EXHIBIT No. 1114 PROFITS DURING THE WAR Except where otherwise indicated, the source for this material is the Report of the Federal Trade Commission Regarding Profiteering, Senate Documents, vol. 20 (65th Congress, 2d session), Document No. 248. Similarly, unless otherwise indicated, matter in quotation marks is from that report. Steel Following are data on the profits of the United States Steel Corporation:1 1 Source: Report on Analysis of Earnings and Disposition Thereof, United States Steel Corporation, prepared for Director General of Railroads by Washington E. Lowe, C.P.A., James L. Dohr, C.P.A., July 5, 1919, Exhibit "F", columns 3, 4, 5, and 13. Earnings in column A are reported as adjusted by the accountants, who added to the net earnings reported by the United States Steel Corporation the following items improperly deducted in the corporation's statements: Interest on bonds, etc., of subsidiary companies; inventory profits, intercompany; sinking funds on subsidiary bonds; and excess depreciation. [Source of the following: F.T.C. Report, p. 9] In 1918 some mills whose processes start with steel furnaces complained that the Government prices were too low for them. "A special examination of their profits by the Federal Trade Commission showed that in almost every case these objecting mills were enjoying unusual returns. The following table of percentage of return on investment in 10 mills (of this class) will show the profits in 1917: The Federal Trade Commission reports the following profit data of 21 copper companies and notes that they include a large proportion of high-cost producers: 1913.. 1917.. Range of profits Average profit 1- 56% percent of investment 11.7% 24.4 The profits used in these computations do not include Federal income or excessprofits taxes and therefore represent sums actually retained by the companies for addition to surplus or dividends. Wartime profits of four copper companies [Source: Select Committee on Expenditures in the War Department, [Graham Committee] Expenditures of the Ordnance Department. H. R. (66th Cong., 3d sess.) Report No. 1400, p. 94. Hearings before the Select Committee, Serial 1, vol. 3, p. 678] While the Federal Trade Commission reports no unusual profits in the zinc industry, it excepts the New Jersey Zinc Co. Its percentage of net earnings and dividends follow: The Commission notes that the company's profits on common zinc are very low. Those on grade A zinc, while high, are due to the fact that the company possesses a natural monopoly of a certain high-grade ore. Nickel [Source: F. T. C. report, p. 11] The International Nickel Co. produces practically the entire output of nickel in this country. The figures for its profits and dividends are: It should be added that the increase in profits was due to the increased war output rather than to advances in price, for the company maintained prices on a prewar basis. Sulphur [Source: F. T. C. report, p. 11] During the war all the sulphur in this country was produced by the Freeport Sulphur Co. and the Union Sulphur Co. In the first half of 1917 the Union company's costs were $5.73 per ton. The average realization of the Union company during this period was $18.11 per ton, making a margin of $12.38 per ton. By June 1918 costs increased but did not reach $10 per ton, while sulphuric acid manufacturers were paying about $25 per ton and some as high as $35, making a margin of over $15 per ton for the sulphur company. Data for Freeport Sulphur Co.: For the 11 months ending October 31, 1917, the company's balance sheets show an operating profit of $4,301,310 or 236 percent on investment. The company's balance sheet on Nov. 30, 1916, shows dividends declared of $925,000. The company's balance sheet on July 31, 1917, shows dividends declared of $1,850,000. The company's balance sheet on Oct. 31, 1917, shows dividends declared of $2,600,000. Surplus: Nov. 1916, $1,254,000; Oct. 1917, $2,543,000. Lumber [Source: F. T. C. report, p. 12] In 1917, 48 southern pine companies made an average profit of 17 percent on the net investment. This is unusually large for the industry, for the average profit in 1916 was only 5.2 percent. In 1917, 47 percent of the footage of the companies covered was produced at a profit of over 20 percent. The margin of profit per thousand board feet in 1917 was nearly double that in previous years, the figure being $4.83, as compared with $2.11 in 1916. The 1917 figures are after deducting for Federal income and excess-profits taxes, and are the sums actually available for additions to surpluses or dividends. Coal [Source: F. T. C. report, pp. 12-13] The bituminous coal operators in 1917 had much larger margins than in previous years. The margin is the sum actually received by the operator for coal sold less its f. o. b. mine cost. The increase is illustrated by figures for 23 typical bituminous coal companies in the central Pennsylvania field. Data secured by the Federal Trade Commission for 106 refining companies for the first quarter of 1918, supplemented in certain cases by returns for the second six months of 1917, indicate that the average profit in the oil industry was about 21 percent on the investment. This is a considerable increase over the return for pre-war years when the average profits for 1913, 1914, and 1915 were 15 percent on the investment. In 1917 over 50 percent of the estimated production was produced by companies having a profit of over 20 percent. The following table shows the percentage of net earnings on investment for a series of years: Estimates based on figures for last 6 months of 1917 or first quarter of 1918. 1 Six months period, July-December 1917. Last six months of 1917. Meat packing [Source: F. T. C. report, pp. 14-15] An exposition of the excess profits of four of the big meat packers (Armour, Swift, Morris, Cudahy, omitting Wilson as not comparable) is given in the fact that their aggregate average pre-war profit (1912, 1913, and 1914) was $19,000,000; that in 1915 they earned $17,000,000 excess profits over the pre-war period; in 1916, $36,000,000 more profit than in the pre-war period; and in 1917, 868,000,000 more profit than in the pre-war period. In the three war years from 1915 to 1917 their total profits have reached the astounding figure of $140,000,000, of which $121,000,000 represents excess over their pre-war profits. These great increases in profits are not due solely to increased volume of business. The sales of these companies in this period increased 150 percent, much of this increase being due to higher prices rather than to increased volume by weight, but the return of profit increased 400 percent, or two and one-half times as much as the sales. The profit taken by Morris & Co. for the fiscal year ended November 1, 1917, is equal to a rate of 18.6 percent on the net worth of the company (capital and surplus) and 263.7 percent on the three millions of capital stock outstanding. In the case of the other four companies the earned rate on common capital stock is much lower-from 27 percent to 47 percent-but the reason for this is that these companies have from time to time declared stock dividends and in other ways capitalized their growing surpluses. Thus Armour in 1916 raised its capital stock from twenty millions to one hundred millions without receiving a dollar more of cash. If Swift, Wilson, Cudahy, and Armour had followed the practice of Morris in not capitalizing their surpluses (accumulated from excessive profits), they too would now show an enormous rate of profit on their original capital. 'Rates of profit earned by these five companies in war years compared with the pre-war average, based on net worth (capital and surplus) and on common stock, are as follows: 1 Figures not available. Armour Swift Percent Percent 8.3 21.0 13.5 (1) 2 16.8 26.7 14. 1 18.7 2 27.1 47.2 1 Foreign business, not included, would undoubtedly raise percentages. "The independent packers, as measured by results compiled for 65 of the largest of them, earned during 1914, 1915, and 1916 a rate of profit as high or slightly higher than that earned by the big packers in those years." |