THE WESTERN CANADIAN LUMBER WORKER
2 eT

Crown Zellerbach Canada re-
ported an increase in net profits of
135 per cent on an increase of 27 per
cent in sales.

Domtar reported an increase in
net profits of 132 per cent on an
increase of 17 per cent in sales.

Mac Millian Bloedel reported an
increase in net profits of 133 per

cent on an increase of 26 per cent in
sales.

Weyerhaeuser reported an in-
crease in net profits of 121 per cent
on an increase of 37 per cent in
sales.

The result was large increases in
the profitability of all but one of the
corporations in 1973 compared to
1972. The increases ranged as high
as double the 1972 figure:

Sales, 1972 & 1973

1972 1973 Change
B.C. Forest Products $ 163,854,000  $ 253,603,000 55%
Champion International - 1,871,735,000 2,207,956,000 18%
Crown Zellerbach 1,107,576,000 1,363,600,000 23%
Crown Zellerbach Canada 233,866,000 297,200,000 27%
Domtar 560,779,000 655,800,000 17%
Evans Products 938,044,000 1,126,500,000 20%
International Paper 2,093,330,000 2,314,342,000 11%
Koppers 612,791,000 723,933,000 18%
MacMillan Bloedel 964,190,000 1,215,200,000 26%
Noranda Mines 603,387,000 N.A. —
Scott Paper 813,791,000 931,314,000 14%
Scott Paper Ltd. 48,118,000 56,295,000 17%
Triangle Pacific 183,874,000 233,467,000 277
Weldwood of Canada 188,026,000 265,374,000 41%
Weyerhaeuser 1,675,918,000 2,301,700,000 37%

N.A. —Not Available

However, the return of profit on
Sales has only limited usefulness as
a measure of how well a cor-
poration is doing. A better way of
determining the profitability in
terms of the value of the business is
to calculate the return of profits on
net worth.

Net worth is the total equity

Source: Annual Reports

interest the stockholders have in a

corporation. It is the amount of.

monetary value of the property

owned by the corporation over and’

above what it owes. It is not the
total of what the stockholders have

invested but of its net value to
them. It is often called ‘‘stock-

holders’ equity’.

Net Profits, 1972 & 1973

* 1972 1973 Change
B.C. Forest Products $ 10,823,000 $ 25,465,000 135%
Champion International 59,549,000 86,757,000 467%
Crown Zellerbach 44,107,000 102,600,000 133%
Crown Zellerbach Canada 11,940,000 28,100,000 135%
Domtar 17,468,000 40,600,000 132%
Evans Products 28,361,000 31,100,000 9%
International Paper 102,736,000 159,775,000 56%
Koppers 23,145,000 29,535,000 287%
MacMillan Bloedel 35,033,000 81,800,000 133%
Noranda Mines 64,333,000 121,000,000 887%
Scott Paper 38,604,000 56,643,000 4170
Scott Paper Ltd. 1,687,000 1,994,000 18%
Triangle Pacific 4,507,000 6,102,000 35%
Weldwood of Canada 7,471,000 13,146,000 167
Weyerhaeuser 158,141,000 348,800,000 121%

There is another concept that is
useful in measuring how well a
corporation is doing.

In a rigorous, unhypocritical
capitalist economy, the owners of
companies would “‘sacrifice” part
of their profits in order to build the
business. That is what classical
economics taught. However,
corporation managements have
found ways to fund the purchase of
new equipment and facilities
without sacrificing profits and with
little borrowing. They are allowed
to set aside huge amounts of money
which are called ‘depreciation
eharges,’’ ‘‘depreciation allow-
ances, "’ “amortization charges,”

Source: Company Reports

etc. and consider these a cost of
doing business.

These funds are available
primarily to replace worn-out
plant and equipment and are
considered ‘‘cost of doing
business.” Therefore, they are not
taxed. Furthermore, through law
and regulation they are allowed to
accumulate faster than equipment
actually wears out so they become
the source of funds for expansion.

But corporations are not even
required to pay all the corporate
income taxes the government
calculates they owe. One large and
growing item in corporate
financial statements is the

Return of Profits on Sales, 1972 & 1973

1972
B.C. Forest Products 6.6%
Champion In-
ternational 3.2%
Crown Zellerbach 4.0%
Crown = _Zellerbach
Canada 5.1%
Domtar 3.1%
Evans Products 3.0%
Interna’ 4.9%
3.8%
3.6%

1973 Change
10.0% 51.5 %
3.9% 21.97%
7.5% 87.5%
9.5% 86.3%
6.2% 100.0%
2.8% 6.7%
6.9% 40.8 Yo
41% 1.97
6.7% 86.1%
N.A.
6.1% 29.8%
3.0% — pete
: 4%
a 25.0%
: P eee 1 ATR, ee

provision for ‘deferred income
and other corporation taxes.’’ All
indications are that these “‘taxes”’
will be deferred for eternity and
never have to be paid. These’
deferred taxes are in addition to
the reduction in the Canadian
corporate income tax rate in 1973
from 49 per cent to 40 per cent.
These. various allowances plus
the deferred tax, and now the
corporate tax reduction, add up to
a huge welfare scheme for cor-
porations. If net profits after taxes
are added to the allowances plus
the deferred taxes, (but not the tax
reduction) the resulting sum of
money is called cash flows.

Cash flows represents the
amount of money that becomes
available for dividends and ex-
penditures on capital equipment as
a result of corporate operations
during a given period of time.

The table shows cash flows
for the 15 corporations in 1972,
the latest year for which the data
is currently available, and the per-
centage that the allowances con-
stitute of cash flows. Note that
in 12 of the 15 cases, cash flows is
more than net profits and therefore
more than 50 per cent of cash
flows. This was not so widely the
Situation 10 years ago.

On the basis of the figures for
sales, profits, net worth and cash
flows, an analysis can be made of
how well a corporation is doing.

The most common measure of
profitability is the ‘“‘net profits
ratio’’ — the percentage return of
net profit on sales. It is the most
frequently used and is the one liked
by company officials when they
want to show what a struggle they
are having. It is usually less than
the traditional 6 percent ‘‘fair’’
rate.

As an example, MacMillan
Bloedel had a return of profits on
sales in 1972 of 3.6 per cent. This
meant that the company retained
as net profits 3.6c of each dollar of
sales.

However, the return on sales
does not give any idea of how well
the corporation is doing in terms of
the value of the corporation to its
owners. A closer approach to such
a measure is obtained by
calculating the return of net profits
on net worth. All of the 15 cor-
porations had a much larger return
of profit on net worth than on sales.
For example, MacMillan Bloedel’s
return on net worth was 8.8 per
cent, compared to the 3.6 per cent
return on profit on sales.

But net profits are only part of
the money a corporation has
available for its use for expansion
and other activities as a result of
operations. As discussed above,
cash flows represents that sum of
money. The return of cash flows on
sales provides a_ revealing
measure of how well a corporation
is doing in the market place. In
1972, MacMillan Bloedel had a
return of cash flows on sales of 9.2
per cent — still larger than either
of the other measures.

One step further can be taken:
cash flows can be computed as a
return on net worth — on the
money value of the corporation to
its owners and controllers. For
MacMillan Bloedel that return in
1972 was 22.3 per cent, which is a
rate at which net worth of the

corporation could be doubled in
less than 4% years.

Part of profits after taxes are
usually paid out in dividends to
stockholders. The dividend is
usually the same amount year
after year and has no relationship
to the level of profits. In some
corporations it is usually less than
half of profits ¢ach year.

If the part of net profits that are
not distributed — ‘undistributed
profits’’ are added to
depreciation, depletion and
amortization allowances plus
deferred taxes, the resulting figure
is called net cash flows. The 15

13

Price of Delivered Canadian 3/8" Plywood
Regular Sheathing in Toronto/Montreal

Per 1,000 square feet

January 1972 through January 1974

200

190

180

170

160

is0

i140

130

1972
Source:

RDS:4j

of money each year in net cash
flows —money that they can use to
replace ‘‘worn-out’’ plants and
equipment, purchase other firms
or buy into them, invest in
operations in other countries and
other industries, etc.

CSFPMAHITITASONDIFRHAHTIASONDS

1973
Madison's Canadian Lumber Reporter

1974

The following table shows the net
cash flows of the 15 corporate
giants for 1972, the last year for
which data is available until the
distribution of the 1973 annual
reports during the next several
weeks: —

Cash Flows, 1972

Allowances’
Net Profits Allowances Cash Flows Cash Flows
B.C. Forest
Products $ 10,823,000 $ 33,113,000 $ 43,936,000 15 To
Champion
International 59,549.000 73,346,000 132,895,000 55%
Crown Zellerbach 44,107,000 « 57,225,000 101,332,000 56 Yo
Crown Zellerbach
Canada 11,940,000* * 15,441,000 27,381,000 56 %
Domtar 17,468,000 31,687,000 49,155,000 64%
Evans Products 28,361,000 21,144,000 49,505,000 42%
International Paper 102,736,000 130,945,000 233,691,000 5690
Koppers 23,145,000 29,032,000 52,177,000 55%
MacMillan Bloedel 35,033,000@ 53,619,000 88,652,000 60%
Noranda Mines 64,333,000 46,011,000 110,344,000 41%
Scott Paper 38,604,000 54,941,000 93,545,000 58%
Scott Paper Ltd. 1,687,000 2,578,000 4,265,000 60%
Triangle Pacific 4,507,000 3,127,000 7,634,000 40%
WeldwoodofCanada_ 7,471,000 11,150,000 18,621,000 59%
Weyerhaeuser 96,000,000 113,000,000 209,000,000 54%

Allowances include funds for depreciation, depletion, amortization and

deferred income taxes.

Before net charge of $9 million for abandonment of B.C. Pulp & Paper Mill.
Before net charge of $8.3 million for abandonment of facilities.

Before net gain of $2.6 million on income tax reduction resulting from
application of losses carried forward for income tax purpose.

These funds are of such size that
most of the corporations have been
able to expand assets at
tremendous rates during recent.

years. For example, MacMillan

Bloedel reports that net cash flows

made it possible to enlarge its ©

asset base (all goods and
properties owned by the cor-
poration) from $207 million to $900
million within 10 years.

Because of the enormous
amounts of tax free money made
available to corporate giants by
the government’s corporate
welfare system, during recent
years many corporations have had
more net cash flows funds
available than they expended on
capital equipment. The following
table shows that in 1972, twelve of
the fifteen corporate giants ac-
cumulated more money in their net
cash flows accounts than they
released as capital expenditures:

In summary, analysis of the
corporate giants indicates the need
for a countervailing force in the
economy such as only unions can
provide, that the corporations are
fully capable of providing a
“substantial, mecessary and
justified’’ wage increase and
generous improvements. in
benefits, that giant corporations do
not need more corporate welfare
schemes and deserve less, and that
shortages are not the result of
financial inability to invest. As a
matter of fact, one of the more
effective anti-inflation measures
available may be the picking up of

some.of the highly. inflationary... occ SREYRECORTP. 4.

surplus funds of corporations by
increases in wages and benefits. It
could also force the corporations to
rely more on labour and less on
expensive, energy-hogging,
polluting equipment.

With respect to the coun-
tervailing force to multinational
corporations, a recent United
Nations study states: ‘“‘Many of
them have already become more
cautious in exercise of their power
and more sensitive to their social
responsibilities. This new con-
sciousness tends to be sharpened
by multinational labour union
programs.”’ (emphasis added)

Although many observers of the

economy expect to see a slowing
down of the economy in early 1974,
most are forecasting an upturn
during the second half of the year.
Several of the corporations, Crown
Zellerbach is one example, are
already predicting that 1974 will be
as good a year for them as was the
record-setting level of operations
in 1973.

WAGE COMPARISONS

In the period 1963 through June
of 1973, the average straight-time
hourly earnings of workers in the
British Columbia woods products
industry have increased 108 per-
cent, from $2.25 to $4.69. The
percentage increase for workers in
our industry throughout Canada
during the same period is even
higher — 115 percent from $1.73 to
$3.71. The result has been that the
wages of woodworkers rose from
91.5 percent of those of workers in