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"Another rather general complaint is that salesmen of the International Harvester Co. represent that purchasers of competing lines of harvesting machines will be unable to secure repair parts, a matter of much practical importance. Officers of the International Harvester Co. admit that this was at one time a common characteristic of competition in the harvesting-machine industry, but that the company is opposed to the practice and has used active efforts to eliminate it. The Bureau, however, received rather numerous complaints of this character.

"The company at one time openly attempted, through a clause in its commission contracts, to control the price paid for its machines by the farmer to the retail dealer. Since the elimination of this clause, 'suggested' retail price lists have been rather generally circulated by some of its branch offices, apparently for the purpose of indirectly maintaining the retail price, although the company contends that these lists are intended for the use of its employees in furnishing information to purchasers and professes to discourage their issuance to dealers. It is evident, however, that it could completely stop this practice if it really wished to.

Superior Resources

"The company's exceptional financial resources, including its connections with J. P. Morgan & Co. and John D. Rockefeller, constitute one of the chief sources of its power. They not only enable it to secure the economies of large-scale operations, which, as a rule, give it marked advantages in manufacturing costs, but also enable it to maintain a very elaborate selling organization, by virtue of the variety and extent of its business. Furthermore, they give it a great advantage in extending credits to purchasers, an exceedingly important feature of the farm-machinery industry. While apparently any such use of credits has not been a controlling factor in

restricting competition, it appears to have been felt to some extent in certain lines, and is one of the chief sources of complaint from manufacturers as distinct from dealers in farm machinery.

Present Position

"As a result of the developments and practices above described, the position of the combination has changed from that of a maker of harvesting machines only, until it is now an important factor in several other branches of the farm-machinery business. In manure spreaders it appears to have more than one-half of the business, and in disk harrows approximately 40 per cent.; and it is increasing its proportion in several other new lines, such as wagons and gasoline engines.

"New competition has, however, begun to appear, especially from certain large plow and tillage implement makers, whose fields have been invaded by the combination, and who likewise have arranged to establish a 'full line,' that is, a large assortment of the chief kinds of farm implements. This new competition is apparently of great significance. However, in 1911 the company still had about 86 per cent. of the production of binders, 78 per cent. of the production of mowers, and 72 per cent. of the production of rakes."*

*In its Reply Brief, p. 74a, before the U. S. Supreme Court, October 6, 1914, the Harvester Company gives the following percentages of its sales compared with total sales in the United States:

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It is to be noted that these figures show the considerable growth of competing business even in these three leading lines of Harvester Company goods.

The Reply Brief further shows that in Binder Twine the Harvester Company

Investment and Capitalization*

"The extraordinary over-capitalization which characterized most of the large industrial consolidations of the period 1898 to 1901 was absent in the case of the International Harvester Co. The original capital stock was $120,000,000. The 'cash stock' of $60,000,000 appears to have been paid up in full. The appraisal value of the plants, inventories, etc., for which the remaining $60,000,000 of stock was issued was $67,000,000; the Bureau places the value of these physical properties at, roughly, $49,000,000. The bankers and promoters received $3,700,000 stock for their expenses and services.

"It is worth noting that certain ore leaseholds acquired by the Deerings about seven months before the merger for $675,000, of which $500,000 was paid in notes, were valued for purposes of consolidation, after deduction of this indebtedness, at no less than $7,963,000. The price paid by the Deerings was rather more than the current average value of Mesabi leases at the time. It is claimed that during the period that the Deerings had owned these leases there had been some increase in the estimated tonnage of these ore properties, but no evidence was produced to indicate any great increase in their value. However, in order not to undervalue them, the Bureau arbitrarily allowed an increase of $500,000, and also added about $100,000 expended for improvements, etc. This is probably too liberal, but the resulting net valuation is more than $7,000,000 less than that claimed by the International Harvester Co. The high valu

had from 42% to 54% of the domestic trade; in wagons it had but 15% of the domestic trade; in cream separators, only 163%; in gasoline farm engines from 15% to 20%; and in manure spreaders about 50% of the domestic trade (pp. 74 to 77).

*In the Reply Brief (U. S. Supreme Court, October, 1914) the Harvester combination showed that, since its organization, $181,000,000 of new capital had come into the agricultural implement business in the United States, more than $76,000,000 of which was capital of corporations manufacturing and selling harvesting machines in competition with the International (p. 81).

ations placed on these ore properties caused much dissatisfaction among the combining interests themselves, especially on the part of the McCormicks. The banking interests back of the International Harvester Co., however, had only a few weeks earlier claimed an extravagant value for ore, in defending the capitalization of the United States Steel Corporation in important litigation then pending, and they were therefore in no position to deny excessive valuations for this Deering

ore.

"In several other respects the appraisal valuations were clearly excessive. However, after deducting such excesses, the Bureau, as indicated, found that the value of the physical properties plus the working capital covered substantially 90 per cent. of the capital stock issued. The company claimed a large value for good-will, but has not entered any good-will value in its accounts. It is not unlikely that a fair valuation for good-will would have covered the difference between the original capitalization and the tangible assets.

"A much larger capitalization was at one time contemplated. For purposes of consolidation, the fixed properties, good-will, and inventories, exclusive of working capital, were nominally valued in the first instance at $132,000,000. This figure, however, was grossly excessive. Furthermore, the subsequent appraisal value of the physical properties (excluding good-will) of $67,000,000, above noted, was later written down to $60,000,000. In this connection it may be noted that inventories which were appraised at $25,550,000 were later reduced for 'trading purposes' to $18,155,000.

"In 1907 the capital stock was rearranged by making $60,000,000 a 7 per cent. preferred issue, leaving the common stock at $60,000,000. In 1910, $20,000,000 additional common stock was issued as a stock dividend, making the total capitalization $140,000,000.

"The stock of the company has been closely held by the

former interests. The McCormick and Deering families have throughout held a large majority of the total stock, while considerable amounts have also been retained by a few other stockholders. This fact assumes especial importance in view of the pending dissolution suit of the Government against the company.

"Recently, on account of this suit, the company has been split into two corporations, one of which, the International Harvester Co. of New Jersey, retains the old harvestingmachine plants and related business; the other, the International Harvester Corporation, takes over the new lines and foreign business. Each of these concerns is capitalized at $70,000,000. If this is intended as part of a plan for ultimate disintegration of the combination, in the opinion of the Bureau it is unsatisfactory.

Profits

"There has been a marked increase in the earnings of the International Harvester Co. From a distinctly low rate early in its organization they have risen to a rather high rate in recent years. For the entire period, 1902 to 1911, the average rate of net earnings on net assets, as computed by the Bureau (exclusive of good-will), is 8 per cent. However, for the three years 1909 to 1911 the average was 12 per cent. As computed by the company on capital stock and surplus, the average for the entire period is 7 per cent., and for the years 1909 to 1911, 10 per cent. The rate in 1911 was somewhat less than in 1909. Returns for 1912 are not yet available.*

"The increase in recent years is more significant because in certain of the new lines, which the company has been pushing aggressively, the rate of return is comparatively low. This means that the rate of return on some of the older mo

*In connection with this report of the Bureau as to profits, it is interesting to note the dividends actually paid. In dividends this Harvester combination paid

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