INVESTIGATION OF SHIPYARD PROFITS HEARINGS BEFORE THE COMMITTEE ON THE MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES

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CIA-RDP64B00346R000400060002-4
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September 26, 1946
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14 0/ G A-RDP64600346R000400060002-4 EARINGS BEFORE THE COMMITTEE ON THE MERCHANT MIR E AND FISHERIES HOUSE OF RE. rtESENTATIVES , SEVENTY-NI. III CONGRESS SECOND SESSION PURSUANT TO THE AUTHORITY 01' H. Res. 38 A RESOLUTION AUTHORIZING INVESTIGATION OF THE NATIONAL DEFENSE PROGRAM AS IT RELATES TO THU COMMITTEE ON THE MERCHANT MARINE AND FISHERIES SEPTEMBER 23, 24, 25, AND 26, 1946 Printed for the use of the Committee on the Merchant Marine and Fisheries Approved For Release 2003/10/10 : CIA-R1DP641300346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4 INVESTIGATION OF SHIPYARD PROFITS HEARINGS BEFORE THE COMMITTEE ON THE MERCHANT MARINE AND FISHERIES HOUSE OF REPRESENTATIVES SEVENTY-ND7t1I dONGItESS SECOND SESSION STJANT TO THR AUTHORITY OF H. Res. 38 A RESOLUTION AUTHORIZING INVESTIGATION OF THE NATIONAL?DEFENSE PROGRAM AS IT RELATE.S' THE. COMMITTEE ON THE MERCHANT IVIARINE AND FISHERIES SEPTEMBER 23, 4, 25, AND 25, 1946 Printed for the use of the Committee on the Merchant Marine and Fisheries UNITED STATES GOVERNMENT PRINTING OFFICE '83488 WASHINGTON : 1946 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release.2003/10/10 : CIA-RDP641300346R000400060002-4 COM 'WEE ON THE MERCHANT MARINE AND FISHERIES SCHUYLER OTIS BLAND, Virginia, Chairman JOSEPH J. ANSFIELD, Texas EDWARD J. ART, New Jersey FRANK W. OYBIN, Alabama J. HARDIN ETERSON, Florida HERBERT C. BONNER, North Carolina JAMES DOMENGEAUX, Louisiana HENRY M. JACKSON, Washington EUGENE J. RALPH D ELLIS E. PA HUGH PETE II Approved For EOGH, New York UGHTON, Virginia TERSON, California SON, Georgia RICHARD J. WELCH, California -FRED BRADLEY, Michigan ALVIN P. WEICHEL, Ohio CHRISTIAN A. HERTER, Massachusetts RALPH E. CHURCH, Illinois ELLSWORTH B. BUCK, New York ROBERT HALE, Maine SAMUEL K. McCONNELL, JR., Pennsylvania T. MILLET HAND, New Jersey E. L. BARTLETT, Alaska J. R. FARRINGTON, Hawaii MAETIN J. CoLus, General Counsel NATHANIEL C. W. GENNETT, Jr., Associate Counsel REGINALD S. LOSEE, Chief Investigator THERESE M. PIERSON, Clerk IOLIZABETH B. BEDELL, Assistant Clerk , Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 CONTENTS Statements of? Page Ainslow, Albert H., treasurer, St. Johns River Shipbuilding Co__ __ 306-344 Bechtel, K. K. president, Marinship Corp 248-256 Casey, Ralph E. representative of General Accounting Office 4-40 Gerhauser, W. II., president, Delta Shipbuilding Co 265-274 Homer, Arthur B., president, Bethlehem-Fairfield Shipyards, Inc 344-370 ? Jones, Edwin L. secretary-treasurer, J. A. Jones Construction Co_ 256-263 Kaiser, Edgar V., representing Kaiser Co., Inc., Permanente Metals ? Corp., Kaiser Cargo, Inc., Oregon Shipbuilding Co 74-121 Kaiser, Henry J., Kaiser group Kaiser Co., Inc.; Permanente Metals Corp.; Oregon Shipbuilding Corp.; Kaiser Cargo, Inc__ __ 40-74, 121-189 Knoeppel, F. J., vice president, Consolidated Steel Co 299-306, Lanier, Thomas L., assistant comptroller, North Carolina Ship- building Co 287-294 MacLeod, Charles H., administrative manager and assistant secre- tary, Walsh-Kaiser Co 274-287 Maiden, Norman G. certified public accountant of Arthur Young & Co., representing Todd-Houston Shipbuildinq Corp 233-247 McCone, John A., president, California Shipbuilding Corp 189-225 Slattery, William L. Director, Division of Finance, Maritime Corn- mission: United States 295-299 Stoler, Michael L., certified public accountant of Brout & Co., repre- senting New England Shipbuilding Corp 225-232 ;Ex hibits: 1. Letter, dated July 13, 1946, from United States Maritime Com- mission, to Hon. S. 0. Bland, giving supplemental information on fees of shipyard operators in relation to their capital invest- ? ment (reference, Document 57) (2 enclosures) 371 2. Fees of shipyard operators in relation to their capital investment under ship contracts with United States Maritime Commission. 372 3. Letter, dated September 19, 1946, from Kaiser Co., Inc., concern- ing shipbuilding corporations comprising the Kaiser group (Kaiser ownership charts attached) 373 4. Report of Kaiser Co., Inc., dated August 29, 1946 374 5. Supplementary statement of Henry J. Kaiser on questions asked by committee counsel on September 23, 1946, before the House Committee on the Merchant Marine and Fisheries, dated September 24, 1946 403 6. War Production Board chart on authorizations of war manu- facturing facilities financed with public and private funds , through August 1944, dated January 20, 1945 407 7. United States Maritime Commission memorandum on termina- tion settlement with Kaiser Co., Inc., Richmond, Calif 412 8. Letter dated September 17, 1946, from Mr. F. M. Bianco, Acting Director, Financial Policy Division, to the general counsel, containing list of necessity certificates issued to the Kaiser Co., Inc., the Permanente Corp., and the Permanente Metals Corp_ 414 9. American Bureau of Shipping Report (p. 26 of January issue of the Bulletin) showing number and average time to complete Liberty ships constructed by each shipyard 416 10. Kaiser Companies, adjustments to reported profits rates prepared by committee staff 417 11. Report of the Permanente Metals Corp. and Richmond Shipbuild- ing corp., dated August 30, 1946 421 12. Report of Kaiser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.), dated August 30, 1946 449 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For lease 2003/10/10 : CIA-RDP64600346R000400060002-4 IV CONTENTS Exhibits?Continued Page 13. Rep rt of Oregon Shipbuilding Corp., dated August 30, 1946 465 14. California Shipbuilding Corp. reports 482 15. Nem); England Shipbuilding Corp. reports 491 16. Todd-Houston Shipbuilding Co. reports 497 17. Matinship Corp. reports_ 504 18. J. A. Jones Construction CoL report 514 19. Delta Shipbuilding Co., Inc., report 518 20. Walsh-Kaiser Co. Inc., reports 521 21. Chart: EC2-S-C1 costs (estimated), cost-plus contracts 525 22. North Carolina Shipbuilding Co., reports 526 23. Colisolidated Steel Corp., reports 531 24. St. Johns River Shipbuilding Co., reports 543 25. St. Johns River Shipbuilding Co., letter, dated October 18, 1946, rSgarding tax returns (photostats) 550 26. Bethlehem-Fairfield Shipyards, Inc., report, dated August 14, 1046 594 , 27. Barrett & Hilp report, dated September 4, 1946, supplemented by their telegram of October 15,1946 601 28. McCloskey & Co., report, dated August 13, 1946 603 " 29. Sotitheastern Shipbuilding Corp., report, dated August 15, 1946_ 606 30. East Coast Shipyards, Inc.' report, dated August 28, 1946 613 - 31. Copy of letter, dated July 27, 1946, addressed to each of 19 con- tractors requesting information 620 32. Copy of letter, dated September 9, 1946, addressed to eac hof 19 ontractors advising date of hearings 621 33. St. Johns River Shipbuilding Co. Maritime Commission inter- ffice memo re renegotiation contract MCc-34743, dated Sep- ember 11, 1945 621 34. Ni eteen contractors operating yards completely constructed ith Government funds. United States Maritime Commission etter to Marine and Fisheries Committee, October 22, 1946_ _ 621 35. F rther answers to hearing questions addressed to Henry J. aiser 622 36. M moranda prepared by General Accounting Office with respect o 8elective-price contracts issued by the United States Mari- ime Commission 685 Approved F r Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 INVESTIGATION OF SHIPYARD PROFITS ? MONDAY, SEPTEMBER 23, 1946 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE MERCHANT MARINE AND FISHERIES, SUBCOMMITTEE TO STUDY SHIPYARD PROFITS,ashington,. C. The subcommittee met at 10 a. m., Hon. Schuyler Otis Bland (chair- man of the committee) presiding. Present: Representatives Bland (chairman), Bradley, Weichel, Herter, and McConnell. Also present: Marvin J. Coles, general counsel for the committee; Nathaniel C. W. Gennett, Jr., associate counsel; Frederick N. Jones, assistant counsel; Reginald S. Losee, chief investigator. The CHAIRMAN. The subcommittee will meet. I have asked as many of the members of the subcommittee as possible to meet with me purely as a subcommittee for the purpose of taking testimony on such mat- ters as counsel for the investigation committee desires to bring before the subcommittee. We have no authority to pass on anything. It simply means getting the information before the committee, as has been done many times. I have appointed subcommittees before that ? went out to take testimony. I did not know who would be here. I called in all who were able to come, and they will operate as a subcom- mittee fo-r the purpose of taking testimony. The subcommittee now meets. Mr. Counsel for the committee, do you have any statement to make? I wish, before you begin, to say that we are concerned only with the profits of the shipbuilding companies. Extraneous matters are not permissible. Mr. CoLEs. During the recent war, great numbers of merchant ships were needed and needed quickly. Existing shipyards were not sufficient for the task and companies and men with shipbuilding ex- perience were not available in sufficient numbers to do the job. To obtain the needed merchant ships the Government was forced to turn to newly formed companies, most with little capital and with little background or experience in shipbuilding The production job done by these shipyards was excellent. Thou- sands of ships were built faster than had previously been though posSible. But while the shipbuilding program was effective it was also costly. Previous committee hearings have shown, and the Mari- time Commission has tecently admitted, that in parts of the program there was waste, extravagance, and high cost. One factor in these costs, which so far has received little public attention is the profits and fees paid by the Government to the various shipbuilding organizations. Early in 1944 this committee held hear- 1 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 2 Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS ings on the subject of profits and fees paid to operators of shipyards. No report was then issued as, I am informed, the committee was told the issuance of such a report might have hindered the continued opti- mum operation of'the construction program. The CirArmgAINT. I thought a report was made. Mr. COLE. No, sit; no report was issued. Today the facts involved can be revealed without any possible im- pediment to the war effort. I feel sure that all of us here strongly believe in the profits system. It is the basis of our American economy. All of us further believe, I am sure, that even in dealings where the Government is the sole customer, aid even during wartime, our Nation's industry is entitled to a reason ble profit for its efforts and risks. At the same time, un- reasonable wartime profits and war profiteering must be condemned. . During the next few days, this commitee will receive evidence as to the profits 4nd fees which were made by the various companies operat- ,ing Governinent-owned shipyards. The determination which the com- mittee must make is whether the amounts they received as fees and profits were reasonable and proper, or unreasonable and unconscion- able. . There is .no accurate formula or rule to measure this, nor any precise dividing line as to what constitutes reasonableness or what ,constitutes profiteering in the unpleasant sense of that/ word. liut I belieye that sufficient information can be brought before this com- mittee for it to have sound grounds upon which it can determine whether the amounts paid to these companies were proper compensa- tion for.their work or excessive and unconscionable profiteering made at the expense of the ta' xpayer. The shipbuilding program .was so huge that it can be dealt with and understood only by taking it in small bites.. In this series of hearings, therefore, the committee staff will confine itself to the pre- sentation of data concerning shipyards which were wholly owned by the Government and the fees and profits which these yards made. A study of the profits of other shipyards will be made as SOOR as time will permit. The,shipvards which will be referred to during the present hearings were built olely with Government funds and were fully owned by the Governme t. In most cases, I believe it will be found that the operator of the shipyard had no money Of his own invested in the physical plant. The procedure used was for the Maritime Commission to make two contracts ith the newly formed company. The first, usually referred to as the, facilites contract, provided that the company would build a yard at the expense of the Government. The second contract would provide that the contractor would construct ships in that yard. 4 worciiseems necessary at this time about these shipbuilding con- tracts. Most of these ship construction contracts were on a basis known a.s Cest-plus-a-fixed-fee. Under these contracts, the contractor was reimbiirsed for all ,costs, including labor, material, management, salaries, interest, overhead, and other factors going to make up the total cost f the vessels built. In addition, he received a fee varying in amount between a specified maximum and minimum, with the actual fee, paid cetcrniined. by the time required to build the ship and the number o man-hours used. You will note that, under this type of .contract, all costs and expenses were reimbursed and there was no Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS , 3 possibility of loss to the operator. The question then arises as to what the fees were paid for. I am informed, and it will be brought out later, that under the other forms of contract used, usually referred to as price-minus, selective price, and fixed price, the risk was likewise small. At this time, I should like to introduce into the record as exhibit 1 certain documents furnished by Admiral Smith, of the Maritime Com- mission, in response to our request and to furnish each member with a copy of this exhibit. I believe I have given a copy of that exhibit to you. It is a letter from Admiral Smith dated July 13, 1946. Mr. BRADLEY. We will have an opportunity to question Admiral Smith on this letter, I suppose? The CHAIRMAN. ires. (Document so described was received and marked "Exhibit No. 1.") Mr. COLES. You will note from this exhibit that the Government spent $424,250,691 for the construction of shipyards which were oper- ated by the 19 companies listed therein. I might add, parenthetically, that figures furnished the committee by Admiral Smith indicate that little if anyhing will be realized from their sale as surplus. Turning to the next column, you will see that these 19 companies had total combined net worth of their own of only $22,975,275. It should be noted, however, that this money of the operators was the capital which they had available and was not actual investment in the shipyard itself. Now, turning to the last column, you will see that these 19 shipyards received total fees and profits from the ? Government of $356,006,612. This committee's basic problem is to determine whether or not, under all of the circumstances involved, these profits and fees were reasonable or whether they constituted unreasonable profits and profiteering. Two caveats should be noted about these profit figures. First, is that some of the profits which are included in the last column are before renegotiation. If you will look at the last page of this exhibit, however, and as will be more fully brought out through introduction of the financial records furnished by the various companies involved, the renegotiation process recovered but a comparatively small per- centage of the fees and profits paid. The second matter to note is that parts fef these fees were subject to recovery through taxes. As will be brought out later, however, certain companies making large profits from shipbuilding operations paid practically no taxes. You will note that there are asterisks next to the names of six ship- yards. These shipyards were owned and operated by what we can call the Henry J. Kaiser group. The sum total of the fees and profits received by these Kaiser group yards amounts to $192,237,284. Your attention is also invited to one of the smaller yards known as the St. Johns River Shipbuilding Co., where the figures furnished us by the Commission show that they liad a total invested capital of $600, that their profits and fees were $2,080,000, giving a total return on their capital investment of almost 350,000 percent. If the committee approves, I should like to call as our first witness a representative of the General Accounting Office, Mr. Casey, to testify concerning the general background of these contracts. Subsequent to his testimony, we can call upon representatives of each of the coin- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 4 SHIPYARD PROFITS panies that operated government-owned shipyards to supply informa- tion as to the financial structure and profits of their organizations and to explain their views concerning them. We can also call upon representatives of the Maritime Commission for their views. The CI-AIRMAN. The Chair wishes to announce that Mr. Herter, a member of the committee from Massachusetts, will be here later. His train is late, and that is the reason that he is not present,now. Mr. Casey, have you been sworn? ? ME. CA?EY. No, RE. The CAiRmAN. Do you solemnly swear that the evidence you will give will he the truth, the whole truth, and nothing but the truth, so help you God? Mr. C.A.Y. I do. TESTIliONY OF RALPH E. CASEY, REPRESENTATIVE OF THE GENERAL ACCOUNTING OFFICE Mr. COIrES. Mr. Casey, will you tell us, for the purpose of the record, your full name? Mr. CA?EY. Ralph E. Casey. Mr. Cons. Whom do you represent? Mr. CA?EY. The General Accounting Office. Mr. COES. And are thea views which you are going to express today the official views of the Comptroller General and the General Account- ing Office? Mr. CA?EY. The Comptroller General has read this prepared state- ment and says he figrees a hundred percent with it. Mr. COEES. Will you read that statement, Mr. Casey? Mr. CASrEY. Mr. Chairman and members of the committee you will recall that about 2 months ago, the Comptroller General of the United States appeared before the Special Senate Committee Investigating the National Defense Program to express his views on the general subject of wartime procurement by the Government. You will re- call further that in his statement before that committee he pointed out some of the weaknesses and deficiencies in our system of procure- ment during the war period?weaknesses and deficiencies which could only result in excessive and extravagant expenditures of public funds and the realizing of unreasonable and excessive profits by those con- tracting with the Government. He described briefly the inherent viciousness of the cost-plus form of contract; the practically limitless power an authority conferred upon the procurement agencies by the First War Powers Act; and finally, the helplessness of the General Accounting. Office under existing law to question any renegotiation or terminatiOn settlement no matter how favorable to the contractor the terms of such settlement might be. The thought which the Comp- troller General left with that committee was that it could render in- valuable service to the nation by calling attention to the need for restoring some of the safeguards, checks and controls which experi- ence has 4ictated are absolutely essential to the protection of the tax- payers ag1ainst excessive and illegal expenditures of public funds. lecently, there has come to the attention of the &eneral Account- ing Office 7a letter from the Chairman of the Maritime Commission, ? to the chiarman of this committee, enclosing a copy of a tabulation Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 5 entitled "Fees of Shipyard Operators in Relation to Their Capital Investment Under Ship Construction Contracts With the United States Maritime Commission." - Mr. BRADLEY. Is that the same statement that was referred to by counsel? Mr. CASEY. That is exhibit 1, sir. We have had occasion to examine this statement to some extent, and on the basis of that examination, it is our view that the statistics reflected thereon, considered in the light of facts and circumstances of which the General Accounting Office has been cognizant through- out the war, represent to a marked degree precisely what the Comp- troller General had in mind in the statement referred to above. In a sense' the figures contained on this tabulation speak for them- selves. That is to say, it shows that one company, the St Johns River Shipbuilding Corp., with an original investment of but $600, realized profits estimated at $2,080,000 or 346,666 percent of their capital investment. Also, it indicates that companies owned or con- trolled by Henry J. Kaiser and his associates, namely, California Shipbuilding Corp., Kaiser Co., Inc., Kaiser. Cargo, Inc., Oregon Shipbuilding Corp., Permanente Metals Corp., and Walsh-Kaiser, Inc., had a total capital investment of $2,510,000 and made profits estimated at $192,237,284, in other words, these companies with but one-ninth of the total private capital invested, realized more than half the total profits. It would seem that when profits from Govern- ment contracts paid from public funds soar to such astronomical heights in proportion to invested capital, someone?either Govern- ment representative or contractor?should come forward with a sat- isfactory explanation. It is our understanding that the purpose of the present investiga- tion and hearings is to enable the committee to decide whether the profits realized by these shipbuilding companies are reasonable in amount. And it is solely in the interest of aiding the committee in reaching its conclusion, that representatives of the General Ac- counting. Office appear here today pursuant to your invitation. To that end, it will be our primary purpose to lay before this committee facts, contracting methods and operating procedures which, in our opinion, have a material bearing on the issue to be decided. In the first place, information of record in the `General Accounting Office would indicate that the figures contained on this tabulation with respect to the capital investment of each shipyard operator are mis- leading. It is believed, in some instances at least, that a substantial part of what is denoted as capital investment represents profits and fees paid from public funds. For example, the California Shipbuilding Corp. was incorporated under date of January 6, 1941, and the entire original cash invest- menti n the corporation, represented by 1,000 shares of capital stock at a par value of $100 per share, consisted of $50,000, invested by the Todd Shipyards Corp., and .$50,000, invested by 10 companies affilitaecl with Ilenry J. Kaiser. About a year later, CID February 19, 1942, a meeting was called for the purpose of declaring dividends out of the surplus of the corporation. The minutes of tnis meeting read: , Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 6 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS After a full discussion, upon motion, duly made, seconded, and carried, it was Unanimously resolved, that a dividend in the amount of $1,000 per share, be and the same hereby is declared on all issued stock of this corporation payable on February 19, 1942, to stockholders of record as of the clase of business on rebruary 18, 1942. , This divi4nd was payable in cash or in stock at the option of the , stockholder at a value of $100 per share. Thereupo , a series of transactions took place which had the effect of : (1) The cancellation of and reissuance to the remaininort-, stock- holders of the 500 shares originally held by Todd Shipyards Corp.; (2) the declaration of a $500,000 stock dividend and a $500,000 cash dividend; () cancellation and reissuance of about one-third of the P25 shares.received by the Henry J. Kaiser Co., as a stock dividend; (4) cancellation and reissuance of about one-third of the 625 shares received by the Kaiser Co. as a stock dividend; and (5) cancellation and reissua4ce of about one-half of the 455 shares received by the , General Construction Co. as a dividend. . This information, which was contained in a report made by in- vestigators of the General Accounting Office, would indicate that the figure of $660,000 shown in this tabulation as invested capital of the shipyard operator consists of but $100,000 of private capital, the relnaming $500,000 consisting of profits from Maritime Commission contracts. Now, turuing once again to the general aspects of the matter of profits, I should like to describe briefly the nature and characteristics of the form of contracts employed by the Maritime Commission in the building of ships. - In the first place, the Government furnished the contractors listed on this tabulation with a fully equipped shipyard. This was ac- complished linder a so-called facilities contract. The Maritime Corn- Mission agreed to purchase, lease, or otherwise acquire the land on Which the contractor was to build a shipyard according to approved plans and specifications. The contract provided that the complete Cost of buile mg the yard would be paid to the contractor by the Com- mission wifi the understanding that the work would be performed without profit. Title to the facilities vested in the United States, but for the purposes of carrying out his vessel construction contracts, the contractor was given use of the facilities without the payment of ient or other ,fees or charges. ' Then, with respect to the vessel construction contracts themselves, T should like to point out, first, the salient features of the so-called cost-plus-a-fixed-fee form of contract. Under such a contract, the Contractor agrees to construct a specified number of vessels according to plans and specifications and to deliver the vessels on certain speci- fied. dates. The Commission agrees to pay, or cause to be paid, to the contractor the entire cost of performing the contract plus a fee for each ve set; 'as provided therein. The costs are to be governed by the rules and regulations issued by the Commission entitled "Regula- tions Prescribing the Method of Determining Profit Adopted May 4 r, 1M9." owever, the contract itself lists the following as reim- bursable costs: " (1) The net cost of all materials, equipment, and machinery pur- chased for the construction of the vessels. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 7 (2) The actual cost of all labor properly chargeable to the construc- tion of the vessels including bonuses, overtime, and vacation pay. ' (3) The salaries and wages of officers, managers, superintendents, foremen, engineers, draftsmen, supervisors, storekeepers, clerks, and laborers, and all other employees on the pay roll of the contractor who are engaged in the maintenance, construction, or protection of the vessels or in the maintenance, operation, and protection of the facili- ties and the premises on which they are constructed, or in clerical or administrative work in connection with any of such activities. (4) The net cost of engineering services, plans and specifications, and reasonable legal and accounting fees specifically approved by the Commission, and charges for clerical and administrative services ren- dered by others (including affiliates) provided such charges are ap- proved .by the Commission. (5) The actual cost of delivery of the vessels and of any trials and tests. (6) Rental payments under any lease approved by the Commis- sion under the vessels contract. (7) Rental payments for equipment. (8) The actual net cost of fuel, power, water, stationery, telephone, telegraph, reasonable traveling and transportation expense of em- ployees, freight, express, trucking, unloading and handling costs, per- mits, licenses, royalties for the use of patents when authorized by the Commission or required by the design of the vessel, taxes, insurance and bond expense, and the actual net cost of replacing any work or vessels, destroyed or damaged and not covered by insurance. (9) Actual Interest paid or accrued for payment (subject to certain limitations) on loans incitteed solely for the performance of the con- tract work. (10) The actual net cost of supplies, tools, and equipment purchased and used in the construction of the vessels. (11) General administrative and operating expenses of the con- tractor incurred in performance of the contract not otherwise pro- vided for. (12) The actual net cost to the contractor of carrying on a training program, reasonable in extent, for the training of employees for the shipbuilding project. (13) State, city, and county taxes against the land and improve- rnents upon which the vessels are to be constructed. (14) All proper cancellation costs and charges where cancellations or terminations are directed and approved by the Commission. (15) All costs of remedying defective work or replacing materials. Article 8 covers the amount of the fee payable for each vessel. It provides for a base fee subject to adjustment depending upon the date of actual delivery, as compared to the agreed delivery date, and the ddtual number of man-hours of direct and indirect labor expended in the completion of the vessels, as compared to the estimated number of man-hours specified in the contract. However, the article fixes both a maximum and a minimum fee. It has been said that undeethis form of contract the fee constitutes compensation for the know-how of the contractor. But when you cOns'ider that the Government pays the salaries of the contractor's officers to a maximum of $25,000 a year, pays an engineering and archi- tectural fees, as well as every other wage or salary for skilled or un- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 SHIPYARD PROFITS skilled labor, and that in many cases the contractors had no previous shipbuilding experience whatever, it looks as though the only know- how coyered by the fee was knowing how to secure a contract from the Maritime Commission. Next, there is what is known as a price-minus form of contract. The contract 'provides for a fixed contract price subject to adjustment for increases br decreases in labor costs and also subject to adjustment depending upon the final cost, of performing the contract. That is to say, if upon completion and delivery of the vessels it develops that the amounts paid in costs and fees are less than the stipulated contract price, the Commission agrees to pay the contractor 50 percent of the difference. If, however, the contractor's costs exceed the stipulated contract pri4e, the full amount of such costs are nevertheless reim- bursed to the contractor. The theorof this form of contract is to provide an incentive to the / contractor t . keep his costs to a minimum so that he may benefit by the addition 1 payment of one-half the excess of the stipulated con- tract price aver his costs plus fees. Of course, the extent to which economy and efficiency are needed to enable the contractor to earn this adaitional amount depends primarily upon the amount fixed by representatiVes of the Maritime Commission as the stipulated contract price; and, 4 course, it is obvious that in no event can the contractor lose money Since his costs are reimbursed to the penny, no matter by how much l ti ey exceed the stipulated price. Incide,nta ly, this form of contract is understood to have been on by the Bethlehem Steel Corp. during World War I and a read- ina of the Supreme Court opinion in the case of U. S. v. Bethlehem Steel Corp. (315 U. S. 289) will show that that company certainly used the -)rice-minus contract to good advantage, making 22 percent profit unCer the "half savings" clause. Finally, should ilke to discuss briefly the principal characteristics of the so-ca led selective-price contract. Under this contract the Com- mission furnishes to the contractor the principal items of machinery, material, and equipment and certain subcontract work, it being pro- vided that ,there will be deducted from amounts otherwise payable under the Contract, a fixed sum as the agreed costs of the materials, etc. furnished. etc., 7 provides that, as compensation for the contract work, the contractor ;will be paid a fixed price subject to adjustments, additions, and deductions thereafter provided for. Article 10 is the key provi- sion of this type of contract. Under this article the contractor is re- quired to repay to the Commission all profit in excess of the amount of retainable profit determined in accordance with the terms of the contract. It provides that the Commission will determine the profit on the basis of there being involved a fixed price, rather than a reim- bursable cost contract, so that the contractor is allowed all his costs oven though unreasonable and excessive, unless there is evidence of reckless or willful misconduct or that the contractor had a pecuniary interest in the particular transaction. The article further provides that prior to the laying of the keel of a vessel, the contractor may de- crease orincrease the priee paid for that vessel according to a table set forth.)n the contract. This table contains a certain scale of prices with a corresponding scale of maximum vessel profit, in inverse pro- portion tojthe vessel prices. Approved F r Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROVITS 9 In other words, the theory of this form of contract is that by per- mitting the contractor, prior to the laying of a keel of a particular vessel, to select his own price for that vessel, it affords him an incentive to keep his costs at' a minimum and to select the lowest price possible so that he may retain a greater profit. Many, if not most, of these selective-price, contracts have been ex- empted from renegotiation by the Commission and its Chairman un- der authority conferred by the Renegotiation Act on the basis that profits can be determined with reasonable certainty when the contract price is fixed. As I have previously stated, under this form of contract the Mari- time Commission furnished practically all the heavy material and equipment and deducted a specified sum from the contract price to cover the material furnished. I believe, in most cases, this specified sum was about $1,000,000 as compared to a contract price of something over $2,000,000. In other words about 40 percent of the gross vessel price represented Government-furnished material. So that by fixing the fees and retainable profit on the basis of the gross contract price, the result was that the Government paid a percentage of profit on the value of its own materials. The committee may wish to consider whether this was a proper method of computing fees and profits. The foregoing types of contracts are those principally employed by the Maritime Commission in the construction of vessels. Of course, it is impossible for a contractor to lose money under either a cost-plus or a price-minus contract. Theoretically, I suppose a contractor could lose money under a selective-price contract if he chose too low a figure ; but our examination of individual cases indicates that invariably the contractor was too cautious in his price'selection for the first vessels constructed under his contract and that he successively chose lower prices for the vessels with correspondingly larger profits. Under our economic system profit is generally associated with risk. In fact, bringing this proposition closer to home, the Renegotiation Act provides that in determining the reasonableness of a contractor's profit, two of the factors to be considered are: (1) The amount and source of public and private capital employed and net worth and (2) the extent of risk assumed. So it becomes pertinent to ask with re- spect to the profits made by these shipbuilding companies: First, what was the amount and source of public and private capital employed; second, what risk did the contractors assume; and third, what weight was accorded these factors by the Price Adjustment Board in renego- tiation? In considering the reasonableness of profits, it would seem that a distinction should be recognized between two types of cases. If a con- tractor obligates himself to build a vessel for a fixed price in his own shipyard, and takes the risk that he can perform for that price and still make a profit, he should, of course, be entitled to retain a reason- able percentage of the price paid for the vessel: But where a con- tractor assumes no obligation and no risk with respect to the cost of a, vessel?as in the case of a cost-plus or a price-minus contract?and where, in addition, he uses a Government-owned shipyard, certainly he should not be permitted to realize the same percentage of profit. In fact, in view of the Government's obligation under these forms of contract to pay every conceivable item of cost incurred by the con- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Appribed For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS traeto,r, whether prudently incurred or not, the contractor is nothing 111PEe (iT.less than the manager of a Government shipyard for the con- structiou 9f ships. He is not required to forecast the future, outguess his competitors risk his capital, or contend with any of the other fac- tors ordinarily standing lbetween an enterpreneur and his profit. Under seclon 805 of the Merchant Marine Act of 1936 his salary as a reimloursaole item of cost is limited to $25,000 a year. But since the amount received by him as salary for his managerial duties is reim- bursed to him under his contract with the Maritime Commission, the payment of enormous fees in addition would seem to violate at least the spirit, if not the letter, of this law. .4.s ,bad as these forms o' f contract are from the standpoint of pro- tecting the Government and the taxpayer from waste and extrava- gance, you would at least think that once a contract was executed it would be performed according to its terms. And yet that was the exception rather than the rule. In most of the cases I have seen the original contract was torn up somewhere along the line, and a new one of a, differeut form executed in its place. It will be seen when the facts, of individual cases are described that to ascertain the precise effect in dollars and cents of this conversion from one form of contract to another, you have only the statements of those in the Commission recoMinending the conversion to rely on. But, bearing in mind that in each case the cntractor's consent was necessary to the conversion, and that i many cases the contractors themselves urged such action even a child can reason that the contractor must invariably have re- ceived mo e- money under the new contract. We, in the General Ac- countinaince, consider this device as a vicious means of circum- venting audit of individual cost items by our Office, as well as of extracting, still more money from the public till. But whatever the purpose might be in particular cases, you can be sure that the United ,States got a 'fast shuffle" in each deal. In, many cases there was nothing the General Accounting Office could do i,ii such a situation in view of the broad authority under which the Commission was operating during the war period. How- ever, theC onaptroller Greneral did hold that in his opinion there was no authori ty of law for converting a cost-plus-a-fixed-fee contract to a lump-sum contract after all the work had been performed and when ,not4ing remained but payment of the amount due. Under date of April 18, 1945, he advised the Chairman of the Maritime , . Comm1SS1011 as follows [reading] : AcPordingiy, you are advised that any conversion of cost-type contracts into fixed-price contracts, upon completion of the work and before final pay- ment has len 'made, will not be recognized by this office insofar as such con- versions pu port to limit the evidence which the contractor will be required to furnish in support of vouchers covering payment under such contracts, and that unless vouchers covering reimbursement to contractors are supported by evidencQ such as will enable this Office to make a satisfactory audit thereof, credit for any such payments will be withheld in the accounts of the account- able officers concerned. - I believe it would be of interest ,to consider certain specific cases of conversions from one form of contract to another. First, let us fake a case Ivhich, while it does not involve a company on the list furnished this committee, does illustrate the practice to which I refer. 04 Sqtember 30, 1940, the Maritime Commission entered into a price-minus contract with Western Pipe & Steel Co. for the Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2001/Ac42riDCM64B00346R00040006pp02-4 construction of a cargo vessel for the Isthmian Steamship Corp. On February 6, 1942, this contract was converted to a cost-plus-a-fixed- fee contact. This conversion was necessary because the Isthmian Steamship Corp. had relinquished its right to the vessel and it was being completed as a destroyer tender for the Navy. Obviously, a price-minus contract containing stipulated figure for a cargo vessel would not be appropriate for a destroyer tender, and this phase of the transaction is not open to question. However, on December 31, 1942, this contract and five other con- tracts?apparently all originally price-minus, later converted to cost- plus?were converted, to a lump-sum contract providing for a pay- ment of $47,954,740 for all six vessels. This price was $7,914,270 in excess of the estimated amounts payable under the six cost-plus con- tracts. In fact, this lump-sum contract recited on its face that the vessels covered by it already had been completed. It further recited that the lump sum agreed upon, in lieu of the compensation under the cost-plus contract, was an amount which the parties estimated would not exceed the total compensation and that the Maritime Commission had determined it to be in the best interest of national commerce .and 'defense to modify the contract so as to provide for a lump-sum pay- ment. The General Accounting Office took exception to the action in this case on the ground that the record failed to disclose how it could have been determined to be in the best interest of the United States to pay out almost $8,000,000 more under the new contract. The Maritime Commission replied that the primary reason for the con- version was that the contractor did not have the documentary evi- dence necessary to support requests for reimbursement under the cost-plus contract by virtue of the fact that a large portion of the work had been completed while under the price-minus contract:. The Com- mission stated, however, that the lump sum agreed upon was only $1;396,740 more. than the contractor's costs and that, therefore' the conversion resulted in a saving of $1,903,000 which would have been payable in fees. .Legally, this explanation by the Commission closed the door, on the General Accounting Office. We had no evidence of fraud or bad faith, and by the act of May 2, 1941, the Commission was authorized, upon it determination that such action was in the best interests of national commerce and defense because of chancres in conditions oc- curring after the execution of its contracts theraofore or thereafter entered into for the construction of vessels to modify such contracts in conformity with the provisions of such vessels, and to adjust the pay- ments accordingly. In other words, the General Accounting Office had to accept the administrative finding, as well as the figures. upon which the finding was based, by reason of the broad grant of discre- tion contained in the provisions of law cited. But how the original estimate of cost could have been almost $10,000,000 out of the. way has never been explained. Then we have a conversion involving the Permanente Metals Corp. Originally, the company had two cost-plus contracts covering the construction of 142 vessels, 77 under contract No. 1 and 65 under con- tract No. 2. The Commission settled for 32 completed vessels under contract No. I for a lump sum. 'The remaining 45 vessels under con- Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 Apgoved For Release 20I9R/1R/191.)R&RP641300346R000400060002-4 A ' tract No. 1 and the 65 vessels under contract No. 2 were transferred to a new seleetive-price contract, dated as of April 1, 1945. However, the records indicate that as of that date, namely, April 1, 1945, 39 of the 45 vessels transferred from contract No. 1 were complete and the remaining six 80 percent complete, and that 14 of the 61 vessels transferred from contract No. 2 were complete and the remaining 51 vessels averaged 45.4 percent of completion. By letter of October 19, 1945, the Comptroller General directed the attention of the Chairman of the Maritime Commission to this matter and requested an explanation. He also requested a copy of the audit statement reflecting the cost of the 32 vessels for which the lump sum of $87,005,000 had been paid. To date there has been no reply. In the case of a similar conversion, that is2 from two cost-plus con- tracts to one selective-price contract involving. the Bethlehem-Fair- field Shipyard, Inc., the Chairman of the Maritime Commission, sub- mitted the matter to the Comptroller General for a decision as to the propriety Of the action before it was taken. In decision dated July 16, 1945, after reciting the fact that all 53 vessels were already com- pleted under one contract and that 24 keels had been laid under the second contract, the Comptroller General stated [reading] : * * Confining consideration to the first contract it would seem clear be- yond any question of doubt?even aside from the figures stated above with respect to ma imum fees and retainable profit?that for the Maritime Commis- sion now to e ter into any agreement which would have the effect of foreclosing the General .ccounting Office from determining the propriety of any of the items of cost eimbursed to the contractor, in connection with the construction of these first 53 vessels and which would foreclose the Government's right to determine the reasonableness of the profit realized by the contractor (it being noted that under article 33 the proposed new contract would be exempt from renegotiation) could not be in the interest of the United States. Furthermore, it is understood that the advantages of the selective-price form of contract are derived from (1) the incentive which the contractor has to reduce costs and (2) the risk the contractor assumed in agreeing to construct a vessel for a fixed price. However, where a vessel has been completed under a cost-plus-a-fixed-fee contract, not only is there no opportunity for the cost- reduction incentive to operate, but the only risk involved is that the contractor has correctly computed its costs before selecting the fixed price. This is true,, not only with respect to contracts under which all the vessels called for have been completed, but also, to a lesser degree, with respect to contracts under which any vessels have been completed or under which any keels have been laid. In other words, the selective-price form of contract can be expected to accoinplish its intended purposes only when used to cover the construction of vessels, the keels for which have not been laid. Another feature of the selective-price form of contract also would seem open to question. When such a contract covers the construction of a number of ves- sels, as is understood to be the usual case, it would seem necessary that records pertaining to construction costs be kept separately for each individual vessel; otherwise the risk element can be nullified. For example, if the contractor selects a low figure for the first hulls to be built under the contract?thereby permitting a comparatively high retainable profit?and it later turns out that the cost of eonstructing such hulls exceeded the estimate upon which the price selecti was based, the contractor still would have the opportunity?if the construction costs of all hulls covered by the contract are commingled?to offset the mistake in judgment in selecting too low a price for such first hulls, by merely selecting a price for the remaining hulls that will allow a recoimment of the excess of costs previously incurred, even though such higher price would not...permit ae high a retainable profit with respect to the remaining hulls. For reason S indicated above, I am unable to agree with the view expressed in your letter that it would be in the best interests of the Government for the Commission to execute the proposed new contract. Nor do I perceive the ad- Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 13 *Vantage, from' the standpoint of the Government, in converting to a selective- price form of contract that part of contract No. MC c-30813 covering vessels whose, heels, already have been laid. On the other hand, I perceive no objection to such a conversion of that portion of contract No. MC c-30813 pertaining to vessels whose keels have not yet been laid, provided such converted contract is carried out with respect to the computation of construction cost along the lines .hereinbefore indicated. It is our understanding that the Commission subsequently decided not to disturb the first contract covering the 53 vessels and to execute a fixed-price contract for the vessels covered by the other contract. There have been other conversions of somewhat the same type, in- Chiding contracts of the Oregon Shipbuilding Corp. and the California shipbuilding Corp. and Marineship Corp. What is behind these conversions ? . Well, two factors we know. By throwing out the cost-plus or price-minus contract after it has served its purpose from the contractor's standpoint and supplanting it with a fixed-price or a selective-price contract any audit of individual items of cost by the General Accounting Office is eliminated. In other words, the cost-plus contract has but one undesirable feature for the contrac- tor?the vouchers on which heis reimbursed his costs must stand the test of an audit by the Government accounting officers. So, that fea,- ture is remedied by canceling the'cost-plus contract prior to the day of reckoning. The other factors is the exemption of the contract from renegotiation. This, of course, successfully eliminates the only other possibile check on the judgment of the Government contracting officer in fixing the amount payable under the contract. - As a net result, the Government?and by that I mean the taxpaying public?is left at the mercy of a handful of individuals in transactions involving hundreds of millions of dollars. It is small wonder that the Comptroller Gen- eral felt the need for strong language in his statement before the Senate committee. Turning attention once again to the tabulation prepared by the Maritime Commission, it should be remembered that there is not re- flected here the total amount of money paid out by way of profit in the ' shipbuilding program. Each subcontractor and each materialman who participated in the construction of a vessel took his profit, too. For example, generally the engine of a ship was built under a sub- contract. A Diesel engine would cost, I believe, somewhere in the vicinity of $400,000. So, not only. did the prime contractor get a profit based on the total cost of the ship including the $400,000 engine, but the subcontractor received a profit for building the engine, and each sub-subcontractor or materialman who furnished parts for the engine received. a profit as well. In building the shipyards the prime con- tractor received no profit?at least, no profit as such?but subcontrac- tors and materialmen, even though affiliated or associated with the prime contractor, were permitted to, and did, receive substantial profits. Moreover, in many cases the same companies held subcontracts in connection with the construction of two or more yards. For example, Gilpin Construction Co., a wholly owned subsidiary of one of the original Kaiser-associated companies, General Construction Co., had subcontracts running into millions of dollars in connection with the construction of various Kaiser yards. In the case of the facilities at Oregon Shipbuilding Corp., Gilpin received $1,104,851 under sub- 93486-46 -2 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apiyoved For Release 2003/10/W : GWRDP641300346R000400060002-4 SHIP-Thu.1, Ric contracts. his was 22 percent of all work subcontracted here. , And Gilpin's parent company, General Construction Co., owned 26 percent of the stock in Consolidated Builders, Inc., which., in turn, owned 100 percent of the stock in the Oregon Shipbuilding Corp. .1We have another example of the prime contractor under a facilities contract receiving profits indirectly in the case of the St. Johns River Shipbuilding Co. The company was chartered on March 9, 1942, and the stock was originally issued as follows: Class A stock Thompson Starrett Co. (200 shares) $200 Class_ 13 stock,: James E. Merrill (director of Thompson Starrett Co.) , (200 shares) ..200 Clas C stock: Henry M. hope (90 shares) ' - 90 4 Benjamin iphowley (director of Thompson Starrett Co.) (90 shares) 00 ? Walter H. Rogers (20 shares) 20 T?l 00 ;Sharps) 606 On March 24, 1942, the charter of the company was amended to provide that, until the facilities and vessels contracts to be entered into J?,37 the corporation were completed,? the directorate should con- sist of nine directors, five elected by Class A stock and two each._by class B and class C stock. This, of course, placed control of the company in Thompson-Starrett Co., owners of all class A stock. On March 4, 1942-5 days prior to the incorporation of the _com- pany?the Maritime Commission entered into a contract with St. johns River Shipbuilding Co. for the construction of shipyard facil- ities, which contract was to be performed without profit to the contractor. -1.11Olivever, on March 24, 1942, St. Johns entered into a subcontract with its controlling stockholder, Thompson-Starrett Co., under which the latter company undertook the contract work of constructing the facilitie for a fee of $300,000, of which $100,000 was reimbursed by the Mari ime Commission as an allowable cost under the facilities contract. hich only tends to show that if you had enough of these no-profit contracts you would soon be a millionaire. he thore is the matter of brokerage fees. It has been reported by General. Accounting Office representatives in the field of that Davis Sales & Engineering Co., of New Orleans, La., received a total of $30,1371 over a 3-year period in commissions on purchases made by various , hipbuilding companies from the American Machinery Corp. The record indicates that these commissions were paid for brokerage services rendered by the Davis Sales & Engineering Co. The record, further indicates that an organization known as the Engineering & Expediting Service, located here in Washington, re- ceived $30,2126.91, over a 21/2-year period, from the same company, that .is, American Machinery Corp., for similar services. The sig- nificance o these facts here is that American Machinery Corp. received over $3,000,000 in orders from numerous shipbuilding com- panies, including most of those on the list before the committee, from the beginning of the defense program through February 29, 1944. In other words, these commissions were paid indirectly from public funds. While on the subject of commissions, investigators of the General Accounting Office also have reported a set of facts and circumstances' Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 k Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 15 involving San Jacinto Shipbuilders, Inc.?later taken over by Mc- Closkey & Co.?which illustrates the different methods employed by contract brokers in obtaining fees for their services. San Jacinto Shipbuilders Inc., was chartered under the laws of Texas on November 19, 1941, with an original stock authorization of 200 shares at $100 per share, subscribed for by H. C. Cockburn and H. K. Johnson in equal amounts. Mr. Cockburn was elected president of the corporation. The cashbook of the corporation indicates a de- posit on November 18, 1911, of $10,000 as a credit to the stock sub- scription account in favor of Messrs. Cockburn and Johnson in equal amounts. ,. Under an agreement dated November 29, 1941, Mr. Johnson ac- knowledge receipt of $5,000 from Mr.. Cockburn. The agreement recited that Mr. Johnson had a claim to 50 percent of the authorized capital stock and that when the Maritime Commission approved and executed a contract for the construction of five concrete barges Mr. Cockburn would pay Mr. Johnson an additional $25,000 as well as assume his obligations with respect to the unpaid stock subscribed for, whereupon Mr. Johnson would transfer his stock to Mr. Cockburn. The contract with the Maritime Commission was executed. There- upon some $25,000 was paid to Mr. Johnson and a receipt issued by. him for that amount on December 15, 1941. It is stated in the in- vestigation report that H. K. Johnson made trips to Washington as early as September 12, 1941, for the purpose of securing a contract with the Maritime Commission as well as a loan from Defense Plant Corporation for the construction of facilities. In conclusion, I should like to point out that theoretically the, mat- ter of eliminating excessive profits should be taken care of by the Renegotiation Act and the procedures established thereunder. By that law the Congress expressed its will that those dealing with the Government in time of war should not be permitted to realize and retain unconscionable or unreasonable profits. You will recall that originally it was the duty and responsibility of certain administra- tive agencies of the Government- to renegotiate contracts where it ap- peared that excessive profits had been made. Subsequently, the law was. amended to establish a War Contracts Price Adjustment Board to perform that function. While this Board constitutes a more or less inde--)endent agency, what has developed is that the Board has Velegatec7 its authority with respect to Maritime Commission contracts to a Price Adjustment Board within the Maritime Commission. So, the result. is that we still have the Maritime Commission renegotiating its own contracts and, in effect, passing judgment upon the reason- ableness of fees and prices which its own officials established in the first, place. It is, of course, for Congress and the appropriate committees of Coxigress to decide whether the procedures which have been established are, adequate for the prevention or elimination of excessive profits. as the Comptroller General himself has stated, we in the General Accounting Office look askance at the published results of renegotia- tion. Consider, for example, the comparatively small perecentage of total profits recovered by way of renegotiation as reflected by exhibit B attached to the letter from the Chairman of the Maritime Commis- sion,. Also, note that it shows nothing at all recovered from St. Johns Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 - 16 SHIPYARD PROFITS River Shipbuilding Co. notwithstanding the proportion of profit to capital investment realized by that company. How much weight could the Price Adjustment Board have accorded in that case to the amount and source of private capital invested and the extent of risk assumed?two factors which the law requires to be taken into con- Sideration in determining the reasonableness of profit? We have found it to be a fact that the Maritime Commission Ad- justment Board has based its determinations concerning excessive profits upon facts and figures furnished by the contractors themselves, In the case pf a renegotiation agreement with the Oregon Shipbuild- ing Corp. it was found that although paragraph 2 of the agreement recited that, the determination of excessive profits was based on the "final audit, report certified to the Board by the General Auditor of Construction of the Commission," such report was not even submitted to the Genera,1 Auditor of Construction until 8 days after the date of the renegotiation agreement. Moreover, back in July 1944, the Comptroller General addressed a letter to t e Chairman of the Maritime Commission calling attention to the fact that its Price Adjustment Board was entering into rene- gotiation agreements solely on the basis of cost statements prepared y the contractors or by accounting firms employed by the contractors and suggested that it would seem of primary importance that the Price Adjustment Board have available to it audited cost statements prepared by auditors and accountants under the direct supervision of the Commission for renegotiation purposes. No reply to this sug- gestion has ever been received. In a recent letter addressed to the chairman of the Special Senate Committee i Investigating the National Defense, the War Contracts Price Adjustment Board attempted to justify this practice on the grounds that the majority of this country's contractors are honest. We consider such an explanation as naive, to say the least. The majority of the Government's disbursing officers are honest, too, so are we to let them audit their own accounts ? In other words, checks and con- trols by the Government in connection with its operations are not necessarily predicated on the assumption that all Government con- tractors are dishonest. But, after all, these contractors are in business to make money, and if the Price Adjustment Board by accepting a contractor's own facts and figures with respect to profits accords him, the freedom to retain as much profit as his conscience will permit, it is fair to aSsume that he may be overly 'generous with himself. Also, it has been found that the Price Adjustment Board frequently allows as proper items of business expense for renegotiation purposes, expenditures which clearly were not reimbursable under the terms of the contract. In the case of the Oregon Shipbuilding-Corp. the Wash- ington Con Construction Cost Committee of the Maritime Commission disallowed as reimbursable costs items amounting to $163,960.60, but d recommen ed that the Price Adjustment Board of the Maritime Com- mission co sider such items as proper in the renegotiation. Needless to say, the board followed that recommendation. I believe it appropriate at this point to recall to the committee the jurisdiction of the General Accounting Office under the Renegotiation Act. The law provides that an agreement made by the Price Adjust- ment Board with a contractor or subcontractor for the elimination of I Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 17 excessive profits shall be conclusive according to its terms and that in the absence of fraud, malfeasance, or a willful misrepresentation of a material fact, such an agreement shall not be modified by any officer, employee, or agent of the United States. At one time, it was suggested that the General Accounting Office is charged by law with the duty and responsibility of investigating the facts and circumstances underlying the execution of all renegotia- tion agreements for the purpose of delermining whether there exists fraud, malfeasance, or a willful misrepresentation of a material fact. Under existing law, however, no matter how unjustifiable the Comp- troller General might consider a determination with respect to the amount of profit allowed a contractor or subcontractor under a par- ticular agreement, he has no legal authority to nullify or even to ques- tion such an agreement. One of the basic reasons for this conclusion was that the Congress could not have intended the Comptroller General or the General Accounting Office to have any investigative duties in the field of re- negotiation inasmuch as it had not provided the power necessary to conduct an investigation which could be expected to produce satisfac- tory results. While the Renegotiation Act empowers the Price Ad- justment Board to inspect and audit the books and records of con- tractors and subcontractors, it contains no similar grant to the General Accounting Office. The status of the Comptroller General and of the General Account- ing Office with respect to renegotiation has an important bearing on the mater now being considered by this committee. First, it explains why the General Accounting Office does not have, and could not be expected to have, under existing law, full and? complete information with respect to the profits of shipbuilding companies. Second, it illustrates the absolute lack of any review or independent investigation in the field of renegotiation by an agency directly responsible to the Congress. It would seem that if the Congress desires to know whether a statute such as the Renegotiation Act is achieving the results in- tended, provision should be made for some independent audit or examination of settlements effected under that law. As was stated at the outset, we in the General Accounting Office see in this picture of the shipbuilding program a complete exemplifi- cation of all the deficiencies in Government wartime procurement to which the Comptroller General referred in his statement of 2 months ago. I repeat that these men were really only managers of Government shipyards?and enviable managers at that, inasmuch as no skill or ability was required to make money when you consider the extent to which the Maritime Commission went not only to insure them against loss but to guarantee them huge profits. I dare say that at no time in the history of American business, wheher in wartime or in peacetime, have so few men made so much money with so little risk? and all at the expense of the taxpayers, not only of this generation but Of: generations to come. The CHAIRMAN. The Chair thinks that the best procedure possibly for examination will be to recognize first the attorney for the investi- gatino? committee, who has given the matter considerable study and who has had interviews with these people; and at the conclusion of his examination the Chair will then recognize the majority party in Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 18 SHIPYARD PROFITS the order in which they are represented; the Chair reserving for him- self the last place on the list. The next, the minority party.; and we will alternate between the majority and the minority for that cross- examinatiOn. As the Chair reserves for himself the last place on the list, if yon will, take as little time as possible. As no member of the majority happens to be present at this time except the Chair, the Chair receg,nizes the ranking member present, Mr. Bradlay, for ex- amination, Counsel, first. Mr, Coins. Mr. Casey, I have several questions I have noted about your statement that I should like to bring out perhaps a little more clearly. You mentioned first, the picture as to the capital invested by the shipyard operator was not accurate in that it was actually less than appears in this chart; is that correct? Mr. CAS Y. That would seem to be indicated by some of the cases we have sen, including the example I gave of the California Ship- building orp. Mr. Coims. So that part of the figures here stated as capital invest- ment were, bookkeeping transactions set up from Government profit, is that correct? Mr. CASEY. After some profit had been realized under the contract. Mr. Corms. Now, does that amount indicate the actual investment of the shipyard operator in the yard itself, or is that merely his avail- able working capital? Mr. CASY. I really cannot say where that capital found its employ- ment. An examination of the provisions of the contracts leaves some doubt that the contractor needed any capital, but if some capital was required I assume it might have been for the purpose of paying costs until such time as he might be reimbursed under his first voucher presented to the Commission. Mr. Corms. You stated also that the original contracts between the Maritime Commission and the operator, for the construction of the yard, provide basically that the contractor shall not profit from the building of the yard; is that correct? Mr. CAsmy. That is correct. Mr. CODES. But do I understand that while the contractor himself did not profit, affiliates of the contractor did profit to a substantial extent? , Mr. CASEY. That is correct; and the contract so provides that affili- ates and associates of the contractor shall be permitted reasonable fees and charges for services. That is an express provision of the con- tract. 1 Mr. CODES. Now, in the case of the St. Johns River Shipbuilding that you mentioned, where a $300,000 fee has been claimed and a $100,000 fee had been paid to the subcontractor building the yard, was that $2000Q00 disallowed by the Maritime Commission, although claimed by the subcontractor? Mr. CASEY. That, I believe, is correct. Mr. Cofms. Do the ship-construction contracts provide that the management personnel of the operating company will be paid salaries, and that these salaries will be reimbursed by the Maritime Commis- sion? Mr. CASEY. They do. Mr. COLES. What is the limit of such reimbursement by the Com- mission? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROVITS 19 Mr. CASEY. There is a maximum limitation of $25,000 on salaries reimbursed by the Maritime Commission. Mr. Corzs. So that the personnel of this yard, the people with the know-how and the engineering background, are provided for reim- bursement under the contracts with the Commission, up to $25,000? 'Mr. CASEY. That is correct. Mr. COLES. There have been some statements made in the reports which we have received from the various shipyard operating corn- ? panics concerning nonreimbursable items. Could you explain what nonreimbursables" are? ? Mr. CASEY. I would describe a nonreimbursable item of cost as an ? expense to which the contractor has gone and paid money out of his own pocket, for which he is claiming reimbursement under a cost-plus contract or possibly under a price-minus or even a selective-price con- tract, but which either the applicable provisions of the contract or the regulations of the Maritime Commission do not provide shall be paid from public funds. Mr. COLES. What sort of expenditures are those? Mr. CASEY. The one that comes to mind first would be s onsor's gifts. They have refused to reimburse the contractor for t aese ex- pensive gifts that were made to sponsors, stating that that was an expense that, if he wanted to pay it out, he had to take it out of his profit. Mr. COLES. What would be some of the other nonreimbursables ? Mr. CASEY. Contractors might make contributions to various chari- ties in the course of a year, which would not be reimbursable under the terms of the contract. Mr. COLES. 80 that the nonreimbursables are basically expenses which are not properly chargeable to the Government and for which the Government is not liable? Mr. CASEY. That is correct. Mr. COLES. Do you have any ideas as to the extent of these nonreim- bursables? Were they minute in comparison with the over-all amount of the contracts? Mr. CAsEr. Oh, I would say they were minute, and depended to a large extent on the policies of the particular companies or contractors involved. Mr. COLES. Do I understand from your statement, the Comptroller General's letter of October 19, 1945, regarding the conversion of the Permanente Metals Co. contract has never been answered to this day? Mr. Gz,s.sEY. The records of our office do not indicate that any reply has ever' been received. Mr. Corm. And do I understand further that the letter from the Comptroller General to the Maritime Commissio suggesting that they hire Government accountants to audit these books prior to mak- ing renegotiation settlement, has likewise not been answered? Mr. CAsEY. That is correct; but I do not know that he suggested that they hire Government accountants. I think he suggested that they use the accountants that they have, and that they base their determi- nations of excessive profits on audited cost statements by those ac- countants rather than by accountants hired by the contractor; but that is correct that no reply has been received. Mr. COLES. You mentioned further that the conversion of contracts from cost-plus to a fixed-price or a selective-price or a price-minus Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 20 SHIPYARD PROFITS bad beeii done in several cases. Was this a rather common occur- rence? Mr. CASEY. Yes; I would say it was a common occurrence in the Maritime Commission. . Mr. Col, Es And generally speaking have you found that the con- versions reailted in greater profit to the contractor and conversely, greater cost to the taxpayer? Mr. CASEY. As I stated, as a general proposition it is very hard. to crystallize the precise effect of this conversion from a cost-plus con- tract to a krap-sum contract, and to state unecuivocally that more money was paid out under the new contract; fie prime reason for that being that the statistics and figures upon which the conversion was based were Primarily under the control of those in the Maritime Com- mission who were recommending the conversion, and if you read their statements in which they will point out to the Chairman of the Com- mission why it is in the interest of the United States to convert, those statements will indicate invariably that the Government is saving money by converting from the cost-plus or price-minus to a fixed-price contract; but, we still think, notwithstanding those statements, that a contradtor would never consent to such a conversion, unless he were going to get at least as good, if not a better, deal under the conversion. ? Mr. CoLEs. Under a cost-plus contract, is every item of expendi- ture by the contractor subject to andit by the General Accounting Office? Mr. CASE i Y-. That s correct. Mr. COLE. It is subject to audit by an independent Government agency outside the Maritime Commission? Mr. CASEY. That is correct. Mr. Cones., Under the other ?forms of contract, fixed-price and selective-price, are they subject to audit? Mr. CASEY. In a different way. The individual items of cost are not subject to audit under a fixed-price contract, and I do not believe they would be subject to audit under a selective-price form of contract. The clearest example of that would be the fixed-price contract, where, when the c. ntract establishes a fixed price for the performance of the work and the contractor does the work and submits his voucher, his .youcher wi 1 be stated in the amount fixed in the contract; and so far as the General Accounting Office is concerned, if we have the admin- istrative certification that the work has been performed according to contract and that the contractor is being paid only the amount speci- fied in the contract, that is the beginning and end of our audit Mr. CoEus. In the ordinary course of an audit by the GAO of a cost- plus contract, are items found which are usually disallowed? Mr. CASEY. Invariably that is the case. Mr. CoLEs. And the contractor therefore does not receive reim- bursement for those disallowed items? Mr. CASEY. lie may already have received reimbursement but steps will be taken to recover that money back. Mr. CoLEs. Under the process where no audit is permitted, through the. converlion of the contract from cost-plus to another form, is there any possibility of such disallowances being made by the General Ac- counting Office? ,Mr, CAsEy. Not after it has ,been converted. The procedure is to provide that all payments made under the cost-plus contract will be i Approved For Release 2003/10/10 : CIA-RDP64600346R0004000600024 i 1 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 21 .considered as partial payments under the fixed-pric.e contract and up till that point he may have only -performed two thirds of the work and been paid for two-third,s of: the work; but he will ,be paid a lump sum and it will be considered that the payments already made will constitute two-thirds of the compensation he is to -receive.. Mr. COLES. But there will be no audit of individual items, and the money could have been expended for anything? Mr. CASEY. That is correct. Mr. CO,LES. Do I understand further from your statement that the profits shown here in exhibit ,1 are only, the profits made by a primary contractor, but that there is a pyramiding of profits, as to an engine builder and people below him who supplied .parts .for that engine? Mr, CASEY, _That is correct, ? Mr. Cors. So actually the Government may have paid substantially more in profits for shipbuilding than appears in this record? Mr. CASEY. I do not believe there is any question about that. ,,Mr. COLES. Mr. Casey, in figuring the profits which have been made, are the Government-included materials considered as an item in figur- ing the contractor's percentage? Mr. CASEY. That is my impression from reading the terms of the contract. , Mr. Cous. In other words, if the contract costs $10,000,000^ and the Government supplies $5,000,000, the profit percentages are figured by the Price Adjustment Board on the basis of $10,000,000 and not on the $5,000,000 actually paid by the contractor? Mr. CASEY. Well, I was speaking primarily about the fixing of the fee or the profit by the Maritime Commission in the first instance, -rather than of what the Price Adjustment Board might do afterward. Mr. COs. Let me summarize and ask if the view of the General Accounting Office as expressed by you is that the fees and profits paid to"the operators of these Government-owned shipyards were excessive ?for the service rendered? Mr. CASEY. I believe they were. Mr. Cous. I have no further questions, Mr. Chairman. - The CHAIRMAN. Mr. Bradley. Mr. BRADLEY. Mr. Casey, 1 think you have given us a very splendid statement, here. Do I understand correctly that the General Account- ing Office has no authority by law to check into the Maritime Commis- sion's statements of profits paid these contractors? That is, insofar i as the renegotiation s concerned. Mr. CASEY. Insofar as renegotiation is concerned, we do not have that authority. Mr. BRADLEY. You have no authority whatsoever, then? Mr. CASEY. No, sir. Mr. BRADLEY. Isn't it the general intent that the General Accounting Office should be "the watchdog of the Treasury funds"'? .Mr. CASEY. That is the 'general intent, but in this particular instance the Congress seems to have gone to a meticulous extent to provide that the agreement that is made by the Price Adjustment Board shall not, in the absence of fraud, malfeasance, or a misrepresentation of a ma- terial fact, be questioned by any officer or employee of the United States. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 22 SITIPYARD PreOFITS ?), Mr. BRADLEY. Under what authority did this general Renegotiating Board operate? What do you call it, here? Mr. CASEY. The War Contracts Price Adjustment Board. Mr. BRADLEY. They are the ones who are charged with the respon- sibility of renegotiating all contracts? Mr. CAsEy. That is right. Mr. BRADLEY. By what authority did they in turn allocate this re- adjustment over to the Maritime Commission? Mr. CAsY. That is authorized in the act, that they may delegate or "redelegate," I believe, their function with respect to the renego- tiation to individual boards. Mr. BRADLEY. They have done that in other departments? Mr. CASEY. I think they have done that in all departments. Mr. BRADLEY. In all departments? Mr. CASEY. But that is only my offhand impression. Mr. BRADLEY. There is not much reason then to have this War Con- tracts Price Adjustment Board, if they delegate all the authority back to the individual departments to check on the work of their own people? Mr. CASEY. That is my belief, also. Mr. BRADLEY. Do you happen to know who, in the Maritime Com- mission; is responsible for these contracts that seem to have mulcted the taxpayers of plenty of money? Mr. CASEY. No; I do not. Mr. BRADLEY. You do not know who is responsible for the execution of the contracts? Mr. CAsEY. No, sir. Mr. BRADLEY. I assume we will have Maritime Commission officials on here, later, to go into that matter. Mr. COLS. Yes; Mr. Bradley. Mr. BRADLEY. Did I understand that the Maritime Commission contracts Called for the Government to reimburse the contractor for all taxes, insurance, and bond expenses? Mr. CASEY. Yes sir. Mr. BRADLEY. .g.nd that they did not have to pay any taxes or in- &trance or 'bond expenses on these contracts? Mr. CASEY. Well, you say "no taxes." I assume that they have to pay some income taxes; but these taxes that are provided for here are taxes directly applicable to the contract work; that is, I suppose, all sales taxes, excise taxes, real-estate taxes, and so forth. Mr. BRADLEY. They did not have to pay any of those taxes? Mr. CASEY. NO SIT. Mr. BRADLEY. :A.nd I understand they paid all the salaries of thern contractors officers, up to $25,000? Mr. CAOY. Yes sir. Mr. BRADLEY. Were the contractors then at liberty to set the salaries whereyer hey pleased, within their organization? Mr. CA EY. TO a, certain extent, although I do believe that the Maritime Commission exercised some general sort of supervision over the reasonableness of the salaries set. Mr. BRADLEY. I question that, based on these contracts that they have been passing out, here, where everything was in favor of the contractor and apparently very little in favor of the Government; Approved For Release 2003/10/10: CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 23 because, you point out here, the only "know-how" covered by the fee was knowing how to secure a contract from the Maritime Commission. That seems to be pretty much correct. Do I understand you to say that where they changed these forms of contract from one to the other, apparently that was instigated mostly by the contractor pass- ing on suggestions to the Maritime Commission, with which they fell wholly in line? Mr. CASEY. Of course, we would only pick up that information in- cidentally where it happened to appear in some record of the Maritime Commission; but I, personally, have seen cases where the contractor has been urging a certain conversion, and even in the intraoffice com- munications of the Maritime Commission, it will contain statements that "the contractor is anxious to have this conversion," or "the con- tractor is pressing for action in this matter" or some such language. Mr. BRADLEY. Invariably the Maritime Commission apparently :went along with the contractor's request? Mr. CASEY. I would think that were so. Mr. BRADLEY. So it is reasonable to assume that the contractors, un- less they were superpatriotic, would probably not ask for a change of contract, or changing the rules of the game, after the game had started, unless they were going to get more reimbursement; is that a fair as- sumption? Mr. CASEY. I think that is logical. MI'. BRADLEY. Do I understand also that your investigation has proven beyond question that in many instances the contracts were xenegotiated after the ships had even been built and completed? Mn CASEY. Converted, you mean? Mr. BRADLEY. Yes; I mean the contracts had been converted, after the ships had been constructed and all they were awaiting was final Jpayment under the terms of the original contract. Mr. CASEY. That is right, Mr. BRADLEY. And then the Maritime Commission, you say, changed the rules of the game after it had been played, in other words? Mr. CASEY. That is one way of putting it. Mr. BRADLEY. Mr. Chairman, I think it is a mighty fine idea that this investigation started. Now, how do you claim that the Government paid a percentage of profit on the value of its own materials? Mr, CA4SEY. Well, take the selective-price form of contract, and take an arbitrary figure of $2,200,000 for a vessel. A contract will stipu- late that as the base price for the vessel. Then it will provide that the Maritime Commission will furnish to the Contractor all the heavy equipment, materials, and supplies that go into that vessel. Mr. BRADLEY. Plus all the salaries and all labor costs and everything else?the whole business? Mr, CASEY. That is right. But the Maritime Commission will itself furnish that material in the physical form rather than reimburse the contractor after he buys it. They will turn that material over to the contractor for the construction of his vessels, and they will deduct from the gross contract price of $2,200,000,$1,000,000 to cover the cost of this material, supplies, and equipment they have furnished. But the fee or the profit that will be computed will be computed on the basis of .the gross contract price; so that the result is that the Gov- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 24 Release 2003/10/10: CIA-RDP641300346R0004000600024 SHIPYARD PROFITS ? 'eminent is paying a percentage on the value of the material they furnished the contractor. Mr. BRADLEY. Who did the purchasing of that material furnished by the Government? Mr. CASEY. I only assume it was purchased by some appropriate pur- Chasing dii/sion of the Maritime Commission. Mr. BRADLEY. By the Maritime Commission itself?not by the con- tractor? Mr. CAsny. No,sir ; by the Maritime Commission. Mr. BRADLEY. Then, when they paid out these fees to the subcon- tractors or to the brokers or to this expediting firm that you men- tioned, here, the Maritime Commission were actually paying those fees to those people; or, who paid those fees? Mr. CASEY. Those fees were being paid, of course, indirectly from public funds, since the public was paying for the vessel; but the fees? the Maritinie Commission would be reimbursing the shipbuilding com- panies upoit vouchers submitted by the shipbuildinff companies, repre- senting various costs that they had incurred; and some of the costs they had incurred were, for example, with the American Machinery Corp., for Various work the American Machinery Corp. had done for these shipbuilding companies. Mr. BRADLEY. Right at that point: if the Maritime Commission were purchasing the machinery from the American Machinery Corp., as I understand, they were purchasing the equipment and heavy ma- chinery? Mr. CASEY. That only took place under certain forms of contract. Under other forms of contract, as for instance the cost-plus contract, the contractor went ahead himself and bought all the material and all the equipment and supplies, and was reimbursed to the penny by the Maritime commission. But, under other forms of contract, the Mari- time Commission undertook to supply this heavy equipment and ma- chinery themselves. Mr. BRADLEY. You believe that thel item of risk on the part of the contractor did not enter into most of these contracts? Mr. CASEY. I believe he did not have any risk. Mr. BRADLEY. I am very much interested to see that you could find, despite this list that you have given, in here, that there were some non- reimbursable items. I swear I couldn't find any. I thought it was a nonexistent animal. And you have received no replies, counsel stated. to those to letters you referred to, in here? Mr. CAsny. That is what the records of our office indicate. Mr. BRADLEY. What is your personal opinion of the audit system set up by the Maritime Commission?if there was any? Mr. CAsnY. My opinion would necessarily be based upon facts and circumstances that came out at the recent hearing, here, on the ac- counting practices of the Maritime Commission. However, based on our audit report and the facts and circumstances that were disclosed at that hearing, I would say that their audit system certainly needs some going over. We have evidence of contractors voluntarily refund- ing to the Maritime Commission a total of over $600,000 that they had received i duplicate payments that they voluntarily undertook to return without any action by our Office or by the Maritime Commission. Mr. BRADLEY. I recall that in the earlier hearings, here, apparently Approved For Release 2003/10/10 : CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 25 at one time the Maritime Commission had asked the General Account- ing Office to revise or to set up a new accounting system for them, but apparently nothing was done along that line whatsoever. Mr. CASEY. I believe the evidence was that at the outset they asked our Office to establish an accounting system, and we did, and they never adopted it. Mr. BRADLEY. I recall also that apparently some of the contractors themselves were asking for something in the form of a suitable audit system to be set up by the Maritime Commission, because in reading over the hearings which another subcommittee of this committee con- ducted out on the west coast in June 1943, by the testimony of Mr. Kaiser, the very first thing he asked for was that the Maritime Cotm- mission set up an adequate auditing system; so apparently they did not know where they were with the Maritime Commission a big part of the time, and is it your opinion that probably the reason the Mari- time Commission's Price Adjustment Board, in renegotiation, has had to rely on the contractors' own audit is because of the deficiencies in the Maritime Commission's own auditing machinery? Mr. CASEY. I personally have no doubt but that that is a large factor. Mr. BRADLEY. In other words, they did not know; they were spend- ing the taxpayers' money, and had to rely on the honesty of the tax- payer to go back to them with his figures, before they could renegotiate? Mr. CASEY. I believe that is probably the fact. Mr. BRADLEY. If I understand it, there has been quite a change of the over-all personnel of the Maritime Commission since all of this "live" subject matter? Mr. CASEY. That is correct. Mr. BRADLEY. In otber words, there has been a change of the chair- ilnanship and of the entire Commission, and also in the Auditing De- partment of the Maritime Commission; so that what is said in here now is no reflection on the present Maritime Commission as constituted today? Mr. CASEY. That is correct. Mr. BRADLEY. This goes back into the wartime Maritime Commis- sion and its accounting staff as constituted at that time? Mr. CASEY. That is correct. Mr. BRADLEY. If there is anything now, we would like to know about it. What is your impression, now, of the Maritime Commission's performance? Mr. CASEY. I might state in that connection that I have noticed in the last 0 or 6 months we are constantly receiving replies to communi- cations from our Office going as far back as 1943 and 1944, and the letters that we are getting now will say, "referring to your letter of April or May 1944," going on to give us the answer that we feel we should have gotten 2 or 3 years ago. Mr. BRADLEY. In other words, they are now trying to pick up the loose ends? Mr. CASEY. Yes,Sir. Mr. BRADLEY. der the new set-up? Mr. CAmr. Yes, sir. Mr BRADLEY. I think they are to be congratulated on that, and I should imagine it is a relief to your department finally to get some answers. Mr. CASEY. Yes, Sir. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr, BRADIXY., Mr. Chairman, those are the only questions, I think of, at the moment, though I reserve the right to question further. The CHAIRMAN. Mr. Weichel. I might say I have a telegram from Mr. Hand stating that lie 'will be here tomorrow. ! Mr. BRADI,EY. -Mr. McConnell has arrived. The CHAIRMAN. Yes; Mr. McConnell has arrived; and Mr: Hand will be here tomorrow. Mr. Weichel. Mr. WEictiEL. The statement that you have made, Mr. Casey, cover- ing. the irregularities, to say the least, with reference to hundreds of millions of dollars, refers to ship construction, does it not? ?? CASEY. Yes, sir. . A Mr. WEICHEL. nd during the period of time to which you refer, they had a general auditor of ship construction by the name of Slat- tery did they not? r. CASEY. I do not believe that is so, Mr. Weichel. I believe Mr. Slattery has taken over that position recently; although it may be. Will9tiEL. Mr. Slattery in a previous statement before this committee Said, "I was for 3 years general auditor of construction." Mr. CASEY. ,Then I stand corrected. I do not know the set-up- within the VIaritime Commission. Mr. WFacitEL. So there was supposed to be somebody examining Into the. irregularities of construction with reference to the expendi- tures of the, money, with reference to the giving away of 3:25 millions Of dollars of fees where there was no investment? That comes under "Ship construction," does it not? Mr. CASEY. Yes sir. Mr. WEIqIIEL. That same Mr. Slattery is now at the Maritime Com- mission and has been prornoted because of the audit work he did on ship -construction, of which you are now telling us? He has beetk promoted; and he is now in charge of general finance for the Maritime Commission. Do you think that that would be a great improve- ment with i.eference to the future, if a gentleman who had charge of all this that you have told us about, and things that you have not been able to tell us about, in. going behind certification of work done?that orentleinan !is now head of all the finance. I do not think that is an improvement. I think that is a reward for past conduct; so, know- ing that, nem, do ythi think that that is a vast improvement, according tothe answer to Mr. Bradley's question? Mr. CAsthr. I do not believe that it is within my province to pass on the personal qualifications of people within the Commission. Mr. WnicHEL. I mean, I was wondering if you knew, in answering Mr. Bradley's question, that the same gentleman who was in charge of all this has now been 'promoted to the general finance. Mr. CASEY. No; I was confining it? Mr. WEidnEt, (interposing). You did not know that, at the time on anSwere-d Mr. Bradley's question? Mr. CASEY. I may have known it, but I did not have that in mind. Mr. WEnonEL. You did not have it in mind? Mr. CASEY. That is my answer. - Mr. WEICHEL. In my opinion, I do not believe in forgetting those, and keeping those who have taken part in all the irregularities. Now, in answer ' to Mr. Bradley's question about auditing, and that the General Accounting Office has been auditing?talked about as the Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 27 'watchdog of the Treasury." That is only insofar as you can go, is it not ? Mr. CASEY. That is all. Mr. WEICHEL. And that is not too far, is it? Mr. CASEY. In some of these matters, it is not very far, at all. Mr. WEICHEL. In other words, with reference to ship construction, even indefinite contracts and otherwise, when the Maritime Commis- sion has certified as to the work done, and payment is made thereon, you cannot go behind the curtain, can you? Mr. CASEY. In certain forms of contract, we cannot. Mr. WEICHEL. You cannot go behind it? So, in view of all the irregularities and the practices that have gone on, there might have been great discoveries if you could go behind the certification? Mr. CAsEy. There is that possibility. Mr. WEICITEL. Well, is there quite a probability, in view of some of the statements that you have made in your prepared statement? Mr. CASEY. Yes; I would say that is probably so. Mr. WEICHEL. To go behind the certification of the Maritime Com- mission with reference to payment of money, as to whether the work was done, or whether the material waS received?can you do that under your present authority in law? Mr. CASEY. Of course, it would depend a lot on the form of con- tract, Taking a cost-plus form of contract, we would not be able to determine whether the material had actually been received. We do not. We are not on the spot, there, when they get the material off the train. We have to rely on the administrative certification that they actually received that material. Mr. WEICHEL. In other words if they certified to receiving a million dollars' worth of material, could they only receive a half million? That might be?there is no check on it? Mr. CASEY. We have no check on that. MT. WEICHEL. Outside of their own word? ,Mr. CASEY. That is right. t, Mr. WEicHF.L. These same people who have entered into all the shady practices?the people of this country have to take their word as to whether they got material?there is no check on it ? Mr. CASEY. There is no check. Mr. WErcHEL. Except in the cost-plus contracts, there is no cheek whether services have been performed; you have to take the word of these same people as to "Whether services were performed or the Gov- ernment received anything ? Mr. CASEY. Generally speaking, that is correct. There is a, possi- bility that we might happen on something in the way of services, but? Mr. WEICHEL (interposing). In other words, to go behind the trans- action and see whether or not services were actually performed and the material actually received?I do not mean with reference to dollar items; I am talking now with reference to what became of the $21,000,000,000 that they spent?to vo behind their certifications you would live to have a special act of Congress? . ,Mr. CASEY. That is right. ? - - Mr. WEICTIL. ID other words, they have themselves in such a forti- fied position that even the Government of the 'United States and the Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 28 SHIPYARD PROFITS ACOolintirfg Office and the public cannot get behind what happened; isn't that correct ? Mr. CASEY. Under exisiting law. Mr. WEICHFL. Under exisiting law, I mean. That is, now, with reference to the payment of money. Mr. CAsr.Y. Well, you were speaking primarily-- -Mr. WEICHEL (interposing). Yes; I am speaking now with refer- once to ydur statement of the General Accounting Office with refer- ence to payment of money. You do check that? That is within your. authority Mi.`CA*3?:, That. is the function of the audit. W4CHEL. Yes; that is the function of the audit. So that you do check the money transactions? Mr. CASEY. Yes, sir. Mr. WEriciiEL. Now, with reference to the Maritime Commission, with reference to their purchases of property amounting to billions of dollars, as to what became of that property, does the General Accounting Office have a right to check and see whether they have the property, or what they did on it? In other words, is there a cheek and the examination of property, after once the Maritime Commission haverit ? Mr. CA EY. Generally speaking, we have nothing to do with the accounting for property. Our prime job is to check on the expenditure of public funds. Mr. WOCTIEL. Does the General Accounting Office or any other checking department of the Government have the authority to examine the inventery to see whether they have the property, or what they did with it after they had it? In other words, are there periodic checks with reference to property, as there are with reference to money? Mr. CAsF. No; sir. Mr. WECIIEL. There are not? Mr. CASn/Y. No; sir. Mr. WEICHEL. So that the General Accounting Office, or no other office of the Government that you know, has, or can make a check of the Maritime Commission as to what it did with the property it is supposed to have received, whether they have it, or what they did with it; is that correct? Mr. CASEY. That is my understanding of what the law provides. Mr. WECITEL. Yes; and so that you could make that examination with reference to the property supposed to have been received, as to whether they have it, or what they did with it, you would have to have an act of Cdngress to do that? Mr. CASEY. We could not do that, now. Mr. WEICHEL. You could not do it, now, is that right? Mr. CASEY. No, sir. Mr. WECEIEL. You would have to have an act of Congress to find that out? Mr. CA4Y. I mean, we could not now find out what they did with property they had in the last 4 or 5 years. Mr. WEcra..i.. No; but in the loss of the four or five billions, at least, you might be able to find something of what happened to it. You might not be able to find out, with reference to each little item, but for losses in the big amounts?for instance, the matter where there Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 29 were five warehouses that they did not know they had, with property throughout the country. Mr. CASEY. My personal opinion is that it is quite questionable how far we could go now in doing anything with respect to the accounting for proyerty, that has taken place during the war period. Mr. WEICHEL. You could make the check? Mr. CASEY. We could do it for the future, but I doubt if we could do it for the past. Mr. WEtoxEL. Well, with reference to the past, you could examine what was purchased and make some determination as to where they put it?as to where they say they put it?as to where they said they put it? Mr. CASEY. I assume that some examination could be made, but I really think that someone who is more conversant with the actual audit of our office would have to answer that question more fully. Mr. WEICIIEL. Yes; but under existing law there is no way? Mr. CASEY. No, sir. Mr. WEionEL. This Maritime Commission Price Adjustment Board?is that composed of people who work for the Maritime Corn- mission? I mean, in their own agency? Mr. CASEY. It is established within the Maritime Commission, and although I am not entirely familiar with its personal composition?I do not even know that the people who are on there were even former employees of the Maritime Commission?but, at least, it is a com- ponent part of the Maritime Commission. Mr. WEICHEL. It is a part of the Maritime Commission? Mr. CASEY. Yes, sir. Mr. WEICHEL. So that they are checking and examining their own contracts to determine as to whether they paid too much? Mr. CASEY. That is correct. Mr. WEICIIEL. That's a nice business. You mentioned nonreim- bursables. Was that the term? Mr. CASEY. Yes sir. Mr. WEionm. And in answer to a question of counsel, did you mean to say and give a full clearance to all the gifts that were made by ship- yards, and supposed to be charged to construction? Do you mean those were nonreimbursables, or weren't they ever charged and paid? Mr. CASEY. I believe that as a general rule?oh, I think probably I am wrong in saying "as a general rule"?I do not believe that there were any expenditures for sponsors' gifts for which the contractor was reimbursed from public funds. I believe that not only the Maritime Commission but our office undertook very carefully to see that those were not reimbursed under the contract. Mr. WEromm. Were they charged to ship construction? Mr. CASEY. Well, when you say "charged to ship con. i ,, structon, I do not know that they may possibly have been charged in the renego- tiation and, of course, we do not have sufficient information about what goes on in the renegotiation to know whether they were or not. Mr. WEionEL. The Maritime Commission has not provided all that, but hasn't there been some understanding that these gifts were charged into ship construction, as a part of the construction, and were charged off, with reference to income tax, and charged in as cost of building the ships? Isn't that a fact? 93486-46--3 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 30 SHIPYARD PROFITS Mr. CASEY. Your question is a little bit too broad to permit me to give you an unequivocal answer. Mr. WEICHEL. Well, I could break it down. Mr. CASEY. When you say "charged to ship construction," of course most of the cost of building a ship, that is charged to ship const;uction, is reimbursable to them, penny for penny, under the cost-plus contract. With respect to sponsors gifts, he is not reimbursed for the sponsors' gifts under the provisions of his contract. Now, we have got to go one step further and find out whether or not when he is renegotiated they permit him to count that as a legitimate business expense for renego- tiation pu,rposes. There may very well be a distinction. Mr. WFICHEL. That amounts to the same thing? MT. CASEY. Well, just about. Mr. WEICIIEL. It amounts to the same thing, whether you give it back to them as a reimbursable for ship construction, or whether you give it to Them as a legitimate business expense? Mr. CASEY. The net result would be, the Government pays for it. Mr. WilionEL. The net result would be the same thing?the Govern- ment foots the bill and pays for the lavish gifts? Mr. CASEY. If he is permitted, under either 'condition, the Govern- ment wotild be paying for it. Mr. WEICIIEL. That has been a deep secret. You have not been per- mitted to pry into that; isn't that a fact? Mr. CASEY. We have not. I believe that we were even refused access to the bodks of the Price Adjustment Board. Mr. WTcHEL. So you cannot testify with reference to that? MT. CArY. No, sir. Mr. W ICITEL. But one can draw his own conclusions, if they would not let you examine them. In other words, they are a little bit afraid of the GOP? Mr. CASEY. GAO. ?v? Mr. IIICIIEL. Anyhow, you have not been permitted to examine into that phase of it, at all? 11 Mr. CAsnr. NO, sir. Mr. WEICIIEL. If they permitted that as a business expense the Government pays it just the same? Mr. CASEY. If they did, the Government would be paying for it. Mr. Wiactiiim. With further reference to gifts, outside of the very open way in which they might be put off as a legitimate business ex- pense, th re are all kinds of ways of burying it in the accounting, too, are there not?various ways and means of burying those things so that it would je hard for an auditor to find them? Mr. C SEY. I believe there probably are. Mr. Wiciiirx. And the General Accounting Office has not been per- mitted to pry into all those affairs of accounting, has it? Mr. CerEY. Not in renegotiation. Mr. W !ICHEL. The renegotiation is a sort of cover-all for the various things the General Accounting Office has unearthed, evidently? Mr. CASEY. Well, that covers profits. That is the legislation which gives the Government the right to get profits back, if they are un- reasonaNe. Mr. WFotiEL. And this same Price Adjustment Board, with its ac- countint-, examining the accounting, is making 0. and no outside agency a all the determinations, is that correct'? t, e Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 31 Mr. CASEY. That is correct. Mr. WEICHEL. Counsel offered, in the beginning, here, an exhibit. I do not know whether it is NO. 1. Mr. COLES. Yes. Mr. WEICIIEL. Will you permit Mr. Casey to examine that? - Mr. COLES. Yes. Mr. WEICIIEL. With reference to the so-called exhibit No. 1 in this hearing, it purports to be the names of the ship contractors and cost of facilities. In the second column, it says: "Capital invested by con- tractor"--7-which is a misnomer, and I want to say it here again. I said it once before. And in the third one is "Fees or profits." In refer- ence to the so-called profits to ship contractors, have you ever examined into the matters set forth in that exhibit with reference to the state- ment that you made? Mr. CASEY. Well, only on its face? Mr. WEICHEL. I mean, on its face. Mr. CASEY. Yes, sir. Mr. WEICHEL. There are some 19 ship contractors? What is it- 19 ship contractors? Is that the number? Mr. CASEY. Yes, sir; 19 companies. Mr. WEICHEL. The first column?what does that recite, in the total, with reference to these "constant facilities?" Mr. CASEY. $424,250,694. Mr. WEICHEL. The originals of that?the original from which this statement was taken, ancr the one submitted by the Comptroller Gen- eral in the fall of 1943, came from figures that were compiled by your office, did it not? Mr. CASEY. I do not know exactly what you are referring to in that 1943 statement. Mr. WEICHEL. In the fall of 1943 the newspapers generally talked about the profits ship contractors were making, and at that time the Comptroller General sent to this committee a similar set of figures to this exhib,it 1, :which was supposed to be a statement concerning these same 19 contractors, with reference to Government facilities, with reference to the investments so-called, and with reference to profits paid up to that time. In other words, the figures came from your office? Mr. CASEY. I do not know. Mr. WEICHEL. Now, I understand from you, with reference to that first column' that says "cost of facilities." Does that mean what the Government paid to erect the yard and build the yard? Mr. CASEY. Yes, Sir; I believe so. Mr. WEICHEL. Further, in line with your statement, with reference to these 19 yards, the Government paid for everything that went into building the yard. Then, next, it paid for all the material that went into the ship. It paid for all labor, and it paid for all administration costs for individuals so employed, up to $25,000 a year, a person? Mr. CASEY. Yes, sir. Mr. WHICHEL. That is correct, is it not? Mr. CASEY. Yes, sir. Mr. WEICHEL. So that with reference to the ships constructed by these 19 companies the so-called 19 ship contractors had not a single penny invested, did they, in the yard that built the ship? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 32 SHIPYARD PROFITS Mr. CASEY. As I stated, I do not know exactly where that capital, if any, was!invested, in view of, as you point out in your question, the fact that eVery conceivable item of cost was reimbursed to them, build- ing the shipyard under his contract; but I can conceive that he may need some eapital?working capital, at least--to carry him along until he gets his first check from the Maritime Commission. Mr. WEIOIEL. For a few minutes, until he can get it? Mr. CASEY. Well, I do not know how long it would take to do that. Mr. WF4CHEL. Some of them got credit. Some of them got credit of 10 days and some 30 days on that? Mr. CASEY. I do not know the lapse of time between the paying out of his own/ pocket and getting it back. Mr. WEtcrunn. Now, the second column of that exhibit?and this is the exhibit that is supposed to come from the Maritime Commission, on these p ship contractors?and what is the total on that second column? Mr. CAE-r. $22,979,275.62. Mr. Wn,tcunL. And what does it say at the top of that column? Mr. CASEY. It says "capital investment of shipyard operator." Mr. liV4IcHnn. In your determination, this $22,000,000 was not in- vested by these 19 ship companies in the facilities where these ships were built, was it? Mr. CAsEr. I will answer that by amplifying what I have in my written statement, somewhat; and that is, that in view of the facts and circumstances that we have found with respect to, -for example, the California Shipbuilding Corp.?and I believe there are several others?We say that we believe the statement is misleading, and that the capital investment of a shipyard operator does not represent actual dollars taken out of his own pocket and put into the shipyard or into the construction work of the contract. We believe that in some cases he took out his profits and put some of it back by way of capital, but, of course, that came from Govern- ment funds. Mr. WEICITEL. This 22 million in that column represents Money that they had invested in some other business, or do you know? Mr. cSEY. I do not know that. .7.?%. Mr. EICITEL. All right. In previous testimony from Admiral Land back in 1944, and which I will ask to be made a part of this rec- ord, Admiral Land testified and everyone else testified, at that time, that that so-called column represented what these alleged contractors had in other business, not in the business of building ships, so that the statement of the Maritime Commission when they say "Investment of ship contractor" is not true. It is a half truth and it is misleading, because, when you are talking about ship contractors' profits and you are talking about their investment, you are talking about the invest- ment tbathey had in the yards in which they built the Government ships Or which they received money. That is what you are supposed to be talking about in your inquiry, is that not correct? Mr. CASEY. That is correct. Mr. WEICITEL. So that if this $22,000,000 was invested in other busine of these people, it has no place in trying to make someone be- lieve that these contractors had $22,000,000 invested in the building of ships for the/Government, which they did not do and did not have. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 33 Mr. CASEY. If that is the circumstance and that is correct and a fact, then the picture is more misleading than I thought. Mr. WEICIIEL. That is. why I was wondering, in view of what you said and in view of previous testimony started in the fall of '43 and a little in '44, and then stopped, as counsel has said, on behalf of the Maritime Commission on the basis that because of the war it was not desirable that the public should know what was going on. Now, with reference to the. third column on exhibit No. 1, what is the total of that? Mr. CASEY. $356,006,612. Mr. WM0E:EL. And what is the heading of that column as presented here by the Maritime Commission? Mr. CASEY. "Estimated profits." Mr. WEictlEi. That is estimated profits? Now, if the ship contrac- tors, these 10, had no investment, which has been testified to before in previous hearings, and the $22,000,000 was not invested in these yards, this figure of $354,000,000, and calling it a profit?you usually call profit based on something over cost, do you hot? Is that not the general way of doing it? Mr. CASEY. That is the general way of determining it. Mr. WEicHEL. You take cost, and how much you have, and the dif- ference is profit. Mr. CASEY. That is right. Mr. WEICHEL. In this instance the people had no cost whatsoever. It was entirely a gift, if there was no investment, is that not true? Mr. CASEY. That is, to a certain extent, true. Mr. WEicrtEr.. That is true; if there was no investment and they were given money, it was a gift. It was not a percentage of profit on cost at all, is that not correct? Mr. CASEY. Well, it was a percentage on cost, but the cost was reimbursable. Mr. WEICIIEL. They had no investment in it. When you talk about excess war profits with reference to some other people in the Govern- ment, munitions, getting 100 percent or a thousand or a million per- cent profit, here are some people who had not a single penny invested and they got $354,000,000. What kind of accounting definition of profit would you call that, when people have no investment at all? Mr. CASEY. As I indicated, it seemed to me excessive. Mr. WEicrwoi, It would, if they had no investment. Mr. CASEY. It would, and of course I went on the theory Mr. WErcitEL (interposing). That they had $22,000,000 invested in these plants. Mr. CASEY. At least some of it. Mr. WED-AUL. This is the second time that this has come before this committee, and now the present administration of the Maritime Commission and the present general finance officer, I suppose, have seen this; and it is over the signature of the chairman. The Maritime Commission puts that out here and says "Investment of ship con- tractor." They know, or ought to know, that they did not have any, and the Chairman permits the same kind of people who were down in that office to prepare this kind of statement and bring it up here again. The $22,000,000 invested in their other businesses is all the money they claimed they had, their assets, not in the shipbuilding Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 34 SHIPYARD PROFITS business, et it gives them more than 10 times in profit everything they claim they' owned, as a fee for building ships, with no investment; and, as you po nted out, they probably never had the $22,000,000 them- selves, bec use it was built up out of Government money, because it was not intvested in this, and I was wondering if you knew that when you were inaking your statement. Mr. CAS Y. No sir; I did not. Mr. WE CHEL. No, you know that there were hearings that started in March, after the Comptroller General sent over some figures in November or December of 1943, and the same people who are now in the Maritime Commission with reference to ship construction and with reference to general finance and with reference to accounting knew previous to November '43, and this committee knew shortly after " No- vember '4, and in the beginning of January 1944, and hearings were commence1 in March 1914, and I want to introduce this as a special exhibit at this time. (Tabulation of shipbuilders' profits was marked "Exhibit No. 2.") Mr. WE cHEL. Would you casually examine the list of so-called ship contract? s on that exhibit and on exhibit No. 1 4nd see if they are approximi tely the same? Mr. CAOY. They look the same. Mr. WilicuisL What is the total so-called cost of facilities on that exhibit? Mr. CASEY. $371,960,113. Mr. WEICHEL. How does that compare with exhibit 1? Mr. CASEY. Well, apparently they spent about $50,000,000 more be- tween the time of this original tabulation and the present tabulation. Mr. W CHEL. In the next column are figures as given to the Comp- troller Ge eral with reference to investment of ship contractors. What figures di they have put down for that? Mr. CASEY. They have $22,979,275.62. Mr. WEicHEL. Is that the same on exhibit 1? Mr. CASEY. That is the identical figure. Mr. WEICHEL. The Maritime Commission are still calling that "In- vestment of ship contractor" when he had none, which will be dis- closed by this other testimony. Now, what is in the third column of the exhibit you have in your hand, exhibit 2 ? Mr. C4EY (reading) : ? Fees ea ned by shipyard operator to November 30, 1943. Mr. W icHEE. What is the total of that? Mr. CASEY. $174,094,051. Mr. WEICHEL. Between the time of quieting the investigation on exhibit 2 and up to the time of the statement in exhibit 1 they gave these sane ship contractors, who had no investment, how many hundred million nore dollars, instead of stopping it? Mr. CASEY. About $175,000,000 more. Mr. WEICHEL. $175,000,000 more was given to these same people after the time of the beginning of the statement on exhibit 2 and as now set forth in exhibit 1? They gave them $175,000,000 more? Mr. CSE. Yes. Mr. WETOTUIL. With reference to profits for ship construction or anything else, as to accounting and the General Accounting Office, how Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDF1641300346R000400060002-4 SHIPYARD PROFITS 35 do you determine profits? What is the general way of determining profits from an accounting standpoint? Mr. CASEY. Bearing in mind that I am not an accountant in the first place and in the second place that the General Accounting Office does not have anything to do with determining profits?we are out of the picture altogether on renegotiation?I find it hard to answer. Mr. 1,17E1cl-um. In the examination made by the General Accounting Office with reference to the figures on exhibit 1 and exhibit 2, those came from the General Accounting Office and were certified to this committee. ? ME. CASEY. IS that true? Mr. COLES. As I understand, Mr. Chairman, those figures were pre- pared by committee counsel, Mr. Zincke. They were not furnished by the Comptroller General. Mr. WEICHEL. The Comptroller General had the figures. Mr. COLES. I understand not. Mr. WEICHEL. I Will do some questioning about that. In making your examination for the Comptroller General, is it not a fact that you or the Office have been calling attention, the attention of the public, to excessive wartime profits? Mr. CASEY: We have been writing letters suggesting that they seemed excessive from the information we had in our Office. Mr. WEICHEL. That is what I thought. Mr. CASEY. But I might say that that is really a gratuitous function on the part ot the Comptroller General, under existing law. Mr. WEICIIEL. Oh. I thought that in view of the fact that you were calling the attention of the public to the fact of exorbitant profits you had some idea of how profits were determined; in other words, that you would take the cost and then what you get for it, and that is how you fix it. Mr. CASEY. The extent to which we questioned it, I might say, was that we stated that it would seem that in view of the relationship of profits to capital investment the contracts were providing for excessive profit. Mr. WEICIIEL. Then the General Accounting Office and the Comp- troller General certainly have some idea with reference to accounting principles and how you determine profits, or you could not make those statements. Mr. CASEY. That is right. Mr. WEicnEn. That is what I was trying to get at. . Mr. CASEY. That I could, not answer, because I did not make the determination in the first place. Mr. WEICHEL. I mean, you made some examination with reference to ship construction, according to your statement. Mr. CASEY. I can see sufficient figures in front of me, and from the provisions in contracts, to make the statements I have made with respect to profits. Mr. WEICHEL. That is what I am asking you about, and you have made a very long and detailed and very comprehensive statement with reference to ship construction and the expenditures; and, with refer- ence to profits, how do you make the determination? Do- you look at what it costs? Mr. CASEY. Of course, we can see how the profits in this case were fixed. They were fixed on the total cost of the construction of the Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apprued For Release 2063/10/10 ,? CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS vessels by way of payment of certain fees, presumably a percentage of the total cost of the vessel. Mr. MricHEr.,. Yes. Well, what I mean is that the usual method of determming profit is that you take the bona fide and honest-to-God cost and you subtract that from what you received for the thing you , were paid for. Mr. CASEY. That is what denotes profits. Mr. WIlqCHEL. That is what denotes profit in anybody's conception, accountants' or anybody's else, so that with reference to the construc- tion of ships there was no question with reference to these 19, with reference to cost, because there was no cost to these ship contractors and they were given $354,000,000 as a gift. It was not a profit on something they did, or something that they paid something for. Mr. CASEY. Of course, profits could not have been determined in the usual way in these contracts, because there was not any fixed price or any cost to be subtracted from the fixed price. Mr. WEICHEL. But, going back to the statements exhibit 1 and ex- hibit 2, the Government paid for the land and the equipment and the - buildings. They paid for material, labor, and everything that went into the ship. Mr. CASEY. Yes, sir. Mr. WEICHEL. So that the $354,000,000 was not something on an investment they had. There was no investment, is that not correct? Mr. CA EY. That is correct, substantially. Mr. W ICHEL. In previous hearings which were quiptly stopped there is t stimony that the Maritime Commission gave what at that time was $226,000,000 to ship contractors on exhibit 1, that they gave it to ship contractors saying that the ship contractors had no investment; whatsoever in these 19 yards, but they gave it to them on the basis of "moral assets." Is there anything in the law with reference to the General Accounting Office whereby you can give money on the basis of moral assets?to give away Government money? Mr. CASEY. If you mean by that: Can the General Accounting Office do anything about it? there is not. Mr. WEICHEL. Is there anything that authorizes the General Ac- counting Office to pass by $226,000,000, which it is testified to were given on the basis of the moral assets of these people? Mr. CASEY. We would have to give them credit in ? the disbursing officers' accounts for those payments. Mr. WEICHEL. Well, supposing the War Department gave a check for $1,000,000, or a check for $100, to some person who had no invest- ment in anything. Would you pass that by? Mr. CASEY. Are those the only facts you are going to give me? investment? Mr.WEICHEL. Give it to them outright, with no Mr. CASEY. Of course, we would suspend credit. Mr. WEIcHEn. Supposing the War Department gave somebody a million dollars when there was no investment of any kind on the part of the person to whom they gave it, with reference to manufacturing munition. Supposing the person who manufactured, now, had no investment?everything was paid for, just as in this ship construction everything was paid for?and they gave him $1,000,000. Mr. CASEY. If that bore some reasonable relationship to the over-all contract that the War Department had with the munitions maker, we would haVe to pass that to credit. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 37 Mr. WEICHEL. These 19 ship contractors had everything paid for, even the so-called brains, if there were any, because they only had to follow blueprints and were paid up to $25,000 a year for looking at blueprints. That was the greatest amount of brains that was required in this. Everything was handed to these 19 people. They had no investment. The avernment paid for everything; the Government paid for administration and everything under the sun. Yet the Mari- time Commission totally gave away $350,000,000. Now, on what kind of legal process can you predicate the giving away of $350,000,000 under that kind of set-up ? Mr. CAsEr. Well, of course, essentially that was done throughout the war in every department of the Government under the cost-plus form of contract. Mr. WEicum, No-- Mr. CASEY. Under a cost-plus form of contract the man is reim- bursed his cost to the penny for performing; that type of contract, and on top of it he is given a fee. If he is paid his salary as part of the cost of performing a contract for the managerial duties he performs, and for any knowledge he might have of how that work should ,be done, then the fee on top of it is in the same category as the fees paid to these shipyard operators. Mr. WEICHEL. Just a minute. The kind of a cost-plus contract you are talking about is one. Supposing they had one with the Ford Motor Co. to build tanks on a cost-plus basis. That was with the, Ford Motor Co., who had an investment and who had machinery and who had everything else. You made a contract with them on a cost- plus basis. If you made one with a company like that, or any other motor company that had an investment. Mr. CASEY. I believe a distinction should be drawn between con- tractors who were operating Government-owned shipyards and con- tractors operatinc,6 shipyards built with their own investment. Mr. WEIGHED. Take a shipyard that was in existence previous to the war and you made a contract with that shipyard to build a ship on a cost-plus basis. That is one thing, to pay them a fee for that. But to take 19 that were set up, like you started out with the Kaiser outfit, which started out with nothing. These were set up specifically with no investment whatsoever. Should you pay them $354,000,000 ? That is not the same kind of thing you are talking about, a contract with a person who is reimbursed for his costs plus a fee for doing things. That is not true in this sort of thing, because they paid them for everything, even their so-called brains. Mr. CASEY. There is a distinction to be drawn, and of course the Renegotiation Act itself recites that a distinction should be drawn, in providing that the extent of risk assumed and the amount of public and private capital involved should be considered. Mr. WEICHEL. In these 19 there was no private capital involved, there was no risk involved, but there is a difference of $354,000,000. I should say there should be a difference, but I cannot understand how they can excuse giving away $354,000,000 under these circumstances, any more than they could take the money out of the till and hand it to anybody else as a gift. There is nothing about moral assets in the law that I know anything about. Do you know of anything with ref- erence to checking accounting? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 38 SHIPYARD PROFITS Mr. CASEY[. No sir. Mr. WEICHEL. In other words, if the War Department, the Navy Department or any other department of the Government wrote out a check for any amount of money?millions or hundreds of millions? and just presented it to somebody and said to the General Accounting Office' "That is because they have good moral assets and we are doing other business with them"?is that justifiable under the existing law? MT. CASEy. No, sir. Mr. WEICHEL. That is all. The CHAIRMAN. Mr. McConnell? Mr. McCoivivEnn. I understand you are a representative of the Gen- eral Accounting Office. In what capacity? Mr. CASE-t-. Here I am a representative of the General Accounting Office. My official capacity in the Office is principal attorney in the Legal Division. Mr. MCCONNELL. You are an attorney and not an accountant? Mr. CAsEy. That is right. Mr. McCONNEnn. That is what I wanted to get straight. Now, I understand we are here to check whether, in our judgment, the profits ; received by shipbuilding companies are reasonable in amount. To bring it to a focus, you, as a representative of the General Accounting Office, charge that the profits were unreasonable, is that correct? Mr. CASEY. That is substantially correct, and our purpose is to pre- sent facts and figures to enable this committee to decide whether in their opini6n the profits are unreasonable. In our opinion the? profits were unrea onable. Mr. Mc ONNELL. Would you not say that the Price Adjustment Board in the Maritime Commission thought otherwise, or they would have called for further renegotiation of profits? Is that correct? Mr. CAS Y. My impression is that they have not completed their renegotiation of all these contractors. In fact, exhibit 2, here, show- ing the reSults of their renegotiation, presumably as of July 1946, shows that only 7 of the 19 companies have been involved in renegotia- tion, and it indicates that for at least two of the companies here, although they were renegotiated, nothing was taken back from them. Mr. MCcONNELL. Now, I gather from your statement that you are in disagre ment with the findings so far of the Price Adjustment Board wit in the Martime Commission. Mr. CAS Y. That is substantially correct. Mr. MC ONNELL. Is that a general opinion, or do you have a formula? by which you arrived at such a conclusion? Mr. CAI?EY. That, in the main, is a general conclusion based upon the capital investment and the profits as indicated by the figures of the Maritime Commission as contained on exhibit No. 1, and the general manner in which these contracts were performed with Gov- ernment shipyards. But we do not have the facts and figures to make any acconnting determination with respect to it, since we are fore- closed froin receiving facts and figures. Mr. MoCoNNEm. In other words, we will take the case here men- tioned in Your statement, the St. Johns River Shipbuilding Corp. with an original investment of $600, and realized profits estimated at $2,080,000, or 346,666 percent of their capital investment. On the face Approved For Release 2003/10/10 : CIA-RDP64600346R0004000600024 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 39 SHIPYARD PROFITS of that, that does seem like an unreasonable amount of profit. But are you prepared to say what that profit should be in actual figures? Mr. CASEY. No, sir ? I am not. Mr. MCCONNELL. in other words, it still remains in the realm of a general idea that the profits are too great. They seem too great, but I think you ought to have a substitute amount to put in there. I would like to know what your formula is. Mr. CASEY. The Renegotiation Act, of course, vests authority to re- negotiate these contracts, as I pointed out, in the War Contracts Price Adjustment Board, who in turn have delegated that function to the Maritime ? Commission Price Adjustment Board for Maritime con- tracts; but the law provides that two of the factors to be considered by the Price Adjustment Board in determining reasonableness of profits are the extent and source. of public and private capital em- ployed, and, second, the extent of risk assumed. There are seven factors altogether, and those are two of them. Now, when youi see on the tabulation that St. Johns River Ship- building Co. made $900,000 in profits and they made the $900,000 after renegotiation, we just wonder how much weight they could have accorded to those two factors in that case, when they had only $600 to begin with. Mr. MCCONNELL. But you are not prepared to say the exact amount to which it should be reduced? Mr. CASEY. No; we are not. Mr. MCCONNELL. Do you know whether in the considering of the amount of profit, as to its unreasonableness or not, comparative profits or costs of other shipbuilding companies were considered? For in- stance, we will state here that so-and-so shipbuilding company made an unreasonable profit. How would that compare with some other company? Has that been taken into consideration? Mr. CASEY. We have not, sir. That is within the province of the Maritime Commission Price Adjustment Board, and within the prov- ince of the various price adjustment boards renegotiating profits, and we have no idea how they operate. Mr. MCCONNELL. I do not want to prolong this. All I will say is that the General Accounting Office makes the statement that in their judgment the profits made by various shipbuilding companies are un- reasonable. You make that statement definitely, is that not correct? Mr. CASEY. Yes, sir. Mr. MCCONNELL. Thank you. Mr. Cor.Es. Mr. Chairman, if there are no further questions, rather than running until 1 o'clock might I suggest adjournment now, so that we can reconvene a little earlier? The CnAnimAN. 11 think that is desirable. The Chair is the only other party left, and he has no questions. Mr. COLES. I beg your pardon. Mr. WEICHEL. May I ask one question, the basis of the $600 figure? The CHAIRMAN. I dislike to return, but I will permit it, although not as a precedent. You may ask your question. Mr. WETCHEL. With reference to the $600 of the St. Johns River, they did not even have $600 in this Government-operated contract, did they? They did not have any investment in that yard at all. They were just like the rest of them, were they not? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 40 SHIPYARD PROFITS Mr. CASEY. I do not know. The statement furnished this committee by the Maritime Commission shows that the company was incorpo- rated with an original capitalization of $600, mainly by either Thomp- son-Starrett Co. or the directors of Thompson-Starrett. Mr. WnionEn. Like all the Government yards, the Government paid for everything in that in the same way. Mr. CASEY. That is right. Mr. WEICHEL. So that not even the $600 was in that particular yard. Mr. CASEY. That is right. The CHAIRMAN. We will reconvene at 2 30. (Whereupon at 12 o'clock noon a recess was taken until 2: 30 p. m. of the same day.) AFTERNOON SESSION (The hearing was resumed at 2: 30 p. m., upon the expiration of the recess.) The CHORMAN. Who is your next witness, MT. Coles ? Mr. Conns. Mr. Chairman there are 19 companies involved, 6 of them the so-called Kaiser affiliates, and I would suggest that we call Mr. Kaiser as our next witness. The CHAIRMAN. All right. Mr. Con s. Mr. Chairman, I am told that Mr. Kaiser cannot be here for about 5 minutes. May we wait for him? The CHAIRMAN. All right. Do you have any 5-minute witnesses? Mr. Conns. No, sir. (Subsequently Mr. Henry J. Kaiser entered the hearing room, whereupon the following proceedings occurred:) The CHAIRMAN. Please stand and be sworn, Mr. Kaiser. Do you solemnly swear that the evidence you will give will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. HENRY KAISER. I do. TESTIMONY OF HENRY S. KAISER Mr. Conns. For the sake of the record, will you give us your full name, please? MT. HENRY KAISER. Henry J. Kaiser. Mr. COI ES. And your occupation? ,HENRY fi KAISER. Industrialist. Mr. CoilEs. Do you have a prepared statement that you would like to read? Mr. HENRY KAISER. I would like to make a few remarks. The CHAIRMAN. Of course it will be borne in mind, Mr. Kaiser, that the matter of this investigation is the cost of the shipbuilding program, and only that. Mr. HENRY KAISER. I will bear that in mind, unless someone interro- gates me about Ford. A representative did a few minutes ago. Mr. WEICHEL. You may have enough answers to make on this matter. Mr. 11 NRY KAISER. I would like, first, to thank this committee for this oppo tunity. I would like to thank God for the opportunity of Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 41 living in a democracy that permits you to appear before a body and be frankly investigated. I know that no man of integrity need fear. I want to read a statement that we have supplied, and I think that .your attorney will tell you that we have done one of the most splendid jobs that has ever been done in connection with furnishing statements. We have supplied your committee with full and complete answers to your questionnaire of July 27, and in addition we have supplied infor- mation not requested. I have also furnished you with a booklet en- titled "Facts in Brief About Henry J. Kaiser ' ,? and this booklet has been sent to every Member of Congress and to all the parties. It is for release and publication now. Several Members of Congress have continued to repeat wholly un- true statements to the effect that I provided shipyards on $100,000 capital. The truth is we employed over $32,000,000 of risk capital obtained from private sources for the wartime operation of the needed shipyards under our management. None of this $32,000,000 was ob- tained from the Government or guaranteed by the Government. The details of this have been supplied to your committee. If invested capital were the only standard for war production, thousands of small manufacturers throughout the country would have been barred from war production. Invested capital was not the stand- ard. Small plants were built to produce and to expand for needed war production. Congress recognized that invested capital was not the sole yardstick when it set up the $350,000,000 Smaller War Plants Corporation, and later when it cited other standards for the purpose of renegotiation. Congress also recognized that it was necessary to provide both manufacturing facilities and a source of working capital, and it set up guarantee loans which provided over $10,0007 i ,000,000 n available working capital to all American industries, including many of the largest corporations. The congressional authorization also provided $187000,000,000 for Government-owned plants, and most of these Gov- ernment-owned plants were operated by existing large corporations. I recall quite vividly that it was important at one time to win the war; that ships were necessary to win the war, and that the Kaiser men and women did an outstanding job. We are proud of it. We alone produced 27 percent of the entire Maritime ship program, 1,460 ships, plus 30. Our first 30 were built for England, nearly 15,000,000 tons, $4,000,000,000 worth, when they were needed. We did this at a saving of more than $250,000,000 to the Government on Liberty ships alone. We operated 27 percent of the Maritime Commission-owned yards. We produced ,35 percent of all the Maritime ships produced in Government-owned yards in the 1941-45 period. We provided the organization the major portion of the operating capital, the brains? and I hope that brains are not yet a thing that is without value in our country?the brains and the product. The Government provided facilities just as it did for tanks and guns and airplanes, and released steel. Although the committee addressed 12 major questions to everyone, to me alone, I am advised, was addressed a thirteenth question, Con- cerning my personal dividends and those of the members of my family received from shipbuilding. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apuoved For Release 2ognm: ctl&RP64B00346R000400060002-4 I had thought that Congress had provided throughout that personal matters were not matters to be investigated. But I was glad that they asked that cptestion, because I want that same question asked also of the \ Pew family, and all the other families with whom we competed and whom we eXcelled. I have gladly supplied this information, but it ' is difficult for me to understand this question. I wish to point out that I am appearing only in behalf of those companies which are now under our management. They are the Ore- gon Shipbuilding Corp., the Permanente Metals Corp., the Kaiser Co., the Kaiser Cargo. The Inc.,ong Congressional Record contains errors with regard to our in- terest in certain companies. I have never had any interest, direct or indirect, in those companies; and the Congressional Record is wrong. Our interest in the California Shipbuilding Co. ceased in April 1946. Mr. Casey?not the Comptroller General?had me this morning controlling this company. It is false, and worse if he does not know it is false. The war has been won over a year. These problems are the prob- lems of peace; but we now pause to review the past, and in a review of the past it is proper to recall that in achieving victory incredible deeds were performed on the beachheads and on the battlefields as well as in the factories' mines, and shipyards and by the men and women in this country who built guns and planes and ships. We have learned that at the bottom this country's most precious and valuable resource is _ts people?people with enterprise, with courage, with vi- sion, and the will and the power to do the most for the right and just cause. This committee has the opportunity of formulating legislation which will Stimulate and supply incentives rather than to discourage those who are willing and ready with their enterprise and ability to supply this country's needs in war as well as in peace. The figures quoted by Mr. Casey this morning I have observed are not the figures of the Comptroller General. How could they be? They are rot complete. They are misleading. They have no deduc- tions for taxes, either individual or corporate. He himself admitted that only a few of the companies had been renegotiated. Still he brings in figures that are not complete?that are misleading to the people. Much has been said this morning about cost-plus and fixed-price con- tracts, and much has been slurred upon the contractor?that he wanted the cost-phis contract. I want to read you a letter which I wrote to the President on March 17, 1944, the Hon. Franklin D. Roosevelt, in which I said [reading] : My DEAR 1 R. PRESIDENT: I hate to encroach upon your time, but the importance of getting y ung industrial workers into the Army without reducing war produc- tion prompt me to request a discussion of it with you, and it is only because I believe the olution of the problem is possible that I wish to bring it to your attention. I suggested that the solution, very briefly stated, was that the Gov- ernment 13-ocurement agencies should return to the practice of com- petitive bidding, to eliminate cost-plus-fixed-fee and negotiated-price contracts, which would result in more efficient management in order to meet competition, less man-hours, production with fewer men, and providing young men for the Army from those liberated workers. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10; CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 43 I may be reached through Mr. Calhoun in Washington. Sincerely. I did not stop there. I went to almost every representative head of this Government requesting it. Some of this you will find in this little book [indicating]. I went to Donald Nelson; I went to Mr. Wilson; I went to Paul McNutt. As a matter of fact, Paul McNutt came to me on a special mission in this regard; but, unfortunately, the war was on. Why did Mr. Casey, the man who brought the statements from the Comptroller General's office?which are obviously wrong?why did he omit, when he read you the law, the paragraph which Congress placed first in importance in the law? And I read: Efficiency of the contractor, with particular regard to quantity and quality production, the reduction of costs, and economy in the use of materials, facilitates manpower. . He did not read that. Why? Neither did he read in paragraph 5 the nature and the extent of the contribution to the war effort. He did not read that. Is that misleading? ? I listened intently this morning to the man from the Comptroller General's office. He clearly demonstrated to you that a feud existed. Almost everyone knows of the feud that existed. He stated that he was not an accountant from the Comptroller General's office; that the figures are not the figures of the Comptroller General. They could not he. They are too inaccurate. No accountant, no reasonable per- son, would present a statement of profits without also accompanying it by a statement of liabilities and taxes, both individual and corporate. I was shocked, also, that the attorney for this committee asked for exactly the same thing from the Kaiser family?a statement only of dividends, not of losses. I was shocked. Now, let us go back to the Comptroller General's man who did not get, his figures from the Accounting Office. Apparently he does not know that at all times in our yards the General Accounting Office had a staff of investigators in every yard. At no time did we refuse to ask any questions. We asked. and constantly cooperated. We asked the Comptroller General's office to sit in on our conferences. They did sit in, and the GAO did make constant reports, and at Permanente they had a staff of at least 15 to 20 auditors. Why this misrepresentation? They had detailed knowledge of all of our contracts; and, further than that, anyone who knows the law knows that the Comptroller General at all times has the power to investigate irregularities and regularly report them to Congress. Why was Mr. Slattery suddenly promoted? I might tell you that I went to the Attorney General at the beginning of these contracts, personally, with my son, and I said to the Attorney General: "My God! Let us all get together and cooperate and have these facts straight and keep them straight in the accounting departments." And the Attorney General referred me to Mr. Bell-- The CHAIRMAN. Are you speaking of the Attorney General or of the Comptroller General?, Mr. HENRY KAISER. I mean, the Comptroller General. He referred me to Mr. Bell, of the Audit Section; and my son and I went to Mr. Bell, of the Audit Section, and spent hours with him begging him to get men into our yards, to get this thing straightened out so that we Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apepved For Release 209/A1D: pAte,t7RP64B00346R000400060092-4 could all work together cooperatively, so that the information would be available to all. He said: "No; I am sorry. We cannot cooperate. We don't rely upon the Maritime Commission." Mr. BRADLEY. They do not rely on the Maritime Commission? Mr. HENRY KAISER. On the Maritime Commission's accountants. Then it was ' Anderson. Cord is still there. I cannot tell you what he said about ord. 0 Mr. WEICRIEL. Is Slattery the man who was in charge of all this audit of your business? Mr. HENRY KAISER. Yes; sir. Mr. BRADLEY. Did I understand you to 'say that the Comptroller General told you, Mr. Kaiser, that they did not rely on the Maritime Commission? I think you meant that they did rely on the Maritime Commission, did you not? Mr. HENRY KAISER. They could not cooperate with them because they could not rely on them. I understood him to say they could not trust the offlcers ; and he named the gentlemen by name. It was a hopeless case for us. Mr. WEICHEL. Was Mr. Cord promoted, too? Mr. HENRY KAISER. I think so. I am not criticizing anyone. But I want to say this?that no one can gainsay that the Kaiser companies did their utmost to create a full disclosure of everything, and we now stand ready to disclose it, but we do not want it disclosed unfairly or unjustly. We do not want it disclosed at a time when everyone has forgotten the war, when undue and unjust reflections are made. We want it disclosed?don't misunderstand me?but this is not the time that the Comptroller General should have brought these matters to Congress. They should have been brought when they could have been acted upon under his authority, under the law. I do not believe that the Comptroller General agrees with all the things that, Mr. Casey says. I do not believe that. The Comptroller General, Tr. Warren' was fair to us. He knew what we were trying to do but it just could not be done. The CHAIRMAN. Have you completed your statement? Mr. HENRY KAISER. Yes; I have finished?no; I would like to make one further statement, and that is this: The witness from the General Accounting Office has sarcastically talked about the salaries received by shipbuilders. The men on Normandy and on Okinawa had no sarcasm about ships, and any fathers here who had sons on those ships knew that, too. I never drew a single cent of salary from any of the companies with which I was connected.' We did produce, and I will not stand by silently when those who never built anything and did not even know the facts offer sarcasm and ill-starred humor at those who helped win the -bloody battles that our boys went through. The CHA.rnmAN. Have you finished? Mr. HENRY KAISER. Yes, sir. The CHAIRMAN. Proceed, Mr. Coles. Mr. Cor)Es. You spoke, first, of four companies, the Kaiser Co., the Oregon -Shipbuilding Co., the Permanente Metals Co., and the Kaiser Cargo' Inc. Did- you also have an interest in the California Shipbuilding Co. until 1945? Mr. HENRY KAISER. You have the information. Whatever that infarmatir says is true. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 45 Mr. COLES. That information says you did; and in 1945 you traded your interest in the California Co. with the Bectel Co. for their in- terest in the Permanente Metals Co.? Mr. HENRY KAISER. I did. Mr. COLES. Have you also been interested for several years in the Walsh-Kaiser Co., in Providence, 11. I.? Mr. HENRY KAISER. I am glad you brought that out. Mr. COLES. I would like to develop the background of your ship- building work, and because of the complexity of these companies, to take each company as an individual item, if that is satisfactory. I think that is the only way that we can make a coherent presentation. Will you tell us, first, about the development of the so-called Six Companies, Mr. Kaiser? Mr. HENRY KAISER. It is 15 years ago. I think I ought to prepare a list. Mr. Corm. Can you give us the names of the six companies? MT. HENRY KAISER. Yes; I 'think I can. Morison Knudson Co.; the Utah Construction Co. It was then W. A. Bectel Co. J. F. Shea Co. ? Pacific Bridge Co.; and MacDonald-Kahn. Cones. What was their experience in the major part of their work? Was it mainly the building of dams and public works? Mr. HENRY KAISER. It was endless. It is an endless area of per- formance, and it represents, roughly, probably $1,000,000,000 worth of work. I alone in Cuba built 500 bridges and 300 kilometers of high- way without any basic materials. Mr. Cors. Had any of that work prior to 1939 been shipbuilding? - Mr. HENRY KAISER. Before the, war the only shipbuilding they di? yes; they did. J. F. Shea was in World War I, and he was building ships in Seattle. Mr. COLES. That is prior to the 15 years you have mentioned? Mr. HENRY KAISER. Yes. I remember now that J. F. Shea was in there and the General Construction Co. Prior to the war we organized the Seattle-Tacoma Shipbuilding Co. and bid competitively on ships and became a competitor. Mr. COLES. That was in 1939? Mr. HENRY KAISER. I imagine it was. You have the records there. Mr. COLES. What proportion of your time did you give to shipbuild- ing back in 1939? Mr. HENRY KAISER. A great deal of it; more than anything else. Mr. COLES. What was your first entrance into shipbuilding on a large scale in one of these six companies? Mr. HENRY KAISER. That was the Seattle-Tacoma. That was a tre- mendously large contract for that time. Mr. COLES. When was the Kaiser Co. formed? Mr. HENRY KAISER. The Kaiser company? Which one are you talk- ing about? Mr. COLES. The Kaiser Shipbuilding Co. Mr. HENRY KAISER. There is a Kaiser Co. which is owned 95 per- cent? Mr. COLES. I am referring to the Kaiser Co., Inc. Mr. HENRY KAISER. I do not -know the date of it. Mr. COLES. Was it in 1941? 93486-46-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apy6oved For Release 2opyiym: icti&R pP 64600346 R000400060002-4 Mr. HENRY KAISER. You have that information; you have all those records. I accept the record. Mr. COLES, Now, Mr. Kaiser, the figures given us by the Maritime Commission? Mr. HENRY KAISER. You asked another question that I must finish the answer te. Prior to the war the British finally selected us to build ships for thein, and they were astounded at our costs, they were so low. That was our experience before the war. Mr. BRADLEY. Be good enough to raise your voices. We do not want a private co versation between you and the attorney. Mr. HER AL Mr. Kaiser, I think you assume that counsel has a record of these things. He may have it in physical form, but the members of the committee have not got it; so we would like very much to (Yet the answers as they come from you. - Mr. HENRY KAISER. I will have him read it, because it has all been furnished. Mr, Cous. The figures given us by the Maritime Commission, in- corporated in exhibit No. 1, show that the investment in the six Kaiser-controlled yards, which include the California Shipbuilding Co. is $223,000,000. Have you any reason to dispute that figure? Air. HENRY KAISER. Yes. When you say that, my son just brings up the question that this is a family affair, apparently, when you speak of Kaiser-controlled yards. Mr. COLE. The Kaiser facilities. Mr. HENRY KAISER. We control a small percentage of them. Mr. COLES. -Let us consider that we are talking about those which were forme by you and the companies which formerly comprised the "Six Companies." Mr. HENRY KAISER. That is not a correct statement. Mr. COL. Let us? put it another way. Let us talk of the Kaiser group as ineluding the ones which are incorporated in this statement which you gave us showing Kaiser ownership_ and which I would like to introduce as exhibit No. 3. (Document so described was received and marked "Exhibit No. 3.") Mr. HENRY KAISER. I would like to take all the credit. If you insist on it, I will. Mr. COLE. Would you like all the profit? . Mr. HENRY KAISER. I would like to have you consider my losses as well. COLE. We will get to that. The "Six Companies" had a sub- stantial intOrest in the Permanente Metals Co.; is that correct? Mr. HENRY KAISER. I do not think that the "Six Companies" had. The answer is "No." Mr. CoLEs. The figures I have of the Permanente Metals Co. show the Henry 4. Kaiser Co.? Mr. HENRY KAISER. Those are different people again. Mr. COLE. Let us not quibble, Mr. Kaiser. The Kaiser Co., Inc., can be considered a Kaiser group shipyard. It is owned 100 percent. Mr. HENRY KAISER. No; it could not be. Mr. COLE. Is not the Kaiser Co. owned 100 percent by the Henry J. Kaiser Co.?, Mr. HENRY KAISER. It is a hundred percent owned by me, the family. Approved For'Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/11011-ft,CRItogDp641300346R000400061)p02-4 I believe we should ask counsel to use an accurate chart, and not one that has been pointed out before as wholly inaccurate. Here is a little chart, Mr. Chairman [indicating], and he was quoting from an inaccurate chart. So we want him to use an accurate chart. Mr. MCCONNELL. Who drew the accurate chart ? Mr. COLES. The Kaiser Co. The thing I am trying to find, Mr. Chairman, is what yards comprised the so-called Kaiser group; and for purposes of convenience I think we must take as the Kaiser group those companies which are controlled by Mr. Kaiser and the affiliated companies known as the "six companies." It must be said that the Kaiser Co., Inc., which we will get to next, is the only 100 percent Kaiser-owned yard? Mr. HENRY KAISER. So long as you do not call it Kaiser-controlled. When I have 2 or 3 or 5 or 8 percent it is not Kaiser-controlled. Mr. COLES. Let us say the Kaiser affiliates control group, which are the shipyards certainly which you represent here; is not that correct ? Mr. HENRY KAISER. No; I do not represent them all here. Mr. COLES. Do I not have letters in the file saying that you will ap- pear for the Kaiser companies ? Mr. HENRY KAISER. You have for four. Mr. COLES. In April of 1945 were you interested in the California Shipbuilding Co.? Mr. HENRY KAISER. Yes. Mr. COLES. And are you still interested in the Walsh-Kaiser Co.? Mr. HENRY KAISER. Yes. Mr. COLES. So, while you are not representing those can we take those six and treat the others as Kaiser-group yards? Mr. HENRY KAISER. No, sir. May I get some information? The CHAIRMAN. You can confer with your associates, but their answers are not part of the record. Mr. HENRY KAISER. Let me answer this question this way, that the yards we manage we control the management of. The yards we do not manage we do not control in any way, shape, or form. We simply had an interest in them. Mr. CoPEs. Those yards which you managed and which you had an interest in would include those six shipyards; is that right? Mr. HENRY KAISER That is right. Mr. BRADLEY. What are those yards? Mr. COLES. The Kaiser Co., Inc.;the Permanente Metals Co.; the Oregon Shipbuilding Corp. ? the Kaiser Cargo Co.; the California Shipbuilding Co., until April of 1945; and the Walsh-Kaiser Co. The CHAIRMAN. Does Mr. Kaiser agree to that? Mr. HENRY KAISER. Yes, sir. Mr. COLES. The figures given us by the Maritime Commission show that the total Government investment in facilities in those yards is 223 millions plus. Do you agree with that figure? Mr. HENRY KAISER. We do not know, because we do not know the Walsh-Kaiser figures, and we do not know the California Shipbuild- ing Co. figures. Mr. COLES. Do you dispute the figures given on the four yards that you do own? Mr. HENRY KAISER. No. Mr. COLES. They are correct? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Amoved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. HENRT KAISER. Those figures we have given you. I think he ought to rea0 you the figures, so you will know what they are. The CHAOmAN. The committee will determine the procedure. Mr. COLES Mr. Kaiser, what was the total investment of yourself or the Kaiser affiliated companies in the physical plants of these six shipyards? Mr. HENRy KAISER. You are going back to the six shipyards? Mr. COLES. Let us take the four that you say you controlled or man- aged. What was the total of your investment in those four shipyards? Mr. HENR T KAISER. We have a property investment. Mr. COLES Would you say that your total property investment in those four yards equals a million dollars? Mr. HENIIr KAISER. I would not know until I get the statement. (Exhibit 5 gives the following additional written answer by Mr. Kaiser: , Though totals maximum and in land and buildings, yards operated , varied considerably during the period 1942-46, inclusive, the minimum investments by Kaiser-managed shipbuilding companies furniture and fixtures, and automobiles at the various by the companies to the latest dates available were as follows: ? Maximum Minimum Kaiser Co., Inc.: Land and buil Furnishinr?s anl Automobiles Total Oregon Shipbuilding Land and buildings_ Furnishings aud Automobiles Total The Permartente Metals Furnishings and Automobiles i. Total Kaiser Fleetwings Total maximum, ings 1 fixtures ? Corp.: fixtures Corp.: fixtures I Inc. (formerly Kaiser Cargo, Inc.): Automobiles all yards June 1943 June 1946 $376, 487. 17 1,036. 23 54, 790. 10 $24, 710. 92 70, 091. 04 437, 213..50 94, 831.98 December 1943 July 1946 $135, 76-4.74 6,900. 08 32, 015. 99 $93, 903. 71 7, 565. 33 33, 188. 13 174, 689. 81 134, 657. 17 December 1445 August 1946 $2, 793.75 60, 104. 56 $1, 636. 23 28,186. 24 62, 898. 31 29, 822. 47 October 1944 August 1946 81,601. 32 676, 402.94 I Title to land and technicalities for transfer (See p. 4, Mr. COLES. Mr. HENRY Mr. COLE. vested in those AT, TIII,NTO-ST buildings was held in Kaiser Co., Inc., for a considerable period of time until legal from the original owner to Maritime Commission could be worked out. exhibit 6.) Your son is shaking his head. KAISER. We neither one of us know. In other words, you may -not have a million dollars in- four yards? T?" A TCTPT} T ,1c. Tint 1711 (1117 VI111 Cal /1111 (I /1 n 17P 11 ClIPC1 1-1111.f. question when you sent in all those questionnaires that I had the or- ganization working for 2 months on. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 20031Miormi'DCMRF:64B00346R00040006116302-4 Mr. COLES. We are doing our best. Do you have a million dollars invested in those facilities? Mr. HENRY KAISER. I do not know. Mr. COLES. Mr. Edgar Kaiser indicated a moment ago that he. might have an answer to that. Can you check with him? The CHAIRMAN. I will say to counsel for the committee that if the other Mr. Kaiser is going to be introduced we will have to swear him. Mr. COLES. I think it is preferable that he testify through this Mr. Kaiser. Mr. HENRY KAISER. He doesn't know. You are talking about phys- ical property? Mr. CoLEs. Physical investment in the shipyards.' I would like to go over, ' if we can to the first of these companies, the Kaiser Co., Inc. Mr. Kaiser, what were the Circumstances leading to the formation of the Kaiser Co.' Inc..? Mr. HENRY KAISER. Admiral Land has testified that it took 2 years to hook us, and he did hook us, and when he hooked us we went ahead with the job of building as he wanted them built. Mr. COLES. So you formed the Kaiser Co. at the instance of Admiral Laud? Mr. HENRY KAISER. We formed many of these companies when they wanted ships. Mr. COLES. Let us take up each one in turn. The CHAIRMAN. Confine your answer to the Kaiser Co. as indicated. Mr. HENRY KAISER. I was just about to say what my son has just said, that we had difficulty getting steel for the ships. Our shipyards were held up. Our ships were not being delivered. Neither Bethlehem nor the other steel companies could deliver, and we formed that com- pany so that we would be able to set up as best we could anything we owned a hundred percent. We formed with the idea of getting a steel plant to get steel for the ships. Mr. COLES. Who was the president of that company? Mr. HENRY KAISER. I don't know. Mr. COLES. Were you not the president? Mr. HENRY KAISER I hope so. Mr. COLES. Who are the other major partners in that enterprise? Mr. HENRY KAISER. I don't know what you mean. Mr. Coucs. Was Mr. Edgar Kaiser an officer of the company? Mr. HENRY KAISER. Will you read that? Mr. Cors. I assure you that I depend upon you for this informa- tion. The CHAIRMAN. Have the statements that have been filed been put in shape to incorporate into the record?, Mr. COLES. Yes, sir. The CHAIRMAN. Are they under oath? Mr. COLES. They are extremely long and so voluminous that our staff spent a great deal of time on them. I would like to put them in the printed record. I would like the principal officers at the beginning of ' the corporation. Mr. HENRY KAISER. There are 30 of them here. Mr. COLES. I mean the top three or four. Mr. HENRY KAISER. Henry J. Kaiser, president; Edgar F. Kaiser, vice president; E. E. Trevelyan, vice president, director, and secretary; and C. F. Calhoun, vice president and assistant secretary. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 50 Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. Cor. In getting your original shipbuilding contracts whom did you dea_ with in the Maritime Commission? Mr. HENRY KAISER. It largely depended on who was there. I would say, primarily with Admiral Vickery. Mr. COLE. Did you deal with Admiral Land, too? Mr. HENRY KAISER. Very little. Mr. Coir. When was the original shipbuilding contract and ship- yard facility contract with Kaiser Co., Inc., entered into? Mr. HENRY KAISER. January 1942. Mr. COLE. Mr. Kaiser, when you formed Kaiser Co., Inc., how much capital stock was there and how much did you invest of the capital stock in that company? Mr. HENRY KAISER. We got bank loans of $13,750,000, and a capital stock of $100,000. Mr. CotEs. The capital stock was $100,000? Mr. HENRY KAISER. Yes. Mr. CoLEs. Did you also borrow $13,000,000? Mr. HENRY KAISER. That is what our record shows here. Mr. CotEs. Were you a personal endorser of those loans to the com- pany? Mr. HENRY KAISER. I think you ought to get the Bank of America here to find out about that. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) Those loans of $13,750,000 were made to Kaiser Co., Inc., by private banks upon the credit of the company and without any guaranty by the Government. I was not a personal endorser in a strict legal sense, but all of the loans were made to the company upon the basis of my character, reputation, and past accomplish- ments establ* bed by punctually meeting all terms and conditions of every loan obtained ove4 a period of approximately 40 years in private business during which time c mpanies managed by me had completed $383,000,000 worth of work. The CHAIRMAN. It does not make any difference who we ought to get, sir. Answer the question. Mr. HENRY KAISER. Well, I don't know. The CHAIRMAN. If you don't know, say so. Mr. HENRY KAISER. All right; I don't know. Mr. Coni. Did you have any personal obligation in connection with that loan? Mr. HENRY KAISER. Every personal obligation that could be within my whole soul and body. Mr. CoLEs. Did you have any legal obligation? Mr. HENRY KAISER. I don't know that. You want to know exactly, and I don't know. Mr. CoLEs. Was interest paid on those loans? Mr. HENRY KAISER. I'm sure it must have been. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) Yes, it was, at a rate of 21/2 percent per annum. Mr. CoLEs. Was this an item of interest in your shipbuilding con- tracts? Mr. HENRY KAISER. You have got the records; I don't have them. Mr. Collis. It is not in the record that you gave me. Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 51 Mr. HENRY KAISER. The Maritime Commission has the records. To the best of our knowledge' half of it was and half of it was not. Mr. COLES. And that half that was was reimbursed to you by the Maritime Commission; is that correct? Mr. HENRY KAISER. Yes. The CHAIRMAN. If the other Kaisers are to testify they will have to be sworn and the record will have to show from whom the answer comes. Mr. CoLus. So that, in effect, the Government reimbursed you for the interest paid on half of this loan; is.that correct? Mr. IIENRy KAISER. Yes. Mr. COLES. When was this loan originally floated? Do you re- member? Mr. HENRY KAISER. I don't remember; I don't know. (Exhibit 35 ,gives the following additional written answer by Mr. Kaiser:) The first loan under the credit agreements for the Vancouver yard and Rich- mond No. 3 yard was made in February 1942. The first loan under the credit agreement for the Portland Swan Island yard was made in April 1942. Mr. HENRY KAISER. Mr. Chairman, they are asking questions about a lot of technical and detailed records involving over $5,000,000,000 worth of business. I will be glad to answer if I can. The CHAIRMAN. You can answer or say that you cannot answer. Mr. HENRY KAISER. I would suggest that he ask this in writing, so that the questions can be answered by accountants. The CHAIRMAN. The committee will decide what should be done. You try to answer the questions. Mr. COLES. In December 1942 was this borrowing from the bank not guaranteed by the Government? Mr. HENRY KAISER. I don't know. Mr. COLES. Did you sign this statement reporting on the Kaiser Co., Mr. Kaiser? Mr. HENRY KAISER. If it is over my signature; yes. 'Mr. COLES. Mr. Chairman; I find some difficulty in locating this in the record, but the record furnished by the Kaiser Co. shows that in December 1942 andliarch 1943 up to those dates $13,750,000 had been borrowed by the company and was not guaranteed. On those two dates new arrangements were made in the amount of almost $18,000,000 guaranteed by the Government. Is that correct, Mr. Kaiser? Mr. HENRY KAISER. No; it is not correct. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) I find upon examining the report originally filed with the committee by Kaiser Co., Inc., and particularly exhibit B attached thereto, that the answer to the above question is "Yes." The new arrangements were necessary because of the magnitude of the operation. In the first instance, it was necessary for Kaiser Co., Inc. to borrow from several banks so that no one of them would exceed the limitations imposed by the Federal Government on loans which banks can make to any one borrower. Later, with increased operations, it was necessary to borrow under regulation V, which loans were guaranteed by the Government so that the effect of borrowing under this regulation was to permit larger loans by each bank without exceeding their maximum limits on loans to any one borrower. I might add that regulation V loans were not only authorized by Federal law but their use was encouraged by the Government to further the war effort. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R00040006000214 52 SHIPYARD PROFITS Mr. COLE. Would you correct it, please? Mr. HENRY KAISER. First of all, I have never failed to pay a loan, and they know it, and the guaranty of that bank is character and reputation and performance. Mr. Comis. I want to read from that statement, Mr. Chairman. The CII.,61111AN. Proceed. Mr. CorMs (reading) : Under date of December 15, 1942, the Bank of America and the company? That is, the Kaiser Co.? entered into a credit arrangement which made available $11,000,000. In con- nection therdwith a credit agreement was secured by the bank from the United States MarlOme Commission wherein the Commission obligated itself to purchase up to 50 pet-Cent of the unpaid balance of the loan under certain conditions. Is that cOrrect, Mr. Kaiser? Mr.-14E1%4ff KAISER. Read the rest of it. Mr. Corms (reading further) : This was never necessary. , The maximum borrowings under this credit agree- ment was $10,500,000. Is that cOrrect? Mr. HENRY KAISER. Yes. I am glad you read the rest of it. Mr. COLO. I am sorry. I had no intention of keeping it out. I thought it Was not relevant. The GoVernment paid you for half the interest on the money you borrowed and the Government guaranteed half the money you bor- rowed? ! Mr. HErty KAISER If your record shows that is correct, and it has my signature; yes. Mr. Corms. Do you have any personal or legal obligation on those loans? Mr. HEIRY KAISER. I would have to get a series of attorneys to tell you that?whether they are legal obligations or not. I know I have a personal obligation. (Exhibit 35 gives the following adaitional written answer by Mr.- Kaiser :) As of this time I could not have any personal or legal obligations under said loans becauSe the last of them were paid in full in June, 1945. However, I never had any personal legal obligation in the strict sense but my personal char- acter and rePutation were nevertheless at risk so that I could not have permitted any default on the loans to occur if I expected to carry on business in the future. Mr. CO4S. Did you endorse any of those loans with your personal signature Mr. HEI$-RY KAISER. That I do not know. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) . No; but tbose loans were "character-endorsed" by me in the.same manner as the private unguaranteed loans of $13,750,000 as mentioned in answers to pre- vious questions. ? Mr. C4ES. Did you pledge as guaranty of those bank loans Mr. HEI,TRY KAISER. I would like to say this to you, that I do not , think the 1 ank would have ever loaned that amount of money if Henry J. Kaiser lad not been borrowing it on his character and his reputa- Approved For. Release 2003/10/10: CIA-RDP64B00346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 53 tion for always paying it. That is the credit that he had from that bank. And I would like to go further and say that that yard, together with other yards, produced C-4 ships and the contracts had to be trans- ferred from other companies who had failed to deliver?that particu- lar yard. And thousands of men, soldiers and sailors, will be thank- ful. I would like to present some of the letters from them as the result of the performance of that yard. Mr. Cons. Mr. Kaiser, you have talked about soldiers and sailors. How much did they get as fees or profits? Mr. HENRY KAISER. I don't know. It is about like ourselves-: it is not completed yet. Mr. Conns. Were receivables from the Government pledged as secu- rity for those loans? Mr. Hnicity KAIsEn. If the book says so, they were; I don't know. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) With respect to the private unguaranteed loans in the amount of $13,750,000, neither the Government contracts nor any receivables thereunder were pledged or assigned as security for such loans. Respecting Government guaranteed loans in the amount of $16,870,000, actually borrowed under loan agreement permitting $18,000,000 to be borrowed, all receivables including fees under the contracts were assigned to the banks as required by Government regulations covering such guaranteed loans. Mr. COLES. The book does not say so. Mr. HENRY KAISER. I don't know. Mr. COLES. Will you furnish that information for the record, please? Mr. HENRY KAISER. Yes. Mr. COLES. Did you also borrow money from the Government for the Kaiser Co.,? Inc.? MT. HENRY KAISER. The Kaiser Co.? Mr. COLES. Yes. Mr. HENRY KAISER. Yes, sir. We were forced to. Mr. COLES. Did you pledge your receivables from Government con- tracts to guarantee those loans? Mr. HENRY KAISER. Yes; we did. Mr. COLES. So, in summary, what you had was bank loans partially paid for interest partially paid by the Government, partially guar- anteed by the Government, and the Government lending you some money for which you pledged receivables? MT. HENRY KAISER. Except we put some private profit from other things into this same company. M7. COLES. What were those things? Mr. HENRY KAISER. I would have to get a list of them. Now we are losing because of the fact that we cannot get the ship settlement with our shipyard No. 3, which you are familiar with and saw, and I thought it ought to be straightened out when I talked to you about it. Mr. Conus. You said "other profits." Were you referring then to profits put into the Kaiser Co., Inc.? Mr. HENRY KAISER. Yes; or other work. Mr. COLES. And was that other work mainly for Government con- tracts? Mr. HENRY KAISER. NO; not all. Mainly, perhaps. I don't know definitely., Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 54 Release 2003/10/10 ,.9cT1-DP64B00346R000400060002-4 SHIPYARD I. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) We put other work in addition to shipbuilding into Kaiser Co., Inc. This other work consisted generally of the following: Richmond ytO:c1 No. 3: A Navy contract for militarization of floating drydocks ; two ship-repair contracts with War Shipping Administration; a ship-repair con- tract with the War Department; a contract with the Navy for disarmament and storage; a Navy contract for ship repair; miscellaneous repair, scrapping, and construction contracts for private parties; repair work for the Maritime Com- mission on bot fixed-price and cost-plus-fixed-fee basis. Portland (San Island) yard: two ship-repair contracts with the War Shipping 1 Administration; two ship-repair contracts with the Navy; one ship-repair con- tract with the War Department; miscellaneous ship-repair _work for private parties and foreign governments; ship-repair work for the Maritime Commission. Vancouver Yard : A contract with the Navy for the construction of eight carriers. Due to the end of the war, no vessels were completed under this con- tract. This was a fixed-price contract subject to redetermination. The total contract price was $88,000,000. Mr. Coi..0._ So that you put in $100,000 in the Kaiser Co., Inc., originally. What other money did you put into that company? MT. HENRY KAISER. Well, I did $383,000,000 worth of work and borrowed the operating capital from the banks, like every single big concern today is doing?borrowing operating capital. I don't know what Eugene Grace or Benjamin Fairless know about the needs of ? the United States Steel Corp.-- Mr. CoLEs. Read my question, please, Mr. Reporter. (The question referred to was read by the reporter as above recorded.) Mr. HENRY KAISER. I really do not know. I can furnish that in- formation. (Exhibit p5 gives the following additional written answer by Mr. Kaiser:) ? As mentioned previously, profits from work other than shipbuilding were made by Kaiser Co., Inc. No other money was put into Kaiser Co., Inc. but it borrowed $13,750,000 from private banks without Government guaranty for use in its shipbuilding activities. Mr. COLE. Do you know of any other that you did put up? Mr. HENRY KAISER. I don't know. How could I know of any other ? . Mr. COLE. Will you please furnish the information? The CIIAIRMAN. If he does not know, it is up to him to furnish the informatiou. Mr. COLE. Was there any increase in the Kaiser Co. through stock dividends? Mr. HENRY KAISER. I don't know. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) No; there *as not. Mr. Coixs. Was the capital of this Kaiser Co. used to advance any 1 ' of your other shipbuilding operations? Mr. HENity KAISER. I don't know that. I can furnish it. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) No, not in a direct way. However, all of the shipyards operated by Kaiser- managed con:mantes were conducted at the behest of the Maritime Commission Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 55 In such manner as to obtain the best over-all production records. This some- times entailed a yard operated by one Kaiser-managed company doing work for a yard operated by another Kaiser-managed company. For example, Oregon Shipbuilding Corp. completed two liberty vessels which the Vancouver. yard of Kaiser Co., Inc., had started under Its original contract but which Kaiser Co., Inc., allowed to be canceled so that Kaiser Co., Inc., could convert and use the facilities on the LST program. Later in the program when the Vancouver yard of Kaiser Co., Inc., had excess capacity temporarily, it partially completed eight vessels for Oregon Shipbuild- ing Corp. Richmond shipyard No. 3, operated by Kaiser Co., Inc., also outfitted numerous victory ships for the Permanente Metals Corp. In the above manner working funds of Kaiser Co., Inc., were tied up in accounts receivable for work done by yards operated by other Kaiser-managed companies and vice versa, and in this sense and to foster the greatest production of ships, capital of Kaiser Co., Inc., was used in other shipbuilding operations. Mr. COLES. Are you the president of the company? Mr. HENRY KAISER. Yes. Mr. COLES. Were you in charge of its operations? Mr. HENRY KAISER. Yes, sir. Mr. COLES. You were rewarded -for that in the sense that you had a share of the profits? Mr. HENRY KAISER. I had a share of the losses, too. Mr. COLES. We will get to that later. Did you participate in the earnings of that company? Mr. HENRY KAISER. Had there been some earnings I would have participated. Mr.. COLES. But you cannot remember whether the 'capital of the company was used to advance any other company? Mr. HENRY KAISER. You had difficulty reading your record, or you could not find something in the record. Don't you think I have trouble? The CHAIRMAN. It is perfectly useless to sit there and debate with each other. Mr. COLES. Were the shipyard profits guaranteed to pledge the loan on your steel company? Mr. HENRY KAISER. Yes. Mr. COLES.. As a result of pledging those profits was it impossible for the Kaiser Co., Inc., to. pay up its bank loans? Mr. HENRY KAISER. I don't know. I can furnish the information. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) No. The bank loans have been paid in full in accordance with the loan agree- ments. Mr. COLES. Was the payment of those bank loans delayed because the profits were pledged to the Steel Co.? Mr. HENRY KAISER. I can furnish the information to the committee. I would like to have it done by an accountant. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) No. Repayment of the bank loans was in no way delayed by the fact that ship- building fees were pledged as security for repayment of the loan of the Recon- struction Finance Corporation on the Fontana steel plant. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 56 SHIPYARD PROFITS Mr. COLES. As a result of any delay which may have occurred, would the Government continue to have to pay half the interest, re- imbursing the shipyard profit loans? (Exhibit 30 gives the following additional written answer by Mr. Kaiser:) No, sir. No delay occurred. Mr. HENRY KAISER. .No, sir. Mr. Conjs. Does not that infer that the loan sooner? Mr, HENRY, KAISER. I don't know. (Exhibit 30 gives the following additional Kaiser:) The question is indefinite because it is not clear whether reference is made to the bank loans or the Reconstruction Finance Corporation loan on the Fontana steel plant. Apparently, counsel is concerned with or wishes to establish through the foregoing series of questions that the Government had to reimburse a greater amount of interest on the bank loans obtained for shipbuilding purposes because of the pledge of the shipbuilding fees as security for the RFC loan on the steel plant. Actually the opposite is the case. The bank loans applicable to particular contracts were in all instances paid off before any shipbuilding fees were applied on the RFC steel plant loan, and, in fact, after it was necessary to use Govern- ment guaranteed bank loans all receivables from the shipbuilding contracts, including fees, were assigned to the bank and were applied first in repayment of the bank loans as soon as the funds were disbursed by the Government in payment of work on the contract. Therefore, the only additional interest which might have accrued on the bank loans resulted from delays of the Government in paying invoiceS under the shipbuilding contracts after they were submitted, and the pledge of the shipbuilding fees as security for the steel plant loan in no ivay affected repayment of the bank loans. On the other hand, through this arrange- ment earned shipbuilding fees were held by the bank until the particular contract under which t) ey were earned was completed so that during this interim period 1 the fees could ot be applied on the steel plant loan, thus actually resulting in increased interest which Kaiser Co., Inc., had to pay to RFC. Mr. COLES. If the loans were not paid off? Mr. HENRT KAISER. I can furnish all this information. Mr. COLES. I would like to have it in the record. Mr. HENR KAISER. I Will be glad to furnish it. Mr. COLES. At this time. . Mr. HENRT KAISER. I cannot furnish it to you at this time; I don't know. Mr. Cons. You cannot squeeze blood from a stone. The CHAT MAN. If counsel asks you a question and you cannot answer it, sa so. ? Mr. HENR KAISER. Counsel just says you cannot squeeze blood from a stone ; so he assumes that I am a stone. Mr. COLES. Let us go on, Mr. Kaiser, to the Government invest- ment in the I(aiser Co. yard. How much did the Government invest in the Kaiser Co.'s shipyards? Mr. HENRYKAISER. I Will furnish it. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) I will furnish it. Exhibit H attached to the report submitted to the committee shows that the Government invested a total of $75,594,732.89 in the three yards operated by Kaiser Co., Inc. In addition, the Government invested a total of $34,057,893.53 in housing and transportation facilities at the three yards operated by Kaiser Co, Inc., making in all a total investment by the Government of $109,652,626.42r all of which was constructed by Kaiser Co., Inc., without any fee or profit on the work. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 must have been paid oft written answer by Mr. Approved For Release 2003/1M1,01,? CIA-RDP64600346R000400060002-4 bI-iil'YARD PROFITS 57 Mr. COLES. It is in the records. The CHAIRMAN. What is already in the record, if it is made an ex- hibit, may be received. Mr. COLES. Will you glance at that? I show you that and ask you what the total investment of the Maritime Commission was in tha Kaiser Co.'s three yards. Mr. HENRY KAISER. There is a confusion here in regard to money invested in those shipyards. I will have to get the information and furnish it. The CHAIRMAN. You answer that there is confusion here. That does not show in the record what you mean. The confusion is where? Mr. HENRY KAISER. He asks me if this is correct, and I cannot say that it is correct. There are Navy investments and housing invest- ments and Maritime Commission investments in the yard. But I will furnish any information you ask for. I do not have it here. The CHAIRMAN. I did not know what you were talking about. Mr. CoLEs. The Maritime Commission in exhibit 1 says that the Government put $113,812,000 into the building of the Kaiser Co.'s three yards. Have you any reason to dispute that figure? Mr. HENRY KAISER. I would not know. Mr. COLES. The total figure you gave us is, for the yards themselves, $75,594,000. When you include housing in the yards, and transporta- tion to the yards, $109,652,000. Are those figures corerct ? Mr. HENRY KAISER. To the best of my knowledge they are; I don't know. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) To the best of my knowledge, they are. I have previously answered this in your preceding question. Mr. COLES. Now, do you recall whether or not you had any invest- ment in this yard at all? Mr. HENRY KAISER. I can furnish you any information you want. Mr. COLES. We are trying to bring this out. The CHAIRMAN. Just say whether you do or do not know. Mr. COLES. Did you have $1, so far as you know, invested in facili- ties physical facilities? Air. HENRY KAISER. We had money invested, but how much I do not know. Mr. COLES. I will show you here a copy, of a record prepared by the War Production Board which shows the total private investment in all your yards, and call your attention to the Kaiser Co. shipbuilding activities, which shows that in the Portland yard you had $120,000 invested. Is that correct? Mr. HENRY KAISER. Mr. Chairman, I will furnish all these figures to you. This is a question, or a series of questions, on accounting that I should not be asked to answer and should not be asked to furnish, and I cannot. I can say "No." (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) Our records show that we had a low of $104,827.88 in September 1942 and a high of $376,487.17 in June 1943 invested in land and buildings at the Portland Swan Island yard operated by Kaiser CO., Inc. After June 1943 legal technicali- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 58 Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS ties were worked out so that the land and buildings could be transferred from the original owners to the Maritime Commission and Kaiser Co., Inc., had no further investment therein. The above figures do not include Kaiser Co., Inc.'s, invest- ment in furniture, fixtures, and automobiles used at the yard which varied between a minimum of 04,458.68 in April 1942 and a maximum of $53,336.75 in October 1945. The inv tment in the items mentioned above varied considerably during the period 1942-46, and while the date of the WPB report is not given, we are unable to find any combination of figures representing investment in land and buildings, furniture and fixtures, or automobiles during the period 1942-46 which we can reconcile with the $120,000 figure quoted from the WPB report. The CHAIRMAN. The Chair rules that the questions are proper. You can answer them or not. Mr. HENRY KAISER. I cannot answer them now, but I will furnish the answers. The CHAIRMAN. Very well. That is an answer. Mr. COLES. Did you have as much as $1,000,000, or 1 percent of the Government's investment, invested? Mr. HENRY KAISER. I cannot answer it now, but I will furnish the answer. (Exhibit 36 gives the following additional written answer by Mr. Kaiser:) No. As men a maximum of ever, it should Yard No. 3 wer it was not cont Richmond Yar nature, is :taw emergency shi the Governme themselves an toned in an answer to a previous queStion, Kaiser Co., Inc., had 437,213.50 invested in yards operated by it at any one time. How- be pointed out that all of the yards except possibly Richmond highly specialized plants built to meet a wartime emergency and mplated that they could be used in private industry after the war. No. 3, the only one which could be considered as of a permanent ly being held by the Maritime Commission to meet possible future building needs of the Government. Under these circumstances, t did not expect or require private investment in the yards more than private investment in hundreds of other emer- gency plants built during the war was expected or required. Kaiser Co., Inc., was, however, required to provide adequate equity capital which, in earlier Mari- time contracts with other operators, had been fixed at a minimum of $100,000 per way. Using this standard, Kaiser Co., Inc., actually provided more than five times the Minimum equity captial per way which had previously been fixed by the Maritime Commission with respect to other yards. Mr. CoLEs. Do you have any reason to believe that you had $1,000,- 000 invested in this yard now, if you thought that you had at one time? Mr. HERTER. If that is going to be the response, may I suggest that the answer be furnished and printed in the record with the question. Mr. COLES Mr. Kaiser, will you be able to get us these answers by tomorrow? MT. HENRY KAISER. I hope so. I have all the men here to do so. If you will just write these questions for me as soon as you finish, I will get the answers for you. Mr. COLES Will you have someone make a record of this? Mr. HENRy KAISER. I am doing that right here. Mr. COLES. Was there a provision in the contract for the building of the yard, which we shall call the facilities contract, against any profit ,aoing to the Kaiser Co. Inc. from its building? Mr. HENRY KAISER. We initiated, on this question of the building of the yard, that it be done without any fee. Mr. COLES. Was that not standard form for all these ship facilities contracts? MT. HENRY KAISER. That became, then, standard form. Mr. COLES Are you inferring that yours was the first Maritime yard built? Approved ForRelease 2003/10/10: CIA-RDP641300346R000400060002-4 Approved For Release 2003M11:1DCIA-ORTTFS'641300346R00040006R802-4 Mr. HENRY KAISER. I think OUTS was the first Maritime yard built. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) Kaiser Co. Inc., was not the first to do so but Oregon Shipbuilding Corp., a Kaiser-managed company, was one of the first three companies to make such a contract with the Maritime Commission. All three companies signed their contracts with the Commission on the same day in January 1941. Mr. COLES. Would you check on that, please? I 'think you are wrong. Mr. Henry Kaiser, on page 36 of your report you state [reading] No funds or profits of any kind were paid to Kaiser Co., Inc., on any of the above work. Is that correct? Mr. HENRY KAISER. As near as I know it is correct. Mr. COLES. What was the major engineering company which you retained to build this yard? Mr. IIENRY KAISER. I kIIONV that in the Kaiser Co. yards in Rich- mond, or I believe, the Henry J. Kaiser Co. did the work. I believe a fee of $300,000 was authorized, and they refused it. Mr. COLES. In other words, the main subcontracting job was done by the Henry J. Kaiser Co.? Mr. HENRY KAISER. We did the work at our cost, without any fee, and at a loss. Mr. COLES. Did you have any other subcontractor build that yard? Mr. HENRY KAISER. At Richmond? No; not at Richmond. I am talking about the Kaiser Co. To the best of my knowledge and be- lief, the 'Kaiser Co. did most of the work free of charge, but there were some subcontractors. Mr. Conns. Were any of those other subcontractors affiliates of the so-called six companies? Mr. HENRY KAISER. No. Mr. COLES. I say affiliates of any of the so-called Six Companies, directly or indirectly. You mentioned Gilpin Construction Co. as one which is a subsidiary of one of the other companies. 114r. HENRY KAISER. Ir011 mean it was a subsidiary of another com- pany, Mr. COLES. Of one of the six companies. I think we can get the answer to that tomorrow. Mr. HENRY KAISER. I do not know that we can find out from Gilpin who owns Gilpin. We will try to. ? Mr. COLES. I would like to find out, if you will, what the total fees paid to subcontractors in the construction of the yard amounted to and the relationship of those. Can you furnish that tomorrow? Mr. HENRY KAISER. Yes. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) ? In the construction of Richmond shipyards 3 and 4, Kaiser Co., Inc., paid a total of $300,000 in fees to Arthur Rousseau, Louis C. Dunn, and Robert Mc- Carthy Co. on cost-plus-fixed-fee contracts performed by those contractors amounting to a total of $13,607,492.06, including the above-mentioned fees. All other subcontracts for work in connection with yards 3 and 4 in the total amount of $15,152,326.46 were on a lump-sum or fixed-price basis and the amount of profith or losses sustained by such subcontractors cannot be ascertained by us. There were a very great number of such subcontractors and we presume Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apeboved For Release 20SINIWAS: RAMP641300346R000400060002-4 that the comi4iittee will be able to develop this information through the War Contracts Pri Adjustment-Board if desired. In the construction of the Vancouver yard, Kaiser Co., Inc., paid a fee of $13,300 to Gilpin Construction Co. under a contract with that company. All other work 1111 connection with this yard in the total amount of $11,850,856.11, including the above-mentioned fee, was subcontracted on a lump-sum or fixed-price basis and again we have no way of ascertaining the profit or loss which may have been sustained by the numerous subcontractors performing such work. In the construction of the Swan Island yard, Kaiser Co., Inc., paid one fixed fee amounting to $12,000 to Reimers & Jolivette under one cost-plus-fixed-fee contract with that firm in the total amount of $137,569.84, including said fee. In connection with construction of the Swan Island yard several fees for pro- fessional engineering and architectural services were paid to Miles Cooper, Wolff & Phillips, John W. Cunningham, Kaiser Engineers, Inc., and H. R. Ceder- gren, in the total amount of $52,555.08. Only one subcontract was made with Kaiser Engineers, Inc., an affiliate of Kaiser Co., Inc., and a so-called fee of $2,843.78 was paid to Kaiser Engineers, Inc., under said contract but this only represented direct costs which were audited by the Maritime Commission and did not include anything for overhead or profit. We have no way of determining the actual prOfits made by other subcontractors performing these professional services. With the exception of the one cost-plus-fixed-fee contract and the fees as noted above all other subcontracts at the Swan Island yard, totaling $9,153,709.53, were let on alump-sum or fixed-price basis and we have no way of determining the amount of profits or losses which may have been sustained by the numerous subcontractors involved. All subcontracts which were awarded by Kaiser Co., Inc., for construction of the yards were submitted to and approved by the Maritime 'Commission. : Mr. COLES Now, Mr. Kaiser, going to the shipbuilding contracts, I see by the record you furnished that you had the three types of con- tracts?cost-plus-fixed-fee, price-minus, and fixed-price. 'The total of those was $1,658,000,000. Is that correct? That is the Kaiser,Co., Inc. Mr. HENR KAISER. Yes. Mr. COLES. Your record also shows that you received fees of $21,- 000,000 and , profits of $25,000,009 on this company, making a total of $46,883,000. Is that correct? The CHAIRMAN. When the counsel says "the record shows," is that the statement filed by the Kaiser Co. or a deduction of counsel? Mr. Coms1.1 No. I should like to introduoe as exhibit 4 this report from the Kaiser Co., Inc., and I would like to refer in that report to the answer to question No. 9, schedule No. 1. The CHAIRMAN. Very well. That is admissible as testimony. (The report so designated was received and marked as "Exhibit No. 4.") Mr. COLES, I am trying to save time. The CHAIRMAN. I think time is saved by introducing the interroga- tories and the answers which he has himself made, without asking him to say whether he told the truth when he answered them or not, unless that answer was prejudicial. Mr. COLES. The total of fees and profits before renegotiation amounted tO $46,863,000? Mr. HENRY KAISER. That compares with the record I have here; yes. Mr. COLES. And that record was furnished by you? Mr. HENRy KAISER. Yes. Mr. COLES. Was there $5,750,000 of nonreimbursables ? Mr. HENRY KAISER. That is right. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400Q60002-4 SHIPYARD PROFITS_ 61 Mr. Corms. Giving a total of fees and profits of $11,133,000 from shipbuilding operations ? is that correct? Mr. HENRY KAISER. operations; is right. Mr. WEronEL. Are we just examining Henry Kaiser on what he says he got? Do we not have any other way of finding out what he got except by what he himself says? Do we not have any Gov- ernment records downtown here in Washington? This seems to be asking Mr. Kaiser, "Did you tell me that you got $46,000,000?" The CHAIRMAN. Counsel has asked inquiries, and I have already reminded him that those exhibits of those answers can come in as part of the record. If they are prejudicial to Mr. Kaiser, it is up to Mr. Kaiser to testify. I do not see any use in asking him if what he said was true, Mr. WETCITEL. That is what I am getting at. It seems we should have some information in Washington as to whether what Mr. Kaiser said is true, instead of asking him, "Did you tell me- you made $46,000,000?" Mr. HENRY KAISER. I agree with you. Mr. COLES. These figures are Mr. Kaiser's figures, but I have checked them against the Maritime Commission's figures, and they are almost all of them pretty much the same, so we can rely on them. Mr. BRADLEY. Right at that point, I understood Mr. Kaiser to say that these records given by the Maritime Commission were all wrong. I think counsel should proceed to find out which is right. Mr. WErcilEL. Mr. Coles is asking him if he made so much money. Mr. Corms. Mr. Weichel, this is just on this one yard, one of the six yards. Mr. HENRY KAISER. Three. Mr. COLES. I mean one of the six shipbuilding companies. Now Mr. Kaiser Mr. Now, KAISER. Well, finish the rest of this. Mr. COLES. I will get to that later, Mr. Kaiser. I assure you I will. Mr. HENRY KAISER. I would like at this time to state that he has not read all of these figures of this sheet which I have been approving, which show a loss. The CHAIRMAN. I think it is entirely legitimate for the witness' if he objects to the statement of counsel, to proceed to read that which he thinks should have been read. Mr. HENRY KAISER. All the figures have been read here which show profits, but the final figure shows a loss, and that has not been read. The CHAIRMAN. State what it is. ME. HENRY KAISER. The loss is $18,579,040.26. Mr. Corms. Mr. Kaiser, were any of those losses on shipbuilding operations? HENRY KAISER. You mean of the shipbuilding division? They are losses of the company, but they are not losses of the shipbuilding division. There are some losses now occurring in the shipbuilding division that should be added to these, as a result of the delay and all of the. questions and the competitive situation in yard 3, which I have formerly advised you of, which is part of this. The CHAIRMAN. Our examination is directed to shipbuilding com- panies' profits and losses. 93486-46 5 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approod ForlRelease 2003/10/10 : CIA-RDP64600346R000400060002-4 , SHIPYARD PROFITS 1 Mr. HENRY KAISER. There is shipbuilding in this, Mr. Chairman, that is ging on now, that has been up to this time. There have been some losses. . The ClIAIRMAN. Then it is up to you to show what they are. Mr. HNIZY KAISER. You would have to bring the statement up to date. We are only bringing it up to one point. . Mr. COLES. The figures I have read, showing something over $41,- 000,000 after nonreunbursable, are profits on shipbuilding; is that correct? Mr. HENRY KAISER. No. There are ship repairs in there, too, and there is a !lot of dr dock work in there. Mr. CORES. Rather than quibble with you, are these basically profits which were paid for from the Maritime Commission; or possibly from the War hipping Administration on its repair operations? Mr. HENRY KAISER. There is some Navy work in there. The Navy was desperately up against it for repairs, and we repaired a ship a day during the war, so that is in there. Mr. COLES. Will the reporter please read the question? (The reporter read the question.) Mr. HENRY KAISER. These figures that they have shown here are not finally adjudicated by the Commission, so that so far as the figures are concernec , they are only tentative. Mr. Col.ns. Were you paid over $40,000,000 in fees and profits for your shipbuilding operations? Mr. HE RY KAISER. I do not know. (ExhilA 35 gives the following additional written answer by Mr. Kaiser:) ?! Exhibit schedule 1 of the report previously submitted by Kaiser Co., Inc., to the commitiee prior to the September 1946 hearings shows that to May 31, 1946, Kaiser Co.,1 Inc., had been paid $44,229,424.21 in gross fees before deduction of $5,750,360.98 in nonreimbursable costs and before final settlement of amounts which remained unpaid by the Maritime Commission under certain of Kaiser Co., Inc.'s, lontracts in the total sum of $29,766,134.78 which said amounts are now in pr cess of settlement. Until such settlement is completed, the total amount of dross fees which Kaiser Co., Inc., will have received and retained from shipbuildin operatoins will not be known. Mr. COLES. Does the record so show, the record submitted by you? ME. H;RY KAISER. It may. Mr. Co s. Mr. Kaiser, we get nowhere by these evasions, if I may call them such. Mr. HENRY KAISER. Do not call them evasions. Mr. Cos. Call them anything you want, but let us see if we can stick to the question, and correct me if I am wrong. Mr. HENRY KAISER. I have stated I would go to our own records and I will furnish them if I do not know. Is that evasion? Mr. COLES. Let me state that the thing that I have been trying to get from Mr. Kaiser appears in the exhibits furnished by them. The CHAIR:MAN. Very well. That is evidence, then. Mr. HENRY KAISER. Except that I say, Mr. Chairman, that it has not yet been fully renegotiated. The CHAIRMAN. It is EP to you. That constitutes evidence so far as the committee is concerned, until you show to the contrary, and that is your reSponsibility. Mr. HENRY KAISER. That is what I am trying to do now. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 63 Mr. ,COLES. Mr. Chairman, profits in Mr. Kaiser's exhibit show, for shipbuilding, $46,833,000 before nonreimbursables and after deduct- ing those things which are nonreimbursable he says it is forty-one- million-odd dollars. Mr. HERTER. Mr. Chairman, just for the record, we are talking now only abOut the Kaiser Co.? Mr. COLES. The one company. Mr. HENRY KAISER. I would like to say, Mr. Chairman that this is one company which produced both ships and steel for the ships, and under the law we had to combine them both, and therefore the loss should be shown and they should not be separated. We produced the material for the ships as well. Mr. COLES. Mr. Kaiser, let us skip my outline for a moment and go to a later portion of it, in order that we can take care of these losses you mentioned. Now, Mr. Kaiser, have Most of your contracts of the Kaiser Co., Inc. been renegotiated? HENRY KAISER. We do not think so. Mr. COLES. I would like to read from your statement, Mr. Kaiser. [Reading:] Business of the Kaiser Co., Inc., has been renegotiated through the fiscal years ending June 30, 1944. It was found by the Price Adjustment Board of the United States Maritime Commission that no excessive profits have been realized. Re- negotiation Agreement No. MCC-40480-PABS-817, dated August 23, '45, was executed covering the fiscal year ending June 30, 1944. Is that correct? Mr. HENRY KAISER. That is correct. Mr. COLES. You further state [reading] : Renegotiations have not been completed for the fiscal years ending June 30, '45, and June 30, '46, but it is obvious that no excessive profits will be found to have been realized during said years, because the contractor realized net loss on the total operations, subject to renegotiation. Mr. HENRY KAISER. That is right. Mr. COLES. SO, is the statement not corredt that none of these ship- building profits or fees has been renegotiated back, or you think will be renegotiated back? Mr. HENRY KAISER. The statement which you read answers the ques- tion. Mr. COLES. Very good. Now, Mr. Kaiser, did you pay a penny of taxes on the shipbuilding profits made by the Kaiser Co., Inc? Mr. IIMNRY KAISER. Apparently we did not, if we had losses. (Exhibit 35 gives the f ollowing additional written answer by Mr. Kaiser:) Kaiser Co., Inc., paid taxes in its first year of operation, but a claim for refund has been made since the company has shown a net loss on an over-all basis from the beginning. This being the case, no taxes were chargeable to the company. For the fiscal year ending June 39, 1942, Kaiser Co., Inc., has paid $1,064,000 in income taxes. We have applied to the Treasury for a refund of this tax, and have every reason to believe that a refund will be granted. We have there- fore stated in the written report to this committee that no income taxes have been paid by Kaiser Co., Inc. Except for this 1942 tax payment on which we expect to receive a refund Kaiser Co., Inc., has paid no income taxes, since it has had a net loss in every year of these operations. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 64 SHIPYARD PROFITS Mr. CoLEs, In other words, on the shipbuilding profits you paid not a penny of taxes? The CHAIRMAN. Did you or did you not? Mr. HHISTRY KAISER. He tells me now we paid some in our first year. Mr. COLE. How much taxes did you pay in '41 of the $46,000,000 in fees and profits? Mr. HENIY KAISER. We will furnish that information. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) In the first place, Kaiser Co., Inc., was not formed until December 1941, so it had no fees or profits in that year. In the second place, throughout the entire period of the operations of Kaiser Co., Inc., it could not be said that it,had $46,000,000 in fees and profits no matter what basis is used for the computation. Schedule I attached to exhibit F of the report originally submitted to the com- mittee shows that after deducting nonreimbursables, Kaiser Co., Inc., had gross earnings from shipbuilding contracts of $41,133,396.23. Said schedules show that in the operation of the steel plant Kaiser Co., Inc., sustained a gross loss of $59,712,436., resulting in a net loss of $18,579,040.26 to May 31, 1946. Under these circumstances, no income taxes were payable by Kaiser Co., Inc. Mr. CoLEs. Did it amount to as much as $1,00,000? Mr. HENRY KAISER. Yes. Mr. COLE. Was it a minute fraction of that? Mr. HENRY KAISER. I would like to furnish the information to- morrow. The CHAIRISIAN. If you will pardon me, you have, asked enough questions there for a man to spend the next week trying to answer them. It seems to me if he will get to work on what he has to answer tomorrow and meet here at 10 o'clock in the morning we will probably save time. Mr. COLES. May I do this: I will talk to Mr. Kaiser's attorney later and go over these questions with him again, but I should like to finish one thing. It will not take over .10 minutes. The &AIRMAN In 10 minutes we will reach the time for adjourn- ment. Mr. COLE. You stated that some taxes were paid in the very begin- ning. Have any taxes been paid on the major portion of the $46,- 000,000? Mr. HENRY KAISER. I do not know. The CHAIRMAN. Cannot counsel state what he desires, to be shown, and produce it? Mr. COLE. I would like to read from the statement Mr. Kaiser gave us: "Due to net loss, no Federal income taxes were paid on aggregate totals." Is that correct? The CHAIRMAN. If he has answered that, I guess we can assume it is correct, If it is not correct, it is his fault. Mr. CoLns. Is that correct? Mr. HENRY KAISER. Up to date. Mr. Coi4s. Now, Mr. Kaiser, you spoke of the fact that you had losses whiciji were set off against those profits.* Now, those losses were on the steel operation, is that correct? Mr. HENRY KAISER. Mr. Chairman, I promise you I will answer the questions if he will ask them in writing. The CHAIRMAN. You can say, "I cannot tell you, but _I will answer them in the morning." Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 65 Mr. COLES. On the same question, schedule 9, you state, "Iron and steel division loss to May 31, 1916, $61,000,000," and you set that off against your shipyard profits. Is that corerct ? Mr. HENRY KAISER. That is correct. Mr. Coms. In other words, the losses are on the iron and steel divi- sion? Mr. HENRY KAISER. I do not want to say that they are all there. Detailed accounting will show it. Mr. COLES. Let us turn to question No. 9, schedule 7, and it shows here your net losses totaling $61,000,000 from the iron and steel divi- sion. Now, it further shows you had a net operating loss of only $2,687,000. Will you verify these as we go along? Now what was your loss for interest expense? Mr. HENRY KAISER. $9,383,000. Mr. COLES. What was the interest expense? Mr. HENRY KAISER. ?To the best of my knowledge and belief it was the interest that I am complaining about, that was charged me that was not charged the United States Steel Corp. Mr. COLES. That is the interest on the loan from RFC; is that correct? Mr. HENRY KAISER. Yes. Mr. COLES. And this was deducted from your shipyard profits and prevented renegotiation recovery or taxation; is that correct? Mr. HENRY KAISER. That is correct. The law specifically provided font. Mr. COLES. So, in fact, do you not have the Government lending you money on the steel plant, charging you interest, and paying you in- terest through deductions against the shipyard profits and failure to tax? Mr. HENRY KAISER. Have you forgotten? The CHAIRMAN. Answer the question., please. Mr. HENRY KAISER. NO. I am liable On the loan. The company is liable for the loan. Mr. COLES. And this is the interest your company paid the Govern- ment for the RFC loan? Mr. HENRY KAISER. Did I not just say that? Mr. COLES. And that interest was paid for, in effect, by deducting it from shipyard profits, in the sense that no renegotiation recovery was effected and no taxes were paid on those shipyard profits? Mr. HENRY KAISER. It was not a deduction. The law provides that when two companies are involved they will be combined together, and we combined them according to the law. Mr. CoLEs. Is that not the effect, that the interest on the Govern- ment loan was paid for from shipyard profits which were not rene- gotiated or taxed? Mr. HENRY KAISER. The question that you bring up I believe is trying to indicate that we did something ourselves. We had no other alternative. We followed the law. The CHAIRMAN. Read the question. (The question was read twice by the reporter.) Mr. HENRY KAISER. I am at a loss to know what the effect is. We produced the steel for the ships, and where the effect is, where it goes to the effect of the loss on the steel or the loss on the ships or what it Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 66 SHIPYARD PROFITS does, I cahnot tell you. I merely know this, that we were short of steel, and we were without deck steel, and-then we were without bottom steel, and ifinally we did, after 2 years, get the Government to let us build a steel plant so we could build the ships to win the war. Now, where the' effect of it is, I know only one effect, and that was the effect [ to get the ships out. Mr. COTES. Now let me go back to that, and put it in a rather lengthy question, and perhaps we can get a "yes" or "no" answer, Mr. Kaiser. i The Goyernment lent you money and charged you interest on it, that money being lent to the steel plant. The Government gave you contracts for ships and gave you profits for building those ships. When it came to renegotiating or paying taxes, you deducted from the profits you made on those ships certain expenses and losses of your steel company, which included $9,000,000 interest and because of that loss, including the $9,000,000, you were not renegotiated out of that portion of the profits and you paid no taxes on the profits. Mr. HEXEY KAISER. The answer is "No." Mr. CoLEs. Will you explain to me why not? Mr. HENRY KAISER. I would like to give you a written answer. (Exhibit 35 gives the following additional written answer by Mr. Kaiser:) Let me anSwer that question in this way. Early in 1942 when Kaiser Co., Inc., started its Operations, German submarine warfare was seriously depleting all the small merchant fleet which our country had at that time. Ships in quantity were needed at an unprecedented rate to get munitions and supplies to the fighting fronts. Froipn past experience with other Kaiser-managed companies, it had been found that we were unable to obtain steel in sufficient quantities from ex- isting sources to meet the desired ship delivery schedules. After exhausting every possibiRty of a Government-owned D. P. C. steel plant on the coast to meet the critical steel shortage and being flatly refused, I finally approached the RFC and obtained a loan to construct a steel plant on the coast. This was not done through any particular desire to enter the steel business but to assist in the war effort, and particularly in the delivery of ships which were so vitally needed. Therefore, the steel plant was directly related to the shipbuilding program and actually could be considered an integral part of it. ' As you know, taxes are only payable if a company has profits on its entire opera- tions, and as shown by schedule I attached to exhibit F of the report which we recently sub/pitted to your committee, Kaiser Co., Inc., sustained a loss in the operation of ts steel plant as of May 31, 1346, of $59,712,436.49 which exceeded by $18,579,04 .26 the estimated gross earnings on shipbuilding contracts. There- fore, because of this loss, no taxes were payable. Similarly, since the over-all operations of Kaiser Co., Inc., resulted in a loss and it was engaged almost ex- clusively in War work, both in its steel operations and shipbuilding operations, there were no excessive profits to be recaptured through renegotiation. As mat- ters now stand, Kaiser Co., Inc:, has made nothing whatever from the war effort, but on the contrary shows in excess of $18,000,000 loss on its books and holds possession of, a steel plant upon which approximately $90,000,000, exclusive of interest, and after application of shipyard earnings when received, still must be paid and which, under such circumstances, is a liability rather than an asset. Assuming for the moment that Kaiser Co., Inc., had never operated the steel plant, the profit on the shipbuilding operations alone amounted to only sixty-eight hundredths of 1 percent of the total contract volume after applying Federal income taxes which would have been applicable had there been only shipyard earnings, and we know a no instance where such a low percentage of profit has been deemed "excessive" hi any renegotiation proceeding by the War Contracts Price Adjust- ment Board. . Mr. COLE. Mr. Chairman. It is 4 o'clock. I think we ought to avoid written answers. We have a list of questions now. I can confer with Mr. Cox this evening. Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 67 Mr. BRADLEY. YOU can furnish a written answer and read it to us. The CHAIRMAN. We are not getting anywhere now, and I am very much convinced that where an answer has been made, it may be prejudi- cial. If so, it is evidence before the committee and counsel can con- chide in any way he pleases, but it is adverse to the witness. If there is any explanation, it is up to the witness to explain and not up to counsel to give him an opportunity- to explain. I never did like this thing of giving a witness on the other side an opportunity to explain ? something against him. He can explain it if he wants to. Mr. WEICHEL. Mr. Chairman, is not part of this investigation to find out who gave away Government money, properly or otherwise, and what people gave it away in the Government? The CHAIRMAN. We want to find out the facts rather than the con- clusions of either you or myself or somebody else. On the same facts we might have different conclusions. But on the facts, the facts them- selves are the things that we want now, upon which to base our con- clusions. Mr. WnionEL. Can we not get some of that from the Government, instead of from Mr. Kaiser? The CHAIRMAN. I think we can. I will be glad if counsel will under- take to do that. The committee stands adjourned until 10 o'clock tomorrow morning. (Whereupon, at 4 p. m., the committee adjourned until the following day, Tuesday, September 25, 1946, at 10 a. m.) Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 INVESTIGATION OF SHIPYARD PROFITS TUESDAY, SEPTEMBER 24, 1946 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE MERCHANT MARINE AND FISHERIES, SUBCOMMITTEE To STUDY SHIPYARD PROFITS, "Washington, D. C. The committee met, at 10 a. m., pursuant to adjournment, Hon. Schuyler Otis Bland (chairman) presiding. Present: Representatives Bland (chairman), Bradley, Weichel, Herter, McConnell, and Keogh. Also present: Marvin J. Coles, general counsel for the committee; Nathaniel C. W. Gennett, Jr., associate counsel; Frederick M. Jones, assistant counsel; Reginald S. Losee, chief investigator. The CiiAIRmAN. The subcommittee will come to order, please. At the close of the hearing yesterday, certain? questions haat been asked, and answers were to be given by Mr. Kaiser this morning. Counsel for the committee is recognized for further questioning. TESTIMONY OF HENRY J. KAISER?Resumed Mr. COLES. Mr. Kaiser, I think we had best go back to yesterday's questions and ask again : What was the total investment in the physical facilities of the Kaiser yards? Those are the six yards, including in that group California and the Walsh-Kaiser Cos. Mr. HENRY KAISER At your request I have signed the answers to all of your questions that I know of at the present time, except the 200 you prepared and sent me last night. I now swear that to the best of my knowledge and belief they are true. The CHAIRMAN. You are under oath. Mr. COLES. Now, give us the answer. The CHAIRMAN. In making your statements you need not add "I now swear," because you are under oath. MT. HENRY KAISER. All right. The CHAIRMAN. YOLIT statements are under oath. Mr. COLES. Will you tell us then, in short, what the total investment of the Kaiser companies in those six yards were? (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. HENRY KAISER. The questions that you are asking are ques- tions that require attorneys and accountants. They have to b9. very correct answers. They have been prepared. They have been given to the best of my knowledge and belief, and I do not want to have anything given to the committee here that is inaccurate in any way, and I have given them as best I can, and I am ready to answer all of those questions if you will give me time; but I have to answer them, 69 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Appr,ted For Release 2003/19{19.,&91/W,p4B00346R000400060002-4 and you ust remember we had a million men on our pay roll, and any company which has that many must have thousands of trained personnel The CliAIRMAN. Can you answer the question, or not? Mr. HENRY KAISER. I cannot answer the question, unless I am given time to do so, and unless it is already in the record. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. COLES. As I understood from your testimony yesterday, it was less than 4 million dollars' investment in these six yards; is that still correct? Mr. HENRY KAISER. If the record shows that, it is correct. Mr. Corr,Es. Now, taking the Kaiser Co., alone?Kaiser Co., Inc.? which is one of the six yards, have you been able to discover what the total of your investment in that yard was? Mr. Ilgisruy KAISER. I Will have to answer you exactly the same way. That has all been presented to you. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) The CHAIRMAN. IS it correct, in the book? Mr. HENRY KAISER. Yes, sir. The CHAIRMAN. IS it correct, in the book? Mr. HENRY KAISER. Every answer in that book is correct to the best of my knowledge and belief. Mr. CoilEs. Mr. Kaiser, is this the same book that was submitted to us before? Mr. HENRY KAISER. Mr. Chairman, I would like to have these answers stibmitted out of the book. Mr. Co 'ES. Is this the same book that was submitted to us before? Mr. HE RY KAISER. Yes. Mr. Co s. It is not in this book. The CHAIRMAN. Very well; that is not in the book. Mr. BRADLEY. Mr. Chairman, even if those answers are in the book, the nembers of the committee have not seen that book, and we do not know what the answers are, and I would like to have Mr. Kaiser give us answers out of the book. Mr. HENRY KAISER. I would just like to read this, May I, Judge? The CHAIRMAN. Read what? Mr. HENRY KAISER. These questions and answers that were given yesterday. The CHAIR1VIAN. I am not going to start a long dissertation now. You have had an opportunity now to present your statement to the committee, and you are now under examination. Mr. HENRY KAISER. If counsel will ask a series of questions The CHAIRMAN If it is an answer to a specific question you can recite the question and then the answer. Mr. HENRY KAISER. On the detailed questions asked of me yester- day afternoon, where it was possible to obtain the facts, the answers are as follows?am I allowed to go on? The CHAIRMAN. Go head. Mr. Cous. What is the total investment in the yards? Mr. HENRY KAISER. (reading) : The comnfittee's counsel asked a series of questions about the shipbuilding profits of the Kaiser Co., Inc., and how it happened that these profits were set off in renegotiation against the losses suffered by the same company in manu- facturing steel for the Government. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 200s31/1110t1A2Ei FIAA13P64B00346R0004000FT002-4 Kaiser Co.,. Inc., operations included the production of steel for ships, for shells, and other war products as well as the production of ships. Both were an integral part of the operations of this one company. As a matter of practical common sense, as well as law, both operations were treated, as they were in fact as the operations of one company. The CHAIRMAN. Can you answer the question which has been pro- pounded by counsel? We cannot take an indefinite period here for any one witness. Mr. HENRY KAISER. I cannot answer it in one Or two words. The CHAIRMAN. All right. Mr. COLES. The question is, Mr. Kaiser: Have you been able to dis- cover what the total investment was? The CHAIRMAN. If there is a question, the answer to which is found in any of the statements that have been supplied by Mr. Kaiser, it is already evidence in this case, and further testimony is not necessary on that account, but counsel will be given an opportunity to read that if he wants to. Mr. COLES. Mr. Chairman, I know that the answer to this question is not in that record, sir. The CHAIRMAN. There is no statement in the record. Now, we will have to proceed to interrogate him?not now, but later. I cannot take up the time of these gentlemen who are brought here from their re- spective districts during their campaigns, unnecessarily, delaying them for somthing that can be supplied through questionnaires. Pro- ceed, Mr. Coles. Mr. COLES. Have you been able to discover what the total invest- ment of the six Kaiser companies in the physical yards was? Mr. HENRY KAISER. If I cannot read this, I will submit the whole thing as an exhibit. Mr. COLES. , Very well. Let this be marked. (Document so described was received and marked "Exhibit No. 52,) The CHAIRMAN. Will you answer the question? . Mr. HENRY KAISER. I cannot answer those questions unless I get the facts. I tried to answer them. Mr. COLES. Does anybody know, Mr. Kaiser? Mr. HENRY KAISER. The exhibit says that we will get them. We have got people working on them. It will take many weeks to get them. [Witness rises.] Mr. Chairman, I would like to say this to you The CHAIRMAN. Be seated, please. The exhibit submitted will be considered by the committee and as the committee may desire. It will not now be incorporated as a part of the evidence unless the committee so wishes. Mr. WEICHEL. May we have copies of all these exhibits, including these questionnaires? The CHAIRMAN. Mr. Steinko has supplied me with mimeographed copies of all the evidence of yesterday, and that copy is going to each member of the committee, not only the members who ard here today but the members who are not here. I mean, members who were here yesterday, but the members who are not here, and anything else?any material that we may have?efforts will be made by counsel to sub- mit it. Approved For Release 2003/10/10 : dIA-RDP64B00346R000400060002-4 Apprgryed For Release 200341RVICkinclARRDR641300346R000400060002-4 Mr. Wr4ciiEn. Mr. Chairman, I had in mind a letter sent to the 19 companies asking every one of them a lot of questions. Now we are going to sit here and listen and go over each one of these questions again?yon will be here for 6 months. The CHAIRMAN. I quite, agree with you, and I do not think that that is necessar Mr. WE CTIEL. The members of the committee, after all, are the persons w o are conducting this, and we should have a copy of that so that if we desire to question any witness on it, we, the committee will deterinine who they are going to question with reference to all of this material we do not have. Mr. Cour& I will have that within 5 minutes. Mr. Jones is securing it now, Mr. Chairman. Mr. WEICHEL. I agree with Mr. Bradley; we do not know what anybody has here, and we should be supplied with that for questioning. The CHAIRMAN. We will supply any member of the committee who decires it with any and all information that we have. Mr. Cot,s. A duplicate letter went to all the companies, Mr. Weichel, with one e?cception. That is the letter to the Kaiser Co., Inc. Mr. WEICIIEL. I am now talking about the answers. Mr. Conis. I have given you now the copy, I think, of all the Kaiser answers and I will see you get the answers to all of them. Mr. answers, Are the rest of them printed? Mr. Corps. We do not have them, Mr. Weichel, because in many cases they gave us one copy; in other cases, several. Mr. WElpnEn. How long have you had these in this book? Mr. COLS. I have had it for about 2 weeks-3 weeks. Mr. WEICHEE. Why were not copies supplied for all members of the committee? The CHAIRMAN. All right?anything that is desired, we will try to furnish it. Mr. Co9Es. We can give you summaries of all of them, if you like, Mr. Weichel, prepared by the committee's staff. The CHAIRMAN. Every effort will be made to supply the members of the committee with whatever the members of the committee may wish. Mr Bradley wishes a copy of some of them, too. Mr. BRAPLEY. Have you got an extra copy? Mr. Conps. Mr. Kaiser, you stated that you do not know the total amount of the investment in the six yards. Do you know your total investment in Kaiser Co., Inc., one of the six yards? Mr. HENRY KAISER Those are accounting records, and I give them to you. As I said, I would like to answer that question. We are checking with our staff on the west coast, where the records are located, as to the amount of our investment in the physical facilities, and we will furnish you the information for the record when it has been gathered together. (Exhibit 35 gives an additional written, answer by Mr. Kaiser.) The CHAIRMAN. Very well ; go ahead. Mr. COLS. The War Production Board show that there is under $1,000,000 of investment. Have you any reason to dispute that? Mr. HENRY KAISER. No; I would not. I haven't any reason to dispute that. I haven't, any reason to dispute it. MT. WEICHEL. Where is this? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SIIIPYARD PROFITS 73 Mr. COLES. I have here the records of the War Production Board in a publication known as War Manufacturing Facilities Authorized Through August 1944, and it is marked at the place of the Kaiser Co. Mr. WEICHEL. Is that introduced now, that we can question on it? Mr. COLES. We can put it in evidence if you like, Mr. Weichel. Mr. WEICHEL. Well, if that is what we want, let us put it in?all of them. Mr. COLES. May that be marked as "Exhibit No. 5," Mr. Chairman? The CHAIRMAN. It Will be so marked. (Document so described was received and marked "Exhibit No. 6.") Mr. COLES. I suggest that in publication we only publish the ap- plicable portions because as you can see, it is a very large volume. Mr. HENRY KAISER. Wait a minute. I cannot confirm that, ROT can I dispute it, as you say. The CHAIRMAN. All right. Mr. COLES. Now, we went back yesterday and asked you what part of the work in the building of the Kaiser Co., Inc., yards was subcon- tracted, and you were going to get us that and the names of the sub- contractors. Mr. HENRY KAISER. Here is the answer I have got [reading] : As I have said, moreover, most of the subcontractors' bids were on a fixed price, competitive bidding basis. We do not know and cannot know the profits which these subcontractors made, but perhaps you can get that information from the War Contracts Price Adjustment Board. We will be glad to furnish the names of these subcontractors, of whom there were hundreds. Mr. COLES. Were you able to determine which of those subcontrac- tors, if any, were related to the Kaiser Co. or to the companies which comprise the so-called Six Companies? Mr. HENRY KAISER. In order that the record may be clear, neither the Kaiser family nor any of the Kaiser companies had any interest, directly or indirectly, in any subcontractor's firm or any subcon- tractor who built any facilities of the shipyards. Mr. COLES. Were any of the subcontractors affiliates of the so-called Six Companies? Mr. HENRY KAISER. Not to our knowledge. Mr. COLES. Now, Mr. Kaiser, going over to? Mr. HENRY KAISER (interposing) . No; I do not believe they were, The CHAIRMAN. You have answered the question. You said "not to your knowledge." . Mr. COLES. Now, Mr. Kaiser, going over to the records, we show that you had cost-plus-a-fixed-fee contracts, price-minus contracts, and fixed-price contracts. The records furnished by you for the Kaiser Co., Inc., show $46,883,000 was the total amount of fees and profits. Now, I should like to go over to your fixed-price contract, as I discussed with your attorney, yesterday, and call attention to one contract, No. 28994, which was for the 35 C-4 type ships. Are you familiar with that contract? Mr. KAISER. No; I am not familiar with it. Mr. COLES. I spoke to Mr. Cutler about it yesterday and told him we would question you on the basis of it today. The CHAIRMAN. Mr. Kaiser is not familiar with it, and whoever is familiar with it should be sworn as a witness and testify later. We have got to have some orderly procedure here. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 74 SHIPYARD PROFITS Mr. COLESr Well, then divide that up into the two contracts. Did you not have a group of cost-plus-a-fived-fee contracts for the construc- tion of C-4 ships, in the Kaiser Co., Inc.? MY. HENRI( KAISER. No; they were fixed prices. Mr. COLES. They were originally cost-plus-fixed-prices? Mr. HENRy KAISER. No. Mr. COLESr IS it not true, Mr. Kaiser, that they were? Mr. HENRY KAISER. They were fixed price. They were either fixed price or a selective price. Mr. COLES. Is it not true that originally the contract for these C ships was or the cost-plus-a-fixed-fee basis, and that, after 26 of those ships had been delivered, and the total contract was 89.8 percent conk pleted, it was transferred to a fixed-price contract? Mr. HENRY KAISER. No; not to the best information I have, that is not correct. The CHAIMAN. It seems to me you should finish with the present witness, and put the other witness on, if he wants to appear. Mr. CoLEs. Now, Mr. Kaiser, getting over to another contract, which is No. 28948 which amounts to $168,400,000, was that not changed to a cost-plus? Mr. HENRy KAISER. I would like to have my son answer that. The CHAIRMAN. Your son is going to answer it? Will you stand up. Do you solemnly swear that the evidence you will give will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. EDGAR KAISER. I do. TESTIMONY OF EDGAR F. KAISER Mr. COLE . Now, if I may return to the previous contract a moment, I show you, here, from the exhibit furnished by you, a statement which shows thefixed-price contracts and show you a fixed-price contract, No. 28994 fcr C-4-type ships, to the number of 35, and the total volume, $354,000,000 plus. The CHAJEMAN. This question is propounded to Mr. Kaiser, senior? Mr. COLE Or junior, Mr. Chairman?whoever can answer it. The CHAILRMAN. Well, I want to know who is going to answer it. Mr. Couns. Do you recall that contract? Mr. EDGAR KAISER. Yes. There were two contracts. Mr. COLES. Originally, there were two contracts, were there? Mr. EDGAk KAISER. That is right. Mr. COLE. And were those original contracts The CHAIRMAN. Answered by MY. Kaiser, junior. Mr. EDGAR KAISER. They were originally fixed-price contracts. Mr. Corns. The information we have is that they were originally cost-plus-a-fixed-fee contracts, Mr. Kaiser. .Mr. EDGAR KAISER. I am quite sure they were fixed price. Mr. Cos. And it is also our information, and perhaps this will refresh your recollection, that after the ships had been completed, after 26 had been completed, it was transferred to a fixed-price contract from a cost-plus basis. Are you familiar with that? The CHAIRMAN. The question is either to Mr. Kaiser, senior, or junior. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS '75 Mr. EDGAR KAISER. To the best of my knowledge, there was a letter of intent issued to the Vancouver Shipyard, and to Kaiser Co., Inc., to the Richmond No. 3 shipyard of Kaiser Co. Inc., for an aggregate total, of 35 C-4's. That letter of intent provided, to the best of my knowledge?now we can furnish it to the record?that there would either be a plus-cost basis or a fixed-price basis. So far as I know, there was never a cost-plus basis on the C-4, any of those 35 C-4 vessels, and the contract was finally signed, to the best of my knowl- edf,e, on a fixed-price basis. r. COLES. Does it refresh your recollection to recall that the maximum fee payable for those ships originally was $102,500 per ship? Mr. EDGAR KAISER. No, sir; I do not remember that figure at all. Mr. COLES. IS it not true, then, to phrase the question differently, that that fixed-price contract was signed after 26 of the ships had, already been delivered? Mr. EDGAR KAISER. That I do not know for sure, but it was signed. Mr. BRADLEY. Mr. Kaiser, will you please raise your voice,. because this is not a private conversation between you. Mr. EDGAR KAISER: I am not sure. Mr. BRADLEY. We want to hear it. - Mr. EDGAR KAISER. The letter of intent to the best of my knowledge was never changed. The letter of intent was issued, to be a -fixed price or a price minus. Mr. BRADLEY. Well, it was at that time a fixed price or a price minus? Mr. EDGAR KAISER. The letter of intent authorized either way that could be. To the best of my knowledge the contract was signed as a fixed-price contract. It was signed after some of the ships had been delivered, whether it was 26, 10?I do not remember. We can furnish that. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) The CHAIRMAN. I 'would suggest also to counsel that where the facts can be established from other records available, we would rather not ).;(:? into it. Mr. EDGAR KAISER. That is right. Mr. WEIGHEL. Mr. Chairman, it seems to me that the Maritime Commission, who dealt on behalf of the Government and went into all of these things with reference to contracts with Kaiser or anybody else, with reference to the building of ships, that we should get the information from them as to?say?what they paid, and then, if Mr. Kaiser says they did not pay it, why, that is one thing, but to come out here on cross-examination without introducing anything which the Government has, you will never get anywhere. It seems to me there should be records of the Maritime Commission and that who- ever the present custodians, they should have had that all together by this time, with reference to all the contracts with reference to Mr. Kaiser. Mr. COLES. Mr. Weichel, I have here? Mr. WEICIIEL (interposing). Have them introduced here by some- body. Mr. COLES. I should like to introduce as exhibit 6 the Maritime Commission's record of the transaction and their recommendation concerning it. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apmved For Release 20q4110/196 gAM;IDP641300346R000400060002-4 Mr. WEICIIEL Well, now, with reference to the Maritime Commis- sion's record, introducing it without them if you are going to offer some records in here from the Maritime 'Commission, with people from the Maritime Commission, somebody might like to ask the Mari- time Commission something about the record, but just to stick a piece of paper in here and then ask somebody else, we are never going to get anywhere. No one else is. Mr. COLE. They will be introduced. Mr. WEICIIEL. Somebody of the Maritime Commission?the proper person, if he knows about it, so he can be asked about it. The CHAIRMAN. We will endeavor to get anything that any member of the committee desires. Mr. COPES. Now, at the time that the contract was entered into, on May 17, 1945, had 26 of these vessels been completed? Mr. EDGAII KAISER. DO you ask me a question? Mr. COLES. I am referring to this. MT. EDGAR KAISER. That may be so. I am not sure. Mr. COLE. At that time, then, the full price of the vessel was known; is that correct? Mr. EDGA,Il KAISER. No, sir; that is not correct. Mr. Cops. After 26 vessels had been completed? Mr. EDGAR KAISER. That is right. Mr. Copis. You did not know the cost of it? Mr. EDGAR KAISER. Not the full price of all of the vessels. There were certain changes constantly being made in those vessels as we were proceeding You see, the contract was originally let to the two yards for 10 C 4 troop transports to be built at Richmond Shipyard No. 3, and 25 to was then It was the cargo vess e built at Kaiser Co., Inc., and Vancouver Shipyard. It odified to build 5 only at Richmond and 30 at Vancouver. changed to build 12 of them as troop transports and 8 as is and 10 were deleted from the contract. These changes did not all occur at one time. They occurred after the letter of intent was issued, and as the theater-of-war operations were changing and the requirements for these vessels, these changes came through. (Document-so described was received and marked "Exhibit No. 7.") Mr. Copts. Did the profit on the last five of those vessels not amount to $520,000 per ship? Mr. EDGAR KAISER. AS I recall it, there was a recapture provision in the fixed-price contract, providing that if we earned more than $520,000 .*e would repay to the Commission any profits in excess of that amount per vessel. Mr. Copts. Did you earn more than that amount per vessel? MT. EDGAR KAISER. The records at Richmond No. 3 OD those vessels have not been closed yet with the Commission, and at Vancouver, I think they have been closed, and I believe we earned more, and re- capture has been paid; but I am not certain on that point. Mr. COLES. So that you made $520,000 per vessel at Vancouver and returned the excess, is that correct? Mr. EDCAR KAISER. Yes; and I think that applies to the troop trans- ports, and I am not sure about the recapturable profit. I do not think it was $520,000 on the cargo vessels, but it might have been; I am not sure. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Approved For Release 2003/10/10 : CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000409960002-4 SHIPYARD PROFITS Mr. COLES. Now, referring to contract No. 28948, which is a con- tract for C-4 vessels, 20 C-4 vessels, for $164,000,000, do you recall that contract? Mr. EDGAR KAISER. That is the same contract that we are talking about. That is the Vancouver contract, and the other one is the Rich- mond contract, I think. Mr. COLES. Was that contract changed from a cost-plus basis? ME. EDGAR KAISER. No, sir. Mr. COLES. Under that contract-- Mr. EDGAR KAISER (interposing). You asked if it was changed from a cost-plus basis to a fixed-price. It was not. It was always on a fixed-price basis. Mr. COLES. I should like to introduce certain comments on that. The CHAIRMAN. What do you mean by the comments on that? Mr. COLES. Just a recapitulation, Mr. Chairman, of the transactions involving that contract. The &AIRMAN. By whom? Mr. COLES. This one was made by the General _Accounting Office. Mr. WEICHEL. Let us have that presented through people who pre- pared this business. Mr. COLES. This is a recapitulation, Mr. Weichel. It 'quotes from the Maritime Commission. Mr. WEIGHEL. All right, but let us have it from the Maritime Com- mission, first. Those are the Government records? Mr. CoLEs. Yes sir. Mr. WEICHEL. Now, let us have the other. Mr. COLES. We will get to the other. Mr. WEICHEL. Let us have the person who made them up, so we can see what he says about those. ? Mr. COLES. Very well, sir. The CHAIRMAN. The Chair rules they are admissible at this time, and if further examination is desired, that can be called for. Mr. WEicirE.L. Well, what are they? The CHAIRMAN. We cannot get them all at one time. Mr. WEICHEL. But what are they? We do not know what he is talking about. We do not have copies. 'This is getting the cart loefore the horse on every one of these things. The Cumin/IAN. I am afraid we have to have it done in this way. Mr. HERTER. Mr. Chairman, I might suggest that counsel tell us what is in that exhibit, so we can find out what the purpose of putting it in the record is. Mr, COLES. Yes, Mr. Herter; the last exhibits show that there was a change in these contracts after the vessels were completed, and the changes were such as to give an increased profit over the original intent, and the original contracts to the Kaiser Co., Inc. The CHAIRMAN That will be shown by the language, rather than the conclusion of counsel. Mr. WEICHEL. Mr. Chairman, the proper way, it seems to me, to handle this, if the Government made the contracts and then changed them, let us have those people here to see what they say about it, and why they changed them. Let us get the information from the source 93486 46-6 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approffld ForRelease 2003/i0/10 .? CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 1 where the money ran out from, but not where it was received, and.let us get the business right. The C iIAIRMAN. We will undertake to have them. The evidence is admissible now. Mr. Co ES. Under these fixed-price contracts, Mr. Kaiser, was there any renegotiation? The C1IAIRMAN Mr. Herter asked that the specific language be read, that is in the exhibit. Mr. Cow. I beg your pardon. Do you want the last one? Mr. BRADLEY. The language that indicates the point that you are trying to bring iout, indicating that there was a change. Mr. Co ES (reading): , Under da a of May 15, 1945, the Commission's Committee on Awards, consisting of H. L. Vickery, R. E. Anderson, William A. Weber, Walston S. Brown, and R. P. Mills, that to the Commission recommendations (prepared by Walston S. Brown) hat an agreement be entered Into with Kaiser Co., Inc., providing a fixed price Of $354,090,000 for the construction of 35 C-4 vessels. And I might ask parenthetically, is Mr. Brown employed by your company in any capacity now? Mr. EDGAR KAISER. NO. Mr. COLES (reading) : The prop sed settlement, prepared by Walston Brown and approved by the i) Committee n Awards is as follows: "Kaiser C ., Inc., entered into a contract under date of January 9, 1942, which contract as amended, provided for the construction of 30 design C-4 vessels at the shipyar4 known as Richmond yard No. 3. Work under this contract will not be completet for several months. Under date of May 4, 1943, the Commission and Kaiser ?, Inc., entered into a letter of intent which provided that a fixed- price contra t will be made covering the construction of an additional five C-4 vessels whici are now scheduled for delivery during the last half of this year. "Kaiser Co. proposed, in January of this year, to enter into a fixed-price con- tract covering the construction of all 35 vessels called for by the existing con- tract and the letter of intent. After this proposal was received the Finance Division made a careful review of the costs incurred in connection with the construction of the first 30 vessels, the contract for which was On the so-called price-minus basis. As a result of this it was determined that the costs so far incurred, together with the estimated cost of completing the contract work, without allowance for contingencies was the sum of approximately $303,200,000. Representatives of the contractor agreed to accept a contract price equal to this cost, together with an amount to cover profit and contingencies. "Under the contract dated January 9, 1942, as amended, the minimum fee is $100,000 or each of 10 vessels, and $102,500 for each of the remaining 20 vessels. The maximum fee is $518,000 per vessel. Since the costs definitely exceed the rget price of $6,235,000 per vessel stated in the contract, and the actual deliv ry dates are much later than those set forth, it would appear that the contractor should be entitled to receive as profit not more than the minimum fee, although the increased cost and delays may in large measure be attributable to the numerous changes in plans and specifications made by the Commission it the request of the War Department and lated by the Navy De- partment. I was therefore decided to recommend that the contractor agree to limit the pro 't on account of the 30 vessels covered by the contract dated Janu- ary 9, 1942, to the sum of $3,050,000 the minimum fee specified in such contract. "The contractor has pointed out that this profit is approximately 1 percent of costs incurred, and that on account of the disallowances hereafter referred to it will be reduced to approximately I/2 percent of such costs. The contractor therefore co tended that a rather liberal contingency should be allowed in the price for the 0 vessels, and asked that such contingency be placed at 11/2 percent of the total estimated cost, or approximately the sum of $4,500,000. The com- mittee, in lieu of this, suggested a contingency of approximately $3,800,000, which is acc ptable to the contractor. The afore-mentioned contingency does not cover the contractor's liability on account of violation of the Fair Labor Stand- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R0004000_60002-4 SHIPYARD PROFITS 79 cards Act. These violations which came about by making "deductions from the pay of exempt employees at the direction of the Commission, and. classifying -certain employees as administrative and executive with the approval of the Com- mission, give rise to a total liability which may equal the sum of $2,000,000. The contractor has requested that this amount be included in the contract price, upon the understanding, however, that if the total payments which it is required to make on account of liabilities incurred under the Fair Labor Standards Act shall actually be less than such amount, the contract price may be correspond- ingly decreased. "The contract price for the remaining five vessels should be the same as that recommended for the vessels of identical design to be built by the same company .at the Vancouver, Wash., yard. Such price is $8,000,000, but does not include the performance of joiner work by the contractor. The estimated cost of joiner work is $538,000 per vessel, making the total contract price for the last five vessels the sum of $8,538,000 per vessel. Adding such contract price to the $312,000,000 for the first 30 vessels will make a-contract price of $354,690,000. "In the memorandum from this committee in regard to an award of contract for the construction of 0-4 vessels at Vancouver, Wash., it is recommended that .all profits in excess of $520,000 per vessel be subject to ?recapture. This would equal $2,600,000 for the five vessels at Richmond covered by the letter of intent. Adding this to the minimum fee of $3,050,000 to be allowed as profit on the 30 vessels, the Commission will recapture all profits in excess of $5,650,000. "In determining costs for recapture the contractor should not have substan- tially more favorable treatment in respect of the costs incurred for the construe- 'tion of the 30 vessels than it would have under the price-minus contract. There have been disallowed from costs, or withheld by the contractor from applications for payments, to date, charges amounting to $1,597,504.20. The Finance Division has reviewed these disallowances and determined the charges totaling $231,- 228.25 included therein should have been allowed. It is therefore recommended that the contract provide that. both parties agree for the purpose of determining profits, the sum of $1,366,276 shall be disallowed from cost on account of the -disallowances heretofore made by the Commission. "As has been pointed out above the contract price recommended contains a substantial allowance to cover contingencies. In view of this, and the fact that Kaiser Co., Inc., is engaged in other activities, it is believed that special provi- sions should be made for withholding, at the Commission's option, a sufficient amount to protect recapture, rather than to make the usual proVisions for pay- ment of the full amount of the contract price upon delivery of the last?vessel. Such provision should have the effect of permitting the Commission to withhold (i) part or all of the $5,800,000 contingency which includes that for restitution paid, contained in the unadjusted price for the 30 vessels, (ii) the Sum of $1,600,000 which represents the normal hold-back from the contract price specified for the five vessels, and (iii) such additional amount as the Commission may determine at any time to be necessary in order to protect its rights of recapture, but not to exceed the sum of $3,000,000. "RECOMMENDATION "It is recommended that the Commission enter into a contract with Kaiser Co., Inc., in accordance with the provisions outlined in this memorandum." Then, following through, are comments made, I believe, by a repre- sentative of the General Accounting Office. [Reading Although the letter of intent states that the contract will be dated as of May 2, 1944, and numbered Mcc-28994, such contract is dated as of April 1, 1945, but was actually approved by the Commission May 17, 1945. As of May 17, 1945, progress of completion of the 35 vessels was as follows: 26 vessels delivered, 5 hulls launched, 3 keels laid, 1 keel unlaid. The progress reports reflect percentage of completion of the vessels as of April 30, 1945, and May 31, 1945, as follows? And then there is a recapitulation showing the percentage of com- pletion of the various vessels. Mr. HENRY KAISER. Mr. Chairman. Mr. Cor,Es. Excuse me; I will finish this, if I may. The rest has. to do with this [reading] : Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For, Release 2003/10/10 : CIA-RDP64600346R000400060002-4 80 SHIPYARD PROFITS In the event the vessels were delivered as incomplete (progress reports show 100-percent cOmplete) there may exist an overlapping of payments under the con- tracts and se tlements thereunder. Attention i invited to the statement in the first paragraph of the memoran- dum? "Under data of May 4, 1943, the Comniission and Kaiser Co., Inc., entered into a letter of intent which provided that a fixed-price contract will be made cover- ing the consttuction of aditional five C-4 vessels. * * *" The letter of intent referred to is dated May 4, 1944, and provides for the construction Of 10 additional C-4 vessels (hulls 2383 to 2392); 5 of which (hulls 2388 to 2392) were canceled, and said letter of intent provides that the contract will be either upon a fixed-price or the so-called price-minus basis. It will be noted that as a result of establishing a fixed-price contract for the last five vessels, the contractor is allowed a profit thereon of $520,000 per vessel as compared vith $100,000 per vessel for the first 10 and $102,500 per vessel for the next 20 v ssels. In other words, the contractor is allowed a Profit per vessel on the last 5 essels which exceeds the profit per vessel on the first 30 vessels by more than fivr times as follows? Then they show by group 1, of 10 vessels, they made a prOfit of $1,000,000, vhich is $100,000 per vessel; on group 2, which is 20 vessels, they made 4 profit of 8102,500 per vessel, which is $2,050,000; and on group 3, w ich is just the 5 vessels, they made a profit per vessel of $520,000, w iich is a total of $2,600,000, giving the total on this con- tract of $5,650,000. [Reading:] The record S of the Commission show that as of May 17, 1945, keels for four of the last five vessels had been laid and one hull had been launched. Mr. Enany KAISER. Mr. Chairman. Mr. WEITIEL. Mr. Chairman, as a member of the committee, now, who wrote that as a memorandum? Mr. COLE. This was provided to us, at our request, by the General Accounting Office. Mr. WEIOIIEL. By the General Accounting Office? Mr. ?COLE. Yes, sir. Excuse me. The memorandum was written by the Maritime Commission. Mr. WEIthiEL. All right. Then why did you not have the Maritime Commission here with reference to these contracts, as to what our Government's books show, to whom they gave the profit, and then we will take care of the fellow who got too much profit afterward; but who was the fellow in the Government who gave that? That is the part we want disclosed up here, first. Mr. COLO. Mr. Weichel, I will have the names. Admiral Vickery, who is deceased? Mr. WEIOHEL. Bring the people from the Maritime Commission up here. The CH4RMAN. Counsel may proceed in his own way. It is im- possible to get all the evidence at one time. It will be in sequence. First, the facts are endeavored to be shown, and then there may be questions, and then the producing of witnesses that will establish them, if there are any controversies. Mr. WErqtEL. Where are the Government records on it? That is what the people did. Let them come up here. This is not a proceed- ing to shielfl people in the Maritime Commission, or to shield Kaiser, or anybody else, but to get the people up here who did this, and who are not here ; and you haven't got them here. . The CHAIRMAN. Will the member suspend a minute? As long as the statement is made that this is not a proceeding to shield the Mari- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 ; CIA-RDP64600346R000400060002-4 sHIPYALID PROFITS 81 time Commission or anybody else, the chairman desires to state that there is no desire on the part of the committee or of the chairman to shield anybody, but to bring the facts out fully. They cannot all be brought out at one time. The order in which they are presented may to some members seem mistaken. If so, and there is any change that can be made, the Chair and counsel will undertake to make them, but the procedure that is being followed is the procedure that has been decided to be the best way to present the facts, giving an opportunity to members of the committee to interrogate any witnesses whom they may desire, and have them brought forward. All right. Proceed. Mr. WEICIIEL. Mr. Chairman, when are we going to get the Govern- ment records where all this thing came from? That is what we want. When are we going to get them? ? The CHAIRMAN. I may also say it is the intent of the committee neither to exonerate nor to excuse anyone, nor to crucify anyone. i What we desire are the full facts, the facts n their fullest, and they cannot always be proceeding in one particular way. We have got to get at it the best way that we can. Probably Mr. Weichel could do it a lot better. Mr. WEiciini.. I am asking about the Government records. We still do not have the Government records. We are asking somebody else to give his opinion. There are no Government records, nor are those people here. The CHAIRMAN. Very well; we will proceed with what we have, and we will endeavor to get for the member just whatever the member wants. Mr. BRADLEY. Mr. Chairman, may I say for Mr. Weichel's benefit that we did have some Government records here yesterday, from the Maritime Commission, which Mr. Kaiser immediately challenged and said were entirely wrong. Mr. WraciiEL. I haven't seen any yet. The CHAIRMAN. We want to give him an opportunity. He is here, now, and we want to Ove him the right to fully produce the facts. We are not going to crucify or excuse. We want the facts. One thing stands out?that we won this war. Mr. WEIGHED. With reference to the money they spent, their records should show how they spent it, and to whom they gave it, and then we could check as to whom they gave it; but we do not know that. The CHAIRMAN: If any member is dissatisfied, the executive com- mittee will be called, but this, is not the place for debate between members of the committee. Mr. CoLEs. Mr. Chairman, we have notified the Maritime Commis- sion to be present, and have requested them to give us full information on this, and I feel confident that they will be here for examination. The CHAIRMAN. If they do not, we will use all the powers we have to get them here. 11% EDGAR KAISER. Mr. Chairman, now that I have heard the letter read from the omptroller General's Office, I understand the con- fusion that is existing: we are not even talking about the same con- tracts, on the original question. The CHAIRMAN. All right; tell us what we are talking about. MT. EDGAR KAISER. Counsel's question originally was, "Were you awarded any C-4 ships on a cost-plus basis, and then was it changed Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For[Release 2003/10/10: CIA-RDP64B00346R000400060002-4 82 SHIPYARD PROFITS to a fixed-price?" The answer is still "No"; they were either on a price-minuS or a fixed-price basis; but the first 30 ships that are re- ferred to in the letter are the first 30 C-4 vessels that were let to Kaiser Co., Inc., at Richmond No. 3, in January 1942. That was let on a price-ininus basis. The contract was changed to 35 vessels, I think in '41, when the 5 vessels were added to the contract. That is why the record appears that the fees were changed, or the recapturable profits were changed on the vessels. The original contract provided, as I recall it, for a minimum fee of $150,000 and a maximum fee, I think, of six hundred-and-some-odd-thousand, depending on the work done. These vessels were changed four or five times, to Navy transports, then Army transports, and so on, through four or five changes. The facility cost was increased as a result of those changes. The Mari- time Commission arbitrarily, we said, reduced the minimum fee to $102,000-1 believe that is correct?when the contract was increased by the five vessels, which was done in '41, and they limited the profit on the first, 30 vessels to the figures quoted in that letter, which were approximately $100,000 a vessel, because those vessels were substan- tially- completed; but on the new vessels, the new five which we had not built yet, they then set up r.ecapture provisions for $520,000, if we made nj.ore than that. Those were a different type vessel. They were still ti C-4, but they were a different designation and for an en- tirely different purpose. Even those, however, were changed during the perfortnance of the contract from five troop transports to go to the Army, to three to go to the Navy and to two to go as cargo vessels. Mr. COLES. Now, there was a change in the contract to a fixed-price contract after. 26 vessels had been completed? Mr. Encan KAISER. Not a chancre, because the original letter of in- tent provided price-minus, which is the same as the fixed-price, only it amounts to a difference in the recapture provision. Mr. COLES. The fixed-price contract was signed after the 26 vessels had been completed, is that correct? Mr. EDGAR KmsEa Well, only because the five were added, so that it made a completely new picture. Mr. Conr. Very well. Mr. ED AR KAISER. Not because anyone was changing the condi- tions on the original 26 or 30. Mr. Coll'Es. But at the time the fixed-price contract was made, the vessels had been completed; the cost was substantially known, is that correct? Mr. ED9AR KkISER And the profit was limited to $100,000 or there- abouts on those vessels. Mr. Cors. But under that contract there was no risk of loss, was there? Mr. ED6AR KAISER No?and they reduced the fee. Mr. CoL-Es. All right. Now, let us get on to the other contract, which is i e one for $164,000,000, that we referred to before. Was that contract newise made attr most of the vessels were completed? Mr. ED AR KAISER. No, sir. Mr. CODES. It was not? Mr. EDPAR KAISER. No. Now, I would be sure we are talking about the same contract. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 83 Mr. COLES. All right. MT. EDGAR KAISER. That is the 20 C-4's ? Mr. COLES. C-4's. Mr. EDGAR KAISER The three different types, at Vancouver, and five at Richmond, which were added to the original 30? Mr. COLES. Yes. Was that settlement not made January 15, 1946? Mr. EDGAR KAISER. The final contract may have been signed then, but the settlement was made considerably in advance of that. Mr. COLES. So that by the time the final contract was signed, the vessels had been completed? Mr. EDGAR KAISER. No, sir. Mr. COLES. How many remained to be completed. Mr. EDGAR KAISER. I do not know. Mr. COLES. Were there some of them completed? Mr. EDGAR KAISER. At the time that the negotiated fees were changed, less than?well, I do not know, really. The CHAIRMAN. Let us get this clear. What do they do?make settlements, and then make contracts to agree with the settlements? Mr. EDGAR KAISER Well, sometimes it takes counsel some time to prepare the contracts after the agreements are made. Mr. Cors. What time lag was there here, do you now? Mr. EDGAR KAISER. I do not know. Mr. COLES. Was the contingency allowance allowed under these con- tracts for the fixed price actually to be paid? Mr. EDGAR KAISER. I am not sure. I would have to check on that. I think in most cases there was an amount withheld by the Commis- sion to protect it. In some cases of the fixed-price based contracts, I think it was paid.; I am not sure. I can check that and let you know. Mr. COLES. Was that contingency allowance included in the total profits which you show, or not? Mr. EDGAR KAISER. I think we should be clear as to what the con- tingency allowances are. They are for wage adjustments, retroactive, to be approved by the Wage Stabilization Board, changes in classifica- tions, or other items of that nature. Mr. COLES. Was there any surplus of those contingency funds over and above your actual expenditures? Mr. EDGAR KAISER. Well, if there was, it did not make any differ- ence, because of the recapture provision in the contract. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. COLES. That is what I am trying to get at, Mr. EDGAR KAISER. Right. Mr. COLES. It was recaptured, was it? Mr. EDGAR KAISER. That is right. Mr. COLES. Now, let us get to the total cost of contracts. Our figures are that the total cost to the Kaiser Co. was $1,658,000,000. Is that correct? Mr. EDGAR KAISER. To the best of our knowledge and belief, that is correct. Mr. COLES. Of that, $316,334,000 was Government-owned material supplied to you, was it not? Mr. EDGAR KAISER That is correct, according to our records. Mr. COLES. Was any of that $1,342,000,000 of material which you purchased, which you put into the ships, purchased from a subsidiary company or an affiliated company? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 ? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 84 SHIPYARD PROFITS ME. EDGA KAISER Not to my knowledge. Mr. COLE. Where do you get your engines? Mr. Enomz KAISER. The turbines came from Sun Ship, I think, for those ships, because they were originally bought by the Government to go to Sun, then were transferred to us. Mr. Coros. Did you buy any of your engines, or did you receive them from the Joshua Hendy Iron Works? MT. EDGAR KAISER. Not for the Kaiser Co., Inc. Mr. COLES. None of their contracts? Mr. Enoatt KAISER. Those were delivered for Liberty vessels. Mr. COLES. Did you get Liberty engines from Joshua Hendy for contractors Mr. EDGAR KAISER. We did not; no. Mr. COLES. For none of your yards? Mr. EDGAR KAISER. We got Joshua Hendy engines, but they were purchased by the Maritime Commission. Mr. CoLEs. In how many vessels were those Joshua Hendy engines installed at Kaiser yards? Mr. EDGAR KAISER. We are talking about Kaiser Co., Inc.? Mr. COLES. Well, we will get to it later. Mr. Eno,: R KAISER Or Kaiser Co.? No Joshua Hendy engines, to1_ my knowle ge. Now Joshua Hendy later built turbines. I do not remember vhether there were any turbines furnished through the Government from Joshua Hendy on Kaiser Co., Inc.'s, jobs. Mr. COLS. Well, just for one moment, let us (Tigress from Kaiser Co., Inc. In some or all the Kaiser Co. yards which ilt Liberty ships, were Joshua Hendy engines used? MT. EDGAR KAISER Yes; there were some Joshua Hendy Mr. Couis. Do you have any idea of the number of Joshua Hendy engines that were used? 3/Ir. ED7,AR KAISER. NO idea at all. Mr. Co4s. Would there, be several hundreds, or thousands, of the engines? MT. EDGAR KAISER. None purchased by us. Mr. CoLts. But purchased by the Maritime Commission from Joshua Hendy, is that correct? Mr. EDGAR KAISER. That is correct. Mr. CoLns. What was the average cost of those? MT. EDOR KAISER. I do not know. The CH mmAN. What is Joshua FIendy Iron Works? Mr. Co s. I will show it is another affiliate of the Kaiser companies. is that no one of the companies controlled by the so-called six com- panies? ? Mr. I-IORY KAISER. NO. Mr. EDGAR KAISER. Well, in answer to your question, I do not know what the cOst was of the Liberty engine, whatsoever. Mr. Coais. Very well. Let us have an answer as to whether or not Joshua Hendy is controlled by Kaiser. Mr. EDGAR KAISER. NO; Joshua, Hendy is not controlled by Kaiser, and never was nor was it at any time. 4 Mr. Cos. was, s-Kaiser not have an interest in Joshua Hendy? Mr. HERY KAISER. It has a small interest in it. Mr. COLS. And is not the remaining interest controlled by the com- panies which are a part of the Kaiser group, such as the Bechtel Co., Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 85 the General Construction Co., the Utah Co., the Shea Co., and so on? Mr. HENRY KAISER. The majority interest was held by the Moore Machinery Co. Mr. EDGAR KAISER. The Majority interest was held by the Moore Machinery Co.?Charlie Moore. Mr. COLES. But the Kaiser- group do hold an interest in Joshua Hendy, is that right? Mr. HENRY KAISER. Yes, sir. Mr. COLES. Would you say that for the record? Mr. HENRY KAISER. Yes. Mr. COLES. Now, Joshua Hendy sold engines to the Maritime Com- mission, is that correct? Mr. HENRY KAISER. Yes, definitely. I can go further on that and enlighten you further. When we built the first 30 British ships, Gibbs & Cox, I think, purchased the engines. Mr. EDGAR KAISER. They were the procurement agents. Mr. HENRY KAISER. They were the procurement agents for the Mar- itime Commission. Gibbs & Cox were procurement agents for the Maritime Commission, and I remember when the first British ships came up, Gibbs & Cox called me up and said, "We are up against it. There isn't any place we can get engines. Is there any way that you can get any one?" And I told them till I thought possibly Joshua Hendy; and we notified Joshua Hendy?Mr. Moore?and he went to see them. I think that they were competitively bidding; I am not sure, and they furnished engines for I do not know how many yards through- out the country. I do not know where those engines went. Mr. Coms. Did some of the Joshua Hendy engines go into the Lib- erty ships built by any of the six yards? Mr. HENRY KAISER. Oh, I am sure they must have. Mr. COLES. Now, those were purchased by the Maritime Commis- sion from Joshua Hendy Co., is that correct? Mr. HENRY KAISER. I have in mind they were purchased by Gibbs & Cox. Mr. Conns. We are not talking about the British ships. ? Mr. HENRY KAISER. No, no. Mr. COLES. We are talking of the general? Mr. HENRY KAISER (interposing) . I think the others were. Mr. EDGAR KAISER. I am not sure. Gibbs & Cox might have bought some. Mr. COLES. But they paid for them? The CHAIRMAN. Wait a minute. We do not want confusion here. We want to show here the answer of the witness. Mr. EDGAR KAISER. I Will strike my answer. Mr. HENRY KAISER. Gibbs & Cox. I am satisfied Gibbs & Cox were the purchasing agent of the Maritime Commission for a long time, and I am satisfied they purchased a number of those engines for the Maritime Commission; how many, I do not know. Mr. COLES. Was Joshua Hendy Co. given a profit on the engines so purchased for the account of the Maritime Commission? Mr. HENRY KAISER. I think you should call Joshua Hendy for that. Mr. COLES. Well, do you have any doubt but that a profit was paid to them? Are any of your companies in business? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 86 SHIPYARD PROFITS The CITAIRMAN (interposing). Just a minute; if he does not know-- MT. HENRY KAISER. I do not know. I think it would. Mr. CoLDIs. Did you answer the question, Mr. Kaiser, Jr.? Mr. HENRY KAISER. Well, I really do not know. I do not like to talk about Joshua Hendy, when their representatives are here now. They can give you all the facts. I do not know. I am not managing, and I do not know what goes on in the company. I am not a director. I am merely a stockholder having a small percentage. Mr. Cons. What I am trying to bring out, Mr. Kaiser, is that Joshua Hendy Co., received a profit on the engines, the engines were then sent over to the Kaiser yards, and the Kaiser yards received an- other profit; is that not correct? Mr. HENRY KAISER. Well, it may be. I am a stockholder in Gen- eral Motors, and I may have gotten a profit on automobiles that they sold the yai-ds ; I do not know. (Exhibit 35 _gives an additional written answer by Mr. Kaiser.) Mr. Cons. Is that an interesting revelation of stockholding in a competing company? Now, this material that you put into your ships was all supplied by the Maritime Commission, or reimbursed to you by the Maritime Commission, is that not correct, under the cost-plus contracts? Mr. EDGAR KAISER. No. We bought a considerable portion of the material. Mr. COLS. Yes; but were you not reimbursed by the Commission for that material? Mr. EDGAR KAISER. That is correct. Mr. COLES. So that the Commission or the Government paid for the material going into these ships, is that not correct? Mr. EDGAR KAISER. That is correct. Now, we are talking about Kaiser Co? Inc.? Mr. Conns. Kaiser Co. Inc. Mr. EDGAR KAISER. All right. . Mr. Con ,s. Was the labor paid for by the Government on all these cost-plus-i, xed-fee contracts? Mr. EDGAR KAISER. Not all of it, but most Of it. ' Mr. Co ES. Was the interest on borrowed capital paid for by -the Governme t ? Mr. E1XIAR KAISER. I do not know the answer to that question. I think the nswer is, to the best of my knowledge, the same as we gave yesterday?about half of it. Mr. Corps. About half of it? Mr. Enc AR KAISER. Might have been a little less. We are checking that quest-on and will furnish the answer. (Exhibit 35 ,ffives an additional written answer by Mr. Kaiser.) i Mr. COT ES. Thank you. Now, Mr. Kaiser, were the management's salaries o the management and executive personnel paid by the Mari- time Commission? Mr. EDGAR KAISER. The staff that was on the job doing the work, none of the management from the Henry J. Kaiser Co., Oakland office, which had a very-- Mr. Cot,Es. Did you get a salary of $18,000 a year from Kaiser Co., Inc.? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-IRDP64600346R000400060002-4 SHIPYARD PROFITS 87 Mr. EDGAR KAISER. Well, I got a total salary of $18,000. I do not think I got it all from Kaiser Co., Inc. I think some of it was from Oregon Shipbuilding. Mr. COLES. I think the records show. Mr. EDGAR KAISER. Well, maybe later on it changed over, but the total was $18,000. Mr. COLES. Was that $18,000 paid to you reimbursed by the Mari- time Commission? Mr. EDGAR KAISER. I think it was. Mr. COLES. Now, what nonreimbursable expenses did- you have for the Kaiser Co.? What were they for? Mr. EDGAR KAISER. To the best of my knowledge, all of that is in that book. Mr. COLES. That deduction was $5,750,000. Can you tell me what those nonreimbursables were, and whether the Government should have been liable for them? Mr. EDGAR KAISER. May I refer to the list? We do not have the detail exhibit supporting the summary figure of $5,750,000. Mr. COLES. Would you get us a break-down of that? Mr. EDGAR KAISER. We will. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. COLES. Now, Mr. Kaiser, I assume that you laid out money for the Government, in the sense that you paid the labor and then you were subsequently reimbursed, is that correct? Mr. EDGAR KAISER. Yes; that is correct. Mr. COLES. How long was the average time for reimbursement on expenditures made for the Commission's account? Mr. EDGAR KAISER. I will have to refer, if I may. Mr. COLES. Certainly. Mr. EDGAR KAISER. Probably about a 21/2 week period, on the aver- age. About a 21/2 week period on the average, to the best of our knowledge. Mr. COLES. And during that 21/2 weeks you were a claimant from the Government much in the way that a bondholder is a claimant against the Government, is that corect? ''Mr. EDGAR KAISER. I do not know about that. ? Mr. Cors. But I mean you have a claim for money against the Government? Mr. EDGAR KAISER. We had a claim for it. Mr. Coms. All right; let us go back for a moment. We find that the material was paid for by the Government, the labor was paid for by the Government; at least part of the interest on borrowed capital used was paid for by the Government; management and salaries were paid for .by the Government; reimbursement was about 21/2 weeks. What were the fees paid for? Mr. EDGAR KAISER. The fees were paid for furnishing the organi- zation, the management of the job, the personnel that we brought on the job, also paid for furnishing the operating capital of $32,000,000, because our pay rolls ran, in the northern yards, in excess of 5 mil- lion in a week, and in excess of 5 million a week, in the southern yards, making 10 million a week. We were paid also for the speed of per- formance; for building the vessels at about $250,000,000, on the Lib- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 88 SHIPYARD PROFITS erty ships, under the cost of the average of all other Liberty ships in the country. Mr. Comis. Now, you talk about the salaries and management. Were not management salaries paid for by the Commission? Mr. EDGAR KAISER. No; not all of them. This is our manager. Ile knows mord about what is going on than we do, even though he is not there. Mr. COLE. He has not shown it in the hearings. Mr. EDGAR KAISER. Well, you have not asked him technical ques- tions about how to build the ships, or how to get it done, or how to organize to do the things that were needed at the time; but when you ask him sorne technical questions about "which agreement had what interest in it?" I do not wonder he cannot answer it; but ask him who the men were that took the job?he knows that answer. The CH4IR1VIAN Individuals, or members of the committee, I do not think counsel should reflect upon that, that he has not shown it at the hearing. That would be a conclusion. Mr. Con. I ask the remark be withdrawn. The CHAIRMAN. That is all right. Go ahead. Mr. -ConUs. Mr. Kaiser, were management salaries not limited to $25,000, under the 1936 Merchant Marine Act? Mr. EDGAR KAISER. I do not know about that, but they were, in our contract, ,limited to $25,000. Mr. Coixs. So that these salaries, themselves, then, were what we would call super management fees, isn't that correct? Mr. EDGAR KAISER. No; I would. not call them that, because in that case you would have paid salaries to all of the Oakland offices and to all of the staff that was assisting in that, which were not paid, and no home offic4xpense was claimed or allowed. Mr. Cors. Would that have been reimbursable if claimed? MT. EDGAR KAISER. Yes. Mr. CorAs. Why was it not claimed? Mr. EDGAR KAISER. Because we did not feel it should, and because my father always took the position that he did not want to get in that position, regardless of what the contract said. Mr. Co4s. So that what you say is that these fees of millions of dollars made up for those payments for those expenditures? Mr. EDGAR KAISER. I would rather say it this way: the amounts that we earned on the volumes of ships that we built; because we have got to talk about the volume of the work done and not about how many millions of dollars were earned. It is a question of volume. Mr. CotEs. What private business do you know of where you can figure profits on volume except pari-mutuel machines at race- tracks? Mr. EDGAR KAISER. As far as I know, the Internal Revenue Depart- ment figures it every day. Moody'S Industrials shows that the net profit of General Motors, after taxes and after renegotiation, were 6.02 of gross sales in 1945 and 4.01 percent in 1944. The figures for du Pont are 12.7 percent in 1945 and 12.51 percent in 1944? The CHAIR1VIAN. 11as that anything to do with this question? Mr. EDGAR KAISER. Yes, sir. He asked me the question as to whether or not you. could figure profit in percentages, and I am quoting from Moody's Industrials profits which were made. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 89 For United States Steel, 3.33 percent in 1945 and 2.91 percent in 1944; for Bethlehem Steel, 2.63 percent in 1945 and 2.07 percent in 1944; for Chrysler 3.77 percent in 1945 and 2.26 ,percent in 1944; ours was one-tenth of 1 percent. Mr. COLES. Are those companies privately owned companies? Mr. EDGAR KAISER. No. Mr. Couls. Is there private capital invested in those companies ? Mr. EDGAR KAISER. I have two advisers to answer, now. I think I will turn this question over to Mr. Kaiser, Sr. Mr. HENRY KAISER. General Motors operated a Government plant. Mr. COLES. How much money in private capital was turned into it? The CHAIRMAN. I did not know that we were going into General Motors. Mr. CokEs. I want to show the return of a company such as this, with Government capital invested. The CHAIRMAN. I do not think we will take the whole range. include theCOLES. You spoke of $32,000,000 invested. Did that the bank loans you spoke of? Mr. EDGAR KAISER. Yes. Mr. COLES. On those bank loans the interest was paid by the Gov- ernment? Mr. EDGAR KAISER. No; a portion of it was. Mr. CoLEs. So, a portion of the $32,000,000 was paid for by the Government so far as interest was concerned? Mr. EDGAR KAISER. As provided in the contract. Mr. COLES. That was money borrowed from the bank which had to be repaid to the bank? Mr. EDGAR KAISER. Yes. Mr. COLES. So that that $32,000,000 figure is money borrowed from banks, and a portion of the interest was paid for by the Government? Mr. EDGAR KAISER. It is the capital required in order to do business, which we had to have or we could not have performed the contract. Mr. Coi,Es. But it was furnished by banks? Mr. EDGAR KAISER. On our credit. Mr. COLES. Was there any personal endorsement on those loans? Mr. EDGAR KAISER. We went all through that yesterday. Mr. COLES. We did not get an answer. Mr. EDGAR KAISER. The answer yesterday was that there was not a personal endorsement; but my father could not get the informa- tion until he went through all the bank loan agreements to determine what the terms were, and we were to furnish that information. Mr. COLES. To go over to the renegotiation, was any money turned into the Kaiser Co. in connection with renegotiation? (Exhibit 35 gives an additional written answer by Mr. Kaiser.) - Mr. EDGAR KAISER. That has not been finished; but there would not be any taken back, in my opinion, even if they did not include the steel losses. Mr. COLES. Going back for a moment to those steel losses: as I understand it, the reason that no renegotiation profits were turned back from Kaiser Co., Inc., and the reason that no taxes were paid on those shipyard earnings is that those shipyard earnings were offset by losses on the steel plants? Mr. EDGAR KAISER. No; that is not correct. Mr. CoLEs. Will you correct me, please. Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 90 SHIPYARD PROFITS Mr._ EDGAR KAisEn. The reason we suplied all the information con- cerning the Kaiser Co., Inc., operations is because it was the, operation of one company. The reason we put emphasis on the losses incurred by the steel division was because of _question 13 that you asked. You asked ;What the members of the Kaiser family personally got. In order to know that you have to know what the losses and the profits of the win* corporation were; but if you take the shipbuilding division only, which you wanted to take yesterday, and compute the profits ' on $1,300,000,000, without the Government furnishing materials, the profit is less than 3 percent. There is not any renego- tiation that we have heard of where a job was done as good as that job was done where they have renegotiated below that point without steel losses.; Mr. CoLts. Let us look at it from a taxation point of view. Mr. EDGAR KAISER. That is before taxes. Mr. Co4s. Let us get to taxes now. Did you pay any taxes on the forty-odd million of profit made by Kaiser Co., Inc.? Mr. EDGAR KAISER. The statement is filed in the record that we did. not. We find on careful checking that we did pay taxes, and a claim for refund has been made which we believe will be allowed. That is why the se tement was put in the record as it was. Mr. COL s. What was the amount of taxes? Mr. Enoi?n KAISER. $1,064,000. Mr. Con*s. So, you paid no taxes on the $41,000,000? Mr. EDGAR KAISER. To the best of my knowledge. If you are talk- ing about Kaiser Co., Inc.; if you are talking about the members of the KaiSer family, again we get back to taxes. Let us talk about it all together, and not only the things that are going to hurt us. Mr. Cors. I know that you can take care of yourself. Let us get to the taxation of the Kaiser Co., Inc. Did you pay any taxes on the forty-odd million? I think you have .answered that question. MT. EDGAR KAISER. I answered that, yes; but there is a claim for refund onithat. Mr. COLES. In any event, your total tax was a little over $1,000,000? Mr. En(lAn KAISER. I think that is right. Mr. 117*clinn. Does the Internal Revenue Department claim that this man has not paid taxes according to law? Mr. Cous. No. Mr. WEICHEL. If these people have violated the law they should go to jail I: if they have not paid their taxes. This is not a tax investi- gation. f the Internal Revenue Department does not know how to do it, let -ti.s get somebody else to do it. Mr. CotEs. I intend to show that the reason no taxes were paid was because they set it off against steel company losses; but those steel companOosses were merely an amortization of the steel companies Mr. WEicunn. Does the Internal Revenue Department claim that that is fraudulent? Mr. COnEs. No; it is-perfectly legal, Mr. Weiehel. . Mr. WEICIIEL. I am for forgetting it, then. Mr. ConEs. What I am trying to Show is that the shipbuilding com- pany profits and the taxes which otherwise would have been paid were used to pay for the steel plant. It is perfectly legal. I have not questioned its_legality. i Approved FerRelease 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 91 The CHAIRMAN. You can consult the Internal Revenue Department about that. Mr. COLES. I notice that you have the losses deducted from $41,- 009,000, and the reasons for nonpayment of -taxes, showing an item of one million and some odd thousand dollars which was interest to RFC. Mr. EDGAR KAISER. If it is in the book it is correct, to the best of my knowledge. Mr. COLES. Another item is $45,927,000, and that is listed as amorti- zation, depletion-- The CHAIRMAN. If that is in the statement that has been filed by the Kaiser Co. it is evidence until a showing is made to the contrary. Mr. CoLEs. I should like to introduce as exhibit 8 a letter from the Civilian Production Administration dated September 8, 1946, signed by Mr. Francisco M. Bianco, in which it is shown that the Kaiser Co. had certificates of necessity of $90,000,000. Under the tax laws the war plant was allowed to amortize over a 5-year period. The plant may have actually only depreciated 5 percent a year, but for tax pur- poses they were allowed to write off 20 percent a. year, so that at the end of 5 years the write-off of that plant had been accomplished. I hope to be able to bring out that that is what was done in the steel com- pany plant; that this $45,000,000 represents such a write-off, and you have a steel plant paid for by shipyard profits. (Document so described was marked 'Exhibit No. 8.") Mr. COLES. Is this $45,000,000 not an amortization under certificates of necessity ? Mr. EDGAR KAISER. There was a loss not only of $45,000,000, but $35,000,000, making $80,000,000, as the result of a plant being sold, to United States Steel by the Government at 20 cents on the dollar. So, if you are trying to show a loss of $45,000,000, you should remember that we lost $80 000,000. Mr. Corms. Was that $45,000,000 not a write-off under a certificate of necessity? ? MT. EDGAR KAISER. Yes. Mr. Coms. So that no taxes were paid on your shipbuilding profits because of this write-off for amortization and depreciation? Mr. EDGAR KAISER. I feel sure of that, but we will have increased taxes later if we can possibly make the plant a profitable one. Cer- tificates of necessity have always been considered by businessmen as deferred tax. They will be taken care of. They are written off in the first 5 years but after that, since there is no write-off, the Internal Revenue Department will tell you that taxes take place. Unfortu- nately in this case there should have been $80,000,000 written off, another plant being sold at 20 cents on a dollar. Mr. Coms. I 'am trying to show,merely that no taxes were paid on your shipyard earnings. Mr. EDGAR KAISER. There will be less paid if this 20 cents on the dollar continues. Mr. Colms. In summary, for the Kaiser Co., then, we can say that there was forty-odd million made as shipbuilding profit, none recov- ered back so far in renegotiation, and no taxes paid. Is that correct? The CHAIRMAN. Is that shown by the statement that has been filed? Mr. COLES. Yes, sir. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apprud For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 . SHIPYARD PROFITS The CLIAIRMAN. It stands proven. Why ask him if it is correct? (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. Cogs. ow, if we can turn from the Kaiser Co. to the Perma- nente Metttls Corp., when was that company formed? Mr. HENRY KAISER. IS it in the book? Mr. COLES. It was incorporated in December 1910, and the name was changed to Permanente Metals Corp. in November 1941. It took over the Richmond Shipbuilding Corp.-- The CHAIRMAN. If that is in the matter that has been filed there is no necessity for repeating it. Mr. Co ES. You are the president of the Permanente Metals Corp.? Mr. HE Ry KAISER. I think so. Mr. Cogs. Mr. Kaiser, Jr., are you an officer of that company? Mr. ED91R KAISER. Yes, sir. . Mr. CorlEs. How much of the incorporators' money was originally put into t e capital stock of this company? Mr. HE 'EY KAISER. IS that in the record? Mr. Cot, s. No; it does not appear. I have a figure here of $460,000. That inch des a stock dividend. The CHAIRMAN. Is that shown in his statement? Mr. Cogs. I am afraid it is not, Mr. Chairman. What was the original amount of capital stock? Mr. HENRY KAISER. It is shown in the statement?$460,000. Mr. Cogs. What was the original amount of capital stock? Mr. _HENRY KAISER. If that is not it, we will have to check it. Mr. COLES. Will you check whether it was a smaller amount and was increased to $160,000 and let. us know later? Mr. HENRY KAISER. Yes. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. COLES. There is a statement in the report that the original capi- tal stock was $460,000 but the funds therefrom were used in the opera- tion of anUther division of the. company. Is that correct? The Cl-wEmAN. If that. is shown in Ms report, is not that correct? Mr. HENRY KAISER. Yes; it is shown in the report. Mr. Cogs. So that none of the original capital, whatever it may have been, was used in the shipbuilding operations? Mr. EDGAR KAISER. I do not think that is correct. What page are you reading there? The CHAIRMAN. The Chair thinks that everything that is shown in the statement is presumed and will be presumed by the committee to be correct unless they themselves show to the contrary. Is there a question pending? Mr. Cogs. Will you read my question, Mr. Reporter? ? (The reporter read as follows:) So that mine of the original capital, Athatever it may have been, was used in the shipbuilding operations? Mr. ED9R KAISER. Let us find out what the original capital was that was used. I think you have got to tie it in with another statement which we are having trouble in locating ourselves here. When the company *as originally formed there was $100,000 which was used in shipbuilding when the company went into magnesium product-ion? no; magnesium was the $100,000; and when it went into shipbuilding it was $460,000 and we borrowed an additional $7,500,000. Mr. Cogs. Was that $7,500,000 bank loans? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 rA Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROrITS 93 MY. EDGAR KAISER. Bank loans and advances from subsidiary com- panies. It shows in the book. Mr. COLES. Was interest paid on those loans? Mr. EDGAR KAISER. I do not know. Mr. Corms. If it was, was it later reimbursed by the Government? Mr. EDGAR KAISER. No; I do not think it would have been. Mr. COLES. None at all?. Mr. EDGAR KAISER. I do not know, about "none at all." I will have to check it. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. Coixe. It was reimbursed by the Government? Mr. EDGAR KAISER. I think it worked under the stipulation the Mari- time Commigsion required in order to prevent people from coming in without capital. As I recall it, that S100,000 or $200,000 was paid up, and then they paid over that or under that, I have forgotten which it was. Mr. CoLEs. So this was also a part of the capital to which you re- lw.J..pti, and this was also money borrowed from banks and part of the interest was paid by the Government? Mr. HENRY KAISER. It says "Loans and advances from subsidiaries." Mr. COLES. That subsidiary was the Richmond Shipbuilding Corp.? Mr. HENRY KAISER. That is what it says in the book. Mr. COLES. Was not the Richmond Shipbuilding Co.'s original capi- tal stock about $200,000, and did it not borrow from the banks? Mr. HENRY KAISER. Yes. Mr. COLES.So is not this all the same money, when it comes to the Richmond Shipbuilding Co.? MY. HENRY KAISER. Somewhere in this is $200,000,000 worth of RFC's which have been -mid. Mr. COLES. The subsic-iary may have been the original borrower? Mr. HENRY KAISER. No. Is there anything wrong about getting money from a bank? Mr. EDGAR KAISER. It is something that most people have difficulty in getting. Mr. COLES. Were you a personal guarantor of any of these loans? Mr. EDGAR KAISER. I would have to get the bank loan agreements to know that. (Exhibit 35 giyes an additional written answer by Mr. Kaiser.) Mr. Coms. Did you also borrow $28,475,000 from the RFC? Mr. EDGAR KAISER. Yes. Mr. COLES. Was that guaranteed by your shipyard profits? Mr. EDGAR KAISER. Yes. Mr. COLES. How much of the corporation's money was put into the actual physical yard of Permanent? Metals? Mr. EDGAR KAISER. The $28,000,000 has been paid back with interest. Mr. COLES. How much of the .corporation's money was invested in the Permanente Metals Shipyard? The CHAIRMAN. Does the record show? Mr. COLES. No; it does not. The WPB records show $151,000. Do you have any reason for dis uting that? Mr. EDGAR KAISER. No; only we are confirming it. The boys are checking that. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) 93486-46----7 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 AppRved For Release 2003s/u1Ogy1OAR:DCPIARADTPS64600346R000400060002-4 Mr. Co s. You stated that the stock was originally $100,000 but was increa ed to $460,000. Was the $360,000 a stock dividend, or waq that from profits that had been earned previously from the govern- ment, or w s that a new payment of $360,000 in cash? Mr. HENRY KAISER. From these figures it appears that it is capital stock. Mr. COLE. But was it not from a stock dividend of December 1941? Mr. HENRY KAISER. I don't think so. Mr. EDGAR KAISER. I don't think it had any dividends at that time. Mr. Col,* Would you check that? ME. EDGAR KAISER. Yes; we will check it. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. Cor. The Maritime Commission's investment in the yard is $35,000,000, which includes $5,000,000 paid by the British. What part of that work was subcontracted? Mr. EDGAR KAISER. I don't know the answer to that. That question is one that we are checking. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. COLES. Did any of the fees to pay subcontractors go to con- tractors affiliated with either the Kaiser Co. or any of the companregl_ in the Kaiser group? Mr. EDGAR KAISER. Not to my knowledge. Mr. COLES. The figures show that you have $826,006,000 w.67-1:th, cost-plus contracts, $134,000,000 of fixed-price and $2,72pw,e-- selected-price contracts. Mr. EDGAR KAISER I think that is correct. That is in. the figures in the book. Mr. WEICItEL. Has it not been shown that the Government paid for everything at the yards? You went into that. Don't we want to know who gave it to them and why? I do not know how you can find out by this line Of questioning I think the committee has something to say about it if you are going to prolong this thing. Mr. Coms. I apologize for the length of time, but Mr. Kaiser rep- resents 6 conipanies and over 50 percent of the profits, and it takes a good deal longer with him than it will with the others. (Informal discussion off the record.) Mr. WEicim. This is a committee investigation and not counsel's investigation.i The CHAIR AN. The Chair will try to be as impartial as if he were a judge presicting in court. Mr. COLES. How many of your fixed-price and selected-price con- tracts were converted from other forms or were entered into after all the ships had been completed? MT. EDGAR IAIsER. I do not know the answer to that. Mr. COLES. Will you check it for us, please? Mr. EDGAR AISER. Yes. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. Cors. The total volume was $1,269,000,000. Have you any idea how muck was Government-furnished material? Mr. EDGAR 1AISER. It is in the book. Mr. COLES. he figure I have?but I have no reference to where it was taken fro ?is 726,000,000. Mr. HENRY AISER. It is in the records. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 95 Mr. COLES. So that actually the Government supplied $726,000,000 and you people supplied $542,000,000. Is that correct? Mr. EDGAR KAISER. NO. The CHAIRMAN. If the records show that-- Mr. COLES. They do not, Judge. Mr. HENRY KAISER. Yes; it is there. Mr. COLES. The amount furnished by you is how much? Mr. EDGAR KAISER. The total value of the contract was $1,168,- 748,034.30, of which the Commission furnished $515,000,000 worth of material. Whether or not that was furnished by the Government or whether they directed us to buy a part of that, I do not know. You cannot tell without going back to the details, because in many cases that happened, and then it switched over into this column [indicating]. It was a matter of getting; the material as quickly as you could wherever you could. It looks like this is all in the book, but I cannot refer you to the pages. Mr. COLES. Was it not over half a billion dollars? Mr. EDGAR KAISER. Yes. Mr. COLES. And the total contract was one and a quarter billion? Mr. EDGAR KAISER. Approximately; but that does not necessarily mean that we did not buy some of it. Mr. COLES. Did the management of this yard get paid management salaries? Mr. EDGAR KAISER. The men in responsible charge of the job in the yard; yes, sir. Mr. COLES. Did Mr. Clay Bedford receive over $22,000 a year? Mr. EDGAR KAISER. Yes; but it was not reimbursable, as I recall. Mr. COLES. Was most of it reimbursable? Mr. EDGAR KAISER. I think $18,000 was, for quite a period of time. Mr. COLES. Do I understand that in some cases the Maritime Cora- mission refused to reimburse full salaries on the ground that they were too high? Mr. EDGAR KAISER. Not with US. Mr. COLES. Would you say that $20,000 was not reimbursable? Mr. EDGAR KAISER. When we started on these shipyards Mr. Clay Bedford was closing up other jobs, and we didn't want it said that his entire compensation was being reimbursed by the Government when he spent a small portion of his time outside. I would like to make one more remark on that salary question. I think the record does show that our management salaries were lower than any shipyards in the program. Mr. COLES. Are not management salaries just a drop in the bucket as compared with the fees and profits realized? Mr. EDGAR KAISER. No. You have to go back all through the com- panies and see who the stockholders are. The CHAIRMAN. Would not that be determined from facts that appear already in the record? Mr. COLES. I am trying to proceed as fast as I can. We are almost through with Permanente now. Your original capital stock was $460,000, and your profits were. $58,000,000? MT. EDGAR KAISER. Before taxes. Mr. Cors. Was that the total profit before taxes? Mr. EDGAR KAISER. But after taxes it was what? $8,99.9,000. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 96 SHIPYARD PROFITS Mr. COLES. Did you not write off in the same way as in the Kaiser Co., Inc., the losses of the steel plants which were mainly amortization and interest written off against shipyard profits of that company? Mr. EDGAR KAISER. Not in exactly the same way, because the cir- cumstances 'ere different from the circumstances in Kaiser Co., Inc. Mr. Cors. But did you not write off magnesium amortization and denreciation as a major item against the profits? Mr. EDGAR KAISER. I do not know whether it is a major item Or not. I would haveto analyze it. Mr. IIENRX KAISER. I can answer that for you. If the law provided for it, we write it off. Unfortunately, much of it has been abandoned and is now aloss, and we are losing about $50,000 per month still on theplant, which does not show in these later records. Mr. ConEs. Are you still operating the magnesium plant? Mr. IIENIfr KAISER. NO. We are still making a real effort to make a real contribution to a light metal. We might make it, but we are losing $50,000 a month trying it in that same plant; but much of the plant is abandoned. Mr. COLES Did you not write off $25,417,000 as provision for amor- tization and ;depreciation against your shipyard profits both for tax purposes and renegotiation purposes? Mr. EDGAR KAISER. it is in the book. The CHAIRM AN If it is in there, it is proven. Mr. COLES Were the profits and fees made before taxes, of $58,- 000,000, not something like 11,600 percent on the original capital? Mr. Enamt KAISER. No; because there is a difference of opinion over the question. We say it includes the operating capital you had to have in order to run the yard. Furthermore, we do not think that any Governinent agency required anybody to have a certain amount of capital or to try to determine profits on it basis of invested capital, when all the laws were set up just to the contrary. That is trying to make us look as though we were doing something that is not right. Mr. COLES. I am not trying to make you look as though you were doing something that was not right? The CHAIRMAN. Just ask the question, and get the answer, please. Mr. COLES. I am trying to find out whether the profits were reason- able or unreasonable, in view of all the circumstances. Mr. EDGAR KAISER. But capital investment is not a measure. The CHAIRMAN. That is a matter for the committee's determination. Mr. FIEw KAISER. Congress has made that determination already. Mr. EDGAR KAISER. Because they did not set up such a requirement. Mr. COLES. Were those fixed-price contracts of yours changed after they had been originally made? Mr. EDGAR KAISER. Can we furnish that for the record? (Exhibit 85 gives an additional written answer by Mr. Kaiser.) Mr. COLES. Yes. Will you tell us at what stage of the record they were so changed, if so? Mr. EDGAR KAISER. I think I can tell you that now. I cannot tell you as to siooe,cific numbers, but I can tell you why. There was an order or a directive that went out, as we were informed by the Mari- time Comniission, from either the White House or the joint Chiefs of Staff, or somebody, that all contracts should be converted to a.fixed- price basis Wherever possible. We worked for months with the Mari- time Commission trying to work out that conversion. We were unable Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 97 to do so after spending 3 or 4 months on it. Finally we got a tele- gram from the Maritime Commission, I think, signed by the Secre- tary, saying that certain additional contract ships had to be constructed for the war effort and were assigned to our yards and that unless we converted those contracts to fixed-price contracts they would not assign those other ships. It was a pure and simple forcing procedure. So we got together and finally worked it out. Mr. Cons. In most cases were the fixed-price contracts signed after the ships had been built? Mr. EDGAR KAISER. I do not know. You have got to analyze each one. Mr. COLES. Will you do that? (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. EDGAR KAISER. I know that the directive said?at least, the Com- mission told us that?that the agencies contracting were directed to change those contracts. It was not something that the Commission wanted or that we wanted to do. Mr. Coms. In most cases the cost of the ships was known before the contract was signed? Mr. EDGAR KAISER. No; I don't think that is true. The fear at that time was this?it is a well-established fact as to what happened in connection with building ships in World War I. Everybody was frightened to death as to what was going to happen at the end of this war, as to whether that same condition would exist. How to evaluate it was the problem that all Government agencies faced. Mr. COLES. In discussing your taxation you set off $28,000,000, $25,- 000,000 of which was amortization for your magnesium plant, against your shipyard profits ? Mr. EDGAR KAISER. I think that is in the book. The CHAIRMAN. All right. If it is there, it is so. Mn COLES. I would like to go over, now, if we can, to the Kaiser Cargo Co., and I think we can do that very quickly. When was the Kaiser Cargo Co. formed? Mr. HENRY KAISER. IS it in the book? Mr. ED4AR KAISER. November 17, 1942. Mr. Coixs. What was the purpose of founding that company? Mr. HENRY KAISER. That is many years ago. It is difficult for me to have an accurate memory on that. The CIIAIRMAN. You do not remember? Mr. HENRY KAISER. No, sir. It was a long time ago. It was for two types of ship, but I cannot remember which it was. The CHAIRMAN. Certainly. I can understand that. Mr. COLES. The total capital stock originally, as of November 1942, was $100,000; is not that correct? Mr. EDGAR KAISER. I think it was $500,000. Mr. Coms. It was $100,000 and increased to $500,000. Mr. EDGAR KAISER. All right, if it is in the book. Mr. COLES. You borrowed from the bank $10,500,000. That appears in the book. Mr. EDGAR KAISER. Yes. Mr. COLES. And that was guaranteed by the War Department? Mr. HENRY KAISER. If that is in the book, it is 0. K. Mr. COLES, Was that $10,000,000 guaranteed by the War Depart- ment part of the $32,000,000 of capital that you spoke of? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 :CIA-RDP641300346R000400060002-4 SHIPYARD PROFITh - Mr. HENRY KAISER. Is that in the book? Mr. EDGAR KAISER. I Say, definitely not. The answer is "I10." Mr. COLES What was the major portion of this used for? Was it used for shipbuilding or other operations? Mr. HENRY KAISER. It is Very difficult to tell you. It is all in the book. Mr. COLES I am trying to bring out to the committee the fact that only $1,500,000 was used for shipbuilding. The CHA MAN. What company are you talking about? Mr. COLE . The Kaiser Cargo Co., one of the smaller subsidiaries. Mr. HEN Y KAISER. It is in the book and it is not like you say. Under date bf June 17, 1943, the company and the Bank of America entered into a credit agreement under which $11,500,000 was made available. 9f this amount $2,000,000 was available for the purpose of shipbuil mg operation, and the allocations for shipyard opera- tions were s bsequently reduced to $1,500,000. The largest amount was used in aircraft production. They did a tremendous job. It would ?take hours o talk about that. I do not think the chairman wants to hear about ircraft. ? Mr. Coir. This company had no shipyard itself? Mr. HENRY KAISER. No. Mr. COLES. And no investment in shipyards? Mr. EDGAR KAISER. It did have an investment. I do not know how much. Th. t is part of the record. Mr. COLE. I think we can skip over that company, Mr. Chairman, because mot of the information is in the printed record. I think we (T can o over o the Oregon Shipbuilding Co. When was that company formed, Mr. -Kaiser? Mr. HENrtY KAISER. That is in the book. Mr. COLES, Will you tell us? Mr. HENRY KAISER. January 6. I thought the chairman did not want what -Was in the book repeated. Mr. COLES. These are just introductory questions, although they are in the book Mr. HENRY KAISER. All right. January 6, 1941. Mr. Coups. And you put in the book that the capital stock was $500,000. What was its original capital stock? Mr. HENRY KAISER. The original was $100,000, and the increase is $450,000. Mr. Cow. By stock dividend; is that correct? Mr. HEN* KAISER. Loans from stockholders. Mr. CoLs. Were those loans paid? Mr. HENDY KAISER. I don't think they were repaid?yes; they were repaid in full, March 1944. The loans from stockholders totaled $3,000,000. Mr. Comts. Was interest paid on those loans? Mr. HENRY KAISER. The bank loans were $3,400,000. Mr. Col4s. Was interest paid on the bank loans? Mr. EDGAR KAISER. I think it is the same situation as the other, about halfj and half. Mr. CoLEs. Who built the yard for the Oregon Shipbuilding Co.? Mr. EDGAR KAISER. The Oregon Shipbuilding Corp. Mr. Co s. Who was the subcontractor that had charge of all con- struction Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 99 Mr. EDGAR KAISER. The Oregon. We did it ourselves. The only thing we subcontracted was the piling, because we did not have the water equipment. That is the Oregon Ship, up at St. Johns. The first yard that was built in the Portland area was near the St. Johns 'Bridge that goes across there. Mr. COLES. Did any subcontractor make a profit on the building of the yard ? Mr. EDGAR KAISER. Wherever we let a cost-plus Or fixed-fee con- tract he might, but I don't know about that. Mr. CoLEs. Will you give us a list of any companies affiliated in the Kaiser group which made a profit? Mr. EDGAR KAISER. There wasn't any. Mr. HENRY KAISER. You can get that information from the Re- negotiation Act. But there were not any affiliated with us. Mr. Con-Es. The information we have is that the Gilpin Co. con- structed the yard. That information is taken from the renegotiation. Mr. HENRY KAISER. That is not correct. They did some work, but they did not build the yard. They didn't have charge of it. Mr. CoLEs. Were they a major contractor? Did they have su- pervision? Mr. HENRY KAISER. They had supervision of the part of the work they did, surely; but they did not have responsible charge of the whole ? yard or any major part of it. Mr. COLES. Did the J. A. McEachern Co.? Mr. HENRY KAISER You are talking to the general manager of that yard now, so he is getting into water that he likes. Mr. COLES. Did the J. A. McEachern Co. have any interest in the Oregon yard? Mr. HENRY KAISER. No; nor did we have any interest in the J. A. McEachern Co. Mr. CoLEs. Is not that a wholly owned subsidiary of the General Construction Co.? Mr. HENRY KAISER. Not to my knowledge. Mr. Cors. Did the General Construction Co. own 25 percent of the stock of Consolidated Builders? Mr. HENRY KAISER. I don't know. Mr. COLES. Does not Consolidated Builders own 100 percent of the Oregon Co.? Mr. HENRY KAISER. Yes. Mr. CoLEs. So, actually, don't you have one of the subsidiaries? Mr. HENRY KAISER. No; they are not a subsidiary. Mr. Cors. Or affiliates? Mr. HENRY KAISER. I do not think we did any subcontracting work at Oregon with affiliates, associates, or anyone else, or any of the stockholders of the Oregon Ship. Mr. Cons. The renegotiation board says that the Gilpin Con- struction Co. built the Oregon yard. How much profit did they make? Mr. HENRY KAISER. I cannot give you that, because I think most of it was on a competitive-bid price where we took the lowest bidder, Mr. COLES. Will you get us what the total bids were, the total amounts, and the total amount paid to the Gilpin Construction Co. for the construction of the Oregon Shipyard? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 Apprlftd For Release 20034w1AiLpyifiars64B00346R000400060002-4 I Mr. HENRY KAISER. Not for construction of the Oregon Shipyard, because they did not do it. Mr.. Cors. Any part of it? (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. EDGAR KAISER. I would like to make it clear also that the Kaiser -C o., the ienry J. Kaiser Co., or any of the family had no interest whatsoeve in McEachern, Gilpin, or anyone else. You are trying to show that somebody got an indirect cut ,and they did not. You are asking me for that testimony, and they did not get it. Mr. CoLis. The total contracts of the Oregon Shipbuilding Co. were $963,000,000, of which the Government furnished $435,0019,000 worth of Material ? Mr. HENRY KAISER. It is in the book. Mr. Cons. And the Oregon Shipbuilding Co. made fees of $44,- -830,000? Mr. EDGAR KAISER. It is in the book. They did the best job of any yard in the country. Mr. CoLis. Were any of the contracts of the Oregon Shipbuilding Co. on a fixed-price or selected-price basis, changed from the former basis? Mr. Enctipi KAISER. Yes; under the same basis I described a little while ago. Mr. Cons. Will you give us all the changes for the record? Mr. EDGAR KAISER. I Will. (Exhibit' 35 gives an additional written answer by Mr. Kaiser.) Mr. COLE. Let us take two contracts which were cost-plus-a-fixed- fee. The number is MC-3X34763. What was the amount of that contract? Mr. EDGAR KAISER. It says in the book here that it was $104,000,000. Mr. CoLns. The contract was originally cost-plus-a-fixed-fee, was it not ? Mr. EDGAR KAISER. That is a very complicated contract, because that contract was changed at the time of this order from top side, whatever 4 was, to the agencies to convert over to fixed price. I think it is a, combination of several contracts. The contract is not finished yet; we are still building some of the ships. Mr. CoLns. Under that cost-plus contract was not the fee from $74,000 to $100,000 per ship? Mr. EDGAR KAISER. Does the book say that? Mr. COLE. No; I got it from other sources. Were the? fees under the selected-price contract from $116,000 to $239,900 per ship? Mr. EDGAR KAISER. No. I don't think that is right. It is a selected price, so they have to depend on what you select. Mr. COLE. Did you receive a salary of $13,000 from this company in 1941 and $10,000 and something in 1942 from the Oregon Ship- building Co, ? Mr. EnoAii KAISER. Yes; but I want to make it clear that the total I got at any time was not more than $18,000. Mr. COLE. Mr. Chairman, there are two other yards which are Kaiser yards, the Walsh-Kaiser and the California Ship. They were in California Ship until 1945. Mr. EDGAR KAISER. Not a Kaiser yard. It was a good yard, too. The CHAIRMAN. What about it? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 ? CIA-RDP641300346R00040.1V0002-4 SHIPYARD 'PROFITS Mr. COLES. I might now turn over Mr. Kaiser to the committee members to be questioned and question representatives of California' Ship and Walsh-Kaiser later. The CHAIRMAN. Have you fmished your questions? Mr. COLES. Yes. The CHAIRMAN. Mr. Bradley. Mr. EDGAR KAISER. There is just one thing I would like to say on those last two companies, the Oregon Ship and the Kaiser Cargo, that we paid very large taxes but did not make a large profit, and we do not like to talk about that. The CHAIRMAN. All right, Mr. Bradley. - Mr. BRADLEY. Mr. Kaiser, I have been rather disturbed prior to your coming here by several newspaper articles I have read which quoted you as saying, in effect, that this committee had determined upon an inquisition of the Kaiser interests. I hope that you do not think that that is the purpose of this inquiry? Mr. HENRY KAISER. I think I made the written statement that I thought the questionnaire sent out by this committee was one of the most clear and straightforward questionnaires that I have ever seen. I think I told the judge and I told counsel as the result of that ques- tionnaire that I thought that this committee was trying to do an excellent job. Mr. BRADLEY. You, of course appreciate that what we are trying to get at is whether or not the course, Commission paid any exces- sive fees and, if so, to whom? Mr. HENRY KAISER. That is right. Mr. BRADLEY. And, as the chairman stated yesterday, it is our in- tent, as I understand, to call in representatives of each of these other 19 companies who were operating on Government-constructed facil- ities. So I hope you do not feel that this is any inquisition or that we are trying to carry on any warfare between you and United States Steel or the Sun Oil Co. or anybody else in the inquiry. Mr. HENRY KAISER. No. I did state that I thought this committee would only investigate one side of the question; that is, the shipbuild- ing side and not the steel side. The two were combined, and the chair- man has stated that repeatedly. Mr. BRADLEY. We are not interested in steel; we are interested in shipyards. Mr. HENRY KAISER. That is right. Mr. BRADLEY. You made the statement yesterday and you made the statement a little while ago that you saved the country $250,000,000 on your Liberty ships alone? Mr. HENRY KAISER. That is right. Mr. BRADLEY. How do you calculate that? Mr. HENRY KAISER. From the Truman committee reports. We at- tempted to get only Government reports in substantiation of all these figures. There are other great savings. There have been tremendous savings on tankers, but we cannot get sufficient Government reports to substantiate them so we do not quote them. Mr. BRADLEY. "i-ou are talking only about Liberty ships? Mr. HENRY KAISER. Yes, sir. In the tankers and C-4's we made tre- mendous savings, but we cannot get any Government reports to sub- stantiate it. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apprmd For Release 2003aphipAiSIAMF8641300346R000400060002-4 Mr. BJLDLEY. You have also been inclined to pride yourself on the speed that you made in your various yards in the construction of ves- sels, with which I am in agreement. I have before me the bulletin of the AMerican Bureau of Shipping, January 1946, and on page 26 thereof they have set down the number and average time to complete Liberty s ips constructed by each shipyard from 1941 up to 1945. I will intro uce it into the record, but I would like to point out that I notice that on the Atlantic coast the average time was 68.4 days, and the best r cord apparently was made by Bethlehem-Fairfield yard at Baltimore which constructed 380 vessels at an average of 53.8 days per vessel. alsh-Kaiser shows 208.7 days. On the Pacific coast they made a reinarkable record of 49.6 days. The California Shipbuilding Corp. shows 60.7. The Kaiser Co. at Vancouver, 80.4. American Ship, 100.2 days. Oregon Ship, 44.9. Permanente No. 1 shows 48.3, on 138 ships. Incidentally, Oregon was on 132 vessels, but Permanente Metals showed a better record than your Oregon Shipyard-41.1 days. Mr. EDGAR KAISER. I always objected to that Truman report. Mr. BnAtil,EY. This is a report of the American Bureau of Shipping. I would like to introduce it into the record. The CHAIRMAN. It will be made a part of the record. (Document so described was marked "Exhibit 9.") Mr. BRADLEY. I understand that Mr. Kaiser stated yesterday that he had never taken any salary whatsoever from the corporation on any of thee yards, which is of course creditable; but at the same time I understand you to say, Mr. Kaiser, that you own 99 percent of Kaiser Inc? MT. Kaiser, KAISER. One hundred percent. Mr. BRADLEY. Therefore, if they made a good income you would hardly need a salary? MT. HENRY KAISER. No; but they lost, and I still have them to pay back. Th, t is the point. That is what I have been trying to bring out. Mr. BRADLEY. That is on account of your steel mill? ? Mr. HENRY KAISER. Yes. But it is all one company. You can't take the Frigidaires out of the automobiles and say it is not all one company. Mr. BRADLEY. I noticed yesterday when you were questioning the figures submitted by the General Accounting Office you referred sev- eral times to Attorney General's figures. I take it you meant the Comptroller General? Mr. HENRY KAISER. I meant the Comptroller General. They were not all Comptroller General's figures. He merely submitted them. Mr. COLES. They are the Maritime Commission's figures, and they are in evidence as exhibit 1. Mr. HENRY KAISER. I appreciate that. Mr. COLS. The total profit figures, the investment-in-yards figures, and the investment of the Government?those were Maritime Com- mission figures. They were introduced as exhibit 1. MT. HENRY KAISER. Yes. Mr. BRADLEY. I recall that at the time the First War Powers Act was passed by the Congress there was a vigorous fight against cost- plus contracts and an amendment was introduced by my colleague from Michigan, Mr. Engel, to prohibit cost-plus contracts, but it was de- featedby a mere two votes. Had we gone into competitive bidding and cut out the cost-plus contracts, we would be a lot better off today, from a taipayer's viewpoint. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 200s1/11ORN 9ATP641300346R000400R9S002-4 Mr. HENRY KAISER. You .are right. I spent literally weeks in a sincere effort to get competitive bidding. I really believed that com- petitive biddino? would have helped the situation. But I didn't know it all. The Chiefs of Staff: and Others did not agree with that. Mr. BRADLEY. That is true. That was the argument on the floor of the House. But the Maritinie Commission, the Army, and the Navy said that they had no time to wait for competitive bidding; they had to go along on cost plus. This price-minus thing came in later. Mr. HENRY KAISER. For your information, I wanted competitive costs shown daily or monthly of all the various situations in all the plants as an incentive to a. particular plant. I understand that in one of our competing yards there was a great sign saying "Beat. Oregon." Mr. BRADLEY. Permanents did, apparently. I agree with you on that. But .I do not see how it would have seen physically possible, based on the muddled auditing situation in the Maritime Commission, about which you complained to us on the west coast. Mr. HENRY KAISER. I am sure you will not find our accounting sys- tem muddled. Mr. BRADLEY. I don't know. It has been pretty hard for you to remember some figures here today. Mr. HENRY KAtsna. You cannot produce these figures instantane- ously. We pride ourselves on our accounting system, and I think the Comptroller General will agree with us. Mr. BRADLEY. I sincerely hope so, because the Comptroller General and the General Accounting Office. are operating under rigid legal re- strictions that I did not realize until these hearings came up. That is why I was surprised yesterday?and I think this is a matter, Mr. Chairman, for legislation in the next Congress, to give them more authority. I had always understood that they were the watchdogs of the Treasury, but apparently in the case of the Maritime Com- mission and all these other agencies they are limited by the law to merely finding out the terms of the contract, whether the work has been performed, and whether proper check has been paid for it. Mr. HENRY KAISER. I am told not. The CHAIRMAN. My understanding was that they were probably a little stricter with regard to the, Maritime Commission and more liberal as to other agencies of the Government. Mr. HENRY KAISER. I think they were. We had 15 or 20 of their staff constantly in our Permanente offices and in all of our offices. Mr. BRADLEY. I appreciate that. Were they not there for the express purpose of finding out whether you had performed your con- tract, whether the proper bills had been submitted, and proper checks paid in the amount authorized by the Maritime Commission? Mr. EDGAR KAISER. What my father said is correct. The GAO had a staff in each of our shipyards of 15 or 20 or 30 people. That staff in most of the yards was from the Investigation Section of GAO. There were two prime sections?the Audit Section and the Investi- gation Section. We also had in some of the yards audit sections of GAO. They made thorough and complete audits of every single thing., informed, whether the Maritime Commission constantly kept them fully whether it was the Audit Section or the Investigation Section. Mr. BRADLEY. Kept them fully informed? Mr. EDGAR KAISER. Yes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Appfued For Release 2003/1iK113Rb? yapsP641300346R000400060002-4 Mr. BRADLEY. We had testimony out on the west coast from Mr. Bryan that you did not know yourself within $8,000,000 how much inventory you had from day to day. MT. EDGAR KAISER. But Mr. Bryan was a special person. Those were not the facts. The Maritime Commission did know, and they knew what the conditions were. The man's mind was warped. MT. BRADLEY. Warped? Mr. EDGAR KAISER. There was something wrong with Bryan. Mr. BRADLEY. He was warped because he gave damaging testimony that the Maritime Commission could not and did not later refute. Mr. EDGAR KAISER. Maybe they did not, but they should have. There was a monthly report submitted by GAO to the Maritime Commission. Mr. BRADLEY. I am talking about the Maritime Commission's audi- tors now. Mr. EDGAR KAISER. They did have that investigating section out there, and they knew the situation. They were in other yards on the west coast, too, I think. The GAO, sat in with us and reviewed how we received, materials?how we were handling our invoices. Anyone here who has the idea that GAO did not know is wrong. Mr. BRADLEY. I did not say they did not know. Mr. EDGAR KAISER. I did not say you did. MT. BRADLEY. I am talking about their legal limitations. Mr. EDGAD KAISER. If an investigation section has the power?which they do?to go in and investigate all those yards, and they can show up something that is fraud or wrong, anything that is really wrong is going to come to light. Air. BRADLEY. That is exactly why this investigation started?be- cause the GAO now belie-Ties that things were wrong. Mr. EDGAjt KAISER. I am not trying to defend either the Commission or the GACIII . I am trying to tell you what they did out there. Mr. BRADLEY. They found evidence of possible fraud in their audit of the 1943, books, but prior to 1943 they could not gets an audit out of the Maritime Commission because their accounting methods were so faulty. ' Mr. EDGAR KAISER. I think that is another question. That is an- other argument between the Maritime Commission and the GAO with which I am not familiar. Mr. BRADLEY. The fact still remains that this investigation started because of irregularities found in the auditing system of the Maritime Commission: They had been asked by the former head of the Mari- time Commission to set up an adequate auditing system as far back as 1939. Unless they have done it since this investigation started, they still have a very faulty auditing system in the Maritime Commission, and that is what Mr. Casey was following up yesterday on the original testimony that we had from their Investigation Sec- tion. , Mr. EDG R KAISER. All I am trying to say, Mr. Bradley,,is that the Maritime qommission and the GAO, in my opinion, in the shipyards we operate 4t, knew what was going on and knew where we stood. Mr. BRADLEY. Then let me ask you this: Why did your father tes- tify before our subcommittee out in San Francisco?and I can give you his exact words?that he wanted an adequate auditing system in the Maritime COmmission ? , Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R0004000?8,302-4 SHIPYARD PROFITS Mr. EDGAR KAIStR. Because we had a situation in yard No. 3 where we had someone from the Maritime Commission?bear in mind, one man?who was reporting half-truths and mistruths, both to the Gr'AO people and to the Maritime Commission people themselves; and the Maritime Commission people, their regional auditor, would come out and say all this-and-such is so, which sounded terrible, and when you went back to check the facts it wasn't so at all. It was caused by this one individual, and at that time rightly, we thought. We thought, "For God's sake, what is going on in the Maritime Commission?" As a result of the hearing you held out there, they then appointed a committee to come out and investigate that and find out what the trouble was. Mr. BRADLEY. just , a minute, and I will see exactly what your father said, and see whether he now wants to retract it. Here is what your father said out there on the west coast on Tuesday, June 29, at 10 o'clock in the morning [reading] : Mr. KAISER. The opening statement I wish to make is one that I am very seriously interested in, and I am sure the Merchant Marine Committee can be very helpful on it; that is, that the Kaiser Interests would be delighted to have the assistance of the Merchant Marine Committee in establishing a current audit position. We want this much more than the Government. This would require the assistance of many departments of the Government. Mr. EDGAR KAISER. I can answer that for him. He will want that statement to stand, because that was exactly the case, but that was the condition created by this one individual at the time you are talking about. Mr. BRADLEY. We will skip that. We had plenty of other evidence out there substantiating Mr. Bryan's statements. We also had plenty of evidence?your father stressed the efficiency, the quality of the work in your various yards, and I will grant you you did a remarkable job during the war and are to be congratulated on it, but we certainly had any amount of evidence on the west coast criticizing the inefficiency of yard No. 3. Mr. EDGAR KAISER. That is right. Mr. BRADLEY. I also want to point out that we had plenty of evi- dence of lack of quality of products from that yard, as well as from others. We have heard numbers of stories of ships that have broken in two that were Kaiser-built. Mr. EDGAR KAISER. That's right?and others. Mr. BRADLEY. We have also had evidence before us down there from the Maritime Commission inspectors, and other inspectors, of bulk- heads that were set up a foot out of line, that had to be torn up and torn out. Mr. EDGAR KAISER. I know those stories. I do not know them to be a fact. The American Bureau of Shipping records do not show that so far as faulty construction. r. BRADLEY. We had the Government inspectors to prove that. Mr. EDGAR KAISER. That is right; but there is a record right straight from the American Bureau of Shipping on each of the failures, how they occurred, and to the best of their knowledge what the fact may have been that caused those. Mr. BRADLEY. You do not mean to deny, in view of the testimony we had out there from Government inspectors themselves, that there Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 106 SHIPYARD PROFITS were bulkheads out of line that had to be put back in place, due to the hurry-up production. Mr. EDGAR KAISER. -No; I do not. Mr. BRADLEY. You do not deny that there were welders that went in there and took the training course that the Government paid for, that walked in and punched the clock and walked out again and then paid $5 to pass the examination? ? Mr. EDGAR KAISER. That is right; but I can come back to the over- all cost of building the ship and the time of performance and the quality of the, ship. That still answers the question. Mr. BRADLEY. I would still like to see the figures on the over-all costs. Mr. EDGAR KAISER. They are available. We submitted them for , the record. Mr. BRADLEY. Did I understand you to say yesterday, Mr. Kaiser, that Mr.?who was the man who had the previous shipbuilding ex- perience before you started? Mr. HENRY KAISER. There are two of them. One of them was J. F. Shea?Charlie Shea. You probably know him. He was in World War I in Seattle in that shipbuilding program, and Jack McEachern was in the Oregon program. Mr. BRADLEY. I thought a few minutes ago you said McEachern had no conAection with Kaiser. Mr. HENRY KAISER. He had 25 percent interest in Consolidated Builders. That is part of my evidence. Mr. BRADLEY. I was quite disturbed yesterday when you said that despite the fact that you own 100 percent of Kaiser Inc., and are a man who is said to control a billion-dollar empire, di have you tes- tify before the committee that you could not recall whether you had endorsed a, note for $11,000,000. That is not chicken feed, and it seems to me I would certainly remember whether I endorsed a note for $11,000000. Mr. HENRY KAISER. I will tell you. In the first place, I do not think I endorsed any of the notes. I do not know that I endorsed a single note We have one building alone of our own the Kaiser Building, of 10 floors and many of the bank agreements I know I never see. Those bad agreements are voluminous. I am operating 28 industries. Mr. BRADLEY. I appreciate that. . Mr. HENRY KAISER. And I just couldn't memorize something for you accurately. I can get the record for you. (Exhibit 35 (rives an additional written answer by Mr. Kaiser.) _Mr. BRALEY. Who, in Kaiser, Inc., would endorse the original note, As I understand it, for the shipyard venture of $11,000,000? Mr. HENRY KAISER. I think our treasurer would probably do that. Mr. BRA'iLEY. Would it be countersigned by the president on an amount as .3ig as $11,000,000? Mr. HENRY KAISER. The loans were really something in size, and are today. For instance, I couldn't tell you right now?we are using, I think, an obligation from the bank of $16,000,000 for operating capital alone in aluminum. I could not tell you the details of that loan. I would have to get that loan agreement, and that is postwar. That is jut operating capital alone, and that is only recently. Mr. BRADLEY. Counsel has sought to bring out, and I think prob- ably has been able to explain, or at least you explained to your satis- Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 .? CIA-RDP641300346R000401p0002-4 SHIPYARD PROFITS faction, but perhaps I am dumb, but I cannot figure out how you were entitled to charge the loss of your steel plant against the ship profits. Mr. HENRY KAISER. Well, I think I can give you that very clearly, maybe. We tried to write it out last night. Mr. BRADLEY. As I understand it, you had something like $46,000,- 000, or $41,000,000, profit, in shipyards, and wrote it off with $46,000,- 000 in steel, or something like that. Mr. HENRY KAISER. This is very carefully worked out, and it is only a paragraph. Kaiser Co., Inc., which counsel is talking about, operations in- clude the production of steel for ships and for shells and other war products as well as the production of ships. Both were an integral part of operations of this one company, and as a matter of practical common sense as well as law, both operations were treated as they were in fact, as the operations of one company, under the specific provisions of the law passed by Congress, the Renegotiation Act. Both opera- tions of the one company are lawfully considered as one in the case of this company, as well as in the case of hundreds of other companies similarly situated. This is not only our interpretation of the facts and the law, but it is the interpretation of virtually every law officer of the Government agencies concerned with this problem, and it was so testified before the House Committee on Ways and Means last year. Mr. BRADLEY. I am glad you mentioned that Ways and Means, be- cause I have a copy of a letter from the Honorable Roy 0. Woodruff, of the Ways and Means Committee, addressed to Judge Bland, copy of which he sent to me, and the judge says he has no objection to my reading it at this time. It is dated September 23, 1946. [Reading d MY DEAR JUDGE : Press reports indicate that Mr. Henry Kaiser will appear before your committee this week. War profiteering on the part of New Deal sacred cows has cost the American people many billions of dollars. Many of these billions have been illegally and contrary to law paid to these New Deal sacred cows. I sincerely hope your committee will properly and exhaustively explore the whole Kaiser group and other war-profiteering conditions in the Mari- time Commission and War Shipping Administration, letting the "chips fall where they may." Congress enacted the renegotiation law to eliminate profiteering in, war con- tracts and made the renegotiation of almost all productive contracts, over certain amounts, compulsory. Hearings before the Ways and Means Committee on April 12, 1945, show Admiral Land testified in answer to my query "profits of Kaiser companies pledged to service Reconstruction Finance Corporation loans of approximately $100,000,000." The same hearings, pages 224-225, show that the Reconstruction Finance Corporation, on my demand, filed with the Ways and Means Committee con- firmation that profits accruing to Kaiser companies from ship-construction con- tracts had been pledged to the Reconstruction Finance Corporation to liquidate loans of some 110 millions of dollars. The Congressional Record of August 1, 1946, page A4985, and that of August 2, 1946, page A5045, show that the Maritime Commission paid the Kaiser com- panies partial ship-contract profits of some 120 millions of dollars. "Review of Renegotiation Proceedings, Kaiser Companies," filed with the Ways and Means Committee by Admiral Land, on my demand, shown in hearings of April 12, 1945, page 145, reveal that Kaiser companies were "assigned to Mari- time Commission" and fees and bonuses allowed four companies listed as having capital stock and surplus of less than $600,000, had received more than 85 millions of dollars after renegotiation for supervising construction of 805 vessels. Facilities for vessel construction, all materials used, labor and other costs for constructing these vessels were supplied by funds from the Treasury of the United States. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apprcrogi For Release 2oo3/mbigimm4Boo346R000Ll00060002-4 Pees and bonuses of 120 millions of dollars for superviSing construction of vessels in a period of 3 or 4 years,. with no investment on the part of contractor jeopardizedo savors of war profiteering at its worst. Failure Of the Maritime Commission to protect Reconstruction Finance Cor- poration loans will probably cost the American people an additional 60 or 70 or more millions of dollars. Your committee should ascertain why the Kaiser group, having pledged their ship-constrtiction profits of more than $120,000,000 and assigned their properties to the Maritime Commission as security for Reconstruction Finance Corporation loan of $110,000,000 to Kaiser companies, permitted, on payment of only 10 millions by the Kaiser group to the Reconstruction Finance Corporation, these Kaiser companies to receive $120,000,000 in ship-construction profits from the Maritime COmmission. The Congressional Record of August 2, 1946, page A5045, shows that this loan of $110',000,000 made by the RFC to the Kaiser companies has not been paid. This loan, despite the fact that the security pledged for the liquidation was greatly in etcess of the loan, has been refunded, and in typical "Get-rich-quick Wal1ingford7 style, the payment of some $35,000,000 has been put off for a period of 25 years,, during which time the Kaiser companies will not be called upon to pay any intdrest thereon. FurthermOre, your committee should ascertain why the Maritime Commission, with full knowledge that the Kaiser companies had pledged their ship-construc- tion profits to liquidate the Reconstruction Finance Corporation loans, did not pay directly to the Reconstruction Finance Corporation sufficient of these ship- construction profits to liquidate these Reconstruction Finance Corporation loans. Sincerely, ROY 0. WOODRUFF. What can you answer to that? Mr. HENRY KAISER. I am glad you have given me an opportunity to answer that, because that definitely is prejudicial, and therefore the witness, as I have understood from the judge, has a right to answer a statement which might prejudice him. Mr. BRAPLEY. That is why I would like to get your answer. Mr. HENRY KAISER. I would like to say this first, that the Kaiser Co. is the only company that I know of that deliberately and willfully obligated all of its fees to the Government, instead of keeping them and having them for carry-back purposes and every other purpose. It obligated its fees to the Government to pay for a steel mill. Now, the exact opposite occurred with the United States Steel Corp. Instead of *lying Kaiser $100,000,000, which he asked for as a defense- plant grant to avoid borrowing that money, and which was necessary for the ships, as has been proven here, they gave to the United States Steel Co. 000,000,000 on what was called by them a dream plant.. ? "Nothing like it has ever been built," they said in the last week in the press. And they sold it back to them for $40,000,000. Now, let Mr. Woodruff eXplain that. Mr. BROEEY. Were the United States Steel Corp. required by Re- construction Finance Corporation to put up any collateral? Mr. HENRY KAISER. No, not a cent. They were paid, and they were paid, as well, 25 cents, a ton royalty for the ore that they had, and they did not put up one nickel, not even the operating capital. Frankly, ;I was asked, with a group of others, to build the plant with the Utah Construction Co., one of the so-called Six Companies, and I specifically and definitely refused to participate in the build- -ng .of the plant, because I did not want to be involved on one of these questions that this counsel has constantly endeavored to involve me in, and has notibeen successful in. I did not want to get two fees for the same kind of operation. (Exhibit 35 _gives an additional written answer by Mr. Kaiser.) Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 109 Now, get this clear: At Geneva, that plant cost $200,000,000. It did not produce as much steel as the Fontana plant?not as much. And the Fontana plant cost only $100,000,000. And the evidence is clear, sworn evidence, that I went to the Reconstruction Finance Cor- poration or the Defense Plants Corporation and distinctly asked, pleaded, and begged, to be permitted to have a steel plant on the same basis as the United States Steel Corp., and I was refused, and it is in this little booklet. If you will permit me, I will read it. Mr. BRADLEY. I read the little booklet. Mr. HENRY KAISER. I was refused, and they in turn gave $200,000,- 000 to the United States Steel Corp. for a dream plant. They forced us to build; they would not let us even buy the material or the ma- chinery, where the United States Steel Co. existed, and we fought our way through that and we received many awards for the work we did there, and many congratulatory letters during the war. The shell program was tremendously improved as a result. Mr. BRADLEY. I knew you would get a chance to make a good stump speech on that before you got through. I judged that by the booklet. Mr. HENRY KAISER. I thank you. You gave it to me. I am not any- where near through on it. I would like to go all the way through, now that you presented that prejudiced statement. Mr. BRADLEY. You just said a few minutes ago that you did not want to build a steel company, and I have been trying to find your testi- mony in here of yesterday. My recollection was that you said, when you were not getting steel, that you did want to build a steel company so you could get steel. Mr. EDGAR KAISER. That is right. Mr. HENRY KAISER. I will give you this same an opinion on Renego- tiation Act that you referred to, with the date. I would like to read this, and would again like to read it as a result of Mr. Woodruff's prejudiced statement. [Reading:] Admiral LARD. This is the position of the Maritime Commission, the War Ship- ping Administration, and the renegotiation boards of both, and I would like WI add this: So far as I am concerned, I am a strong believer in giving a break to a man who does a better job more than I am in giving a man a break who does a poorer job. The CHAIRMAN. From what are you reading? Mr. HENRY KAISER. The same hearing of this Ways and Means Committee that has just been referred to, page 156. The CHAIRMAN. All right. Mr. HENRY KAISER (reading) : Admiral LAND. May I say, Mr. Woodruff, that the members of the renegotiation tion committee of the Maritime Commission are imbued and indoctrinated with principles that you have enunciated and for which I stand, and that is the reason why there is a variation in the percentage of profit allowed, and that is generally true with the smaller ones, and if you will analyze the material that I am sub- mitting for the committee, you will find that Oregon, for example, which is an outstanding organization from the standpoint of efficiency, has a higher per- centage allowed than some of the others. Now, the whole hearing refutes?I do not want to bore you with it here?what Mr. Woodruff has said, and my own statement now does. I ask you, if the United States Steel Corp. is given $200,000,000? Mr. BRADLEY. Are you interrogating us, or are we interrogating you? 93486-46-8 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 110 SHIPYARD PROFITS Mr. HENRY KAISER. You asked me the question. You said you gave me a chance to get it off my chest. If the United States Steel Corp. is allowed to take $200,000,000 plus interest of the Government's money, and then buy it back for 20 cents on the dollar? Mr. BRADLEY. You have paid back only $10,000,000, according to Woodruff, on $120,000,000. Mr. HENRY KAISER. We have paid a lot more than that. Mr. BRADLEY. I am asking you, how much have you paid back? Mr. HENRY KAISER. The best information I have is $27,000,000. Mr. BRADLEY. On $120,000,000. Mr. HENRY KAISER. That is right. Mr. BRADLEY. Now, if I understood you correctly a few minutes ago, you said you did not want to get the steel plant, that you fought it? Mr. HENRY KAISER. Oh, no. I wanted a steel plant because we Were not being delivered steel by both Bethlehem?and I will go further now; we were not getting steel from Bethlehem, we were not getting steel from 'United States Steel for the ships. I wrote them booth a letter. I wIas told that I was fighting the wrong people that if I kept on with that I would get hurt, so I went ahead and got hurt and built this plant and borrowed the money and put it up and guaranteed everything we had to make it. Mr. BRADLEY. That is all in the hearings of yesterday. I have your statement right before me here now. You apparently did not even know yesterday who was the president of the company. You said here [reading]: Mr. Couls. Who was the president of the company? Mr. KAMA. I don't know. Mr. CoLcs., Were you not the president? Mr. Kms. I hope so. Mr. HENRY KAISER. In all fairness to me, I am operating 28 in- dustries, and my memory?I will not trust it to serve in answering questions before a committee when I am under oath. I want to get you accurate information, and I think you would want me to do that, would you not? Mr. BRADLEY. That is quite obvious. MT. HENRY KAISER. YOU would want me to do that. Mr. BRADLEY. I think you have, if I may be pardoned to say so, a very convenient lapse of memory on too frequent occasions. Mr. HENRY KAISER. I would like to challenge you on that. I would like to know where it is. Mr. BRADLEY. You have your son with you, you have presumably your auditor. At least he knows where to find stuff in the books. And you have your attorney. Yet frequently in this record, and the record of yesterday is replete with, "I don't know"; "I don't know"; "I don't know." Mr. HEI,IZRY KAISER. Because of the fact that you had the informa- tion already in a book, and I don't want to be placed in a positioi. where my memory?well, there are 150 pages of evidence here that have taken 90 days to prepare. Mr. BRADLEY. I repeat again that Mr. Coles knew in advance what questions he was asking and what the answers were, but the committee does not know them. We do not know the questions, nor did we know Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 111 the answers, and the only way to find out is to have him interrogate you and have you give us the answers. Mr. HENRY KAISER. The answers were in the book. The chairman kept repeating that where the answers were in the book I did not have to answer. Mr. BRADLEY. We do not know anything about what the answers were going to be. Mr. HENRY KAISER. I do not blame you. j brought some books along so you would have books yourselves. Mr. BRADLEY. These ladies and gentlemen of the press do not know what the answers are. That is why we have open hearings. We do not have hearings to put stuff in the record, which cannot be printed until after the next Congress convenes. They cannot be printed and they cannot be public property unless questions are asked here and covered by the press. Mr. HENRY KAISER. You did hear me say yesterday that I would provide everything written so it would be accurate. There could not be anything wrong with that, could there? Mr. BRADLEY. Could you not give the same answers verbally? Mr. HENRY KAISER. I did, consistently. Mr. BRADLEY. I do not find .it in here. It is "I don't know"; "I don't know," "I don't know," all the way through. Mr. HENRY KAISER. Oh, no; that is not fair. Surely I said "I did not know, I would have to get the information." I am sure that you will be fair about it, now. Mr. BRADLEY. I certainly want to be fair. Mr. HENRY KAISER. YOU are not being fair when you saw me here struggling, endeavoring to get the information. Mr. BRADLEY. You can read right throu,p_o?h here and find out. Mr. HENRY KAISER. I imagine it was. I ou have the record there. I don't know. The CHAIRMAN. The records will speak for themselves. Mr. HENRY KAISER. I think you believe I am trying to get them, do you not? Mr. BRADLEY. I believe you; yes, sir. Mr. HENRY KAISER. All right. Mr. BRADLEY. I took your opening statement yesterday at your full value, and I know on the west coast you gave us every cooperation out there and so did your men out there. Mr. HENRY KAISER. Thank you. The CHAIRMAN. Mr. Weichel ? Mr. WEICHEL. Mr. Kaiser, outside of the six yards we have been talking about?I mean, there are six companies, are they not, six separate companies? The CHAIRMAN. I did not call on Mr. Keogh, who just came in. Ordinarily he would have been called on next. Mr. WEICIIEL. I yield to Mr. Keogh. Mr. KEoou. No; go ahead. Mr. WEICHEL. The California Shipbuilding Corp. operated what, one Government yard? Mr. HENRY KAISER. Yes. Mr. WEICIIEL. Did that corporation operate a yard owned by itself, a shipyard? Mr. HENRY KAISER. I will tell you. I no longer own anything in it. Their representatives are lwre. Th.0 Approved For Release 2003/10/w : Cl App11royed For' Release 2003/10/10: CIA-RDP64600346R000400060002-4 'Z SETIPYAW) PROFITS information. I think that you really should ask the California Shipbuilding Corp. management for information regarding it, be- cause I do not feel I can be accurate about it. Mr. WEICIHEL. Will you read the question? (The pending question was reread.) Mr. HENRY KAISER. I do not know what that corporation does now. Mr. WEICHEL. Will you please read the question. I think I stated it in the past tense. Mr. HENRY KAISER Owned by itself? Mr. WEITIEL. Please read the question. (The question was again read.) Mr. HENRY KAISER.. Did it? I own a small stock interest in that yard, or did own up to 2 years ago and therefore I do not believe it could be owned by itself, if I understand you correctly. ii Mr. WEI Hui, Read the question once more and, Mr. Kaiser, tell me what you d not understand about it. Mr. KAISER. I am answering it. I do not think it was owned by itself, because I owned a small interest in it. You are talking about the shipyard. The Maritime Commission owned the shipyard, if I am correct. Mr. WEICHEL. The California Shipbuilding Corp. operated a Gov- ernment yard? Mr. HENRY KAISER. That is right. Mr. WEICHEL. Did the California Shipbuilding Corp. operate a yard owned by itself? Mr. HENRY KAISER. No. It was owned by the Government. I think it was owned by the Government. How much of it was owned? some of tilt t, I think, was owned by the city. I think you should get that from tie corporation management. The CHAIRMAN. You just give what information you have. Mr. WEICHEL, The California Shipbuilding Corp. did not operate a totally owned Government yard, did. it? Mr. HENRy KAISER. I do not think it was totally owned. I think it was owned partly by the city. Mr. WEICHEL. I am talking about the yard, and about the Cali- fornia Shipbuilding Co., which received $44,000,000 in fees. That California Shipbuilding Co., operated a Government yard. Did it, or did it nCt, or do you know? Mr. HENRY KAISER. It operated the Government facilities, the Gov- ernment-owned facilities. I think the yard was or is still owned by the city. Mr. WEICHEL. The Government paid for it, and you just operated it? 1 MT. HENRY KAISER. No; I never operated it. Mr. WEICHEL. Did the California Shipbuilding Corp. operate it? I mean according to this list they did. Mr. HENRY KAISER. Yes; I think they did. Mr. WEYCHEL. Did the California Shipbuilding Corp. operate any yard that it owned itself? Mr. HENRY KAISER. I don't think so. I don't know whether they had additiOnal yards or not. They are here. They can tell you. Mr. WEICHEL. Who is here from the California Shipbuilding Co.? (Mr. John A. McCone.) Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 113 Did the California Shipbuilding Corp., outside of the Government- operated yard that the Government paid for, operate a yard of its own? Did it? Mr. JOHN A. McCoNE. No; it did not. Mr. WEIcriEL. During the years that the California Shipbuilding Corp., received the $44,000,000 in fees, you just testified it did not have a yard of its own. What other business did the California Shipbuild- ing Corp., do beside operate the Government yard? The CHAIRMAN. Is that question propounded to Mr. McCone? Mr. WEICIIEL. Yes. The CHAIRMAN. Mr. McCone, wil you please raise your right hand? Do you solemnly swear that the evidence you will give in this and succeeding hearings on the same subject matter will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. McCoNE. I do. Mr. WEICHEL. You say you know nothing about the California Shipbuilding Corp., Mr. ICaiser ? Mr. HENRY KAISER. It is not a Kaiser yard. Mr. WEICHEL. I do not mean now. I am talking about before you sold out. Mr. HENRY KAISER. I still have to ask him about it. Mr. WEICIIEL. You sold out in '45 ? Mr. HENRY KAISER. He ran it, and he managed it. I was? only a stockholder. Mr. WErciiEL. You were just a stockholder? Mr. HENRY KAISER. That is right. Mr. WEICHEL. You do not know anything about it at all? Mr. HENRY KAISER. I do not know enough to tell you anything in- telligently about it. Mr. WEICHEL. Did you have anything to say about the manage- ment of it at all? Mr. HENRY KAISER. No. I would say I was there only as a stock- holder. I was an officer or a director at one time, I think. Mr. WEICHEL. There was no advisory counsel that you rendered to the California Shipbuilding Corp. then? Mr. HENRY KAISER. The president is here. He can tell you that. Mr. WEICHEL. Did you render any? Mr. HENRY KAISER. If he asked me for it, I did. Mr. WEICHEL. But otherwise you know nothing about its opera- tions? MT. HENRY KAISER. That is right. Mr. WEicuEL. With reference to the Kaiser Co., Inc., how many Government-owned yards did it operate? Mr. HENRY KAISER. Three. Mr. WEicHEL. Do you know anything about that company? Mr. HENRY KAISER. Oh, yes. Mr. WEICHEL. With reference to that company, did it own and operate any yards that it owned itself?any shipyards? Mr. HENRY KAISER. I do not think so. Mr. EDGAR KAISER. If I may answer that, only insofar as we had an investment in those yards and the amount of that investment we are going to furnish to counsel. Mr. WEICHEL. Well, what were the names of the other yards that this company operated? Did this company operate them, or did it just have an investment in them? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 20qpimg :pc*ipsDP64B00346R000400060002-4 114 Mr. EDGAR AISER. Kaiser Co. Inc., operated three yards. Mr. WEIC4EL. Three Government-owned yards? Mr. EDGAR KAISER. Three Government-owned yards, known as Swan Island at Portland, Oreg.; Vancouver, at Vancouver, Wash.; Richmond 3,, at Richmond, Calif. Mr. WEIGHED. Did it operate any yards that it owned itself? Mr. EDGAR KAISER. Not that it wholly owned itself. Mr. WEIGHED. Not that it wholly owned? Mr. EDGAR KAISER. That is correct. Mr. WEicnEL. What yards did it operate that it partly owned? Mr. EDGAR KAISER. Well, we had some investment in each of the three yards that I listed, the amount of which I do not know. We will furnish counsel that information. (Exhibit 5 gives an additional written answer by Mr. Kaiser.) Mr. WEIGHED. Did you operate those other three? Mr. EDGAR KAISER. Those are the same three. In other words, we had some investment in those yards. How much I do not know. But they are terined "wholly owned Government yards." Mr. WEIGHED. I mean, on these three, did not the Government pay for everything? Mr. EDGAR KAISER. Not everything. We had some investment in those yards. We want to look it up and find out exactly how much. Mr. WEIGHED. Well, outside of what you say, that you had some investment, even though the Government owned them, you had actually an investment in the yards' physically? Mr. EDGAR KAISER. That is right. It is small, very small, I think, but we want to get the very exact figures. Mr. WEIGHED. What do you mean by that?that you owned some machinery in the yard? Mr. EDGAR KAISER. That is right. Mr. WEIGHED. You did not lease it to the Government? Mr. EDGAR KAISER. NO, sir. Mr. WEIGHED. And that was true for each one of the yards? Mr. EDGAR KAISER. I think so. We are checking the record to find out exactly what it was. Mr. WEIGHED. You do not know whether that was a million dollars or a hundred,thousand dollars? Mr. EDGAR KAISER. NO, sir. Mr. WEIGHED. But it is very small? Mr. EDGAR KAISER. I think it is small proportionately to the total value of the yards. We are getting the actual figures. Mr. WEIGHED. Outside of that?this small investment that you say that you had in the physical assets of the Government yards?did the Kaiser Co.,, Inc. operate any other business? Mr. EDGAR KAISER. Yes; Fontana Steel. Mr. WEMCHED. Fontana Steel? And what other business besides the Fontana Steel? Mr. EDGAR KAISER. I would like to refer to the book for that. Mr. WEIGHED. What was the Fontana Steel? Mr. EDGAR KAISER. That is the iron and steel plant at Fontana, Calif., which is a Kaiser Co., Inc., operation. Mr. WEIGHED. Besides that, what other business did it operate? Mr. HENRY KAISER. It is still operating. The yard is still operating. Mr. EDGAR KAISER. That is substantially it. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 ? CIMIDP641300346R00040ppS0002-4 SHIPYARD 'Pito Mr. WEICHEL. I am talking about what you operated before 1946. Mr. EDGAR KAISE11. Coal mines and ore mines, as part of the iron and steel division?accessories to the iron and steel division. Mr. WEICHEL. Were they operated by the Kaiser Co., Inc., people? i Mr. EDGAR KAISER. That s right. Mr. WEICHEL. Before you got the contract to operate these three yards? Mr. EDGAR KAISER. It was all about the same time. I do not know whether iron and steel came first. Mr. WEICHEL. Was the iron and steel one connected with the build- ing of ships, or was it another business venture that you got from the Government? Mr. EDGAR KAISER. It was the same company, the same top manage- ment, but they had divisions. We had management in each of the spots, just as in the three shipyards. Mr. WEICHEL. Were you in the steel business on your own capital? Mr. EDGAR KAISER. Yes; because we borrowed it from the Recon- struction Finance Corporation. Mr. WEICHEL. When did you start that, at about the same time you got the ship contracts? Mr. HENRY KAISER. Our records show that we started in 1940, and we did not make the grade of getting steel until 1942. In the mean- time we lost a lot of time building ships. Mr. WEICHEL. But the business of this Kaiser Co., Inc.?did it have any kind of business whatsoever except on money that it borrowed from the Government? Mr. EDGAR KAISER. Yes. Mr. WEICHEL. Well I mean did you? MT. EDGAR KAISER. yes; we did. Mr. WEICIIEL. You said you got all this from the Government on the Fontana Steel, and you got the three contracts, and you said you had a little physical property in these yards. Mr. HENRY KAISER., It had bank loans. Mr. WEICHEL. I was talking about business, not about loans. Mr. EDGAR KAISER. You cannot operate business without loans. Mr. HENRY KAISER. You could not operate this business without loans. Mr. WEICHEL. Did it operate any business? Mr. HENRY KAISER. It operated steel and ships. Mr. WETCHEL. We got this about the ships. Now, with reference to steel. When did it start in the steel business? Mr. EDGAR KAISER. At about the same time. Mr. WEICIIEL. Previous to the time it went in the steel business, and previous to the time it got these contracts, what kind of business was this company in? Mr. EDGAR KAISER. It was not organized. It was organized in De- cember of 1941. Mr. HENRY KAISER. It was organized on December 1,1941. Mr. WEICHEL. Take the Oregon Shipbuilding Co. That operated a Government yard; is that correct? The Government owned every- thing? MT. EDGAR KAISER. NO. Mr. WEICIIEL. The Oregon Shipbuilding Co. operated a Govern- ment yard, did it not? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apprand For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. H$cRY KAISER. We owned a great deal of property, and still do, in tha yard. M? r. WEICHEL. Do you know anything about the Oregon Shipbuild- ing Co.? Mr. HENRY KAISER. Yes. That is the one I am talking about. Mr. WEICHEL. It operated a fully owned Government yard and re- ceived $58,000,000, did it not? Mr. HENRY KAISER. Up to some sum. It is not $58,000,000. Mr. WEICHEL. I say the Oregon Shipbuilding Co. operated a Gov- ernment yard, fully owned. Mr. KEitsTRY KAISER No. Mr. WEICHEL. Did it not? Mr. KENRY KAISER. NO. Mr. WEICHEL. Then the statement from the Maritime Commission with reference to the Oregon Shipbuilding Corp. operating a Govern- ment yard, on which the Government paid $22,000,000 for facilities is not true? , Mr. HENRY KAISER. That does not say "fully owned." Mr. WEICHEL. I am asking about fully owned. MT. KENRY KAISER. NO. Mr. WEicHEL. Did you operate a fully owned one? Did the Ore- gon Shipbuilding Corp. operate one like that? Mr. HENRY KAISER. No. We own a lot of that property. Mr. WilioliEL. With reference to the Oregon Shipbuilding Co., what did is: operate for the Maritime Commission where the Maritime Commission sets forth a $22,000,000 Government yard? Mr. HENRY KAISER. It operated that $22,000,000 of facilities, plus our own facilities. Mr. WEICHEL, You had facilities that you physically owned in that yard? MT. HENkY KAISER. Yes, sir. Mr. WEICHEL. What did you own in that yard? Mr. EDGAR KAISER. We owned more than a third of the land. Mr. WECHEL. In that $22,000,000 yard, you claim that the Oregon Shipbuilding Co. physically owned some of the facilities? Mr. HETITRY KAISER. More than a third of the land, in addition to part of the facilities. I will have to get the facts. Mr. WEICHEL. Was the Oregon Shipbuilding Corp. engaged in any other business besides operating this $22,000,000 yard? MT. HENRY KAISER. Yes, sir. Mr. EDGAR KAISER. Yes, sir. Mr. WEnmEL. What was it in? Mr. EDGAR KAISER. It built for the Army aluminum pontoons, but it built them in this yard. Mr. WEICHEL. In this Government-owned yard? Mr. EDGAR KAISER. Mostly Government-owned. Mr. WEICIIEL. Was there no separation between what was the Gov- ernment's and what was yours? Mr. EDGAR KAISER. Yes; you bet there was. Mr. WEICHEL. Were the pontoons built in your own private facili- ties in the yard? Mr. ED7R KAISER. No; it was not separated by types of buildings. Mr. WE CHEL. What other business was the Oregon Shipbuilding Corp. engaged in? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 117 Mr. E,DGAR KAISER. There may have been some other work, but those two are the prime work jobs; the shipbuilding job and the aluminum pontoon contract are the prime jobs of Oregon. Mr. WEICHEL. Was this pontoon business a big business? MT. EDGAR KAISER. We built about 3,000 of them. Mr. WEICHEL. How much did you get for those apiece, roughly? Mr. EDGAR KAISER. I think around $2,700. Mr. WEICHEL. So that that was not very much with reference to the over-all $22,000,000? MT. EDGAR KAISER. That is Still a lot of business to me. Mr. WEICHEL. With reference to those two things, that is the only business the company had? MT. EDGAR KAISER. Primarily. ? Mr. HENRY KAISER. It has some private ships now. Mr. EDGAR KAISER. No. Mr. WEICIIEL. I am talking about in the past?not now; just in the past. So that out of this particular company the only other business it engaged in was that it made three or four thousand pontoons. Mr. EDGAR KAISER. Primarily. There may have been some other, relatively small, business. Mr. WEICIIEL. And those pontoons were made with the Government facilities in the Government plant? Mr. EDGAR KAISER. Primarily, yes. Mr. WEICIIEL. Did the company own anything? Did this Oregon Shipbuilding Corp. own anything in this plant, outside of some land? MT. EDGAR KAISER. Yes. Mr. WEICHEL. What did it own? Mr. EDGAR KAISER. Some pieces of equipment. Mr. WEICHEL. A machine here and there? MT. EDGAR KAISER. Yes. Mr. WEICHEL. It did not amount, practically, to anything? Mr. EDGAR KAISER. Yes; it did. You get yor figures kind of dis- torted in this war effort. How much, I do not know, and we will furnish it. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. WEICHEL. How many acres of land was it that you owned? Mr. EDGAR KAISER. At Oregon I think there was approximately 290 to 300 acres. I would like to check that figure. Mr. WEICHEL. And you had some pieces of machinery? MT. EDGAR KAISER. That is right. Mr. WEICHEL. That is the only physical thing this company owned? Mr. EDGAR KAISER. Outside of the land. Mr. WEICHEL. We mentioned that once?two to three hundred acres. Is that what the Maritime Commission says is your $400,000 of capital? Mr. EDGAR KAISER. No; that is not capital. Mr. HENRY KAISER. No; that has never been included in that. Mr. WEICHEL. What did this Oregon. Shipbuilding Co. have? You said it had some machinery and about 300 acres of Ian. Mr. EDGAR KAISER. No; Oregon Ship did not have that. The total acreage on which Oregon Shipbuilding Corp. operated was somewhere around 290 to 300 acres, I think. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 I Approved For R lease 2003/10/10 : CIA-RDP64600346R000400060002-4 118 SHIPYARD PROFITS ' Mr. WEIOTIEL. Who owned that? Mr. EDGAR KAISER. Part of it was owned by the Government. The CHAj1RMAN. About how much? Mr. EDGAR KAISER. I think that the corporation owned better than a third of the land and the Maritime Commission about two-thirds. Mr. WEIMTEL. That would be about a hundred acres? ? Mr. EDGAR KAISER. That is right. I would like to verify the figures if you want them accurately. Mr. WEICHEL. So the Oregon Shipbuilding Corp. owned 100 acres of land and some physical property in the way of machinery? Mr. EDGAR KAISER. Yes. I would like to check that. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. WEICHEL. And that was worth $300,000? Mr. EDGAR KAISER. No. I do not know what that was worth. That figure you refer to of capital does not include that. . Mr. WEICHEL. It does not include it? Mr. EDGAR KAISER. NO. " Mr. TV-17cim. Was it $300,000? Mr. EDGAR KAISER. I do not know. I can find out for you. Mr. HENRY KAISER. There are $3,000,000 worth of capital here, plus the $550,000. That is on exhibit B. Would you like this? Mr. WEWHEL. No; I would like to have one that counsel has. Mr. HENRY KAISER. I will give you one of these. Mr. WEICHEL. No; I will take ours. With reference to the Oregon Shipbuilding Corp.? Mr. HERY KAISER. "Exhibit B, Capital.' Mr. WEIOHEL. The one that the Maritime Commission says that it has. With reference to what the Maritime Commission says was the capital of the Oregon Shipbuilding Corp., how much do they say it is? Mr. HENRY KAISER. The Oregon Ship? The Maritime Commis- sion in this statement I read here, says there is a capital of $550,000. dr. WI:1011EL. The Maritime Commission says $550,000 for the Oregon Ship? Mr. H.NRY KAISER. That is right. Mr. WEICHEL. I understood you to say that a third of the land? Mr. HENRY KAISER. That's right. Mr. WnictiEn. And you had some pieces of machinery? Mr. HENRY KAISER. That is right. Mr. WEICHEL. That is what was in the yard? Mr. HENRY KAISER. That is right. Mr. WEICHEL. For which you received the fees set forth in that exhibit? , Mr. HENRY KAISER. That is right. Mr. WEICIIEL. And the only other thing you did in the yard was to i, build poi toons-4,000 of those. Now, what is the capital, then? l Mr. ENRY KAISER. The capital is the stockholders' loans, which were su ordinated, of $3,000,000, and the bank loans from three banks, the Bony' of California, the First National Bank of Portland, and the United States National Bank, of $3,400,000, and the $550,000, which makes a total of $6,950,000. That is the capital. Mr. WEICHEL. That yard was a Government-owned yard? Mr. ITENRY KAISER. That is right. Mr. 1EroHEL. And the Oregon operated it? Approved Fr Release 2003/10/10 : CIA-RDP64600346R000400060002-4 ApproVed For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROPITS 119 Mr. HENRY KAISER. That is right. Mr. WEIGHED. And it built these pontoons. That is the only thing it did, is it not? ? Mr. HENRY KAISER. No; it built both ships and pontoons. Mr. Wgicum. Well, I am saying that the only thing that the Oregon Ship did was to build some ships on which the Government 17/aye these fees and they built some pontoons. Mr. HENRY fees, That is right. Mr. WEIGHED. That is the only thing that that company did? Mr. HENRY KAISER. Approximately all. Mr. WEIGHED. That is what I mean. And with reference to the pontoons, about $100,000 worth? Mr. HENRY KAISER. No. Mr. EDGAR KAISER. About $9,000,000 worth. Mr. WEIGHED. About $9,000,000 worth of pontoons? Mr. HENRY KAISER. That is right. Mr. WEIGHED. And were those built on a fee basis? Mr. EDGAR KAISER. No. Those were built on a competitive-bid basis. Mr, WEIGHED. On a competitive bid? Mr. EDGAR KAISER. That is right. Mr. WEIGHED. And you used this Government-owned yard to build them? Mr. EDGAR KAISER. Yes; with the consent of the Maritime Commis- sion. Mr. WEIGHED. I presume you got their consent. Mr. EDGAR KAISER. And they established a rental formula for the use thereof and paid those moneys to the Army. Mr. WEicHEL. Did everybody else who bid on a competitive basis have a right to use the Government-owned yard to build them? Mr. EDGAR KAISER. There were bidders who bid with Government facilities on the pontoon contract. Mr. WEIGHED. Did they have a right to use the yard also? Mr. EDGAR KAISER. Not that yard. Mr. HENRY KAISER. They had a right to use their Government facilities. Mr. WEIGHED. So that when you bid on a competitive basis you were not using your own capital with reference to the facilities? Mr. HENRY KAISER. You are about right. Mr. WEIGHED. It is all right, is it not? Mr. HENRY KAISER. No, no; because some of that land was ours. Mr. WEIGIIEL. One hundred acres? Mr. HENRY KAISER. ? One-third of the land was ours. Mr. WEIcuEL. Was the pontoon plant on your hundred acres? Mr. EDGAR KAISER. It just SO happened it was. Mr. WEIGHED. That part was? Mr. EDGAR KAISER. And we forgot to charge a rent for it, too. I am glad you brought it up. Mr. WEIGHED. Did your company pay for all, the building there? Mr. EDGAR KAISER. No, sir. Mr. WEIcuEL. That is all Government building? Mr. ErC-AR KAISER. That is right, but in the bidding of the job, just - 'here would not be the thing I think you are thinking about? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4 120 SHIPYARD PROFITS Mr. WEICHEL. I am not thinking about anything. Mr. EDGAR KAISER. All right. But there was set up by the Commis- sion and the Army an amount to be taken into consideration, so that anybody who bid who did not have Government facilities would be on an equal footing. Mr. WEICHEL. And this hundred acres that you had adjoined the Government land? How much was that land worth an acre, the hun- dred acres you own? MT. EDGAR KAISER. I do not know. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. WEICHEL. Was it rich farm land, growing 30 or 40 bushels of wheat per acre? Mr. EDGAR KAISER. No. In fact, most of it was a lake and we pumped it up. Mr. WEICHEL. It was not worth much? Mr. EDGAR KAISER. It was, because it was on the river. Mr. WEICHEL. How much did you pay for this hundred acres? Mr. EDGAR KAISER. I said I did not know. The figure was not high. Mr. W*CHEL. Did you pay more than a couple of dollars an acre? MT. EDGAR KAISER. Yes; considerably more. Mr. NNCHEL. Did you pay $50? Mr. EDGAR KAISER. Considerably more than that. Mr. WExciim. One hundred? Farm land is about $100 an acre. Mr. EDGAR KAISER. When you get to $100, you are getting in the range, and I am not sure. Mr. WEICHEL. Were there farmhouses on this property? Mr. EDGAR KAISER. No. The port of Portland terminal facilities are adjacent to it. Mr. WEicum. Then on this land, all that the Oregon ever had was 100 acres and pieces of machinery. All the rest came from the Gov- ernment. Mr. EDGAR KAISER. No. The private capital came from the banks. Mr. HENRY KAISER. And from the stockholders. Mr. EDGAR KAISER. We could not have operated the yard unless we had been able to furnish private capital in order to operate the yard. We could not have done it if they had just said, "There are the facilities." Supposing they owned them all and owned all the land, and said, "There it is." We could not have done the job without our funds Mr. WEICHEL. Well, with reference to the material you bought, and with reference to the labor and everything that went into it, the Gov- ernment repaid you almost immediately. MT. EDGAR KAISER. Not almost immediately. Mr. WEICHEL. As fast as you submitted it. Mr. EDGAR KAISER. We said formerly, and I think it is about right, that the average lapse was about 2 to weeks. Mr. WEICHEL. So your investment, then, was the interest on the money for each 21/2 weeks you waited. MT. HENRY KAISER. NO; it was the risk. Mr. EDGAR KAISER. If anybody could go to the bank and just get money by paying interest, that would be one thing. But they can't. Mr. WEICHEL: You had your Government contracts for it. Mr. EDGAR KAISER. We did not pledge our Government contracts in order to get those loans. Approved ForRelease 2003/10/10: CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 121 Mr. WEICIIEL. That is all you had invested, the interest, with this company. Mr . EDGAR KAISER. When you borrow money from a bank you have an obligation to pay it back. That is your obligation. It is not the interest. Mr. WEICHEL. You paid it back as soon as you got the check from the Government. Mr. EDGAR KAISER. No. We had to continue to borrow substantial funds at Oregon for a long period of time in order to operate the yard. Mr. HENRY KAISER. Plus our own funds of $3,000,000. The CHAIRMAN. It is just 1 o'clock. If my friend has a line of ques- tioning he wants to continue, we will do so, but if not, we will adjourn until 2: 30. Would you rather proceed now? Mr. WEicHEL. No; it is all right. The CHAIRMAN. We will adjourn until 2:30. (Whereupon, at 1 p. m., the hearing was adjourned until 2: 30 p. m. of the same day.) AFTERNOON SESSION (The hearing was resumed at 2: 30 p. m., upon the expiration of the recess.) The CHAIRMAN. The committee will come to order. Mr. Weichel. TESTIMONY OF HENRY J. KAISER?Resumed Mr. WEICHEL. Mr. Kaiser, we were talking about the Oregon Ship- building Corp. and that it owned 100 acres of land when it started in business and a couple of pieces of machinery, when it started in busi- ness. Vhen did it start in business? I do not mean the day you got the charter, but when did it start to do any business? Mr. HENRY KAISER. January 6, 1941. Mr. WEICHEL. January 6, 1941? Mr. HENRY KAISER. Yes. Mr. WEICHEL. And at that time it had 100 acres of land? Mr. HENRY KAISER. Well, .shortly after that; around that. Mr. WEICHEL. Well, January 6, what did it have in dollars? money? Mr. HENRY KAISER. I will give you that in just a second. It had in 1941 $100,000. Mr. WEICHEL. Was that when it started to do business? Mr. HENRY KAISER. No; it was just the formation of the company. They were all formed with that. Mr. WEICIIEL. Does that mean that it was $100,000 in cash that it had? Mr. HENRY KAISER. Well, you see, now, in April it had?wait just a minute. In April '41 it had $800,000. Mr. WEICHEL. Well, it started in January '41, and is that the date it started doing business? Mr. HENRY KAISER. That was the first capital contribution, and then there was another one of $700,000. Mr. WEIcum. Wait a minute. It started to do business in Janu- ary 1941? Mr, HENRY KAISER. Oh, no; it was then organized. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 122 SHIPYARD PROFITS Mr WDICHEL. It was organized in January 1941? Mr. HENRY KAISER. That is right. Mr. W4ionEL. Now, how many dollars were paid into that in Janu- ary 1941?dollars? Mr. HENRY KAISER. $100,000 in January 1941, the time it was or- ganized. Mr. WEICHEL. $100,000 was paid in? Mr. HENRY KAISER. That is right. Mr. WEICHEL. Was that by the stockholders? Mr. 1-11sTRY KAISER And then at the same time? Mr. WEICHEL (interposing). Well, just a minute. The $100,000? was that paid in by stockholders? Mr. HENRY KAISER. That is right. Mr. W ICHEL. Or was it paid in by corporations, or property of some corporation that you had an interest in? Mr. HENRY KAISER. No; it was paid in; it was cash. Mr. WEICHEL. It was $100,000 in money paid in, in stock sub- scription ? Mr. HENRY KAISER. That is correct. Mr. WFenEL. January 1041? Mr. HENRY KAISER. The best of my knowledge and belief that was it. Mr. WEICIIEL. All right. Then, what did they do with the $100,- 000? Did they buy this 100 acres? What did you do with the $100,000? Mr. HENRY KAISER. I will have to get the records of the company for that. Mr. WEICIIEL. Well, how did you get the 100 acres? You only started, now, with $100,000. How many pieces of machinery did you buy with the $100,000? (Exhibit 35 ?gives an additional written answer by Mr. Kaiser.) Mr. HENRY _KAISER. Just 2 months later Mr. WticHEL (interposing). I want to know. Please answer this other question. I will get to the "2 months later." Mr. HENRY KAISER. I do not know that. I would have to get the books of the company, to find out. Mr. WEICIIEL. Have you got the books of the company here? Mr. HENRY KAISER. A O. Mr. WticiiEL. Does anybody know what you did? Do you know what was done with the $100,000, right from the start? Mr. HENRY KAISER. No. Mr. WEICHEL. You do not know what was done with the $100,000? Mr. HENRY KAISER. No. Mr. WworiEL. Well, did you buy 100 acres of land with it? Mr. HENRY KAISER. NO, Sir. Mr. EDEAR KAISER. The $100,000? Mr. WEICHEL. What was done with the $100,000? That is all you had, now. Mr. EDAR KAISER. As far as I know, the $100,000 stayed right in the bank to the credit of the corporation. Mr. WEICHEL. It stayed right in the bank, to the credit of the corporation? Mr. EDEAR KAISER. That is right. Mr. WEICHEL. Now, just a minute. So that is all the corporation had was $100,000 in money? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 123 Mr. EDGAR KAISER. At the time of its initial formation. Mr. WEICHEL. $100,000 in money? MT. EDGAR KAISER. That is right. Mr. WEIonEL. And it did not own anything? Air. EDGAR KAISER. That is right. Mr. WEICHEL. So, that is the way we start off the corporation. Did the bank or anybody else get stock then from the corporation? It had $100,000 in money? Mr. EDGAR KAISER. That is right. Mr. WEICIIEL. Now, what next happened with the $100,000? Mr. EDGAR KAISER. As far as I know, I do not know that anything happened. Mr. WEICHEL. You say you kept it in the bank? Mr. EDGAR KAISER. What we started to do before, when we began to operate Oregon Ship, actually putting people on the pay roll, starting to do business. Mr. WEICTIEL Well, I know, but you did not have anything? You did not have a thing? You did not own anything. All you had were the charter and the $100,000. Now, how could you start putting people on the pay roll when you did not own anything and did not have anything? Mr. EDGAR KAISER. We started to put? Mr. WEICHEL (interposing). What pay roll were they on? Mr. EDGAR KAISER. I Will answer the question if I may, please. We started to put people on the Oregon pay roll, as I recall it. Mr. WEICHEL. You put them on the Oregon pay roll, but all you had was $100,000 and no property or anything? Mr. EDGAR KAISER. I have not been permitted to say when we put them on the pay roll, yet. Mr. WEICHEL. Well, I am asking what you did with the $100,000, first. Now, we were going to start right from there. MI?a EDGAR KAISER. I think we have still got it in the bank. That is where we left it last. Mr. WEICHEL. All right. We will put it in the bank. - Mr. EDGAR KAISER. I will say that this was in either the latter part of March or April. We began to put people on the Oregon Ship- building prior to that time. Mr. WEICHEL. At that time did you still have the $100,000, up till March? Mr. EDGAR KAISER. No; we had more than that. Mr. WEICIIEL. When did you next get some more than $100,000? Mr. EDGAR KAISER. I think it was in February?in either March or April, I am not sure; the records will show. Mr. HENRY KAISER. It was April. Mr. WEICHEL. You had the $100,000. When did you get the next money? Mr. EDGAR KAISER. April. Mr. HENRY KAISER. April?$700,000. Mr. WEICHEL. Who did you get it from? Mr % EDGAR KAISER. Stockholders. Mr. HENRY KAISER. Stockholders. stocko h ld They Paid in $700,000 more, in The ers mMonrey. futour,L. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 124 SHIPYARD PROFITS Mr. HENRY KAISER. That is right. Mr. EDGAR KAISER. That is right. Mr. WEIGHED. You sold Some more stock? Mr. EDGAR KAISER. I do not know whether we sold more stock Mr. HENRY KAISER. They were loans. ? Mr. WEIGHED. how? Mr. HENRY KAISER. They were loans. Mr. WETHEL Which were? Mr. HENRY KAISER. The $700,000. Mr. WEIGHED. The $700,000 was a loan? Mr. HENRY KAISER. Yes, sir; a stockholders' loan. Mr. Ww(cHEL. A stockholders' loan? Why, your corporation had nothing in ,the world but the charter and $100,000, and somebody lent that same Corporation $700,000? Mr. EDGAR KAISER. Well, the corporation had a little more than "nothing in the world." Mr. WEIGHED. Well, I asked you. Mr. EDGAR KAISER. It had all the people that were behind it?the managemult, and the creditors. Mr. WEIGHED. No, the corporation is only liable for what is in the corporation, nothing else now. Mr. EDGAR KAISER. Well, we have already been through that. Mr. WEIGHED. Now, just a minute. You had $100,000, and then somebody loaned $100,000 to the corporation which had $100,0001 Mr. HENRY KAISER. The stockholders loaned $700,000. Mr. WEIGHED. Now, here is a corporation. All you can collect from a corporation is what it has. It had $100,000 and the charter? Mr. HENRY KAISER. That is right. Mr. WEIGHED. Then some people loaned that corporation $700,0001 Mr. HENRY KAISER. Then those loans were subordinated. Mr. WEIGHED. I say: but the loans were $700,000? Mr. HENRY KAISER. The loans were subordinated. Mr. WEIGHED. They loaned them $700,000? Mr. HENRY KAISER. That is right. Mr. WgicHEL. Without any security except the $100,0001 Mr. HENRY KAISER. That is right. Mr. EDGAR KAISER. The same people. Mr. HENRY KAISER. The same people. Mr. WEIGHED. Oh, the same people! Mr. HENRY KAISER. Oh, yes. Mr. WEIGHED. But I am talking about the corporation. It had $100,000 in assets, and people loaned it $700,000 without security? Mr. HENRY KAISER. That is right?the same stockholders. Mr. WEIGHED. The same people? Mr. HENRY KAISER. And subordinated additional? Mr. W=HEL (interposing.). Then you had $800,000? Mr. HENRY KAISER. That is right. Mr. WEIGHED. Now, with reference to the contract to operate this Governmpt-owned yard, in which the Government spent $22,000,000. When clic you get the contract and start to operating that? Or did you know, all this in advance? Mr. HENRY KAISER. That is what I want to find out for you. Approved For Release 2003/10/10: CIA-RDP64B00346R000400060002-4 Applved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 1 SHIPYARD PROFITS 125 Mr. WEicHEL. I mean, was that in advance? Was itorganized for this or what? Mr. HENRY KAISER. Yes. Mr. WEICHEL. It was all in advance' was it? Mr. HENRY KAISER. I will give you the dale in a minute. Mr. WEICIIEL. So the people who lent the $700,000?they know they could not lose, then? Mr. EDGAR KAISER. No; they did not. - Mr. WEICHEL.? Well, if you knew of this in advance, you were going to get in this? Mr. EDGAR KAISER. We have not said that we did know it, yet. MT. WEICHEL. How? Mr. EDGAR KAISER. We have not said that We did know it, yet. Let us find out?that we entered into the contract. Mr. WEICHEL. I mean you were not doing all this in the dark, were you? Mr. HENRY KAISER. I would love to have you pursue this question, and just wait. Coming right back at you. Mr. WEICHEL. Well, $100,000? Mr. HENRY KAISER. We haven't got the dates, here. The Maritime Commission can furnish those. Now, to the best of my recollection we did not have any contracts at the time for the vessels, and I think we merely had a contract to build the yard at cost. That is the best of my recollection. Mr. WEICIIEL. That was January 1940? In January 1940? Mr. EDGAR KAISER. 1941. Mr. HENRY KAISER. 1941. Mr. WEICIIEL. In January 1941? Mr. HENRY KAISER. That is right. Mr. WEICHEL How many other people formed this corporation with you ? Mr. HENRY KAISER. Now, those names are here. Mr. WEICHEL. I mean' were they real or fictitious persons?these other ones who formed it? Mr. HENRY KAISER. Well, at the time, you see, the Todd Shipbuild- ers?are they real? Mr. WEICHEL. Who? ? Mr. HENRY KAISER. ' The Todd Shipbuilders. Mr. WEICHEL. Well, the incorporators of this company?this Ore- gon Shipbuilding Co. Were you one of them? Mr. HENRY KAISER. The stockholders here are the stockholders. Mr. WEICHEL. I did not ask for the stockholders. I asked for the incorporators. Were you one? Were you an incorporator? Mr. HENRY KAISER. Are you interested in the stockholders? Short- ly after--- Mr. WEICIIEL (interposing). Will you please tell me about the in- corporators who sat around the table and got the noble idea of in- corporating the Oregon Shipbuilding Co? Mr. HENRY KAISER. Oh! Mr. WricriEL. Who were those people? Were you one of them? Mr. HENRY KAISER. These stockholders? Mr. WEICIIEL. Were you one of them? 83486-46 --9 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 126 SHIPYARD PROFITS Mr. HENRY KAISER. Yes. ; Mr. WEICHEL. You were one of them? Mr. HENRY KAISER. Yes, sir. Mr. WEICHEL. And how many incorporators were there that did this? !I .. Mr: HEI.Tay KAista. There were the H. J. Kaiser Co. the J. F. Shea Co., W. A. Bechtel, the Bechtel-Macomb-Parsons, the 'Utah Construe-; tion the Morrison Knudson, the Todd Shipyard. dr. WEICHEL:, ,Are those people or are those inanimate corporations? They do not speak. Those people do not. I am asking, Who were the people what around and got the idea to form the Oregon Ship- building Corp.?the people? You are naming a lot of corporations. Mr. 1--InwaY KAISa. Well, you are looking at one. Mr. WEICHEL. Well, all right. You were one, and who was the. other? . Mr. HENRY KAISER. There were the Todd Shipyards, Mr. Haig and. John Riley:, f T-- ? ! !! Mr. WEICHEL. Shea, you say?' Mr. HENRY KAISER. No?Haig; Joe Haig. WEiciinn. And Riley? Mr: IlEkriz-T-KAIsEn. John Riley. ? Mr.' Whimint. , And Kaiser got the idea ? S`Mr.'HEI.TRY'KAisEii: No. Mr. WEICHEL. Some more of them? Mr. H'i-givirir KArstR.-There .Was Jack McEacherri, of General..Con- , struction; Charles Shea, who was the former shipbuilder we spoke of, in the previous war; Johnny Macomb; Mr. Stephen Bechtel and Ken- neth Bechtel, Felix Kahn, Mr. Les Corey, and GrOrel Sweigart. think I have called them All. Harry Morrison, I think---no. Mr.?WmonEL.. Those.men that you mentioned-- Mr. HENRY KAISER (interposing). Harry Morrison? YeS;' Harry. Morrison. Mr: Wniciinn. The names Of these men. Now, what are the names of those corporations that you mentioned, that had the idea ? - Knisnit. Just mentiOn them again? They are right here in the book. Mr. WEIcunn. The corporations that had the bigIdea ? Mr. HENRY KAISER. Henry" J Maser Co, the Kaiser Co. ! Mr WrndnEL The Henry, ?11-,.' Kaiser' Co: Who Was that? Mr. HENRY KAISER. That iSc/EySelf:riald my family., ! Mr Wniciitt,. And 'What kind of business Were they in, in 1941? ' Mr. HENRY KAISER. Shil3bIlildillg business. Mr. Wicx-iEn. They were in the shipbuilding business? Mr. HENRY KAISER. Yes.' Mr. WEICIIEL. Where did they ever, build any ships? Mr: HENRY FKAISER. They were in the same group Mr WnictnL. Well, no, j110, ft MilYate::'. This Henry 'Kaiser Co., in January '41. Mr. IIENny KAISER. Oh, yes, ,they were; in.'39.`they Weretn Mr: WEICHEL. HOW ? ' Mr. HENRY KAISER. They were, in '39 in shipbuilding: Mr. WEICHEL. They had built some ShipSin '39? Mr. HENRY KAISER. I had built some competitively, and, built some big contracts. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 127 Mr. WEICIIEL. Who for?the British Government? Mr. HENRY KAISER. No; the Maritime. Mr. WEICIIEL. In '39? Mn HENRY KAISER. Yes; before the war. Mr. WEICIIEL. Before the war? All right. Mr. HENRY KAISER. On a.competitive basis. Mr. WEICHEL. On a competitive basis? Mr. HENRY KAISER. That is ri Yht. Mr. WEienEE. And you bid a_ong with. other companies? Mr. HENRY KAISER. That is right. We were low. Mr. WEICIIEL. And that was a. company? Mr. HENRY KAISER. The Seattle-Tacoma Shipbuilding Co. Mr. WEICIIEL. Well, I thought you mentioned the Henry Kaiser Co. Mr. HENRY KAISER. Well, you are asking. Mr. WEicnEL. I will take one at a time. You said the Henry Kaiser Co.? Mr. HENRY KAISER.- Henry J. Kaiser Co. Mr. WEICHEL. Was that a shipbuilding company? Mr. HENRY KAISER. ND; a stockholder in. a shipbuilding company. Mr. WEICIIEL. Oh; and Henry Kaiser Co. was a stockholder in the shipbuilding company? Mr. HENRY KAISER. In a shipbuilding company; that is right. Mr. YVEICIIEL. And what shipbuilding company were they a stock- holder IA ? Mr. HENRY KAISER. Seattle-Tacoma. Mr. WEICIIEL. Seattle-Tacoma? Mr. HENRY KAISER. Yes. . Mr. WEICIIEL. Was the Seattle-Tacoma a corporation which other people ran and operated? Mr. HENRY KAISER. We were all directors in this, this group, here. Mr. WEICIIEL. You were all directors in the Seattle-Tacoma? Mr. HENRY KAISER. Yes. Mr. WEICIIEL. And then you were the directors in the Henry Kaiser, and the Henry Kaiser held the stock? Mr. HENRY KAISER. That is right. Mr. WEicuEn. In the Seattle-Tacoma? Mr. HENRY KAISER. That is right. Mr. WEicnE.E. Why did you go through all these mysterious things like that to have them hold the shares of stock? Mr. HENRY KAISER. Well, is there anything mysterious about hav- ing a stock company? Mr. WEICIIEL. No, but when a man has stock in a company that has stock in another company that he has tock in, and that has stock in another one, it does become a little bit involved. Mr. HENRY KAISER. That is quite a business. - - Mr. WEicina... But anyhow, that is one company that had the idea, along with these 10 men. Now, what is the next company that had the idea next after Kaiser ? Mt M HENRY KAISER. Well, then there is a Mr. MeEachern. Mr. WEicum. No, no, no! , Mr. HENRY KAISER. Of the General Construction. Oh, the next company? ? Mr. WEICLIEL. The next company after Kaiser. Mr. HENRY KAISER. The General Construction Co. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 128 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. WEICHEL. Who? Mr. HENRY KAISER. The General Construction Co. Mr. WEICHEL. Who was he? Mr. HErnpr KAISER. J. A. McEachern was the name. He was the for- mer shipbuilder. Mr. WEIdpEL. Well, wait; I did not ask about the shipbuilders. I will get to that. This General Construction Co.?how long had they been in business? Mr. HENRY KAISER. Oh, I do not know, but I can guess for you. Mr. WENHEL. Well, a guess is good. Mr. HENRY KAISER. Thirty yeears. Mr. WENHEL. Thirty years ? Mr. HENRY KAISER. Yes. Mr. WENHEL. And what kind of business were they in? Mr. HENEY KAISER. Oh, all kinds and ty-ies of business. Mr. WEICHEL. Well, I mean, what did t_ley do? Build radios, or .. furniture? Mr. 1lExay KAISER. No; they were in the shipbuilding business? one. Mr. WENHEL. The General Construction Co. was in the shipbuild- ing busine,ss? Mr. HENRY KAISER. Yes. Mr. WENHEL. For 30 years ? Mr. HENRY KAISER. Yes; and they built bridges. No, not 30 years. I do not know how many years the General Construction?they were not in the shipbuilding business for 20 years. They had been in the shipbuilding business in the World War, so they advised me. Mr. WEICIIEL. Now, just a minute?the General Construction Co.? Mr. HENRY KAISER. That is right. Mr. WENHEL. And they were in the construction of roads and dams and irrigation projects?is that what they did? Mr. HENRY KAISER. Bridges. Mr. WEICITEL. Bridges? Mr. HENRY KAISEIE. Bridges, cofferdams. Mr. WEICITEL. And how long were they doing that, previous to January 1941? Mr. HENRY KAISER. Just a minute. You did not let me finish, did you? r. WEi9nEL. I said, how long previous to January '41 were they in the business of building? Mr. HENRY KAISER. Are you talking about General Construction? Mr. WENHEL. Yes. Mr. HENRY KAISER. I would guess they were in all kinds, different types of buSiness, for aperiod of 30 to 40 years. Mr. WEIOTIEL All right. Mr. HENRY KAISER. Very highly regarded company, by the way. Mr. WEIciini,. Well, I did not ask you that. Mr. HEN Y KAISER. You don't want to know that? [Laughter.] Mr. WE CHEL. Well, I think you are like Andy and Amos, who recommen s himself most highly. You should not do that. Mr. HENRY KAISER. No; this is General Construction. I am recom- mending the General Construction. I will get to myself later. Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 129 Mr. WEICHEL. All right. This company?this General Construc- tion, you say, was in business for 30 years: Were you a stockholder in that one? Mr. HENRY KAISER. No. Mr. WEICIIEL. In the General Construction? Mr. HENRY KAISER. No; never. Mr. WEIGHEL. Were these other 10 people you mentioned in that? Mr. HENRY KAISER. No. Mr. WEICHEL. They were not in that? Mr. HENRY KAISER. No. Mr. WEIOHEL. None of these 10 people that had the idea? Mr. HENRY KAISER. No. Mr. WEICHEL. Was this company in the ship construction business in. January '41? Mr. HENRY KAISER. Oh, yes; they were in, through the Seattle- Tacom a. Mr. WEIGHEL. What? Well, then they were not in the construc- tion business and the ship business themselves; they did not build any ships, did they? When we talk about being in the ship business I am talking. about the company building ships. This General Con- struction did not build a ship, did they? Mr. HENRY KAISER. No. Mr. WEIGHEL. Well, then, why do you say that they were in the shipbuilding business? They were never in it? Mr. HENRY KAISER. They did. I told you they did, in World War I. Mr. WEliarEL. Well, I did not ask you if they ever did, in World War I. I asked you what they did. Now, this General Construction Co. did not build any ships in the last 15 years previous to January 1, 1941, did they? Did they build any ships? Mr. HENRY KAISER. I cannot hear. The General Construction? Mr. WEicHEL. Yes. Mr. HENRY KAISER. I am told they did. Mr. WEICHEL. Why, you just said they didn't, that they were stock- holders. Mr. HENRY KAISER. In World War I. Mr. WEIGHT:L. I said in the last 15 years they did not build a ship, previous to this war? Mr. HENRY KAISER. Well, they may have; I do not know. Mr. WEICIIEL. All right. They were in the general construction business? Mr. HENRY KAISER. My son_ just advises me that I am mistaken? they did build some barges. He does not know whether they called them ships, but they float in the water. Mr. WEICHEL. But you are calling them shipbuilders, because they had stock in this Tacoma Co.? Mr. HENRY KAISER. Sure; that is what we called a shipbuilder. Mr. WEICHEL. Anybody that has stock in something? Mr. HENRY KAISER. Well, I do not want you to 'ant those words into my mouth, that anybody that has stock in something is called a ship- builder. I don't. Mr. WEICIIEL. Well, you have been calling them that. You have been calling these people shipbuilders and you said they had stock Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Appfmed For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS in this Tacoma Co.. That is the No. 2. Now, in this General Con- struction Cp., who were the people that operated that? You say you had no stock in it, nor your family had any in it? Mr. HENRY KAISER. Not in the General Construction. Mr. WEIOIIEL. Not in the General Construction Co.? Mr. HENRY KAISER. Can .I explain this to you just a moment? Mr. WEICHEL. I will ask the question. Mr. HENRY KAISER. You know you will never get the answers, the way you are asking. Mr. WEICIIEL. Did you or your family have any stock in the General Construction Co.? Did you? Mr. HENRY KAISER. No. Mr. WEicii-EL. These other 10 people that got the idea, as you said, along with the corporation?did they have any stock in the General Construction Co.? Mr. HENRY KAISER. No. Mr. WEICHEL. All right. What is the third corporation that had the idea to start the Oregon? Mr. HENRY KAISER. The J. F. Shea Co. Mr. WEICHEL. The J. F. Shea CO.? Mr. HENRY KAISER. Yes. Mr. WEiciiEL. And how long had that been in business?, Mr. HENRY KAISER. Oh, 30 or 40 or 50 Or 60 years. Mr. WEICHEL. Well, what was it doing for the 10 years previous to January 1941? Mr. HENRY KAISER. In the World War I, he was? Mr. WEIOHEL (interposing). I just limit it to 10 years previous to 1941. Mr. HENRY KAISER. Oh, you do not want to know whether he was in the shipbuilding business. Mr. WEICHEL. I want to know whether it was previous to 1941. Mr. HENRY-KAISER. Previous to '41? Mr. WEICHEL. Ten years previous to 1941, what did he or the cor- poration dO ? Mr. HENRY KAISER. In 1939, all these 10 companies joined together j to form a hipbuilding company to bid on maritime obs on a com- petitive basis. Mr. WEICHEL. In '39? Mr. HENRY KAISER. In '39. Now, I have got that out. Mr. WEICHEL. What did he do before '39? The J. F. Shea Co.? what did they do? Mr. HENRY KAISER. He built ships in World War I, was one of the things. Mr. WEICHEL. I asked you, for 10 years previous to 1941. Mr. HENRY KAISER. Oh, you don't want to know. Mr. WEICHEL. And '39. Mr. HENRY KAISER. You do not want to know whether he had any shipbuilding experience. Mr. WEICIIEL. I asked you this question?what they did. The CnAntmAN. If the witness can answer it, all right. Mr, HENRY KAISER. It would be difficult for me, Mr. Chairman, to say exactly what they did. Mr. WEICHEL. These were all close associates and friends of yours, were they i'iot ? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 131 Mr. HENRY KAISER. Oh, yes. Mr. WEiciim. But you do not know?it was a mystery to you what they did in those previous years? Mr. HENRY KAISER. Oh, no, it was not a mystery. I would say they were in a dozen different kinds of business. There were from 1 to 50 different kinds of construction business. Mr. WEICHEL. Just general construction business, by the job ? Mr. HENRY KAISER. One to fifty kinds; I cannot name them all. Mr. WEICHEL. Up to '39? Up to '39? Is that to '39? Mr. HENRY KAISER And they may have been in manufacturing. I cannot tell you exactly what business. You can call them for that. Mr. WEICHEL. Well, I would like to know how these corporations suddenly got this idea, along with these 10 men, including yourself; that is what I am trying to find out. Mr. HENRY KAISER. Well, I told you we suddenly got-- Mr. WEICHEL (interposing). All right. Mr. HENRY KAISER. I can tell you that. That is very easy. Mr. WEICHEL. Now, in '39, did you say Shea got an idea previous to the Oregon? In '39, he got an idea to have a cOmpany and to -organize it into a shipbuilding company? MT. HENRY KAISER. All 10 of us did. Mr. WEICHEL. In '39? Mr. HENRY KAISER. In '39. Mr. %Tam.. Yes. Mr. HENRY KAISER. Yes. Mr. WEICHEL. That was previous to the Oregon? - Mr. HENRY KAISER. Oh, yes. Took millions of dollars. Mr. WEICHEL. What was the fourth one, then, that got the idea, along with these 10? Mr. HENRY KAISER. All these 10 that I have named here. Mr. WEacriEL. All right. What is the next one after Shea? Mr. HENRY KAISER. Bechtel. Mr. WEICHEL. The what? 0 Mr. HENRY KAISER. The W. A. Bechtel Co. MT. WEICHEL. Bechtel? Mr. HENRY KAISER. Yes. Mr. WEICHEL. And what kind of business were they in previous to 1941? Mr. HENRY KAISER. Oh, from 1 to 50 different kinds of construe- tion work. Mr. WEICHEL. Construction work? Mr. HENRY KAISER. Yes; big construction and small; all types. Mr: WEICIIEL. Construction? What do you mean? Building roads, building bridges? Mr. HENRY KAISER. Building bridges. ,Mr. WEioHEL. Dams? Mr. HENRY KAISER. Railroads, dams. Mr. WEICHEL. What railroads did they build? Mr. HENRY KAISER. Oh, gosh! They built?I would say they built a third of the railroads in the West. They are here: You can ask them. Mr. WEICHEL. Well, they have all been built a long time before the thirties. There have been no major projects in the last 5 or 6 years, have there?railroad projects? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIP YARD PROFITS Mr. HENRY KAISER. Five or six. Mr. WEICHEL. In the last 5 or 10 years? Major projects in rail- roads? Mr. HENRY KAISER. Mr. Bechtel is right here. He can give you both his father's and his own business. Mr. WilicHEL. They were in the construction business? Mr. HENRY KAISER. That is right. Mr. WF,icnEL. But they were building railroads in the last 10 years? Mr. I-4Nity- KAISER. That is right. One of the most highly re- spected firms in the West. Mr, Wi4cHEL. Did I ask for that? Mr. HENRY KAISER. No; but I think you should know. Mr. WEICEIEL. You know all the answers, excepting the right one. Mr. HENRY KAISER. NO. Mr. W4icHEL. What is the No. 5 company that suddenly got the idea ? Mr. HENRY KAISER. Well, the Utah Construction Co. Mr. WEICHEL. Utah? Mr. HENRY KAISER. Yes. Mr. WEICHEL. Who were those people? Where were they from? Utah? Mr. HENRY KAISER. They are from Utah. Mr. WEICHEL. They are from Utah? Mr. HENRY KAISER. And they have offices pretty much throughout the West. Mr. WEIrcnEL. What kind of business were they in? Mr. HENRY KAISER. They were in a general construction business of every type and kind that I can think of. MT. WEICHEL. Up until 1939? Mr. HEW KAISER. They were also one of the largest companies in the Wet. MT. WEICIIEL. Up to 1939? Now, what was the sixth one? Mr. HENRY KAISER. Morrison-Knudson. Mr. WEICHEL. What kind of business were they in previous to 1939 and previous to the Oregon? Mr. HENRY KAISER. They were in more different kinds of business than any Other company I know of. Mr. WE CHEL. Then what is the seventh one? Mr. HE RY KAISER. McDonald-Kahn. Mr. WEICHEL. Where are they from? Mr. HENRY KAISER. They are from San Francisco. Mr. WEcnEL. And what kind of business were they in? Mr. HENRY KAISER. They were in the construction business of every type and lind, including buildings. Mr. WE CHEL. And then what are the other two? Mr. HE RY KAISER. Buildings and bridges and all kinds of con- struction generally. Mr. WE CHEL. The next one? The next corporation that got the idea along with you? Mr. HENRY KAISER. The Pacific Bridge. Mr. WETcnEL. The Pacific Bridge? Their business is what? Mr. HENRY KAISER. The same thing. Mr. WE1CHEL. Building bridges, or what? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 133 Mr. HENRY KAISER. Building bridges?all kinds?underwater work. They did a great deal of the work at the Hawaiian Islands in raising those ships durino. Pearl Harbor. Mr. WEICHEL. Is that all 10 of them? now? Mr. HENRY KAISER. No; the Todd Shipyards. Mr. WEICHEL. The Todd Shipyards? And where were they in business? . Mr. HENRY KAISER. In New York City. Mr. WEICIIEL. In New York City? Mr. HENRY KAISER. Oh, they are in a doze-n of the big cities. Mr. WEICIIEL. But they are eastern people, who operated this job? Mr. HENRY KAISER. East and West. They had a. big shipbuilding yard in the West. Mr. WEICHEL. So the Todd people were the tenth corporation that got this- idea? Mr. HENRY KAISER. Yes. They had 50. percent of this corporation. Mr. WEICHEL. Well, I mean, that was the tenth corporation that got the idea along with these 10 men? Mr. HENRY KAISER. Yes; that is right. Mr. WEICHEL. And then this is the group that formed each one of the six companies we talked about here this morning? Mr. HENRY KAISER. No. Mr. WEICHEL. How? Mr. HENRY KAISER. No. Mr. WEICHEL. How many did this group form, outside of the Or_eb,o.on? This is the group that formed the Oregon? Mr. HENRY KAISER. They formed Seattle?this group that we have just been talking about, that you asked about, formed Seattle-Tacoma in 1939. Mr. WEICHEL. 1939? Mr. HENRY KAISER. Bid on the Maritime jobs.' Mr WEICIIEL. Who bid on the Maritime jobs? Mr. HENRY KAISER. In the competitive way, in peacetime work. Mr. WEICHEL. Going back to the Oregon, you said these 10 people were in that? Mr. HENRY KAISER. Yes. Mr. WEICHEL. You mean these 10 corporations? Mr. HENRY KAISER. They expanded their work. Mr. WmEnEL.' The 10 corporations-- Mr. HENRY KAISER. They took another job. Mr. WEIcirEL. Well, just a minute. The 10 corporations formed the Oregon Shipbuilding Co.?these same 10 corporations? Mr. HENRY KAISER. That is right. Mr. WEICHEL. Well, did they have stock in the Oregon as corpora- tions, or did they have dummy persons in there to represent them? Mr. HENRY KAISER. No; they had them, as corporations. Mr. WEICHEL. They ha i them as corporations? Mr. HENRY KAISER. And they were directors, as well. Mr. WEICHEL. ,The corporation: was a director in another corpora- tion? Mr. HENRY KAISER. No; the individuals were directors, and the corporation owned the stock. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 134 SHIPYARD -PROFITS Mr. WEIblIEL. The corporation owned the stock? Mr. FIENRY KAISER Yes. This country is based upon a business basis, where corporations are found to be the best business to pursue? is to form Corporations. Mr. WEICIIEL. Well, that is a question. Mr. HENRY KAISER. And individuals operate them. . Mr. WEtcriEL. Well, that is still questionable?that part of it is; but with reference to the Oregon Shipbuilding Co., you say that was formed by these 10 corporations? , Mr. HENRY KAISER. That is right; that is right. Mr. WEICHEL. And they held all the stock? Mr. HENRY KAISER. That is right. Mr. WEcirEE. And then when you come to have directors in the Oregon these corporations picked a dummy person to represent the corporation in the Oregon? . Mr. HENRY KAISER Oh, no. I will give that. Mr. WEICHEL. Now, just , a minute. Answer that question. , Mr. FIENRY_KAISER. NO. Mr. WEICHEL. All right. Mr. HENRY KAISER. Would you like the names that were not dummies? Mr. WEICHEL. No. I will get to those; do not worry ? but 'going back to t e Oregon Shipbuilding Corp., did these 10 corporations put the $1 0,000 in there, that you talked about when we started out? Mr. HE RY KAISER. Yes. Mr. WE CHEL. .They each one put $100,000 in?each corporation? Mr. HE RY KAISER. No; no; no. Mr. WE cHEL. Well, who did? Mr. HE 1RY KAISER. They altogether put $100,000 in. Mr. WEICHEL. Well, all right. Did each one put in $10,000 apiece? Mr. HENRY KAISER. No; they each put their proportionate share in relation to the stock that they owned. Mr. WEICHEL. Well, did they each have a tenth interest in the Oregon? Mr. HENRY KAISER. No. Mr. WEICHEL. What interest did each one of these 10 corporations have? Mr. HENRY KAISER. I will read them to you: Henry J. Kaiser Co., 6 I' percent; aiser Co., 6 percent; J. F. Shea, 10 percent; General Con- struction ?, 6 percent; the W. Bechtel Co., 3.8 percent; the Bechtel- Parsons-Macomb, 3.8 percent; the Utah'Construction Co., 3.8 percent; the MorrisOn-Knudson, 3.8 percent; the McDonald-Kahn, 3.8 percent ; Pacific Bridge, 2 percent; Todd Shipyards, 50 percent. Mr. WEICHEL. And that was agreed upon by the 10 corporations, that was the percentage they should have in-the Oregon? Mr. HENRY KAISER. That is right. Mr. WEICHEL. And when they formed the Oregon, that was the agreement that is the percentage they would get of this Government money that was going to come to the Oregon; is that right? ? Mr. HE RY KAISER. Well, that is an excellent question, and it prompts me to answer you that that gave them the opportunity to save the Government $50,000,000 over any other shipbuilders ? in the United States. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 135 Mr. WEICIIEL. Is that the answer? Mr. HENRY KAISER. That is the answer, and that is the other way of answering your question. Mr. WErcuEL. You understand the question perfectly? Mr. HENRY KAISER. Oh, yes; I did. Mr. WEICHEL. And that is the answer? Mr. HENRY KAISER. That is the answer, plus. That is exactly what they did. Mr. WEICHEL. All right. Mr. HENRY KAISER. Plus the opportunity to bid and build ships for the United States in time of war, requested by and urged by the Mari- time Commission, according to their own evidence and according to Admiral Land's own evidence. Mr. WracuEn. Did the Maritime Commission urge you to make these percentages or divisions of what you were going to get? Mr. HENRY KAISER. No; they urged us to organize a company to go into the shipbuilding business, and? he states he "finally hooked us." Mr. WEICIIEL. This Oregon outfit was not in any business? They did not own anything? They did not own anything? Mr. HENRY KAISER. Oh, yes. Mr. WEICHEL. Now, just a minute. They did not own anything? They had $100,000 in the charter, and a promise to get something from the Government. That is all they had? Mr. HENRY KAISER That is not true. Mr. WEICHEL. What was the basis of agreement upon the per- centages each one was going to get out of the profits of this company? Mr. HENRY KAISER. According to the stock and the money they put up. Mr. WEICHEL. How did you agree on these minute percentages? Was that based on some previous experiences you had, with reference to getting Government money? Mr. HENRY KAISER. No?how much risk each one wants to take, usually. Mr. WEICHEL. Risks? Mr. HENRY KAISER. Yes. Mr. WEionEL. Where was the risk? Mr. HENRY KAISER. Oh, well! Mr. WEICHEL. In the Oregon ? Mr. HENRY KAISER. You ought to deal?you have just heard about the Maritime-- Mr. WEICHEL. Where was the risk in the Oregon? You had $100,000 in money, and you had a charter, and you were going to operate a Government yard that cost 22 millions of dollars. Where was the risk? Mr. HENRY KAISER. There was so much risk that certain bankers would not take the risk at all. Mr. WEICHEL. Where was the risk in that? Mr. HENRY KAISER. Well, they felt there was an awful risk in doing business with the Government, because some people had been 10 and 15 years getting their settlements, and we haven't got some, yet. You understand that. Mr. WEICHEL. Why, you got yours in 2 weeks?where was the danger? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 136 SHIPYARD PROFITS Mr. HENRY KAISER. Oh, no; you misunderstand. Mr. WEcirEL. You say the percentages of stock in the Oregon, of these 10, were based on risk; is that what it was? Mr. EDGAR KAISER. I would like to answer the risk question. Mr. WEICHEL. Well, I am asking him. What do you say? You say it was based on risk. I am asking him. You say it was based on risk, Mr. Kaiser? Mr. HENRY KAISER. Oh, a tremendous risk. Mr. EDGAR KAISER. That is right. Mr. HENRY KAISER. We did not even have a contract. We did not even have a contract. Mr. EDGAR KAISER. Not for the operation of the yard. Mr. WECIIEL. But you expected to get it, did you not? You had assurances you were going to get it? Mr. HENRY KAISER. No, we did not. Mr. WEICHEL. Oh, you were just forming this and praying God that something was going to get it for you? Mr. EDGAR KAISER. No. Mr. WEIpIIEL. You did not know anything about it? Mr. EDGAR KAISER. No; we had a contract. Mr. HENRY KAISER. I do not depend on God ordinarily, although He is a very sttitable person to depend upon. Mr. WEtCHEL. But you did not form this corporation that way, in the hope? Mr. HENRY KAISER. No, I did not pray to God on this. Mr. WEICHEL. No, you knew you were going to get this?had this all set up, and this was the vehicle to take it? Mr. EDGAR KAISER. We formed it because we had a contract entered into to build the facilities. That facility contract was a no-fee con- tract?$2. Mr. WEICHEL. You mean you did this for nothing? Mr. EDGAR KAISER. That is right. Mr. HENRY KAISER. That is right. Mr. EDGAR KAISER. To build the facilities; and we had no contract to operate the yard; but the contract specifically provided, that con- tract to build the facilities, that we might not get one to build the yard. Mr. WEIpHEL. You mean you built the yard for nothing? i Mr. EDGAR KAISER. That s right. Mr. WEIPHEL. No charge or anything? Mr. EDGAR KAISER. That is right. Mr. WEI9IIEL. How did you get all this money, by doing everything for the Go ernment for nothing? Mr. EDG R KAISER. We are now talking about facilities. Mr. WEI HEL. You mean you built the yard for nothing? Mr. HE RY KAISER. Right. That is something you did not know. Mr. WEICHEL. How many yards did you build for nothing? Mr. HENRY KAISER. Who built? Mr. WEICHEL. You. Seven yards, for nothing? Mr. HENRY KAISER. That is right. Loss, as a matter of fact. Mr. WEICHEL. You built them for nothing? What do you mean, you "built them for nothing?" Mr. HENRY KAISER. We did not get any fee for it. Mr. WEIOHEL. Did not get any fee? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 137 Mr. HENRY KAISER. No; 110 compensation. Two dollars. And we didn't get the $2. Mr. WEiollEL. You did not get any fee? Well, was that a "come on" to get this 200 million? Mr. HENRY KAISER. We think that probably the Government in- tended it as a "come on," because here is Admiral Land's testimony, to show you [reading] : Mr. JENKINS. Those companies who built Hoover Dam and Boulder Dam, while Mr. Kaiser was identified with that, he was not the primary figure in all of them, as he is in these. Admiral LAND. -- Mr. WEICHEL. Wait a minute, right there. You are the primary figure, you admit, and before you were doing, you were not? MT. HENRY KAISER. Oh, ; I am not. Mr. WEICHEL. Now you desire to assume, you say, that you are not tli? primary figure? Mr. HENRY KAISER. No; I am giving you the proportion. Now, wait a minute. [Reading :] I am not so sure of that? says Admiral Land? There is a matter of personal opinion. I think a lot of people do. He certainly was one of the keynien in the six companies, and it took us 2 years to hook him. He came down to my office at least three times, and I do not know how many times, to Admiral Vickery's office, before we could get them mixed up hi the shipbuilding business. The CHAIRMAN. What are you reading from, now? ? Mr. HENRY KAISER. I am reading from the Committee on Ways and Means, House of Representatives, 1945, Extension of Termination Date of Renegotiation Act. Mr. WEicum. Well, that is the same thing he is referring to, whereby you and this group of companies received $200,000,000 in fees, without any investment in the Government yard. That is what he is referring to. Mr. HENRY KAISER. Now, you are putting those words into my mouth. I am not saying that. Mr. WEICHEL. Well, I am saying that the Maritime Commission has given us reports showing they have given these companies that much. Mr. HENRY KAISER. Well, the Maritime Commission has not given them that much, and you know that, because you know those figures are not right. You know?you have heard all about the taxes and renegotiation, and you have heard, and you know that those figures are not quite right. You cannot get the accurate figures, and you have heard that all in this evidence, here, so you cannot use that. Mr. WEICHEL. Well, this is a part of the smoke and confusion that everybody wants to put into this, so that the public cannot get the real facts and figures. Mr. HENRY KAISER. ? Oh, no; you can really get it. You have got t4 power to get it from the Internal Revenue Bureau. Mr. WEICIIEL. Well, we will get it. Mr. HENRY KAISER. That is where you can get it. Mr. WEICIIEL. On this Oregon, these 10 companies put in the money on the basis of percentages, and they had a -charter, and the $100,000. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 138 SHIPYARD PROFITS Mr. HENRY KAISER. Yes. Mr. WEICIIEL. When were you first told about building that?be- fore you forMed a company? When were you told that?before you built the coi pany? Before you built and organized the company? Mr. HENR KAISER. Building what? The facilities? There were two companies. Mr. WEICIIEL. Before you started getting this Government money. That is what I am talking about, because that is all you had. Mr. HENRY KAISER. That is not true. Why do you persist in not telling the truth? Mr. WEICIIEL. Well, the $100,000 doesn't bear any relation to 300 million you know. That is just "peanuts." Mr. ilENIIT KAISER. Well, it is Up IO 300 million, now. Mr. WEICIIIEL. How? Mr. HENRY KAISER. Is is up to 300 million. That is a new figure. Mr. WEictiEL. Well, you knew more than that. I am talking about the profit. I am talking about what you had. Mr. HENRY KAISER. I never heard of even 200 million profit, or 300 million profit. That is a new figure. Mr. WEIC IEL. Have you ever heard what the Maritime Commission set forth abut how much they gave your companies? Mr. HENRY KAISER. The Maritime Commission do not permit? Mr. WinctiEL. Government-operated yards. Mr. HENRY KAISER. The Maritime Commission are superseded. Their profits are superseded by the law of the Renegotiation Act, and you must take that off, if you want to be really fair, and you must take before you talk about profits. Mr. WEIC TEL. This is what they gave you. Mr. HEN Y KAISER. You really must be fair about the thing. Mr. WEI IIEL. Well, all right. Back to the Oregon, again. The charter, and the S100,000, and 10 corporations with an idea, and 10 persons, including yourself. Now, how did you come to form that? Who gave you the advance information that you were going to get to build the yard, and you were going to get the millions of dollars spent, in this exhibit from the Maritime Commission? Whom did you talk to about that? Mr. HENRY KAISER. Now, I just want to say this, that you see there is another little gap in here that you have missed. Mr. WEI IIEL. We will take this gap, first. Mr. HEN Y KAISER. Well, whom did I talk to? I do not know. This is the lest evidence, the sworn evidence here. Mr. Wm IIEL. Read the question to Mr. Kaiser. Mr. HEN4mY KAISER. Admirals Land and Vickery? Mr. WEI IIEL. Read the question to Mr. Kaiser. (Question read.) ? Mr. HENRY KAISER. I had never talked in my life to any single in- dividual in the Maritime Commission about the price that they would ever pay uS for any jobs, and personally refused to do it, and any one of them can tell you I had no interest in what the fees were going to be, and told them so. I was out and took these ships because they wanted the ships built. Mr. WEICIIEL. Do you claim this 200 million was forced on you? Mr. HENRY KAISER. Oh! Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 139 Mr. WEICHEL. I know, but I am saying there is 200 'million. Mr. HENRY KAISER. Now, it was 300. Now, it was 200: Now, what are you talking about? Mr. WEICHEL. I am talking exactly about what is in this exhibit. Mr. HENRY KAISER. Well, that exhibit is not correct. We did not receive profits to that amount. Mr. WEICHEL. The Maritime Commission's statement added up to ? your companies that about $200,000,000 in fees?I am talking about fees to your company; I am talking about fees. You are confusing ? profits and fees, for the purpose of confusion. I am talking about fees you got?fees. Mr. HENRY KAISER. I thought I understood he talked about profits. Mr. WEICHEL. I am talking about fees. Mr. HENRY KAISER. Oh! -Now, what do you say? Let us see the question about the fees. Mr. WEICHEL. I will remake the question. On this exhibit of the Maritime Commission, your companies, of which you are the primary figure, or supposed to be, received $200,000,000 in fees on yards that were fully paid for by the Government?all the material and all the labor. Now, do you claim that those fees were forced upon you and that you knew nothing about them? Mr. HENRY KAISER. I claim that the statement is incorrect?that your statement is incorrect. Mr. WEICHEL. That these six companies did not get 200 million as set forth in here? Mr. HENRY KAISER. In the first place, I am only connected with four companies. Mr. WEICHEL. Well. Mr. HENRY KAISER. They have tried to connect me with the six all Mr. WEICHEL. You say 200 million is not right? ? Mr. HENRY KAISER. That is right. Mr. WEICIIEL. Well, what is right-199? Mr. HENRY KAISER. I do not know. I agree with you that you should get your figures from the Maritime Commission. Mr. WE-rot-um. Well, I have them here from the Maritime. Mr. HENRY KAISER. No. Mr. WEICIIEL. That is what the books show that these companies have received. ? Mr. HENRY KAISER. But you have already added many cOmpanies with which I am not even associated and never have been. Mr. Wmciirr. I have not added many. There are six companies in here, and you know the six we talk about. Mr. HENRY KAISER. What six are they, so we will know what we are talkino. about. --Mr.7WEictum. Counsel, will you read him the six companies, if he dOes not know? Mr. COLES. The Kaiser Co., Inc. ; Permanente Metals; Oregon Ship- building; -Kaiser Cargo, Inc.; California Shipyard (until April 1945); and Walsh-Kaiser. Mr.WEicHEL. Now, those are the six we are talking about, to refresh your memory. Approved For Release 2003/10/10 : CIA-R1DP641300346R000400060002-4 Appmed For Release 20041f1/426%gyp641300346R000400060002-4 Mr. :guy KAISER. Then will you ask counsel the amount of money that they made, that they were to be paid, in fees? Mr. CoLEs. Those six companies, Air. Weichel. got 100 some million dollars, and I understand a part of that 190 has already been renegotiated. Mr. WEICHEL. Well, it adds up to nearly, 200 million. Mi. HENRY KAISER. No; it does not. Those six companies? Mr. WEICHEL. Those six. That is the fees. Just a minute, Mr. Kaiser. Mr. HENRY KAISER. And yet you admit I am not associated with . them now. Mr. Coixs. Since April 1945 you have not been associated with Calship. Mr. WEionEL. Mr. Kaiser, this question of your getting out, after the hopes of fees are all in?you are out of it now, but I am saying that those are the fees that were paid to these six companies. Mr. HENRY KAISER. Can I see this document? Mr. LosEE. Here is one. Mr. WEiciim. Oh, you have not seen it? The CHAIRMAN Hand him a copy of the paper. - Mr. HENRY KAISER. This does not say "fees." It says "estimated profits." Mr. WEICHEL. Well, it was fees, was it 110I ? Mr. HENRY KAISER. NO. Mr. WEICHEL. Wasn't that fees? Mr. HENRY KAISER. This is what it says: "estimated profits." Mr. WEICHEL. What do you say you got all that money for?fees or profits? You got fees, didn't you? Mr. HENRY KAISER. We tried to get in our profits. Mr. WEICHEL. Didn't you get the amount set forth in there as fees for operating this Government yard? Mr. HENRY KAISER. We have, a statement here that shows exactly. Mr. WEICHEL. Did you get it as fees? Mr. HENRY KAISER. No. Do you wish? Mr. WEICHEL (interposing). I asked you, did you get it as fees for the operating of the yard? The CHAIRMAN. Answer the best you can. Mr. WEionEL. Did you get it as a fee? Mr. HENRY KAISER. The accurate figures are in this book. Mr. WEICHEL. Did you get the moneys from the Maritime Com- mission for operating the yards, as fees? Mr. HENRY KAISER. No. Mr. WEicriEL. You had no investment in the yard? Mr. HERTER. Would the gentleman yield for a moment? Mr. WEICHEL. Yes. Mr. HERTER. To clarify the situation, on page 145 of the document from which you have been reading, 1945, termination of the Rene- crotiation Act, on page 145 of that is a table submitted by Admiral ,and, showing the total fees paid to these six companies, up to Feb- ruary 28, 1945. Those total 240,000,000, as shown in that table. Mr. HENRI- KAISER. That is not true. You put in two figures, there. Now, wait a moment. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 141 Mr. EDGAR KAISER. On page 145, Kaiser-group proportion, so-called Kaiser group, was 47 percent of the total, which would be less than 120 million, Mr. HERTER. Yes; but those companies received those fees. Mr. EDGAR KAISER. That is right, but those are not all the Kaiser- group companies. Mr. HERTER. No; but the stock interests of the Kaiser group repre- sent 47 percent of that? Mr. EDGAR KAISER. No; I believe not, Sid'. YOU notice they list Consolidated Engine Co. ? - Mr. HENRY KAISER. They list Production Engineering Co., and I do not even 'know who the stockholders are, and I have no interest in it whatsoever. You have got that Kaiser-group proportion, did you not? Mr. HERTER. Mr. Chairman, just to clarify this, that table On page 145 gives the fees paid to the Kaiser Co., Inc., Kaiser Cargo, Inc., Walsh-Kaiser Co.' Inc., Oregon, Shipbuilding Corp., Permanente Metals Corp., and the Shipbuilding Corp. Mr. HENRY KAISER. But it adds a note at the bottom, "Kaiser-group proportion, comprising 47 percent." Mr. HERTER. That is ri*,(Yht. - Mr. WEICITEL. With reference to the Oregon job-- Mr.. HENRY KAISER. And it also adds another note [reading] : Before any review of the status of the Kaiser interests in renegotiation is undertaken, a study of the interlocking corporate relationship as set forth in the attached chart should be made. And then they took off of that, again, all the nonreimbursables, so this 120 million is no criterion at all. Mr. WEICHEL. With reference to the Oregon Shipbuilding Corp.? Mr. HENRY KAISER. And we maintain The CHAIRMAN. Let him finish. Mr. HENRY KAISER. Our records show that when we have finished with this, and after taxes, the Kaiser family, themselves, the Kaiser interests, this is maybe three, maybe nine, as against a loss of 18 mil- ? lion.they yet have to pay?maybe three something, or maybe nine. Mr. WEicHEE. Going back to the Oregon Shipbuilding Corp., Mr. Kaiser, that operated a Government yard, did it not, Government facilities? Mr. HENRY KAISER. Yes. Mr. WEICIIEL. Where was that operated? Mr. HENRY KAISER. Portland, Oreg. Mr. WEICHEL. The, Portland Oreg., yard operated by the Ore(Yon Shipbuilding Corp. was a Government yard, with the Federal dov- ernment paying for the land, buildings, machinery, labor, and you were paid a fee for operation? Mr. HENRY KAISER. We have just been all through the evidence, where we owned a third of the land. Mr. WEICIIEL. Well, anyhow, the Maritime Commission says they paid the Oregon Shipbuilding Corp. $40,000,000 in fees, and all that the Oregon Shipbuilding CO. 110 was $100,000? Mr. HENRY KAISER. No. 03480 40 10 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 142 SHIPYARD PROFITS ? Mr. WEIDHEL. That is what you started out with? Mr. HENRY KAISER. Yes. I have stated six times to you?and I really would like you to look at this, because this does not show $100,000; it shows $7,000,000. - Mr. WEICIIEL I do not care what it shows. I am asking you. You started with $100,000, and you have not said what you did with that. Did you buy a hundred acres of land with that? Mr. HENRY KAISER. I don't know. That was 5 years ago. Mr. WEICHEL. Let us start with the $100,000. Mr. HENRY KAISER. And added capital to the company as was required. Mr. WEicHEL. You started with $100,000? Mr. HENRY KAISER. And added capital to the company as was required. Mr. WEICHEL. You do not want to tell what you did with that $100,000. Did you buy land with it? Mr. HENRY KAISER. If you want that information, I will get it for you. Mr. WEICHEL. You said you owned a hundred acres of land. Mr. HENRY KAISER. I will get that inforniation for you, exactly what we did, what it was paid for and what happened to it and all about it, if it is important to you. Mr. WEICIIEL. And you took $40,000,000 in fees? Mr. HENRY KAISER. Oh, no. Mr. WEIcHEL. The Maritime Commission has written in saying that. Mr. HENRY KAISER. If they said it. Have they said it? Mr. WEICHEL. That is right here in this list. The CHAIRMAN. Is there any question pending? Mr. WEiciim. Yes. With reference to the total amount which the Maritime Commission claims was paid as fees to these 19 companies, it adds up $356,000,000, according to the total of the supposed assets of these 19 companies. So 22 million, none of which, according to Admiral Land, was invested in the yards, according to testimony given in 1944 Mr. HENRY KAISER. You have not got all of the companies in there. There are a lot more to be added, the Sun Shipbuilding Co. and a lot of them. Mr. WEICHEL. Just a minute. Of the $356,000,000 paid to COM- panies for fees on Government-owned yards, the so-called Kaiser group that we are talking about received S200,000,000. Not, with reference to the so-called assets of the 19 companies' the Kaiser people add up to something like $22,000,000. That is what they add up, out of the whOle thing. MT. HENRY KAISER. That is not correct. Mr. WEICHEL. How much do you say? Mr. HENRY KAISER. Thirty-two millions. Mr. WEICHEL. With reference to exhibit 1 Mr. HENRY KAISER. This is not complete. I am just drawing your attention to the fact that the figures you have are wrong. Mr. WEICHEL. Talking about a million here and there does not mean anything when you are dealing with $356,000,000. - Mr. HENRY KAISER. There was a difference of $80,000,000. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 143 Mr. WEICHEL. No; there was not any difference of $80,000,000. With reference to exhibit 1, you claim assets for your six com- panies, the so-called six Kaiser companies. What is the total as set forth there, Mr. Counsel? Have you added those up? Mr. COLES. Yes sir. Mr. WEICHEL. How much does it add up to in exhibit 1 for those six companies? Mr. COLES. As I remember, it was $2,510,000. Mr. WEICIIEL. Two million five hundred and ten thousand for Mr. Kaiser's six companies; only 2 million out of the alleged $22,000,000 for all the 19 contractors the whole 19 together. They are supposed to have $22,000,000, and IVIr. Kaiser's group gets $200,000,000 in fees. How did you come to be especially favored with $200,000,000 worth of fees, when your group had some $20,000,000 invested?.How did you become particularly favpred ? Mr. HENRY KAISER. Your figures are all wrong. I cannot do any- thing more than say that. WEICHEL. Ho'w did you get particularly favored in that? Mr. HENRY KAISER. They are all wrong. Why were we favored and given more work? Is that what you want to know? You say we were favored. Mr. WEICHEL. I do not know what you would call it, if you had .$2,000,000 invested and the other people had 820,000,000. , Mr. HENRY KAISER. We delivered the ships quicker and at lower cost to the Government and saved them $250,000,000. Wouldn't you want to save them that? Mr. WEICHEL. On a 82,000,000 alleged investment. Mr. HENRY KAISER. Liberty ships alone. Mr. WEICHEL. You got S200,000,000 in fees where other people who had $20,000,000 invested got $150,000,000 in fees. I would say you were particularly favored with Government business and Government money. Mr. HENRY KAISER. Whoever alleged it is wrong. Mr. WEICHEL. It can't be many millions out of the way. Mr. HENRY KAISER. I do not know how many millions out of the way, but the figures are so absolutely ridiculous on the face of them that we should not go on discussing them. Mr. BRADLEY. Will the gentleman yield to me? Mr. WEICHEL. I will. Mr. BRADLEY. Either Mr. Kaiser, Sr., or Mr. Kaiser, Jr.' was re- marking how accurate the Commission's figures were, but now he comes back and says the audit figures are all cockeyed. Mr. HENRY KAISER. Oh, no. Mr. EDGAR KAISER. I did not comment as to the accuracy of the Maritime Commission's figures. I stated that the Maritime Com- mission and the Investigation Section of the GAO knew what was going on in each of the shipyards we operated. Mr. BRADLEY. These figures are supposed to be made up on that basis. Mr. EDGAR KAISER. That is a summary of the figures. We have sub- mitted facts, and sworn to them, showing that it is not $2,500,000, but that it is $32,000,000. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 144 SHIPYARD PROFITS Mr. BRADLEY. Why is it that you take particulak delight in swear- ing to the accuracy of the Truman committee's figures that you saved the Government $250,000,000, and you cannot yet show you saved. $250,000,000? Mr. HENRY KAISER. Oh, yes; we can. Mr. BRADLEY. How can you prove that? Mr. EDGAR KAISER. You take the total number of man-hours that it costs to build ships by another builder in other- yards and you multiply them by dollars and get so much cost per ship. Then take the number of man-hours on ships built by Kaiser, and the difference is $256,000,000. Mr. BRADLEY. That is a very convenient way of figuring it; but did you ever stop to figure how much the Government paid out for so many ships? Mr. HENRY KAISER. Was the Truman committee wrong? Mr. BRADLEY. I don't know, but they are the only figures we have found yet from the Government that were not wrong. Mr. HENRY KAISER. They had every contractor in; they had us in; they had us before them. Mr. BRADLEY. You also made quite a speech here this morning about the United States Steel Corp., but from RFC and other sources the United States Steel Corp. did not borrow one cent from the RFC to build a_plant. Mr. HENRY KAISER. Oh, I didn't say that. Mr. BRADLEY. You said the RFC loaned them $200,000,000 and then sold the plant back to them. Mr. HENRY KAISER. Oh, no. Mr. BRADLEY. Just a minute. The facts of the matter are, as you well know, that the Government went to the Steel Corp. and asked them to build a.plant for them at Geneva, Utah. Mr. HENRY KAISER. Yes. 'Mr. BRADLEY. And it was built as a Defense Plant Corporation plant by the Steel Corp. Mr. HENRY KAISER. That is what I said this morning. Mr. BRADLEY. You did not mention the Defense Plant Corporation. I will apologize if I am wrong. Mr. HENRY KAISER. Well, you are wrong. Mr. BRADLEY. I will accept your statement. It was built for the Defense Plant Corporation by the Steel Corp. at no fee whatsoever and operated at no fee whatsoever. The Steel Corp. advised that it be built half as big as it was, but they were overruled by the Government. Then when the war came to an end it was turned back as surplus prop- erty to th& War Assets Administration and put up for bid by them. You had just the same opportunity to bid as anybody else. The Steel Corp. hesitated for a while before they submitted a bid of $40,000,000, and they now have a white elephant on their hands that they would like to get rid of. Mr. HENRY KAISER. If you look at it from the standpoint of press conferences in the last few days, they say it is a dream plant. Chair- man Olds Made that statement. Mr. BRADLEY. Why did you not buy in that dream plant? Mr. HENRY KAISER. We have very definitely stated that WC Were handicapped by these Josses; and we said so in a letter to them at the hearing. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 145 Mr. BRADLEY. I have also been talking with the RFC on the status of your loan, so we can keep the record straight. That is what you want to do; you have so stated many times. Mr. HENRY KAISER. That is right. Mr. BRADLEY. And Mr. ? Steele is right behind me and can correct. me if I am wrong. Up to June 30, 1945, you had a total amount of $111,805,000 in eight loans, of which $95,155,000 went into the plant, $16,650,000 was work- ing capital. As of September 5, 1946, you had paid back on principal $17,830,000. You had paid back on interest $9,028,000, making a total - of $26,858,000, which is approximately what you said this Morning? $27,000,000. Much of that has been recaptured from your ship properties.? Mr. HENRY KAISER. Yes, sir. Mr. BRADLEY. Or 'ship fees, or whatever you ?want to call it. Mr. HENRY KAISER. MI'. Steele knows it in detail. It is not very different, anyhow. Mr. BRADLEY. He says you agree with him on that. I understand that you asked RFC for $58,000,000 for reconversion based on an estimate made by Mr. Brassert, whom I have known for many years. Mr. HENRY KAISER. How long ago was that, Mr. Steele? MT. STEELE. In 1945. Mr. BRADLEY. They actually awarded you, as I understand it, $11,- 500,000. I understand that for refinancing they now have a first mortgage out in the amount of $69,500,000, of which $58,000,000 rep- resents plant value depreciated plus the $11,500,000 allowed for re- conversion, but of that $9,585,000 has not been disbursed as yet. So your balance on the books as of today is $59,974,000 on mortgage No. 1. The second mortgage is $28,123,000, and the working capital net is $7,890,000. Here are the RFC figures on your refinancing program. Mr. HENRY KAISER, If Mr. Steele g.ave you those figures I will take them. Another point that I think Mr. Steele also will agree with me on is that we have a real burden to carry a plant at that capitaliza- tion, the United States Steel Co. having bought a plant at 20 cents on the dollar in competition with it. Mr. BRADLEY. Why did you not ask for a Defense Plant Corporation plant instead of taking this? Was it not because you were gambling on the possibility of the war going on? Mr. HENRY KAISER. Wait a minute. I will give you sworn evi- dence here. You ask me why I did not ask for a, Defense Plant Cor- poration plant. I did ask, and here it is [reading] : Why does Kaiser say he was discriminated against and forced to borrow money to build a needed steel plant? The answer is that after Pearl Harbor, Kaiser renewed his proposals. He was referred to William Allen, adviser to Jesse Jones. Allen turned down Kaiser's proposals completely. Later, in sworn testi- mony before the board of supervisors in San Bernardino County, Calif., Mr. Allen stated: "In 1941 I was retained by Mr. Jesse Jones of the RFC as steel consultant to him, charged with the responsibility of negotiating for the Defense Plant Cor- poration of all the steel expansion that was contemplated in this country." He further stated in his evidence: "Now, it was maintained by those who visited Washington that the future Industrial development of the Pacific coast made it essential that steel from -raw materials be produced on the Pacific coast." Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 146 SHIPYARD PROFITS Continuing sworn testimony, he said: "We then approached various steel companies whom we thought perhaps were best able to {carry that venture out. I think, almost without exception, those steel companiles who were familiar with the territory and large enough to carry out a large program of this kind on the Pacific coast, were very loath and unwilling to do it. "I was unttlilling to approve the building of a blast furnace plant for using iron ore and coal, of this district, if some other method could be found to supply the Pacific c ast with steel. "The ColuIlibia Steel Co. was a going organization that had been making steel for years, who had been supplying many plants steel plates, and it was my judg- ment it was wiser to use the Government's money where the factors were all known, than to venture a hazard here in this community." The commt,nity Mr. Allen referred to was San Bernardino County, Calif. Allen also stated at the above hearing: "I thought, there was a possibility that the venture might be successful, but the facts welle not sufficiently clear to me to take the responsibility of gambling our Governm nt's money, your money and my money, on that." At the hea .ing at which Allen gave the above testimony, Kaiser gave sworn testimony in which he stated: "I listened to this for 2 hours in Washington, and his position (Mr. Allen's position) definitely was that, as far as he was concerned, he would not recom- mend one dupe of the United States money going into a Defense Plant ownership of the Goveri ment, under the information he had, and he gave that opinion with great clarity to me. So that you may understand, just as soon as I found out that Mr. All n would not support any Defense Plant money, I then cast around to see what ould be done to have a steel plant. I think I could show you a hundred tho sand tons of steel, in all the yards, that I call dead steel, because you cannot b iild a ship when you haven't got the decks and only the keel plates, and vice ver a. In other words, there is no consecutive shipment of steel to us. My real feel ng was that, if we could really get those odd sizes for this coast, we could kee this coast in the shipbuilding business and deliver more ships. And it will not be very long when the yards with which I am associated on the coast? and I think i will be this year?will deliver a thousand ships, so you can readily see the tremendous and vital interest." The CH IRMAN. Where are you reading from ? MT. HEN Y KAISER. FE0111 sworn testimony. The CIIA RMAN. From the record, or what? Mr. HENRY KAISER. This is sworn testimony on this question. The CHAIRMAN. I know; but is it in any hearing? Mr. HENRY KAISER. Yes. It is a hearing held before the board of supervisors at San Bernardino County, Calif. The CHAIIRMAN. You were reading from a book prepared by your- self? Mr. HENRY KAISER. No; this is from sworn evidence. It is a book prepared by myself, but it contains sworn evidence, and I now state that this was the sworn evidence. Mr. BRA11)LEY. What is the date of that? MT. HENRY KAISER. In 1943. Mr. BRADLEY. You applied for your first loan in the early part of 1942; is not that correct? Mr. HENRY KAISER. No, sir; in 1940. The CHAIRMAN. You were asked when you applied for your first loan. Mr. HENRY KAISER. It was authorized March 4, 1942, $48,700,000. I want to make it clear, Mr. Bradley, that the RFC has as much of a problem as we have. When the Government sold that plant at 20 cents on the dollar I think they have a real problem themselves, unless the money is charged to the people for the additional steel. If the Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 147 United States Steel Co. reduces their price on the coast in proportion to that which they bought the plant for, then that will be a great ad- vantage to the Pacific coast, and it will completely eliminate and put in default this whole plant and make it worth very little. Mr. BRADLEY. That will make Fontana a complete wash-out? Mr. HENRY KAISER. Yes. You are just getting the point that is bothering all of us. Mr. BRADLEY. I think you need not bother about reducing prices. Mr. HENRY KAISER. I do, believe me. If the United States Steel Co. will reduce their prices I will do anything that will help to reduce the prices in the United States. I am for competitive forces unless they are unfair, unless the Government contributes to one party more than it does to another. Then I think there should be some adjust- ment. Mr. BRADLEY. I do not see your point with reference to the Govern- ment contributing more to one party than to another. You have been pretty successful in borrowing from the Government and from the banks. Mr. HENRY KAISER. I saved the Government $250,000,000, and on the steel plant alone I delivered out of $100,000,000 more steel than the United States Steel Co. did out of a $200,000,000 plant. Mr. BRADLEY. You are a wizard; there is no question about it. I wonder if anybody else did anything about winning the war. Mr. IIENity KAISER. I take issue with you there. I think every citi- zen in the United States did everything he could to win the war. It was a serious thing with me. Mr. WEICHEL. We now have the information about your Oregon Shipbuilding Corp. Now, the Permanente Metals Corp. Who were the people that sat around the table and got that idea?the same 10 corporations, the same 10 people? Mr. HENRY KAISER. Yes. Mr. WEICHEL. How did they all 'figure out the percentage to put in $600? ? Mr. HENRY KAISER. What $600? Mr. WEICHEL. How much was put in originally? Mr. HENRY KAISER. Where does the $60(icome from? Mr. WEICHEL. I asked you. Was that the total amount you put in, or did you put in $6,000, or how much did you put in? Mr. HENRY KAISER. Where did you get that $600 from? Mr. WEICHEL. I asked you. Did you put in $600 or $6,000? Mr. HENRY KAISER. The maximum of the capital consists of $2,360,000. Mr. WEICHEL. When you formed it and started in business were the same 10 corporations inVolved, these same 10 people? Mr. HENRY KAISER. Now the capital is over $7,000,000. Mr. WEICHEL. I asked you if the same 10 corporations sat around the table. Mr. HENRY KAISER. Yes. I answered that. Mr. WEICHEL. The same 10 people? Mr. HENRY KAISER. Well, now, I don't know about.that. Mr. WEicHEL. Or did you change one or two here and there? Mr. HENRY KAISER. It is the same10 people. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For 148 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. WECLIEL. The same 10 people again. We will not have to repeat all of them again. When you started business on that, how much did these same 10 people pay in, in money? Mr. HENRY KAISER. The records here show $460,000. Mr. WEIopHEL. Was it the 10 corporations that put in the money, or were they individuals? Mr. HENRy KAISER. They are all corporations. Mr. WEI9HEE. How did they come in on this? Did each one put in one-tenth? Mr. HENRY KAISER. No; different percentages, as there always are. Mr. WEIqIIEL. What were the percentages? Mr. HENRY KAISER. They were 8, 8, 8, 6, 6, 6, 6, 3, 35. Mr. WEICIIEL. Who is the one that put in 35 percent? Mr. HENRY KAISER. The Todd Shipyards. Mr. WEICIIEL. Why did they get 35 percent? Mr. HENRY KAISER. I presume they were willing to put in more money. Mr. NITEIqIEL. That is the only reason? Mr. HENRY KAISER. I don't know exactly. Mr. WEICHEL. What percent did Todd have in the Oregon Ship- building Co ? MT. HENRY KAISER. Fifty. I am not clear on why that was; it was so many years ago. Mr. WEICIIEL. If you did this six times over with 10 corporations it would be easy to remember, I think. Mr. HENRY KAISER. That IS true. Mr. WEICIIEL. What was done with the $400,000? Mr. liEwaY KAISER. I cannot tell you. You mean, what was done with each dellar, every dollar? Mr. WEICPEL. You had a charter and then you had $400,000. Mr. HENRY KAISER. $460,000. Mr. WEICIIEL. Pardon me for omitting the extra 60. Mr. HENRY KAISER I cannot remember what was done with that. Mr. WEICTIEL. Did you buy a shipbuilding plant with that? Mr. 11E7 KAISER. We started to operate a shipbuilding plant and a magnesiu plant. Mr. WEICTilEL. The Permanente Metals Co., with the $460,000, what did you do? Mr. HENRY KAISER. We got loans and advances. Mr. WEICI1EL. On the $460,000? You didn't have anything to loan on, did you ? Mr. HENRY KAISER. The stockholders loaned it. Mr. WEICIIEL. How much did the stockholders lend to this cor- poration? ' Mr. IIENRy KAISER. S2,500,000. Mr. WEICFIEL. The corporation was worth $460,000, and the stock- holders loaned that much? Mr. HENRy KAISER. $2,500,000. Mr. WEICIIEL. On the strength of the $460,000? Mr. HENRy KAISER. No; it was on their confidence. Mr. WEICIIEL. Confidence in what? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 149 Mr. HENRY KAISER. Conducting a satisfactory business, as had been done over the past 30 or 40 or 50 years. Mr. WEICIIEL. Had they been in business 30 or 40 years? It was a corporation with $460,000, a brand-new one. Mr. HENRY KAISER. That is right. Mr. WEICIIEL. And with $460,000, the stockholders loaned them $2,500,000? Mr. HENRY KAISER. Yes. Mr. WEICHEL. On what basis; on what security? Mr. HENRY KAISER. On the experience, integrity, and credit of the people behind it. Mr. WEicHEL. A corporation is an inanimate thing. It had $460,- 000 and nothing else. It had no personal- responsibility whatever. There was no experience in the corporation; it was only formed 5 minutes. Mr. HENRY KAISER. They made the corporation; they made up the corporation. Mr. WEICHEL. And it was for the purpose of getting out of personal liabilities. These people had no personal liability in a corporation. So when you say the corporation had integrity and assets and Mr. HENRY KAISER. It certainly did. It would not have-got a bank loan of $5,000,000 if it had not. You try to get $5,000,000 from any banking corporation. Mr. WEiciiEL. What did it have besides the $460,000? Mr. HENRY KAISER. The ability to produce. Mr. WEICIIEL. Ability to produce? Mr. HENRY KAISER. Yes. Mr. WEICHEL. This corporation was just formed. Mr. HENRY KAISER. The ability of the men back of it. Don't you think every corporation is sound and strong in exact proportion to the men back of that corporation? Mr. WEICHEL. It is just as good as what you can collect out of it? $460,000. Mr. HENRY KAISER. Oh, no. Mr. WEICIIEL. You could not collect anything from Kaiser if his corporation failed. You could only collect out of the corporation. Mr. HENRY KAISER. If you feel that way you never could get a bank loan of $5,000,000, because you have to feel the integrity. Mr. WEICHEL. The idea was that you personally would be trading something for the dollars of this corporation; is not that true? Mr. HENRY KAISER. We had already put. up 21/2 million dollars. Mr. WEICIIEL. You put up $460,000. . Mr. HENRY KAISER. No; two and a half million in loans. That was a: method of supplying it with capital. Mr. WEICHEL. Along with the Government having promised to give you this plant and the fees? Mr. HENRY KAISER. Many of the Government's promises were not kept. Mr. WEICIIEL. They did a fairly good job of keeping whatever arrangement was made previous to the time you incorporated each one of these companies. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 150 SHIPYARD PROFITS Mr. HEN-Ry- KAISER. Don't you understand that all these contracts that we made with the Government, we furnished over $18,000,000,000 worth of plants through the Defense Plant Corporation? Mr. WEIC IEL. I am just talking about yourself, that you got the loans, and so on. Mr. HENRt KAISER. This country exists on the incentive profit prin- ciple. Even,Russia had to go finally to incentives. Mr. WEICAEL. We are talking about the $200,000,000 that you got in fees. ? Mr. HENRY KAISER. You were talking about the principles of cor- porations and corporate law. Mr. WEIC IEL. You had $460,000. Listen. If you wanted to be personally r sponsible, then you would have made personal contracts and persona obligations. You would not have hid behind the subter- fuge of a corporation and added 10 corporations into it. ? Mr. HENR KAISER. I don't believe this is persecution on your part. I don't belieye you are capable of doing that. Mr. WEICIIEL. Was the $200,000,000 persecution? Mr. HENRY KAISER. You have made an attack upon my character, and that should be answered. I have to give you the doubt that you do not mean to do that, because this was not an evasive matter. Mr. WEICIIEL. You had 10 corporations going into a corporation, did you not, on these two occasions? Was it the same thing for the rest of the.six ? Mr. HENRY KAISER. What is the first question? Mr. WEICIIEL. With reference to these 6 corporations or 10 cor- porations which you have mentioned, in the case of the Oregon Co. Mr. HENRY KAISER. That is not the question. The gentleman has made an attack upon my character, and I want to hear the question read. ' ? Mr. WEIdIIEL. Oh, forget about it and answer this question. The CHA RMAN. He has a right to have the question read. Mr. McC NNELL. May. I suggest something, Mr. Chairman? When Mr. Kaiser, is asked a question we get a loud murmur through the group. Cab we not get an answer without the gentlemen saying, "Oh" and "Ah"? 1 TheCII+RMAN. Let there be straight answers to questions. He has a right of of course, to get information from his associates. Mr. MCQONNELL. That is perfectly all right, but we are getting a lot of other stuff than information. The CHAIRMAN. Entirely so. I hope it will not be necessary for us to go into executive session on the matter. Read the question, please, Mr. Reporter. . (The reporter read as follows:) You had 460,000. Listen. If you wanted to be personally responsible, then ?you would have made personal contracts and personal obligations. You would not have hid behind the subterfuge of a corporation and added 10 corporations into h. ? . Mr. HENRY KAISER. The inference is that I did not want to be per- sonally responsible-. The CILkiRMAN. Answer the question, now, and not the inference. It was rea4 to you. Now,. answer it. MT. HE RY KAISER. The answer is that we all put up, the 10 men all put. up?,---- , , Approved Forpelease 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 151 Mr. WEICHEL. Answer the question in reference to what I asked, with reference to the corporation. - The CITAIRmAN. I think he is trying to answer it right now. Mr. HENRY KAISER. We put up $2,500,000 and $460,000, and we borrowed in addition from banks who trusted us $5,000,000, all of which was a personal obligation and involved their integrity. I doubt whether there is a man in the Nation today that would d.otibt the integrity of any one of them if they borrowed any money from them. They took that responsibility. Mr. WEICIIEL. You put 10 corporations into 1 corporation. Is that true for the whole 6? The CHAIRMAN. Will you yield to Mr. Herter? Mr. WEICHEL. I will. Mr. HERTER. I have got to leave, and I would like to ask one or two questions. I am sorry to interrupt. In connection with these various group set-ups in the shipping busi- ness, as I understand it, the Kaiser Co., Inc., is the only one that was personally owned by you, wholly through the medium of the Henry J. Kaiser Co.? Mr. HENRY KAISER. That is correct. Mr. HERTER. That is the only one in which you had a sole interest? Mr. HENRY KAISER. Yes. Mr. HERTER. The Henry J. Kaiser Co., which is your personal com- pany?did that have additional interests? Mr. HENRY KAISER. It has been in business for about 30 years. Mr. HERTER.. But it is the Kaiser Co., Inc., which operated both a shipbuilding division and an iron division? Mn HENRY KAISER. Yes. Mr. HERTER. The shipbuilding division profits went to offset the iron division's losses? MT. HENRY KAISER. Yes. Mr. HERTER. The iron division in this particular case was not set up as a separate corporation; it was set up as an integral part of the whole in business? Mr. HENRY KAISER. That is correct. Mr. HERTER. I will come back to that in just a minute. In the case of the Permanente Metals Corp., as I understand it, both the Henry J. Kaiser Co. and the Kaiser Co. hold a stock interest, besides a number of others who are associated with it? Mr. HENRY KAISER. Yes. Mr. HERTER. That company had both a shipbuilding operation and a magnesium operation? MT. HENRY KAISER. Yes. Mr. HERTER. They were separately accounted for ? Mr. HENRY KAISER. They were jointly accounted fon, ? Mr. HERTER. As I understand it, you pledged profits from the ship- building end to the Reconstruction Finance Corporation? Mr. HENRY KAISER. The magnesium and shipbuilding went to- gether, jointly. Mr. hERTER. You had in one case a family corporation, and the other was a stock company in which both your corporation and the Kaiser Co. had a stock interest? ? Mr. HENRY KAISER. Not the same-Kaiser Co. This Kaiser Co. that is interested in the Permanente is a company which is owned 95 per- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 152 SHIPYARD PROFITS cent by my employees. We have got several Kaiser companies. There is the Henry J. Kaiser Co., which is owned by myself and my family; the Kaiser Co., which is owned 95 percent by my employees-- Mr. HERTER. I have before me information which may be incor, rect. It is a statement of the Maritime Commission which says that the Kaiser Co. is wholly owned by the Henry J. Kaiser Co. Mr. HENRY KAISER. The Kaiser Co., Inc. That was the one very largely created to take these contracts. Mr. HERTER. I am a little confused. You have the Kaiser Co. and the Kaiser Co., Inc., two separate companies? Mr. HENRY KAISER. That is right. Mr. HERTER. There are a number of other companies that carry the Kaiser name. There are the California Kaiser Co. and the Kaiser Engineers, and so ? 3,1r. HENRY KAISER. Yes, sir. All those companies are largely em- ployee-owned companies, other than the Henry J. Kaiser Co. Mr. HERTER. The Kaiser Co., Inc., which is wholly owned by the Kaiser family, not by the employees, did the shipbuilding job? Mr. HENRY KAISER. And the steel job. Mr. HERTER. In that case all your earnings; from the ship job were pledged for the steel job? Mr. HENRY KAISER. That is right. Mr. HERTER. May I get the dates straight as to when you began shipbuilding and when you began making steel? Mr. EDGAR KAISER. The facilities contracts were entered into Janu- ary 9, 1942, and the ship contracts, I think, on January 13, a few days thereafter. Mr. HERTER. And the steel division made its first borrowings from the Reconstruction Finance Corporation? Mr. HENRY KAISER. They did a remarkable job. We ,got a blast furnace going in about 6 months. Mr. HERTER. You went into the steel business because you could not get regular supplies? Mr. HENRY KAISER. Yes, Mr. HEI/TER. You had long discussions with Mr. Allen and other people about going into the steel business? Mr. HENRY KAISER. Yes. Mr. HEItTER. But you did not go into the shipbuilding until 2 months before you went into the steel business? Mr. HENRY KAISER Yes. Mr. HERTER. How could you determine within that time that you could not get steel? Mr. HENRY KAISER. Because of our experience in the other ship- building companies. Mr. HERTER. You had already discovered that? Mr. HENRY KAISER. Yes. That was where our difficulty was. I have letters that I can furnish, if you like, written to all the steel companies, telling them that the deliveries were. all out of line, not in sequence and we were 60 days behind on the ships. Mr. HERTER. When you pledged with the Reconstruction Finance Corporation to repay ship profits on the note you at the same time had certain profits coming to you from other shipbuilding companies, as stockholders in other shipbuilding companies? Mr. HENRY KAISER. Yes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 153 Mr. HERTER. Were those pledged to, the Reconstruction Finance Corporation? Mr. HENRY KAISER. No, sir. They were not wholly owned, and we could not do that. I attempted to do it, but it was not successful. Mr. HERTER. The Henry J. Kaiser Co., as such, is a stockholder in all these other companies, is it not, as well as the Kaiser Co., Inc.? They both must have received dividends from other companies on ship profits? Mr. HENRY KAISER. The Henry J. Kaiser Co. did, but they did not control, so they could not use those ships fees. Mr. HERTER. The Henry J. Kaiser Co. is your company, the family ? company? Mr. HENRY KAISER. That is right. Mr. HERTER. And the Kaiser Co., Inc., is wholly owned by that? Mr. HENRY KAISER. Yes. Mr. HERTER. So those two are, to all intents arid purposes here, synonymous? There are no outside holdings in each? Mr. HENRY KAISER. That is right. Mr. HERTER. Both of them were receiving profits, or one of them, the Kaiser Co., Inc., was receiving shipbuilding profits, offsetting the steel losses; but the Henry J. Kaiser Co., as well as the Kaiser Co., Inc., were both receiving dividends presumably from the profits of other shipbuilding corporations? Mr. HENRY KAISER. That is right. Mr. HERTER. And the minute they received those dividends they were pledgable, of course. They were pledged for the Reconstruc- tion Finance Corporation loan? Mr. HENRY KAISER. The Henry J. Kaiser Co. dividends? Mr. HERTER. Yes. Mr. HENRY KAISER. No. I have letters from the RFC questioning whether they wanted to take any more, because the Henry J. Kaiser Co. had, of course, many other risks. Mr. HERTER. But the Kaiser Co. did? Mr. HENRY KAISER. They had pledged everything, the Kaiser Co., Inc. Mr. HERTER. Wherever it was received from? Mr. HENRY KAISER. Yes; and they really offered to pledge more? this will interest you?they really offered the RFC to pledge more, but where there was a risk involved of any kind the RFC refused to take anything. You could not pledge your profits without their taking the losses, and they did not want to take those risks. Mr. HERTER. In two of your principal shipbuilding companies, as against the profits from shipbuilding, you had offsets in other opera- tions; in one case, magnesium? Mr. HENRY KAISER. Yes. Mr. HERTER. We have not discussed the magnesium at all. What is the status of that particular note? Mr. HENRY KAISER. It is paid. Mr. HERTER. In full? Mr. HENRY KAISER. In full. Mr. HERTER. Some $28,000,000? Mr. HENRY KAISER. Yes. Mr. HERTER, Paid for in full out of shipbuilding fees? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 154 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS MR. HE RY KAISER: And other income. That company is now doing pro ably $6,000,000 a month in gross revenues at this moment. Mr. HERTER. But it has liquidated that RFC loan? Mr. HENRY KAISER. Yes. . Mr. HERTER. . So that the shipbuilding profits are no longer pledg- able from The Permanente Co. to any of the other operations? ' MR. HENRY KAISER. That is correct. The RFC will not take any- thing where they have to take, a risk. You could not just pledge profits an ' not losses. We can show you from the RFC where they have refuld to take any pledged profits. They would take the profits if they di not have to take the losses. As a matter of -fact, at the moment thiey have refused to go on any further in shipyard 3, because they see a loss involved. Shipyard 3 is operated by Kaiser. Co., Inc., and there is a loss involved due to the manner in which it has been handled, and so forth, and they have notified us that they did not want' any more pledged profits from there because we would likewise have losseS. So they have asked us to take yard 3 out of the Kaiser Co. Inc. Air. HERTER. Are yards 1, 2, and 3 all owned by the Kaiser Co.? Mr. HENRY KAISER. No. This yard 3 of the Kaiser Co., Inc.?it is operated only, not owned. Mr. HERTER. Operated by the Kaiser Co, but none is owned? Mr. HENRY KAISER. NO. Mr. HERTER. But operated, and the profits are received by the Kaiser Co.p Inc.? MR. HENRY KAISER. Yes. MR. HE TER. I suppose you realize that in this particular study that we are ma ling now, to find out just what happened in connection with the shipbulding operation, it is pretty difficult for us to incorporate . in any thiiiking about this the other operations of a corporation that have nothing to do with shipbuilding, except that you might argue that the construction of steel was an aid to the shipbuilding program. Mr. HENRY KAISER It was. But you can go further than that. Let us assume that the Kaiser Co., Inc., was just formed and took on, without pl dging any fees. The fees that it would have received would' not have leen excessive profits, and that is what you are interested in, becaus they have never been over 3 percent; so if all those fees had been raid to the Kaiser Co., Inc., you see, they would not have been over 3 percent and they would not have come within the con- sideration of the Renegotiation Act, because renegotiation, to our mind, has never touched a thing under 3 percent and allowed up to 6 percent. You see, the thing I would like to make'clear to you is that this was really an act in an effort to (Yet. steel. We gave up all the fees that we could have earned and kepl . Am I making that clear to you? That is a very important fact that I hav not often been able to bring out. Mr. HEWER. I think that all people have an independent judgment as to what constitutes a proper fee for the conduct. of an operation, depending a great deal on how much individual risk capital has gone into it, ho r much it has been wholly financed as to material, working capital, and so on, by the Government. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 155 MT. HENRY KAISER. That is true. Mr. HERTER. And I do not think there is any fixed yardstick by which that can be judged. Mr. HENRY KAISER. I agree with that. It is very difficult to fix that, but Congress did try to set up one in that Renegotiation Act. ? Mr. HERTER. But, so far as I can see in the renegotiations in this case, the Government was in a very peculiar position,. because they could renegotiate you out of fees and take it out of RFC money. Mr. HENRY KAISER. But they would never have renegotiated us On the basis of what they are doing in all other renegotiations, because we never did have sufficient fees. We would not have been renego- tiated downward, because we did not get as much as they were giving others' percentagewise. Mr: HERTER. There again I think the volume comes into the picture. Mr. HENRY KAISER. Oh, volume. Percentage is what they have been using. It is very difficult to find any other measure. Mn HERTER. I think it was you in your earlier testimony that spoke of the fact that volume was a material factor in any business. Mr. HENRY KAISER. Volume is a tremendous factor. It meant a great deal at the time of the war in getting these ships. If you had ever seen what the Navy did to get us to deliver a carrier a week, something that had never been heard of before in the world, when they found out what it meant to them at Leyte, you would understand what volume meant. Mr. HERTER. One other thing, Mr. Kaiser. In connection with the steel plant, you have told us, or I think it has been brought out in figures that came from the book, that in offsetting the profits of the Kaiser Co. you had the losses sustained in the steel division? Mr. HENRY KAISER. Thetis right. Mr. HERTER. And that of those losses, some $9,000,000 represented intereSt.on borrowed money, and some $45,000,000 represented amor- tization and depletion and depreciation? Mr. HENRY KAISER. That is right. If you took those all out, our percentage still would be below that of any others that we know of. Mr. HERTER. My question is this: How completely has your steel company been amortized at this time, under the 5-year permission - that you had to amortize? Mr. HENRY KAISER. Approximately half, but in effect?it is a point that I am glad you are bringing up?it ought to be amortized 80 per- cent, on account of the Geneva steel plant being sold at 80 percent off. You see, it is amortized 50 percent, about half; but here we have an- other competing steel company, the dream plant, that sold at 20 percent ? of its value, so it is really depreciated 80 percent, and in effect that is an additional depreciation. That is the part I have been trying to bring out. Mr. HERTER. That may be true, but I do not think the Internal Rev- enue Department would recognize it. Mr. HENRY KAISER. That is right. That is just the point. But it is there. Mr. HERTER. 13,11t from the point of view of the Internal Revenue Department, you have been able to charge off these losses, so that the steel plant today? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002- Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 156 SHIPYARD PROFITS Mr. HENRY KAISER. That is right. ilrr Mr. HE ER. You can still charge off 50 percent of the amortization, and you d not have to charge off up to 20 percent per year if you do not want to. That is your privilege. Mr. HENRY KAISER. I think you have to declare what you want to do and fo low that procedure. I am not quite clear on the takes. The tax p oblem is too complicated for me to answer you accurately, but I think if you decide that you will charge off only a small pro- portion, y u can elect to take a certain method. I think the law per- mits you to do that. I am not quite clear. It is too complicated for me. Mr. HEItTER. Apparently in your refinancing with the Reconstruc- tion Finance Corporation on the steel company you now have a period of years in which to pay it off under a complicated series of notes that there is no use in going into in detail now. Mr. HENRY KAISER. No.; but I can say this to you about it, that the fixed charges are too high to carry it and to make a success of it. It is valueless if we have to continue on the basis that they have set up for us, in co4etition with the other plant. Mr. HEUTER. You have still pledged in advance your shipbuilding profits for future years? Mr. HENRY KAISER. And we are paying them and have been doing it since the war. Mr. HERTER. That raises a question right away; while you still owe the Government money, is not the Government likely to want to do business with you to get its money back by giving you ship contracts? Mr. HENRY KAISER. We have not seen any evidence of it. As a matter of fact, we have not seen any evidence, and the RFC probably will not 4ake any competitive contracts, because they are afraid of the loss oju it. They have always indicated that. They have told us so. And as a matter of fact, they have declined, just answering your question, ome contracts because there was a possibility of loss in them if we took them competitively. Mr. EDGAR KAISER. That is correct. MT. HENRY KAISER. It is just the opposite from what you are think- ing of. Mr. IVRTER. On the steel company itself, you have some hundred million dollars in there? Mr. HENRY KAISER. That is right. Mr. IlvrwrEn. During the time that it was operating, was it selling steel direct to the Mari time Commission and the Maritime Commis- sion delivering steel to your yards? Mr. HENRY KAISER. I think that the War Production Board was allocalin:t. that steel; 100 percent CMP, I think. Mr. HERTER. But it was actually being purchased by the Govern- ment? Mr. HENRY KAISER. Yes. Mr. I4RTEn. Was the Government determining the price at which it was pnrchased. MT. HENRY KAISER. Yes. Mr. HERTER. They determined the price, the quantity, and the allo- cation, all three? Mr. HOVRY KAISER. Oh, yes; 011 all the steel plants at that time. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002- SHIPYARD PROFITS 157 Mr. HERTER. So your own company had no preference in the alloca- tion of steel? Mr. HENRY KAISER. No; none. Mr. HERTER. It went wherever the Government told you to send it ME. HENRY KAISER. Yes. Mr. HERTER. And you manufactured what the Government wanted you to manufacture? Mr. HENRY KAISER. Yes. Mr. HERTER. I suppose you are somewhat relaxed from the point of those restrictions now? Mr. HENRY KAISER. Yes; we are. We are in a commercial business. Mr. HERTER. In a commercial business, at present prices, does it look like a profitable operation? Mr. HENRY KAISER. It does so long as we do not have the high fixed charges. That is what the interim period is for, to see what we cculd do with it. It is a low-cost operating plant. It is on a comparable basis with the Geneva plant, but its fixed charges are high because of the 100 percent. Mr. HERTER. Its capacity is greater than the Geneva plant's? NIL HENRY KAISER. It IS .one-half. Mr. HERTER. But you said it turned out more 'steel. Mr. HENRY KAISER. Yes; it did. Thank you for bringing that one out. That is what it did. With half the capacity and at half the cost, it turned out a little bit more steel. Mr. HERTER. If you were asked this question, and with the permis- sion of the chairman I think the witness ought to be entitled to decline to answer it if he wishes to, on net balance, with the personal family investment put into shipbuilding and other operations during the war period, how do you feel that you came out at the end of the war from the point of view of the capitalization? Mr. HENRY KAISER. I really do not think?that question has been brought up a number of times within our own group. It really can- pot be determined until we determine .what Josses we are going to be prepared to take. Mr. HERTER. You have the magnesium plant free and clear, paid for out of the ship profits. .Mr. HENRY KAISER. Let me get that clear. I am delighted you are asking all these questions. I am delighted about it. That magne- sium plant is a real problem at the present moment. We are losing $50,000 a month on it. At least three-quarters of that plant never will be operated. We were not permitted. during the ;war to do the development work that we wanted to do, so we merely produced to get the magnesium, even though we produced it and saved the Govern- ment a great deal of money. Now, at the present time that magnesium plant is a problem, only from the standpoint that we must make a success of it. We have great hopes that we can do something with it, and we are on the verge of a development. Each month, which does not come that month, it is $50,000, so it depends entirely on how successful we are in devel- oping a completely new product, and perhaps cutting the cost of mag- nesium 50 percent. Mr. IIERTEE. The same holds true of your steel company to a large extent, so far as the future is concerned. 83486-46-11 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002- Approved For 158 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. HENRY KAISER. No. It is the fixed charge. It cannot exist under that fixed charge in competition with a fixed charge of 20 cents on the dollar at Geneva. That is the difference right there. It can- not exist. Mr. HERTER. In other words, you feel that the new facilities of which you are now the owner as a result of the shipbuilding and other operations cannot be evaluated at the present time? Mr. HENRY KAISER. No. And then we put a lot of money into it that we have earned private-wise in addition, that we will lose, and that cannot be evaluated. That is right. Mr. HERTER. Is there any chance in connection with the develop- ment of magnesium and the likelihood that it will be of any help to you in building automobile bodies? Mr. HENRY KAISER. Wonderful opportunities. Mr. HERTER. That is your hope? Mr. HENRY KAISER. Yes; and we also have tremendous hope in aluminum. We are doing some remarkable things. There are great possibilities. We are on the eve, in my judgment, of a great revo- lution. Mr. HERTER. Did you borrow Government money in the develop- ment of your aluminum plant? Mr. HENRY KAISER. No; no Government money. We are paying them a million dollars a year rent, and we borrowed from the bank in the same way $16,000,000 for the aluminum plant, but that is all something that has nothing to do with the Government. That is private borrowings from the bank. The CIIAIRMAN. Mr. Weichel, Mr. McConnell is not going to be here topiorrow, and he wishes to ask some questions. Mr. NcCONNELL. Mr. Kaiser, I feel, as I have sat here for the last 2 days3 that I have been in a temple of confusion at times, and I would like to humbly suggest that simplification might be a great asset to the liser interests for the future. I am wondering if we could bring a few of these things down to almost a simple statement of certain figures of profit or loss or just what was gained. There have been so many things stated here that I have had a hard time boiling them down. I wonld like to ask you this: Do you know how much you did make starting in 1941-42 up to the time when you have the figures that are not yet proven? For instance, there must have been figures in past years that are now finished, where you can say, "We made so much." Do yon have them available? Mr. TENRY KAISER. We have submitted that to the committee. Mr. McCONNELL. You have submitted that? Mr. ENRY KAISER. Yes. Mr. MCCONNELL. Is it separated as to shipbuilding and other operati ns'? Mr. IENRY KAISER. It is shipbuilding only. Mr. v1cCoNNEIL. You have it separated between shipbuilding and other operations? Mr. IEN-ny KAISER. It is all separated, in the different companies, Kaiser ngineers, Kaiser Co., and HenryJ. Kaiser Co. Mr. MCCONNELL. And you stand by those figures? In other words, the committee can rely on the figures that you have given as to your Approved For Release 2003/10/10 : CIA-RDP64600346R0004000600024 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002- SHIPYARD PROFITS 159 earnings profits or earnings, from shipbuilding over a period of how long?. Did you start in 1941? Mr. HENRY KAISER. This is question 13 that we have talked about, and I think counsel can tell you the date. it starts. It is January 1941, is it not, up to July 27, 1946? Mr. MCCONNELL. You have all those figures, and they have been turned in? Mr. HENRY KAISER. That is right. Mr. MCCONNELL. I would like to know the total profit in that period. Mr. Corms. I ,presume you are looking at this. Yes; we are looking at the same table. This is merely the figures of dividends which have been paid to the Kaiser-owned comp,anies by the shipbuilding oper- ating companies. It does not state how much the shipbuilding oper- ating companies made. .Now, the figures by the Maritime Commis- sion if I may digress for a moment-- r. MCCONNELL. We are getting into this confusion again. Mr. COLES. I think it might clear it up if I can read this. [Read- ing:] The Maritime Commission figures say that profits earned by shipbuilders are captioned "Estimated profits" because final settlement has not been consummated with respect to many of the contracts. However, the profits are substantially actual. It should also be borne in mind that certain costs have been incurred by contractors which are not reimbursable or allowable under the contracts. The amount of disallowances is relatively small compared to earned profits. Then, in here, the listing of the six companies shows about $192,- 000,000 of fees and profits over and above all costs were paid to these six shipbuilding companies in which the Kaisers have an interest. It might be of interest also to note that the information furnished to the committee by these six Kaiser companies shows that before full re- negotiation, but so far as renegotiation has already gone, the Kaiser companies made $173,000,000, the five companies, not including Walsh-Kaiser, upon which we have no figure. Now, the figure that Mr. Kaiser reads, so far, and only so far, is that dividends of just under $5,000,000 have been paid to the Kaiser holding companies by these operating companies, but this in no way shows how much money the operating companies made. Mr. MCCONNELL. Mr. Kaiser, do you have other figures than those? Mr. HENRY KAISER. Yes; oh, yes. Mr. MCCONNELL. Read those figures. I would like to have them right next to the other figures. Mr. HENRY KAISER. I- do not have it in dollars. I have it per- centage-wise. If you want that in dollars, it will have to be gotten up, Mr. Corms. These figures of $173,000,000 are taken from your own books, Mr. Kaiser, that you submitted to the committee. Mr. MCCONNELL. Will you accept that $173,000,000? Mr. HENRY KAISER. I Will have to look at that. It is not rene- gotiated yet. Mr. Corms. It is as far as renegotiation has gone, and I might add that in most cases it has gone to -the end of 1944, and in some cases to the end of 1945, so that ''I think the major renegotiation is finished, although I would not want to state that categorically. Mr. MCCONNELL. Will you accept them before renegotiation? Will you accept that? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 '160 SHIPYARD PROFITS 1 Mr. HENRY KAISER. Before renegotiation and before taxes for all the Kaiser companies, and before all nonreimbursables and before all claims, w ich are running into the millions, and we do not know how much. We get different stories every day. Mr. M CONNELL. Outside of those statements, will you agree that $173,000,900 is the figure? Mr. HENRY KAISER. That is on all the companies which I have ever had in interest in? Mr. CcLES. No; excuse me, that is the five companies California Shipbuil ing Corp., Kaiser Co., Inc. Kaiser Cargo, Inc., companies, Ship- building Corp., and Permanente Metals Corp. It does not include -Walsh-Kaiser or Joshua Hendy. Mr.,M0CoN-NELL. Does it include California Ship? Mr. Cof,Es. It does. . Mr. MOCONNELL. I want what you will admit. Won't you give me what you! will agree to what you say is accurate? Let's not slide off into SOIngthing else. What will you admit? Mr. HENRY KAISER. What do you want to know, about the Kaiser companis ? Mr. M4CONNELL. You told me your earnings were agreed upon up to 1946. Now, what are those earnings? Mr. HENRY KAISER. The Henry J. Kaiser Co., or all the companies? Mr. WCONNELI. I want to know it from the shipyard operations. That is what we are investigating at the present time, as I understand it. I do not care about any of these outside things. I want to know .it from the shipbuilding operations, and what you will admit to. What arc you willing to accept? "They are my figures, and I will accept. tllm." That is what I want to hear from you. Mr. HpNRy KAISER, All kinds of companies, all the Kaiser com- panies ? Mr. McCONNELL. Engaged in shipbuilding. - Mr. HENRY KAISER. All companies in which I have ever been inter- ested, had even 3 percent or 5 percent of whatever I have been inter- .ested in the total amount. Is that what you_want ? Mr. MO CoNNELL. If you have it. Mr. HENRY KAISER. Could I hand, this to you? , Mr. MCCONNELL. Read it.. There is no use in giving it to me -privately. Mr. HENRY KAISER. These are for all the shipyards, the Portland, the Vancouver, the Richmond, managed by Kaiser Co., Inc. May the attorney read it? Mr. MpCONNELL. I do not Care who reads it. - Mr. OSCAR COX (attorney). The statement for Kaiser Co., Inc., -which rEn the Portland, Richmond, and Vancouver yards, is a com- plete statement which is already in evidence, which reads as follows [reading] : The gross fees payable to the Kaiser Co., Inc., were $46,883,757 before renegotia- tion and before the deduction of nonrehnbursable items and subject to renegotia- tion for the last 2 years. The nonreimbursable items which are deductible from l that are , 5,750,360. After ti ese deductions the gross fees on United States Maritime Commission contracts were $41,133,396. The losses before taxes, .and there were no taxes due to net loss, except in 1941, show losses of $59,712,436, a net loss in the operation of Kaiser Co. of $18,570,040. Mr. CCONNELL. What were your losses? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 161 Mr. HENRY KAISER. The losses were the operation of the steel plant. Mr. MCCONNELL. I would like to get the shipbuilding by itself. Mr. Cox. I gave it to you. The $41,000,000 was the fees from ship- building operations, and the separate loss from steel was $59,000,000. Mr. MCCONNELL. That is for one company. Now we are getting somewhere. Mr. Cox. The Oregon Shipbuilding Corp.: Gross fees were $44,- 830,597. So far nonreimbursable items were $4,519,517; the gross fees less the nonreimbursables to date were $40,327,339. Wait a minute. The Federal income and excess profits taxes already paid are S27,000,- 000, and the net is $13,000,000. Mr. MCCONNELL. That is reported on a different basis than Kaiser. One is before taxes and the other after. Mr. Cox. The other showed no taxes because there was no net in- come, except in 1 year. Mr. MCCONNELL. Because you put it against the steel losses. Mr. Cox. You have to take one other figure there, and that is the Kaiser interest in Oregon Ship. Mr. HENRY KAISER. YOU want to get the whole company first, do you not? Mr. MCCONNELL. Yes. Mr. Cox. You have to take Kaiser's interest. Kaiser's interest in Oregon Ship through Henry J. Kaiser Co. and the Kaiser Co. was 101/2 percent. Mr. HENRY KAISER. One-half of that is employees'. Mr. Cox. The other ownership in terms of distribution of earnings would have gone to the eight other companies, like J. F. Shea and, General Construction, in which Kaiser Co. has no pecuniary interest, direct or indirect, so ,you take 161/2 percent of the $13,000,000 if you want to find out how much profit was made. Mr. HENRY KAISER. By Kaiser out of Oregon Ship. That is before he paid dividends. We don't know the answer for some time to come, yet, until we get through these settlements and claims. Mr. Cox. Kaiser Cargo, which is the third company, had D.ross fees of $1,358,058 less nonreimbursables, showing gross fees of 81,047,000. less taxes paid of $776,619, leaving a net income for the 6 years, or, approximately 6 years of $270,682. The Kaiser percentage in that company was 58 percent. Permanente Metals Corp. shows gross fees before reimbursement were $57,936,000. The nonreimbursable items to date were $4,426,- . 000, leaving gross fees after nonreimbursable items to date of $53,000,000. The net loss on the magnesium division was $23,000,- 000; the gross income after that net loss was $30,000,000. The taxes paid, Federal income and excess profits taxes' were $21,000,000, leav- ing a net income for the more than 5 years of $8,999,000. The inter- est of the Kaiser companies in Permanente Metals has varied from year to year, but in '41 it was 16 percent, in '42 it was 23.4 percent, in '43 and '44 it was the same as in '42., and in '45, up to November, before the exchange and trade on California Ship, it was 17 percent, and in '46 after the trade with Calship it was 64.7 percent.. That is just. recently. Mr. MCCONNELL. Now do you have a total of what you received from shipbuilding operations for those 5 years? Mr. Cox. We can just add them up for you right now. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For!Release 2003/10/10 : CIA-RDP64600346R000400060002-4 162 SHIPYARD PROFITS I think there is one other set of figures that the committee might want to evaluate, because ultimately the profits that are available for distribution come in the form of dividends, and I think, for what- ever it i. worth in the evaluation, you ought to also have the com- panion figures that go with that, and I have them calculated here, with the comments on them. If the committee wants them, there are just two basic paragraphs on that. The companies in which Mr. Kaiser and his family owned stock received dividends amounting to $4,936,000 for the five war years. Of that $4,936,000, stockholders other than Kaiser Co. participated to the extent of $1,353,000, leaving $3,583,000 over a 5-year period allocable to stock which the Kaiser family owned. That figure is be- fore regular corporate taxes, which run about 40 percent; before cor- porate eXcess profits, which run far higher than 40 percent; and be- fore individual income taxes, which have run as high as 80 percent in the years involved. The earnings are available as reserves for losses onl other operations which have been incurred and which are likely to lie incurred in the future, and they were dividends, of course, paid to eorporations in these cases as a result of the shipbuilding and other operations. Mr. 1N/ICoNNE-Li-_,. May I ask you this personal question, Mr. Kaiser? Do you know whether you are solvent or not? Mr. HENRY KAISER. It depends on what hazards I take as the after- math of ll these conversions. There is some problem. Mr.] CCONNELL. We start out with very large figures, and when we We get them all boiled down I don't know whether you are a minus ?, or a pluS quantity. Mr. HENRY KAISER. We start all over again, that is one thing, and the reconversion problems if you go to the Fleetwing, which is main- taining $orne beautiful offices right now, you have another problem. These reconversion problems are not simple ones, and the Maritime CommisTon has made it very difficult on shipyard 3. I just learned last night that this month we will lose $140,000. Mr. McCoNNELL. Mr. Kaiser, while you are getting those other figures, cio you know how much you put into your enterprises, in one figure? Can you tell me that? Do you know that? Mr. WNRY KAISER. You see, now we have to go and add all these together; again. You would say, if you loaned a company money, if you had: personally loaned it money to operate, that that was what you put in, would you not? Mr. 11 CCONNELL. Yes. In other words, what did you have that you put n to start it off? Mr. IENRY KAISER. That is right. Then, in addition to that, the Commis ion required from all shipbuilders $100,000 per way. That went in efinitely as capital. Well, we are going to get into confusion here in , minute. Mr. McCONNELL. Are you saying you do not know how much you put into these? ' Mr. HENRY KAISER. I think we can get it from these figures. We have -worked on these figures with the best accountants, and with the best encr_neers that I can devise. Mr. 'SiCCONNELL. They do not seem to have come out, these great accountants, with any clear figures. Mr. COLES. May I say this, that we have had Commander Jones, a certified 1 public accountant, go over the figures that Mr. Kaiser has Approved For:Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 163 given us, and he has made a great many adjustments. I will intro- duce this in the record as exhibit 10. The figures he has come out with on a percentage basis are substantially higher than those sub- mitted by the Kaiser Co., several times as high on a percentage basis. The bases of his changes are that Mr. Kaiser has included in his figures all Government-supplied material, which amounts to many hundreds of millions of dollars, so he is figuring his percentage in- cluding Government-supplied material. He also included in his percentage the facilities upon which the contracts specifically state that there shall be no profit, which again amounts to about another $100,000,000, and he also is including as his base, if his article cost $1 and sold -for $1.10, he is figuring on a basis of $1.10. He is taking fees and profits in. With that, plus some minor reconciliation, I would like to intro- duce this in the record, which shows larger percentages. (The tabulation and compilation so identified was marked "Ex- hibit 10.") Mr. Cox. Excluding the losses on the steel plant, the total gross fees of Kaiser Co., Inc., involved are $46,883,757. In those figures, when we exclude the losses, the taxes which would have been payable would have been $29,000,000. The losses which we included were $59,000,000. So if you take the losses into account, the net on the over-all shows a loss of. $18,000,000. With the loss out, it is $11,000,000. MT. HENRY KAISER. With the loss out on the steel plant, which there seems to be a lot of question about, but which is there. Mr. MCCONNELL. -What did you make from shipbuilding, leaving out the losses? Mr. Cox. Completely forgetting the losses on the steel plant, the profits on shipbuilding after taxes were $11,000,000 for Kaiser Co., Inc. Mr. Cox furnished the following information on November 12, 1940: For all four Kaiser-managed companies?Kaiser Co., Inc., Permanente Metals, Oregon Shipbuilding, and Kaiser Cargo?theoretical earnings on shipbuilding, without regard to actual losses on other operations, and after theoretical Federal income taxes, would have been about $40,000,000. Of that theoretical amount, the theoretical share of the Kaiser interests, based on their stockholdings in those companies, would have been about $10,000,000. Mr. MCCONNELL. That is after taxes? Mr. HENRY KAISER. After taxes. Mr. MCCONNELL. What were your losses on the steel? I would like to put them alongside of this. Mr. Cox. The losses of $59,000,000 on the steel are shown. But if you take that loss into account you have to subtract $29,000,000 of taxes which you would not have to pay, because you have to pay taxes only when you have a net income. You do not have to pay taxes when you have a net loss which was the actual fact in the Kaiser Co, Inc. In the years other than 1941 there were no Federal income taxes payable because the operations of this one company under the law, and lawfully permitted, were to take the steel operations and ship operations, and there was a net loss in each of those years. If you exclude the losses, which is what you asked for, then the taxes would have been $29,821,712.27. Mr. MCCONNELL. That is the complete figure for the shipbuilding? Mr. COLES. Is that for the one company or for the 4 companies? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apprord For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. Cox. For Kaiser Co., Inc. Mr. IINRY KAISER. Without any loss, and before taxes. Mr. M.pCONNELL. You did not have any loss in the shipbuilding. You had it in connection with steel and magnesium. Mr. Cdx. That is on the assumption that we would have paid taxes on Kaisei Co., Inc., which is not the case in fact. Mr. MCCONNELL. You have stated the losses alongside of it. You have naffed the losses, I understand, here. Mr: Cox. That is right. Mr. MCCONNELL. Now can we have, about that same place, how much waS put into this whole enterprise? Can that be worked out? Mr. Cox. Yes sir. Mr. HENRY KAISER. Do you want the bank loans included in it? Mr. MOCoNisrEnn. How much did you personally, and the companies, put in? I would like to have that, separated. Mr. HENRY KAISER. You would have to get the percentage. That is kind of a problem. Mr. Cox. We would have to supply that for the record, but it is the Kaiser percentage of $32,000,000. You would have to do it com- parably with this, by taking each company in terms of the Kaiser Co. interest in. it. We can do it in about 2 minutes, approximately. Mr. MCCONNELL. All right; let's have it approximately. We will put it side by side with the profits, the losses, and how much they put in. Mr. Cox. A simple answer to the question of Representative Mc- Connell is, the capital investment of the four Kaiser companies in the shipyards that have been testified about here today, proportion- ately, out of the $32,000,000, is $19,050,000, in round figures. For Kaiser Co., Inc., the losses on the steel plant were $59,712,436. If the losses are not accounted for, of the steel plant, then as against the entire figure of $46,000,000 that I have testified to, the $29,000,000 for i taxes should be subtracted, because they were not n fact paid but had been calculated in the prior figure. So that if the losses are taken into account s against the shipbuilding profits, they are larger than the profits. Mr. MCCONNELL. The losses are larger than the profits? Mr. HENRY KAISER. They would_overtake the profits. Mr. CCONNELL. If you take the steel operations and the magne- sium op rations. MT. IENRY KAISER. That is right. Mr. MCCONNELL. I thought you were going to tell me how much was put into this enterprise originally. Mr. C x. The Kaiser Co. proportion in operating capital, of the $32,000, 00 put up, was $19,059,000, in round figures. Mr. MCCONNELL. You mean you started in this whole enterprise with $19,000,000? Mr. HENRY KAISER. No. They added that as working capital. Mr. 'MCCONNELL. A lot of that was purely borrowed money, like from the RFC or banks? Mr. H.]NRY KAISER. This includes capital borrowed from the banks, but not the RFC. It includes capital stock contributions and loans by stockholders, as well as commercial bank loans. But it excludes all RFC That is the Kaiser proportion. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD yROFIT,S 105 `Mr: MCCONNELL. Exclusive of bank loans, -exclusive of all loans, how much was put in ? Then we will have it all together. Mr. Cox. We will refigure that for you. Mr. HENRY KAISER. You admit We have to have the loans to do business. Mr. MCCONNELL. We have the figures with the loans in. Now I wciuld like how much you put in without borrowing; how much came from your actual ownership originally. ? Mr. Cox. The proportion of the four Kaiser companies' contribu- tions in capital to the four corporations which were testified to. is, in approximate figures, about $2,000,000, and I would like to just add one note. ? 'Mr. HENRY KAISER. $4978,000. Mr. Cox. We have calculated these very quickly, and I think in the interest of accuracy, while they are substantially correct, they ought to be cross-checked. It does not include operating capital rn the form of bank loans or RFC loans. Mr. MCCONNELL. This is exclusive of any bank loans Or RFC loans or loans of any description. Would that be correct?. Mr. Cox. No. Mr. MCCONNELL. There are loans in here? . 'Mr. Cox. They are stockholders' loans, the same in effect as capital stock. . Mr. MCCONNELL. You are speaking of the loans Mr. Kaiser. made to these companies as a stockholder of the company? He took his own money and loaned it to these four 'companies? Mr. Cox. That is right. Mr. HENRY KAISER. One thing I cannot give you. I never have charged any overhead of our home office to any of these companies, and I cannot give you what that cost it. That is a large investment. In addition to that, we have some other losses. We operated Brewster, for instance, for 7 months without any fee. We were offered it. The Navy insisted we take it. We did not take it. There is additional capital that went into this that is not accounted for -at all. Mr. MCCONNELL. Coming back to the $16,000,000, approximately, of profits, from four Kaiser companies, is that after taking into con, sideration the percentage of your stock ownership in these companies? It is not 100-percent owned. Mr. Cox. Yes. Mr. MCCONNELL. You are just taking your proportionate share in those companies? Mr. Cox. That is right, of the Kaiser companies. Mr. MCCONNELL. Those companies made much more money than would be indicated by the $16,000,000 profit? Mr. Cox. Yes. For example, to give you an illustration, in the case of Permanente Metals, in 1941 Todd Shipbuilding had a 50-percent share, so that could hardly be called. a Kaiser or Kaiser family profit. Correction?I think they had in Permanente 35 percent, and in 'Oregon 50. Mr. MCCONNELL. In other words, can we boil it down a little like this: Into the four 'companies the Kaiser family put approximately $2,000,000? Mr. Cox. That is right. Approved For Release 2003/10/10 : CIA-RDP641300346RQ00400060002-4 Approved Fo(Release 2003/10/10 : CIA-RDP64600346R000400060002-4 166 SHIPYARD PROFITS Mr. MCoNNELL. The profits that they made on shipbuilding totaled approxiMately $16,000,000. Mr. C x. That is a purely theoretical figure, because you cannot spend a 1 ss. Mr. M?ONNELL. I am going to get to your loss. I am trying to separate these things. I will reiterate. The Kaiser family put into the four corporations approxiniately $2,000,000. Mr. Cix. Right. Mr. cCoNNELL. They made profits in the shipbuilding end of $16,000,0 0, approximately. Mr. Cqx. Right. Mr. MyCoNNELL. And they showed losses of how much on the steel and magnesium? Mr. Cox. They showed losses on steel of 859,000,000. Mr. 110oNNELL. And what on magnesium? Mr. HENRY KAISER. You want the Kaiser proportionate loss? The CUAIRISIAN. The hour of five has arrived. Mr. MoCoNNELL. I would like to finish just this one part. Mr. Cox. The total loss on magnesium operations was $28,454,000, of which ithe Kaiser Co.'s share was approximately $5,290,000. Mr. McCoNNELL. In other words, the Kaiser loss, then, from mag- nesium operations, was $5,000,000, approximately? Mr. Cqx. Yes. Mr. M9CoNNELL. All right. Let's have the steel. Mr. Cox. $59,712,000. Mr. MOCONNELL. That is not Kaiser's share. Mr. Cox. That is 100-percent owned. Mr. 111PCONNELL. Are you solvent, then, Mr. Kaiser? All right; check that out. Mr. Cox. When you take the steel loss into account, then you have to make One adjustment, which I think is a little complicated, but at the same itime it should be cleared. That is, there was $29,000,000 of taxes computed, disregarding the losses, which is a theoretical calcu- lation. Taking the $59,000,000 in, that is the equivalent of an $18,000,000 loss for Kaiser Co., and no taxes except in 1941 were paid, because no taxes are payable in fact and in law when there is a net loss. Mr. McCONNELL. What are theoretical losses? In a practical man- ner, how do they affect you? Air. Cox. This is a real loss. Mr. MOCONNELL. I thought you said it was a theoretical loss. Mr. Cox. A theoretical tax, not a theoretical loss. You wanted to Compare two things. I think you have clarified this a great deal. What was the income of the Kaiser Co., for example, on ships only? MT. 1119CONNELL. Yes. Mr. C x. Without taking steel into consideration, or magnesium. Now, the total gross was $41,000,000, and if you had disregarded steel loss, then you would have had to pay a tax of $29,000,000. But that is not in fact what happened. What in fact happened was that you had a gross of $41,000,000 from ships and a loss of $59,000,000 on steel, or a net loss of $18,000,000. Now, when you have a net loss you do nOt, in fact, pay taxes, because they are not payable under law, so that in effect no taxes have been paid, except in '41, by Kaiser Co., Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 167 Inc., and there is a claim for a refund there which has not yet been determined by the Bureau of Internal Revenue, but for the years '42, i '43, '44, '45, and '46, the company showed a loss n each of those years, and there were no taxes payable and there were none in fact paid, because there was no net income. The CHAIRMAN. Is the question answered? Mr. McCoNNELL. Well, it is not entirely answered, Judge, but I have enough figures to work with over the next day or two. It is clearer now than it was to me a little while ago. Mr. Cox. If we can help in any way?.-- The CHAIRMAN. I would suggest that you get together with counsel. Mr. Cox. It has been clarified a great deal already, and if we can get any other figures for you, we will be glad to do it. The CHAIRMAN. Gentlemen, the committee stands adjourned until 10 o'clock tomorrow morning. (Whereupon, at 5: 10 p. m. the hearing was adjourned, to reconvene on the following day, Wednesday, September 25, 1946, at 10 a. m.) Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 INVESTIGATION OF SHIPYARD PROFITS WEDNESDAY, SEPTEMBER 25, 1946 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE MERCHANT MARINE AND FISHERIES, SUBCOMMITTEE To STUDY SHIPYARD PROFITS, Washington, D. C. The subcommittee met at 10 a. m., pursuant to adjournment, Hon. Schuyler Otis Bland (chairman) presiding. Present: Representatives Bland (chairman), Hand, Keogh, Brad- ley, Weichel, Herter, and McConnell. Also present: Marvin S. Coles, general counsel for the committee; Nathaniel C. W. Gennett, Jr., associate counsel; Frederick M. Jones, assistant counsel; Reginald S. Losee, chief investigator. The CHAIRMAN. Gentlemen, I regret the delay because of a con- ference I have been having in connection with committee matters and otherwise. We hope that we may be able to finish with Mr. Kaiser as soon as possible. We have a number of other witnesses who have come from out of town to be heard. I want to give everybody an opportunity to be heard, if I can, before Friday night. I am compelled to leave on the boat at 6 o'clock Friday night. We will adjourn the hearings at 5 o'clock on Friday. It is possible that the hearings will be resumed later, but I doubt that further inquiry or hearings will be resumed until after the elec- tion, because many of the members of the committee have opposi- tion. I have opposition myself. Whether it be formidable or not I da not know. They want to conduct their campaigns, and I want to give them an opportunity to conduct their campaigns, the Republi- cans as well as the Democrats. I think there is probably less oppo- sition to the Democrats than some of the others. But what I am anxious to do is by the best method possible?and I am not following it I hope that the members of the committee may feel free to make their suggestions to me, because Ileaven knows that I desire to get all of the facts fully?to get the facts and nothing but the facts, so that we may prepare a report, if possible, at this Congress. If it is not possible, why, then, it is in the lap of the gods as to what the Congress chooses to do. This committee has a responsibility, and I am trying to discharge that responsibility. It is no more pleasure to me than it is to many of you gentlemen to be here at this time, rather than resting for the next session of Congress. Mr. KEOGH. May I inquire of you as to the probable order of wit- nesses following the present one? The CHAIRMAN. I will have to ask you to refer to Mr. Coles, counsel, on that. 169 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 \ Approved ForRelease 2003/10/10 : CIA-RDP64600346R000400060002-4 170 SHIPYARD PROFITS Mr. CoLEs. We had intended to take all of the companies related to the Kaiser group next, which would be California Shipbuilding, Walsh-Kaiser, and then Marinship, which is very indirectly related, as will be shown. However, we have certain commitments to people who have come from a great distance to get them off the stand today so they,can return. They have plane reservations, so I think we will take C lifornia Shipbuilding, Marinship, and J. A. Jones Co., and the Todd people, and then run down the list. Mr. 1ouii. Today? Mr. ?Es. I have hopes. The CHAIRMAN. We have started holding from 10 to 5. If neces- sary, I will hold later, but I do not feel like punishing the members of the committee by going on later than 5 o'clock, or punishing the representatives of the press who are here. I am trying to work this to the hest advantage of all of us. I know that we cannot complete now, but as much o the information as is brought out in hearings such as this will form the basis of further study by counsel and those who all conducting the investigation, trying to learn what the facts are. _. When we concluded our hearings yesterday, Mr. Herter and Mr. McConnell had asked to be recognized in the time that belonged to Mr. Weichel, and Mr. Weichel had not finished his cross-examination. He now resumes his cross-examination. However, Mr. Kaiser was about to make a remark, and I will give him an 'opportunity to make that remark or to ask me a question, at least. TESTIMONY OF HENRY J. KAISER?Resumed Mr. ENRY KAISER. In order to comply with your wishes and .shorten the time, I will arrange to have our counsel, Mr. Cox, answer the various questions that your counsel has asked in writing, so that he will get them. The cHAIRMAN. So far as he can, and the committee desires them to be answered personally, we will try to do it, and those that have been postponed we would ask to be submitted in writing, because it will un 'oubtedly be necessary for the committee to hold further hear- ings in November. Mr. li eichel, you have the witness. Mr. EICIIEL. Yesterday, Mr. Kaiser, with reference to Oregon Ship and Permanente Metals with reference to their formation, you said that 10 corporations?arid you named them?were the ones who had the ,idea to form Oregon Shipbuilding, and that they put in the original money. Is that true with reference to Walsh-Kaiser Co., Inc.? . Mr. I-- :ENRY KAISER. No; that is different. Mr. 1 .EICHEL. Were these 10 corporations in that? Mr. ENRY KAISER. No. Mr. 1, EICIIEL. With reference to the Walsh-Kaiser Corp., is that the one that took over the shipyard at Providence, R. I., after the MaritiMe Commission threw out the Rheem Manufacturing Co.? and I m an threw them out? Mr.HENRY KAISER. That is right. Mr. t EICHEL. What was the name of that? Was it called the Providence yard? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP641300346R0004ph060002-4 SHIPYARD PROFITS Mr. HENRY KAISER. It is all right to call it that. Mr. WEICHEL. Rheem Manufacturing Co. contracted to build a yard and had a contract for some ships. They got half way through with one ship and probably finished one and then were asked to leave, and you were put in charge? Mr. HENRY KAISER. That is right. Mr. WEICHEL. What did you do when you came into that picture at Providence? Mr. HENRY KAISER. Admiral Vickery called me, and he said that the yard was in terrible condition, and that the Liberty ship had cost 10 times what our ship had cost, roughly, or what our ships were costing, and asked if I would be willing to take over and take them out of the mud and get some ships out, and I said: Well, I am perfectly willing to do anything, Admiral, that you want done. That is going to certainly put an awful load on us, to try to do that, and I would have to get some assistance from some of the organizations that I have been working with, and I know an organization, the Walsh organization in New York, which is 'a very competent organization, which has done a large amount of con- struction work, and there was a tremendous amount of reconstruction in the yard, based upon what you say, and I would have to have our man make a study, together with Walsh, and make a report to you of the cost to put that yard in condition so it could produce ships fast and cheap? which we did. We then made a report to the Maritime Commission and told them what that yard would cost if they wanted to produce ships fast and cheap, and the Maritime Commission, I think, considered that for 2 or 3 weeks, and called us in. They said, "This is a lot of money." We said, "Don't spend it if you don't think you want the ships, because this is a real problem for us. In the first place, Mr. Walsh will have to take his organization away from a lot of important work he is doing, and we will give him a few of our keymen to help him until he gets started. That is about all we can do. And we have one other concern here that is willing to go along and provide what- ever key personnel is necessary to try to do the job"; but further than that, that is how we started in that yard. Mr. WEICHEL. You just provided some key personnel for Walsh? Mr. HENRY KAISER. Kaiser provided some key personnel. It was largely a Walsh organization. Mr. WEicHEL. Then, was Walsh and Kaiser in on a 50-50 basis on that? Mr. HENRY KAISER. I have the percentage here. Mr. WEICHEL. I meanz. was that you personally? Mr. HENRY KAISER. 1V-Ly employees were in on 10 percent of it. Mr. WEICHEL. Which employees, those in California? Mr. HENRY KAISER. Yes. Henry J. Kaiser had 20 percent of it, and Kaiser Engineers, who did a lot of the engineering work?and they are mostly employees?had 10 percent, and the Walsh Construc- tion had 50 percent, and Morrison-Knudsen, who do a lot of water work, and this was a very serious water job, had 20 percent. ? Mr. WEICHEL. Walsh had 50, and the rest was divided up among the Kaiser group. Walsh had 50 percent, and the rest was divided up among your men. Mr. HENRY KAISER. No; Morrison-Knudsen is not our group. Mr. WEicHEL. Was he one of those 10 corporations? Mr. HENRY KAISER. Yes; he was one of the 10. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approivg For Release 2003/1sK1POY.A.RAirR091g41300346R000400060002-4 Mr. WreirEt. One of the 10 that were in all the other set-ups? . '''Mr. Hprizir KAISER. That is right. I Mr. WricllEt. In view of the fact that the claim against Rheem *as that the yard was costing too much, and when Rheem was before this committee he said one of the reasons they told him that he had to give up the yard was that it was costing too much for the construction of the yard. Did you not spend additional money for the construc- tion of the yard ? ' Mr. III?TRY KAISER. Oh' a great deal more?millions. . Mr. WpicHEL. So that the reason given to Rheem for taking him Out, that he spent too much for the construction of the yard, was not the reason., if that is what they told him? Mr. HE RY KAISER. The reason I was given was that the first ship? I think tie records will show that the first ship cost them 3,000,000 man-hou s?was too costly. Now, the average cost of the first ship was 'Anywhere from 800,000 to 1,000,000 man-hours. That is the Verge . ,. Mr. W4icifE. r, You mean the first ship cost 3,000,000 man-hours? _ : Mr. HEsTRY KAISER. The first ship of Rheem's. 1,Mr' WrcHEt.? And the first ship made by anybody else? Mr. HErNRY KAISER. Our first Liberty ship cost 800,000 man-hours. Some of ours cost a million. It depends on circumstances. There, was nothing like 3,000,000... Mr. i Mr. .VVICHEL. In reference to the cost of yards and the cost of, ships 1 we have had testimony here. s'.111r. HTTRY KAISER (interposing). In perfect fairness to Rheem, I want to say 1 don't know whether it was due to the condition of 'the yard that, that first ship east that much or not. I only know that it Was no job that was attractive to us. I think you ought to let me say, this tirne, that all of these various yards that w.ere built in different places. were built with these groups when. they came to us and begged ug to do them. They had no other place to go, the same as the British. I'lle British came over and spent :4 months and could not find a shipyar to do their work. Then they came to us as construction then and egged us to do this work, because of the fact that we had the background of expeHence. . I think it should be shown, and you should recognize yourself, Rep- resentative Weichel, that we did do the work cheaper than anyone on the average over all the others, and at a lower cost, and did save the country S250,000,000, and. when you recognize that, had you been in charge I am satisfied that you would have done the same thing. You would have tried to save the S250,000,000 for the United States, and that is something that you should consider. When you are talking about pure investment, God, if a man is going to save m: $2,50,000,000, I don't care whether he has a dollar invested or not. - ., ' . Mr. WEICITEL. You recognize profit on the basis of investment. That is fundamental, and that is how you pay taxes, based on what you have invested, and the cost, and what you receive is profit. You base that on cost and you do not base it on the percentage of what you made. In all your statements you say, "Well, it cost 1.3 percent of all the i oney that was spent." That is not based on cost. You do not base p oAt that way. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 173, Mr. HENRY KAISER. If a man came to you and said, "I have a dollar, and I will save you 8250,000,000," and another came and said, "I have $10,000,000 and I will cost you $200,000,000," which would you take for the Government? Mr. WEICIIEL. This is in time of emergency and time of stress, when men had to go into the armed forces, and on the same kind of basis I do not think that anybody- should say that he did not make any profit and that he bases his profit on a percent of what was spent, rather than on what it cost and what his investment was. Mr. HENRY KAisER. Of course, you know the whole war was, con- ducted on that basis. Every one of the departments conducted it, on a percentage basis. Mr. WEICIIEL. That does not necessarily make it right. MT. HENRY KAISER. I am wholly in accord. If you want to recon- struct the method and put everybody in soup kitchens at the . next warsso that no one makes a dime, I am wholly in accord if Congress wants to adopt that policy. Now, unfortunately, I do not know of any 'other country that has ever won a war on any other policy but the profit system and the incentive system, and even Russia finally subscribed to that system. I do not know of any other system. But. if Congress can find a system of soup kitchens that will take care of all of us? Mr. WEICIIEL (interposing). I do not believe we go into i;var to make profits for manufacturers. We went in there to defend ourselves. Mr. HENRY KAISER. I do not believe that either, and the fun, I am having now is after the war, getting started again getting our people back to work. I agree with you 100 percent, and if you can find some way to stop war, and if you think it is the soup kitchens that will do it, I will be for it, too, if you can prove that by history. Mr.' WEIcHEE. With reference to Kaiser Corp., Inc., were the 10 corporations you mentioned yesterday in on the formation of that company? Mr. HENRY KAISER. kaiser CO., Inc.? Mr. WEICHEL. Kaiser Cargo. Mr. HENRY KAISER. Oh, Kaiser Cargo. No. There was only the Kaiser Co., Kaiser Engineers, and Henry J. Kaiser, Morrison-Knud- sen and J'. F. Shea. In that case I bought out an existing plant. WEICIIEL: They are part of that same original 10? Mr. HENRY KAISER. Yes; that is right. Mr. WEICHEL, And the rest of it is the Kaiser family or yourself; personally? Mr. HENRY KAISER. Yes; but this is one in which I bought out an existing plant that had been in existence for 10 years, and again was not producing in accordance with the desires of the Government. I bought it out. We bought it out with our own capital, and then we turned over to it additional work that the Maritime wanted us to do. Mr. WEICHEL The Kaiser Cargo' Inc., operated a plant of its own? Mr. HENRY KAISER. It Operated a plant of its own and another plant. Mr. WEICIIEL. And it operated a Government facility? Mr. HENRY KAISER. That is right?and a Government facility.' Mr. Mr. WEICIIEL. That cost some $1,300,000? 98486-46-12. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4 174 SHIPYARD PROFITS Mr. HENRY KAISER. That is right. It is the cheapest shipyard that was ever built. Mr. WEICHEL. Out of that facility that company was paid $1,345,- 000 as a fee, according to the Maritime Commission, in this exhibit 19 Mr. HENRY KAISER. I do not know. Mr. WENHEL. With reference to the Kaiser Co., Inc., were the 10 corporations in on the formation of that? Mr. HENRY KAISER NO; just myself. Mr. WEICHEL. Kaiser Co., Inc., is just yourself? Mr. HENRY KAISER. Henry J. Kaiser Co. the family. Mr. WEICHEL. On this list it is called "Kaiser Co., Inc." What is the name of that one? Mr. HENRY KAISER. That is the name, but the stock of it is owned by the Henry J. Kaiser Co. Mr. WEICHEL. That is the family? ME. HENRY KAISER. Yes; that is right. ? Now, do you want to know why that was formed? Mr. WilicHEL. Now, with reference to the California Shipbuilding Corp., how many of the 10 corporations that you mentioned before were in 0. that? Mr. HENRY KAISER. I would appreciate it if you would ask the Cali- fornia Shipbuilding Corp. Mr. WEICHEL. I am asking you. Mr. HENRY KAISER. I do not have that information. I do not have that information here, and the president of the company is here. Mr. WgicHEL. Were any of the 10 companies that you are interested in in on the formation of this? Mr. HENRY KAISER. I can get the information over here. Mr. WEICHEL. No; with reference to yourself. Mr. HENRY KAISER. Were they interested in my interest? Mr. WEICHEL. With reference to you. -What part did you have in the formation of it, you and the various companies or corporations in which you were interested? ME. HENRY KAISER. I subscribed to my proportion of the stock. Here is a record that shows it. Mr. W ,ICHEL. Did you participate in the formation of the com- pany, as ou did with reference to these other companies? Mr. H11NRY KAISER. YOU could say "Yes," and you could say "No." I think t ey feel that they did it. I think you should give them that credit. 1 think they did do it. I think they did a magnificent job in the production of ships. Mr. WEICHEL. With reference to these 10 corporations Mr. HENRY KAISER. I do not suppose I was in the yard over two or three times in my life. Mr. WicHEL. With reference to the 10 corporations that you have mentioned, who put in some money covering the formation of five of these companies? Did any of those 10, or affiliates or subsidiaries or groups ciontrolled by these same people, have anything to do with building any of the yards? Did they receive any money for doing any work or providing any material for any of the yards that these six companies operated, these Government-owned yards? Mr. IINRY KAISER. I do not know. That is 5 years. I think the records ill show that. I think it is comparatively small. It is a fraction f the volume of work, if they did any. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 175 Mr. WEICHEL. To your knowledge, did the stockholders of any. of these 10 corporations you mentioned, or their affiliates or subsidiaries, or any of those receive any money with reference to the building of any of these yards for service work, material, or anything else, of any kind or description, on the yards? Mr. HENRY KAISER. I think it is a fraction if they did. The rec- ords will show that. It has all been approved by the Maritime Com- mission and accepted by them. They were all competitive bids, in the majority of cases, and anywhere you could get anything done you did in the war. The sad thing about this is that we are forgetting that we had to win a war. We are forgetting what was necessary. We are forget- ting the dead man who was practically crucified in the winning of this war, Admiral Vickery. We are forgetting his efforts and what he did, and how he worked to get these ships built. He made a lot of mis- takes that you have not even brought up, not in connection with us. But he made the greatest success and he will go down in history. But he will be crucified, I guess. Yile was. Mr. WEicHEL. Now, with reference to these 10 corporations that you mentioned, that put in some money and formed these five cor- porations that operated these Government yards, and which With California Shipbuilding received some $190,000,000 in fees without those companies having any investment whatsoever in the yards, you testified yesterday that they were companies that were engaged in the general construction business, with the exception of Todd Ship- yard and a man by the name of Shea, who built several ships during World War I. With reference to Todd, you set forth a percentage of around 50 percent. That was for the Todd Shipyard experience in building ships? Mr. HENRY KAISER. No. I think I should explain these percent- ages to you this way. This is customary- over the past 30 years in my experience. We have built work in Cuba, we have built work everywhere, on the basis of any 1 of 20 or 30 associates that I have, that have gone into projects on the basis of the percentage of risk and money they wanted to take in it. There is not one of them that would have gone into any one of these projects if they thought they were going to take bank loans, for instance, that they could not pay back. They have gone in on a percentage. Now, Todd wanted 50 percent. That was the reason he got 50 percent. He wanted it. Mr. WEicHEL. They were the people who had some experience in building ships were they not? Mr. HENRY KAISER. Yes; they did have. Mr. WEICHEL. The rest of them did not have any experience in building ships. Mr. HENRY KAISER. I gave testimony here yesterday that they did. You do not want me to repeat that, do you? Mr. WEicirm. They had 2 years' experience, and Shea built some in World War T. Mr. HENRY KAISER. I would like to rely on the testimony I gave yesterday. Mr. WEICHEL. Can you not give it again today? Mr. HENRY KAISER. you ; if you want me to repeat it. Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approyed For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 176 SHIPYARD PROFITS ? Mr. WELionni,. Todd: WAS 150 percent. They were the people who had some rbal ship experience, were they not? Mr. HENRY KAISER. They, and the General Construction, and J. F. Shea. J. F. Shea was in the former World War on a long-time basis. Mr. WEicHEL2He built a few ships during World War I? Mr. Hiay-ity KAISER. You say a few. He built quite a percentage with Tuohey. J. F. Shea .was with both Skinner & Eadie, and they had a great reputation in the former war, and with Tuohey. Now, you can get.Tuohey. here and he will tell you the exact number of boats he built, and exactly his experience. Unfortunately Charlie Shea is dead. Mr. WrirmEn. Did the Todd- people have more than Shea, or less? Mr. HENRY KAISER. I question that, in shipbuilding. Todd's ex, perience was in the former war, also in shipbuilding. Mr. WEI9IEL. Did they build them all through, from then down to ? this war ? . Mr. HENRY KAISER. No. They went into the ship repair business. Mr. WEIICHEL. They went into the ship repair business? Mr. HENRY KAISER. Yes. I don't know of any ships they built, throughout between the Wars. _I think they felt they had had an un- fortunate eXperience. I think that is one of the reasons it was so hard for Admiral Land to hook them. -Mr. WErHEL. Todd had the biggest percent in these companies, 50 percent? Mr. HENRY KAISER. Yes; that is right?in these companies. Mr. WEICHEL. His experience was considerable, you said, but that experience did not _go along up to now in the companies at all. Mr, HENRY KAISER. Well, the companies divided at that time. I am glad you brought this question up and I am sorry you did, but you are asking what experience was worth. Mr, WEICHEL. Well, you got their experience. They were out of business in11942 and '43 and '44 and '45. Mr. HENIRY KAISER. No, no. Mr. WEICIIEL. You bought them out when?in '42, did you not? Mr. HENRY KAISER. But they were not out of business. Just a moment. Mr. WEICHEL.. You bought out their interest in these companies? . Mr. HENRY KAISER. In those yards, and we sold our interest in other yards that We had with them. Mr. WEIrEIEL. But you say you bought them out in these particular ones that we are all talking about here in 1942? Mr. HENRY KAISER That is right. Mr. WEIlCHEL. So that in '42, '43, '44, and '45 their experience was not in these companies at all. Mr. HENRY KAISER. That is right. MR. WECIIEL. On which these great fees were received. Mr. Hnnv KAISER. That is right. Now, th results were these. After that, Todd went alone and we went alon The records will show the experience of the two com- panies, and which saved the Government the most money, and it might be well fo you to look that up, and that will answer your question, because ou costs were very much lower than those costs in the yards - that Todd took over. I am glad you brought up the point, but I am Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD 'PROFITS 177 sorry to be able to constantly say We saved so much money, and that investment has nothing to do with it, but that proves again that in- vestment is not the criterion which Makes the money for the Govern- ment. . Mr. WEictinn. Investment has nothing to do with the profits you get. Is that the way you state it? Mr. HENRY KAISER. Absolutely. Investment is not the criterion. It is what you save, how you reduce the cost. The people are inter- ested in how little it costs them, not in how much it costs them. Mr. WEnainn. The public are not interested in how much? They are not interested. in $190,000,000-some that you got? Mr. HENRY KAISER. I have just said this to you again, that for the public, as a Representative, if you can save them money you should. Mr. WEICHEL. But you should not have to give away some :$190,000,000. Mr. HENRY KAISER. If you had a balance in their favor you might. Mr. NV-mount,. Not to that tune. Mr. HENRY KAISER. Well, if you do not want to save them that money, that is another story. Mr. WEICHEL. In other words, your idea of saving them Money is to give it away? " Mr. HENRY KAISER. You would soak the public rather than give them money? , The CHAIRMAN. I do not think that the committee will be interested in the respective philosophy of the witness and the gentleman. It is facts we are after now. Mr. WEICHEL. With reference to the Richmond yard No. 3, it has been rumored, and someone has asked me with reference to it, so I ask you, do you know anything of the burial of hundreds of thou- sands of dollars' worth of material in the Richmond yard with con- crete? Did you ever hear of that story? Did you ever hear of it? Mr. HENRY KAISER. I never heard of any burial of material. I have never heard of it being buried, but there is a story about ware- houses being filled with material, if that is what you are thinking of. Mr. WEictinn. I am talking with references to the Richmond yard. There is a story that it wa0 buried in the ground and covered up. You never heard of anything like that? Mr. HENRY KAISER. No; I certainly did not. Mr. Wniortnn. That is was put down there and covered with con- crete. Did you ever hear that? Mr. HENRY KAISER. No; and I think the Maritime Commission ought to be asked about that. They had 200 men there all the time watching that, and if they did not, report that material was being buried and concrete put on top of it, something should be done about it. Mr. WEICHEL. Some people would like to know, and I asked you if you knew anything about it. You never heard of it? Mr. HENRY KAISER. I never heard of it. Mr. WEICHEL. So if any engineer employed at Richmond plant No. 8 makes that statement, it is untrue? I mean, you never heard of it? Mr. HENRY KAISER. I have never heard of any such thing, and I could not believe it could be.true. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 178 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. WEICHEL. If any engineer at the plant who worked at the plant has made those statements, it is untrue? Mr. HENRY KAISER. I would think so. I think the Maritime Com- mission would immediately expose it. Mr. WEICHEL. I am not so sure they would know. Mr. HE- RY KAISER. They had 200 men there. There was not just one. The had a series of constant inspections and investigations. The CH IRMAN. I think that has all been gone into very fully. Mr. WE CHEL. In March 1944 there were some hearings befpre this committee with reference to the matter now under consideration, and at that time committee Document No. 57 showed that there was $228,- 000,000 paid to the 19 ship contractors, among which your companies were named as in this exhibit, which now shows that $356,000,000 in fees was paid. There was a hundred and some million paid since the time of that testimony. The same companies are in this exhibit 1 and also in thiS exhibit 2, or whatever number they gave it, which is com- mittee DoCument 57. This shows the same companies, including the six in which it is claimed that you have an interest. With reference to the fees that were received by your company for the operations of the California Shipbuilding Co., in which you say you have an interest, and Kaiser Co., Inc., operating the Portland yard, Richmond yard No. 3, the Vancouver yard, Kaiser Cargo, Inc., Oregon Shipbuilding Corp., Permanente Metals, and Walsh-Kaiser or whatever its name was at that time, Admiral Land testified that the column with reference to capital investment of the contractor did not mean that the contractor had any investment whatsoever in the Governme ij it yards, the yards that we are talking about in this investi- gation. e said that the land was paid for by the Government, the buildings were erected by the Government, the machinery was in- stalled and paid for by the Government; all labor in building ships was paid for by the Government; all material was paid for by the Govern- ment, and the complete operation at the Government plant was paid for up to $25,000 per person, and he said that the fees were paid to the various ship contractors, the 19 in this group including your com- panies, without their having any investment whatsoever in these Gov- ernment yards and that the payment was made not on the basis of any investmer t whatsoever, so that the fees that were so paid at that time, $254,000,000, and $356,000,000 now, would be profit without any in- vestment in the yards on the part of the ship contractors. That is what Admiral Land testified to at that time. The only difference now is in the amount. Would you say that that is correct ? Mr. HENRY KAISER. No; it is not correct, but I do not want to comment on his testimony. You have all the information here in great detail. I think you can refer to that. The CHAIRMAN. Would Mr. Weichel give me the page number of that testiinony ? Mr. Wticunn. It is in the hearings entitled "Shipyard Profits" and it is on pages 32 and 33, especially, and all through the hearings where the admiral testified. Mr. HENRY KAISER. My answer to that is in 160 pages or more of informat on, and we are going to furnish more. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 179 Mr. WEICIIEL. I am just talking with reference to what the admiral said, that he paid that money without any investment by these ship contractors at all in the particular yards. ME. HENRY KAISER. Well, we told you yesterday we owned 100 acres of land. Probably the admiral was not thinking of that. I do not want to criticize the admiral. Mr. WEICIIEL. That 100 acres does not bear much relationship to this $356,000,000. Mr. HENRY KAISER. I do not want to criticize his testimony. I do not want to say he was talking in general. I want to say we have the records here, and you can get the information from the records. Mr. WEICIIEL. I presume that this is a continuation of the hearings on shipyard profits, and that this will all be introduced and made a part of the record, these previous hearings at which Admiral Land testified. Mr. COLES. I understood the chairman so ruled the first day, Mr. Weichel. Mr. WEICIIEL. Yesterday, Mr. Kaiser, you were speaking with reference to the formation of these corporations, and how, because of yourself, the credit of these corporatiOns stood very high, because of you and your associates. And I said something with reference to the fact that only the moneys or property of the corporation would be liable for anything. With reference to your saying that your background and your credit loomed large in your estimation, I just wanted to call to your attention that in two of these corporations, the Oregon Shipbuilding and the Kaiser Co., Inc., in the articles of -incorporation, so that the individuals involved would specifically not be liable even though they were liable in law, this clause appears [reading] : The private property of the stockholders shall not be subject to the payment of company's debts to any extent whatsoever. So you specifically put that in the incorporation, and I was wonder- ing how far you intended to be liable, or your credit, in view of the fact of what you had specifically stated in the incorporation papers. Mr. HENRY KAISER. I think the fact that the banks are still loaning us millions indicates that they have confidence in us, on the same basis, in the postwar world. Mr. WEICIIEL. But, I mean, you did specifically put that in that you would not be liable in any way, shape, or form? Mr. HENRY KAISER. We are doing $6,000,000 Worth of 'business a month in one of these companies noW, which has no relation to the Government whatsoever. Mr. WEICIIEL. But you specifically .put that in, that you would not be liable in any way? Mr. HENRY KAisEa. My son says that it is a general article, and I will make that statement, in articles of incorporation. Mr. WEICIIEL. You have it in two of these specifically. In the Del- aware corporations you have it, and in the other ones you do not specifically have it. Mr. HENRY KAISER. As a matter of fact, I have never seen the articles of incorporation. I do not look at them. ? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 ' 180 SHIPYARD PROFITS I Mr. WECIIEL. That is all. The CI AIRMAN. Mr. Keogh? Mr. KE GH. No questions. ' . The CI AIRMAN. Mr. McConnell, have you any further questions? Mr. MC ONNELL. NO. The CII]AIRMAN. Have you any further questions, Mr. Herter? Mr. HERTER. No. The CHAIRMAN. Mr. Hand, have you any further questions? ME. HAND. No further questions. ' The CIIAIRMAN. Mr. Kaiser, Mr. McConnell wants to ask you some further questions. Thank you, Mr. Weichel. - Mr. MCCONNELL. Mr. Kaiser, would it be correct to say, in a,pproch- -ing this question, for the sake of the public, that, considering the total volume oJ contracts with the United States Maritime Commission as being $4,19,256,O00, that was taxpayers' money far which they re- ceived a ertain number of ships? What, in addition to the number .of contra ts which you received, was put in by the Government? Did the Government build ways? ME.} NRY KAISER. Yes. - - Mr. M CON-NELL. They did? Do you have the figures on that? 11l Mr. Ei, . RY KAISER. That is Government facilities, now? I . Mr. MCCONNELL. Yes. . ME. HENRY KAISER. Yes. Mr. MC1CONNELL. I would like to add that to the contract. I would like to know how ranch public money went into this enterprise foy which they received on the other side so many ships. That is one way we Might -consider this thine'. The public put in so much money. They received in return so much. I would like to see if we can work something out in that direction. ., Mr. HENRY KAISER. I believe, to the best of my knowledge, with regard to the shipyards themselves, the public put in more money into housing. They put 8125,000,000 into shipyards. Do you want the housing? I had better not include the housing, because it is not all for shipbuilding. Mr. MCONNELL. Do you have a percentage? ? Mr. HENRY KAISER. It is $33,000,000 in housing, but I do not have it broken down. Mr. MCCONNELL. Part of that 833,000,000 was in connection with your shipbuilding operations? Mr. TINRY KAISER. A. large part of it; yes, sir. Mr. MCCONNELL. Would you care to give an approximate figure? * Mr. EDGAR KAISER. Probably two-thirds of the housing was occu- pied by shipyard workers. That is a rough approximation. Mr. McCoNNELL. About $22,000,000? Mr. EDGAR KAISER. That is right. Mr. IhNuir KAISER. Then there is transportation, $2,800,000; mis- cellaneons, $1,200,00Q; and here is an item of repair 'facilities that the Navy pit in. I presume you would want that, too, in the amount of $4,314,00. It is a total of $167,000,000. Mr. cCoNNELL. That went in in connection with shipbuilding. That incudes ways? Mr. HNRY KAISER. Those are shipbuilding facilities, including the ways. Approved For Release 2003/10/10: CIA-RDP64600346R0004000600024 Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 SHIPYARD PROFITS 181 Mr. MCCONNELL. That would be in addition, then, to the $4,- 000,000,000?some of contracts? Mr. HENRY KAISER. That is right. That is on 58 ways for 7 ship- yards. Mr. MCCONNELL. That is the total amount of the people's money? Mr. HENRY KAISER. And that is for seven shipyards. Those are the figures we have here that we have furnished here. Mr. MCCONNELL. Now, would we not be correct in saying that the amount of RFC loans that are readjusted downward, or are not paid; should also be added to the amount of money the public puts in your enterprise? Mr. HENRY KAISER. Not when you have the obligation of paying it back. i Mr. MCCONNELL. Yes; but if they readjust t downward? Mr. HENRY KAISER. If they readjust it downward, which I hope they will do in order to adjust with the United States Steel, then it would be taken into account. Mr. MCCONNELL. Then you would have to adjust upward the cost of vessels to the people is that not correct, because extra cost went into it. They, did not get it back. Mr. HENRY KAISER. It would not be charged to ships. If you are taking the over-all Government picture, that is true, but it would not be charged to ships. If you are taking the over-all Government pic- ture, that is true, but if you do that, there were $18,000,000.000 worth of total facilities built. This is only a drop in the bucket of what was built with Government money. Mr. MCCONNELL. Not for you? Mr. HENRY KAISER. No. Mr. MCCONNELL. I asked you what they built for you. Mr. HENRY KAISER. Just this drop in the bucket?$167,000,000. Mr. MCCONNELL. But, you see, you borrowed a certain amount of RFC loans. Taking the amount you have set aside, I believe about $80,000,000 would be unpaid. You have set aside some $15,000,000. You paid $27,000,000; you put aside $15,000,000, leaving a net, if I recall, of a little over $80,000,000 that you have not paid back to the RFC. Mr. HENRY KAISER. That is right. Mr.. MCCONNELL. It is your loan, but if you do not pay some part of it back, it then becomes a loss right from the taxpayer, is that not correct? Mr. HENRY KAISER. That is right, but you must understand that they already have a loss on a similar loan for ships of 80 percent of $200,000,000 in the United States Steel Geneva plant, which also fur- nished ships, see? Mr. MCCONNELL. Do you not think that we should ourselves delve into that, and make that comparison? Mr. HENRY KAISER. Pardon me. Mr. MCCONNELL. I am asking you. I am referring to them Kaiser Co., now, and not to United States Steel. Mr. HENRY KAISER. YOU are right; I am sorry. Mr. MCCONNELL. Am I correct, then, in saying that we have put in?when I say "we" I mean the taxpayers?over $4,000,000,000 in contracts, and facilities of $100,000,000-some, and we have received back 1,460 ships of all varieties? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 182 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. HENRY KAISER. You cannot charge the steel all against that. I know you want to be fair, and I appreciate how very kind and fair you have been in your questioning, and I want to be very clear in everything I say. i The Fontana plant was a tremendous advantage in the producing of steel for shells. When we had that sudden short- age, no o e anticipated it. Not only did they come to us and ask us to buil shells right there, but we shipped steel East for shells, so you cann t charge all of that to shipbuilding. You would have to make some division from the shell standpoint, because that is an Army matter. Mr. MCCONNELL. But you see, Mr. Kaiser, in that summary I just gave I never mentioned anything in connection with steel. I did not mention file RFC loans. Mr. HENRY KAISER. I thought you were adding the RFC loans. Mr. MCCONNELL. I said nothing about that on the second summary. I said that if you did not pay that back, that would have to be added also. We do not know whether you are going to pay it all back, be- cause you are seeking to readjust it now. Mr. HENRY KAISER. If it was not paid back, part of it would have to be charged to shell steel and other steel. Mr. MqCoNNEra,. And part to shipbuilding. Mr. HENRY KAISER. And part to shipbuilding. That is right. Mr. MCCONNELL. In spite of that fact, you are taking the complete loss of that right from your shipbuilding profits. You are charging all the losses against your shipbuilding. Mr. HANRY KAISER. But I could not do otherwise. In the event I got any credit on it at all, it would come back and be taxable. Mr. 114CoNNELL. Mr. Kaiser, I have asked for the general cost of the prod ction of ships. I do not have at the present time the aver- age over he country. I have asked the Maritime Commission for it. I would 1 ke to bring it in later into this hearing. I want to mention it to you, n all fairness. I want to see whether the 1,460 ships that the public re eived were of reasonably fair value in consideration of the amount o money that they put out. Mr. 1-4NRY KAISER. I think you are very fair if you take the money that we have saved as compared with the average cost of all other ships, and get that. We have attempted to give only the Truman committee report, which made a very detailed study. We believe that we have made a tremendous saving in tankers, because we carried the tanker flag for months, and we believe we made a tre- mendous saving for the Government in C-4's over any other ships, but you must get the comparable ships, and we have tried to get the exact coniparable ships. In some cases our costs?in very few cases, where we built 2 or 10 ships?for instance, we started out with a tremendously low cost in the Vancouver -yard, and we were going to make a tremendous record, and all of a sudden they threw in on us, which we objected to but we could m!it do anything about it, some LST's, some tankers those big, long, fiat tankers that go on the beaches, and they stopped our pro- gram entirely. Then we went to the air carrier, which was so essen- tial, so that you have to take that into consideration when you make a comparison. You have to do the same thing for other yards, too. I Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 183 For instance, the Bethlehem-Fairfield were in a hot Liberty pro- gram, and we were competing with them, and then all of a sudden they threw some LST's at them, and that unbalanced their costs. But this Truman committee report attempted to arrive at a fair valuation. They did through one year and they did through another. The CHAIRMAN. While we have a great deal of respect for the Truman committee and for their conclusions, at the same time we have an obligation resting upon this committee. Mr. MCCONNELL. Mr. Chairman, will it be possible to ask Mr. Kaiser to appear again at some later date if more facts are brought out? The CHAIRMAN. It will certainly be the disposition of the Chair to bring in any witness desired by any member of the committee, and I would infer from Mr. Kaiser's presence here that he would be very glad to appear. Mr. HENRY KAISER. I will be delighted. I welcome the opportu- nity, and I would be delighted. Mr. HAND. Mr. Chairman, I wonder if I might ask the witness one or two questions. Mr. Kaiser, do I gather from what you are saying that you feel that you and your companies are entitled to a fee or a profit which is based largely on the amount that you may save the Government in compari- son with the operation of other companies? Mr. HENRY KAISER. No. Mr. HAND. On what basis do you feel that you are entitled to these rather large fees? Mr. HENRY KAISER. In the first place, I do not like the words, "Mr. Kaiser, what are you entitled to ?" I think we are only entitled to what the Government would give to others on, an equitable basis. That is my answer, although I have never discussed fees and I have particularly avoided it with even the Government. I said, "I want to build the ships. You just simply do what you would do equitably, and that is all I care for." I think we are only entitled to an equitable position. This is a free country, and all men are equal, and they should be treated in equity. Mr. HAND. How would you base your calculation of the fees to which you are entitled, Mr. Kaiser? Are you basing it largely on a comparison of what was done with other companies, or how your operations compared with other companies? Mr. HENRY KAISER. No. Mr. HAND. Where do we get this figure of $192,000,000, or whatever it was? Mr. HENRY KAISER. That is not my figure. Mr. HAND. It is what you got, is it not? Mr. HENRY KAISER. No; we did not get it. We went all over this last night. Those figures stand. Mr. HAND. What was the fee based on? You must have had some- thing to do with setting that fee. Mr. HENRY KAISER. No; we did not have anything to do with it at all. Mr. HAND. Nothing whatever? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 184 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. HDNRY KAISER. No. Mr. HAND. No interest in it? Mr. HENRY KAISER. We did not have anything to do with it,. You asked what we did about it. ' Mr. HAND. Was the fee set entirely arbitrarily? Mr. HENRY KAISER. No; the fee is set under the law. It was set first by the Maritime Commission and then Congress came along, and under seven points set up a Renegotiation Act by which all fees should be renegotiated. Those are the fees we will get. We have nothing to do with that. The renegotiation officer does that. Mr. HAND. You said some time ago in your testimony, and I am inclined to some extent to agree, that fees and profits should not nec- essarily be based hi a situation like this on capital investment, and I understood you to say a moment or two ago that you thought you were entitled to consider these fees because of the amount of saving that you made through your efficient operations as compared with other operators. Mr. HDNRY KAISER. Just to give you an illustration, the Govern- ment did set that program up. The Government set up a basis of fees where they allowed an additional fee for all contractors where there was a fee, a penalty, and a bonus clause, and if you saved time they gave you credit for it and increased your fee. If you saved it, money, they increased your fee, and they made a contract with you? and with 11 yards?based upon a penalty. We did 1,(Yet an increased fee as a result of that bonus and penalty, but the r negotiation officer, when he came in took a great deal of it away. T ey did not keep that contract. Mr. HAD. Would you say that as a result of what the Government set up and what the Maritime Commission set up, and what Congress set up, in many instances the formulas they adopted resulted in ex- travagant costs to the Government in the prosecution of the war, par- ticularly in the building of ships? Mr. HENRY KAISER. I cannot answer that question. That is a broad question. In every case, or are you referring just to us? Mr. HAND. I would rather refer to you, because I would not expect you-to knOw about the others. Mr. TITNRY KAISER. All right. Well now, so far as we are con- cerned, I, have only one thing to say, that I must respect the laws and the intent of Congress, and whatever they expect, I must agree is the right thing. Mr. HAND. I am not accusing you, Mr. Kaiser, of unlawfully taking something to which you are not entitled. I am trying to find out whether it, was not an extravagant thing for the Government to do.. Mr. HEVIIY KAISER. I do not want to pass judgment. That is Con- gress' duty. That is what you are here for, to determine whether they did it. It is not my job to do that. Mr. 1-4Nn. Have you ever considered, not as a shipbuilder but as a citizen and a very large taxpayer, the over-all cost of these things done by us as compared with how they did within other countries also prosecuting the war? Mr. HDNRY KAISER. I have considered it. I do not know of any better system. We won the war. Mr. HAtND. We are now concerned with whether or not the system might have been unreasonably extravagant. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 185 Mr. HENRY KAISER. That is right, and that is for you to determine. All I want to do is to see that you have the facts. Mr. HAND. I think you referred a few moments ago to I forget how many scores of hundreds of millions as "a drop in the bucket." If the committee were to agree that that is a drop in the bucket, might we not gradually, with that philosophy, get the United States into a little bit of difficulty by thinking of hundreds of millions as "a drop in the bucket"? The CHAIRAIAN. I wonder again if we are not going into a philo- sophical discussion as compared with facts. ? Mr. HENRY KAISER. As compared with $18,000,000, that is why I was saying that was a dro_p. The CHAIRMAN. Mr. Weichel has suggested to me that he had omitted, inadvertently, certain questions he wanted to ask. Mr, Weichel. Mr. WEIciiEL. Did you or your group at any time have a brief prepared by attorneys covering the matter :that you did not believe that your contracts should be checked by the General Accounting Office? Did you have such a brief prepared and sent in to the Mari- time Commission? Mr. HENRY KAISER. I would not know. Mr. WEICIIEL. And did you later submit a bill for reimbursement for attorney fees covering that? Mr. HENRY KAISER. I would not know. I would not know to what you are referring. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. WEICIIEL. That would be a matter of policy with reference to these six companies and you would know, _ would you not? Mr. HENRY KAISER. I do not know. if you have the records I will agree with anything the records show. Mr. WEICIIEL. I merely asked you if you knew. Mr. HENRY KAISER. No; I do not know. I have an entirely dif- ferent feeling, because they were in our yards and we asked them to be in our yards. Mr. WEICIIEL. You do not know. That is the important thing. You said the other day that no member of your family had an interest in the Gilpin Construction Co.? Mr. HENRY KAISER. That is right. Mr. WEICHEL. Mr. Casey, of the General Accounting Office, made the statement that the Gilpin Co. is a wholly owned subsidiary of General Construction. Mr. HENRY KAISER. I do not think it is. Mr. WEICHEL. He made the statement that it was. Mr. HENRY KAISER. He made a lot of statements that are not true. Mr. WEICHEL. Do you dispute that one? Mr. HENRY KAISER. I do not know. I could not find that out, myself. Mr. WEICIIEL. Do you dispute that the company of the stock in the Consolidated Building, Inc.? Mr. HENRY KAISER. I dispute that Gilpin did; ye Mr. WEICIIEL. And that the company-owned 100 stock in the Oregon Shipbuilding Corp.? Mr. HENRY KAISER. What company? Mr. WnionEL. Consolidated Building, Inc. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 owned 26 percent s. percent of all the Approved For 186 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. HENRY KAISER. Let me get the gentleman straight. What company are you talking about? Mr. 170ncinia, I will read it over to you again. Do you dispute the statenent made by Mr. Casey of the General Accounting Office to the effe,ct that the Gilpin Co. is a wholly owned subsidiary of Gen- eral ConStruction Co., and that the company owned 26 percent of the stoal in consolidated Building, Inc, and that company owned 100 percent Of the stock in the Oregon Shipbuilding Corp., and that both General Construction Co. and Consolidated Building, Inc., have been associated with you and your various corporations for a number . of years10 Do you dispute that statement made by Mr. Casey the other da t? Mr. HNRY.KAISER. I dispute the statement that I know. I do not know wlto are the stockholders of Gilpin. I believe that there are a numbel and that they are, many of them, employees of the General Construction, but I do not know, and I have so stated here before? The CIIAIRMAN. All right. (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. ENRY KAISER. That you can get that information from the renegoti tion people, because they were renegotiated. ? The C IAIRMAN. That is all right. Mr. WEICIIEL. That is all. The CIIAIRMAN. ME. Bradley? Mr. BRADLEY. Mr. Kaiser, a few minutes ago, in answer to a ques- tion from Mr. McConnell, you brought up the question of participa- tion of Fontana Steel Division in the 'manufacture of shells. Can you give me some general break-down, the percentage of Fontana's opera- tions that went into the actual production of plates for steel, and how much of it went into ships? Is it 75, 25, or something like that? Mr. I#NRY KAISER. I think we can give it to you. It is during the period of shell production? (Exhibit 35 gives an additional written answer by Mr. Kaiser.) Mr. BRADLEY. If this loss should be figured back against ship pro- duction, I would like to know how much of it should be figured back to ship production. Mr. IENRY KAISER. Plate production started in August 1943. There as no shell production up to that time. Mr. B ADLEy. Plate production started in August of 19431 Mr. ENRY KAISER. Yes. Mr. IRADLEy. Most Of your ships were actually built in 1943, were they not? Mr. IENRY KAISER. Five hundred and forty-seven thousand tons of plate, This is wartime production. It was 135,000 tons of shapes. There were 94,000 tons of shell steel and 17,000 tons of bars. Now, they went into other products. I do not know how many of these different product's they went into, you see. They allocated them, and you can get thati from the War Production Board. That is the total tonnage. Mr, RADLEY.. Roughly, about three-fifths of the production, then, went ii $o ships, did it? Mr. IENRY KAISER. No; I think more than that, because some of these bars and shapes went into other things that were vital, too, you see. . It would appear from the records here that there were 94,000 tons of shell steel and 17,000 tons of bars, 135,000 tons of shapes, 547,004 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 187 tons of plates, with 1,200,000 tons of steel ingot over all, divided into these. Mr. BRADLEY. It was a relatively small proportion, then, on shells? Mr. HENRY KAISER. On shells. Now, where the bars went and where the shapes went, whether they all went into ships, I am not sure. Mr. BRADLEY. I just wanted to get that, and then there is one more thing that I wanted to bring up. Several times you criticized the figures given by Mr. Casey, which of course were the Maritime Commission's figures that he read in his opening statement. Mr. fiENRY KAISER. Thilt is right. Mr. BRADLEY. But I think you are a little unfair in your attack on him personally, because the very first question that Mr. Coles asked it Mr. Casey was this [reading] : Are the views which you are going to express today the official views of the Comptroller General and the General Accounting Office? Mr. CASEY. The Comptroller General has read this prepared statement and, says he agrees with it 100 percent. ? So I think that any accusation against Mr. Casey personally for submitting wrong figures, saying those do not represent the official views of the General Accounting Office, is a little bit in error. The CHAIRMAN. I doubt we are concerned with the attack on Mr. Casey. Mr. Casey is a very reputable gentleman, representing the Comptroller General, and we will pass on the facts as presented in the evidence. Mr. MCCONNELL. Mr. Kaiser, at what rate are you depreciating the steel company? At what rate are you writing it off? MT. HENRY KAISER. Now? Mr. MCCONNELL. NO. Mr. HENRY KAISER. We are now using a rate permitted by the In- ternal Revenue Bureau of 4 percent per year, approximately. Mr. MCCONNELL. How much have you depreciated so far? Mr. HENRY KAISER. The figures are there. Mr. MCCONNELL. I do not know. Mr. HENRY KAISER. I believe we testified to that yesterday. Mr. MCCONNELL. I do not recall that. Mr. HERTER. Fifty percent, he said yesterday. Mr. MCCONNELL. About 50 percent has been written off? Mr. HENRY KAISER. HOW much? Mr. MCCONNELL. Since when? Mr. HERTER. You said about 50 percent. Mr. HENRY KAISER. Yes; about 50 percent-47 percent. Mr. MCCONNELL. Since you obtained it? Since you bought it? Mr. HENRY KAISER How? Mr. MCCONNELL. That dates from the time you bought it? Mr. HENRY KAISER. That is right. Mr. MCCONNELL. Up to now? Mr. HENRY KAISER. That is right. We are questioning again, you see, that same question, whether it should not be written off 80 percent as the result of our competitors getting the plant at 20 percent. The CHAIRMAN. I would suggest that if he would answer the ques- tions without the witness injecting remarks, probably we would get along faster. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 188 Release 2003/10/10 : CIA-RDP64600346R0004000600024 SHIPYARD PROFITS Mr. HENRY KAISER. The provision here is for amortization, depre- ciation and depletion $45,927,360. Mr. ilCCONNELL. And from now on you are depreciating it at the rate of 4 percent? Mr. HENRY KAISER. That is right. Mr. Mc(oNNEEL. Would you mind explaining again what was meant by "theoretical tax loss," referred to in yesterday's question? MT. HENRY KAISER. MT. COX could do it. The CHAIRMAN. Mr. McConnell yields to Mr. Keogh? Mr. MCCONNELL. I yield to Mr. Keogh. Mr. KE9GH. I want to get back to this dwreciation. In any event, any depreciation that is taken is subject to review by the auditors of the In4rnal Revenue Bureau? Mr. 11E214-aY KAISER. Oh, yes. Mr. KEOGH. All right. Mr. HENRY KAISER, Absolutely. Mr. Cox. Mr. McConnell, the sheet which is in evidence here before the commkttee, for Kaiser Co., Inc., I think will demonstrate or clarify the situat on which you have with respect to the theoretical taxes. The actua operations of the company as one company in fact included the prodl4ction of steel for ships and other purposes, and the pro- duction of ships as a business operation. For the purposes of every legal prolAsion I know, such as the Renegotiation Act, the Bureau of Internal Revenue, they set up the gross income, and deduct the expenses against that for pay roll, materials, capital-investment charges, such as 'the paYment of interest and amortization, and then you subtract 'those for the operations of the whole company. They showed an actual foss, and therefore for tax purposes there was no tax paid in the years in which there was a loss. Now, the theoretical computations which were required on the basis of the questions you asked yesterday were to assume what was not the fact or not the reality, and that is, that there was not a loss. The fact is that ther was a loss, so that you only got to a theoretical computation of what ti fie taxes would have been if you assumed the unreal fact that there was not a loss; but the actual fact, any accountant or any lawyer will tell mou that you could not make up the real and honest books of the Kaiser Co. without showing the gross income, and the charges against that income, showing the net figure, which in this case in fact was a los. Now, that statement is before this committee, and I think if you look at the statement you will see pretty clearly. I think it would make it a little clearer. You may not have seen this sheet. The CHAIRMAN. Anything further? Mr. MOCONNELL. I do not want to ask anything further. Mr. Cox. If you will look at that sheet, you will see it gives the number of ships delivered in each yard, the gross payments received in the form, of fees, or income received from fixed=price contracts, the profits transferred from other shipyards the amount of nonreim- bursable and disallowed items for each yard, which are subtracted from the first gross figure, giving you the gross earnings on United States Maritime Commission yards contracts for each of the three yards, and. the total, Then it has added the profits from shipyard operations other than United States Maritime Commission contracts, the iron and Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 189 steel division losses, other corporate income' and the net loss for the five war years, accumulated to May 31, 1946, $18,579,040.26. The CHAIRMAN. I am afraid the witness should bear in mind, I thought his original statement was very clear, and to make statements with reference to it, we get into confusion worse confounded. Mr. Cox. All right. The CHAIRMAN. Any other questions you want to ask with reference to that, Mr. McConnell? Mr. MCCONNELL. No. The CHAIRMAN. Mr. Kaiser, the members of the committee are tired looking at you. I say that jocularly. Mr. HENRY KAISER. Thank you. The CHAIRMAN. I knew you were anxious to get away. Mr. HENRY KAISER. Thank you very much. I want to thank the committee, as well. The CHAIRMAN. We are very glad to have had you. Mr. Coles, the next witness. (Information furnished by Permanente Metals Corp., Kaiser Fleet- wings, The., and Oregon Shipbuilding Corp., in response to the com- mittee's questionnaire, was received for the record and marked "Ex- hibits 11, 12, and 13.") Mr. Conns. The California Shipbuilding Corp. The CHAIRMAN Who is the man? Mr. Conns. I think it is Mr. Bechtel. Mr. McCone. The CHAIRMAN. Mr. MeCone was sworn yesterday. TESTIMONY OF JOHN A. MeCONE, PRESIDENT, CALIFORNIA SHIPBUILDING CO. Mr. COLES. Mr. McCone, for the purposes of the record would you give us your full name and title, please. Mr. McCown. John A. McCone, president of the California Ship- building Co. Mr. COLES. Do you have a prepared statement you would care to read, or would you prefer merely being asked' questions? . Mr. McCown. No; if ? I may be permitted, I would like to read a statement. The CHAIRMAN. You furnished, in response to inquiries, I believe, .answers that have been submitted. Mr.. McCown. Yes. The California Shipbuilding Corp. responded to the inquiry of the committee. The CHAIRMAN. The facts shown thereon become permissible testi- mony before the committee, ?and stand uncontradicted, unless .challenged at the hearing. Mr. McCown. As far as we were concerned, that is true; yes, sir. The CHAIRMAN. All right. Mr. McCown. The purpose of my. statement is to give some addi- tional information which I believe will be of interest to the committee, and probably of assistance in examining this matter. In late December 1940 representatives of a group of western engi- neering and contracting companies and of the Todd. Shipyards Corp., all of whom at that time were jointly interested in the ownership an 93486-46 13 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For;Release 2003/10/10: CIA-RDP64600346R000400060002-4 190 ! SHIPYARD PROFITS I I operation of three shipyards in the United States, were asked by the Maritime , Commission to meet in Washington to discuss the im- mediate construction of several emergency yards to be used for the building of merchant ships. Terminal Island, Los Angeles, was selected by the Commission as one of th desired sites and the group formed the California Ship- building corp. solely for the purpose of building the Terminal Island yard. S bsequently this same corporation was awarded contracts to constrict ships in this yard. The yard grew into one of the largest and one of the most successful of the Nation's emergency yards. It pioneered many of the processes of prefabrication and subassembly that later were accepted as stand- ard by al yards. Many delivery records were established by Calship and costs! of ships of all types were exceedingly low in comparison with other shipbuilders. The stockholders entrusted the sponsorship and management of the yard to the Bechtel-McCone interests and the operating officers were selected from the W. A. Bechtel Co. and the Bechtel-McCone Corp. Contrary to impressions sometimes gathered, the yard was not at any i i time a aiser-managed operation. Mr. Kaiser and his companies never ow ed more than 16.6 percent of the stock of Calship. The initial shipbuilding contracts between the California Shipbuild- ing Corp, and the Maritime Commission stipulated that the corpora- tion shonld be provided with $800,000 of equity capital subscribed by its stockholders, either in the form of stock subscription or stock- holders' loans, subordinated to all of the corporation's obligations in- cluding obligations to the Maritime Commission. And, in addition, the corporation should provide another $800,000 of borrowed funds, on which the Maritime Commission would not make interest reimburse- ment. Both of these conditions were complied with; $100,000 was sub- scribed in the form of common stock and $700,000 as non-interest-bear- ing subordinated stockholders' loans. The Bank of America entered into an agreement with the corporation to loan to it the second $800,000 called for under the contract although this loan soon had to be increased substantially. After a year's operation, the Todd Shipyards Corp. sold its 50-per- cent interest in California Shipbuilding Corp. A distribution of surplus was made by way of a dividend in order to facilitate Todd's withdraIal. The remaining stockholders accepted their distribution as a stock, dividend and, moreover, loaned to the corporation as an addi- tional subordinated loan, the sum of $500,000, thus replacing funds paid to the retiring stockholder. Therefore, after this transaction was completed, the capital structure of Calship was comprised of $600,000 of common stock and $1,200,000 of stockholder's loans, which were subordinated to all obligations of the corporation, including obliga- tions to tae Maritime Commission. I wish to emphasize at this point B that sub rdinated loans of this character are in effect equity capital.eing subordinated, they could not be repaid until shipbuilding opera- tions were completed. The action of the Calship stockholders in pro- viding funds in the above amount far exceeded the contractual obliga- tions imposed upon the corporation by the Maritime Commission with regard to subscribed capital. Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 191 Concurrently, Calship was forced to provide additional capital necessary to finance work in process. This capital was provided through bank loans totaling $4,000,000. These loans were all the direct obligation of the corporation and I believe the character and business standing of the stockholders was the prime consideration of the bank's granting this extensive line of credit. California Shipbuilding Corp. at no time sought or accepted ad- vances from the Government on its contracts, nor did it arrange Gov- ernment guaranties of its obligations through the medium of the V-loan. A large portion of the dividends paid out of profits, and on which taxes were paid by the stockholders, were in turn reloaned to the corporation in the form of aditional subordinated stockholders' loans for working-capital purposes. Subordinated stockholders' loans reached the grand total of $2,700,- 000, which, together with $600,000 of stock, made a total of $3,300,000 of equity capital. To this must be added $4,000,000 of bank loans? giving a total of $7,300,000 of funds provided by the corporation for working-capital purposes. The statement made by representatives of the General Accounting Office in Monday's meeting to the effect that the stockholders of the California Shipbuilding Corp. provided only $100,000 for the purpose of this undertaking is not consistent with the facts and I am happy to give the committee the above factual information. I repeat that not $100,000 was provided, but many millions were provided. The facilities used by California Shipbuilding Corp. were built at Government expense. They were purely emergency in their char- acter. They were built on land leased by the corporation from the City of Los Angeles Harbor Board with the understanding that the facilities would be abandoned and removed and the property restored to the Union Pacific Railroad at the conclusion of the emergency. At no time were the facilities considered as permanent, nor was it con- sidered practical to use them for commercial purposes. Being strictly a war emergency plant, it was not within the province of private capital to provide such facilities, nor did the Commission suggest we do so. Sithilar emergency plants costing many billions of dollars and used for the manufacture of all types of war materials have been financed exclusively by the Government and operated by private enter- prise. The fees paid on all cost-plus-fixed-fee contracts and the profits earned under selective-price contracts were in accordance with sched- ules and formulas developed by the Maritime Commission, designed to afford incentive bonuses for rapid and low-cost production, and Cal- ship's outstanding production record earned for them those bonuses. Very substantial reductions in the corporation's earnings resulted from renegotiation. Facts relating to Calship profits differ from information given to this committee by representatives of the General Accounting Office on Monday and so reported in the press. The gross earnings of the corporation over a 5-year period, after renegotiation and recapture, were $35,541,880.60. Nonreimbursable costs incurred were $4,167,- 906.48, and taxes paid or accrued were $22,591,110.82, leaving a net after-taxes profit of $8,782,863.50, as contrasted with the $44,423,014 profit reported to you by the General Accounting Office. Net profits Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 192 SHIPYARD PROFITS I averaged $1,956,500 per year for the years 1941-1945, inclusive, and during this period the corporation continuously provided up to $7,800,- 000 for the conduct of this business. Net prOfits were 0.89 of 1 percent on the $919,000,000 value of the 467 ships produced by the men and women of the California Shipbuild- ing Corp, Net profits amounted to less than 1.5 percent of the yard's costs for the work done by us, which figure excludes the value of mate- rials furnished by the Maritime Commission or any other Government agency, or the cost of the facilities. Those responsible for Calship are proud of its record. Year after year, operating three shifts per day, 7 days a week, we produced ships in unpre edented numbers and at low cost, and delivered them to the armed se vices when they were needed to carry the fight to the battle- fields of the world. In doing so the stockholders placed in the service of the yard a vast number of executives, engineers, superintendents, and workmen, all of whom represented the real assets and resources of this western group. The skill and ability of these men and their sincerity of purpose in serving the country's needs produced the ships without which the war would have been lost. The Cp[AIRMAN. Is that the conclusion of your statement? Mr. McCoNE. Yes sir. The C#AIRMAN. Mr. Coles, in interrogating the witness, please omit facts alrqady shown by the inquiries and things of that kind. We want to proceed as rapidly as possible. Mr. COLES. Mr. McCone, are the companies which were the majority stockholders in Calship basically the same companies that were the majority stockholders in the four yards concerning which Mr. Kaiser has testified? Mr. MpCoNE. Yes, sir. Mr. Cis. They are? Mr. MCCoNE. I would like to read the names of those companies. The CtIAIRMAN. I think it would be better. Mr. McCoNE. There have been so many different companies, but the companies originally involved in the formation of the Calship were the Tod4 Shipyard Corp., the Henry J. Kaiser Co., the J. F. Shea Co.? Inc., the. W. A. Bechtel Co., the General Construction Co., the Kaiser Co., Inc., Bechtel-McCone-Parsons Corp., which incidentally for the record, the name has since then been changed by the deletion of the name Parsons, but it is the same corporation. The Utah Construc- tion Co.,' Marrison-Knudson Co., Inc., MacDonald & Kahn, Inc., the Pacific Bridge Co. Mr. COLES. When the company was first incorporated, $100,000 was paid in a3s capital stock; is that correct? Mr. NOC?NE. That is correct. Mr. ConEs. Subsequently, by stock dividend, it was increased to $500,000,; is that correct? Mr. McCoNE. That is right?about a year later. . Mr. CoLis. And was that stock dividend a transfer of moneys from surplus 6ut of profits into the capital-stock account? Mr. McCoNE. That is correct. Yes. Mr. CoLEs. Now, you spoke also of the stockholders' loans originally of $700,000. Was interest paid on those loans? Mr. McCoNE. No; they were non-interest-bearing. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 193 Mr. COLES. When were they repaid? Mr. McCoNE. I think in December 1945. Mr. COLES. You also spoke of other stockholders' loans which were paid and made out of dividends. Were those dividends declared out of shipyard profits? Mr. McCoNE. There was an additional loan of $500,000 of subordi- nated non-interest-bearing loans, which were not paid out of dividends but were additional subscribed capital that came from the stockholders from other sources. Mr. COLES. And when were those loans repaid? Mr. McCoNE. Those loans were repaid during 1915, I believe. Mr. COLES. How much money was lent from stockholders' loans paid out on dividends? Mr. McCoNE. There was a million and a half dollars made in the way of stockholders' loans out of dividends. Mr. COLES. What was the total amount of your bank loans? Mr. McCoNE. $4,000,000. Mr. COLES. And was interest paid on the bank loans? Mr. McCoNE. Interest was paid on the bank loans in excess of $1,400,000. The interest on the first $1,400,000 was not reimbursed by the Maritime Commission. Mr. COLES. Was the interest On the other bank loans reimbursed by the Maritime Commission? Mr. McCoNE. On the bank loans in excess of $1,400,000, was reim- bursed by the Maritime Commission. Now, may I add, therefore, the Maritime Commission did not reimburse interest on any stockholders' loans nor on the first $1,400,000 of bank loan. Mr. COLES. What was the total cost to the Government of building your yard? Mr. McCown. Some $25,000,000. I think you have the figure. Mr. COLES. Yes. Mr. McCoNE. The figure in that report is the correct figure. Mr. COLES. How much of the moneys of your corporation were invested in the physical yard? Mr. McCoNE. 'Very little, very little. Mr. COLES. Can you estimate what it was? Mr. McCoNE. I tried to get that figure so I would have it, but I did not get it; but it was a very small amount. Mr. COLES. So that in effect all of the capital which you have spoken of was used to finance your operations pending reimburse- ment by the Government, is that correct? Mr. McCoNE. That is correct, and to finance corporate and operat- ing expenses of a nonreimbursable nature. Mr. COLES. But the nonreimbursements I think you stated were a compartively small amount of your contracts and profits, is that true? Mr. McCoNE. There were $4,100,000. That may be a small amount percentagewise but it is a good deal of money. Mr. COLES. Did your contract provide that your company would build the yard for the Maritime Commission, at the Maritime Com- mission's expense? Mr. McCoNE. Yes' I think that is correct. Mr. COLES. Did it also provide that you would not be paid any fee or profit for the building of that yard? Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 194 SHIPYARD PROFITS Mr. McOoNE. $1 or $2; but I do not think that we ever got it. Mr. COLES. Who did the actual building of the yard? Mr. McCoNE. The California Shipbuilding Corp. did a large part of it. The fact is they did it all, subcontracting specialty operations. Mr. COLES. Did they subcontract part of their building to the Bechtel-MeCone-Parsons Corp.? Mr. McCoNE. They subcontracted the engineering to the Bechtel- McCone-larsons Corp. Mr. COLES. And that corporation was a major stockholder in Calship, was it not? Mr. McCoNE. Yes. Mr. COLES. What fee did they pay the Bechtel-McCone-Parsons Corp. for their engineering? Mr. M CONE. The understanding was that that work would be done at a solute cost. An estimate of the cost was made and a figure of $100,000 was agreed to. Mr. COLES. As the cost or as a fee? Mr. MvCoNE. As the cost. There was no fee. Now, after the work was all completed, the Maritime Commission auditors reviewed Bechtel-ScCone-Parsons' costs and renegotiated the amount, so that they determined to their satisfaction, and to ours, that the moneys paid to the Bechtel-McCone Corp. were representative of their cost, and cost only, for the work done, with no addition for general or administrative overhead or for profit. Mr. COLES. Were any fees paid to subcontractors? Mr. McCoNE. No; I do not think so. Mr. CopEs. Were any profits paid to subcontractors? Mr. McCoNE. Oh, yes. There must have been. Mr. 04.,Es. Were any of the subcontractors affiliates of any of the stockholders in Calship ? Mr. M9CONE. No. Mr. COLES. Now, the figures we have to get through this rather rapidly, show that the total contracts of your company amounted to $990,000,000, and of those' $170,000,000 were selective-price and $216,- 000,000 Were lump-sum. Were those selective-price or lump-sum con- tracts conversions from other forms of contract, or were they actually signed after certain ships had been partially or fully completed? Mr. *CONE. The contracts came in three classifications: One was cost-plusla-fixed-fee contract, which were completed as cost-plus-a- fixed-fee contract. Then we entered a cost-plus-a-fixed-fee contract which was changed very radically during its operation, and the initial part of it was converted into a lump-sum contract after completion of the vessels involved. The balance of it was canceled and the ves- sels that were canceled were added to a subsequent selective-price con- tract by amendment. Mr. COLES. At the time of the conversion was the price of the ves- sels known, or approximately known? Mr. McCoNE. At the time of conversion to the lump-sum contract the price was known. Mr. COLES. So there was no risk of loss on the lump-sum contract, was there? Mr. McCoNE. No; and the earned fees were known, and the lump sum was arrived at by accumulating the cost and adding the earned fees under the fixed-fee contract. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 195 Mr. COLES. Now, were the cost-plus contracts, 79 ships, converted after 18 of those vessels had been completed, that you can recall? Mr. McCoNE. No. Mr. COLES. It is a rather difficult question. Mr. McCoNE. No. Mr. emus. You cannot recall? Mr. MeCoNE. Oh, I can recall. It was not done. Mr. COLES. Now, of the total cost, I note that $389,000,000 worth of material was supplied by the Government, is that correct, or ap- proximately correct? Mr. McCown. Where is the schedule? Yes; that is about right. Mr. COLES. What was the total of the material and services fur- nished by the contractor? ? Mr. McCoNE. About 601 million. Mr. COLES. Were you reimbursed for that $801,000,000? Mr. McCoNE. Yes. Mr. COLES. Did that $601,000,000 include all material? ? Mr. McCoNE. My attorney says the answer to that question was, we were reimbursed, or it was allowed in cost in the selective-price contract. Mr. COLES. Were you reimbursed, or were all labor costs reim- bursed ? Mr. McCoNE. Yes, yes. ? Mr. COLES. And the interest on borrowed capital, over and above the $1,400,000 bank loans, was reimbursed? Mr. McCoNE. I believe that is correct. Mr. COLES. Did any of your executives receive management salaries which were reimbursed by the Commission? Mr. McCoNE. The executives of our company that were engaged directly in the operation of the yard, allocating their time to the yard operations and thereby relieving theinselves of responsibilities in con- nection with other operations, were reimbursed in a manner agreed to with the Maritime Commission. Mr. COLES. And that was paid for with Government funds? Mr. McCoNE. That is correct. Mr. COLES. Now, how long did it take normally before you were reimbursed for the money you had laid out? Mr. McCoNE. In the early days before procedures were established the delays ran as long as several months. After procedures were established and the Maritime Commission installed reimbursement officers on the west coast, and a few other things, the reimbursement cycle got down to about 3 weeks, I think. Mr. COLES. Now, during that time, pending reimbursement, you were in the position of a creditor of the Government, much like a bond- holder, were you not? Mr. McCoNE. Well, I do not know. We had a claim against the Government. I do not know the status of a bondholder. Mr. COLES. And the claim against the Government was financed by the money which you had in the corporation, is that correct? Mr. McCoNE. That is correct. Mr. COLES. I would like to ask the same question that I asked Mr. Kaiser, Mr. McCone : With material supplied by the Government or paid for by the Government, with labor paid for by the Government, with interest on borrowed capital over a certain amount paid for by the Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 196 SHIPYARD PROFITS Governm nt, with management salaries paid for by the Government, with non eimbursables small and the period of waiting for reimburse- ment comparatively small, what were the fees and profits paid for? Mr. McCoNE. For building the ships. Now, I would like to reply to that question in this way: that during this war, and during the last war, also, it becam& obvious that the ships that were needed to win the war could not be built by the old, established shipbuilding in- dustry. There is evidence on top of evidence of the fact that the establish d shipbuilding industry was not equipped prior to this war, nor were they equipped prior to the last war, to do the job. Therefore, the Maritime Commission was forced to call upon engineering con- tracting firms. About 75 percent of the entire ships of the maritime program and a great percentage of the Navy's program was handled by engineering contracting companies versus old-line shipbuilders. The same was true in the last war' and you will remember that the Stone-Webster ne of the outstanding engineering contracting com anie? in the Co.,finited States, built and managed the Hog Island yard, which produced the substantial percentage of the ships during that war. Now, an engineering contracting company is a service com- pany. They provide sufficient money to carry on their business, but they make their profit and they conduct their business on the basis of the service that they are able to offer. Their life in trade is not the money that they have in the bank but is the men and the experience and the know-how that they have, and it is that which the Maritime Commission employed. It was that which Admiral Vickery sought when he sought us, and it was that asset and that asset alone which made the shipbuilding program the success that it was. Mr. Cow. Mr. McCone, are you not in effect saying that your com- pany waS the manager of a Government-owned yard, and this fee was a management fee? - Mr. McCoNE. That is one way to put it. Mr. CO;LES. IS it a correct way of putting it? Mr. McCoNE. It was more than that. Mr. Cow. Would you explain in what way it was more? Mr. McCoNE. Well yes. If you employ a management firm, he puts up no money at ;II; he puts up no organization at all. He steps in as an employee?a paid employee, really?and for a fee, does a service that a paid manager might do. The q1AIRMAN. Let us get the facts. Do not argue about what the conclusions are. We can find those. The committee can find those. Mr. MCoNE. So it is not correct to say that this was purely a man- agement fee. Mr. CO.LEs. It was management plus a return on investment, with- out risk, is that it? Mr. McCoNE. Plus the employment of a managerial ability and a great experience in technique. Mr. Crus. Were those managerial salaries not reimbursed by the Commission as salaries? Mr. MoCoNE. The job-management salaries were reimbursed, but no salaries were reimbursed at all for the vast amount of executive, planning, engineering, and managerial experience and talent that was devoting its attention to this program, and who were not on the job. Mr. C LES. So that the $35,000,000 in fees after renegotiation but Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 197 before taxes was paid for that super-holding-company management, is that your thought? Mr. McCoNE. Building the ships is what it was paid for. Mr. COLES. Well, the thing that I cannot get is, the men in the yard who managed the yard and built the ships were paid salaries and re- imbursed by the Commission. Now, I cannot see what the $35,000,000 after renegotiation but before taxes was paid for. I cannot see that, and I wish you would explain it, if you can. The CHAIRMAN Isn't that a matter of conclusion to be drawn by the committee rather than the witness? Mr. COLES. I think so, Mr. Bland, but I thought that the witness's views would be helpful. The CHAIRMAN. We want to get along. We do not want to waste time. Mr. McCoNE. Of course, may I add that you are overlooking in that line of thought the fact that a substantial percentage of the contracts done in this yard and other yards were on a selective price, which in effect was a fixed-price profit-limited contract on which the contractor took the full responsibility for any overruns. Mr. Coixs. And were those selective-price contracts not converted after part of the ships had been built, so that the approximate cost was known? Mr. McCoNE. No; I do not believe that is correct. Mr. COLES. Could you give us a break-down of that, in which con- tracts were converted from different forms of ship contracts? Mr. McCoNE. Well, in the instance of Calship, 18 ships which were under construction were deleted from a cost-plus-a-fixed-fee contract and added to a subsequent selective-price contract, and at the time of that conversion the selected price on those 18 ships was used. Now, as a matter of fact, had those 18 ships been built under the fixed-fee con- tract, the fees earned on those 18 ships with the bonuses for delivery and man-hour performance would have been $100,000 per ship. Actu- ally the fees on those 18 ships under the selective-price form of con- tract were $95,330 per ship. Mr. COLES. Would the cost-plus fees have been subject to renegotia- tion? Mr. McCoNE. Yes, sir. Mr. CoLEs. Were the selective-price fees subject to renegotiation? Mr. McCoNE. No, sir. Mr. COLES. They were not? In other words, you were removing renegotiation by putting them in, is that correct? ALT. ChAIRMAN. Next witness. Mr. McCoNE. We were not removing it. The Maritime Commis- sion was removing it. Mr. CoLEs. Transferring it? Did you approve conversion to selec- tive price? Mr. McCoNE. After a great deal of resistance. The fact is we resisted it for a year. Mr. COLES. Mr. McCone, the Government put in $25,000,000 to the building of this yard. At the time of the completion of the contract, was there any Government-owned shipbuilding material in the Cali- fornia Shipbuilding Co.'s yards? Mr. Mc ONE. There was. ? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 Apprind For Release 2003/s1RWA:RRIAMs641300346R000400060002-4 Mr. COEES. What was the value of that, approximately, if you can estimate it? Mr. McCoNE. I cannot estimate it. I do not know. Mr. COEES. It has been estimated to us as $14,000,000. Would you say that would be an approximation which might be accurate? Mr. MCCONE. That might be what the original cost of it was, but the value of a large percentage of it was nothing. Mr. COEES. The original cost? Mr. MqCoNn. The original cost might have been in that order. I do not know that. Mr. CorES. Did the California Shipbuilding Co. purchase this yard from the government as surplus property? Mr. MCCONE. No; we did not purchase it. We did, however, acquire the ownership of the yard and the surplus property of the Government that was at the yard. Mr. Cot,Es. Did you pay any money for this shipyard and the sur- plus property in the yard when you acquired it from the Government? Mr. McCoNE. We relieved the Maritime Commission of all of their obligations and responsibilities for the restoration of the site that was owned by the Los Angeles Harbor Board. Now, I would like to? Mr. COEES (interposing). May I interrupt for just a moment and ask this question : In agreeing to remove that and relieve the Govern- ment of its responsibilities, did you receive in addition to this yard that had cost S25,000,000 and this material which may have cost $14,000,000, an additional sum of $2,500,000 in cash? Mr. MoCoNE. No; we did not receive an additional sum of $2,500,000 in cash, but we did receive a revision of our selective-price contract under which the amount of recapture was reduced by 21/2 million dollars. Mr. Calm. So in effect you got an additional 21/2 million dollars, did you ? Mr. MqCoNE. You might put it that Way. Mr. COEES. Would you say that for the record? Mr. 111CoNE. Yes, yes; that is right. Now I would like, since you have asked that question?and I do not have much of the detail of this matter in my mind, and so told you before coming here?but I think that the quamittee should understand that the Government, the Mari- time Copmission, in entering the contract to build this yard on Terminal Island built it on properties owned by the Harbor Board of the City of Los Angeles. Now, the location of the yard was such that it stOod squarely in the way of planned development of the Los Angeles Harbor. Therefore, there was inserted in a clause in the ship- building company's lease with the harbor board a provision to the- effect that at the end of the emergency the yard would be removed in its entirety and the ground restored in every detail to its original condi- tion. That clause was worked out by the attorneys for the harbor board and the attorneys for the Maritime Commission and inserted in our contract by agreement between those two groups. Our contracts with the Maritime Commission provided that we would be reimbursed any and all costs involved in complying with that request or with that contract stipulation. That was estimated?and I do not have ? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 199 the figures?but many, many millions of dollars, and that considera- tion was the reason why the Maritime Commission initiated the plan and requested that we take over that yard. Mr. COLES. Are you going to maintain the yard? The CHAIRMAN (interposing). I wonder, Counsel, how much longer counsel is going to proceed, because many of these answers will be brought up on interrogatories by members of the committee, and then at the conclusion of their interrogatories, if there is any matter that has not been covered, counsel can then resume. Mr. COLES. This is my last question, Mr. Chairman. The CHAIRMAN. Very well. Mr. COLES. Do you expect to continue the operation of this yard as a shipyard? Mr. McCoNE. No, sir. In fact, this arrangement of which we are speaking definitely provided that we could not continue it as a ship- yard, unless and except with a written authority of the Maritime Commission. Mr. COLES. And you will return this property in its original condi- tion to the city of Los Angeles? Mr. McCoNE. Yes or otherwise dispose of it. The CHAIRMAN. ill.. Keogh. Mr. KEOGH. Mr. McCone, was not the conversion of a selective- price contract into a lump-sum contract in effect carrying out the pro- visions of the selective-price contract, especially when that conversion took place when the costs were known? Mr. McCoNE. There was no selective-price contract converted into a lump-sum contract, Mr. Keogh. Mr. KEOGH. I thought I understood there was. Mr. McCoNE. No; there was a cost-plus-a-fixed-fee contract con- verted into a lump-sum contract. Mr. KEOGH. Then proceeding from that, is it not fair for me at least to assume that in the conversion of any contract into a different type of contract, four factors, including the effect of the conversion on the renegotiability of the contract price, were considered by both parties to the contract? Do I make myself clear? Mr. McCoNE. No; I do not understand your question. Mr. KEOGH. Whenever a contract was converted from one type into another, is it not fair for me to assume that all factors, including whether any phase of the converted contract was renegotiated or not, were considered by both parties to the original contract in agreeing to the conversion? Mr. McCoNE. Oh, yes; I think that both parties studied the problems very carefully. Mr. KEOGH. And that those factors reflected themselves in the final price a,areed upon in the converted contract? Mr. McCoNE. Well, yes; I think that is right; yes. Yes; I think that is right. Mr. KEOGH. In other words, it was all done after a full and frank and open discussion? Mr. McCoNE. Oh, yes; that is correct; that is correct. Mr. KEOGH. No further questions, Mr. Chairman. The CHAIRMAN. Mt. Bradley. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved Forpelease 2003/10/10 : CIA-RDP64600346R000400060002-4 200 SHIPYARD PROFITS Mr. BRA.DLEY. First of all, Mr. McCone, I want to say that it is very refreShing to have a witness who has seemingly all the facts and figures right at his fingertips and who can answer questions. Mr. MCcONE. Thank you, Mr. Bradley; but I think our picture is not so complicated as some. Mr. BRADLEY. I am not casting any reflections on anybody, but I am just saying it is refreshing thave a witness who apparently can give us straightforward answers without going afield. I understand that these figures which incidentally were referred to as coming from the General Accounting Office but which actually were submitted to us in a letter from Admiral Smith, Chairman of the Maritime Com- mission, came froth the Maritime Commission. They were referred to by the witness frOm the General Accounting Office, but they were the MaritUne Commission figures, not the General Accounting Office. Mr. MCCONE. Mr. Bradley, I do not want to take. exception to either the figures' that were presented in any detail?they may be absolutely correct; I do not know that?but this I do know, and that is, that when either the; Maritime Commission or the General Accounting Office report to this committee, and also reported in a way that it has spread throughout the Nation on the radio and in the press, the fact that the shipbuilders of this country earned certain profits, and do not include in those figures the proper deductions for renegotiation for nonreimbursable costs, and for taxes in arriving at a net profit figure, that the reporting authorities deliberately mislead the people of this country, and I resent it very much. Mr. BRADLEY. Very well. Mr. _WCoNE. I will say this, Mr. Bradley, if I may add, that if a certified public accountant in reporting on the affairs of a publicly owned co poration reported as many half truths as have been reported to this c mmittee, that certified public accountant would violate a very sacred obligation to the public and would in my opinion be disallowed from further practice in any State in the United States. I cannot understand how any man can come before this committee and report to you and for the benefit of the press that profits run into hundreds of millions of dollars, without at least stating the facts as regards the deductible items, including taxes. Mr. BRADLEY. I think your statement is very fair' but I also heard statement here in the last 3 days that the General: Accounting Office and the Maritime Commission's auditors were above reproach, and they knew all the answers, and everything else to that effect, and that they should have been able to give us an accurate report. It is not our fault that we did not get an accurate report. Mr. l*CoNE. Again, I would like to say Mr. BRADLEY (interposing). I notice right here, for instance, in the case of your particular yard, under this exhibit 1, that has gone into this record, and included with the letter from Admiral Smith, that your capital is reported under the item "Capital investment of shipyard operator," at $600,000. Now, you have clarified that as far reporting I am concerned by reportin now, if I understand you correctly, that the tOtal stockholders capital invested was something like S3,300,- 000; is that correct? Mr. M6CoNE. That is correct; yes, sir. Mr. BRADLEY. And in addition to that you initially secured some- thing like $4,000,000 of bank loans for working capital. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 ?: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 201 Mr. McCoNE. That is correct; yes, sir. Mr. BRADLEY. Which, of course, would be paid back as it was used up and as you submitted your bills to the Maritime Commission, which were later on audited by the General Accounting Office, to make sure the bills were paid in accordance with the law. Mr. McCoNE. That is right. Mr. BRADLEY. Now, did I understand you correctly that?and as I repeat again, I must apologize for my imperfect hearing, here; I am trying to get that cleared up, and I have been for 3 days?do I under- stand that of the $4,000,000, interest was paid on $1,400,000 by you? Mr. McCoNE. No. Mr. BRADLEY. I did not get that figure. Mr. McCoNE. Interest was paid by us?by the corporation?on the entire $4,000,000. Mr. BRADLEY. In what amount? Mr. McCoNE. But the interest on the borrowings in excess of $1,400,- 000 was reimbursed to us as part of the costs. Mr. BRADLEY. In other words, the increase of $2,600,000 was reim- bursed by the Maritime Commission? Mr. McCoNE. Yes; when the figures went up to 4,000,000. Some- times they would be somewhat less than that. Mr. BRADLEY. How many ships that you originally had under the cost-plus contract2 which, as I understand it, went through under the cost plus were paid for on that. formula? - Mr. 14cCoNE. I will have to do a little addition here. I believe we had 420 ships. Mr. BRADLEY. Then the original contract was carried out on a cost- plus basis? Mr. McCoNE. On several contracts; yes. Mr. BRADLEY. They were all Libertys, were they, primarily? Mr. McCoNE. No; there were 306 Libertys, 30 Liberty-type tankers, and 84 Victory ships. Mr. BRADLEY. And then you had 18 additional that started out at cost-plus and, after they were completed, they were changed to this selective price formula? Mr. McCoNE. No. The cost-plus-fixed-fee contract for the 84 Vic- tory ships went through several changes. First, it was changed from 84 ships, all alike, of the AP-3 type to 32 AP-3's, 34 AP-5 troops transports, and 18 AP-3's. Then it was changed by reducing the 34 transports to 30 transports and reducing the total number from 84 to 80. Then the 18 AP-35s were changed to AP-2's. Mt. BRADLEY. What is the AP-2? Mr. McCoNE. A Victory ship with a 6,000-horsepower unit in it rather than 8,500-horsepower unit, and somewhat different in its arrangements, and so forth. Then the corporation entered into a contract for 79 additional AP-2's on a selective price basis, and at that time or thereabouts the 18 AP-2's were thrown over and made a part of the selective price contract. Mr. BRADLEY. But their costs had been established by that time, had they not? Mr. -McCoNE. No; they were in process, but they were not at a point where we knew what the cost would be. Mr. BRADLEY. You must have kiiown pretty close to it, or you would not have gone into these other 79, or whatever it was. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 202 SHIPYARD PROFITS Mr. MC ONE. We had our estimates. Mr. BRADLEY. You were familiar enough by that time so that YOU knew? Mr. MCCONE. Oh, yes; we could forecast our costs, barring a great many unforeseens, which we all feared very greatly. But the cost was not esiablished, because it was not accumulated on the completed vessels. Mr. BRADLEY. We were out there on the west coast hi 1943?I was not there qt your yard personally, but the rest of the committee were? and you were all bedeviled with this constant changing of design. Mr. MCCONE. Yes. Mr. BRADLEY. On this question of the removal of the yard, my understanding from questioning by counsel is that it was the Maritime Commission's obligation to restore that yard to its original prewar status. Iq that correct? Mr. MGCONE. No; it was the corporation's obligation under the regulations of the harbor board; but it was the Maritime Commission's oblgation to reimburse the corporation for all of its costs incurred in the restoration. Mr. BRADLEY. On the same basis as it was the Maritime Commis- sion's obligation to reimburse you for constructing the yard in the first plac0 Mr. MCCONE. That is correct. Mr. BRADLEY. As directed by the Maritime Commission? Mr. MdCown. Yes. In the final analysis the restoration would be directed by the Los Angeles Harbor Board; that is, the degree of it. Mr. BRADLEY. That is in accordance with the terms of the original contract? Mr. M CoNE. That is correct. Mr. BRADLEY. Did I understand you to say that it was going to cost $25,000,0 0 to restore the yard? Mr. M CONE. No; I did not say that. Mr. BRADLEY. How much do you estimate? Mr. MciCoNE. I do not know what the estimates are, but it was many millions. I do not know the figure. Mr. BRADLEY. According to these Maritime Commission figures, that everybody challenges?they ought to know the cost of the facilities? they put $25,213,000 into that yard. But you have no idea how much it is going to cost to remove that yard and restore things to their original Condition? Mr. l*CoNE. No; we do not know that and will not know the actual cost for some time because it involves the removal of the ways and the pulling of thousands and thousands of piles, the removal of thousands of yards of concrete, and taking up all the pavement and all the under- ground"ipe and utilities and railroad tracks; and they may go so far as to have the channel redredged finally after it is all done. I can- not answer that question; I do not know. We hope that it is not going to be too much. Mr. B ADLEY. I understand you have made a deal with the Maritime Commis ion to take over that rebuilding? Mr. cCoNE. Yes. Mr. B4iADLEY. Will you repeat that deal? Mr. cCoNE. Yes. The deal that was proposed by the Maritime CommisSion and accepted by us involved the turning over to us at no Approved For'Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 203 cost the materials and the facilities to become ours in ownership with Calship accepting the full obligations of the lease, and, moreover, re- lieving us of $2,500,000 of a recapture that was due the Maritime Commission. Mr. BRADLEY. In other words, they let you retain that, plus every- thing in the yard and the facilities themselves? Mr. McCown. That is right. Mr. BRADLEY. Have you made any detailed or even a rough estimate as to the amount of material remaining in the yard that is salable? Mr. McCown. No, sir. I do not have those figures. I asked counsel if he wanted me to have them. If so, I wanted to have our man, the men that are handling that. He said, no, that he thought it not neces- sary, but subsequently, if the committee wished to go into it? Mr. BRADLEY. I would like very much to have it put into the record later. Mr. McCown. I will be very glad to submit it to you. The CHAinivrAw. Then if we want to examine on the matter, we can. Mr. BRADLEY. Based on the original cost and the estimated salvage value. Mr. McCown. We will give you the full picture. Of course, any figures now are a very rough estimate. -Mr. BRADLEY. Apparently so, according to radio statements and newspaper reports. Mr. McCown. The job is not yet clone. Mr. BRADLEY. Again I want to congratulate you on your very straightforward testimony. That is all. The CHAIRMAN. Mr. Keogh. Mr. Kion. How long do you think it will take to remove the facilities and restore the property to the harbor commission? Mr. McCown. I would think it would take another year; the middle of 1947, anyway. Mr. KEOGH. That is all. The CHAIRMAN. Mr. Weichel. Mr. WEICHEL. Mr. McCone, you had a cost-plus contract, a cost- minus contract, a lump-sum, and selective-price contracts. What is the selective-price contract? Mr. McCown. We had no cost-minus contract, Mr. Weichel. A selective-price contract is, in effect, a fixed-price contract, the price of which can be selected within certain limits by the contractor in advance of starting work on any particular ship. Selective price means that the contract price is established, and the higher the price may be the lower the fee or the profit that the contractor is permitted to retain. The lower the price, consequently, the cheaper the cost of the ship to the Government. The higher the profit that the con- tractor is permitted to retain-- Mr. WEICHEL. You do not mean the more profit; you mean the percent, do you not? Mr. McCown. No. Mr. WEICHEL. The higher the whole cost the less the percent would be, and the less the entire cost the higher the percent would be of the over-all money? Mr. McCown. No. Let me explain it this way. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 204 SHIPYARD PROFITS Mr. WEICHEL. Is it not the way I stated it? Mr. MC ONE. I do not understand it. Mr. WEICHEL. If the total cost is high, the percent of the total cost or the fee is lower; and, where the total cost is less, the percent of the fee is higher. Is not that the way it is? Mr. MCONE. No; it is not the way it is. Mr. WEICHEL. YOU tell how it is. Mr. MCPONE. Take a hypothetical case, a ship that the Maritime Commission would estimate to cost 21/2 million dollars. The con- tractor would be given authority to select a price between 21/4 millions and 23/4 millions. I am speaking of purely hypothetical figures. Mr. WE CHEL. The contractor could set a price over it or below it; is that cor ect ? On a 21/2-million,dollar ship they would set the price 2% millions or 21/4 millions, between those ranges? Mr. Mc ONE. That is right. Mr. WE ciim. Above and below the estimate? Mr. MC ONE. Yes. If the contractor came in and said he wanted to put a pilice of 23/4 million dollars on it, then he would be permitted to retain maybe $25,000. Mr. WpCHEL. Is that on the basis of a percent of the 24 millions? Mr. MCcONE. No; it was a fixed amount. Mr. WETc}rra,. Not a percent? Mr. MCcONE. That is right. If he could see that his costs were less than 23/4 million dollars, selective price, then he would be able to retain a stipulated profit over all of his costs-- Mr. WEICHEL. If it was less than the 21/4 or less than the 23/4? Mr. McCoNE. Two and three-quarters. The man would select a price of 23/4 million dollars. That is the price for that contract. Then the shipbuilder and the contractor have a contract to build a ship under conditions where the contractor will receive his costs and a profit agreed upon, which may be $25,000 or $50,000. There was a schedule. If the costs exceeded 23/4 million dollars, the contractor would pay, and would not be reimbursed, for all costs in excess of the 23/4 million dollars. If the costs were less than 23/4 million dollars, the Maritime Commission would recapture the difference between the actual costs and the 23/4 million dollars, the contractor retaining only the agreed fee. Now, if the contractor selected a price of 21/4 million dollars, the fee which he would be permitted to retain would be in- creased and agreed upon. It may be $125,000. Then if the costs of the contractor exceeded 21/4 million dollars the contractor would be liable for all costs in excess of 21/4 million dollars. If the costs were less than 21/4 million dollars, the Government would recapture the dif- ference between his costs and the 21/4 million dollars, with the con- tractor retaining only the fee which was agreed upon. Do I make it clear? Mr. WEICHEL. You were building Liberty ships out there, were you not? Mr. MccoNE. Yes. Mr. WEICHEL. How many did you build? Mr. McCoNE. Three hundred and six. Mr. VirEicHEE. On what basis did you build those, at what price? $1,500,000 apiece or what? Mr. McPoNE. They were on a cost-plus-a-fixed-fee basis. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 205 Mr. WEICHEL. What did you get for each one of the Liberty ships in the way of a fee for each one of those ships that you built out there? What was the fee you got on each ship of those 330? Mr. McCoNE. Well, on the first contracts the fee provided was $110,000, and under a system of bonuses and penalties for overrunning or under running in man-hours and delivery the fee could be increased to $110,000 or decreased, as I remember it, to $60,000. A formula was set up. There was a maximum of $140,000 and a minimum of $60,000. Mr. WmcitEL. That is on the Liberty ships? Mr. McCoNE. Yes. Now, in subsequent contracts Mr. WEICHEL. Wait a moment. I want to ask you right there how many were decreased to $60,000? Mr. McCoNE. On our first 55 ships they were all decreased to $60,000. Mr. WEICHEL. The first 55 you got $60,000 apiece as a fee? Mr. McCoNE. That is correct. Mr. WEICHEL. After all expenses and everything else were paid? Mr. McCoNE. No; wait a minue. That was not after all expenses, 'because there were items of nonreimbursable? Mr. WEICHEL. You only had $4,000,000 nonreimbursables, and you had fees of $53,000,000. The first 55 you got $60,000 apiece as a fee? Mr. McCoNE. For 55, according to the formula in the contract, we got 860,000 apiece. As a result of renegotiation that was reduced. Mr. WEICIIEL. YOU got 860,000 apiece in the first instance, and then renegotiation reduced it some more ? Mr. 1VIcCoNE. Yes; to $49,116.12. Mr. WEICHEL. There were 330 altogether, you said? Mr. McCoNE. Yes. Mr. WEICHEL. On the rest of the 330 did you get $150,000 apiece or $110,000 apiece? Which did you say? Mr. McCoNE. On the next contract of 109 ships the fee remained at a minimum of $60,000 and a maximum of $140,000. On a base fee of $110,000 we earned on that contract the maximum fee. Mr. WEICHEL. On the next 60 you got $140,000 apiece? Mr. McCoNE. No; the next 109. Mr. WEICHEL. On the next 109 ships you got $140,000 apiece? Mr. McCoNE. We did not get it; we earned it. Mr. WEICHEL. According to the schedule it was $140,000 for each ship? Mr. McCoNE. Yes; but through renegotiation it was reduced to $76,043.07 per ship. Mr. WEICHEL. The first ones that you got $60,000 apiece on were reduced to what? Mr. McCoNE. To $49,116.12. Mr. WEICHEE. And these were reduced from $140,000 to $76,000, about one half? Mr. McCoNE. Yes. Mr. WEICIIEL. Why were they not reduced to $49,000 apiece like the others? You were making them faster and bigger andhetter, due to this great efficiency of Mr. Kaiser and everything, and you made them so fast that they cut it from $140,000 to $76,000. When your efficiency was not so good and you were just feeling your way, they 93486-46 14 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 206 SHIPYARD PROFITS reduced it from $60,000 to $49,000. Why were not all of them cut to $49,000 if everybody was so sincere and earnest in this thing? Mr. McCoNE. The reason was this, that the Renegotiation Board of the Maritime Commission analyzed the performances of all of the yards and related them one to the other in trying to establish some degree of uniformity in this matter of renegotiation. It happened that "Cal Ships' "performance after the first 55 ships was very excel- lent, as i4any records will show, and as a consequence, when the re- negotiati n of the subsequent ships came up in relation to other yards, we were iti better shape than we were at first. Mr. W ICHEL. But if the honest amount was $49,000 for the Gov- ernment to pay on the ships, and they said $49,000 was enough, I cannot u derstand increasing it $21,000 apiece, when the Government owned ev rything, just for your efficiency. If $49,000 was good then, it should have been good in the future. All r_ t. What was the next contract? Mr. McCoNE. The next contract was for 60 ships. Mr. WEICHEL. What was the maximum on those? Mr. MCCoNE. I do not have that. I will have to get the figures on that. The C#AIRMAN. Do you have the figures available? Mr. McCoNE. The information on these contracts has been submit- ted to counsel. The C 'AIRMAN. I know, but the Member desires to have it now. Are the Mr. M per vess Mr. ata available so that you can give the facts? CONE. Yes. On that contract the minimum fee was $60,000 1 and the maximum fee was $140,000. EicrrEn. That is on the third batch of ships. The first was 55, then 109, and now come 60 ships. The maximum was $140,000 each? Mr. Mr. Mr. Mr. Mr. ?Corm That is correct. EICIIEL. Was that renegotiated? cCoNE. That is right. EICHEL. What was that renegotiated to? ,cCoNE. It was renegotiated from $140,000 down to $69,499.57. Mr., EICHEL. Just 50 cents less than the other ones. All your experience in building 55 ships and getting $60,000 apiece and getting it cut dOwn to $49,000, and then building 109 and cutting it from $140,000 apiece to $70,000 apiece, and then on the next 60, knowing it would be cut to $70,000, they still give you a contract at $140,000, and then they cut it back 50 cents a ship. That is remarkable. Is that true? Mr. McCoNE. May I have the question repeated, please? Mr. WErcHEn. It is a little more than 50 cents; it is $104. That is what it was cut to on the second 60 ships. With all of the previous building in the two other contracts and all the experience that was the bes they could figure it. Was that third contract forced on you for that amount? Mr. cCoNE. The answer to that, Mr. Weichel, is that these con- tracts ere renegotiated by groups rather than by particular contract, and the division came out in this way. Mr. WEICIIEL. But they forced a third contract on you at $140,000 apiece, having just finished with a contract for 109 ships at $140,000 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 207 apiece which was cut to $70,000; and after this vast Kaiser experience they forced another contract on you for $140,000 apiece. What was the reason for forcing it on you like that? Mr. McCoNE. That yard was producing ships in great number. Those ships were needed, and the Maritime Commission sought to place contracts where they would get the most ships in the shortest time. That was their purpose. Mr. WEICIIEL. But just having built 109 ships at $140,000 apiece, it would seem, with this ingenuity of Mr. Kaiser and the 10 corpora- tions, that when you came to this third batch you would not want $140,000 apiece. Mr. McCoNE. I think you should ask the Maritime Commission about that. Mr. WEICHEL. This was forced on you by the Maritime Commission? like that. What was the next contract? Mr. McCoNE. I would like to make a correction in the testimony here, so that this written record and what I have said will coincide, because the figures that I have given are the figures after renegotia- tion and after nonreimbursable expenses. Mr. WEICHEL. We understand that. It is subject to this little sum of $4,000,000 of nonreimbursable expense as against the $53,000,000. Mr. McCoNE. I did not want it to appear that this written record and the statements I am talking from here are at variance one with the other. Mr. WEICHEL. We will not forget that. On the next contract how many ships were there? Mr. McCoNE. There were 112. Mr. WEICIIEL. A hundred and twelve ships. What was the top price on those? Mr. McCoNE. The maximum fee was $70,000. Mr. WEICHEL. They dropped it one half after three tries; is that it? Mr. McCoNE. The minimum fee was $30,000 and the base fee was $55,000. Mr. WEICHEL. Was the $70,000 cut? Mr. McCoNE. Yes. That was cut to $59,121.85 after renegotiation and nonreimbursable expenses. Mr. WEICHEL. What was the date of the first contract for 55 ships Mr. McCoNE. That was March 14, 1941. I may add that the con- tract on March 14, 1941, was for 31 ships, and by addendum on May 1 of the same year it was increased by 24 to make the total of 55. Mr. WEICHEL. That was in 1941? Mr. McCoNE. Yes. Mr. WEICHEL. When was the contract for the 109 ships? Mr. McCoNE. January 17, 1942. Mr. WEICHEL. Had you completed any of the 55 and had the figures and costs gone in? ? Mr. McCoNE. No. Mr. 1942 ? WEICHEL. Had you completed any of the 55 by January 17, Mr. McCoNE. No. Mr. WincHEE. None of those were completed? Mr. McCoNE. No, sir. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 208 SHIPYARD PROFITS Mr. WEICHEL. How near were they completed? Mr. MpeoNE. We completed our first one on February 12, as I remember it. Mr. WEICHEL. Of 1942? Mr. MoCoNE. Yes. Mr. WpronxL. That was just about 3 weeks afterward. So the figures were pretty well up then. That was of the first of the 55? MT. McCoNE. Yes. Mr. WEICHEL. Even though the maximum was $60,000 and was cut to $49,000; while the first ones were still being built, some of them, but after the first went off, they raised it to $140,000 maximum in the next contract? MT. MqCoNE. No; that is not correct. Mr. WwuEL. According to the dates it would be, would it not? Mr. McCoNE. No. The reason is that no renegotiation was entered into until well after the first five ship contracts had been negotiated and the first three ship contracts had been completed. The fact is I don't believe the renegotiation law was pressed at that date, although I am not sure about that. Mr. WEICHEL. When you finished five of the ships they were re- negotiating the price then, were they not? MT. McUONE. No. Mr. WEICHEL. When were they renegotiating the price? Mr. McCoNE. I think the first renegotiation was in April of 1944. Mr. WEICHEL. They waited all that time to find out? Mr. MOCoNE. Yes. Mr. WEICHEL. How long after the law passed did they start rene- gotiating? The CHAIRMAN. When was the law passed, if anyone knows? Mr. MpCoNE. I do not know. A VOICE. April 1942. Mr. WEICHEL. The Renegotiation Act was passed in April 1942, and you had a contract already in 1941. When did they start renego- tiating the first of these contracts? Mr. M CONE. I think it was probably in December of 1943 or Jan- uary of 941. The renegotiation was completed in April of 1941. Mr. WEICIJEL. When the renegotiation started was there anything done wit 1. reference to this contract for 109 ships, where there was a fee of $140,000 apiece, and the contract for 60 ships at $140,000 apiece? Did they not do anything about renegotiating those contracts before running through all the money with them? Mr. McCoNe. The contract for 109 ships was on January 17, 1942, and the contract for 60 ships was on June 162 1942. Mr. WEiciim. You were building those in 1943, were you not? Mr. MCoNE. That is correct ; yes. Mr. WiacriEL. And in 1944. Now, after you had the 112 at $70,000? apiece arid it went down to $59,000, what was the next number? Mr. MoCoNr. The next number was a contract for Victory ships. That contract started out as 84 AP-3 Victory ships. Mr. W,EicHEL. What was the date of that, roughly? Mr. MpCoNE. That was April 20, 1943. Mr. WEiciTEL. What was the basis of the contract on those ships? Mr. M6CoNE. It was originally a cost-plus-a-fixed-fee contract. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS ? 209 - Mr. WEICHEL. What was the amount on those? What did it come to oh that basis? Mr. McCoNE. As I remember it?it does not appear to be here, be- cause it was converted into a lump-sum contract?as I remember, the minimum fee was $37,000. The base fee was $74,000. Mr. WEICHEL. What was the maximum? ,Mr. McCoNE. The. maximum WEIS $100,000. Mr. WEICHEL. It started out that way? Mr. MCCONE. Yes. Mr. WEicitEL. Then, afterward, it was made a lump-sum contract? Mr. McCoNE. Afterward there were many changes that took place in that contract. As the war went along 32 of the ships were com- pleted as AP-3's as originally planned? Mr. WEICIIEL. On those 32 how much did you get?$100,000 apiece? Mr. McCoNE. No. I will have to answer that question by giving you some additional information. Twenty-one were completed as troop transports ;* nine were partially completed and were delivered to other yards for completion as troop transports. The 32 and the 21 and the 9?there were so many changes, and so forth?were then consolidated into a lump-sum contract. Mr. WEICHEL. That takes nearly all of them, the 32, the 21, and the 9. Mr. McCoNE. Yes. That is 62. They were converted into a lump- sum contract.. Mr. WEICIIEL. The whole 62? Mr. McCoNE. The whole 62. Mr. WEICHEL. That was at so much apiece? Mr. McCoNE. No. The whole 62 were converted into a lump-sum contract, and that lump-sum contract was the sum of the accumulated and known costs, because it was converted after the contract was com- pleted?the sum of the known costs plus a fee of $41,505.64 per ship; and that is after nonreimbursable expenses. Mr. WEICHEL. With reference to the rest of the 84 Mr. McCoNE. Eighteen were canceled from this .contract. Mr. WEICHEL. Which contract? Mr. McCoNE. The contract of which we speak, for 84 ships. Mr. WEICHEL. You said there were 84, and you, had 60. That leaves 24. Mr. McCoNE. Four were canceled completely. Mr. WEICHEL. On those that were canceled was there any work done at all? Mr. McCoNE. No. Eighteen were canceled from this contract but Were added to Mr. WEICHEL. Wait a minute. We had 62 here; 62 from 84 leaves 22. You say four were canceled, so that there are 18 left.. Mr. McCoNE. Yes. They were changed from AP-3's to AP-2's, a ship of a different class, and then they were deleted, by amendment, from this contract and were added to a subsequent contract on a selective price basis. Mr. WEICHEL. What did you get for the 18? How was that set up? What was the maximum for the 18? Mr. McCoNE. There is no maximum. That was on a selective-price contract. Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64B00346R000400060002-4 210 SHIPYARD PROFITS Mr. WEICHEL. Just how much did you get out of each one that way? $50,000 apiece or $70,000 apiece or what? Out of the 18, how much did you get for each ship over and above costs? Mr. MCPONE. $95,330. Mr. WE CHEL. $95,330 apiece? Mr. Mc ONE. That is correct. Mr. WE CHEL. The price of this efficiency seems to be going up. You start d at $49,000, and after four contracts and some years' ex- perience y u got to $95,000 apiece. Mr. MC ONE. There are two things that I want to explain. Mr. WE CHEL. YOU got $95,000 after all this other experience? Mr. MC ONE. That 95,330 was the limitation to the contractor. Mr. WE CHEL. That is the most you could get? Mr. Mc ONE. Under a fixed-price contract. Mr. WWHEL. That is the most you could get? Mr. McCoNE. That is correct. In taking those ships under selective-Price contract we exposed ourselves to risk. ? Mr. WEWHEL. What risk? Mr. McCoNE. We might have lost the entire amount, because we told the(government that we would build the ships for $2,625,000 apiece. If they had cost $2,800,000 apiece we would have lost $175,000 instead of making$95,330, which we did, because of our favorable per- formance. We might have lost it. Mr. WECHEL. Yes; you might; but with this great experience that you claim to have, and these 10 corporations set up, and having had three chances already when you did not lose anything, you were pretty sure that you could make the maximum of $95,000 apiece. You did not have tny real risk involved; only an imaginary one. Mr. McCoNE. Let me correct that, Mr. Weichel. We were operat- ing a yartl with a 21/2-million-dollar per week pay roll. If we had had an interruption because a very small portion of our men had gone on strike, such as the crane operators, and shut the yard down?and that was happening regularly?we would have suffered losses far in excess of any figure you and I have been talking about. There was a real anc: serious risk. ? Let us just take the matter of inability to deliver materials. We were dependent upon steel from one source and machinery from a great nuMber of sources. Those materials were supplied to us by the Government. We had no control over them. A failure to receive any of tbem?and we were constantly short of material?would have so adversely affected our costs that we were always exposed to great risks. Mr. W WHET,. Up to now the exposure was very slight, it seems to me. Every time there was a slight exposure to risk the Maritime Commission immediately corrected it and made the contract so that there woUld not be any risk. Mr. McCoNE. That is not correct. Mr. 174* ICHEL. Not exactly correct? Mr. cCoNE. Not at all correct. These contracts were changed in order :to try to force onto the contractor more responsibility and expose hIna to greater risks. Mr. W ICHEL. When they upped your fee to $70,000 and your third one to $5,000, they were forcing a risk on you? Mr. M CONE. I am speaking of the selective price. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 \ Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 211 ? Mr. WEICHEL. You would not call the first three much of a forced risk put on you, would you? Mr. McCoNE. I thought we were at great risk many, many times. Mr. WEICHEL. I fail to see the risk in the first three. Now, the next one after the 84? What was the next contracts Mr. ifcCoNE. Seventy-nine AP-2 Victory cargo ships. Mr. WEICHEL. What was the set-up on those? Mr. McCoNE. That was a selective price contract. Mr. WEICHEL. What was the high and what was the low and what was in the middle? Mr. McCoNE. There was not any in the selective price contract. Mr. WEICHEL. On a selective price contract I thought you could select a high price or a low price. Mr. McCoNE. Oh, yes; that is correct. I did not understand you. On that 79, I would like to explain that 69 were built, 10 were canceled because that contract was at the end of the war, and 18 of them were transferred from the previous contract which I have spoken of. Mr. WEICIIEL. On the 69, what was the high? Mr. McCoNE. I will have to find that out. I cannot tell you that. Mr. WEICHEL. That is the last one you had, and you do not know what the high was there? Mr. McCoNE. That is correct. Mr. WEICHEL. You cannot remember, although it was the last one, roughly, whether it was $2,000,000 or $3,000,000, or what? Mr. McCoNE. The contract had a scale in it. I will speak purely from memory, if I may. It provided a minimum selective price of $2,175,000, and on that the contractor was able to retain as a gross? I think it was $155,000,; maybe $156,000, but right in that range. Mr. WEICHEL. Roughly? Mr. McCoNE. Yes; the selective price stepped up in increment of $75,000, and for each $75,000 increase the retained gross, permitted the contractor, was decreased about $9,000. Then there was an upper limit of $3,000,000 beyond which you could not go. At that upper limit the retained profit permitted the contractor was $30,000, I believe something on that order. Mr. believe, ti7V-hen was this contract for 79 ships? How long ago was it, roughly? Mr. McCoNE. March 1, 1945, was the date of the contract. Mr. WEICHEL. Referring to the contract on which you got $95,000 apiece for the ships, was that renegotiated? Mr. McCoNE. No; that was not. Mr. WEICHEL. Is that the kind of a contract that is not subject to renegotiation? Mr. McCoNE. That is correct. The CHAIRMAN. Gentlemen, it is now 1 o'clock. We will recess until 2: 30 this afternoon. (Whereupon, at 1 p. m., a recess was taken until 2: 30-p. m. of the same day.) AFTER RECESS (The hearing was resumed, upon the expiration of the recess.) The CHAIRMAN. Is Mr. McCone here? Mr. Cons. Shall we recall Mr. McCone? The CHAIRMAN. Yes; Mr. Bradley has some further questions. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 212 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS TESTIMONY OF JOHN A. McCONE?Resumed Mr. BRADLEY. Mr. McCone, the question I want to ask has to do with your capitalization. This sheet that we had submitted to us by the Maritime Commission showed a capitalization of $600,000 as capital investment of shipyard operator, and I understood this morn- ing that by various figures which you had recited, due to stockhold- ers loans and so on, you eventually boosted that up to $3,300,000. I wonder if you would go over that again and explain it to me again? Mr. McCoNE. Yes; I will do that. In the first place, there was a stipulation in the original contract? Mr. BR4DLEY. To which contract do you refer? Mr. McCoNE. The original contracts between the California Ship- building orp., and the Maritime Commission, that the corporation should be provided with $800,000 of capital subscribed either as stock or as stoc holders' loans subordinated to all obligations of the cor- poration. Mr. BRADLEY. That is over and above the original $600,000? Mr. McCoNE.. No; I am now commenting on the contractual obli- gation. Mr. BR DLEY. But I mean you organized originally with a capital stock of $ 00,000. Is that correct? Mr. Mc ONE. No; that is not correct, sir. We organized originally in this w y : We subscribed $100,000 as capital stock, and we sub- scribed $ 00,000 of subordinated stockholders' loans which were sub- ordinated to all obligations of the corporation including its obliga- tions to t e Maritime Commission. Mr. BR DLEY. Now, on the books of the State of, California?are you incorporated under the laws of California? Mr. Mc ONE. No ? the laws of Delaware. Mr. BRADLEY. What does your structure show there as to the capi- talization of the California Shipbuilding Co.? Does that show $100,- 000, or wliat? Mr. McCoNE. Originally it showed $100,000 subscribed, $100,000 of no par stock subscribed. It shows as $600,000 of no par stock now. Mr. B ADLEY. Well now, where did the $600,000 come from? Is that a $500,000 stock dividend? Mr. M CONE. After subscribing the $100,000 of stock and the $700,- 000 of su ordinated loans and about a year later, when the Todd Ship- yards Cop., retired, we declared a dividend of $1,000,000, 50 percent of which ,was paid in cash to the retiring stockholder, who owned 50 percent (4 the stock, incidentally. Mr. B1ADLEY. In other words, he got $500,000 for his initial invest- ment of 50,000? Mr. M CONE. That is correct. Mr. B DLEY. A 10-to-1 dividend. That is a pretty good dividend. Mr. AIICoN-E. That is right. Then the other 50 percent was paid in the form of a stock dividend, thereby increasing the stock from $100,000 to $600,000. Mr. BRADLEY. Everybody got a 10-to-1 cut in the dividend when the lemoii was cut up. Mr. M CONE. It is not correct to say it was 10-to-1, because of the subordin ted loans of $700,000 being, in effect, equity capital, because Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 213 they were subordinated to all obligations of the corporation and had the same status as stock. Mr. BRADLEY. That brings up just the point that I want to get at, and I was confused and confounded yesterday and Monday afternoon. It is this: I cannot see where any of you fellows should have had any difficulty borrowing from the banks, or how you should figure you had risk capital, when you had a bona fide contract with the United. States Government through the Maritime Commission to build a certain number of ships on which you were to be paid a fee when you completed those ships. They were to furnish all the material, all the salaries, all wages, the cost of interest in many cases, and so on and so forth. So I do not see how you figured you could lose' nor how the banks figured they could lose, assuming, of course, that you had integrity, that you would fulfill your obligation on a contract, which we appreci- ate you were all able to do; we have seen one or two where they did not do so well on the contracts, but not many. But were not those stock dividends and everything predicated primarily on the fact that you had a bona fide contract with the United States Government in the amount of many million dollars which made them, in effect, no real risk, no genuine risk, at all? Mr. McCoNE. I would say this, Mr. Bradley, that on the assumption that the contractor would perform satisfactorily, would manage his business properly, and would administer his affairs in a way so that he would be reimbursed for his costs and everything would be done in an orderly way, there was no particular reason why the contractor should lose any money. Mr, BRADLEY. Well, Mr. McCone, get right back to that one factor. You certainly would not go to the bank and draw out some money to invest in the California Shipbuilding Co. if you had not known you were going to be president. Mr. Bechtel would not have drawn out money to pay for his stock, if he did not have confidence as a partner, and the rest of your associates in the same way. So I do not see where you can call that legitimate risk capital, because you were taking it out of one pocket and putting it into the other pocket. You had faith that you were going to be able to do your job right unless there was a tornado that would blow you all out. Mr. McCoNE. Certainly, as a business man you always have faith in your going to do the job you contract for, but lots of them do not work out that way. Mr. BRADLEY. Where was the risk in this contract you had with the Government which you said you could fulfill and which you did fulfill?and I will say California Shipbuilding Co. did a might, mighty fine job. Mr. McCoNE. I will point out a few risks. Had we failed to control our costs of facilities so that they were within the limitations Mr. BRADLEY. Facilities were being built by the Government. Mr. McCoNE. So that they were within the limitation of the ap- propriation, which was definitely stated in the contract, and had our costs overrun the amount stated in that contract, then we would not have been reimbursed for any of that overrun. Now, that could be a serious risk. I think it is a matter of record that one contractor lost several million dollars on just that one point. Mr. BRADLEY. Yes; and may I point out right at that point, ME. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 214 SHIPYARD PROFITS McCone, that we have had evidence time and again before this com- mittee where other contractors have been given more and more on their fa4ilities contracts by the Maritime Commission when various things came up that perhaps they did not think might come up. Was that not true in the case of Richmond No. 3 Yard, where they had sinking of the land, or something like that?mud encountered, or somethi g? Were they not given additional money? I am iot asking you to speak for them, but if anybody in the room kn ws, it runs in my mind that they did get additional money for the f cility from the Maritime Commission when they encountered that di culty. So that I think the history of this entire picture would indicate that the Maritime Commission were just as much concerned to get out ships as you were, and when they found that Tou had underestimated the facilities they were ever willing in most instance, unless it was a case of bad management, to come on and give yoU some more for the facility. Otherwise it certainly seems to me that the Maritime Commission would not have given any con- tract fo $25,213,177. They would have been more apt to give it for 25,0?l0,000 or 30,000,000. Mr. loCoNE. Well, I do not know the Richmond No. 3 story, and cannot c mment on it. I know, so far as Calship is concerned, that we were given funds when we could come back and justify the need for then as additional facilities over and above those anticipated. Mr. B ADLEY. You had the faith that that would be done by the Maritim Commission, did you not? Mr. cCoNE. We got it in advance, before we incurred any ex- penditur4es, and were told that if we failed to do that we would not be reimbursed. Mr. BRADLEY. YOU had faith in your ability to perform. Mr. McCoNE. And many times we recommended to the Maritime Commission that they? spend certain amounts of money for addi- tional f cilities in order to expedite or further accelerate the build- ing of s ips when they questioned our judgment and did not do it. Mr. BRADLEY. Well, I think that is undoubtedly true. But the point I am getting at is that I fail to see where you gentlemen felt that you were taking any severe risk in putting up this additional $700,000 or $800,000, which was a condition of the contract, a con- dition oir signing the contract, we will say, when you yourselves were going to manage the expenditure of Tour own funds. You certainly had con deuce in your ability to perform, so I do not see where there was a gr at deal of risk in the ordinary sense of the word. You were not in t e position of a privately owned shipyard, for instance, which got no noney from the Government, if there were any, and I do not ow of.any offhand, which also had a contract and which had to agree to build a ship at a certain price and had to figure his costs and figure out whether or not he could do it for those costs. That is what I would call real risk. Here, Tou fellows were putting out money based on the strength of a contract that meant that the man could go to the bank and say, "Here is this centract, and we are going to perform it, and it is a good risk to loan us this operating capital." Is that not the general picture? I am pleased to have you on the stand, because I believe you can discuss these things calmly and Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 215 quietly without making a speech about it. If I am wrong, I want to be put right on it. I want to be eminently fair. Mr. McCoN-E. All cost-plus-fixed-fee contracts, Mr. Bradley, were free of a great many risks. There is no question about that. The form of cost-plus-fixed-fee contracts used by the Maritime Commission and the Navy and the Ordnance Department and the Air Corps, and so forth, was designed with that in mind, because it was impossible to impose upon the contractor the type of risk that would come with a fixed-price contract. But likewise, Mr. Bradley, the profits were vastly less, the fees were vastly less, than were allowed on business of greater risk. Now let us take an example. The Maritime Act of 1936, which provides for the long-term ships to be built under competitive bids and at fixed prices, with all the elements of risk that you can say, limits, as I recall it, the contractor's profit to 11 percent of the cost-10 percent of the contract price or 11 percent of the cost. Now, the fees that were set up in the Maritime contracts, and the earnings were infinitely less than that. The fact is, they ran some one and one-half percent of cost in the case of Calship, 0.89 percent of the value of the ship. So, while it is true under the cost-plus-fixed-fee form of contract, whether you are considering it with regard to Maritime? Navy, or Air Corps, that the element of risk was less than in many business ventures, it is likewise true that there was a lot of risk. The CHAIRMAN. Is Mr. McCone here? Mr. Bradley was examining him. Mr. Weichel, you have not lost your place. All right, Mr. Bradley. TESTIMONY OF JOHN A. McCONE?Resumed Mr. BRADLEY. Mr. McCone, you had gotten up to the point now where we had $800,000 in the capital? Mr. McCoNE. That is correct, sir. Mr. BRADLEY. You, were explaining how we got that. Now, will you go on and explain how you get up to $3,300,900, which is the figure I understood you to give this morning? Mr. McCoNE. Yes. Then there was a stock dividend, or a dividend. I think I explained how $100,000 was invested in stock and *700,000 in subordinated loans, which were subordinated to all obligations of the corporation including the Maritime Commission. When Mr. Todd retired approximately a year later, a dividend of $1,000,000 was de- clared, and $500,000 was paid out in cash through the Todd Shipyards, the retiring stockholders. $50,000 was declared in the form of a stock dividend, thereby increasing the capital stock of the corporation from $100,000 to $600,000, and on top of that was the $700,000 of subordi- nated loans. At that time the remaining stockholders paid to Todd their share of the subordinated loans,. so that Todd would be out of both the stock position and the subordnated loan. ? Mr. BRADLEY. In other words, he got 500 plus 350? Mr. McCoNE. He did; yes. Mr. BRADLEY. $850,000. ? Mr. McCorrE. That is correct. Now then, because the declaration of that dividend had depleted surplus by Todd having removed the $500,000, the remaining stockholders made an additional subord- inated and non-interest-bearing loan of $500,000. At that point there Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved ForRelease 2003/10/10: CIA-RDP64600346R000400060002-4 ! 216 SHIPYARD PROFITS was $1,206,000 of subordinated loans, plus $600,000 of capital stock issued. glow, during the next several months the corporation de- clared two dividends totaling?I have forgotten what they were, but at the time of those dividends $500,000 on one occasion and $1,000,000 on the second occasion was reloaned to the corporation by the stockholders. After they had received the money in dividends, and paid taxes on it incidentally, they reloaned it to the corporation and placed it in a subordinated position, but that totaled $2,700,000 of subordinated loans plus $600,000 in stock, making $3,300,000. Mr. %Ataxy. All of that money came out of profits? Mr. MoCoNE. It might be said, sir, that a million and a half dollars of subordinated loans and $500,000 of stock came out of profits, bitt I wish to point out that though coming out of profits, taxes werq paid on it, and the amount was reloaned. Mr. BRADLEY. But the 'original cash investment in the company amounted to $600,000 all told? Mr. McOoNE. No, sir; that is not right. The original cash invested in the cornpany exclusive of any amounts that might be considered as coming from dividends was $1,300,000; $100,000 was stock, S700,000, of subordinated loans. " Mr. BRpLEY. I am not talking about these loans. There was not any stock, issued for these loans? . Mr. MOCoNE. I think, sir, that if you would examine the subor- dinated-lOan agreement, which incidentally was subject to approval by the Maritime Commission; you would readily accept it as equity ? capital. : Mr. B ADLEY. Yes; but the Maritime Commission gave you the choice between that or finding it at a bank, or some place else? - Mr. M ,CoNE. No; they did not give us the choice of that or finding it at a bank. They gave us the choice of putting up $800,000, either in the form of stock or subordinated loans or both, and they did not c care whether it was one or the other, just so the terms of the sub- ordinate loan agreement were worded to their satisfaction, and they wer worded so that those loans could not be paid as long as there were shipbuilding obligations existing. Mr. BItADLEY. The fact of the matter remains that you were then armed N9th a contract with the Maritime Commission' with not a risk, and incidentally, according to the figures that Mr. Slattery has given, and to get back to another line that we were talking about, when yon were explaining the risk and the possibility of risk, here, on your facilities contract, I notice that you actually had three dif ? ferent f cilities contracts: the first, issued Janutiry 1, 1941, in the amount f $i2,478,895; the second one, April 9, 1941, in the amount of $9,39 ,785, on which vouchers were paid to date, $21,219,704, and then again on June 8 1943, you got another $4,014,080, by which, on that last one $3,993,474 has been paid? Mr. 1VIoCoNE. That is correct. Mr. I*ADLEY. So that I repeat what I said this morning: It does not seem to me you were taking much risk on these facilities contracts, because that first contract, just as I said, they did with it as they ? did with many more, as they found the facilities inadequate; they gave you more money or allocated you more money to put more facil- ities in, all with the thought in mind of increasing the shipbuilding , Approved For Release 2003/10/10: CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 217 . program. I am not finding any fault with that. I am just pointing . out what I said this morning, and I did not have these figures, then, and what I said earlier this afternoon, before I got these figures, that they did with ,you the same as they did with many other shipbuilding fel- lows; so I was bound to question your statement that you had a risk of nonperformance of your facilities contract, because they have al- allowed you more money, just as they did in any number of other cases, as they found that they had underestimated or undershot the mark. Mr. McCoNE. No; I would like to explain that, Mr. Bradley. The original Liberty ship program was conceived on the idea that ships would be built in about 125 to 150 days from the time of keel-laying to delivery. That was the Maritime Commission's estimate. That was the estimate of the old-line shipbuilders as to how long it would take to do the work. That was what happened in the last war. Now, the facilities that were provided originally were provided on the basis of doing, that much work in that amount of time, you see. Now then, the need -for ships came and a great drive was on to see how fast the ships could be delivered and how many ships could be gotten out of a yard. We found that the delivery of ships could be enormously ac- celerated., but to do it we needed more cranes, we needed more welding machines, we needed more shops, we needed more of everything, and these additional amounts were to cover the additional facilities, which provided the means of reducing the elapsed days from the original estimate of 150 days down to an accomplished 45 or 50 days. Mr. BRADLEY. I still stick to my basic premise, that I do not think you fellows took any chance or invested any risk capital whatsoever in this program. You were pretty well protected by Uncle Sam, because Uncle Sam had to have the ships, and you fellows were in a position to build them; and I am not finding any fault about it. I just want to find out for my own mind why the Maritime Commission certainly gave us a figure here of $600,000 capital investment, and then you fel- lows, by mental mathematics, ran the bill up to $3,300,000. That is what I am trying to get straight in my own mind. Mr. McCoNE. I do not think it is mental mathematics. I think it is absolute -fact. Mr. BRADLEY. I know, but you declared a stock dividend, and so on, and then you say it is capital invested, and claiming that you were taking it out of profits and simply using it as working capital, knowing :that it is all coming right back to you. You did use plenty of stock dividends. The CHAIRMAN. Is there anything else? Mr. BRADLEY. Mr. Herter has a question. Mr. HERTER. Right along the same line, Mr. Kaiser testified lie had an interest in this company; I think it was around 16 percent, through the two Kaiser corporations. Mr. McCoNE. That is right. ME. HERTER. And that he disposed of his interest in 1945. Mr. McCoNE. Yes. Mr. HERTER. Can you tell us under what terms that was disposed of? Mr. McCoNE. I think he disposed of it for $100 a share. He might have that $100 a share plus a repayment to him of his share of these loans that he had advanced. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 218 SHIPYARD PROFITS Mr. HEFTER. That is what I was going to get at. Mr.-HcCONE. That is right Mr. HERTER. Did the person who bought the stock then put in the subordinated loan to take care of what was repaid to him? Mr. McCoNE. The loans were never taken out. They were just bought from him. The notes were purchased. The acquiring stock- holders, who happened to be the W. A. Bechtel Co. and the Bechtel- McCone corp., acquired the note from Mr. Kaiser at its face value. Mr. HERTER. And paid for the stock the same amount that he paid? Mr. McCoNE. Yes; and acquired his stock. It was a transaction between two stockholders. It did not enter into the financial structure of the corporation itself. Mr. HERTER. Was that in any way connected with his acquiring a larger interest in the Permanente Co.? Mr. McCoNE. Yes; at that time, or approximately that time, the Bechtel- cCone Corp. and the W. A. Bechtel Co. sold their entire interest in the Permanente Metals Co.--or, no; I stand corrected. We agre d to sell our entire interest in the Permanente Metals Co., after we aad received from Permanente a certain dividend, and that dividend was paid late in 1945, Debember ; and when it was received, then we sold our capital stock in the Permanente Metals Co. to Mr. Kaiser, at par. Mr. HERTER. At par? Mr. McCoNE. Yes. Mr. HERTER. SO it was really a swapping transaction, each selling to the other their interests in the given corporations at par? Mr. McCoNE. That is right. That is correct. Mr. HERTER. Had the California Shipbuilding Corp. declared any dividend as a part of that agreement, too? Mr. McCoNE. No, no; it had not declared any dividend. Mr. H1ERTER. The California Shipbuilding Co. has no subsidiary interest leyond shipbuilding, has it? Mr. M CONE. No. Mr. H RTER. You had no losses you could charge off against profits? Mr. M CONE. No. Mr. HERTER. In your tax computation? Mr. McCoNE. No; we won't complicate the meeting in that way. Mr. HERTER. What is the present status? You are in liquidation, and that is going to be the end of it? Mr. McCoNE. Well, we are not in liquidation. We are liquidating the yard. The corporation is not in liquidation. Mr. HERTER. It is presumed it will be liquidated? Mr. McCoNE. Well, I do not know that. There has been no action on that. Mr. HERTER. In liquidation, if you have a good deal of money left in the till, it becomes a capital m ,cra and not a dividend, does it not? Mr. McCoNE. Well, Mr. Bridges' the attorney, tells me that that would be an unwise way to call it, because the tax would be higher if the company were liquidated, rather than distributing the dividend to the corporate stockholders. Mr. HERTER. I took it that the California fashion now was to organ- ize the So-called Hollywood corporation, which stays in existence a very short time and then liquidates so that the profits would be charged to capital gains and not as profits. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 219 Mr. MoCoNE. We are a Terminal Island corporation. That is quite a long way from Hollywood! Mr. KEOGH. Mr. Chairman, may I ask? Are you not undertaking some repair work now, on that yard? Mr. McCoNE. Yes, we undertook some repair contracts at the re- quest of the Maritime Commission, and we also undertook a secret project known as the Dagwood project, really for the Navy, although I think the contract was with the Maritime Commission; but that work has all been completed. Mr. KEOGH. Oh, it has been completed? Mr. McCoNE. It was undertaken only when there was an acute shortage of repair facilities, and we had a few open berths and some manpower, just prior to VJ-day. Mr. KEOGH. Has your company made any arrangements with the harbor commissions of Los Angeles for the retention of the site or for a part of it? Mr. McCoNE. No. We have had some discussions with them. Mr. KEOGH. Looking toward the retention by your company of the site, or a part of it? Mr. McCoNE. Yes; we inquired of them regarding retention of the site, and we were told that they would look with favor upon leasing a portion of the site to us for a 5-year term, providing it had certain cancellation provisions in it; and we never went into it in any par- ticular detail. Mr. KEOGH. You have not terminated any lease? Mr. MeCoNE. No; the lease cannot be terminated until the site is clear; so it has some time to run; but it may be that if we carried on in one or two of those buildings, they would like to get the revenue, providing they could remove us at any time; but it is not our present plan to do that. Mr. KEOGH. It is not your present plan to continue? Mr. McCoNE. In that connection, of course, you understand that the facility cannot be used in shipbuilding and ship repair, by stipu- lation of the Maritime Commission at the time that they turned the facility over to us, unless they specifically approved any such request, which we have not made of them. Mr. URETER. Is it not true that the Maritime Commission has a policy that it will not allow companies using Government-owned facilities any longer to bid competitively for private contracts or Gov- ernment contracts? Mr. McCoisTE. I do not know that that is their policy. The CHAIRMAN. Mr. Weichel. Mr. WEICHEL. This morning you said that your company had $4,- 000,000 nonreimbursables. What were the sizable amounts that were not reimbursable? Mr. McCoNE. The largest single item was about $1,000,000. It was contributed by the corporation to an employees' benefit fund. That benefit fund was set up, with the approval of the Treasury Depart- ment, to provide extra compensation at the time of the conclusion of our activities, to some 500 or 600 men who were working. 7 days a week and receiving no overtime or no extra consideration for their doing it and who we thought were somewhat underpaid because of the wage stabilization. So what we did was to put in every year to this employees' benefit fund a sum of two or three or four hundred Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 220 SHIPYARD PROFITS thousand dollars, and that went for the benefit of these people. That was ond, item. Mr. WEICHEL. What has happened to that money since? Mr. McCoNE. It has been distributed to those people. It was put into an irrevocable trust, so it became a vested interest of the partici- pants ii this fund, and as they left the employ of the company they receive their proportion in cash. Mr. WEI0HEL. That was a subterfuge to pay higher than the ceiling wage, as it not? Mr. McCoNE. No; it was not a subterfuge; it was a means of paying those men when they left our employ. Mr. WEICHEL. When you started this fund, you said you felt that they were underpaid? Mr. cCoNE. Yes, sir; we thought they were underpaid. Mr. WEICuEL. And that was your way of getting around the wage ceilings which everybody else had to pay? Mr. McCoNE. The Wage Stabilization Board did not say that. They agreed to it. Mr. WEICHEL. It was a subterfuge, though, was it not? MT. MCCONE. NO, sir. Mr. WEICHEL. You were only supposed to pay them so much. Everybody else was not able to set up a fund; and you tried to get it out of the Government afterward and could not get it. Do you think that is keeping the price ceilings with reference to OPA ? By the way, that brings up another question. How many purchases did you have that were over ceiling prices of the OPA through this transac- tion ? Did you ever keep track of that? Mr. cCoNE. You ask me a lot of different questions. Mr. WEICHEL. I am asking you both of those. Mr. cCoNE. In the first place, to my knowledge Mr. WEICILEL. I will waive this one about the OPA. You can take It home with you if you do not know the answer. Mr.] r cCoNE. I think I know the answer. Mr. EICHEL. With reference to the wage business, you said you thought they were not paid enough. So, what it amounted to was a subterfuge to beat the Wage Adjustment Board. Mr. cCONE. No. We thought the men were not paid enough. Mr. WEICHEL. A lot of other people thought that their men were not paid enough, but they could not use those subterfuges and try to collect oft the Government. Mr. ICCONE. We did not collect off the Government. Mr. WEICHEL. You tried awfully hard. Mr. McCoNE. No; we did not. We did not try to get it off the Government in any way, shape, or manner, at any time. Mr. WEICHEL. You asked for reimbursement and did not get it. Mr. MCCONE. No; we did not ask for reimbursement. Mr. WEICHEL. You said you were not reimbursed for $4,000,000. Mr. cCoNE. That is correct. But that does not mean we asked for reimbursement. Mr. EICHEL. Were you told not to ask, in view of the circum- stances? 1 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 221 Mr. MCCONE. No. We did not ask. I want to be straight on one question that you asked. You said that we tried to get reimbursement from the Government. Mr. WEicHEL. You said it was a nonreimbursable. Mr. McCoNE. You said it, was a subterfuge. ME. WEICIIEL. Yes; I still say that. Mr. McCoNE. It was not a subterfuge in the eyes of the Treasury Department and the Wage Stabilization Board, who examined it, and it was discussed very thoroughly, and I therefore want to deny emphatically that it was a subterfuge in any way, shape, or manner. Mr. WEICHEL. No matter what you say, I think it is a subterfuge, because other people were not able to avail themselves of that kind of trickery to get around it. Mr. McCoNE. Mr. Chairman, I believe that there were many, many corporations that set up benefit funds. The Treasury Department issued printed bulletins advising this procedure or suggesting it. Mr. WEICIIEL. To get around the wage adjustments made? Mr. McCoNE. No. Mr. WEICHEL. That is what you did. Mr. McCoNE. No; to try to help a lot of people who were helping the Government through this period of reconversion. Mr. WEICITEL. That was your way. Did you buy any of the ma- terial that went into these ships and into the yards? Mr. McCoNE. Yes. Mr. WEICHEL. How much did you pay over ceiling prices? Mr. McCoNE. Not one cent, to my knowledge. Mr. WEICIIEL. You paid nothing over ceiling prices on anything? Mr. McCoNE. No, sir. Mr. WEICIIEL. Does that go with reference to the construction of facilities and ships? Mr. McCoNE. Yes sir. Mr. Wincrue,t,. With reference to the $4,000,000 of nonreimbursables, what were the amounts? Mr. McCoNE. There was some six or seven hundred thousand dol- lars that was donated to charities. It was given to the Community Chest, the War Chest, and the Red Cross?such things as that. Cali- fornia, Ship tried to take its position as a good member of the com- munity. Mr. WEICIIEL. It did not cost you anything, though. You could not deduct all of it, could you? Mr. McCoNE. There was a substantial amount of disallowed salaries and wages, $290,000. There was $145,000 in executive and engineering and other kinds of travel expenses, expense of a type which the Mari- time Commission did not feel was reimbursable. Mr. WEICHEL. Did you ask to have it reimbursed and it was not re- imbursed?$145,000 worth of expense? Mr. MCCONE. As a matter of policy, the directors of the California Shipbuilding Corp. decided, first, that they would not ask for reim- bursement for executives and principal officers, nor would they ask for reimbursement of any of the partners, despite the fact that they at the request of the Maritime Commission made many trips in the 93486-46-- -15 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approver Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS interest of this project; nor would they ask reimbursement for any engineer officer or employee in excess of the amount prescribed and accepted, of $6 or $7 a day. Mr. WEICHEL. In excess of $25,000 a year, or what? There was $145,00 worth of expense that you could not get reimbursed, traveling expen e over $7 a day. Is that it? Mr. MCCoNE. I enumerated the different things that were involved. Mr. WEICHEL. Was it expense over $7 a day? Mr. McCoNE. Part of it is, and a lot of it is expense? Mr. WEICIIEL. But you did get it up to $6 or $7 a day? Mr. {cCONE. For certain types of employees, yes, within the stand- ard es ablished. Mr. WEICIIEL. $7 a day for room and food, or was it for rooms they allowe , and over that you had to pay it yourself? ? Mr. fcCowE. I will have to refer you to the standard. Mr. WEICHEL. I am asking you what you paid. You said you paid it over the amount?what amount? , Mr. McCoNE. We make a practice of reimbursing our men for all of their expenses. Mr. WEICIIEL. That is nice. I hope you do. But how much reim- bursement did you get out of the Government? Mr. cCoNE. For certain classes of men we make requisitions for reimbursement in the amounts established by the division of the Gov- ernment we are working for. Mr. WEICHEL. You were not very big-hearted. You got all you could get from the Government. That is correct, is it not? The (trAumAN. I think you can draw your own conclusions. Mr. WEICHEL. If he doesn't want to say, then I say that he got all he could from the Government to reimburse himself for expense of travel. ;That is, $145,000; Mr. McCoNE. $687,000 in donations. Mr. WEicHEE. $687,000 in donations? How much did the corpora- tion de uct for donations from its income tax, if anything? Mr. cCoNE. I don't know that. Mr. WJEIOIIEL. How much of this did you deduct as a matter of busi - ness ? o you mean the Government would not give you the $687,000 as a reh bursement? Mr. cCoNE. We probably deducted $687,000. Mr. EICHEL. The Government would not reimburse you for that? Mr. cCoNE. We requested no reimbursement, sir. Mr. EICHEL. Did you deduct that from your income tax? Mr. cCoNE. Of Course. Mr. EICHEL. What is the difference? You take it away from the GovernMent one place or the other. It doesn't make much difference. The only thing is, you call it charity. What other big amounts were there? Mr. 4cCoNE. There was $629,000 for Federal capital stock taxes. Mr. EICIIEL. Was that chargeable to individuals or chargeable to the corppration? Mr. AkCoNE. That was a Federal tax on the corporation. Mr. EICHEL. Did you try to get that reimbursed? Mr. McCoNE. I may say we did make an application. Mr. EICHEL. But they did not reimburse you for that $629,000? Mr. M CONE. That is correct. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 223 There was $290,000 in salaries or wages. Mr. WEICHEL. That the Government did not reimburse? Mr. McCoNE. Yes. Mr. WEICHEL. Was that because you paid over $25,000 per person? Mr. McCoNE. No; we paid no one over that amount. Mr. WEICHEL. What was it for, if it was not for what you could not collect under the amount set by the Maritime Commission? Mr. McCoNE. Some particular salaries that the Maritime Commis- sion did not reimburse in total for. They reimbursed us partially. Mr. WEICHEL. In other words, you paid the people in salaries $290,000 more than the Government would reimburse you for; in other words they said they would pay salaries of so much, but you paid $290,000 more? Mr. McCoNE. Yes. And there were some wages, too. Mr. WEICHEL. But you deducted that from your income as a part of the expense of doing business? Mr. McCoNE. This entire $1,000,000 was deducted from our income taxes. Mr. WEICHEL. So there were no taxes paid on the amount that was nonreimbursable at all; it was all charged off as an expense of doing business. Is that correct? Mr. McCoNE. That is correct. There was $106,000 in group insurance premiums. We provided life insurance for our employees and paid a substantial part of the premium. That cost us $106,000. Mr. WEICHEL. That was in this $4,000,000 that was nonreim- bursable ? Mr. McCoNE. Yes. There was a substantial item for launching ex- pense, including any gifts we might have given sponsors. Mr. WEICHEL. What kind of gifts did you give out there? Did you give $5,000 diamond necklaces? Mr. McCoNE. No; we gave $60 cigarette boxes. Mr. WEICHEL. Was that your top at that time out there? Mr. McCoNE. I think our top was about $800, which was for the first launching. Mr. WEICIIEL. To each person? Mr. McCoNE. No; to the sponsor. 'Mr. WEIGHEL. You charged that up in your income tax as an expense of doing business? Mr. MCCONE. That was part of the $4,000,006. Mr. WEIcuEL. It would not make much difference whether you got it off the income tax or whether the Government reimbursed you; the Government got cut both ways with it. Mr. McCoNE. If you like, I will leave a copy of this schedule which I think is reasonably correct. Mr. COLES. I would like to have it. Mr. WEICHEL. So that your company was reimbursed for all the expenditures, for wages, materials, administrative costs, and every- thing, excepting S4,000,000; and the $4,000,000 you deducted from income tax, so the Government paid it that way. They did not pay it to you direct, but you deducted it from income tax. Mr. McCoNE. To the extent that it lessened our tax. Mr. WEICHEL. $4,000,000 is a tidy sum, even around here. So you deducted $4,000,000, which is all right; but as to fees, I think you Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Appronl For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS testified that this company received 847,000,000. That is what the Maritiml Commission said. And then you claim that you paid some taxes that cut it down to $35,000,000. Mr. MCoNE. Fees and profits. Mr. WEICIIEL. This morning you testified to $35,000,000 gross earn- ings after renegotiation. Dlr. 1VICoNE. The fees and profits after renegotiation were $35,541,- 880.60; yes, sir. Mr. WEISIIEL. $35,000,000, roughly? Mr. 1V4CoNE. That is correct. Mr. W , ICIIEL. What was the cost of the facilities there ? Mr. M CONE. $25,000,000, approximately. The C AIR1VIAN. I wonder if that has not been gone over. Mr. WnoLEL. I just want to ask one question on that. Of th $35,000,000 gross after renegotiation the only thing that you wer4 not reimbursed for was $4,000,000. So that is about the only inV stment you had. You deducted most of that. So you re- ceived in re than eight times the amount that you were not reimbursed for in fe s gross?more than 800 percent of what you actually spent; and you lid spend all of the $4,000,000. Taxes were to be taken off. The tota number ships that were built was 467; the plant cost the Government S25,000,000; there was $14,000,000 worth of property there whpn it was finished, and you got $2,000,000 credit. That is, roughly, 41,000,000 that your company received, plus $35,000,000 in fees. Is that about right? It cost the Government $25,000,000 for that facility. You got that. You got $14,000,000 in property and you got $2,000,000 credit. That is $41,000,000. The plant cost $25,000,- 000. Th is $66,000,000. You got $35,000,000 in gross fees. That is $91,00q,000. AR together your company bont $91,000,000 for build- ing 467 ships. Roughly, without the deduction of taxes, it cost the Government nearly $200,000 in fees for each ship built by your com- pany. Te Todd people, just ahead of you, had, roughly, $11,000,000 in fees and the plant was about $14,000,000. Theirs was about half the cost to the Government. Yours was $200,000 per ship. Mr. 11/ICoNE. Are you asking me a question, sir? Mr. WEICHEL Yes. Mr. McCoNE. I think your figures are wrong. My answer is "No." Mr. Wpciint.. The plant cost $25,000,000. You got that. There was $14,000,000 worth of chattels on the ground; you got that; $2,000,- 000 credit. That is $41,000,000. You had $35,000,000 in fees after renegotiation? Mr. KtOGH. -You have the plant in there twice. The CI AIRMAN. It is a matter of argument for the committee, rather than to a k this gentleman the question. Mr. WpICHEL. I am asking if he got that much. The C4AIRIVIAN. It seems to me to be a matter of argument. Mr. W ,ICHEL. I am just adding up what the Government paid to this one ompany either in fees, property, or credit, for which they got 467 slips. The Todd people got $11,000,000 in fees and a plant of about $12,000,000 or $14,000,000, and they built 222 ships. Mr. MpCoNE. I cannot follow your figures. I cannot add worn- out facilities and surplus materials that are valueless, and this and that. I just cannot do it. I can say this, however Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 225 Mr. WEICHEL. You got all of those things' did you not? Mr. McCoNE. No. All I can say is this, Mr. Weichel, and that is that we will stand on the records of the Maritime Commission as regards, first, the cost of the facilities at California Ship on a per way basis or a per ship basis; secondly, on the cost of the ships produced on a basis of either total cost or man-hours. While California Ship, I am sorry to say, was not the lowest-cost yard, it was right down among the low two or three yards, and we are very proud of its record. The CHAIRMAN. I wonder, gentlemen, if we have not been over that several times. We have Mr. Jones waiting here to be heard. He has an engagement tomorrow and cannot be here. I have no disposition to shut off any testimony. Mr. WEICHEL. That is all, Mr. Chairman. Mr. CoLEs. I have no questions to ask, Mr. Chairman, but I would like to say that we have given a commitment to Mr. Bechtel, who is a very high-ranking officer in the Boy Scouts of America, that he would be able to leave here tonight. The CHAIRMAN. If that is so I will stay here until 11 o'clock to- night if necessary. I do not ask the others to do that with me. Stand aside, Mr. McCone. Mr. McCoNE. Am I excused, sir? The CirAiRmAN. Yes. Mr. McCoNE. I appreciate this opportunity to appear before the committee. (Information furnished by the California Shipbuilding Corp., in response to the committee's questionnaire, has been received in the record and marked "Exhibit 14.") Mr. COLES. Mr. Chairman, may I suggest that the witness from the New England Shipbuilding Corp. now testify, and may I, before calling upon him, introduce Mr. Nathaniel C. W. Gennett, Jr., the assistant general counsel of the committee, who will examine the witness? The CHAIRMAN. Yes; and I hope examination of counsel will be limited to the minimum, so that we can accommodate these gentlemen who are here. Then, when counsel have laid a foundation for an examination by members of the committee, what they do not cover they can take up again. Will the witnesses hold up their hands, please? Do you solemnly swear that the evidence that you shall give at these hearings or any future hearings herein will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. STOIER. I do. TESTIMONY OF MICHAEL L. STOLER, NEW ENGLAND SHIPBUILDING CORP. Mr. GENNETT. Will you please give us your full name? Mr. STOLER. Michael N. Stoler, S-t-o-l-e-r. Mr. GENNETT. And you represent what corporation or company? Mr. STOLER. We represent the New England Shipbuilding Corp. Mr. GENNETT. What is your position with that corporation? Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved FonRelease 2003/10/10 : CIA-RDP64600346R000400060002-4 226 SHIPYARD PROFITS Mr. STOLER. I am a certified public accountant, partner of Henry Brout & Co., of New York City. We have been associated with the New Fngland Shipbuilding Co. from its inception in 1941, not only in the capacity of certified public accountants but advisers and asso- ciates with them?not financially, but in business matters. Mr. GENNETT, Mr. Stoler, will you give us the date of the forma- tion of the corporation, and tell us the State in which it was incor- porated ? ? Mr. SroLEn. Yes. The New England Shipbuilding Corp. was former y the South Portland Shipbuilding Corp., and was organized .A.Ii:il J, 1941, in the State of Maine. Mr. 1ENNETT. Who are the chief stockholders of the corporation? Mr. 3TOLER. The present chief stockholders are Todd Shipyards Corp., Broadway, 50-percent owner, and Bath Iron Works Corp., of Bat 1, Maine, 50 percent. The cHAIRMAN. May I ask right there if that is the same old South Portia d that we investigated here at one time, and upon which we made a report ? _ Mr. TOLER. That is, sir. Mr. ENNETT. Can you give the date of the corporation's first con- tract with the Maritime Commission? Mr. TOLER. Yes; I can. The first contract for ships was entered into on April 28, 1941, and for facilities some time before that. I will get the exact date for you in just a minute. Mr. GENNETT. HOW much of the incorporators' money was orig- inally p t into the corporation; that is, by Bath Iron Works and Todd Shipya,rds Corp.? Mr. STOLER. Well, at the original formation there were more than the Bath Iron Works and Todd Shipyards. We also had the same group in here that Mr. Kaiser had, the 10-corporation group, orig- inally. Mr. GENNETT. But you stated that the New England Shipbuilding Corp. is owned 50 percent by Bath Iron Works and 50 percent by Todd Shipyards. Mr. STOLER. At present. Mr. GENNETT. At the present time? Mr. S OLER. That is right. Mr. G- NNETT. Then prior to April 1, 1941, were the 10 Kaiser com- panies i terested in the corporation? Are they the same companies that were interested in the other Kaiser corporations which we men- tioned this morning? Mr. SOLER. Well, we had the same group that were mentioned here pre iously, plus the Bath Iron Works Corp. f Mr. c ENNETT. At what time did the corporation descend fully owned .te the Bath Iron Works and Todd Shipyards Corp.? Mr. SOLER. I believe it was early in 1942. Mr. G NNETT. What was the amount of capital originally put in this corp ration by Todd and Bath Iron Works? Mr. SOLER. Well, $278,000 in capital stock, $750,000 in subordi- nated lo ns at no interest, and, of course, the bank loans of approxi- mately $ ,000,000. 1 Mr. G NNETT. Was interest paid on these bank loans? Mr. STpLER. Yes; it was. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 227 Mr. GENNETT. Was the interest reimbursed by the Commission? Mr. STOLER. Yes; the interest was, but there was a credit commit- ment by the banks which was not reimbursed by the Commission. Mr. GENNETT. About what percentage of the total interest on bank loans was reimbursed? Mr. STOLER. I would say roughly about 85 to 90 percent. Mr. GENNETT. Were receivables from the Government contracts pledged as security for the bank loans? Mr. STOLER. Yes; they were. Mr. GENNETT. Did the corporation put any of its own capital, that is, the $278,000 that you mentioned, actually in the physical shipyard of the corporation? Mr. Swim.. Well, they did not have it in physical shipyard, actu- ally. They put up the cash plus $750,000 additional cash for working capital. Mr. GENNETT. What was the $278,000 used for? Mr. STOLER. That was used for current working expenses, payments prior to the time when the Maritime Commission would reimburse the company. Mr. GENNETT. Were there any increases in capital through stock dividends? ? Mr. STOLER. Yes. When the Kaiser group got out of the company in 1942, a dividend of $40,000 was declared. Twelve thousand dollars was paid in cash to the Kaiser group, and $28,000 in stock to Bath and. to Todd Shipyards. Mr. GEN-NETT. Which increased the total capital of the corporation to what? Mr. STOLER. To the present $278,000. Mr. GENNETT. $278,000? Mr. STOLER. That's right. Mr. GENNETT. This increase in capital was paid out of profits made by the corporation prior to that time from its shipbuilding activities? Mr. STOLER. Yes that is right. Mr. GENNETT. What was the total cost of the facilities to the Mari- time Commission? Mr. STOLER. The cost to the Maritime Commission of which we know was $13,520,842, but there were some additional expenditures by the Commission which were not on our records. That is in connection with another shipyard adjacent to our own. Mr. GENNETT. Were those facilities of the shipyard adjacent to your own shipyard used by your company ? Mr. STOLER. Yes, they were. Mr. GENNETT. Then the total Government or Maritime Commission money in the yard was substantially in excess of 131/2 million dollars? Mr. STOLER. Yes; it was?probably 22 or 23 million dollars. Mr. GENNETT. Perhaps I am redundant, but did the corporation have any investment in the yard? Mr. STOLER. I believe no investment in physical assets, no. Mr. GEN-NETT. Was the yard built on a facilities contract by the New England Shipbuilding Corp.? Mr. STOLER. It was built on a facilities contract; yes. Mr. GENNETT. I assume that the usual provision against profit was in that contract? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 228 SHIPYARD PROFITS Mr. TOLER. Yes ? there was no profit of any kind. Mr. ENNETT. Was the work subcontracted? Mr. TOLER. Yes; the work was subcontracted, but not to affiliates of either company. Mr. qENNETT. Were fees earned by the subcontractors? Mr. STOLER. Profits were earned, we believe. Mr. (ENNETT. How many shipbuilding contracts did New England have, Mr. Stoler? Mr. TOLER. We have had a total of five fixed-fee contracts, one selectiv -price contract, and one bid contract. Mr. ENNETT. One bid contract? Mr. TOLER. One lump-sum contract. Mr. tENNETT. I understood from the statements furnished us by the corporation that you had cost-plus contracts. Mr. TOLER. COS t- p lu s -fixed - f e e. Mr. QENNETT. Do you regard the lump sum as a bid contract. Mr. TOLER. Right. Mr. (IENNETT. Do you regard the lump-sum as a bid contract. Mr. STOLER. We did. It did not make any difference. There was very little work done on it. Mr. GENNETT. Were any of these contracts converted to any other type of contract? Mr. STOLER. No, sir. Mr. GENNETT. Can you tell us the total amount of fees paid to or earned by the corporation on these contracts? Mr. STOLER. I will have to tell you that in two parts, because the company has not as yet been renegotiated, and has not as yet, in fact, receivedfinal payment. It has submitted claims for certain amounts. I will give you the amounts that we have received, which is $5,637,- 000. W Mr. G claims , Mr. stated iii the contract. Mr. GENNETT. Have you seen exhibit 1 prepared by the Maritime Commission, which estimated the New England Shipbuilding Corp.'s profits at $11,871,840. Mr. Stromu. No; I did not see that. That is, I did not see that officially. I did see it in the newspapers, and I could not reconcile that witli our figures, but came fairly close. Mr. G W NETT. As you stand at the present time there is very little differen4e between the Maritime Commission's figures and the figures which y u have just given there? . Mr. SymEn. Our figures in total, assuming that all of our claims are allowed and that we keep all of our money in renegotiation, total $1l,813,85.50, compared with a figure given here as $11,097,112. Mr. G WNETT. That does not differ very much from the Maritime Commission's figures. , Do you know the total cost of the contracts to the Maritime Com- mission ?1 Mr. SOLER. Yes. Mr. GENNETT. Would you give us that figure? e have claims, however, for about 5,976,000. ENNETT. Therefore approximately 50 percent of .your total ave been renegotiated and allowed? TOLER. Not renegotiated. Those were the minimum fees Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 229 Mr. STOLE% Surely. The total cost of the cost-plus-fixed-fee con- tracts was $250,923,87L10; the fixed-price contract was $633,544.22; and then the selective-price contract was 88,588,078.34. - Mr. GENNETT. On all of these contracts a portion of the material was supplied by the Government, was it not ?- Mr. STOLER. That is right. Mr. GENNETT. DO you know exactly o nearly so how much that figure would be? Mr. SToLER. We have no idea as to how much was supplied. Mr. GENNETT. Were management salaries of the corporation reim- bursed by the Maritime Commission? Mr. STOLER. In part ; not wholly. Mr. GENNETT. Did you have a substantial amount of reimbursable items that were disallowed by the Commission? ? Mr. STOLER. Yes: We thought we had, but compared to some of the figures we ',lave heard they are not so great. Our contractors' ex- penses totaled $667,933.36. Mr. GENNETT. Normally, however, you were ?reimbursed promptly by the Commission upon submission of vouchers with the proper certification, were you not? Mr. Swum Yes; after the Commission had its audit procedure set, up, we did. Mr. GENNETT. In this'ease, as in most of the others, we have seen that management fees were paid; that interest on borrowed capital, or a part of the interest thereon was paid by the Commission; that the corporation was reimbursed promptly for expenses; that a portion of the material and usually the largest portion, was supplied by the Com- mission; and that the yards and facilities were entirely furnished by the Commission. In light of the fact that facilities, labor, and other costs, as well as materials, were furnished by the Commission what are the fees of $5,637,000 already paid and $5,97?6,000 estimated to be still due the corporation being pind for? Mr. STOLER. For delivering 244 vessels. Mr. GENNETT.. Do you know, Mr. Stoler, the percentage of profit made on the capital investment of the corporation as shown by the fees paid or estimated to be paid? Mr. SToLial. No; I have never worked that out, although I can. Mr. GENNETT. I have asked a committee accountant to calculate it, and it, comes out as 4,055 percent on the original capital. Mr. STOLER. On the original capital of $278,000? Mr. GENNETT. On the original capital of $278,000. Mr. STOLER. Without stockholders' loans or bank loans. Mr. KEOGH. Mr. Chairman, I am wondering if that is not the kind of computation that Mr. McCone referred to in his testimony this Morning. It is a conclusion that is one way of expressing something that is not as complete as it might be. Mr. GENNETT. Perhaps that is true. Mr. KEOGH. Do you not think that fairness would impel you to permit all these witnesses to present the alternative computations? Mr. GENNETT. I do, Mr. Keogh, if they desire to do- so. Mr. KEOGH. May I suggest, then, that that question be withdrawn and deferred? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 230 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Th CHAIRMAN. It is withdrawn. , Let us proceed just as far as necessary to let the witness make his statement, and let the members examine. Then counsel will resume the examination. Mr. GEN-NETT. Mr. Stoler, will you give us briefly the 'maximum and minimum fees that were paid on the three contracts that you had with the Commission? Mr. SToun. Yes. We had various fees in the various contracts. Under one contract we received no fees. Under one contract we re- ceived a basic fee of $60,000, a minimum of $32,750, and a maximum of $76,000. Mr. KEoon. To which one are you referring now? Mr. STOLER. Cost-plus-fixed-fee. . ? This was also a.cost-plus-fixed-fee contract under which we received a basicl fee of $55,000, a minimum of $30,000: and maximum of $70,000; and the third type of contract give us a basic fee of $45,000, minimum. of $20,000, and maximum of $60,000. Mr. GENNETT. Can you state the basis for the base figure in these maximum and minimum fees? Mr. TOLER. No. I do not know. Those were by negotiation. Mr. JENNETT. I understood you to say, some of your contracts had been r negotiated ? Mr. TOLER. No. We had a renegotiation meeting and arrived at some t ntative figures, but nothing final. Mr. ENNETT. None of the contracts has yet been renegotiated? Mr. TOLER. That is correct. Mr. 1ENNETT. The first contract was entered into in 1942? Mr. Tohua. In '41. Mr. ?NETT. And it has not yet been renegotiated? Mr. TOLER. That is right. Mr. ENNETT. The date of the last contract was what Mr. Stoler ? The CHAIRMAN. How ifiany contracts -kere there? Mr. STOLER. There were five contracts. The date of the last one, subject to renegotiation, is June 17, 1943. . Mr. ANNETT. But none of those contracts has been renegotiated? Mr. TOLER. That is right. Mr. ENNETT. That is all, Mr. Chairman. The cHAIRMAN. Do you have any statement? Mr. TOLER. No, sir. Mr. 1ERTER. Just one question, out of turn. At this point can you tell us What is being renegotiated, profits of what? I may have been out of the room when you gave that. . Mr. SIGLER. Yes, sir; I will give you that. The maximum fees that the company has received or is entitled to receive are $11,613,- 285.50. ; That is the figure subject to renegotiation. Mr. 1ERTER. On what total dollar volume of business? Mr. TOLER. On a total volume of $250,873,871.10. Mr. IEimTEn. What percentage is that figure, about 41/2? Mr. Si:OLER. Four and one-half before taxes. Mr. GENNETT. Mr. Chairman, may I ask the witness if he will fur- nish for us the percentage earned on invested capital, as Mr. Keogh suggested? Approved For,Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 231 The CHAIRMAN. I would rather not interrupt the examination be- ing conducted by Mr. Herter. Mr. GENNETT. Excuse me, sir. Mr. HERTER. I just thought those figures out to be a art of the preliminary statement so we would know what we are ta-king about from here on. That is all. Mr. GENNETT. Would you do that? Mr. STOLER. Yes, sir. Mr. GENNETT. I asked Mr. Stoler if he would give us the percentage earned on invested capital, according to his records. The CHAIRMAN. He said he would? (See exhibit 15.) Mr. HERTER. What taxes did you pay? What is the net? Mr. STOLER. I have that. We paid taxes on our income received of five-million-six-hundred-thousand-odd dollars of $4,023,000. Mr. HERTER. That you are deducting from the $11,000,000? Mr. STOLER. No, sir. I am deducting that from $5,600,000 because we have not received the others. Mr. HERTER. The other is still subject to renegotiation? Mr. STOLER. That is right, sir. In other words, the tax rate is about 75 percent on what we earned. The CHAIRMAN. Mr. Keogh? Mr. KEOGH. Do I understand from your testimony, Mr. Stoler, that the Maritime Commission owes you upward of $5,000,000, accord- ing to your figures, or ,almost $6,000,000? Is that, in your opinion, ample reserve out of which any recapture by way of renegotiation may be had? Mr. STOLER. We are hoping that we will get all of that money. Mr. KEOGH. You are hoping that you will get all of it, but if the Government renegotiates you out of it, it will credit it against what it owes you. Mr. STOLER. That is correct. Mr. KEOGH. SO it really does not make too much difference that renegotiation is not carried out immediately. Mr. STOLER. Not in our situation; no, sir. Mr. KEOGH. I have no further questions. The CHAIRMAN. Mr. Bradley? Mr. BRADLEY. No questions. The CHAIRMAN. Do any other members of the committee have questions? Mr. BRADLEY. Yes ? I have one question, Mr. Chairman. The CHAIRMAN. Air. Bladley. Mr. BRADLEY. Mr. Witness, we went into the old South Portland yard several years ago, you may recall. Mr. STOLER. Yes, sir. Mr. BRADLEY. At that time, when that yard was under construction, there was quite a lot of talk about subcontractors being connected with officials in the yards on a subrosa basis and making pretty handsome profits on the rental of machinery and so on and so forth. Do I understand that this is a new set-up entirely of the New England Shipbuilding Co.? Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 232 SHIPYARD PROFITS Mr. SOLER. It is new management. Mr. BRADLEY. Mr. Newell is not there any more? Mr. STOLER. He is of course, interested in Bath Iron Works, which is still 50 percent interested in our company, but the Todd Shipyards has taken over the active management of that yard. Mr. BRADLEY. As I understand it, this $23,000,000 put into facilities was put into a new yard. Mr. S'Ironnit. No, sir. Pardon me; I'm sorry. Part of that was put into a new yard. Thirteen-million-odd-dollars was put into the west yard and the other yard, which was built for the Bath Iron Works Corp.' which built 'boats for the British, was taken over by the Maritime Commission at the completion of their contract with the British and used by us. We were told that that was about eight and a half m Ilion dollars. Mr. B ADLEY. Was that the one we had all the fuss about 4 or 5 years ag ? Mr. SOLER. You had the fuss about the west yard, which was built for the c mpany. Mr. B ADLEY. That does not figure in this picture right today? Mr. SOLER. Yes, sir. That is $13,800,000-odd, is what that yard cost. Mr. BRADLEY. I think, then, you perhaps want to correct the state- ment I i nderstood you to make in answer to Mr. Gennett's question, that none of the subcontractors at that time were connected with officials of the yard?not with the present management, but at that time they were. But that is past history. Mr. S 'TOLER. That is not a matter of record, so far as I know. Mr. BRADLEY. It is a matter of record before this committee. Mr. -SOLER. Perhaps. Mr. B4iADLEY. There were very voluminous hearings, that we had at that tim . The cHAIRMAN. Very voluminous on the South Portland yard, which r i esulted in saving, I understand, several million dollars n the settlement that was made afterward. Mr. BRADLEY. That is all I have. Mr. HMTER. May I ask one additional question? The CpAimvrA.N. Yes, sir. Mr. HERTER. As a matter of accounting procedure, I am not clear. When yOu are renegotiating profit as of a given year, and they are finally clietermined and a settlement is made, do you pay taxes based on the tax laws as of that given year or do you pay taxes as at the time yofi receive the money ? Mr. SOLER. As of the given year in which the work was done. Mr. K OGH. And as a matter of law, is it not beyond the province of the rene otiators to consider what the tax burden is? Theoretically they are supposed to disregard that. Mr. STOLER. Theoretically they are. The CHAIRMAN. Mr. Gennett, have you any further questions? Mr. GpNNETT. I think not: Mr. Chairman. The (1,1 HAIRMA N. If there is nothing else, the witness stands aside. Call yo4r next witness. (Information furnished by the New England Shipbuilding Corp. in response to the committee's questionnaire has been received for the record and marked "Exhibit 15.") Approved F6r Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 233 Mr. GENNETT. We call the Todd-Houston Shipbuilding Corp. The CHAIRMAN. Will 370U solemnly swear that the testimony you will give in this or further hearings on the same subject matter will be the truth, the whole truth, and nothing but the truth, so help you God?. Mr. MAIDEN. I do. TESTIMONY OF NORMAN G. MAIDEN, REPRESENTATIVE OF TODD- HOUSTON SHIPBUILDING CORP. Mr. MAIDEN. My name is Norman G. Maiden. I am a certified public accountant, partner of Arthur Young & Co. As independent accountants we have been advisers to the company since its inception. I am in charge of the Dallas office. Mr. GENNETT. So you are familiar with the corporate details and business affairs of the corporation? Mr. MAIDEN. I am. Mr. GENNETT. Would you give us the date of the formation of that corporation and the State in which it was incorporated? Mr. MAIDEN. January 6, 1941, in the State of Delaware. Mr. GEN-NETT. Was its original name Todd-Houston Shipbuilding Corp.?, Mr. MAIDEN. Its original name was Houston Shipbuilding Corp. Mr. GENNETT. When was it changed to the Todd-Houston Corp.? Mr. MAIDEN. I do not recall the date. I think you have that. The amendment is filed. Mr. GENNETT. I have an amendment to the certificate of incorpora- tion which states the date as March 27, 1944. Mr. MAIDEN. That is right. Mr. GENNETT. Will you tell US the names of the corporations or individuals who participated in the formation of the Todd-Houston Shipbuilding Corp.? . MAIDEN. The original stockholders were Todd Shipyards Corp., Henry J. Kaiser Co., the Kaiser Co., Pacific Bridge Co., MacDonald & Kahn, Inc., Utah Construction Co., General Construction Co., Mor- rison-Knudsen, Inc., J. F. Shea Co., Inc., W. A. Bechtel, and Bechtel- McCone-Parsons Co. Mr. GENNETT. The corporations or individuals that you have named might be again designated as the Kaiser group? Mr. MAIDEN. Except Todd Shipyards, of course. . Mr. GENNETT. At the present time, is Todd-Houston Shipbuilding Corp. owned by the list of corporations or companies that you named?. Mr. MAIDEN. No. Todd-Houston Shipbuilding Corp. is owned 100 percent by Todd Shipyards Corp., and has been since February 1942. Mr. GENNETT. When was the first contract with the Maritime Com- mission entered into, Mr. Maiden? Mr. MAIDEN. The first facilities contract was dated January 11, 1941. Mr. GENSTETT. Was this facilities contract performed by the Todd- Houston Corp.? Mr. MAIDEN. Yes. It was their responsibility. Mr. GENNETT. Were there any subcontractors? Mr. MAIDEN. Yes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 234 SHIPYARD PROFITS Mr. GENNETT. Were any of those subcontractors related in any man- ner to the Todd-Houston Corp.? Mr. MAIDEN. No; not that I know of. Mr. GE NNETT. So the Todd-Houston Corp. built the yard. Was there a pitovision against profit to the builder of the yard in its facili- ties contract? MT. MAIDEN. That is right?no profit. Mr. GENNETT. What was the original capital of the company? Mr. MAIDEN. The original capital of the company was $100,000. Mr. GENNETT. One hundred thousand dollars was put up in what proportions by what persons or corporations? Mr. MAIDEN. Fifty percent by Todd Shipyards Corp., 51/4 percent by Henry J. Kaiser Co., 51/4 percent by the Kaiser Co., 23/4 percent by Pacific Bridge Co., 51/4 percent by MacDonald & Kahn, Inc., 51/4 per- cent by all the others that I named previously. Mr. GENNETT. When did the corporations which you have named cease to be interested in Todd-Houston, and how was their interest acquired by the Todd-Houston Shipbuilding Corp.? Mr. MOnEN. The date, as I recall, was in February 1942. At that time there was a dividend paid of $25,000 in cash and a stock dividend of $46,400. Mr. GENNETT. The stock dividend, of course, was paid out of the earnings? Mr. 14DEN. That is right. Mr. GENNETT. Were such earnings earned subsequent to the first Maritime Commission contract? Mr. A/14DEN. That is right. Mr. GENN ETT. At the present time what is the capital of the cor- poration? Mr. MAIDEN. At the 'present time the capital of the corporation is $189,200 in capital stock, and there was a subordinate loan of $500,000, and. of course, there were bank borrowings. Mr. HERTER. Mr. Chairman, I wonder if counsel would yield for a question at this point. In all of the testimony that we have had so far with respect to corporations in which the Kaiser interests participated we have found exactly the same type of financing all the way through, usually $100,- 000 capital stock, usually the formation of the corporation a few days before the first facilities contract was let, usually subordination of certain Mans made by the stockholders of approximately the amount that you are now, mentioning. In other words, this has been repeated so frequently that I wonder if you can tell us whether that was a standard formula that the Maritime Commission was insisting on with respect to a whole group of corporations. Mr. HARRY G. HILL. Perhaps I might answer that. The Maritime Commiss on was insisting that a corporation formed to take on one of these facilitie?ontracts with the hope of later getting a ship con- tract would be financed to some degree, which would be stated in the contract, and they would give you the alternatives : By share capi- tal, or by subordinated loans. And in each of the corporations in which the Kaiser group and Todd Shipyards Corp. were associated, in each case, I think, we had $100,000 of paid-in capital and sub- ordinated loans sufficient to make up the requirement of the Maritime Commission's contract. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 . SHIPYARD PROFITS 235 Mr. HERTER. Then the capitalization was increased by Payment from the profits made from other contracts? Mr. HILL. Yes' sir. Mr. GENNETT. Your statement that the capital is now $189,200 is a figure that is $89,200 more than it was at the time the corporation was organized. From what source was the additional $89,200 obtained? Mr. MAIDEN. At the organization, $100,000 in cash was paid in. In December of 1911 there was an additional $42,800 paid in in cash, and there was a stock dividend of $46,400 in February 1942, which makes a total of $189,200. Mr. GENNETT. Was any money borrowed from the banks in addi- tion to the loans of stockholders? Mr. MAIDEN. The -company had arrangements for .loans up to a maximum of $2,600,000 at one time, and there was continual bor- rowings. The maximum was in May 1942, in the amount of $3,225,- 000. Later there was a credit arrangement under which they could borrow up to a maximum of $2,000,000, on which there was a com- mitment fee which was paid by the company and not reimbursed by the Maritime Commission. Mr. GENNETT. Was interest paid on all of the bank. loans? Mr. MAIDEN: Yes. Mr. GENNET. Was any of that interest reimbursed by the Com- mi8sion ? Mr. MAIDEN. Yes, except this commitment fee that I talk of. Mr. GENNETT. Were any of the corporations interested in Todd- Houston guarantors on these loans? Mr. MAIDEN. Do you mean, were the loans guaranteed by anyone? Mr. GENNETT. Yes. Mr. MAIDEN. Not that I know of. I do not think so. Not that I Mr. GENNET. Were receivables from the Maritime Commission pledged as security on the bank loans? Mr. MAIDEN. Not on the original credit agreements, but in the credit agreement dating from October, '43, on, they were. Mr. (3rENNET. They were? Mr. MAIDEN. They were pledged then. At least they were assigned to the banks. Mr. GENNETT. SO they stood? Mr. MAIDEN. In fact, yes. Mr. GENNETT. capital was increased therefore, by stock dividends and reinvested cash dividends from 1941 until the date when the Kaiser interests were eliminated as owners of the corporation? ; Mr. MAIDEN. I do not follow you. Mr. GENNETT. I said, the capital of the corporation, which was originally $100,000, was increased by stock dividends from the time of organization in 1941, until the time that the Kaiser interests were eliminated from TOdd-Houston was it not? Mr. MAIDEN. The capital stock originally was $100,000, and then additional cash was ,paid in by the stockholders. That has nothing to do with the earnings of the company. It was paid in by the stoCli- holders to the amount of $42,800. Mr. GENNETT. But I understand at the present time that there is outstanding $189,200 in no-par stock. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Appronq For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. IDEN. That is right. Mr. ENNETT. So that $89,200 additional stock has been issued since its incorporation. Mr. MAIDEN. No. The outstanding capital stock was increased by the payment into the company of an additional $42,800 - and a. stock dividend of $46,400. Mr. GNNETT. I understand that. Was the $42,000 paid to tile corporation in cash? Mr. MAIDEN. From the stockholders. Mr. GNNETT. From the stockholders, and not from profits? Mr. MAIDEN. Not from profits; no, sir. -. Mr. G*VNETT. Was there a dividend to the stockholders before that time? Was there a cash dividend or stock dividend? Mr.. MAIDEN. Before the time they paid the $42,000 in? Mr. GIcNNETT. Yes. . Mr. MAIDEN. No. Mr. GN-NETT. HOW much of the corporation's money was put into the physical yard, the shipyard? Mr. MAIDEN. Into the physical yard? Mr. GNNETT. Yes. Mr. Mr,EN. None. Mr. GENNETT. How much did the yard cost the Maritime Com- s\tn ission ? Mr. MAIDEN. Approximately $40,000,000. Mr. GNNETT. That includes. all charges for the facilities? Mr. MAIDEN. All charges for the facilities; yes. Mr. GENNETT. And none of the corporation's capital was used in the yard, either for facilities, equipment, or the like.? Mr. MAIDEN. No. Mr. GENNETT. What, then, Mr. Maiden, was the capital actually used for? Mr. MAIDEN. Paid in? Mr. GEN-NErr. The paid-in capital.. Mr. MAIDEN. As working capital. Mr. GENNETT. As part of the working capital, at least. Was the work on the yard subcontracted? Mr. MAmEw. Yes; a. great portion of it was. Mr. GENNETT. Were the subcontractors in any way, by stockholding or otherwise, related to Todd-Houston? Mr. MAIDEN. No. Mr. GEN-NETT. Were they related in any way to the stockholders of the corporation? Mr. MAIDEN. Not that I know of, and I certainly do not think so. Mr. GENNETT. When was the first shipbuilding contract entered into? Mr. MAIDEN. March 14, 1941. Mr. GEN-NETT. What types of contracts did the corporation hold with the Maritime Commission, Mr. Maiden? Mr. MAIDEN. Cost-plus-fixed-fee. ...Mr. GENTNETT. Were all contracts cost-plus contracts? Mr. MAIDEN. That is right. - Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 237 Mr. GENNETT. Can you state how many contracts there were? Mr. MAIDEN. There were five for Liberty ships and one contract for tankers. Mr. GENNETT. in addition to the facilities contracts? Mr. MAIDEN. In addition to the facilities contract. Mr. GENNETT. Can you tell us the amount of fees paid on these six contracts, not including the facilities contract, which figure you have already given us? Mr. MAIDEN. The. fees paid? There were no fees paid in the facili- ties contract. Mr. GENNETT. I UnderSIlind that. Mr. MAIDEN. The fees paid amounted to $11,123,475. That is the amounts received or receivable. Mr. GENNETT. Have any of those fees been renegotiated? Mr. MAIDEN. Yes. The first five contracts have been renegotiated That is all of the Liberty ship contracts. Mr. GENNETT. If fees were reduced how much was deducted by the Price Adjustment Board upon ren.egotiation ? Mr. MAIDEN. $2,554,828. Mr. GENNETT. Did that deduction of $2,554,828 come out of the $11,000;000? Mr..MAIDEls- No. Your question was, how much fees had we re- ceived,? Mr. GENNETT. That is right. Mr. MAIDEN. There was $2,500,000 which we never received, which was eliminated. Mr. GENNETT. Then about 81/2 million of the total of 11 million in fees have actually been paid? Mr: MAIDEN. No. Mr. GENNETT. Have I got it wrong ? Mr. MAIDEN. Let me put it. this way: $7,510,000 were the minimum fees in the contract. The company received that as the launchings and deliveries were made. In addition to that, after renegotiation was completed, we received additional fees of $3,430,000, and have re- ceivable $183,475, so the total 'amount the company has received in fees was $11,123,475. However, they had earned under the terms of the contracts an additional $2,554,828, which was eliminated by the Renegotiation Board. Mr. GENNETT. What is the net sum left after renegotiation? Mr. MAIDEN. The gross fees, the net, is $11,123,475; That is be- fore taxes and before reimbursement, before nonreimbursed. expenses. Mr. GENNETT. Were any of these contracts converted after their origin? Mr. MAIDEN. No, no. Mr. GENNETT. Will you tell us the total cost to the Government of all of the shipbuilding contracts? Mr. MAIDEN. The Liberty Ships, $208,050,600,23. That is as of June 30, 1946; and the tankers, $12,083,883.50, as of June 30, 1946. Mr. GENNETT. What part of the material was supplied to the cor- poration by the Maritime Commission? Mr. MAIDEN. I (10 riQt knOw what the.percentage was. 93480--46-.16 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 238 SHIPYARD PROFITS Mr. GE/%TNETT. Would you determine that for us? Mr. MAIDEN. That is impossible. It is impossible of determination, in our case. Mr. GENNETT . You could not determine it? Mr. MAIDEN. No. Mr. GEI4NETT. Under any circumstances? Mr. MAH/EN. Under any circumstances; in our case, we could not. Mr. GE NETT. Were the management salaries up to the legal limit reiinburse1 by the Maritime Commission to the corporation? Mr. MAIDEN. Most of them. Mr. GE NETT. Did you have a substantial amount. of nonreim- bursable i ems? Mr. MAIDEN. Approximately $1,000,000. Mr. GrElfNETT. Was the normal procedure for reimbursement rapid, was the ccrp oration reimbursed quickly? Mr. MAIDEN. Not in the begimung. Mr. GE NETT. Was there any likelihood that the corporation would not be reiinbursed for proper items? Mr. MAIDEN. We hope not. Mr. GOTNETT There, again, Mr. Maider, we find this situation. The corporation has been paid management fees, fees for building the ships, it has been provided with all the facilities, and had its labor costs paid. What in your opinion was this fee of approximately $11,000,000 paid for? Mr. MAIDEN. For building the ships. Mr. GE NETT. Were any of your contracts not subject to audit? Mr. MAIDEN. No; all subject to audit, and all were audited. Mr. GETNETT. Have you any idea of the percentage earned on the capital investment, of $189,200. Mr. MAIDEN. Yes. Mr. GENNETT. Would you determine that? Mr. MAIDEN. All right. Mr. GENNETT. Now, as to the maximum and the minimum fees that were paid under these contracts. Can you state those for the committee? Mr. MAIDEN. Under the first contract?the first contract provided the minimum fee would be $60,000 per vessel and the maximum fee, $140,000 per vessel. The second contract, for 12 ships, provided the same figilres?minimum, $60,000; maximum, $140,000. The third contract, for 32 vessels, minimum 60,000, maximum, $140,000. The fourth contract, for 31 vessels, minimum $30,000, maximum, $70,000. The fifth contract, for 108 vessels, minimum $20,000 per vessel, maxi- mum $60,000 per vessel. Now, the tankers: 14 tankers, minimum $20,000 per vessel, maximum $60,000 per vessel. Mr. GENNETT. Were there any set-offs of nonshipbuilding losses against shipbuilding profits? MAIDEN. No; no. Mr. G4NNETT. I think that will be all, Mr. Chairman. The C IAIRMAN. Mr. Keogh. Mr. Eiooii. Mr. Maiden, have you prepared the operating state- ments o this company? Mr. MAIDEN. Have I prepared them? Mr. KEoGH. Yes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 239 Mr. MAIDEN. No; I have not prepared them. I have reviewed them. I collaborated in the answers to this questionnaire. Mr. KEOGII. I wonder, when you submit the figure with respect to the percentage that the fees bear to the invested paid-in capital, would you be good enough to accompany that with a computation of the percentage that those fees bear to the gross business done? Mr. MAIDEN. Certainly. Mr. KEOGH. Do you have any personal knowledge of the Todd Ship- building Corp.? Mr. 4AIDEN. No. Mr. ICEour. Do you have any knowledge of any of the individuals connected with that company? Mr. MAIDEN. To some extent; yes. Mr. KEOGII. Do you know John D. Riley, for example? Mr. MAIDEN. Yes. Mr. KEOGII. Do you know what position he occupies? Mr. MAIDEN. Yes. Mr. KEoori. What is it? Mr. MAIDEN. He is president of Todd Shipyards Corp. Mr. KEOGH. Do you know how long he has been in the shipbuilding business and ship repair business? Mr. MAIDEN. I should certainly say it is well over 20 years. Mr. Hill can answer that. Mr. HILL. He has been in the business ever since the formation of Todd Shipyards Inc., in 1916, which is 30 years. Mr. KEOGII. Thirty years? Do you know what reputation he bears in the industry? - Mr. HILL. The highest, sir. i Mr. KEOGH. And s it not a fact that the executive officers of the Todd Shipbuilding Corp. are men who have spent the major portion i of their adult lives n the shipbuilding business? Mr. HILL. That is very true, sir, if by the shipbuilding business you include the ship repair business. Mr. KEooll. Yes. No further questions. The CHAIRMAN. Mr. Bradley? Mr. BRADLEY. I have no questions. The CHAIRMAN. All right. MT. Weichel. Mr. WEICHEL. How many ships do you say your company built altogether? Two contracts of 12, one at 32, and one at 31, and one, 108? Mr. MAIDEN. We had 208 Liberty ships and 14 tankers. Mr. WEICHEL. Two hundred and eight Libertys and 14 tankers? On the first, the Government owned the entire facility? Mr. MAIDEN. That is right, sir. Mr. WEIonEL. And on the first 12? Mr. MAIDEN. The first 25. Mr. WEICIIEL. I thought you had one contract at 12, naming the contract. Mr. MAIDEN-. The first contract was for 25, the second was for 12. Mr. WEICHEL. Oh, the first was 20? Were there two of them for 12? Mr. MAIDEN. No ? 25, 12, 32, 31, and 108. Mr. WEICHEL. On the first contract for 25 Libertys what fee did you get? What was that one? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved ForRelease 2003/10/10 : CIA-RDP64600346R000400060002-4 240 . SHIPYARD PROFITS i ! Mr. M4IDEN. $60,000 per ship. That is, of course, before taxes. Mr. WEICHEL. Well, I know, but what was the fee? I mean, you got the $60,000, then you had to pay taxes. I just want to know what you got. ! What was that?selective price? Mr. MAIDEN. No; that was a cost7plus contract.. Mr. WticHEL. Cost-plus, and it was $60,000 a. ship? Mr. 11441-DEN. That is right. Mr, WEICIIEL. What was that based on? On the cost plus? I mean, you got a percent? ! Mr. MAIDEN. No, no; that was the minimum fee stated in the con- tract. Tie minimum fee stated in the contract was $60,000 per vessel, and the rnaximum was $140,000. There was a base fee of $110,000, and the base fee was increased or decreased depending on man-hours or early dr late delivery. Mr. Airiciiim. -So you got the minimum on each one of those, $60,000 Mr. MAIDEN. That is right. Mr. WEICHEL. On the first 25? Mr. MAIDEN. That is right. Mr. WEICHEL. Then, on the next 12, what was the contract? $60,- 000? Mr. MAtIDEN. The same thing. Mr. %wpm,. And a minimum of what? Mr. MAIDEN. $60,000 per vessel. Mr. !WiioiiEL. 60 to 100? Mr. MAIDEN. $140,000, maximum. Mr. WEICIIEL. 60 to 140? Mr. MAIDEN. The work on these two contracts was performed simul- taneously Mr. NITFicii.EL Well, you got $60,000 apiece then on the next 12? MT. MAIDEN. That is right. Mr. W4icrini.. Were those any different than Kaiser made out there where he Only got S49,000 on the first ones, where you got 60? Were they any different in type or anything? . Mr. MAIDEN. Not as far as I know. Mr. W1 1 HEL. So Kaiser got $49,000 on his first ones, and you got (P c' $60,000 apiece on your first 37? Mr. MAIDEN. The figure Mr. Wriciim, (interposing). Now, the next?the 32. Mr. MAlfintiN. The figure that you are quoting, from Kaiser, may be after taxes. These figures I am giving you are before any deduction -Whatsoever. . Mr. WractiF.L. Sure!.You got the money. I want to know what you got. I expect you to pay taxes for it. Everybody pays taxes. Mr. MAiIDEN. No; the point I am trying to make is, I do not know that you are comparing the proper figure. I do not know what the Kaiser figure was. My figures were without any deduction whatever. Mr. Wi ICTIEL. I am talking about this amount you collected. I ex- pected yoi paid taxes, on all this. Everybody does. ir Mr. MAIDEN. Yes; I know, but it is the comparing of figures. Mr. WEICHEL. I know, but you keep on starting "before taxes.', Everybody pays taxes on income. On the next, 32, how much did you get? Mr. MAIDEN. $60,000. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 241 Mr. WEICIIEL. And you got still $60,000? And the next, 31, how much did you get? - Mr. MAIDEN. After renegotiation? $60,000. Mr. WEICHEL. $60,000? What was that?before renegotiating on all these? Mr. MAIDEN. 011 all of those it was. Mr. WEICHEL. I will take the last, 108, here, now. On that set how much did you get? How much did you get after renegotiation ? Mr. MAIDEN. $447847 per vessel. Mr. WEICIIEL. 47? Mr. MAIDEN. $44,847. Mr. WEICHE,L. $44,847? Now, on the first 25, you got $60,000 after renegotiation. What did you get before renegotiation on those? Mr. MAIDEN. Well, the first, these were renegotiated as a group; in excess of profits on the first four contracts, was $2,500,000. Mr. WEICHEL How much did it amount to per ship? Mr. MAIDEN. I have not calculated it. Mr. WEICHEL. How much did it amount to per ship? Mr. MAIDEN. You want me to calculate it? Mr. WEICHEL. Yes. How much was it before renegotiation for those 25 ships? How much was it a ship? You say it was $60,000 afterward; and how much was it, before? Mr. MAIDEN: Well, that is the minimum fee. It was $60,000. Mr. WEICHEL. Well, is that the renegotiated fee? Mr. MAIDEN. That was the renegotiated fee. Mr. WEICIIEL. Well, what was it before it was renegotiated? How much did you get before it was renegotiated? How much was it said to have been, before?$80,000, or 90, or 110? Mr. MAIDEN. No. Mr. WEICHEL. How much was it? Mr. MAIDEN. No. On that contract we got $60,000, which was the minimum fee. Mr. WEICIIEL. Was that after renegotiation? Mr. MAIDEN. That is after renegotiation, also. Mr. WEICHEL. I am asking you how much it was before. How much were you supposed to get? How much were you to make the contract for? And how much did you get? And afterward they had to take it away. I want to know how much they took away from you, per ship. Mr. MAIDEN. We did not take anything away on that first contract. Nothing was taken away on the first contract. Mr. WEICHEL. Well, what was the first contract for?$60,000 a ship, or was it 70, or 80, or 90, or 100? Mr. MAIDEN. No; the minimum fee is what we earned on that first contract, and nothing was taken away. Mr. WEICIIEL. Is that what you charged on it? Mr. MAIDEN. That is right?$60,000. Mr. WEICHEL. $60,000? $60,000 a ship, on the first contract? Mr. MAIDEN. On the first contract. Mr. WEICHEL And nothing was taken away? And it was still 60? Mr. MAIDEN. That is right, sir. Mr. WEICHEL. Now, on the next 12, what did you charge per ship? Mr. MAIDEN. The same situation. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved Forpelease 2003/10/10 : CIA-RDP64600346R000400060002-4 242 SHIPYARD PROFITS Mr. WrEICHEL. You charged the 60? Mr. MAIDEN. Right. Mr. WEICHEL. And nothing was taken away? Mr. M11DEN. And nothing was taken away. Mr. WIoIIEL. And the next 32; how much did you charge? Mr. MJDEN. Same situation. Mr. WIOIIEL. You charged 60? Mr. MAIDEN. And nothing was taken away in renegotiation. Mr. WEIGHED. What was this 21/2 million you started to talk about before you said was taken away, or those first 12? Mr. MAIDEN. That was the third, pardon me. The two-million-five- hundred-odd thousand dollars was taken away in the third contract. MT. WEICHEL. On the 32? ? Mr. M#IDEN. On the 32; yes, sir. Mr. WEICHEL. On the 32? Mr. MAIDEN. Yes, sir. Mr. WEICHEL. How much did you charge them a ship before it was taken away? Mr. MAIDEN. All that we had charged them was $60,000. Actually, we never, got this $2,500,000. Mr. WEIGHED. I understand that. I want to know what you charged them, what you tried to get and didn't get. That is what I want to know. I want to give you credit for trying to get it. Mr. MAIDEN. I will have to calculate that. Mr. WEICHEL. I beg your pardon? Mr. MAIDEN. I will have to calculate that. Mr. 'VV'mcHEL. All right. Mr. KEOGH (presiding). Will you proceed while that calculation is being made? Can you proceed, or does everything depend on that? MT. WEICIIEL. NO, if he is ready. Mr. Iip)oit (presiding). I just wanted to save the time of the committee. Mr. MAIDEN. Can I give that later? Mr. WEICHEL. Yes; sure. Mr. M IDEN. I mean, can I give that later? Mr. WEIoIIEL. Yes. Somebody else can figure that out. I will ask the rext question. Mr. M IDEN. An right. Figure that out. Mr. WEICHEL. On the next 31 ships, what did you charge for fees on that, before renegotiation? Mr. MAIDEN. This is on the 31 ships? Mr. WEICHEL. Yes, sir. Mr. MAIDEN. We claim fees of $1,894,318, and the renegotiation took away $31,348. Mr. WEIGHED. A thousand dollars a ship is all they took away? MT. MAIDEN. That is right. Mr. WEICHEL. SO you still got $60,000 on each one of those? Mr. M#IDEN. That is right. Mr. WEIGHED. The first contract. Then on the last, of 108, you got $44,000? After renegotiation? Mr. M#IDEN. That is after renegotiation. Mr. 'WEICHEL. What did you ask for, before renegotiation? Mr. MAIDEN. That is what we asked for. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 243 Mr. WEICHEL. That is what you asked for? Mr. MAIDEN. Right. Mr. WEICIIEL. You figured that out in advance, to that, to $4,347? Mr. MAIDEN. No ? they did not take anything away. Mr. WEICHEL. OW ? Mr. MAIDEN. That is what we earned under the terms of the con- tract, and they did not take anything away in that contract. Mr. WEICHEL. How was your contract set up? In what way was it set up? Mr. MAIDEN. The minimum fee was $20,000, and the maximum was $60,000. Mr. WEIIIEL. Were those Liberty ships? Mr. MAIDEN. These were Liberty ships. Mr. BRADLEY. Will the gentleman yield there? Mr. WEICHEL. Yes; go ahead. Mr. BRADLEY. Does not the Maritime Commission set those fees after the ship has been built, and they make a determination as to the costs and everything, and then tell you what fees you are en- titled to? Mr. MAIDEN. They make a determination of the fees we have earned, under the terms of the contract. Mr. BRADLEY. It is the Maritime Commission that settles it? Mr. MAIDEN. Yes. Mr. BRADLEY. You do not ask for the fees?they tell you what you are going to earn? Mr. MAIDEN. Yes; they determined the fees. Mr. BRADLEY. Then they are apt to come around later and renego- tiate you and take away something; they have already awarded you once before; isn't that the situation? Mr. MAIDEN. That is the situation. Mr. BRADLEY. With respect to all these contracts, all the cost-plus contracts? Mr. MAIDEN. That is what this $2,500,000, which we never did re- ceive, was?a determination that we were entitled to under the terms of the contract to that amount, yet the Renegotiation Board took it away. Mr. BRADLEY. But I mean, they are the ones who make the deter- mination?not your request. It is a determination by the Maritime Commission that you have earned somewhere between the minimum and the maximum fees? Mr. MAIDEN. That is right. Mr. BRADLEY. The minimum charge, they are obligated to pay you, in any event; they may pay you up to the maximum you have earned? Mr. MAIDEN. That is right. Mr. BRADLEY. And they determine somewhere in between what the proper fee is? Mr. MAIDEN. That is right. Mr. KEOUGH (presiding). Mr. Herter, did you want to ask any ques- tions while Mr. Weichel is waiting? Mr. HERTER. Yes. In your initial organization, you said the Kaiser interests were associated with the Todd interests; is that correct? Mr. MAIDEN. Initially, yes. Mr. HERTER. Initially? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 244 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. 111 AIDEN. Yes. Mr. ERTER. And about a year later the Kaiser interests sold out their sh re to the Todd interests? Mr. AIDEN. That is right. Mr. HRTER. Can you tell us what they sold out the interests for? It was a po percent interest, was it riot? Mr. MAIDEN. It was a 50 percent interest. Mr. HARTER. What did they sell that interest out for? Mr. MAIDEN. Somebody connected with Todd Shipyards would have to answer that question. Mr. Ilt:RTER. You are representing the Todd-Houston Shipbuilding Corp.? Mr. MAIDEN. I am representing the Todd-Houston Shipbuilding Corp., but that transaction was between two stockholders of Todd- ston Mr. HERTER. But at that time, when the Todd-Houston Shipbuild- ing Corp. was organized, there were two sets of stockholders in the Todd-Houston? Mr. MAIDEN. Yes. Mr. HERTER. One was Todd Shipbuilding, the other was the Kaiser group? ' Mr. MAIDEN. Right. Mr. HERTER. And you have no idea what the Kaiser group sold out to the Todd interests for? Mr. MAIDEN. No. Mr. HXLL. I can answer that, I think, sir. The Kaiser interests paid to the Todd Shipyards Corp., I believe, $100 a share, or it was the other way around. Todd Shipyards Corp. paid $100 a share for the share S of stock that were owned by the Kaiser group. Mr. H RTER. How many shares was that? Mr. TILI. That was 50 percent of the issued and outstanding shares. What was it; 500 shares? Something like that. Mr. HERTER. I have here before me the present issued shares of the Todo?-Houston Shipbuilding Corp., 1892. Now, they may have been increased at a later time. Mr. HILL. They were to some extent, sir. Mr. HERTER. After the Kaiser interests were out, what did it amount to in dollars and cents? Mr, HLI. Frankly, I think, about $71,000. Mr. HERTER. As against what they put in? What was paid for that stock in the beginning? Mr. HiLL. Approximately the same amount. They came out clean. Mr. HERTER. They just sold out for -exactly what they had put in? Mr. Him,. That is correct, sir. Mr. BRADLEY. What Kaiser interests are you referring to, now? Mr. Htm,. These 10 companies. Mr. BEADLEY. All right; I just want to know, because Mr. Kaiser did not recognize them. Mr. KEOGH. Is that part of the deal that has been described before, where the coadventurers disintegrated into two? Mr. HIL. That is exactly right, sir. It happened in Todd-Houston, which was then Houston Shipbuilding Corp, of which Todd retained the whole ownership thereafter. It happened in the New England Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 245 Shipbuilding Corp. it happened in California Shipbuilding Corp., the Seattle-Tacoma Shipbuilding Corp., which isn't in this investiga- tion ;: but we just cleaned out our interests at the same rate we paid for the stock: Mr. HERTER. But in effect the Kaiser group interests swapped the ,west coast yard interests for- the east coast yard interests? - Mr. HAL. That is correct, .sir. KEOGH (presiding). Mr. Weichel may resume. Mr. Wnictint, On that 31?or, which one were you going to look up? Mr. KEOGH (presiding): Are you waiting for an answer, Mr. Weichel? Mn HILL. We were waiting to make some calculations for Mr. Weichel. Mr. MAIDEN. According to the calculations made by my friends, here, the amount taken away. by the Renegotiation Board in the, con- tract amounted to approximately $78,000. Mr. WEiciann. That is the one that we had-32 ships? Mr. MAIDEN. That is right, Sin MT. WEICI4EL. SO you tried to get $138,000, and they cut it to $60,000, . is that right? Mr. MAIDEN. That is right. Mr. WEICIIEL: So then it winds up that the-Maritime Commission after -giving you a contract whereby you had certain amounts of money, the same Maritime Commission then cut them down for 25 ships to $60,000 apiece, and 12 for $60,000, 32 for $60,000, 31 for $60,000, and 108, from $44,847? Mr. MAIDEN. That is right, sir. Mr. WEICHEL. And the total number of ships was 208 and 11 tankers? Mr. MAIDEN. Two hundred and eight and fourteen tankers. Now, on the 14 tankers it was $20,000 a ship, and that has not yet been renegotiated. - Mr. WEICHEL. That is $20,000 a ship? Mr. KEOGH (presiding). Excuse me, Mr. Weichel. On that last question of yours you said "cut down to"? . MT. WEICHEL. 'Yes. Mr. KEOGH (presiding) Is it not a fact that the fees are allowed on four of the five Liberty contracts, and were not changed_ at -all? Mr. WEICHEL. He said the first 25 were at 60, and that was according to the contract. Mr. KEOGH (presiding). And that was not cut down? Mr. WEICHEL. And then the Maritime Commission reviewed it and ?renegotiated it and did cut it down. Mr. KEOGH (presiding). Yes. Mr. WEICHEL. And then that was true with reference to the 12; and with reference to the 32, that is the ones they were going to get $138,000 apiece and they cut it to _60 ; and then the 108, they gave them $44,847, after renegotiation. Those were cut down a couple of thousand. Is that right? Mr. KEOGH (presiding). The only point I made was, your question seemed to include all five contracts, and you asked about the cutting down. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 246 SHIPYARD PROFITS ' Mr. *EICHEL. But I did not mean to cut only those that they said. Now, with reference to the facility that you used, how much did the Govern ent set that up as a cost?how many milliow would you say? Mr. MAIDEN. Approximately 14,000,000. Mr. EicuEn. Fourteen million? Did your company, your people, buy that in, or has it been for sale? Mr.MEN. It has not been for sale. At least, I do not know of its havi g been for sale, but the company certainly hasn't bought it, IA if it is. Mr. 'VVEionEn. Are you still using it and occupying it? Mr. M'AIDEN. No. Mr. WEICHEL. I mean, you are not using or occupying the Govern- ment facility that the $14,000,000 was spent on, where you built these ships? ' MT. MAIDEN. No. Mr. WM:MEL. You are not in it any more? Mr. M IDEN. No; except cleaning out some of the--- Mr. EICHEL (interposing). Yes. Mr. MAIDEN. Using the office to a certain extent. Mr.rEICHEL An your company received $11,000,000 in fees? Mr. MAIDEN. That is right. Mr. WEICHEL. And, of course, you paid taxes on it? Mr.A.IDEN. Yes. Mr. WEICHEL. And then you made a statement to counsel that your people 'ere reimbursed for everything except a million dollars? Mr. MAILEN. Approximately a million. Mr. WEICHEL. That was for the million dollars that the people used in your company?in other words, all the people in your company were paid for what they did? I mean the president and the secretary and the manager and all the help were paid? Mr. MAIDEN. Those people on the job; yes. Mr. WEICHEL. Yes; all people on the job. That was paid by the Government, so that the people who did not work in this company, who were the stockholders, and who were reimbursed for everything except a million dollars, for that million dollars they got S11,000,000 in fees, less taxes; correct? Mr. AMEN. That is right. Mr. "V EICIIEL. How? Mr. MAIDEN. That is right. Mr. VTEICHEL. That's pretty good for having a million. That's 1,100 pe cent, less taxes, isn't it? I mean, that is what it adds up to? Mr. i AIDEN. On the basis of your type of calculation. Mr. WEICHEL. Well, you .opt $11,000,000 in fees didn't you? I mean y u stated that, yourself. You got $11,000,000 in fees? Mr. MAIDEN. That is right. Mr. VIEIdHEL. And the stockholders of your company were re- imbursel for everything excepting a million dollars; so for the $1,000,090 they were not reimbursed for, they got $11,000,000 in fees, less wha taxes were paid; that is correct, isn't it? Mr. MAIDEN. That is right. Mr. REICIIEL. That is all. ? Mr. 1EOGH (presiding). Are there any further questions? Mr. Herter. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 247 Mr. HERTER. What is the present status of the Todd-Houston Shipbuilding Corp.? Mr. MAIDEN. The present status is that, except for some final ac- counting?I mean, clearing up final accounting on the contracts? there is no production. Mr. HERTER. Have the land and facilities been declared surplus'? Mr. MAIDEN. I think so. The matter is now being handled by the Maritime Commission. Up until May 31, 1946, the company had a custodial contract, but since that date the Maritime Commission has taken over the custody and is declaring? Mr. HERTER. Your last contract was finished, the end of last year, was it not? Mr. MAIDEN. That is right, sir. Mr. HERTER. And so today it is lying idle, there; they do not have any ship construction or any construction of anything, now? Mr. MAIDEN: Yes, sir. Mr. HERTER. Or repair work? Mr. MAIDEN. No, nothing. The Todd-Houston Corp. has nothing to do with the custody or anything else. Mr. HERTER. The custody is in the hands of the Maritime Commission? Mr. MAIDEN. It is in the hands of the Maritime Commission. Mr. HERTER. And you are merely winding up? ME. MAIDEN. That is right. Mr. HERTER. You cannot testify then, as to whether the Todd Co. intends to continue the shipyard? Mr. HILL. I can testify as to their present inclination. I do not think we have any intention of continuing the shipyards. Mr. HERTER. In other words, it was a straight war operation from beginning to end? MT. FIILL. Yes, sir. Mr. KEOGH (presiding). Mr. Bradley has one question. Mr. BRADLEY. Do you happen to know whether or not there was any such agreement made down there, to remove the facilities, as was the case with the California Shipbuilding Corp.'? In other words, is the Maritime Commission obligated to tear down those facilities and move off the land that perhaps was leased by them? Mr. HILL. Can I answer that, Mr. Bradley'? Mr. BRADLEY. Yes. Mr. HILL. I think the Maritime Commission presently owns all of the land on which the facilities are located. Mr. BRADLEY. They own the land? Mr. HILL. They own the land 100 percent, I believe. Mr. BRADLEY. They bought that as part of the facilities contract? Mr. HILL. No; I do not believe it happened simultaneously with the facilities contract, but I think during the course of operations the Maritime Commission condemned the property on which the facilities were situated. Mr. BRADLEY. I see. So they are not obligated to remove anything? Mr HILL. Not obligated to remove, as far as I know, sir. Mr. BRADLEY. Do you happen to know what they have done with any of the material or anything that may have been left in the yard; that is, steel, or anything of that nature; whether they have sold it? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 248 SHIPYARD PROFITS Mr. Ilii,L. All I know generally is that they have sold some of it. They have shipped. They have used the yard to some extent as a collection point for other places, and shipped material into it, and I think they are presently engaged in disposing of the surplus, _al-- though, of course, they know more about that than I. Mr. BRADLEY. For the sake of the record, Mr. Chairman, I wonder if these gentlemen could tell their names and their companies; and - the positions they hold. One of them, I do not think we got at all. Mr: ILL1.. My name is Harry G. Hill. I am a director of the Todd- Houstoi Shipbuilding -Corp., and a director .-in the New England -Shipbui din.g Corp., and general counsel for Todd Shipyards Corp. Mr. IEOGn. Of the distinguished firm of Cullen. & Dikeman? Mr. HILL. Cullen & Kikeman, sir. Mr. /cEOGII (presiding). Thank you very much. Mr IAIDEN. Thank you. Mr. I mon. And may I express my appreciation to Mr. McCone for permitting these witnesses to go on, before completing his testi- mony. Mr. 13LADLEY. Have we finished with them? (Information furnished by the Todd-Houston Shipbuilding Corp., in respoinse to the committee's questionnaire, has been received for the recod and marked "Exhibit '16.") The HAIRMAN. Mr. Bechtel, you have to leave at what time? Mr. BircirrEn. As soon as I can get away, Mr. Chairman. I am due to be on the 7 o'clock train. TEST70NY OF K. K. BECHTEL, PRESIDENT, MARINSHIP CORP. The ,HAIRMAN. Mr. Coles, please confine your interrogatories to necessa y questions. . Mr. GENNETT. Will you give us your full name for the record? Mr. BECHTEL. K. K. Bechtel. MT. GENNETT. And the name of the corporation which you repre- sent? Mr. ECHTEL. Marinship Corporation. Mr. OENNETT. DO you have a statement prepared which you would like to read to the committee? Mr. El ECIIITL. With your permission I should. like to, sir, briefly. I cal* from San Francisco. Before leaving we submitted to this commitfee all the information asked of us. There is now in the records of this committee certain data which is incorrect and statements have been made with respect to shipbuilding which we believe tobe erroneous. Therefore we ask this opportunity to respectfully submit the following information: W. A Bechtel Co. was a long-established engineering-construction firm before the war. It had for many years been one of the group of firms referred to as "The Six Companies." Prior to 1942 these firms were engaged in a number of shipbuilding activities. As individual firms and in group operations these organizations had for many years before the war been designing and building.proj- ects of ll types and sizes throughout the United States .and foreign countrie . These firms were successfully conducting many other busi- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 249 ness operations, some directly related to the construction industry and others in other business fields. During the war their operations ranged from successful designing and building of shipyards and ships to airplane construction and modification; massive construction projects in all parts of the world, and manufacturing. On March 2, 1942, W. A. Bechtel Co. received from Admiral Land a telegram from which I will quote only brief parts. He asked us to submit a proposal for the building and operation of a new ship- yard under the conditions of the contracts the Commission was then using for the construction of Liberty ships. He stressed the urgency of building the maximum number of Liberty ships in 1942, and said [reading] : We are flow relying on you individually in the interests of this emergency to contribute your organization for the purpose of securing completed ships in the present calendar year. The emergency demands all within your power to give your country ships. He knew our successful record of performance, and that is why he made this appeal. By telegram we replied that he could rely on us to do our part. This resulted in the building of the Marinship yard and 93 ships between March 1942 and October 1945. We built a shipyard, built 93 ships, and performed other valuable services for the Government. The initial contracts for building the yard and Liberty ships were awarded to W. A. Bechtel Co. and were performed by it in joint ven- ture or partnership with six other organizations. The Maritime Com- mission did not expect us to make any investment in the shipyard facilities. It did require that we furnish all working funds necessary to finance the operation. The firms comprising the Marinship partnership were individually and collectively responsible for the successful completion of these con- tracts and their entire net worth, estimated then to have been between $15,000,000 and $20,000,000, was behind all commitments of the joint venture. Although these financial resources were very large, we do not con- sider those our biggest resources. To us our biggest asset is the reputa- tion and the ability of the people behind these firms. They were known as men who could get things done. Just as big was the key personnel of these seven partner organizations. There were hundreds of experienced, able, devoted managers and supervisors who had helped these particular firms to accomplish their successful perform- ances. A great many of these men were taken from our other opera- tions and assigned to the design and construction and operation of the Marinship yard. They were the nucleus around which a working force of over 20,000 people was built. The CHAIRMAN. Were you one of the group that was sworn a while ago? Mr. BECIITEL. NO sir. The CHAIRMAN. No, may be sworn now. Do you solemnly swear that the testimony which you. have given and that which you shall give hereafter in this proceeding now or at Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 250 SHIPYARD PROFITS any fut but the Mr. Admi incident and he re time, has been and is the truth, the whole truth, and nothing truth, so help you God ECHTEL. I do. al Land testified before this committee on June 28, 1943?and, ally, I appeared before this committee about the same time? aid [reading] : . What ve were buying was management brains. I knew the Bechtels and a number f their? people. I sent telegrams to about a dozen people asking what they could do. Bechtel called up when he got the telegram and said they were going right to work on it?they made the best record of any of the yards that came in t that time. They were making such a good record that when I saw I had to ? something to increase production of tankers I took that yard myself and shiftrd them into tanker building. When we switched from Liberties to tanker construction late in 1942 the joint venture was changed to Marinship Corp. After in- corporation the partners at all times had a minimum of $1,000,000 at risk which was used as working capital in the performances of ship- building contracts. The stockholders of the corporation were: W. A. Bechtel Co., BechteliMcCone Corp., Morrison-Knudsen Co., Inc.; MacDonald & Kahn2 Inc.; J. H. Pomeroy & Co., Inc., Raymond Concrete Pile Co. Incichntally, Mr. Kaiser has never had any financial interest in Marinship. The work done under the Maritime Commission contracts may be summarized as follows: The partnership had total contracts of $50,032,030. The fees Allowed under those contracts totaled $900,000. The contractor's nonreimbursable costs were $178,260. The Federal taxes on the net fees were paid by the joint venturers directly on their own income tax returns, and I have no knowledge of the amount; but they were all very active firms, and I am sure that they paid very substantial amounts of income tax on their share of the joint venture's net profits, which were $771,740, or approximately 1.54 percent of the contract cost before taxes paid by the individual partner firms. Marinship Corp. had total contract prices of $280,941,573. Its total fees or profits were $11,026,394, out of which it paid nonreimbursable costs of $644,086. It paid or provided to be paid $6,519,574 of income taxes, w iich reduces to a net fee or profit, after nonreimbursable costs, taxes p id to date of $3,862,734. That is 1% percent of the total i contrac price. I wil summarize by stating that, first, the contractor's investment in worl ing capital was at all times during the performance of these contrac s in excess of $1,000,000. Seco d, in the case of Marinship the "knowing how to secure a con- tract from the Maritime Commission," to which Mr. Casey of the General Accountinc, Office refers so lightly, consisted of an unsolicited appeal from the Government that we build and operate this shipyard. ThircT, the ability and devotion to the task before them shown by the ma agement and supervisors of Marinship furnished the leader- ship w ich directed the efforts of many thousands of workmen who built o ,er a million and a quarter dead-weight tons of shipping. Fourth, the Maritime Commission at no time guaranteed Marinship a profit as was stated in the Comptroller General's written statement of yesterday. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 251 The CHAIRMAN. Are there any questions? Counsel will ask only necessary questions. , Mr. GENNETT. I wonder if it is clear to the committee that the witness has recited statistics relating to (1) a partnership called the W. A. Bechtel Co., a joint venture; and (2) the Marinship Corp., a corporation whose stockholders were about 8 or 9 in number. Those stockholders were corporations and one individual, Mr. K. K. Bechtel. The CHAIRMAN. He has read it to the committee. Mr. GENNETT. Referring to the Marinship Corp., you stated the capital. I understood that the capital stock of that corporation was $450,000. Mr. BECHTEL. That is now correct. Mr. GENNETT. It is now correct? Mr. BECHTEL. Yes, sir. Mr. GENNETT. Was it less than that upon organization of this corporation? Mr. BECHTEL. Yes. Mr. GENNETT. What was it at that time? Mr. BECIITEL. $375,000. Mr. GENNETT. Was the increased capitalization by virtue of a stock dividend or cash dividend paid to stockholders and reinvested by them? Mr. BECIITEL. No. Mr. GENNETT. It was an additional cash contribution of the stock- holders.LI take it? Mr. _BECHTEL. That is correct. Mr. GENNETT. Was part of the capital which you have indicated was in the possession of the corporation bank borrowings? Mr. BECIITEL. A very substantial part of the working capital used by this corporation was bank loans; yes. Mr. GENNETT. Was interest paid on those bank loans? Mr. BECHTEL. Yes. Mr. GENNETT. Reimbursed by the Maritime Commission? Mr. BECHTEL. In part. Mr. GENNETT. May I ask you, Mr. Bechtel, if you have heard who dictated the telegram which was sent over Admiral Land's signature or who suggested the telegram be sent to Bechtel? Mr. BECHTEL. No; I have never heard that. I assumed it was dic- tated by Admiral Land or Admiral Vickery or one of their immediate assistants. Mr. GENNETT. Have you ever heard that the telegram might have been dictated by Mr. Kaiser or Mr. Calhoun, the vice president of one of the Kaiser corporations? Mr. BECHTEL. No, sir. The CHAIRMAN. If you have any evidence as to that, put it on. Mr. GENNETT. What type were the contracts which you entered into with the Maritime Commission; that is, were they cost-plus, price- minus' or selective price? Mr. BECTITEL. Cost, cost-plus, lump-sum, price-minus, termination, and fixed price. Mr. GENNETT. Were any of those contracts converted to another type of contract? Mr. BECHTEL. Yes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 252 SHIPYARD PROFITS Mr. GENNETT. I take it that you remember Mr. Casey stated that some of your contracts were converted to your benefit after the original contract was signed? . Mr. BECIITEL. I have read his written report; yes. Mr. GENNETT. Is your opinion contrary to Mr. Casey's statement? Do you stite that ybu received no benefit under this conversion from one type of contract to another? Mr. BECHTEL. My opinion or my firm belief is that Mr. Casey was mistaken. Mr. GE NETT. Will you give us the total amount of fees received by Marin hip ? . Mr. BECHTEL. Yes. I will quote from a schedule which is identical with the cine given you. It summarizes it. I am now referring, to the combined, operations, the total operations of the joint venture and the corporation. Subject to confirmation, I believe these are substan- tially correct. The CHAIRMAN. Confirmation by whom? Mr. BECHTEL. I should like thenpportunity to check them. The CHAIR-MAN. Subject to correction by you? Mr. BECHTEL. Yes, sir. The gross fees on cost-plus or cost-plus-no-fee of contracts which were con erted to lump-sum were $4,318,920, out of which we paid $561,000 f nonreimbursable costs, on which we paid $1,881,000 of cor- poration income tax plus the taxes of the point-venture firms which I am unable to supply you, leaving a net profit of $1,912,000 distributable to these joint venturers or stockholders by Marinship, but out of which, in turn, the joint-venture members must pay their corporation income tax. . Mr. GENNETT. How many of your contracts have been renegotiated at this time? Mr. BECHTEL. For all practical purposes all of our contracts except our last 4ed-price contract. There are a few minor repair and lay-up contracts which are not large. Mr. GrivN'Err. Have you the figures or the results of those renegotia- tions? MT. BECHTEL. Yes. Mr. GENNETT. Would you state how much was taken away from you by the Price Adjustment Board on renegotiation? Mr. BECHTEL. They found no excessive profits. Mr. GENNETT. Then the total of your fees was not reduced by renegotiation? Mr. B CITTEL. To date; that is correct. , Mr. G NNETT. I think that is all, Mr. Chairman. The C [AIRMAN. Mr. Keogh? Mr. KEothi. No questions. The CHAIRMAN. -Mr. Bradley? Mr. BRADLEY. Mr. Bechtel, just how fast did you build that plant of yours ? I know you built it very, very fast. Mr. BECHTEL. The plant was conceived, designed, and built in approximately 8 months. We started building ships about 60 days after we started building the yard, and we completed our first ship 244 days after we got the first idea of this yard from Admiral Land. Approved For Release 2003/10/10: CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 253 Mr. BRADLEY. I know you made a remarkable record out there, and you were handicapped, too, by the change-over from Liberty ships to tankers right in the middle of your program. Mr. BECHTEL. Yes, sir. That slowed us up and increased our costs. Mr. BRADLEY. We were out there right about the time you were switching over, plus the change-over from cargo ships to refrigerator ships after they were 90 percent completed, and in several instances you were ordered to shift over to refrigerators, which you did, and then they told you to shift back to half and half. Mr. BECHTEL. That is correct. Mr. BRADLEY. That was going on when we were out there. They had you tied in a knot. I do not want to prolong the questioning, but I thought you testified originally that you got substantially the same amount of profits as shown on this Maritime Commission sheet, exhibit 1, roughly $11,000,- 000. Now I understand that you cut it down to $4,000,000. ? Mr. BECHTEL. Mr. Bradley, the question related to work on which we received a fee for cost-plus work. Those are the figures I have given you to date. Mr. BRADLEY. Some of your later tanker contracts were fixed-price contracts, were they not? Mr. BECHTEL. Yes?on which we took all of the risk. Mr. BRADLEY. I know you did a very good job out there, and you are to be congratulated on it. That is all I have Mr. Chairman. T have, CHAIRMAN. Mr. Weichel? Mr. WEICHEL. In reference to the statement of the Maritime Com- mission, your gross fees were about $11,000,000; is that correct? Mr. BECHTEL. No. Mr. WEICHEL. To what sum was the $11,871,840 renegotiated? Mr. BECIITEL. A part of that amount is fees; a part of it is profits on fixed-price work. Mr. WEICHEL. I do not care whether it is profit, fees, or anything else. Was the gross amount $11,871,840? ? Mr. BECHTEL. That is the approximate amount of our fees and profits. Mr. WEICHEL. Was this $11,871,840 renegotiated to any other sum? Mr. BECHTEL. No, sir. Mr. WEICIIEL. Then your company really got $11,871,840; is that correct? Mr. BECHTEL. No; that is not correct. We have been through renegotiation on all of our cost-plus contracts. They have found no excessive profits. Our fixed-price contracts have not yet been reviewed by the Renegotiation Board. Mr. WEICHEL. Up to date you really have $11,871,840, and the Renegotiation Board so far has not taken anything away from you? Mr. BECHTEL. Before taxes and nonreimbursable expenses. Mr. WEICHEL. Why do you have to say "before taxes"? Every- body expects to pay taxes on income. Mr. BECIITEL. I want to get the record straight. Mr. WEICIIEL. Just like they talk about risk when they did not have any. 93486-46-17 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 254 SHIPYARD PROFITS So the, $11,000,000 remains at that. The only thing to renegotiate is the fixed-price contracts? Mr. BECHTEL. That is right. Mr. WEICHEL. How many ships did your company build? Mr. BiCHTEL. Ninety-three. Mr. WpionEL. With reference to the plant facilities of $16,436,335, does the Government still own them? Did they sell them to you or some of sour associates or individuals? Mr. BECHTEL. To the best of my knowledge, the Government still owns it. Mr. WEICHEL. Are you operating it any more? Mr. 13ECHTEL. We have a few administrative personnel there. Mr. WEICHEL. Out of this $11,871,840 that you received in profits and fees ,from the Maritime Commission, you say you paid taxes on that and, that you only have $3,000,000 left of it. Is that what you said? Mr. BECHTEL. That is substantially correct. Mr. WEICHEL. In other words, out of $11,871,840 you paid $8,- 000,000 taxes ? Mr. B ,CHTEL. The taxes paid to date by the corporation are $6,510,00p. In addition,. the joint-venture members must pay their own taxe Mr. WEICHEL. I am talking about this corporation. Mr. BECHTEL. That is easy. ? Mr. WEICHEL. Was that the only business it was in?operating this yard? Mr. BECHTEL. For all practical purposes; yes. Mr. WEICHEL. This Marinship Corp.? Mr. BECHTEL. Yes. Mr. WEICHEL. They only operated this yard, and they received $11,000,000 and paid $6,000,000 in taxes; is that correct? Mr. BECHTEL. Y08. Mr. WEICIIEL. SO that you have $3,000,000 left after taxes. You originally put in $500,000? Mr. ThcIITEL. We originally put behind this operation between $15,000,0 0 and $20,000,000. Mr. WaIcIIEL. You put $500,000 in the company in cash when you started? Mr. B CHTEL. We put $375,000 of capital stock, $125,000 of sub- ordinatel loans, guaranteed loans of another half a million dollars. In addition to that, the corporation borrowed $700,000 from the bank, which we s its sole responsibility. Mr. WEICHEL. The only investors' money was the paid-in capital stock; the rest of it was borrowed? MT. BlCHTEL. NO, sir. Mr. WEICHEL. How much capital stock was paid in? Mr. BECHTEL. Three hundred and seventy-five thousand. Mr. WEICHEL. The rest of it was borrowed. The investors' stock was $3001000 ? Mr. BECHTEL. Yes. MT. WEICHEL. $300,000 was paid-in investors' stock. You say you had nonreimbursables of $644,000. What were the major amounts in that? verything else excepting $641,000 was paid by the Govern- ment. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 ? SHIPYARD PROFITS 255 Mr. BECHTEL. In the corporation the nonreimbursables consisted of automobile expenses, most of which we never asked the Maritime Commission to pay. Mr. WEICHEL. How much was that? Mr. BECHTEL. $22,000. Mr. WEictiEL. The Government did not reimburse you, but you charged that off as expense and paid no income tax on it? Mr. BECHTEL. It was a cost of doing business. Salaries, $226,000. Mr. WEICHEL. The Government did not reimburse you, but you charged off against income tax? Mr. BECHTEL. That is correct. Contributions to charity, $121,000. Mr. WEICIIEL. The Government did not reimburse you, but you charged it off on your income tax? Mr. BECHTEL. Yes. Launching ceremonial expense, $34,500. Those are the largest items. Mr. WEICHEL. The $644,000 you were not reimbursed by the Gov- ernment for, but it was all charged off as business expenses with refer- ence to your income-tax return. The $614,000 is the only amount you were not reimbursed for, and you got 3,000,000 net; so you made 500 percent on what you were not reimbursed for, and you charged off the $644,000 in income tax. Mr. BECHTEL. I cannot verify such a computation. Mr. WEICHEL. You testified to $3,000,000 net, did you not? Mr. BECHTEL. Yes. Mr. WEICHEL. And you testified that there were $644,000 of non- reimbursables, did you not? MT. BECHTEL. Yes. Mr. WEICIIEL. And the $644,000 was charged off on income tax as business expense. So that, with reference to the actual investors' money of $300,000, that is a thousand percent, if you take it that way. It is a thousand percent on the $300,000 that the investors put in there. On the nonreimbursables which the Government did not give you back it is 500 percent, the net return. One way it is 500 percent and the other way it is a thousand percent, based on what you said. Mr. BECHTEL. That is not correct, sir. Mr. WEICHEL. Based on those figures. Did you not give those figures? Mr. BECHTEL. If the facts as stated by you were correct your answer would be correct, but your facts are mistaken. Mr. WVICHEL. Is the $3,000,000 correct? Mr. BECHTEL. Yes. Mr. WEICHEL. That is net. There was $300,000 actually put in as investors' capital? Mr. BECHTEL. $375,000 was invested by the stockholders in capital stock. Mr. WEIcuEL. $375,000 invested by the stockholders, and they made $3,000,000 out of it? Mr. BECHTEL. No, sir; because the stockholders, or some of them, had invested their personal reputations and their own personal lia- bility. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R0004000600024 ? 256 SHIPYARD PROFITS Mr. WE CIIEL. Well, that is a nice price for it. But on the $375,000 invested ou got $3,000,000. The rest of it is for their reputation? Mr. BE IITEL. No, sir. Mr. WFIdHEL. That is what you said. Mr. BE HTEL. The rest of it is for the risk they undertook, their reputatio s, their ability to organize and inspire the organization to build 78 s ips. Mr. W ICHEL. The risk they undertook? They were reimbursed for everyt ing but the $644,000. So the risk was paid for 500 percent. ? Mr. B4du2L. I should like to remind you, sir, that Marinship Corp. wa forced by the Maritime Commission to take contracts for building 45 ships at a fixed price, under which Marinship took all of the finrcial risks. ? Mr. W ICHEL. ?A hundred thousand dollars' worth of risks. The investors put in $100,000, and everything else was paid for by the Government, and, by your own figures, they got $3,000,000. Mr. BIpOHTEL. No, because the investors had behind Marinship moneys f r which they were directly responsible always in excess of a million dollars. Mr. W 'cum,. They only invested $375,000, and they got $3,000,000 for it. he rest of it is reputation. You say everyt Ting was reim- bursed except $644,000. ? Mr. B CHTEL. Under the fixed-price contract nothing was reim- bursed tc us. The Commission agreed to pay us so much a ship. We built the ships and they paid us, and, in addition to that, when we undertak a fixed-price contract we consider that the resources and risks corisist of all of the money we could lose, and in this case we could have lost approximately $2,000,000, in addition to which there was my wn personal guaranty. _ Mr. WEICIIEL. The result, though, is $3,000,000 net for an invest- ment of 375,000 by the investors. That i all. The C IAIRIVIAN. That is a conclusion. All right. Stand aside, Mr. Bechtel. (Infoifmation furnished by Marinship Corp., in response to the committee's questionnaire, has been received for the record and marked 'Exhibit 17.") Mr. G NNETT . I will call Mr. Jones. The C LAIRMAN. Please stand and be sworn, Mr. Jones. Do y u solemnly swear that the evidence you will give will be the truth, tlite whole truth, and nothing but the truth, so help you God? Mr. J NES. I do. TESTIM NY OF EDWIN L. JONES, SECRETARY-TREASURER J. A. JONES CONSTRUCTION CO. Mr. tENNETT. Will you give us your full name for the record, please? Mr. J NES. Edwin L. Jones. Mr. ENNETT. What company do you represent? Mr. 4oNns. I am secretary-treasurer of the J. A. Jones Construc- tion Co Mr. 4BNNETT. That is a corporation, I take it? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 257 Mr. JONES. Yes. Mr. GENNETT. When was it organized? JONES. In 1894. Mr. GENNETT. Its principal business since that time has been what, Mr. Jones? Mr. JONES. Construction and engineering. Mr. GENNETT. General construction? Mr. JONES. That is right. Mr. GENNETT. When did it enter into the shipbuilding business? Mr. JONES. In March 1942. Mr. GENNETT. Its first contract with the Maritime Commission was made in March 1942? Mr. JONES. Yes sir. Mr. GENNETT. What is the capital of the corporation, Mr. Jones? Mr. JONES. You mean the capital and surplus, or just the capital? Mr. GENNETT. I would like to know both, but separately, if you please. Mr. JONES. It is $3,301,000. Mr. GENNETT. That represents both capital stock and surplus? Mr. JONES. Yes. Mr. GENNETT. How much capital stock has been issued and is out- s anding ? Mr. JONES. One million dollars. Mr. GENNETT. What was the original capital paid into the com- pany? Mr. JONES. At what time? Mr. GENNETT. Upon organization. Mr. JONES. Fifty thousand dollars. Mr. GENNETT. And that was increased from time to time through earnings and out of surplus? Mr. JONES. And by sale of stock. Mr. GENNETT. The figures of the Maritime Commission which were entered as exhibit 1 at this hearing show that you had a capital of about $2,000,000. You have just stated something above $3,000,000, Mr. Jones. Can you explain for us the difference in these figures? Mr. JONES. No; I cannot. We actually used $3,600,000 of our capital in the two shipyards. . GENNETT. Was any other business besides shipbuilding carried on during the war? Mr. JONES. This was about one-third of our business during that period. Mr. GENNETT. Was all of the capital actually used in shipbuilding, or was part of the capital used in other construction work? Mr. JONES. This much was attributable to shipbuilding. Mr. GENNETT. The $3,600,000? Mr. JONES. Yes. Mr. GENNETT. Then what was the total capitalization of the com- pany? AL'. JONES. I mean by capital either money which represented capi- tal stock or money which we borrowed to put into our operations. Mr. GENNETT. There was no difference, then, between total capitali- zation of $3,600,000 directly used in shipbuilding and the same amount used in construction work; so, in fact, the capital of $3,600,000 was Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 258 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS the entire capital of the corporation and was used both in shipbuilding and in general construction work? Mr. JONES. No. I just told you that we used $3,600,000 of our capital in!, shipbuilding. Mr. GANNETT. But you did not tell me that you used anything else in the cOstruction business which you carried on. Mr. JoivEs. I said we did. Mr. GENNETT. I am sorry, sir. Would you repeat the amount used in the cOstruction program? Mr. JONES. It fluctuated. We did not alwayg have $3,600,000. That was the pedk in the shipyards. We had, according to my recol- lection' a one time about $10,000,000 capital both in construction projects and in shipbuilding projects. Mr. GENNETT. Was part of this amount bank loans? Mr. Jos. Yes. Mr. GENNETT. Do you know how much? Mr. JONEs. Around $7,000,000 at one time. Mr. GENNETT. What was the total paid in value of the stock of the corporation since you entered into the contracts with the Maritime CommisSion in 1942? Mr. JONES. I don't believe I understand your question. Mr. GENNETT. I want to know what the total paid in value of the capital sock now issued and outstanding is. Mr. JONES. $1,000,000. Mr. GENNETT. What was it in 1942 when you entered into contracts with the Maritime Commission? Was it less than a million? Mr. JoNEs. Yes. I would have to refer to my statements to find out. Mr. GANNETT. Will you do so, Mr. Jones? Mr. JONES. At or about the time we entered into these contracts we transferred some of our surplus in the form of a stock dividend; $129,200, of capital stock and surplus of $1,635,393, or a total of $1,764,000. The cHAIRIVIAN. It has been suggested that I announce that this will be the last witness for today. ? Mr. GANNETT. That is of what date, Mr. Jones? Mr. JONES. That is December 31, 1942. Mr. GENNETT. Subsequent to 1942 was a stock dividend issued? ? Mr. J NES. Yes. Mr. OENNETT. On what date was that issued? Mr. JpisrEs. I might say that was out of surplus or was earned prior to our Shipbuilding experience. That seems to have been early in 1944. Mr. GENNETT. I have taken from your statement, which was sent in on the 00th of August, that as of January 1, 1911, your total paid-in stock value was $206,600. Mr. JONES. You mean capital and surplus? Mr. ENNETT. No; the total paid-in value of the stock. Mr. ONES. How much was that? Mr. ENNETT. $206,600. Mr. JONES. That does not exactly agree with what I have here. I have ere $246,600. You said $206,600. Approved For Release 2003/10/10 : CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 259 Mr. GENNETT. We are $40,000 apart. Mr. JONES. That is immaterial. Mr. GENNETT. It is not significant. However, the main portion of your corporation's capital is at the present time and was at earlier times, including the time when the corporation entered into contracts with the Maritime Commission, primarily in surplus rather than in stock? Mr. JONES. That is right. Mr. GENNETT. Although the stock has now been increased to $1,000,000. Mr. JONES. That is right. Mr. GENNETT. Do you know the amount of bank loans? Mr. JONES. Now? Mr. GENNETT. During the shipbuilding period. Mr. JONES. It got up to $7,000,000. Mr. GENNETT. Were receivables from the Government pledged as security for those loans? Mr. JONES. We are told by our bankers that we are one of the few companies that never pledged a single contract. Mr. GENNETT. It was all done on your own credit and endorsement? Mr. JONES. Personal endorsement. We take a great deal of pride in that. Mr. GENNETT. I believe your corporation operated two shipyards, one at Brunswick, Ga., and the other at Panama City, Fla.? Mr. JONES. That is correct. Mr. GENNETT. Did the corporation put in any of its own funds in either of those yards? Mr. JONES. No. We operated Government-owned facilities. Mr. GENNETT. Entirely Government-owned facilities? Mr. JONES. Yes. ? Mr. GENNETT. Could you give us the total cost of the two ship- yards? Mr. JONES. Approximately, I believe, around $12,000,000 at Bruns- wick and $14,000,000 at Panama City, if I am not mistaken. Mr. GENNETT. Did your corporation perform the facilities con- tracts? Mr. JONES. We did at Panama City; we did not at Brunswick. Mr. GENNETT. I assume that no profit was made on the facilities contracts? Mr. JONES. That is correct. Mr. GENNETT. The Brunswick yard which was built by subcontrac- tors received a profit or fees' did they not? ? Mr. JONES. That I do not know. The Brunswick yard was started by the Brunswick Marine Shipbuilding Co. and they had the yard practically completed at the time we were asked by the Maritime Commission to take over the management. So I have no knowledge of what their contracts were. Mr. GENNETT. How many ships were constructed at both those yards? Mr. JONES. We finished 207. Mr. GENNETT. Can you tell me the total cost to the Government of the 207 ships? Mr. JONES. Approximately $277,000,000. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 260 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. ENNETT. How much profit or fees did you receive? Mr. JONES. In round figures, $9,000,000?just a little bit over, I believe. Mr. TENNETT. Have any of your contracts been renegotiated? Mr. JONES. Those for 1943?I believe, 1943 and 1944?have; 1945 has not . Mr. ENNETT. What proportion of your contracts have been re- negotiated, Mr. Jones? Mr. JONES. Maybe half. Mr. ENNETT. About half? ME. JoNEs. Yes. Mr. ENNETT. And the total fees received after renegotiation of the hal were how much? Mr. JbNES. As I testified just now, the shipbuilding was only about one-third of our total volume? Mr. GEN/VETT. I understand that. Mr. JONES. And we were renegotiated on an over-all basis, and it is rather hard to pull out a ship and say that is what was renego- tiated. , ? The HAIRMAN. Were you renegotiated by the Maritime Commis- sion? Mr. JoNEs. No, sir. I believe there is a policy between the different governmental agencies to let the agency which has the larger share to renegotiate, which was the War Department. The Maritime Com- mission liad a representative in on the renegotiation, however. Mr. GENNETT. You cannot very well advise us what part of those fees that, had been renegotiated were attributable directly to ship- building then can you? Mr. JONES. No, sir; I cannot. Mr. KEOGH. What percentage did the Board agree with you on, on your over-all volume? What percentage did they allow you? Mr. JONES. I may have that information here. I will say that I did not now what was to be asked me, so I tried to bring the office with me. Mr. KEOGH. Was it 6 percent or 8 percent? Mr. JIDNES. My recollection is that it was around 8 percent. But I think I can verify that in just a minute. Mr. KEOGH. My recollection is that you were allowed a gross profit of 8 percent of the business done. ? Mr. JoNEs. I have found the papers, now. In 1943 we returned $4,380,000 on renegotiation. Practically all of it was outside of ? shipbuilding. Mr. KEOGH. Did they not agree with you on a percentage when you were renegotiated ? Mr. JONES. Well, it does boil down to a percentage. Mr. KEOGH. It is the percentage that I would like to have you give me if you have it. JorEs. It is 3.981 percent. That was for 1944. Mr. KEOGH. That is the year you were doing business not only for the Maritime Commission but for the War Department? Mr. JorEs. And the Navy Department. Mr. KEOGH. In that year when you arrived at your renegotiation did they break down the volume of the various departments and allow you a varying percentage on it? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 261 ? Mr. JONES. I have the figures right here. No, sir. It seems to be an over-all figure. Mr. KEOGH. Excuse me, Mr. Gennett. The CHAIRMAN. Proceed. Mr. GENNETT. In these contracts other than ship-building contracts did the corporation have any capital risk? ? Mr. JONES. No more than in the shipyard. Wait a minute. On the fixed-fee we were on the same basis. On the lump sum contracts we risked everything we had. Mr. GENNETT. You say, no more than in a shipbuilding contract. Mr. JONES. That is, we had fixed-fee contracts with other govern- mental agencies' and the risk was the same as in the Maritime Com- mission contracts. Mr. KEOGH. You also had some lump-sum contracts? Mr. JONES. Yes, sir. We had one lump-sum contract around $26,- 000,000; another one around $22,000,000, and so on. Mr. KEOGH. You said that your company was organized in 1894? Mr. JONES. Yes, sir. Mr. KEOGH. Can you tell this committee what your average annual profit was percentagewise to your gross business done over that 50-year period ? Mr. JONES. I am sorry to say, sir, that it has been coming down. Mr. KEOGH. I appreciate that. What was its range? Mr. JONES. It has ranged from around 20 percent in the beginning to the figure I just used of around 4 percent. Mr. KEOGH. In the year that it was 20 percent did you do any Gov- ernment business? Mr. JONES. No, sir. Right now I might say we have around $50,- 000,000 worth of non-Government business, most of which is on a cost-plus-fixed-fee basis. Mr. KEOGH. Is there a growing tendency now, even in private busi- ness to contract for construction work on a cot-plus-a-fixed-fee basis? busi- ness, JONES. I cannot say it is growing, sir. _We normally have a large share of our business on that basis. Mr. KEOGH. But it is more common now than it was prior to the war? Mr. JONES. I believe it is. Mr. KEOGH. Would you say that the fact that it is more common now than it was prior to the war is in any wise due to the experience that was gained under such types of contracts during the war? Mr. JONES. That is my guess. Mr. KEOGH. In other words, it has been found to be a very satis- factory type of contract on both sides? Mr. JONES. I might say that within the past 12 months we have been given three contracts by Sears, Roebuck, three by the United States Rubber Co., three by Western Electric, five by the Southern Railway, and other contracts by corporations of similar standing, all on a cost- plus-a-fixed-fee basis. Mr. BRADLEY. Is not that because you have no possible way of antici- pating what the costs are going to be? Mr. JONES. That is one of the arguments that we put up. Mr. KEOGH. That is certainly the argument that obtained during the war. Mr. WEICHEL. May I ask a question there? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 262 SHIPYARD PROFITS You said something about cost-plus contracts. Private individuals are watching expenditures a little more closely than the Government watched these that we have heard about during the past week? Mr. J__9,NES. That has not been our experience. Mr. WEICHEL. Can you charge in $500,000 given to charity and $50,000 for a memory course? Mr. KEOGH. There has been no evidence introduced at these hear- ings sinc I have been here that indicates that any items for charity or any of these other things mentioned have been reimbursed by the Government. In fact, everybody has testified that they are nonreim- bursable Items. Mr. WEIGHED. Yes; but they have been charged off. Mr. BRADLEY. Don't you charge such things off in your income tax? Mr. WEICHEL. Surely; but they were saying they were giving all this to charity. (Informal discussion off the record.) Mr. GENNETT. On capital borrowed from banks was interest paid on the loans ? Mr. JONES. You mean, did we pay it? Mr. GENNETT. Did the corporation pay it? Mr. JONES. Yes. Mr. CriNNETT. Was any of that interest reimbursed by the Com- mission? Mr. JONES. A very small amount was. Mr. GENNETT. Part of it? Mr. JONES. Yes. Mr. GENNETT. Did you have a substantial amount of items that were not reimbursed by the Commission on your contracts? Mr. JONES. My recollection is it was around $350,000. Mr. GENNETT. In proportion to the total dollar volume of these contracts that is rather small, is it not? Mr. JONES. Yes ? the total volume was $277,0001000. Mr. GENNETT. in your nonshipbuilding operations were there any losses which might have been set off against shipbuilding profits? Mr. JONES. No, sir; we do have losses on lump-sum contracts. You cannot be in business without having some losses. But there is no way in the world to offset one loss against another gain. Mr. BRADLEY. Kaiser had a way to do it. ? He set off the loss in his steel plant against his shipyard gain. The CHAIRMAN. Let us proceed. Mr. G3NNETT. Your figure of somethi,no? less than 4 percent on your con-ixact earnings was before taxes, M. Jones? Mr. JoNns. That is right. Mr. GENNETT. I might point out that most of the other figures that have beep given today were after taxes. Mr. Jones his given them before taxes. Mr. JONES. I can give them to you both ways. Mr. G/sTNETT. That is all right. That is all. Mr. BRADLEY. Let us have those figures. Mr. JONES. In 1943 it was 6.4 percent before taxes and seven-tenths of 1 pereent after taxes. In 194 it was 6 percent before taxes and 1.2 percent after taxes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 263 In 1944, I do not have the figures here, I think it was 3 percent be- fore taxes and one-half of 1. percent after taxes. In 1945 it was 1.6 percent before taxes and four-tenths of 1 percent after taxes. The CHAIRMAN. Mr. Keogh? Mr. KEOGII. I have no questions. The CHAIRMAN. Have you any further questions, Mr. Bradley? Mr. BRADLEY. I do not believe I have any questions, Judge. The CHAIRMAN. Mr. Weichel? Mr. WEICHEL. Is that the percent of profit based on the amount that you had invested, on the fees you got from the Government? Mr. JONES. No, sir; may I make a statement right here? Mr. WEICHEL. Surely. Mr. JONES. No construction firm does business on the basis of the amount of money they have got invested. If you ask me to build you a house I will charge you a percentage of the total cost of the house, because the thing I would be furnishing you would be services, and that is what we furnished the Maritime Commission. Mr. WEICIIEL. Based on the money invested, with reference to the fees that you drew from the Government, it would be 500 or 600 per- cent on the amount invested? Mr. JONES. No, sir; I just testified that we had at one time $3,- 600,000 of our money in the two shipyards on which our gross fees were around $9,000,000. Mr. WEICHEL. Were you using a Government facility? Mr. JONES. Yes. Mr. WEICHEL. And you had invested in that Government facility $1,300,000? Mr. JONES. Yes; reimbursements were slow. We were not sitting right next to the regional office; we were hundreds of miles away. Mr. WEICIIEL. About what is the total fees you drew? Mr. JONES $9,000,000. Mr. WEiciiEL. How many nonreimbursables did you have? Mr. JONES. $350,000, sir. Mr. WEICHEL. You were reimbursed for everything except $350,000, and you drew $9,0002000 in fees, less taxes; is that correct? Mr. JONES. That is right. Mr. WEICHEL. That is all. (Information furnished by the J. A. Jones Construction Co., in response to the committee's questionnaire, has been received for the record and marked "Exhibit 18.") The CHAIRMAN. The committee stands adjourned until tomorrow morning at 10 o'clock. (Whereupon, at 5 : 40 p. m., an adjournment was taken until tomor- row, Thursday, September 26, 1946, at 10 a. m.) Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 INVESTIGATION OF SHIPYARD PROFITS TlitTRSDAY, SEPTEMBER 26, 1946 HOUSE OF REPRESENTATIVES, COMMITTEE ON THE MERCHANT MARINE AND FISHERIES, SUBCOMMITTEE TO STUDY SHIPYARD PROFITS W a$him,gton, :D. C. The subcommittee met at 10 a. m., pursuant to adjournment, Hon. Schuyler Otis Bland (chairman) presiding. Present: Representatives Bland (chairman) , Bradley, Weichel, and Herter. Also present: Marvin J. Coles, general counsel for the committee; Nathaniel C. W. Gennett, Jr., associate counsel; Frederick M. Jones, assistant counsel; Reginal S. Losee, chief investigator. The CHAIRMAN. All right, gentlemen; the committee will come to order. Proceed, Mr. Coles. Mr. COLES. Mr. Chairman, as the first witness may we have the rep- resentative from the Delta Shipbuilding Corp.? The CHAIRMAN. Do you swear the testimony you will give at this hearing and any future hearings on this subject will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. GERHAUSER. I do. TESTIMONY OF W. H. GERHAUSER, PRESIDENT, DELTA SHIPBUILDING CO. Mr. GENNETT. Would you (-rive your name, please, for the record? Mr. GERHAUSER. W. H. .Gerlauser. Mr. GENNETT. Mr. Gerhauser, what is your position with the Delta Shipbuilding Co.? Mr. GERHAUSER. I am president of the Delta Shipbuilding Co.; and president of the parent company, the American Shipbuilding Co. Mr. GENNETT. And the Delta Shipbuilding Co. is a wholly owned subsidiary of American Shipbuilding Co.? Mr. GERHAUSER. That is correct. May I make a brief statement before we proceed? Mr. GENNETT. Certainly. Mr. GERHAUSER. In the company's reply to the questionnaire sub- mitted by this committee, the company set forth in detail the events leading up to its participation in the Liberty ship construction pro- gram and its arrangement with Louisiana Shipyards, Inc., for a divi, sibn of shipbuilding fees. I presume this information will be made a part of the record and need not be repeated here. The CHAIRMAN. It is a part of the record. 265 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For,Release 2003/10/10 : CIA,RDP641300346R000400060002-4 266 SHIPYARD PROFITS Mr. GEMIATISER. The figure of $12,171,811 for Delta Shipbuilding Co., given to this committee by the Maritime Commission in exhibit A attached to letter dated July 13, 1946, under the caption "Estimated profits" should properly be stated as "Fees earned under contracts." This sum was reduced by renegotiation to $9,598,440, which is the amount (4 fees received by the company for the construction of 188 ships. This sum was further reduced to $2,017,059, as follows: Fees received $9, 598, 440 Nonreimbu sable costs 432,338 Louisiana hipyard's portion of fees 2, 231, 442 Federal an State taxes 4,917, 601 TotaZ charges 7, 581, 381 Delt4 Shipbuilding Co.'s net profit for building 132 Liberty cargo sh ps, 32 Liberty tankers, and 24 Liberty colliers 2, 017, 059 These 1gures have been certified to by the company's auditors, Messrs. Ernst and Ernst. The following is a statement showing the ships built by the com- pany and the fees received after renegotiation: Contract No. MCc 734 (25 ships) : .12 Liberty cargo, $70,648 each 13 Liberty cargo, $80,115 each $847, 775 1, 041, 495 Pees $1, 889, 270 MCC 735 (81ships) :8 Liberty cargo, $80,115 each 640, 920 MCc 736 (8 ships) : 6 Liberty cargo, $80,115 each 8480, 690 22 Liberty cargo, $52,255 each 1, 149,610 , 1, 630, 300 MCc 8384 15 ships) : I Liberty cargo $48, 950 I Liberty cargo I 60, 000 108,950 13 Liberty tankers, $81,000 each 1,053, 000 I 1 1, 161, 950 MCc 130981(20 ships) : 19 Liberty tankers, $81,000 each 1, 539, 000 I Liberty cargo 60,000 . 11, 599,000 MCc 16494. (92 ships) : 68 Liberty cargo, $20,000 each 1, 360, 000 24 Liberty colliers, $55,000 each 1, 320, 000 t , 2, 680, 000 1 9, 601, 440 Totiil Penalty for 3 days' delay in delivery last ship 3,001) Tot 1 fees received 9, 598, 440 Mr. G NNETT. Mr. Gerhauser, may I ask you if the fee shown as profits earned by Louisiana Shipyard is not a part of the profits earned by Delta ? Mr. GPRHAUSER. It is a part of the profit earned on the total contract, correct. ' Mr. GrTNETT. Then, in fact, the figure of $2,017,000 is not the entire profit received by Delta, because Louisiana Shipyards was an affiliate or an associate of Delta. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 267 Mr. GERITAUSER. Associate. Mr. GENNETT. Will you explain the relationship of Louisiana Ship- yards to the Delta Co. ? Mr. GERTIAUSER. We explained it in our answer to the questionnaire, but I will be very glad to review it. ? We were called to Washington in December of 1940 by Admiral Land and Admiral Vickery and asked to participate in the original program to construct the first 200 Liberty ships. We demurred, for the reason that we were shipbuilders in the Great Lakes. We already had Navy contracts, and we felt that we could do our best job by staying on the Lakes, where we had our own plants and our own organ- ization. We were told that it was desired by the Commission that we take a part in this program because of our shipbuilding experience, and we were asked if we would investigate the possible sites at Houston, New Orleans, and Brunswick, and Savannah, Ga. We were also tole]. at this first conference that there had been a company organized in New Orleans, La., shipyards, who had been negotiating with the Com- mission for a shipyard and the construction of ships. We were asked to confer with that company to see whether or not we would be will- ing to join with them in the project, as they apparently did not have very much shipbuilding talent associated with them. We went to Houston, New Orleans, Brunswick, and Savannah, and investigated the sites and reported back to the Commission. We also talked with the officials of Louisiana Shipyards. We reported back to the Commission that we still felt that we should remain on the Lakes, but that if the Commission were insistent that we join in this program, we preferred to go it alone, that we had the finances and the ability to handle the whore project alone, and we saw no reason why we should join with others, particularly as there Was a New York contracting concern affiliated with Louisiana Shipyards. The matter was dropped at that point, and it was not until some few weeks later that Admiral Land again called me to his office and said that he had been informed that the New York contracting firm had withdrawn, and asked us to reconsider the matter. We then thought that we should confer with the Navy as to their requirements, because we were negotiating with the Navy for mine sweepers and other small craft, so a meeting was arranged with Secretary Knox. The matter was discussed, and the Secretary said that the thine" he wanted us to do was to go to New Orleans and build these 25 Liberty ships, which the Commission had asked us to do. We still were not quite willing to join with someone else. We could not see any reason why we should. But finally Mr. Knudsen, of the Office of Production Management, telephoned and was very insistent that we do, and we finally consented provided that we could make -a satisfactory arrangement with Louisiana Shipyards. We were willing to have an associate at that point, but we did not want a partner. So the question that we had to work out was how we might set up an arrangement with Louisiana Shipyards which would not involve an actual partnership but would enable us to go ahead with the project jointly. It was finally worked out that Louisiana Shipyards would raise cash capital of $750,200, which they did; that they would take a contract with the Maritime Commission to construct the shipyard, and that they would waive their rights under the facilities contract Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 268 SHIPYARD PROFITS to build ships in the yard. We in turn took a contract with the Mari- time Cominission to build 25 ships in the first instance in that yard. Louisiana 'agreed to raise the cash capital of $750,000. The American Shipbuilding Co. agreed to organize a wholly owned subsidiary, Delta Shipbuilding Co., and furnish to that company $750,000 cash working capital. In consideration of Louisiana undertaking the construction of the yard?they did all of that work, supervised it, used their capital for the construction of the yard, they waived their rights to build ships, they agreed to do certain other things in connection with local mat- ters, and the obtaining of trackage and sewer connections and that sort of thing?we agreed that Louisiana would be given 36 percent of the shipbuilding fees received from the first contract. The yard was originally laid out as a six-way yard, and a little bit later two additional ways were added and a contract was given for eight additional ships, and we agreed to give Louisiana 36 percent of those fees On all subsequent contracts Louisiana's portion of the fees was reduced to 20 percent. Louisiana used its $750,000 for the construction of the yard and made that capital available to us after the yard was completed, but in order to avoid any partnership arrangement it was loaned to Delta Shipbuilding Co., but it was raised and put into Louisiana Shipyards' business. American Shipbuilding Co. put $750,000 cash capital into Delta Shipbuilding Co. In addition to that we had bank loans totaling 82,750,000 at the peak. Mr. GEN-NETT. Do I understand, Mr. Gerhauser, that the figure of $750,000 as capital of . the Delta Shipbuilding Co. is erroneous? Should Delta's capital be $1,500,000, since American Shipbuilding Co. also put up $750,000. Mr. GERTIAUSER. There is no question but that the million and a half was used in the enterprise, but because of the fact that we bor- rowed it from Louisiana, Delta Shipbuilding Co. cannot state that its capital: was more than $750,000, but Louisiana Shipyards did ac- tually put in $750,000 cash, although it was in the form of a loan to us rather than a participation in the ownership of Delta Shipbuild- ing Co. ? Mr. GENNETT. But you paid interest on the loan made by Louisiana Shipyard at the rate of 36 percent of the profits earned by Delta on the first ships constructed, did you not? Mr. GETTATTSER. No, sir. American Shipbuilding Co. did not loan any money to Delta Shipbuilding Co. Mr. GrENNETT. Did Delta loan funds to American? . Mr. GEITIAUSER. No. American Shipbuilding Co. took $750,000 of its own. cash and organized a wholly owned subsidiary, Delta Ship- building Co., and bought the capital stock of Delta Shipbuilding Co.. with $750,000 cash. Mr. GENNETT. Yes. Mr. GEIIIAUSER. There was no loan involved. Mr. GE7otINETT. Now then, Louisiana Shipyards put up 8750,000. Mr. GE111-IAT_TSER. That is correct. Mr. GE NETT. And for that $750,000, what did it receive as com- pensation Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 269 Mr. GERHAUSER. It received from us $2,231,442 of the fees which we received for building the ships. Mr. GENNETT. Then American Shipbuilding borrowed the three- quarters of a million from Louisiana Shipyards? ? Mr. GERITAUSER. That is correct in its form; yes. That was a loan to Delta Shipbuilding Co., not American. Mr. GENNETT. So Delta, in fact, had no money in the shipyard at all? Mr. GERHAUSER. It had its own money invested in the building of the ships and the financing of the shipbuilding program, $750,000 plus $750,000 supplied by Louisiana Shipyards, plus $2,700,000 at the loans.i peak in bank It had no money invested n shipyard facilities. Neither did Louisiana Shipyards. . . Mr. GENNETT. For what purpose was Louisiana Shipyards' $750,000 used? You said for the building of the yard? Mr. GERHAUSER. Yes; to finance the building of the yard. - Mr. GENNETT. I thought this was a Government constructed ship- yard. Mr. GERHAUSER. We had no facilities contract, but it is my under- standing that the contractors, the builders, had to finance the building of the yard. They had to pay their contractors and pay their bills, and were reimbursed by the Maritime Commission, which they did without profit, but they needed capital for that purpose. Mr. GENNETT. Do you have the figure of the total cost of the yard, Mr. Gerhauser ? Mr. GERHAUSER. Delta furnished facilities in the amount of $1,- 834,897.18. That is, Delta saw to the construction of those facilities, and Louisiana Shipyards has reported to us that their cost of the shipyard facilities which they furnished under their facilities con- tract was $10,912,927.52, making a total cost of $12,747,824.70. Mr. GENNETT. Then that three-quarters of a million was not ac- tually put in the building of the yard? Mr. GERHAUSER. It financed the building of the yard as a revolving fund, to pay contractors and bills until Louisiana was reimbursed by the Maritime Commission, just exactly as the ships were built. . Mr. GENNETT. May I ask you once more, what was Delta's contri- bution in the way of capital? Mr. GERHAUSER. $750,000 cash. Mr. GENNETT. And Louisiana Shipyards' contribution? Mr. GERHAUSER. $750,000 cash. Mr. GENNETT. And American Shipbuilding's contribution, the par- ent company of Delta? Mr. GERITAUSER. Well, the American Co. bought the entire capital stock of Delta Shipbuilding for $750,000, which provided Delta with $750,000 of cash. Mr. GENNETT. So that the second $750,000 which you mentioned was just a loan to Delta? Mr. GERTIAUSER. From Louisiana. Mr. GENNETT. From Louisiana, yes. MT. GERITAT_TSER. Correct. Mr. GENNETT. Was interest paid to Louisiana on this loan? Mr. GERITATTSER. It was, at iy, percent. 95486-46-18 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 270 SHIPYARD PROFITS Mr. GENNETT. Interest at the rate of 11/2 percent was paid to Louisi- ana in addition to $2,231,442, representing its share of the fees earned by Delta! Mr. GillITIATISER. That's right. Mr. GENNETT. Was this interest of 11/2 percent reimbursed by the Commission? Mr. GERHAUSER. Yes, it was. Mr. GENNETT. Fully reimbursed? Mr. 0E1/HAUSER. Fully reimbursed. Mr. GLINNETT. Was the yard built entirely by Louisiana Shipyards? Mr. GioRnAusEn. With the exception of $1,800,000 worth of facili- ties, whih came along later. The original yard was built entirely by Louisiana Shipyards. Mr. GENNETT. You stated that the total fees received were $9,598,- 440 after renegotiation, did you not? MT. GPMAIISER. That is correct. Mr. Grivi,TETT. Were the management salaries of the Delta Ship- building Co. reimbursed by the Commission? Mr. GERHAUSER. Not in full. After June 30, 1943, there was no salary of an officer or top executive reimbursed in full. All salaries were approved by the Maritime Commission, but there was not full reimbursement of that group after June 30, 1943. The highest amount reimbur ed by the Maritime Commission for any salary was $18,000 a year, ad that to one vice president. Mr. G NNETP. Can you tell the committee the maximum fees which could h ve been earned under the terms of the contract for these 92 ships. Mr. WRIOHEL. Is that not the statement of fees attached to this? Mr. ENNETT. No, sir. These were the fees actually paid, Mr. Weicheli There was a maximum and a minimum fee payable under the contracts. I believe, Mr. Gerhauser, that this is a statement of the fees actually paid. Mr. GERHAUSER. That is correct, after renegotiation. You are talk- ing abo t 92 ships? Mr. G ,NNETT. The total number of ships, if you please. Mr. G RHAITSER. The maximum fees which might have been earned were $1t,&7,654. Mr. tENNETT. And the minimum figure that might have been earned? Mr. GE, RHAUSER. $7,433,184. Mr. gENNETT. Was there a minimum guaranty, a base figure on these contracts? Mr. GERHAUSER. In all of them. Mr. qENNIiTT. Do you have that figure? Mr. qERIIAtJSER. Yes, sir. The minimum fees were $7,433,184. That w s the guaranteed floor. Mr. ENNETT. Then you could not earn less than $7,433,184? Mr. qERIIAUsER. Unless renegotiation took some of it away. The CHAIRMAN. I wonder if we are not particularly concerned with what was earned, rather than with what might have been. Mr. ?ENNETT. Yes, sir; I think that is right. The CHAIRMAN. I have no objection to it. It is all right. Mr. qENNETT. I am pointing out, Mr. Chairman, that this com- pany ea ed something between the maximum and the minimum. In. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 271 this case the maximum was $16,697,654 and ,the minimum $7,433,184. They earned nine and a half million in fact. MT. GERHAUSER. We earned 12, if I may say SO. Mr. GENNETT. Nine after renegotiation. Mr. GERHAUSER. Nine after renegotiation. Mr. GENNETT. Would you give the total number of ships built, Mr. Gerhauser ? The CHAIRMAN. Does that appear on his statement? I should think it would be a simple matter of adding the items. Mr. WEICIIEL. Is it on the list? Mr. GENNETT. The total is not. Mr. GERHAUSER. The total is 188, and there were three classes of ships in the total-132 Libertys, 32 tankers' and 24 colliers. Mr. GENNETT. No further questions, Mr. Chairman. The CHAIRMAN. Mr. Bradley? Mr. BRADLEY. Mr. Gerhauser, it has always appeared to me that the just figure for determining whether or not there are exorbitant fees paid is the percentage of profit made on the total amount of sales. I think that is usually figured that way, is it not, in most transactions? According to the figures I have here from the Maritime Commission, including the cost of the yard, they paid you a total of $217,792,948, from which we should properly deduct the $12,804,010 for the yard, which means, roughly, about $205,000,000 paid for the construction of these vessels. According to your statement here' after taxes and " everything else you and Louisiana shared in $4,248,501, which is about 2 percent net on the total volume, which I think is not excessive, personally. Mr. GERHAUSER. Mr. Bradley, I think your figures are not quite correct. The cost of performing the work, of building 188 ships, was $207,883,028, exclusive of fees. If you include the fees, after renego- tiation the cost was $217,482,368. The shipyard facilities cost a little bit over $12,000,000, so that the total figure, if you are adding actual cost of work performed, fees and shipyard, would be about $230,000,000. Mr. BRADLEY. All I have here are the figures supplied by the Mari- time Commission. Mr. GERHATTSER. I can assure you these are correct. Mr. BRADLEY. If Ernst & Ernst audited it, they must be pretty accurate. You had some difficulties down there, did you not, with construction, due to terrain, ground difficulties, sinking of piling, and so on? Mr. GERHAITSER. That was not our difficulty; that was Louisiana Shipyards' headache, but the shipyard was built, as you know, in Louisiana' and the land in the New Orleans region is delta land. It is a marsh, and the shipyard was built on the industrial canal. There is practically no foundation there. There were thousands and thou- sands of piles that had to be driven to support buildings, and every ? heavy piece of machinery, all the crane runways, and everything were built on piling. . In addition to that we were unfortunate enough to have torrential rains that spring, iiThich washed everything out, and there was plenty of trouble before we got straightened out. Mr. BRADLEY. Did that delay your over-all program quite con- siderably? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved ForRelease 2003/10/10: CIA-RDP64600346R000400060002-4 272 'SIIIPYART) PROFITS Mr. GERITIAUSER. If did delay our start in the yard very con- siderably. Mr. BRAnixy. Mr: Chairman, I just want to say for the record that it so happens that I have known Mr. Gerhauser through his associa- tion with American Shipbuilding Co. for almost 30 years. He was formerly a purchasing agent, the same as I was, and we used to have frequent battles about the cost of building ships. I am glad to see, Mr. Gerhanser, you have finally brought the cost of ships down to within reason. I congratulate you sir, and I want to say that the American Shipbuilding Co. on the Great Lakes bears an unblemished reputation all the way through for the quality of the ships they put out. Mr. Gm/min-sm. Thank you very much. The C141RMAN. We are glad to have that statement in the record. Mr. WECIIEL. Mr. Gerhauser, you spoke about the American Ship- building Co. -How many years has that company been in the business of building ships? Mr. GERIIIAUSER. Forty-seven. Mr. WECTIEL. How long have you been with them? Mr. GERIAITSER. Twenty-nine years. Mr. WECTIEL. Did the American Shipbuilding Co. actually have anybody clown in the Delta yard that knew anything about ships, from the American Shipbuilding Co.'s personnel? Mr. GETTA-usER. Yes, sir. We sent most of our top executives right from our own organization and supplied other people whom we knew were qualified to do the work, including our chief engineer, Mr. Acker- man, who sits with me here, and he was vice president in charge of the operation. Mr. Ackerman has been with the company for 29 years,. as long as I have; and down the line to our superintendents and princi- pal foremen. Which was one reason that we could not do quite as much for the Navy on the Great Lakes as we would have liked to do. Mr. WEtcHEL. Did you say you actually put $750,000 into this cora- pa_ny to furnish the stock? Mr. GEllIAUSER. Cash. Mr. W14punb. That is the investment of the American Shipbuild- ing Co. You spoke about $750,000 put in by the Louisiana people. You had an arrangement with them, through the Maritime Commis- sion, for paying them a percentage of the fee that the Delta would be paid. Was that all done on the Maritime Commission's suggestion? Mr. GEIIIAUSER. With their approval. It was worked out, and they were fully informed as to the negotiations, and after we reached an agreement with the shipyard it was specifically approved in our con- tract with, the Maritime Commission. Mr. WPICHEL. I think you said that you. did not want hny partner. Is that w at you claim is the reason you had their money in there as , a loan an i1 then gave them 36 percent of the fee? Is that the reason? Mr. GEpHATTSER. We did not want a partnership arrangement ; and the only Way that Louisiana's money could have been put into Delta's business lfrould have been to make a partnership arrangement where- by Louisiana might have put in $750,000 worth of stock, and we might have formed a 11/2-million-dollar corporation. But we would have taken them into partnership with us, and we did not want that ar- rangement, and, therefore, it was a separate. company with ?$7-50,009, Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFIT? 273 and Delta was a separate company with $750,000; and part of the agreement with Louisiana and part of the consideration for paying them these fees was that they would make their $750,000 available to us. Therefore, the only way it could be handled was for them to loan us the money instead of becoming stockholders with us. Mr. WEICHEL. You, claim that the American Shipbuilding Co. put in $750,000 to purchase stock, with the Louisiana Shipbuilding Co., with whom you had an arrangement, approved by the Maritime Com- mission, for a division of the fee, rather than having a partnership, and the $750,000 is claimed to have been .put in as a loan, and they re- cei ved a division of the fee for whatever rights they had in building the facility in the first instance? Mr. GERHAUSER. And waiving their right to build ships. Mr. WEICIIEL, In other words, was this an understanding with the Maritime Commission that the Louisiana Shipbuilding Co. build the facility, and without any fee, and after it was built the reward was to be a contract to build ships? Is that what those people had ? I mean, the Louisiana Shipbuilding Co. Mr. GERnAusER. No; I do not think that is correct. Part of Loui- siana's obligation was to build the yard, and they took the facilities contract with the Maritime Commission. That was their obligation, to build the yard. They received no fee from the Maritime Commis- sion for building the yard. Mr. WEICIIEL. In other cases, the people who built the yard got a contract to build ships. These people waived their right to that? Mr. GERIIAIISER. Yes, sir. Mr. WEICIIEL. And after waiving their right your company agreed to divide the fee with them? Mr. GERIIAUSER. That is correct. May I just add one thing? Plus their making their 8750,000 capital available to us for the construction of ships. Mr. WEICIIEL. As a loan? Mr. GEIMAIJSER. Yes. Mr. 'WEICIIEL. In looking at this attachment here with reference ? to what your company received for building Liberty ships, and in go- ing over this yesterday, I find that some of the companies progressively went up with reference to their fee, and they wind up, one of them, with $41,000 for building a Liberty ship after renegotiation. An- other one winds up with $44,847 apiece for building their last Liberty ships. That was the lowest we had. Then I see here that you built 08 Liberty cargo ships at $20,000 each. Do you mean you only got $20,000 each after renegotiation? Mr. GERIIAUSER. Yes, sir; the last 68 LibertYs. Mr. WEICIIEL. The last ones built by some other companies were $44,000 plus, and some were $41,000. I was just wondering if that is a correct statement, that for the 68 last Liberty ships you built the fee was $20,000 apiece. I was wondering if that was a mistake; because the amount is low as compared with what we :find for other companies. Mr. GERIIAITSEIL That is correct.- - Mr. WEICHEL Yours is lower than the rest. That is all. , Mr. GENNETT. Would you state, Mr. Gerhauser, what type of con- tracts Delta had with the Maritime Commission? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 274 SHIPYARD PROFITS Mr. GERHAUSER. That is cost-plus, what I call cost-plus-variable- fee. It was the standard form of contract which provided for a base fee, a maximum fee, and a minimum fee, depending on performance, bonuses for low man-hours and early delivery, and penalties for high man-hours and late delivery. Mr. GENETT. Is the contract you have named different from the cost-plus-a-fixed-fee contract? Mr. GERHAUSER. It is just a difference in terminology or interpre- tation. I suppose you would call it a fixed fee but it was not fixed; it was subject to increases and decreases, depending on performance. Mr. GENNETT. None of these contracts were converted to other type contracts? Mr. GERHAUSER. No, sir. Mr. GENNETT. That is all. Thank you, Mr. Gerhauser. The CHAIRMAN. All right. Stand aside. Call the next witness. (Information furnished by the Delta Shipbuilding Co., in response to the committee's questionnaire, was received for the record and marked "Exhibit 19.") Mr. Cow. The Walsh-Kaiser Co., represented by Mr. MacLeod. The CHAIRMAN. Mr. MacLeod, you will stand and be sworn. Do you solemnly swear that the evidence you will give will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. MA LEOD. I do. TESTIMO Y OF CHARLES H. MacLEOD, ADMINISTRATIVE MAN- AGER AND ASSISTANT SECRETARY, WALSH-KAISER CO, Mr. COLS. Would you please state your full name? Mr. MAyLEop Charles H. MacLeod. Mr. Cow. What is your capacity with the Walsh-Kaiser Co.? Mr. MAOLEon. Administrative manager; also assistant secretary. Mr. Cow. Are you thoroughly familiar with the company's busi- ness history and the background of its transactions with the Maritime Commission? Mr. MACLEOD. I believe so. Mr. CoLims. When was the Walsh-Kaiser Co. formed, Mr. MacLeod? Mr. MACLEOD. February 10, 1943. Mr. Colfrs. Who were the original stockholders in the corporation, and what percentage did they hold? Mr. MArcLEon. The Walsh Construction Co., 50 percent; Kaiser interests, p percent, and Morrison-Knudson, 10 percent. Mr. CorlEs. Will you tell us the background of the formation of this company; 'what causes brought it about? Mr. MACLEOD. Yes. The Walsh Construction Co. had just finished work for the Government building bases and had personnel available. Kaiser had contracts with the Maritime Commission. Walsh was look- ing for work. Kaiser and Walsh had been associated before on tunnel work and the Grand Coulee Dam. Mr. Cot,Es. What did Walsh contribute to the orgnization for its 50 percent share? Mr. MAoLEon. Fifty percent of the capital, 50 percent of the loan, and all personnel. Mr. Cow. Did it contribute its construction organization? Approved For Release 2003/10/10: CIA-RDP641300346R0004000600024 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 275 Mr. MACLEOD. It did. Mr. COLES. What did the Kaiser interests contribute for their 40 percent? Mr. MACLEOD. Forty percent of the capital, 40 percent of the loan, and at the beginning they sent over certain of their trained employees to assist us. Mr. CoLEs. Did I understand you to say that they had contracts with the Maritime Commission? Mr. MACLEOD. They had built ships for the Maritime Commission. Mr. Cors. Mr. Kaiser in his testimony did not list the Walsh- Kaiser Co. as one of the four from which he received profits, but Mr. Kaiser received 40 percent of the fees from the Walsh-Kaiser Co.? Mr. MAoLEon. He did. Mr. COLES. Do you know any reason why he did not list that as one of his companies? Mr. WEICIIEL. I think Mr. Chairman, that that would be up to Mr. Kaiser. I don't think the witness should be asked to express an opinion about that. Mr. Coms. The question just came to me. Let me ask one further question. Did the Kaiser interest in any way participate in the management of this yard? Mr. MACLEOD. No further than just to assist us at the start. Mr. COLES. Of what did that assistance consist? Mr. MACLEOD. They sent over individuals from various depart- ments who had experience in the building of ships. Mr. COLES. And they were entitled to 40 percent of the fees of the Walsh-Kaiser Co.? Mr. MACLEOD. They were, inasmuch as they furnished 40 percent of the capital. Mr. COLES. What was the total capital originally contributed? Mr. MACLEOD. $300,000. Mr. COLES. Mr. MacLeod, do you have any idea of what the cost of the shipyard facilities was? Mr. MACLEOD. No; not-entirely, because we took over after they had been started. I know what it cost us. Mr. COLES. These were the facilities originally started by the Rheem Manufacturing Co.? Mr. MACLEOD. Yes, sir. The CIIAIR1VIAN. At Providence, R. I.? Mr. MACLEOD. Yes, sir. Mr. COLES. These are the facilities for which the Maritime Com- mission I reimbursed Rheem approximately $16,000,000 before you moved in? Mr. MACLEOD. I do not know to what extent they reimbused them. Mr. CoLEs. The committee's figures show it was over $16,000,000. Was that shipyard usable as a shipyard, or did you have to put in a good many more millions of dollars' worth of construction work to make it work? Mr. 1VIAcLEou. We had to put in nine-million-and-some-odd dollars. Mr. COLES. Have you any reason to doubt the figure of the Mari- time Commission as to the total amount of investment in this yard, $25,047,000, which would include your share plus Rheem's share Mr. MACLEOD. I have no reason to contest it. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Apptoved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 276 SHIPYARD PROFITS Mr. COES. How much of your company's money actually went into this yard--the physical part of this yard? Mr. M4cLEon. It went in there to the extent that we purchased materials and we paid for the labor. Mr. CoI,Es. Were you reimbursed for the materials and labor by the Comnnssion? Mr. MA,c1zon. We were. Mr. CoLEs. Is there any Walsh-Kaiser money actually invested in the physiCal facilities of the yard on a permanent or semipermanent basis? Mr. MArcLEon. We have no holdings in the capital assets. Mr. COES. So the Maritime CommisMon put up over $25,000,000 in the yard, and the Walsh-Kaiser Co. had no money in the yard? Mr. MAcLEon. Except to the extent that they paid for the materials. Mr. CO1F,ES. For which they were reimbursed? Mr. M4cLEon. Yes. The C4AinaltAN. We cannot hear you very well. Mr. MfitcLEon. I am sorry. Mr. Cops. Who did the construction work for the Walsh-Kaiser Co. whic took up this $9,000,000 ? ? By whom was that done? Mr. MAcLEon. By employees of the Walsh-Kaiser Co. Mr. Coms. Was there a contract with the Maritime Commission whereby ;he Walsh-Kaiser Co. would complete its share of the work in the yard without a profit? Mr. M4cLEoo. That is right. Mr. COT,ES. Did the Walsh Construction Co. do the work of building this yard, or did the Walsh-Kaiser Co. do the work? Mr. M4cLEon. The Walsh-Kaiser Co. Mr. Cos. Did they subcontract any of the work? Mr. M4cLEon. No further than materials. Mr. Cors. Were any of those subcontracts to the Walsh Construc- tion Co.? Mr. M4cIxon. No. Mr. CoLEs. Were any of them to any affiliates? Mr. 114cLEon. They were not. Mr. Coixs. What was the total amount of contracts which that yard had? Mr. MIA.cLEoo. You mean the total cost? Mr. Coixs. Yes. Mr. MivcLEon. $178,000,000. Mr. CLES. Was your yard one of the high-cost producing yards? Mr. MACLEOD. I would say, over all, yes; but not per ship as com- pared with other yards and the number 'built. Mr. Coixs. In 114r. Kaiser's statement he listed one ship as the highest-cost Liberty ship in the program. Was that ship in the Rheem Manufa uring Co.'s yard and built before you took over? Mr. MAOLEOD. The first ship was built before we took over. Mr. C LEs. And that was the highest-cost ship? Mr. MAOLEOD. I would not know. Mr. Cc.LES. The standard of comparison used in that pamphlet was the highest-cost ship; is that correct? Mr. ACLEOD. It could be; I don't know. Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 277 Mr. COLES. I notice that your contracts were both cost plus, for .$10,000,000, and on the price-minus basis for $160,000,000. Of those price-minus contracts do you have any estimate as to how many of them were previously cost plus and were converted to price minus? Mr. MACLEOD. As far as we were concerned, they were not con- verted. They were definitely price minus as we signed the contract. We had no reimbursables. The CHAIRMAN. What is a price-minus contract? Mr. COLES. It is where they take an agreed price and then the con- .tractor and the Government share 50-50 in any reduction below the agreed price. As I understand, however, from Mr. Casey's testimony, if they exceed the agreed price the contractor is nevertheless reim- bursed, but he does not get his fee. Am I correct in that, Mr. MacLeod? Mr. MACLEOD. Correct. Mr. COLES. The profits made by your company were, according to this list, $3,050,000. Is that correct? Mr. MACLEOD. I would not say "profits." That is fees. Mr. COLES. Was Mr. Kaiser entitled to 40 percent of the net? Mr. MACLEOD. Yes, sir. Mr, COLES. Do you have any break-down as to what amount of the materials furnished were furnished by the Government? . Mr. MACLEOD. No; I do not. I do not know that anyone else does at this time. Mr. COLES. Would it be a substantial percentage of the total? Mr. McLEoD. I would say it would be a substantial percentage. They are purchased by the Maritime Commission. Mr. COLES. And given to your yard? Mr. MACLEOD. Yes. Mr. Cors. And you were reimbursed for the other materials purchased? Mr. MACLEOD. For the most part. Mr. COLES. To what extent were you not reimbursed? Mr. MACLEOD. For questionable items wherein our judgment did not agree with that of the Maritime Commission, and the cost committee might turn it down. Mr. COLES. Was that a substantial amount as compared with the total? Mr. MACLEOD. No; not as compared with the total. Mr. COLES. Were all labor costs paid for by the Government? Mr. MACLEOD. No; not entirely. Mr. COLES. But in the major amount? Mr. MACLEOD. In the major amount they were. Mr. COLES. Was the amount not reimbursed a very minor per- centage? Mr. MACLEOD. I would say it amounted to $50,000 Or more of the total. Mr. COLES. Were the executives of the company paid salaries for their management and their work in building ships? Mr. MACLEOD. Only those who were on the job constantly. Mr. CoDEs. Did the general manager receive $18,000 per year which was reimbursed by the Commission? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For'Release 2003/10/10 : CIA-RDP64600346R000400060002-4 278 SHIPYARD PROFITS Mr. MACLEOD. Yes. Mr. Cos. So that those on the job building ships were paid their salaries? , Mr. ilfAcLEon. To the extent that the Maritime Commission permitted. Mr. COLES. Up to $18,000 a year? Mr. 3/LcLEon. Yes, sir. Mr. C1pJs. How long did it take you normally before you got reimburs d for the money you laid out? Mr. M cLEon. At first it took quite awhile; about 2 months. Near the end i was paid fairly quickly. Mr. COLES. On the average, what would you say? Mr. A4cLEon. I would say 2 weeks. Mr. Coms. So you financed it for 2 weeks and then were reimbursed by the Government? Mr. McLion. I would say that is right. Mr. C LEs. I would like to ask you a question which I have asked other wi nesses before, in order to get your opinion. I suppose all material and labor, and interest On borrowed capital, was paid by the Maritim Commission? Mr. 4AOLEOD. Not entirely. The interest paid was $2,007. Of course, hen you deduct the taxes and nonreimbursables your net would Jo? decreased at least 50 percent. That amount would be for the furmshino? of the personnel which had been trained for a number b of years and who are carried from time to time when there is not any work, pins the expense of operating your home office, engineering force, plus the tisk you take. In this case there was a risk. Mr. C LES. Will you explain that? Mr. 1 ACLEOD. Yes. I understand that the company that was in that yar1 before was not reimbursed for all costs. Mr. C LEs. I think the committee reports show that they received an awfu1 lot of money. Mr. 4ACLEOD. That may be ? but, anyway, the banks in this par- ticular case did require that they be protected. Mr. CoLEs. Are you aware that the original contract for the con- structio of this yard provided for $6,000,000 for that yard? Mr. i? ACLEOD. 'Yes. Mr. qOLES. And it subsequently took $25,000,000 before it could turn out ships? Mr. NACLEOD. I have no reason to dispute that. Mr. qOLES. When you refer to fees for these other services you mean fo supermanagement over and above the yard management? Mr. MACLEOD. Yes; plus the furnishing of the yard management and skill ed mechanics who could do the work. They were available. Mr. oi,Es. What they got was their fee, and that applies, I pre- sume, t all the yards. That fee was for the supermanagement and for mal ing available their trained personnel? Mr. ACLEOD. Possibly so, if they had them available. Mr. OLES. Do I understand that all of your fees were on a maxi- mum or minimum basis? In other words, you got either a maximum or a mihimum fee under the contract? Mr. MAcLEop. Not for the first 31/2 ships. We picked up 5 ships that had been started, and we probably finished 3 y, of those, or 75 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 279 percent, for which we were paid $55,000 per ship, or a price-minus contract. Mr. Cors. The more efficient you were the higher the amount; and the less efficient, the lower the amount? Mr. MACLEOD. That is correct. Mr. COLES. In all cases did you not get the minimum fees? Mr. MACLEOD. That is right. Mr. COLES. Indicating no great efficiency? Mr. MAcLEon. No, sir indicating that we could not get enough ships of one type to build; and the ships we were given did not have plans available when we started to build. them. Mr. COLES. Have all your contracts been renegotiated up to and including 1945? Mr. MACLEOD. Yes; the first part of 1945. We still have a little renegotiation going on for the final contract. M7. COLES. But substantially all have been renegotiated? Mr. MACLEOD. That is correct. Mr. COLES. I understand that on the two contracts available for renegotiation it is your opinion that there will be no further recovery; is that correct? Mr. MACLEOD. I understand that is true. Mr. COLES. I have no further questions. Thank you. The CHAIRMAN. Mr. Weichel? Mr. Bradley is not here at the moment. ? Mr. WEICHEL. In the first instance you said your people were con- struction people not ship people. Mr. MACLEOD. I am sorry. I did not say that, but it happens to be true. Mr. WEICHEL. You people did not have the contacts, and Kaiser had the contacts. From the testimony given here in the last few days, he seemed to have all the contacts. So you were one of the last to get the benefit of Kaiser's contacts? Mr. MACLEOD. No, sir. Mr. WEICHEL. You were not the last? Mr. MACLEOD. We figured that the Walsh Construction Co. could make their own contacts. Mr. WEICIIEL. You mean, on building ships? Mr. MACLEOD. No; not building ships. Mr. WEICHEL. I am talking about building ships. Mr. MACLEOD. No; not building ships. Actually there were not many companies building ships prior to the war. Mr. WEICHEL. Your contacts were all right, except that for the building of ships Kaiser had the contacts in connection with that? Mr. MACLEOD. Only to the extent that he had been building ships. Mr. WEICHEL. He had contact with the Maritime Commission, did he not? Mr. MACLEOD. I do not know to what extent he had contact. Mr. WEICIIEL. Have you been around here for the last 5 days listening? Mr. MAcLion. No, sir. Mr. WEICHEL. The testimony in the last few days revealed the con- tacts, yard after yard after yard, and this is the last one, evidently, Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 280 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS that Kaiser was in. I thought maybe you knew that you were the last people to get the benefit of his contact. Mr. MAGLEon. No, sir; I would not say that. Mr. WEICHEL. You said that Kaiser got 40 percent Of the fee in this arrangement with the Maritime Commission, in answer to counsel's question. Mr. MACLEOD. Because he was interested in the company to the ex- tent of 40, percent. Mr. WmcriEL. How much was invested ? How much was the stock sold for? Mr. M4cLEon. There, were 3,000 shares originally at $100. Subse- quently to that there were $3,000,000 borrowed from banks. Mr. WEICIIEL. There was $300,000 invested capital? Mr. MApLEon. Plus $3,000,000 borrowed from banks. Mr. WEICIIEL. I am talking about what you people actually put in yourselves. That was $300,000. The rest of it was bank money. Somebody else risked that. Mr. MACLEOD. The companies had to risk it in this particular case, because experience prior to that had not been any too good. Mr. WEICHEL. The stockholders put in $300,000 and the banks loaned the rest. " That was not a stockholders' risk when the banks loaned it. Mr. M4cLEon. It is, very definitely. Mr. WEICHEL. Did the stockholders guarantee all those loans per- sonally? . Mr. MI.cLEon. Yes, sir. Mr. WEICHEL. All _right. Mr. MACLEOD. Most business is conducted on a credit basis, or we would not build much. Mr. WEICHEL. There was $300,000 put in, and then all the loans from. the banksl were endorsed and signed by stockholders personally? -Mr. MACLEOD. There was an agreement that they would reimburse in case of loss. _Mr. WEICHEL. Was it signed on the back of the notes? Mr. M4cLEon. It, was by an agreement which was signed. Mr. -NATiciiEn. It was not by endorsement on the notes? Mr. MACLEOD. That I would not know. Mr. WEICHEL. What position do you hold with the company'? Mr. iNtrLnon. I am the administrative, manager and assistant secre- tary. Mr. WEICIIEL. Would not the secretary know something about the transaction? Mr. 1V14cLnon. Yes. I do know that there was an agreement written and signed. Mr. WEICHEL. But there was no endorsement or guaranty on the individual loans. It was a side agreement of some kind? ME. M+cLnon. That I would not know. Mr. WEICHEL. You would not know about the notes? ME. MfiCLEOD. No, sir. Mr. WEICHEL. When the company made loans did not the secretary have to sign along with the president? Mr. M axon. '1-1.1.e treasurer did. Mr. W ,icH_En. The secretary was not authorized to sign? Mr. M cLEon. He could have, but he did not. Mr. WEICHEL. Ile was not authorized? Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 281 Mr. MAcLEou. Yes, he Was. Mr. WEICIIEL. With reference to the kind of ships that were built, were there Liberty ships built there? Mr. MACLEOD. Yes, sir. There were 11 built in that yard of Which we built 81/2. Mr. WEICHEL. How many ships were built in that yard all together? Mr. MACLEOD. Sixty-four. Mr. WEICHEL. How many of them were Libertys?only 8? Mr. MACLEOD. No; 11 of the 64. Mr. WEICHEL. What kind were the rest? Mr. MACLEOD. There were 21 so-called corvettes and 32 combat cargoes. Mr. WEIGHED. When were the Libertys built?at the end of the operation? Mr. MACLEOD. No, sir. The first six were Liberties. The next contract was for 21 corvettes, but we had difficulty in obtaining ma- terial, particularly engines; and to keep the personnel working so that we would not lose them we were given another contract for five Liberties to fill in. Mr. WEICHEL. What fee did you get for the last five Liberties that ? you built there? Mr. MACLEOD. Thirty thousand dollars. Mr. WEICHEL. Was that after renegotiation? Mr. MACLEOD. Before and after. Mr. WEicitEL. We have figures now of $20,000 after renegotiation; this is $30,000, and we have figures of $40,000, $41,000, and $45,000 as fees paid for the ships built by various companies. The Kaiser com- panies were all higher than $30,000. You said something about plans not being available when you went to work to build ships. You did not mean to say that the Maritime Commission did not have the plans ready? Mr. MACLEOD. I think that might be Government business, but actually we did start building ships before plans had been completed. We experimented as we built the ships. Mr. WEICHEL. The Maritime Commission in their statements here before have said that they had the plans and the plans were given to the ship contractors to build ships. Mr. MACLEOD. These were new-type ships. Mn WEicHEN. You were building them before the plans were laid out? Mr. MACLEOD. Yes. Mr. WEICHEL. By trial and error? Mr. MACLEOD. That is also true. Mr. WEIGHEL. You said that Kaiser had some personnel over there when you started in. Mr. MACLEOD. That is right. Mr. WEIGHED. And then later he did not have any. Was that per- sonnel paid by the company and reimbursed? Mr. MACLEOD. Yes; they were reimbursed. Mr. WEIGHED. So, in this instance Kaiser had some people in the beginning and they were paid out of Walsh-Kaiser funds and reim- bursed; so Kaiser was really paid by the Government for whatever service was performed over there except the contact. Mr. MAcLpon. No mote than any other personnel would be paid. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 282 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. WEicHEn. What I mean is this Mi. M-ACEOD. These individuals were workingmen who had had experience in the various departments, engineers, and so forth. Mr. WEroriEn. Those were people that Mr. Kaiser furnished to the Walsh-Kaiser Co., and they were paid by the Walsh-Kaiser Co., and then the Walsh-Kaiser Co. was reimbursed by the Maritime Commis- sion? Mr. MACLEOD. That is right. Mr. WEICHEL. And that is the service that Mr. Kaiser put in for this 40 percent?, Mr. MACLEOD. Again I would say no, sir. Mr. WEICITEL. Outside of his contact? Mr. MAoLEon. I don't know anything about his contact. As I stated before, the Walsh Construction Co. could do all right with their own contacts. Mr._WEI HEL. Outside of ships? Mr. MAC EOD. I do not see any relationship there. Mr. WE CHEL. Was not this a ship proposition? That is why he was in on Mr. MAC MD. No, sir. He had been with the Walsh Construction Co. Associated Contractors had the same stockholders as the Walsh- Kaiser Co. since 1938, at which time it had contracts for building tun- nels. ActUally Associated Contractors controlled the stock of the Walsh-Kaiser Co., Inc. Mr. WEictim. Kaiser was with the Walsh-Kaiser Co. since 1938 in other building? Mr. MAoLEon. Yes; in the building of tunnels. Mr. WECHEL. He always had 40 percent? Mr. MA4JEon. That is correct. Mr. WEICIIEL. So that the 40 percent he got out of this transaction was the same as he got out of transactions in 1938 with reference to tunnels arid everything else? Mr. MAOLEon. That is correct. Mr. WECHEL. And the people he sent over there were just paid like anybody else and you were reimbursed? Mr. MAoLEon. That is correct. Mr. WmciiEn. So in this instance he did not arrange the matter with you as has been shown in other cases; he got a contract and started a separate yard. That was not true in this instAnce? Mr. MACLEOD. No. Mr. WECHEL. He was in it in 1938 for other business? Mr. MACLEOD. Yes, sir. MT. WEICCHEL. That is all. The CHAIRMAN. Mr. Herter. Mr. HERTER. I have before me a compilation by the Maritime Com- mission showing the various contracts you had, the amount of those contracts, and the amounts which have been paid on each contract. They are yery different from figures we have had for other companies, in that for your three major contracts apparently the vouchers paid out on those contracts far exceeded the amount of the contracts them- selves. I am wondering if you would explain that. For instance, the contract received in March 1913 for 21 corvettes. The contract price was $22,287,000. The vouchers paid on those contracts were 38,000,00. Can you explain what happened, whether there was a Approved For,Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 283 change in the contract or whether you were allowed by the Maritime Commission to spend that additional money over and above the con- tract price? Mr. MACLEOD. We were allowed to spend that additional money.I. The Maritime Commission approved it. In other words, their experi- ence in the building of corvettes proved that the estimate was too low. Mr. HERTER. How were the profits or fees fixed on that type of con- tract where the costs run 50 percent above the contract price? Mr. MACLEOD. There was provision made in the contract for the payment of all costs plus the fee. It is what we call price-minus. Mr. HERTER. Then on the next contract on the S-4's that you built, the contract price was $77,000,0000 and you actually received $109,- 000,000. Mr. MACLEOD. I would not say that the contract price was $77,000,- 000. I would say that was the estimated figure of what it might cost. The contract provided for the payment of all costs, and it was a new ship and there was no way of knowing what it might cost, because we did not know how we were going to o.et materials or how the engines would work out. It was an assemblec ship, and we had to experiment. Mr. HERTER. I can understand that. Then in your last contract for five Liberty ships the contract price?and you must have had pretty good figures by that time?was $5,724,000, and the vouchers paid were S13,500,000, nearly three times the so-called contract price on these five Liberty ships. Mr. MACLEOD. Again I would say that there was no contract price. It was cost-plus; and, again, if the cost was greater than that which was estimated, it was due to the fact that we could not get materials at the time or some other reason. However, I do know this, that the cost of those five Liberties was no greater than the cost of any first five Liberties in any yard. Mr. HERTER. I am talking about the last five Liberties. The first five cost you $10000,000 and the last cost you $13,500,000. I imagine you completed 31/2 of the first 5? Mr. 1VIAcIan0n. Yes. Mr. HERTER. On those you were paid only $10,000,000. On the last five you were paid $13,500,000. Mr. MACLEOD. Yes; but on the first Liberty there was material on hand at the yard. For the last we would have to purchase more material. Mr. HERTER. There is something very queer in the figures, because apparently the contract price on the first five was $18,000,000 and the record shows that you spent only $10,000,000. On the second five it shows that the contract price was around $5,000,000 and you spent $13,000,000. I think there is a discrepancy there somewhere. Mr. MACLEOD. I do not think there is a discrepancy. I think the conditions were different. Mr. HERTER. What conditions were different? Mr. MACLEOD. The amount of material available on the yard, for one thing, perhaps. Mr. HERTER. But that is rather a curious accounting procedure, when those vouchers include cost of material. Mr. MACLEOD. Are these figures that you are quoting those which were paid to the Walsh-Kaiser Co? - Mr. HERTER. The Walsh-Kaiser payments. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 284 SHIPYARD PROFITS Mr. WroHEL. You did not charge your material in the yard in case you did not buy it. Does that account for some of the difference ? Mr. MrEon. So far as the books of the Maritime Commission are concerne , it is charged against the ships and the yard. So far as our own books are concerned, they would not reflect that. . Mr. H RTER. Presumably in working out a cost-plus contract the costs as ompiled by the Maritime Commission or by your company must have.included the cost of materials, whether they were on hand or whether they were to be bought later. Mr. MincLEon. It would make a difference as to whether we pur- chased them or whether the Maritime Commission purchased them, as far as our own record is concerned. The over-all picture would be reflected in the books of the Maritime Commission, but would not be reflected on our own books. j Mr. II qtTER. Do you have figures showing what it actually cost to build Li erty ships in that yard as compared with other ships? Mr. ACLEOD. I think I might have that with me. I find these figures a? you quote them to be correct in my own records here. The only answer I can give to you is that the cost in one instance in- cludes the building of five and in the other building of three and one-half. Mr. HERTER. You mean the $10,000,000 was for the three and one- half ships?_ Mr. ivtfk.cLEon. Yes. Mr. HERTER. And the $13,000,000 was for building five? Mr. AtIkcIzon. That is right. Mr. HERTER. SO it ran, roughly, $2,500,000 per ship? Mr. M(wLEon. Yes; roughly. Mr. HERTER. How does that compare with building ships at other yards? Mr. 1V-AcLEon. For the first 10, having glanced at the charts, I would say it is comp.arable. Mr. HERTER., You feel that if you had been given orders for more ships yoi would have been able to bring your price down? Mr. ACLEOD. Definitely; and I think in comparison with an3r other bulding we have done we can be compared with any other yard. We reduced the cost by 67 percent on cargo ships, for 32 ships. We built one of the combat cargo ships in less time than any other yard in the c untry. Figures do not amount to much, because each yard has a ce tain kind of record. But we are proud of ours. Mr. HERTER. When you first came into that yard you found a pretty difficult ituation, did you not? Mr. &crimp. Yes. Mr. IJIERTER. Did not the first ship that was turned out by that yard cos the Government, roughly, $15,000,000? Mr. ACLEOD. I would not know that. I have no way of knowing what the costs were prior to that or how the yard was being amortized or how Overhead was added to the cost of ships. Mr. HERTER. That was essentially a Maritime Commission trans- action With the Rheem Co.? Mr. MACLEOD. That is right. Mr. HERTER. That is all. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 285 Mr. BRADLEY. Getting back to these figures Mr. MacLeod, that were supplied to each member of the committee by the Maritime Commission, I notice that on the first contract that Rheem had, MCG-2530, the contract price was $32,000,000, and one ship was built under that. The next contract was MCC-16368, for five, in the amount of $18,000,000. Then I see a notation here that the remain- ing 26 vessels were canceled. So I take it that those original two contracts in the amount of $50,000,000 probably covered 32 ships. Mr. MACLEOD. It could be. Mr. BRADLEY. I think that is where the discrepancy comes in that Mr. Herter referred to. It shows the vouchers paid to date on the first ship which was apparently built by Rheem. Mr. MACLEOD. It was. Mr. BRADLEY. The voucher paid was $15,556,000? which is .prob- ably the reason that Admiral Land and Admiral Vickery went into a huddle and decided they had better get rid of Rheem, and the sooner the better, before that company broke the 'United , States Treasury. Mr. MAoLEOD. I do not know about that. Mr. BRADLEY. Then it shows here the vouchers paid for the five under the second contract amounted to $10,000,000. That is more nearly in line with prices all over the country. Apparently that first one was the one that they got into a jam with Rheem about and had to get rid of him and find a new manager for the yard. Mr. MACLEOD. It could be. Mr. BRADLEY. I think that is where the trouble comes in here. But I cannot reconcile the figures that Mr. Herter referred to on the S-4's. The contract price on a price-minus basis was $77,961.786, for which they paid $109,223,446. Yet you say you reduced the cost tremendously on that. I have been trying to find some more S-1's in here that show a price-minus contract! That figure looks kind of suspicious to me, that it should have gone up so high. Mr. MACLEOD. There are 289 compartments on a combat cargo ship against probably, at the most, 80 on the Liberty ship. There is at least 31/2 times as much wiring on a combat cargo ship. Mr. BRADLEY. Who else built those S l's? Mr. MACLEOD. There were nine different companies. ? Mr. BRADLEY. Can you tell me offhand? Mr. MACLEOD. I think perhaps Mr. Slattery could. Mr. BRADLEY. We have got figures from every yard in the country here. (Informal discussion -off the record.) Mr. MACLEOD. Would it not answer the question if Mr. Slattery were to say that our costs are comparable with any of the nine yards? Mr. BRADLEY. He has not been sworn; so I cannot ask him on the record. I think I have found the information now. There were 32 S-1's built by Walsh-Kaiser under contract MCC-15961, dated May 15, 1943. According to the Maritime Commission figures your contract price was $77,961,786. The vouchers were $109,233,446. Another contract dated May 25, 1943, MCC-15951--yours was 15961-10 days after yours, with the Consolidated Steel Corp. Their 93486-46 19 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 286 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS contract price was $84,929,062 for 32 ships. The yowlers paid were $84,929,862, and yours was $109,000,000. So I do not see how you can just quietly say?and I know you would not want to say?that they are in error when the ' figures show they were about $29,000000 cheaper than you were on the same kind of ships, and the contracts were 10 clays apart. Mr. ACLEOD. I am not trying to alibi; but a great deal depends on the p oration of your overhead and what else was going on in the yard. ' Mr. BRADLEy. I appreciate that. But I talking about vouchers paid. That is the "pay-off." The fact remains that I therefore chal- lenge ydur statement that you reduced the cost more than the other fellows, because I understood you to say?maybe I am wrong? ? Mr. ACLEOD. No; I said we had reduced other costs. Mr. BRADLEY. Oh. I beg your pardon. I stand corrected. . Mr. MAOLEOD. I believe if you would average all nine you would find thai we did better than the average. Mr. IRADLEY. I take it they were all building the same type; probably. . Here ls another comparison that Mr. Herter just points out to me. Under date of March 9, 1943, contract 13911, you built 21 S-2's at a contrac price shown here of $22,287,399. Vouchers paid to date $38,131496. The qlobe Shipbuilding Co., under contract of December 8, 1942, for 81S-;2's. The contract price was $9,858;705, and the vouchers paid were $7;000,000; in other words, less than a million dollars apiece; and yours were nearly $2,000,000 apiece. So the costs over there were still pretty high in that year. Mr. *ACLEOD. That is correct; they were high. We at one time had our yard filled with hulls and no engines. We had difficulty in obtitini g -materials. After we had received the engines and other parts e had difficulty in assembling them. That is true. We had tremen ous trouble. . Mr. 1jRADLEY. On this exhibit 1 of .the committee, submitted to us by the vIaritime Commission, it is shown that your estimated profits were $3,050,795. Is that the correct figure after renegotiation, so far as you1 now, or is it approximately correct? \4 Mr. ACLEOD. No, sir. You again mention the word "profits." The fees should total $3,050,000. - Mr. BRADLEY. That is correct as far as the fees are concerned? Mr. .1.'1AcLEon. That is correct, as far as I know. Mr. a RADLEY. Have you been renegotiated? Mr. IAcLnon. We have. I do not know whether the last contract is corn leted or not, but I think it has been. Mr. RADLEY. Is that? substantially correct after renegotiation? Mr. IACLEOD. Yes, sir. ' Mr. IERTER. In the fixing of those feed I am not very clear as td what bonuse were paid for performance, from the point of view of speed of deliv, ery, and so on, or whether those fees were regardless of the. speed df performance. Mr. AI.AcLEoD. No. If you could reduce the number of days you would be entitled to a bonus. We were not able to take advantage of that. We had all sorts of difficulties. We are .not alibiing. We simply experienced them. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 287 Mr. HERTER. Regardless of the fact that your ships did cost more, whatever your difficulties were, you still got th6 minimum fee through- out? Mr. MACLEOD. Yes, sir. Of course in renegotiation we could prob- ably explain why. Mr. HERTER. After renegotiation they ran around $50,000 per ship for the total number of ships. You built approximately 64 and got something like $3,000,000 for those? Mr. MACLEOD. That is correct. Mr. BRADLEY. That yard has always been a poor investment. I con- gratulate you for being able to get any ship out of there, from what our investigation has shown. I think you deserve credit for getting anything out of the yard. Mr. MACLEOD. Thank you. We are pretty proud of our work. Mr. BRADLEY. You did a good job, considering the conditions under which you had to work, according to testimony that we have had before this committee. The yard should never have been started in the first place. It was poorly located. (Information furnished by the Walsh-Kaiser Co., Inc., in response to the committee's questionnaire, was received for the record and marked "Exhibit 20.") The CHAIRMAN. The next witness. Mr. COLES. The North Carolina Shipbuilding Co. The CHAIRMAN. Hold up your hand, please. You solemnly swear that the testimony you shall give at these hearings or any subsequent hearings shall be the truth, the whole truth, and nothing but the truth,. so help you God? Mr. LANIER. I do. TESTIMONY OF THOMAS L. LANIER, ASSISTANT COMPTROLLER,. NORTH CAROLINA SHIPBUILDING CO. Mr. GENNETT. Would IOU give your full name for the record, please., Mr. LANIER. Thomas L. Lanier. Mr. GENNETT. What, position do you hold with the North Carolina Shipbuilding Co., Mr. Lanier? Mr. LANIER. I am wistant comptroller. Mr. GENNETT. Do you have a prepared statement which you would_ like to offer to the committee? Mr. LANIER. I have not. Mr. GENNETT. When was the North Carolina Shipbuilding C formed, Mr. Lanier? Mr. LANIER. In January 1941. Mr. GENNETT. And who was instrumental in the formation of that company? Mr. LANIER. It was organized by the Newport News Shipbuilding,- & Drydock Co. Mr. GENNETT. Does Newport News own all of the stock in North Carolina? Mr. LANIER. Except seven shares that were sold to individuals to qualify them as directors. Mr. GENNETT. When was the first contract with the Maritime Com- mission made? Mr. LANIER. The first contract was a facility contract. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 288 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. (..TENNETT. And what was the total cost of that facilities con- tract? Mr. LANIER. The entire cost of the facilities was $20,098,986. Mr. 6-ENNETT. Was that contract performed by the North Carolina Shipbuilding Co.? Mr. LANIER. I should explain that there were a total of three facili- ties contracts. The $20,000,000 figure mentioned was the aggregate of all contracts. The contracts were performed partly by the North ? Carolin Shipbuilding Co., and a part of the work was subcontracted under c mpetitive bidding. Mr. ENNETT. Did the subcontractors receive fees or compensa- tion for their part in the construction of the yard? Mr. LANIER. They were awarded contracts on competitive-bid basis for cert1ain construction work. Mr. qENNETT. Were any of the subcontractors- related by corporate stock o nership or otherwise to the North Carolina Shipbuilding Co.? Mr. LANIER, They were not, in any way. Mr. GENNETT. What was the original paid-in capital of the com- pany at the time it entered into its contracts with the Maritime Commission ? Mr. LANIER. Well, during the Newport News Co. put in a total of $3,000,000. Mr. GENNETT. Was this $3,000,000 paid in for stock? ? Mr. LANzEtt. As consideration, the Newport News Co. received 30,000 shares of $10 par stock. Three hundred thousand dollars was credited to capital stock account, and $2,700,000 to paid-in surplus. Mr. GENNETT. At the present time, Mr. Lanier, what is the capital of the company? Mr. LANIER. The paid-in capital remains the same as the original. Mr. GENNETT. Has earned surplus or paid-in surplus been changed since the organization of the company? Mr. IANIER. There has been no change in that. Mr. ENNETT. No change? Mr. IANIER. The earned surplus has increased by the amount of earning, less dividends, of course. Mr. 'ENNETT. Was any money borrowed from banks to finance the operations on the original contracts of the company or on later contracts? Mr. IANIEii. None at all. Mr. qENNETT. Was any of the company's money put into the physi- cal 3Tar ? Mr. LANIER. No, the company's money was used solely as working capital. We paid the bills and were reimbursed. Mr. qENNETT. The total capital of the corporation has increased since 1911 from earnings has it not? Mr. tANIER. That is correct. Mr. ENNETT. Have you an idea as to how the record of your company compares so far as the cost of ships is concerned with the Kaiser hipbuilding activities? Mr. ANIER. Well, according to information which the Maritime Commi sion furnished to the subcommittee of the Committee on Ap- propriations at the Seventy-ninth Congress, second session, we were $112,G9t below the next best yard. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 289 ? Mr. GENNETT. That is per ship? Mr. LANIER. Per ship; yes. Mr. GENNETT. HOW does this figure compare with the Kaiser yards, specifically? Mr. LANIER. This comparison is on Liberty ships, the total Liberty ships constructed by North Carolina and the total Liberty ships con- structed by the Oregon yard? Mr. GENNETT. By the Oregon yard? Mr. LANIER. Yes. Mr. GENNETT. I believe Mr. Edgar Kaiser testified that the Oregon yard constructed ships cheaper than any yard in which they had an interest. Do you know if Oregon's construction costs were Kaiser's lowest? Mr. LANIER. According to this information which I have before me,. that is true. Mr. GENNETT. HOW did your costs compare with other Kaiser yards, Mr. Lather? Do you know that? 'Mr. LANIER. OUT total Liberty ship costs for 126 Libertys, per ship, was, according to this information, $1,508,090. Oregon's cost was $1,621,597; Permanente was $1,715,573; Kaiser-Vancouver?well, they only built two ships, so that would hardly be a fair comparison. The California yard was $1,811,040; Walsh-kaiser only built 10 Libertys according to this table, and the cost was $3,918,779. Mr. GENNETT. How many contracts did your company have with the Maritime Commission? Mr. LANIER. We had a total of 14 ship contracts. Mr. GENNETT. And how many vessels Were delivered under those contracts? Mr. LANIER. We have delivered a total of 242 vessels. Mr. GENNETT. Can you give me the total cost to the Maritime Commission of tbose 242 vessels? Mr. LANIER. I cannot, because the last contract is not yet complete. I can give you the cost however on 228 ships, which have been com- pleted. Mr. GENNETT. Would you do SO, please? Mr. LANIER. In that connection, I think I should explain that we have had different types of contracts down there, and under a part of the contracts we have furnished the materials, acquired the ma- terials ourselves; under others, the Commission furnished the mate- rials ; so that I think that information should be segregated. Mr. GENNETT. All right. Mr. LkNIER. We built a total of 126 Liberty ships. Mr. GENNETT. Under what type of contract were the Libertys built? Mr. LANIER. Under a cost-plus-variable-fee contract. That is the usual type of contract that the Commission used, and the total cost of the 126 Liberty ships was $82,362,450.40, or an average per ship of $653,670.24. That is the builder's cost only. Mr. GENNETT. Have you the cost to the Government of those ships? You said that S(153,670.24 was the builder's cost? Mr. LANIER. That is correct. I will have to do a little addition here in order to get that. The total cost including fees on the 126 Liberty ships paid to North Carolina was $93,030,052. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 290 Release 2003/10/10 : CIA-14DP64B00346R000400060002-4 SHIPYARD PROFITS Mr. GENNETT. Were there other types of contracts than the cost- plus-fee? Mr. LANIER. Yes. In addition to these 126 Liberty ships we had (30 C-2rtype cargo vessels' which were also built- under a cost-plus- fixed-f e contract, and we had a total of 57 ships under the selective- price t pe of contract. Mr. ENNETT. Can you give the committee the total fees earned on all of t fese contracts? Mr. JANIiiit. The total fees earned under all of the contracts?that will be completed contracts, which covered 228 ships. Mr. ENNETT. Yes. Mr. JANIER. I do not have the fees on the contract which is not yet completed; so the gross profit before nonreimbursable expenses and before icome and excess-profits taxes was $22,701,729. Mr. ENNETT. Have those profits or fees been renegotiated? Mr. I4ANIFR. That is a profit after renegotiation. Our fees were reducec in renegotiation by $4,931,902.50. Mr. tENNETT. Leaving the balance after renegotiation of $22,701,- 729, which .you have just stated? Mr. I i ,ANIER. That s right. Mr. GENNETT. Would you state the shipbuilding experience back- ground of the North Carolina Shipbuilding Co? Mr. LANIER, The North Carolina Shipbuilding Co. is managed by officials who for the most part were formerly with the Newport News Shipbuilding Co., and practically all of the men have spent their en- tire business lives in shipbuilding. Mr. GENNETT. So the background of North Carolina is in fact the background of the Newport News Shipbuilding Co? Mr. LANIER. That is correct. Mr. QENNETT. Newport News built ships during the war for other agencie of the Government, did it not? _Mr. 1,4ANIER. That is correct. There was a total of approximately 250 supervisory employees transferred from the Newport News yard to the North Carolina yard. Mr, GENNETT. On some of these contracts there were, I take it, both a maxiMum and a minimum fee. Mr. LANIER. That is correct. That is on the cost-plus contract. Mr. GENNETT. Can you state whether your company got nearer to the ma)pnium than to the minimum fee on these contracts? Mr. LfANIER. We earned the maximum fees on all contracts. Mr. GENNETT. To what do you attribute the payment of maximum fees? Mr. LANIER. Management. Mr. GENNETT. And efficiency in performance of the contracts? MT. LANIER. Correct. Mr. GENNETT. I would like to introduce a statement prepared by the Maritime Commission as exhibit 21, Mr. Chairman. The CJIAIRIVIAN. Do you want it introduced as an exhibit or, if it is not too long, read it into the record? Mr. GfENNETT. All right, sir. I will read it into the record, if you please. Mr. Clorzs. Mr. Chairman, may I at this time say that we have a number of exhibits that have not been offered here as we went along; Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 291 for example, the reports of various companies. May I have the com- mittee's permission to consider them as part of the record, and may they be subsequently numbered? The CHAIRMAN Without objection, that will be done. Mr. COLES. This statement, Air. Chairman, has been read in large part by Mr. Lanier; Mr. Gennett has prepared a summary of it, and I think if he reads the summary and then puts this in the record that will be sufficient. The CHAIRMAN. All right. (Document so described was received and marked "Exhibit 21.") Mr. GnisTNETT. I wish to point out to the committee that the average cost of Liberty ships built by the North Carolina Shipbuilding Co. was $1,508,000 per ship for 126 ships; that the average cost of 306 ships built by California Shipbuilding Corp. was $1,811,000 per ship. Mr. HERTER. Will you give this North Carolina figure again? MT. GENNETT. Yes, sir?$1,508,000. Mr. HERTER. That was the cost? Mr. GENNETT. That was the cost to the Government. Mr. HERTER, That does not agree with the figures we got, in any way, shape, or form. For the last 89 vessels, Liberty ships, built by North Carolina, the vouchers paid on those were $61,000,000, or an average of under $700,000 each. Mr. COLES. This is the average of all Liberty ships, as I understand it, Mr. Herter. The earlier Liberty ships were a good deal more costly than the later ones. Mr. HERTER. According to these figures, each of the Liberty ships built by North Carolina was under $1,000,000. Does that eliminate the cost of the materials paid for by the Government? Mr. LANIER. This cost includes the cost of material furnished by the Maritime Commission. Mr. HERTER. The figures that are now being read? MT. LANIER. Correct. MT. HERTER. SO that these figures we have before US are exclusive of the cost of material furnished by the Maritime Commission? Mr. GENNETT. That is right. Mr. HERTER. Thank you. Mr. GENNETT. The cost of 15 Liberty ships built by Marinship Corp.?and 15 is a considerably smaller number, so it may not be a fair comparison?was $3,008,000 per ship, or $1,500,000 more per ship than the North Carolina Shipbuilding Co. built such ships for. The Oregon Shipbuilding Corp. built 330 vessels, at an average cost of $1,621,000 per vessel, or $113,000 per vessel more than the cost of Liberty ships built by the North Carolina Shipbuilding Co. The average cost per vessel of 489 Liberty ships built by Permanente Metals Co. was $1,715,000, or $207,000 more than the cost per vessel built by North Carolina Shipbuilding Co. The cost 'of 10 Liberty ships built by the Walsh-Kaiser Co.?and this again is a small number in comparison with the number of vessels built by certain of the other companies?was $3,918,000 per vessel, or $2,410,000 per vessel more than the cost of the same type of ship the Government purchased from the North Carolina Co. I think this shows the relative efficiency of the designated companies. Mr. HERTER. Would counsel yield? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 292 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. G NNETT. Certainly. Mr UmiTER. As I understand it, Mr. Kaiser testified that he had saved u 8250,000,000 through the construction of Liberty vessels, below the average costs of Liberty vessels, for all of those that were constructed. I wonder if the present witness has made any calcula- tions as to what he would have saved the Government on the building of Liberty vessels? Mr. LOIER. I have not made any calculations, sir. Mr. HERTER. You are not making any claims, then? Mr. LikNIER. We are making no claims. Mr. HERTER. You are letting the figures speak for themselves? Mr. LANIER. That is correct. Mr. GENNETT. No further questions, Mr. Chairman. The C;IAIRMAN. MT. Bradley? Mr. B ADLEY. I do not lmow that I have any questions, Mr. Chair- man. The CHAIRMAN. Mr. Weichel ? Mr. WEICHEL. Did I understand you when you started off, that this was a wholly owned subsidiary of the Newport News Shipbuild- ing Co,., which has been in business for many years. Mr. L NIER. That is correct. Mr. WEIcTIEL. How much money did you say was put into this compan ?I mean by the Newport News Co., in the way of invested capital? Mr. L NIER. $3,000,000. Mr. EICHEL. $3,000,000? Mr. LNIER. Yes. WEICHEL. And you received stock for that? Mr. L NIER. That is correct. Mr. WEICHEL. Then you also had experienced ship personnel? Mr. L NrER. That is correct. Mr. WEICHEL. The comparisons being made here by counsel with referenc to the cost in your yard?you had some experienced ship personn 1, where these other companies had fellows who worked with plows? Mr. L NIER. That is correct. Mr. WEIoHEJ. And they had to try to make shipbuilders of them? Mr. L NIER. That is correct. Mr, icitzt,. Would that account for some of the difference? Mr. 1ANIEu. That undoubtedly accounts for a substantial part of it. Mr. 1icinir. For the major part of it? Mr. L NIER. Well, T could not say definitely, because I have not had an opportunity to analyze the costs of the yards. Mr. zion?EL. Do you know how many people were engaged in the shipbuilding industry in this country in 1940? Mr. L NIER. I do not. Mr. WETOHEL. Do you know how many were engaged in June 1945?ay 1945? Mr. L NIER. I C10 not. Mr. WEICHEL. Well, would you say there were 10 times as many people engaged in it? Would that be a fair estimate? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 293 Mr. LANIER. I do not know. Mr. WEICHEL. Well, do you know how many companies like Your own were building ships in the United States say in 1940? Mr. LANIER. There were very few. Mr: WEIGHEL. Very few? Then you would know all of them, wouldn't you? You have Ween in the business a long time. What were there?five or six? Mr. LANIER. Yes. Mr. WEicunn. Five or six. And here we have a list of 19 new ones that the Government put up all the money for. Now, in addi- tion to these 19, do you know about how many others were engaged in the building of ships during the war? Mr. LANIER. No I do not. Mr. WEICHEL. "foil do not? Mr. LANIER. There were a number of yards that were engagect en- tirely on Navy work, and I have no idea how many there were, in the aggregate. The CHAIRMAN. Right there, I think it may be said that the New- port News job was entirely a Navy job, was it not? ? Mr. LANIER. That is correct, sir. Mr. WEICHEL What I was trying to get at was, that the expansion with reference to the building of ships was something like five or siv hundred percent. Mr. LAN1ER. It probably was at least that much. Mr. WEICIIEL. With reference to the number of yards. And that would be also the expansion of personnel, of trying to teach people to know something about building a ship. Did you build Liberty ships down there? Mr. LANIER. We built 126 Liberty ships. Mr. WEICHEL. One hundred and twenty-six. Mr. LANIER. And we had contracts for 117 of the C-2-type vessels. Mr. WE1CIIEL. On the last contract you had for Liberty's, how many were there in that contract? Mr. LANIER. Thirty-six. Mr. WEICHEL. Thirty-six? And what fee did your company get for those, per ship? Mr. LANIER. On the last 36 ships we received, before nonreimburs- able expenses and before income taxes, $68,182 a ship. Mr. WEIciinn. Your fee was $68,000 a ship? Mr. LANIER. On the last contract; yes. Mr. WincirEz. On the last contract? We have some testimony here with reference to the California Shipbuilding Corp., of something like $49,000. We had, for the last ships on another company, $41,000, and on another one, of $44,000 for their last ships, the fees they received. Mr. BRADLEY. Was that after renegotiation? Mr. WEicrinn. That is after renegotiation. Now, with reference to $68,000 a ship, what was it after renego- tiation? Mr. LANIER. It was $68,000 after renegotiation. Mr. WEIGHEL. It was still $68,000? Mr. LANIER. That is right. We earned the maximum fee of $70,000. Approved For Release 2003/10/10 CIA-RDP64600346R000400060002-4 Approved For 294 Release 2003/10/10: CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr WEICHEL. Yes; I understand that, but I am getting at the fees that the different people got for the last ships. It seems some people, on the last ships, the higher their experience, the more they got You got $68,000 after renegotiation, for the last ships. Here is a New York firm got $44,847 for their last Liberty ships. A California firm got $41,505. rAnother got $49,000. Then we had some testimony here of one getting $20,000. I was just trying to line up the matter of the fees a ship company received for the last Liberty ships that they built, after all their previous experience, and there seems to be a wide variation from $20,000 a ship to yours, of $68,000. Mr. LANIER. I think, Mr. Weichel, that was due to efficiency in operation;. Mr. WEICHEL. Yes; but I am saying some people were given more money than the rest of them, for the same thing. Mr. BRADLEY. Will the gentleman yield for an observation? Mr. M7*icHEL. Yes. Mr. BRADLEY. Whereas North Carolina got $20,000 more than Calship, let me point out, the gentleman saved the people almost $300,000 in the cost of the ships. Their cost was $1,508,000 as opposed to $1,811,000 of Calship. Mr. WEICHEL. Yes; I understand. Mr. BRADLEY. That is why they got the additional money. Mr. WEICHEL. Yes; but the Government reimbursed everybody for all the material, and some people got a wide difference of 300 percent on fees for doing the same thing. That is what I am talking about. I mean the Government paid for everything, and paid for all the men, and paid, for these people who were actually doing the good perform- ance. The fellows who were doing the good performance were the fellows putting the rivets in and that sort of thing, and they were paid by the Government, and the people who were operating the yards sone of them got at least 300 percent more for doing the same thing. TlIhat is all. The C IAIRMAN. MT. Herter. Mr. II ,RTER. One question. In reaching these figures of yours in regard th comparable costs, were the costs of delivery of steel and materials at Newport News lower than they were on the west coast, Or did the Maritime Commission charge for material purchased as against sour total costs the same amount ? Mr. L4NIER. I do not know. I have no information on that. Mr. FIERIER. I wonder whether counsel has any information on that? Mr. Cors. I do not know that, Mr. Herter. I just wanted to make this one observation. These are the Maritime Commission's figures that Mr. Lanier has been quoting. These were furnished by the Mari- time Co mission. These are not the figures of the North Carolina Shi bui ding Co. r. IERTER. I think it would be interesting, just from the point of view of comparison as to whether there were any differences in the costs of materials furnished. (Discussion off the record.) The CHAIRMAN. I think Mr. Slattery has been sworn. I do not know whether it was in this hearing or not. Mr, SLATTERY. Not on this particular hearing, but about a month ago. Approved For Release 2003/10/10 : CIA-R0P64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS s 295 The CHAIRMAN. I mean in this series of hearings. Mr. SLATTERY. That is right.. The CHAIRMAN. But at any rate, Mr. Slattery, hold up your hand. Do you solemnly swear that the evidence you will give at this hear- ing or at any other future hearing will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. SLATTERY. That is right. TESTIMONY OF WILLIAM L. SLATTERY, DIRECTOR, DIVISION OF FINANCE, UNITED STATES MARITIME COMMISSION Mr. SLATTERY. I want to say, Mr. Herter, that this figure here as to the total cost of the ship is an allocated figure for materials pur- chased by the Maritime Commission, and in coming to that figure we had to equalize the freight all over the country, because it was not possible to get the thousands of products and show the differen- tials for freight. This is merely a matter of the cost of the material? the out-of-pocket cost. Mr. HERTER. Then the figures submitted are on comparable costs' , and they are fair figures from the point of view of the different yards? Mr. SLATTERY. Except for the freight they would be; not for the freight. The freight had to be equalized. Mr. WEICHEL. Is the freight in these? Mr. SLATTERY. The freight is in these. The freight is in here, equalized. Mr. HERTER. These are comparable figures? Mr. SLATTERY. Oh, yes. Mr. HERTER. You do not have to make different allowances for differences in steel in the different shipyards; you have already equal- ized that in your allocation? Mr. SLATTERY. No; we did not equalize it. We spread it over the whole. We had so much freight and applied it to the tons of freight. Mr. HERTER. That is what I called equalization. Mr. SLATTERY. That would show that the North Carolina got a proportion of the, total freight paid to the country, the same as any other yard. Mr. HERTER. That is right. In other words, they were equalized figures, then, or fair figures to be taken for comparison to show from the point of view of comparison the cost to the Government at the different yards? MT. SLATTERY. Yes; that is right. " The CHAIRMAN. Are there any other questions? Mr. COLES. I would like to bring out that the figures are also broken down into the average builder's cost, and the average builder's cost is shown for North Carolina at $651,000 per ship; and the next closest yard is Oregon, which is $766,000 per ship. The others go up. Mr. HERTER. That is the labor cost? Mr. COLES. Would you tell us what your average builder's cost is, Mr. Lamer? ? Mr. LANIER. That consists of labor, overhead, and a small amount of emergency material. Mr. BRADLEY. In other words that is all the costs over and above the materials furnished by the Maritime Commission? Mr. LANIER. That is correct. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 , 206 SHIPYARD PROFITS Mr. BRpLEY. On a comparable basis, between one yard and an- other? , The CtrArlimAN. Have you any further questions, Mr. Herter? Mr. HEIRTER. No. The CIAIRMAN. Mr. Coles. Mr. COlyES. Just one minute, if you will, Mr. Chairman. Mr. BlIADLEY. May I ask counsel a question, on the record? I should like to ask counsel whether you have comparable figures on all of these six yards that you have mentioned previously, on the total cost, the acverage contractor's costs that you just gave us, here in con- nection w4h the North Carolina, and the next lowest, which you said was lower ? Mr. Corms. Yes; I have, Mr. Bradley. Mr. l3Ri' ADLEY. I ,think those are very interesting figures and are pertinent to the hearing. Mr. Cops. I think one thing should be noted, that the materials in almost all cases, as Mr. Slattery said, are approximately the same. So efficiency is much better reflected, I would think, in these average eosts, of vIvhat the contractor spent. At the same time the percentage of difference is a lot higher by taking out that constant amount which materials i would effectuate. Now, the figures given are, for North' Carolina, $651,000?and I will omit the hundreds; it is 793, there. Mr. BRpLEY. Let me get these down, here. Mr. Corms. Yes. $651,000 for North Carolina; Oregon average builder's costs per ship, which is the next closest, is $766,000, or $115,- 000 high i er. Now, you notice the percentage s rather great. The Permanente Co. was $853,000, or $202,000 greater?in other words, ?about one-third again as high. Mr. W4ICHEL. Mr. Chairman, can't we get from the Maritime Com- mission?they can make it up for all the companies, what the average ?costs were, and give us that?bring it up here as an exhibit, rather than , taking it piecemeal? Mr. Co ES. This is by the Maritime Commission Mr. Weichel. Mr. W -mum,. Well, I know. I will take it straight from the Mari- time Commission. Mr. COjLES. Yes. Mr. WrCHEL. I think they have the figures, and should make it up, mid give ris the average cost for every shipyard. The Cl-AIRMAN. Can that be done? Mr. Corms. I think, Mr. Weichel, that has been given us by the Maritime Commission. It includes all yards which built Liberty ships. Mr. 17ICHEL. I know, but this man, here, ought to read it. Let us get that., I would sooner take it from the Maritime Commission. That is where it is supposed to be. Mr. COPES. This is part of an official document. The Cr-tam/IAN. We will possibly save time by Mr. Coles going ahead an4 giving what he has got, and Mr. Slattery will please supply the inforMation. Mr. 11V*CrIEL. Yes?for all the shipyards. The C#AIRMAN. Insert it as one exhibit. Mr. CIOES. The Permanente was $853,000, which is $202,000 greater. The Walsh-Kaiser Cos, remembering that they had only 10 ships Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD pRDPITS 297; Mr. BRADLEY (interposing). Well, I think it is not fair to include. Walsh-Kaiser in this. Mr. COLES. No; I think not. And the California Shipbuilding Co. had an average builder's cost of $968,000, or $317,000, or about 50, percent, more than the cost of the North California's builder's costs. Mr. BRADLEY. These figures show very much divergence from the statement made by Mr. Kaiser, the other day, that he saved us $250,000;000. The CHAIRMAN. Mr. Slattery will prepare the exhibit, which will be supplied and furnished to the members. Mr. SLATTERY. May I make a brief statement, Mr. Chairman? Yes:- terclay afternoon, Mr. McConnell asked me to come outside, and asked me for this statement, and I got it ready, here. The CHAIRMAN. Have you it now? Mr. SLATTERy. Yes. The CHAIRMAN. You have? Mr, SLATTERY. All of the Liberty ships that were built, ,There were 2,400. The CHAIRMAN Will you hand that to Mr. Weichel, and See if that is the statement he wanted? Mr. SLATTERY. The 2,580 Liberty ships, by contractor, by yard. The CHAIRMAN. If so, it will be introduced as an exhibit at this. time. Mr. WEIcuEL. I will look not know. The CHAIRMAN. All right.. witness'? Mr. COLES. No further quo The CHAIRMAN. All right. Mr. WEICIIEL. Mr. Witness. Commission. The CHAIRMAN. You mean Slattery, or? Mr. WEICHEL. No. The CHAIRMAN. Mr. Lanier? Mr. WEICHEL. Mr. Lanier. The North Carolina .as shown by the Maritime Commission, shows an average profit per vessel of 84,699. I presume that is without taxes? Mr. LANIER. That is before. WEicuEL. Before taxes ?- Mr. LANIER.' Before nonreimbursable expenses and taxes: Mr. WEICHEL. And taxes? , Walsh-Kaiser shows $31,080 without taxes, the average. - The CHAIRMAN. This gentleman is not able to testify as to the Walsh-Kaiser Co. . - Mr. WniciiEL. No; but I say that is what it shows. The CHAIRMAN. That is through no fault On your part........ .Mr. WEICFIEL. Mr. Chairman, may Mr. Slattery-read this into the record,' new, with reference to what they say is 'the average profit: per vessel and the average cost for each one of these yards? would like to haYe him read that at this point into the -record. The .CHAIRMAN. If you are going 'to have it. read 'at some time,. at this and talk about it later. I do Any further .questions of the present. stions. Stand aside. Your next witness. I mean this exhibit by the Maritime.- put it in. ' 7 St 0, r Mr. LOSER. May we have a copy of that? Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 Approved For 298 Mr. SL (Mr. S which is i Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS TTERY. This is average cost. attery thereupon read the tabular statement referred to, the words and figures following:) E1J2-S-C1 costs (estimated), cost-plus contracts Builder Number vessels Average builder's cost Average profit per vessel Total cost to USMC per vessel 1 Alabama Beth-Fairfield, California Delta Jones (Brunswick) Jones (Panama) Kaiser (Vancouver) Marinship New England North Carolina Oregon 1 Permanent? Rheem Manufacturing Co Southeastern St. Johns Todd-Houston, Walsh-Kaiser Tcital_ 20 $1, 125, 015 (9) $60, 000 $1, 957, 459 384 895, 288 (4) 76, 927 1, 743, 043 306 968,428 (5) 70,168, 1,811, 040 132 1, 046, 973 (7) 43, 102 1, 861, 664 85 1, 173, 129 (10) 39, 067 1, 984, 640 66 1, 221, 471 (11) 29, 470 2, 023,385 2 1, 783, 367 (14) 110,000 2, 665, 811 15 2, 175, 961 (15) 60, 000 3, 008,405 236 1,070, 238 (8) 43, 166 1, 881,803 126 651, 793 (1) 84, 669 1, 508, 906 330 766, 621 (2) 82, 532 1, 621,507 489 853, 674 (3) 89,456 1, 715, 573 1 6, 388. 790 (17) 7, 161, 234 88 1, 236, 438 (12) 30, 227 2,039, 110 82 1, 304. 202 (13) 23, 659 2, 100, 304 208 995, 311 (6) 52, 144 1, 819, 899 2 10 3, 112, 255 (16) 34, 080 8,918, 779 2, 580 962, 322 66, 631 1, 800, 743 'Includes USMC furnished material. 2 Includes 5 v ssels under price-minus contract. [Pencil notat on:] 3/19/46. Mr. HERTER. Mr. Chairman, might I ask Mr. Slattery one question in connection with this comparison? The CITAIR1V1AN4 Yes, sir. Mr. HERTER. You testified something to the effect that so far as materials were furnished you equalized the freight rates as between different sections of the country ? Mr. SLATTERy. I would like to make a reservation on that, Mr. Herter, Old make sure of it for the record, because it has since occurred to me that there may not have been an equalization of labor rates in the same picture. Mr. H ql.TER. I was about to ask you about labor rates which is an entirely ifferent item from the freight rates in the cosi of material. , , Mr. SL{VrTERY. That is right. Mr. HERTER. On your labor costs there was a great differential; for instance' between the North Carolina wages paid for comparable work anoll those on the west coast yards. Mr. Sr., 1 TTERY. Well, I should say there was a slight-in the begin- ning, per aps-a slight margin in favor of North Carolina. There was even, a greater margin in the Gulf. As I remember it, the Gulf rates werle the lowest, the Atlantic coast's were next, and the Pacific coast waA third. Mr. HERTER. And when you say there was that differential in the beginning, was that equalized at the end, or did it remain all the way through? Mr. SLATTERY. Well, because of the Wage Stabilization Board and the varidus things that applied there, I cannot say that-what that figure was. It ought to be filled out in a prepared statement. Approved For ? Release 2003/10/10 : CIA-R0P64600346R000400060002-4 Approved For Release '2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 299 - Mr. HERTER. I am wondering again, from he point of view of the fair comparable costs, whether a wage differential for similar, work done ought not to be computed. Mr. SLATTERY. I think it should. It occurred to me after you talked before, and I would like to reserve the correction for the freight rate, too, because that, too, is a complicated thing, and I would like to cor- rect that for the record. The CHAIRMAN. Are there other questions of the present witness, Mr. Slattery? Mr. BRADLEY. How long would it take to get that information? Could you get it over the phone, now? Not right now, but I mean this afternoon. Mr. SLATTERY. I could bring it back with me for the afternoon session. Mr. BRADLEY. All right. I think that is very important if we do not want to make any unfair comparisons here. The CHAIRMAN. Any further questions of the present witness, Mr. Lanier? The next witness. (Information furnished by the North Carolina Shipbuilding Co., in response to the committee's questionnaire, WAS received for the record and marked "Exhibit 222') Mr. COLES, The Consolidated Steel Corp. The CHAIRMAN. Do you solemnly swear that the evidence you will give at this or any other future hearing will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. KNOEPPEL. I do. TESTIMONY 011 F. J. KNOEPPEL, VICE PRESIDENT, CONSOLIDATED STEEL CORP. Mr. GENNETT. Would you give your Dame for the record, and your position with the corporation? Mr. KNOEPPEL. F. J. Knoeppel, vice president, Consolidated Steel Corp. Mr. GENNETT. Can you give the committee the date of incorpora- tion of the Consolidated Steel Corp.? Mr. KNOEPPEL. December 1928. Mr. GENNETT. What was the primary business of the corporation, until it entered the shipbuilding business? Mr. KNOEPPEL. Fabricators of heavy steel?structural, plate, pres- Sure vessel, and similar items?any heavy steel products. The CHAIRMAN. Fabricated steel? Mr. KNOEPPEL. Fabricators of steel. Mr. GENNETT. When did the corporation enter into the shipbuild- ing business, Mr. Knoeppel? KNOEPPEL. ID 1939. Mr. GENNETT. Had it had any previous shipbuilding experience? Mr. KNOEPPEL. It had no prior shipbuilding experience. Mr. GENNETT. What was the capital of the corporation? Mr. KNOEPPEL.: In 1939, my recollection is it was $4,200,000, ap- proximately, capital and -surplus, at the end of December 1939, and about $800,000 of outstanding long-term loans?a gross of $5,000,000. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approvegb&or Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 'Mr. NI?JET'L When it entered into the shipbuilding business, was the to al capital of the corporation used directly in shipbuilding operations? Mr. I{NOEPPEL. No; it was not. Part of it was Used in steel fabrica- tion, although at that time, due to the depression and lack of demand on the west coast, very little of the capital was required for other pur os s. Do you want me to enlarge on that ? Mr. ENNETT. That is all right; I will ask you further questions. Was the steel business pursued during the war a substantial part of the .total volume of business done by the corporation? Mr. NOEPPEL. You mean other than shipbuilding? Mr. t1iNNETr. Yes; other than shipbuilding. Mr. NOEPPEL. It was a fair amount; not nearly as much as the shipbui ding. .' Mr. ENNETT. Are you able to estimate how much of the capital would h,ave been required in operations other than shipbuilding? Mr. 1NoEppEL. I am afraid that is almost impossible to answer. My guess would be?and that is just a guess?possibly 10 percent, during the War period. Mr. qENNETT. During the war, only 10 percent of the capital was necessal& for the corporation's business other than shipbuilding? , Mr. KNOEPPEL. Let me put it this way: Other than Government tVork, s ipbuiIding both for the Navy, the Maritime Commission, and the pro uction of gun mounts for the Navy. Mr. G NNETT. IF-Ott had bank loans during the shipbuilding opera- tions ? Mr. KNOEPPEL. That is right. . Mr. GENNETT. Were those interest-bearing loans? Mr. KNOEPPEL. Those loans were interest hearing. Mr. GENNETT. Was the interest on the loans reimbursed by the Maritime Commission? Mr. KNOEPPEL. Only in a very slight degree. Mr. GENNETT. The balance was paid by the corporation? Mr. KNOEPPEL. The balance, paid by the corporation. !Mr. GENNETT. Were Government receivables pledged as security for the bank loans? Mr. KNOEPPEL. NO. Mr. GENNETT. Was any of the corporation's money put into the physical !assets of the yard? Mr. KNOEPPEL. Not on the shipyard as such. The Maritime Com- mission's! shipyard was not a complete shipyard. It required our Maywood facilities of steel production; steel fabrication, to supple- ment that shipyard. We fabricated heavy steel sections at Maywood, and I took the sections to the shipyard and there assembled them in the shipyard. Mr. ()*NNETT. Were the steel fabrication, operations during the war profitable operations?. Mr. KNOEPPEL. Why, yes ; aside from shipbuilding, you mean ? Mr. GONNETT. What I am driving at is that the Consolidated Steel Corp. shOws an increase in capital totaling nearly $4,000,000 between 1.942 and.i1946. What part of that amount is attributable to the steel fabrication? Mr. KNOEPPEL. A small part. Approved ForRelease 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 301 Mr. GENNETT. The balance was earned from shipbuilding opera- tions? ? Mr. KNOEPPEL. Shipbuilding and gun-mount production. Mr. GENNETT. What was the total cost to the Maritime Commis- sion of the yard, Mr. Knoeppel ? Mr. KNOEPPEL. $13,185,000. Mr. GENNETT. Was this subcontracted, or was it built by the cOr- poration ? Mr. KNOEPPEL. We built it with some subcontract work, such as driving the piling, and so forth. We engineered the yard and the lay-out and handled the entire construction of it as a general con- tractor would. Mr. GENNETT. SO far as the corporation was concerned, that was a no-fee contract? Mr. KNOEITEL. It was a no-fee contract; no profit. Mr. GENNETT. Were any of the subcontractors affiliated with the corporation? ' Mr. KNOEPPEL. No; there was no affiliation of subcontractors. Mr. GENNETT. Were any of the facilities used in the construction of the yard made by the fabrication section of the corporation? Mr. KNOEPPEL. Yes; there were. Yes; we fabricated some of the steel that went into the buildings and other items. We did some fabrication work for the shipyard. Mr. GENNETT. Was a profit paid to the corporation on those fabri- cations? Mr. KNOEPPEL. No; there was no profit paid, but cost. Mr. GENNETT. No fee? Mr. KNOEPPEL. NO fee. Mr. GENNETT. Then the corporation's steel fabrication section made no profit on this construction? Mr. KNOEPPEL. It made. no profit on that transaction. Mr. GENNETT. Was the steel made by your corporation and used in the building of the yard sold to the Maritime Commission at a lower price than the steel used in other yards was sold to other- shipyard corporations, such as steel sold by the Fontana steel plant? -Mr. KNOEPPEL. No; we were not producers of steel. My recollec- tion is that we agreed with the Maritime Commission upon an out-of- stock price for the steel. Mr. GENNETT. An out-of-stock price? Mr. KNOEPPEL. An out-of-stock price. Mr. GENNETT. What does that phrase mean, Mr.. Knoeppel ? Mr. 4N0EPPEL. Well, that means that we took it out at the price that we carried our steel in stock?in other words, the cost of the steel plus handling charge and items which are involved in the use of the steel. Mr. GENNETT.' How many shipbuilding contracts did the corpora- tion have with the Maritime Commission? Mr. KNOEPPEL. Eighteen. Mr. GEN-NETT. And what type or types of contracts were these?18 ? Mr. -KNOEPPEL. We ,had :three types of contracts?lump sum, fixed price, price minus, and selective price. Mr. GENNETT. Can you state the total cOst to the Maritime .Com- mission of all those contracts ?: 98486-46-20 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 302 SHIPYARD PROFITS Mr. KNOEPPEL. Total cost to the Maritime Commission on all the contracts, $549,488,545. Mr. GE/4NETT. Do you have the total amount of fees paid on that 500 million in contracts? Mr. KNOEPPEL. Well, they were fees and profits and losses, all com- bined?amounted to $13,975,119. Mr. GrE*Nrrr. This is before or after renegotiation ? Mr. KNtOEPPEL. This is after renegotiation, except that I have to qualify that. There was something taken in renegotiation in 1944, about $2,000,000, out of our combined operations. Now, we do not know what portion of that is attributable or was attributable to Mari- time Commission contracts. Mr. GENNETT. You have stated, have you not, that only about 10 percent of the volume of business done was? other than shipbuilding? Mr. KNOEPPEL. Well, yes; but shipbuilding included shipbuilding for the Navy, which is not included in here at all. MT. GENNETT. What was the total cost of the facilities to the Mari- time Commission? Mr. KNOEPPEL. $13,185,000. Mr. GEFcNETT. Was a substantial part of the Material used in these contracts supplied by the Maritime Commission? Mr. IcisOEPPEL. They furnished materials on the later contracts to a considerable degree; in fact, completely on the later contracts. Mr. GENNETT. 7rhe labor was paid for by the Government? Mr. KisioErrEL. The labor was reimbursed to us by the Government. MT. GENNETT. I mean reimbursed to the corporation. Mr. KNOEPPEL. That is right. Mr. GENNETT. And part of the interest On borrowed capital was paid? Mr. KNOEPPEL. A very small part, almost insignficant. Mr. GENNETT. What about the management salaries of the corpo- ration, w'ere they reimbursed to :the corporation? Mr. K/NOEPPEL. They were reimbursed to an amount that was set up by theMaritime Commission as allowable; not fully reimbursed. Mr. GENNETT. Did you have a substantial amount of nonreimburs- able items? Mr. 1(sTOEPPEL. We did; altogether, slightly over $1,000,000. Mr. C4TNNETr. How did that compare with the volume of items that were reMabursed? One million dollars is a small percentage of the total amount paid out by the Commission, is it not? Mr. KNOEPPEL. Yes; that is right. The total amount reimbursed, about $380,000,000. . Mr. GENNETT. Now, the contracts provided for incentive fees, I take it? Mr. KNOEPPEL. That is right. Mr. GENNETT. Maximum and minimum payments for performance? Mr. KNOEPPEL. They provided for bonus on cost saving and also bonus for early deliveries, as far as the price-minus contracts are con- cerned. Mr. dENNETT. Did you earn the maximum fee on any substantial part of your contracts? Mr. I?EPPEL. We did on some of our contracts; we earned the maxim m ; others, we earned part of the maximum; on others, we did not earn any of the so-called bonus. I Approved For'Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 303 Mr. GENNETT. Were you paid only the minimum fee on any of these ? contracts? Mr. KNOEPPEL. Yes; we were. The CHAIRMAN. As far as the evidence is already in the record by way of statements I hope we will save time. Mr. GENNETT. All right, sir. I have no further question except one. The CHAIRMAN. All right. Mr. GENNETT. I understand that the corporation operated both a shipbuilding division and a steel fabrication division. Was there a loss in the fabrication division, that was set off against shipbuilding profits? Mr. KNOEPPEL. No; I do not recall any losses in the fabrication end of it. Mr. GENNETT. There was, then, in both divisions of the corporation, steel fabrication and shipbuilding, a profitable business period during the time the corporation was building ships? Mr. KNOEPPEL. It would not have been profitable if we had not had the shipbuilding operations to supplement the work in the fabricating plant. Mr. GENNETT. Nevertheless, you had no nonshiphuilding losses to offset against your shipbuilding profits? Mr. KNOEPPEL. That is right; we had no losses to offset against the shipbuilding profits. Mr. GENNETT. This is different from another situation that we have seen where the shipbuilding profits were erased by losses in another division of the corporation. That is all, Mr. Chairman. (Information furnished by the Consolidated Steel Corp., in re- sponse to the committee's questionnaire, was received for the record and marked "Exhibit 23.") The CHAIRMAN MT. Bradley? Mr. BRADLEY. Where are your yards located? Mr. KNOEPPEL., The yard is located at Wilmington, Calif. Mr. BRADLEY. Did you have any excessive losses in any of your other operations which you used to offset against the profits received from shipbuilding, as was the case with one witness? Mr. KNOEPPEL. I don't recall any losses that we had that were off- set against shipbuilding profits. Mr. BRADLEY. In other words, this figure that we have here of roughly 161/2 million dollars set down here as estimated profit, but let us call it fees, is substantially correct? Mr. KNOEPPEL. I don't know how the 16,000,000 is arrived at. Mr. BRADLEY. I don't know. Mr. KNOEPPEL. I arrive at a profit of $13,975,000. Mr. BRADLEY. Those are the total fees or profits? Mr. KNOEPPEL. I think I know what figure is arrived at there. That is on the price-minus contract alone. We earned $16,404,000 before taxes. On our fixed-price contracts we lost $1,818,000, and on a selec- tive-price contract we made $700,000, which is a total of $15,286,000. Then we suffered disallowances of about $1,200,000, which brings it down to the figure I gave, of $13,975,,000 from the shipbuilding opera- tions. Mr. WEICHEL. Is that the so-called renegotiated figure for all your shipyard fees? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 304 SHIPYARD PROFITS Mr. KNOEPPEL. No., There may be something applicable to that in the renegotiation for 1944. We were renegotiated on an over-all cost basis year for year, and not on individual contracts. Mr. WEicjim. Did the Maritime specifically renegotiate your ship fees? , Mr. ICNOEPPEL. We were renegotiated by the Navy Price Adjust- ment Board, not by the Maritime. Mr. "VV, EIOLIEL. Your dealings were with the Navy Price Board and not by the MaritimePrice Board? , . , Mr. I NoErrEL. Tnat,ls right. Mr. RAMEY. That is because the majority of your business was with th Navy? Mr. INOEPPEL. Yes; the preponderance was with the Navy. Mr. RA DREY. According to the figures furnished by the Maritime Conami siont you did approximately $385,000,000 worth of business for the Maritime Commission. Mr. I NOEPPEL. Of reimbursable costs. Mr. TRAPLEY. That is in the voucher phase. Mr. NOEPPEL. Yes. Mr. 1RADLEY. You must have done a pretty tremendous arhount for the Navy to go above that, because that is a very big figure in itself, r ght there. Mr. KNOEPPEL. We did. We had a separate yard down at Orange, Tex. building destroyer escorts and landing craft. Mr. 1uADLEy. How much business, in round figures, did you do with th Navy? Mr. lNoErrEL. With the Navy? I hesitate to say. It is just a guess n w, but I would say about $600,000,000 or better. Mr. IlRADLEY. That is quite a contribution to the war effort?about a billion dollars' worth of work. Mr. INOEPPEL. At Maywood we turned out 5-inch twin gun mounts for destroyers. Mr. B ADLEY. Maywood where? Mr. INOEPPEL. Maywood, Calif., where our fabricating plant was located. Mr. 1RADLEY. Have you figured out what the approximate per- centage s of fees that you received, or of this $385,000,000? Mr. 1NOEPPEL. On that basis about 3' percent, I believe, before taxes. J know it is less than 1 percent after taxes. Mr. B ADLEY. Less than 1 percent after taxes? Mr. ENOEPPEL. Yes. Mr. B ADLEY. About 3 percent before taxes? Mr. INOEPPEL. Yes. Mr. B ADLEY. You did not make any Libertys2I see. Mr. INOLPPEL. I would qualify that. Against the reimbursable cost of 360,000,000-odd the net was slightly over 1 percent. It was slightly under ton the total cost, including material. Mr. RADLRY. I see you had approximately 25,300 employees? Mr. lNoEPPEL. About that. Mr, Eicnn.L. Whatever you did for the Maritime was on your own cap tal that you had in this Consolidated Steel Co..? Mr. KNOEPPEL. Yes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 306 Mr. WEICHEL. I mean, you operated and then were reimbursed. You did not have any special corporation set up for it. Mr. KNOEPPEL. No; we went in and operated for the Government. Mn/ WEICHEL. You did business with the Maritime Commission, you did business with the Navy, and you did it for other people? Mr. KNOEPPEL. That is right. Mr. WEicuEL. You did not build any Liberty ships? Mr. KNOEPPEL. No, sir. Mr. HERTER. You operated the Consolidated Steel Corp. in Orange, Tex., at the same time you operated in California? Mr. KNOEPPEL. That was a, division of our corporation?not a sep- arate corporation but the same corporation in Orange, Tex. Mr. HERTER. Are you familiar with the relative labor costs of the 2 areas? Mr. KNOEPPEL. I could not tell you the difference but there is a substantial variation. The west coast is higher than the Gulf. Mr. HERTER. You do not know, roughly, in percentage what it would be? Mr. KNOEPPEL. I do not like to guess. . Mr. HERTER. Does that differential still remain? Mr. KNOEPPEL. Yes. Mr. HERTER. That is all. The CHAIRMAN. Are there any further questions? Mr. GENNETT. No questions. Mr. HERTER. Might I ask the witness one further question? I notice that in the C-1 type of ship, of which you built quite a number, that your contract price, although it may have been a dif- ferent type of contract, -between the earl ones you built and the last ones you built, showed that your last ones were about half the price of the earlier ones. Is that correct? Mr. KNOEPPEL. That is probably right. We drove and drove for efficiency, and of course that would be reflected in the downward trend of costs. I do not know whether that proportion is right. I imagine that is true if it is in the record. I know that there was a substantial reduction from the earlier ships to the last ships. Mr. HERTER. I notice in your early C-1 ships that you built your contract price ran somewhere over $2,000,000, and in the last 28 the contract price ran under $1,000,000. Mr. Kr.ronrrEL. I do not know where that $1,000,000 comes from in the contract price. Do you mean the expended money by the con- tractors? Mr. HERTER. The last ones were under price-minus contracts. The first one was under an LS contract. The last one shows, in these figures we have, with 28 ships, under the price-minus contract the price was $25,000,000, and the voucher paid to you was about $24,000,000. There again may be an exclusion of materials furnished by the Mari- time Commisison. It does not show. Mr. KNOEPPEL. The last contract for $24,000,000 paid to us was on an AV-1 contract, not a C-1 contract. The last two contracts we had were AV-1 contracts. The last price-minus contract we had on C-1's was MCc7714. There was a total of $12,000,000 reimbursed to us there. Mr. GENNETT. Perhaps Mr. Slattery could explain this. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 306 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. SLATTERY. That is a typographical error under "Type." That was not a 0-1. They just copied the figure above it. Mr. HERTER. I am sorry. I was misled by that. Mr. KNOEPPE'L. Those were AV-1's; smaller ships. Mr. HERTER. Thank you very much. That explains it. The CHAIRMAN. The hearings are adjourned until 2: 30 this after- noon. (Whereupon, at 12: 40 p. in., the hearings were recessed until 2: 30 p. m. of the same day.) AFTER RECESS (The hearing was resumed, pursuant to the taking of the recess.) The CHAIRIVIAN. We will come to order. I wanto make the statement that this afternoon, when the subcom- mittee adj urns' the subcommittee is adjourned for the present investi- gation, subject to the call of the Chair. That is done for the con- venience Of members in the various districts and because it will be hardly profitable to carry on with convenience the investigation during the month of October. It will be resumed in November, and at that time the Matter will be carried to a completion. Another thing: The recess is in order to enable the members of the committee, those who are here and who have participated in the in- vestigation and those who are not here, to study the record of the hearings or the last 2 or 3 days. Mr. Coes, will you proceed? Mr. Co ES. The St. Johns River Shipbuilding Co. The CI AIRM AN. Do you solemnly swear that the testimony you shall give for this investigation and this hearing and all subsequent hearings on this subject will be the truth, the whole truth, and nothing but the truth, so help you God? Mr. AI 'SLOW. I do. TESTIM NT OF ALBERT H. AINSLOW, TREASURER, ST. JOHNS RIVER SHIPBUILDING CO. Mr. C44s. Would you tell us your name, please? Mr. iNSLO'AT. Albert H. Ainslow. Mr. C LES. Whom do you represent, and in what capacity, Mr. Ainslow ? Mr. AtsisLow. I am representing the St. Johns River Shipbuilding Co. in the capacity of treasurer and director. CdnEs. Do you have a statement to read, Mr. AillSlOW ? MT. AINSLOW. I have, sir. Mr. COnns. Would you, please? The CHAIRMAN. Is it contemplated that the gentlemen who are with you will participate in your answers to any inquiries? If so, I would rather sear them at this time. Mr. AINSLOW. Since it might happen, I think it would be a good idea. The CHAIRMAN. Do you solemnly swear that the testimony you ,shall give in this investigation and all subsequent hearings on this subject will be the truth, the whole truth, and nothing but the truth, so help you God? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 307 Mr. F. D. WHEELER. I do. Mr. AINSLOW. I should like to refer this committee to certain of the testimony which it developed in its previous hearings, March 22 and 23, 1944, and I believe it to be very pertinent to what has been discussed at these hearings with respect to St. Johns River Ship- building CO. I am quoting from Admiral Land's statement certain Pertinent excerpts which are contained in pages 7 to 11 of the report of the committee's hearing March 22 and 23, 1944. I quote Admiral Land [reading] : It Is impossible to overemphasize the problems of securing shipbuilding brains and production management to embark on this new program. There was a bottleneck in brains and know-how, much more serious than any other diffi- culty. Organizations to man and manage these yards had to be recruited and trained, and the managerial skill of the highest possible type had to be dis- covered and induced to undertake the task. It was because of the fact that managerial skill and ability have been induced to take part, and not because of any capital investments, that the Commission's shipbuilding program was possible of achievement. These shipbuilders have done one of the greatest managerial jobs in all history. They have provided the knew-how and brought to the task imagination, initiative, and ability that astounded the world with their achievements. If there is to be a percentage basis for paying them, I think it should be a percentage on brains and not a percentage on capital. I wish I knew some way to figure the proper percentage of return on brains. ? In the report of the committee's hearing March 22 and 23, on page 17, the admiral refers to his letter of March 21 to Judge Bland, in which he pointed out that the capital of St. Johns should be shown as $600,600 and not as $600: A further point brought out in your previous hearings was that Congress gave the Commission authority to grant net profits of 7 percent to shipbuilders, not on capital but on volume. Your previous hearing brought out a fact so far overlooked in tins session, namely, that our contract required a minimum capital of $100,000 per way, or an aggregate minimum of $700,000, upon which no interest would be reimbursable, and it further required $1,500,000 in a line of credit for which we paid 4 percent interest and were reimbursed only 21/2 percent. Mr. BRADLEY. How many ways did you have? Mr. AINSLOW. Six, sir. The other 11/2 percent was absorbed by us as nonreimbursable ex- pense. Incidentally, had we had, instead of shipbuilding and heavy construction know-how, a few million dollars to throw into the. capital, we would have avoided paying some half million dollars in taxes back to the Treasury because of the excess-profits credit that such an investment would have permitted. These remarks have been made to refresh the minds of the commit- tee of the testimony given at its previous hearings, which testimony in my opinion is directly pertinent to the issues discussed during the past week. I think, however, that you gentlemen will agree that it is very im- portant that any witness in this hearing be fully identified, and when his opinions are requested for the record some evidence of his qualifi- cations should be required. Since I propose to state several opinions with respect to audit and accounting methods and profits, I wish to announce. for the record Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 308 SHIPYARD PROFITS that I have held the degree of certified public accountant in the State of New York for over 10 years, and that consequently I feel qualified to discuss this subject. I have 1 stened with much professional distaste to opinions concern- ing accou ting and auditing methods loosely stated by people whom ; the record shows are not accountants. These statements, published by ' the press throughout the Nation and broadcast on a Nation-wide radio hook-up, have been irresponsible to the extent that much damage has been caused innocent parties. I refer to the fact that our company is controlled by the Merrill family, of Jacksonville, Fla. The Merrill family have been sorely distressed by the flaming headlines to the -effect that, they made 360,000 percent profit. It must be borne in mind that the Merrill family is still operating Merrill-Stevens Dry Dock SE, Repair Co. in the city of Jacksonville, and it certainly has not done their labor relations any good to have such inaccurate figures of profit given to tie press. . To give you the background of our principal stockholders, the prin- cipal stockhold.ers representing the Merrill interests have all been in the shipbuilding and ship repairing business during all of their adult lives. The Merrill family has a history of shipbuilding and repairing dating baelt before the Civil War. The Merrill-Stevens Engineering Co., predecessor to the present company, built ships for the United States Government during the War with Spain. The successor com- pany., Merrill-Stevens Dry Dock & Repair Co., during World War I repaired Ships for the United States Government and organized the Merrill-Stevens' Shipbuilding Corp., which built a yard for the Gov- ernment and constructed vessels for the Government in that yard. Our president, James C. Merrill, Sr., worked in both the repair yard and the construction yard. After World War I the repair yard was continued as Merrill- Stevens Dry Dock & Repair Co. The construction of the St. Johns River Shipbuilding Co. yard and vessels wIlich were later built there during World War II resulted directly from a proposal made by James C. Merrill, Sr., to the Gov- ernment in 194:0 that such a facility would prove to be essential to the impending war. The Merrill-Stevens Shipbuilding Co. which he pro- posed to revive from World War I days, eventually evolved in 1942 as the St. JOhns River Shipbuilding Co. Other people have been unjustly disparaged by the manner in which Mr. Casey, of the General Accounting Office, testified concerning the powers and audit methods of the auditors and accountants employed by his office. His inference that such powers and degree of audit were severely limited is not borne out by the facts in the operation of our yard. All of our records were subjected to an extremely detailed audit by a group of rnditors attached to the General Accounting Office of the United States Government, who made their headquarters at our yard. The extent of their audit is best 'exemplified by the fact that there appears Upon every single individual piece of paper that can in any way be described as a financial record the GAO stamp signifying audit and approval. It has '3een stated during this hearing on several occasions that the GAO auditors were not permitted to go beyond a most casual examina- Approved For:Release 2003/10/10: CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 309 tion. In our yard that statement is utterly without basis in fact. I i believe that it s important to inform you that the extent of the exam- ination by the Audit Section of GAO was so detailed that on occasion we were enabled to secure reimbursement for items which were origi- nally denied by the Maritime Commission, solely because the GAO auditors, upon examination of the facts, recommended to the Com- mission that such items were properly reimbursable. The gentleman who is in charge of the Audit Section of the GAO in our yard, and his assistants, are thoroughly familiar with every single financial transaction we have ever made in the history of our company, and these transactions bear the full approval of the GAO. In addition to the representatives of the Audit Section of the GAO who were permanently stationed at our yard, we have had a thorough going over by representatives of the GAO Investigation Section, and I wish to give as my opinion, for the record, the statement that the regional head of this Investigation Section who conducted the inquiry in our yard is a most able auditor and investigator. There has been constant reference, both inferred and specific, to the alleged ineptitude of the United States Maritime Commission audit system. I wish to state unequivocally and as a professional certified public accountant that I have never seen records subjected to as intense, detailed an audit as was made daily by the Maritime Commis- sion auditors who were stationed at our yard. The head auditor, who represented the Maritime Commission as resident auditor at our yard during the larger part of our construction activities, is a certified public accountant in the District of Columbia, and he and his as- sistants subjected each and every one of our financial transactions to a most careful and professional audit. Their -audits resulted in the denial of reimbursement of hundreds of items of cost which we properly incurred in the performance of the contracts, but which were not allowable under regulations issued from time to time by the Commission regardless of the original terms of our contract. I cite this as an example of the risks which the con- tractor took, the financial risks, under these cost-plus contracts, which so many people seem to think represent mere gratuities paid to the chosen few by an all too beneficent Government, and it is put forward as an example of the extreme care which Maritime Commission em- ployees took to protect Government funds. The regional auditor is, in my opinion, one of the most competent accountants I have ever met, and in addition is a most zealous defender of the Government's funds. His superior was the general auditor of construction, with whom I had fewer business discussions than with the residents or regional auditors, but who must be an extremely capable accountant, if one may judge by the high quality of the audit in our yard by the men whom he directed. Mr. Casey, of the General Accounting Office, admitted he was not an accountant, in spite of which he testified at this hearing that our company, St. Johns River Shipbuilding Co., realized a profit of 346,- 666 percent on our capital investment. I desire to refer Mr. Casey And the committee to the hearings before this subcommittee conducted March 22 and 23, 1941. In exhibit 9 thereof the capital investment of St. Johns River Shipbuilding Co. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 approved For 310 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS was clearly demonstrated to be $600,600, and Mr. Casey should be familiar with that fact, and. certainly should not have been allowed to make such a gross misrepresentation of facts. Mr. 13nAnLEy. Let me repeat that Mr. Casey was repeating Maritime Commission figures. Is that clear to you? They were entered in the record here as exhibit No. 1 by counsel to the committee. Mr. AINSLPW. I merely wish to point out that this subcommittee had in its previous hearings determined that we had $600,600 in capital. Mr. BRADLEY. That is not this same subcommittee. The ClIA.IR1VIA N. In any case, we are after the facts now. Whatever will help to establish the facts we want. Use of vilification or any- thing else does not have any place in these hearings. Mr. AINSLOW. I would like to review some of the controls which our Federal G9vernment set up to prevent excessive profits being made out of the war ,effort. As an example, to make it simple? Mr. W*CLIE 1, (interposing). Is this set up with reference to profits out of shipbuilding? Mr. ArisLow. Specifically. I shall take a typical fee which we at St. Johns received for building a ship?$20,000. Our company would pay back to the United States Government in the form of Federal income and excess profits taxes $14,400 of this $20,000. If, for the purpose of this example this $5,600 of corporate net income could be distributed to a typical example, it would result in this individual paying back to the United States Government in the form of personal income and surtaxes some $4,480. It will le manifest that the operation of this preventive legislation voided any possibility of our company's stockholders making exces- sive profits. I wish to point out that in this example I have not even given con- sideration to the nonreimbursable expenses that were necessary to carry out the contracts, but which were disallowed as items of cost by the Commission, and there is a strong probability that some of such items ma 3 be disallowed as tax deductions as well. Transf9rming this example to the actual over-all financial results of our operations, we find that our stockholders realized not 316,666 percent on the tr investment but rather a net profit of about 11 per- cent; or, stated by what I believe to be a better yardstick, in spite of Mr. Coles' aversion to this method of expressing profits, our stock- holders realized about one-tenth of 1 percent profit on the volume of business transncted, far less than the 7 percent permitted by law. I am sure the committee will appreciate that this profit would have been vastly larger had the company had a capital investment of several m'llion dollars instead of its know-how. With such a capital investme t our excess-profits taxes would have been avoided. There has been constant reference to some purely fictional creature in our c se in the Maritime Commission who habitually changed contracts1 to the contractor's advantage and to the detriment of the Federal overnrnent. Our contracts were changed on numerous occa- sions, anl I state unequivocally that each and every change cost us money. In good faith we signed a contract providing for minimum fees of $00,000 per vessel. However, the Maritime Commission arbi- trarily cnt those fees in half and instead of the $60,000 per vessel minimum fee which we contracted for, we received $30,000 per ship for the first contract of 30 ships. Approved For'Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 311 However, we found that in spite of the terms of the 'contract the Maritime Commission had a tendency to look with disfavor upon reimbursement for a very considerable number of expenses that we found necessary for the proper performance of the contract, among which was the $200,000 which we paid as a fee for the construction of the shipyard. I digress at this moment to point out that Mr. Casey used this transaction as an example which, be says, "only tends to show you that if you had enough of these no-profit contracts you would soon be a millionaire." The fact of the matter is that in the original negotiations Admiral Vickyry indicated to Mr. L. J. Fischer, chair- man of the board of Thompson-Starrett Co., Inc., one of the better- known and older heavy-construction companies in the world, that the Commission would pay a fee of $400,000 for the construction of the yard?would reimburse a $400,000 fee to be paid to Thompson- Starrett Co. However, when. it came down to actual facts the Com- mission cut that fee to $100,000 which, for the construction of a $16,000,000 facility, Mr. Fischer justifiably said was abnormally small. He therefore negotiated with the other stockholders of St. Johns River Shipbuilding Co., and as a result a compromise was reached, and our company agreed to pay out of its funds $200,000 in lieu of the, $400,000 which Thompson-Starrett had originally been led to believe would be their fee. After the first 30 ships, minimum fees on our subsequent contracts were reduced to $20,000 per ship. To demonstrate the absurdity of the statement made before this hearing that we operated on a capital of $600, I have examined our annual reports which were prepared by the well-known firm of public accountants, Peat, Marwick, Mitchell & Co., and I should like to read to the committee tabulations of the amounts due us from the United States Government in connection with our contrasts at the end of each of our fiscal years. On June 30, 1942, our receivables and items in process of billing were $1,391,536.72. On June 30, 1943, our receivables from the Maritime Commis- sion and unbilled items of cost incurred in the performance of these contracts was $3,781,664.35. ? On June 30, 1944, this same balance sheet item was 2,687,148.66. On June 30, 1945, this item was $982,127.51. Obviously one could not carry such sums on a mere investment of $600, and as a matter of fact, they could not have been carried on the dollar investment which was made, $600,600. The important factor was that intangible investment, the experience and integrity which made it possible for the principals of our company to secure bank loans to the extent of $2,500,000, and these loans were not guaranteed by any branch of the United States Government. They were purely transactions in private enterprise. Thank you. Mr. COLES. Mr. AinSlow, when was the St. Johns River Shipbuild- ing_Co. formed? What is the date of that? ' Mr. AINSLOW. Its charter is dated March 9, 1942. Mr. Cors. When did it receive its first contract, from the Maritime Commission? ? Mr. AnvsLow. The contract is dated March 4, 1942. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 312 Release 2003/10/10: CIA-RDP-641300346R000400060002-4 SHIPYARD PROFITS Mr. Co s. So the St. Johns River Shipbuilding Co. received a contract b fore [t was even formed, is that correct? Mr. AIN LOW. That is a misstatement, because it is quite customary to be a corporation in fact before you are a corporation at law. Our papers ha been filed prior to that. Mr. Cot, is. Before you had a legal corporation as such you had a contract with the Maritime Commission, is that correct? Mr. AINSLOW. May I consult counsel? Mr. COLES. Surely. Mr. AwsLow. I would like to state that a corporation de facto is a perfectly legal entity. Mr. Co s.Would you read my question, Mr. Reporter? (The q estio a was read.) Mr. Ai sLow. That contract, dated March 4, was not actually executed intil subsequent to the receipt of our charter. Mr. Co Es. Why is it dated March 4? Mr. Ans sww. I can't say, sir. Mr. Co ES. How much money was put into capital stock of this corporati n? Mr. AINSLOW . $600. Mr. COLES. And was there class A stock? Mr. AINSLOW. Yes, sir. Mr. COLES. What was the value of the class A stock? Mr. AINSLOW. $200. Mr. COLES: Who owned the class A stock? Mr. AINSLOW. Thompson-Starrett Co. Mr. Cors. Originally, until the yard was completed, was that the only votitig stock, or did that control the majority of the directors? Mr. AqTSLOW. It controlled five of the nine directors. Mr. CoLEs. So Thompson-Starrett controlled five of the nine di- rectors of St. Johns? Mr. AINSLOW. Yes, sir. Mr. COLES. You mentioned also that you had $600,000 in stock- holders' loans. Is that correct? Mr. AINSLOW. No, sir; we had $600,000 outstanding in debenture bonds. ' Mr. COLES. In debenture bonds? And you feel that that $600,000 should be reflected in your capital? Mr. AIN-SLOW. Yes, sir; because it was so completely subordinated to any claim whatsoever. Mr. CoLEs. When were those claims paid off? Mr. AtNsLow. They were paid off progressively over a period end- ing in October of 1943. Ur. CotEs. Did you neglect to tell the committee when you men- tioned Admrnl Land's testimony that he had testified that by Octo- ber, 1943, all of your stockholders' loans had been repaid? AINSLOW. I wouldn't say that I neglected to do so. I -merely referred the committee to this statement, which says that our original capital was $E00,600. Mr. CoLEs. So that frbm October of 1943 until the present the in- -vestment of the owners of St. Johns Shipbuilding has been $600 in - capital stock, is that correct? Mr. AINsLow. Plus surplus. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 313 Mr. COLES. And that surplus is all from earnings on Government contracts, is that correct? Mr. AiNsLow. Earnings plowed back, yes, sir. Mr. COLES. So that actually the statement in the Maritime Com- mission's report, exhibit 12 that you have but $600 investment in the yard is absolutely correct, is it not? Mr. AINSLOW. I deny that. We had $600,600. Mr. CoLEs. Let us talk of the capital after October 1943. How much capital . did you have during the major portion of your contract pe- riod? Mr. AiNsLow. More. than $600,000. Mr. COLES. In what way? Mr. AnoLow. In capital and surplus. Mr. COLES. But the surplus was earned from Government contracts, was it not, with the Maritime Commission? Mr. AINSLOW. Yes sir. . Mr. COLES. So that you had $600 plus whatever your share may have been resulting from the earnings on Government contracts. Mr. AINSLOW. Plus the fact that in order to give us more ..capital Thompson-Starrett Co., Inc., refrained from requiring us to pay the $200,000 facilities fee until some time later. Mr. COLES. But that was a debt owed by the corporation. Cer- tainly you are not saying that was capital. Mr. AINSLOW. It was so subordinated it gave us additional working capital. Mr. COLES. You mentioned a large number of figures there show- ing your outstanding accounts aneindicated that that could not, be financed on a $600 capital. Did you have bank loans? Mr. AiNsi.ow. We did. Mr. COLES. Were those bank loans, Mr. Ainslow, sufficient to handle that amount of outstanding receivables? Mr. AiNstow, With the addition of our capital; yes. Mr. COLES. What was your capital after October 1943? Mr. AINSLOW. May I finish that last answer? Mr. Coixs. Please. Mr. AiNsLow. Although we had the privilege of borrowing $2,500,- 000 from the banks, you must remember that it was costing us 11/2 percent interest and it was costing the United States Government 21/2 percent interest for us to borrow $1 more than was absolutely neces- sary to the conduct of the business, consequently all of our funds, plus the profits, were used first in conducting this business, and any bal- ance that was necessary was borrowed. Mr. COLES. Did you borrow up to $2,500,000 from the banks? Mr. AINSLOW. Yes, sir. Mr. Coi,Es. And ? interest for the use of that money was partially reimbursable? Mr. AINSLOW. Yes, sir. Mr. COLES. As a certified public accountant, would you say that that, is capital invested in the business? Mr. AiNsi,ow. To be very technical about it, it would not go in the capital section of .a balance sheet; no. But to be practical about it, it as working capital. Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4 Approved For 314 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. Cot/Es.. It is working capital borrowed. But would you say that that is investment in the yard of the people who own the yard and have the benefit of its profits? Mr. Ai snow. It was not an original investment in the yard as such. Mr. COLS. Would you repeat my question, please, Mr. Steinko ? (The question was read.) Mr. AIN'SLOW. I would say so to this degree, that since these people were stockholders and directors of the corporation, if those bank loans had not been paid the banks would have had recourse to them personally, in spite of the fact that they were not personally endorsed. Mr. Cors. What grounds would the banks have for recourse to the stockholders of this corporation? Mr. Ally-sLow. I believe that under current law it is possible to go behind the corporate cloak and, in the event that any directors or stock- holders had by their actions caused a loss to creditors, those creditors still have recourse to it. Mr. Cors. If the St. Johns River Corp. had been unable to pay these debts, do you intend to tell this committee that, in spite of the fact that these people had no endorsement on the notes, they would be personally liaLde for them? Mr. ApTSLOW. If it resulted from their acts as directors or stock- holders. Mr. CODES. We are talking in the normal course of events. Would there be any ? Mr. AwsLow. So am I. Mr. CODES. Is there anything in your corporate charter which states that the liability of the stockholders shall be limited to the amount of money they have invested in the capital stock? Mr. ADFSLOW. I presume so, but what I am driving at is that it is my recollection that within the last 5 or 10 years the laws have been changed to the degree that when a director or a stockholder performs some pernicious act, fraud, shall we say, creditors can sue him per- sonally. Mr. COLES. In the event of fraud, you can be sued for anything, ir- respective of the notes. But in the normal course of business events, in the absence of fraud, was there any liability for these bank loans upon the incorporators or stockholders of this company? Mr. At-is-mow. There was no .personal endorsement. ?Mr. CoLEs. In other ,words the bank loans were the loans which financed those receivables that you spoke of, is that not correct? Mr. At.Ist.oiv. That is not correct, because, as I told you, in order to save interest for the United States Government and ourselves, we utilized our funds before we utilized the banking agreement. ? Mr. Coles. Your funds were the $600 left in capital stock after Oc- tober 19,13, plus the earnings that you made from Government con- tracts, is that not correct? Mr. Ap,tsuow. And plus the $200,000 that Thompson-Starrett put there. ? Mr. Cot,Es. Which was not reimbursable from the Government. Did you pledge for those bank loans any collateral? Mr. ArsiSLOW. Yes; we did. ? Mr. COLES. What was the collateral you pledged? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 315 ? ? Mr. AiNsLow. We pledged the accounts receivable arising under our contracts. Mr. COLES. So that actually, as collateral, and the thing for which the bank lent the money, was that they had a lien on receivables from the Government; is that not correct? Mr. AINSLOW. That is correct. Mr. COLES. Now, you quoted a moment ago the act which states that you can have 7 percent return on the volume of business you do, is that correct? Mr. AiNsLoW. I did not quote the act. I quoted the committee's report. Mr. COLES. And that is the Vinson-Trammel Act of 1934, is it not? Mr. AINSLOW. I believe so. Mr. COLES. And someone mentioned?I believe it was Mr. Kaiser, a couple of days ago, or Mr. McCone ; excuse me?that under the Mer- chant Marine Act of 1936 you are allowed 10 or 11 percent profit, is that correct? ,AnisLovv. I believe so. Mr. COLES. You are familiar, I presume, with these hearings in 1944, in which Admiral Land testified? Mr. AINSLOW. Yes, sir. Mr. COLES. And you cited to the committee certain facts that Ad- miral Land stated ,? is that correct? Mr, AINSLOW. Yes, sir. Mr. COLES. Did you neglect to mention what Admiral Land had said about the applicability of the Vinson-Trammell Act and the Merchant Marine Act`of 1936 percentages as they referred to these shipbuilding contracts? Mr. AINSLOW. I do not follow your question. Mr.. COLES. I Will re-phrase it, because it is complicated. After referring to tie percentage as justification for the situation involving St. Johns, the percentage that they made, you mentioned that the Vinson-Trammell Act allowed a 7-percent profit. Now, you 'also quoted Admiral Land in several instances, on what his testimony was in 1944. Did you neglect to tell this committee what his testi- mony was in 1941 concerning the applicability of the Vinson-Trammell -Act and its 7 percent on volume? Mr. AINSLOW. Well, I neglected to tell the committee a great many other things that are contained in that report. Mr. COLES. Does this refresh your recollection-- Mr. AINSLOW. And I would very much appreciate it if you would tell me what- Admiral Land did say. The CIIAIRIVIAN. I think we had better ask him who said so-and-so. Mr. COLE& Do' you 'recall Admiral Land having testified as follows .[i?eading] : Mr. Z1NCKE (who was previously general counsel). Admiral, at the time of the passage of the Vinson-Trammell Act and the-Merchant Marine Act of 1936, the common and accepted method of contracting for ships was in general a lump-sum centract -on bids in a private shipyard,. is that correct? Ad111111i1 LAND. That is true?after advertisement. That was a statutory re- quirement in those days. Mr. ZTNCKE. These were private yards, and the contractor assumed the re- sponsibility for any loss incurred by reason of his construction? Admiral LAND. That is true. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 316 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. ZINCI5E, And. the Vinson-Trammell Act and the Merchant Marine Act of 1936 did not, refer to the type of construction which would be undertaken in the Liberty yards? Admiral 14ND. Naturally not. That is an axiomatic answer. It did not be- cause we dil not have any such conditions existing. Does th t refresh your recollection? Mr. AINSLow. I do not recall. Mr. Coips. It, is on page 44 of those hearings. Mr. 13RApLEY. Is it not true that the Vinson-Trammell Act did not say that you should have 7 percent; it said you could not exceed 7 percent of your contract. Is that not correct? I am asking counsel. Mr. CoLy,s. My recollection is that that is correct, and my recollec- tion is that the 1936 Merchant Marine Act likewise said it shall not exceed 10 percent. Mr. BRAELEY. It does not guarantee any 7 percent. Mr. Co4s. I think the facts speak for themselves. Was there any investment by St. Johns in the yard here? Mr. AiivsLow. Exclusive of property, no. Mr. CoLiils. Was there any risk taken under the cost-plus contracts which the St. Jplins people had? Mr. AINSLOW. Yes; very definitely. Mr. COLS. What was the risk? Mr. AnfsLow. The risk was that transactions entered into in order to get the ships built often turned out to be nonreimbursable transac- . tons. Mr. Co s. What was the extent of your nonreimbursable items? Mr. At sLow. $1 185 000. Mr. CoL ,s. And what were the major nonreimbursable items? Mr. AI now. They were made up of many hundreds of items. Mr. Coi.fEs. What were the major ones? Mr. AINSLOW. Some of the captions are "Interest on bank loans," "Interest on debentures." Mr. COLES. You are contending, are you that the Government should have paid you interest on the $600,000 Mr. Aga sLow. I contended no such thing. I said these were our expenses of doing business which were not reimbursable under the contract. Mr. COLES. This $600,000 was an expense of doing business, rather than an investment? Mr. An.fsLow. I did not mention /$600,000. Mr. COLES. That is what was invested. Mr. AINSLOR. The figure happens to be $15,000. Mr. COLES. You are saying that the interest on the debentures was a cost of donag business? Mr. Asiuow. It was part of the cost of handling those contraets. Mr. COLES. Arid you still contend that until October 1943 the debentures were an investment of capital? Mr. AINSLOW. Yes. - Mr. Coll,Es. What are the other major items? Mr. AlliTsLow. The largest one is the $200,000 which I mentioned in my presentation. Mr. COLES, To a subsidiary company? Mr. AINSLOW. For getting a yard built. Mr. Cors. To a company which owned the controlling interest in the stock tt the time the yard was built? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 317 Mr. AINSLOW. Yes. Mr. COLES. So it is taking it out of one pocket and giving it to another ? and you think that is risk? Mr. another; I should not say that it has been taken out of one pocket and given to another. There were other stockholders than Thompson-Starrett involved in the St. Johns River Shipbuilding Co. Mr. COLES. What percentage of the stock of your company was owned by Thompson-Starrett executives? Mr. AINSLOW. Thirty-three and one-third percent, for a while. Mr. COLES. Afterward, how much? Mr. AINsnow. None. Mr. COLES. What are the major nonreimbursables ? Mr. AINSLOW. Organization expense. Mr. COLES. You feel the Maritime Commission should pay you for organizing the corporation? Mr. AiNsnow. May I make it clear that in reading these I am not stating in any way that I expected the Maritime Commission to pay them. I merely say that in order to conduct this operation we had to incur these expenses. Mr. COLES. Are you not saying that these were a risk that you were taking? That is my basic question. Mr. AIN-snow. I am afraid I did not make myself clear. The risk is not the expenses that we incur in order to carry on this business but which are denied us for reimbursement by the terms of our contract. The risks are the items which we fully expected to be reimbursed for and were not? Mr. COLES (interposing). And these are the items? Mr. Aiwsnow. They are contained in the figures that I have listed in this statement. Mr. COLES. I would like to put that in the record, if I may. The CHAIRMAN. What are you putting in the record? Mr. COLES. This is the break-down of the nonreimbursables by the St. Johns Shipbuilding Co. Mr. BRADLEY. Is that agreeable to the witness? Mr. WEICHEL. That paper belongs to the witness, I think. Mr. AINSLOW. I prefer that it not be put in there. Mr. WEICIIEL. We can question you about it. That is your paper, and I think you are entitled to it. I do not think we have any right to take it away from you. Mr. Conns. May we have a copy of it? Mr. AIN-snow. I would prefer not. I am perfectly willing to read out the figures for your record. Mr. COLES. What is your objection to its being put in the record? Mr. WEICHEL. I do not think it makes any difference. That is his own paper. Mr. COLES. Another thing you stated, to get away from that for a moment, was? Mr. AINSLOW (interposing). You interrupted me in my last answer. Mr. COLES. Finish it, if you will. Mr. AINSLOW. The items of risk were daily occurrences. There was scarcely a day went by that we did not have to argue with the Maritime Commission to be reimbursed for some expense that we in good faith incurred in carrying out the contract. But because of some ''regulation 93486-46-21 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 318 SHIPYARD PROFITS or other, Which regulations were constantly being published, the item was considered to be nonreimbursable, and throughout the entire period of our contracts there was the constant threat that the non- reimbursable p Dtential might exceed the profits and consequently go into the capital. Mr. Cors. Now, Mr. Ainslow, you had cost-plus-fixed-fee contracts; is that correct? Mr. Afi.tsLow. We had cost plus variable fees. Mr. Coi./Es. And those were the only type of contracts you had? Mr. An.f,sLow. Aside from the ones that we are now operating under. Mr. Cofxs. Is it your contention that under the cost plus fixed fee, or, as you put it, cost plus variable fee, which I assume is the same thing, you had a substantial risk? Mr. AtiisLow. I state that very definitely?that we had a substan- tial risk. Mr. C011ES. You mentioned a few minutes ago that in your opinion the amount of capital invested in the corporation had no bearing what- soever upon its profits. Did I understand you correctly? Mr. Ari?fsLow. Yes. Mr. CoLrts. Does the renegotiation law take as one or two of its seven factors the amount of private or public capital invested in the enter- prise? Mr. AI/NTSLOW. Generally; yes. Mr. COTES. Specifically, does it?. Mr. AnsfsLow. In our case I do not believe that that factor had any bearing. Mr. COLES. I asked you if the renegotiation law includes the amount of capital invested as one of the seven factors. Mr. AfrOLow!. Yes. Mr. COLES. In figuring excess profits under the excess-profits tax" alone are the two bases not (1) invested capital and (2) earnings over the previous base. period? Mr. AmfsLow. Yes. Mr. COLES. And in your ease you had no previous base period for the, St. Johns Co.? Mr. AnsisLow. That is right. Mr. CO4S. SO, for the excess-profits law the only base was the amount of invested capital? Mr. AITSLOW. Yes. Mr. COLES. After 1943 the only invested capital was $600, plus what you term 'earnings from shipbuilding"; is that correct? Mr. AtiNTsLow. It is not, to this degree?that in computing excess profits One is given some credit for borrowed capital. Mr. Cofxs. But is invested capital not the essential test of the excess-prOfits law? Mr. AINSLOW. In our case it was not, because our borrowed capital' was so much greater than our invested capital. Mr. CULES. You also attacked Mr. Casey a moment am) on the. ground that he said the Comptroller General's office could audit your acconnts. Did he not merely testify that they could not audit a renegotiation agreement? Mr. AITSLOIV. He may have specifically said that, but the under- standing that I. got?and I know that my colleague got the same. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 319 understanding from him?the inference was that the GAO auditors were not permitted to audit these records. Mr. COLES. I suggest that you read Mr. Casey's statement. I be- lieve you will find that he merely stated that they did not have the power to audit renegotiation records. Does anything you say differ with that? DO you know whether or not they audited the renego- tiation agreements with St. Johns? Mr. AIN-snow. We have had only one agreement. If my memory serves me correctly, I furnished to the resident GAO auditor a copy of that agreement. Mr. COLES. Did they have the power to go back into the figures upon which the renegotiation was based?. Mr. AINSLOW. I don't know. Mr. COLES. In other words, your attack on Mr. Casey is rather "HO in the air"; is that correct? Mr. AINSLOW. I would not say that. It was my impression-- The CHAIRMAN. I think that is a matter of argument. Mr. COLES. I just want to be fair to Mr. Casey, Mr. Chairman. The CHAIRMAN. That may be true, but it is a question of deduction. Mr. COLES. Now, Mr. Ainslow, the contract between the St. Johns River Shipbuilding Co. and the Maritime Commission provided for the building of a shipyard, did it not? Mr. AINSLOW. Yes. Mr. COLES. And did that contract not state that the St. Johns River Shipbuilding Co. should make no profit on the construction of that shipyard? Mr. AINSLOW. Yes. Mr. COLES. And did not the St. Johns River Shipbuilding Co. agree to that? Mr. AINSLOW. Yes. Mr. Conns. Did Thompson-Starrett have a controlling interest in the St. Johns Co. at the time that contract was entered into? Mr. AINSLOW. It owned a third of .the stock. Mr. Conns. Was not that the controlling stock at that time? Mr. AINSLOW. It controlled the board; yes, it did. Mr. COLES. Did the St. Johns River Shipbuilding Co. not enter into a contract with this controlling parent corporation under which the controlling parent corporation, Thompson-Starrett, would build the yard? Mr. Anisnow. Yes. Mr. COLES. Did not Thompson-Starrett submit a bill of $300,000 for its fee? Mr. AINSLOW. Rather than stating they submitted a bill, they signed a contract with St. Johns, and that contract bore the full approval of the Maritime Commission and was no different from numerous other subcontracts that were entered into by St. Johns. Mr. COLES. Did that subcontract provide for the payment of a $300,000 fee? Mr. AINSLOW. Are you referring to the contract between St. Johns and Thompson-Starrett? Mr: COLES. I am. Mr. AiNsnow. I distinguish becauSe there is a subcontract for ap- proval of the Maritime Commission which called for $100,000 fee. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 320 SHIPYARD PROFITS Mr. COLES. Did the contract between St. Johns and Thompson- Starrett prov [de that the Thompson-Starrett Co. would receive a $300,000 fee for building the yard ? Mr. AINSLOW. It did. Mr. COLES. And did the St. Johns Co. not submit this bill to the Maritime Commission and include that $300,000 as an expense of building the facility? Mr. A XNSLO kV. It did not. Mr. CoLEs. Did it submit $100,000? Mr. AINSLO VV. It did. Mr. COLES. And was Thompson-Starrett paid $100,000 out of funds supplied by the Maritime Commission, which $100,000 was a fee for building the yard? Mr. ATNsumr. It was. Mr. Coms. So that, despite the provision in the contract that St. Johns would not make a profit on the construction of the yard, this controlling parent company made $100,000 on the building of this yard. Is that correct?. Mr. ATNSLOW. It did. Mr. Corns. The Maritime Commission put in $17,000,000, into the building of the yard. Did the St. Johns Shipbuilding Co. put in a penny? Mr. ATNsLow. No, sir. Mr. COLES. The $200,000 which was nonreimhursable and, as a matter of fact, all of those nonreimbursables were deducted from your income-tax liability, were they not? Mr. AIN-sLow. It is a far cry from deducting them from your in- come tax and getting them passed by the Bureau of Internal Revenue. Mr. Corns. How much of those nonreimbursable,s were passed by the Bureau of Internal Revenue? Mr. AIN-sum. We have not yet had an audit conducted by the Bu- reau for any of our fiscal years. Mr. 01:11S. Are you contending that they should be allowed as deductions? Mr. AIN-sum. I believe they should, because each and every one was a necessary business expense. Mr. COLES. So that the Government will pay a large percentage if this is allowei as you contend? Mr. AiNsLow. We can be specific about it. If allowed, 72 percent of it will not be paid in taxes. Mr. OLES So that the Government will pay 72 percent if your contentions are agreed to; is that correct? Mr. AINsLow. Yes. Mr. COLES. What are the maximum fees permitted under your contrac? Mr. AINSLOW. At what point and which contract? Mr. COLES. Under all cost-plus contracts. Mr. AINSLDW. They were not all the same. Mr. CoLns, What was the total of the fees under all the contracts, the maximum? Mr. AIN-sLow. I am afraid that I will have to refer to the con- tracts in order to give the maximum. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 321 Mr. COLES. That can be furnished later, if you Fish. Mr. AwsLow. I can give you the minimum. The minimum was $900,000 on the 30-ship contract. It was $1,000,000 on the 52-ship contract. It was $240,000 on the 12-ship contract. Mr. COLES. Making a total of $2,222,000; is that correct? Mr. AINSLOW. $2,220,000 is correct. Mr. COLES Mr. Ainslow, you testified that what this company brought was not money to this organization, but it brought the ability and the efficiency of a shipbuilding group. Is that correct? Mr. A.INsLow. Plus a heavy construction group. Mr. COLES. So your position is that what they brought was ability to build large ships; is that correct? Mr. AINSLOW. Yes, sir. Mr. COLES. Was there a provision in your contracts that for every i day which you were late n delivery of a ship there would be a penalty of $400 deducted from your fee? Mr. AwsLow. Yes. Mr. COLES. Was your company, with its shipbuilding efficiency, not 2,940 days late in its delivery of ships? Mr. AINSLOW. The fact of the matter is that we were several hundred days early. Mr. COLES. I should like to read into the record, Mr. Chairman, at this time a letter to Mr. W. L. Slattery, general auditor of con- struction, from Mr. A. D. Burrowes, unit head, dated September 11, 1945, on the subject of renegotiation?St. Johns River Shipbuilding Co.?contract MCc-34743, one of their contracts? Mr. AINSLOW. May I interrupt? ?We did not have such a contract. Mr. BRADLEY. What is that number? Mr. COLES. 34743. Mr. BRADLEY. It is not shown on Mr. Slatte,ry's records that he gave the committee. Mr. COLES. It was furnished me by Mr. Slattery, with a note to Mr. Gennett, saying? Attached are copies of agreement dated September 11, 1945, re Renegotiation of St. Johns River Shipbuilding Co. contract MCc-34743 as per your telephone request of September 16, 1945. That is signed "W. L. Slattery, Director, Divisions of Accounts." Mr. WEICHEL. Mr. Chairman, I think if we are going to make a practice here of putting in exhibits by somebody, having counsel pull them out of his pocket and lay them on the table, we should have the people here who are responsible for those exhibits. I would like to see the people responsible for them placed on the stand and examined Mr. BRADLEY. That is the number of the renegotiation contract. Mr. CoLus. I presume that is true. Mr. BRADLEY. That is the one that was originally MCc-2427. Mr. COLES. I should like to read the letter. It reads as follows [reading] : On December 9, 1944? That is after the debentures had all been paid? the Commission entered Into a clearance agreement with St. Johns River Ship- building Company, designated MCc-34743, under which total profits were allowed Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 322 SHIPYARD PROFITS the Shipbuilder in the sum of $900,000 for services performed under Contract MCc-2427, ,in construction of 30 EC-2 Vessels. The fees allowed represent payment on a minimum basis and the contractor has waived claim for any compensation in excess of that amount. Article 8 paragraph A, of the Vessel Construction Contract, reads, in part, as follows : "8 (A) If delivery of any vessel is delayed beyond the delivery date stipulated therefor in Article 5 hereof, then the base fee payable to the Contractor under the provisions hm.eof with respect to said vessel shall be decreased to cover fixed, agreed, an([ liquidated damages (and not as a penalty) for delay in delivery of each such vessel an amount equal to $400 for each and every calendar day of such delay: " * *" Elapsed time between the contract date of delivery of each hull and the actual date of delivery of each hull indicates delayed deliveries in the aggregate of 2,940 days. . That is signed "A. D. Burrowes." Does that refresh your memory? The CiiiAmmAiv. Is that a communication from Mr. Slattery to the witness? Mr. COLES. No, sir. The CiIAIRMAN. It is a communication to counsel? ? Mr. Co?1,ES. No, sir. It is a communication to Mr. Slattery from one of his unit heads, which was submitted to the committee upon request of Mr. Gennett, assistant counsel. The CtIAIRMAN. if there is any question about it, it will be intro- duced by Mr. Slattery presenting himself for cross-examination, and if there are any questions about it he can answer just as he pleases. Mr. Ai,NsLow. I would like to make this statement. Although one of the clauses of the contract has been read and one part of this computation has been put into the record, there has been no mention whatsoeVer of the fact that in our contract there is a force majeure clause and credits are allowed for changes in plans and specifications. Our technical people, working with the technical people of the Mari- time Commission, based upon a daily log record of everything that went on in the yard, determined that we actually delivered our ships faaer than the contract required. We, however, waived any right to the $400 per day premium for delivering them earlier, and also waiVed the right to an adjustment of the base fee, a premium of 50 cents for hours saved. That is the whole story of when we delivered our ships. Mr. CoLEs. Mr. Chairman, in view of Mr. Weichel's statement and in view of Mr. Ainslow's statement, may I digress for a moment to sub- mit this to Mr. Slattery? The CHAIRMAN. YOU can submit it to him, but I am not going to interrupt this hearing now to permit Mr. Slattery to testify. If you have anything to produce you can produce it when Mr. Slattery testi- fies. Mr. CoLEs. This is over Mr. Slattery's signature; so I would like permission to put it into the record. Mr. AiNSLOW. Can I not point out the fact that the Commission has other records to submit? TheC,' IIAIR MAN. I think it is a convenience to show you what they are goin to introduce. If you want to make any statement in rebuttal it would be proper testimony. I do not see how we can handle half a dozen witnesses. We tried to do it the other clay and there was con- fusion all the time. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 323 Mr. AINSLOW. May I not say, again, that if that is to be filed with the record, the force majeure records should go along with it, and the changes in plans and specifications records. The CHAIRMAN. Anything you specify will be introduced. .Mr. COLES. Will you supply that? Or we can ask the Commission to supply it. Mr. WEICHEL. Why should not the Commission supply its records? Why should you ask some shipbuilder to come in and supply records that the Government has? The CHAIRMAN. In my view, it is a convenience to the present .wit- ness to (rive him an opportunity to testify with reference to them; and that is the purpose of counsel's interrogatory to him. It may save him the trouble and expense of coming back if he wants to introduce any- thing to explain or modify it. ? Mr. AiNstow. I do not wish to introduce anything here. I just believe that the full record should be introduced by counsel, and not one part of it. Mr. COLES. Mr. Chairman, I assure you that this is the only record I have, the only record I knew of, and the only record I know of at the moment. Mr. AINSLOW. You read this contract and you knew there were force majeure clauses and changes in plans and specifications clauses. Mr. COLES. I beg your pardon; the contract has not been read. Mr. A1NSLOW. I should think it would be part of the procedure to read the contract. Mr. COLES. Is it your contention that this figure of 2,940 days late in delivery of the vessels under this one contract, MCc-2427, is incorrect? Mr. AINSLOW. I say it is incorrect. Mr. COLES. Will you offer us any facts you have to substantiate that? Mr. AINSLOW. I refer you to contract 2427, the force majeure -clause and the changes in plans and specifications clauses, all of which must be taken into consideration when you compute whether or not you delivered a ship on time. Mr. COLES. Were you late in delivery of those ships as provided by the contract date? Mr. AiNsLow. We were not late as provided by the contract. Mr. COLES. What was the date of delivery specified in the contract? The CHAIRMAN. Have you a copy of the contract? Mr. AINSLOW. I have it right here, sir. The CHAIRMAN. I am not calling on you to introduce it. If you want it introduced you can do it. Mr. Amrst.ow. The anticipated delivery date, which date was set prior to the commencement of the construction of the yard, stated in the contract for the last of the 30 ships, was December 31, 1943. I should like to refer to another statement and give you the exact delivery date. Mr. COLES. Will you do that, please? Mr. HERTER. May I interrupt with a question at this point? The CHAIRMAN. Yes. Mr. HERTER. As I understood the earlier testimony, the renegotiated fees given to this witness in connection with this particular contract :were $30,000 per ship. Mr. COLES. Yes; which was the minimum. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For 324 Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS Mr. HERTER. On the balance of the ships he received $20,000, roughly, on each ship. I am trying to find out what your line of questioning is developing: Mr. Cotp. My point is that Mr. Ainslow brought out, first, that invested capital had no relation to the factor of their profits. I am trying to bring out that it did. He stated that they had more than $600,000 invested, and I am trying to verify the $600,000, and I think I have. Lastly he said that the greatest contribution was their ability to build slips and get them done; and I am showing that they were 2,940 days late on the delivery of those ships. Mr. HERTER. On the other hand, is it not fair to the witness, if he claims that there was delay in delivery of materials and engines, and so forth ,to permit him to show that he was not late in his deliveries? Mr. Cons. I think he has an opportunity now to correct it. You understand, of course, that these figures are figures given us by the Maritime Commission, and we are forced to rely upon them. These are not figures that we have drawn out of a hat or picked ourselves. Have you been able to find the delivery date? Mr. An snow. Yes; I have it. No one gave us any idea of what papers to bring up here. As I said before, the 30 ships were antici- pated to be delivered December 31, 1943. We delivered the whole 30 February 8, 1944. Mr. CollEs. Was that the hull or the completed ship? Mr. AntsLow. The ship. Mr. COEES. What was the estimated date of the delivery of the first ship? Mr. Ai sLow. Force majeure and changes in plans and specifications shown right in the Maritime Commission records indicate that that ship was delivered earlier than the contract called for. Mr. ConEs. What about the first ship, Mr. Ainslow ? Mr. Ans,tsLow. The first ship was scheduled for delivery December 15, 1942. The first ship was delivered April 30, 1943. And, again, the recorels of the Maritime Commission will show that the exercise of force majeure and the changes in plans and specifications indicate that all of these ships were delivered earlier than the contract called for. Mr. BRADLEY. How many changes were made in the Liberty ships after you started in 1942, outside 4 putting on gun mounts? Mr. AIsLow. Instead of "how many changes" may I answer you by saying that the changes in plans and specifications on the 52 ships, which were later than the 30 ships, required 1,366,000 man-hours in our yard, and the Maritime Commission's records conform to that statement Mr. BRADLEY. Were they major changes? Mr. At-snow. They were major and minor and very, very numerous. Mr. COVES. YOU spoke of the efficiency of your yard. Let us look at it from another point of view as the reason for its profits. We were told today that the average builder's cost of the North Carolina com- pany waS $651,000 per Liberty ship. The St. Johns River average cost per Liberty ship was $1,304,000 per ship. Is that correct? Mr. AirsLow. On what ships? Mr. COEES. On the 82 ships you built, all of them. Mr. ANSEOW. The figure that I have differs from that, and the source is the final audit report. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 325 Mr. COLES. What is your figure? Mr. AINSLOW. On contract 16555 my figure in dollars is $1,037,000. Mr. COLES. These are Maritime Commission figures which wer6 in- troduced into the record today. They show not only that the St. Johns River shipyard costs were over double those of North Caro- lina The CHAIRMAN. Are you asking him what his costs were, now? Mr. COLES. No, sir; I am trying to put before the committee that they were higher. The CHAIRMAN. It is already before the committee. Mr. AINSLOW. You started to make a statement that our costs were higher than any other yard. Mr. COLES. I am not saying that. Mr. AINSLOW. It is not the truth. Mr. COLES. I have the Maritime Commission figures here, to verify my statement. aMr. AINSLOW. What is the date? .Mr. COLES. March 4, 1946. Mr. HERTER. May I suggest that we refer to the figures that were introduced this morning? Mr. WEICHEL. All you have to do is to compare the two, North Carolina $651,000 and St. Johns $1,304,000. Mr. HERTER. On what kind of ships? Mr. WEICIIEL. Liberty ships. (Informal discussion off the record.) Mr. AiNsLoW. I would like to request counsel to state how many ways there are in the,North Carolina yard. The CHAIRMAN. Counsel is not testifying. Mr. COLES. What is your Liberty ship Goa? Mr. AwsLow. I have a final audit report here and I have an average of $1,037,178.58. Mr. CotEs. What does that include? Mr. AINSLOW. It includes material, labor, and overhead. Mr. COLES. You mean that you are building a. Liberty ship, includ- ing everything, for $1,037,000? Mr. AINSLOW. That is what this says. Mr. COLES. That would make you the lowest-cost producer in the country, would it not? The CHAIRMAN. Can we not draw conclusions from the statement? Mr. COLES. I think we are talking about different figures, and I think it is important to bring out the comparison. Mr. WT.:Ionia,. Put in the record the Maritime Commission's sheet. Mr. COLES. It is in the record, Mr. Weichel, as exhibit 21. Would the committee care to hear what the figures are? Mr. AINSLOW. With the number of ways. It makes a tremendous amount of difference how many ways you have got. Mr. COLES. Does the committee care to hear these figures? Mr. AINSLOW. I would like to have it put into the record and ex- amined. Mr. WEICHEL. The Maritime Commission should give all the facts before you make any deductions with reference to this man or any- body else. You are pulling papers out of your pocket and asking Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 326 SHIPYARD PROFITS him on 5 ininutes' notice. I don't see how anybody could answer, / don't care who he is. Mr. HEETER. I suggest that counsel read those figures and refer to the page' and may the witness then be allowed to interpret those figures himself? The CliAIRMAN. I think that is a very good suggestion. Mr. Corrxs. These figures appear in the Navy Department appro- priation bill for 1947, dated March 4, 1946, at page 159. They are in evidence as exhibit 21. These are the figures that Mr. Lanier testified about this; morning. The CI4IR1:AN. I understand you want the witness to make any comment he wants to make. Does the witness care to make any comment on those figures? Mr. Ar*now. I would like to say that to compare North Carolina, with its 12 ways, and St. Johns, with its 6 ways, is most unfair, because, as you all know, the larger the facility the lower the unit cost. The only reason I object to these figures being used is because it is appar- ently a hearing on an appropriation bill for 1947, and I rather believe that these; figures may be estimated. What I am talking about is the Maritime Commission's final audit report on a specific contract, not averages Or anything like that. Mr. HERTER. You were referring to a specific contract you had in your yard; for 52 ships? Mr. AIESLOW. The last 52. Mr. HERTER. The average taken there is for 82 ships, including the ships in the previous contract? Mr. AIN5LOW. Yes. I note this says 82 ships. Mr. BRpLE-Y. The same thing is true of the figures on North Caro- lina. All these figures are the average cost of all the Liberty ships that were; built; an average of 126 ships built by the North Carolina yard. Mr. AiNsLovv. It is on the average of 82 ships built by St. Johns; and I will point out also that the Government expended on the North Carolina yard $20,000,000 and on the yard at St. Johns 161/4 million. There is riot a great deal of difference between the two yards. Mr. WRICHEL. On the statement of Mr. Slattery is shown the aver- age cost of Liberty ships to the Government. That is what we are interested in. There is a column which counsel failed to mention. The figures show higher than the figure mentioned by Mr. Coles. Mr. ATISLOTT. There is one that shows $4,000,000. The CITAIRMAN. Are there any further questions? Mr. CCE,ES. Yes, Mr. Chairman. The CII.AIRMAN. Proceed. Mr. Cons. Mr. Ainslow, did the various officers of this company receive salaries which were reimbursed by the Maritime Commission? Mr. AiNsnow. Some were not reimbursed at all; others were par- tially rehribursed. Mr. COLLES. Was the president's salary reimbursed to the extent of $12,000 a year? Mr. Aoisnoiv. Yes. Mr. COnEs. Was the vice president reimbursed to the extent of $12,000 per year? Mr. Aiisrsnow. One of them was. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 327 Mr. COLES. Was the chairman of the board reimbursed to the tune of $12,000 per year? Mr. AINSLOW. Yes, sir. Mr. COLES. Was the secretary reimbursed to the tune of $12,000 a year? Mr: AINSLOW. No. The secretary did not get anything. Mr. COLES. The records show that he did. Mr. AnsTsLow. He happened to be the general manager, and for being general manager he got $12,000. Mr.t'COLES. Did the executive vice president get $12,000 a year re- imbursed by the Commission? Mr. AINSLOW. Yes, sir. Mr. Cors. Did the comptroller and treasurer receive $12,000 per year which was reimbursed by the Commission? Mr. AINSLOW. Yes. Mr. COLES. Did other officers receive other moneys which were re- imbursed by the Commission? Mr. AINSLOW. You have neglected to mention one other officer who was not reimbursed?Mr. Benjamin F. Crowley. I would like also to state that most of the people whose names you have not read, but the positions have been read, own no stock in the enterprise. Mr. COLES. They were the management personnel that ran the yard? Mr. AINSLOW. Yes. Mr. COLES. They were the people that did the work in seeing that the ships were turned out? Mr. AINSLOW. Yes. Mr. COLES. They were reimbursed by the Maritime Commission? Mr. Airtsnow. Part of their salaries. Mr. COLES. They, however, did not participate in the profits? Mr. AINSLOW. To the extent of a bonus approved by the Stabiliza- tion Board. Mr. COLES. All the profits went to the people who had subscribed the S600? Mr. AINSLOW. The major profits were plowed back to the Treasury Department. Mr. COLES. All profits went to The people who had invested a total of $600? Mr. AINSLOW. One-third of it went to a corporation that put $600,000 in originally. Mr. COLES. Did the original debentures provide that they be paid back out of the first fees earned by the corporation? Mr. AiNsLow. They were to be paid back a portion, five-sixths of the original base. Mr. COLES. Whatever profits were made after taxes were to be dis- tributed to the stockholders? Mr. AINSLOW. I don't follow you. Mr. COLES. Will you read the question, Mr. Reporter? (The pending question was read by the reporter as above recorded.) Mr. AINSLOW. In the form of dividends; yes. Mr. COLES. And the only stockholders who will get those profits in the form of dividends are the people who invested $600? Mr. AINSLOW. No; the corporation that put $600,000 in receives one-third of those profits. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4 328 SHIPYARD PROFITS Mr. CotEs. Do they have $600,000 in that corporation now? MT. AINSLOW No. Mr. COLES. Did they have $600,000 in that corporation after Oc- tober 143? Mr. AINSLOW. I believe so. We can check our balance sheet. Mr. Cou,s. Did you not testify a few minutes ago that the deben- tures had been paid off by October 1943? Mr. Augsrow. Yes; but I testified that all of the profits were left in the business, and, consequently, the business did have more than $600,000 in it. Mr. COLES. If those profits are ultimately distributed, as I assume they will e, in the form of dividends, to whom will they go? Mr. Amstovi, . One-third to Thompson-Starrett and two-thirds to the company, to the other stockholders. Mr. Corps. In other words, all the profits will go to the stockholders; is that correct? Mr. Aniistow. After taxes; yes. Mr. COLES. What is the paid-in value of that stock? Mr. Anfstow, . $600. Mr. COLES. So that all the profits will go to stockholders that repre- sented an initial investment of $600; is that correct? Mr. ArNstow. . Plus $600,000 worth of debentures. Mr. COLES. Is that $600,000 paid off? Mr. ArNstow. Yes ? it is. Mr. COLES. Will the division of profits be in relation to the owner- ship of the $600 in stock? Mr. Amstow. Yes; it will. Mr. CotEs. That is all. Could we not have gotten that a long time ago? 'I have another question. Your first contract, which gave you a profit of $900,000, was re- negotiated; is that correct? Mr. Arrstow. Yes. Mr. CotEs. Was there any recovery? Mr. Ansrstoiv. No. There is so little profit left that there could not possilly luxe been any recovery. Mr. COLEs. Is it the position of the company that the profits on the other two contracts will not be recovered? Mr. ATstow. We have not yet been renegotiated. Mr. COLES. Have you made the statement that you did not believe they would be recovered through renegotiation? Mr. AINSLOW. I wrote you saying that in view of the fact that we received only minimum fees and did not even get the premiums that were corning to us, and the fact that our taxes were paid at the highest possible point, we would probably not be renegotiated. Mr. COLES. Mr. Ainslow, I have one further question. In addi- tion to the profits and fees already paid your company, do you have a claim pending for an additional $264,000? MT. AINSLOW. Yes. Mr. CoLEs. That is all. I have no further questions, Mr. Chairman. The CtrArnmAN. Mr. Bradley? Mr. BIADLEY. Most of the questions that I had in mind I have asked ditring the examination. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 r-SHIPYARD PROFITS 329 The CHAIRMAN. Mr. Weichel ? ? Mr. WEICUEL. With reference to the organization of the company, how many shares of stock were issued, and was it nonpar or no par? Mr. AINSLOW. Six hundred shares. Mr. WEICHEL. And it sold for $1 a share? Mr. AINSLOW. Yes. ? Mr. WEICIIEL. Were you one of the original fortunate investors? Mr. AINSLOW. No, sir; unfortunately. Mr. TV-mown. Are you one of the investors in the company now? Mr. AiNsnow. No, sir. Mr. WEICIIEL. Are you just an employee of the company? Mr. AINSLOW. Yes. Mr. WEICHEL. Are you the accountant of this company? Mr., AiNsnow. I am the treasurer and a director of the company, but I am not a stockholder. Mr. WEICIIEL. Were you just hired by this company when it was organized? Mr. Asnow. I was hired in April 1942. Mr. WEICHEL. As an accountant? Mr. AINSLOW. Yes. Mr. WEICHEL. And you were given this office and then given a share of stock. to qualify you? Is that the way you are in on it? Mr. AINSLOW. No, sir. Mr. WEICHEL. Are you on a salary basis? You are not one of the? owners of the company? Mr. AiNsnow. I beg your pardon? Mr. WEICHEL. I say, you are not one of the owners of the company;: you are an accountant? Mr. AiNsnow. That is right; I do not own any of the stock of the' company. Mr. WEicnnn. So you are just speaking for the people who have. the $600 investment and you are an accountant hired by the company and are now an officer of the company; is that correct? Mr. AINSLOW. That is not correct. I have been an officer of the' company since we started. ? Mr. WEicunn. You have been put in as an officer; you had no real investment in it. Usually stockholders elect directors. You do not. have any investment in the company ; you are just in ? that is, sort of a dummy director or dummy officer for the real people who own the. company? Is that correct? I mean, you have no investment. You just said so. . ? Mr. AINSLOW. I would like you to be at some of the board meetings,. if you think I am just a dummy director. WEIcnEn. You had no real financial interest in the company? Mr..AmTsnow,, I had the financial interest of earning, a salary. WEicunn. Yes; but you had no financial interest in the way of investment? Mr. AINSLOW. I am not a, stockholder and never have been. Mr. WEICIIEL. Are you an officer of the company? Mr.' AiNsnow. I am the treasurer of ,the company. Mr. Wmciinn; But you do not have any interest; you are. just an employee in this whole thing? Mr. AINSLOW. Yes, sir. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 330 SHIPYARD PROFITS Mr. WI:T(3'FL. With reference to your previous statement about Mr. Casey and how the press terribly misquoted you, you read a long statement. Did you give the members of the press and the members of the committee copies of the statement you read so that you might be_properly quoted? Mr. A.IisLovr. I have given copies to the press. Mr. WIIICHEL. To all the members of the press? Mr. AINSLOW. I did not have that many copies. ? Mr. W1jIdHEi.. So that if some of them misquote you today it will not be their fault. Mr. AisLow. Are you asking me a question? The CIIAIRMAN. If they misquote him he will have to see them. Mr. 11VICIIEL. What was the total amount that your company re- ceived of the $2,000,000 after renegotiation? In other words, what did you have after renegotiation? Mr. AINSLOW. We have got a net of less than $300,000. Mr. 1117*CIIEL. Was it renegotiated from $2,080,000 to $300,000? Mr. AtivsLow. It has not yet been renegotiated, nor has the Bureau of Internal Revenue settled the tax returns. Mr. WiIoHEL. How much has the 82,080,000 been cut by renegotia- tion so far, to 'what figure? Mr. AmsLow. We are going before the Renegotiation Board on October 8 on our last contract; so I do not know what the figure will be. Mr. Wloolif L. I asked you, to date. Do you know that? Mr. AptsLow. To date we have been given clearance on one contract. Mr. 1/VICIIEL. How much has that been cut down to by renegotia- tion to date? Mr. AINSLOW. It has not been renegotiated for the most part. I say It is cOming October 8. Mr. Wpictim.. Has none of it been cut down up to now? Mr. AIN'SLOW. It has not. Mr. WFCHEL. With reference to your statement that you do not expect it to be cut down because you have minimum fees? r. AtrwsLow. I believe one of the factors taken into consideration in reconversion is the income-tax base. Mr. Wrticmia,. Do they figure it out backward to see how much income tax you are going to pay? Mr. AtNsLow. No; there is a very, very definite relationship be- tween the gross base and the net amount that one winds up with. Mr. WEICII EL. Are you inferring that that is the way they do figure it?figure out how much the income tax is going to be and then work it from that? Mr. AINSLO W. On the form which we were required to submit to the Renegotiation Board the total fee is asked for on each contract, and right under it the total income tax and excess profits paid. So I assume that 's a feature. Mr. WIcitilL. In the Renegotiation Act did Congress say that they should find out how much income tax was paid and then figure back? Mr. ApTsLow. I don't know. Mr. NITiontn,. You don't know what is in the renegotiation law? Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4 SHIPYARD PROFITS 331 Mr. AINSLOW. No, sir. Mr. WEICI1EL I do not think it is in there that way. In reference to nonreimbursables, how much did you have in total amount? Mr. AiNsLow. We had $1,185,000. Mr. WEICHEL. Of nonreimbursables? ?Mr. AINSLOW. Yes; and our tax bill was $997,000. Mr. WEIctinn. Your nonreimbursables were about $1,000,000? Mr. AINSLOW. $1,185,000. Mr. WEICHEL. What are the big amounts that made up $1,185,000 of nonreimbursables? Mr. AIN-snow. One quite large cost that has not come out in the previous testimony was the cost we have incurred since last September when we stopped building ships, in the maintenance of the yard. That Amounted to $99,000. Mr. WEICIIEL. I mean nonreimbursables. Mr. AIN-snow. That is nonreimbursable. Mr. WEICIIEL. Is that something since you stopped buildin ships ? Mr. AINsnow. You asked me with reference to these fees. Ihat is ?exactly what I am giving you. The facilities contract required that we, at .our own expense, for the most part, maintain the yard for a period up to 2 years after the shipbuilding program was completed. Mr. WEICIIEL. Let us get this straight. These $2,080,000- estimated -fees which you say have not been renegotiated are for ships that you built; is that correct? Mr. AIN-snow. Yes. Mr. WEICIIEL. What were the nonreimbursables with reference to the building of those ships? Mr. A_INSLOW! $1,185,000. Mr. WEICI1EL. Tell me what those were. Mr. AINSLOW. $36,000 interest on bank loan; $45,000 interest on de- bentures; $42,000 in nonreimbursable salaries of officers; $1,700 social- security tax. There was a $200,000 cost that we incurred in order to get the yard built. Mr. WEICIIEL. How did you pay $200,000 to get the yard built? You paid it as a fee? Mr. AiNsnow. We paid it as a fee out of our own pocket. Mr. WEICIIEL. You paid it as a fee to the Thompson-Starrett people? Mr. AINSLOW. Yes, sir. Mr. WEICHEL. Who were a 50-percent stockholder in this company? Mr.. AINSLOW. Thirty-three and one-third percent. ? Mr. WEicitim. They put in $333 of the $600, I presume; is that right? Mr. AiNsnow. They put in $200 plus $600,000. Mr. WEICHEL. They put in 331/3, and the $600, with the 331/3, and then the same company which they had gave them a $200,000 fee to build the yards; is that right? Mr. AINTsnow., Let me explain this way?that the Thompson-Starrett Co. Inc., is not some individual; they are composed of thousands of stockholders, and 'obviously the management of Thompson-Starrett Co., Inc., could not very well take on a contract to build the sixteen- Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 332 SHIPYARD PROFITS or sexentee -million-dollar facility and not get any money for it. The management owed it to their stockholders to see that they got a fee for the work done. Mr. WEIpIIEL. In other words, these people really hired themselves on this job for the $200,000? Mr. Anonow. I do not agree to that conclusion at all. Mr. WEIQUEL. Through the St. Johns Co., of which they had a third of the stock? Mr. Ans7q.ow. I do not agree with that at all. Mr. WEicriEL. Well, anyhow, you paid them $200,000 by that ar- ran "ement for building it? , .? AINSLow. Yes, Mr. WEnmaEn. And what did the St. Johns people get themselves, for .building it, rom the Government? Mr. AINSnow. Nothing. Mr. WETCHEL. Nothing? .But indirectly this stockholder, one-third got $200,000 plus what profit he made from the work in the subletting? Mr. A.INI,o.w. This was.a no cost, DO profit. Your question has me confused. May I hear it again? Mr. WEicriEn. Yes. The stenographer will read that question, please, to the witness. . (Question read. Mr. AigsLow. -You inferred, in addition to the fee there was a profit on doing the work, and I say that is not so. Thompson-Starrett got the fee. They did not make any other profit., Mr. WnionEn. Well, the reason I asked that, because of the very close conn ctiorL of somebody who owns the St. Johns, and you pay him $200,00, then Thompson-Starret employing all these subcon- i tractors-1 it was the same kind of close relationship all the way down the line, I am not so sure there- wasn't any profit. Mr. AINSLOW. No, sir. Mr. WEIpIIEL. That is.what I mean. Mr. AINSnow. There was no such relationship there. I can tell you unequivocally tl at none of the subcontractors were related to Thomp- son-Starrett. Mr. WEICUEL. What are the other amounts, now? . Mr. AiNsnow. I beg your pardon? Mr. WEionEn? After the $200,000. Mr. AINSLOW. We figured interest on the facilities fee of $18,000. Mr. WErmEn You mean on the $200,000? Mr.. AINISLOW, Yes, sir. Mr. WEiciiEn , Is that included in those other two items of interest? Mr. AINSLOW, No, sir. Mr. WEICIIEL. This is the $18,000? Mr. AiNsnow. Auditing expense, $3,700; organization expense, $1,800, Mr. WEICIIEL. Well, that is for organizing the corporation? Mr. AINSLOW, That is for organizing the corporation. Mr. WE-cCIIEL. That being $600, it cost $1,800 to do that? Mr. A.INSLOW. Do not forget that $600. Mr., Weichel, most of that $1,800 was for printing up the debenture agreement of $600,000. Mr. WEICELE,T,. That is really all right. Now, after the $1,800? Mr. AINsLow. Corporate taxes other than income taxes. Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4 Approved For Release 2003/10/10) CIA-RDP64600346R000400060002-4 SHIPYARD PROFITS 333 Mr. WEICHEL. Corporate taxes? What do you mean? Paid .to the State, or what? What State was this organized in? Mr. Aii?Tsnow. This was not a State tax. It was probably the capi- tal-stock tax, that ceased to exist. Mr. Wniounn. The what.? Mr. AINSLOW. The capital-stock tax paid to the Federal Govern- ment; $30,625: Mr. WEICIIEL. You paid the Federal Uovernment .$30,625. on capital-stock tax? Mr. Am-snow. Yes, sir. Mr. WEICIIEL. On what basis was that paid? Mr:ALEN-snow. It is based OA the estimate of the worth of a company, and invariably we filed an estimate of some $3,000,009. Mr. Wmciinn. Did you file an estimate that it was worth $3,009,000? ? Mr. AINSLOW, Yes, sir. - Mr. WEICIIEL. When did you start