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C. L. 148]

The liabilities statement shows no indebtedness. It requires no hearing or inventory of plant to ascertain that this property is worth very much more than the amount of stock which it is desired shall be outstanding. It is not necessary that we pass on the value of the property. When the certificates of interest have been converted into. certificates of stock, the liabilities statement will show large surplus reserves invested.

ORDER.

It is, therefore, ordered by the Nebraska State Railway Commission, That the Herman Telephone Company be, and it hereby is, authorized to issue shares of common stock, par value $50.00 each, in exchange, par for par, for the certificates of interest at present outstanding in number 120 parts; provided, that the certificates of interest be cancelled and retired of record in each instance where shares of stock are issued in lieu thereof.

Made and entered at Lincoln, Nebraska, this twenty-first day of February, 1924.

In re APPLICATION OF THE COZAD MUTUAL TELEPHONE COM-
PANY FOR AUTHORITY TO ISSUE CERTAIN STOCK.

Issue of Stock to
Authorized

Application No. 5133.

Decided February 21, 1924.

be Exchanged for Present Outstanding Stock Conditions for Refinancing Prescribed.

PROPOSED ORDER.

This applicant has filed amended articles of incorporation, providing for stock of par value of $50.00 per share, in lieu of provisions theretofore existing in its articles for stock of par value of $100 per share. There now exists 89 shares of stock outstanding of the par value of $100 each. The company desires to issue five shares of par

value of $50.00 per share, for each of such outstanding shares of par value of $100 per share. Notice of such intention was published in the local newspapers.

The application was filed several months ago. The Commission suggested an order based on the records in its possession that gave the company the option of a hearing if it so desired. After some delay request was made for a hearing, which was had January 4, 1924. The early history of this case is well set out in our order on Application No. 4840* and need not be repeated. For that case the Commission's engineering department made an inventory in the field of the property of this company and filed report with the Commission as to the estimated original cost of the physical property, which cost figure was enlarged 10 per cent. to meet estimated general expenditures which were in the main met from operating revenues from time to time. In that case the Commission found the fair value for a rate base to be $19,000, which included an intangible element, but nothing for increased unit values, because a very large part of the property had been recently constructed at the very greatly enhanced cost of the present period.

The company's books, which are being kept in accordance with the rules of the Commission, show that there has been a gross increase of fixed property in amount of $3,037 during the year 1923, of which $883 was secured from an accrual of reserves to take care of future replacements. The company has therefore added approximately $2,000 to its fixed plant, but it has reduced its current assets in so doing. It has also invested all its net earnings of the year.

The book accounts of December 31, 1923, appear fairly closely to reflect the facts on plant as arrived at by the Commission in the rate case, amended by subsequent changes. The total assets on December 31 was $26,046.98. In detail the liabilities were as follows:

See Commission Leaflet No. 137, p. 1017.

[Neb.

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The record indicates that the company desires stock to represent the assessment paid, and that it desires to retire its note indebtedness either through the sale of stock or through the application of earned dividends and the later capitalization of such payments.

The present stock was issued in 1909. The history of the company indicates that the issue considerably exceeded the value of the plant. There has, however, from time to time additional value been put into plant from earnings. Scrutiny of the statement set forth above indicates that if stock is issued to reflect the cash assessments paid in 1922 and if ultimately stock is made to take the place of the notes payable, the company will have a small red surplus, the hang-over from the financing of 1909.

It would appear equitable, and we so find, that the cash assessment of $50.00 per share may be represented by stock certificate. Applicant desired that additional stock be placed in escrow to be issued from time to time in equitable proportions as dividends are applied to the payment of notes, which in turn were incurred in an extensive improvement program. There appears to be no particular advantage in escrowing this stock. We will approve the issuance of three shares of stock, par value $50.00 each, for each share of par value of $100 each as retired. We will also approve the issuance from time to time in legal and equitable manner, stock in fractional or whole shares to represent earned profits used in the retirement of notes payable, or for additional improvements. The company should notify stockholders annually of the net earnings per share legally applicable to dividend payments, and the

purposes to which such net earnings have been devoted if not paid in cash.

It is, therefore, ordered by the Nebraska State Railway Commission, That the Cozad Mutual Telephone Company be, and it hereby is, authorized to issue and dispose of stock as follows:

(a) Three shares of par value $50.00 each in lieu of each share of $100 par value now outstanding, provided the shares of $100 each are properly cancelled and retired of record.

(b) Stock of par value $7,500 to be held in the treasury and released under the following conditions: (1) in fractional shares up to one-half share for each share outstanding after the completion of the refinancing denoted in (a) above, such fractional issues at no time to exceed in total amount the application of net profits from operation to the retirement of present note indebtedness; (2) in whole or fractional shares paid for in cash at par for the purpose of securing funds with which to retire existing note indebtedness, or other indebtedness incurred for further improvements.

It is further ordered, That applicant shall annually as of date December 31, until the refinancing herein provided shall have been completed, report to the Commission in detail the stock disposed of under each of the provisions set forth above and in like detail the purposes to which the funds secured have been applied.

Made and entered at Lincoln, Nebraska, this twentyfirst day of February, 1924.

[Neb.

In re APPLICATION OF THE ARAPAHOE TELEPHONE COMPANY
FOR INCREASE IN RATES.

Application No. 5309.

Decided February 28, 1924.

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Cost of Switching Discussed Return of 8 Per Cent. Approved
Charges for Maintenance and Depreciation Fixed at 9 Per
Cent. Annually Increase in Rates Authorized.

FINDINGS.

This application was filed with the Commission October 30, 1923, alleging serious financial embarrassment and

C. L. 148] necessity for relief and asking authority to advance rates and charges for telephone service in accordance with a proposed scheme. Hearing was held at Arapahoe December 17, and the case taken under advisement upon conditions that the Commission would serve upon the company a questionnaire, from the answers to which it would figure out the cost of switching service. The computations on this service would be served on counsel for respondents and opportunity would be given, on motion by him, for further hearing.

This questionnaire was prepared, filled out by the company, and computations made by the Commission's accountants and served on counsel for respondents on January 30. No word has been received from him as to desire for further hearing.

Prior to the filing of this application, the Commission issued an order on Application No. 5126, wherein the company desired authority to sell additional stock to pay for an extensive improvement program. In that case we found the fair value of the company's property to be $27,500.

Applicant operates an exchange serving 366 subscribers and furnishing switching service to 138 subscribers, whose distribution property is independently owned. It owns half interest in toll lines from Arapahoe to Beaver City, Arapahoe to Edison, and Arapahoe to Holbrook. Its property is entirely metallic. In 1922, a serious sleet storm. almost destroyed the distribution system. Since that date, the company has spent more than $10,000 in reconstruction. It has built an exchange building of modest proportions, but substantially planned. It has cabled its town plant and removed pole lines from the main streets to alleys. The expense of this improvement and reconstruction program was partly borne by accumulation of cash, brought about from surpluses and the setting aside of earned dividends throughout the period 1919, 1921, 1922, and 1923, during which time it paid no dividends.

A considerable portion of this company's property was built in 1904 and 1905. Its subsequent history and methods of financing have been well set out in our findings on

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