The general balance sheet of the Tucson & Nogales as of July 31, 1933, shows investment (a) in road and equipment $1,756,094.87, and (b) in miscellaneous physical property $100, capital stock $66,000, nonnegotiable debt to affiliated companies $704,748.96, and total corporate surplus $985,445.91. The tentative valuation of division 1 of this Commission of the properties of the Tucson & Nogales, as of June 30, 1916, is $1,100,000. The present amount of that company's indebtedness to the Southern Pacific Company, in open account, is stated as $686,000.

Testimony is that the major part of the railroad operated in Arizona by the Southern Pacific Company, apart from the various properties formerly a part of the El Paso & Southwestern system, is owned by the Southern Pacific Railroad Company, and that the executive committee of the Southern Pacific Company has adopted a policy to dispose of these minor companies and get all properties into the larger companies, which will simplify the corporate structure; that it is considered that it would be better to have the applicant acquire the Tucson & Nogales than to have the Southern Pacific Company acquire the New Mexico & Arizona; and that if the application is approved, the next step will be the filing of an application by the Southern Pacific Railroad Company to acquire the properties of the Tucson & Nogales and the New Mexico & Arizona, and the dissolution of both companies, thus resulting in a saving in accounting and other incidental expenses, which would be in the public interest.

In our consolidation plan the properties of the Southern Pacific Railroad Company, the Tucson & Nogales Railroad Company, and the New Mexico & Arizona Railroad Company are included with those of the Southern Pacific Company in system no. 16, Southern Pacific, as subsidiary-owned lines, without specific mention. Consolidation of Railroads, 159 I.C.C. 522.

We find that the acquisition by the Southern Pacific Railroad Company of control of the Tucson and Nogales Railroad Company, by purchase of capital stock, upon the terms and conditions set forth in the application, which terms we find to be just and reasonable, will be in harmony with and in furtherance of the Commission's plan for the consolidation of railroad properties, and will promote the public interest. An appropriate order will be entered.

193 I.C.C.

FINANCE DOCKET No. 10199

CHEAT HAVEN & BRUCETON RAILROAD COMPANY ET AL. ABANDONMENT

Submitted December 13, 1933. Decided December 28, 1933

Certificate issued permitting (a) the Cheat Haven & Bruceton Railroad Company to abandon a branch line of railroad in Monongahela County, W.Va.. and (b) the Baltimore & Ohio Railroad Company to abandon operation thereof.

W. D. Owens for applicants.

REPORT OF THE COMMISSION

DIVISION 4, COMMISSIONERS MEYER, BRAINERD, AND MAHAFFIE BY DIVISION 4:

The Cheat Haven and Bruceton Railroad Company, and the Baltimore & Ohio Railroad Company, on October 26, 1933, jointly applied under section 1 (18) of the Interstate Commerce Act for permission (a) to the former to abandon a branch line of railroad extending from Morgan Run Junction to the end of the branch at Laurel Furnace, 1.18 miles, all in Monongahela County, W.Va., and (b) to the latter to abandon operation thereof. No representations have been made by any State authority, and no objection to the application has been offered.

The Cheat Haven & Bruceton Railroad extends from a connection with the Baltimore & Ohio Railroad at Cheat Haven, Pa., to Canyon Mine, W.Va., 5.194 miles, with the branch line sought to be abandoned. The branch connects with the logging road of the Kendall Lumber Company. It was constructed to develop contiguous timber lands. All the timber has been removed. The branch has not been operated since 1928, as there has been no available traffic. The Baltimore & Ohio owns all the capital stock of the Cheat Haven & Bruceton, and operates its railroad as lessee.

The estimated population in the territory within 2 miles of the branch is 15. There are no industries in the territory.

The applicants state that the branch is valueless as an income producing unit, that there is no possibility of future developments that would justify its operation, and that it has deteriorated to the point where its only value consists of whatever scrap material may be recovered.

The facts of record show that the branch has served the purpose for which it was constructed, that its operation would impose an undue burden on interstate commerce, and that the proposed abandonment would not result in public inconvenience.

We find that the present and future public convenience and necessity permit the abandonment (a) by the Cheat Haven & Bruceton Railroad Company of the branch line of railroad in Monongahela County, W.Va., described in the application, and (b) by the Baltimore & Ohio Railroad Company of operation thereof. An appropriate certificate will be issued, effective from and after 30 days from its date. Suitable provision will be made therein for the cancelation of tariffs.

193 I.C.C.

INDEX DIGEST

[Numbers in parentheses following citations indicate pages on which subjects are considered]
ABANDONMENT. See CONVENIENCE AND NECESSITY (ABANDONMENT)
ACCOUNTS

In General: The Commission's accounting classification provides that capital
stock shall include the total value of certificates or receipts issued to represent
permanent interests in the accounting company, or interests which, if terminable,
are so only at the option of the company; and when such certificates or receipts
have no par value they shall be included at the amount corresponding to the
cash received, or the cash equivalent if the consideration be other than cash.
Chicago, M., St. P. & P. R. Co. Bonds, 725 (728-729).

A new company organized to take over the assets of another corporation should
be permitted to set up on its books as its stated capital only the capitalizable
assets as representing the contribution of the holders of no-par stock to fixed cap-
ital, treating the remainder of the assets contributed as capital surplus to be used
for any legitimate corporate purpose other than the payment of dividends, and
the accounting requirements of the Commission might well be modified to author-
ize such accounting. Id. (730).

In the consideration of a particular case the Commission may depart from or
modify a previous ruling relating to the accounting as the difference in pertinent
facts or circumstances may warrant. Id. (731).

ACQUISITION. See also CONTROL; CONVENIENCE AND NECESSITY (ACQUISI-
TION AND OPERATION)

Individual Applications: Baltimore & Ohio R. Co., of Coal & Coke Ry. Co.,
by purchase of property, rights, and franchises, authorized. Baltimore & O. R.
Co. Acquisition, 761.

AIDS, GIFTS, GRANTS, AND DONATIONS

The fact that a railroad has received municipal aid in the construction of its
line is not controlling on the question of its right to abandon such line. Alton
R. Co. Abandonment, 653 (655).

APPLICATIONS

In General: Assuming that the law deals with substance rather than form,
the Commission treated an application for authority to consolidate as a request
for authority to merge, regardless of the term used in the application. Rock
Island System Consolidation, 395 (396).

ASSUMPTION. See SECURITIES (ASSUMPTION OF OBLIGATION AND LIABILITY)
BONDS. See SECURITIES (BONDS)

BRANCH LINES. See CONVENIENCE AND NECESSITY (BRANCH LINES)

CAPITALIZATION

In General: The capitalization by a carrier of only those assets that have
been provided, and are intended, for continuing productive use in the service of
transportation is a fundamental principle of sound financing, and where a carrier
seeks to issue securities to capitalize expenditures for additions and betterments,
the Commission must first determine whether the applicant's capitalizable assets
as a whole will exceed its capital liabilities, after the proposed issue. Chicago,
M., St. P. & P. R. Co. Bonds, 725 (726–727).

In dealing with capitalization consisting entirely of securities having a par
value, the par value of common stock represents a contribution by the stock-
holders for investment in capitalizable assets. Id. (727).

Capitalizable assets and assets that cannot properly be so classified under a
State statute and the accounting requirement of the Commission constitute a
part of a carrier's stated capital that cannot be diminished by the payment of
dividends. Id. (729).

A new company organized to take over the assets of another corporation should
be permitted to set up on its books as its stated capital only the capitalizable
assets as representing the contribution of the holders of no-par stock to fixed
capital, treating the remainder of the assets contributed as capital surplus to be
used for any legitimate corporate purpose other than the payment of dividends,
and the accounting requirements of the Commission might well be modified to
authorize such accounting. Id. (730).

Having required a carrier to set up on its balance sheet as the liability for its
no-par stock a figure that necessarily reflects investment in capitalizable assets
and assets that cannot properly be so classified, the Commission cannot exclude
either class in determining whether the carrier should be permitted to issue bonds
in reimbursement of capital expenditures. Id. (730).

CERTIFICATES. See CONVENIENCE AND NECESSITY; SECURITIES (INTERIM)
(RECEIVER'S) (TRUSTEE'S); TELEPHONE (ACQUISITION)
COMPETITION

CARRIER: Diversion of traffic from a railroad to its competitors because of
unsatisfactory service or for other reasons materially lessens the force of conten-
tions as to need for the railroad. Chicago, B. & Q. R. Co. Abandonment, 233
(238).

In a sense each railroad competes with every other railroad in the country, but
actual paralleling or connection of tracks is not a necessary accompaniment of
competition. Connections through boards of directors and traffic officials
selected or influenced by them are much more important. In re Astor, 528 (529,
530).

Duplication of facilities or service is not justified when reasonable efforts on the
part of interested carriers may preserve the benefits of competition without
serious burden or impairment of the ability of either to function. Carriers have
no legal right to exclusive occupancy of a territory. Indian Valley R. v. United
States, 52 F. (2d) 485. Oregon Electric Ry. Co. Proposed Construction, 619
(624).

CONNECTING TRACKS. See CONVENIENCE AND NECESSITY (CONNECTING
TRACKS)

CONSOLIDATION OF RAILWAYS

In General: Acquisition of control does not constitute a consolidation within
the meaning of the Act. Unification of Lines in Southern New Jersey, 183 (198).
The amendment to sec. 5, by the Emergency Railroad Transportation Act,
1933, so far as it deals with consolidations or mergers, is merely a reenactment of
the provision of sec. 5, with the omission of one requirement as to the relation
between the value and capital obligation of proposed consolidated corporations.
Rock Island System Consolidation, 395 (396).

The Commission assumes that the law deals with substance rather than form.
Id. (396).

Actual independence of systems of railroads is not promoted by permitting the
same persons to serve upon the boards of directors of two or more major carriers
when such carriers are important members of different systems under the con-
solidation plan. In re Astor, 528 (529).