October i, 1901.] 



THE INDIA RUBBER V^ORLD 



MR. FLINT ON THE RUBBER COMBINATIONS. 



THE testimony of Mr. Charles R. Flint, in relation to 

 trusts and industrial combinations, given some time 

 ago before the United States Industrial Commission, 

 which is conducting a series of inquiries by direction 

 of Congress, appears in full in the latest volume issued by the 

 commission. Mr. Flint, during the two days devoted to his 

 examination, was questioned in regard to the methods of or- 

 ganization and conduct of several large industrial combina- 

 tions with which he is or has been connected, but he was 

 regarded by the commission particularly as representing the 

 rubber industry, and much of his testimony bears upon the 

 United States Rubber Co. and the Rubber Goods Manufactur- 

 ing Co. In connection with his statements appear some docu- 

 ments of interest, as representing the work of combining the 

 rubber companies involved, preliminary to the filing of articles 

 of incorporation. Below are given several excerpts from Mr. 

 Flint's testimony, sometimes in his own words, and in other 

 cases in summarized form : 



PREFERRED STOCK AND COMMON STOCK. 



In forming the two rubber corporations above mentioned 

 the same plan was observed in the apportionment of the capital 

 stock, as between " preferred " and " common." Account was 

 taken of the appraised value of (i) plant, machinery, tools, 

 and fixtures; (2) merchandise, raw, wrought, and in process; 

 (3) manufactured goods; and (4) receivables guaranteed by the 

 vendors. From the total values were deducted the liabilities, 

 if any, and preferred stock was issued for the net result. In 

 other words, the preferred stock represented tangible assets. 

 In case only a portion of the whole interest in any manufactur- 

 ing property was acquired, a pro rata amount of preferred 

 stock was issued therefor. 



" Common stock was issued to represent the value of good 

 will, patents, and trade marks ; and patents are of very great 

 value," said Mr. Flint, in referring to the Rubber Goods com- 

 pany. The original memorandum of agreement of the United 

 States Rubber Co. stated : "The common stock shall be issued, 

 among other things, to represent the increased earning capacity 

 by reason of the consolidation of the interests acquired." 



The amount of common stock issued by the Rubber Goods 

 company was proportionately larger than in the case of the 

 United States company. Mr. Flint remarked: "In the case 

 of the United States Rubber Co. it was provided that the 

 amount of common stock should be substantially equal to the 

 issue of preferred, but the United States Rubber Co. had com- 

 paratively few patents ; and while their trade marks are of great 

 value, the trade mark on a shoe is not as valuable as a trade 

 mark on a tire, because you can get home with a leaky shoe, 

 and you can't with a punctured tire." 



Referring again to the value of patents, Mr. Flint said : " The 

 Rubber Goods Manufacturing Co. manufactures ten different 

 classes of rubber goods. In some cases, being protected by a 

 monopoly under a government patent, they have 100 per cent, 

 of the business. - - - They have patents in certain kinds of 

 tiling— interlocking tiling — and also on certain kinds of tires. 

 In other lines they manufacture only from 25 to 75 per cent." 



The American Chicle Co., which Mr. Flint also helped to 

 organize, was discussed at some length. In that case, the pre- 

 ferred stock was §3,000,000 and the common stock $6,000,000. 

 Mr, Flint said : "There was not a formal appraisement, from 

 the fact that the main item of value was the earning capacity. 



- - - The preferred stock in round figures was three times the 

 amount of tangible assets. - - - It has been shown that the 

 capitalization of the American Chicle Co. was on a conservative 

 basis from the fact that the company has paid 8 per cent, on 

 its common stock, and the market price of the common stock, 

 which is to a large extent an indication of its character (as in 

 this instance it is not subject to manipulation), is $80 per 

 share." 



Mr. Flint thought that, taking the field of industrial combi- 

 nation as a whole, " there have been many cases of overcapital- 

 ization that have been very prejudicial," pointing to " the wis- 

 dom of greater care in bringing about these organizations. 

 Speaking generally as regards the capitalization of these indus- 

 tries, it seems to me that care should be taken to protect the 

 senior securities, which are regarded as investment securities. 

 The common stock, though Its amount may appear large, is 

 well known as a rule to represent good will. The word 'com- 

 mon ' is engraved in big letters across the face of it, and people 

 in general have noticed that it is not as a rule investment se- 

 curity at this time. I have no question but that in time many 

 of these industrial securities — many common stocks to-day 

 might be classed as speculative securities, — will become invest- 

 ment securities, as our railroad shares that were originally is- 

 sued for good will are to-day. In general I have no doubt 

 that the public have been benefited by these capitalizations. 

 They are, in my judgment, receiving double the income that 

 they would get if these industrial securities had not been 

 created. Formerly the great manufacturing interests were in 

 a few hands, and to day there has been a wide distribution." 



ECONOMIES EFFECTED BY INDUSTRIAL COMBINATIONS. 



Questioned on this point, Mr. Flint said : " In general, cen- 

 tralized manufacture permits the largest use of special ma- 

 chinery. - - - For example, in the case of the manufacture of 

 rubber goods, an important branch of the business is the pro- 

 duction of what is called the reclaimed rubber. Instead of the 

 rubber being reclaimed in each factory or at the principal fac- 

 tories, that business has been centralized in one factory, and 

 the percentage of the cost of reclaimed rubber has thereby 

 been reduced about 20 percent. " [Mr. Flint was asked whether 

 this applied to both rubber companies, and replied :] " Yes ; but 

 to a larger extent to the United States Rubber Co., which has 

 a reclaiming plant at Naugatuck." 



Mr. Flint said on another point: "In recent calculations we 

 have found that the percentage saved in the cost of production 

 by running a factory full time instead of half time is from 4 to 

 8 per cent," and he thought that centralization of industries had 

 led to the more regular running of factories. 



Economies had also resulted from making direct sales — di- 

 rect distribution. 



Q. In the case of these companies that you have been speaking of, 

 has there been any material saving by reducing the number of traveling 

 salesmen? — A. Yes. 



Q. In which companies? — A. Well, in most cases there has been con- 

 siderable saving, and in some cases, perhaps they have gone a little too 

 far in that direction. That is, they have undertaken to secure too great 

 economies and have thereby reduced the efficiency of the selling depart- 

 ment. 



Q. And reduced the sales in proportion ? — A. Reduced the sales. 



Q. Can you give us any more definite data with reference to the num- 

 ber of traveling men whose services have been dispensed with in the 



