STUDIES IN SECURITIES

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Air Reduction Co.

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The Air Reduction Co. now making its record for the second
decade of its corporate life seems established on an annual earning
power basis of well over $20 a share available for dividends and
depreciation. Record in the ten years ended 1925, of $94 a share
aggregate net of which $41 a share was charged off for depreciation
 of plants and amortization of patents, $30 paid in dividends,
and $23 surplus kept in the property, laid a splendid foundation.
In 1926, the first year of its second decade, Air Reduction Co.
earned $20 a share after expenses and taxes, of which $9 was
charged off for reserves, indicating as yet no let-down in the
management’s obviously liberal depreciation policy. It is known
depreciation on property is charged off at annual rates ranging
from 2% to 25% and amortization of patents in sums computed
to entirely provide for them by expiration. Thus as of December
31, 1926 plants were carried net at $6,544,000 after reserves of
$6,889,000, and patents at $588,000 after reserves of $1,988,000.
Clearly the reported earnings for stockholders have been soundly
arrived at after such liberal charge-offs, even admitting the technical
 nature of the company’s business. An eminent chemist and
corporate executive once said: ‘‘You must remember that a hoary
bearded professor in his laboratory with a test tube in hand may
wipe out a million plant investment;’’ and Air Reduction management
 have apparently the same idea. The depreciation policy
has been an outstanding feature of this company.
With plants in over 30 cities and distributing its products from
150 warehouses throughout the country, Air Reduction manufactures
 and sells oxygen, acetylene, nitrogen and other gases,
carbide, and oxy-acetylene cutting and welding equipment used
principally by steel manufacturers, foundries, railroads, shipyards,
automobile makers and repair shops. Additions and acquisitions
(made largely from earnings) have resulted in a well-integrated,
rounded-out, operating industrial. ‘With air one of its principal raw
materials and its manufacturing process largely automatic, ratio
of operating expenses to gross, at 63% in 1926, is relatively low.
Gross business has expanded to $12,735,000 in 1926 from $1,173,000
in 1916. Capitalization has been simplified by conversion in past
years of bonds and preferred stock into one issue, now outstanding
in amount of 211,655 shares of no par capital stock.
As of December 31 last, current liabilities were $1,334,000 and
current assets $7,520,000 (of which $2,803,000 was cash). Excluding
 patents, Air Reduction stock has a sound asset value of
$80 a share with fixed assets carried at ultra-conservative figures.
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