Cash for Bonds

Cash-on-hand is a pretty item on any balance sheet, but if it is not earning a fair return for stockholders they are apt to question the management, hint for a special dividend. Standard Oil of New Jersey announced last week it would employ $30,600,000 of its cash by calling one-quarter of its $120,000,000 bond issue. The bonds for retirement will be drawn by lot, paid off Feb. 1 at 102%. This is the second time the big oil company has used a large amount of cash from earnings to reduce its indebtedness. The first payment was made in 1927 when the preferred stock was retired, about the same amount of cash-on-hand used.

The bonds pay 5%, mature in 1946. President Walter Clark Teagle explained that, as one-quarter of the bonds' life had passed, it was wise to reduce the amount outstanding by the same proportion. Next year the company will save $1,500,000 on its fixed charges through this operation. Standard's financial position had to be strong to make this move. The last balance sheet, issued on Dec. 31, showed current assets of $730,000,000 against current liabilities of $169,000,000. Of the current assets $46,000,000 were in cash, $179,000,000 in marketable securities. The cash position has probably improved since the end of last year through a reduction of inventories. The decision to retire bonds with cash was important to the industry because it showed the biggest company in the business was consolidating its position, not planning to expand. This was the opposite of Standard's policy in 1921.

P. Lorillard Co. duplicated Standard Oil's move last week, announced it would retire $13,758,000 of its $33,679,000 funded debt Jan. 1. The called bonds are those remaining from an issue of 5 1/2% ten-year debentures sold in 1927. The saving to the company will be about $756,000 annually, without adjusting for sinking fund operations. Lorillard's balance sheet as of Dec. 31 showed an exceptionally strong position. Current assets equalled $73,000,000 of which $17,000,000 were in cash, current liabilities $1,474,000. Famed Lorillard products: cigarets--Old Gold, Murad, Egyptian Deities; cigars--Rocky Ford, Muriel; little cigars--Between the Acts, Royal Bengal.

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