CORNELL UNIVERSITY LIBRARY THIS BOOK IS ONE OF A COLLECTION MADE BY BENNO LOEWY 1854-1919 AND BEQUEATHED TO CORNELL UNIVERSITY Cornell University Library HE2791 .P415 1874 + Report of the investigating committee of 3 1924 030 115 327 olin Overs ^^ Cornell University Library The original of this book is in the Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924030115327 Report Investigating Committee The Pennsylvania Railroad Company Appointed by Resolution of the Stockholders ANNUAL MEETING HELD MARCH 10th, 1874. PHILADELPHIA: ALLEN, LANE & SCOTT'S PRINTING HOUSE, No. 233 South Fifdi Street. 1874. J && / r Committee. WILLIAM A. STOKES, Chairman, WM. H. KEMBLE, A. LOUDON SNOWDEN, DAVID E. SMALL, JOHN S. IRICK, WM. C. LONGSTRETH, JOHN A. WRIGHT. TO THE Stockholders Pennsylvania Railroad Company. At the annual meeting of the stockholders, held on March lOth, 1874, the following preamble and resolutions, suggested in the report of the Board of Directors, were unanimously adopted : — " Whereas, A desire has been expressed by many shareholders that a committee should be appointed by this meeting to examine all the property of the Company and prepare a full exhibit of its real value ; " And Whereas, The management of the Company desire, in order to meet the views of shareholders, that a Committee of shareholders be appointed" to in- vestigate the condition of the Company in every respect; therefore be it " I. Resolved, That the report of the Board of Directors, as just read, be printed in pamphlet form for the information of the shareholders, and that a committee of seven shareholders of the Company, entirely disconnected from its management and operation, be appointed by the chairman of this meeting, and by him be requested to serve as a committee to examine the report and examine into the condition of the Company ; to make an appraisement of the value of the roads, shops, machinery, real estate, depots, bonds, stocks, and all other assets of the Company ; also, to examine into the liabilities and obligations of the Company, including all its guarantees for other lines, with the sources of revenue to meet the same; also, its contracts and relations with other companies and parties of (3) every kind ; and to report the results of this examination to the shareholders in such form as said committee may deem most advisable for the interest and in- formation of the shareholders, either by printed report for distribution or, at their option, by calling a meeting of the shareholders to present their report, giving thirty days' notice of such meeting by advertising in the usual form. "2. Resolved, "Va^X the president, directors, and officers of the Company be requested to furnish such committee with all needful information and facilities to enable them to accomplish the object of their appointment. " 3. Resolved, That the chairman of this meeting be requested to appoint a committee of seven shareholders of this Company to recommend, after conferring with the president, a ticket for directors, to be voted by the shareholders at the next annual election — as directed by the existing resolution, adopted by the share- holders February 1st, 1858. " 4. Resolved, That in the event of any of the shareholders declining or being unable to serve on either of the foregoing committees, his honor the Mayor of the city of Philadelphia, as chairman of this meeting, be authorized and requested to fill such vacancies by the appointment of other shareholders of this Company who may be in like manner entirely disconnected from its management and operation." In pursuance of the above proceedings, his Honor William S. Stokley, Mayor of the city of Philadelphia and Chairman of the meeting, appointed the undersigned Committee of Investi- gation, who now respectfully present the following Report. That immediately after their appointment they met and organized by the selection of William A. Stokes as Chairman, and A. Loudon Snowden as Secretary. The necessary sub- committees were formed and the work of investigation began. We have labored diligently at the enormous mass of compli- cated and varied detail to ascertain the facts necessary to enable us to report correctly on the subjects involved in the resolutions, and to draw from them just conclusions as to the value of your property, the security of your investments, the guarantees and leases for which you are liable, the wis- dom of the past policy of your Company, and to make any s suggestions that we may deem likely to conduce to its greater prosperity in the future. To compass these points, we pro- pose to discuss them in the following order : — Page Article I. — Revision of the General Account of December 31st, 1873, . . 8 1. Liabilities, , . . 9 2. Assets, . . . .11 Article II. — ^Real Estate, Buildings, Machinery, Equipment, Telegraph Lines, Bridges, and Track of Road, . . . -19 Article III. — Liabilities of the Pennsylvania Railroad Company as endorser, guarantor, lessee, or otherwise, with the result of these liabilities in 1873, and an esti- mate of the probable future claims on account of endorsements, &c., . . 27 Article IV. — An Inquiry into the Policy, Groups, and Results of all the Railways and Canals owned or controlled by the Pennsylvania Railroad Company, sub- divided thus: — 1. Western Group, embracing the Fort Wayne or Northern System, the Pittsburg, Cincinnati and St. Louis or Southern System, the Pennsyl- vania Company, . . .46 2. Value of the competitive passenger travel and freight received from and sent to the western lines over the Pennsylvania Railroad main line, ...... 70 3. Railroad interests south of Cairo and Baltimore, . . . -75 4. Eastern Group, embracing the Penn- sylvania System, . . -77 Page Article V. — Capital Account and Earnings of all the Railways under the control of the Pennsylvania Railroad Company, tabulated in systems, . . . • 113 Article VI. — Use of your Road by the Cars of Private Persons or Corporations, . . -117 1. The Empire Transportation Company, 119 2. The Pullman Palace Car Company, . 125 Article VII. — Coal Lands, 129 1. Lykens Valley, . . . . .129 2. Shamokin Region, . . . -131 3. Hazleton Property, . . . .132 4. Susquehanna Coal Company, . -133 5. Policy of Owning and Working, . 136 6. Transportation of Coal, . . .138 Article VIII. — Finances, subdivided thus : — 1. Mode of control of other roads, . 141 2. The necessity for the Pennsylvania Railroad Company managing the finances of roads under its control, . 143 3. Floating Debt, 145 4. Construction Account, . . .146 5. Reduction of Capital Stock and Funded Debt, .... 147 6. Funded Debt, 148 7. Future Profits of the Company, . 153 8. Summary of Present and Future Financial Wants, . . . • ISS Article IX. — In regard to the Election of Directors by Directors, and the Acceptance of Laws without the sanction of the Stock- holders, . . . . . .158 Article X. — The sources of Existing Distrust in the Value of Railway Stocks and Se- curities, . . . . . .159 Page Article XI. — Organization, 165 Article XII. — RSsume, 181 Article XIII. — Conclusion, 187 Article XIV. — Resolutions, 190 Appendix A. — Statements of Capital Stock and Bonds held by the Pennsylvania Railroad Company, and valuation of same ; also. Statement of Capital and Operations of all Roads owned and controlled, . 196 Appendix B. — Comparative Statement of Earnings and Expenses of Leased Lines of Penn- sylvania Company (including Indian- apolis and Vincennes Railroad) for six months ending June 30th, 1874, and June 30th, 1873, . . . . 219 Appendix C. — Comparative Statement of Earnings and Expenses of Pennsylvania Railroad and Branches and United Railroads of New Jersey for the six months of 1873 and 1874, 223 Appendix D. — Statement of Gross Earnings, Number of Tons of Freight moved, and Num- ber of Passengers Carried on Lines Operated or otherwise Controlled by the Pennsylvania Company for 1873, as compared with 1868, . . . 224 Appendix E. — Statement of Bonds of the several Com- panies, with the Time of Maturity, in chronological order 232 Appendix F. — Map of Pennsylvania and New Jersey Railroads and Branches, . . .241 Appendix G. — General Map of Railroads, showing the connections of the Pennsylvania Rail- road and the Pennsylvania Company, . 242 ARTICLE I. Revision of the General Account of December 31ST, 1873. To arrive at a correct knowledge of the present financial condition and value of the real and personal property of the Pennsylvania Railroad Company, we have found it necessary to depart somewhat from the general system of accounts, and divide the liabilities and assets into classes — /. Liabilities. These may be divided into two classes, viz., direct and contingent. The direct liabilities may again be subdivided into three kinds — first, liabilities to the bondholders; second, liabilities to the floating debt and other creditors; and, third, liabilities to the stockholders. The contingent liabilities may be subdivided into two classes — first, those from which no profit can be derived, but a failure on the part of the princi- pals to meet which may incur loss to the guarantors. Under this head come bonds issued and secured by mortgage upon the property of other companies, and which bear the endorse- ment of the Pennsylvania Railroad Company; and, second, the yearly liabilities as lessee or guarantor from which the Company expects to derive a direct profit. These consist of leases made directly to the Pennsylvania Railroad Company, and to other companies in conjunction with your Company, and for which your Company is liable to pay an annual fixed rental. 2. Assets. These consist of — I. Actual Assets. — Consisting of the road, equipment, real estate, and telegraph line of your Company, the bonds and (8) 9 stocks of other corporations, and the debts due by indi- viduals and corporations. 2. Apparent Assets. — Of intrinsic value in themselves, being the difference in value of the real estate and equip- ment of the road as charged upon the books of the Company at the time of purchase and its present market value. These assets are the real basis upon which the Com- pany is enabled to earn such large dividends upon its stock. 3. Prospective Assets. — Being the future profits expected to be realized upon leased roads and property. Liabilities. Your committee have given the general account of the treasurer, accompanying the annual report, a careful and most rigid investigation. The direct liabilities, as shown by the debtor side of the general account, are correct, being copied from the accounts in the general ledger; but large sums having been charged off from the creditor side of this account by your committee, as hereafter explained, the bal- ance to the credit of profit and loss has been reduced to ^4,985,254.46, the contingent fund being a mythical account, and really belonging to profit and loss. The reasons for these reduced valuations will be found in an itemized state- ment in the discussion of our assets. The item of "appraised value of securities owned by the United New Jersey Rail- road and Canal Company," amounting to ;^4,322,225.2S, as it appears on both sides of the general account, has been stricken from our statement, as it forms no part of the assets or liabilities of the Pennsylvania Railroad Company, but is a part of the property leased by the United Com- panies of New Jersey, and is already represented in the capital stock of those companies, and whatever income accrues therefrom goes into the treasury of the Pennsyl- vania Railroad Company as a part of the profit derived from operating the New Jersey lines. lO The debtor side of the general account will then stand as follows : — REVISED GENERAL ACCOUNT. Dr. To capital stock, full paid, Part paid. J67 ,056,750 00 1,087,725 00 Total amount of capital paid in. To firet morl second general consol'd bonds due 1880, " 1875. " 1910, " 1905, ;SS4,97o,ooo 00 4,865,840 00 19,558,760 00 8,245,000 00 Lien of the State upon the public works between Philadelphia and Pittsburg, bearing five per cent, interest, payable in annual installments of jS46o,ooo, ap- plicable first to the interest, and the remainder to principal, the original amount of which was ^7,500,000, . . Mortgages and ground-rents at six per cent, remaining on real estate pur- chased, Bills payable, Acceptances given to other companies. 5,401,675 41 104,509 32 ^2,470,963 90 2,140,833 34 Accounts payable, including freight and passenger balances due to other roads, pay-rolls and vouchers for Decem- ber, 1873, P^i 716,300 375. 79.87s 475. 29,450 475. 11,875 500, 6,500 500, 500 ;?275. «Si49.325 300. 106,800 225, 28,800 60, 21,900 30. 12,000 200, 1,200 1,798 Total, . , . . . . 320,025 319 passenger cars, first class, at . . . $4,500, $1,435,500 66 passenger cars, second class, at . . . 2,750, 181,500 136 mail, baggage, and express cars, at . 1,750, 238,000 521 Total, . . . ... 1,855,000 151 passenger locomotives, at . $10,500, $1,585,500 595 freight locomotives, at 11,500, 6,842,500 133 distributing and shifting locomotives, at 9,000, 1,197,000 879 Total, 9,625,000 Grand total, . $20,098,600 23 f. Road-bed, Track, Bridges, and Telegraph Lines. We have found it difficult to make a reliable estimate of the present value of the road-bed and track, bridges, and tele- graph lines, and have therefore preferred to take the balance standing on the books of the Company for the construction of the railroad between Harrisburg and Pittsburg, including branches to Indiana and Hollidaysburg (in all two hundred and seventy-six miles), also for the cost of stations, ware- houses, shops, and shop-machinery, on the whole road from Philadelphia to Pittsburg, viz., ;$i9,6io,223.8i, and add to it such amounts as have been, from 1855 to 1873, inclu- sive, charged to expense account, which might have been properly charged to construction. It is well known that this has been the well-advised and systematic custom of your officers, thereby keeping down the capital account. Taking the sums so charged during the past nineteen years from the books of the Company, we find they amount to ^36,133,637.19, and consist generally of excess of earn- ings over dividends and interest, which was required by the charter to be credited to construction account on the completion of a single track to Pittsburg, in 1855 ; amounts paid the State from time to time on account of the purchase of the Philadelphia and Columbia Railroad; amounts ex- pended for rebuilding and straightening the Philadelphia and Columbia Railroad, the Harrisburg and Lancaster Railroad, and parts of the main line west of the mountains ; for building the Delaware Extension, with its wharves and elevator; for the substitution of steel for iron rails and of greater weight per yard; iron for wooden bridges, and a very large increase in length of road-bed, track, sidings, and yard accommodations. The present increased value of the road-bed, track, build- ings, &c. will be the more readily shown by bringing 24 together the items upon which we have placed a value, and comparing such value with the cost at the time they were made, laid, and built, in the following manner: — Road-bed, track, bridges, stations, ware- houses, buildings, shops, shop-machinery, and telegraph lines, including the Phila- delphia and Columbia Railroad, . . ^55,743,861 00 Equipment of road, 20,098,600 00 Real estate, 18,556,022 83 Total present estimated value, . . ^94,398,483 83 The amount charged in the General Account is 48,571,808 18 Showing an increase of valuation of . ;g45, 826,675 65 This large increase is due to an increased expenditure on the road and branches between Philadelphia and Pittsburg, over and above what is shown in the general account, of ^28,964,876 62 In the value of equipment of . 4,764,885 5^ In the value of real estate of . . 12,096,913 47 Amounting in all to . . . ;^45, 826,675 65 And exceeds the estimate in the last annual report $12,471,- 052.03, chiefly due to our increased estimate of the value of real estate and the amounts expended on the Phila- delphia and Columbia and the Harrisburg and Lancaster Railroads. Taking the real cost of road, embracing nine hundred and ninety-four miles single track, as above, at $55,743,861, it gives an average cost of $45,436 for one mile of single track, which is below the average of the best roads, but which is represented on your books at an average cost of $19,730 per mile, making a total cost of $19,610,223.81. 25 This vast increase of real values is not to be accounted an absolute present gain, because all the road-bed and most of the land is necessary for the operations of the Company, and cannot, therefore, be sold. It is property available and essential for use, but not convertible in mass. It yields rev- enue because it is part of the principal from which the income of the road is derived; besides, these increased values may be considered with reference to — First. — The advantages which they give over rival roads because of the lesser comparative capital invested to obtain the same objects. Second. — Railroad incomes rise in proportion to decrease of capital ; it follows that as most of the cost of the material structure of your railroad, with all its land, buildings, and appurtenances, was at very low prices, you have now all the advantage of the difference, for your present charges for the transportation of persons and property are based on the present purchasing power of money, whereas your invest- ments were made when that power was much greater. Third. — The large extent of land owned by the Company at important points, and especially at Philadelphia and Pitts- burg, gives you a commanding position in reference to other roads, and will be the source of considerable revenue in the shape of rent. Experience has shown the advantages result- ing from concentrating diverging railway lines in central depots, and of course the lines which use these depots pay the company who owns them. We do not attempt to estimate this revenue, but as rent is mainly based on invested capital, the Company will have all the advantage of the increased value of property thus used. Fourth. — Another advantage and source of profit is the leasing of that portion of the property of the Company not required for immediate use, which, being rented to other 26 persons, yielded to your treasury in 1873 a sum of ^82,497. This sum seems too small considering the extent of the rented property, and we especially commend to the Directors an examination as to the terms and persons who are the tenants and occupants of the property of the Company. Fifth. — A most important element in estimating the advan- tages of the comparatively small cost of your road and land is the additional security which it gives to bondholders and stockholders. As this is absolute gain, it gives to the bond- holder the same percentage of increased security, and to the stockholder the like increase of capital. Sixth. — It will be observed that we have not made any estimate of the increased value of buildings. It is certain that they are worth more than they cost; but there are several incomputable elements which would enter into arith- metical calculation, and which make it impossible to give even an approximate reliable estimate, and we therefore prefer to allow them to stand at their actual cost. Stockholders have a right to know what their agents have done with their money, and inasmuch as we do not hesitate to state all errors and losses in the administration of the Com- pany, justice demands that we should also state the gains resulting from their wisdom. Aware of the tendency in most men's minds to exaggerate expectations of future and indefinite results, especially in matters of self-interest, we have been especially guarded against this error, and it is probable that, suspicious of imagi- nation and rigid in judgment, we may have fallen into the opposite extreme. At all events, we are fully persuaded in our own minds that if caution can assure confidence we may fairly claim it, and we believe that the developments of time will more than justify our expectations, and will prove that we have been too cautious rather than too confident. ARTICLE III. The Liabilities of the Pennsylvania Railroad Company AS Endorser, Guarantor, Lessee, or otherwise, with THE result of THESE LIABILITIES IN 1 873, AND AN estimate of probable future CLAIMS ON ACCOUNT OF ENDORSEMENTS, &C. Contingent Liabilities from which no Profit can be derived. We herewith append a list of the Habilities of the Com- pany as endorser or guarantor on the bonds of other cor- porations. It will be seen that in most cases the Company is guarantor of both principal and interest, and in one case of interest only, and it will also be observed that in no case is it guarantor for any other liability than mortgage bonds and rentals, and in most cases first liens upon the property mortgaged. In many cases the Company stands with others as co-guarantor, but we have charged the Company with the entire liability, although the co-guarantors are in many cases entirely responsible. For ;^6,500,ooo the Northern Central has an equal liability with the Pennsylvania Railroad Company, and in the case of the ;^8oo,ooo bonded debt of the Junction Railroad, the liability is divided with the Phila- delphia, Wilmington and Baltimore and the Philadelphia and Reading. These guarantees amount to ^33,983,000, and in the case of the Pennsylvania Canal, the Company guarantees ;^ 1 80,000 interest per annum on ;^3,ooo,ooo of first mortgage bonds. This debt is but a small portion of the value of the (27) 28 canal, and its profits are abundant to pay the interest and leave a large surplus. Detailed Statement of Contingent Liabilities on Bonds. Western Pennsylvania Railroad, Connecting Railroad, Philadelphia and Erie Railroad, Chartiers Railway, Susquehanna Coal Company, . Allegheny Valley Low-Grade, Allegheny Valley Low-Grade*, American Steamship, Pittsburg, Virginia and Charleston, Baltimore and Potomac,t, Baltimore and Potomac tunnel bonds, Junction RailroadJ, ^1,158,600 991,000 10,000,000 475,000 1,300,000 9,059,000 3,500,000 1,500,000 700,000 3,000,000 1,500,000 800,000 Total amount of bonds, principal and in- terest guaranteed, .... ^33,983,600 Pennsylvania Canal — interest (^180,000) guaranteed on ;^3,ooo,ooo, but not the principal. Yearly Liabilities as Lessee and Gtiarantor. Before commenting upon these liabilities, we here present the following statement of them : — * Northern Central and Philadelphia and Erie co-guarantors with Pennsylvania Railroad Company on this three and a half millions of bonds. f Northern Central co-guarantor with Pennsylvania Railroad Company. J Philadelphia, Wilmington and Baltimore and Philadelphia and Reading co- guarantors with Pennsylvania Railroad Company. 29 (I.) STATEMENT OF ANNUAL LIABILITIES OF THE PENNSYLVANIA RAILROAD COMPANY AS GUARANTOR FOR AND ON ACCOUNT OF THE ROADS NAMED BELOW WEST OF PITTSBURG. Pittsburg, Fort Wayne and Chicago Railway. 1873. Total annual rental, .... ^2,617,177 24 Also the following, in connection with the lease of the above road : — New Castle and Beaver Valley Railroad. Leased for forty per cent, of gross earnings. Minimum rental, ..... 140,435 79 Lawrence Railroad. Leased for forty per cent, of gross earnings. Minimum rental, 75,752 96 Indianapolis and St. Louis Railroad. Interest on debt — Seven per cent, on ^3,000,000, $210,000 Eight per cent, on $500,000, . 40,000 St. Louis, Alton and Terre Haute, 150,000 Note. — The Pennsylvania Company is owner of one- half of the capital stock of the Indianapolis and St. Louis Railroad Company, which is the lessee of the St. Louis, Alton and Terre Haute Railroad; and, as the assignee of the lease of the Pittsburg, Fort Wayne and Chicago Rail- way, is liable for one-third of the minimum rental of the St. Louis, Alton and Terre Haute Railroad, the other two-thirds being guaranteed by the Indianapolis, Cincin- nati and Lafayette Railroad Company, the Cleveland, Columbus, Cincinnati and Indianapolis Railway Company, and the Lake Shore and Michigan Southern Railway Companies, each for itself. 400,000 00 Carried forward, $3,233,365 99 30 Brought forward, Grand Rapids and Indiana Railroad. Interest on one-half of debt, seven per cent, on ^4,000,000, (gold,) Total liabilities in connection with the lease of the Pittsburg, Fort Wayne and Chicago Railroad, ... ... Cleveland and Pittsburg Railroad. Total annual rental, ..... Erie and Pittsburg Railroad. Total annual rental, yeffersonville , Madison and Indianapolis Railroad. Total annual rental, ... Little Miami Railroad. Total annual rental, ..... Note. — The interest on the street connection bonds is the whole of such interest, the bonds being executed jointly by the Little Miami and the Cincinnati and Indiana Railroad Companies. The Little Miami, or the Pittsburg, Cincinnati and St. Louis Railway Company as the lessee of Little Miami, is liable to the bondholders for the whole interest in the event of the failure to pay by the Indianapolis, Cincinnati and Lafayette Railroad Company. At present such interest is provided for in the proportion of sixty per cent, by the Pittsburg, Cincinnati and St. Louis Railway Company, and forty per cent, by the Indianapolis, Cincinnati and Lafayette Railroad Company. ^3.233.365 99 280,000 00 ^3-513,365 99 1,226,834 47 380,626 00 532,651 70 723,908 80 Carried forward, ^6,377,386 96 31 Brought forward, ^6,377,386 96 Columbus, Chicago and Indiana Central Railway. Leased for thirty per cent, of gross earn- ings, (but interest at seven per cent, guar- anteed on ^15,821,000 of debt secured by first mortgages,) as shown for 1873, . . 1,343,342 05 St. Louis, Vandalia and Terre Haute Railroad. Leased by Terre Haute and Indianapolis Railroad Company for thirty per cent, of gross earnings, with a contingent liability for five per cent, more in case the expense of operating the road should fall to sixty- five per cent.; but the interest on the mort- gage debt is guaranteed in the proportion of one-fifth by the Terre Haute and In- dianapolis Railroad Company, two-fifths by the Columbus, Chicago and Indiana Central Railway Company, and two-fifths by the Pittsburg, Cincinnati and St. Louis Railway Company. The liability, there- fore, of the Pittsburg, Cincinnati and St. Louis Railway Company, for herself and as lessee, is four-fifths of the interest on the mortgage debt. Seven per cent, on ^4,500,000=^315,000, four-fifths of which is . . ... 252,000 00 Newport and Cincinnati Bridge. Guarantee of one-half of ^75,000. Minimum traffic, 37>Soo 00 Carried forward, ^8,010,229 01 32 Brought forward, ^8,010,229 01 Indianapolis and Vincennes Railroad. Interest on mortgage debt, seven per cent, on ;^ 1,700,000, . . ^119,000 Six per cent, on ^1,450,000, . 87,000 206,000 00 Total, ^8,216,229 01 (2.) STATEMENT OF ANNUAL LIABILITIES OF THE PENNSYLVANIA RAILROAD COMPANY UNDER LEASES OF ROADS EAST OF PITTSBURG AND ERIE, ALSO, ON -ACCOUNT OF GUARANTEES ON BONDS OF LEASED AND CONTROLLED ROADS EAST OF PITTS- BURG AND ERIE. Western Pennsylvania Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, handing balance of receipts over to the lessor. (Net receipts for 1873, ^348,968.77.) Pennsylvania Railroad Company guarantees principal and interest of $800,000 first mortgage main line bonds, six per cent., ^^48,000. Pennsylvania Railroad Company guarantees principal and interest of $358,600 first mortgage Pittsburg Branch bonds, six per cent, $21,600. Connecting Railroad. Leased by the Philadelphia and Trenton Railroad Company at an annual rental of six per cent, on its bonds and stock= $142,965.90. This amount is included in rental of United Railroads of New Jersey next mentioned. 33 Pennsylvania Railroad Company guarantees principal and interest of ;^99i,ooo first mortgage bonds, six per cent., ^59.460. United Railroads and Canal of Neiv Jersey . Leased by the Pennsylvania Railroad Company at an annual rental, which amounted in 1873 to 53,117,020.24. (Loss in 1873, 5685,689.70.) Bald Eagle Valley Railroad. Leased by the Pennsylvania Railroad Company, who pay to lessor forty per cent, of the gross receipts after deducting all tonnage taxes. (Net profits in 1873, 58228.57.) Bedford and Bridgeport Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, handing balance of receipts over to lessor. (Loss in 1873, 53252.72.) Danville, Hazleton and Wilkesbarre Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, balance of receipts to be applied to pay- ment of coupons on 51,400,000 bonds. If not sufficient, the Pennsylvania Railroad Company purchases coupons and holds them as against the mortgage. Pennsylvania Railroad Company guarantees to purchase coupons. (Seven per cent, on 51,400,000=598,000.) East Brandywine and Waynesburg Railroad. Leased by the Pennsylvania Railroad Company, paying to lessor not less than thirty-three and one-third per cent, of the gross earnings to meet interest on bonds. (Loss in 1873, 57466.54.) 34 Ebensburg and Cresson Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, balance of receipts being devoted to paying interest on ^80,000 mortgage bonds, if sufficient; if not, then pro rata. (Loss in 1873, ^1910.58.) Harrisburg, Portsmouth, Mt. Joy and Lancaster Railroad. Leased by the Pennsylvania Railroad Company, rental being (six per cent, on bonds, seven per cent, on stock, taxes, and organization) in 1873, ^132,651.46. Lewisburg, Centre and Spruce Creek Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, balance of gross earnings being devoted to paying interest on bonded debt. (Net profits in 1873, $6983.94 on eleven miles of road.) Mifflin and Centre County Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, balance of gross receipts being applied to rent ($330) of Tuscarora bridge, and to payment of interest on ;^ioo,000 mortgage bonds, if sufficient; if not, then pro rata. (Loss in 1873, ;^I3,382.59.) Newry Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, applying balance to paying cost of com- pletion of road and appurtenances. (Loss in 1873, ;^2904.02.) Sjinbury and Lewistown Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, paying over surplus to lessor. 35 Tyrone and Clearfield Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, paying over surplus to lessor. (Net profits in 1873, ^62,244.35.) South West Pennsylvania Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, paying over balance to lessor. (Net profits in 1873, 1:56,746.98.) Pennsylvania and Delaware Railroad. Leased by the Pennsylvania Railroad Company to be operated at cost, paying over balance to lessor. (Loss in 1873, ^30,912.52.) Philadelphia and Erie Railroad. Leased by the Pennsylvania Railroad Company to be operated- at cost to work it, balance being devoted to organization, interest on bonds, sinking fiand under one of the mortgages, then surplus to lessor, after deducting moneys loaned and advances made by lessee. Pennsylvania Railroad Company guarantees prin- cipal and interest of ^2,000,000 dollar bonds, six per cent., ^120,000 Pennsylvania Railroad Company guarantees prin- cipal and interest account ^3,000,000 sterling bonds, six per cent, ...... 180,000 Pennsylvania Railroad Company guarantees prin- cipal and interest of ;^5, 000,000 gold bonds, six per cent., 300,000 Total, . . ... . ;^6oo,ooo 36 Chartiers Railway. Leased by Pittsburg, Cincinnati and St. Louis Railway- Company for what it costs, paying balance to lessor. (Net receipts, 1873, ^18,205.78.) Pennsylvania Railroad Company guarantees prin- cipal and interest of ;^475,000 first mortgage bonds, seven per cent., ..... ;^33,250 Pennsylvania Canal. Pennsylvania Railroad Company guarantees the interest on first and general mortgage bonds, amounting to $3,000,000, at six per cent., . 180,000 Allegheny Valley Railroad. Pennsylvania Railroad Company guarantees prin- cipal and interest of $9,059,000 first mortgage "low-grade" bonds, seven per cent, . . 634,130 $3,500,000 second mortgage "low-grade" bonds, five per cent., . ..... 175,000 — the Northern Central and Philadelphia and Erie Com- panies joining in the last named. Susqicehanna Coal Company. Pennsylvania Railroad Company guarantees prin- cipal and interest of $1,300,000 bonds, at six per cent., $78,000 American Steamship Company. Pennsylvania Railroad Company guarantees prin- cipal and interest of $1,500,000 bonds, at six per cent., ....:... 90,000 37 Pittsburg, Virginia and Charleston Railroad. Pennsylvania Railroad Company guarantees prin- cipal and interest of ^700,000 first mortgage bonds, at seven per cent., gold, . . ^49,000 Baltimore and Potomac Railroad. Pennsylvania Railroad Company guarantees' prin- cipal and interest of ;^i, 500,000 "Tunnel bonds," at six per cent., gold, 90,000 ^3,000,000 "Main Line bonds," at six per cent., gold, 180,000 The latter in connection with the Northern Central Railway Company. jFiinction Railroad. The Pennsylvania Railroad Company, the Phila- delphia, Wilmington and Baltimore Railroad Company, and the Philadelphia and Reading Railroad Company, guarantee the principal and interest on ^500,000 first mortgage bonds, six per cent, ..... . ^30,000 ;^300,ooo second mortgage bonds, six per cent, . 18,000 Total, ;^48,ooo An examination of the above-mentioned leases and guar- antees shows that, in addition to the guarantees of bonds heretofore alluded to, there are leases of two entirely different kinds. The first are a class of leases wherein the Pennsylvania Railroad Company stipulates to operate the road at cost and pay over to the lessors all surplus profits, and not obligating itself in any way to pay more, nor in fact as- suming any obligation other than to deal honestly. This 38 class of leases we shall not stop to consider, as they form no part of the liabilities or assets of the Company. The second and important class are those wherein the Pennsylvania Railroad Company stipulates to pay an annual fixed rental. These are as follows : — Name of Road. United Railroads and Canal of New Jersey, Harrisburg, Portsmouth, Mt. Joy and Lan caster, ...... Pittsburg, Fort Wayne and Chicago, . New Castle and Beaver Valley, . Lawrence Railroad, Erie and Pittsburg, .... Cleveland and Pittsburg, Jeffersonville, Madison and Indianapolis, Indianapolis and Vincennes, Indianapolis and St. Louis, . Columbus, Chicago and Indiana Central, Little Miami, St. Louis, Vandalia and Terre Haute, Chartiers Railway, .... Total rentals guaranteed. Yearly Guaranteec Rent. 1 , ^3,117,020 24 132,651 46 . 2,617,177 24 140,43s 79 75,752 96 380,626 00 • 1,337.353 51 535,235 60 206,000 00 707,065 46 • 1,343,342 05 710,769 94 271,395 16 35,000 00 . ^11,609,819 41 39 The operations of these roads for the year 1873 and the , profit and loss account show the following results : — Name of Road. Earnings. Expenses. United Railroads of New Jersey, Harrisburg, Portsmouth, Mt. Joy and Lan- caster, 111,255,062 81 ^,823,732 27 Pittsburg, Fort Wayne and Chicago, .... New Castle and Beaver Valley, Lawrence Railroad, 9,619,074 36 351,089 48 189,382 38 1,165,292 62 3,671,735 25 1,437,576 91 253,784 14 2,097,528 46 1,401,547 82 4,477.806 84 61,558 62 6,097,041 99 158,574 75 113,371 OS 680,893 88 1,874,722 15 991,377 03 191.647 13 1,406,619 33 1,239,530 OS 4,244,624 12 43,267 44 Erie and Pittsburg, Cleveland and Pittsburg, Jefifersonville, Madison and Indianapolis, . . Indianapolis and Vincennes, . ... Indianapolis and St. Louis Little Miami, Columbus, Chicago and Indiana Central, Chartiers Railway, * Harrisburg, Portsmouth, Mt. Joy and Lan- caster, guaranteed rent, ... .... ^35,981,439 69 132,651 46 Gross earnings and expenses, ... Add annual rentals, as above,* ^6,113,091 15 ^25,865,401 19 11,609,819 41 Total expenses, . fe7,475,220 60 36,113,091 15 Deduct gross earnings, . . . . Total net loss, . . .... 1(1,362,129 45 * In addition to the above, the Pennsylvania Railroad Company is bound by an agreement with the Northern Central Railway Company to pay one-half the loss, if any, in operating the Williamsport and Elmira Railroad. The half for 1873 was 5108,000. It is proper to add that the above loss on bonds and leases, excepting that of the United Railroads of New Jersey, have been met by the Pennsylvania Company and the Pittsburg, Cincinnati and St. Louis Railway Company from their own resources. 40 In estimating the value of these leases, it must be borne in mind that railroads have two classes of owners, viz., bond- holders, who accept a fixed yearly interest, and stockholders, who receive all present and future profits beyond the amount due to bondholders. In making these leases, each party to them is supposed to have been benefited. The stockholders of the leased roads no doubt expected to receive more money as rent than they were at the time of leasing receiving as dividends, thereby enabling them to realize at once the price which their stock would have been worth at some future time had they retained possession of their road. The Pennsylvania Railroad Company, in making these leases, expected to derive revenue from two sources — first and immediate was the business that would be received on the main line from the leased roads; second and prospective were the profits expected to be derived from future and increased traffic. Hence it is not strange that as the most of these leases have been 'made within a period of five years, the results of their operation should be a loss ; while the steady diminution of this loss shows that, in negotiating these leases, the officers of the Company were correct in supposing that there would be a future when a direct gain would result from them. For it needs no argument to demonstrate that increase of population pro- duces increased consumption, accompanied with increased railroad traffic. The increase in the traffic of the leased roads west of Pittsburg has been, within five years, over ;^6,ooo,ooo, and this too under diminished rates, while the direct losses on all these roads — including the United Railroads of New Jersey — for 1873 was ;^ 1,362,1 29.45 ; but we believe the year 1874 will demonstrate that the time has come when the Pennsylvania Railroad Company will receive yearly increased profits from some of its leased lines. 41 The operations of these roads for the six months ending June 30th, 1874, as compared with the corresponding period in 1873, show the following results: — Western roads, net earnings, 1874, . ;$3,978,7o8 09 Western roads, " " 1873, . 3,928,363 70 Increase in net earnings, . . . ^50,344 39 United Railroads of N. J., net earnings, 1874, ^927,915 31 United Railroads of N. J., " " 1873, 327,078 04 Increase in net earnings, . . ^600,837 27 Increase in net earnings on western roads, . . . $50,344 39 Increase on United Railroads of New Jersey, . . . 600,837 27 ;i,i8i 66 Deduct Pittsburg, Cincinnati and St. Louis Railway, as the profits of that company go into its own treasury, . . . . 168,166 28 Total increased net earnings on the Western and New Jersey Railroads, for the first six months of 1874, . $483,015 38 For details of which, see Appendixes B and C. The Pennsylvania Company shows increased net earnings from other sources than leases for the first six months' of 1874, over the net earnings for the same period in 1873, of $1,006,185.74. Should the operations for the last six months of 1874 pro- duce no better results than the last six months of 1873, still the leased lines will show a much less loss than in 1873, and may show a surplus. The above, we think, demonstrates that while the New Jersey lines will hereafter pay a profit. 42 the western lines will be no burden, and you will have in addition whatever gain may result from their furnishing profitable traffic and travel to your main line. Combining the figures we have given above of your liabilities as guarantor on bonds and leases besides your own, it would be — For lines east of Pittsburg, an annual rental of . ^5,646,090 93 For lines west of Pittsburg, . . . 8,216,229 01 Total amount for year, .... ^13,862,319 94 On which we estimate for 1874 an absolute loss as guarantor of but ^280,000, whilst moneys may have to be advanced to the extent of ;^ 1,000,000 on account of your guarantees to other roads, the same becoming a charge against these companies. We confess to an agreeable surprise in coming to this conclusion. It should allay any fears on the part of the stockholders of the Pennsylvania Railroad Company that the liberal use of its credit had imposed on it damaging liabilities, and we congratulate you on the happy escape from the injuries in which the spirit of expansion and undue extension of railroads seemed likely to involve the main lines of railroad, a continuance of which for a few years longer would certainly have made bankrupt every trunk line in the country that indulged in this policy. ARTICLE IV. An Inquiry into the Policy, Groups, and Results of ALL THE Railways and Canals owned or controlled BY THE Pennsylvania Railroad Company. To facilitate and systematize this inquiry, we divide the railways into the Western and Eastern Groups. The Western Group, embracing the railways west of Pittsburg, we again divide into the Fort Wayne or Northern system, and the Pittsburg, Cincinnati and St. Louis or Southern system. The Eastern Group embraces the railways east of Pittsburg and Erie, and is called the Eastern or Pennsylvania system, in contradistinction to the Western system, and for con- venience we include in this system the interests held south of Baltimore and Cairo. The early policy of your Company was, and still is, to encourage the building of branches along its main line, and to make such business connections with other roads within the Commonwealth as would attract the trade of the State over your line to the city of Philadelphia. In carrying out this policy, such lines as the Western Pennsylvania, Bald Eagle Valley, Clearfield, Southern Pennsylvania, and Blair County Railways were aided, and interests taken in them to develop the local trade of your road. (43) 44 It was also found to be necessary to acquire interests, first, in the Northern Central Railway, 'to keep the port of Baltimore open to trade and travel between that city and the West over your line; and, second, the Cumberland Valley Railroad, to turn the products of that rich valley to Phila- delphia over your road; and, third, the Philadelphia and Erie Railroad. By leasing it much of the trade of the country dependent on that line is secured to the city of Philadelphia. For some years you kept aloof from investments in western railroads, trusting to business alliances, mutual benefits, and advantages offered to western roads, and the absolute strength of your main line to secure a fair proportion of the western trade and travel. True to this wise policy, no interest had been taken in the West except in the Pittsburg, Fort Wayne and Chicago Railway, which was mainly done to secure its completion to Chicago, and which being accomplished at a favorable moment of high prices for the stock, your interest in that road was sold out at a large profit. But subsequently the Pittsburg, Fort Wayne and Chicago Railway Company considered their road long enough, as a base line, to have an independent eastern connection, and your Company were forced to prepare another outlet to the West, which resulted in commencing the exceedingly ex- pensive piece of railway from Pittsburg to Steubenville, to make a connection via the Steubenville and Newark line and the Little Miami Railroad to Cincinnati, and by other lines to St. Louis. A little later new interests, decidedly averse to yours, seemed likely to get control of the Pitts- burg, Fort Wayne and Chicago line, and your Directors felt themselves obliged to acquire control of the Columbus, Chicago and Indiana Central line to Chicago; after the acquisition of which by you, the stockholders of the Pitts- burg, Fort Waj^ne and Chicago line quickly recognized their true interest in leasing their lines to your Company, 45 which was a responsible one, rather than to another of more questionable ability. It is easy, now, to see the error of disposing of your interest in the Pittsburg, Fort Wayne and Chicago Railway, instead of taking control of it, when it could have been obtained at a less cost. This line held the strategic position. With it the Pennsylvania Railroad Company could have largely influenced and controlled the trade and travel of the country south of it, your only competitor being the Baltimore and Ohio Railroad. Your Company being so far committed in the West, it was but natural — affected as the whole country was with the fever of railroad building, and constantly provoked by the efforts of the other trunk lines to interfere with the country which your Company thought belonged to them geographically — that they should partake of the same spirit, and, with grand ideas, form a plan or policy to reach all important points in the West with their lines ; and this they have done; then followed the lease of the Little Miami Railroad and its branches, the Muskingum Valley Railroad, the building of the Vandalia road to St. Louis, the Indianapolis and Vincennes road, the three grand bridges over the Ohio river at Steubenville, Cincinnati, and Louisville, the control of the Jeffersonville, Madison and Indianapolis, the Cleveland, Mount Vernon and Delaware road, and many other branches, which give your Company a giant hold on the West. Commencing on Lake Erie, you reach with your lines the ports of Erie, Cleveland, Ashta- bula, Toledo; and going North, the timber of Michigan; the cities of Cincinnati, Chicago, and St. Louis each with two lines ; Cairo (by aid of Vincennes and Cairo Railroad), New Albany, Jeffersonville, Madison, and Louisville, on the Ohio; while these lines encircle the country directly tribu- tary to them, they also have their feelers pointing to a 46 greater circle outside, and drawing trade and travel to the main lines. You will agree with us that the conception was grand, attractive, and likely, in times of great speculation, to capti- vate the most prudent. This grand conception appealed both to sentiment and interest with almost irresistible power, and it is not marvelous that every effort was made to put it into practical effect. Having thus briefly sketched the circumstances that gave rise to the policy of your Company in the West, we will now consider the methods of management of your interests in the railways west of Pittsburg. /. Western Group. These roads are managed through the organization known as The Pennsylvania Company, the control of the manage- ment of which is secured by a majority of the stock being held by you, or by that company in your interest, and also by leasing from other companies lines which you control. The Pennsylvania Company was originated and organized by your Company as a medium through which to make the best working organization for the Northern Group of lines west of Pittsburg. By centralizing the management, it was thought those roads could be more effectively managed, and their interests more readily harmonized. Whether this was the best policy we shall not now consider, for the Penn- sylvania Company is so intimately connected with those lines as manager of some and lessee of others, and as owner of real estate and rolling stock, &c., that its existence had better be continued. It would have been well if it could have been arranged for that company to have sufficient capital to manage its own finances, independently of the aid of the Pennsylvania Railroad Company. 47 The capital of the Pennsylvania Company is ^11,360,900, of which ^8,000,000 is held as a preferred stock by the Pennsylvania Railroad Company, in exchange for securities and leases conveyed to it by the Pennsylvania Railroad Company. This stock is entitled to a dividend of six per cent, per annum, and to a proportionate increase as profits may be divided over that rate. Its practical organization dates from April 1st, 1872. The Pennsylvania Company, in 1873, purchased the prop- erty of the Union (Star) Line for ^3,000,000, payable in their own stock. In addition to this stock there is the amount of ^360,900 held by different persons. This introduction of new stockholders suggests an import- ant question. If the object of your Company in organizing the Pennsylvania Company was simply to have a better means of managing some of your western interests, and these interests are to be managed solely or primarily in the interest of your Company, is it judicious to introduce other stockholders whose interest may at times clash or interfere with yours ? It is not difficult to see that these interferences of interest may frequently occur, and so largely as to create great trouble. In fact, the Pennsylvania Company cannot be well managed for the purposes for which it was organized without ignoring the interests of its other stockholders. Again, having other stockholders in the company affects the free working of the Pennsylvania Company. The policy of your Company may change, and it may be desirable to close the Pennsylvania Company, and we therefore suggest that your Board of Directors be recommended to re-examine the subject and see if an arrangement cannot be made by which your Company shall become the sole owners of the stock of the Pennsylvania Company. Miles, Miles. 48 Fort Wayne or Northern System. The lines managed by the Pennsylvania Company are as follows : — • 1. The Pittsburg, Fort Wayne and Chicago Rail- way, extending from Pittsburg to Chicago, . 468.3 And under this company, the New Castle and Beaver Valley Railroad, .... 1 4.9 The Lawrence Railroad, ..... .20.4 Note. — The Pittsburg, Fort Wayne and Chicago Railway was leased by the Pennsylvania Railroad Company and the lease transferred to the Pennsylvania Company. 2. The Erie and Pittsburg Railroad, extending from a point on New Castle and Beaver Valley Railroad to Girard, on the Lake Shore Railroad, . . ... 84 Branch at Erie, ....... 2 Note. — This line leased by Pennsylvania Railroad Company and transfei-red to the Pennsylvania Company. 86. 3. The Cleveland and Pittsburg Railroad. This line extends from Rochester, in Pennsylvania, by way of Millville, Ohio, to Bridgeport and Cleveland, with other branches, . . . 202. Note. — This line leased by Pennsylvania Railroad Company and transferred to Pennsylvania Company. 4. Ashtabula, Youngstown and Pittsburg Railroad, from Youngstown to Ashtabula, . . . 62.5 Note. — This line is worked at cost by Pennsylvania Company, but there is no responsibility or guaranty of dividend. 5. Mansfield, Coldwater and Lake Michigan Rail- road is to extend from Mansfield Junction, on the Pittsburg, Fort Wayne and Chicago Railway, to Allegan, Michigan, two hundred and sixteen miles. The track is laid from Junction, seven miles west of Mansfield, to a point twenty-seven and three-quarter miles west of Tiffin, ...... 65^ Carried forward, 65 1 854.1 49 Miles. Miles. Brought forward, 65I 854.1 Track is laid from Allegan to Grand Rapids and Indiana Railroad, ...... 193^ Total track laid on Mansfield, Coldwater and Lake Michigan Railroad, . . . . 85.5 Note. — This line is worked by Pennsylvania Company at cost. 6. Tiffin, Toledo and Eastern Railroad, . . 24 Woodville and Toledo Railroad, leased by Tiffin, Toledo and Eastern Railroad, . . .18 — 42 Note. — Operated by Pennsylvania Company, for account of Tiffin, Toledo and Eastern Railroad Company, at cost. 981.6 These roads, embracing 981.6 miles, are more properly the system of the Pennsylvania Company's lines ; but with the lease of the Pittsburg, Fort Wayne and Chicago Railway there was also conveyed a contract with the Indianapolis and St. Louis Railroad, by which the Pennsylvania Railroad Company acquired one-half interest in this line, being the northern line between those cities, and therefore the accounts of this line come into the workings of the Pennsylvania Company. The result in 1873 was a loss of ^8078.16, being one-half the total loss, the balance being paid by the Cleve- land, Columbus, Cincinnati and Indianapolis Railway Com- pany. Miles. Miles. 7. The Indianapolis and St. Louis Railroad, In- dianapolis to Terre Haute, . . . • T^ Terre Haute to St. Louis, 189 Branch to Alton, ....... 4 265 Note. — This interest was transferred to the Pennsylvania Com- pany with the lease of the Pittsburg, Fort Wayne and Chicago Railway. Carried forward, 265 so Miles. Miles Brought forward, 265 8, The Pennsylvania Company leases the Jeffer- sonville, Madison and Indianapolis Railroad, with' the guarantees of the Pennsylvania Railroad Company. This line extends from Indianapolis to Louisville, . . . . 1 10 Madison to Columbus,- 45 Columbus to Cambridge, 65 220 9. The Indianapolis and Vincennes Railroad, ex- tending between those points, . . . 117 Note. — Controlled by Pennsylvania Company, by majority of stock, and by paying interest on funded debt. 582 Making, with the northern system of . . . 981.6 Miles of railway operated by the Pennsylvania Company, ....... 1,563.6 The amount of stock and bonds issued on these roads, and their floating and other indebtedness,* are — Stock to amount of ^44,020,14035 Bonds to amount of 41,005,00000 Floating and other indebtedness, . . . 2,572,196 22 Amounting in all to . . . . :^87, 597,336 57 With a cost per mile of road of ^51,316.54. We now add a table of the workings of these lines for 1873, showing the earnings, expenses, rental, profit, and loss. * With the Cleveland, Mt. Vernon and Delaware Railroad, which has stock, ^51,562,791.92; bonds, ;j2,30o,ooo; debt, ^362,643.08; total, $4,225,435. Length of road, 144 miles. St N X V 15 P < O Pi o N OS w r^ a. « u^ N Ov ro vn lO O 00 ro o\ ro to, 00 J iri CO 00 ax ■^ ON 'JD CO lO N rO «-« w M W vo 0\ !>. 00 CTv -u-t i^ 00 0\ oo o\ r>. O 00 ■^ u-> ,_i •^ »-( rn ■* 00 ''t r- r-~ ON ON LTJ ro 00 ON ON r-^ 00 m o -^ o Ov lo 00 in -^ so 00 00 M ro -^ fO so C^ «^ 0\ so_^ rC ocT rC cT ^ p W Pi [2 ii ho PS f^ S U rt Ph 2-( -■« c J5 ■rf ^ • Pi .o TJ £ S 00 o <-~ o 00 00 c ^ ^ e 52 In the Appendix D will be found a statement show- ing the receipts of these lines for 1868 and 1873, and a comparison of the number of passengers and amount of tonnage. The table shows a satisfactory increase in most of the hnes, and fully sanctions the remarks we have made. A comparison of this table with the list of guarantees will show, first, that the Pennsylvania Railroad Company has not been called upon to pay any money on account of her leases or guarantees on the above lines ; second, that the Pennsylvania Company, in working these lines, made a clear profit of ^1,131,611.03. We now take up the line of railway west of Pittsburg, operated in your interest through the control given to the Pennsylvania Company by its holding a majority of the stock of the Pittsburg, Cincinnati and St. Louis Railway Company. This, you will notice, involves no liability on the Pennsylvania Company other than that of loss on its stock, in which it is on a par with the other stockholders. Pittsburg, Cincinnati and St. Louis or Southern System. The lines of railway under the control of the Pittsburg, Cincinnati and St. Louis Railway Company, are the follow- ing :— Miles. I. Pittsburg, Cincinnati and St. Louis Railway, extending from Pittsburg to Columbus. Made up of the Pittsburg end, extending from the Union depot to the Washington turnpike gate, owned by the Pennsylvania Railroad Company, and leased to the Penn- sylvania Company, . . . . . i 1 Steubenville and Newark, (Pittsburg, Cincinnati and St. Louis proper,) IS^^^ Carried forward, 160 53 Miles. Miles. Brought forward, i6o Newark to Columbus, (held in joint ownership with the Baltimore and Ohio Railroad,) . 33 Cadiz Branch, built by the Springfield and North-western Railroad, .... 8 201 2. Chartiers Valley Railroad, leased to Pittsburg, Cincinnati and St. Louis Railway Company, and worked at cost, ..... 22.8 Cincinnati and Muskingum Valley, leased to Pittsburg, Cincinnati and St. Louis Railway Company, but worked at cost, . . . 148-4 3. Little Miami Railroad, which consists of the Cincinnati and Springfield Railroad, the Day- ton and Xenia Railroad, the Dayton and Richmond Railroad, and the Columbus and Xenia Railroad, in all 196.7 Note. — Leased by the Pittsburg, Cincinnati and St. Louis Railway Company, and guaranteed by the Pennsylvania Rail- road Company. 4. The Columbus, Chicago and Indiana Central Railway, extending from- Columbus to Chi- cago, through Richmond, and from Rich- mond to Indianapolis, and from Bradford Junction to near Logansport, and from Logansport to State Line, Illinois, . . 581.1 Note. — Leased by Pittsburg, Cincinnati and St. Louis Rail- way Company, and> guaranteed by Pennsylvania Railroad Com- pany. 1,150 This is the total length of line operated by the Pittsburg, Cincinnati and St. Louis Railway Company. 54 In addition to these roads as part of your railway system, we give a statement of- the two bridges built in your interest over the Ohio river — the one at Cincinnati and the other at Louisville: — /. The Newport and Cincinnati Bridge. This bridge crosses the Ohio river at Cincinnati, and fur- nishes a railway connection between the roads north and south of that river converging at Cincinnati,' and also gives a common road connection between the cities which give it its name. Its cost is represented by — Capital stock, ^1,200,000 00 Bonded debt, seven per cent, . . . 1,200,000 00 Floating debt, 812,766 55 ^3,212,766 55 Of which the Pennsylvania Railroad Company holds — Capital stock, ;^720,ooo 00 Mortgage bonds, 1,200,000 00 ^1,920,000 00 The capital stock was received as a bonus with the pur- chase of the bonds, and thus secures to the Pennsylvania Railroad Company the control of the bridge. The Little Miami Railroad Company and others south are under a guarantee of ^75,000 per annum to the bridge company for the railway traffic alone. The incidental and road traffic belongs to the bridge company. The business is developing and promises better results, although we fail to see any very good reasons for this outlay of capital by the Pennsylvania Railroad Company. 55 Gross receipts in 1873, . . . . . $7^,97 'i 88 Expenses and taxes in 1873, .... 23,866 50 Net receipts in 1873, .... ^53,109 38 2. The jfeffersonville and Louisville Bridge. This company has a capital stock of . . ^1,500,000 00 Bonded debt, 800,000 00 ^2,300,000 00 And owns the track (one mile long) connecting the bridge (five thousand two hundred and ninety-four feet long) with the Louisville and Nashville Railroad station at Louisville. Under the contract made with the bridge company by the railway companies using the bridge, the tolls are fixed at an amount to pay the cost of repairs, maintenance, taxes, interest on bonds, and sinking fund sufficient to pay them at maturity, and twelve per cent, on the capital stock. The stock and bonds issued by the above-named roads and their floating and other debt* amount to — Stock, ... ... ^33.3S9.i2S 49 Bonds, .... . . 47,654,760 25 Floating and other debt, . . . 4,845,831 78 Total for 1318 miles, . . . ^85,859,720 52 Or per mile of road costing . . . ^65,040 00 We also add a table of the workings of these lines, showing earnings, expenses, rental, profit and loss. * This includes the St. Louis, Vandalia and Terre Haute Railroad, with stock, ^2,377,779.52; bonds, ^5,490,000; debt, ^250,557. 97; total, ^8,127,- 337.49. Length of road, 168 miles. S6 s s 8 G ^ s $ : 00 j>. ON vO „ m to r^ r^ m m vO 3 f^ a\ CO no" Tf • VO vO t-^ N t->. ^ ■^ *Q. ' tn « ^ ^ On «5 S ; s; i: i P4 00 OS «>3 CA r-i §■§ o o ^->'Zi o t ^1 ON 1 *Q: rt tJ- U") !>. O ON M 1 'i >o 't o ■M !>. CO rJ3 C/3 c5" ro ^ ^ U^ t^ o bo U-l hH t^ 00 N .B 'S CD w !>. o ON b 00 ON o M "JD^ C^ o^ w -* ^O 00 cT y3 c? u N M "O r^ ^ l-< N M t^ in w 00 (Tl Tj- o ■* S O t^ o r)- r^ O -O en N 00 c 00^ "„ u^ ^ 1> P4 ■LTt (^ cf\ -j^ r^ K « ^ ro Tl- N 1^ ^ M W -i fO _r -f %Q: * -1— J>* M M ■* 00 00 ^ OO 00 NO K, fO 00 !>. vo NO bD a 00 u-1 ^ O "t ^ lO 00 r '5 Ih cT t-T t^ c ^ (2 oq_ 9; ^ ro ■j^ «a •2 g 13 9 ■ .s ■ > iJ ^ . c^ . hH T) XJ c • 'tS' 5 ■ S rt 13 u5 R I,023,6l2 12 Showing a net gain to the Pennsylvania Railroad Com- pany of ^1,023,612.12 as the final result of the operations for 1873, — very nearly enough to pay for the additions made to the track and equipment of the Southern system of roads. We also bring together the length of the western roads and their capital, to show total investment: — Northern System. Length of roads, . . 1,563.6 miles, capital, 1^83, 371,901 57 Southern System. Length of roads, . . 1,150.0 miles, capital, 77,732,383 03 St. Louis, Vandalia and Terre Haute Railroad. Length of road, . . 168.0 miles, 8,127,337 49 Carried forward, 2,881.6 miles, ;^i69,23i,622 09 6i Brought forward, 2,881.6 miles, ;^i69,23i,622 09 Cleveland, Mt. Vernon and Delaware Railroad. Length of road, . . 144.0 miles, 4,225,435 00 Cost of . . 3,025.6 miles, ^173.457,057 09 Average cost per mile, including equipment, . ^57,341 17 We will hereafter discuss fully the value of the trade brought to and taken from Pittsburg for the Pennsylvania Railroad by these lines, but we desire now to learn — First. — What are the prospects for the future of these lines ? Second. — At what figure may we place the liability of the Pennsylvania Railroad Company for them? First, then, the prospects of these lines of railroad for the future. The building of railroads in the West is acknowl- edged to have gone beyond the ability of the country to make them profitable. The competition of the trunk lines from east to west has cut down prices of transportation and travel below the point of profit. For some of the direct lines in the near West there has been sufficient trade and travel to have paid at fair rates the intefest on their funded debt, and on many of them a dividend on the stock; but roads have been carried to the extreme verge of population, and, to enable the producers at these far points to send their pro- duce to market, prices have been fixed by competition too low to pay the cost of carriage. The stockholders of the new roads holding land grants, and the many roads built 62 on speculation, desire to attract settlers on their lines, and therefore favor the continuance of these low rates until they can dispose of their lands or get rid of their invest- ments. The most of these land grants to railways have been un- wisely given by Congress, and have drawn the people far be- yond the point where the farmer can be repaid for his labor by the money value of his products and the railway for its transportation. One or the other or both must go down. There is a limit at which transportation can be done, viz., paying the absolute cost of the work without reference to bonds or stock, and there is a minimum price which the farmer must get for his produce to give him the means of existence. With these two limits fixed, it would not be difificult to define the extreme limit of expense-paying pro- duction. If the speculators who build these railways were the only losers of money, and the farmer who exiles himself and his family from many of the benefits of civilized life was the only sufferer, we might say, let them do as they please, for the limit of injury would be quickly reached. But the speculator pushes off his worthless stocks and bonds on innocent and confiding persons, thereby inflicting wide-spread harm, and seriously affecting the character and credit of the nation, while the farmer inflicts an irreparable wrong on his children. In this whole subject there is a question of morals involved. It is just these facts that the people in the West should consider. So great has been the infatuation of the public mind in the East, as to the value of the western trade, that they have thought there was no limit to the ability to produce and the power to transport profitably the staple pro- ductions of the West eastward to the Atlantic. The experi- ence of the Pennsylvania Railroad Company, as we shall hereafter show, pricks the bubble of the value of the western 63 trade and travel to the trunk lines. If these statements are true, what then? Plainly two things — ; 1. The far West must cease to produce grain, depending on the East and Europe for their market. Population must not go beyond the point where the producer and transporter can be both paid for their labor. 2. To secure the largest and freest development of the rich fields of the West, the consumer must be brought near to the farmer ; which simply means — the manufacturer and the grain-grower must be close together. The less need of trans- portation the better, as between the producer and consumer. The saving of this cost of transportation is just so much added to the value of the products of the farmer and so much added to the profits of the manufacturer. The valleys of the Ohio and Mississippi must become the great workshop of this country. This realized, any demand from abroad for the cereals of the West would be met by a price which would compensate the farmer for his labor and capital, and the rail- road company as the carrier. The western railways will not become profitable invest- ments until this end is reached. They cannot be made to pay at any thing like the through rates they have received during the past few years. It would certainly seem reason- able to expect that the able men in charge of our general railway system would not permit the mere question of rivalry to prevail any longer and prevent them from fixing paying rates from east to west and from west to east. They should see that by their own impolitic course they are but extending the evil of a population reaching beyond the point where a- living can be made by farming. If they establish paying rates it will tend to centralize population, develop towns and cities, and create in place of 64 destroying wealth, and the western people will soon learn the lesson that their produce can no longer be carried below cost, nor will the few who travel from west to east and back again be transported in Pullman cars at the cost of the share or bond holder. Or look at this question from another point of view. The recent war raised the price of produce to a very profit- able figure, and thereby stimulated the building of railways in the West. The success of those lines built and in use during the war, the profits in farming, and the springing up of thriv- ing towns, seemed to prove that such results would continue to the limit of the ability to build railways. But since the war, prices have been gradually decreasing : a succession of large crops caused by labor returning measurably to its old channels, favorable seasons, and peace in Europe, have so reduced prices that, to meet this reduction, the railways have cut down their tariffs to the point where transportation has become less profitable. Already millions of dollars of capital invested in western railways which, a few years ago, were thought to be securely invested, have been sunk, and the startling problem is, how much further will this go, and how long will it continue? The freight charges over railroads depending on the carriage of the products of the farm cannot go much lower. The stock of some of such roads is sunk, and any further reduction in rates will destroy the capacity of these roads to pay the interest on their funded debt, and bring them down to absolute cost of transportation. It is also well to note, as having an important bearing on this question, that the area of grain-producing land is increas- ing, in the great producing countries of the world, while the ability to consume does not show a proportioned increase. The prospect this year is for another large crop following the one of 1873, — the inevitable result, unless fortuitous 6s circumstances interfere, will be lower prices for grain and meats. We thus have these three facts before us : — 1 . That the tendency of prices for the products of the farm is downward ; 2. That the cost of transportation cannot be safely reduced below existing rates ; " 3. That the products of the farm from the far West will not, at the present rates, profitably bear railroad transportation to the East and pay the railroad company a fair price for its carriage, or the farmer a just reward for his labor and capital invested. With this discouraging outlook into the future, is it strange that we find the western farmers moving in their strength to find out what can be done to drive away the grim figure of poverty which threatens them? That their first attack is on the transporter is natural; he seems to be their nearest enemy, and as they have none of the stocks or bonds of the railroad companies, and the owners are afar off, the foreigner's property is a tempting object of attack, even to destruction. There is in this truth a moral that the stockholders of the Pennsylvania Railroad Company may well learn : that the strength of a railway company in meeting unjust attacks on its property lies more in the fact of the people who use the road having a strong personal interest in it, as stock- holders, than in the justice of their cause. And this is the explanation of the condition of things in Wisconsin and Iowa. The same influences may yet meet you in other Western States. But to return from this digression. The western farmers will soon find, if they succeed in destroying the capital invested in the railways, that this will not relieve them. They must realize the truth of their position and acknowledge the fact that they have gone too far 66 west. The farmer of to-day is unlike the farmer of earlier days. He has not his habits of economy and thrift. Many things which are now necessaries to the farmer and his family were unknown to their fathers, or, if known, were considered luxuries. Those who settled the Middle States had the knowledge and ability to feed and clothe their families within themselves, and were, therefore, more independent than the farmer of to-day. Again, we have all been dazzled with the wonderful growth of the West, and, as her cities have arisen in a day, have thought such development could not be with- out a sound basis to build upon. But as we look closer, we find those cities have grown up and become rich as the home of the middle-man between the producer and the consumer, the manufacturer and the wearer. These men have fixed the prices of, and speculated on, the productions of the farmer, and have heretofore made large profits on the necessaries of life sold to him. It is, to some extent, reproducing the history of every purely agricultural country in the old world, with cities of great wealth, and surrounding millions of pro- ducers in great poverty. To the majority of our people all this may read as an exaggerated statement; but a reference to the books of our merchants will prove the truth of our statements. We again come to the conclusion heretofore arrived at : that the only hope for the western farmer is, either to move eastward and let the capital involved in the roads built to the far West be entirely sunk, or to draw the consumer to his side, save the capital expended in the railways, and thereby secure the benefits already stated. The increase of manufac- turing in the States of Ohio, Indiana, Illinois, and Missouri shows that the minds of many have appreciated the necessi- ties of their position. They see that their cities must have some surer basis of wealth and growth than acting simply 67 as middle-men, and that the one tends to poverty, the other to wealth. For the West to think of depending on England as a mar- ket for its produce and as a place to purchase its manufactured goods is suicidal, and not much less to depend on the Middle States and the East for the same character of market and the same source of supply. Your committee have felt authorized thus fully to discuss these points, for in them lies much of the future of the roads you are interested in west of Pittsburg. You cannot look forward to much change in their condition while so much of their business is through and low-priced freight, on which they receive but a pro rata of charges between points west and east. Their policy must be to encourage local trade and travel, to offer every inducement for parties to introduce manufacturing and industrial works on their lines, and to let the through business be the surplus products, put into the more concentrated shape of cattle, hogs, Sz;c. Paradoxical as it may appear, the Pennsylvania Railroad Company will realize more money from its western invest- ments, and more profit on your main line, when you receive less tonnage, because the products of the farm from those roads, for the tonnage that will then be sent eastward, will be of higher value, being labor and food in condensed shape, and necessarily bear a higher and more profitable rate of freight. Your committee, in their visit to the western roads, made diligent inquiry on this point of local trade. Your Northern or Fort Wayne system is profitable, because it has a large and rapidly increasing local business, making exchanges of ore for coal, iron for cattle and grain, &c., &c., and these within the range or limits of its own roads. For the Southern system so much cannot be said. By competition, the Little Miami Railroad, which until lately was one of the most successful railways in the country, has been reduced to one of the poorest paying of your lines. Owing to some mismanagement, or the rivalry of its northern com- petitors, it lost the business of the Cleveland, Columbus and Cincinnati Railway, which furnished more than one-half its total receipts, and caused that company to build a rival line to Cincinnati via Dayton and Springfield. This loss leaves the rental extravagantly high, and the line is a burden on the Pittsburg, Cincinnati and St. Louis Company. The receipts on this line will gradually increase, as it runs through a rich and thickly settled country, and controls the entrance into Cincinnati on the eastern side of the city. The Columbus, Chicago and Indiana Central also stands at too high a rental for the character of the road and the country through which it passes. There will be improvement on it, but as it, with its Illinois State Line Branch, passes through an almost purely agricultural country, this improve- ment in earnings will come slowly, and a large portion of the rental will probably be a charge on the Pittsburg, Cincinnati and St. Louis Company for some years to come. The Jeffersonville, Madison and Indianapolis road has better prospects, and should soon cease to be a debtor road. The Indianapolis and Vincennes road will continue to be a charge for some years, unless the trade from the Cairo and Fulton road can be secured for it, which is not very probable, and the competition at Cairo of the Illinois Central Railroad would destroy any such probabilities. The Indianapolis and St. Louis road will in time pay, — it now clears its interest and has a fair future before it. The Vandalia Line to St. Louis, as a part of the direct line from New York to St. Louis, will grow rapidly. The new bridge at St. Louis adds greatly to its value; and lastly, the Pittsburg, Cincinnati and St. Louis Railway, a part of the main line to St. Louis, Cincinnati, and the South, with the trade that must be thrown upon it by the many roads that 69 join and intersect it, by the valuable coal traffic that origi- nates on its main line, should be able readily to meet all the interest on its funded debt — with a good prospect for very great improvement in its financial results as a whole. The second point designated above was to see or to esti- mate, if possible, the extent of the ultimate responsibility of the Pennsylvania Railroad Company for the engagements of the Pittsburg, Cincinnati and St. Louis Railway Company. Taking the losses of 1873 as a basis, which amounted to 1^2,476,143 39 And the General Manager's estimate of value of the betterments as correct, at . . . 1,724,395 51 Would leave a balance of .... ^751,747 88 as the real loss on that system of roads. By the statement of loss on the Southern system of roads, you will note there was an aggregate charge of ;^540,o88.57, being for discount on sale of bonds paid by those roads on account of their floating debt, which would reduce the amount of loss in working those roads to ;^2i 1,649.31. Now we do not see how the Pittsburg, Cincinnati and St. Louis line can stand under much more bonded indebted- ness than it now has, and we therefore think it safe that you should estimate, as a possible future loss on this line of roads, at least ^500,000 a year. This limit may be passed, and yet, with fair success in the administration of your Fort Wayne or Northern system under the Pennsyl- vania Company, the profits there should square the accounts between the two systems, or leave an unimportant balance on one side or the other. The trade centres in the West reached by your systems of railway are surely enough, and the responsibilities assumed 70 sufficiently great, to satisfy the most ambitious. You can now stop with safety, and your interests will be best taken care of by carefully nursing these western investments; limiting their expansion or extension, unless the local demands require it, and hoping for the time when, by some arrangement, it will not be necessary for you to employ so much capital in holding these roads. It is but just to say, that at the time these contracts were made, the prices for freight were much higher than in 1873. If the same prices had been received in 1873 as existed when they were made, the result would have been much more favorable. It was also fair to presume at the time the contracts were made, that the present low prices were not thought possible, or that managers of railroads would, through mere rivalry, so depreciate their own property. The same principle that has led your Company into unwise investments has drawn prudent men in their private affairs to greater proportionate expansion, — the history of trade is full of warning on this point. 2. Value of the Competitive Passenger Travel and Freight Received from and Sent to the Western Lines over the Pennsylvania Railroad — Main Line. In former parts of this report, we promised a discussion of this important question. We were led to examine it the more thoroughly from the prominent position which "western trade and travel" have occupied in the public estimation for so many years. In the early years of our national existence, the passage of the mountains was accomplished by the turnpike which united the East and the West. Philadelphia — at that time the great commercial city of the new nation — commanded the best means of access to the West, and profited accordingly. Soon New York entered upon the construction of her great canal from Albany to Buffalo, and Pennsylvania, not to be outdone, followed with her mixed system of canal and port- age railway from Columbia to Pittsburg. Virginia attempted the same in her James River and Kanawha Canal, but failed to complete it. Millions of dollars were expended in this effort to unite the East and the West. The introduction of the railway, with the advantage of the speedy locomotive over the weary horse that slowly tugged at the canal-boat, soon produced a new competitor ; and as the turnpike gave way to the canal as a cheaper medium of transportation, so the canal gave way to the locomotive, in illustration of the adage that " time is money," — and a very large amount of money was expended in the effort to build the New York Central, the New York and Erie, and the Baltimore and Ohio Railroads. Your line came in at a later period, though completed through to Pittsburg before the Baltimore and Ohio Rail- road reached Wheeling. With the completion of these lines began the strong competition for this great prize — " the western trade and travel," and the parties interested in the New York Central Railroad Company entered into the strug- gle for the control of the western lines. The New York and Erie and the Atlantic and Great Western Railroads, after severe struggles, penetrated the West. The Baltimore and Ohio Railroad Company also built her lines to the Ohio, and, besides, made investments north of that river. The Pennsylvania Railroad Company, from the causes heretofore stated, in order to protect itself, was drawn into invest- ments and liabilities heavier than any other line, and being so much involved, felt it to be its true policy to perfect its connections with the great commercial centres of the West, as has been heretofore sketched. 72 We will now endeavor to ascertain the value to the share- holders of the Pennsylvania Railroad Company of all these efforts. The traffic that comes east bears the lowest tariff, as is well stated in the last annual report: — "A close examination of the accounts of this Company will show that its charges for freight upon agricultural products scarcely bear the expenses of transportation, and on many items the charges for trans- portation are below the actual cost." And the competition of the trunk lines has been so close as to reduce materially the profit of the transportation of the valuable articles which the sale of these products enables the merchants and the farmers to purchase in the East for consumption at home. Now let us ascertain the value of this trade and travel to the Pennsylvania Railroad Company in 1873. The through tonnage coming from Philadelphia and Baltimore, and des- tined to points west of Pittsburg, and that sent East from the West through Pittsburg, in the year 1873, amounted to — Mileage. Through east, . . 873,795 tons, yielding $3,464,69051 312,362,336 Through west, . 319,661 " " . 1,111,816 50 114,475,403 1,193.456 ^4,576,507 01 426,837,739 The through freight earnings were Local freight earnings were Total freight earnings. ^4,576,507 01 15,032,048 06 ;^ 1 9,608,555 07 The total mileage of tons of freight over the road was 1,384,831,970 miles. 73 Which is equal to passing over the whole road (three hundred and fifty- six miles) of 3,890,000 tons. The through freight (three hundred and fifty-six miles) was .... 1,193,456 " Leaving the local freight equivalent to 2,696,544 tons over the whole line, showing that the through freight was thirty-one per cent, of the whole average over the road. The table above shows that the receipts for — Through freight eastward averaged per ton per mile, 01 1 1 cents. Through freight westward averaged per ton per mile, 0097 " The average through freight earnings would be .0107 " If the expenses of conducting transportation in 1873 cost, per ton per mile, .0857 cents, it would be fair to place the cost of the through freight per ton per mile at .0070 cents. The profit on the through freight would then be On 1,193,456 tons, at .0107 — .0070=.0037=;^i, 588,642 84 Let us now examine the passenger account. First Class. Emigrant. Number of passengers delivered to connect- ing lines in Pittsburg, .... 79,296 37,445 Received from connecting lines in Pitts- burg, . . .... 79.017 2,110 158,313 39,555 74 The . average receipt of through passengers per mile was 2.36 cents. The average expense of carrying through pas- sengers on account of speed, heavy cars, &c., was equal to at least the average cost as given in the expenses for 1873, which was, per mile, 2.01 cents. Showing profit per passenger per mile of .0035, or three mills and one-half This, for 158,313 passengers, would give a profit of, at .0035 cents per mile, . . ^197,25800 The profit on freight carried was . . . 1,588,642 84 Showing total profit on through passenger and freight traffic, ^1,785,90084 It is curious to note that the through freight and through passengers are very nearly equal to one-third the total amount of freight and number of passengers passing over the whole length of your road. Now the capital employed in your main line in 1873 was 1:53,360,456.03, and to charge the through business with one-third of this capital would give ^17,786,818.68, on which it would show a profit of ^1,785,900.84, or a fraction under ten per cent, per annum. This profit is to be considered in connection with the investments of money made, the value of the guarantees given on these western roads, the effect the transportation of this western business has on the cost of the general movement of traffic and passengers on the main line, and the real amount of business the control of these roads gives you. But whether or not these western roads pay financially to your main line, it is true that the Pennsylvania Railroad was built to bring trade and travel through the State of 75 Pennsylvania to the city of Philadelphia, which it undoubt- edly has done, and, if necessary, reasonable sacrifice of some profit should be made for these objects. Interests South of Cairo. We cannot omit to mention with regret that a large interest of ;^ 1,300,000 is held by the Pennsylvania Com- pany, originally taken by the Pennsylvania Railroad Com- pany, in the line of railroad from opposite Cairo to New Orleans. The principle upon which this investment was made is, in our judgment, indefensible. We are glad to add that recently the Company has received large returns from this investment and still controls, for commercial purposes, the whole line of railroad from New Orleans to Cairo without cost. Interests South of Baltimore. This interest is divided into several lines — 1. The Baltimore and Potomac Railroad Company. 2. The Alexandria and Fredericksburg Railroad Company. 3. Southern Security Company. 4. Danville and Atlanta Lines. The Baltimore and Potomac Railroad extends from Balti- more to Pope's creek, seventy-three and one-tenth miles, with a branch of nineteen and two-tenths miles to Wash- ington, making a single-track railway ninety-two and three- tenths miles long, with a tunnel through part of the city of Baltimore, which is represented by a cost of ^9,888,736 (or over ^107,000 per mile, including tunnel), — consisting of stock ^3,503,900, bonds ;^4,50o,ooo, and floating debt ^1,884,836. 76 The bonds are guaranteed by the Northern Central and Pennsylvania Railroad Companies, and therefore will always be a safe investment. The object in constructing this road was three-fold: first, to make a southern extension for the Northern Central Railway to the city of Washington; second, a more perfect connection with your New York lines ; and, third, to furnish a route for the southern travel from the roads of the Southern Security Company northward and eastward. The drawback to this whole scheme is that all these three inducements are not enough to make it pay much more than the cost of working it and keeping up and improv- ing the line, as- should always be done, without adding to construction account. You must therefore estimate a yearly charge on your profit and loss account of one-half the amount of the interest on the bonds of this company. We regret, with this investment, to add those in the Alexandria and Fredericksburg Railway stock, ;^3i,6oo oo Alexandria and Washington Railway stock, . 63,724 00 Southern Railway Security Company, . . 783,734 33 Richmond and Danville Railroad stock, 600,000 00 Notes of the Richmond and Danville, bonds of the Atlanta Railroad and Richmond and Atlanta Air-Line, with collateral of ^3.205,691.42, . . . . 1,164,997 00 Western Railroad of Alabama stock, . . 60,000 00 Amounting in all to . . . . ^2,704,065 33 which, though charged off to the profit and loss account of 1873, yet reveals an illegitimate direction given to the funds and credit of the Pennsylvania Railroad Company which cannot be approved. The securities above named, with others in the profit and loss account, we have valued at ^1,000,000, with not much prospect of improvement. We are glad to add that your Company is now in no way liable for any guarantees, leases, or otherwise on account of any railroad south, of Washington. /J.. The Eastern Group. We now come to the consideration of the lines of railway and canal under your control and owned by you east of Pitts- burg and Erie. This may be called the Eastern or Penn- sylvania system, ' and consists of seven divisions, viz. : — Miles. 1. The Allegheny Valley Railroad Division, . . 446 2. The Philadelphia and Erie Railroad Division, . 288 3. The Northern Central Railway Division, . . 309 4. The Pennsylvania Canal Company Division, . 347 5. The United Railroads of New Jersey Division, . 344 6. The Delaware and Raritan Canal Division, 7. The Pennsylvania Railroad Division, Total miles railway, .... Total miles canal, .... 61 102 1 2408 408 As perhaps properly connected with this system, we name — 8. The Pittsburg, Virginia and Charleston Railroad. This road is to extend from South Pittsburg up the Monongahela valley to Charleston. It is built and was opened in 1873 to Monongahela City, a distance of thirty miles. The object of this line, in addition to developing the local trade of the val- ley, is to draw its trade and travel to Pittsburg, there meeting your several lines east and west, but more especially to open, by means of a short branch from this road, a connection with your main line near Brinton's Station. This piece of road will be valuable, as it will afford the means of passing through freight between your main line and the Pittsburg, Cincinnati and St. Louis Road, without going through the city of Pittsburg proper. 78 g. The Columbia and Port Deposit Railroad, a branch about forty miles long, between Columbia and Port Deposit, partially graded, and when finished it will make a connection with the Philadelphia, Wilmington and Baltimore Railroad at Perryville, and thus open new markets for the distribution of the coal of the Susquehanna valley. I. The Allegheny Valley Railroad Division. This division consists of the Allegheny Valley Rail- Miks. road proper, extending from Pittsburg to Oil City, . 132 The Low-Grade Extension, . . . . no Other branches, ...... 37 147 The Oil Creek and Allegheny River Railroad, . .123 The Buffalo, Corry and Pittsburg Railroad, . . 44 Total, 446 This road passes through one of the most valuable freight- producing valleys in the State, abounding in coal, iron, oil, timber, and other products; its branches connect with the Philadelphia and Erie, Atlantic and Great Western, and Lake Shore Railroads on the north, the Philadelphia and Erie on the east, by means of the " Low-Grade Line," and the Penn- sylvania Railroad on the south. Thus located, commanding such immense tonnage, prudent management should have made it profitable to its owners. The history of its recent financial troubles we need not repeat, but congratulate all parties interested in the prospect of their being removed. It will take years of patient labor and continued confidence in the ultimate result by its stockholders before the effect of the errors of judgment committed can be overcome, and their stock be again worth what it has been. These lines have advantages which in time will largely increase their traffic, and may make some of the branches profitable, but which for a time will entail an annual expense. 79 It is thought by some of your officers that this road will be able to pay the interest, as it becomes due, on the bonds of the "Low-Grade Line." These bonds are endorsed, interest and principal, by the Pennsylvania Railroad Company, and are therefore a good security to the holders. 2. The Philadelphia and Erie Railroad Division. So fully have your directors reported as to the condition and prospects of this road, that little more is left for us to add. The unfortunate location of the road between Drift- wood and Warren — with its two summits of two thousand and six feet and one thousand six hundred and eighty-two feet to overcome, and lying north of the line of abundant coal and heavy timber — causes it to traverse a country moderately timbered, and which, when cut off, leaves an unproductive slate soil. The result will be that, in a few years, the local trade and travel will have a tendency to decrease rather than to increase. The competition of other roads along most of its line prevents its receiving fair rates for its local business, while its through business has close competition with water and rail lines to the east and west. The fears of many early interested in this line seem to be realized, that so long a line of rail cannot successfully compete with the water and rail lines to New York. Much more has been expected from the completion of the " Low-Grade Line " than seems warranted. Let us look at it : — The trade coming to or going from your line over that road would use one hundred and twenty miles of the track of the Philadelphia and Erie Railroad. The leading reasons for building the "Low-Grade Line" we understand to be — I. A strategic movement to control the valley of the Bennett's Branch at the lowest summit of the mountains between the east and the west in Pennsylvania. 8o 2. The making a good connection with the oil regions for transportation of oil eastward. 3. The development of the minerals on its lines and the manufacture of its timber into lumber. 4. The carrying fourth class freight at slow speed, at very low rates, from west to east. The first three points are tenable, though it is questionable whether the strategic advantages are worth the cost, or whether the oil cannot be carried by way of the Western Pennsylvania Railroad and your main line at really as low rates and much quicker than by the "Low-Grade Road." There certainly is not enough to be gained, by whatever advantage the "Low-Grade Line" might have in this respect, to warrant its being built at a cost of near ^12,900,000, or over ^117,000 per mile. As to the fourth argument, we think it defective for three reasons — 1. The Pennsylvania Railroad Company would lose by sending freight from Pittsburg east by that line. If its main line should be overloaded, it would be wiser to enlarge its capacity than to turn away the business on to another road. 2. The question whether freight shippers would regard the small saving in charges as an equivalent to loss in time. The saving in time for one hundred and ten miles would not be much, and when it reaches the Philadelphia and Erie Road, slow speed could only be used on about seventy miles of that road; so that the whole distance on which slow speed could be used would be one hundred and eighty miles, which could not make a difference of over ten hours in time, which is not worth much reduction in rates. J. The working a line at slow speed practically limits the capacity of the line, and involves large additional expenditure of motive power and cars. We cannot, therefore, look forward to any large increase of traffic from this source ; and should there be a large ton- nage on the principle of low rates and slow speed, it would probably be years before it is realized, and when it does come will be of little pecuniary gain to that road. The most we can hope from the Philadelphia and Erie Railroad is, that it will earn enough to pay the interest on its funded debt and the Pennsylvania RailroaH Company for the interest on its equipment. According to the report of your directors of March nth, 1873, the Philadelphia and Erie Railroad, with a single track, represents a cost per mile of ^75,744, while the Penn- sylvania Railroad, with two tracks, represents but ^71,999 per mile; and that since 1869, while the increase in gross receipts has been but ly^ per cent., the increase in bonded debt and preferred stock has been 39^^ per cent. These two facts furnish little ground for hope in the future that more will ever be realized than enough to satisfy the claims of the Pennsylvania Railroad Company for working the road and for advances already made to cover the deficiency of net receipts. J. The Northern Central Railway. Miles. Main line from Baltimore to Sunbury, . . 138 Shamokin Valley and Pottsville Railroad, . . .28 Elmira and Williamsport Railroad, held by lease, . 78 Chemung Railroad,* . . . . . . .18 Elmira, Jefferson and Canandaigua Railroad,* . . 47 Total, .... . . 309 * These roads are held by the Northern Central Railway Company, owning four thousand seven hundred and six of the five thousand shares of the Chemung Railroad, and fourteen thousand and twenty-two shares of the fifteen thousand two hundred shares of the Elmira, Jefferson and Canandaigua Railroad. 82 The importance of this line of road will be appreciated when you trace its connections. At Baltimore it connects with the Baltimore and Potomac Railroad to Washington and the South, passes north through a beautiful and rich country to Harrisburg, where it reaches your main line and makes connection with the Cumberland Valley Railroad and the system of railroads under control of the Reading Railroad Company, and thence to Sunbury, having also valuable branches by rail to the Lykens valley coal mines, the Trev- orton mines, and by the Shamokin Valley Railroad to the fine coals of that valley, and to a large body of coal land owned by that company near Shamokin. At Williamsport it takes control of the Elmira and Wil- liamsport Railroad to Elmira, and thence, by the Elmira and Canandaigua Railroad, secures a market in the centre of the State of New York and in the cities of Rochester and Buffalo for anthracite coal, and also makes valuable connections with the New York and Erie and New York Central Railroad lines. The natural division of this line would be to work the road from Harrisburg to Baltimore as a branch to your main line, and to place the Shaniokin Valley Railroad, with the line to Buffalo (through Elmira), under the Philadelphia and Erie Railroad management. It is to be regretted that this course was not adopted as soon as you acquired the lease of the Philadelphia and Erie Railroad. The many economic advantages of this plan are apparent, and it is to a limited extent so managed at this time. The Northern Central Railway is not only a valuable feeder to and distributor of products taken from your road to local points on either road and to the West, but it has a large local trade, and is one of the great coal avenues from the mines to the Atlantic coast. ^3 The growing local trade of this line between Buffalo and Baltimore, with the through trade thrown on it by your road, requires largely increased facilities at its terminus in Baltimore, — that city having built the Union Railroad to connect the Northern Central Railway with the bay, making a complete line to tide-water. These facilities are required to handle cheaply the coal, lumber, grain, live stock, oil, &c. that comes over that line. The financial inability of the Northern Central Railway Company to complete its terminal improvements and stock its road, causes it, naturally, to look for aid to its main stockholder, who is so largely interested, not only as a stockholder, bat also as a gainer by these improvements in the traffic it will bring to its main line. The advantages arising from the natural alliances and economic workings of the mixed lines of the Northern Central Railway above suggested — the absolute value of these lines to your main line — and the financial inability of the Northern Central Company to develop and take care of its growing trade — plainly indicate that a just lease of that road or other satisfactory arrangement would be ad- vantageous to the interests of stockholders in both com- panies. 4.. The Pennsylvania Canal Division. The ownership and control of the Canal property in Penn- sylvania fell to your Company in the purchase of the public works throughout the State. The unjust discrimination made by the State of Pennsylvania in the tonnage tax, rendered it necessary for the Company to pave the way to its abroga- tion, as well as to secure the railroad from Philadelphia to Columbia by purchase. This took place in 1857, and consisted of the railroad from Philadelphia to Columbia, 84 and the canals extending thence by the Juniata to Pittsburg, with the Portage Railroad and other appurtenances. The price paid was $7,500,000, of which ;$i,ooo,000 was appor- tioned upon the Company's books as the value of the canals purchased. The Portage road and the Pittsburg Division of the canal were abandoned. The portion of the canal line retained extends from Columbia to Hollidays- burg, about one hundred and seventy-three miles. In 1867 this canal interest was organized as an inde- pendent corporation, with the corporate title of the Penn- sylvania Canal Company, with a capital stock of ;^2, 750,000, which represented the $1,000,000 originally paid the State, with the interest thereon and expenditures for enlargement of the canal after it came into the possession of your Company. In 1867 the majority of the stock of the West Branch and Susquehanna Canal, extending from Clark's Ferry to Farrandsville, on the West Branch, a distance of one hundred and twenty-three miles, was purchased with the bonds of the Pennsylvania Canal Company, and after- wards, as its indebtedness matured or approached maturity, it was taken up in exchange for canal bonds having forty years to run. This enabled your Company to reach the lumber regions on the West Branch; and in order to have access to the anthracite coal fields, the Pennsylvania Canal Company, in 1869, merged with the Wyoming Valley Canal, by the exchange of an equal number of shares of its stock — exchanging its forty-year bonds at par for the mortgage bonds of the Wyoming Company, then about maturing, amounting to $600,000. In 1872, for the purpose of giving direct access by water to the Lykens Valley coal fields, there was purchased most of the stock and all of the in- debtedness of the Wiconisco Canal, extending from Clark's Ferry to Millersburg, for one thousand nine hundred and 8s eighty-two shares of Pennsylvania Canal stock. Afterwards the West Branch and Wiconisco Canals were sold under judgment and purchased by the Pennsylvania Canal Com- pany, which thus became the absolute owner of all these several canals, embracing altogether about three hundred and sixty miles. These canals having become much deterio- rated, and their capacity reduced, while great improve- ments had taken place in the rail lines, it was decided to enlarge and improve the main line, extending from Columbia to Wilkesbarre, and procure a stock of boats, in order to insure regular transportation. This policy having been determined upon, the whole earnings of the canal, in excess of the ordinary expenditures and interest, were applied to the purpose, down to the end of 1873, when a stock of one hundred and eighty-four boats had been acquired and the enlargement of the main line completed. This enlargement consisted in widening and deepening the canal, doubling the length of the locks, and renewing all important structures on the line, — using durable materials, and making them of a permanent character. The capacity of the lockage was increased from eighty to two hundred and sixty gross tons; the cost of shipment from Wilkesbarre to Havre de Grace was reduced from two dollars and twenty-five cents to one dollar per gross ton, and from eleven and twenty-five- one-hundredths mills to five mills per gross ton per mile. Without this improvement it is now evident that the canals would have been abandoned or sustained serious and con- stant losses. The history of water navigation has established one fact beyond dispute, that to compete with the present low rates of freight on railroads, boats should be constructed to carry not less than two hundred and fifty tons gross. The nearer this minimum tonnage is attained or exceeded, the more certainty is there of a return. In enlarging the main 86 lines of canals the tonnage has been increased to about two hundred and sixty to two hundred and eighty tons. It is to be regretted that the minimum capacity was not made three hundred tons. The whole expenditure on enlargement account, on the 31st December, was ^1,983,499, — about ;^ 1 3,223 per mile, — which compares favorably with the ex- penditures of other canals for like purposes. It is claimed by the officers of the canal that the whole cost of these improvements was earned from the line during the progress of the work. From sources of information at its disposal, your committee is led to believe that the earnings of the canals will pay the working expenses, the interest on the funded debt, and lay by a sufficient sum to meet the principal at maturity. These canals in other hands, at the present reduced prices of transportation, might have been used to the disadvantage of your Company. Nothing has been done towards the enlargement of the Juniata division, which extends to the bituminous regions, that being postponed until the results of the present work are fully ascertained. 5. United Railroads of New Jersey. These lines, so lately brought under your charge, will prove this year the wisdom of the lease. The causes of the losses in working them in 1871, 1872, and 1873 have been clearly stated in the reports of the directors: 1874 will demonstrate their ability to pay all charges, and prob- ably yield hereafter a surplus, which, in time, will largely provide for necessary enlargements, additions, or betterments. 87 The United Railroads of New yersey Division. These lines embrace the following railroads : — Mantua to New York, .... Camden to South Amboy, Princeton Branch, ..... Rocky Hill and Kingston Railroad, Millstone and New Brunswick Railroad, . Perth Amboy and Woodbridge Railroad, Monmouth Junction to Jamesburg, . Pemberton and Hightstown Railroad, Camden and Burlington County Railroad, Columbus, Kinkora and Springfield Railroad, . Burlington and Mount Holly Railroad, Medford Branch, Vincentown Branch, Mercer and Somerset Railroad,* Frankford and Holmesburg Railroad, Bordentown to Trenton, . * Seventeen miles additional have been opened in 1874. Miles. 89 61 3 6 7 7 6 25 25 14 7 ■7 3 5 5 6 276 Belvidere Division. Belvidere Delaware Railroad, . Flemington Branch, Miles. 68 12 80 356 The importance of the control of the United Railroads of New Jersey with the Belvidere Division and the Raritan Canal will not now be questioned, for it secured — I. A continuous line of railroad between the city of New Vork and the West under one control. 2. The use of the unrivaled terminal advantages at the city of New York, Jersey City, and South Amboy. 3. The key of the line of southern travel to Baltimore and Washington. 4. The ability to place the products of the mine and the farm on tide-water, at the least expense, nearest to the centre of shipment and consumption. 5. The power to fix through rates. 6. The control of a line of railroads and canal that must continually increase in value and profit. These points are of immense value to the Pennsylvania Railroad Company, and by this lease many serious impedi- ments to your success were removed, among which we note — The Terminal Difficulties. 1. The United Companies would not furnish the necessary terminal facilities at Jersey City and South Amboy to handle the freight you were prepared to send, and receive a pro rata freight, and it seemed impossible to make any arrangement by which the Pennsylvania Railroad Company could furnish part of the cost of such terminal facilities and yet be itself secured. 2. Any written contract between the companies for con- ducting the business would have been subject to constant change and have given rise to continual misunderstandings. 3. The Pennsylvania Railroad Company could not have relied on a contract which would warrant its making the necessary outlays to meet the trade. 89 4- It could not have confined the United Companies to its policy of making the working of that company's roads and canal entirely subsidiary to the interests of the Pennsylvania Railroad Company. These and other considerations were, doubtless, present in the minds of your directors before making the lease. They were also clear in their judgment as to the imperative necessity that the Pennsylvania Railroad should have a connection, by rail, with the city and bay of New York ; and it became a simple question with your Company whether to lease the roads already built or to build a road to meet the demand arising from the largely increasing trade on your own lines seeking an eastern market. It was to the interest of both parties that a lease should be made, and though at the time of its execution it seemed unfavorable to your Company, yet, as the needed improve- ments are made and come into use, the advantages of the lease are more clearly seen and its wisdom realized. These improvements involve — 1. A total change in the location of the machine and repair shops of the New Jersey Company. They must now be located and worked in harmony with those of your main line. Extensive and costly shops are partly built on the Hacken- sack meadows, four miles from Jersey City, (where your Company owns in its own right one hundred acres, in addition to thirty acres owned by the United Companies,) and smaller shops must be built for the southern lines at Camden, where you have fifty acres with a river front. 2. There has been laid, and must continue to be, a large extent of sidings, not only along the line of the road, but in the yards at Amboy, Hackensack, and Jersey City, and the gradual completion of a system of third and fourth tracks, go which has been adopted for the New York Division, of which thirty-four miles were laid in 1873. 3. The improvements at South Amboy, where the Com- pany owns four hundred and thirty-three acres, with a water front of six thousand feet, have been very great, and have involved heavy expense. They include the entire recon- struction and enlargement of the yard; the laying in 1873 of twenty miles of double track and sidings ; the building of inland storage bins for coal (with a capacity of thirty thousand tons, making the total stocking capacity one hundred and seventy thousand tons), to be filled when trade is dull, thereby employing the equipment of the road con- tinually, and enabling this line to carry to market during the year a larger tonnage than they otherwise could do, and the building of a coal wharf having a water frontage of three thousand three hundred and thirty feet. The total shipping frontage is now seven thousand four hundred and ninety feet, with a transshipping capacity of two million tons per annum. There has been expended up to June ist, 1874, on account of needed improvements at Amboy, ^563,449.40. 4. The Harsimus Cove property has a frontage on the North river of one thousand five hundred and eighty feet, of which one thousand three hundred has a depth of three thousand one hundred and forty feet, and the remaining two hundred and eighty feet a depth of one thousand four hun- dred feet from the warden's line, — the whole containing an area of seventy-five acres, and with the necessary wharves built will give a wharf frontage of three miles. To reach this property a temporary railroad has been constructed, which will answer the purpose until the coming fall, when a perma- nent connection will be made from the Bergen Cut to the Cove. There has been expended on this connection up to June 1st, 1874, $568,995.26, of which $309,049.52 was for 91 right of way and other appurtenant property, leaving ^259,945.74 for construction. The improvement at the Cove consists of a large pier two thousand two hundred feet long and three hundred and twenty feet wide, which is mainly used by the Central Stock- Yard and Transit Company for its abattoir purposes and as a stock-yard. The Pennsylvania Railroad Company advanced them ^300,000, which is secured by a mortgage on the improvements. The stock-yard company also have at Hack- ensack a hog abattoir of very large proportions. The com- pleteness and extent of this company's operations will give you some idea what facilities are required to furnish beef, mutton, and pork to a great city like New York, and of the great value it is to your line of road to have such vast structures located on your property, giving you thereby more than an equal chance in drawing the great cattle trade (since the completion of the bridge over the Missis- sippi river at St. Louis) over your main lines from St. Louis, Cincinnati, Chicago, and other points to New York. There is also built on this property another wharf, on which has been erected a freight shed one thousand feet long by one hundred and twenty feet wide, a covered pier, for shipping grain, five hundred feet long by forty-two feet wide, and two car ferry bridges. In and about these improvements five miles of track are laid. There is also room for another pier of equal size to those already built. It is in contemplation to erect a large elevator and warehouse for storage purposes on this property, which will add largely to the facilities of handling the grain and other traffic that may come to New York over your road, and save in the cost of handling the same. The total amount charged to cost of Harsimus Cove improvements to June ist, 1874, is ;^726,474.8o. The passenger station at the Jersey City ferry has been 92 rebuilt, giving an additional steamboat dock for the two ferries to the city of New York, and convenient waiting and office rooms, all built on a substantial and very economical plan. There are twenty-two acres of ground connected with the ferry terminus. 5. The freight stations at Piers Nos. i, 2, 4, 5, 16, 38, and 39, in New York City, are very complete and well adapted for their work. The portage of freight in cars across the North river to these docks proves to be the cheapest method of reaching the centre of trade of a great city like New York. There is a saving of time in reaching the depots ; it furnishes more readily points of access to the trade ; and saves greatly in the cost of reaching such depots, and in the cost of land and buildings for the same. This sketch will give some idea of the great improvements that have been made since you have had charge of these lines. We would not have you to think that these improve- ments are complete or sufficient for any term of years. If we are correct in our views of the inevitable increase of the cattle and of the general trade going over your lines to New York, you must estimate a yearly outlay of money to furnish the necessary enlargements to meet it. But we look forward to much more extended improve- ments on your property at Amboy; and it is fortunate that you own the necessary land and river front at that place. The future demand for hard and soft coals from the city of New York and its adjacent cities — from the country north of it and the entire east — must, in time, amount to a tonnage which, should we now express it in figures, would make us appear too sanguine. Your control over the valuable anthracites of the Susque- hanna, and your relations with shippers from the Lehigh and Wilkesbarre regions, will enable you to fill your share 93 of the demand for hard coal on equal terms with the other great roads. But in the supply of the soft coals you have a decided advantage. Take the gas coals of. Westmoreland, the soft coals of the Allegheny mountains — which you control by your main line and branches for many miles — the coals from the Broad Top and from the Cumberland region, the cannel and other valuable coals from the Bennett's Branch Railroad, and then, in addition, with a direct line of railroad having (for the greater part of the distance) a descending grade, and you can place every variety and quality of soft coal at Amboy at a profitable rate to you, and thereby enable shippers by your road to secure the market. We leave you to judge how great will be the demand: only bear in mind that an increased tonnage will require increased facilities. We notice the passenger travel over this line. A railroad connecting two such cities as New York and Philadelphia alone would afford a profit; but, in addition, this is the line over which all northern and southern travel must pass, and much between the East and West. This, with your rapidly increasing local business, will furnish a constantly increasing passenger travel^ which, from the location of the road, can always be made profitable. Collecting these facts as to trafific and travel, the future of your responsibility as to the lease of this line of railroads need not give you any anxiety. The lines will pay both directly and indirectly very largely to the Pennsylvania Rail- road Company. Some of the branches connected with this road are not profitable, but all add to the profit of the two main lines from Philadelphia to Jersey City, and from Cam- den to Amboy. 6. The Delaware and Raritan Canal Is a very valuable and important water connection between Philadelphia and New York. The result of the management 94 since it came into your hands has been very satisfactory, not in increased tonnage, but in net profits. An examination of the figures of the company presents the following facts: — The aggregate tonnage of the canal was in 1871, 2,990,095. Tlie aggregate tonnage of the canal was in 1872, 2,837,532. The aggregate tonnage of the canal was in 1873, 2,754,837. This reduction of tonnage was due to throwing a consider- able amount of freight from the canal upon the railroad, where it was supposed to return larger profits. An abstract of the expenditures and receipts for the same period may be interesting, and is as follows : — RECEIPTS. 1871. 1872. 1873. Gross canal receipts, ... Gross steam towage receipts, . . i»i.°45.957 34 383,636 77 S957,S5i 25 567,053 99 jSi,o7i,io2 74 518,997 38 Total, Deduct drawbacks refunded, . . ^11,429,594 II 148,857 27 ^1,524,605 24 109,448 80 $1,590,100 12 70,108 75 Actual gross receipts, . Actual expenditures, each carried to its appropriate year, without regard to time of payment, . . iSi,28o,736 84 889,381 97 ^1,415, 156 44 874,527 23 $1,519,991 37 813,212 71 Net profits, 1391,354 87 $540,629 21 $706,778 66 It will be seen from the above figures that whilst the tonnage of 1873 was 82,695 less than in 1872, the net earnings were ^166,149.35 greater; and that whilst the tonnage of 1871 was 135,258 greater than in 1873, the net earnings in 1873 over that year were ^315,423.79. The losses in operating all these lines since they came under your control have been — In 1871 and 1872, ^1,154,527 57 In 1873, 685,689 70 Amounting to ^1,840,217 27 95 Though these losses have been charged to expense account, they will be repaid and l-eappear in the shape of profits. Yet the company is subjected to the cost of the use of the money during the intervening time. The outlays .for improvements on this line are, by the terms of the lease, to be met by an issue of shares in the United Companies in the proportion of thirty thousand shares of stock for ;^4,ooo,ooo expended. 7. The Pennsylvania Railroad Division. This division consists of the following lines : — Pennsylvania Railroad Main Line, Columbia Bridge, York Branch, ..... HoUidaysburg Branch, .... Indiana Branch, ..... East Brandywine and Waynesburg Railroad, Bald Eagle Valley Railroad, Mifflin and Centre County Railroad, . Sunbury and Lewistown Railroad, Tyrone and Clearfield Railroad, . Ebensburg and Cresson Railroad, Western Pennsylvania Railroad, . Bedford and Bridgeport Railroad, South West Pennsylvania Railroad, Pennsylvania and Delaware Railroad, . Lewisburg, Centre and Spruce Creek Railroad, Danville, Hazleton and Wilkesbarre Railroad, Cumberland Valley Railroad, Total, Miles. 358 I 13 42 19 18 52 13 45 44 II 85 SI 24 38 II 44 152 1,021 96 We do not deem it necessary to discuss each of the branches above named, — to most of the stockholders their condition is well known. The York Branch and Columbia Bridge are now consolidated with your Company; the Hollidaysburg Branch, the Bald Eagle Valley, the Tyrone and Clearfield, the Western Pennsylvania, the South West Pennsylvania, and the Cumberland Valley Railroads are all profitable, and most of the other branches will pay the cost of working; but we fail to see the wisdom of the very peculiar contract or lease of the Danville, Hazleton and Wilkesbarre Railroad. This road can scarcely be expected to pay the cost of working, and to invest money in the purchase of coupons is but to obtain a claim that cannot be paid : the company is certainly in default to its bondholders. A glance at the accompanying map will show you how these roads penetrate rich agricultural valleys, reach valu- able coal fields, forests of timber, and mines of iron ore, and make the necessary connections between the valleys of the Juniata and the Susquehanna, the Juniata and the Potomac, and the Conem^ugh and the Monongahela rivers. They are valuable feeders, and, on the whole, are of great financial value to your main line. The Pennsylvania Railroad Main Line. After treating of so many railroads of varied strength and usefulness, we with pleasure now refer to this grand line of road — this trunk which gives life and support to so many branches, and which, in return, receives strength from them, — affecting not only the welfare of the State of Pennsylvania, but directly promoting the happiness and prosperity of a large portion of the people of this continent. Look at its geographical position: commencing on the waters of the Delaware and Schuylkill rivers, and by its 97 connection to New York City, on the North river and New York bay, it passes westward through the richest parts of the State of Pennsylvania; reaching by its arms of iron the valleys of the two branches of the Susquehanna river, — passing along the Juniata river to its source, — numerous connections are made both north and south, reaching mines of ore, forests of timber, and beds of coal ; crossing the great water-shed between the waters of the Sus- quehanna and the Ohio, it is laid upon an almost continuous bed of coal until the Ohio river is reached at Pittsburg, and there by other branches reaches the valleys of the Allegheny and Monongahela rivers. A well-built railroad traversing such a densely-populated country, and connecting two cities like Pittsburg and Philadelphia, could not fail to attract a large and profitable traffic. To come to details, the Pennsylvania Railroad consists of four parts — 1. The line from Harrisburg to Pittsburg. « 2. The line from Harrisburg to Dillerville and from Middletown to Columbia (leased for nine hundred and ninety-nine years from January ist, 1861), and practically owned by the control of its stock. 3. The Columbia Railroad, from Philadelphia to Colum- bia (purchased from the State). 4. The Delaware Extension line. In all forming a direct line from Philadelphia to Pitts- burg of three hundred and sixty-five miles, including the Delaware Extension of seven miles. 98 Cost of Main Line. By referring to the article on the cost of real estate, road, &c., you will find that the real value of your main line, including the Philadelphia and Columbia Railroad, with the present value of its equipment, real estate, &c., amounts to ,398,483, while it stands charged on your books at ,571,808; showing a value exceeding your capital account of ^45,826,675. The retaining of low valuations of personal property in times of great prosperity is an evidence of the wisdom and caution of your late distinguished President. In this con- nection the following important considerations affecting its value, and necessary to be kept in view in placing an estimate on your property: — 1. That the road from Harrisburg to Pittsburg was built for cash, and at a time of exceptionally low wages. 2. That the Philadelphia and Columbia Railroad (the most valuable eighty miles of railroad in the United States) was purchased from the State at what is now proved to have been a very low figure. 3. The lease of the Harrisburg, Portsmouth, Mt. Joy and Lancaster Railroad was obtained on very favorable terms. And still further, the real estate owned by the Com- pany (much of it purchased at an early date) is worth a large advance on the price paid for it, as appears in the statement above referred to, which shows a substantial basis for the security of your bonds in addition to the value of the road itself, and saves you from great outlay year by year for lands to accommodate your continually increasing traffic. 99 Now all these different items give your Company a vantage-ground which will always place it beyond any successful or dangerous competition from present or future rivals; for while the cost of other main roads is fully re- presented by the amount of stock and indebtedness, on all of which interest and dividends must be paid, your road is expected to pay dividends only on a part of its real value. Terminal Facilities. We repeat the summary of the estimates of the real estate, buildings, and improvements given in the former article, as follows: — Philadelphia Division, .^13)319.133 75 Middle Division, 4,866,598 00 Pittsburg Division, 9,679,509 08 Amounting in all to . . . . $2'j,^6^,2\0 83 These investments of capital are mainly in the cities of Philadelphia, Columbia, Harrisburg, Altoona, and Pittsburg. About ;^22,000,000 has been expended for terminal facilities, machine and repair shops, depots, &c. To give you a better idea of the extent of these terminal requirements, take the city of Philadelphia, and you have — 1. The freight depot at Thirteenth and Market streets. 2. The freight depot at Fifteenth and Sixteenth and Market streets. ' 3. The general office in Fourth . street, below Walnut. 4. The emigrant depot. No. 116 Market street. 5. The very large depot grounds, with the machine- shops, in West Philadelphia, extending from the Schuylkill lOO river to near Hestonville, a distance of about six miles, and covering about three hundred and twenty acres. 6. The one hundred and thirty acres of ground at Green- wich. 7. The Washington Avenue elevator, wharves, and build- ings. 8. The extension of rail along the Delaware river front, and the new freight station at the foot of Walnut street. 9. The extensive grounds on the Connecting Railroad purchased for a cattle-yard, containing about two hundred acres. 10. We might properly add, as terminal properties, the large investment made, with your assistance, by private capital at Point Breeze and Girard Point. We are sure we need go no further to satisfy you that the building of the line of a railroad is but the beginning of the cost. We have gone carefully over the long list of real estate owned by the Company, and find it all required for the busi- ness of the road, except a few unimportant and two valuable properties, which can now be sold — the necessity for their ownership having ceased. These two are the stock-yard at East Liberty, near Pittsburg, and the freight depot at Thir- teenth and Market streets, in the city of Philadelphia. The Road and its Appurtenances. We found your road in capital condition, with care and skill everywhere evidenced in its construction. The intro- duction of steel rails has been a success, for the time had almost arrived when the substitution of some more durable and safer article than the iron rail would become an absolute necessity. lOI The shops are judiciously located and substantially con- structed, with the most approved machinery and all the modern appliances for saving labor. The locomotives are classified, and thereby repairs are lessened in cost and their time for being in the shop shortened. The car shops are arranged to build and repair cars at the lowest cost, and so far as we were competent to form an opinion, there was that air of adaptation about all the appur- tenances to the road, from one end to the other, which impressed us very favorably with the management thereof Cost of Working. As an evidence of the condition of the road, the motive power, the cars, the shops, machinery, and other adjuncts, we point you to the following table, showing the number of engines used, the number of tons of freight moved one mile, with other details, and at the end the cost of or the rate paid per mile for moving freight :■ — • Pennsylvania Railroad Division. Year. Tons Freight JVIoved. Tons One Mile. 11 G M ■1" Average Tons Moved one Mile by each Engine, inci. Distributing and Shifting Engines. Av'ge Mile- age of each Fr't Engine incl. Dis- tribut'g Fr't Engines and Shifting Engines. Rate per Ton per Mile paid for Moving Freight. 1864 2,764,876 420,627,222 235 18 13 1,581,305 17,448 CENTS. 1865 2>55S.7o6 420,060,260 232 24 21 1.516,463 17.987 ^j%\ 1866 3.186,359 513,102,181 253 25 27 1,682,302 18,288 ItVj 1867 3.709.224 565,657,813 270 22 36 1,724,566 18,611 It¥tt 1868 4,427,884 675,775.560 278 29 38 1,958.770 19.521 It¥t7 1869 4,992,025 752,711,312 314 25 52 1.925,093 18,342 iA% 1870 S.427.401 825,979,692 316 26 53 2,091,088 19,526 T 00 187I 6,575.843 1,011,892,207 338 30 58 2.375,334 21,839 OtV. 1872 7.844,778 1,190,144,036 401 34 63 2,389.847 22,302 Ot¥A 1873 9,211,231 1,384,831.970 456 34 77 2,442.384 23,213 OtWtt I02 The figures in the foregoing table corroborate our state- ment of the economical workings — a result which cOuld only be reached with a high state of perfection in the three great departments of Maintenance of Way, Motive Power, and Maintenance of Cars. We call your particular attention to a few points, knowing they will be very satisfactory, viz.: — In 1864 it required two hundred and sixty-six locomotives (including shifting and distributing engines) to move 420,627,222 tons of freight one mile, giving average tons moved one mile by each engine, ....... 1,581,305 In 1873, five hundred and sixty-seven locomotives moved 1,384,831,970 tons one mile, giving average tons moved one mile by each engine, 2,442,384 A gain of 861,079 tons moved one mile, or over fifty-four per cent, increased service of each engine, while the average mileage of each engine was increased from 17,448 miles in 1864 to 23,213 miles in 1873 — an increase of thirty-three per cent; and the average cost of moving one ton one mile was reduced from \-^ cents in 1864 to o^^^ cents in 1873 — a de- crease of nearly sixty per cent. The System of Accounts. While in our examination we necessarily assumed the accuracy of the books, yet we were the better satisfied to do this, as upon examination of the methods adopted, they show that a charge or entry of a day's labor, of the pur- chase of 'a keg of nails, or the largest order, goes through such a series of _ checks and audits as to make fraud almost an impossibility, requiring, as it would, the assent and knowledge of too many persons to make it safe or 103 successful; yet with all these checks the system is simple and easily carried out. In the various offices on the road the methods of keeping the details of the cost of working the road in the different departments are very complete, and monthly comparisons of cost are made by each branch, — thereby giving a perfect control over the expenditures and insuring economical results. These systems of accounts and methods of comparing cost are the growth of years, — a cumulative development, year by year, making it more complete. The Growth of the Business of the Road compared with Increased Capital. We have thought it would be interesting, instructive, and satisfactory to the shareholders to know what effect the large expenditures on your main line have had in stimu- lating the business of your road, and have had prepared the tables following. 104 ■« Sf .> t^ ^ "w R «S "ij ^ .g «^ L^ "5^" S ^ 5 1 ^ 1^ ^^ "1 ^ ^ .^ -w ^ <3 >< ^ V 1 i\ tn '-^ C5 ^ "v, ^ .s "ii § 1° ^ "t? S> '^ ^1 ^ ■^i ^ ^ to ■3IIUI JSd ^ ^B ""£ ^ ^ "B ^lo ! 00 O o o o o o o o o O 136 U05 J9d S3SU 3dx3 ^$ M ? f ? $ hH o i 1 •3[1UI ^'(d'° ^ J= 0.^ "6 ^ »£ "6 to S o J3d UOJ I3d SSUIIUBH o^{2 "h -s =H HS ^ -e "S Tt ^ 3 M M M M hi HH *"' •^ ■^ •^ ■t-ggi -f° |o J° ol° ^,0 xJ^* ^fc, ^ «l^ jBSjt H^iM. paiBduioo 5S °H ^ ^ ^H -S 2j2 °H % s^uiujBH inSisi^ m LO 4^ 00 vO W 00 CO Q ISfJ JO 3SB3i3Ba JO ro M i>. lO 00 o lO . o o 00 lO Tt- CV) VO o o\ to 00 j>- !>. 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O 0) CO 00 q^ ■^ 'O" tF ^ -f ^ 4 -(f •^ in %^ •fr98i JBSit miAV pajBd -U103 SSBSJOSQ JO ; ^ "S =B ^ ^ «g ^ t 3SB3I0UI JO 33b1U33J3(I ON CO in CO ON w CJ ■^ ^ W lO CO O ■Tf- w M t-^ N 00 S i o ON in co o in CO ^ ^ ri o^ CO in C^ CO VO o o !>. q^ g § CO 4 in CO oo" oo" o" oo" pT ON t^ VO 00 $ ON w in -rf t^ in 4> 00 li-> q. t^ 00 On OO Tt fa o "JD" "!? Os vo" CO ^ o" ci CO rC ■^ o CO M CO in in r^ j>. w •^ •^ •^ i-i t-t '-* ■t'9Si jrsA qiiM psied ^ 1 ^ ^g J^ og gn «g ^ -UI03 3SE3J33a JO og Ms ^ *H % HS ^ % 3S^3J3UX JO 33^U3313J CO in \D CO VO 2 N fo 0\ in o -t ^ r^ ^ On m "^ W ■d ON o Jr^ On in M '-' O CD CO •S 1 _ On i>. in M in VO O P^ ON 3 ■= t->i 00 m vo VO ON ^ 00 C^ VO « - " N 00 ^ OS CO M )-i r^ 00 11 ■do ■!? = «. cT pT d; hT M in T^ o" I-I f •a o r^ OS 00 i>. On OS o T)- CO ^ CO >H i-i M in ^i• t^^ in o il 3 1 0) CO o" o" tF in •S ^ s CO CO CO CO CO CO CO m in =6^ ^ in VO t-^ 00 ON o hH N CO 1 VD VO VO VO VO VO !>. t^ t^ !>. 00 00 00 00 00 00 oo 00 ^O in ON E CO t^ « 00 - VO 00 M r^ ro M On "t & I>. ^o" in «% M =60: t-^ fD ■* ■^ t-t -i- 00 in ON • ^ N VO M ^ u 00 ^ vO M a t^ M T^ )-l VO cT •"^ 00" 00 00 00 (-1 in Oj fo 0^ in in t^ M m in =&9= 40; vO tn rn 00 w 00 I>. ,: \o ^o -^ a M m ro « p. 0^ in rn On ds w rn ■^ ij m vO 00 m m « CD ro ro On q. 0^ iM rn in 00 =^9= ^ t^ N 1-^ VD N U-) 10 ON •I W vO in N in m N r-^ ■3 CO l>- in ^^ w & fC O^ in in r-^ 0^ "^ On NO u u-i 00^ ON 00 w !>. in cR tF 00 00 00 ON *^ M rn ^. q NO 28 OK r^ 00 N ^d ro M ON ^ HS !>; ro 00 On '"' ^ cT in rt nT oT fl 1. *S >, rf S^ ^1 3 d > s %. 1 « 1^ c 1 s s £55 >> U u TJ i/i °-g S is y (73 J2i 1 1 * -1- -M- £ > EK U) U] ^ jj 1^ NO N lO u 00 On 0^ ft 00 .9 M OS m 00 4 VD =^ rt Pi^ iz; 4J S M r^ jj ^ ft t^ N . ^ r^ t-^ W ft =S5i W u Z iS ft 00 ON ON 8 H aj N in N m W ■^ fo NO^ -^ 1- i-i 00 00" M > =60= . ^ -i 3 rt k£* J3 > 5 T^ « ^^ £ "i C s C |i< t- .^ -^ ).. C fi „- PL. ?*1 !-i W C ^4 )_ .^ [/) 1) ■5 ^.sl ^-1 a S W ,« ^ b £ •^ tn *S O rt O ^ -2 "S S c ■S g -J3 I" E ^ I o o OJ dJ .2 3 ("3) 114 A study of these tables will be interesting and instructive. We will note some of the more striking points. The tables show — First. — The effect on profits caused by cost of construction, which is due to the topographical character of the country traversed, to the economy with which the road is built, and to the character of payment, whether by cash, insuring fair prices, or with stock and bonds, as certainly causing high prices to be paid. Second. — The effect on profits caused by the ability of the country through which the road passes to furnish freight and travel in sufficient quantity and number of passengers at pay- ing rates. These tables show why the Pennsylvania Railroad system, with its long line of branches and its four hundred and sixty- nine miles of canals, pays so well. The capital this system stands charged with, including as it does the equipment, is represented at a moderate cost, while the local trade and travel on most of its various lines is abundant and profitable to transport. The Fort Wayne group of railroads represents a higher cost than they should. Yet, in comparison even with present prices of work and material, they could not be replaced at the same figures; and their results show the profitable effects of a large local trade and travel, which more than make up any loss from the through trade to the East and vice versa, and leaves a fair balance of profit to the owners and lessor. The tables also reveal the true causes of the poor results of the Southern, or Pittsburg, Cincinnati and St. Louis system, which are — "5 1. The extravagant cost of the hnes. With the exception of the Hne east of Steubenville, the roads pass over a very- favorable country for building railroads. 2. From the inability of a country, chiefly agricultural, through which most of the lines pass, to furnish sufficient travel and traffic and at prices to make the roads profitable. 3. The drawback of the last point is so great as to affect the advantages that might be expected from a connection with the cities of Cincinnati, Louisville, Indianapolis, Chicago, and St. Louis. 4. It also teaches that the minimum of expenses at which lines of railroad can be run is much higher than is generally supposed. The whole number of miles of railroad in the United States in 1873 was 70,651 Whole number controlled by the Pennsylvania Railroad Company, . . ... S.933-6 Or of the whole number of miles the Pennsylvania Rail- road controls 8^^^ per cent. The total capital of all the railroads in the United States is given at . . ^3,784,543,034 00 Of which the Pennsylvania Railroad controls 398,267,675 22 Or lo^^^^ per cent. Yet, taking these different systems as a whole, compris- ing S933.6 miles of lines and representing a cost of ^398,267,675.22, their net earnings amount to ^25,476,299.06, or an average of 6.39 per cent, on their cost. To appreciate ii6 this result, you must fully understand what it means. It embodies the workings and results on the 5933-6 miles controlled by you, and shows that notwithstanding some lines were imprudently built, and others built during the war at very high prices, and all the errors that may have been made, yet, under a scale of prices unprecedentedly low, and at rates which, if foreseen, would have prevented the building of many of these lines, the average profit has been as high as 6.39 per cent, or more than one-half the dividends which the Pennsylvania and some other com- panies are able to pay their stockholders. The result of the above calculations shows that all the roads controlled by the Pennsylvania Railroad Company in 1873 earned 6^^ per cent, on their entire capital and bonded debt ; that the roads east of Pittsburg earned 7 j^ per cent., and the Pennsylvania Railroad proper, after paying interest and losses on her leased lines, earned for its stockholders I2y^^ per cent. ARTICLE VI. Use of your Road by the Cars of Private Persons or Companies. In the early history of the American railway, the companies arranged to furnish the power and the transporters the cars. After a time this was changed, — the companies furnishing both power and cars ; and, still later, as the business of the companies increased, the policy was again changed so as to encourage large transporters to furnish their own cars. This has been the adopted policy of your Company for some years, the transporter paying the tariff rates on the freight and being allowed for the use of his cars over any part of your road and for any kind of traffic. Under this policy a number of companies use your road with satisfactory results to both parties. To the railroad company it saves invest- ment of capital, and avoids the difficulties and jealousies that always arise in brisk times in the distribution of cars, while it practically requires fewer cars to carry the same amount of tonnage, — for the private transporter will get better service out of his cars than the railroad company can do, and this because such cars are proportioned in number to the wants of the transporter, are built for one character of freight, and run between fixed points. To the transporter it pays a fair interest on the investment of capital and secures a larger tonnage for the road, because the cars are kept in more constant use, and the shipments are not delayed for want of cars. l"7) ii8 In the case of the Union (now owned by the Pennsylvania Company) and the Empire Transportation Companies, the same general policy is carried out, and differs from the other transportation lines on your road in two respects — first, they use many different railroads, the length of your road being but a small proportion of the entire length of roads used; and, second, they are allowed compensation or derive profits from the use of their cars, in addition to the ordinary wheel toll and car service, to an amount sufficient to cover the expenses of warehouses, soliciting and shipping agents, scattered along and at the termini of the roads they use. The use of your road for the transportation of cars owned by private persons or by companies, though under the same general policy, has not been objected to, while the same use by the Union and Empire Lines has met with general disap- proval. If the principle is good in the one case, we do not see why it is not good in the other. The argument that the railroad company should have all the possible profits is as applicable to one as to the other. Yet just here lies the question. Any one conversant with the working of the transportation department on your road must acknowledge the wisdom of allowing the market cars, the line cars from the Cumberland Valley and other roads, the coal, lumber, ore, and pig-iron cars of companies, to use your road; while with the other lines the objection against them is one more of suspicion than of knowledge or principle, — of suspicion, lest the Pennsylvania Railroad Company is not receiving from these lines a fair price for the facilities afforded, and lest they take away business from your cars for which you have provided stations and agents; in other words, whether they do not use the facilities provided for your own busi- ness to their advantage without paying a sufficient com- pensation therefor, they selecting the highest-paying freight, and leaving your road to carry the lowest classes. 119 The legal right of any individuals or corporations to use the road of this Company as common carriers is protected by the charter and repeated decisions of the courts. We do not feel competent to determine the question of the sufficiency of the rates received by your Company for the use of your road and its facilities, but are satisfied of their general correctness, from the prices charged, or car service allowed local companies on other roads, and from an examination of the contracts of the last of the " Through Freight Lines," — " The Empire Transportation Company I' with several other companies in the same latitude, such as the Philadelphia and Reading, the Lehigh Valley, and the Central of New Jersey. The terms of these contracts are not precisely similar, yet in their working there is no practical difference. The contract between your Company and the Empire Company is based upon the true principle — that of your Company participating in the profits from increased rates for freight, the charges against the Empire Company being reduced to a fixed percentage of the moneys received from the freight carried. I. The Empire Transportation Company. We here enter on the consideration of a subject that has attracted very general attention, and with very great differ- ences of opinion, — the relations of the above-named company with the Philadelphia and Erie Railroad and with your Com- pany as lessees. Let us carefully study the conditions of the case that a correct judgment may be formed. The primary object of your Company was to attract and build up a profitable traffic on the line of the Philadelphia and Erie Railroad. The ques- tion at once presented itself, how was this to be accomplished ? As the possible trade was two-fold, one local and the other foreign, coming from other roads, two methods were open — 120 first, for your Company to furnish the cars for the local trade, and for the foreign trade to make arrangements with con- necting roads for interchange of business and forming of through lines; or, second, to make such arrangements with a private company as would draw and secure foreign trade to the Philadelphia and Erie Railroad. As to business origi- nating on the line of the road there was, of course, no trouble ; but in attempting to draw traffic from the West, this difficulty was met with — the railroads over which foreign traffic could come were confined to the Atlantic and Great Western at Corry and the Lake Shore at Erie, which roads are in the interest of either the New York and Erie or the New York Central Railroads. This fact clearly disposed of any possible contract with either of those roads to form a line for through freight either to or from Philadelphia or New York, by way of the Philadelphia and Erie Railroad. The negative position of those roads to the interests of the Philadelphia and Erie Railroad developed another fact, that while no through co-operative line could be formed, all the traffic that could be drawn to the New York lines was solicited and obtained by transportation companies who used not only the main lines of the Lake Shore and Atlantic and Great Western roads, but held contracts with most of the other railways, especially in the North-west, and thereby drew the trade to those lines. It was evident then that the only opening left to obtain traffic for the Philadelphia and Erie Railroad from the West was to establish similar agencies. Experience in the West has demonstrated that a railway cannot determine the route or destination of traffic origina- ting on its line, and certainly has no controlling influence on trade at competitive points. Elements independent of the way of carriage first determine the destination of freight. After that, questions of time, safety, rates, &c., fix the route. With so many competitive points in the West, the railway 121 companies recognize their true interests in furnishing every facility to the shipper of freight, and do not attempt by possible hindrances or unwise charges to defeat his interests, resulting, as it would, to the injury of the railway com- panies. So intermixed among the western roads is the passage of freight that railway companies cannot make arrangements among themselves to work it successfully, and there is an absolute necessity for the intermediate presence of a third party, whose lelations to all the companies give them access to their different roads. A company organized purely by the railway companies to do this kind of trade has been tried, and has not proved successful. It lacks the force, energy, interest, and immediate responsibility which a private com- pany, working for its own interests, furnishes. The transportation companies are, therefore, a necessary product of the peculiar character of western traffic, and are indispensable to every well-managed trunk line between the East and the West to fully meet the wants of the public. With a full knowledge of the complication of this busi- ness and the work that must be done to draw trade from the West and North-west from the New York lines, and carry it over those lines to Erie or Corry and there pass it to the Philadelphia and Erie, the last question, then, for the Pennsylvania Railroad Company to decide was, whether they should enter upon this peculiar kind of railroad busi- ness or make arrangements with a transportation com- pany to perform the work. The practical difficulties in the way of its being done by the Pennsylvania Railroad Com- pany, and the amount of capital and extended connections required, will be best shown by giving some data of the Empire Transportation Company. This company owns four thousand five hundred cars of all 122 kinds; has contracts with five thousand three hundred and ten miles of railway to furnish cars, &c., — of these three thousand five hundred and ninety miles lie west of Erie; uses in its business sixteen thousand six hundred and forty additional miles of railway. It also owns eighteen large steam and sail vessels on the lakes, plying between Erie and western ports; at Erie it has two large elevators and ex- pensive docks; in the city of New York it has to provide accommodations for receiving and distributing freight. To transact this large business a large number of agents must be scattered over the twenty thousand miles of western railways. With this condensed sketch of its operations, you will bear in mind that all the freight the line obtains in the West is secured by competition with other lines, and requires live, active agents at alt points, and that the success of this company depends on the closest attention to its interests at every point. To your committee it is evident that, first, the Penn- sylvania Railroad Company had not ;^8,ooo,ooo of capital to spafe to put into this branch of business ; second, that by the lease the Pennsylvania Railroad Company is not required to go off the Philadelphia and Erie line to solicit trade, and that it could not manage the peculiar character of this com- petitive traffic with success. It is one of those cases where a public corporation would fail in managing as closely and economically as a private corporation. In the one case the agents would be salaried officers ; in the other, by salary and an interest in the stock of the private corporation much greater efficiency is secured. The fact of the New York and Erie, the New York Central, and other large railway companies having made such arrangements with private corporations, is certainly some evidence of its propriety. And more than this, though the Pennsylvania Company has absorbed the Union Line, 123 and it does not now exist as an active company, yet the experience of that company — which is the exponent of the experience of your executive officers — causes them to con- tinue the practical organization and preserve the name of the Union Company. There is in the very nature of the case so much less red tape or, form to be gone through with in making contracts, adjusting losses or damages, &c., with companies like the Union Transportation Company, that a shipper will always prefer sending merchandise by such companies, though at somewhat higher charges, rather than by the cars of the railroad company. This is a prac- tical fact and cannot be overcome. So much for the western business. The next important question in connection with the work- ing of this line is in the transportation of oil from the Allegheny region. This region is the centre of very active competition among the leading railroads to the east, from the enormous tonnage it affords, and to secure it very great expense has to be encountered and very considerable risk. To those of the stockholders unacquainted with the pecu- liarities of this trade, we give a few items of the kind of work that has to be done by the transporters, and illustrate it by the Empire Transportation Company. They have laid about four' hundred miles of iron pipe, traversing the whole oil country, to connect the wells with the tanks built by them at the different stations on the railways. They are at a large outlay for pumps and appliances, have to build peculiar cars for carrying the oil, which are worthless for other purposes and are at a much greater risk of heavy loss from fire, and operate a complete private telegraph line through the oil region. To watch and take care of all this property requires a large, skilled, and expensive organi- zation. It is a kind of work which a private corporation 124 can do, but which one like the Pennsylvania Railroad Com- pany cannot do as well. This company also acts as transporter on the line of the Philadelphia and Erie Railroad, and in some instances on your main line. In these respects, it occupies precisely the same position as other parties using your road with their cars. To give you a better conception of the amount of freight furnished by the Empire Company and carried over the Philadelphia and Erie Railroad to points west of Erie, and from points west of Erie to the east, we add the following for the year 1873 : — Tons of freight carried east, ... . 318,352 Tons of freight carried west, 95.724 Total, 414.076 We also add the number of tons received from and sent west by the lake line owned by this company — Tons of freight sent east, .... 161,355 Tons of freight sent west, ...'.. 24,086 Total, 185,441 By the contract with the Pennsylvania Railroad Company the Empire Line is prohibited from carrying live stock, being confined to merchandise and oil. The result of this is, that no live stock is carried over the Philadelphia and Erie Railroad, while the Lake Shore Railway carried east through Erie, in 1873, three hundred and ninety-six thou- sand tons of live stock ; and it shows the impossibility of taking freight away from the Lake Shore Line at Erie. 125 The same result will be shown by reference to the passen- ger travel. Your Company, finding that the through passen- gers will not leave the Lake Shore and Atlantic and Great Western roads, have wisely adapted the passenger trains on the Philadelphia and Erie Railroad to suit and develop the local travel, thus, by decreasing speed, saving heavy expense. In addition to the competitive tonnage given above, (five hundred and ninety-nine thousand five hundred and seven- teen tons,) the Empire Transportation Company moved an oil tonnage over the Western Pennsylvania, Allegheny Valley, and Pennsylvania Railroads to the seaboard of three hundred and fifty-three thousand three hundred and twenty tons, making the total competitive freight given to the Pennsyl- vania Railroad Company, on its different lines east of Erie and Pittsburg, nine hundred and fifty-two thousand seven hundred and thirty-seven tons. Again, your Company makes use of the Empire Com- pany's organization to solicit freight, and thereby success- fully meet the competition of rival lines for traffic at local points on your main line and branches, such as Lancaster, Harrisburg, Carlisle, and Chambersburg. This character of work, while unprofitable to the Empire Company, saves to the Pennsylvania Railroad Company the expense of a corps of soliciting agents. 2. The Pullman Palace Car Company. This company supplies your roads east of Pittsburg with about one hundred sleeping and drawing-room cars, worth, on an average, $15,000 for each car, or, for all, $1,500,000; and the roads west of Pittsburg with seventy cars, worth $1,050,000. They furnish a valuable and indispensable accommodation to passengers, for which they are paid by the traveler, and 126 are an entering wedge to the true principle of charging in proportion to services rendered. There can be no question as to the entire abihty of your Company to do this work as well as it is done by the Pullman Car Company. In the matter of investment there could not be much difference. You now have in- vested in this company — $'j'jo,ooo eight per cent, bonds, (with power to change, in three years, into an equal amount of stock at par,) worth ;^770,ooo 1233 shares stock, at par, paying twelve per cent, dividend, 123,300 ^893,300 It would require an additional investment of $6l6,yoo to fit your lines east of Pittsburg with the necessary equip- ment. As to profit. Their cars, transported over your lines, make a profit quite equal to those on any other equal number of miles; and if they can make a dividend of twelve per cent., counting in their unprofitable lines, the same expenditure of money would probably bring you greater profit, besides having the absolute control of the cars and the agents. On the other side, we recognize difficulties in the legal position of the Pullman Company under existing contracts — the question of your legal power to make an extra charge for such accommodation — whether the patents held by the Pullman Car Company are absolutely necessary to build an acceptable sleeping car, and other practical questions, and would therefore recommend their submission to the wisdom and discretion of the Directors. But one point we desire very plainly to urge and insist 127 upon : that the public, who use the Pullman cars, should pay more to the railroad company than the small additional sum paid to the Pullman Company. They do not pay enough for the facilities and accommodations afforded. We may sum up our conclusions after this long discus- sion and after acknowledging that they are almost entirely contrary to our impressions when we began the investigation, partaking as we did of the common prejudice against the introduction of such companies on your lines, as follows : — 1. The policy of encouraging private persons or corpora- tions to avail themselves of their legal right to use your road is correct, and is conducive to the interests of both parties when a proper rate is charged. 2. That the work of the Empire Transportation Company is of that peculiar and special character that it cannot at this time be replaced by any organization your Company could form to do the work so promptly, so economically, and with such satisfaction to shippers and such ultimate profit to the Philadelphia and Erie Railroad Company and to the Pennsylvania Railroad Company. 3. The Pennsylvania Railroad Company works the Phila- delphia and Erie Railroad at cost, — receiving no profit except for what trade and travel may pass over the line from Harrisburg to Philadelphia, or other lines in which they are interested, — and your Company is certainly under no obligation to enter upon a large outlay of capital, such as would be involved in replacing the investments of the Empire Transportation Company; and though largely inter- ested in the stock and bonds of the Philadelphia and Erie Railroad Company, yet the Pennsylvania Railroad Company cannot be expected to furnish all the capital and take all 128 the risk to benefit the balance of the stockholders and bondholders. We have not heard of any proposition from the other stockholders to make up their share of such required capital, though constant efforts have been made to induce your Company to shoulder this burden. 4. The question of rates charged and allowed to private transporters and to the Empire Company we cannot under- take to discuss. We are willing to leave their decision to the Directors of your Company. The percentage of divi- dend paid by the Empire Transportation Company, viz., ten per cent., and the market value of its stock varying not much from par, would indicate that its profits are not unreasonable. 5. There is a tendency in such companies to verge too far in looking after their own interests, and there may be an inclination to infringe upon the interests of your Com- pany. That this has been done is generally believed. It is, therefore, the more necessary that the officials and em- ployees of your road shall be entirely free from any interest in such lines, and that the attention of -the Directors be especially directed to the details of the working of these companies. ARTICLE VII. Coal Lands. The coal properties owned wholly or partly by your Company in the anthracite regions of our State are located in the Lykens Valley, at Shamokin, near Hazleton, and at Nanticoke Dam, in the Wyoming Valley, and embrace an aggregate of twenty-seven thousand nine hundred and fifty acres. The Lykens Valley Coal property is situated about twenty miles n^rth-east from Millersburg, on the Susquehanna. The lands lie in a con- tiguous block, extending about nine miles, containing an area of nine thousand two hundred acres. No other company has access to these veins. In addition to the nine thousand two hundred acres of coal land there are about three thousand acres of valley land, mostly valuable for agricultural purposes. Owing to the great depth of the basin at Bear Gap, as well as the quality of the coal contained therein, this coal land is of more value than any equal number of acres in the State. The quality of the Lykens Valley coal, which thus far has been the only coal worked in this region, is well known. The price averages at least seventy-five cents per ton higher than any other anthracite coal, with an increasing popularity and a demand resulting therefrom which makes this, perhaps, the most valuable coal property in this country, not only from (129) 130 its vast extent, but from the fact that its coal, from its quality, is at all times in active demand. A very low estimate from actual surveys makes the workable coal of these lands equal to one hundred million tons. The precise ownership of your Company in the Lykens Valley coal lands is somewhat difficult of exact expression. The Summit Branch Railroad Company virtually owns the whole region, because in addition to its own property it owns seven thousand three hundred and nineteen out of a total of nine thousand eight hundred and eighty-three shares of Lykens Valley Coal Company's stock. It has also claims for money advanced to the latter company amounting to $964,889.38. This is equal to the full ownership of the Lykens Valley property. Your Company owns forty-three thousand eight hundred and four shares out of eighty-two thousand five hundred shares of the whole capital stock of the Summit Branch Railroad Company. You acquired the ownership of this stock at different times and different prices, the aggregate cost for the whole interest being $1,495,024.64. There are four collieries and breakers upon this property, with an average daily capacity of three thousand five hundred and fifty tons. The purchase of the Lykens Valley property, under the circumstances, was moslr judicious. It was purchased at an early period, at very low figures, and entirely in accordance with the most conservative policy. The Northern Central Railway, a majority of whose stock is held by you, was dependent upon these regions for traffic to Baltimore and intermediate points. Securing these coal properties gives this road and your road, east from Harrisburg, and the canal interest you hold from Millersburg, a valuable tonnage for a great many years to come. The value of this coal property must increase ; and in the 131 judgment of the committee the management is wise in its determination that its product shall be mined only as the trade may demand, at largely remunerative prices. It is a property so valuable, so accessible to the market, with a coal that must increase in popularity and in consumption each year. The property should be worked, therefore, only to supply the immediate demand. Full rates are charged to transport this coal, so that your Company obtains, in addition to the profit on the coal, a very large sum for its carriage. The manifest skill, care, and vigor with which the business is conducted is deserving of special commendation. The Summit Branch Company, in addition to the above, owns property, not immediately located in this valley, worth perhaps ;^ 150,000. Shamokin Region. The ownership of the Shamokin coal field is in the Northern Central Railway Company (as lessee of the Shamokin Valley and Pottsville Railroad) and in your Company, but the prop- erty is worked by the Mineral Railroad and Mining Company. Its stock amounts to fifty thousand shares, at twenty dollars per share, of which one-third is held by the Pennsylvania Railroad Company and two-thirds by the Northern Central Railway Company. This company's coals are of good quality, but inferior to those mined in the Lykens Valley region. The true policy of the company is that no more coal shall be mined from this property than will supply the southern and western demands, except what may be required for the Boston market, which, as a rule, pays a satisfactory profit. The collieries have been held by the company but a few years, and during that time heavy improvement expenses and 132 bitter competition along all the lines of transportation con- trolled by your Company have prevented much progress or profit, except in the way of feeding the retail trade at Boston. There are eight collieries upon this property, with an aver- age aggregate daily capacity of two thousand four hundred and seventy-five tons. The land embraced in the Shamokin region amounts to seven thousand eight hundred and eight acres, all underlaid with coal with veins in shallow basins. The principal veins thus far worked are from eight to ten feet thick, and lie in close proximity. The portion of this property held by your Company cost $1,092,574, and has, perhaps, a cash value to-day of $1,300,000. The Hazleton Property, Owned by your Company exclusively, consists of from two thousand one hundred to two thousand two hundred acres, and is yet undeveloped, except by a small expenditure for explorations. These explorations would seem to establish the fact that this property is underlaid almost entirely with coal. The larger part of this property (say one thousand seven hundred acres) was bought at a cost of $180,000. Afterwards the Nicholas Rope tract was purchased. It contains about four hundred and forty acres, and cost in Pennsylvania Canal bonds, at par, $99,000, with an expendi- ture of some $14,000 or $15,000 for explorations, taxes, and interest, making the whole Hazleton property stand about $295,000. From the situation of the property, and fi'om the results of borings, shaftings, and testings of various kinds by com- petent and skillful men, it would appear as if this property, bought very low in comparison with its real value, will prove to be one of the most valuable coal properties of the 133 State. From the notes of the geologist, as well as from the borings made under the direction of Major Anthony, these gentlemen have no doubt but the Mammoth vein underlies a large portion of the property. If this be the case, this property, which cost an average of ^^iSo an acre, including interest on the bonds and expenses of explorations, is clearly worth from ;^iooo to ;^I500 an acre. At ;^iooo an acre, which is the lowest sum named, it would be worth ;g2,200,ooo. From this coal property there is a direct route over the Danville, Hazleton and Wilkesbarre Railroad to the Northern Central and Philadelphia and Erie roads, as well as to all lines controlled by the Lehigh Valley and Lehigh Naviga- tion Company. The Susquehanna Coal Property. This company was organized in 1869, and the property is owned jointly by your Company and the Pennsylvania Canal Company, the whole being under the control of the former. The original purpose of the investment was to produce in- creased tonnage for the canal, and at the same time, partic- ularly during the winter months, to provide your rail lines lying west of this point — the Northern Central, &c. — with tonnage which otherwise would be diverted to other channels. The area of coal land embraced in these properties is five thousand eight hundred and twenty-three acres. It lies on both sides of the Susquehanna, at Nanticoke Dam. The cost, including discount on bonds partly used as purchase- money, was about $SSS an acre — making ^3,232,067.48. Adding improvements, buildings, &c., it amounted on the thirty-first day of last December, to ^3,931,323.57, — of this amount your Company has paid ^1,555,109.77. The Susque- hanna Coal Company has authority to issue six per cent. 134 forty years bonds, with coupons, amounting to ;^2,ooo,000, of which amount ^1,283,000 have been issued, with the prin- cipal and interest guaranteed by the Pennsylvania Railroad Company. The stock consists of fifteen thousand shares, at a par value of ^loo per share, amounting to ^1,500,000, of which the Pennsylvania Canal Company owns ;^500,000 and your Company ^1,000,000. The larger portion of the land at Nanticoke lies on the south side of the river. The breakers are erected in very favorable locations, so that shipping facilities can be had by canal and railroad over the Nanticoke and Lehigh Valley and Lehigh and Susquehanna Railroads, to the market at South Amboy. The bridge at Nanticoke is now com- pleted, and increased rail connections with our lines, via the Lackawanna and Bloomsburg Railroad to Northum- berland, will largely increase the tonnage, enabling all the collieries to work fully up to the demands of the market. They are now greatly in want of .winter transportation southward. It is believed that the charge for transporting freight for other roads across the bridge will more than pay the interest on the investment, besides giving enlarged facilities to our own interests and saving about twenty-five cents per ton on all the coal from the south side shipped east, west, and south. Perhaps no property in the State is better located for the mining and shipping of coal than the Nanticoke property. The product all naturally centres in the bay or basin, where coal can run to the breakers and be shipped over the canal of the Susquehanna Valley to tide-water, or by rail, as before referred to. There are four breakers completed, with an aggregate daily capacity of twenty-eight hundred tons. I3S The improvements now in course of construction upon this property are of the most thorough and substantial character, and when completed, which will be in the next three or four years, will make its capacity nearly one million tons per annum. The improvements going on now consist of two shafts — one double, the other single — and a slope with breaker, from which shipments can be at once made. The propriety of expending a large sum of money, so as to increase the immediate product of these mines, seems very doubtful. The property should be worked so as to give what tonnage may be needed, in connection with coal purchased, to fill the contract made with the Lackawanna and Blooms- burg road, amounting to two hundred and fifty thousand tons per annum, when it cannot be purchased elsewhere, and to supply the canal with what may be carried over it profitably. The danger is that a desire to give tonnage to the canal and to the railroad will deplete the property, without receiving therefrom an equivalent for the valuable product shipped. We are glad to have the assurance of the President of the coal company that the future policy in the Wyoming region shall be as above suggested. The management of the Nanticoke property, on the whole, is vigorous and efficient. No one can visit the anthracite coal fields without being struck with the rapidity with which these lands are being depleted of their rich deposits. The belief is entertained by some of the best informed and most practical men that twenty-five, or even twenty years, of such mining and shipping as is going on at present will make the anthracite fields of Pennsylvania so difficult and expensive to operate as to bring into market the almost as yet un- touched bituminous coals in the western part of the State, which are practically inexhaustible. An increased price per ton, not much beyond the present price, will enable the bitu- minous coal fields to ship their mighty product to all the 136 eastern markets. Already the shipments o^ this coal to the seaboard and to Buffalo and other points north are attracting notice, and the increase of tonnage within a brief period is very remarkable. Our main line and branches in the western portion of this State run through more than two hundred miles of country which abounds with this great source of wealth. The ton- nage from it must increase each year upon our road, and become ultimately a source of immense revenue to the Company. Indeed, no man can at present estimate the future production and shipment of bituminous coal east, for use in our own and perhaps in other countries. Policy of Railroad Companies Owning and Working Coal Lands. It has become the custom in these latter times for great railroad companies to take into their own hands interests that, in the early history of the country, were supposed to belong exclusively to other corporations or individuals. This policy is not only of doubtful propriety, as affecting the interests of the people of the Commonwealth and the country, but in- volves financial problems that may confuse and confound the wisest of managers. The Philadelphia and Reading Railroad Company is an exemplification of this modern idea. Twenty years' experience alone can solve the problem undertaken. Embarrassments of a serious character arose as to a uniform supply of coal from private parties, with the difficulty of controlling labor ; but it is a gigantic undertaking for any corporation to attempt, unless under the most favorable cir- cumstances, to prepare and control the production it carries. Your Company, of all the railroads in the State, is farthest removed from the necessity for any such policy. It is 137 purely a company for transporting supplies shipped over the main road and its branches. Its locality must make it increase in value as the country increases in wealth and the West increases in population, because each new acre tilled, and each new town built, must send over this great artery of commerce a share of its productions, and receive in return the necessities and comforts of life. You can, therefore, only afford to enter into the purchase and control of coal properties, in any section of the State, to conserve some local interest entered into. If this view be sound, the managers of your Company would seem to have been debarred from having anything to do with coal properties in the anthracite region except for special use along the line of the road, or in the Lykens Valley or Shamokin regions to give tonnage over the Northern Central Railway and the canals connected therewith. The judgment of the com- mittee is that the purchase, joint ownership, or control of coal properties by your Company should have begun and ended with the Lykens Valley and Shamokin properties. The purchase of the Hazleton property was in pursuance of the policy of acquiring large interests in the anthracite coal fields, which the late administration thought they were forced to adopt, which purchase, as well as that at Nanticoke, is believed to have been injudicious. Your committee have every reason to believe that the present management of the Company will shape its policy into wiser and more conservative channels. If purchases and undertakings have been injudiciously entered into, they should not be timidly or hastily abandoned, but so directed as to recover, if possible, what may have been endangered. This ground has been taken by the present management, and it is hoped will be rigidly adhered to. It is believed that in the future all the energy and genius of 138 the management will be devoted to conserving and develop- ing the interests already possessed. Transportation. As the subject of transportation has occupied considerable attention, it may be well to suggest that what seems to be absolutely required in the movement of coal, from both the Lykens Valley and Shamokin regions, is that the Com- pany should be placed in position to control eastern ship- ments which now largely depend upon the Reading Railroad. The purchase of six hundred or one thousand cars by the Summit Branch Railroad Company would enable shipments to be made directly to Greenwich, on the Delaware, instead of over the Reading Railroad to Port Richmond. When there is a brisk demand for cars the Reading Company may use their cars for mines of their own, and thus limit the pro- duction of these properties. This ought to be changed, and the Summit Branch Company or your Company and the Northern Central should furnish cars for the full movement of coal produced when the profit is satisfactory. The freight from the Lykens Valley region last year was four hundred and fifty-nine thousand one hundred and fifty-nine tons, and from the Shamokin region two hundred and forty-seven thousand three hundred and seventy-six tons. The average cost of carrying this coal last winter was as follows : — To Dauphin forty-two and one-half cents, to Richmond one dollar and eighty and thirteen one-hundredths cents, making a total of two dollars and twenty-two and sixty-three one-hundredths cents. If this was carried to Greenwich over your line, retaining the forty-two and one-half cents charged on the Northern Central Railway, it would have a haul of one hundred and twenty-five miles, and a rate per ton per mile of one and forty-four one-hundredths cents ; or, if 139 prorated with the Northern Central, the rate for both com- panies would be one and fifty-four one-hundredths cents per ton per mile. The net profit on this business (now given to competing lines) would amount, from the Lykens Valley trade alone, to ^200,000 per year. The amount paid for freight to the Reading Company on coal from the Lykens Valley, during 1873, was ^406,208.30. The total amount of freight paid to the Reading Railroad Company for the trans- portation of coal from the Lykens Valley and Shamokin regions, during the year 1873, was ;^52i,933.84. The shipment of the Susquehanna Coal Company's product east over the Lehigh Valley and Susquehanna Railroads, instead of west and south over the Northern Central and other lines owned or controlled by the Company, has occa- sioned some criticism. It is but proper to give the facts in the case. First. — No coal is shipped east over the lines named, except such as our western and southern market will not profitably take. Second. — The amount shipped east is only about one-third of the whole product. In giving direction to shipments, the officers of the coal com- pany have to regard the profit on the coal as well as the interests of your transportation lines. In shipping west and south, you carry the coal to its desti- nation over your own lines, except sixty-four miles over the Lackawanna and Bloomsburg Railroad. In shipping east, your own lines do all the work, except from Warrior run to Philipsburg, a distance of ninety-six miles. It would therefore be to your advantage for shipments to be made exclusively to the West and South, so far as transportation is concerned. But at times one size or variety of coal is dull of sale in one market and active in another. Hence it is most profitable to ship coal to the market that will pay the best price for it, even if it goes a greater distance over some other road. 140 Annexed is a summary exhibiting the acreage, cost, and estimated value of the coal properties : — No. of Cost to Present Esti- Acres. Penna. R. R. Co. mated Value. Lykens Valley coal region, . . 12,200 ^1,495,024 64 ;^7, 000,000 Shamokin coal region, .... 7,808 ij092,574 00 1,300,000 Hazleton coal property, . . . 2,119 295,000 00 2,000,000 Wyoming Valley coal property, 5>823 i>55S>io9 77 2,236,884 Totals, 27>9S° ^4,437>7o8 41 ^12,536,884 The above we believe to be a correct estimate of value, but the properties being recently purchased and only partly developed, we have taken them at cost in estimating the Company's assets. ARTICLE VIII. Finances. I. Mode of Control of Other Roads. We desire here to say a few words on the policy we think should be adopted towards the branch and connecting rail- ways. 1. Where it is possible, and the interests of both parties can be justly taken care of, we think you should absorb all the smaller companies into your corporation, thereby saving the annual expense of keeping up a separate organization, and securing thereby greater economy of management and simplicity in the accounts. 2. Where it is not advisable to absorb, we think your policy should be to lease, and leases may be of three general kinds — (i.) By paying a fixed rental. (2.) By charging a fixed pro rata rate of receipts. (3.) By working the roads, charging the absolute cost thereof, and receiving compensation for the use of engines, machinery, &c. Where a lease is based on a fixed and fair present rental, which presupposes always that the business of the company will warrant it, the advantages to the lessee are — I. That such a lease will grow in value to the lessee as the business or the trade on the road increases, and the (141) 142 railroad company, as lessee, may expect in time to receive increased profit. 2. The second plan is one of doubtful propriety. It unsettles the values of both parties, and while it may approve itself as a general principle, yet we think experience has shown it is an undesirable method. J. The plan of working leased roads at cost has been thoroughly tried by your Company, and is peculiarly well adapted to the leasing of roads of uncertain value and of short branches, but is inferior in profit and advantage to your Company to the mode of leasing under a fixed rental, where the prospective growth and development of a road is clear and undoubted. /. A strong motive for holding branch roads by lease rather than by ownership of stock or bonds is, that the continual decrease in the purchasing power of the standard of value will gradually lessen the value of bonds held as an investment. A dollar, to-day, will purchase either of material or labor but little more than thirty-three cents would buy fifty years ago. Then one dollar was the ordinary wages for a day's skilled labor — now from three to four dollars is demanded for the same quality, and the time shortened from twelve to ten hours. The discovery of gold in California and Australia, and the pouring into circulation of the vast sums produced in the mines of those countries, have been sufficient to effect this change, irrespective of the issue of paper money in the United States ; and consequently, in a long term of years, the appreciation in the nominal value of a railroad bond, even though bought below par, will be apparent rather than real. On the other hand, the rental of a leased road, from the same cause, becomes every year less and less burdensome, the traffic and travel producing larger U3 sums for their conduct, and the amount of rent exhibiting no corresponding increase. We may here remark that this same cause will have its influence in making the leases and guarantees of the Penn- sylvania Railroad Company and the Pennsylvania Company less burdensome and more profitable year by year. Though these may be just at present a drain upon the finances of the parent corporation, yet the irresistible progress of events and the logic of circumstances will, in the end, prove the value of those arrangements. The gradual filling up of the territory will provide travelers and freight, while the decrease in the value of gold will give more dollars in payment for services rendered by the roads — the rentals and guaranteed interest on bonds remaining stationary. 5. Again, by your absorbing and holding railways as lessees, instead of controlling them by owning a majority of stock, it releases and relieves you from adding largely to your capital, that you may be able to carry the stocks and bonds necessary to keep control of such railway. This point will be more specifically referred to hereafter. 2. The Necessity for the Pennsylvania Railroad Company's Managing the Finances of Roads under its Control. We here, at the outset, meet with a difficulty. It would seem most proper that the large companies under your control as lessees or by majority of stock should take care of their own finances and furnish from their own property sufficient security to provide for any needed enlargement. It seems very objectionable that the money interests of all these companies should fall back on your treasury for the assistance they require, and on your credit to give them a standing in the market. 144 Yet we are convinced that it is out of the question to separate the financial management of these different com- panies from your own. The very fact of your taking an interest in a railroad company, while it helps the credit of that company, certainly causes the capitalist to expect the addition of your endorsement, and we are rather surprised than otherwise to notice how successfully your Directors have avoided this tendency. Yet the fact remains, and must be accepted, that the general control of the financial wants of all the railways in which you are interested must be in your hands and subject to your guidance. To get, then, some conception of what this amounts to, we refer you to the statement showing the amount of stock, bonds, receipts, and expenses of these roads in 1873. In addition to furnishing the capital needed for conducting the general business of these roads without floating debts, which, including the Allegheny Valley Railroad, amount to about ^18,000,000, it will be necessary to provide for the pay- ment or renewal of most of the bonds as they become due — that is, ^180,000,000 bonds, within thirty years. This is of itself a great undertaking; and yet more, as the business of these roads increases an amount of money must be annually „ raised to pay for enlargements and extensions to meet the demand. With a small additional increase — say two per cent, on the ;^ 150,000,000 of capital — you would need at least ^3,000,000 to be raised in some way each year, or even more than that amount, if the trade on the roads grows more rapidly than estimated. You will agree with us that the taking care of these three items will add to the responsibility of your Directors, and we make the suggestions in this report, under the head of Organization, imperative. Three somewhat compensating advantages accompany this responsibility — 145 1. You will control more completely the financial manage- ment of each road in which you are interested as endorser, guarantor, lessee, or stockholder. 2. By a wise comprehension of the wants of all your lines, you can the better regulate the whole question of extension and betterments over these lines, making the payments for the same less burdensome and more readily handled. 3. The concentration of the management of these finances in one board will simplify your intercourse with capitalists, who will the more readily learn to appreciate your securities at their true value, and not depreciate them by reason of their large amount. This is a school which our own capitalists need. It is sometimes difficult to make them understand that large operations can be successful. J. Floating Debt. It has been a characteristic of the management of your Company to prepare, in advance, to meet the wants and demands of the growing trade upon your road and its tribu- taries; and this has, at times, caused your Directors to raise money on their notes before realizing the necessary funds from its revenues or sales of bonds or stock. It is easy to see how any disappointment in the sale of such securities, or disturbance in the money market, would find them with a large floating debt, as in the fall of 1873. A floating debt of a railway company is always an evidence of imprudent financiering; it throws a suspicion on the credit of a strong company, which is, of itself, a hindrance to the negotiation of its bonds, and is injurious in two ways — in subjecting the company to paying high rates of interest, and in lowering the percentage at which the capitalist will purchase their bonds. 146 To the credit of a weak company it is disastrous, for it is the confession of its standing before investors of money; and the rates of interest such a company must pay will, in the end, prove ruinous to it. These principles are applicable to your Company. A temporary injury was done to its credit by the existence of a large floating debt. It is, then, evident that the first duty of your Directors is to provide for the payment of all its floating debt. The shareholders should express their will and judgment, first, that no future floating debt shall be made except — as must arise in all kinds of business — for purely temporary use ; and, second, that it is safer and more to their interest to delay improvements until the funds are provided to pay for the same, as hereinbefore suggested. 4. Construction Account. We strongly recommend to your Directors the continu- ance of the policy of the Company to charge to expenses a fair proportion of what would otherwise be placed to construction. The advantage of this policy is seen in the comparison we have shown of the real cost of your road with that which is represented in the general account. It gives so much additional security to your stock and bonds, requires so much less money to pay dividends, and renders you the better able to successfully compete with other roads. Again, it is but fair to do so, for there is an annual integer of destruction and depreciation in values that have been charged to construction account, and which can only be made good by replacing it by other work and charging that to expense account. 147 5- Reduction of Capital Stock and Funded Debt. At the risk of repeating ourselves, we think it better to aggregate what we have said in previous portions of this report, on the reduction of capital, in a separate article. No one will question that the true policy of your Company is to keep the amount of capital stock and bonds at as low a figure as possible consistent with your true interests. We have heretofore suggested the two ways in which this can be done — 1. By leasing or absorbing such roads as come in their terms within the range of safety to your treasury, and when such roads are leased, to dispose of the stock and bonds you may hold of that company. 2. By sale of all securities that will bring an approximately fair price, and which can be parted with without injury to the Company. By the previous policy of the Company there has been brought into your treasury a very large amount of stocks and bonds of companies which have been leased by you or by the Pennsylvania Company, and the proceeds of these purchases have been used to improve such roads. These stocks and bonds, in the great majority of cases, were bought at low figures. But the policy of your Directors has been, first, to take hold of some roads in poor condition ; second, to keep the stocks and bonds in your treasury until they should increase in value and pay you a large profit; and, third, to enable you to purchase and hold large amounts of stocks and bonds of leased roads, it has been necessary to issue a large amount of your own stock and bonds, thereby increasing the sum required for your semi-annual dividends and the interest on your bonded debt. This has 148 been a policy full of danger to your interests. It led your Directors, in times when money was abundant and seeking investment, to enter upon operations which otherwise they would not have approved. It is no new thing to see a company destroyed by the burden of non-productive invest- ments, which, if kept strictly within proper bounds, would have been grandly successful. This is a recognized danger to all large corporations or associations of private capital. It was this policy which led your Directors to the recom- mendation and issue of the consolidated mortgage. For a striking illustration of these points, we need go no further than the action of your board during the past few years. If the true policy of leasing other roads and of selling their securities as rapidly as they accumulated had been adopted, though at some sacrifice to your treasury at the time, you would have disposed of, before the year 1873, at least $35,000,000 of securities, all of which would have brought fair prices, thus entirely obviating any necessity for the large increase in the year 1873 of your stock, amounting to $14,873,538, and of bonds to the amount of $8,073,476, — in all $22,947,014. This policy would have provided a sufficient surplus to have avoided a floating debt. The fruits of this experience should be shown in your determination that hereafter constant efforts shall be made to keep your capital stock and bonded indebtedness at the lowest figures consistent with the true interests of the Company. 6. Funded Debt. We have, in the last article, referred to the true cause of the issue of the "Consolidated Mortgage." In addition to furnishing means for increasing the operations of the Com- pany, it affords a channel to refund the bonds already issued as they become due. This mortgage is so peculiar in its 149 construction, that we think it may be well to give its leading characteristics. 1. The main object was to furnish a mortgage that would be sufficiently comprehensive to provide for the issuing of successive series of bonds limited to a fixed total sum, without requiring the creation of a new mortgage as each series of bonds would become due. It is, therefore, made a continuous lien to secure the payment of bonds, to be issued from time to time, as the Company may determine, to the extent of ^100,000,000. The series of bonds to be issued may vary in amount in the rate of interest not to exceed seven per cent, and in time of payment, and when one series becomes due and is paid, or for any other reason canceled, the Company may authorize the issue of an equal amount of bonds, to become due at some other fixed time; the only restraint being as to rate of interest, and that the amount of bonds outstanding at any one time shall not exceed ^100,000,000; but by the law of the State, the amount of bonds issued can never exceed the amount of capital stock paid in, therefore, before the whole amount of bonds pro- vided for (^100,000,000) can be issued, 1 100,000,000 of capital stock must be paid in. 2. There are included in this mortgage, as additional secu- rity, various bonds and stocks held and owned by the Company, to the value of ^50,000,000, all of which bonds and stocks are perpetually and forever pledged, and without regard to the amount of bonds at any time outstanding, except under certain conditions, viz.: — (/.) That the securities themselves may be replaced by others of equal value. {2.) That the proceeds of the securities may be used to purchase, for cancellation, bonds issued under this mortgage. ISO (j.) That the proceeds of the securities may be released to the value of improvements made on any part of the Penn- sylvania Railroad, from Philadelphia to Pittsburg, of the leased roads of the United Companies of New Jersey, the Delaware and Raritan Canal, on the leased premises of the Philadelphia and Erie Railroad, or in the purchase by the Pennsylvania Railroad Company of other property, real or personal. 3. There has been issued and sold under this mortgage one series of bonds to the amount of ;^2,ooo,ooo sterling, at six per cent, to become due in the year 1905. A second series of bonds to the amount of ;^3,ooo,ooo sterling has been authorized at six per cent, to become due in the year 191 5, part of which last series is sold, and arrangements made for the balance. This sale is to cover the payment of second mortgage bonds to the amount of ^4,865,840, coming due April ist, 1875, about ;g2,700,ooo dividend scrip out- standing, and the balance to be used in paying the floating debt and for other purposes. If so large an amount of bonds had not been issued, or arranged to be issued, under this mortgage, we should have strongly and decidedly recommended the withdrawal of the bonds already issued, the annulling of the mortgage, that the securities therein placed might be taken out and used to meet the wants of the Company, on the ground that they were not necessary to give ample security to any bonds that might be issued under the mortgage. This will be readily seen by the recital of a few facts. As this mortgage provides for the issuing of bonds to the amount of ^100,000,000, it was right that equivalent securities should be provided as the bonds were issued. We therefore start with a capital stock security of ^68,744,495, representing an outlay and valuation of ^94,398,483 on the main line 151 alone, which no one will question affords ample security for an issue of bonds equivalent to the amount of capital stock now issued. This would have furnished the basis for an issue of bonds to the extent of ;^38,749,875 in addition to the ;^29,394,6oo heretofore issued, and left a margin on the main line alone of ^21,253,608, besides the additional security that would be derived by the investment of the proceeds of those bonds. This, with the bonds, stocks, and other property now owned by the Company, would give to the bondholders as security ^217,121,653.17 in actual values to secure ^68,744,495. In other words, when your present bonded debt shall have reached ;^68, 744,495, there will be as security property to the value of ^^21 7, 12 1,653.17; and to show the ample security provided for the whole amount of the mortgage, should it ever be required, we have the main line from Philadelphia to Pittsburg, representing a value of ;g94,398,483, on which the net earnings in 1873 were ;^9,445,703.74, less taxes and rent of Harrisburg, Ports- mouth, Mount Joy and Lancaster Railroad, being nearly three millions of dollars more than sufficient reserve to pay the interest on the entire amount of ^100,000,000 that may be ultimately issued under the mortgage. This, without allowing anything whatever for the investment or increased value of the property to the amount of about ^101,000,000, to be derived from bonds and stock required to make the issue of ^100,000,000 of bonds possible. When we add to this the certainty of largely increased revenues from this greatly increased property, it shows most plainly to the bondholder that his security is more than ample. We therefore reiterate our opinion, (i.) that these secu- rities were not needed to give ample security for any bonds that might be issued under that mortgage. (2.) That it was a waste of credit for which the interests of the Company have suffered — for the presence of those securities in that 152 instrument has not rendered the bonds more marketable nor added to the price received. (3.) That the holding of securities for a rise while borrowing money from stock and bond holders at high rates to carry them was unwise. (4.) That the placing of available securities in a mortgage was of itself an anomalous act. (5.) That the placing of those securities in this mortgage was contrary to the true policy of the Company in keeping down its capital to the lowest amount. (6.) That, in fine, the mortgage itself was not, with proper views of iinance, a necessity, for at the time of its execution more money could have been realized from the sale of those securities than from the bonds issued under and secured by the mortgage. We might name other weighty reasons, but the above are certainly sufficient to characterize the act of placing those securities in this mortgage as imprudent and improvident financiering. To show you its practical working, we need go back only to the fall of 1873. This mortgage was executed on July 1st, 1873, and the available securities and assets of the Company were thus put out of their control. When the panic came in September, the Directors found their available assets tied up, and they could not pay cash for current wants. An earned dividend was paid in scrip at fifteen months, and the credit of the Company was seriously affected, and in its tenderest spot, namely, in the confidence of its stockholders. We need not quote the prices at which the stock was sold, nor remind you how the earnings and the savings of many years were lost to many people, — and all this injury and suffering was the result of this incomprehensible and unbusinesslike act of tying up available securities while at least there was any possible chance of their being needed. With these securities in the possession of your treasury during the panic, very little 153 financial skill would have paid your floating debt as it became due, cashed your bills for supplies, paid your dividend in cash, saved you credit, and very many people heavy losses which they could not well bear. We deem this full statement necessary in order that the stockholders and capitalists may know why the Pennsylvania Railroad Company was placed in the fall of 1873 in such an unfavorable position. The position in which this locking up of your most avail- able assets placed the finances of your Company plainly leaves but one course for your Directors to follow, and which we most strongly recommend : — («.) To apply rigidly the provisions of that mortgage as to releases of securities to provide for payment of betterments, &c. made on the different railroads, as therein provided. (3.) By consolidating with or leasing railroads now in your interest upon favorable terms or at a fair rental, which will relieve you of the necessity of continuing to own these stocks and bonds now necessary to retain the control of such roads. On the resuscitation of credit a large proportion of these securities can be sold at a fair price, and the proceeds applied, first, to pay for all improvements, betterments, &c. ; and, second, to the reduction of the funded debt of the Company by the purchase of its bonds. 5. Future Profits of the Company. We have discussed, at several places in this report, different points affecting the future of your Company, and would here summarize, by more formally stating that we see nothing in its present condition, taking everything into consideration, which will unfavorably affect its future success. On the one hand we have shown that there will, in all probability, be no 154 claim on you as guarantor on the Western lines, and on the Eastern lines your absolute annual loss, under all the condi- tions of your liability, will not exceed ^280,000, with the pos- sibility of some ultimate loss from the amounts charged against different railroad companies for advances to pay inter- est on bonds, loss in working, 8ic., now considered as good. While on the other side you are justified in expecting improvement in the workings of all the lines you control. These roads have been put in good, order, at great expense, from which should result a large pro rata profit on the same amount of business, with ground to count on a much larger trade, bringing with it increased profit. With these two favorable elements, this class of roads will, year by year, lessen your liability as guarantor. As to your road proper, the advantages arising from the very great expenditure of money in the different departments of the road — the motive power and the cars — the increase of shops and tools, depots, terminal facilities, &c. — the decrease of wages and cost of material used — will all tell very favor- ably on the cost of transportation ; while the tonnage carried (temporarily affected in 1874) will show hereafter a constant increase. A stop being put to investments in foreign corporations, your finances will speedily assume a better and healthier condition, for the demand on the treasury can now be measured. The finances of the companies you control will improve for the same reasons, and their stocks and bonds will appreciate in value. Summing up these items, and looking at the past business and net earnings of your Company, we feel quite safe in recording our opinion that the net receipts of the Pennsylvania Railroad Company will, after the present exceptional year, be equal to fifteen per cent, on a capital stock of ;^70,ooo,ooo, which will give you a reliable divi- iSS dend of ten per cent, and leave ;^3, 500,000 for developing the general interests of the Company. An interesting statement of the net earnings of your main line and branches, and of the Western railroads for the first six months of 1874, has been already referred to in Appendixes B and C. 6. Summary of the Present and Future Financial Wants of the Pennsylvania Railroad Company and of the Railroad Com- panies it Controls. Gathering our estimates from the different parts of this report, we present them in a condensed form. /. For the Pennsylvania Railroad Company. There is needed, to pay off your floating debt, consisting of bills payable, acceptances, and dividend scrip, about ^7,311,000 There will be annually, for twelve years, an amount to pay the State of Pennsylvania, on account of purchase of Philadelphia and Columbia Railroad, 460,000 There will be a necessity to provide for the payment or renewal of the mortgage bonds as they become due, viz.: — In 1875, for the second mortgage, amounting to 4,865,000 In 1880, for the first mortgage, amounting to 4,970,000 In 1910, for the general mortgage, amounting to 19,558,760 In 1905, for the consolidated mortgage, amount- ing to (;^2,ooo,ooo @ ;^4.85 =^9,700,000) . 8,245,000 And to furnish means to meet the cost of improvements and enlargements consequent on increased trade about, per year, . . 3,500,000 iS6 2. For the Railroads controlled by you. To relieve them of their floating debt, not including the Pennsylvania Company, and including the Allegheny Valley Railroad Company, ;$ 18,000,000 To pay and replace with other mortgages bonds coming due, in different amounts, between 1873 and 1919, the whole amounting to . 180,000,000 To furnish means to make improvements and enlargements for increased trade, per year, 3,000,000 These statements comprise the financial outlook into the future, and we recommend they should be provided for as follows : — (i.) For the Pennsylvania Railroad Company. The floating debt should be paid, as already recommended, by sale of securities now held by your treasury, and by securities released on account of betterments, &c., as provided for in the consolidated mortgage. Being incurred on account of them, they should furnish the means wherewith this debt should be paid. The annual payments to the State should be met, as they always have been, by the profits, and charged to expense account, and, after paying the shareholders an annual ten per cent, dividend, the remainder should be used for bet- terments. If there is any deficiency, it should be made up by sale of securities, as above. The bonded debt of your road can be readily paid and replaced. (2.) For the roads controlled by your Company. The Floating Debt. — This amount is scattered over so many roads that, while it adds up to large figures, yet is not heavy, except in the case of the Allegheny Valley Railroad, 157 which is now being arranged to be funded for twenty years, before which time it is believed that the Company will be able to take care of it. The funded debt of these companies is large. That you may thoroughly understand the future demands from this cause, we give in Appendix E a very full statement of the amount of bonds, the year they become due, and the com- pany by whom issued. A careful examination of this list will satisfy you that there is nothing in this part of the financial present or future that need cause any anxiety. The money needed to extend the facilities of the roads to meet increase of traffic can, in many instances, be furnished by the surplus profits of the individual road, and in others the betterments may form a good security for an increase of stock or bonds. A resurvey of the whole concentrates the financial difficulties in one item — the floating debt of the Penn- sylvania Railroad Company and of the companies controlled by her. Let these be arranged for and put out of the way, and there will be an end to any financial trouble connected with your Company, — the expansion so prevalent in past years being ended, your Directors should hereafter manage the interests of your great corporation cautiously and prudently, developing the local business on all your lines, and placing that of the other connecting lines on a steady and firm basis, uninfluenced by personal or road rivalry. ARTICLE IX. In regard to the Election of Directors by. Directors, AND the Acceptance of Laws Without'' the Sanction OF the Stockholders. In our examination of the different laws passed by the Legislature of the State of Pennsylvania affecting your Company, we find several which have authorized the Board of Directors to accept the same, and thereby made them binding on the Company and part of it-s organic law. Among them is a general law authorizing boards of directors to elect from among the stockholders additional directors, who shall be vice-presidents and receive pay for their services. We do not think it necessary to make an argument against the propriety of acts of the legislature affecting the property and rights of stockholders being made subject to the approval of boards of directors. It is self-evident that all such laws should be submitted to and be approved by the stockholders, and we therefore have inserted a provision on the subject which will be found in our article on Organization. We also disapprove of any legislation which empowers directors to elect other directors. It is equally clear that all such agents should be chosen by the shareholders, and be responsible to them, and we have also made a provision embracing this feature in the article above referred to. (158) ARTICLE X. The Sources of the Existing Distrust in the Value of Railway Stocks and Securities. There exists in the public mind a want of confidence in railway stocks as a means of permanent investment. It is feared by some that all moneys invested in railway stocks will ultimately be sunk and lost from the operation of the causes we will notice. This state of hesitation and doubt should not exist. There is no reason for it in the character of the invest- ment. Well-located and well-managed railways will pay good dividends on the amount in cash invested in them. The causes of this want of confidence must then exist outside the nature of the case. Let us examine and find out, if possible, what they are; and we suggest, as the First. — The meagre and incomplete reports of the directors of railroads made to the stockholders. Railway directors, in their reports, seem guided by the old adage — " that the least said is soonest mended." There is a tendency to limit their reports to the general results of a year's work, giving financial results and the economic workings, while the stockholders are left in great ignorance of the value of their own property. There should be in every report the fullest detail of these items, enabling each stockholder, at the end of a year, to make his own estimate of the value of his stock. But these reports should go further and give the most ample informa- tion as to the position of the road in its relations with other (159) i6o roads, and state fully all the facts that might influence its policy, its plans for the future, or its finances. Second. — The tendency in the leading officials and man- agers of railroad companies to act as if the property they manage was their own. This is natural. Strong men, with their natural self-reliance, and from their more intimate knowledge of the particular interests of a company, are apt to assume the infallibility of their own judgment, and therefore grow impatient, and come at last to look upon a stockholder Who may ask a question, or presume to griticise their conduct or plans, as an impertinent intermeddler, and the annual problem is how to get through with the stock- holders' meeting without debate ; showing, at least, a lack of confidence in the shareholders. These persons must learn to submit to the unwillingness of the shareholders to abandon their right of judgment, though that judgment should be wrong. They also overlook the weightier and more im- portant fact that, apart from the right which shareholders have to discuss all matters affecting their interest,, the directors and officials by this means lose the profit and moral support which shareholders, educated by a full dis- cussion of the reports of the directors, would give them. We shall refer to this subject again. Third. — The fear that the property of the company may be used by officials and favored employees for their own personal benefit. This has been done in several ways — ^by furnishing materials, such as coal, wood, lumber, and iron to the road ; by being interested in companies using the road, in contracts for work, &c. It is not a question now with your committee whether these charges made against so many roads are true or not as to your road; but they are united in judgment in recommending to the stockholders to take such action as i6i will prevent any official or employee in your service being interested in furnishing any supplies to your road, in any con- tracts, or in any company doing business over your road, its branches, or roads acquired by lease or otherwise. The law passed by the last legislature to carry out the intent of the new Constitution, to protect shareholders on this point, does not reach the evil. Before the stockholders can have proper confidence in the management of their property, they must know that the Directors practice on the maxim that purity of management can only be obtained when the Directors, officials, and employees are free from any complications which may affect the interest of your road, and that such rules are established and carried into practice as will prevent such persons from in any way using the road or the Com- pany for their own profit. Any other policy than this is dangerous to the parties themselves, and certainly prejudicial to the interests of the shareholders. Fourth. — In the case of the Pennsylvania Railroad Com- pany, there has been an unsatisfied doubt in the minds of its stockholders as to the policy of private companies using the road. We have examined this question in a former article very fully, and have given our conclusions. Yet we are aware of the strength of the public prejudice and the almost insuperable difficulty in convincing the stockholders that such companies do not make more than their share of gains, and that they perform any service which the Company or companies could not do as well, and thus the shareholders receive more profit. Fifth. — The tendency among railway stockholders to trans- fer the decision of all important questions to the board of directors. In discussing the organization of railway companies, we 1 62 shall enter very fully into an examination of the proper rela- tions between the shareholders and the directors. The exist- ing relation, in almost every large railway organization, will show that the shareholders are almost a nullity as to their influence in the policy or management of their own prop- erty, — their main utility being in furnishing an audience to hear a report and voting for directors a ticket carefully pre- pared for them. The evils of this are apparent, and it is time for the shareholders to resume, or, more properly, assume, the direction and control of their property. It seems very strange and unbusinesslike that the stock- holders of the Pennsylvania Railroad Company have allowed the Directors such control of their property that they could lease railways,- guarantee payments, and incur liabilities and accept laws, and all this without consultation and without the approval or knowledge of the stockholders. That the Company has not been financially wrecked is due more to the prudence of the Directors than to the wisdom of the shareholders. Sixth. — In the constant tendency to extension and expan- sion, as shown in our railway history. Herein lies, probably, the main cause of the doubt that hangs over railway stocks and securities and affects public confidence in them. No one acquainted with the business of our country would say there should be no such exten- sion; and yet how far such extension should go is a very difficult question in most cases to determine, but more especially when it affects our leading railway companies connecting by their lines the East and the West. The rivalry between these great lines has produced ques- tions of extension in themselves difficult to decide, and there have been, and are likely to be, as human nature goes. i63 questions of extension where rivalry comes in as a strong element to determine the matter. There is also a fear that combinations of influential indi- viduals are made for speculative purposes, to get rid of a poor investment, at a high price, by tacking it on to a successful railway. There is also a temptation to encourage and assume liabilities for the building of extensions far in advance of the wants of the country, and these liabilities become a burden upon the guaranteeing corporation. In fact, while there is any country beyond the termini of the road or its branches, there is an almost irresistible temptation to go still further and follow population and production beyond their limits. The investing world recognizing this tendency — this fact — as a power in the management of our leading railways, rightly deems it dangerous to the security of bonds and value of stock, and thus, as heretofore written, a general want of confidence exists as to the value of the stock and securities of our leading railways ; while, with prudent and proper management, these roads should offer the best means of investment of capital, and then all the moneys needed for proper extension would be promptly furnished. The systems of roads controlled by your Company have been quite thoroughly canvassed in this report. They surely, with the tributaries beyond the centres they reach, cover enough ground to furnish the largest amount of business over your road, and the development of the lines embraced in these systems is fully as much as any one corporation can attend to, and your committee therefore most urgently recommend that such measures should be adopted by the stockholders as shall limit the board from extending their interests beyond their present bounds. And even thus limited, the committee, aware how, in times of great prosperity. 164 a board of directors may be tempted to contract liabilities for extension within these limits, deem it wise and pru- dent that you should further require your consent to be given before any new guarantees or leases shall be entered into or liabilities incurred. If your committee are correct in their views as to the causes of distrust as to the value of your own stock and bonds, as well as those of other companies, they think the passage of the resolutions covering the views herein set forth, appended to this report, will favorably influence the public mind by securing a reliable administration of the varied interests of this Company. ARTICLE XI. Organization. Your committee, impressed with the magnitude of the operations, connections, and liabilities of the Company, and with its certain future large extension of business, have felt it incumbent on them to consider the adaptation of the present organization to manage such great interests, and submit the following suggestions: — The original theory of railway organization in this country was a Board of Directors, a President charged with the finances, and a Superintendent in charge of the management of the railroad, — the Superintendent being the only one who was either a professional engineer or an expert in railway management. Experience has modified this organization by making the President the executive officer of the company, expecting him to be thoroughly qualified, and holding him generally responsible for its entire management. The Board of Directors are usually chosen for their supposed sound judgment, business knowledge, and integrity, and are generally un- acquainted with the professional part of railway manage- ment. Being absorbed in their own private affairs, they cannot give the time, even if they had the knowledge, to do much more than stand before the stockholders responsible only for the honesty of the management, — to protect them from the improper use of the funds or property of the company, — so that the boards are almost 1 66 wholly influenced in their action by the views of the Presi- dent, and the power of the corporation quietly and surely glides into his hands. With this power, the President makes and unmakes Directors, thereby seriously affecting the morale of the board. It is natural, and in some respects right, that a President should have those in the board who will be influenced by and not be antagonistic to him. Yet the stockholders expect an independence in judgment and action which is not possible while the Directors are virtually appointees of the President. The facts thus briefly stated show two things — First. — The working of the present form of most organizations weakens and destroys the influence and power of the Direct- ors, rendering them of little use to the stockholders; and this is especially true in railway boards, where the Directors usually lack the professional knowledge that would make them useful. Second. — It the more completely places the power and fortune of the corporation in the hands of one man — the President. This is a fair picture of the general working of railway organizations in the United States. The same result is to be noticed in almost all our institutions, whether commercial, financial, or benevolent. It is a result of our enterprise, energy, and confidence. How often this is abused the courts of bankruptcy, the almost daily exposS of defalcations, the multitudes robbed of their rights, the destitution of the help- less and confiding, the sufferings of widows and orphans, victims of error, neglect, or crime in those to whose care they have confided their property, reveal a sad history. It is true that the centralization of power in the hands of one competent man contributes largely to efficient working. 167 It secures (up to the point of his ability) prompt decision and a harmonious policy, as it is impressed with the thought of one mind. It saves from the effects of divided counsels, jealousies of officials, &c. A plan with such results may work well in a small corporation ; but when applied to large corporations like the Pennsylvania Railroad Company (and many others in this country) it becomes a more difficult matter. Take your own Company, now controlling nearly six thousand miles of railway and canal, involving a capital of nearly ^400,000,000, and which, of necessity, will largely increase with the growth in population and productiveness of the contributing country, and two questions will force themselves on your consideration — I. Is it wise, prudent, or just, that the almost absolute con- trol of such vast interests should be placed under the power of any one man to designate its policy, control its working, determine its growth, and regulate its finances ? Yet such is the practical fact under your present organization. Your cor- poration has grown to its present status under the inspiration and guidance of one master-mind, — of a man of honest inten- tions and remarkable ability. The experience of the past is our best guide for the future, and errors may be made profitable by being used for wholesome warnings. Are you willing to continue such a policy ? Changes must take place in time, and under an incompetent, dishonest, or specu- lative President — which is by no means impossible — what havoc and destruction of values might be made of your property, causing deep disgrace and wide-spread suffering ! II. The operations of your Company have now reached the point where your committee think it has passed the power of any one man to manage its interests with that personal over- sight and care which they demand. The number of questions 1 68 involving important interests that are ever pressing for deci- sion are beyond any one man's mental or physical powers to endure for any length of time. And the fact that the road and properties now controlled by your Company are located in at least eleven States of this Union, and many of these the largest of the States, whose laws and powers, as they affect the several corporations, require the most devoted attention, as well that all due care shall be taken to develop the traffic on all the lines to the highest attainable point, so that the interests of the stockholders may be protected, and secure to the public the greatest facilities at the least cost, accumulates an amount of labor that no one man can properly perform. Under the present organization the effect is that, to avoid injury to the interests of the Company by delay in decision, many important questions are practically determined by irre- sponsible subordinates, or by the action of Directors, who are quite unprepared to decide such questions, and the body cor- porate necessarily suffers injury and loss. Some of the doings of your late President and Board of Directors are evidences of that want of careful investigation and oversight which arises from the defects of the present organization, because it is out of the question for one man to perform the labor of acquiring knowledge of all the facts, to carefully digest them, and to decide at once promptly and rightly. Again, your corporation requires in its management many men of the highest and most varied talent. Their education requires long time — it becomes a source of wealth to the Company — and you cannot afford to place them in such posi- tions and impose on them such an amount of duties as will exhaust them, mentally and physically, in a few years of ser- vice. You should utilize this knowledge by careful nursing, and not exhaust its possessor by a stimulating process. 169 If, then, we rightly appreciate the condition of things in the organization of your Company, it follows — /. That the present form of organization makes practical ciphers of the Directors, and this from no deliberate intention, but from the very necessities of the case. 2. That it as inevitably throws the power and control of this great corporation, with its immense interests, chiefly in the hands of one man; which is unjust, unwise, and imprudent, and if, in addition to these points, it is true that — J. The successful management of these great interests is beyond the ability of any one man : it does seem clear to your committee that the proper time has arrived when you should carefully consider this grave and important question. Let us then determine the true basis of- an organization that will be the best adapted to manage your interests and produce the best results in profit to yourselves, to the city of Philadelphia, the State of Pennsylvania, and the great extent of country reached by your lines. And the problem is how to place all needed restrictions on your agents without affecting their ability to produce the best possible results, with a proper reservation of the rights and obligations of ownership. If we examine the principles upon which an organization should be formed, we find — (7.) That the Stockholders, under the charter of the Penn- sylvania Railroad Company, are the owners of the corporate rights and property, and the original and only source of power and authority. (2.) That for the more convenient management of their in- terests, they select a certain number of Directors and Man- agers, who are their agents or servants, to take care of and 170 develop their property, under the instructions of the stock- holders, to be wholly executive in their duties, and to be altogether guided by the general policy laid down and ap- proved from time to time by the stockholders. (j.) That these executive functions may be most success- fully used and developed, it is necessary to provide, in the construction of the board, such a variety of talent, experi- ence, and character as will make their united judgment approach most nearly to a perfect judgment; and, (^.) That for still further convenience, and to place the managers under the most direct responsibility to the share- holders, THEY are permitted to appoint the other Officers AND Employees required to attend to the detail of the oper- ations of the roads. If this is the true conception of the fundamental principles of an organization, it plainly requires, for its harmonious working, a plan which, while (l.) It will keep the absolute control of the Company in the hands of the stockholders ; (2.) It will also provide for a board of managers so consti- tuted as to combine the greatest amount of skilled knowledge with business experience, broad and enlightened views, and personal' integrity ; and, (3.) It will give the individual officers and servants the strongest inducements and the greatest possible freedom in working out the problems and advancing the science of rail- way management; thereby securing the best results of the combined energies and skill of the employees. It must inspire an esprit du corps affecting every man, from the Presi- dent to the ballast-breaker. 171 With these views of the true principles of an organization, let us now consider, first, what powers should be reserved by the stockholders. i. Clearly all legislative powers involving the determina- tion of the general policy of the Company, the assumption of obligations, whether in issuing bonds, leasing railroads, guar- antees of rental of other roads, of the interest and principal of the bonds, or of the acts of other companies, or the incurring of any liability outside the ordinary expenses of conducting the operations of the Company, and the approval or acceptance of all acts or laws, general or special, affecting the Company. ii. What powers should be delegated to the managers or Directors? Their duties being executive, such powers only are necessary as will enable them to perform those duties, which are embraced under the two general headings of the finances and the road. We need not elaborate these duties — the titles are sufficiently suggestive. There is another collateral duty. Being placed in such in- timate relations with the detailed workings of the road, and studying and watching its growth, development, and interests, ' they should be the first to detect its wants, and thus be pre- pared to advise the shareholders, thereby adding to their executive functions those of an advisory character. Having thus settled the respective powers and duties of the principal (the stockholders) and the agents (the directors), let us now consider — The practice and experience of the English railway stockholders. While we may not learn much from English and conti- nental experience in the organization or management of railways, we may learn much from the relations .of the 172 shareholders to their directors. If we are rightly informed, the custom of the most important railway corporations in Eng- land is to have semi-annual reports made of the operations of the roads to the stockholders at their meetings. These reports give full accounts of the condition of the companies, showing the receipts and expenses of the road in operation, and of all other disbursements of money, reporting the balance of profit, if such there be, with a recommendation of amount of divi- dend to be declared. They also make a statement of the wants of the company for the next ensuing half year, other than ordinary expenses, covering such questions as exten- sions, leases, extraordinary outlays (giving reasons therefor), estimated cost, and suggestions as to how the money may be raised to meet these outlays. These questions are all submitted to the stockholders for determination. They are freely discussed, and, if necessary, are decided by a stock vote. This is a condensed sketch of their way of doing, and your committee think it secures several advantages — 1. The owners decide all important questions affecting their property. 2. It saves the managing and other directors from censure for failures or imprudent legislation, as all legislation is the act of the owners. 3. It protects from the charge of personal interest, which is so often made against railway officials in America. 4. It insures the provision of the means to pay for outlays before they are commenced. 5. It causes greater care in examination before the recom- mendations for new work are made. Extensions or leases are laid before the stockholders, which insures careful pre- liminary examinations, knowing they will be thoroughly 173 examined and freely discussed before being approved and sanctioned. 6. It has the good effect of educating the shareholders in railway matters, thus enabling them to form a proper judg- ment upon the recommendations of the board. 7. It has the effect of inducing capitalists to hold larger lines of a good stock, when they know they will have an important voice in the policy of the company, and in so far is a guarantee to weaker stockholders that their interests will be protected. 8. The result of this will be, that the stock will have a recognized and just value, will not be a mere foot-ball in the stock exchanges of the great monetary centres, and though perhaps paying less dividends, will have a higher and more permanent value than a stock subject to constant change. Are not these results in perfect accord with the theory of organization we have presented? Will not the adoption of these principles tend to remove the distrust, doubt, and uncertainty that now prevail in regard to railway investments ? They may not be perfect, but are they not in advance of our system ? A road may not progress so rapidly ; it may lose something by slowness of motion ; but will it not be safer and more profitable in the end ? We think so, and we believe that a great step forward would be taken (while leav- ing the meetings annual, as they are now) by requiring full and complete statements as to the operations of the roads and of the wants for the year following, involving all questions of leases or guarantees, or any extraordinary expenses, to be determined by the shareholders; and to further require that, at or before the time of declaring a semi-annual dividend, the Directors shall publish the basis on which such dividend is declared. 174 Let us look more carefully into the proper constitution of the personnel of the Board of Directors. We have already- intimated that the Board of Directors should be composed of men — some of them skilled in the science of railway manage- ment, others of business experience — of broad and enlightened views, and all of undoubted personal integrity. We have also discussed causes of distrust of railway securities existing among capitalists, and have shown you the tendencies of the present prevailing organization of railways to concentrate this whole power in the hands of the President ; and, further, the alarming extent to which the assumption of the powers of the stockholders have been by legislative acts taken from them and placed in the hands of the servants of the companies — the directors. We have also demonstrated that the amount of labor thrown upon the President of the Pennsylvania Rail- road Company by the working of its former organization was more than could be performed by any one man promptly and satisfactorily, and that the whole responsibility being on him, had led to this concentration of power by practi- cally giving him the ultimate decision of all questions con- cerning the roads and affecting the policy of the Company. In this respect the new organization is an improvement. The requisites, then, in the board, are to have, in addition to the President, (i) a sufficient number of men who are skilled in the different leading departments of the road and of finance, to aid him in his more immediate executive labors; and (2) a sufficient number of Directors who shall have had a busi- ness education, are generally conversant with finances, the' value of property, the interests of trade, and a comprehensive knowledge of the productions and wants of the country, and who, in their personal character, are of the highest integrity. To secure independent and responsible Directors, and to protect the shareholders against the dangers arising from one 175 man, by virtue of his position as President, controlling the nominations for Directors, and thereby the officers and servants of every grade on the six thousand miles of road and canal under your control, we can recommend no better plan, which will be approximately effective, than — 1st. That at every annual meeting of the stockholders there should be a committee appointed, as was done at your last meeting, in accordance with a resolution passed by the stockholders February ist, 1858, by which a committee of seven stockholders was appointed by the chairman of the meeting to recommend suitable persons for Directors, and to publish the names in a certain number of daily newspapers of the city of Philadelphia for a fixed time. 2d. That the stockholders may have time to examine the annual report, that it be published once, in at least three daily newspapers of the city of Philadelphia, at least two weeks before each annual meeting of the stockholders. 3d. That the skilled members of the board should be elected by the stockholders, and be held responsible to them for their acts in common with other Directors. We submit a sketch of an organization of the board that seems to us would meet these requirements. it) That of the number of Directors to be elected by the shareholders there shall be four — three of whom shall be pro- fessional railway men, and one of financial experience and ability. {ii.) That of the three professional railway men, one shall be chosen as the President of the board, one may be charged more especially with the interests of your Company west of Pittsburg, and one may be charged more especially with the oversight and care of the roads which you own and control at and east of Erie and Pittsburg. 176 [Hi.) These four members of the board shall form an. execu- tive council, of which the President shall be chairman. The council, of course, to be under the control of the Board of Directors as a whole. iiv) The President of the board and the three " other Directors elected for especial service shall devote their time to the interests of the Company, and be liberally paid for their services. This plan will not prevent giving the President ample powers for prompt executive action and for the successful performance of the duties of his office. We trust no man will ever fill this place who does not combine with a thorough knowledge of the road and the varied interests of the Com- pany the highest executive ability, and the power, by his superior acquirements, of reasonably and justly influencing his co-Directors, and thereby producing harmonious action. The plan will not minify, but in fact magnify, the office. While it will protect the Company from the dangers of personal rule, it will also guard the occupant from a respon- sibility beyond what is proper and just. It will provide for a strong man being surrounded and aided by strong men, and throw a proper responsibility upon all the Directors charged with the interests of a Company on whose success the fortunes and happiness of so many people of all condi- tions depend. We have gone thus far into the details of this plan of organization, not so much to determine those details, but rather to offer suggestions showing how smoothly and effi- ciently the plan may be worked. We have not touched upon many other questions, preferring to leave the details, in all respects, except as to Articles i, 3, and 5, to the Board of Directors. 177 After having so carefully worked out this plan of an organization, we would now compare it with the present organization of your board, and ascertain the points of difference, and whether any practical difficulties exist that ought to prevent the adoption of our recommendations. a. The present number elected by the stockholders is ten, by the city of Philadelphia three, and the Directors have the right to add to their number four skilled men to act as Vice-Presidents, making the number limited by the law seventeen. b. We propose keeping the number of Directors to the number allowed by the charter, viz., thirteen. Four (in- cluding the President) to be skilled or professional men and nine non-professional. c. There is no difference in the number of professional Directors in either plan. In both of these plans the pro- fessional Directors are to give their whole time to the Company, and they should be paid liberally for their services; the difference being that in the one case the stockholders elect their agents, and in the other the Directors elect them. We think we have established the principle that the stock- holders should retain the power of electing their most im- portant and responsible agents. If elected by the Directors they are responsible to the Directors, and are, in fact, the creatures of the President; while if elected by the stock- holders, they are responsible to them, like the other Direct- ors. Men of sufficient ability to occupy the position of Vice-President (or Managing Director, as it might be named) of the Pennsylvania Railroad will always be men who have been tried, and whose fitness for counsel as well as for action have been developed and demonstrated. 178 This plan, we believe, will secure to the Pennsylvania Railroad — (ist.) The ability to manage all the varied interests of your Company. (2d.) It will secure the independence of each member of the Board of Directors, and his individual responsibility to the stockholders. (3d.) It will provide for the more perfect division of labor, and place responsibility where it properly belongs. (4th.) It will secure by the executive council more thorough investigation of every subject, clearer comprehension and a better grasp of every point by the board as a whole, and insure prompt decision — the lack of which has been hereto- fore a serious, practical, and unavoidable defect. (5th.) It will provide against many defects and dangers which we have heretofore pointed out in your present organi- zation. The plans we propose, affecting the powers and duties of the Board of Directors and their organization, are an innova- tion on the American system. The principle of paid Directors has, we believe, always existed in the management of English railways. The general existence in American railways of the same difficulties that demand a change in the organization of your Company must be acknowledged, and if the companies are to be saved from ruin those difficulties must be met by all the great railway corporations of this country. We append resolutions covering all the points of the organization we have discussed. 179 We have thus laid before you the plan of organization which we think best adapted for the management of the interests of your Company, and regret that we feel compelled to suggest any variation from it at this time. But to carry out this plan would require an act of the Legislature of the State of Pennsylvania authorizing you to elect Directors who may receive salaries; and by accepting such an act, your Company would at once be brought under and subject to the provisions of the seventeenth article of the new Consti- tution. While we see nothing in this article that would necessarily produce any injury to your Company, yet, as there has been no judicial decision upon some important points, and as your officers apprehend difficulties which their experience in con- , ducting transportation suggests, we would not hazard inflict- ing any possible injury on your Company, while the end we propose may be measurably reached, at least so far as establishing the principle that the stockholders shall deter- mine who shall be their Directors. We therefore propose that the committee who shall be appointed from year to year to nominate persons for Directors shall also, in consultation with the President, name the Vice-Presidents who shall be recommended to be elected by the Board of Directors, and that this plan shall continue until necessity shall either force your Company to apply for legislation, or the full meaning of the seventeenth article of the new Constitution shall have received judicial interpretation which shall not be unfavorable to your interests. When either of these conditions is met, then we earnestly recommend the adoption in full of the plan of organization we have reported. The system of ' organization which we have submitted for the assurance of your safety and the protection of your interests is altogether impersonal, having been written before the death of the late President, and is i8o based on governmental principles immutable in their nature, sanctioned by the experience of ages, and equally important for yourselves and your servants. While this investigation has been in progress, important changes in the organization and regulations of the business of the Company have been made. The death of the late President, who had been identified with the road since its inauguration, seemed to demand such action. The present President appreciated the fact that with the changes made by time, death, &c., many modifications were needed to meet the existing condition of things, and on his acceptance of the office, called the attention of the Board of Directors to the subject, and urged that they should designate a committee to examine into the condition of the Company in all its departments, and all matters pertaining to its organi- zation, and report such changes and regulations for the government of the service as in their judgment might be necessary. This has been done, and they are now in force. We have examined them with care, and believe they cannot fail to be advantageous to the Company, inasmuch as they place additional restrictions upon power, concentrate duties, increase responsibilities, and place all the rules of the Com- pany before each man connected with the service. It will be perceived that rules and regulations made by the Directors may be changed by them; but by embracing these rules in the supreme law made by the stockholders, -they are placed above the power of the Directors. For the practical application of these views, we present for your consideration the resolutions annexed to this report. ARTICLE XII. RESUME. Your committee, before closing their report, by condensing its many pages into a few paragraphs, desire to give that which will be acceptable to most readers — the pith or point thereof (i.) We have given you a detailed explanation and intro- duced our valuations of the different items in the general account, as submitted by the Board of Directors, to Decem- ber 31st, 1873, and have shown that the assets of the Company are worth ^i 18,955,405.08 over and above its bonded and other indebtedness, and deducting the amount of capital stock issued to December 31st, 1873, leaves a surplus value of ;^5o,8 10,930.08, making each share of stock represent ^87.28, excluding any increased value in the anthracite coal interests held by your Company, and that each mile of single track represents a real value of ^45,436, while on your books it shows but ^19,728.59. (2.) We have given you a detailed statement of your liabilities, as endorser of bonds of other companies, as guarantor of rentals for leases of railroads, both where you are the principal and where guarantor for the faithful per- formance of contracts by other companies. That as en- dorser of bonds you are liable for the principal and interest of 1^33)983,000 — the annual interest of which amounts to (181) l82 ^2,106,440, and for the annual payment of ;^ 180,000 — the interest of ^3,000,000 of bonds, and a liability for rentals guaranteed of ^13,862,319.94, on all of which there was a deficiency in 1873 of but ^1,470,129.45, and this was con- fined to roads and interests east of Pittsburg. We have further shown you that, estimating for 1 874, this amount will be largely reduced, and the actual loss from this cause should not exceed ^280,000. (3.) We have at great length discussed all the lines of rail- way in which you are directly interested, and frankly stated our opinions, with the reasons therefor, whether in censure or praise. For the western roads we have confidence that they will, with the increase of population and its diversified employ- ment, gradually develop a profitable local trade, and that the surplus productions of the West will ultimately come to you in a more valuable shape, securing greater profit to your road in its transportation. From the roads south of Baltimore there is certainly but little ground to expect much better results in the future than in the past, nor can we give any encouragement for hope that the common stock of the Philadelphia and Erie will in many years have any value. (4.) We have strongly stated our anticipations of future profit from the lease of the United Railroads of New Jersey, and given you our reasons therefor. Such an outlet to the city and bay of New York was a necessity, to enable the Company to use its western roads to the best advantage and profit, and to develop the business of its main line and branches. From your main line and branches there must be, with judicious management in developing the local trade and travel, the production of iron and steel, the mining of coal, and the i83 varied industries of those portions of the State affected by the Company, a constant and valuable increase of business. We have given you some remarkable results of the past history of your main line — showing you that with reduced cost of opera- ting, the road, owing to many causes, has been able largely to reduce the rates of freight, and that for every million of dollars invested in the road in ten years, from 1864 to 1873, inclusive, you have received an annual profit of ^282,000; and that with the same elements in the calculation, every million of dollars hereafter invested on the line between New York and Pittsburg, until the business of your road increases seventy-five per cent, above that of 1873, will yield ^430,342 per year. (5.) We have given you a full account of the anthracite- coal lands held by your Company; but your investments in this kind of property are of such recent date that we cannot pre- dict the results — time only will develop the wisdom of the policy and its results to your road. To give you a truer conception of the extent of the in- fluence you exert over the railways of the United States, and of the responsibility you have assumed, we have given you the total mileage and capital involved in the railroads and canals you directly control — showing that it amounts to 5933tt rniles, or y^-^ per cent, of the whole railroad mileage of the United States, and represents in capital ^398,267,675.22, or a fraction less than thirteen per cent, of the whole capital invested in railroads in the United States, and the encouraging fact that the net earnings of all the lines you control and are directly interested in have averaged 6.39 per cent, profit on the whole amount of capital. We need not suggest to any thoughtful mind what an im- mense responsibility rests on you from the control of so much capital, nor how fearfully any mismanagement on your part 1 84 would affect the credit of the country and the support and comfort of the large number of people of every grade and class who are interested in the stocks and bonds of these various companies. (6.) We have entered very fully into a discussion of the mooted question of the use of your road by the cars of private persons or corporations, and have given our reasons and conclusions, that it is to your interest to encourage such use of your road, and that in obtaining a fair proportion of competitive freight from and to points west of Pittsburg, the use of an intermediate third party is indispensable, — the management being careful to obtain the best possible re- muneration from the traffic carried. (7.) We have discussed very fully the past financial policy of your Company, which led to whatever of loss of credit, inconvenience, or embarrassment your Company has ex- perienced. We have shown you that the true policy of disposing of all securities not absolutely necessary to be held, when even an approximately fair price could have been obtained, has not only not been adopted, but the policy has heretofore been to retain possession of those securities for advanced prices, and to borrow money by issuing stock and bonds to enable you to carry these investments. That if ;^3S,ooo,ooo of these securities had been sold, and which would have brought fair prices in 1872 and 1873, there would have been no necessity for issuing the large amount of stock and selling so many bonds in the latter year. It would practically have saved an increase of your capital stock and funded debt to the value of the securities sold. In consequence of which your Directors were forced to ask for and create the consolidated mortgage, and most un- wisely pledged in it securities to the value of ^50,000,000. i85 We have further shown you how this act of July ist, 1873, was quickly followed by the panic of September, and your Directors were left without available means to meet their wants, how the credit of the Company was injured, and very many of its stockholders seriously affected. We have carefully considered the financial position of your Company, and have made several recommendations involving questions of floating debt, construction account, reduction of capital, and the general principle of the rigid application of these securities to improvements and better- ments, as provided for in the mortgage, and the remainder as they may be or become available, to the purchase and cancellation of bonds issued under that mortgage. (8.) In examining the policy of the relations heretofore existing between the shareholders and the Directors, and with the view of removing the many causes of distrust and doubt that prevail as to the permanent value of railway securities, and to place responsibility and power where it properly belongs, and to increase the efficiency of the execu- tive officers of the Board, we have made recommendations involving substantial changes in the old plan of organization, which will restore to the shareholders the powers which of right belong to them; and in this connection, we have recommended that hereafter all legislative powers shall be expressly reserved to the shareholders, and executive func- tions only be given to the Directors. We have shown what these reserved and delegated powers are, and have embodied in resolutions the important features or points, and, there- fore, need not repeat them here. (9.) We have shown that, taking a comprehensive view of the whole operations and obligations of the Pennsylvania Railroad Company, and leaving entirely out of the question i86 the prudence or wisdom of the acts of the past, it reveals a condition of safety which should be very satisfactory to the sharehdlders ; and with, in the future, a more intelligent and active interest on the part of the shareholders and prudent management by the Directors and officers, the Company will offer in its stocks and bonds a safe investment to people of all classes, and will be enabled to fulfill its high duties to the public who use your works, to the city of Philadel- phia, and to the power that gave it life — the State of Pennsylvania. ARTICLE XIII. Conclusion. That the Pennsylvania Railroad Company is wonderfully fulfilling the objects of its creation no one can doubt who will compare the comparatively feeble, doubtful, and unde- veloped condition of the State of Pennsylvania in 1846, when the Company was chartered, with its present powerful and prosperous position. The Company, by its aid to western lines, has given the city of Pittsburg with its great manu- facturing interests an impetus and growth it would not have had depending on the waters of the Ohio. By the opening of the gas-coal mines of Westmoreland and Allegheny counties, the soft coals of Cambria, of Clearfield, and of Huntingdon, the development of the iron interests, the utilization of remote forests, and the immense production of oil, the road has made a home market for the products of the farm, the forest, and the mines all along its lines, and is gathering into the State a rapidly-increasing, sturdy, and energetic population. The city of Philadelphia has received new life, has sprung into activity, and is rapidly growing from the impulse which the operations of this great line has given her. The Company is enriching the counties in the State of Pennsylvania, which it reaches by its main line and branches north and west, as well as the cities of Pittsburg and Phila- delphia. With all these benefits conferred on others, it has paid its (187) stockholders from 1853, when the line was opened to Pitts- burg, down to 1873, — a period of twenty years, — an average of nine and nine-tenths per cent, the total dividends from its organization to the ist of January of this year having been two hundred and thirty-four per cent., and the Company stands now, notwithstanding all the losses which we have fully stated, stronger than at any former period, and holding a commanding position in reference to all rival roads and the means of the indefinite development and expansion of the inestimable resources with which Providence has blessed our State — the only one in the Union which commands the connections of the sea, the lakes, and the Mississippi, and possesses within her own borders all the elements of material prosperity. Your committee, when accepting their appointment, thought they appreciated the extent and importance of their duties; but after entering on the investigation it was soon evident to them that their inquiries, to be satisfactory to you, must take a wider range than the immediate pecuniary questions. We felt compelled to examine questions of policy as to your relations with other roads and interests, the manage- ment of your finances, and the organization of your Com- pany, which demanded the most careful investigation and consideration. We have, therefore, endeavored fully and fearlessly to investigate all these questions, that we might as succinctly as possible present such information as would enable each stockholder to form an estimate of the value of his property, of the true policy by which the Company should in the future be controlled, and of the character of the organization that will most successfully manage their great interests. We believe that the adoption of the various resolutions we offer for your approval will secure, to a great extent, these most desirable results. 1 89 In less than thirty years the Company has grown from its small beginnings in 1846, with a capital of ^4,000,000, to a corporation controlling thousands of miles of railway and hundreds of millions of capital, second only to the Govern- ment in its immediate effects on the people, and closely affecting the interests of the citizens of eleven States of the Union. We regret the delay in making this report, but it was absolutely unavoidable, unless by such superficial and im- perfect examination as would have been a virtual violation of duty in us, and to you wholly unsatisfactory. Throughout our investigations we have kept steadily in view the point on which we unanimously resolved from the beginning, namely, that our examination should be exhaustive as to subjects, and candid in conclusions. We are far from assuming that we have been able to reach, in all respects, the objects of our aim; but we have done all that we could, and now submit the voluminous results of long labor, over complications hitherto considered incomprehensible to the judgment of stockholders. WILL. A. STOKES, Chairman, W. H. KEMBLE, A. LOUDON SNOWDEN, D. E. SMALL, JNO. S, IRICK, WM. C. LONGSTRETH, JOHN A. WRIGHT. ARTICLE XIV. Resolutions. In order that the practical operations of this Company may be most successfully managed, its general interests most carefully protected, and its agents instructed in their proper duties, as well as to vindicate our just authority in the control of our own interests, we, the stockholders of the Pennsylvania Railroad Company, do hereby resolve: — 1. That, as the source of all authority in the premises, we reserve to ourselves the whole legislative power of the corporation which is involved in determining the general policy of the Company; the acceptance or refusal of all laws, whether general or special, of the General Assembly of the State of Pennsylvania which may affect our property, rights, or interests ; all assumption of liabilities, either as to the leasing of railroads, guaranteeing the payment of the interest or principal of the bonds or other obligations of any other company; guaranteeing of another company's faithful performance of contract ; or in any way binding the Company by obligations for or to other railroad corporations, other than in the ordinary course of contracts required to be made for the proper management of the business of the road; and all other powers not hereinafter expressly committed to the Directors and Officers. 2. That we confide to the wisdom and discretion of the Directors the executive functions of carrying out the (190) 191 policy, established from time to time by the shareholders, for managing the interests of the Company to the best possible advantage of its stockholders and of the people of this State and of the country, as far as they may be affected by their action, within the powers committed to them. 3. That to enable them to do this the more perfectly, and to secure the necessary intelligence, independence, and re- sponsibility in the board for the good performance of their very responsible duties, we further instruct the Directors to procure the passage of a general law by the General Assembly of the State of Pennsylvania, providing for the election of Directors by the stockholders of a railroad company, who may receive pay for their services, whenever judicial decisions may have so determined the intent and meaning of the seventeenth article of the New Constitution, that it contains nothing prejudicial to the interests of the Company, or whenever for other reasons the Company may accept any general or special law of the Legislature of the State of Pennsylvania, bringing the Company under and subject to the said seventeenth article. Such law, if obtained, to be submitted to the stockholders for their approval at the next following annual meeting. 4. That if such an act is obtained and accepted by the stockholders of the Pennsylvania Railroad Company, there shall thereafter be selected from among the Directors elected by the stockholders at each annual meeting, four persons, three of whom shall be skilled in the construction or manage- ment of railways, and one of distinguished reputation for financial experience and skill, — one of the above-named three shall be elected as President of the Company, — the details of duties being left to the discretion of the Directors as a body. 192 5- That to secure the nomination of suitable and properly qualified persons for the office of Directors, there shall be appointed at each annual meeting, as it may determine, a committee of seven stockholders of the Company, who shall select and nominate, after conferring with the President, ten persons, due regard being had to their q.ualifications, for the office of Directors for the ensuing year; and that, until the passage and acceptance of an act as above described, it shall be the further duty of said committee, after conferring with the President, to select the proper persons, not exceeding four in number, who shall be recommended for election by the Directors as Vice-Presidents, in accordance with the pres- ent law, and that said committee shall publish the names of the persons so selected in not less than five daily news- papers of the city of Philadelphia for six days previous to the day of election of such Directors. 6. That in order that the stockholders may have time to examine the annual report, the Directors shall annually hereafter publish such report in at least three daily news- papers of the city of Philadelphia, one week before each annual meeting, and that such report shall be full and complete, embracing a statement of all the facts and results necessary to enable the stockholders to form a proper estimate of the value of their property and a correct judgment of the ability with which their interests have been taken care of by the Directors. That report shall include, not only the operations of the main line and branches of the PennsyU vania Railroad, and of all railroads leased and operated by this Company, but a sufficiently extended notice of the operations of all the railroads which this Company directly or indirectly controls. 7. That it shall further be the duty of the Board of Directors, at least annually, and oftener if required, or 193 necessary, to recommend to the stockholders the adoption of such policy or such measures as in their judgment will promote the interests of the Company, with their reasons therefor. That they shall submit with each annual report, or oftener if required, for the approval of the shareholders, estimates for any extraordinary payments or expenses to be made or incurred on the main line or lines leased and directly operated by your Company, and recommend how the money shall be raised to pay for the same. 8. That they shall, at the time of making a semi-annual dividend, or at the intermediate six months of their fiscal year, publish a statement showing the gross receipts, ex- penses, and net revenues of the main line and branches of the Company operated by it, and showing the amount of net revenue applicable to a dividend. 9. That the credit of this Company may be protected, the Directors are prohibited from incurring any floating debts in the form of bills payable or acceptances, except to meet, and then only for temporary use, expenses for improvements, enlargements, or betterments on the main line and the rail- roads of the United Companies of New Jersey; and are also prohibited, except by special permission of the stock- holders, from loaning the credit of this Company to other companies, excepting such as may own roads controlled by this Company by lease or stock ownership. And further, that all powers or authority heretofore given to the board, so far as they conflict with the language or the spirit of this resolution, are hereby revoked and annulled. And Whereas, The shareholders of the Pennsylvania Railroad Company are convinced that the placing of securities to the value of ;^5o,ooo,ooo in the consolidated mortgage was unnecessary to give perfect security to the bonds to be issued 194 under that mortgage, and that they do not add to the facility of sale nor to the , marketable value of such bonds, and that the mortgage provides for bonds largely beyond any present prospective wants of the Company, and as their presence in this mortgage operates as a bar against the true policy of this Company, viz., the reduction of the amount of bonded indebtedness and the payment of the floating debt: there- fore Resolved, That the Directors be and are hereby instructed — 1. That the policy of the Company hereafter, in its rela- tions to other companies now controlled by it, shall be — in all cases where it is important for the interests of the Penn- sylvania Railroad Company — either to consolidate or effect leases on just terms to both parties, giving the preference to the plan so successfully adopted in many instances by your Company, of leasing roads to be worked at cost, thereby avoiding many complications, and further relieving your treasury from the necessity of holding large amounts of securities, which they are now compelled to keep, in order to retain control of the roads, thus at once releasing secur- ities to the value of many millions of dollars which should be applied as hereinafter recommended. 2. That the Directors be and are hereby instructed to conform rigidly to the provisions of the consolidated mort- gage by appropriating the proceeds of such securities as are available for sale to the payment of all betterments, improvements, and real estate purchases, for the benefit of the mortgaged premises. 3. That the Directors shall, from time to time, sell such available securities as may not be required to pay for better- ments, &c., as above, the proceeds whereof shall be invested 195 in the bonds of the Company, that they may be canceled and the remaining securities the sooner released from the lien of the mortgages. 4. That in our opinion, the policy above established will render unnecessary any further issue of bonds under that mortgage, without the formal approval of the stockholders first had and obtained, except the ii'5,000,000 already issued, or arranged to be issued, and the bonds appropriated under the mortgage to pay off existing bonds as they mature. And Whereas, The interests of your Company may be unfavorably affected by the presence of other stockholders in the Pennsylvania Company: therefore Resolved, That we recommend to the Directors to adopt such measures as will, in their judgment, secure to the Pennsylvania Railroad Company the absolute and exclusive control of the policy of the Pennsylvania Company. The above preamble and resolutions are respectfully recommended to the favorable consideration and action of the stockholders. WILL. A. STOKES, Chairman, W. H. KEMBLE, A. LOUDON SNOWDEN, D. E. SMALL, JNO. S. IRICK, WM. C. LONGSTRETH, JOHN A. WRIGHT. APPENDIX A. List of Stocks owned by the Pennsylvania Railroad Company December 31st, i8yj No. of Shares. Name of Security. Per Share. Cash Value. $2,075,000 400,000 184,100 1,828,600 308,950 325,000 1,100,000 290,100 1.277.350 132,150 237,200 975,800 762,550 56,500 1,921,700 281,200 7,480 375.900 302,000 720,000 25,000 41,500 4,000 3,682 36,572 6,179 6,500 22,000 5,802 25.547 5,286 4,744 19,516 15,25 1. 130 19,217 5,624 374 3,759 6,040 7,200 250 Allegheny Valley Railroad stock, American Steamship stock, . . . Bald Eagle Valley Railroad stock, Baltimore and Potomac Railroad stock, Bedford and Bridgeport Railroad stock, Chartiers Railway stock, .... Cleveland, Mt. Vernon and Dela- ware Railroad stock, common, Cleveland, Mt. Vernon and Dela- ware Railroad stock, preferred. Connecting Railway stock, six per cent, guaranteed, Cresson SjDrings stock, Cumberland Valley Railroad stock, preferred, Cumberland Valley Railroad stock, common, Harrisburg and Lancaster Rail- road stock, Junction Railroad stock, .... Jeffersonville, Madison and In- dianapolis Railroad stock, . Little Miami Railroad stock, . . Lewistown and Tuscarora Bridge Company stock, Louisville Bridge stock, . . . . Lykens Valley Coal stock, . . . Newport and Cincinnati Bridge stock, New Jersey Stock- Yard and Mar- ket Company stock, $50 100 50 50 50 50 50 50 50 25 50 50 50 50 100 50 20 100 50 100 iio 00 20 00 50 00 I 00 I 00 10 00 40 00 50 00 60 00 60 00 50 00 50 00 85 50 50 00 2 00 100 00 7 SO 80 00 $415,000 80,000 184,100 36,572 6,179 65,000 22,000 232,000 1.277,350 50,000 284,640 1,170,960 762,550 56,500 1,643,400 281,200 5,000 375,900 395,765 108,000 3o8,95o 00 First mortgage bonds, seven per cent., . 1,000,000 00 Par Value. ^50 Total Par Value. ;^3o8.95o 1 ,000,000 Assessed Value. Total Assessed Value. ^6,179 800,000 These bonds were taken to aid the construction of the line from the terminus of the Huntingdon and Broad Top Railroad to Bedford Springs and the Cumberland coal region and the city of Cumberland. (See the statement as to stock of that company.) Huntingdon and Broad Top Rail- Par Value. Total Par Value. Assessed Value. Total Assessed Value. road. Held by Pennsylvania Railroad Company: Consolidated seven per cent, bonds |S 19,000 00 ^I,CO0 jS 19,000 ;?7,6oo Road in the hands of trustees, who hope, after October, 1874, to permanently resume paying interest on entire indebtedness. 2o6 South Western Pennsylvania Rail- road. Par Value. Total Par Value. Assessed Value. Total Assessed Value. Capital stock, .... ;?359.857 5o Floating debt, .... 590,815 86 Held by Pennsylvania Railroad Company : Capital stock, .... ;j275,ooo 00 Net earnings, 1873, • • 56,746 98 ^5° 25275, 000 ^206,250 The officers of the Pennsylvania Railroad report as follows : — This stock represents the con- trol of the road from Greensburg to Connellsville, which was built to secure a share of the large coke trade, which forms an important item of traffic over our western lines to Chicago, Cleve- land, Indianapolis, and other points. It is deemed to be the best coke manufactured from any coal deposit now known. Western Pennsylvania Railroad. Par Value. Total Par Value. Assessed Value. Total Assessed Value. ri vl"f*ti/ic TtT^nn r^1mT"cvTn/* frrt r^fit"[A** T ^^cp/i ^n JblJjvlidiViA 11 will JUJicLll A V 111c L\J AJKl^i^L r l-rfCadCU Im\J Pennsylvania Railroad Company at cost. Capital stock $1,022,450 00 Bonds — First mortgage, main line, six per cent, 800,000 00 Bonds — First mortgage. Pittsburg Branch, six per cent 1,000,000 00 Bonds — General m r t- gage, seven per cent., 1,200,000 00 Total, . . . $4,022,450 00 Floating debt, .... $180,847 20 Net earnings, 1873, • ■ 348,968 77 Amount required to pay interest, .... 192,000 00 Balance, (equal to fifteen and one-third per cent. on its capital stock,) . $156,968 77 Held by Pennsylv ania Railroad Company: First mortgage bonds, six per cent. $10,000 00 $1,000 $10,000 $8,500 Branch bonds, six per 1,000 cent., ... . 148,000 00 ■ 500 148,000 125,800 General mortgage bonds, 100 seven per cent., . 1,200,000 00 1,000 1,200,000 1,080,000 Capital stock, . 972,650 00 50 972,650 972,650 Lewisburg, Centre and Spruce Creek Railroad. Leased to Pennsylvania Railroad Co. at cost. Capital stock, .... $245,635 00 First mortgage bonds. seven per cent., . 1,545,000 00 Held by Pennsylv ania Railroad Company: First mortgage bonds, seven per cent., . . $1,500,000 00 $1,000 $1,500,000 $1,125,000 Net earnings, 1873, • • 6,983 94 These bonds were taken by the Company to aid the construction of the road from Lewisburg Union county, Pennsylvania, and form a connection from the Philadelphia and Erie Railroad through to Tyrone, Blair county. A portion of the line is fully constructed and in operation, and a portion of the residue graded. A very small amount of work is being done on the road at present. 207 Pittsburg, Virginia and Charleston Railway. Capital stock, .... Bonded and other debt, . Total, . . Receipts for 1873, . . Expenses for 1873, . . Net earnings for 1873, ^673,264 31 1,264,138 53 iSi,937.402 84 ^67.137 II 41,558 18 «!2S,S78 93 Held by Pennsylvania Railroad Company: Capital stock, .... ^405,000 00 Seven per cent, gold bonds, . .... 500,000 00 Par Value. |!5° ,000 Total Par Value. ^(405,000 500,000 Assessed Value. Total Assessed Value, ^324,000 400,000 A new enterprise not yet finished, but using such portions as are finished. Extends from Pittsburg to Monongahela City. Its value can best be explained by the subjoined statement of the officers of the Pennsylvania Railroad: — "This stock was taken with the view of securing a connection from the Pittsburg, Cincinnati and St. Louis Railway, at the south end of the Monongahela bridge, at Pittsburg, to our main line east of Turtle Creek ; the purpose being to make a transfer depot between the south-western roads and our main line, at Wall's station, sixteen miles east of Pittsburg, thus avoiding the crossing of the river into Pittsburg, the tunnel, and the already over-crowded yards in the city, and, also, the lifting over the grades between Pittsburg and Turtle Creek. The line of the Pittsburg, Virginia and Charleston Railway follows the river .valley, and when completed will give us great facilities for the south-western trade. A large property has been secured at Wall's station for this purpose, and will be made available as soon as the line is completed." Warren and Franklin Railroad. Par Value. Total Par Value. Assessed Value. Total Assessed Value. Since merged into Oil Creek and Allegheny River Railroad. Held by Pennsylvania Railroad Company: First mortgage bonds, seven per cent., . . ^292,500 00 Net earnings, double the amount required to pay interest on its first mortgage. ysi.ooo jS292,500 ?2i9.37S The American Steamship Company. Held by Pennsylvania Railroad Company: Capital stock, .... ^400,000 00 Deficiency for 1873, • • 90,000 00 Net earnings insufficient to pay interest on bonded debt. ^400,000 ^80,000 208 Pennsylvania Steel Company. Capital stock, .... §1,834,560 24 Bonded debt, .... 198,000 00 Held by Pennsylvania Railroad Company: Capital stock .... §679,800 00 Net earnings,i873, (equal to a dividend of thir- teen and one-half per cent.,) 263,040 50 Par Value. Total Par Value. Assessed Value. Total Assessed Value. §100 §679,800 §509.850 Central Stock-Yard, Jersey City. First mortgage bonds, seven per cent., . . §300,000 00 Held by Pennsylvania Railroad Company: Secured by real estate located in Jersey City, opposite New York City, costing over ^600,000. §1,000 §300,000 . . . §270,000 Jersey City and Bergen Railroad. Capital stock §110,10000 Bonded debt, .... . 584,100 00 Floating debt, .... 393,782 77 Held by Pennsylvania Railroad Company: First mortgage bonds, seven per cent., . . §271,000 00 Net earnings for 1873, • 4i>7i8 59 §1,000 §271,000 §243,900 Cresson Springs. Capital stock, .... §138,050 00 Held by Pennsylvania Railroad Company: Capital stock, .... §132,150 00 Net earnings for 1873, ■ ^'SS^ 82 $25 $132,150 §50,000 International Navigation Company. Held by Pennsylvania Railroad Company : First mortgage bonds, seven per cent., . . §350,000 00 Secured by a mortgage on real estate, in Phila- delphia, on which more than double the amount is being spent. A first-class security. §1,000 §350,000 §315,000 Pennsylvania Canal. Capital stock, . . . §4,458,890 00 Bonded debt, . . 2,641,000 00 Floating debt, .... 490,200 00 Held by Pennsylvania Railroad Company: Capital stock, . . §3,511,55000 Bonds, six per cent., . . 18,000 00 Net earnings for 1873, 319)932 32 §50 1, 000 te5ii.55° 18,000 . . . §1,053,465 io,8oo 209 Miscellaneous Bonds. Allegheny county bonds, six per cent., . Allegheny county bonds, six per cent., . Altoona city bonds, seven and three-tenths per cent., Harrisburg bonds, six per cent., . . . County of Clark (Illinois) bonds, eight per cent., Par Value. lis 1, 000 500 1,000 1,000 \ 1,000 \ 500 1,000 Total Par Value. ^8,500 2,000 50,000 4,600 15,000 Assessed Value. Total Assessed Value. »8,500 1,500 45,000 4,140 11,250 The above bonds are secured by the real estate of the municipalities issuing them. Philadelphia and Erie Railroad. Leased to Pennsylvania Railroad Co. at cost. Common stock, . . . ;^6,048,7oo 00 Preferred stock, . . . 2,400,000 00 Bonded debt, .... 16,252,000 00 Floating debt, .... 1,335,000 00 Total, 1526,035,700 00 Held by Pennsylvania Railroad Company: Common stock, . . . ^1,581,800 00 Preferred stock, . . . 2,400,000 00 Six per cent, gold bonds, 730,000 00 Expenses and interest for 1873, 4,593.327 00 Receipts and interest for 1873, 3,965,067 00 Deficit, .... ,260 00 Par Value. I50 1,000 Total Par Value. ^1,581,800 2,400,000 730,000 Assessed Value. Total Assessed Value. ^^584,000 For a long time the net earnings have been insufficient to pay interest, each yearly loss being met by a further issue of bonds. The liabilities have far outstripped the receipts in their growth. Since i86g the increase on gross receipts has been seventeen and seven-tenths per cent., and the increase in liabilities thirty-nine and six-tenths per cent. The whole of the increase in liabilities has been in bonded debt and preferred stock. Some hope of its future is entertained by its friends by reason of the connection with the Low-Grade Railroad, at Driftwood, and Buffalo, New York and Philadelphia Railroad, at Emporium. At the present cost of running the road it would re- quire gross receipts amounting to $14,000,000 per annum to yield income sufficient to pay its interest and six per cent, on its capital, an amount so utterly preposterous that no sane person would dare estimate on. A road whose gross receipts has increased but 3600,000 in four years, and that, too, as its president estimates, by extraordinary and unprofitable efforts, cannot possibly increase sufficiently fast to overtake its expense and interest account, much less pay a dividend to its common stockholders. The question suggests itself, how long can it remain in the hands of its stockholders? The answer is, "Just as long as the Pennsylvania Railroad is willing to loan it money to meet its deficit, and no longer." In addition to the floating debt above, it is indebted to the Pennsylvania Railroad jj2, 401,097.36, 216 West Jersey Railroad, Par Value. Total Par Value. Assessed Value. Total Assessed Value. Capital stock, .... |i,359,7So oo Bonded debt, .... 2,400,000 00 Floating debt, . . . . 71,125 00 - Held by Pennsylvania Railroad Company: Capital stock, .... $54,285 00 $50 $54,285 . . . $54,285 Net , earnings for 1873, after paying interest on its bonded debt, . . 97,723 83 Alexandria and Fredericksburg Railway. Capital stock, .... $1,000,000 00 Bonded debt- First mortgage bonds, seven per cent., (gold,) 1,000,000 00 Floating debt, .... 264,053 00 Held by Pennsylvania Railroad Company: First mortgage bonds, sevenper cent., (gold,) $512,00000 $1,000 $512,000 $358,400 Operations for 1873 show a loss, 25,074 02 Now in the hands of trustees for bondholders. Pittsburg, Fort Wayne and Chicago Par Value. Total Par Value. Assessed Value. . - Total Assessed Value. Railway. Held by Pennsylvania Railroad Company: Common stock, . . . $5,100 00 $100 $5,100 tesis Seven per cent, guaran- teed stock, .... 1,280,00000 100 1,280,000 1,152,000 Leased to Pennsylvania Railroad Company, and sublet to Pennsylvania Company, at interest and seven per cent, on its stock. Operations for 1873 — Surplus, after paying in- terest and dividends, . $954,855 00 211 Par Value. Pennsylvania Company. Assets, consisting of bonds, stocks, real estate, equip- ment, bills receivable, cash, and cash items, §30,778,109 68 Liabilities — ■ Common stock, . §3,360,900 00 Preferred stock, . 8,000,000 00 Mortgage, . . 3,111,00000 Floating debt, . 12,008,766 22 26,480,666 22 Balance, being undivided pro- fits §4,297,443 46 Operations for 1873^ Profits from leased lines, and gross receipts from their own rolling stock, &c 2,534,853 95 Expense, . . . §32,198 37 Discount and in- terest, . . . 430.991 75 Loss on sale of securities, . . 833,353 47 1,296,543 59 Profits for year, (equal to a. dividend of ten and nine- tenths per cent, on the entire capital,) §1,238,31036 It will be observed that $833,353.47 has been de- ducted from the profits of thi.s year for loss on sale of securities. It is hardly fair, although showing great prudence, to charge the sum against a single year's earnings. Held by Pennsylvania Railroad Company: First mortgage bonds, seven per cent, (gold,) §3,111,00000 Guaranteed stock 8,000,000 00 Total Par Value. Assessed Value. 51,000 50 Total Assessed Value. SS3, 111,000 8,000,000 ^2,644,350 8,000,000 212 Erie and Pittsburg Railroad. Par Value. Total Par Value. Assessed Value. Total Assessed Value. Leased to Pennsylvania Railroad Company, and sublet to Pennsylvania Company, Rent for 1873, (a sum nearly double the amount required lo pay Its interest,) . . ;J38o,626 00 Held by Pennsylvania Railroad Company : Seven per cent, bonds, . ^100,000 00 Surplus earnings, being profit to Pennsylvania Company, over and above rental, . . . 103,772 74 ^1,000 |! 1 00,000 - ;!!8o,ooo Lawrence Railroad. Leased to Pittsburg, Fort Wayne and Chicago Railway Company. Rent for 1873, a sum equal to three times its interest. Held hy Pennsylvania Railroad Company: First mortgage bonds, seven per cent., . . S9>ooo 00 Surplus earnings, after paying rental, a profit to Pennsylvania Rail- road, 258 00 ;^i,ooo iS9,ooo ^8,100 Toledo, Tiffin and Eastern Rail- road. First mortgage seven per cent, gold bonds, . . ^900,000 00 i!i,ooo ^900,000 ^630,000 This is a new enterprise now in course of construction. These bonds were received by this Company for advances made through the Pennsylvania Company to aid the construction of that line. Indianapolis and St. Louis Railroad. Extends from Terre Haute to Indianapolis. Leased to Pennsylvania Railroad Company, and sublet to Pennsylvania Company. Rent for 1873, (being a sum sufficient to pay interest on all liabili- ties, and a surplus of ^8000,) $245,259 00 Held by Pennsylvania Railroad Company: First mortgage bonds, seven per cent., . . ;ji440,ooo 00 Equipment bonds, seven per cent., 50,000 00 Par Value. $1,000 1,000 Total Par Value. $440,000 50,000 Total Assessed Value. $396,000 45,000 213 Jeffersonville, Madison and Indian- apolis Railroad. Par Value. Total Par Value. Assessed Value. Total Assessed Value. Length, two hundred and twenty-four miles. Capital stock, .... ^2,000,000 00 Bonded debt, .... 4,888,000 00 $100 $1,921,700 ^6,888,000 00 Held by Pennsylv ania Railroad Company: Stock, seven per cent. guaranteed ^1,921, 700 00 Leased to Pennsylvania Railroad Company at interest on bonds and seven per cent, on capital stock ; sublet to Pennsylvania Company. Gross receipts for 1873, . ^1,434,993 01 Expenses for 1873, . . 991.377 03 $1,537,360 Net profits, 1(443,615 98 Amount required to pay interest and other ex- penses, 392.651 70 Balance for stockholders, $50,964 28 Amount required to pay dividend on stock, . . 140,000 00 Deficiency to be made up by lessee, $89,035 72 The above deficiency was made good by Penn- sylvania Company, and charged in their statement for 1873 to profit and loss. Cleveland, Mount Vernon and Delaware Railroad. Capital stock, .... $1,300,000 00 Preferred stock, . . . 451.45° 0° Bonded debt, .... 2,300,000 00 Held by Pennsylv ania Railroad Company: Capital stock, .... $ 1, 100,000 00 Preferred stock, . . . 290,100 00 $50 5° $1,100,000 290,100 $22,000 232,080 The year 1874 piomises, so far. The business of 1873 fell short of Interest account more than sufficient. Considered well for a new enterprise. The following report of the officers of the Pennsylvania Railroad Company will explam more fully its value : — ■ ^1. These twenty-two thousand shares of common stock came to this Company as a bonus upon the re-organization of that road. The portion of the line from Hudson to Millersburg, crossing the Fort Wayne road at Ormlle, we received in connection with the lease of the Pittsburg, Fort Wayne and Chicago Railway, and was not turned over by the Pennsylvania Railroad to the Pennsylvania Company at the time the other property representing that lease was transferred. This bonus stock never cost us ^ dollar, and places the entire line within our control. The five thousand eight hundred and two shares of preferred stock were received for moneys advanced for equipment and the extension of the line from IMillersburg to Columbus. With the completion of a branch of this road down to Dresden Junction, it will, in addition to developing the coal on its main line and this branch, form a direct connection with the great coal fields of the Hocking Valley and the Cincinnati and IWuskingum road. Therefore, our President has no doubt whatever that it will be amply able to take care of all its interest and pay a dividend on its preferred stock. 214 AND St. Louis Pittsburg, Cincinnati Railway. Common stock, . . Preferred first stock, . . Preferred second stock, . First mortgage consolida- ted bonds, .... Second mortgage consoli- dated boi^ds, . ' . . First mortgage Steuben- ville and Indiana Rail- road (re-organized), . Other bonds, .... Floating debt, .... Total, . ... Operations for year — Net earnings Pittsburg, Cincinnati and St. Louis Railway, . . Net earnings leased roads, Total, . . . Rent paid leased roads, . Rent paid Steubenville bridge, Amount required to pay interest on its bonded debt, Total, ^2,910,516 46 Less net earnings, . . 844,980 81 Deficit for year, . $2,065,53565 Par Value. ^2,508,300 00 2,925.450 00 3,000,000 00 6,222,000 00 5,000,000 00 3,000,000 00 781,560 99 $23,437,310 99 3.854,872 55 $27,292,183 54 $426,686 56 418,294 25 $844,980 81 $2,089,111 99 100,000 00 721,404 47 The leased 'road.s on which the above loss occurs are leased to the Pittsburgj Cincinnati and St. Louis Railway Company at a stipulated rent, the Pennsylvania Railroad Company being the guarantor. The agreement of the Pennsylvania Railroad Company with the Pennsylvania Com- pany requires that the Pennsylvania Company takes the place of the Pennsylvania Railway Company as guarantor. Hence, all the means of the Pittsburg, Cincinnati and St. Louis Railway Company are required to be exhausted before the Pennsylvania Company can be called on. Thus, these losses were liquidated by placing an addi- tional mortgage on the Pittsburg, Cincinnati and St. Louis Railway, which mortgage was pur- chased by the Pennsylvania Company, and the ■proceeds used by the Pittsburg, Cincinnati and St. Louis Railway Company. Held by Pennsylvania Railroad Company. Consolidated mortgage bonds, .... Steubenville and Indiana seven per cent, bonds, . . . , Second preferred stock Pittsburg, Cin- cinnati and St. Louis Railway, . . . Total Par Value. Assessed Value. Total Assessed Value. ^1,029,000 278,000 3,000,000 ^668,850 208,500 2IS Chartiers Railway. Leased to Pittsburg, Cincinnati and St. Louis Railway Company at cost; minimum, $35,000. Capital stock, . .[ . . ^800,000 00 First mortgage bionds, seven peil cent., ' . . 500,000 00 Held by Pennsylvania Railroad Company: Capital stock, . . , . . jS325,ooo 00 Net income for 1873, (suf- ficient to pay interest,) 35,000 00 Par Value. %lo Total Par Value. ^325,000 Assessed Value. Total Assessed Value. The officers of the Pennsylvania Railroad Company make the following report on the stock :— This stock was subscribed with the view of enabling the people living on the line between Mansfield and Washington, Pa. , to form connections with the Pittsburg, Cincinnati and St. Louis Railway at the town of Mansfield. The road is twelve miles long, and runs over nine miles of the Pittsburg, Cincinnati and St. Louis line Into Pittsburg, forming a line thirty-one miles long between Pittsburg and Washington. It has been leased to the Pittsburg, Cincinnati and St. Louis Railway, to be worked at cost, for the benefit of its bond and share holders, the Pennsyl- vania Railroad Company holding a majority of its shares. The operations of the line are demon- strating its ability to meet the interest on its mortgage bonds, and as the large coal deposits on the line are developed it may, within a very few years, be able to make some dividend upon its stock. Little Miami Railroad. Leased to Pittsburg, Cincinnati and St. Louis Railway Company, the Pennsylvania Railroad Company guarantor, and the Pennsylvania Com- pany sub-tenant, assuming the place of guarantor. Rem, 1873, (a sum suffi- cient to pay interest on its funded debt and eight per cent, divi- dend on its capital stock,) ^710,769 00 Held by Pennsylvania Railroad Company: Capital stock, (eight per cent.,) . - ^281,200 00 HoLLiDAY's Cove Railroad. Held by Pennsylvania Railroad Company: ^20,000 00 Redeemed since January ist, 1874, at par. Par Value. 1550 Total Par Value. I281 200 Assessed Value. ^1,000 ^20,000 $281,200 $20,000 Cincin'ti AND Muskingum ValleyR.W. Capital stock, .... $3,996,610 00 First mortgage bonds, seven per cent., . . 1,500,000 00 Held by Pennsylvania Railroad Company: First mortgage bonds seven per cent.. Net earnings for 1873, This road earned, 1872 (net,) $752,000 00 19,429 00 135.714 00 $ 1 ,000 $752,000 $526,400 These bonds were taken to represent the interest this Company held in that line, to aid in its extension from ZanesviUe to Dresden. It now forms connection with the Pittsburg, Cincinnati and St Louis Railway through to Cincinnati, via IWovrow, and forms an outlet for the Hocking Valley coal,— a traffic which promises to be of great value to thisCompany in the near future. 2l6 Newport and Cincinnati Bridge. Capital stock, .... $r, 200,000 00 Bonded debts, seven per cent., 1,200,000 00 Floating debts, . . . 812,766 55 Held by Pennsylvania Railroad Company: Capital stock, .... ;J720,000 00 First mortgage bonds, seven per cent., . . 1,200,000 00 Net earnings for 1873, • S3>i°9 °° Par Value. ^100 ^720,000 1,200,000 Assessed Value. Total Assessed Value. ;^ 108,000 1,020,000 The following is the report received from the officers of the Pennsylvania Railroad in, relation to this property : — This stock was received by this Company as a bonus on the purchase of the bonds for the construction of the bridge across the Ohio, at Cincinnati. The |li,2oo,ooo of first mortgage bonds were taken by this Company under an agreement by which this' stock was given us, which, being sixty per cent, of the entire amount, gives us the control of the river at that point, with practically no cost whatever. The railroad companies south of the river and to Cincinnati, at the time this bridge was projected, came under a guaranty of ^75,000 per annum for the railway traffic alone, the incidental traffic to belong to the Company. The business is being developed, and promises satisfactory results. Columbus, Chicago and Indiana Central Railway. This road is leased to the Pittsburg, Cincinnati and St. Louis Railway Company at thirty per cent, of its gross receipts, the minimum rental being seven per cent, on ;gi5, 821,000, being its entire indebtedness at the time of execution of lease. The Pennsylvania Railroad Company guarantees the fulfillment of the contract on the part of the Pittsburg, Cincinnati and St. Louis Railway Company. Capital stock, common, . ^13,328,560 00 Funded debt — First and second mort- gage bonds, . . . 15,344,750 00 First and second mort- gage bonds, . . . 1,831,900 00 Income, 3,747,000 00 Income, convertible, . . 2,554,000 00 Income, .... . 74,024 25 Total, i?23,55i,674 25 Gross receipts, .... 484,477,806 84 Thirty per cent, being . 1,343,342 00 It will be seen by this statement that the rental was nearly sufficient to pay interest on its first and second mortgage bonds. Held by Pennsylvania Railroad Company : Second mortgage bonds, ^1,258,000 00 Income, 3,504,000 00 Par Value. Total Par Value. ^1,258,000 3,504,000 Assessed Value. Total Assessed Value. ;J88o,6oo 1,752,000 21/ St. Louis, Vandalia and Terre Haute Railroad. Leased to Terre Haute and Indianapolis Rail- road Company, and by them to Pennsylvania Company, Stc, at its full net earnings, minimum rent to be thirty per cent, of its gross receipts. Bonded debt — First mortgage bonds, seven per cent., . . . Second mortgage bonds, seven per cent., . . . Income bonds, seven per cent., Floating debt — Rent received, .... Interest on bonds and taxes, Applicable to interest on income bonds, . . . ^1,899,000 00 2,600,000 00 1,000,000 00 5,499,000 00 feS4.762 00 342,193 00 ;?i2,569 00 Held by Pennsylvania Railroad Company: ^225,000 00 Second mortgage bonds, seven per cent., . . . Income bonds, seven per cent.. 700,000 00 It would require an increase in gross receipts of only ^200,000 to enable this Company to pay interest oh its entire indebtedness. Par Value. 2 1, 000 Total Par Value. ;j225,ooo 700,000 Assessed Value. Total Assessed Value. ;?i57,So° 350,000 Shamokin Coal Company. Capital stock, .... |S 1, 000,000 00 First mortgage bonds, seven per cent., . . 100,000 00 Floating debt, .... 122,246 28 Held by Pennsylvania Railroad Company: Capital stock, .... ^981,575 00 S25 ^981,575 8392,630 2l8 Par Value. Total Par Value. Assessed Value. Total Assessed Value. Lykens Valley Coal Company. Capital stock, . . . {(494,150 00 Bonded debt, . . . 106,000 00 Heldby Pennsylvania Railroad Company: Capital stock $302,000 00 $SO $302,000 ^395.765 Loss for 1873, . . . 285,071 57 This stock cost the Pennsylvania Railroad Company !S395,765, and is abundantly worth its cost. The loss for 1873 is more apparent than real,— the outlay having been made for the erection of new breakers and general improvements. For further particulars, see report on coal properties. Summit Branch Railroad. Par Value. Total Par Value. Assessed Value. Total Assessed Value. Capital stock, . $3,828,10000 Bonded debt, . 715,000 00 Floating debt, . . . 33,959 82 Held by Pennsylvania Railroad Company: Capital stock $1,252,400 00 $50 $1,252,400 $1,127,160 Net earnings for 1873, (equal to a dividend of eight and three- quarters per cent.,) . 348,368 97 For further particulars, see report on coal properties. Susquehanna Coal Company. Par Value. Total Par Value. Assessed Value. Total Assessed Value. Capital stock, .... $1,500,000 00 Bonded debt, . . . 1,783,000 00 Floating debt, . . . 854,790 70 Held by Pennsylv ama Railroad Company: Capital stock, . . $1,000,000 00 $100 $1,000,000 $1,000,000 Net earnings for 1873, (equal to a dividend of fourteen per cent.,) . 319,932 32 This stock represents the entire coal field controlled by that company near Wilkesbarre, Pa., which is growing into great value. APPENDIX B. Comparative Statement of Earnings and Expenses of Leased Lines of Pennsylvania Company (including Indianapolis and Vincennes Railroad) for six months ending June 30th, 1874, and June ' 30th, 1873. Pittsburg, Ft. Wayne and Chicago Railway. Gross Earnings. Expenses. Net Earnings. For six months ending June 30th, 1874 Same period last year $4.474, 1 58 73 5,084,140 84 $2,684,826 67 3,116,137 89 $1,789,332 06 1,968,002 95 Decrease, $609,982 II $431,311 22 $178,670 89 Erie and Pittsburg Railroad. Gross Earnings. Expenses. Net Earnings. For six months ending June 30th, 1874 Same period last year, ... $440,619 84 601,874 53 $231,554 36 338,317 18 $209,065 48 263,557 35 Decrease, $161,254 69 $106,762 82 $54,491 87 Cleveland and Pittsburg Railroad. Gross Earnings. Expenses. Net Earnings. For six months ending June 30th, 1874 Same period last year, . ... $1,460,387 03 1,790,470 67 ^710,755 79 951,833 14 $749,631 24 838,637 53 Decrease, $330,083 64 $241,077 35 $89,006 29 (2IS 220 Indianapolis and Vincennes Railroad. Gross Earnings. Expenses. Net Earnings. For six months ending June 30th, 1 874 Same period last year, ^126,922 69 118,983 45 ^99,463 40 97,993 19 ^27,459 29 20,990 26 Increase, $1,9Z9 24 jSi,47o 21 16,469 03 Jeffersonville, Madison and Indianapolis Railroad. Gross Earnings. Expenses. Net Earnings. For six months endingjune 30th, 1874 Same period last year, ^593.565 34 641,660 10 ;?4i3,oo5 84 483,715 98 :?i8o,S59 50 157,944 12 Increase, ;?22,6i5 38 Decrease, ;?48,o94 76 ^70,710 14 Comparative Statement of Earnings of Pennsylvania Company, from other sources than Leased Lines, for six months ending June 30th, 1874, and June joth, iSfj. Interest on Bonds and Dividends on Stock. Earnings of the Monongahela Ex- tension. Car Equipment, Total. For six months end- ing June 30th, 1874, Same period 1 873, . ^542,265 60 113,879 18 ^7,431 34 5,557 94 $722,377 69 146,451 77 $1,272,074 63 265,888 89 Increase, .... Decrease, . . . ^428,386 42 $1,873 40 $575,925 92 $1,006,185 74 Recapitulation for six months ending June 30th, 1874. Net earnings — leased lines and Indianapolis and Vincennes Rail- road, $2,956,047 57 Net earnings — car equipment, interest, dividends, &c 1,272,074 63 Aggregate ^54,228,122 20 Same period last year, 3,515,021 10 Increase, 713,101 10 221 Comparative Statement of Earnings and Expenses of Leased Lines, and of Pittsburg, Cincinnati and St. Louis Railway Company, for six months ending June 30th, i8j4, and June 30th, 1873. Pittsburg, Cincinnati and St. Louis Railway. For six months ending June 30th, 1874 Same period of last year, . . . . Increase, Decrease, Gross Earnings. )1, 785,021 24 1,900.057 II |Sii5,o35 87 Expenses. Si,275,977 82 I.559.I79 97 ^283,202 15 Net Earnings. ^5509,043 42 340,877 14 ^168,166 28 Chartiers Railway. Gross Earnings. Expenses. Net Earnings. For six months ending June 30th, 1874 Same period of last year, .... ^32,913 80 26,188 14 ^20,723 42 19,961 13 ^12,190 38 6,227 01 Increase, ^6,725 66 ^762 29 ^5.963 37 Columbus, Chicago and Indiana Central Railway. Gross Earning'?. Expenses. Net Earnings. For six months ending June 30th, 1874 Same period of last year, .... ^1,931,458 55 2,281,535 91 ^1,491,640 37 2,000,615 12 ^439,818 18 280,920 79 1*158,897 39 Decrease, S350.077 36 ^508,974 75 Cincinnati and Muskingum Valley Railway. Gross Earnings. Expenses. Net Earnings. For six months ending June 30th, 1 874 Same period of last year, .... «i83,56o 37 215,644 42 ^(212,629 29 200,537 68 ^29,068 92 Eipeusea over oarniDgi. 15,106 74 ^12,091 61 Decrease, ^32,084 05 ^44,175 66 222 Little Miami Railroad. ■ Gross Earnings. Expenses. Net Earnings. For six months ending June 30th, 1874 Same period of last year, .... ;J588,i76 95 655,081 45 ^497.499 49 618,981 64 ii90,677 46 36,099 81 $54,S77 65 :ji Decrease, ;j!66,904 50 ^121,482 15 Recapitulation. Net earnings, all the lines, for six months ending June 30th, 1874, . |!l,022,66o 52 " " " same period last year, 679,231 49 Increase, $343A29 03 APPENDIX C. Comparative Statement of Earnings and Expenses of Pennsylvania Railroad and Branches, and United Railroads of New Jersey, for the first six months of 18^3 and 1874. Pennsylvania Railroad — Main Line:- Earnings. Expenses. Net Earnings. January ist to July 1st, 1874 , . . Same period of 1873, . . . . ^,930.362 52 11,175,321 58 ^5,600,784 98 7,280,026 70 ^ s - ,5 S o Ph ^.?? 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'"^■^ %f /V'ltlei """•»,«4. J ■^^i^iZ ' J" K E s '-^ A R 4 J: ^Os tJLj^ r"'-^^^^ \ Welila, ■Neosho I< AlmiljoMt' / Cliamte' ) Tiije,^ ft '"^epeiideAce, ' GJ!S C CHEROKEE (V/tiTta ■\3^*':k. *wa^«; i.Scott ■ceCy. l>''^' ■) "*'% li^ >.>«yffl<. aiilMridye H ) -^^^. ,*'■■?*.■ / *;> /C IT Nsr Lrt« :V ^^Vf, V ? >^\V'/ ^t' ^ r'5'* "Leban ^ / ^-Canadian T^'ichita '?2--^ar^^ J W/ ^PJ^AIM ^-""^ CivW" /^"'■Gn-ffi„ pilcKir ley _ ^i, j Phantom am "P Stockton "^ X ^ ;4\ P'SrcK,,c' K J'l«, , ,, ,„ Oneiiville Ft Worth i^rp-^^^^s^?- (i Rice 7 /KichUni J ;;C Tehneana C-*, -'■ ^9,Mexia p Oroesbeck/ y^/ Kosso ^;^iak "''&e7 Durant / Brooks Vj Shiibulaki '■■'<>\' v°^ prooklj j^ 'Summit '4 ■*- V'^!^ lUiv^i-side t;^ , ^■The>ps 1 C-)] p\\ L IMJI 'paho' ^ ^v \inite Port Hudson' 911 ammondj w _ , iPoiichatotil 6 iiaton Rouga ^eSko { Whfstlciv \M0B11 ■ (Sum J Sgiiigbet f'Tensas C /pKkeij '•4'i f ^ XNe^Oii 1 HX) LOXGlTQ-LtK W EST FROM O-KK-ENWICH I t« »«v ., B«a i iW AaB ^i^-t=i.-* TMMiiimii "^ ^ ii iiiniMrn "^ ^^^ --.o.^ r 'f, "APPENDIX G \JlrL(l Its C oj u lecttoTLS . I^ines Printed in Bed are Owned or Controlled lay the !Pennsyl-^-ania Rr\ilroad Company. Tlia-nd, JlaJTa.lly df Co., Jdap JUngraverF. " APP^EN J3IX G-. fv»-""^*".wfi'i*:, _Ki. t'i