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In this connection it should be noted that the company does not take into the profit on sale of securities the above $3,030,000, which was set up as a reserve for contingencies in 1929.

[58]

CHAPTER IV. BALANCE SHEET ACCOUNTS

Introduction.-The Power & Electric Securities. Corporation opened its books of account on July 1, 1924, on which date it issued 40,000 shares of common stock in exchange for 65,000 shares of common stock of Northern New York Utilities Inc., at a value of $3,480,000. On December 31, 1931, its investments amounted to $17,889,456.94.

A comparative balance sheet as of July 1, 1924, and by years, December 31, 1924-31, is presented as exhibit no. 1.

A condensed balance sheet for December 31, 1931, is presented herewith.

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The balance-sheet items will be discussed separately. The above statement shows that on December 31, 1931, the investments amounted to $17,889,456.94, or 95.6 percent of the total assets. The other assets amounted to $818,920.11, of which $727,117.21 comprised notes of Old Forge Electric Corporation. The investments are discussed in detail in chapter III.

The above statement shows that on December 31, 1931, the capital stock outstanding amounted to $16,500,000 or 88.2 percent of the total liabilities, of which the preferred stock amounted to 18.7 percent and the common stock amounted to 69.5 percent, or to 73.1 percent if the surplus is included therewith. The advances from an affiliated company, Niagara Hudson Power Corporation, amounted to 7.6 percent of the total. The other liabilities, including reserve for Federal income tax, amounted to only 0.6 percent. The capital stock is discussed in detail in chapter II.

The different balance-sheet items, except investments and capital stock, will now be discussed.

[60] Advances to subsidiary and affiliated companies.-Advances to subsidiary and affiliated companies are shown in only 1929 when advances to Malone Light & Power Co. and merged companies amounted to $243,165.26 as follows:

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On April 1, 1930, practically all the above advances, except interest, were paid by Malone Light & Power Co. issuing to the Power & Electric Securities Corporation 8,741 shares of common stock at $27.04 per share, or a total of $236,356.64. The account was closed December 31, 1930.

In 1929 advances to Niagara Hudson Power Corporation amounted to $1,932,000. This was due on open account as payment for 84,000 shares of Niagara Hudson Power Corporation common stock acquired from the United Gas Improvement Co. for $1,932,000, or $23 per share, for account of Niagara Hudson Power Corporation.

Notes receivable.-Notes receivable were all for advances made to Old Forge Electric Corporation, although that is not an affiliated company, as has been explained in section 5 of chapter III-investments.

[61] Organization expense.-Organization expense amounted to only $1,579.65, as follows:

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Advances from affiliated companies.-Advances received from affiliated companies were from three companies only on December 31 of any year.

In 1925, $135,000 was advanced by the Power Corporation of New York to buy 80 shares of Milling & Lighting Co., Inc., and payment of certain liabilities assumed. In 1926 cash advances of $295,000 were made in addition to the above.

In 1926 there was a balance of $111,284.36 due Northeastern Power Corporation on open account. All the advances in 1927, 1928, and 1929 were from Northeastern Power Corporation on open account covering many transactions. All the advances in 1930 and 1931 were from Niagara Hudson Power Corporation to which the advances from Northeastern Power Corporation were transferred when the properties and other assets of that company were purchased in 1930, and its assets and liabilities assumed by Niagara Hudson Power Corporation.

Advance from the United Gas Improvement Co.-This advance was an advance on open account for 84,000 shares of Niagara Hudson Power Corporation common stock valued at $1,932,000, or $23 per share, which the Power & Electric Securities Corporation acquired from the United Gas Improvement Co. for the account of Niagara Hudson Power Corporation, as already stated.

[62] Reserve for Federal income tax.-The reserve for Federal income tax amounted to $63,892.66, on December 31, 1931. This reserve is not carried forward year by year, but any excess over payments or any shortage is closed out to surplus yearly and a new reserve set up, as is shown below:

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No income-tax reserve was set up in 1930, as the company showed a large loss from disposal of Taggart Corporation stock.

The total Federal income tax paid during the period July 1, 1924-December 31, 1931, all paid in the 4 years 1927-30, amounted to $528,627.55. The reserve set up and charged to expense amounted to $531,562.38, leaving a balance of $2,934.83 which was credited to surplus. In 1931 a reserve of $63,892.66 was set up to cover the Federal income tax payable in 1932.

[63] Surplus.-The earned surplus on December 31, 1931, amounted to $681,642.30. There is no capital surplus. The surplus will be discussed in more detail in chapter V-income, expenses, surplus, and rates of return. [64] CHAPTER V. INCOME, EXPENSES, SURPLUS, AND RATES OF RETURN

SECTION 1. GROWTH OF OPERATIONS

Introduction.-The organization of the Power & Electric Securities Corporation and the growth of its capital assets and its capital liabilities have been discussed. The income, expenses, surplus, and rates of return from the operations of the company from date of organization to December 31, 1931, will now be presented.

Growth of income.-Since July 1, 1924, when the Power & Electric Securities Corporation acquired control of Northern New York Utilities, Inc., an active operating public utility, it has had a source of income from the beginning of its operations. However, its only income in that year was a dividend received on the common stock of that subsidiary company.

The income statement for the period July 1, 1924 December 31, 1931, by years, and the total for the entire period, is presented as exhibit 2 of this report. A comparison of the operations of the company, by years, showing the sources of revenue and the disposition thereof, in percentage form, is presented in the following statement:

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[66] The growth of operations of the Power & Electric Securities Corporation for the period under review is shown by the condensed summary of income which is presented in the following statement:

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The above statement shows comparatively little variation in earnings from 1926 to 1931, with expenses generally increasing. The expenses were practically all due to taxes and interest on unfunded debt, as only $12,330.63 were spent for general administrative expenses during the period, as is shown below: General administrative_.

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$12, 330. 63

478, 302. 87

19, 344. 63

597, 035. 41

1, 107, 013. 54

Introduction.-It has been shown that the Power & Electric Securities Corporation is a holding company, and hence its income is derived mainly from dividends and interest on securities held, and from the profit derived from the sale of such securities. As of July 1, 1924, the Power & Electric Securities Corporation acquired control of Northern New York Utilities, Inc., which it still holds. In 1925, control was acquired of Malone Light & Power Co., which it still holds. These are both active operating companies and are the only subsidiaries of the Power & Electric Securities Corporation.

Sources of income. The largest source of corporate earnings was from securities of subsidiary companies, which were common stocks only. Yet this income amounted to only 48.4 percent of the total for the period 1924-31, while the profit on securities sold amounted to 33.3 percent. The income from all sources, showing relation to the Power & Electric Securities Corporation, by years, is presented as exhibit 5 of this report.

An examination of the sources of income in exhibit 5 for the period, July 1, 1924 to December 31, 1931, discloses the following results: [65]

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The above statement shows that for the period as a whole, the income from securities of subsidiaries was less than half of the total income of $8,551,095.76, being only 48.4 percent of the whole, or 48.5 percent, if interest on advances is included. The income from securities of affiliated companies amounted to 8.6 percent, or 9.2 percent if interest on advances is included. The profit on securities sold amounted to one-third of the total income, being 33.3 percent. Income from all other sources amounted to 9 percent.

Dividends on investment in common stocks of subsidiary companies.-It has been shown that the principal source of income of the Power & Electric Securities Corporation was from the securities of subsidiary companies, which amounted to $4,141,408, or 48.4 percent of the total income for the period July 1, 1924, to December 31, 1931. This income was all the result of dividends

from its two operating companies, as follows:

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Dividends on investment in stocks of affiliated companies.-The dividends from stocks of affiliated companies amounted to $735,323.81, or 8.6 percent of the total income for the period July 1, 1924, to December 31, 1931. This was derived from the stocks of four different companies as is shown below:

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[71] It will be noted from the above table that most of the dividends were derived from common stock of Niagara Hudson Power Corporation, the greater part of which had been received in exchange for common stock of Mohawk Hudson Power Corporation, which had paid no dividends.

Income from investments in securities of other utility companies.-The income from securities of other utility companies amounted to $608,148.96, or 7.1 percent of the total income for the period July 1,1924, to December 31, 1931. This was derived from the securities of three different companies, mainly from Mohawk Hudson Power Corporation, as is shown below:

Dividend on Mohawk Hudson Power Corporation, second preferred:

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