United States v. Aluminum Co. of America

KNOX, Chief Judge.

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Procedural History and Applicable Law

The procedural history of this litigation —spreading as it does over a period of thirteen years — is such as to entitle it to be designated as a

res nova

in anti-trust law enforcement. Notwithstanding the antiquity of the action, the issues involved must be determined in accordance with the more recently established anti-trust principles, and not by those that were well recognized in an earlier day. In order to find solutions to the novel questions presented, my first effort must be directed to the ascertainment of the current interpretations of the antitrust statutes as they apply to the facts revealed by this record.

The start of the action was on April 23, 1937, when the Government filed a petition charging defendant, Aluminum Company of America, hereinafter referred to as Alcoa, with monopolizing interstate and foreign commerce, particularly in the manufacture and sale of “virgin” aluminum ingot.

The trial got under way on June 1, 1938, and continued without much interruption until August 14, 1940. Thereafter, on September 30, October 1, 2, 3, 4, 6, 7, 8, 9 and 10, 1941, Judge Caffey delivered his opinion from the bench, finding in all respects for the defendant, 44 F.Supp. 97 . On July 23, 1942, he entered judgment, dismissing the complaint on the merits.

The Government appealed to the Supreme Court of the United States but, due to the absence of a qualified quorum in that Court, the case was certified to the Court of Appeals for the Second Circuit, 1944, 322 U.S. 716 , 64 S.Ct. 1281 , 88 L.Ed. 1557 , in which tribunal full appellate review was vested by Act of Congress 58 Stat. 272 , Act June 9, 1944, 15 U.S.C.A. § 29 .

The Court of Appeals rendered its opinion on March 12, 1945, 2 Cir., 148 F.2d 416 . The result below was affirmed in part, and in part reversed. Alcoa, the court held, had exercised an unlawful price “squeeze” in aluminum sheet, 148 F.2d at pages 437-438 — a matter not presently of concern— and also had illegally monopolized the aluminum ingot market within the stricture of Section 2 of the Sherman Act, 15 U.S. C.A. § 2. However, no relief against the latter offense was then decreed.

This was prompted 'by the uncertainties that then surrounded the post-war aluminum industry, and which were occasioned by the existence of large and important aluminum facilities that had been constructed to meet metal emergencies of the late war, and which were in the ownership of the United States. The Surplus Property Act of 1944, 58 Stat. 765 , 50 U.S.C.A.Appendix, § 1611 et seq., directed that these facilities be disposed of in such manner, and with such purpose, as would foster competitive conditions in the aluminum industry of the nation.

Inasmuch as the disposal program, at the time of the decision of the appellate court had not yet been undertaken, the court took the view that the pronouncement of remedial measures should be withheld until such time as would enable this Court to evaluate the effects of the disposal program of the War Assets Administration. In this connection, the court said:

“It is as idle for the plaintiff to assume that dissolution will be proper, as it is for ‘Alcoa’ to assume that it will not be; and it would be particularly fatuous to prepare a plan now, even if we could be sure that eventually some form of dissolution will be proper. Dissolution is not a penalty but a remedy;

if the industry will not need it for its protection, it will be a disservice to break up an aggregation which has for so long demonstrated its efficiency.

The

need

for such a remedy will be for the district court in the first instance, and there is a peculiar propriety in our saying nothing to control its decision, because the appeal from any judgment which it may enter, will perhaps be justiciable only by the Supreme Court, if there are then six justices qualified to sit.” 148 F.2d at page 446 (emphasis added).

Thereafter, the Court of Appeals expressed itself more specifically. This occurred when a mandamus proceeding instituted by the Government challenged the conformity of the judgment entered by the District Court to the mandate issued by the appellate tribunal. United States v.

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District (Court for S.D.N.Y., 2 Cir., 1948, 171 F.2d 285 . The appellate court then spoke as follows:

“ * * * the article as a whole conforms with our mandate, in which we tried to make it plain that the final judgment must secure

the

establishment of those

‘competitive conditions’

which the Anti-Trust Acts, 15 U.S.C.A. § 1 et seq., demand. Dissolution is one remedy which may be necessary to that end; and in any event it will not depend upon the single issue whether ‘Alcoa’ at the time of the judgment shall have a monopoly of the ingot market. On the

contrary,

it will depend upon what is ‘Alcoa’s’ position in the industry at that time: i. e., whether it must be divided into competing units in order to conform with the law. The continuance of the monopoly in ingot aluminum may in the court’s judgment be enough to justify dissolution; but its absence will forbid neither dissolution, nor any other remedy.” 171 F.2d at 286 (Emphasis supplied).

Thus, the crucial issue before me is the

need

for a remedy in terms of the existence of

competitive ■conditions

conforming

to law.

In determining the specific criteria applicable to ascertaining this need, one possible standard is whether Alcoa’s present situation, notwithstanding all that has happened since 1945, is still violative of the Sherman Act, 15 U.S.C.A. §§ 1-7 , 15 note. Another is that

competitive conditions,

i. e. “effective competition” may not exist even

though

the Sherman Act were not violated, because of Alcoa’s stronger market position in relation to its competitors.

A third alternative rests on the proposition that dissolution decrees, in order to prevent the recurrence of condemned conditions, have reduced offenders to market positions quite below those which might be considered violative of the anti-trust laws. Accordingly, if Alcoa now occupies a market position substantially stronger than that which the largest fraction of the company would have been assigned if dissolution had been ordered immediately following the trial, it would mean that “effective competition” does not presently exist.

It is difficult fully to reconcile the third alternative with the language of the Court of Appeals in 1945. The court then said that dissolution may not be necessary to protect the industry, not that the protection of the industry is only accomplished by the equivalent of dissolution having occurred. Nor does the 1948 opinion suggest that Alcoa must still be in violation of the Sherman Act in order that remedial action be taken against it. The court observed that the absence of monopoly will not necessarily forbid dissolution. Neither of the previous two alternatives are necessarily compatible with Section 4 of the Sherman Act, the purpose of which is' to require the district courts to “prevent and restrain such violations” of the Act. Rather, they are simply

ad hoc

criteria for determining the sole issue which is the existence of “effective competition,” which will insure lawful market conditions throughout the foreseeable future.

The'precise ingredients of “effective competition” cannot be said to have been a static concept under the Sherman Act. Their applications, as well as their implications, have varied with changes in judicial thought with respect to economic and legal philosophies. Recent precedents, unfortunately, but as is usual, have fallen

short oí

definite specifications as to the requirements of “effective competition.” But, by examining the prior law and theory which have evolved in relation to both substantive violations, and the purposes of the remedy under the Sherman Act, it is perhaps possible to formulate a more or less concrete

delineation of the standards that

should be met in seeking a just decision upon the complicated facts of this case.

In considering the substantive offense of monopolization under Section 2 of the Sherman Act, a marked development in the application of the anti-trust laws has been the diminishing significance attributable to the presence of actually abusive practices in the exercise of a corporation’s market power. Courts formerly looked to an overt misuse- of a defendant’s dominant competitive position as a

sine qua non

of

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illegality. But this is no longer true. The more recent authoritative precedents indicate that the mere existence of what is denominated “monopoly power,” irrespective of its exercise, may be the focal element that will resolve the outcome of a particular suit.

Thirty years ago, Justice McKenna, in United States v. U. S. Steel Corp., 1920, 251 U.S. 417 , 40 S.Ct. 293 , 64 L.Ed. 343, 8 .A.L.R. 1121, took occasion to say: — “The •corporation is undoubtedly of impressive size, and it takes an effort of resolution not to be affected by it or to exaggerate its influence. But we must adhere to the law, and the law does not make mere size an •offense, or the

existence of wiexerted power ■am, offense. It, we repeat, requires overt ■acts, and trusts to its prohibition of them ■and its power to repress or punish them.

It does not compel competition, nor require •all that is possible.” 251 U.S. at page 451 , 40 S.Ct. at page 299 , 64 L.Ed. 343 , 8 A.L.R. 1121 , (emphasis added).

The changing attitude of judicial •opinion was reflected by Justice Cardozo in United States v. Swift & Co, 1932, 286 U.S. 106 , 52 S.Ct. 460 , 76 L.Ed. 999 . He took note of the potential for abuse which ■underlies the possession of sizeable market power. “Mere size, according to the holding of this court, is not an offense against the Sherman Act unless magnified to the point at which it amounts to a monopoly, * * * but size carries with it an opportunity for abuse that is not to be ignored when the opportunity is proved to have been -utilized in the past.” 286 U.S. at page 116 , . 52 S.Ct. at page 463 , 76 L.Ed. 999 .

In this present suit, Judge Learned Hand •demonstrated that the requirement of abusive practices in addition to that of monop•oly power is inconsistent with the long established rule declaring that price fixing -agreements are illegal

per se.

United States v. Trenton Potteries Co., 1927, 273 U.S. 392 , 47 S.Ct. 377 , 71 L.Ed. 700 , 50 A.L.R. 989 ; United States v. Socony-Vacuum Oil Co., 1940, 310 U.S. 150 , 60 S.Ct. 811 , 84 L.Ed. 1129 . From his reasoning, as ■quoted with approval in American Tobacco Co. v. United States, 1946, 328 U.S. 781, 813 , 66 S.Ct. 1125 , 90 L.Ed. 1575 , an incident of monopoly is the power, necessarily exercised, to fix prices.

“Starting, however, with the authoritative premise that all contracts fixing prices are unconditionally prohibited, the only possible difference between them and a monopoly is that while a monopoly necessarily involves an equal, or even greater, power to fix prices, its mere existence might be thought not to constitute an exercise of that power. That distinction is nevertheless purely formal; it would be valid only so long as the monopoly remained wholly inert; it would disappear as soon as the monopoly began to operate; for, when it did — that is, as soon as it began to sell at all — it must sell at some price and the only price at which it could sell is a price which it itself fixed. Thereafter the power and its exercise must needs coalesce. Indeed it would be absurd to condemn such contracts unconditionally, and not to extend the condemnation to monopolies; for the contracts are only steps toward that entire control which monopoly confers: they are really partial monopolies.” United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416,427-28 .

Moreover, Judge Hand declared that another indicium of the monopolization of an industry, is the power to exclude competitors. He answered the question left undecided in United States v. Pullman Co., D.C. E.D.Pa. 1943, 50 F.Supp. 123, 126 , viz., “ * * * whether a violation of the Sherman Act is involved where a business enterprise * * * has acquired the sole possession of the field by absorption, in non-predatory fashion, of all of its competitors.”

Judge Hand’s point of view was approved by the Supreme Court when it quoted him as follows: “ * * * we can think of no more effective exclusion than progressively to embrace each new opportunity as it opened, and to face every newcomer with new capacity already geared into a great organization, having the advantage of experience, trade connections and the elite of personnel.' Only in case we interpret ‘exclusion’ as limited to manoeuvres not honestly industrial, but actuated solely by a de

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sire to prevent competition, can such a course, indefatigably pursued, be deemed not ‘exclusionary.’ So to limit it would in our judgment emasculate the Act; would permit just such consolidations as it was designed to prevent.” American Tobacco Co. v. U. S., 1946, 328 U.S. 781, 814 , 66 S. Ct. 1125, 1141 , 90 L.Ed. 1575 ; U. S. v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416, 431 .

The American Tobacco case summarized the currently controlling principles of monopoly litigation: “The authorities support the view that the material consideration in determining whether a monopoly exists is not that prices are raised and that competition actually is excluded but that

power exists to raise prices or to exclude competition

when it is desired to do so.” 328 U.S. at page 811 , 66 S.Ct. at page 1139 , 90 L.Ed. 1575 . (Emphasis added).

As I understand the foregoing language, it means that the mere existence of monopoly power, though not exercised abusively, is some indication of illegality. A violation of the statute will come to completion if the defendant has nothing more than a purpose or intent to exercise the power, American Tobacco Co. v. United States, 1946, 328 U.S. 781 , 66 S.Ct. 1125 , 90 L.Ed. 1575 ; United States v. Griffith, 1948, 334 U.S. 100 , 68 S.Ct. 941 , 92 L.Ed. 1236 , but as the cases show, a “purpose or intent” is present if the acquisition or retention of the power comes about as a consequence of defendant’s conduct or business arrangements. United States v. Griffith, 1948, 334 U.S. 100, 105-107 , 68 S.Ct. 941, 945 , 92 L.Ed. 1236 ; United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416 . In considering the matter of monopoly power, two ingredients are of outstanding significance: viz., the power to fix prices and the power to exclude competitors.

Concurrent with this modification regarding the substantive law, a reinterpretation of Section 4 of the Sherman Act has amplified the purpose of the remedy. When the offense consisted of the unlawful exercise of power, the purpose of the remedy was to inhibit the potential for abuse, and the need for a remedy was determined by the likelihood of recurrence of abusive practices. In the situation where monopoly power had been unlawfully acquired, followed by a substantial period of voluntary forbearance from abuse of power, remedial measures were held inappropriate. The abandonment of abuse was a sufficient indication of future lawful behavior to permit unlawfully acquired power to remain unmolested. United States v. American Can Co., D.CD.Md.1916, 230 F. 859 ; United States v. U. S. Steel Corp., 1920, 251 U.S. 417 , 40 S.Ct. 293 , 64 L.Ed. 343 , 8 A.L.R. 1121 ; Contra: United States v. International Harvester Co., D.C.D.Minn.1914, 214 F. 987 .

The culmination of this view was reached in United States v. International Harvester Co., 1927, 274 U.S. 693 , 47 S.Ct. 748 , 71 L. Ed. 1302 . With a procedural setting closely approximating that involved in the instant case, the Court found the existence of “effective competition” notwithstanding that defendant enjoyed 64 per cent of the-trade in harvesting machines, and had capital and resources in excess of the aggregate of its competitors. Nor did it matter that the competitors of Harvester were accustomed to follow the prices set by the latter. The factor of significance was that defendant had not engaged in price cutting" or other abuses of its power, and upon this, rested the refusal to enlarge the remedies, applied to Harvester. .

When the change in substantive emphasis from “abuse” to “power” is coupled with the new doctrine presently governing the-application of the remedy, it will be seen that the International Harvester case of' 1927 must be relegated to a now discarded! stage of legal development.

The opinion of Judge Learned Hand in the case of United States v. Corn Products. Refining Co., D.C.S.D.N.Y.1916, 234 F. 964 ,. clearly indicated that if the mere existence-of monopoly power were the prime factor for inquiry, such criterion would necessarily affect the choice of remedy to be applied.. He there spoke as follows:

“ * * * if power alone be forbidden-by the statute, it can make no difference-

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whether its results are beneficent or sinister, whether a dissolution will affect the industry to its prejudice or to its advantage, whether it will promote or depress foreign trade. * * * Such questions concern the wisdom of the act, and with it I have nothing to do if once its purpose be authoritatively declared.

“If, on the other hand, the exercise of the power is what the statute touches, then the question arises What is practically necessary to prevent the repetition of those unfair means?” 234 F. at page 1015 .

Recent precedents do not present a factual parallel to the abandonment of an abuse situation. The latest authoritative statements regarding remedies appear in contexts wherein abusive and predatory practices continued up to the time of litigation. Nevertheless, the expansion of remedies which can be observed in these cases is general evidence that the court’s functions under Section 4 should be more vigorous, more searching, and even more drastic, than those which have heretofore been applied.

The latest remedy cases indicate two modifications of earlier judicial pronouncements, one practical, the other theoretical. On the practical side they show that courts are less likely than formerly to be impressed by evidence which tends to establish that defendants who have violated the Sherman Act in the past will not do so in the future. On the theoretical side, a rule has been formulated which, when applied, will serve to deprive defendants of the fruits of their wrongdoing. This, no doubt, is an outgrowth of an awareness that strong measures are required to restrain a tendency to recidivism.

The first reflection of a closer scrutiny to restrain any such tendency appears in United States v. Swift & Co., 1932, 286 U.S. 106 , 52 S.Ct. 460 , 76 L.Ed. 999 . In that case, the defendant sought to be relieved of a consent decree provision entered against it in 1920 which forbade it from engaging in the wholesale or retail grocery business. In denying the relief Justice Cardozo said:

“Size and past aggressions induced the fear in

1920

that the defendants, if permitted to deal in groceries, would drive their rivals to the wall. Size and past aggressions leave the fear unmoved today.” 286 U.S. at page 117 , 52 S.Ct. at page 463 , 76 L.Ed. 999 .

The opinion in United States v. Crescent Amusement Co., 1944, 323 U.S. 173 , 65 S.Ct. 254 , 89 L.Ed. 160 , further emphasized the need of a practical approach towards the possibility of the return to improper conduct on the part of a monopolist. It also enunciated the “fruits” doctrine. Defendant having been found in that case to have conspired to restrain and monopolize trade in the exhibition of motion pictures, was prohibited from acquiring additional theatres without a showing that competition would not thereby be unreasonably restrained, and was ordered to divest itself of the stock of certain affiliated corporations. The Court said:

“The pattern of past conduct is not easily-forsaken. Where the proclivity for unlawful activity has been as manifest as here, the decree should operate as an effective deterrent to a repetition of the unlawful conduct and yet not stand as a barrier to healthy growth on a competitive basis.” 323 U.S. at page 186 , 65 S.Ct. at page 261 , 89 L.Ed. 160 .

“Those who violate the Act may not reap the benefits of their violations and avoid an undoing of their unlawful project on the plea of hardship or inconvenience. That principle is adequate here to justify divestiture of all interest in some of the affiliates

since their acquisition was part of the fruits of the conspiracy.”

323 U.S. at page 189 , 65 S.Ct. at page 262 , 89 L.Ed. 160 (Emphasis added).

At first glance, United States v. National Lead Co., 1947, 332 U.S. 319 , 67 S.Ct. 1634 , 91 L.Ed. 2077 , appears as a step that backs away from the Crescent case. The Court held that the National Lead Co. and the du Pont Co. were acting in unlawful restraint of trade by virtue of a patent pool and related agreements. The Court refused to order divestiture of any of defendant’s

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plants even though they may have been acquired or used incidentally or relative to the agreements. The Court said:

“It is not for the courts to realign and redirect effective and lawful competition where it already exists and needs only to be released from restraints that violate the antitrust laws. To separate the operating units of going concerns without more supporting evidence than has been presented here to establish either the need for, or the feasibility of, such separation would amount to an abuse of discretion.” 332 U. S. at page 353 ,

67 S.Ct.

at page 1650 , 91 L. Ed. 2077 .

In the following year, however, the Supreme Court made a clear declaration as to the purpose to be served by an anti-trust remedy. In Schine Theatres v. United States, 1948, 334 U.S. 110 , 68 S.Ct. 947 , 92 L.Ed. 1245 , after finding that defendants had conspired to restrain and monopolize trade in the exhibition of motion pictures, the Court held that an injunction against future violations was an insufficient remedy. Without divestiture the defendants “could

retain

the.

full dividends

of their monopolistic practices and profit from the unlawful restraints of trade which they had inflicted on competitors.” 334 U.S. at page 128, 68 S.Ct. at page 957, 92 L.Ed. 1245 .

(Emphasis added).

Divestiture, like restitution, had the purpose of depriving a defendant of the gains of his wrongful conduct. The National Lead case was distinguished on the ground that “ * * * there was no showing that the plants sought to be divested were either unlawfully acquired or used in a manner violative of the antitrust laws.” 334 U.S. at page 128, 68 S.Ct. at page 957, 92 L.Ed. 1245 .

In United States v. Paramount Pictures, 1948, 334 U.S. 131 , 68 S.Ct. 915 , 92 L.Ed. 1260 , the Court indicated that divestiture is warranted where the acquisitions were the fruits of monopolistic practices or restraints of trade, or if lawfully acquired, they were utilized as part of a conspiracy to eliminate or suppress competition in furtherance of the ends of the conspiracy. The propriety of divestiture, it seems, is to be determined by the relationship of the unreasonable restraints of trade to the position of the defendant in the market.

That a new principle has been injected into the interpretation of Section 4 of the Sherman Act is amply demonstrated by the following comparison. The purpose of the remedy in an. anti-trust suit was initially defined in Standard Oil Co. of New Jersey v. United States, 1911, 221 U. S. 1, 78 , 31 S.Ct. 502, 523 , 55 L.Ed. 619 , 34 L.R.A.jN.S., 834, Ann.Cas.l912D, 734

“1st. To forbid the doing: in the future of acts like those which we have found to have been done in the past which would be violative of the statute. 2d. The exertion of such measure of relief as will effectually dissolve the combination found to exist in violation of the statute, and thus neutralize the extension and continually operating force which the possession of the power unlawfully obtained has brought and will continue to bring about.”

The same thoughts were expressed in the Schine case, but the “fruits” theory was added. Divestiture or dissolution, it was said, serves several functions:

“(1) It puts an end to the combination or conspiracy when that is itself the violation. (2)

It deprives the antitrust

defend

ants of the benefits of their

conspiracy■_ (3) It is designed to break up or. render-impotent the monopoly power which violates the Act.” Schine Chain Theatres v.. United States, 1948, 334 U.S. 110, 128-129 ,. 68 S.Ct. 947, 957 , 92 L.Ed. 1245 .

It is clear from the last function enumerated in the Schine case and, as heretofore suggested, that a satisfactory starting point in this remedy phase is an inquiry into the existence of monopoly power Such power, if found to exist, must be reduced to impotence. To further the detection of monopoly power, attention must also be given to recent cases which discuss, the facts that indicate its presence. These cases must be understood as defining-monopoly power for purposes of finding-violations of the Sherman' Act in the first: instance.

Two basic signs of monopoly-power are size and vertical integration. In¡

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a short-hand summary of the law, Judge Hand, iii this case, said: “That percentage

(90%)

is enough to constitute a monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three per cent is not.” United States v. Aluminum Co. of America, 2 Cir., 1945, 148 F.2d 416, 424 .

The most recent and authoritative statement as to what constitutes unlawful size and market domination is contained in the opinion which decided United States v. Columbia Steel Co., 1948, 334 U. S. 495 , 68 S.Ct. 1107 , 92 L.Ed. 1533 . The issue involved therein was the propriety under the .Sherman Act of the acquisition by the United States Steel Corporation of the Consolidated Steel Corporation. The latter company was a fabricator of rolled steel. The merger was opposed on two grounds: 1) that it unlawfully reduced competition by diminishing the market of those competitors of United States Steel who produced rolled steel, and 2) that it unlawfully reduced United States Steel’s competition in the fabricated steel market. The Court found against the government on both grounds. In what was designated as the Consolidated Steel market area, the acquisition by United States Steel was said to reduce demand for rolled steel from United States Steel’s competitors by only three pep cent. In the same market, but considering fabricated steel production, the acquisition by United States Steel would increase the latter’s percentage control from 13 to 24 per cent. The Court set out the ’following guide for determining the propriety of the merger:—

“In determining what constitutes unreasonable restraint, we do not think the dollar volume is in itself of compelling significance ; we look rather to the percentage of business controlled, the strength of the remaining competition, whether the action springs from business requirements or purpose to monopolizé, the probable development of the industry, consumer demands, and other characteristics of the market. We do not undertake to prescribe any set of percentage figures by which to measure the reasonableness of a corporation’s enlargement of its activities by the purchase of the assets of a competitor. * * * The relative effect of percentage command of a market varies with the setting in which that factor is placed.” 334 U. S. at pages 527-528, 68 S.Ct. at page 1124, 92 L.Ed. 1533 .

But, in the background of the Columbia Steel case lurks the fact that United States Steel controlled 51 per cent of the rolled steel and ingot capacity in the market therein considered. Moreover, Columbia Steel was a case presenting the issue of permissibility of merger. It is not unreasonable to suggest that a court may act more readily to keep apart what has never been joined together, than to dismember an existing entity which, in general, has well served the public.

If a percentage control of the market is viewed, not as a short cut to decision, but rather as a short-hand expression of power when evaluating resources, trade, and the nature of the market, it can be said that Columbia Steel is not inconsistent with the summary guide announced by Judge Hand.

Vertical integration is simply a particular of size. As viewed in United States v. Paramount Pictures, Inc., 1948, 334 U. S. 131 , 68 S.Ct. 915 , 92 L.Ed. 1260 , it is a relevant consideration in ascertaining monopoly power.

“Likewise bearing on the question whether monopoly -power is created by the vertical integration, is the nature of the market to be -served * * *, and the leverage on the market which the -particular vertical integration creates or makes possible.” 334 U. S. at page 174, 68 S.Ct. at page 937, 92 L.Ed. 1260 .

But it was left to the Supreme Court in the -Columbia Steel -c'ase to reassure that the Sherman Act took cognizance of the economic needs and organization of American industry. The fact that a subsidiary will in all probability deal only with the parent for -goods the parent can furnish does not make the acquisition of such subsidiary unlawful. But,

“ * * * When other elements of Sherman Act violations are present, the fact of corporate relationship is material and can be considered in the determination

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of whether restraint or attempt to restrain exists.” United States v. Columbia Steel Co., 1948, 334 U.S. 495, 523 , 68 S.Ct. at page 1122, 92 L.Ed. 1533 .

“ * * * vertical integration as such without more, cannot be held violative of the Sherman Act. * * * the extent of permissible integration must be governed, as other 'factors in Sherman Act violations,

by

the other circumstances of individual cases. Technological advances may easily require a basic industry plant to expand its processes into semi-finished or finished goods so as to produce desired articles in greater volume and with less expense.

“ * * * no direction has appeared of a public policy that forbids,

per se,

an expansion of facilities of an existing company to meet the needs of new markets of a community, whether that community is nationwide or county-wide. * * * If businesses are to be forbidden from entering into different stages of production that order must come from Congress, not the courts.” 334 U.S. at page 525-526, 68 S.Ct. at page 1123, 92 L.Ed. 1533 .

The conclusion is inescapable, from the Columbia Steel decision, that the possession of monopoly power is something other than the status in a market of a dominant firm. The dominant firm may have neither the power to exclude competitors, nor the power to fix prices.

If Alcoa should be 'found, in this proceeding, to possess monopoly power, as above defined, it is not necessary that a purpose or intent to exercise such power also be found to exist in order to justify this Court in granting relief to the Government. In this respect, the doctrine now governing the application of remedies im-, poses a different standard than would be requisite in determining illegality in the first instance. On the .practical side, the mere existence of monopoly power is instinct with the threat of future violations. On the theoretical side, it seems proper to, consider monopoly power the fruit of an unlawful monopolization and, as such, provide that it. foe rendered impotent. However, when dealing with an .integrated monopolizer, the “fruits” rule cannot literally foe applied. A court cannot blindly divest particular ill-gotten gains without viewing constructively the creation of competitive units. Therefore, the power itself, and not the specific elements thereof, must sometimes be viewed as the “fruit.”

Nevertheless, reliance upon the existence of monopoly power, as defined by Sherman Act violations, even without the requirement of purpose or intent to exercise that power does not permit as searching an inquiry as the remedy phase demands. This Court must provide against the reasonable expectation of the resumption of future unlawful conditions. United States v. United States Alkali Export Ass’n, D,C. S. D. N. Y. 1949, 86 F.Supp. 59, 81 ; United States v. Standard Register Co., D. C. D. C. 1947, 7 F. R. D. 287. To a certain extent, this function is accomplished by the rule which requires all doubts regarding remedies to be resolved in favor of the Government, and against an adjudged monopolist. Hartford Empire Co. v. United States, 1945, 323 U. S. 286 , 409, 65 S.Ct. 373 , 89 L.Ed. 322 ; United States v. Bausch & Lomb Co., 1944, 321 U. S. 707, 726 , 64 S.Ct. 805 , 88 L.Ed. 1024 . But, it is not 'fully satisfied unless this Court investigates present power potentials with a view to their propensities under reasonably foreseeable market conditions. The existence of monopoly power in a

de novo

proceeding contemplates only the present.power to fix prices or exclude competitors. But in a remedy proceeding, it is enough to justify relief that this Court can reasonably predict that monopoly power will probably arise in a discernable future market. As ■an example, if it can now be said that Alcoa shall have monopoly thrust upon it under reasonably predictable market developments because of the economic collapse of a competitor or competitors, remedial action is appropriate.

The criteria applicable to this case as above described necessitate two basic inquiries : (1) whether competitors flourish, and the extent to which they flourish, and whether they do so at the sufferance of Alcoa; (2) whether a foreseeable change in market conditions can secure an altera

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tion in Alcoa’s present condition, either by •expansion where any competitor can not, or by perseverance where any competitor would fail.

In determining the extent of permissible power that is consistent with the anti-trust laws in a particular industry, the following factors are relevant: the number and strength of the firms in the market; their effective size from the standpoint of technological development, and 'from the standpoint of competition with substitute materials and foreign trade; national security interests in the maintenance of strong productive facilities, and maximum scientific research and development; together with the public interest in lowered •costs and uninterrupted production.

The inquiry into power, however, does not wholly resolve the issues. An examination into the intent of defendant is an equally apt indicium to predict consequences. See Appalachian Coals, Inc. v. United States, 1933, 288 U. S. 344, 372 , 53 .S.Ct. 471, 77 L.Ed. 825 . Thus, when results fall short of a violation of the Sherman Act, a finding as to the specific intent -of the defendant may convert the conduct into a violation. United States v. Columbia Steel Co., 1948, 334 U. S. 495, 525 , 68 S.Ct. 1107 , 92 L.Ed. 1533 ; United States v. Griffith, 1948, 334 U. S. 100, 105 , 68 S.Ct. 941 , 92 L.Ed. 1236 ; Swift & Co. v. United States, 1905, 196 U. S. 375, 396 , 25 S.Ct. 276 , 49 L.Ed. 518 . But here, no specific intent need be shown. It is for Alcoa to dispel any inference of “innate proclivity” for unlawfulness arising from its past adjudication of monopoly. Relevant thereto is the extent to which Alcoa achieved its past monopoly not so much by predatory, unfair, •or vicious trade practices, in knowing violation of the law, but by the more restrained expedient of preempting business opportunities in advance of potential competitors, formerly of much more doubtful illegality. Alcoa must convince, as evidenced by the developments during the period now under Teview, not only that its ability to monopolize has been dissipated, but its intent to do so similarly abated. For only in such event can the duty to safeguard against future ■violations be discharged.

Even yet, there remains a further inquiry. Remedial action is justified even though defendant retains no vestige of power, or intent, to obtain monopoly, where a relationship exists between defendant and any one or more of its competitors which materially inhibits free competition. Thus, any agreement, conspiracy, or understanding which in any way retards the restoration of competitive conditions to this market must be carefully scrutinized by this Court, and, if its effects be 'found to •prejudice the public interest, undone.

Issue has been joined upon two petitions presently before me. The first, filed by Alcoa on March 31, 1947, (and subsequently amended and supplemented) asks for a decree that the company has ceased to monopolize the aluminum ingot market and that, in consequence, in such market, effective competitive conditions now prevail. The Government filed its petition on September 24, 1948. It avers that Alcoa continues its monopolization of the market and that, in order to restore competitive conditions, Alcoa should be divested of such of its properties as will accomplish this purpose; and that the United States may have such other relief as they are entitled to receive.

Trial of the issue was begun on March 28, 1949, and continued through April 28th of that year. The trial was resumed on October 4, and proceeded to November 9, 1949. Additional proof was taken on January 16, 1950.

The discussion that follows, unless otherwise indicated therein, is an attempt to reflect the situation in the aluminum industry as it existed as of September 30, 1949. Little data of probative force was thereafter available. After oral argument in early February of this year, the case was submitted for decision.

Description of the Stages of Production in the Aluminum Industry

In any effort to describe Alcoa’s present competitive position, attention must be given to the entire structure of the aluminum industry. Essentially, there are four

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principal stages of production, (1) mining the ore known as 'bauxite; (2) the separation therefrom of its aluminum oxide content; (3) the removal of oxygen from the aluminum oxide, which results in a residue of virgin aluminum; and (4) the fabrication therefrom, with, in some cases, certain alloys, of useful products.

(1) In addition to aluminum oxide, bauxite contains quantities of silica and iron. In some places, the ore is found on the earth’s surface; at others, it is underground and must there be mined. While it is possible to manufacture aluminum from certain other materials, present day commercial manufacture is limited exclusively to the use of bauxite. High-grade bauxite contains at least 55% aluminum oxide, and no more than

7%

of silica. Low-grade bauxite contains more silica and less aluminum oxide. The less silica, or the more aluminum oxide, the more desirable is the ore.

(2) Aluminum oxide is also known as alumina. A process, called Bayer, is employed in the extraction of alumina from bauxite. This process consists of grinding ore into relatively small particles and then dissolving them by the application of a caustic, whereupon the alumina settles out and is dried. The patent on the Bayer process expired in 1903.

In order to separate alumina from low-grade bauxite at commercially practicable costs, it is also necessary to employ the so-called lime-soda-sinter process, on which Alcoa holds patents presently in force. This process recovers the alumina out of the “red mud” which is a waste product of the Bayer process. By the use of these patents, alumina can be economically produced from ores containing as high as 20% silica.

For both high and low grade bauxites, one pound of dried ore produces approximately .45 pounds of alumina. If the ore is undried,, one pound yields approximately .39 pounds of alumina. The factories in which these operations arc conducted are called alumina plants.

(3) The next step in production is to separate oxygen from alumina. This is accomplished by means of the well-known Hall process, the patent on which expired in 1906. Judge Caffey described that process as follows:

“The Hall process may be described briefly as the electrolytic decomposition of alumina in a fused bath. Its essential feature is putting oxide (alumina) into solution in a fused bath and passing an electric current through the mixture. The bath consists of melted cryolite, which is more resistant to decomposition by electrolysis than is alumina. Cryolite is also lighter than aluminum so that when the aluminum •and oxygen of the alumina are separated by the electrolytic action the aluminum ■sinks to the bottom of the crucible or reduction pot, where it may be tapped off.” (Finding of Fact No. 27).

The electrolysis is performed in large pots, arranged in rows, callea “potlines”. The structures that house the potlines are known as reduction plants.

In the process of reduction, the pots consume enormous quantities of electricity, and also, large amounts of carbon. Roughly, 10 kilowatt hours of electricity, 2 pounds of alumina, and three-quarters of a pound of carbon are required to produce one pound of aluminum.

A further feature of aluminum production is that the pots must be operated continuously, 24 hours a day. If the power be shut off, the cryolite freezes into a soft ■rock. It is a difficult and expensive operation to rehabilitate a pot that becomes frozen. However, it is necessary, every one or two years, to close down a pot in order to replace its carbon lining, the partial'consumption of which gradually occurs in the reduction operation.

(4) Aluminum products are fabricated out of either “pig” or “ingot”. Unfortunately, the terms “pig” and “ingot” do not have a single connotation within the industry, though these names are widely used. I shall denote as pig — and also as primary aluminum — the aluminum which issues from the reduction pot. Almost invariably, this is “virgin pig”, that is, pig to which no alloys have been added. Virgin pig contains impurities, inasmuch as any impuri

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ties in the reduction pot, whether from alumina, cryolite, or carbon, will appear in the pig. Sometimes, alloying materials are added to the reduction pot, the resulting aluminum being known as alloy pig. The development of aluminum alloys has greatly extended the uses for which the metal is suitable. Virgin ingot is virgin pig either remelted and poured, or carried directly from the reduction pot to a large holding furnace, from which it is subsequently withdrawn. These operations give ingot a greater uniformity of composition than pig. Alloy ingot is frequently produced by remelting virgin pig along with alloying ingredients. Alloys are of two sorts — ordinary and hard — the latter being subjected to a special heat treatment.

There are only a few basic mill products from which the ultimate fully fabricated articles are derived. Various mills employ different processes and, accordingly, utilize ingots of sizes and forms best suited to the treatment to be received.

Aluminum sheet and plate are produced by rolling processes which operate on the metal both when it is heated and when it is cold. Additional rolling of sheet produces foil, which is actually a very thin sheet.

Rod, bar, and structural shapes also evolve from a rolling process, but the rolls have grooves which impart a particular shape to the ingot. Wire is made by drawing cold rod through dies of smaller diameter, and the stranding of the wire, sometimes around a reinforcing core, results in cable.

The extrusion process permits the manufacture of shapes not possible by other operations. Extrusions are made by placing heated ingot in an enclosed cylinder of a powerful press and forcing the metal under high pressure through a die opening at the end of the cylinder. Tubing is produced by this process.

Numerous kinds of closed-end containers are made by a process called impact extrusion. The essence of the operation is to strike an aluminum slug, located in a cup-shaped die, with a sufficiently powerful single blow that will force the metal up between the punch and the die to form the desired article.

Aluminum is forged by two processes. Either the heated metal is hammered into shape, or, in press forging, by squeezing it into appropriate contours.

The casting of aluminum is accomplished in three ways. The metal may be poured into sand molds. This is used when large and intricate products are desired, but in relatively small quantities. The permanent mold method employs metal molds in which the aluminum is poured. It yields an unusually sound and strong product, and is widely used. In die casting, the metal is forced into the die under pressure. This gives a high degree of dimensional accuracy to the product, as well as an excellent finish which requires little or no further processing. This method is used for small articles that are desired in considerable numbers.

From the products of these basic mill operations, articles intended for ultimate consumer use may have to be fashioned by additional manufacturing steps. A conservative estimate indicates that there are today at least four thousand end uses for aluminum.

Factual Review Alcoa’s Position in 1940

Prior to a consideration of facts which bear on the position of Alcoa in today’s aluminum market, it is appropriate to give a brief description of the industry as it was constituted on August 14, 1940, at the close of the testimony before Judge Caffey; and again, as it was after war constructions were completed, but before the Government disposal program was formulated. It was in the latter period that the Court of Appeals handed down its decision.

The facts as of August 14, 1940, appear in Judge Caffey’s opinion 44 F.Supp. 97 in his Findings of Fact, dated July .14, 1942, as amended April 23, 1946, and in the Court of Appeals decision, 2 Cir., 1945, 148 F.2d 416 . They will be summarized under five headings: (1) bauxite; (2) alumina; (3) virgin aluminum (primary); (4) fabrications; and (5) Aluminium Limited.

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(1) Bauxite:

Alcoa possessed about 48% of the known domestic deposits of high-grade bauxite, being 4,898,703 long tons, which quantity “would be exhausted within far less than eight years” at Alcoa’s then rate of consumption. No estimate of the reserve of low-grade bauxite was made. Bauxite was said to have been found outside the United States in “practically inexhaustible quantities”, no estimate being made of the absolute amount, or of the percentage of Alcoa’s holdings of such bauxite. Judge Caffey also found that Alcoa’s bauxite holdings were not in excess of its reasonable requirements, and that Alcoa sold bauxite to all who wished to purchase it.

(2) Alumina:

Judge Caffey made no statements or findings bearing on the period 1938-1940. However, the record before him indicated that over the period from 1928 to 1937, Alcoa had produced 4,319,785,-649 pounds, while within the same time, the Pennsylvania Salt Manufacturing Co. — apparently the only other domestic producer— had manufactured 86,936,884 pounds. Alcoa itself consumed during this period 3,-375,474,576 pounds, and sold 778,302,127 pounds to other aluminum producers. These customers were foreign companies.

(3) Virgin aluminum (primary):

From 1909 to the date on which the evidence closed, Alcoa was the sole producer of primary aluminum in the United States. Alcoa’s output was in part consumed in its -own fabrications, and, in part, sold to in-dependent fabricators. Quantitatively, the year of highest output was 1939, when production reached 327 million pounds. Percentage-wise, as against the competition ■offered by imports from foreign producers, Alcoa’s share was reported in amended Finding of Fact 154 to be as follows:

“The percentage of this total [Alcoa’s production and imports] which was both produced and imported by Aluminum Company of America during the period from February 2, 1909, to August 14, 1940, * * * varied from a low of 67.90% in 1921 to a high of 99.99% in 1918. Except for the year 1921 and the years 1910, 1913 .and 1922, when its percentage was 74.08%, .72.74% and 72.09%, respectively, its percentage was always over 80%, and, from 1934 to 1938, it averaged a trifle over 90%.”

In addition, there was produced in the United States in the years 1935 through 1938 an annual average of 102 million pounds of secondary aluminum; that is, aluminum ingot produced by remelting scrap aluminum. The Court of Appeals held that secondary was not to be included in the base against which Alcoa’s percentage of the market should be computed.

(4) Fabrications:

Judge Caffey’s opinion and findings contain an extensive examination of Alcoa’s position in the fabricating field. Briefly, his conclusions were to this effect: In all classes of fabrications-, except aluminum cable and large rolled aluminum structural shapes, of which Alcoa was the sole fabricator, Alcoa was subject to vigorous competition from -other aluminum fabricators, and it was the company’s policy to encourage such competition. Aluminum cable and large structural shapes were subject to extensive competition from other metals. Alcoa was not the largest producer of any of the three types of castings, that is, sand castings, die castings, or permanent and semi-permanent mold castings, although it apparently was the largest producer of cast products as a class. There were approximately 2000 foundries engaged in the manufacture and sale of aluminum castings. In .the cooking utensils line, there were 28 competitors, Alcoa’s sales being considerably less than half of the total.

The Aluminum Goods Manufacturing Co., in which Alcoa held a

26%

interest, and its officers, and members of their families, held an additional 5%, and for whose Board Alcoa selected two of the six directors, was found not to have been dominated or controlled by Alcoa. This company was a large seller of cooking utensils, probably next in amount to Alcoa. As for extruded shapes, Alcoa’s production averaged 84% of the domestic total in the years 1934 through 1938.

In the field of aluminum foil, Reynolds Metals Company was the largest domestic producer. For the period 1933-1939, Alcoa averaged 47% of the United States’ output, and for 1937 produced 35% of the entire United States’ supply, including im

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ported foil. As to sheet, there were seven other producers, three of whom consumed their own output, while four sold sheet on the open market. In the year 1939, the proportion of unalloyed sheet supplied by Alcoa to the market was 72%. No figures or percentages were given which indicate Alcoa’s production of sheet for its own fabrication.

(5)

Aluminium Limited:

In this brief description of Alcoa’s position as of 1940 mention should be made of Aluminium Limited whose status has been much controverted in both the past and present proceedings. Limited is a Canadian corporation organized by Alcoa in 1928 to take over almost all of the numerous foreign properties then belonging to the latter concern. In exchange for these properties Limited issued all of its stock to Alcoa, which company distributed it to its own shareholders. Judge Caffey found that Limited was not organized with the intention that it would be controlled by Alcoa; that Limited was not dominated or controlled by Alcoa, and that no agreement or conspiracy existed between the two companies to restrain trade or fix prices, and particularly, that there was no agreement that each would not compete in the other’s market. He also found that no stockholder of Alcoa ever influenced the policies or activities of Limited in favor of Alcoa, and vice versa, even though the Mellon and Davis families, if not owning between them a majority of the voting stock of both corporations, owned stock very closely approaching such a proportionate interest, and notwithstanding also, that two brothers, Arthur V. Davis and Edward K. Davis, were the Presidents of Alcoa and Limited, respectively.

Aluminum Industry at the End of the War The important and resultant change in the aluminum industry, and which came about in the American war effort, was the erection of a number of aluminum plants that were built for the United States during the emergency period. The Government, in its petition, does not tabulate certain scrambled facilities, that is, Government-owned equipment built into privately-owned plants, certain miscellaneous establishments, including housing and power projects, and also four plants built to produce alumina from ores other than bauxite, an operation which is possible but not at competitive costs. Following the Government’s example in ignoring facilities such as these, the nationally-owned aluminum establishment after the completion of war constructions was as reported in Table I.

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Aluminum Rod and Bar

*Newark, Ohio (1) 23,181! 300.0

Total

$620,512 .5,724.3

* Built and operated by Alcoa during the war.

(1) Disposition made to the aluminum industry.

(2) Disposition made outside the aluminum industry.

(3) No disposition made.

The record shows that between August, 1940, and early 1945, Alcoa spent slightly over 225 million dollars for additions and improvements to its own facilities. Table II is taken from Alcoa’s answer to the Government’s petition, and compares the company’s capacity in 1940 and 1947. While the figures therein contained may not be pre-eisely accurate, and do not necessarily re-fleet the present situation, the Table as a whole is a fair indication of Alcoa’s wartime expansion.

Table II — Comparison of Alcoa’s Capacity (in pounds) 1940 and 1947

In addition to the Government’s construetion of aluminum facilities, and the expansion of Alcoa’s plants, the period between the close of evidence before Judge Caffey, and the end of the war, saw the entry into the industry of a new domestic producer of alumina and primary aluminum, namely, the Reynolds Metals Company. This organization, hereinafter referred to as Reynolds, built at Listerhill, Alabama, an alumina plant with a rated capacity of 200,000,000 pounds per year, and a reduction plant having a rated capacity of 99,750,000 pounds per annum. These plants, which went into operation in May, 1941, had a combined cost of $15,883,000. In September,1941, Reynolds put into operation a reduction plant that it built at Longview, Washington, which had a rated annual capacity of 61,980,000 pounds of aluminum.

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This was done at a cost of $6,500,000. These three constructions were financed by a loan from the Reconstruction Finance Corporation, but, because of special wartime amortization privileges, they are not subjected to depreciation or amortization charges with respect to present production costs.

Disposal Program

At this point, it is well to pause a moment to comment upon the program for disposal of the 'Government aluminum properties.

In the opinion of- the Court of Appeals of March, 1945, it was stated that the Government disposal agency might believe that it could not perform its duties “without some plan or design for the industry as a whole, some comprehensive model which shall, so far as practicable, re-establish ‘free independent private enterprise,’ ‘discourage’ monopoly, ‘strengthen’ small competitors, ‘foster’ independents and not foster ‘monopoly or restraint of trade.’ ”

Furthermore, the court said that “if the ‘agency’ does form a plan, it will have been an attempt to realize the same ‘objectives’ for which the court itself must strive; and the court may well feel that it should accord to the ‘agency’s’ plan that presumptive validity which courts are properly coming more and more to recognize in the decisions of specialized tribunals.”

The court, however, advised also that “We do not of course mean that in. deciding whether to dissolve ‘Alcoa,’ or how to do it, that court must be governed by any plan which the ‘agency’ may have devised, if it does devise one.” 148 F.2d 416, 446-447 .

Alcoa contends that the disposal program, as formulated and executed, was the kind of plan Judge Hand had in mind. The Government argues to the contrary.

The program adopted contemplated that disposals were to be made to prospective competitors of Alcoa in a manner best suited to establish them in the industry; Ultimately, this involved the creation of integrated producers; the lease or sale of the available plants on terms not necessarily reflecting original cost or replacement value;- undertaking alterations and other expensive engineering tasks and, in general, using the Government aluminum facilities as an instrument to create competition rather than primarily attempting to recover the Government’s investment.

The program, however, was • not a plan for the industry as a whole, but merely a set of guiding principles for the disposal of the Government plants. The Surplus Property Board itself stated in its September, 1945, Report to Congress, “Even if the Board is successful in selling some of the plants to competitors of Alcoa, this fact by itself may not satisfy the requirements of the Sherman law. It is not the province of the Board to work out a plan for the reorganization of the properties presently owned by Alcoa or to express any views on the question whether, after the completion of the Board’s disposal program, Alcoa’s operations will be lawful under the Sherman Act. That is a question. which must be determined for the executive branch of the Government by .the Attorney General and a question that will presumably be decided ultimately by the courts.” Id. at p. 28.

Thus, my conclusion must be that the disposal agency, though deserving high praise for its accomplishments, did not formulate and pursue a plan to which this Court must or should attach “presumptive validity.” For this reason, I shall not detail in any one portion of this discussion, what has been done by the disposal agency. But such facts will incidentally appear as I review the presently existing competitive situation in the industry, and the conduct of Alcoa in regard to the formulation and execution of the Government program. The disposal agency will hereinafter be referred to as -the War Assets Administration, though both before and after it was so named; it has had other appellations. See, e. g., 50 U.S.C.A.Appendix §§ 1614a, 1614b.

The Industry Today

Aside from Alcoa and Reynolds, there now exists a third producer of primary aluminum in the United States. ' This firm is the Kaiser Aluminum and Chemical Corporation, formerly called Permanente Metals Corporation, and hereinafter referred

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to as Kaiser. Kaiser, along with. Reynolds, has been a substantial beneficiary of the surplus property disposal program. The competitive abilities of these two firms, when compared to Alcoa, will largely determine the issues involved herein.

It is necessary to note that the domestic aluminum industry is broader than the composite of these three integrated producers. There are thousands of firms which fabricate aluminum products in either finished or semi-finished forms. A number of these'concerns can produce mill products such as sheet, foil, forgings, extrusions, wire and cable.

Furthermore, some fifty firms are engaged in the production of secondary aluminum out of aluminum scrap.

Moreover, to fully understand the operation of the present aluminum industry, recognition must be had of the multitude of substitute materials with which aluminum products compete. The alert adaptation of aluminum to particular uses has displaced other substances which had previously long occupied these fields. The continued growth and expansion of this industry depends on this ever widening area in which aluminum can advantageously be employed. Today, articles made from this metal compete against substitutes made from steel, copper, zinc, lead, tin, wood, textiles, plastics, paper, clay, glass, leather and cork.

Market Position

Commercial competition, theoretically, is the independent endeavor of two or more persons or organizations within the realm of a chosen market place, to obtain the business patronage of others by means of various appeals, including the offer of more attractive terms or superior merchandise. Practically, the conditions produced by this endeavor do not form a fixed pattern. In other words, the respective shares of a particular market that the competitors who trade therein are able to obtain do not conclusively establish the effectiveness of the competition in which they engage. The absence therefrom of a wholly dominant market operator is a fair indication that the competition between the rival concerns is a reasonable actuality. This is especially true, if the firm having the largest share of the market is losing its prime position, or is not, at least, unduly enlarging . it.

In the aluminum industry, the observable data bearing on the conditions of the postwar aluminum market are so scant, covering as they do a relatively short period of time, that they cannot be regarded as a wholly reliable basis upon which accurately to forecast the possible outcome of future competitive efforts on the parts of Alcoa, Reynolds and Kaiser.

The year 1946 must be recognized as the period within which the industry was returned to peacetime activity. Although Reynolds first began the production of primary aluminum in 1941, the Government facilities acquired by that company, and by Kaiser, were not put into normal operation until 1946 was well under way. Until that time, Alcoa retained unquestioned dominance. Consequently, conditions prevailing in 1946 can be of but slight aid in reaching a conclusion as to what competitive factors will determine the market design of the future.

The operations of Reynolds and Kaiser in the years 1947 and 1948, and the first nine months of 1949, for which some statistical information is at hand, provide' the more valuable guides for appraising the competitive strength which Reynolds and Kaiser will hereafter be able to exert against the present power of Alcoa. These statistics, nevertheless, do not fully reveal the situation in which the three companies now find themselves. And, in order to prognosticate future conditions, inferences must be drawn from the resources available to the respective producers, rather than from their presently known operations in the market.

In ascertaining market position three fundamental inquiries arise: 1) what constitutes the market; 2) what are the competitive elements in .that market; 3) what aspect of the market, when measured, most precisely indicates the ■ relative position of the competitors.

1)

The market: A

delimitation of the market, in and of itself, may sometimes de

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termine the outcome of anti-trust litigation. The reversal by the Court of Appeals of Judge Caffey’s decree in this case is illustrative. The present structure of the aluminum industry — three primary producers with twice as much fabricating capacity as reduction resources, plus a multitude of independent non-integrated fabricators, plus numerous independent secondary smelters —makes it difficult to fix the actual boundaries of the market.

Logically, it may appear that in a case in which monopolization of the primary aluminum market has been adjudicated, the market in that commodity should be taken as the focal point. But, for the most part, primary aluminum is handled in two ways —much of it is utilized by the producer in his own fabrications; the remainder, to a large extent, is sold to non-integrated manufacturers. Sales for export, or to the United States for stockpiling, comprise but a small fraction of production, and will hereafter be discussed. Thus, the market price of primary is determined, in the main, by such sales of primary as are made to non-integrated fabricators. The evidence shows that Alcoa supplies -these fabricators with 82% of the domestic primary. (See Table III.)

Table III

* The above figures exclude sales for export, sales to the War Assets Administration, and sales among the companies listed.

It appears, nevertheless, that the relative insignificance of the contributions of Kaiser and Reynolds to the supply of this market is one more of choice than disability.

In fabricating aluminum of their own production, Reynolds and Kaiser are able to secure additional profits that arise in pursuing these later stages of production. Alcoa estimates that in the sellers’ market of 1948, its allocation of primary to the non-integrated fabricators reduced its profits by $5,000,000. When, in 1949, there were signs that a buyers’ market was about to ensue, Reynolds and Kaiser showed more concern than theretofore with the disposal of primary as compared to fabricating. Their success in so doing is not yet determinable. Having large investments and excess capacity in fabrication facilities, it is probable that Reynolds and Kaiser will continue to devote the major part o'f their production to supplying their own needs. To the extent that they remain intermittent sellers to the non-integrated fabricators, their success with these buyers can not be expected to be of an outstanding character. It must be concluded, therefore, that while their efforts to supply the demands of the non-integrated fabricators provide the major visible market for -primary, the intramural consumption by the three integrated producers of their own primary — though a captive market — cannot be disregarded.

Pig or ingot aluminum has little significant consumer demand until the metal is converted into a further product. . It is in the market of these products — fabricated or semi-fabricated articles — that the impact of Reynolds and Kaiser is felt. Supplying the demand of the fabricating facilities of Alcoa, Reynolds- and Kaiser is as much a part o'f the market as supplying the demand of the non-integrated fabricators. Thus,

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in the aluminum industry, competition manifests itself in the market for fabricated aluminum products rather than in that for pig and ingot. In determining the relative shares of the market among Alcoa, Reynolds and Kaiser, the integration of these producers requires “market” to be a broad concept, unrelated to any particular aluminum product. Aluminum can be sold in the form of pig or ingot, or as a semi-fabricated or fully fabricated article. It is with reference to the totality of the markets for these products that the relative shares of the three integrated producers must be considered. This market in aluminum products is of nation-wide breadth.

2)

The competitive elements:

From the evidence before me, it appears that, in the United States, there are but three basic sources of aluminum. The first is the primary production of the three integrated producers; the second is the secondary metal recovered from old scrap; the third is the imports of primary and secondary. Secondary aluminum is that metal which is recovered from scrap. Scrap is divisible into two components, market scrap and process scrap. Process scrap consists of trimmings, etc. which arise as an incident of the fabrication operations of the integrated producers, all of which have facilities for reclaiming the metal, and of the non-integrated producers who have similar facilities. This scrap is melted, and reused by these producers.

Market scrap, on the other hand, consists of two kinds — new and old scrap. New scrap is the equivalent of process scrap except that many fabricators are without furnaces for remelting the metal, and they dispose of the same to a secondary smelter, or to other fabricators with smelting facilities. These smelters convert the scrap into secondary pig or ingot or otherwise use it in fabricating operations.

Old scrap consists of junked aluminum products. Such products usually begin to return to the market after five or more years of use. They are collected by junk-men and converted into secondary by smelters.

It is seen that process scrap and new scrap are not a' source of aluminum exclusive of a particular year’s production. They are just fractions of the pig, ingot, or semi-fabricated production which are reused instead of being wasted. If Alcoa sells 100 pounds of primary or sheet, 25 pounds of which are recovered as new scrap, the market does not consist of 100 pounds of aluminum products supplied by Alcoa in competition with 25 pounds of secondary, but simply of 100 pounds of aluminum all of which had its source in Alcoa.

In the Court of Appeals decision of 1945, old scrap was also excluded as a source of aluminum. The court reasoned that since Alcoa had long been the sole domestic producer of primary, all secondary was attributable to Alcoa, and not as being in competition with it. This was so because Alcoa always had the power to adjust its production to account for the return of secondary.

In my opinion, the recent history of the aluminum industry requires a distinct change in this point of view. During the war period, due to Alcoa’s obligation to meet the needs of the Government, it had no control of its own production. Much of the old scrap recovered in 1947 and 1948 was the return of metal from aircraft construction. With the exhaustion of scrap from this source, the scrap arising from aluminum products of the post-war period must be taken into account. During these years, Alcoa was forced to share this market with both Reynolds and Kaiser. In other words, Alcoa was no longer in exclusive control of the production which, in 1945, justified the Court of Appeals in disregarding the old scrap situation.

Now, all three producers contribute to the production of aluminum for fabricated articles which, in due time, will return to the market as old scrap. There is no evidence that Alcoa controlled the production of Reynolds and Kaiser during the period now under review. Alcoa’s loss of exclusive control of production during the war and post-war period warrants the inclusion of secondary recovered from old scrap .as an independent source of aluminum. Such secondary has been shown to be competitive with primary metal.

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The Government contends that the differences between primary aluminum and secondary are similar to those between first and second run exhibitions in the motion picture industry. Inasmuch as the Supreme Court considered first-run exhibitions as the

“core”

of the case, and that a ' separate examination of them was appropriate, United States v. Paramount Pictures Inc., 1948, 334 U.S. 131, 172-73 , 68 S.Ct. 915 , 92 L.Ed. 1260 , argument is made that this Court should do likewise in regard to primary aluminum. The question as to whether secondary aluminum should be treated as a competitive element in the market for primary is one of fact, and not of law.

The factual bases for distinguishing first-rpn . exhibitions from second-run are inapposite to the aluminum industry. The evidence is unconvincing that the psychological influences, viz., publicity pressures, price patterns, together with equipment and location advantages, which make first-run exhibitions the1 “cream” of the motion picture field, apply with equal force to primary aluminum. It may be true that, generally, first-run exhibitions and primary aluminum will sell at higher prices than second-run and secondary. But, the competitive factors and cost differentials which influence the price of secondary aluminum are distinguishable from those governing second-run pictures. In fact, for much of 1948, the price of secondary aluminum was higher than that of primary. These reasons compel me to reject the analogy drawn from the motion picture exhibition field.

There is a possibility that some of the secondary appearing in imports may be market scrap derived in the further foreign processing of exported American aluminum products. It is at least as likely that the secondary is recovered from old scrap, or is new scrap recovered from aluminum of foreign production, both of which would be independent sources. The components of this secondary are not knowable, but the amounts of aluminum involved, even if not an independent source, would not appreciably affect the ultimate result.

The fact that there are three independent and competitive sources of aluminum does not necessarily mean that they are co-extensive with the competitive elements in the market. It can be argued, of course, that Alcoa is responsible for only part of one of the sources — that is, for its production of primary aluminum. But, in my estimation, the actual aluminum market should include the entire range of the aluminum products. It follows, therefrom, that the competitive elements in the market are not solely the three sources of aluminum because such sources measure competition only at the pig and ingot stage. Instead, the competitors are the users of aluminum pig, both the integrated producers and the non-integrated fabricators. The measure of their share of the market, accordingly, is not their contribution as a source of aluminum, but the extent to which they control a source and secure possession of aluminum 'from uncontrolled sources.

The non-integrated fabricators are independent of the integrated producers only to the extent that they can buy aluminum from the other sources — imports and secondary. The amount.of aluminum which the integrated producers obtain from these two sources reduces pro tanto the independent supply available to the non-integrated fabricators. Since the major market competition takes place at the fabrication stage, the actual share held by the competitors— Alcoa, Reynolds, Kaiser, and the non-integrated fabricators — is measured by the amount of metal which they can command in the fabrication stage as a result of their production or acquisitions.

The use of the fabrication stage as an influential determinant of market position is but superficially inconsistent with the adjudication that Alcoa had monopolized the ingot stage and not fabrications. Reynolds and Kaiser are the present major instruments of market competition. But, by consuming the lion’s share of their own primary production, their effectiveness as competitors at the ingot stage cannot be accurately measured. It is only at the fabrications stage that they appreciably enter the market as sellers, and, because of the integrated structure of their operations.

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it is here that they must survive as sellers. If their shares of this market, when compared to that of Alcoa, suggest their impotency, the need for a remedy of such situation is reasonably apparent. If such be not the case, then the amounts of metal controlled at the source by the three producers is highly significant in that it measures leverage on the market, and indicates potential power.

3)

The most accurate indicator:

Accordingly, any market tabulation of the production of primary, sales and consumption of primary of own production, or production of primary and secondary and imports, reflects only sources of aluminum, and does not accurately report the actual market shares of the competitors.

The actual market position can be measured either as a matter of input or outgo. The input method (Table IV), which was the one adopted by Judge Cafifey in amending his Findings of Fact (No. 154) after reversal by the Court of Appeals, gives credit to each integrated producer for its production of primary; its purchases of primary exclusive of such metal acquired from another domestic integrated producer; and the estimated recoverable aluminum content of its scrap purchases, as well as secondary purchases, attributable to old or imported scrap. The non-integrated fabricators are credited with the amount of imports of primary and secondary not purchased by the integrated producers, plus the amount of secondary recovered from old scrap not acquired by the integrated producers. It is believed this tabulation accurately depicts the relative market position of the competitors on the basis of metal controlled or acquired.

The figures show a drop from 51.1% for Alcoa in 1947 to 46.8% for 1948. The difference was absorbed approximately three-fourths by Kaiser and one-fourth by Reynolds. The year 1948 was one of short supply of metal. The strong showing of Kaiser and Reynolds indicates their active efforts to take profitable advantage of the sellers’ market that then prevailed.

Such estimates as can be made for the first nine months of 1949 show that small gains were made by both Reynolds and Kaiser, and this, notwithstanding that there was a transition from a sellers’ to a buyers’ market. The continuing gains of Reynolds and Kaiser indicate growing strength. Nevertheless, the overall advantage of Alcoa cannot be denied. Its trade position, alone, is just under one-half the market; it is two times in excess of Reynolds’, and three times larger than Kaiser’s, and immeasurably greater than that of any of the countless non-integrated fabricators.

The other approach, the outgo method (Table V), though more complicated to calculate, is even more instructive of the market. This method measures sales, and in doing so, throws light on the marketing practices and customer relationships which may favor a particular competitor. Whereas production and acquisition put a ceiling on successful market operations, profitable disposal of the metal actually measures the degree of success achieved by the competitor.

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However, in the case of the non-integrated fabricators, sales figures cannot be used because of a lack of comparability to the sales figures of the integrated producers. Transfers of products in the transition from semi-fabricated to finished form within an integrated producer’s operations are not reflected in ultimate sales figures. But any compilation of the non-integrated fabricators’ sales will include intermediate transfers because they involve separate establishments, and will include metal procured from the integrated producers — the sales of which already appeared in the figures for sales of those integrated producers.

Since the integrated producers must be credited with all metal sold by them, and since they have it within their power to decide whether to release control of this metal to the non-integrated fabricators, this latter group can only be credited with the metal which was secured by them from the independent sources — imports and secondary. This total represents the maximum volume of metal which the non-integrated fabricators can possess and sell without relying on metal dispensed to them by the integrated producers. This is the best evidence available of the share occupied by the independent operations of the non-integrated fabricators. Any other aluminum product which they acquired must have come from' the integrated producers who, having control of its disposition, must be credited exclusively for it. Thus, the share of the non-integrated fabricators is ' composed -of the same ingredients as appeared in the comparison based on production and acquisitions. (Table IV.)

However, since the sales comparison reflects,

inter

alia> market conditions at the fabrications stage, competition of imported fabricated products must be included. This figure was omitted from the production and acquisitions tabulation which dealt solely with the dispositions made from the sources of pig and ingot.

The special treatment required of the non-integrated fabricators’ share renders impossible the use of figures representing dollar volume of sales because the value of the products made from their independent sources of aluminum is unknown. However, the use of poundage as a measure provides certain advantages. Firstly, it facilitates analysis by permitting comparison with the production and acquisition figures. Secondly, it avoids inflation or deflation of the figures depending upon whether metal is sold as a finished product, or in pig form, the former commanding a much higher price than the latter. By categorizing the sales of the integrated producers into those of pig 'and ingot, sheet, and fabricated products other than sheet, additional market advantages are made apparent.

Conclusions:

Significantly, Alcoa’s total sales in 1948 did not decline in proportion to its production and acquisitions. This was accomplished largely by purchasing new scrap (see Table VI) and by consuming, undoubtedly, either pig or fabrication inventories which were accumulated during the high input year of 1947. Some semi-fabricated products may also have been purchased. Whatever the means, Alcoa maintained its share consisting of half the market regardless of the difficulty of securing metal during the period of short supply. The figures for nine months of 1949 suggest that Kaiser and Reynolds are still gaining; even without including ingot sales to the United States for stockpiling. The importance of the latter sales will be elaborated upon in the section describing financial resources.

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This Table adds to each producer’s production and acquisitions as per Table IV, the recoverable portion of its purchases of new scrap, and its purchases of secondary derived from new scrap.

The breakdown of sales figures (Table V) shows that only in sheet sales does Alcoa face substantial competition from Reynolds and Kaiser. Alcoa’s potential power is apparent from its commanding position in the pig and ingot trade and that of fabricated products other than sheet. Suffice it to say here that Alcoa’s comparative advantages over Reynolds and Kaiser with regard to the diversification of the materials it sells permits it greater market stability in the face of fluctuating product demands.

The relative market positions for the period under review do not show prima facie monopoly power in Alcoa. But Alcoa’s two major competitors — Reynolds and Kaiser — together have secured only 35% of a market in which Alcoa enjoys 50%. Nevertheless, Reynolds and Kaiser have consistently enlarged their shares. Their capacity to continue to do so can be inferred only from an examination of the resources of the three integrated producers. The evidence supports the conclusion that the future aluminum market will be an expanding one. The resources of the competitors will have much to do with their respective abilities to embrace these new opportunites and, thus, will influence the development of future market position.

Price

Before entering upon a discussion of the resources of’ the three aluminum producers, attention should be paid to that aspect of past market operations reflected in price policy. The Government urges that Alcoa’s monopolistic power is manifest in its control over the price of aluminum pig and ingot as reflected in price uniformity; in price leadership on the part of Alcoa; and in the inability of the other producers to deviate for a protracted period from the prices charged by Alcoa.

Assuming the truth of these assertions, the criteria advanced in describing the aluminum market suggest the fallacy in the

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plaintiffs position. The reasons that convince me that the sales , of primary pig and ingot do not measure market position, lead me to conclude that the price of pig and ingot is not the critical factor. This price is determined, in large part, by the quantities of primary sold, to other fabricators of aluminum, 'and not by the amounts that are used by the integrated producers in their intramural operations.

As has previously been noted, Alcoa’s percentage of primary sales to other fabricators completely overshadows its competitors, but, the limited quantities of pig 'and ingot that have been sold by Reynolds and Kaiser have been more a matter of choice than necessity. It is not surprising that Alcoa’s commanding position in this phase of the market is accompanied by prime responsibility for prices. However, the extent to which prices can be raised is undoubtedly limited by the potential competition of the other two primary producers, a condition quite different from that existing when Alcoa, as the sole American producer, was adjudicated to be a monopoly.

Any' price control presently exercised by Alcoa is merely a facet of its concededly dominant position in this phase of the aluminum market. But, the rejection of this aspect of the market as reflecting the true relative positions'of the competitors, equally disqualifies the price leadership which may exist here as worthy of controlling significance. The propriety of relief in this proceeding cannot be decided by isolating for examination from the picture of the domestic aluminum industry which has been presented to me, a segment which portrays an utter distortion of the respective positions of the competitors in that industry, and deriving therefrom my conclusions. The Government has not demonstrated that Alcoa enjoys price leadership with regard to fabricated products, a matter which would have to be included if a true representation of the industry were sought. Nor has the United States established that post-war pig and ingot prices, when compared to costs, are so unreasonably low as to preclude Reynolds and Kaiser from this business. Accordingly, I. hold that price domination on the part of Alcoa has not been established, and that- the Government’s assertions fail. materially in offering grounds for remedial action against the defendant.

Physical Resources

Reduction: The present reduction capacity of the three integrated producers determines their respective immediate abilities to expand output of primary in order to capture new markets. Unutilized capacity in substantial amount may also indicate that fluctuating demands -are met by varying production rather than price — which may be an indicium of a non-competitive market. Moreover, excess capacity, due to carrying charges on unused facilities, tends towards higher costs, and therefore, higher prices.

The actual equipment capacity of a plant is not a true indication of its productive ability. The conversion of alumina into aluminum requires the use of large quantities of electrical energy. The availability of power to generate such energy determines, in the main, the productive utility of a plant. Not only must the power be •available, but it must be obtainable at relatively low costs. Water is the chief source of such power, but in some localities natural gas has lately been employed. Expenditures for power are major components of the production cost of pig. To produce aluminum at costs competitive with present prices of pig, and assuming that all other cost factors are favorable, the overall average power rate should not exceed four mills per kilowatt hour of electrical energy. Thus, the following estimates of capacity will embody the above concept of “economic capacity”, having reference to the availability and cost of electrical energy.

Alcoa: This company has four reduction plants now in operation. The largest is Alcoa’s wholly owned plant at Alcoa, Tennessee. It was built in 1914, and improved during the last war. This plant is supplied by power from the Tennessee Valley Authority (TVA), part of which is purchased, and part of which is received in exchange for power contributed to the TVA system by Alcoa’s own hydro-electric facilities in the vicinity. Alcoa has two contracts with TVA, one expiring in 1952, the other continuing through 1960. In 1948, the Tennes

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see plant produced some 273,960,000 pounds of pig. More power was purchased from TVA than was actually due Alcoa under its contracts, but the overall power costs at the plant did not exceed the competitive rate.

Alcoa’s own generating facilities appear to have been operating at maximum productivity, but the water supply in the area was somewhat below normal. Because of this fact, and since the equipment in the plant is capable of producing more pig than was actually manufactured in 1948, I compute the capacity of the plant at 290,600,000 pounds which represents an addition to the 1948 production of a quantity reflecting the increased output possible in a normal water year. The expiration, in 1952, of one of the contracts, if the power is not replaced, will reduce the plant’s capacity to about 232,200,000 pounds per year. However, the proof fails to establish that Alcoa will not be able to renew the contract, or otherwise obtain the power it requires. Accordingly, the annual capacity of Alcoa, Tenn., will be set at 290,600,000 pounds.

Alcoa owns another reduction plant, located at Badin, North Carolina. This plant was built in 1916 and improved during the last war. Power for the operation of these facilities is supplied entirely by Alcoa’s own hydro-electric facilities. Alcoa sells a large part of the power so generated for other purposes. Production at Badin in 1948 was about 59,000,000 pounds with very low average power costs. For the first nine months of 1949 Badin produced about 52,-000,000 pounds. The equipment in the plant is capable of producing some 80,000,000 pounds of pig. On the basis of the estimated output of Alcoa’s hydro-electric establishment in periods of normal water supply, the capacity of the Badin plant will be set at 67,700,000 pounds per year.

Alcoa’s second largest plant is located at Vancouver, Washington. It is owned by Alcoa, and was built in 1940. Power for the plant is obtained from the Bonneville Power Administration (BPA). The two contracts now in effect expire in 1959 and

1960,

respectively. Besides firm commitments for power represented by these contracts, additional power is available during' high water periods of the year. This power is known as “secondary,” and is supplied on an “if and when” basis. However, the 1948-1949 experience shows that secondary has been available at least sevén months of the year. With this in mind, although additional equipment is present at Vancouver, I will fix this plant’s capacity at 152,200,000 pounds per year.

Alcoa’s fourth plant, at Massena, New York, was built in 1900-1903. Power comes from three sources — Alcoa’s own generating facilities located in the area; a contract with the Quebec Hydro-Electric Commission which expires at the end of 1999; and additional purchases exclusive of the contract. Though Alcoa sells power for other uses, no evidence warrants the conclusion that Alcoa is free to devote this power to the reduction of pig. Accordingly, though there is ’Considerable excess equipment in the plant, the capacity will be fixed at 115,000,000 pounds per year.

Furthermore,' at the conclusion of the trial, Alcoa was constructing a plant at Point Comfort, Texas, to be placed in operation early in 1950. The electric power to be used there will be generated from natural gas. The capacity 'anticipated for this plant is 114,000,000 pounds per year.

Alcoá also formerly operated a plant at Niagara Falls, New York. This, plant, with a capacity of approximately 40,000,000 pounds , per year, was abandoned and scrapped in February, 1949. In computing Alcoa’s total, the reduction capacity of this plant will be omitted, and that of the Point Comfort plant included. On the above bases, Alcoa’s total present capacity is about 739,500,000 pounds of pig aluminum per year.

Reynolds:

This company owns and operates four reduction plants. Two were built by Reynolds itself, and two were purchased from the Government. The plant at Lister-hill, Alabama, was constructed by Reynolds in 1941.. Power is obtained from TVA under a contract which expires in 1960, providing for delivery of both firm and secondary power. The highest annual output of this plant was approximately 97,200,000 pounds, achieved in 1948. Power costs for that year were, slightly in excess of 4 mills per kilowatt hour at the plant. This high figure results from the fact that for that.

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year, -a sufficient quantity of secondary was unavailable to support such a high production rate. This required that power be purchased elsewhere at more than double the relatively inexpensive contract rates. However, the production figure for 1948 appears to be the oapacity of the plant in normal water years. A higher production, with the attendant necessity of purchasing additional high priced power, would seem to raise power costs above the competitive range. Accordingly, I fix the oapacity of this plant at 97,200,000 pounds per year.

Reynolds built its plant at Longview, Washington, in 1941. Power is purchased from the Bonneville Power Administration under two contracts, both of which expire early in 1961. BP A also makes available to Reynolds a small amount of power in addition to the total due under the contracts. The high production year was 1946 when the output was approximately 61,000,000 pounds. Although the power available to Reynolds at the plant would enable production to be somewhat higher than that figure, there is no showing that there is sufficient equipment to permit a greater output. For these reasons, the capacity of Longview will be set at 61,000,000 pounds per year.

Reynolds has operated another plant in the northwest at Troutdale, Oregon, since 1946. Alcoa built this plant for the Government in 1942. Reynolds leased the plant from the United States in 1946 and executed an agreement for its purchase on December 21, 1949. Power is obtained from BPA under a contract expiring in 1956. The record does not indicate whether secondary power is available at Troutdale. Reynolds rates the capacity of this plant at 144,000,-000 pounds pier year. Although production has never equalled this figure, and the power due under the contract could not support so great an output, in view of the absence of evidence regarding secondary, I must accept 144,000,000 pounds per year as the correct capacity of this plant.

On December 21, 1949, Reynolds purchased the reduction plant at Jones Mills, Arkansas, from the Government. This facility was built by Alcoa for the Government in 1942. ■ Reynolds has leased and operated half the plant (two potlines) since 1946. The remainder was leased to Reynolds in 1949, but.in that year, it operated but one of the two potlines, and then only for about four months. Power for the first two potlines comes from two sources. The major part is produced by Reynolds, itself, the energy being generated from purchased gas. This is supplemented by a contract operative until 1961 with the Arkansas Power and Light Co., a local utility, which provides for delivery of a small amount of additional power. High production for these two potlines occurred in 1948, when the output was about 75,700,000 pounds. The average power cost was under 4 mills. There is no evidence that these potlines are capable of producing more, and available power will not support an appreciably larger output. Accordingly, 75,700,000 pounds per year will be accepted as the capacity of these potlines.

Power for the remaining two potlines is supplied under a separate contract, having almost thirty years to run, with the Arkansas Power & Light Co. The energy is generated at the Lake Catherine Steam Plant. No annual production figures exist for these potlines for the post-war period, but their rated capacity is 72,000,000 pounds per year. Though the power due under its contract will support an output somewhat above this amount, there is no evidence to establish that the equipment is capable of additional productivity. Accordingly, I fix the capacity of these two pot-lines at 72,000,000 pounds per year.

The total capacity of the Reynolds’ reduction plants is 449,900,000 pounds of aluminum pig per year.

Kaiser:

This company owns and operates two aluminum reduction plants. The largest is the Mead plant at Spokane, Washington. It was built by Alcoa for the Government in 1942, leased to Kaiser in 1946, and purchased .by Kaiser on July 29, 1949. The company has a .contract with the Bonneville Power Administration, which expires in 1963, to supply the plant with firm and secondary power. Like Alcoa’s Vancouver plant, it seems that secondary is available only about seven months of the year. At this rate, the available firm and secondary power would be insufficient to operate all the equipment for the entire year. I calcu

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late that power can he supplied at Mead to produce 216,250,000 pounds of aluminum per year, and this will be considered to be the capacity of the plant.

Kaiser’s' other plant is also in the northwest, situated at Tacoma, Washington. This plant was built for the Government by Olin Industries Inc., in 1942. It was purchased from War Assets Administration by Kaiser in 1947. Power is obtained from BPA also, under a contract which expires in 1967. In addition, a block of power originally due under the contract governing delivery at the Mead plant has been transferred to Tacoma. The Kaiser Company rates the capacity of this plant at 48,500,000 pounds per year, which figure seems accurately to reflect the power available at the plant. Accordingly, I accept 48,500,000 pounds per year as the capacity of Tacoma.

The total capacity of the Kaiser reduction plants is 264,750,000 pounds of aluminum pig per year.

Conclusions:

The foregoing calculations disclose that Alcoa, presently owns 51% of the primary aluminum productive capacity in the United States. Reynolds has 31% and Kaiser, 18%. A comparison with 1948 production figures (Table IV — Market Position) shows that there was very little unused capacity in that year. Reynolds operated at about 90% of its then capacity, and Alcoa and Kaiser utilized over 95% of their own. The margin of current capacity over 1948 production is due to expansion by Alcoa and Reynolds — the addition of the Point Comfort plant in the case of Alcoa, and the absorption of the other two potlines at Jones Mills by Reynolds. Kaiser, alone, shows no significant increase of capacity over 1948 production figures.

The near-capacity operations of the companies in 1948 are undoubtedly attributable to the sellers’ market which prevailed at that time, and which influenced producers to expand output to secure the profits which were then afforded by favorable market conditions. It indicated a prosperous and competitive industry in that year — the market being sufficiently large as not to cause serious competitive friction among the three integrated producers. In 1949, these extremely favorable market conditions ño longer prevailed, but the outlook of the industry leaders still contemplates expanding future markets. Kaiser’s present facilities do not permit it appreciably to absorb additional market opportunities beyond those enjoyed in 1948. On the other hand, the combined capacities of Alcoa and Reynolds in excess of their 1948 production equal 75% of Kaiser’s total capacity. Thus, should the market not expand, but contract or remain substantially unchanged, Alcoa and Reynolds, with no increase in facilities, have capacity to jeopardize, if they so desire, the share of production now held by Kaiser.

Alumina: Approximately two pounds of aliimina are required to produce one pound of pig aluminum. Accordingly, production of pig will be limited to the extent that there is a deficiency in the supply of alumina. Any expansion of reduction capacity must be accompanied by a corresponding ratio increase of obtainable alumina.

Each of the three domestic producers of primary aluminum has its own alumina facilities. The capacity of these alumina plants is a factor to be taken into account in determining the respective abilities of the integrated producers to operate at present reduction capacity, and to meet alumina requirements if reduction capacity is to be further increased.

Alcoa:

In order to produce pig at the maximum annual capacity of its present reduction facilities, Alcoa needs 1,479,000,-000 pounds of alumina per year. That company owns two alumina plants. The largest, located at Mobile, Alabama, was constructed during 1939 to 1942. The capacity of this plant is 1,200,000,000 pounds of alumina per year.

Alcoa’s other plant is at East St. Louis, Illinois. It was built in 1904. Its efficiency is not as great as that of the Mobile establishment, production costs at East St. Louis being about 35% higher than at Mobile. The annual capacity of the last mentioned plant is at least 365,000,000 pounds of alumina. It also appears that by utilizing all of its equipment the plant may be capable of producing about two-thirds as much more.

Thus, Alcoa easily has alumina resources entirely sufficient to satisfy its present maximum needs. Beyond this, however, its

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excess capacity is not without limitation. From the testimony taken at the trial, it seems that Alcoa is anxious to replace the relatively inefficient East St. Louis plant with a more modern factory to be located in the northwest. Such plans; nevertheless, are more or less contingent on the company’s ability to develop a commercially feasible process for converting laterite, an aluminum ore found in that locality, into alumina. While the construction of such a plant is not yet under way, the length of time during which Alcoa has been considering the prospect suggests that definite action in that direction may not be long delayed.

Reynolds:

To operate its reduction facilities at capacity this company needs 899,-800,000 pounds of alumina per year. Reynolds’ major plant is located at Hurricane Creek, Arkansas. It was built for the Government by Alcoa in 1942, and leased to Reynolds from April, 1946 until December 21,1949, when it was purchased by the company. This plant is unique in that it is provided with lime-soda-sinter facilities which enable Reynolds to process low-grade bauxite ores upon an economic basis. These ores contain about 15% silica. If high-grade ore be used, the plant is capable of an annual capacity of 1,555,000,000 pounds. But, if only low-grade ore be used, it is doubtful as to whether the sintering facilities are sufficient to maintain this level of economic production. On the whole, however, it would seem that Reynolds, even with the use of inferior grades of bauxite, can meet its present maximum needs of alumina. Indeed, if at some future time, Reynolds should wish to make use of the large amount of its existing excess capacity, I am unable to say that the company could not procure the grades of bauxite that are requisite for such an undertaking. The Hurricane Creek plant is so designed that it operates without loss of efficiency when producing, as it does now, only half as much alumina as its capacity would permit. As to this, however, it must be remembered that some expense is entailed in maintaining idle equipment.

Reynolds owns another alumina plant which it constructed in 1941. It is located at Listerhill, Alabama. This plant has never functioned since the company put Hurricane Creek into operation. This was because the lease of the Hurricane Creek plant required that Reynolds must supply its own alumina needs to the extent of the capacity of that plant. The Listerhill establishment has a rated capacity of 200,-000,000 pounds a year, but R. S. Reynolds, Jr., president of the company, testified that it “is about to fall apart from rust now.”

Kaiser:

This company needs 529,500,000 pounds of alumina per year to produce pig at full capacity. Its one alumina plant, at Baton Rouge, Louisiana, was built by Alcoa for the Government in 1942-3. Kaiser leased the plant in early 1946, and became its owner on July 29, 1949. The sintering facilities for utilizing low-grade bauxite which had been in the plant during the war were removed by War Assets Administration and, thus, not acquired by Kaiser. Baton Rouge has capacity to produce annually 1,500,000,000 pounds of alumina, a quantity greatly in excess of Kaiser’s current requirements. The company improved its facilities at Baton Rouge by building a dock at a cost of $3,000,000, which makes possible direct shipments to the plant of imported bauxite by ocean-going vessels.

The National Security Clause of the purchase agreement for Baton Rouge obligates Kaiser, unless released by the Secretary of Defense, to maintain the present capacity of the plant until July 1, 1964. Presumably, a similar obligation accompanies Reynolds’ purchase of Hurricane Creek, but the actual draft of a Security Clause for that plant is not before me. ' The cost of maintaining idle equipment, though in excess of $100,000 a year for both Reynolds and Kaiser, is not a serious handicap in their competition with Alcoa. In fact, in an expanding aluminum market the excess capacity may prove a highly favorable factor toward aiding the growth of these companies.

Bauxite: The most usual practice in handling bauxite is to dry the mined bauxite before shipping, thus reducing its weight. About 4.4 pounds of dried bauxite are required for each pound of aluminum pig eventually produced.

The reserves of bauxite controlled by the respective integrated producers constitute another basis of comparison in evaluating the competitive abilities of the three com-

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pañíes. The present and future independence of each organization may be affected materially by its freedom of access to bauxite deposits.

Alcoa:

To supply this company’s maximum needs of bauxite, based on present reduction capacity, 1,407,946 gross tons of dry bauxite are required. The only considerable bauxite deposit within the United States is found in Arkansas. There, Alcoa owns about 83,000 gross tons of high-grade ore (not more than 7'% silica and not less than 55% alumina), and considerable, but unspecified quantities, of lower grade ore. From the latter, in each of the years 1947 and 1948, Alcoa shipped in excess of 300,000 gross tons to its alumina plants. Alcoa also owns domestic bauxite deposits in Georgia, Alabama, and Illinois. Apparently, they are of such low-grade quality as not to be of immediate importance.

About 73% of the bauxite now used by Alcoa comes from its foreign holdings. The major deposit is in Dutch Guiana, South America, and is estimated to contain about 30,000,000 gross tons. The ore is of high grade, containing no more than 2%% of silica. The company has outright ownership of only a part .of these ore fields. The remainder is held - under a concession from the Dutch government. Originally, the grant was to expire -in 1989, but due to political pressures, Alcoa was forced to revise its agreement in favor of the Dutch. The details of the revision are not in evidence.

Alcoa likewise enjoys a concession from the Dominican government on some 11,000,-000 gross tons of ore. While its precise grade was not made to appear- at the trial, the average alumina content has been described as under 50%. '

From the foregoing, it is obvious that Alcoa has vast resources of bauxite. They are of a-character that make it presently unnecessary for Alcoa to adopt existing processes, or to develop new methods, -for the economical ‘ utilization of low-grade ores.

Reynolds:

This company requires a maximum of 883,732 gross tons of dry bauxite per year, based on the present capacity of its reduction facilities. Reynolds, up until the presept, has supplied. its, needs almost exclusively from Arkansas ore, the deposits of which lie within a radius of 25 miles from the Hurricane Creek .alumina plant. It has two sources of Arkansas ore, either its own holdings or the government stockpile upon which in September, 1949, it acquired a twenty year option to purchase. The stockpile contains some 3,000,-000 gross tons of bauxite. The ■ precise amount of Arkansas bauxite actually owned by Reynolds is not-in evidence, but if its option on the stockpile be taken into account, it would appear that the company’s domestic bauxite resources are sufficient, at present rates of production, -to supply Hurricane Creek for some ten to twenty years.

Recent developments indicate that within about two years, Reynolds will abandon the use of Arkansas ore in order to conserve dwindling domestic resources. The company owns about 40,000,000 gross tons of bauxite in Jamaica. In addition, approximately the same amount is available to the company under options it holds on deposits in Jamaica and Haiti. Moreover, Reynolds has a contract with the Billiton Company for Dutch Guiana ore.

Having spent $1,000,000 in acquiring these foreign reserves, the Reynolds Company was apprehensive of its ability to secure an additional $12,000,000 in order to develop the-Jamaican properties. This difficulty has now been overcome by virtue of a financing agreement with ECA, as part of the Marshall plan,- which' is designed to improve' English dollar balances, and preserve, at the same time,- domestic bauxite reserves, in' event of emergency, for an American producer of aluminum. - In this -contract, ECA undertakes to advance to- the Reynolds Company not later than June 30, 1952, a total of $5,963,000, plus 1,800,000 pounds sterling, to - foster the utilization of the Jamaican ore. Reynolds, itself, will contribute $1,500,000 to the project. The advances are to be repaid at 4% interest over a; twenty year period in an equivalent quantity of aluminum pig or ingot based on then existing market prices. The aluminum so acquired by. the Government is in furtherance of the present stockpiling program, . . . , , . .

Jamaican bauxite has been described as high-grade ore, the silica content being no

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more than ’ 2%%. The use of imported ores, however, at Hurricane Creek will destroy one of the chief economies of that plant. Situated as it is, within short trucking distance of the Arkansas bauxite deposits, substantial savings in transportation costs are possible. Moreover, for the reception of imported ores, Alcoa’s alumina plant at Mobile, and Kaiser’s at Baton Rouge are more favorably located. These plants, one of which is situated on the Gulf of Mexico, and the other on the Mississippi River, enjoy close proximity to West Indian and South American sources of supply, and are directly accessible by ocean-going vessels. On the other hand, shipments of Jamaican ore to Reynolds’ Hurricane Creek plant will require an overland railroad haul, in addition to ocean transport -to a Gulf port.

The preceding recital clearly shows that Reynolds is in no foreseeable danger of losing access to adequate bauxite supplies. However, as stated above, in turning to foreign sources, it must relinquish some of the unique advantages which are now enjoyed at Hurricane Creek. ■

Kaiser:

This company, alone among the domestic producers of primary, does not presently supply its bauxite needs from its own reserves. From October 1, 1946, to September 30, 1949, Kaiser purchased 92% of its bauxite from Alcoa, and the remainder from the Government stock-pile.

The present maximum bauxite requirements of Kaiser, based on the capacity of its reduction facilities, is 520,044 gross tons of dry ore per year. At present, Kaiser relies on a contract with Alcoa, extending until 1963, for its bauxite supplies. This contract calls for deliveries of a maximum of 500,000 gross tons per year. The contract price is subject to variation, depending on Alcoa’s actual costs in Dutch Guiana, and its arrangements with the Dutch government. Kaiser is also entitled to enjoy whatever cheaper price is given to any other bauxite customer of Alcoa.

Kaiser officials have testified to their satisfaction with the Alcoa arrangement. The price is apparently the most reasonable one Kaiser could obtain, though the profit which Alcoa realizes on these bauxite sales is not in evidence. The contract also provides for shipment of the ore by the Alcoa Steamship Company. Rates for transport are to be negotiated every six months, but so long as Alcoa meets the terms of rival shippers, Kaiser is obligated to retain Alcoa to transport at least 90% of the ore.

Kaiser reserves the right to cancel the whole contract, or parts thereof, to the extent that it supplies bauxite to itself either from Kaiser-owned properties, or from bauxite fields upon which it has a concession or lease of at least twenty years duration. Cancellations can be made in units of no more than 100,000 gross tons per year, on six months notice, requiring, according to the terms of the contract, three years from the date of the first notice to cancel the entire contract.

Kaiser has taken steps to secure an independent bauxite supply. Prospecting concessions were acquired, and explorations have taken place in both Dutch and British Guiana. These areas, however, did not appear as inviting as the prospects in Jamaica, where in 1948, Kaiser held options on some 4,640 acres of land. On July 8, 1949, the Board of Directors of Kaiser authorized the exercise of the Jamaican options and the' construction, by the end of 1949, of a pilot plant at Baton Rouge to test the Jamaican ore. The company considers that conditions are very favorable in Jamaica for the inexpensive extraction and shipment of bauxite. Extensive deposits exist in Jamaica, and this ore is estimated to be lower in silica content than that found in Dutch Guiana.

The Government has strongly urged that Kaiser’s present dependence on Alcoa for bauxite is a serious impediment to effective competition between these two companies. Alcoa, it is said, can offer sufficiently attractive prices to Kaiser which will induce the latter company not to undertake the expense of developing its own reserves. Thus, Kaiser may gain in the short-run, but at the long-run sacrifice of independent integration. In this state of affairs, Kaiser’s interest may well favor a strong Alcoa as a protection to its own bauxite supplies.

Though the Government somewhat exaggerates the implications of this situation, it

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is doubtless true that Kaiser is handicapped by its lack of developed bauxite reserves. The contract has the effect of profiting Kaiser’s competitor, and at the same time, it raises Kaiser’s own costs of production above that of its competitor. Kaiser’s effort toward acquiring independent bauxite supplies shows that it appreciates the competitive value in possessing its own reserves. To be truly competitive, Kaiser must develop its own bauxite deposits, and this will require capital in amounts which Kaiser has not so far felt free to devote to this purpose. By contrast, Reynolds has undertaken the development of its reserves in anticipation of needs far in the future. Nothing now suggests that ECA will afford financing to Kaiser, as it did to Reynolds, to develop the Jamaican properties, especially since an impetus of the loan, the preservation of domestic bauxite resources, is lacking in the case of Kaiser.

Fabrications: The considerations which underlie an examination of this phase of the aluminum industry differ sharply from those having to do with the foregoing stages of the metal trade. The previous discussion had reference to the present and future capability of producers to supply the needs of the consumer of primary aluminum. Fabrication, on the other hand, relates primarily to the matter of supplying the thousand and one end products that are manufactured by the fabricators of aluminum to meet the demands of the public. Inasmuch as the demand for particular products tends to fluctuate, diversification of equipment and output permits of greater stability in market operations.

Moreover, fabrication capacity cannot be mathematically measured. It will depend upon the types of articles being produced, and the sizes of the orders therefor. For example, large orders of similar items of common alloy composition will permit capacity in some cases to be greater than if a variety of different products are to be made of hard alloys. However, even this is not an invariable' result. Indeéd, during the war some of the mills were so equipped that they could attain, when fabricating hard as compared to soft alloys, a higher degree of efficiency.

Each of the three integrated producers has fabrication facilities with a capacity that is at least double that of their reduction establishments. This insures that, among them, the bulk of sales, and therefore, the major competition, will take place in the sale and distribution of fabricated products. But, inasmuch as the monopoly of Alcoa, heretofore adjudicated, was in relation to aluminum in its pig and ingot stage, the fabrications picture was not fully developed at the time of trial. Nevertheless, any advantage held by a competitor in the fabrication stage of the industry will play an important part in permitting that company to hold or enlarge its share of the market. Thus, it is necessary to scrutinize such evidence in the record as bears upon fabrication resources, and, from this, seek to place an evaluation upon the comparative positions of the integrated producers in the fabricating field.

Alcoa:

This record does not reveal a full and accurate presentation of this company’s fabrication capacity. Its answer to the Government’s petition lists capacity at 999.495.000 pounds per year as of 1947. But this, I think, is an understatement, and for this reason: the above figures exclude metal which, when fabricated into a semi-finished form, is further worked by Alcoa into another product. Actually, aluminum articles are sold at various stages of manufacture, depending upon the needs and facilities of the purchasers. Thus, Alcoa’s figures are based on the estimated amount of metal which travels through its fabrication establishments, rather than the actual capacity of the equipment.

Mr. Wilson, Alcoa’s Senior Vice President, testified that the company’s fabricating capacity is at least double its reduction capacity, which, based on his estimate of reduction facilities, would be in excess of 1.175.786.000 pounds.- The precise total is unknown, and varies, no. doubt, with the nature and size -of the. articles being produced. . .

Production of sheet and related products (hereinafter referred to as “sheet”), for 1948, indicates that about half of Alcoa’s total fabrication capacity is designed to produce these forms of aluminum products.

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Though Alcoa’s petition states its sheet capacity to be 756,000,000 pounds per year, it is said that this figure is now unreliable because it represents wartime capacity based on standardized orders, on seven-day-a-week production, and on equipment since retired. In 1948, Alcoa’s major sheet establishment was at Alcoa, Tennessee; and additional facilities existed at Edgewater, New Jersey. In addition, a new sheet plant at Davenport, Iowa, was nearing completion in 1948. Its capacity is estimated at 120,000,-000 pounds per year, and the equipment will be capable of rolling the largest sheet in the world.

The remainder of the capacity is divided among several other types of products. The evidence is insufficient to support anything but very rough estimates as to the proportion each category bears to Alcoa’s total fabrication capacity.

About 15% of the total is devoted to the production of extrusions and tubing. Alcoa built the plant at Cressona, Pennsylvania, for the Government, in the course of the last war, and it acquired title thereto in 1946. Cressona’s product is limited to extrusions. Alcoa’s plants at Lafayette, Indiana; New Kensington, Pennsylvania; .and Vernon, California; produce both extrusions and tubi’.ig.

Some 17% of capacity is devoted to production of rod, bar, shapes, wire and cable. These facilities are mainly located at Mas-sena, New York, but some cable equipment ■exists at the Lafayette, Indiana, plant. Rod capacity will probably be somewhat increased when a new plant at Vancouver, Washington, under construction in 1949, is ■completed.

Casting equipment accounts for some 9% •of capacity. These facilities are found in a number of plants among which are those at Bridgeport, Connecticut; Chicago, Illinois;, Cleveland, Ohio; Detroit, Michigan; ■Garwood, New Jersey; and Vernon, California. •

Forging facilities represent an additional 4% of capacity. Forgings are produced .at the Cleveland, Ohio, and Yernon, Cali-iornia, mills.

. Alcoa’s aluminum foil capacity is about 3% of its total. The foil facilities are located at Edgewater, New Jersey; New Kensington, Pennsylvania; and Alcoa, Tennessee.

The remaining 2% is largely devoted to the manufacture of aluminum utensils, though some powder and paste are also produced. This equipment is in plants at New Kensington, Pennsylvania; Chilli-cothe, Ohio; and Alcoa, Tennessee.

Reynolds:

From the evidence, it can be estimated that this company’s fabricating facilities have a total capacity of some 760,000,000 pounds per year, or about 1.7 times its reduction capacity.

About 65% of the total is utilized for the production of sheet. Reynolds’ largest sheet mill is located at McCook, Illinois. Alcoa built the plant for the government during the war, and Reynolds operated it under lease from War Assets Administration since June, 1946. It was purchased by Reynolds on December 21, 1949. The company also owns a sheet mill at Lister-hill, Alabama. It was built for the Government, and was operated by Reynolds since 1941. In 1946, Reynolds purchased the plant from War Assets Administration. Another mill at LaGrange, Illinois, seems never to have been operated by Reynolds. It is too small to be useful, and the company is attempting to sell it.

Extrusions and tubing represent 12% of Reynolds’ total fabricating capacity. Reynolds has operated the Government built extrusion plant at Phoenix, Arizona, since 1947, and on December 29, 1949, contracted with War Assets Administration to purchase it. Another extrusion plant located at Grand Rapids, Michigan, was leased from War Assets Administration in June, 1946, and was purchased by Reynolds in April, 1949. This latter plant is not presently in operation and, in the past, has been only intermittently operated.

About 13% of Reynolds’ fabrication capacity -is devoted to the manufacture of rod, bar, shapes, and wire. The company’s Annual Report for 1948 indicates that plains are being made to manufacture cable,

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but so far as appears, the necessary equipment has not yet been installed. Facilities for the manufacture of the above products are located at Listerhill, Alabama, and Louisville, Kentucky.

Equipment for ' the production of aluminum foil constitutes approximately 8% of Reynolds’ fabrication capacity. The company originally entered the industry as , a foil producer, and right along has been the leader in this category. Foil plants are located at Richmond, Virginia, and Louisville, Kentucky.

The remaining 2% is devoted to production of aluminum powder and paste. The Louisville, Kentucky, plant also contains these facilities.

The evidence shows that Reynolds is without the ability to compete with Alcoa in the fields of castings, forgings, and cable. For the production of utensils, Reynolds is possessed of only an inconsequential facility at Lemont, Illinois.

Kaiser:

The total fabrication capacity of this company can be estimated as about 515,000,000 pounds per year, and this quantity is approximately twice the total reduction capacity.

About 56% of the total fabrication capacity is designed to produce sheet. These facilities are located at Trentwood, Washington. This plant was built for the Government in 1941-2 by United Engineering & Foundry Company in collaboration with Alcoa; was leased by Kaiser-in 1946, and purchased from War Assets Administration in July, 1949.

About 43% of Kaiser’s fabrication capacity is equipped to produce rod, bar, shapes, wire and cable. These facilities are located at a plant in Newark, Ohio. This establishment was built by Alcoa for the Government, and purchased by Kaiser from War Assets Administration in June, 1949. There may be some additional capacity in the plant remaining from the wartime facilities, especially to produce large bar, but the evidence does not suggest that this equipment is ready for present use.

The remaining 1% of fabricating capacity is designed to produce aluminum foil. A mill for this purpose was constructed at Permanente, California, and has been operated since March, 1949;

The evidence does not show Kaiser to have capacity to produce extrusions and tubing, castings, forgings, ' powder and paste, or utensils. Mr. Rhoades, Kaiser’s Vice President and General Manager, testified that the company is eager to expand into the extrusion field, but has no desire to go into castings.

Conclusions:

The foregoing summaries indicate that neither Reynolds nor Kaiser has its fabrication operations so completely diversified as Alcoa. Roughly 60% of the total fabrication capacity of the three companies is composed of sheet rolling equipment. Of this total, Alcoa’s share is-some 45-50%.

In the extrusion and tubing field, Alcoa’s-competition from the other two integrated' producers comes only from Reynolds. With respect to these products, Alcoa’s advantage in capacity is probably somewhere just short of two to one.

With reference to castings, forgings, and utensils, Reynolds and Kaiser can offer Alcoa no substantial competition. In these fields alone, Alcoa’s capacity exceeds

7%

of the total of the combined fabricating capacities of the three producers.

In three areas of activity, Alcoa appears-to be in a subordinate position to at least one of the other companies. Reynolds’ capacity to produce foil, together with powder and paste, is from one and one-half to-two times greater than the total of Alcoa’s- and Kaiser’s. Significantly, however, in. these items of manufacture the amount by which Reynolds’ capacity to produce the same exceeds Alcoa’s represents only about 1.5% of the total combined fabricating capacities of the three companies.

With reference to rod, bar, shapes, wire- and cable, Kaiser’s Newark, Ohio, plant alone probably contains a little more capacity than Alcoa presently possesses. Together, Kaiser and Reynolds have somewhat over one and one-half times the capacity of Alcoa. So far, the market effect of' Kaiser’s entry into this field cannot be estimated because the Newark plant had been; in operation only a few months when the:

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record in this proceeding was closed. Nevertheless, the relatively equal distribution of capacity in this important fabricating department is a factor that favors effective competition.

Cost Data Relevant to Physical Resources: The foregoing recitation of the physical resources of the three producers will provide a foundation for understanding the differentials in the respective costs of production and marketing of the domestic companies, and which are implicit in the present distribution of the aluminum properties. Competitive cost advantages can derive from the ownership of more efficient, more abundant, or more diversified establishments; and, also, from the favorable location of particular facilities with reference both to the sources of materials used in their operation, and to the easy and economical distribution of their products.

The basic instrument for understanding comparative costs of the three producers is an analysis of their major expense items with respect to pig production. These figures can represent either “mill costs” — i. e., just the costs of materials, labor, and plant overhead directly bearing on the manufacturing processes — or they can include, in addition, the proportionate amount of overhead, reflecting general administrative expenses and like items, estimated to be applicable to pig production. For the purposes at hand, “mill costs" are the more indicative figures. They will more accurately disclose the cost advantages incident to the physical resources of each competitor, and will not be affected by variants in' administrative organization which would be introduced by the inclusion of general overhead.

It is not suggested, nevertheless, that “mill costs” are either a full disclosure of the cost picture, or that they should be considered as a base upon which to compute the reasonableness of prices. For the moment, the purpose is to show that the present allocation of physical resources implies cost differentials which, for some time, can be expected to project themselves into the future. “Mill costs” summarize the items which account for these differentials, and these items are likely to be of a more permanent character and less easily adjusted than are the components of general overhead.

One might surmise that because Reynolds and Kaiser received the “cream” of the war surplus properties, their costs of pig production would evidence economies of operation unequaled by Alcoa’s older facilities. It is all the more significant, therefore, that Alcoa’s “mill costs” are still the lowest of the domestic producers of primary aluminum. This fact is just one more resource, though an important one, which goes to prove Alcoa’s present superior ability to survive and to expand.

The “mill costs” of the three producers, subdivided into three categories, for 1947, 1948, and the first nine months of 1949, appear in Table VII. These figures represent actual costs after deducting book profits' on intracompany transfers, and without allowance for return on investment.

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Raw Materials:

The differentials that here appear are largely explained by two circumstances previously considered: 1) Kaiser’s contract with Alcoa for its bauxite supply; 2) The proximity of Reynolds’ domestic bauxite fields to its alumina plant at Hurricane Creek.

1) Kaiser’s costs for raw materials run well over a cent per pound of pig above that of the other two companies. The significance of this figure is apparent when it is observed that total raw material costs for Alcoa and Reynolds range between three and four cents per pound of pig. Part of this difference is the profit that accrues to Alcoa on sales to Kaiser, and on ocean transport. An additional factor is the long railroad haul that is required to carry bauxite from Baton Rouge, Louisiana, to Kaiser’s reduction plants in the northwest. Together, these conditions account for cost disadvantages which Kaiser’s economies in other categories are insufficient to overcome.

2) The proximity of Reynolds’ bauxite fields to the Hurricane Creek alumina plant, and the Jones Mills reduction plant, all three in Arkansas, lessens Reynolds average transportation costs by about one cent per pound of pig as against those of Alcoa. But, certain other factors tend to diminish this initial economy. The result is that Reynolds’ total raw material costs do not reflect so large an advantage as first appears.

In this connection, it is appropriate to note that Reynolds’ favorable transportation conditions will not continue indefinitely. As already stated, the use of Jamaican bauxite should begin in a few years. This will, at least, raise Reynolds’ raw material costs to a parity with those of Alcoa, and perhaps to a higher figure. While bauxite shipments from Jamaica will constitute shorter hauls than those from Alcoa’s Dutch Guiana reserves, Reynolds will face the additional expense of transporting its raw material from a deep water port to its Arkansas plant. Reynolds’ present advantage in raw material costs helps it to overcome certain deficiencies in its other departments, but the known impermanency of this advantage cannot be ignored.

Power: Though Alcoa has the lowest average power costs, it,enjoys a substantial saving only over Reynolds. Both of Kaiser’s reduction plants are furnished power by Bonneville Power Administration, at costs of about two mills per kilowatt hour. Kaiser’s access to this inexpensive power probably offsets its disadvantage in having to ship alumina from Baton Rouge to the State of Washington.

Alcoa’s low power costs come about, in part, from its ownership of generating facilities. This affects all plants now operated except that at Vancouver, Washington, which is supplied with inexpensive Bonneville electricity. Power costs at Alcoa plants are about two mills per kilowatt hour except at Badin, North Carolina, where they are only half as much. The new plant at Point Comfort, Texas, will receive direct current electricity at a cost of about three mills per kilowatt hour. This higher cost power will have the effect, however, of • raising Alcoa’s average power costs by only about one-tenth of a cent per pound of pig.

Reynolds’ power costs average about six-tenths of a cent per pound of pig above Alcoa’s. Only two of Reynolds’ four reduction plants, those at Troutdale, Oregon, and Longview, Washington, are supplied with inexpensive Bonneville electricity. At the Listerhill, Alabama, plant, where power is purchased from TVA, costs run at least three mills per kilowatt hour. The same is true of the power cost for the two potlines presently in operation at Jones Mills, Arkansas. The contract price for electricity to be furnished the remaining two potlines at Jones Mills is also in the neighborhood of three mills and, thus, will not reduce. Reynolds’ average power costs.

Furthermore, the availability of power in the Jones Mills and Listerhill areas is definitely limited. The price of electricity beyond present contract commitments will be at considerably higher rates. Reynolds’ disadvantage in power costs, however, avoids being a serious handicap competitively so long as it is counterbalanced by the company’s favorable position with reference to, raw material costs.

Manufacturing costs:

The figures compiled in Table VII show that Alcoa oc

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cupies a middle position in this category. Its costs are slightly below Reynolds’, and somewhat above Kaiser’s. The Government claims, however, that Alcoa enjoys an advantage with regard to carbon electrodes, and that this results in the other producers having either higher costs or a decreased purity of pig. Since the electrodes are a component of manufacturing costs, this contention should now be examined.

Actually, the Government’s argument has to do primarily with the different conditions existing at Kaiser’s Mead and Tacoma reduction plants. At Tacoma, Soder-berg pots are installed. These permit the continuous production of carbon anodes in the reduction pots, themselves, and while the electrolysis of alumina is in process. Here, apparently, the carbon problem is not present. On the other hand, the carbons used at Mead must be prebaked in separate furnaces, and the finished product inserted in the pots. Difficulties arise from insufficient baking facilities at Mead, and are responsible for the dilemma of increased expense from acquisition of carbon electrodes from outside sources, or decreased purity from stretching the use of available carbons. Reynolds, also, does not have extensive Soderberg installations, and it may be tempted to trim costs by the overuse of its carbons.

A glance at Table VII shows that Kaiser enjoys the lowest manufacturing costs and Reynolds’ disadvantage is trifling. Accordingly, the matter assumes little importance unless these producers are reducing expenses by diminishing the purity of their pig output, and a substantial marketing handicap results from so doing.

The. evidence discloses that, whereas the aluminum content of 80-85% of Alcoa’s pig production is 99.7% or higher, only 38% of Reynolds’ production is of this purity, and but 45% of Kaiser’s. However, 62% of Reynolds’ pig production, and 71% of Kaiser’s pig, contain 99.6% of aluminum. The significance attributed to the purity of pig stems largely from the specification requirements established for the Government stockpile.

Originally, it was thought that the Government stockpile should be composed of Grade 5 pig, i. e., a minimum of 99.75% of aluminum, and maximum of .2% iron and .2% silicon. This specification was too high to enable Reynolds and Kaiser to supply this quality of metal from their inventories. Thereupon, the Munitions Board permitted these companies, in 1949, to contribute to the stockpile 36,000,000 pounds, and 24,000,-000 pounds, respectively, of pig, containing a minimum of 99.5% of aluminum, and a maximum of .35% iron and .2% silicon. The Board then adopted, over the vigorous objections of Reynolds and Kaiser, a higher specification for additional purchases by the Government. This calls for a minimum of 99.6% aluminum and a maximum of .25% iron and .15% silicon, an analysis which was deemed necessary to meet all aluminum requirements that might develop. Among the domestic producers of primary, Alcoa, alone, favored this specification, and said it could easily furnish the material, notwithstanding that it was contemplated that the producers, other than Alcoa, would supply the stockpile.

It is apparent that, although the production of 99.7% pig might unduly burden Kaiser and Reynolds, the production of 99.6% pig is not nearly as difficult. If Reynolds and Kaiser were to concentrate primarily on an output of pig, having a purity of 99.5%, it may be that this would enable them some flexibility in the way of cutting costs. Nevertheless, the evidence on production of 99.6% pig, and overall manufacturing costs, show that the carbon deficiency of these producers does not prevent them from producing pig of this purity in quantities sufficient to avail themselves of the opportunity to contribute to the Government stockpile, and this without a substantial cost disadvantage incident thereto.

It may be, nonetheless, that high purity pig is much more desirable in producing certain products such as electrical conductor cable, and foil, and in making usable a lower purity scrap. However, the evidence fails to make explicit any significant disadvantage which Reynolds and Kaiser bear, as compared to Alcoa, on this score.

As a result, I find that, in the category of manufacturing costs, the integrated producers are about upon a parity, and that

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whatever advantage Alcoa may possess with reference to carbon electrodes is of inconsequential effect on competition.

“Mill costs”

conclusions: The evidence establishes that Kaiser’s “mill costs” are some 10% higher than Alcoa’s the difference being about one cent per pound of pig. For Kaiser, a differential of this magnitude represents expenditures for the items composing “mill costs” of some two and one-half million dollars a year above Alcoa’s same expenses in producing an amount of aluminum equivalent to Kaiser’s output. This is not an inconsiderablé sum.

The 1948 and 1949 data shows Alcoa’s advantage over Reynolds to be only half as great as that over Kaiser. Even this difference, however, amounts over the year to a one and one-half to two million dollar additional expense for these items which Reynolds bears in comparison to Alcoa’s costs for a like output. The situation regarding Reynolds is further complicated by the probability that, in a few years, that company’s raw material costs, as previously indicated, are going to equal, and possibly exceed, those of Alcoa, due to the use of Jamaican bauxite. Since no evidence suggests that any of the other factors will be altered so as to compensate for this anticipated increase in costs, it may be assumed that, in a relatively short time interval, Alcoa will also have “mill costs” about one cent lower per pound than Reynolds.

As for Kaiser, the record discloses that, if exploitation of its own bauxite holdings will provide cheaper costs than under the Alcoa contract, the development of those fields, and cancellation of the Alcoa commitments, will take place. Kaiser has made some moves toward development of its own reserves, but the testimony of Kaiser officials, in affirming the desirability ' in a competitive sense of the Alcoa contract, and the company’s continued dependence upon that contract, casts doubt on the possibility of a substantial cost saving, in the near future, from the development of its own bauxite supply.

Thus, it is not’ foreseeable that the present “mill costs” disadvantage of Kaiser can soon be expected to diminish and, as already noted, the outlook for Reynolds is one of substantially increasing costs. But, even so, I cannot now conclude, under present market conditions, and such as are likely to prevail in the immediate future, that these “mill costs” differentials, by'themselves, will prevent effective competition among the three producers. Nevertheless, they are highly relevant in evaluating present competition, and in anticipating future developments. As such, they prove only that in one more aspect of a vastly interrelated complex, Alcoa enjoys an advantage over its principal competitors.

The record is practically destitute of evidence which bears on the costs of the fabrication stages of aluminüm production. It is a contention of the Government that the location of Reynolds’ and Kaiser’s plants with reference both to their integrated operations, and to their ultimate markets, leaves these producers with transportation costs of a higher level than those of Alcoa. Transportation' cost differentials existing in the stages of production from the mining of bauxite, to the output of pig, having been considered under “mill costs”, I shall here attempt a review of the remaining data which relates to transportation differentials.

The integrated operations of the three domestic producers of primary call, generally,' for two major movements of pig, once the reduction process is completed. Pig is shipped from the reduction plant to a fabricating establishment, and fabricated products are then transported to the independent consumer. Of course, incidental transfers may occur within the producer’s own system, e. g., if semi-fabricated aluminum is further processed into mote finished forms, but the basic relationships are those existing between reduction plants and fabrication facilities, and between fabrication plants and the ultimate market. For purposes of simplicity, I shall separately discuss these two relationships cognizant, however, of their interconnection in that an advantage in one may more than compensate for a disadvantage in the other.

I. From the-record it appears that Reynolds’ costs of transporting pig to sheet mills averages over one-half cent per pound higher than those of Alcoa-or Kaiser. Kaiser enjoys the lowest rates because -of the-

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proximity of its northwest reduction plants to its Trentwood, Washington, sheet mill. Alcoa’s rates are only slightly higher; the Alcoa, Tennessee, sheet mill being close by the reduction plant at the same location. However, a slight increase in average costs may be expected once the Davenport, Iowa, mill is utilized. Reynolds’ higher costs undoubtedly stem from the shipment of pig from its northwest reduction plants to the McCook, Illinois, sheet mill, though its other sheet facility at Listerhill, Alabama, is well situated with respect to the Lister-hill, and Jones Mills, Arkansas, reduction plants.

With regard to shipments from reduction plants to fabrication establishments other than sheet mills, the data is incomplete. This is so, as respects Kaiser, because its operations at the Newark, Ohio, rod, bar, and wire plant did not begin until the summer of 1949. However, some cost differential, unfavorable to Kaiser, will probably appear inasmuch as Alcoa’s comparable facility at Massena, New York, is located next to a reduction plant (and the new Vancouver, Washington, plant is similarly situated), while Reynolds has both a rod, bar, and wire mill and a reduction plant at Listerhill, Alabama. On the other hand, all pig for Kaiser’s Newark plant will have to be shipped from Washington to Ohio. As between Alcoa and Reynolds, the evidence shows that Alcoa’s advantage in lower transportation costs from reduction plants to fabrication facilities other than sheet mills, is even greater than the advantage it has over Reynolds in transportation costs to sheet mills alone.

II. The record describes, only sketchily, the relationship between fabricating plants and ultimate consumers. The inferences depend entirely on the proximity of the fabrication facilities to the principal industrial areas in the United States.

The Government has asserted that Kaiser’s only sheet mill, located at Trentwood, Washington, is particularly ill-placed, its location having been chosen as a wartime security expedient. It is true that, in shipments to eastern markets, this plant is at a disadvantage to the facilities of Alcoa and Reynolds, and that, at least in the case of Alcoa, this disadvantage is not compensated by Kaiser’s low costs in shipping pig to the mill. Though the Trent-wood plant is best located to supply west coast industry, not more than 10% of the national sheet market is located in this area.. Undoubtedly, the advantage in the western market offsets to a large extent the greater costs incurred in selling in the east, but since Kaiser sells less than half of its sheet in the west, some burden remains.

The location of Alcoa’s and Reynolds’ sheet mills are about on a par, whatever advantage, if any, enjoyed by Reynolds not being sufficient to overcome its inferior position in regard to the shipment of pig to the sheet plants.

In regard to the location of the plants fabricating other products, Alcoa’s establishments are all advantageously placed with reference to principal market. Reynolds’ facilities' are also well situated except, perhaps, for the extrusion mill at Phoenix, Arizona, the location of which was primarily determined, during the war, for security reasons. ■ Kaiser’s Newark, Ohio, plant is in the center of the eastern industrial region, and its foil mill in California is the only such plant west of St. Louis.

On the whole, of the three producers, Alcoa’s fabrication plants are probably best located so as to reduce transportation costs. The advantage thus accruing, however, cannot be considered of great significance in view of the absence from the record of data bearing on other costs in the fabrication stage. Without these other costs, the weight to be accorded the transportation differential cannot be known, and since the ■ differential, itself, has not been demonstrated to be startlingly large, reliance on it is inevitably precarious. Perhaps, its most significant value lies in the cumulative effect obtained from the successive negation of possible competitive advantages that might be advanced in favor of Reynolds or Kaiser.

In conclusion, I find that the abundance and diversity of Alcoa’s physical resources provide that company with cost advantages considerably superior to those of its

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integrated domestic competitors. The eradication of these differentials cannot be reasonably foreseen. In themselves, under present market conditions, they do not bar effective competition. Yet, they constitute an important element upon which the abilities of Reynolds and Kaiser to survive and expand may, at some time, depend.

Financial Resources

In seeking a conclusion with respect to conditions which have an important bearing upon the question as to whether Reynolds and Kaiser are now, and hereafter will be, capable of offering effective competition to Alcoa, it is essential that the present financial position of the respective companies, together with their available monetary resources, be taken into account. The abilities of the companies to survive, and to expand, as the demands of a developing industry may require, are largely dependent upon the ease — as well as the cost — with and at which they can obtain funds for capital expenditures.

However, the task of making an appraisal of the financial resources of these three companies, is complicated by the necessity of bearing in mind the unique character of the method by which Reynolds and Kaiser, for the most part, obtained the wherewithal to become integrated aluminum producers. For this reason, something more is required than a mere comparison of the figures set forth in the balance sheets and earnings statements of the three organizations.

Such competition as presently exists in the domestic production of primary aluminum is due, almost entirely, to the disposal program of the War Assets Administration. Reynolds and Kaiser are the ■beneficiaries of the execution of that program, and their existing financial structures, together with their respective capacities for further development, must be viewed in the light of the governmental patrimony that has been showered upon them. But, so far as can now be seen, the source of the patrimony with which Reynolds and Kaiser were first endowed, is all but exhausted.

This is so inasmuch as all of the prime aluminum facilities formerly owned by the Government, have been sold by the War Assets Administration. Moreover, if it now appears that Reynolds and Kaiser hereafter will feel the need for further subsidies from the United States in order to continue in business, the propriety of the relief against Alcoa that is sought in this proceeding will be reasonably apparent.

The disposal program of the War Assets Administration has been of definite advantage to Reynolds and Kaiser in two distinct ways. First, the purchase prices agreed upon for the acquisition of the Government’s plants by these companies are much less than the present fair value-of the properties. Second, the terms under which the purchase prices are to be paid! are remarkably liberal. The down payment for the major plants was but

5%

of the purchase price. The balance thereof is payable over a twenty-five year period, with interest at

4%

per annum. In addition, the companies have an option to furnish aluminum pig and ingot for the Government stockpile in the discharge of the sums still to be paid to the United States, together with interest thereon.

Obviously, the first of these benefits is not reflected in balance sheet data. The asset account of Kaiser apparently shows these acquisitions at their costs of purchase. The evidence does not disclose the accounting treatment Reynolds has accorded the plants purchased by it in December, 1949, inasmuch as this occurrence was several months subsequent to the date for which the latest financial statements of this company were available. In my estimation, however, the depreciated value of the six plants sold to Reynolds in 1949 was some $45,500,000 in excess of the purchase price of those facilities. Similarly, for Kaiser, the excess value of the- four plants it acquired in 1949 was some $27,300,000. The other plants purchased by these companies from War Assets Administration, prior to 1949, do not present differentials which will materially alter these figures. These

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estimates are independent of sums representing currently higher reproduction costs which would also he applicable to appreciate Alcoa’s figures.

At the same time, the value of Alcoa’s physical facilities, as shown by its books, is substantially less than their true worth. Under special provisions for the accelerated amortization of war emergency constructions, between 1940 and 1945, Alcoa wrote off some $225,000,000 worth of equipment that, following the year 1945, is not reflected in its asset account. During these years, by virtue of the special amortization allowances, Alcoa’s income and excess profits taxes were reduced to the extent of about $139,000,000. By this means, a large part of the cost of wartime construction was defrayed. As a result, there is little doubt that the values presently accorded Alcoa’s properties are less than their actual value by about $135,000,000.

The addition of this sum to Alcoa’s asset account substantially nullifies, for comparative purposes, the excess values in Reynolds’ and Kaiser’s assets. It is true that Reynolds, and perhaps Kaiser, took advantage of the wartime amortization to some extent, but, since their constructions were on a very much smaller scale than Alcoa’s, it does not appear that the addition of such amounts, even if calculable, would appreciably affect the comparative data.'

The Government appraises the size of the respective producers by comparing their total assets. Inasmuch as this basis ignores the offsetting factor of liabilities, a conclusion drawn therefrom may prove deceptive. For example, during the periods in which many of the War Assets Administration’s plants were leased by Reynolds and Kaiser, the asset accounts of these companies did not accurately reveal the true value of those facilities. However, the purchase agreements, consummated in 1949, have the effect of greatly enlarging those accounts whereas net worth, the difference between assets and liabilities, remains substantially unchanged. For these reasons, net worth would appear to provide the most stable grounds for an initial comparison of the resources of the three companies.

Actually, on a net worth basis, Alcoa’s comparative strength appears greater than that shown in the Government’s appraisal of the total assets of the three companies. Table VIII summarizes the relative positions of the companies with regard to net worth as found in their balance sheets. The marked superiority of Alcoa is immediately evident; its net worth being six times greater than that of Reynolds and nine times greater than that of Kaiser.

Even if the figures be revised for 1949 so as to reflect the unrecorded excess value of properties acquired by Reynolds and Kaiser in that year, the advantage of Alcoa is not substantially reduced. On this basis, when the present estimated value of Alcoa’s amortized properties is included, its percentage portion of the total net worth of the three companies is 73.6%, and if Alcoa’s assets are left unchanged from their book

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value, and only Reynolds’ and Kaiser’s assets are appreciated, Alcoa still retains 66.1% of total net ■worth; over three times greater than Reynolds, and five times greater than Kaiser. The financial strength revealed by these figures is wholly disproportionate to Alcoa’s percentage share, based on productive capacity alone.

This apparent financial strength of Alcoa is confirmed when the debt structures of the three companies are analyzed. On September 30, 1949, Alcoa’s long term debt was 125.3 millions of dollars, its total assets (book value) were 516.7 millions, and its net worth 314.1 millions. Of this indebtedness, 40 millions are owed to the Metropolitan Life Insurance Company on notes maturing in 1967, bearing 2.55% interest; 2.5 millions of principal being due every year, starting with 1952. Another 60 millions, of which 55 millions are held by Metropolitan Life, and the other 5 millions by trustees of the Aluminum Company of America Employees’ Retirement Plan, are represented by notes maturing in 1973, bearing 3% interest, the principal being repayable at the rate of 12 millions per year, starting in 1969. None of this debt is secured. The remaining 25.3 millions of long term obligations are not detailed in the record.

Although the latest complete financial data of Reynolds speaks as of September 30, 1949, the record has been enlarged to include its purchase from War Assets Administration in December, 1949, of five plants. The effect of this acquisition upon Reynolds’ balance sheet can be estimated, with a fair degree of accuracy, and the following figures represent the September data as modified by the adjustments necessary to account for the outright purchases. These figures, however, do not reflect the loan contract with ECA for development of Jamaican bauxite reserves because the evidence does not indicate that advances under the agreement have actually been made. On the above basis, Reynolds has a long term debt of 96.8 millions of dollars, total assets (book value taking the December, 1949, acquisitions at cost) of 170.6 millions, and net worth of 52.7 millions.

Reynolds’ long term indebtedness is subdivided among certain of its subsidiaries, and this permits isolation of specific properties for security purposes. The largest item is some 52 millions due .on the five plants purchased in 1949. The'obligation is that of Reynolds Aluminum Company, a wholly owned subsidiary of Reynolds Metals. The latter corporation has guaranteed the debt of its subsidiary up to 11.2 millions of dollars. The debt bears interest at 4%, and is secured by a lien on the plants. The principal is payable in gradually increasing installments over a twenty-five year period.

The second largest item is the 4% Serial First Mortgage Bonds of Reynolds Metals, held by the Reconstruction Finance Corporation. The long term principal amount outstanding in September, 1949, was 29.2 millions, of which 1.5 millions is due each year through 1959, and 15.7 millions are payable in 1960. It is secured by a lien on substantially all the physical assets of Reynolds Metals, and on the stock held by it in subsidiaries and affiliated companies. Reynolds Metals’ other obligations include 2.3 millions of purchase money notes due 1950-1959, primarily secured by the Louisville and Grand Rapids fabricating plants, 3.8 millions of bank notes payable 1951 to 1953, secured by an assignment of customers’ accounts payable; and .9 million 3%% debenture bonds due in 1951.

Reynolds Alloys Co., a wholly owned subsidiary of Reynolds Metals, owes 3.8 millions of dollars on a 4% note held by the British government. As security, Alloys has pledged all its real and tangible personal property. In addition, there is a purchase money mortgage on the Listerhill sheet mill of which the present long term principal indebtedness is 4.7 millions, payable 1950 to 1956. There are a few long term obligations of Reynolds Mining Co., another wholly owned subsidiary, but these aggregate only about .1 million dollars. The ECA advances, which may total close to 11 millions, when made, will constitute the debt of Reynolds Jamaica Mines, Ltd., still another wholly owned subsidiary of Reynolds Metals. -It is evident that the debt structure of Reynolds is such as to encumber substantially all of its tangible assets. ■

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Kaiser’s long term debt' as of September 30, 1949, amounted to 37.9 millions; its total assets (book value) were 87.4 millions, and its net worth 35.3 millions. Kaiser’s obligations are all represented by purchase money notes and mortgages on the plants acquired from War Assets Administration. They all bear interest at 4%. The long term principal amount due on the Tacoma plant is 1.6 millions payable over a period extending through 1957. The long term obligation on the Newark plant is 3.8 millions payable over a twenty year period. On the remaining three plants purchased in 1949, the long term principal obligations outstanding are 32.5 millions, which are to be repaid in installments extending over a twenty-five year period. Thus, most of Kaiser’s physical properties are also presently encumbered.

From the foregoing summary, the greatly superior credit position of Alcoa is unquestionable. In addition, the interest rates payable by Alcoa are less than those of Reynolds and Kaiser. In an expanding industry, such as is envisioned by all parties in this proceeding, ready access to substantial funds is a formidable factor in enabling one company to pre-empt new opportunities for development before they can be grasped by others. With reference to Reynolds’ and Kaiser’s present capital structures, their limits of financial expansion seem to have been reached whereas Alcoa has only partially borrowed on its equity. Alcoa’s total assets are 4.1 times its long term debt — its net worth is 2.5 times greater than its long term debt. Reynolds’ total assets are only 1.8 times its long-term debt, and its net worth is only 58% of that debt. Kaiser’s assets are 2.3 times its debt, but its worth is only 93% of the debt. These relationships are not critically altered by using the fair value of assets rather than book value; in fact, they may act to augment Alcoa’s superiority in that the additional asset worth would be reflected in unencumbered properties of Alcoa, whereas for Reynolds and Kaiser the appreciation must be applied to assets already pledged. It is true that if Alcoa were to negotiate additional loans and the same be secured, the company would also be required to secure equally the bulk of its outstanding notes. But, the equity of Alcoa is so vast in comparison to its two domestic competitors that, unless some serious offsetting factor is evident, it must be concluded that Alcoa is in such position that it alone can freely embrace new opportunities for development, and expand with the market.

The earnings of Alcoa, over the past three years, when compared to those of Reynolds and Kaiser, do nothing to impair Alcoa’s superio

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