STUDIES IN SECURITIES 
7% or 8%, the basis for Telephone’s rates and dividend looks to be 
solid. 
Explanation of the difference in earnings rate on the property and 
on the stock of course lies in a system capital structure of $921,523, - 
000 funded debt, 81% of which bears 5% or lower interest, $1,263,- 
703,000 stock, $109,660,000 of which being preferred receives fixed 
dividends, and $839,982,000 surplus and reserves, bulk of which 
represents earning assets additional to the par value of the stock. 
Totals include $385,190,000 bonds, $1,064,328,000 stock, and $291,- 
095,000 surplus, reserves, and stock premium realized, of American 
Telephone itself. 
As center of the system, American Telephone owns over 90% of the 
equity in the twenty-four regional Associated Companies, which be- 
ginning 1927 owned and operated 12,816,000 telephones and con- 
nected with 4,758,000 more, such as in rural lines, and which the 
parent company co-ordinates and finances; also, it owns over 98% 
of Western Electric Co. stock, the business of this company being 
90% the supply of Bell equipment to the system, and jointly the 
two companies conduct the great research laboratories; further, 
American Telephone itself operates the long distance lines, includ- 
ing the new transatlantic radiophone and picture transmission in 
this country. 
Besides dividends from subsidiaries and interest on loans, Ameri- 
can Telephone receives a fee for services including the supply of 
telephone instruments which, as included in operating expense by 
different companies, has occasionally proved a political target in 
rate discussions. This charge beginning 1926 was reduced from 
415% to 4% of gross revenues and total amount of $29,850,000 in 
the year is estimated to have just covered actual cost. Likewise 
during 1926 an adjustment of long distance tolls voluntarily re- 
duced revenues $3,000,000 annually. All in all the rate situation 
of the Bell properties is satisfactory and some reductions are prob- 
able where new operating economies warrant. 
A dollar received for telephone service has been divided for actual 
traffic expenses and for dividends and surplus, these being the 
principal varying items, roughly as follows, for the Bell system: 
Cents per Revenue Dollar 
Traffic Expense Net Income 
24 
L926. 
1925. . 
1924... 
1923..%.% 
[922.5% 
LOZ ives visa a mre A 
1920... EE 
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