By Mr. CHANTLAND: Question. Mr. McDermott, the remaining papers that I have here before me that I am going to have marked as various exhibits, until I change to the file that was Mr. Windle's, are all copies of matter that you received from the Stone & Webster files, are they not? Answer. They are, either in the Boston office or in the New York office. Mr. CHANTLAND. I next offer exhibit 6121, it being extracts from a letter of December 7, 1932, from Clarence A. Davis, attorney, Western Public Service Co., to G. W. Swift, president, Western Public Service Co., regarding the Stanbury, Mo., municipal franchise. This letter says, in part: The town voted bonds to build a municipal plant. We enjoined the issuance of the bonds and later on, are attempting to enjoin their sale. Examiner ALDEN. It will be received in evidence as Commission's exhibit 6121. (The paper referred to was received in evidence and marked "Commission's Exhibit No. 6121, Witness McDermott.") Mr. CHANTLAND. He proposes to go down to Stanbury and follow the same course as in the Sikeston case, and he says: All of this will, of course, involve some considerable conferences and scheming. We next offer exhibit 6122. It says, in part: You should advise Hall that if this proposition to buy him out is not satisfactory to him, we will go to the city and oppose the election to approve sale. That is a letter from Stone & Webster, Inc., to Samuel P. Macfadden. There is a wire in response. Examiner ALDEN. It will be received as Commission's exhibit 6122. (The letter referred to was received in evidence and marked "Commission's Exhibit No. 6122, Witness McDermott.") Mr. CHANTLAND. We next offer exhibit 6123, which refers to sundry matters, which I will introduce without comment. Examiner ALDEN. Exhibit 6123 will be received in evidence. (The paper referred to was received in evidence and marked 66 Commission's Exhibit No. 6123, Witness McDermott.") Mr. CHANTLAND. I next offer a file of papers headed "Tri-County project as exhibit 6124. Examiner ALDEN. It will be so received as Commission's exhibit 6124. (The file referred to was received in evidence and marked "Commission's Exhibit No. 6124, Witness McDermott.") Mr. CHANTLAND. I next offer exhibit 6125, being a letter from Mr. Macfadden to Stone & Webster dated December 17, 1925, headed "Municipal ownership." Examiner ALDEN. It will be received in evidence as Commission's exhibit 6125. (The letter referred to was received in evidence and marked "Commission's Exhibit No. 6125, Witness McDermott.") Mr. CHANTLAND. Now we go back and pick up the exhibit numbers at 6177, I believe. Examiner ALDEN. Yes. Mr. CHANTLAND. That is the next one. Mr. Macfadden says: In this letter, exhibit 6125, Mr. K. R. MacKinnon, general superintendent of the Nebraska Power Co. in Omaha, an Electric Bond & Share Co., also attended the meeting and after the meeting came on up here with Mr. Parks and me. From him I learned that in the past bills facilitating municipal ownership presented in the State legislature had been fought successfully by the Electric Bond & Share and Insull, but that during the last year or two Insull had more or less withdrawn his support, leaving the Electric Bond & Share Co. to carry the entire load. We next resume our numbering where we left off before we took up the spare numbers. I now offer exhibit 6177, concerning the hydroelectric district bill, a memorandum to Mr. George H. Clifford, from the corporation department. Examiner ALDEN. That will be received in evidence as Commission's exhibit 6177. (The paper referred to was received in evidence and marked "Commission's Exhibit No. 6177, Witness McDermott.") Mr. CHANTLAND. We next offer one short letter from Mr. Clifford to Mr. Macfadden dated October 18, 1929, as exhibit 6178. Examiner ALDEN. The letter referred to will be received in evidence as Commission's exhibit 6178. (The letter referred to was received in evidence and marked "Commission's Exhibit No. 6178, Witness McDermott.") Mr. CHANTLAND. We next offer exhibit 6179 in evidence. Examiner ALDEN. Exhibit 6179 will be received in evidence. (The paper referred to was received in evidence and marked "Commission's Exhibit No. 6179", Witness McDermott.) By Mr. CHANTLAND: Question. In this letter of February 20, 1926, from Mr. H. T. Edgar to Mr. Macfadden he says: It would be my judgment that Major Hamilton should write Mr. Fennell, telling him that we are going to try and buy some municipal plants in that territory, and asking him if we can count on Mr. Wallace to help us. Who is Mr. Wallace? Answer. That was Mr. Charles G. Wallace, who worked out of the Omaha office of the Fairbanks-Morse Co. in the sale of Deisel oil engines. Question. As we know, there is a very bitter feeling, usually, between the utilities and the Fairbanks-Morse people because they regard them as people that set up municipal plants and thereby compete with them? Answer. That is correct. Question. Mr. McDermott, I hold in my hand a copy of the petition in the District Court of Scotts Bluff County, Nebr., entitled Edward M. Searle, Jr., plaintiff, v. Hardin Yensen, David Schlotthauer, Abyron V. Harrison, and Curtis O. Lyda, defendants, in which it states that the defendants claim and purport to be the directors of a purported public corporation known as the Gering Valley Hydro-Electric Light & Power District, purporting to be a public corporation organized pursuant to the terms and provisions of chapter 108 of the sessions laws of Nebraska for the year 1927. The question we had there was as to who paid the expenses of that lawsuit, wasn't it? Answer. Yes, sir; that is correct. Question. Mr. Searle was a nonresident? Answer. Of the district where the land lay. Question. Where did Mr. Searle live? Answer. He lived in Omaha and was president of the Omaha Life Insurance Co. Mr. CHANTLAND. Regardless of who initiated the proceedings or instigated the proceedings, I now introduce as exhibit 6180 a letter from me to Mr. Crawford in our effort to find out whether Stone & Webster paid any of the expense, and Mr. Crawford's response, showing that they paid a certain part of the money. Examiner ALDEN. That will be made a part of the record and received as Commission's exhibit 6180. (The letter referred to was received in evidence and marked "Commission's Exhibit No. 6180, Witness McDermott.) (Witness excused.) Mr. CHANTLAND. The exhibits I now wish to offer are some further exhibits, copies taken from the field reports by Mr. Windle, and at yesterday's proceedings we put in some of these, and it was admitted, and I presume still is by Mr. Crawford, that all of these copies were taken from their files. Mr. CRAWFORD. Yes, sir. Mr. CHANTLAND. I offer exhibit 6181 in evidence without comment. Examiner ALDEN. It will be received in evidence and made a part of the record. (The papers referred to were received in evidence and marked Commission's Exhibit No. 6181.") Mr. CHANTLAND. I offer the next three items as exhibit 6182, exhibit 6183, and exhibit 6184. Examiner ALDEN. They will be received in evidence as Commis sion's exhibits 6181, 6183, and 6184. (The papers referred to were received in evidence and marked "Commission's Exhibits Nos. 6182, 6183, and 6184.") Mr. CHANTLAND. I offer the next file of papers from this file as exhibit 6185, without comment. Examiner ALDEN. That will be received in evidence as Commis sion's exhibit 6185. (The papers referred to were received in evidence and marked "Commission's Exhibit No. 6185.") Mr. CHANTLAND. I next offer exhibit 6186, further from this file. Examiner ALDEN. It will be received in evidence. (The papers referred to were received in evidence and marked "Commission's Exhibit No. 6186.") Mr. CHANTLAND. I offer exhibit 6187, further from this file. Examiner ALDEN. It will be received in evidence as Commission's exhibit 6187. Mr. CHANTLAND. I next offer exhibit 6188, being further papers from this file, and exhibit 6189. Examiner ALDEN. Exhibit 6188 and exhibit 6189 will be received in evidence. (The papers referred to were received in evidence and marked "Commission's Exhibits Nos. 6188 and 6189.") Mr. CHANTLAND. Unless Mr. Crawford has some questions, I am through. Mr. CRAWFORD. No; I have nothing. Mr. CHANTLAND. I left Mr. Crawford one question that he was to reply to that we will put in when we get it, and unless under the extension of the investigation some further companies of this system are to be examined this seems to close the work with the Stone & Webster people, and I want to express again what I said yesterdaythe appreciation of both the economic and the legal division for the cooperation we have had from all the parties. Examiner ALDEN. The hearings with respect to the Stone & Webster group are tentatively closed only? Mr. CHANTLAND. Yes. Examiner ALDEN. There may be further hearings? Examiner ALDEN. The hearing is adjourned subject to call. (Whereupon, at 3:45 p. m., Friday, Sept. 28, 1934, the hearing in the above-entitled matter was adjourned subject to call.) ROOM 2033-B, FEDERAL TRADE COMMISSION, Met, pursuant to adjournment, at 9:30 a. m. Before Charles F. Diggs, examiner. Appearances: Col. William T. Chantland, counsel; Thomas J. Tingley, associated counsel; James A. Austin, associate counsel, Dr. Francis Walker, chief economist, and Col. William H. England, associate chief economist, on behalf of the Commission. W. A. Hill and H. A. Stix, 60 State Street, Boston, Mass., for Associated Gas & Electric Securities Co., Inc.; Bernard F. Weadock, New York City; William J. Hagenah, Chicago, Ill.; and Martin V. Callagy, New York City. Examiner DIGGS. You may proceed. WILLIAM J. WARMACK resumed the stand, and testified further as follows: Further direct examination by Mr. AUSTIN: Question. Now, Mr. Warmack, I want to turn aside for the time being from the discussion of chapter 4 of your report which we had just begun last Friday, and will ask you to turn to chapter 5, where you deal with income and surplus. In section 1 of that chapter you pick up income first; is that correct? Answer. Yes, sir. Question. As appearing on exhibit 9 of your report, at page 184, will you give the total income of General Gas & Electric Corporation for the years 1925 to 1932, inclusive? Answer. The exhibit on page 184 is a statement of income since the organization of the company in the middle of 1925 through the middle of 1932. The total income for the period as shown by that exhibit after Federal income tax amounts to a total of $28,606,472.73. That consists of net income for the last half of 1925, amounting to $1,088,000; the net income for the year 1926 of $1,567,000; net income for the year 1927 of $1,968,000; 1928, $2,427,000; 1929, $5,038,000; 1930. $7.767,900; 1931, $6,294.700; and for the first half of 1932. $2,453,900. Question. Now, during the period that the corporation was under control of the Barstow interests, did the income, as shown, consist entirely of cash income? Answer. Yes, sir. Question. And it is true, is it not, that the bulk of this income was received as dividends on the common and preferred stock of the subsidiaries? Answer. That is correct. Question. You show an increase of total income from $2,500,000 at the end of 1928 to $5,500,000 at the end of 1929 and $8,800,000 at the end of 1930. Will you tell me, please, whether that income consisted entirely of cash? Answer. No, sir. For the year 1929 the total of $506,250 was included in the income of the corporation representing stock dividends received on Associated Gas & Electric Co.'s securities and on certain securities of Utilities Power & Light Corporation. Question. How about stock dividends in the later years? Answer. In 1930 the company received stock dividends from these two corporations which were reported on the income account at $3,166,000, and in 1931, with total income shown of $8,400,000 it included $3,098,000 stock dividends. Question. How was this total income reported to stockholders for the years 1929 and 1930? Answer. It was reported as straight income; that is, as though it had all been received or was to be received in cash. Question. Read it specifically; how is it set up in the annual report? Answer. In the report it is set up in the form of a consolidated income statement. That covers General Gas & Electric Corporation and subsidiary companies. For the year 1929 they show a net income of $6,086,000; that is, including the subsidiary companies. This particular item which we are talking about is set up in the income account as "Other income, dividends, interest, rentals, and so forth." Question. With no designation that it was other than cash? Answer. Not for the year 1929. Question. Reading that, you would assume it was cash, would you not? Answer. Yes, sir. Question. Will you turn to the annual report for 1930 and tell me what that says? Answer. That shows the same thing. This item of dividends marked "Other income" in the report is shown "Interest and dividends, net." Question. Is there any designation it was other than cash? Question. Would you say that any normal person reading it would assume it was cash! Answer. Yes, sir. Question. I will ask you to look at the 1931 annual report and see if any distinction is made in that. Please observe that there are comparative income accounts set up for 1930 and 1931. What do you find in that report? Answer. In that report I find two income accounts. There is an income account on page 10 of the annual report for the year 1931 |