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The Columbia University Libraries reserve the right to refuse to accept a copying order if, in its judgement, fulfillment of the order would involve violation of the copyright law. Author: U.S. Federal Trade Commission I 1^1 ■ Maximum profit limitation meat-pacl o 3 > o m CD o OQ CO ^ o o X < N X o Ml O i 3 > 'V/ 8 O ro 1.0 mm 1.5 mm 2.0 mm ABCDLfGHIJKLMNOPQRSTUVWXYZ abcilefghi|klmnopqrstuvwiiyzl234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567^ 2.5 mm ABCDEFGHIJKLMNOPQRSTUVWXYZ abcdefghijklmnopqrstuvwxyz 1234567890 1= 6^ 4^ 4^ .1. m o ■o m -o 33 7 -1 I T) ^ 0(/) 5 > CJ1 3 3 15^ ii Is f~ 3Z esq r to b 3 3 cr 3 X 3 7- o »-»- ^ ♦< 3D IM C/3 I— . , o MAXmUM PBOFIT LIl^'ITATION ON MEAT- PACKING INDUSTRY U.S. Congress. Senate. Committee on A culture and Forestry tfidntitlria (Bmtiem'tp LIBRARY School of Business P 66th Congress \ csirwATV /Document mSeuum f SENATE | j^^^ ^^^j MAXIMUM PROFIT LIMITATION ON I MEAT-PACKING INDUSTRY LETTER FROM FEDERAL TRADE COMMISSION IN RESPONSE TO S£NATE RESOLUTION OF SEPTEMBER 3, 1919 SUBMITTING A REPORT OF THE! RESULTS OF A SPEOAL 04VESTiGATION OF THE REASONABLEfCSS OF im MAXIMUM PROFIT LIMITATIONS FIXED ON THE MEAT-PACKING INDUSTRY BY THE FOOD ADMINISTRATION SePTEMBEIR 25, 1 91 9. — Referrecl to the Committee on Agriculture and Forestry and ordered to be printed WASiflNcrroN GOVERNMENT PRWTING OFFICE 1919 MAXIMUM PROFIT LIMITATION ON MEAT-PACKING INDUSTRY, To THE PfiEsmisNT OF THE Ukitm) States Sen Aiiii: Sir: The Federal Trade Commission has the honor to make here- with report to the Senate in the matter of Senate Besolution 177 (Mr. Ncuris) : In the Senate of the United States. August 2S {calendar day SepU 5), 1919. Resolved, That the Federal Trade Ck>mmis8ioii be, and It is hereby, instructed to inform the Senate whether said Federal Trade Commission, prior to July 1, 1918, made a special investip:ation of the reasonableness of the maximum profit limitations fixed on the meat-packing industry by the Food Administration; and if sach InTestigation was made, that the Federal Trade OommiaalOB be in- structed to report to the Senate its conclusions and findings based thereon. The Federal Trade Commissi(m, by direction of the Presid^t, did make such examination, and on Jmie 28, 1918, made report to the President of the United States. On July 8, 1918, the Hon. Herbert Hoover, United States Food Administrator, commented upon the report made by the Federal Trade Ck}mmission in a letter addressed to the President, together with a covering letter, and on July 20, 1918, the Federal Trade Commission prepar^ a memorandum on the comments of Mr. Hoover. This lat- ter, prepared in the form of a proposed letter to the President of the United States, was not then sent to the President at that time, but its form was confirmed by the commission and represented the conunis- * sion's opinion at that time. The letter was not sent to the President at that time for the reason that its contents were orally discussed and the matter seemed to be closed. At the suggestion of representatives of the Food Administration, the commission is including in this return to the Senate Mr. Hoover's letters of July 8, and in order that the file may be complete the com- mission has deemed it proper to include its memorandum of July 20, 1918. There is also included three exhibits, being reports independently made by (1) the accountants of the Federal Trade Commission ; (2) bj the pubUc accounting firm of Perley Morse & Co., New York, cer- tified public accountants, and (3) a report in which both the public accounting firm, the Fedwtl Trade CJommission's accountants, and Mr. Walter Y. Durand, a member of the Federal Trade CcMnmiasion's economic staff, unite. These three exhibits contain the data upon which the report to the President of June 28 was ba4sed. The report of the Federal Trade Commission to the President, the letters of comment by Mr. Hoover, and the commission's memorandum follow, and to this report are annexed the tlwee exhibits above identi- 8 4 MAJUMUM PSOFIT LIMITATION ON M£AT-PACKINQ INDUSTBT. fied. The report of the Federal Trade Commissioii to the President is as follows: Fedesal Tbade Commission, Washington, J«ffi« 98, 1918. Sib: On May 27, 1918, the Prwrtdent's committee on meat policy in its report to you suggested that the Federal Trade Commission report to you before July 1 on the reasonableness of the present profit regulation of meat-packing companies as imposed by the Food Administration. Immediately upoii your direction that this be done, ttie eonmlssloD andertooK the task, and finds: ^ ^ I. Tliat the maximum profits for the five largest packers under the Food Administration regulations are unreasonably high. These rates of Profit are estimated to be ftrom two and one quarter to three times as great as those earned in the prewar years of 1912, 1913, and 1914. II. That the plan of regulation makes impossible adequate certification; so that, to safeguard the public interest, the plan should be changed. Supplementing these conclasloiis, the commission makes tkm foHowliig spe- dflc recommendations: (1) That the present segregation of the business of the packers into classes be discontinued, and, for the current year at least, the regulation apply a single rate to the licensee's entire business, Ittdndlng foreign business and domestic sabsldiaries and affiliations, without segregation or exemption of any kind. (2) That net worth (actual invested capital represented by stock issued and surplus) as of November 1, 1917, be the basis upon which the allowed rate of profit be computed for all packers, large and small, and that gross sales as a basis, as well as " net investment " which now applies only to the five chief packers, be discontinued. "Net investment," inrhiding as it does borrowed money, mav be subject to abuse by reason of excessive borrowing, and is a very difficult figure to certify to; while •*net worth" Is rimplor, fairer as be- tween the dIflSerent padiera, and more just to the public. (8) That the rate be a sliding scale, based on volume, in weight, of animals slaughtered ; thereby stimulating production of meats without directly encourag- ing expansion into other lines. , , ^ ^ a. (4) That the normal rate for the five chief packers be 7 per cent on net worth with one-half per cent increased allowance for every 10 per cent increase in weight slaughtered, and one-half per cent decrease in rate for every 10 per cent decrease in weight slaughtered; the maximum profit allowed not to go abOYO 9 per cent It Is probable that this rule would result in about 8 per cent, Wbldl Is 1 per cent more than their actual prewar earnings. (5) That the maximum allowed the smaller packers be 9 per cent, increasing on a sliding scale to 11 per cent, but without a decreasing scale. (6) That profits in excess of the prescribed rates be either turned over to the Treasurer of the United States or applied against future Government pur- cdiases (7) That all meat packers, as well as slaughterers, be Included within the regulation, except that no licensee doing an annual buslneM of less than $500,000 be subject to Federal limitation of profita (The mlnlmom limit for Canadinn packers Is $750,000.) •«« k.« In reaching these conclusions and recommendations the comm i ssion nas been assisted by a committee of three of Its staff, to whldi committee was assigned the task of collecting the pertinent facts bearing on the situation. The following reports of the committee are inclosed herewith, and in them will be found a further development of the various points already raised : (1) Final report of the committee signed by Messrs. Walter Y. Dnrand, Stuart CJhase, and Perley Morse & Co., certified public accountants. (2) Individual report of Perley Morse & Oo. (3) Individual report of Stuart Chase. . ^ ^ ^, «^ ^ In connection with these reports the commission has on file supporting data and exhibits (notably a full transcript of hearings in which Mr. Morse ex- amined the officers of the five chief packing companies in regard to the present regulations), and will be glad to submit, on request, such additional material as may be necessary to a more complete understanding of the situation. Very req^eetfollj, _ , William B. Colver, Chairman. John Franklin Fobt, Commissioner, Victor Muboock, 0ommi$9Umer. The PusmxNT, ICAiaMUM PBOFIT UMllTATION MEAT-3?ACKING INDUSTRY. 6 The letter of Mr. Hoover commenting on the foregoing, together with Mr. Hoover's covering letter, is as follows: JULY 8, 1918. Dear Mr. President: I am inclosing you rather a lengthy letter in reply to the Federal Trade Commission's report on the Food Administration maximum profits allowed the packers. I have the feeling that if the Trade Commis- sion report is made public, then this reply, in Justice, should he given Golne prepared for any emergency it has been necessary to call upon ttie packers to Increase their stocks in storage. Further- more, the program of stimulation of production, particularly the pork so critically needed for war purposes and the maintenance of a stable minimum price on hogs, has involved the packers in much larger stocks than would sonaally be acquired. All of Uils has neoeasltated an Increased borrowing on the part of the packers that would not have been called for had they con- ducted their business in the normal manner. Therefore the compensation of the packers must bear some relation to their borrowed capitaL 9. We must recognise tbat this great oentrallKed Industry Is tbe cbeap pro- ducer, and that an administrative limitation of maximum profits In cerbdn of their specialty businesses that will reduce them to popular ideas of earnings will throw into the hands of these centralized institutions all the business in these specialties by crowding out hl^-cost producers, and tbus will eventually reduce production or aggrandize monopolj^. We can not agree to the answer to this argument In the report as follows : *' If it appears that the big packers can operate these specialty businesses more ell^ctlvely than the independents. It Is sound war-time efficiency to let tihem do it. The only danger in the situation would be the failure of the Government to continue its regulation of the packers and their affiliated com- panies after the war." It is our belief that one of the greatest dangers to the whole of tiie food trades of the United States is the further expansion of these big packing industries and the elimination of smaller business, and individual enterprise. It is not sound war-time efficiency to enable a monstrous growth of this kind to destroy individual enterprise of the United States on the mere hope that regulation of the industry will continue after the war. By lliat time the competitors will all be dead. 10. There is one prime difficulty In all regulation of profits in advance. Such advance regulation must provide for stimulation in production, give an incentive to serve war aims, and must provide sufficiently wide margins to cover all possible risk. If the concern regulated Is so fortunate as to come through without incurring losses from the risks the profits may be inordinate. Having narrowed the possible profits of the packer to less than 1 cent a pound in protection to producer and consumer, our point of view was to en- courage him to follow the national food strategy at his own risk. 11. In calling upon the Trade Commission to reexamine this problem, we had in view some attempt to further regulate down the possible maximum profits of the packers. Since that time proposals have been formulated in Congress to enact further strong excess profits legislation. Such legislation would be much the most satisfactory remedy. The Food Administration regulations having in some degree accomplished stability in the market, having stimulated production and served war ends and eliminated vicious speculation, should be broadly supplemented by tai legislation that would restore to the public any Inordi- nate earnings that might be secured by the more fortunate manufacturers This method also has the great advantage of equalizing situations between different manufacturers, which Is one of the objects sought by the Trade Commission plan. 12. An advance profit regulation operates, if too strictly drawn, to curb incentive, to destroy production, and to limit efficiency. The sound method, if posiEdble, Is to give a fairly loose profit regulation, sufficiently strict to prevmit speculation, stabilize price levels, and then, by taxation, to appropriate to the Government any extraordinary profit that may have arisen. There Is also a psychological point of great Importance; any given business enterprise would willingly pay In the shape of a tax whatever may have been Its extraordinary profits. But if its profits are limited in advance to the same sum, the same enterprise will feel It Is restricted, unable to protect Itself against risks of loss and the reaction will damage the efficiency and courage In the conduct of this enterprise. In conclusion, we are not In disagreement as to the fact that the packers may earn too large profits under the ragnlattona We are la disagreenient as 8 MAXIMUM PBOflX LlMlXATIOlSr ON M£AItPACKING INDUSIBY. to the method of establishing regulation and perhaps as to the actual per- ceutage. On the other hand, we feel that the whole matter can quite well be deferred until tbe climracter et tlie action now being taken by Congress can be determined. If it should prove Ineffective to accomplish these ends, it would bo necessary to revise the regulations and I will take it up Imme- diately upon my return from Europe. I have written a letter to Senator Simmons, at his request, on the whole, relation of a properly fbunded excess profits tax In its bearing on regulation of industry, which expresses more fully the views which we have formulated In this matter, which I transmit herewith. Yours, faithfully. Hnamr Hoovb. The PBBsmiNT ov the United States, The White House. The memorandum of the commission, of July 20, 1916, in the form of a letter to the President, but not then sent, is as follows : Federal Tbade Comhission, Ofeicb of thb Ohaibman, WoMhington, July 20, 1919, DCABifB. Pbesident: It is with reluctance that we address you in the matter of the commission's report to you under date of June 28, 1918, and Mr. Hoover's letters to you apropos that report. It may save your tlnfe If we restate briefly the history. I. At Mr. Hoover*s request on March 26, 1918, a comndssion was appointed by the President to consider the Food Adfnfntetration'a regulation of the meat packers. II. On May 27, 1918, the commission unanimously reported to you. III. Among other suggestions was one tliat the FofltM ul Trnde Commission re- port to you before July 1, 1918, on the reasonableness of the present profit regu- lation of the meat-packing companies as imposed by the Food Administration. IV. On May 27, 1918, the President approved the report of the commission and directed that this and other work suggested be undertaken by the comndssion. V. On the same day, the Federal Trade CJommiaaion was notified of your direc- tion by Mr. Hoover. YI. On June 28, 1918, report was made to you as to the reasonableness of the profit margin under the present regulations. The commission found that the packers' maximum profits were unreasonable and suggested certain modifica- tions of regulation. VII. On July 8. 1918, Mr. Hoover addressed two letters to you concerning the report of the comndssion. Mr. Hoover's letters seem to revolve around a question of publicity. This is unfortunate. The commission's report made to you at your direction was not made with an eye to public reading but to the end that your direction made at Mr. Hoover's request might be faithfully fUUined to the beet of our ability. We agree that no " useful purpo5?e is served by public ventilation of interde- partmental disagreements." We know of no such a disagreement here. Certain regulations were in effect. It was questioned whether or not Oiey might in the public interest be amended. We suggested certain amoidments. That seems to end our connection with the matter. We have not suggested that our report or any part of it be made public, and it would seem from your letter of July 8 that a confusion arose between our rfport as to maximum profits dated June 28, 1918, and that part of our report on the general food investigation having to do with the meat-packing Industry, made to you under date of July 3. It was this latter report that seemed to be a proper matter to be made public in that it suggested certain legislation and naturally would be a public document The report of June 28, on the reasonableness of the maximum profits suggested amendments to regu- lations which might be made or rejectee. 4. Conclusion. If the present form of regulation is continiied| the rate allowed on Classes I and II should be lessened. Advisability of regulation by classes: 1. It is difficult without months of work by a large force of ex- perts — (a) To apportion investment by classes. (b) To determine transfer prices. ic) To apportion overhead. 1^) To apportion branch-house expense. {e) To prevent diversion of profits. 2. Conclusion. Regulation by classes should be abandoned and one rate should be applied to total business. Su^ested improvemeints in other features of the regulations: 1. Himinate the allowance of profit on borrowed money. 2. Establish "cost less depreciation" as principle of valuation of fixed assets, with depreciation sufficient to allow tor increased cost of construction. 3. Modify the present tacit sanction of unlimited capitalization of profits. 4. Consider the Canadian Government regulations for further de- tailed suggestions for improvement. 5. Examine question of inventory valuations and establish uniform procedure. Proposed method of regulation: 1. Recommend a sliding scale plan for packers in class of $100,- 000,000 or over. (a) Allow profit of 10 per cent on net worth if weight volume of animals slaughtered exceeds weight volume in 1917. Allow 1 14 MAXIMUM PBOFIX IJMTTATIO» OST MfiAX-PAOKING INDUSTBY. per cent additional profit for each 10 per cent increase in weight volume up to a maximum of 16 per cent. For each decrease of 10 per cent in weight volume, deduct 1 per cent from allowed profit down to a minimum of 7 per cent profit. 2. All excess profits to go to the Government, but an inventory reserve to be set up from this excess profit out of which the Gov- ernment shall pay actual inventory losses. PUBPOSES AND PBINCIFIiBB OF PEOFIT LIMITATION. One of the purposes of a profit limitation on foods, the committee takes it, is to prevent profiteering, and to effect a reduction in prices or at least prevent their rising unjustifiably, to the end that the spirit and rosourros of our people may be devoted without reservation or im})airment to the successful prosecution of the war. The second l>urpose is to regulate in such a way as to increase production of food. Not only is it needful that the spirit and the strength of the country shall be heightened to greatest pitch in the production of all war sup- plies, but the production and distribution of food, the very thing which is to be limited in profit, must be stimulated and assured. In addressing itself to these public objects, regulation should also aim to be just to the packers and fair as between one of them and another. As the seriousness of America's part in this war comes home to all of us, the business men of the country wiU not seek a generous profit but simply a just one, ready without undue subsidy to devote their energies toward greater production. The packers as- sured a just return will not be heard to ask that they be aLk>wed to continue extending their business wholly out of profits, but at the stabilized rates will see that they can rMulilv arrange the financing of such new capital as may be necessary to the deyej&pment of their share of the war work. One of the principles which it seems to the committee underlies the matter of the reasonableness of a profit limitation is its relation to normal returns in a competitive industry in times of peace. Another is the extent of risk involved in the nature of the busi- ness, and the effect of war conditions on that risk. Another princi- ple is that when businesses expand greatly in volume, the rates of profit on investment tend to fall, and rightly so, especially when as here the businesses of these large concerns have reached such a magnitude that they are their own insurance, on the principle of averages, against the vicissitudes a small concern is subject to. When, as herej the increased volume of business is caused by the war and is m no way the result of the enterprise of tbe packers, this principle is especially applicable. Again, the profit reguktion should not be thrown in the form of a rate on sales, because this is a temptation to increase prices in order that the allowed rate may be secured on a larger money volume. The temptation here is comi)ar- able to that of a man with a "cost plus percentage" contract Fi- nally, the regulation should accord throughout with sound account- ing principles, and any discretion as to the reasonableness of the rate should be exercised frankly and openly at a single point — namely : what the rate shall be. It is safest and clearest to keep on a sound accounting basey and to make any adjustment that cir- i MAXIMUM FBOrrr LIMITATION ON MBAT-PACKIN6 INDUSTET. 16 > cumstances may in justice require by simply raising or lowering; the allowed rate. For example, a depreciation rate should be caC Ciliated with reference to cost and to estimated life of property without allowance for increased replacement cost, the increase in construction cost being provided for, ratlin, out of new capital which shall in turn be depreciated. ! - THE committee's FINDINGS. The committee finds that the present regulations of the meat packers' profits, though considered with great care by the Food Administration at the time of their adoption, and in many respects sound in principle, have proved impracticable to administer and do not put as great a limitation on profits as is necessary in the public interest It finds that the maximum rates of pront estab- lished by the regulati tmctly inaavisable. Such methoa provides an inoeative to exoes- sive bc»rrowin^, to carrying large amounts of unnecessary cash on hand, and to dow collection on aooonmts reoeiTftble. In the paddng business the element of Ixurowed money does not jeopardize the interest of the stockholder, for jpackerr paper is usually covered ^ by a liquid inventory, and is considered the best of secority in bank- ing circles. Net worth is a figure which is readily c(nnputed and which re- mains constant throughout the accounting period. It is easily watched, requiring little audit, while the method now employed i necessitates constant and exhaustive supervision throughout the pe- riod under review to prevent juggling of the amount upon which the return is based. An allowance on net worth puts stockholders in all packing com- panies on the same footing, and by preventing one from profiteering, ^ all are so prevented. The ultimate criterion of profiteering is, and necessarily must be, the return to the individual shareholder after all costs and interest obligations have be^n met. The principles governing the computation of net worth are as follows: Land should be valued at cost, plus assessments for im- provements; buildings and machinerv at cost less depreciation; in- ventories at cost wherever it is possible to determine cost Bigk. — ^The risk of the meat-packing business in ^nend and par- ticularly of the conglomerated businesses operated by the five prin- cipal packing companies is, in the committee's judgment, not large in •peace times and is very slight indeed under present war ooncu- ^ lions, which assure an almost unlimited market for most of the prod- ucts and which reduce credit and commercial risks to a minimum. In this connection it is to be observed that any rate of profit fixed as a maximum will in nearly all cases be actually also the minimum, because it may be safely assumed that under present conditions the 1 packers will be able to earn all they are allowed. Unreasonableness of present maximums. — The present maximum profits allowed licensees with sales of over $100,000,000 are unreason- ably high. The allowed profit of 9 per cent on the total investment in Class I, as shown by the companies' own reports, means a profit of ^ from about 13 to 17 per cent on the stockholder's investment in that class; the allowed profit of 15 per cent in Class II means from about 24 to 34 per cent on the stockholder's investment; while in Class III the reports of the packers so far rendered, indicate a profit now being earned of from about 16 to 41 per cent on the stockholder's invest- ^ ment. Taking the business as a whole it appears that stockhandoned both for the five largest companies and for the companies of Division II. 6. That the basis of the rate for all companies regulated be the same, namely, the net worth (capital stock and surplus) as of Novem- ber 1,1917. ^. , ^ 6. That the allowed rates of profit on the above base be higher for companies in Division II than for the Big Five, and that in both divisions the allowed rates be on a sliding scale dependent on the volume, in weight, of animals slaughtered. This provision is do- signed to stimulate competition and to give an incentive fop in- creased production of meats, without encouraging the large packers to further expansion in lines not directly connected with the prime bnoness of slaughtering. 7. That the auowed rates of profit in Division I (the Big Five) be as follows: Per cent. (fl ) In case volume in weight remains as in fiscal year 1917 7 (6) In case volume in weight increases up to 10 per Ottit 7| (c) In case voltime In weight increases up to 20 per cent 8 ((f) In ( nso volume in weight increases up to 30 per cent 8i (e) In case volume in weight incTeases up to 40 per cent (/) In case volume in weight Increases over 40 per cent ig) In case volume in weight decreases up to 10 per cent 6| (h) In case volume In weight decreases up to 20 per cent 6 (i) In case volume in weight decreases up to 30 per cent 61 (;) In case volume in weight decreases up to 40 per cent 6 ( fc) In case volume in weiglit decreases over 40 per cent 6 8. That the allowed rates of profit in Division II be as follows: Per cent, (o) In case volume In weight remains as In fiscal year 1917— 9 (b) In case voliune in wei^t increases up to 10 per cent-,.__ 9| (c) In case volume in weight Increases up to 20 per cent 10 (rf) In case volume in weight Increases up to 30 per cent . — ^ — 30J (c) In case volume in weight increases up to 40 per cent 11 (O In case volume In weight increases over 40 per cent — 11 It is recommended in Division II that the decreasing sliding scale shall not apply. 9. That packers with annual sales in the year 1917 of less than $500,U00, very few of whom are engaged in interstate commerce, be exempted for the present from the Federal regulation of profits. 10. That meat packers not engaged in the slaughtering Dusiness be regulated as well as slaughterers. 11. That special rulings allowing increased rates of profit for Di- vision II packers be abolkhed. 12. That any profits in excess of the prescribed rates be either turned over to the Treasurer of the United States or applied as a credit against future GU>yemment purchases. In subscribing to thib report your undersigned committee desires to say that Dr. Francis Walker, chief economist, and Mr. Melville C. WooslMr, certified public aooountanti chief accountant, aided the com- MAXIKUM PROFIT LIMITATION ON MEAT-PACKING INDUSTRY. 19 mittee with their counsel, Dr. Walker sitting with it in the drafting of the report and agreeing with it substantially except as to the use of net worth as a base and as to the rate. Mr. Perley Morse, certi- fied public accountant; Mr. Percival S. Whipple of Perley Morse & Co., and Messrs. Samuel W. Tator and A. S. Kravitz of the account- ing staff of the commission, have participated in gathering and con- sidering the material and in drafting the report. Besp^ctfully subndtted. Walter Y. DuRAND. Peklet McmsE & Co. Stuart Chask. Washington, June EXHIBIT IL tPeil^ XofW it Co., certified public accountants, 61 Broadway, New Tofk. M^lMM 1088, 1084. Sector. Cable rnddien. " Standlt."] Case No. 910. Jura ao, 1918. Federal Tkadx Coxmissiok, Gbntlemen : In accordance with your instructions we ha^e made an investigation of the profits of certain meat packers affected by the rules and regulations of the meat division of the United States Food Administration, and we submit herewith in xelalioii thereto the following report: CUBflOKT BZAXINATIOK ON^T. The time allotted to us for the completion of this work forbade our going into details, therefore we confined our activities to the conferences with the commission's accountants at Chicago and to an examination of representatives of the firms of Morris & Co., Swift & Co. (Inc.), Armour & Co., Wilson & Co., and Cudahy Packing Co. The testimony of these concerns should be considered as part of this report. PRESENT RULES AND REGULATIONS JUDGED BY PRINCIPLES INVOLVED. The business conducted by the various packers is of a seasonable character and any figures computed on a period of less than a year are of questionable value as a guide by whidi to judge a year. Therefore, we l»ve judged the present rules and regnlatmns by the principles involved ratSnr Uian by the bootiraeping lesollB. PBINCiniB OF SMMOATIKO BUHmMBS INTO CLASgM. The rules and regulations, article 2, section 1, demand that the business of the packers be divided into three classes, namely, class 1, class 2, and class 3. We agree with the principle of segregating the business into its component parts, but we do not agree with the present segregation and feel that it should be a great deal finer. It probably should extend to each class of business done. We be- lieve that a greater rate of return should be allowed on some classes than on others, especially where there is unregulated com- petition; also as a stimulus for the further utilization of by- products. ItAZnCUH PBOFIT UlOXATIOir OZT MBAX-PACKINO INDUSTBT. 21 mfPOKAST METHOD FOR SBGUI«ATION. The seffregaiion called for in the present rules and regulatimis or any ouer segregation does not seem possible at the present time, due to the lack of detailed information on the part of the commis- sion's accountants, which would justify them in accepting or dis- allowing any segregation that the packers make. We suggest that this inrormation Im obtained immediately and the classifications be revised, or that as a temporary measure the business be regulated as $, whole. UKIFOBM SmWM. OF AOOOUKTING. We heartily agree with the establishment of a uniform system of accounts for all packers. However, we appreciate the great diffi- culties attached to the development of it, due to lack of satisfactory information regarding the organizations of the various meat pack- ers. A more aggressive policy of research and investigation should be followed in gathering the information necessary. There should also be an intensive study made of the present methods of the pack- ers in order to determine the practical methods of cost finding and oi transferring byproducts. These thin^ must be done before it is possible to properly segregate the busmess and arrive at a true prmb or loss. Tttl RATE OF RETURN 8HOUU> BE BASED UPON NET WORTH. The rate of return, we maintain, should be based upon the net worth of the business, that is, the capital stock plus the surplus. The net worth shows the stockholders' investment in the business, on which he is entitled to a return, and any other method, such as that laid down in section 7, making special provision for interest- bearing obligations, is wrong, such method serving only as an in- centive to encourage excess borrowing. For the purpose of this regu- lation interest should be included as an expense before net profit is determined. That is the usual method of judging industrial enter- prises. The stockholder is entitled to a return on his investment, and only on his investment, irrespective of the amount of money involved in the turnover of the business. If the business works on a big margin of borrowed money, that money is only incidental to the business and does not attach any additional risk to the individual stockholder, who is liable only to the extent of his investment. nr JU8IIGI OF OOMFUTING THB SATE OF RETURN ON THE PRESENT BA]> ANGE SHEETS. Belportion- ment beonnes one of estimate, and Geuaes to be one of strict accu- racy. The majority of the standard local packing plants com» under this head. In the same group of buildings, sometimes imder tlie same roof, we find dressed meats (class 1), rendering (class 2), and dairy products (class 3) being simultaneously manufactured—or an endless series of other class variations. To apportion the exact sAiare of fixed investment that each department i^ould bear is ob- viously an impossible task. Estimates may be made, but only an exhaustive examination on the part of the Government — entailing the work of appraisers, accoimtants, and engineers — can certify to the approximate correctness of the estimates. Again, so-called " nonoperating departments " such as power house, tin shop, box factory, storehouse, etc., departments which are supplying operating departments in all three classes, present a pe- culiarly difficult problem of apportionment. Only crude estimates based on service rendered or on supplies furnished or on final sales can be applied. The packers themselves do not now apportion this kind of investment uniformly. It follows logically that if one method is right, the other methods must be wrong to a greater oi lesser d^ree. The (^termination of fixed investment, however, is relatively simple when contrasted with the apportionment of floating assets. The books are not kept and it would not be practicable to keep them to show receivables by departments. And, accordingly, an exceed- ingly rough estimate must be made based on average credit tem^. Thus, if a given department's sales in a given period are known and the average credit allowed on these goods is known, an esti- mate of outstanding accounts receivable can be calodated, other 30 MAXIMUM PROFIT JLIMITATION ON MfiAT-PAOKIKG IHDTOTBT. things beinjr equal. Other things seldom are equal, however, and the essential hit-or-miss character of this method needs no comment.' Uow shail cash be apportioned by departments? How shall de- frntd chaJTges— interest, insurance, taxes? How shall accounts payable f Inese questions defy accurate answer. It IS undouMedly true that an exhaustive study of packers' meth- ^IS^ffi'Sf'^-Tf*^^^^ ^^^^^1 ^ standard method whicli fflight be applied by the Government, and total investments by classes be accuHrakted thereon, giving figures which would to aU intents and purposes insure tibe Government of a rough equality upon which to base Its rates of profit. It may be that such a method IS even now m existence m the procedure of at least one company. Certamly It can not be in existence in all companies because of the variety of methods used, and certainly only a prolonged stody bv of %al T^vdit^^^^ "^"^ """^ ^ ^ substaSiial acciunu^ DIFFICULTY OF DETEKMINING TRANSFER PRICES. ^ obtain profits by classes, credits must be made for the shipment of finished and partiaUy finished products from one cla^ to another. The present practice of the packers in this con- nection IS to value products so tmnsferred at so-called "market prices. Estimates of what constitute market prices vary, however, as do the extent of deductions from market to cover further proc- essing expenses. On other poducts, such as glue stock, blood, hair etc., tliere is no ascertainable market price, and the translfer credit has to be an arbitrary figure. There is but little uniformity in the present methods of valuing transfers now in vogue among tlie Big Five, and it follows that profite or losses by clasms are. to that extent, distorted and vitiated. ^ ^ MFncui/nr of apportioning overhead expenses. Each of the five large packers employs at present independent methods of apportioning general administrative and plant over- head expenses to his various departments. Exhibit 4, appended, shows the variety of methods employed. Here, as in the base oi investment, we are confronted with the fact that if one method is right the others must be wrong, and that profits and losses bv classes are necessarily inaccurate. Only an intensive study of the methods of apportioning overhead expenses can satisfy the Govern- ment that the division by classes is an accurate compilation Again, the following table shows for the five companies the per- centage of administraiiye expense charged to class 1 against charges to classes 2 and 3 combined. From this percentage, as compared with sales or investment, it is clear that class 1 bears a very high proportion of the administrative burden. Each of the five com- pames shows a proportionately higher total of administrative ex- pense than the proportion of total sales or of total investment obtoming m the meat business (class 1). The packers have often ^rmed that m recent years their activities have been primarily directed to acquiring an interest in food specialties other than meat. Accordingly, it is probable that the percente|[e of total administra- MAZIKUM FBOFIT UlCmnOK ON XBAT^FAOKIHG INDUSTRY. 31 tive expense which the meat business bears is considerably in ex- cess of ite true proportion, particularly in view of the met that this business has been long established and is more automatic in ite Deration than newer activities, which require continual expert oversight. We have reason, therefore, to question gravely the ac- curacy of the present methods of distributing overhead expenses by classes. Tabls 0,^Nlan.— For the purpose of applying thqse regulations to all pack- ers now subject to regulation by the Food Adnunistration there shall be created two divisions licensed by the Food Administration. Division 1 shall be composed of all packers whose sales value m ICAXnCITM ntOFIT UMnAXION OK MBAT-PAGKIHG OTDUSTBY. 36 1917 exceeded $100,000,000. Division 2 shall be composed of all packers whose sales amounted to less than $100,000,000. Any licensee in division 1 shall be allowed to retain from the net profits resulting from the business done in 1918 a sum equal to 10 per cent of the net worth as shown by the balance sheet of such licensee at the end of the fiscal year 1917, provided the weight vol- ume of all animals slaughtered by such licensee during the fiscal vear 1918 shall equal or exceed the weight volume of all animals slaughtered during the fiscal year 1917. For each increase of 10 per cent in weight volume of animals slaughtered in 1918 over 1917 licensee shall be permitted to retain from net profits realized an addi- tional amount equal to 1 per cent of net worth, but in no event shall the total profits retained by any licensee amount to more than 15 per . cent of the net worth. For each decrease of 10 per cent in weight volume slaughtered by any licensee in 1918 there shall be deducted from the profits aUowed a sum eaual to 1 per cent of the net worth, hat in no event stM the total deauctkms so made reduce the profits allowed to iess than 7 per cent of tibe net worth. All excess profits realized by any licensee over the amount to be determined on the basis outlined above shall be credited to the United States Government on tiie books of such licensee, and may be used by the chairman of the meat-purchasing board in settlement of pur- chases of meat or other food products for the Army and Navy of the United States Government from such licensee; but the chairman of the meat-purchasing board may set aside, for the purpose of estab- lishing an inventory reserve, such part of the profits thus received by the United States Government as may in his judgment seem nec- essary to protect any licensee from loss by virtue of reduction in final* prices realized for products below the prices at which such products were carried in inventory at time profits were determined, but any part of inventory reserve not used in defraying actual losses resulting from sales of such product shall be retained by the United States Government. All licensees shall continue to rraider reports as provided by (he regulations now in force, but no determination of profits shall be made for purpose of the regulatiortK (Dollars in thoomnds.! Aimoor* Swtft. Mwris. WilMO. Codahy. J229, 122 76,782 » 91, 785 $232,337 69,361 83,500 $86,018 13, 246 14,430 $80,011 6,365 16,220 $59,777 4,300 14,058 397,689 385,198 113,694 103,496 78,120 97,326 32.622 » 38, 991 124,417 37, 148 44,697 36,601 5,636 6, 138 28,022 2,204 5,617 24,171 1,738 5,683 10^039 206,262 48,375 35,843 31,592 20,621 11,517 «8,332 20, 910 10,404 14,930 7,742 1,987 2,343 7,282 955 2,077 5,380 645 «2,774 40,470 46,244 12,072 10,314 8,799 21.10 35.30 «21.37 16.81 28. 02 33.35 21.15 35.26 38.17 25.99 43.33 36.08 22.26 87. U 48.81 23.96 22.42 24.95 28. 77 27.85 $5,488 1,839 2, 199 $5,216 1,557 1,877 $2,199 338 M» $2,647 208 ni fi,i«r 188 411 9,526 8,650 2,906 3,386 8,888 15, 133 9,678 «6,133 15,694 8,847 13,053 5,543 1,649 1,974 4,635 747 1,546 3,593 517 8,8B 30,944 37,694 9,166 6,928 6,461 15. 55 29.67 •15.73 12. 61 23.82 30l16 15. 14 29.26 S2.16 16.54 33.89 97.20 14.86 29.74 41.40 3 18.32 18.22 18.05 10.88 »l48 y Total investment: Class I Class II I ClaaslU. TMal. Net worth, ICar. 8; IMS:* Class I Class II CaaaallL Allowed profit, second nport: Class I (9 per cent) Class II (15 per cent) Class III (present rate)<. . . ToUl(Mtlnukt«d). PercentaM allowed, profit to net worth: Class I — .- Class II. ......«....•.••••-•••••••••• Class IIL Total. ■tHoMted interest : Class I Class II Class III Total. MM allowed profit: Class I Class II Class m. Total. fir «nt net allowed profit to net worth: (SassI Class III Class III Total. t Includes leather and fertilizer, bads of Ner. 1, 1817, flforaa. « Foreign business not indudea. . . . » Net worth, as divMfid arbitraiily by elaaaes, on mm tmUm' T©toIUn»«UHWit.- 38 MAXIMUM PBOFIT LIMITATION ON MEAT-PAOKIKQ moUSTBY. BSHXBIT U. Group 1 — Fao4, American BUHmll Oow (NfttkMMl Bto- cuit Co.). American Cereal Co. (Quaker Oats Oo. Loose-Wiles Biscuit Oo. Booth Fisheries Co. American Cotton Oil Co. Com Products Co. Cfroup 2 — Automobile. AUIs-Chalmers Manufacturing Co. Chandler Motor Car Co. Studebaker Corporation. WiUys-Overland Ca Maxwell MotxHr Oo. Qroup 9 — Bubher, Goodyear Tire & Rubber Co. Unltod States Rubber Oo. Kelly Springfield Tire Oo. B. F. Goodrich Co. Canadian Consolidated Rubber Co. Oromp 4^oaL Plttil>ttrg Ooal Co. Vlrgliila Iron, Ooal & Coke Oo. Group 4 — Coal — Continued. Lehigli & Wilkes-Barre Ooal Oo. Oopsoitdated Ooal Co. Group 5 — Steel, United States Steel Co. Midvale Steel Co. Lackawanna Steel Co. American Steel Foundries. American LocomotlTe Oo. GfWp 6 — Sugar, American Beet Sugar Oo. Cnbo Cane Sugar Co. American Sugar Refining Co. Ouba American Sugar Oo. Group 7— Hide*, > American Hide h Leathtf Oo. Central Leather Oo. (3roup 8 — Electric General Electric Oo. WestlDghouse Blectrlc Oow EixmKrr IIL PKOPOaiD TTNIVOBM CIA88mOATION. A. Packing-house manufacturing. Beef section, class 1: Dressed beef. Hides. Oleo. Beef cuts. Beef casings. Smoked beef. Pickled beef. Mixed beef producta. pork section, class 1 : Fresh pork cuts. Dressed hogs. Smoked pork. Hams. Barrel pork. Dry salt pork. Lard. Pork casings. Mixed pork products. Sheep section, class 1: Dressed sheep. Pelts. Sheep casings. Sheep ofFal. Calf section, class 1: Dressed calves. Calf skins. Calf offal. Mixed section, class 1: Canned meats. A. Packing-house manufacturlng—Om Mixed section, class 1 — Oon. Sausage. Butterine. Tallow and grease (tanks). Beef extract B. Live-stock product specialties: Leather, tanneries, class 2. Fertilizer, commercial, class 2. Soap, washing powders, classes 2, 8. Glue, class 2. Rendering, city fat and liides, class 2. Hair, bedding, brushes, class 2. Stock food, class 2. Ammonia, class 3. Serum, class 3. Pepsin, class 2. Mince meat, class 2. Gut strings, class 2. Pork and beans, class 3. Pharmaceutical, class 2. Glycerin, dass 2. Sandpaper, class 3. Animal oil, class 2. O. Xonlive stock food products: Lard substitutes— Ootton Oils, class 3. Poultry, class 8. Eggs, class 8. Butter, buttermilk, dass 8. MAXIMUM PBOm UMITAXIOK ON MIAT-'PACKINQ UIUUSIRT. 39 O. Nonlive stock food products — Con. Lard substitutes — Cotton oils, class 3— Continued. Creamery, class 8. Cheese, class 8. Fi' h, class 3. Vegetables, class 3. Fruit, class 8. Grape juice, class 8. Soda fountain supplies, class 8. Condiments and preserves, class 3. Peanut butter, class 3. Groceries, class 3. Special services: Car lines, class 1. Cold-storage warehouses, class 1. Ice manufacturing, class 1. Stockyards, claFS 3. Water companies, class 8. Real estate, class 3. Phosphate mines, class 3. Board of trade options, class 3. Sporting goods, da^s 8. D D. Special services — Continued. Kelp, class 3. K, Supply departments: Bags, dass 2. Boxes, class 2. Cooperage, class 2. Printing, class 2. Laundry, all clan es. Car repair shops. Car manufacturing. Tin, class 2. Laboratory, all dasses. F. Selling agendes: Branch houses, all classes. Commission houses, all classes. Oar-route d^Mirtment, all classes. Q. Investments : dass 3 (not depaxt- mentalized) — Coal mines. Salt mines. E^ublishers. Farm papers. Banks. Cattle-loan companies. Exhibit IV. BaHs of distributUm, indirect expenses. General adminis- trative distrib- uted to plaatsom ISMiSOf. Distrfboted to de- partments on basis of. Plant overhead, factory, Taxes^... interest. Power dqptfl- Annoor. Sales, prodnoe department, scaled down 50 percent. Sales Buildings and iHSifliiiinry. 6 per cent on average in- vestment. Swift f of 1 per cent of sales, actual distri- bution. Sales, produce department, scaled down 50 per cent. Labor pay roll.. Buildings ^ par cent on invwiment. and VAoflpwcmt of sales, . actual distri- bution. Itaxis. Sales. Sales, produce department, doabied. Factory roll. Sales'... pay 6 per emt on department investment and expense department investment. Direct charge... Wilson. Sales, pay roll and invest- ment. Salary i)ay roll and invest- ment. Plant payroll.. Buildings, ma- chinery, and stock. 6 per cent on investment except in cer- tain plants. Included in ad- ministratlYe. 0) Cndahy. Sales. Pay roll. Buildings, mar chinwy, and stock. Actual intwest on basis of investment. tin each of the five companies the engineer's d^parbnent prepares Oedtotr teent in eadi liTTMTiTi .bat the teds iadif- EXIUBIXB SUBMUTBD WiTH BePOST OF PeRLET MoRSB & Co^ fied puwleg acoounxahts. June 14, 1918. Mr. P. S. Whxfpus, Perubt Mobsb A Co., Certified public aoeauntants. Dear Sir: I tmderstood the other day that Mr. Morse was to leave town Thursday night and I tried to reach you this morning to make engagement to go oyer with you some points in the tran- 40 lAAZIMUM PBOMT UMIIATION ON MBAT-PACKING INDUSTRY. script of testimony taken at our office the other day which I think should be corrected. Call your attention to the following: Page — , next to last sentence should read, " Our regulations here make it mandatory that the profits of packing business." Page — , near top, should read. " They have taken this thing (the United States Food Administration meat division regulations) and adopted it to a very great extent." Just below, " I think that one feature is better and it has always been quite prominent to us, namely, that of not requiring us, etc*' Page — y second line, MacAuley should be Mozley. Page — , strike out two words, "liberty to" and subsdtnle ** lib- erally." ^Bigjd — , strike first word and substitute " depreciated." Page — , strike last sentence and substitute In money but not in tcflMiage." Page 146, strike next to last word " factory " and substitute m- dustry." Page 147, add after Denver, fourth line, "Kansas City, South Omaha, St. Joseph, East St. Louis, and other cities." Page 152, tenth line, strike comment by Mr. Chai:)lin and substi- tute " Direct expenses are charged directly to departments affected. In the case of our branch houses, we have the actual results." Page 154, fourth line from bottom, strike word " private." Sub- stitute " profit." Page 156, ninth line should read " one hundred and fifty millions" instead of " fifty millions." Page 169, last line, sirike word "to.** Page 170, first syllable should be **ruption" instead of "ven- tion." Page 179, fifth line, strike words " not quantities. It would." Sub- stitute "A certain rate might." Page 181, fourth line from bottom, strike word "house." Sub- stitute " product." Strike words " with the department in it " ; third ixGOk last line, " value of " should read " values in." Page 182, sixth line from top, strike " we have fixed." Substitute " it figures." Word " superintendents " should be " superintendence." Page 186, ninth line from top, strike Mr. Chaplin's comments and substitute " Live stock is not like some chemicals that you can split up and have exact quantities of the resulting elements. In a steer every bunch differs m yields from other bunches. You have got to take averages." Yours, respectfully, Wm. B. Tratnor. MsAT Packers' Pboffts Investigation — Bei^ore the Federal. Trade Commission. Chicago, III., June lly 1918^ S o'clock p, m. (SWIFT A 00.) Meat packers' profits investigation by the Federal Trade Com- mission to ascertain if the United States Food Administration meat division rules and regulations, in force since November 1, 1917, V y MAXIMUM PROFIT LIMITATION ON MBAT-PACKING INDUSTBY. 41 are reasonable or unreasonable, pursuant to President's meat com- mission report of May 27, 1918, in which ihd Federal Trade Com-- mission are authorized or instrueted to make an examination into l^eee regulations. Present on behalf of the Federal Trade Cwnmission: Stuart Chase, Esq.; Samuel W. Tator, Esq.; Perley Morse & Co., certified public accountants. New York, represented by Perley Morse, Esq., and P. S. Whipple, Esq. ^ _ ^ ^ Present on behalf of Swift & Co. : Edward F. Swift, Esq. ; G. F. Swift, jr., Esq. ; H. Swift, Esq. ; W. D. Traynor, Esq.; J. S- Chaplin, Esq.; L. D. H. Weller, Esq.; H. J. Nelson, Esq. FROCEEDINOS. Mr. Edward F. Swept. I would like to make a statement that the packing business is a seasonable business and a six months' period ^ har<&y sufficient to arrive at a conclusion; that it should have at least a year or a series of years is even more desirable; that in the packing business there are certain parts of the product that are accumulated during certain months and disposed of during the following months, and^ as previously stated, it would take, at least to make a fair comparison, with a mir degree of accuracy upon the business, a year, and several years would be still better. I would like to make a general statement, that all commodities, including the use of money, is demanding higher returns; that live stoS is costing at least 100 per cent more than previous to the war. Labor is 100 per cent higher. The commodities used in the packing business, including construction of buildings, supplies of various kinds necessary to use in the preparing of meats, machinery, and equipment, are from 50 to 75 per cent higher than previous to the war. On account of the high prices, approximately nearly 100 per cent in doing business, there is a larger element of risk.^ On June 1, under the 9 per cent section of the meat business, Swift & Co. had 401,000,000 pounds of product on hand. A reducti— you mean on the sales? Mr. Tratnor. Yes. You see, there is part of the industry that is r^ated in that way. The padcem Onteide of the five larger pack- ers — 2J per cent. Mr. MossB. Would you be willing to subject yourselves— 4;hat is, as far as we can do it— to the same rules and regulations that are provided in the rest of the Canadian regulations? Mr. Traynor. No; I do not think I would want to answer on that without giving them a little more study in detail than my present knowledge of them gives me. I have not reviewed that question for a month or more. The question of the Canadian profits is not entirely clear in my mind. It is patterned after ours, you know. They have taken this thing and adopted it to a very great extent. It came out after this. I think that one condition, that has always been quite prominent to u% of not requiring us to do our business MAZIMTJM PROFIT VOmATlOS OS MEAT-PACKINO IKDUSTRT. 46 so that we must come within a certain profit, which seems a little more reasonable way to handle it, in a business the size of this. Tlien there is also a provision, I believe, in the Canadian regula- tions which provides that although there shall be a certain rate upon the sales they shall also not exceed a certain rate upon the invest- ment. There is dual control there. Mr. Edward F. Swift. Mr. Traynor would like to make a gen- eral statement on this question. Mr. Morse. We would be very pleased to hear it. Mr. Traynor. Swift & Co. would be willing to agree to a basis of 2 J per cent of profit on the sales or turnover on the meat- food department; what we call the meat-food departments are the de- partments in class 1. Mr. Edward F. Swift. Which we understand is the Canadian plan. Mr. Morse. Well, there is a 7 per cent clause there on the invest- ment; half of that is to be retained by the packers, I believe, and half of that is to go to the Government. Mr. Tratnor, Anything over 7 per cent. Mr. WmppuB. One-half of anything over 7 per cent. Mr. Tratnos. That particular clause of the Canadian arrange- ment is ambiguous and our people are free to say that they do not know just what it means. Mr. Chase. I can give you that, I think. If any licensee makes profits exceeding an amount equal to 7 per cent upon the capital actually invested in his business, the licensee shall be entitled to re- tain in addition to such 7 per cent, one-half of such excess up to an amount equal to 15 per cent upon such capital, provided, however, that the licensee shall not be entitled to retain any profit exceeding an amount equal to 2 per cent of the gross value of his sales during any one year. All profits in excess of those that the licensee may retain, shall belong to His Majesty, and shall be paid by the licensee to the receiver general of Canada. Supplementing that is a defini- tion of the word "capital," which is perhaps a little ambiguous as I read it. "Capital actually invested," defined as follows: The capital actually invested in the business of the licensee shall be the amount paid up in cash on his capital stock. Where stock has been issued for any consideration other than cash, the fair value of the stock at the date of its issne shall be deemed to be the amount paid up on such stock. In estimating the value of the assets, real, personal, movable and infmovable, and to the liabilities of the company at the date as of which such value is to be determined, in no case sliall the value of the stock be fixed at an amount ex- ceeding the par value of such stock. The actual unimpaired reserve, rest or accumulated profits of the capital ccnnpany shall be included as part of Its capital. " Kest " is the English term for snrplus, isn't it? Mr. Edw^ard F. Swift. I think so. Mr. Chase. So it practically means it is the capital stock plus its surplus, providinf; that capital stock had been paid for in cash or its equivalent. Mr. Traynor. Then what is the meaning of that "plus 2%," and what follows that? In bringing out thia excess over 7 per cent! What does that mean i 46 MAXIMUM PROFIT LIMITATION ON MEAT-PACKING INpySXBT. Mr. Chasb. Well, if you earn over 7 per cent on this capital as defined, over 7 per cent and under 15, you can keep one-half of aad pay the other half over to the receiver general. Mr. Tbatnob. Keep one-half of the 8 ? Mr. Chasb. One-half of the 15. Suppose you earn 10 per cent on your net worth. Now, the net excess of 10 per cent over 7 per cent we will say is a hundred thousand dollars. Mr. Tratnob. In percentages it would be 3. Mr Chase. Yes; 3 per cent. We wiU it $100,000. You could keep $50,000, and you would have to pay over to the recover gen- eral fifty thousand. Mr. Tra YNOR. Making a tdtal of 7^ or 8^ per cent f Mr. Chase. Yes ; 8 J. Mr. Edward F. Swift. Or if they earn 15, they would take mie- half of 7 and 3£? Mr. Chase. No. All of the 7 and one-half of the 8, which would be 11 per cent. Mr. G. F. Swift, jr. Under that plan it would be possible to earn 11 per cent? Mr. Chase. Yes. That is your maximum. That is your maxi- mum. Mr. Tbatnob. Suppose you earn 20 per cent? Mr. Chasb. You would still get your 11 per cent. Mr. Tbatnob. You would get the first 7 and one-half of the next 8? Mr. Chase. Yes. Mr. Tra YNOR. What about the rest? Mr. Chase. None. Mr. Tra YNOR. That is the way you understand it? Mr. Chase. Yes ; and you would not get that if it was more than 2 per cent on your sales. Always this percenta^ on capital has to be less than 2 per cent of the sales. Mr. Traynor. You know the Canadian packers are very much dis- satisfied with this regulation, and as far as you know it has not been put into effect. We would not want it here. Mr. Morse. Why has it not been accepted up there? Mr. Tbatnob. I do not know, except the dissatisfaction voiced not only by the Canadian packers, but by the large business associa- Uons generally in Canada— the Association of Bankers and the As- sociation of Business Men and people concerned with keeping the business on a sound basis, who say that a restriction of this kind is suicide. It IS going to paralyse the big industries which Britam is Impending upon to help them out. Mr. MoBflB. Have you any idea that they will ever put this into force? Mr. Traynor. No ; I have not. I hope they won't. Mr. Morse. At the present time, the mdustry there is unrestricted ? Is that true ? Mr. Traynor. Well, I would not say that. I have not heard from our people for a month or so on that. We have an understand- ing that they will inform us when anything new develops. Theoret- ically, I believe the packers are under some kind of a control; ncob- ably this control, but actually I do not know its operation. ^ ' MAxncuH noiix woTAmm oir mbat^paiokikq ihdubist. 47 Mr. Morse. Yon would not favor a regulation of that kind in this country ? Mr. Tratnor. I would not ; decidedly no. Mr. Chase. I have received from the receiver general of Canada what looks like a very formal authoritative act. It does not look like a bill proposed. It looks like a regulation, finished, both in French and English. It starts out : His Excellency, the Governor General in Council, on the recommendation of the Right Honorable Prime Minister, under authority of the War Exercise Act of 1914, is pleased to make the following regulations, and the same are hereby made and enacted accordingly. I thought it had gone through. Mr. Traynob* There seems to be some question as to who is going to administer it. They can not find Bnyone. who is willing to take it on. The inequalities of the F. Swift. They did in our last financial Stetement. Mr. MoBSB. Since that time have you written up those values? . Mr. E0WAXD F. Swirr. We have to some eztent--to a partial extent. Mr. Morse. In dollars, how much is it? Mr. Edward F. Swift. You are talking about land? Mr. Morse. Yes; land only. Mr. Traynor. The figure that we put on the books, as I under- stand it, included part of the appreciation of both land and build- ings. What we call " real estate " includes all those things, up to— since the date of our last statement we have put an item on our books which represents a part of the appreciation of our physical assets. Mr. Morse. By " physical assets," you mean lands ? Mr. Tratnor. Lands, buildings, machinery, and equipment. Mr. Morse. Lands, buildings, machinery, and equipment! Mr. Traynor. Yes. Mr. Morse. In dollars, how much was that? Mr. Chafejn. $82,000,000. Mr. MoBsa On what did you base your valuation? Mr. CHAniH. Of that 8S miUuxn? Mr. McasB. Yes. Mr. Gbaiuk. On what did we base that 88 milBoiil MaXIMUM PBOFIT LDGTAXION OK WUtMKQUmO, nTDUBTBT. 49 >- y y y Mr. MoBSE. Yes. Mr. Tbatnob. A preliminary report from tiie American Appraisal Co., who were making an appraisal of our properties at that time. Mr. MoRSB. As of what date did they place these values on ymir property? Mr. Traynor. January 1, 1914. Mr. Morse. Did they consider replacement values or cost values, or just how did they figure these values? On what basis? Mr. Traynor. The replacement values, depreciated to that date. Mr. Morse. When you say "replacement values," do you mean values of 1916 and 1917, depreciated to 1914? Mr. Traynor. No ; I mean the cost of reproducing new at January 1, 1914, and discounting for the depreciation by the life of the buUd- inc. Mr. MoBSE. How much was that did you say in per cent, if you know it? Mr. Tbatnob. I don't know it. Mr. Morse. In dollars! Mr. Tbatnob. I don't know. As I say, this is an estimate, as they had not completed their reports at tnat time. In 6ust, tiiey have not yet, but they gave us a forecast that warranted us in using this figure. Mr. Chafuxt. This figure is to be adjusted when we have a final appraisal? Mr. Tbatn<». Yes; it will probf^)ly be considerably more thim that. Mr. Morse. What was the date of this entry ? Mr. Traynor. Sometime in December, 1917. Mr. Morse. You have been reporting to Mr. Chase on your in- vestment, these increased values? Mr. Traynor. No ; we made some note of it. Mr. Chaplin. We excluded that in the notation on the statement. Mr. Chase. It was put in and taken out. Mr. Chaplin. I might say that that is a matter that is to be up to the Food Administration for a vote. The question of equalizing the values of fixed assets as between the large packers. Ifr. MonsB. Well, you said something about some additional ap- Sreeiation that you thought you were entitled to. Now, on what o you base that f Mr. Chaplin. Base it on present-day values. Mr. MoBSB. In other word^, on 1918 vidues ? Mr. Tratnob. Do you say that we are entitled to that? Mr. Chaflin. No. ^ Mr. Morse. Yon said you thought you were entitled to an addi- tional amount. Mr. Traynor. Yes. That is correct. We think that the final re- port from the appraisal by the American Appraisal Co. will show that instead of $32,000,000, we will have a greater sum as represent- ing the additional value of these properties at January 1, 1914, ar- rived at in the manner I have described to you. In other words, this $32,000,000 is a conservative estimate. Mr. Morse. Your books show the cost of these properties, do they not? r r Doc. 110, 66-1- 50 UAXmVU PROFIT LIMITATION Qfi lOAT-VAOiUlIG INDUfi^TRY* Mr. Traynor. Yes. Mr. Morse. Do you expect at some time to be allowed this $32,- 000,000 and place that among your capital invested in these various classes in your business! Mr. Tratnor. Yes. Mr. Edward F. Swift. May we make a general statement! Mr. Morse. Yes; certainly. Mr. Tratnor. As between the other packers subject to this con- trol and ourselves, we have felt that we were at a disadvantage, because of the fact that our properties were on our books at cost and that we had liberty to appreciate them as we went along by reserves, whereas some of the packers had had their properties re- appraised and had put their properties upon their books at the real appraised vmlue, so that Bome companks with ho bigger, or perhaps not as large a business as oursy had larger investment accounts. At lea^ proportionately larger, and we thought that on that aooount we are entitled to at least an equalization with the others. Now, we made a mortgage the 1st of February, 1914, at which time we had an appraisal made; not as detailed a one as we have had re- cently made by the American Appraisal Co., but an appraisal by an appraisal company representing the trustees, who were well sat- isfied at that time with the values of our properties; that is, thev were considerably above the amounts on our books, and for which bonds were authorized. Mr. Morse. Your business has increased yery rapidly lately? Mr. Traynor. Yes. Ifr. Morse. Probably has doubled the last three or four years, hasn't it! Mr. G. F. Swift, Jr. In tonnage ; not money, but in tonnage. Mr. Morse. You have had to make additions to your plants in order to take care of this increased business the past three or four years! Mr. Tratnor. Oh, yes. Mr. MoBSB. Have you any idea to what extent, in dollars! Mr. ChafiiIN. In 1917 there was $7,000,000 charged to inTestment aocount^ The raevious year was somewhat less. Mr. Motto. Tour plant, on acooimt of thia inomse, is greatly crowded at the present time ? Mr. G. F. Swot, Jr. The increased hudness! Mr. Morse. Yes. Mr. G. F. SwnT, Jr. Yes; at times. Especially our storage la^ duties. Mr. Morse. You are not probably operating as efficiently now as you were three or four or five years ago, on account of your largely increased business and lack of facilities and things of that kind? Mr. G. F. Swift, Jr. Well, I would not say there was any great difference. There might be some slight difference. Possibly some things are not being done as efficiently from the fact of the expense standpoint on account of going outside for storage and extra switch- ing charges, and one thing or another. Mr. Morse. That is what I mean. Not being arranged as effi- ciently as it could have been if you had had room and facilities to inake an ample plant! UAJOUmi PROFIT UUTUmOS OK MBAT-PACKIirO INDX7SIBY. 51 Mr. G. F. Swift, Jr. Yes ; and the money. Mr. Morse. And therefore, of course, your expenses are increased, to a certain extent. Isn't that true ? Mr. G. F. Swift, Jr. Yes ; that is true. Mr. Morse. If you had to build over in a new plant to take care of your business, you would not have had it arranged the same as at the present time, would you? Mr. G. F. Swift, Jr. I would not say that there would be much difference in the arrangement. I think it is largely a question of increasing the facilities. Mr. Morse. Well, I mean more efficient arrangement; switching facilities, refrigeration facilities, and things of that kind. You know one plant can be arranged so that it is very efficient and things are handy to each other, and then again a plant may be arranged so that you have to go all around it in order to reach your various de- partments where you want to put the stuff, and the latter is not as efficient as the former. That is true! Mr. G. F. SwiFT^ Jr. Yes; but our plants are pretty well located and pretty well adjosted. . All we need m a few more biiildings or a few higher ones. * Mr. M<»SB. Do you think the packers could do business scmtwhim else cbeaper than fiiey could in Chicago if they had the plants ! For instance, you take a small town, or if you railt a town like some other of our industries have d situa* lion? • Mr. Morse. Why, I had in mind the Chicago situation here, that YOU might operate more efficiently and cheaper if your buildings had Deen arranged better for you. Mr. Edward F. Swift. May I answer that by saying that they are constantly being rearranged. Mr. Morse. That may be, but take a section which is as crowded as - it is here, you can not make out as well even if you are constantly re- arranging them, than if you had the room you want. Mr. G. F. Swift, Jr. You have all the room you want right here in Chicago. The evolution of the business has been to go up in the air. Take that building that you see over there, seven stories high. [Indicating.] It used to be two stories. Like this one here, when we bought it. If we had had the land next to it we would have built the building higher. We would not have biuM; two buildings. We would have gone up. Mr. MoBSB. The propos^cm is, you wooAd not have needed such a large investment. Mr. Chapun. What would we do withiliis investment here? Mr. Tkatk(». It is prettjr expensive to reprodnoe a piant the sise of ^bilL any place now. Mr. Mqwpi. Well, that is probably trve. I was only diseoMiig this from an economic standpoint. Mr. Chaplin. This is only a small part of the factory here in Chicago. The bosBHSB is all over the country. This is only a small part of it Mr. Edward F. Swift. You know that we have a number of other plants— St. Paul, Fort Worth, St. Joseph, and Denver. Mr. Whipple. The rules and regulations call for three classes. Now do you believe it is possible to accurately divide your business and investment — ^your profits into those three classes! Mr. G. F. SwiTT, Jr. Practically so ; yes. Mr. Whipple. You think it can be divided so that there is so much proit in class 1 and so much in class 2 and so much in class 31 MAXIMUM FfiOfXX UMLXAXlOJSi ON MSAT-FACSJNG LSTDUSTBY. 53 Mr. G. F. Swift, Jr. Yes, for all practical purposes; yes, sir. Mr. Chaplin. Approximately. Mr. Whipple. How near would you say the approximation ran? Is the line of demarcation very clear, in other words, or does it grow very hazy in some sections? Mr. Chaplin. It is very clear in most cases. Mr. G. F. Swift, J r. And the fact that we do it. Mr. Morse. But you do not get actual results. Mr. G. F. Swift, Jr. We get preety near. Mr. Mobsb. Well, pretty near la not wntomL Whm I used the ward ^actaal" I meant ooorrect; definite. Mr. O. F. Swut, Jr. I^tiiink we get it ftctnal enen^ for all prac- tical purposes. Mr. Morse. You may get it as near as you can, but it is not actuaL Mr. G. F. SwiPT, Jr. For all practical purposes. We pay depart- ment heads for results, and if we feel that he is not producing — ^he can not produce them unless he has got an actual practical division of the expense. That is what we ba^ salaries and these tilings on. Mr. Chaplin. Take the big ends of the business; the commercial fertilizer business and the tanning business. That is entirely dis- tinct; no connection at all. Those are all the big things. Mr. Whipple. You mean to say that you think for the purposes of these rules and regulations you can so divide all the phases of your business as to live within the regulations set forth here? Mr. Chaplin. Yes, sir. Mr. Whipple. Your costs in your various departments you know that is in your various classes, and you know therefore if you know yonr cost and know your income, you know your actual profit for tiiepmod. jM^Osaiuk. Yes,sir. Mr. Whiffub. Now do you strike any difficulty in the transfer of tliose by-products from one ^paHanent to the oHier or from one section to the other ? Mr. CHAFLnr. No. We have that transferred at the full market price. Mr. Whipple. Transferred at the full market price. Do you find any difficulty in arriviag at the full market price for all of your various products? Mr. Chaplin. Oh, there are some minor items that there might be same questions on, but the big things are all very clear. Mr. Whipple. The big things are all very clear, as far as hides, fats, and things like that, you can divide those absolutely? Mr. Chaplin. Yes, sir. They have a stated market price. Mr. Whipple. The assets shown on the books of subsidiary com- panies or branch houses, are they in accordance with the same gen- eral plan as the plan of showing up your investments on the parent company's books? Can they be divided into those sagie classes? Mr. Chaplin. Yes. Mr. Whipple. Now would you have any difficulty under the ex- isting conditions, of making up consolidated balance sheets — de- tailed consolidated balance sheets which would show all of those three classes! 64 MAxnfmc pbofit LncnrAmK on ms^t-paokiko vsdv&tby. Mr. Chafuk. a consolidated balance sheet? Mr. Whipple. Yes. Mr. Chaplin. No, I think not. Mr. Tratnor. That is, showing the assets in the three classes? Mr. Whipple. Yes, enumerating the assets which appear in the three classes in your home office, your branch offices, and in your subsidiary companies, so that in case you wanted to make up a con- solidated balance sheet for all of your subsidiary companies, you could fall into that class? In other words, this uniform balance sheet which a gentlemen interested in a uniiorm system is finished as they desire it, you think you can fall right into line with that, with your books in their present condition t Mr. Chapun. There would be some things that would have to be based on pro rata diTisions. Mr. Whipklb. But do yon think that with the proper amount of inyestiffatiim there is anyuiing there which can not be detenninedf Mr. Chaflim. No. - • Mr. Whipple. You believe that by proper engineering facilities and accounting facilities you could determme that absolutely? Mr. Chakjn. Yes, sir. Mr. Whipple. Now, does the same thing apply to your nominal accounts? That is, I mean to say, your profit and loss statements? Could you make up a detailed profit and loss statement upon all your branch houses and subsidiary companies, in a detailed profit and loss statement with the parent company? For instance, showing . your gross sales and showing the net sales and the cost of the goods sold and the items that enter into it, and your administration in general expense as a whole, in net figures on that profit and loss state- ment? . « M Mr. Chapmn. Well, that is rather an involved question. Some of these expenses, of course, have to be prorated. Oup administrative expense nas to be. Mr. WmFPUB. Wdl, of course, witli the exertion of the pro- ration, you feel that could be gotten out in detailed iona without your present system of accountsTiaving to be revised ? Mr. CHAiiiK. No, I tliink we can do it. As I said, there has to be some proratinjg of some things. We have to determine what is the proper basis &t splitting certain things up. Mr. Whipple. You speak of proration. Does your term " prora- tion" apply only to these expenses such as administrative expense, which we know in all concerns, has to be made up on some basis which everybody considers equitable, or are there some items which would have to be prorated? Would your labor have to be prorated? Mr. Chaplin. No. Take the items of getting the direct cost in the case of our branch houses. We have the actual result. Mr. Whipple. Do those accounts of your branch houses fall right in line with those of your old parent company? That is, are they modeled on the same general plan as your accounts here are kept? Mr. Chaplin. Yes, sir. Mr. Whipple. So that at the end of a year op the end of a period you could tell what your gross sales wete in any particular place! Mr. Ghaflhi. Tes, we know the gross sales ai aU oar branchea or all our plants; but we have not got the gross sales in each d^Murt- ment. MAXIMUM TOOFIT LIMITATION ON MEAT-PACKING INDUSTRY. 55 Mr. Whipple. But on your general books here you have no con- trolling account which would show those items in your brancli houses? Your branch houses and subsidiary companies I take it are held by one control account ? Mp. Chaplin. No; we have probably four or five accounts cover- ing our branch houses. We have a capital account and a building and madiinerv account and an account for the goods that we ship them. Brobably six or eight aocounte l^t would constitute the total. Mr. Wmm^. Do you keep control of branch-lK>use sales? Mr. ChapiiIN. No; we compile that. Mr. Whipple. You compile that from the branch, house reports? You get them by one source or another and change your books so as to establish controls on your home office books, or else by a system of auditor's reports and you have no need of these details whidi would be necessary under this regulation here? Mr. G. F. Swift, Jr. Bring them right back to their respective departments. In fact, some of our competitors do that. They bring a ham sold at a branch house back to their same house. Mr. Whipple. Now I take it that your balance sheets show that a considerable part of the capital invested in your business is largely borrowed money ? Mr. Edwaed F. Swift. Yes. There is no doubt about that, I am sorry to say. lur. Wmpnjfi. How much is borrowed money costi ng you at the present time! "^HH^ Mr. Tbatkok. Six per cent. Mr. WmppLE. On this borrowed money do you consider you are entitled to make the same rate of return as you are on your own investment? Mr. Edward F. Swift. We understand it that way, certainly. We all understand it that way. Mr. Whipple. And considerable capital is represented by ac- cumulated earnings. Do you also consider that is entitled to the same return as your original investment in the business? Mr. Traynor. When you say entitled to, do you mean under tliis private control? Mr. Whipple. No, I mean in your own minds. Mr: Traynor. In our opinion of our business, it should. Mr. Chaplin. We figure there ought to be an earning on every dol- lar of value that is invested in the business, no matter where it came from. Mr. Whipple. In other words, your original investment on which you ran a long chance and took big chances in establishing a new enterprise, is entitled to no more earning than the money which has been paid in recently, and which if necessary you ooold go out and float a bond issue to cover probably at 6 per cent ? Mr. Edwabo F. Swivt. Yes; we ocmsidmd we are entitled to the same rate. Mr. Whipfub. That is, you are entitled to the difference between what you pay for money and what you make out of it ? Mr. Edward F. Swift. A bond issue can not be floated for 6 per cent. One company put out one that cost them 8 per cent. Proc- ter & Gamble put out one that cost them 10 per cent. The fact of 66 MAimUX IBOilT UMSTAimS on MBAT-PAOKniO imnifiT. a person bonowing money at 6 per cent is not a fair rate, because you know you have to have a bank account and you have to have eonnections and all that, to be able to borrow money. Mr. Morse. Yon mean 6 per cent purity would have to be con- siderably below par ? Mr. Edward F. Swift. T mean a 6 per cent security about 92 cents a share. It averages to be paid in three years. I know that that money costs me over 8 per cent. Mr. Chaplin. If you go to the bank and borrow $100,000 they expect you to leave about fifteen or twenty thousand of it as a balance. You only really get about $80,000 actual money in that case. Mr. Morse. Some 30 years ago your capital, you said, was about $300,000, and at the present time it is approximately fifty millions. Has that increase been made up, most of it, through earnings which YOU have capitalized or will capitalize, or is it, the greater part of It, new money that has been .inyested in the business I Mr. Tbatnor. Well, the capital will be, when this present increase is effective, $150,000,000. All of that, with the exception of $25,000,000, which is the reoei^ stock divid^id, haa he^ paid in in cash, 100 coits on the dollar. Mr. MoBSB. That is what I want to get. Mr. Edward F. Swift. One himdred and twenty-five million out of one hundred and fifty, at par. Mr. MoBSE. Then there is absolutely no water at all, is there? Mr. Traynor. No, sir. On the contrary, we have not an item of good will among our assets, trade-marks or anything of that kind. Surely the good will of this business this last year amounting to $875,000,000 in sales is an asset. Mr. MoBSE. You have absolutely no so-called "water" in your capital ? Mr. Traynor. Not one drop. Mr. Tator. Just at that point, you say that all of this money has been paid back, but to what extent have you issued dividends out of the surplus simultaneously with a new payment in of cash for stock issued ? Mr. Tbatnob. Paid back! jBid[r ^Fator Y*e8. Mr. Tbatkob. I said that all of the capital had been paid in in . cash with the exception of $25,000,000* Mr. Tatob. You are technically correct I know that is true. But I also recollect a dividend two or three years ago of $26,000,000 or $33,000,000, which was it ? Mr. Tbatnor. $25,000,000—38 per cent. Mr. Tatob. Now, at that time ^ou paid a cash dividend and ap- proximately at the same time you issued new stock! Mr. Traynor. To those who wanted to buy iti Mr. Tator. To those who wanted to buy it? Mr. Traynor. Yes, sir. Mr. Tator. And to that extent that was capitalizing the surplus — not technically speaking, but practically it amounted to that, didn't it? Mr. Traynor. No. No more than 6 or 7 or 8 per cent that we paid in all those years. Mr. Tator. I know your viewpoint of that. But here is what it amounts to. You paid $25,000,000 in dividends and the same stock- holders had a right to turn it hack and take stock? Mr. Traynor. Yes. Mr. Tator. And the majority of them did that? Mr. Traynor. Yes. Mr. Tator. Practically all of them did it. I say, to what extent has your capital increased in that way prior to that last $25,000,000 m 1916 or 1917? Mr. Edward. F. Swift. That could be arrived at by getting our total dividend. Mr. Traynor. I have not it all in mind, but that is the only one in my experience with the company, which covers 17 years. That was a cash dividend and it was a cash subscription of stock. It was not a stock dividend. Mr. Tatob. I agree with you technically that is true, but prac- tically it is not. Mr. T^TNOB. No ; that is wrong. If t^ey did not want to buy the stock with it they could have bought an automobile. Mr. MoBSB. True, they had the option, but the practical e£fect of it was that you supplied the cash to these people m order to buy the automobile if they wanted to do it. ^ Mr. Tbatnor. We paid $25,000,000 cash dividend and at the same time we authorized an issue of $25,000,000 worth of stock to the stockholders of record who wished to avail themselves of an oppor- tunity to buy it. Mr. Morse. And if a man did not want to avail himself of that, lie did not do it, as you say. He bought an automobile, or he spent the money, or he kept it? Mr. Traynor. Yes, sir, and some of them did. Mr. Morse. But most of them did buy stock ; so that you provided them with the purchase price to buy these new shares? Mr. Traynor. If they wanted to. Mr. MoRSE. That is the practical effect of it? Mr. Edward F. Swift. Notwithstanding all that there is no water in the stock; not a penny's worth of water in the stock. And may I say that up to that time we never paid over 8 per cent, and some- times only 6 per cent over a series of all these years, and if anyone was figuring what our dividends were you would have to figure it over those 30 or more years. Mr. Mobsb. And Mr. Swift, prior to the time which you raised vour capital to one hundred million instead of seventy-five million, now much of the seventy-five might be put in the same class as that twenty-five million? Mr. Edwam) F. Swift. Never over 8 per c^t in any am year, be- cause we never paid over 8 per cent total. Mr. Morse. The rest of the capital represented money paid in? Mr. Edward F. Swift. It did. We can not a^ree, that our cash dividends are used for capitalizing the company, because a man gets $8 in a year, he has the chance as we did increase our stock from a smaller amount to ten or fifteen million dollars, that man never got over $8 a year. Now, he had to go out and dig up the other $92 some- where outside of the $8 he got ; and you can not consent to the propo- sition that our dividends are capitalizing the company. Our divi- dends have only been a very reasonable return on our moner, and States ^'^c®™! ^« any othmr large business in the United Mr. Chaplin. I would like to cosk Mr. Tator what his point of view IS on money that has run the Ufe of the business; whetKer that IS entitled to the same profit ? Mr. Morse. Suppose that Mr. Whipple asks you that Question* since you have asked Mr. Tator. ^ ^ Mr. Whipple. I have asked that question already. I do not think that in the position Mr. Tator is in he is competent to answer that at the present time, because it is a question for the commission to decide, and there is no man here representing the commission who would care to decide that question. In fact, that is a question that wUl be put up to the commission itself to decide, and always has oeen* Mr. CHAFLnf. It would seem that a dollar from one place or a dollar from another is entitled to the same opportunity to earn. One dollar 18 iM)t any different from another one. Mr. WmmjB. Well, there are different views on that among good authontoes. Mr. Edwabd F. Swivt. May I say something about that in con- nection with other phases? j Mr. Morse. I do not beliflfve mjom has got any view F. Swut. ,The point I want to make is tiial our divi- dends must be spread over a series of years. Mr. Whipple. There is (me i^uestion I would like to ask in con- nection with this work. In arriving at the product of your business, can it be arrived at accurately in all lines or in certain lines for a smaller period than a year, or a complete cycle of operaticms, or an order to do the business justice, must the profit be tak^ as over the whole year? Mr. Edward F. Swift. I think it is very necessary to take a whole year for the reason that some product is carried at least six to eiffht months. Mr. Whipple. You mean that you have seasonal operations which could only be determined by looking at the business as a whole? Mr. Edwakd F. Swift. Yes, sir. Ifc. Whipple. Then in order to form a conclusion as to the result the busmees of any packer or the sale of any packer may be, you would have to look at the business of the year ? v > Mr. Tbatnob. Yes. Six months would mislead you. Mr. G. F. Swift, Jr. Yes. Six months would mislead you more than it^ would lead you, because I think if vott will look over you would find the history showing that where dz months were good or bad, in seven cases out of ten the next preceding six mra? tJUlTATlOK 0» IIBAMACKIKG IITDUSTEY. 69 the good points all over and tried to thrust that system upon you, if you might call it such. Mr. Edwabd F. Swift. It is a matter of infcrpmation. Mr. Chaplin. Yes. We are very favorable to thfat. Mr Whipple. Now, in considering the return on the capital in- vested in the business, or the net worth, or however it is to be deter- mined, it is usual to look into the risk or the extraordinary hazards of each business. Now, has this business any extraordinary hazards, and in connection with it in that discussion, just as much as possible leave out the question of fluctuation in market. Now, the fluctuations in the market, we understand, are a large factor from the pomt of Uie packer. Now, just keep the two distinctions separate. Discuss either one as much as you want, only keep the two distinctions separate. That is, first discuss the market hazard ; the fluctuations in the mar- ket, and then what you might call any uninsurable ^J^^ affect your assets ; such as fire, or explosions, or an a<* of God wliieh would affect your property as a whole. , , ^ , ^. i.- . t Mr. Edward F. Swdt. The first is the market fluctuation which 1 have given an illustration of, considering we are liable to show a deprecation of $20,000,000 in any one year on a department covered by our 9 per cent rule. About the hazard of lightning or fire or un- foreseen contingencies that should— that is very apt to happen, and it is very apt to hit oob packer harder than another. One might eecM)e, and another one might get severely crippled. Or, m other words if our plants at Kansas City should be struck by a cyclone, or the Kaw River should overflow and practically keep us from oper- ating for three or four months, we are at a very serious disadvantage in ttudng care of our business, and our trade loss would be something enormous. . , 1 1 , j j.- Mr. Whipple. Then, your loss in that case would be due practi- cally to the ravage of the flood or the cyclone ; practically due to the idle time of your plant? Mr. Edward F. Swift. And some one else taking our trade mean- time. Mr. Whipple. Loss of trade? Mr. Edward F. Swift. Loss of trade. Mr. Whipple. That would come undeF the idle tmie of your plant! Mr! Edward F. Swift. No. Hie loss in trade would be very much more important , _x x tv Mr. Whippml The loss of trade would be mwAKD F. Swut. Largely in the old Ime companies, but we have an insurance company that we do carry a portion of it ourselves. Mr. Mc»aB. Will you mention some risk that you have had in recent years that made any considerable loss? Mr. Chaplin Six or seven years a^ w, ptt^iaps, 10 years ago. Mr. Morse. Whereabouts was it? ^ ^ J Mr. Chaplin. Kansas City and St. Louis and St. Joe. Mr. Morse. How much money did you lose about at that tinei Mr. Chaplin. I think a little over a million dollars. Mr. Morse. That was 10 years ago? Mr. Chaplii^. Yes. Mr. Morse. Have you had any since? Mr. Chaplin. There were two bad floods at Kansas City Mr. Morse. You say one was 10 years ago? When was* that? Mr. Chaplin. I think two years before. Mr. Mouse. You had one 10 years ago and one 12 years airo ? Mr. Craflin. Yes, sir. • ^ • ago?"^" ^^^"^ * million dollars you lost in the one 10 years - Mr. Chafmn. Yes, mr; in one of the floods. Mr. McnisB. How much in the other one? Mr. C^AFON. I do not reccdlect The loss was considerable. Mr. MoRSB. Has there been any loss since that time, through those two floods? ^ Mr. Chaplin. There have been some small otoppaffes: not venr great, four or five thousand dollars. © > ««v »«jr Mr. Morse. To what extent, do you know? Mr. Chapin. Oh, I suppose, perhaps, a thousand dollars. That is not countmg in addition to the intervention of the business Mr. Morse. Have you had any other losses— uncontroUable losses? Mr. Chaplin We have had some losses from cyclones; not serious. Mr. Morse. When were those? "^^^^^ I ^'^st year down at St Joe tbat did some damage and at Omaha and St. Louis; not serious. MAXnCTTM PROFIT UMPTATIOir OF UXAT-TkCmSQ ITOUSTBT. 61 Mr. Morse. In other words, for the past 10 years vou have had no damages through things of that kind; floods or fires or things that you could not insure agaii^ that amounts to over 5, or 10 or 20 thousand dollars, in 10 years? Mr. Chaplin. Except the one of a million dollars. Mr. Morse. Well, that was 10 years ago, I understand? Mr. Chaplin. That was 10 years ago. Mr. MoBSE. You have had none since ? - i Mr. Chaplin. No. not serious. Of course, we are still situated as we were then. Any year we are liable to be flooded and it re- quires just a necessary combination of circumstances. Mr. Morse. In other words, there is no particular hazard m this business. It is a pretty stable, standard, substantial business, isn't it? Mr. G. F. Swift, Jr. I think it has about its average hazards out- side of the market. ^ ^i.. i. ^i. ^ • Mr. Morse. Well, keep that out for this reason. I thmk that is part of the business, price fluctuation. . , , . . Mr. Edwabd F. Swirr. But, if you will aHow me, this is an extraor- dinary time. Prices have advanced to such a point, to a higher point than they ever advanced except during the Civil War m the United States, and the hazard is much more than usual. Mr. Morse. Do you think there is going to be a great slump in meatpricesafter the war? •-, ui ^ ^• Mr. Edwabd F. Swift. I think there will be considerable reduction in prices after the war, and I would like to tell you the reason why. Mr. Mouse. I would like to hear that. Mr. Edward F. Swift. Because England and France will buy their meat and wheat from South America and Australia instead of from the United States, and at the present time there is at least 20 per cent — of the five large packers — there is at least 20 per cent going to France and England, as against possibly 5 per cent before the war. With the 20 per cent that is now going to England and France, that will have to be consumed at h Mr. Edward F. Swift. No h^''iZ''l^„?£}t!Lr' *« ^^rt small quantities of Mr. Edward F. Swift. Not up to a carload. S to-d^J^braSia^L'^'ilidtyroflar^^ can winter more cattle ^ **' «> *orth. They of^^i^rrhe'^Sirfe^^ ^V-r point bfAagr done away with? doe to th. big ranches pc>rtion of it has bee^ K fo?cot on-^b^rwi'*''*!!?^ ^ • It up they will take better c^Trf fh« ^^f/i 7^®"? ^^^y have spUt findwayLfraisi„g'^n Mr. Chaplin. The overhead on what? Mr. Morse. The overhead expemb. How do you diiitrihiitf> the overhead on your plant? Mr. Chaplin. What do you call overhead! Mr. Chase. General administration. Mr. Morse. Oh, superintendents, insurance, taxes oa buildinn, and things of that kind. Mr. Chaplin. Insurance and taxes is based on the values of the house and the building, with the department in it. The value is so much. We arrive at the value of each department— the insurable value— and we pro rate the total insurance for the plant on that basis, month bv month. Mr. JIloBSE. How do you take general administrative expenses? Mr. Chaflin. Administration expense is based on the output; the sales. Eadi dollar of sales stands its share of the administrative expense. One-half of 1 per cent, or whatever we have fixed. Super- intendents is based on labor. Mr. Morse. I am going to show you a figuration made up by Mr. Chase which is headed : " Percentage of pn^ and net worth.** This IS on the plant of Armour, yourselves, Morns, Wilson, and Cudahy, and net worth is divided up between class 1, class 2, and class 3, and your total net worth ; and then allowed percentages— percentage of profit, and so forth. The basis for this calculaticm is the last four months' pro rata, so as to take in an entire year, and I want to ask you what your explanation is as to the variation of these different percentages as between the different plants that I have mentioned. I wish further to call your attention to the fact that the total percentages, that is on the total business, you do not find the same variation that comes down to where they are more equal. Mr. Edward F. Swift. I do not feel that we could answer that question now without further study. I do not think we are suffi- ciently familiar with the subject to ansy^er it, and I do not think it would be fair to you or to us. Mr. Chase. We know that from the bottom of the record here, that Swift & Co. are going to earn aproximately 25 per cent on their net worth; that is on capital plus the surplus, this coming year. Mr. ^WABD F. Swift, We think a mistake has been made in these figures by including our foreign business for the year and multiply- ing It by 3, for the next eight months, and that the figures will be cwifflderably less. We propose to give you a written statement of our records of the same by 12 o'clock Wednesday, which will be made a part of the record. We also think that etch daas, class 1, class 2 and class 3, should be dealt with entirely separate. From our stand- point they should be dealt with entirely separate. And we further think that the question of foreign profits madid not be assodated in any way with domestic profits. Mr. Morse. I understood you to say, Mr. Swift, at the begmning of the conversation here, you made a statement that you did not think this regulation had been in force long enough to test its prac- ticability one way or the other. Did you make such a statement! Mr. Edward F. Swift. Yes, sir. Mr. Morse. You did? G6 MAXIMUM VBOm UMITATION ON MBAT-PAOKING Iiny08XBY. Mr. Edward F. Swift. Yes, sir: as to profits. Mr. Morse. How long do you tnink this present regulation should be in force before a fair test of its workability could be obtained! Mr. Edward F. Swift. One year. Mr. Morse. I understand you then to be in favor of its continu- ance in all of its present forms for one year? Mr. Edward F. Swift. Yes ; with the exception of the transfer of certain departments from one class to another, as previously stated. We think a liberal allowance should be made for reserve inventories carried from one year to another. Mr. MoBSB. Mr. Swift, fran the standpoint of an aeoonntant, I always like to see cost of a product charged to the particular de- partaient at the actual cost thereof. It has been explained to me by various ones as to the difficulty of doing that in the meat-packing indnstrj. Do you believe if such a method could be found or ascer- tained, for ascertaining the exact cost — no theoretical cost, but the exact cost— do you thi& it would be a benefit to the industry ? Mr. Edwabd F. Swift. We doubt if exact cost could be obtained, but we think approximate cost could be obtained. Mr. Morse. But you are obtaining now the approximate cost or the cost as near as you can obtain it, as I understand it. Mr. Edwabd F. Swift. Yes, and are constantly striving to perfect the same. Mr. Morse. But when you credit stuff at the market, you are not crediting it at cost. You are taking profit or loss whenever you credit any product at market Theoretically that is true. No explanation can alter that. Mr. Tratnor. But doesn't your question carry with it an inference that we are doing it perhaps one way when we ought to be doing it in another way? Mr. McNBSB. Oh, no. I haye been very frank with yon. Mr. Tb4tn<». But the proposition led up, as I unaerstand it, was Iroili the suggestion that omr costs mig^t be more accurate than they are. Mr. MoBSB. Possibly th^ might. I donHi'know. Mr. Traynor. As I unaerstand your question, if a system could be devised that would produce^ accurate costs, would we be glad to see that, and ihe answer is, *^ Yes." But as far as we are concerned, we are figuring costs as accurately as we know how. We have been trying for thirty years to do it better each month. We have got a system now which we think is as good as it could practically be. Mr. Chaplin. It can be improved, imdoubtedly. Mr. Traynor. But understand, there are about twelve or fifteen hundred elements enter into the process of figuring the cost of one steer. We try to get them as exact as we can. Mr. Chaplin. It is not like some mills, that you can split them up by some chemical combine and have exact quantities of the two elements. In a steer, every brand changes. You have got to take averages. Mr. Mourn, Ton see, idien your books aie kept the way they are, with the interocnnpany profits here and there and different places, it is a y«Ty hard matter for the Gkyf^^mnient to come in and fmik up and see just what you are doing. Not that I am assuming th«k' you ^ ICAXnCUM PROFIT UMTrJOtm OK MBAT-PAGKINO IKDUSTBY. 67 are doing anything wrong at all, but if you have to do S(»nething you should certainly give them a right report Hence, under the system it is hard for a man to come in here and check up. You y could fool a man dreadfully as to what your profits are. Mr. Edward F. Swift. We do not feel so disposed. Mr. Morse. Do not think I am insinuating that you do. I do not want you to think so. But I am just thinking of the possibilities if you did want to do so. ^ Mr. Edward F. Swift. Our figures are entirely open to the Govern- ment. It IS no secret that the correct results of our business are shown on our books. Mr. MoBSE. Oh, yes. I do not doubt that, but I was saying that I would like to see something done if possible where some way V Sk^^"**^™®^ ^™ Government's standpoint in conducting ^ tne tMX)Ks. Mr. Edward F. Swift. There isn*t any trouble. The only trouble I see IS the point of tune. If you want to go into the details, you can check the division of one departamt itmik another closely, but - you can not do it in a minute. course you can't. That is the trouble. T^- "^I^^u • ^^^^^ iMWMWM witii a YoLwm and with the big interests that this is, unless you wiU take the time to check it. That is the answer. Mr. Morse. I think you are dead right. . > Mr. Traynor. It can not be checked in a half a day. It can be checked just as easy though as any other business. Mr. Edward F. Swift. It can not be done in one afternoon. Mr. Morse. I think you are absolutely right. Only that I am sorry we have to try to do something in one afternoon y Mr. Traynor. It is not fair to you and it is not fair to us, and any conclusions you reach, I do not care who does it, can not be ^^2r* Jgry nauch if you try to do it that quickly. Mr. Edwabd F. Swut. You ought not to try to do it in one after- y TiT^^/^i?***'?- ^ ^ consideration one thing. wJ?^'r*i?*l'^ ^'^^^ t^at he has col- lected of the big mdustnes, which if we did not have them and have an opportunity to go over those befcm we came here, we would never have sot started straight Mr. Chase has done an awful lot of work here. him Edwabd F. Swot, JUd we have constantly cooperated with Mr. Morse. That is what he said; that you had been perfectly willing to give him anything he asked for. F^«^y ^ Mr. Edward F. Swift. Yes. That is a fact. y I know he appreciates that and I know I do. Mr. Whipple You just made the statement, and I think it wants to be understood by the packers, that we are not here to determine whether the packers' methods of keeping books are right or whether their figures are nght We are only here to pass an opinion on the work that the Federal Trade Commission has done thus far, p. wb^^we think they are following the proper line of investiffa- U(3^ I think we can form a very close opinion of that by the te^- 58 aUJUMUM PBOf IX UM^XAXION QIT MSAT-FACKING INDUSTBY. mony that you people have given and that the other packers will give. Our investigation does not include either righting figures or claiming that they are wrong. We are not interested in that at present. We are merely rank outsiders called in to give an opinion as to the methods the companies operate on. Mr. Morse. Is there anything else now, genUement Mr. G. F. Swift, Jr. We think we have a few little things, sort of fundamental ; if agreeable to you we would like to present to-morrow in just a little memorandum. It would not be long at all, along with this leUer that we were going to give. Mr. MoBSE. We will be very glad to have it Mr. G. F. SwnT, Jr. Make it a part of the recordi Mr. Morse. And make it part of the record. Mr. G. F. Swift, Jr. It will be cam^ and dear and saye time and save a lot of explanation. Mr. WmFfiJE. You may provide now that anything that you gen- tlemen want to submit before we finish up this record you will sub- mit it and it will go in the record and will be bound up as part of the record. Mr. Traynor. Even subsequent to this letter? Mr. Whippus. Subsequent to this letter, but we are going away soon. Mr. Chase. Up until the 24th of June. Mr. Edward F. Swift. We will try to get it in to-morrow. Mr. WniPPiiE. Anything that you can submit we will all welcome heartily. (Whereupon, at 5.15 p. m., the hearing was adjourned until 10 o'clock a. m., June 12, 1918.) ABMOUB, WHiSON, AKD CUOAHT. Chicago, III., June 1^, 1918 — 10 a. m. Present on behalf of the Federal Trade Commission: Stuart Chase, Esq.; Samuel W. Tator, Esq.; Perlev Morse & Co., certified j^blic accountants, New York, lepresented by Periey Morse and P. S. Whipple. Present on behalf of Armour & Co. : F. Edson White, Esq., vice president; W. P. Hemphill, Esq., general auditor; and (later) J. Ogden Armour, £lsq., president. F. Edson White was called as a witness and, being examined, testi- fied as follows: Mr. Morse. Mr. White, you are more or less familiar with the United States Food Administration Meat Division rules and regula- tions that have been in force since November 1, 1917? Mr. WnrrB. More or less. Mr. Morse. Have you any suggestions for amendment or change of these regulations in any way? Mr. WnrrB. Our suggestion on changing of the regulations would be the profit under artide 2 and change of the classes. We think, for instance, that you now under the ruUngs have got some aooounts in elasB ttiat in aU ibuniess should be in class 3. MAXIMUM FSOFIT LIMITATION ON MEAT-PACKING INDUSTBY. 69 Mr. Morse. Would, you mind mentioning the names of those accounts ? Mr. White. Well, we particularly refer to what we call our Thirty-first Street accounts, which is a plant entirely apart, located a mile and a half from the stockyards, run by an entirely separate organization, buying but part of their product from Armour & Co., in competition in trade in which it is engaged with some of the biggest people in those lines of trade, as well as the smaller, upon whom there is no limitation. I refer particularly to what is kno¥ni as the glue, curled hair, and soap accoimts. Mr. IfoaisoB. Ton control this eoncem yourself, don't jou? Mr. Wmrn Absolutely. Mr. MoBSE. By stock ownership? ytt, WHim It is part of Armour & Co. Mr. Morse. It is part of Armour & Co. ? Mr. WmTB. Yes. Mr. Hemphill. Armour & Co., of Illinois. Mr. Morse. And you own 100 per cent of the stock? Mr. Whttb. Yes. Mr. Whiffui. Would you think that should apply to butterine and fertilizer? Mr. White. I think it should apply to leather and fertilizer and butterine. Mr. Hemphill. Pardon me, butterine is now in class 1, Mr. White. This in general substance is the same. Mr. Hemphill. But you are talking about class 2 departments. Mr. White. The mince meat department, city fat, gut string de- partment and the pork and bean department. Mr. Morse. In other words, your contention is that all articles on which you have competition irom the outside should be put in class 8, is that the ri^t understanding? Mr. Whtib. That is an argument for it, but the essential point is that it is not really a part of the beef business or packing business. It is just a separate institution. The fact we are in tiie glue business is only incidental to our packing house. For instance, in our glue — where is your investment she^i Mr. Hemphill. Here it is. Mr. White. We have got three and one-half million dollars in- vested in the glue works, and we buy from Armour & Co. less than half of the product to make the glue. The balance of it we buy all over the world : China, South Africa, and South America, and when the Europe markets are open, in Europe. It is not any part of the pork and beef business. It is distinctly a separate institution. The soap works, we have got $5,500,000 invested in the soap plant. Our competitors are Procter & Gamble, and Colgate, and all such people as that. The soap business is only an incident to the packing house business. We buy vegetable oils in every part of the world to make soaps. You see, no animal oils go in the fats, nothing that comes from this packing house, so why limit that business, why put a restriction around the Armour Soap Works if there is not one around the bi^est men in ihe business? Mr. M(»8B. I ou mean, Mr. White, that the packers are 70 UAJOMVU PBOFIT UMITAXION ON lOUl^PAOKINa imV&m. Mr. White. Let me say further that in that soap business 76 per cent of the product we buy comes from other than Armour & Co. Mr. Hemphill. In raw material. Mr. White. Raw material I refer to, of coui-se. On the ghie busi- ness, 48 per cent of last year's 1917, purchases came from outside of Armour & Co. The sandpaper works down there, part of that insti- tution, 100 per cent of it came from outside. Mr. Morse. Do you think, Mr. White, that the packers or, at least, Armour & Co., would look with favor on a segregation of business, so that the packers would only conduct that portion of the business they are now cdy would figure, according to about how the goods were selling last If fim can sell than reiulily, then^ is no qu^ion about arriving at the cost, but if you lutve to hold Uiem for some reason we have not any ccmtrol over, that is the sale and demand, we hold them, but the^ may go up or tiiey may go down. Mr. White does not mean to say they always go down, at uL Mr. Morse. You have got a profit or loss right there. Mr. AufonB. Yes. It does not always go down at all. It may go up and we have a profit. But there is that uncertainty that no one can tell. You could not tell. Nobody could tell. Mr. Morse. I can appreciate that. Mr. Armour. It is simply like we ship 500 pounds of pork loins to New York or any town down there. We think we might get 30 cents for it, or 28 cents for it, but it might strike a warm day, or we might get 31 cents for it. It either goes up or goes down, so we do not control that. It is a physical impossibility for any- body to control it. I am very glad to have seen you. I wanted to see what you looked like. I am glad you have come, and it is unnecessary to say our plant is open to you. Anything you do not understand, just ask us, because we are better off if we can have you understand everything about the packing business. There are no secrets about it There is not anything strange about it at all, but there are conditions an outsider would not understand, naturally, immediately, because it m a bosmesB that is diffeienl fioai uny othmr business. You can MAXIMVM PBOFIX LIMITATIOJJ ON MEAT-PACKING INDUBXBT. 7& put a price on any other thing— steel rails or iron— and it stays there. But here is something that deteriorates; sometimes we get less than we figure for it, and sometimes we get more. I am glad to have seen you. Mr. MoBSE. I am glad to have seen you, Mr. Armour. Mr. Akmoub. Qood day, gentlemen. (Mr. Armour here left the room.) Mr. Morse. Now, Mr. White, in view of what you said, do you think that these regulations, having only been in force from Novem- ber 1, 1917, to date, that we have got a sufficient period of time for a fair test as to the workability of these regulations, in view of the f ac^ as you have suggested, that there are hold-over inventories, stuff that you could not use, which you have taken up at a more or less arbitrary price, the best amount you could form in your judg- ment, which have been taken over from time to time in these in- ventories, so that profits or losses could not be considered with any depee of accuracy for such a limited time; is that your opinion? Mr. White. That is exactly my opinion. In my 25 years' expe- rience in this business I have never seen two years of it »^n^ jmi^ the same. Mr. Morse. That is on account of the hold-over part Mr. White. It is a seasonal business. Mr. Mobse (continuing). Is it not? • White. It h hold over. There are so many things that enter into the final profit and loss of this business that you can not on a six months' application of rules come to a conclusion. I do not care what conclusion you come to to-day, or any of your investigators, I will guarantee in six months from now they will change them themselves. You simply can not do it, Mr. Moise. I would say this, however, in my argument about the elimination of these accounts. The reason they were put in there, I assume, was m order to get a balance on them, to get a viewpoint of them to see how they were handled. I assume that was the reason ; because I can not assume there was any good reason for limitation of a busmess, pork and beanbusiness, the mincemeat business, the animal- hmited, and I refer to the leather, fertilizer, soap and the glue business, pork and bean business, the mincemeat business, the animal- oil business, and the city-fat business. Mr. Morse. But you contend the business has to be viewed as a whole and there can not be a separation of the industry, that is the meat-packing business and the by-products, for economical reasons? Mr. Wnrra. That is what I was going to answer you. For econo- mic reasons it would be impracticable to do it. It would be a willful waste of effort and of efficiency. Mr. Morse. Did you desire to say something, Mr. Hemphill ? Mr. Hemphill. I was going to ask if you meant a fair separation of pronts as between those two classes, class 1 and 2. Mr. Morse. I did not mean that at the time I was talking- Mr. Wnn-E. You were talking of the business f Mr. Morse- I was taUdng of the business from an economical standpoint. Now, Mr. White, according to these regulations, it is necessarv to divide your capital invested into three classes. Have you found anv difficulty in making that division of capital! *vwu* anjr Mr. Whttb. No. ^ Mr. Hemphill. No, sir; none at all. Mr. Moan. Does Ui*t division show your specific accounts on your books ? Mr. White. I think not. Mr Hemphill can answer that. Mr* Hemphill. You mean between classes? In some cases yes, and in other cases we have had to divide the capital between the classes on the basis we thought was fair. Mr. Morse. In other words, as far as your books are concerned, you have no record of this division. It is simply with you a statis- tical record that you worked out to the best of your ability ? . Mr. Hemphill. No, sir. For instance, with your leatlier business it is absolutely distinct in every way. The leather tanneries are sep- arate and apai-t from the packing business. ^ . Mr. Morse. But you could not do that in some instances, where yon are mixed up altogether! ^, i. ^. Mr. Hemphiix. We do in most cases. For instance, the ferti- lizer and curled hair, and, as Mr. White speaks of, the Thirty-first SU«et industry, a mile and a half away from here, with their own executive officers and thieir own accounting force, and entirely sep- arate from the Armour & Co. business here. Mr. WnrrE. The only thing we do for them is to furnish them money to do business on. Mr. Hemphill. And charge them for it. Mr. WnrrE. That is only a matter of banking. Mr. Morse. Could I, as a rank outsider, come into your books without any steering or coaching from you and could I determine your investment in these various classes? Mr. Hemphill. Very easily. Mr. Morse. I could do it with a little study. Mr. Hemphill. With a little study it would not be hard at all. Such divisions as we have had to make have been alone logical lines, and in most cases submitted to Mr. Durand and Mr. Wnite, and they saw the feasibility and approved it. " , . . • , Mr. White. I do not think — ^before we get on this i>omt — do not think there is any question in your investigators' minds about the segregation of these various departments I nave talked about We have transferred the product at the transfer value; that is as near the market as possible. Therefore, the class 1 from which these by- products come gets the true accounting value of that product. So that that would be the onlj suspicion which would be about those accounts from a rank outsider ; the fact that they get some benefit from the major business like the live cattle, by transfer to the glue account, and bones at some arbitrary fixed price that might not seem to be fair, but I think we satisfied Mr. Chase in his accounts that that transfer basis of ours is all it should be, so then, to our notion, we have satisfied the Food Administration and the Federal trade in- vestigators up to date on our segregation and on our method of seg- '^r. Morse. I will say this, Mr. White, as a rank outsider here, what would occur to mv mind is the value or the valuation of these assets, but I want to take that up with you a little later. I want to ask ^ou now if you are familiar with the Canadian rules and regula- M4XI1I1UM: PBOFIT LIMITATION ON MEAT-PACKING INiyilBlST. Il tions. The basis there, I presume you know, is entirely diferent frwn the United States regulations. WKito. Mr. Hemphill. I do not beUeve you have seen these, Mr. White. ^ te.^MoM^'^LupposeMt. Hemphill answers that question. Mr. Hemphill. I am familiar with them to a certain degree. Mr. Morse. Do you think the Canadian reguktions, if applied here inthe United States, would be moie workable or more equitable than *^l£r'^2S^^Xv^^t given a great deal of attention to that for the simple reason that our Canadian business is not of suthcient impOTt^ justify it. With us the Canadian food regulations ST^^i^ making out reports, because we have not made any "^u/wu^W^^^^ a committee to Canada about two weeks ago to answer whether or not we would close up that plant. Mr Morse. The regulations are in force? , , , . , „^ Mr. ^MPHiLL. The regulations are in force, but the forms have not been sent out. As I say, all it means to ^V^J^^^%""te"o? the reports, so I have not sent the regulations downto White or any of our executives here, because it did not mterest us. We have ^rWH^B.^^^^^^^ in Canada is. on a ve^ ^^^ffl hfl^iq The Dork industry over there is being run at a fngbtful KWB to day, and Wt will Jdone I dont know, but so far as the l«g«- ktions on the business are concerned we have not paid very "nuch attention to them. We have not pot to tiw ptace wWb the limit-r tions of the Government were of mterWt. Mr. Chase. Is Hamilton your t therel Mr Mo,^ S2 ^fL^^d, Mr. White, any other regulation wUch J^Hd^would be more ^qniUble or effective than the one wMchBnowin foice? Have you any suggestions you want to make? Ton see we are searching for ideas. t ^t,- i ;a Mr!wmrE. I think I have no particular suggestion I think with theroi^ changes in the present regulation which is merely the a^oU^Kf what departnient of that article 2 the various de- Si^nte are put under, I think with that the rules and regulations are as fair as we could hope for. Mr Morse. I notice that you close , x ™ Mr Whife. Pardon me just a minute. You have now, «s I un- derstand it, the Agricultural Department which tak^^VMrt^ . fertUizer businessf working on it, and the War Industnw BoMd have a committee kt work with the tanners, tc mate a limitation on the tanning industry, so it will seem, that those two aooo«nt8 will take care of themselves in that direction. , u Mr. Hemphill. Pardon me. WhiU tiie fertabmig deiiMtment » working under direction of the Bureau of Agriculture as far as pncM Tre concerned, the Food Administ rsjon or the Federal Trade Com- mission still say that they regard^^Mitili^ •« ™ class 2. That seemed rether— — , ^ • ^.v, u * Mr. Whim. The fertiliser business, if you get into that before you «et away horn this general pMkmg industry, you will find how bttle in the feii8e and said excess to be computed on the basis of the aggrepite Of mnA Inddbtod- ness of all kinds and aggregate interest thereon. Is it your interpretation of this paragraph that I have just read that in this bond issue practically 1 per sent oould. be charged to operating expenset MAmcuM PMOiiT MmT ATi 0y og muoHfAmsm uiiHi i i i iMe. 88 Mr. White. I would asume so. Mr. Morse. You would assume that was true? Mr. White. Yes. First, the 5 per cent was arrived at as being a fair average of what the business had done to the date on wluch the regulation was made, and we were in a period of war, with the uncertainty of interest rates, and the point was made we can not tell what we are going to be required to pay for money, and it would hardly be fair that we would have to borrow money to conduct a business with and not get a return on the money beyond what we have to pay for it. We go out and borrow — our statements show we are eztoemely heavy borrowers, and within the last month you CQuld not get money at less than 7 per cent. Now, we are limited to 5 per tait or to 9 per c^t on onr capital and money invested, and paying 7 per cent for part of it we are not getting very much to run on, in this highly speculative business. Mr. Morse. Assume fw the sate at argument you are getting net 92 for those bonds. Mr. Whux. I wish you would not inter]^ me at all «m the bond issue. Mr. Morse. You can put that on record if you want. FPAOKING INDUSXEY. Mr. MoBSE. Is Mr. Armour a subscriber to any extent to those bonds? Mr. White. None whatever. Mr. Morse. He has not subscribed to any extent to those bonds! Mr. White. None of the family have. Mr. Morse. None of the family have or financial friends? Idbr* Whus. No. Mr. Mmm. He is not oontemi^ing at the present time hsTing any intttrest in those hondsff Mr. WHna. It k ovtirely sold to the banks for disinbation to the public. Mr. Morse. And it is your hope that these bonds will be eTenta- ally converted into preferred stock ? Mr. White. We nave no doubt that will be done as soon as that conversion can take place. Mr. Morse. And in course of time, if you issue common stock, I presume you have not yet decided what the consideration of that would be, have you? Mr. White. There is no plan at all about the common stock at all. Mr. Morse. You do not know whether you would sell it for cash or give it out in the way of dividends ? Mr. White. I have not the slightest idea. Mr. Morse. Or what you would do with it? Mr. Whttb. No. Mr. MoBsi. Then, as I take it, there is not much in that newspaper mrtidel Mr. Warn. The an)? thing in it is the fact we ha^e sold sixtj nilions dibentnres that are coiiTertiUe mto prclenrad sto^ ttt T pw cent. Mr. Morse. Does that cover the article, Mr. Tator? Mr. Tator. The article states the bonds will probably net about 96, and that sixty millions will be reauired to be converted into sixtj millions preferred, with part of the nundred million preferred ulti- mately to be issued. Mr. White. The fact that Mr. Armour has decided to issue sixty millions of stock to-day does not estop him from issuing more as the requirements coine on. The purpose of this was to get some new money in the business, and we had to do something to protect our- selves. Mr. Morse. Of course, you can go as far as you please. That is your own funeral, as the saying is. Mr. White. But I am sure if you had made a study of the require- n^ts of this business for the last year in comparison with what it was in 1916 or 1917, in the way of money, you would see the necessity fdr such a move as was made here. Ifo. MoHB. I know some&ing about the packing business in regard to that| fm the reason that I ha^e auditecf— I say I have audited — wamBi firm has audited a great many bank aooounts where we found packers' paper. I remember some concerns that made a spe- mlty of handling paofaeEs' papery m I know ym do put oat a lot of paper. Mr. White. Oh, my ! Our increases here at times — there are cer- ' tain times of the year when we will increase at the rate of A niUion or a million and a half per day over weeks at a time. MAXIMUM PAOS'IT I^UilXAXION ON MBAX-FAGKING IKDUSXR7. 87 Mr. Morse. Your business has practically doubled, hasn't it, in the last three or four years? Mr. White. In dollars? Mr. Morse. In dollars. Mr. Wnrra. Yes. Mr. MoBSB. And you have had to build additional plants and in- stall additional machinery f Mr. Wmm In every packing house we own we have had to build, and we would to-day be hnilding if building material and hibor were ' available at reaacmabla coat; we would be building much more than we are at present. Mr. Morse. And on account of your-^ — Mr. White. The business is so wearing on property, the changing temperature and the grease and the steam ana cold air and all those things are deteriorating to your property. The packing business needs money all the time to keep it up. And then the Agricultural Department's ideas of a sanitary plant, the development of minds continually, are more and more strict. We can not kill cattle in places to-day that 10 years ago were considered to be ideal. We can not process meat in buildings to-day that five years ago we could. Mr. Morse. I appreciate that. Mr. White. To show you the difference, Mr. Morse, I have in mind now the instance where we had a fire a few years ago in what we called our No. 2 beef house. Na 2 beef house was buut probably 20 years ago of mill construction, which was th^ considered the thing for a packing plant, and it was carried on our books around $250,000. A fire came along one nig^t and wiped it out, and we started in to rebuild, and when we got a building to replace that an investment stood on our books of slightly over fl,000,000. We were doing just the same business in the old place, but you can see how our overiiead increased on that investment^ to do the same business. We had to rebuild our oleo and butterine departments here this last year^ and before we got through our investment in that d^>art- ment, building the plant, was over $750,000, with marble and enamel, and white tiled rooms, in which the butterine is handled, everything up to the last word in sanitation, etc., but the increased overhead on that investment is something to be considered. Mr. Morse. On account of your having to enlarge your plant and doing business under difficulties on account of the sudden large in- crease in volume, I presume your plant is not as efficient as it would be under ordinary circumstances and your expenses have been more ? Mr. White. Tremendously more in every way. And then on top of that the great increase in the labor cost. Mr. MoBSE. I presume that the plant as a whole, the units, have been disturbed, so when you transfer from one department to another you can not do it conveniently. I might mention a little ex- perience of mine that wiU illustrate this thing. I went into a shipbuilding plant one time and the superintendent opened the door of the office and I went out in the shop, and as I went out there somebody hcdlered look out,** and everybody ducked, and I loc^Eed up and there was a great big crane moving a great piece of iron, tons of steel, and that crane picked it up very carefully lm>m a T"^™ in this end of the shopi traveled over to the other end of 88 MAZUCUIC PBOVIT LIMITAXIOH ON UMAMAOKSiiQ iMW^MM. the shop and deposited that stuff down on the other side of the shop, at some other machine. I stood there and watched it, and most every workman in the shop did the same thing, watched this load of iron go across on this crane. I said to the superintendent, " That is mighty inefficient. Those two niacliines should be placed close together, so that that crane could pick up the iron from one machine and just move a short distance, and every one would not stop work and watch this piece of iron going through the air." He said, " That is true, but the trouble is we had to install the other machine at the other end ef the shop before this machine was installed, and we are going to move it when we can." That is what I mean in regard to the placing of your units, on ac- count of this large increase in business in the last four years, and your having to enlarge your plant^ building a little additiusand million a year or ten million or ten hundred million, you do not wailt a business that is not economically sound. Now, if you say to the public, " Don't worry about the volume of that business, we have got the iron hand of the law on it, because they can only take a toll from the citizens of 4 cents on the dollar on their loins," then it is all right ; you have got a situation that would satisfy them. But I do not think it would be fair, in answer to Mr. Chasci to apply IfAXnCUM FBOFIT LIMITATION ON MB4T-PAOKING IVDII8IST. 95 a figure to the packing business oa the basis of the meat industry to the fertiliser and these hi^y specialized industries like the glue business. For instance, in some of the departments of this business we do not turn our money but once a year. In the glue business we turn our mtain £rom the animals. Yon have got to ccmtrol thati and see tliat you do, and you use such parts of mat as yon find cmyeiasat or necessary to meet your demand for the particular articles ^ou WB&t to produce, and the balance you sell. Now, dont yon mmk that competition would be very small as against a concern that con- trols the very articles they are selling to somebody that wants to compete with them in manufacturing the same articles? Mr. Cowan. I do no know that I quite understand you. Mr. Morse. Now, let me make that a little plainer, if I can. Take in the case of glue. You have certain by-products that you use. What you can not use yourself you sell to some one else. You first have had the benefit of the market supply and demand. Your ma- terial has been cheap to you, because you produce it yourself, and after you have supplied the demand, somebody else comes forward and wants to buy the surplus that you have not used. Do you really think that you have to fear that man as a competitor? Mr. Cowan. Yes, I do ; because the other fellow, our oomp^ito^ is perfectly free to go and buy and sell as he pleases without any regulation whatever. . , • . Mr. Morse. I know; but vou people already monopolize the busi- ness. Now, I don't mean that in the way that it may be taken. Mr. Cowan. You mean we are in a stronger position because of 6ur having the material here and not having to go out and buy. Mr. McHKSE. Yes. Mr. Cowan. I might answer that by saying there is a market for those materials always, whether we have those materials here or not. Mr. Morse. But you do not have to go out into the market and - purchase these materials? Mr. Knief. We have to occasionally. Mr. Morse. Occasionally; yes. I can see that. Mr. Cowan. There is a niarket for those materials, Mr. Morse, and whether we have the materials or whether the other fellow has them there is that market; the market is established. What difference does that make, whether wc control the materials and not go through the operation of producing glue ' Mr. Morse. That is true, but you already own those materials. You do not have to go to the mai^^j so you can compete with the out- sider ; you certainly do not fear Ms competiti Mr. Knief. The bedding department is at cost, and the carcass account, if we have any carcasses on hand. Mr. Cowan. This is peculiar to the packing business. It is peculiar to the packing business. It is not good accounting, perhaps. Mr. MoBSB. Mr. Cowan, you have had tnuning as an accountant, ^ have you not? Mr. CowAN. I have. Mr. MoRSE. It is the accepted theory among accountants that m- ventories should all be made at cost? Mr. Co WAN. Yes, sir. V Mr. MoRSE. Whenever an inventory is made, as indicated at cost, ^ are you either taking the book profit or the book loss, and of the date . that yon make up your profit statement? Mr. Cowan. Yes, sir. Mr. Morse. And your profits or losses so stated are more or less V fictitious ? r Mr. Cowan. True. Mr. Morse. In your opinion, do you think a cost system could be instaUed in the packing industry that would give actual cost, so that inventories and transfers between departments could be chai^ged or credited at cost? y Mr. Cowan. I think it would be exceedingly difficult. Mr. Morse. You think it would be very difficult or exceedingly difficult, but do you think it is possible? I have come to you tor that information ; you are an accountant and I have no doubt you have given it very hard, careful consideration, because you realize the importance from an accounting standpoint of getting the exact ^ cost, or as near the exact cost as it is possible to get. Mr. Cowan. I want to answer your question, and I want to answer ^ it intelligently. Mr. Morse. That is why I ask you about these difficulties— you know them better than I do, because you have had the same training V that I have had and in addition you have had the experience of y being on the inside and having studied carefully the packing industry. , 104 MAXIMUM PBOFIT LIMITATIOlir ON M£AT-PACKING INDUSIBY, Mr. Cowan. I want to illustrate one of the difficulties. Say that you buy a thousand hogs to-day on the market here in Chicago, and we will charge the fresh-pork account with the total cost of that thousand hogs. The hogs are brought in here and are killed and hung a few days in our chill rooms, and then they are out, they go into the cutting department and they are cut, and they are cut into the various pork cuts, the hams and the ribs and the loins and all the vark)us cuts — how many would there be, Frank, how many cuts on a regular ordinary cutting, just a guess? Mr. Kkibf. I would say 50. Mr. Cowan. Fifty different cuts out of a hog. Now, I am frank to confess that I am not accountant enough to be able to determine the cost on the 50 various cuts out of that hog. Some of those cuts, a certain percentage of them, go to the sweet-pickle department, some of them to the dry-salt department, others are sold n^h. There, is the cost of curing those various kinds in the pork department, and I want to say that I think it would be almost impossible to determine the cost of those products as they are ready for public consumption. It could only be obtained by arbitrary prices being placed upon them, and wlien we get into arbitrary prices we have lost the cost element. Mr. Morse. You know, Mr. Cowan, that it is claimed that cost systems have been installed in hotels where they buy a slab of beef or a side of mutton, or what not, and can tell the exact cost of each cut, each lamb chop a man eats? Mr. Cowan. I have heard of it. Mr. MoRSE. Tlie slice of roast beef put on his plate, his potato that he puts into his mouth, and all that ? Mr. OowAN. I have heard such a thing has been done. Mr. Mosffi. Do vou think if that can be done in a business as fluctuating as the hotel business it could not be done in a business induslrvf Mr.C yOWAN. I don't believe it is done in the hotel business. Mr. Morse. I would not swear to it. Mr. Cowan, as to the assets of Wilson & Co., do your books show the segregation of your invest- ments through classes 1, 2, and 3, as prescribed by the United States Food Administration rules and regulations? Mr. Cowan. Our books do not, Mr. Morse. Mr. Morse. You have, however, I presume, compiled some statis- tical record of arriving at the amount of investment in these classes! Mr. Cowan. We have. Mr. Morse. The books by themselves do not show this without making some additional figuration? Mr. Cowan. No ; they have never been kept that way, but we have not changed them. Mr. Morse. Do you consider the way that you have divided up your capital investment in these three classes to be absolutely accu- rate? Mr. Cowan. As near as is possible to determine. Mr. MoBSE.. As near as is possible with the material available t9 determine what the investment is of each class! Mr. OowAN. Yes, sir. Mr. MoBSB. Mr. Cowan, the balance cdieet of Wilson & Co. for the period ending 1917jBhow8 net fixed assets of about pi^flOOfiOO. Do XAxnctnc fbort uMmMrmv oir mbat-paoking vmmsf. 105 you consider that that is the actual vklue of the assets of Wilson & Co. at that period. I am making a distinction, Mr. Cowan, in asking that question, between the book value and the actual value? Mr. Cowan. I don't think it represents the full value, speaking of actual values. Mr. Morse. Why not? Mr. Cowan. Well, for the reason that to replace our property at the present time would probably cost us 50 per cent in excess of that $26,000,000, the replacement value of those properties. Mr. Morse. You mean 1914, 1915, 1916, 1917, and 1918? Mr. Cowan. I am speaking of the date which you have given, 1917. I have no doubt it would cost us 50 per cent more to replace those properties. Mr. MoRSB. How was tiiiis valuation of $26,000,000 obtained! Mr. Cowan. It was obtained by an apprai^ in 1915, was it noty Mr. Goff? Mr. MoBSE. By whom! Mr. GoFF. M. J. Flaherty. Mr. Morse. Who is he? Mr. GoFF. He is a Chicago appraiser. Mr. Morse. He operates an appraisal cmnpuiy or appraises prop- erty on his own Mr. GoFF. He is in that business. Mr. Morse. He appraised this property at what amount? Do you remember? Mr. GoFF. In 1915? Mr. Morse. Yes. Mr. GoFF. Something less than that amount which you have men- tioned. Mr. Cowan. The difference between this 26,000,000 that you men- tioned and any additions that were made between the date of his appraisal and this date — depreciation, I should say, any depreciation deducted — the depreciation was deducted from this 26,000,000, was it not, Mr. Goff ? Mr. GoFF. Yes, sir ; it show the net. Mr. Morse. Mr. Flaherty, when he made the valuation in 1915, did he use the cost price or maricet price or replacement price at that time, do you faiow ? Mr. Cowan. I am sure I could not say. It was primr to ray f&ne here. Mr. Morse. Do you know that, Mr. Goff ? Mr. Cowan. I don't know whether he used the cost of the material or the market. Mr. GoFF. Yes, he used Mr. Cowan. Of course, he must have used the market. Mr. GoFF. He used the market prices at that time ? Mr. Morse. The market price was the basis of the appraisal at that time? Mr. Cowan. I don't believe, Mr. Morse, any of us are competent to say now, because we don't know what he had in mind. Mr. Morse. Do you believe, Mr. Cowan, that you should be allowed profits on what you consider the present value of your plant? Mr. Cowan. Yes, sir; I do. 106 MAJUMUM PBOVIZ UMUiLXlOlir OK ICfiAX-f AGKIIifQ l^V&SBX. Mr. Morse. You have talked that over among yourselves? Mr. Cowan. Yes, sir; we have talked — ^^we discussed it with Mr. Durant at the time when the profit regulations went into effect. We told Mr. Durant that we felt that we ought to take in and add to our property the amount of our good will, which is $11,000,000. Mr. Morse. You have not apijlied to any governmental officials or bodies to obtain permission to increase your plant account to what you consider its present value? Mr. OowAN. We have not. Mr. Mown. Do you intend to make any such request? Mr. C!owAN. No, sir. Mr. MoBSB. You do not intend to make any nich reqiMtt Mr. Cowan. There is no intention now ; no, sir. Mr. Morse. In your balance sheet you have an item of gpod will about $11,000,000 ? Mr. Cowan. Yes, sir. Mr. Morse. Is that considered by you in any way part of your investment in classes 1, 2, and 3? Mr. Cowan. It is not. Mr. Morse. Does this $11,000,000 good will represent common stock that was issued at the tinie of the organization of Wilson & Co.? Mr. Cowan. That I can not answer. Mr. Morse. Can you answer that question, Mr. Goflf? Mr. Goi F. No, I don't think I can. Mr. Cowan. Mr. Goff was here. I was not in the organization at that time. Mr. Morse. There is no one present, none of you gentlemen that know just what this good will represents on the balance sheet, ez- oept take it on its face, and you don't know whether there was com- mon stock or any securities issued against it. Mr. Ck)WAN. Personally I do not know, but if you want informa- tion, I will be glad to supply it. Mr. Morse. I will say, Mr. Cowan, I don't think that is material, but as long as you say it was not taken in as a part of your invest- ment, I don't know as it is material from the Government's stand- point, although as I understood you stated a while ago, you wanted to add that to your plant value. Mr. Chase. Don't you want to talk that over some time? Mr. Cowan. I do. Mr. Chase. I think it would be well to get that information in the meantime. Mr. Cowan. I would like it very much. I would like to argue that point. Mr. Morse. Mr. Cowan, suppose we leave it that way, that Mr. Chase shall see you some other time and have a conversation regard- ing that. Mr. Cowan. Yes, I will be glad to go into Mr. Chasers <^ke or flee him before you leave, while you are here, at any time you wftnt; I would like to have the facts before me. Mr. Momm. Now, you have in your bumneas, I j^resume^ « great deal of borrowed money! • Mr* Cgwak. Yes, sir. MAXIMUM PBOJ*!! UMIIATION ON MEAT-PACKING INDUSTBY. 107 Mr. Morse. What is the average rate that you paid for your bor- rowed money ? Mr. Cowan. The average rate for what period ? ^ Mr. Morse. For the period November 1, 1917, to date, what would it average; what per cent? Mr. C&WAN. I do not like to venture a guess on that. I would like to get information to be exact. Mr. M<»8B. Do you think it averages 6 per cent? y Mr. Cowan. I should say, roughly, 6 per cent. Mr. Morsb. Any ezoees over 5 per cent you charge to cost of pro- duction, do you not? Mr. Cowan. We do. Mr. Morse. According to the paragraph here in the rules and regulations ? ^ Mr. Cowan. We do. Mr. Morse. That is on borrowed money? Mr. Cowan. Yes, that is right. Mr. Morse. This company has a bond issue, has it not? \ Mr. Cowan. Yes, sir. r Mr. Morse. Of some $15,000,000? Mr. Cowan. $15,000,000. Mr. Morse. What rate of interest do those bonds bear? Mr. QoFF. Six per cent. V Mr. Morse. Then the difference between 5 and 6 per cent, namely r 1 per cent, you charge to the cost of production ? Mr. Cowan. Yes, sir. Mr. MoBsa. According to this paragraph? Mr. Cowan. Yes, sir. Mr. Morse. When your bonds were sold to or underwritten by the V banking mterests, do you know what Oiey netted you, what the net was? Mr. Cowan. I don't know. Have you tba^ information, Mr. Goff? Mr. Goff. Yes, sir. ■* Mr. Morse. How much is it, Mr. Goff? ^^ Mr. Goff. Do you want title exact %ure? Mr. Morse. About. Mr. Goff. The discount was a million and a quarter, something over a million and a quarter. Mr. Morse. How did you carry that discount on your books? V Mr. Cowan. We wrote it off at the end of 1916, isn't that right? >^ Mr Goff. That is right. Mr. MoESB. So it was all written off in 1916? Mr. QoFF. Yes, sir. Mr. MossB. The entire million and a quarter? Mr. GoPF. Yes, sir. ^ Mr. Chasb. Operation or surplus? " Mr. Goff. Surplus. Mr. Whippijb. I believe, Mr. Cowan, that you said you could " divide vour assets so as to comply with the three classes that are called for in the rules and regulaticms. Is that true of every other feature of your business so far as your profits are concerned? V Mr. Cowan. I have not said that we could divide our assets in ac- cordance with that^ not on our books. > 108 uioxmju nom tJMsaussmt m » Mr. Whipple. I mean tiiat you could— it is possible to do it by figuration. You did not say that they were divided on your books, but you said tliat they could be, and that you had done so. Mr. Cowan. We have done so in aocordanoe with certain rules laid down by Mr. Chase and his associates. Mr. WmmJB. I mean it has been decided that that is an equitable figure? Mr. Cowan. Yes, sir. Mr. AVhipple. You feel that it is such, and the representatives of the connuission feel tliat it is. Is that true also of the profit and loss in eacli of tliese three divisions, can you determine the profit in each one of them? • Mr. Cowan. We can on our main plants, but it would be a very difficult job to determine that at our branch houses, where all of our various products go in together. Mr. Whipplb. When you speak of branch houses on your consoli- dated form which you submit, are your luraiich houses included in this separate division of assets I Mr. Cowan. Yes, sir. Mr. Whipim. You found it possible to divide the assets of youp subsidiary companies and your branch houses? Mr. Cowan. Under the ruling of Mr. Chase, yes. Mr. Whipple. You siiy you don't think that is possible with your profit and loss? Mr. CowAN. It is possible, but it would be an exceedingly difficult Job Mr. Whipple. In other words, if part of your organization is not brought under this plan the same as your parent organization, why, you won't have a complete statement at the end of the period, will you ; I mean, you won't have an accurate statement, by any means? Mr. Cowan. Yes, we will, if our profits are divided on the basis of the division of the assets. Mr. Whipple. But you say you can not determine the profits for your branch houses in the three classes. Mr. Cowan. I did not say that; the profit, as a whale, we always determine. Mp. Whipmjl I did not say that I said between the three classes called for in this regulation, can you determine the profit on class 1 in your branch houses? Mr. CowAN. Oh, yes; we do that Mr. AVuiPPLE. You do that? Mr. Cowan. We do that now — divide that profit on the basis of the division Mr. Whipple. You can accurately, for your entire organization, so divide your profits? Mr. Cowan. Yes, sir. Mr. Whipple. As to come within the scope of this rule and regula- tion ? Mr. Cowan. Oh, yes. Mr. Whipple. Are the books of yoop home omce kept m the same manner as the books of your branch offices? Mr. Cowan. No, sir. , , , , * Mr| Whipple. WouldnH; that be necessary to make the books » your branch offices uniform wiUi those of your home office? maximum nOFIT LIMITATION ON MEAT-PACKING HTDUSTBY. 109 Mr. Cowan. It would be impossible entirely; that is, our branch houses — take the branches as a whole, they are a selling organization ; it is a selling proposition entirely. Mr. Whipple. It is a sellin^i^ proposition entirely ? Mr. CowAN. While the books of our parent company, of our pro- ducing plants, are a manufacturing and producing proposition. Mr. Whipple. How many producing propositions have you; just this one in Chicago? Mr. Cowan. One in Qiicago, one in Kansas City, one in New York, one in Oklahoma. Mr. Whipple. Are the books in New York run on the same plan and the same uniform system as the books in Chicago? Mr. Cowan. The same as Chicago, yes; ail of our packing plants are operated Mr. Whipple. Then, between your various packing plants you would have no difficulty in keeping a uniform system all the way through ? Mr. Cowan. No. sir; we have a uniform system now. Mr. Whipple. Do you find that your business is such that any period smaller than a year, to judfre the profits on the business for a eriod smaller than a 3^ear, would be equitable, or is it a seasonable usiness that has got to be determined by a year's study, the study of a 3^ear? Mr. Cowan. I will answer that in two ways. In the first place, we do close our books always, we determine our profit every month, twelve times a year. With reference to it being a seasonable busi- ness, it is in some respects. We have our packing season, in which we accumulate large inventories, and then there comes a season when the inventories go down, when our stuff is cured and we sell it. Air. Morse. It is true, Mr. Cowan, as you stated to me, ihat these periodical closings only show the book profits or book losses, on ac- count of the methods of figuring inventories, and net knowing defi- nitely what the cost of those inventories is? Mr. Cowan. That is true. IMr. Whipple. Then you think that before the conwnission can fairly judge your business, that they should look at a year's business! Mr. Cowan. I do. Mr. Whipple. Before deciding any point on it? Mr. Cowan. I do, absolutely. * Mr. Whipple. That was the point I tried to bring out. Mr. Morse. Mr. Cowan, do you think that a regulation based on the percentage of sales would be more easily computed and be more satisfactory all around than the present arrangement, something cm the line or the same as the Canadian regulation is ? Mr. Cowan. I am not familiar with the Canadian regulation. Mr. MoBSB. It is based upon a percentage of gross sales, 2 or 2^ per cent, is it, Mr. Chase? Mr. Chase. Two. Mr. Morse. Two per cent. Mr. CowAK. I una^rstand that your quesdcm is as to whether it would be easier — more easily computed. Mr. Morse. And more satisfiactory in view of the uncertainty as to what your profits are at any particular pmod. 110 MAXIMUM FBOFIT LIMIX4TI0K OK MBAT-FAOKnTQ U i W Bi m. Mr. Cowan. I would like to give that a little thought beiioie ■aswering it, Mr. Morse. May I suggest that you think it over and write a let- ter to Mr. Chase and teU him what your opinion on that is. Is that all right, Mr. Chase. Mr. CHASEb Yes. Mr. Cowan. I will do so. Mr. Whipple. Mr. Cowan, do you believe that the b. for building, one for machinery, one for your other equipment? Mr. Cowan. No; we compute ours on^ I think, four types of con- struction, do we not, Mr. Qofll Mr. GoFF. Five. Mr. Cowan. Five types of construction. They have a separate rate on machineiy * Mr. MoBsi. Do you recollect what that rate is, Mr. Cowan ? Mr. Cowan. What is our rate on machinery, Mr. Goff? Seven per cent? Mr. Goff. Eight per cent. Mr. MoBSB. What woakd the average be over your %akm plant? > > V > Miiacvu raoFiT umxuaos on mkat-paciong industby. m Mr. Cowan. I could not say. Mr. Goff. About 6. Mr. a)WAN. It would not run as hirfi as that Mr. Goff. Possibly noL Mr. Chase. 6.27 as I remember. Mr Whipple. What method would you use Mr Cnw»n tr.,. Ai. tabuting the volume of your business IZ^^^^Jt^^^i Mr CoX^ maf the different types oTo^hS?^'''*^' ^11. COWAN. What IS our method now, S&. Knief ? i\lr. Knief. We distribute it on the basis of four elements in n«i. business four arge elements in our business, thS^S^Sk JSL S ^br,?^' inventory plus the value of plante p^hl^^ ^^nJ'''- ^"l^^"?P"?ejit value; those fo\u: eleiSL W^SK Partoe^ gives the distribution of overhead ™ OA- ^Jte WmFPLE. Would you recommend a uniform rate for aU oen- Mr. CowAN. I would. Mt. Whipple. You would say each company should distrihn*^ \^ overhead m exactly the same manner? ^ distribute its Mr. Cowan. Yes, sir. Mr. Whipple Have you any Canadian interests ? Mr. Cowan. We have not. Mr JIoTr™ ■ *" "»« I"! W «p, than what now prevails, is that riihtf ""omess as a wnole Mr. Cowan. Yes, sir. £: CotAN.Tl'uir ^ ^ - the r«x>rdf pr^are^^^^^^^ ^ was what you had Mr. Cowan. Yes, sir. It is as follows: WILSON A CO. (INC.)-HM5PABTMENTS OPERATED. [Ammed ««ordtag to suggestion as to the way we think the, Uioakl bt Class i. Beef section: Beef. Beef cotting. Hide. Oleo. Smoked beef ham. Beef caring. Tripe. Beef easing. Veal section: Veal. Galfiskin. Mutton section: Mutton. Pelt. Sheep casing. Fork section: Fresh pork. S. P. pork. Barrel pork. I i— Oontinued. Pork section— Contmued. D. S. pork. P. S. lard. Smokehouse. Boiled ham. Kefined lard. Pigs' feet Hog casings. Miscellaneous : Freezer. Tongue. Tallow. Pickle trimming. Offal. V%rtillser. Sausage. Canned meat. Ice. Our Unea > 112 MAXOfUK FBOTZT UMIXATION lCSA!r-PA€KIHO IVDU8IB1. Box factory. CJooperage. Printing. €fkt99 S. CUuM 9— Omtinued. Coffee. Animal food. Bedding. Glue. Soap. Curled hair. Animal oil. Tanning. Wool puUery. Bntterlne. Oondiment and preserve. Canned fish, fruit, and vegetables. Compound lard. Crude oil (must contain refined oils; DO animal oils). Produce (butter, eggs, cheese, poultry). Mr. Morse. Is there anything else, Mr. Cowan, you would like to 8a J on the general proposition of regulation of profits I Mr. CowAK. Yesk I would like to make this suggestion in con- nection with interest whidi is diargeable opcmUon, If we borrow from a bank $100,000. the banker requests tli^t we leave 20 per oeskt with him as a balance, from which we derive no benefit, and we would like to be allowed the interest on that 20 per cent. There is that part of our borrowed money that we derive no benefit from, and we think that we ought to be allowed that in addition to the 5 per cent. Mr. Morse. Do you contemplate doing any new financing? Mr. Cowan. That is a matter Mr. MoBSE. Have you discussed any new financing that you propose? Mr. Cowan. We have not here. That is a matter entirely in the hands of our directors. Mr. Morse. You know nothing of any plans or talk of a plan of new financing? Mr. Cowan. I know nothing about it. Mr. Morse. Is there anything else that you would like to say ? Mr. Cowan. Have I forgotten anything, Mr. QoM^ Mr. QoFF. I dont think so. Mr. CbwAN. I dmit think of anythinj^ else, Mr. Morse. Mr. McHnen. At this point I would like Mr. Chase to show you a figuration that we have, which he has made from the best sources at hm command as to what profits you are allowed to make under these regulations, and what profits you will make under these regu- lations. Mr. Chase will explain the basis to you, and I would like to have your opinion as to whether you think that would be a fair basis, and whether you will make the profits that Mr. Chase has figured out? Mr. Chase. On the basis of these figures that I have prepared, Mr. Cowan, is it your opinion that you will be able to make the allowed profits? You have not made it, I see, in four months. Do you think that the balance of the year will bring you up to this 27 per cent? Mr. Cowan. I think it is problematical, Mr. Chase. Mr. Chase. Not time enough to really determine ? Mr. CbwAN. No, sir. Mr. Chase. You will note, Mr. Cowan^ that the five companies here on their total percentage of profits allowed are not so very far off. Ton and Cnmtij are a little better off than <^e others, bdt there are tranendons flnctuatioiis betweoi the classes. Have you any eaqplanation for thati MAXIMUM PROFIT MMITATIOIT ON MEAT-PACKING INDITSTBT. 118 ✓ Mr. Cowan. Not having seen the figures of the others, it would be pretty hard for me to say. Mr. Ohasb. Simply from your knowledge of what the others have in their various classes, you know in a general way whether they run tanneries, fertilizing plants, soap business, and so on? Mr. Cowan. I would not A^enture any comment, Mr. Oiase. It would only be a wild guess if I did. Mr. Chase. If it should appear that you can earn this allowed profit of 27 per cent during the coming year, is that amount greater or lesser than Wilson & Co. has earned heretofore ? Mr. Cowan. I would say that it is about in line with the last year, we will say. Mr. Chase. In your opinion is or is not that a reasonable profit under all the circumstances? Mr. Cowan. I would say it would be a reasonable profit based on last year's experience, but conditions have so changed within a few months that it would be rather undesirable to venture a direct answer to your question for this year. Mr. Chase. Mr. Cowan, do you think that these figures based on four months' operation under the regulation are really of an^ sig- nificance to present to tibe Presid^t's meat oommiflmim as an index of allowed profits or actual earnings! Mr. Cowan. Yes; I think they are. Mr. Chase. As an index? Mr. Cowan. I think so. Mr. Chase. That is all. Mr. Morse. Now, Mr. Cowan, your business has increased to quite an extent over what it was in 1914 and 1915, along there; in fact, it has doubled, hasn't it, very nearly? Mr. Cowan. No; it has not doubled. Mr. Morse. You have had a considerable increase, have you not? Mr. Cowan. We have had a considerable increase. Mr. Morse. You had to spend considerable money in making ad- ditions to your plant, have you not, in order to take care of this in- creased business? Mr. Cowan. We have. Mr. MoBSE. And in doing that you have not always been able to place your units in the exact position where you could operate as economically as you would if you did not have tiirust upon you this enormous volume of business all of a sudden? Mr. Cowan. That is true. Mr. MoBSE. So your operating expenses have increased and will increase in proportion to the more business you do and the more additioi^ you have got to make ; in other words, all the time you are becoming less efficient as far as operation is concerned and hence more costly ; is that true ? Mr. Cowan. In answering that question let me say this: That the larger percentage of our increase in business has been in order to supply the demands of the United States Government and our allied Governments for war supplies. Mr. Morse. I don't think there is any dispute on that question. We all recognize that. 13888S—S. Dqc. 110, 66-1 8 114 MAXIMUM PBOFIT LIMITATION ON MEAT-PACKING INDUSTRY. Mr. Cowan. And those requirements have been thrust upon us, wiiich we have had to necessarily meet in a hurry. Mr. Morse. You have done the best you could 'i Mr. Cowan. We have been forced to increase in facilities under conditions which ordinarily would have been less expensive. Mr. Morse. But on account of methods, you have to spend more money in operation than if you had a gradual increase where you oolild provide for it and get more nmifi of your plant where they would he more workable as a whole? Mr. Ck>wAN. That is true. Mr. MossE. I presume that that condition will increase right along as your busmess increases! Mr. Cowan. I expect so. Mr. Morse. Yes. (Whereupon at 3.15 o'clock p. m. a recess was taken until 4 o'clock p. m.) AFTER RECESS. Present on behalf of the Federal Trade Commission: Stuart Chase, Esq., Samuel W. Tator, Esq., Perley Morse & Co., certified public accountants, New York, represented by Perley Morse and P. S. Whipple. Present on behalf of the Cudahy Packing Co.: E. A. Cudahy, president, and A. W. Anderson, secretary. E. A. Cudahy was called as a witness and, beilig examined, testified as follows: Mr. MoBBS. Mr. Cudahy, you are familiar with the United States Food Administration meat division rules and leffulaticms that have b^n in effect since November 1, 1917, are you not! Mr. Cudahy. I am generally, yes, sir. All of the details of them, of ooQise, I might have to rehearse some of them, but in a g^ieral way. Mr. Morse. Generally, do you know what the provisions are, and what these regulati« on account ol floods or account of a flood. xi^ *» Mr. Moi».. When wwag" ^ „„(, ooo los., «nd in Mr.MoBSB. That k a miUMm and a quarter loss? Mr. Cudaht. Yes. 9 US ahout $160,000. MAXTi in j M FBOFET xnfmnoir ok msat-paokiho ikdustby. 127 Mr. MmisB. What was the cause ol that ezplosicHif Mr. CuDAHY. Gas; kal^ pipes. Mr. Morse. You haymix had any fires that were disaslious on ac- count of not having insurance ? Mr. CuDAHY. Yes; we have had some. We had a kiss in Omaha. What year was that hog house burned downi That was dbont 1916. $150,000 loss, wasn't it f ^ Mr. Anderson. It was over $100,000. Mr. CuDAiiY. We had a tornado loss of about f ort j cnr fifty thou- sand dollars at Omaha. Mr. Morse. Those are very small in proportion to the size of your busmess. Mr. Cudaht. Not so small. Every little counts, you know. That IS the way we have to make our profit. Mr. Morse. You would not consider this compared with other busi- ness a particularly hazardous business ? Mr. Cudaht. I do, yes; absolutely. Mr. Morse. I mean to tell you that I do not. Mr. CxTDAHY. If you were sitting in this chair for about 25 or 30 years, you would not think so. Mr. Morse. I am basing my opiniim on having examined different Imes of busmess that really have hazards, something they can not control, it IS impossible, while with you it serans to me that ths things that happen to you are things that you may prepare against, and they are so small that they do not affect the buaness mi^ cme way or the other. Mr. CuDAHY. I can show you that in 1»14 we had an actual hiss m our business on meat. Mr. Morse. Which you made up on your products ? ^ Mr. CuDAHY. No ; we made it up on the Old Dutch Cleanser, which IS not made from a by-product. In 1911, 1912^ and 1913 our business mowed very, very little profit. Mr. Morse. In view of the uncertainty in determining profits un- der the present Government regulations, on account of the apparent neoeffiity of taking losses or profits in the inventory before the o-oods are disposed of, would you favor some other basis of regulation ? Wat mstance, the Canadian regulation, which provides for 2 per cent on sales. Mr. CuDAHY. I would not favor 2 per cent I think Mr. Morse. I dont want to have you think that I want to have you say that you favor 2 per cent or any other per cent I would like to put you on record though, as rather favoring a plan of that kind at some per cent on gross sales, as a method that could be more eiisily checked up and probably save you trouble, and everyone else concerned. My reason for asking that question is tiiat it is prettf well acknowledged on account of the way inventories apparently have to be figured that it is very hard to determine what your profits are at any stated period, because there will be profits - MAXIMUM PBOFIT LIMITATION ON MEAT-PACKING INDUSTRY. 133 Mr. Cudahy. We charge it to expense. Mr. Whippli. In other words Mr. MoBSE. That is the 5 per cent. y Mt- Anderson. The excess over 5 per cent is charged to expense. Mr. Morse. Expense of production? Mr. Anderson, les; if we pay 6 per cent iot our money, there is 1 Der cent charged to expense. Mr. Whipple. We nuike a distinction there, Mr. Anderson. We y would not call that expense, we would call it deduction, that is 1 per cent, and you think the correct way would be that 5 per cent would be charged to expense? Mr. Cudahy. Yes. Mr. Anderson. We do not charge 5 per cent to expense; we would like to. Mr. Morse. Not expense of production, general expense, .the same as you buy paper. Mr. Cudahy. The same as our labor account. Mr. MoBSE. No ; the labor account is a different item. . Mr. Anderson. If we buy a paper by the year, that would be ^ diarged to expanse of newspaper subscription. Mr. WmmuL You would not charge that to cost of production, #eould you? Mr. Anderson. We would lilce to cha)^ 5 per cent interest the same way. > Mr. Whipple. You do not now charge that to pioductbn, that 5 per cent interest? Mr. Anderson. We do not. Mr. Whipple. Mr. Cudahy said it was charged to cost of pro- duction. Mr. Anderson. As it is now we get 9 per cent on our capital, and we g:et 4 per cent on our borrowed capital. Mr. Whipple. You think you are entitled to have it on borrowed capital? Mr. Anderson. Surely, more. V Mr. Wmnus. You should make money on borrowed capitaL ^ Mr. Andbrson. Abscdutely. Mr. WmFPLB. That is all right I just want to get your opinion. Mr. Cudahy. I think we ought to, because they may call us for $10,000,000. The amount of profit should be made.on the lunount of business done. I don't think there is anything else, f Mr. Morse. Mr. Cudahy, Mr. Chase has made a figuration of per- centages showing what profit you were allowed to make, and what profit you may make, all figured out on a certain basis. I would like to have Mr. Chase show that to you, and explain it to you so ^ you will know the basis he has made his calculation on and see if . you think the basis is fair and also if you think that you will make r the amount of profit on your total investment that is shown in the figuration. I might say that this figuration of Mr. Chase's is the «9 best means that anyone can have at their disposal at the present time of gaining an idea as to what you are entitled to make, and what you will make, and it is rather vital that you should go over it. \^ . - Mr. CuDABT. Our statement to the Food Administration shows we made about our allotted profit, and of course what we are going to makie the next six months we dp not know. > 134 UAXtUmt, fEOFIT LIMITATION ON MEAT-PAOKING PfDUSXi^r, ^ Mr. MoKSB. Mr. Chase has figures there, as I understand it. of just four iiM>iiths. • ^ Mr. CuDAHT. Six is the return, isn't it? Mr. AmmsoK. We have not got that pnenod in yet. Mr. Chabb. Mr. Cudahy, is it your opinion that these figures are baaed as I have based th^ on the results for the four months of the recpilation, will work out the same basis for a year! Mr. CuDAHT. As I understand it, our profits in six months were about $160,000, and if that wm the limit we have got an item in there of about $140,000 now that would come into this coming period, which would make our first six months' operation right according to the limit. Your question as to whether or not the permissible profits for the last six months will be equal to the per- missible profits for the first six months, I think we can make that, if our capital keeps up the same way; but the question of whether we will be able to make the permissible profits for the last half of the year is extremely doubtful. We are right on the level now. If you examine our figures for last year, at the end of our first six months we had a profit of between four and five million dollars, and we wound up at the end of the year with $5,500,000. Now, this year at the end of the fourth month, it looked as though our profits were going to be* enormous. At the end of the sixth month WB had gone back almost to normal, and as I say, we will be normal when we take in this other item I speak of. Nobody can tell what IS going to happen. Mr. Morse. It is reasonable to suppose that conditions as far as the packing industry are concerned will ramain the same, or even will change so that you will make more 9 Mr. Anderson. On some of our meat products, Mr. Cudahy, for the first month of this period, that would be for the month of May, we have run against very heavy losses in some of our meat products, enormous. ■ Mr. Cudahy. That is why it is a hazardous business, because we do not know what we are going to realize on the products that we have in our house. We have had a shrinkage in value as high as 4 cents a pound in the last 60 days on some particular goods. Mr. MoRSE. What was the cause? Mr. Cudahy. Lack of demand. Mr. Ghasb. What is your answer to this proposition as to whether yon can continue to make the allotted profit ? Mr. AKnrasoK. We doubt very much if we can. Those figures look about nght for the actual permissible profits. Mr. Morse. What figures are those, for the reccwdf Mr. Chase. The allowed profits ..^f T°""^- ?^ necessary to put in here? I do not know who rJ^.rd"^ru7bu^sifeS« to, and that is rather a private question S TrSe CommissYo^ Voter*'^^""^ ^ «„M5"i?^f""'^- y^''- ^ '^""^ Whether they are going to publKh It or not gomg to publish it. There has been a goK)ld«^ of confidwjtial tesfamony and letters that have been published. Mr. MOKSB. Well, I will say to you now, Mr. Morris as far a« «5 srsi^' ' '^^^^ ^^''^ ^- ^ Mr. MoBMS. I think so, but the statements given to Mr Chas^ ZsdSZ T'.^ the general undeiBtanding tfat those would b1 canfidential statements. As far as you yourself are concerned T ^rnoTte^^^^ ^ "'^^^^^ ^ b^trrLl wif beTuM^^^^^^^^^ say as far as I am concerned now, none of this M.^ rh^^r""' Tw ^ ^''^^ y^'' statements from Ml. Chase. That is an accounting propodticm I belinvA^n^ very readily get those statements. ^ ^ J^n can Mr. Morse Well, we have them. I just wanted to see if you were aware of that from your own knowledge ^^iz you were nftjJ^'''''^' ^^'•^^^"^y I am aware of it, and certainly I am awans of now we are coming out. •-•^j x am »ware knowledge that you have made SllS^T^^^ a little in excess of the profits caU^ for by ^ Jir. MoHRM. I do not say that. Mr. Mouse. Well, you taow that Mr. Mcnmis. You can get what it is. I know what our profits Rr« "'^r^T/^'' get what our profits ai« from Mr. Chad's ™ds ' . ^Q^- me your balance ah^t L thTfilal year ending 1917, which shows total assete in thousands of dXre^^ 536 Is that a correct statement of your assets at that time? tKi^S IS this: Are those assete understated, do you believe! '^'^^"^ MAXIMUM PROFIT LIMITATIOlir ON MEAT-PACKIKG IXTDUSTBT. 141 Mr. Morris. In regard to what? Mr. Morse. Accoraing to the value, Mr. Morris. The present value? Mr. Morse. No ; according to the value of your assetaa Mr. Morris. As teken on what date? Mr. Morse. A fair value of these assets, Mr. Morris. As taken on what date ? Mr. Morse. Well, taken as of the end of your fiscal year 1917. Mr. Morris. On tJiat value ? On values sit that time ? Mr. Morse. Yes. Mr. Morris. On replacement values at that time ? Mr. Morse. No; I won't say on replacement values at that time. Book values. Mr. Chase. I might add this is from your printed report. Mr. Morris. If this is from our printed report, those are our book values. Mr. Morse. Those are your book values? Mr. M(MBRis. Yes. Mr. Morse. You think the actual value is more? Mr. Morris. As a replacement basis of that d^tof Mr. Mobsb. No ; I don't mean that Mr. Morris. Well, I do not see, unless you tell me, as to what date or what replacement value or what you mean, how I can answer that question. Mr. Morse. What do you mean by replacement values, Mr. Morris? Mr. Morris. What it would cost us to replace it at that date. Mr. Morse. What I am getting at is this : Have you any other as- sets that would increase the amount as shown by your books? Mr. Morris. Will you state that question, please? Mr. Morse. Have you any other assets than those shown by your books ? In other words, I want to know what assets you have that this balance sheet does not show ? Mr. Chase. Morris & Co. has made a request for an increase of seven or eight million dollars in assets. Mr. Morris. We feel that we should be on the same basis as our competitors in regard to valuation of assets. A statement of what we feel should be included in our assete for regulation purposes has been made up by Mr. Timmins and submitted to Mr. Chase. To the best of my knowled^ these assete are correct Mr. Morse. You mow nothing as to the detoil of these assete vour- self ? ^ Mr. Morris. I have gone over it in a general sort of way with Mr. Timmins. Mr. Morse. He will prove up those? Mr. Morris. Yes. Mr. Morse. Your idea is it is simply a writing up of these book assets ; is that what you mean ? Mr. Morris. No. I think it is putting them nearer what a replace- ment basis would be, and more in line with what is carried by some of our competitors. Mr. Morse. What do you mean by " replacement basis " ? Mr. Morris. More in line with what it costs to-day. Of course, we have not asked^ as far as I understand it, for present replacement, have we, Mr, Tunmins? 142 UAXmXJU VBOm UMSTATIOS on MBAT-PAOKma nmusTBT. Mr. TiMioKS. We have our figures made up in two ways, showing what they were four years ago and what they would he on a replace- ment basis to-day. Mr. Chase. What is that $7,000,000 based on! Mr. TiMMiNs. I think that is the present replacement yalue. Mr. Morse. That is the present replacement value? Mr. TiMMiNs. Yes. Mr. Morse. Now, you take in the case of net fixed assets, in which yoii show as of the end of your fiscal year 1917, in thousands of dollars, 13,144 Mr. Morris. What is that? Mr. Chase. $13,000,000. ^ Mr. Morse. I am talking of thousands, $13,000,000 : 1 suppose there IS land m that? » > i Mr. Morris. Can I just see the statement? Mr. MossB. Tes; sure. Mr. MoBSis. Sure. Mr. TncMiNS. Yes; there is land in that Mr. Morse. And you have got buildings in it? Mr. Mobsis. Yes. Mr. Morse. Machinery? Mr. Morris. Yes ; there will be some machinery in that Mr. M<«8e. Does the land— the cost land value diow on your books at the present time ? Mr. Morris. That is what it is carried at at present; that represents our cost land values. Mr. Morse. How long have you held this land? Mr. Morris. I guess some of it for right close to 50 years, some of it probably more— a good deal longer &an anyone around here can remember. Mr. Morse. And the buildings in your books are represented by the actual cost thereof ? Mr. Morris. The actual cost value, and of course we have a reserve for depreciation. Mr. Morse. You have been writing off depreciation each year on the buildings? Mr. Morris. Yes. Mr. Morse. At what rate? Mr. Morris. I think Mr. Timmins could answer that a little bit better than I could. Mr. Morse. Well, that is all right Mr. Morris. It shows how mudi depreciation we have charged oil on the total. Mr. Morse. As to madiinery, the books show the cost value of your machinery? Mr. Morris. Less depreciation. Mr. Morse. And you have taken depreciation on that each year? Mr. Morris. Yes. Mr. Morse. You want the increase in your machinery as well, or you figure that in this seven millions, did you, Mr. Morris? Mr. Morris. I presume we have. Mr. Timmins. Yes. Mr. Whipple. In other words yon want to bring your assets up to a point where you will have them at the present replacement value MAXIMVM PBOFIT LIMITATION ON MEAT-PACKING INDUSTRY. 143 or the replacement value prior to the war, you want that replacement value to be both on your machinery and on your land — not alona on the land which you hold. Mr. Timmins. On all the property. Mr. Morris. Our total properties. Mr. Timmins. Land, buildings, and machinery. Mr. Whipfub. I see. Mr. Morris. We are trying to get on what is an equitable basis from the (Government standpoint and our standpoint. We do not feel that we should be penalized for running our business conserva- tively. Mr. Timmins. You understand that there is absolutely no good will or any such item in our assets. Mr. MoRSB. I know it doesn't ^ow in ymir balance sheet Mr. Timmins. There is not any. Mr. Morris. We feel we want to get on the same basis; we feel we have as much good will as any one else; we have nevet consid- ered that should be shown as an asset, but if it is shown by our com- petitors, we feel we should be put on the same basis. Mr. Morse. Well, you do not calculate any eood will in this $7,000,000? Mr. Morris. No • that is actual property. Mr. Timmins. No, but we do Imow that other packers Mr. Morris. Have a good will account. Mr. Timmins. Have reappraised their properties and have got that in their assets, and we do know that some packers have got good will included as part of their assets. Mr. Chase. We have knocked it out. Mr. Timmins. Well, we are not figuring on good will, if the othera did not, but we do feel that we should have the appraised value. Mr. MoRitis. We ought to be on the same Imsis. Mr. Timmins. We ought to be on an equal basis. Mr. Morse. I will say to you, Mr. Morris, as far as that is con- cerned, you should be on the same basis as the rest. Mr. Morris. We have a business here in which we have made a good many improvements each year. Our business,— -practically a very small amount has been taken out of the business; personally from my personal standpoint, it does not make very much difference what I make out of it. We want to make enough money so we can keep our buildings up, keep the organization up, and we feel we have to be on the same basis as our competitors, to. have an opportunity to make the same amount of money. Mr. Morse. Have you had an appraisal made of your property on which you have based this increase of $7,000,000 on your plant t Mr. Morris. Yes, sir. Mr. Morse. "Who made that appraisal? Mr. Morris. Who was that, Mr. Timmins? Mr, Timmins. Coats & Burchard Co. Mr. Morse. When was this appraisal made, Mr. Morris? Mr. Morris. Two or three months ago, about that time, I don't know exactly. Mr. Morse. And what were the values used by them? Ml*. Morris. I think it is given under two values. One the basis of Itf 17, wa^'t it, Mr. Tunmms I 144 MAXIMtnt PROFIT LIlflTATIOK OV UMMMAOKiaQ VStpVWSXt. Mr. TiMMiKs. Yes; ndon? Mr. Timmins. Yes. Mr. Morse. Do you mean to say to me, Mr. Morris, that the actual cost value of the lands 50 years ago remained on your books with no writing up of the values? Mr. Morris. Absolutely. MAXIMUM PROFIT LIMITATION ON MJEAT-PAOKING INDUSTRY. 146 Mr. Timmins. Not a dollar. Mr. Morris. Not a dollar. Mr. Morse. And the same with the buildings? Mr. Morris. Absolutely. Mr. Morse. You have of course, charged to the buildings any additicms? Mr. Morris. We have charged investments with any buildings and then taken off depreciation against them from year to ^ear. You see what I mean I If we ino^ease our bulidings, why, it is a permanent improvement, we charge it, but we ti^ <^ year by year depreciation against it. Mr, Chase. May I ask if your depreciation rate has been on a definite basis^ or has it varied according to good years and bad years ? Mr. Timmins. It has varied somewhat. Mr. Morse. You have not taken off a uniform rate? Mr. TiMMONS. No ; it has varied. Mr. Morse. About what per cent? Mr. Morris. I guess ours has been more or less arbitrary, hasn't it, Mr. Timmins ? Mr. Timmins. Yes ; it has been more or less arbitrary. Mr. Morse. Was that depreciation based on a certain per cent? Mr. Timmins. Yes; whenever we have taken it it has been on a percentage basis. Mr. Morse. What is that percentage basis? Mr. Morris. That has ymed from time to time. Mr. TncMOKS. It hmd yaiied. We have g«me from nothing up to 6 per cent. Mr. Mosaas. You see we have gone from nothing up to 6 per cent on our depreciattcm. At tunes nayen't we a^eri^ea more than 6 per cent ? Mr. Timmins. I doubt if it has averaged more than 6 per oenL Mr. Morse. That is on buildings alone? Mr. Morris. Yes. Mr. Morse. What has it been on machineiy? Mr. Morris. Ten per cent, hasn't it? Mr. Timmins. The same, unless there is a change right now — that is, very recently, within the last year or two; but it has been, as I say — it will average probably 5 to 6 per cent. Mr. Morris. I guess you understand that if we are through with any machinery, we charge that out, don't we, Mr. Timmins i Mr. Timmins. Yes; absolutely. Mr. Morse. Well, if a machine is worn out- Mr. Morris. Yes. Mr. Morse. You mean to say you establish a credit on your books for the value of that machine? Mr. Mokrib. What do yoamean? Mr. Timmins. No; we <&arge that to depreciadim. Mr. Morris. We charge that off, if it is worn out. Mr. Timmins. If it is worn out and scrapped we charge it to de- preciation. Mr. Morse. You charge it to depreciation? Mr. Timmine. Yes. lE088S-«. Doc UO, 06-1 — -30 146 Mr. Whipple. Well, wouldn't some of this property, by this long term of depreciation, be entirely written off your books? Mr. Morris, We can not hardly tell which ie written off or which is not We carry them at the <»riginal cost and then we cany a de- preciation reserve. Mr. Whipple. You do not apply it against the same property? Mr. Morris. No, we do not. We keep it as a total. Mr. Morse. Would you be satisfied with a revaluation of your in- vestment, of your plant and machinery and land, say as of 8 or 10 years back ? Mr. Morris. We are satisfied with whatever is fair on the proposi- tion. The point I am trying to make is that we have to be in line with our competitors. We have to keep our business going, and we need lots of new buildings and so forth. We have to msuse money to ^t them. We have to keep up to date to be able to compete. Mr. Morse. WdU, I agree with yon on that Bnt what do you consider is fair. When would you ccmsider would be a proper time to consider the value of these ass^ of your buildings, machinery, and land? Mr. Morris. I surely would not think it would be fair before 1918 or 1914 ; I think it would be nearer fair at the present date, because if a fellow went into business at the present .date, he would be allowed to make on that date. Mr. Morse. Wouldn't you think it would be more fair before 1914? Mr. Morris. Not on that one account Mr. Morse. On what account ? Mr. Morris. That anyone going into business, and people are go- ing into the packing business every day, is allowed to make on the present basis. Mr. Morse. But this $7,000,000 increase was based on the present 1917 valuations? Mr. Morris. Yes. sir. Mr. Morse. At tne present time you do not ooiifflder that on ac- count of the small valuation of vour plant that you are on a com- petitive basis with some of the other ocmoems 1 Mr. Morris. No. Mr. Morse. You do not feel thatt Mr. Morris. No. We feel sure in our own minds, that we are not. We do not think we ought to be penalized f keeping our rtcorda conservatively. Mr. Morse. Mr. Morris, you are familiar with this article 2 Mr. Morris. I would have to glance over it. Mr. Morse. Page 2 of the United States Food Administration, meat division. Rules and Regulations. Mr. Morris. I would have to glance over it. Section If Mr. Morse. Yes. Mr. Morris. Yes. Mr. Morse. You notice that the business is divided up into classes; there is class 1, class 2, and class 3? Mr. Morris. Yes, sir. Mr. Morsb. And on class 1 you are allowed a profit of 9 per csntf Mr. UamB. Yes. Mr. MonsE. And that 9 per cent is based upon the inTeetment in the particular lines that enter into diss 1 f MAXIMUM FBOFIT mOXAXlOH OF MBAaSPAOlOKQ tSUmnXt. 147 Mr. Morris. Yes. Mr. Morse. Do your books show the capital investment in class 1 ? Mr. Morris. I think Mr. Timmins has determined that, with Mr. Chase's help, from our books. Mr. Timmins. Yes ; I think that can be determined. Mr. Morris. It is something that had never been done before. We had never had occasion to separate it before this regulation came into effect. Mr. Morse. But your books Mr. Morris. I think for all practical purposes it is carried. Mr. Timmins. Our books are kept in such a way that you can do it. Mr. Morse. But your books do not state that on the face of it ? Mr. Timmins. Well, that could be answered yes and no. You can determine from our books that information. Mr. Chase. That is you have got it by each department. Mr. TaasxNB. By departments. Mr. Chase. You can accumulate the departments by classes. Mr. Morris. You can decide whether the departments are in or out. Mr. Morse. But your books do not show, talking strict accounting now, Mr. Timmins, your books do not show the actual investment in each class of business, classes 1, 2, and 3, without some figuration to arrive at the amounts that you think are invested in those different classes of businesses. Mr. Timmins. You have to do some little figuring on the buildings, for instance, but you can determine that, I think, fairly accurately. Mr. Morse. But there is nothing on the books — those special ac- counts on the books do not show the investment divided into these three classes? Mr. Timmins. No ; it would not show plainly on the books, under the headings of these three classes, but, as I say, the accounts are kept so that with very little trouble Mr. Morse. But there is no c^>ecial account that shows this on your bookst Mr. Timmins. No. Mr. Morse. As I ^understand it, Mr. Timmins, you have to divide your products up into classes and your books ^ow, for instance, against cattle killing, there is so much investment, and a^inst dieep killing there is so much investment, and you have to total it up? Mr. Timmins. And that can be readily done, and I think it can he fairly done. Mr. Morse. But it is done on a basis that you have determined or that you think is fair? Mr. Timmins. Yes. Of course, the machinery would be actual. Mr. Morse. Yes. Mr. Timmins. The only things you would have to divide would be (he pens, and you can do that on a square-foot basis. Mr.^ Morris. The stock is a big part of our business ; our inventory is a big part of our business, and, of course, that is actual. Mr. Timmins. The stocks are actual. Mr. M(»tRi8. If you look mer our resources and liabilities state- ment ypu will find that our buildings are a comparatively small part of our assets. Mr. Timmins. Still, you can divide the buildings on an area basas; get at it Yeiy nearly actuaL 148 XAXIlftTM FROnr LIMITAIIOH OK MSAT-PAGKHrO IND178IBT. Mr. Moms. In other words, it is more or less of tn estdmate! Mr. MoBBis. I would bkj it was more or less lustual. Mr. TiMMiKS. I diould say it was more or less actaaL Ftat in- stance, Mr. Morse, let ns say nere is a building with loor floors. Mr. MoRSB. Oh, J can see, Mr. Tinunins, how you can do it. Mr. TiMMiNS. You have a department on each floor; you can di- Tide the value of the building into four parts, or if you have eight departments, each one occupying either naif a floor, or two-thirds of a floor, or three-quarters oi a floor, you can arrive very nearly at the exact value of the investment in that particular department. Mr. Morse. Well, an estimate, Mr. Timmins, may be very near and it may be very far apart, but that don't alter the fact that this is an estimate, does it? Mr. Timmins. Well, I would not call it an estimate. You know that you have a building with so many floors in it and you know how many square feet are used for each department. I would hardly take that as an estimate. I think that is pretty near actual. Mr. Morse. I think I will have to refer you to the Standard Dic- tionary as to the definition of the word " estimate." Mr. Chase. I would like to ask one question, Mr. Timmins : Does this investment by departments really appear on your books as an integral ^art of the accounting system or is it mofe a statisdcal reo- inrd that is carried along side by side! Mr. TiMMiNB. It is part of our regular bookkeeping or accounting system. Mr. Chasb. The total inTcelmfliit by dqpartmentst Mr. TiMMiKS. Yes. Mr. Morse. Yon made those changes in your books at the time these regulations were put out, November 1, dia you, Mr. Timmins t Mr. Timmins. >Vhich changes? Mr. Morse. The change of your books over from the basis on which you formerly ran them, so as to run them on the basis accord- ing to these regulations here? Mr. Morris. It did not mean much change. Mr. Timmins. I do not think there has been much change. Mr. Morris. It was just a case of giving them the information they wanted, that the books already showed, getting it up in the form Mr. Chase wanted. Mr. Morse. Well, class 2^ the estimate as to the investment in class 1, 1 suppose is the same as m class 8t Mr. TIMMINS. Yes. Mr. Mxmsm. And class 8 is unrestricted. Do you fed, Mr. Morris, that it would help and senre ita purpose better if the whole busi- ness was regarded as one dass, rather tnan to be divided up into three classes? Mr. MoBBis. No ; I do not. Mr. MossB. Why not? Mr. Morris. Because there are certain departments there where our competitors arc unrestricted — are unrestricted, and, therefore, we are not allowed to make what is the natural profit in the business and they are, and they can increase their facilities and increase their business so much faster than we can. Mr. Morse. Suppose your competitors, all of you, are put on the same basis, suppose instead of having the business divided up into MAXIMUM PBOFIT LIMITATION ON M£AT-PACKINO INDUSTBY. 149 three classes, that the net worth or net investment should be consid- . ered, and a certain per cent allowed to you on that? Mr. Morris. Well, in that case do you mean that a butterine fel- low, for instance, would be on the same basis — a fellow that is simply manufacturing butterine! Mr. MoBSB. No; I am talking now about the meat packers as a whole. Mr. Morris. Well, I ^ess you did not get my point, Mr. Morse. At the present time, as 1 understand it, a fellow simply manufactur- ing butterine, and some of our biggest competitors are not iii the packing business at all, and unlimited in regard to profits. I do not believe it would be fair to limit us and not limit them, and to limit them on the basis that you would probably feel would be fair for beef and pork, I do not think would be fair for the butterine people. Mr. Morse. Personally you would rather see these regulations con- tinued in the present form — the business divided into three classes? Mr. Morris. Well, that is pretty hard to say until we get your other proposition. Mr. Morse. Well, I will say to you, Mr. Morris, that I do not know as there will be any other proposition. Mr. Morris. You are simply asking me if I would rather have it as it is than something indefinite? Mr. Morse. We are simply investigating to see what recommenda- tion should be made. Mr. Morris. I think we have to be in such a shape that our com- petitors, not in the same line of business — ^that we won't be regulated out of business and that they are not. I think we have to be in shape to make as much money as our competitors do, if we are to stey m the business. Mr, MoRfflB. Who do you mean by competitors? Mr. McMoixs. I said the butterine people, for instance. Hie biggest manufacturer of butterine is Mr. Jelke. He makes more ihait — I guess more than any packer. Mr. TiMMiKS. He is the biggest manufacturer, including the packers. Mr. Morris. I do not believe it would be fair to allow us a small amount on butterine and allow him to make what he wants. I have no objection to him making it at all, but I think we ought to be in line to compete. Mr. Tator. Mr. Morse, may I ask a question there ? Mr. Morse. Certainly. Mr. Tator. This has often occurred to me, Mr. Morris : Supposing the five big packers in the butterine business were regulated in their profits, wouldn't that make all the other fellows in the business, out- side of the packing business, fall in line and sell lower? Wouldn't it affect them practically indirectly and require them to regulate their profiiB? Mr. Morris. It has some tendency to do it ; how great the t^dency would be, I do not believe anyone could tell without it being tried; I do not believe it would be 100 per cent or anywhere near it. Mr. Tatchc. You do not think the^r would get away with any such profits as would seriously affect you in that business! Wouldn't you haye the advantage of selling lower, at the lower profits? Mr. Morris. No ; I do not see how a person can be regulated and have an advantage. Mr. Tator. You would do more business. You would have an advantage in some respects. Mr. Morris. We could do that if occasion warranted anyhow, if We were not regulated. I think there is one point in this packing business that most people do not appreciate, and that is the necessity of the packer making money in order to keep his equipment and his other things up. I think that is an awftuly important thin^ from the Gk>yemment's standpoint Our bosinfiss is rather exceptional that wa^r. We pay ▼err small dividends, and, of course, from that standpoint it don% make much dilmnoe to me personally. My income won't be much more if we have a good year or if we don't. I do like to have a good year because I like to have first-class plants, and I guess all of the packers — know we haya m lot ol old huildings that we oiurht to va- place. Mr. Morse. Mr. Morris, your business has increased to a large ex- tent over 1914, 1915, and 1916 i It has been increasing right along, hasn't it? Mr. MorriiS. Yes, sir. Mr. Morse. To what extent has it increased, about ? Mr. Morris. I hope our sales will be at least 60 per cent more than ihey were in 1913, this year. Mr. Morse. You have had to make a lot of additions to your plant, hayen't you ? Mr. MoBRis. Yes, sir. Mr. MomsE, To take care of this increase! Mr. Mossn. Yes; we haye had to make a good many additions. Mr. MoBSE. And these additions haye crowded you quite some, hayenttheyf Mr. Morris. In what way? Mr. MoKSE. Well, you take before your business increased so rapidly^ you had pkntj of q>aoe for doing the business you haye been domg? Mr. Morris. I have never seen a packer that had plenty of space, regardless' of how big their plant was. A packing house is a very elastic proposition. They say you have room for so much and when you need it, you usually have room for a little more, and if you liad half as much, you would be crowded. Mr. Morse. Tliis increase in business has crowded you a great deal? Mr. Morris. We are crowded. Mr. Morse. So you can not operate as efficiently as you could if you had more space, is that true ? Mr. Morris. I think that is correct; with more space we would haye more inyestment, howeyer. Mr, MoBSB. Yes; that is tme. In other words, if you were going to build a plant now, you would build it much different from this plant and naye more space, and haye things more oonyenientiy ar- ranged, and more efficiently arranged? - l£r. MoBBis. That would depend upon how much money I wanted to spend. Mr. MoBsa. Suppose you wanted to spend enough money to take care of your present business, you would build an entirely different plant, wouldn\ you ? I mean so far as arrangements are concerned i llAXWt^li ^tmtt UMITUCEIQS OSr M&AX-PAOKJUia USDU&mY. 151 Mr. Morris. We are very fortunate in that. We would probably make some adjustments, but practically all of our land is together; we are not spread — we have a hog house near the hog pen, because we do not have as far to drive for our hogs, which we feel is an ad- vantage ; outside of that one, all of our stuff is together, practically. Mr. Morse. You can make more money and operate at less cost if you had a plant that was more conveniently arranged, couldn't you? Mr. Morris. I suppose there would be a number of minor improve- ments. I think our Chicago plants are possibly the most conveni- ently arranged of any, just because it so happened that we haye had our space together. You see, outside of one comer up here, we own from this comer down here a square from here up to Forty-fifth and Ashland. Mr. MoBSB. You can manufacture your product on land that is worth $100 an acre as well as you could on land that is worth a thousand dollars an acre, couldn't you? Mr. MoBBis. That depends on the location of the land. Mr. MoBSE. Land that is conveniently located ? Mr. Morris. I do not know where you would find any oonyeniently located land at any such figures as that. Mr. Morse. I say outside of Chicago somewhere ? Mr. Morris. No ; you would have to be near the stockyards. Mr. Morse. Well, suppose the stockyards were outside of Chicago? Mr. Morris. Well, you have got your labor situation there. It is certainly a big advantage to be in a big city from a labor stand- point. Mr. Morse. Don't you think your labor would come to you ? Mr. Morris. I think we would have trouble. I think people are coming to labor, rather than labor coming to them, recently. Mr. Morse. Other industries have had that experience, where tiiey have erected their plants away from big cities, and never had any trouble in getting labor. Mr. MoBBis. I belieye all industries are having trouble in getting labor at the present time. I belieye it is easier to get labor in big cities than out in the country at the present time. I think if there is a surplus of labor, it does not matter very much where the work is, the labor will find the work, but where there is a scarcity, it is pretty near up to the industry to find the labor. I think there are a good many advantages Chicago has oyer a country point, from a packing- house standpoint. Mr. Morse. Well, isn't the district here, the packing-houso dis- trict, overcrowded at the present time ? Mr. Morris. We have got plenty of space ; I don't suppose we are built on over a half or two-thirds of the space. Mr. TiMMiNS. Probably two-thirds. Mr. Morse. You have space for further enlargement? Mr. Morris. Yes. Mr. Morse. If you have to enlar^ your plant? Mr. MoBBis. Oh, yes ; we could mcrease our plant at least 50 per cent on the space we have. Mr. Morse. And still operate it efficiently and conveniently? Mr. Morris. Yes. Mr. MoBSB. Without increasing your expense? l&S XAxntUM PKonr ZiOoiisiair oir MBASMPAComro ijiiiumi. Mr. Morris. Well, that would be a pretty hard thing to m^; in a general sort of way I would say yes. Mr. MoBSB. Without an undue proportion? Mr. MoRBis. In a general way without an undue proportion. Of course most of our increase has been replacements and buildings for by-products and different ways of handling things. We are not killing any more cattle in CmcagQ to-day Sian we were 20 years ago ; probably not as many. Mr. Morse. Mr. Morris, have you any statistics that would show, say during the first six months of 1918, when the time comes, would you have any figures for that period or any other period, showing the total numW of cattle killed and the total number of calves? Mr. Morris. By us? Mr. Morse. Yes. Mr. Morris. Yes. Mr. Morsr; The total number of ilieep and hogs and every- thingf l£. Morris. We could get up those figures. Mr. Morse. Did you ever get up any figures of that kind? Mr. Morris. We have a number of times, something similar to that. For instance, not long ago the hide department, the leather industry down in Washington, wanted some of those figures and we got up some. I do not believe it would be just the figures you call for, but the same general line of figures. Mr. Morse. Mr. Timmins, could you get up for us a set of fig- ures, say from November 1, 1917, to May 1, showing the total cattle slaughtered, total calves slaughtered? Mr. Morris. In Chicago, do you mean ? Mr. Morse. Yes; all your business, all over, except that in for- ei^ countries; the total cattle, calves, pigs, sheep — in fact, all - animals slaughtered ; could you give us that? Mr. Timmins. Yes. Mr. Morse. Could you also give us Mr. Morris. I could give you the amount of hogs in five min- utes if you want the hogs, t suppose you want the whole propo^ ffltion? Mr. Morse. I want them all. Could you give us tlutt informa- tion, in six-month periods, say for 1918, 1914, 1915, and 1916; would it be much work for you to do that? Mr. Timmins. No; not if we have it back readily that far; we could ffive it to you very quickly; that is, it is not a big job. Mr. Morris. At the time we could give you any of those figures. I don't know how far back we keep our records. Mr. Timmins. That is the proposition. Mr. Morse. It would be an interesting proposition if we could get it. You can see why it would. Mr. Chase. Yes; I think Wagoner on Statistics would give that. The sheets you are sending in now have that for the corresponding months. Mr. Timmins. Yes. Mr. Morse. Maybe those figures are compiled somewhere. Mr. Timmins. Well, if they are, we shall have them. Mr. Chasr. We have a good part, ri^t in our office. Mr. Morse. Mr. Morris, in this increased valuation of some seven million dollars, do you propose or do you want to capitalize that? Mr. Morris. That is a matte'r that has not been determined. Mr. Whipple. Now, Mr. Morris, your increase in assets, they have increased tremendoudy in the last year or so ; do you expect all those increases to be paid out of the earnings of the business? For in- stance, if you build a new plant, you have to have a new plant for the sake of operating your business, do you anticipate building that all out of your earnings, or do you intend to get outside capital in or invest more capital yourself? Mr. Morris. We have no plains for refinancing at the present time. Mr. Whipple. Then everything you did build or any improve- ments you did make in your yards, or enlargements Mr. Morris. Of course, we borrowed considerable money ; we have in the past, as you will see if you look over our statement. Mr. Whipple. Well, I understand that, but isn't that borrowed money largely for thejpurpose of working capital? Mr. Morris. Well, I do not see how yon can draw the fine very well. Mr. WmFFu:. Well, the point is, is it vour intuition that any new additions to the plant should come out of the earnings! Mr. Morris. I think it will have to. Mr. Morse. That is where you want it to come. Mr. Morris. I think it will have to; I don't know where the money would be raised otherwise. Mr. Morse. Wouldn't it be possible to raise money for it by the flotation of stocks or bonds? Mr. Timmins. You see, very largely these new buildings would be replacements, writing oft one old building and building a new one in its place. Mr. Whipple. Yes; but you are increasing your capital all the time. Mr. Morris. Very often, as in the town of St. Louis, we have just put up a building costing us around a million dollars. I guess it will cost us over that, and it replaced a building costing us a quarter of a million or $200,000 originally. Now, it had practically the same capacity; it had a few improvements in it, but m a general sort of way the old building would have answeied the same purpose, but it wore out. Mr. Whifpcb. Tour d^ieciation was not sufficient to diarge that off? Mr. Morris. It covered what we charged off, but did not cover the r^lacement value. That has been our trouble. It used to be if we spent a million dollars in a year, we would have five or. six good buildings. Now a million dollars does not build anything. Mr. Morse. That is, from the point of keeping your plant at the same capacity. Now, if you increase the capacity of your plant, I mean to say where you get in a position where you can turn out more meat Mr. Morris. If we could get uniform run on our present facilities we could increase our capacity immensely. Mr. Morse. I do not get that. 154 llAimttt PBJOWt: LUdTAHOir ok MSAt-jPACKINO IKDUSTEt. Mr. MoBRis. If we had a uniform run, we could handle more stock oa thepresent capacity. Mr. MOBfflB. In other words, your run is seasonable. Mr. TnauNS. Spasmodio. Mr. MoiKis. Not only seasonable bal then are ups and downs. Mr. Chase. Two days in the week are heavy? Mr. MosBis. They have tried to change that We have fair runs three or four days, out the weeks won't correspond. Mr. MmusE. When is the busy season, if you have one? Mr. Morris. On cattle in tha fall, probably Septembeor and Octo- ber and November. On hogs, probably November, December, and January. On sheep, along in October and November probably. On calves, in the spring. Mr. Whipple. In other words, your plant is partly idle some of the time ? Mr. Morris. It is not idle but we could increase our gang. You take at the present time we have a gang that will kill 2,000 hogs in eight hours in our hog house; we could kill in the same house prob- ably 4,000 or 4,200. Mr. Whipple. Then in other words, no matter how much you increase the business, it is not necessary, except for the purpose of renlaoement, to increase ^e size of your plant? Mr. Miosis. In certain departments we have had to, at different times* Mr. MoBSm. In those certain departments you have had to add additional space; do you expect those to be paid out of earnings? For instance, if you erect some new department, some entirely new department for taking care of by-products, do you expect that to be paid out of the earnings? Mr. MoBBis. At the present time it would have to be paid out of earnings. Mr. TiMMiNs. Yes; because that is not material as compared with the balance of the business. Mr. Morse. Then there has been no material increase in the fixed assets of your business? That is, I mean to say, in land, buildings, and machinery? Mr. Morris. Not compared to our earnings. We have each year been able to make an increase in our business a good deal more than our fixed assets — increase in fixed assets. Mr. Morse. Is that true of 1914 as compared to 1915, '16, and '17 ? Mr. MoBBis. We have kept a bigger percentage of earned money in omr business each year, I think. Mr. MoBSB. But yon have not had to malse any large investnmt mi aooonnt of this big increase in business in these years? Mr. MoBaaa, We Imve had to make some increases. We have'^had to increase our canning, for instance, and we have had to make some increases that way, but in a general way the big part of it is replace- ments. Mr. MoRSB. How much do you think such increases amounted to in dollars? Mr. Morris. I should say that 80 per cent of our fixed assets is replacement each year, wouldn't you, Mr.^Timmins? MAXIMUM noWST UMTSATrnV OH MBA!i^PA pounds of pork on hand. That is liable to go down a cent a-pound ^Mx^ixmoL I know, but isnt that the ordinary risk of the business! Mr. MoBBis. That is an unusual hazard. Mr. MoRSB. That is a risk of the business. \^ Mr. WHzms. Have yon any uninsurable risks that you could not insure ? Mr. MoBBis. You could not insure your stock against going down in value. Mr. Whipple. I do not mean against fluctuation in value. Mr. Morris. It is the most fluctuating market in the world. Mr. Whipple. I mean outside of fluctuations in market value. We can throw that out of this case altogether. Are there any unin- surable risks outside of fluctuations in market value ; all your plants and machinery are insurable? Mr. Morris. Yes. i Mr. Whipple. And your stock on hand is insurable! Mr. Morris. Yes. Mr. TiMMiNS. Not against depreciation. Mr. Whipple. No; not against that. Mr. MoBBis. Against fire, it is. *\ Mr. Whifflb. It is against fire! Mr! Whifflb. You have no tremendous hazards sndi as somt . other businesses have ? V > Mr. MoRBM. I think it is the most hazardous business in the world. Mr. Whipfle. You mean from a speculation standpoint? V Mr. TiMMiNS. Every standpoint. 7 Mr. Morse. You mean, Mr. Morris, the hazard is confined princi- pally to the fluctuation in the market? 158 MAXIMUM PROFIT LIMITATION ON MBAT-PAOKINO IKDOTTBY. Mr. Morris. Yes ; and say the demand is going to be Mr. Morse. There is no other hazard but that! Mr. MoKRis. You take pork at the present tune ; that pork is goinff to be sold next fall. We dont know whether it is going to be sold higher or lower. If there is a panic and hard times, people don't have money to buy it. If there are a lot of people in the Army they don^ use as much in the Army as in civilian life and it cuts off a large demand. If we do not nave boats to ship stuff to England, we do not know what we will do with it. It is a business that changes every day, and to me it is the most hazardous business I know of. It is certainly tiie most hazardous business I am interested in. Mr. Morse. From your standpoint the hazard is simply in the fluctuation of prices, and not from any other cause? It is a staple business with no liazard whatever. Mr. Morris. No ; I do not agree with you. Mr. Morse. Except the fluctuation in prices. Mr. Morris. No ; it is a perishable product in the first place. The product when bought is to — you take beef now, you can freeze a cer- tain amount of beef, but ordinarily there is no demand for frozen beef. With this war on, it is a special condition: there are certain grades thnt we can not slaughter and freeze; ordinarily if we buy Uie cattle we have to sell the stuff at the best prices we can get; we can ^et only a figure much less than the replacement price; we mow that It is being sold too cheap, but we have to sell it. Mr. Morse. But on account of perfect refrigeration Ifr. M(»mis. Mr. Morse, ordinarily you can not sell frozen beef; carcass beef, in this coimtiy ; there are no exports to Europe. At the present time the freezers are pretty well filled up. Very often we hit a bad market and we would like to freeze stuff and we know we could get our money out of it. We would like to freeze it and keep it. We can not get freezers for it. In that case our branch houses have to keep the product chilled and not frozen. I do not know whether you realize that our domestic beef business is done on a chilled basis and not frozen at all. That is strictly per- ishable, and it simply has to be sold, that is all ; it is very often sold at a good deal loss than replacement or any prospect of replacement. Mr. Morse. That is the only thing you term a hazard of the busi- ness? Mr. Morris. No ; I think that anyone that has Uieamooiit of money borrowed that any packer has, is running a hazardous faiudneaB in itself. Mr. Ghasb. Tou are not subject to changes in fq^hion that some businesses are. Tou are not snbiect to destructive explosions like the Dupont Powder Co. Mr. McmRis. Well, we have been verv fortunate that way. Of course, packers have had lots of fires ana bad fires, and this is a war industry. It is essential to the war and we hope for the best in the future. Mr. TiMMiNs. All of those things are insurable? Mr. Whipple. Those are all insurable risks. Mr. Morse. You are insured, Mr. Morris, covering everything that ia insurable? MAXIMUM PROFIT LIMITATION ON MEAT-PACKING INDUSTRY. 159 Mr. Morris. I question if we are insured on all explosions. Mr. Morse. You are insured on everything where you can get in- surance, is that true? Mr. MoBBis. Sorarily on that account. Mr. Morse. That is not serious, though, is it? Your close-doifcTi was of very short duration ? Mr. TiMMiNs. The floods at Kansas City and East St. Louis were very disastrous to us. Mr. Morris. Last winter we were without salt, or a sufficient amount of salt, for quite some time. Mr. Morse. What do you call "quite some time"? Mr. Morris. Off and on for some two months. It sounds foolish, doesn't it? Mr. Morse. I am frank to say I do not call that an extraordinary risk of the business. That is only one of the incidents incidental to the business; something you can provide against by laying in a stock of salt. Mr. Morris. It is something we have never had come up before. Mr. Morse. But in case of a flood, where you have had losses, that might be considered. Mr. Morris. Mr. Morse, if a packer carried enough inventory on hand for all his supplies there would not be money enough in the world to carry his business. Last winter was the first time wj had an insufficient amount of salt It is something you could not antici- pate. Mr. Morse. When was it you had losses through floods ? Mr. Morris. About 1906 and 1907. Mr. TiMMiNS. We had two floods in Kansas City, one about 1904, it seems to me, and another several years later; I don't just remember the date. Mr. Morse. How much did you lose in 1904 through this flood! Mr. TiMioKS. The first one was not as heavy as the last Mr. MoRsi. How much was it? Mr. TiMMiNs. Oh, it might have run up close to, say—in that par- ticular flood, $50,000. I think the next one would be very, very much in excess of that ; I am not sure of the figures. Mr. Morse. How much? Mr. TiMMiNs. I would say it had run over $100,000. We had the same trouble — that is, we had a flood in Sa^t St. XipiQS, 13eS8S—S. Doc. 110, 66-1 ^IX 162 MAXIMUM PROFIT LIMITATION ON MEAT-FACKINQ INDUSTRY. Mr. Morse. What year was that? Mr. TiMMiNS. I am not sure of the years of these floods. Mr. Morse. How much do you think you have lost there ? Mr. TiMMiNs. I should think that would run up to $100,000, too. Mr. Whipple. You have no hazard such as where they have staad- ing timber, uninsurable, and a fire in that timber maj cause th«ni a ma of three or four or five milli a profit or loss, as between departments, cant yout Mr. Timbcinii. Yes: that will be onfy in the fluctuation of the market though. . , ^ . - ^, 1 x« Mr. McmsB. It will only be m the fluctuation of the market! ]iftr Timmins. Yes. Mr. M0MB. You do see that you are either taking a profit or loss, * as between departm^ts, when you consider market values? Mr. Timmins. Absolutely, but at the same time you take these class ! accounts, for instance, all the accounts in No. 1, and you ate adding all of those in to get your cost or profit or loss on these, • so you are not in that sense assuming a profit or loss. # Mr. Morris. You are liable to have a loss or a profit. Mr. Timmins. You are, outside of that group of items, which is all a part of the same business. , ^ u V Mr. Morse. You really can not tell exactly as to the real cost be- tween these items, even in the various departments in class 1, or in the various departments of class 2 or 3 or an int^nehange between y departments t y 168 MAXIMUM PBOFIT LIMITATION ON M£AT-PACKINQ INDUSTBY. Mr. TiMMiNS. I think we can absolutely determine that for the Mdon that take your butterine account as an illustration of that very point, and you haye a maitet for oleo all the time. Yon have doms of (Meomargarine manuf aetureis buying that oleo, not only here, but in Europe, and you have eslablijsuied prices on thftt "We take our oleo depurtineBt here and we tzeat it just the same aa oitt- side business. Mr. MoRBis. When thsy em Imy cheaper iratti some one elaa than from us, they buy it. Mr. Morse. Perhaps in your butterine department you may be able to determine the exact cost more absolutely than in other depart- ments. I can see that in these other items it is an impossibility to ascertain the exact cost. Now, I am talking pure theory , Mr. Tim- mins. Mr. TiMMiNS. I think that is so on certain departments. Mr. Morse. Even where it is class 1 or 2 or 3? Mr. TiMMiKS. No. For that reason we would not contend that departments such as you mention should be taken out of class 1. They are strictly packing-house items then. The only point we have ever contended for taking certain departments out of class 1 and ' putting them into 2 or 3 are departments where you can absolutely treat them as sei>arate units of your business, and where you can be on the same basis and are on the same hads with the man in the same line of business outside. I do not think we would want to go bevond that I do not think we would ask to go beycmd that Mr. Whipple. I think we have your theory on that There is one point here: You have spoken of hides and oleo. It seems that the market can be established for that. Now, what about the other by- products ; is there a free market for your other by-products, for in- stance your hoofs, your glue stock and blood, and certain kmds of bone and hair? Mr. TiMMiNS. That all goes into our fertilizer account, and we contend that fertilizer is a part of class 1. We would not ask for that to be taken out of class 1. Mr. Whippue. Well, in the case where you manufacture that or prepare that to stages beyond which the packers' province goes, you are entitled to a larger percentage of profit, and wasn't that taken into another class? Mr. TiMMiNs. Yes; but that is what you call manufactured fer- tiliser. We do not do that here; in our fertilizer, we manufacture that raw material, blood, tankage and the bones, and there is an established market when you get to that point When you ship that out to a manufaeturing plimt— 4hat is, where they manufactnfe commercial fertilisers— then yon are placing that d^Murtment of your business in the same group with the plant— shall we say — what IS that big southern fertilizer company — the Virginia-Carolina Chem<- ical Co., for instance you are placmg it on the same line as that; you are charging your tankage and ammoniates to your plant at the same price you are selling to these people. We do not use all our prod-* ucts. We sell some of them. Mr. Whipple. In your case there is no reason why the cost in these various departments untfi of these three cc»n- panies ? Mr. TiMMONs. I do not know that I have studied that. Mr. Morris. We are not affected very much with that, are we, Mr. Timmons? Mr. Timmons. Well, of course, what he means by subsidiarv com- panies would be, say, Joseph Stern, or the Morris Fertilizer Co., or William F. Mosser Co., whether w^e could consolidate and make up 6ne consolidated statement for them all. I do not know but that that could be worked up into a consolidated statement on a pretty fair basis. Mr. Whiffle. Don't you believe now that this question is up, you people like this regulation, that if that point were established, and those accounts so consolidated with the parait company~-not necessarily consolidated on Ihe books, but the books gott^ in si^h shape at any time that you can make up a consolidated statement, and that would b&ve to be so if this regulation were going to con- tinue—that those various books should be brought in line with the books of the parent company, so that the whole company could be consolidated at any time, from the viewpoint of these regulations If Mr. Timmons. 1 can see no objection to that. Mr. Whipplc^ Can you see any advantage to it, or see the neces- sity of it? Mr. Timmins. I don't know that I can say I can see the necessity of it, yet I woi44^^ t^^ X wQuld agree that it might be the proper thing to do. i 172 MAXIMUM vBomijaammom MUM^ttiw^dmiM Mr Whipple. In other words, these subsidiarjr companies, you should be able to take their balance sheets and dUivide Uieirlmts "P^i^^^J^"^*^^ classes, if there are three classes. Mr. TiMMiNs. Yes. ^^V^^^^^'f- It <^^eir assets are in one class, they should be Sc^ Ju'b^dbry "^^^ ad^?ntSlTft^ accomplish that and I can see some «linM S™Tf** *H ^^H^ the subsidiary companies s^uld be gotten into such shape Hiat you can show a profit and k)^ statement for the consolidated oompiinyf f " «' Mr. TiMMiNS. Quite so. ; Mr. MoRBis I do not believe on all the mMdiary companies- is It possible to show your profit and loss M«««d statement at the end of the year. ^ Mr. TiMMiNS. No; we show the same figures for all thosA ^M^' S^"^*^ "'i ''^'"'^^ colisolidat^d tatSmlnf"' P^.^^tSre^e^^lir«rara"te^^^^^^^^^^ Mr t£;^2^ Wo^T"^* •"L^'nE?nie« you do that with? and 111 the companies n which wii hnvp « i take their profit as they deZe'l "^^nT'^^Z^ZSl Mr. Morse. You t.ikc that up as other income? ' " ■ aint'ntI-;.Z%i Tr^LZ^^:^,^: J^IJ- are verysmall items. ^ they iJ^fS^^" consolidation you also Be- lieve tl»t TOO can, m your company, get the same details^ your subndiary companies and on all ymir branch Luspt tLf ,,*" c« on flie pM«nt company; for instance, you caS Zw the actual Mr. Chase. Yes. branch houses the same as you do from ^Zm^JSS^"^ MAZnCUM fBOFIT UMUAaXOlfr OK MEAT-PACKING INDUSTBY. 175 Mk'. TiMiciNS. It would be almost impossible for the simple rea- son that thev are just little selling branches and the man is an cxjcuti^and salesman and bookkeeper and the whole thing. Mr. Whipple. Well, is il necessary for your branch houses in keeping tlieir books or m reporting to you to net any figure rather than show your gross figures all the way through? Mr. TiMioKSj He don't. ^ Mr. Whipple. For instance, sales ; why deduct anything for it! Why shouldn't he show you the ^ross figures! Mr. TiMMiNs. He does. He gives us the gross sales and the gross prohts and the total expenses, and the difference between the gross prohts and the total expense is the profit or loss at that braach house for the period. Mr. Whipple. And if that is determined, you have no trouble get- ting the same information for your branch houses that vou have for your parent houses. Now, as a matter of fact, the matter of sales, is not that rather an accounting proposition of how you want to ti-eat It! lhat is, I mean providing you can at the end of the period get the same mfonnate)n all the way thf^ugh ; that is, 1 mean if you WMIt to compare the selling price of your branch houses, that would not ftave anything to do with your accounting features, which vou c^^d detenmne at the endi>f the year if all the information was Mr. TiMMiNS. Not at aH- ^ Mr. Whipple. I do not see that that would affect the statistical other'^etho/^" <^ get from the branch houses, krespective of any Mr. TiMMiNs. Not at all. Mr. Morse. Do you carry control accounts cm your ledsers witii your branches as to sales? ^ Mr. TiMMiNS. No; not as to sales. Mr Morse In order to find out the total sales of any branch, vou wx)uld have to go to the branch books? They are not on the books of tJie home company? Mr. TiMMiNs. No ; thev are not. po^? ^"^^ <^hat from your branch-house re- Mr. TiMMiNs. Yes. hoJS'r^^ ^ f'^"'" your branch- wo^d 2veTu thS' yoa ^ boiW up statistical information that Mr. &0R8B. There are no control accounts, what we know as con- trol accounts, with vour branch hoiBesef sales I 1^ Mr. TiMMiNs. Not at all. Mr. Morse. Would it cause you any more labor or inconvenience to^rlte!*""^' ^^'""^ cost us a good deal more money h^„^^^ ^""^^^^ '"Stance, your control accounting was built U5 once a week or once a month so as to show the totals • of ^'^Jnd':^l^*^lr°\^rr'^ ^^^^ particular man X you, you oon(4 go to the bnmch books, you would not need to cany X76 ICAXIMUM nOFIT lAUmmOV on lCli!»AOKI3irO IVDUSTBT. tliAt at the main office unless yoa wanted to. Do yoo iliiidL A sobtae of that sort would be feasible? Mr. TiMMiNs. I think it is far better, Mr. Morse, to keep it off of these books, and whenever you want any informalaon get it froBt/ldbo rapc»ts that would be furnished. Mf . Morse. Why ? Mr. TiMMiNs. I think it would be very muoh mofo simple and easier to handle. Mr. Morris. And take less help? Mr. TiMMiNS. And take less help and give you the same infor- mation. Mr. Morse. Don't you think that information anyhow — I am more or less familiar with your system — I do not know as I should say your system, but the system of the packers having traveling auditors going around to the different branches and drawing off the bills and reporting to the home office; at least you could obtain the information from their reports necessary to build up the con- trol. I should think that that might be very useful to you. Mr. TiMMiNS. I can not see just where it would help us, and it does seem to me it would take considerable more help to build up tiiat control: and, as I say, from tl^ reports which we do get from them we ooold compile any necessary figures that you might want or that we might want. Mr. MoBSE. Well, that is a proix)sition I iam not so mucb .iiler- ested in. . ♦ . Mr. Whipple. So, by your report s^fvtem, at tfao end of a given period you could consolidate your businesses as a whi^ and draw off what you might call a complete piofit*and-los8 statement for your entire organization. Mr. TiMMiKS. We do do that. Mr. Whipple. Have you such a profit-and-loBS statanent; that is, detailed profit-and-loss statement? Mr. TiMMiNs. Yes; we make up those profit-and-loss statements. Mr. Whipple. Showing gross sales or net sales? Mr. TiMMiNs. We do not show the sales, but we do show the profit and loss; we don't bring the sales into it. Mr. Whipple. And showing your expenses? Mr. TiMMiNs. No; it shows the net. Mr. Whipple. Have you any information you could get up to show those? Mr. TiMMiNs. Probably not with our present system of account- ing. That was brought out yesterday — without doing quite a little more statistical work. Mr. Whipple. Well, that is what I mean. From these reports you dK>u]d he able to agther all that informataon^ Mr. l^MiNs. Well, our reports are hot made np at die present time so vou could show the sales — gross, expense, and Mr« MoBSB. In other words, that informatikm is in the main office, but you corid get it if you had to! Mr. TiMMiNS. Well; bringing it to our main office report, is what you are speaking of ? Mr. Whipple. Yes. Mr. TiMMiNs. We haven't that in oup main office; it does not giva us that at the praMit time. MA XI MUM PROFIT LIMITATION ON MEAT-PACKING INDUSTRY. 177 Mr. Whipple. Don't you think in order to make this regulation effective, and make your business uniform all the way through, you have eventually got to have that information here or make arrange- ments to have it here, either in the form of keeping books by con- trol accounts or by complete system of auditor's reports, at the end of a given period? Mr. TlMMDra. Well, I think that probably will be worked out by the accountants, in determining what is tne simplest metliod to produce the results whidi you really feel are necessary. Mr. MoBSB. By accountuits you mean^ Mr. Timmins, the uniform accounting system that is now being agitated! Mr. TiMBnNs. Yes. Mr. Morse. And talked over between the Federal Trade account- ants and the packers? Mr. Timmins. Yes; I think they will get together on some scheme that will be satisfactory to everybody. Mr. Whipple. I do not know— but I can not find it in the Cana- dian regulations, but the Canadian regulations make provision M hereby the parent company, or a company holding 50 per cent or more of the capital stock of any company, can be ordered by the mmister or whatever they call him — ^what is that, the minister of finance? Mr. Chase. The receiver general, I think it is. Mt. Whipple. The receiver general in Canada can compel the cor- poratum holdiaf go per cent to include the profits of that partly owned or controlled companv in with the profits of the parent com- pany. Now, have yo any sudi conditions at the present time, wherein you hold may a percentage of the stock! Mr. TnociNs.. Yes. we have. Mr. Wmma. And do you understand these regulations to mean, these present regulations, that the Food Administration can com- pel you to bring the profits of that c^rpoMaon into your own profits and deduct them from the profits? Mr. TncMXMa. I do not know thi^ the few we have would be ma- terial. Mr. Whipple. You do notf Mr. Timmins. No. ^r^'^J?? provision of the Canadian rules and regulati When this market goes down, we are not going to show so good. We are going to have mighty hard work to split even. You take on last year's business, the big part of the profit was made on the advancing market. Do you see what I mean? Mr. Chase. Yes ; I see what you mean. Mr. Morris. You get us up there and then you dump us. Mr. Chase. So you feel you ought to be assured against that period ? Mr. Whipple. You feel you ought to be protected both ways? Mr. Morris. If you are going to limit our profits going up, and not going down, we feel that our profit going up should be enough to protect us going down. After this war is over, meats won't stay up to these prices, 1 do not think. Mr. Chase. Is it your opinion, Mr. Morris, that you can earn the coining year your whole profit according to the regulations of the Government 9 Mr. MosBis. I think so. Mr. MoBSE. You think the probabilities are you will? Mr. Chase. You have tried to. Mr. Morris. With any regulation, I see very few people that bump their heads on the top. There is usually a top there, and people don't hit the top. What it will be next year, I do not know. If the top is lower, what you make would be lower and you still would not hit the *^&r. Morse. I think that is all. We appreciate your courtesy very much, Mr. Morris. (Whereupon, at 1 o'clock p. m., on the 11th day of June, 1918, the hearing of the above-entitled tnatter w;as concluded.) • • • ••••».» , , , COLUMBIA UNIVERSITY LIBRARY This book is due on the date indicated below, «r at the 1 expiration of a definite period after the date of borzowinct as provided by the rules of the Library or hgr ^^fftal ar- rangement with the librariaii in charge. 1 mmWm Vlls 1 DAn ■vKBOWID 1 MTI MM ¥o — //JJL m ' 48fe5 3 1969 i 1 A15// OVJS-g NEH D502.12 Un35 | ^^•5f Coz3g« Sen. Com. Agri. & For* j Maximum profit linitftUon onjwit- pckiog industry i SEP 16 1940