United States. Bureau of Corporations.

Report of the commissioner of corporations on the steel industry ... online

. (page 35 of 70)
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2Y2 THE STEEL INDTJSTEY.

It is apparent, therefore, that there has been a very great expansion
of the production of the Steel Corporation in practically e^•ery im-
portant department. Thus, in the case of ore the total production
increased from 13,023,755 tons in 1901 to 25,245,816 tons in 1910, the
highest for any year.

The increase in coke production was from 8,967.969 tons in 1901 to
13,0-49,578 tons in 1910, the production of the latter year, as in the
case of ore, being the high-record figure.

The production of pig iron (not including Spiegel, ferroman-
ganese, etc.) increased from 6,662,862 tons to 11,645,510 tons, the 1910
figures again being the highest yet recorded, although in 1906 and

1909 the production exceeded 11,000.000 tons.

The production of steel ingots increased from 8.854,820 tons in
1901 to 14,179,369 tons in 1910, the production of the latter year being
well in excess of the previous high-record figure (reached in 1906).
It is important to call attention in this connection to the very great
increase in the production of open-hearth steel, which rose from
slightly less than 2,750,000 tons in 1901 to over 8,380,000 tons in
1910. The production of Bessemer steel, on the other hand, shows
an absolute decrease during this period, from 6,109,306, in 1901, to
5,796,223 tons in 1910. These figures well illustrate the transition
that took place in the steel industry in this respect.

The percentage increases in the Corporation's production of the
raw materials and in the primary products for the period 1901-1910,
given in Table 30, compare as follows :

Iron ore 93. 8 I Pig iron 74. s

Colie 52. 2 I Ingots GO. 1

With respect to finished rolled products for sale the increase in
production has been much less marked, the actual increase being from
7,420,480 tons in 1901 to 10,733,995 tons in 1910, a gain of 3,307,515
tons, or 44.5 per cent.

Taking up these finished products in detail it will be seen that
the output of steel rails in 1910 exceeded 2,100,000 tons as against a
previous high-record figure (in 1906) of 1,982,000 tons. The 1910
figures include the production of both the new Gary plant and of the
Tennessee Coal, Iron and Railroad Company.

It will be noted that the Corporation's output of tubing and pipe
in 1910 was considerably smaller than the output of several preceding
years. There was also some reduction in wire and wire products in

1910 as compared with the output in 1909. These decreases are ap-
parently in part attributable to the increase in competition in these
departments.

The great increase in the production of Portland cement has
already been commented upon. It may be noted again that the
production of 1910 of 7,000,000 barrels was very much less than the



UNITED STATES STEEL CORPORATION.



273



capacity of the Corporation's plants for this product, including new
construction in progress at the close of 1910.

The ten-year period 1901-1910, while on the whole a distinctly
prosperous one, included two years of marked depression, namely,
1904 and 1908. In these years there were pronounced declines in the
Steel Corporation's output. The reaction of 1904 was especially
reflected in the production of ore and finished steel; the production
of pig iron in that year, on the other hand, showed a slight increase.
The depression of 1908 was reflected in the figures of output in prac-
tically every important product except cement. Thus, the output of
ore decreased over 5,700,000 tons; that of coke over 5,300,000 tons,
while the pig-iron output fell off 3,800,000 tons; that of steel ingots
by more than 5,200,000 tons, and finished steel production by more
than 4,100,000 tons; moreover, these large decreases were shown in
spite of the fact that the considerable jproduction of the Tennessee
Coal, Iron and Railroad Company was included in 1908 for the first
time. The year 1909, it may be noted, however, brought a recovery
in all the raw and crude products above the large production of 1907.
The output of finished rolled products in 1909, however, was some-
what under the 1907 figures.

These comparisons illustrate the abrupt changes which charac-
terize the iron and steel industry.

IV. PRESENT ORGANIZATION OF STEEL COKPOEATION.

Section 13. Reorganization and coordination of the various constituent
properties.

In connection with the various acquisitions and extensions described
in this chapter, the Steel Corporation undertook a rather compre-
hensive rearrangement of its principal subsidiary concerns so as to
place those plants manufacturing similar products, or those com-
panies owning the same kind of property, under the control of cer-
tain principal constituent concerns. This rearrangement obviously
tended to facilitate a more efficient and economical operation of these
properties. A particular advantage was the reduction in the number
of high-salaried officials. As this rearrangement was generally ac-
companied by a considerable reduction in the capitalization of the
subsidiary concerns, there was also some saving in taxes on capital
stock.

ilEEGEE OF OLD CaKNEGIE, NATIONAL StEEL, AND AMERICAN StEEL

Hoop companies. — One of the most important of these rearrano-e-
ments was the merger, on April 1, 1903, of the Carnegie Company of
New Jersey, the- National Steel Company, and the American Steel
Hoop Company under the New Jersey charter of the National Steel
Company, the name being changed, however, to Carnegie Steel



2*74 THE STEEL INDTJSTEY.

Company. The capital .stocks of the three older concerns aggregated
$252,000,000, as follows :

Cai-negie Company $160,000,000

National Steel Company___' 59,000,000

American Steel Hoop (.'ompaiiy 33,000,000

Total 252,000,000

The capital stock of the new Carnegie Steel Company, however,
was fixed at $(;3,000,000, or exactly one-quarter the total for the three
older concerns combined. Apparently this capitalization was de-
termined upon without reference to the value of the properties, but
with a view to having a convenient basis for the exchange of the
stocks of the three constituent, companies. The reduction in capitali-
zation permitted a considerable saving in annual taxes and in
fees. The principal object of the consolidation, however, was to
secure economies of management by reducing the nuriiber of high-
salaried oificials and Ijy the simplification of accounts. Moreover,
as above suggested, there was a practical advantage in having all of
these concerns directed from a single source. The Carnegie Company
and the National Steel Company, as already shown in this report,
were large producers of pig iron and steel billets and other heavy steel
products. The Carnegie Company, moreover, produced merchant
bars and other products similar to those made by the American Steel
PIoop Company. jNIost of the plants of the Steel Hoop company, it
may be noted, were conveniently located in relation to the plants
of the Xational Steel Company and the Carnegie concern, so that
the consolidation resulted in very substantial advantages from an
operating standpoint.

The plants of the old National Ste^l and American Steel Hoop
companies are owned in fee by the Carnegie Steel Company of New
Jersey. The old Carnegie plants are owned by the Carnegie Steel
Company of Pennsyhania. (See Exhibit 7, p. 407.)

Merger of coke properties. — On the same date (April 1, 1903)
the coke properties of the various subsidiary concerns of the Corpo-
ration were transferred to the H. C. Frick Coke Company, the capital
stock of which was increased from $10,000,000 to $20,000,000. There
had previously been some unification of the coke properties, but prior
to this date the Steel Corporation had maintained several other sub-
sidiary coke concerns, namely, the Southwest Connellsville Coke Com-
pany, which held the coke property of the Federal Steel Company;
the American Coke Company, the coke concern of the American Steel
and Wire Company; the Continental Coke Company, owning the
similar properties of the National Steel Company; and the United
Coal and Coke Company and the McClure Coke Company. These
subsidiaries had virtually been managed through the 11. C. Frick



tJNITED STATES STEEL COEPOKATION. 275

Coke Company, but their formal transfer to that concern resulted in
distinct advantages from an operating standpoint.

^Merger of Sheet Steel and Tin Plate coatPANiES. — On December
31, 1903, a further intercompany consolidation was effected through
the purchase by the American Sheet Steel Company of all the prop-
erty of the American Tin Plate Company. The name of the Sheet
Steel company was changed to the American Sheet and Tin Plate
Company. The capitalization of the Sheet Steel company was re-
tained unchanged, but that of the American Tin I'late Company was
reduced from $40,325,000 to the nominal figure of $25,000. The con-
solidation of these companies permitted much better coordination of
sheet and tin-plate mills than was possible under their separate
operation.

Consolidation or tube works. — Another similar instance of inter-
company rearrangements was the placing of the plants of the Lorain
Steel Company (at Lorain, Ohio, where a large tube plant was
added) under the control of the National Tube Company.

Merger of ore properties. — In 1904 all the various ore properties
of the Steel Corporation were placed under the active control of the
Oliver Iron Mining Company.

Lease of Union Steel properties. — Another intercompany re-
arrangement was the lease of the various properties of the Union
Steel Company to other subsidiary concerns of the Corporation. Thus,
the blast furnaces and the steel works were leased to the Carnegie
Steel Company ; the wire plants to the American Steel and Wire Com-
pany. The organization of the Union Steel Company was preserved,
however, and the revenue from these leases went into its treasury.
The arrangement, however, relieved the Union Steel Company from
the direct operation of these plants, and thus effected a substantial
saving in salaries and other expenses, while further contributing to
the systematization of the operation of the various properties.

Organization of export department by the Steel Corporation. —
For some time after the organization of the Steel Corporation, each
subsidiary company which had occasion to engage in export trade
conducted its sales independently of the others. In the latter part
of September, 1903, however, the United States Steel Products Ex-
port Company^ was fonned to look after the foreign trade of all
the various subsidiary companies of the Steel Corporation. The
new company acts as selling agent in the foreign trade for all the
subsidiary concerns of the Steel Corporation. This organization
of a special company was the result of an intention on the part
of the Steel Corporation to develop the export trade more thoroughly.
As a matter of fact, there was a marked increase in export business
in 1004; this, however, was partly attributable to the depressed

1 The name was in 1910 chansed to United States Steel Products Company. The com-
pany has a capital stocls of $1,000,000 and is a subsidiary of the Federal Steel Company.



276



THE STEEL INDUSTRY.



condition of the domestic market in tliat year, which naturally led to
a more serious consideration of the possibilities of foreign marlcets.
With the return of greater prosperity in the home market, the export
business fell oil somewhat.

Ceeatiok of new subsidiaries. — As already pointed out, in the
construction of its great plant at Gary the Steel Corporation organ-
ized a new subsidiary concern, the Indiana Steel Company, and simi-
larly, in the case of its works at Duluth, it formed a local corporation,
the Minnesota Steel Company. It also organized in 1907 the Great
Western Mining Company to manage the ore properties controlled
under the Hill lease. (See p. 260.) The incorporation of the Uni-
versal Portland Cement Company may also be mentioned in this
connection. This creation of new subsidiar}' concerns is in line with
the character of the Steel Corporation as a holding company.^

Section 14. Constituent concerns of Steel Corporation on July 1, 1911.

As a result of these various rearrangements and new acquisitions,
the list of principal constituent concerns of the Corporation, the
stocks of which were directly held by it on July 1, 1911, was as
follows :



Table 31.-



-CONSTITUENT CONCERNS OF THE UNITED STATES STEEL CORPORATION
WHOSE STOCKS WERE DIRECTLY HELD BY IT JULY 1, 1911.



Company.



Carnegie Steel Company of New Jersey.
Federal Steel Company



American Steel and Wire Company of New Jersey . .

National Tube Company

American Sheet and Tin Plate Company



American Bridge Company, New Jersey.
Shelby Steel Tube Company



Lake Superior Consolidated Iron Mines

Pittsburg Steamship Company

Union Steel Company

Clairton Steel Company

Tennessee Coal, Iron and Railroad Company.



Class of stock.



Common..
Preferred.,
Common . .
Preferred..
Common . .
Preferred..
Common..
Preferred..



Common..
Preferred..



Common

Preferred

Guaranteed pre-
ferred.



Total out-
standing capi-
tal stock.



865,250,
46,4S4,
63,260,
60,000,
40,000,
40, 000,
40, 000,
24,500,
24, 500,
10, 000,

8,161

5, 000,
29, 887,

7,880,
20, 000,

3,500,

32,529,

124,

178;



000. 00
300. 00
900. 00
000. 00
000.00
000.00
000.00
000. 00
000. 00
000.00

5oa 00
ooa 00

44S. 97
000. 00
000. 00
000.00
997. 50
500. 00
600.00



Amount owned
by United
States Steel
Corporation.



$65,250,
46,484,
53,260,
49,989,
39,999
40,000,
40,000,
24
24,499,
10,000,

8,151,

5,000,
29,887,

1221,
20, 000,

3,500,
32,442,



000.00
300.00
900.00
400.00
000.00
000.00
000.00
600.00
600.00
000.00
600.00
000.00
44S.97
700.00
000. 00
000.00
795.00



1 The balance of the capital stock of Pittsburg Steamship Company (§7,658,300) is owned by Carnegie
Steel Company.

It should be understood that the companies given in this list are
simply the constituent concerns whose stocks are directly held by the

1 The stocks of all these new subsidiaries are owned by some of the constituent com-
panies of the Corporation and not by the Corporation itself.



UNITED STATES STEEL COEPOBATION. 277

Steel Corporation, and that these constituent concerns, in turn, have
a large number of subsidiary corporations, in addition to fee prop-
erties. A statement of the subsidiary companies of these constituent
concerns is given in Exliibit 7, on page 407.

Several of tliese constituent comjianies, as well as many of their
subsidiaries, had a large amount of indebtedness which is not here
shown. A considerable part of this indebtedness was owned within
the organization.

The Carnegie Steel Company, as already shown, was a merger of
the old Carnegie Company of New Jersey, the National Steel Com-
pany, and the American Steel Hoop Company. The aggregate capital
stock of these companies at that time was $252,000,000, whereas in
the merger the capital stock was first fixed at $63,000,000. As a result
of this reduction, the consolidated company entered surplus on its
books to the amount of the capital stock thus extinguished, or
$189,000,000.

The Carnegie Steel Company (the present company) subsequently
increased its capital stock by $2,250,000, or, as the above table shows,
to $65,250,000.

In the merger of the American Sheet Steel Company and American
Tin Plate Company, as above shown, the capitalization of the old
American Sheet Steel Company was continued unchanged, and that
company entered on its books a surplus of $46,325,000, this being
equal to the entire outstanding stock of the American Tin Plate
Company.

The table shows that the present capitalization of the American
Bridge Company of New Jersey is $10,000,000. This is a reduction
of $52,324,600 from the previous capitalization. This amount, there-
fore, as in the case of the American Tin Plate and Carnegie com-
panies, was written into the surplus account of the company.

These are the only instances of reductions in capital stock. It may
be noted that the Union Steel Company's stock is $20,000,000. Most
of the properties of this concern, as already stated, are operated by
constituent or subsidiary companies of the Corporation. The stock
of the Lake Superior Consolidated Iron Mines has been increased by
$462,508 since the Steel Corporation was organized, this amount rep-
resenting the treasurj^ stock issued since the acquisition of the com-
pany by the Steel Corporation. The issued stock of the Pittsburg
Steamship Company, which in 1901 was $1,330,000, has been increased
to $7,880,000.

The one-sixth interest in the stock of the Oliver Iron Mining Com-
pany, which was subsequently acquired in 1901 (see p. 106), does
not appear in this list for the reason that this fraction was transferred
to the Carnegie Steel Company, which, therefore, now owns the entire
stock of the Oliver concern.



CHAPTER VI.

ADDITIONS TO INVESTMENT OF UNITED STATES STEEL CORPORA-
TION SINCE 1901.

Section 1. Introductory.

The valuation of $(i82,000,000 for the tangible property of the Steel
Corporation at its organization in 1901, as computed in Chapter III,
may fairly be regarded as substantially the in vestment in such tangi-
ble property of the Corporation at that time, reduced to a cash basis.
In order to obtain an estimate of the investment in such tangible
property of the Corporation at the present time, it is necessary to
ascertain the actual cost of the net additions since the company's or-
ganization. These additions, as shown in the preceding chapter, have
been made in two ways — first, through new construction and- through
other additions directly from earnings or from capital otherwise j)ro-
vided; and, second, through the acquisition of competing concerns.
By combining the cost of these various additions to the property
(after certain allowances for depreciation; see jop. 292-309) with the
original investment in the property in 1901, as already computed, an
approximate total of the actual investment in the physical property
of the Corporation at the present time is obtained. The value of such
property, and especially of the natural resources, is referred to later.
■ For the purposes of the present discussion, however, and of judging
the reasonableness of the profits of the Corporation, which are dis-
cussed in Chapter VII, a statement of the actual investment in, rather
than the value of, its property is essential.

It should be pointed out that in addition to the tangible properties
of the Steel Corporation, its intangible assets have a value. Indeed,
the very merging and coordinating of the various tangible properties
of the Corporation imparts to them collectively a value somewhat in
excess of the sum of the values of their tangible assets alone. The
Corporation, in fact, contends that this " merger value," as it may be
termed, is a very important factor in its total assets. Since, however,
this merger value must be partly due to the restriction or elimination
of competition, and since the portion thus created can not be segre-
gated from that due to the introduction of economies, it is imprac-
278



tfNITED STATES STEEL COEPOEATION.



2Y9



ticable in this discussion to make any quantitative allowance for
merger ^alue of any sort whatever. A brief consideration of this and
similar factors is, howeAer, taken up later. (See p. 326.)

There will first be considered here the additions directly made from
earnings, or from new capital, and then the cost of additions made
through acquisitions of other concerns.

Section 2. Cost of additions to Steel Corporation's property other than by
purchase of competing concerns, 1901 to 1910, by classes.

The Steel Corporation in its annual reports gives a summary of
those direct additions to fixed property for each year which are
charged, to capital account. This summary classifies such expendi-
tures by the following kinds of property : Manufacturing, ore, coal
and coke, transportation, miscellaneous.

In order to aiTi\'e at a statement of the total additions to the assets
of the CoriDoration, account must, of course, be taken of the increase
in other assets as well. These remaining assets are grouped in the
balance sheets of the Corporation under the following heads: (1)
Deferred charges to operations, representing chiefly advanced mining
royalties; (2) investments; (3) sinking and reserve fund assets; (4)
current assets, this including, in addition to the ordinary quick assets
and inventories, sundry securities.

In the following table are given the yearly additions to the fixed
property of the Corporation ^ (other than the original cost of the
Union Steel Company, the Clairton Steel Company, and the
Tennessee Coal, Iron and Eailroad Company), together with the
annual increases in its other assets, for the period from April 1, 1901,
to December 31, 1910. For convenience in later discussion (see pp.
313-323) the total additions for the period 19D1-1907 are also given.

It should be kept in mind that the additions to fixed property given
in this table are gross amounts. Account must also be taken of the
depreciation and exhaustion of the Corporation's properties during
this interval. This matter is one of considerable intricacy. It is
taken up in sections 5 and 6 of this chapter.

1 The additions to fixed property given in Table 32 are substantiaUy identical with the
lii_'ures given in the published reports ot the Corporation. In a tew cases, however, they
differ, either as to the d'istribution of certain items which in the annual reports are given
in a lump sum, or because of certain revisions made subsequent to their original publica-
tion.



280



THE STEEL INDUSTRY.



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Online LibraryUnited States. Bureau of CorporationsReport of the commissioner of corporations on the steel industry ... → online text (page 35 of 70)