provided for UPU's liquidation and dissolution in a manner to be detailed by amendments. We now have before us for decision the first specific step under Part III, designated by UPU as "Supplement l', which proposes the cash sale to American Gas and Electric Company American''), a non-affiliated registered holding company, of UPU's investments in its largest remaining subsidiary, Citizens, Heat, Light and Power Company (Citizens"), for $1,500,000, and the use of substantially all the proceeds for an additional liquidating distribution of $4.00 per share of UPU's common stock. We also have before us an application filed by American pursuant to Sections 9 and 10 of the Act seeking approval of the acquisition of the securities of Citizens.' UPU and American have stated that no State or Federal regulatory body other than this Commission has jurisdiction over the proposed transactions. American's application and UPU's Supplement 1 were consolidated with proceedings heretofore pending under Sections 11 (b) (1), 11 (b) (2), 11 (e), 15 (f) and 20 (a) of the Act with respect to UPU, and a public hearing was held. No security holders of UPU or of American appeared at the hearing. The Commission having considered the record now makes the following findings: Description of Companies UPU, a New Jersey Corporation, is solely a holding company whose remaining subsidiaries, since the sale of its Ohio subsidiaries, have been, inclusive of Citizens, four public utility companies ("Indiana subsidiaries") incorporated in Indiana and operating in the east central part of that state. The Indiana subsidiaries consist of Citizens, which is an electric and water company, two natural gas companies and one manufactured gas company. UPU owns all of the outstanding securities of such subsidiaries with the exception of 3.5% of the common stock of the manufactured gas company. These companies serve in the aggregate approximately 5,600 electric customers, 1,400 water customers and 7,000 gas customers area having an estimated population of 44,000. Other than its portfolio holdings of these four subsidiaries, substantially all of UPU's assets consist of cash and United States Government securities. Citizens, whose securities are proposed to be sold, renders service in 14 Indiana communities, of which the largest is Winchester with a population of 5,675. For the twelve months ended April 30, 1948, 95% of Citizens' operating revenues were derived from the electric business and 5% from the water business. 2 We previously authorized American's acquisition by bidding of Citizens' securities, subject to a reservation of jurisdiction as to the price and terms of purchase, American Gas and Electric Company, Holding Company Act Release No. 7915 (1947) American's present application proposes such acquisition under a negotiated contract. American, a New York corporation, is solely a holding company which operates an integrated electric utility system, its so-called "Central System", in parts of seven states, including Indiana. At December 31, 1948, American's consolidated gross utility plant was $492,462,247, and its consolidated operating revenues for the twelve months ended that date were $125,646,180. PROPOSED TRANSACTIONS UPU proposes to sell to American for $1,500,000 all the outstanding securities of Citizens, which are set forth in Table I below. Under the terms of the contract between UPU and American, the price of $1,500,000 is a flat price, with no adjustment on account of changes in Citizens' surplus, and Citizens is to retain all of its earnings. As of April 30, 1948, Citizens' surplus consisted solely of earned surplus in the amount of $357,990. UPU will receive interest on its holdings of Citizens' notes from April 30, 1948 (as of which date all interest had been paid), to date of closing. Following consummation of Part II of UPU's over-all plan, as to which an application is pending for court enforcement, UPU's capitalization will consist solely of 370,300 shares of common stock having a par value of $1.00 per share. Supplement I proposes that the proceeds of the sale of Citizens will be used for a distribution of $4.00 per share of UPU's common stock, or $1,481,200 in the aggregate. UPU'S PLAN Citizens Financial Data There is set forth in Table II below a condensed balance sheet of Citizens as of April 30, 1948. Citizens made an original cost study as of January 1, 1937, has recorded the result of the study on its books, and has recorded subsequent net additions at cost. The original cost study and journal entries to record the result thereof were filed in 1939 with the Federal Power Commission and with the Public Service Commission of Indiana. In 1943 the Indiana Commission made an audit of the study, but neither that commission nor the Federal Power Commission has approved or disapproved the studies or the journal entries. Citizens' reserves for depreciation were, as of April 30, 1948, 44.1% of original cost of utility plant. The balance sheet in Table II above indicates that the aggre American is, at April 30, 1948, $633,544, which amount is $866,456 less than the proposed sales price. As heretofore indicated, the book value will be increased by Citizens' net income to the closing date; such net income is currently being earned at the rate of about $9,000 a month. A condensed income statement of Citizens per books for the twelve months ended April 30, 1948, is set forth in Table III below: The record shows that all of the gross income of Citizens is applicable to the securities owned by UPU with the exception of minor amounts required for miscellaneous income deductions. In the following table are set forth for the ten year period from 1938 to 1947, inclusive, and the twelve months ended April 30, 1948, the operating revenues of Citizens and gross income applicable to the securities to be sold. Period 19381939 TABLE IV Operating Revenues Gross Income to Securities to be sold $93,312 100,971 The proposed sales price of $1,500,000 for Citizens' securities is 14.3 times and 16.1 times, respectively, the gross income applicable to the securities for the twelve months ended April 30, 1948, and the average annual gross income for the five year period 1943-1947. UPU Financial Data There is presented in Table V below condensed corporate balance sheets of UPU as of April 30, 1948, on the following bases: (1) per books; (2) per books adjusted to reflect consummation of the plan now pending before the District Court for the distribution of $5 per share of UPU's common stock and the retirement of UPU's preferred stock for which an effective date of September 15, 1948, has been assumed; ' (3) pro forma based on the per books adjusted balance sheet and reflecting consummation of the presently proposed sale of Citizens; and (4) pro forma, based on the per books adjusted balance sheet and reflecting consummation of the proposed sale of Citizens and the proposed $4 distribution per share of UPU's common stock. 3 Calculation of the total amount to be paid to the preferred stock requires the assumption of an effective date for the retirement, inasmuch as preferred dividends will accrue up to he effective date. The Commission's application to the District Court for an order to enforce d carry out this plan has been set for hearing on August 20, 1948. |