Evening journal., 1916-07-26

'tee ohoulu ne torn up Dy tne ioVb7t
and the decisions OF the courts have
come down until the one / quoted to
Your Honor which recitod Morowitz,
Section 1l2, with approval If the
court recites that with approval. it
seems TO me that the proposition
answers the question Of impairment
OF capital
THE COURT. Not entirely. What
I want to get at is how the figures
which you state represent the surplus
are arrived at
MR.. GRAHAM The assets and lia-
bilities are marshalled The balance
II the assets exceed the liabilities is
struck From that must be deducted
the capital stock, which is also a La
bility. and n there is any balance re-
naming that is the surplus that is
available for a purpose such as this
That is. they could have bought stock
with that surplus AS the surplus is
only S5000.000. and as it would
have required S1i000000 to have pur-
chased this. they would have had Ia
have trenched upon their capital in
buying this $14000,000 worth OF
stock
THE COURT. I hoped you would
give your thought on what you con-
slider In this case as working capital
No Working Capital.
MR.. GRAHAM In the first place
there is no working capital in this
case, according TO the evidence. Mr.
Johnson spent half an hour In quot
ing and reciting about working capi.
tai because Of a statement that ii
made up by HIS experts, based upon
a statement that was furnished tc
them which statement was made OUT
on a form that recites working CAPT
tai, and the only testimony in the
case is that that form was used foi
making up O composite sheet for the
parent company, and all subordinate
companies. for use OF the executive
committee, and It has been proven
that there Is not such an item az
working capital in this Corporation
Before they can claim the benefits o.
working capital. they must show mo-
the mere use Of name in a connection
which shows that II is a mistake. bui
action by the board of directors. IL
setting apart out Of surplus a sun
OF money TO be called working capi
tai That is what the charter says
The charter says that they must SO
apart.
would like TO read Just thai
section The board OF directors
From time 10 time TO fix and deter
mine and to vary the sum to be re.
served over and above its capita.
stock paid In as working capital be
fore declaring any dividends amoni
tNn mNaN.a n u
! termine the use and disposition %
. any surplus or net profits over ant,
4 above the capital stock paid in; t.
4 fix the time OF declaring and payins
a any dividend. and, unless otherwise
/ provided in the bylaws. to deter
n mine the amount OF any dividend
II There IL Is evident that work capital
r Is only that sum OF money which /.
k. set apart in accordance with tha
ie, provision Of the charter. That mus
Nv be set apart first out OF surplus ovei
iy and above the paid-in capital, show.
r ing that the paid-in capital is not Il
Sc be impaired or touched but IL Is over
1t and above that, and that may be add
o ed as working capital That Is 0nlI
e TO guard the directors from beina
n called upon to declare that out as div
a idends The board Of directors II
: expected to distribute surplus as div
Il idends This is a plan by which they
n separate the surplus into working cap
r ital. and have il as an additional fund
y to the paid-in capital on the stock as
S working capital. That is the work.
j. ing capital, and this term in the pa
r. pers is an absolute misnomer.
THE COURT. Do you regard the
clause in the charter in relation to
I working capital as applying to any
Is thing except that part which was not
e TO be encroached upon by declaration
o Of dividends? Does it refer to any
: thing else7
II MR. GRAHAM. Yes, because there IS
70 an affirmative statement that they
+ may invest It in its own stock There
ID is an affirmative declaration TO that
" effect in the charter. so that it is for
d. a double purpose. II protects that
Z fund from distribution as dividends,
1t and then in addition TO that it pro-
It vide5 that they may invest ii in its
4 own bonds or stock. Let me call
W your attention to this exhibit Of
Ig theirs which in 1914 and 1915. on
* up to the end OF the examination, first
n is current assets, cash and certih-
At Gates Of deposit bill receivable. ac-
Of counts receivable. inventories, mate
rials and supplies. finished product,
n deferred charges. Can any one say.
s would any bookkeeper say that thai
h. meant working capital under the
II charter? What is that? That Is going
L into the end Of the assets Of the cor.
& poration. for II you take the cash, tho
r bills receivable. the accounts re
n ceivables and the materials and sup.
n plies. outside Of real estate or invest
# ments you kSs-5 Syetty much all the
o assets Of the corporation. When yot
take the total of that you find thal
II II there were a sum set apart, fol
! instance. S44000.0O0--I am takinl
It page 2S-S40. 100000. il that were ths
IT sum set apart as working capital-lr
e Mr.. Johnson's argument he did no
II say So ] think he is too fair to max
d an assertion of that kind, but h
n argued along that line as if we Nigh
k. take this as working capital. $40 600
re 600 II you take that $40 900 600 an
is deduct it from the total assets this
are not used up in other ways, G
AT from the S5O000.000 of excess. yo
as would have only S10.0OO.0O0 left. 70
I'd would not have your capital left
lr you take these items out and deduC
at them. you would not have your car
a ital paid in left. Hence this item 0
a. xuorlripy oopifof nc roauffrnad IN fhi