The New York herald., 1922-09-25
oLNNIOL CUNT NM,
BY HENRY L. DoHERTY, President

A'N%N'aSA SSSNNAi0aNAs
temporary and will be eliminated promptly. 1t was
the intention Of the Company that the Deben-
lures should remain outstanding in any considerable
volume for than few years, but their maturity
date fixed at 1865 that the general credit posi-
ton OF the Company would not be impaired because
Of short debt outstanding and to insure to the
Preferred stockholders that the indebtedness would in
no way eopardze their ultimate safety.
The other Debentures are alike in this principle, but
differ the capital stocks into which they
vertibe, the only exception being Series "a, which is
somewhat different in the conversion principle. The
Series "A Debentures were issued IN 1918 IN the
amount, including warrants of S4,21o734, and have
since been reduced by conversion to the negligible bal
ance of S27,2lo.
The remarkable change in investment conditions
which has taken place during the past twelve months
has permitted Cities Service Company to establish salts
factory arrangements under which its principal opcra
ing subsidiaries should longer be obliged to depend
upon the parent corporation for the capital required in
their regular growth and development. On the other
hand they getting back basis Of dividend rela-
ton with the parent company.
case in point is that Of the Toledo situation. For
nearly ten years that subsidiary obliged to call
upon Cities Service Company, from time to time for
money which the Toledo Company could not raise
its own name to enlarge its power station make
other improvements complicated street railway fran
chise problem largely at the bottom of this diff
Guilty. interered with, the credit standing that the
successful electric light and power business would other
wise have enjoyed In due the problem sue
cessfuly solved; the railway was segregated and
assistance by Cities Service Company In particular
the electric light and power division Of the business
now known as the Toledo Edison Company, is able
TO raise any reasonable required in its business
through the ready market which is available for
the sale Of its securities to investors. The bonds
Of the company readily saleable and the demand
for its Prior Preferred stock is indicated by the fact
that there were no tenders on September p the
advertised invitation TO stockholders to sell to the
company S2s,ooo worth at los.
This illustration could be multiplied by the explana-
ton Of the greatly strengthened financial position of
eight other subsidiaries which grouped together to
form the Ohio Public Service Company; by descrip-
ton Of the recent re-nancing of the Empire Gas and
Fuel Company, the principal petroleum producing,
inning and marketing subsidiary of Cities Service Com
pany; BY recounting numerous other similar improve
ments, not to mention plans under way for
greater perfection Of the entire situation.
Not only have these refnancing and refundng opera
tions modified conditions which originally required the
issuance Of Cities Service Debentures, but they have
taken Of than S5o,OO0OO0 of subsidiary in
debtedncss represented by bonds and which have
matured to mature in the of a few years
The schedule OF early maturities of the obligations of
subsidiaries has been reduced what might properly
be regarded small amount In addition, Cities Ser
vice Company has been able through these operations
among the subsidiaries, to obtain repayment Of large
heretofore advanced them, and collect earnings
which formerly the subsidiaries had to retain meet
their own financial requirements. Approximately S2o,-
0ooooo Of new working capital has into the stu
alton whole through these programs Cities Service
Company, therefore, may now turn its attention to
the redemption OF its own funded debt
The Board Of Directors Of Cities Service Company
on August 2S 1922 authorized the officers Of the,
Company to csl for redemption retire all any
part OF any series of Debentures OF the Company at
any time or from time TO time, up to a total amount
Of ten million dollars (Slooooooo) par value Of all
such series Under this policy it has been determined
effect substantial reduction in the near future of
the Convertible Gold Debentures, Series "B" by re-
demption or conversion.
Under the terms Of the agreement dated January |,
1918, and the resolution pursuant which Series "B"
Debenturcs issued, the Company IS required
according to certain conditions FIRST invite tenders
OF these Debentures at prices not exceeding lo2 and
accrued interest.
Inasmuch as the present market value Of these
Debentures and Of the Preferred and Common stock Of
the Company into which such Debentures at any time
may be converted, IS much in Of the call price,
would not be TO the advantage Of the holder Of these
Debentures to tender the at the call price, and
the notice printed above is therefore published only
to comply with the requirements Of the agreements
with the trustee pursuant to which the Debentures
issued.
There is a substantial increase in the principal Of
the original investment, the Series "Bn Debentures
arc quoted on the market at about 1909 Of par but
It would appear that there is no income tax to be
taken into account as the ruling OF the Treasury,
r. D. 2071, Of February 4, 1920, contains this pro-
vision:
"Wherc the OF bond exercises the right
provided for in the bond Of converting the bond into
stock the oblgor corporation such transaction does
not result in a realization Of profit loss the trans
action not being closed for purposes Of income tax
until such stock is sold"
II is our understanding Of subsequent rulings OF the
Treasury Department, particularly Article 1907, that an
owner who sells part Of his stock would subject him
self 70 The payment OF income tax any profit
realized from such sale, after computing all stock at
its market value at the date OF conversion and that
accounting Of tie realization Of profit must be
returned in the income tax report if any portion Of
the converted stocks be sold.
II may be proper TO add In closing that the improve
ment Of the Cities Service Company situation as a
whole by confined 70 the strengthened
credit position outlined above Operating conditions in
all Of the subsidiaries have equally improved in the
last twelve months and many Of the companies are
doing the greatest business in their history
CITIES SERVICE COMPANY.
By HENRy L. DoHERrY, President