Page images
PDF
EPUB

The organization of Industries and its subsidiaries is shown (circa 1969) on the chart on pages 1078-1079.

Issue I. Carland Rentals

FINDINGS OF FACT

William Neal Deramus III (Deramus) is the chairman of the board of directors and chief executive officer of Industries. His father was chairman of the board of directors of Railway and was with Railway for over 53 years. Deramus' entire career has been devoted to the railroad industry and related enterprises. He has been employed by the Wabash Railroad Co., the Chicago Great Western Railroad Co. (hereinafter the Chicago Great Western), the Missouri-Kansas-Texas Railway Co. (hereinafter KATY), and Railway, and was president and chief executive officer of each of the latter three railroads. He became president and chief executive officer of Railway and L & A in November 1961.

Prior to and during the years 1964 through 1969, Railway, L & A, NBRD, Carthage CV, and Lindgren (hereinafter collectively referred to as Lessees unless otherwise indicated) acquired equipment through various methods for use in their respective business operations. Since at least 1961, when Deramus became president of Railway and L & A, the Lessees had available to them the following four options for the acquisition of their business equipment: Outright purchase, conditional sales contracts, equipment trusts, and leasing. These alternative methods of equipment acquisition were employed by Deramus during his prior experiences as president of the Chicago Great Western and the KATY and were continued by him in his capacity as president of Railway and L & A.4

Throughout his tenures as president of the Chicago Great Western, the KATY, and petitioner, Deramus adhered to a policy of conserving cash. In furtherance of this policy, he primarily utilized conditional sales contracts and leasing for equipment acquisition because these practices required the smallest initial cash outlays.

During the taxable years 1962, 1963, and 1964, Railway and L

'As previously noted in our general f.ndings of fact. Railway and L & A were operated as a unit during each of the years at issue.

& A entered into certain lease agreements with the so-called Porter companies, consisting of Choctaw Leasing, Inc., the Conestoga Co., Tamarack, Inc., Great Western Enterprises, Inc., and Blackfoot, Inc. (hereinafter collectively referred to as the Choctaw leases). These companies were established by Joseph F. Porter, Jr. (Porter), at the urging of Deramus who, as president of the KATY during 1959 and 1960, desired an additional source of equipment leasing to meet the KATY's requirements. When Deramus became president of Railway and L & A, he also used the Porter companies as a source of equipment leasing for Railway and L & A.

Because the Porter companies were unable to finance the acquisition of all of the equipment needed in Railway's and L & A's business operations, and because of the excessive costs of Railway's current leasing transactions, Deramus, at the time Industries was formed, began to consider the advisability of forming a new corporation which would enable Railway and L & A to lease certain types of equipment which had formerly been leased from the Porter companies.

During 1963, in discussions between Deramus and other employees of petitioner, it was agreed that the formation of a small leasing company would serve the following business interests of petitioner:

(1) Petitioner's various business operations required equipment which was often small in size, large in number, and low in annual acquisition costs ($3 to $5 million). Established leasing companies were unable or unwilling to lease equipment at reasonable rates under these conditions to Lessees. The amounts involved were too small to be financed through conditional sales contracts. A small leasing company would provide Lessees with a source for the acquisition of equipment which Lessees were unable to lease from other leasing companies or directly from the vendors or manufacturers.

(2) The use of a single leasing company for small equipment leasing would also enable Lessees to obtain less expensive lease rates. A single leasing company would be able to consolidate its administrative and clerical costs and legal and accounting fees, whereas these costs would be needlessly duplicated and passed on to Lessees if they leased from several different leasing companies.

(3) A general increase in the amount of Lessees' small

[graphic]

THE KANSAS CITY SOUTHERN RAILWAY CO. AND SUBSIDIARIES AND AFFILIATES PRIOR TO FORMATION OF INDUSTRIES

[graphic][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][ocr errors][subsumed][ocr errors][subsumed][merged small][subsumed][merged small][merged small][subsumed][merged small][merged small][subsumed][ocr errors][subsumed][subsumed][subsumed][subsumed][merged small]
[graphic][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][merged small][ocr errors][subsumed][ocr errors][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed][ocr errors][subsumed][subsumed][subsumed][subsumed][subsumed][subsumed]
« PreviousContinue »