Mr. Buck. According to your report you spend approximately on an average of one million and a half a year in advertising. X Mr. WALTON. That is correct. Mr. Buck. That is done principally in the promotion of particular brands? Mr. WALTON. True. Acting Chairman REECE. If there are no questions, the committee will stand adjourned until 2:30. Mr. BUCK. Two o'clock. Acting Chairman REECE. Since we had run over this far we thought that might possibly push some of the committee members to get back, but I would consult your convenience. I had consulted with the chairman in regard to it before making the announcement, but if you feel that is going to limit you too much, Mr. Buck, suppose we say 2:15. (Whereupon, at 12:33 p. m., the committee recessed until 2:15 of the same day.) AFTERNOON SESSION The hearing was resumed at 2:30 p. m. upon the expiration of the recess. Acting Chairman REECE. The committee will come to order, please. Are you ready to proceed, Mr. Buck? Mr. BUCK. Yes, sir. INCREASED ASSETS OF FOUR LARGEST DISTRIBUTORS Mr. BUCK. Mr. Chairman, in the way of closing this inquiry into the financial evolution of the four corporations, I would like to submit a chart which is a consolidated financial chart for the four corporations, from 1934 to 1938, keeping in mind that repeal occurred at the end of 1933. The chart is taken from the annual reports of the corporations themselves and made up and arranged by an accountant of the Federal Trade Commission. It shows, of course, total assets beginning with 117 million in 1934, running up to 287 million in 1938. The net sales of the corporations and the progressive increase in those sales year after year in the industry in the United States is of some interest, I think; beginning in 1934, which was a clear year so far as Federal laws are concerned for the sale of whisky, with approximately 90 million net sales, running up to $282,884,000, and so on, for 1938. I should like to ask that the chart be filed in the record as an exhibit. Acting Chairman REECE. It may be included in the printed record. (The chart was marked "Exhibit No. 417" and is included in the appendix on p. 2697.) Mr. BUCK. Of course, the net profits shown, and other statistical data, are on the chart, and the committee will take that into consideration in the use of it. That is all of the chart. Now, Mr. Chairman, before getting further into the matter I have two witnesses, or I will say one owner of a very small distillery, 124491--39-pt. 6-9 comparatively speaking, whom I would just like to have state the cost of producing whisky, to get the data from a small distillery as distinguished from the larger distilleries that we have already heard, and I would like to ask Mr. A. Smith Bowman, of Virginia, if he is present, to come up to the stand. Acting Chairman REECE. Do you solemnly swear, in these proceedings, to tell the truth, the whole truth, and nothing but the truth, so help you God? Mr. BOWMAN. I do. TESTIMONY OF A. SMITH BOWMAN, SR., PRESIDENT, A. SMITH BOWMAN DISTILLERY, SUNSET HILLS, FAIRFAX COUNTY, VA. Mr. BÜCK. Mr. Bowman, how are you? Will you state your name and address? Mr. BoWMAN. A. Smith Bowman, Sunset Hills, Va. Mr. Buck. You have a small distillery in Fairfax County, Va.? Mr. BowMAN. Yes, sir. Mr. Buck. How long have you been engaged in the making of whisky? Mr. BOWMAN. Since July 1935. Mr. BUCK. Since 1935. Now, could you give the committee your cost, I would say, of producing a gallon of whisky at the distillery? Acting Chairman REECE. Will you ask the witness to sit a little closer to the microphone? Mr. BowMAN. What was your question! COST TO SMALL DISTILLER OF PRODUCING “QUALITY” WHISKY Mr. BUCK. Would you give me your cost of producing whisky at your distillery per gallon at the distillery? Mr. Bowman. Well, of course, that depends altogether upon the kind of whisky. Now I can take my distillery down there—as you know I am just a little distillery, just part and parcel of my farm, and I operate the farm and the distillery together, working the labor back and forth each way, and numerous byproducts, I feed my cattle, so that I can make it very cheap if I want to, but I don't make that kind of whisky. I am making the very highest grade whisky that I know how to make. In fact, my instructions to my distiller are to obey every law. When it comes to the cost of the whisky, I don't figure on that so much as I do the quality. Mr. Buck. I will ask you, do you know? Mr. BoWMAN. I couldn't tell you, if you ask that question, I couldn't tell you just as to the penny right here, but my office would be able to get you that information. But the kind of whisky that I am making would run at the present prices are you figuring it as to barrels or from the stills? Mr. Buck. Flat from the distillery, as it comes off the stills. Mr. Buck. Heavy-bodied bourbon. That is made from 51-percent corn? Mr. Bow'MAN. No; it is more corn. It is about 65-percent corn. Mr. Davis. Eight hours; and you, generally speaking, run 8 hours a day! Mr. BOWMAN. Yes. Mr. Davis. Do you ever run longer than that, Mr. Bowman? Mr. Bowman. No; never have. Mr. Davis. If you ran two or three shifts, would the cost of your whisky be reduced ? Mr. BOWMAN. Oh, yes; I think it would. In fact, of course, as I said in the beginning, the cost of my whisky—if I wanted to make that kind of whisky I could reduce the cost of it very materially, but I am not trying to make cheap whisky. Mr. Davis. You specialize on a high-grade whisky? Mr. Bowman. My position is this: That I just have a small plant, just make one thing, and if I don't make that the best, why I am lost. I have to make it the best, and I am trying to do that; and if I ever find out that I am not making it the best, why I have to change my plans and make it the best or get out of business. Mr. Davis. Where did you say your distillery is located ? Mr. Davis. Thank you. Now, this 42 cents average you speak of for your highest grade whisky; is that the price as it comes before it is barreled? Mr. BOWMAN. Well, I think his question was just as it comes from the still without the barrels. Of course, if you add the barrels, they are a very large part of the cost. Mr. PATTERSON. I should like to ask the witness this question: If you add executive and factory burden to that 42 cents, approximately what would be your cost? Mr. BOWMAN. I didn't understand the question. Mr. PATTERSON. If you add on to your 42 cents executive burden and factory burden Mr. BoWMAN (interposing). Oh, well, that would add largely to it. Of course, I can make whisky cheaper because it is a family proposition. I operate it in connection with my farms. One of the rules out there is if a man is in the distillery and they need him on the farm, he has to go there; and if I need him in the distillery or need him in the dairy, he must go. So my distillery is run in connection with my farm. My farm is my main business; my distillery is just a side issue, just making a small amount of good whisky. That is all I am trying to do. I am not trying to get up into the high ranks. Mr. PATTERSON. More power to you. What is your average number of employees, the average daily census of employees? Mr. BowMAN. Well, I imagine on all of my various enterprises out there it runs about 100. Mr. PATTERSON. Just on your distillery? my farm. Mr. BowMAN. Well, the distillery-about 20 in the bottling plant and about 15 to 18 in the other plant, in the distillery proper. Mr. PATTERSON. That is around 35 or 40 working 51/2 days a week, 8 hours ? Mr. Bowman. Well, of course, a great many of those, when I don't have any work in the distillery for them, I work them on the farm. Mr. PATTERSON. Are you satisfied with the financial results of your work to such an extent that you might shift the major burden over to your distillery? By that I mean, are you ready to forget the farm and stick by this distillery if you had to take a choice? Mr. Bowman. No; my farm is my principal business. My farm has always paid me money except for one drought here in 1931 or 1932, when I think I lost a little money on it; my farm was a good investment to me last year; it is a good investment every year. Of course, I built my distillery; I wanted to make money out of it, but I built it largely to give employment to labor on the farm. I have a farm out there on which the labor is pretty steady; they don't change around; they raise a nice crop of children out there every year and have got a fine place to put them, and all this happened to work into Mr. PATTERSON. I didn't mean to lead into that, Mr. Chairman, but I would like an invitation to go down there sometime. Mr. BowMAN. I'd be delighted to have you any time and show you a good farm, whether I can show you a good distillery or not. Acting Chairman REECE. The Secretary of Agriculture has advised with you about the successful operation of your farm, hasn't he? Mr. BowMAN. No, no. Mr. Davis. Mr. Bowman, what percentage of the grain that you distill into whisky do you grow on your farm? Mr. Bowman. I am increasing that all the time. I suppose I had about 6 or 7 hundred acres in last year, and I will probably have double that amount in this year and probably twice that next year. I am increasing the number of acres I raise in grain; of course, keeping as much livestock as I do, I have to keep a lot of grass and things like that. Mr. Davis. Still, you buy most of your grain requirements for your distillery, do you not? Mr. BowMAN. Well, yes; most of it I buy from the surrounding farmers, a great deal of it; some some other places. Mr. Davis. How many dairy cows have you? Mr. Davis. Of course, you use a good deal of what you raise on the farm for your dairy. Mr. BowMAN. Yes. Mr. Bowman. Oh, I sell it everywhere. I have quite a trade in New York and in Washington, in Maryland, and the State of Virginia, for instance, takes a lot of it, West Virginia, Alabama, wherever you can, of course. Mr. O'CONNELL. Do you sell it to retail stores ? Mr. Bowman. No; we don't sell it to retail stores. We sell it to jobbers. Mr. BUCK. How much do your sales amount to in a year? Mr. Bowman. Well, we just began selling, we just put it on the market a little over a year ago. I think our sales ran about $160,000 or $175,000 this last year, and are increasing very rapidly. Mr. BUCK. One hundred sixty thousand? Representative WILLIAMS. Do you run your still constantly in operation all the time? Mr. BoWMAN. Yes, I have; since I started I have never closed down except once, I think, when I didn't get a warehouse completed quite in time to get my whisky. Representative WILLIAMS. What capacity still is it? Mr. Bowman. It is about 1,250 to 1,300 gallons in 8 hours, 8-hour shifts. Representative WILLIAMS. What percentage of the capacity do you operate? Mr. Bowman. I operate full capacity most of the time. I am operating at half capacity and have been for a month or two because I have got a warehouse there that I have not quite completed and I am afraid if I go on full capacity I may not get the warehouse completed in time to finish it. Representative WILLIAMS. If you operated 24 hours a day your capacity would be three times as great as it is now? Mr. BowMAN. Yes. Representative WILLIAMS. You gave the capacity for 8 hours? Mr. BowMAN. Yes. Representative WILLIAMS. That would necessarily reduce the cost of production, wouldn't it, if that were done? Mr. BOWMAN. Oh, yes; yes, I think it would, although I expect if a man just wanted cheap whisky, I expect I could make it cheaper than anybody; in fact, when I first started, before I had any brand of my own to hurt, some people wanted 300,000 gallons of cheap whisky, and in the case of that amount of whisky I was in competition with every distiller in the country, I imagine, and I got the order because I could make a better whisky at less money. Representative WILLIAMS. Do you have any bottled in bond? Mr. BOWMAN. That varies, of course. It depends upon the corn and the amount of moisture in the corn and all those things. Mr. DAVIS. I meant on a yearly average. Mr. BowMAN. Well, it will run about 4.90 to 4.92; occasionally it will run up over that, but I can get a much larger yield than I do. But as I say, if I do that, I do it at the expense of my quality, and I can't afford to do that. Í have just got one thing and that is quality whisky and if I don't get the quality there I'm gone. Mr. BUCK. What goes to make quality ? Mr. Bowman. Well, a lot of things; the way it is handled, the temperature to which it is cooked, in which the mash is cooked; there is a great deal in the yeast that it is made from, there is a |