Evening journal., 1917-02-16


in order to give brief history of your
company's entry into the manufacture
Of military explosives and its exper-
fence in that field.
up TO The close OF the year 1914.
your company had been engaged I'm
the manufacture of explosives of
many kinds for use i'm commercial
fields. Among its products were sew
eral well-lnown brands Of smokeless
powder for shotguns and rifles. Some
of these latter brands were very sim
liar TO military powders, especially
cordite, of the British service. but IN
10 the beginning OF the year 1915
your company had not manufactured
smokeless powder or other explosives
distinctly intended for military use.
Your company had i'm it's service
many specia lists experienced in the
manufacture and use Of explosives,
constituting an organization. which
had shown its ability to maintain the
products OF the Hercules Powder
Company equal or superior to the
products Of any competitor.
history of War Contracts.
Your company has also an estab-
lished credit of the highest grade.
and your directors believed that IL
could without interfering with its
commercial business, and without
lowering, i'm the slightest degree. the
quality Of its service, or its products
undertake the manufacture OF mill
tary explosives and so utilize the re-
serve strength of its organization and
credit in a profitable manner.
Your company, therefore. neroti-
ated contracts for the Gale OF cordite.
trinitrotoluol and other military ex-
plosives and secured advance paw
ments on some OF these contracts. by
means of which It was enabled. with
out calling for other financial assist
ance, to provide the necessary plant.
facilities. Advance payments were
OF course, only obtainable because Of
the company's excellent credit and its
reputation as a successful manufac-
turer Of explosives.
ION securing these contracts your
company occupied a position that was
not in any degree comparable with
the position OF the manufacturer
who, under normal conditions. con-
tracts for his output or "A part there
OF. Your company had undertaken to
produce in tremendous quantities
explosives which it had not therefore
actually manufactured. n was nee
essary TO contract with tho suppliers
of raw materials on "a basis oblicat-
ing your company definitely to accept.
and pay FOR materials which were to
be delivered over the expected life
or the contract for the sale of itsI
products. In the event OF your COM
pany's failure TO manufacture and
deliver i'm accordance with the terms
OF its contract, it was under obliga-I
ton TO return the advance payments
and, at the same time. to accept and
pay for a large quantity OF materials
for which Il would have no use and
OF which it could probably make no
profitable disposition in the event Of
its failure to manufacture and de-
liver its own products.
'In other words, your company and
it's credit constituted the assurance
to the suppliers of raw materials
that they would receive their expect
ed price, including profit, for their
deliveries and assurance to the buyer
OF the return of his advance pay
ments in the event of your company's
failure 10 manufacture and deliver
I'm accordance with its contract, while
your company, before It was in
position TO prove its ability 20 manu-
facture successfully must expend a
large portion of the advance pay
ments in the construction of plant
facilities that were OF value only in
the event OF a successful issue of the.
undertaking.
1T is customary to calculate the
returns on capital invested, but in
this case the returns should properly
be calculated on capital at risk as
we'll as on capital invested, and view
your company has obtained are quite
modest in comparison with the unus-
ual risks involved In bringing these
profits into being.
your company's officers have at
tempted to follow carefully a middle
course in these undertakings, seek
ing OF avoid the extension Of its bust
ness beyond the ability of its organ
ization, to handle it probably and at
the same time avoid through over
conservatism, neglecting opportuni-
ties for profit where the reserve or
ganization and the companys credit
could be utilized and the expectation
of profits justified the risk involved.
Protest Tax on Profits.
Probably influenced to large de-
gree by the transformation generally
prevailing regarding profits resulting
from the manufacture of munitions.
the United States Congress passed a
revenue act, made retroactive to jan
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