Tobacco study;

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Tobacco study;
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United States -- National Recovery Administration. -- Division of Review
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N...ATIONAL RECOVERY ADMINISTRATION

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UNIVERSITY

OF FLORIDA

LIBRARY









7 0 ,. E UT 0 R D


This study of the Tobacco Indurstr: b7.-S prepared by members of the
Tobacco Unit of the Industij Studies Section, Hr.. LI. D. Vincent in charge.
............ ....................
The Tobacco Unit desires to e.-rress its appreciation of the un.fail-
i;:-. courtesy and cooperation displayed by- officials of all Government
dCeorLrtments thr.t have aided ,A. t'he -nrernartion of this material. Special
ackionledgment .is mace-to the Treasury Department, particularly to the
Income Tax Bureau.aid. Tobacco .Tan. Division of the Bureau of Internal
w-ver.ue; -to the Bureau of Lebor St7tistigs of the Department of Labor;
to the Bureau of Agricultural Economics of the Depar-tment of Agriculture;
to the Agricultural Adju'.stment.Ad.miistration; -rid to the Tobacco Division
of the Bureau of Foreir-.n and Domestic. Courierce, Departnent of Commerce.

Sinilarl7, the Tobacco Unit is indebted to ,ll divisio.is of the
I:.dustr-; almost vithout exception members of the Industr- hrve given
freel- information needed in certain sections of this stuc'-'.

In the organization an.d prer-.entation of material the Unit wishes to
ac!-nouledge valuable editoria;- assistance from other members- of the
Division of .Revieu.

At the back of this report will ba found a brief statement of the
studies undertak:en by the Division of Review.








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.: **TABLE- OF COI7TETTS
"- '*,.' "'; ... ..." .. TA .".' 0" O T T


CHAPTER 1 Z T'MLARut CORPORATICri.r T THE TOBACCO LiAiIUTACTURI1iG DIMUSThY
SPAGE
A1. D2FINITION am.. a.e.. .......ea.. 7
B. SIC-lIFIICAIR IN THE CIGARETTE-* SirJF CiTIITG
A2i SLIOKIITG TOBACCO i.LUU'FACTURIiTG IfIUSTRY ............ 7
C. THE BIG FOUR A "IISI.TOIER ................. ........ *.... 10
D. OWiTERSHIP AiTD COFITROL ................................ 10
1. Stock Ormershin ....... 10
2. Non-Voting Stock ......... ..........a...e..s... 11
3. Character of the Directorates .............. ..... 14
4, Returns of -IanaMrement ....... ...................... 14
(a) Preliminary ........................ ...... 14
(b) By-law XII .................................. 15
(i) The American Tobacco Comsny .......... 15
(ii) Liggett & Mvers Tobacco Company ....... 16
(iii) R. J. Reynolds Tobacco CoRmpany ........ 17
(c) Recent Developments ,........................ 17?
(i) Lieett & livers Tobacco Company e....... 17
(ii) American Tobacco, COmpany ,,,.,......,. 17
(iii) R. J. Reynolds Tobacco Company .&ot.,.. 18
5e Conclusion .. ... .... ........ ....... ... .. 21
(a) Return to Executives ... ... ....21
(b) Non-Voting Stock 22......... ...... 32
(c) Character of the Directorates o.............. 23
Eo CIGARETTE SELLING PRICES AIM POLICIES ................... 24 |
I Preliminary .4 ;|
(a) Ordinary Discounts ................. ... 24
(b) Range of List Prices .....24............ 24
2. Character of Comretition 7 2
3 Channels of Distribution .......................... 7
4. Special Discounts and Atllownces *................ 27
(a) Definition .*............. .. 27
(b) Their General Characteristics .............. 38
(c) Their Extent ............................... 8 a 28
PRODUCTION .........................m................ 33 I
G. ASSETS AiD FIRINGS OF THE BIG TIRFEE ................... 33
1. Capital Invested ..e....aaea,..........,.aa...... 33
2. Earnings .. s.. .. ....u. s...ma 34
3. Disposition of ITet Earnings ....s...........m...... 35 ii
H. ASSETS AiD EAB"INGS OF THE TOBACCO IiDUSTRY .....*.....a. 37
I. II'1DUSTRY CO.PARISONS ..............,....................s 40
Append~ix I .**........**.. *...... *.......* .. *..*.. *.... 47 "||j
Appendix 1 e mas e .s am a 47
Appendix 2 .............................aua. ...*m*a 52
Appendix 3 .a........ 65

CHAPTER II THE ECOITOaiIC AiD SOCIAL STATUS OF LABOR

A. LABOR III THE CIGARETTE, S rI-r:, CHEWINTG AETD SiiOKING
TOBACCO IIA-FHACTURING IIJDUSTRY 70
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,Susaiai~ry sees. 70
I !*- 'ihe Sire- of the La~bor Force ...... o..0.............o 72
*2. R egional Concentrrtion ......,'....................a 74
-. 3. CoLnosition with Respect to Color and Sex ......... 74
..4,- Distribution by Comoanies ............ ... ..... 74
5.. workerss in Vaae- Grouos Prescribed by the Code ..... 75
6. Aver-ze Hourly Earnings in Ilarch 1935 a....a....... 77
7. Average Hourly Earaings in Code Groups ............ 80
8. Averae Hours Worked Per Week e*.......e.e.. ...o 81
9. Average E.rnin.-s Per Week ......................... 82
.10. Position of the Incdividual Worker ................. 83
11. LI-iufacturers-versus Indetendent Leaf Dealers &. 84
.12, C~eng-arisons -with Other Zimes '. ..... ,,,.. ,,. 85
13. Comoarisons with Other Industrieg ;,.........,, 88
.14. -Remiarks on-Particular Branches of the Code Industry 91
.15. .Annual -E-rnings and 'jhe -ihurlber of 'Weeks Worked by
........ *Tobacco- IIaufacturin E*Sployees in 1934 ..... 93
B. COMPAID -POLICIES OP *k7; JJU.7e MO! ........................ 96
B. 96
.1. .Introduction *.*.. .....'.. 's..... ................. 96
2.. .Vacations ... ... ..'.'.. .... .. ..... ... .... 5 U ..* 0 a2
3. Sick *Leave .............. ............. 97
4. Insurance ..... ... ... ....... ....... .. 97
51 Pensions O... .a..*****a.' ....... *... a..*a..a........*a 97
6. Hodical Services aa.. a .. a a .... a*. a ** 0 a 00 98
7. Safety Proerm ....................... 99
8. Recreational Ac-tivities ......, ..... .... 99
9. Educational Work a's.... a", a .m. a sa.., a ....s.. ,,eo 99
10. Cafeterias .. .. .,,,..... .... .. ............ 100
11. Other Welfap.re Work..,.e.... s.ss ............. .. 100
12., Examrles of Welfare Policies ,.... ..........., 100
Co NECHAiIZATION ... as a ...s. .... e... ... :.. ....... ,. 101
1. Historical ........ .......... ...e..... ese. .e 101
2. Under the Code .......G s........ .. ...... ....... 102
3. Post-Code Conditions ......... ...... 103
4. Conclusion ......... ... .... .. ........ ,. ,,s 104

CHWAPT- lI-- IITTEGRATI01T WITH AG-ICULTURB

A. IiTRODUCTIO ;;. s;... .... e ........ ....... e s .... g 105
B. PRESENT ETMODS 'OF.SELLIiIGT LEAF'TG3ACC0 ........, 105
.1. -The Loose Leaf and A-ction Warehouse a,*g,,.,a.,.. 105
.... (a) .*Rapi&ity of Sales ,,,,.m......,.. ,g..,.,, 106
S (b) *.Iimportance of Adequate Lihting ,......... 106
(c) .The Small Ma.rl'et on.,,,.....,,,,, es......s 106
(d). mandatory Governnent Grading ,,,,,.,,*....m,, 107
Ce) The Short Marketing Season ,,....... ,ese...ss 107
Cf4 .Unfair-Trade Practices .....,,,,..,,,,,,. 108
S (1) Subsidized Trucking ..1................. 109
(2) Rebating .... ...... ..... ... ...... ...... 109
S. ... (3) Reservation of Floor Space ,,........,. 109
2.. Thea laryanel Mar .-et- g. a a a a. a ............ 109
3. The Connecticut Vfilley Situation ,,,,,..,,,.,. Ill

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4. B arn-huying Ilethods of Cigar manufacturers .,a...., 112
5 Colluc'oai'ion purchase of Leaf ...... .... 112
5 0 .1@ @ o@I O @ro
.. ig Conclusi'on' 1.'. l13
b'. flLJuSTIZTW 111t D&,fiA F r VARIOUS TYPES OF TOBACCO .... 113
e1. Shifts in Production Areas ........................ 113
2, The South Atlantic States a. eg... 123

... CHIAPTMR IV FO:RIGU TRADE IT LEA? TOBACCO
Part i- TEHE IbWORTANCE OF TOBACCO AS AJI EXPORT COMMODITY AZD
i THGROiTH 0b FOREIGN COLETITION .................... 125
TItE IIPORTA3ICE OF TYPIS ............................. 125
B. THE CIANGE II; SHOKIiTG TASTES ............................ 125
J C.' TIE D.A TYPES ** .. ................ 126
1. The Lost' Italian i.iarket ......,................. 127
D. ILARYLAI0D TOBACCO ... ........ ................. 128
E. BURLEY TOBACCO .............*.......... 129
F BRIGHT FLpE CURED TOBACCO ................131
1. Domestic Production .......o... .................. 131
., 2. Foreign Proiduction se *.........ee..ee...........see s......se 132
3 Su ma y ........ ....-.--........... ........ ,.,,... ,,, 133
\Part 2- TIlE PEEL&I91T TRAJE JA1RIERS TO AIERICAI EXPGQRT TRADE 135
A. GO.VEB..I T i{ONOPOLIES ,....,u............ ..m....... a'....... 135
SB... CRHATER VIS ................... Tee CIGA AFCRGT
C GOLD .MB S ,A ,Q.QA ES..O S ................ 136
D,. IMPORTANCE OF .E BRT ITISIT COlPAOIES ......S........... 136
E c nOCLUSIiT ........................................... 137




I. a e r .
.s .m. .ary ,. ,. ,. ...*** *. *.*..... ... ...... ,. .... ....., 14 o
A. DEFIITION iaM P IneSEtT POS*ITIO.T Or. I aDUS mY .........e 141
C. Defin'it)iAo'n uof u the Industry ". .ega...e.. .s.eeeos 141
(a)t Descrimption of g mand manufacture of Ciguars 142
S.... (b) description of' Lachine Manufacture of Cigars 143
2. Present Position of the Industry ..,..............,. 144
(a) NHumber of Establishients *..sees.... a.se.eee* 144
LB (b) Total Investment ......................... 144
(c) Annual Production ..,...,. 144

*.Ca)yoaiTj nJoyment gasoon*gasm*on goesaooeUOo ae@S @UO 149
'(d)'..pvs ion.fpoyment ......'................ ....... 145
Be. DEVELOP131IT OF THE INDUSMIY ................... ......... 145
!.' LABOR IT C'CIGAR ..W.UACTUEIlTG 149
i .. .. .. Oi@ @ O n@ i o*::o
..... Iinen~t *..,., ,.............,.... ......,... 149
(a) Tota] .Employment ......................... 149
b.).. I Division of Employment by. Sex 1.50....
(c) Division:of Employment by Occupations .a..e.a 150
........ (A).. o.ASality of.Employment ....n.e.b.,...... 151
i. ..... (e). ReZonal .Concentration of Employment ........ 152
... ...... A.i.s.t.i.bit.i.on of Employees by Size of Company 154
......... () Distribution of Employees by Ages ........... 154
.. .. ... ?.. .. Hous of Zznrlovment.,....... ............*...v.-.. 154


-iv-







3, Wage Sates and Earnings .. .... ... .
(a) Annual Wages and Annual Payrolls ............
(b) Weekly and Hourly Earnings in the Cigar
Industry Compared to Other Manufacturing
Industries ,................... .........***.
(c) Wage Rates and Earnings by Occupation, Sex,
and Grade of Product ....*. .........*
(d) Earnings by States .... .........
4. Mechanization ... *...... ... ... e.... .... ..........
5. Effect of theCodeonLabor ......................
D. LLJOR INDUSTRY PROBLEMS .... ........... ....... .. ... .
1. Declining Volume of Production ...................
2. Trend Toward Lower Priced Cigars ................
3. Mechanization and Concentration of Production ..
4o Integration rith Akriculture ............
(a) Tobacco Buying Lethods thods................

CHAPTER VI '- DISTRIBUTION OF TOBACCO PRODUCTS

..PART I- CHANGES IN QNNELS

A. T SITUATION 'IN GENEf AL ....... U.5.. s....
B. MAIJTFACTURERS' WHOLESALE BRANCHES .......................
C. THE TOBACCO WHOLESALER ............................* *
D. .,NDITIONS IN THE T RETAIL TRADE ............ ..............
E. PRICE CONDITIONS IN THE TOBACCO TRADES PRIOR TO THE CODE.
1. Vanishing Margins ..5..U..............5.. .......*U
2. Retail Tobacco Chains in 1932 and 1933 ............
F. PRICE REGULATIONS IN THE RETAIL TRADE ....................
1. Effects of Price Regulations ......................
(a) Independent Retailers ......... ..*
(b) Chain Cigar Stores g.... ..ose 00I tt..*.....0
Chain Drug Stores .. ........ s ....
(d) Chain Grocery Stores ......
() department Stores ........................
2. Price Spread Between Popular Brands and Ten Cent
Brands .... ....... ... ........ .. ............
3. The Cigar Merchandising Plan ....................
(a) Operation of the Plan .............. .........
G. RELATIVE STABILITY OF RETAIL PRICES ....................
H. PRICE REGULATIONS IN WHOLESALE TOBACCO TRADE .....0 ....
le Effects on the Sub-jobber ......sesss.... ..........
2. Compliance with Wholesale Price Regulations ..... ..
I, SOLUTIOT IOF CODE PROBLEIV .s....... ...........a ........
1" Possibility of Consolidation ... ... ....
2. Attempt to Secure Voluntary Agreements......
J. LABOR IN TOBACCO DISTRIBUTION ........................ .se
fl Hours and Wages in the Retail Tobacco Trade *.s*ee*
2. Hours and Wages .in the Wholesale Tobacco Trade ..
(a) Maladjustmen4t withh Other Wholesale Trades s


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PART II ADVERTISING PRACTICES

A. ADVERTISIIfG PRACTICES AS AFFECTING DISTRIBUTION IN
TOBACCO ......................... 196
1. Good-Will.a Qopetitive Warfare ............... 196
2 .. The.Advytisig Apnronriation ..... ............. 300
.(a. I 1 12. and 13 201
...... (I?). .The.]34.tion's Bill for Advertising .......... 202
(c). Is.Tobacco's Sh.&re 50 to 60? ............... 204
3. 3s The.Aversin QCnst. of Distribution .. ......... 205-
B, .TOBACCO. COI'40!D TO O]iKii Ii-DUSiRIES ................... 207
..lo 1933-1934 Tobao-o Lilnpge ,...,,,,.............0 207
2.. The TnIgiAai.Y:z- Ie.J3ders g...................... aue 208
3. Comparison of A.sver-4isn, E.-yenditures .0....... 209
(a) Newspaper Adrver'tising ...................... 209
(b) Magazine Advertising..,.,.................. 210
(c) Radio Broadcast Advertising ................. 222
4. Rocapitulation a........ bqh.. ...g..u .g. .. 223
5. Estimating the Total Cost ........................ 224
CQ WHAT. IS THE COST? ..,....... e...n........e ...smu. a g.... 225
Do TIE EFFECTS OF ADVERTISING COMPETITION .,............. 226
E. ADVERTISING ALLOWANCES ..................... .a 226
^~ | i .
1. Tobacco Products as Loss Leaders ,..............* 227
2g Effect of Loss Leader on Retailers ...,.........,. 228
.... Advertising Allowances to Chains. etc. ....... as, 229

CHAPTER yII TME IMPORTANCE OF THE TOBACCO IiAfVACTURING
INDUSTRY TO THE FEDERAL GOVERl 'IE{T AS A SOURCE OF TAX REVENUE
A. Gf.A g mgg e,... ggh 3
Am. GE..... ....w 235
BA. ADDITIONAL. TA.. REVENUE P'.R01 CUSTOMS RECEIPT. 4ID
C. i d d qIq1,G TAXES .a..... .............................. a a a a a a a .0 a a a 237
.C. TA .. ......... ..... ........,.... ...... ...g 237
De DISPAITY IN TAX IKETHODS ............................... 238

CliAPTER IV.' -.PQSSIBILITIES FOR RESEARCH IN THE TOBACCO INDUSTRY

....... PAGE

.A..THE. SCEG.QF RESEARCH IN THE TOBACCO INDUSTRY o........... 239
,*, TH FIELD FOR COORDINATED INDUSTRY RESEARCH ............. 240
1.. The Curing of Tobacco .g........g.... .ama.''ee** 240
2. Primary Leaf iMarket ............gg ..em.......... 241
3. By-Products ............,.......................g g 241
4. The Aaing of Tobacco ...................m.e.ne ....9 241
5. Distribution Problems ........................., 241
6. Labor ....a.g.. ..........................: ...... 242
6o"~o 242
?7 Foreign Markets **........,*g g...,...e.......*.- 242
8. Relationship with Government ..,................. 242
C. ASSOCIATIONS IN THE INDUSTRY........................... 243
1l Functional Organization and the Relationship of the
Association to Research ...............,e.,* 243


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PAGE

D. COICLUSIOI .............................................. 244

APPZ n)ICS 1C T!HE T0MACCO STUDY ..................0......*.. 245

A-,iencdix 4
Taxation, Revenue Receiots ............................ 245
Changes in Rates of Taxrtion .eeee...... no.....**.'s, 247
States Taxing Ci7arettes .* ............... .... 248
States Taxing Smoking Tobr.cco .............. .. 249
States Taxin- Chewing tobacco .......... ......,*..... 250
States Taxing Squff ........... ....... ......... 250
Table Receipts from Ci-arette TaXes and -Der capital
consumpotion ... .. ... ........* *** a a* 251
Appendix 5
List of Unpublished materialal on which Chapter V is Based 259
Appendix 6
List of Basic Tables from Deoartment of Labor ......... 263
Apoendix 7
Distribution *... .... ... .... ********. .. *. ... ... 269
Appendix 8
Table 1 List of Codes in Tobacco Industry *.......... 276
Table 2 Finished Code Histories in the Tobacco
Industry .................. ........ ............ 275
Appendix 9
Foreign Trade in Tobacco ............................ 277







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THE T TOBACCO INDUSTRY




W* *
S UM V1 A RY




Ever since the Colonial period in Virginia when tobacco was the first
medium of exchange and the first export commodity, the story of tobacco
has been a panorama of American economic history. The tobacco industry
is typical of the revolutionary changes which have taken place in agri-
culture, manufacturing, distribution and foreign commerce. Altogether,
a general study of the tobacco industry affords a wide view of American
experience in governmental activities and business development.

Tobacco, today, provides the South Atlantic States an agricultural
income greater than that from cotton; it ranks first in other important
farming areas. In dollar value, tobacco ranks second among agricultural
commodities exported. Its manufactured product t is worth a billion dollars
wholesale. The labor employed is both white and black, North and South,
union and non-union. No other manufactured product, liquor included,
furnishes (as of 1935) so large a proportion of the national governmental
revenue.

In the spri-ng of 1933, the tobacco industry well illustrated the im-
mediate need for governmental intervention in the public interest. The
prices then paid the farmer for his tobacco, the wage levels for labor,
the policies toward distributors and consumers -- all combined to exhib-
it depressed prices for the grower and inadequate wages for labor on one
side, but continuing large profits for the manufacturers on the other.
In 1932, average prices paid farmers for tobacco were far below cost of
production. General wage levels were below adequate subsistence require-
ments. Wholesalers and retailers were suffering severely and, in part,
directly from the sales policiess and distribution methods of some of the
large manufacturers.

Cooperation and, later, on agreement with the Agricultural Adjust-
ment Administration in the fall of 1933, when the manufacturers guaran-
teed higher price levels for tobacco and a certain volume of purchases;
and the compliance of tobacco manufacturers with the President's Re-em-
ployment Agreement, represented the first forward steps tsken by the
manufacturers. It was not until February of 1935 that the cigarette,
snuff, smoking and chewing tobacco industry accepted a Code of Fair Com-
petition and that Code was limited solely to labor standards. Later dur-
ing the Code period, wages were raised somewhat above those existing under
the President's Re-emnoloyment Agreement, and with that addition, repre-
sented roughly a 505, increase over the weekly earnings that had prevailed
in early 1933.

There was another Code in the industry -- one for the cigar mraanufac-
turers. Under this cigar manufacturing Code, although the Code provided
a considerable increase in wages, the long struggle between the handwork-
ers and the machine operators resulted in exemptions and many inconsisten-
cies in wage rates.

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The leaf dealers, whose primary business is export, employ negroes for
stemming and other unskilled operations during the short marketing season
of tobacco leaf. For years these unskilled workers, representing the low-
est class of casual labor, have received a meserable pittance as their wages.
No Code agreement for leaf dealers was ever reached. Comparisons of wages
paid by leaf dealers with those paid by the manufacturers, often in the
same areas, show a condition to exist that needs immediate remedy.

The situation existing since the end of the NRA Code period is of de-
cided interest. The large manufacturers in the cigarette, snuff, smoking
and chewing tobacco industry have not only continued their wage standards
under the Code, but they have raised them. Comparisons with the automobile
industry in Section 15, Part A of Chapter II of this study are well worth
reading. Although the wage levels, particularly for unskilled negro women,
are still on a very low subsistence basis, the general labor story of this
particular industry, developed from Code experience, shows for the first
time a sense of social responsibility. It is unfortunate that the same
conditions do not exist in the cigar manufacturing industry; there, with
certain definite company exceptions, even the low code standards have been
dropped. On the distribution side of the tobacco industry, wholesalers
and retailers have lost the profit advantages received during the Code
period; they are continuing actively however, through their associations
an attempt to work out their problems.

The whole situation in the tobacco industries became so deeply a na-
tional concern that, in February 1935, under an Executive Order of the
-President of the United States, the Division of Reasearch and Planning of
the National Recovery Administration began a survey of the manufacturing
industry, covering not only labor but other problems pertinent to the po-
sition of the manufacturers in relation to the national economy. Immediate-
ly after the Schechter decision and the formation of the Division of Re-
view of the National Recovery Administration, it was determined to continue
the Tobacco study, widening its scope to cover the several divisions of
the industry and to develop insofar as possible their inter-relationships.
The Tobacco Unit of the Industries Studies Section, Division of Review,
was therefore authorized to include in its study a survey of the methods
of purchase of tobacco leaf from the farmers, to trace the relation of
tobacco to world trade and to examine domestic processing and distribution
of all important tobacco products. The present study is a result of that
survey. It is not complete, as this report points out; there are wide
areas yet to be surveyed; and the need of continued research is indicated
constructively in each phase of this present report.

Almost without exception the representatives of the industry have
talked freely with members of the Tobacco Unit and have aided materially
in the compilation of part of the information here presented.


The Tobacco Study as here presented surveys the tobacco industry in
the following relationships:

Chapter I. The Large Corporation in the Tobacco Manufacturing Industry.

There is discussion of the divorce of management from ownership.
lon-voting stock, first used as a legal device for control; the
character of the directorates and the limitation of their member-
ship to those holding other official positions in the corporations;
L 10691


. ". i". ...M '.




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the remuneration to management; -- these are all given critical ex-
amination. Cigarette selling -rices and policies the effect of these
policies on wholesalers and retailers, and on the relative position
of the largest companies in the industry are studied. Comparisons
are made of their assets and earnings with those of the entire tobac-
co industry and with other industries.

Chapter II. The Economic and Social Status of Labor.

The study of wage levels gives an opportunity to trace region-
al, sex, and racial differentials. The extent of welfare practices
is described and. the question is raised whether the welfare programs
at present conducted offer resistance to adequate wage levels. La-
bor studies are presented to reveal certain inadequacies of the wage
structure.

A survey was made during 1935 by John P. Troxell covering the
labor union organization in the cigarette, snuff, smoking chewing
tobacco industry. This survey is in the file of "Special Materials"
of the Division of Review. An independent survey, by Dr. Charles
S. Johnson of Fisk University, was made during the Code period and
was especially concerned with living conditions in a number of tobac-
co manufacturing centers in Virginia, North Carolina, and Kentuckyr.

Chapter iII. Integration with Agriculture.

But a few of the many problems are listed, indicating the
inter-dependence of this industry and tobacco culture. No one of
the present methods open to the farmer for selling his tobacco is
free from fault. There is need of immediate consideration of
this problem by government as well as by industry.

The readjustments in demand for various tyn-oes of tobacco have
resulted in pronounced shifts in production areas. The dependence
of the South Atlantic States on both tobacco culture and tobacco
manufacture is of such significance that this area is given special
consideration.

Chapter IV. Foreign Trade in Leaf Tobacco.

So large a proportion of American grown leaf ordinarily finds
its way into foreign markets that the American tobacco manufacturer
alone cannot guarantee reasonable prosperity to the American tobac-
co farmer. Certain foreign markets have been lost and cannot be
regained. This chapter indicates possibilities of new markets abroad,
based on further analysis of world requirements. Trade barriers,
such as government monopolies, preferential duties and quota re-
strictions are discussed and comment is made on the tariff walls
erected ih the past by this Government and their restrictive influ-
ences on tobacco export.

Chapter V. The Ci.gar Manufacturing Industnry.

All the problems incident to a declining industry are here il-
lustrated. The never-ending pressure on labor, as on all other
costs, has resulted in wage levels, still continuing, that have no

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license to exist in Amerl- canu industry. The increasing use of the
cigar making machine has had. lfss influence on total labor employed
than has the decline in cigar production. No attempt has been made
to answer these problems.

A field survey now in progress by the Bureau of Labor Statis-
tics, Department of Labor (covering wage levels and annual earn-
ings, in plants manufacturing cigars by hand and in highly mechan-
ized factories) should be of great aid in showing the unfortunate
conditions surrounding labor in this industry. This is bat another
instance of the need of further study.

Chapter VI. Distribution of Tobacco Products.

This chapter is a consideration of the national problems that
arise from the distribution and the advertising policies of the
manufacturers. Seven changes in the channels of distribution for
tobacco products are described; the subject of demand in relation
to price is considered; the effect of loss-leader practice is eval-
uated. The decline of the tobacconists' snons, the growth of chain
stores and of co-operative of various kinds, and direct selling by
manufacturers to retailers of large purchasing Dower -- these are
factors that call for continued analysis. The use of large scale
advertising campaigns, running into scores of millions of dollars,
presumably to develop consumer demand; the effects of advertising
on the whole industry; the social and economic consequences of ad-
vertising allowances, free deals and the like, constitute a field
of more than industry interest and significance.

Chapter VII. The Importance of the Tobacco Manufacturing Industry to
the Federal Government as a Source of Tax Revenue.

P.ecognizing that it is not the province of this study to pass
upon the various problems of taxation as illustrated by this indus-
try, the fact that tobacco manufacturing is the largest single in-
dustry source of federal revenue warrants a full statement of its
contribution and a direct comparison with other revenue sources.
The special State excise taxes and State sales taxes are discussed,
for they tend to decrease government revenue from tobacco products.
Mention is made also of the graduated tax on cigars and the differ-
ent tax rates on cigarettes and on other products.

Chapter VIII. Possibilities for Research in the Tobacco Industry.

Herein are outlined the fields of research which invite the at-
tention of government and industry. There is opportunity for the
tobacco industry to establish a Tobacco Research Foundation in which
all divisions of the industry take part. Some such plan would per-
mit the tobacco industry to work its own way out of its many malad-
justmnents, and make thereby a valuable contribution to the national
economy.




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APPEDI CES


A'-enC.ix 1. Proc'uction


T+.ble 'umber 1.


Quantities of Che.ing, Smoking and. Snuff Tobacco,
Ciga+rs and Cigarettes manufactured by the Totacco
Industry in the Urited States, and the quantities,
(evGd Percentages of the total), pro.uce.d by ze-
lected. groups of corporations. For ca.lenc.r yet.rs
19.4 to 1926 inclusive (2 sheets)
Original and ten Dhotostatic copies


Table U-Tviber 2. List of ctatemeuts basic production data

0'OTE: This Appeoondix bound nith Chapter I.

Ari;erlix 2 -- Financial


Table lumber 1.






Table :'umber 2.



Table Number 3.


Table I'umber 4.


Statement s_-ovin comparisons of Net Snles, Coal-
piled. Wet Profit, Statutory I.et Income and Cash
Dividends -opaidc for certain groups of Tobacco Cor-
poratio"us to all Tobacco Corporations re-portinr;
on Income .Ten Peturnsi for years 192.5 1934
inclusive.

Letter deted Januaxry 27, 1936 from Win. H. i.cey-
nolds, Acninistrative Assistant to the Secretrr-
of the Treasury. (8 pages)

Market .Vclue, as c.t Janu,.re- 2, 1935, of the
Capital Stock of the Big Three.

Basic Financial Data.


POTE: This Appendix bounr' wita Cho.pter I.

A-o-.endCix 3 -- Finr-ncial


Tvble number 1.


Table ZT-umber 2.


The Official Positions -nd Stock KolCings hel(- b,-
the Directors of the Big Three (3 pries).

Corporation Income Tax Returns for 1923 1933 for
six groups as listed on each pnze of this table,
shoving for each year totals for certain i-ems of
assets, liabilities, receipts, anC. deductions;
also compiled net profit or deficit, statutoTr- net
income or deficit, net loss for prior year, cash
dividends paid, gross profit from sales, and gross
profit from other operations (6 paCes).


NOTE: This Appendix bound with Chapter I.







-6- -


Appendix 4 -- Taxation


Table Number 1.







Table !-umber 2.


Table ITumber 3.





Table number 4.


Table Tlumber 5.


Total Revenue Receipts of the United States Govern-
ment; Total Internal Revenue Collections, (showing
revenue from tobacco taxes and other major groups);
and Total Customs Receipts, (showing import duties
on tobacco and all other commodities). For Select-
.ed Years between 1935 and 1914.


ChV'iges in PR.tes of Taxation on Tobacco Products
from 1914 to 1935 (inclusive).

States Taxing Cigarettes and their rates of trxa-
tion; States Taxing Smoking Tobacco and their
rates of taxation; States taxing Chewing Tobacco
and their rates of taxation; States taxing Snuff
anC their rates of taxation.

Receipts from Cigarette Taxes i.nd Per CrOita Cigar-
ette Sales in States Taxing Cicarettes Alone.

List of Statements.


VOTE: Appendix 4 is bounce. rith Chapter VII.

A-o--endix 5 -- Cigar i.i .nufacturinr Costs


A-oendi:: 6 List of Basic Tables received from the Department of Labor
on Number of Efroloyees. hours, and. earnings in the cigar-
ette. snuff. chewing and smoking tobacco manufacturing
industry

iHOTE: A list of these Tables is a-'vended to Chapter II. The Tables
rill be found 'in A>emd.ix 6.


Anjendix 7


-- Distribution


A-:-encix- 8 List of Coodes ane. List of Finished Code' Histories in the
Tobacco Industrv.

Table Number 1. List of Codes.

Table Iumber 2. Finished Code Histories in the Tobacco Industry
in the National Recovery Administration files.


At-oendix 9


- Foreign Trade in Tobacco


Table 2'Tumber 1.


A description of a series of charts and tables in
photostat form, covering exports of leaf tobacco
awd tobacco products from the United States to
each of seven countries, which are in National
Recovery Adninistration files, Tobacco Unit,
E.-nport s.


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CHAPTER I

THE LARGE CORP02AIIOL1 1. ThE 10BACCO lAaKJU'ACTURIW.G INDUSTRY

"The translation of perhaps two-thirds of the industrial wealth of the
country fro:n indivio.ual o-inersaip to ownersnio by the large, publicly fi-
nanced corporations vitally changes tne lives of property owners, the
lives of the workers, and the methods of property tenure." (*)

A. ;rriIc".

Berle and Means define the "quasi-public corporation" as one "in
which a large measure of senparation of ownership and control has
taken place through the multiplic-tion of owners" (**), and names
among other distinguishing characteristics that of the public mar-
ket for its securities.

B. SIGUIICAJdc I. C'- ZIG.iE7L^Si_ iJ7Mi& Am : a :c:Cz:jI' c03AOJo
I ..`,7_ s-M S. o 3Go

.'iKXA0211:C I.'ZJS:TY.

The growth of the quasi-public corporate structure is of peculiar
significance in the tobacco manufacturing industry. The monopoly
developed by The American Tobacco Company in the last decade of the
nineteenth century and continued until 1910, resulted in the decree
of dissolution by the Supreme Court of the United States in MIly,
1911, based on direct violation of the Sherman Act. In its decision,
the Supreme court recognized the interest of the general public and
further the large interests of the investors in the securities of
the comnanjiy. (***)

The tobacco industry, together w.'ith the oil industry, was resoonsi-
ble in large part for direct national recognition of the interests
of tne general public and the interests of investors in the con-
duct of large corporations.

Since 1911, the corporate system has grown by leaps and bounds.
As of January 1, 1930, the two hundred largest non-banking
corporations, '-'ith combined assets of eighty-one billions of dol-
lars, represented nearly half of all corporate wealth in the United
States. (* **) Listed anong these two hundred corporations are
four tobacco companies: The Aknerican Tobacco Company, Liggett &
Myers Tobacco Compoany, P. Lorillard Com)any, ,and the R. J. Reynolds

S*) "The Aoiodern Corporation and Private Property", by Eerie and
Means, Preface, page vii.

( **) See further notes and quotations, pages 7-10 of this ch.ptor.

( ***) U. S. v. The Anerican Tobacco Co., et al., 221 U.S. 185.

(****) Berle and Means, page 19.




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Tobacco Company, all of them owned or controlled, by the American
Tobacco Company before its dissolution. (*)

As compared with average assets of forty and one-half million dol-
lars for each of the two hundred largest non-banking corporations,
these four tobacco companies show average assets of 172 million
dollars and three of them, the American Tobacco Company, the
Liggett & Myers Tobacco Company and the R. J. Reynolds Tobacco
Company, show combined assets of 578 million dollars, or an aver-
age of 193 million dollars. (**) The market value of the pre-
ferred and common stocks of the Big Three together, as of January
2, 1936, was $1,481,596,000 (***) (based on stock outstanding,
December 31, 1934.

In addition to the four tobacco companies named, three snuff com-
panies which were component parts of the trust prior to its dis-
solution, and certain other tobacco manufacturing corporations,
illustrate clearly many of the characteristics of the quasi-public
corporate structure. (***)

( *) Abundant sources for definite statistical and financial infor-
mation concerning these four companies are available. Standard
Statistics, Moody's and other published manuals, have together
recorded their growth since 1911. Government sources, the more
important listed below, have also been extensively used.
1. Treasury Department, Bureau of Internal Revenue.
(Group information only).
(a) Statistical Section, Income Tax Unit
(b) Tobacco Division, Miscellaneous Tax Unit
2. Federal Trade Commission
3. Securities and Exchange Commission.

( **) Berle and Means, page 20.

( ***) See Appendix 2, Table 3.

(****) "The Modern Corporation and Private Property" (Berle and Means,
MLacMillan, 1933). Numbers in parentheses refer to pages.

1. The two hundred largest non-banking corporations have shown
a rate of growth of 5.4% (from 1909 to 1928), more rapid than
that for all corporations of 3.6% in the some period, and as
compared with a rate of 2.0>; for all non-banking corporations
other than the two hundred. (35)

2. "The trend of the recent past indicates --- that the great
corporation --- will become increasingly important in the
future! (41) "There is apparently no immediate limit to its
increase. It is coming more and more to be the industrial unit
with which American economic, social and political life must
deal." (44)

3. "The process of stock dispersion has proceeded furthest in
the very large companies." (47) --"The larger the size of the


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company, the smaller was the proportion of stock held by the manage-
ments" (i.e., officers and directors). (52)

4. Individuals with taxable incomes under $5,000, estimated in
number from three and one-half million to six and one-half million,
received (1929) 26.28% of all corporate dividends (60). Based on
1922 tax returns, "the conclusion seems certainly warranted that
corporations represented very much more than half of the national
savings apart from those directly employed by the owner". 64)

5. "The value of an individual's wealth is coming to depend on
forces entirely outside himself and his own efforts". (67)

6. "Finally, in the corporate system, the 'owner' of industrial
wealth is left with a mere symbol of ownership while the power,
the responsibility and the substance which have been an integral
part of ownership in the past, are being transferred to a
separate group in whose hands lies control". (68) Control over
industrial wealth can.be and is being exercised with a minimum of
ownership interest. (69) Five major types of control evidenced:
"(1) control through almost complete ownership, (2) majority con-
trol, (3) control through a legal device without majority owner-
ship, (4) minority control, and (5) "management control" (70),
defined as "ownership so widely distributed that no individual or
small group has even a minority interest large enough to dominate
the affairs of the company". (84) "The stockholder is practically
reduced to the alternative of not voting at all or else handing
over his vote to individuals over whom he has no control and in
whose selection he did not participate." (87)

7. "Are we to assume for him" (i.e., the controlling individual)
"what has been assumed in the past with regard to the owner of
enterprise, that his major aim is personal profits? Or must we
expect him to seek some other end presitge, power, or the grati-
fication of professional zeal?" (12?)
8. "For the tens and even hundreds of thousands of workers and of
owners in a single enterprise, individual initiative no longer
exists. Their activity is group activity -- the problems of con-
trol have become problems in economic government". (125)
9. "Both the NIew York Stock Exchange and the New York Curb have
refused to list new issues of non-voting common stock". (76)
10. "Legally, the proxy is an agent for the shareholder; and
necessarily under a duty of fidelity to him. Factually, he is a
dumnnm- for the management, -- perhaps assisted by the company's
attorney". (245)
11. "There is no longer any certainty that a corporation will in
fact be run primarily in tLe interests of its stockholders. The
extensive separation of o'.-.nershi-p and control, and the strengthen-
ing of the powers 6f control, raise a new situation calling for a
decision whether social and legal pressure should be applied in
an effort to insure corporation operation primarily in the in-
terests of the 'owners' or whether such pressure shall be applied
in the interests of some other or wider group". (333)


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C. THE BIG FOUR A MISNOMER

While P. Lorillard Company was an important unit at the time of dis-
solution of the trust, in fact it was given a percentage (in value)
of cigarettes, smoking tobacco, and little cigars in excess of that
allowed to Liggett & Myers Tobacco Company, and further a position
(and products) far more important than that given to the R. J.
Reynolds Tobacco Company (*), its present status does not warrant its
consideration with the three other large companies. It is, therefore,
for the purposes of this study included in another group of companies.

D. 'OWNERSHIP AMND CONTROL.

1. Stock Ownership

An analysis of the total capital stocks of the Big Three out-
standing as of December 31, 1934 (**), clearly shows the marked
degree of separation of ownership from control which exists in
these corporations. The total par value of stock issued and out-
standing by these three corporations at the above date was
$372,241,125. Of this amount, only 2.75o was owned by the
officers and directors, while 97.25" was owned by stockholders
not directly connected with the management of the corporation's
affairs.

The percentage of the capital stocks of all classes, outstanding
as of December 31, 1934, owned bW directors and officers for
each of the three corporations, and the stockholdings of all
others follow:
Percentages Owned By
Officers and
Directors Others
American Tobacco Comapany .28 99.72
Liggett & i,.yers Tobacco Co. 1.75 98.25
3. J. Reynolds Tobacco Co. 7.98 92.02
Together 2.75 97.25

The R. J. Reynolds Tobacco Company shows by far the largest pro-
portion of stock ownership by officers and directors, approxi-
mately 80; of the total capital stock outstanding. In the American
Tobacco Company, the management owns a negligible portion,
approximately 1/4 of 14 of the total capital stock outstanding.
This company is an excellent example of the extent to which the
control of the large corporation has passed from property owners
to centralized management groups.
( ) "Competition in the American Tobacco Company", by Cox (1933) p. 30.

C **) Source: Securities and Exchange Commission. This subject is
treated in greater detail in Appendix 2.



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The modern large coroor-tion is, of necessity, a form of busi-
ness organization oroviding for and requiring a wide distribu-
tion in the ownership of its securities. The divorcement of
ownership front control is not a new problem, but one which must
continue to co:.;mand increasing attention. Certain files and
records of the Securities and Exchange Comdission are publicly
available to acquaint stockholders and others interested witn
pertinent facts on this and other related matters. As long ago
as 1927, Professor William Z. PRipley of Harvard University (*)
suggested "introduction of shareholders' independent audit or
general check-up committees", and commented upon the fact that
"such independent auditing at the e-mense of the corporation
but under the supervision of shareholders entirely independent
of the management, is necessary under the Britisn Companies Act;
as elso in Germeny.1" The definite and nernanent advantages to
management of some form of direct stockholders representation is
obvious.

2. Non-Voting Stock

Under this same subject, the relation of ownership and control,
the employment Qf the legal device of non-voting stock is of
decided interest. The considerable extent of its use by these
three corporations in the tobacco industry, as an aid in re-
taining control by the management, is most Dertinent to this
study.

This type of stock not only dis-franchises the owner from any
right of participation in the election of the directors, but
prohibits its holder from any voice whatever, direct or in-
direct, insofar as the management of the affairs of the cor-
poration is concerned. The interest of the owner of non-voting
stock is practically limited to the dividends vhich he may
receive by virtue of his stock ownership.

Due to the evident limitations of non-voting stock' and the
discrimination as bet-veen stockholders which this instrument
permits, the New York Stock Exchange and the New York Curb have
prohibited the listing of new issues of non-voting stock. (**).

The R. J. Reynolds Tobacco Company was the first of these three
corporations to make use of this class cf stock, by the authori-
zation and sale of 100,000 shares of ComuTon B stock without
voting rights, with a par value of $100.00 per share, in 1918
(***). Under the preemptive rights of the common stock holders,
this non-voting stock was first offered to them.

C *) "Main Street and Wall Street", Little, Brown and Company, Boston,
1927, page 215.

f ( '*) See note 9, page 9.
I.
( *'*) Later changed to par of $25.00 and again to par of $10.00.


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:. 1 eti C V. e--s Tobrcco Co-:poeny followed. the example of the
R. J. Reynolds Tobacco Company in 1920, selling $10,733,200 of
Common B stock, and the American Tobacco Company, nine years
later, sold its first issue of this class of stock. As of
December 31, 1934, the records of the Securities and. Exchange
Commission show that out of a total par value of $372,241,125
of all stock issued and outstanding of these three corporations
in the tobacco industry, $225,288,525 or 60.524 consisted of
non-voting stock. The percentages of non-voting and voting
stocks outstanding in each of these three corporations as of
December 31, 1934, were as follows:

Percent of Stock
Non-Voting Voting
American Tobacco Company 45.74 54.26
Liggett & hiyers Tobacco Co. 56.40 43.60
H. J. Reynolds Tobacco Col 90.00 10.00

It will be noted that stoddcholders owning 10,6 of the par value
of all stock outstanding of t'ie R. J. Reynolds Tobacco Company
are entitled to participate in the selection of the management
of the corporation, while stockholders owning 90$, the holders
of the Common B stock, are deprived of any voice in the direction
of the corporation's affairs. While this illustration exempli-
fies to an extreme degree the extent to which this legal device
of non-voting stock has been employed in the tobacco industry,
it should, in fairness to this company, be stated that only
$10,000,000 of this amount resulted from the sale of non-voting
Class B stock, the remaining $80,000,000 being accounted for by
stock dividends declared by the directors of the corporation
from its surplus.

In discussing the distribution of the par value of stock out-
standing between officers and directors, and other, it was
stated that the officers and directors own less than 3, of the
total capital stock outstanding, at par value, when considering
the combined position of the three companies. In making a
similar comparison of the votes held by officers and directors
and those held by others, it was found that the former have in-
creased their percentage from 2.75" of the par- value of all
outstanding stock owned to 6.59% of the number of votes con-
ferred by reason of their stock ownership of those classes of
stock possessing voting rights. The percentage of votes held
by reason of stock ownership as between officers and directors
and others for each of these companies is as follows:
Percentages Owned By
Officers and
Directors Others
American Tobacco Company .43 99.57
Liggett & LMyers Tobacco Co. 3.79 96.21
R. J. Reynolds Tobacco Co. 34.44 65.56
Together 6.59 93.41


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Because of- the wide divergence between the three companies in
percentage of voting stock to total stock outstanding, the
average figure is of little significance.

As of December 31, 1934, the total stock holdings of all classes
of stock held by the managements of Liggett & Myers Tobacco
Company and the American Tobacco Comp-oany were insignificant.
It is evident that their managements were no longer dependent
for control upon the stock they own, whatever differences in
character or amounts of the various stocks outstanding. For
these two companies, the transition period from strong minority
control to direct management control has been ended.

The situation as regards the management of the R. J. Reynolds
Tobacco Company (incorporated under New Jersey laws) differs
from that of the two other companies. The management of this
company owned slightly more than 1/3 of all voting stock as of
December 31, 1934. In addition thereto, 200,000 shares of
common voting stock, or 20,4 of the total voting stock, was in
the Retirement and Insurance Investment Fund (*); these shares,
company-owned, cannot be voted under New Jersey law. Because
of the fact that voting privileges given to only 10' of the
ten million shares outstanding, and because of the unusual
terms of "employee profit participation" (**) and its direct
incentive for ownership of common voting stock, all classes of
employees of the R. J. Reynolds Tobacco Company are interested
in the acquisition of common voting stock, and in the ratio
that this class of stock bears to all other stock outstanding.

In this company, therefore, management and ownership are not
divorced insofar as the voting stock is concerned. The
significance lies in the ten to one ratio of non-voting to
voting stock, a ratio so abnormal that only the remarkable
success of the management in earning profits has warranted the
S continuance of such a ratio to this date.
( *) Of the total of one million shares of common voting stock of this
corporation, the records of the company filed with the Securities
and Exchange Commission indicated that 307,000shares were owned by
employees other than officers and directors, as of December, 1934.
As of January 1936 (and after a sale in 1935 to employees of the
company by the Executors of the Estate of H.Ir. Bowman Gray, former
Chairman of the Board of Directors, of all or part of his holdings
of 75,000 shares of common voting stock), eighteen hundred employees,
other than directors or officers, were stockholders. Four hundred
of tnese were. new stockholders. (Derived from a letter from the
company, dated January 27, 1936.) Stock holdings of common voting
stock as of January 1936 are therefore indicated to be as follows:
Shares
Officers and Directors 269,000
Retirement & Insurance Invest-
ment Fund 200,000
Other Employees 382,000
851,000
Otherwise Held 149,000
S Total Stock Outstanding 1,000,000
( **) See .page 17, this chapter.


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-14-

The unusual era of prosperity through which America passed
from the turn of the last century to 1929 was responsible,
the Sherman and Clayton Acts notwithstanding, for tremendous
corporate growths and profits. The return from investment in
the R. J. Reynolds Tobacco Company to those who bought either
its common or non-voting B stock as late as 1916 or 1917,
seems hardly credible. Ib it to be wondered at that the in-
vestor gave but scant heed to the right conferred upon him in
his stock certificate--or to their lack?

Similarly, though in lesser decree, the earnings of the two
other companies during the same period, were such that without
interruption the management advanced toward complete divorce-
ment from supervision by stock ownership.

3. Character of the Directorates

The files of the Securities and Exchange Commission, covering
the year of 1934, were examined to secure the lists of indivi-
duals on the boards of directors of these three large cor-
porations in the tobacco industry. Every one of the forty-one
directors (American Tobacco Company with 17; Liggett & Myers
Tobacco Company with 12; R. J. Reynolds Tobacco Company with
12) constituting all the directors for the three companies,
held other official positions in one capacity or another with
these corporations. This appears of unusual significance
since it is customary for all corporations comparable to these
in size to have at least some representation on their boards
of directors of stockholders with no other official relation.
It is evident that a board of directors so constituted is
directly subservient to management control.

It is apparent also that the Big Three, due to their earnings
and strong financial position, have maintained their inde- -.
pendence of any outside banking or financial assistance. One
of the fundamental conceptions of director responsibility is
that of examining and passing upon the acts of management, in
behalf of ownership. Insofar as this conception of the duty
of directors is concerned, a question arises at once when dual
responsibility is thus accepted by management. In Appendix 3
of this study, dealing with the Cigarette, Snuff, Chewing and
Smoking Tobacco Manufacturing Industry, tables are presented
based on information from the Securities and Exchange Com-
mission, showing the official positions and stock holdings of
these directors.

4. Returns to Management

(a) Preliminary

Today, increasing interest is displayed by stockholders
in the amounts of salaries that large corporations are
paying to executives. The Bureau of Internal Revenue
and Securities and Exchange Commission are the chief-Gov't


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sources for information of this nature. Additional in-
for-ation conce-'i.P' salaries a:id ot.ei" returns to
management paid by the thiree large tobacco corporations
to officers and directors has beau obtained from data
filed. by these comoanies r:"ith the Federal Trade Com-
mission, in its survey of the tobacco manufacturing in-
dustry for the five year period 1928 to 1932 inclusive.

These three companies have filed with the Sencurities and
Exchange Comaission their respective profit participating
*planv for officers mnd director- for the year of 1934.
Two of the three -- the R. J. Reynolds Tobacco Company and
the kinerican Tobacco Company -- in filing with the Com-
,aission, nade their date covering e: ecutive salaries im-
aediately available to the public.

Lig:'ett & l.'yers Tobacco Compa-ny, in filing this information,
marked it as "confidential" and request. in accordance with
the law a private nearing before the Commission for its
decision as to publication of tne dcta. As of January 1936,
no decision hnod been made by tne CoL'.mission.

Therefore, to mal-e r. comparable analysis of the remunera-
tion of officers ana executives of those companies, it has
been necessary to rely to a considerable extent upon the
five year period 1928 to 1932 inclusive, as shown in 'the
records of the Federal Trade Commission.

(b) By-law XII

(i) The American Tobccco Company shows the' most liberal
policy in the re.-amunerLtion of its executives. During
the five year -*eriod unier examination, the records
indicate th-.t, tojother, officers and directors of
this corporation received total compensation of
$12,866,101, oi wicn $3,706,205 represented salaries
end $9,159,,625 other compensation from participation
in tne orofits of the co:parny in accordance with its
By-lar XII. This profit participation plan provides
that the president and five vice-presidents together
shall be entitled to participate in ten percent of
the ainnual net profits of the company, (after divi-
denfds on preferre' stocic) in e::cess of $8,222,245.82,
the estimated amount of the net profits earned duar-
inC the year 1910. The plan further provides that
the amount available shall be distributed: 25/,; to
the president and 15,' to each of the five vice-
presidents. This plan of participation in the com-
pany's profit, allowed to executives, accounts during
these five years for more than 70oL of their total com-
poensation, approximately two and one-half times their
fixed salaries.

During this five year period, $3,848,620 w,:s paid to
the president as t ot'al compensation, approximately
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-16-


SO3o of the entire compensation paid to all executives.

The total compensation paid in 1930 and 1931 was larger
in each of these years than in 1929. The large profits
of this company (American Tobacco Company) for these
years are discussed later in this chapter.

The remuneration of the president of the American
Tobacco Company for this five year period averaged in
excess of three-quarters of a million dollars per
annum, and in tvo of these years, 1930 and 1931,
amounts exceeding one million dollars each year were
paid to him. This executive received the highest re-
muneration of any of the Big Three executives.

(ii) Liggett and Miyers Tobacco Company

A comparison of the profit sharing plan for execu-
tives of the Liggett & layers Tobacco Company shows
that it is practically identical with the plan of
the American Tobacco Company in all respects, save
one. This plan, also, is outlined in a By-law XII,
suggesting a common parentage. The one difference
between the two plans, however, has great signifi-
cance. The plan of the American Tobacco Company pro-
vides for participation by the president and vice-
presidents in 10,, of the net profits after deduction,
while the Liggett & Myers Tobacco Company limits the
participation of their officials to 2a1 of similarly
determined net profits.

Furthermore, the 1928-1932 report of the Federal
Trade Commission previously referred to clearly shows
that the fixed salaries of the six participating
executives of the Liggett & iyers Tobacco Company are
substantially lower than those paid by the American
Tobacco Company. During this five year period, the
American Tobacco Company paid its president in fixed
salary a total of $667,500 as compared( to $250,000
paid to the president of the Liggett & iyers Tobacco
Company.

The total compensation paid to executives of the
Liggett & Myers Tobacco Company was less than 43L of
the total compensation paid to executives of the
American Tobacco Company. While a certain proportion
of this difference in the total amount of compensation
is explainable by comparison of their net income
records, by far the major portion is accounted for by
the variation in the percentage of participation.
It should be noted also that the total compensation
paid to the President of Liggett.& Myers is 70% less
than the amount received by the president of the
American Tobacco Company during this same period.


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-1?-


(iii) R. J. F.e-rnol6s Tobacco ComnTnnr

While both the American Tobacco Company and Liggett
& :,iyers Tobacco Company have definite plans for re-
muneration of their chief executives as previously
outlined, the "einoloyes profit participation plan"
o' the 2A. J. Re.yaolds Tobacco Comoany differs so
materially from the plans of the other two companies
tnat direct co;apai isons cannot be made. While the
Federal Trade Commission in its report on the period
1928-1932 listed the total amount of compensation by
thie executives of the two other lerge companies, it
listed only the specific salaries of the officers
and directors of the R. J. Reey.nolds Tobacco Company.
This company is therefore treated under Section (c)
immediately following.

(c) Recent Develonments

Comparisons thus far mode are based primarily on Federal
Trade Commission data and refer to the years 1928 to 1932
inclusive. The following coianents are based upon the
material filed by these tnree companies with the Securi-
ties and Exchange Commisson as of December 31, 1934. No
information is available for the intervening year of 1933.
As discussed later in this Chapter, in connection with
the financial growth of these companies, their combined
earnings available for dividends in 1932 ($100,017,097)
were considerably larger than in 1929 ($84,406,253).
Their profit showing did not indicate any impact from the
depression until 1933. Since 1932 their profits have
been so far below tne immediately prior period, that re-
muneration to management insofar as it is based on earn-
ings naturally has shown a decided decrease.

(i) Liggett & Myers Tobacco Cormpany

As previously stated, certain information filed with
the Securities and Exchange Commission by the Liggett
& Myers Tobacco Company is not as yet available, so
that it is not possible to make a direct comparison
of the amounts of "other compensation" for the three
companies. Significant facts about the two other
companies are, however, available.

(ii) American Tobacco Company

On July 12, 1933 at a meeting of the board of di-
rectors of the American Tobacco Company a resolution
was unanimously adopted, the following being a por-
tion thereof:

"This Company does hereby declare its policy
that hereafter no President or Vice President


10691




.'___ ". ..1 ". ..'. ... .. :..


-18-


s.Cl be elected to office unless he shall in
advance, as part of his terms of compensation
for his employment, agree in writing to waive
Pny payments to him under Article XII of the
By-Laws of this Company in excess of an amount
computed in conformity with the following
formula. "

Then follows a formula specifying the method for
calculating the amounts to be paid under Article Xl
to the president and to each of tne five vice-presi-
dents of the company for the years of 1933, 1934,
1935 and each year thereafter, reducing somewhat the
rerune.: tion to officers and based on larger and in-
creasing amounts of deductions from earnings before
setting uWo 10,; of the remaining earnings as their re-
muneration.

The company further made the statement to the
Securities and E1change Commission that during 1934,
no paymentss in excess of $30,000 to any one person
resulted from the profit sharing arrangements. With
Article XII apparently still unchanged as a By-Law,
it is evident that there have been waivers of its
full privileges by the executives of this corpora-
tion. It is presumed that the publicity resulting
from the report of the Federal Trade Commission, com-
bined with the heavy drop in earnings were largely
responsible for these changes.

(iii) R. J. Reynolds Tobacco Company

From data in the dockets of the Seaurities and Ex-
change Commission, as of December 31, 1934, there has
been secured the P.eynolds plan for "employee profit
participation" by both officers and employees.

Article XII of its By-laws is quoted herewith:

"All of the Company's officers and employees who
have owned its comL.on stock and have been in its
employ for not less than twelve months, then next
preceding may be allowed, in the discretion and
at the option of the Board of Directors, begin-
ning with the year 1912, to participate in pro-
portion to the Comnon Stock thus owned, in the
Company's annual profits which are in excess of
the percentage of the profits earned during the
year 1910, to wit: 22.19 per cent, not exceeding,
however, 10 per cent of those profits in excess
of 22.19 per cent of its entire outstanding issue
of Common Stock, taking into account pro rata
any increase or decrease thereof made during the
year. The Common Stock owned by an officer or


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-19-


employee, for the purpose of this By-law, be-
ginning with the year 1916, shall include any
stock purchased during the year from an officer
or employee or from the personal representative
of a deceased officer or employee, provided
such stock would have entitled the former owner
to participate in proportion thereto had it been
held for the entire twelve month period."' (*)

As the above plan for profit participation is based on
holdings of common voting stock, the company does not
consider that amounts distributed under the provisions
of this plan should be classified under "other com-
pensat ion".'

The outstanding differences in this plan from that of
the other two companies are (1) the necessity of in-
vestment in the common voting stock of the company (*)
in proportion to the return realized, (2) the pro-
vision whereby all officersand all employees may parti-
cipate, based on their holdings of common voting
stock, and (3) employment by the company for not less
than twelve months.

Again referring to the Securities and EFxchange
Commission, there was set aside from the profits of
the year 1934 and carried to reserve for the Retire-
ment and Insurance Investment Fund the sum of
$500,000. As this fund contains 200,000 shares of
common stock, it is evident that the participation of
tnis fund represented $2.50 per share. There was also
a declaration by the Board of Directors on December
31, 1934, under Article XII of the compan-y's By-Laws
and payable to 1,489 officers and employees in the
sum of $1,629,257.50. Based on the $2.50 per share
participation in the fund, it is assumed that the
number of shares participating in the last named
amount is 651,703.

The officers and directors of this company owned
334,410 shares of common holding stock as of March
18, 1935 (***). Based upon such holdings there was
S*) There has been no increase in the amount ($10,000,000) of common
stock (voting) since 1916. (Except changes in par value and-con-
sequently in number of shares). The practical result has been
that 22.19'' or $2,219,000 has been deducted from profits each year,
before the 10:, is determined as "employee profit participation" on
the employee-owned common voting stock.

( **) The company reports that there have been many exchanges by em-
ployees, of B stock for common voting stock, on a basis of heavy
premiums for the common voting stock.
( s*) See Table 1, page 6 Appendix 3,

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evidently distributed to the officers and directors
the sum of $836,025 under the "employee profit parti-
ci-ation plan", or ap-proximately one-half of the total
paid to all employees. Since the common stock hold-
ings of officers and directors are known only as of
M.iarch 18,1935, there is probably some variation from
the actual stock holdings as of December 31, 1934.
Therefore, the sums so paid to officers and directors
are subject to any change in stock holdings between
the two dates.

By referring again to their By-Law XII and the note
thereto (page 18), it may be assumed that the sum
payable to officers and employees, holding common
stock, and that amount carried to the reserve for the
Retirement and Insurance Investment Fund, a total of
$2,129,257.50, represents the 10o deducted from
profits in accordance with the plan and for that
year.

The one point of similarity between the plans of
..* these three companies is that a certain percentage is
deducted from the earnings of the company either be-
fore or after -net profit is determined. Since the
earnings of the R. J. Reynolds Tobacco Company in
1934 were $21,563,894 as compared to $36,674,800 in
1931 (*), it is evident that the sums paid under the
"employee profit participation plan" have been
materially reduced from the high point. The share
to officers and directors has apparently been fur-
ther reduced by decrease in their stock holdings.




















C *) See Table VI.


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5. Conclusion

(a) Return to Executives

If, in each case, Article XII of the by-laws of these
companies was drawn upon the dissolution of the trust in 1911
or within a few years thereafter, the methods of computing ad-
ditional compensation to executives, based on profits over and
above the 1910 earnings, had much in its favor. A distinct
incentive for developing additional profits was presented to
the officers, and the 10% share of the. additional earnings
allowed to the executives, as in the case of the American
Tobacco Company, then apparently represented a reasonable com-
pensation for their services.

The tremendous development of cigarette smoking in which
these three companies have had so large a part, has resulted
since in such increase in their earnings that the 1910 profits
are but a fraction of total profits, and. their deduction,
prior to determining the net earnings on which the percentages
for officers' compensation are based, hns become relatively
immaterial. The percentages to management, 10%f or otherwise,
have grown to represent a much larger proportion of total
earnings.

The total remuneration to executives of the Liggett &
Myers Tobacco Company is not o'it of line with the consistent
earnings and growth of the corporation. The fixed salaries
are moderate for a corporation of this size, and the percent-
age of profits distributed in the form of other remuneration,
to certain of its chief executives, is not excessive. This
conclusion is based upon remuneration to its principal
officers as shown in the records of the Federal Trade Commis-
sion for the period ending 1932. As previously stated, 1934
information from the Securities and Exchange Commission is
not available.

The method of payment to the directors and officers of
the R. J. Reynolds Tobacco Company has several unusual pro"-
visions.

1. No director, official or other employee can partici-
pate in the "employee profit participation" plan unless he
is the owner of common (voting) stock, and the participation
is directly proportional to the stock owned. The incentive,
i.e., to buy or add to stock holdings, is excellent.

2. The "employee profit participation" plan is open
to all employees. It is estimated that employees other than
directors and officers now hold (January 1936) approximately
382,000 shares of common voting stock, distributed among
1,800 stock holders. Employees also have beneficial in-
terest in 200,000 shares in the Retirement and Insurance In-
vestment Fund. These, together, represent 58.2% of all
;common voting stock. This opportunity to own stock and

1 0621




... ... ..^.. .. ._ .. .... .. *.**^ .:= ^ '^ ~ H ^


-22-

participate in profits is of decided advantage to all employ-
ees who can avail themselves of its privileges; and to the
company.

3. The fixed salaries of the five highest paid execu-
tives as shown in the files of the Securities"and Exchange
Commission for the year 1934, total $199,000. As in the case
of Liggett & Myers Tobacco Company, these fixed salaries are
without question moderate for the responsibilities of manage-
ment resting upon the shoulders of these executives.

In the case of the American Tobacco Company (as previous-
ly mentioned), there has been a readjustment in this compen-
sation to management although the 3y-Law XII itself remains
unchanged. A far simpler method of readjusting this would
have been to reduce the percentage of earnings applicable to
the remuneration of officers.

There is no question that management is entitled to fair
compensation for its services. Individuals whose skill in
management is primarily responsible for the remarkable finan-
cial success of these companies deserve liberal rewards.
Based on any such rate of earnings as that of 1928 to 1931,
the present method of executive profit-sharing as outlined in
By-Law XII of all three companies is not, in all instances,
equitable to stockholders. Giving full weight to the excel-
lent showing of earnings during that period, it is still
evident that the share of profits paid some officials is a
reproach to' management.

By-Law XII was originally drawn to develop incentive in
management. The profits at the peak and at the present time
are so much larger than those on which these methods of
profit sharing by management were based that it cannot be de-
termined to what degree incentive still remains. 'There is a
wide difference between "other remuneration", or additional
compensation or profit-sharing beyond fixed salary and based
on profits; and excessive returns to officials that points
toward a greater interest in personal profits than in cor-
poration earnings.

The present size of these three corporations would
ordinarily prevent the ownership by younger men in respon-
sible positions of considerable amounts of company securi-
ties. No such holding is essential for profit participa-
tion in the American Tobacco Company or the Liggett & Myers
Tobacco Company, nor should the lack of it prevent executive
remuneration in direct proportion to accomplishment.

(b) Non-Voting Stock

Two of these three corporations have evidently passed
beyond the stage where non-voting stock has bearing on man-
agement control. It is possible, but highly improbable,
that the third has not. Whatever the original motives for


10691




-\ -


issuing stock of this character (in the case of the R. J.
Reynolds Tobacco Comnr.ny the profit participation plan has di-
rect bearing), the question is naturally raised, concerning the
elimination of the non-voting restriction on all stock.

(c) Character of the Directorates

As the directorates are at present constituted, the di-
rectors of these corporations, insofar as they pass upon the
acts of the officers, pass upon their ov'n acts, and their de-
cisions therefore represent the policies of the controlling
executives.

The first step, evidently, is a readjustment in the di-
rectorates. The Boards might be enlarged to permit member-
ship thereon by stockholders not otherwise associated with
management, or in sou1e instances, minor officials, now board
members, might be replaced by such stock holders. To these
direct representatives of ownership, definite responsibility,
possibly along the lines of the British Companies Act as de-
fined by Ripley, should be assigned.

It was not until 1933 that these three-companies felt
the impact of the depression. Since that time, profits have
been smaller; social responsibility to agriculture and to
labor, and other charges, have increased costs. The joint
competitive position of these three companies in the tobacco
manufacturing industry has not improved.

A wise management, facing problems of greater responsi-
bility and of decided social import, will of its own accord
seek the cooperation and assistance of ownership. In the
period that this study has been in process, the interest and
keen appreciation of management in these problems has been
sometimes evident. The large corporation is an integral part
of American industrial life. It bears upon its shoulders the
same dual burden existing in every component part of the
national structure, that of recognition of present social re-
sponsibility, and adjustment to its needs and demands.


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r ... ..... ..". :.."


-24-


E. CIGARETTE SELLING PRICES AND POLICIES

1. Proliminary

Thne American Tobacco Company (Lacky Strike), Liggett & Myers
Tobacco Company (Chesterfield), and the R. J. Reynolds Tobacco
Company (Camel) have manufactured most of the small cigarettes
ever since the present type of blended cigarette became stand-
ard. This section is concerned rith sales policies governing
these three brands and a fourth, Old Gold, manufactured by P.
Lorillard Company.(*) The competitive position of these com-
panies in the industry; the striking adherence to the same
list prte 7ith its consequent lack of price competition; the
large e-.penditures for ,_ablicity (**) to develop consumer de-
mand for particular brands; the relations of these companies
to their various classes of distributors all these are fac-
tors of great significance.

(a) Ordinary Discounts

While there are exceptions, the standard discounts are a
trade discount of 10(% of list and an additional discount
of 2% for cash.

(b) Range of List Prices

Table I indicates the range of manufacturers' list prices
since ITovember 1919 as reported by Cox and Barney(***).
Comparatively frequent changes and some price variations
occurred prior to 1923. For the following eight years,
or until June 24, 1931, prices remained stable and appro-
ximately. uniform at $6.40 per thousand, except for the
period between April 1928 and October 1929, where prices
were lowered to $6.00 per thousand. Since 1928, these
four brands have been sold at the same list, changes in
price by these fo'xr concerns being practically simu.ltane-
Ouse

(*) The popular brands discussed herein are designated for excise pui-
poses by the Internal Revenue Bureau as 1"snall cigarettes weighing
not more than three pounds per thousand". Small cigarettes are
subject to an excise of $3.00 per thousand. The other well knom
brands, including Philip Morris, mentholated cigarettes and the
ten cent brands, are in this same excise classification.

(**) See Chapter VI, Distribution, Advertising,

(***)"0omoetition in the American Tobacco Industry" by Reavis C0ox,
Columbia University Press, 1933. Ghas. f. Barney & Co., New York
City, "The Tobacco Industry", 10th Edition, 1934.


10691









In June of 1931, the list for small cigarettes was increased
from $6.40 to $6.85 per thousand. This price increase will
remain as one of the most significant steps ever taken by the
manufacturers in the history of the cigarette industry. Con-
sideration must be given to the fact that this increase of 45g
per thousand was made in a period of low labor costs and when
leaf tobacco was at its lowest price since the war.

TABLE I


CI GAZETTE


PRICES


Manufacturers List


Prices a/


ITovember 1919
December 1919
December 1921
January 1922
March 1922
August 1922
October 1922
August 1923
April 1928
October 1929
June 1931
January 1933
February 1933
January 1934


$8.20 d/
8.00
7.75
7.50
6.80
6.20 e/
5.80 e/
6.45
6.00
6.40
6.85


il-oreover, the full impact of the depression was becoming most
pronounced. In view of declining costs and decreasing consumer buying
power, a general decrease in list prices might well have been expected
under conditions of free competition.

Production figures of the Big Three indicate that they had main-
tained a percentage of approximately 91% of the total production of small
cigarettes for the years of 1928, 1929, and 1930. It is evident that

a/ Includes excise of $3.00 per thousand.
b/ Compiled from data provided by the American Tobacco Company as re-
ported by Reavis Cox "Competition in the American Tobacco Industry",
Columbia University Press, 1933, page 199.
c/ Chas. D. Barney and Company, New York City, "The Tobacco Industry",
10th edition, 1934, page 26. :.
,..,., '', ., ,..'' : .'
d Special allowance of 20g, t-ieh in addition to tne usual 10% and. 2;.
e/ Prices quoted net .tbjbct to. 2%discountfor cash In ten days.


10691


Date


$8.00

7.50

6.80

6.40

6.00
6*40
6.85
6.00
5.50
6.10




~~ornSfljflt*: wfhSflft~


-26-


the manufacturers felt confident that they could maintain their joint
competitive position at these higher prices in spite of the continuing
downward spiral of the depression. That this percentage (91%) would be
continued at the higher price levels is an assumption of at least semi-
monopolistic market control.

A further examination of Table I shows that the price of $6.85 per
thousand remained unchanged until January 1933 when the list was lowered
to $6.00 per thousand. This decrease was almost immediately followed.
(February 1933) by a further cut to $5.50 per thousand. This was the
lowest list price since the war or since the excise on small cigarettes
had been raised to $3.00 per thousand.

The underlying causes for these two sharp breaks in list prices are
obvious. At the close of 1932, after a period of eighteen months, it
was evident that the Big Three had failed to maintain their competitive
position in the industry. In 1932, the Big Three produced only 81.4$ of
the total small cigarettes manufactured, this comparing with 91%, the
average for the three years prior to 1931 when the price was raised to
$6.85 per thousand. A still shrinking pocketbook was refused the high
retail prices.

Six other manufacturers produced 17.9 billions of small cigarettes
in 1932, amounting to 16.8%,o of the total production for the year as
compared to 8.2,, for 1930. Large increases in production of the ten cent
brands (*) and in roll-your-own cigarettes indicated thatthe depression-
ridden consumer had shifted to more economical forms of smoking. The
high prices permitted also some expansion of mentholated cigarette sales
of other blends of small cigarettes, particularly the Phillip Morris and
the Raleigh. Th .low list price of $5.50 per thousand was a definite
attempt by the Big Three and P. Lorillard Company to regain their former
proportion of the business. Retail prices broke to the lowest level in
years.

(*) No statistics have been obtained showing the definite amount of
ten cent cigarettes manufactured.

High prices for the standard brands, cheap tobacco leaf and low
wage rates were responsible for its rapid growth, particularly
during the period under discussion.

The ten cent cigarette, of course, would not be justified if unable
to absorb the additional wage cost under the code and since its
termination. During 1934 and 1935, the processing tax and the high
cost of tobacco leaf, particularly Flue-Cured, together with the
excise of $3.00 per thousand, the same as for all mnall cigarettes,
forced almost all manufacturers of ten cent cigarettes tO incur
loss on this product. The elimination of the processing tax and
the lower price paid for tobacco leaf in the fall and winter of
1935 will again placg tke:.-'anuact1rer of the ten cent cigarette on
a profitable basis'. -See.1lJater :',.Vx%.Contribution of the Tobacco
Industry to Naoala income Throu4 TVX-Revenue".
** ** "" .
". =. .. .. I
; ." .'*

10691





-27- ..


In January 1934, the list price of Lucky Strike, Chesterfield,
Camel and Old Gold was raised to $6.10 per thousand where it has since
remained. The 1933 earnings, had shown extremely heavy shrinkage; wage
levels had increased due to the President's Reemployment Agreement;
processing taxes had been added; the cost of tobacco leaf was decidedly
higher, Farther, the year and aihalf of low prices had aided but little
in increasing the share of the Big Three in the total number of small
cigarettes manufactured, (in 1933., their share was 83.9k; in 1932, 81.4%).
It was evident, also, that higher leaf cost and processing taxes would
practically wipe out any margin of profit in the manufacture of the ten
cent cigarettes and expensive promotional campaigns for these brands
would be out of the question(*).

2. Character of Competition.

The habit-forming characteristic of the product, the relatively
slight differences in tobacco blends, and the same list price all
point toward a form of competition between these companies of which
price competition is not a part. Were it not for the special allowances
later discussed, the statement could be made that competition is not on
a price basis. That there is competition of the sharpest character among
the brands of the large manufacturers, there can be no question. It
consists in the direct effort by each manufacturer to secure a larger
share of the cigarette market by the use of various publicity channels.

3. Channels of Distribution.(**)

As mass distribution developed from mass production, the manufact-
urers Those principal channels of distribution had been tobacco, drug
and grocer jobbers, began to sell direct to the large department stores,
retail chains and other large retailers. The fact that tobacco manufact-
urers sold these retail accounts at the same discounts of 10% and 25o
given to wholesalers, decidedly complicated the wholesalers' problem,
since the gross margin allowed to the direct retail buyer represented
the combined gross margins of wholesaler, of the sub-jobber, and, in
part only, of the retailer. This step also transferred to the manufact-
urer the choicer volume and credit accounts.

4. Special Discounts and Allowances.

In addition to the problems resulting from these two distinct types
of direct buyers, there is a further complication. The manufacturers --
and by no means limited to the Big Three -- have made and are still mak-
ing special "secret" allowances over and above the standard discounts.
This subject merits close scrutiny.

(a) Definition

As used by the Federal Trade Commission and in this report,
special allowances and discounts are defined as all those
forms of discounts, exclusive of cash discounts, which are not
(*) Processing taxes were probably a heavier burden on some manufacturers
of ten cent cigarettes than on the Big Three, because of the larger
proportion of Burley tobacco in the ten cent cigarette. Burley bore
a heavier processing tax than Bright Flue-Cured during most of the
processing tax period.
(**) See Chapter VI, Distribution.
S 10691


I












(b) Their General ahacte os t-s

Al such o rice coicessions may be dived


(o *r .t +
eral categories -(l) viLme or quantity; () i
S anioromotioa; (e,) all thers. ation n,
Allowances extend from ordinary dis cQt in
voluwe purchase to straight casn refuns fr n
planation need be given.

(c) Their Extent

In a study made by tnie Pederal Trade Commissions
Sahundred reorts were secured from manufactures o
co products, grocer.es, and drugs, covering theirs
end allowances to a large nber of selected ditri
for the years of 1929 a.. 1930. Of the 134 mnacr
reporting, 89 gave allowances in 1929 an 94 in
IhMore manufacturers made allowances to chains t
s* alers and the proporction of chain acounts rec
lowances wats far greater than in the case ofwhol
32.|o of the chains received allowances from ma n r
| as against l6- of mt6 tobacco whilesalers.

Almost without exception, tobacco wholesalers (> a
other lines. The manufacturers of many of thetr e
ordiljnarily allow larger discounts and gves
dances represanting far higher -percentages o i
to wholesalers than those allowed by the tobac au
facturers, and the sime cut rice,4tory, both
and. retail, has followed in their instance. Wu
question, the practices of manufadurer of these o
products have coizzlicated, the' pobl of the tob
manufacturers.

Referring again to the study miade by the Federal T
Commission, the total allowances by all tobacco
turers making allowances to chain stores in 1930,
tseted only 2.13 of their sales to these chains.'
the- percentage to total sales is relatively insi
the practices that hlave developAd therefrom are farmor
serious than the percentage would indicate. There i
question that a considerable nDart of these total
to chains are given to a small 'number of large
|funishing a further pretext for the uiBe f tW
.ductt, p*Brincipally
( Ordiiiarily classi'fied as'thoe for whom tobacco dt
more th.an 5 CfK'8 f total sales,

10691





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The data from the Federal Trade.'ommission is based on
1929 and 1930. That these same allowances are still in
use is indicated by the testimony presented before the
Special Congressional Committee on the Investigation of
the American Retail Federation on the question of the ex-
tent of special allowances made by the manufacturers of
tobacco products, one large drug chain was shown to have
received special allowances from twenty.of the largest
manufacturers of tobacco products (*).

Most of the large cigarette manufacturers gave this drug
chain 50' in special allowances for displays. One manu-
facturer paid $25,00 per store making window displays for
one week; another paid the chain $3,300 per month.
Special allowances on cigars ranged from 2% to 7% and one
manufacturer paid this drug chain $25.00 per store for
making a window display for one week. One large cigarette
Manufacturer paid a grocery chain $1.00 per store per
month for seven months in 1934, an amount computed to be
in excess of $100,000 (M'. Special discounts for the in-
troduction of new brands were common.

In this connection it is interesting to note that the
same sources reported that both the drug chain and the
grocery chain received allowances in excess of their di-
rect advertising outlay. However, it must .ot be con-
sidered that these chains limited their promotional ac-
tivities to paid advertising space in outside media.
Their counter and window displays in practically all
cases were considered valuable advertising space.

Thile, as already mentioned, the special allowances to
the wholesalers are much less in amount than to the chains,
a field study in December, 1935, by this Unit, covering
certain metropolitan centers, discloses the methods used
by tobacco manufacturers with the wholesale trade, parti-
cularly the tobacco wholesalers. The following illustra-
tion was picked at random in a large metropolitan
center (***).

One tobacco wholesaler was allowing a large retailer 109
and 2$ discounts, presumably the total discounts from
list given this wholesaler by a manufacturer. It may
safely be assumed that this wholesaler did not pass on
these discounts without other compensation in some form
of special allowances from the manufacturer. Competition

(C) Hearings before the Special Committee on Investigation of the Ameri-
can Retail Federation, House of Representatives, Seventy-Fourth
Congress, First Session, Vol. No. 2, July 31, August 8-9, 1935,
pp. 75-80.

(**) Remarks of Hon. Wright Patman, Congressional Record, 74th Congress,
First Session, July 29, 1936.


(s**) Data on file in Tobacco Unit. N1RA Files.





-.30-


is such among the manufacturers that if one manufacturer
makes a special arrangement of this character, it is
highly probable others will follow and at once. The ef-
fect on other wholesalers is demoralizing.

In connection with a campaign of this sort, special allow-
ances, ordinarily taking the form of free cigarettes, are
made by the manufacturer direct to some of the larger re-
tailers who buy through wholesalers. The chain stores al-
so receive allowances of this character, whatever their
channel of purchase of tobacco products. With these
special allowances to a small list of large retailers, it
is inevitable that some retailer will cut prices using
cigarettes as a loss leader. The final step, of course,
is a spread of the cut price. This is exactly what
happened in the metropolitan center from which the illus-
tration is taken. Small retailers without the advantage
of special discounts or the free cigarettes are forced to
do business at a loss or quit.

This subject receives further attention in the Chapter on
Distribution and in particular under the heading of "Ad-
vertising". It is enough to point out the responsibility
of the manufacturers in breaking down standards of dis-
tribution and profits of distributors both wholesale and
retail.

These policies as exemplified by the tobacco manufacturers
find their counterpart in many other industries. The to-
bacco manufacturers are by no means alone in continuing
methods and practices that place a heavy burden on chan-
nels of distribution. Because the tobacco manufacturing
industry has shown such rapid growth and large profits
and has also beon built upon the direct development of con-
sumer demand, it has paid little attention thus far to the
economic position of the wholesalers and retailers, a
group essential for the proper distribution of tobacco
products.

Both wholesalers and retailers, in talking about their
problems, have generally stated their belief that these
trade practices of the manufacturers are primarily re-
sponsible for their troubles and ta-e evidences a decided
lack of good will toward the manufacturers on this ac-
count (*). This lack of good will is, without question,
in part responsible for the loss in competitive position
of the large manufacturers.

The growing sense of social responsibility evidenced by
industry in general is a most significant result of the
efforts to administer the National Industrial Recovery
Act. The recognition by the tobacco industry, definitely

(*) From field study by this Unit, data on file. NRA Industries
Studies Files.
10691





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including the three largest corporations, of its respon-
sibility to labor has been elsewhere discussed. (Chapter
II) There is no doubt that a similar social responsi-
bility toward distribution must be recognized. Farther
economic research is required so that the problems and
inequalities of distribution may be clearly presented.
If the large manufacturers have the vision to see the
benefits that will accrue to themselves by the elimina-
tion of the friction they have created with the distrib-
utors, such a program of research will originate with
them. Recognition of social responsibility, primarily
to the national economy, will not permit further avoid-
ance of this major problem.


10691





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. PP.RODUCTIONI

Due to chan-ges in methods of compilation by the Bureau of Internal
Revenue, Treasury Department, and the necessity for grouping certain
information to Drevent disclosure of the operations of individual
companies, yearly comparisons of all types of manufactured tobacco,
cigarettes ond cigars cannot be made for extended periods C*).

Ir the che'in.g tobr-cco manufacturing industry, production has de-
clined from 143,400,000 poouns in 1931 to 115,500,000 pounds in 1934.

During these serme rears, the to al of smoking tobacco manufactured
increased 5.5o -- from 13,000,000 pounds to 193,000,000 pounds.
One group of manufacturers dro-oed from 79.11 to 64.61. Coinciden-
tally, e second -roup of manufacturers increased their percentage
from 14.54 in 1931 to 29.1 in 1934, an increase of 111.6%; the
balance of the industry showed. -:arctically no change (6.40 to 3.3%).

Interesting. changes have ts.kenr- olace in the ceogranhical location
of factories -nroCucing snall cig-rettes, and in the percentage of
-roduction in various states. Table II following sho7s a marked
increase in production in three states, North Carolina, Virginia
and Kentucky, 7itil little change in the number of factories in busi-
ness in those states. The percentage of total production of small
cigarettes in those states jumped from 61.921 in 1932 to 92.52'0 in
1934. 1Tev York state sho~rs the heaviest loss in this spne -uriod.

G-enerally, the concentration in Vir.inia a.nd :orth Carolina repre-
sents a grouping of the more important manufacturers. who use a
large amount of Bright Flue-GurerI tobacco in their proC.ucts; sini-
lc.rly-, Kentuc!Z' -rod-,wtion is based primarily' on large use of Burley,
grown in that area.

Thie economic nc-1. social problems based unon the mani-facture of to-
bacco products, other t'.han ci:::.rs, are localized, mand to a large
en:tent bound u- vith the economic industrial prosperity of the
South Atlantic states cn. Kentuct.-.














(*) See kAppendix 1, Tables 1 and 2.




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TABLE II


iT-W-.-ocr of Factories in Business on Janucry, ist, and the Perce..nt of Total
Production of SIMALL CIGAPITTES produced in the states leading iLi n-'.u-
facture, for the selected years of 1934, 1930 and 1920. (*)


1934


l'jnber of factories in
business on Janurry 1

United States
Forth Carolina
Virginia
Kentucky
11ev: Jersey
Californir
Pehnssylvnnic
i. e York
Other States

Percent of Total Proc"uction


ll
3
7


12
q

43
n r


1930


110
7
7

3
r".
9
51
22


1920


237
tJ
8
1
13
4
23
126
57


United States
F-orth Carolina
Virginia
Kentuc-Iy
Yew Jersey
California
Penn s-lvania
len York
Other States


l00. 00;'
33.3D'
2,.45
9.47
3.89
2.74
.59
.22
.04


100.00;)
63.79
23.50
3.58
4.21
3.86
.05
.95
.03


'I 00.00o
50.84
11.06
.02
3.60
2.40
4.03
22. E3
2.22


G. ASSETS P'a, EA: T'17GS OF rTHE 31G T2?E


1. Capital Invested

The capital invested in the Big Three com>inies has shon, a
tremendous incre?.se since the trLust dissolution c.ecree of the
Sunoreme Court in 1911 ac.-inst the old American Tobacco Con-
panT, of -'iich these com-anies -iere a npart. Table III
following, ShorTs the capitcl fiund.s invested by the Big
Three.





(*) Source: Annual.1 Re-orts of the Coran-is7ioner of Inter--al Reven-uie.






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C_






-34-


TABLE I I I (*)

Ca--.ital Punds Invested


Dec. 31, 1912 Dec. 31, 1934 Percent of
D Increase


American Tobacco Company
Liggett & My'ers Tobacco Co.
R. J. Reynolds Tobacco Co.


Total


$3 38,392,000
73,130,000
15,844,000


$227,3635,000


$277,518,000
211,193,000
149,931,000

$633,642,000


Capital Funds are hi.,re defined as the count of capital stock
issued -t par value rl-'is .cc'inmulated profits retained in the
business and funded indebtedness: they are equivalent to the
net assets of the comn'xnies, plus funded indebtedness.

As evidenced in the above table, the capital funds ingested in
the three companies combined c-s of December 31, 1934 show an
increase of 120.9% as comna.red to December 31, 1912, the year
following the decree.

There exists among the individual companies a. wide difference
in the percentage of increase in capital funds invested. Al-
though the R. J. Re-Tnolds Tobacco Company shows a remarkable
rate of increase, this conpapri still ranks last, as of Decem-
ber 31, 1934, in the amount of capital funds invested.

2. Earnings

Table IV presents the total amount of income available for
dividends beginning rith the calendar year 1912 December 31, 1934, a period of 23 years.

*TALE IV (*)

Total Income Available for Dividends
1912 1934

Percent of
Company Amount Total Income

American Tobacco Company $490,576,461 40.03
Liggett c: it'ers Tobacco Co. 302,337,203 24.27
R. J. Reynolds Tobacco Company 444,757,817 35.70

Together $1,245,781,481 100.00

(*) Source: Standard Corporation records and Moodyrl s Manual.


(**) Source: Same as for Table III.


10591


100.5
188.8
846.3


180.9





-35-


This lrs"e s'um of one and one-quarter billion dollars of net
earnings available for dividends was uninterrnotedly acc-umu-
lrted over the twenty-three year period without one single yer
recording aP loss either for the three companies combined or for
ePiy single one of the individual companies. The average auiual
earnings for the Big Three over this period exceeded $54,000,000.
In three years of this period, 1930, 1931 and 1932, the net
errnings exceeded one hundred million dollars annuall-.

The Bi; Three recorded net earnings of $25,513,103 for the year
1912, reached their low pointt in 191.4 with earnings of only
$19,942,924, registered their peak in 1931 with total earnings
of $105,707,939 and closed this 23 year -oeriod withi net earn-
ings for 1934 amointing to $55,128,133. Table V sets forth
correspondin- information on earnings for each of the three
Scomoanies.


TABLE V
Earning s


Am. Tob. Co. LiTett & II. J. Re-'nols
'iyers

Net earnin-:s for 1912 $15,443,960 $ 7,169,186 $2,R99,957
Lowest Annual Earnings (.915) .(1914) (1913)
1912-1934 11, 234,.322 5,391,174 2, .32, .67
Hi.hest Annual Earnings (1931) (1930) (1931)
012- 193 46,189,741. 24,002,315 36,374,300
i t Tar-nings for 1934 23,504,554 20,086,690 21,535, 94
A,-erge annual earnings
1912-1934 21,681,5C5 13,145,096 19,337, 731


From these figures, it will be observed that L.lthiough the
American Tobacco Con.an.'r rraiks first in average annual ea.rn-
ings, the other two companies have materially improved. their
relative position as conrared to the year 1912, with The net
earnings of the R. J. Reynolds Tobacco Corapaia. sho',rin; a
remarkable increase. It is also interesting to note now
closely the earnings of the three comJanies pL rallel each
for che .year 1934.

3. Disposition of 1et Earnincrs

Table VI, next presented, shows the Cisposition made by the
Big Three of the net income available for dividends for the
23 ye.r period, 1912 to 1974 :,s indicated by the compilations
of Iood&r' s I.anual anr" Standard Corooration Records:


S(*) Source: See Table III & IV.


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TA.LE VI (*)

DISPOSITIOIiT or fjT ICOI'M AVAILABLE FOR DIVIDMfDS
1912 1934

Con iany Yet Income Sash Dividends Paid Retained in Busi-
Available for Per n.'*; (**) Per
SDividends Amount Cent Amount Cent

American Tobacco $498,570,431z $405,557,180 11.3b $ 93,119,201 18.67
Con-:-any
Liggett L :rers 302,337,903 208,769,295 39.05 93,567,908 30.95
Tob. Co.
R. J. Reynolds 444 737, 817 31, 6557, 500 71.65 126,110,317 23.35
Tob. Co. _____ _________ _________
Together $1,245, 731,4E1 $93, 903,975 74.89 $312,797,506 25.11


The three com-roonies ,.s a group, distributed three-fourths of
their income in cr.sh dividends and remained one-fourth in the
business. The American Tobacco Comnany h-.s distributed the
lrrgest percentv~e of its net income in cash dividends. Al-
though the R. J. Reynolds Tobacco Company has retained in the
business the largest amount of income, its dividend policy has
been slightly more liberal the'n that of the Li:ett & Lyers
Tobacco Coimonany.. Of thie total of $932,983,975 of cash divi-
dends paid curing this period, $812,281,723 was paid on common
stock issues or slightly more than 87% of the total dividends
paid. The amount of not income retained in the business, while
only one-fodurth of the net income earned, is nevertheless a
sizable amount, -anc. of (leclc'.e0. significance 'vhen considered in
relation to the amount of ca-,itol stoc'- issued and paid in.
The accimula.ted earnin o from Ja-mLar-Jy 1, 1912, to December 31,
1934 retained in the business by the BiF Three amounted to
slightly more than the entire ca oital stock: equity paid in at
December 31, 1934 plus the surplus existing at the beginning of
the period, January 1, 1912. (***)

This indicates the e-.tent to which These three companies h&ve
gone in financing their businesss out of net earnings rather than
through the sale of capital stock. The American Tobacco Conuany,
due to its large net worth ($133,037,148) in 1912, shows a nuch
lover percentage when conrared to the two other companies. The
R. J. Reynolds Tobccco Conropany, with accumulated earnings re-
tained in the business during this 23 year period amounting to
more than five and one-quarter times their capital stool:ck equity
paid in (end of 1934) plus their existing surplus as of Jaimary
1, 1912, furnishes an excellent illustration of the extent to
which some com-trnies have relied upon the retention of net earn-
ings, in financing ex2oansion.
(*) For Source, see Table III, page 34
(**) Either capitalized, by issuance of stock or credited to surplus.
(***) For Source, see Table III, page 34

10691 '
L_.f ". ;




I
-37-
H. ASSETS AID EARNINGS OF THE TOBACCO INDUSTRY

This section is based on data contained in the published re-
ports of the Commissioner of Internal Revenue. The interpretation
of this information is subject to certain limitations set forth in
a letter from the Treasury Department, dated January 27, 1936, and
which appears in part as Table 2, Appendix 2 of this study. It is
suggested also that orior to further reading of this section, Table
1 of Appendix 2 be examined.

While it must be noted that this information is based on re-
ports from corporations only, it may be stated that for all prac-
tical purposes, the corporations represent the entire tobacco manu-
facturing industry; the amount of business transacted by individuals
as distinct from corporations is insignificant and affects but slight-
ly the total figures. (*)

The total assets of corporations whose principal line of busi-
ness is tobacco manufacturing is in excess of one billion dollars.
Figures for four years are shown below:


S Number of
Year : Cornorations : Total Assets

1930 351 $1,195,940,801
1931 318 1,171,429,041
1932 336 1,106,217,695
1933 351 1,033,724,283


It will be noted that the total assets show steady reduction
for each year after 1930. This decline in the amount of aggregate
assets is, no doubt, principally due to sustained dividend payments.

Table VII following indicates the volume of business done by
all corporations in the tobacco manufacturing industry, 1926 to
1933 inclusive, and the trend of sales during this period (1926 -
Index, 100).

TABLE VII(*)

: Number of : : : Statutory
Year : Corporations : Net Sales : Index : Net Income
S1926 497 $1,134,762,192 100.0 $115 108 720
1927 430 1,171,093,621 103.2 122 299 922
1928 419 1,173,897,428 103.9 119 330 648
1929 420 1,247,033,708 109.9 127 740 109
1930 392 1,147,1-84,549 101.1 137,133 598
1931 366 1,163,706,245 102.6 136 887 408
1932 370 1,023,155,136 90.2 133,247 921
1933 383 924,085,116 81.4 50,331 561
(*) The total receipts from individuals engaged in tobacco manufacturing,
reporting for 1933 net income of $5,000 and over, amount to $2,115,000,
less than 1/4 of 1i of the amount reported by corporations for that year.
() Based on compilations of the Bureau of Internal Revenue.
10691





^-38-


These sales are net sales by manufacturers. The relatively
small charge in volume 'of sales, particularly when cigarette prices
in 1932 and 1933 are considered, warrants the conclusion that cigar-
ettes and other tobacco products are no longer in the luxury class.
This is strikingly represented later in this chapter when compari-
sons are made between the tobacco manufacturing industry and certain
other selected groups.

It should also be noted before -assing this table that the
number of corporations actively engaged in this industry in 1933
was 201, less than in 1926. The industry is still continuing the
process of concentration.

Table VIII following shows tne division of the total sales of
the industry as between those corporation reporting statutory net
incomes (*) and those corporations reporting deficits in their in-
come tax returns.

TABLE VIII (*)



NET SALES OF CORPORATIONS RPOPRTING

Statutory Net Income Statutory Net Deficit
:5 to all: : to : % to all : %to
:Corpora-: :Total: :Corpora-: : Total
Year: No.: tions : Amount :Sales: No.: tions : Amount : Sales

1926: 289: 58.15 :$1,101,162,568:97.04: 208: 41.85 :$33,599,561: 2.96
1927: 261: 60.70 : 1,149,055,860:98.12: 169: 39.30 : 22,037,7611 1.88
1928: 238: 56.80 : 1,161,493,653:98.52: 181: 43.20 : 17,403,775! 1.48
1929: 243: 57.86 : 1,202,648,288:96.44: 177: 42.14 : 44,385,420: 3.56
1930: 195: 49.74 : 1,078,187,181:93.96: 197: 50.26 : 69,277,368: 6.04
1931: 155: 42.35 : 1,072,199,623:92.14: 211: 57.65 : 91,506,622: 7.86
1932: 114: 30.81 : 963,126,649:94.13: 256: 69.19 : 60,028,517: 5.87
1933: 122: 31.85 : 819,838,493:88.72: 261: 68.15 :104,246,623:11.28


It will be noted that the percentage of corporations in this
industry reporting statutory net income shows a decrease of approxi-
mately 425 in 1933 as compared to 1926.

It is evident that this decline in the percentage of corpora-
tions reporting -orofits was primarily due to the depression. While
this table does not bring out this fact, it is later shown that the
drop.in number of corporations reporting net income was with one or
two exceptions among the smaller asset classes.

The year 1932 accounts for the largest drop in ratio of corpor-
ations in this industry reporting statutory net income (the per-
centage for that year 30.81,0, as compared to 42.35,' for 1931).

(*) See Tnble 2. Appendix 2.
(*) For sourcc-, see Zable VII.

10691




-39-


A further analysis is of interest: the nercenta.ges of corpora-
tions reporting statutory net income or deficits offers a most in-
teresting comparison with the percentage in dollar volume of net
sales of these corporations. Although the number of corporations
reporting losses during this eight year period range from 39.3;a to
69.19% of all corporations reporting, their sales ranged only from
1.48, to 11.28-., of all sales made in this industry. Further, sales
in this same ground for 1933, showing a sales percentage of 11.28,,
are far larger than for any of the prior years mentioned.

Table IX following states the statutory net income (*) or def-
icit covering this eight year period for all tobacco manufacturing
concerns re-oorting to the Bureau of Internal Revenue.

TABLE IX (**)

STATUTORY NET INCOl0L OR DEFICIT
All Tobacco Manufacturing Corporations

Corpora- t to Coroora- to
Year tions Net Income Sales tions Net Deficit Sales

1926 289 ?117,365,959 10.33 208 $2,257,249 6.72
1927 261 124,774,568 10.86 169 2,474,546 12.23
1928 238 121,677,829 10.48 181 2,147,181 12.34
1929 243 132,681,671 11.03 177 4,941,562 11.13
1930 195 143,788,111 13.34 197 6,654,513 9.61
1931 155 142,493,817 13.29 211 5,606,409 6.13
1932 114 138,398,553 14.37 256 5,150,632 8.58
1933 122 65,224,339 7.96 261 14,992,778 14.29


The relatively steady increase in income from 1926 to 1931 has
taken place in spite of a drop of more than 32'; in the number of
corporations showing net income. The surprisingly small decrease
in net income for 1931, 1932 and tne heavy dron in 1933 are erplain-
able only after consideration of the sales policies of the large
corporations. (***)

In 1926, 497 corporations reported to the Bureau of Internal
?Revenue snowing either net income or net deficit. In 1933 the num-
ber dropped to 383. This is at least a partial indication of con-
tinued concentration of tobacco manufacturing among a smaller number
of corporations.

In the year of 1932, 114 corporations, approximately 60% less
than in the year 1926, reported statutory net income of $138,398,553,
or 17.9:' more than for 1926. This also indicates that the profits
of the tobacco manufacturing industry are showing similar concentra-
tion among a smaller number of cor-oorations.
(a) For definition, see Appendix 2, Table 2, paragraph 7 (b).
(**) See Appendix 2, table 1.
(as) See this Chapter, Section E, Cigarette Selling Prices and Policies.

10691




AM M 71 -tI.r:Mj. aMa-~m


-40-,


Farther reference to Table 1 of Appendix 2 is suggested for a
comparison of cash dividends naid-by all corporations whose princi-
pnl line of business is tobacco manufacturing, with the dividends
paid by various groups therein shown.

The casi dividends naid during tils ei-ght year period aggre-
gate $708,5ob,600, or an annual average of .88,569,450. It is fur-
ther of interest to note the increasing amount for eash dividends
paid since 1926, and particularly the large sums pnid during the de-
pression period, a considerable -oortion of which has come from sur-
iuas rather than earnings.

I. IITrDUSTRY COMPARISONS

This section of the steady is concerned with certain compari-
sons of the tobacco manufacturing industry to all manufacturing in-
dustries and also to selected manufacturing groups as classified
by the Bureau of Internal Revenue. The facts given herein have been
prepared from data compiled by that Bureau, Pnd apply to corporations
only.

Table X, following, shows a comparison of the trends for the
eight year period 1926 to 1933 inclusive, covering the above groups.

It will be noted that the tobacco industry reached its peak
in dollar volume of sales in 1929, as did all corporations in nal
manufacturing groups and also the selected groups.

Of particular interest is the rate of decline in sales from
1929 to 1933. The net sales of all corporations in the United
States in all manufacturing groups, for the year 1933, showed a
decline of 52.9,' in dollar volume from the peak year of 1929. In
comparing the net sales of tobacco manufacturing corporations for
this same period, it will be noted that the decline was by no means
as drastic, the sales for 1933 showing a reduction of only 25.96,.
from 1929. In other words, the decline in sales of all corporations
in the tobacco manufacturing group as between these years was approx-
imately one-hald that suffered by all manufacturing corporations.


10691








INDEX NUMBERS SHOVING ,-ET SAI.:S 2?:_ D FOR .ZLL 'ORPORATIOi!S 'I -ALL ,AIUP1ACTJRI. 'rR. -2S COMBIIHED
AMID IN CERTAIN SELECTED ,ATTFZ.lCTU,,G 7i0 U ?' Q it VE A 13A26 to 1933, Ti.CLUSIVE. (1lj6G 3 11DEX OF 100,)

*l Corporations ins 1926 1:_327 1928 1929 1930 1932. 1932 1933.

All manufacturing groups in U.S. 100 101.8 107.5 115.7 94.0 70.1 48.9 54.5
Selected Manufacturing Groups:
TOBACCO PRODUCTS 100 103.2 103.9 109.9 101.1 102.6 90.2 81A

Food products and beverages 100 103.1 105.9 109.6 97.6 76.0 58.1 62.9
Textiles and their products 100 100.7 101.1 106.4 82.9 38.4 49.7 59.5
Chemicals and allied products 100 109.6 117.7 125.7 120.7 30.2 78.0 76.6
Motor vehicles, complete or parts 100 87.2 101.3 117.7 73.7 52.0 26.7 40.7
Factory machinery 100 78.5 37.2 96.5 72.4 55.2 33.5 38.2 3
Agricultural i.ach. and equip. 100 107.3 106.4 147.9 116.5 62.6 29.8 36.6

COPOSITE RATIOS OF WET IliiC0:.E TO ijET SALES .-LL COiRPORATIOiS III ALL .AiUa"'U. : aOUPS
COIMBII.ED AJJD Iii CERTAI1I SELECTED :JiIUFACTUrd. ; L.t.UPS FOR THE YEARS 1926 TO 193, T ICLUSIVE
All Corporations in: 1926 1927 1928 1929 1930 1931 1932 1933

All manufacturing groups in U.S. 6.19 5.07 5.87 6.13 2.09 (I.,8) (5.43) 1.35
Selected Manufacturing Groups:
TOBACCO PRODUCTS 10.14 10.44 10.08 10.20 12.00 11.80 13.48 5.51

Food products and beverages 3.17 2.86 3.30 3.29 2.82 1.75 .70 3.69
Textiles and their products 1.57 3.88 2.41 1.91 (3.99) (4.52) (7.03) 2.93
Chemicals and allied products 9.76 4.80 8.33 9.02 3.49 (.92) (.52) 2.24
i.otor vehicles,complete or parts 8.57 7.12 6.69 7.70 4.33 1.15 (13.80) 2.36
Factory machinery 10.80 15.35 9.18 10.33 3.39 (4.15) (15.58) .35
Agricultural Yach. and equip. 9.90 12.39 16.97 13.54 7.38 (6.80) (29.41) (6.00)

Source: Prepared from tabulations compiled by the Bureau of Internal Revenue.


Note: Figures in parenthesis indicate deficits.




-42-


In making similar comparisons to corporations in the various
manufacturing -ro-uos, iL v;ill be noted thi't the tobacco manufactur-
ing corporations made the :..ost favorable showing, and by a wide mar-
gin.

TnaH comparison in the percentage of decline as evidenced in
the tobacco manufacturing industry and in the food products and
bever~i'es industry is of ;,-rticular interest, since the products
of each of these groups are in every-da.y demand by the consuming
public. It will be rioted lnat i.. the iea.: year of 1929, the sales
index nurmoers were practically identical for the two groups. In
1933, the index .lumbers were 81.i for tobacco and 62.9 for the food
group, representing a. decline in sales fron. 1929 of approximately
42* for food products ap comor-red to 265 for tobacco products. In
1932, a larger variation in the rates of decline was shown between
the net sales of thebe two groups.

For the purposes of cormp'rative analysis, groups manufacturing
both consumable goods and durable goods have been included. The
comparison with the textile, chemical oid raotor vehicle groups are
of decided interest. The second section of Table XI shows the ratio
of net income to net sales for all corporations manufacturing tobac-
co products and for the same period of years, and the comparative
percentages with the other cor-,orate groups.

The ratios of net income to net sales for corporations manu-
facturing tobacco products are decidedly higher than those shown
for all. manufacturing groups for each year of this period. This
spme statement apolies also in corresooiding comparisons with the
selected manufacturing groups, excep-oting only the two durable goods
groups making factory machinery and agricultural machinery and
equipment. With these two groups, tnis statement applies in a
majority of the years.

From the nercentnges in this table, it is evident that the
full imnoact of the economic collapse was felt in the year of 1932
by all corporations engaged in manufacturing, since a composite.
net loss ratio of 5.435, is shown to total net sales.

The six other manufacturing groups selected here for compari-
son also made their most unfavorable records in 1932, with one ex-
ceptionL, chemicals. The average net loss ratio of .92; in 1931
for all corporations manufacturing chemicals and allied products
was larger thaa that of 1932.

In contrast, it is highly significant to note that the corpor-
ations engaged in tobacco manufacturing, when considered as a whole,
entirely escaped the force of the crash until 1933. Their best
showing during this eight year period was made in 1932, when net in-
come ratio to net sales was 13.481. Their drastic decline follow-
ing in 1933 was primarily due to a price war resulting from their
sales policies and not from an:- curtailment in the consumption of
tobacco products.



10691


-i




-43-


;Jhether compared with consum.'.ble goods or durable goods indus-
tries, the showing of the tobacco manufacturing group is most sig-
nificr.nt, and stands in P cl,-.ss bv. itself. This is even more strik-
ing when it is borne in mind that more than 50Y of the net selling
price of tobacco manufacturers represents government excise tax.
The averaF-e ratios of net income to net sales would be far higher
if the excise were eliminated.

Starting in 1931, the .3urenu of Internal Revenue has separated
corporations into various asset closes, snowing for each class
statistical data on assets and earnings. It is to be regretted
that this most valuable inform? tion does not extend over a longer
period of years. It is of ine-ti..irble value in bringing out facts
on tne concentration of business :;ind of profits among the larger
corporations.

Tpble XI following sho-:s r.%tios of net income to net sales
by total asset classes for the sa:ne groups given in Table X.

The situation as revealed in Taole XI presents a very dark
picture, due, of course, to the fact that the three years covered
folio.: in the depression period.

The first item of interest is the improvement in ratios as
the size of the corooration increases. It is impossible to state
that a simil:;r condition obtains in other th.ai depression years]
since no st'-itistical basis for judgment is available.

The average ratios of net income for corporations in all manu-
facturing grou-os combined, for 1932, in all the various total-assets
classes, were negative, with larger deficits reported for this year
than in any year of the three year period covered. Corporations
manufacturing tobacco -roducts, in trie total-assets class of one
i-illion to five million dollars, recorded average net earnings for
1932 of 4.1"), and the average net income ratio for all reporting
tobacco corporations in the total-assets classes of five million
and over was 15: of net sales. In 19,13, average earnings for all
corporations manufacturing tobacco declined from '939, while small
increases in average earnin-s were recorded in 1933 for corporations
in : 1l manufacturing gro'u)s combil!ed. The price war, so often men-
tioned, was gain res-onsible for tobacco's showing.

It will be observed that all corporations manufacturing tobac-
co products mnde a far more favorable showing from the standpoint
of average net earnings under thie various total-assets classes in
each year of tne three year period than that snow for the average
of all manufcturin- corporations.

Corresponding comparisons with the othpr six selected manufac-
turing groups sho'7 some wide variations. The average net income
ratios for corporations manufacturing food and beverage products
-,xid for corporations mnnufecturing chemical and allied products make
a better showing than the average for all corporations manufacturing
tobacco in most of the total asset-classes for each of the three
years. Tnis particularly apiolis to corporations in asset-classes
of less than one million dollars, and is indicative of a greater


10691





6.5AJjA" A1J.


AVERAGE RATIOS OF NET INCOME TO 1ET SALES FOR AIL CORPORATIONS IN ALL MANUFACTURING GROUPS
AND CERTAIN SELECTED MANUFACTURII GROUPS CLASSIFIED ACCORDING TO TOTAL-ASSETS CLASSES FOR
THE YEARS 1951, 1932 and 1933.

Total-Assets Classes Figures in Thousands of Dollars.



50 100 250 500 1,000 5,000
Under to to to to to and
All Corporations in: 50 100 250 500 1,000 5,000 Over


All manufacturing groups in U.S.
1933 -5.2 2.3 1.1 .3 1.1 1.8 2.4
1932 -10.6 8,2 7.9 7.4 7.3 7.7 3,4
1931 6.7 4.7 4,3 -3.8 353 2.7 .3
Selected manufacturing groups:
TOBACCO PRODUCTS
19353 2.8 -2.5 .4 5.5 4.1 5.8 6.0
1932 7.1 2.7 .6 -1.9 5.4 4.1 15.0
1951 3,1 2.2 1.4 1.6 .9 6.6 12.7
Food products and beverages
193355 2.7 1.0 .3 2.5 3.7 4.3 4.8
1952 5.1 3.7 3.6 -1.3 .7 .5 2.3
1951 2.2 1.3 ?.7 .1 1.0 .5 2.8
Textiles and their products
1933 2.7 .4 .6 2.2 5.4 4.6 6.2
1932 7.2 5,1 5.2 4.9 5.9 6.4 -10,5
1931 4.9 3.8 3.5 -3.5 -3.4 -4.3 5.9
Chemicals and allied products
1933 6.4 .4 1.0 5.6 5.3 7.1 1.7
1932 -10.1 5.4 3.5 1.7 .2 2.9 .4
1931 6.9 3.7 1.1 .5 .5 2.7 1.3

Motor vehiclescomplete or parts*
1933 5.4 8.02 1.5 7.2 2.5 $500,000 and over(*W
1952 -15.0 -14.7 -16.3 -25.4 -13,.6 500,000 and over









S(Continaued)


Sh-?ct 2 of Z sbi'- ic


All Corporations in:


Factory machinery*
1933
1952
Agricultural Mach. & Equip.*
1933
1932


Under
50


- 8.6
-21.5

-19.0
-19.9


to
100


- 4.5
-19.9

- 5.8
-26.2


100
to
250


- 4.0
-19.6

- 8.2
-21.5


250
to
500


- 1.5
-18.0

- 4.5
-16.8


500
to
1,000


- 1.5
-17.2

- 4.3
-31.7


1,LjJ
to
5,000


- 2.1
-2Lo,

- 5.2
-34.6


Source: Prepared from tabulations compiled by the Bureau of Internal -avenue-

(*) No statistics available for the year 1931.

(*) To conceal identity of individual corporations, ratios are not shown :ur
the ;roaps from one million to 5 million and from 5 million and over. All
corporations in these two groups are included in the ratio shown in the
group headed "500,000 to 1 irillion".


Explanation: Linus signs preceding ratios represent deficits.


5,000
and
Over


7.5
- 6.7

- 6.0
-29.9


. .. ........ ... .. ... n ..





-46-


degree of concentration of profits, in tobacco manufacturing, among
the high asset-classes, whic.i have recorded the best average earn-
ings of any of the groups listed in the table.

In closing this section, a further word of caution is neces-
sary. The report of the Bureau of Internal Revenue for 1934 is not
yet available. That the ratios for these three years will be con-
siderebly changed is evident from information available from public
sources. The tobrtcco industry has shown little ch-;ige in 1934 and
in 1955, while many other industries which followed the normal curve
of the depression, showed considerably improved earnings during
these years.





0 -


10691





-V4?-


Coni-P o'd A---con)ec.i-

(Produ.ction)


T .1ELF
- u i i.17, '


Quantities of Cnewing, Smokidg, and Snuff Tobacco, Cijt'.rs
and Ci;r rettes Mianitfsctured by the Tobacco Industr-y in
the UniteA1 States, aidi the quantities, (and Percentages
of the total), produced by selected. groups of corporations.
For calen.'.r lrec.rs 1926 bo 1934 inclusive (2 sheets)
Oriinal cni ten photostatic coTies.


List of sta.temenets.


10691




42Ip'r''w205-T' U N : 5Or531D. SEU AMST KNO 0BAC1O. CIU08 AnD 0OIlUTTnB APPIZMX z, (MIE oD. I
AMOA CTO i TI TBY nTU CO ISSirnr I1S TE M7ITDS TATEI, S. TH QIUAETTITS. TBLIE 1. OF 2 iSB)
(AIn pU-CoitOSu orI T TO OT), PRODD) BYI SNTZLOT OUSws O COiOWIONS.

CITlDI TX25 1934b 1926
POUNDSI AD aM IRs EHPSSCD IN THOUSDiS)


M1cCo MlU311M OWS--
161000 150123 II t 3.3


MASS 0 TOWCCO PRODUCTS

1A0cco (cPOnM):
plg tcRiuig
Trlet cewilg
lne-OCat glaring
scrap Chrwing
TiwiSt, Filne-Out & scrap Chewing
Tot.l Chnewing Tobacco

Bok Lag
Snuff
Tetal Chewing. aMdug & Snuff

Large Ciars (Cimbsr)
Bull Cljare (Imber)
Large Cigarettes lumber
ball Cigarettes (umbsr

TOBACCO (POMItD) I
Plug revwing
Per Cent. of Tobacco Indunir7
(D) Twirtt, tin-Cut & Scrap Chb-tn
Per Cont. of Tobacco Tnduastry

Total Chewing Tobacco
Pert Cant. of Tobacco Induutxr
Baoldog
Per COat, of Tobacco Industry
Snuff
Total Cewming and boeing
Por Cent. of Tobacoo Industry
(Snuff not Incltoed)
Large Cigars (Ftber)
bmall Ci gr: timberr)
A W l O gre t ti (N umbo r)
larg Cigarttes (tabor)
ball Cigarettes iutberl
Per Cent. of Tobacco Industry

TOBACCO (PouniI
Plug Choewig
Per Cant, of Tobacco Industry

ID) oTwist. In-Cut & Scrop Chewng
Per Oent. of Tobacco Industry

Total Chewing Tobacco
FoPer Cent. of Tobacco Industry

Sokldo
Per oCent. of Tobacco Industry
SBuff
Total Chewing & Saeking
For Cont., of Tobacco Induetry
(Snuff not InOluded)
Lerfo igCar (limber)
Seal IgClar (lmaber)
large CigareotteOO C(Nmber)
bmall Cigarettes (Clmber)
Por Cent, of Tobacco InducistLry


50.5b4
90. 64
U.291
8.1%
5 1.855
47.54
124,826
64.6%

179.661
58.26

(C)
(C)

(C)
103,268.570
79.54


8.590
13.7%
23.951
4*5.3%
32-541
28.1%
56.117

29.71



(c)
(C)

(C)
25.6149.095
19.7I


69.393
so.5%

". 055
7.74
53.1*48
546.84

128.192


1816.40
59.3%

(C)
(C)
(c)
96.397.562
83.9%


8.11

13-W
23411


31.52A
27.36%
52. 251


.3,779
27. 4

(C)
(C)

(C)
17.820.473
15.54


50.331
81.24
6.196
7 24

54.527
k,5. 3'
135.o26
69.b4


187.553
60.24

,C)
(C)
Cc)
36.785.2'14
81. 44


7.969
l2.9%
27.1


3',-0911
29.2P
a46:,

24.3%

81 4
26.26

(C)

171958.2Ut1
16.8$


b2.,1119
81.14
5,.512
7.74
67.680
45.64
144,631
79.1%

212,311
64.1%




(C)





72.74





26,518
90.6<





114.5%

69.900
21.1%
(C)
(C)


9,708,070
8.3%


B9.788
) 0.94

(A) r.279


3.8,06
31.24

1 58148


83.286
62.6(
Ia) I).072


85.,"
82.64
(A) 6.481


69.999
82.0%

(A) 7.091


(A) 75.067 (A) 8.4154 (A) q.158 (A) 92.321 (A) 97.090


(C) 135.448


210.515
63.64


(0)
(C)
112.bo(.06l
91.04


11.350
13.1%
(A) 2,222


(C) 128,568


212,922
62.6%


(C)

(C)
111.332.70

)90.




(A) 2.435


(B) 1286.b5


218,023
63.31A


(C)
CC)
99.504.497
91.54


13A 295
13.2

(A) 2.246


(3) 132,995


225.219



(C)

93.824.915
94.0%


14.005
13.5%
(A) 2.33D


(I) 137.008


214,098
63.04



(C)
(0)
89.132.1<'1
9b. t


15,845
14.4%

(A) 2.7144


(A) 13,572 (A) 15,919 (A) 15,441 (A) 16,335 (A) 1,569


(3 53,.991


b7.166
20.34

(e)
CC)


10.122.938
8.2%


(N) 55.1469


71,388
21.0%

;C)
(C)
( .)
10.'02*.441.I
8.24


(3) 55,552




(c)
(C)

6.622.973
6.'


(3) 56,382


72.717
o20.5

(c)
(0)
(C)
3.026.99o
3.0%


(3) 60.300



21.3%

(C)
(C)

(C)
1.255.


1OTNUS: (A) 'crep Choewing" included under "iioktng prior to 1931.
(B) bnhoktrW Includes *Scrap nChwingS prior to 1931.
IC') I-cluded under 'lalanre of Industryx to conceal data reported and identity of corporation.
(0) "Twit, Pine-Cut and Scrap Chlwing" cabinet to concoal data reported and identity of corporation.


S97 13 19 1931 1930 19 1929 1927 296

62.760 61.362 61.94 76.653 86.274 96.714 100.616 103.918 109.766
5,080 5.042 4.91g 6.378 7.624 8.187 .8,92 7.988 9.179
2,91 3,120 3.355 4.170 5.089 5.556 5.186 b.287 6,985
IL?.78b M.4 9080 61,215A (&'-- ___'
52,837 52. 86 53.353 71.713 (A) 12.713 (A) 13.71,3 (A) 1 1 71 (A) 14.75 CA I1614
115.597 114.248 120.298 148-.136 (A) 98.9r7 (t) 11o.487 (A) 114.12,4 (i) 11-,193 (A) 125.950
193.075 191.76b 190.987 182.947 (B) 212.013 (3) 229.585 (C) 229.49 (C) 236.779 (9) 245.450
36,89 .6.099 15.994 39. '54 to.76b 1.128 141.760 41. 352 39.216

345.56b 342.113 347.279 371.237 371.76b 381.200 356.333 396.324 410.596
4.525.780 4.300.0o45 4.382.723 5.347.921 5993.8990 6,518.513 6.371 .12 .519.005 b.498,A.6
221.977 209.515 278.749 338.997 383.070 419.880 415.535 19.419 412.315
88.202 2.846 3.174 5.160 7.367 9.952 10.403 11.432 13.21o
129.97b.354 114.874.217 106.632.?. 117.061.214 123.802.186 122,192.181 106.705.50b 99,809.032 92.196.974


MEMA
lC7 COORATOS:
GCI ~ COIFO AT10.S;:


m TU ATIOS
9E= G ORATIONS











qUATITIrs OF CO BIPIxO. SMOKIVo AIND r TOBACCO. CIGARS AM CrQian s
MAlIUACTUDE) BY THE TOBACCO InDTSBT IIn TN! UTITID STATIS. AD Tn QUASTITIUS.
(ACn PE-CIAGOES OF TM TOTAL), PROMME IT SE.CTUI) GBOPS OF COPORATIONS.

CAJniARI YIARS 1934-1926

(POUNDS AND InIERS mXiSD IN T RO7SANDS)


-CIASS OF TOBACCO P8ODTTS

TOBACCO (PoUnD)S
Plug Chewing

Titt, Plne-OCt & Scrap Chewrlng


Saoking
Scuff
Per Cent. of Tobacco Industry
SELCTID CIGAR CORPORATIONS: large Cigars (lmbor)
Groo I Per Cent. of Tobacco Irdetry
SBICT C 0iR COORAlTIOa Large Clgaers (Clmber)
N inoliodlg certain FoPer Cent, of Tobaccma Indetry
mmbere of Group 1. all Clgers (Numbor)
SELECTED CIOAR COOBATIORS: Large Ciglare (limber)
2MN- Per Cent. of Tobacco Ilnutry
(Other than Groupe I & 2.) Sall Cigar (Clmber)

BIALANC OF TOBACCO 1 TI0h. TOBACCO (POUlDS):
Plug Chewingmrl
Per COent. of Tobacco Indutry

Twl t Chewi D
Per Cant. of Tobacco Induetry
pina-Cut Cheing
Por Oent. of Tobaoo Indutry
Scrap chowrin
Per Cant. of Tobacco Indtatry
Tewit, lne-Cut Scrap Cteita
Per Cant. of Tobacco Induatry
Total Chainlg Tobacco
Per Cant, of Tobaoa lInustry

snkift
For Cont. of Tobacco Induitry
Scuff
Per Coat. of Tobae Itnduetry

Total Cheting. tlking A tauff
FoPer G0t, oft Tobaeo Industry
Large OWtre (imber)
FoPer Cont, of Tabasao Induetr7
hell Clw limbere)
Per Ont. of Tobacco InustIr

L Oarge larettol (labs)
Per cent. ef Tvobeaae Istry
tall ClarlSttee (tambor)
Par oCt. of Tbae Indaustly


29U 2911 9


TOBACCO noSTY QDGOPS
DO CP C
SELCTEID COWOUATIOISi
Grouped to show other than
saokisg tobacco.


(C)

(c)
(c)
35,4?
96.o

1.402.334
31.0%
2."7.274
53.6%

615. 13
14U
(Ca)

3,6f
5.7%
2.44
158.2%
979
32.9%
is:7
21.1J1

:6.5

28.20I
211.15%
12.132



41.79
122.15

32.0W
M.977
100.0%
W.202
100.0)%
1oo.o0
1O8:,L5


(C)

(C)

(C)
96.0

1,101,41
25.b%
2.020.030
47.0O
(C)
91b.bl5

(0)


3.8515
6.S3%



33.
21.626
48.4%

25.420
48.1%

29.271
25.6b%
11.321
5.9%
1 1.0

42.031
12.3%

1.303.400
31.7 %
209, W

2.4BU
100.0)1
b5b.1i
.6%


42t Jq3t S9 lqg 19 27


CC)
(C)
(C)
34.510
95.95

1.079.869
2..6%

2.107,641
4a.l2%
(C)
S.l'lb

(c)
,lbr



5.9%
2,618
53.2%
922



27,032
6.3%
30.677
25.5%
11:.
1.40
4.1%

43.76bb
12.6%

.1133.s9bb
32.7%
278.76W
100.0$
3.374
100.0%
2.=5


(C)
(Ca)
(C)
39.109
55.9%
1.470.692
25.0%

3.109.461
52.8%
(0)
1.004.270
17.0%



b5:0
4.01

5217
1.197
UV%


(C)
(0)
(C)

96. x

IJUX6
26.3%

3,5 8.168
(9.o%

C



11.7515
4.9%

53.5%
1.081
2,75
(A?


(c)

(C)
(C)
40,000
95.16%
1.578.504
24.91
3.1111.686
48.9%
(C)

835.877



4.065
4.0%

49.8)%
1.436
(1.7%


(C)
(C)
(C)
39.724
96.1%

1.502.947
23.1%
2.996.517
U6.0%
(c)

552.911



.07
3.9
4,.008
52.2%
(A?5


(C)
(C)
(C)
37.728
9b.2)%

1,396.664
21.5%

2.79:105
(C)

60W.894
12.9%
(a)


3.922
3.6%
4.761
52.9%
51.5

(A)


(c)

(C)
(C)
38.282
96.1%



2.12904

(C)
970.077
18.1%
(a)

4.780
6.2%
3.4101

25.
,A

4b:.0%



37.3715
25.2%
11,798
b.4%
1,572
3.9%
90.744
13.7%
1.5:80795
29.0
338.997
100.0%
5.160
1oo.o0%
1.235" 7


(C) W2.971 () 4. 158

1.657 1,61
4:1% 3V9

95.976 57.375
14.8% 15.:1
1.7801 2,136.896
302.2 32.8%
383.070 419.880
100.0% 100.0%

7.367 9,952
100.0% 100.0%
1.015.207 1.057.235
.8% .9%


(3) "5.632
1.760
4.?
it.2%
57.317
114.8%
2.122, .619
415.
130.0%

1O0OW
200.0W
2.378.036


(C) 17.499
1,628
3.9%
58.664
111.8%
2.669.2147
411.0)1
439.429
100.0%
11 .132
100 .0:
2.957.1U
3.0%


CD) 418.1452
1.4188
3.8%
59.881
141.6)%
2,869.6102


ioo.o<
13,.1AD
100.0%
1.70.964
1.8)%


WATi- WIOAL 310D11 U fD1U TOBACCO S DBIWIW. W0 C& IUSUhIL SIXB, MTE SWATU TRSS N 3MA.
ISUMinm (A) 68orp Gg iaeluoet vter elae yr'r to 1931.
(X)- *'ME~ ismlet Qo-p a eaue e prte to 1531.
()- fauammasm aftoolamm, at bout to oadee"aeol Galat u =eatS -1 ItleW af ufomatew.


(A) 5.22 u (A) 5.4k (CA) 5.860 (a) 5.46 (A) 6.329

(A) W10.38 (A) 10.21, (A) 9.925 (A) 9,537 (A) 10o.251


APPDIX Iz.,
TALU I.


C smz 10. 2
0m 2 SEWS)


.. ... ......... .....





-50-


APPEiDIX 1. TABLE 2

.ASIC rP.ODUCTIOiT DATA

Follorin^, ir a list of compr..rative strtenents prepared ^ro:.] the
ststiitical records of the Tobacco Tax Division, Bureau of Internal
revenue, and from the Annutl Rei-ortc of the Comi.iis'sioner of Inte-r.al
Revenue. Portions of tlIe basic data contained in these statements hlave
been usec. in )reparrltion of certain Tables anC *oercentage: o->peearing in
te t-' en-':

S2CTIOiT 1.0. 2 ()

STAT_7ICIT


Statements sh.owing for the nrlond :- -c-rs 192'5 to 194 inclusive;
hT-mber of factories in business inr Jcnuor"r 1st,
Q'uantities-- of Tobvszco, (.'j-stenmmd., ctemmied, scrrrps, in
process, -.nd stons), iced in m-,.aumfcctuire,
Qu.itities of Cheu'in-, Smol'in.g, cnd Snu-iff tobacco oroC.ucec.,
Qurtntibies of Ci-ars ad Cigarettes .--roduced.

For the Tobacco InC'ustr:, and -:rou-os of elected cornor.tio:s .s
follows:

1 Tobacco Indclustr-7 in the United States

2 Grouo A Selected Conrorrtions

3 Grou.o B -- Selected Corrorrtiorns

4 Group C -- Other Corpora.tions

5 A grou-o consisting of cigar mantfrccturers

6 A second ;-rou-o of cig-ar manufacturers

7 Inventory of Leaf Tobacco, (Unstemmed, stemmed., scraps, and.
stems), at beginning of year; .-tu.',tities of Leaf Tobacco,
(by classes), received from f-rilners and other sources; and
the quantities exoorted and shi-oped to other sources during
the calendar "ears 1933 end 1034, for a selected group of
corporations

8 A third jrou- of cigar manufacturers

9 A fourth !;rou- of cia.r i-,anufacturers


(*) For '.ur'ose of identification, all original work papers were incexed
b- sections. Section i1o. 2 C.ecls priw.'rilv nith statistics of .ro-
duct ion.


10691





STATEMENT -51-
NUMBER
10. Rates of Taxation; Amountbs of Trx Collected; Quantities tax-
paid. for consumption; Average Quantity of yearly consumption
Per Cauita; by classes of tobacco products, (Cigarettes,
Cigars, Che'oing and Smoking Tobacco, and Snuff) also miscella-
neous tobr.ccc tax revonuc, for the fiscal years ended. June 30,
1900 to 1934 inclusive.

11. Production of Tobacco Products, (Srmall Cigarettes, Plub, Twist,
Fine-Cut, and Scrap Chewing Tobacco; and. Smoking Tobacco), in
the United States, llorth Carolina, Virginia, and Kentucky; and
the percent that each State' s production berrs to the United
States, for the calendar years 1926 to 1934 inclusive.

12. Production of Tob:cco Products, (Plug, *Twist, Fine-Cut, and
Scrap Cheviin, Tobacco, Smoking, Snuff, -Cigars and Cigarettes),
in the United States, and in the ten (10) leading states in
manufacture of tobacco p-oroducts; and the percent that each
State's production bears to the United States, for the calen-
dar years 1926 to 1934 inclusive. (Data on Large Cigars for
calendar years 1920- to 1934 inclusive)

13. !Tumber of Cigar L..nufrcturers; rgrejate Tnumber of Large Cigars
produced, classified as to output; and percent of the total
production in the United States, for the calendar years 1926
to 19.;. inclusive.

14. Quantities of Leaf Tobacco, (unstemmed equivalent), used in
manufacturing Cigars, Cigarettes, Tobacco and Snuff, for the
calendar years 1920 to 1934 inclusive.

15. Summary of operations of manufacturers of Tobacco, Cigars, end
Cigarettes, showing; number of manufacturers; total production
classified as to output; and percent of total, for the calen-
dar years 1926 to 1934 inclusive.

16. Summary of operations of producers'and dealers in Perique To-
bacco, for the calendar years 1926 to 1934 inclusive.
17. -umber of Deulers in Leaf Tobacco in Business; quantities of
Lear.f Tobacco exoorted; and quantities received from Frriers,
for the calendar years 1923 to 1934 inclusive.

18. Quantities of Leaf Tobacco imported by; Dealers in Leaf Tobacco,
Ciga.r Lae.nufacturers, and Tobacco Mlanufacturers, for the calen-
dar years 1924 to 1930 inclusive.

19. Quantities of Leaf Tobacco, (Unstemmed, stemmed, scraps, cuttings
and clippings), owned or held on January 1st by; Dealers in Leaf
Tobacco, Cigar Manufacturers, and Tobacco Manufacturers, for the
calendar years 1924 to 1931 inclusive.


10691






SECTIO1I -1M.. 4
STi-T..TCNT
SrQJLTZ1CIJT

1 i.onthly quantities of manufactured Tobacco Products, (Large
Cigars Classes A, B, C, D, and E, Small Cigars, Large and
Small Cigarettes, Snuff and Chewinm and Smoking Tobacco), toza-
paid for consumption, together withi imports from the Philippine
Islands, and. Puerto Rico, for the years 1925 to 1935 inclusive.

5 Quuantities of manufactured Tobacco Products, (Chening, Smoking
and Snuff Tobacco, Large and Small Cigars, Large and Small
Cigarettes, Perique Tob:cco, scraps, cuttings, clippings, sift-
in. gs, etc., Ci.,-rette -cr;ers and tubes), exDorted in bond, for
the fiscal years ended June 30, 192S to 1934 inclusive.


Contents of A-*endix 2

(Financial)

TAZLZ


1 Statement showing comparisons of 7Tet Sales, Compiled YTet Profit,
Statutory 'et Income and Cash Dividends paid for certain groups
of Toba-cco Corporotions to all -Tobacco Corporations reporting
on Income Tax Returns for years 1926 1934 inclusive.

2 Letter dated January 27, 1936 (and presented in part) from Wm.
HI. LicReynolO.s, Acdministrative Assistant to the Secretary of
the Treasury. (C paes)

Sl.iarket Value, as at January 2, 1936, of the Caoital Stock of
the Big Three.

4 List of statements.


10691







STA!IBT SHOWING CWPARISON8S Or W SAI, C.OPIUCD N2 PROFI, I.STATYOT 1M INCCO1 Z
A= CASH DIVIBSDS PAID "B CrEFAIN GROUPS 01 TOBACCO COPORATIOVS TO ALL TOBACCO CORPORATION
RWI0 sIWsG ON I0TOCM TXAX RVU 1 FOR AS 1926-1933


Group A
Selected general

Amsun Per Cent
Jmount Per tent


/ i ][ [ [ LGrou i 1 1 III In


Group B
Selected General
Cowt Per Cents

Amount Per Cent


Selected Group
of ether
-Oreorations
Amount Per Cent


Selected Oroups
of Cigar
Corporations
Amount Per Cent


All Other
Coirorations
Amount Per Cent


1926 1.134.762,129
1927 1,171,093.b21
1928 1,178.897,428
1929 1,2 47.033.708
1930 1.147,.464,549
1931 1.lb3.706.245
1932 1.023,155.16b
1933 924.085,11b
COgPITLn W P2I0IT
19P6 12.M,37
1W27 13 .055,4
1928 128,000.037
1929 138.577.829
1930 1 M47.934.e4.
1931 1455,41090
1932 142,b45.97b
1933 63.255,109
STATUTOH NXT IN880MIS
1926 115.109.720
1927 122,299,922
1928 119.530.648
1929 127,740,109
1930 137.133.g98
1931 136,887, 408


CASH DIVIDENDS PAID:t
1926 71.435.552
1927 73.577.976
1928 64,0142,649
1929 92.729,054
1930 105.700,653
1931 O107.-33,2N
1932 98.,98.239
1933 95.134.237


Sources Prepared by Tobacco Unit from data compiled by the Bureau of Internal Revenue.
Figures of NAll Other Corporations" obtained by deduction the total of the amount
from the total amount listed for "All Corporations".
iExplanations:
Figures in parentheses tndicatte deficits.


shoen for the selected group of corporations


Percentages are computed In relation to the amounts for all corporations.
For general explanations end limitations of the basic data tabulated by the Bureau of Internal Revenue, it is important to
see letter (presented in part) dated January 27, 1936 froman i. H. McReynolda, Administrative Assistant to the Secretary of
the Treasury, In Appendix 2, Table 2.


All
orAmount
A.mout


*108 .78.051
124.535.b54
14.4*3.996
14b.324.219
142:0b2.452
139.710.774
162,292,910
148.771.169


7.935,080
6.099,216
2.794.877
(220.260)
4.015.863
0.391,924
13,696,914
(5,000.114)


7.843,141
5,987,309
2,558,667
(595.777)
3.608.752
7,939,554
13.215,299
(5.647,109)


9.59
10.63
12.08
11.73
12.38
12.00
15.86
16.10


6.34
4.55
2.18
(.16)
2.72
5.78
9.60
(7.91)


6.82

2.14
(.47)
2.63
5.g80
9.92
(11.22)


58.216


(bb3.430.bb9
689,244,186
695.343.b73
741.262e747
778,4400,T97
761.870,987
655,914,244
593.790,448


7,.459,478
84,232.031
83.011:.391
96,814.014
116,116,138
120.206,143
118,630,227
55,959,465


73.625.591
79,513.646
78.3606.582
91.765.902
109.787.421
114,011,o.961
110,964,586
44.681n.938


41,407.677
43.558,488
46.534.66
64,40.69
78.67n.l42
78,86T7,945
78,868,119
74,141,813


58.>K>
59.86
59. Ob
5g.13
59.44
67.84
65.47
b4.11
b4.26


62.b8
62.8,
64.85
69.86
78.249
72.91
82.81
83.17
88.47


63.96
65.02
65.56
71.84
So0.06
83.29
83.28
s88.78


57.97
59.20
72.66
69.45
74.43
73.68
79.75
77.93


2.95
3.00
2.94
2.77
3.00
2.92
3.05
3.35


6.77
6.99
7.614
1.35

6:0
6.08
13.40


7.14
7.31

6.34
6.18
6.02
15.84


$ 33.421,843
35,128,490
34.97.209
34. 551, b77
34.430,796
33.926.788
31.185.341
3o.9b9.4oo


8.473.709
9.367,397
9.775,014
10,184,095
9.429,855
9,222,624
8,668,836
8,474.117


8.221,356
8,935,673
9.1 45,165
9,502,214
8,691,887
8,459.075
8,019.031
7.972.832


5.048,194
5,0o48,194
5,268,194
5.:L5.080
5,844,968
5,823,708
5.823.708
7.993.791


$162.236.752
176,401,734
178,905.583
186.146.008
162,039,451
138,8b2,558
99,268,174
82,955,084


12.384,887
16.604,o086
19.1582.449
18,393.962
12,228.221
7.123.033
908.937
1,359,2898


12,282.089
16.53o,87
19,124,758
18,162,680
12,092,138
6,981,679
684.338
1,0149,082


5,356,230
9.198,891
11,149,159
9,535.468
8,866,504
8,051,626
.591.247
4,722,942


14.30
15.06
15.18
14.93
14.12
11.93
9.70
8.98


9.89
12.39
14.97
13.27
8.27
4.91
.63
2.15


10.67
13.52
16.oo
14.22
8.82
5.10
.51
2.08


7.50
12.50
17.41
10.28
8.39
7.52
5.66
.97


$16b.904.,l.4
145.783.557
137 .486.967
138.749.0o0
30,491.153
89.335.138
74.494497
67,599.015


17.927.203
17,752,710
13,260306
13.406.418
6,144,567
211,664
741,0o62
2,461.S3


13.136.543
11,332.487
10,3 41,476
a.905,090
2,953,400
(501,861)
364.667
2.274,818


13,548,369
12,190,521
(1.404,219)
10.,90.745
9.471,053
10:728.659
3.535.699
3,42,8n29


14.70
12.45
11.67
11.13
2.bb
7.b8
7.28
7.31


14.32
15.24
10.36


.52
3.89


11.41
9.26
8.65
6.97
2.15
(.37)
.27
4.52


18.97
16.57
(2.19)
11.22
8.96
10.03
3.57
3.66


b.6,075,082
3.58,882
2.45,209
2,866,066
2.846.986
3.566.302
5,076,196
4,792,a62





-54-


TABLE 2
APPEITDIX 2

Letter (in oart) of Wa. H. .IcRevnoo.ds, Admninistrative Assistant to the
Secretary of the Treasury, sent to the Tobacco Unit, in connection with
material furnished by the Treasury Department, dated January 27, 1936.



In reply to the letter of M1ay 13, 1935 from Mr. Meredith B. Givens,
National Recovery Administration, to Mr. George C. Haas, Director of
Division of Research and Statistics, Treasury Dspartment, requesting
compilation of certain data from corporation income tax returns, tables
have been prepared by representatives of the office of the National Re-
Lovery Administration from the work sheets of the Bureau of Internal
Revenue.

This office has reviewed the data as shown in the tabulations sub-
mitted by you and is in accord ':ith your request that the information
be used by your organization.

The data included in the tables, in so far as they relate to cor-
poration income tax returns, cover Section IVo. 1. and Section No. 3
of your memorandum dated September 18, 1935 amplifying the previous
correspondence.

SECT ION NO. 1

Statement No. 1 Comparison of certain items of Assets, Liabilities,
Receipts, Compiled Net Profit or Deficit, Statutory
Net Income or Deficit, Cash Dividends paid, Profits
and Losses from sales of capital assets and the
Computed Net Income or Loss from Operations, by
Total Assets Classes, by returns with net income
and no net income, for calendar years 1931, 1932
and 1933, for 14 selected industry groups.

By Total Assets Classes of:

Under $50,000
50,000 $100,000
100,000 250,000
250,000 500,000
500,000 1,000,000
1,000,000 5,000,000
5,000,000 10,000,000
10,000,000 50,000,000
50,000,000 and over.

Also in aggregate for:


10691





-55-


All Corporations with balance sheets.
All Corporations without balance sheets.
All Corporations with and without balance sheets.
Classes grouped to conceal data reported and
identity of Corporations.

For Industry Groups, as follows:

Calendar years 1931, 1932 and 1933:

1. Food Products, including beverages.
2. Tobacco products.
3. Textiles and their products.
4. Chemicals and allied products.
5. All Industrial Groups (except Agriculture and
related industries group and Finance Group)
6. All Manufacturing Groups.
7. All Industrial Groups in the United States.
8. Agriculture and Related Industries.
9. Financ,: Banking, Insurance, "neal Estate and
Holding Conpanies, Stock and Bond Brokers, etc.

For Industry Groups, as follows:

Calendar years 1932 and 1933:


10.
11.
12.


iMotor Vehicles, complete or parts..
Factory Machinery.
Agricultural Machinery and equipment.


For Industry Groups, as follows:

Calendar Years 1933 only:

13. Food and kindred products.
14. Liquors and beverages.


Statement Yo. 2


Comparison of Total Assets, and Certain items of Lia-
bilities, Receipts, Deductions, and Cash and Stock
Dividends paid, by returns with ne.t income and no net
income, and by returns with balance sheets and with
and without balance sheets, for the calendar years
1926 1933 inclusive, for the 14. Industry Groups
listed above.


SECTION NO. 3


Statement No. 1


Data covering total assets classes and combined figures
transcribed from Section Wo. 1, Statement No. 1, for
comparative study in trends and percentages, for each
of the 14 industry groups listed above.


10691





-56-


Statement No. 2 Data covering 'INet income ", "No net income", and com-
bined figures transcribed from Section No. 1, State-
ment No. 2, for comparative study in trends and per-
centages, for each of the 14 industry groups listed
above.

Six tables were also prepared, in accordance with your request,
for groups of selected companies whose predominant business is classi-
fied as manufacturing tobacco, cigars, cigarettes and snuff, and deal-
ers in leaf tobacco. These tables include group totals for certain
items of assets and liabilities, receipts and deductions, compiled net
profit or deficit, statutory net income or deficit, net loss for prior
year, cash and stock dividends paid, gross profit from sales and gross
profit from.sales and gross profit from other operations, for the cal-
endar year 1926 to 1933 inclusive.

GENERAL EXPLANATIONS AsD LIMITATIONS OF THE DATA

Extreme caution must be exercised in the use of the data. The
definitions of the items from which ratios and percentages will be
computed must be kept in mind, as well as the difficulty of a compari-
son over a period of years. The major changes affecting the indus-
trial and other classifications under which the returns were tabulated,
and the provisions of the revenue acts under which the returns were
filed, which have occurred in the years 1926-1933, inclusive, are
listed below.

1. The data shown in the tabulations are taken from returns as
filed and prior to any revisions or adjustments that may have sub-
seqiently been made as a result of an audit by the Bureau of Internal
Revenue and without any analysis or adjustment of the underlying
charges and credits leading up to the figures on the returns, nor an
adjustment of the data reported on the returns to a common method of
accounting.

2. The statistics tabulated from the returns are limited to the
information on as reported by the taxpayer and include only the data
that are available and can be definitely allocated. It frequently
happens that (a) the returns are not completely filled in, or (b) if
they are filled in, the information is reported in a manner which
precludes the possibility of allocating items to the definite minor
classifications.

3. The tabulations for each year include calendar, fiscal and
part year returns. The fiscal and part year returns are those for
which the greater part of the period falls in that particular calen-
dar year.

4. The industrial classification is based on the predominant
business of nonaffiliated corporations or of groups of affiliated
corporations filin. a single return. The industrial groups, there-
fore do not represent corporate ons engaged purely in the industries in
whcih they are classified, due to the diversified industrial activities
of many corporatiL ons and especially to affiliated corporations filing
consolidated returns, which latter include the income, deductions,

10691
li .. h~ ..J





-57-


assets and liabilities of the subsidiary corporations. If such subsid-
iary corporations could be segregated; many might fall in industrial di-
visions other than those in which they are included..:

5. Strict comparability of the corporation income tax data from
year to year is not possible. Shnifts'in the data in the various classi-
fications are due, among other causes, to consolidated returns being
filed for concerns formerly filing separate returns and the disintegra-
tion of groups of concerns filing consolidated returns.

6. Although the tables in this study do not include returns for
1934, year attention is called to the change in the industrial classi-
fication which will occur for returns for that year. By the Revenue
Act of 1934, effective for taxable years beginning after December 31,
1933, the privilege of filing consolidated returns is.limited to rail-
road corporations. In the forthcoming Statistics of Income for 1934
the consolidated returns for railroads and the consolidated returns
for. corporations with years ending in the period July1,I 1934 'to Novem-
ber 30, 1934 will be classified as previously according td' the predom-
inan.t. business of the group cf subsidiary concerns included in the con-
solidated return. The returns (except for railraods) 'for the calendar
ysa. 1934 and for fiscal years ending in the period January 31, 1935 to
JuxLe 30, 1935 will be classified according to the business of each com-
pany, Although.the industrial classification of returns with years be-
ginning after December 31, 1933 should be a finer industrial distribu--
tion of the returns, it will not be a pure industrial classification,
due to the diversified iriusirial activities of most corporations.

7. Changes in the provisions of the revenue acts under which the
returns for given years are filed also interfere with a precise com-
parability of the data over a period of years. The major changes for
the years of 1926 to 19'33, affecting the data included in'these tabu-
lations are as follows:

(a) Additional rates, first imposed by the Revenue Act of
1932, are applied to the income reported in consolidated returns.
These higher rates were probably influential in the reduction of
the number of consolidated returns filed in 1932 and 1933.


(b) The statutory net income is the excess of gross income
over deductions as defined by law. Losses sustained during a
taxable year not compensated for by insurance or otherwise, are
entirely deductible from gross income, except that for years 1932
and 1933 losses from sales or exchanges of stocks and bonds held
two years or less (other than bonds issued by a government or
political subdivision thereof) are allowed only to the extent of
gains from such sales. This limitation on the deduction of losses
for 1932 and 1933 does not apply to banks and trust companies.
The net loss for prior year (resulting from the operation of any
trade or business regularly carried on) which is allowed as a de-
duction according to law, has not been subtracted from net income
in these tabulations because it was not considered a current year
loss.

10691





-58-


Assets and Liabilities

8. In connection with the classification of corporation data for
1931, 1932 and 1933 by size of total assets, your attention is directed
to the fact that the balance sheet form "Schedule K" of the corporation
income tax return provides, in the reporting of assets, that reserves
for depreciation of capital assets be deducted from the groqs amount of
capital assets and also that reserves for bad debts be deducted from
the gross amount of accounts receivable.
9. All items of assets and liabilities, as well as "Total assets
and/or Liabilities", represent amounts shown in the balance sheet as
of the end of the taxable year.

10. Common and preferred stock Shifts occur between years in
the amounts tabulated as "Common Stock" and "Preferred stock" due both
....to variations in reporting these data and to the method of tabulation.
.... For balance sheets in which par value common and preferred stock are
S... not reported separately and a book value is given, the amount is tabu-
lated as common stock. For balance sheets with no par value stock and
reporting book value, the procedure has been as follows: For 1926 -
1931, the amounts were tabulated under "Surplus and undivided profits",
for 1932 and 1933, the amounts of no par value common stock and pre-
ferred stock were tabulated under "Common stock" and "Preferred stock"
respectively. For balance sheets with no par value stock and not re-
porting book value, the-ne.t worth was tabulated under "Surplus and un-
divided profits". Your.attention is called to the fact that the
amount of preferred or common stock contains only the amount issued or
outstanding unissuedd stock is not included).

11. Surplus and undivided profits (less deficits) f6r each re-
turn there is tabulated either the "Surplus and undivided profits" or
the "Deficit" which is obtained by combining the last two liability
items on the balance sheet. In tabulating the returns by industrial
groups and by total assets classes, the sum of the "Deficits" is sub-
tracted from the sum of the items "Surplus and undivided profits", and
the result is labelled "Surplus and undivided profits (less deficits)W"

Compiled receipts and statutory deductions

12. The column headings "Net sales" and "Gross sales" are iden-
tical as explained in your footnote B on the tables.

13. Gross receipts. from other operations- The cost of operations
hLs not been deducted.

1. 4. Total compiled receipts Includes net. profit from sale of
capital assets (real estate, stocks, bonds, etc.) but not gross re-
ceipts from these items. Excludes nontaxable income other than interest
on tax-exempt obligations and dividends on stock of domestic corpora-
tions as reported in Schedule L of the return.

15. Cost of goods sold This item represents only such amounts
as were shown specifically among items on the face of the return under
"Less cost of goods sold". Items which may be allocable to "Cost of

10691




-59-


goods sold" but which were reported under "Deductions" on the face of
the return are included under "Miscellaneous deductions". As an illus-
tration, on the 1933 return the amount tabulated as "Cost of goods sold"
includes salaries and wages only when shown specifically in item 2 (c)
on the face of the return;. Salaries and wages which may be allocable
to item 2 (c) but which were reported elsewhere on the return are tabu-
lated "Miscellaneous deductions".

16. Depreciation and Depletion The amounts used in the study
are allowable deductions reported on the face of the return. If items
of depreciation and depletion are found in "Cost of goods sold", "Cost
of operations" or "Other deductions authorized by law", they are re-
moved from these categories and tabulated as "Depreciation" or "Deple-
tion". When such removals occur necessary adjustments are made in
"Total cost of goods sold", "Gross profit. from sales", "3Total cost of
operations", "Gross profit from operations" and "Total income".

Annual statutory depreciation is predicated on cost or value as
of March 1, 1913, of capital assets (not, however, including land),
whereas the balance sheet figure for gross property account represents
the amount shown in the financial statement of the corporation, and
may not be cost of property, due to adjustments and revaluation up or
down. For this reason, it is impossible to determine accurately the
percentage of depreciation sustained annually on the basis of the data
contained in the tables. The annual depletion is likewise determined
by statutory provisions and cannot be related to the current book val-
ue of the depletable assets. Also, in this connection, your attention
is called to the rulings on depletion which are found in Regulations 77
Income Tax, Revenue Act of 1932, Articles 221-248, pp. 59-88.

17. Cash dividends paid The amounts tabulated for consolidated
returns, in general, exclude inter-company dividends.

18. Taxes paid other than the Federal Income Tax does not in-
clude amounts tabulated in "Cost of goods sold".

In a study of statistics compiled from income tax returns, it
must be borne in mind that returns are filed for tax purposes rather
than for economic analysis and the data are taken from returns as
originally filed by the taxpayer and prior to an audit by the Bureau.
Therefore, in the finer sense it is not possible to secure true in-
dexes or ratios between selected items as representative of given busi-
nesses because of these conditions.

The statistics from the returns truly reflect, in a broad sense
and in aggregate, the economic changes from year to year, but in the
refined classification by industries, by sources of profits and losses,
by assets and liabilities and related items, the above considerations
must be taken into account, together with the provisions of the revenue
acts affecting income and deductions as defined for statutory income
tax purposes.


10691





-60-


You are referred to the text in each volume of the Statistics of
Income for 1926 1933 for a description of the tabulation of corpora-
tion income tax returns in any particular year. Also, your attention
is called to the synopsis of Revenue Acts 1909 1933; which is con-
tained in the 1933 Statistics of Income. Table D of this synopsis, on
pages 220 221, contains the corporate on income tax provisions.

The tabulations mentioned herein are being forwarded to youunder
separate cover.

In the event that further correspondence relative to this matter
is necessary, please refer to IT:C:St:EW.

By direction of the Secretary.

























I .


10691







-61-


APP.IDg 2. TABLE 3


MARKET VALUE,
THE CAPITAL


AS AT JANUARY 2,
STOCK OF THE BIG


1956, OF
THREE


Aberican Tobacco Co.

Comoo Stock, Class WA

Comon Stock, Class "B"

Preferred Stock (6% ca
lative)


Total


(A) (B)
: Par : Shares Out- : Lowest Market : Calculated
: Value : standing at : Price (Per : Value as of
: Dec.31,1934 : Share) on : Jan.2,1936
S,: (Number) : Jan.2.1956. : .


t-:
2
2


Lirett & iers Tobacco Co:

Coionn Stock, Class 'A" :
SStock, Class B
Common Stock, Class 'B" 2


Preferred Stock (7% cumu-:
lative)
Total

R. J. Reynolds Tobacco Co.:
Common Stock, Class "A"

Common Stock, Class "B"
Total

GRAND TOTAL (3 companies :
together)
A
SOURCE: (A) Securities and
(3) The Commercial
Footnotes Nos. 1,


$25

$25-


$100




$25

$25
$100:5/







$1014

(10





Eamhange


1,

3,


2,


1,

9,


609,696

134,458 :


526,997 :




859,856 :

277,085


225,141



,000,000
000,000 :


$97-1/4

$99-5/8


$140




$lo-1/2

$3-10-3,/2


$156



$60


S$156,542,956

: 312,270,578


75,779,580
: 542,592,894



: $ 95,014,088

: 251,617,671


: 55.121,996
$581,755,755


S60,000,000

: 497,250.000
$557,250,000


:$31,481,596,649


Commission


and Financial Chronicle, Vol.142,No.3580, Jan.4,1956
2, 3 and 4 Standard Corporation Records.


Includes 11,200 shares held by company in treasury.
Includes 44,562 shares held by company in treasury.
Includes 9,000 shares held by company and carried at cost in Assets.
Includes 200,000 shares held in "Retirement and Insurance Investment Fumd".





-62-


APPEITDIX 2 TABLE IV

Following is a list of statements prepared from various sources.
Portions of the basic data contained in these statements have been in
preparation of certain Tables appearing in the Text.

SECT0ION 1I0. 1 (*)

Statement 1o. 1. Comp-arison of certain items of Assets, Liabilities,
Receipts, Compiled 'Tet Profit or Deficit, Statutory Net Income or
Deficit, and Cash Dividenis Paid, By, Total Assets Classes.

For selected industry groups of corporations, (listed below\
for the calendar years 1933, 1932, and 1931.

Group No.
1 Food Products, including Beverages
2 Tobacco Products
3 Textiles and their products
4 Chemicals and allied products
5 All Industrial Groups in the United States, except
Agriculture and related industries, and the Finance Group
6 All Manufacturing Groups in the United States
7 All Industrial Groups in the United States Agriculture
and related industries
9 Finance, Real Estate, etc.
10 Motor Vehicles, complete or parts
11 Factory Machinery
12 Agricultural Machinery and Equipment
13 Food and Kindred products
14 Liquors and Beverages

(Original work -oapers only

Statement Yo. 2 Conoarison of Total Assets, and certain items of Liabil-
ities, Income, Expense, etc.

For selected industry grouns of corporations (Same Industry
Groups listed in Statement ITo. 1 above), for the calendar years
1926 to 1933 inclusive.

(Ori:,inal work papers only)

SECTION N0. 3

Statement 1To. 1 Certain financial account data for each of 14 selected
Industry Groups from corporation income tax returns, by the "com-
bined" totals of concerns reporting "Statutory Iet income" and
"Statutory 11o Net Income", and by total assets classes, tran-
scribed from the basic data appearing on statements in Section No.l,
Statement No. 1, for a comparative study in trends and percentages.

(Original work papers only)
(') Prepared from the statistical records and publications,(statistics of
Income), of the Bureau of Internal Revenue


10691








Statement 'lo. 2 Certain financial account data for each of 14 select-
ed Industry Groups from corporation income tax returns, by the
totals of concerns reporting "Statutory Net Income", "Statutory No
Net Income", and "Combined", and by those returns "with" balance
sheets, and. those "with and without" balance sheets, transcribed
from the basic data appearing on statements in Section No. 1,
Statement No. 2, for a comparative study in trends and percentages.

(Original work papers only)

** )ei H ele* *** ** ** ** ** *****i(4 l H* *

Corporation income tax returns for 1926 to 1933 inclusive, filed
by six selected groups of corporations whose predominant business is
classified as "Tobacco Products", showing for each year the group
totals for certain items of assets, liabilities, receipts and deduc-
tions; also compiled net profit or deficit, statutory net income or
deficit, net loss for prior year, cash dividends paid, stock dividends
paid, gross profit from sales, and gross profit from other operations.
(Data tabulated from returns, as filed nid orior to any revision or ad-
justments that may have subsequently been made as a result of an audit
by the Bureau of Internal Revenue and without any analysis or adjust-
ment of the underlying charges and credits leading up to the figures
on the returns, now an adjustment of the data reported on the returns
to a common method of accounting) (*)

(Original work papers and one photostat copy)

Following statements relative to The American Tobacco Companyq
Capital Funds Employed for the Period Begun January 1,
1912 and Ended December 31, 1934. (**)
(Original and one carbon copy)

Net Assets Groups and Their Changes for the Period Begun
December 31, 1911. and Ended December 31, 1934. (**
(Original and one carbon copy)

Profit and Loss for the Period begun January 1, 1912 and
ended December 31, 1934. (**)
(Original and one carbon copy)

Following statements relative to Liggett & Myers Tobacco Company;
Capital Funds Employed for the period begun January 1,
1912 and ended December 31, 1934. (**)
(Original and one carbon copy)

Net Asset Groups and their changes for the period begun
December 31, 1911 and ended December 31, 1934. (**)
(Original and one carbon copy) __________

(*) Prepared by the Statistical Section, Bureau of Internal Revenue
(**)Prepared from data published in Moody's Manuals &c Standard Cor-
poration Records.


10691





-64-


Profit and Loss for period begun January 1, 1912 and ended
December 31, 1934. (**)
(Original and one carbon copy)

Following statements relative to R. J. Reynolds Tobacco Co.;
Capital Pnids em.?loyed for the period begun January 1, 1912
and ended December 31, 1934. (**)
(Original and one carbon copy)
Nlet Asset groups and their changes for the period begun
December 31, 1912 and ended December 31, 1934. (**)
(Original and one carbon copy)

Profit and Loss for the period begun January 1, 1912 and
ended December 31, 1934. (**)
(Original and one carbon copy)

Consolidating statement of operating results and ratios for the
year 1916 to 1934 inclusive for The American Tobacco Company, R. J.
Reynolds Tobacco Company, and Ligsett & i.yers Tobacco Company. (**)
(Original and one carbon copy)

Consolidating statement of Capital Funds employed for the period
begun December 31, 1916 and ended December 31, 1934, inclusive for The
American Tobacco Company, 3. J. Reynolds Tobacco Company, and Liggett
& Myers Tobacco Company. (**)
(Original and one carbon copy)

Consolidating statement of Profit and Loss for the period begun
January 1, 1916 and ended December 31, 1934 for The American Tobacco
Company, R. J. Reynolds Tobacco Company, and Liggett 6- Myers Tobacco
Company. (**)
(Original and one carbon copy)

Comparison of Assets, Liabilities, Receipts, Deductions, etc. for
each of the following industrial groups; (***

Tobacco Products With and Without Balance Sheets 1933-1926 inc.
Tobacco Products "ith Balance Sheets 1933-1921 inc.
Food & Kindred Products .7ith and Without Balance Sheets 1933-1927 inc.
Food & Kindred Products With Balance Sheets 1933 only
Petroleum .7ith and Without Bplance Sheets 1933-1926 inc.
Retail Trade With and Without Balance Sheets 1933-1926 inc.


(**) Prepared from data published in i:oody's Manuals &8: Standard Cor-
poration Records.

(***) Tabulation sheets and published reports, (Statistics of Incomn), of
the Bureau of Internal Revenue.


10691


U.






-65-


APPEnDIX 3 FIiT.NCIAL COiDEPAIY GROUPS










To Illustrate the Text of CHAPTER I THE LARGE CORPORATION;
IN THE TOBACCO I.AU.FACTURING
I JDUSTRY










Table I



Table 2


Pos it ion


Preferred


Corion


Common P


Richard oy) an
James R. Coon
John A. Cro-e
James R. aCummings
C. Huntley Gibson
Patrick H. German
Paul }'.. Hahn
Tullis Harkrader
Edmund A. Harvey
James B. Harvie
George 7. Hill
James E. Lipsconb
Jr.

Obarles E. Neiley
W. H. Osbury
Pred B. Reuter
frank V. Riggio
Vincent Rig io
Thomas R. Taylor
ii. E. Witzleben


D. & S.
Asst. T.
D. 5 Asst. to V.P.
Asst. Sec.
D. & Factory 1.gr.
D. S :Agr. Ciae.r Leaf
q. V.P.
3. C Traffic I.igr.
D. 5 Credit 3gr.
D. T.
D. Pres.

D. ,& Pres. of
Leaf Sub.
D. & V.P.
D. 5 Asst. to V.?.
D. c& Asst. Auditor
D. & lgr. Sales Dept.
). & V.P.
-. & V.P. & Auditor
D. 5 Adv. ,agr.


Iuirce: Securities & Exchange Commission


Consist i.,, of

The Official Positions and St3ck Holdings held by the Directors
of the Bi9 Three (3 iyec).


Corporr.tion Income Trx {eti.rns for 1925-193 for six groupss as
listed or. e-rci pa.-e of this table, cnio-in,; for each year totals
for certain items of as.:.ets, liabilities, receipts and deductions;
also compiled net profit or deficit, statutory net income or
deficit, net los-. for prior --eer, crmh dividends paid, stock
dividends paidl, gross profit front sales, end gross profit from
other operations (6 pages).


x eppendi:- 3 Table )age one

AlLUICAUil TOELOCO COlTPAi7f


List of Directors, their Cf'icicl Po-.:itions and
Their Stock Holdings as per
December 31, 1934


Name


'-:one
'*on-
5
"one
- one
_one
:[o rie
1
43
50
8-0



100

50
-one
2
90
20
303


1
None
ITone
Kone
1
101
505
Ione
Ione
118
3,010


100
5,000
1-one
1
242
4,745
.!one
None


None
10
187
Yone
I7one
.50
None
500
240
117
18


222
1,000
80
160
260
40
100
None


Pos it ion Preferred Conmon Common D


-66-




-67.


Appendix a Taile I, page 2

LIGGETT :x:S TOB3,CCO COMILPArY


List of Diractors, Their Official Positions
and their SToc: Holdins,:s as of
February 15, 1955.


Po s ition


Preferred


Common


Common B.


0. 7. Toms
J. W. .Andrews
V. D. Caruiichael
1. W. Flowers
iE. H. Thurston
G. 'V. ;Thitaker
I. T. Noland
en. Carroll
. B. Arthur
E. D. Frisselle
. F. Green
T. S. Tisdel
SB. Fl e;aing
. J. Sunders
. S. Abbott
. W. Wilson
. E. 'Tnite


?. & J.
V. P. .- D.
V. P. :D.
V. P. & D.
V. P. .D.
V. P. & D.
Secy. 6: D.
Treas. & D.
Asst. Treas-Secy. ,-c D.
Branch Ugr. ?: D.
Sales I"gr. & D.
.-,sst. Treas-Secy. q : S.
Asst.Treas-Asst. Secy
Auditor
--.sst. Auditor
Asst. Auditor
Asst. Auditor


lOurce: Securities & Exchange Commissioan


Name


1,000

100


5


17,500
3,800
1,966
14,300
3,00-)
7,500
5,154
2,426
500
1 -0
760
2. 50C
252


124



5,', )


837
334
60



280
726
636
843
20
88

134







Appendix 3 Table I, page 3


2.. J. REYWOLDS TOBACCO COI.iPANY


LisZ of Dirctors, their Official Positions
and their Stock Holdings as of
,'larch 18, 1935


Name .Position cory.!,:on Common 3


W. N. Reynolds

Bowman Gray

S. Clay Williams


James
T. H.
R. E.
C. 17.
IM. E.
J. 1.
R. C.
L. F.
R. D.


A. Gray
Kirk
Lasater
Harris
i.lotsinger
Glenn
Haberkern
Owen
Shore


D. Chair.-mn T-heca-
tive Com-littee
D. Chairman Board
of Directors
D. "ice- iaireiun
Board Directors
2. President
SZ-ecutive V. -U
x. !1 -
3 U |!
D. ,x. Secretary/


7:;, Cr

32 (,."
-2, OO'1"
.'.OGOD

. =., 000
'- 000

3, 360
._, "? 50


D. 1.1, 5: 0
D. executivee 2reF-surerl.0, 00';


Above figures include all shares s-io-n of record
Officer of the Reristrant ,lus all other shares,
beneficially owned.


on nane of et-ch Director and
if any, reported by each as


Source: Securibies t. Exc hange Commission


10691


163,397

150,000


70,000
43,258
9,025
47
5,000

8
1,600
10,000





-69-


TABLE 2



Co rjoration Income Ta-c Returns for 1926 1933,
for ( ao ai'i, ,.'o-tps


























(These are the original neoativi .jhotostats. No other co-oy is availablee)


,0691




CHAPTER II. T 1E : CO,1OiAC .'.N'D SOCIAL STArJS O LABOR


Section A of tni, c'-ater is b"s--, .. -'ielc st+.idies of this Industry by
the Bureau of Labor Statistics as follows:

I. Fie-.d sr1c .hQiing the Code period in the Spring of 1935. A
small nuribe: of leaf dealers' plants under no Code was also
included in this study.
*i
2. A second field study in the Fall of 1935, after the termination
of the Code. This study also included certain leaf dealers'
estabi ishments in the South Atlantic States.

Unless otherwise noted, catF -iven in Section A are based upon tables
prepared from these t'ro field stud.ies.

A LABORL Ii- J TAB ,. -LrE S.JiTUF' E iI:h A"I Si.MOKI]J TOBACCO IMA I U-
FACTURI I G IIIDUSTRY.


i '
In 1935, workers employed in the ci.c-rette, snuff, chewing and
smoking tobacco manuf-".cturin7 industry numbered about 42,000,
some 80 percent of whom were ']loct.ted in four Southern Stptes --
Worth Carolinr., Vir.dilia, ientuc1;r, and Tennessee -- while the
remainder spread from I1issouri into I.ew York, with negligible
numbers elsewhere. The force comprised in roughi.y equal propor-
tion white men, white womn3n, ne-ro men, and negro women.

Three companies designated for the pur-oses of the Labor Study
as the Bi- Three (Reynolds, Lig-:ett and LMZers, and American
Tobacco) employed 65 percent of all workers and 85 percent of
the negro -or':ers. 6 companies (Lorillard, Brown-T7illimnson,
Axton-Fisher, Philip 1iorris, Larus, and Scotten-Dillon) employed
another fourth of all the workers, -hile three snuff companies
(UT. S. Tobacco, Hlelme, c.nd American SnuffN, together with the
s'all tobacco companies, emloy-d the remaining tenth. In all
company groups but the 3i- Three, '-Lite workers predominate;
three-fifths of the Big Thre ieorkers were negro. In part this
results from the fact that the Big Three engage to a largerextent
than the other companies in early preparatory processes such as
stem-ein- of the tobacco leaf. It is in such chiefly manual pro-
cesses, or as com'non labor, that the great majority of the negro
workers is employed.

As the result of a. field survey (*) made by the Bureau of Labor I

(*) Shortly after the Executive Order authorizing the study of the
Cigarette, Snuff, Sooling and Chewing Tobacco Industry, the Tobacco :
Unit in the Division of ?leviev, National Recovei-ry Administration, |
arranr-d for a field study by the Bureau of Labor Statistics, De-
partment of Labor, covering wages and hours in the tobacco industry.
Prior to the actual field ',ork the Tobacco Unit sent representatives
to a large number of factories, and determined both the occupational
classification and the plant coverage desired. Throughout the course
of field work and office tabulation, the Unit cooperated with the
Bureau of Labor Statistics, and ultimately set up the forms for the
basic tables in which the results are incorporated.
1069.. 1"69




-71-


Statistics, Department of Labor, in the spring of 1935, it is 5os-
sible to examine closely, th: situntiou of the different se:x-color
groups co::iposin,' the labor force 'nd the different wage gro'l>s set
up by the Code. One of the -first facts to appearr is that, particu-
larl- ..s "'e *ect' er.rnin,-:.-, t'nere are marked. differences in level
associated- with sex an(' color of the *or]zert and explainable onlr
in part br differences in the character of the work performed.
Thus in ;.iarc'.i 196, wiite. men mrned on the Pverage 55 cents an
hour; 'Thite womene, 41; n-e-Tn men, '37; .ad negro 'ormen, 31. On a
weekly basis, talrinr the gro"u-s in the su.nne order, the average
figures ran: $itP. 50, $1.60, $lb.50,, nd $11 -- the longer hours
put in by ne.ro ii-imen brin.,inn their average T'e :ly earnings to ap-
pro-imately the same ltvel '-L tiat of rhite romen.

Among company groups, if snu.1ff comuaLnies are jut aside, the Big
Three in i.1arch 135 paid to the sex-color groups in general the
highest hourly and -eel.ly rates, though negro men had a higher
hourly rate ,ith the S--cond Six companies a.nd "-.ite men a higher
weekly rate with sma-.ll companies, where their hours were longest.
In general, earnings with snall companies were coimparatively low.
Despite the higher earnings of particular se-x-color classes with
the Big Thre companies, the average hourly rate p-.id by this group
to all employees was comparatively lo-, because of their large em-
ployment of negroes.

With reference partly to different branches nf manufacture, the
Code set up four classes of employees, for erch of which a differ-
ent mini-nunm wege, ranging frnm 4C cents dor.n to 25 cents, was pre-
scribed. Fro0 analy.-sis of the occupations entering these groups.
it appears that about one fourth of all "-or..ers fell in occupations
entitled to the 40-cent minirniun, anid that these occupations (con-
fin-d to the final stages of cigprrette manufacture) employed white
workers almost exclusively. The prooortions of the workers entitled
to the 35- and 30-cent minima cannot be indicated closely (because
of admixture in the returns of the chewing tobacco employees entitled
to only 25 cents), but did not exceed 40 percent and 20 percent re-
spectively.

Zxanination of these Code groups on the basis of actual earnings
reveals, as '-ould be e-qyected, that groups as a whole averaged above
the minimum rates. Some Code violations arm- indicated by the fsct
that in certain cases even average earnings for negro workers in
particular occu._ations fell below the prescribed minimum earnings.
But many apparent defections from the 35- and 30-cent minima result
from the failure of the returns to separate chewing-tobacco employees
from wage groups. within n each of the Code wage groups, the occupa-
tional averages spread over a wide enough range to indicate that the
setting uo of minima did not reduce workers within a group to one
level.

Then attention is turned from average conditions to the dispersion
of hours and earnings for individual workers, it is found that some
eight percent of all employees are in a very low earning group, re-
ceiving in Liarch 1935 less than $8 a week. This low group is consti-
tuted largely of workers in a fer occupations -- notably stemmers,

10691








Dickers, and ser.rc.iers -- r.'here vromon, especially negro 'omen, are
primarily employed,. Ter.nm of" -ork for this group are strongly af-
fected by the existence of even lens favorable conditions -- far
lower wases and longer hours -- in similar employment by independ-
ent lea-' deal -r companies. ()

For all workers, hours and earnings in P.arch 1935 represent distinct
improvement over those obtaining in earlier periods examined -- 1930,
1933, -nd 1934. iioreover, there is clear indication that the termi-
nation of the Code did not lead to breakdorn of standards, but that
in September 1935 hourly and weekly earnings were higher on the whole
than in the spring.

Against wapes paid in manufacturing industries in the country at
lrrge, tobacco wages in CiIarch 1135 were distinctly low. Against
wages op.id in some other Southern in&adustries and in some of the in-
dustries important in the tobacco uaenufecturing States, particularly
by comparison with cotton-textile wage?, they make a better showing.
In evaluating tho significance of such comparisons, account must be
taken of the relative unimportance of labor costs in tobacco manu-
facture (as comperer, for example, with labor cost in cotton goods
manufacture) and of the e-:cejtional prosperity of the tobacco com-
panies.

1. The Size of the Labor Force.

In March 1935 there were about 42,00C wage earners and minor salaried
employees in the industr:r defined by the Code for cigarette, snuff,
chewing, and smoking tobacco manufacture. (**) Since activity in
!larch wes somewhat lower than for the year as a whole, average employ-
ment for the year may 'erhaps runm a little higher than this. In
number of r'orkers, therefore, this manufacture is among the more im-
ortant code industries, since less than 80 of the first 500 codes
approved had as many as 4u,OU0 employees even in 1929, when employ-
ment generally was distinctly greater than 1935. (**4)


(*) An independent field survey of living conditions among tobacco workers
vas conducted in the spring of 1E35 by Dr. Charles S. Johnson of Fisk
University. The scope of the survey differed in sundry respects from
the Code industry, -- covering only si- Southern cities, omitting snuff
employees, and including employees of independent leaf dealers. Dr.
Johnson's complete manuscript is on file in Division of Review, Nation
al Recovery Administration.

(*n) This figure is based on questionnaire or payroll returns secured
from all leading companies and from a significant fraction of the
small com-oanies, and on an estimate for the remaining small companies.
It excludes officials, executives, and persons engaged in buying or
selling of leaf and manufactured tobacco products; but includes,
along nith wage earners, persons of lower supervisory rank and ordi-
nary office and clerical workers.

(***)Leon C..lharshall, "Hours and Wages Provisions in 1RA Codes", the
Brookings Institution Pamphlet Series Yo. 16, 1935, p. 4.


10691


Em


41




I


This fi.-u're of 4?,r'> isF s" 'p[.Pit higher thrn suggested by the Cen-
sus of L.'.'-r ufactur.s for Lfo or t:'ian .iJ bo repopte., probably by
the Census of MIanufactures for 1935. The Census putu the number of
wa'te enrnerc. ia ci-arette, che-in- and smo'dinr tobacco, and snuff
manufacture in ..arcii, l 9.t, at only .i, .j'I or 33,(j00O if one adds
an estimate for salaried employees (*) --against 36,000 indicated
for that month by 1935 returns (subsection 5, this chapter) (vhich
show m.?uloync-nt for iarca, 153$, awjproximately 1(;,,. belo'" that for
March, 1935).

Two Census omissions chiefly account for this difference: (1) the
omission of small establishnrmnts with product valued at less than
$5,000, and (2) the omission of leaf departments of manufacturing
plants. (**) The Code included such leaf departments (beginning as
it did writh the process nf redrying, or with delivery of the leaf to
the n.anuf ,-cturing plant), and ambract3d establishmnents of all size.
For these reasons, figures c.p-?ilying to the Code industry naturally
run higher than C-nsus figures.


() For salaried employees (including in this case managers, superin-
tendents, and like administrative officials) the Census gives no
monthly firi.res b,.ut only an average for the yepr of i.,d8.

(**) While it is the in-tent of the Census to omit stemming and rehand-
ling, evidence exists thrt such operations are not in fact always
omitted from its fi.-ures.


I-M





-74-

2. Regional Concentration
A. i
Regional concentration of the industry enhances greatly the
importance of this employment to r.-irticular States. Approximately
four-fifths of the workers were employed in the tobacco belt of
the South, in the four adjacent States of North Carolina, Virginia,
Kentucky, and Tennessee -- with almost half of all employees in
!,orth Carolina alone. The remaining fifth spread across the six
or eight Northern States from New York and ITew Jersey into Missouri,
I| with a few scatterings elsewhere, as in California. Obviously the
| industry as employer is important nrimarily to Southern factory
labor.

3. Composition with resnect to Color and Sex.

In view of the regional concentration of this industry and its
: 'heavy dependence on unskilled and semi-skilled labor, it is not sur-
-i rising t: find that almost half the workers are negro. In neither
|A sex do negroes predominate, but in both they approach equality of
numbers with the white, and on the whole conmoriee some 45 per cent
of the labor force. Outside the four Southern States, of course,
the proportion runs very much smaller than this, while in those four
States it reaches the half-way mark.

: Interesting shifts in this proportion occur, however, when on&
examines workers in different company groups. Thus, the Big Three
p, companies, as a group, employ in both cigarette manufacture and in
I chewing and smoking tobacco manufacture distinctly more negro work-
era than white. In March, 1935, almost three-fifths of their work-
ers were negroes, compared with only one-third negro workers in the
small companies, and still smaller proportions (a fifth and an eighth
respectively) in the other tobacco groups and the snuff companies.
Even greater variety, of course, appears among individual concerns,
with some employing no negroes at .ll, while others have 90 per cent
l or more. In part, the differences are a result of location; but
!in n.rt the very dissimilar nronortions of negro workers presumably
i reflect differences either in the type of operations (e.g. stemming)
S, or in company policy.
!
, 1
Among both whites and negroes, the industry as a whole employs
I a slightly higher number of women than of men. In snuff manufacture,
men predominate; but in the two other branches of the industry --
cigarettes, and che,'ing and smoking tobacco manufacture there is
a slightly higher proportion of women than of men.

4. Distribution oy Companies.

|i Of the aggregate of 4,,000 workers, 65 ner cent, or practically
ii i two out of ever, three, were employed by the three largest companies
!: R. J. Reynolds Tobacco Company, Liggett & hyers Tobacco Company, and
j American Tobacco Company. Another 24 per cent were employed by the
| six tobacco compcdies next in size -- Brown & Williamson Tobacco Cor
portion, P. Lorrillard Company, Axton-Fisher Tobacco Company, Phil-
ip Morris and Company, Ltd., Inc., Larus e- Brother Company, Inc.,
and Scotten Dillon Tobaccp Compan,-; 4 per cent were employed by
three snuff companies -- United States Tobacco Company, George W.


10691




-75-


Helme Comour.ny, ,n.- A.,eric1 -, S nuff Com iny; and only 7 per cent by
the remrninig inletu'w-riicaue nrnber perhapss 'not exceeding one or
two hundred) of small companies. (*) Clearly, as regards the con-
dition of lbor ',ith respect to wages and hours, it is desirable
to e:i e closel;.- tie :iilp c D.'?ies w:xich together employed nine-
tenths of all the workers.

W.. workers irn _e Gru-)s P'pscrioe3. bv the Coee.

The wa:7e provisions in the Code for the Cigarette, Snuff,
Chewing, 11. .noid.ii % '.obacco .1ni-facturing Industry covered four
main groups of workers, for ea.tch of which a different minimum hour-
ly vwae vwa;s prescribed. At tie top, with R 40-cent hourly minimum,
came factory workers ern.-ed in the final stizes of cigarette minu-
facture, together with office torl.ers in all branches of the indus-
try. (**) .At the bottom, with a 25-cent hourly minimum, came all
workers enger.e, i:: processing or manufIctire of chewing tobacco,
together with "slow" stmners (***) in cigarette or smoking tobac-
co manufacture. Intermediate vrwere two groups, one at a 30-cent
minimu1i -- comprising seven specified occupations, (****) and the
other -- a! a 35-cent minimium -- comprising all processing or manu-
facturing workers not elsewhere specified. The 35-cent group thus
embraced employees engaged "in the -.rocessing or handling of cig-
arette tobacco at any stage prior to the fabrication of the pro-
duct" or "in the processing or manufacbure of snuff or smoking tobac-
co" -- other tnan those in occupations specifically excepted.

(*) The number of small companies cannot be determined from reports
either of the Census of Manufactures or of the Bureau of Internal Rev-
enue. The Census i-. i-s latest report, covering 1933, showed 139 es-
tablishments (omitting, of course, those with product valued at less
than $5,000) whose -nrimary business was manufacture of cigarettes or
chewing aind smoking tobacco and snuff; but since the term establish-
mnent, though it may apply to mului-le plants in one place, ordinarily
means a single plant or factory, the number of establishments covered
is greater than the number of companies covered. Again, the Bureau of
Internal Revenue reported 98 cigarette factories and 738 "tobacco"
(chewing and smoking tobacco and snuff) factories in operation on Jan-
uary 1, 1935; b-t the Bureau's totals refer to separate plants, not to
companies. Thius, a single company might enter the total many times,
since each of its cigarette plants and each of its "tobacco" plants is
counted separately. The scrap chewing departments of cigar companies
also enter the figures, such departments being required to register as
separate tobacco factories.

(**) The Code specified for "accounting, clerical or office" workers
a minimum of -.16 for a 40-hour week, except that office boys, girls
and messengers (not to exceed 5 ner cent of the office force) might
get 20 per cent less than that.

(***) Not to exceed 15 -oer cent of all hand steers.

(****)Searchers, pickers, cleaners, hangers, prizers, classes and
hand steamers.


10691


III I I III





-76-


Great interest naturally attaches to the number and type of
employees included in thie four wage groups. On these points some
information can now be derived, on the basis of a survey of employ-
ment in the industry conducted for National Recovery Administration
by the Deoartment of Labor in the Spring of 1935. While not a com-
plete census, the survey covered a large fraction of the industry,
embracing nearly 60 oer cent of all employees in a sample selected
to represent fairly different size companies, different regions,
and different branches of the industry.

The survey does not permit a 4-way breakdown like that in
the Code, because it does not segregate employees in chewing to-
bacco manufacture from thcse in smoking tobacco. It does, however,
permit the statement that under the Code about one-fourth of all
workers in the industry were accorded the 410-cent minimum; less than
40 per cent were accorded the 35-cent minimum (the figure includes
an unknown number of chewing-tobacco employees entitled to only 25-
cents); and less than 20 -oer cent were accorded the 30-cent minimum
(again, the figure includes an unknown number of employees subject
to the 25-cent minimum) (*). For about 9 ner cent of the industry
no minimum hourly wvage was specified in the Code; while for the re-

(*) The above breakdown of employees into groups subject to the specified
hourly minima was made by allocating to each group the occupations that
came under that ground as defined by the Code. Thus, the Code indicates
that the 40-cent minimum is to apll' to office workers and to cigarette
workers engaged in "fabrication" of the product, as distinct from proces-
sing or handling of cigarette tobacco at any stage prior to fabrication.
Assu:iing that fabrication, or "final finishing" (as the Code Advisory
Committee called it in letter of March 14, 1935) includes not only shap-
ing of the product but also wrapPing and backing for shipment, 11 classes
of cigarette workers enter tnis 40-cent grou) (along with office workers);:
vi z.:
Carton makers Hand packers
Carton packers ilacnine adjusters
Carton wrappers and M-laking-machine feeders
banders, hand "Making-machine operators
Carton rappers and Packers, case
bn ders, machine Packing-machine operators
Cigarette catchers
(These occupation-il classes were defined jointly by representatives of
NiA :d the Bureau of Labor Statistics, Department of Labor on the basis
largely of a field study preceding the '-aoe and hour survey in the Spring
of 1935. Each class embraces several individual occupations varying only
lightly in character.) To the 35-cent group are allocated occupations
processing or handling cigarette tobacco, and all processing or manufac-
turins occupations in snuff and smoking tobacco, except in each case the
seven specified for the 30-cent group (and excepting slow stemmers). As
stated above, it is unfortunately not possible to separate out from the
figures for these two grouns employees in chewing tobacco manufacture,
who were accorded a 25-cent minimum.



10691




-7?-


maining 6 per ce.it not accol-ited for above the anplicable minirmm
cannot readily be determined.(*)

If color r-nd sex of. the worker be taken into account, certain
marked concentrations api)ear. 'iost noticeable are these two: (W)
that practically all workers entitled to the 40-cent minimum were
white (less than 4 per cent were negro); and (2) that in seven oc-
cupations subject to the 30-cent minimum (or in the case of chewing
tobacco workers 25-cent) 90 per cent of the workers were women,
with negro women outnumbering the white two to one. In no other
group did negro women figure to a significant degree.

6. Average-Hourly Earnings in Narch 1935.
Vto
Against the Code provision (as/the least that workers should
get) are to be put the facts as to what they actually get. Presum-
ably groups as a whole would earn more per hour than the minimum
rates set in the Code. Fro!: the Bureau of Labor Statistics survey
already described, the facts aan be elicited. And although the Code,
as already indicated, nowhere deals with a single minimum rate for
all workers, it will undoubtedly be useful to start with the over-
all position.

In March 1935, then, a month after the Code became effective,
all employees in the Code industry earned on the average a little
over 41 cents an hour.d*) In a labor force so diversely constituted,
however, with respect to color, sex, and -- in some degree -- loca-
tion, a single average could hardly be, and in fact is not, a typic-
al figure about which other rates cluster. It is practically essen-
tial to deal with a scale of averages, including rates for wihiteimen,
white women, negro men, and negro women. In this scale the departures
from the central figure of 41 cents are indeed wide, with white men

(*) Occupations not readily assignable to a particular minimum comprise:
foremen, inspectors, "miscellaneous direct" and "miscellaneous indirect"
workers in cigarette manufacture, together with "miscellaneous indirect"
workers in snuff and smoking tobacco manufacture.
Occupations for which no minirmun- wase rate vas orescribed by the Code com-
prise:
Janitors, cleaners Skilled mechanics
Kviachinists Skilled mechanics' helners
Power-House workers Substandard workers
Service employees
It should be remarked, however, that the Code prescribed for watchmen (a
small group included by the De-oartment of Labor with service employees) a
minimum wage of $1P for p. week of 56 hours.

(**) All the figures dealt with here, unless otherwise indicated, are the
weighted as distinct from the simple averages constructed by the Bu. of
Labor Statistics. The simple averages commonly run somewhat higher than
the weighted, but do not tell so true a story, because they under-reore-
sent the Big Three Companies and consequently the proportion of negro
workers.


,10691





-78-


13-iS above and negro women IM1 below the general average. In des-
cending order, the (rounded) figures run: white men, 55 cents; white
women, 41 cents; negro men, 37 cents; negro women, 31 cents.

This situation, throughout the wage data, strongly suggests the
operation of two wp.ge differentials, color and sex, which could, if
it exists, be confirmed only by a study of occupational rates and
groups. The Code forbade any sex differential for "female employees
performing substantinilly. the same work as male employees", but did
not advert to regional or to color differentials.

The general averages afford also a first view of the position
of workers in different siz) com-anies. Reverting for a moment to
the single figure embracin,1 workers without regard to color or sex,
and aligning on this basis the several company groups, one finds
tnat the Big Three companies and the snall firms paid a little less
than the general average per hour (respectively one cent and two
cents less), whereas the intermediate and the snuff companies paid
more than tne general average (respectively one cent and ten cents
more). (*)

ahen one looks it the rates naid to each sex-color class,
however, the Big Three and the Second Six Companies change places.
That is, with resp-ect to each of the four classes -- white men,
white women, negro men, negro women -- it appears that the Big
Three companies paid more per hour (though in some instances only
a trifle more) than the average for tha; class in all companies
combined, whereas, the Second Six companies paid -- except to ne-
gro men -- less per hour than the average. (**)

The exnlonation of these apparent contradictions whereby the
Big Three companies bettered the all-company hourly average for
each particular class of workers and yet fell short of it for all
workers together, while the Second Six companies fell short of the
all-company average for most classes of workers and yet exceeded
it for all workers together, lies in the composition of the labor
force. As noted earlier, almost three-fifths of the workers for
the Big Three companies are negro, whereas more than four-fifths
of the workers for the Second Six companies are white. In other

(*) 2he noticeably high figure for snuff companies is discussed later.

(**) In detail, the cents differential earned in March, 1935, by em-
ployees of the Big Three and the Second Six companies, as against the
comparable averages for rl1 companies combined, ran as follows:
All Jorn Big Three -.A 1.7 430 [.1
Second Six A1.2 -3.6 -2.7 1.1 -.2


10691


-M M




. -79-


v'ords, che Big Three emnloy heavily the two low-wage classes -- neg-
o" .,iern ;,nd v.o ..i -- whe:e., tLe interridi:'te co.om-nies employ -ri-
mprily the two higher-wage classes -- white men and women.

Di ff '-nces in composition of the labor force, in turn, are
associat-ed il part with differences in the operations performed,
since the Bi- Three companies do relatively more stemming than the
Second Six. Here, as in tie cse of sex-color differentials, exam-
ination of paiticulqr occupations is needed, to show in this case
now the different company groups compare with rescset to rates and
t0-oe of labor enolo:,ed for identical onfrqtions.

In the cise of the small and the snuff companies, no contra-
dictions arise. iTot only to their entire force but also to each
sex-color class, snuff corupanies paid more -oer hour and small com-
Dpenies paid less per hour thui the comparable general average. (*)
For the small co.mrnnies, lower rates are in hrrmony with reiterated
statements during tae opriod &f Code formation that such companies
could not afford to pay su-ested minima, and probably reflect the
fact that the small concerns are engaged to a relatively large ex-
tent in a declining industry -- chewing tobacco manufacture.

The high nverapes disnlayed for snuff companies result from a
combination of factors; such as plant location (more than half the
snuff employees are loc-ated in the North) and negligible employment
of negro women, the lowest wage class. Inpt the rate differential
reflects also the highly mechanized character of snuff operations is
suggested b.vby the fact that it persists in a majority of cases even
when comparison is made against tobacco plants in the same States by
sex and color. In connection with the showing made for the snuff and
the small companies, it is well to rec-All that together they emoloy
little more than one-tenth of the labor in the industry.












(*) In detail, the cents differential earned in Miarch, 1935, by employees
of the sm'll and the snuff companies, as against tile comparable averages
for all companies combined, ran ns follows:
All Workers Whiite Men White Women Negro iren Negro Women
Small corn
ani e s -2.0 -I.e -5.7 -4.4 -3.4
Snuff com-
paiies [9.6 /5.1 [1.5 -1.5 a/
a/ The differential for negro women is /6.0 cents, but the reported eavrloy-
ment. of negro women is so small that the figure lacks significance. Snuff
differential for all workers exceeds that for groups, because negroes de-
.press the all-company figure.


10691


'M




-.80-

'j 7. Average Hourly Earnings for Code Groups

The nresumnrtion that in the industry as a whole the wage
: \grcuns defined by the Code woald average above the set minimum
rates is borne out by the record. It will be recalled that the
40-cent minimum applied to a dozen occupations, all (except office
workerse) confined to cigarette manufacture. In all these occupa-
iI h tions average hourly earnings were above 40 cents, settling in most
cases at 41 to 48 cents, but rising higher than that for two factory
It:' occupations as well as for office workers. (*) One defection stands
1 out; namely, that in four of five of these occupational classes, the
ii averages for negro workers were barely above or actually below the
i prescribed minimum. Even though the number of negro workers involved
i is small, such defection might appear significant.

p'i In this connection, however, a technicality of the computation
j must be borne in mind; to wit, tnat workers in occupations common
SI to several branches of the industry, including some of the occupa-
i i tions here in question, were allocated to a particular branch ac-
tI ,cording to the primary product of their plant. Hence a minor num-
'*ber of the employees classified as cigarette workers may in fact
., have been working in smoking or plug departments entitled to only
a 35 or 25-cent minimum. This circumstance, together with chance
errors in the occupational assignments, probably accounts for the
defect of the negro average in three or four cases, though it does
I not suffice to explain all cases.

In the group of workers entitled to a 35-cent minimum, all oc-
:.cupations but one averaged above the prescribed figure, varying for
:. the most part between 37 and 43 cents. (**) The exception was stem-
''i ming-machine feeders, who got a little less than 35 cents (34.7).
i When one examines the groups on a color basis, no exceptions at all
I il pp-ear among white workers -- in all the affected occupations they
averaged above the 35-cent minimum; but among negro workers excep-
tions multiply, with negroes in nine occupations, chiefly in the
I chewing and smoking tobacco and snuff branch of the industry, aver-
I aging below 35 cents. The impossibility, already indicated, of
I separating out from the group entitled to a 35-cent minimum the em-
ployees in chewing tobacco entitled to only a 25-cent minimum may
S be assumed to oe the chief exolpnation of the defect in the negro
averages.

Si For the ground of seven occupations entitled to a 30-cent mini-
mumrn, the story is essentially the same as above. Except for negro
i',!,' workers in one or two occupations (for whom again, presumably, the
: inclusion of eroloyees in chewing-tobacco manufacture helped lower
the average), average hourly earnings cleared the minimum by amounts
11,i ; !varying from one cent to several. The diversity of average hourly
1. .. earnings among occupations in this group, and still more in the

i(*) Making-machine operators averaged 51 cents, machine adjusters 682.
Ii 'cents, and office workers 57 cents. For occupational classes no weighted
S' but only simple averages have been computed.
| (**) M.achine cutters averaged 46 cents; and in the smoking and chewing
^;," tobacco and snuff branch of the industry, carton makers also averaged 46
.' cents and machine adjusters, 30 cents. Inspectors and foremen, likewise,
had high hourly averages.
L; 10691
I, -- _




-e1-


other groups, indicates thit the setting uTn of iage minima did not
reduce workers to flatly uniform levels.

It is of incidental interest that in those occupations for
which no minimwLn w-as specified -- comprisin-g, it "'ill be remembered,
some nine per cent of all workers -- ermoloyees belonged more largely
to occupations with rather aigh hourly earnings tn.-m to those with
low earnings. The small n-unber of substa-ridard workers in this group,
however, averaged only 24 cents an hour.

. Average Hours '.'orked Per Week (*)

The Code provided that the normal work-week for wage earners
and minor salaried employees should not exceed 40 hours, except
for a few specified groups. (Engineers, firemen, receiving and
shinning employees could work 44 hours; and watchmen, 56.) In the
week of March 1935 covered by the survey, hours for all workers
combined averaged well below 40, barely exceeding 35. In fact, from
the month by month figures available, they seem to have been below
40 (for all workers combined) ever since the summer of 1933. (**)

Among company groups, the nearest approach to a 40-hour week
in Marchil 1935 was made by the snuff companies, with an average for
all employees of close to 38 hours. Longer hours in snuff manufac-
ture than elsewhere were connected, partially at least, with a
seasonal activity not experienced by other branches of the industry.

Outside the snuff companies, the Big Three had tie fullest week,
averaging 33 ours. Their white workers had snorter hours than those
of any other comnany group, but the longer hours and the number of
their negro workers bolstered up the group average. Small companies
fell a little below the total-industry figure of 35, even though
their white employees worked relatively long; wnile the Second Six
had the shortest work-week of any groun -- not much over 33 hours.
(***) In some instances, the number of hours worked resulted di-
rectly from staggering of employment.

(*) In this section again the weighted rather than the simple averages
secured in the Bu. of Labor Statistics survey is used. Giving due rep-
resentation to Bik, Three's negro employees, Lhe weighted figures show
somewhat longer hours, for all companies combined and for the Big Three
group, than do the simple averages.

(*) The month by month figures (not all of wiiich are published) are com-
piled by the Employment Division of the United States Bureau of Labor
Statistics. They cannot be sub-divided to show particular classes of
workers, except that employment in chewing and smoking tobacco and snuff
factories is reported separately from that in cigarette factories.

(***) One plant in the Second Six group showed an exceptionally short
week, of only 24 hours; but even with this plant omitted, the Second
Six still had a shorter week than the other groups.


10691


J





-82-


Some differences in hours associated with color and sex appeared
Thus, women, averaged only 3,4 hours against the men's 36; white work-
ers only 34 hours against the negroes' 36. Except for the influence
of the Big Three Corpanpies, the color average would have run in the
opl)osite direction, since among all other company gro os -- (Second
Six, small, and snuff) -- white workers had a fuller week than ne-
groes of the same sex. With the Big Three, not only did negroes
work longer than wnite employees, but negro women worked a trifle
longer than negro men. This was the only instance in which the
work-week for women exceeded that for men of the same color.

9. Average Earnings per Week

Working approximately 35 hours, at approximately 41 cents per
hour, the average employee in the Code industry earned $14.50 for
the widek. Three of the four sex-color classes in the industry,
however (white women, and negro men and women), earned less than
$14.50; and one class (white men) earned more. In descending order,
their average pay ran: white men, $19.50; white women, $13.50;
negro men, $13.50; negro women, $11. In every group of companies
this same descending scale appeared, except that in the Second Six,
negro men -- because of slightly longer hours -- earned a trifle
more than white women. (*)

Though the industry averaged $14.50, the only company ground
to average that much was the group of three snuff companies, which
showed a figure of $19. In part this relatively high figure re-
sulted from the practical non-employment by these companies of ne-
gro women (from the lack of stemming operation), but it also re-
flected better-than-average hourly rates and longer-than-average
hours for each of the remaining employee classes.

Just under the total-industry figure were the Jig Three corn-
panies, with an average of $14.44. The Second Six and the small
companies followed at about half-dollar intervals, with (rounded)
figures for the week of $14 and 413.50. Each sex-color class ex-
cept white men likewise made more with the Big Three than elsewhere
(snuff companies aside); taus, white women earned almost $2 more
with them than in the nearest competing group; negro men almost $1
more; and negro women almost $3 more. In the case of negroes this
spread resulted from the combination of better-than-average hourly
rates and longer-than-average hours; while in the case of white
women it was the result solely of the relatively high hourly rate
(44 cents), their work-week with the Big Three, as already noted,
being very short. White men earned most from the small companies
(snuff companies still aside) where their hours were longest; and
also because of longer hours, negro women made somewhat more with


(*) Rounding of the figures to the nearest half dollar puts negro men
at the same approximate level as white women; though more detailed fig-
ures show the white women slightly ahead. (See note, next page.)


10691






-83


the Second Six. (*)

10. Position of the Individual Worker

To suw-lement the incomplete view afforded by averages, it is
essential to consider the effective limits of hours and earnings.
In defining those limits here, no attempt is made to consider ex-
treme cases, the nuroose being solely to get a view of the situa-
tion of the bulk of the workers, and of significant departures from
average conditions.

With respect first, then, to hourly earnings, the bulk of
the workers -- in each case roughly 95 per cent -- were subject to
the following limits, according to their color and sex: negro
women, 20 to 20 cents; negro men, 25 to 50 cents; white women, 25
to 60 cents; and white men, 30 to 90 cents. The order here is the
samne as that indicated oby the averages ner hour, which ran, respec-
tively, for the same groups: 31, 37, 41, and b5 cents. Earnings
were most diversified in the highest-paid group, most uniform in the
lowest.

A point to attract attention is that a significant number (S
per cent at least) of the negro women were receiving less per hour
than the lowest minimum prescribed by the Code. (*s) In all sex-
color classes, some infraction of the 25-cent minimum .anujear, but
only in the cpse of negro wonen are they considerable. Almost all
these subminimal women were hand steimners, and only a small number
of them were classified as either slovw or substandard.

Affected by length of week as well p.s by nourly rate, weekly
earnings naturally range more widely than hourly. On a weekly ba-
sis, the bulk of the workers (again, close to 95 per cent in each
of the several groups) came within the following limits: negro
women, $4 to $15; negro men, $6 to $18; white women, $6 to $20; and
white men, $l0 to $35. These ranges indicate that those near the
top of the group earned 3 or 4 times as much as those toward the
bottom. If the limits are narrowed to the belt of highest concen-
tration, they become: $8 to $14 for 75 per cent of negro women;

(*) The weighted average weekly earnings by company groups ran, in detail,
as follows:
All Companies Big, Three Second Six Small Snuff
All $14.50 $14.44 $14.13 $13.67 $19.19
White Men 19.36 20.03 18.18 20.25 23.67
White Women 13.51 14.36 12.55 12.04 14.97
Negro Men 13.46 13.65 12.71 10.82 14.90
Negro Women 10.92 11.33 8.34 8.57.: (a)
(a) The snuff company average for negro women was S10.75 but less
than a half-dozen were reported.

(**) Since frequencies cover only the unweighted figures, proportions
in low groups may be somewhat higher than indicated in this section.


10691





--:- f ;. -I-'

d; *T' tn SI_ for R0-od- er cent of negro men; $10 to '316 for about
6i II C .2-' "O.-i' C O. tue ii .c,.li -"'..., *-.,l 0o p,'4 fori tae same propor-
: tion of white men. It will be observed that the earnings of white
workers are less highly concentrated p.nd more diversified than thope
of _.ejroes.

Iiie lowest earnings attached for the most part to women in a
iP few occunations. Three-fourths of all workers in those particular
occupations receiving less than 8 ner week -- and- about 8 per cent
TM i of the entire force did receive less than that '--, were white and
ti negro women engaged in largest numbers as kickers, searchers, or
hand stemmers. Again only a minor proportion were classed as slow
or substandard. In other instances very low earnings, seemed to re-
I flect either oart-time work by a few employees in occupations norm-
ally higher-paid, or casual work (as in the case of floor hands).
For no group were they as marked as for negro women, almost 20 per
cent of whom earned less than $8 for the week.

SAs respects length of work-week, employees apparently suffered
more from under-employment than front. excessive hours. Less than 5
per cent work-ced more than 40 hours, and less than 1 ner cent worked
48 hours or more. (*) On the other hand, a fifth of the men and
I almost two-fifths of the women worked less than 32 hours.

Yet while a large -oortion of the negro women were under-em-
ployed, another sizeable grouo had particularly long hours, running
from 41 to just under 48. For the most part, the women working
these longer hours were kickers, searchers, and hand stemmers --
occupations characterized, as already noted, by low earnings de-
spite the long hours.

11. Manufacturers Versus Independent Leaf De-lers

It has just been indicated that the outstanding instances of
Slow hourly rates, long hours, and low weekly raLes occurred in oc-
S\cupations connected with the earliest stages of manufacture -- pri-
Smarily with stemming. Stemming operations are carried on also by
independent leaf dealers; and in order to compare their rates with
manufacturers' r,.-.es for similar operations, payroll data for leaf-
dealer employees v'ere collected in the spring of 1935 and again in
I[l the fall. While compilation of the spring data has been delayed,
,'' the fall data, covering eleven dealers in Virginia and North Caro-
:' i 'lina, are sufficiently in hand to-nermit some comparisons of hours
|1 and earnings in the two industries.(**)

S(* While the figures maw include some cases of Code violation, the
l various exceptions -ermitted to the 40-hour week would suffice to ac-
iII \ count for the small proportion of employees indicated.

"i (**) The fall data have this advantage, that special arrangements were
It! made to keelo a record of hours worked. Since the industry pays piece-
rates largely, little information on hours and hence on hourly rates
was secured in the spring.


10691





-85-


Employees of independent leaf dealers fall into three main
occupational categories: floor workers, Dickers and searchers,
and hpnd stemmers. In leaf Aealers' and also in manufacturer,'
plants, negro -.en predominate among floor workers, while negro
women are the predominant class in uhe other two occupations.
Average conditions with respect to hours and earnings for these
employees in the Code industry in March 1935 and in leaf dealer
plants in October 1935 are compared in the following table:

Manufacturers' versus Leaf Dealers' Plants: Hours
end Earnings in Selected Occupations in One Week


Per Cawita: Average
Occupation and Industry : Average:: Earnings : Hourly
Hours : (dclla,.rs): Earnings
:: : (cents)
Floor workers, negro male

Tobacco manufacturers : 34.8 : 12.99 : 37.0
Leaf dealers 49.2 : 10.82 : 22.0

Pickers and searchers, ne,rro fe:nale:

Totbecco manufacturers : 33.1 : 9.72 : 29.3
Leaf dealers : 39. : 5.39 : 13.3

:-mna stenrciers, negro female

Tobacco r.anufac urers : 34.0 : 10.49 : 30.8
Leaf dealers : 39.1 : 5.17 : 13.2

Earrings of leaf dealer employees were obviously exceedingly
low' a:nd their hours long as compared with those in the same oc-
cuTratioas in manufacturers' plants. (*) It is contended that the
dealers, who s~em cniefl;- for export, must have cheao labor if
the business is to remain in t'.-is country. T.ieir stemming opera-
tions, conducted for the most -Jart during tne green-leaf season,
are concentrated in a few months of the year and offer suoplemen-
tal employment to farm laborers or attract casual workers. Hence
it is not to be sun''osed that tiLe two labor forces are directly
competitive. Yet the existence of such extremely low rates for
work of the same general character undoubtedly depresses the mar-
ket for -1, workers in these occunations.

12. Coitoarisons with Other Times.

While surveying v.ages -ind hours in the Code industry for
March 1935, the Bureau of Labor Statistics gathered figures for
ivarch 19533 -Iso and -- by a later follow-uo -- for September 1935,
in orter to permit comparison of conditions under the Code with
(C) As respects earnings, at least, the different monthss involved do
not account for the difference in levels, since (as will be indicated
later) employees in manufacturers' -olants had higher earnings in the
fall than in the spring.
10691




-86-


conditions orior to tne inception of the National Recovery Adminis-
tration and subsequent to the termination of codes.

Other materials available include: a survey by the department
of the cigarette branch of the industry in the spring of 1930; re-
turns for all branches of the indIustry in June and November 1933,
secured by a iTational Recovery Administration questionnaire during
the early period of Code discussions; a special study of man-hour
employment and earnings in 19.3, made by the Bureau of Labor Sta-
tistics in cooperation with the Bureaa of the Census; and the par-
tial survey, conducted for the National Recovery Administration by
the Bureau of Labor Statistics of wages and hours during July 1934
in six occupations in the cigarette, smoking, and chewing tobacco
industry in Virginia and 1orth Carolina. (*) While the diverse
scope of these materials precludes analysis of changes in the vol-
umes of employment, inferences can be drawn as to changes in hours
and earnings over the period covered -- 1930, 1933, July 1934, and
the spring and fall of 1935.

The average employee in cigarette manufacture was distinctly
better off in March 1935 than he had been in March 1933 or 1930.
As against 1930, his weekly earnings had improved slightly and his
work-week had shortened materially. As against 1933, his weekly
earnings had increased by one-half, with only a moderate increase
over the very short hours then obtaining. His better position
was thus due to a sharply higher hourly rate combined with a short
work-week. (**)

In a similar way, uhe average employee in the total Code in-
dustry -vas distinctly better off in 3arch 1935 than in March 1933,
since his hourly and weekly earnings had bota increased materially
though che work-week continued vern snort. For white workers and
negro the dollar Jain was about tae same, but on a percentage ba-
sis the negro Gain was of course much larger, being reckoned from
a lower base. The same things hold true of male workers as con-
trasted with female, the women faring relatively better than the
men, though their dollar gain differed but little. The greatest
advance accrued to negro women, the grou- in che most disadvanta-
geous position, with average weekly earnings in March 1933 of only
,P-.50. (***)______ _________
(*) It might be thought that the monthly figure regularly published by
the Division of Employment Statistics of the Department of Labor on
employment, payrolls, and earnings in the chewing and smoking tobacco
and snuff industry could be combined with its unpublished figures for
the cigarette industry (as distinct from cigars and cigarettes combined)
to secure a continuous record of fluctuations in employment and earnings
in the Code industry. In fact, however, this cannot well be done, since
the Division's figures for cigarette manufacture omit some very important
plants, and have been strongly influenced in recent years by returns
from a single comnaay with highly seasonal stemming operations. The Di-
vision now has under advisement the improvement of its cigarette sample.

(**) Comparisons are based on unweight-d averages of all companies re-
porting in each period. The 3u. of Labor Statistics, 1930 study appeared
in its Bulletin 532, agesgs and Hours of Labor in the Cigarette IManu-
facturing Industry., 1930".
(***) Figures used are weighted averages for all reporting plants.
10691




-87-


Comparison with November 1933 again indicates a g.qin in week-
ly earnings for March 1935, not due this time, however, to a large
difference in hourly rates but rather to a fuller work-week. Hours
in November 1933 were abnormally low because of reduced manufactur-
ing activity. Hourly rates, which had been increased by the sub-
stituted President's Re-employment Agreement, under which the in-
dustry was then operating, ire indicated as not much lower than in
dicated as not much lower in March 1935. For all employees, the
figure is 41.0 cents per hour for November 1933 against 41.3 cents
for March 1935. The comparison is not entirely valid, however,
since the November 1933 average does not include employees in some
of the lower-paid preparatory processes that are represented in
MI9rch 1935 figure. (*) For the full year 1933 average hourly
earnings in cigarette, snuff, chewing and smoking tobacco manu-
facture as defined by the Census have been reliably indicated as
a little above 37 cents.(**) In July 1934, with the President's
Re-enimoloyment Agreement st-andards still being observed, hourly
rates in six occupations in the cigarette industry averaged from
2 to 6 cents below those of the Code month, .Iqrch 1935. (***)

The evidence thus indicates a definite, if natural, improve-
ment in the Dosition of workers in March 1935 as against p-orior
years, -- an'im-rovement represented by larger hourly and weekly
earnings with generally short hoars. Surmnary figures to show
whether the gains achieved were maintained after the termination
of the Code are not available, but inspection of the figures for
individual plants' leaves no doubt that as late as September 1935
at least they were maintained.

Weekly earnings of workers in the industry as a whole were
unquestionably larger in September than in I(,arch. In part this
increase was the result of longer hours attendant on greeter ac-
tivity in September, but it reflected as well numerous increases
in houlrl- e-Lrnin-s. In snuff plants, hourly earnings tended to
decline, an.'i azmoLg small companies decreases were so.-"r-ln.,t more
numerous th-n i-acr-ases. But in Sec';nd Six and nartii .-1arly in
Bi,, Three ',*;n;se, v'here the bulk of tu-ie workers are ei-:..oyed, ad-
vonces quit, c1CE-,.Zlv predominaited._(*'*'**)_
() Results of thr Tr.i questi.onn.ire are -oresented inChanters VI and
VII of a report b. Don.ld Y. Yakeley, Research and Pluning Division,
"Ci0arette, Snuff, Che:'ing and Smc'cing 'ooncco 'Manufacture", Sentember
21, 19"V-. Tne fixare of 41.0 is coim'ubed from his separate items for
the different braqrnches of the indus ry.
(**) Coraouted fror. data in the report by Art:Lur F. Beal of the Bureau
of Labor Statistics, "Man-Hours of 2-hploy;.ient in 35 Manufacturing In-
dustries in 1933" n. 5.
(***) See the report of the 3ure'.u of Labor Statistics, "A Study of Six
Occupations in the Cigarette, Smoking Tobacco, and Chewing. Tobacco In-
dustries ii Virginia and North Ca.rolina, July 1934". The report also
covers earn-ings ir. chen;inl and snolk.ng tobacco manufn.cture, but does not
combine the t'. o brnicL.;, so that ,zo,.-ptrjlson with the joint figures com-
piled for ..ierch '143:: -.ot fe,.?-ble.
(****) 'The chec'K o ccf ,Litic.'.s i.i _rtember 1935 covered a representative
sample of the ",..-rs sc(.ndulod a.r tiar'';, 1935. The approximate size of
the sample (as c.'.,,;-.ist the numibe's szrieeauled in March) varied as follows:
Big Three employees, 20 per cent; S-coad Six, 40 per cent; small companies,
95 per cent; axid snuff plants, 80 ner cent.


10691




* -7-- ---
/*li' -bo-
.P11

o 0 riso: IAt n I;es
-~- ________ --.-.. --.--- .
",! V7ages in the tobacco manufacturing industry rank low as corn-
.I; .'.-red 7-ith those no.id by manufacturing industry in general. Of
f.-tie i.iu.:.iu';.ctures reported union monthly 0- the Division of
IS Employment Strtistics of the Department of Labor, only eight
} r;(omitting tobacco industries (*)) reported weekly earnings
lo,-cr in :arch 1935 th&;.n the $14.50 -xiid by the Code industry,
DI rnr. only five reported loner hourly earnings, For all manufac-
turing industries combined, weekly earnings averaged $21, for
ei reek l1 hours longer thir the tobacco week.
Of the eight inc'.ustries rnklcing loner than tobacco, three were
I.own because of an exceptionally- short work-week, hourly earn-
ings in eachi of them bein. higher than in tobacco. (*) The
remaining five not only fell below tobacco on weekly earnings
but also were the onl-> industries to report loner hourly earn-
inrgs. The comrnnrised.: tunrentine and rosin, cottonseed (oil,
cake, and me-l), fertilizer, cotton goods, and canning and
-?reservinG. (***) T'is lov-vxare -roun) thus includes three
SSouthern inuctries, at ie'-st tro of -hich- naval stores and
:.fertiliers -- emnlo- nec-ro -or'-ers l.rgely.

In the four StaFes r-he-e t-he3 Coc ind.-istr-r is chief. concen-
trated (Iorth Cr.rolina, Virginia, Kentuclky, and Tennessee), the
S>': ir-inortar.t mamifacturi-a. industries c.re, besides tobacco :-cotton
'," ^goods, '-nit n;oo.3, railroad repair shops, furniture, rayon, -nd
lumber. (****) The national figures just referred to indicate
for all these competing inc'ustries except cotton goods hourly an
'. ".eekly wages .p-)recivbl:,' hi-her than in tobacco.(*4*) But none o
: ': 1 ( =

(*) In cigar manufacture also, earnings must have been less than
$4!.50. The Division does not publish figures for cigars
se-oarately, but reported per capital weekly earnings in cigar
a*... cigarette manufacture combined at $13.37.

(**) These three were: shirts and collars, men's furnishings, and
c.: st-iro toi-oe.

(* For turpentine -nd rorin, the statement respecting hour-earnings
\ is bvsed on uni-nublishod figure:; of the department of Labor,
| Division of Employment Stactistics.

I (****) Imn-jort.nce is judged by nmw.iber of navae ec)rners employed in 1933,
the latest Census year no- available.

,ii. ,' (*****,) The h ry ear-.nins in March 19.15 ranted from 43.8 cents in saw-
t'' i mills to 65.2 cents in stenm railroad repair shops, and the per
']i cpita weekly eurninrs from $15.9'. to $26.03, in the same two
*J industries. Excluding railroad repair shops, the upper limit
is 51.1 cents oer hour and 19.21 for the week, in rayon manufac-
ture.


10691




-89-


these manufactures (possibly rayon (*)) is confined so largel7r
to the South as is tobacco; hence the Northern wage diffe-rcn-
tial influences their over-all figures more strongly than it
influences the tobacco over-all.

A comparison confined to the Southern States is plainly desir-
able, but is difficult because of the scarcity of data. (**)
Such figures as are available, however, suggest that when com-
oarisons are restricted to other manufactures in the same area,
wages in tobacco manufacture occupy a mid-way position.

To be sure, for all factory workers reported upon in the four
States of lorth Carolina, Virginia, Kentuckyr and Tennessee, per
capita weekly earnings in March 1935 were $15.50 against a
figure of only.$14 for the Code industry in the same States.
(***) The general hourly wage in this area in March cannot be
figured, since man-hours worked are available by States from
May: 1935 only.

(*) In 1933 a little less than 70% of the wage earners reported by
the Census in "Rayon and Allied Products" were in Southern States,
against about 80% of tobacco (not including cigar) workers so
located in March 1935.

(**) For rayon, lumber, end hosiery and underwear, 1932 is the test
year covered by "rages and- Hours" Bulletins of B. L. S., Depoart-
ment of Labor; anC. for furniture, 1931 is the latest year covered.
According to the sections in iTRA concerned with these industries
(Industry Studies and Statistics) IMfAn hs no information on 17C.ges
in Southern States later than that given in these Bulletins, ex-
cept in the case of lumber. For lumber, the Code Authority
supplies data on average hourly and weekly wages in the "South"
for July and December 1933 and the 10-month period January-October
1934 the South comprising in this instance 10 southern-pine
States. Because of the unlike periods covered, and the minor in-
fluence on the ag.regate of the two tobacco-manufacturing States
included (ITorth Carolina and Virginia), no use of these fi:.ures
is made here. Reports of State Departments of labor and industry
might yield useful information, but to examine them in the time
allotted this stud,, has been impossible.

For railroad repair shops, current hourly wages in the Sou-ithern
region can be computed from monthly reports of the Interstate
Commerce Commission. The type of labor employed in this industry,
however, appears unsuitable for comparison with labor in tobacco
manufacturing.

(***) The figure for all factory workers is computed from the unweighted
aggregates of number employed and payrolls, published by the Divi-
sion of Employment Statistics. The Division has estimated its
coverage of factory workers in the:several States 2s follows? Iorth
Carolina, 745; Virginia, 60"; Kentuclkr, 4440; and Tennessee, 505.


10691








A.-ainst -ocarticulr.r inC-istries, however, the story is somewhat
different. I. I;,-'- 19:': tlie hourl-y e-.rnin-; in this arc; of
workerss in inoort.nce manufactures otner than tobacco ran a.s
follow's:

Hours r-.P &.rnin-- of F-ictoiy Workers in Specified Induntries in the Four
States of Torthi Crolin:a, Virinia, Kentuc.1-, and Tennessee, Mayr 1C5.

iinuf-cture : Avernoe : Hours : -eekly
: .ourl : IWork ed : 7%.rni--s
~~_______________:_______Earnins:

Cotton goods : 36.1 : 33.2 : 11.99
Knit goods a 42. 34.6 14.75
Furniture : 35.9 : 38.1 : 13.68
Rn-on -nL- Allied Products : 50.4 : 38.3 : 19.32
Saumill s : 31. : 32.9 : 10.23


Source: Ccm-inuted from fitirc-s fmP.rnished by the United States Department
of Labor, Division of Emiploynent S':: tirtics, on az.re.,r.te employ-
ment, payrolls, and man-hours in each of these industries in the
four Str.tes specified. L'easured a'.7.ia;;t aveir.;e en-nloyment re-
ported-for 1933 the size of the sarr.,le is in.l'icr.te& as ranging
from 25 percent for saw mills to complete coveraCe for rayon.

If against these fij-ures are matched the March figures for to-
bacco in this area -- hourly earnir..c 40 cents, hours :or':ed
35, 1ee-2l1, earnings $14 -- it ap-oears that on both an hourly
anO. a veekl:: b.x.si' ea.rnw.:wzc in the Code industry uere higher
than ear2..in;s in cotton .-oo's, fu-rniture, and sawmills, (*)
though loler than e.srninis in rnyon and knit goods. Tle dif-
ference in months involved may c.foect relative position with
respect to Weekly earnings but is unlikely to affect it with
respect to hourly.

For cotton manufacturer, by far the l.'.rest employer of factor'-
labor in this area, a fer, supplementapry figures are at hand,
tending to confirm still further the inJications already given
that cotton-mill rates fall appreciably belor the tobacco
rat-s. In the "Textile Report" made by 3. L. S. earl;. last
year, average earins pe r hour in cotton mills in the South
rere reported for August 1934 (the latest month covered) at 34
cents for men and 32 cents for -7omnen. Correspondin.g averaes
for tobacco factories in the South in March 1935 were: ran,
45 cents; women, 35 cents.


(*) Perquisites nay affect the money f .lees paid in .awmills; it will be
noted. lso that the snrpule for this incustr- is comparatively small.


10391




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