ACCOUNTING

The report of the Auditor, showing the financial condition of the Company and various state¬
ments of accounts and statistics, are hereinafter submitted.

The accounts of the Company have been examined by Messrs. Patterson, Teele & Dennis,
Certified Public Accountants, and their certificate as to the correctness thereof, as herein rendered, is
attached hereto.

Interest:

As important portions of the system are still under construction and the operated portion
represents only a part of the total capital expenditure and capacity, interest charges on bonded debt
have been apportioned between operation and construction. There is now being deducted from oper¬
ating income interest on a total of $50,000,000 of bonds, and there is being charged to construction
the interest on $14,500,000 of bonds. With the extension of service over those parts of the line now
under construction the amount of interest deductable from income will be increased, and the amount
charged to construction will be reduced, so that the charge of interest to construction will progres¬
sively disappear. It is a universal practice to charge to construction the cost of money during the
period of construction, and the division of this charge between operation and construction has been
made on a basis which in the opinion of your management is sound and conservative.

Amortization Reserves:

As required by the regulations of the Public Service Commission, this Company has charged off
and set up depreciation and amortization reserves, with a result that at March 31st, 1911, in addition
to actual expenditures in maintaining the property at the highest point of efficiency, we have absorbed
into operating expenses and set up a reserve of $385,081.14 as shown in the balance sheet submitted
herewith. A better showing of net earnings might have been made by less conservative methods of
accounting, but we believe that future results will reflect the wisdom of the policy which has been
adopted.

GENERAL REMARKS

Your property has been operated under the immediate direction and supervision of the Vice-
President, Mr. Wilbur C. Fisk, with great skill and ability, and it is also a pleasure to bear testimony
to the loyalty and zeal with which all of the officers and employees of the Company have discharged
the duties assigned to them.

Respectfully submitted by order of the Board of Directors,

W. G. McADOO,

Presidenl.