The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.
September 28,
Mr. B. A. Walton,
Economic Adviser
Bank of Montreal
P.O. Box 6002
Montreal 19 Canada
Dear Ted:
I an most grateful to you for the Jones Heward It Co.
review of Canadian securities ;wtieh I have read with very much
interest indeed. The appetite for Canadian investment was
certainly not lessened by our meeting in Ottowa.
In the next two or three weeks you will be hearing from
the Comrnittee on the History of the Federal Reserve System formally
asking you and your institution for some assistance. I do hope that
you will be able to help the worthy cause pro bono publico.
With regards.
Cordially,
ESTABLISHED 1817
HEAD OFFICE
P.O. BOX 6002
Twenty-third
September
1954
Dear Don,
Herewith Jones Heward & Companyfs
review of Canadian securities, which I promised to send you. I did not, of course, mention any namesf in asking Dick Petrie for a
copy* Petrie s senior officer and predecessor
in the company1s investment analysis work is
Sidney C. Scobell.
It was good to see more of you and
the others on your return trip and I hope that
your judicious playing of the ends against the
middle at the house will be effective in getting Jean and me into New York if not of getting me into a new hat.
Best regards,
Sincerely,
. Walton
Economic Adviser
Donald B. Woodward, Esq.,
Chairman of the Finance Committee,
Vick Chemical Company,
122 East 42nd St.,
New York 17, N.Y.,
U.S.A.
ANNUAL
REVIEW
No. 6
•
JUNE.
CANADIAN SECURITIES
FOR
LONG-TERM INVESTMENT
Prepared by the Statistical Department of
JONES HEWARD & COMPANY
MEMBERS
MONTREAL STOCK EXCHANSE
::
CANADIAN STOCK EXCHANSE
249 St. James Street, West - Montreal
1954
TABLE
OF CONTENTS
Economic Review
Aluminum
•
Asbestos
Automobiles and Equipment
Banks
*
1
•» 9
11
12
1$
*
,
Base Metals
17
Breweries
21
Capital Goods
23
Chemicals
„
Construction
Distilleries
Farm Machinery
Finance Companies
Flour Milling
Food
Glass Containers
Gold
Iron Ore
Lumber ...„
Natural Gas
2k
28
30
31
33
3k
*
36
38
39
Ul
k3
h$
~
•
Newsprint (also see Pulp & Paper)
Nickel
Oil
Oil Pipe Lines
Public Utilities
Pulp and Paper (also see Newsprint)
Retail Trade
Steel
Textiles
Tobacco
Transportation
~
•
1*8
$1
$$
£9
6l
6k
66
69
71
73
7k
Any information tendered, or opinion expressed herein, is drawn
from sources believed reliable but is not guaranteed«
INDEX OP INDIVIDUAL
Abitibi Power & Paper
Algoma Steel
Aluminium Limited
Anglo-Canadian Oil
Anglo-Canadian Pulp & Paper
Asbestos Corporation
Aunor Gold Mines
11
40
"TV
Bailey Selburn
Bank of Montreal
Bank of Nova Scotia
Bank of Toronto
Bell Telephone
British American Oil
B O C. Forest Products
B*C O Power
B«C» Telephone
57
16
16
16
62
58
44
62
62
Calgary & Edmonton
Calvan Consolidated
Campbell Red Lake
Canada Cement
Canada Northern Power
Canada Packers
Canada Steamship Lines
Canadian Bank of Commerce
Canadian Breweries
Canadian Car & Foundry
Canadian Celanese
Canadian Chemical & Cellulose
Canadian Delhi Oil
Canadian Industries
Canadian Pacific Railway
Cocks hutt Farm Equipment
Consolidated Mining & Smelting
Consolidated Paper
Consumers* Gas Co c of Toronto
Consumers Glass
51
69
10
57
51
57
73
33
52
46
61
Kerr-Addison Gold
40
Labatt, John
Lake of the Woods Milling
Leitch Gold Mines
Loblaw Groceterias
22
35
40
68
Maclaren Power & Paper
MacLeod-Coekshutt Gold
MaoMillan & Bloedel
Malartic Goldfields
Maple Leaf Milling
Mas s ey-Harris-Ferguson
McColl-Frontenac Oil
Mclntyre Porcupine
Merrill Petroleums
Minnesota & Ontario Paper
Molson*s Brewery
21
Noranda Mines
27
Ogilvie Flour Mills
Ontario Steel Products
35
14
46-57
57
40
29
62
37
75
J.V
75
72
Afi.
25
75
32
18
50
46
39
Pacific Petroleums
Page-Hersey Tubes
Powell River
Power Corporation
Price Brothers
57
24
50
62
51
Clue bee Telephone
62
30
40
Royalite Oil
Royal Bank of Canada
57
16
Sto Lawrence Corporation
Shawinigan Water & Power
Sherritt Gordon
62
69
68
26
72
51
21
East Malartic
ACS
Falconbridge Nickel
Ford of Canada
Foundation Company
Fraser Companies
53
13
29
66
Gatineau Power
Giant Yellowknife
Great Lakes Paper
Great Plains Development
Gypsum, Lime & Alabastine
62
40
Imperial Oil
Imperial Tobacco
Industrial Acceptance
International Nickel
International Utilities
Interprorinoial Pipe Line
50
40
44
40
35
32
59
40
57
51
22
20
Distillers Seagrams
Dome Mines
Dominion Bridge
Dominion Foundries & Steel
Dominion Glass
Dominion Steel & Coal
Dominion Stores
Dominion Tar & Chemical
Dominion Textile
Donohue Brothers
Dow Brewery
Hiram Walker
Hollinger Consolidated Gold
Howard Smith Paper Mills
Hudson Bay Mining
SECURITIES
CO
70
38
51
K"»
Of
28
30
40-41
65
19
Sicks* Breweries
Simpsons Limited
Southern Canada Power
Steel Company of Canada
Steep Rock Iron
51
54
Traders Finance
Trans Mountain Oil Pipe Line
Triad Oil
22
67
62
70
42
34
61
57
Union Gas
47
Western Leaseholds
Weston, George
Winnipeg & Central Gas
57
37
46
CANADIAN
INDUSTRY
REVIEW
Number 6
June
GENERAL COMMENTS
The spectacular post-war boom in Canada has levelled off and more nomal
conditions have become apparent. For the first time in years the Canadian
economy is operating at a level somewhat below full employment* Although last
year was still another of continued development and expansion of both prLaary
and secondary industry, and most of the economic indicators established new
records, there were clear indications of a somewhat different economic climate.
The world-wide deflationary forces that have been so apparent for the
past year or so (in sharp contrast to the serious inflation set off by the outbreak of war in Korea) have been reflected in the Canadian economy, highlighted
by the real distress of the textile industry and a marked recession in the farm
implement industry* Many of the key products of Canada have come into ample
world supply, and some of them are now surplus to world requirements. Wheat
represents one of the main problems. None of the 19f>3 crop has been sold*
The price reduction early in June has not yet stimulated sales and further
price reductions may be in the offing in view of heavy world supplies *
Although total personal income was at an all-time high last year, the
net cash income of Canadian farmers was 2 per cent less than in 1952 and 10
per cent less than in 19J>1. It may decline again this year as a result of a
smaller wheat crop and lower prices for wheat and other farm produce. So far
this is a year of mixed trends with neither boom nor depression* Prices have
been less firau Labour costs are still rising in some industries, although
they appear to have stabilized in others. But there is no sign yet of any
reduction in wage levels, despite the relatively high unemployment in recent
months. An adverse trade balance still persists but recently there has been
a slight closing of the gap* On the other hand, new capital investment is
expected to establish another all-time high, the heavy inflow of foreign
capital still continues, and total goverament expenditures will probably
establish a peace-time record* These factors will have a buoyant influence
and counteract less constructive developments. At the same time, however,
competition is having a serious effect on the earnings of many industries and
it shows signs of spreading. In short, the post-war sellerfs market has given
way to a vigorous buyer's market. This year and possibly next appear to be a
period of consolidation of the economic advances of more than a decade. In
the longer teim the underlying growth potentialities of the country are
impressive and basic to any appraisal of the Canadian economy.
GROSS NATIONAL PRODPCT
For the first time in years, there has been no official forecast of
gross national product, apart from the statement of the Minister of Finance
in his last Budget Speech that "national product in 19J>U will be at least
equal to 19f>3, and probably higher". Last year gross national predict was
$ l l
million, not quite 5> per cent more than in 19J>2, and somewhat higher
- 1 -
than the official forecast* Since prices were relatively stable in 1953 > this
increase reflects a greater physical output in contrast to the more spectacular
gross national product increases of a few years ago which were distorted considerably by price inflation.
Although the level of activity in 1953 set an all-time high, the peak
was reached in the second and third quarters, followed by a moderate decline
in the final quarter which has continued into 19$k* In the middle quarters
there was a significant rate of inventory accumulation, and a cutback in the
final quarter was a major factor in the decline* The pattern of national product over the past two years is shown in the following table:Seasonally Adjusted at Annual Rates
($ billion)
I
Gross National Product (excluding accrued net income
of farm operators from
farm production)
Percentage change from
preceding quarter
1952
II III
IV
20.5 21.1 21.h 21.6
-
+2*9 +1.U +0.9
I
1953
II III
IV
22*3 22.7 22.7 22.5
+3*2 +1.8
-
-0.9
The average monthly index of industrial production last year was more
than 6 per cent greater than in 1952, with the greatest relative gain in the
manufacturing of durable goods. The index of mining production was off sharply
by 3l* per cent, largely because of the prolonged strike in gold and copper
mines, and the reduction in coal. The index so far this year is running below
the corresponding months of last year, and is considerably below last year*s
average, indicating no change in the moderately downward trend that began last
autumn. Gross national product this year can equal last yearfs level only if a
substantial increase over first quarter volume occurs in the remaining months.
HEW CAPITAL INVESTMENT
Capital investment, one of the major factors in maintaining a high level
of economic activity, was at an all-time high last year, and it is officially
expected that this year's volume will be even greater. The estimate of $5>838
million is nearly 3 per cent greater than the 1953 figure, and 10 per cent
greater than 1952* Since little change in price is anticipated, volume this
year should also increase by about 3 per cento If gross national predict in
195U is at about its last yearfs level, new investment will account for almost
2k per cent of it, an all-time high. The major increases in capital investment
are in the institutional services (schools, hospitals, retail stores, and
office buildings), housing, utilities, railways, and pipe lines. Decreased
investment is indicated in agriculture, fishing, and forestry, as well as in
manufacturing, all of which showed declines last year ffrom the record levels
of 1952. Total new investment in machinery and equipment is expected to f a U
slightly, while indicated investment in new construction may be about 6 per
cent higher. Capital expenditures in defence and defence-supporting industries,
which were so prominent two and three years ago, are no longer significant.
- 2 -
DOMESTIC TRADE
The major expansionary influence in the economy last year was the continued growth of consumer's expenditures which were supported Icy the record
level of personal income after taxes, which was 5 per cent greater than in 1952.
Total consumer's expenditures increased by $723 million (5 per cent), compared
with an $81|2 million increase in disposable income, so that personal saving
also increased. Retail sales exceeded #12 billion for the first time, and were
hfe per cent greater than in 1952. Durable goods showed the largest relative
increase (over 15 per cent). Sharp increases in sales of motor cars, television
sets, and electrical appliances accounted for the major part of the gain* This
volume of expenditures reflects the rise in "real11 incomes that occurred last
year when consumer prices remained relatively stable. The momentum of retail
sales has carried into 195U, but it has lost some of its impetus, so that dollar
volume this year may not be quite as high as in 1953.
FOREIGN TRADE
One of the major reversals in trend last year was the deficit of $210
million in foreign trade, by far the largest in the countxy's history, and in
sharp contrast to the $325 million surplus in 1952. Thus the commodity trading
balance worsened last year by $535 million. The deterioration in the total of
all current transactions was even greater, as shown in the following section
on Balance of Payments. The value of domestic exports in 1953 w&s down by k
per cent, while the value of imports was greater by nearly 9 per cent* The
decline in exports was caused in part by reduced overseas demand far Canadian
grain. Import controls and exchange difficulties continued to limit overseas
exports, and high-cost Canadian manufactured goods have been meeting sharp
competition in the export markets. Part of the decline in dollar volume of
exports was caused by price reductions in such key exports as lead and zinc,
woodpulp, lumber, and faim produce. The price index of exports last year was
down about 3 per cent, while Hie volume index decline lay only 1^ per cent.
The downward drift in foreign trade carried into January, 1954 but for
the subsequent three months the value of Canada*s exports was equivalent to
that of the corresponding period of 1953*
Foreign Trade - Four Months
(Millions of Dollars)
United Kingdom
Other Commonwealth
U.S.A.
Other Foreign
1952
230
230
10i*
101*
736
736
281*
Total
1,35U
Balance
+ 111*
Exports
1951**
1953
170
175
73
57
767
719
211*
209
2ll*
1,219 1,165
1,165
1,2L9
- 171
1952
96
55
91*0
ll*9
Imports
1953
133
1*2
1,060
155
l,2l|0
1,390
1951**
121*
1*1*
957
159
1,281*
- 119
* Preliminary estimate.
The value of imports
more sharply than the value
debit trade balance will not
to show a sharp rise during
for the first part of 1951* was reduced somewhat
of exports. If this trend is maintained, Canada's
be as large as in 1953 but wheat exports will have
the summer and early fall months.
- 3 -
BALANCE OF PAIMENTS
A significant change in Canada's balance of payments position occurred
last year, when a current account deficit of $1*6? million replaced the surplus
of $157 million in 1952• Most of this change resulted from the shift from the
large commodity export balance to an import balance, although other current
transactions, chiefly freight and shipping, showed a significantly increased
deficit, and the total deficit in invisible items was the largest in the postwar period* Balance of payments estimates in current account are shown below:
Balance on
Commodity Trade *
1222
+491
12&
- 55
Current Account Balance of Payments
($ Million)
Balance on Other
Current Transactions
1252
-334
Total
12&
-1|12
# Adjusted for purposes of national accounting.
About one-third of the change in commodity trading account was the result
of a decline in the value of exports, and two-thirds resulted from the rise in
Canadian Imports • Canadian Mutual Aid to North Atlantic Treaty countries amounting to $2l& million is excluded from the accounts*
The marked reversal of Canada's commodity trade balance reflects the sharp
reduction of the former surplus with overseas countries which was particularly
evident in the first two quarters * While exports to overseas countries fell off,
imports rose significantly• This surplus, which in 1952 more than offset the
persistent long-teisa deficit in trade with the United States, was no longer a
balancing item* This points up the basic problem connected with Canada*s current transactions with the United States which last year established a heavy
deficit of $981* million* The pattern of Canada *s international transactions
in current account over the last four years has been as follows:
International Transactions with U*S« and Overseas Countries
($ Million)
1950
1951
1952
Credit balance with overseas countries
66
k3k
1*015
Debit balance with U.S*A*
U00
95l
858
Net credit (.+) or debit (-) balance
- 33k
- 517
+ 157
Canada*s current account deficit was, of course, financed by an equivalent
net import of foreign capital, resulting in a farther growth of the count3yfs
international indebtedness* At the end of 1952 foreign loijg-term investment of
all types in Canada was about $10*2 billion, and at the end of last year it was
probably about $11 billion* Inflows of long-texm direct investment last year
were an estimated $385 million, and new foreign portfolio investment was about
$322 million, considerably more than enough to offset the current account
deficit. Other capital movements last year were on a generally redaced scale
compared with 1952o
The deficit on commodity trade has continued this year* Despite the
narrowing of the spread between money rates in New York and Canada, the differential is still enough to favour Canadian borrowing in New Tork and U*S* investment in Canada* More recently, however, Canadian borrowing in the United States
has been reduced as the long-term exchange risk has been given greater consideration. It is expected that long-term investment in Canada vdll continue
this year in substantial volume which vdll probably be more than sufficient to
offset any likely current transactions deficito This, of course, will be a
factor in the exchange value of Canadian funds*
THE BUDGET AND TAXATION
For the eighth consecutive year, Canada has applied a budgetary surplus
to the reduction of the public debt. But in the past two years the surplus has
shrunk to nominal size following large surpluses during the years 19U7-52, when
they averaged $373 million annually• Last year8s suzplus was only $10 million,
and the forecast for the current fiscal year is a nominal $k million on a
$1^5 billion budget• Total debt reduction in eight years has been $2,370
million* As of March 31 * 195>1*> the net debt of Canada was an estimated $11,15>1
million, Ik per cent less than in 191*7• This amounts to U6 per cent of gross
national product, compared with 113 per cent in 19l*6, so that the real burden
is considerably less than half its weight in 19U6, and about 2$ per cent less
than before the war* At the same time, however, interest charges have been
rising steadily since 1951$ despite reduced indebtedness* This yearfs estimate
of $1*92 million is 16 per cent greater than interest charges in the fiscal year
195>Q-5l and will bear about the same relationship to the gross national product.
Canada's defence program continues to exert heavy pressure on the national
budget, and accounts for hk per cent of the estimated budgetary expenditures
this year* The projected expenditures for the fiscal year ending March 31* 195$
amount to $U,i&60 million, $70 million more than last year* A comparison of these
expenditures with those in 19J*9~5>0 before the defence program was initiated is
shown in the following tabulationsBudgetary Expenditures
(Millions of Dollars)
191*9-50
Defence
Debt interest
Payments to provinces
Welfare and Veterans' Affairs
All other
Total
Deficit in Old Age Pension
Fund (non-budgetary item)
^Preliminary •
#*Budget estimates*
£
385
1*1*0
101*
16
18
1*
711
29
809
33
2,1*1*9
100
-
1953-51**
%
1,893
1*77
1*3
338
726
956
U,39O
k$
11
8
16
22
100
l951*-55** %
1*2*
1,955
1*92
11
351
7U7
915
i*,l*60
8
17
20
100
$0
The 1951* Budget provided for a nominal reduction in taxes of $36 million,
or 0*8 per cent of estimated revenues before the reduction* Estimated budgetary
revenue this year is $U,i*6U million which is about 18 per cent of estimated
gross national product* Before Korea total revenues represented l£ per cent
of gross national prodxct, so that the marked Increase in national product
has enabled the nation to carry the nearly 80 per cent increase in taxes without any serious economic dislocation. Of utmost importance, of course, is the
tremendous leverage in the Canadian tax structure.
The extent of the leverage is illustrated by the personal income tax.
In fiscal year 195>O-£l this tax yielded $6*>2 million. In the fiscal year ended
March 31> 19^k the tax (with exactly the same rate structure) yielded $1,180
million, an increase of 81 per cent against an increase in the gross national
product of 33 per cent* By the same token, the leverage factor would work in
reverse under circumstances of a decline in gross national producto Should
gross national product this year be no greater than the seasonally adjusted
annual rate of the last quarter of 195>3 sad the first quarter of this year, the
anticipated surplus of IU million could well be replaced by a deficit of $100
million or more, although this would be a revenue shortfall of only 2 or 3
per cento
It is unlikely that the Canadian budget will be much less than $5 billion in the foreseeable future, so that there are no significant tax reductions
in sight• Unless, as a matter of deliberate fiscal policy designed to curb a
business recession, the Government should choose a course of deficit financing*
Canadian taxes are admittedly high. But they are not out of line with those of
other industrial nations, and the 20 per cent tax credit on dividend income from
Canadian companies has provided an important investment incentive*
An important provision in the 1 9 & budget proposals concerns depreciation*
Until this year the Department of National Revenue has not allowed companies to
claim larger depreciation, as a deductible expense for tax purposes, than was
shown on the books of accounts Now, under a new income tax regulation, a compaay may charge the amount allowed for income tax purposes without the necessity
of reporting the full amount in its books of account* Thus reported earnings
can be higher, in some cases considerably so, without any increase in 19£1*
operating profits * An example of the effect of this change is shown below:Per Share
New Method
Old Method
Operating profit
Depreciation: Normal $2«00
Excess
Net profit before taxes
Taxes
Reported net profit
$12.00
$12.00
3.50
$ 8.50
1*.17
2.00
$10.00
i».17
$ U.33
$ 5.83
MONETART POLICY
During the period 19l|6-U8 the Bank of Canada's policy was one of preventing the chartered banksf reserves from rising and restraining the use of
bank credit, without at the same time producing unsettled conditions in the
bond market• By 191*9 the post-war inflationary pressures had eased, and an
easier money policy became apparent* After the outbreak of the Korean war
Canada implemented a hard money policy involving increased interest rates and
drastic curtailment of consumer credit, coupled with heavy sumptuary taxation*
Increased pressures on the banks and other lendirtg institutions for capital
funds caused them to become heavy sellers of Government bonds• Without official support bond prices fell sharply, and bond yields reached their highs
last August and September
Meanwhile, the inflationary forces generated by the Korean war had been
dissipated and replaced by deflationary forces all over the free world. Last
year the United States abandoned its hard money policy by lowering meiaber bank
- 6 -
reserve requirements and more recently the rediscount rate has been reduced.
Central bank rates were lowered in the United Kingdom and in most European
countries, and recently the United Kingdom rate was reduced again. It was
obvious that Canada could not stand alone on an economic island of hard money
in the face of easier money policies in the key countries of the free world.
The disparity between money rates in Canada and elsewhere caused a farther inflow of foreign capital marked by relatively heavy Canadian borrowing in the
United States* This had the obvious effect of increasing the premium on
Canadian funds, to the detriment of the export industries and industries
manufactaring for the domestic market. Concurrently -fee changing economic
climate pointed to the desirability of moderating monetary policy, and money
rates have been lowered in Canada. The impact of easier money on bond prices
and yields has been substantial, as shown below?Long-Tesm Bond Yields
(Average of Business Days)
Canada*
191*9
1950
1951
1952
1953
1953
1951*
1951*
2.85*
2.77
3-21
3»51t
3.63
3.69
(1st half)
(2nd half)
3.20
(1st half)
2.98
(latest)
* Government of Canada % due 1961-66.
**U.S. Treasury 2%£ due 1963-68.
U.S.A.
2.21*56
2.21*
2.58
2.61*
2.90
2o85
2.1*5
2.1*1*
Canadian yields have declined by 20 per cent from last year f s high, somewhat more than the decline in the United States, and the spread has accordingly
been narrowed. The underlying factors that have resulted in cheaper money rates
still remain, and the outlook is one of continuing easy money and upward pressure
on the bond market*
THE CMADIAN DOLLAR
Canadian funds have persistently sold at a premium since early in 19J>2,
fluctuating between V 2 cent an(i a h cent premium in terms of U.S. funds. The
high was reached in the late summer of 1952, and then followed a year-long
downward drift back to a half-point premium last summer. After a slow rise beginning last July (which coincided with the abrupt abandonment of its hard
money policy by the U*S* Government) the exchange rate reached a peak of UoS.
#1.038 towards the end of February, and for the month of February it averaged
U.S. $1,034. During March and April the rate declined by more than two points,
and recently it has been relatively stable at about U.S. $1.0l£. This decline
has been accompanied by a slight fall in Canada *s official holdings of gold and
U.S. dollars with the latest figures showing holdings of $1,810 million, against
$1,814* million one year ago and$l,8O3 million two years ago*
. 7-
Noon Average Exchange Rates
on the U.S. Dollar in Canada
(Quarterly)
Quarter
19ft
I
II
III
IV
101*. 91*
106.1*3
105.72
lOli.OO
1952
100.06
98.13
96.33
97.05
1953
98.11*
99.31*
98.81
97.77
19ft
97.01
Currently the discount on U.S. funds (1^ per cent) is the same as the
average of last year, compared with the average of 2-1/8 per cent in 19f>2. The
premium on Canadian funds has continued despite the heavy deficit of $467 million last year on the current balance of international payments indicated previously • The underlying factor in the continued strength of Canadian funds has
been the sustained inflow of foreign capital for long-term investment vfaich more
than offset the deficit on current transactions last year and is continuing to
do so* Foreign investors still appear to be taking a favourable view of investment opportunities in Canada, and the persistent spread between Canadian and
U.S. money rates (despite the easier Canadian monetary policy) has attracted
Canadian borrowers to the U.S. money markets Canadian borrowing in the
United States, however, is being curbed Icy a continuation or extension of
cheap money in Canada*
To date two clearly defined forces have been apparent in connection with
the exchange rate on Canadian funds. They have been working in opposite directions. The trade deficit has exerted domward pressure while capital movements
have exerted even stronger upward pressure. The recent easing of funds has
coincided with the changed monetary policy, and easier money rates may result
in a further movement in funds closer to parity with the U.S. dollar. Basically,
and in the longer term, the dollar's strength or weakness hinges on current
account rather than capital transactions so that the continuing deficit in
foreign trade should result in a discounted Canadian dollar. Whether the
downward trend in funds so far this year will culminate in a discount will
depend upon several factors, including short-term capital movements, the
volume of new capital investment in Canada, and the effects of an easier money
policy on the Canadian economyo
-8 -
ALUMINUM
Aluminum continues to be one of the worldfs great growth industries.
It is the most important of the non-ferrous metals. and last year the free
world produced and sold more primary aluminum than ever before• Canadian
production in 1953 reached a record 51*5,800 short tons, a 9 per cent gain over
1952, and 22 per cent more than in 1951*
Growth of smelting capacity, particularly in the United States, has been
substantial in recent years. By 1955 estimated U.S. capacity will be about 75
per cent larger than the 1950 capacity, and about 2^ times Canadafs 1954 capacity when the first stage at Kitimat comes into production this summer. The
ftill development of the Kitimat project would increase Canadian capacity to
1.1 million tons or twice last yearfs Canadian production.
North American capacity in 1955 related to 1953 output is as follows:
U.S.A.
Canada
Output in 1953
1,250,000 tons
5145,800 "
15795,800 tons
Capacity in 1955
1,500,000 tons
638,500 "
2,138,500 tons
%
Increase
11
17
16
Since the latter part of last year, aluminum demand and supply in the
free world have been in balance after a period of acute shortages. Competition
has been increasing. In the United Kingdom, which typically has been Canada*s
most important market for ingot, there was a decline in aluminum fabrication
last year, but so far in 1951* there has been an improvement in this market.
Reduced demand from the United Kingdom resulted in a sharp shift in Canada's
export shipments last year from the U.K. to the U.S. market. In 1953* shipments to the United Kingdom accounted for about one-third of the total Canadian production compared with over one-half in 1952. Shipments to the United
States were k3 per cent of the total, compared with 23 per cent a year earlier.
This increase in Canada's reliance on the U.S. market coincides with the
substantial increase in U.S. capacity which normally could result in surplus
metal in the United States. However, all the U.S. producers have the option
of selling the output of their new capacity to the U.S. aluminum stockpile.
This is believed to be currently far short of the amount justified by the
defence program and requirements are currently being re-assessed. At the same
time, Canada has a definite cost advantage over the United States, largely because of cheap power. A substantial amount of U.S. capacity is submarginal,
and is currently enabled to operate because of subsidies. Barring increased
U.S. tariffs or other import restrictions, Canada will be able to continue to
compete effectively in the U.S. market. It is understood that most of the
projected Canadian primary production for this year and next is either now
committed (about 70 per cent) or earmarked for normal requirements of customers
who buy on a spot basis.
The longer-term outlook for aluminum is promising. The number of fabricators has increased greatly (there are now some 17,000 independent U.S.
fabricators) and they have created new markets for primary aluminum which should
result in greater future consumption. Among the uses which give promise of
large future tonnage are: containers, electrical conductors, housing and other
types of building, automotive, railway and air transport, irrigation tubing,
and chemical processing equipment. The Canadian industry is in a good position
to take advantage of future growth in consumption because of the potential
capacity at Kitimat which could, with relative ease, double existing capacity
for low-cost metal.
- 9 -
ALUMINIUM LIMITED
Total Debt Consolidated
Subsidiaries1 Preferreds
Common Stock, no par value
#3U6,291,5?5
l*7,l|.98,O5O
9,013,99k shares
Aluminium Limited operates forty-six subsidiaries in twenty countries
including the world*s largest producer, Aluminum Company of Canada, which accounts for about 80 per cent of the consolidated fixed assets and all the 1953
profits. By mid-year, Aluminium will have an annual ingot capacity of 638,500
tons supported by hydro electric power in excess of three million h.p. This
completes a four-year IU65 million expansion programme which included the construction of the first stage at Kitimat, British Columbia, with an initial
capacity of 91,500 tons, and the construction of 540,000 tup. and 71,500 tons
of ingot capacity in Quebec . Ultimate planned capacity at Kitimat is 550,000
tons of aluminum per annum, supported lay hydro electric power of 2\ million
h.p. This capacity, up to the 270,000 ton level (one tunnel) can be attained
at, roughly, one-third of the cost per ton of the initial capacity and power
site. Not until this 270,000 ton level is attained can Kitimat operate profitably after depreciation* Depreciation charges on a second tunnel necessary for
the full development at Kitimat will temporarily increase unit costs until
still larger capacity is achieved.
Because of higher depreciation provisions and lower earnings from its
fabricating capacity, earnings in 1953 dropped to $2.16 a share from $2.73 &
share reported in 1952. If only normal depreciation had been written off,
Aluminium could have reported |3«97 a share. If the Company continues to deduct accelerated depreciation allowances from earnings, it is improbable that
there will be any appreciable change in reported 1955 earnings even with the
benefit of the initial Kitimat capacity.
Reported earnings have been disguised by heavy depreciation provisions
which have been designed to amortize three-quarters of the total cost of the
expansion programme by 1957 • It is the present intention of Aluminum Company
of Canada to bring its depreciation allowances in the years 1954-1955 to an
amount equivalent to 3^-k cents per lb. of aluminum sales and in the years
1956-1957 to an amount equivalent to 3-3§ cents per 1b. of sales. It is estimated that these total provisions will reach a peak in 1955 of about $6.75 a
share and the accelerated portion on present assets will terminate by 1957*
Following this termination of accelerated depreciation and based on Kitimatfs
1954 capacity, present profit margins, and normal activity in fabricating
plants, earnings of between
$5«OQ-#5»5O a share could be shown. With the
utilization of Kitimatfs full potential capacity, earnings could be double this
figure, assuming present profit margins and prices*
Recently negotiated contracts in the U.S. will account for the delivery
of metal in excess of a total of one million tons during the next 5 | years, and
only about 30 per cent of the Company1 s Canadian 1955 capacity is not already
committed.
Aluminium Ltd* has many long-teim advantages, such as a production cost
in Canada several cents a pound below other North American producers, a large
potential capacity, important overseas subsidiaries and an excellent growth
trend for its product.
Stock market quotations have been reflecting these advantages rather
more than reported earnings• Temporarily, productive capacity in North America
may exceed actual consumption. This could hamper the performance of the stock
particularly as it is believed that there are still over one million shares held
- 10 -
by certain U«S* shareholders which mast be disposed of by 1961 under an order
of a U*S* District Court.
Approx«
Price
Aluminium Limited
57$
1953
Dividend
1953-54
Fiscal
1952
1953
or
Price Range Year per Share per Share Indicated
to Date
Ends Earnings Earnings
Rate
58i - 4l£
Deo»
$2«73
$2«16
$2»00
ASBESTOS
Canada is the world's foremost producer of chrysotile asbestos, and
almost all (96 per cent last year) of Canada's output is exported* The chief
market is the United States* The industry has experienced outstanding growth,
with a long-term growth trend of about 10 per cent per annum* This is well
above that of most industries. During the post-war period of virtual asbestos
famine, Canadian production reached its all-time high in 195l (973*000 tons)*
In 1952 output declined by k per cent because of the fluctuating market for
short fibres. Exports of tf shorts * in 1952 were 9 per cent below 1951 but the
longer fibres showed improvement. Last year, total shipments showed a slight
further decline (less than 2 per cent) but this time the decline was caused
by a softening in demand for the higher-grade long fibres, exports of which
were off 7 per cent* Demand for the medium and short fibres strengthened in
1953 and exports were maintained*
The world market for asbestos is now more nearly in balance than at any
time since 191*5 • The shortage of the long staple fibres (spinning grades)
required heavily for defence purposes has been relieved considerably as a
result of the stretch-out of defence programs and the increase in the production of these grades* Competition, particularly from Russian asbestos, is
apparent,. Prices, however, are still fira, although the market for the
spinning grades is sensitive •
The immediate outlook may be one of some uncertainty in the U«S« market
(exports to the United States last year were nearly 10 per cent off from 1951)
but the demand for short fibres is likely to continue* These are used chiefly
for asphalt tiling, acoustical cement and tile, and as filler in various
products, including automobile under coating. The outlook for housing in the
United States is relatively good, and better markets seem likely in the United
Kingdom and Western Europe, where asphalt tile has become popular, and manufacturing facilities for it are being expanded* Over the longer term standard
uses for asbestos, involving the medium length fibres, are likely to be expanded,
and new uses will probably be developed on a substantial volume basis* New
properties are being brought into production in Canada in expectation of such
developments*
ASBESTOS CORPORATION LPHTED
Common Stock, no par value
1,800,000 shares
Although volume declined slightly in 1953* Asbestos Corporation^ sales
increased 5 per cent to about #20| million* Profit margins improved and the
Corporation reported earnings of $2*^5 a share after a special provision for
depreciation of 6l cents a share. Pre-production and development expenditures
- 11 -
(about 7k cents a share) whiclj were claimed as a deduction for tax purposes, but
which were not written off formally against the income account, had the effect
of reducing the tax liability by about 2J> cents a share. Comparable earnings in
1952 were $2»36 a share which included no special depreciation write-offs*
Asbestos Corporation, the largest independent producer of asbestos in the
world, has four producing mines with a total daily mill capacity of about 15,000
tons of ore. By employing bulk handling mining methods the Corporation has been
able to expand its existing properties and operate profitably otherwise marginal
mine So As a result, Asbestos Corporation itself mills about I4.O per cent of the
ore in the industry but recovers only 20 per cent of the total fibre • The new
Normandie property will add about one-third to total existing capacity by the
latter part of this year* The net expansion in the longer run, however, will
be somewhat smaller because this capacity will replace, for the most part,
production from other mines approaching depletion* The property is expected
to qualify for income tax exemption for three years• This program, costing
$lU§ million, was financed entirely from retained earnings and should broaden
materially the Corporation's earnings base. The expanded capacity appears to
be adequate to meet current market demands, and lower capital e:xpenditures
should allow a more liberal dividend policy.
Considerable new ore was proven up last year from the Normandie property
and ore reserves are now about 10U.6 million tons or over 30 years1 supply at
present rates of production• There would appear to be sufficient unproven ore
to support operations for an indefinite period*
Dollar sales in 195>3 showed the smallest increase for any year since the
war and there were signs that supply and demand were in balance. The recovery in
the "shorts" market was attributed to the expanding use of the fibre for floor
tile in the United Kingdom and elsewhere. About 55 per cent of the Corporation's
production is exported to the United States and this market will continue to be
of utmost importance to the Canadian industry. Exports to Europe are meeting
competition from Russia and South Africa, bat the market in Japan was reestablished in 1953• Asbestos Corporation's 195U production will find a ready
market but signs of less urgent buying (partly because of fabricators! inventory
situations) is reflected in asbestos exports from Canada in the first part of
195iw A more efficient operation resulting from the development of a new
property, and other factors, should be apparent this year. Moreover, earnings
and the completion of the expansion program may allow a more generous dividend
policy, particularly as there are no senior securities, and the working capital
position of the Company is healthy.
1953
Dividend
1953-54
Fisoal
1952
1953
or
Approx, Price Range Year per Share per Share Indicated
Price
to Date
Ends Earnings Earnings
Rate
Asbestos Corp,
30-5/8
31 - 23i
AUTOMOBILES
Dec
&
$2.36
$2O45
$1,25
EQUIPMENT
Factory shipments of motor vehicles in Canada last year totalled k79,6h9,
an increase of about 10 per cent over 195>2 • Truck production, however, was about
20 per cent below 195>2 and exports of Canadian automobiles were down by 20 per
cent. So far this year automobile production has been keeping pace with last
- 12 -
year*s record level but only one producer, The Ford Motor Company of Canada, has
shown an improvement over last year*
Automobile production, however, has been running ahead of automobile
sales, and dealers9 inventories are high, partly because of the late spring*
It seems unlikely that total sales in 195U will be maintained at last yearfs
level because of unfavourable business conditions in several key industries
which are affecting labour income „ Indeed, a reduction of about 1J> per cent
in the volume of new car sales now appears to be a reasonable forecast for
Thus, if any producer maintains or betters its last yearfs volume (as Ford has
been doing), it will be at the expense of the other producers. The automobile
industry promises to be fiercely competitive during the rest of the year* In
the longer term, however, Canadian automobile production should expand at a
faster than normal rate*
Before, and immediately after, the war one-fourth to one-third of the
Canadian output of passenger automobiles was exported. This has shrunk to
about ten per cent of the output. If exports had been maintained, last year*s
production of passenger cars would have been about 1*00,000 units instead of
360,OOOo Exports now seem to have been stabilized and the total consumption
of automobiles in Canada will bear a closer relation to production than in the
years just before and just after the war* Chrysler Corporation of Canada,
which is engaged in a major expansion program, forecasts that in 17 years
the total number of cars in use in Canada should be 1* million, compared with
about 2§ million at the end of last year* This would be a car for every U«3
persons as against a present one car for every 6«7 persons in Canada. In the
United States, there is one car for about every 3§ persons<,
1953
Dividend
1953-54
Fiscal
1953
1952
or
Approx * Prioe Range Year per Share per Share Indicated
Prioe
Ends Earnings
to Pate
Earnings
Rate
Ford of Canada *A"
Ontario Steel Products
100 - 58f
25
Deo*
Sept,
$9 O 25
2*55
$12.07
4 o 04
$4.00
Io25
FORD MOTOR COMPANY OF CAHADA, LIMITED
Class l1Att Shares, no par value, non-voting
15£88,96O shares
ff t!
Class B Shares, no par value, voting
70,000 shares
With its 1951* models, Ford of Canada has more than regained its former
trade position and now does between 3f> and UO per cent of the total Canadian
passenger car business<> Despite an increase in total sales of over 1$ per cent
in 195>39 operating profits declined due to heavy write-offs for pre-production
expenses, and abnormally high costs during a period in which production was
being built up in the new Oakville assembly planto These expenses accounted
for more than the reported decline in operating profits from Canadian operations
in 19^3 when larger dividends from overseas subsidiaries resulted in an increase
in total reported earnings as shown below:
Per Share of "A" and "B11 Stock
19$0
19&
Reported net earnings from Canadian operations .. $ 9*80 $ 6«31 I 6oU7
3
2,78
Dividends received from subsidiaries**
2*0!?
2,66
£-69
Reported earnings
$11.85 $ 8-97 $ 9-2£ $12-07
2.89* 2.20* 1-76*
*18
Undistributed profits of overseas subsidiaries
* After making an arbitrary adjustment for withholding taxes, etc*
##After deduction of withholding taxes at source*
- 13 -
Assuming that the pre-production expenses were no more than equivalent
to the decline in operating profits in 1953, reported earnings in 1953 would
have been about #13*1$ a share after adjustment for taxes in respect of depreciation charges pertaining to prior years. With the Oakville assembly plant
operating under more normal conditions, production of passenger cars and trucks
in the first quarter of 195U increased over 36 per cent with factory sales
setting a new record. The market for trucks has been less satisfactory.
Ford has been gaining rapidly on its competitors during the past two
years • Early in 1952, Fordfs proportion of the business dropped as low as 21
per cent of the total, recovered to 32.3 per cent in 1953 and is now running
at about 1*0 per cent. Last year, Fordfs sales increased chiefly at the expense
of Chrysler and in the first quarter of 195U Ford's total production exceeded
that of General Motors. Before the war and in 19k6 about one-half of Ford's
production was exported* In 1953 it shrank to about 7 per cent, the lowest
since the war. It is unlikely that export business can be increased materially
in the near future, but Ford benefits from its assembly plants which have been
established in the British Commonwealth.
Over #29 million ($17*60 per share) was spent on Canadian plant facilities in 1953 and with a farther expenditure of about half that amount this
year, Ford will have completed its expansion program which will increase its
motor vehicle productive capacity by kO per cent. Of even greater importance,
perhaps, will be the reduction in operating costs during peak periods. Working
capital at the end of 1953 was equivalent to $22.9k per share. Overseas subsidiaries had additional liquid assets amounting to the equivalent of $17*02 a
share. Ford of Canada is increasing its output at the expense of its competitors,
and without last year's heavy pre-production expenses, earnings from Canadian
operations should compare favourably with those of 1953• Moreover, there is a
possibility of a stock split*
ONTARIO STEEL PRODUCTS COMPANY LTD.
Sinking Fund Debentures, due 1968
Preferred Stock, $100 par
Common Stock, no par value
$2,000,000
360,300
•.
21*2,200 shares
In many ways Ontario Steel Products has reflected the rise in automobile
consumption in Canada better than the primary industry itself. This Company is
the chief supplier of automobile springs in Canada, and carries on an important
bumper and plating business and a less important plastic business. Since the
war, plants have been rebuilt and modernized to the point where the Company is
in a position to meet competition from the low-cost U.S. producers. Because of
this improved efficiency, and a broader range of activities, Ontario Steelfs
production has represented an increasing component of the automobiles manufactured in Canada*
Last year construction was commenced on two plants at Milton, Ontario.
One plant will produce leaf chassis springs and the other will be used for
automatic electro-plating and for the assembly of automotive parts. In addition
to providing expanded capacity, these plants enable a more efficient distribution
of output to the large automotive producers. The plastic operations at Chatham,
Ontario were transferred to Gananoque, Ontario to make way for additional
capacity of springs, bumpers and electro-plating, and the spring plant at Oshawa
was enlarged. This program was financed by a $2 million issue of 5i per cent
debentures. Previous to this the entire expansion and modernization of plants
was financed from retained earnings and depreciation provisions which have
amounted to about $18 a share since the war.
-Ill-
As a supplier to the primary industry, Ontario Steel is not subjected
to the same swings in consumer preferences but its business is as cyclical
as the automobile industry itself * However, with expanded plant facilities
and increasingly efficient operations under astute management, the stock is in
a strategic position to reflect the long-texm growth of the Canadian automobile industry*
BANKS
Since I9kk, total loans in Canada of the Canadian chartered banks have
increased at an average annual rate of "over 1$\ per cento The average annual
increase in total assets has been about £4 per cento Lower taxes since 19UU
and other factors have had a favorable effect on earnings and dividends, but
partially because of the extension of controls into the early 19!>0fs net
earnings have risen an average of only about 8 per cent since 19hk$ and
dividends about 8§ per cento
It is trite to say that earnings of the Canadian chartered banks are
conservatively reported* Earnings from operations outside Canada are believed
to be distinctly profitable for most of the banks, but during recent years it
is doubtful whether the income accounts of all banks have fully reflected
these operationso In addition, allowances for inner reserves, which do not
appear as deductions in the income accounts, have been substantial. For
example, such reserves as at the 1953 fiscal year-ends would have amounted to
$320-million if all the banks had been holding the permitted maximum reserve o
No information is available regarding the inner reserves of individual banks,
but if the maximum reserve had been held, such an amount would have been equal
to about $21 per share of the outstanding stock of all the chartered banks
combined* Published reserves or rest funds, at the same date were equivalent
to almost an additional $17 per share, representing chiefly transfer from profit
and loss account on which income taxes have been paicL Paid-up capital amounts
to $10 a share o These figures compare with the average price of bank stocks of
slightly over $!tf> per share *
The unpublished, or inner, reserves of a £ank can be equivalent to two
per cent of the net book value of Government of Canada, United States and
United Kingdom securities (other than those issued for a term of less than
one year) • Against Canadian provincial securities three per cent of the net
book value can be taken; and five per cent of the net book value of other investments, loans, letters of credit and net long foreign exchange positionso
It is apparent that during recent years when losses have been small that
these reserves have been ampleo For instance, in the 15> years ending 195>3 the
rate of losses experienced in each year on loans and other investments was
equivalent to *12 per cent, or about the same as on provincial securities and
smaller than the •!? per cent loss on Government of Canada securities o In the
l£ years ended 19hk, the loss experience on loans and other investments was
about «77 per cent annuallyo
If loans and investments stabilize, and with inner reserves at a maximum,
a bank cannot transfer further amounts to such reserveso Consequently any
stabilization of loans and investments will largely eliminate such unpublished
reductions from earnings c If loans and investments shrink, inner reserves may
have to be reduced by transfers to the banks * income accounts as a taxable
credit. Thus these reserves act as built-in stabilizers of earningso
During the past five years, there has been a distinct improvement in the
earnings of the chartered banks from interest and discount on loans and there
i s every indication that this improvement i s carrying through 193>U«
Current Operating Earnings - All Chartered Banks
(millions of dollars)
1946
Interest & Disoorat on Loans
%
1948
%
1950
%
1953
1952
$ 70o7 34O8 $106o5 43O7 $125.0 44.3 $166O3 49O4 $191.6 50,6
Interest, Discount & Trading
Profits on Securities
89<,1 43 O8
89O7
36.9
101.3
35.9
100.8
29.9
111.4
29.4
Exchange, Commission,
Service Charges, etc o
43o5
47O2
19.4
55.8
19O8
70.0
20.7
75.5
20 o 0
Total Current
Operating Earnings
21o4
$203*3 100.0
$243O4 100.0
$282.1 100 o 0
$337,1 100.0
$378*5 100 o 0
It was not until 1953 that the shares of the banks began to reflect the
expansion of their operations but since then, encouraged by the prospect of
subscription rights follovdng the revision of the Bank Act this year, the market
for bank stocks has risen to a level where indicated dividend returns (based on
195>3 disbursements) are closer to the yield on long-term government bonds than
at almost any time in the past. The average price of eight bank stocks is
currently $ij.0.69 a share and the dividend return on the basis of 19f>3 payments
is only 3*$h$* Such a comparison with previous years must take into consideration the probability of valuable stock rights, as well as the inauguration of
the 10 per cent tax credit on dividends in 191*9 which was increased to 20 per
cent in 19&3*
Average Yield
Average
Average
Average
on Theoretical
Annual
Earnings
Dividend
15-Year Government
Average
EIGHT BANKS
Price
per Share Inc.Extras
of Canada Bond
Yield
1*.26*
3.68*
$2.06
$33.81i
$1.1*1*
1953
1952
30.56
1.69
1.31
i*.29
3.59
195l
30.39
1.60
1.30
1*.28
3.21*
1950
31.23
1.20
3.81*
2.78
1.61*
28.11
191*9
1.10
3.91
2.83
1.53
191*8
26.98
1.06
3.93
2.93
1.1*7
0.97
3.50
27.69
1.37
191*7
2.57
191*6
1.22
27. k9
0.92
2.61
3.35
The expansion in assets and earnings of certain of the chartered banks
has stemmed in part from a policy of increasing quite sharply the percentage of
their loans to deposits* At the end of the 1953 fiscal years loans of individual banks ranged from below f>0 per cent of deposits to over 60 per cent*
Representative bank stocks would include the following:
Approx •
Price
Canadian Bank of Commeroe
Bank of Montreal
Bank of Nova Scotia
Bank of Toronto
Royal Bank of Canada
37i
43
i
46J*
46
46
1953-54
Price Range
to Date
37J44
46$
461
-
28&
31
38&
39
46| - 3lf
-16 -
1953
per Share
Earnings
$1.93
1.96
2.01
2,17
2.47
1953
per Share
Dividends
$1.20
1.40
1.80
1.70
1.40
Approx.
Yield
3.22#
3.20
3O87
3 o 70
3.04
BASE
METALS
Canadian volume of exports of refined lead and zinc spelter declined last
year. Meanwhile the United States Government intends to resume stockpiling*
This may carry with it the threat of increased customs duties on lead and zinc,
or some other form of protection for the hard-pressed U*S* industry. The major
Canadian base metal producers have relatively low costs, and in a free market
possess distinct advantages but relatively unhampered entry to the U.S. market
is essential for effective operations. For example in 1952 and 1953 about onehalf of the lead and about two-thirds of the zinc was exported to the United
States*
Copper is one of the few base metals currently selling above the official
U.S. price established after the outbreak of the Korean War* The price has been
film at 30 cents for about a year despite ample supplies of the metal* Indeed,
there is evidence of a world copper surplus* World production of refined copper
last year totalled a record 2*5 million tons, about 250,000 tons in excess of
deliveries to the consuming industries. Global stocks of unused copper are
almost double their level of a year ago* Last year U*S* production of refined
copper set an all-time record and, as imports increased and consumption declined,
U*S* supplies were relatively high* Most recent data indicate that U.S. producersf stocks of copper were 80 per cent greater than a year ago. Production
of copper at established U*S* mines has now been reduced by about 18 per cent,
but new properties are coming into production at guaranteed prices and will
offset this reduction to some extent* Canadian production last year was off
slightly because of a prolonged strike, but exports were 13 per cent ahead of
1952* Because of some apparent decline in copper consumption and high producers1
inventories, the outlook is one of some reduction in copper prices, but any
Immediate decline is likely to be orderly rather than a sharp break.
In contrast to copper, lead and zinc prices are sharply below the official
U*S. prices established during the Korean War, although recently both metals
have firmed, and currently, their combined price is just about equal to last
year's average.
Cents per Pound
(Canadian Funds)
1951 Average
1952 Average
1953 1st Quarter
2nd Quarter
3rd Quarter
Uth Quarter
1951* 1st Quarter
Recent
Currently U.S. zinc inventories in producers1 hands are over 200,000
tons, more than double the amount of a year ago. Canadian zinc production last
year was about 7 per cent greater than in 1952, bolstered by new properties*
Output of some established properties, however, was reduced. U.S* production
(535*000 tons, the lowest in 15 years) was down by almost 20 per cent, the result of cutbacks by marginal operators who were unable to show any profit at the
prevailing prices. The outlook this year for the three main uses of slab zinc
(galvanizing, brass working, and die casting) is one of a downward drift, so that
U.S. mine production will continue to fall, or imports will be reduced until
- 17 -
excessive inventories are reduced* At the same time, however, it is hoped by
the industry that renewed stockpiling activity may cushion the downward drift.
Lead supplies are not as great as zinc, but U.S. stocks are running
about half as much again as last year. Deliveries are much better maintained
than in the case of zinc. Overseas requirements have firmed, and the outlook
for lead this year is reasonably satisfactory. Canadian lead production last
year showed a 16 per cent increase over 1952.
ApproXo
Price
Consolidated Smelters
Hudson Bay Mining
Noranda Mines
28-5/8
46^
68
1953
Dividend
1953-54
Fiscal
1952
1953
or
Price Range Year per Share per Share Indicated
to Date
Ends Earnings
Earnings
Rate
34§ - 21-7/8 Deco
58 - 36
Deco
TBj - 57-7/8 D e c
$2 o 00
5 O 37
5 O 45
$1 O 24
4 O 15
4 O 78
$1*20
4 o 00
3 o 00
CONSOLIDATED MINING AND SMELTING COMPANY OF CANADA LIMITED
Common Stock, no par value
16,381,614$ shares
Consolidated Smelters is one of the largest and lowest-cost base metal
producers in the world* The Company accounted for about 8$ per cent of Canadafs
total 1953 output of lead, 22 per cent of its zinc and about 57 per cent of its
silver. It is estiinated that last year's lead dollar sales were slightly higher
than zinc and combined accounted for about two-thirds of the total. Fertilizer,
chemicals and other metals made up the remainder.
In 1953 sales dropped over 20 per cent and earnings declined to $1.2U a
share from #2,00 a share in 1952. These lower results were caused chiefly by a
decline in metal prices, a lower discount on U.S. funds and some drop in production* Lead output was about 9 per cent lower, while zinc and silver output
established new records being up 15 and 25 per cent respectively. Despite the
lower earnings in the last half of 1953, the year-end disbursement of l|0 cents
regular plus 20 cents extra was maintained at the mid-year rate.
Since the year end zinc production has been cut back by about 30 per
cent and although inventories have been reduced, it is felt that stocks are
still high in relation to present markets for the metal* A compensating factor
will be the increased output from the Company1 s new fertilizer plant with a
capacity of 70,000 tons per annum*. With the combined price of lead and zinc
at the present time about the same as last year's average, earnings now, with
the benefit of increased fertilizer output, are being well maintained* It is
estimated that a one cent change in the combined price of lead and zinc means a
theoretical increase of 25-30 cents a share after taxes.
In addition to its Sullivan Mine which is one of the largest and lowest
cost producers of lead and zinc in the world, the Company has been bringing
other properties into production during the past few years. The Bluebell lead
and zinc mine produced for a full year for the first time in 1953* The
Tulsequah expanded its output but production at the H.B. mine was deferred
due to low metal prices. Exploration activities were continued and ore reserves
at the Pine Point mine in the Northwest Territories were more clearly defined.
The ore is of relatively high grade and can be recovered by open pit mining.
Capital expenditures last year were $23.7 million which about completes the postwar modernization and expansion program* The modernization of the Trail lead
smelter and the increase in power facilities at Waneta are well on their way to
completion.
- 18 -
Consolidated Smelters is in the most strategic position to benefit from
any sustained improvement in base metal prices* On the basis of current earnings, however, it is difficult to justify current prices for the stock as there
is not sufficient evidence that the recent firmness in lead and zinc prices
will carry to the point where earnings could support materially higher prices
for the shares.
HPDSON BAY MINING & SMELTING COMPANY LIMITED
Common Stock, no par value
2,757,973 shares
In relation to current earnings and dividends, Hudson Bay is one of the
more attractive of the major base metal stocks in Canada* Although the Company has been finding it difficult to maintain ore reserves at its main property at Flin Plon, the development of outside properties has become more
clearly defined* Ore reserves at Flin Flon were increased last year for the
first time in many years and reserves at the Yukon property are now estimated
at about 60 per cent of those of the main mine. These reserves, however,
consist chiefly of zinc averaging 5 per cent and are not as valuable as those
of the main property but they have potential value. Other mining locations
including those in the Flin Flon area are being intensively examined at the
present time and hold more immediate promise. These outside discoveries have
generated more confidence in the stock in recent months.
Based on current prices, zinc sales are about two-thirds those of
copper and combined account for about 85 per cent of the total. Gold and
silver make up the remainder. Due to higher costs and lower zinc prices,
earnings in 1953 were $l*.l5 a share compared with $5*37 a share in 1952*
Copper production increased slightly and zinc output was the highest on record
being 6.5 per cent greater than in 1952. Although there has been some apprehension about zinc sales in 1951** recent price increases have brought the level
to about last year's average. Assuming that output is maintained and that
copper prices remain stable, earnings should be stabilized at close to $l**00
a share. If copper prices were to decline to say 25 cents a pound, it is
estimated that earnings would drop to about $3.50 a share provided output
were maintained at last year's rate. This would result in a decline in the
current IU*OO a share dividend.
Hudson Bay9s ore reserves at the end of 1953 were 17,1*56,000 tons
averaging 3*2 per cent copper and 3*9 per cent zinc with gold and silver
values. These would be sufficient for about 12 years' operations at last
year's level. The reserves include an increase of 1*28,000 tons which followed
a steady decline over the previous 10 years of some 1*0 per cent. This may be
the turning point, particularly as intensive exploration is being conducted in
the Flin Flon area. A new orebody, the "Coronation Mine", located about 13
miles from Flin Flon, is being developed and about 51*5*000 tons averaging 5*37
per cent copper and §2.00 a ton in gold and silver has been outlined to a
depth of 600 feet. Moreover, the Yukon properties are becoming increasingly
interesting. At the Tom Claims, ore reserves are estimated at about 1 0 | million
tons averaging 5 per cent zinc. In addition, Hudson Bay has a 79 per cent
interest in Cupras Mines located near Flin Flon which has reserves of about
1*6,000 tons averaging 2.95 per cent copper, 5«5 per cent zinc, and smaller
amounts of silver and golcL The zinc faming plant which utilizes zinc plant
residue, has been operating now for two years, thus conserving ore reserves
at Flin Flon*
- 19 -
NORANDA MINES LIMITED
Revolving Bank Credit
$10,000,000
k%% Sinking Fund Debentures, due 196?
20,000,000
Common Stock, no par value
2,239,772 shares
Noranda Mines is a combination of a holding company and metal producer.
As such its holdings of marketable securities have a value of about UO per cent
of the current value of the stock, and give a return which exceeds the income
from Norandafs own operations. Not included in the above are such important
new properties as Gaspe Copper, a 5l per cent interest in a zinc-pyrite property
formerly controlled by MacDonald Mines and a new sulphur iron plant* The new
Qaspe property is scheduled to commence smelter operations in 1955 and the
sulphur iron plant will be in operation in September. The development of these
properties is designed to offset the declining ore reserves at the H o m e Mine*
Despite the fact that operations at Noranda were suspended for hi months
last year, due to a strike, earnings were fairly well maintained. Investment
income was higher and exceeded earnings from operations for the second successive
year* About one-half of such income came from Waite Amulet* Earnings for the
past four years are shown below*
Earnings per Share
1950
1951
1952
1953
Prom Noranda«s own operations
$3*17
$3*22
$2.69
#1.87
Investment income
2*09
2.1»8
2.76
2*91
$5-26
$5.70
$5.1*5
$U-78
Under normal conditions, based on present prices for copper and gold,
the value of copper produced from the H o m e Mine is roughly twice that of gold*
On this basis a decline in the price of copper would have an adverse effect on
earnings* Moreover, 1951* operations have been disrupted tqr the strike which
ended in mid-Februaiy. This prolonged shutdown at the property from August
1953 resulted in a cut in the dividend from the $l*.00 annual rate to $3*00.
Noranda9s investment portfolio at current market prices has a value of
about $30 a share. The investment in Waite Amulet alone is equivalent to
about $12*25 a share of Noranda* The market values of other principal holdings
are as follows:- Kerr Addison, $5»00; Canada Wire and Cable, $U*OOj Anglo
Huronian, $3*25? and Hallnor Mines, $2o50o Placing the customary appraisal
on this entire portfolio of between one-half and two-thirds its value, earning
power at Norandafs own operations is being capitalized at a relatively high
price. 1 It would seem that investors are willing to pay a premium for the
Company s outside properties*
Norandafs H o m e Mine has a life of about ten years, based on normal
production and present ore reserves of ll**8 million tons. These reserves have
been declining steadily and are less than half those available to the Company
in 1935* Offsetting this decline is the 67 million ton reserve averaging about
1*3 per cent copper at Qaspe Copper Mines which will be in production in 1955*
It is estimated that this property could add as much as $2*00 a share to
Noranda8s earnings after taxes (not exigible for three years), which would more
than replace the current dividend of $1«UO a share received from the depleting
Waite Amulet property. This has been a supporting factor to the stock and
would seem to have offset somewhat earlier apprehension regarding the Home's
ore reserves, and the maintenance of income from Waite Amulet.
- 20 -
BREWERIES
There has been a sharp increase in Canadian beer sales during the post*
war period* Total sales of 8.1 million barrels last year were hk per cent
greater than in 19i*6, compared with a 20 per cent population increase in the
same period. Historically per capita beer consumption in Canada has been
lower than in the United States, and considerably lower than in the United
Kingdom. But the marked upward trend in Canada in recent years , in contrast
to the steady decline in the United States since 19U7, has narrowed the gap*
Taxes are a major factor in the brewing industry* Exclusive of corporate income tax and the federal 10 per cent general sales tax, federal beer
taxes last year amounted to about 2-| times the net operating profit of seven
major brewing companies* Although federal and provincial taxes and duties
account for about 1*1 per cent of the gross selling value of beer at the brewery,
there seems to be little likelihood of any tax reductions on beer in the near
future. The 19$k federal budget provided, however, for the substitution of a
38 cent per gallon excise duty in place of the former excise duty on malt.
The gallonage tax provides allowance for wastage which results in a modest
easing of the impact of the tax*
In the early part of this year beer sales softened, chiefly because of
the shorter working week and lower labour income in several key industries, and
these conditions may curb the upward trend of beer consumption temporarily.
This would mean intensified competition in the already competitive key OntarioQuebec market (which accounts for more than 70 per cent of total Canadian beer
sales)* Last year all the breweries reflected the increase in consumption in
higher profits* Even a minor drop in consumption this year would mean that
further gains by one brewery would probably be at the expense of one or more
competitors with attendant effects upon operating profits*
1953-54
Fiscal
ApproXo Price Range Year
Price
to Date
Ends
26 - 17
Canadian Breweries
25-7/8
Dow Brewery
252 - 15
25
Labatt, John
2 0 * - 16^
20
Molson's Brew, "A" & "B"
26J- -23
25|
28 - 20
27
Sicks* Breweries
(d) - Defioit*
Canadian Breweries is
CANADIAN BREWERIES
0ot«
Oct.
Sept.
Sept.
Deoo
1953
Dividend
1952
1953
or
per Share per Share Indicated
Earnings Earnings
Rate
$2.25
0.22(d)
Ie33
2^70
2.04
$3.06
Io35
1.90
2.99
2.43
$1.25
—
1.00
1.20
1.40
the most integrated of the breweries
in Canada* Its profitable subsidiaries, Victory Hills and
Dominion Malting, produce malt, brewersf yeast and other allied products for
use in the parent Company's plants and for outside sale. For this reason it is
difficult to determine the actual profits of the brewery business itself, but
indications are that unit costs are about the lowest in the industry. The
Company demonstrated its ability last year to maintain its competitive position
in Ontario where it does roughly 60 per cent of the business under various company and brand names, and competes effectively for its share of about 20 per
cent in the Quebec market* Moreover, its U.S. subsidiary, Carling Brewing
Company Inc. which operated at a loss in recent years, seems to have turned
the corner and is now making a profit.
DOW BREWERY (formerly national Breweries) is now effectively controlled by
Canadian Breweries. Last year Dow reported the highest operating
profits since 19h9 and seems to be making its way back towards its former trade
position. This position was lost principally to Molsonfs in the postwar years.
- 21 -
In 1952 a new management took over the Company and concentrated efforts were
made to integrate operations and to cut costs• The output of certain brands
of beer was eliminated and important capital expenditures amounting to $9
million were initiated* New merchandising costs and other charges cut profits
to the point where both the preferred and common dividends were deferred in
195>2. With last year's improvement dividends were resumed on the preferred
shares in April, 195U* Heavy capital expenditures in progress will be a
factor in delaying the resumption of disbursements on the common* Indications
are that Dow is more than keeping pace with the rise in beer consumption and
is taking business from its competitors*
MOLSON'S BREWERY is believed to do slightly less than half the total business in
Quebec* The Company is vulnerable as its total production has
been sold under one brand name, and it is unusual for a single brand to command
more than one-third of a single market. More recently a lager beer "Crown and
Anchor" was introduced with emphasis on the brand name rather than on the
Company name* Molson's is also making a bid for a larger share of the Ontario
market and is building a brewery in Toronto at a cost of #9 million* The
Company's working capital position is probably sufficiently strong to finance
this project* Dow's recent improvement may be indicative of a turn in the trend
away from Molson's although there is no real concrete evidence to support this
belief*
jTQpN ^ABATT*
it is estimated that John Labatt does between 10 - 1 5 per cent of
the total business in Ontario and Quebec• In order to broaden
its market, the Company acquired control of Shea's Winnipeg Brewery Limited
for a cash consideration and shares of its own stock* If all the class "A" and
"B91 shares of Shea's are acquired* Labatt*s issued and outstanding capital stock
would consist of 1,255,000 common shares* It is significant that the average
combined earnings of Labatt and Shea for the past ten years based on this
larger number of shares outstanding were $1*90 a share or the equivalent of
last yearns reported earnings*
SICKS1 BREWERIES LIMITED operates five plants in the western provinces of
Saskatchewan, Alberta and British Columbia* In addition, substantial interests are held in the United States which are not
consolidated in the Company's accountso Tighter competition in British Columbia
prompted the building of a new plant in Vancouver at a cost of $ 3 | million*
Since 191*5 • including the poor summers of 1950 and 1951* the Company's growth
in profits has been better than those of the breweries in Eastern Canada*
This is accounted for in large part by the rate of population growth in British
Columbia which has been about twice that of the rest of Canada during this
period. Moreover, the development of the oil fields of Alberta and Saskatchewan
have further stimulated sales* In reflection of this potential growth the
shares sell high in relation to reported earnings (which do not include undistributed earnings of important U.S. subsidiaries)* but the dividend yield is
better than average.
- 22 -
CAPITAL GOODS
New capital investment in Canada is continuing at very high levels, but
the abnormally high rate of annual increase stimulated by the Korean war has
levelled offo The official estimate of new investment this year is $5,838
million, 2\ per cent greater than last year, the smallest increase in the
post-war period* But projected new investment in machinery and equipment
this year is about 3 per cent less than last year's record $2,033 million*
This is the first down-turn since World War II o Until recently the supply of
capital goods could not keep pace with demand, and the Canadian industry was
effectively insulated from foreign competition in the domestic market* But
now a buyers9 market exists, and high-cost Canadian capital goods are being
hit by relatively lower priced goods from the United Kingdom and Europeo
Typically the capital goods companies this year have a smaller backlog of
orders5 and the near-term outlook is one of increasing competition and a lower
overall volume of businesso Industrial construction contracts during the
first quarter of l?£li were 11 per cent lower than during the corresponding
period of 195>3* and engineering construction contracts were off by 6U per cent.
It appears likely that earnings in the cyclical capital goods industry will
reflect the slowing down of new investment in machinery and equipmento On
the other hand, however^ the construction of the Sto Lawrence Seaway, pipe
lines and other capital projects will cushion the downward trend that became
apparent last year<>
1953-54
ApproXo Price Range
Price
to Date
Dominion Bridge
Page-Hersey
18
64
1953
Dividend
Fiscal
1952
1953
or
Year per Share per Share Indicated
Ends Earnings Earnings
Rate
18 - 13-7/8 0oto
74| - 64
Dec
$1*83
5O86
$1.90
4 O 65
$0.65
3 o 00
DOHINION BRIDGE COMPANY LIMITED
Common Stock* no par value
* After adjustment for 3> for 1 stock split.
25£69,75>!>; shares*
For many years the stock market adopted a somewhat lethargic attitude
towards the stock of Dominion Bridge and it sold for about the amount of its
working capital including its 62 per cent interest in the working capital of
its subsidiaryj, Dominion Engineering o As the major factor in the structural
steel business in Canada, more recent earnings have reflected the vigorous post*
war demand for its productso
For the twelve months ended October, 19S>3* Dominion Bridge reported
earnings of $1*90 a share after adjustment for the five-for-one stock splito
Including the undistributed profits of Dominion Engineering* consolidated
earnings were $2*21 a shareo Earnings for the 1952 fiscal year were slightly
higher if an adjustment of 12 cents a share is made for a special write-off
for depreciation Bridge's work in progress at the beginning of the 1953-514.
fiscal year was slightly lower than that of the previous year* but profits
are taken on contracts only as they are completed which should contribute
substantially to this yearns earnings.
Despite extensive capital expenditures* Dominion Bridge has maintained
its very strong financial position. At the end of October, 19I>3* working
capital amounted to $10 o 25 a share or over $12«00 a share if the Company's
interest in Dominion Engineering is includedo This strong working capital
position stems from the reinvestment of earnings since the war which* including
- 23 -
depreciation provisions, have amounted to over $10 a share• About one-half of
this has been invested in new plant and equipment* Despite its strong cash
position, the dividend policy of Dominion Bridge has been very conservative*
Record earnings for the past two years, followed by a five-for-one stock
split, have resulted in higher levels for the stocko However, the backlog of
business has been reduced, and the rate of new business may have a less constructive effect as the year progresses• Apart from this, the stock has investment merit based on its excellent asset value, strong financial position, and
as a dominant factor in the capital goods industry.
PAGE-HEBSEY TUBES LIMITED
3-1/8$ Debentures, due April 1st, 1965
$5,000,000
Coaamon Stock, no par value
697,10i* shares
As the largest manufacturer in Canada of tubular products and metal pipe
up to 16 inch in diameter, Page-Hersey Tubes has reflected the growth of this
industry in Canada* Last year was the first year that the Company reported
lower earnings since 19U3* Failure of earnings to respond reflected increasing
competition and declining business in the latter half of the year*
Export markets, which have enabled the Company to achieve relatively
low operating costs, have disappeared and Page-Hersey is now restricted to the
domestic market in which foreign competition is increasing sharply. Imports of
duty-free casing and tubing for the oil industry have prevented the Company
from operating at capacity, and drill pipe cannot be produced competitively*
Page-Hersey will not be in a position to supply pipe for a main line
of the Trans-Canada natural gas pipeline, but it expects to benefit from the
construction of gathering and distribution lines which are of smaller diameter*
It is estimated that the total tonnage of this type of pipe will be as large
as the main line, but spread over a 10-year period the annual requirement would
be only about 6j>,000 tons* This would be equivalent to about 1$ per cent of
Page-Hersey*s capacity for this type of pipe*
During the interval since 19U3 when earnings were rising steadily,
dividends were either maintained or increased and the stock registered a new
high each year with the exception of 191*7 and 195>3* In reflection of this
record the stock always sold high in relation to earnings* Because of restricted
export, and more competitive import conditions, however, a less favourable investment attitude might temporarily be adopted towards the shares*
CHEMICALS
The chemical industry has been one of the fastest growing in Canada with
a total capital outlay over the past eight years amounting to almost $500
million* Since 1925 the industry has grown at an average annual rate of 10
per cent* Last year output of Canadian chemicals exceeded $800 million in
value* The field of petrochemicals is an important growth segment of this
key industry, with 23 plants in operation or under construction. This branch
of the industry will produce 3U specific chemicals derived from petroleum or
natural gas* Technological changes and the increasing industrialization of the
nation have changed the emphasis in the industry from bulk inorganic chemicals
(associated chiefly with the extractive industries—mining, forest products and
agriculture) to basic organic chemicals and intermediates for synthetic fabrics,
rubber, film and resins* Host of the new plant completed last year or still
under construction is for this type of chemicals, several of which have never
before been produced in Canada*
Currently there is reason to expect some slackening in the stimulus to
the chemical industry resulting from the rapid postwar rate of general industrial expansion, and the short-term outlook is one of a sharply lower rate of
capital outlay in the chemical industry* Anticipated new capital investment
this year is about 60 per cent lower than in 1953 • In the Immediate future it
appears likely that there will be excess capacity in Canada for such products
as acetone, formaldehyde, ethylene glycol, pentaerythritol and polythene because in order to build efficient plant to supply Canada *s comparatively small
market it is often necessary to provide facilities far in excess of current
domestic demand* At the same time formidable competition from the United States
is prevalent because of the relatively low Canadian duty on chemicals, and some,
such as phenol, enter this country duty-free. Last year, for example, imports
of chemicals amounted to $221*8 million, roughly a quarter of the value of
Canadian-made chemicals* High U.S. duties make it difficult for Canadian producers to penetrate the U»S* market, and overseas demand is restricted by
currency problems• Thus the Canadian industry is heavily dependent upon a
relatively restricted domestic market which must be shared with U*S» producers
who are sharply competitive« However, the continued industrial expansion of
Canada should provide an effective Canadian outlet for the increasingly wide
range of chemical products produced in Canada* An official forecast indicates
an increase of at least f>0 per cent in Canadian chemical requirements between
19£3 and I960, with a possibility of doubling by 197$* But basically, the
Canadian chemical industry requires virtually the whole of the domestic market
to ensure an outlet for the capacity now existent*
1953-54
Fiscal
Approx, Price Range Year
Price
to Date
Ends
Canadian Industries
46i
48i - 3 l |
Canadian Chemical & Cellulose
7§
14 - 7-3/8
Dominion Tar & Chemical
8-7/8
l l i - 7-1/8
Shawinigan Water & Power (see Utilities)
(d) - Deficit•
Deo,
Deo*
DeCo
1952
per Share
Earnings
$1O48
0 o 51
1953
Dividend
1953
or
per Share Indioated
Earnings
Rate
$1,49
0024(d)
0e60
$1,00
0o40
CANADIAN INDUSTRIES LIMITED
1% Preferred, $100 par
Common Stock, no par value
$U,65O,OOO
— 7«05>9*08l shares
~
Canadian Industries has about doubled i t s physical volume of business i n
the post-war period. Capital expenditures of about #92 m i l l i o n have been made,
90 per cent of which were financed from earnings and i t s own cash and i n v e s t ment resources. Last year $10 m i l l i o n was borrowed from the parent companies,
Imperial Chemical and duPont* The rapid write-off of assets tends to disguise
the r e a l growth i n earning power* Last year, for example, depreciation including special provisions exceeded reported net p r o f i t s of $1.1*9 a share* Had
special depreciation of 76 cents a share not been charged, earnings would have
been $1.88 a share*
By order of a U*S* Federal Court the present Company w i l l be s p l i t into
two separate companies, C.I«L» 195>ii* of which Imperial Chemical Industries of
England w i l l be the chief shareholder, and duPont of Canada, of which E.I* duPont
of the United States w i l l have the principal i n t e r e s t . The present preferred
-25-
shareholders twill receive two shares of 7|# preferred stock 150 par, one in
each of the companies,, and the present common minority shareholders will receive
one and one-tenth common shares in each of the two companies* As neither Imperial Chemical nor doPont will receive the extra one-tenth of a common share, the
minority common shareholders will own 17o7 per cent of the common stock of the
two new companies (present interest l6oli per cent) o On an accounting basis,
both new companies will have roughly the same book value. On the basis of 1953
earnings, however, duPont of Canadafs earning power was roughly half that of
CoI«Xi» 195U, before special depreciation, or one-third after special depreciation
It is expected that the growth of daPont of Canada will be greater with its
more glamorous products such as nylon and cellophane * Apart from its new terylene (dacron)plant, G*IoL<> 195U will produce the more stable chemicals such as
chlorine, explosives, paint and various acids» It is our belief that the breakup of the present Company will bring out, in sharper relief, the relative merits
of each*
Canadian Industries is the foremost chemical equity in Canada, and has
always sold high in relation to earnings and dividends« With only 18 per cent
of the stock in the hands of the public, it has commanded a scarcity value *
Huge capital expenditures have not been fully reflected in earnings to date,
and it may be some time before the present optimistic expectations of the investor are vindicated*
DOMINION TAR & CHEMICAL COHPANY LIMITED
Funded Debt
....
#1 Preferred, $23o50 par value
Common Stock, no par value
„
#22,600,000
300,000 shares
2,800,000 shares
Dominion Tar & Chemical reported earnings in 1953 of 60 cents a share
based on 2,800,000 shares outstanding* Comparable earnings in 1952 were 5l cents
a share based on 2,1*00,000 shares outstandingo These comparable net earnings
are slightly misleading * Because of large start-up expenses of new plants,
operating profits declined to $7o7 million in 1953 as against #7»9 million in
1952. In 1953> however, the Company did not charge off additional depreciation
as it did the previous yearo On the basis of normal depreciation, earnings in
1952 would have been 85 cents a share whteh are more truly comparable with the
60 cents a share reported last yearo About 21§ per cent of the shares are held
by Argus Corporation,,
During 1953, Dominion Tar acquired Brantford Roofing and the Cooksville
Company which controls Aeroerete Construction, Interprovincial Brick and the
Laprairie Company* Net earnings of these companies in 1952 seem to have been
in excess of $1 million (38 cents per share of Dominion Tar) and were probably
even higher in 1953» Because they were acquired towards the end of 1953* only
a small proportion of their earnings were shown in the consolidated income
account of Dominion Tar* Earnings of these subsidiaries should be fully reflected in the 195U statement Dominion Tar should be able to integrate these
companies with its own building division and effectively supply the demand of
Canadian Equity & Development Companyo Argus Corporation has a substantial
interest in this Company, a subsidiary of which is actively engaged in a vast
housing development just outside Torontoo
Excluding these recent acquisitions, it is estimated that the major
portion of the Company&s profits are derived from its creosoting, building
supplies and conduit business* Its chemical operations, on which major expenditures have been made in the past few years, are coming in at a time when conditions are most competitive« Operations at the new petrochemical plant at
- 26 -
Montreal East and the caustic soda and chlorine plant at Beauharnois have not
been as profitable as had been anticipatecL The expansion of the fibre conduit
plant at Cornwall, Ontario, will be completed this summer, and construction will
commence soon on the first plant to manufacture "Siporex11, a lightweight
cellular concrete material. It is estimated that expenditures on new facilities
this year will be about $7 million* This follows expenditures in 1953 of $8*8
million and #11,7 million in 1952*
The outlook for chemicals is still clouded but profits from creosoting,
fibre conduits and building supplies should enable the Company to report satisfactory earnings in 195U* The large capital expenditures on chemical plants
have still to be justified by earnings*
CANADIAH CHEMICAL & CELLULOSE CQMPAHY, LIMITED
f f
Notes Payable
Mortgage Bonds
Common Stock, no par value „,
•
•
-
*
$2i*,7U3,75O*
„. 58,620,000
5,000,000 shares
* A loan of $10 million k%% notes held by Celatino S.A*, a subsidiary of Celanese Corporation of America, will be discharged
by the issue of 100,000 shares of $100 par preferred stock*
It is anticipated that these shares will carry a 6 per cent
dividend which will be non-cumulative for five years*
Canadian Chemical & Cellulose is 80 per cent owned by Celanese Corporation
of America* Its pulp plant at Prince Rupert and its petrochemical plant at
Edmonton were designed to produce the basic organic chemicals towards the production of cellulose acetate and other basic materials for use in the plants
of the parent company and for outside sale* These plants are coming into
production at a time when the markets for its products are depressed*
Profitable pulp operations in 1953 were more than offset by losses from
chemical and yarn operations which were gradually brought in during the latter
half of the year* Costs were high due to the impact of substantial non-recurring
start-up expenses, but pulp production is now almost 300 tons a day and operations are more efficient*
Last year pulp accounted for the major portion of sales which reached
$18*8 milliono A loss was incurred of about $1*2 million or 2k cents a share*
This loss would have been over $8 million ($1*60 a share) if total bond
interest (almost $U million) had been charged and depreciation provided at
5 per cent of gross plant ($6^ million) o Assuming a 20 per cent gross profit
margin, it is estimated that it would require sales of about $20 million to
cover full bond interest before depreciation, or about $52 million if depreciation were provided at the rate mentioned above* Under a more favourable
operating margin, of say 30 per cent, it is estimated that sales of about twice
those of 1953 would be required to cover full depreciation and bond interest*
Because of the prevailing conditions in the chemical and textile industries and the possibility of a temporary surplus of dissolving pulp in 1955, it
may be some time before the Company can show a proper return on its capital investment of over $150 million* Supporting Canadian Chemical's operations are
the long term contracts with guarantees of Celanese Corporation of America for
most, if not all, of the surplus pulp, and 90 per cent of the fibre and yarns
at a price 5 per cent below the Canadian market price, plus the surplus
cellulose acetate* In order to break into the relatively small Canadian market
for fibre and yarn, the Company reduced prices on these products and Canadian
Celanese immediately followed suit* These moves resulted in levels for fibre
and yarn well below equivalent import prices •
- 27 -
CONSTRUCTION
Construction in Canada has undergone an unbroken upward swing during
the post-war period, increasing by about 2% times* Estimated new construction
this year is $356146 million, an increase of 6 per cent over last yearo Construction has steadily been accounting for a greater proportion of the rising
volume of new capital investment, and this year is expected to be about 66 per
cent of the total * Since building materials are largely of domestic origin
(much of the machinery and equipment components of new investment is imported)
this trend has benefit ted Canadian producers of building materials« This
year's forecast of new construction includes two new and major projects, the
Stc Lawrence Waterway Project and the Trans-Canada natural gas pipeline from
Alberta to Ontario and Quebec * These will ultimately represent a billion
dollar investmento It seems unlikely, however, that either of these projects
will receive more than a start this yearo
Last yearns total construction contracts were better than 10 per cent
in excess of 1952o But industrial and engineering contracts declined, indicating a tape ring-off in both the construction stage of the defence program
and the expansion of a large part of Canada *s secondary industry* Housing
contracts, however, were greater last year by #221 million (a h3 per cent
increase over 1952), and they are continuing their advance this yearo Although
housing completions this year are expected to be only about 3 per cent more
than the 100,000 completions last year, recent residential housing contracts
suggest an accelerationo Greater availability of mortgage funds is expected
in 195b as a result of amendments to the National Housing Act which allow the
chartered banks to lend on residential mortgages* Moreover, underlying factors
indicate a strong and continuing demand for new housing and conversion of old
home So Suburban expansion of metropolitan areas is providing a rising demand
for hospitals, schools, churches and stores* Institutional construction is
expected to increase by 35 per cent this year, and buildings for the wholesale
and retail trades by nearly 20 per cento
It appears that 1951* will be a good year for the construction industry
generally, and building will probably be somewhat above 1953 levels* But the
long upward swing in the industry is levelling off, and housing has become its
key component,, a position held before the outbreak of the Korean War*
ApproXo
Prioe
Canada Cement
Foundation Company
GypsurnP Lime & Alabastine
105
1953
Dividend
1953-54
Fiscal
1952
1953
or
Price Range Year per Share per Share Indicated
to Date
Ends Earnings Earnings
Rate
110 - 72
18f - 11
40£ - 32
$4 ,62
1 ol5
2 o57
$6 O 97
2O12
3O67
$3.00
0 o 70
2o00
GYPSPM, LIKE & AIABASTINE CANADA LIMITED
3§# First Mortgage Bonds, due November 1, 1966
$1,000,000
Common Stock, no par value
lil*0,0li3 shares
Last year Gypsum, Lime and Alabastine regained its 195>1 earning power
of #3 067 a share after suffering a sharp drop in earnings in 195>2o With but
this exception operating profits since the war have shown a steeper rise than
those of Building Products* For example the rate of annual increase during
the period has been about three times as great until now Gypsum °s operating
profits are equal to those of Building Products<> During the same period Gypsum
has retained earnings, including depreciation provisions, of #25>*f>0 a share
- 28 -
compared
division
trend of
Gypsum's
with $19o6? a share for Building Products* Gypsum«s industrial lime
may suffer from a slowing down in industrial activity, but the upward
residential construction, especially of mass-produced houses, is in
favoro
CANADA CEMENT COMPANY LIMITED
k% Serial Debentures, due Nov. 1, 19&-61
$ U,000,000
Preferred Stock, $lo30 cum., red*, #20 par, call, at $30 .... $19,611,160
Common Stock, no par value ....
600,000 shares
Canada Cement reported earnings last year of $6.97 a share or $8*35 a
share if only noiraal provision were made for the pension fund. The Company
followed a policy in 1953 of charging against current income the full amount
of depreciation allowed for tax purposes including special provisions of
$6.69 a share. Had only normal depreciation been charged, earnings would
have been almost $12.00 a shareo
The stock market at current prices is placing a net value on the Company's plants equivalent to $U«00 a barrel of capacity. It is interesting to
note that in 19&> when the stock was selling at 13 the stock market appraisal
was substantially the same. In the meantime, over $90 a share, including
depreciation provisions, has been plowed back principally to finance a 75> per
cent increase in capacity to 17f million barrels. Further additions are being
made to the Fort Whyte plant near Winnipeg this year which will increase total
cement capacity to 19 million barrels.
At the last annual meeting the President said that the demand for cement
this year will be wsubstantially lower11 than in 195>3> and that Import competition might force down the price of cement. But the upward trend of cement
consumption, adjusted 1953 earnings and high property values have not been
fully reflected in the price of the shares. Moreover, as the stock is one of
the highest priced industrials on the Canadian stock exchanges, it is a logical
candidate for a stock split.
FOUNDATION COMPANY OF CANADA LIMITED
3 ^ Serial Debentures, due 19££-£9
$1,2^0,000
Common Stock, no par value
......
U28,1|OO shares
Foundation Company is probably entering the most competitive phase of the
post-war construction industry in Canada. The influx of foreign contracting
firms awaiting developments of the St. Lawrence Seaway, has added appreciably
to the number of companies who are bidding in a more selective marketo The
trend of industrial and engineering contracts continues downward and tender
prices have become highly competitive. Foundation vdll undoubtedly benefit
from the construction of the St. Lawrence Seaway and ancillary projects but it
will be up against competition from the largest construction firms in the world.
Meanwhile, the backlog business in 195>li would appear to be satisfactory even
though the trend of general non-residential construction is less reassuring.
Foundation reported earnings last year of $2.12 a share which included
non-recurring profits of k9 cents a share• Volume of construction work was
slightly higher than 1952 and the business of the equipment sales and services
division was maintained. Marine salvage work was well below the 1952 peak which
led to the sale of one vessel and two obsolete steam tugs* The engineering
services department was incorporated as a separate company in order to handle
an increasing volume of skilled work.
- 29 -
DISTILLERIES
By far the greater part of the sales of Canada*s two major distillers,
Seagrams and Walker, are made in the United States, and it is estimated that
their combined UoS« sales last year amounted to about 1|& per cent of the total
sales of tax-paid liquor in that country*
Like brewers and tobacco manufacturers, distillers have been singled out
for very heavy taxation The current UoS* tax is $10o£0 per gallon of liquor*
Although many UoS. excise taxes were reduced on April 1, 1951*, the tax on
distilled spirits was not changed* This tax is considered to have been a factor
in the 3> per cent reduction in apparent UoSo consumption in 1952o Another
factor was the continued liquidation of distributors9 inventories earlier in
the year* Reflecting large inventories of aging whiskey, production of spirits
declined in 1953, but withdrawals from producers9 inventories were slightly
highero Merchandising of distilled spirits has become increasingly competitive
and in recent months straight whiskies have tended to gain against the blended
whiskies which have comprised the bulk of the total sales volume» Although
apparent consumption of distilled spirits in the United States was down slightly
earnings of major companies generally had been maintained until recently*
D i s t i l l e r s Seagrams
Hiram Walker
T o t a l Debt
Canon Stock
ApproXo
Prioe
3l|
59*
1953-54
Prioe Range
to Date
31-5/8 - 24§>
60£
-43
Fiscal
Year
Ends
July
Aug*
1952
per Share
Earnings
$4O25
5O43
1953
per Share
Earnings
$4.32
6O62
1953
Dividend
or
Indicated
Rate
$1,70
3 e 75
HIR&H WALKER
DISTILLERS SEAGRAMS
$2,793,179
2,896,016 shares
#77,26U,£00
8,769,350 shares
From a statistical viewpoint, Distillers Corporation-Seagrams appears to
be more favourably priced than Hiram Walker, bat i t s conservative dividend
policy hampers market appreciation of the shares <> Seagrams s e l l s for about
i t s working capital after deduction of a l l senior securities• On the same
basis, Hiram Walker has liquid assets in excess of $1*0 a share.
Like Hiram Walker, Distillers Seagrams carries on most of i t s business
in the United States where i t i s the largest factor in the industry, and does
about two-and-one-half times the volume of Hiram Walkero Since the war,
Seagrams9 sales have doubled and last year they were about ££ per cent
higher
than those of National Distillers, i t s nearest competitoro Walkerfs sales
trend has been much more modest but i t s trend of profits has been almost as
satisfactory as that of Seagrams? Incidentally, the earnings trend of Schenley
and National Distillers has been downward since 19U£o
Seagrams has been able to sense consumer tastes with uncanny accuracy
and has concentrated entirely on the production of the more profitable and
popular blends as distinct from straight whiskeys
o Although there i s a slight
swing to straight whiskeys of late, Seagrams8 dominant position in the industry
has not been threatened,. Walker's blend "Canadian Club" i s i t s leading brand,
but i t also has a popular straight whiskey which provides some hedge in a
keenly competitive marketo
The d i s t i l l e r s , as a group, have been using their excess cash resources
to finance new ventures such as chemicals, animal feeds and otherso Both
Seagrams and Walker have avoided the pitfalls of outside activities that have
proved expensive for both National Distillers and Schenleyo Last year, however,
- 30 -
a Seagrams1 U.S. subsidiary became interested in various U.S. oil and gas projects which have resulted in a number of producing oil wells. This may prove
a profitable diversion from its main business, but in relation to its own operations, these outside activities are very small at the present time.
The extension of the present U.S. excise tax to April 19J>5> was a disappointment, but both stocks have acquired a sound investment rating and are
suitable for income as well as for their defensive characteristics.
FARM MACHINERY
The Canadian and U.S. farm machinery industries are integrated and complementary. No customs duties apply to farm implements crossing the CanadianU.S. border either way, and the major North American companies have plants in
both countries. Canadian exports to the United States consist largely of
light tractors, combines, seeding and cultivating equipment. Important imports
are heavy tractors, and combines.
Over the years there has been a traditional relationship between the
demand for farm machinery and farm income. The whole North American implement
industry has been and is still going through a period of adjustment brought
about chiefly by the downward trend in farm income. Last year net farm income
in Canada fell about lit per cent from 1952, which in turn was lower than the
record #2.1 billion in 1951. U.S. farm income in 1953 was down by some $1.1*.
billion (nearly 5 per cent) •
Sales of farm machinery in both countries reflected this decline in farm
income, and the export sales from North America continued to be affected
seriously by dollar shortages abroad and import restrictions. Canadian shipments to both the U.S« and overseas markets were sharply below 1952.
There are no indications of any upturn for the industry this year. U.S.
food surpluses continue to have a depressing effect. In Canada the downward
drift in most farm prices is yet unchecked. The very heavy carry-over of unsold
wheat is delaying the prairie farmers9 flow of incoming cash, and the unprecedented wheat surplus in the world points to lower prices. Although there
appears to be some improvement in Canada's overseas shipments to date, these
markets represent typically only about 20 per cent of the total exports. The
North American market is the mainstay of the industry, and sales in both the
United States and Canada are declining further this year. In fact, Cockshutt
Farm Equipment expects a 20 to 2J> per cent reduction in its 195U volume. Operating profits are being affected adversely by the reduced sales, and the shares
of the implement companies reflect this condition. In the longer term, however,
the increasing need for mechanization of farm operations, and the basic soundness of the farmers1 economic position on this continent, all point to a renewed
growth of the industry.
1953
Dividend
1953-54
Fiscal
1952
1953
or
Approx. Price Range Year per Share per Share Indicated
Price
to Date
Ends Earnings Earnings
Rate
Cockshutt Farm Equipment
Massey-Harris-Ferguaon
8-3/8
9i
16$- - 7fr
Oct.
io|- - 7-1/8 Oct*
- 31 -
$2 o 70
1*62
$1.07
0 o 96
$0,40
0 o 60
MASSEY-HARRIS-FEBGUSON
Ponded Debt
•.
11*7,950,000
Common Stocky no par value
9,500,855 shares
#
u
f
Massey-Harris profits reached a peak in 1950 and have been declining
since, in the face of rising sales in 1951 and 1952. Last year total sales
declined about 15 per cent to $2l*9«l million, of which three-quarters represented
sales in North America* Despite import restrictions and dollar shortages overseas business was not as severely affected as business on the North American
continent where implement sales declined over 20 per cento Due to a continuation
of drought conditions and severe competition, sales in the United States declined
more than those in Canada* Massey's North American sales totalled $189.1 million
of which 2k per cent was defence work.
During the past ten years, Massey-Harris has spent about $1*2 million on
modernizing and expanding its plants, particularly in the United States« Moreover, last year Hassey extended its operations by amalgamating with the Harry
Ferguson Companies, another world renowned implement
organization whose sales
last year were about one-half those of Hassey9s» The assets acquired had a
net value of #16,385,000 of which $Lli«7 million was working capital, and were
purchased for a consideration of 1,805,055 shares of Massey-Harris? capital stock*
Including this acquisition Massey-Harris-Ferguson had working capital, after
deducting all senior securities outstanding, of over #7*00 a share* Because of
the less satisfactory condition of the industry this combination may not show up
in immediately higher profits, but the Company has a potential earning power
which could be of material benefit to shareholders under more favourable conditions and as better integration is achievedo Meanwhile, the outlook in both
panada and the United States is not yet reassuringo
COCKSHUTT FABM EQUIPMENT LIMITED
Funded Debt
*
„•.*.
M.
$% Convertible Debentures, due Febo 1, 1968*
Common Stock, no par value
tU,2$0,000
U,767,000
1,068,1*60 shares
* Convertible 6 shares per #100 to Febo 1, 1956,
thereafter 5 shares to Febo 1, 1959, thereafter
k shares to Febo 1, 1962,
In terms of total sales Cockshatt Farm is about one-fifth the size of
Massey-Harriso Probably because of this relatively small size, the Company was
more severely affected by increased competition and difficult mariceting conditions* In face of a ll* per cent decline in sales, earnings dropped by almost
two-thirds to $lo07 a share in 1953• Assuming conversion of the convertible
debentures outstanding, earnings would have been 76 cents a share o Business
continues to decline in 195b and the dividend has been reduced from $1*00 a
share to 1*0 cents a share* The stock has persistently sold for less than its
net working capital which at the end of last year amounted to almost #17 a
share after deduction of all senior securities, but before inventory reserves
of about $2 a share. Operating results for the first six months were not
profitable, and the outlook for the seasonally more active second six months
"is not as premising as in previous years" o
-32 -
FINANCE
COMPANIES
About three-quarters of the finance companies1 business is the financing
of new and used automobiles, and tractors* The rest consists for the most part
of appliance, industrial and equipment financing. It is believed that the major
finance companies in Canada have been able to obtain an initial equity of kO per
cent in their financing of motor vehicles* Instalment paper carries the endorsement of the dealer as well as the customer*
As a result of consumer credit restrictions imposed during the Korean War,
the amount of instalment paper held by the acceptance companies was reduced by
about 20 per cent between the second quarter of 195>1 and first quarter of 1952 •
The abolition of credit restrictions in the second quarter of 1952 resulted in
a sharp upward surge of retail instalment financing that reached a peak in the
third quarter of 195>3, reflecting the boom in automobile and other durable goods
saleso The volume of new financing has subsequently eased, as shown below:
Instalment Paper Held by Finance Companies
($ million)
1950
1951
1952
1953
March 31
122
216
176
1*23
June 30
162
221*
265
520
Sept. 30
Dec. 31
191
202
215
186
33U
373
5UU
510*
* Preliminary.
The slow start in new automobile sales this year and the sluggishness of
the used car market have reduced further the amount of automobile financing*
Total instalment sales seem to have passed their peak, at least for the present,
and may decline further* Nevertheless, with the heavy carry-over of paper from
last yearfs unexcelled volume of financing, profits are being sustained* Moderately higher dividend disbursements could even be justified but a decline in
total receivables may preclude such action.
Sectored Notes (short term)
Sectored Notes (longer term)
Ftuaded Debt
Preferred Stook
Total Senior Seotirities, exoluding Convertibles
Convertible Debentures
Convertible Preferred
Common Stook (now outstanding)
Common Stock (assuming conversion)
Indioated Dividend
1953-54 Price Range
Present Price
Industrial
Acceptance
$ 136,260,540
53,825,938
33,250,000
2,614,700
$ 225,951,178
10,027,970
1,051,350 shares
1,327,334 shares
$2,50 per share
46 - 28
43
Traders
Finance
$ 19,250,000
125,339,500
19,587,500*
30008o900
$ 167,185,900
4,059,000
5,000,000
1,133,992 shares
1,397,289 shares
$2o40 iper share
42§- - 25
39
^Including $1,950,000 of debentures carrying stock purchase warrants,
most of which have been exercised»
INDUSTRIAL ACCEPTANCE COBPORATION LIMITED
I n d u s t r i a l Acceptance i s the l a r g e s t finance company and about t h r e e quarters of i t s business i s the financing of automobiles* I n p r a c t i c e , I n d u s t r i a l
Acceptance's i n i t i a l e q u i t y averages over hp per c e n t minimizing the prospect of
l o s s * Moreover, about 80 per cent of the Company's paper w i l l f a l l due w i t h i n a
twelve-month period* Last year, notes and accounts receivable increased 15>»6 per
- 33 -
cent to almost $288 million, after reserves for losses, and the Company reported
earnings of $6<>3O a share or about $5*18 a share assuming full conversion of
convertible preferredSo These earnings were after an additional provision in
excess of statutory requirements of Ul cents a share (or 30 cents a share
after conversion) for unearned premium of an insurance subsidiaryo Liquid
assets, after deducting all senior securities and assuming conversion, were
the equivalent of $23<»87 a share which includes a provision for losses of
$llo02 a share o
TRADEBS FINANCE CORPORATION LIMITED
Traders Finance Corporation's principal source of income is the financing
of Ford productso In 1953 accounts receivable increased by about 30 per cent to
almost $189 milliono Relative to this marked increase in receivables reported
earnings were disappointing at $3°82 a share or $3»U3 a share assuming the
exercise of stock purchase warrants and conversion of all convertible securities outstanding at the year-end*
The relatively small increase in earnings last year may have been due to
abnormally large appropriations to reserves although this is not apparent from
the Company°s balance sheet or income accounto Undoubtedly Traders Finance's
automobile insurance subsidiary, which started business about two years ago*
had the usual unprofitable initiation periodo At the end of last year* liquid
assets were equivalent to $19o9U a share assuming the fUll conversion of convertible debentures* The reserve for losses was not disclosedo
On the basis of accounts receivable it would appear that Traders Finance
does about two-thirds of the business of Industrial Acceptance but its insurance
subsidiaries, which do a general insurance business, tend to provide some degree
of diversification to the Company °s operations«
FLOUR
MILLING
Canada «s third successive wheat crop last year resulted in record volume
handled by the elevators and a record supply of wheato The carryover of 369
million bushels at the beginning of the current crop year August 1, 19!>3 > was
70 per cent greater than a year earlier At the same time excellent yields in
the United States, Australia and the Argentine have resulted in a heavy overall
world surplus which has created a highly competitive condition for both wheat
and flour saleso Nevertheless Canada*s flour production last year was more
than ij. per cent greater than the year before, and flour exports were up by 10
per cent, the greatest volume since the crop year 19lt7-li8o
This year the United Kingdom (Canada's most important market for wheat
and flour) has stayed out of the International Wheat Agreement. Wheat and floor
purchasing is now in the hands of the private trade after being vested in the
Imported Cereals Division of the British Ministry of Food since early in World
War IIo British policy is one of encouraging the milling and sale of domestic
flour and the subsidy of approximately J> cents per if 1b. loaf of bre&d Bade from
"National" flour, which is to a large extent the grade being shipped tr<m,
Canada to Britain, is curbing imports from this country <> A comparison of flour
exports in the current crop year with last year is shown below:
EXPORTS OF CANADIAN FLOUR
(Thousands of barrels)
7 Months of the Crop Year
1952
19*3
% Change
United
Kingdom
2,699
1,818
-32.6
Other
Total
Commonwealth Commonwealth
1,130
3,829
1,381
3,199
+22*2
-16.U
All Other
3,289
2,512
-23.6
TOTAL
Since the beginning of World War II, an average of 53 per cent of
Canada's flour production has been exported* Before the war about one-third
was exported* So far during the current crop year hi per cent has been
exported* Since domestic flour requirements are only one-third of Canada's
total milling capacity, competition in the domestic market is keen and exports
are essential* The near-term outlook for the milling industry as a whole is
uncertain, especially so in view of the probability of other countries reentering the flour export field* On the other hand, flour milling companies
have been carrying out an aggressive diversification of output, and have conserved their financial resources at the expense of dividend disbursements*
LAKE OF
THE WOODS
Funded Debt
Preferred Stock, #100 par value
Common Shares, no par value
1952-53 earnings per share
1951-52 earnings per share
Dividend per share
Gross working capital per share
Net working capital per share**
1953-5i* price range to date
Current price
—
11,500,000*
Ui7,689
#2.05
$2.39
#1.60
$*3.3U
#39.12
33J-28
29i
MAPLE LEAF
OQILVIE
MILLING
FLOUR MILLS
#U,5oo,ooo
#3,876,000
#2,000,000* #6,537,668
600,000
523,66U
#1.21
#1.98
$1.21*
#1.93
#1.50
#o.5o
#17.21
#26.57
Nil
#1U.UO
9-6|
33-29|
32*
8*
* 7% non-callable preferreds*
** Working capital including marketable securities after
deduction of bonds and preferred stocks* Non-callable
preferreds were deducted on a 5% basis*
COMMENTS:
Ogilvie Flour was able to maintain earnings last year only because of an
increase in investment income* Because of inadequate information with respect
to both i t s investment portfolio and subsidiary companies, an intelligent appraisal of the stock cannot be made*
Lake of the Woods i s selling well below i t s net working capital including
i t s investment in Inter City Baking but after deducting a l l senior securities*
Maple Leaf Milling has not the strong working capital position of i t s competitors but—despite one unfortunate year—its operating profits have shown a
better trend since the war* It has a high degree of leverage in i t s capitalization.
-35-
FOOD
Food sales in Canada continue to share in the long and spectacular
growth of retail sales generally* The dollar value of food sales has increased
about 8§ per cent annually in recent years9 but last year the increase narrowed
to I*o3 per cent over 19J>2, compared with an increase of 7.1 per cent in 1952
over 195l. The increasing urbanization of the Canadian population is resulting in greater purchases of standard brands of food products, and a corresponding growth in chain store retail food outlets, such as Dominion Stores,
Loblaw and Thrifto
The growth of the "Supermarket11 during the post-war period, with its
increase in efficiency &&d economy of marketing on a self-service basis, has
been an outstanding feature of the food distribution businesso Since 1938-39
the total namber of retail outlets operated by the five largest food chains
has decreased from 836 to 595 (28O2 per cent), and the average dollar value of
sales per store has increased from $92,000 to $863,000 (838 per eent) o All
five companies reported record sales in the last fiscal year, and in the
aggregate they were 15 per cent better than in the year before, well ahead
of the increase* in total food sales in Canada* The sales growth of the five
companies is shown belows
SALES DATA FOR FIVE IgADING FOOD CHAINS
(As reported at end of Fiscal Tear)
($000)
1938-1939
1952-1953
191*6 -19U7
Sales
NOo of per
Sales Stores Store
Canada Safevtayt 20,381 218 #93 $ U2,568
Dominion
1*0,899
19,909 378
53
Loblaw
205
*3,8U7
23,128 113
18,71*8
Steinberg's
U,759
23 207
9,622
Thrift
8*
8,837 10U
Sales
No» of per
Sales Stores Store
TOTAL
$77,O1U
836 $ 9 2 $165,6814
ua
1302
229
113
177
2k
60
U77
781
160
Sales
No* of per
Sales Stores Store
$111,7*1 138 # 810
202
1*97
120,6U7
176,220 l$0
32 2, ,512
80,373
21*, 769
73 339
,n$
56? $292 $513,760
595 1863
The canned foods industry, however, is undergoing some pressure from
overproduction, inventory reduction reduction by retailers, competition from
frozen vegetables, and competition from the surplus U.S. pack» Exports of
processed fruits and vegetables last year were almost 30 per cent below 1952.
It appears likely that the canning industry will reduce their pack of vegetables
this year, but the outlook generally is one of continued increase in demand
for branded food products produced by such companies as George Weston and
Canada Packers.
ApproXo
Price
Canada Packers "A"
Canada Packers
George Weston
39
36&
46
1953-54
Price Range
to Date
1953
Dividend
Fiscal
1952
1953
or
Year per Share per Share Indicated
Ends
Earnings
Earnings
Rate
40 - 33JMar*
36&-28S
Mar*
4 6 | - 26-1/8 Dec<>
-36-
$1O64
1*64
2O55
$3.67
3.67
2.58
$1 .50
1 .50
1 .00
CANADA PACKERS LIMITED
Class "AM $1.50 Cum. Partic. Pfd., no par value
1*00,000 shares
!I W
Class B Non-Cum. Partic, no par value
800,000 shares
Canada Packers earnings continue their impressive upward postwar trend
broken only in 1952 when the United States imposed embargoes on imports of meat
from Canada. Earnings for the period ended March 1953 showed a sharp recovery
from those in 1952 but profit margins were not as favourable as those in 19£l*
This was caused by a 22 per cent decline in the price of meat, and meat constitutes about 60 per cent of the total dollar sales of Canada Packers.
Canada Packers has no senior securities outstanding and its growth has
been unusually consistent in face of a declining trend in the packing industry
as a whole* Stock market quotations have moved with the general market but
have broken away from the trend from time to time in anticipation of a tax free
distribution of earned surplus. This surplus amounted to $22.89 per share of
H M
A and frBft stock outstanding at the end of the 1953 fiscal year* Worieing
capital was equivalent to $l6o03 a combined share«
GEORGE WESTON LIMITED
IM Sinking Fund Debentures, die 1968
liJ5& Preferred Stock, |100 par value
Common Stock, no par value
$ 7,600,000
$11,871,500
685,896 shares
In addition to its food and confectionery business in Canada and the
United States, George Weston has other important interests, the undistributed
profits of which are as important as its own operating earnings. It is estimated that the Company has a 55 per cent interest in Western Grocers which, at
current market prices, is equivalent to about $6,00 a share of Weston. It also
has about a 5l per cent interest in Loblaw Groceterias which at current market
prices has a value of about $20.00 a share of Weston. Loblaw Groceterias, in
turn, has about a 57 per cent interest in Loblaw Inc., a retail food chain in
the United States.
If the undistributed earnings of the above holdings are consolidated,
earnings of George Weston would be about $U«50 a share, as distinct from the
$2.58 (including investment income of 53 cents a share) reported in 1953* This
calculation includes the earnings of Loblaw Groceterias for the year ended May
31, 1953* If earnings of Loblaw continue to grow at the average post-war rate
of 20 per cent annually, this would be
reflected in still higher consolidated
earnings of Weston. Earnings on the flBff voting stock of Loblaw11 Groceterias
coald be considerably enhanced by calling the participating "A shares outstanding at $50, and substituting say a 5 per cent preferred., On this basis,
consolidated earnings would be increased to about $5.25 a share.
George Weston is only beginning to reflect the expansion and integration
of its widespread interests. It represents the best diversification available
in the food business in Canada* Meanwhile, the $1.00 a share distribution,
which will probably not be materially increased in the forseeable future, is
retarding market appreciation in the shares«
- 37 -
GLASS
CONTAINERS
The glass container industry in Canada has shown a steady and continuous
post-war upward trend, paralleling the upward trend of beer sales and sales of
packaged food. Glass containers are one of the cheaper forms of packaging in
addition to being the most attractiveo They are manufactured under two separate
classifications, narrow necked and wide moutho The former are used for medicine,
beer, wine and spirits bottles, and containers for certain foods such as catsup
and sauces« Production of whiskey bottles is not a major item in Canada because
most of the Canadian distillers9 sales are in the United States, and the spirits
are largely packaged in duty-free UoSo bottles, although whiskey sold in Canada
is packaged in Canadian bottles• The wide mouth variety includes milk bottles,
and jars for pickles, jams and olives•
To a certain extent alternative containers have made inroads into the
use of glass containerso Glass cannot compete with cheap vegetable canning,
and the glass "self-sealer11 jar has long since given way to the tin can, even
in the case of a substantial portion of the dwindling practice of home preserving o But for packaged foods which are not entirely consumed when opened, the
glass container has a marked advantage« Canned beer has not been popular in
Canada, and the glass industry has developed a popular throw-away bottle in
response to a demand for non-deposit bottles and the disinclination of many
dealers to handle empties <> In the case of certain medicines the non-toxic
properties of neutral glass are essential for safetyo Cardboard milk cartons
have become widely used hy the chain food stores because of the extra cost of
handling milk bottles, but the bulk of milk purchased by Canadians is still
through home delivery in returnable bottles in which milk keeps longer and
acquires no taste from the container*
The glass container industry is in a well-entrenched position in Canada
with a long-term outlook of relatively slow and stable development, keeping pace
with population growth and further urbanization of the population* Imports of
standard mass-produced glass containers are not an important factor in the sales
position of the domestic industryo In recent years costs have risen more than
selling prices, so that the producers have been forced to absorb part of the
increase with a corresponding restriction of profits«, Although new synthetic
containers will continue to capture a part of the packaging market, they are a
premium product and glass will continue its dominating position as a cheap
and attractive packaging mediumo The shares of Dominion Glass and Consumers
Glass represent a defensive type of investment for income because of the relatively stable, non-cyclical character of the industry*
Approx«
Price
Gonsmers Glass
Dominion Glass
30
45
1953-54
Price Rang©
to Date
1953
Dividends
Fiscal
1952
1953
@r
Year pe? Share per Share Indicated
Ends
Earnings
Earnings
Rate
30 - 21$
45 - 28£
Attg*
Sept*
$1 O 91
2O97
$2 o 06
3O67
$lo50
U50
DOMINION GLASS COMPANY LIMITED
7% Cum* Preferred Stock, #10 par value
Common Stock, no par value
#
#2,600,000
i*2fi>,000 shares
During the p a s t 20 y e a r s , the annual growth i n the demand f o r g l a s s c o n t a i n e r s i n Canada has been about twice the annual growth i n population* Opera t i n g earnings of Dominion Glass have been keeping pace and i n 1953 were more
than double those of 19k9? t h e f i r s t noimal post-war yearo Last year the Com«
pany reported earnings of #3<>67 a s h a r e , but on the b a s i s of income t a x accounti n g t h e s e would appear t o have been c l o s e r t o #5o00 a share«
-38-
Dominion Glass has about three-quarters of the glass container capacity
in Canada* In anticipation of future expansion the Company purchased a new
plant site in the Vancouver area on which an office and warehouse will be
constructed for the present. During the past five years, over $5«3 million
($12»5O a share) has been spent on new plant and equipment, which has been
entirely financed out of earnings. Moreover, these expenditures are continuing
and over $1 million is to be spent in 19$k* Although expenditures have been
heavy during this period, working capital was increased by $7.f>0 a share and
amounted to about $22*50 a share at the end of last year* Despite this strong
working capital position no substantial increase in dividend disbursements is
likely until the modernization and expansion program is completed. Nevertheless, the stock has many investment qualifications because of its defensive
nature and market quotations should adjust themselves more in keeping with the
real earning power of the enterprise.
CONSUMERS GLASS COMPANY LIMITED
Funded Debt
Common Stock
#3,000,000
319,570 shares
Consumers Glass is about one-third the size of Dominion Glass and does
about one-quarter of the total Canadian business, the greatest proportion of
which is done in Eastern Canada. Its post-war record of earnirjgs has not been
as good as its competitor because of its limited facilities. Although over $2
million was spent in the post-war period in modernizing and expanding its single
plant at Montreal, the Company suffered from burdensome distribution costs as
markets were expanded in Ontario. A new plant is being built near Toronto
which will add about one-quarter to over-all capacity and reduce its marketing
costs considerably. This $3 million plant, which will be in production by mid1951*, was financed by an issue of 5 per cent bonds, one-third of which were
serials.
Consumers Glass reported earnings of $2.06 a share in 1953 compared
with $1.91 a share in 1952. Last year f s earnings, however, were after a special
reserve equivalent to 27 cents a share. The Company has paid out a larger proportion of its earnings in dividends than Dominion Glass and the expected higher
profits from its new plant should give ample protection to the present f>l<>50 a
share disbursement.
GOLD
The outlook for the gold industry is drab from both an output and earnings viewpoint. Caught between an official price which has been frozen at
$35 U.S. for twenty years, and sharply increased costs of labour, supplies, and
equipment, marginal producers have ceased operations and two-thirds of the gold
mines operating in Canada in 191*0 have been closed. No new gold mine came into
production last year, and prospecting and development are at a low ebb. Established mines have had to write off millions of tons of ore as uneconomic in
recent years. The post-war high in gold production (1952) was 16 per cent below
the all-time high (I9l±l), and gains in the first half of last year were more
than offset by the effect of costly strikes in the latter part of year. Gold
has lost its traditional place as Canadafs leading mineral, giving way last year
to petroleum, nickel and copper, in that order*
- 39 -
The official Canadian price of gold has been under the $35> level for the
past two years because of the premium on Canadian funds« But the premium price
of gold on the free market, which when opened to Canadian producers was about
$!|0 UoS«, has now fallen to little more than the officially pegged price* Consequently nearly all Canadian gold mines are now selling their output to the
Canadian Government and accepting the cost-aid provided by the Gold Mining
Assistance Act* This yearfs appropriation of $l£o8 million will continue to
be an important factor in the earnings of nearly all gold producers o
Basically the remedy for the gold industry is an increase in the price.
But the U.S« Government stated at the last annual meeting of the International
Monetary Fund that no increase is contemplated* This policy is likely to remain unchanged unless the United States is faced with an extended and severe
business depression* The index of 20 Canadian gold shares is currently 73<>UO
down 16 per cent from the 1953-51* high, and k9 per cent from the post-war
high of lU3*57 established in February 191*6o The market action of the gold
stocks shows no indication of discounting any improvemento Nevertheless,
mining efficiency is being improved, some materials costs are lower,.wages
are levelling off9 and the slightly lower premium on the Canadian dollar
strengthens the Canadian price of gold* These factors will not have a powerful
effect on the industry, but they will assist in a well deflated situation*
Although there are no tangible signs of an early9 vigorous upswing in
the shares of the gold mining companies* some of them offer a good hedge*
For example Dome has investments with a market value of about $20 a share
including a 62 per cent interest in Sigma and 100 per cent interest in Dome
Exploration which controls Campbell Bed Lake* In addition to its gold mining
properties5 Hollinger has an advantageous participation in the Quebec-Labrador
iron ore development0 The market value of Mclntyre Porcupine *s investment
portfolio about equals the price of the shares« A major portion of these
investments are in the United States* Kerr-Addison is Canada's largest gold
producer* With its low costs and expanding reserves* the stock is the premier
security in the industry* Of the junior golds$ Giaat Yellowknife is rapidly
expanding its output and has vast reserves which have not yet been ffclly
defined* Campbell Red Lake is also expanding its output and is developing
reserves of high grade oreo If any improvement in the industry materializes*
the lower grade producers such as East MalartiOo MacLeod-Cockshutt and
Malartic Qold Fields could be the most profitable purchases*
Approx *
Price
Senior Golds & Holding Companies
"Dome
16
Hollinger
15-7/8
Kerr-Addison
18
Molntyre
63$Noranda (see "Base Metals91)
Junior Golds
Aunor
Campbell Red Lake
Giant Yellowknlfe
Leitch
2*15
7*25
8*30
0*70
Lower Grade Producers
East Malartic
MaoLeod-Cookshutt
Malartio Goldfields
2*40
1*70
1*45
1953-54
Prioe Range
to Bate
22§ - 13-5/8
16t - 11
21-3/8 & - 50
3ol0
8*50
11O75
1009
-
1O96
6*70
7*30
0*55
3 e 45 - 1O45
2o95 - 1O16
1*95 - 1 O 31
Fisoal
Year
Ending
1953
Cost-Aid
per Share
Earnings
per Share
1952
1953
Indicated
Dividend
Deoo
Dec*
Mar*
$0 o 31
0ol9
Nil
0*73
$0*75
0 o 39
0*82
2*88
Dec*
o*io
0*20
0ol5-o
0*16
June
Dec*
0*05
0*17
0.03
0eO5-a 0*38-b
0 o 07
0*07
0*20
0*07
Sept*
Deo<>
0.06
0*16
o0i6
0*07
0*17
0*10
$0o86
$0.70
0ol5-o 0*24
0*70
0 o 80
2*59#~e3*00
o,25 oao
OolO
0*15
0ol3
0*05
0*10
0«05
# Comparable consolidated earnings for 12 months ended March 31 P 1954 were $2*93 a
share including $0*95 cost-aid*
a- Thirteen months* Costs abnormally high on newly expanded production in 1952*
b- Nine months earnings ended March 1954 were 31 cents a share including oost-aid of
17 cents*
c~ Operations hampered by strike lasting over three months*
No, of
Shares
Senior Golds & Holding Companies
Dome
1,946,668
Hollinger-b
4,920,000
Kerr-Addison
4,730,301
Molntyre
798,000
Working
Capital
1953 Gold
Production
M 0zs o
$3,139,994~a
3,740,978-a
4,597,361
1,242,386-a
170
220
342
147
Reported
Grade of Ore
Ore
at $35
Reserves
per Oz*
M Tons *
2,470
4,704
15,269
2,639
N.A.
$10*82
10.28
11,40
Junior Golds
Aunor
Campbell Red Lake
Giant Yellowknife
Leitch
2,000,000
3,999,500
4,000,000
2,912,505
706,421
1,130,811
2,676,490
666,414
55
89
177
32
726
764
1,639-a
81
Lower Grade Producers
East Malartic
MaoLeod-Cockshutt
Malartio Goldfields
4,000,000
2,862,490
4,000,000
1,700,914
1,321,877
3,707,727
76
61
109
1,813
1,527
3,550
12o95
18.74
26.95
22.40
6.68
5.57
6.51
* In some cases ore reserves include only blocked out ore«
a- Ore above 750 ft. level only,
b - See under "Iron Ore11 section.
IRON
ORE
There are three important iron ore areas in Canada, Wabana in Newfoundland
which supplies the Dominion Steel and Coal Corporation, the Lake Superior area
where Steep Rock and others are operating, and the Quebec-Labrador ore bodty- which
comes into production this year with an initial shipment of 1 million tons*
Almost a billion tons of iron oa^e have been indicated in this body. The decline
in the better-grade reserves of the Mesabi range in the United States points to
the future importance of the Lake Superior and Quebec-Labrador ore bodies as a
source of supply to the U.S. steel industry.
The entire Quebec-Labrador deposit is under lease to the Iron Ore Company
of Canada (no stock is outstanding in the hands of the public), which plans to
produce 10 million tons a year, with a longer-term objective of 20 million tons
a year. Five U»S. companies, Republic Steel, National Steel, Armco Steel,
Wheeling Steel and Youngs town Sheet and Tube, have guaranteed to take Hie first
10 million tons at prevailing prices• The objective of 20 million tons will
have to await completion of the St. Lawrence Seaway, which when completed would
allow all shipments to inland mills to move via the Great Lakes. No Canadian
market exists at the moment for this ore*
The other ore body under development is in the Lake Superior area, where
Steep Rock Iron Mines is carrying out a major expansion program, and the ore
bocty- may be as large as the Quebec-Labrador deposit. Inland Steel is also engaged in a major development program on part of this ore body.
Canadian iron ore exports have already shown a sharp increase, and in the
future iron ore seems certain to become a major export item and could amount to
almost 19 million tons in 1956 as against about 5 million at present*
HOLLINGER CONSOLIDATED GOLD MINES LIMITED
Common Stock, $$ par value
-111-
4,920,000 shares
Aside from being the second largest gold producer in Canada, Hollingerfs
chief outside interest is in the Quebec-Labrador iron ore development* There
is no direct way of investing in this project as all the stock of the Iron Ore
Company of Canada is held privately, Hollinger, however, through its direct
and indirect interests would appear to be the best participation available*
Hollinger participates in three ways in this project through its subsidiaries:
(1) In the management fee of 10 cents a ton through Hollinger-Hannaj
In the 7% royalty through Labrador Mining and Hollinger North Shore?
In the earnings of Iron Ore Company of Canada by a direct and
indirect stock ownership •
Hollinger holds 5>1 per cent of the stock of Labrador Mining (which has
one-third of the ore deposit), 60 per cent of Hollinger North Shore (which has
two-thirds of the ore deposit), $0 per cent of Hollinger-Hanna (the management
company), and an 8o3 per cent direct interest in Iron Ore Company of Canadao
In addition Hollinger has an indirect interest of 9*4 per cent in Iron Ore
Company of Canada through Labrador Mining and Hollinger North Shore *
Based on a production of 10 million tons annually by 195>6 indicated
earnings are shown below* These are after taxes (the Iron Ore Company's
earnings will be exempt for the first three years from 195&) and assuming all
earnings are passed along by receiving to participating companies •
Per Share
Hollinger
From 7% royalty (h$ cents a ton)
$O«33
From 10 cent management fee
0»0£
From direct and indirect interest in Iron Ore Co*
for each $1 a share of net earnings ($U a share
estimated)
0«21
Ultimately 20 million tons may be produced* It is improbable that the
receiving companies will pass along all their earnings, particularly Iron Ore
Company. However, the two exploration companies retain the rights to all
other ores in the property and to the ownership of certain iron ore reserves*
Eventually these might prove valuable *
STEEP ROCK IBDN MINES LIMITED
Total Debt
$% Preferred, $100 par
Common Stock, no par value
...
$17,000,000
$ 2,000,000*
7*360,l^iU shares
* Convertible into Common at $3o00 a share.
Although not as large as the Quebec-Labrador iron ore project in its
present stages of development, Steep Rock Iron Mines is another major property
in the iron ore industry in Canada* It is well located on the existing Great
Lakes channels in the Lake Superior region, in close proximity to the major
steel producers in the United States•
On shipments of about Io3 million tons in 1953 Steep Rock reported
earnings of 1*6 cents a share* Last yearfs production came almost entirely
from the open pit Errtngton Mine* This property was changed over to an underground operation and production was commenced at the new Hogarth open pit
orebody* Eventually these two properties will be capable of producing at an
annual rate of 3\ million tons, but the 19$li production target is 2 million tons*
Other properties including the ffGlf orebodjy, located between the Hogarth and the
Errington, and the Errington No* 2 are being prepared for production* The plan
is to step up production by a million tons a year until an output of k million
tons is reached by 1956 and ultimately 5§ million tons by 1958 • In addition
Inland Steel, through its Canadian subsidiary, is investing $5>0 million to
establish an initial production of 7J>0,000 tons by I960 which will be increased
to at least 3 million tons annually t*y 1969 • Under an agreement Inland Steel is
to pay royalties on a minimum of 3 million tons and advance Steep Rock |8 million
at 3f# interest which will be used to help finance Steep Rock's own production
program. Royalties from this agreement could exceed $3 million annually by 1969•
Ore reserves are estimated at about 288 million tons to a depth of 1,000
feet. About 60 per cent of these ore reserves are located in the area directly
owned by Steep Rock Mines, and the other kO per cent is located in the area
leased to a subsidiary of Inland Steel* These combined reserves are situated
along about one-half of the total contact zone of the Steep Rock Range considered
as potential ore-bearing property.
Steep Rock, on a production of 5 | million tons, could earn up to $2.00 a
share after taxes on the basis of present iron ore prices and assuming conversion
of the preferred. It is expected that no significant taxes will be paid before
1957 which will preserve working capital for the retirement of the funded debt.
Steep Rock refinanced its outstanding funded debt by an issue of $17
million lf.§# bonds. The $10 million of bonds originally purchased by the U.S.
Government agencies and the $2,250,000 debentures, together carrying an average
interest rate of li.87$, were retired and the remaining $1^,750,000 will be used
as additional capital. This new financing removed the rigid restrictions on
common dividend payments imposed by the UoS. Government loans.
Under present market conditions it should be possible for the Company to
retire a substantial portion, if not all, of its debt within the next 10 years.
This assumes optimum conditions and no delays in the present production schedule.
LUMBER
The chief Canadian lumber companies are in British Columbia, where production of sawn lumber has been running at high levels. Average annual output
from 1951 through 1953 was in excess of 3°6 billion board feet, nearly 30 per
cent greater than the average for 19146-50. In recent years about 35 per cent
of the shipments of B.C. lumber has gone to the Canadian market. The U.K.
market has become less important than foxmerly, following the cessation of bulk
buying by the U.K. Government, and last year shipments to that country were
lower by \ billion board feet than the 1951 level (a 36 per cent decline).
Fortunately the U.S. market was able to absorb this cutback, and more. Shipments to the United States last year were some 1/3 billion board feet (1*2 per
cent) greater than in 1952, and the UoS. is now the most important market for
west coast lumber.
Last year lumber prices continued their downward trend, although by
year-end they had stabilized, and since then have firmed slightly. Generally
fir lumber prices in the United States are 7 to 10 per cent below their level
of a year ago, and the outlook this year appears to be one of greater stability*
Lumber prices have more than doubled since the end of World War II, but wage
costs have risen sharply and now average about $2 per hour. Break-even points
in the industry are high.
Residential construction is the most important outlet for lumber, and the
volume of housing in both the domestic and the U.S* markets (which accounted for
75 per cent of last year's shipments) promises to be satisfactory* (See n Gonstruction11) * The outlook for this year is one of well-maintained volume by the
major lumber companies. Bat easier prices, coupled with higher costs, will
restrict improvement in profits* In the longer term the excellent wood reserves
in British Columbia, together with increasing diversification of output, provide
the larger B.C. lumber producers with a favourable growth outlook*
1953
Dividend
1953-54
Fiscal
1952
1953
or
ApproXo Price Range Tear per Share per Share Indicated
Price
to Bate
Ends Earnings Earnings
Rate
BoCp Forest Products
7
7 - 4|
Mactlillan & Bloedel *B»
22 , 22 - 1 5 |
*¥er share *A« and *B* outstanding,
Sept,
Septo
$0o59
2*61 •
$0*96
2*14 •
$0*40
0*80
MACMILUN & BLOEDEL LIMITED
Funded Debt
$7,9^935
Class wAlf Stock, non-call., conv., cum. , no par value
133*1*99 shares
Class lfBlf Stock, no par value
!!>,lf>2,039 shares
MacMillan & Bloedel represents the best investment in timber in Canada.
The merger with Bloedel resulted in the acquisition of timber reserves which
combined are estimated at 10 billion board feet* In many quarters these reserves are estimated at closer to 17 billion board feet. At current market
prices of 22 the stock market is placing a value on the entire enterprise of
$H6o2 million or about $8£«2 million after subtracting working capital. This
is equivalent to about $8 o $0 per 1000 board feet based on official estimates or
about $5*00 per 1000 board feet based on unofficial estimates. The valuation is
low in relation to present-day values for standing timber and gives no consideration to the Company's important sawmill, plywood and bleached sulphate
facilities*
MacMillan continues to follow a policy of diversifying its production in
order to utilize more intensively and profitably its valuable timber. Last
year almost $13 million was spent chiefly to complete the second bleached
sulphate pulp unit at Ha mac* This plant was designed to utilize waste wood
products and will more than double capacity bringing it to 600 tons daily*
About 95> per cent of the Company's total pulp production is sold outside Canada*
Last year volume of production in almost every department exceeded that
of 19f>2, when the Company*s plants were closed by a strike for six weeks*
This increased output* however* was sold at lower prices with the result that
profits declined*
The new bleached sulphate pulp unit is resulting in higher profits from
this division but this is being offset by lower profits in other departments*
Moreover* there is a possibility that the increase in the North American
capacity for producing bleached pulp may result in some temporary oversupply
in 1955 • Nevertheless* this Company is extremely well situated to benefit
from any betterment in the industry and from the long-term trend of expansion
in the cellulose field.
BRITISH COLUMBIA FOREST PRODUCTS LIMITED
Funded Debt
% Convertible Debentures, due 1962
Common Stocky no par value
~.~
.-
-10*-
#6*675,000
#1**832,500
2,000,000 shares
B.C. Forest Products is probably not as attractive a coiamon stock investment in timber as HacMillan as only 20 per cent of B.C* Forestfs reserves are
Crown granted timber* The balance is held under Government lease and license
or under purchase contracts* Nevertheless, based on earnings, B»C* Forest is
more underpriced* Cash earnings (including depreciation provisions) are
substantial lending adequate coverage for the present UO-cent dividend*
Last year earnings made a sharp recovery from the 1952 low of *>2 cents
a share to 96 cents a share in 19!?3• Earnings in both these years were after
a provision to special reserves amounting to IS cents a share in 19i>3 and
38 cents in 19f>2* B*C. Forest*s 1952 operations were more seriously affected
than its competitors by such factors as strikes which were common to the industry
at the time* Output from its new plywood plant and the ccaitinued demand for
specialty products enabled the Company to offset the decline in prices and
increased costs in 195>3« This improvement has not continued in 19i&«
Since its inception in 191*6 the Company has spent over $11 a share on
new plant and equipment and timber reserves, over half of which was financed
from retained earnings including depreciation provisions. The Company is
considering entering the pulp business which should enable a more intense
utilization of its timber resources*
NATURAL
GAS
Natural gas reserves in Canada (practically all in Alberta) have shown a
very marked growth since major discoveries of oil took place in Alberta in 19itf •
In April of 191*8 natural gas reserves in Alberta were estimated at approximately
k trillion cubic feet* On June 30, 19!>3, the official estimate made by the
Petroleum & Natural Gas Conservation Board of Alberta was 11*J> trillion cubic
feet* All of this gas has been discovered incidental to the search for crude
oil* On May lU, l$Sk the Goverraaent of Alberta declared that as of March 31*
19$h A3bertafs established gas reserves amounted to 13»U trillion cubic feet*
The same announcement declared that over $*3 trillion cubic feet were available for export to Eastern Canada and Trans-Canada Pipe Lines were granted
their request for i**35> trillion cubic feet*
Although there have been several indications of natural gas in size,
no significant amount has yet been discovered in Saskatchewan which would
affect the eastern euqport market, but the general Kindersley area is considered
to have gas reserves of approximately lj.00 billion cubic feet* Natural gas in
Manitoba to date is negligible* Reserves in British Columbia, mainly in the
general Port St* John area, are estimated at a minimum 3 trillion cubic feet*
It now appears that the Trans-Canada Pipe Lines will become a reality
within one-and-a-half to two years* Considerable stimulus to Hie oil and gas
industry is expected to follow this development*
The proposal of Trans-Canada Pipe Lines is to construct a large-diameter
pipeline from Alberta, principally from the Pincher Creek field, to Winnipeg
with the ultimate objective Ontario, and eventually Quebec* A spur line will
ran from Winnipeg to the Minneapolis area of the United States* Permission
from the Federal Power Commission will be required for such spur line. The
overall cost of this project, when completed, is expected to be in excess of
$300 million* Dally potential capacity is estimated at £U0 million cubic feet.
The first stage of the project from Alberta to the Winnipeg and Minneapolis areas
will likely be profitable from the outset* The economics of the extension to
Ontario and Quebec has been the subject of considerable difference of opinion
during the past two years * However, the importance of the project to Canada and
the industrial areas of Eastern Canada could override economic considerations
and attempts have been made to obtain government guarantees or soiae form of subsidy, direct or indirect. The Minister of Transport, however, said that the
government had no intention of including provision for a subsidy to Trans-Canada
Pipe Lines when the amendment to the Pipe Lines Act was drawn up* In order to
build up the potential market in Ontario, approval has been given to the Consumersf
Gas Company of Toronto to import gas from the United States via Niagara Falls to
Torontoo Consumers1 have agreed with Trans-Canada to switch to Alberta gas when,
as and if it is available for the Toronto area0
The West Coast Transmission Company, in which Pacific Petroleums is substantially interested, applied for a permit from the U.S. Federal Power Commission
to export natural gas from the Peace River area of Alberta to the U.S. Pacific
Northwest. This application was refused by the F.PoC. because there was no intergovernmental agreement guaranteeing a continuous supply of gas, and all control
over the prediction, allocation and transport to the U.S. border would be in the
hands of agencies of another government whose primary interest would of necessity
always be in the needs and advantages of their own people. The Commission also
declared it would not be in the public interest to permit the importation of
Alberta gas as the sole source for the consumers in need of uninterruptable
supply at a reasonable price which should always be assured by the Commissiono
Consequently, the F.PoCo authorized Pacific Northwest Pipeline Corporation of
Houston to build a pipeline from the San Juan basin in New Mexico and Colorado
to the Pafeific Northwest. It is not improbable that at some later date an application may be made to build a pipeline from Southern Alberta to feed the
main line of Pacific Northwest Pipeline which might then serve British Columbia*
Apart from International Utilities and Union Gas, which are discussed more
fully below, the following are among the many companies that stand to gain flrom
the development of the Trans-Canada lines One of the first will be Winnipeg and
Central Gas with its distribution system in Winnipeg<> Capital expenditures will
be necessary, however, for the Company to take advantage of natural gas« Consumers1
Gas of Toronto has a present rate structure enabling it to pay 80 cents a share.
This Company may become the largest distributor of natural gas in Canada.
Canadian Delhi Oil o m s a half interest in the equity of Trans-Canada Pipe Lines
and has relatively extensive gas reserves. The Calgary and Edmonton Corporation
has one of the largest potential gas reserves of any independent company.
Approx*
Price
1953-54
Price Range
to Date
Fiscal
Year
Ends
International U t i l i t i e s
31&
3 l f - 24
Dec,
Union Gas
40
42 - 2 5 |
Maro
*Earnings for f i s c a l year ended March 1953 and 1954o
1952
per Share
Earnings
1953
per Share
Earnings
$1O72
2*23*
$1O96
2d42 *
1953
Dividend
or
Indicated
Rate
$l o 40
l o 40
IHTEMATION&L UTILITIES CORPORATION
Senior Securities of Subsidiaries
$39,7Oli,233
#1,J*O Cum* Conv* Preferred Stock, #25? par value
$ 6,187*000
Common Stock, $f> par value
..„..
964,662 shares
International U t i l i t i e s i s a holding company operating two gas subsidiaries
(Canadian Western Natural Gas and Northwestern U t i l i t i e s ) and an e l e c t r i c power
subsidiary (Canadian U t i l i t i e s ) . In addition the Corporation r e c e n t l y acquired
a l l the outstanding stock of two propane gas subsidiaries and a majority i n t e r e s t
i n another* These subsidiaries supply gas, e l e c t r i c i t y and propane gas t o the
major c i t i e s of Alberta. Excluding dividend income, the natural gas subsidiaries
contributed about 76 per cent t o the consolidated operating earnings, the e l e c t r i c
company about 22 per cent and the newly acquired propane gas companies about
per cent.
i6
Last year International Utilities reported earnings of $1*96 a share
which included investment income of 60 cents a share* Natural gas sales
increased 11 per cent with the benefit of a 10 per cent rate increase, but
they were not up to expectations because of the very mild weather in the final
quarter of the year* Despite the rate increase, natural gas earnings are
estimated to be about three-quarters of those permitted lay the Board of Public
Utility Commissioners* Canadian Western obtains two-thirds of i t s gas requirements from the Turner Valley and the remainder from the Jumping Pound field*
The combined reserve of these two fields i s about 706 billion cu. f t . Northwestern produced about 68 per cent of i t s requirements from i t s own reserves*
Sales of electricity continued to expand and increased about 21 per cent last
year*
Capital expenditures in 1953 by a l l the subsidiaries were over $9 million and an equally large sum will be spent in 195>U« These will be financed
from the Corporation^ consolidated resources* Working capital at the end of
last year amounted to $2.1 million which did not include an investment portfolio with marketable securities of about $$ million* The Corporation also
owns k2k9k00 shares of Anglo Canadian Oil which, at current prices, has a value
of #2*2 million. Thus the combined cash resources of the enterprise exceed
$9 million or #9*70 a share* Assuming conversion of the outstanding preferred
stock, this would be equivalent to $7*72 a share* In addition, a 25> per cent
interest was held in Western Pipe Lines which was merged with Trans-Canada
Pipe Lines for a 12§ per cent interest in this latter company. This gives
International an interest in the proposed all-Canadian east-west natural gas
pipe line* International U t i l i t i e s i s well-established in the Alberta natural
gas industry. Moreover, i t s gathering f a c i l i t i e s form a network which could
be of strategic value when the Trans-Canada line materializes*
UNION GAS COMPANY OF CANADA LIMITED
kit% First Mortgage Bonds, due 1968
$7,600,000
Common Stock, no par value
706,199 shares
Union Gas serves the highly industrialized south-central area of Ontario
with natural gas* In addition, the Company owns almost all the stock of United
Fuel Investments which, through subsidiaries, distributes manufactured gas in
the Hamilton area* The Company has been expanding rapidly and sales of gas have
risen from about 5*3 billion cu« ft* in 191*6 to its present annual volume of
over 10 billion cu. ft* Earnings have kept pace and have shown a continuous
upward trend during this period with but one minor exception* Moreover, the
possibility of attaining a larger supply of natural gas should enable Union to
expand its operations at an even sharper rate*
In addition to reserves available to the Company of upwards of 15>t) billion
cu. ft* from the immediate area, Union has a contract with Panhandle Eastern
Pipe Line for delivery of 5>§ billion cu* ft* annually* This gas is imported
from the U*S* during off peak periods and stored* Just recently a new contract
for an additional 15>§ billion cu. fto annually was completed with Panhandle*
This contract has yet to be approved by the U,S. Federal Power Commission and
an export permit has yet to be received. If approved this additional supply of
relatively cheap gas would enable the Company to meet the additional requirements
of its own area and assure sufficient gas to justify conversion to natural gas
of the area served by United Gas and Fuel* Plans are being formulated to build
a pipe line system from its storage facilities to service Hamilton, Oakville,
and other major markets in Southwestern Ontario. If an export permit is granted
by the U*S. Federal Power Commission, the Companyfs unique storage facilities
could be the distributional focal point of natural gas for the entire area*
-U7 -
At a depth of 1,600 f t . below the surface at the former Dawn gas field,
there are masses of porous rock foiming natural storage capacity of about 15
billion cu. f t . With this natural reservoir, Union i s able to meet peak winter
load requirements making i t a logical storage for Alberta gas when i t i s piped
east* Meanwhile, earnings continue to rise and, although the Company's distribution system is subject to rate regulation, i t stands to benefit from the
continued growth of the area served.
NEWSPRINT
(also see Pulp and Paper)
An uninterrupted succession of gains in each year since the war has
increased Canadian newsprint production by 27 per cent or Top 1,215,000 tons
over the total achieved in 191*6, and by 80 per cent or 2,51*7,000 tons over
the prewar level of 1939• This continuity of increase was maintained in 1953
although the gain of 06 per cent was the smallest of any postwar year. I t
was accompanied by a ftirther addition to capacity and for 1951* Canadian rated
capacity i s 5>92O,OOO tons, an increase of 197,000 tons or 3oli per cent* The
average operating ratio for 1953 was 100 per cent, compared with 103*2 per
cent in 1952, indicating virtually f u l l operation but some let-up in the degree
of urgency shown in recent years.
Since about 85* per cent of Canada*s newsprint production i s taken \yy the
United States, and since Canada supplies about 80 per cent of U.S. requirements,
the outlook for the industry i s heavily dependent upon U.S. consumption which
showed renewed growth l a s t year after two years of insignificant increases•
Consumers1 stocks were reduced by about 60,000 tons during 1953, indicating
consumers1 confidence in assured availability of supply. Tonnage actually received by UoSo consumers last year showed an increase of 26,000 tons frcm
Canada but this was more than offset by decreases in supply taken from domestic
mills and from Europe. Both of the major factors in newsprint consumption
showed increases l a s t year? advertising linage rose 2j.o2 per cent and there was
a small increase in total newspaper circulations.
Percentage Annual Change in U.S. Newsprint Data
Newspaper
Circulation
19*3
1952
1951
1950
PailZ
+ 0.9
0
+ 0.3
+ 1.9
Sunday
-0.6
-0.2
-0.6
+ 0.U
Newspaper
Advertising
Linage
+ 1**2
+ 1.1
+1.6
+ 6.0
Newsprint
Consumption
+2,6
+0.2
+ 0.6
+7.1*
Consumersf
Stocks at
Year-end
- 7-U
+ ll*.6
+ 20.6
- 2.5
To date this year the rate of consumption of newsprint in the United
States shows little diange from the same period of 1953* Figures actually
reported far the first quarter showed a decline of nearly one per cent but
most if not all of it may be attributed to the effect of calendar and weather
variations upon advertising * Such factors as the later date of Easter and
the later spring weather this year may have moved into the second quarter
advertising vfaiah was carried in the first quarter last year. Consuiaers1
-1*8 -
stocks in the U*S* show about the same number of days1 supply as at the same
date in the last two years and are not regarded as abnormal <>
Canadian mills' total operating ratio was just below 195>U rated capacity
in the first quarter and just over it in April, indicating incidentally that
capacity is still rising. For the year to date production is nearly k per cent
over last year's record level in Canada0 U*S* production has increased by more
than k per cent and further material gain is expected soon when the new Bowaters*
mill starts to operate . This U*S« increase is not, however, expected to cause
a reduction in the rate of Canadian production during the rest of the year* To
date in 195U Canadian shipments to the United States have been about one per
cent higher than in 19f>3 and are expected to remain ahead of last year's record*
In this regard it is noteworthy that a large amount of the increase in U*S*
consumption last year came from the drop of 60,000 tons in consumers11 stockso
No such drop in stocks is likely this year so that an increase in supply will
be needed to support the same rate of consumption as in 195>3<>
Meanwhile overseas shipments are rising sharply• Although they amount
to only about 8 per cent of total Canadian output, their gain of 1*0 per cent
for the year to date represents an increase of 1*0,000 tons during the four
months• Moreover, further substantial gains are in prospect later in the year*
It has been reported that contracts with the United Kingdom, already higher than
last year, will rise, effective July 1st, by a further $0,000 long tons per
year, of which 2f!>,000 will move in the latter half of 195U* A similar gain is
reported in tonnage for Australia, where dollars have been made available to
increase purchases under Canadian contracts from 25>,000 to 1*5,000 long tons
per fiscal year, commencing 1st April, 195>l*o
Looking at the general balance between overall supply and demand it
seems likely that during the next two years there will be a further increase
of roughly U5>0,000 tons in North American capacity, representing a 6§ per cent
increase over last year's capacityo This is a considerably larger rate of
gain than the last year's U*S* consumption increase of lU3>000 tons and is
larger than the long-term average rate of increase in U.S. consumption which
has been about 150,000 tons per year* These comparisons suggest maintenance
of a reasonable margin of capacity over North American demand and also that
more newsprint will be available for overseas markets where potential demand
is heavy if exchange problems can be solved*
Newsprint has been one of the main props to the pulp and paper industry
in Canada and should be regarded as one of the more stable of its products*
Apart from rising costs and a discount on the U*S* dollar, earnings have been
affected more by declines in nonnaewsprint earnings than by deterioration of
the general newsprint situation. The mills' other products may be slightly
more profitable this year and their loss on conversion of the discounted U*S*
dollar may be lower * Newsprint stocks continue to sell far below the replacement value of their assets but their much Improved financial position has
engendered more confidence in their equities* This confidence in the absence
of any real improvement in earnings or dividends over the past year has been a
potent stock market factor*
1953-54
Approx,
Prioe
Prioe Range
to Date
Fiscal
Year
Ends
1952
per Share
Earnings
1953
Dividend
or
Indioated
Rate
1953
per Share
Earnings
LESS VOLATILE ISSUES
Consolidated Paper
Maolaren Power & Paper
Powell River
Price Brothers
50
61*
34
37*
5 0 £ - 34-1/8 Deo*
63 - 47§Deo.
34-7/8 - 26-1/8 Deo*
38-3/8 - 27^ Deo.
31
25|
35|
3l£ - 21
$4.03
5.89
1*89
2.67
$4.28
5.34
2O32
2*68
$2.25
2 o 00
1*55
2,00
2.05
1*98
4 o 06
2.46
2 O 24
4.42
2.00
le60
2.00
2.02
1*95
5*63
2o2
2.39
4 O 74
1*20
Io20
2.00
AVERAGE GRADE ISSUES
Anglo-Canadian
Great Lakes Paper
Minnesota & Ontario
26-5/8 - 15
37 - 24
Deo.
Deoo
MORE VOLATILE ISSUES
Abitibi Power & Paper
Donohue Brothers
St«Lawrenoe Corporation
23
20
23£
12
20-1/8 52 - 2 9 |
Deo.
Deco
* Thirteen months <>
Working
Capital
(Thousands)
Senior
Securities
Call Prioe
(Thousands)
$51,270
13,136
11,851
30,506
$ 7,502
16,425
Nil
11,826
Indioated
Daily
Saleable
Capacity
(Tons)
Approximate
Percentage
Newsprint
1953
Operating
Profit
(Per Ton)
2,800
375
1,300
1,625
85
100
85
100
$34.35
42.56«
63.63
31.91
1,025
700
960
70
70
65
$29.66
40.30
52*34
3,100
250
2,150
80
90
60
$32.19
26.13
34.86
LESS VOLATILE ISSUES
Consolidated Paper
Maolaren Power & Paper
Powell Rirer
Price Brothers
AVERAGE GRADE ISSUES
Anglo-Canadian **
Great Lakes Paper
Minnesota & Ontario
$10,495
11,609
19p906
9,693
8,029-a
6,000
MORE VOLATILE ISSUES
Abitibi Power & Paper
Donohue Brothers
St.Lawrenee Corporation
$32,202
4,489
21,504
p
3,172
32,161
• Exclusive of income from power,
•• Excluding interest in Dryden Paper,
a- Including $3.4 million of Class A Preferred which has been called,
b- Including $26O3 million of 7J8$ Preferred Stock which the Company proposes
to refinance on about a 4$- per cent basis.
COMMENTS
CONSOLIDATED PAPER vdll shortly have all its bonds retired and as the
property is fully expanded, earnings should be available for increased dividend
disbursements* Even around its present high, the stock maiket is placing about
the same valuation on a ton of newsprint capacity as it did in 19li5»
MCLAREN POWER & PAPER can be purchased for considerably less than the
replacement value of its power facilities alone, production from which is sold
chiefly to the Ontario Hydro at an extraordinary low price* About one-third of
these contracts expire in 1956*
POWELL RIVER, with its extremely low costs in comparison to eastern producers, is the investment issue of the group* Moreover, the Company will have
the advantage of a 10 per cent increase in newsprint capacity in
1
PRICE BROTHERS is i n a strong financial position despite i t s recent
expenditures on power. Earnings in 1953 did not show any improvement due to
dislocations caused by modernization and by the extension of i t s power f a c i l i ties* These installations should result in lower costs and the stock has
attraction for income•
ANQLO-CANADIAN PULP AND PAPER will have the full advantage of the kraft
paper and pulp f a c i l i t i e s of Dryden in 19$h* These products are in good demand
at the present time.
GREAT IAKES PAPER. With about 25 per cent of i t s capacity in unbleached
sulphite pulp, the Company i s in the best position to benefit from a rise in
the demand for this product. Meanwhile, the poor demand i s holding earnings down,
but important managerial improvements are having an effect on earnings*
MINNESOTA & ONTARIO i s the cheapest of any of the newsprint producers on
the basis of almost any yardstick. Its dividend, however, i s not eligible for
the 20 per cent tax credit and to Canadian residents this has dampened enthusiasm for the stocko
ABITIBI POWER & PAPER common stock i s more volatile because of the
Compaq's capital structure, viiich is undergoing a slight change, and earnings
reflect sensitively any change in the industry. Management i s forward-looking
and aggressive.
ST» LAWRENCE CORPORATION i s about the only one of the group v*iich will
have the benefit of increased capacity in 195k and 1955 • Under present
operating conditions i t may be possible to soon show earnings equivalent to
an annual rate of $6.00 a share this year and over #8*00 a share in 1955*
DONOHUE BROTHERS i s the smallest of the group and i t s stock has been
selling on a relatively lower basis than that of other companies. Its operating efficiency i s not as high as i t s larger competitors but this i s being
improved by important capital expenditures*
NICKEL
Certain aspects of the nickel industry stand out in bold relief :(1)
(2)
(3)
(h)
(5)
(6)
Nickel has been one of the world1 s great growth industries, but
the increase in consumption since 1935-39 has not been spectacular
although demand is sensitive to armament and heavy industry requirements;
Canadafs 1953 production of about l!*3,000 tons of nickel was 50
per cent greater than the 1935-39 average;
Canada occupies a dominant position, supplying nearly 85 per cent
of the free world*s nickel requirements l a s t year;
Nickel i s now Canada*s most important metal replacing the production of gold in dollar value;
About half the 1953 nickel output was allocated for military,
atomic energy, and government stockpile requirements, and 65 per
cent of Canada's 1953 output was marketed in the United States;
The U*S. Government i s the largest individual purchaser, holding
contracts for the purchase of 260,000 tons over the next decade
for stockpiling and defence requirements.
Nickel was in better supply last year, after a period of acute shortage
caused by rearmament, and commencing in mid-year, government restrictions on the
allocation and end uses of the metal were relaxed in various countries• The
UoS* Government revoked controls over civilian use of nickel in November, as
did Canada and the United Kingdom. The International Materials Conference
made no recommendation for allocatirg nickel for the fourth quarter of last
year* Thus nickel was one of the last of the metals to return to the free list.
During 1953 the search for new nickel deposits surpassed anything previously undertaken by the Canadian industry, and nickel resources have been
substantially expanded despite the rising volume of outputo Production firom
properties other than those of the International Nickel Company is becoming
more important and by I960 other properties in Canada will have about 20-2$
per cent of International Nickel *s capacityo
Nickel is one of the few important metals for which there was a price
increase last year. In January, 19535 the price of Canadian nickel was raised
by 3| cents per pound to 60 cents, U.S., inclusive of 1^ cents UoSo import duty*
There appears to be little likelihood of any price change this year but certain
U.S* contract prices for new production are well above current market levels*
New end uses for nickel continue to unfold as a result of intensive
research and technological changes in industry which are creating demands for
new alloys. Nickel alloys are finding increasing uses in the broadening range
of engineering alloy steels for both military and non-military purposes • One
of the newest developments (after ten years of research) is nickel plating
that bonds so strongly with appropriate aluminum alloys that the composite
materials may be deep drawn and later finished with chromium plate.
Although the considerable new productive capacity that will be established during the next few years may result in a temporary oversupply of nickel,
it does not appear at this tine that any easing of military requirements will
affect the Canadian industry adversely. There is such a widespread civilian
demand for the metal, which has been only partly met because of shortages,
that it seems likely that Ganada will sell all the metal that can be produced
this year*
1953
1953-54
Fiscal
ApproXo Price Range Year
Price
to Date
Ends
Faloonbridge Nickel
3
Deo*
23~ A
17*
l
International Nickel
Deo«
46i
Sherrltt Gordon Mines
4o00 6 o 00 - 3a80 Dec<>
*Will be in production in July 1954.
Dividend
1952
1953
or
per Share per Share Indicated
Earnings Earnings
Rate
$1.04
$0.69
$0.50
3.91
3.54
2.35
e
*
MB
INTERHATIONAL NICKEL COMPANT OF CAHADA LIMITED
1% Cum* Red. Preferred* $£ and $100 par v a l u e s
Common Stock, no par value
•
•
$27,627,825
ll*,$8U,O25> shares
The growth o f I n t e r n a t i o n a l N i c k e l ' s p r o f i t s during r e c e n t y e a r s has
been d i s a p p o i n t i n g . Increased s a l e s have been o f f s e t by h i g h e r mining c o s t s
but the s t o c k market i s a p p r a i s i n g the stock i n a r e a l i s t i c manner. Moreover,
n i c k e l p r i c e s should continue f i r m , base metal production w i l l be i n c r e a s e d
s l i g h t l y as a r e s u l t o f c o n t r a c t s which w i l l a l l o w the mining of lower-grade
ore, and t h e r e w i l l be new products which 1toe Company i t s e l f has developed.
Furthermore, the stock can be purchased now on a reasonable b a s i s i n r e l a t i o n
t o e a r n i n g s and d i v i d e n d s .
In the face of rising output, accompanied by increased prices for copper
and nickel in 1953* International Nickel reported lower earnings of $3«5U a
share compared with $3*91 a share in 1952• The drop in earnings can be attributed almost entirely to rising mining costs from underground operations* This
trend of rising sales and declining profits has been in progress since 1951*
There are indications, however, that capital expenditures will stabilize costs.
These expenditures have been financed out of retained earnings and the extra
dividend was reduced last year from 60 cents to 35 cents a share* Larger
expenditures are planned for 195U*
It is estimated that in 1952 nickel sales accounted for about h$ per cent
of International's total, copper sales slightly less than one-half those of
nickel, and platinum metals and other products, the remaining one-third* Current earnings are being maintained. If copper were to decline to say 25 cents
a pound, it is estimated that earnings would be reduced to between $3*00 -$3*2$
a share. Meanwhile, both copper and nickel prices have shown no change from
those prevailing at the end of 1953*
There were only fractional increases in copper and nickel deliveries in
19J>3> but capacity of both these metals has been expanded by about 10 per cent*
In addition it is expected that about one million tons of iron ore will be
recovered annually as a by-product* This increased nickel and copper production is being sold to the U*S* Government under a five-year contract, the nickel
to be delivered at current prices and the copper at 27 cents a pound. Both
prices are subject to escalation and allowances are to be made for additional
costs* The major market for nickel is in the United States while copper is
sold chiefly in the domestic market* All controls on the distribution of
nickel were relaxed in the last quarter of 1953> and an attempt was made to
make a more equitable distribution to civilian customers*
Ore mined in 1953 established an all-time record of 13• 7 million tons
over 80 per cent of which came from underground operations* The more costly
underground mining operation is now of major importance and has accounted far
the comparatively higher costs* Over $21 million was spent on modernization
and expansion and about $30 million is to be spent in 195U which, it is hoped,
will check this rise in costs*
Record expenditures of about $6 million were made in 1953 in the search
for ore* Ore reserves at the end of 1953 were higher than those of the previous
year despite the heavy withdrawals during the year and amounted to 26l*5 million tons with a combined nickel-copper content of 3 per cent* Exploration
activities outside the Sudbury Basin were centered in western Canada, particularly in Manitoba and the Northwest Territories. The find at Mystery Lake, Manitoba, has attracted attention and a large low-grade nickel deposit is indicated*
New processes are continaally being discovered by the Companyfs extensive
research facilities and these, rather than materially increased production, are
becoming increasingly important in broadening the Company's earnings base*
FALCONBBIDQE NICKEL MINES LIMITED
Funded Debt
$3k,372,32O
Common Stock, no par value
3,726,272 shares*
* Of which about two-thirds is owned by Ventures Ltd*
Falconbridge Nickel reported earnings last year of $l*0U a share compared with 69 cents a share in 1952. These earnings were after pre-production
expenditures, and other write-offs of $1*17 a share in 1953 and 90 cents a
share in 1952* The Company!s sales increased by about 18 per cent last year to
$29*2 million. Despite higher wages, and lower grade ore, a higher profit margin
-53-
was achieved on these s a l e s • The income tax provision f o r the year was smaller
due to the lower rates and a l s o d&e to the f a c t that a s u b s t a n t i a l portion of
the income was not subject t o income tax because of a three-year t a x exempt
period applicable to new mines. By the end of 195>3> Falcoribridge Nickel was
producing a t the annual rate o f 36 m i l l i o n pounds of nickel* This output w i l l
be r a i s e d to between 1*0 and hS m i l l i o n pounds within the next two years and
stepped up t o 5>f> m i l l i o n pounds by I960* This expansion program w i l l c o s t about
$f>5> m i l l i o n and w i l l be financed by s p e c i a l contracts with U.S* Government
agencies and by an i s s u e of $30 m i l l i o n o f $%% 1 s t mortgage and c o l l a t e r a l
t r u s t bonds * Provision was made i n the financing for the construction of a
r e f i n e r y a t Falconbridge i f the p i l o t plant now under construction proves t h a t
the metal can be produced p r o f i t a b l y on a commercial s c a l e by use of a new process*
In addition t o expanding i t s smelter and refining f a c i l i t i e s , the Company
must increase i t s ore output* At tiie present time two producing mines are
supplying tfae Company*s requirements and s i x a d d i t i o n a l properties are a t various
stages of development* In addition, the new Fecunis Lake orebo<fy, with reserves
conservatively estimated around 10 m i l l i o n tons of high grade ore, i s being
developed t o meet expanded output. Last yearns reserves were estimated a t about
3ki m i l l i o n tons averaging l*f>7 per cent n i c k e l and 083 per cent copper* Relat i v e t o i t s production and present c a p i t a l i z a t i o n , Falcoribridge has large unexplored nickel-bearing properties which could support an even higher output than
now planned*
Falconbridge has firm contracts to s e l l up t o 200 m i l l i o n lbs* of n i c k e l
( f i v e times current production) to the U.S* Government before 1962 vfoich w i l l
represent the major part of the Company*s t o t a l production* In a d d i t i o n , U*S*
Government agencies have options t o buy a farther 75 m i l l i o n lbs* by 196? •
The contract price represents the market price plus an amount for amortization
and c o s t o f new construction* There are a l s o similar contracts covering cobalt
and copper*
Falconbridge Nickel s e l l s for about U0 per cent higher i n r e l a t i o n t o
earnings and gives a return of about one-half t h a t of i t s l a r g e s t competitor,
International Nickel, but production targets c a l l f o r a $0 per cent increase
by I960 and a b e t t e r integrated operation should increase the margin of profit*
SHERKETT GORDON MINES LIMITED
F i r s t Mortgage k-k%$ Bonds, S e r i e s A & B
F i r s t Mortgage $% Bonds, S e r i e s C
Convertible Debentures
0
Common Stock, $1 par value
*
-
$21,000,000
I 3,000,000
$ 8,000,000
8,133,318
(U*S.)
(U.S.)*
(a)
shares
Bonds bear a f i x e d i n t e r e s t r a t e of $% and a deferred i n t e r e s t rate
of %9 payable when bonds r e t i r e d . The deferred i n t e r e s t may then
be converted i n t o common stock a t 1$ per cent of the market value of
the s t o c k , but a t not l e s s than $2*£0 a share*
(a) Convertible a t $2o5>0 a share p r i o r to June 3 0 , 19^6, bearing i n t e r e s t
thereafter a t $ per c e n t . Entire i s s u e s o l d to Newmont Mining Corporation* Assuming conversion of these debentures and including i t s
e x i s t i n g holdings Newmont would have about 38 per cent of the outstanding stock*
S h e r r i t t Gordon f s new $l|6f m i l l i o n plant i s about t o come i n t o production.
Due t o r i s i n g c o s t s the c a p i t a l expenditure was about one-third more than was
o r i g i n a l l y planned* A new ammonia leaching process w i l l be used which, i t i s
claimed, w i l l reduce operatir^g c o s t s considerably and give a recovery of n i c k e l
of about 9U per c e n t . The property i s expected t o q u a l i f y for income t a x
exemption f o r three and one-half years*
-5U-
Sherritt's nickel production will be about 7 per cent of that of International Nickel and less than half that of Falconbridge!s present output*
Initial annual output is estimated at about 17 laillion pounds of nickel, 9 million
pounds of copper, 300,000 pounds of cobalt and 70,000 tons of ammonia sulphate
fertilizer. Contracts have been arranged with the U.S. Government to take 60
per cent of the nickel, half of the copper and 60 per cent of the cobalt. Four
U.S. steel companies have contracted for the other 1*0 per cent of the nickel
and the remaining cobalt and copper will be sold in the open market. Sales of
fertilizer will be made through Harrisons and Crosfield, the Canadian branch of
a world-wide distribution organization.
Ore reserves are sufficient for about 20 years assuming operations at
capacity of 2000 tons daily but the property appears capable of further
development. Based on the merits of its low-cost manufacturing process, the
stock is reasonably priced but the main attraction lies in the possibility of
larger capacity.
OIL
The oil industry continues its outstanding performance of growth. Last
year an estimated $365 million was spent on exploration and development, compared with $330 million in 1952. This year the industry is expected to spend
a further $35>O million in the search for oil and gas, exclusive of manufacturing and pipeline facilities. Proven oil reserves at year-end were just over
2.1 billion barrels, an increase of 26 per cent during the year. A total of
2,212 wells were drilled to completion daring 1953* slightly more than a year
earlier* The newly discovered Pembina field in Alberta will add substantially
to previous reserves. In fact, the oil reserves at Pembina are estimated at
being between 762 million and 952 million barrels *
Canadian production has expanded largely from year to year by expansions
in the pipe line systems which have been about as large as could be physically
or financially accomplished in any year. These expansions have peraritted increases in crude production of the order of 25 to 35 per cent each year. This
programme of expanding
the supply system is being continued. The Interprovincial Pipe Linefs potential capacity will be 300,000 barrels a day from Superior
at the head of the Great Lakes to Sarnia, Ontario, when the necessary expansion
between Edmonton and Superior has been made. Trans Mountain Oil Pipe Linefs
potential capacity to the West Coast will be approximately the same. The growth
of the industry is illustrated in the following figures:
% Change
19U6
1952
1953 1952-1953
-12.0
208
20
183
Acreage under exploration (millions)
Number of producing oil wells
+ 25-3
393 3,589 M98
2,120
+ 26.0
1
,680
?2
Proven reserves at year-end (million bbls.)
f
221
168
20
+ 31.5
Year s average output (000 bbls. per day)
Consumption of oil in Canada has been rising sharply during the postwar period. Between 19h6 and 1953, it increased 131 per cent. Canada now
consumes more oil per capita than any country except the United States, and
the Canadian rate of increase is greater than in the U.S., as shown below:
- 55 -
Per Capita Consumption of Petroleum Products
1953
% Increase
19146-1953
92.1
1*0.1
Canada
United States
6.6
12o7
11-0
I606
11.8
17.0
12.7
17*8
Canada as % of U.S.
52
66
69
71
The number of motor vehicles in Canada has more than doubled since 191*6,
so that there has been a corresponding increase in the consumption of gasoline
and lubricants* During the same period there has been nearly a fourfold increase in consumption of middle distillates for home heating.
Chief problem connected with western oil is markets* Although potential
Canadian production is now approaching total Canadian crude oil requirements,
actually Canadian production will supply only about one-half of the indicated
Canadian requirements this year, compared with k3 per cent in 1953* The
Montreal area, which supports 35 per cent of total Canadian refining capacity,
has so far been economically inaccessible to western crude because of cheap
ocean tanker rates*. The present domestic outlets for Canadian crude are the
west coast, prairies, and central and western Ontario* Among them they should
support production this year of some 260,000 barrels a day, out of a potential
output of nearly 500,000 barrels a day* The immediate future of the industry
is dependent to some degree upon its ability to lay down Canadian oil along
the U.S. Pacific seaboard in competition with Near and Middle-East crude*
At the moment this market for Canadian crude is restricted because of distress
ocean tanker rates. But some Canadian oil is likely to enter this segment of
the UoS« market in 195U for tte first time on the completion of the extension
of the Trans Mountain Pipe Line to Ferndale, Washington, where a 35,000 barrel
per day refinery is expected to come into production before year-end. In the
longer run it appears likely that the Trans Mountain Pipe Line will be able
to deliver oil competitiyely in the U.S. Pacific Northwest. Moreover, the
extension of the Interprovimial Pipe Line from Superior, Wisconsin through
Michigan to western Ontario opens the possibility of marketing Canadian exude
in the Michigan-Ohio area. The marked growth of Canadian oil consumption
points, therefore, to an expanding domestic market and new U.S. markets should
be acquired.
Meanwhile domestic crude cannot yet compete with imported crude in
eastern Canada and, temporarily, much of the expanding reserves are frozen
assets* Nevertheless the industry itself is spending another $350 million
this year to explore and develop further reserves in Western Canada with confidence that western Canadian oil will always find a market.
Apart from the ma^or oil companies with their refining and distribution
organizations, a large number of smaller producing companies are trying to build
up reserves with varying success. A major discovery by any one would have a
marked effect upon the mazket value of its shares, but no longer do individual
discoveries have a stimulating influence on the markst as a whole.
The smaller companies listed below are representative of the exploration
and producing companies in the industry* No attempt has been made at select*
ivity* The shares of some are overpriced on the basis of financial positions,
oil reserves and acreage. Others are merely attractive speculations. A set of
favourable circumstances could materialize to justify the purchase of still
others, but the following list is a good cross-sections
-56-
1953-51*
Price TU inge
8.25
5.90
1U.75
6.65
18.125
-
i*.55
2.95
7.50
3.25
U.25
8.00 - 2.00
13.375
17.375
3.50
6.85
-
6.75
11.75
2.00
U.15
Anglo-Canadian Oil
Bailey Selbura
Calgary & Edmonton
Calvan Consolidated
Great Plains Development
Merrill Petroleums
Pacific Petroleums
Royalite Oil
Triad Oil
Western Leaseholds
Current
Price
Indicated
Dividend
$5.25
$0*15
U.55
13.00
0.10
U.90
17.75
6.70
10.75
12.25
3.15
1*.75
0.26
MAJOR COMPANIES
1953
Dividend
1953-54
1952
1953
Fiscal
or
A.pproXo Price Range Year per Share per Share Indicated
Price
to Date
Ends Earnings Earnings
Rate
Imperial Oil
British American
MoColl-Frontenac
34
36
38*
DeOo
- iel
Deo*
- 23>ft
DeOo
IMPERIAL OIL LIMITED
Total Debt
Common Stock, no par value
$1 o38
1 o78
2 ol8
$lo60
2o40
2o71
$0.90
0o85
1*00
$50,919,199
29>81i7*227 shares*
* 69.65 per cent controlled by Standard Oil of New Jersey.
Imperial Oil shares are the most representative purchase in the o i l
industry i n Canada• At the end of 1953 the Companyfs gross crude o i l production represented i|l per cent of a l l Canadian productions i t owned about
one-third of the producing o i l wells and probably about one-third of the t o t a l
crude o i l reserves i n Western Canada* Moreover, Imperial accounts for over
liO per cent of the refinery capacity in Canada, has minority interests i n
Interprovincial, Trans Mountain, Montreal and Portland Pipe Lines as well as
owning three other smaller pipe l i n e s , and interests i n other enterprises*
At current prices of 3l* the stock market i s placing a value of about
one b i l l i o n dollars on the a s s e t s of the Company* After taking into account
senior s e c u r i t i e s and working capital there would remain a residual value
equivalent to about #1*35 a barrel of estimated crude o i l reserves* This
figure i s a modest one as no consideration i s given to refining capacity, i t s
extensive marketing and transportation and other f a c i l i t i e s *
Baperial O i l f s sales of crude o i l products have increased at an annual
rate of about 10 per cent during the post-war period. As the Company i s the
largest distributor of petroleum products, i t i s becoming increasingly d i f f i c u l t for i t to expand i t s s a l e s at a greater-than-average rate* Last year,
for example, refinery s a l e s increased only s l i g h t l y over 2 per cent* Neverthel e s s , refinery capacity i s being further expanded by about 16 per cent at a cost
of between # 2 5 - 3 0 million* The refinery a t Dartmouth, Nova Scotia, i s being
largely replaced by a modern c a t a l y t i c cracking unit which w i l l be i n production
by mid-1956* Expansion of the Regina refinery i s j u s t about completed and work
-57-
on the Montreal East refinery expansion has begun. When t h i s program i s comp l e t e d Imperial w i l l have a refinery capacity of 263,000 barrels daily.
After nozmal depreciation provisions, Imperial Oil reported earnings of
$lo60 a share compared with $1*38 a share i n 1952. To obtain the maximum
b e n e f i t s under the income t a x regulations, a d i r e c t charge was made t o earned
surplus i n the amount of $ l 5 i m i l l i o n representing s p e c i a l depreciation allowed
on new plant f a c i l i t i e s . This served t o reduce the t a x l i a b i l i b y by $ 6 | m i l l i o n
(22 cents a share) which amount was a l s o credited t o earned surplus*
Although Imperial Oil i s not as a t t r a c t i v e a purchase on earnings as i t s
competitor B r i t i s h American, the Company has b u i l t up larger p o t e n t i a l earning
power which should ultimately accrue t o shareholders*
BRITISH AMERICAN OIL COMPANY LIMITED
Non-Convertible Debentures
Convertible Debentures
Common Stock, no par value
$13,860,000
..,.• $28,670,200
8,208,118 s h a r e s *
*Gulf Oil has a substantial i n t e r e s t , estimated a t one-quarter
to one-third of the outstanding shares*
B r i t i s h American Oil would seem t o be b e t t e r value than e i t h e r McColl or
Imperial on the basis of current earnings• Most of the improvement i n l a s t
year*s earnings came from operations i n the United S t a t e s . This r e f l e c t e d a
larger volume of crude o i l from B.A. *s Wyoming and Colorado f i e l d s over the
P l a t t e Pipe Line, completion of which was delayed i n 1952 by s t r i k e s i n the o i l
and s t e e l industries• Moreover, an increase i n the p r i c e of crude compensated
f o r higher costs* Sales of refined petroleum products continued t h e i r vigorous
upward trend increasing about 10 per cent l a s t year. A break-down of earnings
for the past four years i s shown below:
Per Share of Common Stock *
1950
1951
1952
1953
Earnings - U.S. Operations
Earnings - Canadian Operations
Reported Earnings
Plus Inventory Reserve
Total Earnings
$O«>53
0.87
$1.1*0
0.13
$1.53
$0.6l
1.11
$1«72
0*07
$1.79
$0.16
1<>62
$1.78
$0.61*
1.76
$2.1*0
$1.78
$2.1^0
* Outstanding at year-end.
About $6*8 million (83 cents a share) was charged against earnings in
1953 and about $U*8 million (60 cents a share) in 1952 representing sundry
write-offs and amortization costs.
British Americanos sales of petroleum pro ducts are about kO per cent of
those of Imperial Oil and over twice those of McColl-F?ontenac« B*A. has
shown the greatest growth in sales of refinery products which have risen at an
annual rate of about 12^ per cent annually during the past ten years• Moreover,
the Company *s growth has been more pronounced during the past five years and
much greater than i t s competitors in 1953« B*A.fs crude o i l reserves have more
than doubled in five years reaching 110 million barrels. Although B«A. has
been active in Western Canada, the bulk of i t s o i l reserves are in the United
States. During the past five years capital expenditures have totalled $l!*8
million ($18*02 a share) about k$ per cent of which was used for exploration
-58 -
and development. For the most part t h i s program was financed from retained
earnings of $13*79 a share vfaich included depreciation p r o v i s i o n s , and other
w r i t e - o f f s . Because of these expenditures dividend disbursements ( r e c e n t l y
increased t o 85 c e n t s ) have been small, but the p o l i c y of r e t a i n i n g earnings
has r e s u l t e d i n better-than-average growth i n s a l e s *
McCOLL-FBONTENAC OIL COMPANY LIMITED
Total Debt
~
k% Cum. Red, Preferred Stock, $100 par value
Common Stock, no par value
$23,999,000
$ 6,000,000
2,607,963 s h a r e s *
* Controlled by Texas Company.
McColl-Frontenac i s the t h i r d l a r g e s t o i l company i n Canada* Despite
i t s more a c t i v e a l l i a n c e with the Texas Company s i n c e the war i t s s a l e s of
petroleum products do not appear t o have measured up to those of i t s s e n i o r
competitors. Although such comparisons can be misleading, McGollts rate of
growth i n s a l e s of petroleum products has been about 7 per cent annually during
t h i s period against B i l t i s h American^ 12 per cent and Imperial's 10 per c e n t .
On the other hand, the Company^ working agreement with Texaco Exploration has
produced r e s u l t s , and i n d i c a t i o n s are t h a t the Company i s able t o show a subs t a n t i a l p r o f i t from i t s crude o i l production. This probably accounted for a
large portion of the increase i n reported earnings l a s t y e a r . With only about
one-third as many shares outstanding as B r i t i s h American, earnings per share
under favorable conditions could increase sharply.
Before 191*9 McColl-Frontenac had l i t t l e success i n the search for crude
o i l i n western Canada and an agreement was made with the Texaco Exploration
Company. This gave t h e Company a working i n t e r e s t i n c e r t a i n producing acreage
owned by Texaco, a 10 per cent royalty i n t e r e s t i n the net production from
e x i s t i n g e x t e n s i v e acreage owned by Texaco and the r i g h t t o p a r t i c i p a t e a t c o s t
up t o Jfo per cent i n c e r t a i n future acreage acquired by Texaco. Under t h i s
agreement HcColl has working i n t e r e s t s i n f>9 producing wells and a r o y a l t y
i n t e r e s t i n 111* other producers. McColl plans t o r e - e n t e r the exploration
f i e l d i n 1954 on i t s o m behalf, but intends t o continue i t s working arrangement with Texaco Exploration Company*
Through i t s wholly-owned subsidiary i n Trinidad, the Company acquired a
n e t production of crude o f over one m i l l i o n b a r r e l s i n 19^3 which combined with
i t s Canadian production amounted to about 2.2 m i l l i o n b a r r e l s . This was an
increase i n the net production of crude of about 70 per cent over 195>2. These
exploration a c t i v i t i e s are becomir^ o f increasing importance although McColl i s
s t i l l primarily a d i s t r i b u t i o n company.
OIL
PIPE
LINES
By means of two oil pipe lines, Interprovincial Pipe Line moving oil east
and Trans Mountain Oil Pipe Line moving oil west, Canada has a system which in
effect links Vancouver, B,C. with Sarnia, Ontario, through adjacent terminals at
Edmonton, Alberta. Both these lines are essential to the marketing of Canadian
crude oil, and markets are of major importance to the oil pipe lines. There
has been no problem of marketing oil east through the Interprovincial line and
still broader territories are envisioned* Trans Mountain's potential marketing
plans were frustrated, however, by competition from Middle East crude on the
Pacific Coast*
-59-
Trans Mountainfs 2k inch line was opened last October with an initial
capacity of 1205000 barrels daily which is currently being expanded to l£0,0Q0
barrels a day. This is one-half ultimate capacity which can be attained by the
addition of pumping stations* To be really profitable the Company must lay down
Alberta crude competitively in the Pacific Northwest and along the California
coast* The drop in world tanker rates, thus reducing the delivered cost of
Middle East crude, has effectively barred Alberta crude from entering the
California market* The Company must await, therefore, the expansion of refinery capacity in the Pacific Northwest and British Columbia to make its
present capacity effective* On the other hand, an improvement in ocean tanker
rates, another flare-up in the cold war, or a cut in the field price of Alberta
crude, could result in a more competitive position for this oil in California*
The present refinery capacity in British Columbia which can be serviced
by Trans Mountain is 38,000 barrels a day* Two new refineries are under construction which will bring the potential market in this area to f3*,000 barrels by the
end of 193>U* Similarly, in the Pacific Northwest two refineries located at Ferndale and Anacortes, Washington, are under construction having a combined daily
capacity of 8j>,000 barrels. Trans Mountain, through a U*S. subsidiary, is
constructing spur lines to both these locations. Consequently, there will be
a potential market of 89,000 barrels daily in both British Columbia and the
Pacific Northwest by the end of 19$h and ll|Q,000 barrels daily by the end of
1955* Until then, operations will be barely profitable unless Alberta crude
becomes competitive in California*
Interprovincial Pipe Line made its first deliveries to Sarnia last January with an initial throughput of about 95,000 barrels per day. This extension
of the main line from Superior, Wisconsin, to Sarnia, Ontario, effectively
eliminates the seasonal bottleneck at the lake head. The Company continues to
expand its capacity which ultimately can reach a daily throughput of 300,000
barrels. Contracts were awarded recently for the looping of the main line from
Edmonton to Superior and the addition of nine pumping stations. When completed
at the end of this year at a cost of about #63 million, the line will have a
throughput of 205,000 barrels daily out of Edmonton, and 138,000 barrels out
of Superior*
Although oil pipe lines are common carriers they have not been declared
as such under the Pipe Lines Act of Canada* Consequently, rates are not yet
subject to control. Because of their vital importance to the oil indastiy
generally, it is likely that management will limit earnings to 6- 7 per cent
of invested capital. Estimates of future earnings depend in large measure,
therefore, on the type of future financing which presumably will be designed
to keep senior indebtedness high relative to the equity. For example, Interprovincial recently placed privately $30 million of 3-5/8$ first mortgage and
collateral trust bonds to help finance its 19$h expansion program. Present
pipe line tariffs provide a basis for high equity earnings, but as capacity
and therefore capital investment is increased, tariffs will probably be reduced
so that profits are kept within ihe limits which would result from regulation*
Over a longer period, pipe lines should become of even greater economic importance with consequently higher - but regulated - earnings*
Approxa
Price
Interprovincial Pipe Line
Trans Motmtain
26
28£
1953
Dividend
1953-54
Fiscal
1952
1953
or
Price Range Year per Share per Share Indicated
to Date
Ends Earnings Earnings
Rate
29 \ - 1 7 |
46§- - 16f
Deoo
Dec*
- 60 -
$1.16
—
$0*88
—
$0*30
—
INTEEPROVINCIAL PIPE LIME COMPANY
Funded Debt
..,
Common Stock, $5 par value
„
* 50,000 shares were recently authorized to be issued
under an employees1 incentive plan*
$l6O,73U,9U3
5,039,832 shares*
Last year, Interprovincial Pipe Line reported earnings of 88 cents a
share. These earnings were achieved without the benefit of its expanded line
from Superior to Sarnia. In 19?k$ the Company plans a further expansion of its
line (described above) at a cost of $63 million. On this basis, and assuming
a 7 per cent rate of return on capital, the Company could show earnings of
twice those reported last year although such earnings are not likely to be
achieved in 19$h* The line could be ffcliy expanded to 3005000 barrels a day
out of Superior at a relatively moderate cost* Assuming no farther equity
financing and a 7 per cent return on capital, earnings in excess of $2*25 a
share could then be shown on the common stock*
TRANS MOUNTAIN OIL PIPE LINE COMPAHY
Funded Debt
$ 70,207,500
Common Stock, no par value
„.
„
1,500,028 shares
Present throughput is just about sufficient for this pipe line to break
even before depreciation charges* The outlook, however, is more reassuring than
it was a few months ago when a reduction in world tanker rates reduced the
landed cost of Middle East exude below that of Canadian crude at most Pacific
ports. It is felt that a solution will be found over the next few years as
there is a preference for Alberta crude in the Pacific Northwest, and refineries are beirg built in the Seattle area to tate Alberta crude • Moreover, Trans
Mountain is the logical outlet for the vast crude reserves of the Pembina area.
Based on a tariff of 30 cents a barrel, the Company could show earnings
of slightly over $2.00 a share operating at its present capacity of lf>0,000
barrels daily. Based on the present outlook these earnings could not be reached
before the end of 1955 (see "Industry" above). The ultimate capacity of the
line is 300,000 barrels daily which can be achieved by the addition of farther
pumping stations at moderate cost* As, and when, this capacity is reached,
the tariff will probably be reduced in order to keep earnings within the limits
which would result from rate regulation. On the basis of a 7 per cent return
on capital, earnings of between $2.50 and $3*00 a share could be shown.
PUBLIC
UTILITIES
The great expansion of Canadafs public utilities reflects the rapid
expansion of the nation's industrial economy. Last year more than 1, If*) ,000
horsepower was added to installed capacity, an increase of 8 per cent for tiie
year. Yet the output of power barely kept pace with demand. Consumption of
primary power was about 30 per cent greater last year than in 1950, and it has
almost doubled since the end of the war. A further 1,2*20,000 h.p. was under
constxuetion at year-end and planned for completion this year* Still another
l,l|50,000 h.p. is planned for completion by 1956. Estimated capital investment
by the utilities this year is $1,239 million, 6 per cent above 1953, and it
will account for one-fifth of the estimated total of all new investment in
Canada this year*
- 61
The control of rates by federal and provincial regulatory bodies has
tended, however, to moderate earnings, so that investors in public u t i l i t i e s
have not received fully the benefit from the outstanding growth of the industry*
Increasing competition from income tax-free u t i l i t i e s owned by provinces and
municipalities creates subsidized competition for investor-ov&sed u t i l i t y companies which have to pay out nearly half tiieir earnings in income tax* Moreover, such companies are at a l l times exposed to the possibility of expropriation.
Nevertheless individual issues may offer special attraction for investors*
Apart from the two companies mentioned below, representative u t i l i t i e s includes
pp
Prioe
1953-54
Fiscal
Price Range Year
Ends
to Date
Bell Telephone
B« Co Power
Bo C o Telephone
Canada Northern Power
Gatlneau Power
Power Corpe
Quebec Telephone
Shawinigan
Southern Canada Power
Sept0
Earnings calculated on a participating basis<
1952
per Share
Earnings
1953
per Share
Earnings
$2o47
1O34
2ol4
$2O65
lolO
1 O 62
2o82
Io51
Iol3
Io77
2o20
2o84
2o26
2«11*
ISX
1 O 76*
2o
1953
Dividend
or
Indicated
Rate
$2o00
loOO
2 o 00
0 o 60
Io20
2o00
0 o 50
1 O 45
2o00
THE BELL TELEPHONE COMPANY OF CANADA
Total Debt
„
Common Stock, $25 par value
$271,6]*6,1*27
11,617,032 shares
Bell Telephoned rate structure is apparently not designed to provide
a dividend higher than $2.00 a share. On the other hand, the Company i s now
obtaining greater benefit from i t s $$k$ million capital program which has been
in progress since the war. This has cemented confidence in the continuation
of the $2,00 dividend and the stock has reflected the rise in high-grade bonds
and preferred stocks •
The backlog of new installations i s . s t i l l at virtually an all-time high
and farther expansion of f a c i l i t i e s will be carried out over the next few years*
This year expenditures are expected to be about $100 million, and a $1*0 million
3f# bond issue was sold to help finance these projects. Provision has been
made for an additional issue of the same amount* As Bell Telephone maintains
a balance between equity financing and bond financing, another stock issue i s
a probability next year or early in 1956o Because of the security of the
#2*00 dividend, and the 20 per cent federal income tax credit, the stock should
continue to be absorbed by investors seeking income*
THE SHAWINIGAN WATER & POWER COMPANI
Funded Debt
~
-....
k-k%Z P r e f e r r e d , #50 par value
Common Stock, no par value ...~
~
,.~
#120,297,000
25,000,000
2,178,250 s h a r e s
I n a d d i t i o n t o being one of t h e l a r g e s t power companies o f i t s kind i n
t h e world, Shawinigan has an important chemical b u s i n e s s , the earnings o f vfoich
have exceeded t h o s e o f power i n 1950 and 195l» Although chemical earnings
showed a s l i g h t improvement l a s t y e a r , they were below t h e s e peak l e v e l s .
Because o f e x c e p t i o n a l l y favourable water c o n d i t i o n s , power earnings have been
r i s i n g s i n c e 1 9 5 l and the Company s e t a s i d e 17 c e n t s a share i n 1953 and 21*
c e n t s a share i n 1952 for a water s t o r a g e reserve *
- 62 -
A more complete picture of the Company!s earning power i s shown belows
1950
Shavdniganfs own power earnings
Less t Water storage reserve (net)
$1.08
Per Share
1951 1952
1953
$0*96
#1*39 #1*63
.2lj
.17
#1*08 $0,96 $1.15 #1.1*6
Dividends from Quebec Power and similar companies..
.26
,2U
*2i|
«28
Earnings from power.• •
$lo34 $1*20 $1.39 $1*7U
Dividends from Shawinigan Chemicals
$0.61|. $0.6U #0*52 $0*52
Undistributed profits of certain chemical operations. 0.72* 0*9k* 0*33 0<>k5
Earnings from chemicals **
•
•
$1.36 $1.58 $0.85 $0-97
TOTAL
$2c7O
$2*78
$2,2l|. $ 2 . 7 1
^Before special provision of 16 cents a share in 1950 and 18 cents a
share in 1951*
#*Includes reported chemical earnings only*
Last year the peak load increase was h per cent above 1952, although
total kilowatt hours sold were down about 3*7 per cent. Sales of Shawinigan
Chemicals increased about three per cent* A marked improvement in the chemical
business in the U.S. was largely offset by a decline in overseas sales. Overa l l business in Canada was maintained largely because of the increased sales
of the stainless steel division. Sales to the depressed textile industry
continued to drift lower and competition in other fields became increasingly
keen* Since the war Shawinigan has expanded i t s chemical operations largely
in partnership with such companies as British American Oil, Heyden Chemical,
Monsanto Chemical and Union Carbide and Carbon. Major expenditures on new
manufacturing f a c i l i t i e s have been completed and the Company i s now consolidating i t s position. Meanwhile, ShawLnigan announced i t has found a method of
making high-grade titanium metal by an electrolytic process which could be of
great long-term importance.
Shawinigan has a power capacity of i t s own of about 1,31*0,000 h.p. but
includirjg subsidiaries the peak load l a s t year was about 1.9 million hup*
Since the war, Shawinigan has been expanding i t s peak load at the rate of about
10 per cent per annum. This growth has been tapering off and i t i s estimated
that the increase will be about 7 per cent between now and I960. Shawinigan i s
expanding three of i t s generating stations by 150,000 h.p* and has agreed to
purchase 1*00,000 h.p. from Quebec Hydro g s new Bersimis River development.
These extensions are expected to supply the needs of the territory to about
I960* Undeveloped power sites on the upper St. Maurice River are estimated
at 700,000 h.p. and are being held in reserve for future expansion. The cost
of the present expansion program will be about $50 million, about one-fifth of
which i s eapected to be financed by outside resources.
Because of inadequate rates, Shawinigan*s power earnings have not kept
pace with the large capital investment required since the war. An application
has been made to the Provincial Electricity Board for an increase in residential,
farm and commercial rates but no decision has been rendered yet. Free of income
taxes, the Quebec Hydro i s better able to operate under present rate schedules.
-63-
Unless water conditions remain favourable, it may be difficult for Shavdnigan
to maintain the steady rise in power earnings which has been experienced since
1951* Moreover, chemical operations are becoming increasingly competitive* On
the other hand, power operations are still expanding, there is a possibility that
an increase in rates will be granted, while in the chemical field several of the
new projects in which substantial sums have been invested recently have potentialities for ultimate and important earnings*
PULP AND PAPER
(also see Newsprint)
In addition to the newsprint producers, #10 use chiefly groundwood pulp
for their product, there are several important Canadian companies producing
chemical pulps - sulphite and sulphate for various grades of paper, boxboard
and containers; and the non-paper grades of dissolving pulps used in the
production of rayon, cellophane, plastics, photographic film, etc.
Chemical pulp prediction during the post-war period has increased by more
than £0 per cent, totalling about 3f million tons last year* During this
period about half of the output has been exported, principally to the United
States* Last year both production and exports of all grades except unbleached
sulphite recovered from the slump in 19*>2, as shown below:
Production and Exports of Chemical Pulp
(000 tons)
Production
1952
1951
1951
1953
Exports
195g
1953
610
Bleached Sulphite
Bhk
559
845
633
773
Unbleached Sulphite 1,690
U28
1,551
1,594
565
3ia
Bleached Sulphate
628
557
559
U88
1*83
5U7
656
Unbleached Sulphate
5U8
227
593
170
lUU
Last year Canada supplied 75> per cent of the total U*S* pulp imports,
despite keen Scandinavian competition. The outlook for pulp this year is
slightly better than 195>3* when the market was mixed, prices spotty, and when
Scandinavian pulp was more competitive. The strengthening of U.S« demand noted
in the latter part of 1953 has carried into 195>iu UoS« paper consumption last
year was 393 pounds per capita, 3 pounds short of the 19i>l M g h , and the U«S#
industry is optimistic about the outlook* In January, 195U, some producers
increased the price of unbleached sulphate by $ 5 a ton, the first sign of a
reversal in the downward price trend of pulp that began in May and June of
1952. But there is no indication of any farther price changes at this time*
Last year's high Scandinavian inventories were worked off, and the outlook this year is OISB of less competition from Scandinavian suppliers in the
U.S* market. Canada*s position in a reasonably firm U»S* market is not unfavourable, but greatly expanded North American dissolving pulp capacity (non-paper)
in 195>£ may result in temporary oversupply unless overseas exports can be
increased materiallyo
-6h-
Apart from newsprint, Canada consumes most of its paper and paper products*
Last year increased demand in the domestic market resulted in improvement in all
grades of paper, and much of 1952*s declines were recovered. The upward trend
of production has carried into 195U, with all grades showing increases in the
first quarter, as indicated in the following tabulations
% Change in Canadian Paper Production (ex Newsprint)
From Preceding Year
First Quarter
1952
1953
195U
Fine Papers
-12«7
+10*5
+10*3
Containers Grades
- 8.2
+8*7
Boxboard Grades
-11*0
+ 7*5
+ 1*7
Wrapping Paper
-11*2
+ 6,1
+ 3*1*
+
1*6
Increased production last year was accompanied by price increases. Fine
papers rose by $10 to $12$. per ton* Kraft paperboard was increased by #5 per
ton effective September 1. These prices are expected to be firm for 1951* and
earnings of the industry should show improvement over 1953•
ApproXo
Price
Howard Smith Paper
Fraser Companies
1953-54
Price Range
to Date
24
19 \
24& - 17
19 JQ ~ 13&
Fiscal
Year
Ends
Deoo
Dec*
1952
per Share
Earnings
$2.05
1«52
1953
per Sfcafe
Earnings
$2O51
lo30
1953
Dividend
or
Indicated
Rate
$1.00
1*00
HOWARD SMITH PAPER MILLS LIMITED
Funded Debt
,
$2 Cuau Preferred, #50 par value
Common Stock, no par value
,
#19,817,000
$ 8,000,000
1,71*2,750 shares
Howard Smith i s the l a r g e s t producer of fine and s p e c i a l t y paper i n
Canada, most of which i s s o l d i n the domestic market. About one-third of the
t o t a l saleable capacity (including Donnacona) i s surplus pulp which i s sold
domestically, i n the United S t a t e s , and foreign markets* In a d d i t i o n , the
Company manufactures laminated p l a s t i c s under the name of "Arborite" and has
about a 97 per cent i n t e r e s t i n Donnacona Paper, a producer of newsprint,
sulphite pulp and i n s u l a t i n g board.
Since the war Howard Smith has reinvested earnings equivalent to about
the present price o f the s t o c k , p r i n c i p a l l y for new plant and equipment* Over
one-half o f t h i s reinvestment of earnings was represented by depreciation p r o v i s i o n s which l a s t year were about tro-and-one-half times those of Fraser
r e l a t i v e t o capacity o Further c a p i t a l expenditures are being undertaken i n
1951* a t the m i l l s of Canada Paper and a t Cornwall• Last year, larger f i n e
paper s a l e s were o f f s e t by unsatisfactory s a l e s of pulp and about t h e same
operating p r o f i t was reported as i n 1952* Lower income tax provisions and
higher r o y a l t y r e c e i p t s , however, enabled Howard Smith t o report per share
earnings of $2«5l compared with §2,05 the previous year* Two of the Company1 s
m i l l s were on s t r i k e from September t o e a r l y January, but these plants r e p resent only a small proportion of the t o t a l output* The demand for f i n e paper
continues strong but there has been no material improvement i n the s a l e s volume
-65-
of surplus pulp* Nevertheless these large pulp f a c i l i t i e s are necessary to the
future growth of the Company9s paper business* On this basis the stock i s the
outstanding long-term investment equity in the industry* Meanwhile, the improbability of any sizeable increase in the $1 annual divictend could be a retarding influence in the market action of the stock0
FRASER COMPANIES LIMITED
Funded Debt
$1*,55O,OOG
Ufjf Preferred, $100 par value
.-$l,l4.2ii,100
Common Stock, no par value
2,226,102 shares
In contrast to Howard Smith, Fraser Companies showed an increase in
dollar sales in 195>3, but lower profit margins resulted in a decline in earnings
to #lo30 a share, compared with &1<>52 a share in 19£2* Before inventory adjustments and other write-offs, earnings were fl.23 a share in 195>3 and $1.89
a share in 195>2 * At the beginning of 1953, Fraser *s pulp mills were operating
on a curtailed basis* By February, kraft pulp sales picked up, permitting
normal operations for the balance of the year, but bleached sulphite pulp
output was below capacity. Paper and paperboard sales were more noxmal, resulting in a 6|- per cent increase in the sales of all products on a tonnage
basis* Reductions in prices for some grades of pulp affected profit margins,
and earnings might have been improved by about 10 cents a share if the Canadian
dollar had been at par throughout 19J>3* Fraser*s pulp mills are situated in
New Brunswick and its paper mill in the United States* About one-third of
total saleable capacity is in
Since the war, Fraser has reinvested earnings and depreciation provisions
of about $19 a share, about three-quarters of which was used to finance new
plant and equipaent. The demand for bleached sulphite pulp has improved and
the Company stands to benefit from the repeal of the U*S* excess profits tax*
On this basis earnings are believed to be running higher than the $1*!>2 a
share reported in 19^2* Fraser, with i t s excellent timber limits and modern
plants, could improve i t s earniijgs sharply, given more favourable market cor*ditions particularly in pulp.
RETAIL TRADE
The consistent upward rise in retail trade evident since the end of the
war was halted in the first quarter of 193& when total retail trade dropped 1*2
per cent from year earlier levels* This was the first time in the post-war
period that first quarter retail sales showed a decline from the corresponding
period of the preceding year* In this period department store sales were up
0,8 per cent, but a great deal of this rise is attributable to sales in British
Columbia where an increase in the sales tax went into effect on April 1st* A
decline in sales was reported in the Prairie and Atlantic Provinces while
Ontario and Quebec showed increases of less than one per cent*
For the year 1953 total retail trade sales rose to cnrer $12 billion, a
4*5$ increase above the 195>2 total but the rate was considerably below the 12
per cent average increase of each of the previous four years* The greatest
rise in 1953 sales was in lumber and building materials followed by radios and
appliances* Grocery sales, particularly chain store sales, continued their
upward trend* Since 19i*5> the trend has been towards the large, efficient supermarket offering an increasing variety of merchandise*
- 66 -
An important factor in the increase in retail sales in the l a s t few years
has been consumer credit* Long-term installment credit has encouraged the purchase of durable consumer goods by the middle and lower income groups • After a
sharp increase in the first half of 19i>3 installment buying dropped and in the
fourth quarter was 8*U per cent below the comparable period in 19f>2, and no
expansion i s evident in the f i r s t six months of
4
Competition is becoming keener and price-cutting is already evident in
certain lines, particularly appliances and radios* With the exception of farm
income, disposable consumer income will probably be close to the high level of
195>3» The decline in farm income, however, is expected to continue and sales
in the Prairie Provinces are already showing a downward trend* The physical
volume of sales is approximating last year's level, but under buyers * market
conditions there is the likelihood of lower prices and therefore somewhat
lower dollar volume*
1953-54
Fiscal
ApproXo Price Range Year
Prioe
to Date
Ends
1953
Dividend
1952
1953
or
per Share per Share Indioated
Earnings Earnings
Rate
Mar o
3*84
May
3O84
May
Jano
• Twelve months ended March 1953 and 1954 respectively•
** Earnings not comparable with those of 1953«
Dominion Stores
Loblaw «A«
Loblaw •B*
Simpsons
42
25 - 14
47JT - 36
55 _ - 37
21 ^ - 1 2
$2o01°
4*60
4.60
0o94
$0,80
1.50
Io50
0,50
SIMPSONS LIMITED
Debentures, due January 1, 1973
$29,500,000
Common Stock, no par value
•
3*000,000 shares
Simpsons Limited, through its association with Sears, Roebuck, hopes to
take full advantage of the growth in Ganadian retail trade. Simpsons sold its
mail order business (which had accounted for almost as much as half Simpsons1
profits) to Simpsons-Sears which has inaugurated an aggressive expansion in the
retail store field. Both Sears, Roebuck and Simpsons have a one-half interest
in this new Company* Simpsons9 share of the 1953 profits amounted to 22 cents
a share which combined with its own earnings amounted to $1*16 a share on a
consolidated basis« Although these earnings are not comparable with reported
earnings a year ago, indications are that earnings from Simpsons1 own operations were better than those of 19#2. Total volume of sales continues to
expand but profits are being squeezed by increased costs*
Until more retail outlets can be built Simpsons-Sears! business will
come largely from the former but expanded mail order and order offices of
Simpsons Limited* The Company plans to build 1$ new retail stores dxring
the next four years about half of vtfiich will be in operation by 19J>5* Warehousing facilities are being constructed to complement the operation*
It is on the anticipated ftiture growth rather than immediate earnings
that the stock has attraction* Meanwhile, until the smaller retail outlets
are established, profits will be restricted by development expenses and the
challenging competition of Eaton8s of Canada*
-67 -
LOBLAW GROCETERIAS CO. LIMITED
f Sinking Fund Debentures, 1973
$7,600,000
Class tfAff Stock, no par value
liU5,O56 shares
t! ff
Class B Stock, no par value
*
•
..•
508,300 shares
Loblaw Groceterias has been more than keeping pace with food sales in
Canada and has been holding its own against the aggressive competition of
Dominion Stores• Loblaw does about 50 per cent more business than Dominion
with about 2$ per cent fewer outlets* Earnings have been rising at an average
annual rate of about 20 per cent since the war and reached $I|.»60 a share for
the year ended May 1953 •
At the fiscal year-end, 100,000 shares of "B11 stock were issued at $39
a share which, together with $3*81*9*360 in cash, was used to finance the purchase of 193>73il shares of Loblaw Incorporated, a food chain in the United States.
This purchase brought Loblaw*s interest in this U.S. company to 199,627 shares
or 56*8 per cent of the total shares outstanding. Including the undistributed
profits of this Company for the year ended February 1953* Loblaw Groceterias1
consolidated profits would amount to $1*.98 a share on its combined ffAtf and MBfl
shares outstanding* It would appear that this acquisition by the issue of
additional lfBtt shares resulted in no dilution in earnings on a consolidated
basis.
Earnings on the ftBtt voting stock could be considerably enhanced by
calling the participating flAfl stock at $50 and substituting say a five per
cent preferred. This would increase 1953 earnings on the flBt! shares to over
$7*00 a share. Although there has been no announcement of such a scheme, the
effect would be to make the "Bw shares the sole participant in earnings after
preferred dividends• A further increase in earnings for the year ended May
1951* should be witnessed.
DOMINION STORES LIMITED
Sinking Fund Debentures
$i*,79O,OOO
Common Stock, no par value
1,260,056 shares
Dominion Stores unit sales are still well behind those of its competitor
Loblaw, but rapid progress has been made in the past few years in closing this
gap. Last year, for example, lU smaller retail outlets were closed and seven
completely modern stores were opened. Moreover, nine other similar units are
under construction and a number of the present stores are beirg modernized.
This trend towards the more efficient "mammoth market11 is being reflected in
a better-than-average increase in overall sales which reached IlljO million
last year. Although operating costs were higher in 1953* a larger inventory
turnover (20 times) enabled the Company to improve its profit margins. Dominion
Stores has expanded its sales per store about five times in the post-war period.
Still greater progress has yet to be achieved in this direction. Meanwhile the
increasingly effective operation has resulted in higher earnings.
- 68 -
STEEL
By the end of this year the steel industry will have spent during the postwar period about $25>O million for new planto The expansion program is now almost
completed, and represents about a one-third increase in capacity over 195>1, and
a 200 per cent increase over 1939•
Last year Canadian ingot production exceeded k million tons for the
first time, and it was l£ per cent greater than in 195>2. Steel imports last
year were about 1.8 million tons, so that apparent consumption approached 6 million tons* Imports amounted to about 30 per cent of total consumption.
By the end of this year Canadian ingot capacity will be about !> million
tons. But not all of it will be utilized. During the first quarter of this
year the industry operated at less than 70 per cent of last year's capacity and
60-65 per cent of 1951* expanded capacity. Ingot production during the first
quarter of 195>U was 22 per cent lower than in the corresponding period of 1953,
and production had declined every month since last October.
Foreign steel is sharply competitive in the Canadian market. The great
expansion of steel capacity, not only in the major producing countries, but in
the minor as well, has narrowed the export outlets for steel. Canada is one of
the few countries which offers a market for steel and its products. There are
no embargoes, quotas or currency restrictions, and the Canadian tariff schedules
are not designed to impede the entry of foreign steel to the Canadian consumer.
Canadian labour costs are close to those in the United States, and very much
higher than in any other country in the world. Competition in the fabricated
lines of steel, where labour content is relatively high, is especially keen
and foreign-made products are offered in some cases at prices below Canadian
costs. Mill runs are relatively small, so that like the textile industry, the
steel industry is finding it difficult to meet foreign price competition under
conditions of an international buyers1 market for steel products. Some producers have already been hurt, and the near-term outlook for the industiy is
not entirely encouraging. But steel is a basic industrial metal, as well as
the leading structural material, and the Canadian industry will continue to reflect the underlying industrial expansion of the country.
Apart from Steel Company of Canada and Dominion Foundries and Steel, there
are two other major steel companies whose stocks have received some attentions
Dominion Steel & Coal and Algoma Steel, poqiinion. Steel & Coal, has been spending large amounts in improving its properties to enable it to operate profitably
without its steel export business * The Company has important iron ore deposits
at Wabana and part of this production is exported. If Dominion Steel & Coal
had followed the same accounting policy as Steel Company of Canada and Dominion
Foundries in charging off full depreciation against earnings, no profits in
19f>3 would have been shown, although the Company did report earnings of #1.82
a share* Import competition is proving to be a serious factor.
Information regarding Algoma Steel is not yet sufficient to appraise the
common stock* The Company has important subsidiaries engaged in the mining of
iron ore and coal and is generally believed to have large interests in other
enterpriseso For the 20 months ended December, 1953, the Company reported consolidated earnings of only $lu5>0 a share, but it was announced that special
capital cost allowances reduced earnings by $3*7U so that "normal11 earnings per
share for the period were $8* 21* a share. There were many other deductions from
earnings including total depreciation, equivalent to $l8o2f> a share, and special
reserves, equivalent to $4.07 a share. Thus the cash flow for the 20 month period
would seem to have been equivalent to about $26.82 a share. The Company also
wrote off the equivalent of $2.00 a share for moving expenses. In addition to
these earnings, there may be undistributed profits of companies in which Algoma
Steelfs subsicliaxy companies have important interests.
-69 -
1953
Dividend
1953-54
Fiscal
1952
1953
or
Approx,, Price Range Year per Share per Share Indicated
Price
to Date
Ends Earnings Earnings
Rate
Steel Company of Canada
Dominion Foundries
35
15
36-29
15 5 Q ~ 1 2 %
Deo*
Deo.
$3.55
0«61
$3 O 85
0*65
$1*30
0,60
STEEL COMPANY OF CANADA LIMITED
Funded Debt
Common Stock, no par value
,
$33,285,687
3,701,850 shares
Steel Company of Canada has about completed its expansion program which
was designed to increase its primazy steel capacity by 50 per cent* This program has made the Company self-sufficient and outside purchases of ingot, slabs
and billets are no longer required. Over $81 million has been spent over the
past few years and a ftxrtbsr $21 million will be required to complete the program
in 1954, including the Companyfs share of the financing of Erie Mining Company
(iron ore) to production*
A new record in ingot production of 1.9 million tons
was achieved last year vshich was about one-half of the total produced in Canada*
The Company is the largest producer of alloy steel which is sold principally to
the automotive industry*
Steel Company of Canada reported earnings in 1953 of $3*85 a share compared with $3*55 a share in 1952 but the cash flow before depreciation was
$8.98 in 1953 and $8*29 a share in 1952. In fact the 1953 annual cash flow
was about the equivalent to the total funded debt outstanding at the present
time* Last year dollar sales increased about 7 per cent and there was a
modest improvement in profit margins* Output fear the first six months of 19$k
apparently was less than production in the first half of 1953 > but earnings
may not have declined correspondingly as the Company has been able to put new
equipment to effective use*
Although Steel Company of Canada has expanded in growing lines as much
as possible, some of this capacity is bound to meet competition from low-cost
U.S. producers* This could pose serious problems and restrict earnings to a
low return on the investment in enlarged plant*
DOMINION FOUNDRIES AND STEEL LIMITED
Funded Debt
hk% Cunu Red. Sinking Fund Preferred, $100 par value
Common Stock, no par value
$11,250,000
$ 7,67U,2OO
2,1*00,000 shares
Last year!s reported earnings of Dominion Foundries were 65 cents a
share but if only normal depreciation had been charged they would have been
$1*56 a share* Comparable reported earnings in 1952 were 6l cents a share or
$1*79 a share after adjusting for accelerated depreciation. The Company is
in the midst of a modernization program costing $15 million of which about
$5 million was spent last year. This program includes the adoption of a new
method for making oxygen steel.
In a relatively short period of time Dofasco has moved from a fabricator
dependent on outside sources for pig iron, to a more integrated and efficient
producer. Its competitive position has been greatly improved, its management
is highly regarded, and its employee relations are excellent.
- 70 -
TEXTILES
The primary textile Industzy has been experiencing one of the worst
depressions in its history. Production is down sharply. Some 22,000 employees
have been laid off during the past two years • Mills have been closed* Most
of the mills still operating are on short time. Before the war Canadian cotton
mills supplied about 73 pe? cent of the cotton piece goods consumed in Canada.
Now thqr are supplying only about $0 per cent* Total Canadian fabric requirements have increased by 60 per cent since 1935-39, so that if the domestic
mills had their pre-war share of the marieet now, the industry would be thriving
instead of depressed* The Canadian industry is supplying less per capita now
than before the war, while per capita imports have almost doubled*
The deterioration in the textile industry stems from four major influences i
(1) In 1939 wage rates in the U*S« textile industry were 1*0 to h$ per cent
higher than in Canada* Today U«S» wage rates are 20 per cent higher
than in Canada and, in the Southern States, they are only 10 per cent higher*
Japanese wage rates are about one-tenth those in Canada • and British rates are
about hO per cent of the Canadian* Thus Canadafs competitive position has
been materially weakened because wages represent so large a proportion of
total costs*
(2) At the same time relatively small mill runs of the Canadian producers in
relation to U»S* and U*K* producers with much larger markets result in
higher Canadian mill costs* Moreover, there has been a great deal of emphasis
on promotions and stylirg* In order to compete, Canadian mills are forced into
still smaller runs, which greatly increase unit costs*
(3) The Canadian tariffs on textiles were reduced in 1936, 1939 and again in
191*8* The impact of the lower import duties was disguised by the outbreak
of war, by the post-war period of shortages, and by the scramble for goods
following the outbreak of the Korean War*
(k) In 1 9 W the average spread in the United States between the price of raw
cotton and a group of representative fabrics was 60 cents a pound* Currently the average spread is 29 cents a pound* This intensifies the difficulty
facing the Canadian textile mills in their attempt to meet the competition of
low-cost imports*
The Canadian industry has invested $26£ million of new capital since
191*6, most of it on replacement and modernization of existing equipment* But
it is still not in a position to compete with the combination of legal and
illegal imports into this country* Although consumption of textiles is holding
well, mill inventories are still high in both Canada and the United States and
better conditions in the industry will have to await less intensive competition
from low-cost imports*
Canadian Celanese
Dominion Textile
Approxo
Prioe
18$
6^
1953
Dividend
1952-53
Fisoal
1952
1953
or
Price Range Year per Share per Share Indicated
to Date
Ends Earnings Earnings
Rate
46-18
Deoe
$2 O 41
$1.67
$0o60
11-6
Mar o
0 o 40*
0o07*(d) 0*40
• Twelve months ended March 1953 and 1954 respectively,
(d) Deficito
- 71 -
CANADIAN CELANESE LIMITED
3% Debentures, due April 1962
$1.75 and $1.00 Preferred Stock
Common Stock, no par value
«.
$ 7,100,000
$12,£00,000
l,2ijl,636 shares
Canadian Celanese, a producer of c e l l u l o s e a c e t a t e synthetic yarns and
f a b r i c s , would seem t o have weathered the storm b e t t e r than i t s cotton counterp a r t s but severe competition i s now depressing operations. The decline i n
earniijgs i n 19f>3 t o $1.67 a share from the $2.Ul a share recorded i n 19*>2 was
due almost e n t i r e l y t o a decline i n p r o f i t s i n the f i n a l q u a r t e r . Meanwhile
operations have been c u t back s h a r p l y i n order t o l i q u i d a t e i n v e n t o r i e s .
Costs have been reduced; but so have s e l l i n g p r i c e s . There have been two
successive reductions i n the annual dividend from $2.1*0 t o $1.20 t o 60 cents
a share and current operations continue unsatisfactory*
During the war and Immediately following i t , competition was not a factor
as Celanese was the sole producer of a c e t a t e rayon i n Canada and over $26 m i l l i o n
was spent on expanding and modernizing i t s p l a n t s . The Company1 s chief problem
was t o meet t h e pent-up domestic demand which was i n t e n s i f i e d by r e s t r i c t e d
imports of a l l t e x t i l e s . J u s t r e c e n t l y Canadian Chemical & Cellulose, operating
i t s news p l a n t a t Edmonton, entered the maricet a t lower p r i c e s (10 per cent)
for i t s yarns and s t a p l e f i b r e . Although Celanese met those p r i c e s t h i s domest i c competition a f f e c t s p r o f i t s * Moreover, the fabric business i s s t i l l being
h u r t by low-cost imports. Because of t h i s change i n i t s competitive p o s i t i o n ,
the present depressed phase would not appear to be j u s t an i n t e r r u p t i o n i n
Celanese f s previous strong growth t r e n d , but a basic chasge t o a d i f f e r e n t
condition* On t h i s b a s i s , the stock has l o s t much of i t s former a t t r a c t i o n as
a long-term investment. With l e s s severe import competition, however, the
Company with i t s modern and well-located p l a n t s , and aggressive management should
be able t o secure a r e p r e s e n t a t i v e share of the business t o insure p r o f i t a b l e
operations*
DOMINION TEXTILE COMPANY LIMITED
Debt
$10,806,316
k% Convertible Debentures, due August 1966*
$10,000,000
7% Preferred Stock, CUEU n o n - c a l l . , $100 par
$ 1,91*0,600
Common Stock, no par value
29$lk$37k shares
* Convertible 5f shares per $100 t o August 1 , 195$J t h e r e a f t e r
£ shares t o August 1 , 1958j t h e r e a f t e r U§ shares to August 1, 1961.
Dominion T e x t i l e and i t s subsidiary companies produce about one-half of
the cotton piece goods manufactured i n Canada. During the past few years the
Company has earned v i r t u a l l y nothing from i t s operations. By carrying back
previously t a x paid inventory reserves, i t has been able to r e p o r t modest
earnings, but l a s t year a small l o s s was shown. This depressed condition
r e s u l t e d i n t h e dividend being cut from 15 t o 10 cents q u a r t e r l y l a s t November
and present disbursements a r e beiisg made out of surplus• Operations have been
confined more t o the staple l i n e s of production which a r e required i n subs t a n t i a l q u a n t i t i e s i n t h e Canadian market. Meanwhile, the comon stock i s
s e l l i n g for about i t s estimated consolidated working c a p i t a l a f t e r deducting
a l l s e n i o r s e c u r i t i e s . Drummondville Cottons was consolidated i n the Comp a n y ^ accounts for the f i r s t time l a s t y e a r , which strengthened considerably
the o v e r a l l l i q u i d p o s i t i o n of the balance sheet. Other important s u b s i d i a r i e s
such as Montreal Cottons, and Domil Limited, which operated a t a s u b s t a n t i a l
l o s s l a s t year, have not y e t been consolidated.
- 72 -
Since the war, Dominion Textile has been actively engaged in improving
its productive facilities <> Over $13 million has been spent on new plants and
a further $10 million has been invested in subsidiary companies. About 70 per
cent of these expenditures were financed from retained earnings* The Company's
wholly owned subsidiary, Domil Limited; which produces rayon dress fabrics and
suitings, is being further expandedo
As inventories have yet to b6 worked off, the prospect for immediate
earnings is not encouraging and the dividend may be eliminated* Nevertheless,
the stock represents an investment in assets which can pay off handsomely
under less intensive competition from low-cost imports*
TOBACCO
Price and tax reductions last year resulted in a sharp rise in the consumption of tax-paid cigarettes. In the last three-quarters of 1953 (after
the tax redaction) cigarette releases increased by 17 per cent over the corresponding period of 1952 and the upward trend i s continuing, but at a lower rate
at presento On an adjusted basis, this yearns releases are a l i t t l e better
than the average annual rate of increase over the l a s t three decades« Cigar
sales are showing a marked improvement<>
Although per capita cigarette consumption in Canada i s less than 60 per
cent of the UoS* figure, i t has been showing a marked growth trend over the
last two yearso Last year Canadians smoked an average of 71 tax-paid packages
of 20, more than double the pre-war figure <> A reduction in illegal imports and
lower piices resulted in a per capita consumption of Canadian cigarettes in
1954 15 per cent ahead of 1952 (while consumption was falling slightly in the
United States) o Several factors have accounted for the wide disparity in
cigarette consumption between Canada and the United States, including higher
Ganadian prices, relatively lower personal income and relatively larger rural
population which prefers home~rolled cigarettes and pipe tobacco* But the
rising trend of personal income, steadily increased urbanization of the
population, and greater cigarette usage by women point to ar closer alignment
of Canadian and UoS* per capita consumption in the longer x oxi9 i f Federal
taxes in this countzy are progressively reduced to the UoSo levels© While the
195U federal budget made -no prevision for tobacco tax concessions this year,
total cigarette sales should be s l i $ i t l y above those of 1953•
ApproXo
Price
Imperial Tobacco
1953-54
Price Range
to Bate
Fiscal
Year
Ends
11% ~ 8
Dec,
IMPERIAL TOBACCO COMPAMY OF CANADA LIMITED
Debentures ....
Preferred Stock
Ordinary Shares, $5*00 par value .«.•..
1953
Dividend
1952
1953
or
per Share per Share Indicated
Earnings Earnings
Rate
$0.62
$0,70
.. $24,300,000
_.„ $15,6142,500
„ 9,670,532 shares
There is evidence that Imperial Tobacco is turning the corner and that
earnings should keep pace in the future with the nozmal increase in cigarette
consumption (7§ per cent annually since 1920)« Although last yearns increase
- 73 -
in consumption was not sufficient to counteract the reduction in cigarette
prices, dividend disbursements were increased to k7% cents a share from k$
cents in the previous year* Operating profits were down about 9 per cent,
part of which could have been accounted for by non-recurring inventory losses*
Reported earnings were 70 cents a share after appropriations to miscellaneous
special reserves of 22 cents a share which were not allowed for income tax
purposes*
Some years ago, Imperial Tobacco did about three-quarters of the total
cigarette business in Canada. Increased competition and other factors reduced
this to probably 5>0 per cent* By concentrating on fewer brands, indications
are that the Company is now doing better than holding its own. From 191*6 to
1950 dividends of 60 cents a share were paid and the recent increase was
probably a first step towards higher disbursements* Moreover, the stock should
have certain defensive qualities should disposable income shrink*
TRANSPORTATION
The two major Canadian Railways, operate coast-to-coast systems strung
across thousands of miles of sparsely settled country* The Canadian Pacific
Railway competes generally with government-owned Canadian National Railways,
although they pool passenger service between major cities of Quebec and
Ontario* Railway rates in Canada (other than'statutory) are under the control
of the federal Board of Transport Commissioners, and the rate structure is
archaic, based in the 19th Century on political rather than economic considerations* Freight rates have long been and still are a constant issue in
Canada* The rails are confronted with cheap water-borne and motor transport
freight rate competition in the populous and key eastern markets, and at the
same time they must carry western grain, maritijne coal, and other products
at what in effect are subsidized rates*
Last October the Board of Transport Commissioners ordered a £ per cent
reduction in class rates on freight west of the Great Lakes, and allowed a
10 per cent increase in the east in fields where water or truck competition
does not prevail and as might be dictated by the realities of the situation.
More recently the Board has refused the application for increased rail
freight rates to establish a fair return on railway investment.
General freight rate increases of 9 per cent effective at the first
of last year, and 7 per cent, effective March 16, 1953, were more than offset
by increased costs (largely labour), and lower volume of freight traffic,
which is continuing to decline this year as a result of sharply lower carloadings for grain and decreases in several other commodities* Thus, during
a period of record economic activity in Canada, the ratio of net to gross
earnings reached one of the lowest points in the past 2f> years* At the same
time the railways have been compelled to make large capital investments to
maintain property and equipment, and to reduce costs* Last year their combined outlay was $207 million, and in 19f>2 it was $181 million* The projected
total for this year is |272 million of which over $200 million is for new
rolling stock* This, of course, is having important Implications for the
railway equipment industry this year* Meanwhile rail traffic will probably
decline still farther and the outlook for earnings on railway operations is
unsatisfactory* Ocean shipping is depressed and earnings are falling, and
Great Lakes shipping companies are operating at far less than capacity because
of the failure so far to move grain to the eastern seaboard*
- 71* -
1953
Dividend
Approx,
Price
Canadian Paoif io RailwayCanadian Car "A"
Canadian Car "Ordinary*
Canadian Car (Combined)
Canada Steamships
1953-54
Price Range
to Date
26
22
20
33 V 8 - 20f
23*
24
Fiscal
Year
Ends
Deco
Sept.
- 14^3 Septo
2ltf
- Ifil
22%
- 14
Deco
1952
per Share
Earnings
$2.61
4 o 01
3 O 29
2.10
2,24
1953
per Share
Earnings
$2*05
5.55
4 O 97
2.90
2.42
or
Indicated
Rate
$1.50
loOO
0,80
0,25
CANADIAN PACIFIC RAILWAY COMPAHY
Debt (non-convertible)
Convertible Debentures
k% Debenture Stock
k% Non-Cumulative Preferred
Ordinary Stock, $25 par value
$ 51,375,000
....• $ 7k,739,000
$292,51*8,888
$137,256,921
13,806,997 shares
Obviously the shareholders of Canadian Pacific Railway have been penalized by a freight rate structure which has prevented it from earning a return
on its railway investment of 6| per cent fixed as fair by the management• It
is also obvious that the existing rate structure is rigid, archaic and inadequate, but it is also important that in an elongated country such as Canada
low freight rates are essential in the public interest* Even with the benefit
of freight rate increases, only about 2f per cent was earned on C*P*R*fs
railway investment in both 1952 and 1953• The Board of Transport Commissioners
did not look with favour on the request of the Company that it be allowed rates
sufficient to earn a 6§ per cent return on its railway assets* The Board did
adopt, however, the principle that the net rail investment should be one of the
11
end" tests by which the reasonableness of rates may be judged* It could not
accept this reason as the sole criterion because it was claimed that the cost
of rate increases would be borne by an ever-narrowing section of the noncompetitive, non-statutory rate stzucture* Much of the responsibility for this
situation had, previously in the judgment, been ascribed to the fact that the
railways are required to carry western grain at low statutory rates which
"affects the net return on rail investment particularly when it becomes difficult or Impossible to transfer the burden of the deficiency to other classes
of traffic without loss of volume.!t
Gross earnings have increased every year since the ware In 1953, they
reached a record of $1J70.6 million as a result of increases in freigjht rates
which became effective early in the year. Nevertheless, about one-third of
the total freight carried was subject to the Crows Nest Pass rates established
in 1899. The improvement in revenues, however, was offset by higher costs
despite the curtailment of maintenance expenditures in mid-year and railway
earnings were about maintained* Net railway earnings represented 6*1 per
cent of gross revenues whteh with but two exceptions was the poorest ratio
in history of the Company*
Net income for steamship operations was down sharply which more than
counterbalanced increased income from airlines, hotels, communications, etc*
This combined with lower income from Consolidated Smelters (of which C*P*R.
owns three-fifths of a share for each share of its own stock) resulted in
the lower earnings as shown below;-
-75-
Gross railway earnings
Per Share of Ordinary Stock Outstanding at Year End
1952
1953
1951
1950
#3lt.O8
132.01
#28.25
#33.17
Net railway earnings
Steamships, airlines, hotels,
communications, etc.
$ 2.81*
$ 2.00
$ 2.10
$ 2.09
0.5U
I 3.38
0.81
0.6U
# 2.1k
0.1*9
1.25
$ 2.81
1.21
Net before Cons.Smelters divd. $ 2.13
Less: Interest&Pfd. Divds.
Divd. from Cons. Smelters
Reported Earnings
1.13
$2.58
1.26
$ 1.60
$ 1.61
$ 1.32
1.19
1.38
1.00
0.73
$ 3.32
$ 2.98
1 2.61
$ 2.05
Not included in the income account was income from petroleum rents,
royalties and reservation fees of 53 cents a share gross of C.P*R. which were
about double those of 1952. This income, together with the proceeds of land
sales, was credited to the land surplus account* Royalties from crude oil were
received on 9*9 million barrels from 590 wells, compared with 6*3 million
barrels from k$0 wells during 1952* In addition, tea-year contracts were
negotiated with two major oil companies on which a reservation fee of $1.00 an
acre will be received on 1,590,000 acres in Alberta and Saskatchewan*
The outlook is for lower freight revenues and there is little possibility
that Consolidated Smelters will be able to increase its dividend* Although
stock market quotations will be swayed by the market action of Consolidated
Smelters, and although income from oil royalties and reservation fees is becoming increasingly significant, tiae stock has lost much of its appeal as a
railway investment until a more realistic view is taken towards the complex
problem of freight rate adjustment*
CAKADA STEAMSHIP LINES, LIMITED
Funded Debt
% Cumulative Preferred, $12*50 par value
Common Stock, no par value -
$ 7,228,500
#11,1*62,500
—1,200,000 shares
Last year, Canada Steamships reported net earnings on the present stock
of $2*1*2 a share as against $2*21* a share in 1952. Almost $8 million, however,
was reserved for depreciation and the cash flow to the Company in 1953 was
equivalent to $8*82 a share after payment of common dividends, compared with
$7*39 a share in 1952. During the past three years, Canada Steamships has
retained earnings equivalent to $21*22 a share of which $16*08 has been set
aside for depreciation. This total cash flow of $25»5 million exceeds the par
value of the preferred and bonds outstanding by $6*8 million*
Earnings from the Companyfs steamship business under normal conditions
might be divided into three parts - one-third from iron ore, one-third from
wheat and one-third from package freight* 1Last year, a substantial portion of
the total profit was earned hy the Company s non-water transportation f a c i l i t i e s
which include Kingsway Transports* Ship building and ship repairing i s also an
important factor and this division enjoyed a profitable year* Both the ship
building and the transport business i s operating favourably in 195!** but the
steamship business i s clouded by the meagre shipments of grain to date*
- 76-
CAHADIAN CAR & FOUNDHT COMPANY LIMITED
Class "A11 Conv* non-can* non-cuau, $20 par
Ordinary Stock, no par value
* Convertible into Ordinaiy, share-for-share, at any time*
i|Q0,000 shares*
365,800 shares
Canadian Car & Foundryfs rolling stock facilities are about threequarters the size of its chief competitor, National Steel Car, and in the past
its operating profit in this division would appear to have been lower in relation to gross business» Canadian Car's operating efficiency is being improved
under new management and the Company9s operations are more diversified* These
include a large foundry and machine shop operation, and bus and aircraft
divisionso This diversification has not always been altogether profitable,
but a higher degree of overall effectiveness is being obtained*
Canadian Car & Foundry reported higher earnings in 1953 at #2* 90 a
combined share, compared with $2.10 a share in 1952o Operating profits improved only slightly, and the improvement in reported earnings stemmed from
greater efficiency, smaller depreciation charges and lower taxes rather than
any increase in the combined operations of the enterpriseo
Although last yearfis profits were not impressive, indications are that
real progress is being made in increasing the efficiency and consolidating the
operation of the Company* Moreover, the backlog of business on hand was larger
than a year ago and new orders since will be sufficient to keep facilities at
capacity to September 30, 1954* Working capital, including certain deferred
items, was equivalent to $L?«5>0 per combined share and may now be closer to
$20 a share as the result of the sale of property and higher 1951* earnings •
Improvement in the CompanyBs effectiveness may not be fully reflected
in earnings unless the railways are able to finance necessary purchases of
new rolling stocko The present low freight rate structure and declining carloadings are retarding factors* Meanwhile, either the "A" or Ordinary stock
can be purchased for about the amount of the Company9s working capital and the
Company's other assets would seea to possess distinct potentialities for
longer-texm development even though railway equipment purchases will fluctuate
from year to year* Earned surplus at the end of September 1953 was equivalent
to |l5o95 a combined share and this offers eventual opportunities for stockholders to benefit to a more representative extento
- 77 -
THE
JOHNS HOPKINS UNIVERSITY
BALTIMORE 18, MARYLAND
DEPARTMENT OF HISTORY
September 28, 1954
Mr. Donald Woodward
Committee on the History of the
Federal Reserve System
Federal Reserve Bank of New York
Federal Reserve P.O. Station
New York 45, New York
Dear Mr. Woodward:
In my discussions with Mr. Willits concerning research
on the history of the Federal Reserve System, I remarked how
useful that research might be to general students of American
history, since the establishment of the Federal Reserve System
as an effective agency is important not only from the point of
view of the history of banking and public administration but also
in American cultural and political history. Much of the material
which Miss Adams is locating and arranging to make available could
be used in studies that are peripheral to your central theme.
Moreover, in determining what is peripheral and what is central
to your theme, and in guiding accordingly the search for material
and the planning of monographs, your committee might, I thought,
find it useful to have an American historian of distinction
participating in your discussions. He need not be especially
interested in banking, but I had in mind someone thoroughly at
home in the traditional problems of .American history, and especially
familiar with the political life of the period in which the
Federal Reserve was created. But I do not myself qualify in
these respects. I had in mind such persons as W« Stull Holt
of the University of Washington, Commager of Columbia, or Tom Cochran
of Pennsylvania. My own interests, although extended broadly over
economic history in general, are primarily in European Economic
History of early modern, almost medieval, times. After considering
the matter more carefully than I could do during our telephone
conversation, I have come to the definite conclusion that I lack
competence and also lack time to devote to being a useful member
of the Committee on the History of the Federal Reserve System.
Much as I appreciate the compliment you have paid me by
inviting me to become a member, I feel that I must decline to
accept the honor.
I enclose the material that Miss Adams so kindly sent me.
Since reit^ yours,
"rederic C. Lane
Enclosure
^
COMMITTEE ON THE HISTORY OF THE FEDERAL RESERVE SYSTEM
October 1, 1954
Dear Dr#
In eccord vith tlie outcome of £ae poll of the
iJr* Lttne v&s invited to become & xember of the Coeaclttee. The
j'ttacaed l e t t e r i s hli response•
the Exacutiv*? CoEdLlttee ^ill consider the
question of further action on the matttr it on early
Very truly yours,
DoneId B. Voodverd
Enclosure
Cr, F. Cyril I*
Principal & Vic® Chancellor
HoQUl University
Montreal 2f Canada
o
COMMITTEE OH THE HISTORI OF THE FEDERAL RESERVE SYdTEH
October 1, 1954
Bear Mr. Burgesas
l a accord with the outcome of the p o l l of the
Dr# Laae va© incited to become « lae&ber of the Coi&Bittee* Ta©
ttttaobed letter i s his response*
the Executive Committee v i l l consider the
question of further action on the matter a t an e a r l j meeting*
Very t r u l y jrcurs #
Enclosure
Mr, ¥* Randolph Burgess
Impaty to the Secretary
Treasury Department
t; 25, £,C,
September 28, 195U
Miss Mildred Adams
Committee on the History of
The Federal Reserve vSystem
33 Liberty Straet
Hew York U5, N.Y.
Dear Mildred:
You will have had a copy of Dr. Calkins l e t t e r of Sept. 22
to me stating that Dr. Chandler i s entirely agreeable and satisfied
with the contract. In view of your l e t t e r to me and oral conment this
i s confusing. Vie had better talk about i t when you return. Will you
please l e t this l e t t e r serve as a request to call me at your convenience?
Yours,
Donald B. Woodward
DBW:lw
c
TRUSTEES
y
R. BIGGS, Chairman
H^NTINGTON GILCHRIST, Vice Chairman
ARTHUR STANTON ADAMS
DANIEL W. BELL
ROBERT D. CALKINS
LEONARD CARMICHAEL
WILFRED L. GOODWYN, JR.
JOHN W. HANES
LEWIS WEBSTER JONES
JOHN E. LOCKWOOD
LEVERETT LYON
ROBERT BROOKINGS SMITH
LAURENCE F. WHITTEMORE
DONALD B. WOODWARD
HONORARY
<3l«0tttutuJtt
OFFICERS
n 6, JL QL
7 2 2 JACKSON PLACE, N. W.
ROBERT D . CALKINS
President
MILDRED MARONEY
Treasurer
ELIZABETH H. WILSON
Secretary
September 22, 1954
Dear Don:
I have Lester Chandler1 s approval of the agreement
which "we sent him on September 14.. He indicates that he
has already begun work on the study. He is entirely
satisfied with the arrangements specified in the agreement. I shall keep the original signed copy of the agreement here on file at Brookings.
Sincerely yours,
President
Mr. Donald B. Woodward
Vick Chemical Company
122 East 42nd street
New York 17, New York
cc:
TRUSTEES
ROBERT PERKINS BASS
MRS. ROBERT S. BROOKINGS
JOHN LEE PRATT
HARRY BROOKINGS WALLACE
Miss Mildred Adams
SHELDON B. AKERS
Executive Manager
September 27, 19£U
Miss Mildred Adams
Committee on the History of
The Federal Reserve System
33 liberty Street
Hew Tork U5, H.Y.
Dear Mildred:
As I told you when we were lunching with Mr. Spencer Scott I had
some interesting conversations on ogr project while I was in Canada. I
wonder if you would be good inough to follow up those conversations with some
letters which you might say are written pursuant to the conversations I had.
One should go to Mr, J. R. Beattie, Director of Research, Bank of
Canada, Ottowa, Canada. Dr. Beattie was most interested, promised to ponder
the matter, discuss it in the bank and elsewhere as opportunity presented and
to pass on suggestioas to us. A letter to him telling him more about the project,
perhaps briefly summarising the progress reports with emphasis on the papers that
have been located would be appropriate.
The same is true for Mr. Kenneth W. Taylor, Deputy
Ottowa, Ontario, Canada, Mr. Taylor is interesting not only
position but from the fact that he was one of those who went
School when it existed and he has an affectionate regard for
Minister of Finance,
for his official
to the Brookings
Brookings.
A similar letter should go to Dr. W. A. Mackintosh, Principal and Vice
Chancellor, Queens University, Kingston, Ontario, Canada. Dr. Mackintosh is the
opposite member at Queens to Cyril James at McGill. Dr, Mackintosh served for a
good many years as Deputy Minister of Finance.
These are the three with whom I discussed the project and promised to
write,
Theitr suggestion pointed to the Bank of Montreal in Montreal which was
the fiscal agent for Canada in the United States for many decades past and indeed
still is. The Economic Advisor of the Bank of Montreal is Mr. Edward A. Walton
and I think he would be interested. I know him fairly well. A letter to him
would be in order, appealing for his aid and that of the Bank of Montreal in
uncovering and providing access to materials that night be relevent to this work.
- 2 -
In addition to the Bank of Montreal several of the other Canadian
Banks - which as you know are all nationwide branch systems - might well have
included among their officers people who had some important contacts and who
may have maintained papers or diaries. It was the suggestion of the three to
whom I talked that a more general inquiry be sent to some of the other fcanks.
I would suggest letters to Mr. J. Douglas Gibson, bank of Nova Scotia, King and
Bey Streets, Toronto, Ontario, Canada whom I know well and to whom my name could
be used. Letters also might appropriately go, I was told, to Dr. William Lougheed,
Economist, The Canadian Bank of Commerce, Toronto, Ontario, Canada and Dr. Donald
Marsh, Economist, The Royal Bank, Montreal, Oiebec, Canada. I fe§& s»nly met
Lougheed and Marsh very briefly.
There were two or three other specific suggestions for papers which
were mentioned to me and which I have noted someplace but can't find the notes,
Mien they turn up I•11 pass that on also.
Cordially,
•
Donald B. Woodward
DBW:lw
6, ^EL
Septeaber 24, 1954
Mrs* Ellen Colt Singer
Committee on the History of
the Federal Reserve System
33 liberty Street
Hev York 45* B e v York
Dear Mrs. Singers
This letter is to confirm your appointment as a member
of the staff of the group working on the History of the
Federal Reserve System. A s indicated by Miss Adams, your
appointment is that of Executive Secretary and Research
assistant at an annual salary rate of $4*160, or $346.6?
per month* It is understood that you will b e on Temporary
Appointment for ninety days, from September 9, 1954, « • *
if ypur work is satisfactory at the end of that time, yon
will be transferred to an Annual Appointment basis as *
>er of the Special Staff for this Federal Reserve study.
I am enclosing herewith the rules and regulations
governing the staff of the Brookings Institution, which
generally apply to those serving on the Special Staff of
the History of the Federal Reserve System*
President
Enclosure
Mr* Ak&rs
Hiss fftTnasj
¥31 i w
September 23,
Dr. Walter W. Stewart
Council of Economic Advisers
Executive Office Building
Washington 25, D. G.
Dear Walter:
Miss Adams has kindly sent me a copy of her l e t t e r to
you of September 21. I do feel a marked sense of responsibility
and am becoming uncomfortable at the slowness of development.
However, contrary to what her l e t t e r states I dc not
intend to try to see Mr. Burgess u n t i l I have heard from Dr. Calkins
which w i l l i n turn be after he has had a conversation with you.
This decision was nade as a result of discussion with him after
Hiss Adams' l e t t e r to you was written. Otherwise a l l that she said
i s correcit.
My very wannest regards.
Cordially,
Donald 3. Woodward
COMMITTEE ON THE HISTORY OF THE FEDERAL RESERVE SISTIM
33 Liberty Street, New lork 4-5, Hew Tork
September 21, 1954
Dear Dr, Stewarts
I have been talking to Don Voodw&rd about the problem posed
by Hr« Burgess* continued absorbtiom in his present job, and your kind
offer to invite the three of us to dinner in Washington,
Don it at* grateful to yon te I ate. Vis evn pense of
respeA&iblllty in this situation., rs tua initiator vho drew Mr.
Burgess into this S© early that they both becrme^ PO to speak, coplanners, is very strong. It leads him to suggest that as a first
step he see Mr. BargeSS in V-cv York in the very nenr future, and
find out vfeftt &r^ informal discussion a denac may rever«l. If things
are still vague arc unresolved, he will them cell for help from
stronger quarters, nauely your own good self.
We understand you are out of "Washington this veek. I
hope that means a vacation. I shall be away from my desk until
October 11th, showing New Phgland to a couple of British friends,
raying for lovely color and no hurricanes.
Gratitude and greetings,
Mildred. Adams
£r, Walter V. Stewart
Council of IcorxGiaie Ad
Executive Office Building
Washington 25, D. C.
c,e. - Mr, Donald B. Woodward
Viek Chemical Company
122 Ssst 42nd Street
New York 17, New York
COMMITTEE TO STUDY THE HISTORY OF THE FEDERAL RESERVE SYSTEM
September 22, 1954
Dear Mr. Woodward:
Miss Adams asked me to send you the enclosed
list of people suggested by Dr. Hart at lunch
yesterday as ones who might meet to discuss this
project.
Sincerely
Secretary
Mr. Donald Woodward
Vick Chemical Company
122 East 42nd Street
New York 17, New York
COMMITTEE OS THE HISTOBX OF THE FEDERAL RESERVE 8Y.STIM
Saaes Suggested by Dr» Albert G. Hart, 9/21/54
Idntaer
John VUXiMUl
Harrard.
iXTin Hansen
James Tobin
Isle
Hilton Friedman
CMeage
« Seltawr
Wayne University, Detroit
Inland Bach
Cemegie Institute of Technology
?• Ghandlor
Princeton
Jacob Viaer
Princeton
Columbia
Albert G* Bart
Columbia
Howard S. Ellis
California
Roland X* Bobinspn
Charles K» ^hittleaey
University of
Edvard S. Shav
Brooking s Institaition
thomas C, Cochran
Garter Goodrich
of
o
COMMITTEE ON THE HISTORY OF THE FEDERAL RESERVE SYSTEM
33 Liberty Street, New York 45, New York
September 17, 1954Dear Don;
One further detail about the Chandler contract. We note
that Mr. Calkins has signed that contract both for Brookings and
for the Committee, Personally, I do not think that this is a good
idea and I am sure that reasons for this belief will jump to your
mind as they have to mine.
The incident brings up a question for which I find no
answer in my notes, namely, who is supposed to represent the Committee officially in dealing with Brookings on matters requiring
the action of both groups? The matter was brought up at a Committee
meeting in the summer, but, unless I slipped up on making a record
of it, it was never answered. You and I have, I think, talked of
it. I would think you as secretary should play that role. The
feeling expressed earlier was that for his own sake and for that
of the Committee1 s autonomy Calkins should not be asked to wear
both hats.
I raise this point because I think it is basically important, and can easily be handled by you now; a caveat now may avoid
trouble in the future.
Besfb as always,
Mildred Adams
Mr, Donald B, Woodward
205 West 54th Street
New York, New York
c.c. Mr. Donald B, Woodward
Vick Chemical Company
122 East 42nd Street
New York 17, New York
COMMITTEE ON THE HISTORY OF THE FEDERAL RESERVE SYSTEM
33 Liberty Street, New York 45, New York
September 16, 1954
Dear Don:
As I told you over the phone, Lester Chandler came in yesterday
afternoon and in the process of a long discussion mentioned the fact that
there were two or three details which might have to be changed.
The principal thing which seemed to concern him was paragraph 6
which sets forth the Brookings system of passing on publications. He did
not think that would pass Sproulfs eye in view of a paragraph which Sproul
had on the same day sent me.
The thing which is now coming up is the matter of how much
control a bank or the Board will feel it must try to exercise and how
far that control can be squared with the Brookings attitude and the
Committee desires. This is, of course, not a new problem. We have
known it would confront us and for that reason this particular moment
becomes in a quiet way a test case.
Chandler1s attitude is that the imponderables are so important
that they can only be handled (a) by a precise and lengthy legal defining,
or (b) by generalities and good faith. He would prefer the latter and I
must say that I sympathize with him with my fingers crossed.
The problem is to find the general phrase. This may take time,
but it will not hold up Chandler1 s work. He plans to come in to read
Strong papers every Monday beginning September 27th. I took him yesterday to see Mr. Roelse who is providing him desk space. Other details
will be worked out.
If there are further developments in this, I will report
them to you on Tuesday,
Besi.as always,
Mildred Adams
Enc,
P.S. I am returning your copy of the agreement.
Mr. Donald B. Woodward y/
205 West 54-th Street
New York, New York
c.c, Mr, Donald B, Woodward
Vick Chemical Company
122 East 42nd Street
New York 17, New York
o
TRUSTEES
WILLIAM R. BIGGS. Chairman
HUNTINGTON GILCHRIST, Vice Chairman
ARTHUR STANTON ADAMS
DANIEL W. BELL
ROBERT D. CALKINS
LEONARD CARMICHAEL
WILFRED L. GOODWYN, JR.
JOHN W. HANES
LEWIS WEBSTER JONES
JOHN E. LOCKWOOD
LEVERETT LYON
ROBERT BROOKINGS SMITH
LAURENCE F. WHITTEMORE
DONALD B. WOODWARD
OFFICERS
ROBERT D . CALKINS
President
7 2 2 JACKSON PLACE. N. W.
September 14-, 1954
I am enclosing herewith a copy of the agreement
with Mr, Chandler. This is being sent today for his
approval. 1 hope it meets with your approval. I submitted the draft to Walter Stewart and Randy Burgess
today, who lunched here. They o.k.fd my sending it in
this form.
Sincerely yours,
President
Enclosure
MILDRED MARONEY
Treasurer
ELIZABETH H. WILSON
Secretary
Dear Don:
Mr. Donald B. Woodward
Vick Chemical Company
122 East 42nd Street
New York 17, New York
HONORARY TRUSTEES
ROBERT PERKINS BASS
MRS. ROBERT S. BROOKINGS
JOHN LEE PRATT
HARRY BROOKINGS WALLACE
SHELDON B. AKERS
Executive Manager
3*tstttuium
6, ;@~ C
September 14, 1954
Professor Lester V. Chandler
Department of Economics
Princeton University
Princeton, Haw Jersey
Beer Lost
This lottor sets forth the t t n i of the agreement between the
Brooking* Institution, acting for the Committee on the History of the
Federal Reserve System and i t s e l f jointly, and you, who, as parties,
afreet
1*
That you will undertake the preparation of a biographical
volume on Benjamin Strong - Central Banker, and complete
this study substantially as outlined in your momoTimhsi of
May XS, 1954.
2.
That you will complete the study within the next three
years - July 1, 1954 to June 30, 1997, and that you will
actually start work on the volume in September 1954*
3* That the Committee will underwrite expenses as outlined
in your memorandum of Hay IB, 1954 up to a total of
|7,000• The secretarial and other assistants employed
for the study will be engaged by you* The Institution
will pay orer to you in advance the funds for these
expenses so that you may make payments as the circumstances
require* Pursuant to this provision, the Institution will
pay over to you for expenses $3,000 in the fiscal year
1954-55, #3*000 in the fiscal year 1955-56, and $1,000 in
the fiscal year 1956-57 • These payments for expenses will
be made In advance as the work proceeds* £1,000 on September
20» 1954| and subsequent payments of $1*000 each on January 1,
May 1, and September 1 of each year until the full 17,000 has
been paid. Unexpended balances of these funds for expenses
a* June 30, 1997 will revert to the Institution and the
Professor Chandler
4.
-2-
That the Committee will pay 70a es compensation for this
work tiie sum of $5,000. The Institution will pay this sum
»• the work proceeds in installments - $1,500 on June 1,
19551 U»000 on December 1, 1955, Jane 1, 1956, December 1 #
1956| and $500.00 on March 1, 1957.
5* With respect to publication, the Committee will defer
publication arrangements until the feasibility of publishing
the entire series of proposed studies in a single series by
s commercial publisher, a university press, or the Brooking*
Institution has been explored* As soon as the Committee1 s
publishing plans are settled, the publishing arrangements
with you will be worked out In detail. Meanwhile, the
Committee agrees to publish the volume, or, i f i t does not
elect to publish the volume itself, i t will allow you to
arrange for publication on your own responsibility* In the
latter event, the Committee will subsidise publication up to
$5*000, i f such a subsidy should be necessary.
6. That members of the Commit tee on the History of the Federal
Reserve System will have an opportunity to examine the
manuscript prepared by you before publication, in order
that they may make criticisms and suggestions for your
consideration. I t i s understood that this provision imposes
on the author no obligation to adopt the suggestions of the
Committee* If the study i s published by the Committee itself,
by the Breakings Institution, or under the auspices of the
Committee or the Institution, • small reading committee of
three scholars—appointed by the Committee and the Institution
after consultation with the author—will have final determination of the acceptability of the manuscript for
publication*
7.
That you will send the Institution for each fiscal year
ending June 30 a statement of expenditures made under this
contract and will annually on that date furnish & report
on the progress of the study* Any portion of the funds
for expenses which remains unexpended on June 30, 1957 will
revert to the Institution and the Committee.
*-
Professor Chandler
-3-
9/M/54
If this agreement meets with your fcpprov&l, will you kindly sign £
copy and return i t to me for our files*
Sincerely yours,
President
Above agreement Approved*
titution and the
For the Author
bate
o
o
COMMITTEE ON THE HISTORY OF THE FEDERAL RESERVE SYSTEM
September 15, 1954
Dear Mr. Woodward:
Miss Adams asked me to send you the enclosed letters to. keep
you up-to-date on the details of this office.
Sincerely,
Secretary
Mr. Donald B. Woodward
Vick Chemical Company
122 East ^2nd Street
New York 17, New York
j
V
ASSOCIATED HOSPITAL SERVICE OF NEW YORK
The Hospital-Sponsored Blue Cross Plan
Enrollment Headquarters
370 Lexington Ave.
New York 17,N.Y.
80 LEXINGTON AVENUE
NEW YORK 16, N. Y.
MURRAY HILL 9-2800
September 13, 1954
Mr. Donald Woodward
Secretary
Committee on the History of the
Federal Reserve System
33 Liberty Street
New York 4-5, N.Y.
Dear Mr. Woodward:
Thank you for your letter of September 9, 1954-* I &m.
arranging to have Mr. George Shelton, our representative,
who handles the Federal Reserve Bank contact you for an
early appointment.
\
Cordially,
TjU M P ~
Norman T. Marten
Assistant to the Vice President
Enrollment Department
ntra: ha
COMMITTEE OS THE aiSTORI 0? THE FEDERAL RESERVE SIStBH
September 15, 1954
Dear Hr. Akerst
In the aiftttar of personnel for t h i s o f f i c e , vt hme, up to the
prea<mt f proceeded on an arrangement under vh5.ch the Bank totturt ug
and charged us for t h e i r s e r v i c e s .
I t has been understood t h a t In r a r i n g frorc the r i l o t phesa to the
r project v« va/alA «nd t h i s soaeiAtt a^cvar??. plaa aa.4 t«k« on otir
people, *who vr>uld b« paid d i r o e t l j from our funds»
The f i r s t of then* e&$* to vork on Thursday, September 9th« H*r
na»e i s Ellen Colt Singer (Mrp. Thoaes Singer) »n$ h*r ef^^reof I F 19
Grsa© Court, Brooklyn 1, Slev l o r k . She var gr&du&ted frow Yapsar in
1946f and Holds a Ib-ster's degree fros Radeliffa* She eoasea to us as
executive secretniy fend reseitroh £s??ist&7*t a t » salary of $80 & veefc.
I f i t I s convenient for you ahe would r a t h e r be paid by the wonth,
dating tram September 9 t h .
Mra. Singer h?*{? gone through tha regalnr personnel process of thin
bs*sk «nd has filled, oat tiiair afpHoattofl blenic• Her refaranoaa have
a l l replied with entausi«ia»« I f yoii vo\jld l i k e her to f i l l out a
Brooking^ blank fetr your f i l e s > she v l l l be glee? to do BO, a r I can
send you the Bank1? blank •
We are in the process of finding c stanographer^typifit,
v i i l l e t you knov vhen ve *re .Taccesnful. Ve hope to be an
as ve ere with Mrs. l i n g e r .
Very Sincerely y o u r s ,
Mildred
Director
Mr. Sheldon I k e r s
Brookings I n s t i t u t i o n
722 J«iaks?cm Flaee S.V,
¥aahington 6, D»C»
cc. Dr. Calkins
Mr, Donald B # Woodverd %
Vick Chemical Company
122 last 42nd Street
Nev Tork 17 f Hev lork
t
COMMITTEE ON THE HISTORY OF THE FEDERAL RESERVE SYSTEM
September 15
Dear Miss Maroney i
The origin of our "deficit of $£,038.64* seems to he
between Dr, Calkins and ne. In his letter of August 11th, Dr.
Calkins geld, "Hiss Maroney reports that aa of the cad of Juit*
ve had spent $12,038.64* which is as over-run of $£,033.64. above
the $10,000 grant originally «i«de by the Foundation,»« This raises
a question aa to 'whether ve should ask for £2,038.64. aore from the
FouadatioR to cover those expenditures, or 'whether ve should endeavor
to absorb then If, the budget for th» coming year," In subsequent
oo&slderlngs, this over-run sueas to har« b©€>n converted into a
deficit. I an gl&d to leara froa your letter of Septeirwer 10th
that the funds for the pilot project «md th« five year grant can
be combined, and that therefore this deficit, which so depressed
mef has never existed*
Such signal flags &.s your letter &re most helpful to
ma in keeping our- budget "under control. Mr, Voodward and I are
glad that you have stralght@ia@d out this confusion and that you
will b« keeping va.tch for us in the future.
Sincerely
Mildred Adaias
Research Director
Miss Mildred Maroney
Tli© Breakings Institution
722 Jackson Pl^cfe, S.V.
Vashington 6, D. C.
C.c. Dr. Robert Calkins
President
The Brookings Institution
722 Jaoksoa Place, M.V.
Washington 6, D. C*
Mr, Donald Woodward S
¥ick Chemical Company
122 East 42nd Street
New York City 17, N* I.
D
ft
ft.
Sitsllar letter to all Presidents.
Septeaber 10,
Mr. MftletXl Bryan, President,
Federal Fe«*rv« Back of Atlanta,
X
3* Oeorgie,
Dear Malcolai
tinder date cf February IS, 1$54 I wrote to you about
the esteblleh^efct of & Cossslttee on the History of th© Federal
Peserve System and asked you to five vh&t€?v$r ©id you OQttld to
i t s reprete&tatlTes In fervarding the vork vhlcib t i e eotnsltte^
hoped to promote. The pilot project aentioaed in sy l e t t e r proved
»o tfuecestful thot the Pcckefeller Foundiation ha» now made & gr^nt
totaling #310,000 t&d corsrlng « five 3r#&r period to further the work
of the co^^ilttee* IK. i t s arsnottneeaent of this grart the Boekefeller
Foundation
proposed bietory of the Federal H©s>&rre System
v i l l include an appraisal of this unuau&l Invention of
goYernsMmty said a r^triev and analysio of i t » functioning at
illirained by the p&p$T& *nd ^eaorits of a*n who helped
develop i t . How suob • sseehsniss of 'jv>netary control^
uniquely ftiftptatf to our needsf oa.«e to b® established, by
vh&t d@Yie©s i t bus endured aid thrived, asd a study of i t *
role la both govornme&t ^ndl the ©oono^f v i l l b# aome phaeet
d«alt vith.»
Mis® Mildred ACUMBS viio i s oonti&uing as researish
director of the project ;s&y b© calling upon you for help. For exa&ple,
Hi»» >Jnrguerit« Burnett ^ho recently retired «,« librferian at this bmnk
i» eoon goiuir to begin a study of regional archives and w i l d benefit
greatly fro?s the h#lp of your taafc« I ho: e that you v i l l find i t possible
to giv«t aid ncd asslstfutce to the work of the eossaittee and to those
vho may b# \p5rkinf with i t or for it«
Yours faithfully,
Allan Sproul
ASiES
Committee on the History of the Federal Reserve System
THIRTY THREE
NEW
LIBERTY
STREET
YORK 4-5, N. Y.
September 8, 1954
Dear Don:
Among the many details which I dealt with in Washington
was the matter of "fringe benefits" which you and I had discussed
earlier, A letter from Dr. Calkins showed only three areas in
which there was any question left, one of these was hospitalization. The New York bank puts its people under Blue Cross and Blue
Shield and pays two-thirds of the cost. Brookings provides Blue
Cross hospitalization but at the employees expense. Calkins thinks
that an equivalent arrangement should be made here in New York.
His exact phrasing is:
"Ho spi tali zation. Since the Institution provides
Blue Cross hospital!zation at the employee's expense, we
believe that efforts should be made to arrange for similar
benefits through the Blue Cross or Blue Shield systems in
New York. If such arrangements can be made and the employees pay the full cost of coverage, as they do here at
Brookings, we should provide this service on the same
terms as it is provided here."
Under those circumstances I wonder if you would like to
write in your capacity as secretary to the Blue Cross people. I
am enclosing a suggested letter but I framed it merely to save
you time and would be entirely content with any changes you might
make.
Also you might like to know that I got the matter of our
over optimism with money sorted out. The $10,000 pilot project
went from January 15 to May 30 without difficulty. By the latter
date we had spent $8,679-30. That left us $1,320.TO available for
work in June. Had we merely continued in the way we had been going
we could almost have covered our June expenses but we began the
Kinkaid project June 1, and $1,333 was the June portion of that;"
hence we spent $3,359.34- and were left with the deficit previously
noted.
Committee on the History of the Federal Reserve System
THIRTY T H R E E LIBERTY S T R E E T
NEW
YORK 45, N. Y.
- 2-
Sept. 3, 1954
Having felt guilty about this I am cheered to know at least
we did not run into deficit trouble until the pilot project was
technically complete. Were the whole thing prorated we would probably
find that we stretched the $10,000 for five months instead of for
four. This somewhat soothes my conscience.
I will tell you other details of the Washington trip when
your schedule developes a bit of free time.
Best as always,
Mildred Adams
Research Director
Enclosure
Mr.
c/o
122
New
Donald Woodward
Vick Chemical Company
East 42nd Street
York, New York
Cossiittee on the History of the Federal Reserve Systea
September 9, 1954
Dear Mr. Martent
«e are w i t i n g you at the suggestion of Mr. Frederick
Stee&ley of the Personnel Division, Federal Reserve Bank of New
York,
This CoPiwittee has a email staff vhich Its employed
under a joint cgree^ent between the Coramittee and the Brookings
I n s t i t u t e of Washington, B.C. Ihe home office of Brookings Ins t i t u t e (vaieh i s a re»ear<& organis&ation) has enrolled under
the Blue Cross for the benefit of i t s Washington staff* She
Federal B©s@rr® Bank of Kev Iork f *?hieh houses ih% staff of t h i s
Coralttee in Hew Xork, i s enrolleii under the Blue Cross here*
In viev of those arrangements ws ^ould l i k e to inquire
vhether Blue Cross f a c i l i t i e s and services in Mev York Citycould be made *.T&ilable to staff members of this Committee•
¥ould you be so kind to eend us appropriate inforiaation»
sincerely your®,
Donald Woodward
Secretary
Mr* Noraan T. Marten
Assistant Vice President
Enrollment I;epartaent
Associated Hospital Service of Hew lork
373 Lexington Avenue
ffev York 17, New lerk
^(nstttuttmt
6, ,33. (E.
September 3, 1954
Dr. E. A. linoaid
Bagby Bead at Mason X*ame
Charlottesville, Virginia
Deer Dr. Eincaid*
X have asked Miss Karoney, ©ur Treasurer, to furnish the necessary
information regarding your responsibilities with respeet to Social Security
and withholding taxes relative to the persons who are employed by you on the
Glass papers.
Miss M&roney informs A S that it will be necessary for you to pay the
Social Security tax on salaries of each of your employee assistants and to
withhold taxes in the event their compensation is taxable. I hope that your
estimates of compensation for assistants hare taken account of the OASI tax*
The employee must supply an exemption certificate (¥-2} and a Social
Security number. If any employee does not havs a Social Security number, it
v U l b© necessary for them to get one. The application forms are enclosed.
These forms should be supplied to you as employer.
The amounts to be withheld are as follows!
Income tax. This &apm&* on the number of exemptions claimed by the
smployee on Form ¥-2, and whether the payroll period is weekly, monthly,
daily or miscellaneous. The amounts are set forth in tables at p. 20 f.
of the enclosed booklet*
OASI (f.I.CJU taxh The amount withheld (to be matched by the
employer) is set forth in the tables on pj>. 39-3PL There is an exemption
for OASI, but not for income tax, for wages of less than $50 in a calendar
quarter. But this exemption is peculiar to nonprofit institutions and it
would not, we think, apply to you as employer.
If you have only anm or two assistants and the records of their
service and payments are in good order it is possible that we might help
you on the paper work in straightening out any complications you encounter.
I talked with Miss Adams about this today. ¥e think it might be well
for you to furnish an accounting showing the amoimt spent and may unexpended
balances. We, of course, hope that the funds available will be ample to
Dr. Kincaid
-2-
9/3/54
cover the 0A3I tax.
Hiss Maroney also inforas me thfct you will need to obtain an
identification number &g the employer, A fora for this i s enclosed.
I t i s also advisable to keep suitable records for income tax purposes,
since you will need to report the full amount of funds received from
the Institution and then show the payments made as expenses deductible
from other gross income received* A tax form i s also enclosed.
If we can be of further assistance to you in this matter please
l e t us know*
Sincerely yours,
President
6, JL dL
3, 1954
Miss WHItti Adam*
Coaaittee on the History of the
Federal Reserve System
33 Liberty Street
Sew York 15, Sew lark
Dear Miss Adamss
In reply to your letter of August 17 regarding fringe beaefits,
I should like to set forth the following proposals!
(1) The contractual arrangement between the Committee and the
Brooking a Institution pro-rides (Sec. 6) that employees "shall be joint
employees of the Committee and the Institution for specified periods,
sad mot regular employees of the Brooking* Institution.11 Since employees
are joint employees of the Institution they would normally come under
such regulations which govern our own employees*
(2) Social Security. Employees must be covered by Social Security
since employees of the Institution are so covered.
(3) Hospital!satjoa. Since the Institution provides Blue Cross
hospitalisatlon at the employee1s expense, ve believe that efforts should
be made to arrange for similar benefits through the Blue Cross or Blue
Shield systems in Hew lork. If such arrangements can be made and the
employees pay the full cost of coverage, as they do here at Brookings,
we should provide this service on the same terms as it is provided here.
Sick Leave. The Brookings regulation on sick leave should
apply to employees of the Committee in or out of Hew lork.
(5) Vacation with pay. Brookings regulations providing vacation
with pay should apply to the employees of the Committee.
Retireme&V The regular retirement age here at Brookings is
65 years. Appointments of personnel beyond that age require special
action of the Executive Committee. Ye believe that similar regulations
should apply to employees of the Committee. Such employment may jeopardise
the retirement income from OASI. It would not normally imperil other retirement rights of employees.
Miss Adams
-2-
9/3/54
(7) Teachers Insurance and Annuity Association. The Institution
allows participation in the TIAA for employees who have at least 3 years
of service, are at least 30 years of age, and have a minimum salary of
$3*600. Since the employees of the Committee will come under Social
Security and would not normally be eligible for TXAA for at least 3 years,
we believe that any action with respect to TIAA Should be left for later
consideration* The problem may arise for employees who come from institutions
that are under TIAA, and here through special contractual arrangements the
Committee could undertake to continue the TIAA payments during the temporary
period of service for the Committee.
(S) Insurance* I am turning your correspondence regarding unemployment insurance over to Mr. Akers with a view that he may follow up with you
or the New York State officials regarding this matter. It seems clear that
the Brookings Institution is exempt since we are Incorporated as a nonprofit
corporation for scientific and educational purposes, and are exempt under
Sec, 101(6) of the Internal Revenue Code*
Sincerely youre,
•
President
J
V.
SYMBOLS
CLASS OF SERVICE
DL= Day Letter
Thfs is a fd It-ate
Telegram or Cablegram unless its deferred character is indicated by a suitable
symbol above or preceding the address.
UNION
W,
NL=Night Lettec
LT= Int'l Letter Telegram
~
VLT=Int'l Victory Ltr.
P. MARSHALL., PRESIDENT
on telegrams and day letters is STANDARD TIME at point of origin. Time of receipt is STANDARD TIME at point of destination
The filing time show:
B-.PDA247 NL PD= JACKSON NHAf^P 4 =
4
DONALD 3 WOODWARD*
=122
OUR V I S I T
EAST 42 ST
LANES DELAYED NOW JUST COMPLETED LANE
INTERESTED KNOW fvlORE SUGGEST TELEPHONE FRED LAME
WESTMINSTER MASS 6 RING 1 3 TO DISCUSS FURTHER =
WILL ITS*
http://fraser.stlouisfed.org/
THE COMPANY WILL APPRECIATE SUGGESTIONS FROlM ITS PATRONS CONCERNING ITS SERVICE
Federal Reserve Bank of St. Louis
PM I
2
>
September 1, 195U
Dr, Joseph H
Jackson, Hew Hampshire
Dear Joe:
Forgive the appearance of chasing you - but I am curious
as to the response of Dr* Lsne. If there is anything you can tell
we it will be much appreciated.
X do hope the vacation is going most enjoyably and X do
apologise for intruding on it again.
With regards.
Cordially,
@FedFRASER