MANUFACTURING: Where the Velvet Begins

Two decades ago Moline Plow Co. had two notable officers. One of them (president) was Farm Economist George Nelson Peek, who in early New Deal days became AAAdministrator, the other was Hugh Samuel Johnson (vice president), who became New Deal's NRAdministrator. Since 1929 Moline Plow Co. has been part of Minneapolis-Moline Power Implement Co. —which has a notable president.

He is husky, smiling Warren Courtland Mac Farlane. In 1933, when Messrs. Peek and Johnson were sowing the seeds of the New Deal, the accident of Depression put Minneapolis-Moline $1,541,000 in the red and a motor accident broke President Mac Farlane's back. Two years later Minneapolis-Moline netted $170,000, and indomitable President Mac Farlane, in his wheel chair, flew 15,000 miles around South America drumming up business. In 1938 Minneapolis-Moline had a profit of $727,000, and President Mac Farlane was riding horses for amusement.

Last week President Mac Farlane issued Minneapolis-Moline's 1939 report (for its year ending Oct. 31). During the year his company's sales dropped 8%, rather a good record since the sales of farm implements generally fell 10 to 15%. While late in 1939 U. S. business volume increased so that many companies passed the point where the velvet begins, Minneapolis-Moline's decline for the year took it back below that point. Its 8% drop in business was accompanied by a 91% drop in profits.

Its earnings were $64,000, just about 10% of the amount needed to pay its preferred dividends. Having passed preferred dividends before, the company now owes $38.98 back dividends on its 98,700 shares of preferred. Well might Mr. Mac Farlane regret that in booming 1937 his recapitalization plan to reduce preferred requirements from $6.50 to $5.50 and buy off preferred claimants fell through because it was not completed before the bull market collapsed.

The problems of Minneapolis-Moline are of a piece with those of the whole farm implement industry. Export business (30% of the sales of International Harvester, No. 1 implement manufacturer) exposes the industry to losses from depreciation in foreign exchange. Against such losses, Minneapolis-Moline prudently charged off $201,197 in 1939's fiscal year.

Furthermore, implement sales are on a long time-payment basis and large amounts of capital are tied up in accounts receivable. Big fellows like International Harvester and John Deere (No. 2 manufacturer) have plenty of capital to tie up in reserves for doubtful notes and accounts. But a company like Minneapolis-Moline has to borrow—a pick-up in its sales from August to October sent the total of its bank loans from $900,000 to $1,500,000. In its year-end statement it had set up a reserve of $927,668 for doubtful notes and accounts.