[D8736ADC], Letter from Samuel Insull to Thomas Alva Edison, August 3rd, 1887

Item

Abstract

"As I write you a few days ago our accounts up to the 1st. July were closed some two weeks ago, but owing to the extreme pressure of business I have been unable until the present moment to attempt to give you a resume of our business for the period embraced in our last closing, namely, from the 1st. October 1886 to the 30th. June 1887, a period covering nine months during which time our business has been moved from two shops, one in Brooklyn and the other in New York, and consolidated into one business here, and, notwithstanding which, we have been able to do more business in the same nine months than has ever been done before, and with a result which to you, as the practical owner of the concern, should in my opinion, be extremely gratifying. The business has been done under difficulties enough. We have not only had to contend with the moving, but when it is remembereed that a complete re-organization of our business has taken place, that we have had to work with a capital which is decidedly inadequate for the amount of business that we have had to handle (notwithstanding the generous support which you yourself have given us), I think both Mr. Kruesi and myself have every good reason to congratulate ourselves on what we have been able to accomplish. To me this seems a fitting opportunity to pay what is but a just tribute to Mr. Kruesi and his assistants in stating that the work in the shops has been handled in a manner which, might have been equalled, but which I doubt could have been excelled by any technical and mechanical coprs in the electrical business. ## In writing off the books, in estimating the profits, in taking a valuation of stock, our efforts have been directed towards doing the whole of this work on the most conservative basis possible. Not with a view to showing the greatest possible amount of profits possible, but with the idea of presenting to you the exact state of our business. Where there has been any doubt as to whether profit has been made, we have taken a more conservative course and shown none; where there has been any question as to the value of what we have in our shops to-day and not on what it cost us a year ago; where we have bought material at high prices, we have assumed it to be only worth what we can buy it for to-day; and where we have bought material at low prices, we are carrying such material in our books at what it cost us and not at what we would have to pay for it to-day. ## Our net sales have amounted for the nine months to $834,194.93 making an average of $92,688.33 per month. ## Our net profits amount to $167,416.63, making an average profit of $18,601.85 per month or 2 4-10% per month on the Capital Stock of the Company. This profit is made up in the following manner ## [table listing profits and losses for the following categories: Dynamos and Tubes, Sprague Motors, Condensers, Pulleys & Shafting, Sundry Shop Orders, Wire Insulating Department, Brass Foundry, moving costs] ## I may here explain that it was our original intention to write off our moving expenses over an extended period, but inasmuch as we have done an extraordinary amount of business during the last nine months, and inasmuch as it is problematical as to whether this same amount of business will continue in the future, I have though it the more conservative course to write off the total moving expenses to the period that they more particularly belong. ## Our Suspense Account is made up of the lossess we made through Mr. Stewart in South America, and the losses we made on the Standard Rock Drill Co. contract, and also to some other small items. These losses we have been in the habit of writing off since the 1st. January, 1886, in instalments, but knowing your objection to carrying as an Asset anything about which there is any uncertainty, I have preferred to write off this whole amount so as to relieve me from any criticism in this connection. The only further offset against this Net Profit of $133,381.62 is $3,228.26, which is to be credited to Mr. Liver as his share of the Shafting Department's profits, and $4,661.42 to be credited to Messrs. Phillips and Kruesi under the contract with relation to the profits of the Wire Insulating Department; these two amounts together making $7,889.68, leaving $127,491.94 as the final balance to Profit & Losses Account, after deducting every possible charge. ## in writing this letter I am trying to show you the least possible profit. The amount last stated is the lowest that it is possible for me to mention, after deducting everything possible, whether being chargeable against profits of the period with which I am dealilng or belonging to the business transacted prior to the 1st. October, 1886. ## I have stated all I think that is necessary with relation to current business. If you desire any further details I can give them to you. I will now proceed to deal with our Assets and our Liabilities, taking the former first. I would remind you that it has always been our rule to write off a certain amount each year to Depreciation. By ou contract with the Light Co. we are allowed 5% of our actual labor and material. This has amount for the last four months to, about $40,000., which has been distributed over such accounts as Machinery & Tools, Patterns, and other sundry accounts. We have not written off anything for depreciation on our buildings. Our purchase of them is so recent, our additions to them still more recent, and their condition so good, that I have thought it advisable to carry this account (under the head of Real Estate & New Buildings) at the amount which it has cost us, and I do not purpose, unless you otherwise instruct me, to write off any of the Depreciation which we are allowed against this account for at least a year to come. With this explanation I might stat that I consider our Assets perfectly good. We carry the amounts paid on our subscriptions to The Edison United Manfg. Co. at par; that is , at exactly what we have paid. On the other hand we carry 100 shares of Edison Light stock at at least $7,000. less than it is really worth. The Assets and Liabilities in detail are as follows: ## ASSETS. [list includes: Accounts Receivable, Raw and Manufactured Material, Cash, Machinery and Tools, Furniture and Fixtures, Patterns, Real Estate and New Buildings, Horses and Trucks, Edison Electric Light Co. Stock, Edison United Manfg. Co. Stock, Sundry Assets] ## LIABILITIES. [list includes: Thomas A. Edison, Loans, Notes held by Charles Batchelor (About), Edison Electric Light Co. of London, Advances, Open Accounts, Notes] ## These figures are within a few thousand dollars the same as those I presented to you three months ago and about which you expressed such extremem dissatisfaction. Figures of this kind in bulk always look formidable, but are hardly so bad when examined in detail. I must take you a little way back in order to explain them. The Capital of the Machine Works a year ago was really ample for its requirements, and what were its requirements then?. We were doing a business of very little over a half million dollars per annum. Our plant was ample for such a business. Our liabilities altough heavy were not excessive. We moved here into two buildings which were practically only shells Our business suddenly jumped up to about three times its former dimensions; our plant had to be increased; more buildings had to be built; more material kept on stock; and a larger amount carried in Accounts Receivable. Under these circumstances, (for the purpose of examiing into our ability to pay our debts), I feel justified in simply dealing with what we owe to outside parties. That is, to the people from whom we buy materials. Our Open Accounts and Notes (the latter extending over a period of four months) amount to $397,545.84. What have we got to meet these? Our Accounts Receivable, Raw and Manufactured material and Cash, amounting to $659,702.79 Deduct from this sum the amount wich we have to pay to liquidate our Open Accounts and our Notes ($397,545.84), we find ourselves with a balance of $262,156.95 with which to pay off the amounts we ower you, the notes held by Mr. Batchelor, the advances from the Light Co., and the advances from the London Co., (this I may mention can only be paid off by completed machines as per contract). These four items amount to $199,676.99. and, if liquidated, would still leave a balance of upwards of $60,000. in either Accounts Receivable, Raw and Manufactured material or Cash. Of course I have not allowed for the payroll, and general shop expenses necessary to put such portions of manufactured material into finished condition, but these items would simply add to the value of our raw and Manufactured material. Furthermore, we do not carry our Raw and Manufactured material in our books at selling prices ---------, so that after adding the cost of finishing you must add the amount of profit and the balance would be considerably greater than the $60,000. above stated. I draw your attention to these figures to show you that, (assuming that we shall have any kind of a business), we have a perfect right to feel that we can meet our liabilities, but do it, certainly not with ease, but with the exercise of necessary forethought and care. So far as my financing is concerned, I look upon the money we have received from you as a portion of Capital Account. If I looked upon it as a regular liability, the total to be met in a stipulated time in the same manner that we have to meet our notes and Open Accounts, I would consider our finances in a very dangerous condition, but looking at it as forming a portion of the money invested for the carrying on of our business, I cannot view our financial position in this light. I do not like liabilities any more than you do, but the owners of a concern must invest more money, if they want to accept the business, or else they must borrow money on which to conduct it. ## To pass to another matter which involves the question of liabilities, I might state that our plant, that is, our machinery and tools, fixtures and furniture, patterns, &c., mounted on October 1st. 1886 to the sum of $261,152.91. On the 1st. July our plant amounted to $343,520.33, showing an increase in the nine months of $82,366.42 The natural question you will ask is, could we have got on with a less increase?. I claim not. If you will walk through our shops you will find all our tools occuppied. Our money has been spent in necessary increases in our plant. The justification of the increase is the profit we have made. ## On the 1st. October we had $89,727.21 invested in real estate and buildings. On the 1st. July we had $161,495.57, showing an increase of $71,768.36 Could this have been lessened?. Could we have managed with any less buildings than we have to-day?. We certainly need everything we have. Shops No.1 No.2 and No.3 and our two store rooms are overcrowded. The new shop that we have built for the Tube Dept. is absolutely necessary to enable us to deal with the amount of underground business that we have on hand and in prospect. The material we have bought for our foundry is decidedly necessary, as running such an establishment as we do without our own foundry, is almost like trying to run a steam engine without steam. ## These two accounts which are purely investment accounts (that is, plant and property) show an increase in the nine months of $154,143.78 ## To go back to the matter of stock on hand, to our accounts on the 1st. October, our raw and manufactured material and bills due to us amounted to $327,510.88, of which amount $96,789.69 was represented by money due to us. On the 1st. July these two accounts showed an amount of $649,539.29, showing an increase in nine months of $322,028.41. Could we have got on with a less increase?. This increase is accounted for by the fact that in the case of money due to us the amount due on the 1st. July amounted to $179,820.01, being $83,030.32 more than was due us on the 1st. October. The increase in material (raw and manufactured) on hand between the 1st. October and the 1st. July $238,998.09 I certainly could not have collected up any closer the accounts due to us. As a proof of this I have but to refer you to our customers and to my general reputation for collecting up accounts closely. With relation to the increase in material, I feel that this is the only item in the whole letter which is open to any criticism. I think it is possible that we might have got along with $50,000. less in our raw and manufacturing material account. That is, this was my opinion a month ago. The large amount of work that has come in in the Tube Dept., necessitating a very great deal of work in the Machine Shop, the orders that have come in since our books were closed for dynamos, the prospect of having to turn our Machine Shop on to entirely new dynamo work, (about 36 machines of the new type), somewhat shake my opinion. If we had had less material we certainly could not have manufactured so cheaply, as we would have been constantly waiting for the raw material to put into the hands of our men. What we have got is perfectly good and is either paid or for included in the liabilities set forth above and is therefore available to help meet our indebtedness. ## I do not know that I can add anything more to what I have stated above, nothing at the moment occurs to me. I would esteem it a favor, however, if you will give me your candid criticism on the state of our business. I have written this letter with a view to laying before you clearly exactly how things appear to me without giving you the cumbersome details of account, which you have so often objected to. I hope I have succeeded in the task I have set myself." Marginalia by Insull: "In the increases in investments I have omitted to draw attention specially to the fact that between 1st October & 1st July we have paid $12500 to the Edison United Mfg Co on a/c of over subscription to their Capital Stock"

Date

1887-08-03

Decade

1880-1889

Type

Identifier

D8736ADC

Folder Set

D8736

Title

[D8736ADC], Letter from Samuel Insull to Thomas Alva Edison, August 3rd, 1887

Microfilm ID

119:1120

Publisher

Thomas A. Edison Papers, School of Arts and Sciences, Rutgers University