year? Mr. Davis. Who are some of the largest stockholders in the United States? Mr. FRIEL. I don't know who the really large stockholders are. There is a list of all the stockholders with the Treasury Department in the Alcohol Tax Unit. Mr. Davis. Did your company pay a dividend last Mr. FRIEL. It paid a dividend of $2, four dividends at 50 cents each. That is on the common. Mr. Davis. Non-par stock? Mr. O'CONNELL. How many shares of common stock are outstanding for the parent company? Mr. FRIEL. 1,742,645. Mr. O'CONNELL. And approximately the same amount was added to surplus, so that the net profits would have been in the neighborhood of $7,000,000. Mr. FRIEL. We had $850,000 preferred dividends. Mr. O'CONNELL. You wouldn't include that in the amount added to surplus, certainly. Mr. FRIEL. No; the dividends on preferred and common together amounted to about $4,300,000. Consolidated profits were about $7,300,000, so you had in consolidated surplus about $3,000,000. Mr. Ó'CONNELL. I see, you include the dividend on the preferred stock in the $7,300,000 of profits. Mr. FRIEL. That is correct. Mr. Davis. What do you find is the cost of producing or manufacturing whisky? Mr. FRIEL. The cost of manufacturing whisky? Mr. FRIEL. I think that would depend entirely on what the particular kind of whisky is and where it is made. Mr. Davis. Well, first take bourbon in the United States. Mr. Friel. Bourbon in Kentucky would probably cost, as I recall it, including the Kentucky tax and including the barrel, somewhere between 38 and 40 cents at its inception. Mr. Buck. But you don't figure the cost of the barrel. I think what the Judge wants to know is the cost to manufacture the whisky off the still; then we figure the aging and warehousing. Mr. FRIEL. You have to have the barrel or you can't have the whisky. Mr. Buck. That goes into another bracket of costs, that goes into the bracket of storage. What does it cost to manufacture and produce a gallon of Bourbon whisky off the still ? Mr. FRIEL. Roughly somewhere between 25 and 30 cents. Mr. Buck. What does it cost to age it per year according to your experience, including barrels? Mr. FRIEL. I don't know. I would have to figure that out. Mr. Buck. How many gallons of whisky do you manufacture a year? Mr. FRIEL. All together? Mr. FRIEL. That I didn't check before I came down, but I imagine that we made last year somewhere around 20,000,000 gallons in the United States. Mr. BUCK. Twenty million gallons a year and you don't know the cost of producing or aging it? Mr. ÉRIEL. Parts of the cost of aging it, Mr. Buck, are charged through to expense; they are noncapitalizing items. Mr. BUCK. Regardless of how it is charged or to whom it is charged, you mean to tell me that you, as treasurer of this big corporation engaged in nothing else but making and marketing whisky, can't say what the cost of aging a gallon of whisky is? Mr. FRIEL. Oh, I would say it would probably cost you somewhere between $1.50 and $2 a barrel, probably 5 cents a gallon per year. Mr. Buck. Five cents a gallon per year? Mr. Davis. You have told the cost in Kentucky. What is it in Illinois ? Mr. FRIEL. Five cents less. Mr. Davis. You don't have this State tax in Baltimore, such as you have in Kentucky? Mr. FRIEL. Not at the present. Mr. FRIEL. I don't know very much about the Government tax in Canada. I am not an officer of any of the Canadian companies, but as I recall it, it is something like $4 on a British-proof gallon. Mr. DAVIS. Four dollars? Mr. FRIEL. But in addition to that, that is the only tax you have in Canada, as there is no local tax, no State tax. Mr. Davis. That covers all taxes. Mr. FRIEL. That is right, and that British-proof gallon is 11/3 American gallons. Mr. Davis. What is the present import duty in the United States on whisky from Canada ? Mr. FRIEL. It is $2.50 per gallon. Mr. Davis. Did I understand you to say at this time your Canadian company was not exporting any liquor into the United States ? Mr. FRIEL. I didn't say that; we are not exporting very much into the United States. Mr. Davis. Immediately following repeal until you began to age your own whisky in the United States, I believe you said in reply to a question of Mr. Buck, you did export considerable into the United States immediately following repeal, in '33 on up until comparatively recently. Mr. FRIEL. We started using that whisky about 6 months after repeal. We did not get going until about 6 months after repeal. Mr. Davis. And then when did you cease exporting or importing into the United States any substantial quantities of Canadian whisky? Mr. FRIEL. Within the past few months. Mr. Davis. You are not even continuing the importation into the United States of very much Scotch-type whisky? Mr. FRIEL. We are not bringing any Scotch-type whisky into the United States. Mr. Davis. You are not? Mr. BUCK. Mr. Friel, I think from Judge Davis' question maybe we aren't quite clear. Do you pay any Canadian tax at all on whisky that you export to the United States from Canada ? Mr. FRIEL. I am not sure, but I believe there is a validation tax in Canada of 15 cents a United States proof gallon on whisky exported out of the country. Mr. BUCK. So that the ordinary export tax of $4 an imperial proof gallon isn't paid on whisky brought from Canada into the United States? Mr. FRIEL. No. Acting Chairman REECE. The committee appreciates your attendance. Dr. THORP. May I ask a question? OVERPRODUCTION OF WHISKY NOT REFLECTED IN PRICE TO CONSUMER Dr. THORP. How would you summarize the course of prices over the last few years to the consumer for whisky? Mr. FRIEL. Basic supply and demand. Dr. THORP. Have the prices been declining? Dr. THORP. As the prices have declined, is there any evidence that the lower prices have increased the volume of sales? Mr. FRIEL. I wouldn't say so. I don't think they have. Dr. THORP. Your feeling is that lower prices of whisky will not affect the total sale? Mr. FRIEL. I don't think it will. Dr. THORP. So that from the point of view of the industry lower prices will not be offset by increased sales, and therefore the lower prices represent a direct charge against profits. There is no gain, as most industries have, by an increased sale? Mr. FRIEL. I don't think there will be. You will have to wait until competition develops that point. Dr. THORP. What happens with regard to brands, in your opinion? If prices are lowered, do people move into higher priced brands, relatively speaking? In other words, do people say they are going to spend $1.50 for whisky, and if the prices fall, that permits them to move into a slightly better quality ? Mr. FRIEL. Å small percentage. I don't think there is any real effect on it. Dr. THORP. That is, you would then feel that consumers are sufficiently loyal to given brands that the price relationship among the brands has no appreciable effect on their choice? Mr. FRIEL. I don't think that so much as there is a development on the part of the consumer to shift around in a certain field. Dr. Î HORP. Well now, to shift that a little bit, how near capacity is the industry operating? Mr. FRIEL. I couldn't tell you that. Dr. THORP. Is it-I don't care for exact figures-operating close to capacity, or is it operating at 50-percent capacity, or what? Is there excess capacity in the industry? Perhaps we should put it that way. 2 Mr. BUCK. Charts show, Dr. Thorp, about 25 or a little better. Dr. THORP. Has that changed appreciably during this period of the last few years? Was it nearer capacity, Mr. Buck, several years ago? Mr. Buck. It was operating at two fifty-four with an approximate total capacity of four twenty-five 2 years ago. Dr. THORP. Has the capacity been increasing in the last several years? Mr. BUCK. No; the capacity has remained about fixed, a sloughing off of about 2,000,000 gallons. Dr. THORP. Mr. Friel, what do you see as to the future of the situation in which there is this large capacity in an industry in which the consumption cannot be increased by lower prices, as you say? Will the net result be that the industry will have to go through a period of reorganization in which a number of the present producers will have to be eliminated in order to get onto a stable basis? Mr. FRIEL. Oh, I don't know. I think, of course, like many other industries, it is practically a new industry and over the period of time until it becomes stabilized certainly there will be some casualties. Dr. THORP. It would be reasonable to assume, wouldn't it, that a new industry in which there was no control over capacity other than as to which individuals should operate, but no control over the amount of capacity, and an industry which had to build up large stocks, would necessarily develop a capacity in excess of that necessary for maintenance, once the stocks had been built up? Nr. FRIEL. Well, you are not going to get any further capacity certainly until some other people, investors, are attracted into the industry. Dr. THORP. And this existing capacity is going to be a continual pressure toward lowering prices? Mr. FRIEL. The public will decide that. Mr. Buck. Do you think you could finance additional capacity with the present capacity so far over and above necessity ? Mr. FRIEL. You might. You might have somebody come in and put up a plant with all new ideas. Mr. Buck. You have a great faith in the sucker market, Mr. Friel. Dr. THORP. Do you think this same principle with regard to purchasing applies in connection with the higher-priced brands?" In other words, I don't want to limit this just to the lower-price brands. That may have been what you had in mind in saying lower prices would not bring in more consumers, or wouldn't sell more liquor. Would the same thing be true for Scotch, for example? Mr. FRIEL. You mean lower prices on Scotch would develop more Scotch drinkers? I don't think so. Dr. THORP. You don't think so? Dr. THORP. You don't have a feeling that there are a lot of people who are drinking lower-price liquors who would shift into more aged liquors, more quality liquor, if the price of the quality liquor were lower ? Mr. FRIEL. Your cheaper liquors are becoming older, when you are talking about age, as you go along, so that you get the increase in age in both the low-priced liquors and high prices. Dr. THORP. So the difference between the cheaper liquor and the more expensive liquor is getting less and less in terms of quality ? Mr. Buck. What was the difference before? Dr. THORP. Yes; as the low-priced liquors are becoming older, doesn't that mean that the quality difference between the low-priced liquors and the high-priced liquors is getting less and less ? Mr. FRIEL. No; because there probably would be a tendency on the part of the high-priced liquor to extend the age on those liquors. Competition will develop that. Dr. THORP. But can you do much with quality except for some very highly educated and sophisticated consumers in convincing them that there is a difference between, let's say, 8-year-old whisky and 20-year-old whisky? a a |