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

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP64B00346R000400060002-4
• Release Decision: RIFPUB
• Original Classification: K
• Document Page Count: 709
• Document Creation Date: December 15, 2016
• Document Release Date: October 2, 2003
• Sequence Number: 2
• Publication Date: September 26, 1946
• Content Type: OPEN

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 filing?
Mr. AINSLOW (interposing). Because we had to take into considera-
tion these debentures and bank loans and all of the rest of the capital
that we put in beside the six. hundred.
Mr. WEICHEL. What I mean is that you had?you really had the
$600 paid in. That was the investment, and that is what the company
was. worth. When did you start telling the Government you were
worth $3,000,000?
Mr. AINSLOW. The first year.
Mr. Wricrinn. The first year?
Mr. AINSLOW. We had a 21/2 million loan agreement,. We had $600,-
000 in debentures.
Mr. WEicumn. Yes. Wait a minute, and let's see ,how. At the end,
you started at the six hundred?at the end of the first year you told
the Government you were worth $3,000,000?
Mr. AINSLOW. No; we did not do that at the end of the first year, sir..
We did that at the beginning.
Mr. WEICHEL. Oh! at the.beginning of the first.year ?
Mr. AINSLOW. Yes.
Mr. WEICIIEL. So the Government believed you were worth $3,000,-
000?
Mr. Ausisnow. And consequently taxed us.
Mr. WEicnEn. And taxed you on $3,000,000; and knowing that this
money was going to come in so easy, you were willing to pay it; is that
correct?
Mr. AINSLOW. We state that. The money came in as a result of a
24-hour-a-day operation,. 7 days a week.
Mr. WnicitEn. But when you tell ;tile Government you are worth?
that the company was worth $3,000,000-that is what I am interested
in; and you told it to them, not at the end of the first year but at the,
beginning. You had $600. Now, let us start on from there on up to
the $3,000,000 that you told the Government you were worth, that you
paid a tax on, when you were not worth that. What was the next after
the $600? I mean, this is interesting -?
Mr. AINSLOW. The tax returns were required to be filed at the be--
ginning of the year. . ? ;
Mr. WEICIIEL. Well, I know; but then you said you were,w,orth that
much.. You had $600. Now, what made up this $3,000,000, now?
93486-746----22
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
334 SHIPYARD PROFITS
MT. ApTSLOW. How?
Mr. W*Ictinn. You told the Government you were worth 3 million.
Now, you had $600. Now, what was the next amounts that made, and
what made the $3,000,000 worth?
Mr. AINSLOW. We had $600,000 worth of debentures, and we had a
loan agreement for 21/2 million dollars.
Mr. Wpcitim. Wait a minute. I will take one at a time; $600,000
were debentures?
Mr. AIN-snow. Two and one-half million for loan agreement.
Mr. Wnicuta, And a 21/2 million dollar loan. Who was that from?
Mr. AINSLOW. From three banks.
Mr. WpCHEL. From three banks? And the debentures?who did
you owe that to?
Mr. Apcsnow. Thompson-Starrett Co., who invested it.
Mr. Winioniin. The Thompson-Starrett? The debentures, Thomp-
son-Starrett had?
Mr. 44NSLOW. Yes sir.
Mr. WEICHEL. $600,000?
Mr. AtNsnow. That was what they invested.
Mr. WEIcum. Well, now, wait a minute.
Mr. AiNSLOW. They invested $600,200.
Mr. WEIcrum. Well, now, just a minute. I will ask you, and then
you can answer this question. You had $600. Now, with reference to
the $600,000, those were debentures?those were the same as notes?
Mr. AIN-snow. Somewhat different.
Mr. Wnictinn. Well, it represents, though, that you owed somebody
$600,000, didn't it?
Mr. Amsnow. Under--
Mr. WEIctinn (interposing) . Debentures mean owing, do they not?
as an accountant?
Mr. AIN-snow. Under an indenture agreement, subordinating them
to everybody.
Mr. WEIcing-n. Well, no matter what you call it, you owed $600,000,
and somebody held them?
Mr. AINSLCW. The company had a debt of $600,000.
Mr. WEIGH EL. That is right; and then they had a debt of 21/2 mil-
lion to the three banks?
Mr. .lit.vNSLOW. Yes, sir.
Mr. , EICII EL. SO, as an accountant, how do you determine the net
worth of that company at that time and say it was worth $3,000,000,
when they owed $3,000,000?
Mr. AN-sncw. You will recall I said that for declared-value excess-
profits-tax purposes we filed a worth of $3,000,000, and I might add
that one doe,; not make those figures up as an accountant. If you
will ren ember that tax, it was purely and simply a guess. r
Mr. EICI I EL. Well, you paid taxes on what the corporation was
worth; nd at the time you said it was worth $3,000,000, it was in debt
$3,100,000. Now, how did you impress upon the Government that you
should pay a tax on being worth $3,000,000 when you were really in
debt $3400,000?
The C/IIAIR HAN. Maybe the Revenue Department does not care how
much you are in debt, just so they get their tax.
Mr. WEICHEL. That is what I was wondering. I mean, is that
what you actually did?paid a capital tax of $30,625, by telling the
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 335
Government that you were worth $3,000,00-0-, when in fact you were in
debt $3,100,000? Is that the way you normally do business, as an ac-
conntant for a company?
Mr. AINSLOW. No ; .no; you do not, but the declared-value excess-
profits tax is a most abnormal thing. That is why I got--
Mr. WEICIIEL (interposing) . I would say it would be, if you pay--
Mr. AINSLOW (interposing). Well, Congress, you know, voted it out
recently.
Mr. WEICHEL. Well, there isn't anything that you pay a tax on your
debts. You pay it on your worth, isn't that a fact?
Mr. AINSLOW. Yes, sir.
Mr. WEn-miEL. So when you paid $30,625, was that to put up a front
to the Maritime Commission that you were worth $3,000,000, where
in fact you were in debt, $3,100,000 ?
Mr. AiNsLow. No, sir. The Maritime Commission probably never
saw that tax return, so that certainly was not to put up any front.
Mr. WEICIIEL. What would be the purpose of telling the Govern-
ment that you are worth $3,100,000, and swearing to it,, and paying a
tax on that, where in truth and in fact you were in debt $3,100,000?
What is the purpose of that?
Mr. AINSLOW. The purpose is that Congress passed the declared-
value excess-profits tax, and We were required by law to report, and
we reported what we considered closest to the truth.
Mr. WEICHEL. I am talking about a capital tax, which is on your
worth; I am not talking about excess profits?on your worth. Did
you set that up as a worth so that when it came to excess-profits tax
you would not have to pay it, so that you would not have to pay
profits based on $600, which would be the real investment?
Mr. AiNsLow. If that had been our motive we certainly were unsuc-
cessful, because we paid the highest legal rate of tax that exists in
the country.
Mr. WEICIIEL. Well, did you pay a tax on an investment of $600,
or did you pay a tax based on what you told the Government, tliat
you were worth $3,100,000?
Mr. AiNsLow. We paid a tax based upon the $3,000,000 that we
declared as our value.
Mr. WEICHEL. Yes ? but you did not have to pay it?
The CHAIRMAN. Well, the Government did not lose anything by it.
Mr. WEICHEL. It was cheaper to represent to the Government that
you were worth $3,000,000 and pay a capital tax of $30,625 than it
was to represent to the Government that you were worth only $600?
which was the truth?and pay income tax on everything over $600?
Mr. AllvsLow. You are asking me if it was cheaper. I say very
definitely that it cost us money, because the nature of that tax is such
that you had to make a guess, and we guessed.
Mr. WEICIIEL. Mr. Herter wants to ask.
Mr. URETER. I will ask questions about this representation of being
worth that much. Mr. Ainslow, in connection with this original
stock set-up, the document that I have before me, which is from the
Maritime Commission on the stockholdings does not show the
Thompson-Starrett holdings at all. It shows Mr. Merrill with a full
200 shares of the A stock, and then the B and C stock divided among
a number of different individuals. How about the Thompson-Star-
rett Co.'s acquiring a one-third interest in the stock?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
336 SHIPYARD PROFITS
Mr. ArrysLow. Thompson-Starrett purchased it for cash ,at the very
inception of the company, and I do not know what statement you are
referring to there. If I may see it?
Mr. HERTER. Yes. If it iS incorrect?I was merely inquiring be-
cause I was puzzled as to where Thompson-Starrett came into the
picture.
Mr. ArisrsLow. Doesn't it show them as holding the entire class A
stock issued?
Mr. HERTER. No; it shows Mr. J. C. Merrill holding the entire class A
issued.
Mr. AINSLOW. It may be that these figures -were gotten up recently;
that is,
since the shipbuilding program has been finished.
Mr. HERTER. That is what I was wondering, if there had been a
transfer.
Mr. ArrisLow. Yes; there had been a transfer; but that was quite
recent. What I thought you were referring to was that period of
the bulk o our shipbuilding construction, and all during that period
Thompson-Starrett owned that 200 shares of class A stock.
Mr. HEITErt. Assuming then they held one-third of the $600 worth
of capital stock, apparently he put up the full amount of the money
for the debentures, is that correct?
Mr. ArxsLow. Not "he"?the corporation, Thompson-Starrett Co.,
Inc. which has a great many stockholders.
Mr. HErcrER. The full new capital of the company that You have
been talking about, $600,000, was .put up by one-third of the stock-
holders?
Mr. Aril-sLow. Yes, sir.
Mr. HERTER. How does it come that the other two-thirds of the
stockholders did not take any risk in there whatsoever but still held
their stock? Were the B and C stocks subordinated to the A stock?
Mr. AI*SLOW. Yes, during the construction period.
Mr. HERTER. During what?
Mr. AricsLow. They were subordinated to this extent, that while
those debentures were outstanding, the class A stock controlled five
of nine directo-rs, so that that gave them the control necessary because
of their larger investment.
Mr. HERTER. I see; and as soon as the debentures were paid off they
had equal voting rights?
Mr. AricsLow. Yes, sir.
Mr. I-IvrrER. Did the Maritime Commission say to you that for the
purposes :of getting a Government contract you must increase your
capital; and then give you a choice either of selling new stock or work-
ing out the debenture arrangement, or doing what has happened in
these other cases, of getting a subordinated loan from the stock-
holders?
Mr. ANSLOW. The Maritime Commission required in our original
contract that we have capital, cash capital of $600,000 minimum, and
have loan agreements with banks to a minimum of $1,500,000. As
we got into operation we found that it required a considerably larger
sum of Money to handle the operation, and we consequently changed
our loan: agreement to $2,500,000, because we did need $3,000,04 in
the business.
1
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 337
Mr. HERTER. I understand.
Mr. AINSLOW. And that is best evidenced by the figures that I gave
you earlier in the hearing of how much money was required to be
outstanding in order to carry on that business.
Mr. HERTER. Right. Now, a debenture, as I understand it?I as-
sume it is an earnings debenture, is that correct?
Mr. WEIOHEL. He said it was a debt.
Mr. Ansrstow. I am not familiar with an "earnings debenture."
Mr. HERTER. The only security that the debenture holder has is
the earnings of the company?
Mr. AINSLOW. Oh, yes; yes.
Mr. HERTER. The minute those debentures were paid off?and they
were paid off to one-third of the stockholders?then the 662/3 percent
of the stockholders holding the B and C stock, who then came to have
an equal voting right with the A stockholders, had a two-thirds in-
terest in the company free and clear of debt, outside of the bank's
loan, and were participating in the profits, although their entire capital
investment was only $400 and they had never put in a nickel of risk
capital?
Mr. AINSLOW. That is true, sir.
Mr. HERTER. In other words, the B and C stockholders, on the in-
vestment of $400, have an equity today in distributable profits of per-
haps $2,000,0000?
Mr. AINSLOW. No, sir';, very definitely not.
Mr. HERTER. I do not know what your figures are.
Mr. AINSLOW. Because the figure may be subject to renegotiation,
subject to additional income taxes, subject to additional deletions by
the Maritime Commission on the items we previously considered cost.
We will net in total some $300,000, so there isn't any $2,000,000 or any-
thing of that sort.
Mr. HERTER. Well, I said "equity before taxes" in that.
Mr. AINSLOW. I did not hear you say "before taxes' " I am sorry.
Mr. HERTER. I was just trying to get straightened out about these
secondary stockholders. It was the Thompson-Starrett Co. that took
all the rest, in supplying these debentures?
Mr. AINSLOW. Yes, sir.
Mr. HERTER. And you think that they are perhaps now out of the
picture altogether?
Mr. Awspow. They are out.
Mr. HERTER. Just one other question, not connected with that, that
perhaps you will not be able to answer. When your facility was built,
the Government purchased lands to a value of nearly a million and a
half dollars, is that correct?
Mr. AINSLOW. Closer to 11/4.
Mr. HERTER. And then put $16,000,000 worth of facilities, or what
was required in the building of the ways, and so forth, there?
Mr. AINSLOW. Yes, sir.
Mr. HERTER. At the time that you ceased operation, there was some-
thing for the Government to sell, to dispose of as surplus. What was
left on the property?
Mr. AINSLOW. All of the equipment, machinery, buildings, surplus
materials, spare parts, operative supplies.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For
338
Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
Mr. HERTER. And those, when the plant was declared surplus was
everything that was on the ground declared surplus, with it, as a
single unit?
Mr. AINSLOW. Yes, sir.
Mr. HERTER. And that was sold to the Tampa Shipbuilding Co. for
$1,926,000?
Mr. AINSLOW. Yes, sir.
Mr. HERTER. Are they planning to use it as a shipbuilding plant?
Mr. ArNsLow. To the best of my knowledge, the facilities that re-
main at the yard could not possibly be used to build ships.
Mr. HERTER. To build ships?
Mr. Ang;sLow. No.
Mr. HERTER. They are inadequate to build ships?
Mr. AINTLOW. Most of it has been disposed of.
Mr. HERTER. Then in effect the Tampa Shipbuilding was buying the
land whicll had originally cost the Government $1,378,000, plus such
facilities with their salvage values as were on the property?
Mr, ArNsLow. I beg your pardon?
Mr. HERTER. With such facilities, for their salvage value, which
were on the property?
Mr. Arivszow. Yes, sir.
Mr. HERTER. Is that cdrrect?
Mr. AIN SLOW. And materials.
Mr. HERTER. And materials? Well, those materials must have had
salvage value.
Mr. ATNSLOW. I think SO.
Mr. HERTER. Have you any idea as to how much?
Mr. AIN SLOW. No intention of evading anything?I think that it
would be better to get a representative of Tampa Ship to answer that
question.
Mr. HElaTER. I was merely inquiring as to what you had left behind
at the time.
Mr. AtissLow. I merely say I prefer not to discuss that subject.
Mr. HERTER. All right.
Mr. AiisLow. Because we wanted our shipyard.
Mr. HERTER. Were you allowed to bid on it?
Mr. AII1SLOW. Yes, sir.
Mr. 'TEETER. But you did not get it?
Mr. AI*LOVvr. No, sir.
Mr. HERTER. Were you willing to bid higher than the price for
which it was sold?
Mr. AmsLow. Yes, sir.
Mr. HERTER. And you were not given an opportunity to?
Mr. ArivsLow. No, sir.
Mr. HEnTER. By whom was it disposed of?
Mr. AtiN-sLow. It was disposed of, to the best of my knowledge, by
the predecessor of the War Assets Administration, SPA?Surplus
Property Administration.
Mr. HERTER. The Maritime Commission was not designated as the
disposal agency for this yard?
Mr. ArivsLow. I am not familiar with the procedure. All I know
is that the Surplus Property Administration the Attorney General's
Office, the Comptroller General's Office, the RFC, and the Maritime
Commission, to whom I went in an effort to buy the yard.
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 339
Mr. HERTER. And you were not allowed to make a bid which would
have been higher than those bid figures?
Mr. AtmLow. We made a bid. Twice we made bids.
Mr. HERTER. Were you given any reason as to why?
Mr. AINSLOW. We subsequently -offered to pay more than Tampa
Ship's bid. We were not permitted to do so. However, the counsel
for all of these Government agencies, including the Attorney General's
Office, apparently thought that it was quite regal to sell it to Tampa
and not permit us to pay more Money for it; and we did not think that.
We hired counsel here in Washington.
Mr. HERTER. In other words, you thought it was worth more money
than it was sold for?
Mr. AINSLOW. I think that the Maritime Commission got an ex-
cellent price for it.
Mr. HERTER. But you would have been willing to pay more?
Mr. AINSLOW. Yes, sir. I do not want to leave the impression with
you, sir?I do not want to leave the impression that there would seem
to be some inference that we were not permitted to offer to pay money.
Now, that is not true. In the Maritime Commission, counsel took the
attitude that legally the other company had bought it, but legally we
did not think so; but we are not, as I say, crying about it now. It was
a great disappointment, of course.
The CHAIRMAN. You came in after the others had made their bid
and tried to get it?
Mr. AINSLOW. The argument, Judge, was to this effect: Our counsel
contended that they had not put in a formal bid, and our counsel con-
tended that the informality of their bid should have prejudiced it from
being accepted, and consequently we wet e the high bid. However, our
counsel did go to the point, with our permission, of saying that if the
Maritime Commission would give us an opportunity to make an in-
formal bid, why, we would pay more money.
The CHAIRMAN. Counsel will look into that.
Mr. BRADLEY. Was it advertised for sale, or how were the yards sold?
Was it sold on sealed bids after invitation or what?
Mr. AmisEow. Finally sold on sealed bids after invitation.
Mr. HERTER. If you had been successful, how were you-planning to
raise the money with which to pay for it?
Mr. AINSLOW. We planned a corporation with 8400,000 in capital
stock and a bank loan, through the Atlantic National Bank, in Jack-
sonville, of $1,600,000.
Mr. HERTER. It would have been the same corporation that would
have purchased?
Mr. AINSLOW. I beg your pardon?
Mr. HERTER. You are speaking now for the corporation, St. Johns
Shipbuilding Co., that would have purchased it?
Mr. AlNSLOW. I am speaking of our people; yes, sir.
MT. HERTER. Thank you.
Mr. CoLEs. Mr. Chairman.
Mr. WERitiEE. Mr. Chairman, as a member of the committee I would
like to proceed.
Mr. COLES. I beg your pardon. I am sorry, Mr. Weichel ; I had
assumed you had finished.
Mr. HERTER. Thank you for yielding, Mr. Weichel.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
340 SHIPYARD PROFITS
Mr. WDICHEL. That is all right. Mr. Bradley, have you ay more
questions?
Mr. BRADLEY. No.
Mr. WiciiEL. Do you know what the rate on the 'capital-stock tax
is?what is the rate per hundred, roughly?
Mr. AthsLow. A dollar and a quarter.
Mr. WictrEHA. What?
Mr. AI*SLOW. A dollar and a quarter.
Mr. WDICHEL. So on $600 you could have got away by paying on
your reall capital investment, you could have paid $7.25 tax to the
Government?
Mr. AINSLOW. That is right; but we made a bad guess, and it cost
us money.
Mr. WEICHEL. You made a bad guess?
Mr. ApvsLow, We made a bad guess.
Mr. WDICHEL. You would not say that when you owed $3,100,000,
that you were worth 3 million?you would not say that was a bad
guess, woUld you?
Mr. AINSLOW. I can only suggest, Mr. Weichel, that we get out the
declared value excess profits tax law, and you will readily understand.
Mr. WitotiEL. Yes, but I am talking, now?you made a statement to
the Government that you were worth $3,000,000 at a time when you
were only worth $600, and instead of paying $7.25 capital tax you
paid $30625. What was the reason for so stating, falsely, to the
'Government that you were worth $3,000,000, when in fact you were
only worth $(,00? Why 'did you do that? Did you do it, by the
way, or semebody else?
Mr. AWsLow. Yes; I did it.
Mr. WptcHEL. You did it?
Mr. AprsLow. And you infer there is something illegal about doing
it, and I was merely following out the terms of the law. The law
Says
Mr. WEICHEL (interposing). Following out the terms of the law?
Mr. AiiNsLow., Yes. We guessed, and we guessed wrong, and we
had to pay more money to the United States Government than we
would have if we had guessed right.
Mr. WpicHEL. You guessed that you were worth $3,000,000; is that
what you mean?
Mr. AINSLOW. For capital stock tax purposes; yes.
Mr. WmotiEs. At a time when you actually only had $700 and
were 3 million in debt; that is correct? All right.
At this point I want to ask the chairman to have the counsel secure
photostats of the capital tax return beginning for the first year of
the comrany and from there on down to date, and photostatic copies
of the income tax returns of the company from the first year down
to date, and to see in what manner this representation was used,
whereby you claimed to be worth $3,000,000, and then to see in what
manner this rapresentation in the tax return of being worth $3,000,000
when yoi were only worth $600, as to how it was used, and tb.e-records
of the aritime Commission as to what they were worth. (See
exhibit 5.)
The RAHMAN. Insofar as the information is permissible under
the law t will be obtained. I am not familiar with the law, and I do
not know to what extent I can exact it.
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 341
Mr. WEICHEL. I mean' the income tax won't?
The CHAIRIVIAN. Insofar as the legislation permits, it will be gotten.
Mr. WEICIIEL. Well, I can ask for an investigation of these par-
ticular returns, in view of what was said here, that he rePresented he
was worth $3,000,000 where in fact he only had 600.
The CHAIRMAN. That is right. ?
Mr. WEICHEL. We can ask for an investigation of the returns, if
we can't get them any other way. ?
The CHAIRMAN. Counsel Will comply with the request of the com-
mittee member.
Mr. WEICIIEL. Now, the $30,000 capital tax return. Now, what was
the next? We only got up to a little over $200,000.
Mr. AINSLOW. Mr. Weichel, you asked me- if we would furnish our
Federal income and excess-profits-tax return, and I want to tell you
that I am awfully glad that you. did ask.
Mr. WEICHEL. Well, We Will get it.
Mr. AL-NrsLow. And I am offering to you to volunteer them.
(See exhibit 25.)
.Mr. WEICHEL. Oh we will get them. We do not care whether you
are happy or not. We are going to have them.
The CHAIRMAN. May I remind counsel, we have a number of others.
Mr. WEICHEL. Now, after that $30,625, what was the next reim-
bursable amount, reading down, there?
.Mr. AINSLOW. Legal expense, $36,000.
Mr. WEICIIEL. Legal expense? That is outside the organization ?
Mr. AINSLOW. Yes, sir.
Mr. WEICHEL. That is legal expense for what? ? I mean, with refer-
ence to the dealings with the Maritime Commission?
Mr. AINSLOW. No, sir; not at all ; entirely in connection with suits
-and threatened suits arising out of our operation, but deemed non-
reimbursable by the Commission. As an example, one of our.
Mr. WEICHEL (interposing). Doesn't the Maritime Commission re-
imburse for actions that you defend with reference to building ships?
Mr. AINSLOW. Under certain circumstances.
Mr. WEicium. But these were actions that the Maritime Commis-
sion thought they were not obliged to defend under their contract; is
that it?
Mr. AINSLOW. The Maritime Commission has set up?and this is
true of the auditing expense, which I referred to before?has set up.
certain maximums of audit.fees or legal expenses which they will bear,
and the balance must be borne by the contractor.
Mr. WEICIIEL. Well, this was outside of what they felt they were
liable for on the contract?
Mr. AiNsLow. As an example, the Maritime Commission permits
only $1,000 for an audit, and our audit cost about $4,000. That excess
$3,000 is shown here as nonreimbursable expense.
Mr. WEICHEL. All right. What is after legal expense? What is the
next item?
Mr. AINSLOW. The expense in connection with launchings.
Mr. WEICHEL. Launchings?
Mr. AINSLOW. $49,000.
Mr. WEICHEL With reference to launchings' this is what you paid
out for launchings? Does this include the gifts?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
342 SHIPYARD PROFITS
Mr. AINSLOW. Yes, sir.
Mr. WWIIE L. Is this the amount that you were not reimbursed for,
or is this the total?
Mr. AmYsnow. We are not reimbursed for any launching expenses.
Mr. WnicrinT, You were not reimbursed for any?
Mr. AIN SLOW. No, sir.
Mr. WracHE c,. All right; go ahead ? the next item.
Mr. Aricszow. And the gifts were 828 pins, $4 tax.
Mr. WWIIE The gifts to the fellows who had that $600,000 were a
little bit letter than $28 pins?
Mr. AriqsLow. The employees' salaries.
Mr. WpOLIFL. Employees? What?
Mr. AricsLow. $16,000.
Mr. Wnom L. $16,000. That amounts over and above $25,000 that
the Government would allow paid?
Mr. Aix sLow. No, sir; we do not have any employees. Our officers,
directors, or stockholders that got $25,000. The maximum salary re-
imbursed was--
Mr. Wicitim. This is the amounts the Maritime Commission
thought you were not allowable under the contract?
Mr. Aricsnow. Under a system set up by the Maritime Commission's
labor relations division, certain classifications were held to lower
salaries than the salary stabilization people permitted. The Mari-
time Commission consequently might reimburse us $350 a month for a
purchasing agent, whereas we paid $400 a month, and that $50 is one
of the items included in?
Mr. WEicium (interposing). And this is to get around the Wage
Stabilization Board's orders?
Mr. .z-iNSLOW. No, sir; the Wage Stabilization Board said $400
was proPer for that classification. The Maritime Commission said,
"Well, maybe that is true, but we cannot afford to pay more than $350
for a wage scale."
Mr. WErcti EL. This is one time where the Maritime was trying to
keep the expenses down?at the rate of $50 a month.
Mr. AINSLOW. Mr. Weichel, I have never come across people more
loathe to pay out money that they legally owed than in the Maritime
Commisi?on.
Mr. WEICH EL. It has not been shown so far here. Let us have the
next iter now. What are these nonreimbursables after $16,000? Can
you call them off?
Mr. AiNsnow. After $16,000? I gave you $38,000 last, didn't I?
Mr. WEICI EEL. No?employees, 16, I think.
Mr. AiNsLow: Traveling expenses, $38,000.
Mr. WEicu En. Traveling, 0. K.
Mr. iitricsi.ow. Donations, $4,500.
Mr. MtErotinn. Donations, $4,500.
Mr. AIwsiAw. Ship construction costs, which were nonreimbursable
of $232400.
Mr. , Eic ti EL. Ship construction costs, $232,000?
Mr. AiNsLow. $232,000.
Mr. WEicrim. Ship construction what?
? Mr. A TNsLow. costs; 11 onreimbursable costs?c-o-s-t-s.
Mr. WEICITEL. That means things that you put into the ship
material?
Approved For Release 2003/10/10 : CIA-RDP64600346R0004000600024
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 343
Mr. AINSLOW. Expenses that we incurred in these ships.
Mr. WEictiEL That would be labor or material?
Mr. AINSLOW. Overhead.
. Mr. WEICIIEL. All right.
Mr. AmsLow. Overhead allowance expense. Now, this is what you
said wasn't applicable to the ships, but I still say it iS ; $99,000.
Mr. WEicirm. Ninety-nine thousand dollars overhead that you spent
for operating this corporation?
Mr. ArNszow. No; the $99,000 is our cost for, maintaining the yard
during a period from when we stopped building ships, and our 'bond -
on this contract required that we do so at the Maritime Commission's
order.
Mr. Wmomm. Is that all of them,,now ?
Mr. AINSLOW. No; I have got miscellaneous, $31,000.
Mr. WEICI1EL. Thirty-one.. Is that all of them?
Mr. AINSLOW. And employees' bonus fund, $244,000.
Mr. WEionEL. Employees, $244,000. What was that for?
Mr. AmsLow. That was an incentive fund set up to the employees
based upon a policy that Thompson-Starrett had had for a great many
years, 15-percent bonus fund, and it is fully approved by Salary
Stabilization.
Mr. WEicuEL. It was based on what the Thompson-Starrett did?
I thought this was a St. Johns company.
Mr. AmrsLow. It is, but since Thompson-Starrett Co, controlled the
board, they carried over into this company one of their employee prac-
tices that had gone on for agood many years, which was setting up a
15-percent bonus fund for its employees, and it was fully approved
by the Salary Stabilization people.
Alt% WI:roma, All these nonreimbursables?that was all charged
up on the income tax as an expense of doing business, was it not?
Mr. AINSLOW. Tentatively.
Mr. WEICHEL. Yes.
Mr. AINSLOW. We haven't had any income-tax audits, yet.
Mr. WEICIIEL. You haven't had any income-tax audit, yet? You
haven't had any tax to pay, yet?
AINSLOW. Not yet. No; i.t is not that we have not had any in- ?
come tax yet. We have not been audited yet.
Mr. WEICHEL. So this was all as a result of the $600 investment?
Mr. ArNsLow. There is one more item, here, of $55,000, represent-
ing miscellaneous stuff.
in% WEiciaL. There is the second miscellaneous?
Mr. AINSLOW. Well, it happens to be shown here as surplus items.
It did not baappen in a current year.
Mr. WEICIIEL. So that the estimated fees were all on that $600 in-
vestment, less the renegotiation, which has not happened, and less
what taxes you will pay?all on $600 invested?
Mr. AINSLOW. Not $600 worth of capital stock?S600,000 worth of
debentures, and 21/2 million dollars
Mr. WEICIIEL (interposing). Well, those were debts; those were not
invested capital, and there wasn't any risk on the part of the in-
vestors: ? The only risk was the $600?
Mr. AINSLOW. $600000. There was plenty of risk attached to it.
Mr. WEICIIEL. Yes; but not by these people who formed the com-
pany? The risk was by the fellow who loaned it,. These people that
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
344
SHIPYARD PROFITS
;
put in the 600, they did not consider it as a risk at any time, or ask
to get it baCk, or have it sold?
Mr. AmisLow. That $600, though, invested in Thompson-Starrett
was one of these people to whom you just referred.
Mr. WEIplIEL. That is all.
The CHAIRIVIAN. Call your next witness.
Mr. Co_LF,s. May I ask one more question, Mr. Chairman? It came
up with Mr. Herter's question. I think it rather important. I can
phrase it so it just takes a yes or no.
The CHAnnkt,a.T. You will have to put it in one question, and one.
question only.
Mr. Col*s. One question, and one question only, Judge.
The CriptiliAN. -Yes, sir. And I am not going to open it for any-
body else. , I have been more liberal than I would really wish to be.
Mr. CoriEs. Ia response to Mr. Herter, you stated that the Merrill
interests had put up $400, and in return for that got a two-thirds.
equity in this company and whatever profits it might have. You also,
testified th, at after taxes, after renegotiation,
and after all of those
reimbursables, there would probably about $300,000 remaining for
distributiOn to stockholders. On the $400 which the Merrill interests
put up, do they not thus get a net return after taxes, after nonreim-
bursables, and after renegotiation, of 50000 per cent on that $400'
investment?
Mr. AINSLOW. Arithmetically, if you will leave out the years of
shipbuilding know how?right.
Mr. COEES. That is all. Thank you.
(Information furnished by the St. Johns River Shipbuilding Co.,.
in responSe to the committee's questionnaire, was received for the
record an41 marked "Exhibit 24.")
The CHAIRMAN. Stand aside. Next witness. Thank you very
much. Next witness, please.
Mr. GENNETT. The Bethlehem-Fairfield Shipyard.
The CI-IAIRMAN. Bethlehem-Fairfield Shipyard. Is the repre-
sentative here? If he is, take the stand. Please come up and be.
sworn. Is the witness here?
Mr. HOMER. Right here,/Judge Bland.
The CIIAIRMAN. One or more?
Mr. HomEn. One.
The CHAIRMAN. One? All right. All who are going to testify,
now, hold up their hands. You do solemnly swear that the testimony
you will give in this bearing and all future hearings on this investi-
gation will be the truth, the whole truth, and nothing but the truth,
so helpiou God. ..
Mr. 1-10MER. I do.
TESTIMONY Cr ARTHUR B. HOMER, PRESIDENT OF BETHLEHEM-
FAIRFIELD SHIPYARDS, INC.
Mr. GENNETT. Will you sir, give your full name for the record?
Mr. H ' 31ER. Arthur B. 110111er.
The C IAIRMAN. Homer?
Mr. HOMER. Homer?H-o-m-e-r.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 345
The CHAIRMAN. You did not write the Iliad?
Mr. HOMER. No; that came a little before my time.
Mr. GENNETT. What is your position with the Bethlehem-Fairfield
Shipyard?
Mr. HOMER. President of Bethlehem-Fairfield Shipyard.
Mr. GENNEriT. You were president during the wartime operations
of the shipyard?
Mr. HONER. Yes.
Mr. GENNETT. Can you tell us briefly the circumstances leading to
the formation Of the Bethlehem-Fairfield yard?which is, I take it,
a wholly owned subsidiary of Bethlehem Steel Corp.?
Mr. HOMER. Well, answer your last question first, yes, it is the
wholly owned subsidiary of the Bethlehem Steel Corp.; and, an-
swering your first one, I would like to give you the answer to it in
this way.
I understand that the primary interest of the committee at this
time is an accurate and detailed? accounting of the profits of those
companies which were called upon by the Maritime Commission to
carry out its wartime emergency cargo vessel construction program.
It has seemed to me that it might be helpful and that it might
save the committee's time if I were briefly to summarize our record
as it bears upon the construction of ships at Fairfield.
When the Liberty ship construction program was begun early in
1941, the need for a vast and unprecedented addition to the Nation's
ocean-cargo fleet was of supreme urgency. It came on top of the
already enormous Navy program at a time when all of the privately
owned shipbuilding facilities, as well as engine-producing, boiler-
producting, and material-producing facilities were all completely
committed to the Navy's shipbuilding program, the Maritime Com-
mission's long-range tanker and freighter program, and to other
national defense efforts.
When late in 1940, President Roosevelt called upon the Maritime
Commission to arrange for the expedited construction of hundreds of
additional emergency ocean-going cargo ships, there appear to be no
yards in which the ships could be built, and no plants in which the
engines boilers, and materials for them could be produced.
The Maritime Commission called upon Bethlehem Steel to take over
a very substantial part of the program.
Bethlehem's long experienced shipbuilding personnel and organiza-
tion was already engaged in a shipbuilding program for the Navy
and the Maritime Commission greater than any single shipbuilding .
organization ever had undertaken. It immediately agreed to under-
take this additional shipbuilding assignment. For this new emer-
gency program, an old, partially completed shipyard, which had
never produced a ship, but which included four partially completed
shipways and a few small shops, was found at Fairfield, Md., near Bal-
timore, and near it was a large car-fabricating shop which could be
used for fabricating ship material. Our well-established shipbuild-
ing, ship-repairing and steel-making, processing and fabricating per-
sonnel and facilities in the Baltimore district were freely called upon
to help. We knew that there was available a large though untrained
labor supply in that locality from which we could build up a new
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For
346
Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
shipyard force, thereby avoiding the necessity of moving labor to an
isolated location with the attendant problems and costs of housing
and transportation.
It was evident to the Commission that whenever and as soon as the
program had been completed, there would be no need for the emer-
gency facilities which would be required to carry out this program,
since the Capacity of the old established private shipyards had been
expanded far beyond any possible peacetime demand for ship con-
struction. The Commission therefore immediately decided that the
cost of the emergency shipbuilding facilities would have to be recog-
nized as a Part of the cost of building the fleet and undertook to bear
the cost of the facilities if Bethlehem would agree to undertake their
constructiUn. This we agreed to do without fee.
To the production of the material necessary for the emergency ships,
and to the fabrication of the material for the ships and tothe con-
struction of the ships, we undertook to devote Bethlehem's construc-
tion, production technical, shipbuilding, and procurement personnel
as well as Bethlehem's existing production, fabricating and shipbuild-
ing facilities and the financial resources which had been invested in
Bethlehem by its stockholders.
To perform this vast job in an orderly way, we organized Bethle-
hem-Fairfleld Shipyard,_Inc., in January 1941 with a nominal capital
of $1,000,000 in cash. After completing the construction of the new
emergencY shipbuilding facilities our yard at Fairfield in December
1941 delivered America's first Liberty ship, the Patrick Henry, 19 days
ahead of the contract delivery date.
For the Nation's emergency cargo ship program Bethlehem pro-
duced 2,700,000 tons of rolled steel; fabricated 42,000 tons of mate-
rial; cast or forged and machined 44,000 tons of propellers, shafting,
stern frames, and the like; and constructed and delivered 508 ships
at Fairfield.
Our yard at Fairfield built more ships than any other single ship-
yard in the country, and its costs on Victory ships were lower than
those of any other yard in the country.
Fairfield's performance in the Nation's LST tank-landing-ship pro-
gram, which was of vital strategic importance, exceeded that of any
yard in t e country except Bethlehem's yard at Quincy, Mass., which
as you kn w, is an old and well-established ship-construction yard.
? Fairfiel consistently delivered ships far ahead of schedule and
consistent y at low cost.
With this too brief background picture. of the task that was put up
to us and of our performance of that task, we can now discuss profits,
which I shall do in round figures. The average cost of such ships
to the Government was $1,900,000. This includes all costs of every-
thing that went into the ships in the way of labor and material. It
does not include any part of the cost of the emergency shipbuilding
facilities used in building the emergency fleet.
On each such average S1,900,000 per ship, Bethlehem earned a profit
after renegotiation and taxes of $28,000. This includes all profit on
steel, on forging's, on castings, on fabricated steel material, and on
the shipbuilding activities at Fairfield.
A morel detailed record as to profits on the various classes of ships
built at Fairfield is as follows:
?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 347
On LST tank-landing ships, which had a total delivered labor and
material cost of $1,576,000 per ship? Bethlehem had a total net profit
on shipbuilding work and on material manufactured by it of $15,600.
On Liberty 'nships, having a total labor and material delivered cost
of 81,807,000, Bethlehem had a total net profit of $23,000, and on
Victory ships, which had a total labor and material delivered cost of
$2,471,000 per vessel, Bethlehem had a total net profit of $51,000.
These figures are average costs for each class of vessels at Fairfield
and average profits for each class of vessels, but the profits include
the entire profit to Bethlehem on shipbuilding work material, and
everything else. The total cost of the labor and material that went
into the 508 ships was almost $1,000,000,000?actually $973,587,128.
The aggregate of all profits, after renegotiation and taxes realized
on all of the material furnished by Bethlehem for the 508 ships built
t Fairfield and on all the work performed by it in building the ships
is $14,200,000. Bethlehem's profit was, therefore, about 1.46 percent
the delivered cost of the ships.
All of Bethlehem's resources were made available for use in the
ergency cargo vessel construction program in common with Bethle-
m's other vast war programs. Its properties had at that time a ''()Toss
.)st to Bethlehem of about $840,000,000. Bethlehem's cash andeur-
,.ent assets amounted to about $180,000,000, and of this amount over
'$16,000,000 was used in connection with the operations of Fairfield.
It is, of course, obvious that all of Bethlehem's physical assets and
all of Bethlehem's cash and current assets were not used in connection
with building the 508 ships, but there is no way of determining exactly
which of Bethlehem's own property was involved in the production
of the material and the fabrication of parts that went into these ships.
But to the extent that Bethlehem's entire assets and organization, in-
cluding Bethlehem Steel Corp., Bethlehem Steel Co., both ship and
steel divisions and other subsidiary companies, were needed in the
emergency-cargo program, and to the extent they could be diverted
from other war production work, they were wholeheartedly devoted
to the efficient prosecution of the emergency cargo ship program.
There can be no question that if almost a billion dollars of Bethle-
hem's productive assets and cash had not been available, it is doubtful
if the Nation's emergency cargo shipbuilding program could have been
performed.
In addition to the vast amount of cash and material-producing and
fabricating facilities which Bethlehem devoted to the successful pros-
ecution of the emergency cargo-ship program Bethlehem and its stock-
holders made another equally important and essential contribution to
that program.
Over a period of almost 40 years and sometimes at a loss, the stock-
holders of Bethlehem had financed the organization, development, and
maintenance of Bethlehem's fully integrated shipbuilding organiza-
.tion of technical and supervisory forces and of trained workmen,
skilled in the shipbuilding crafts and trades, without which America's
wartime fleet of ships could not have been produced. No one can
build ships without a basic nucleus of trained shipbuilders around
which, and by means of which, the general shipyard labor force is de-
veloped and coordinated. Bethlehem's trained organization of skilled
shipyard workmen and supervisory personnel, and similar organiza-
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For
348
Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIP YARD PROFITS
tions which had been maintained by the other four or five old-line
established shipbuilding companies, were repeatedly turned to and
drawn Upon to provide the backbone and essential base upon which
were established the emergency wartime yards, such as Fairfield and
yards managed by general construction companies. Bethlehem made
an essential and vital contribution of trained men not only to the Fair-
field yard but to many of the other emergency war yards.
At Fairfield we built up our labor force to over 47,000 men through
intensi.ve trailing and job-instruction programs. But without a basic
nucleus of _from 800 to 900 skilled shipbuilders drawn from Bethle-
hem's on long-established shipyards, and trained over many years at
high cost, all of which was borne by the investments made by Bethle-
hem's stockholders, the Fairfield shipyard with all of the facilities
installed with Government funds could never have built ships upon -
successf I production basis, unless, of course, we at Fairfield had don
what m st of the other emergency yards were forced to do?that !
raid the shipbuilding skills and supervisory forces that are assets
some ol -line, established shipyard whose basic shipbuilding orga
zation had been built up, trained, and maintained at the expense
invested funds furnished by stockholders other than our own.
Let me emphasize this one fact. Seaworthy, oceangoing ships cal
not be built -in America, either in time of war or in time of peace,
-unless -We maintain in America at all times an adequate force of trained
-shipbuilding skills and it has been our experience in America that the
maintenance of the essential basic shipbuilding force in times of peace
is a costly and generally unprofitable undertaking, indispensable
though is has always been and always will be for the safety of our Na-
tion in times of emergency.
I have been told that I might be asked why Bethlehem was paid a
profit for the work we did in connection with the emergency ship-
building program. In other words, why was it proper for Bethlehem
to earn a profit of $28,000 per ship for the material it manufactured
and the, work it performed to build emergency oceangoing ships' the
average' delivered cost of which was $1,900,000? What justified that
profit of about 1.46 percent?
First., It was a part of a low return on the invested assets of about
$1,000,000,000 which were committed by Bethlehem's 80,000 stockhold-
ers to the war production effort.
Second: The 1.46-percent profit on the delivered cost of the ships
built at Fairfield was partial compensation for the long-term invest-
ment which the stockholders of Bethlehem had made in developing
and maintaining an essential and substantial part of America's vitally
needed shipbuildin g skills.
Third. The 1.46-percent profit was compensation for producing ma-
terials 'Ilsed in building the emergency cargo ships, fabricating mate-
rial, organizing the emergency yard, and building the 508 emergency
cargo vessels.
Fourth. Let's approach this question from the other direction. Why
did the 11aritirne Commission allow a profit to Bethlehem for the con-
structioi of 508 ships of the emergency fleet,? Or stated another way?
Why did the Commission enter into cost-lus-incentive-fee contracts?
.During the negotiation of the contracts for the emergency fleet of
cargo ships in 1941, the Commission's representatives recognized that
Approved For
Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 349
the contractors would be confronted by uncertainties as to the p.mounts
of the costs of performing the shipbuilding contracts. The contrac-
tors Were being asked by the Commission to undertake the construc-
tion of hundreds of major oceangoing vessels in yards which not only
were not in existence at the time the negotiations were taking place,
but which were to be built concurrently with the construction of
many of the vessels desired by the Commission Furthermore_, the
contractors had not then had the opportunity even to begin to build
up the huge untrained labor forces Which would be required for such
an unprecedented shipbuilding program and, since neither the kind
of labor which could be obtained, nor its exact source' were then
known, it was not possible to forecast the extent to which labor-train-
ing programs would have to be developed and maintained by .the
contractors in order to create the shipbuilding organizations required
to complete the expedited delivery schedules which were made neces-
>ary by the Nation's defense necessities. The Commission's represent-
Alves also realized that the 1941 wage rates could not be used to
.eterrnine the costs to be incurred in constructing vessels, since it was
euven then apparent that wage rates would be increased in unpredict-
Imble amounts while the vessels were under construction as a part of a
c(national defense 3rogram which would inevitably create serious labor
r shortages througiiout the country. In view of the abnormal costwise
uncertainties inherent in undertaking the construction of great num-
bers of vessels under such circumstances, the Commission recognized
that it could not justifiably ask or expect any contractor to undertake
the construction of the emergency cargo vessels upon a fixed-price
basis, and that whatever tke cost of the extraordinary emergency pro-
gram might be, the cost should be borne by the entire Nation.
The Commission also recognized that the contractor was entitled
to some reasonable fee for the extraordinary task that was being under-
taken. The Commission also realized that a. variable fee based on
low-cost efficient performance and speed of delivery was the only
effective way that the Commission had of controlling the performance
of the tremendous emergency shipbuilding program. It seems clear
that if the form of contract had provided for a fixed fee or even for
no fee at all, the total cost of the emergency shipbuilding program
would have been increased by hundreds of millions of dollars. For
if the contract had provided that the contractor would be paid his
cost and nothing more, each contractor would have been guided in
the performance of his contract solely by his own judgment. Some
contractors would have undertaken to build the greatest possible
number of ships, completely disregarding cost and adding every pos-
sible man, whether competent or incompetent and whether needed for
a reasonably full day's work or not, on the theory that no matter how
inefficient the additional workmen might be or how overcrowded the
yard might be, such additional man might get out a little bit more
work. Some contractors might have sought above all else to keep
costs low even at a sacrifice of production.
To complete successfully the Commission's program, neither of these
approaches could be followed.
What the Commission wanted and what the Nation had to have was
a balance between these two approaches; and, by providing for a vari-
able fee based both on efficient low-cost performance and early de-
93486-46-23
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
350 SHIPYARD PROFITS
livery of ,ships, the Commission provided automatic controls that
substantially contributed to the successful completion of such a vast
emergency program.
The correctness of the basis as established has been tested and proven
by the extraordinarily successful performance of our emergency
shipbuilding program.
I have seen published a figure of about $54,000,000 as representing
Bethlehem's profit on the shipbuilding work at Fairfield. Let's see
what this figure should be. After renegotiation and taxes' the amount
actually realized as profit by Bethlehem on the Fairfield shipbuilding
work, excluding profit on Bethlehem manufactured material that
went into: the ships, was $12,449,968 or 1.3 percent of the delivered
cost of the vessels; and the over-all profit to Bethlehem was $14,200,000, _
or 1.46 percent of the delivered cost of the ships.
The Congress saw to it, at the very beginning, that no excessive
or unreasunable:profits could be made on this program. It did thil-
by retaining the right to renegotiate (after completion) any contra(
if unreasonable profit developed, and it taxed the remainder throug.!
normal tax, surtax, and excess profits tax. It seems necessary to em-
phasize this if the public is to obtain an accurate picture of the tru-)
net profits of the shipbuilder.
The Government policy of providing emergency capital facilities?,
and letting contracts to private builders on a variable fee basis (de-
pendent upon efficient performance and speed of delivery) not :only
resulted in a brilliant performance and won the victory, but it also
saved vast sums of the taxpayers' money. It automatically set a
formula upon which thousands of firms and people could work in the
best interests of the Nation as a whole. Any other method would
have resulted in uncertainty and delay. I believe the results speak
for themselves and that the public appreciates the shipbuilding accom-
plishments. It was a successful program' gentlemen, and one that
can stand; as a fine tribute to the intelligent teamwork of Government
and induStry working together to win a war. Thank you.
The CrIAIRISTAN. Any questions?
Mr. GENNETT. MY. 110111DE, there are a few questions that I would
like to as you.
The CITAIRMAN. Just as -few, now, as possible. Go ahead.
Mr. GENNETT. You have commented about the profit of $54,000,000
that you have seen published in the newspaper ? the figure is in fact,
slightly less than $54,000,000. It was given to us by the Maritime
Commission. Now, your own figures, which you forwarded to the
committee recently, show that before renegotiation and taxes the
profits earned, were $51,851,092.
MY. BRADLEY. Will counsel yield?
MY. G NNETT. Yes, sir.
Mr. B ADLEY. I think it is fair to point out, Mr. Homer, that per-
haps that term "total profits" on this Maritime Commission chart is
a misnonier. It should be "fees paid."
Mr. GENNE'CT. That is right.
Mr. BADLEY. Clearly it is not profits, it is fees paid before taxes.
MY. GENNETT. I put this to you, because in most cases we have ob-
tained figures from various witnesses before taxes and renegotiation,
as well as after taxes and renegotiation. I understand from your own
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
351
statement that after renegotiations and disallowed costs the fees and
Profits earned were $40,911,865 or a total of 8.3 percent on the gross
sales value.
The CHAIRMAN. What is the question? Is that the question?
Mr. GENNETT. I am asking if that figure is correct,
Mr. HOMER. Would you mind repeating that question again?
The CHAIRMAN. If you can.
(Question read.)
Mr. HOMER. Did you not also say that. this was before Federal taxes,,
based on income?
Mr. GENNETT. Yes, sir.
Mr. HOMER. $40,911,8652 before Federal taxes?
Mr. GENNETT. That is right.
Mr. HOMER. That is what we gave you.
Mr. GENNETT. I stated that it is what you gave me.
Mr. HOMER. You are reading from our statement?
Mr. GENNETT. Yes.
Mr. HOMER. Yes; all right.
Mr. GENNETT. I am pointing out that the figures you gave in your
prepared statement of 12 or 14 million?I forget the exact figure?were
after taxes. The figures I want now are the total fees and profits paid
to you?before taxes and before renegotiation. Further, what was the
figure after renegotiation? Is the $40,000,000 after renegotiation of
profits?
Mr. HomEn. After renegotiation.
Mr. WEICHEL. May I ask, there, is that after renegotiation of this-
So-called 53,000,000 in this exhibit 1?
Mr. GENNETT. Exhibit 1, Mr. Weichel, does not quite agree with
the figures furnished by the Bethlehem-Fairfield Co., whose figures.
are $51,851,000.
Mr. WEICIIEL. Oh2 just for a couple of million, we won't argue with
him. After renegotiation, what is the whole thing?this 40?
Mr. GENNETT. es sir.
Mr. HomEn. That is before taxes.
Mr. GENNETT. Yes, sir; you gave us the figures after taxes.
Mr. HONER. Yes; and after renegotiation.
Mr. GENNETT. And after renegotiation. Now, have you any figure
as to the percentage earned on the net volume of business, before
renegotiation?
Mr. HOMER. You mentioned some percent, there; I do not know
what; and you wanted me to confirm it. I think I had better check it..
Mr. GENNETT. All right, sir. I took the figure of $40,911,865..
Mr. HOMER. Yes.
Mr. GENNETT. Which is fees and profits after renegotiation and.
disallowed costs, and before taxes, to the total payments of $513,-
923,665 ?
Mr. HOMER. Where did that come from?
Mr. GENNETT. That is on your statement, in column J.
Mr._ HOMER. That is the amount paid.
Mr. GENNETT. On the contracts?
Mr. HOMER. Yes; well, that doesn't mean anything. The figure you
have given to us is $973,587,128.
Mr. GENNETT. That sum includes Government materials.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
352
SHIPYARD PROFITS
Mr. HOMER. Certainly; that is the cost of the ship.
Mr. GENNETT. Yes; what is it on the amount that Bethlehem put
in' then?
Mr. HOMER. What do you mean, "Bethlehem put in"?
Mr. GENNETT. You state that the figure should be 900,000,000. I
have taken a much smaller figure of 513,000,000, which gives the dif-
ference of?
Mr. HOMER (interposing). Why don't you take 1,000,000 dollars?
You will; get i higher percentage.
Mr. GENNETT. I am not trying to get a higher percentage. I am
merely trying to get the facts.
Mr. HOmER. Well, what is your percentage figure based on?
Mr. GENNETT. My percentage figure is based on?
Mr. HOMER (interposing). I am not supposed to ask you questions;
you ask me !
Mr. G NNE'rT. Well, that will be all right with me.
The C TAIRMAN. That is all right.
Mr. G NNErT. The percentage which I gave, 8.3 percent, is the re-
lation o $40,000,000 to the total payments made by the Commission,
513,000, 00, which represent the work performed by the Bethlehem-
Fairfiel Yards Inc.
Mr. OMER. Well, those were payments up to a certain date. They
do not r present--
Mr. RADLEY (interposing). I think the discrepancy, there, Mr.
Homer, 's due to the fact that in setting up all these figures we have
realized in many yards the Maritime Commission purchased the steel
and furnished it to the shipbuilder, and then his records show, as for
instance mine do' here, given us by the Maritime Commission, that
they made you a total payment of 513,000,000 for services performed
in the cqinstruction of the ships not including the material.
Mr. GENNETT. Which the Government, of course, furnished, Mr.
Bradley.
Mr. BRADLEY. Well, in the case of Bethlehem, you see they furnished
the steel., but I mean the Maritime Commission presumably had the
Bethlehem Co., and in turn the Bethlehem Steel Co. ? the Maritime
,
Commi sion then furnished it to the Bethlehem-Fairfield. I presume
that is the way they did it. That is the way they did everywhere else.
Mr. HomEn. Will you use the total amounts paid, or payable, as
your base?
Mr. ENN ETT. You mean the 973 million?
Mr. Iorint. No?$534,229,958. That is the total amounts paid, or
payabl ?
Mr. ENNETT. That $534,229,958 includes a portion of the fees, Mr.
Homer and I think that would give a greater percentage figure than
the 8.3 percent which I mentioned. I have deducted in this computa-
tion fes of 22 million, and nonreimbursed costs of 239 thousand.
Mr. IOMFR. Well, your mathematical calculation may be all right,
but we, did not agree that that is the basis on which you should cal-
culate Profit on the work. Now, does that answer your question?
Mr. 'GEN-NETT. That is all right. Will you state what basis you
think tie profit should be calculated upon?
Mr. HoluliR. It should be calculated upon the total delivered cost
of the vessels to the Government, which would be $973,587,128.
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 353
Mr. GENNETT. And upon that sum--
Mr. HOMER. It is 4.3 percent before taxes.
Mr. GENNETr. Before taxes?
Mr. HOMER. Yes sir.
Mr. WEICIIEL. Does that include what the Government put in, the
material that they put in?
Mr. HOMER. The Government did not put anything in. We put
it in.
Mr. WEICHEL. This was all reimbursable, that you charged together?
Mr. HOMER. No,
no, no; not all of it. To us. The Government
furnished some of that material. ?
Mr. WEICIIEL. You are making the base of your figure on the basis
that the material that the Government furnished was added to what
you furnished?
Mr. HOMER. We are figuring on the base of the delivered cost of
the ship; that is, the cost of the ship as we delivered it to the Gov-
ernment.
Mr. WEICHEL. Yes, but about half of that amount was put up by
the Government for material. Did you base it on those?
Mr. HOMER. The Government did not put anything in. We put it
in. The Government may have purchased it.
Mr. WEIClIEL. Well, I mean the Government purchased it. You
are making the estimate on the basis of the material?all material
bought? Tell us what you did.
Mr. HOMER. That is right, but the cost of a ship is the total cost
of the ship, including the material that went into it.
Mr. WEicium. But you are basing this on what the Government
put in by way of material, which you did not put in? I mean, they -
bought it?purchased it.
Mr. HOMER. They bought it and furnished it to us to install in the
ship or to work into the ship. It went out as part of the ship, and we
performed labor in doing that job.
Mr. BRADLEY. May I ask a question, right there, as to the method
which you built ships by, Mr.?Homer. ? I ask that for this reason.
As I explained to counsel, or explained to you, most of these con-
tractors have all had the material under their standard contracts fur-
nished to them by the Maritime Commission, on these manufactured.
products. I was wondering whether in the case of Bethlehem-Fair-
field perhaps the Maritime Commission were billed the steel by Beth-
lehem Steel Co., and turned it over to Bethlehem-Fairfield, and the,
charge, the fees paid to Bethlehem-Fairfield were for the processing
or the construction of the ships from that steel. Is that the way it was
handled in the case of Bethlehem?
Mr. HOMER. The Maritime purchased the steel.
Mr. BRADLEY. They purchased the steel?
Mr. HOMER. And allocated it to the different yards; but we may
have had a large amount of money in the steel that went to Fairfield.
? Mr. BRADLEY. I appreciate that.
Mr. HOMER. Because of the stock carried at Fairfield, for which we
had not been paid, There is always a lag there but essentially prac-
tically all of the material was furnished by the Maritime Commission
under their over-all purchasing plan to buy in quantity and then
allocate to the different yards. The only difference between our doing
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
.354
SHIPYARD PROFITS
it and t eir doing it was that they set up the _purchasing department
and sai , "We will do it, and your purchasing department won't have
to do it' ; but everything else was the same, and we had to keep all the
records, we had to expedite the material, we had to check to be sure
that it N as going to get in in time to go into the ship, so that all of the
functio s normally performed by a shipbuilder in the procurement of
materia and in the expediting of material and in putting it into the
11
ship waS exactly the same except for one thing, that that was only in
the fact that instead of having a purchasing agent in the Fairfield,
there was a purchasing agent in Washington in the Maritime Coni-
mission's office. Now, whether that was a. good thing or not the Mari-
thne will have to tell you. I do not know whether they benefited or
not, but we had difficulties in procuring and getting material under
that system that we probably would not have had if we had handled it
ourselveS. .
Mr. BRADLEY. Of course, you . were in a rather different position
from most of the other shipbuilders in that you were a subsidiary of
the Steel_ Corp.?
i Mr. HOMER. That is right. We had a big purchasing, a country-
wide purchasing organization, who was ready to step right in and
handle that. As a matter of fact we did help the Maritime Commis-
sion in their purchasing personnel. They needed people with ex-
perience They came to us, "Can you help is out?" "Yes." We did.
We helped them out.
Mr. BRADLEY. You loaned them some of your own men?
Mr. HOMER. And that was of great value to them and naturally of
value to all of the other shipyards to have some experienced people in
there to help the material end, because it is vital in the construction
of ships, in scheduling that is going to work.
Mr. BRADLEY. I was just trying to clear up any confusion that might
exist in your mind, from the way we figure these costs, and in. our mind,
as to how you. operated, because we have been trying to set up a com-
parison between each of these two companies.
_Mr. FIomEn. Well, I think the only fair basis of comparison is in-
cluding the material furnished by the Maritime Commission as part
of the cost of the ship, So that the ship as it goes out of the yard is a
complet unit, and it cost so much, and turn that out as a complete
unit. Nnv, whether we buy the material or whether somebody else
bought it does not make any difference. You should include the value
of that.
Mr. BRADLEY. I assure you, sir, we have been doing that in this
hearing, ; with every company that has come in here. We have been
reading fables here till we are blue in the face.
Mr. HOMER., It is very confusing to sit here?I do not want to take
up your time with a lot of discussion along this line?it is very con-
fusing tu use two sets of. figures; one: What did the yard actually
bill the Maritime Commission, and, What was the total delivered cost
of the slip? I can see where a great deal of confusion can come in
there, and we are trying to confine it to one place. '
Mr. BRADLEY. As far as figuring the profits for ship-building, alone,
we have been using this "fees paid to the contractors.'
. Mr. I--o3,TER. Well, that may or may not be a fair basis. _I do not
know whether you want me to discuss it or not.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 355
Mr. BRADLEY. We are just trying to keep everything on a par, here,
and trying to get through with these hearings tonight.
Mr. HOMER. I have just suggested I do not feel that is a fair basis,
because it is not the basis that has existed for years in the shipbuilding
industry or in any other industry in det6rmining profits or percentage
of profits.
BRADLEY. While your contracts on ship construction, MCc con-
tracts, if they are the same, and I assume they are, as they were with
other companies, the Maritime Commission agreed to furnish you
with all material?
Mr. HOMER. Yes.
Mr. BRADLEY. And you were to furnish the brains and the labor?
? Mr. HOMER. Yes.
Mr. BRADLEY. And so on, for putting it together in the form of a
ship, as we compare your costs, for instance, with?
Mr. HomEn (interposing). The point I want to make, Mr. Bradley,
is this, that even though they did do it, it did not relieve any of the
shipyards from the normal functions of procuring, expediting, plan-
ning, and scheduling material, which was vital to the performance of
an procurement.
Mr. I can appreciate it would be.
? Mr. HOMER. And all that the Maritime performed was a purchasing
department. Now, we could have done it, or they could have done it;
it did not make any difference, see.
Mr. BRADLEY. That is done, it is over the dam.
Mr. HOMER. It is done., but I bring it up because I do not think the
basis is quite fair, to just take the billed value to the Maritime.
The CHAIRMAN. All right., any more questions?
Mr. GENNETT. Mr. Homer, ? in your statement you mentioned the
figure of $12,40,968 as net profit after taxes.
Mr. Homut. $12,449,968. I guess that checks with my statement,
does it?
Mr. GENNETT. Excuse. me; I believe your statement referred to
$14,000,000.
Mr.. Holum. All right. I mentioned both figures. On page 13 of
my statement, I said [reading] :
After renegotiation and taxes, the amount actually realized as profit by
Bethlehem on the Fairfield shipbuilding work, excluding profit on Bethlehem-
manufactured material that went into the ships, was $12,449,968, or 1.3 percent
of the delivered cost of the vessels; and the over-all profit to Bethlehem was
$14,200,000, or 1.46 percent of the delivered cost of the ships.
Mr. GENNETT. Yes, sir.
Mr. HOMER. You understand the difference between the two?
Mr. GENNETT. Will you explain it?
Mr. HOMER. Or shouldn't I ask you that question?
Mr: GENNETT. Will you explain it, please?
Mr. HOMER. The difference is that in the case of the $12,449,968,
that is the Bethlehem-Fairfield operation; the $14;200,000 is the over-
all Bethlehem profit?includes the profits on materials which we pro-
duced and which went into the ships that were built at Fairfield; and
I think that is explained in here quite well, as to what we have covered,
and that gives you the answer, doesn't it, to what you want?
Mr. GENNETT. Yes. And that $14,200,000 figure, I take it, covers
the profit made by the steel company on materials sold to the Maritime
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
356 SHIPYARD PROFITS
Commission or allocated to you for your shipbuilding program at
Bethlehem-Fairfield?
Mr. HOMER. No, no. The difference between the two covers the
profit made by cther activities of the Bethlehem Steel Corp. outside
of Bethlehem-Fairfield.
Mr. GENNETT. But not the steel-making?
Mr. HOMER. Oh, yes; it includes the steel that we furnished, that
went into the ships that we built.
Mr. GENATETT. Well, it includes the steel, just as I said in the first
instance I Delieve.
Mr. HOMER. Will you repeat your question?
Mr. GENNETT. Will the stenographer read the question?
Mr. HOMER. Your question was this: Does the difference between
the 12 million and the 14 million include profit on the steel that went
into the ships at Fairfield?
Mr. GENNETT. That is right.
Mr. HOMER. And I said "Yes."
The CHAIRMAN. All right; the next question.
Mr. CrENNEIvr. I have one more question, Mr. Homer, if you please.
Did the Bethlehem-Fairfield shipyard find it necessary to borrow
funds to finance its shipbuilding program?
Mr. HOMER. We did not borrow any funds outside of the Bethlehem
organization. We did borrow funds from the parent organization
which were necessary in order to take care of the current expenditures,
the difference between what we received from the Maritime Com-
mission and what we had to spend. In other words, it was working
funds, and those amounts were supplied by the parent company as
we needed them at the Fairfield operation.
Mr. GENNET1. So that all of the shipbuilding operations were in
fact supported by the assets and resources of the Bethlehem Steel
Corp.?
Mr. HOMER. Exactly.
Mr. GENNETT. And the Bethlehem Steel Co.?
Mr. HOMER. Exactly, as I covered in this statement.
Mr. GENNET1. Yes, sir.
Mr. HOMER.. All of the resources, both financial and physical, of
the Bethlehem Steel Corp., parent organization, and other companies,
subsidiary companies, were available and were to a great extent used
to support the operations at the Bethlehem-Fairfield shipyard.
Mr. GI:ill-NETT. Although the actual capital of Bethlehem-Fairfield,
which you indicated was a nominal capital, was $1,000,000, was it not?
Mr. HOMER. That is right?nominal; $1,000,000 just for the pur-
poses of setting up and starting a company to do this job for the
Maritime Commission. That did not mean we were limited to that
by any means, because we had the assets of Bethlehem as a whole
in back of it solidly.
Mr. GENNET9r. Were all the assets of Bethlehem Steel Corp. solidly
behind Bethlehem-Fairfield?
The CHAIRMAN. I think he answered.
Mr. HOMER. All I can say there is that any time that Bethlehem-
Fairfield needed any money they knew where they could get it with-
out going to any bank or Government agency, and they got it.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 357
Mr. GENNETT. Then would not Bethlehem Steel Corp. have been
liable for suits or actions brought against Bethlehem-Fairfield ship-
yards?
Mr. HOMER. No; I do not think so; but there was no necessity of
anyone's bringing any suits, because there were no creditors. -We
paid our bills. It never came up.
The CIIAIRMAN. There were none brought, were there?
Mr. GENNETT. Were there only losses HI the steel-making division
which might have been charged against shipbuilding pro ts of the
Bethlehem-Fairfield Shipyarel?
Mr. HOMER. I do not know whether I can answer that, without
looking at the statement. No; during that period there were none.
Mr. GENNETT. Was there any amortization of steelmaking facili-
ties charged against shipbuilding profits?
Mr. IPOMER. There are none.
Mr. GENNETT. Thank you. That is all, Mr. Chairman.
The CHAIRMAN. Mr. Bradley!
Mr. BRADLEY. Is General Construction Co. connected with Bethle-
hem in any way?
Mr. HOMER. General Construction Co.?
Mr. BRADLEY. General Construction Co.
Mr. Homna. No sir.
Mr. BRADLEY. You merely refer to them as another veteran ship-
building firm, in your remarks?
Mr. HOMER. No; I think you perhaps misunderstood what I said.
I said "and other general contracting companies."
Mr. BRADLEY. Oh. I beg your pardon. ?
Mr. HOMER. I was including the whole field of the contracting in-
dustry, members of that, who came into the shipbuilding program--a
general term only.
Mr. BRADLEY. I do not believe I have any more, Mr. Chairman.
The CHAIRMAN. Mr. Weichel.
Mr. WErciTEL. The Bethlehem-Fairfield Shipyards, Inc.?there was
a million dollars in cash put in that by the Bethlehem Steel Corp., and
they owned all the stock?
Mr. HomEa. That is right.
Mr. WEIGHEL. What is the investment of the Bethlehem Steel Corp.?
What is their total investment?
Mr. HOMER. Are you referring to the present or some particular year,
Mr. Weichel ?
Mr. WEIGHED. Well, back in the time that you formed this company.
Mr. HOMER. It varies every year.
Mr. WEICHEL. Well, I mean, how much does it vary? By a hundred
million a year?
Mr. HOMER. Oh., no.
Mr. WEICHEL. Or how much does it vary? A couple of million?
Mr. HOMER. No.
Mr. WEICHEL. Or how many?
Mr. HOMER. You pick out a year, and I will give it to you.
Mr. WEIGHED. When did you start this company?
Mr. HOMER. In January 1941.
Mr. WEIGHED. What was the investment of Bethlehem Steel Corp.
in?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
358
SHIPYARD PROFITS
Mr. H91VIER (interposing). '41?
Mr. WEicHEL. Have you got '39, '40, '41, and '42 there?
Mr. HOMER. We gave you, on page 6 of my report, that Bethlehem
cash and, current assets amounted to about 180 million dollars, and
of this amout over 16 million was used in connection with the operations
at Fairfield.
Mr. WEIGH EL. No; that is not what I want. I want what the
Bethlehem Steel Corp. investment is?what it was worth in 1939.
What does it show its assets for the Bethlehem Steel Corp., the whole
Bethlehem Steel Corp., in 1939, '40, and '41?
Mr. HOMER Well, I also gave you our gross. The properties and
the grosS cost were about $840,000,000.
Mr. WEroHEL. What, the Bethlehem Steel Corp. in 1939?
Mr. HOMER. 1939?
Mr. WE-ion-EL. It was worth how much? How much was its total
investment?
Mr. HomER. Right. Cash?
Mr. WErcHEL. Cash, property, machinery.
Mr. HOMER. Total assets, according to the consolidated balance
sheet, fiscal year ending December 31, 1939, as shown in our annual
report to stockholders, was $732,932,382.
Mr. WEICHEL. Now, here is what I want to ask: That figure that
you gave?is that money in the bank, real property, and chattel prop-
erty, or is there anything more than that in that? And if there is,
what is it? What is in it besides that?
Mr. HOMER. Yes; it is all of the assets of the corporation.
? Mr. WEICHEI. I know; but what are they? I mean the assets are
money--
Mr. lArER. You want me to read them all?
Mr. EICTIEL. Real property. No; I do not want you to read
them all, but I am asking you this: There is money, cash, real
estate?
MT. HOIVIER. Look at it.
Mr.-WEICIIEL. All right; let rne have it, and I will.
Mr. I1OMEn. Save time. I do not know what you are driving at.
Mr. WElCH EL. Well, what are generally these? Are those assets
outside of real estate? There is real estate, cash, and chattel property?
Mr. Hb-mER Thej are all listed.
Mr. Wmomm. How much does that represent, roughly?
Mr. HomER. They are all listed, right in front of you.
Mr. WEICHEL. Well, how much does' it represent, roughly?
Mr. HOMER. Well, you have got. it now. Give it back to me and I'll
tell you
Mr. WEICIIEL. You interpret your own stuff. You don't know,
either, evidently. You are asking me.
Mr. HOMER . Well, it changes every month, every year.
Mr. WEICHEL. Well, I am asking you?like the 732 million.
Mr. HOMER. If you will give me the specific items that you want in
1939 I would be glad to answer your question.
Mr. WERTH-EL. All right. I mean just in round figures.
Mr. HOMER ; Well, that is not very specific.
Mr. WEIGH EL. All right.
Mr. liomER. Cash?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 359
Mr. WracnEL. How much was the cash?
Mr. Hamm. Cash, $75,554,000, in round figures.
Mr. WEICHEL. Now real estate?
MT. HOMER. Cash on deposit--
Mr. WEICITEL (interposing). I thought you said 75 million was
cash. What is the real estate?
Mr. HOMER. Well, what do you want? Current assets? That
would (rive you the whole thing. Total current assets, $244,000,000.
Mr. *EICITEL. Does that include real estate.?
Mr. HOMER. No.
Mr. WEionEL. And machinery?
Mr. HOMER. No.
Mr. WEICHEL. What is in the current assets?bills receivable or
something like that? In other words, I want the fixed assets.
Mr. HOMER. Inventories, and so forth?
Mr. WEronEL. And the value of fixed assets.
Mr. EllomER. The fixed assets? All right. The depreciated value?
Mr. WEICIIEL. Yes.
Mr. HOMER. The depreciated value is $462,887,000.
Mr. WEICHEL. Four hundred and sixty-two million?
Mr. HOMER. Property. That is property.
Mr. WEICHEL. Fixed assets, 462 million?
Mr. HOMER That is the net fixed assets.
Mr. WElisium.,. That is net fixed assets?
Mr. HOMER That is after reserves for depreciation.
Mr. WEICHEL. Then do you have cash in the bank that you add to
that?
Mr. HOMER. Yes; $75,000,000. It would be nearer 78 million.
Mr. WEICTIEL. In other words, the investinent was about $500,000,-
000 for the year 1939 in round numbers?
Mr. HOMER. No.
Mr. WEIGHEL. Would it be about the same--
Mr. HOMER (interposing). We got inventories of $116,000,000, one
of them of accounts and notes receivable of pretty nearly $50,000,000.
Mr. WracnEL. Well, I am talking about the indebtedness. All cash
and fixed property, there would be around $500,000,000 investment;
would that be right?
Mr. HOMER. Well, you are investing an awful lot of money in in-
ventories.
Mr. WEICHEL. Well, I mean the inventories. I am just talking.
about what is invested. The inventories you are going to sell and
come in and cash the next year, are you not?
Mr. HOMER. Well, it is all part of your assets.
Mr. WEICIIEL. All right.
Mr. HOMER. You cannot get rid of them. You cannot just say you
are not talking about them.
Mr. WEICHEL. What was it for 1940? You gave the total, 1939,
of 792 million. What was it for 1940?January 1941?
Mr. HOMER. Total cash as of December 31, 1940, using round figures,
$86,000,000; property, depreciated value, $460,000,000.
Mr. WErciiEL. What would be the total, like that 732 million of all
assets? How much would that total for '40?
Mr. HOMER. The 732 becomes 763.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
360 SHIPYARD PROFITS
Mr. WiucHEL. Seven hundred and sixty-three in 1940?
MT. lichviER. Yes.
Mr. WEIGHEL. In 1941 was it about the same?
Mr. H MER. No; I think it has gone up-862.
Mr. WEICHEL. This '39?that was considered wartime. In peace-
time you do not have it, back to '36?
Mr. HOMER. No; '39 was not the wartime.
Mr. WEIGHEL. 1939 is where you start wartime?
Mr. IllomEm No ? I would say we do not start very much until '40.
Mr. WEICIIEL. Well, this on '39 would not be twice what it was in
'35 or '36, would it?
Mr. HOMER. Let us go back to '38?'36 you want to go back to?
Mr. WEicimr.. I say this '39 would not represent twice an estimate
as to what you had, say, in '36, or anything like that?
Mr. }I MEW No. We will give you '36 if you want it.
Mr. 1, EICI I EL. All right. If it is about the same, that is good
enough for what I want to ask about.
Mr. Fromm. 1936 was 676 million.
Mr. WEicii EL. Six hundred seventy-six million?
Mr. AGMER. Yes.
Mr. WEiciim. What percent in 1936 did you earn on the invest-
ment?that means with all the brains in the shipbuilding and steel
businessmid all this thing that you referred to?what percent did they
earn in 936?
Mr. IIoMEB. 1936? What percent? On what?
Mr. WEICIJEL. The percent on the investment.
Mr. EiOMER. All right; 676 million. You want this after taxes,
I assum .
Mr. WETOIJEL. How?
Mr. ?MEL. You want this after taxes?
Mr. 1, MCEEL. Well, you can give it. We can give it both ways,
if it is cOnvenient. You can take it what it was before taxes and what
it is after.
Mr. lIorami. 2.06 percent after taxes.
Mr. WEICHEL. 2.06 after taxes? And before taxes, what was it?
Mr. Holum Are the final income taxes out of that, or all taxes?
Mr. WEICI LEL. Federal income taxes?income taxes.
Mr. HOMER. Federal taxes?
Mr. WEICHEL. That is the only way you take it, out of income. You
pay it on income_, don't you, or do you have an income tax?
Mr. HOMER. That is right. I just want to make it clear what we
are digging out.
Mr. WEICHEL. Well, income tax.
Mr. IfoxER. We take out a Federal income tax?
Mr. WEICHEL. Yes ; that is all you take out.
The CHAIRMAN. Is there a State income tax in Pennsylvania?
Mr. %tom, Is there a State income tax in Pennsylvania?
Mr. prER. Not in '36.
Mr. EICTIEL. In other words, the percent that you realized on the
investment without income taxes off, and what it was with income
taxes o
Mr. IIOMER. Before taxes?this is all in 1936.
MT. WEICHEL. That is right.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 361
Mr. HOMER. Before taxes, 2.56 percent.
Mr. WEICHEL. 2.56, and after taxes it was 2.06?
Mr. HOMER. After taxes are deducted, 2.06.
Mr. WEICIIEL. Now, go to 1941. What did you earn in the way of
percent on the investment before taxes and after income taxes?
The CHAIRMAN. I may say for those present that the present wit-
ness is the last witness that we will have this evening. We will ad-
journ the hearing then, to be resumed later, which will be probably
sometime in November. I did not know whether any of the audience
would want to go, or not.
Mr. HOMER. For 1941 the percentage of profits after taxes, 3.9
percent.
Mr. WEiciinn. 3.9?.09?
Mr. HOMER. 3.9.
Mr. WEICHEL. 3.9?
Mr. HOMER. Yes.
Mr. WEICHEL. Before?
Mr. HOMER. Before taxes, 13.5.
Mr. WEICHEL. 13.5?
Mr. HOMER. You can see what taxes do to you.
Mr. WEICHEL. In the 10 years previous to 1945, that was the high-
est percent Bethlehem Steel Corp. earned, in the 10 years previous
to 1945, on its investment, before taxes?
Mr. HOMER. Average?
Mr. WEIGHEL. What was the highest percent?
Mr. HOMER. Average for 10 years, you mean?
Mr. WEICHEL. Yes; the average, or the highest. Well, the average,
if you know it. What was it, roughly? You do not have to have the
exact percent.
Mr. HOMER. Do you want the highest of any year?
Mr. WErounr... Yes; if you can tell me.
Mr. HOMER. Or the average for the highest 10 years?
Mr. WEIcnia, No; if you can, give me the highest in 10 years.
Mn HOMER. All right.
Mr. WEICHEL. I mean just roughly. I am not going down to real
small brackets.
Mr. HOMER. It will take us a few minutes. We will have to work
it up. We probably do not have it.
Mr. WEICHEL. I mean the highest. Would you have to work the
highest one?
Mr. I-IomER. We have got to work the highest up. We are looking
for it.
Mr. WEICHEL. Would the highest be over 5 percent before taxes?
Mr. HOMER. I haven't any idea, without going back to the figures.
Mr. WEICHEL. Would you think it would be over 6, before taxes?
Mr. HOMER. I cannot tell you. We will have to work it out. Do
you want to spend the time doing it? It may take 15 or 20 minutes.
Mr. WEICHEL. Well, would you think it would be over 10 percent?
Mr. HOMER. I would not venture a guess. I would not want to,
without?
Mr. WEICHEL (interposing). Well, I mean, you are familiar with
all these years that you got a big percent. Tins is pretty low, and I
was wondering. This is very low.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
362 SHIPYARD PROFITS
Mr. HO/VIER. What I would like to figure is the high year and the
low year, so you will have both, through that 10-year period.
Mr. WEICHEL. That is all right?the high and the low.
Mr. Homnit. Because you have got to offset one with the other.
Mr. W,EicHEL. While he is figuring that, I can ask you a few ques-
tions, is that all right?
MT. HOMER. All right.
Mr. WEicirm. You are not going to do the figuring are you?
Mr. Ifomns. I hope not. You won't be able to ask me any ques-
tions, if I do. Go ahead.
Mr. WEIGH EL. He can figure that all right, can't he?
1Mr. HOMER. I think he can.
Mr. WEICIJEL. With reference to Bethlehem-Fairfield Shipyards,
Inc., the million dollars was put in by the Bethlehem Steel Corp.
Now, did the Bethlehem-Fairfield Shipyards engage in any other
business except operating Government yards? Was it doing any other
business?
Mr. HOMER. No.
Mr. WEICHEL. That was the only business?
Mr. HOMEIL That was the only business. It was created for that,
and when we :finished up, why, we closed up.
Mr. WEICIIEL. And the million dollars was put in. Did the parent
companY charge any interest on the money it loaned, there?
Mr. Holum:. Well, we had loans during the operation, that bore
interest.
Mr. WEICHEL. I mean, were they regional loans from banks?
Mr. II0MER. Not-from banks; no.
Mr. WEICIJEL. But loans from the Bethlehem Steel Corp.?
Mr. II0MEE. Yes. Well, there are quite a few notes running over
4 years. They were paid off at certain times, and if you add them
all up, it won't give you what you are after,
Mr. WEICI EEL. Well, neve rmind. that. I am asking you about
this: Tlte Bethlehem-Fairfield Corp. got loans from the Bethlehem
Steel. id they pay Bethlehem Steel any interest on those loans?
Mr. HoIEn. Yes.
Mr. WEIOU.EL. Well, that was then reimbursed, wasn't it, or was it?
Mr. 1OMEE. You mean, if the Bethlehem-Fairfield borrowed money
from th Befilehem Steel Corp., was interest charged?
Mr. EicitEL. Yes.
Mr. 1OMEa. The answer is "yes." Was that reimbursable?
Mr. WEIGHEL. Yes.
Mr. I1oMEll. The answer is "yes," on the part of the Maritime Com-
mission Well, I am informed that everything except $200,000 of
princip 1 of the loan, 11/2 percent interest was paid on it.
Mr. WEld [EL. All right.
Mr. OMER. That bore no interest.
Mr. WEICHEL. Well, all the interest that the .Fairfield Shipyard
paid, that was reimbursed by the Maritime Commission?interest?
Mr. IlOMER. On all except on the $200,000.
Mr. WEICHEL. On the 200,000 loan, they did not reimburse any in-
terest op it?
Mr. TIIoMEii. No. No; there was no interest charcred or paid on that.
Mr. WEIOIIEL. Oh, there wasn't any charged? o there would not
be any reimbursable?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 363
Mr. HOMER. None charged.
Mr. WEICHEL. What was the amount of nonreimbursables with ref-
erence to Bethlehem-Fairfield? What was the total amount of non-
reimbursables ?
Mr. HOMER. Nonreimbursables ?
Mr. WEICIIEL. The total.
Mr. HOMER. That figure is contained on the exhibit that we sub-
mitted.
Mr. WEICHEL. I do not have any. We were not given any.
Mr. HOMER. The total, $1,298,707.
Mr. WEICHEL. $1,298,707. What were the amounts? What were
the major things that you were not reimbursed for, of the $1,298,000?
and the amounts?
Mr. HOMER. You want the tot als for all contracts, or the break-down
by contracts?
Mr. WEICIIEL. No; just the general, what it was; just the totals,
what it was for the nonreimbursables?not by contract.
Mr. HOMER. Producers liability insurance premium, $177,684.
Mr. WEICHEL. $177,684 insurance premium, paid on
Mr. HOMER. Producers liability insurante premium.
Mr. WE:COML. Paid on whom, was it?
Mr. HOMER. Product liability insurance, general type.
Mr. WEICHEL. I say, who was it at that time on?paid for what
purpose? What was the insurance for? Life insurance or annuities,
or was it on the officers of the company, on their lives?
Mr. HomER. No. [Reading:]
Liability of persons engaged hi the manufacture or fabrication, distribution,
and sale of products, for injuries to third parties, arising from the use of such
products.
Mr. WEICHEL. That was the insurance premium?public liability
insurance premium paid for injury to third parties using it?
Mr. HomER. Products liability insurance.
Mr. WEICHEL. What does that mean? I do not know. What does
it mean? "Products liability insurance"?what does that mean?
that much premium for that, to protect who?
Mr. HOMER. It is damages against the builder for any injuries which
May occur to any person due to some defect or accident of the product
that is built, on the materials that we make or put into the job.
Mr. WEICHEL. Yes; but the Fairfield Co. did not make any ma-
terial? All they did was build ships? They did not make materials?
Mr. Holum. Yes; but we were liable for it, even though we did not
make it, but we put it in the job.
Mr. WEICHEL. You mean you put it in the Government? You are
liable for it in the Government ship?
Mr. HOMER. Suppose you bought a block, or a pad eye. Suppose
you bought a pad eye that was welded to the deck, and a piece of
some part of the ship hooked into that pad eye, and that pad eye
was manufactured by someone other than yourself, you just went out
and bought it on the market. Now, there was a defect in that pad
eye, and it let 0.o when the ship was at sea. We would be liable for
any damages. It is a product liability.
Mr. WEIGHEL. I mean this is an insurance premium paid for pos-
sible liability of you, putting defective material into a Government
ship?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
364 SHIPYARD PROFITS
Mr. H91ER. No, no; but accidents arising from defective material
that may be furnished by others.
Mr. WEICHEL. In other words, this was insurance protection against
defective material in the ship?
Mr. HOMER. Against accidents arising from defective material.
Mr. WEICHEL. Well, how could you be liable if the Government put
in all its own material, you had nothing to do with it, outside of
putting it in place?
Mr. HOMER. Well, that is the thing we have been wondering for a
long time, too. I do not know why it should be checked to us; but
we are.
Mr. WEICHEL. All right. Next. What is another big amount? I
was asking about this cost. I had not heard of anybody else taking
out insurance with cash. Did you have it? Does the Bethlehem
Steel have any interest in this insurance company, in taking this out?
Mr. HOMER. No.
Mr. WEICHEL. Do they have any interest in the insurance company?
Mn HoiviER. No.
Mr. WEICHEL. No one else ever thought of this.
Mr. HOmFa. Provision for contingencies, $40,000; preparation of
the Baltimore yard, operating expense, $28,000. Will I give you round
figures? Is that close enough? $28,000. All other direct charges,
$37,000.
Mr. Wmium. Wait a minute. You mean this $28,000 you were
charging against Fairfield from another yard?
Mr. HOMER. Yes. You see, we did work at our Baltimore yard for
Fairfield.
Mr. Wicuni.. Oh, you did work at your Baltimore yard?
Mr. HOMER. Yes.
Mr. WICHEL. What was this contingency business? Something
to cover bad guesses, or what?
Mr. HOMER. It had to do with the liability in connection with the
product liability insurance.
Mr. WICI-IEL. In other words, you set up a contingency of $40,000
because you thought that you might not be able to collect a premium
on the product, liability insurance, is that it?
Mr. Holm. That is right.
Mr. WEICIIFL. That was double protection?
Mr. HOIER. Well, I do not know. There are all kinds of cases
that we had to set up some sort of provision for.
Mr. Wpiciiim. You paid the premium on it, and you set up con-
tingencies for the premium?
Mr. HOMER. I think perhaps it might be helpful, if you really want
an explanation of this complicated problem, that I would be very
glad to call or one of our people to give that to you.
Mr. Wictrim. You have given us enough explanation.
Mr. Holum. All right.
Mr. WEionia, Let us see what comes after the $28,000. We can
guess the rest of it.
Mr. H9mErt. What is the 28?
Mr. Wpictilz. What after that The next big amount?
Mr. HOMER. $37,000, all other direct charges.
Mr. WnicHEL. $37,000, all direct charges.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 365
Mr. HOMER. All other direct charges; and then I have given you,
here, what we call direct charges, then I will give you some more, then
I will give you the indirect.
Mr. WEICIIEL. Is this $37,000 miscellaneous? What is the de-
scription?
Mr. HOMER. They are spread out over each contract. They run
$4,000, $3,000, $3,000. Not very much miscellaneous stuff. We threw
it all in together.
Mr. WEICHEL. All right.
Mr. HOMER. Launching expense, $361,000.
Mr. WEICHEL. $361,000? And how many ships was it you put out?:
Mr. HOMER. Five hundred and eight.
Mr. WEICIIEL. Five hundred and eight? What would that be per.
ship? About? Do you have it there?
Mr. HOMER. It would be about?
Mr. WEIGHED (interposing). That is about 600 a ship. That is all.
right, isn't it? Three hundred and sixty-one thousand dollars for.
launchino?'''expense. Did you get reimbursed for any launching ex-
pense at all? Was launching expense a reimbursable item or a,
nonreimbursable?
Mr. HOMER. Well, a certain amount of launching expenses were.
reimbursable.
Mr. WEICHEL. They were?
Mr. HOMER. This was the part that was not.
Mr. WEICHEL. Oh, this is the part that was not?
Mr. HomEn. Yes. It is about $700 a ship, somewhere around there.,.
Mr. WEICHEL. You mean that was the total? I mean the part that
is reimbursable. How much is that a ship? $100 or $5,000?the.,
launching?
?Mr. HOMER. The amount reimbursable?
Mr. WEICHEL. The amount that they reimburse you.
Mr. HOMER. $11.
Mr. WEICHEL. Oh, $11. Then this is for the gifts and that sort of
thing? This is for the gifts and that sort of thing, which is after-
ward chargeable off, anyhow, as a business expense. What is. after'
361?
Mr. HOMER. Federal capital-stock tax, $393,000.
Mr. WEICHEL. $393,000, Federal capital-stock tax; and that $393,,..
000?does that represent from the beginning of the corporation dowit
to date?
Mr. HOMER. I beg pardon?
Mr. WEICIIEL. Does that represent from the beginning of the cor-
poration down to 1945?
Mr. HOMER. That is for all contracts.
Mr. WEICHEL. That is for Federal capital-stock tax?,
Mr. HOMER. Yes. It runs six contracts. I will say the amount-
runs from 60 to 90, almost $100,000, somewhere between that range?
for each contract, $40,000 to $100,000.
Mr. WEICIIEL. That means what you paid on it afterward?
Mr. HOMER No ? you pay it that year.
Mr. WEICHEL. Well, you pay it each year of value? Do you pay it,
each year of value?
Mr. HOMER. This comes back and it is apportioned, on, the contracts..
93486-46 24
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
366 SHIPYARD PROFITS
Mr. WIICHEL. Yes; but I am talking about the Federal capital-
stock tax.'
Mr. HomER. So am I.
Mr. Wrroxim. Isn't that paid on the value df the stock each year?
is that paid on the value of the stock?
Mr. MITER. Paid on a stated amount, and not a value.
Mr. WTI-WHET.. It is paid on a stated amount of the value of all the
stock; is that it?
Mr. HOANIER. Stated amount of the stock.
Mr. WFICHEL. It is what?
Mr. Ho*Ea. It is paid on a stated amount for the stock. It hasn't
anything to do with the value, I am so informed.
Mr. WICHEL. Well, you can put down any kind of value for it?
Mr. HOIER. I believe that is right.
Mr. WErrcHEL. How?
Mr. HCTIER. I believe that is right.
Mr.WICIIEL. Well, I mean you show you have $1,000,000 invested,
and at the end of the first year, the capital-stock tax, did you pay on
$1,000,000? I mean yours is 403,000 worth. You had some of the
detail a while ago.
Mr. HOTVIER. You want to take the time for an answer to your ques-
tion or de you riot?
M
r. WECIIEL. Well, if it is going to take a whole lot of time, no.
Mr. HoluEit. I would like to ask Mr. Slater to give it to you, if you
would likq to hear it.
Mr. WioIIEl. I mean, you do not know what it is paid for?
Mr. 1101ER. No ? I cannot say that I do.
Mr. WEWTTEL. All right.
Mr. 11(41ER. I am not a tax expert.
Mr. IATICIIEL. What is the next big item?
Mr. HomER. Other compensation in excess of the, regional limita-
tions. I 'assume those are some limitations put on by the regional
director. ; Yes; 845,000. Employees' expense vouchers, $50,000; un-
approved rvendors' charges, $83,000.
Mr. WFCIIEL. Vendors' charges? Whose charges would that be?
Yours, as a vendor, or someone else as a vendor?
Mr. HorKER. We had to buy some material for these ships, and the
materials purchased -from these vendors by ourselves, certain items of
that were disallowed by the Maritime Commission.
Mr. WincHEL. Vendors' charge. Was that charge from the selling
price, or Something like that?
Mr. Ho4ER. No; I do not think it has any reference to that.
Mr. What other big amount? Are there any other large
amounts?:
Mr. HOMER. I can give you the answer to that one in a few words.
Sometimes they were very slow in getting material, and we decided
we would; go out and take a chance on getting reimbursed in order to
expedite the ships, so we went out and bought it, and after we had
bought it why, perhaps some of the Maritime Commission's material
would come in, and they would say, "Well, we will just allow you that,
because we still have our material. You have gone and put this in the
ship, so we will cut it out." Now, that perhaps consists of most of
that item.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 367
Mr. WEICHEL. What other large amounts are there?
Mr. HogEa. We were trying to help out, and we got hooked; but
that is all right; we do not mind that small item.
Mr. WEICTIEL. What other big amounts do you have?
Mr. HOMER. All other indirect charges, $946.
Mr. WEICHEL. That is all the nonrennbursables in big amounts?
Mr. HOMER. Yes.
Mr. WEICIIEL. Has he been able to figure that out?.
Mr. SLATER. Not yet.
Mr. HomEa. You have been asking questions. He had to dig in
with me to help me out. Ten minutes more.
Mr. WEICHEL. Now, with reference to the total fees that this com-
pany received, you said after renegotiation it was 40-some dollars, is
that correct? I mean, am I stating the right amount?$40,911,000 ?
That is what you stated, at least I thought.
Mr. HOMER. Well, I will go back to the statement. Before Federal
taxes
Mr. WEICHEL. After renegotiation?
Mr. HOMER. And after renegotiation; yes.
Mr. WEICHEL. Yes:
Mr. HOMER. $40,911,000, round figures.
Mr. WEicum. How much Federal taxes were paid on the $40,911,-
000? Federal income tax.
Mr. HomEa. Paid or payable, $28,461,897.
Mr. WEICIIEL. Of the 40 million, 28 million was taxes?
Mr. HOMER. That is right. That leaves 12.
Mr. WEICIIEL. And this $1,298,000 nonreimhursable, that was
charged off in' the taxes, in the same taxes, where you paid the 28
million?
Mr. HOMER. Yes,
Mr. WEICHEL. Is that correct?
Mr. HOMER. Yes.
Mr. WEICHEL. And it was 28 million in taxes?
Mr. HOMER. Yes.
Mr. WEICHEL. So that after the taxes there was 12 million?
Mr. HOMER. $12,449,000.
Mr. WiacnEL. And you had invested a million dollars over there,
and you had 12 million left. That is 1,200 percent, isn't it? You
made 1,200 percent profit on that investment?
Mr. HOMER. No,
no.
Mr. WEICHEL. Well, on the investment there is 1,200 percent?
Mr. HomER. Well, on the nominal capital stock value originally
put in.
Mr. WEICHEL. Well, whatever you want to call it, nominal or other-
wise, it was a million dollars that was put in, and you netted 12 million
dollars for it. That is, 1,200 percent. Now, have you got the figure, a
high figure that you had on the investment with reference to Bethle-
hem Steel Corp.?
Mr. HOMER. Were you present when I read my statement?
Mr. WEIcitim. I am asking for that again. You cannot remember
that yourself.
Mr. HOMER. The whole statement?
Mr. WEICHEL. I cannot remember it myself, either.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
368
SHIPYARD PROFITS
Mr. HOMER. You want the whole statement ?
The CHAIRMAN. I hope we will not have to.
Mr. WEICHEL. Will you please read the question? Now, just a
minute.
Mr. HOMER. It is in the record.
Mr. WEtcHEL.. Now, just a minute. You made a remark, and you
have got four men there, and still you cannot remember, and somebody
reads it, and you expect me. Maybe I cannot remember, so I am asking
you for it, and ask to repeat it.
Mr. HOMER. I am not objecting to that, at all. I am not objecting to
that. I will read to you the whole thing.
Mr. WEWHEL. Have you got the correct figure on the investment of
the Bethlehem Steel Corp.?
Mr. SLAtIER. Not yet.
Mr. HOMER (reading) :
All of Bethlehem's resources were made available for use in the emergency
cargo vessel construction program.
Mr. WEtpuEL. The question that I asked is about this high figure.
Mr. HOMER. Well, I misunderstood what you wanted, then. I
thought you wanted me to read my statement that had to do with that
particular phase of it.
Mr, WEIDHEL. No; I made the other statement. I am asking now
for the highest amount that you got on the investment of the Bethle-
hem Steel in those 10 years.
MT. HOMER. Oh.
. Mr. WEIcHEL. That is the one he is still figuring on?
Mr. SEATER. That is right.
Mr. Holu,n. You do not want this, then? While we are waiting for
that figure?he hasn't quite figured that out?I will try to answer you
a little bit without going into this.
Mr. WEIcHEL. I hlven't asked you any questions. That is the only
question before you, now.
Mr. HOMER. Is that the only one?
Mr. WENTIEL. That is the only one.
The CHAIRMAN. I think we had better limit it to the question asked..
Mr. HOMER. I did not know he had withdrawn the other one.
Mr. WEIcHEL. I didn't withdraw any.
Mr. HOMER. Well, then, I would just like to say?
Mr. WEIOHEL (interposing). I am not asking for any. I am not
asking for any volunteer statement. Just Answer this question of
percentage, then I will ask some more, please.
Mr. HOMER. The answer to your other one is contained in the record..
May we have the question again so we can answer it correctly?
Mr. WEicitEr. What is the highest percent that you have earned on
t i
he investment of Bethlehem Steel, n the last 10 years previous to.
1945?
Mr. HOMER. After taxes?
Mr. WEIOIIEL. How?
Mr. Hoion. After taxes?
Mr. WEIOEIEL. I will take it before and after, if you have got it,,
just like you gave the rest of them; or what do you have?
Approved For
Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 369
Mr. HOMER. Before taxes, the high year appears to be 1942; per-
centage rate was 16.2.
Mr. WEICHEL. 16.2, is that before taxes?
Mr. Holum. Before taxes; and after taxes it was 2.6 in the same
year.
Mr. WEICHEL. 2.6 in the same year?
Mr. HOMER. Yes; SO it is 16.2 and 2.6. That, I want to repeat, was
the high year, before taxes percentage.
Mr. WEICHEL. Yes, 16.2?
Mr. HOMER. Yes. Now, the high year, after taxes. You see, we
have two figures.
Mr. WEICHEL. Yes.
Mr. HOMER. 1940?and that was 6.3 after taxes.
Mr. WEICHEL. 1940 was 6.3?
Mr. HOIVIER. And in that same year, before taxes, was 9.3.
Mr. WEiciini, It was 9.3?
Mr. HOMER. Yes.
Mr. WEICHEL. Not the percents that the Bethlehem Steel Corp.
-earned on its investment during these war years, the highest amount
before taxes was 16.2, in 1942, and the highest on its investment after
-deduction of taxes, in 1940, of 6.3. Now, in earning this on the total
investment, all the brains that you talk Aout of the Bethlehem Steel
Corp., of every kind and description, helped to earn this, and that is
what you earned? Now, part of that brains was put over in Bethle-
hem-Fairfield, along with the million dollars?
Mr. HOMER. Not all of it.
Mr. WEICHEL. Well, part of it was?
Mr. HOMER. Not all of it, by a long shot.
Mr. WEICHEL. Part?part of the brains were put over there, at least
by your testimony, plus a million dollars, for winch there was $12,000,-
-000 net; that is 1,200 percent. Now, the regular corporation?the
Bethlehem Steel?the highest that it earned was 16?no; was 6.3?
during any one of these high years, and this is 1,200 percent. Why
should you have 1,200 percent for a partial operation?for the partial
use of the brains of the Bethlehem Steel?while for the whole organi-
zation of all the brains and everything there is 6.3? Why should you
have 1,200 percent?
Mr. HOMER. Well, I refer you to my statement that I made when
you were out, at which time I endeavored to fully answer that question.
Mr. WEicaixo. Well, if you think that is the full answer, all right.
Do you think that you should have 1,200 percent because it is a war
operation, where formerly in your operation you had 6 percent?
Mr. Holum. We did not get?we did not earn
Mr. Wnionni, (interposing). Why should you have more on a war
operation than you had on a peace basis?
Mr. HOMER. We did not earn 6 percent on the basis as we have
outlined it here. We had other investments in that operation. You
cannot just take the $1,000,000 capital stock and say that is the only
investment we had in back of Fairfield. The whole investment of
the Bethlehem Steel Corp. and a good many years of experience.
Mr. WEICIIEL. You did not put it up? You only put in the million
dollars?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
370 SHIPYARD PROFITS
Mr. HOltIER. It was there. It was there and usable.
Mr. WETCHEL, You put a million dollars in it, plus some people, and
got 1,200 percent for it, where in the whole Bethlehem Steel Corp. you
only got 6 percent?
Mr. Ho3itER. What did we start with?
Mr. WEICIIEL. HOW?
Mr. HCTER. What did we start with, before putting the million
dollars in?
Mr. WI:mum- Well, in one place you got 6 percent, and in the other
place you got 16 percent.
Mr. HOr4ER. What did we start with, before we put the $1,000,000 in?
Mr. WErprinr, Well, you got 6 percent over there.
Mr. Ho ER. We put about 16?let's see where those figures are.
[Reading :
All of Be hlehem's resources were made available for use in the emergency
cargo vessel construction program in common with Bethlehem's other vast war
programs. ts properties had at that time a gross cost to Bethlehem of about
$840,000,000 Bethlehem's cash and current assets amounted to about $180,000,000,
and of this iirnotuit over $16,000,000 was used in connection with the operations
of Fairfield..
Mr. WEfonEn. Well, the fact is you put a million dollars in and got
12 million, net?
Mr. HO*ER. No ? we had about 16 in, in that. particular operation.
Mr. WEWHEL. And in your general corporation where you had the
investment you only got 6.3, and I cannot understand why you should
have that vast difference. You should have, for the same kind?
there is no different brains where you got the 6.3?
Mr. HomER. The reason why this is not understandable is because
you are no using the same basis of comparison.
Mr. WETGLIEL. Using it on the basis of the investment, and that's
all there wrts.
That is all. ?
The CHAIRMAN. Is that all?
Mr. NVECTIEL. That is all.
(Inforn ation furnished by the Bethlehem-Fairfield Shipyard, Inc.,
in respon e to the committee's questionnaire, was received for the
i
record an marked "Exhibit 26.")
(Infornaatior. furnished by Barrett & Hilp Shipyard, McCloskey &
Co., Southeastern Shipbuilding Corp., and East Coast Shipyards,
Inc., in reponse to the committee's questionnaire, was received for the
record and, marked "Exhibits 27, 28, 29, and 30.")
The CHAIRMAN. The committee stands adjourned, subject to call
of the Chan%
(Whereftp9n, at 6: 25 p. m., the committee adjourned, subject to
call of the Chair.)
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
APPENDIX
EXHIBIT I
UNITED STATES MARITIME COMMISSION,
Washington, July 13, 1946.
Hon. S. 0. :BLAND,
House of Representatives,
Washington, D. C.
DEAR JUDGE BLAND: Further reference is made to your letter dated June 19,
1946, in which you request that the Maritime Commission bring up to date the
figures contained in Committee Document No. 57, relating to fees earned by
shipyard operators and their relationship to the capital investments of such
operators in shipyard facilities and working capital.
There is enclosed exhibit A, which lists the contractors as outlined in Com-
mittee Document No. 57, showing the cost of the facilities, the capital invested
by shipyard operators, and the estimated profits earned from the ship construction
contracts completed by the respective builders.
The capital investment set forth on the exhibit is not the current invested
capital in each case, as in some instances, the capital investments have been
reduced by the retirement of capital stock or liquidation.
The profits earned by the builders are captioned "Estimated Profits," because
final settlement has not been consummated with respect to many of the con-
tracts. FIowever, 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 by the Commission and must be met out of earned
profits under the contracts. The amounts of disallowances are relatively small
compared to earned profits.
With reference to your request to include an additional column setting forth
the amount of profit remaining after renegotiation, you are advised that many
of the contracts completed in 1945 have not been renegotiated. Therefore, we
have shown, as per exhibit B attached, profits earned on the contracts which
have been renegotiated and profits retained by the contractor after renegotia-
tion, which gives a comparison of profits retained by the contractors to profits
evned. Some of the contractors have been renegotiated by other price adjust-
ment boards, and Maritime Commission business has been commingled with
business completed for other Government agencies.
Sincerely yours,
W. W. SMITH, Chairman.
Attachments.
EXHIBIT A
Fees of shipyard operators in relation to their capital investment under ship
construction contracts with the U. 8. Maritime Commission, June 30, 1946
Shipyard operator
Cost of facial-
ties
Capital invest-
milt of ship-
yard operator
Estimated
profits
Barrett & Hilp Shipyard
$2, 430, 833
$3, 611,
661.00
$874, 636
Bethlehem-Fairfield Shipyards, Inc_
31,303, 718
1, 000,
000.00
53, 900, 980
California Shipbuilding Corp
25,213,177
, 600,
000.00
44, 423, 014
Consolidated Steel Corp., Ltd
13, 132, 308
6,306,
011.62
16, 441,861
Delta Shipbuilding Co., Inc
12, 801, 009
750,
000.00
12, 171, 811
East Coast Shipyards, Inc
1, 313, 742
143,
800.00
800, 000
J. A. Jones Construction Co., Inc.:
Brunswick yard
Panama City yard..
12,840, 530
14, 906, 229
'1 2 000
J , ,
000 00
4
f , 345, 660
4,680, 728
371
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
Approved For'Release 2003/10/10: CIA-RDP64600346R000400060002-4
-372 SHIPYARD PROFITS
Fees of shipyard operators in relation to their capital investment under ship
construction contracts with the U. S. Maritime Commission, June 30,
1946-Conti11ued
Shipyard operator
Cost of facill-
ties
Capital invest-
f ship- t men o p-
yard operator
Estimated
profits

Kaiser Co., Inc
:
Portland yard
$26, 609, 4479
$23, 839, 715
Richmond yard No. 3
52, 381, 944
1 $100, 000. 00
{ 6, 175, 000
Vancouver yard
34, 920, 887
13, 632, 311
Kaiser Cargo, Inc
1, 323, 877
500, 000.00
1,345, 000
McCloskey & Co.:
San Jacinto yard
2, 563, 793
'I
75, 000
Tampa yard
8, 297, 162
750, 000. 00
{ 961,368
Marinship Cor
16, 436, 335
,f
500, 000. 00
11, 871, 840
New England hipbuildmg Corp
23, 233, 740
1, 028, 000. 00
11, 097, 112
North Carolina Shipbuilding Corp
20,360, 248
3, 000, 000. 00
27, 645, 029
Oregon Shipbuilding Corp
22,694, 157
550, 000.00
40, 930, 564
Permanente Metals Corp
35,310, 231
460, 000.00
58,840, 885
St. Johns River Shipbi ilding Corp
16, 029, 112
600. 00
2, 080, 000
Southeastern Shipbuilding Corp
11, 078, 522
600, 000. 00
3, 135, 000
Todd-Houston Shipbuilding Corp
14, 129, 008
189, 200.00
13,678, 303
Walsh-Kaiser Co., Inc
25, 047, 253
300, 000. 00
3, 050, 795
Total 1
424, 250, 694
22, 979, 275. 62
356, 006, 612
Exrinur B
Renegotiated shipbuilding contracts
Contractor
Contractor's
profits per
Profits after
contract
renegotiation
California Shipbuildin
g Corp
$34, 927, 624
$23, 901, 324
Delta Shipbuilding Co
9, 494, 811
6, 921, 440
North Carolina Shipbuilding Corp
20, 676, 840
16, 194, 970
Oregon Shipbuilding Corp
33, 858, 564
27,071, 650
Permanente Metals Corp
46, 316, 385
43, 743, 262
St. Johns Rill: Shipb Aiding Co
900, 000
900, 000
Southeastern hipbuilding Corp
2, 660,060
2, 660,060
EXHIBIT 2
Fees of shipyard operators in relation to their capital investment under ship
contracts with the U. S. Maritime Commission
MAR. 3, 1944.
S hipyard operator
Cost of ship-
Yard to U. S.
Government
Capital invest-
men' ?I. ship-
yard operator I
Fees earned
by shipyard
operator to
Nov. 30, 1943
Fees earned
to Nov. 30,
1943, plus
minimum
remaining
fees
Barrett & Hilp
Bethlehem-F nfield Shipyards, Inc
California Shi building Corp
l
Consolidated Steel Corp., Ltd
Delta Shipbui lding Co., Inc.3
East Coast Shipyards, Inc
Houston Shipbuilding Corp
J. A. Jones Construction Co., Inc.:
Brunswic yard
Panama flit,, valli
$3, 017, 811
33, 432, 496
26, 168, 791
12, 167, 615
12, 915, 523
2, 818, 000
13, 551, 596
12, 695, 228
12 111 NA
$3, 611, 664. 00
1, 000, 000. 00
600, 000. 00
2 6, 396, 011. 62
750, 000. 00
43, 800.00
689, 200.00
1 4 2, 000, 000. 00
$121, 500
26, 992, 400
31, 089, 244
2, 170, 030
6, 498, 000
56, 000
8, 100, 300
r 525, 000
1 877. 500
$351,060
29, 748, 400
35, 207, 244
5, 711, 036
8, 683, 000
430, 000
10, 250, 300
000
2, 100, 000
2. 625.
I Includes cspital, paid-in surplus. Figures taken from data supplied by shipyard operators and the
Maritime Commissio a.
2 $435,553.65 of this amount has been retired.
2 This company operates facilities of Louisiana Shipyards, Inc.
Includes $1,793.4041 of surplus earned over a period of 49 years.
Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 373
Pees of shipyard operators in relation to their capital investment under ship
contracts with the U. S. Maritime Commission-Continued
Shipyard operator
Cost of ship-
yard to U. S.
Government
Capital invest-
ment of ship-
yard operator
Fees earned
by shipyard
operator to
Nov. 30, 1943
Fees earned
to Nov. 30 ,
1943, plus
minimum
remaining
fees
Kaiser Co., Inc.:
Portland yard
$22, 756, 570
$2,
925, 000
$6, 080,000
Richmond yard No. 3
Vancouver yard
23, 271, 819
23, 667, 802
1 $100,
000. 00
{ 3,
.550, 000
171,000
3, 000, 000
7, 300,000
Kaiser Cargo, Inc
1,276, 923
500,
000.00
5 1,
221,030
5 3, 885, 000
McCloskey & Co.:
San Jacinto yard fi
Tampa yard
2, 564, 695}
6,236, 794
750,
000. 00
{
38, 775
127, 500
71,000
612, 000
Marinship Corn16,
215, 000
' 500,
000.00
720, 000
3,000, 000
New England hipbuilding Corp
22, 159, 755
1, 028,
000. 00
? 3,
136, 300
7 6, 171, 300
North Carolina Shipbuilding Co
20,002, 592
3, 000,
000. 00
13,
594, 000
15, 774, 000
Oregon Shipbuilding Corp
16, 824, 484
550,
000.00
32,
550,607
36, 905, 607
Permanente Metals Corp
35, 445, 420
460,
000.00
37,
671, 100
42, 825, 100
St. Johns River Shipbuilding Co
15, 804,942
600.00
810, 000
1, 940, 000
Southeastern Shipbuilding Corp
11,070, 000
600,
000.00
1,
440, 000
2, 660, 000
Walsh-Kaiser Co., Inc
Total
25, 784, 472
300,
000.00
550, 795
2, 900, 795
371,850, 113
22,079,
275. 62
174,
944, 051
228, 234, 832
Includes $525,000 paid to Kaiser Co., Inc., Richmond 3A, a predecessor in interest.
Formerly operated by San Jacinto Shipbuilders, Inc.
7 Includes $1,558,000 paid to South Portland Shipbuilding Corp. The stockholders of both companies
are the same.
Emma 3
KAISER CO., INC.
Oakland, Calif.
WASHINGTON, D. C., September 19, 1946.
MERCHANT MARINE AND FISHERIES INVESTIGATING COMMITTEE,
United States House of Representatives,
House Office Building, Room 228, Washington 25, D. C.
(Attention Mr. Marvin J. Coles, general counsel.)
GENTLEMEN: This will acknowledge receipt of your letter of September 14,
1946, requesting further information relative to the shipbuilding corporations
comprising the "Kaiser group."
With respect to the inquiry contained in the second paragraph of your letter,
we have prepared and enclose herewith three copies of a chart which we believe
discloses the desired information.
Regarding the information requested in the third paragraph of your letter, we
wish to advise you that none of the corporations in the Kaiser group now own
or have ever owned any interest of any kind in any of the companies listed in
the third paragraph of your letter.
In response to the inquiries contained in the fourth paragraph of your letter
the following information is presented:
On April 23, 1945, Henry J. Kaiser Co., which owned 473 shares of California
Shipbuilding Corp., sold and transferred the same to W. A. Bechtel Co. for a
price of $100 per share, or a total of $47,300. On the same day the Kaiser Cp.,
which owned an equal number of shares of stock in said California Shipbuilding
Corp., sold and transferred the same to Bechtel-McCone Corp. at a price of $100
per share, or a total of $47,300.
As of the same date, Henry J. Kaiser Co. and the Kaiser Co. each held a prom-
issory note of California Shipbuilding Corp. in the principal amount of $55,020.
On April 23, 1995, said notes were sold and transferred by Henry J. Kaiser Co.
and the Kaiser Co. to W. A. Bechtel Co. and Bechtel-McCone Corp., respectively,
for face value. California Shipbuilding Corp. paid the interest on said notes to
April 23, 1945, direct to Henry J. Kaiser Co. and the Kaiser Co., respectively.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
374 SHIPYARD PROFITS
At the same time W. A. Bechtel Co. and Bechtel-McCone Corp. each owning
453 shares of the stock of the Permanente Metals Corp, entered into agreements
with Henry J. Kaiser Co. and the Kaiser Co., respectively, whereby the latter
corporations agreed to purchase said stock of the Permanente Metals Corp. at a
price of 00 pe', share and the two said Bechtel corporations agreed to sell the
same provided each received dividends from the Permanente Metals Corp. on the
stock then held by them in said Permanente Metals Corp. in the amount of
$387,287.
The total of said dividends so to be received by the two Bechtel companies was
approximately equal to dividends which had previously been received by Henry
J. Kaiser Co. and the Kaiser Co. on their stock held in California Shipbuilding
Corp., the Permanente Metals Corp. during the same period of time not having
declared any dividends.
The above transactions arose out of the fact that there were differences of
opinion between the Bechtel management and the Kaiser management respect-
ing the future operations of the companies involved, the Bechtel management
desiring to engage mainly in construction and the Kaiser management desiring
to engage rirnarily in manufacturing. Therefore it was deemed mutually desir-
able for tie Bechtel interests to withdraw from the Permanente Metals Corp.
and for the Kaiser interest to withdraw from California Shipbuilding Corp.
We trust that this gives you the information which you desire.
Yours very truly,
KAISER CO., INC.,
By CHAD F. CALHOUN, Vice President.
EXHIBIT 4
REPORT ON KAISER CO., INC., TO MERCHANT MARINE AND FISHERIES INVESTIGATING
COMMITTER, Auousm 30, 1946
KAISER CO., INC.. 1
Oakland, Calif., August 29, 1946. '
MERCHANT MARINE AND FISHERIES INVESTIGATING COMMITTEE,
House of Representatives, Washington, D. O.
GENTLEMEN: We are pleased to furnish herewith the information requested In
your letter of July 27, 1946, concerning the shipbuilding activities of this company,
as follows:
1. Date on. which Kaiser Co., Inc., was formed and copy of its corporate charter.
Kaiser Oo., Ire. (hereinafter referred to as the "company"), was incorporated
on December 1, 1941, and amended articles of incorporation were filed on January
8, 1942. +A- copy of the company's articles of incorporation (as amended) are
attached as exhibit A.
v
2. The total capital of the company, giving a break-down of the types of stock
and secur Wes.
Exclusi e of any funds furnished by the Government or loans guaranteed by
the Government, the total amount available for the shipbuilding activities of the
company ivas 03,850,000. Se exhibit B attached hereto for details.
3. The tamos of all officers and directors and a statement of their annual
compensation.
A schedule listing all officers and directors of the company Is attached as
exhibit C. No officer or director received compensation for holding any office
or directorship as such. Al].compensation was for services rendered as an
employee of the company and reference is made to exhibit B attached hereto
for a full statement of the compensation paid to such employees.
4. Namcs of all officers and employees who have received compensation of over
$15,000 per annum, giving the amounts received and the extent to which these
amounts were reimbursable by the Maritime Commission.
Exhibit D ccntains schedules detailing not only the information requested
but also the compensation of all individuals who have been officers and directors
of any of the following companies:
Kmser Co., Inc.
Th c Permanente Metals Corp,
Richmond Shipbuilding Corp.
Ka ser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.).
Oregon Shipbuilding Corp.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
6/17/98
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
P-Z000900017000U9K008179dCIU-VI3 : 01./01./COOZ eseelet1 JOd PeA0AdV
CHART INDICATING OWN5HSP
.???;?? ? obute.0,9P. C'e
e, e ?0 47e 7
tkt5
CG
KAISER atiPANY INC
????alkoe.i7 '1:44
ER ENGINEER..c.;
le t
PeRcr-wfu^-f_ INTE-ot..-$T5 5rt- 444=54,1
u .4 F-1 vE? ($1,44,?D
????.: , A e '11t?S, ' -1?E 1.? e??
1'4' ?
i? ? t< A. cc /504.9 ;:t4h1 etAt P (tett/3,640
; ; :??? r5.rCh{
C_C),-)ct? :2"tacl'r3
? P.' Lt.
?
: ?? ???? x4;
??:`: .4wtiiA"r
COVIPANIE5 I WHICH. TEREST Wk5 SOLD
"F.
t
,
93486 0 - 46 (Face p. 374) No.1
CD
0-
0
r.)
0
0
0
CO
0
0
0
0
0
0
0
0
0
0
0
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
KAISER AFFILIATED SHIPBUILDING COMPANIES
Year 1941
HENRY
J. KAISER COMPANY
Henry J. Kaiser
Edgar F. Kaiser
Henry J. Kaiser, Jr.
50%
25%
25%
THE KAISER COMPANY
Henry J. Kaiser
Edger F. Kaiser
Henry J. Kaiser, Jr.
Others
6%
20%
20%
54%
THE FERMAYENTE METALS CORP.
RICHMOND SHIPBUILDING CORP.
(After May 2, 1941)
Henry J. Kaiser Co.
8%
Henry J. Kaiser Co. 6.16%
The Kaiser Company
8%
The Kaiser Company
6.16%
W. A. Bechtel Company
8%
W. A. Bechtel Co.
6.16%
Bechtel-McCone-ParsOns
8%
Bechtel-MeCone..Parsons 6.16%
General Const. Co.
6%
J. F. Shea Co. Inc.
4.61%
J. F. Shea Co. Inc.
6%
General Cont. Co.
4.61%
The Utah Const. Co.
6%
The Utah Const. Co.
4.61%
Morrison-Knudsen Co.
6%
Morrison-Knudsen Co.
4.61%
MacDonald & Kahn Inc.
6%
MacDonald & Kahn Inc.
4.61%
Pacific Bridge Co.
3%
Pacific Bridge Co.
2.31%
Todd Shipyards Corp.
35%
Todd Shipyards Corp.
50.00%
SOUTH PORTLAND SHIPBUILDING
CORPORATION
Henry J. Kaiser Co. 3.7%
The Kaiser Company 3.7%
Todd Shipyards Corp. 30.0%
Bath Iron Works Corp. 40.0%
R. A. Bechtel Co. 3.7%
Bechtel-MoCone-Parsons 3.7%
The Utah Const. Co. 2.78%
Morrison-Knudsen Co. Inc.2.78%
J. F. Shea Co. Inc. 2.78%
General Conat. Co. 2.78%
Pacific Bridge Company 1.30%
See Note 1
HOUSTON SHIPBUILDING CORP.
Henry J. Kaiser Co. 5.25%
The Kaiser Company 5.25%
Todd Shipyards Corp. 50.00%
J. F. Shea Co. Inc. 5.25%
W. A. Bechtel Co. 5.25%
General Const, Co. 5.25%
Bechtel-McCone-Parsons5.25%
The Utah Comet. Co. 5.25%
MacDonald & Kahn Inc. 5.25%
Morrison-Knudsen Co. 5.25%
Pacific Bridge Co. 2.75
See Note 1
Note 1 - Applies until February, 1942
OREGON SHIPBUILDING CORP.
(After Jan. 8, 1941)
Henry J. Kaiser Co. 6.25%
The 24iser Company 6.25%
J. F. Shea Co. Inc. 10.00%
General Const. CO, 6.25%
W. A. Bechtel Co. 3.85%
Bechtel-McCone-Parsona3.85%
The Utah Const. Co. 3.85%
Morrison-Knudsen Co. 3.85%
MacDonald & Kahn Inc. 3.85%
Pacific Bridge Co. 2.00%
Todd Shipyards Corp. 50.00%
TODD-BATH SHIPBUILDING CORP.
4?1
Henry J. Kaiser Co. 4.3125%
The Kaiser Company 4.3125%
Todd Shipyards Corp.35.0 %
Bath Iron Works Corn 30.0 %
W. A. Bechtel Co. 4.3125%
Bechtel -McCone -Parscns4.3125%
General Const. Co. 3.25 %
J. F. Shea Co. Inc. 3.25 %
The Utah Const. Co. 3.25 %
Morrison-Knudsen Co. 3.25 %
MacDonald & Kahn Inc.3.25 %
Pacific Bridge Co. 1.5 %
See Note 1
JOSHUA HENDY IBM WCRIS
40 MN MD OD
Henry J. Kaiser Co. 7.5%
Moore Machinery Co. 35.0%
MacDonald & Kahn Inc. 17.5%
The Utah Const. Co. 7.5%
Morrison-Knudsen Co. 7.5%
W. A. Bechtel Co. 7.5%
J. F. Shea Co. Inc. 7.5%
General Const. Co. 7.0%
Pacific Bridge Co. 3.0%
SEATTLE-TACOMA SHIPBUILDING
CORPORATION
Henry J. Kaiser Co. 3%
The Kaiser Company 3%
Todd Shipyards Corp. 50%
General Const. Co. 9%
J. F. Shea Co, Inc. 7%
MacDonald & Kahn Inc. 6%
The Utah Const. Co. 6%
Morrison-Knudsen Co. Inc. 6%
W. A. Bechtel Company 6%
Pacific Bridge Company 4%
See Note 1
CALIFORNIA SHIPBUILDING CORP.
Henry J. Kaiser Co. 6.25%
The Kaiser Company 6.25%
W. A. Bechtel Co. 6.25%
Bechtel-McCone Corp. 6.25%
J. F. Shea Co. Inc. 4.55%
Morrison-Knudsen Inc. 4.55%
The Utah Const. Co. 4.55%
MacDonald & Kahn Inc. 4.55%
Pacific Bridge Co. 2.25%
General Comet. Co. 4.55%
Todd Shipyards Corp. 50.00%
93486 0 - 46 (Face p.374) No. 2
1941
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
KAISER COMPANY, INC.
(After Dec. 1, 1941)
Henry J. Kaiser Co. 100%
KAISER AFFILIATED SHIPBUILDING COMPANIES
HENRY J. KAISER COMPANY
Henry J. Kaiser
Edgar F. Kaiser
Henry J. Kaiser, Jr.
50%
25%
25%
00%
THE PERMANENTE METALS CORP.
(After Fet624, 1942)
Henry J. Kaiser Co. 11.8044%
The Kaiser Company 11.8044%
W. A. Bechtel Co. 9.8478%
Bechte1-McCone-Parscnv9.8478%
General Const, Co. 11.2175%
J. F. Shea Co. Inc. 10.3478%
The Utah Const, Co. 9.9130%
Morrison-Knudsen Co. 9.9130%
MacDonald & Kahn Inc.9.9130%
Pacific Bridge Co. 5.3913%
See Note 1
100%
RICHMOND SHIPBUILDING CORP.
Year 1942
CONSOLIDATED BUILDERS, INC.
(After May 18, 1942)
Henry J. Kaiser Co. 11.364%
The Kaiser Company
11.364%
General Const. Co.
25.0
%
J. F. Shea Co. Inc.
15.0
%
MacDonald & Kahn Inc.
7.636%
The Utah Const, Co.
8.0
%
Morrison-Knudsen Co.
8.0
%
N. A. Bechtel Co.
4.3
%
Bechtel-McCone Corp.
4.3
%
Pacific Bridge Co.
5.036%
100%
OREGON SHIPBUILDING CORP.
Note 1 - For prior to 2-24-1942 See chart for year 1941
Note 2 - For prior to 2-19-1942 See chart for year 1941
THE KAISER COMPANY
Henry J. Kaiser
Edgar F. Kaiser
Henry J. Kaiser, Jr.
Others
KAISER CARGO, INC.
(After Nov. 28, 1942)
Henry J. Kaiser Co. 100%
6%
20%
20%
54%
JOSHUA BEND! IRON WORKS
Henry J. Kaiser Co.
7.5%
Mbore Machinery Co.
35.0%
MacDonald & Kahn Inc.
17.5%
The Utah Const. Co.
7.5%
N. A. Bechtel Co.
7.5%
J. F. Shea Co. Inc.
7.5%
General Const. Co.
7.0%
Pacific Bridge Co.
3.0%
SeeIOU -10d peAoiddv
CALIFORNIA SHIPBUILDING CORP
(After Feb. 19, 1942)
Benry J. Keiser Co. 7.8833%
rhe Kaiser Company 7.8833%
N. A. Bechtel Co. 15.0 %
3echte1-McCone Corp. 15.0 %
I. F. Shea Co. Inc. 12.0583% .
Worrison..Knudsen Co. 11.5417%
the Utah Const. Co. 11.53331
lacDonald & Kahn Inc. 9.7250%
Pacific Bridge Co. 4.775 %
3eneral Const. Co. 4.6 %
See Note 2
93486 0 - 46 (Face p. 374) No. 3
17-Z000900017000
P-Z000900017000U9K008179dCIU-VI3 : 01./01./COOZ eseelet1 JOd PeA0AdV
KAISER COMPANY, INC.
Henry J. Kaiser Co. 100%
KAISER AFFILIATED SHIPBUILDING COMPANIES
YEARS /941 and 1944
HENRY 3.. KAISER COMPANY
Henry J. Kaiser
Edgar F. Kaiser
Henry J. Kaiser, Jr.
50%
25%
25%
00%
THE KAISER COMPANY
Henry J. Kaiser
Edgar F. Kaiser
Henry J. Kaiser, Jr.
Others
6%
20%
20%
54%
KAISER ENGINEERS, INC.
(Formerly California-
Kaiser Company)
Henry J. Kaiser Co.
Others
60%
See Note 4 I
COLUMIA CONSTRUCTION COMPANY
SI 0/ OP O. ???
Henry J. Kaiser Co. 11.25%
The Kaiser Company 11.25%
MacDonald & Kahn Inc. 22.5 %
The Utah Const. Co.
22.5 %
W. A. Bechtel Co.
22.5 %
Morrison-Knudsen Co.
10 %
FLOATING DRYDOCK VENTURE
(After July 27, 1944)
Columbia Const. Co. 44.445%
Henry J. Kaiser Co. 10%
Kaiser Engineers 10%
J. F. Shea Co. Inc. 10
General Const, Co. 10
Pacific Bridge Co. 10
Morrison-Knudsen Co. 5.555%
THE PERMANENTE METALS CORP.
Henry J. Kaiser Co. 11.8044%
The Kaiser Company 11.8044%
W. A. Bechtel Co. 9.8478%
Bechte1-McCone-Parsons98478%
General Const. Co. 11.2175%
J. F. Shea Co. Inc. 10.3478%
The Utah Const. Co. 9.9130%
Morrison-Knudsen Co. 9.9130%
MacDonald & Kahn Inc.9.9130%
Pacific Bridge CO. 5.3913%
100%
RICHMOND SHIPBUILDING CORP.
Note 1 - After July 1, 1943
Note 2 - Henry J. Kaiser Co. 100% 1-1-43 to 3-27-43,
Henry J. Kaiser Co. 85% 3-27-43 to 7-13-43
Morrison-Knudsen Co., Inc. 15%)
Note 3 - Applies until April 1945
Note 4 - Henry J. Kaiser Co. 40% ) After Nov. 1944
Others 60% )
ASSOCIATED CONTRACTORS, INC.
Henry J. Kaiser Co.
20%
The Kaiser Company
lo%
Kaiser Engineers
10%
Walsh Const. Co.
so%
Morrison-Knudsen Co.
11:4
103
WAISH.4AISER COMPANY, INC.
See Note #1
CONSOLIDATED BUILDERS, INC.
Henry J. Kaiser Co. 11.364%
The Kaiser Company 11.364%
General Coast, Co. 25.0 %
J. F. Shea Co. Inc. 7.636%
The Utah Const. Co. 8.0 %
Morrison-Knudsen Co. 8.0 %
W. A. Bechtel Co. 4.3 %
Bechtel-McCone Corp. 4.3 %
Pacific Bridge Co. 5.036%
100%
I
OREGON SHIPBUILDING CORP.
KAISER CARGO, INC.
(After July 13, 1943)*
Henry J. Keiser Co. 45%
The Kaiser Company 15%
Kaiser Engineers, Inc. 15%
Morrison-Knudsen Co. 15%
J. F. Shea Co. Inc. 10%
*See Note 2
1943 & 1944
tl -10d peAoiddv
JOSHUA REND! IRON IMES
Henry J. Kaiser Co.
7.5%
Moore Machinery Co.
35.0%
MacDonald & Kahn Inc.
17.5%
The Utah Conet, Co.
7.5%
Morrison-Knudsen Co.
7.5%
Ti. A. Bechtel Co.
7.5%.
J. F. Shea Co. Inc.
7.5%
General Const. Co.
7.0%
Pacific Bridge Co.
3.0%
IV
CALIFORNIA SHIPBUILDING CORP.
Henry J. Keiser Co. 7.8833%
The Kaiser Company 7.8833%
W. A. Bechtel Co. 15.0 %
Bechtel-McCone Corp. 15.0 %
J. F. Shea Co. Inc. 12.0583%
Morrison-Knudsen Co. 11.5417%
The Utah Const. Co. 11.5333%
MacDonald & Kahn Inc. 9.7250%
Pacific Bridge Co. 4.7750%
General Const. Co. 4.6 %
See Note 3
93486 0 - 46 (Face p. 374) No. 4
P-Z000900017000U9K00
KAISER COMPANY, INC.
OP IBM ???
Henry J. Kaiser Co.
KAISER AFFILIATED SHIPBUILDING COMPANIES
Year 1945 (Noveiher)
HENRY J. KAISER COMPANY
Henry J. Kaiser
50%
Edgar F. Kaiser
25%
Henry J. Kaiser, Jr.
25%
00%
THE KAISER COMPANY
Henry J. Kaiser
6%
Edgar F. Raiser
20%
Henry J. Kaiser, Jr.
20%
Others
54%
Terminal Repair Divisior
The Kaiser Company 50%
Kaiser Engineers 50%
KAISER ENGINEERS, INC.
Henry J. Keiser Co. 40%
Others 60%
4OLUIEIA CONSTRUCTION COMPANY
f;
Henry J. Kaiser Co. 11.25%
,he Kaiser Company 11.25%
r.Donald & Kahn, Inc.22.5 %
e Utah Const, Co. 22.5 %
A. Bechtel Co. 22.5 %
yorrison-Knudsen Co. 10. %
U
FLOATING DRYDOCK VENTURE
Columbia Const. Co. 44.445%
Henry J. Kaiser Co. 10%
Kaiser Engineers, Inc .10%
J. F. Shea Co. Inc.
10
General Const. Co.
10
Pacific Bridge Co.
10
Morrieon-rnudsen Co.
5.5551
PERMANENTE METALS CORP.
Henry J. Kaiser Co. 11.8044%
The Keiser Company 11.8044%
W. A. Bechtel Co. 9.8478%
Bechtel-MbCone-Pareone9.8478%
'General Const. Co. 11.2175%
3. F. Shea Co., Inc. 10:3478%
The Utah Const. Co. 9.9130%
Morrison-Knudsen Co. 9.9130%
MacDonald & Kahn, Inc.9.9130%
Pacific Bridge Co. 5.3913%
100%
RICHMOND SHIPBUILDING CORP.
ASSOCIATED CONTRACTORS, INC.
Henry J. Keiser Co. 20%
The Kaiser Company- 10%
Kaiser Engineers 10%
Walsh Construction Co. 50%
Morrison-KnUdsen Co., Inc.10%
100%
WALSH-KAISER COMPANY, INC.
CONSOLIDATED BUILDERS, INC.
Henry J. Kaiser Co.
11.364%
The Kaiser Company
11.364%
General Const. Co.
25.0 %
J. F. Shea Co. Inc.
15.0 %
MacDonald & Kahn Inc. 7.636%
The Utah Const. Co.
8.0
%
Morrison-Knudsen Co.
8.0
%
W. A. Bechtel Co.
4.3
%
Bechtel-MCCone Corp.
4.3
%
Pacific Bridge Co.
5.036%
100%
OREGON SHIPBUILDING CORP.
KAISER CARGO, INC.
Henry J. Kaiser Co.
45%
The Kaiser Company
15%
Kaiser Engineers, Inc.
15%
Morrison-Knudsen Co.
15%
J. F. Shea Co. Inc.
10%
1945
JOSHUA HENDY IRON WORKS
(after Jan. 31, 1945)
Henry J. Kaiser Co. 8.65%
Chas. E. Moore 25.0 %
MacDonald & Kahn Inc .20.2
The Utah Const. Co.
8.65%
Morrison-Knudsen Co.
8.65%
W. A. Bechtel Co.
8.65%
J. F. Shea Co. Inc.
8.65%
General Conat. Co.
8.08%
Pacific Bridge Co.
3.47%
93486 0 - 46 (Face p. 374) No. 5
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
KAISER COMPANY, INC.
Henry J. Kaiser Co. 100%
KAISER AFFILIATED SHIPBUILDING COMPANIES
HENRY J. KAISER COMPANY
Henry J. Kaiser
50%
Edgar F. Kaiser
25%
Henry J. Kaiser, Jr.
25%
100%
Year 1946
THE KAISER COMPANY
Henry J. Kaiser
Edgar F. Kaiser
Henry J. Kaiser, Jr.
Others
6%
20%
20%
54%
50%
TERMINAL REPAIR DIVISION
The Kaiser Company 50%
Kaiser Engineers 50%
KAISER ENGINEERS, INC.
Henry J. Kaiser Co. 40%
Others 60%
COLUMBIA CONSTRUCTION COMPANY
Henry J. Kaiser Co.
11.25%
The Kaiser Company
11.25%
MacDonald and Kahn
22.5 %
The Utah Const. Co.
22.5 %
W. A. Bechtel Co.
22.5 %
Morrison-Knudsen Co.
10 %
FLOATING DRYDOCK VENTURE
Columbia Const. Co. 44.445%
Henry J. Kaiser Co. 10 %
Kaiser Engineers, Inc.10 %
J. F. Shea'Co. Inc. 10 1
General Const. Co. 10 1
Pacific Bridge Co. 10 1
Morrison-Knudsen Co. 5.555,
THE PERMANENTE METALS CORP.
Henry J. Kaiser Co.
32.321%
The Kaiser Company
32.321%
General Const. Co.
15.7268
J. F. Shea Co. Inc.
12.9067
Pacific Bridge Co.
6.7245
Note 1 - Name changed to Kaiser Fleetwings, Inc., May 29, 1946.
ASSOCIATED CONTRACTORS, INC,
Henry J. Kaiser Co.
20%
The Kaiser Company
10%
Kaiser Engineers, Inc.
10%
Walsh Construction Co.
50%
Morrison-Knudsen Co. Inc. 10%
100%
WALSH-KAISER COMPANY, INC.
CONSOLIDATED BUILDERS, INC.
Henry J. Kaiser Co.
The Kaiser Company
11.364%
11.364%
General Const. Co.
25.0
%
J. F. Shea Co. Inc.
15.0
%
MacDonald & Kahn Inc.
7.636%
The Utah Const. Co.
8.0
%
Morrison-Knudsen Co.
8.0
%
W. A. Bechtel Co.
4.3
%
Bechtel-McCone Corp.
4.3 %
Pacific Bridge Co.
5.036%
100%
OREGON SHIPBUILDING CORP.
KAISEH FLEETWINGS, INC.
Henry J. Kaiser Co. 45%
The Kaiser Company 15%
Kaiser Engineers, Inc. 15%
Morrison-Knudsen Co. Inc.15%
J. F. Shea Co. Inc. 10%
See Note 1
1946
JOSHUA HENDY IRON WORKS
(After Jan. 31, 1945)
Henry J. Kaiser Co.
8.65%
Cal. Shipbldg. Corp.
25.0 %
MacDonald & Kahn Inc.
20.2 %
The Utah Const. Co.
8.65%
Morrison-Knudsen Co.
8.65%
W. A. Bechtel Co.
8.65%
J. F. Shea Co. Inc.
8.65%
General Const. Co.
8.08%
Pacific Bridge Co.
3.47%
93486 0 - 46 (Face p. 374) No. 6
P-Z000900017000U9K008179dCIU-VI3 01./01./COOZ eseelet1 JOd PeACMCWV
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 375
Only those officers who were employed full time on shipbuilding activities were
compensated for services in connection therewith, and the president of the
company and many other officers and directors did not receive any compensation
whatsoever in connection with the shipbuilding operations, although very con-
siderable time and effort was devoted by them to the shipbuilding activities.
During the couse of the shipbuilding program only six persons were ever paid
at an annual rate in excess of $15,000 by any of the above-mentioned companies
for services performed in the shipbuilding operations, and in only three instances
was more than $15,000 reimbursed by the Maritime Commission. One such
instance involved Mr. J. F. Reis, administrative manager of all of the shipyards
operated by the above companies, who was paid a total of $15,576. in 1944, which
was fully reimbursed. Another instance involved Mr. Edgar F. Kaiser, vice
president and general manager of the Vancouver and Portland yards of this
company and one yard of the Oregon Shipbuilding Corp., who was paid in excess
of $15,000 per year, the highest amount being $18,346 in 1943, which was fully
reimbursed. The third instance involved Mr. C. P. Bedford, vice president and
general manager of one yard of this company at Richmond, Calif., two yards
of the Permanente Metals Corp., and one yard of Kaiser Fleetwings, Inc. (formerly
Kaiser Cargo, Inc.), who was paid in excess of $15,000 per year, the highest
amounts being $26,474 in 1945, of which $16,666 was reimbursed, and $21,154 in
1943, of which $20,307 was reimbursed. Messrs. Edgar F. Kaiser and C. P.
Bedford, as general managers, had the direct and primary responsibility for
the management and operation of a total of seven shipyards operated by the
above-mentioned companies, which employed in excess of 180,000 persons at
various times during the course of the war, and produced 1,474 ships for the
Maritime Commission.
5. The names of all persons, associations, or corporations holding 5 percent
or more of the capital stock of the company, giving the amounts of capital
stock held by each.
On February 11, 1942, 1,000 shares of no par value capital stock were issued
to the Henry J. Kaiser Co. This represents 100 percent of the ownership of
the company. The acquisition of tile stock was for cash and no change in
stock ownership has occurred since that date.
6. The shipbuilding experience prior to 1941 of all officers, directors, and
stockholders holding over 5 percent of the capital stock.
Prior to 1941, officers and directors of the company had been engaged in
heavy construction projects which included, among others, the building of
Boulder Dam, Bonneville Dam, Grand Coulee Dam, powerhouses and facilities,
and many other projects. Through these activities and over a course of many
years prior thereto, art integrrited organization was developed which was ex-
perienced and efficient in procuring and handling large quantities of materials
.and in mass production and fabrication methods.
In 1939, Kaiser interests and several associates joined with the Todd Ship-
building Corp. and founded the Seattle-Tacoma Shipbuilding Corp. In July
1939 this latter company submitted a low competitive bid to the United States
Maritime Commission for the construction of five C-1 cargo vessels. These
vessels were completed in 1941 in a shipyard privately financed and constructed
at Tacoma, Wash. During 1940 this same company was awarded contracts for
30 destroyers by the Navy Department and four C-3 cargo vessels and two C-3
troop transports by the Maritime Commission. Participation in tins company
continued until February 1942.
Messrs. Henry J. Kaiser, Edgar F. Kaiser, C. P. Bedford, J. P. Reis, George
Havas, G. G. Sherwood, and other officers and directors of Kaiser Co., Inc.,
were also closely connected with or officers or directors of Todd-California
Shipbuilding Corp., which received a contract in 1940 from the British Govern-
ment to build a seven-way shipyard at Richmond, Calif., and construct 30
cargo vessels. All these vesesls were completed prior to the award of any
shipbuilding contracts to Kaiser Co., Inc. These same individuals were also
connected with Richmond Shipbuilding Corp., Oregon Shipbuilding Corp., and
California Shipbuilding Corp., all of which companies had been producing ships
ahead of established contract schedules prior to the time any contracts were
awarded to Kaiser Co., Inc.
7. The names of all officers, directors, or stockholders owning more than 5
percent of the capital stock of the company who have held positions as officers
or directors of another company which had contracts with the Maritime Com-
mission or the War shipping Administration.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
376
SHIPYARD PROFITS
No indivi ual owned any stock of this company; consequently, the answer to
the questio is "None." For your information, however, a schedule is attached
as exhibit E, showing the names of officers or directors holding such positions
in more than one of the following corporations which had contracts with the
United Stats Maritime Commission or the War Shipping Administration:
Kais r Co., Inc.
The ermanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.)
Oregon Shipbuilding Corp. .
Columbia Construction Co.
In additibn, Messrs, Henry J. Kaiser, G. G. Sherwood, and Edgar F. Kaiser
were officers and/or directors of California Shipbuilding Corp. until April 1945.
8. The names of all officers, directors, or stockholders owning more than 5
percent of the capital stock of the company who have owned 5 percent or more
of the capital stock of another company which had contracts with the United
States Maritime Commission or the War Shipping Administration,.
No individuals are stockholders of Kaiser Co., Inc., the sole stockholders being
Henry J. Kaiser Co. In regard to this latter company and others in which Mr.
Kaiser or members of his family owned in excess of 5 percent of the stock,
please refer to the answer to question No. 13 which details this information.
9. Description of all contracts between the company and the United States
Maritime 'ommi ssion .
A desert tion of all contracts is shown in exhibit F, together with the other
detailed 1 formation requested. In summary, the total number of ships con-
structed aiid delivered was 344. The total volume of work performed amounted
to $1,650,80,O42. The net profit on this volume of work after applying Federal
income taxes would have been $11,311,684, or 0.68 percent of the total contract
volume owever, since the over-all operations of the company have resulted in
a loss of $18,579,000, no Federal income taxes were paid.
10. The fees and profits under each contract allowed after renegotiation.
Please rofer to exhibits F and G for this information.
11. The Status of each contract still subject to renegotiation, giving, wherever
possible, infoemation, showing the opinion of the Price Adjustment Board and of
the company as to the fees and profits permissible under each contract.
The effect of renegotiation on fees and profits and the status of contracts
still subjeet to renegotiation is described in exhibit G attached hereto.
12. The total ,ost to the Government of the shipyards and facilities used by
your company.
The total cost of the shipyards and facilities was $75,494,793.89, exclusive
of housing and transportation, all of which were constructed without fee or
profit. This information is detailed in exhibit H attached hereto. .
13. List all other shipbuilding companies holding contracts with the United
States Maiitime Commission or the War Shipping Administration in which Henry
1
Kaiser, m inber.> of his immediate family, or companies in which he or members
of his fain ly owned over 5 percent of the capital stock or had a financial interest
in excess f 5 percent of its capital stock, giving?
(a) The extent of such ownership;
(b) Under and in what manner acquired; and
(c) The amount of dividends received from each of inch companies.
Mr. Kaiser and none of his family owned stock in any shipbuilding companies
holding c4ntracts with the Maritime Commission or War Shipping Administra-
tion. Ho ever. he and members of his family own more than 5 percent of the
stock of three corporations which had a financial interest in excess of 5 percent
in shipbu lding companies holding such contracts and the details with respect
to subpar graphs (a) and (b) of this question are set forth in exhibit I attached.
Answer lig subparagraph (c), the total amount of dividends received by com-
panies in ,which Mr. Kaiser and his family own over 5 percent of the capital
stock amcunted to $4,936,000. In this connection, it should be pointed out, how-
ever, that Kaiser Co., Inc., which is wholly owned by Henry J. Kaiser Co.
and operaed three maritime shipyards and a steel plant which supplied plates
for the cdnstruction of ships, not only did not pay any dividends, but shows a
total net loss of $18,579,000.
We shall be pleased to furnish you with any other information you may desire.
Respectfully submitted.
Kiusrfl Co., INc.,
HENRY J. KAISER, President.
Approved For Release 2003/10/10 : CIA-RDP64600346R0004000600024
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 377
Exhibit A
AMENDED ARTICLES OF INCORPORATION OF CALIFORNIA KAISER COMPANY (BIWORE
PAYMENT OF ANY PART OF CAPITAL)
First.?The name of this corporation is
KAISER COMPANY, INC.
Second.?Its principal office in the State of Nevada is located at No. 200 North
Virginia Street, in the City of Reno, County of Washoe. The name and address
of its resident agent is The Corporation Trust Company of Nevada, No. 206 North
Virginia Street, Reno, Nevada.
Third.?The nature of the business, or objects or purposes proposed to be trans-
acted, promoted, or carried on are:
To carry on a general contracting and construction engineering business and
to excavate, dredge, grade, pave and construct, build, erect, repair, wreck, re-
model, and equip in whole or in part buildings of every description; public and
private works of all kinds; roads, streets, sidewalks, bridges, viaducts, approaches,
pavements, dams, locks, sewers, tunnels, subways, canals, aqueducts, channels
and other waterways, foundations, piers, caissons, vaults, wharves, marine ways
and docks, ditches, conduits, reservoirs, railways and other systems of trans-
portation system of waterworks; electric, hydraulic, power, and gas plants, tele-
phone, telegraph, and lighting systems, factories and all structures built in whole
or in part of wood, stone, brick, cement, iron, steel, or combinations thereof.
To do all manner of boiler setting and boiler installation and all work inci-
dental thereto; to do all manner of furnace setting and furnace installation and
all work incident thereto; and to install automatic stokers and to do all mason-
work incidental thereto.
To take over, acquire, purchase, own, sell, lease, hire, hold, control, manage,
maintain, and operate mines, quarries, gravel pits, brickyards, lime kilns, re-
fineries, asphalt, cement, and plaster mills, furnaces, sawmills, metal and wood-
working plants, pulp and paper mills, factories, lumberyards, timberlands, glass
plants, and establishments for the manufacture, preparation, and production of
building supplies, material, furnishings, decorations, and furniture.
To manufacture, buy, sell, lease, and deal in lime, cement, plaster, gravel,
stone, marble, brick, terra cotta, lumber, timber, glass, paints, oils, varnishes,
stains, iron, steel, copper,' brass, and other metals, products, combinations, fab-
rications, or manufactures of any of the foregoing; buildings, and building ma-
terials of all kinds; crushing, cutting, lighting, hoisting, elevating, cooling, re-
frigerating, ventilating, polishing, and cleaning machinery, pipes, wires, appara-
tus, fixtures, and equipment of all kinds and to install or erect the same; plumb-
ing fixtures, materials, and supplies of all kinds, and to install the same.
To manufacture, produce, assemble, fabricate, and deal in all kinds, forms,
and combinations of steel, iron, copper, or other metals or either or any of them.
To carry on the business of consulting and contracting engineers and the
preparation of plans and specifications of machinery, buildings, and works.
To do a general wrecking, salvage, and house-moving business; to erect and/or
have erected, to construct or have constructed, houses, works, buildings, storage
rooms, tenements, edifices, and structures of every description; and to buy, soil,
own, use, manage, and lease the same or similar structures.
To acquire by purchase, subscription, or otherwise, and to hold as investment
or otherwise, any bonds or other securities or evidences of indebtedness or any
shares of capital stock created or issued by any other corporation or other cor-
porations, association or associations, person or persons of the State of Nevada,
or any other state, district, territory, or country.
To purchase, underwrite, hold, sell, assign, transfer, mortgage, pledge, or
otherwise dispose of any bonds, shares of stock, debentures, or other securities
or evidences of indebtedness created or issued by any other corporation or cor-
porations, association or associations, person or persons, of the State of Nevada,
or of any other state, district, territory, or country; and while the owner thereof,
to exercise all the rights, powers, and privileges of ownership, including the right
to vote thereon.
To manufacture, purchase, or otherwise acquire, own, mortgage, pledge, sell,
assign, and transfer, or otherwise dispose of, to invest, trade, deal in, and deal
with goods, wares, and merchandise and real and personal property of every
class and description.
Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
378 SHIPYARD PROFITS
To acquire, and pay for in cash, stock, or bonds of this corporation, or other-
wise, the good will, rights, assets, and property, and to undertake or assume
the whole or an part of the obligations or liabilities of any person, firm, asso-
ciation or eorporation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage,
or otherwise dispose of letters patent of the United States or any foreign coun-
try, patent rights, licenses and privileges, inventions, improvements and proc-
esses, copyrights, trade-marks and trade names, relating to or useful in connec-
tion with any bin bless of this corporation. .
To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge, or other-
wise dispose of ..hares of the capital stock of, or any bonds, securities, or evi-
dences of indebtedness created by any other corporation or corporations organized
under the laws of this State or any other state, country, nation, or government,
and while the owner thereof to exercise all the rights, powers, and privileges of
ownership. '
To promote or to aid in any manner, financially or otherwise, any corpora-
tion or association; and for this purpose to guarantee or to become surety upon
the contracts, dividends, stocks, bonds, notes, and other obligations of such other
corporations or associations; and to do any other act or thing designed to pro-
tect, preserve, improve, or enhance the value of the stocks, bonds, or other evi-
dences of indebtedness or securities of such other corporations.
To enter into, make, and perform contracts of every kind and description,
with any p rson, firm, association, corporation, municipality, county, state, body
politic, or g vernment or colony or dependency thereof.
To becom a member of any partnership and to enter into any lawful arrange-
ments for s iaring profits and/or losses, union of interests, reciprocal concession,
or cooperation, Wth any corporation, association, partnership, syndicate, person,
or governmental, municipal, or public authority, domestic or foreign, in the carry-
ing on of any business which this corporation is authorized to carry on or any
business or transaction deemed necessary, convenient, or incidental to carrying
out any of the purposes of the corporation.
To act as, agent, factor, broker, or representative of corporations, associations,
firms, and individuals.
To borroW or raise moneys for any of the purposes of the corporation and,.
from time to time, without limit as to amount, to draw, make, accept, endorse,
execute, and issue promissory notes, drafts, bills of exchange, warrants, bonds,.
debentures, and other negotiable or nonnegotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by inortgage upon or pledge, conveyance, or assignment in trust of the
whole or any part of the property of the corporation, whether at the time owned
or thereafter acquired, and to sell, pledge, or otherwise dispose of such bonds
or other obi gallons of the'corporation for its corporate purposes.
To purchase, hold, sell, and transfer the shares of its own capital stock;
provided it shall not use its funds for purchase of its own shares of capital'
stock when such use of funds or property would cause any impairment of its
capital except as otherwise permitted by law, and provided further that shares
of its own capital stock belonging , to it shall not be voted on directly or
indirectly.
'To have one or more offices, to carry on all or any of its operations
and busines and without restriction or limit as to amount to purchase or
otherwise arquire, hold, own, mortgage, sell, convey, or otherwise dispose of
real and personal property of every class and description in any of the states,
districts, territories, or colonies of the United States, and in any and all
foreign countries, subject to the laws of such state, district, territory, colony, or
country.
In general to carry on any other business in connection with the foregoing,
and to have and exercise all the powers conferred by the laws of Nevada upon
corporation formed under the act hereinafter referred to, and to do any or all
of the things hereinbefore set forth to the same extent as natural persons
might or cot ld do.
The obje ts an d purposes specified in the foregoing clauses shall, except
where otherwise expressed, be in nowise limited or restricted by reference to,
or inference, from, the terms of any other clause in these articles of incorpora-
tion, but the objccts and purposes specified in each of the foregoing clauses
of this article shall be regarded as independent objects and purposes.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 379
Fourth.?The total number of shares which the corporation is authorized
to issue is twenty-five thousand (25,000) shares without nominal or par value.
Said shares without nominal or par value may be issued by the corporation from
time to time for such consideration as may be fixed from time to time by board
of directors thereof.
At all elections of directors, each stockholder at the time entitled to vote
shall be entitled to as many votes as shall equal the number of his voting
shares of stock, multiplied by the number of directors to be elected, and he may
cast all of such votes for a single director or may distribute them among the
number to be voted for, or any two or more of them, as he may see fit.
Fifth.?The members of the governing board shall be known as directors,
and the number thereof shall be not less than three nor more than fifteen, the
exact number to be fixed by the bylaws of the corporation; provided, that the
number so fixed by the bylaws may be increased or decreased within the limit
above specified from time to time by bylaw.
The names and post office addresses of the first board of directors are as
follows:
Post-office addresses
Wm. Woodburn, Jr 200 N. Virginia St., Reno, Nevada.
E. Mina - 206 N. Virginia St., Reno, Nevada,
J. P. Thatcher 200 N. Virginia St., Reno, Nevada.
C. Loring 206 N. Virginia St., Reno, Nevada.
V. Birks 206 N. Virginia St., Reno, Nevada.
J. Campbell 206 N. Virginia St., Reno, Nevada,
Sixth.?The capital stock, after the amount of the subscription price has been
paid in, shall be subject to no further assessment to pay debts of the corporation.
Seventh.?The names and post-office addresses of each of the incorporators.
signing these articles of incorporation are as follows: ?
Post-office addresses
C. Loring 200 N. Virginia St., Reno, Nevada.
J. Campbell 206 N. Virginia St., Reno, Nevada,
V. Birks 200 N. Virginia St., Reno, Nevada.
Eighth.?This corporation is to have perpetual existence.
Ninth.?In furtherance, and not in limitation, of the powers conferred by
statute, the board of directors is expressly authorized:
Subject to the bylaws, if any, adopted by the stockholders, to make, alter,
or amend the bylaws of the corporation.
,To fix the amount to be reserved as working capital over and above its
capital stock paid in, to authorize and cause to be executed mortgages and liens
upon the real and personal property of this corporation.
From time to time to determine whether and to what extent, and at what
times and places, and under what conditions and regulations, the accounts and
books of this corporation (other than the original or duplicate stock ledger),
or any of them, shall be open to inspection of stockholders, and no stockholder
shall have any right of inspecting any account, book, or document of this cor-
poration except as conferred by statute, unless authorized by a resolution of the
stockholders or directors.
By resolution or resolutions, passed by a majority of the whole board, to
designate one or more committees, each committee to consist of two or more of the
directors of the corporation, which, to the extent provided in said resolution or
resolutions, or in the bylaws of the corporation, shall have and may exercise
the powers of the board of directors in the management of the business and affairs.
of the corporation and may have power to authorize the seal of the corporation
to be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be stated in the bylaws of the corporation
or as may be determined from time to time by resolution adopted by the board
of directors.
Pursuant to the affirmative vote of the holders of at least a majority of the
stock issued and outstanding, having voting power, given at a stockholders'
meeting duly called for that purpose, or when authorized by the written consent
of the holders of at least a majority of the voting stock issued and outstanding,
the board of directors shall have power and authority at any meeting to sell,
lease, or exchange all of the property and assets of this corporation, including
its. good will and its corporate franchises, upon such terms and conditions as
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
380 SHIPYARD PROFITS
its board o directors deem expedient and for the best interests of the corporation.
This corporation may in its bylaws confer powers upon its directors in addi-
tion to the foregoing, and in addition to the foregoing, and in addition to the
powers and authorities expressly conferred upon them by the statutes.
Tenth.?Meetings of stockholders may be held without the State of Nevada,
if the bylaws so provide. The books of this corporation may be kept (subject
to the provisions of the statutes) outside of the State of Nevada at such places
as may be from time to time designated by the board of directors or in the
bylaws of the corporation.
Eleventh?This corporation reserves the right to amend, alter, change, or
repeal any provision contained in these articles of incorporation, in the manner
now or herafter prescribed by statute, or by these articles of incorporation,
and all ri hts conferred upon stockholders herein are granted subject to this
reservation.
We, the undersigned, being all of the incorporators of California Kaiser Com-
pany, and all of the signers of the original articles of incorporation of said com-
pany and of the foregoing amended articles of incorporation of said company,
a corporation organized under and in pursuance of the General Corporation Law
of the State of Nevada, its articles of incorporation having been duly filed in
the office of the Secretary of State of Nevada on December 1, 1941, and a copy
thereof hating been certified by the Secretary of State of Nevada and filed in the
office of t e Clerk of Washoe County on December 2, 1941, do hereby certify,
acknowled e, and take oath that no part of the capital stock has been paid in;
and that no business has been transacted by said corporation; and we, the un-
dersigned, being all of the incorporators of said company and being all of the
signers and subscribers to the original articles of incorporation and of the
foregoing amended articles of incorporation, do hereby amend said articles of
incorporation so that the same shall read as hereinbefore set forth in the
foregoing ameneled articles of incorporation, and do hereunto set our hands
and seals.
C. LOSING.
J. CAMPBELL.
V. Bias.
STATE OF NEVADA, County of VVashoe, ss:
On this Sth day of January 1942, before me, the undersigned, a notary public
in and for the county and state aforesaid, personally appeared C. Loring, J.
Campbell, and V. Birks, known to me to be the persons described in and who
executed the foregoing instrument and who acknowledged to me that they
executed t,ie same freely and voluntarily and for the uses and purposes therein
mentioned
In witness whereof, I have hereunto set my hand and affixed my official seal
the day and year in this certificate first above written.
WM. J. FORMAN,
Notary Public in and for the County of
Washoe, State of Nevada.
Exhibit B
KAISER Co., INC.
ANSWER TO QUESTION NO. 2 OF QUESTIONNAIRE OF JULY 27,1946
General:
The capital of the company was segregated as follows:
For shipyard uses:
Bank loans (unguaranteed)
Capital stock
Not guaranteed by
the U. S. Government
$13, 750, 000
100, 000
13, 850, 000
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
381,
Fontana operations:
RFC loans secured:
Maximum principal at end of any month
Principal balance outstanding July 31, 1946
$110,
95,
280,
581,
000
832
Bank loans
General.?The proceeds of these loans were used in connection with the ship-
yard operations of the company. Due to the magnitude of these operations and
the amount of funds required, and due to the limitations imposed by the Federal
Government on the amount of loans which banks can make to any one borrower,
it was necessary, first, to borrow from more than one bank, and, later, to borrow
under the terms of Regulation V. The effect of borrowing under this regulation
was to permit greater loans by each bank without their exceeding the maximum
limits of their loans to any one borrower.
Bank loans, not guaranteed
(a) Richmond and Portland yards.?Until December 1942, funds for the
Richmond and Portland (Swan Island) yards were secured from the Bank of
America without the guaranty of any branch, subdivision, etc. of the Federal
Government. Maximum borrowings under this arrangement amounted to
$8,750,000.
( b). Vancouver yard.?Until March 1943, funds for the Vancouver yard were
secured under Joint commitments, without the guaranty of any branch, sub-
division, etc., of the Federal Government, from four banks, as follows:
First National Bank of Portland, Oreg.
United States National Bank of Portland, Oreg.
Seattle (Wash.) First National Bank.
National Bank of Commerce (Seattle, Wash.)
Pending formal completion of the guaranteed loan superseding this arrangement,
the Bank of America also made a temporary loan for use at this shipyard.
Maximum borrowings under these arrangements totaled $5,000;000.
Bank loans, guaranteed
(a) Richmond and Portland yards.?Under date of December 15, 1942, the
Bank of America and the company entered into a credit agreement which made
available $11,000,000 for use in financing the operations of these two yards. In
connection therewith, a "guaranty agreement" was secured by the bank from the
United States Maritime Commission wherein the Commission obligated itself
to purchase up to 50 percent of the unpaid balance of the loan under certain
conditions. This was never necessary as the last of the loans under this arrange-
ment was repaid during June 1945.
Maximum borrowings under this credit agreement were $10,500,000.
(5) Vancouver yard.?Under date of March 4, 1943, the company entered
into a loan agreement with the four Portland and Seattle banks referred to
above, which made available $7,000,000 for use in financing the operation of that
yard. Later, the Bank of America was substituted for two Seattle banks. In
connection with this loan agreement, the banks secured a "guaranty agreement"
from the United States Maritime Commission wherein the Commission obligated
itself to purchase up to 50 percent of the unpaid balance of the loan under certain
conditions. This was never neceSsary, as the last of the loans under this arrange-
ment was paid during June 1945.
Maximum borrowings under this loan agreement were $6,370,000.
Capital stock
Common, no par value: $100,000.
RFC loans, secured
These loans are secured by mortgages on property, pledge of profits from ship-
yard contracts, and otherwise. The proceeds of the loans have been and are
being used in connection with the Fontana operations of the company. The maxi-
mum outstanding principal balance at the end of any one month was $110,280,000.
The principal balance remaining at July 31, 1946, was $95,581,832.04.
03486-48 25
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
382
SHIPYARD PROFITS
Exhibit
KAISER Co., INC.
List of alt officers and directors front date of organization, to July 31, 1946,1 and
annual corapensation2
Data title held-
From
To
President:
Vice presidents:
Edgar
T. M.
E. E. Tiefethen
C. F. Calhoun
C. P. Bedford
A. B. Ordway
T. A. B
Paul S.
F. M.
Albert
Treasurer:
Secretary:
Directors:
E. E. Trefethen,
Paul S.
G. G. Sherwood
M. Vau
T. K.
R. L. Bridges_
Assistant secretaries:
T. M
C. F. Calhoun
C. P. Bedford
Paul S.
J. F.
GB. Wood
A. E.
Donald
E. R. Ordway.
George
Henry
Wllliarb
J. R. Walker_
F. H. 1eehiil
J. E. Lents
Assistant treasurers:
J. F. 1eis
C. B. Wood
President:
Vice president:
Secretaries
PRESENT OFFICERS AND DIRECTORS
Henry J. Kaiser
F. Kaiser
Price
, Jr
i i dford, Zfr
arrin
ich
auer
t. G. Sherwood
. G. Sherwood
Jr
Marrin
Hoesen
McCarthy
?rice
Marrin
s
card
Browns
C. Obey, Jr
S. Kaiser, Jr
Marks
PAST OFFICERS AND DIRECTORS
G. G. Sherwood
Peer D. Nielsen
Jan. 7, 1942
Jan. 7, 1942
Apr. 5, 194-4
Jan. 15,1942
Aug. 6, 1943
June 18, 1943
do",
Oct. 18, 1945
Aug. 6,1943
May ' 1, 1946
July 19, 1946
Dec. 2, 1941
May 1,1946
Dec. 2,1941
do
do
do
Aug. 6, 1943
Dec. 2,1941
June 11, 1942
Apr. 20,l42
July 13, 1942
Apr. 20, 1,942
Jan. 15,1942
May 1, 1946
Jan 7,1942
Mar. 18,1942
Sept. 23, 1942
June 5, 1942
Mar. 4,194.3
June 17, 1944
Apr. 18, 1946
Oct. 18,1945
Mar. 4, 1946
do
Aug. 21,1944
Dec. 2 1941
Oct. 18,1941
Jan. 7, 1942
Feb. 28, 1946
E. E. refethen, Jr
Dec.
2, 1941
Jan. 7, 1942
Georg Havas
San.
7, 1942
May 1, 1946
Director: . Cook
Dec.
2, 1941
July 5, 1943
Assistant ecretaries:
T. A. edford, Jr
Oct.
8, 1945
Oct. 18, 1945
G. G. sherwood
Apr, 20, 1942
May 1,946
J. L. riedma
Nov. 15, 1943
Do.
Frank, Backm An
Aug. 11, 1944
Do.
W. S. Newton
Aug.
30, 1945
Apr. 18, 1946
DO
May
1, 1946
July 19, 1946
l Not included: Original directors who resigned prior to any business being transacted.
2 No officer nor director received compensation for holding any office or directorship; all compensation
was for services rendered as an employee of the company.
See exhiiit D for details of any salaries paid.
1
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Exhibit D
KAISER CO., INC.
Salaries1 paid to (I) officers and directors (regardless of amount), (2) others (over $15,000 annually), (3) individuals who have been officers or
directors of Kaiser Co., Inc., The Permanente Metals Co., Richmond Shipbuilding Corp., Kaiser Fleetwings, Inc., or Oregon Shipbuilding
Corp.
Name
-
Operational title
Period covered
Shipbuilding division
Other
divisions
Total
Reim-
burs-
2
Van-
yard
-
Portland
Swanable
Islandd yar

Rich-
mond
yard
Total
ship-couver
building
CALENDAR YEAR 1942
.
(1) Officers and directors:
Edgar F. Kaiser
General manager
Aug. 2 to Dec. 31, 1942
$7, 269. 36
$7, 269. 36
$7, 269.36
$7, 269. 36
J. F. Reis
Administrative manager
do
4,846.17
4, 846. 17
4,846. 17
4,846. 17
E. R. Ordway
Assistant administrative manager
May 16 to Dec. 31, 1942
$3, 103. 12
3,103. 12
3, 103.12
3, 103. 12
C. B. Wood
Administrative manager
Dec. 11 to Dec. 31, 1942
$323.07
323.07
323.07
323.07
J. L. Friedman
Administrative assistant
June 21 to Dec. 31, 1942
2, 808. 26
2, 808. 26
2, 808. 26
2, 808. 26
C. F. Calhoun
Project manager (other division)
Mar. 1 to Dec. 31, 1942
$7, 155.00
7, 155. 00
George Havas ?
Chief engineer (other division)
do
7, 254. 00
7, 254. 00
Donald Browne
General administration manager
Sept. 1 to Dec. 31, 1942
1, 220. 40
1, 220. 40
(other division).
Henry J. Kaiser, Jr
Administrative assistant (other
division).
Oct. 1 to Dec. 31, 1942
1, 271.00
1, 271.00
Frank Backman
Superintendent (other division)
Apr. 1,10 Dec. 31 1942
4, 961. 70
4, 961. 70
(2) Others (over $15,600): None
-
(3) Officials of other companies:
M. Miller
Assistant general manager
Jan. 26 to Dec. 31, 1942
8, 764.09
8, 761. 09
8, 764.09
8, 764.09
F. R. Browning
Resident administrative manager
Apr. 1 to Dec. 31, 1942
2,646. 84
2, 646.84
(other).
CALENDAR YEAR 1943
(1) Officers and dii ectors:
Edgar F. Kaiser
General manager
Jan. 1 to Dee. 31, 1943
18, 346. 48
18. 346. 48
18, 346. 48
18, 346.41
J. F. Reis
Administrative manager
do
13, 788. 44
13, 788. 44
13, 788. 44
13, 788. 49
E. R. Ordway
Assistant administrative manager
_do
6, 551. 63
6. 551. 63
6, 55L 63
6. 551. 62
A. B. Ordway
Administrative manager
June 25 to Dec. 31, 1943
.
9, 374. 95
9, 374. 95
9, 374. 95
9,374. 92
C. B. Wood
ytesident administrative manager
Jan. 1 to Dec. 31, 1943
7, 903. 80
7, 903. 80
7, 903. 80
7.903. 8(
F. H. Bechill
idministrative assistant
Feb. 1 to Dec. 31. 1943
4. 277. 50
4.277. 50
4. 277. 50
4. 277. 5(
1 Includes adjusted compensation (year end "bonus").
2 Includes reimbursable under cost plus fixed fee or claimed as allowable cost under fixed- or variable-price contracts.
S,LI3011r1 atIVAcIIHS
P-Z000900017000U9K008179dCIU-VI3 01./01./COOZ eseelet1 JOd PeA0AdV
Exhibit D?Continued
KAISER Co., INic.?Continued
0
00 CD
00 a
I?P? -n
0
Sad-to(4) officers and-directors (rPgfird1Pqs of amount), (2) others (over $15,000 annually),__(3)_individ_uaLs who kave lwen_officers or
directors of Kaiser Co., Inc., The Permanente Metals Co., Richmond Shipbuilding Corp., Kaiser Fleetwings, Inc., or Oregon Shipbuilding
Corp.?Continued CD
Name
Operational title
Period covered
Shipbuilding division
Other
divisions
Total
Reins-
burs-
able
Van-
couver
yard
Portland
Swan
Island
yard
Rich-
mond
yard
Total
ship-
building
(1) Officers and directors?Con.
J. L Friedman
Executive assistant
Jan. 1 to Dee. 31, 1943
$6, 842.60
$6, 482. 60
$6, 482. 60
$6, 482. 60
C. F. Calhoun
Project manager (other)
do
$11,000.00
11, 000.00
George Havas.._
Chief engineer (other)
do
10, 000. 00
10. 000.00
T. M. Price
General manager (other)
Sept. Ito Dec. 31, 1943
4. 000. 00
4, OM. 00
Wm. Marks
Attorney (other)
Apr. 1 to Dec. 31, 1943
4, 160. 56
4, 160. 56
Frank Backman
Superintendent (other)
Jan. 1 to Dec. 31, 1943
8.781. 40
8, 781. 40
W. S. Newton
Resident administrative manager
Apr. 16 to June 15; Nov. 16 to
1, 858. 16
1, 858. 16
(other).
Dec. 31, 1943.
(2) Others (over $15,000): None.
(3) Officials of other companies:
M. Miller
Assistant general manager
Jan. 1 to Dec. 31, 1943
$9,
570.96
9, 570.96
9, 570.96
9, 570. 96
H. J. Kaise , Jr
Executive assistant (other)
Jan. 1 to Sept. 30, 1943
3. 595.95
3, 595.95
S. D. Hackley
do
Jan. 1 to Aug. 15. 1943
4. 549.95
4, 549.95
F. R. Browning
Resident administrative manage
Jan. 1 to Sept. 30, 1943
4,077. 50
4, 077. 50
(other).
CALENDAR YEAR 1944
(1) Officers and directors:
Edgar F. Kaiser
General manager
Jan. 11 to Dec. 31, 1944
17,
654. 16
17,654. 16
17, 654. 16
17, 654.16
J. F. Reis
Administrative manager
do
15,
576. 85
15, 576. 85
15, 576.85
15, 576. 85
E. R. Ordway
J. E. Lents
Assistant administrative manager
Administrative assistant
do
Apr. 24 to Dec. 31, 1944
$6,
3,
216.
373.
08
92
6, 216. 08
3, 373. 92
6, 216. 08
3, 373. 92
6, 216.08
3, 373. 92
- A. B. Ordway
Administrative manager and gen-
eral manager.
Jan. 1 to Dec. 31, 1944
10, 528. 79
10, 528. 79
6, 692. 32
17,221, 11
10,595. 79
C. B. Wood
Resident administrative manager_
do
8, 797. 92
8, 797. 92
8, 797. 92
8, 797. 92
F. H. Bechill
Assistant administrative manager
do
5,633. 13
5, 633. 13
5, 633. 13
5,633. 13
J. L. Friedman _
Executive engineer
do
7, 408. 84
7, 408. 84
'
7, 408. 84
7, 408. 84
C. F. Calhoun
Executive assistant (other divi-
sions).
Ian. 1 to Sept. 30; Nov 1 to
Dec. 31, 1944.
11, 980. 78
11, 980. 78
George Havas
Chief engineer (other divisions)_ .
Jan. 1 to Dec. 31, 1944
12, 339. 74
12, 339. 74
CD
0
0
C.4
0
z
0
? 0
-
rJ >
0
LJ2-0
1--1
CO
0
0
CA)
0
0
0
0
0
0
0
0
0
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Donald Browne
General manager-administrative
(other divisions).
Sept. 1 to Dec. 31, 1944
1,
423. 20
1, 423. 20
T. M. Price
General manager (other divisions)
Jan. 1 to Sept. 30, 1944
9,
000. 00
9, 000. 00
Wm. Marks
Attorney (other divisions)
Jan. 1 to Dec. 31, 1944
1,
537: 50
1,537.50
0
J. R. Walker
Resident administrative manager
(other divisions).
May 1 to Dec. 81, 1944
3,
267. 00
3, 267. 00
CD
Frank Backman
Superititendent (other divisions)
Jan. 1 to Dec. 31, 1944
9,
471. 62
9, 471. 62
0-
W. S. Newton
Resident administrative manager
(other divisions).
do
6,
510. 06
6, 510. 06
(2) Other (over $15,000): None.
0
(3) Officials of other companies: M.
Assistant general manager
Jan. I to Dec. 31, 1944
9,
570.
96
9, 570. 96
9, 570. 96
9,
570. 96
CALENDAR YEAR 1945
c7
(1) Officers and directors:
Edgar F. Kaiser
General manager
Jan. 1 to Dec. 31, 1945
18,
000.
32
18, 000. 32
18, 000. 32
18,
000. 32
J. F. Reis
Administrative manager
do
14,
999.
92
14, 999. 92
14, 999. 92
14,
999. 92
CD
E. R. Ordway
Assistant administrative manager
_do
7, 013. 52
7, 013. 52
7, 013. 52
7,
013. 52
J. E. Lents
T. A. Bedford, Jr
C. B. Wood
Administrative assistant
Assistant general manager
Resident administrative manager-
controller. ?
do
Oct. 1 to Dec. 31, 1945
Ian. 1 to Dec. 31, 1945
5,873.76
2, 126. 98
7, 207. 76
5, 873. 76
2, 126. 98
7, 207. 76
2,
083. 35
5, 873.76
2, 126. 98
9, 291. 11
5,
2,
7,
873.76
126. 98
207. 76
20 o
o
17-1 (.4
---
F. H. Bechill
J. L. Friedman
Assistant administrative manager
Executive engineer
do
do
6, 674. 42
7, 701. 48
6, 674. 42
7, 701. 48
6, 674. 42
7, 701. 48
6,
7,
674. 42
701. 48
"
C. F. Calhoun
Executive assistant (other divi-
sion).
do
12,
426. 79
12, 426.79
ti 0
A. B. Ordway
T. M. Price
William Marks
7. R. Walker
General manager (other division)
do
Attorney (other division)
Assistant controller (other division)
do
Applies to 1944
Applies to 1944 and 1945
Jan. 1 to Dec. 31, 1945
22,
5,
6,
875. 00
000. GO
575.00
146. 50
22, 875. 00
5, 000. 00
575.00
6, 146. 50
it ? ?
o
Frank Backman
Superintendent (other division) _
Jan. 1 to Oct. 31, 1945
10,
821. 11
10, 821. 11
Peer Nielsen
Works manager (other division)
Oct. 1 to Dec. 31, 1945
5,
166.68
5, 166. 68
Resident administrative manager
W. S. Newton
Jan. 1 to Dec. 31, 1945
7,
654. 34
7, 654. 34
liD ,4J
(2) Other (over $15,000): 7. C. Mc-
General superintendent
Oct. 1, to Dec. 31, 1945
2,126.88
2,126.88
2, 126. 88
2,
126. 88
0
Farland.3
(3) Officials of other companies:
Assistant general manager
Jan. 1 to Dee. 31, 1945
9,
216.
48
9, 216. 48
9,216.48
9,
216.48
M. Miller.
CO
Included to complete 1 year?Above, together with salary paid by the Permanents Metals Co. for balance of year is in excess of $15,000.
0
0
C.4
0
0
0
C4 0
0o0
CA 0
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
386 SHIPYARD PROFITS
Rchibit
(Question No. 9)
KAISER Co., INC.
Summary of shipyard income to May 31, 1946
Shipbuilding
(USMC
contracts)
Other operations
Total
Total of shipbuilding contracts
$1,342,
475,
189. 06
Government urnishcd materials
316,
334,
813.65
Total contract volume
1, 658,
810,
042. 71
I
41,
133,
396. 23
'$59,
712,
436.
49
'$18,
579,
040. 26
Gross profit before taKes
Federal income taxes
29,
821,
712. 27
1 29,
821,
712.
27
Net profit
11,
311,
683.98
'29,
890,
724.
22
'18,
579,
040. 26
Percent of net profit on total contract
volume
0.68
?
'Bed figurs.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
P-Z000900017000N9PC008179dCIU-VI3 : ?MUNOZ eseeieu JOd 130A0iddV
EXHIBIT E
Individuals who have held offices or directorships in more than 1 of following companies: Kaiser Co., Inc., The Permanente Metals Corp., Richmond Shipbuilding Corp., Kaiser Fleetwings, Inc., Oregon Shipbuilding Corp.,
Consolidated Builders, Inc., (to July 31, 1946)
Officers and directors
Kaiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc.
Oregon Shipbuilding Corp.
Consolidated Builders,
Inc.'
Columbia Construe-
tion Co?
Position
Status'
Position
Status'
Position
Status I
Position
Status'
Position
Status'
Henry J. Kaiser
President
X
President
X
President
X
President
Jan. 15, 1944
President
President.
DoDirector
X
Director
X
Director
X
Director
Director.
Edgar F. Kaiser
Vice president- ----X
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Vice president
Vice president.
Do
Director
X
Director
X
Director
X
Director
Assistant secretary.
E. E. Trefethen, Jr
do
X
Vice president
X
Vice president
X
President ..
X
Assistant secretary-
X
Vice president.
Do
Director
X
Director
X
Director
X
Director
X
Do
Secretary
Jan. 7, 1942
Secretary
Feb. 1, 1943
Secretary
Feb. 2, 1943
Vice president
Ian. 15, 1944
Assistant treasurer_
X
C. F. Calhoun
Vice president
X
Vice president
X
do
X
Do
Assistant secretary_
Jan 7, 1942
Assistant secretary__
X
Assistant secretary.
C. P. Bedford
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Do
Assistant secretary- ---
X
Assistant secretary_
X
Assistant secretary
X
A. B. Ordway
Vice president
X
Vice president
X
Vice president
X
Vice president
X
T. A. Bedford, Jr
do
X
do
X
do
X
Do
Assistant secretary
Oct. 18, 1945
Assistant secretary__
Oct. 18, 1945
Paul S. Marrin
Vice president
X
Assistant secretary_
X
Assistant secretary
X
Vice president
X
Assistant secretary
X
Assistant seeretary___ _
Do
Director
X
Director
Apr. 25,1941
Director
X
Director
Jan. 11,1941
Do
Assistant secretary_
X
Vice president
do
Assistant secretary
X
President
do
Do.
George Havas
Do
Secretary
May 1, 1946
Director
Secretary treasurer_
Dec. 9, 1940
Dec. 30, 1940
Vice president
Director
do
do
Secretary.
G. G. Sherwood_
Secretary treasurer
X
do
X
Director
Apr. 25,1941
Director
X
Treasurer
X
Secretary__ .
Do
Director
X
Assistant secretary
X
Secretary-treasurer
X
Secretary
X
Assistant secretary_ _ _ _
X
Assistant treasurer _ _
Do
President
Jan. 7, 1942
Assistant secretary
X
Treasurer
X
Do
Assistant secretary
May 1,1946
Assistant secretary.
I. F. Reis
do
X
Assistant secretary
X
Assistant secretary__
X
Secretary
X
Assistant secretary
Assistant treasurer.
Do
Assistant treasurer_..
X
Assistant treasurer
X
Assistant treasurer__
X
Assistant treasurer_
Do
Vice president
X
C. B. Wood
Assistant secretary
X
Assistant treasurer.
X
Assistant secretary
X
Do
Assistant treasurer.
X
Assistant treasurer__
X
A. E. Beard
Donald Browne
Assistant secretary_
do
X
X
Assistant secretary_
X
Assistant secretary_
Apr. 25,1941
Assistant secretary ----X
Do
Assistant treasurer
X
E. R. Ordway
Assistant secretary_
X
Assistant secretary
X
Assistant secretary
George C. Ober, Jr
do
X
Assistant secretary_
X
Assistant secretary.
X
Assistant secretary__
X
do
X
F. H. Bechill
J. E. Lents
do
do
X
X
do
X
do
X
Assistant secretary
X
Assistant secretary____
M. Van Hoesen
Director
X
Director
Apr. 25,1941
Director
X
R. L. Bridges
do
X
Assistant secretary
X
Vice president
X
Vice president
X
Vice president
DoDirector
F. Cook
Director
July 5, 1943
do
Apr. 25, 1941
do
Director
X
I. L. Friedman
Assistant secretary_
May 1,1946
Assistant secretary_
X
Assistant secretary__
X
Albert Bauer
Vice president
X
Joseph Haag, Ir
Vice president
Feb. 13,1942
Vice president
Feb. 25, 1942
Vice president
Feb. 13, 1942
Do
Director
do
Director
do
Director
do
C. F. Strenz
do
Dec. 30,1940
do
do
do
? do
Do
Assistant secretary
Feb. 13,1942
Assistant secretary
do
Assistant secretary
do
Do
Assistant treasurer
do
Assistant treasurer_
do
Assistant treasurer_
do
E. P. Enter
Director
Dec. 20, 1940
do
do
do
do
Do
Do
Assistant secretary
Assistant treasurer
Feb. 13, 1942
do
Assistant secretary
do
Assistant secretary
do
R. J. Lamont
Do
Director
Feb. 14,1942
Director
Feb. 25,1942
Director
Vice president
Feb. 13,1942
do
I. D. Reilly
Director
Feb. 13,1942
Director
Feb. 25,1942
Director
do
J. H. Todd
do
do
do
do
do
do
S. D. Bechtel
Vice president
June 20,1945
Vice president
June 20, 1945
Do
Director
do
Director
do
Director
X
Director
Director.
J. A. McCone
do
do
do
do
do
X
do
I. A. MeEachern
do
X
do
X
do
X
do
Do
President
X
Do
Vice president
Jan. 27,1942
C. A. Shea
Do
Director
Jan. 27,1942
Director
Jan 27,1942
Director
President
do
do
H. W. Morrison
Director
X
Director
X
Director__
X
Director
Vice president.
Do.
Director.
L. S. Corey
Director
X
Director
Feb. 13,1942
Director
Do.
Felix Kahn
do
X
Director
X
do
X
do
Do.
Do
Treasurer
Treasurer.
W. G. Swigert
W. S. Newell
Director
do
X
Feb. 10,1942
Director
do
X
June 20,1941
Director
X
Director
G. J. Shea
Director
X
do
X
Director
X
Director
R. E. Dill
Assistant treasurer_
Feb. S. 1945
Vice president
Oct. 31,1944
A. Richardson
W. Green
0. M. Lund
Director
do
do
Apr. 25,1941
Feb. 25,1942
do
Director
May 4, 1943
Director
do
Feb. 13,1942
do
H. A. Dick
Vice president
X
Do
Director
X
Director
Do
Assistant secretary
X
Do
Assisant treasurer
X
M. Miller
Assistant secretary____
Vice president.
E. F. Lackey
Assistant treasurer_ _ __
Assistant secretary.
H. F. Morton
Vice president
X
Do.
Status: (X) indicates still holds position; date indicates date of resignation.
2 Present officers and directors, only, shown.
Present officers and directors, only, shown. Columbia Construction Co. had only 1 contract with the U. S, Maritime Commission for construction of a floating drydock, which was constructed by the Vancouver yard of Kaiser Co., Inc., under a subcontract.
98486-46 (Face p. 386)
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
(Question No. 9?Schedule 1)
KAISER CO., INC
Summary of shipyard profits (Portland, Richmond, and Tiancouver yards) and net loss to May 31, 1946
0
(D
0-
Item
(A), (B), (C), (F), (G) detailed on
(D) Number of ships delivered
Portland
(Schedule 2)
153
Richmond yard
No. 3 .
(Schedule 3)
so
Vancouver
(Schedule 4)
141
Total
344
Computation of Federal in-
come and excess-profits
taxes
0
?
C.)
Percent
Amount
(E) Total amounts paid by U. S. Maritime Commission on contracts
$277, 312, 009. 34
$439, 496, 161.34
$595, 900, 883. 60
$1, 312, 709, 054. 28
(D
Amounts unpaid (retentions and amounts in process of settlement) (see
schedule 6)
2, 246, 703. 39
11, 584, 911. 05
15,934, 520.34
29, 766, 134. 78
5)1
Total paid or unpaid
279, 558, 712. 73
451, 081, 072. 39
611, 835, 403. 94
1, 342, 475, 189.06
0
(H) Fees, actual (included in (E)):
Paid by U. S. Maritime Commission
8, 260, 000. 00
854, 420. oo
9, 651, 380. 00
18, 765, 800. 00
0
-Unpaid (see schedule 6)
1, 031, 860. 00
317, 540. 00
1, 304, 933. 00
2, 651, 333. 00
Total fees_
9, 291, 860. 00
1,171, 960. 00
10, 956, 313. 00
21, 420, 133. 00
0
(I) Profits received under fixed-price contracts (included in (E))
Total
10, 907, 000. 00
5, 650. 000.00
8, 580, 000. 00
25, 137, 000. 00
It ? ?
g 0
20, 198, 860. 00
6, 821, 960. 00
19, 536, 313. 00
46,557, 133.60
Profits and fees transferred from other shipyards for work performed
under U. S. Maritime Commission contracts, net, schedule 5
38, 624. 21
288, 000. 00
326, 624. 21
1-3
ci2
20,198, 860. 00
1,939, 140.83
6, 860, 584. 21
1, 949,850. 60
19, 824, 313.00
2,161,369.55
46,883,757.21
5, 750, 360. 98
Total
Less nonreimbursable and disallowed costs under cost-plus and price-
minus contracts, and costs not considered allowable under fixed-price
contracts, etc
0
4:.
(J) Gross earnings on U. S. Maritime Commission contracts
18,259,719.17
5, 210, 733. 61
17, 662, 943. 45
41, 133, 396. 23
72io
$29, 821, 712. 27
CO
0
net
1, 302, 590. 55
Profits from shipyard operations other than U. S. Maritime Commission contracts,
0
Iron and Steel Division?Loss to May 31, 1946 (see schedule 7) (61, 025, 499. 82)
Other corporate income
10, 472. 78
(59, 712, 436. 49)
(29, 821, 712.27)
4:.
Net loss Accumulative to May 31, 1946 (per financial report May 31, 1946)
(18, 579, 040. 26)
0
0
0
NOTE.?Due to net loss no Federal income taxes were paid on aggregate totals.
0
CA2 0
000
o
rs.)
P-Z000900017000t19PC008179dCIU-VI3 014014E00Z aseeieu -10d peACLIddV
(Question No. 9-Schedule 2)
KAISER CO., INC. (PORTLAND YARD)
Details 9,f contracts with J. S. Maritime Commission, as recorded at May 31, 1946'
(A)
Contract
No.
(B)
Type of contract
(C)
Ships under con-
tracts as amended
(D)
Num-
her of
shiPs
-' -
ered
(E)
(F)
(G)
(H)
(1)
Profits re-
ceived un-
der fixed
price
contracts
included
in (E)
(.1)
- Total
profits
and fees
Total
amounts paid
b U S M
Y ? - ar
itime Cora-
mission (let)
Unpaid
(retentions
and
amounts in
prom" of
settlement) I
Total paid
or unpaid
Fees
Num-
ber
Type
maxi-
mum
Mini-
mum
A lildd E
in ()
Paid by
U. S.
Maritime
Commis-
sion
Unpaid 1
Total
paid or
unpaid
MCc 2393.._
M Cc 2565____
MCc 16212
MCc 19183___
MCc 29039._
MCc 36200_
MCc 35743___
MCc 41502_._
Total to
Cost-facilities
Price-minus
do
Cost-plus-fixed
fee.
Fixed price...
Cost plus-ship
repair fixed fee.
Cost-materials
custody.
Cost-plus-fixed-
fee lay-up.
schedule 1..
56
47
6
44
T2tankers
do
AO tank-
ers.2
T2 tankers_
56
47
6
44
$26, 509, 870.93
117, 768, 688. 85
60, 888, 561. 50
7, 510, 544.18
3 60, 953, 761. 53
3, 680, 573. 35
$178, 525.65
146, 851.48
873. 937.01
1, 968.48
885, 872. 08
13, 014. 96
146, 533. 73
$26, 688, 405. 58
117, 915, 540. 33
61, 762, 498. 51
7, 512, 512. 66
60, 953, 761. 53
4, 566, 445. 4.3
13, 014. 96
146, 533. 73
$11, 200, 000
4, 700, 000
180,000
$4, 200, 000
1, 880, 000
180, 000
$4, 200, 000
3,880. 000
180, 000
8820, 000
211,860
$4, 200, 000
4, 700, 000
180, 000
211,860
$10, 907, 000
$4, 200, 000
4, 700, 000
180, 000
10, 907, 000
211,860
153
153
277, 312, 009.34
2, 246, 703. 39
279, 558, 712. 73
8, 260, 000
1, 031, 860
9, 291,860
10, 907,000
20, 198, 860
1 see schedule 6.
Completion only.
'See the following:
Total payments by U. S. Maritime Commission
Less repayment to U. S. Maritime Commission on account of recapture
$62,
1,
786,
833,
800. 00
038. 47
Net...60,
953,
761. 53
NOTE.-The above amounts do not include the value of materials, if any, furnished by U. S. Maritime Commission Without cost to contractor.
0
akp <
00 M
00 a
0
K.)
0
0
1, 0
-%
It 0
Pd 0
lc/
1-1
1-1
00
cr)
CO
0
0
c.4
4=.
0
0
0
4=.
0
0
0
0?)
0
0
0
(Question No. 9-Schedule 3)
KAISER CO., INC. (RICHMOND YARD No. 3)
Details of contracts with U. S. Maritime Commission., as recorded at May 31, 1946
(A)
Contract
No.
(B)
Type of contract
(c)
Ships under
contracts as
amended
(D)
Num-
ber of
ships
de-
livered
(B)
(F)
(CI)
(1)
(I)
Profits re-
ceived
under
fixed-
?
price
contracts
included
in (E)
(J)
Total
profits
and fees
Total
amounts
paid by U. S.
Maritime
Commission
(net)
Unpaid (re-
tentions and
amounts in
process of
settlement)'
Total paid
or unpaid
Fees
Maxi-
mum
Mini-
mum
Actual-included in (E)
Num-
ber
Type
Paid by
U. S.
Maritime
Commis-
sion
Unpaid I
Total
paid or
unpaid
VI Cc 2048 __
l{ Cc 7495____
VICc 28994___
41 Cc 32032_
VICc 36279_
VIC? 41503_
"ending cost-tugboat
Total to
Cost-facilities
Price-minus
Fixed price
Cost-facilities
Cost-plus ship
repair fixed fee.
Cost-plus facili-
ties lay-up fixed
fee.
operation__
schedule 1
15
35
ATL
04-S-A3
15
35
$51, 085, 069. 44
25, 652, 510. 03
347, 330, 900.00
2, 620, 752. 22
12, 806, 929. 65
$91, 457. 94
15, 837.97
7, 359, 100. 00
32, 598. 67
2. 575, 070. 19
1, 441,339. 49
69, 506. 79
$51, 176, 527. 38
25, 668, 348. 00
354, 690, 000. 00
2, 653, 350.89
15, 381, 999. 84
1, 441, 339. 49
69, 506. 79
$1, 200, 000
$525,000
$525,090
329,420
$317,540
$525,000
646,950
$5, 650,000
$525,000
5, 650, 000
646,960
50
50
439, 496, 161.34
11, 584, 911. 05
451, 081, 072. n
854,420
317, 510
1, 171, 960
5, 650, 000
6, 821, 960
'See schedule 6. ?
Nos.-The above amounts do not include the value of materials, if any, furnished by U. S. Maritime commission without cost to the contractor.
P-Z000900017000t1917?008P9dCIU-VI3 01401?/?00Z aseeieu JOd peACLIddV
- (Question No. 9-Schedule 4)
KAISER Co., INC. (VANCOUVER YARD)
Details of contracts with U. S. Maritime Commission as recorded at May 31, 1946
Contract
No.
Type of contract
(C) -
Ships under con-
tract as amended
(D)
Num-
ber of
ships
deliv-
ered
.(t)
(F)
(G)
(H)
(I)
Profits
reeeived
under
fixed-
price
contracts
included
in (5)
(J)
Total.
profits
'
and fees
.
Total
amounts
paid by U. S.
Maritime
Commission
(net)Maritime
Unpaid (re-
tentions and
--,
amounts in
process of
settlement)'
Total paid
or unpaid
Fees
Num-
ber
,
Type
Maxi-
mum
?
Mini-
mum
Actual-Included in (E)
Paid by
U. S.
Commis-
sion
Unpaid'
Total
paid or
unpaid
MCc 2047
MCc 2049_ _
MCc 7467
MCc 7678____
MCc 16250___
MCc 16585_
MCc 23475___
MCc 26725_
MCc 27050
M Cc 28948
Mee 29089___
MCc 29967___
MCc 34719___
MC c 41495___
Total to
Cost-plus-fuced-fee
Cost facilities
Price-minus.
Cost-plus-fixed-fee
Price-minus..
Cost, sea trial
Cost-plus-fixed-fee
Lower of fixed price
or cost, drydock.
Cost-plus-fixed-fee
conversion.
Fixed-price
Cost-plus-fixed-fee
conversion.
_ _ .. __ do
Cost-plus-fixed-fee
outfitting.
Cost-plus-fixed-fee
facilities lay-up.
schedule 1
2
30
50
31
1
I 12
1 8
1
1
5
EC2-Cargo.
ATL-Tank
Lighters.
B B 3- Es -
con t car-
riers.
TO-Tank-
ers.
AP5-Trans-
ports.
C4
C4-Trans-
ports.
C4-Cargo _ _
04
04
AP5
2 2
30
50
31
1
12
8
1
1
5
$4, 409,397. 38
28, 919, 583. 21
32, 141, 683. 77
284, 840, 912. 42
119, 013. 76
71, 689. 39
83, 314, 370. 95
2, 855, 950. 62
603, 034. 08
150,871,432.30
1
462, 167. 05
614, 809. 78
6, 676, 638. 89
2 $9, 305. 50
214, 759.36
' 7, 034. 59
64, 663. 05
\
2.12
.30
2, 202, 696. 08
3 82, 869. 26
34, 584. 02
13, 250,017. 70
30, 782. 44
28, 666. 78
2 46, 105. 02
239, 595. 92
$4, 400, 291. 88
29, 134, 342. 57
32, 148, 718. 36
284, 905, 575. 47
119, 013. 64
71, 689. 69
85, 517, 067. 03
2,773, 081. 36
637, 618. 10
164, 121, 450. 00
492, 949. 49
643, 476. 56
6, 630, 533. 87
239, 595. 92
$281, 380
2, 400, 000
6, 250, 000
4,960, 000
15, 000
10,000
10, 000
175, 000
$281, 380
1,050,000
6, 250, 000
1, 860, 000
15,000
10,000
10,000
175, 000
8281, 380
1,050, 000
6, 250, 000
1, 860, 003
15,000
10,000
10,000
175,000
$1, 304, 933
$281, 380
1, 050, 000
6, 250, 000
3, 164, 933
15,000
10,000
10,000
175,060
$8, 580, 000
$281, 380
1,050,000
6, 250, 000
3, 164,933
15,000
8, 580,000
10,000
10,000
175, 000
111
- 141
595, 900, 883. 60
15, 934, 520. 34
611, 835, 403. 94
9, 651. 380
1, 304, 933
10, 956, 313
8,580,000
19, 536, 313
'See schedule 6.
2 Contract canceled after completion of 2 ships. Fee allowed on 2.558 vessels, including work in process at date of cancellation.
3 Credits to costs in process of settlement including reallocations among contracts.
NOTE.-The above amounts do not include value of materials, if any, furnished by U. S. Maritime Commission without cost to the contractor.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 391
(Question No. 9?Schedule 5)
KAISER CO., INC. (PORTLAND, RICHMOND YARD NO. 3 AND VANCOUVER SHIPYARDS)
Transfers of fees. aryl profits to and -from shipyards
Contract
Refer-
ence
Kaiser
Co., Inc.,
Richmond
yard No. 3
Kaiser
Co., Inc.,
Vancouver
shipyard
_
The Per-
memento
Metals
Corp.,
yards Nos.
land 2
Oregon
Shinbuild-
ing-Corp.
Kaiser
Pleetwings,
Inc., ship-
building
d? ? ?
'vision
(formerly
Kaiser
Cargo,
Inc., yard
No. 4)
Mec 15762_
Mcc 36279143,877.
M Cc 8611
Net transfers
(I)
F''
$182, 502. 00
79
$288,000
28182,502.00
130, 819.73
2 $288, 000
$13, 058. 04
38, 624. 21
288, 000
2 51, 682. 25
2 288, 000
13,088. 04
I To meet the critical war need for Vc2-S-AP5 Victo 'y transports, Kaiser Co. Inc., with the approval
of the Commission, outfitted completely 7 such vessels as subcontractors for the Permanents Metals Corp.,
the latter building the hulls and procuring the material. The proportionate amount of fees for such work
was agreed between the 2 companies as being $182,502, and Permanente Metals Corp. accordingly
transferred such amount to Kaiser Co., Inc., and reduced their fee earnings in like amount.
2 Red figures (from shipyards).
3 Contract MCc 36279 was issued by the U. S. Maritime Commission to Kaiser Co., Inc., to cover ship
repair work for other Government agencies such as War Shipping Administration, U. Navy, and U. S.
Army. This contract (as amended) authorized Kaiser Co., Inc., to allocate ships to be repaired to the
Permanents Metals Corp. and Kaiser Cargo, Inc., as subcontractors. The fees which Kaiser Co., Inc.,
.received for such subcontracted work were transferred to the yards, as shown above with a like reduction
In their fee earnings.
4 In the interest of expediting early delivery, and to utilize facilities then available, the U. S. Maritime,
Commission authorized Oregon Shipbuilding to subcontract the completion of 8 Liberty ships to Kaiser
Co., Inc., Vancouver. Oregon Shipbuilding reduced their fee earnings by transferring $288,000 to Kaiser-
Vancouver as fees for performing such work.
Question No. 9?Schedule 6
KAISER CO., INC.
Status of unpaid and unsettled contract amounts
[ Supplement to Questions 9 (E) and 9 (II)]
I. Final settlement of unpaid amounts is subject to completion of the following:
1. Payment by the contractor and obtaining final release on all commitments
pertaining to the applicable contracts.
2. Subsequent preparation by the contractor of final statements of costs.
3. Audit by representatives of the United States Maritime Commission of con-
tractor's final statement pf costs.
4. Resolving the open appeals of the contractor from costs disallowed by the
United States Maritime Commission and final negotiation thereof.
5. Final determination of costs and resultant agreement of amounts to be re-
captured, by the United States Maritime Commission, and/or amounts due the
contractor from the United States Maritime Commission.
Every reasonable effort is being extended by the contractor to complete item 1
so that the other steps listed above may be completed to effect final settlement
at the earliest possible date. However, in view of the tremendous volume of
purchase orders, subcontracts, and, other commitment documents issued, such
work is unavoidably slow. In the interim the contractor and the United States
Maritime Commission Finance Section are negotiating tentative settlements to
cover a substantial portion of the amounts. involved, leaving minimum amounts
for final future settlement.
II. Unpaid?"retentions" represents at May 31, 1046, the final payments due
on fixed-price and lump-sum contracts, withheld by the United States Maritime
Commission in accordance with the terms of the respective contracts, until and
if the recorded costs justify additional payments.
. Included in the total of $29,766,134.78 unpaid contract amounts per schedule 1,
is $17,952,839.18, representing such retentions.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
392
Question No. 9?Schedule 7
KAISER Co., INC.-IRON AND STEEL DIVISION
Loss accumulative to May 31, /946
Net operating loss $2, 687, 392. 44
Interest expense 9,383, 600.26
Miscellaneous construction expenses and abandonments 3, 027, 147. 06
Net loss before provision for amortization, etc 15, 098, 139. 76
Provision for anortization, depreciation, and depletion 45, 927, 360. 06
Ne4loss accumulative to May 31, 1946 (per financial report
ay 31, 1946, and per schedule 1) 61, 025, 499. 82
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
(Question No. 9?Schedule 8)
KAISER CO., INC. (PORTLAND, RICHMOND, AND VANCOUVER YARDS)
Details of contracts with U. S. Maritime Commission
Contract No.
Type of contract
Ships under contracts as amended
(type)
Number of
ships
delivered
Contract value
Commission
furnished
materials
Total contract
volume
MCc-2393
Nee-2565
M Cc-16212
MCc-19183
M Cc-39039
M Cc-36200
MC c 35743
Mee-11502
M Cc-2048
M C 0-7495
MC0-28994
M Cc-32032
M Cc-36279
Mee-11503_ ,
Pending
MC 2017
M Cc-2049
M Cc 7467
M Cc-7678
M Cc-16250
M Cc-16585
M Cc-23475
M Cc-26725
M Cc-27050
MCC-28948
35 Cc 29089
Nil C c-29967
1,4 Cc-34719
NI Cc-41195
Total
4 _
Cost?facilities
Price minus
do
Cost?plus fixed fee
Fixed price
(Cost?plus fixed fee.) Ship repair
Cost?materials custody
(Cost?plus fixed fee.) Facilities lay-up
Cost?facilities
Price minus
Fixed price
Cost?facilities
(Cost?plus fixed fee.) Ship repair
(Cost?plus fixed fee.) Facilities lay-up
(Cost?tugboat operation)
Cost plus fixed fee
Cost?facilities
Price minus
Cost?plus fixed fee
Price minus
Cost sea trial
Cost?plus fixed fee
(Lwr. of fixed fee or cost?drydock)
(Cost?plus fixed fee.) Conversion
C4-S-A3 fixed price
Cost?plus fixed fee (conversion)
do
Cost?plus fixed fee (outfitting)
Cost?plus fixed fee, facilities lay-up
T2 tankers
do
AO tankers
T2 tankers
'
ATL
C4-S--A3
,.
?
E C2 cargo
ATL (LST)
BB3?escort carriers
T2 tankers
AP5 transports
C4
C4-S -A3
C4
do
API
56
47
'6
44
15
35
2
30
50
31
'1
20
'1
'1
'5
$26, 688, 405. 58
117, 915, 540. 33
61, 762, 498. 51
7, 512, 512. 66
60, 953, 761. 53
4, 566, 445. 43
13, 014. 96
146, 533. 73
51, 176, 527.58
25, 668, 348. 00
354, 690, 000. 00
2, 653, 350. 89
15, 381, 999. 84
1,441,339.49
69, 506. 79
4, 400, 291.88
29, 134, 342. 57
32, 148, 718. 36
284, 905, 575.47
119, 013. 64
71, 689.69
85, 517, 067. 03
2, 773, 081. 36
657, 618. 10
161, 121, 450. 00
492, 949.49
613,476, 56
6, 630, 533. 87
239, 595.92
$82,
68,
59,
8,
1,
16,
24,
55,
,
040,
855,
177,
294,
484,
588,
000,
862,
33,
000. 00
000. 00
008. 00
400. 00
000. 00
800. 00
000.00
000. 00
645. 65
$26, 688,
199, 955,
130, 617,
7, 512,
120, 130,
4, 566,
13,
146
51, 176,
33, 962,
354, 690,
2, 653,
15, 381,
1, 441,
69,
5, 884,
29, 134,
48, 737,
308, 905,
119,
71,
141, 379,
2,806,
637,
164, 121,
492,
643,
6,880.
239,
405. 58
540. 33
498. 51
512. 66
769. 53
445. 43
014. 96
533.73
527. 38
748. 00
000. 00
350. 89
999. 84
339.49
506. 79
291.88
342. 57
518. 36
575.47
013. 64
689. 69
067. 03
727.01
618.10
450. 00
949.49
476. 56
533.87
595.92
344
1, 342, 475. 189. 06
316,
334,
853. 65
1,
658. 810,
042.71
'These ships converted, completed, or outfitted only. Built elsewhere.
snaolia QIIVAcIIHS
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
94 SHIPYARD PROFITS
Exhibit G
(Questions Nos. 10 and 11-Schedule 1)
KAISER CO., INC.
EFFECT OF RENEGOTIATION ON FEES AND PROFITS AND STATUS OF CONTRACTS STILL
SUBJECT TO RENEGOTIATION
1. The business of Kaiser Co., Inc., has been renegotiated through the fiscal years
ending June 30, 1944, and it was found by the Price Adjustment Board of the
United States Maritime Commission that no excessive profits had been realized.
Renegotiation agreement No. MCc40480 PABs817 dated August 23, 1945, was
executed covering the fiscal year ending June 30, 1941.
2. Renegotiatio as have not been completed for the fiscal years ending June 30,
1915, and June 30, 1946, but it is obvious that no excessive profits will be found
to have been realized during said years, because the contractor realized net
losses on the total operations subject to renegotiation.
Exhibit H
(Question No. 12-Schedule 1)
KAISER Co., INC.
Costs of shipyards and facilities to Ma/y 31, 1946
Shipyards and facilities:
Original cost
Portland
$23,
361,
291.
12
Richm
nd yard No. 3
28,
445,
951.
25
Vanco
ver
23,
787,
490.
52
Total
shipyards and facilities
75,
594,
732.
89
The Ric mond No. 3 figures include the costs of all shipyards and facilities of Rich-
mond yard No. 4 which was operated by Kaiser Co., Inc., until Apr. 3, 1943, and by Kaiser
Fleetwings, Inc., Shipbuilding Division (formerly Kaiser Cargo, Inc.) after that date.
In addition to the shipyards and facilities, the following were also constructed
by Kaiser
Commis
Portland:
Transportation
Housing
above
Co., Inc., under the facilities contracts with the U. S. Maritime
ion :
$47, 568. 86
3, 279, 545. 60
$3,
327,
114.
46
Riclunond
:
Transportation
1,
241,
369.
90
Housing
24,
142,
557.
12
Vancfver
:
25,
383,
927.
02
ousing
4,
215,
908.
72
ransportation
1,
130,
943.
33
5,
346,
852.
05
Total facilities contracts with the U. S. Maritime
Commission
109,
652,
626.
42
NOTE.-o
fees or profits of any kind were paid to Kaiser Co., Inc., on any of the
worlf.
Exhibit I ?
ANSWER TO QUESTION NO. 13 OF QUESTIONNAIRE OF JULY 27, 1946
General
The attached sheets detail all the information requested Insofar as shipbuilding
companies are concerned. In addition, corresponding information is given for
other coMpanies and organizations which had USMC or WSA contracts. This
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
395
SHIPYARD PROFITS
information was not called for in the questionnaire but is added for your informa-
tion.
These data group themselves naturally into three different categories:
(1) Those shipbuilding companies in which a financial interest is still held:
(a) Those in which representatives of the companies covered by question No.
13 have an active management function as well as financial interest:
. The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc.
Oregon Shipbuilding Corp.
(b) Those in which the companies covered by question No. 13 have a financial
interest only: Walsh-Kaiser Co., Inc.
(2) Other than shipbuilding companies in which a financial interest is still
held:
(a) Those in which representatives of the companies covered by question No.
13 have an active management function as well as a financial interest:
Columbia Construction Co.?Vancouver drydock joint venture.
The Kaiser Co.?terminal repair operations.
(b) Those in which the companies covered by question No. 13 have a financial
interest only: Joshua Hendy Iron Works.
(3) Those shipbuilding companies in which no present financial interest is
held. Neither Henry J. Kaiser, nor members of his family, nor companies in
which any of thein has a financial interest, has any pl'esent managerial or finan-
cial interest in any of these companies:
(a) California Shipbuilding Corp. (all connections severed in April 1945).
( b) Companies managed by representatives of Todd Shipyards Corp. and/or
Bath Iron Works:
Houston Shipbuilding Corp.
Seattle-Tacoma Shipbuilding Corp.
South Portland Shipbuilding Corp.
Todd-Bath Iron Shipbuilding Corp.
(all connections severed in February 1942).
ANSWER 10 QUESTION 13 TO QUE.TIONNAIRE OF JULY 27, 1940, AS REGARDS THE
PERMANENTE METALS CORP. AND RICHMOND SHIPRUI1,DING .GORP.
General statement
Neither Mr. Kaiser nor members of his immediate family has ever held 5 per-
cent of the stock of Richmond Shipbuilding Corp. or the Permanente Metals Corp.
However, two companies in which he and members of his family own in excess
of 5 percent of stock did hold in excess of 5 percent of the stock of Richmond Ship-
building Corp., and do hold in excess of 5 percent of the stock of the Permanente
Metals Corp. On December 31, 1941, all of the stockholders of the Permanente
Metals Corp. accepted shares of stock of that company in exchange for the stock
previously held in Richmond Shipbuilding Corp. The exchange was on a share-
for-share basis. After that date Richmond Shipbuilding Corp. was a wholly
owned subsidiary of the Permanente Metals Corp.
(a) E'coent of of ownership.?
Dates
UenryCo. J.
Kaiser
The Kaiser
Co.
Total
1. In Richmond Shipbuilding Corp.:
Percent
Percent
Percent
May 2 to Dec. 17, 1941
6.16
6. 16
12. 32
Dec. 18 to Dec. 22, 1941
7.25
7.25
14.5
Dec. 23 to Dec. 30, 1941
8
8
16
Dec. 31, 1941
2. In the Permanente Metals Corp.:
Dec. 19, 1940, to Feb. 23, 1942
8
8
16
Feb. 24, 1942, to Dec. 20, 1945
11. 8044
11.8044
23. 6088
Dec. 21.1945,' to May 23, 1946
21.6522
21.6522
43. 3044
May 24, 1946,1 to July 4, 1946
27. 0065
27.0065
54. 013
July 1, 1946
32.321
32.321
64642
?
It should be noted that these items occurred after delivery of the last USMC vessel
constructed by the company. This last delivery occurred on September 15, 1945.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
396 SHIPYARD PROFITS
(b) When and in what manner acquired.-
1. Richmond Shipbuilding Corp.: All acquisitions for cash. See comments
above re exchange of stock on December 31, 1941.
2. The Permanente Metals Corp.: All acquistions for cash or in exchange for
stock of Richmond Shipbuilding Corp. (which was all issued for cash). Increase
in ownership May 24, 1946 results from retirement of stock of others by the
corporation, rather than acquisition of additional shares by the stockholders.
While the 4cquiktion of July 5, 1946 is indicated as having been for cash, the
additional shares are being purchased for cash and notes.
(c) Dividends received.-
1. From Richmond Shipbuilding Corp.: None. On March 19, 1946, all property
of this company was transferred to its parent, as a distribution in complete
liquidation
2. From the Permanente Metals Corp.' Only dividend was in cash in Decem-
ber 1945 :
Portion to:
Henry J. Kaiser Co $464:265
The Kaiser Co 464 265
Total_ 28,5309
It was not until December 1945 that the first and only dividend was declared
by the company.
As will be noted, the present stock ownership is not representative of the par-
ticipation during the period of shipbuilding activities.
ANSWER O QUESTION NO. 13 TO QUESTIONNAIRE OF JULY 27, 1 946, AS REGARDS
KAISER FLEETWINGS, INC.
General st tement
Neither 1r. Kaiser nor members of his immediate family has ever held 5
percent of the s Lock of Kaiser Fleetwings, Inc. However, three companies in
which either he and members of his family own in excess of 5 percent of stock,
or in which such companies own in excess of 5 percent of stock, do own in excess
of 5 percent of the stock of Kaiser Fleetwings, Inc.
(a) Extent of ownership.?
Henry J.
The
Kaiser
Dates
Kaiser
Kaiser
Engl.-
Total
Co.
Co.
neers, Inc
Percent
Percent
Percent
Percent
Nov. 28, 1942, to Mar. 26, 1943
100
100
Mar. 27 to July 12, 1913
85
85
July 13, 1943
45
15
15
75
(5) WicFn and in what manner acquired.?All acquisitions for cash.
(c) Dividends received.?None.
ANSWER TO QUESTION NO. 13, TO QUESTIONNAIRE OF JULY 27, 1946, As REGARDS OREGON
SHIPBUILDING CORP. AND CONSOLIDATED BUILDERS, INC.
General statement
Neither Mr. Kaiser nor members of his immediate family has ever held 5 per-
cent of the stock of Oregon Shipbuilding Corp. or Consolidated Builders, Inc.
However, two companies in which he and members of his family own in excess
of 5 percent of stock did hold in excess of 5 percent of the stock of Oregon
Shipbuilding Corp. and do hold in excess of 5 percent of the stock of Consolidated
Builders, Inc. In May of 1942 all of the stock of Oregon Shipbuilding Corp. was
purchased by Consolidated Builders, Inc.
1 It should be noted that these items occurred after delivery of the last USMC vessel
constructed by tho company. This last delivery occurred on September 15, 1945.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 397
(a) Extent of ownership.-
Dates
Henry J.
Kaiser Co.
The Kaiser
Co.
Total
I, In Oregon Shipbuilding Corp.:
Percent
Percent
Percent
Jan. 8,1941, to Feb. la, 1942_
6.25
6.25
12.5
Feb. 19, 1942, to May 18, 1942
11.364
11.364
22.728
After May 18, 1942
None
None
None
T. In Consolidated Builders, Inc.:
Prior to May 18, 1942
5
5
10
After May 18, 1942
11. 364
11.364
22.728
(b) When and in what manner acquired.-
1. Oregon Shipbuilding Corp.: Original purchase of January 8, 1041, was for
cash; additional, February 19, 1942, was from a stock dividend of that date.
Disposed of for cash, May 18, 1942.
2. Consolidated Builders, Inc.: Original purchase (prior to 1941) was for cash.
Additional purchase, May 18, 1942, was for cash.
(0) Dividends received.-
1. From Oregon Shipbuilding Corp.:
Henry J.
Dates Kaiser Co.
The Kaiser
Co.
Total
February 19, 1942, cash
$5, 625
$5, 625
$11, 250
Stock at $100 per share
56, 250
56, 250
1121, 500
Total
_
61, 875
61, 875
123, 750
No further dividends were declared by Oregon Shipbuilding Corp. prior to its
becoming a subsidiary of Consolidated Builders, Inc.
2, From Consolidated Builders, Inc.: In order that a clearer picture may be
obtained, there are listed below dividends received from Consolidated Builders,
Inc., since the date it acquired all of the stock of Oregon Shipbuilding Corp.
(May 18, 1942). All were received in cash, although some were reinvested as
subordinated stockholders' loans (now repaid) :
Date
I Henry J.
Kaiser Co.
The Kaiser
Co. _
Total
Nov. 28, 1942
$113, 640
$113,640
$227, 280
Nov. 27, 1943
227, 280
227, 280
454, 560
Nov. 29, 1944
227,280
227, 280
454,650
Dee. 12, 1945
454;560
464, 560
905,120
Mar. 25, 1946
227, 280
227, 280
454, 660
Total
1, 250, 040
1, 250, 040
2,500,080
ANSWER TO QUESTION NO. 13 TO QUESTIONNAIRE OF JULY 27, 1940, AS REGARDS
WALSII-KAISEn CO., INC., AND ASSOCIATED CONTRACTORS, INC.
General statement
Neither Mr. Kaiser nor members of his immediate family has ever held 5
percent of the stock of either Walsh-Kaiser Co., Inc., or Associated Contractors,
Inc. However, three companies in which either he and members of his family
own in excess of 5 percent of stock, or in which such companies own in excess of
5 percent of stock, did own in excess of 5 percent of the stock of Walsh-Kaiser
Co., Inc., and do now hold in excess of 5 percent of the stock of Associated
Contractors, Inc.
On July 1, 1943, Associated Contractors, Inc., purchased for cash all of the
stock of Walsh-Kaiser Co., Inc., and shortly thereafter the stock ownership of
the former was rearranged to coincide with the percentage of ownership in the
latter prior to July 1, 1943. All stock acquisitions and sales in both cases were
for cash.
93486 46 26
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For
398
Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
(a) &sten of monership.?In Walsh-Kaiser Co., Inc., from February 1943 to
June 30, 1943, ; and in Associated Contractors, Inc., from September 1, 1943, to
present;
Percent
Henry J. Kaiser Co 20
The Kaiser Co_ 10
Kaiser Engineers, Inc ? 10
TotaI 401
(b) When and in what manner acquired.-
1. Re Walsh-Kaiser Co., Inc.: See comments above.
_2. Re Associated Contractors, Inc.: Henry J. Kaiser Co. and the Kaiser Co.
had held stock (purchased for cash) in Associated Contractors, Inc., prior to
1941. On September 1, 1943, they acquired additional stock, for cash, in an
amount whiCh would give them the same percentage of ownership held previous
to June 30, 1943, in Walsh-Kaiser Co., Inc., as did Kaiser Engineers, Inc.
(c) Dividends received.-
1. From .i7Valsh-Kaiser Co., Inc.: No dividends were paid by this company
prior to September 1, 1943. All dividends after that date were, of course, received
by Associated Contractors, Inc. ?
2. From Associu.ted Contractors, Inc.: In order that a clearer picture may be
obtained, there aTe listed below the dividends received from Associated Con-
tractors, Inc.-, after September 1, 1943. All were received in cash.
Date
QUESTION
Henry J.
Kaiser Co.
The Kaiser
Co.
Kaiser Engi-
neers, Inc.
Total
June, 1945
$120, 120
$60, 060
$60, 000
$240,240
Tune, 1946
120, 120
60, 060
60, 060
240, 240
Total
240, 240
120, 120
120, 120
480, 480
ANSWER TO TO QUESTIONNAIRE OF JULY AS REGARDS
NO. 13,
27, 1946,
COLUMBIA CONSTRUCTION CO.
General
ColumbiaCons truction Co. had only one contract for the United States Mari-
time Commission, the construction of a floating drydock under lixed-price con-
tract No. 11, Cc-31049, dated July 27, 1944. Kaiser Co., Inc., desired to enter into
this contra t, but the RF c objected to this, as there was the possibility of losses,
due to its ding a fixed-price contract. Therefore, as an alternative, Columbia
Construction Co. entered into the contract and then subcontracted all the con-
struction work to Kaiser Co., Inc., on a reimbursable cost basis after the USMC
had approVed this procedure. This contract has been completed, but not rene-
gotiated. A joint venture was formed for this project, Columbia Construction
Co. retaining an interest of 44.445 percent. Of the remainder, Henry J. Kaiser
Co. and Kaiser Engineers, Inc., each have an interest of 10 percent.
Pending final renegotiation, the joint venture has made a cash distribution to
the joint vnnturers of $275,000.
(a) Extrt of ownership.?
1. In Co umbia Construction Co.: Neither Henry J Kaiser nor members of
his family has ever held 5 percent of the stock of Columbia Construction Co.
However, two companies in which he and members of his family own in excess
of 5 percent of -tock do hold in excess of 5 percent of the stock of Columbia
Construction Co., which was purchased for cash prior to 1941, as follows:
Percent
Henry S. Kaiser Co 11. 25
The Kaiser Co_ 11. 25
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 399
2. In floating drydock joint venture: Ownership affecting Henry J. Kaiser and
his family:
Henry I.
Kaiser Co.
The Kaiser
Co.
Kaiser Engi-
neers, Inc.
Total
.
Direct interest
Portion of Columbia Construction Co., 44.445
percent..
"Effective" interest
Percent
10
5 5
Percent
5
Percent
10
Percent
- 20
10
15
5
10
30
(b) When and in what manner acquired.?Covered in comments above.
(e) Dividends received.-
1. From drydock joint venture: Of profits distributed to date from joint
venture:
Henry J. Kaiser Co. received $27, 500
Kaiser Engineers, Inc., received 27, 500
55,000
(These were distributions of estimated profits?not dividends.)
2. From Columbia Construction Co.: No dividends received from Columbia
Construction Co. since its entered into this contract.
ANSWER TO QUESTION NO. 13 TO QUESTIONNAIRE OF JULY 27, 1940, As REGARDS
TERMINAL REPAIR DIVISION
General
From June 1945 through May 1946 the Kaiser Co. conducted repair operations
at Portland, Oreg. The project was known as the terminal repair division.
These operations were a continuation of those previously carried on by a part-
nership doing business under the name of Poole, McGonigle & Jennings. As of
June 26, 1945, the Kaiser Co. purchased from this partnership all of the equipment,
leases, and inventory used in its repair operations.
It did not appear feasible for Kaiser Co., Inc., to make this purchase due to
complications arising from RFC loans to that company since it was contemplated
that fixed-price work would be done, purchase price and operating needs called
for additional cash funds, the purchaser had contingent liabilities regarding
leases and subcontracts and was obligated to complete work commenced by the
prior owners, etc.
Work consisted of repairing vessels for various Government agencies as well
as for private parties.
In this connection, it entered into two contracts with the War Shipping Admin-
istration:
WSA-10125 (D. A.?W. S. A.-1631) dated July 1, 1945
WSA-11571 dated November 17, 1945
These operations were conducted under a profit-sharing agreement in which
each of the Kaiser Co. and Kaiser Engineers, Inc., had a 50 percent interest.
Although these operations ceased in May 1946, the profits from the project
have not been definitely determined at this date (August 6, 1946). Pending such
determination, cash distributions of profit have been made in the amount of
$50,000, 50 percent to each of the Kaiser Co.. and Kaiser Engineers, Inc.
ANSWER TO QUESTION NO. 13 TO QUESTIONNAIRE OF JULY 27, 1940, AS REGARDS
JOSHUA HENDY IRON WORKS
General statement
Neither Mr. Kaiser nor members of his family has ever held 5 percent of the
stock of Joshua Heady Iron Works. However, one company, in which he and his
family own in excess of 5 percent of the stock, holds in excess of 5 percent of the
stock of Joshua Heady Iron Works.
(a) Eaftent of ownership.?
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For)Release 2003/10/10 : CIA-RDP64600346R000400060002-4
400 SHIPYARD PROFITS
(b) When and in what manner acquired.?
L
Henry J. Kaiser Co.: Percent
Dec. 19, 1940, to Mar. 27, 1945 7. 5
Mar. 28 1945, to present 8. 65
Both acquisitions for cash.
(c) Dividends received.?
Monthly, June tF.rough November 1942 (except October), $1,875
month $9, 375
Nov. 30, 1942_ 28, 125
per
Total
Of this am
at July 31, 1946 37, 500
ount $22,500 was returned as stockholders' loan.
ANSWER TO QUESTION NO. 13 TO QUESTIONNAIRE OF JULY 27, 1946, AS REGARDS
CALIFORNIA SHIPBUILDING CORP.
General statement
Neither D4r. Kaiser nor members of his family has ever held 5 percent of the
stock of Caiiforna Shipbuilding Corp; However, two companies in which he
and members of his family own in excess of 5 percent of stock did hold in excess
of 5 percent of the stock of California Shipbuilding Corp.
Dates
HearY J? Kaiser
Co.
The Kaiser Co.
Total
February 1941 to
Feb. 25, 1942, td
After April 1945
Fob. 34, 1942
April i 945
Percent
6. 25
7. 8833
cj)
Percent
6. 25
7. 8833
(I)
Percent
12. 50
15. 7666
(1)
. - ... . - . . .... . .. , . .. ,. .....- ._ ,
. ? - ?
'Jalllornia qulpoUloling conunueo, out none on rue persons
or companies cOvered by question No. 13 has had any financial or managerial interest in the company since
April 1945, or approximately 5 months prior to the delivery date of the last ship delivered by that company.
manner:in what ina isition For cash. Ad-
ditional, February
(c) Dividends
25, 1942: Stock dividend. Disposition, April 1945: For cash.
received.?
Henry J.
Kaiser Co.
The Kaiser
Co.
Total
Dates:
February 1942
November
August 199
November
Total
(sto 31z at $100 per share)
1942 (cash)
(cash)
1944 (nab).
$62, 100.00
78, 833. 33
157, 686.67
78, 833. 33
$62, 500. 00
78, 833. 33
157, 666.67
78, 833. 33
8125, 000.09
157,666. 66
315, 333. 34
157, 666. 66
377, 833. 33
377, 833. 33
755, 666. 66
ANSWER TO QUESTION NO, 13 TO QUE:STIONNAIRE OF JULY 27, 1 9 4 6, AS REGARDS
HOUSTON SHIPBUILDING CORP., SEATTLE-TACOMA SHIPBUILDING CORP., SOUTH PORT-
LAND SHIPBUILDING CORP., TODD-BATH IRON SHIPBUILDING CORP.1
General st tem,eut
Neither liIr. Kaiser nor members of his immediate family owned in excess of
5 percent of the stock of these companies. However, two companies in which Mr.
Kaiser and his family hold in excess of 5 percent of stock, held in excess of 5
1 While Tedd-Ba -h Iron Shipbuilding Corp. had no contracts with the U. S. Maritime
Commission or War Shipping Administration during the period prior to February 1942 it
is included here to complete the list of shipbuilding companies, the stock of which was
sold to others during February 1942.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
SHIPYARD PROFITS 401
percent of the stock of the above companies until February 1942, at which time
all stock was sold to others for cash.
(a) Extent of ownership.?
Henry J.
Kaiser Co.
The Kaiser
Co.
Total
'
1. Houston Shipbuilding Corp.:
Percent
Percent
Percent
February 1941 to Dec. (7) 1941
b. 25
5. 25
10. 5
Dec. (7) 1941 to February 1942 '
3. 675
3. 675
7. 35
2. Seattle-Tacoma Shipbuilding Corp.: (Now Todd-Pacific Ship-
yards, Inc.), September 1939 to February 1942
3.0
3.0
6.0
3. South Portland Shipbuilding Corp.: May 1941 to February 1942._
3.7
3.7
7.4
4. Todd-Bath Iron Shipbuilding Corp.: February 1941 to February
1942
4.3125
4.3125
8.625
.1 Does not represent reduction in shares held; others purchased additional stock, increasing total issued
and reducing percentage of total held by above companies.
(b) When and in what manner aeguired.?All acquisitions and dispositions for
cash.
(c) Dividends received (all in cash).?
Henry J.
Kaiser Co.
The Kaiser
Co.
Total
1, Houston Shipbuilding Corp
$2,
625.00
$2,
625.00
$5,
250
2. Seattle-Tacoma Shipbuilding Corp
21,
000.
00
21,
000.00
42,
000
3. South Portland Shipbuilding Corp
1,
480.
00
1,
480.00
2,
960
4. Todd-Bath Iron Shipbuilding Corp.I
Total, 1 through 4, inclusive
30,
187.
50
30,
187. 50
60,
375
55,
292.
50
55,
292. 60
110,
585
?
1 As noted above, Todd-Bath had no U. S. Maritime Commission contracts at this point.
Although it is understood that all of these companies continued in the ship-
building business, none of the individuals or companies covered by question No.
13 had any managerial or financial interest in the companies listed above after
February 1942.
ANSWER TO QUESTION NO. 13 OF THE QUESTIONNAIRE DATED JULY 27, 1 94 6?QUESTION
C SUMMARY
Dividends received from companies having USMC or IVSA contracts
Henry J.
Kaiser
Co.
The Kaiser
Co.
Kaiser
Engineers,
Inc.
Total
The Permanents Metals Corp
Richmond Shipbuilding Corp
Kaiser Fleetwings, Inc
$464, 265. 00
$464, 265. 00
$928, 530. 00
Oregon Shipbuilding Corp.'
61, 875. 00
61, 875. 00
123, 750.00
Consolidated Builders, Inc. (after May 1942)___
1, 250, 040. 00
1, 250, 040. 00
2, 500, 080. 00
Walsh-Kaiser Co., Inc
Associated Contractors, Inc. (after September
194,3)
240, 240. 00
120, 120. 00
$120, 120
480, 480. 00
California Shipbuilding Corp
377, 833. 33
377, 833. 33
756, 660.60
Houston Shipbuilding Corp
2, 625. 00
2, 625. 00
5, 250. 00
Seattle-Tacoma Shipbuilding Corp.'
21, 000. 00
21, 000. 00
42, 000. 00
South Portland Shipbuilding Corp
1, 480. 00
1, 480. 00
2, 960. 00
Todd-Bath Iron Shipbuilding Corp'
30, 187. 50
30, 187. 50
60, 375. 00
Total, shipbuilding
2, 449, 545. 83
2,329,425.83
120, 120
4, 899, 091. 66
Joshua Hendy Iron Works
37, 500, 00
37, 500. 00
Total, all above
2, 487, 045. 83
2, 329, 425. 83
120, 120
4, 936, 501.66
Kaiser Co., Inc.: This company did not pay any dividends since, as of May 31, 1946, it
shows a net loss of
3 l8,570, 040. 26
1 Includes stock dividends of Henry J. Kaiser Co. , $56,250; the Kaiser Co., $56,250; total $112,500.
'Not from USMC profits.
3 Red figures.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
402
In answer to the telegrams from Marvin J. Coles, addressed to Kaiser Co.,
Inc., dated October 10 and 11, 1946, we submit the following information:
1. Averar amount of outstanding bank loans of Kaiser Co., Inc.
The ban loans of Kaiser Co., Inc., fluctuated considerably during the period
-first
between the loan and the last repayment, but the average for said period
was as follows:
Richmond Yard 3 (40 months)
$4, 608,
750
Portl7d Swan Island Yard (35 months)
3,648,
581
Vanco ver, Wash., yard (40 months)
4,843,
625
Avelage, all yards (40 months)
12, 644,
875.
The above averages were computed from data available on the last day of each
month, and not al daily totals.
2. Excess fees and profits determined by renegotiation of contracts allocated
. between renegotiated contracts.
As show by exhibit G, attached to the original report submitted to the com-
mittee, Ka ser Co., Inc., has been renegotiated through the fiscal years ending
June 30, 144, and it was found by the Price Adjustment Board of the United
States Maiitime Commission that no excessive profits had been realized. Rene-
gotiation or Kaiser Co., Inc., for the fiscal years ending June 30, 1945, and June
30, 1946, has not been completed, but it is anticipated that no excessive profits will
be found for said years since Kaiser Co., Inc., suffered net losses and no profits
on its total wartime operations subject to renegotiation.
3. Disall wed costs allocated to applicable contracts.
The disavowed costs as charged to the various contracts of Kaiser Co., Inc., to
May 31, 1940, were as follows:
ll'ortland
Richmond Yard 3
Vancouver
Contract No.
Amount
Contract No.
Amount
Contract No.
Amount
MCc-2565____,
$973,
496.
29
3,1C c-28994
$1, 571, 236.
59
MCc-2047
$52, 006. 32
M Cc-16212
313,
224.
32
MCc-36279
14,474.
46
MCc-7467
214, 810. 83
M Cc-19189_ _ ------
20,
530.
62
All other
64, 139.
55
M Cc-7678
1, 033, 277. 53
MCc-29039 ---
607,
594.
04
MCc-23475
329, 298. 82
All other
24,
295.
56
M Cc-28948
527, 603. 67
All other
4, 372. 38
Total
1, 039,
140.
83
Total
1, 649, 850.
60
Total
2,161,369.55
RECAPITULATION
Portland
$1, 930, 140.83
Richmond Yard 3
1, 649, 850. 60
Vancouver
2,161,369.55
Total
5, 750, 360.98
Approved ForRelease 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 403
EXHIBIT 5
[Release 10 a. m. EST, Sept. 24, 1940]
SUPPLEMENTARY STATEMENT OF HENRY J. KAISER ON SKPTEMBER 24, 1946, ANSWER-
ING QUESTIONS ASKED BY COMMITTEE COUNSEL ON ?SEPTEainEn. 23, 1946, BEFORE
THE HOUSE COMMITTEE ON THE MERCHANT MARINE AND FISHERIES
About 2 months ago, on July 27, 1946, counsel for the committee submitted
in writing to Kaiser Co., Permanente Metals Corp., Oregon Shipbuilding, and
Kaiser-Fleetwings, a series of detailed questions.
The staffs of these companies, familiar with the detailed accounting data and
other information involved, prepared answers to each of the questions for each
of the four companies.
? These answers comprise over 150 pages of direct answers and exhibits. They
were submitted to the counsel for the committee on September 3. Counsel for
the committee stated that these answers were the best and most complete sub-
mitted by any shipbuilding company.
Subsequent to the submission of these answers, counsel for the committee
asked two other series of questions on September 14 and September 16. These
were also answered in detail on September 19 and September 21:
At the hearing yesterday, counsel for the committee asked me an additional
series of detailed questions which were not previously asked on the three prior
occasions when detailed requests for information were, made by him. After
the hearing, he submitted an additional informal list to our counsel of approxi-
mately 50 technical questions for each of the four companies, or a total of 200
questions, most of which were in addition to all of those previously asked. .For
example, counsel has now asked for the first time about such matters as the
circumstances leading up to the organization of each company, the hundreds of
personnel of the Maritime Commission with whom we dealt, what part of the
work was subcontracted, ho W much material was supplied by the contractor,
how long it took for the Maritime Commission to reimburse us for our expendi-
tures, etc.
We are pleased to answer any and all questions which either the committee
counsel or the committee itself wishes to ask. On the last two sets of questions
that were put to us late yesterday afternoon, we have tried within all possible
human limits, based on the information we have here, te get the answers for
the committee today. It is not possible to answer all of the questions put be-
tween the time the hearing adjourned yesterday afternoon and today. However,
our staff in the West, where the basic factual Information is available, is now
working on those questions as to which we do not have the available information
to answer today. We will submit the answers to these additional questions as
soon as it is possible and practicable to do so.
We want this committee to understand that there isn't a single thing we aren't
happy to disclose that is in our books and corporate records, but as a practical
matter, we have been many weeks preparing answers to highly technical ques-
tions asked by the committee counsel. At 4 o'clock yesterday afternoon, he
asked us a large number of additional questions about each of four companies.
It is going to take a staff of accountants, engineers, and others to answer these
additional detailed technical questions accurately.
The detailed and technical information which we have already presented to
the committee represents 2 months of intensive work on the part of many key
niembers of the Kaiser organization?men who had to give up their important
present tasks of producing aluminum, steel, and automobiles to compile this
record. No one man in our organization could testify as to all of these com-
plicated corporate financial and business transactions over a 5-year period. I
cannot do it. No one can do it.
All I can do is give you the results of the painstaking work done by the Kaiser
organization, represented in these lengthy reports. I have signed these reports,
and I now swear that to the best of my knowledge they are true. Counsel for
the committee has read them, and he can easily summarize them for the com-
mittee. If the committee requests, I will have additional reports prepared. But
it is not reasonable to expect me?or any single individual in the Kaiser ,organiza-
tion?to answer, without an opportunity for preparation, an endless number of
detailed and technical questions about transactions which have occurred over a
5-year period.
All I can say here is that on each new question asked me, I will have the
records examined, and I will give you answers which are just as complete as
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
404 SHIPYARD PROFITS
1
those already given, which your counsel has stated are the best prepared by
any shipbuilding company.
On the detailed questions asked of me yesterday afternoon, where it was
possible to obtain the facts, the answers are as follows:
1. The committee's counsel asked a series of questions about the shipbuilding
profits of 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 fcr the Government.
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 prac-
tical common sense, as well as law, both operations were treated, as they were
in fact, as he operations of one company. Under the specific provisions of law
passed by ongress?the Renegotiation Act?both operations of the one company
are lawfully considered as one in the case of this company, as well as in the
ease 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 Government agencies concerned with this problem, and it
was so testified before the House Committee on Ways and Means last year.
In conducting its operations, this one company has suffered losses on the pro-
duction of steel, and has now incurred an additional loss due to the action of a
Government agency in awarding, to a competitor in the West, a Government-
owned steel plant at 20 cents on the dollar, when the Kaiser Co. is presently
obligated to pay for its steel plant at 1010 cents on the dollar, plus interest, thus
putting the Kaiser steel plant at a competitive disadvantage. How much of a
loss, this wi result in can only be determined after a long and uneven competi-
tive struggle, btr: a loss is inevitable due to this action. The United. States
Steel Co. has just issued a press release stating that the plant which they bought
at 20 cents on the dollar is a "dream plant." We cannot therefore, now esti-
mate how this "dream plant" will affect the Kaiser Co., Inc., nor how much of
the assets of Kai ser Co., Inc., will have to be dissipated to cover further losses.
Nor do we know Low much of its commercial income will be needed to compensate
for such loss. ;We do know now that as a result of its integrated operations in
war production it did not make a profit, but in fact suffered losses.
2. The crmitiee's counsel asked a series of questions about the investment
of Kaiser o., Inc., in physical facilities, and whether Kaiser Co., Inc., received
any profit out of constructing these facilities.
We will check with our staff on the west coast?where the records are lo-
cated?as to. the amount of our investment in physical facilities, and we will
furnish the infor mation for the record when it has been gathered together. As
for whether or not we received any profits on these facilities our answer is as
follows:
Congress authcrized numerous agencies such as the Navy Department, War
Department, Maritime Commission, Reconstruction Finance Corporation, De-
fense Plants Corporation, National Housing Agency, and many others to
expand exiting plants. Where the expansion of existing plants was not suffi-
cient to meet wartime needs, Congress gave these agencies the authority to
build completely new facilities.
These agencies contracted to build and expand all types of facilities?ship-
yards, fouliies, steel facilities, airplane plants, machine shops, and other required
facilities. ost of these plants were built by contractors on a cost-plus-a-fixed-fee
basis. Kaiser-managed shipyards built the majority of their Government-owned
facilities With their own forces at no fee. It is generally true that the only
time Kaiser-manf ged shipyards used subcontractors to build facilities was, with
the approval of Om Maritime Commission, when we did not have either the equip-
ment, tools, or especially skilled labor available in the area. In practically all
cases completitivc bids were awarded to the lowest bidder. When we did not
take competitive bids it was because there was only one contractor in the area
who had sffitablc equipment, and in such cases we negotiated these contracts,
again with the approval of the Maritime Commission.
Mr. Chairman, you stated yesterday that the purpose of this investigation
was to determino whether or not profits paid to Maritime Commission ship-
builders were excessive or unreasonable. The record will substantiate and
prove without question that since we were paid no fees for building facilities
there can be no question whatsoever concerning excessive or mireasonable
profits on the construction of these facilities.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10.: CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 405
3. Counsel for the committee also asked us to furnish some information on
fees paid to subcontractors in connection with erecting the yards.
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 subcontractor who built any facilities in the shipyards.
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. There were some cases
in Which cost-plus-fixed-fee contracts were awarded, and in all such cases the
information you request can be obtained from the record. All subcontracts were
approved by the Maritime Commission.
4. Counsel for the committee asked me to check whether or not we were the
first company to build a yard for the Commission without a fee.
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 con-
tracts with the Commission on the same day.
5. Counsel for the committee asked whether Kaiser Co., Inc., has paid any
income taxes to the Federal Government on shipbuilding earnings.
For the fiscal year ending June 30, 1942, Kaiser Co., Inc., '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 the refund will be granted. We have therefore
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.
O. Counsel for the committee has asked whether or not the Kaiser family had
. or has any interest in the Gilpin Construction Co.
None of the Kaiser companies and no member of the Kaiser family has any
direct or indirect ownership in Gilpin. Any other question on Gilpin ownership
should be referred to that company.
In my judgment, the remaining questions asked by counsel for the committee
are not the kind that can be answered overnight. For example, counsel has
asked whether the shipyard earnings of Kaiser Co., Inc., were pledged to secure
the RFC loan on the Fontana steel plant, and if so, whether such a pledge caused
any delay in the payment by Kaiser Co., Inc., of its bank loans. To answer
this question, it will be necessary to refer to the terms of the RFC loan agree-
ment, a large number of private banking loan agreements and the dates of the
payments made thereunder, the terms of our V-loan agreement, and other de-
tailed corporate files and records. Since counsel wants this and other informa-
tion we will ask our west-coast office to compile the answers and we will furnish
them for the record.
As you stated yesterday, Mr. Chairman, the real question is this: Did Kaiser-
managed shipyards receive reasonable or unreasonable profits for the work they
performed for the Maritime Commission? The answer to that question is not
hoW many total dollars may have been received in fees or profits. That ques-
tion can only be adequately determined by knowing how much total volume
Kaiser-managed shipyards produced for the Maritime Commission, how much
their fees or profits were and what percentage their fees or profits were of the .
total volume. Was it reasonable or unreasonable in comparison to what anyone
else received?
The combined net profits after taxes of the four Kaiser shipbuilding companies
amOunted to less than one-tenth of 1 percent of the total volume of work done
for the Maritime Commission, after deducting all losses. Even if the losses on
other operations are not deducted, the combined profits are less than 1 percent.
In comparison, for example, Moody's Industrials shows that the net profit of
General Motors after taxes and after renegotiation were 6.02 percent of gross
sales in 1945 and 4.01 percent in 1944. The figures for Du Pont are 12.27 percent
in 1945 and 12.51 percent in 1944, 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 1044, and for Chrysler 3.77 percent in 1945 and 2.26 percent in 1944.
There can be no question as to our efficiency. Where any comparisons are
possible, the cost of the work we performed for the Maritime Commission will
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
406 SHIPYARD PROFITS
substantiate that Kaiser-built ships were far below the average in cost and thus
resulted in substantial savings fo the Government. On Liberty ships alone, the
Kaiser companies saved the Government more than $260,000,000 under the average
cost of Liberty sl Lips built by other yards.
The volume of work was tremendous. The committee should bear in mind that
one calendar year's operation during wartime probably amounts to a minimum
of five times the normal year's operation because of operations in three shifts
and the 56- or 48.-hour workweek. It is, therefore, reasonable to say, if any
attempt is being made to compare wartime profits with peacetime profits, that in
a 4-year period the work accomplished was equal to a 20-year peacetime volume.
There dan be no question concerning the speed with which we constructed
ships. The Maritime Commission used us to stimulate and needle every ship-
builder in its program. It is only natural that there should be some feeling on
the part of estaliiished and prewar shipyards concerning Kaiser's record because
we were uSed to prod further production by others and lower their costs. Our
building record and our man-hours per ship were forwarded by the Maritime
Commission to every yard in the country as an example.
The central question this committee is investigating is a very clear one. Were
the profits and foes paid reasonable or unreasonable? Compare them with what
other buil ers received. Compare the costs of the ships and the profits on the
contract, a d in our opinion the answer will be that Kaiser did not receive as
much as ot ier builders in the maritime program. Let me cite just one example.
In the case of the 50 escort carriers we received a fixed fee of $125,000 per ship
1
on a ship Which cost in excess of $6,000,000. There was a provision in the con-
tract that the Maritime Commission would adjust the fee when the designs of
the aircra4
t carriers were completed and the cost could be estimated, for the
contract, as entered into before the ship was designed. This was necessary
so that the builder could work with the designer for the utmost speed. When
the ship was designed and the cost estimated, no adjustment was made in the
fees by the Maritime Commission. The standard practice of the Navy on com-
parable ships was to pay a fixed fee in the amount of 6 percent of the estimated
cost withi. bonus provision. Our fee on the 50 aircraft carriers was about _2
percent. he Maritime Commission discriminated against Kaiser, rather than
favor him.
So, back to the original question: Were the fees paid reasonable or unreason-
able? As for the construction of the yards themselves, it is obvious that the fees
or profits Of the Kaiser companies were not unreasonable since there were no
fees or prdfits. As for building the ships, the record will show that our speed
was greatei and our cost was lower and that our fees were, if anything, less than
other builclers were paid on a comparable basis. What effect did the loss on the
Fontana steel plant of Kaiser Co., Inc., have? What effect did the interest
we paid to RFC have? Just this: That we were willing to pledge all of our
profits and fees, whatever they might be, so that we might borrow the funds to
build the teel plant to furnish the steel necessary to build our ships. The law
allows that one company report all of its operations?both losses and profits?on
a consolid ted basis for renegatiation purposes, and this we did. The over-all
5
operation of Kaiser Co., -Inc., as of the date the figures were submitted to the
committee shows a net loss of $18,000,000.
There is no justification, it appears to me, for this committee, the General
Accounting Office, or anyone else to judge profits on the basis of invested capital,
when no law or any regulation of Congress or any agency required any invested
capital, other than the sum of $100,000 per shipway which we furnished and
exceeded. What the Government did require of a shipbuilder was know-how,
organization, capacity to produce, the ability to finance the operation, and
performance.
The recOrd stows that we did furnish the Government with the know-how,
organization, anti ability needed to build ships with speed, efficiency, and economy.
i
1
1
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
EXHIBIT 6
TS !Excerpts from War Manufacturing Facilities authorized through August 1944. Listed alphabetically by company and plant location (U. S. War Production Board, Bureau of
Program and Statistics, Facilities and Contracts Branch, Facilities Reports Section), Jan. 20, 1945] 0
0
p-Z000900017000t19PC008179dCIU-VI3
United States of America?War
Production Board:
Authorizations of war manufacturing facilities financed
through August 1.944
with
public and private funds
Plant operator, facility,
and type of product, 1939
War products and
. capacity
Capac-
ity
sym-
bol
Date available
Em-
ploy-
ment
added
funSoudrseeanodf sppuobnsliocr
Estimated cost in thousands of dollars
U
Total
cost
Publicly financed
Privately financed
Total
Struc-
ture
Equip-
ment
Other
Total
Struc-
ture
Equip-
ment
Other
Barrett & Hilp, San Fran-
cisco, Calif.
Concrete barges-19
units per year
S
June 1944
2,180
Maritime Corn-
mission.
3,151
3,161
1,960
1,201
(1944).
Bethlehem Fairfield Ship-
yard, Inc., Baltimore,
Md.
Cargo ships Ee2?
114 units per year
(1944).
PD_ _ _
Sept. 1941
New plant
Cargo ships VC2?
PD_
Sept. 1944
41 units per year
40, 000
do
33,623
33,623
20,846
12,777
(1944).
Do
Landing ships
tank-19 units per
year (1945).
PD_
Jan.1943______
California Shipbuilding
Cargo ships EC2?
PD___
December 1942.
-
Corp., Wilmington,
Calif.
31 units per year
(1914).
Do_
Cargo ships VC2?
32 units per year
S
March 1944_
0,000
do
27,594
27,011
16,869
10,142
583
423
160
(1944).
Do
Transports-34 units
per year (1944).
S__
July 1944
Consolidated Steel Corp.
of Texas, Orange, Tex.
Destroyer escorts?
57 units per year
S
March 1943
(1944).
New plant
Do
Landing craft in-
fantry-70 units
per year (1944).
Steel barges 195-
foot-8 units per
year (1944).
S
PD..
December 1942_
June 1943
19,850
Navy?Ships
11,445
11,445
7,746
3,699
Do
Destroyers 2,200
ton-1 unit per
year (1944).
S
December 1942-
0
0
0
41.
C) 0
0
0
0
0
17-Z000900017000t19PC008179dCltl-VIO 01./014E00Z eseeletl Jod peAcuddv
United States of America?War Production Board: Authorizations offwar manufacturing facilities financed with public and private funds
through August /944?Continued
Plant operator, facility,
and type of product, 1939
War products and
capacity
Capac-
ity
sym-
boi
Date available
-
Era-
ploy-
ment
added
Source of public
funds and sponsor
Estimated cost in thousands of dollars
Total
cost
Publicly financed
Privately financed
Total
Struc-
ture
Equ ip-
ment
Other
Total
Stru tinec-

Equip-
ment
Other
Delta Shipbuilding Co.,
Inc., New Orleans, La.
Shipbuilding and re-
pair.
East Coast Shipyards,
Bayonne, N. J.
J. A. Jones Shipbuilding
Co.
Brunswick, Ga
Panama City, Fla
Kaiser, Henry J. Co.,
Kaiser, Henry J., Rich-
mond, Calif.: Concrete.
Raiser Co., Inc.:
Portland, Oreg
Richmond, Calif _
Vancouver, Wash_ _ _
Do
Cargo ships Ec2---
75 units per year
(1944).
Tankers Z-ET1-5
units per year
(1944).
Gasoline tankers?
26 units per year
(1944).
EC-2 cargo-56
units per year.
EC-2 cargo-67
units per year
Emergency tank car-
riers-2 units per
year.
Concrete?not re-
ported.
Tankers T2-59
units per year
(1944).
C-4 troopships-17
units per year
(1944).
Auxiliary aircraft
carriers-31 units
per year (1944).
Emergency trans-
Ports-27 units
per year (1944).
S
PD_
S
S 1943
S
PD
S February
S
6
5
May 1942
June 1943
August 1943W
April 1043
do
January 1944
1943
_
December 1945
December 1943
August 194C _ _
19,450
2,130
15, 575
14,970
26,175
28,000
34,510
Maritime Com-
mission.
-
do
do
do
Maritime Corn-
mission.
do
,
do
13,072
2, 491
25, 863
13,072
2,391
25, 838
7,912
1,482
16, 020
5,160
909
9, 818
100
25
25
100
13, 354
12, 509
13, 354
12,494
8,280
7,740
5,074
4,744
25
25
206, 785
205,324
156, 054
49, 270
1, 461
1,055
406
60
60
18
42
201, 034
200, 168
152, 991
47, 177
866
833
33
25,112
28,451
29,215
24,992
28,261
28,659
15,495
17, 522
17,760
9,497
10, 739
10,890
120
190
556
120
157
536
33
CRIVAATIHS
90
0
Release 2003/10/10 : CIA-RDP64600346R000400060002-4
t-Z000900017000U9K008179dCIU-VIO 014014E00z aseeletliOd peAcuddv
Do
Ship repairs-not
applicable.
Navy-Ships
Kaiser Co., Inc
Pig iron, 35,000 tons
per month.
CA
Sept. 194.3
RFC
Iron and Steel Divi-
sion, Fontana, Calif.
Ingots-35,000 tons
Per month.
CA__
do
Do
Steel plate, 25,000
tons per month.
CA
do
Do
Coke-360,000 tons
per year.
CA
June 1943
Do
Ammonium sul-
fate-8,760 tons
per year.
CA
do
2,400
do
Do
Sodium phenolate-
CA
do
202 tons per year.
Do
Benzol-1,644,000
gallons per year.
CA
_ do
Do
Toluol-435,200 gal-
lons per year.
CA
do
Shell Division, Fon-
tana, Calif.
Shell forging, 155-
millimeter high ex-
plosive, 250,000
units per month.
CT
5,000
War-Ordnance
McCloskey & Co., Hous-
ton, Tex.
Concrete barges-4
units per year
October 1943
Maritime Com-
mission.
(1944).
New plant, Tampa,
Fla.
Concrete cargo ships
C-1--22 units per
year (1944).
do
do
i'vlarinship Corp., Sausa-
lito, Calif.
Tankers-46 units
per year (1944).
July 1913
17, 960
do
New England Shipbuild-
ing Corp., South Port-
land, Maine, shipbuild-
ing and repair.
EC-2 cargo-116
units per year
(1944).
October 1942_ _
23,000
do
1.British
North Carolina Shipbuild-
C-2 cargo-32 units
ing Co., Wilmington,
N. C.
Do
Oregon Shipbuilding Corp.,
Portland, Oreg.
per year (1911).
C-2-S-AJ3 24 units
per year (1944).
Cargo ships EC-2-
11 units per year
July 1943
December
1942.
18,000
Maritime Com-
mission.
do
(1944).
2, 576
2, 576
1, 597
979
96,605
96,605
96,605
550
550
550
------------------------------------------------
18, 525
18, 525
18, 525
3,453
15,072
9,378
9, 148
5,672
3,476
230
20
210
2,405
2,405
1,491
914
6,973
6,743
4, 181
2, 562
230
20
210
16,923
16,923
10,492
6,431
14, 110
14, 110
8,748
5,362
9,455
9,455
9,455
20,664
20,407
12,653
7,754
257
111
146
22,769
22,409
15,894
8, 515
360
300
SIMOUcl cmvAaii-is
r4-
p-Z000900017000U9K008179dCIU-VI3 01./01./COOZ eseeieu Jod peAwddv
-0
-0
0
United States of America-War Production Board: Authorizations of war manufacturing facilities financed with public and private funds F?P
through Avust 1944-Continued
_
Plant operator, facility,
and type of product, 1939
War products and
capacity
Capac-
ity
sym-
bol
Date available
Em-
ploy-
ment
added
Estimated cost in thousands of dollars
Source of public
funds and sponsor
Total
cost
Publicly ,financed
Privately financed
Total
Struc-
ture
Equip-
ment
Other
Total
Strue-
ture
EqUip-
ment
Other
Oregon Shinbuilding Corp.,
Portland, Oreg.
Cargo V C - 2-3 2
units per year
S
March 1944
(1944).
Do
Victory transports
VC-2-S-AP-536
units per year
S
July 1944
38,660
Maritime Com-
mission.
22, 769
22,409
13, 894
8,913
360
360
(1944).
80,439
70, 479
42,064
28, 415
9, 960
1, 546
8, 335
79
Permanente Metal Corp.,
Manteca, Calif.
Magnesium metal
and alloys-20,?
CA_ _ .
March 1943____
910
DPC-War
6,623
6,623
2,543
4,080
000,000 pounds per
year.
Moss Landing, Calif.__
Magnesium oxide-
CT _ _
February 1944
2,000
2,000
133
1, 8E0
17
1,000 tons per
quarter.
N at i v idad Ranch,
Calif.
Do '
Calcined dolomite-
34,200 tons per
quarter.
Crushed raw dolo-
mite rock-93,000
tons per quarter.
CT
CT_
January 1944
__ do
1 2, 083
2, 083
114
1, 910
59
Permanente, Calif
Magnesium-20,000,-
CT_
D seem be r
RFC
26,238
26,202
13. 481
12,721
36
13
23
000 pounds per
year.
1943.
Do
Magnesium oxide-
CT_
February 1942_
2,180
2,180
564
1,613
3
1,000 tons per
month.
Do
Do
Ferrosilicon-10,000
gross tons per
year.
Portland cement-
CT,
CT_
August 1942
,
December
3,510
3,910
571
2,939
1,200,000 barrels
per quarter.
1941.
Shipbuilding Division,
Richmond, Calif.
EC-2 car g o-117
units per year
S
1941
52,000
Maritime Corn-
mission.
30,723
30,562
18,948
11,614
151
151
(1944).
a
to
p-Z000900017000U9K008179dCIU-VI3 014014E00Z eSeeleti -10d peACLIddV
Do
Do
VC-2 cargo-47
units per year
(1944).
VC -2 transports
22 units per year
(1944).
May 1944
August 1944
British
? 7,092
7,092
7,092
St. Johns River Shipbuild-
ing Co., Jacksonville,
EC-2 cargo-57 units
Per year (1944).
April 1943
15,410
Maritime Com-
mission.
17,520
17, 520
10,862
6, 658
Fla.
Southeastern Shipbuilding
Corp., Savannah, Ga.
EC-2 cargo-52 units
per year (1944).
February 1943
14,940
do
12,019
12,019
7,452
4,567
Todd Houston Shipbuild-
ing Corp., Houston, Tex.,
new plant.
Cargo ships EC-2--
78 units per year
(1944).
October 1942.
22,080
do
14,521
14,492
8, 985
5,507
29
Walsh-Kaiser Co., Inc.,
Providence, R. I.
Cargo ships EC-2-5
units per year
April 1943
(1944).
Do
Combat loaded
cargo-32 units per
year (1944).
June 1944
17, 760
do
29, 995
29,950
16,089
9,861
45
45
Do
Corvettes-15 units
per year (1944).
July 1943
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
412 SHIPYARD PROFITS
EXHIBIT 7
TERMINATION' SETTLEMENT UNITED STATES MARITIME COMMISSION
RAISER CO., INC., RICHMOND, CALIF.
Summary
Under datq 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, submitted to the Commission recommendations (prepared by Walston
S. Brown) that av agreement be entered into with Kaiser Co., Inc., providing
a fixed price of $354,600,000 for the construction of 35 C-4 vessels.
The propoSed settlement, prepared by Walston Brown and approved by the
Committee on Awa rds is as follows:
"Kaiser Co., 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 shipyardknow a as Richmond yard No. 3. Work under this contract will not
be completed for several months. Under date of May 4, 1943, the Commission
and Kaiser Co., Inc., entered Into a letter of intent which provided that a fixed-
price contract will be made covering the construction of an additional five C-4
vessels which 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
,contract covering the construction of all 35 vessels called for by the existing
contract 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 con-
struction 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 allow-
ance for contingencies, was the sum of approximately $303,200,000. Represent-
atives of the, contractor agreed to accept a contract price equal to this cost,
together with an amount to cover profit and contingencies.
"Under tlre contract dated Januery 9, 1942, as amended, the minimum fee is
$100,000 for each of 10 vessels, and $102,500 for each of the remaining 20 vessels.
The maxim* fee is $518,000 per vessel. Since the costs definitely exceed the
target price pf $6,235,000 per vessel stated in the contract, and the actual delivery
dates are much later than those set forth, it would appear that the conractor
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 at the
request of the War Department and later by the Navy Department. It was
therefore decided to recommend that the contractor agree to limit the profit on
account of the 30 vessels covered by the contract dated January 9, 1942, to the
sum of $3,0.50,000 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 approximate one-half percent of such costs. The con-
tractor therefore contended that a rather liberal contingency should be allowed
in the price of th,) 30 vessels, and asked that such contingency be placed at 11/2
percent of I tie total estimated cost, or approximately the sum of $4,500,000. The
committee, n lieu of this, suggested a contingency of approximately $3,800,000
which is acceptable to the contractor. The afore-mentioned contingency does
not cover tie contractor's liability on account of violations of the Fair Labor
Standards 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
Commission, 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 Stahdards 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
performanc6 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 $3,o38,000 per vessel. Adding such contrast price to the $312,000,000 for
the first 30 vessels will make a contract price '_'if $354,690,000.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 413
"In the memorandum from this committee in regard to an award of contract
for the construction of C-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 substantially
more favorable treatment in respect of the costs incurred for the construction 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 provisions
should be made for withholding, at the Commission's option, a sufficient amount
to protect recapture, rather than to make the usual provisions for payment 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."
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:
Vessels delivered? 26
Hulls launched 5
Keels laid 3
Keel unlaid 1
The progress reports reflect percentages of completion of the vessels as of
April 30, 1945, and May 31, 1945, as follows:
Hull No.
Percentage of completion?
As of Apr.
30, 1945
As of May
31, 1945
Month of
May 1945
653
654
655
656
657
658
659
660
661
662
663
664_
665
060
667
702
703
704
705
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
100 100
0
0
0
Hull No.
Percentage of completion?
As of Apr.
30, 1946
As of May
31, 1945
Month of
May 1945
706
707
708
709
710
711
100
100
100
100
100
100
100
100
100
100
100
100
712
100
100
0
713
96. 8
100
3. 2
714
87. 0
98. 5
11.5
715
80.0
85. 1
2. 1
716
79.8
81.0
1.2
2383
56. 2
71. 7
15. 5
2384
45. 8
63. 0
14. 2
2385
36. 6
63. 6
15. 0
2356
29. 0
45. 4
16. 4
2387
20.4
33. 0
8. 5
Total
3, 144. 6
3,232.2
87.6
Average
39.8
02.3
2.5
93486-46-27
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
414 SHIPYARD PROFITS
The progress report (No. 89 for May 1945 contains footnotes as follows:
Hulls 05 ?659 : Delivered as incomplete. Conversion work completed outside
builders yard under Navy contract.
Hull 060: Delivered as incomplete. Completion of conversion by Kaiser-
Vancouver contract Mee-29967.
Hulls 66-662: Delivered as incomplete. Completion of conversion by Kaiser-
Three contract Alec-29942.
Hulls .066: Outfitted by Kaiser-Vancouver contract MCc-2046, addendum
No. 8.
Hulls 702-703: Delivered as incomplete. Completion of conversion by Kaiser-
Vancouver contracts MCc-27050 and 29089.
Hulls 704-706: Delivered as incomplete. Completion of conversion by Kaiser-
Three contract Alec-29042.
In the event the vessels were delivered as incomplete (progress reports show
100 percent complete) there may exist an overlapping of payments under the
contracts and settlements thereunder.
Attention is invited to the statement in the first paragraph of the memoran-
dum?
"Under date of May 4, 1943, the Commission and Kaiser Co., Inc., entered into
a letter of intent which provided that a fixed price contract will be made covering
the constrOction of additional 5 C4 vessels * *
The letter of intent referred to is dated May 4, 1944, and provides for the
construction of 10 additional C4 vessels (hulls 2883 to 2392), 5 of which (hulls
2388 to 2392) were canceled, and said letter of intent provides that the con-
tract 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 5 vessels, fie contractor is allowed a profit thereon of $520,000 per vessel
as compared with $100,000 per vessel for the first 10 and $102,700 per vessel
for the next 20 vessels. In other words the contractor is allowed a profit per
vessel on the last 5 vessels which exceeds the profit per vessel on the first 30
vessels by more than 5 times as follows:
Group
Vessels
Profit or feo
vessel
Totalper
1
10
$100, 000
$1, 000, GOO
2
20
102, 500
2,050, 000
3
5
520,000
2, 600, 000
Total
35
5, 650, 000
The records 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.
EXHIBI'r 8
SEptintnEn 17, 1946.
Mr. MMION J. COLS,
General Counsel, Merchant Marine and Fisheries
Investiyating Committee, House of Representatives.
DEAR MR. COLS: As requested in your letter of September 13, 1946, and in
accordance with conversations at our meeting in my office on that date with
Mr. Sidney T. Thomas, Chief of the Tax Amortization Branch of this Admin-
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
SHIPYARD PROFITS 415'
istration, I am furnishing below for the use of the Merchant Marine and Fish-
eries Investigating Committee a brief description of the necessity certificates
issued to the Kaiser Co., Inc:, the Permanente Corp., and the Permanente Metals
Corp. The identifying serial numbers assigned to these cases begin with the
letters WD?N where the certificates were issued by the War Department and.
ND?N where the Navy Department issued the certificate. Certificates issued:.
by the War Production Board are identified by the letters NC. The list mitt
description of facilities together with the approximate dollar cost follows:
Serial No.
Description
Approximate.,
cost
ND-N-1497
ND-N-4221
WD-N-4091
WD-N-480
WD-N-1323_ ______
ND-N-687.
ND-N-4896
ND-N-4728
ND-N-3645
ND-N-2997
ND-N-2706
ND-N-2389
WD-N-7456
WD-N-7023
WD-N-7455
WD-N-26372
WD-N-21597
NC-877
THE PERMANENTE CORP.
Bulk cement storage and transfer facilities Honolulu, T. 11
Filter equipment?Permanento cement plant, Perrnanente, Calif_
Lime kiln conversion, track hopper and convoying equipment?
Permanente, Calif.
Complete magnesium oxide and metallic magnesium plants?Santa
Clara County, Calif.
Excavation kiln piers, kilns, building alterations, boiler system, etc.,
for magnesium oxide plant?Santa Clara County, Calif.
Mills, pumps, separators, piping, etc., for cement plant, Santa Clara
County, Calif.
RAISER CO., INC.
Open hearth plant expansion, buildings and shops, soaking pits,
slow-cooling ingot pits, structural mill, foundry additions, mer-
chant mill, alloy finishing facilities and yard development for steel
plant?Fontana, Calif.
Buildings, shops, miscellaneous items for production of coal?Sunny-
side, Utah.
Coal-tar plant, tank cars, bagging equipment for production of creo-
sote and heavy oils and ammonium sulphate?Fontana, Calif.
Roads, buildings, mining equipment, trucks, crushing equipment,
etc., for producing iron ore near Kelso, Calif.
Machinery, supplies and equipment for coal mine--Carbon County,
Utah.
Land, coke plant, blast furnace, power plant, yard development,
etc., for steel plant?Fontana, Calif.
THE PERMANENTE METALS CORP.
Are furnaces, furnace building, conveyor, etc
Magnesium plant in Monterey County, Calif
Buildings and equipment for a calcining plant at Monterey County,
Calif.
Building, electrical distribution system, laboratory, and processing
equipment; Permanente, Calif.
Furnaces?Permanente, Calif
Processing equipment and machinery?Permanente, Calif
$118, 247. 54
143, 017. 45
157, 345. 68
1 6, 500, 000.00
1, 508, 059. 32'
500, 871. 07
30, 679, 654. 58
120, 223. 68
520, 262. 23,
889, 498. 93.
1,068, 277. 19,
53, 048, 866. 34,
2, 033, 695. 26
2, 232, 612. 89,
1,007, 048. 38
215, 942. 37
299, 006. 97
242, 874. 09'
1 Estimated.
According to our records, Federal funds were loaned by the Reconstruction!
Finance Corporation for the construction of the Iron and Steel Division plants,
of the Kaiser Co., Inc., at Fontana, Calif., and for certain plants of the Perma-
nente Metals Corp. I would suggest that you address any request for informa-
tion regarding these loans to the ReconstructioA Finance Corporation.
I trust that the above information will serve your purpose.
Very truly yours,
FRANCESCO M. BIANCO,
Acting Director, Financial Policy Division.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
416 SHIPYARD PROFITS
EXHIBIT 9
?
Number end average time to complete Liberty ships constructed by each ship-yard
I
Shipyor'1
Num-
her of
ways
Date first keel
laid,
Number completed
Average
number
days to
complete
each ves-
ml'
1941
1942
1943
1944
1945
Total
ATIiANTIC COAST
Bethlehem-Fairfield Shipyard,
Baltimore, Md
16
Apr. 30, 1941
1
2 77
2 192
114
384
53.8
I. A. Jones ?oust] uction Co.,
Brunswit, Ga
New Eng and Shipbuilding
6
July 6, 1942
21
53
11
85
79. 7
Corp., South Portland,
Maine, west
New Eng
yard
and Shipbuilding
6
Sept. 24, 1941
12
40
48
12
112
77. 2
Corp., (3,
Maine, e
North Ca
South Portland,
st yard.
olina Shipbuilding
7
Sept. 8, 1942
2
51
52
27
132
70. 4
Co., Wilmington
Bt. John's
N. C
River Shipbuilding
9
May 22, 1941
51
75
126
64. 8
Co., Jaernville
Southeaste
Fla
n Shipbuilding Co.,
6
Aug. 15, 1942
25
51
6
82
77.6
. Savannah,
Ga
6
May 22, 1942
36
44
8
88
85.6
Walsh-Kaiser
Co., Providence,
6
June 27, 1942
4 6
5
11
208. 7
Total
62
1
142
446
367
64
1, 020
68. 4
QULF COAST
Alabama Thydock ex Ship-
building Co., Mobile, Ala
12
July 28, 1941
2 18
2
20
137. 5
Delta Shipbuilding Co., New
Orleans, La
F. A. Jones Construction Co.,.
8
Oct. 1,1941
28
615
60
9
6 132
82.8
Panama City, Fla
6
July 9, 1942
21
53
28
102
83.3
Todd Honston Shipbuilding
Corp., Houston, Per
9
July 18, 1941
32
74
83
19
208
68. 4
Total
35
78
132
196
56
462
78.8
PACIFIC COAST
California Shipbu lding Corp.,
Los Angeles, Calf
14
May 24, 1941
109
2 166
31
7 306
60. 7
Kaiser Co. Vancouver, Wash_ __
12
Apr. 15, 1942
2 2
8
10
80.4
1Vlarinship Corp., San Fran-
cisco, Ctif
Oregon hipbuilling Corp.,
Portland, Oreg
6
11
June 27, 1942
May 19, 1941
1
5
113
110
197
11
16
322
112. 2
44. 9
Permanent? Meta Is Corp., yard
No. 1 (I),
7
May 12, 1942
30
92
16
138
48.3
Permanente Metals Corp., yard
No. 2 '
12
Sept. 17, 1941
63
187
101
351
41. 1
,
Total
62
1
322
660
169
1, 142
49. 6
Grand total
159
2
542
1, 238
722
120
2,624
62.0
1 Time tie construct includes the day of keel laying.
2 Facilites employed part of year on special naval type ships.
Yard previoua y built 30 similar ships for Great Britain.
Part ot contract suspended to permit construction of special Navy type vessels
Part of contract canceled to permit tanker construction.
6 Does not include 32 Liberty type tankers constructed, and 24 Liberty colliers.
7 Does not incjule 30 Liberty type tankers constructed.
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 417
Liberty EC-2 cargo ships completed each month and average numbei? of days to
build
Month
Number
of yards
producing
Number
built each
month
Monthly
average
timo to
complete
Cumulative
number of
ships con-
structed
Cumulative
average
time to
complete
1941-December
2
2
236.0
?
tOtO,DO_DO .1O,DOIO,DOILO
OD OD OD 0 .n o. C7! C 00000 CD 0 4,?? CO DO 0 CO CO D,1 (n bO
236.0
1942-January
2
3
241.3
239.8
February
5
12
227. 8
232. 1
March
5
16
217.7
225.6
April
6
26
179. 2
205.6
May
8
43
155.4
184.7
June
9
51
122. 4
164,3
July
10
52
108. 4
100.4
August
11
57
82.9
136.0
September
10
67
70. 1
122.8
October
11
65
60.0
113.6
November
11
08
56. 0
102.0
December
12
82
55.0
07.9
1943-January
13
79
52. 6
92, 3
February
14
81
62. 1
88.0
March
14
103
59. 5
85. 2
April
15
110
58, 1
81. 9
May
15
120
57. 6
79. 1
June
15
115
58.1
76.8
July
16
109
83.8
74.4
August
14
110
46.8
72.1
September
12
106
42. 2
70. 0
October
12
98
42. 6
68.3
November
11
89
43.2
60.9
December
12
118
42.0
65.3
1944-January
12
73
44. 0
64, 0
February.
13
78
50. 7
63.9
March
13
83
55. 2
63. 1
April
13
79
55. 1
63.2
May
12
67
54. 6
63. C
June
10
55
51. 4
62.7
July
10
51
69. 5
62. e
August
9
50
61. 6
62.8
September
9
43
58. 1
62.0
October
9
51
P3.0
62.9
November
s
48
53, 1
62.
December
8
41
48.8
62.0
1945-January
8
32
54. 0
61. ?
February
s
30
55.4
61.8
March
6
21
60. 2
61. 8
April
3
8
66. 2
81.8
Tvfay
4
6
78.1
61.8
June
2
7
73.8
61,8
July
1
2
70. 0
6L t
August
2
6
66.0
61.9
September
2
4
97. 2
62. C
October
2
4
105. 7
62. C
NOTE.-These figures do not include 62 Liberty ship tankers and 24 Liberty ship colliers.
EXHIBIT 10
KAISER COMPANIES
ADJUSTMENTS TO REPORTED PROFIT RATES
An analysis of the reported contract volume and fees and profits earned before
and after Federal income taxes by the six so-called Kaiser companies reveals that
the percentages of profits reported by these companies were less than the profits
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
418 SHIPYARD PROFITS
actually earned on Maritime Commission contracts because of the inclusion of the
following Items:
A Inclusion in contract vOlume of amounts which do not represent costs
of construction, I. e., cost-type contracts on which no fees or profits were -
paid, retention of amounts in process of settlement, as well as fees and profits
paid.
B. Inclusion of Government-furnished materials.
C. Inclusion in income taxes of the estimated amount of taxes which would
have accrued but for .the deduction of losses sustained from operations other
than, ship construction.
The above-named items have been deducted from the reported costs and profits;
unpaid fees have also been excluded and the adjusted profit rates computed for
each of the sir companies and totaled for all six companies in the following
tables.
Adjusted summaries. of shipyard income to May 81, 1946
KAISER COMPANIES-TOTAL
Per report
Adjustments
As adjusted
Total of shipbuilding
Governmen
Total
Profit before
Amount
Rate (percent)
Federal incoMe
Profit after taxes:
Amount
? Rate (percent)
contracts
-ftunislied materials
contract volume
taxes:
taxes
?
$3, 488,
$1, 703,
139, 399
274, 630
($493,855,601)
($1,703,274,630)
$2, 994,283,
738
$5, 191,
$170,
$118,
$52,
413, 969
154, 382
3. 3
011,101
103, 281
3.0
($2, 197, 130, 231)
($3,654, 333)
($40,966, 150)
$42,411,817
$2, 994, 283,
$166,100,
$71, 984,
$94, 515,
738
049
5.6
951
098
3.2
PERMANENTE METALS CORP.
Total of shipbuilding contracts
Governmen -furnished materials
I
Total contract volume
Profit before taxes:
Amount
Rate (percent)
Federal incoine taxes
Profit after taxes:
Amount
Rate (percent)
$726,
$542,
802, 282
214, 500
($92,
($542,
821, 877)
214, 500)
$633,980,
405
$1,
269, 016,782
$53, 509, 637
4. 2
$37,692,071
$15, 817, 566
1.3
($633,
($1,
($16,
$15,
036, 377)
000, 000)
244,488)
244, 438
$633, 980,
$52,509,
$21, 447,
$31', 062,
405
637
8. 3
633
004
4. 9
KAISER CO , INC.
Total of ship uilding contracts
Government- urnishe I. materials
$1,
$316,
342,
475, 189
334, 854
($185,
($316,
731,
334,
859)
854)
$1,
156,
743, 330
Total cOntract volume
- $1,
658,
810,043
($502,
066,
713)
$1,
156,
743;330
Profit before taxes:
Amount
$41,
133, 396
($2,
654,
333)
$38,
479,063
Rate (percent)
2.5
3.3
Federal ince* taxes
$29,
821, 712
($29,
821,
712)
Profit after taXes:
Amount
Rate (percent)
$11,
311, 684
.7
$27,
167,
379
$38,
479, 063
3.3
OREGON SHIPBUILDING CORP.
Total of shipbuilding contracts
Government-furnishet materials
$527,
$435,
670, 561
917, 000
($70,184,
($435, 917,
708)
000)
$457,
085,859
Total contract volume
$963,
587, 561
($606,
501,
708)
$457,
085, 853
Profit before taxes:
Amount
$40,
281,080
$40,
281,080
Rate (percent)
4. 2
8.9
Federal income taxes
$27,
169, 588
$27,
169,588
Profit after taxes:
Amount
Rate (percnt)
$13,
111, 492
1.4
$13,
111, 492
2. 9
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS.
Adjusted summaries of shipyard income to May 31, 1946-Continued
KAISER FLEETWINGS, INC.
419
Per report
Adjustments
As adjusted
Total of shipbuilding contracts
$108, 591,
076
(855,
532,
267)
$53, 061,
809
Government-furnished materials
Total contract volume
19, 248,
000
($19,
248,
000)
$127, 842,
076
($74,
780,
267)
$53, 061,
809
Profit before taxes:
Amount
Rate (percent)
$1, 047,
301
.8
$1, 047,
301
2. 0
Federal income taxes
$776,
619
$776,
619
Profit after taxes:
Amount
Rate (percent)
$270,
682
. 2
$270,
682
. 5
CALIFORNIA SHIP BUILDING CORP.
Total of shipbuilding contracts
Government-furnished materials
$601, 278,
$389, 560,
431
276
($76,
($389,
605,
560,
013)
276)
$524,
673,418
Total contract volume
$990, 838,
707
($466,
165,
289)
$524,
673,
418
Profit before taxes:
Amount
$31, 433,
815
$31,
433,
815
Rate (percent)
3. 2
6.0
Federal income taxes
$22, 591,
111
$22,
591,
111
Profit after taxes:
Amount
Rate (percent)
$8,842,
704
. 9
$8,
842,
704
1.7
WALSH-KAISER CO., INC.
Total of shipbuilding contracts
Government-furnished materials
$181,
'
318,
800
($12,
579,
677)
$168,
739,
123
Total contract volume
181,
318,
800
(12,
579,
677)
168,
739,
123
Profit before taxes:
Amount
2,
749,
153
2,
749,
153
Rate (percent)
1. 5
1. 6
Federal income taxes I
Profit after taxes: I
Amount
Rate (percent)
Not furnished.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
P-Z000900017000U9K008179dati-VI3 014014E00Z aseeieu JOd 130A0iddV
Adjustments to summaries of shipyard income to May 81, 1946
KAISER COMPANIES
- - -----
-
Total
PermanenteOregon
Metals
Corp.
aiser Co,
Inc.
Shipbuilding
Corp.
Kaiser
Fleetwings,
Inc.
California
Shipbuilding
Corp.
Walsh-
Kaiser
Co., Inc.
?
Total of shipbuilding contracts: Cost-type ebntracts on which no fees or profits
were paid
$254, 044, 457
$31, 014, 219
$112,
062,924
$22, 684,
157
$53, 458, 285
$25,
391, 140
59,
433,
732
Retentions and amounts in process of settlement
37, 139, 736
3,819, 716
29,
766, 135
2, 782,
153
I 728,682
42, 750
Fees, actual
1 202, 671, 408
43, 743, 262
{
18,
765, 800
27, 235,
611
36?' "
} 51,
171, 123
3,
145,
945
Profits
14, 244, 680
25,
137, 000
17, 882,
987
985, 000
Total
493, 8,55, 601
92,821, 877
185,
731, 859
70,584,
908
55, 532, 267
76,
605,013
12,
579,
677
Government-furnished materials
1, 703, 274, 630
542, 214, 500
316,
334, 854
435, 917,
000
19, 248,000
389,
560, 276
Profit before taxes: Unpaid fees
3, 654,333
1,000,000
2,
654,333
Federal income taxes:
.
Computed on profits from Maritime Commission work
- 118, 051, 101
37, 692,071
29,
821, 712
27, 169,
588
776, 619
22,
591, 111
Paid
71,984, 951
21, 447,633
27, 169,
588
776, 619
22,
591. 111
Tax savings resulting from deductible losses from other operations
46,066, 150
16, 244,4.18
29,
821, 712
I Less agency cash, $68,863.
SII,1011d
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
SHIPYARD PROFITS 421
Cost-type contracts on which no fees or profits were paid
Company
Contract No.
Amount paid
Permanente Metals Corp
Total
Kaiser Co., Inc
Total_
Oregon Shipbuilding Corp
Total
Kaiser Fleetwings, Inc
California Shipbuilding Corp
Total
Walsh-Kaiser Co
MC? 16227
MCc 18932
M Cc 40300
DA-MCc 2&732
M Cc 2393
MCc 2048
MCc 32032
MCe 2049
MCc 16585
MCc 26725
MCcESP-5981
MCcESP-2 f
Mec 17510
MCc-13181
M Cc 33932
Mee 36035
Mee (ESP) 1&597
MC c 16830
MCc 13637
$667, 795
5, 850, 332
542, 693
23, 953, 399
31, 014, 219
26, 509, 880
51, 085, 069
2, 620, 752
28,919, 583
71, 689
2,855, 951.
112, 062, 924
18, 165, 778
4, 518, 379
22,684,157
53, 458, 285
103, 707
56, 179
21, 219,978
4, 011, 276
25, 391, 140
9,433,732
EXHIBIT 11
REPORT OF THE PERMANENTE METALS CORP. AND RICHMOND SHIPBUILDING CORP. TO
MERCHANT MARINE AND FISHERIES INVESTIGATING COMMITTEE, AUGUST 30, 1946
AUGUST 29, 1946.
?
MERCHANT MARINE AND FISHERIES INVESTIGATING COMMITTEE,
House of Representatives, Washington 25, D. C.
.GENTEEmEN: Reference is made to your letter dated July 27, 1946, in which
you request that certain information be furnished concerning the operation of
each .of the shipyards of this company.
The Permanente Metals Corp. acquired 100 percent of the stock of Richmond
Shipbuilding Corp. as of December 31, 1041. Richmond Shipbuilding Corp, was
thereafter dissolved as of March 19, 1946, and the assets and liabilities. of the
said Shipbuilding Corp. were transferred to The Permanente Metals Corp. The
managing personnel of Richmond Shipbuilding Corp. and the Permanente Metals
Corp. were at all times identical.. The Government contracts held by both cor-
porations were renegotiated by the United States Maritime Commission on a
consolidated basis. Both corporations used jointly the facilities designated as
Richmond Shipyards No. 1 and No. .2 and the prefabrication plant. For these
reasons we are submitting herewith separate answers for each of the two com-
panies respecting questions 1 to 8, inclusive, of your letter, and answers to ques-
tions 9 to 12, inclusive, will be summarized in tabulations covering both COIllpallies..
INFORMATION CONCERNING THE PERMANENTE METALS CORP.
1. Date on which the company was formed and a copy of its corporate charter.-
This company was incorporated on December 9, 1940, as the Todd-California
Shipbuilding Corp. The .name of the company was changed to the Permanente
Metals Corp. on November 8, 1941. A copy of the certificate of incorporation as
amended is attached hereto as exhibit A.
2. The tothl capital of the company, giving a break-down of the types of stork
and securities.-The capitalization of the company was $460,000 represented by
no-par common stock, but the funds therefrom were used in the -operations of
another division of the company. The total amount available for shipbuilding
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
422 SHIPYARD PROFITS
operations Of the company was $8,500,000 comprised of loans and advances with-
out interest from its wholly owned subsidiary in the amount of $2,500,003
and private' bank loan commitments in the total amount of $6,000,000, although
such bank loans never actually exceeded $5,000,000. These bank loans were never
guaranteed by the Government or any agency thereof. (Please refer to exhibit
B, attached; for further details.)
3. The names of all officers and directors and a statement of their annual com-
pensation.?The -lames of all officers and directors are shown on exhibit Cr
attached hereto. No officer or director received compensation for holding any
office or directorship as such with the exception of Mr. Joseph Haag, Jr., for a
short period of time. All compensation was for services rendered as an employee
of the company and reference is made to exhibit D, attached hereto, for a full
statement of the compensation paid such employees.
4. The names of all officers and employees who have received compensation of
over $15,000 per annum, giving the amounts received and the extent to which such
payments were reimbursable by the Maritime Commission,--Exhibit D attached
contains schedules detailing not only the information requested but also the com-
pensation of all individuals who have been officers or directors of any of the
following companies:
Kaiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser FleStwings, Inc., (formerly Kaiser Cargo, Inc.).
Oregon Sh' pbuilding Corp.
Only those officers or directors who were employed full time on shipbuilding
activities NVere compensated for services in connection therewith, and the presi-
dent of the company and many other officers and directors did not receive any
compensati n whatsoever in connection with the shipbuilding operations although
very consi erable time and effort was devoted by them to the shipbuilding busi-
ness.) During tle course of the shipbuilding program only six persons were
ever paid at an annual rate in excess of $15,000 by any of the above-mentioned
companies for services performed in the shipbuilding operations and in only
three instances was more than $15,000 reimbursed by the Maritime Commission.
One such instance involved Mr. J. F. Reis, administrative manager of all of the
shipyards operated by the above companies, who was paid a total of $15,576 in
1944 which1 was l'ully reimbursed. Another instance involved Mr. C. P. Bedford,
vice president and general manager of two yards of this company, one yard of
Kaiser Co., Inc., and one yard of Kaiser Fleetwings, Inc. (formerly Kaiser Cargo,
Inc.), who was paid in excess of $15,000 per year, the highest amounts being
$26,474 in 1945 of which $16,666 was reimbursed and $21,154 paid in 1943 of
which $20,307 was reimbursed. A third instance involved Mr. Edgar F. Kaiser,
general manager of yards operated in Oregon and Washington by Oregon Ship-
building Corp. and Kaiser Co., Inc., and is therefore not involved here but refer-
ence is mt de to the reports of these companies being submitted simultaneously
,
herewith or further particulars. Messrs. Edgar F. Kaiser and C. P. Bedford
as general managers had the direct and primary responsibility for the manage-
ment and operation of a total of 7 shipyards operated by the above-mentioned
companies which employed in excess of 180,000 persons at various times during
the course of the war and produced 1,474 ships for the Maritime Commission.
5. The names of cal persons, associations, or corporations. holding 5 percent or
mare of the capial stock of the company, giving the (amounts of capital stock held
by each.?Please see exhibit E, attached, for complete information.
6. The shipbuilding experience prior to 1941 of all officers, directors, and stock-
holders holding over 5 percent of the capital stock.?Prior to 1941, officers, direc-
tors, and stockholders of the company had been engaged in heavy construction
projects which included, among Others, the building of Boulder Dam, Bonneville
Dam, Grand Coulee Dam, power houses and facilities, and many other projects.
Through these activities and over the course of many- years prior thereto, an
integrated organization was developed which was expgienced and proficient in
procuring and handling large quantities of materials and in mass production and
fabrication methods.
In 1939 the K liser interests and several associates joined with the Todd Ship-
building Corp. in forming the Seattle-Tacoma Shipbuilding Corp. In July 1930
said comPany submitted the low competitive bid to the United States Maritime
CommissiOn for the construction of five C-1 cargo vessels. These vessels were
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 423
completed in 1941 in a shipyard privately financed and constructed at Tacoma,
Wash. During 1940 this same company was awarded contracts for 30 destroyers
by the Navy Department and four C-3 cargo vessels and two C-3 troop transports
by the Maritime Commission. Participation in this company by the Kaiser intet-
ests and associates continued until February 1942,
Messrs. J. H. Todd, J. D. Reilly, Joseph Haag, Jr., It. J. Lamont, C. F. Strenz,
and Walter Green representing the Todd interests and all fully experienced in
Shipbuilding operations over a period of many years, served as officers and/or
directors of Seattle-Tacoma Shipbuilding Corp. In addition, Mssrs. 3'. A. Mc-
Eachern, C. A. Shea, Felix Kahn, Henry J. Kaiser, and G. G. Sherwood represent-
ing the Kaiser interests and associates also served as officers and/or directors of
said corporation, Mr. McEachern and Mr. Sherwood having served respectively as
vice president and treasurer. All of these latter individuals became officers.
and/or directors of the Permanente Metals Corp. Mr. McEachern and Mr. Shea
had previously obtained shipbuilding experience during World War I. Mr. Shea
was associated with the North Pacific Shipbuilding Co. through the firm of
Tmiohy and Erickson, which shipbuilding company produced steel ships in Seattle
during the last war. The J. A. McEachern Co. built wooden ships during the last
war at Astoria, Oreg.
In December 1940 the Kaiser interests and associates again joined with the
Todd Shipbuilding Corp. in forming Todd-California Shipbuilding Corp., of which
Mr. Henry J. Kaiser was president and which contracted with the British Gov-
ernment to build a seven-way shipyard at Richmond, Calif., and 30 cargo ships.
This yard was completed in August 1941 and in February 1942 the Todd in-
terests in this corporation were acquired, the name of the corporation having
been changed to the Permanente Metals Corp. and the British contract was
completed by this company under the sponsorship and management of the Kaiser
interests.
Through participation and association in the early shipbuilding activities of
Seattle-Tacoma Shipbuilding Corp. and Todd-California Shipbuilding Corp. by
individuals who later became or continued as officers, directors, or key personnel
of this company, shipbuilding experience and "know-how" was obtained which
was manifested early in 1942 when this company and Oregon Shipbuilding Corp.
attained and thereafter maintained shipbuilding production records which set
the pace in liberty ship construction for the entire Nation.
7. The names of all officers, directors, or stockholders owning more than 5
percent of the capital stock of the company who have held positions as officers
or directors of another company which had contracts with the Maritime Com-
mission or the War Shipping Administration.?No individual owns any of the
stock of this company. For your information, however, a schedule is attached
as exhibit I' which shows the names of officers and directors holding such posi-
tions in one or more of the following corporations which had contracts with
the United States Maritime Commission or the War Shipping Administration:
Kaiser Co., Inc.
The Per Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.)
Oregon Shipbuilding Corp.
Columbia Construction Co.
In addition, Messrs. Henry J. Kaiser, G. G. Sherwood, and Edgar F. Kaiser
were officers and/or directors of California Shipbuilding Corp. until April 1945.
8. The names of all officers, directors or stockholders owning more than 5
percent of the capital stock of the company who have owned 5 percent or more
of the capital stock of another company which had contracts with the United
States Maritime Commission or the War Shipping Administration.?No indivi-
duals owned any stock in this company, all stockholders being corporations.
For a schedule of all corporations which have ever owned stock in this company,
please refer to the answer to question 5. Of the corporations listed in the
answer to question 5, we only have information respecting Henry J. Kaiser Co.
and the Kaiser Co. The requested information in regard to these companies is
included in the answer to question 13 of a similar questionnaire addressed by
your committee to Kaiser Co., Inc. Reference is made to the report of Kaiser
Co., Inc., in answer to said questionnaire being submitted simultaneously here-
with. As to other corporations involved, this company does not have the re-
quested information nor the means of securing it.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 .? CIA-RDP64600346R000400060002-4
424 SHIPYARD PROFITS
INFORMA ON PERTAINING TO BOTH THE PERMANENTE METALS CORP. AND RICHMOND
SHIPBUILDING CORP.
.9. Descriptioq of all contracts between the company and Maritime Commis-
Sion.?Please refer to exhibit G for information pertaining to all Maritime Com-
mission contra Itsof the Permanente Metals Corporation and its subsidiary,
Richmon Shipbuilding Corporation, which also shows the allocation of the
contracts between the respectiVe companies. In summary, the total number of
ships constructed and delivered by the two companies was 631. The total volume
of work performed for the Maritime Commission by the two companies was
$1,269,016,782. The total profit on this volume of work, after Federal income
taxes, was $15, 817, 506, or 1.25 percent. However, losses on other operations of
the company reduced the profit to $8,999,715 or 0.71 percent of the total volume
of shipbuilding work.
10. The fees and profits under each of the aforementioned contracts allowed
after renegotiation.?Please refer to exhibits G and H for this information.
11. Th,e.status of each contract still subject to renegotiation giving, wherever
possible, information showing the opinion of the Price Adjustment Board and
your coMpany as to the fees and profits permissibte ander each contract.?
All contracts of the Permanente Metals Corp. and Richmond Shipbuilding Corp.
were renegotiated by the United States Maritime Commission on a consolidated
basis and reference is made to exhibit II for the requested information con-
cerning both companies.
12. Thei total cost to the Government of the shipyards and facilities used by
the company.?The total cost of the shipyards and facilities used by the Perma-
nente Metals Corp. and Richmond Shipbuilding Corp. was $35,421,775.59, all of
which were constructed by the companies without fee or profit being paid by the
Maritime Commission. For further details, please refer to exhibit I, attached.
INFORMATION CONCERNING THE RICHMOND SHIPBUILDING CORP.
1. The .date on which the company was formed and a copy of its corporate
chartcr.Richmond Shipbuilding Corp. was incorporated on April 1, 1941. A
copy of its cerificate of incorporation is attached hereto as exhibit J.
2. Total capikt1 of the company, giving a break-down of the types of stock and
securities?The total amount available for shipbuilding operations of this com-
pany waS $2,360,000, comprised of $300,000 in capital stock and $2,000,000 in
private bank loans not guaranteed by the Government or any agency thereof.
See exhibit K, attached, for further particulars.
3. The names of all officers and directors and a statement of their annual com-
pensation.?The names of all officers and directors are shown on exhibit L
attached hereto. No officer or director received compensation for holding any
office or ,directorship as such. All compensation was for services rendered as
an employee of the company and reference is made to exhibit M, attached hereto,
for a full statement of the compensation paid such employees.
4. The names of all officers and employees who have received compensation
of over $15,000 per annum, giving the amounts received and the extent to which
such payments were recompensable by the Maritime Commission.?Exhibit M,
attached hereto, contains schedules showing not only the information requested,
but also the compensation of all individuals who have been officers or directors
of any of the following companies:
The Per tnanente Metals Corp. Kaiser Fleetwings, Inc.
Kaiser Co., Inc. Richmond Shipbuilding Corp.
Otegon Shipbuilding Corp.
Please refer to the answer to question 4 respecting the Permanente Metals
Corp. fol further information relative to compensation paid to officers, directors,
or emploYees.
5. The names of all persons, associates, or corporations holding 5 percent or
More of the capital stock of the company, giving the amounts of capital stock
held by each.?Please refer to exhibit N for this information.
6. The shipbuilding experience prior to 1,941 of all officers, directors, and stock-
holders holding over 5 percent of the capital stock of the company.?The answer
to this question is the same for both the Permanente Metals Corp. and this
company'. Therefore, please refer to the answer to question 6, submitted here-
with, respecting the Permanente Metals Corp.
7. The names of all officers, directors, or stockholders owning more than 5
percent of the capital stock of the company who have held positions as officers
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS
425
or directors of. another company which had contracts with the Maritime Com-
mission or the War Shipping Administration.?The answer to this question is
the same for both the Permanente M'etals Corp. and this company. Therefore,
please refer to the answer to question 0, submitted herewith, respecting the
Permanente Metals Corp.
S. The names of alt officers, directors, or stockholders owning more than 5
percent of the capital stock of the company who have owned 5 percent or more
of capital stock of .another company which had contracts with the Maritime Com-
mission or the War Shipping Administration.?The sole stockholder of Richmond
Shipbuilding Corp. is the Permanente Metals Corp. No individual has owned
in excess of 5 percent of the stock of the Permanente Metals Corp., all of
which is held by various other corporations. Please refer to exhibits E and N
and to the answer to question 8, submitted herewith, respecting the Permanente
Metals Corp. for further particulars.
We shall be pleased to furnish you with any other information you may
desire.
Respectfully submitted.
THEI PFRMANENTE METALS CORP.,
By HENRY J. KAISER, President.
Exhibit A
AMENDED CERTIFICATE OF INCORPORATION OF TODD-CALIFORNIA SHIPBUILDING -
CORPORATION, BEFORE PAYMENT OF CAPITAL
First?The name of the corporation is Todd-California Shipbuilding Cor-
poration.
Second.?Its principal office in the State of Delaware is located at No. 100
West Tenth Street,. in the City of Wilmington, County of New Castle. The name
" and address of its resident agent is The Corporation Trust Company, No. lop
West Tenth Street, Wilmington, Delaware.
Third.?The nature of the business, or objects or purposes to be transacted,
promoted, or carried on are:
To build, equip,. operate, maintain, buy, sell, deal in and with, own, charter, and
otherwise dispose of ships, vessels, and boats of every nature and kind what-
soever, together with all materials, articles, tools, machinery, and appliances,
entering into. or suitable and convenient for the construction or equipment
thereof, together with engines, boilers, machinery, appurtenances, tackle, apparel,
and furniture of all kinds; to buy, lease, or otherwise acquire, construct, main-
tain, and operate wharves, piers, docks, and warehouses ; to construct and main-
tain for the use of the company or for letting out on hire, graving and other
docks and other conveniences ?Cor the building, repairing, or docking of ships. and
other vessels, and to aid in or contribute to the construction of any such works;
to buy or otherwise acquire ships and yessels, complete or not complete, sound,
or out of repair, for the purpose of improving, reselling, chartering, or otherwise,
making a profit out of the same, to carry on a general contracting busineSs.
To manufacture, buy, or otherwise acquire, own, mortgage, sell, assign. trans-
fer, or otherwise dispose of, trade and deal in and with goods, wares, and mer-
chandise and personal property of every class and description.
To take, own, hold, deal in, mortgage, or otherwise give liens against, and to:
lease, sell, exchange, transfer or in any manner whatever, to dispose of real
property.
To acquire and pay for in cash, stock, or bonds of this corporation, the good-
will, rights, assets, and property, and to undertake or assume the whole or any part
of the obligations or liabilities of any person, firm, association, or corporation.
To acquire, hold, use, sell, lease, grant licenses in respect of, mortgage or other--
wise dispose of, letters patent of the United States or any foreign country, patent
rights, licenses, privileges, ;nventions, improvements, and processes, copyrightS,_
trademarks, and trade names, relating to or useful in connection with any:
business of this corporation.
. To loan money, to guarantee, purchase, hold, sell, assign, transfer, mortgage,.
pledge, or otherwise dispose of (as principal or agent) shares of the capital stock
of, or. any bonds, securities, or evidences of indebtedness created by any other.
corporation or corporations organized under the laws of this state or any other
state, country, nation, or government, and while the owner thereof to exercise
all the rights, powers, and privileges of ownership.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
426 SHIPYARD PROFITS
To promote or to aid in any manner, financially or otherwise, any corporation
or association, and for this purpose guarantee or become a surety upon the con-
tracts, dividends, stock, bonds, notes, or other obligations of such other cor-
porations or asso.ciations, and to do any other acts or things designed to protect,
preserve, improve, or enhance the value of the stock, bonds, or other evidences
of indebtedness or securities of such other corporation.
To ent2r into any lawful arrangements for sharing profits and/or losses,
union of interests, reciprocal concessions or cooperation with any corporation,
association, partnership, syndicate, person, governmental, municipal, or public
authority, domestic or foreign, in the carrying on of any business which this
corporatiOn is authorized to carry on, or any business or transaction deemed
necessary convenient, or incidental to carrying out any of the purposes of the
corporation.
To borrow money for any of the purposes of this corporation, and to issue
bonds, debentures, notes, or other obligations therefor, and to secure the same by
pledge or mortgage of the whole or any part of the property of this corporation,
whether real or personal, or to issue bonds, debentures, notes, or other obligations
without any such security.
To purchase, hold, sell, and transfer the shares of its own capital stock; pro-
vided it ;hall not use its funds for the purchase of its own shares of capital
stock wh n such use would cause any impairment of its capital; and provided
further, that shares of its own capital stock belonging to it shall not be voted
upon directly or indirectly.
To carry on any other lawful business whatsoever which may seem to the
corporatipn capable of being carried on in connection with the above, or calculated
directly or indirectly to promote the interests of the corporation, or to enhance
the value of its properties; and to have, enjoy, and exercise all the rights, powers,
and privileges which are now or which may hereafter be conferred upon cor-
porations organized under the same statutes as this corporation.
The foregoin g clauses shall be construed both as objects and powers, and it
is hereby expressly provided that the foregoing enumeration of specific powers
Shall not loe hell to limit or restrict in any manner the powers of this corporation.
Fourth ?The total number of shares of stock which the corporation shall have
authority to issue is five thousand (5,000) ; all of such shares shall be without
_par value.
At all elections of directors of this corporation each holder of record of stock
possessing vo'ting power shall be entitled to as many votes as shall equal the
number of shales of his stock multiplied by the number of directors to be elected
and he may cast all of such votes for a single director or he may distribute them
among the number to be voted for or any two or more of them as he may see fit,
and thus exercise the right of cumulative voting.
Fif tin?The amount of capital with which the corporation. will commence
business is One Thousand Dollars ($1,000.00).
AS'ixth.?The names and places of residence of the incorporators are as follows:
Nares Residences
R. F. Lewis Wilmington, Delaware
L. H. Herman Wilmington, Delaware
Walter lenz Wilmington, Delaware
' eventh.?The corporation is to have perpetual existence.
LI ighth.?Th? private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
furtherance, and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To rae, al ter, or repeal the bylaws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for dividends
a reserVe or reserves for any purpose or to abolish any such reserve in the
manner In which it was created.
? By resolution or resolutions, passed by a majority of the whole board to desig-
nate on or more committees each committee to consist of two or more of the
director of the corporation, which, to the extent provided in said resolution or
resoluti ns or in the bylaws of the corporation, shall have and may exercise the
powers of the board of directors in the management of the business and affairs
of the corporation, and may have power to authorize the seal of the corporation
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 427
to be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be stated in the bylaws of the corpora-
tion or as may be determined from time to time by resolution adopted by the
board of directors.
When and as authorized by the affirmative vote of the holders of two-thirds
of the stock issued and outstanding having voting power given at a stockholders'
meeting duly called for that purpose, or when authorized by the written con-
sent of the holders of two-thirds of the voting stbck issued and outstanding, to
sell, lease or exchange all of the property and assets of the corporation, includ-
ing its good will and its corporate franchises, upon such terms and conditions
and for such consideration, which may be in whole or in part shares of stock in,
and/or other securities of, any other corporation or corporations, as its board of
directors shall deem expedient and for the best interests of the corporation.
The corporation may in its by-laws confer powers upon its board of directors
in addition to the foregoing, and in addition to the powers and authorities ex-
pressly conferred upon it by statute.
Tenth.?In the event that any authorized but unissued stock or any new class
of stock shall be created, or the authorized number of shares of stock of the cor-
poration shall be increased, or there shall be issued any bonds, notes, debentures,
or other securities other than stock, convertible into stock, the holders of shares
of stock of the corporation outstanding at the time such authorized but unissued
'stock or new class of stock, or such increase, is offered for subscription, shall
have the right to subscribe for the shares of such new class of stock and for any
shares of such increased stock So to be issued, or notes, debentures or other se-
curities other than stock convertible into stock, before the same is offered for
public subscription, In proportion to the number of shares owned respectively
by each of the holders of such stock.
Eleventh.?The corporation may enter into contracts or transact business with
one or more of its directors, or with any firm of which one or more of its directors
are members, or with any corporation or association in which any one of its
directors is a stockholder, director or officer, and such contact or transaction
shall not be invalidated or in any wise affected by the fact that such director or
directors have or may have interests therein which are or might be adverse to
the interests of the corporation, even though the vote of the director or directors
having such adverse interest shall have been necesary to obligate the corporation
upon such contract or transaction; and no director or directors having such ad-
verse interest shall be liable to the corporation or to any stockholder or creditor
thereof, or to any other person, for any less incurred by it under or by reason of any
such contract or transaction; nor shall any such director or directors be account-
able for any gains or profits realized thereon: Always provided, however, that
such contract or transaction shall at the time at which it was entered into have
been a reasonable one to have been entered into and shall have been upon terms
that at the time were fair.
Twelrth.?Whenever a compromise or arrangement is proposed between this
corporation and its creditors or arty class of them and/or between this corporation
and its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, -on the application in a summary way of this
corporation or of any creditor OT stockholder thereof, or on the application of any
receiver or receivers appointed for this corporation under the provisions of
Section 4407 of the Revised Code of 1935 of said State, or on the application of
trustees in dissolution or of any receiver or receivers appointed for this cor-
poration under the provisions of Section 43 of the General Corporation Law of
the State of Delaware, order a meeting of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the case
may be, to be summoned in such manner as the said Court directs. If a majority
in number representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
ease may be, agree to any compromise or arrangement and to any reorganization
of this corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the Court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of stock-
holders, of this corporation, as the case may be, and also on this corporation.
Thirteenth.?Meetings of stockholders may be held without the State of Dela-
ware, if the bylaws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
428 SHIPYARD PROFITS
Delaware at such place or places as may be from time tp time designated by
the board of directors.
Fourteenth.?The_ corporation reserves the right to amend, alter, change or
repeal any provision contained in tins certificate of incorporation, in the manner
now or .hereafte:c prescribed by statute, and all rights conferred upon stock-
holders herein are granted subject to this reserviftion.
We, the undersigned, being each of the incorporators of Todd-California Ship-
building Corporation, a corporation heretofore formed in pursuance of the Gen-
eral Corporation Law of the State of Delaware, being Chapter 65 of the Revised
Code of Delaware and the acts amendatory thereof and supplemental thereto,
and being the incorporators named in the original certificate of incorporation
thereof, which was duly filed in the office of the Secretary of State on the 9th
day of December, 1940, and a certified copy thereof recorded in the Recorder's
office at Wilmington, Delaware, on the 9th day of December 1940, and no
part of the Capital of said corporation having been paid, do hereby pursuant
to the provisionS of Section 25 of said General Corporation Law, Amend said
original ce7tificate of incorporation so that the same shall read as hereinbefore
set forth; and accordingly we do hereby set our hands and seals this 16th day
of December A. n. 1940.
R. F. LEWIS. [ SEAL]
L. H. HERMAN. [SEAL 1
WALTER LENZ. [SEL]
In the piesence of?
t-Di-191,D E. GRANTLAND.
STATE OF HELAW ABE,
County of New Castle, ss:
Be it remembered, that on this 16th day of Docember A. D. 1940, personally
appeared before me, Harold E. Grantland, a Notary Public for the State of
Delaware, It. F. Lewis, L. FI. Herman, and Walter Lenz, all of the parties to
the foregoing amended certificate of incorporation, known to me personally to
be such, and severally acknowledged the said amended certificate to be the act
and deed of the signers respectively and that the facts therein stated are truly
set forth.
Given under my hand and seal of office the day and year aforesaid.
HAROLD E. GRANTLAND, Notary Public.
Appointed Jan aary 10, 1939, State of Delaware, term two years.
CERTIFICATE OF A.MENDMENT OF AMENDED CERTIFICATE OF INCORPORATION, OF TODD-
CALIFORNIA SHIPBUILDING CORPORATION
Todd-California Shipbuilding Corporation, a corporation organized and exist-
ing under and by virtue of the General Corporation Law of the State of Delaware,
does hereby certify:
Forst.?]hat the Board of Directors of said corporation, at a meeting duly
convened and held, adopted a resolution proposing and declaring advisable the
following amendment to the Amended Certificate of Incorporation of this cor-
poration:
. Resolved, That the Amended Certificate of Incorporation of Todd-California
Shipbuilding Corporation be amended by changing the article thereof num-
bered "First" so that, as amended, the said article shall be and read as
follow:
"First.?The name of this corporation is the Permanente Metals Corpora-
tion."
Second.?That the said amendment has been consented to and authorized by
the holders of an the issued and outstanding stock, entitled to vote, by a written
consent given in accordance with the provisions of Section Si of the General
Corporation Law of Delaware, and filed With the corporation on the 8th day
of November 1941.
-Third.?That the aforesaid amendment was duly adopted in accordance with
time applicable provisions of Sections_26 and Si of the General Corporation Law
of Delaware.
Fourth.-1--That said amendment does not effect any change in the issued shares
of said corporation.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 429
? In witness whereof, the said Todd-California Shipbuilding Corporation has
caused its corporate seal to be hereunto affixed and this certificate to be signed
by Edgar F. Kaiser, its Vice-President, and E. E. Trefethen, Jr., its Secretary,.
this 8th day of November 1941.
[TODD-CALIFORNIA SHIPBUILDING coltroitATiox
CORPORATE SEAL
1940
DELAWARE]
TODD-CALIFORNIA SHIPBUILDING CORPORATION.
By EDGAR P. KAism, Vice President,
By E. E. TEIWETHEN, JR., SCeretaPy,
STATE OF CALIFORNIA,
County of Alameda, ss:
Be it remembered, that on this 8th day of November, 1941, personally came
.before me, Nellie I. Phillips, a Notary Public, in and for the County and State
aforesaid, Edgar F. Kaiser, Vice-President of Todd-California Shipbuilding:
Corporation, a corporation of the State of Delaware, the corporation described
in and which executed the foregoing certificate, known to me personally to be
such, and he, the said Edgar F. Kaiser, as such Vice-President, duly executed.
said certificate before me and acknowledged the said certificate to be his act and
deed and the act and deed of said corporation; that the signatures of the said.
Vice-President and of the Secretary of said corporation to said foregoing cer-
tificate are in the handwriting of the said Vice-President and Secretary, respec-
tively, of said corporation, and that the seal affixed to said certificate is the com-
mon or corporate seal of said corporation.
NELLIE I. PHILLIPS,
Notary Public in and for the County of Alameda, State of California.
My commission expires April 17, 1944.
EXHIBIT B
THE PERAIANENTE METALS CORP.
ANSWER TO QUESTION NO. 2 01? QUESTIONNAIRE OF JULY 27, 1948
General
This company -consists of various divisions, of which the U. S. M. C. Shipbuild-
ing Division is one. Capital employed varied for each various division:
U. S. M. C. Shipbuilding Division.?Capital employed in the U. S. M. C. ship--
building division consisted of:
Maximum
commitment
Maximum
used
Bank loans (not guaranteed)
$6, 000, 000
$5,
000,
000,
Loans andAdvances for Subsidiary Company
2,
500,
000
$7,
500,
000
Other divisions.?Capital employed in other divisions included:
Maximum
outstanding'
RFC loans, secured $28, 475, 000
Capital stock 460,000
$28, 935, 000
Over-all operations.?It should be noted that in addition to the above, no divi-
dends were paid until after completion of the shipbuilding program, all available
funds being employed in the operations of the business or to reduce borrowings.
Details
Shipbuilding division.?
Bank loans: These funds were borrowed from Bank of America. They were
not guaranteed by any branch, agency, subdivision, etc. of the U. S. Govern-
ment. The maximum commitment at any one time was $6,000,000. Makimum
borrowings were $5,000,000. All of these loans have been repaid.
93486 46 28
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
430 SHIPYARD PROFITS
Loans and advances from subsidiary company: These loans and advances were
secured fr m Richmond Shipbuilding Corporation after it had become a wholly
owned su1 sidiaiy, and represented temporarily surplus funds. Rather than
increase b.. nk borrowings, these funds were made available without interest.
All of these advttnces have now been liquidated.
Other division 9.-
RFC loans, secured: In connection with the Permanente Magnesium opera-
tions, the company borrowed a maximum of $28,475,000 from the RFC. These
loans were secured by mortgages on property, pledge of profits from U. S. M. C.
and other shipyard profits, pledge of stock of Richmond Shipbuilding Corpora-
tion, partial gua xinty by that company, and otherwise.
These loans have all been paid, together with interest at 4%. Final payment
was well in advance of due date.
Capital stock.--All common, no par value.
Amount:
December 1940 to December 1941 $100, 000
December 1941 1:0 May 1946 460, 000
May 1946 to present 368, 800
Over-all operetions.-As noted above, all earnings were held available for use
In reducing mwtgage and bank obligations, and to supply working capital to
replace such borrowings, no dividends being paid until after completion of the
shipbuilding program.
Exhibit C
THE PERMANENTS METALS CORP.
List of al i officers and directors from date of organization to July 81, 1946, and
annual compensation'
Date title held
From
To
Present offic rs and directors:
Presiden : Henry J. Kaiser
Vice preSidents:
E. F. Kaiser
C. F. Bedford
E. E. Trefethen, Jr
J. F., Reis
C. F. Calhoun
T. 4,. Bedford, Jr
D. 4,. Rhoades
A. . Ordway
Secretary: G. G. Sherwood
Treasur r: 0.0. Sherwood
Direct? s:
Hey J. Kaiser
E. P. Kaiser
J. Ai. McEachern
H. W. Morrison
L. S. Corey
F. Kahu_
W. J. Swig ..?x t
E. 1. Trefethen, Jr
G. J. Shea -.
Assisto t secretaries:
C. . Bedford
G. . Sherwood
J. F. Reis
P. . Morris
G. ?Ober, Jr
H. V. LindOergh
R. L. Bridges
I. F. Lyman
Donald Browne
J. I. Friedman
F. H. Be& ill
Assistant troasitrers:
J. F. Reis_
C. p. Wood
Donald Browne
See footnote at end of table.
Dec. 9, 1940
Dec. 30, 1940
July 7, 1943
Jan. 27, 1942
Feb. 27, 1942
Nov. 27, 1942
Oct. 18, 1945
Mar. 19, 1946
July 7, 1943
Feb. 1, 1943
Dec. 30, 1940
Dec. 9, 1940
Dec. 20, 1940
do
do
do
do
do
Feb. 25, 1942
Jan. 27, 1942
Dec. 30, 1940
do
do
Feb. 25, 1942
Nov. 24, 1942
Feb. 14, 1944
July 22,1944
Aug. 21, 1944
July 7, 1943
Nov. 22,1943
Oct. 18, 1945
Dec. 30,1940
Aug. 21,1944
July 7,5543
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 431
List of all officers and directors from date of organization to 'July 81, 1946, and
annual compensation1--Continued
Date title held
From
To
Past officers and directors:
Vice presidents:
J. Haag, Jr
S. D. Bechtel
Secretaries:
George Haves
E. E. Trefethen, Jr
Treasurer: George Havas
Directors:
Joseph Haag, Jr
George Havas
C. F. Streiaz
E. P. Enter
S. Dreska
H. J. Lamont
J. D. Reilly
J. H. Todd
S. D . Bechtel
J. A. McCono
C. A. Shea
W. S. Newell
Assistant secretaries:
C. F. Streuz
E. P. Enter
Assistant treasurers:
C. F. Strenz
E. P. Enter
R. E. Dill
Dee. 9, 1940
Dec. 30, 1940
Dec. 9, 1940
Dec. 30, 1940
Dec. 9, 1940
do
do
do
do
do
Dee. 20, 1940
do
do
do
do
do
do
Dec. 9, 1940
do
do
do
Aug. 21,1944
Feb. 13, 1942
June 20,1945
Dee. 30, 1940
Feb. 1,1943
Dec. 30,1940
Feb. 13,1942
Dec. 9,1940
Dec. 30, 1940
Dec. 20,1940
Do.
Feb. 14, 1942
Feb. 13,1942
Do.
June 20, 1945
Do.
Jan. 27,1942
Feb. 16,1942
Feb. 13, 1942 .
Do.
Do.
Do.
Feb. 5, 1945
I No officer nor director received compensation for holding any office or directorship; all
compensation was for services rendered as an employee of the company, during period of
, USMC shipbuilding operations. The only paid officer during any period resigned and was
' taken off the pay roll prior to USMC operations. See exhibit D for details of any salaries
paid.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
0 Exhibit D
CD
0_ THE PERMANENTE METALS CORP.
71 Salaries I paid to (1) officers and directors (regardless of amount), (2) others (over $15,000 annually), (3) individuals who have been officers
0
n or directors of Kaiser Cargo Inc., The Permanente Metals Corp., Richmond Shipbuilding Corp., Kaiser-Fleetwings, Inc., Oregon Shipbuilding
xj Corp. _ ----------
-_
CD
CD
fl)
C/1
CD
Is)
0
0
0
0
0
-o
CO
0
0
0
0
0
0
0
0
0
0
0 ?
Name
Operational title
Period covered
ITS1\11?
ship building
division
Oth divi-
,
- ,
sions
Totai
Rei mburs-
able 2
-
/94/
.
(1) Officers and directors:
C. P. Bedford
General superintendent (British)
Jan. 1 to Dec. 31, 1941
$9, 934. 67
$9, 934. 67
F. H. Bechill
Chief cost accountant
Jan. 25 to Dec. 31, 1941
2, 751. 85
2, 751. 85
J. L. Friedman
Administrative assistant
Jan. 7 to Dec. 31, 1941
3. 769. 60
3, 769. 60
I. F. Reis
General auditor
Dec. 29, 1940 to Feb. 11, 194L
830.76
850.76
Jos. Haag, Jr
Consulting engineer
Apr. 1 to Dec. 31, 1941
2, 187. 58
2, 187. 58
(2) Others (over $15,000): None
(3) Officials of other companies: None
1942
(1) Officers and directors:
C. P. Bedford
General superintendent
Jan. 1 to Dec. 31, 1942
$9, 230. 88
4, 679. 51
13, 910.39
$8, 346. 30
T. A. Bedford, Jr
Assistant general superintendent
Sept. 6 to Dec. 31, 1942
2, 761. 10
2, 761. 10
2, 761. 10
J. F. Reis
Administrative manager
do
923. 04
923.04
923. 04
F. H. Bechill
Chief cost accountant
Jan. 1 to Dec. 31, 1942
2, 384. 66
1, 667. 50
4, 052. 16
2, 354.60
J. L. Friedman
Administrative assistant
Jan. 1 to June 29, 1942
415.36
2. 325. 09
2, 740.45
415.36
Jos. Haag, Jr
Consulting engineer
Jan. 1 to Mar. 25, 1942
360. 60
360. 60
C. F. Calhoun
Project manager (mg.)
Jan. 1 to Mar. 15, 1942
3,54(1.00
3, 540. 00
D. A. Rhoades
do
Apr. 13 to Dec. 31, 1942
9, 193. 20
9, 193. 20
(2) Others (over $15,000): None
None
None
None
None
(3) Officials of other companies:
Henry S. Kaiser, Jr
Administrative assistant
Sept. 6 to Sept, 26, 1042
369. 76
369. 76
369. 76
194$
(1) Officers and directors:
C. P. Bedford
General manager,
Jan. 1 to Dec. 31, 1943
21, 154. 10
21, 154. 10
20, 307, 98
T. A. Bedford, Jr
Assistant general manager
do
9, 748. 20
9, 748. 20
9, 748. 20
J. F. Reis
Administrative manager
Jan. 1, July 6, 1943
1, 644. 17
1, 640.17
1. 644. 17
F. H. Bechill
Chief cost accountant
Jan. 1 to Feb. 1, 1943
537.89
537.89
537. 89
D. A. Rhoades.. _
Project manager (mg.)
Jan. Ito Dec. 31, 1943
10, 115. 43
10, 115. 43
None
(2) Others (over $15,000): None
....
P-Z000900017000U9K008179dCIU-VI3 : 01./01./COOZ eseelet1 JOd PeA0AdV
(3) Officials of other companies:
J. R. Walker
W. S Newton_
1.944
(1) Officers and directors'
C. P. Bedford
T. A. Bedford, Jr
C. F. Calhoun
J. P. Lyman
D. A. Rhoades
(2) Others (over $15,000): None
(3) Officials of other companies: I. R. Walker
/945
(1) Officers and directors:
C. P. Bedford
T. A. Bedford, Jr
F. H. Bechill
J. L. Friedman
E. E. Trefethen, Jr
C. F. Calhoun
A. B. Ordway
C. B. Wood
D. A. Rhoades
(2) Others (over $15,000): J. C. McFarland 3
(3) Officials of other companies:
Henry J. Kaiser, Jr
Paul E. Rogers
Chief accountant (Manteca)
Office manager (Manteca)
General manager
Assistant general manager
Executive assistant
Office manager (Firelands)
Project manager (manager)
Office manager (Manteca)
General manager
Assistant general manager
Administrative assistant
Executive engineer
General manager (other divisions) _
Executive assistant
Administrative manager
Resident administrative manager
Project manager (manager)
Yard superintendent
Administrative assistant (other divi-
sions).
Controller (management division)
July 6 to Dec. 31, 1943_
June 15 to Nov. 15, 1943
Jan. 1 to Dec. 31, 1944
do
do
Apr. I to Aug. 31, 1944
Jan. 1 to Dee. 31, 1944
Jan. 1 to May 6, 1944_
Jan. 1 to Dec. 31, 1945
do
do
do
do
do
do
_do
do
Jan. 1 to Oct. 1, 1945
Jan. 1 to Dec. 31, 1945
do
19,615.62
9, 039. 34
26, 474. 59
17, 005. 32
2, 500. 00
3, 000. 00
14,973.62
1,575.00
2, 000. 00
2, 000. 00
2, 761. 93
10, 346. 16
1, 485. 00
15, 000. 00
7, 500. 00
5, 000. 00
5, 000. 00
20, 399.65
5, 000. 00
3, 000. 00
1, 575. 00
2, 000. 00
19, 615. 62
9. 039. 34
2, 000. 00
2, 761. 93
10,346. 16
1, 485. 00
26, 474. 59
17,005. 32
2, 500. 00
3, 000. 00
15, 000. 00
7, 500. 00
.5, 000. 00
5, 000. 00
20, 399. 65
14,975. 62
5,000.00
3, 000. 00
None
None
(1)
a.
19,615.62
9, 039. 34
fD
13)
(1)
16, 666. 86
8, 005. 32
1E
Jt7JI
1-1 0
lc/ 0
7,473.62
"
0
?
1;1 >
1-3
r Includes adjusted compensation (year-end "bonus"). 0
2 Includes: Reimbursable under cost-plus-fixed-fee or claimed as allowable cost under fixed- or variable-price contracts. "0
3 Not paid over $15,000 by this company. Included here since if had been on pay roll at comparable rate, would have been in excess of $15,000.
-a
-a
Participation in the Permanente Metals Corp. (formerly Todd-California Shipbuilding Corp from organization to and including July 5, 1946)
Exhibit E
0
c7
CD
0
0
C.4
0
0
. .
0
Issued for cash.
Original19 and
20,1940 4
Dec. 31, 1941 2
Feb. 24, 1942 3
Dec. 21, 1945 3
May 24, 1946 4
July 5, 1946 3
Number
of shares
-
.rNumber
Percent
Number
f 0.
r
Percent ,
,.?.
Percentr
Number
of sharcs
Percent
:.-, ,
,,f S2.'arC3
Percent
Number
? ,-,........_
vl 011PIVO
Percent
Todd-Shipyards Corp
Henry J Kaiser Co
The 'Kaiser Co_ _
W. A. Bechtel Co
Bechtel-McCoiae-Parsons Corp
General Construction Co
J. F. Shea Co.. Inc
The Utah Construction Co
Morrison-Knudsen Co., Inc
MacDonald & Kahn Inc.5
Pacific Bridge Co
Total '
350
80
80
80
80
60
60
60
60
60
30
35
8
8
8
8
6
6
6
6
6
3
2.006006 CO CO CO CDVD 6
35
8
8
8
8
6
6
6
6
6
3
0
543
543
453
453
516
476
456
456
456
248
0
11.8044
11.8044
9.8478
9.8478
11. 2175
10. 3478
9.9130
9.9130
9.9130
5.3913
33?,Z115.0c,hic,
0
21. 6522
21.6522
0
0
11. 2175
10 3478
9.9130
9. 9130
0.9130
3.3913
0
996
996
0
0
516
476
456
0
0
248
0
27. 0065
27.0065
0
0
13. 9914
12.9067
12.5644
0
0
6.7245
0
1. 192
1. 192
0
0
580
476
0
0
0
248
d
32. 3210
32. 3210
0
0
15. 7268
12. 9067
0
0
0
6.7245
1,000
100
4,600
160
4,600
100
4,600
100
3,688
100
3, 688
100
2 Issued on share-for-share basis in exchange for stock of Richmond Shipbuilding Corp. (stock of which was issued for cash).
3 Purchase and sale between stockholders. No additional stock issued.
mO Stock repurchased by corporation for cash.
6 Transferred to individuals Apr. 12, 1946.
0
0
0
0
0
0
0
0
0
"0
"0
14=, 0
<
a.
i?P, CD
11
0
0
it 17.
o
r3
02
as
CO
0
0
C.4
Os
0
0
0
0
0
0
Os0
0
COIVAdIFIS
EXHIBIT F
Individuals who have held offices or directorships in more than 1 of following companies: Kaiser Co., Inc., the Permanente Metals Corp., Richmond Shipbuilding Corp., Kaiser Fleetwings, Inc., Oregon Shipbuilding Corp.,
Consolidated Builders, Inc., (to July 81, 1946)
Officers and directors
Kaiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc.
Oregon Shipbuild-ng Corp.
Consolidated Builders
Columbia Construe-
Position
Status'
Position
Status'
Position
Status'
Position
Status'
Position
Status'
Henry J. Kaiser
President
X
President
X
President
X
President
Jan. 15, 1944
President
President.
Do
Director
X
Director
X
Director
X
Director
Director.
Edgar F. Kaiser
Vice president
X
Vice president
X
Vice president
X
Vice president _________
X
Vice president
X
Vice president
Vice president.
Do
Director
X
Director
X
Director
X
Director
Assistant secretary.
E. E. Trefethen, Jr
Vice president_
X
Vice president
X
Vice president
X
President
X
Assistant secretary_
X
Vice president.
Do
Director
X
Director
X
Director
X
Director _
X
Do
Secretary
Jan. 7,1942
Secretary
Feb. 1,1943
Secretary
Feb. 2,1943
Vice president
Jan. 15, 1944
Assistant treasurer
X
C. F. Calhoun
Vice president
X
Vice president
X
do
X
Do
Assistant secretary....
Jan. 7,1942
Assistant secretary
X
C. P. Bedford
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Assistant secretary.
Do
Assistant secretary__
X
Assistant secretary
X
Assistant secretary
X
A. B. Ordway
Vice president
X
Vice president
X
Vice president
X
Vice president
X
T. A. Bedford, Jr
do
X
do
X
do
X
Do
Assistant secretary
Oct. 18,1945
Assistant secretary
Oct. 18,1945
Paul S. Marrin
Vice president
X
Assistant secretary
X
Assistant secretary
X
Vice president
X
Assistant secretary
X
Assistant secretary
Do
Director
X
Director
Apr. 25,1941
Director
X
Director
Jan. 11,1941
Do
Assistant secretary
X
Vice president
do
Assistant secretary
X
President
do
George Haves
Do
Secretary
May 1,1946
Director
Secretary treasurer
Dec. 9,1940
Dec. 30,1940
Vice president
Director
do
do
Do.
0.0. Sherwood
Secretary treasurer
X
do
X
Director
Apr. 25,1941
Director
X
Treasurer
X
Secretaryy.
Secretary.
Do
Director
X
Assistant secretary
X
Secretary-treasurer
X
Secretary
X
Assistant secretary__
X
Assistant treasurer _ _ __
Do
President
Jan. 7, 1942
Assistant secretary.
X
Treasurer
X
Do
Assistant secretary
May 1,1946
J. F. Reis
do
X
Assistant secretary
X
Assistant secretary_
X
Secretary
X
Assistant secretary__
Assistant secretary.
Do
Assistant treasurer.
X
Assistant treasurer_
X
Assistant treasurer
X
Assistant treasurer_ __ _
Assistant treasurer.
Do
Vice president
X
C. B. Wood
Assistant secretary
X
Assistant treasurer_
X
Assistant secretary_
X
Do
Assistant treasurer
X
Assistant treasurer_
X
A. E. Beard
,Donald Browne
Assistant secretary
do
X
X
Assistant secretary.
X
Assistant secretary
Apr. 25, 1941
Assistant secretary
X
, Do
Assistant treasurer
X
,E. R. Ordway
Assistant secretary
X
Assistant secretary
X
Assistant secretary____
.George C. Ober, Jr
do
X
Assistant secretary
X
Assistant secretary
X
Assistant secretary_
X
do
X
.F. H. Bechill
V. E. Lents
do
do
X
X
do
X
do
X
Assistant secretary.
X
Assistant secretary____
M. Van Hoesen
Director
X
Director
Apr. 25,1941
Director
X
It. L. Bridges
do
X
Assistant secretary
X
Vice president
X
Vice president
X
Vice president
Do
F. Cook
Director
July 5,1943
Director
do
Apr. 25,1941
do
Director
X
11. L. Friedman
Assistant secretary__
May 1,1946
Assistant secretary_
X
Assistant secretary....
X
!Albert Bauer
Vice president
X
'Joseph Haag, Jr
Vice President
Feb. 13, 1942
Vice president
Feb. 25, 1942
Vice president
Feb. 13, 1942
, Do
Director
do
Director
do
Director
do
IC. F. Strenz
do
Dec 30, 1940
do
do
do
do
I Do
I Do
X. P. Enter
Assistant secretary____
Assistant treasurer
Director
Feb. 13, 1942
do
'Dee. 20, 1940
Assistant secretary
ss
Assistant treasurer
do
do _______________________________________________
do
do
Assistant secretary_ ___
Assistant treasurer....,
do
_____ do
do
do
,. Do
Do
Assistant secretary_ _ __
Assistant treasurer
Feb. 13,1942
do
Assistant secretary
do _______________________________________________
Assistant secretary__ __
do
R. J. Lamont
Do
Director
Feb. 14, 1942
Director
Feb. 25, 1942
Director
Vice president
Feb.13, 1942
do
. D. Reilly
Director
Feb. 13,1942
Director
Feb. 25,1942
Director
do
. H. Todd
do
do
do
do
do
do
. D. Bechtel
Vice president
June 20,1945
Vice president
June 20,1945
; Do
Director
do
Director
do
Director
X
Director
Director.
d . A. MeCone
do
do
do
do
do
X
do
X . A. McEachern
do
X
do
X
do
X
do
) Do
President
X
) Do
Vice president
Jan. 27,1942
(3. A. Shea__
) Do
Director
Jan. 27,1942
Director
Jan. 27, 1942
Director
President
do
do
r1. W. Morrison
Director
X
Director
X
Director
X
Director
Vice president.
) Do
Director.
L. S. Corey
Director
X
Director
Feb. 13,1942
Director
Do.
relix Kahn
do
X
Director
X
do
X
do
Do.
) Do
Treasurer
Treasurer.
1.V. G. Swigert
AV. S. Newell
Director
do
X
Feb. 16,1942
Director
do
X
June 29,1941
Director
X
Director
,G. J. Shea
Director
X
do
X
_______________________________________
Director
X
Director
R. E. Dill
Assistant treasurer_
Feb. 5,1945
Vice president
Oct. 31,1944
A. Richardson
W. Green
O. M. Lund
Director
do
do
Apr. 25,1941
Feb. 25,1942
do
Director
May 4,1943
Director
do
Feb. 13, 1942
do
H. A. Dick
Vice president
X
Do
Director
X
Director
Do
Assistant secretary
X
Do
Assisant treasurer
X
M. Miller
Assistant secretary__
Vice president.
E. F. Lackey
Assistant treasurer_ _ __
Assistant secretary.
H. F. Morton
Vice president
X
Do.
Status: (X) indicates still bolds position; date indicates date of resignation.
2 Present officers and directors, only, shown.
3 Present officers and directors, only, shown. Columbia Construction Co. had only 1 contract with the U.S. Maritime Commission for con-
struction of a floating drydock, which was constructed by the Vancouver Yard of Kaiser Co., Inc., under a subcontract.
93486-46 (Face p. 434)
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 435
Exhibit G
(Question No. 9)
THE PERMANENTE METALS CORPORATION (INCLUDING RICHMOND SHIPBUILDING
CORPORATION )
Summary of shipyard income to May 81, 1946
Shipbuilding
USIVEO con-
tracts
Operations
Total
?
Total of shipbuilding contracts (see schedule -----
$726, 802,
282.01
Government furnished materials (see schedule 7) _
Total contract volume (see schedule 7)
542, 214,
500. 00
1, 269, 016,
782. 01
Gross profit before taxes (see schedule 1)
53, 509,
636. 88
1 $23,
062,
288.
48
$30,
447,
348. 40
Federal income taxes (see schedule 1)
Net profit (see schedule 1)
37, 692,
071. 01
16,
244,
437.
57
21,
447,
633. 04
15,817,
565. 87
1 6,
817,
850.
91
8,
999,
714. 96
Percent of net profit on total contract volume
1. 25
1 Red figures.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
od peAoiddv
P-Z000900017000U9K008179dCIU-VI3 01?/01?/?00Z eseelet1
(Question No. 9?Schedule 1)
THE PEHMANENTE METALS CORP.
&nn4nnjofshipjjar,i 22rofits and net income to May 31, 19.0
0
Item
(A), (B), (C), (E), (G) detailed on
(D) Number of ships delivered
The Pettotmeitte
Metals Corp.
yards Nos. 1 and 2
(schedule 2)
595
Richmond Ship-
Imildit?g v inivu
(formerly Rich-
mond Shipbuild-
ing Corp.)
(Schedule 3)
36
Total
631
CD
Apportii=.ent of Federal c7
. income and excess-profits
taxes
CD
Percent
0
Amount 0
C.4
(E) Total amounts Paid by U. S. Maritime Commission on contracts
Amounts unpaid (retentions under contracts and amounts in process of settlement) (see
$649, 430, 110. 50
$73, 552, 455. 38
$722, 982, 565.88
0
schedule 5)
3, 815,123. 80
4, 292. 33
3,819, 716. 13
Total paid or unpaid
653, 245, 534.30
73,556,747.71
726, 802, 232.01
0
1-1
(H) Fees, actual (included in (E)):
7:1 0
Paid by U. S. Maritime Commission
39, 812, 377. 00
2, 930, 885. 00
42, 743. 262.00
Unpaid (see schedule 5)
1, 000, 000. 00
1, 000, 000. 00
Total fees
(I) Profits received under fixed-price contracts (included in (E))
40, 812, 377.00
14, 244, 679. 83
2, 930, 885. 00
43, 743, 262.00
14,244, 679.85
0 0
'I-1
17
55, 057, 056. 83
2, 930, 885. 00
57, 987, 941. 83
Profits and fees transferred to other shipyards for work performed under U. S. Maritime
co 41,
Commission contracts, net, schedule 4
51, 682. 25
51,682. 25
CO
55,005, 374. 58
2, 930, 885. 00
57, 936, 259. 58
Less: Nonreimbursable and disallowed costs under cost-plus contracts, and costs not con-
sidered allowable under fixed-price contracts, etc
4, 075, 924. 48
350, 698. 22
4,426, 622. 70
(J) Gross earnings on U. S. Maritime Commission contracts
50, 929, 450. 10
2,560, 186. 78
53, 509, 636.88
175.74
$37, 692, 071. 01
Profits on shipyard operations other than U. S. Maritime Commission contracts, net
$106, 280. 85
0
Net loss of magnesium division (see schedule 6) (28, 4M, 486. 62)
0
Profits from other operations
5, 285, 917. 49
062, 288.48)
0
(75. 74)
(16, 244, 437. 57) 4=?
0
(23,
30, 447, 348. 40
100
21,447, 633.44 0
Gross income
Less: Federal income and excess-profits taxes
21,447, 633.44
0
Net income accumulative to May 31, 1946 (per financial report, May 31, 1946)
0)
0
8, 999, 714. 96
0
0
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
(Question No. 9?Schedule 2)
TUB PERMANENTE METALS Com,. (RICHMOND YARDS 1 AND 2)
Details of contracts with U. S. Maritime Commission, as recorded at May 31, 1946
?
(A)
Contract
No.
(B)
Type of contract
(C)
Ships under
contracts as
amended
(D)
Num-
ber of
ships
de-
livered
(E)
(F)
(G) 1
(H)
(I)
fit
Pro s re-
ceived
under
fixed-price
contracts
included
in (E)
(J)
Tota profits
and fees
Total
amounts
paid by
U. S. Mari-
time Corn-
mission (net)
Unpaid
(reten-
tions and
amounts
?or
in process
of settle-
roent),
.
Total paid
unpaid
Fees
Mai;imum
Minimum
Actual?included in (E)
Num-
ber
TVnP
- ?
Paid bY
- ?
S.
Maritime
Commis-
sion
Unpaid I
Total poid
or unpaid
MCc 2115__
MCc 8265
Mee 13102
Mee 15761
.
NICc 15762
58Cc16227
MCc 18932_
V Cc 36452
Wee 36453_ _ _
M Cc 40300_
DA-M Cc 2
and 732.
Total to
Cost?plus fixed
fee.
do
_ do
do
Fixed price
A gency?tug-
boat opera-
tions.
Cost facilities
Selective price__ _
Cost materials
custody.
Fixed-price cols-
sons.
Transfer from
Richmond
Shipbuilding
Corp .?facili-
ties.
seheclulej ?
187
40
89
137
22
10
110
EC-2.
do
do
.. _do
Vc2-S-
A P5.
Vc2- S-
AP3.
4 c?.-S-
A P2
187
40
89
137
22
10
110
6202,521430.95
32, 841, 524. 33
73, 563, 093. 38
102, 218, 141. 58
189 000 000. 00
"
667. 795. 17
5, 850, 332.40
141, 616, 425.81
542, 693. 31
605, 673. 54
$126, 651. 08
96. 958. 38
215, 674. 60
1, 394, 284. 20
500, 000. 00
7, 063. 40
104, 009. 84
1, 281, 574. 19
81, 674. 13
7, 533. 98
,
$202,651,082.03
32, 938, 482 71
73, 778, 767. 98
103, 612, 425. 78
89, 500, 000. 00
671, 858. 57
5, 954, 342. 24
142, 898, 000. 00
81, 674. 13
542, 693. 34
613, 207. 52
826, 180, 000
2, 800, 000
6. 230, 000
8, 226, 000
$11, 220, 000
1, 200. 000
2, 670, 000
2, 740, 000
$23, 606, 877
2, 800, 000
6, 230. 000
7,175. 53
$1,000,000
$23, 606,877
2, 800, 000
6, 230, 000
8, 175, 500
$1,690,000.00
12,524,500.00
30, 179. 83
$23,606,877.00
2, 800. 000. 00
6, 230, 000. 00
8, 175, 500. 00
1, 690, 000. 00
12, 524, 500. 00
30, 179.83
595
595
549;430, 110. 50
3, 815, 423. 80
653, 245, 534.30
39, 812, 377
1, 000,000
40, 812 377
14,244,679.83
55, 057, 056. 83
I See schedule 5.
Nora.?The above amounts do not include the value of materials; if any, furnished by U. S. Maritime Commission without cost to the contractor.
-0
0
a.
0
(Ts
to
0
0
. .
0
CO
0
0
0
0
0
0
0
0
0
0
(Question No. 9?Schedule 3)
THE PERMANENTE MET'ALS CORP., RICHMOND SHIPBUILDING DIVISION (FORMERLY RICHMOND SHIPBUILDING CORP.)
Details of contracts with U. S. Maritime Commission, as recorded at May 31, 1946
(A)
Contract No.
(B)
Type of contract
(C)
(D)
Number
of ships
delivered
(E)
(F)
I (G)
(E)
(I)
Profits re-
ceived
under fixed
price con-
tracts in-
eluded in
(E)
(I)
Total
profit
and
fees
Ships under con-
tract as amended
Total amounts
Paid by U. S.
Maritime
COMIllisSi011
(net)
Unpaid (re-
tentions
and
amounts in
process of
settle-
ment) I
?
Total nail or
- .
unpaid
Fees
Maximum
Minimum
Actual paid
by U. S.
Maritime
Commis-
sion in-
eluded in
(E)
Number
Type
DAMCc 2 and 732___
MCe 1795
VICe 7787
Total to schedule
Cost?facilities
Cost?plus fixed fee
do
1
12
24
EC-2.
do
12
24
=, 347, 711.83
15, 33(3, 815.95
34, 867, 913. 60
$1, 292. 33
$23, 347, 725.83
15,341, 108.28
34, 867, 913. 60
$1, 680, 000
3, 360, 000
$720, 000
1, 440, 000
$1, 450, 912
1,479, 913
$1, 450. 942
1, 479. 943
36
36
73, 552, 455. 38
4, 292. 33
73, 556, 747. 71
2, 930, 885
2,930, 885
I See schedule 5.
Nose--The above amounts do not include the value of materials, if any, furnished by U S. Maritime Commission without cost to the contractor.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 439
(Question No. 9?Schedule 4)
THE PERMENENTE METALS CORP. YARDS NOD. 1 AND 2
Transfers of fees and pro/Us to and from shipyards
Contract
Kaiser Co.,
Inc., Richmond
yard No. 3
Tho Perma-
nente Metals
Corp. yards
Nos. 1 and 2
MCc 15762
MCe 36279
Net transfers
$182, 502. 00
2 8 130,819. 75
2 $182, 502.00
130,819. 75
51,682.25
2 51,082. 25
To meet the critical war need for Vc2-S-AP5 Victory transports, Kaiser Co., Inc., with the approval
of the Commission, outfitted completely seven such vessels as subcontractors for The Permanente Metals
Corp., the latter building the hulls and procuring the material. The pronortionate amount of fees for such
work was agreed between the two companies as being $182,502, and The Permanents Metals Corp. accord-
ingly transferred such amount to Kaiser Co., Inc., and reduced their fee earnings in like amount.
2 Red figures (from shipyards).
Contract MCc 26279 was issued by the U. S. Maritime Commission to Kaiser Co., Inc., to cover ship
repair work for other Government agencies such as War Shipping Administration, U. S. Navy and U. S.
Army. This contract (as amended) authorized Kaiser Co., Inc., to allocate ships to be repaired, to The
Permanente Metals Corp. and Kaiser Cargo, Inc., as subcontractors. Kaiser Co:, Inc., reduced its fee
earnings by transferring $130,819.75 to The Permanent? Metals Corp.
(Question No. 9?Schedule 5)
THE PERMANENTE METALS CORP. YARDS Nos. 1 AND 2 AND RICHMOND SHIPBUILDING
DIVISION (FORMERLY RICHMOND SHIPBUILDING CORP.)
Status of unpaid and unsettled contract amounts
[ Supplement to 9 (E) and 9 (H)]
I. Final settlement of unpaid amounts is subject to completion of the following:
1. Payment by the contractor and obtaining final release on all commit-
ments pertaining to the applicable contracts.
2. Subsequent preparation by the contractor of final statements of costs.
3. Audits by representatives of the United States Maritime Commission
of contractor's final statement of costs.
4. Resolving the open appeals of the contractor from costs disallowed by
the United States Maritime Commission and final negotiation thereof.
5. Final determination of costs and resultant agreement of amounts to
be recaptured, by the United States Maritime Commission, and/or amounts
due the contractor from the United States Maritime Commission.
Every reasonable effort is being extended by the contractor to complete item
1 so that the other steps listed above may be completed to effect final settlement
at the earliest possible date. However, in view of the tremendous volume of
purchase orders, subcontracts, and other commitment documents issued, such
work is unavoidably slow. In the interim, the contractor and the United States
Maritime Commission Finance Section are negotiating tentative settlements
to cover a substantial portion of the amounts involved, leaving minimum
amounts for final future settlement.
II. Unpaid?"Retentions" represents at May 31, 1946, the final payments due
on fixed price and lump sum contracts, withheld by the United States Maritime
Commission in accordance with the terms of the respective contracts, until and
if the recorded costs justify additional payments.
Included in the total of $3,819,716.13 unpaid contract amounts per schedule
1 is $1,400,000 representing such retentions.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
440 SHIPYARD PROFITS
(Question No. 9?Schedule 6)
THE PEREIANENTE METALS CORP..---MAGNESTUM DIVISION
Loss accumulative to May 31, 1946
Net operating prDfit
Interest epense $3, 646, 026. 65
Loss on abandonments 1,422, 595. 23
$2,
031,
332.
00
5,
068,
621.
88
Net loss bafore provision for amortization, etc
3,
037,
289.
88
Provision for amortization, depreciation, and depletion
25,
417,
196.
74
Net loss accumulative to May 31, 1946 (per financial report May
31, 1946, and per schedule 1)
28,
454,
486.
62
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
p-Z000900017000U9K008179dCIU-VI3 014014E00Z eseeieu -10d peACLIddV
(Question No. 9-Schedule 7)
THE PERMANENTE METALS CORP.-SHIPBUILDING DIVISION (INCLUDING RICHMOND SHIPBUILDING CORP.)
Details of contracts with U. S. Maritime Commission
Contract No.-
Type of contract ?
Ships under con-
tracts as amended
(type)
Number of
ships
delivered
.
Contract value
Commission
furnished
material
Total contract
volume
MCc-2115
Cost-plus fixed fee
E 0-2
187
$202, 651, 082.03
$138, 754, 000
$341, 405, 082. 03
M Cc-8265
do
do
40
32, 938, 482. 71
29, 680, 000
62, 618, 482. 71
MCc-18102
do
do
89
73, 778, 767.98
66,380000
140, 158, 767. 98
M Cc -15761
do
do
137
103, 612, 425. 78
101, 654,D00
205, 266, 425. 78
NI Cc-15762
Fixed price
f VC2-S-AP5
1VC2-S-A P3
22
10
1 89, 500, 000. 00
44, 278, 000
133, 778, 000. 00
NI Cc-16227
Agency-tugboat operations
674, 858.57
674, 858. 57
NI Cc-18932
Cost-facilities
5, 954, 342. 24
5, 954, 342. 24
NI C c-36152
Selective price
V02-S-AP2
110
142, 898, 000. 00
129, 250, 000-
272, 148, 000. 00
NI C c-36453
Cost-materials custody_
81,674. 13
81, 674. 13
tvl Cc-40300
Fixed price-caissons
542, 693. 34
512, 693. 34
DA-M0c2 and 732_
.
Transfer from Richmond Shipbuilding Corp.-facil-
ities.
613, 207.52
613, 207. 52
Subtotal, Perm anente Metals
'
595
653, 245, 534. 30
509, 996, 000
1, 163, 241, 534. 30
Corp., yards Nos. 1 and 2.
DA-MCc2 and 732
Cost-facilities -
25, 347, 725. 83
23,547, 725.85
VI Cc-1795_ _
Cost-plus fixed fee
EC-2
12
15, 341, 108. 28
8,904, 000
24, 245, 108. 28
850c-77S7.do
do
24
31, 867, 913. 60
17, 808, 000
52, 675, 913. 60
Subtotal, Richmond Shipbuild-
36
73, 556, 747.71
26, 712,000
100, 268, 747. 71
Mg Corp.
LTSMC purchase of British yard 1
facilities.
5, 506, 500
5, 506, 500. 00
Combined total
631
726, 802, 282. 01
542, 214, 500
1,269, 016, 782.01
itt
0-1
0
0
Fr)
0
0
0
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
442 SHIPYARD PROFITS
Exhibit H
(Questions Nos. 10 and 11?Schedule 1)
PERMANE gTE METALS CORP. AND RICHMOND SHIPBUILDING CORP.
EFFECT OF RENEGOTIATION ON FEES AND PROFITS AND STATUS OF CONTRACTS STILL
summer TO RENEGOTIATION
1. Fees and profits as shown on schedules under questions a represent net
fees after renegotiation.
2. Renegotiation agreement No. MCc33776 PABs573 was entered into under
date of November 14, 1944, in which excessive profits for the fiscal years ending
May 31, 1942, and May 31, 1943, for Permanente Metals Corp. and for the fiscal
years ending November 30, 1941, and November 31, 1942, for Richmond Ship-
building Corp. were determined to be $1,527,590.66 for Permanent b Metals Corp.
and no excessive profits for Richmond Shipbuilding Corp. The excessive profits
for Permanente Metals Corp. were allocated as follows: $36,640.00 to its fiscal year
ended May 31, 1942, $1,490,951166 to its fiscal year ended May 31, 1943.
In addition, thh same agreement determined that there were $1,045,532 of
excessive profits for the fiscal year ended May 31, 1944, subject to such addi-
tional amounts for the same year as might be determined for other contracts.
All of the above excessive profits, totaling $2,573,122.66, were allocated against
contract No. MCc2115.
Subsequently, under date of June, 18, 1945, renegotiation agreement No.
M0c40018 PABs752 was entered into, in which it was determined that no addi-
tional excesSive profits had been earned for the fiscal year ended May 31, 1944.
Contracts No. MC 28265, MCc13102, and MCc15761 were substantially completed
during this fiscal year.
3. Renegotiatioi L has not yet been completed for the fiscal year ended May 31,
1945. However, d-iring that period the only vessels constructed under a contract
subject to renegotiation were 62 vessels constructed under contract No. MCc15762,
under which the total profit allowed as a lump sum under addendum No. 3 was
$1,6130,000. As only the minimum fees were allowed under this contract and
addendum, it is understood that there will be no excessive profits.
4. Contract No. M0c36452 is a selective price contract and according to its
terms not subject to renegotiation. Contract No. MCc40300 was a fixed-price
contract involving only a profit of $41,669.87.
Exhibit I
(Question No. 12?Schedule 1)
PERMANENTF MEPALS CORP.
Costs of shipyards and facilities to May 31, 1946
Shipyards and facilities :
Richmond Shipyards Nos. 1 and 2
Richmond Shipbuilding Division (formerly Richmond Ship-
building Corp.)
Total shipyards and facilities
Original cost
$5, 954, 342. 24
29,467, 433. 35
35, 421,
775.
59
I Includes :5,506,500 paid by United States Maritime Commission to British Purchasing
Mission for hipyard and facilities Richmond Yard No. 1 under contract MCc2757.
CECTIFICATE OF INCORPORATION OF ItiOrimON0 SHIPBUILDING CORP.
First.?The name of the corporation is Richmond Shipbuilding Corporation.
Second.?Its principal office in the State of Delaware is located at No. 100 West
Tenth Street, in the City of Wilmington, County of New Castle. The name and
address of its resident agent, is The Corporation Trust Company, No. 100 West
Tenth Street, W?lmington, Delaware.
Third.?The nature of the business, or objects or purposes to be transacted,
promoted or carried on are ?
Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 443
To build, equip, operate, maintain, buy, sell, deal in and with, own, charter and
otherwise dispose of ships, vessels and boats of every nature and kind whatsoever,
together with all materials, articles, tools, machinery and appliances entering into
or suitable and convenient for the construction or equipment thereof, together
with engines, boilers, machinery, appurtenances, tackle, apparel and furniture
of all kinds; to buy, lease or otherwise acquire, construct, maintain and operate
wharves, piers, docks and warehouses; to construct and maintain for the use of
the company or for letting out on hire, graving and other docks and other con-
veniences for the building, repairing or docking of ships and other vessels, and to,
aid in or contribute to the construction of any such works; to buy or otherwise,
acqUire ships and vessels, complete or not complete, sound or out of repair, for
the purpose of improving, reselling, chartering or otherwise making a profit out
of the same, to carry on a general contracting business.
To manufacture, buy or otherwise acquire, own, mortgage, sell, assign, transfer-
or otherwise dispose of, trade and deal in and with goods, wares and merchandise.
and personal property of every class and description.
To take, own, hold deal in, mortgage or otherwise give liens against, and te
lease, sell, exchange, transfer or in any manner whatever, to dispose of real
property.
To acquire and pay for in cash, stock or bonds of this corporation, the good
will, rights, assets and property, and to undertake or assume the whole or any
part of the obligations or liabilities of any person, firm, association or corporation.
To acquire, hold, use, sell, lease, grant licenses in respect of mortgage or other-
wise dispose of, letters patent of the United States or any foreign country, patent
rights, licenses, privileges, inventions, improvements and processes, copyrights,
trademarks and trade names, relating to or useful in connection with any business
of this corporation.
To loan money, to guarantee, purchase, hold, sell, assign, transfer, mortgage,
pledge or otherwise dispose of (as principal or agent) shares of the capital stock
of, or any bonds, securities or evidences of indebtedness created by any other
corporation or corporations organized under the laws of this state or any other
state, country, nation or government, and while the owner thereof to exercise
all the rights, powers and privileges of ownership.
To promote or to aid in any manner, financially or otherwise, any corporation
or association; and for this purpose guarantee or become a surety upon the
contracts, dividends, stock, bonds, notes or other obligations of such other cor-
porations or associations; and to do any other acts or things designed to protect,
preserve, improve, or enhance the value of the stock, bonds, or other evidences
of indebtedness or securities of such other corporation.
To enter into any lawful arrangements for sharing profits and/or losses,
union of interest, reciprocal concessions or cooperation with any corporation,
association, partnership, syndicate, person, governmental municipal or public
authority, domestic or foreign, in the carrying on of any business which this
corporation is authorized to carry on, or any business or transaction deemed
necessary, convenient or incidental to carrying out any of the purposes of the
corporation.
To borrow money for any of the purposes of this corporation, and to issue bonds,
debentures, notes or other obligations therefor, and to secure the same by
pledge or mortgage of the whole or any part of the property of this corporation,
whether real or personal, or to issue bonds, debentures, notes or other obligations
without any such security.
To purchase, hold, sell, and transfer the shares of its own capital stock; pro-
vided it shall not use its funds for the purchase of its own shares of capital
stock when such use would cause any impairment of its capital; and provided
further, that shares of its own capital stock belonging to it shall not be voted
upon directly or indirectly.
To carry on any other lawful business whatsoever which may seem to the
corporation capable of being carried on in connection with the above, or
calculated directly or indirectly to promote the interests of the corporation, or
to enhance the value of its properties; and to have, enjoy and exercise all the
rights, powers and privileges which are now or which may hereafter be con-
ferred upon corporations organized under the same statutes as this corporation.
The foregoing clauses shall be construed both as objects and powers; and it
is hereby expressly provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the powers of this corporation.
Fourth.?The total number of shares of stock which the corporation shall
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
444 SHIPYARD PROFITS
:have authority to issue is ten thousand (10,000) ; all of such shares shall be
without par value.
At all elections of directors of this corporation each holder of record of stock
possessing voting power shall be entitled to as many votes as shall equal the
number of shares of his stock multiplied by the number of directors to be
elected them
he may cast all of such votes for a single director or he may dis-
tributehem among the number to be voted for or any two or more of them
as he may see fit, and thus exercise the right of cumulative voting.
Fifth.?The amount of capital with which the corporation will commence
business is One Thousand Dollars ($1,000.00).
Siwth.?The names and places of residence of the incorporators are as follows:
Ncintes Residences
R. F. L wis Wilmington, Delaware.
L. H. 1erman Wilmington, Delaware.
Wilmington, Delaware.
Walter Lenz
. Seventh.?The corporation- is to have perpetual existence.
Eighth.?The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
Ninth ?In furtherance, and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter, or repeal the bylaws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for divi-
dends a J.eserve or reserves for any proper purpose or to abolish any such re-
serve in the manner in which it was created.
By resolution or resolutions, passed by a majority of the whole board to desig-
nate one or more committees, each committee to consist of two or more of the
directors of the corporation, which, to the extent provided in said resolution
or resolutions or in the bylaws of the corporation, shall have and may exercise
the powers of the board of directors in the management of the business and af-
fairs of the corporation, and may have power to authorize the seal of the corpora-
tion to he affixed to all papers which may require it. Such committee or com-
mittees shall have such name or names as may be stated in the bylaws of the
corporation or as may be determined from time to time by resolution adopted
by the board of directors.
-When ,and as authorized by the affirmative vote of the holders of a majority
of the stock issued and outstanding having voting power given at a stockholders'
meeting -duly ( ailed for that purpose, or when authorized by the written consent
of the hOlders of a majority of the voting stock issued and outstanding, to sell,
lease or exchange all of the property and assets of the corporation, including its
good will and its corporate franchises, upon such terms and conditions and for
such consideration, which may be in whole or in part shares of stock in, and/or
'other seeurities of, any other corporation or corporations, as its board of di-
rectors shall deem expedient and for the best interests of the corporation.
The corporation may in its bylaws confer powers upon its board of directors
in addition to the foregoing, and in addition to the powers and authorities ex-
pressly Conferred upon it by statute.
Tenth.?In the event that any authorized but unissued stock or any new class
of stock shall be created, or the authorized number of shares of stock of the
corporation shall be increased, or there shall be issued any bonds, notes, de-
bentures or other securities other than stock, convertible into stock, the holders
of share of stock of the corporation outstanding at the time such authorized
but unis ued stock or new class of stock, or such increase, is offered for sub-
scription, shali have the right to subscribe for -the shares of such new class of
stock and for rtny shares of such increased stock so to be issued, or notes, deben-
tures or Other securities other than stock convertible into stock, before the same
is offered for public subscription, in proportion to the number of shares owned
resnectiVely by each of the holders of such stock.
Eleventh.?The corporation may enter into contracts or transact business with
one or mOre of its directors, or with any firm of which one or more of its directors.
are members, or with any corporation or association in which any one of its
. .
1 .
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 445,
directors is a stockholder, director; or officer, and such contract or transaction
shall not be invalidated or in anywise affected by the fact that such director or
directors have or may have interests therein which, are or might be adverse to
the interests of the corporation, even though the vote of the director or directors
having such adverse interest shall- have been necessary to obligate the corpora-
tion upon such contract or transaction; and no director or directors having such
adverse interest shall be liable to the corporation or to any stockholder or al.reaot;
thereof, or to any other person, for any loss incurred 'by it under or by reason of
any such contract or transaction ; nor shall any such director or directors be ac-
countable for any gains or profits realized thereon; Always provided, however,
that such contract or transaction shall at the time at which it was entered into
have been a reasonable one to have been entered into and shall have been upon
terms that at the time were fair.
, Twelfth.?Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this corpora-
tion and its stockholders or any class of them, any court of equitable jurisdiction
within the State of Delaware may, on the application in a summary Way of this
corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for this corporation under- the provisions of
Section 4407 of the Revised Code of 4.93,5 of said State, or on the application of
trustees in dissolution or of any receiver or receivers appointed for this corpora-
tion under the provisions of Section 43 of the General Corporation Law of the
State of Delaware, order a meeting of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said Court directs. If a majority in
number representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders or class of stockholders of this corporation, as the
case may be, agree to any compromise or arrangement and to any reorganization
of this corporation as consequences of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the Court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of stock-
holders, of this corporation, as the case may be, and also on this corporation.
Thirteenth.?Meetings of stockholders may be held without the State of Dela-
ware, if the bylaws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware at such place or places as may be from time to time designated by the
board of directors.
Fourteenth.?The corporation reserves the right to amend, alter, change, or
repeal any provision contained in this certificate of incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon stockholders
-herein are granted subject to this reservation.
We, the undersigned, being each of the incorporators hereinbefore named for
the purpose of forming a corporation in pursuance of the General Corporation
Law of the State of Delaware, do make this certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have hereunto
set our hands and seals this 1st day of April A. D. 1941.
R. F. LEWIS. [sEAL]
L. H. HERMAN. [SEAL]
WALTER LENZ. [SEAL]
STATE OF DELAWARE,
County of New Castle, ss:
Be it remembered, That on this 1st day of April A. D. 1941, personally came
before me, Harold E. Grantland, a Notary Public for the State. of Delaware,
R. P. Lewis, L. 14. Herman, and Walter Lenz, all of the parties to the foregoing
certificate of incorporation, known to me personally to. be such, and severally
acknowledged the said certificate to be the act and deed of the signers respectively
and that the facts therein stated are truly set forth.
Given under my hand and seal of office the day and year aforesaid.
HAROLD E. GRANTLAND, Notary Public.
Appointed January 11, 1941; State of Delaware, term two years.
Approved For Release 2003/10/10 : SIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
446 SHIPYARD PROFITS
Exhibit IE
RICHMOND SHIPBUILDING CORP.
ANSWIR TO QUESTION NO. 2 OF QUESTIONNAIRE OF JULY 27, 1946
General
Capital of the company consisted of capital stock, bank loans.
Maximum of the above at any one date: $2,360,000.
Capital stock (all common, no par value) .-
May 1941 to Dm 17, 1941
$250,
000
Dec. 18 to Dec. 22, 1941
306,
000
Dec. 23 to Mar. 19, 1946
360,
000
On March 19, 1946, all stock was cancelled as a part of the complete liquidation
of the company.
Bank loans-None of these were guaranteed by the United States Government,
its agencies, subdivisions, departments, etc. The maximum borrowings were
$2,000,009, all of which were repaid prior to liquidation.
Exhibit L
RICHMOND SHIPBUILDING CORP.
List of al officers and directors front date of organ/ization to July 31, 1946, and
amnia/ compensation
Date title held
From-
To-
Present officers and directors:
President: Henry J. Kaiser
Apr. 10,1941
Vice presidents:
E. F. Kaiser
do
E. E. Tiefethen Jr
Jan. 27,1942
C. P. Bedford
Oct. 13,1043
A. B. Ordway
do
Secretary: G. G. Sherwood
Feb. 2,1943
Treasurer: G. G. Sherwood
Apr. 10,1941
Directors: '
Henry J. Kaiser
Apr. 1, 1941
E. F. Kaiser
Feb. 25,1942
E. E. Trefethen , Jr
do
J. A. MeEachern
Apr. 25,1941
H. W. Morrison
F. Kahn
do
do
W. G. Swigert
Feb. 25,1942
C. J. Shea
Jan. 27,1942
Assistant secretaries:
P. S. Merrin
Feb. 25, 1942
G. G. Sherwood
Apr. 10,1941
C. P. Bedford.
do
J. F. Reis
do
G. C. Ober, Jr
Feb. 14,1944
Assistant treasurer: I. F. Reis
Apr. 10, 1941
Past officeri'and directors:
Vice presidents:
P. S.
Marril
do
Apr. 25, 1941
S. I1.
Bechtel
do
June 20,1945
J. 1aag,
Jr
do
Feb. 25,1942
Secrete
y: E. E. Trefethen, Jr
do
Feb. 2,1945
DirectO
:
M.
Theien
Apr. 1,1941
Apr. 25, 1941
P.
Marrin
do
Do.
F. f.
Bridges
do
Do.
M. , an Hoesen
do
Do.
J. W. Manual
do
Do.
1 Other than Joseph Haag, Jr., no other officer nor director received any compensation
for holding any office or directorship; compensation to all others was for services rendered
as an employee of the company. Mr. Haag's salary was as follows:
Apr. 1 to Dec. 31, 1941, inclusive $1, 025. 71
Jan. 1 to Feb. 25, 1942, inclusive 408. 68
Before or after above dates , None
See Exhibit D for details of any salaries paid.
Approved For Release 2003/10/10 : CIA-RDP64600346R0004000600024
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 447
List of all officers and directors from date of organization to July 81, 1946, and
annual compensation-Continued
Date title held
From-
0-
Past officers and directors-Continued
Directors-Continued
A. Richardson
B. Phelps
M. Filben
F. Cook
J. Needham
S. D. Bechtel
E. F Kaiser
G. G. Sherwood
E. E. Trefethen Jr
J. Haag Jr
C. F. Stronz
J. D. Reilly
J. H. Todd
R. J. Lamont
J. A. McCone
Do
C. A. Shea
W. G, Swigert
W. S. Newell_
W. Green
0. M. Lund
Assistant secretaries:
C. F. Strenz
E. P. Euler
A. E. Beard
Assistant treasurers:
C. F. Strenz
E. P. Euler
Apr. 1,1941
do
do
do
do
do
do
do
do
Apr. 25, 1941
June 29, 1941
Apr. 25, 1941
do
do
do
Feb. 25, 1942
Apr. 25, 1941
do
do
June 29, 1941
do
Apr. 10, 1941
do
__do
do
do
Apr. 25, 1941
Do.
Do.
Do.
Do.
June 20, 1945
June 29, 1941
Apr. 25, 1941
Do.
Feb. 25, 1942
Do.
Do.
Do.
Do.
June 29, 1941
June 20, 1945
San. 27, 1942
June 29, 1041
Do.
Feb. 25, 1942
Do.
Do.
Do.
Apr. 25, 1941
Feb 25, 1942
Do.
Exhibit M
RICHMOND SHIPBUILDING CORP.
Salaries paid to (1) officers and directors (regardless of amount) ; (2) others
(in excess of $15,000 annually) ; (3) individuals who have been officers or
directors of Kwiser Co., Inc., The Permanente Metals Corp., Richmond Ship-
building Corp., Kaiser Fleet wings, Inc., Oregon Shipbuilding Corp.
Name
Managerial title
Period employed
Total
wages
paid
Amount
CALENDAR YEAR 1941
(1) Officers and directors:
C. P. Bedford
General superintendent_
Mar. 29 to Dec. 31, 1941_
$6, 634.69
$5, 900. 75
J. F. Reis
Administrative manager
Apr. 1 to Dec. 31, 1941___
2, 147. 18
2, 147. 18,
Jos, Haag, Jr
Consulting engineer
_do
1, 025. 71
1, 025. 71
Total
9, 807. 58
9,073. 64
(2) Others (over $15,000): None_
None
(3) Officers or directors of other
companies: Henry J.
Administrative assist-
ant, chief engineer.
Apr, 3 to Dec. 31, 1941_
2, 434. 57
2,434. 57
Kaiser, Jr.
CALENDAR YEAR. 1942
(1) Officers and directors:
C. P. Bedford
General manager
Jan. 1 to Sept. 6, 1942._ __
6,921.16
6,230.8'
J. F. Reis
Administrative manager
do
2, 192. 22
2, 192. 22
Jos. Haag, Jr
Vice president
Jan. 1 to Feb. 25, 1942._ _
408. 68
408. 63
Total
9, 524.06
8,831. 78
:2) Others (over $15,000): None_
None
(3) Officers and directors of
other companies:
T. A. Bedford, Jr__ ____
Construction superin-
tendent.
Jan. 1 to Sept. 6, 1942__ _
3, 526. 78
3,526. 78
Henry J. Kaiser, Jr
Administrative assist-
cult.
do
3,417. 20
3,417. 20
I Either reimbursable under cost plus fixed fee or claimed as cost under fixed or variable fee.
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
448
SHIPYARD PROFITS
1
Emhibit N
RICHMOND SHIPBUILDING CORP.
Stock ownership during life of corporation
Stockholders
Original
May 2, 1941 1
-Dec
Dec. 18, 1941 1
23,
1941 1
Dec. 31,
1941 2
Shares
Per-
cent
Shares
Per-
cent
Shares
50L'-
Shares
Per-
cent
1
Todd Shipyards Corp
Henry J. Kaiser Co
The Kaiser Co
W. A. Bechtel Co
Bechtel-Mc one-Pixsons Corp
I. F. Shea do., Inc
General Construction Co
The Utah Construction Co
1Worrison-Kpudsen Co., Inc
MacDonald Sz Kah a, Inc
Pacific Bridge Co
The Permanente Metals Corp
Total;
,
1,250
154
154
154
154
115. 25
115. 25
119.25
115.25
115. 25
57. 75
50
6.16
6. 16
6.16
6. 16
4.61
4. 61
4.61
4.61
4. 61
2. 31
1,260
221.76
221.76
221.76
221. 76
165. 96
165.96
16596
165.96
165. 96
83. 16
N 54, 64. .4, 14, N
o 00 I
1,260
288
288
288
288
216
216
216
216
216
108
35
8
8
8
8
6
6
6
6
6
3
3, 600
100
2, 500
100
3,060
100
3, 600
100
3, 600
100
1 Issued for cash.
Exchanged on share-for-share basis for stock of The Permanent? Metals Corp.
NOVEMBER 13, 1946.
In ansWer to the telegram from Marvin J. Coles, addressed to The Permanente
Metals COrp., dated October 11, 1946, we submit the following information:
1. Average amount of outstanding bank loans to The Permanente Metals
Corporation.
The bank loans to The Permanente Metals Corp. fluctuated considerably
during the period between the first loan and the last repayment, but the averages
during said 36-month period were as follows:
For S months, May through December 1942 $2, 000, 000
For the year 1943 3, 183, 333
For the year 1944 4, 125, 000
For 4 months, January through April 1945 3, 250, 000
The maximum bank loan at any one time was $5,000,000.
Richmond Shipbuilding Corp. loans averaged $1,237,500 for 4 months, September
through 1Deceniber 1942, while it was engaged in shipbuilding operations.
2. Dis llowed costs allocated to applicable contracts.
The d sallovired costs as charged to the various contracts of The Permanente
Metals orp. were as follows:
Con
Con
Con
Con
Con
Con
Con
ract MCc-2115
ract MCc-8265
ract MCc-13102
ract MCc-15761
ract MCc-15762
ract MCc-36452
ract MCc-40300
$945,
1,
1,
108,
268,
119,
404,
228,
354. 45
757. 43
396. GO
380. 43
877. 90
864. 66
293. 01
4,
075,
924.
4$
Disallowed
costs of the Richmond Shipbuilding Division (for-
merly Richmend
Shipbuilding Corp.) of The Permanente Metals
Corp. were
as follows:
Contract
MCc-1795
and
Contract MCc-1787
350,
698.
22
Total d [allowed costs of The Permanente Metals Corp
4,
426,
622.
70
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 449.
There was no separate allocation of disallowed costs as between contracts
of the Richmond Shipbuilding Division Nos. MCc-1795 and MCc-77.87 since these
were the same type of ships, all of which were being constructed in the same
yard, and therefore disallowed costs under both contracts were combined.
The above allocation of costs between contracts was based on the major con-
tract in force for ship construction at the time the expense was incurred or the
disallowance was made. No allocation of disallowed costs was made on facilities,
contracts on which no fee or profit was paid.
3. Amount of bank loans secured by pledge of Government contracts.
A maximum of $5,000,000 in private bank loans was obtained by The Permanents
Metals Corp. to be used in its shipbuilding activities. None of the Government
shipbuilding contracts of The Permanente Metals Corp. were pledged or assigned.
to the bank as security for these loans.
EXHIBIT 12
REPORT OF KAISER FLEETWINGS, INC., FORMERLY KAISER CARGO, INC., TO MERCHANT
MARINE AND FISHERIES INVESTIGATING COMMITTEE, AUGUST 30, 1946
KAISER FizErrwilvos, INC. (FORMERLY KAISER CARGO, INC.)
AUGUST 29, 1946.
MERCHANT MARINE AND FISHERIES INVESTIGATION COMMITTEE,
House of Representatives, Washington 25, D. C.
GENTLEMEN: By letters dated July 27, 1946, you requested certain information
from Kaiser Co., Inc., Oregon Shipbuilding Corp., and The Permanente
Metals Corp. concerning their shipbuilding activities. While no questionnaire
was addressed to Kaiser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.) here-
inafter referred to as the "company," yet, since this company operated a ship-
yard and constructed vessels for the Maritime Commission during the war, we
are pleased to furnish herewith information concerning the shipbuilding activi-
ties of this company. For convenience, the information is being submitted in
answer to the same questionnaire which was transmitted to the other companies
mentioned above.
1. The date on whiel.i the company was formed and a copy of its corporate
charter.
This company was incorporated on November 17, 1942, as Kaiser Cargo, Inc.
The name of company was changed to Kaiser Fleetwings, Inc., on May 29, 1946t
A copy of the articles of incorporation of the company and a certificate of amend-
ment of said articles are attached hereto as exhibit A.
2. The total capital of the company, giving a break-down of the types of stock
and securities.
The total capital of the company is $500,000.00, represented by common shares
of no par value. The total amount available for the shipbuilding activities of
the company was $1,000,000.00 in private bank loans not guaranteed by the Gov-
ernment or any agencies thereof until June 1943. Thereafter, the total amount
available for said shipbuilding operations was $1,500,000.00 In private bank loans
which were not guaranteed by the Maritime Commission but by another agency
of the Government. Please refer to exhibit B for further details.
3: The names of all Offleers and directors and a statement of their annual com-
pensation. -
The names of all officers and directors are shown on exhibit C attached hereto.
No officer or director, received compensation for holding any office or directorship
as such. All compensation, if any, was for services rendered as an employee of
the company and reference is made to exhibit D attached hereto for a statement
of the compensation paid such employees.
4. The names of all officers and employees who have received compensation of
over $15,000 per annum, giving the amounts received and the extent to which such
payments were reimbursable by the Maritime Commission;
? Exhibit D contains schedules detailing not only the information requested but
also the compensation of all individuals who have been officers or directors of any
of the following companies:
Kaiser Co., Inc.
The Permanente Metals Corp.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
450 SHIPYARD PROFITS
Richmond Shipbuilding Corp.
Kniser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.)
0 egon Shipbuilding Corp.
Only t ose officers who were empolyed full time on shipbuilding activities were
compens ted for services in connection therewith and the president of the
companY and many other officers and directors did not receive any compensation
in connection with the shipbuilding operations although very considerable time
and effort was devoted by them to the company's shipbuilding business. During
the course of the shipbuilding program, only six persons were ever paid at an
annual rate in excess of $15,000 by any of the above-mentioned companies for
services performed in the shipbuilding operations, and in only three instances was
more than $15,000 reimbursed by the Maritime Commission. One such instance
involved Mr. J. F. Reis, administrative manager of all seven yards operated by
the above companies, who was paid a total of $15,576 in 1944, which was fully
reimbursed. Another instance involved Mr. C. P. Bedford, vice president and
general manager of the shipyard of this company, two yards of the Permanente
Metals Corp. and one yard of Kaiser Co., Inc. at Richmond, Calif., who was paid
in excess of $15,000 per year, the highest amounts being $26c474 in 1945, of which
$16,666 was reimbursed, and $21,154 paid in 1943, of which $20,307 was reimbursed.
The third instance involved Mr. Edgar F. Kaiser, vice president and general
manager of yards operated in Oregon and Washington by Oregon Shipbuilding
Corp. and Kaiser Co., Inc. and is, therefore, not involved here, but reference is
made to the reports of those companies being submitted simultaneously herewith
for further information.
Messrs. Edgar F. Kaiser and C. P. Bedford, as general managers, had the
direct and primary responsibility for the management and operation of a total
of seven shipyards operated by the above-mentioned companies which employed
in excesS of 180,000 persons at various times during the course of the war, and
-produced 1,474 ships for the Maritime Commission.
5. The. names of all persons, associations, or corporations holding 5 percent or
more of the capital stock of the company, giving the amounts of capital stock
held by each.
All o the. stock of the company is owned by five corporations. Exhibit E
attachec4 details the additional information requested.
6. The shipbuilding experience prior to 1941 of all officers, directors, and
stockholders holding over 5 percent of the capital stock.
The officers and directors of the company who were responsible for its ship-
building operations were also, in the majority of cases, officers or directors of
The Perinanente Metals Corp., Kaiser Co., Inc., and Oregon Shipbuilding Corp.,
which three companies had been engaged in shipbuilding operations and were
actually producing ships for the Maritime Commission at rates ahead of contract
schedules prior to the time any contracts for shipbuilding were let to this com-
pany. For further information relating to the experience of said officers and
director, please refer to the answer to question 6 contained in the reports being
submitted by Oregon Shipbuilding Corp., The Permanente Metals Corp., and
Kaiser Co., Inc., simultaneously herewith.
7. Th e names of all officers, directors, or stockholders owning more than 5
percent of the capital stock of the company who have held positions as officers or
directors with another company which had contracts with the Maritime Com-
mission or the War Shipping Administration.
No in ividual holds any stock of this company, the same being owned by five
corpora ions. For your information, however, a schedule is attached as exhibit
F, show ng the names of officers or directors holding such positions in more than
one of the following corporations which had contracts with the United States
Maritinle Commission or the War Shipping Administration:
aiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.).
Oregon Shipbuilding Corp.
Columbia Construction Co.
In addition, Messrs. Henry J. Kaiser, G. G. Sherwood, and Edgar F. Kaiser
were officers and/or directors of California Shipbuilding Corp., until April 1945.
8. The names of all officers, directors, or stockholders owning more than 5
percent Of the capital stock of the company who have owned 5 percent or more
of the capital stock of another company which had contracts with the Martime
CommisSion o:^ the War Shipping Administration.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
SHIPYARD PROFITS . 451
As previously mentioned, there are no individual stockholders of the com-
pany, all of the stock being owned by corporations. A schedule, showing the
names and percentage interests of these corporations, is contained in exhibit E
referred to in question 5. Respecting Henry. J. Kaiser Co., the Kaiser Co., and
Kaiser Engineers, Inc., the information requested is covered in the answer to
question 13 submitted by Kaiser Co., Inc., in its report to your committee
simultaneously herewith and reference is made to said report for further infor-
mation. Respecting the other corporate stockholders involved, this company
does not have the requested information or the means of securing it
9. A description of all contracts between the company and the Maritime
Commission.
Please see exhibit G and schedules attached thereto for the requested infor-
mation. In summary, the total number of ships constructed and delivered was
36. The total volume of work performed amounted to $127,842,065. The total
profit on said work, after Federal income taxes, was $270,682, or 0.21 percent
of the total volume of work performed.
10. The fees and profits under each of the afore-mentioned contracts allowed
after renegotiation.
Please refer to exhibits G and H and schedules attached thereto for this
Information.
11. The status of each contract still subject to renegotiation, giving, wherever
possible, information showing the opinion of the Price Adjustment Board and of
the company as to the fees and profits permissible under each contract.
This information is shown on exhibit H attached hereto.
12. The total cost to the Government of the shipyards and facilities used by
the corinpann.
Richmond shipyard No. 4 and facilities used by the shipbuilding division of
this company in the performance of its contracts with the United States Maritime
Commission was constructed by Kaiser Co., Inc., under contracts with the United
States Maritime Commission and this yard and facilities Were used by Kaiser
Co., Inc., until April 3, 1943, after which they were used by this company in its
shipbuilding operations. The total cost of shipyard No. 4 and its facilities is
included in the total cost of shipyards and facilities as shown by Kaiser Co., Inc.,
in its report answering question 12 of your inquiry which is being submitted
simultaneously herewith, and to which reference is hereby made.
We shall be pleased to furnish you with any further information you may
desire.
Respectfully submitted.
KAISER FLENTWINGS, INC.,
(Formerly Kaiser Cargo, Inc.),
E. E. TnErgrficsT, Jr., President.
Exhibit A
ARTICLES OF INCORPORATION OF KAISER CARGO, INC.
Know All Men by These Presents:
That we, the undersigned, have this day voluntarily associated ourselves to-
gether for the purpose of forming a corporation under the Laws of the State
of California, and we do hereby certify as follows:
First.?That the name of said corporation shall be Kaiser Cargo, Inc.
econd.?That the purposes for which it is formed are:
To carry on a general contracting and construction engineering business and
to excavate, dredge, grade, pave and construct, build, erect, repair, wreck, remodel,
and equip, in whole or in part, buildings of every description; public and private
works of all kinds; roads, streets, sidewalks, bridges, viaducts, approaches, pave-
ments, dams, locks, sewers, tunnels, subways, canals, aqueducts, channels and
other waterways, foundations, piers, caissons, vaults, wharves, marine ways and
docks, ditches, conduits, reservoirs, railways and other systems of transporta-
tion, system of Water works; electric, hydraulic, power and gas plants, telephone,
telegraph, and lighting systems, factories, and all structures built in whole or
in part of wood, stone, brick, cement, iron, steel, or combinations thereof.
To do all manner of boiler setting and boiler installation and all work incidental
thereto; to do all manner of furnace setting and furnace installation and all work
Incident thereto; and to install automatic stokers and to do all mason work
Incidental thereto.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
452 SHIPYARD PROFITS
To take over, acquire, purchase, own, sell, lease, hire, hold control, manage,
maintain and operate mines, quarries, gravel pits, brickyards, lime kilns, refin-
eries, as4a1t, cement, and plaster mills, furnaces, saw mills, metal and wood-
working plants, pulp and paper mills, factories, lumber yards, timber lands,
glass plants, aid establishments for the manufacture, preparation, and produc-
tion of building supplies, material, furnishings, decorations, and furniture.
To manufact tire, buy, sell, lease, and deal in lime, cement, plaster, gravel, stone,
marble, prick, terra cotta, lumber, timber, glass, paints, oils, varnishes, stains,
iron, steel, copper, brass, and other metals, products, combinations, fabrications
or manufactures of any of the foregoing ; buildings, and building materials of all
kinds; crushing, cutting, lighting, hoisting, elevating, cooling, refrigerating, ven-
tilating, polishing, and cleaning machinery, pipes, wires, apparatus, fixtures, and
equipment of all kinds and to install or erect the same; plumbing fixtures, ma-
terials and supplies of all kinds, and to install the same.
To manufacture, produce, assemble, fabricate, and deal in all kinds, forms, and
combinations o' steel, iron, copper, or other metals, or either or any of them.
To carry on the business of consulting and contracting engineers, and the
preparation of plans and specifications of machinery, buildings, and works.
To do a gene cal wrecking, salvage, and house moving business; to erect and/or
have erected, t3 construct or have constructed houses, works, buildings, storage-
rooms, tenements, edifices, and structures of every description'; and to buy, sell,
own, use, manage, and lease the same or similar structures.
To acquire by purchase, subscription or otherwise, and to hold as investment
or othervvise, any bonds or other securities or evidences of indebtedness or any
shares of capital stock created or issued by any other corporation or other
corporations, r ssociation or associations, person or persons of the State of
California, or any other state, district, territory or country.
To purchase, underwrite, hold, sell, assign, transfer, mortgage, pledge, or
otherwise dispose of any bonds, shares of stock, debentures, or other securities
or evidences of indebtedness created or issued by any other corporation or cor-
porations, association or associations, person or persons, of the State of Cali-
fornia, or of airy other state, district, territory or country; and while the owner
thereof, to exercise all the rights, powers, and privileges of ownership including
the right to vote thereon.
To manufacture, purchase, or otherwise acquire, own, mdrtgage, pledge, sell,
assign, and transfer, or otherwise dispose of, to invest, trade, deal in, and deal
with goods, wares, and merchandise and real and personal property of every
class and description.
To acquire, r nd pay for in cash, stock, or bonds of this corporation, or other-
wise, the good will, rights, assets, and property, and to undertake or assume,
the wholp or any part of the obligations or liabilities of any person, firm, associ-
ation, or corpo-ation.
To acquire, hold, use, sell, assign, lease, grant licenses in respect of, mortgage,
or otherwise dispose of letters patent of the United States or any foreign coun-
try, patent rights, licenses and privileges, inventions, improvements and proces-
ses, copyrights, trade-marks and trade names, relating to or useful in connection
with any busin ass of this corporation.
To guarantee, purchase, hold, sell, assign, transfer, mortgage, pledge, or
otherwise dispese of shares of the capital stock of, or any bonds, securities, or
evidences of i idebteclness created by any other corporation or corporations
organized under the laws of this State or any other state, country, nation, or
government, and while the owner thereof to exercise all the rights, powers, and
privileges of ownership.
To propte or to aid in any manner, financially or otherwise, any corporation
or associ tion ; and for this purpose to guarantee or to become surety upon the
contracts, dividends, stocks, bonds, notes, and other obligations of such other
corporations or associations; and to do any other act or thing designed to protect,
preserve, improve, or enhance the value of the stocks, bonds, or other evidences
of Indebtedness or securities of such other corporations.
To enter int o, make, and perform contracts of every kind and description,
with any perk-on, firm, association, corporation, municipality, counfy, state,
body politic, or government or colony or dependency thereof.
To become a member of any partnership and to enter into any lawful arrange-
ments for sharing profits and/or losses, union of interests, reciprocal conces-
sion or cooperation with any corporation, association, partnership, syndicate,
person, or governmental, municipal, or public authority, domestic or foreign, in
the carrying on of any business which this corporation is authorized to carry
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 453
on or any business or transaction deemed necessary, convenient, or incidental to
carrying out any of the purposes of the corporation.
To act as agent, factor, broker, or representative of corporations, associa-
tions, firms, and individuals.
To borrow or raise moneys for any of the purposes of the corporation and,
from time to time, without limit as to amount, to draw, make, accept, endorse,
execute, and issue promissory notes, drafts, bills of exchange, warrants, bonds,
debentures, and other negotiable or nonnegotiable instruments and evidences of
indebtedness, and to secure the payment of any thereof and of the interest
thereon by mortgage upon or pledge, conveyance, or assignment in trust of the
whole or any part of the property of the corporation, whether at the time owned
or thereafter acquired, and to sell, pledge, or otherwise dispose of such bonds
or other obligations of the corporation for its corporate purposes.
To purchase, hold, sell, and transfer the shares of its own capital stock; pro-
vided, it shall not use its funds for purchase of its own shares of capital stock
when such use of funds or property would cause any impairment of its capital
except as otherwise permitted by law, and provided further that shares of its
own capital stock belonging to it shall not be voted on directly or indirectly.
To have one or more offices, to carry on all or any of its operations and busi-
ness and without restriction or limit as to amount to purchase or otherwise
acquire, hold, own, mortgage, sell, convey, or otherwise dispose of real and per-
sonal property of every class and description in any of the States, districts, 'Ter-
ritories, or colonieS of the United States, and in any and all foreign countries,
subject to the laws of such state, district, territory, colony, or country.
To do any and all things, necessary, suitable, convenient, or proper for, or in
connection with, or incidental to, the accomplishment of any of the purposes
or attainment of any one or more of the objects herein enumerated, or designed
directly or indirectly to promote the interests of this corporation, or to enhance
the value of any of its properties; and in general to do any and all things and
exercise any and all powers which it may now or hereafter be lawful for the
corporation to do or to exercise under the laws of the State of California that may
now or hereafter be applicable to the corporation.
The business or purpose of this corporation is, from time to time and at any
time, to do one or more of the acts and things herein set forth, and to have
all the powers, rights, and privileges now or hereafter conferred by the laws of
the State of California upon corporations organized under the laws of California
authorizing the formation of corporations; providing, however, that nothing here-
in contained shall .be deemed to authorize this corporation to construct, hold,
maintain, or operate in California urban railroads, or interurban or street rail-
ways or telephone lines, or to carry on within said state, the business of a gas,
electric, steam, heat, or power company, or to carry on within said State any
other public utility business.
The objects and purposes specified in the foregoing clauses shall, except where
otherwise expressed, be in nowise limited or restricted by reference to, or
inference from, the terms of any other clause in these articles of incorporation,
but the objects and purposes specified in each of the foregoing clauses of this
article shall be regarded as independent objects and purposes.
Third.?That the principal office for the transaction of the business of said
corporation shall be located in Alameda County, State of California.
Fourth.?The total number of shares of stock which the corporation shall
have authority to issue is ten thousand (10,000) ; all of such shares shall be with-
out par value and of one class.
Such shares may be issued for such consideration as from time to time may
be determined by the board of directors.
Fifth.?The number of its directors is five (5) and the names and addresses
of the persons who are appointed to act as the first board of directors are as
follows:
Names Addresses
Mynderse Van Hoesen 111 Sutter Street, San Francisco, California
C. William Maxeiner 111 Sutter Street, San Francisco, California
Lauffer T. Hayes 111 Sutter Street, San Francisco, California
Bruce Walkup 111 Sutter Street, San Francisco, California
A. Richardson 111 Sutter Street, San Francisco, California
The number of directors may be changed from time to time by a bylaw desig-
nating, fixing, or changing the number duly adopted by the shareholders.
Approved For Release 2003/10/10: CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP641300346R000400060002-4
454 SHIPYARD PROFITS
Sia.th.--ubjeci to the right of shareholders to adopt, amend or repeal bylaws,
bylaws other than a bylaw or amendment thereof changing the authorized num-
ber of directors, may be adopted, amended, or repealed by the board of directors.
This corporation may in its bylaws confer powers upon its directors in addition
to the foregoing and in addition to the powers and authorities expressly con-
ferred upon them by statute.
Seventh.?This corporation reserves the right to amend, alter, change, or repeal
any provision contained in these articles of incorporation in the manner now
or hereafter prescribed by statute, and all rights conferred upon shareholders
herein are granted subject to this reservation.
In witness whereof, we have hereunto set our hand and seals this 16th day
of November A. I). 1942.
MYNDERSE VAN HOESEN.
C. WILLIAM MAXEINER.
LA UFFER T. HAYES.
BRUCE WALKUP.
A. RicruatosoN.
STATE OF CALIFOR NIA,
City and County of San Francisco, ss:
On this 16th 0 ay of November 1942, before me, a Notary Public, in and for
the City and County of San Francisco, State of California, personally appeared
Mynderse Van Iloesen, C. William Maxeiner, Lauffer T. Hayes, Bruce Walkup,
and A. Richardson, known to me to be the persons whose names are subscribed
to and who executed the within instrument, and acknowledged to me that they
executed the same, and that they are the directors named therein.
In witness whereof, I have hereunto set my hand and affixed by official
seal the da jr and year above written.
[SEAT] LULU P. LOVELAND,
Notary Public, in and for the City and County
of San Francisco, State of California.
My commission expires December 8, 1942.
CERTIFICATE OF AMENDMENT OF Anxious OF INCORPORATION OF KAISER CARGO, INC.
The undersigned, A. B. Ordway and G. G. Sherwood, do hereby certify that
they are, respectively, and have been at all times herein mentioned, the duly
elected and acting Vice President and Secretary of Kaiser Cargo, Inc., a Cali-
fornia corporation, and further that:
One.?At a special meeting of the board of directors of said corporation duly
held at Rolom 2125, One Eleven Sutter Building, San Francisco, California, at
5: 00 o'clock P. M., on the 24th day of May 1946, at which meeting there was at
all times present and acting a quorum of the members of said board, the following
1 resolution was duly adopted:
"ReSolved, that Article 'First' of the Articles of Incorporation of Kaiser
Cargo, Inc., be amended to read as follows:
"'First?That the name of said corporation shall be Kaiser Fleetwings,
Inc.'"
Two.?T emumber of shares of said corporation consenting to such amendment
of its Arti les of Incorporation is 3,750, and the following is a copy of the form
of written consent executed by the holders of said shares:
WRITTEN CONSENT OF SHAREFIOLDERS TO AMENDMENT OF ARTICLES OF INCORPORATION
OF KAISER CARGO, INC.
Whereas, at a special meeting of the board of directors of Kaiser Cargo, Inc.,
a Califorma corporation, duly held at "Room 2125, One Eleven Sutter Building,
San Francisco, California, at 5: 00 o'clock P. M., on the 24th day of May 1946, at
which meeting a quorum of the members of said board was at all times ,present
and acting, an amendment of the articles of incorporation of said corporation
was adopted and approved by resolution of said board amending Article "First"
of said article of incorporation to read as follows:
"First.---1-That the name of said corporation shall be Kaiser Fleetwings, Inc."
Now, therefore, each of the undersigned shareholders of said corporation does
hereby adopt, approve, and consent to the foregoing amendment of said articles
of incorpo:ation and does hereby consent that Article "First" of said articles of
incorporation be amended to read as herein set forth.
Approved For Release 2003/10/10 : CIA-RDP64600346R0004000600024
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 455
In witness whereof, each of the undersigned stockholders has caused these
presents to be executed by its officers thereunto duly authorized and its corporate
seal to be hereunto affixed, and, following its name, the date of signing and the
number of shares of said corporation held by it of record on said date entitled
to vote upon amendments of said articles of incorporation of the character of the
foregoing amendment.
[mu.' HENRY J. KAISER CO., Date: May 24, 1946.
By E. E. TREFETHEN, Jr., Number of shares: 2,250.
Vice President.
By G. G. SHERWOOD,
Secretary.
[SEAL] THE KAISER CO., Date: May 24, 1946.
By G. G. SHERWOOD, Number of shares:? 750.
Vice President.
By E. E. TREFETHEN, Jr.,
Secretary.
[SEAL] KAISER ENGINEERS, INC., Date: May 24, 1946.
By E. E. TREFETHEN, Jr. Number of shares: 750.
Vice President,
By G. G. SHERWOOD,
Secretary.
Three.?The total number of shares of said corporation entitled to vote on or
consent to the adoption of such amendment is 5,000.
In witness whereof, the undersigned have executed this certificate of amend-
ment this 27th day of May 1946.
A. B. ORDWAY,
Vice President of Kaiser Cargo, Inc.
G. G. SHERWOOD,
Secretary of Kaiser Cargo, Inc.
STATE OF CALIFORNIA,
County of Alameda, ss:
A. B. Ordway and G. G. Sherwood, being first duly sworn, each for himself
deposes and says:
That A. B. Ordway is, and was at all the times mentioned in the foregoing Cer-
tificate of Amendment, the Vice President of Kaiser Cargo, Inc., the California
corporation therein mentioned, and G. G. Sherwood is, and was at all of said
times, the Secretary of said corporation; and each has read said Certificate and
that the statements therein made are true of his own knowledge, and that the sig-
natures purporting to be the signatures of said Vice President and Secretary there-
to are the genuine signatures of said Vice President and Secretary, respectively.
A. B. ORDWAY.
G. G. SHERWOOD.
Subscribed and sworn to before me this 27 day of May 1946.
[SEAL] PAUL B. ROGERS,
Notary Public in and for the County of Alameda, State of Catifonvia.
Ewhibit B
KAISER FLEETWINGS, INC. (FORMERLY KAISER CARGO, INC.)
ANSWER TO QUESTION NO. 2 01? QUESTIONNAIRE Or JULY 27, 1946
General
This company consists of two divisions: Shipbuilding division, Richmond and
Oakland, Calif.; Fleetwings division, Bristol, Pa.
Maximum capital in use at any one time:
Shipbuilding division:
Bank loans:
To June 1943 (unguaranteed)
$1,
000,
000
After June 1943 (guaranteed, but not by U. S. Maritime
Commission)
1,
500,
000
Fleetwings division:
Bank loans, guaranteed
10,
500,
000
RFC loan, secured
1,
000,
000
Stockholders' loans, subordinated
250,
000
Capital stock
500,
000
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
456 SHIPYARD PROFITS
Bank loans.? Not guaranteed, guaranteed: Until June 17, 1943, the funds neces-
sary for the operations of the shipbuilding division were supplied by open bank
loans from Bank of America. Maximum bank loans under this arrangement were
$1,000,000. None of these loans were guaranteed by any branch, agency, depart-
ment, etc., of the Federal Government.
Under date of June 17, 1943, the company and the Bank of America entered into
a credit agreement under which the maximum commitment for the entire company
was $11,500,000 Of this amount, $2,500,000 was available for its shipbuilding
operations. The allocation for shipyard operations was subsequently reduced to
$1,500,000
In connection with this credit agreement, the bank obtained a guaranty agree-
ment from the War Department under the provisions of regulation V. The United
States M ritimc Commission was not a party to the agreements.
a
Not onlywere the loans from stockholders to the company subordinated to this
loan, but he stockholders agreed to provide additional subordinated funds under
certain conditions.
As of January 5, 1945, a new credit agreement and guaranty agreement were
entered into by the same parties to replace the loan of June 17, 1943. The guaranty
agreement in this loan was pursuant to regulation VT.
The maximum commitment under this credit agreement was $11,000,000, with
no allocation as between divisions of the company.
The last bank borrowings of the shipbuilding division were repaid in May
1945.
Since that date the loans under the credit agreement of January 5, 1945, have
been paid off and the agreement has been terminated. The War Department
was never called upon to assume its obligations in connection with the guaranty
agreement, and the company at no time requested any of the relief provisions
possible Mader :he regulation VT loans.
Bank borrowings since the termination of the credit agreement of January 5,
1945, have been without benefit of guaranties to the company or the bank by any
branch, etc., of the Federal Government.
RFC loan, semred.?This loan, now fully repaid, together with interest at 4 per-
cent, used by the Fleetwings division, was repaid well ahead of maturity date.
The maxianum principal amount was $1,000,000.
Stockholders' loans.?These amount to $250,000. During all periods of bank
borrowings these loans were subordinated to all bank claims. These funds are
in use for other than shipyard purposes.
Capita/ stock (all common, no par value).?
November 1942 to February 1943 $100, 000
February 1943 500, 000
Exhibit C
KAISER FLEETWINGS, INC.
List of all officers and directors from date of organization to July 81, 1946, and
annual compensationl
received
Date title held
From?
To?
Present officers and directors:
President: E. E Trefethen Jr
Jan 15, 1944
Vice presidents:
Edgar F. Kfdser
Nov. 17,
1942
C. P. Bedford
_do
P. S Mani]
do
R. Lf. Bridges
do
C. P. Calhoun
Aug. 6,
1943
W. B. Stitt
June 10,
1943
T. A,. Bedfo .c1 Jr
Opt. 18,
1945
S. D.
Hackloy
Sept. 20,1941
A. 1.
Ordway
June 16, 1943
No
dir3ctor compensation for holding any office or directorship; all compensation was
officer nor
for services rendered as an employee of the company. See schedule D for details of any salaries paid.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 457
List of all officers and directors Irons date of organization to July 81, 1946, and
-
annual compensation-Continued
Date title hold
From-
To-
Present officers and directors-Continued
Secretary: G. G. Sherwood
Treasurer: G. G. Sherwood
Directors:
P. S. Marrin
E. E. Trefethen Jr
R. L. Bridges
M. Van Hoesen
G. G. Sherwood
Assistant secretaries:
P. S. Marrin
G. C. Ober Jr
A. E. Beard
C. F. Calhoun
P. E. Rogers
J. L. Friedman
S. Siegel
IP:R. Browning
F. H. Bechill
J. L. McClone
Assistant treasurers:
C. B. Wood
F. L. Wilmoth
Past officers and directors:
President: Henry J. Kaiser
Vice presidents:
E. E. Trefethen, Jr
F. de Ganahl
R. E. Dill
Secretaries: None
Treasurers: None
Nov. 17, 1942
do
May 4, 1943
do
do
Nov. 16, 1942
Nov. 17, 1942
Mar. 6, 1944
Nov. 17, 1942
do
Mar. 2,1943
Mar. 20, 1943
Dec. 13, 1943
Aug. 22 1944
May 20, 1946
Oct. 18, 1945
May 20, 1946
Sept. 1, 1944
May 20, 1946
Nov. 17, 1942
do
Mar. 26, 1943
Sept. 20, 1943
Jan. 15, 1944
Do.
Aug. 18, 1943
Oct. 31, 1941
Directors:
C. W. Maxeiner
L. T. Hayes
B. Walkup
A. Richardson
Assistant secretaries:
W. B. Stitt
M. Fricke
C. L. Nielsen
E. S. Kearns
M. E. Brennan
W. G. Stilson
S. H. Wilde
R. E. Knight
W. E. Lucie
J. Birdsall
L. J. Kelly
T. A. Bedford, Jr
Assistant treasurers:
C. L. Nielsen
W. G. Stilson
F. R. Browning
L. ,T. Kelly
Nov. 16,1942
do
do
do
Mar. 20, 1943
Mar. 26, 1943
do
Juno 16, 1943
do
Nov. 10, 1943
Mar. 18, 1944
Jan. 31, 1945
do
Sept. 19, 1945
do
Oct. 8, 1945
Mar. 26,1943
Nov. 10,1943
Aug. 24, 1944
Sept. 19, 1945
May 4, 1943
Do.
Do.
Do.
June 16, 1943
May 29, 1944
Nov. 10,1943
Aug. 22, 1944
Aug. 18, 1943,
Mar. 18, 1944
Sept. 19, 1946
Do.
Oct. 18, 1045
Feb. 14, 1946
May 11, 1946,
Oct. 18, 1945.
Nov. 10, 1943
Mar. 18, 1941
Sept. 19, 1945
May 11, 1946
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
P-Z000900017000U9K008179dCIU-VI3 01./01./COOZ eseelet1 JOd PeA0AdV
Exhibit D
KAISER FLEETWINGS, INC. (FORMERLY KAISER CARGO, INC.)
Salaries 1 paid -to (I) officers and directors (regardless of amount) (2) others (ov_er_,$15,900 an,n,ually),(3) individuals who have been ojicers or
directors of Kaiser Co., Inc., The Permanente Metals Corp., Richmond Shipbuilding Corp., Kaiser Fleet wings, Inc., or Oregon Shipbuilding
Corp.
N ame
Occupational title (all appli-
cable to other division)
Period covered
Shipbuilding
division
Fleetwings
division
Total
Reimbursable
by U. S. Mari-
time Commis-
sion 2
1943
(1) Officers and directors:,
R. E. Dill
Chief administrative man-
ager.
July 20 to Dec. 31, 1943
V. 615. 50
$9, 615. 50
None.
F. de Ganahl
General manager
Mar. 29 to Dec. 31, 1943
26, 307. 78
26, 307. 78
Do.
C. L. Nielson
Controller
do
11, 365.70
11,385. 70
Do.
M. E. Brennan
Executive secretary
do
1, 495. 00
1, 495. 00
Do.
S. D. Hackley
Chief operation manager
Aug. 15 to Dec. 31, 1943
6, 154. 02
6, 154. 02
Do.
W. G. Stinson
Administrative assistant
Sept. 1 to Dec. 31, 1943
2, 755. 00
2, 755. 00
Do.
S. H. Wilde
Executive assistant
Aug. 22 to Dec. 31, 1943
4, 154. 00
4, 154. 00
Do
(2) Others (over $15,000): None
(3) Officials of other companies: None
1944
.
(1) Officers and directors:
R. E. Dill
Chief administrative man-
ager.
Jan. 1 to Oct. 31, 1944
16, 666. 86
16, 666. 86
None.
S. D. Hackley
General manager
Jan. Ito Dec. 31, 1944
15,750. 28
15,750. 28
Do.
W. G. Stillson
Administrative assistant
Jan. 1 to June 22, 1944
1, 885. 00
1, 885. 00
Do.
S. H. Wilde
Operations manager
Jan. 1 to Dec. 31, 1944
12, 461. 58
12, 461. 58
Do.
F. R. Browning
Executive assistant
Feb. 21 to Dec. 31, 1944
7, 307. 63
7, 307. 63
Do.
(2) Others (over $15,000): Carl de Ganahl
Director research and de-
velopment.
Jan. 1 to Dec. 31, 1944
18, 642. 10
18,342. 10
Do.
(Si Officials of other comnanies: None
._
Includes adjusted compensation (year-end "bonus").
2 The shipbuilding division of Kaiser Fleetwings, Inc., paid no salaries to its top management personnel but did share in such salaries through U. S. Maritime Commission ap-
Proved prorations of charges applicable to all 4 Richmond, Calif., shipyards, which were jointly managed. The total amount reimbursed by the U. S. Maritime Commission, regard-
less of who claimed reimbursement, is shown in the "Reimbursable" column of the same answer to question by the company who made the payment.
t-Z000900017000U9K008179dCIU-VIO 014014E00z aseelet1 -10d peAcuddv
1945
(1) Officers and directors:
S. D. Hackley
General manager
Jan. 1 to Dec. 31,1945
20,
153.
65
20,
153. 65
None.
S. H. Wilde
Operations manager
Jan. 1 to Feb. 4 and June 18
to Sept. 16, 1945.
6,
153.
86
6,
153.86
Do.
F. R. Browning
Executive assistant
Jan. 1 to Sept. 30, 1945
9,
022.
54
9,
022. 54
Do.
(2) Others (over $15,000): Carl de Ganchl
Director research and de-
velopment.
Jan. 1 to Dec. 31, 1945
18,
345.
95
18,
345.95
Do.
(3) Officials of other companies: None
Approagg For Release 2003/10/110:ARAIVFFA6s4B00346R000400060002-4
Exhibit E
KAISER FLEETWINGS, INC. (FORMERLY KAISER CARGO, INC.)
Stock ownership front organization, July 81, 1946
Stockholders
Nov. 28, 1942 1
Feb. 2 1943 1
Mar. 27, 1943 1
July 13, 1943 2
Shares
Percent
Shares
Percent
Shares
Percent
Shares
Percent
Henry I. Kaiser Co
Morrison-Knudsen Co., Inc
The Kaiser Co
Kaiser Engineers, Ine.3
J. F. Shea Co., Inc
Total
250
100
500
100
4, 250
750
85
15
2, 250
750
750
750
500
45
15
15
15
10
250
100
500
100
5,000
100
5,000
100
I Issued for cash.
2 Issued or transferred between stockholders for cash.
Formerly California Kaiser Co.
Exhibit G
(Question No. 9)
KAISER FLEETWINGS, INC.?SHIPBUILDING DIVISION ( FORMERLY KAISER CARGO, INC..,
YARD No. 4)
Summary of shipyard income to May 31, 1946
Shipbuilding
(USMC contracts)
Total of shipbui [ding contracts (see schedule 1)
$108, 594,
079. 10
Government furnished materials (see schedule 5)
19, 248,
000. 00-
Total contract volume (see schedule 5)
127, 842,
076. 10
Gross profit before taxes (see schedule 1)
1,047,
301. 39
Federal income taxes (see schedule 1)
776,
619. 18.
Net prat ( see, schedule 1)
270,
082.21
Percent of net profit on total contract volume
. 21
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Exfrthrr
Individuals who have held offices or directorships in more than. 1 of following companies: Kaiser Co., Inc., The Permanente Metals Corp., Richmond Shipbuilding Corp., kaiser Fleetwings, Inc., Oregon Shipbuilding .Corp.
Consolidated Builders, Inc., (to July 31, 1946)
Officers and directors
Kaiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc.
Oregon Shipbuilding Corp.
Consolidated Builders,
Inc.2
Columbia Construe-
tion Co.'
Position
Status'
Position
Status'
Position
Status'
Position
Status I
Position
Status'
Henry I. Kaiser
President
X
President
X
President
X
President
Jan. 15, 1944
President
President.
Do
Director
X
Director
X
Director
X
Director
Director.
Edgar F. Kaiser
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Vice president
Vice president.
Do
Director
X
Director
X
Director
X
Director
Assistant secretary.
E. E. Trefethen, Jr
Vice president
X
Vice president
X
Vice president
X
President
X
Assistant secretary....X
Vice president.
Do
Director
X
Director
X
Director
X
Director
X
Do ,
C. F. Calhoun
Secretary
Vice president
Jan. 7, 1942
X
Secretary
Vice president
Feb. 1, 1943
X
Secretary
Feb. 2, 1943
Vice president
do
Jan. 15, 1944
X
Assistant treasurer
X
Do
Assistant secretary
Jan. 7,1942
Assistant secretary_
X
C. P. Bedford
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Assistant secretary.
Do
Assistant secretary
X
Assistant secretary_
X
Assistant secretary
X
A. B. Ordway
Vice president
X
Vice president
X
Vice president
X
Vice president
X
T. A. Bedford, Jr
do
X
do
X
do
X
Do_
Assistant secretary__
Oct. 18, 1945
Assistant secretary
Oct. 18,1945
Paul S. Marrm
Vice president
X
Assistant secretary_
X
Assistant secretary__
X
Vice president
X
Assistant secretary
X
Assistant secretary.... _
Do
Director
X
Director
Apr. 25,1941
Director
X
Director
Jan. 11,1941
Do
Assistant secretary
X
Vice president
do
Assistant secretary
X
President
do
George Haves
Do
G. (1. Sherwood
Secretary
Secretary treasurer
May 1, 1946
X
Director
Secretary treasurer
do
Dec. 9,1940
Dec. 30, 1940
X
Director
Apr. 25, 1911
Director
X
Vice president
Director.,
Treasurer
do__
do
X
Secretary
Do.
Secretary.
Do
Director
X
Assistant secretary_
X
Secretary-treasurer..
X
Secretary
X
Assistant secretary__
X
Assistant-treasurer.
Do
President
Ian. 7,1942
Assistant secretary
X
Treasurer
X
Do
Assistant secretary_---
May 1,1946
J. F. Reis
do
X
Assistant secretary
X
Assistant secretary__
X
Secretary
X
Assistant secretary
Assistant secretary.
Do
Assistant treasurer___
X
Assistant treasurer_
X
Assistant treasurer
X
Assistant treasurer_
Assistant treasurer.
Do
Vice president
X
C. B. Wood
Assistant secretary--
X
Assistant treasurer
X
Assistant secretary
X
Do
Assistant treasurer_ _ __
X
Assistant treasurer
X
A. E. Beard
Donald Brown_
Assistant secretary
do
X
X
Assistant secretary__
X
Assistant secretary_
Apr. 25,1941
Assistant secretary_
X
Do
Assistant treasurer__
X
E. R. Ordway
Assistant secretary__
X
Assistant secretary_
X
Assistant secretary
George C. Ober, Jr
do
X
Assistant secretary
X
Assistant secretary
X
Assistant secretary
X
do
X
F. H. Bechill
I. E. Lents
do
do
X
X
do
X
do
X
Assistant secretary____
X
Assistant secretary....
M. Van Hoesen
Director
X
Director
Apr. 25,1941
Director
X
R. L. Bridges
do
X
Assistant secretary__
X
Vice president
X
Vice president
X
Vice president
Do
F. Cook
Director
July 5,1945
Director
do
Apr. 25, 1941
do
Director
X
I. L. Friedman
Assistant secretary__
May 1,1940
Assistant secretary
X,
Assistant secretary..
X
Albert Bauer
Vice president
X
Joseph Haag, Jr
Vice President
Feb. 13,1942
Vice president
Feb. 25, 1942
Vice president
Feb. 13,1942
Do
Director
do
Director
do
Director
do
.1'. Strenz
do
Dec. 30, 1940
do
do
do
do
Do
Assistant secretary__
Feb. 13,1942
Assistant secretary
_____ do
Assistant secretary_
do
Do
Assistant treasurer__
do
Assistant treasurer
do
Assistant treasurer
do
E. P. Enter
Director
Dec. 20,1940
do
do
do
do
Do
Do
Assistant secretary
Assistant treasurer
Feb. 13, 1942
do
Assistant secretary
do
Assistant secretary
do
R. I. Lamont
Do
Director
Feb. 14, 1942
Director
Feb. 25, 1912
Director
Vice president
Feb. 13, 1942
do
J. D. Reilly
Director
Feb. 13,1942
Director
Feb. 25, 1942
Director
do
J. H. Todd
do
do
do
do
do
do
S. D. Bechtel
Vice president
June 20,1945
Vice president
June 20,1945
Do
Director
do
Director
do
Director
X
Director
Director.
J. A. MeCone
do
do
do
do
do
X
do
J. A. McEachern
do
X
do
X
do
X
do
Do
President
X
Do
Vice president
Jan. 27, 1942
C. A. Shea
Do
Director
Jan. 27,1942
Director
Jan. 27,1942
Director
President
do
do
H. W. Morrison
Director
X
Director
X
Director
X
Director
Vice president.
Do
Director.
L. S. Corey
Director
X
Director
Feb. 13,1942
Director
Do.
Felix Kahn
do
X
Director
X
do
X
do
Do.
Do
Treasurer
Treasurer.
W. G. Swigert
W. S. Newell
Director
do
X
Feb. 16,1942
Director
do
X
Tune 29,1041
Director
X
Director
G. J. Shea
do
X
do
X
Director
X
Director
R. E. Dill
Assistant treasurer....Feb.
6,1945
Vice president
Oct. 31,1944
A. Richardson
W. Green
0. M. Lund
Director
do
do
Apr. 25, 1941
Feb. 23,1942
do
Director
May 4, 1943
Director
do
Feb. 13,1042
do
?
H. A. Dick
Vice president
X
Do
Director
X
Director
Do
Assistant secretary__
X
Do
Assisant treasurer
X
M. Miller
.Assistant secretary__
Vice president.
E. F. Lackey
Assistant treasurer....
Assistant secretary.
H. F. Morton
Vice president
X
Do.
I
Status: (X) indicates still holds position; date indicates date of resignation.
2 Present officers and directors, only, shown.
'Present officers and directors, only, shown. Columbia Construction Co. had only I contract with the U. S. Maritime Commission for construction of a floating drydock, which was constructed by the Vancouver yard of Kaiser Co., Inc., under a subcontract.
93486-46 (Face p. 460)
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
P-Z000900017000U9K008179dCIU-VI3 01./01./COOZ eseeieu JOd 130A0iddV
Contract No.
(Question No. 9?Schedule 1)
KAISER FLEETWINGS, INC.?SHIPBUILDING DIVISION (FORMERLY KAISER CARGO, INC., YARD No. 4)
Statement of contracts with U. S. Maritime Commission as recorded at May 31, 1946
(B)
Type of contract
(C)
Ships under contracts as
amended
Num-
ber
Type
(D)
Num-
ber of
ships
deliv-
ered
(E)
(H)
(I)
Total
amounts
paid by U. S.
Maritime
Commission
(net)
Unpaid I
(reten-
tions and
amounts
in process
of settle-
ment)
Total paid
or unpaid
Fees
Maxi-
mum
Mini-
mum
Actual
paid by
U.S.
Mari-
time
Commis-
sion
included
in (E)
Profits
received
under
fixed-
price
contracts
included
in (E)
MCc 8719
MCc 18182
MCc 29034
Mee 13181_ _
Total
Price, minus
Fixed price
Selective price
Cost: Engineering and
design.
12
12
12
36
S2-S2-A(41
Cl-M-AV1
Cl-M-AV1
Agency contract (see
schedule 2.
12
12
12
$22, 594, 408. 85
18, 250, 000. 00
13, 493, 536.94
53, 458, 285. 17
$12, 186. 02
750, 000. 00
100, 000. 00
2 64, 340. 88
$22, 606, 594. 87
19, 000, 000. 00
13, 593, 536. 94
53, 393, 944. 29
$720, 000
$360, 000
$394,000
$240, 000
745, 000
36
107, 796, 230. 96
797, 845. 14
108,594, 076. 10
360,000
985, 000
Add fees transferred from other shipyards for work performed under U. S. Maritime Commission contracts (schedule 3)
Less nonreimbursable and disallowed expenses under price-minus contracts, and costs not considered allowable under fixed-price contracts, etc
Gross earnings on U. S. Maritime Commission contracts
Less Federal income and excess-profits taxes thereon
Net income accumulative to May 31, 1946 (per financial report May 31, 1946)
(S) 0
Total Cl)
profits CD
and fees
co 0
M
rdi C-4
1.4
Is.. LT!
0 '
$364,000000.00. 00 a
2 17 0
745, 000.00 . .
0 o
5
1,345, 000.00 1-9
Cfl
13, 058. 04 0
1, 358, 058.04 -0
310, 756. 65
4:.
1, 047, 301. 39 CO
776,619.18
270, 682. 21 c,4
4:.
I See schedule 4.
See the following:
Agency cash on deposit $68, 863. 36
Less unbilled reimbursable costs 4, 522. 48
Remainder 64, 340.58
NOTL?The above amount do not include the value of materials, if any, furnished by U. S. Maritime Commission without cost to the contractor.
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
462 SHIPYARD PROFITS
(Question No. 9?Schedule 2)
KAISER pLUETW INGS, IN C.? SH IPB UILDING DIVISION (FORMERLY Km SEE CARGO,
INC., YARD No. 4)
CONTRACT MCC 1 3 1 8 1
I. Under the terms of this contract, Kaiser Cargo, Inc.?
(a) Prepared working plans, specifications, requisitions, and bills of ma-
terials, etc. for up to 100 vessels in accordance with plans and specifications
designated "Design S2?S2?AQ-1." Of this number only 12 were to be con-
structed by Kaiser Cargo, Inc., with the balance to be constructed by various
other unrelated shipyards.
(b) Purchased for the account of and as agent of the United States Mari-
time Commission materials and equipment necessary for the construction
of such veFsels for delivery to it and all the other shipyards holding con-
tracts under this program.
II. To pay for all of the material and equipment under such purchasing
program, the Commission deposited $4,000,000 in a special revolving fund
bank account from which withdrawals were made only by checks signed jointly
by an authorized representative of both the company and the regional auditor
of the United States Maritime Commission.
III. The company furnished the necessary working capital to cover the pay
rolls and office expenses of the project.
IV. The company was paid no fee or profits directly or indirectly for this
engineering design and procurement. Certain expenses which were determined
to be nonrelinbursable by the Finance Section of the Commission were charged
against the profits from shipbuilding operations.
KAISER
(Question No. 9?Schedule 3)
FLEETW INGS, IN C.?S HIPBUILDING DIVISION (FORMERLY KAISER CARGO.
INC., YARD NO. 4)
TRANSFERS OF FEES FROM OTHER SHIPYARD
Contract MCI 36279 was issued by the United States Maritime Commission
to Kaiser Co., Inc., to cover ship-repair work for other Government agencies,
such as War Shipping Administration, United States Navy, and United States
Army. This contract (as amended) authorized Kaiser Co., Inc., to allocate
ships to be repaired to the Permanente Metals Corp. and Kaiser Cargo, Inc.,
as subcoutractors. Kaiser Co., Inc., reduced its fee earnings by transferring
$13,508.04 to Kaiser Cargo, Inc.
(Question No. 9?Schedule 4)
KAISER FLEFTW ENGS, INC.?SHIPBUILDING DIVISION (FORMERLY KAISER CARGO, INC.,
YARD No. 4)
STATUS OF' UNPAID AND UNSETTLED CONTRACT AMOUNTS
[Supplement to 9 (E)]
I. Final settlement of unpaid amounts is subject to completion of the following:
1. Payment by the contractor and obtaining final release on all commit-
ments pertaining to the applicable contracts.
2. ?ubsequent preparation by the contractor of final statements of costs.
3. Audit by representatives of the United States Maritime Commission of
contractor's final statement of costs.
4. Desoll ing the open appeals of the contractor from costs disallowed by
the United States Maritime Commission and final negotiation thereof.
Approved ForRelease 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 463
5. Final determination of costs and resultant agreement of amounts to be
recaptured by the United States Maritime Commission and/or amounts due
the contractor from the United States Maritime Commission.
Every reasonable effort is being extended by the contractor to complete item 1
so that the other steps listed above may be completed to effect final settlement at
the earliest possible date. However, in view of the tremendous volume of pur-
chase orders, subcontracts, and other commitment documents issued, such work
is unavoidably slow. In the interim, the contractor and the United States Mari-
time Commission Finance Section are negotiating tentative settlements to cover
a substantial portion of the amounts involved, leaving minimum amounts for final
future settlement.
IL Unpaid-"Retentions" represents at May 31, 1946, the final payments due
on fixed price and lump-sum contracts, withheld by the United States Maritime
Commission in accordance with the terms of the respective contracts, until and
if the recorded costs justify additional payments. Included in the net total of
$797,845.14 unpaid contract amounts per schedule 1 is $850,000 representing such
retentions.
(Question No. 9-Schedule 5)
R At SER FLEETWINGS, INC.-SHIPBUILDING DIVISION ( FORMERLY KAISER CARGO,
INC., YARD No. 4)
Statement of contracts with U. S. Maritime Commission
Contract
No.-
Type of contract
Ships under
contracts as
amended (typo)
Num-
bor of
ships
deli-
vered
Contract value
Commis -
sion
furnished
materials
Total
contract
volume
M Cc-Silo.._ _ _
MCc-18182_ __
MCc-29034_ _ _
M Cc-13181_ __
Total
Price minus
Fixed price
Selective price
Cost-engineering
and design.
S2-S2-AQ1
C1-M-AV1
do
Agency contract
(see schedule
2).
12
12
12
$22, 608, 594. 87.
19, 000, 000. 00
13, 593, 506.04
53, 393, 944.20
(1)
$9, 624, 000
9, 624, 000
$22, 606, 594. 87
28, 624, 000. 00
23, 217, 536. 94
53, 393, 044. 20
36
108, 594, 076. 10
19, 248, 000
127, 842, 076. 10
I Commission furnished materials. Cost included in contract MCc-13181 in amount of $6 320,527.83.
Exhibit II
(Questions Nos. 10 and 11-Schedule 1)
K AI SER FLEETWINGS, INC.-SHIM/EWING DIVISION (FORMERLY KAISER CARGO,
INC., YARD No. 4)
EFFECT OF RENEGOTIATION ON FEES AND PROFITS AND STATUS OF CONTRACTS STILL
SUBJECT TO RENEGOTIATION
I. The Price Adjustment Board of United States Maritime Commission has
found that no excessive profits were realized for the fiscal years ending October
.31, 1943, and October 31, 1944,
2. Renegotiation has not yet been completed for the fiscal year ending October
31, 1945. However, as the vessels constucted by the shipbuilding division for the
fiscal year ending October 31, 1945, were constructed under a selective price
contract, which is not subject to renegotiation, it is obvious that there will be no
,excessive profits allocable to shipbuilding operations.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
464 SHIPYARD PROFITS
"1 NOVEMBER 13, 1946.
In answer to the telegrams from Marvin J. Coles, addressed to Kaiser Fleet-
wings, Inc, (formerly Kaiser Cargo, Inc.), dated October 10 and 11, 1946, we
submit the following information::
1. Average amount of applicable pa,id-in capital.
As mentioned in exhibit B of the report originally submitted to the committee,
the capital of the company from November 1942 to February 1943 was $100,000,
'represented by issned and fully paid capital stock. In February 1943 the capital
of the company was increased to $500,000 and still remains the same. This
capital is represented by capital stock of the company which has been issued
and fully paid. In addition to the capital represented by this stock, there were
'subordinated stockholders' loans made to the corporation in the amount of
1;250,000. As mentioned in the report originally submitted to the committee
none of thebove- mentioned capital was applicable to the shipbuilding activities
i
of the com any but was used in its aircraft-manufacturing activities. The
amount available for the shipbuilding activities of the company was $1,000,000
in private bank loans not guaranteed by the Government or any agencies thereof
until June 1943. Thereafter, the total amount available for such shipbuilding
operations was $1,500,000 in private-bank loans, which were not guaranteed by
the Maritime Commission but by another agency of the Government.
2. Average amount of outstanding bank loans.
The bank loans to Kaiser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.) fluctu-
ated between $1,000,000 and $1,500,000 during the period of its shipbuilding activi-
ties. The first loans for shipbuilding purposes were obtained in April 1943 and
the final paYment was made in April 1945. The average of said loans for the
elapsed period of 25 months was$1,388,000.
3. EXCe88 fees and profits determined by renegotiation of contracts allocated
between renegotiated contracts.
As mentioned in exhibit N attached to the original report submitted to the
committee, the Price Adjustment Board has found upon renegotiation of Kaiser
Fleetwings, 1 Inc. (formerly Kaiser Cargo, Inc.) that no excessive profits were
realized for' the fls'cal years ending October 31, 1943, and October 31, 1944. Re-
negotiation of the company for the fiscal year ending October 31, 1945, has not
yet been co pleted. However, all vessels constructed by the company during the
fiscal year nding October 31, 1945, were constructed under a selective price con-
tract which is not subject to renegotiation.
4. Disallciwed costs allocated to applicable contracts.
Disallowed cos' s allocated to contracts of Kaiser Fleetwings, Inc. (formerly
Kaiser Cargo, me.) were as follows:
MCc?$719_ $197, 047. 15
MCc-18182_ 73, 415. 52
40, 293. 98
Mee-29034_
Total 310, 756. 75
' Allocattin of disallowed costs was based on the major contract in force for
ship construction at the time the expense was incurred or the disallowance was
made. No allocation was made to an engineering and design contract upon
which no fee or profit was paid.
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 465
EXHIBIT 13
REPORT OF OREGON SHIPBTJILDING CORP., TO MERCHANT MARINE AND FISHERIES,
INVESTIGATING COMMITTEE, AUGUST 30, 1046
OREGON SHIPBUILDING CORP.,
Portland 3, Oreg., August 29, 1946.
MERCHANT MARINE AND FISHERIES INVESTIGATING COMMITTEE,
House of Representatives, Washington 25, D. C. ?
GENTLEMEN : We are pleased to furnish herewith the information requested in
your letter of July 27, 1946, concerning the shipbuilding activities of this cor-
poration as follows:
1. Date on which the company was formed and a copy of its corporate charter.
Oregon Shipbuilding Corp. (hereinafter referred to as the "company") was
incorporated on January 9, 1941. A copy of its certificate of incorporation to-
gether with a copy of an amendment thereof, are attached hereto as exhibit A.
2. The total capital of the company, giving a break-down of the types of stock
and securities.
The total amount available for the shipbuilding operations of this company was
$6,950,000, comprised of $550,000 in capital stock; $3,000,000 in loans by stock-
holders which were subordinated at all times to any bank loans, and $3,400,000
in private bank loans not guaranteed by the Government or any agencies thereof.
See exhibit B attached hereto for particulars.
3. The names of all officers and directors and a statement of their annual
compensation.
The names of all officers and directors are shown on exhibit C attached hereto.
No officer or director received compensation for holding any office or directorship
as such, except for Mr. Joseph Haag, Jr., during a short period of time. All com-
pensation was for services rendered as an employee of the company and refer-
ence is made to exhibit D attached hereto for a full statement of the compensation
paid such employees.
4. The names of all officers and employees who have received compensation
over $15,000 per annum, giving the amounts received and the extent to which
such pagMents were reimbursable by the Maritime Commission,
Exhibit D contains schedules detailing not only the information requested, but
also the compensation of all individuals who have been officers or directors of
any of the following companies:
Kaiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc. (formerly Kaiser Cargo, Inc.).
Oregon Shipbuilding Corp.
Only those officers who were employed full time on shipbuilding activities
were compensated for services in connection therewith, and the president of the
t ompany and many other officers and directors did not receive any compensation
in connection with the shipbuilding operations,. although very considerable time
and effort was devoted by them to the company's shipbuilding business. During
the course of the shipbuilding program only six persons were ever paid at an
annual rate in excess of $15,000 by any of the above-mentioned companies for
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
466
SHIPYARD PROFITS
services performed in the shipbuilding operations and in only three instances
was more than $15,000 reimbursed by the Maritime Commission. One such in-
stance involved Mr. J. F. Reis, administrative manager of all seven yards oper-
ated by the above 2ompanies, who was paid a total of $15,576 in 1944, which was
fully reimbursed. Another instance involved Mr. Edgar F. Kaiser, vice president
and general manager of the shipyards of this company and the Vancouver and
Portland yards of Kaiser Co., Inc., who was paid in excess of $15,000 per year, the
highest amount lying $18,346 paid in 1943 by Kaiser Co., Inc., which was fully
reimbursed by the Maritime Commission. The third instance involved Mr. C. P.
Bedford, general manager of yards operated in California by the Permanente
Metals Corp:, Kaiser Co., Inc., and Kaiser Fleetwings, Inc., and is, therefore, not
involved here, but reference is made to the reports of those companies being
submitted simultaneously herewith for further information. Messrs. Edgar F.
Kaiser and b. P. Bedford, as general managers, had the direct and primary re-
sponsibility for the management and operation of a total of seven shipyards oper-
ated by the above-mentioned companies, which employed in excess of 180,000 per-
sons at various times during the course of the war and produced 1,474 ships for
the Maritime Commission.
5. The names or all persons, associations, or corporations holding 5 percent or
more of the capital stock of the company, giving the amounts of capital stock
held by each.
Since May 18, 1942, all of the stock of this company has been owned by Con-
solidated Builders, Inc., the stock of which, in turn, is, and since said date has
been, owned in varying percentages by 10 corporations. Please refer to exhibit E
for further information.
6. The shipbuilding experience prior to 1941 of an officers, directors, and 1stock-
holders hol ing over 5 percent of the capital stock.
Prior to 941, )fficers, directors, and stockholders of the company had been
engaged in eavy construction projects which included, among others, the build-
ing of Boulder Dam, Bonneville Dam, Grand Coulee Dam powerhouses and fa-
cilities, and many other projects. Through these activities and over the course
of many years prior thereto, an integrated organization was developed which
was experienced [Jul efficient in procuring and handling large quantities of mate-
rials and in mass production and fabrication methods.
In 1939 the Kaiser interests and several associates joined with the Todd Ship-
building Corp. in forming the Seattle-Tacoma Shipbuilding Corp. In July 1939
said company submitted the low competitive bid to the United States Maritime
Commission for the construction of five C-1 cargo vessels. These vessels were
completed in 1941 in a shipyard privately financed and constructed at Tacoma.
Wash. During 1040 this same company was awarded contracts for 30 destroyers
by the Navy Department and 4 C-3 cargo vessels and 2 C-3 troop transports
by the Maritime Commission. Participation in this company by the Kaiser inter-
ests and asaociates continued until February 1942.
Messrs. S. H. Todd, J. D. Reilly, Joseph Haag, Jr., R, J. Lamont, C. F. -Strenz,
and Walter Green, representing the Todd interests and all fully experienced in
shipbuilding operations over a period of many years, served as officers and/or
directors of Seattle-Tacoma Shipbuilding Corp. In addition, Messrs. J. A. Mc-
Eachern, Ct A. Shea, Felix Kahn, Henry J. Kaiser, and G. G. Sherwood, repre-
senting the Kaiser interests and associates, also served as officers and/or directors
of said company, Mr. MeFachern and Mr. Sherwood having served, respectively,
as vice president and treasurer. All of these individuals later became officers
and/or directors of Oregon Shipbuilding Corp., Mr. Shea having served as the
first president of the company until January 1942 and Mr. MeEachern having
Served thereafter as president. Both Mr. McEachern and Mr. Shea had previ-
ously obtained shipbuilding experience during World War I. Mr. Shea was
associated with the North Pacific Shipbuilding Co. through the firm of Twohy
& Erickson, which shipbuilding company produced steel ships in Seattle during
the last war. The J. A. MeEachern Co.. built wooden ships during the last war
at Astoria, Oreg.
In December 1940 the Kaiser interests and associates again joined with the
Todd Shipbuildir g Corp. in forming Todd-California Shipbuilding Corp., of which
Mr. Henry J. Kaiser was president and which contracted with the British Gov-
ernment to build a seven-way shipyard at Richmond, Calif., and 30 cargo ships.
This yard was completed in August 1941 ancl'in February 1942 the Todd interests
In this corporation were acquired, the name of the corporation changed to the
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
SHIPYARD PROFITS 467
Permanente Metals Corp., and the British contract completed under the sole
sponsorship and management of the Kaiser interests.
Through participation and association in the early shipbuilding activities of
Seattle-Tacoma Shipbuilding Corp., and Todd-California Shipbuilding Corp. by
individuals who later became officers, directors, or key personnel of this com-
pany, shipbuilding experience and know-how was obtained which was mani-
fested early in 1942 when this company and the Permanent Metals Corp. at-
tained, and thereafter maintained, shipbuilding production records which set
the pace in Liberty-ship construction for the entire Nation.
7. The names of officers, directors, or stockholders owning more than 5 percent
of the capital stock of your company, who have held positions as officers or direc-
tors of another company which had contracts with the United States Maritime
Commission or the War Shipping Administration.
No individual owned any stock of this company. For your information, how-
ever, a schedule is attached as exhibit F, showing the names of officers or direc-
tors holding such positions in more than one of the following corporations which
had contracts with the United States Maritime Commission or the War Shipping
Administration:
Kaiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser neetwings, Inc. (formerly Kaiser Cargo, Inc.).
Oregon Shipbuilding Corp.
Columbia Construction Co.
In addition, Messrs. Henry J. Kaiser, G. G. Sherwood and Edgar F. Kaiser were
officers and/or directors of California Shipbuilding Corp. until April 1945.
8. The names of all officers, directors, or stockholders owning more than 5 per-
cent of the capital stock of the company who have owned 5 percent or more of the
capital stock of another company which had contracts with the Maritime Com-
mission or the War Shipping Administration.
As mentioned above, the sole, stockholder of Oregon Shipbuilding Corp. Is Con-
solidated Builders, Inc. No individual has owned in excess of 5 percent of stock
of the latter corporation, but various corporations own in excess of that per-
centage. A schedule showing the names and percentage interests of these cor-
porations is contained in exhibit E referred to in question a. As regards Henry
J. Kaiser Co. and the Kaiser Co., the information requested is covered in the
answer to question No. 13 submitted by Kaiser Co., Inc., in its report to your
committee being submitted simultaneously herewith, and reference is made to
said report for further information. Respecting the other corporate stockholders
involved, this company does not have the requested information or the means of
securing it.
9. A description of all contracts between the company and the Maritime
Commission.
Please see exhibit G and schedules attached thereto for the requested informa-
tion. In summary, the total number of ships constructed and delivered was 463.
The total volume of work performed amounted to P63,587,560. The net profit
on this volume of work, after Federal income taxes, was $13,111,491, or 1.36
percent of the total volume.
10. The fees and profits under each of the afore-mentioned contracts allowed
after renegotiation.
Please refer to exhibits G and H and schedules attached thereto for this
information.
11. The status of each contract still subject to renegotiation, giving, wherever
possible, information showing the opinion of the Price Adjustment Board and of
the company as to fees and profits permissible under each contract.
This information is shown on exhibit H attached hereto.
12. The total cost to the Government of the shipyards and facilities used bg
your company.
The total cost of the shipyard and facilities used by this company was $20,107,-
408.67, excluding transportation and housing, all of which were constructed by
the company without fee or profit. For further details, please refer to exhibit 1.
We shall be pleased to furnish you with any other information you may desire
Respectfully submitted.
OREGON SHIPBUILDING CORP.,
HENRY J. KAISER, Director.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
468 SHIPYARD PROFITS
Ewhibit A
CERTI1IICATE1 OF INCORPORATION OF OREGON SHIPBUILDING CORPORATION
,
First.?The name of the corporation is Oregon Shipbuilding Corporation.
Second.?its principal office in the State of Delaware is located at No. 100
West Tenth Street, in the City of Wilmington, County of New Castle. The name
and address of its resident agent is The Corporation Trust Company, No. 100
West Tenth Street, Wilmington, Delaware.
Third.?Te nature of the business, or objects or purposes to be transacted,
promoted or carried on are:
. To build, equip, operate, maintain, buy, sell, deal in and with, own, charter
and otherwise dispose of ships, vessels and boats of every nature and kind what-
soever, together with all materials, articles, tools, machinery and appliances
entering into or suitable and convenient for the construction or equipment thereof,
together with engines, boilers, machinery, appurtenances, tackle, apparel and
furniture of all ki rids; to buy, lease or otherwise acquire, construct, maintain and
operate wharves, piers, docks and warehouses; to construct and maintain for the
use of the compaliy or for letting out on hire, graving and other docks and other
convenience S for the building, repairing or docking of ships and other vessels,
and to aid in or contribute to the construction of any such works; to buy or other-
wise acquire ships and vessels, complete or not complete, sound or out of repair,
for the pur-Pose of improving, reselling, chartering or otherwise making a profit
out of the Same, to carry on a general contracting business.
To manufacture, buy or otherwise acquire, own mortgage, sell, assign, transfer
or otherwise dispose of, trade and deal in and with goods, wares and merchandise
and personal property of every class and description.
To take, own, hold, deal in, mortgage or otherwise give liens against, and to
lease, sell, exchange, transfer or in any manner whatever, to dispose of real
property.
To acquire anti pay for in cash, stock or bonds of this corporation, the good
will, rights! assel,s and property, and to undertake or assume the whole or any
part of the obliga Lions or liabilities of any person, firm, association or corporation.
To acquiie, hold, use, sell, lease, grant licenses in respect of, mortgage or other-
wise dispose of, letters patent of the United States or any foreign country, patent
rights, licenses, privileges, inventions, improvements and processes, copyrights,
trade-marks and trade names, relating to or useful in connection with any busi-
ness of this corporation.
To loan money, to guarantee, purchase, hold, sell, assign, transfer, mortgage,
pledge or otherwise dispose of (as principal or agent) shares of the capital stock
of, or any bon(19, securities or evidences of indebtedness created by any other
corporation or corporations organized under the laws of this state or any other
state, country, nation or government, and while the owner thereof to exercise all
the rights, powers and privileges of ownership.
To promote or to aid in any manner, financially or otherwise, any corporation
or association; and for this purpose guarantee or become a surety upon the con-
tracts, div dends, stock, bonds, notes or other obligations of such other corpora-
tions or as ociat ons ; and to do any other acts or things designed to protect, pre-
serve, imp eve cr enhance the value of the stock, bonds, or other evidences of
indebtedness or securities of such other corporation.
To entei into any lawful arrangements for sharing profits and/or losses, union
of interests, reciprocal concessions or cooperation with any corporation, associa-
tion, partnership, syndicate, person, governmental, municipal or public authority,
domestic or foreign, in the carrying on of any business which this corporation is
authorized to carry on, or any business or transaction deemed necessary, con-
venient or iincidental to carrying out any of the purposes of the corporation.
To borrow money for any of the purposes of this corporation, and to issue
bonds, debentures, notes or other obligations therefor, and to secure the same
by pledge or mortgage of the whole or any part of the property of this corporation,
whether real or personal, or to issue bonds, debentures, notes or other obligations
without any such security.
To purchase, hold, sell and transfer the shares of its own capital stock; pro-
vided it shall net use its funds for the purchase of its own shares of capital stock
when suc1 use would cause any impairment of its capital; and provided further,
that shar s of its own capital stock belonging to it shall not be voted upon directly
or indireetly.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
SHIPYARD PROFITS 469
To carry on any other lawful business whatsoever which may seem to the
corporation capable of being carried on in connection with the above, or calcu-
lated directly or indirectly to promote the interests of the corporation, or to en-
hance the value of its properties; and to have, enjoy and exercise all the rights,
powers and privileges which are now or which may hereafter be conferred upon
corporations organized under the same statutes as this corporation:
The foregoing clauses shall be construed both as objects and powers; and it is
hereby expressly provided that the foregoing enumeration of specific powers
shall not be held to limit or restrict in any manner the powers of this corporation.
Fourth.?The total number of shares of stock which the corporation shall have
authority to issue is five thousand (5,000) ; all of such shares shall be without
par value.
At all elections of directors of this corporation each holder of record of stock
possessing voting power shall be entitled to as many votes as shall equal the
number of shares of his stock multiplied by the number of directors to be elected
and he may cast all of such votes for a single director or he may distribute them
among the number to be voted for or any two or more of them as he may see fit,
and thus exercise the right of cumulative voting.
Fifth.?The amount of capital with which the corporation will commence
business is One Thousand Dollars ($1,000.00).
Sixth.?The names and places of residence of the incorporators are as follows:
Names Residences
R. F. Lewis Wilmington, Delaware
L. H. Herman Wilmington, Delaware
Walter Lenz Wilmington, Delaware
Seventh.?The corporation is to have perpetual existence.
Eighth.?The private property of the stockholders shall not be subject to the
payment of corporate debts to any extent whatever.
Ninth.?In furtherance, and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized :
To make, alter, or repeal the bylaws of the corporation.
To authorize and cause to be executed mortgages and liens upon the real and
personal property of the corporation.
To set apart out of any of the funds of the corporation available for dividends
a reserve or reserves for any proper purpose or to abolish any such reserve in the
manner In which it was created.
By resolution or resolutions, passed by a majority of the whole board to desig-
nate one or more committees, each committee to consist of two or more of the
directors of the corporation, which, to the extent provided in said resolution or
resolutions or in the bylaws of the corporation, shall have and may exercise the
powers of the board of directors In the management of the business and affairs
of the corporation, and may have power to authorize the seal of the corporation
to be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may .be determined from Utile to time by
'resolution adopted by the board of directors.
" When and as authorized by the affirmative vote of the holders of two-thirds of
the stock issued and outstanding having voting power given at a stockholders'
meeting duly called for that purpose, or When authorized by the written consent
of the holders of two-thirds of the voting stock issued and outstanding, to .sell,
lease, or exchange all of the property and assets of the corporation, including its
good will and its corporate franchises, upon such terms and conditions and for
such consideration, which may be in whole or in part shares of stock in, and/or
other securities of, any other corporation or corporations, as its board of directors
shall deem expedient and for the best interests of the corporation.
The corporation may in its bylaws confer powers upon its board of directors in
addition to the foregoing, and in addition to the powers and authorities expressly
conferred upon it by statute.
Tenth.?In the event that any authorized but unissued stock or any new class
of stock shall be created, or the authorized number of shares of stock of the cor-
poration shall be increased, or there shall be issued any bonds, notes, debentures,
or other securities other than stock, convertible into stock, the holders of shares
of stock of the corporation outstanding at the time such authorized but unissued
stock or new class of stock, or such increase, is offered for subscription, shall have
the right to subscribe for the shares of such new class of stock and for any shares
5
Approved For Release 2003/10/10 : CIA-RDP64B00346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
470 SHIPYARD PROFITS
of such increased stock so to be issued, or notes, debentures or other securities
other than stock convertible into stock, before the same is offered for public sub-
scription, in proportion to the number of shares owned respectively by each of
the holders of such stock.
Eleventh.?The corporation may enter into contracts or transact business with
one or more of its directors, or with any firm of which one or more of its directors
are members, or with.any corporation or association in which any one of its direc-
tors is a stockholder, director, or officer, and such contract or transaction shall
not be invalidated ro in anywise affected by the fact that such director or direc-
tors have Or may have interests therein which are or might be adverse to the
Interests of the corporation, even though the vote of the director or directors
having such adverse interest shall have been necessary to obligate the corpora-
tion upon such contract or transaction; and no director or directors having such
adverse interest shall be liable to the corporation or to any stockholder or creditor
thereof, or to any other person, for any loss incurred by it under or by reason of
any such contract or transaction; nor shall any such director or directors be
accountablc for any gains or profits realized thereon: Always provided, however,
that such contract or transaction shall at the time at which it was entered into
have been n reasonable one to have been entered into and shall have been upon
terms that at the time were fair.
Twelftlt.?Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this corpora-
tion and its stock holders or any class of them, any court of equitable jurisdiction
within the ,State of Delaware may, on the application in a summary way of this
corporation or of any creditor or stockholder thereof, or on the application of any
receiver or receivers appointed for this corporation under the provisions of Sec-
tion 4407, Of the Revised Code of 1935 of said State, or on the application of trus-
tees in disSolution or of any receiver or receivers appointed for this corporation
under the provisions of Section 43 of the General Corporation Law of the State of
Delaware, order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be, to be
summoned' in such manner as the said Court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors, and/or
of the stockholders or class of stockholders of this corporation, as the case may
be, agree to any compromise or arrangement and to any reorganization of this
corporation as a consequence of such compromise or arrangement, the said com-
promise or arrangement, and the said reorganization shall, if sanctioned by the
Court to which the said application has been made, be binding on all the creditors
or class of creditors, and/or on all the stockholders or class of stockholders, of
this corporation, as the case may be, and also on this corporation.
Thirteenth.?Meetings of stockholders may be held without the State of
Delaware, if the bylaws so provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside of the State of
Delaware iat such place or places as may be from time to time designated by the
board of directors.
Fourteenth.?The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate of incorporation, in the manner
now or hereafter prescribed by statute, and all rights conferred upon stock-
holders herein are granted subject to this reservation.
We, the undersigned, being each of the incorporators hereinbefore named for
the purpoSe of forming a corporation in pursuance of the General Corporation
Law of the State of Delaware, do make this certificate, hereby declaring and
certifying that the facts herein stated are true, and accordingly have here-
unto set our hands and seals this 6th day of January, A. D. 1941.
R. F. LEWIS. [SEAL]
L. H. HERMAN. [sF,AL]
WALTER LEN. "SEAL]
In presence or?
HAROLD Ii. GRANTLAND.
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 471
STATE OF DELAWARE,
County of New Castle, ss:
Be it remembered, that on this 16th day of January A. D. 1941, personally
appeared before me, Harold E. Grantland, a Notary Public for the State of
Delaware, R. F Lewis, L. H. Herman, and Walter Lenz, all of the parties to
the foregoing certificate of incorporation, known to me personally to be such,
and severally acknowledged the said certificate to be the act and deed of the
signers respectively and that the facts therein stated are truly set forth,
Given under my hand and seal of office the day and year aforesaid.
HAROLD E. GRANTLAND, Notary Public.
Appointed January 10, 1939, State of Delaware, term two years.
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION OF OREGON
SHIPBUILDING CORPORATION
Oregon Shipbuilding Corporation, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify:
First?That the Board of Directors of said corporation, at a meeting duly
convened and held, adopted a resolution proposing and declaring advisable
the following amendment to the certificate of incorporation of said corporation:
"Resolved, That the Certificate of Incorporation of Oregon Shipbuilding
Corporation be amended by changing the article thereof numbered 'Fourth'
so that, amended, the said article shall be and read as follows:
"`Fourth.?The total number of shares of stock which the corporation shall
have authority to issue is ten thousand (10,000) ; all of such shares shall
be without par yalue.'
"At all elections of directors of this corporation each holder of record of
stock possessing voting power shall be entitled to as many votes as shall
equal the number of shares of his stock multiplied by the number of direc-
tors to be elected and he may cast all of such votes for a single director
or he may distribute them among the number to be voted for or any two
or more of them as he may see fit, and thus exercise the right of cumulative
voting."
Second.?That the said amendment has been consented to and authorized by
the holders of all the issued and outstanding stock, entitled to vote, by a written
consent given in accordance with the provisions of Section 81 of the General
Corporation Law of Delaware, and filed with the corporation on the 29th day of
March 1041.
Third.?That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Sections 26 and 81, of the General Corporation
Law of Delaware.
Fourth.?That said amendment does not effect any change in the issued shares
of said corporation.
In witness whereof, the said Oregon Shipbuilding Corporation has caused
its corporate seal to be hereunto affixed and this certificate to be signed by
Charles A. Shea, its President, and G. G. Sherwood, its Assistant Secretary,
this 7th day of May 1941.
STATE OF OREGON,
County of Multnomah, ss:
Be it remembered that on this 7th day of May 1941, personally came before me,
Arthur H. Lewis, a Notary Public in and for the County aforesaid, Charles A.
Shea, President of Oregon Shipbuilding Corporation, a corporation of the State
of Delaware, the corporation described in and which executed the foregoing cer-
tificate, known to me personally to be such, and he, the said Charles A. Shea, as
OREGON SHIPBUILDING CORPORATION,
By CHARLES A. SHEA, President.
By G. G. Stuntwoon, Assistant Secretary.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
472 SHIPYARD PROFITS
such President, duly executed said certificate before me and acknowledged the
said certificate to be his act and deed and the act and deed of said corporation;
that the signatures of the said President and of the Assistant Secretary of said
corporation to said foregoing certificate are in the handwriting of the said Presi-
dent and Assistant Secretary, respectively, of said corporation, and that the
seal affixed to said certificate is the common or corporate seal of said corporation.
In witness whereof, I have hereunto set my hand and seal of office the day
and year aforesaid.
[ SEAL] ARTHUR H. LEWIS,
Ndtary Public in and for the County of Multnomah, State of Oregon.
My commission expires August 1, 1941.
OREGON
Exhibit B
SHIPBUILDING CORP.
ANSWER TO QUESTION NO. 2 OF QUESTIONNAIRE OF JULY 27, 1946
General
Capital consist ad of capital stock; stockholders' loans, subordinated; bank
loans.
Total of bove (maximum) : $6,950,000.
Stock (al common, no par value).?
Original: January
Increase, Februa
Total,
Stockholders
times subordinate
Original:
Additional,
February
1941 $100,
ry 1942
450,
000
000
Feb ruary 1942 to present 550, 000
loans, subordinated.?These loans from stockholders were at all
to any bank claim.
April 1941 $700, 000
February 1942 540, 000
1942 to November 1942 1,240,
000
Additional,
November 1942 1, 000,
000
Novenber
1942 to August 1943 2,240,
000
Repaid Septemb(
r 1943 1,
240,
000
September
1943 to November 1943 1,
000,
004
Additional,
November 1943 2,
000,
000
November
1943 to March 1944 3,
000,
000
These loans were repaid in full during March 1944.
. Bank loans.?These were secured from three banks in Portland, Oreg. :
Bank of California $1,400,
000
First National
Bank of Portland 1, 000,
000
The U. S.
National Bank of Portland 1,
000,
000
3,
400,
000
None of these loans was guaranteed in any way by the United States Govern-
ment or any of its agencies, subdivisions, departments, etc.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 473
Exhibit C
01VA:301c SHIPBUILDING CORP.
laiSt of all officers and directors from, date of or#anization to July 31, 1946, and
annual compensationl
Date title held
From-
To-
Present officers and directors:
President: J. A. McEachern
Vice presidents:
Edgar F. Kaiser
H. F. Morton
H. A. Dick
R, L. Bridges
Secretary: J. F- Reis
Treasurer: G. G. Sherwood
Directors:
Henry J. Kaiser
S. D. Bechtel
3. A. McEachern
Edgar F. Kaiser
H. A. Dick
Felix Kahn
H. W. Morrison
Jan. 27,1942
Ian. 11,1041
do
Feb. 13,1942
Apr. 6,1944
Jan, 11, 1041
do
do
do
do
Feb. 13,1942
do
San. 11,1941
do
G. j. Shea
W. G. Swigert
J. A., McColl?
Assistant secretaries:
P. S. Marrin
G. G. Sherwood
H. A. Dick
E. E. Trefethen, Jr
G. C. Ober, Jr
E. R. Ordway
I. E. Lents
Assistant treasurers:
H. A. Dick
E. E. Tfetheren, Jr
Past officers and directors:
Presidents:
P. S. Marrin
C. A. Shea
Vico presidents:
George Haves
H. C. Hill
J. Haag, Jr
J. A. McEachern
R. J. Lamont
Secretary: H. C. Hill
Treasurer: H. C. Hill
Directors:
P. S. Marrin
George Havas
H. C. Hill
J. C. Byrne
F. W. Short
J. D. Reilly
J. Haag, Jr
R. J. Lamont
C. F. Strenz
J. H. Todd
W. L. Green
0. M. Lund
L. S. Corey
C. A. Shea
Assistant secretaries:
C. F. Strenz
E: P. Enter
Assistant treasurers;
C. F. Strenz
E. P. Enfer
Jan. 27,1942
Feb. 13,1942
do
do
Mar. 29,1941
Jan. 11,1941
Jan. 17,1942
A-ug. 26,1942
Nov. 24,1942
Mar. 19,1946
Jan. 11, 1941
Feb. 13,1942
Jan. 8,1941
Jan. 11,1941
Jan, 8, 1941
do
Jan. 11,1941
do
do
Jan. 8, 1941
do
Jan. 6,1041
do
do
do
do
Jan. 11,1941
do
do
do
do
do
do
do
do
do
do
do
Jan. 11,1941
Jan. 27,1942
Jan. 11, 1941
Do.
Feb. 13,1942
Jan. 27,1942
Feb. 13, 1942
Jan. 11,1941
Do.
Do.
Do.
Do.
Do.
Do.
Fob. 13, 1942
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Jan, 27,1942
Feb. 13,1942
Do.
Do.
Do.
1 Other than Joseph Haag, Jr., no other officer nor director received any compensation for holding any office
or directorship; compensation to all others was for services rendered as an employee of the company. Mr.
Haag's salary was as follows:
Apr. 1 to Dec. 31, 1941, inclusive 61, 867. 09
Jan. 1 to Feb. 25, 1942, inclusive 432.72
Before or after these dates None '
Sec exhibit D for details of any salaries paid.
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
474 SHIPYARD PROFITS
Exhibit D
OREGON SHIPBUILDING CORP.
Salaries' paid to (1) Officers and 4,irectors (regardless of amount), (2) others-
(in excess cf $15,000 annually), (8) individuals who have been officers Or
directors of Kaiser Co., Inc., the Permanente Metals Corp., Richmond Ship-
building Corp., Kaiser Fleetwings, Inc., or Oregon Shipbuilding Corp.
Name
Occupational title
Period covered
Total
wages
paid
Amount t
CALENDAR YEAR 1941
(1) Officers and directors:
Edgar F. Kaiser
J. F, Reis
Joseph Haar, Jr
(2) Other (over $15,000):
None.
(3) Officials ' of other com-
panies;
Albert Bauer
M. Miller
CALENDAR YEAR 1042
(1) Officers and directors:
Edgar F. Keiser
J. F. Reis
J. E: Lents_
Josenh Haag, Jr
:2) Others (over $15,000):
None.
:3) Officials of other com-
panies:
Albert Bauer
* M. Miller_
CALENDAR YEAR 1943
I) Officers and directors:
J. E. Lents
2) Other (over $.,5,000):
None.
3) Officials of other corn-
panics:, Albert Bauer.
CALENDAR YEAR 1544
I
I) Officers or directors:
J. E. Lents
t) Other (over $15,000):
None.
1) Officials of other corn-
panics: Albert Bauer.
CALENDAR, YEAR 1945
1) Officers and directors:
G. G.ISherwcod__ _ __
E. R. Ordway
J. E. Lents
1) Others (Over $15,000):
.m. A. Hoffman
3 Officials of other corn-
panics: Albert Bauer.
-
General manager
Administrative manager-
Vice president
Chief engineer
Executive assistant
General manager
Administrative manager-
Chief aceountant
Vice president
Assistant general man-
ager.
Executive assistant
Assistant office manager
Assistant general man-
ager.
Assistant office manager_
Assistant general mana-
ger.
Comptroller
Administrative assist-
ant.
_do
General superintendent_
Assistant general maim-
ger.
Apr. 1 to Dec. 31, 1941 _ _ _ _
Feb. 9 to Dec. 31, 1941
Apr. 1 to Dec. 31, 1941
.
Feb. 9 to Dec. 31, 1941
Sept. 21 to Dec. 31, 1941 _ _
Jan. 1 to Aug. 1, 1942
do
Jan. 19 to Dec. 31, 1942
Jan. 1 to Feb. 13, 1942
Jan. 1 to Dec. 31, 1942
Jan. 1 to Jan. 24, 1942
Jan. Ito Dec. 31, 1943
Jan. 1 to Dec. 31, 1943
Jam 1 to Apr. 23, 1944
Jan. 1 to Dec. 31, 1944r
Tan. 1 to Dec. 31, 1945
do
do
do
do
$13, 442. 53
10, 615.42
1, 867. 09
8, 019. 36
1, 615. 32
10, 730. 96
7,807. 82
3, 847. 36
432. 72
0,474. 16
538. 44
4, 718. 93
9, 570. 96
1, 678. 56
9, 039. 24
10,000. 00
3, 000. 00
1, 800. 00
17, 070. 96
15, 570.06
$13, 442. 53
10, 615, 41
1, 867. 09
8, 019. 36
1, 615. 32
10, 730. 96
7,807. 82
3, 847. 36
432.72
9, 474. 16
538. 44
4, 718. 93
9, 570. 96
1, 678. 56
9, 039. 2.
None
None
None
9,570. 96
9, 570. 96
Includes adjusted compensation (year-end cash "bonus").
2 Reimbursable ander cost plus a fixed fee or claimed as allowable cost under fixed or variable price.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Exhibit F
Individuals who have held offlces or directorships in more than 1 of following companies: Kaiser Co., Inc., The Permanente Metals Corp., Richmond Shipbuilding Corp., Kaiser Fleetwings, Inc., Oregon Shipbuilding Corp., Consolida-
ted Builders, Inc., (to July 31, 1946)
Officers and directors
Kaiser Co., Inc.
The Permanente Metals Corp.
Richmond Shipbuilding Corp.
Kaiser Fleetwings, Inc.
Oregon Shipbuilding Corp.
Consolidated Builders,
Inc.'
_
Columbia Construe-
tion Co.'
Position
Status I
Position
Status'
Position
Status'
Position
Status I
Position
Status'
Henry J. Kaiser
President
X
President
X
President
X
President
Jan. 15,1944
President
President.
Do
Director
X
Director
X
Director
X
Director
Director.
Edgar F. Kaiser
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Vice president
Vice president.
Do
Director
X
Director
X
Director
X
Director
Assistant secretary.
E. E. Trefethen, Jr
Vice president
X
Vice president
X
Vice president
X
President
X
Assistant secretary.
X
Vice president.
Do
Director
X
Director
X
Director
X
Director
X
Do
Secretary
Jan. 7, 1942
Secretary
Feb. 1,1943
Secretary
Feb. 2, 1943
Vice president
Jan. 15, 1944
Assistant treasurer_
X
C. F. Calhoun
Vice president
X
Vice president
X
do
X
Do
Assistant secretary
Jan 7,1942
Assistant secretary_
X
C. P. Bedford
Vice president
X
Vice president
X
Vice president
X
Vice president
X
Assistant secretary. ?
Do
Assistant secretary
X
Assistant secretary
X
Assistant secretary
X
?
A. B. Ordway
Vice president
X
Vice president
X
Vice president
X
Vice president
X
T. A. Bedford, Jr
do
X
do
X
do
X
Do
Assistant secretary
Oct. 18,1945
Assistant secretary_.
Oct. 15,1945
Paul S. Marrin
Vice president_
X
Assistant secretary
X
Assistant secretary
X
Vice president
X
Assistant secretary
X
Assistant secretary____
Do
Director
X
Director
Apr. 25,1941
Director
X
Director
Jan. 11,1941
Do
Assistant secretary_
X
Vice president
do
Assistant secretary....
X
President
do
George Haves
Do
Secretary
May 1, 1946
Director
Secretary-treasurer
Dec. 9, 1940
Dec. 30, 1940
Vice president
Director
do
do
Do.
G. G. Sherwood
Secretary-treasurer __
X
do
X
Director
Apr. 25,1941
Director
X
Treasurer
X
Secretary
Secretary.
Do
Director
X
Assistant secretary
X
Secretary-treasurer_
X
Secretary
X
Assistant secretary
X
Assistant treasurer_ __.
Do
President
Jan 7,1942
Assistant secretary_
X
Treasurer
X
Do
Assistant secretary
May 1,1946
J. F. Reis
do
X
Assistant secretary
X
Assistant secretary
X
Secretary
X
Assistant secretary__
Assistant secretary.
Do
Assistant treasurer.
X
Assistant treasurer__
X
Assistant treasurer
X
Assistant treasurer__ _ _
Assistant treasurer.
Do
Vice president
X
C. B. Wood
Assistant secretary
X
Assistant treasurer__
X
Assistant secretary ___
X
Do
Assistant treasurer
X
Assistant treasurer..
X
A. E. Beard
Donald Browne
Assistant secretary. _
do
X
X
Assistant secretary
X
Assistant secretary_
Apr. 25,1941
Assistant secretary ___
X
Do
Assistant treasurer__
X
E. R. Ordway
Assistant secretary--
X
Assistant secretary__ __
X
Assistant secretary____
George C. Ober, Jr
do
X
Assistant secretary_
X
Assistant secretary
X
Assistant secretary
X
do
X
F. H. Bechill
J. E. Lents
do
do
X
X
do
X
do
X
Assistant secretary____
X
Assistant secretary____
M. Van Hoesen
Director
X
Director
Apr. 25,1941
Director
X
R. L. Bridges
do
X
Assistant secretary..
It
Vice president
X
Vice president
X
Vice president
Do
F. Cook
Director
July 5,1943
Director
do
Apr. 25,1941
do
Director
X
I. L. Friedman
Assistant secretary__
May 1,1946
Assistant secretary ___
X
Assistant secretary...X
Albert Bauer_
Vice president
X
Joseph Haag, Jr
Vice president
Feb. 13, 1942
Vice president
Feb. 25, 1942
Vice president
Feb. 13, 1942
Do
Director
do
Director
do
Director
do
C. F. Strenz
do
Dec. 80,1940
do
do
do
do
Do
Assistant secretary..
Feb. 13, 1942
Assistant secretary_
_ do
Assistant secretary_
do
Do
Assistant treasurer
do
Assistant treasurer_
do
Assistant treasurer
do
E. P. Euler
Director
Dec. 20,1940
do
do
do
do
Do
Do
Assistant secretary_
Assistant treasurer
Feb. 13, 1942
do
Assistant secretary_
do
Assistant secretary__
do
R. J. Lamont
Do
Director
Feb. 14,1942
Director
_._
Feb. 25,1942
Director
Vice president
Feb. 18,1942
do
J. D. Reilly
Director
Feb. 13, 1942
Director
Feb. 25,1942
Director
do
J. H. Todd
- do
do
do
do
do
do
S. D. Bechtel
Vice president
June 20,1945
Vice president
June 20,1945
Do
Director
do
Director
do
Director
X
Director
Director.
J. A. McCone
do
do
do
do
do
X
do
J. A. McEachern
do
X
do
X
do
X
do
Do
President
X
Do
Vice president
Jan. 27,1942
C. A. Shea
Do
Director
Jan. 27, 1942
Director
Jan. 27, 1942
Director
President
do
do
H. W. Morrison
Director
X
Director
X
Director_
X
Director
Vice president.
Do
Director.
L. S. Corey
Director
X
Director
Feb. 13,1942
Director
Do.
Felix Kahn
do
X
Director
X
do
X
do
Do.
Do
Treasurer
Treasurer.
W. G. Swigert
W. S. Newell
Director
do
X
Feb. 16,1942
Director
do
X
June 29,1941
Director
X
Director
G. J. Shea
do
X
do
X
Director
X
Director
R. E. Dill
Assistant treasurer_
Feb. 5,1945
Vice president
Oct. 31, 1944
A. Richardson
W. Green
O. M. Lund
Director
do
do
Apr. 25,1941
Feb. 25,1942
do
Director
May 4,1943
Director
do
Feb. 13,1942
do
H. A. Dick
.
Vice president
X
Do
Director
X
Director
Do
Assistant secretary
X
Do
Assistant treasurer__
X
M. Miller
Assistant searetary_. __
Vice president.
E. F. Lackey
Assistant treasurer _ ___
Assistant secretary.
H. F. Morton
Vice president
X
Do.
Status: (X) indicates still holds position; date indicates date of resignation.
'Present officers and directors only, shown.
Present officers and directors only, shown. Columbia Construction Co. had only 1 contract with the U. S. Maritime Commission for construction of a floating drydock, which was constructed by the Vancouver yard of Icaiser Co., rue., under 3 subcontract.
93486-46 (Face p. 475)
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 475
Exhibit E
ORRGON SHIPBUILDING CORP.
Stock ownership from. organization, July 81, 1946
Original, Jan.
8-11, 1941 1
Feb. 19, 1942 2
Feb. 24, 1942 8
May 18, 1942 8
Shares
Percent
Shares
Percent
Shares
Percent
Shares
Percent
Todd Shipyards Corp
500. 0
50.00
500
9.091
0
0
0
0
J. F. Shea Co., Inc
103.0
10.00
1,000
18.181
825.0
16
0
0
Henry J. Kaiser Co
62.5
0.25
625
11.364
625. 0
11.064
0
o
The Kaiser Co
62.5
6.25
625
11.364
625.0
11.364
0
0
General Construction Co
62. 5
6. 25
625
11.364
1, 375, 0
25
0
o
W. A. Bechtel Co
38.5
3.85
385
7
236.5
4.30
0
0
Bechtel-McCone-Parsons Corp .6
38.5
3.85
385
7
236.5
4.30
0
0
The Utah Construction Co
38. 5
3. 85
385
7
440. 0
8
0
0
Morrison-Knudscif Co., Inc
38.5
3.85
385
7
440.0
8
0
0
MacDonald & Kahn, Inc
38. 5
3. 85
.385
7
420.0
7. 636
0
0
Pacific Bridge Co
20. 0
2. 00
200
3. 636
277. 0
5. 036
o
0
Consolidated Builders, Inc
5,000
100
Total
1, 000. 0
100. 00
5, 500
100
5, 600. 0
100
5, 500
100
Issued for cash.
2 Additional represents stock dividend.
No new issue, All transfers for cash.
4 No new Issue. All transfers for cash; present percentage participation in gopolidate4 Builders, Inc., is
identical to Oregon Shipbuilding Corp. percentage at Feb. 24, 1942.
Now Bechtcl-McCone Corp.
Exhibit G
(Question No. 9)
OREGON SHIPBUILDING CORP.
Summary of shipyard income to May 31, 1946
Shipbuilding
U. S. Maritime
Commission
contracts
Other
operations
Taal
Total of shipbuilding contracts I
$527,
670,
560.
78
Government furnished materials 2
Total contract volume 2
435,
917,
000.
00
963,
587,
560.
78
Gross profit before taxes 1
40,
281,
079.
86
, $46,
259.39
$40,
327,
339.25
Federal income taxes 1
27,
169,
588.
37
30,
103.
97
27,
199,
692. 34
Net profit I
13,
111,
491.
49
16,
155.
42
13,
127,
646. 91
Percent of net profit on total contract volume
1.
36
1 See schedule 1.
2 See schedule 4.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
(Question No. 9?Schedule 1)
OREGON SHIPBUILDING CORP.
Statement of contracts with U. S. Maritime Commission and net income to Mali 31, 1946
(A)
Contract No.
?
VICc-ESP-2. _
A Cc-E SP-598_
1/1Ce-ESB-11-_
U Ce-E S P-595_
VICc-ESP-596_
)4Cc-7950
VI Cc-8611
VICc-13101
MCc-15750
VI Cc-15751
M Cc-17510
MCc-33822
M Cc-34763
MCC-35984
5ICc-41480
Total
Less fees transferred
(B)
Type of contract
}cost facilities

}Cost-plus-fixed-fee
do
do
do
do
do
Fixed price
Cost facilities
Cost materials ens-
tody.
Selective price
Cost materials cus-
tody.
Cost-plus facilities
fixed-fee lay-up.
to other shipyards for
(C)
(D)
Num-
ber of
ships
deliv-
ered
(E)
(F)
(G) -
(H)
(I)
Profi re-
ce tsived under
fixed-price
contracts in-
eluded in (E)
OD
Total profits
and fees
Ships under con-
tracts as amended
Total amounts
naid by U. S .
- , ?
-.aritime
Commission
(net)
unpaid I
(retentions
d
amountsan
in process
of settle-
me nt)
Total paid
or unpaid
Fees
Num-
bet
43
88
42
8
96
53
32
30
67
4
3
TYPe
Maxi-
mum
Mini-
mum
Actual paid
by U. S.
Maritime
Commission
included
in (E)
E C 2?Cargo _
do
do
do
do
do
AP3?Cargo _ _
API?Trans-
port.
AP3?Cargo _ _
AP5?Trans-
port.
AP7
performed under
43
88
42
8
96
53
32
30
67
4
0
$18, 165, 778. 29
-
55, 639, 704. 58
80, 968, 324. 49
30, 607, 245.41
11,474, 948. 18
64, 700, 829. 84
37, 095, 848.72
1118, 640, 000. 00
4, 518, 379. 17
103, 077, 349. 47
}
$106.81
2 44. 57
2 792.11
1,889.60
21, 310. 70
3, 329. 06
21, 518. 51
, 360, 000. 00
2.61
10, 131.32
947, 182.55
34, 597.72
382, 921. 38
$18, 165, 885. 10
55, 639, 660 01
80, 967, 531. 38
30, 609, 135. 01
11, 496, 258.88
64, 704, 158. 90
37, 117, 367. 23
120, 000, Oat 01),
4, 518, 381. 83
10, 131.32
104, 024, 132.02
34, 597.72
382,921. 38
$6, 020,000
12, 320, OGO
5, 880,000
1, 120, 000
6, 720, 000
3, 180,000
$2, 580,000
5, 280, 000
2, 520, 000
480,000
2, 880, 000
1,060, 000
$5, 278, 716. 41
8, 515, 944. 73
3, 360, 913. 15
480, 036. 31
6,420,000.00
3, 180,000. 00
$7, 072, 000 . 00
10,810, 986. 75
$5, 278, 716:41
8, 515, 944. 73
3,360; 913.15
480, 036.31
6, 420, 000. 00
3, 180, 000. 00
7 072 o
, , w 00
10,810, 986. 75
466
work
463
U. S.
524, 888, 408. 15
Maritime Commission
2, 782, 152. 63
contracts,
527, 670, 560. 78
schedule 2
27, 235, 610. 60
288, 000.00
17, 882, 986. 75
45, 118, 597. 35
288, 000.00
26, 947, 610. 60
17, 882, 986. 75
44. 830. 597. 35
0
4,P. CD
"--11
-n
0
K.)
$
$
0
0
H
1-1 0
)-4 "
?- 0
?
? >
? i3
r:1
0
?-1
1-4 cr,
th
CO
0
0
c.4
0
0
0
0
0
0
0
0
0
>
TS
TS
?c
0
_
S
(D
a
71
0
n
X
al
c7
CD
co
oa
On
co
i
co
1 I
en
p.,
Less nonreimbursable and disallowed costs under cost-plus contracts and costs not considered allowable under fixed-price contracts, etc
Gross earnings on contracts with U. S. Maritime Commission
Profits on shipyard operations other than contracts with U. S. Maritime Commission
Gross profits from shipyard operations
Less Federal income and excess-profits taxes
Net income accummulative to May 31, 1946 (per financial report May 31, 1946)
4, 549, 517. 49
40, 281, 079.86 0
46, 259. 39
40, 327, 339. 25 CD
27,199, 692.34
?n
13, 127, 646.91 0
1 See schedule 3.
a credits to costs in process of settlement, including reallocations among contracts.
NOM.?The above amounts do not include the value of materials, if any, furnished by U. S. Maritime Commission without cost to the contractor.
CD
smoaa auvxaiHs
Approved For!Release 2003/10/10 : CIA-RDP64600346R000400060002-4
478
SHIPYARD PROFITS
(Question No. 9?Schedule 2)
OREGON SHIPBUILDING CORP.
TRANSFERS OF FEES TO OTHER SHIPYARD
In the interest of expediting early delivery, and to utilize facilities then
available, the United States Maritime Commission authorized Oregon Ship-
building to subcontract the completion of eight Liberty ships to Kaiser Co.,
Inc., Vancouver. Oregon Shipbuilding reduced their fee earnings by transferring
$288,000 to Kaiser-Vancouver as fees for performing such work
(Question No. 9?Schedule 3)
OREGON SHIPBTJILDING CORP.
STA TITS OF UNPAID AND UNSETTLED CONTRACT AMOUNTS
[Supplement to 9 (E)]
I. Final settlement of unpaid amounts is subject to completion of the following:
1. Payment by the contractor and obtaining final release on all com-
mitments pertaining to the applicable contracts.
2. Subseq cent preparation by the contractor of final statements of costs.
3. Audit by representatives of the United States Maritime Commission
of contractor's final statement of costs.
4. Resolving the open appeals of the contractor from costs disallowed by
the United States Maritime Commission and final negotiation thereof.
5. Final determination of costs and resultant agreement of amounts to
be recaptured by the United States Maritime Commission, and/or amounts
due the contractor from the United States Maritime Commission.
Every reasonable effort is being extended by the contractor to complete item 1
so that the other steps listed above may be completed to effect final settlement
at the earliest possible date. However, in view of the tremendous volume of
purchase orders, subcontracts, and other commitment documents issued, such
work is unavoinably slow. In the interim, the contractor and the United States
Maritime Commission Finance Section are negotiating tentative settlements
to cover a substintial portion of the amounts involved, leaving minimum amounts
for final future settlement.
IL. Unpaid "retentions" represents at May 31, 1946, the final payments due
on fixed-price and lump-sum contracts, withheld by the United States Maritime
Commission in accordance with the terms of the respective contracts, until and
If the recorded costs justify additional payments.
Included in the total of $2,782,152.63 unpaid contract amounts per schedule
lis $2,056,776.57 representing such retentions.
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
(Question No. 9-Schedule 4)
OREGON SHIPBUILDING CORP.
Statement of contracts with U. S. Maritime Commission
Contract No.-
Type of contract
Ships under con-
tracts as amend-
ed (type)
Number
of ships
delivered
Contract value
Commission
furnished
material
Total contract
volume
MCc-E SP-2
MCC-ESP-,598
}Cost-facilities
-
$18, 165, 885. 10
$18, 165,886. 10
MCc-E SP-11
MCc-E SP-595_ __ _ .
}Cost-plus fLxed fee
E 02-cargo
43
55, 639, 660. 01
$31, 906,000
87, 545, 660. 01
MCc-ESP-596
do
do
88
80, 967, 531. 38
65, 296, 000
146, 263, 531. 38
MCc-7950
do
do
42
30, 609, 135. 01
31, 164,000
61. 773, 135. 01
MCc-8611
do
do
8
11, 496, 258. 88
5, 936, 000
17, 432, 258. 88
MCc-13101
do
do
96
64, 704, 158. 90
71, 232, 000
135, 936, 158. 90
MCc-15750
do
_do
53
37, 117, 367. 23
39, 326, 000
76, 443, 367. 23
MC0-15751
Fixed price ---JAP3-cargo
IAP5-transPort - - -
32
30-
1120 000 000. 00
' ?
96, 012, 000
216, 012, 000. 00
MCc-17510
Cost--facilities
4, 518, 381. 83
4, 518. 381. 83
MCc-33822
Cost-materials custody
10, 13L 32
10, 131.32
MCe-34763
Selective price
AP3-cargo
.A.P5-transport ___
LP7
67
4
}i. 024, 532. 02
95, 045, 000
199, 069, 532. 02
a
MC0-35984
Cost-materials custody
34, 597.72
34, 597. 72
MCc-41480
Cost-plus fixed fee facilities lay-up
382, 921.38
382,921. 38
Total
463
527, 670, 560. 78
435, 917, 000
962, 587, 560. 78
P-Z000900017000t1917?008179dC1U-VI3 01./014E00Z eseeieu JOd peACLICIdV
Approved For Release 2003/10/10 : CIA-RDP641300346R000400060002-4
480 SHIPYARD PROFITS
Betibit H
(Questions Nos. 10 and 11?Schedule 1)
OREGON SHIPBUILDING CO.
MEM' OF RE VEGOTIATION ON FEES AND PROFITS AND STATUS OF CONTRACTS STILL
SUBJECT TO RENEGOTIATION
1. Fees and profits as shown on schedules under question 9 represent net fees
after renegotiation.
2. Renegotiation Agreement No. MCc26699 PABs331 was entered into under
date of Vebrurtry 23, 1944, in which excessive profits for the fiscal years ending
November 30, 1942, and November 30, 1943, were determined to be $6,322,954.08
and allocated as follows: $3,025,157.34 to the contractor's taxable year ended
November 30, 1942; $3,297,796.74 to the contractor's taxable year ended Novem-
ber 30, 1943. Allocation of such excessive profits to specific contract numbers is
detailed on schedule 2 following.
3. 'Renegotiation Agreement No. MCc33658 PABs568W was entered into under
date of October 25, 1944, in which excessive profits for the contractor's fiscal
year ending November 30, 1942, were determined to be $300,000. Allocation of
such excessive profits to specific contract numbers is detailed on schedule 2
following.
4. The only remaining shipbuilding contract subject to renegotiation is con-
tract No. MCc15751 entered into under date of March 1, 1945, under which the
total profit allowable as a lump sum under addendum No. 3 is $7,072,000. We
have been advised by the Price Adjustment Board of the United States Maritime
Commission that said Board has found that no excessive profits were realized
under the above contract.
5. Coniract No. MCc34763 is a selective-price contract and according to its
terms not subject to renegotiation.
(Questions Nos. 10 and 11?Schedule 2)
OREGON SHIPBUILDING CORP.
Allocation of excess profits as determined by Price Adjustment Board
FISCAL YEA RS NOV. 30, 1942, AND NOV. 30, 1943
Contract No.
Fees earned
Allocation of excessive profits
Net fees
paid per
schedule 1,
question 9
On fees
earned
Less items
adjusted in
renegotiation
Net amount
of excessive
profits
MCc ESP11
MCc ESP595
Isif Cc ESP096
MCc ESP7950
MCc ESP8611_
Total
}$5,260,607.34
12, 320, 000. 00
5,880, 000.00
497, 957. 34
$127, 697. 34
3,821, 260.00
2, 520, 000. 00
17, 957. 34
$145, 806.41
17, 204.73
013.15
36. 31
I $18, 100.07
3, 804, 055. 27
2, 519, 086. 85
17, 921. 03
$5, 278, 716. 41
8, 515, 944. 73
3, 360, 913. 15
480, 036. 31
23, 968, 564.68
6, 486, 914. 68
163, 960. 60
6, 322, 954, 08
17, 635, 610. 60
FISCAL YEAR Nov. 30, 1944
MCc 13101
$6,
720,
000. 00
$300,000.00
8300,
000.
00
$6,
420,
000. 00
MOc 15750
Total
3,
180,
000. 00
3,
180,
000. 00
9,
900,
000.00
300, 000. 00
300,
000.
00
9,
600,
000. 00
I Credit.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 481
Exhibit 1?
(Question No. 12?Schedule 1)
OREGON SHIPBUILDING CORP.
Costs of shipyards and facilities to May 31, 1946
Original cost
Shipyards and facilities
$20,
107,
408.67
In addition to the shipyards and facilities, the
following were also built by Oregon Ship-
building Corp.,1 under the facilities contracts
with the U. S. Maritime Commission:
Transportation
$397,
180. 72
Housing '
2, 179,
677. 54
2,
576,
858. 26
Total of all facilities contracts with U. S.
Maritime Commission
22,
684,
266. 93
1No fees or profits of any kind were paid to Oregon Shipbuilding Corp. on any of above
work.
NOVEMBER 13, 1946.
In answer to the telegram from Marvin J. Coles, addressed to Oregon Ship-
building Corp., dated October 11, 1946, we submit the following information:
1. Average amount of outsta/nding bank loans.
The average amount of bank loans of Oregon Shipbuilding Corp. during the
period it was engaged in shipbuilding activities were as follows:
February through December 1941
$1,
472,
727
Full year 1942
2,
242,
750
Full year 1943 a, 975,000
Full year 1944 3, 150, 000
January and February 1945 3, 400,000
The combined average for the full period from February 1941 to
and including February 1945 was 2, 518,633
2. Disallowed costs allocated to applicable contracts.
Disallowed costs allocated to the various contracts of Oregon Shipbuilding
Corp. were as follows:
Contract MCe-ESP-11 and Contract Mee-ESP-595
$627,
427. 77
Contract Mee-ESP-596
606,
270.82
Contract MCc-7950
198,
973.
74
Contract MCc-8611
10,
161.
64
Contract MCc-13101
274,
967.
61
Contract MCc-15759
398,
666.
60
Contract MCc-15751
1, 341,
171.
03
Contract MCc-34263
1, 091,
872.
28
Total
4, 549,
517.
49
The above allocations were based on the major contract in force for ship con-
struction at the time the expense was incurred or the disallowance made. No
allocation was made for facility contracts under which no fee or profit was paid.
3. Amount of bank loans secured by pledge of Government contracts.
A maximum of $3,400,000 in private bank loans was obtained by Oregon Ship-
building Corp. to be used in its shipbuilding activities. None of the Government
shipbuilding contracts of Oregon Shipbuilding Corp. were pledged or assigned to
the bank as security for these loans.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
482 SHIPYARD PROFITS
EXHIBIT 14
QUESTIONS AND ANSWERS RELATING TO CALIFORNIA SHIPBUILDING CORP.
Question 1. The date on which your company was formed, and a copy of its
corporate charter.
Answer 1. Cali Cornia Shipbuilding Corp. was incorporated on January 6, 1941.
A copy of Its charter is attached hereto.
Question 2. The total capital of your company, giving a break-down of the
types of stock and securities.
Answer 4. (A) As of November 30, 1945,1 there were issued and outstanding
6,000 share of nopar common stock. At a stated value of $100 per share, this
represent $600,000 of capital.
(B) In addition, the stockholders loaned the corporation in proportion to
their stockholdings the sum of $700,000 making the total available capital funds
of $1,300,000.
(C) In additicn to the capital funds invested, the corporation used its credit
to finance its operations whereby $4,000,000 was made available to this corpora-
tion throng* bank credits.
Question 3. The names of all officers and directors, and a statement of their
annual compensation.
Answer 3. (A) Names of officers and directors:
Officers
Directors
S. D. Bechtel.,
John A. McCone
J. A. McEachern
K. K. Bechtel
L. S. Corey
Felix Kahn
H. W. Morrison
W. G. Swigert,
Gilbert J. She
Jerome K. Doolan_
J. M. Warfteld
J. S. Sides
Robert L. Bridges__
W. E. Waste
G. G. Sherwood
Russell A. Bergemann
T. P. Loach
Paul S. Marrm
George E. Walling
Chairman of the board
President
Vice president
do
Treasurer
Vice president
Vice president, assistant secretary and assistant treasurer_
Vice president
Secretary
Assistant secretary and assistant treasurer
do
do
do
Assistant secretary
do
Director.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
Do.
1 [Penned notation:] 100,000 originally.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 483
(B) None of the officers or directors received compensation from the corpora-
tion except as follows:
1941
1942
1943
1944
1945
S. D. Bechtel, director and chairman of the
board:
Salary
Bonus
Total
John A. McCone, director and president:
Salary
Bonus
Total
Jerome K. Doolan, vice.president:
Salary
Bonus
Total
T. M. Warfleld, vice president, general manager,
assistant secretary, and assistant treasurer:
Salary
Bonus
Total
J. S. Sides, vice president and production man-
ager:
Salary
Bonus
Total
W. E. Waste, assistant secretary and assistant
treasurer:
Salary
Bonus
Total
Russell A. Bergemann, assistant secretary and
assistant treasurer:
Salary
Bonus
Total
T. P. Leach, administrative manager, assistant
secretary, and assistant treasurer:
Salary
Bonus
Total
$4,500.00
4, 500. 00
$12, 057. 55
$18,802. 10
$17, 909.80
$17, 999. 80
12,174, 67
8, 000. 00
12,057. 55
18,802. 10
17, 999. 80
17,999. 80
20, 174. 67
8, 864. 11
17, 394. 15
18,218. 12
18, 216. 12
5,340.84
2, 500. 00
8,854. 11
17, 394. 15
18,216. 12
18,215. 12
7,840. 84
2, 307. 60
9, 407. 74
10, 384. 74
13, 041.39
15,333. 54
5, 000. 00
2, 307.60
9, 407.74
10,384. 74
13, 041. 39
20,333. 54
3, 164. 76
9,868. 10
1, 699.38
10, 639.48
2, 045.76
10, 469. 98
2, 216. 24
15, 859. 85
5, 000. 00
3, 164.75
11, 567,46'
12, 685. 22
12, 686.22
20, 859.85
10, 490. 38
4, 746.71
10, 490. 38
4,748. 73
1, 720.01
4, 690. 02
5, 825. 66
6,757. 62
7, 044. 05
2, 500.00
1,726. 91
4, 690.02
5,825. 66
6,757. 62
9, 544.05
2, 430. 73
6, 455. 16
416. 42
7,197. 96
10, 180. 55
2, 500. 00
2,430. 73
6, 871. 58
7,197.96
12, 680. 55
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
484
SHIPYARD PROVITS
' Question 4. The names of all officers and employees who have received compen-
sation a over $15,600 per annum, giving the amounts received and the extent
to which such payments were reimbursable by the Maritime Commission.
Answer 4:
1941
1942
1943
1944
1945 I
,
lohn A. McCone, president:
Salary reimbursed
$12, 057. 55
$18, 692. 10
$7, 615. 30
$13, 499.85
$205. 34
, Salary not reimbursed
10, 384. 50
4,499. 95
11, 869. 33
Bonus not re_mburse
I
8, 000. 00
Total
12,057. 55
18,692. 10
17, 999.80
17, 999. 80
20, 074. 67
Yerome K. Doolen, vice president:
Salary reimbursed
8,840. 11
14, 095. 68
14,871. 58
9, 560.41
34. 22
Salary not re
mbursed
3, 298. 47
3, 344. 54
8, 665. 71
5, 306. 62
Bonus not re
mbursed
2, 500. 00
Total
8, 846. 11
17, 394. 15
18, 216. 12
18, 216. 12
7, 840. 84
1, S. Sides, vice president and production man-
ager:
Salary reimbursed__
3, 164.75
9,868. 10
10, 029.48
10, 469. 98
2,603. 19
Salary not reimbursed
1, 699.36
2, 045. 76
2, 216.24
13, 106.66
Bonus not rehnburscd
5, 000. 00
Total
3, 164.75
11, 947.46
12,685. 22
12, 686. 22
29,859. 85
Y. M. Warfleld, l!'ice
ager:
,
preqdent and general man-
Salary reimbursed
2,307. 60
9,407. 74
9, 859. 09
10,825. 15
3, 307.01
Salary not reimburst d
626. 65
2, 216.24
11.966. 53
Bonus not reimbura. d
5, 000. 00
Total 7
2,307. 60
9, 407. 74
10,384. 74
11,041. 39
20, 333. 64
A. 0. Pegg, technical cmsultant and manager
of outfitting:
Salary reimbursed
9, 508. 35
10, 026. 89
10, 000. 12
2, 639.37
Salary not reimbursed
779, 22
2, 159.47
2, 216.24
10, 203. 46
Bonus not reimbursed
2, 500.00
Total 7
10,287. 57
12, 216.36
12, 216. 36
15, 342.83
W. 0. Ryan, chief
engineer:
Salary reimbursed
7, 276. 91
9, 721.94
11,222. 06
10, 469. 98
2,639. 37
Salary not reimbursed
2, 045. 50
994. 30
2, 216. 24
10, 164. 31
Bonus not reimburs3c1
2, 500. 00
Total
7, 276.91
11, 767.44
12, 216.36
12,086. 22
15, 303.08
1 For the year 1945, the salaries shown as "Salary not reimbursed" includes salaries charged to "Fixed
Price contracts.'
Question 5. The names of all persons, associations, or corporations holding
5 percent or more of the capital stock of your company, giving the amounts of
capital stock held by each.
Answer 5. Stockholders holding 5 percent or more of capital stock at November
80, 1945:
Stockholders
Number
of shares
Percentage
of stock
held
W. A. Bechtel Co
Bechtel McCone Corp
1,373
1,373
22.883
22.883
J. F. Shea Co., Inc
7251/2
12. 058
Morrison-Knudsen Co. Inc
6921/2
11. 543
The Utah Construction Co
692
533
MacDonald & Kahn, Inc
5831/2
9.725
Pacific Bridge Co
2861/2
4. 775
General Construction Co
276
4.6
Total outstanding capital stock
6,000
100.
1 [Penned notation:] Kaiser held stock until April 1945.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 485
Question 6. The shipbuilding experience prior to 1941 of all officers, directors,
and stockholders holding over 5 percent of your capital stock.
Answer 6. General.?Prior to 1941 various stockholders of the corporation were
participants of several shipbuilding corporations then existing. This participation
started with Seattle-Tacoma Shipbuilding Corp. in 1939 and extended to ttie
Todd-California Shipbuilding Corp. and the Todd-Bath Iron Shipbuilding Corp.
In 1940. The latter two contracts were with the British Purchasing Commission.
Several of the stockholders (W. A. Bechtel Co., MacDonald & Kahn, Inc., Morrison-
Knudsen Co., Inc., Utah Construction Co., and J. F. Shea Co., Inc.) took a prom-
inent part in the building of Boulder Dam and powerhouses which contained a
great many of the elements that make up a vessel such as steel fabrication,
assembly and erection, piping fabrication, and installation, electrical installation,
and machinery installation. Boulder Dam was just one of many such large
projects built individually or in combinations by these stockholders.
W. A. Bechtel Co.?The W. A. Bechtel Co. is an old-established engineering
and construction company with years of experience in the building of large
structures such as dams, bridges, highways, buildings, railways, etc. Mr. S. D.
Bechtel, its president, and also chairman of the board of California Shipbuilding
Corp., has for 20 years served in an executive capacity in connection with the
planning and execution of the above types of work, all of which involved similar
management and physical problems to those encountered in the construction of
ships. Mr. S. D. Bechtel was a director of the Seattle-Tacoma, Todd-California,
and Todd-Bath Shipbuilding Corps., in 1940 and prior to the inauguration of
Calship.
MacDonald cf Hahn, Inc.?Felix Kahn, president of MacDonald & Kahn, Inc.,
was general manager of the San Francisco Shipbuilding Co. during World War I,
when he was in charge of designing and building a shipyard at Government Island
on the estuary at Oakland, Calif., and building 7,000-ton concrete tanker ships
for the Emergency Fleet Corporation. Also, under his supervision the first self-
propelled concrete ship, Faith, was designed and built.
? Bachtel-McCone Corp.?Bechtel McCone Corp. have had extensive experience
in design and erection of some of the west coast's largest oil refineries and re-
finery units.
While John A. McCone was executive vice president and general manager of
the Consolidated Steel Corp., he had extensive experience over a period of years
in steel fabrication, in steel erection, and building machinery. Consolidated
Steel Corp. was one of the largest fabricators and ereetors of steel machinery
in the United States. Bechtel-McCone Corp., with the aid of personnel from
the W. A. Bechtel Co., engineered and constructed shipyards and facilities at
Orange, Tex., for the Consolidated Steel Corp.
General Construction Co.?The principal officers and major stockholders of
General Construction Co. were the operating heads of McEachern-Clarkson-
Standifer, a shipbuilding company organized during World War 1,. which con-
structed wooden vesSels for the Norwegian firm of 0. A. Anderson Co. Such
shipbuilding operations were carried on for a year or more after the end of the
First World. War.
Pacific Bridge Co.?In 1917, 1918, and 1919 the operating heads of Pacific
Bridge Co. built and operated a shipyard known as the Standifer Shipyard at
Vancouver, Wash. Such shipyard was constructed and operated as a private yard.
J. F. Shea Co., inc.?The predecessor of J. F. Shea Co., Inc., was, during World
War I, a subcontractor of North Pacific Shipbuilding Co., and fabricated and
installed all of the piping and similar work in connection 'with the construction
of eight steel vessels at a shipyard in Seattle, Wash.
Admiral Land and Admiral Vickery called upon this group to build and operate
a shipyard, because they knew of the experience and capacity of the group in
planning, organizing, administering, and executing large projects.
Question 7. The names of all officers, directors, or stockholders owning more
than 5 percent of the capital stock of your company, who have held positions as
officers or directors of another company which had contracts with the Maritime
Commission or the War Shipping Administration.
Answer 7. You will note from answer 5 that all stockholders are corporations;
therefore, no officer, director, or stockholder owning more than 5 percent of
the capital stock of the corporation held positions as officer or director of an-
other company which had contracts with the Maritime Commission or the War
Shipping Administration.
Question 8. The names of all officers, directors, or stockholders owning more
than 5 percent of the capital stock of your company who have owned 5 percent
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
486 SHIPYARD PROFITS
or more of the capital stock of another company which had contracts with the
Maritime Commission or the War Shipping Administration. [Penned notation:
No break-down-gat.]
Answer 8. W. A. Bechtel Co., Bechtel-McCone Corp., Morrison-Knudsen Co.,
Inc., MacDonald R; Kahn, Inc., the Utah Construction Co., and J. F. Shea Co.,
Inc.
Question 9, A description of all contracts with your company and the Maritime
Commission giving-
( a) The serial number o'f each contract.
(b) The type of contracts (i. e., whether cost plus, lump sum, or price minus).
(e) The number and type of ships covered by each contract.
(d) The number of ships constructed and delivered under each contract.
(e) The atal amounts paid by the Maritime Commission under each contract.
(If final settlement has not been reached, please give status of negotiations, the
amounts in dispute, and the amounts already paid.)
(f) The maximum fee payable under each contract.
(g) The minimum fee payable under each contract.
(h) The actual fee paid under each contract. (If final settlement of fees has
not been reached, please give details as to amounts paid, amounts in dispute,
etc.) ?
(i) The profits received on each lump-sum contract.
(5) The total of all fees and profits received by your company under contracts
with the Ms,ritime Commission.
Answer 9. 1. (a) Contract Mcc 7785 (formerly ESP-10), dated March 14, 1941,
with addenda No. 1, 2, 3, 4, and 5, dated March 19, 1941, May 1, 1941, May 1,
1941, March 2, 1944, and April 10, 1944, respectively.
(b) A cost-pluAixed-fee contract.
(c) Thirty-one EC2-S-C1 cargo vessels.
(d) Thirty-one vessels constructed and delivered.
(e) See II.
(1) See IL
(g) See II.
(h) See II.
(i) See II.
(5) See XVI. ?
II. (a) Contrac.; MCc 7786 (formerly DA-16), dated May 1, 1941, with addenda
Nos. 1, 2, and 3, dated May 1, 1941, March 2, 1944, and April 10, 1944, respectively.
(b) A cost-plus-fixed-fee contract.
(c) Twenty-four E02-S-C1 cargo vessels.
(d) Twenty-foar vessels constructed and delivered.
(e) Total amounts paid by the U. S. M. 0., $88,178,588.45, not including
$1,442.56 which has not been received. Final settlement in process.
(f) Maximum fee payable, $140,000 per vessel.
(g) Minimum fee payable, $60,000 per vessel.
(h) Actual fee paid, $65,409.53 per vessl or a total of $3,597,524.2
(i) Non
(5) See XVI,
III. (a) dontract Mac 2128, dated January 17, 1942, with addenda Nos. 1 and
2, dated March 2, 1944, and April 10, 1944, respectively.
(b) A cost-plus-fixed-fee contract.
(e) One hundred nine EC2-S-C1 cargo vessels.
(d) One hundred nine vessels constructed and delivered.
(e) Total amounts paid by the U. S. M. C., $110,858,437.91, not including
$5,274.34 which has not been received. Final settlement in process.
(f) MaXimum fee payable, $140,000 per vessel.
(g) Minimum fee payable, $60,000 per vessel.
(h) ActUal fee paid, $81,218.17 per vessel or a total of $8,852,780.24.
(i) Non.
(I) See XVI.
IV. (a) Contract MCc 7834, dated June 16, 1942, with addenda Nos. 1, 2, and
3, dated May 15, 1943, March 2, 1944, and April 10, 1944, respectively.
For accduntIng purposes contracts MCc 7785 and Mee 7786, 56 6111P0 together-
2 Includes 31 vessels under contract CMc7785.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
SHIPYARD PROFITS 487
(b) A cost-plus-fixed-fee contract.
(o) Sixty S02-S-C1 cargo vessels.
(d) Sixty vesSels constructed and delivered.
(e) Total amounts paid by the U. S. M. C., $49,074,066.12, not including
$5,442.95 which has not been received. Final settlement pending.
(f) Maximum fee payable, $140,000 per vessel.
(g) Minimum fee payable, $60,000 per vessel.
(h) Actual fee paid, $69,499.57 per vessel or a total of $4,101,020.
(i) None.
(j) See XVI.
V. (a) Contract MCc 13097, dated December 24, 1942, with addenda Nos. 2,
3, and 4, dated April 20, 1943, November 1, 1944, and. November 7, 1944, respec-
tively. Addendum No. 1 never executed because contract contained exact
language specified in the addendum.
(b) A cost-plus-fixed-fee contract.
(c) Original contract for 62 EC2-S--C1 vessels, increased to 112 EC2 vessels
by addendum No. 2, 30 of which were completed as Z-ETI-S-03 tankers.
(d) One hundred twelve vessels constructed and delivered.
(e) Total amounts paid by the U. S. M. C., $103,672,480.12, not including
$12,964.74 which has not been paid. Final settlement pending.
(f) Maximum fee payable, per addendum No. 3 $70,000 per vessel for 32 E02
vessels, $60,000 per vessel for 50 EC2 vessels, and $81,000 per vessel for 30
tankers.
(g) Minimum fee payable, per addendum No. 3, $30,000 per vessel for 32 EC2
vessels, $20,000 for 50 EC2 vessels, and $35,000 per vessel for 30 ETI tankers.
(h) Actual fee paid, $65,625 per vessel or a total of $7,350,000.
(i) None.
(j) See XVI.
VI. (a) Contract MCc 15740, dated April 20, 1943, with addendum No. 1, dated
March 1, 1945.
( b) Originally a cost-plus-fixed-fee contract, converted to a lump-sum con-
tract by addendum No. 1.
(c) Original contract called for 84 VC2-S-AP3 cargo vessels, changed by
addendum No. 1 to 32 VC2=S-AP3 Victory-type cargo vessels and 30 VC2-SAP5
transports.
(d) Fifty-three vessels constructed and delivered, nine vessels delivered par-
tially complete.
(e) Total amounts paid by the U. S. M. C., $135,236,338.40 less retained per-
centage of $1,200,000.
(f) None.
(g) None.
(h) None.
(i) Profits received, $3,562,157.37, of which $302,157.37, as of this date, is
indicated as subject to recapture. Final settlement in process.
(j) See XVI.
VII. (a) Contract MCc 30603, dated July 18, 1944.
(b) A cost-plus-fixed-fee contract.
(o) Forty-five VO2-S-AP2 Victory-type cargo vessels, incorporated into con-
tract MCc 34764 mentioned below.
VIII. (a) Contract MCc 33932, dated November 14, 1944.
(b) Cost only, no fees or profits allowed.
(c) Contract provided for the custody of unused EC2 materials.
(d) None.
(e) Total amounts paid by the U. S. M. 0., $103,706.65. Final settlement in
process.
(f) None.
(g) None.
(h) None.
(i) None.
4j) See XVI.
IX. (a) Contract MCc 34764, dated March 1, 1945, with addenda Nos. 1, 2, and
8, dated May 17, 1945, October 2, 1945, and December 1, 1945, respectively.
(b) A selective price contract.
(c) Seventy-nine VC2-S-AP2 Victory-type cargo vessels.
Approved For Release 2003/10/10 : CIA-RDP64600346R000400060002-4
Approved For Release 2003/10/10: CIA-RDP64600346R000400060002-4
488 SHIPYARD PROFITS
(d) Sixty-nine vessels constructed and delivered, completion of the last 10
vessels of the contract terminated.
(e) Total amot nts paid by the U. S. M. C., $171,700,000 less a retained per-
centage of $700,00D.
(1) Maximum profit which could be earned was originally $12,024,590 which
was subsequently reduced to $10,502,490 due to outright cancellation of 10
vessels.
(g) No Minimum profit assured.
(h) None
(i) Profits received, $11,459,774.81 of which $3,100,884.81, as of this date, is
indicated as subject to recapture. Final settlement in process.
(j) See XVI.
X. (a) Contract MCc 36035, dated March 1, 1945.
(b) Cost only, ro fees or profits allowed.
(e) Contract p rovided for the handling of unused Victory and transport ma-
terials.
(d) None.
(e) Total amounts paid by the U. S. M. C., $56,178.52. Final settlement in
process.
(1) None.
(g) None.
(h) None.
(i) None.
(5) See XVI.
XI. (a) Contract MCc 40183, dated July
(b) Cost-plus variable fee.
(e) Contract provided for use of facilities
ance or repair work.
(d) No Vessel, constructed and delivered,
and 13 other repairs jobs handled.
(6) Total amounts paid by the U. S. M.
pending.
(f) Fees determined by a sliding scale computed against the estimated cost
of the repair work. Maximum fee per vessel subject to negotiation if estimated
cost exceed $1,000,000.
(g) Minimum fee, zero as to vessel repairs costing less than $5,000 per vessel.
(h) Actual fees paid, $19,708.40.
(i) None.
(j) See XVI.
XII. (a) Contract Mee 40309, dated September 18, 1945.
(b) Provides payment of fair compensation of work performed under letter
of intent, dated July 25, 1945, calling for the construction of 12 barges under
the United State g Navy Dagwood project.
(c) TweIve barges.
(d) None. (Work terminated August 15, 1945.)
(e) Total amounts paid by the U. S. M. C., $35,535.61 received in final settle-
ment of this contract.
(f) None men tioned.
(g) None mentioned.
(lv)
(i) $1,957.96.
(5) See XVI.
XIII. (a) Contract MCc 1284 (formerly ESP-1), dated January 11, 1941, with
addenda Nos. 1 and 2, dated January 25, 1945, and March 24, 1941, respectively.
( b) Cost only.
(c) Facilities contract to construct eight shipways and facilities.
(d) None.
(e) Total amount paid by U. S. M. C., see XIV.
(f) None.
(g) None.
r (h) None.
(1) None.