Chapter VIII · NORTHERN PACIFIC (continued 2)

In the main the plan was a good one, following a sound principle, and reducing fixed charges to a point which, if not far below the danger-line, proved low enough in view of the subsequent development in business. Current opinion was generally favorable, and criticised only the amount of profits which the syndicate was to secure on the basis of its large subscribed capital. Mr. Hill of the Great Northern said: “I think the Northern Pacific reorganization plan will be successful. The promoters have adopted a conservative policy, and have marked the interest charges down. We are entirely satisfied to have the Northern Pacific securityholders run the road, pay its debts, and be charged with the responsibility of meeting all its proper obligations, rather than to have it operated by the officers of two or three courts which are continually contending as to jurisdiction.”637 By April 23, when the time for deposits expired, the reorganization committee was able to announce that it held over 92½ per cent in amount of general, second, and third mortgage bonds, dividend certificates, consolidated mortgage bonds, collateral trust notes, preferred stock, common stock, northwest equipment stock, and Northern Pacific and Montana first mortgage bonds, and that the plan and agreement was therefore declared operative.638 By June a majority of the first mortgage bonds had been secured, and it was announced that after June 30 the basis of conversion of this issue would be reduced from 135 to 132 per cent in new 4 per cent prior lien bonds. On July 24 the Northern Pacific Railway filed its articles of incorporation at St. Paul, Minnesota, and the next day the sale of the property took place, in spite of suits by the general creditors and the preferred stockholders. The sale was in three parcels, and the property was bid in for $12,500,000 by Mr. Winter, the newly elected president. After the first sale the company’s lands in Wisconsin were offered and bid in for $575,000, and two days later the lands west of the Missouri were bought in for sums aggregating $600,000. Finally, on August 4, the lands in Washington and Oregon were bought in for $1,705,200 and $558,000 respectively. The property of the company was turned over by the receivers to the reorganization committee at midnight, August 31, and on November 7 the final step in the reorganization plan was taken by the formal authorization by the stockholders of the issue of $190,000,000 of bonds.639

From 1896 to the present time the Northern Pacific has enjoyed a development scarcely less noteworthy than that of the Union Pacific. Gross earnings have increased from $23,679,718 in 1898, the first full year after the receivership, to $68,534,832 in 1907; net revenue from $13,471,544 to $33,208,840; and mileage from 4350 to 5444. Gross earnings per mile were $5443 in 1898; they were $12,590 in 1907. The retirement of the eastern terminus of the system from Chicago to St. Paul and Minneapolis was accomplished in the course of 1897 by arrangement for connection with the Chicago & Northwestern instead of with the Wisconsin Central, and the sale of the certificates of proprietary interest in the Chicago Terminal Transfer Railroad received by the Northern Pacific under the Chicago & Northern Pacific plan of reorganization; while the improvement of the position of the new mortgages has been vigorously prosecuted by the rapid drawing for redemption of old first mortgage bonds at 110, and by the calling of the entire issue of the Missouri division bonds at par and accrued interest.

In the years following 1897 large sums have been spent for betterments and enlargements. Some $68,500,000 have been invested from the proceeds of the sale of prior lien bonds and of miscellaneous assets, and over $18,000,000 have been temporarily withdrawn from income for the same purpose.640 Grades have been reduced, lines straightened, new branches built, real estate acquired, track relaid and ballasted, bridges strengthened and renewed, equipment rebuilt and increased in amount, and other similar betterments undertaken. It is a work which all the great American systems have carried on, but the Northern Pacific has surpassed even the Union Pacific in the extent of its operations. Ordinary maintenance requirements have not meanwhile been neglected, and in 1906 and 1907 the Northern Pacific set aside $2,000,000 for depreciation of equipment, which is over and above the other sums which have been mentioned. The company owned 1255 locomotives on June 30, 1907, of an average weight of 174,000 pounds; in 1898 it had owned 542 of an average weight of 104,000 pounds. It had 42,000 freight cars in 1907 with an average capacity of over 33 tons; it had possessed 18,500 in 1898 of an average capacity of 22 tons. Seventy-five per cent of the main line was laid with track of 72 pounds or over in 1906, but only thirteen per cent in 1898. In consequence heavier trains are run,641 at a less expense per ton, and the net revenue is correspondingly increased. Even the liberal expenditures which have hitherto been made are insufficient, however, for present conditions, and the stockholders have approved a proposal to issue $93,000,000 of new common stock at par for the purpose of extending the Northern Pacific’s mileage and facilities.642

The endeavor to stimulate traffic to fill the trains has led to important developments. In order to increase the exchange of commodities between their territory and the Middle West, to establish stable conditions on transcontinental business and thereby to secure back loading for their cars, the Great Northern and Northern Pacific in 1901 arranged for the purchase of the Burlington system which connected both their lines with Chicago. The refusal to share their purchase with Mr. Harriman led to the competitive purchase of Northern Pacific stock by rival interests, and to the retirement of the Northern Pacific preferred, but did not prevent the consummation of the deal.643 This purchase has been a profitable one. The Burlington has paid in dividends upon its stock almost enough to cover the interest on the bonds issued to acquire it, and the indirect effects of its control have satisfied expectations. Indeed, the east-bound lumber traffic has so developed that the Great Northern has recently raised its lumber rates in order once more to equalize east- and west-bound shipments.

The Northern Pacific has been openly dominated by the Hill-Morgan interests for the last six years, and probably has been under their control since its reorganization. From the financial as well as from the traffic point of view its position is secure. The voting trust was dissolved in 1901 “by reason,” in the words of the trustees, “of the evidence of financial strength, conservative management, skilful and profitable operation, superior physical condition of the property, and the reasonable prospect of continued prosperity.”644 In 1907, out of a net income of $33,208,840 only $9,575,183 were paid out for interest, rentals, and taxes, and $23,473,929 were left for dividends, improvements, and reserve. This whole sum, which amounts to 33 per cent of gross income, is available as a protection for the mortgage bonds; and a considerable portion could be dispensed with without forcing a decrease in the present rate of dividends.645 It is likely that the coming years will see a check in the advance of national prosperity, but the Northern Pacific is in excellent condition to stand the strain.