The New York herald., 1922-09-25
Dated September %, 1922.
STATEMENT TO ALL SECURITY HOLDERS
REGARDING CITIES SERVICE CON-
PANY DEBENTURE BONDS;

PANY DEBENTURE BONDS:
The above notice of call for redemption is the first
nee the adoption by Cities Service Company Of par
icpang convertible Debentures vehicle OF finance,
md the Company deems it duty again to inform the
holders Of its securities Of the nature Of these Deben
and to call attention to the fact that il IS not to
he advantage of the holders to make tenders as these
Debentures have much higher market value. The above
notice is published simply to comply with the terms Of
the agreements with the trustee In working out the
provisions of these bonds the aims of the Company
First, to create an attractive security which would
be eagerly sought by investors This was primarily
accomplished by making the issue convertible into stocks,
with additional proht-sharing feature through the
accrual Of Common stock dividends which
lated and added to the conversion rights
Second, to create bond which would not lessen
he atractveness of the Preferred stock invest
nent security, because, while ranking ahead of the
stock nevertheless it is not mortgage the assets Of
the Company This was accomplished by making the
bond Of long maturity (o6o) and by accumuating div-
dends on the Common stock in an amount sufficient
easonaby insure the early retirement of the bond In
,ther words, 1t would be apparent to anyone studying
he bond that il temporary obligation only, it
eing the interest of the Company to retire it at
he earliest possible date
Third, to create bond which the Company could
onvert at any time it was advantageous to do so and
it the time to entirely control these conversions
BY making the provisions Of the bond such that 1t
would always be to the interest Of the holder to retain
participation feature Of the conversion right the holder
Of the bond getting all of the dividends from the Com
stock accumulated for his benefit plus interest
the full par value of the bond For instance, the OBJ
bondholder gets in addition to the dividends on the
Common stock, SO interest, and after converting
he loses this $40 interest the bond and gets in lieu
thereof 6eo interest on $500 par value Of Preferred
tock, or $4S.
Cities Service Company as the owner Of the capital
ock of approximately hundred operating subsid-
ries wiz
bout equally divided between public utilities and the
petroleum industry, has well diversified its invest
ments that its earnings remarkably stable Under
normal conditions the subsidiaries should be able
raise substantially all Of the capital for their growth
md development by the sale of their own securities
investors, but under the abnormal conditions which
have prevailed, this has not always been true When
nubic utility securities not in high favor with
investors, during the period, and when petroleum
securities not generally appreciated by investors,
which the prior TO 1916 Cities Service Com
aany compelled to supply capital for these prop
rites When subsidiaries able 10 raise capital for
heir requirements through the issuance and sale to the
oubic Of their securities then Cities Service Com
oany receives earnings from widely diversified business
Enterprises excepting those which IS assisting through
he development stages.
Thus Cities Service Company is in the position Of
investor in Fundamentally tho most essential indus
res, widely distributed throughout the United States
nd extending into Canada and Mexico, well other
foreign countries but occasionally il banker
FOR Of its operating companies to tide them
The direct entry Of America into the world in 1917,
complex financial condition prevailed. There
urgent demand for additional public utility service
particularly electric power together with Governmental
nsistencc upon maximum production Of OIL but inves-
tors reluctant to furnish the necessary capital by
the purchase Of securities Of individual operating
poratons There remained however strong and per-
scnt inquiry for securities representing wide degree
Of diversity and high degree Of safety provided the
investor might also receive conversion right and
participation in profits well fixed rate Of interest
study Of all OF the factors involved resulted in
the adoption by Cities Service Company Of prin-
ciple Of financing which would serve the purpose of
raising the capital by the creation Of temporary
indebtedness which would automatically be converted
into capital stock In effect se-luuidating bond
devised-the Cities Service Convertible Debcnture.
maturity date, differing only in their interest rate
and terms Of conversion into capital stocks and are
distinguished in this respect BY lettered series.
The principle involved best explained by dcscrip-
ton Of the conversion feature Of the Series B issue.
Each 500 Debenturc "B" IS convertible into $50 par
value OF Cities Service Company Preferred stock and
$40 par value Of Cities Service Company Common stock
the holder in addition receiving at the time Of
sion an amount equivalent dividends on this Com
mon stock the full from the date of issue Of
the Debenture Therefore the holder regularly collects
the face rate Of % interest his Debenture while
there is additional income accruing at the full dvi-
dcnd rate certain amount of Common stock This
accumulation continues to build up for distribution only
az the time Of conversion It should be noted that
whereas tne 10 interest payment 70 the Deoehturc
holder Is prior obligation Of the Company, ahead Of
its Preferred stock the additional earnings above the
interest rate at the expense Of the Common stock
holders.
II is not to the advantage Of the holder Of the
Debenture 70 make conversion because his income viii
thereafter be reduced After conversion the holder OF
a $lO0 "B" Debenture continues TO receive the
dividends the Common stock, acquired through
version that formerly accrling in his favor but
instead Of receiving 81 100 annually in interest he there
after receives % dividend $50 par value Of Pre-
ferred stock This amounts to reduction Of the income
his investment TO the extent Of s. year There
fore, il is not in the interest OF the Debcnture "B"
holder convert into stocks until he is required 70 do
by the call Of the issue for redemption which auto
macally terminates his right to convert in thirty days
This places the Company in the position Of choosing
the time when the Debentures to be converted into
stocks.
This arrangement insures the carly retirement Of the
bonds, otherwise, if allowed to for many years