Atlanta Georgian. [volume] (Atlanta, Ga.) 1912-1939, 1913-06-22
MILLIONS
FROM EARNINGS
BACK IN STEEL
Equity for Common Shareholders
Increased 1858, 900, OOOSince
Organization.

NEW YORK, June 21.-Since 1901,
the Steel Corporation has put back
into its various properties from earn
ings approximately 1915, 100000 This
addition to its assets is net.
In addition. it has liquidated $50
| 600, 600 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 1868, OO0.-
600. If this could be applied wholly
to common stock. it would represent
S72.50 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
up 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 $212, 900 600 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 $l56,OO0,-
600, or. say 1872 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
S3S, ESQ 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 full depreciation
would be needed. But assuming that
| the common stock hau no assets back
of it in 1901. no depreciation would
be called for. and the SSS,25O,OO0 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 $100,0O0,000 (the Bureau of
! Corporations estimate) and allowing
nothing for business organization,
good will. 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 $400,000,000.
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
| sac 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 Hin 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 S424OOO, OO0. This outlay for
| construction, however, was not a net
| addition to assets.
| United States Steel common stock
| finds itself to-day preceded by SIPS,
| 100000 more bonds than in 1901. In
| United States Steel bonds the in
crease has been $150,180 600; in sub
sidiary company bonds S12S,1S2,772.
Against this is a reduction of $50
100000 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
| $4,000 600 preferred stock into a
like amount of bonds is Of no special
significance. This operation, severe
| ly condemned at the time. cost the
corporation $500. 600 in cash COM
missions. In nine years since the eX
change was effected, however there
has been saved approximately $40,
000, 600 in dividends, The plan has
therefore, provided a means Of get
ting additional cash into the treasury
without increasing fixed charges It
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
1 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
the stockholders standpoint is wheth-
er, in event of tariff revision, trade
| recession or disintegration, this equity
| no a,pear.tra1