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Admiral Moreel and Mr. Stephens, the committee regrets the delay, keeping you waiting as long as we have. As you know, we have been very busy since 10:15 this morning.
I have been asked as chairman to suggest that if we ran until 5:30 we might recess. As I understand, your statement would take quite a while.
Mr. MOREELL. About 45 minutes, Mr. Chairman.
The CHAIRMAN. Would it be convenient to meet with us again at 10 or 10:30 a. m. tomorrow?
Mr. STEPHENS. Yes, Senator, whatever your pleasure is.
Mr. STEPHENS. We are coooperating. We are dropping one of our appearances. Mr. Morse will not appear, if that is agreeable to you. I can, if you are pressed for time, tomorrow morning I can try to brief the first part of my statement at least.
The CHAIRMAN. That will be appreciated by the committee. So without objection we will proceed. Mr. Moreell, I think you are the first witness. Have you copies of your statement?
Mr. MOREELL. Yes, sir. Copies have been distributed.
The CHAIRMAN. We will recess at 5:30 and meet again at 10:30 tomorrow morning. STATEMENT OF BEN MOREELL, CHAIRMAN OF THE BOARD OF
DIRECTORS, JONES & LAUGHLIN STEEL CORP., ACCOMPANIED BY W. R. ELLIOTT, VICE PRESIDENT; HARVEY HAUGHTON, ASSISTANT TO THE PRESIDENT; JOHN PAULUS, DIRECTOR OF PUBLIC RELATIONS; AND KARL BRUNT, DIRECTOR OF TRAINING
Mr. MOREELL. Mr. Chairman, members of the committee, my name is Ben Moreell. I am chairman of the board of directors of Jones & Laughlin Steel Corp.
I am here today to discuss steel prices, profits, and dividends. Before I go into these matters I would like to state my position to you gentlemen on wage, price, and production controls.
I believe it is pertinent to invite your attention to the fact that the power which now rests with the President of the United States to tell the steel industry what it can make, when it can make it, where it can sell it, and how much it can charge for it was given to him by the Congress. In fact, in connection with the original draft of the Defense Production Act, the President stated that he did not want controls. Now, however, the President is pressing for the extension of controls and for the removal of all limitations such as the Capehart amendment. He also claims the authority to seize our property and to tell us what we shall pay our employees.
I have opposed controls consistently. Any interference with a free market economy is ultimately destructive of productivity and progress. Any concentration of absolute power soon tends to corrupt. Our current experience and all history prove this. The usurpation of the power of seizure and the operation of the seized properties by the Government are the direct result of the exercise of the other controls.
Much has been said recently about the enormous, fantastic, tremendous profits of the steel industry. I hope to set the record straight now. I will show you what Jones & Laughlin's profits and dividends have been, and what we estimate our profits will be for the rest of the year. I will show you, too, that by any standard of comparison with other industries the profits of J. & L. and of the steel industry rank very low indeed. Then, too, I will show you what the financial impact
of the post-Korean expansion means to J. & L. and why the profits we are now making should not be reduced.
First, let us take a look at table 1. This shows what our net income has been from 1939 up to the end of the first quarter of 1952. We have also shown three measures of that income: (1) percent of shareholders' investment, (2) percent of sales, (3) per net ton of shipments of finished steel products. The first two measures are quite commonly used. We have included the third column, not because it is a good measure, but because it has been subjected recently to so much misinterpretation. Our profits include not only the profits from making, rolling, and finishing our tonnage of steel mill products in our three steel plants, they also include the return from our investments in our raw materials operations, our warehouses, our fabricating business, our oil well supply stores, our transportation facilities, and other smaller operations, none of which is directly a part of our basic steel making, rolling, and finishing operation. They are important parts of our total business, but to add their profits to those of our three steel plants and express the answer in terms of tons of steel shipped is grossly misleading. As I said before, we only show the figures since they seem to have become very popular since April 8, 1952.
Senator Douglas. May I ask a clarifying question ?
Mr. MOREELL. Yes, sir.
years 1939–51 and first quarter, 1952
1 Adjusted for devaluation of dollar as measured by BLS Consumers Price Index (1939=100).
Mr. MOREELL. You will notice from the table that for the 1314-year period, J. & L.'s annual net income averaged $17 million. This was 5 percent of shareholders' investment and 5 percent of sales—hardly a shocking result.
The return on shareholders' investment, particularly in the steel business, becomes very misleading in periods of sharp inflation such
as we have experienced since 1945. The profits are expressed in current dollars and are compared with investments which largely represent dollars of a much higher value. For example, in 1951 our return on investment was 10.15 percent. If we translate our property valuation into terms of current dollars we would get a far different answer. Taken at $300 an ingot-ton of capacity and depreciated at the same proportion as our property investment is actually depreciated, the stated value of our plant and equipment would be increased by $510 million. On this basis the return would be 1.77 percent as shown below. Ingot capacity, Jan. 1, 1951 (net tons) -
4, 847, 000 Replacement value at $300 a ton ---
$1, 454, 100, 000
Depreciated replacement value, 54.4 percent.
$791, 030, 400 251, 532, 000
Amount of understatement of value of plant, properties,
and equipment.-Shareholders' investment, Jan. 1, 1951, per books---
539, 498, 400 305, 465, 000
As increased to reflect current value of properties--
844, 963, 400
14, 977, 000
Net income, year 1951, adjusted to reflect replacement deprecia
tion -Adjusted return on investment (percent). 1 See the following table :
Income, before depreciation, depletion, amortization, and Federal
Amount subject to income tax--
Adjusted net profit..
$111, 032, 000
69, 797, 000 41, 235, 000 26, 258, 000 14,977. 000
Senator DOUGLAS. Would you be willing to submit for the record comparable figures before taxes?
Mr. MOREELL. Yes, sir.
(The information referred to follows:) Jones & Laughlin Steel Corp. and subsidiary companies-Income before Federal
tares on income, years 1939-51 and first quarter, 1952
Per ton of steel products
share. holders' investment
Average for period
$3,853,000 13, 737, 000 27, 018, 000 34, 907,000 29, 603.000 12, 201.000
5.334,000 15, 815, 000 31, 624,000 51. 870,000 35.398,000 73, 594, 000 85,337,000 12, 730,000
2. 38 8. 34 15. 60 19. 87 15. 18 6. 15 2. 67 7.83 15.32 22. 73 14.09 27. 87 27. 94 14, 63
3. 39 8. 96 12.51 14.86 10. 55 4. 21 1.87 6. 42 9. 03 11. 63
9. 17 15. 10 15. 12 9. 20
$2.25 5. 92 8.83 10. 87 8.32 3. 44 1. 67 5. 48 9. 07 14. 04 11. 64 19. 15 21.33 13. 11
$2.25 5.87 8.34 9. 27 6.68 2.72 1. 29 3. 91
11.09 11.43 6.94
33, 657, 000
1 Adjusted for devaluation of dollar as measured by BLS Consumers Price Index (1939–100).
Senator DougLAS. In this connection, a report was made by the Joint Committee on the Economic Report, issued in 1950, basic data relating to steel prices, and on page 19 profits of various companies before taxes were listed, including Jones & Laughlin, and steel companies in column 4. Would you have your men look that over and see whether that column is correct?
Mr. MOREELL. Yes, sir. (The following was received in response to the above:) We have attempted to verify the figures given. While we cannot check the results exactly, I will say that they are substantially correct.
Mr. MOREELL. I am sure that you have also noticed one other thing about our earnings. The years 1947 to date have all been above the average. And rather obviously this is the reason for most of the outcries that steel company profits are too high.
Mr. MOREELL. Yes, sir. I am sure that you have also noticed one other thing about our earnings. The years 1947 to date have all been above the average. And rather obviously this is the reason for most of the outcries that steel company profits are too high.
It seems to be the belief of some people that our earnings should be governed by earnings in the decade of the thirties when our operating rate averaged 46 percent, and when each dollar of income went so much further than it does today. Increases in the cost of living are important for a business, too.
Steel is a large industry. It deals in large tonnages and large numbers of dollars. But the number of dollars means nothing unless it is related to the industry's needs for replacement of equipment and to the need for new investors' funds for expansion.
It is generally true that the companies which fabricate our steel into consumer products make a far better return than we do. The only fair way to judge the steel industry's earnings is to compare them with earnings of other manufacturing industries with whom steel must compete for the investor's dollar.
When we do this we find that the steel industry has made a very poor showing. Each year the National City Bank of New York publishes a table showing the relative net incomes of the 45 principal manufacturing industries expressed as percentages of net worth.
TABLE 2.-Net income as percent of net worth, leading manufacturing corporations in 45 industries, 1935-51