Wikipedia:WikiProject Trains/ICC valuations/Chicago, Lake Shore and Eastern Railway

Interstate Commerce Commission, Valuation Reports, Volume 84

Location and General Description of Property
Included in the property operated by the Elgin is that of the Chicago, Lake Shore & Eastern Railway Company, hereinafter called the Eastern, whose main line extends from South Chicago, Ill., to Gary, Ind., a distance of about 14 miles, with branches extending from its main line near Gary to Cavanaugh, Ind., and to points of connection with lines of the New York Central a few miles east of Gary. It also has second and third tracks which are about equal in aggregate length to the length of its main line, but the mileage it owns is made up principally of yard, side, and industrial tracks. On June 30, 1914, the date of this valuation, the mileage owned by it aggregated 436.

Introduction
This carrier, whose principal office is in Chicago, is controlled through ownership of capital stock by the Illinois Steel Company, a subsidiary of the United States Steel Corporation. Its main line extends from South Chicago, Ill., to Gary, Ind., a distance of about 14 miles, with branches extending from its main line near Gary to Cavanaugh, Ind., and to points of connection with lines of the New York Central a few miles east of Gary. It also has second and third tracks which are about equal in aggregate length to the length of its main line, but the mileage it owns is made up principally of yard, side, and industrial tracks. On June 30, 1914, the date of this valuation, the mileage owned by it aggregated 436. Its business is practically confined to the transportation of freight traffic, a very large portion of which is shipped from and to the plant of the Illinois Steel Company at South Chicago and the plant of the Indiana Steel Company at Gary, and its property is operated under lease by the Elgin. The latter, as shown in report pertaining thereto, is controlled through ownership of capital stock by the United States Steel Corporation.

Included in the 436 miles above shown as owned by the Eastern are 7.53 miles, title to which is vested in the Chicago, Indiana & Southern Railroad Company. On the other hand, the 436 miles does not include 7.53 miles used exclusively by the latter carrier, title to which is vested in the Gary & Western Railway Company. Under an arrangement existing between the carriers, however, deeds are to be executed which will make the title correspond with the present use.

Corporate History and Development of Fixed Physical Property
The Eastern is the successor of the Calumet & Blue Island Railway Company, which was incorporated in Illinois on September 20, 1889. By agreement dated February 17, 1897, entered into by and between the Calumet & Blue Island and the Chicago, Lake Shore & Eastern Railway Company, incorporated in Indiana on April 9, 1895, the franchise rights and other property of the latter were transferred to the former, and by the terms of the same agreement the name of the Calumet & Blue Island was changed to Chicago, Lake Shore & Eastern Railway Company. This agreement was filed in the office of the Secretary of State of Illinois on February 20, 1897, and in the office of the Secretary of State of Indiana on February 25, 1897.

The line thus acquired by the Calumet & Blue Island extended from the Illinois-Indiana State line to Pine Junction, Ind., a distance of about 8 miles, but in 1908 the portion of this line between Indiana Harbor and Pine Junction, about 3 miles, was abandoned. On August 18, 1890, the Calumet & Blue Island purchased from the Illinois Steel Company 23 miles of track, located in and around the plant of that company, at South Chicago, but did not purchase the land occupied by the track. The land so occupied is used by the Eastern as successor of the Calumet & Blue Island, under lease executed to the latter by the Illinois Steel Company and afterwards transferred to the Eastern.

The remaining portion of mileage owned by the Eastern was constructed from time to time in the past by it and its predecessor, the Calumet & Blue Island.

The Elgin operates 43 miles of industrial and yard tracks and uses trackage rights covering 218 miles under leases which were originally executed to the Eastern and afterwards transferred by the latter to the Elgin. The 43 miles covers tracks owned by the Joliet and located within and in the immediate vicinity of the plant of the Illinois Steel Company at Joliet, Ill., and the 218 miles pertains to lines operated by various other carriers, but over which the Elgin runs some of its trains under said trackage rights.

Leased Railway Property
On August 18, 1890, the Calumet & Blue Island, predecessor of the Eastern, and four other carriers, subsidiaries of the Illinois Steel Company, entered into separate agreements with that company, by the terms of which the carriers were granted the right to use land of the company upon which their respective tracks were located, at points as follows:
 * Calumet & Blue Island Railway Company, South Works, Chicago, Ill.
 * Joliet & Blue Island Railway Company, Joliet Works, Joliet, Ill.
 * Chicago & Southeastern Railway Company, Union Works, Chicago, Ill.
 * Chicago & Kenosha Railway Company, North Works, Chicago, Ill.
 * Milwaukee, Bay View & Chicago Railroad Company, Milwaukee Works, Milwaukee, Wis.

Under these agreements the aggregate annual rental to be paid to the Illinois Steel Company was $500,000.

This continued until June 1, 1909, when the rental was reduced to $5 for each of the carriers. In other words the aggregate annual rental after said June 1 was to be $25 instead of $500,000.

On said June 1 the Eastern entered into an agreement whereby it was to pay to the Indiana Steel Company, for the use of land occupied by the tracks of the Eastern located within the plant of the steel company at Gary, $5 per annum.

For the period from August 18, 1890, to June 30, 1914, the records of the Eastern, as restated by the accountants of the commission, show that the Eastern paid to the Illinois Steel Company rentals aggregating $9,339,732.86.

From July 1, 1894, to June 29, 1907, the properties of the other four subsidiaries above mentioned were operated by the Eastern and its predecessor, the Calumet & Blue Island, under leases which provided for a division of the net income of all the carriers interested, but beginning on the latter date specific annual rentals were provided for as follows:
 * For the property of the Joliet & Blue Island Ry. Co. $15,000
 * For the property of the Chicago & Southeastern Ry. Co. 18,500
 * For the property of the Chicago & Kenosha Ry. Co. 11,000
 * For the property of the Milwaukee, Bay View & Chicago R. R. Co. 11,500

This arrangement continued substantially without change until December 26, 1913, except that on June 1, 1909, the rights of the Eastern under said leases were assigned and transferred to the Elgin.

On said December 26 the leases of the properties of the Chicago & Southeastern, Chicago & Kenosha, and Milwaukee, Bay View & Chicago were canceled, where upon the charters of those three carriers were surrendered and their properties passed back to the Illinois Steel Company in consideration of the surrender and cancellation of their capital stock.

At the time the rights of the Eastern, under the leases of the properties of the Joliet & Blue Island, Chicago & Southeastern, Chicago & Kenosha, and Milwaukee, Bay View & Chicago, were transferred to the Elgin, that is, on June 1, 1909, the Eastern and the Elgin entered into an agreement whereby the properties of the former, together with trackage rights held by it pertaining to lines operated by other carriers, were assigned and transferred to the Elgin, and since that date the latter carrier has been exercising said trackage rights and has also been operating the properties of the Joliet and the properties of the Eastern.

Under the agreement between the Eastern and the Elgin, which was by its terms to continue in force for 60 years from said June 1, the Elgin, in addition to discharging the obligations of the Eastern under the trackage rights agreements and in addition to paying the rental of $15,000 per annum for the use of the properties of the Joliet, was to make certain payments to the Eastern. As to the latter payments, however, the agreement of June 1, 1909, was modified, as stated in a communication dated June 27, 1914, and addressed by the chairman of the United States Steel Corporation to the presidents, respectively, of the Elgin and the Illinois Steel Company. The pertinent portion of this communication is as follows:

“I herewith confirm the conclusion reached at our conference on the 24th instant as to a modification of the lease of the C. L. S. & E. Ry. Co. to the E. J. & E. Ry. Co. to wit:

“The existing lease is to be modified so that the rental payments by the E. J. & E. will be on the following basis and plan:

“First. An amount equal to the interest on C. L. S. & E. Ry. Co. bonds outstanding.

“Second. An amount equal to 5 per cent interest rate on additions and betterments to the property of the C. L. S. & E.

“Third. After deducting from the net or surplus earnings the rental items as above and (a) the interest on E. J. & E. bonds outstanding and (b) dividend of 4 per cent annually on E. J. & E. stock outstanding (the same to be cumulative if not earned annually), additional rental shall be paid from the net earnings, if any, as follows:

“(a) An amount equal to 7 per cent on the C. L. S. & E. stock outstanding. This payment to be cumulative if each year's earnings are not sufficient to meet it.

“(b) An amount of $250,000.00 per annum, noncumulative.

“Fourth. And if there remains net or surplus earnings, in each year after making the rental payments and deductions as above provided, then out of such net an additional rental amount to be paid determined by same method as prescribed in paragraph ‘3rd’ section sixth of present lease. This is 18/28 of remaining surplus.

“The modification of lease as above to be made effective as of December 1, 1913. The E. J. & E. to promptly settle with C. L. S. & E. for any rentals accrued prior to December 1, 1913, and not yet accounted for. Rental accounts accrued since December 1, 1913, to be adjusted in accordance with terms of modified lease.

“It was also understood each company will for itself assume and pay all Federal income taxes against it; such taxes will not be included in the joint account for determination of rentals due.

“It was also understood the E. J. & E. was to retain possession of cash funds representing proper depreciation allowances account C. L. S. & E. property, which the former may include in the operating expenses charged to the joint account for the purpose of determining rentals due; and any interest income received by it on such cash funds are to be retained by the E. J. & E. for itself and not to be included in such joint account.”