SECURITY OF COTTON MILL STOCKS.

In determining the security of cotton mill stocks, one of the most important factors is the net quick assets, which are not easily determined on account of the present system of making financial statements, but as a rule, in the more conservatively managed, the net quick assets represent about the capitalization. The Bates net quick assets are $200,000 in excess of capitalization; Dwight has quick assets of $1,499,221, as compared with a capitalization of $1,200,000; Pacific has net quick assets of $8,832,000, and a capitalization of $3,000,000; Great Falls net quick assets of $1,460,605, and a capitalization of $1,500,000. In brief, there is dollar for dollar back of every share of capital stock of our prosperous cotton mills, and a far greater percentage of assets than of many railroad and industrial stocks and bonds. Cotton mill stocks are entitled to a place in the lists of savings banks investments, because of their security, and it will not be many years before there is legislation permitting the investment of savings bank and trust funds in seasoned textile mill stocks.

REPLACEMENT VALUES.

It will be seen from one of the accompanying tables that nearly all of our cotton mills are capitalized for a great deal less than the replacement value, notwithstanding their machinery is at a high point of efficiency. It is generally conceded that $17.00 to $18.00 is a fair spindle cost for building a print goods mill today; $22.00 for a fine goods mill, and $25.00 and upwards per spindle for a colored goods mill, and so from these figures one can easily see that the cotton mills are not over capitalized, but on the other hand, are under capitalized. I doubt if any of us would care to duplicate the Pepperell at $10.27 a spindle, the Acushnet at $4.00 per spindle, or the Pacific at $16.67 per spindle, including the woolen department.

DEPRECIATION.

The subject of depreciation has a very important bearing on the value of cotton mill stocks. When EDWARD ATKINSON, the

well known economist, was assistant treasurer of a Lewiston, Me. cotton mill, a large stockholder, noting some changes in a new mill, said, "Can't you finish one end of a mill before the other is out of date?" That is just the condition of the cotton manufacturing industry! Improvements in machinery have been so constant, the inventive genius so progressive, during the past decade, that constant changes in the manufacturing map of the cotton industry have been necessary. Many of our larger mills could provide for these changes from surplus earnings. during prosperous years, while others, which were manufacturing. goods on a closer margin, were obliged to make liberal annual allowances for such improvements.

More business men are ruined by their own bookkeeping than by incompeteney or losses in trade, and the question of depreciation should always be an active issue. I believe that two per cent. on buildings and four per cent. on machinery, for plain goods mills is ample depreciation, providing the necessary repairs are made. A two per cent. depreciation on buildings would provide for any minor charges in construction necessary for the arrangement of new machinery. If five per cent. should be taken as a basis of depreciation on the entire property, at the end of twenty years, if deducted annually from the cost price, the entire cost would be wiped out, but if deducted annually from the depreciated value, thirty-six per cent. of the original value would remain at the end of twenty years.

In 1876, FREDERICK LEIGH said before this Association that the object of depreciation was "to preserve revenue intact and to guard against its being divided in profits; to insure that revenue paid back to capital what it insensibly takes away." He explained that the English system was to charge off ten per cent, on boilers, 71⁄2 per cent. on fixtures, five per cent. on general machinery, and 21⁄2 per cent. on buildings, which would create a sinking fund that would provide for the replacement of antiquated machinery with the more modern. This system has kept English manufacturing plants at the highest efficiency.

The present practice in England is to deduct seven and one

half to ten points a year from the original cost of the machinery. This amount is fixed by the articles of association and assures a credit which provides for loans at low rates of interest. These loans frequently amount to half the capital, and while legally subject to call, are practically permanent loans as long as the plant is preserved by measures such as the above.

The practical meaning of depreciation in connection with the cotton industry is an annual allowance made to cover the inevitable deterioration in machinery and buildings, so that there will be automatically created a fund to replace the machinery or plant when it can no longer be worked economically. The economic definition of depreciation is the paying out of revenue of a sum equal to the amount of capital absorbed in the earnings of revenue. This amount set aside, should not be a mere ledger account, or profit and loss item, but should be present in the form of liquid assets, so that the moment it is required it is available.

In connection with this subject, I wish to call your attention to a project that has never been publicly considered in connection with the textile industry. The United States Steel Corporation, the largest corporation in the country, now has 96,000 stockholders on its books, and of this number, one quarter are employees of that corporation. In discussing this matter with. RICHARD TRIMBLE, treasurer of the United States Steel Corporation, he stated that pursuant to their last offer to employees to subscribe for their preferred stock, there were subscriptions received from 25,089 employees, or about twelve per cent. of the total number employed by that corporation. This stock, sold to the employees, is purchased in the open market by the corporation and sold to the employees under their subscription, and Mr. TRIMBLE said he could see no reason why cotton manufacturing corporations could not adopt the plan with benefit.

This employee-stockholder plan promotes a greater thrift and secures higher efficiency from operatives by the encouraging of

a corporate part-ownership. Not only will it create a nest egg for the period of life when physical activities are curtailed by the operations of nature, but it will develop a greater sense of responsibility, both physical and mental; will create closer relations between employee and employer, and will act as a damper on labor disturbances. As to the securing of this stock, it might be rather difficult at first, but as soon as it became known that the corporation itself was a buyer of its own securities there. would be offerings direct to the mill treasurer, instead of to the general market. I offer this suggestion to those who do not believe in the creation of a broader general market for cotton mill stocks. There is no question in my mind but that we have entered upon an era of greater publicity, of a more intimate relation between employers and employees, and of the necessity for the revision of the rules, regulations and restrictions that have prevented many textile industries from a healthy, economic advancement.

FORM OF STATEMENT TO STOCKHOLDERS.

While securing information for my paper, I was requested by several cotton mill treasurers to work out a form of statement that could be adopted by mills that desired to give greater publicity to stockholders. I suggest a table giving the outstanding capital stock for the lifetime of the corporation; the gross earnings per year; the expenses, interest and taxes per year; the net earnings applicable to dividends; the rate and amount of dividends paid per year; the year's surplus after dividends; the grand surplus to date, and the number of stockholders for each year. I believe such a statement combines all of the essential facts that stockholders are entitled to. The present system of issuing reports to the State Treasuer is ambiguous and unsatisfactory to all concerned.

As an illustration, a large Massachusetts mill stated in their list of assets for the year ending June 20, 1907, that their real estate and machinery had the total value of $500,000. Why! I should have no hesitation in offering $5,000,000, for that