117

Answer. Yes, sir.

Question. Do you recall that the company set up that stock so sold at the rate of $10 a share in the capital-stock account and carried an additional sum to a surplus account?

Answer. Yes, sir.

Question. For example, if the company received $25 for a share of common stock, what entry would be made in the capital-stock and surplus accounts?

Answer. Ten dollars per share would be credited to the capital-liability account and the difference between the $10 and the sales price would be credited to the capital-surplus account.

Question. What became, in the adjustment the receivers' auditors made, of the capital surplus that arose from the 1929 reorganization and this division of the avails of stock sales?

Answer. The auditors restored to the accounts the capital-surplus account which the company had combined with its earned surplus and made certain charges against this capital surplus of write-off of certain losses.

Question. One thing that you said interests me very much. Had the company combined its earned-surplus and capital-surplus account into one account?

Answer. It had.

Question. So its report of surplus did not indicate how much of its surplus was based on the earnings of the company and how much on the division of capital received from the sale of stock?

Answer. That is right.

Question. Now, I understand you to say that the auditors for the receiver took the surplus created through the reorganization, through the division of the avails of the sales of stock, and set that up in a separate capital-surplus account?

Answer. Yes, sir.

Question. And then charged against it the dividends which the company had paid in stock?

Answer. Yes, sir.

Question. So that if we give effect to the auditors' arrangement of surplus, those stockholders of the Middle West Utilities Co. who received stock dividends received them from capital, or, rather, from a surplus created out of capital paid into the company?

Answer. That is correct.

Question. Now, we will have to come back to this subject of surplus again before we get through on account of the subsequent entries that were made that would affect it.

In the period from January 1, 1930, to April 14, 1932, what cash did Middle West Utilities Co. receive by way of dividends on investments in subsidiary companies?

Answer. It received $21,896,357.93.

Question. In the same period what dividends did it receive in cash. on investments in other companies?

Answer. $3,035,140.18.

Question. In the same period what compensation did it receive for services rendered?

Answer. $932,986.27.

102777-34-PT 599

Question. Putting together the dividends received in cash from subsidiary and other companies, the compensation for services rendered and also certain interest received on advances, bonds, debentures, and so forth, the total income in cash of the Middle West Utilities Co. from January 1, 1930, to April 14, 1932, was how much? Answer. $32,644,603.91.

Question. During the same period what were the total administrative and general expenses of the company?

Answer. $5,118,304.48.

Question. How much of this was paid out in salaries?

Answer. $1,414,228.80.

Question. How much for so-called "securities expense "?

Answer. $1,311,124.12.

Question. How much did the Middle West Utilities Co. spend for advertising in this period of 2 years 3 months and 14 days? Answer. $493,454.59.

Question. This is a large sum, it seems to me. During the same time what did the company pay out for contributions and dues to various associations?

Answer. $227,945.76.

Question. What did it pay for publications and reports?

Answer. $229,902.69.

Question. And what were its miscellaneous administrative and general expenses?

Answer. $1,441,648.52.

Question. Now, I see you have here some break-down of the administrative and general expenses by departments during the same period, and we find that in the year 1930 it cost the company how much to maintain its public-relation department?

Answer. $37,245.06.

Question. And in 1931?

Answer. $29,953.69.

Question. And from January 1 to April 14, 1932?

Answer. $3,736.99.

Question. In 1930 the "public information department ", so called, cost the company how much?

Answer. $45,624.40.

Question. In 1931?

Answer. $53,120.25.

Question. And in the 3 months from January 1 to April 14, 1932? Answer. $10,269.44.

Question. Do you have some schedules here that set out the various contributions and association dues paid by the Middle West Utilities Co.?

Answer. Yes, sir. This is shown at pages 314, 315, and 316 of my report.

Question. It shows a table of donations and association dues for 1930 totaling how much?

Answer. $117,349.08.

Question. And in 1931 it was how much?

Answer. $85,942.51.

Question. And for the 3 months and 14 days of 1932?

Answer. $24,654.17.

Question. Now, there are a great many of these contributions and donations to which I will not refer, but I will call attention to a few of them. We find in 1930 a payment of $500 to the American Constitution Association.

In the same year we find $1,850 to the American Society of Mechanical Engineers; $1,250 in the first 3 months and 14 days of 1932.

Payments to associations such as the American Forestry Association, the Allendale Association of Chicago, the Boy Scouts of America, the Chicago Civic Opera.

We find the payment of $1,860 in 1930 to the electric association. We find the payment of $1,000 in 1930 to the Fuel Power Transportation Educational Fund, and of the same amount in 1931, and this, I think, our evidence shows, is our friend S. S. Weir, author of the Smithsonian Ontario Pamphlet.

Here is a payment of $336 in 1930 to the Foreign Language Newspaper. That, I understand, is an institution in Chicago.

Here is a payment in 1930 of $500 to Harry A. Jung, of Chicago. We have not been able to identify him.

Here is a payment of $100 in 1930 to the Illinois Press Association and $51,400 to the Joint Committee of National Utility Association, which has been described at length and its activities examined in our record.

Here is a payment of $3,300 to the National Electric Light Association in 1930.

Here are several payments to the National Republic. I am not fully informed as to what the National Republic is, but I understand it is a magazine of some sort which is political in its nature. That received $1,375 in 1930, $1,450 in 1931, and $875 in the first 3 months and 14 days of 1932.

We find payments of $830 in 1930 and 1931 to the National Better Business Bureau. I suppose the National Better Business Bureau accepted these contributions without realizing the character of some of the transactions in which the Middle West Utilities Co. had been engaged.

We find a payment of $4,000 to the Northwestern University for a utility course.

Two hundred and fifty dollars to the Manufacturers and Industrial News Bureau, which is the Hofer Service of Seattle, which has been described at some length in our record here.

I am skipping a great many of these.

I find a payment of $5,000 in 1931 to the Institute for Land and Public Economics, which, I believe, was carried on in connection with Northwestern University, as our evidence shows, in the propaganda days of our hearing.

There is $1,000 in 1930 and in 1931 also to the 250 associates, Harvard Business School. That matter was described in the early days of our hearings here.

It should be borne in mind the contributions before 1930 are not shown by this record we are now dealing with.

In 1931 there is a contribution to the Public Utility Report, Inc., a corporation which, as our record shows, publishes public utility reports. In the same year $2,200 was given to the Agricultural Review, a magazine; $700 to the Economic Club of Chicago in 1931.

In 1931 there was a $1,000 contribution to the University of Mexico football fund.

Nine hundred dollars to the United States Chamber of Commerce in 1931 and $500 in 1930.

Eighty-five dollars in 1931 to the American Farm Bureau Federation. This, it will be recalled, is the federation which was recently before Senator Black's committee which is now investigating the ocean-mail contracts, where there was a letter produced in which someone representing the American Farm Bureau Federation, in attempting to induce a contribution from a certain shipowner, bragged about what it had been able to do for the National Electric Light Association. We may have some further references to that before we get through.

There was $100 paid to the Mississippi Valley Association in 1930, and also $100 in 1931, and this association likewise seems to have been involved in the shipbuilders' activities disclosed before Senator Black's committee.

In the first 3 months and 14 days of 1932 we find a payment of $700 to the American Taxpayers League, which is an organization here in Washington whose activities were inquired into by the socalled "Caraway committee." I have before me an extract from the record of that committee. It is entitled "Lobby investigation, hearing before a subcommittee of the Committee on the Judiciary, United States Senate, Seventy-first Congress, first session, pursuant to Senate Resolution No. 20." This paper shows the receipts of the American Taxpayers League from September 1928 through August 1929; 12 months, in other words. The total is $6,360. This only relates to the receipts from utility companies. This lists those contributions. It includes one of $500 from the North American Light & Power Co.; one in April 1929 of $1,500 from the Insull Properties of Chicago.

There are a great many other utility companies named here as making contributions to the American Taxpayers League, and the record of the Caraway committee at page 1115, in the proceedings of November 14, 1929, shows that this list was furnished by one J. A. Arnold, who had some authority in the Taxpayers League and was the witness before the Caraway committee.

I offer this extract from the Caraway committee's proceedings as showing the contributions by utility companies to the American Taxpayers League during this period.

Examiner BENNETT. It is received as Commission's exhibit 5411. (The extract referred to was received in evidence and was marked "Commission's Exhibit 5411 ", Witness Hughes.)

Mr. HEALY. I also note that exhibit 5286, which bears on this matter, shows that the United Gas Improvement Co. paid this league $250 on the 14th of July 1927, and by exhibit 5287 it appears the United Gas Improvement Co. paid the league $750 on the 29th of September 1927.

Turning to Mr. Hughes' summary of the advertising expenses of the Middle West Utilities Co., at page 318, we find some additional interesting disbursements. For example, in 1930 we find Middle West Utilities Co. paying Foreign Language Newspaper, $3,824; in 1931, $1,100; and in 1932-that is, the first 3 months and 14 days$3,000.

We find payments to E. Hofer & Son, a Seattle outfit that I have referred to before, $2,750 in 1930, $3,000 in 1931, and $750 in the first few months of 1932.

We find payments to the Great Lakes Broadcasting Co. for service in a very substantial sum in 1930, $41,435.

Also, we find in 1930 the Middle West Utilities Co. paid Rudolph Gunther-Russell Law, known as the "New York Newspaper and Magazine Syndicate ", a very important sum of $239,313. The same concern received $122,000 in 1931 and $12,500 in the first few months of 1932. Can you identify this concern that received these sums, Mr. Hughes? Do you know what their business is?

The WITNESS. I do not; no, sir.

By Mr. HEALY:

Question. It has been suggested to me that they get out what is known as "boiler plate" that is distributed among newspapers and magazines for reproduction?

Answer. Their invoices would indicate it was a service on that order; yes, sir.

Question. Have you copies of any of the vouchers submitted by this concern?

Answer. Not in my possession; no, sir.

Question. I think we should make an effort to get these vouchers from the receivers. I have no doubt they will let us have them, as they have offered to cooperate with us. They have said we could get anything we wanted.

Referring again to the practice of the Middle West Utilities Co. in taking up dividends received in stock into its income account and dealing with the period covered by your examination, what amount of stock dividends were taken into income by Middle West Utilities Co. in the period covered by your examination?

Answer. Shown separately by years, for the year 1930(There was a discussion off the record.)

By Mr. HEALY:

Question. What was the profit of the Middle West Utilities Co. as to the amount at which it would take up these stock dividends, or, rather, what was the practice in determining the amount at which stock dividends should be credited to income?

Answer. The general practice was to take up the dividends at the market price on the date of receipt.

Question. Was there some variation in that practice?

Answer. This was followed up until the market prices commenced to drop below the price at which the issuing company had charged their surplus on the issuance of stock dividends, and then the Middle West Utilities Co. would take them at the issuing price rather than the market price.

Question. This enabled the Middle West Utilities Co. to build up its income account?

Answer. Yes, sir.

Question. You say the total amount credited to income on account of stock dividends during the period covered by your examination was how much?

Answer. $6,164,216.69.