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THE UNION'S CONTENTION The union argues that under section 5 of GWR No. 8 and section 4 of GWR No. 6, a base date other than the normal January 15, 1951, is justified. They contend that the October 15, 1950—the last Consumer Price Index available at the time of the negotiation of the 1950 increase-is the propei base date. The increase in the Consumers Index (old series) from October 15, 1950, to January 15, 1952, is 8.8 percent. When applied against the current $1.81 wages the amount of the perm'ssible increase would be 16 cents per hour.
The following table indicates the increase in living costs and the permissible wage increase on the basis of the different base dates indicated:
The Cost OF THE PROPOSED STEEL WAGE INCREASE AS ANALYZED BY OPS
1. The cost of the entire wage package proposed by WSB averages 23.3 cents an hour from January 1, 1952, to June 30, 1953. !
2. Production of i ton of finished steel requires 17 man-hours. Thus, the average cost of the proposed wage increase is $3.97 a ton.
3. A fully integrated operation (including production of coal, iron ore, and limestone) requires 20 man-hours a ton. Thus, the proposed wage increase, plus an identical increase in ore and coal mines and quarries also retroactive to January 1, 1952, would raise the industry's total labor cost by $4.67 a ton of finished steel.1
Nonintegrated companies could pay out of this amount for an increase in the prices of purchased oro, coal, and limestone equal to the increase in wage cost of these materials.
4. The industry has claimed that the wage-cost increase is $6 a ton. This figure applies only if retroactive pay is charged to current operations; or else it applies only after January 1, 1953.1
5. The cost figures given above do not take account of increasing labor productivity which is bound to offset part of the wage rise.
6. OPS position is that purely hypothetical increased material costs cannot be taken into account in determining the justification for present price adjustments.
WSB recommended steel wage
Cents First half 1952
12.5 Second half 1952.
15.0 Average, 1952.
13.8 First half 1953.
17.5 Average, 18 months..... 15.0 Price increase requested by steel industry....
1 Figured at 20 percent of increase wage rate.
33 additional man-hours (totaling 20) required per ton to produce iron ore, coal, and limestone in an integrated mill.
1 Each of these statements is based on computations verified by the steel industry's own experts.
Source: Estimated "Cost per hour and cost per ton," by Office of Price Stabilization and the steel companies.
Net cost of WSB recommended steel wage to steel industry and Government
NET COST TO STEEL INDUSTRY
Estimate wage increase cost to July 1953 (basis average $4.67 per
ton times 128,000,000 tons estimated production of finished steel from January 1952 to July 1953)-
$600, 000, 000 Less Capehart price increase (basis $3 per ton times 100,000,000 tons over next 14 months).
300, 000, 000 Industries' cost for wage increase, January 1952 through July 1953...
300, 000, 000 Less amount of Federal income and excess profit tax (70 percent) on $300,000,000...
210, 000, 000 Net cost to steel industry for 18-month period...
90, 000, 000 Average net cost per ton for 14 months including retroactive wage increase, 90 cents per ton.
NET COST TO GOVERNMENT TO JULY 1953 Loss from Federal income and excess profit tax..
$210, 000, 000 Offset by steelworkers individual income tax on $600,000,000 at 20 percent----
120, 000, 000 Net loss to Government for 18-month period..--
90, 000, 000 Plus possible additional tax loss on lower dividends to stockholders.
EFFECT OF STEEL PRICE INCREASE ON THE GENERAL ECONOMY In the hearing before the Senate Labor and Welfare Committee on April 15, 1952, Governor Arnall stated:
“A $12-a-ton increase in the price of steel would represent about 10 percent increase in price. It is estimated that such an increase would result in a general increase of approximately 5 percent in the cost of living or $300 per year per family." According to OPS the basis for this statement is that a steel price increase will 4. Indirectly increase the price of commodities generally through a round of material and wage increases over the next few months that would be reflected across the board.
1. Break the line on OPS price policies.
2. Make it necessary for OPS to grant special consideration to other industries.
3. Cause other industries to ask for increases to cover wage increases already given since July 1951 and OPS would be helpless.
5. Create inflationary trend caused by consumer buying being stimulated by higher prices. Estimated $300 increasing living cost per family is reached as follows: Personal expenditures:
$209 billion annually: 5 percent increase equals $10.5 billion.
$10.5 billion divided by 35 million families equals $300. PROFITS PER TON OF SEMI AND FINISHED STEEL FOR 49 STEEL COMPANIES
REPORTING TO AMERICAN IRON AND STEEL INSTITUTE The following represents the basis on which OPS estimated the profit per ton of steel before and after taxes.
1950 average price for semi and finished steel $113.20 (from Bureau of Census, Facts for Industry-Steel Mill Products issued Jan. 25, 1952.)
PRICES FOR 1947-51
price index 1
Price of semi and finished steel based on $113.20 for 1950
1947. 1948 1949. 1950. 1951.
88.8 101.4 109.9 115.7 124.8
99. 17 107. 48 113. 20 122. 05
PROFIT PER TON BEFORE FEDERAL TAXES
Percent profit per dollar sales
Profit Per ton
1947 1948, 1949. 1950. 1951.
10.4 11.5 12. 3 16. 2 16.5
99. 17 107.48 113. 20 122. 05
2 $9.03 1 11.50 3 13. 22
18. 34 20. 26
PROFIT PER TON AFTER FEDERAL TAXES
1947. 1948 1949. 1950. 1951.
6.2 6.7 7.2 8.0 5.8
99.17 107. 48 113. 20 122. 05
3 $5.38 3 6. 64 37.74 9. 05 7.07
COMPARISON OF 1951 PROFITS PER TON WITH 1947-49 AVERAGE
7.07 41. 80
Average profit per ton 1947–49.
Profit per ton, after wage cost.
1951 profit per ton after all adjustments...
5. 27 4.90
1“Semi and finished steel combined"--New Index-1947-49-100 percent.
Source: Prepared by Office of Price Stabilization from Department of Commerce, "Facts of Industry';
EARNINGS STANDARD, 49 STEEL COMPANIES REPORTING TO AMERICAN IRON AND
STEEL INSTITUTE Policy
“The level of price ceilings for an industry shall normally be considered “generally fair and equitable' if the dollar profits of the industry amount to 85 percent of the average for the industry's best 3 years during the period 1946–49, inclusive. The profits should be figured before taxes and after normal depreciation only, with adjustments made for any change in net worth.” STEP I.-85 percent of the average rate of returns (before taxes) on the net worth for
3 best years during 1946 through 1949 1946.
10. O 1947.
16. 8) 1948.
20.5 18.5 X 85= 15.7 1949.
STEP II.--85 percent of base period earnings (before taxes) adjusted for changes in
1951 net worth 1951 net worth of 49 firms..
$5, 969, 000, 000 85 percent of average 3-year return..
1951 earnings standard...
$937, 000, 000
STEP III.—1951 earnings standard and cost absorption before price increase 1951 earnings before taxes.
$1, 918, 000, 000.00 Earnings standard required..
937, 000, 000. 00
Amount of increased costs to be absorbed from earn
ings (before taxes) before the 49 firms are entitled
981, 000, 000. 00 Increased costs to be absorbed per ton of finished steel.--
13. 10 NOTE.-(1) The above figures reflect the fact that 1951 earnings before taxes for the steel (49) companies Increased 128 percent, whereas the earnings standard formula is 85 percent of the 1946-49 base period.
(2) Estimated that 49 companies represent 95 percent of the productive capacity of 79,000,000 tons of finIshed steel in 1951.
ANALYSIS OF CONSOLIDATED STATEMENT OF 49 STEEL COMPANIES FOR 1947-51 BASED
ON STATEMENT BY STEEL COMPANIES IN THE WAGE CASE WITH ADDITIONS
The net income of iron and steel companies representing 95 percent of tota finished steel production declined nearly 13 percent in 1951 from the previous year' despite an increase of 22 percent in their combined revenue, according to American Iron and Steel Institute figures issued April 13, 1952. The companies' Federal income taxes rose about 61 percent over 1950 to more than $1.2 billion. This was nearly 260 percent over the 1947–49 average.
However, the net income before taxes was the highest in the history of the companies, $1.9 billion in 1951 as against $1.5 billion in 1950 representing 24 percent increase. When compared with the average 1947–49 income before taxes of $839 million, the 1951 figure was 128 percent higher.
The 1951 net income after taxes of $667,693,527 was $99 million lower than the net income in 1950 but $174 million more than the average for 1947–49. The 1951 net income represented a return of 5.7 percent on total revenue, compared with 8 percent in 1950 and 6.6 percent for the 1947-49 period. The 5.7-percent return in 1951 was the lowest since 1946, when it was 5.5 percent.
The total revenues of the companies in 1951 were approximately $11.6 billion as against $9.5 billion in 1950. This compares with $7.4 billion average for 1947– 49. Total 1951 costs and expenses rose slightly more rapidly than revenues, the increase being 25 percent over 1950 to an aggregate of over $10.9 billion. The increase in costs was nearly $2.2 billion, compared with $2.1 billion in revenues.
However, the total 1951 costs and expenses maintained approximately the same increase over the 1947-49 average as total revenues-about 57 percent.
The $1.25 billion in Federal income taxes was three and one-half times as high as Federal taxes averaged for 1947–49. For every $1 paid on wages and salaries in 1951, 36 cents was paid in income taxes to the Government. In 1950 it was 27 cents and an average of 14 cents for 1947–49. The 1951 Federal taxes were
equal to 10.8 cents on each sales dollar. They were nearly twice the net income upon each sales dollar. They were four times the 1951 dividends of 2.6 cents per sales dollar.
Last year the steel companies' greatest increase in dollars of expenses was in materials and services purchased, but these items maintained their normal rates with the total costs. This classification constituted about half of total costs and expenses, and amounted to nearly $5.4 billion last year, an increase of $1 billion or 23 percent over 1950. It was nearly 50 percent of total costs in 1950 and an average of 51 percent for 1947–49.
Wages and salaries, the next largest item, were $3.4 billion, an increase of nearly $600 million or almost 21 percent. Social security, pensions and similar employee benefits brought total employment costs last year to nearly $3.8 billion. This item has run around 35 to 37 percent of the total costs and expenses each year since 1947.
The reduced net income was accompanied by a cut of $4 million in dividends, to a total of $307 million. The 700,000 stockholders in these companies received about one-quarter as much as was paid to the Federal Government on income taxes.
After dividends, $361 million was left for reinvestment in the business, a reduction of nearly $100 million from 1950. This part of net income, which was available for various corporate purposes is claimed to be equal to only about one-third of the 1951 expenditures for additions, improvements and acquisitions. The total of this income available for reinvestment, plus depreciation and depletion, was over $700 million, or $300 million short of the year's expenditures for new equipment and properties. This situation was reflected in an increase of $251 million in long term debt to slightly over $1 billion, the largest funded debt since the twenties. Funded debt has approximately doubled since the end of World War II.
The net worth increased by $531 million or approximately 10 percent in 1951 over 1950. This was 31 percent more than the 1947–49 average. It is significant to note that the rate of return before taxes in 1951 on the stockholders' equity was 32.2 percent as compared with 28.3 percent in 1950 and 18.4 percent average for 1947-49. The rate of return after taxes, although slightly higher in 1951 over the 1947–49 average showed 1.9 percent decrease from 1950 due to the substantial increase in Federal taxes.
Higher costs, together with smaller net income and reduced balance of net for reinvestment, were accompanied by a relatively larger increase in current liabilities than in current assets. The latter at the end of the year were 1.8 times current liabilities, compared with a ratio of 2.2 one year earlier and 2.6 for the 1947–49 period.
Depreciation and depletion of $372 million in 1951 was 14 percent higher than in 1950, one of the smallest increases in charges against income. It is claimed that very little depreciation as yet is on the accelerated basis. Moreover, this charge is based on original cost, by law, rather than replacement cost.
The 49 iron and steel companies covered in this report produced 96,703,147 net tons of ingot steel and shipped 75,119,869 tons of finished steel to customers.
Source: American Iron and Steel Institute.