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 beginning
 1927 owned and operated 12,816,000 telephones and connected
 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, including
 the new transatlantic radiophone and picture transmission in
this country.
Besides dividends from subsidiaries and interest on loans, American
 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 reduced
 revenues $3,000,000 annually. All in all the rate situation
of the Bell properties is satisfactory and some reductions are probable
 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
101"

~

‘
?

A
i

|

1
7

121