Atlanta Georgian. [volume] (Atlanta, Ga.) 1912-1939, 1913-06-22
MANY MILLIONS
FROM EARNINGS
BACK IN STEEL
Equity for Common Shareholders
lncreased$368, OOO,OOOSince
Organization.

! NEW YORK, June 21.-Since 1901,
the Steel Corporation has put back
into its various properties from earn
ings approximately 100000. This
addition to its assets is net.
In addition, it has liquidated $780,
600 900 par value of its own bonds,
through sinking funds This. with
sundry sinking fund balances on
hand, brings total appropriated from
| earnings in such a way as to increase
equity for shareholders to 1865. 900,
600 If this could be applied wholly
to common stock. it would represent
$725O per share,
! If it be considered that in the orig
inal organization of the corporation,
the preferred stock was fully covered
| by tangible assets, then all of this
could be treated as an equity built
Iup for common stockholders. But
there is good reason to doubt that the
preferred stock was thus originally
! covered by assets. Bureau of Corpo-
rations in its report computed that
approximately 1912, 900, 900 of the pre-
ferred had no tangible assets back of
it in 1901. On this basis equity built
up from common stock, from earn
ings, is reduced to about Sl56,OO
600, or, say s92 a share.
Heavy Depreciation Charge.
! The Bureau of Corporations, in its
report of 1911, however, computed
that on its estimate of investment,
the Steel Corporation had set aside
$38. $50, 600 more for depreciation than
was actually needed.
If the corporations balance sheet
valuations are used, no addition to the
equity for the stock should be made
on this account, as fun depreciation
would be needed. But assuming that
the common stock hao no assets back
Of it in 1901, no depreciation would
be called for. and the S3S ,25O 600 thus
set aside for depreciation may be re-
garded as creating an equity for the
stock in place of water. This would
amount TO, roughly, $3.50 per share
additional
! Valuing ore properties at the start
at only 500, 0O0,O 600 (the Bureau of
| Corporations estimate) and allowing
nothing for business organization,
good viii, trade marks or other in
| tangible assets, the Steel Corporation
| has, therefore, from earnings, made
good the original deficiency in the
assets. compared with capitalization,
to the extent of 100000 600
Water Made Good.
On this conservative basis, which
takes no account Of the admitted ap-
probation in value of certain prop
critics like city land and ore, or of
the expanded organization, any water
in the preferred stock has been made
good, and in addition an equity of
$40 per share been built up for the
common stock.
Against present increased value of
ore lands, however must be Consid-
cred possible effect of competition of
the Hill ores, which will come on the
market next year,
This net addition to the equity
should not be confused with eXpen-
ditures for new construction, which
up to the close Of 1912 amounted to
over S424,OOO,O0O This outlay for
construction, however, was not a net
addition TO assets.
United States Steel common stock
finds itself to-day preceded by $128,-
100000 more bonds than in 1901. In
United States Steel bonds the in
| crease has been S150,1S0,00O; in sub
sidiary company bonds. 1928, l82,772.
Against this is a reduction of $3.50
000,0 900 in preferred stock, brought
about, of course by an exchange of
this into bonds.
Good Financing Done.
So far as the position of the com
mon stock from the viewpoint of as
sets is concerned the exchange of
$3.50, 100000 preferred stock into a
like amount Of bonds is Of no special
significance. This operation severe
ly condemned at the time. cost the
corporation $6,SO0.O00 in cash com
missions. In nine years since the ex-
change was effected, however there
has been saved approximately $19.-
600, 600 in dividends. The plan has
therefore, provided a means of get
ting additional cash into the treasury
without increasing fixed charges. 1t
also undoubtedly tended to help the
position of the preferred stock which
at that time was a wet blanket on the
entire security market.
This means that the increase in the
equity for the stock is indicated by
amount provided from earnings, as
above set forth. Whether that equity
be reckoned as $50 or $40 or $50 per
share. or at some other figure, de-
ponds largely upon the individual
opinion as TO what extent original
assets failed to cover the bonds and
preferred stock But that the equity
is substantial is clear
The more important question from
81. IL. IL.
er, in event of tariff revision. trade
recessinm or Instrumentation. this enmiLN