pants have affixed their signatures hereto the day and year first above written, each for the amount set opposite his or their respective names. NEW YORK SECURITY & TRUST COMPANY, NEW YORK SECURITY AND TRUST COMPANY, 46 Wall Street, New York. Gentlemen: Referring to the proposed consolidation of the Electric Railway Companies, the Gas and Electric Light Companies of New Orleans, Louisiana, we beg to say that from the examination which we made of these properties, and from the reports submitted to us, we believe that the total receipts of the various companies, for the year 1902, based on the earnings already shown, will be.. $4,234,000 and the operating expenses and taxes, under the present conditions Leaving an income from operation of about... 2,255,550 1,978,450 When these companies are consolidated and operated as a unit, and the proposed extensions and improvements completed, a considerable increase in the gross revenue will result, and a substantial decrease in the operating expenses be assured. In our opinion the united property should be operated for 50 per cent. of the gross receipts, which would show a net income at the current rate of gross earnings.. $2,117,000 for the first full year after consolidation. Should this consolidation and the improvements contem- Net Income 4,500,000 2,250,000 $2,250,000 Yours very truly, (Signed) SANDERSON & PORTER. BASIS OF CONSOLIDATION1 A corporation to be formed under the laws of the State of Michigan, with a paid-up capital of ten million dollars, to be apportioned into 6 per cent. preferred stock and common stock, as the parties interested may hereafter determine. This corporation to purchase all the assets, property, good-will, etc., of all the four companies and to pay therefor in preferred and common stock and by an assumption of the indebtedness of each company. The amount of preferred and common stock, to be paid to each company, to be determined by the value of the net tangible assets and the valuation placed upon the earning power of each company. In placing a value upon the tangible assets, same to be reached as follows: (1) The land, buildings, machinery, tools, and patterns, to be determined by appraisers, to be chosen by a majority of a committee made up of one appointed by each of the companies; on failure of this committee to agree on appraisers the selection to be left to the committee who present these suggestions. (2) Inventories of raw materials, work in progress and manufactured stock to be taken, and valuations placed thereon by the individual companies, and this to be done under the supervision of a disinterested party, to be named by the committee. The inventories are to be made as of the same date, and to be taken at substantially the same time. When completed the inventories are to be passed and agreed upon by a committee consisting of a representative of each of the companies and one to be named by the committee. The decision of these five to be binding. (3) In reaching the value of the earning power of the several companies, consideration is to be given to the following details: (a) That profits are incidental to the business and have not been anticipated. (b) To the charging to operating expenses of items, exceptional or unusual, and which have had the effect of reducing profits below normal. (c) The effect upon the earnings of the money paid out as interest upon borrowed capital, in case it be found that the borrowings (loans) made by the several companies are disproportionate to each other. (d) That all charges to operating expenses are proper charges 1 Quoted by W. H. Lough in his Corporation Finance from an article in the Journal of Accountancy by F. H. McPherson, F.C.A. (November, 1908). against the business and that they are made for and during the proper period. (e) That proper and reasonable allowances have been made for repairs and renewals and that these have been charged against earnings. (f) That charges against earnings for depreciation are adjusted upon an equitable basis. (g) Such other matters as appear from an examination of the accounts and which would prejudicially affect the earnings of any of the companies, either advantageously or disadvantageously. (h) The value of the earning power to be determined by a consideration of the business done by each of the several companies for the three years, 1903, 1904 and 1905. (i) Accountants to be selected by the committee and questions which may arise as to treatment of various matters and about which there is difference of opinion, to be determined by the committee. (j) All costs and expenses incurred in making appraisals, examination of accounts, or of performing the other duties in connection. with the formation of the proposed new company to be charged to and borne by the new company; should the new company not be formed, then such costs, expenses, and disbursements to be borne by the four individual companies in proportion to the number of men employed by each. AGREEMENT TO CONSOLIDATE. Each yendor executing this agreement also executes and delivers a schedule of the entire property, which it sells to said purchaser, setting forth briefly the various classes of property, with the sufficient description of the several items of real estate, plant and movables to identify the same, which schedule sets forth the value of the entire property so sold, the tangible and intangible property in separate items, the tangible property being valued as prescribed by subdivisions a and b in the Method of Appraisal hereinafter set forth, and the value of its intangible property ascertained and certified by one or more responsible public accountants, as prescribed by subdivision e of said Method of Appraisal, together with a statement of any additional facts, and of the valuations based thereon, which, in the vendor's judgment, may aid the Appraisal Committee in exercising the discretion conferred upon it by subdivision b of said Method of Appraisal. The valuations of the tangible and intangible properties so made by each vendor shall be considered as prima facie evidence of the true value of said vendor's property for the purposes of sale, but shall in no case be controlling upon the Appraisal or Executive Committee hereinafter appointed, such valuations or prices being subject in all cases to any investigation and modification which the said committee or committees may deem that justice requires; the total of such valuations as verified or modified according to the terms of this agreement, to be the purchase price which said vendor is to receive for its entire property so sold. PURCHASE PRICE The purchase price to be paid to such vendor for the property sold by it to the purchaser shall be the total value of its tangible and intangible property and shall be paid in stock of the purchaser at par, as follows: 1. Tangible property paid for in preferred, etc. Each vendor whose net earnings for the six months ending July 1st, 1898, amount to 4 per cent.—that is, at the rate of 8 per cent. per annum—on the value of its land and plant, ascertained as above, shall receive preferred stock for the full value of all its tangible property. Any vendor whose net earnings for the said period of six months shall amount to less than at the rate of 8 per cent. per annum on the 1 Quoted by W. H. Lough in his Corporation Finance as an “actual agreement where several fair-sized manufacturing corporations and partnerships were to be consolidated." |