ILLINOIS UNIVERSITY OF ILLINOIS AT URBANA-CHAMPAIGN PRODUCTION NOTE University of Illinois at Urbana-Champaign Library Brittle Books Project, 2015.COPYRIGHT NOTIFICATION In Public Domain. Published prior to 1923. This digital copy was made from the printed version held by the University of Illinois at Urbana-Champaign. It was made in compliance with copyright law. Prepared for the Brittle Books Project, Main Library, University of Illinois at Urbana-Champaign by Northern Micrographics Brookhaven Bindery La Crosse, Wisconsin 2015THE WESTERN UNION TELEGRAPH COMPANY.THE WESTERN UNION TELEGRAPH COMPANY. We shall try to give below a rough analysis of the position of the Western Union Telegraph Company. Unfortunately we are not able to produce very satisfactory results; on the contrary they seem to us very gloomy indeed. It. may be that our conclusions are not altogether justified, since the method pursued has necessarily been inexact; but if so, the blame is scarcely ours, since the reports of the company give but scanty information, and that in an obscure and contradictory form. This is always a wrong policy. It is a natural conclusion that the reason for so much obscurity in the treatment of facts, implies that there is something to conceal, since if affairs were in a flourishing condition an open policy in a business matter would be merely natural. We especially commend this psychical feature of finance to the attention of Western Union shareholders. But although our conclusions from being based upon most imperfect data from the Annual Reports may be to some extent inaccurate, the writer, while distinctly admitting in advance all objections of the kind which may be urged against the examination of the facts by analogies and exclusion, has no reason to believe that they are not substantially correct. The methods we have followed seem to us clear and certain guides to a better apprehension of the truth, and the only mental difficulty is that which arises from the very forbidding appearance of the truth itself. We should like to be able to treat the matter in logical sequence, but the want of methodical arrangement of the facts in the reports, makes this impossible. Should figures seem often repeated, it is because the writer thinks it better to do so, than constantly refer to tabulations on another page, not often understood, except by skilled accountants. The writer is not interested and never has been to the extent of a penny, in the quotations of Western Union securities, but he is interested in securities which are injuriously affected by well-founded imputations based upon annual reports like the one under review. The Western Union is not the only offending company, but is selected because there is perhaps no large company, which claims so much, and at the same time presents so meagre a statement of common details. This is in marked contrast to the reports of the Pennsylvania Railroad and the Louisville and Nashville Companies. The former is probably entering a period of five per cent, or even less cash dividends, owing to the depression in the coal and iron trades, and the small profits on through traffic. This is augmented by the justifiable apprehension concerning the inevitable division at competitive rates, of the valuable Pittsburgh traffic. The Louisville and Nashville also suffers from the depression in general business and the creation of new lines. Both companies however present full and admirable annual reports, signed by presidents with the moral courage to tell the truth. It is due to these reports that the proprietors refuse to withdraw their support in troublesome times like the present. The annual meeting of the Western Union however is not far off, and it is to be hoped that the shareholders will insist upon a report which will not only be intelligible; but at the same time acceptable to all as an honest attempt to give the shareholders some information about the details of opera- tions of the company.4 In the last Annual Beport, the Western Union presents the following capital account:— Capital stock, less amount of shares in treasury $7,979,828 Bonds less bonds in sinking funds ............5,965,204 Total capital of shares and bonds............$85,944,032 The stock and bonds are as follows:— Stock. Bonds. Total. Per mile of pole mileage $551. ............$50. ...... $602. Per mile of wire ......... 178..............13....... 191. The Company publishes no general balance sheet, but presents the following figures in various portions of a brief and disjointed Annual Report. It owns a familiar pole mileage along one side of the railways, and also along a few highways, and where necessary, crossing estuaries by short connecting cables. Beside the poles owned direct or through lease, the Company has wires strung on the poles owned by various railways. On the other hand, the railways sometimes have one or more wires strung on the Western Union poles. At the end of June 30, 1884, the Company reported a total of 145,037 miles of poles and cables. It can be presumed that this mileage includes the leased Atlantic cables, whose cost is of course not included in the expenditure known as the capital account of the Western Union. There are 450,571 miles of wire for the 145,037 miles of pole mileage, or equal to an average of abouis 8 strands of wire to each mile of poles. Near the large cities there are many wires per pole, but at interior points one wire is enough. The report does not state whether these poles and wires are the exclusive property of the Western Union, or whether the 450,571 miles of wire includes the wires owned by the railways which are strung on poles of the Telegraph Co., nor whether they embrace the wires belonging to the Railways, but only used by the Western Union under rentals. We shall assume, however, that the pole mileage does not include the Atlantic cables or telephone wires, and that the Western Union absolutely owns every foot of the various wires, making the total of 450,571 miles. The Company owns the Broadway building, worth perhaps $2,000,000, and $277,753 of "real estate elsewhere." Except in the large cities merely desk room offices are usually rented, and the value of the office fixtures is so well known that it is not necessary to refer to the subject at any length under the head of valuable assets. The Company has no exclusive franchises as common carriers, but owns several patents by controlling the shares which represent the proprietary companies. The value of patents in connection with telegraphy is proverbial. As the various railways almost invariably own their own poles, and can string additional wires for rental to competitive telegraph companies at but little cost, the value of the plant of any telegraph company is always modified by the fear of competition. The Courts have practically decided that what a railway does as common carrier for one man, it must do for all. So long therefore as rail- ways can string wires on their own existing poles, and get 8 per cent, rental on the outlay, there need be no lack of new Companies. With even an accurate statement of the ownership &c., of the 145,035 pole mileage* it would be difficult to estimate the value of this plant, but old plant of any kind is certainly not worth more than the money it would take to replace it with new. Four new wires can now perhaps perform in a more * At the end of Dec. 31, 1884, there were about 115,500 miles of main line of railway in the United States. The 145,087 miles of poles, suggests that the Western Union owns equivalent to a mile of poles along every mile of railway in the country, with about 30,000 miles over. This 30,000 would give a second line of Western Union poles for 25 per cent, of the total railway mileage. Some of the 30,000 surplus probably supplies independent pole mileage along high' ways to primitive interiors not yet opened to railways.conomical way the work which took five to do say ten years ago. It has ately cost the Pennsylvania Company Railroad $185.00 per mile for erecting >oles and one wire along a new line of railway, with $85.00 per mile for each aile of additional wire. If the Western Union averages about three miles of vire to each mile of poles, the cost of wholly new property at these contract rates, vould be $185,00 plus $70,00 or $205,00 per mile of poles with three wires. This would not provide for office instruments, which are inexpensive, the >ccasional cables across unbridged estuaries, nor the stouter poles in a dozen Larger cities between the municipal boundaries and the central office. These items distributed through 145,087 miles of poles, would scarcely influence the average price per mile of rural line. That is, independent of an almost nominal amount for right of way, the Western Union could be repro- luced as to poles and wires at less than one third of the present capitalization. The plant would be new, with consequent minimum charges for repairs for some time, together with an absolute ownership, instead of so much mileage as now held, under a qualified tenure with railway companies. Beside the foregoing physical plant, the Company has an " aggregate of $80,000,000 of stocks and bonds" of companies including those that have been absorbed since the beginning of 1866.* Many of these assets were not purchased, but taken over under contracts, and $85,000,000 of bonds and shares were directly capitalized by the issue of Western Union shares in exchange therefor, and are of course not marketable assets, reducing the $60,000,000 to $25,000,000. Of this $25,000,000 balance, $12,500,000 represent " substantially merged" shares. Of the $12,500,000 balance then left, some $7,467,200 par, valued in 1888 at $10,028,055 "are classed as saleable," leaving $4,982,800 presumptively unsaleable, and not enumerated in the report. In 1884, the value of these " saleable" assets is stated " at least $9,000,000," and as seen in the foot note (page 7); the securities are mostly in local news and telephone companies. * List of Assets compiled from Annual Bepobt of June 30, 1888. "Marketable Securities." "Marketable Value." Par. Amer. Dist. Tlgph. Co. of Bait....................$22,500 00 $45,000 00 Aroer. Distr. Tlgph. Co. of New York 130,700 00 261,400 00 American Speaking Telephone Co..............1,811,250 00 1,207,500 00 Boll Telephone Co. of Canada........................37,200 00 37,200 00 Bell Telephone Co. of Philadelphia...... 250,000 00 125,000 00 Brooks Underground Tlgph. Co....................95,000 00 100,000 00 Cent. Dist. & Prntng Tigph. Co., Pitts. 272,000 00 136,000 00 Commercial Telephone Co. of Albany... 27,600 00 9,200 00 Commercial Telephone Co. of Troy............101,100 00 25,275 00 Del. & At I ant. Teieph. & Telegr. Co. ... 20,000 00 20,000 00 District Telegraph Co. of Boston..................117,050 00 A 175,575 00 Dominion Telegraph Co......................................288,300 00 288,300 00 Gold & Stock Tigph. Co......................................1,749,420 00 1,943,800 00 Gold & Stock Tlgph. Co. Bonds ..................65,300 00 65,300 00 Gold & Stock Telgph Co., California ... 451,500 00 301,000 00 International Ocean Telgph. Co....................1,541,945 00 1,623,100 00 Metropolitan Teieph. &• Telgph. Co. ... 1,200,000 00 400,000 00 Northern Pacific BB. Co. pref..........................5,490 00 9,000 00 Phila. Local Telegraph Co................................600,000 00 300,000 00 Southern Bell Teieph. & Telgph. Co. ... 283,050 00 188,700 00 Teieph. & Teleg. Constr. Co. of Detroit 371,500 00 185,750 00 Western Union Telegraph Co..........................16,080 00 20,100 00 Anglo-American Telegraph Co. and other miscellaneous securities in small lots, consisting of telegraph and railroad stocks and scrip ........................566,069 74 $10,023,054 74 |7,467,2006 The foregoing paragraph can be intelligently tabulated as follows, witl descriptive remarks copied from the annual report. " The Company has large and valuable assets, which ' were not purchased and paid for at a fixed price, but ' which were taken over under contracts with the several ' companies absorbed by lease or amalgamation. These * are included in the following list of marketable assets in * the Treasury of the Company, June 30th, 1883, with 1 their marketable value as nearly as can be ascertained." Of the total amount of the securities, " over $10,000,000 * in value in the following tables are classed as saleable, 4 and the proceeds thereof may be realized whenever ' they can be more profitably invested.'' (Appraised at $10,023,055)..................... Beside the foregoing marketable assets, the Report further says the statement " does not embrace the large ' amount of stock held in telegraph companies whose * lines have been leased to the Western Union, and in * most instances the entire stocks subsequently purchased, * and the telegraph, properties substantially merged into ' the Western Union system." ............ 4< Also the stocks and bonds of certain companies, * which were directly capitalized into the Western Union 4 by the issue of its stock in exchange therefor, are, of * course, not marketable assets, and thefore not included ' in either list." .................. Assets, not enumerated in the Report, but necessary to balance following statement from the Report. "These together aggregate nearly $60,000,000 of ' stocks and bonds of other companies, including those 4 that have been absorbed by the Western Union since 4 the beginning of 1866."............ PAR. TOTAL. §7,467,200 12,550,000 35,000,000 4,982,800 0,000,000 In addition to the plant asset and the securities asset, the Western Union reports on June 30,1884, the mentioned real estate " other than the Broadway property/' which may or may not be necessary to the Company, valued at $277,754; and " supplies and material on hand unused/' valued at $182,290. This latter cannot be sold. Then there is a " balance of surplus " of undivided profits of $4,720,906.* That is, since July 1,1866, the unexpended balances to June 80,1884, amount to the named figure. Sometimes for railways it is called " balances from previous years," or " profit and loss." Beside the President |7,467,200 Brought forward............. Shares American Tlgrph. Co....... Atlantic & Ohio Co.......... California State............... Chicago & Mississippi ....... Franklin ....................... Illinois & Mississippi ...... Pacific and Atlantic ......... Southern and Atlantic...... Vermont and Boston......... Washington & New Orlns... South Western ............... Missouri & Western ......... Sundry smaller Companies Shares United States................... i> Atlantic & Pac. Tlgph. Co. # Amer. Union Tlgph. Co. ... Bonds a // a n ... $3,963,300 643,500 2,381,600 125,000 629,000 100,350 1,457,500 390,475 119,750 530,550 1,000,000 204,400 1,000,000 $6,000,000 14,000,000 10,000,000 5,000,000 Securities not enumerated, but necessary to balance statement of Company .................................... " Aggregate of Stocks and Bonds, June 30, 1883 * Tabulated on page 9. 12,550,000 35,000,000 4,982,800 $60,000,0007 and Comptroller there are usually not over two or three officials who know the general details of such accounts, and as a decided rule in kindred railway accounts, there is generally much less money than practically worthless items. But we shall assume in the case of the Western Union that this amount is convertible any day into $4,720,906 cash, and that it is always available for dividend or other purposes. The item of " marketable assets," of $7,467,200 par (June 80th, 1884), together with the " $4,720,906 surplus," constitutes the money resources of the Company*—excepting of course the future net revenue of the property and the further issues of shares or bonds of the Western Union Telegraph Company. * List of Assets of Western Union Telegraph Co., June, 1884. Par Par 1883. 1884. \mer. Dist. Tlgph. Co. of Bait.........................................$45,000 00 $55,250 00 American Dist. Tlgph. Co. of New York..........................................261,400 00 261,425 00 American Speaking Telephone Co........................................................1,207,500 00 1,207,500 00** Bell Telephone Co. of Canada ................................................37,200 00 37,200 00 3ell Telephone Co. of Philadelphia......................................................125,000 00 125,000 00 3rook's Underground Tlgph. Co..............................................................100,000 00 100,000 00 ZJent. Dist. & Prntng. Tlgph. Co..............................................................136,000 00 136,000 00 Commercial Telephone Co. of Troy......................................................25,275 00 25,285 71 Dela. & Atlant. Telep. & Telegr. Co..................................................20,000 00 20,000 00 Dominion Telegraph Co..............................................................................288,300 00 288,300 00 Gold & Stock Telegraph Co...............................................1,943,800 00 1,943,800 00** Gold & Stock,Telegraph Co. Bonds......................................................65,300 00 65,300 00 Gold & Stock Telegraph Co. of Calif..................................................301,000 00 301,000 00 International Ocean Telegraph Co........................................................1,623,100 00 1,623,100 00** Metropolitan Telegraph & Telph. Co...........................400,000 00 400,000 00 .Northern Pacific BR. Co. Preferred......................................................9,000 00 9,000 74 Phila. Local Telegraph Co..........................................................................300,000 00 300,000 00** Southern Bell Teleph. & Tlgph. Co. .................................188,700 00 218,400 00 Western Union Telegraph Co....................................................................20,100 00 21,675 00 Anglo American Tlgph. Co. (45 = }) ................................................6,540 00 Total $7,056,675 00 7,143,776 45 Boston District Telegraph Co...................................................................175,575 00 California State Telegraph Co........................................2,381,600 00* Central District and Prntng. Tlgph. Co. Scrip ........................12,140 00 Chicago & Mississippi Telegraph Co..................................................125,000 00* Continental Telegraph Co..........................................................................123,575 00 Delaware River Telegraph Co....................................................................32,600 00 'East Tennessee Telegraph Co....................................................................25,650 00 jPranklin Telegraph Co......................................................................................629,000 00* Hawkeye Telegraph Co..............................................................................31,165 65 International of Maine Telegraph Co............................................86,500 00 Illinois & Mississippi Telegraph Co..................................................100,350 00* Lynchburg and Abingdon Telegraph Co......................................27,100 00 Michigan Telephone Co................................................................................187,900 00 Hew York Mutual Telegph. Co...........................................740,875 00** Northern Pacific RR. Co. Scrip ............................................................999 00 Ohio & Mississippi Telegraph Co........................................................81,450 00 Pacific and Atlantic Telegraph Co........................................................1,457,500 00* Put in-Bay Telegraph Co............................................................................830 00 iSt. Paul & Duluth RR. Co. Pref..............................................................800 00 „ „ Com..............................................................2,917 28 .Scrip Assets of Estate of Jay Cooke & Co......................................1,580 74 Southern & Atlantic Telegraph Co........................................................390,475 00* Vermont & Boston Telegraph Co. ....................................................119,750 00* Western (of Baltimore) Tlgph. Co........................................................97,305 00 Washington & New Orl. Tlgph. Co..,.................................530,600 00* Burlington & Missouri River RR. bonds...........................3,000 00 Buffalo & South Westn. RR. Co..............................................................3,650 00 Cedar Falls & Minn. RR. Co..................................................................3,000 00 P aris & Danville RR. Co...............».........................3,000 00 United States 4 per cent, loan..................................................................1,500 00 Total $14,521,164 12 The lists of " saleable " and other assets of June 30, 1883, do not distinctively appear in the8 No part of the $85,944,032 capital seems to have been expended for securities. There are the $60,000,000 securities owned, but most of them, as previously shown, represent absorbed lines, bringing in certain portions of the 145,087 miles, for which Western Union shares were issued. The other portion of the securities, especially the 44 marketable " class, were bought with the alleged "undivided surplus of annual profits" of the Western Union, between June 80 1866 and 1884. That is, the capital account brought in the plant; and the " earnings not divided among shareholders/' brought in the list of securities. The $85,944,032, less $2,000,000 for the Broadway property, therefore repre- sents the capitalized cost of the Western Union plant, consisting of 145,037 miles of poles, 450,671 miles of wire, and 13,751 offices. The Company assumes that, as reflected by the net earnings, the plant is not only worth the $85,944,032, but much more. The pole mileage divided into the $85,944,032, will approximately give the capital valuation per mile for accounting purposes. Should the pole mileage contain poles owned by rail- ways, the remainder of the pole mileage (the mileage actually owned), must stand at a heavier charge per mile. The heavier the burden of shares and bonds per mile, the more disastrous will be the competition from a rival line charged at a lower capitalization per mile. Or if the net earnings of the Western Union can be conjecturally shown to be largely fictitious, the money value, even as an economically built line would be very low, while as an overburdened line, the value of the plant would be almost nil. What the plant earns is revenue, but the statement of revenue account is quite- obscure. No "gross earnings from the lines" are given, nor "profits from sales of securities," nor above all "receipts from investments in bonds and shares " of other companies. What is undoubtedly made up from several distinct sources* is covered by the two words " revenues $19,632,940." Next to an open " construction account" there is nothing more depressing to the well-informed shareholder than the never failing item of " interest and dividends from, securities owned." It is not an uncommon thing, as readers know, for railways to borrow by selling their own bonds, letting the subordinate railway take the proceeds for construction purposes. Any requisite rate is then paid on men and material, and the weak line is enabled to pay a dividend on the shares owned by the parent railway. In this way the surplus "available for dividends! or other purposes " of the parent railway company can be put up to almost any amount. It is unnecessary to point out how numerons are the methods of getting capital into the revenues of even good companies. Now it is known that the Western Union Telegraph Company has the named holdings in subordinate companies, but the public knows much less about them than it: does about the parent company itself. This, together with the fact that no information whatever is given as to the receipts from these investments, should Report for 1884, but a page of assets is given as an Appendix to the Report of June 30, 1884, -with a total of $14,515,932. Reproduced above, it is separated, however, into two groups—the first showing those securities still owned and exhibited the year before as " saleable,'' amounting to $7,138,544; The second group amounting to 17,377,388, unless happening to be new securities, are found in the Report for 1883, under either the $7,467,200, the $12,500,000, or the $35,000,000 groups, (reproduced on page 6 of this letter.) Deducting these marked *, amounting to $5,784,225 (not worth 5 per cent, of par), leaves what may be called the balance of total assets of the company, including all the saleable assets. This balance is made up of local telephone, news aud other similar undertakings. Except the three or four larger companies;, marked ** the list possesses a very limited market in the best of times. Should an impending; disaster happen to the Western Union, within the next two or three years, the average marked money value of the entire list, cannot be prudently placed very high—but something better than Shares of Plankroads or Turnpike Companies.9 certainly lead the shareholders to inquire where the money primarily comes from known as gross receipts. For the point we wish to elucidate, it will however be assumed, that unlike every company under the same disastrous influences, the gross "revenue'' of the Western Union is unadulterated by the admission of a single doubtful penny from any controlled company or from any other source. The alleged cost of plant, or even the actual cost is one thing; but real value of the plant is not what it costs, but what it earns. In other words, the value is the capitalization of net earnings, after deducting all charges for taxes, repairs, renewals, etc., etc., with mental equation for the future. Should any of the items properly chargeable to operating expenses have been charged to capital account, directly or indirectly, the net earnings to that extent are fictitious. So far as net earnings are fictitious, the value of the representative capital account is impaired. There is an irresistible tendency in companies to do this, and the greater the freedom from this impulse, the more openness there is in accounts. In other words, a directorate always proclaims superiority to the temptation, but the more the company yields to it, the greater the obscurity in statements pur- porting to be financial returns for a given period, and the one is a corollary to and an indication of the other. The Wabash is a well-known case in point, and the Western Union is most likely to be another. The Kevenue Account referred to, which might occupy one page at least, is covered by two words, " revenues, $19,682,940." Not a word is said concern- ing its making up. The equally important 4' operating expenses" is embraced under the seven lines of the following statement from the report. (1.) Taxes ... ..............................$301,077 (2.) Bentals of leased lines ... ..................1,842,689 (3.) Equipment of offices and wires..................249,528 (4.) Operating and general expenses ............9,278,761 (5.) Maintainance and reconstruction ............1,350,448 Total expenses ............$13,022,503 Bevenues............... 19,632,940 Profits ^............... ... $6,610,437 Interest, sinking funds and dividends............6,111,521 Balance for year ending June 30, 1884 498,916 » from previous years since 1866 to June 30, 1883 3,658,554 Undivided surplus June 30th, 1884 ...... $1,157,470 Supplies and material on hand unissued... ...... ... 182,209 Beal estate aside from Broadway property ... ... ... 277,753 The comparatively small item of "taxes" (item one) and "equipment of offices" (item three), need not be examined. Among the expenses for the year will be seen $1,842,690 for "rentals of leased lines." Beside the actual rental, we might presume that this includes all repairs to these leased lines, did we not know that the money rental alone of such lines is slightly in excess of the $1,842,690. The item, of course, does not contain the large annual sum to be set aside under the lease contracts for replacing the old cables by new at the end of their calculable life. If the repairs to leased lines cannot be discovered, and there is no room for such sum in items four or five, it may be seriously asked whether repairs to leased lines too, is not also charged against capital, like current repairs, instead of among operating expenses. The $1,842,690 rentals assuredly contains no more than it ought, so repairs cannot be found there.10 Items four and five are very important. By exclusion, it may be said that item four of $9,278,761 for the " operating and general expenses " must coyer legal expenses, salaries of officers, wages of operators, rentals of offices, and the cost of acids, salts, zinc, &c., used in the generation of the electric power used. With its comprehensive system, it is safe to put down $200,000 under the head of litigation, and $200,000 for salaries of superintendents and the higher officials. This will account for $400,000 of the $9,278,761. With " 13,761 offices/7 and only one operator to each office, working 24 hours in the day, at $45.00 per month, would absorb $7,480,940 more. Many offices are doubtless jointly operated with the rail- ways, but then the city offices require several operators at much more than $45.00 a month. This leaves only $1,447,821 out of the $9,278,761 for "linemen" engaged in daily repairs,* beside the cost of material for power, rentals of 13,761 offices, stationery, light, and imaginable incidentals. The evident inexactness of this mode of analysis here used is as evident to the writer as to the reader, but in the absence of precise information from the company, the method is unavoidable. Especial attention is therefore asked to the consideration of the remaining item, number five. The point to be made is, that "net earnings" shown in the annual reports can only have been obtained by charging to some other, and therefore an improper account; several millions of dollars of what should have been charged to maintenance and reconstruction. Dividends have thus been made possible, much the same effect as from the dividends paid on Wabash preferred. If these several millions expenses are not in the $9,278,761 as shown, and there is no room in the $1,350,448 repairs and renewals, for the calculable amounts needed, it is evident that^they must be looked for elsewhere than in the five item3 of "operating expenses." In railway companies the item of " maintenance and reconstruction " is always chargeable as part of the operating expenses, and in sound lines the item includes not only reconstruction, but much construction. Notwith- standing the resisting character of earthwork, bridges, track, and equipment, the heavy annual demands under operating expenses are well known to the reader. But when the ephemeral character of telegraph poles and wire is considered, and accepting the popular view that on railways not using the standard system, that ten years is the life of a freight car, and 15 or 20 years the profitable life of a locomotive, the utter inadequacy of such a sum as the Si,350,448, put aside under item five, by the Western Union for renewals of its fragile plant, becomes apparent. Thus if the life of a freight car is ten years and the cost is $500.00 ; the average annual depreciation is 10 per cent, upon the cost, after deducting the value of the old material at the time of breaking up. These calculations can be indefinitely applied to different portions of railway plant. Assuming that the poles, wires, etc., of the Western Union have an average life of 10 years, and remembering the old material is not worth the handling, it must * This item of "linemen " is not unimportant. By dividing the 145,037 pole mileage into sections of 200 miles, or about half the distance between New York and Pittsburgh or to Buffalo, or, equal to the distance between London and Liverpool, would require 725 sections. Deducting 125 sections possibly cared for under contract by the railways, leaves 600 sections of 200 miles each. Allowing but four linemen at $50.00 a month to care for each section of 200 miles in length would require $120,000 per month in wages for this distinct class of employees or $1,440,000 per annum. This would almost absorb the $1,447,821 balance, leaving only §7.821 for material for power, rentals of the 13,761 offices, stationery, light, &c., &c.11 somewhere appear in the accounts of the office, if not in the annual report, that about 10 per cent, of the entire valuation of such plant, is annually spent by the company for renewals. If only 5 per cent, is found, it must be suspected that the other half of the renewals were either neglected, or that the 5 per cent, not found (but necessarily spent), was charged against something else. The third alternative would be that the valuation of the plant is double what it is really worth. That is, instead of being worth $85,944,02*2, it is worth only $48,000,000. Most people assign to ordinary American telegraph plant, the life of a farmer's " post and rail fence," or about seven years. But we shall credit it with a life of ten years instead of seven. This would mean that 10 per cent, upon the valuation of §85,944,022, or about $8,600,000 should be annually expended under maintenance alone. Instead of this we find but Si,350,448 for both u maintenance and reconstruction," or only about one-and-a-half per cent, upon the valuation of the $85,944,022 plant. If ten per cent, per annum intelligently suggests ten years as the life of the plant, 1J per cent, spent, proposes an average life of 75 years,—or something for Western Union poles and wires like the durability of a good stone bridge. There can be no question about the fact that $1,850,448 is reported under expenses for repairs* and reconstruction. Nor can it be well questioned that ten years is the full average life of telegraph plant. If the $1,350,448 was enough, it certainly shows that the value of the plant is 813,500,000 instead of $85,944,022. This would certainly be a bad thing for the share- holders, but the alternative is just as unpleasant. That is, the Company wanted net earning for dividends long enough to enable Mr. Gould to get rid of his accumulated holdings. Gross revenues have more than likely been made as large as possible, perhaps by paying unearned dividends on subordinate lines, to get all the interest possible for " securities owned by the Company." After nothing more could be done under this head, and knowing to a penny how much net earnings were needed for interest and dividends to maintain the collateral power in the shares (not forgetting a pleasant looking " balance of net earnings for other purposes "),the expenses of operations were " cut down," with imaginable grim humour, until the needed " net earnings " were secured. & The amount required for repairs by the Western Union cannot be had from the reports of other telegraph companies, but certain figures from the operating expenses of the railways for their telegraph equipment, suggests a good deal. The Louisville and Nashville RR. for the year ending June 30th, 1884, reports $27,023 for telegraph expenses of its main stem of 185 miles, or 146 dollars per mile of poles. This probably covers all expenses of every kind, including operators as well as repairs and renewals. That measure of expenditure applied to the Western Union would require $20,175,402 a year for 145,037 miles of poles. But the Western Union for the same period, at the same rate for pole mileage, paid out only $10,876,736 for operating expenses of all kinds under items 3, 4 and 5. The main line of Pennsylvania Railroad between Philadelphia and Pittsburgh, with its branches operated as the Pennsylvania Railroad Division of 1313 miles of main track, expended for " repairs of telegraph " alone, the sum of $71,498 in 1883. This is exclusive of $290,681 for " telegraph expenses." The $71,498 is at the rate of 54 dollars per mile of poles. This applied to 145,037 miles of poles would require $7,831,998 for "repairs" alone of the Western Union, whereas the Company only spent the $1,350,448 for repairs and reconstruction. The 501 miles railways known as the United Railroad of New Jersey Division of the Pennsylvania Railroad, beside charging 1205,876 for " telegraph expenses " expended $18,351 or about 37 dollars per mile of poles for repairs alone to its telegraph. This $18,351 would require from the Western Union an expenditure for 44 repairs " alone of $5,366,369 whereas the Telegraph Company expended only the $1,350,443 for repairs and reconstruction. The railways of course have their block signal system of wires included in telegraph repairs, but making all due allowances, it strongly corroborates the view that the Western Union has only secured net earnings for dividends, by suppressing charges against operating expenses,12 If only $1,350,448 under item five was paid out for repairs and reconstruction, when three or four times as much should have been; at least $3,000,000 must annually go into a floating debt, or construction account. The Western Union on June 30, 1884, says the Beport, had no floating debt, but it admits a "construction account" large enough to have more than used up the 84,157,469 "surplus of balances" from previous years, including that of June 30th, 1884. This balance was provisionally borrowed, the Company proposing to recoup by sales from the $7,467,200—" marketable securities." This probably executed liquidation on- the part of the Company of one account against another, would leave not over $5,000,000 of the " marketable assets " valued at a proportional part of the $9,000,000, and to that extent reducing dividends to the treasury department of the Western Union. There is, however, no information whether there is not still more debt under that, or some similar account, likely to absorb the few remaining saleable assets. Information upon this is imperatively needed by the shareholders. But assuming there was not on June 30th, 1884, there must be before June 30th, 1885, or the net earnings must be wiped out by correctly charging to operating expenses what ought to go there. With the absorption of the $5,000,000 marketable assets left after adjusting this account, and no increase in gross earnings of the telegraph lines, dividends for 1885-86 must come from the issue of Western Union bonds. A final cessation of dividends cannot be far off, and with the late construction of new telegraph mileage, competing with Western Union at 60 per cent, of the " 13,761 offices " the question will most likely arise whether the Company can even earn operating expenses. A. P. T. London, June 20th, 1885.This book is a preservation facsimile produced for the University of Illinois, Urbana-Champaign. It is made in compliance with copyright law and produced on acid-free archival i 60# book weight paper which meets the requirements of ANSI/NISO Z39.48-1992 (permanence of paper). Preservation facsimile printing and binding by Northern Micrographics Brookhaven Bindery La Crosse, Wisconsin 2015