Cape Fear and Yadkin valley railway Report The Howell Collection OF HISTORICAL MATERIALS Presented by Kay Kyser And his Mother Emily Royster Howell Kyser As a Memorial To her Brother Edward Vernon Howell Dean School of Pharmacy i 897-1 93 i THE UNIVERSITY OF NORTH CAROLINA LIBRARY C23t REPORT -OF— COL T. M. R. TALCOTT, Railroad Expert, — TO— JOHN GILL, Esq., Receiver CAPE FEAR AND YADKIN VALLEY RAILWAY. August 27th, 1896. Genl. John Gill, Receiver, Cape Fear & Yadkin \ 7 alley Railway, Baltimore, Jlfd. Dear Sir: — I beg leave to submit the following Report and Comparative Estimates of the value of the respective Divisions, Leased Line and Branches of the CAPE FEAR AND YADKIN VALLEY RAILWAY. The order of the Court requiring this estimate also requires that the ground for such estimate shall be given, and in accord- ance with this requirement, the method of arriving at values here- inafter given is stated as follows : The value of a railway depends upon what I would call its physical value, and its availability as a means of transportation in the service of the public, which I would call its franchise value. The physical value of a railway is what it would cost to con- struct it anew, less the depreciation it has suffered from use or decay. The franchise value is measured by its net earnings, which depend upon the demand for transportation, and the cost at which it can be done. Railways are esteemed for their net earnings, and unless they can earn enough to pay the interest on the cost of construction, the investment is an unprofitable one. The road is not consid- ered worth its actual cost, or even what I call its physical value, which may be less than cost. On the other hand, the physical value cannot be ignored, for it is capital invested in the business, and if no more than the cost of what is essential to the business, it represents the capital necessary to be employed in it, and without which there would be no net earnings. The franchise may be worthless, and yet some value would attach to the prop- erty itself. Should there be no demand for such service as the railway can perform, its value as a railway can no longer be considered, but value will attach to the material of which it is composed, and ^ ! 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Certain Rolling Stock was acquired with "A," "B" and "C" Divisions, and is estimated as belonging to them, but such as has since been acquired is estimated as belonging to the system and distributed to the several divisions in proportion to the issues of "A," "B" and "C" bonds. The following Exhibit (B) shows the estimated value of Roll- ing- Stock and how it is distributed: EXHIBIT "B." Description. A Drv. B Div. C Div. System. Total. Locomotives . . First-Class Pass. Coaches. . . . $14,200.00 $14,000.00 5,700.00 2,900.00 $22,500.00 9,400.00 11,750.00 4,200.00 $34,500.00 $85,200.00 15,100.00 19,750.00 8,350.00 500 00 400.00 64,350.09 3,473.22 Second Class Pass. Coaches. Mail, Bag'ge and Express Cars . Work-Train Shanties . . 8, coo. 00 1,250x0 500.00 400.00 4,248.97 894.72 4.412.00 Caboose Cars . . Box Cars .... Stock Cars . . . 10,233.78 15,889.13 33,978.2i Flat Cars .... 6.282.60 10,057.56 10,116.48 30,868.64 Distributed in proportion t o bonds issued . $33,905-69 $72,511.40 $41,694.88 $60,581.18 $73>796-69 194,899-37 78,594.69 $227,991.95 $227,991.95 TOOLS, MATERIAL AND SUPPLIES. The Tools, Material and Supplies on hand and not in use are estimated as belonging to the system, as are also the tools and appliances in use by the Bridge Repair Force and Work Trains, for the reason that they are used indiscriminately on any and all parts of the road ; but the tools in the hands of trackmen and the station equipment and supplies are credited to the several divis- ions and to the South Carolina Pacific Railway and the Branch Roads according to the actual distribution of them. The tools in the shops at Fayetteville are considered as part of the equipment of "A" Division, as belonging formerly to the Western Railroad, now a part of that Division. 6 The following- Exhibit C shows th ; estimated value of the Tools, Material and Supplies and Station Equipment : U S X w Total -1- — ^D M "5 <- C l^X CO ~ - - o Rails. Coal Wood Bridge and Trestle Timber ........ Cross-Ties. Tools, Etc. Station Equipment 0\ rT iO mX O O O 10 O On r^ ■* -3" 00 CO 30 > > "* CC E 3S"cu j-o- . . rt ,2 P^ < an U i/) tt, S c/j The foregoing statements give estimated values of the prop- erty of the Cape Fear and Yadkin Valley Railway Company, (so far as ascertained by careful examination, and with the active and intelligent assistance of its officers, ) except the General Offices at Greensboro and Fayetteville, and the material and supplies in store-house, which are estimated as follows : General Offices and Furniture . . . . Material and Supplies in Store-House $10,500.00 • 11,371-27 SUMMARY. The following Summary, Exhibit ''D", shows the estimated physical values of the several parts of the system, of property be- longing to the system generally, after distributing the Rolling Stock in proportion to "A," "B" and "C" bonds, and the values- per mile of each Division, the Leased Line and Branches : X X w W D < > < u >• X Ph fa O >- Pi < u w Percentage Physical Value Per Mile Total O CO O ^O mvO i-i COCO <~0 OVO roONiO^J-t^r^ONrO N CO *■£> OsCO r-~ 10^0 O CN CO M On ro lOCO -* rt lO >«J- rO -* t^ O CO ON ro -■ W ON \D to ON 0* O lONH ^ t>. M OMn roCO ION h^O O rOVO «sf while "A" Division can reach the private sidings of the Guilford Lumber Company, the Greensboro Furniture Company, North & Watson's Roller Mill, the Female College Siding, Merrimon's Handle Works, the Greensboro Water Works, the Furnace Branch and the important establishment on it, only over the track of "B" Division for a distance, in the latter case, of 6,655 ^ eet - The railway connections of " B " Division are the Southern at Greensboro, the Norfolk & Western at Walnut Cove, where it crosses the newly constructed line from Roanoke, Va., to Sa- lem, N. C. This connection with the Norfolk & Western makes a comparatively direct route to the coal fields of Virginia and West Virginia. The local territory of this Division is as yet com- paratively undeveloped, but its resources are varied, and capable of development in time. " C " Division affords the only direct rail route between Fay- etteville and Wilmington, and is the outlet to the sea for the -whole system. It enters Fayetteville over the track of "A" Di- vision for a distance of 5,598 feet. This part of "A" Division was formerly used as a means of access to its landing on the Cape Fear River, but the river landing having been abandoned after the completion of " C '" Division only such part of the track to it as could be used by " C ' ' Division was of any special value and has been maintained in condition for regular service. " C " Division connects with the Atlantic Coast Line over the tracks of "A" Di- vision at Fayetteville, and with the Seaboard Air Line and the Atlantic Coast Line and the Wilmington, Newbern & Norfolk Railway at Wilmington, the first two by means of the Wilmington Railway Bridge Company's tracks. It runs through an undeveloped region of country, the adapta- bility of which for truck farming is attracting attention. Since its completion to Wilmington, the cotton from the Bennettsville dis- trict of South Carolina has been largely shipped to that port over the South Carolina Pacific Railway and the "A" and "C" Di- visions of the Cape Fear & Yadkin Valley Railway. The South Carolina Pacific Railway is practically an exten- sion of "A" Division from the State line to Bennettsville, S. C, a distance of io}4 miles. Bennettsville is the centre of a fine cot- ton producing section, and contributes largely to the revenue of the system. Factory Branch, of 18.74 rniles, was built to secure the busi- ness of the cotton factories of Deep River, and connects with "A" Division at Climax, 12 miles south of Greensboro ; consequently the other parts of the system have access to the business of this branch only over some part of "A" Division. The Madison Branch, from Stokesdale on " B" Division, 18 miles west of Greensboro, connects with the Norfolk & Western Railroad at Madison, but that road crosses "B" Division at Walnut Cove, 30 miles west of Greensboro, where most of the joint traffic is exchanged, leaving but little traffic to be done over the Madison Branch at present, but it can possibly be used to ad- vantage in the future for a heavy coal traffic. Furnace Branch, of about two miles, is an offshoot from " B " Division, between one and two miles west of Greensboro, origi- nally built to facilitate the delivery of ore and fuel to, and the shipments of iron from the Greensboro Furnace, not heretofore operated, but to be put in blast at an early date. There is a pri- 10 vate sidinq- on this branch at Kirkpatrick's Brick Yard, and one at the mills and warehouses of the Southern Finishing & Ware- house Company, and it extends to the mills of the Proximity Manufacturing Company, crossing" the Southern Railway north of Greensboro, where a physical connection can be made with it if desired. Granite Branch is an extension of " B " Division at its western end, to the Mount Airy Granite Quarry, the reputation of which for the quality of its granite is now fairly well established, and the quantity is apparently unlimited. The Aldrich and the Buff Quarry Branches are offshoots from "A" Division, made to facilitate shipments of stone from those quarries, and though belonging to the system, have been operated and otherwise considered as apart of " A " Division. There are three ways in which the revenue account of the system may be stated to show the relative earning capacity of its several parts. First : They may be considered in the light of separate corpo- rations, each doing some business which pertains to its own road exclusively, and interchanging traffic with such of the others as may have a physical connection with it. Regarded in that light, the actual earnings and expenses of each part of the system would form the basis of settlement between them. Second : "A" Division may be regarded as the main stem of the system, 'and the other divisions as extensions built to make important connections and otherwise secure new business, which, from the very nature of the case, would make them tributary to "A" Division, and require them to direct their traffic over it. Considered in the light of tributaries to "A" Division, " B " and " C ' ' Divisions would be fairly entitled to an extra allowance over and above their own legitimate and proper charges on all joint traffic with "A" Division of twenty-five per cent, of the earnings ot "A" Division from such traffic, and similar drawbacks should be allowed to the branches. Third: The several Divisions may be regarded as partners doing a joint business, each contributing its propertv for the pur- pose of the partnership, and all cooperating under a common management to secure the best results to the whole. Considered in this light, each division should be entitled to participate in the profits of the concern on some just and equitable 1 1 basis that would recognize both the value of the property and its contributions to the business of the system. This last method of stating the revenue account seems to me to be more in accord with actual conditions than any other, for " B " and " C " Divisions were built as extensions to secure con- nections important to "A." The South Carolina Pacific Railway was leased and the branches were built to secure new business, of which "A" is the chief beneficiary. The whole system has been operated under the same charter with a single franchise and one management, in the general interest of the whole, and there could not be any special care or guardianship over any particular part or division of the road, for it was only when misfortune overtook the Company in a period of great depression that any diverse or con- flicting interests became apparent. If the several properties had been originally separate and distinct, and subsequently combined by mutual consent, it is only by some such agreement for the division of the net earnings that the management could have been left free and untrammelled to act solely for the general good, and without reference to individual interests. Tfie allowance of drawbacks on account of business contri- buted by extensions and branch lines is not new. Such allowances have frequently been made to encourage the building of extensions and branches as feeders to an existing road, and it is generally impracticable to construct them without some guarantee of interest on their cost. I have known as much as thirty-five per cent, of the earnings from joint traffic to be given in drawbacks, and the Richmond and Mecklenburg Railroad Co. is now receiving a draw- back of twenty-five per cent, under a traffic contract with the Southern Railway. In the negotiations for the lease of the Cairo & St. Louis Railroad by the Mobile and Ohio Railroad Company, it was agreed that the annual rental to be paid should increase " parri passu " with the increase of the net earnings of the leased line. This led to a demand that certain conditions should be observed by the lessor in the direction of its traffic, which were deemed embarrass- ing to the management. To overcome this difficulty and leave the management entirely untrammelled, it was finally agreed that a certain proportion of the net earnings of the whole line between Mobile and St. Louis should be considered to be net earnings of the Cairo and St. Louis Railroad. I mention this to show that when several railroads are operated together in one system for the general good of all, the distribution of net earnings is sometimes made in proportion to the relative interest of the several properties in the general result, and not on the actual net earnings of each road. EARNINGS AND EXPENSES. A careful examination ol the books of the Company shows that the earnings and expenses as therein recorded, can not be accepted as a true exhibit of the actual results of the operations of the Company for five years from July ist, 1890, to June 30th, 1895, and supplementary statements have been prepared by the General Manager and the Auditor to show the additions to, and the de- ductions from, both Earnings and Expenses, necessary to make a correct exhibit of the operations for that period. I shall, there- fore, make use of the corrected Earnings and Expenses to de- termine the franchise values. In order to give a clear and comprehensive view of the busi- ness of the system, and to show from whence its revenues were derived, I have prepared, and herewith submit the following : u Uh > tf > UJ J hJ < > ID 'A o> t— i 00 W 1-1 Q o < ro >■ W °8 p* ' ' < O w H to o~ w On 00 Ph M < „ u 1— 1 w PC r-> H fc S O o M O U« £ en i— i p^ fc <1 pd w < > w w UJ > X H 1— H (X4 fe O w s x t- -* «* o cr 0» SO IS t- O zr O rH co m OS 1 OJ O N i— 1 O t— 1 C CC p m 85 J CO in i— O r- lO o — 10 ec I> o fa oi 1 •< CD fc- —1 3 L- CO L- CO -i m S c6 H CO O IT CO N CO a lO » 0_ L- c- o co_ -* ^ ao cr o e -* t- CO ■<* CO ■* ao csi 1-" o CO H m t- o fc- Tl co t-H Oi CO T& o t- CO in in w» to r of 5» fe w* ■ • — 8 ■ o o pq ao ao CO fc- l— l- z OS OS e» -^ -HH* < «■» V¥ ** i « 1 o 1 c c 8 • o a: g o CO CO i D V a si . fa a 8 c co O" CO 1- £ S g 3 • pq a ir cc us L- iri oi c o t- ■r CO cc ea O CO OS CJ o -* CC CO 01 CO in Cfl I- c> O! 3 i-i es s a « -* cc cc "* ^ c * ir i cr ' IT t- in Oi Q IT > it: cr CO o O. m . in V . w. *f* %s. O z t/5 cc CC -** c ; c ^ cr cc -+ 1- L- o I— cc « cr N -* o -* £■ X §5 CO cr cr o a c- cr m in OS i E L- 5 L- i* cr o CO > ir ! t- CC -* CO c t- m •* o i c 03 o OS o Q in 5 ■ 5» */> to pa z o ac O" cc O CO L- -* CO t- 01 m oi c L- o o C-! is t- iC 110 t- o CO CO CT -* es -* ir L- Id cc a 1 ■* CO iH 35 -H £- o- cc IQ r^ in CO CC in CC m CO t- CO ac m -t cr t- CO t- -< C cc 2 cc o 03 CO cr o 8? Q a >r cn cc CO cc CO 55 * . w w* < ws. *» u 0) u CO u pq pq u pq u p c T3 L T3 cj ■a 03 c/ > . fa fa T3 a ■u c "H ■c c X! c ■a c s >' > P3 •a "2 U T3 > 5 > > > > cc; > T3 C cd > > c R < a 05 5 5 < 5 pq 5 u 5 o o* cd fa fa* fa U J3 <*J >> 0< 00 .s c '5 o a fa *n H Rl w a .s c - ; ; - - ; ; ; ; .3 u Rl U £ H o H 15 o 14 The value to the system of the business contributed by each part of it, and the earnings made by each from participation in the transportation service are by no means the same, for the revenue from business contributed by one section will appear not only in the earnings of that section, but also included in the earn- ings of other sections over which the traffic passed. To show the relative contributions to the earnings the follow- ing statement (Exhibit F) is submitted : s X X W Total. = vr m — 1- C_J 71 O •-£ 33 ~. Granite Branch Earnings . . . . Furnace Branch Earnings . . . . Mad. Br. Earn- ings ei ,-1 io -* Fac. Br. ings . . S. C. P. Earnings. C Division Earn- ings B Division Earn- ings A Division Earn- ings O 30 00 CO h n | h g ri i o O — _ Tl_ -* i :i i: S — i- o ?! CO CO SO S b O The earnings of the system as shown by the Auditor's " sum- mary," page 13 of the printed statement, may be divided into two general classes, which I designate as "private'' earnings, from the exclusive business of each separate section of the road, and the earnings from joint traffic, in which two or more sections of the road participate. The contributions of the South Carolina Pacific Railway to the joint traffic was large, amounting to $324,070.11, and of this $240,754.72 was made on the "A" Division, which accounts for the earnings made by that division being so much greater than its contributions to Earnings. The following statement (Exhibit G,) shows the Private Earn- ings and the Joint Traffic as contributed, and as made by each section of the Cape Fear & Yadkin Valley Railway proper. EXHIBIT G. EARNINGS AS CONTRI- BUTED EARNINGS AS MADE Private Earnings Joint Traffic Private Earnings Joint Traffic ADiv., . . . B " ... C " ... Factory Br., Madison " Furnace " Granite " $814,743 96 315,579.28 250,963-96 9,271.79 5,996.lS 3-33°-oo 4.978 00 $436,721.74 266,689.78 226.529.29 43,543-i6 21,151.12 $814,743,96 315,579.28 250,963-96 9,271.79 5.996,18 3,330-00 4,978.00 $609,939.29 180,051.12 256,448.11 42,858.28 23,53I-II Totals, . $1,404,863.17, $994,635-09 $1,404,863.17 $1,112,827.91 The Expenses for the five years as shown in the Supplementary statements, and the Net Earnings of the South Carolina Pacific Railway are as follows : EXHIBIT H. Expenses Net Earnings S. C. Pacific Rv. A Division, $946,267.30 439.482.71 457,850.74 70,378.99 50,034.09 2,757-99 5,682.24 $9,051.62 4,395-04 5,093-83 1,176.92 7I5-H B " C " Factory Branch, Madison " Furnace " i Granite " Total, $i,972,454-o6 $20,432.55 16 The net earnings of the South Carolina Pacific Railway are distributed to "A," "B" and "C" Divisions and the Factory and Madison Branches in proportion to their length, as the lease was on joint account, and no better scale for the distribution has been thought of. REVENUE ACCOUNT. The foregoing Exhibits, E, F, G and H, furnish the data for stating the revenue account in the three ways already explained. The net earnings of the system for the five years were $565,669.57, and the question is how to make a just and equitable distribution of them between the several parts of the Cape Fear and Yadkin Valley Railway — exclusive of the Leased Line — or South Carolina Pacific Ry. As there are four classes of bonds and the General Mortgage Bonds cover the branches, as a first mortgage on that part of the property, while the "A," "B" and "C" Bonds constitute a first mortgage on the "A," "B" and "C" Divisions, respectively, it will simplify the question to treat all the branches as a single in- terest. The expenses of the branches exceed their earnings, making a deficit, and on the first two methods of stating the Revenue Ac- count the net earnings of the "A," "B" and "C" Divisions ex- ceed the total net earnings of the system. It will, therefore, be necessary to charge the deficit on the branches against the net earnings of "A," "B" and "C" Divisions, and the most equitable way to do this will be in proportion to the earnings of "A," "B" and "C" Divisions, respectively, from their joint traffic with the branches. By the third plan for stating the Revenue Account, the physi- cal values are to be taken into account, and, in my opinion, each dollar of physical value should count for as much as each dollar contributed to the earnings of the system. The use of the tracks of the "A" Division at Greensboro by the trains of "B" Division is compensated for by the use of the tracks of "B" Division at that place by "A" Division, but at Fay - etteville compensation should be allowed to "A" Division for the use of its tracks by "C" Division. The length of track used bv "C" Division is 5,598 feet or i^W miles, worth at the average value of "A" Division, $8,096.81. A fair allowance for rental of this track would, in my 17 opinion, be $1,100 per annum, or $5,500 for the five years. The following statement (Exhibit I) shows the results of the five years operations in net earnings and the percentages to which each of the divisions and the branches would be entitled on each of the three plans for stating the Revenue Account : EXHIBIT I. PLAN NO. 1. PLAN NO. 2. PLAN NO. 3- Net Earnings Per Ct. Net Earnings Per Ct. Net Earnings Per Ct. A Div . B Div . C Div . Bran's . $466,804.08 53,l69-45 45,696.04 82. 523 9-399 S.078 $370,042.72 100,73345 94,893.40 65-4I7 17.808 16-775 $271 166.71 138,255.30 119,897.63 36,349.93 47 937 24.441 21.196 6.425 Total . $565,669.57 100.000 $565,669.57 100.000 $565,669.57 100.000 In arriving at the percentages for the distribution of net earnings on the third plan of stating the revenue account, the following percentages were used, and they are given and the method of arriving at them so that the accuracy of my conclusions may be tested. PERCENTAGES Earnings Contributed Net Earn- ings S. C P. Ry. Total Earn- ings Contri- buted Earnings Cont'd Physical Value Average A Div., B " C " Brs., . . $1,251,465.70 582,269.06 477,493.25 88,270.25 $9,051.62 4,395.04 5-Q93-S3 1,892.06 $1,260,517.32 586,664.10 482,587.08 90,162.31 52.089 24.243 19.942 3-726 41.841 24.639 24-349 9.126 46.965 24.441 22.068 6.426 Distribution of net earnings by the average percentages above with allowance to ' 'A' ' Division for use of track at Fayetteville by "C ' Division of $5,500, gives the percentages on Plan No. 3 in Exhibit I. In submitting the above, I beg to express my thanks to your- self and to the officers of the Company for the very valuable and efficient assistance rendered me in the laborious work of examining the books and distributing accounts. Very respectfully, Your obedient servant, [Signed.] T. M. R. TALCOTT. '•./''.'■ ill wraNBSI* UNIVERSITY OF N.C. AT CHAPEL HILL 00042093803 FOR USE ONLY IN THE NORTH CAROLINA COLLECTION lv '' * i «l mBSaBm ra^»r«KBBH