395 The capital stock of the Central of Georgia Railway was held by the Richmond Terminal Reorganization Committee until the spring of 1907. It was then sold to Oakleigh Thorne, president of the Trust Company of America, and Marsden J. Perry. Later the same year these gentlemen resold this stock to E. H. Harriman and his associates.

396 The original estimate was $19,000,000. The amount available seems to have been finally $20,000,000.

397 The voting trust was extended in 1902, in respect to a majority of the stock, for a period of five years. See Chron. 75:442, 1902, and R. R. Gaz. 34:826, 1902.

398 Annual Report, 1906.

399 The narrow-gauge equipment included in these figures is as follows:

400 “It will hardly be claimed,” said the Interstate Commerce Commission, of the Southern Railway in 1900 (8 I. C. C. Rep. 583), “that the cost of reproducing that property in its present state would equal $40,000 a mile.”

401 This route followed roughly the old Santa Fe Trail.

402 Chron. 29:583, 1879.

403 Ibid. 33:23, 1881.

404 Chron. 34:315, 1882, Circular of Sonora Railroad Company to stockholders.

405 Chron. 29:630, 1879. Statement by Vice-President Baker.

406 Ibid. 29:630, 1879.

407 Chron. 34:243, 1882.

408 Chron. 41:444, 1885.

409 Annual Report, 1885, contains a discussion of the Atlantic & Pacific and of the California Southern projects.

410 Chron. 42:462, 1886; Annual Report, 1887.

411 Ibid. 42:518, 1886.

412 Annual Reports, 1886 and 1887.

413 Annual Report, 1888.

414 Ry. Rev. 29:511, 1889.

415 Ry. Age, 12:107, 1887.

416 Ibid. 12:325, 1887.

417 This increase in dividend gave rise to sharp and well-merited criticism. The directors defended their action as follows:

“In forming a just opinion of this matter,” said they, “it is necessary to recall to the stockholders the statement made in the circular of July 30, 1887.... It was stated in the circular referred to that for the six months ending July 1, 1887, the net earnings exceeded by more than $1,200,000 the net earnings for the first six months of the year 1886, that the earnings were still increasing, and what has always been true in the past may be expected this year also; namely, that the revenue of the second six months of the year will be considerably in excess of that of the first six months.... It will ... be seen that ... the year 1887 formed a remarkable exception to what had hitherto been the regular course of Atchison’s earnings; the second half of that year showing an increase over the first half of only $278,096 gross, and $204,144 net.... Drouths, failure of crops, excessive competition, continually decreasing rates, unwise legislation, strikes, and other calamities have befallen us as they have other Western roads; but your directors could not know in advance that any of these unfavorable conditions would have to be met, much less that they would all have to be met at one and the same time.” Annual Report, 1888.

This defence was altogether unsatisfactory. An increase in the dividend rate is too important to be justified by anything but earnings actually in hand. Moreover, the conditions which the directors held responsible for the decline in Atchison earnings were either well known at the time when the dividend was declared, or could easily have been anticipated. It was even alleged that the decrease in business which the annual report for 1888 disclosed was due to lessened carriage of company material to the West for construction of new track, and not to crop failure or other decline in general business. See R. R. Gaz. 21:327, 1889.

418 Chron. 47:472, 1888. The use of $3,000,000 of the notes was specifically deferred.

419 Ry. Age, 14:644, 1889.

420

421 The income bond certificate is printed in full in W. A. Wood, Modern Business Corporations, pp. 237–9.

422 Ry. Age, 14:682, 1889.

423 Annual Report, 1890. Economies were secured at this time through consolidation of branch lines with the main stem and in other ways.

424 Annual Report, 1891.

425 Chron. 51:171, 1890.

426 Ibid. 53:474, 1891.

427 Annual Report, 1892.

428 Ry. Age, 17:413, 1892.

429 Annual Report, 1892.

430 Chron. 56:1014, 1893; Ibid. 57:1038, 1893.

431 Ry. Rev. 34:68, 1894.

432 Ry. Times, 64:533, 1893.

433 See Chron. 58:42, 1894, for an official statement of the reasons for the application to the courts.

434 Ibid. 57:1121, 1893. Some information concerning subsequent railroad competition during the Atchison receivership is to be found in 7 I. C. C. Rep. 61.

435 R. R. Gaz. 26:465, 1894.

436 Ry. Rev. 34:358, 1894.

437 Ry. Times, 65:817, 1894.

438 Ry. Rev. 34:379, 1894.

439 Report of Mr. Stephen Little to the New York, London, and Amsterdam Committees of Reorganization, 1894.

440 Chron. 59:233, 1894.

441 Ry. Times, 66:543, 1894.

442 Chron. 59:878, 1894; Ibid. 59:919, 1894.

443 In addition, prior lien bonds were authorized to a maximum of $17,000,000, of which $12,000,000 might be used if desirable in place of general mortgage bonds in the retirement of guarantee fund notes, equipment bonds, etc., and $5,000,000 for necessary improvements within five years.

444 Second mortgage A bonds received 113 per cent in new preferred stock. Second mortgage B bonds received 118 per cent. “After careful consideration,” said the plan, “it was decided to be best for the interest of those [the second mortgage] securities that they should now be converted into 5 per cent preferred stock, possessing full voting powers and preferential rights as to principal as well as interest, rather than revert to their original form of ‘Income Bonds.’ It was not thought that a greater assessment than $10 could be raised from the stock, and the remainder had to come from the junior bonds.”

445 The plan of reorganization was published separately, but was reprinted in Chron. 60:658, 1895.

446 Ry. Rev. 35:208–9, 1895.

447 Ry. Age, 20:199, 1895.

448 Ry. Times, 67:482, 1895.

449 R. R. Gaz. 26:675, 1894.

450 Ry. Times, 66:506, 1894.

451 Ry. Rev. 34:589, 1894.

452 Chron. 61:1064, 1895.

453 Chron. 64:609, 1897.

454 Ibid. 67:841, 1898.

455 This was not all the Atchison stock which Union Pacific interests acquired. President Ripley testified before the Interstate Commerce Commission on January 8, 1907, that two years before E. H. Harriman and his associates had secured $30,000,000 of Atchison stock, and had caused the election of Messrs. H. C. Frick and H. H. Rogers to the Atchison directorate to represent them.

456 Statutes at Large, 37th Congress, 2d Session, chap. 120.

457 Statutes at Large, 38th Congress, 1st Session, chap. 216.

458 Aldrich Committee Report. The value of gold used is that given in the American Almanac for 1878, and varied from year to year as follows:

459 John P. Davis, History of the Union Pacific Railroad, p. 151.

460 Useful accounts of the Crédit Mobilier may be found in Davis, Union Pacific Railroad; Crawford, Crédit Mobilier of America; Hazard, The Crédit Mobilier of America; White, History of the Union Pacific Railroad; Poland Committee, Report and Testimony, 42d Congress, 3d Session, House Reports, No. 77.

461 Davis, pp. 163–70.

462 Union Pacific Railway Commission Report, 1887, p. 52. The Government endeavored to force the cancellation of the above mentioned construction contracts and the restoration of unlawful profits, but was held by the Supreme Court to have no standing in the case which would entitle it to demand relief. U. S. vs. Union Pacific Railroad Company, 98 U. S. 569.

463 Statutes at Large, 39th Congress, 1st Session, chap. 159.

464 United States Pacific Railway Commission Report, 1887, p. 55.

465 Ibid. vol. 8, p. 4975.

466 Records in Union Pacific Railway Foreclosure Cases, 55th Congress, 1st Session, Senate Document 10, Part 3.

467 Parties to agreement were: Sidney Dillon, Fred L. Ames, Jay Gould, C. S. Greeley, John D. Perry, Robert E. Carr, Adolphus Meier, B. W. Lewis, Jr., Henry Villard, John P. Usher, D. M. Edgerton, Artemas H. Holmes.

468 United States Pacific Railway Commission Report, 1887, testimony of A. H. Holmes, p. 165.

469 Ibid. Testimony of Jay Gould, pp. 454–6. The change to a mortgage was made between April, 1878, and May, 1879.

470 Records in Union Pacific Railway Foreclosure Cases, 55th Congress, 1st Session, Senate Document 10, part 3 (contains text of mortgage).

471 United States Pacific Railway Commission Report, 1887, testimony of A. H. Holmes, pp. 130 and 133.

472 Ibid. vol. 8, p. 4987, Report of William Calhoun, Accountant.

473 United States Pacific Railway Commission Report, 1887, testimony of Jay Gould, p. 463.

474 United States Pacific Railway Commission Report, 1887, p. 58.

475 Ibid. pp. 59 to 65.

476 Ibid. Testimony of F. L. Ames, p. 668. The combined capital is given in the agreements as $51,762,300, but this is apparently a mistake.

477 Quotations of Kansas Pacific common during 1879 (Chron. 1880):

478 United States Pacific Railway Commission Report, testimony of Jay Gould.

479 United States Pacific Railway Commission Report, 1887, p. 100.

480 Except the Missouri Pacific, which Gould retained.

481 United States Pacific Railway Commission Report, 1887, testimony of Jay Gould, pp. 467–9, 523, 524.

482 United States Pacific Railway Commission Report, 1887, testimony of Charles Wheeler, pp. 1735–6. Amount, $571,000.

483 Ibid. Testimony of John Evans, pp. 1853–4.

484 Ibid. Testimony of C. F. Adams, p. 47.

485 United States Pacific Railway Commission Report, 1887, pp. 91 ff.

486 Thirty Years of American Finance, pp. 86 to 98.

487 Chron. 35:578, 1882.

488 United States Pacific Railway Commission Report, 1887, p. 67.

489 Annual Report, 1884, p. 5.

490 United States Pacific Railway Commission Report, 1887, testimony of C. F. Adams, pp. 45–6.

491 Chron. 53:436, 1891.

492 Annual Report, 1884, p. 165.

493 91 U. S. 72.

494 Statutes at Large, 45th Congress, 2d Session, chap. 96.

495 The Court held that while up to the passage of the Thurman Act expenditures for improvements could be deducted from gross earnings in calculating net, the language of that Act seemed to preclude the deduction of any charges for improvements or betterments, or increase of permanent value of the works in any manner whatever. See 99 U. S. 402; 99 U. S. 455; 138 U. S. 84.

496 Report of the Government Directors for 1893.

497 Chron. 57:684, 1893.

498 Ibid. 57:639, 1893.

499 Sen. Com. 1896, 54th Congress, 1st Session, Doc. No. 314, p. 42, testimony of E. E. Anderson. For bill of complaint see Report of the Commissioner of Railroads, 1894, pp. 99–120.

500 Ibid. pp. 391–2, testimony of O. W. Mink. This gave to the Government three out of the five receivers. For petition of the Attorney-General see Report of the Commissioner of Railroads for 1894.

501 Chron. 16:292, 1873.

502 Report of the Commissioner of Railroads, 1895, p. 14.

503 Ry. Rev. 34:335, 1894.

504 Chron. 58:775, 1894.

505 Ibid. 60:132, 1895.

506 Report of the Commissioner of Railroads, 1895, pp. 9–10.

507 Senate Commission, 54th Congress, 1st Session, Document 314, testimony of W. S. Pierce. See generally the report of this committee for a discussion of alternatives from the government point of view.

508 Ibid. Testimony, pp. 451–2.

509 Chron. 60:303, 1895.

510 Ry. Times, 64:732, 1893. Mr. Brice was also a member of the Senate Committee on Pacific Railroads.

511 Ry. Age, 18:883, 1893.

512 Ry. Times, 65:336, 1894.

513 Ry. Times, 65:750, 1894. The reorganization committee stated that this plan was not final. They concurred, however, with Mr. Boissevain in his recommendation of the above scheme.

514 Chron. 60:132, 1895.

515 Ibid. 60:303, 1895.

516 For a summary of the foreclosure suit pending in 1895 see the Report of the Government Directors for that year.

517 Chron. 60:303, 1895.

518 Chron. 60:132, 1895.

519 Ry. Rev. 35:153, 1895.

520 Chron. 61:663, 1895.

521 Chron. 61:705, 1895. (Reorganization plan in full.)

522 See testimony of W. S. Pierce, Senate Commission, 1896, 54th Congress, 1st Session, Document 314.

523 Testimony, Senate Commission, 1896, p. 23.

524 Ibid.

525 Chron. 62:187, 1896.

526 Report of Commissioner of Railroads, 1897, p. 8. The Government’s dealings with the reorganization committee followed upon the defeat in the House of a renewed proposition for refunding the Government’s loan.

527 The guarantee was provided by a syndicate with the same personnel as that which had agreed to advance the money for reorganization expenses.

528 Chron. 65:730, 1897; Report of Commissioner of Railroads, 1897, p. 9.

529 Ry. Age, 24:897, 1897.

530 Report of the Commissioner of Railroads, 1898, p. 9.

531 The entire indebtedness of the Kansas Pacific to the Government was $12,891,900. After the sale the Government brought suit for the balance, but received a decree for $821,898 only.

532 Cf. H. R. Meyer, The Settlements with the Pacific Railways, Quarterly Journal of Economics, July, 1899. The receivership records have been published in fourteen volumes.

At its final meeting in 1898 the reorganization committee nominated a proxy committee of five members “to permanently represent, at the annual and other meetings, such holders of common and preferred stock as (should) desire to entrust their proxies to the said committee for the purpose of maintaining the management and general policies inaugurated by the reorganization committee.” This took the place of a compulsory voting trust.

533 Thomas Warner Mitchell, The Growth of the Union Pacific and its Financial Operations, Quarterly Journal of Economics, vol. 21, p. 569, 1907.

534 Besides $824,910 in Northern Securities stubs.

535 See B. H. Meyer, A History of the Northern Securities Case, Bulletin of the University of Wisconsin, July, 1906.

536 As in the Southern Pacific purchase the acquisition of the Northern Pacific stock was financed mainly by the issue of convertible collateral bonds. Some $30,000,000 besides, it is supposed, were borrowed from the banks.

537 Testimony of Mr. Harriman before the Interstate Commerce Commission. It is true that the Northern Securities stock held by the Union Pacific system had been pledged as security for an equal amount of Oregon Short Line 4 per cent and Participating 4s, and that when these bonds were refunded there was pledged for the new issue whatever the Union Pacific interests should receive in exchange for their Northern Securities holdings, and any other shares or bonds at not exceeding 80 per cent of their appraised value. But the purchase of the Southern Pacific and of the Northern Pacific stocks had been previously financed by an issue of convertible collateral bonds for which other collateral had been pledged. From 1904 on, the rising price of Union Pacific stock made conversion desirable and rapidly released the securities back of the original issue. These released securities, with $18,000,000 Southern Pacific preferred stock paid to the Union Pacific in 1904 (with $2,460,960 cash), proved a sufficient pledge for the Oregon Short Line refunding bonds, and the Great Northern and Northern Pacific stock shares were therefore free for other purposes.