additional and final payment of $11.25 per share payable October 1 was declared in anticipation of a proposed consolidation of applicant and Southwestern. Lane testified that counsel for the two companies had advised that if advantage were to be taken of certain sections of the Revenue Act in connection with such proposed consolidation, applicant would have to hold at least 80 percent of Southwestern's voting stock. Payment in full on October 1 of the arrears on the preferred stock restored sole voting control to the common stock, over 99 percent of which is held by applicant. We previously found that an estimated annual cash income of $159,236 based on regular dividends of $6 per share and payments on account of arrears at the rate of $5 per share-constituted a "material part" of applicant's income. The evidence which has been subsequently adduced showing that $294,948.50 was actually received during and for 1940 from Southwestern confirms that finding. This amount was equivalent to 10.7 and 15.1 percent of applicant's gross and net income, respectively. Over a 5-year period (1936-40) applicant actually received cash of $485,604.50 as dividends on Southwestern's preferred stock alone-an annual average of $97,121. With the payment of all preferred arrears, Southwestern's earned surplus was reduced from approximately $800,000-as of May 31— to $171,735 on December 31, 1940. However, Southwestern had $534,053 net income in 1940 and its preferred dividend requirements are but $306,336. Accordingly, it may be expected that the surplus will materially increase. As of December 31, 1940, arrears on Southwestern's class A common stock amounted to $48 per share or a total of $122,928 on the shares held by applicant (83.8 percent of shares outstanding). 8 S. E. C. [No. 1154] IN THE MATTER OF COMMUNITY NATURAL GAS COMPANY File No. 70-92. Promulgated September 6, 1940 (Public Utility Holding Company Act of 1935–Section 10 (a)) ACQUISITION OF UTILITY ASSETS BY REGISTERED HOLDING COMPANY OR SUBSIDIARY. Approval. Application, by a subsidiary of a registered holding company, pursuant to Section 10 of the Public Utility Holding Company Act of 1935 for approval of the purchase of gas utility assets, granted, subject to the provisions of Rule U-9 promulgated under the Act. APPEARANCES: Francis H. Baldy and Harlan B. Collins, of the Public Utilities Division of the Commission. George W. Bean, for Community Natural Gas Company. FINDINGS AND OPINION OF THE COMMISSION Community Natural Gas Company (sometimes referred to as "Community") has filed an application and amendments, pursuant to Section 10 of the Public Utility Holding Company Act of 1935, for approval of the acquisition by it of all of the utility assets of Gainesville Gas Company (sometimes referred to as "Gainesville"), for $124,500 in cash. A hearing was held on the application as amended, after appropriate notice, and, having examined the record, the Commission makes the following findings: Community is a Delaware corporation, engaged in the distribution and sale of natural gas at retail for domestic, commercial, and industrial purposes, in about 285 towns and communities in the States of Texas and Oklahoma. Its capitalization consists of 60,000 shares of $100 par common stock, and $6,500,000 of advances, both the stock and the advances being owned and held by its parent, Lone Star Gas Corporation, a registered holding company having utility subsidiaries, selling natural gas at wholesale and retail. The parent also has one 8 S. E. C.- -35-2280 nonutility subsidiary engaged primarily in the production, sale, and distribution of gasoline. It also owns a 30 percent interest in the common stock of Northern Natural Gas Company, which owns and operates facilities for the production, transmission and distribution of natural gas in several states. Gainesville is a Delaware corporation, organized in 1935 and engaged in distributing and selling natural gas at retail in and around the city of Gainesville, Tex. It is not an associate of Community nor is it a subsidiary of any holding company. It is not subject to the Act, and is not a party to these proceedings. Gainesville acquired these assets in 1935, the year of its incorporation, from the bondholders' committee of Gainesville Gas and Electric Company, an earlier company which had defaulted in its bonds and for which a receiver had been appointed in 1931. At the receiver's sale, the bondholders' committee bought the assets for $175,000, paid through the delivery of all of the outstanding bonds. The committee then sold the assets to Gainesville for $122,500, paid by issuance of the latter's bonds in the same amount, and the issuance of stock in connection therewith. At the present time there are bonds outstanding in the amount of $116,400. There are no arrears in interest or sinkingfund requirements of the bonds. The original cost of the property to be acquired cannot, according to applicant, be determined, because the records are not available. At the time they were acquired by Gainesville, the directors, by resolution, placed them on the books as follows: Property used or useful___. Property not used or useful.. Going concern value (20 percent of property used or useful). $162, 139 2, 625 32, 428 @ 197, 192 • The resolution states that the figures for the physical property are based on an appraisal by the firm of Day & Zimmermann, Inc., made in 1933. However, in this appraisal, the estimate for reproduction cost new, less accrued depreciation, of used or useful property was $184,045. This figure was based on average prices prevailing during the years 19261932 inclusive. Applicant is unable to account for the discrepancy between the appraisal figures and those used. As of April 30, 1940, the book value, less accrued depreciation, was $167,794. Community has entered into a contract with Gainesville, whereby, subject to the consent of this Commission, Community agrees to purchase from Gainesville, all the latter's real estate, physical plant and property, franchises and rights, for $124,500 in cash. The property sold is substantially all of Gainesville's assets; the contract excepts only the latter's cash on hand or on deposit, and certain other funds and reserves. Community will deposit the purchase price with the trustees under Gainesville's trust indenture, and the property will be released from the trust. Gainesville will deposit such additional sums as may be necessary to call, redeem and retire all the bonds and pay all expenses incident thereto. The following is a balance sheet of Gainesville as of April 30, 1940: The effect of the proposed transaction on the accounts of Community is shown by the following balance sheet, actual and pro forma as of April 30, 1940: 8 S. E. C. |