New-York tribune., 1902-07-01
HOSTILE TO STEEL BONDS.
GROWING PUBLIC CRITICISM OF STOCK
CONVERSION PLAN

AS time goes on the sentiment OF Wall Street
and of the investing public appears TO become
more and more hostile 10 the plan of the United
States Steel Corporation management for retir-
ing S20O,000,000 of the preferred stock and issu-
ing S2oO.OOO.OO0 second mortgage 5 per cent
bonds. On April l. the day which the direc-
tors adopted this plan. the common stock closed
at 42A, and the preferred at 94I2. Since then
both issues have been slowly declining the COM
mon selling at the close yesterday at 371a and
the preferred at SSA. The recommendation of
the directors ratified by the stockholders al
a special meeting May 10, the immediate
public response to this action being a sharp de-
cline in the prices of both classes of the stock
and also of the bonds when issued" The
meeting Of the stockholders was adjourned to
June .. and on that day to June 80, and
another adjournment for three weeks has been
taken.
The popular criticism is directed mainly TO
two points-the policy Of the management In
declaring dividends the common stock from
the very outset, although 1t was known when
the corporation was formed that additional
funds would soon have to be provided, and the
substitution of 500 600 900 bonds for $2OOO0O-
600 Of the preferred stock. The S50000.O0O to
he raised by the issue of $50 900 900 bonds ex-
elusive of the S200.0O0.000 to be substituted for
preferred stock is to be applied follows,
Cording to the circular to the stockholders
in April-about $25,G1000 for improve
ments. the installation OF which it is
expected will effect a large annual saving
in the cost Of manufacture and Will also greatly
increase the annual profits; S15.000,O0O to
place cash payments made during the year
on account of construction work under way
by the constituent companies at the time the
United States Steel Corporation was organized,
and S1OOOO00O on account of payments TO be
made soon for properties purchased almost
Immediately after your corporation was
ganized." Dividends aggregatng S203090O0
were declared on the common stock for the
year ended March 81, 1902, a sum which alone
is nearly equal to the amount which it
foreseen long before the first dividend de-
clared on the common stock would be neces-
sary to meet extraordinary obligation then
clearly in view, and the question is pertinently
and insistently put. why, in view of this fact,
did not the management defer for a year for
two years putting the common stock a
dividend paying basis?-a question which those
propounding II themselves meet with the per-
haps cynical answer that those who promote
consultations generally have on hand generous
blocks of the common stock, and that the COM
stock of any corporation be marketed
much more advantageousy IL It Is a dividend
payer than If It is not.
1t is unquestiOned fact that the United
States Steel Corporation is enormously and in
creas;ngly prosperous. Its net earnings for the
first year of It's operation aggregated Sill. 1.000
coo. and after deducting the interest on it's
bonds dividends on both classes Of its stock,
So O59 913 for sinking fund requirements and
S12.339, 1S2 for depreciation and reserve funds,
there remained S2i450u00, representing undi-
vded earnings applicable to Increase OF the de
probation and reserve fund new construction
or surplus. These figures are likely 10 be largely
exceeded in the current yc%T. but the fact Is
pointed TO by critics OF the company another
reason why the issue of $J0.Ou0,UO new bonds
should not have been made.
The second feature Of policy which has been
so generally criticised is the proposed conver-
sion Of $2tn,OuU,OUO of the preferred stock into
an equal amount OF bonds n plan which has
not yet been carried into execution because Of
the pending litigation in the courts of New
Jersey. The contention of the management Is
that benefit and a saving viii result to the
stockholders through this plan. as the dividends
on $2OoWpOoo per cent preferred stock
amount to Sli Uu00 900 a year. while the interest
on %2OOoOOOO per cent bonds would ue only
$1,000 600 Il year. ON the entire proposed ISSUE
OF $50 100000 bonds the interest would be
$12,50o0O0 a saving of S15cOOo0 year. which
would make possible the establishment OF a
sinking fund through which the entire bond is
sue would be wiped out in sixty years. 1t
should be noted, however, that the
process of conversion involves more or
less large initial expense. a commission
Of per cent is to Toe paid 10 n syndicate
which has been formed to underWTlte the en-
tire issue Of bonds; although the commission
Is to be paid upon only the amount Of bonds
actually taken up by the syndicate more
serious objection, however, urged by many per
sons among them John Trehane. OF London. in
a further pamphlet just received in this city,
concerns the advsabiIity of increasing the
bonded Indebtedness of the Steel Corporation.
Periods of business depression have always fol-
lowed periods OF prosperity, but interest on
bonds must always he met If a corporation is TO
maintain its solvency. In conceivable wears OF
storm and stress the United States Steel Cor
poratiOn could pass the dividends both
classes of its stock, thus relieving itself of
500 900 900 of obligations year. but It must
pay it's interest. That item amounts to
SO 900 900 a year, but with an additional 500
900 600 of bonds its interest charges would be
sweled by S12JOOOOO year. to S2110OOOO;
and the position of the common stockholders
and the remaining preferred stockholders would
be weakened to the extent represented by the
necessity of meeting this additional fixed
the lessening of the borrowing power of the cor
poration by the addition of S2OOOOOO00 or
$500 600 TO the funded debt.
1t developed yesterday that Bertram Cutler.
who figured in the recently published list of
stockholders OF the United States Steel Cor
poration as the holder Of 12391J shares OF the
common stock and -, ,363 shares of the pre-
ferred is a clerk in the office of John ID. Rookie
feIer; and the inference was naturally drawn
that the holdings of the Standard Oil interests
I'm the Steel Corporation stand in his name.
TRANSATLANTIC TRAVELLERS.
On the Graf Waldersee will sail for Plymouth,