The Indianapolis journal., 1903-11-02


900 for working capital and sl,500000 in
bonds OF the United States Shipbuilding
Company. to be held as treasury assets or
disposed OF Tor working capital or other
purposes OF the company. and would ac-
cept in full consideration $19 99S 500 in pre-
ferred stock and $24. .99s 500 of the common
stock OF the company, N6.000.0o0 par value
or nrst mortgage per cent sinking fund
thirty-year gold bonds, secured by a mort
gage upon all the property and plants OF
the companies outside OF the Bethlehem
company, and $l0OOO,Oe0 in 5 per cent
twenty-year gold bonds secured by a mort
gage on the Bethlehem Steel Company.
THE DUMMIES ACCEPT
On the receipt of this offer, says the re-
ceiver, the directors above named. hold
ing no stock whatever in the company, but
at most. mere subscriptive right, by as
signment, to one share each, adopted a res
| olution which in effect accepted the offer as
| made and increased the capital stock from
5000 to $40, 900. s2O.O0o.Ooo preferred and
$25.00o.0O0 common; executed the sl0,O0o, 900
mortgage on the Bethlehem plant and the
S16,O0O,0O0 mortgage on the other plants as
specified, and delivered the corporation
bonds and all the stock except fifteen shares
or common and fifteen OF preferred to
| stockholders on July 81, 1902, and between
| Aug. and II the transaction was consum-
mated by the delivery OF the capital stock
and plants Of the constituent companies
Leases, later, were executed conveying the
| plants to the companies for purposes OF
| operation, the profits TO be turned into the
| oemidnb etaoin shrldu cmfwyp etaoinoin
| The resolution of the board Of directors
accepting Young's offer was stated by the
| board in its minutes to be based re-
| ports from w. 7. Simpson and Riddell &
| Common, accountants, on the condition of
| the business of several companies men,
toned in said offer. excepting the Bethle-
| hem Steel Company. This report is alleged
| to have certified, among other things, that
the contracts of the constituent companies
| for construction then in hand amounted
| to over S36, 600, that the estimated net
profits thereon had been calculated at over
result in an annual average profit of
| s., ,225, ,0O0
| With reference to the Bethlehem Steel
| Company the minutes of the board recite
| that Jones, Caesar & Co., chartered ac-
| countants, had been investigating the af-
had made report that the company was
| earning 81, 100000 per year; that il had a
working capital of over s4.0oo0oo and that
| 1T had contracts in hand sufficient for its
| full running capacity for three years.
FALSIFIED FIGURES.
'1n reliance on these alleged reports and
| without knowledge of or investigation into
| the merits of the properties" Mr.. Smith
says, ''the resolution In question was adopt
| ed A comparison of the figures alleged to
have been relied on by the board of direc-
| figures ascertained from an examination
of the subsidiary companies subsequent to
| the purchase of said plants, disclosed SO
great variance as to impel the belief that
| the figures contained in the minutes were
| willfully misstated. 1t is extremely doubt
| full whether any report was submitted by
| any accountants made as of that time, as
| the minutes recite."
"A let er purporting to be signed by
| Simpson and Riddell and Commons, dated
90 IL Sr..ir Ii
serve as a basis to a certain extent for
| the allegation In the minutes, but the ex-
animation of these accountants must have
been of the most superficial kind.
THE letter in question makes such ex-
aggerated representations with reference to
| the prohts, present and prospective" he
| declares, "as 10 make it absolutely worth
| less as guide in ascertaining the real
condition of the plants 1t is entirely re-
| futed py their later reports"
In these later reports, he states, the S.
| 100000 of profits dwindle to about 81 600 600,
and the estimated average annual profits of
the Bethlehem Company to not more than
81, 100000 Actual profits were much less,
/ however, the first years earnings of the
| constituent companies, exclusive of the
| Bethlehem, not exceeding sSS3. ass.
THE real reason why the earnings fell
| below the anticipated profits" the receiver
says, was because previous alleged earn
| ings had been figured on a percentage of
| completion of contracts, which percentage
| In many instances was erroneous"
NO WORKING CAPITAL.
TT appears" he continues, that, with
the exception of the United iron works
| the subsidiary companies, taken together,
had absolutely no working capital, but on
the contrary their liabilities exceeded their
resources in the sum of. s294, 1888. The fol-
lowing was the condition of these COM
panies at the time of their purchase:
Deficits
1 Dot iron rLc 0 =
| Crescent Shipyard Company. 403, ,192. 2S
| Harlan & Hollingsworth Company 73,Sl3. "A
| S. Il. Moore & Sons Company. 5,039.27
| Surplus
Eastern Shipbuilding Company. 81, ,391. "a
| Hyde Windlass Company 1S9. 1896
Total .................... $3.50, ,s44. 40
Net deficit, being excess of liabilities over
assets, 1924, 1888.
The Union iron works. it was found, had
| a working capital of 81, 123, ,150.
'As the principal part Of the alleged
| working capital above mentioned was con-
| fined to the Union works. he concludes, 'it
companies are concerned, when taken over
| by the United States Shipbuilding Company
| they not only had no working capital, taken
collectively, but were in immediate need
| of financial assistance. From the foregoirs 2
| facts it appears to have been the intention
| of those responsible for the statements and
! hgureS alleged TO nave been relied on &c
| mislead and deceive the investing public
and the present and future creditors OF
| the company"
FALSE STATEMENTS.
Receiver Smith then quotes from the
prospectus issued to the public TO induce
subscriptions for bonds, and concludes that
comparison of this prospectus with the
! facts discloses false and misleading state
ments in the following regards:
81. At the date Of this prospectus the
| United States Shipbuilding Company had
not been Incorporated.
''2. Its capital stock was never twenty
| millions; it originally $1,000, which
| amount was subsequently increased to 49,
100000.
''3. Six of the ten persons mentioned as
| directors in the prospectus were not di-
| rectorS OF the company and have never
| been.
"a. The amount of contracts on hand did
| not exceed $36,0O0,000, but of this amount a
profit was available only on the uncom.
| pleted portion of the contracts. which profit
| will not exceed s1,0IS, ,261. AZ, and will take
| three years to earn.
| '5. These companies did not have q
| working capital of more than s., 10000 the
| figures of the accountants show only q
| working capital of $3,27S, 79S4S. This work
| Ing capital, however, was almost obliter-
| ated by subsequent adjustment.
| '6. The statement that the profits or
| contract work in hand would be s., 600 co
| was undeQiably false If IL is claimed fha-