The Birmingham age-herald. [volume] (Birmingham, Ala.) 1902-1950, 1919-09-17
SOME PHRASESARE
|. CONFUSING TO THE
BUYER AND SELLER
What is Meant by "Cumu-
lative Sinking Fund Non
Voting Pre- f erred
Stock?" is of Interest

Many interesting phrases are
sellers of stocks" said NJ. H. Sterne, of
Ward Sterne & Co.
THE Caption of recent circular
reads as Follows:
"'Seven per cent cumulative sinking
fund, non-voting preferred stock A
prospective purchaser sent this circu-
lar back with the statement that he
knew what per cent and stock meant.
but was uncertain as to the other terms
An explanation might be of general in
terest
The term cumulative as used in
connection with preferred stock, means
that. should the company fail to pay
the dividend on it's preferred stock at
any dividend period, the dividend which
should have been paid will stand
against the earnings, to be paid when
earned in addition to the future divi-
dends. "a on-cumulative preferred
stock, if the company passes a pre-
ferred dividend. 1t is not required to
make it up later.
The term sinking fund indicates
that the corporation is to set aside
fixed sum at fixed intervals for the
purpose of creating a fund to purchase
or redeem the stock, the company re-
serving the right to call stock for the
sinking fund at fixed figure in the
event it is unable to purchase it on
the open market at lower one. The
recent offering of Firestone Tire and
Rubber company per cent preferred
stock bought out at par is redeemable
at ITO and interest for instance. Cir
culars describing preferred stock is
sues show details of sinking fund and
callable features. The value of a sink
ing fund is two-fold: First, each share
OF retired stock strengthens the Sc
curity for the outstanding shares, and
second, the operation of a sinking fund
tends to stabilize the market and
very, very often to raise the value Of
the stock to figure approaching the
price at which callable.
Most preferred stock carries no vote,
but it is customary to have a provision
that preferred stock holders shall be
entitled to vote in the event of default
in the payment of specified number
OF dividends. AS rule, preferred stock
is bought by persons who desire a fixed
return on their funds, in companies in
whose management they have entire
confidence and the privilege Of voting
is therefore not considered important
1.-THE term preferred indicates that
some preference is given to the holder
of the stock over the holder Of the
common stock. Many of the old issues
give only preference as to dividends.
however. most of the recent preferred
stock issues contain strong provisions
for the protection Of the preferred stock
holders. The following provisions quot
ed from Austin. Nichols preferred stock
circular are typical of most of the
new issues:
1.-The preferred stock is to be en-
titled to cumulative preferential div
idends Of z per cent per annum; to
priority as to assets to it's full par
value plus secured dividends Tin the
event of voluntary liquidation to f15
per cent and accrued dividends) and is
to be subject to redemption at lis per
cent and accrued dividends. The COM
pany may not, without the separate
vote of at least two-thirds in amount
of the outstanding preferred stock (a)
create any mortgage on its real estate
or equipment; or (b) create any shares
of stock prior to or equal with the
authorized preferred stock. No voting
power attaches to the preferred stock
other than above, excepting that in case
there shall be default in the pay
ment of the regular dividends for four
quarterly periods, the holders of the
a majority of the board Of directors.
mo dividends are to be declared on
the common stock unless the net quick
assets, as defined in the charter. after
the payment of such dividend. equal
at least 125 per cent of the par amount
Of the preferred stock at the time of
the outstanding
THE balance of the authorized pre-
ferred stock. or any part thereof, may
not be issued unless after giving ef-
feet to the issue of such additional
stock (a) the total net assets as de-
fined in the charter shall equal $50
per cent of the par amount of the to-
tai preferred stock outstanding. in
Guiding that to be issued; and (b) the
net quick assets as defined in the char
ter shall equal 10 per cent of said
preferred stock; and tc) the average net
earnings as defined in the charter for
the three years preceding, or for the
last preceding year are three times the
dividend requirements on the preferred
stock outstanding after such issue'"