150, 819, 102 37, 393, 997

758, 793, 976
1, 606, 800, 501 1,
2, 600, 321

558, 874, 457 77, 594, 067
275, 956, 785 180, 024, 614
2,600, 321

$78, 323 122, 247, 129 150, 819, 102

30, 076, 712
37, 393, 997

2, 365, 594, 477 1, 834, 831, 242 257, 618, 681| 2, 600, 321 2, 600, 321

Column numbers correspond to those on schedule 2.
Securities or claims held valueless, that were determined to be without ICC value
(Col. 2), based on the following:

Book value for securities or claims shown on ICC statement, determined by ICC as
follows:

For bonds: From the total investment plus net current assets there has been de-
ducted accrued depreciation and amortization. The remainder was treated as repre-
senting book value of bonds and the unpaid interest thereon in the order of their
priority with a limitation of the total claim.

For stock: From the total investment plus net current assets there has been de-
ducted accrued depreciation, amortization, debt, and unpaid interest thereon. The
remainder was treated as the book value of stock.

The book values of securities or claims held valueless were then adjusted by the differ-
ence between the company's investment in road and equipment and other property used
in transportation service, less depreciation, and its ICC value for rate-making purposes,
as of Jan. 1, 1940.

*Estimate, based on available data.

1 C. of G. This stock was voluntarily surrendered to the trustee of the Central of Georgia
by the Illinois Central, together with an admission that it was valueless.

2 M. P. Warrants to purchase new Class B Common Stock at a cost of $100 per share
are offered to the following at the rate of 111⁄2 warrants per $100 of otherwise unsatisfied
claim:

Adjustment Bonds

3 Wab. Holders of old preferred stock received rights to purchase 81⁄2 shares of new stock
for each 10 shares of old, less proportion of escrowed stock withdrawn, at the rate of $12.75
per share. Holders of common stock received rights to purchase stock not taken by pre-
ferred stockholders, in proportion to their holdings, at the same rate of $12.75 per share.
4 CMSP&P. 1,174,060 shares of no par common stock, as stated on ICC statement at
$100 a share, although ICC statement also shows this stock had no book value.

DRGW. 300,000 no par shares of common stock shown at book value of $33,467,678.
NS. Old common stock received purchase warrants for new common, entitling each

78, 323 273, 066, 231 67, 470, 709

shareholder to purchase 3/100 of a share of new common at the rate of $10 per share from
Jan. 21, 1942, to Jan. 20, 1944, and at the rate of $12.50 per share to Jan. 20, 1945. As of
Dec. 31, 1946, 139 shares of stock of the new common had been issued upon exercise of
warrants.

7 MP. Amounts treated as valueless comtemplate that system security holders accept
$28,972,480 of cash in satisfaction of $86,238,871 of their claim and that purchase warrants
have no assignable value.

8 NYNH&H. Par or stated amounts held valueless are stated on the basis that
$85,517,538 of general creditors will participate in plan.
AC&Y. This figure will decrease on further liquidation of RFC claim.

10 CGW. These figures do not include $38,701,740 of accrued but unpaid dividends on
preferred stock.

11 Erie. Amount held valueless computed by stating the new stock at $40 a share.
Exact computation would show amount held valueless as 92 percent of present par, or
$197,678,652.

SOURCES

Basic data in Col. 1 from statement furnished by Interstate Commerce Commission to
the Senate Committee on Interstate Commerce entitled, "Class I railroads reorganized
since 1933, or still in process of reorganization, under plans which hold bonds or stock
valueless or partly valueless." (In response to group I, (a), (b), (c), and (d) of questions
addressed to ICC.)

above.

Determination of ICC value-Book values, as shown in ICC statement mentioned
Investment in road and equipment and other property used in transportation service-
(a) ICC comparative statement of railway operating statistics, 1941, 1940, 1939
(Statement No. 42200).

(b) ICC statistics of railways in the United States, 1939 blue book.
(c) Moody's Railroads, 1940.

(d) WCF&N plan of reorganization.

ICC value of rate-making purposes-rate of return on value of property of all operating
steam railway companies, 1940. (ICC bureau of statistics, statement no. 4142).

Securities held by corporations (Column 7, 8)-Plans of reorganization. Moody's
Railroads.

Market Values (Column 10)-Commercial and Financial Chronicle. Moody's Railroads.

It may be claimed that schedules 2 and 4 are unfair in utilizing the market values during the month preceding the respective bankruptcies, on the ground that these periods represented periods of depressed earnings and that values have increased manyfold since that time. If this claim were sound, it would mean that the appraisals of the market place today would be many times the figures shown in column 24 and that, consequently, much more is at stake than is indicated. An examination of the facts reveals that there is no support for this claim.

THE MARKET VALUE TEST IS SOUND

Practically all of these proceedings started in the years 1933 or 1935. The first group in 1933 included the following railroads: Akron, Canton & Youngstown; Chicago & Eastern Illinois; Chicago, Indianapolis & Louisville; Chicago, Rock Island & Pacific; Missouri Pacific and subsidiaries; St. Louis-San Francisco; Spokane International.

The second wave in 1935 included: Chicago & North Western; Chicago Great Western; Chicago, Milwaukee, St. Paul & Pacific; Denver & Rio Grande Western; New York, New Haven & Hartford; St. Louis-Southwestern; Western Pacific.

All of the rest of the bankruptcies in question came one or two at a time in various years. If the market value of the securities of these bankrupt roads are understated in the schedules and if their market value today would be many times their market value prior to bankruptcy, the same increase in value should be apparent in the market prices of the stock of railroads which did not go into reorganization. Schedule 5 compares current market prices with the average market prices in 1933 and 1935 of every major carrier in the United States which did not go into bankruptcy in the interim. It will be noted that the average market price of the securities of the nonbankrupt roads as of the close of business on May 17, 1947, was substantially the same as the average market price of the same securities in 1933 and 1935. There is no reason to expect that the market prices of securities of roads which went into bankruptcy would have fared any better than the securities of nonbankrupt roads if they had remained in the latter category.

There is shown toward the bottom of that schedule the market prices of the common stocks of the four major railroads which have taken advantage of the Chandler or McLaughlin Acts in order to reorganize their corporate structures. It will be noted that the proceedings of the Baltimore & Ohio, Colorado & Southern, Delaware & Hudson, and the Lehigh Valley did not save the market values of their common stocks by that process. While for nonbankrupt roads as a whole market values on May 17, 1947, were not substantially different than the values in 1933 and 1935, the May 1947 values on the four roads which reorganized under special statute showed very substantial decreases in 1947. In fact the decrease compared with 1933 was about 49 percent and the decrease compared with 1935 was 23 percent. Thus, even if the $24,000,000 of securities by market value shown in schedule 2 as the maximum possible amount in the hands of small investors which had any reasonable expectation of survival, had been protected from the beginning by a statute similar to that proposed, it is probable that today they would have had a market value substantially lower than $24,000,000.

(Schedule 5 is as follows:)

SCHEDULE 5.-Common stock prices of certain class I railroads not reorganized under equity or sec. 77 bankruptcy proceedings, 1933, 1935, and May 17, 1947

Source of stock prices: 1933 and 1935-Average of high and low, shown in Moody's Railroads; May 17, 1947-Closing prices, from Wall Street Journal.

1 Roads reorganized under Chandler or McLaughlin Acts.

2 Average of bid-and-ask prices.

THE STOCKHOLDERS WERE ADEQUATELY REPRESENTED

The reports are also replete with statements that the small stockholders whose holdings are found to be without value in section 77 reorganizations are not in position to protect themselves. For example, report no. 1170, page 7, states:

Moreover, these forfeitures are, in every case, at the expense of one class of securityholders who are largely inarticulate and are not represented by high-priced legal counsel * * *

Schedule 6 reveals that the facts are to the contrary. It summarizes the fees and expenses approved by the Interstate Commerce Commission to be paid to counsel for the debtors in section 77 reorganizations and also to any stockholders' committees specially organized to give the stock representation independent of the representation given to it by the debtors themselves. It is of course a matter of common knowledge that the debtors were representative of the stockholders, their boards of directors having been elected by them. The total allowances for services and expenses to debtors' counsel in these cases (and there may be other allowances which were not readily available in preparing the analysis of the reports) is $771,441 while the services and expenses allowed to counsel for special stockholders' committees is $171,420 additional, or a total of $942,861. Additional allowances were also made to many committees of bondholders and to