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 STEP II-85 percent of base period earnings (before taxes) adjusted for changes in 1951 net worth 1951 net worth of 49 firms... 1951 earnings standard.. -percent__ $5, 969, 000, 000 15. 7 $937, 000, 000 STEP III. 1951 earnings standard and cost absorption before price increase 1951 earnings before taxes_ Earnings standard required_ Amount of increased costs to be absorbed from earn- Increased costs to be absorbed per ton of finished steel__ __ $1,918, 000, 000. 00 937, 000, 000, 00 981, 000, 000. CO 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 194749. 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. 96315-52-pt. 4-28 Consolidated statement (including all affiliated interests) of 49 steel companies reporting to American Iron and Steel Institute Source: American Iron and Steel Institute-1951 Annual Report: 1951 from release in New York Times, Apr. 13, 1952. Employment costs and prices per ton, 1946-51 1 Indexes: 1946 100 Semifinished and finished steel. Sources: Prices: U. S. Bureau of Labor Statistics, Office of Price Stabilization. from the annual statistical report, 1950, p. 8, American Iron and Steel Institute. Other data: Adapted Steel shipments, profits per ton and capacity operated, United States Steel Corp., 1929-51 1 Adjusted by gross private domestic investment deflator as used by Department of Commerce. Source: United States Steel Corp., Annual Report for 1951. Cost of materials, employment costs and profits after taxes, United States Steel Corp., 1929-51 DATA PRESENTED BY STEEL COMPANIES IN THE WAGE CASE-Estimated COST OF WAGE STABILIZATION BOARD RECOMMENDATIONS 6 paid holidays (including double time for holidays worked). Increased vacation benefits (3 weeks after 15 years of service). Increase shift differentials (6 cents for second shift; 9 cents for third shift). Steel capacity, production, and percent of operations (ingots and steel for castings) Typical tabulation for the peacetime years before 1940 for an integrated steel company |