. 22.08 percent. Question. In 1931? Answer. 5.68 percent. Question. In the case of the Valdosta Gas Co., what was the rate of return on the common-stock investment in 1930? Answer. 26.98 percent. Question. In 1931? Answer. 8.81 percent. Question. In the case of the Washington County Gas Co. we find you reporting a total investment in common stock of $662,883.53. In 1930 the earnings available to this investment were how much? Answer. $8,508.10. Question. Showing what rate of return? Answer. 1.28 percent. Question. In 1931, the average investment was the same, was it not? Answer. Yes, sir. Question. And what earnings were available? Answer. The company had a loss of $601.61. Question. Putting all of the rates of return together for 1930 we find what total investment in common stocks of subsidiaries? Answer. The total ledger cost of common stock or ledger investment in common stock of subsidiaries was $23,810,290.66. Question. What earnings were available for this investment or for this stock? Answer. $1,389,427.93. Question. Which shows a rate of return on all investments in common stock of how much? Answer. 5.84 percent. Question. Now, in 1931, the total investment in common stock stood at what figure? Answer. $23,826,584.05. Question. Which is almost the same figure at which it stood in 1930? Answer. Yes, sir. Question. But the earnings which were available for this stock in 1930 of $1,300,000 in 1931 were about what? Answer. $376,367.84. Question. And the rate of return on the common-stock investment shrunk to what? Answer. 1.58 percent. Question. Have you also gotten up a computation showing the rates of return on invested and borrowed capital? Answer. Yes, sir. Question. Does this mean the invested and borrowed captal in the Southern Cities Public Service Co.? Answer. Yes, sir. Question. In making this computation, have you first set up the common stock of Southern Cities Public Service Co. outstanding at given dates? Answer. Yes, sir. Question. Have you taken it at the amounts at which it appears on the company's books? Answer. Yes, sir. Question. To this have you added the surplus of the company? Answer. Yes, sir. Question. Have you made any adjustment in the surplus of the company on account of the practice which you have described of recording the earnings of the subsidiaries, although they were not received? Answer. No, sir. Question. The revisions which I have suggested in my questions would result in a deduction from the stated value of the common stock in this computation instead of an addition on account of surplus, would it not? Answer. Yes, sir. Question. This computation that we are dealing with now takes the figures as they appear on the books of the corporation, is that correct? Answer. That is correct. Question. And adding the common-stock investment and the surplus gives us what average invested capital for the year 1930? Answer. $19,570,842.74. Question. And what earnings available for common-stock dividends? Answer. $793,316.18. Question. Which shows what rate of return on the average invested capital? Answer. 4.05 percent. Question. But here you have also taken the earnings, have you not, as they were reported on the company's books without any revision on account of the practice of recording earnings that are not received? Answer. Yes, sir. Question. A similar computation for the year 1931 gives what result? Answer. The company had a loss during the year and therefore no rate of return could be determined. Question. Have you made a computation for the year 1930 showing the averaged invested and borrowed capital? Answer. Yes, sir. Question. At what do you compute the average invested and borrowed capital for the year 1930? Answer. $42,320,842.74. Question. According to the books of the company, what earnings were available for interest and dividends on that invested capital? Answer. $2,422,904.81. Question. This is including again the earnings in subsidiaries which were not received by the Southern Cities Public Service Co.? Answer. That is correct. Question. That is, you have taken the earnings as the books of the company show them? Answer. Yes, sir. Question. And applying those earnings as shown by the books to the average invested and borrowed capital, you get what rate of return on the average invested and borrowed capital? Answer. 5.72 percent in 1930. Question. In making the same computation by the same method in 1931, what rate of return do you get? Answer. 2.54 percent. Mr. HEALY. It is my feeling that this computation is not particularly useful, inasmuch as it contains the undistributed earnings of the Southern Cities Public Service Co., which it never has received and, in view of the reorganization of the company in August 1932, it can never receive. Over the whole period from May 1, 1929, which was approximately the date of the corporation's organization, to December 31, 1931, the closing date of Mr. Steele's report, we find total gross earnings, as has already been stated, of $5,510,593.96, of which $2,675,213.33 are earnings of subsidiaries that were never received and which I believe never can be received but which this company took into its income account. If we deduct this $2,675,213.33 from the total gross earnings, instead of the company having an earned surplus at the end of 1931, of $1,355,551.97, it would have a deficit of $1,319,561.36. In looking at Mr. Steele's exhibit 2, within this report, which is the comparative income statement for this whole period, there would have been a deficit at the end of every year if the undistributed earnings of subsidiaries had not been included in income. Am I correct in that last statement, Mr. Steele? The WITNESS. Yes, sir. Mr. HEALY. There are certain of the years which, with this item not included, the company would not have earned its interest charges; this without including anything for amortization of discount and bond expense. That is as far as I am prepared to go today. We have a report on the Central Gas & Electric Co., one of the companies in the Central Public Service Corporation group, but I am not quite ready to present that yet. Also, Mr. Ryder and some others are gathering some additional information for us on the subject of Central Public Service Corporation and Central Public Service Co. which is not ready. How soon that will all be gotten together I do not know. I therfore move for an adjournment at this time, subject to the call of the presiding examiner. Examiner BENNETT. The motion is granted, and we will adjourn the hearing to a time and place to be fixed by the examiner. Mr. HEALY. Let me say we will have some reports on other groups ready within a few days, and if we find we can go ahead we will notify you and ask you to fix a time for hearing. Examiner BENNETT. Very well. (At 3:30 p.m. the hearing adjourned to a time and place to be later fixed by the presiding examiner.) EXHIBIT NO. 5334 REPORT ON EXAMINATION OF ACCOUNTS AND RECORDS OF CITIES SERVICE SECURITIES CO. (By Thomas W. Mitchell) NOTE This report was prepared with reference to that part of Senate Resolution No. 83 (Feb. 15, 1928) which relates to the actual investments, financial transactions, business operations, earnings and other economic results of electric power and gas utility companies, their holding companies, and their associated or affiliated companies. It does not purport to go into questions of the fair value of the property of these public utilities (operating companies) or of fair rate of return or reasonable rates for services rendered, and the Senate resolution in question did not call for such information, which would have required, among other things, an appraisal of all the properties of the utilities in question. The subjects of this inquiry, directed by the Senate, are fundamental for an understanding of how these utility companies and the utility holding companies have developed and the present position of the holding companies as business corporations and in their relations to these public utilities. TABLE OF CONTENTS Chapter I.-Origin, formation, control, functions, and organization: Sources of assets and liabilities taken over by the Securities Co... Page 1 16 18 21 25 26a 27 Basis of purchase orders and sources of funds.. Working organization of Cities Service Securities Co.. Doherty management.......... Plan of the report... Chapter II.-Supervising the market for public utility and natural gas corporation securities: Section 1. Public Service Co. of Colorado draws in high rate and puts Introduction_... Purchases of 7-percent preferred and exchanges for 6-percent Saving in dividend charges.. Marketing 6-percent preferred stock. Marketing 5-percent preferred stock. Section 2. Marketing Arkansas Natural Gas Corporation, class A Noteworthy features of the contract between syndicate man- Operations by Cities Service Securities Co. Market purchases- Course of prices of class A common. Position of the Securities Co. with reference to class A common Counting profits and losses. 64 Profits and losses on the whole operation.. 68 30 34 44 45 45 50 56 Chapter III.-How the Securities Co. functioned with reference to securities of Cities Service Co.: Section 1. Marketing debenture 5's of 1966 and retiring debenture Purchase of additional $5,000,000 of debenture 5's from Cities 82 Adjustment of book cost of debentures. 84 73 Grand summary for debenture 5's of 1966. 85 |