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Strangely enough, if you will turn to page 36, and the case is 36, the warehouse fiscal year ended on May 3ĩ, 1959. The average CCCrated capacity of that elevator was 6,856,000 bushels.

(The document referred to will be found in the appendix at p. 496.) Mr. SCHMIDT. This is No. 36 under "Terminal Warehouses?

Mr. THES. Yes, sir. There are only seven terminals examined by the GAO and I happen to know all about the examination they made in our office and took exceptions to some of their findings. How they reported it, sir, I don't know. They show a per warehouse record in cents of 7.2. They allow half a cent allowance for shrinkage, and the total allowance then comes up to their idea of cost of 7.7. They used the UGSA rate theoretically of 16.8, which was not the exact return on our warehouse as our reports show to the GAO.

The amount of estimated profit amounted to 9.1 and they come up with 118.2 percent of profit. When I discovered this, sir, I had our auditors, Arthur Young & Co., go into our statements.

I am presenting this now to the record. This is the date of May 20 and I shall read the letter addressed to me as president of my company :

In accordance with your instructions we have reviewed the report made by the General Accounting Office to the Special Agricultural Investigating Committee, and in particular the operating information which related to warehouse No. 36 and which you have identified as being the operation information with respect to the Simonds-Shields-Theis Grain Co. The foregoing information as shown on page 36 of the report has been checked with the records of the company and with our audit report for the year ended May 31, 1959, and appears be substantially correct.

However, it is our opinion that supplementary information should also be provided to fully complete the operating statistics. We have accordingly prepared the attached statement using the information which compared on page 36 of the above-described report and supplementing it with certain additional information relating to Federal income taxes, net profit, and return on equity.

On the basis of the supplementary information it will be noted that the net profit per bushel after income taxes amounted to 4.41 per bushel and that the return to the company on the basis of the equity capital employed in the business amounted to 11.67 percent.

That, Mr. Chairman, is what I talk about as profit. The return on our equity investment.

Mr. SCHMIDT. Mr. Theis, looking at page 36, exhibit 36, do you agree with the GAO contention that your direct cost of storage is 7.2 cents a bushel ?

Mr. This. Yes. We go along with them that far.

Mr. SCHMIDT. Do you agree with their allowance of shrinkage and deterioration of a half cent a bushel ?

Mr. THEIS. No, sir, I don't. But that is what they put down here. Mr. Schmidt. You don't agree with that. What should it be?

Mr. THEIS. To tell you the truth, I don't know until the grain is loaded out.

Mr. SCHMIDT. I am going to ask Mr. Brooks to hand you a letter dated November 13, 1959, from Simonds-Shields-Theis Grain Co., Kansas City.

Mr. Turis. I am very familiar with that letter. It was written by my son.

Mr. SCHMIDT. I would like to read that letter over the signature of W. G. Theis.

Mr. Theis. My son.


Mr. SCHMIDT. This is to GAO.

whereas our figures, taking into consideration proper and accepted methods of accounting, denote a storage cost of 0.717 cent per busheland GAO has used 7.2 which would be slightly in excess.

We have taken the opportunity to show your accountants additional figures from our own survey, and with direct reference to storage costs, we show 0.164 cent gross income.

They show 16.8.
Mr. THEIS. Correct, sir.

Mr. ScHMIDT (reading): 0.0717 cent cost before taxes, leaving an earned gross before taxes of 0.092 cent. And GAO shows 9.1 cents.

Mr. THEIS. Yes. I follow you. Mr. SCHMIDT. Your statement shows a little higher gross than what GAO does.

Mr. THEIS. Just a fraction.
Mr. SCHMIDT. Then you would


that GAO was even more liberal than what you requested in this letter of November.

Mr. THEIs. It was so small. We took exceptions to tlıree different things.

Mr. SCHMIDr. Mr. Theis, what I am asking you now if you said this is what your costs were, because this is what GAO has shown here. You stated this is what your costs were in November, is that right?

Mr. THEis. In addition to that we took great exception to the fact that they do not allow, which is legal, the 5-year writeoff on a certain amount of capacity that we have for amortization.

Mr. SCHMIDT. I believe the record shows they did accept part of your

Mr. THEIS. That is very nice of them. I didn't know that.

Mr. SCHMIDT. You went ahead in your letter saying, “Using the factors of 52 percent Federal and 2 percent State income tax, this is an expense of 5 cents per bushel.” So you included your Federal and State income taxes as an expense. To continue, “And leaves the net earned on storage 0.042 cent per bushel.” That would be after taxes ?

Mr. THEIS. The audit shows 4.41. Mr. SCHMIDT. It shows a little higher than what this statement says, after taxes. My point is, the figures given in your letter of November 13 certainly substantiate the figures given by GAO.

Mr. Theis. As far as they go, yes, but I am talking about profits on your equity investment, and that shows

Senator SYMINGTON. You figure 11 percent.

Mr. THEIs. Yes, instead of 118. I have here in my hand the Kansas City papers on this subject. The headlines here are May 12. “Big Profits in Grain Storage. Assistant GAO Director Tells Senate Panel of a Check of 57 Warehouses".

Senator SYMINGTON. I want to ask you one question. Is your 11 percent that Young shows after taxes or before taxes?

Mr. THEIS. Yes, sir, after taxes.
Senator SYMINGTON. Thank you.

Mr. Tuwis (reading) : “Big Profits on Grain Storage, General Accounting Office Say They Ranged Up to 265 Percent."

Those are the lead things we picked up in your newspapers all over the United States. I am not blaming this committee, Senator. I am blaming what comes out and what the press picks up and what the people think about it.

My friends and your friends in Missouri-
Senator SYMINGTON. Is there any inaccurate statement in those ?

Mr. THEIS. The only thing is they talk about profits all the way through here.

Senator SYMINGTON. Do you think it is good to figure your profits before taxes when you come to a hearing of this character, or after taxes? Do you think it is better to figure after taxes?

Mr. Theis. You know as well as I do what your profits are in


Senator SYMINGTON. We have got to have a vote. That was a vote bell. So it is 25 minutes of 1. We will reconvene, say, at 1:30.

Mr. Theis. It suits us fine. Thank you very much.

(Whereupon, at 12:35 p.m., the subcommittee recessed, to reconvene at 1:30 p.m., the same day.)


Senator SYMINGTON. The hearing will come to order.
Mr. Theis, will you proceed with your statement?



Mr. THEIS. Mr. Chairman, could I ask about how much time would suit your convenience! ?

Senator SYMINGTON. Well, we will suit yours.
Mr. THEIS. I thought we could cut out some of this.
Senator SYMINGTON. We want you to go ahead.
Mr. THEIS. That is very nice of you.

Mr. Chairman, I think I stopped at the top of page 13 beginning with the second paragraph. I will start again.

Very little, surprisingly little, in fact. The grain men in our association, and their banks, knew quite well that their firms were earning nothing like those profits, but we also knew that the public had been led to believe quite differently.

Therefore, in the closing moments of the Department of Agriculture's town-hall meeting in Kansas City, a director of one of our member firms made a proposal that our terminal elevator firms submit in confidence to a certified public accountant, a complete record of gross income, net income before taxes, income taxes, and net profit-taken directly from each firm's annual statements—for each of the years since 1950. He suggested that each company's net worth be given for each year in order to compute the actual percentage of profit on a consolidated basis for the terminal elevator industry.

Perhaps you have come to understand that this is a fiercely competitive business, and with many firms family-owned or very closely held, we are not accustomed to divulging income or profit figures to anyone but our banks and the Internal Revenue Bureau. Nevertheless we realized that this would be the only possible way to dispel the public notion of huge grain industry “profits.”

Mr. Chairman, I am pleased to say that our association has done exactly what that member suggested. I have here with me a reportand submitted yesterday to counsel-on the actual earnings of terminal elevator grain firms among our membership as described below. It presents the accurate financial picture of more than 560 million bushels of capacity of the proprietary firms which are engaged primarily in the merchandising and storage of grain.

I mentioned earlier that our membership represents approximately 1 billion bushels of elevator capacity. It was necessary to eliminate from the study more than 170 million bushels of 10 cooperative members because of the different tax payment and patronage dividend practices they employ. Another large segment of our membership consists of firms primarily engaged in milling or other forms of processing whose grain merchandising and storage activities are integrated with their processing functions, and therefore could not give a true picture of their storage processing operations. Some others could not properly be included because their operating companies have very small net worth and the earnings from storage and merchandising go to the owners of the warehouses under lease to the operating company. Thus, about 600 million bushels of capacity is pertinent to this survey.

It was conducted by the Kansas City branch of the nationally known auditing firm of Arthur Young & Co. Forms were mailed to each member in the various qualifying categories. Member firms supplied the requested information for each of the years 1951 through 1959.

The average percent of return on net worth of all the companies, weighted according to proportion of total capacity, varied from a high of 11.1 percent in 1951, to a low of 5.3 percent the following year, was 8.1 percent in 1959 and comes out for the entire period to an average of 7 percent.

Mr. SCHMIDT. Mr. Theis, the percentage figures that you are using there, would they be after taxes? Is that right, sir?

Mr. THEIs. Yes, sir. Mr. SCHMIDr. Now, the survey which you furnished us from Arthur Young & Co. I would like to ask you about, sir. It starts out with the number of firms reporting here.

Mr. THEIS. Yes, sir.

Mr. SCHMIDT. Thirty-six. The covering letter recites that 69 questionnaires were mailed out. Thirty-three firms did not reply. Now, you have in your columns, number of firms reporting and you have the elevator capacity. The total of all these 33, right?

Mr. THEIS. That is right.

Mr. SCHMIDT. And you have the gross profits. That gross profit, does that represent the profit made in all operations of the companies, all aspects of them?

Mr. THEIS. Yes, sir, it does, of course.
Mr. SCHMIDT. Not related to storage alone, then?
Mr. THEIS. No.

Mr. SCHMIDT. And the net income before taxes would also be from all of their operations and not segregated as to storage ?

Mr. THEIS. That is correct.

Mr. SCHMIDT. Let me ask you, what percentage did this survey show, what percentage of this is attributable to storage!


Mr. THEIs. I should like to start out, Mr. Schmidt, by reading the letter that I addressed to all of our members under date of April 12, 1960, as president of the association.

This is an urgent request for your participation in an important survey of our industry. As you may know, the National Grain Trade Council, the Grain & Feed Dealers National Association, the National Federation of Grain Cooperatives have accepted invitations from the Symington committee to testify at an early date, as yet undetermined. The witnesses have not yet been selected but may be expected to be named this week, and preparation of their material must be undertaken at once.

The publicity following the early meetings of the Symington committee have left the public with the erroneous impression that the storage business is a highly lucrative enterprise with profits of 52 to 167 percent. We know that this is not so, and we believe that we have an opportunity to prove it in the upcoming hearings.

We propose a compilation of our industries' total net income for a series of years ending with the fiscal year of 1959, as well as a 9-year average, and this questionnaire is going to some 65 of our membersactually it went to 69— with the exception of milling concerns whose grain storage records are integrated with milling operations, and also our cooperative members, as they will handle their own type of presentation.

This information should be rather quickly taken from your annual statements and should include the entire information of the company taken as a whole. The forms enclosed set forth the information needed to complete a study. It will be tabulated and consolidated by the national accounting firm of Arthur Young & Co. so that whoever is selected as the spokesman for our group, either through the National Grain Trade Council or directly through our association, will be prepared to put the record straight.

Time demands that we make this a crash program. Please give us your help in supplying the information immediately on the enclosed form and return one copy to Arthur Young & Co. in the self-addressed envelope. Your individual figures will be kept strictly confidential by Arthur Young & Co. and they will issue to you and our association a consolidated statement of all of our companies reporting.

We trust it will be 100 percent. Thank you very much for your usual fine cooperation,

This letter, together with a list of our members was given to Arthur Young & Co. They prepared the forms which I have here which resulted in their reports. I sent them with this

letter, with an enclosed envelope to be returned to Arthur Young. They informed me that we must have made a miscalculation of some of the people whose business is so integrated in milling operations or feed operations, I think such people as General Mills, Pillsbury, Central Soya Co., Quaker Oats, Ralston-Purina in St. Louis, who are members of our group, that their figures for the statement would involve entirely too many things, so it boiled down when the information got out that we had to reduce that amount, first by the 10 cooperatives—there are 83 members

Mr. SCHMIDT. I appreciate this, Mr. Theis, but the point is this does not relate itself to storage only, does it!

Mr. THEIS. No.

Mr. SCHMIDT. Then I asked you the question if you knew what percentage of this activity was represented by storage.

Mr. THEis. They are mainly in the storage and merchandising companies, or they couldn't have answered.

Mr. SCHMIDT. We have here Standard & Poor's Corp.’s report for Archer-Daniels-Midland Co., a publicly held company, which shows that for the year ending June 30, 1958, this company showed net sales

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