Good, Bad & Indifferent

Hundreds of company-earnings reports last week revealed that U.S. business is running a race between soaring profits and soaring taxes.

Most companies allowed for a 30% normal Federal income tax (it was 20.9% last year), then whacked off large additional amounts for an excess-profits tax not yet passed. The National City Bank figures that taxes on 135 big concerns in the first six months of 1941 rose 250% above the first half of 1940, while profits after taxes were up only 30%. National City's compilation showed that second-quarter profits for 200 leading industrials (see chart, which is seasonally adjusted) were about 86% of the 1926 rate of return on net worth, sharply below the 103% rate of the first quarter, though up from the 78% of the second quarter of 1940.

But behind the so-so profits showings lay many a solid improvement in net worth. War orders have brought in a vogue of ultra-conservative bookkeeping: huge tax and contingency reserves (many much higher than needed) and drastic write-offs of brick and mortar (as encouraged, in the case of new plant, by last fall's tax bill). Five years hence, many a corporation will own good property carried on its books at zero.

Some reports:

^ Outstanding (and least taxed) performers were the railroads. Total revenue of Class I roads in 1941's first six months was about $2,424,000,000, highest since 1930 and 21% above last year. Because their huge capital investments free them from excess-profits taxes, their net operating income (after taxes, before interest) rose 77% to $434,000,000, best since 1929. Some roads did far better than others. Atchison, Topeka & Santa Fe, with revenues up 29% to $97,282,000, increased its net operating income 210% to $13,847,000. Revenues of Atlantic Coast Line (with many Army camps, defense plants on its right of way) rose 32% to $34,779,000, while net operating income rose 500% to $6,885,000.

> Steel companies got it from all sides in the June quarter; a 10-c- hourly wage boost on April 1, an agreement with OPACS not to raise prices, and an excess-profits tax status that puts them in the highest brackets. But they were also in the thick of the boom. Result: 40 companies earned $70,110,000 in the second quarter, 25% below the March quarter but 40% above 1940.

U.S. Steel cleared only $24,815,000, 32% under the first quarter. Bethlehem skidded badly: as taxes jumped from $7,270,000 (first quarter) to $17,630,000 (second), net dropped from $10,436,000 to $5,651,000--not much for a company with a $1,400,000,000 backlog.

Because of better cost control, some smaller steel units did better. National and Jones & Laughlin earned almost as much in the second quarter as in the first. Earnings of Crucible Steel (gun forgings, shells, periscope tubes) in the first half zoomed 220% over 1940--before taxes. It set aside $6,126,000 in tax reserves--more than five times as much as last year --but still netted $2,924,000, 60% above 1940.

^ With June quarter sales up 54% (over 1940) to a record $16,076,000, Monsanto Chemical lifted profits 33% to a record $1,946,000. Sales of war baby Atlas Powder increased almost 100%, net income rose 30%. But giant Du Pont's taxes eroded its profits faster than it could make them: sales for the quarter rose almost 50% to $125,915,000, net profits dropped from $23.127,000 to $23,008,000.

^ Although June quarter sales of General Motors rose 50% over 1940 to a record $699,898,000, taxes almost tripled (to $93,208,000), thus held profits to $53,-580,000, 15% above 1940. Truck maker White Motor Co. had a similar experience: first-half sales rose 71%, profits 6%. But price-cutting Nash-Kelvinator, its June quarter sales up almost 75%, lifted profits from $902,000 to $2,607,000--best in over a decade.

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