"For the manufacture, generation, production, distribution, supply, and sale of electricity for producing light, heat, and power and to own, have, and operate various buildings and appliances used therefor and to furnish light, heat, and power for use in the streets, avenues, public parks, squares, and places and public and private buildings in the village of Norwood and vicinity."

The towns of Potsdam and Norfolk were also named in the certificate as places of the company's operations.

The properties of the Norwood Electric Light & Power Co. include a hydroelectric generating plant on the Raquette River at [109] Yaleville, St. Lawrence County, N.Y., including water rights, etc., appurtenant thereto; also electric transmission and distribution systems in the towns of Potsdam and Norfolk and in the village of Norwood, St. Lawrence County, N.Y., including franchises, easements, and rights-of-way appurtenant thereto; also store and office building in Norwood, with equipment, furniture, and fixtures installed therein.

Control. St. Lawrence Securities Co. recorded the acquisition of the entire capital stock of the Norwood Co. under date of March 17, 1927. It was under date of December 31, 1926, however, that the Securities Co. recorded the advance of $222,000 to F. A. Stoughton for the purchase of the stock. The minutes of meetings of the stockholders and directors of the Norwood Co. show Sidney P. Phelps, A. M. Phelps, C. F. Vance, A. E. Healy, and C. Fred Worthing as the stockholders on December 21, 1924, and F. A. Stoughton, A. W. Andrews, and Paul B. Murphy as the stockholders on December 24, 1926. The three individuals last named were at that time affiliated with the Aluminum Co. of America group of electric companies. As stated below in the discussion of the stock acquisition, Stoughton entered into an agreement with Sidney P. Phelps on December 15, 1926, which set forth the terms in connection with the purchase and sale of the stock.

On February 23, 1931, at which date the Securities Co. still held the shares, Stefaan Piek, A. W. Andrews, Edward Wright, C. P. Scheller, and P. M. Lee were elected as the directors of the company.

Acquisition of stock.-The 671 shares of capital stock of Norwood Electric Light & Power Co. were acquired by F. A. Stoughton, acting for Aluminum Co. of America, from Sidney P. Phelps, of Norwood, N. Y., in accordance with the terms of an agreement dated December 15, 1926, between the parties to the transaction (see Appendix, p. 208). The agreement provided that on delivery of the stock the vendee should pay to the vender $22,000 on account, and the balance, on demand of the vendor, in securities to be selected from a list provided, at the market price, or, at the option of the vendor, partly in securities and [110] partly in cash.

The total cost of the stock to Stoughton was as follows:

Purchase price of stock.

Expenses, June 30, 1928:

Services of H. F. Farrington Co., accountants_

Services of Neile F. Towner, attorney.

Services of Spratt & Van Kennen, attorneys..

Services of Walter M. Willson (banker, Massena).
Miscellaneous traveling expenses, etc...

Expenses Nov. 24, 1928, services of Neile F. Towner, re appli-
cation to Public Service Commission for acquisition of stock
by the Securities Co...

$222, 000. 00

50.00 1, 150. 00 85.00

1, 000. 00 210. 74

151. 40

224, 647. 14

The records of the St. Lawrence Securities Co. record the acquisition of the Norwood stock as follows:

While the stocks of all subsidiary companies in the aggregate cost St. Lawrence Securities Co. less than the aggregate book value of the stocks at the dates of acquisition, in the particular instance of the Norwood Co. the cost per share was approximately $334.79, as compared with a book value, measured by the par value of the shares plus surplus as shown on the balance sheet [111] of the Norwood Co. at December 31, 1926, of approximately $142.63 per share.

The first reference to this acquisition on the books of the St. Lawrence Securities Co. was under date of December 31, 1926, when the company recorded an advance of $222,000 by the St. Lawrence Valley Power Corporation to F. A. Stoughton, trustee, for the purpose of acquiring the capital stock of Norwood Electric Light & Power Co.

The reasons advanced by the Securities Co. for acquiring the stock of the Norwood Electric Light & Power Co. in the petition to the Public Service Commission of the State of New York, were as follows:

(a) that the Norwood Co. operated a plant and a transmission and distribution system in Norwood and Norfolk, St. Lawrence County, N. Y., and owned certain power rights on the Raquette River regarded as valuable;

(b) that at that time the company had no chance for expansion;

(c) that the control of the power rights on the Raquette River would be of material aid to the power plant which the St. Lawrence Valley Power Corporation then owned upon the river;

(d) that placing the St. Lawrence County Utilities, Inc., in undisputed control of current distribution in the territory would enable it to give better service in the territory where the Norwood Co. was then operating.

Earnings and investments. The earnings of Norwood Electric Light & Power Co. for the years 1929, 1930, and 1931, respectively, are shown in the statement on the following page, together with the rates of earnings on the average investments of St. Lawrence Securities Co. in the Norwood Co. The statement also sets forth the method of arriving at the respective investments, the averages being obtained by adding the indicated investment at the beginning and end of the respective years and dividing by 2. [112] 1

Investment Jan. 1 (cost of stock plus accumulated undistributed earnings since date of purchase)..

Earnings for year..

Additions, credit adjustments to undistributed earnings.

Deductions:

Debit adjustment to undistributed earnings.
Dividends declared...

Investment Dec. 31.

Average investment.

Rate of earnings on average investment (percent).

Interest was not recorded on intercompany advances for 1929, but since 1930 it has been the practice of the Securities Co. and its affiliated companies to record interest on such advances. This accounts largely for the variation in rates of earnings shown for 1929 and 1930.

As shown in the foregoing statement, the rates of earnings of Norwood Electric Light & Power Co. on the average investment in that company by St. Lawrence Securities Co. amounted to approximately 9.5 percent in 1929, 8.8 percent in 1930, and 9.4 percent in 1931. The investment figures used include not only the amount of $224,647 paid by the Securities Co. for the stock but they also include such of the undistributed profits of the company as were earned subsequent to the approximate date of purchase of the stock, namely, December 31, 1926. The records show that for the year 1929 no interest was accrued on advances to the Norwood Co., which advances totaled $63,011 at the beginning of the year and $64,322 at the close of the year; but for 1930 and 1931 interest was accrued to the amount of $2,621 and $2,775, respectively.

The following statement shows the rate of return to Norwood Electric Light & Power Co. on the average capital employed, including advances from affiliated companies, for years 1929, 1930, and 1931, together with the amount of earnings and the items of investment.

The return to Norwood Electric Light & Power Co. on average capital employed in its business amounted, approximately, to 12.7 percent for 1929, 13.4 percent for 1930, and 14.8 percent for 1931. The figures for average capital employed were obtained by adding together the amounts for capital stock, advances to the Norwood Co., and undivided profits at the beginning and end of the respective years as shown on the balance sheets and dividing by 2.

The following balance sheet shows assets and liabilities of Norwood Electric Light & Power Co. at December 31, 1931:

114]

SECTION 20. OGDENSBURG STREET RAILWAY CO.

Organization, activities, control.-Ogdensburg Street Railway Co. was organized under the laws of the State of New York as a street railroad corporation and has engaged in the operation of a street railway in Ogdensburg, N.Ÿ.

Ogdensburg Street Railway Co. was a subsidiary of St. Lawrence Gas, Electric & Transportation Co. when the latter was acquired by Aluminum Co. of America in July 1916. On August 17, 1918, the outstanding stock of this Ogdensburg Co. was transferred to F. A. Stoughton, trustee, under a verbal agreement, between Stoughton and Aluminum Co. of America, providing that Stoughton was to transfer the stock to such party as Aluminum Co. of America might thereafter designate. The interest of Aluminum Co. of America in the stock passed to St. Lawrence Securities Co. by declaration of trust from Stoughton to the Securities Co. dated August 20, 1929.

Ogdensburg Street Railway Co. was in the hands of a receiver from August 12, 1922, to April 12, 1929, and the balance sheet for December 31, 1931, shows a deficit greater than the book value of all the assets.

Acquisition of rights to stock.-The following statement shows details of the acquisition by St. Lawrence Securities Co. of rights to the outstanding stock of Ogdensburg Street Railway Co.:

[115] On the books of St. Lawrence Securities Co. the acquisition of the 1,500 shares of stock from Aluminum Co. of America on August 31, 1929, was charged to F. A. Stoughton, trustee, at the purchase price of $23,134.68, which amount was credited to open account with Aluminum Co. of America. The entry in the journal referred to the transaction as covered by declaration of trust from Stoughton to the Securities Co. dated August 20, 1929.

St. Lawrence Securities Co. still retained the rights to these shares at the end of the period covered by this report.

Earnings and investment.-At the time St. Lawrence Securities Co. acquired the rights to the outstanding stock of Ogdensburg Street Railway Co. in August 1929, a deficit in excess of the par value of stock outstanding was shown on the Ogdensburg Co.'s books and the deficit was increased in 1930 and again in 1931. For 1930 a net loss of $9,271 was shown, which amounted to approximately 40 percent of the $23,135 shown on the Securities Co.'s books as its investment in the stock of the company; and for 1931, a net loss of $18,717 was shown, which amounted to approximately 81 percent of the Securities Co.'s investment of $23,135. The balance sheet for Ogdensburg Street Railway Co. as of December 31, 1931, showed assets and liabilities as listed on the following page:

The foregoing statement of assets and liabilities shows as current liabilities matured bonds to the amount of $150,000, and matured interest on bonds $112,500, which amounts total $262,500. This amount exceeds by nearly $85,000 the total of the values indicated for all of the assets of the company less the values of the remaining liabilities exclusive of capital stock. Adding this excess to the $150,000 par value of capital stock outstanding gives the amount indicated for deficit namely, $234,794.

SECURITIES OTHER THAN THOSE OF SUBSIDIARIES

SECTION 21. MARKETABLE SECURITIES

Ogdensburg Gas Co. Bonds.-The_following statement shows details covering the acquisition and disposal by St. Lawrence Securities Co. of bonds of Ogdensburg Gas Co.

The records of St. Lawrence Securities Co. show, under date of August 31, 1922, the acquisition of $33,000 principal amount of 5-percent bonds of Ogdensburg Gas Co. from St. Lawrence Transmission Co. at the face value of $33,000, which amount was credited the open account with St. Lawrence Transmission Co. This investment in bonds was treated on the books as an investment in marketable securities, rather than as a part of the fixed investment in the stocks of subsidiary companies.

On February 3, 1923, these bonds were disposed of at face value to Ogdensburg Gas Co. in return for 660 shares of the capital stock of that company of equivalent par value.

Ogdensburg Power & Light Co. bonds.-The following statement shows details covering the acquisition and disposal by St. Lawrence Securities Co. of bonds of Ogdensburg Power & Light Co.:

The records of St. Lawrence Securities Co. show, under date of April 20, 1923. the acquisition from the St. Lawrence Water Co. of $65,000 principal amount of 5-percent bonds of Ogdensburg Power & Light Co. at the face value of $65,000 and the credit of the purchase price to open account with the St. Lawrence Water Co.; also, under the same date, the acquisition of $66,000 principal amount of the bonds from the Hannawa Falls Water Power Co. at the face value of $66,000 and the credit of purchase price to open account with the Hannawa Falls Co. These bonds were treated on the books as an investment in marketable securities and not as part of the fixed investment represented by stock of subsidiaries.

Under date of December 18, 1923, the records show these bonds as disposed of to St. Lawrence County Utilities, Inc., at the face value of $131,000, which amount was credited to open account with the vendee.

Hammond Light & Power Co., Inc., stock.-The statement below shows details of the acquisition by St. Lawrence Securities Co. of capital stock of Hammond Light & Power Co., Inc., held by F. A. Stoughton as trustee.