By 1884, then, Atchison had reached the Pacific coast. The next great steps were the extensions to Galveston and to Chicago. The year of entrance to Los Angeles the Atchison did not cross the southern boundary of Kansas. Certain of its stockholders were, however, unofficially interested in the Gulf, Colorado & Santa Fe, which ran from Galveston on the south to the Indian Territory on the north, roughly 200 miles. In 1884 a charter was obtained for the Southern Kansas Railway Company, a corporation organized solely to build south from Arkansas City. The same year the Gulf, Colorado & Santa Fe obtained permission to stretch north. The two roads met at Purcell in the summer of 1887.[410] In 1886 the Gulf, Colorado & Santa Fe was formally brought in. Gulf stock then amounted to $4,560,000 and bonds had been issued to a limit of $17,000 per mile. For the entire capital stock, subject to the above encumbrance, Atchison agreed to pay $8000 a mile in Atchison stock, par value.[411] The final move was to get into Chicago. “The Atchison Company has been much too conservative during the last few years,” said the Chronicle, “and thus has allowed its territory to be invaded.” The first intent was to build direct. There were incorporated, in Illinois the Chicago, Santa Fe & California Railway Company, and in Iowa the Chicago, Santa Fe & California Railway Company of Iowa. In 1887 the Atchison was able to purchase the Chicago & St. Louis Railroad, between Chicago and Streator, with a branch to Pekin,[412] and to save itself construction between these points. The whole line was opened for traffic in May, 1888.[413]
This completed Atchison’s systematic extensions before 1889. From a local road in Kansas it had become a through route, taking freight over its own rails from Chicago to Galveston and to the Pacific coast. But especially in the latter eighties competition had become keen; and to its strategic extensions Atchison was obliged to add competitive building on an enormous scale. Of the 7000 miles in 1888, over 2700 had been added since January, 1886, and had been built, not to tap new sources of traffic, but to defend what was thought to be Atchison’s rightful territory by means of a desperate war of rates. “About three or four years ago,” said a competent observer, “a mania seized three great corporations (Atchison, Missouri Pacific, and Rock Island) to gridiron Kansas with railroad iron, and each tried hard to see which could cover the most ground, without regard to the character of the ground, the result [being that] railroads were built where they would not be required for ten years to come.”[414] Such roads could not be expected to pay, and in fact did not. Even in the case of better planned extensions, the lines had to be built in an unopened territory, the traffic of which had yet to be developed. In Indian Territory, Oklahoma, and Arizona, the bulk of the country had less than two inhabitants to the square mile; in New Mexico and Lower California only one-half of the area was more thickly settled; and it was largely from this southwestern corner that local traffic for the Atchison had to be built up.
The method of financiering these competitive extensions varied: sometimes the parent company guaranteed the principal and interest of the branch-line bonds; sometimes it took these into its treasury and issued collateral bonds against them; sometimes, perhaps more frequently still, it leased new roads for a rental equivalent to the annual interest on their bonds. If the branches could have earned their fixed charges the burden on the Atchison would have been nominal, but as in large part they could not it was real and serious. In 1888 there were actually paid in rentals, interest on Sonora Railway bonds, and on sundry railway bonds, $2,361,300. Large sums were carried to capital account. In 1888 there was an accumulated account of “due from sundry leased, controlled, and auxiliary roads in construction and general account” (net) $13,558,678, including various cash current construction and other charges, which was carried as an asset, but which in reality consisted of advances from which there was little or no hope of return. Besides the claims for interest the parent company had in practice other claims to meet. Where a branch failed to earn operating expenses, as often happened, sums had to be advanced to keep the road and rolling stock in repair. Thus the item “due from auxiliary roads in current traffic and operation accounts” amounted in 1888 to $1,008,554. Bills and accounts payable the same year were $6,553,775, and accrued interest, taxes, and sinking funds totalled $915,337. The following table shows vividly the effect upon the system of the rapid extension of the years 1884 to 1888:
Total System
| 1884 | 1888 | |||
|---|---|---|---|---|
| Mileage | 2,799 | 7,010 | ||
| Bonds | 48,258,500 | 163,694,000 | ||
| Stock (Atchison) | 60,673,150 | 75,000,000 | ||
| Gross earnings | 16,699,662 | 28,265,339 | ||
| Operating expenses | 9,410,424 | 21,958,195 | ||
| Net earnings from operation | 7,289,237 | 6,307,145 | ||
| Net profits, excluding dividends | 5,147,883 | def. | 2,933,197 | |
| Net profits, including payments for dividends and interest on floating debt | def. | 5,557,323 |
Whatever may be said as to the necessity of extension, it is evident that the position of the system by 1888 had changed for the worse. This last-named year was a bad one, it is true, but certain evils of which the directors then complained were permanent, and should have been permanently allowed for. Some realization of the fact that the Atchison might be going too fast appeared in the financial journals of the time. “Were these undertakings less solidly backed,” said the Railway Age, “there might be apprehension that enterprise was being pushed too far and too fast.”[415] But on the whole the rapid growth and enormous extent of the system seem to dazzle beholders. “The career of this company,” said the Railway Age again, “has been one of the marvels of railway enterprise, and it would be unsafe now to attempt to fix a limit to its extension or to the ambition of its Napoleonic president and its bold and enterprising directors.”[416]
In 1887 the directors increased the rate of dividend from 6 to 7 per cent.[417] The action was thoroughly unjustifiable, and the rate was speedily again reduced. By the end of 1888 the main company was liable to be called on any year to the extent of $8,625,365, which was the amount of interest on auxiliary roads either guaranteed or payable as rentals. In four years the mileage of the Atchison system had increased 150 per cent; its bonded indebtedness 239 per cent; its fixed charges 216 per cent; and its gross earnings only 69 per cent; while the deficits on its branch lines were obviously not matters of bookkeeping, and the value of interchanged business was not equal to the increased burdens which the subsidiary lines imposed. The floating debt mounted up, as is usual in times of trouble. From a total of $3,317,446 in 1884 it increased to $8,076,059 in 1888. To offset it the directors secured in October, 1888, subscriptions to a $10,000,000 issue of “guarantee fund,” three-year notes. Not all of the amount authorized was to be sold at once, but from time to time Atchison was to call on subscribers to take part of their subscription, and the notes were to bear 6 per cent from the time they were put forth.[418] For the rest, the directors economized as much as possible. Salaries were cut 10 per cent in every branch of the service, beginning with the president, and the unlucky 7 per cent rate of dividend was reduced to 6 per cent, to 2 per cent, and then to nothing at all in successive quarters. None of these expedients proved sufficient. In fact, the situation was so critical that nothing short of a general reorganization could probably have secured the radical reduction in fixed charges which the company required.
In September, 1889, accordingly, Messrs. Libby, Abbott, Peabody, and Baring were appointed a committee to consider the broad question of financial and general reorganization,[419] and in October a plan for the complete rehabilitation of the company was brought forward. The obligations with which the plan had to deal are indicated in the following table:
Obligations of the Atchison Company in 1889