THE MIDDLE PERIOD--1907-1914
Although the business depression consequent on the panic of 1907
seriously affected earnings of the Steel Corporation in the closing
months of the year, the big company was able, as a result of the
boom conditions that preceded the financial catastrophe, to report
the largest earnings it had till that time shown. Total earnings
were $160,964,673.72, and a net balance was left for dividends of
$104,565,563.76. After the payment of the dividends, the common
being maintained at the established rate of 2 per cent., and the
appropriation of $54,000,000 for property additions, a net surplus of
$15,179,836.76 remained.
In the appropriations for additions was included a sum of $18,500,000
for the continuation of the work being done at Gary, making the total
amount appropriated for this purpose to the end of 1907, $50,000,000.
During the year the work of building the new steel city progressed
rapidly and $19,316,555 was added to the $4,632,202 expended the
previous year.
The last two months of the year showed the effects of the business
depression, earnings of the last quarter, net for dividends, being
only $18,614,416, compared to $28,758,142 the three months preceding.
But it was not until 1908 that the full force of the storm was to be
seen. In the first quarter of this year net profits applicable to
dividends dwindled to $8,854,297.37, compared with $27,031,008.20 a
year previous, and second-quarter profits were $9,042,027.55 against
$30,843,512.61 in the same period in 1907. A striking comparison of
the difference in trade conditions that occurred in the twelvemonth is
afforded by the following statistics.
1908 1907
Gross sales $482,307,840.34 $757,014,767.68
Steel ingot production 7,838,713 tons 13,342,992 tons
Finished steel production 6,206,932 tons 10,564,537 tons
Number of employees (avg.) 165,211 210,180
Net earnings $91,847,710.57 $160,964,673.72
Net for dividends $45,728,713.70 $104,565,563.76
No special appropriations were made out of 1908 profits and a surplus
of $10,342,986.70 was thus shown for the year after the dividend
payments. However, such an appropriation appeared to be unnecessary as
the Corporation already had a large reserve fund for the most important
work underway, the building of the city and plant at Gary. On January
1, 1908, the balance on hand for this purpose was $26,051,242.62, and
there was spent on the work $18,848,472.19 during the year, so that at
the start of 1909 there was a balance of sufficient size to continue
the work for several months.
During the year 1908 the bonded debt of the Corporation, which had
been increased from $564,670,876 at the end of 1906 to $602,320,511 a
twelvemonth later, chiefly on account of the issuance of securities for
exchange for Tennessee Coal & Iron stock, was reduced to $594,865,534.
Among the important items of expenditure for 1908 is found a sum
of $3,460,993 which was employed in modernizing the plants of the
Tennessee company acquired the previous year. This was the beginning
of a series of large expenditures extending over many years, and all
for this purpose. Up to the end of 1914 approximately $20,180,092 had
been spent on this work, most of it coming from the general funds of
the Corporation and not from the earnings of the southern subsidiary
itself.
To what extent the acquisition of the Tennessee company affected the
Steel Corporation’s capacity is shown in a table submitted in the
report to stockholders for 1908, the figures given being as of the end
of the year:
BLAST
FURNACE STEEL FINISHED
PRODUCTS INGOTS STEEL
_Tons_ _Tons_ _Tons_
Capacity April 1, 1901 7,440,000 9,425,000 7,719,000
Purchase of Union and Sharon Cos. 1,228,000 1,258,000 1,103,000
Tennessee purchase 1,000,000 500,000 400,000
Additions made by different Cos.
after acquisition 5,322,000 5,887,000 3,678,000
Capacity January 1, 1909 14,990,000 17,070,000 12,900,000
This report also states that although the total steel capacity of
the Corporation had been increased by 2,306,000 tons during 1908
its capacity for the making of Bessemer steel had decreased 746,000
tons, open-hearth capacity increasing 3,052,000 tons. These figures
illustrate sufficiently the change then occurring in the steel trade
from the old Bessemer to the new open-hearth process.
An even more striking illustration of the manner in which open-hearth
steel has been displacing the older Bessemer process in recent years
is afforded by the figures of the American Iron & Steel Institute. In
1880 open-hearth production was only 100,851 tons against 1,064,262
tons of Bessemer. A decade after Bessemer production was 3,688,871
tons compared with 513,232 tons of open-hearth, and in 1900, 6,684,770
tons of Bessemer were turned out by the steel mills of this country
for 3,398,135 tons of open-hearth. By 1907 the two processes of steel
making were running a close race for popularity with consumers,
open-hearth production being 11,549,736 tons in that year, and Bessemer
11,667,549 tons. In every subsequent year open-hearth production has
been the larger, as shown by the following figures of the country’s
production:
YEAR BESSEMER OPEN-HEARTH
1908 6,166,755 7,836,729
1909 9,330,783 14,493,936
1910 9,412,772 16,504,509
1911 7,947,854 15,598,650
1912 10,327,901 20,780,723
1913 9,545,706 21,599,931
1914 6,220,846 17,174,684
1915 23,679,102 8,287,213
1916 31,415,427 11,059,039
1917 34,148,893 10,479,960
1918 34,459,391 9,376,236
1919 26,948,694 7,271,562
Business conditions gradually bettered throughout 1909, although the
so-called open market that existed in the steel trade resulted in
an average of prices during the year somewhat lower than in 1908.
Nevertheless, increased production caused a marked and gradual gain
in the earnings of the big Corporation, which from $22,921,268.75
in the first quarter grew to $29,340,491.62 in the second quarter,
$38,246,907.43 in the third, and $40,982,746.14 in the closing three
months.
Total earnings in 1909 were $131,491,413.94, and after all fixed
charges had been met, dividends paid, and a special appropriation
of $18,200,000 set aside for new construction, etc., a surplus of
$15,321,918.04 was carried to profit and loss. The bonded debt of the
Corporation in 1909 was increased by $12,718,639.43 to a total of
$607,584,173.72, there having been issued by the subsidiary companies
bonds to a total of $21,976,500, and bonds totalling $9,257,860.57
having been redeemed.
The year’s operations resulted in a production of 13,355,189 tons of
steel ingots and 9,859,660 tons of finished steel products. The total
volume of business was reported at $646,382,251.29.
On the steel plant and city of Gary $11,081,367.80 was spent, making
the total expended on the project to December 31, 1909, $53,878,597.37.
Gary was now a steel-producing centre. Early in the year steel rails
were turned out there and shortly after the close of 1908 and later in
1909 several of the steel furnaces and other finishing mills had been
placed in operation. About this time it was decided that two of the
other constituent companies of the corporation, the Sheet Tin Plate and
Bridge companies, should erect plants at Gary, which plants are now in
operation and have been for some time.
About the middle of 1910 the wave of improvement that had brought
better business and profits to the steel companies began to slacken.
The effect was not very immediate and the year, as a whole, was one of
the best experienced by the Corporation prior to the war boom. Earnings
reached a total of $141,054,754.51, but a fall in quarterly profits
from $40,170,960.83 in the quarter ending June 30th, to $25,901,729.87
was sufficient to show the downward tendency in conditions affecting
the trade.
Gross business aggregated $703,961,424.41, and production reached its
high-water mark, 14,179,369 tons of ingots and 10,733,995 tons of
finished steel being turned out by the plants controlled by the Steel
Corporation.
Bonds to a total of $17,392,752.14 were redeemed and $6,945,237.50
issued making the outstanding bonded debt of the Corporation and its
subsidiary companies on December 31, 1910, $597,136,659.08. Some
$16,000,000 was expended in further work at Gary bringing the total
outlay on the plant, city, and terminals there to $69,978,695.15,
of which $60,203,189.22 was financed from the funds of the parent
corporation and the balance by various subsidiary companies, including
the Bridge and Wire companies, which began the construction of their
new plants during the year.
Several important purchases of coal properties in the states of
Illinois and Indiana were made in the years 1909-1910. These gave the
Corporation 742 acres of land and 55,624 acres of coal rights. The most
important new development recorded at this period, however, was the
beginning of work on the construction of another steel plant and city
near Duluth, Minn. The site for this plant had been purchased as early
as 1907, but the events of the year and the dullness that followed made
it seem wise to postpone the project. The more favorable conditions at
the beginning of 1910 warranted its being proceeded with, and so the
matter was put in hand, and at the end of the year $1,715,517.70 had
been spent on the new plant.
In accordance with its policy of permitting its workers to share in
the better earnings resulting from improved business conditions the
Corporation, in 1910, announced another advance in wages, affecting
the greater number of its employees who, throughout the year, averaged
218,435. The increase averaged something over 6 per cent.
Several factors operated adversely against the Corporation, from a
financial standpoint, in 1911. The decline in business noted in the
late months of the preceding year continued through and well into 1912,
tonnage fell off and prices dropped with it. In May, 1911, the Republic
Iron & Steel Co. precipitated matters by announcing a drastic reduction
in the price of bars, the most important steel product, and this led
to general price cutting, affecting every steel maker. It is worthy of
note, however, that the conditions that now prevailed had nothing of
panic in them. The business world seemed merely to be hesitating, to be
timorous about making new ventures, to question the future. Perhaps the
real reason was the world situation ripening for the Great War, for it
is noticeable that, although conditions over the end of 1912 and into
1913 were good, this hesitancy was still in evidence, something ominous
seemed to hang over the world of business and finance. It is likely
that some of the leaders of finance foresaw, even though dimly and
uncertainly, the trouble that was brewing.
Earnings of the Steel Corporation in 1911 were $104,305,465.87, the
four quarters making a comparatively even showing. After the payment
of dividends only $4,665,494.78 was left for surplus. Dividend
requirements, however, were considerably larger than they had been in
previous years. The rate of disbursement on the common issue had been
increased to 4 per cent. in 1909, and to 5 per cent. in 1910, at which
rate it continued until the latter part of 1914.
Production in 1911 fell off to 12,753,370 tons of ingots and 9,476,248
tons of finished steel products, and the gross volume of business
declined to $615,148,839.79. The number of employees also grew less,
the average number employed in the period being 196,888.
Another increase in the bonded debt was reported, new securities
totalling $33,416,000 being issued, and $9,498,359.46 being redeemed.
The bonded debt of the big company on December 31, 1911, stood at
$621,054,299.62.
Capital expenditures reported for the year included $7,939,813.46
at Gary, bringing the total for this project to $78,258,508.61;
$17,707,280.79 expended for the acquisition of new coal properties in
the Connellsville region of Pennsylvania; $5,069,983.65 spent on the
Tennessee properties, and $1,437,518 spent on the new Duluth plant.
The two most important events of the year were the decision of the
directors of the Corporation to cancel the Hill Ore lease and the
inception of the Federal suit for the dissolution of the big company
under the Sherman Anti-Trust Law. Both of these events took place
on the same day, October 26th. As the Hill lease has been discussed
at length in a previous chapter, and the facts connected with the
dissolution suit have already been told, they will not now be gone into.
Toward the close of the year just reviewed there was a gradual
increase in the volume of steel buying. The railroads, which had been
consuming very little of the metal--and the roads are the largest
customers of the steel companies--began to buy in something like normal
proportion and continued to do so until the spring of 1913. Other
consumption also showed more activity, and under the impetus of this
buying prices for steel products gradually advanced. The Corporation’s
earnings, however, did not immediately reflect this betterment, the
first quarter of 1912 showing net profits from operations of only
$17,826,973.28, but a steady advance was recorded until $35,191,921.82
was reported for the last three months of the period.
For the year net earnings of $108,174,673.12 were made and a balance
of $3,605,247.37 was carried to surplus. The bonded debt of the
Corporation on December 31, 1912, showed an increase of $22,482,881
from a year previous, bonds and mortgages totalling $32,428,246.50
having been issued and $9,906,365.47 in funded debt having been
redeemed. The bonded debt of the big company and its subsidiaries at
the end of the year stood at $643,537,180.65.
Production in 1912 amounted to 16,901,223 tons of ingots and 12,506,619
tons of finished steel. The total volume of business amounted to
$745,505,515.48. Of this sum $494,637,808 represented sales of steel
and other products to customers outside the Corporation, $189,257,318
inter-company sales, and the balance earnings from transportation and
other sources.
The main items in capital expenditures were as follows: Work at Gary,
$1,725,052; Duluth plant, $2,676,066; Tennessee Coal, Iron & Railroad
extensions, $1,833,094. The construction of the Gary plant was now
practically finished and the plant produced 1,093,578 tons of pig iron,
1,669,389 tons of steel, and over 1,186,000 tons of finished products
in the course of the year.
In view of the general betterment in business conditions it was
decided by the directors of the Corporation to erect a big plant across
the Canadian border. A site for this plant had already been acquired
at Ojibway, Ontario, opposite the city of Detroit. Work has proceeded
and is proceeding slowly. The plant has not been completed but several
millions have been expended in laying foundations and otherwise making
general preparation for the big plant that will one day stand at
Ojibway.
An attempt was made about this time to reduce the working hours of
some of the employees from the twelve-hour to an eight-hour day. Such
a course had been recommended by a special committee of stockholders
appointed at the annual meeting in 1911, but the attempt was by no
means an unqualified success, as the movement met with considerable
opposition from the men themselves.
In the first nine months of 1913 generally satisfactory conditions
prevailed in the trade, and earnings were consequently improved,
although operating costs had again been increased by a general
wage increase put into effect on February 1st of that year. The
first quarter showed net earnings of $34,426,801.54; the second,
$41,219,813.42; and the third, $38,450,400.03. A pronounced decline was
reported in the final three months when profits fell to $23,084,329.84.
The good results of the earlier months were largely due to the big
carry-over of business from 1912 and to the comparatively high average
of prices received. For perhaps the first time in the history of the
steel trade the railroads placed their orders for rails for 1913
delivery as early as the summer of the preceding year, and this went a
far way toward effecting the results shown.
After a special $15,000,000 appropriation the Corporation showed a
net surplus of $15,582,183.62 for 1913. No important bond issues
were made in the period, and with $16,660,866.76 in bonds redeemed
the total bonded debt was reduced to $627,366,681.47, a decrease of
$16,170,499.18.
The total volume of business amounted to $796,894,299, of which
$518,999,605 represented sales to outside customers; $211,910,441
inter-company sales, and the balance transportation and other business.
The average number of employees was 228,906, the highest recorded so
far, and production totalled 16,656,361 tons of ingots and 12,374,838
tons of finished steel products. The principal expenditures for capital
account included $2,960,124.92 spent at Gary, $5,912,027.44 at Duluth,
and $1,274,440.84 on the Tennessee plants. Fee title was also acquired
during the year to certain ore properties previously worked on a
royalty basis. This cost $11,670,181.87, of which $2,283,677.63 was
paid in cash, and the remainder in notes of the Oliver Iron Mining Co.
We now come to 1914, the year which saw the beginning of the Great
War, with its disastrous results on business generally, and on no line
of activity more than the steel trade. The events of this year are
too recent and too well known, too vitally important to all, to need
repetition. Industry, in the middle of the year, was just beginning
to struggle out from the depression that had begun in the latter half
of 1913 when the sudden clash of arms paralyzed world money markets,
closed the stock and other exchanges, closed or restricted operations
at hundreds of plants of one kind or another, and threw thousands of
workers out of employment.
The demand for steel, never very active at any time since about July,
1913, fell almost to a vanishing point, and earnings of the Corporation
in the last quarter declined to the lowest point in its history,
$10,935,635.36. Total earnings for the year were only $71,663,615.17,
and, although the dividend rate on the common stock was reduced from
5 per cent. to 2 per cent. annually in the third quarter, and the
dividend for the last quarter was passed, earnings were not sufficient
to meet charges, and a deficit of $16,971,983.83 was reported.
The necessity for passing the dividend--and it was a pressing
one--was keenly deplored both by the management of the big company
and, naturally, by its stockholders. That payments would have been
maintained had there seemed the slightest warrant for such a course
seems to be beyond question as the directors realized that the wide
distribution of the stock, and the fact that many of its shareholders
were people of small incomes who looked to their Steel dividends
almost with the feeling of security they would have reposed in good
bonds, would make their action necessarily a great hardship to many.
But there was no way out. Even had wages been reduced there did not,
at the time, appear to be any hope that profits for a long time would
meet requirements, and the conservation of resources was paramount. But
wages were not cut. In the early part of 1915, with earnings running
even lower than in the last quarter of 1912, the matter was considered,
but a slight increase in business was seized upon as a warrant for the
continuance of the old wage scale. The steel worker was saved, although
the steel stockholder suffered.
Sales to outside customers in 1914 totalled only $380,228,143,
inter-company sales $129,565,729, and other receipts made a total of
$558,414,933--a decrease of over $238,000,000 from the previous year.
Ingot production fell to 11,826,476 tons, and finished steel output
to 9,014,512 tons, equal to about 62 per cent. of the gross capacity.
Practically no change was shown in the bonded debt, which on December
31st stood at $627,238,417.26. The number of employees averaged 179,353.
So acute was the depression that the construction of the new Duluth
plant was temporarily stopped in the fall of the year, and work was not
resumed until well along in 1915.
In December, 1914, production of the Corporation’s plants fell to the
lowest point ever recorded. One of its largest subsidiaries operated
through most of the month at only about 15 per cent. capacity and
another at 18 per cent. The general average of operations for the month
was probably hardly over 20.
Thus we come to the close of the second or middle period of the
Corporation’s existence. The years which made it up were generally
trying ones. At no time between 1907 and 1915, except to some extent
in 1910, was there anything like real prosperity. And the close of
the period saw industry practically suspended, aghast at the conflict
that was shaking Europe to its very foundations, and threatening world
credit.
But while these seven years, 1908-1914 inclusive, were not, on the
average, prosperous for the Steel Corporation, neither were they years
of stress. Industrial affairs over the greater part of the period
proceeded along a rather monotonous level, but this was possibly
an advantage. So far as United States Steel was concerned, these
conditions gave it an opportunity to perfect its organization, work out
economies, and extend its operations along carefully considered lines.
So that when industry revived under the urge of war times the big
company was able to take advantage of the situation and to reap large
profits and pay big dividends to its stockholders.
For the Steel Corporation and for American industry generally
conditions at the end of 1914 were as dark as could be imagined, but it
was the darkness that comes before brilliant dawn.