[D8835AAP], Report from Edison Machine Works, Samuel Insull to Thomas Alva Edison, January 26th, 1888

Item

Abstract

"I had hoped to have been able to addres you on the subject of our business for the six months ending the 31st. December at a much earlier date than this, but I have been delayed in finally closing my books, owing to the vastly increased business which it was our good fortune to handle during the period in question. You will doubtless remember that our business for the nine months ending July 1st. Amounted to $834,194.93, or an average of $92,688.32 per month. Our sales for the last six months have amounted to $1,110,732.99, or $185,122.16 per month. The character ofhte business during the last six months has not been of so profitable a nature as during the nine months previous. From the 1st. Ocrober, 1886, to the 1st. July, 1887, our sales of dynamos were very much greater in proportion to our sales of tubes than was the case during the period extending from July 1st., 1887 to January 1st., 1888. AS you well know our margin of profit on dynamo machines is vastly greater than our margin of profit on underground conductors. To make a large aggregate profit on the latter business means that we must have a very large trade indeed, whereas in the case of dynamos a comparatively small trade will show up extremely good profits, providing we are albe to keep our fixed charges at a point not exceeding twenty-five (25%) per cent. ### Of course our general expenses do not increase in anythign like the same proportion that our work has increased in the last six months. Remembering this, it has been my policy during the period in question to charge everythign I possible could to expense account. Whenever there was a question as to whether an item was an expense or an investment, that item had tbeen charged against Genearl Expense. For instance, the total cost of filling inour property here, so as to proect us against floods, has been charged to General Expense, whereas I might very properly have assumed that the filling in of the property would enhance its value, and therfore that the cost of filling in should be charged against our real estate as an investment. ### When I started to close my books I found that my average Genearl Expense had been very low, and I at once made up my mind to write off against the business done during the last six months a number of accounts which have been carried on our books as Assets, and which to my mind are worthless. These accounts were for experimental work or else represented property which had become valueless, owing to improvements made in our dynamos. The largest account represents our experiments on arc light, arc light machines and municipal machines, and amounts to $10,648.82. In addition to this, we had standing on our books dynamos of an obsolete character, which were valued in our accounts at $8,449.44 whereas there actual value to us as scrap is only $2,385.00 leaving an amount of 6,064.44 carried as an Asset and which was worthless. Another account was the balance on Standardizing our present form of machines, which amounted to 4, 957.24. There were in addition a number of small accounts, representing experimental work on Transformers, on our present #28 machine and on other matters connected with dynamo work, amounting to 5, 082.57. The total of these accounts, outside of the municipal and arc light experimental accounts, amounts to $16,104.25. This amount I transferred to Experimental Account and wrote it off as part of the cost of our dynamos during the last six months. The amount of the municipal and arc light experimental account, namely, $10, 648. 82, I carried directly to General Expense Account, it being my opinion that the total business could better stand such a heavy charge than the dynamos by themselves. The sum total of these various items is $26, 753.07, and of course they do not bear any actual relation to the cost of the work of the last six months. They have been taken off the profits of the work of the last six months, and you should therefore remember later on in this letter that the profits are really increased by this amount. In addition to this there is the item of filling ($6,000) which could very reasonably have been reckoned as an investment, but which, in pursuance of my gneral conservative figuring, I reckoned as a General Expense. If you add this item to the one just previously mentioned, it makes a sum total of $32,753.07, which has been written off as part of the cost of our work, but which really forms part of our actual profit during the period that we are discussing. You may possibly ask me why I did not write off these various accounts (or certainly everything with the exception of the filling which has been done in the last six months) at the time I last closed my books. My answer to this is, that the General Expenses of this business for the nine months ending the 1st. July amounted to a percentage which was as high as our General Expense should amount to, considering the volume of business we were handling. Furthermore, I deducted at my closing on July 1st. Items which were carried as an Asset, but which I considered valueless, amounting to $32, 035.01. ### I might here mention that so far as I can judge from the present state of my accounts there is nothing more to be written off which is now valueless. In addition to this extraordinary writing off, I have of course taken advantage of our contract with the Edison Electric Light Co., and have written off a depreciation of five (5%) per cent on the amount of the labor and material of the last six months. This depreciation, as you are well aware is added to the cost of our work, as by our contract with the Light Co. we have the right to consider this as much a part of the cost as the labor or the material, or the general expense. The amount of the depreciation written off is $34,515.87. It is charged as I have said against the cost of current work, and it is credited against our various investment accounts, mainly our Machinery & Tools Account and our Real Estate & Buildings. On the former we wrote off $16, 634.22 and on the latter $10,000. The balance between these two items and the total depreciation is spread over our Pattern Account, Furniture & Fixtures, and other small investment accounts. You will therefore please remember, when later on I am referring to the increase in our investment, that the actual money spent for investment accounts is $34, 515.87 more than the figures I may mention. ### I have dwelt thus at length on the question of depreciation and worthless accounts written off because to my mind the value of my figures showing you alike our profits and our present assets depend entirely on the liberality with which we treat such matters. Either by taking advantage of our contract, so far as deprciation is concerned, or of our judgment as to the value of our property, I have written off a total of $67, 268.94, and have placed this amount as a tax on the cost of our business for the last six months. ### Before proceeding with the question of the profits we have made within the last six months, I would like to mention that in valuing our stock in the shop we have been extremely careful to value it at conservative prices. This has been our tendency more and more for the last year. On the 1st. July, 1887, our stock was figured on a lower basis than on October 1st. 1886, and on the 1st. January, 1888, we figured even at a still lower basis than on the 1st. July, 1887. In short, our object has been to show small profits rather than large profits while valuing our property at what we thinkit is worth. Wherever there has been a doubt, we have taken it at a low figure rather than at a high figure. If the market has gone up, we value at what it cost us; if it has gone down, we value at what we now have to pay for it. ### Our net profits for the six months have amounte-ed to $177,986.31, made up as follows: [Itemized list of profits, Assests and liabilities follows]### From this you will see that since the organization of the present Company, namely, the 1st, January, 1886, this concern has caused [unclear] show up dollar for dollar, not only the actual amount of its Capital, but $14, 977.76 in addition. In other words, I am in the position to-day to write off the account which stands on our books under the title of 'Good Will & Patents' and which represents nothing more than water. It has taken two years only to get rid of this amount, and this is indisputuable evidence that this concern has made since it was organized an average of twenty-five (25%) per cen per annum on the amount of its Capital. ### While talking on this subject, I would like to recapitulate a few figures. I have told you before that our depreciation for this six months amounts to $34, 515.87. For the previous nine months it amounted to 40,428.10 For the previous nine months we wrote off 17, 189.49 Making a grand total of $92133.46 written off as depreciation during the last two years. ### This amount has been absolutely wiped off our investment account and charged as part of the cost of our product. I doubt whether there can be shown any concern having property of the value of ours that has written off quarter as much as this in the same period. When I say therefore that we have here dollar for dollar that we can show for our Capital Stock, I am making a statement which is very much within the mark. ### When writing to you last on the subject of our immediate financial position, I treated the money you had loaned us as if it were capital. Experience has proved that I cannot treat your loans in any such manner, as from our books I find that whereas we owed you $149,343.66 on the 1st. July last, on the 1st. January this year reduced this to 94,457.44 having in the meantime paid you $54,886.22. ### I am therefore compelled, although I must say that such was not the original intention, to look upon your claim as one to be discharged at the earliest possible moment. ### Our liabilities of every kind at this date amount to $581, 270.23. This amount includes not only the money we owe you, but also the money we owe the London Co., and our accounts and notes payable, the details of which you will find above. Our immediately and available Assets to meet these Liabilities are composed of our cash in hand, our bills receivable and accounts receivable, and the total of these Liabilities are composed of our cash in hand, our bills receivable and accounts receivable, and the total of these is $325,730.28, showing an excess of Liabilities over Assets of $255,539.95. To liquidate this balance of Liabilities over immediately available Assets, we have of course to look to goods which are in course of manufacture in the shop, as represented by our raw and manufactured material account. ### Going back to July 1st., I find that our Liabilities amounted to at that time $595, 650.05. Our immediately available Assets at that time amounted to $189,983.51. Leaving a balance of Liabilities over immediately available Assets of 405,666.54. If you deduct from this amount this balance of Liabilities over available Assets of January 1st., namely 255,539.95 you will find that the difference is 150,126.69 and this sum represents the improvement in our position, within six months, so far as our Liabilities as compared with our immediately available Assets are concerned. ### Our finances have been comparatively easy during the last six months and they still remain so up to the time that I am writing this letter. I look forward, however, to having considerable difficulty to meet my liabilities within the next few months, unless business takes and immediate turn for the better. Of course it is but natural to expect that our business will be very dull during the whole month of January. To enable us to turn out the amount of work which will result in our maintaining an easy financial position, we are dependent upon our Wire Insulating Department, our Shafting and Pulley Department and upon the sales of the United Co. Of the Wire I have no fear. I can get all the wire covering business that I desire, and, judging from the results of the last six months, at an extremely good profit. The Shafting and Pulley Department business is quite dull at the moment, but we have in view several large contracts for work which are sure to come in within the next few weeks and which are liable to come in at any moment, and these contracts alone would keep that department running for several months. The business of the Edison United Co. has been very dull during the last few weeks. I am inclined to think that it is owing to the fact that all business drags right after Christmas, rather than to a permanent dimunition in our orders from them. This, however, is a matter of mere speculation, and a subject on which you are as well able to judge as I am. I have no fear but what the whole year's business will show up very well. I think I can see in view enough work so that our Tube Department will start running as soon as the frost is out of the ground. In addition to the Departments which we have looked to in the past to provide us with business, I think in future we can look to our Iron Foundry as an important feature in our affairs. From the inquiries so far made by Mr. Livor it is quite apparent that we can get an extensive pulley casting trade at what will be a very good profit, when we remember how rapidly we can turn our money over in an iron foundry. In addition to this, we are figuring on other branches of iron foundry work, and shall doubtless build up a permanent outside trade, besides providing ourselves with our own castings, which of itself will save us a very great deal of money. ### To return to the matter of our Assets, I give you below a list of the increase that has taken place in our investment accounts since July 1st. ### [List of investments and amounts follows] ### [List of Liabilties and amounts] ### From this you will see that since the organization of the present Company, namely, the 1st, January, 1886, this concern has earned enough to show up dollar for dollar, not only the actual amount of its Capital, but $14,977.76 in addition. In other words, I am in the position to-day to write off the account which statnds on our books under the title of "Good Will & Patents", and which represents nothing more than water. It has taken two years only to get rid of this amount, and this is indisputable evidence that this concern has made since it was organized an average of twenty-five (25%) per cent per annum on the amount of its Capital. ### While talking on this subject, I would like to recapitulate a few figures. I have told uyou before that our depreciation for this six months amounts to $34,515.87 ### For the previous nine months it amounted to 40,428.10 ### For the previous nine months we wrote off 17,189.49 ### Making a grand total of $92,133.46 written off as depreciation during the last two years. ### This amount has been absolutely wiped of our investment account and charged as part of the cost of our product. I doubt whether there can be shown any concern having property of the value of ours that has written off quarter as much as this in the same period. When I say therefore that we have here dollar for dollar that we can show for our Capital Stock, I am making a statement which is very much within the mark. ### When writing to you last on the subject of our immediate financial position, I treated the money you had loaned us as if it were capital. Experience has proved that I cannot treat your loans in any such manner, as from our books I find that whereas we owed you $149,343.66 on the 1st. July last, on the 1st. January this year we have reduced this to 94,457.44 having in the meantime paid you $54,886.22 ### I am therefore compelled, although I must say that such was not the original intention, to look upon your claim as one to be discharged at the earliest possible moment. ### Our Liabilities of every kind at this date amount to $581,270.23 This amount includes not only the money we owe you, but also the money we owe the London Co., the Light Co., and our accounts and notes payable, the details of which you will find above. Our immediately and available Assets to meet these Liabilities are composed o
our cash in hand, our bills receivable and accounts receivable, and the total of these is $325,730.28, showing an excess of Liabilities over Assets of $255,539.95 To liquidiate this balance of Liabilities over immediately available Assets, we have of course to look to goods which are in course of manufacture in the shop, as represented by our raw and manufactured material account. ### Going back to July 1st., I find that our Liabilities amounted to at that time $595,650.05 Oour immediately available Assets at that time amounted to 189,983.51 Leaving a a balance of Liabilities over immediately available Assets of 405,666.54 If you deduct from this amount the balance of Liabilites over available Assets of January 1st., namely 255,539.95 you will find that the difference is 150,126.59 and this sum represents the improvement in our position within six months, so far as our Liabilities as compared with our immediately available Assets are concerned. ### Our finances have been comparatively easy during the last six months and they still remain so up to the time that I am writing this letter. I look forward, however, to having considerable difficulty to meet my liabilities within the next few months, unless business takes an immediate turn for the better. Of course it is but natural to expect that our business will be very dul during the whole month of January. To enable us to turn out the amount of work which will result in our maintaining an easy financial position, we are dependent upon our Wire Insulating Department, our Shafting and Pulley Department and upon the sales of the United Co. Of the Wire Department I have no fear. I can get all the wire covering business that I desire, and, judging from the results of the last six months, at an extremely good profit. The Shafting and Pulley Departmnt business is quite dull at the moment, but we have in view several large contracts for work which are sure to come in within the next few weeks and which are liable to come in at any moment, and these contracts alone would keep that Department running for several months. The business of the Edison United Co. has been very dull during the last few weeks. I am inclued to think that it is owing to the fact that all business drags right after Christmas, rather than to a permanent diminition in our orders from then. This, however, is a matter of mere speculation, and a subject on which you are as well able to judge as I am. I have no fear but what the whole year's business will show up very well. I think I can see in view enough work so that our Tube Department will start running as soon as the frost is out of the ground. In addition to the Departments which we have looked to in the past to provide us with business, I think in fugure we can look to our iron Foundry as an important feature in our affairs. From the inquiries so far made by Mr. Livor it is quite apparent that we can get an extensive pulley casting trade at what will be a very good profit, when we remember how rapidly we can turn our money over in an iron foundry. In addition to this, we are figuring on other branches of iron foundry work, and shall doubtless build up a permanent outside trade, besides providing ourselves with our own castings, which of itself will save us a very great deal of money. ### To return to the matter of our Assets, I give you below a list of the increase htat has taken place in our investment accounts, since July 1st. ### [List of accounts and amounts follows] ### The increase in the Machinery & Tools represents the equipment of our Foundry, the doubling of our capacity in our Wire Insulating Deparmtent, and the main part of the equipment of our new Tube Shop. ### The increase in Real Estate & Buildings represents the finishing up of our new Tube Shop and the building of or Iron Foundry. ### The increase of $12,00, to the Capital Stock of the United Co. represents assessments made within the last six months. I think I am justified in carrying the amounts paid to the United Co., namely, $29,500., at par, inasmuch as I carry 100 shares of Edison Electric Light Stock on my books at upwards of $12,000. lower than its value. I look upon one item as offsetting the other. Moreover, the position of the United Co. is, I think, gradually improving, and I have reason to believe that if the improvement continues our investment in the Company will eventually be worth the amount we have paid for it. ### If you will compare our raw and manufactured material at January 1st, 1888 and July 1st, 1887, you will find tha tit is now $67,741.56 lower than it was at the time of our previous closing. I hope to continue to reduce the amount of this account. Doing so will reesult in our reducing our Liabilities without encroaching to any large extent on profits which we may obtain from current work. ### The only other matter which I desire to draw your attention to is that of the Porter engine. Mr. Porter has now been working on his engine upwards of a year, and up to this writing no test has been made which would justify us in thinking that he will produce a successful engine. This matter is one of very serious consequences to us. We have spent up to this date $13,622.30, an amount of money suficient at least to have started us in the manufacture of engines if we had decided to adopt some existing form of high speed engine. This sum is carried on our books in our raw and manufactured material account as an Asset. If Mr. Porter's engine proves a success, it will be an extremely good Asset and will earn a large return on the investment made. If Mr. Porter's engine proves a failure, which I very much fear, it will be a dead loss to us. I have of course no real basis on which to form the opinion tha tMr. Porter's experiemnts will not prove a success. With me it is simply a matter of prejudice, resulting form the slow progress, (or one might almost say, want of progress) made in connection with this matter in a year, notwithstanding the large amount of money which has been expended. I would particularly urge you to look into this matter, and must ask your absolute instructions as to what I am to do in relation to it in the future. While I never shirk responsibility, I must confess that in this case I prefer to be entirely relieved of it. If we are going to allow Mr. Porter to continue his experiments, those experiments must be finished up rapidly, as there is no doubt but that we must build engines. If we had but a small engine trade to-day, I should have very little concern about the immediate future, so far as providing work for the shop is concerned. I understand tha thte Armington & Sims Co. only produce $325,000 worth of engines a year. I fsuch is the case, their General Expense must be enormous, and, providing that we manufacture an engine which can be bult as cheap as theirs, so far as labor and material is concerned, and providing that that engine is equally as good as theirs, I am confident that we can get a large and profitable business, inasmuch as our fixed charges, if any information is correct, would be far less than that of the Armington & Sims Co. ### At the time I had you this letter I will show you the balance sheets an the sheet showing the cost of our work produced, and will give you any further explanation that this letter does not afford. I must confess that I am extremely well satisfied, personally, with the result of our last year's work. I think tha tyou, yourself, should also be perfectly satisfied. ### In conclusion, all I have to say is that I have received the most cordial assistance from everybody connected with the concern, from Mr. Kreusi, down. We have all had to work very hard indeed, as by far the greater part of the business of the last six months was produced in very little more than half that period." Very sinerely yours, Saml Insull

Date

1888-01-26

Decade

1880-1889

Type

Identifier

D8835AAP

Folder Set

D8835

Title

[D8835AAP], Report from Edison Machine Works, Samuel Insull to Thomas Alva Edison, January 26th, 1888

Microfilm ID

123:451

Publisher

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