and operating revenues of more than $225 million. During 1958 they had storage revenue from the Department of Agriculture, according to USDA, of $6,934,000. So if you have a comparable situation on any of these others, this doesn't show at all how profitable or unprofitable, as the case may be, a storage program would be for a company of that kind. Mr. THEIS. Well, I take it any company-I don't know whether Archer-Daniels answered this questionnaire there, nor do I know of anyone except my own company that answered this questionnaire. Now, whether they answered or not, I can't say. It may be that they did and if they did Mr. SCHMIDT. I am not saying they did. I am simply pointing out we are trying to find out what the cost of storage is. Here we are adding up apples and oranges and in effect coming up with lemons. What we have is all operational facets of the company thrown into the gross operational part of the picture, together with all cost factors. Therefore we cannot tell anything from this study that is pertinent to the storage program. Mr. THEIS. Mr. Schmidt, I can say this. It is pretty difficult for anyone, including our company, to know exactly what the proper allocation of cost is to storage. When you are doing the merchandising business, storage business, each day in this business you try to figure out some way of making the best profit you can. Mr. SCHMIDT. True. Mr. THEIS. But when you get through with the whole operation, these are grain people reporting. These are grain merchandisers and storage people. And as I say, there are Senator SYMINGTON. Mr. Schmidt's point is that in this case it is less than 3 percent of the total sales of this company. Mr. THEIS. I don't know that their report is in there. If it isSenator SYMINGTON. I don't know either, but my point is there is no use in going into a company that could be losing its shirt in some other business and making an abnormal profit in the storage business, and in case they were losing their shirts in another portion of the business, they would have no right to overcharge the Government in the storage business. What would be just about that? Mr. THEIS. Well, I don't feel that they are overcharging the Gov ernment. Senator SYMINGTON. I know you don't. I didn't say you were, but my point is, you take lines of merchandise, big merchandising places. Suppose that Sears, Roebuck & Co. went to the Government and demanded a price that was very high for overalls and justified it on the ground that they were losing money on farm implements. Mr. THEIS. What I am saying is that 36 out of the 83 members had to be boiled down because as they were told, if they were in aif they had an integrated business so they couldn't make a true report on their storage and merchandising of grain, then they shouldn't report, and they didn't, I take it. Mr. SCHMIDT. Mr. Theis, again, this Standard & Poor's report on Archer-Daniels-Midland makes the statement that in 1957 and 1958 grain operations accounted for 4 percent of the combined sales and revenues Mr. THEIS. I missed that. Mr. SCHMIDT (reading): In 1957 and 1958 grain operations accounted for 4 percent of the combined sales and revenues and 24 percent of the gross profit (after depreciation). This would show how a small segment of a particular business could account for a large portion of its profits. Mr. THEIS. I Would say if they answered this question they would come in-in that consolidated group, that would be it, if they answered I don't know. Senator SYMINGTON. When you mentioned the Young report with respect to your own company showing 11 percent, that was afterwe had stopped at lunch time. Mr. THEIS. Yes. Senator SYMINGTON. That was 11 percent after taxes? Mr. THEIS. It was. Senator SYMINGTON. What would it have been before taxes? Generally you figure profits before taxes. Mr. THEIS. I would say it would be 54 percent less because we pay a 2-percent income tax in Missouri and 52 percent Federal. Senator SYMINGTON. 54 percent. Mr. THEIS. Right. Senator SYMINGTON. What would be the percentage of profit on the basis of your figure? Is the 11 percent on investment? Mr. THEIS. Yes, sir. Senator SYMINGTON. After taxes on investment. Mr. THEIS. On net worth. That is Senator SYMINGTON. That is net worth of what? Mr. THEIS. Our equity, the amount of money we have in our busi ness. Senator SYMINGTON. Have you any other part of the business except storage? Mr. THEIS. Oh, certainly, Senator, but as I tried to tell you in the previous parts of my testimony, the storage business has accounted for a very large percentage of our earnings due to the fact that our merchandising business has been taken away from the merchants who formerly handled grain. Now, that is what happened to our terminal. Senator SYMINGTON. What do you figure when you say an investment-I am just figuring on the Arthur Young report. Did he segregate your costs for storing grain in order to establish Mr. THEIS. No, sir. If you will notice the question-by the way, I might say, Senator, that I was the one that got these questions up and I noticed what your own committee and Mr. Schmidt sent out to some people of the industry and these questions were the start of it except we asked for the percent of return. Senator SYMINGTON. What would your costs be on the basis of your investment in grain storage before taxes? Mr. THEIS. You mean my company? Senator SYMINGTON. Yes. Mr. THEIS. I would say that our costs would be- Mr. THEIS. Well Senator SYMINGTON. Based on investment before taxes. Mr. THEIS. I would say we are in the category of about 80 to 85 percent of our earnings that come from storage. Senator SYMINGTON. What percentage of that, those profits, what would be the percentage of profits based on your investment? You don't like to apply, based on your testimony this morning you do not like to apply profit against cost. You said that you would prefer to apply a profit against investment. What would be your profit against investment before taxes? Mr. THEIS. I would say that before taxes-or after taxes? After taxes I would say it would be somewhere in the neighborhood Senator SYMINGTON. You just told us this morning what it was after taxes. Mr. THEIS. That is right. Well, I said this 11. I say it would be somewhere in the neighborhood of 9 percent on storage. Senator SYMINGTON. Now, the 11 percent after taxes this morninghow could it be 9 percent before taxes this afternoon? Mr. THEIS. Maybe I misunderstood your question. You were asking me what percent of our earnings you thought we earned from storage. I said I though about Senator SYMINGTON. Let me restate my case. You know what part of your assets are devoted to the problem of storing grain in your company; is that correct? Mr. THEIS. We try to think we know ; yes. Senator SYMINGTON. All right. And that is an amount of money that you have invested in the grain storage business, right? Mr. THEIS. In our entire operations, please. We don't segregate. We can't. Senator SYMINGTON. What do you mean you can't? Mr. THEIS. The amount of money we have in our business, whatever we are doing, that is our equity capital. Senator SYMINGTON. You mean you can't segregate by departments. Whatever kinds of business do you do? Mr. THEIS. Nothing but grain storage and merchandising of grain. Senator SYMINGTON. Well, merchandising of grain is a part of the operation, is that right? Mr. THEIS. Yes, it is. Senator SYMINGTON. And your grain storage operation is your operation with the Government, is that right? Mr. THEIS. Not entirely, sir. Senator SYMINGTON. No? Mr. THEIS. We are contract market, sir. When we deliver grain on futures contracts-you understand that. Senator SYMINGTON. I understand. Is it possible for you to segregate your costs from the rest of your business to the Government grain storage? Mr. THEIS. Senator, you can make an estimate of it by taking out what it costs you to do business completely and, as I said, I think about 80 or 85 percent of our business in recent years has been on storage either with the Government or with customers. Senator SYMINGTON. Let me repeat. We have from the GAO an estimate of what your profits were on costs, on storage, and you said this morning that you did not think that you should figure your profits against costs. You ought to figure your profits against in vestment. Mr. THEIS. That is right. Senator SYMINGTON. Well, certainly you want to figure your profits against the investment, as incident to your operation of storage, do you not? Mr. THEIS. Investment is a part of your-that is, it is your net worth, Senator. I keep saying that. It is your net worth. Senator SYMINGTON. I know what you are saying, but I am trying to get down to your costs. I know something about costs myself. You said this morning that your profits after taxes were 11 percent based on investment. Mr. THEIS. That is correct. Senator SYMINGTON. Now, all I am asking you is, first, what are your profits before taxes based on investment in percentage? Mr. THEIS. Well, it would be 46 percent of that amount. That is exactly what it would be. In other words, if you are paying 54 percent out in taxes, then 46 percent, it would be Senator SYMINGTON. You figure it out. I want to be sure we have got this now. It would be 54 percent plus 11 percent, or 65 percent? Mr. THEIS. Wait until I get my report, please, sir. Senator SYMINGTON. Would it be 65 percent in investment before taxes? Is that right? Mr. THEIS. Senator, I am now reading both in checking with the GAO and our own auditor's report. As to the gross profits per bushel, it was 9.18 or Senator SYMINGTON. Excuse me. Mr. Theis, I can't see what you have there. Let me ask you this question again. You say your profits were 11 percent on investment after taxes. I am asking you the question, what would they be before taxes in percent based on investment? Mr. THEIS. On storage? Senator SYMINGTON. On investment. It would be 65 percent, then, would it not? Mr. THEIS. No. Senator SYMINGTON. Of course it wouldn't; but I just want to get a figure from you as to what it would be. Mr. THEIS. It would be 46 percent. Senator SYMINGTON. I think you are a little high still. Mr. THEIS. Maybe we are not talking about the same thing. The taxes are 54 percent of your net income. Senator SYMINGTON. What is the total investment in your company? Mr. THEIS. At this time it is $2,456,000. Senator SYMINGTON. How much money did you make? Mr. THEIS. I will have to look at my statements now. This is Arthur Young. Now, this unfortunately is another situation. I am now talking from our statement Senator SYMINGTON. Is your company a public company? Mr. THEIS. No. Senator SYMINGTON. I would rather have you not do it. Mr. THEIS. I am glad to do it. Senator SYMINGTON. That is all right. Let us put it in this way: It would be about 24 percent. With your taxes of 54 percent, it would be 24 percent before taxes. Mr. THEIS. That is right. Senator SYMINGTON. Then we don't want to get into the details of your figures. Now, that 24 percent is based on an investment of $2,456,000, I think you said. Mr. THEIS. That is right. Senator SYMINGTON. How much of that $2,456,000 of the investment can be applied against the grain storage? Mr. THEIS. I said 80 to 85 percent would be my wild guess. Of all types of storage, Government and other. Delivery grain on futures contracts where the storage is paid and everything of the kind. About 80 to 85 percent which is identically the reverse in my mind-10 years ago it was just the reverse. Make it 80 to 85 percent in merchandising and a very small percent in storage. That was our business over the years. Senator SYMINGTON. Then you say 85 percent of this is around $1,900,000, that is in the actual business of Government grain storage, is that right? Mr. THEIS. Speaking now as a businessman, you don't know what your invested capital is and you don't know how you are going to apply it in this type of business. There will be years, as I predict from here forward, Senator, where our earnings on storage percentagewise, with that capital, will continue to decline and we hope we can keep our earnings up by merchandising. Each year, each day, is different. Truly. Senator SYMINGTON. Will you proceed with your statement, sir? Mr. THEIS. I have endeavored to explain that by the very fairest method that I could conceive we asked for 100-percent return, but as usual you don't get such things in a survey. But I do think that this is a good cross section of our people representing some 560 million in the final year. You will understand here in answering these questions, looking at this statement now, that the consolidated figure would show that there were only 29 companies reporting back in 1951. But there were others that came in in further years until we got up in 1956 to 36 companies. You will see there the-let us use the last one, if you please, in 1959. Senator SYMINGTON. These are the consolidated figures, aren't they? Mr. THEIS. Nothing but the consolidated figures of all the companies reporting. Senator SYMINGTON. Yes; and also of all companies that have other lines of work besides grain storage. Mr. THEIS. Grain storage and merchandisers like we do. Senator SYMINGTON. We just gave you one company that only does 3-percent grain storage. We just referred to a company that only did 3 percent of its business with grain storage, or, roughly, 3 a little under 3. Mr. THEIS. I don't recall making such a statement. Senator SYMINGTON. No; Mr. Schmidt pointed out this company. Mr. THEIS. I don't know whether they are in this. Senator SYMINGTON. Neither do I. But these are all consolidated balance sheets, aren't they? Mr. THEIS. They are consolidated balance sheets of those whose business is not integrated in these other operations. Senator SYMINGTON. I don't see what the consolidated earnings of this company have to do with this hearing. |