Cash & Standard

The Federal tax on undistributed corporate earnings might have grieved Business less had it come a year later than it did, because it so happens that working capital is the particular need of industry in 1937. This was made abundantly clear in the first statistical study of the subject published by Business Week last April at the suggestion of Vice President Fenton B. Turck of American Radiator & Standard Sanitary Corp. By the end of last year booming sales had necessitated enormously bigger inventories and inventory costs had jumped with the prices of raw materials. Industrial payrolls, furthermore, had swollen 30% since 1934. Needing cash to meet his current obligations and more cash to pay for repairs and expansion, the average manufacturer hated like sin to give the Government a cut of his profits. Result was that last Christmas U. S. Business showered down the biggest crop of dividends and extra dividends in years.

It was not love of their stockholders which moved many a board of directors to pay out as much as 99% of earnings in dividends rather than 27% in surplus profits tax. Contented stockholders would buy more stock, return to their company as much cash or more than they received in dividends. One of the first big companies to go the whole hog on this method of making everybody but the Collector of Internal Revenue happy was Sears, Roebuck & Co., which paid out approximately all it earned to its 34,500 stockholders, then proceeded to sell them $43,000,000 worth of new stock (TIME, Nov. 9). Since then the necessity to replenish working capital funds depleted by year-end dividends has been a big factor in starting up belated activity in new capital financing.

In its annual report last week (see col. 1) the Federal Reserve Board noted that in 1936 securities issued to obtain new capital amounted to $1,200,000,000, or more than the aggregate for the previous four years combined. During the first five months of 1937 new corporate capital financing totaled $526,187,000 compared to $310,709,000 in the same period of 1936. Notable issues: by Johns-Manville, $10,000,000 in common stock; by Pennsylvania Railroad, $52,000,000 in debentures; by Burlington Mills, $3,150,000 in common stock; by Fruehauf Trailer Co., $1,500,000 in debentures; by Wilson & Co., $6,500,000 in debentures; by Inland Steel Co., $10,000,000 in bonds. June underwritings included a $75,000,000 debenture issue by Socony-Vacuum, $15,000,000 in Safeway Stores debentures.

Latest addition to this list was Standard Brands which last week offered through a Morgan Stanley & Co. syndicate 200,000 shares of $4.50 cumulative preferred stock at $95 per share. It happened to be Morgan Stanley's first flotation of preferred stock in its two years of underwriting history.*

This was not unfitting, because Standard Brands like Morgan Stanley is a product of the House of Morgan. It was promoted by J. P. Morgan & Co. in 1929 as a merger of Royal Baking Powder Co., Chase & Sanborn, Inc., E. W. Gillett Co., Ltd., Canadian baking powder manufacturer, Widlar Food Products Co. and the Fleischmann Co., in which Morgan had an interest. Greatest asset of the company was the marvelous Fleischmann distribution system, by which yeast cakes are delivered fresh every day to 330,000 U. S. bakers and retailers. And along with the Fleischmann system it got Fleischmann's president, able, button-mouthed Joseph Wilshire, who nearly became a fireman but landed in the yeast business.

Red-headed "Jack" Wilshire considerably prolonged his school days in Cincinnati, Ohio, by spending many of them in an engine house at Third & Lawrence Streets. He never got over a love for shiny harness and fast teams of horses. With the Fleischmann Co. from 1898 until its merger in 1929, he helped build up a national service organization which vied with the Post Office Department in regularity and speed of delivery. By the time motor trucks had displaced Fleischmann's smart delivery wagons, Joseph Wilshire was rich enough to own his own stables at Greenwich, Conn., begin a collection of horse-drawn vehicles which now includes a road coach, two body brakes, a mountain brake, two mail phaetons, two basket phaetons, a roundabout, a sailor wagon, a tandem, cart, a gig, two four-seated carriages, a meadowbrook cart, two wheeled pony carts, a natural wood depot wagon, a double sleigh, three cutters.

Mr. Wilshire's problems as president of Standard Brands have been far from racking. About all Depression did to the company was to make it take a reef in its dividends, which were reduced from a bountiful $19,000,000 in 1930 to a low of $11,875,000 in 1935. Last year earnings rose to $14,471,000, and despite a rise in costs partly exemplified by an $8,000,000 increase in inventories, Standard paid dividends of $13,772,000. For working capital Mr. Wilshire then borrowed $8,700,000, principally from J. P. Morgan & Co.guar-anty Trust Co. and Bankers Trust Co. Out of the company's $18,341,950 proceeds from the present issue of preferred, these loans will be repaid.

*Second, announced this week, will be a long-awaited issue of 500,000 shares of preferred in E. I. du Pont de Nemours & Co.

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