Answer. They were retired at their principal amount, for cash payments to the Banking Trust Co. Question. When? Answer. In March 1929. Question. What have you to say as to Chetek Light & Power Corporation, $20,000 principal amount, first-mortgage 6 percent notes, dated October 17, 1916, due October 17, 1936? Answer. This item amounting to $20,000 represents a deposit in the Seaboard National Bank to cover a liability assumed by Foshay in the acquisition of Wisconsin Hydro Electric Co., representing outstanding votes which the holder preferred to retain rather than accept payment thereof, and accordingly a deposit was made to cover this liability. Question. What does the table on page 96 of your report show? Answer. The table on page 96 of my report is a summary of Peoples Light & Power Corporation bonds issued and retired, with effective rates of interest. Question. At page 97 of your report is chapter IV, "Other balance-sheet accounts"; what have you to say as to organization expense? Answer. Substantially all of these balances represent expenses determined in accordance with the arbitration award under contract dated March 22, 1927, between Foshay and Ohrstrom. Question. What have you to say as to the cost of development, Alabama and Mississippi properties? Answer. These balances represent interest charges during construction which were credited to the total interest charges. From the report of Will A. Clader, certified public accountant, who made a report to the receivers of Peoples, dated January 11, 1932, it appears that at least one of the companies indicated in this report charged development expenses prior to its acquisition by Peoples. Question. In other words, they charged development expenses which would have been taken out in the acquisition price when Peoples acquired it? Answer. Yes, sir. "We were the auditors for the Mississippi Gas Co. before its capital stock was purchased by the present owners and have knowledge that during the time it was so owned the expenses were capitalized as being those of the development. It seems to us, therefore, that it cannot be said with respect of that company that the development period is continuing. In this report we have not credited this interest to the income account. Question. What does the table on page 100 of your report show, the first table on that page? Answer. It shows the balance for the years 1928, 1929, 1930, 1931, and 1932, of its excess of holding company's investment over book value of securities of subsidiary companies received. Question. What does the bottom table on page 100 of your report show? Answer. The excess appraisal of subsidiary property over securities issued in their acquisition. Answer. What have you to say as to the account, development cost of establishing business? 102777-34-PT 69-4 Answer. In July 1926, Peoples set up a going concern _value, amounting to $800,000, which was a value placed upon Peoples Light & Power Corporation records, that is, $800,000 for going concern value. Question. Was that arrived at as the result of independent appraisal? Answer. No, sir. Question. How was it arrived at? Answer. It was the company's own estimate. Question. How was that amount written off by charges to paid-in value common stock? Answer. It was written off by charges in June 1927 amounting to $606,887.75; in August 1927 by charges amounting to $13,312.25 and also $122,500, and in September 1927 by charges amounting to $57,300, making a total of $800,000. Question What does the item, "Surplus at date of acquisition, $2,909,189.40," represent? Answer. It represents $2,003,452.40 and $905,737.00, respectively, which totaled $2,909,189.40, set up in the 1926 balance sheet. The balance at the end of 1927 amounted to $2,348,922.86 and represented the unadjusted portion of the first-mentioned amount as of December 31, 1927. Question. What does the account "Property investigations" cover? Answer. The balances in the account, so styled, represented deferred expenses in connection with examinations of property, the acquisition of which was under consideration. Large expenditures were made in connection with efforts to obtan the municipally owned gas and electric plants at Danville, Va., which were charged to this account. Question. All those appear in this account? Question How about miscellaneous accounts with related companies? Answer. These items represented the combined balances in the accounts with the companies named in this paragraph which were so styled by the company as related but not considered to be affiliated. Question. Were those accounts analyzed? Answer. No, sir. The account of Ohrstrom, however, was analyzed. Question. During the years 1928 to 1931, inclusive, Ohrstrom exchanged certain securities, principally preferred stocks, bonds, and debentures, issued by Peoples, for other debentures, did he not? Answer. Yes, sir. Question. Discuss that, please. Answer. During the years 1928 to 1931. inclusive, Ohrstrom exchanged sundry securities, principally preferred stocks, bonds, debentures, issued by Peoples, which had a value recorded on Peoples books amounting to $1,123,212.82 for other securities, principally Peoples' issues of like securities, amounting to $1,184,687.10. Question. And what was the result of that as far as Ohrstrom was concerned? Answer. He realized a profit of $61,474.28. Question. During the years 1928 to 1930, inclusive, Peoples purchased and sold various securities through its open account with Ohrstrom, did they not? Answer. Yes, sir. Question. With what result? Answer. The securities purchased from Ohrstrom had a value recorded on Peoples books, which amounted to $2,897,022.54, and the value of these securities sold amounted to $3,784,813.49. Question. On page 105 you discussed an account called "Contractural liability "; that ought to be "contractual" liability, ought it not? Answer. Yes. Question. What does that represent? Answer. That represents principally the balance of contracts to repurchase securities of Peoples subsidiaries sold to "Power, Gas & Water Securities Corporation." Question. What is the account "Reserve for liquidation, Burlington Light & Power Co. and Green Mountain Power Co., $777,618.95 "? Answer. The balance as at December 31, 1928, amounting to $777,618.95, represented cash received from the companies, from the Burlington Gas Light Co. and the Green Mountain Power Co., and set aside in a reserve to be used in the liquidation. Question. How about miscellaneous reserve? Answer. The balances from which this item arose represented sundry amounts arising from adjustments of liabilities in exchanges, interest on W. S. Appleyard's note in connection with the purchase of Burlington Rapid Transit Co., profit on the sale of the Burlington Rapid Transit Co., and so forth." Question. The statement of income and expenses of Peoples Light & Power Corporation, for the years 1927 to 1932, inclusive, is summarized at page 108 of your report, is it not? Answer. Yes, sir. Question. What were the dividends paid on common stock of subsidiary companies? Answer. $3,628,385.87. Question. What were the dividends paid on preferred stocks of subsidiary companies? Answer. $226,197.60. Question. What were the dividends paid on other investments? Answer. $28,150. 80. Question. What was the interest income? Answer. The interest income was $4,752,812.66. Question. That is shown in the table at the bottom of page 109 of your report, is it not?. Answer. Yes, sir. Question. What have you to say as to the item of income, interest, other miscellaneous, $409,504.87? Answer. This item is comprised of income accruing through accounts styled miscellaneous, $224,559.19, and nonoperating, $184,945.68, making a total of $409,504.87. Question. How is miscellaneous interest received? Answer. Miscellaneous interest, amounting to $224,559.19, was received generally from notes and accounts of various nonaffiliated companies. Some of this interest, however, was received from Foshay, Ohrstrom & Tri-Utilities Corporation, but the rates of interest, and so forth, were checked in a number of cases and found to be in accordance with rates generally charged. Question. How about nonoperating income? Answer. Nonoperating income amounting to $184,945.68, was received from the following sources: Question. For management and engineering contracts between Western Gas Service Co. and Peoples? Answer. Yes, sir. Question. Will you discuss that please? Answer. This was canceled for an account receivable of Western Gas Service Co., amounting to $100,000. Question. What were the details of that? Answer. This account receivable was paid by allowing a like amount of commission to Western Gas Service Co. representing a consideration for services performed by that company in connection with their acquiring $908,000 principal amount of Eastern Vermont Public Utilities Corporation first-mortgage 5-percent gold bonds, dated April 1, 1916, and in further consideration of their assignment of all rights, title, and interest, in a certain agreement made between the Federal Water Service Co. and assigned to the Western Gas Service Co., and Messrs. Robert T. Sheldon, Craig Colgate, Arthur N. Hazeltine, and Andrew A. Smith, Jr., dated June 15, 1927. Question. That agreement was about to expire anyway, was it not? Answer. Yes, sir. Question. The income amounting to approximately $100,000, just mentioned, represented a fictitious value determined for the purpose of eliminating an intercompany profit, did it not? Answer. Yes; for the purpose of eliminating an intercompany profit which would otherwise arise if the assets were sold as contemplated. Question. In other words, it was merely a coverable transaction? Answer. Yes, sir. Question. And upon what do you base that conclusion? Answer. Upon statements found in a memorandum by D. L. McDaniel, Peoples' secretary and treasurer, concerning a contract between Federal Water Service Corporation with eastern Vermont bondholders protective committee, extracts from which memorandum are to be found on pages 112 to 114, inclusive, of my report. Question. For what consideration was a purchase agreement between Lloyd D. Burton and Peoples, dated May 6, 1927, transferred to Ohrstrom? Answer. $10,000. Question. How was write-up in stock values, amounting to $43,335, determined? Answer. It was determined in accordance with the table set up on page 115 of my report. Question. And that shows what? Answer. The amount of that write-up for the various securities and warrants. Question. What have you to say concerning management fees, $994,348.13; what does that cover? Answer. That covers fees charged by Peoples through oral agreement with the subsidiaries. Question. General and administrative expenses, $1,188,478.02what does that cover? Answer. That covers the items summarized on page 116, salaries— administrative officers, and so forth. Question. How about salaries and office rent charged to subsidiaries? Answer. A part of the entire amount was charged to subsidiaries, amounting to $7,000. Question. With regard to interest, $5,142,975.85, for the years 1927 to 1932, inclusive, that represents items classed as interest as set forth in the table on page 117? Answer. Yes, sir. Question. Those items, with the exception of the amount of $429,648.88, classed as "Interest during construction ", represent interest accruals on Peoples funded and unfunded obligations? Answer. Yes, sir. Question. Now, this interest during construction, $429,648.88, just what does that represent? Answer. This item represents cost of development for companies. the stock of which was all held by Peoples. Question. What items entered into the interest during construction? Answer. Interest, operating, loss, retirement expense, and other expense. Question. Operating loss during the period of organization? Answer. Well, they considered themselves as in a period of development which covered a number of years. Question. In other words, they had an account covering operating loss during the development period? Answer. Yes, sir. Question. And that was carried under interest during construction, was it? Answer. Yes, sir. Question. And they are credited in other expense, against the other expenses, and tended to reduce the total expenses? Answer. Yes, sir. Question. The rates of return have been computed upon investment figures taken from the corporation's records, have they? Answer. Yes, sir. Question. And these figures were revised by the examiner? |