of the present Plan. Thus both these proposals involve additional complications which are avoided by the present Plan.

As we have indicated, we are required by Section 11 (e) to find that the Plan proposed by the company provides an appropriate means for achieving results required by the Act. We are not required to find that it is the only means available, since the compulsion of Section 11 is one of result rather than of method.19 We find the present Plan to be a suitable and expeditious method for complying with the Act, and we accordingly find that the Plan meets the necessity standard.

B. FAIRNESS OF THE PLAN

The second prerequisite to our approval of a plan of reorganization under Section 11 is that we find that it is fair and equitable to the persons affected thereby. The persons affected by the present Plan, other than the holders of notes of Washington Railway and of the two series of Pepco preferred which are to be retired in accordance with their contracts and as to which no question of fairness has been raised, are the holders of preferred and common stock of Washington Railway.

"Fair and equitable" treatment in a Section 11 reorganization requires that each security holder shall receive "in the order of his priority... from that which is available for the satisfaction of his claim the equitable equivalent of the rights surrendered." 20 A reorganization under Section 11 does not ordinarily mature liquidation preferences so as to make them determinative of the compensation to be accorded under a plan." It is well established that in the case of a solvent company the rights which are being surrendered must be viewed as though in a continuing enterprise with due weight given to earning and dividend prospects and to the possibility of liquidation or redemption apart from the requirements of the Act. In the present case, there is involved a non-callable preferred stock with voting control, well covered as to assets and earnings. Under such circumstances the likelihood of liquidation, absent the compulsion of Section 11, would appear to be remote, and accordingly primary consideration must be given to rights in earnings and dividends.

In determining whether the rights which are to be surrendered under the Plan will be given adequate compensation, we have considered all pertinent factors bearing on the rights of both the securities to be surrendered and those to be received, including preferential

19 Northern States Power Co., 18 S. E. C. 814 (1945), at mimeographed page 851; Community Gas and Power Co., 25 S. E. C. 92 (1947), aff'd. F. Supp. (D. Del., April 10, 1947). 20 Otis & Co. v. S. E. C., 323 U. S. 624, 640 (1945); American Power & Light Company, 21 S. E. C. 191, (1945), p. 195; Group of Institutional Investors v. Chicago M., St. P., & P. R. Co., 318 U. S. 523, 565 (1943).

21 Otis & Co. v. S. E. C., 323 U. S. 624 (1945); Lahti v. New England Power Association, ·F. 2d (C. C. A. 1st, April 11, 1947).

rights as to earnings and assets, assets and earnings coverage, voting rights, redemption rights, dividend rates, and market prices. In that analysis, we turn first to pertinent financial and related data of Washington Railway, of Pepco, whose reclassified securities will form the basis of the allocations under the Plan to the preferred and common stockholders of Washington Railway, and of Braddock, Pepco's subsidiary.

WASHINGTON RAILWAY

BALANCE SHEET AND CAPITALIZATION

The following is a condensed balance sheet of Washington Railway per books as of December 31, 1946:

Preferred stock, 5 percent cumulative, $100 par value...

Common stock, $100 par value....

Bank loan notes unsecured, 1% percent, due Jan. 31, 1947 ($700,000 paid on due date and $2,800,000 refunded with like notes payable on or before Jan. 31, 1949) –

Current and accrued liabilities.

Earned surplus___

Total liabilities.

8, 500, 000

6, 500, 000

3, 500, 000

451, 641 11, 500, 287

30, 451, 928

Stocks of subsidiary companies are carried on the books of Washington Railway at cost, based in part on the par value of securities issued by Washington Railway in 1902 in payment for a mixed aggregate of properties and securities including stock of Pepco. No segregation of the cost of the various properties and securities was made until 1923, when on instructions of the Interstate Commerce Commission the securities were segregated at their then par values, and the balance of the cost was treated as representing transportation properties. On December 1, 1933, Washington Railway transferred its transportation properties, subject to certain liabilities, to Capital Transit in consideration for 120,000 shares of the latter's capital stock, such stock being

recorded at the amount at which the transportation properties were previously carried on the books of Washington Railway.

That stock had an applicable net book value at December 31, 1946, of $14,514,693 22 and a recent market value of approximately $3,000,000 2 and is presently carried by Washington Railway at $19,830,661. Washington Railway's investment in the 90,000 shares of common stock of Pepco, which had a net book value at December 31, 1946, of $39,270,938, is carried by Washington Railway at $9,000,000.

Attached as Appendix I is a condensed consolidated balance sheet of Washington Railway and subsidiaries, as of December 31, 1946. The following table sets forth the consolidated capitalization and surplus of Washington Railway as of December 31, 1946, both per books and as adjusted to reduce the carrying value of the investment in Capital Transit, a non-consolidated subsidiary, to its recent market value of approximately $3,000,000:

This adjustment, made solely for purposes of analysis, reflects a reduction in earned surplus of $16,830,661 representing the difference between the carrying value of Capital Transit of $19,830,661 and its recent market value of approximately $3,000.000.

EARNINGS AND DIVIDENDS

We have previously noted that Washington Railway derives slightly in excess of 90 percent of its income from dividends on the common stock of Pepco and the bulk of the remainder of its income from dividends on its holdings of the common stock of Capital Transit. Con

23 Based on a carrying value for the properties of Capital Transit $5,250,000 higher than a valuation on an "original cost" basis found by the Public Utilities Commission of the District of Columbia.

23 Capital Transit is traded on the Washington Stock Exchange. The high and low price range for 1947, through May 10, has been 29% to 23%.

densed income statements of Washington Railway for the year 1946, corporate and consolidated, are attached as Appendices II and III, respectively.

Certain salient data with respect to the corporate income, fixed charges and preferred dividend requirements of Washington Railway for the years 1939-1946 are set forth below.

The following table contains similar data with respect to the consolidated earnings, fixed charges and preferred dividend requirements of Washington Railway and subsidiaries for the years 1939-1946: 24

Attached as Appendix IV is a condensed balance sheet of Pepco as of December 31, 1946. As shown therein, Pepco's total assets per books are $126,515,548. Property and plant are carried at $113,938,877,

24 The operations of Capital Transit have not been consolidated but are reflected only to the extent that dividends received by Washington Railway are included in gross income. 25 S. E. C.

representing cost less net electric plant adjustments of $3,041,453, charged to earned surplus in 1941 as a result of a reclassification of property and plant accounts pursuant to accounting requirements and orders of the Federal Power Commission and the District Commission. Those orders provided that the directions therein should not be construed as a finding with respect to the original cost of the properties of the company.

The reserve for depreciation and retirement of property and plant at December 31, 1946, was $25,026,800, equivalent to 21.97 percent of the property and plant account at the same date. These figures do not reflect certain adjustments in the depreciation account which were directed by the District Commission but were not made pending the outcome of court appeals which were recently dismissed.25 With those adjustments the reserve for depreciation at December 31, 1946, would be greater by $1,093,738 and would equal 22.93 percent of the property and plant account.

The following table sets forth the capitalization and surplus of Pepco, as of December 31, 1946, both per books and pro forma to reflect the proposed changes in the capitalization of Pepco which will result from consummation of the Plan:

• The reduction pro forma of earned surplus represents the following items: Amount being capitalized by stock dividends...

$24,862, 500

Write-down of difference between investment in Great Falls power site ($1,000,000) and amount at which such physical properties are proposed to be recorded on the books ($505,962).....

Write-off of call premium on outstanding series of preferred stocks.

Charge-off of capital stock expense..

Increase in reserve for depreciation required by order of District Commission.......

Total proposed earned surplus adjustments......

494,038

490,000

104,729

1,093, 738

27,045,005

Capital surplus represents the residual assets to be contributed by Washington Railway to Pepco, subject to any contingent liabilities Washington Railway may have. Washington Railway states there are no known contingent liabilities. The exact amount to be contributed by Washington Railway is dependent upon the amount consumed by necessary expenditures under the Plan.

25 Potomac Electric Power Company v. Public Utilities Commission of the District of Columbia, 15 U. S. Law Week 3421, No. 1038 (May 6, 1947); United States v. Public Utilities Commission of the District of Columbia, 15 U. S. Law Week 3421, No. 1135 (May 6, 1947).