I will put this in the record, but the net profit before taxes would have been $1,631,163.21, if Treasury Decision 5000 was in effect. Taking the net profit before taxes as adjusted by the Treasury Decision 5000 this is what the Government of the United States would have received:

Normal corporate income and defense taxes, income as adjusted, $1,631,163.21. The total normal and defense taxes would have been $391,479.17. The excess-profit tax adjusted would have been on a basis of $1,190,644.64; and the total excess-profit tax due would have been $515,322.32.

The total taxes due, if Treasury Decision 5000 applied, would be as follows:

Normal and defense taxes, $391,479.17; excess-profits tax, $515,322.32, making a total of $906,801.49. As shown by the above computation, Jack & Heintz paid a total income defense and excess profit of only $172,220.50. With the application of Treasury Decision 5000, it would have made a total income defense and excess profit rax of $906,801.49. By the inability to apply that decision, the Government lost $734,580.92 in taxes from this company.

I offer the memorandum I just read in evidence; in addition, I offer two memoranda that deal with this company if a profit limitation of 7 percent were applied.

(The memorandum containing the above figures was received in evidence, marked "Exhibit No. 54," and is printed in the appendix of this volume.)

(The memoranda referred to were received in evidence, marked "Exhibit No. 55," and are printed in the appendix of this volume.) The CHAIRMAN. That is the very reason we are sitting here as a committee to try to stop these leaks.

Mr. JACK. May I say, so it will appear clear on the record, the three officers paid a tax of $307,000 amongst the three of them; if we hadn't had that one as a cost-plus basis and one negotiated basis I assume we would have added $275,000 on top of that.

Mr. TOLAND. And you would have only 25 instead of 145 thousand. Let's return to the Carter Hotel.

Have you ever entertained any Government officials at that hotel and charged it to the account of this company?

Mr. JACK. We have entertained no Government official at the Carter Hotel, Army or Navy, except if they happened to be in town to invite them to attend our banquet.

Mr. TOLAND. Any of them ever stay there?

Mr. JACK. Stay there; to my knowledge I know of none that have stayed there. They stay at the Carter Hotel.

Mr. TOLAND. Take a look at these and read them [handing witness documents].

While the witness is reading that I would like to put this memorandum in evidence. These statistics are based upon the fiscal year of October 31: The total sales of the company were $4,339,379.52; the cost of the sales was $2,530,601.88.

The CHAIRMAN. Read that again.

cost as adjusted Capital and sur

Mr. TOLAND. The total sales, $4,339,379.52; the was $2,530,601.88, leaving a profit of $1,631,163.21. plus with which the contractor began business was $100,000 on No

70533-42- -6

vember 7, five hundred on November 5. The plant and equipment furnished by the contractor as of October 31, 1941, was $329,945.38. The profit to the total sales was 37.59 percent; the profit to the cost of the sales was 64.46 percent; the profit to the capital and surplus, the $100,000 invested, was 1,631.16 percent. The profit to the plant investment of the contractor was 491.34 percent. The profit to the stated value of the capital stock, $500, was 326,232.6422 percent; total Army and Navy contracts, as I have heretofore stated, was $58,191,899.35.

I would like to offer that in evidence.

(The statistics on profit of contractor as above quoted from was received in evidence, marked "Exhibit No. 56" and is printed in the appendix of this volume.)

The CHAIRMAN. Anything else?

Mr. TOLAND. These memoranda are based on Treasury Decision 5000 in part.

Mr. TOLAND. Do you find anything in there (referring to documents previously handed the witness) you would like to mention? Mr. JACK. I will take them as they come.

Mr. TOLAND. That is what we all do.

Mr. JACK. The Secretary of War's office, I believe, sent out a committee to find out how the morale of a plant and the production was obtained. They picked upon one plant in Cleveland; that was Jack & Heintz. Various Army officers.

The CHAIRMAN. Does it show in the record who was on that committee?

Mr. JACK. It shows some of the committee here, sir.

The CHAIRMAN. We will put that in the record. Go ahead. Mr. JACK (continuing). We had our meeting at the plant; these men had no accommodations in Cleveland. We asked them, those that were staying over, if they wouldn't care to stay at the Carter Hotel. We reserved reservations for their rooms on this day; I haven't sent any of them a bill for the small amount of room rent involved, which was only a few dollars, a total for five or six of $42. The CHAIRMAN. I think certainly you were able to pay them. Mr. TOLAND. You identify them, do you? I offer them in evidence. (Vouchers to Carter Hotel, being two sets stapled separately, showing bills paid, were received in evidence, marked "Exhibit No. 57" and are filed with the committee.)

The CHAIRMAN. We won't print those; nothing in that that indicates anything improper.

Mr. TOLAND. Will you, for the purpose of the record, identify a photostatic copy of Mr. Heintz's pay-roll sheets for 1940, 1941, and

1942?

Mr. JACK. If it is a photostatic copy of the records all the way through.

Mr. TOLAND. Then for George Jack for 1941?

Mr. JACK. Correct.

Mr. TOLAND. William R. Jack for 1940, 1941, and 1942 and C. L. Jack and Ralph M. Heintz, Jr., for 1941. You identify all of them? Mr. JACK. All correct, sir.

Mr. TOLAND. I offer them in evidence.

(Pay-roll sheets for Ralph M. Heintz, George Jack, William R. Jack, C. L. Jack, and Ralph M. Heintz, Jr. were received in evidence,

marked "Exhibits Nos. 58, 59, 60, 61 and 62", respectively, and are printed in the appendix of this volume.)

Mr. TOLAND. I offer in evidence a complete list of the bonuses, regular earnings, and total compensations of the employees for the year 1941. (The list referred to had been received in evidence as "Exhibit No. 35" and is printed in the appendix of this volume.)

The CHAIRMAN. What is the total amount of bonus for 1941? Mr. TOLAND. The total amount of bonuses was-we will have to compute it.

The CHAIRMAN. Add that up, then.

Mr. JACK. Approximately $540,000.

The CHAIRMAN. One minute. Mr. Jack, what do you think the total amount of bonuses that you gave to all employees for 1941 amounted to?

Mr. JACK. Our officers included, I believe the total was somewheres around $600,000.

The CHAIRMAN. $600,000 in bonuses?

Mr. JACK. Yes, sir.

The CHAIRMAN. Any further question, Mr. Toland?

Mr. TOLAND. Yes, sir. Just a minute. The last adjustment was made retroactive, so the total amount is in excess of the amount stated by the witness; it is being computed.

While we are waiting, I offer in evidence a memorandum describing the corporate records of Jack & Heintz, Inc.

(The description was received in evidence, marked "Exhibit No. 63" and is printed in the appendix of this volume.)

Mr. TOLAND. I offer in evidence a photostatic copy of the Minutes and Articles of Incorporation, together with certain certificates attached thereto.

(The last above described documents were received in evidence, marked "Exhibit No. 64" and are filed with the committee.)

Mr. TOLAND. I offer in evidence the total of bonuses as just now computed of $691,079.57.

(The blue 5 by 3 card bearing the above total was received in evidence, marked "Exhibit No. 65" and is printed in the appendix of this volume.)

Mr. TOLAND. I offer in evidence of production bonuses.

The CHAIRMAN. What do you

bonuses?

that total was for 1941, exclusive

mean exclusive of production

Mr. TOLAND. Everybody gets at least thirty-seven fifty a month. The total just computed was $691,079. 57.

The CHAIRMAN. Any question?

Mr. JACK. May I ask a question on that? Does some of that not retroact back from October up into December of '41?

The CHAIRMAN. It was paid in '41.

Mr. JACK. That is correct, sir.

Mr. TOLAND. I offer in evidence certain certificates of stock in Jack & Heintz, Inc., which we agreed to return, merely for the purpose of showing they were signed over and the witness has admitted they were in his possession.

(The certificates last above described were received in evidence marked "Exhibit No. 66" and returned to the witness.)

The CHAIRMAN. Why not give him the stock certificates back now? It is all admitted. Hand them back.

Mr. JACK. Thank you.

Mr. TOLAND. Isn't it a fact that in addition to the bonuses you bought $39,000 worth of Waltham watches in December 1941?

Mr. JACK. Whatever the sum shows in the records is what we paid, through the Nelson Jewelry Co.

Mr. TOLAND. You gave each employee a bonus up to $600, plus a watch, Waltham watch, plus food or fruit?

Mr. JACK. Correct, sir.

The CHAIRMAN. Now, Mr. Jack, there can be no doubt, probably, that you and Mr. Heintz brought in something very constructive and beneficial for making our aircraft. Now don't you think after you brought it in and after you did the manufacturing and after all these costs have been put in, that your cost to the Government is entirely out of line with the cost that you should charge the Government, and don't you think that you should negotiate and make a better price to the Government, than be permitted to make these enormous gifts and bonuses to get rid of the enormous profit that you are making?

Mr. JACK. I would have to answer that, Mr. Chairman, that provisions are made in our contracts that we have the right to refund; let me go a little bit further.

The CHAIRMAN. You got a letter from me, didn't you, about refund? Didn't you get a letter from me to the effect that what you refunded would be subject

Mr. JACK (interposing). Let me explain this to you, sir.

Mr. TOLAND. No.

Mr. JACK. In March of last year a little company know as Jack & Heintz was broke.

The CHAIRMAN. In March 1941?

Mr. JACK. In '41.

The CHAIRMAN. Broke?

Mr. JACK. I had invested every dollar in the world I could get together; my associates had borrowed every dollar they could get together and put up as collateral for those securities in the bank. We used that entire amount of money, together with money that had been advanced from the Government. The only sums of money that had been paid out then were the few thousand dollars for Christmastime the year before. There was only one way we could then operate. I went in to the various offices of the Army and said, "I am broke; we will operate for nothing; we have so much money in it; there is only one possible chance. Can you arrange with the defense plant to take over our machinery and give us that much money so we can pay some of these creditors off?"

They did that; took over the machinery and all our equipment; we paid our money and they advanced us that money; we had creditors. We couldn't get materials. We used that money to liquidate and pay off those creditors. We were then closing out and got a new contract, got an advance in order to get materials to get up production, in order to get going. As a result of that, we had to place ourselves in this position. We are generous to our employees, as I term them, associates, from the floor sweeper to the top, because we believe that this is the only way for an all-out war production, to get the job

done and get it done quickly and get it ahead of schedule so that we can clean up the job that we have ahead of us. In order to do that and in order to know that we are not going broke and having to come back to the War Department and say, "Take it over," and put somebody else in to run it, we have to be absolutely sure on the prices that we quote that we will not go broke, that we can treat our associates right, that we can build a morale in our organization second to none in the United States of America, can get production beyond any other plant in the United States and can get the job done. But in the sequence of that operation, when we finish that contract, we can consider the policy of the thing we have done, and we can then reduce our price to the Government as we see fit, as a warrant to carry on the policy established, which may be termed unreasonable. We can explain that in a few minutes as well. Then we can make our readjustment. We can make a refund then, but we can never go back to the Navy or to the Army and ask for an increase in that contract provided we made a mistake and got too low and haven't got the funds to pay it. There is no chance in the world of getting additional funds.

Mr. TOLAND. Don't you think that you are rather generous with an employee who worked 43 days when you give him $10,000?

Mr. JACK. I am glad you raised that question, Mr. Chairman. I will explain it to you, and when you understand, I think you will agree with me. Harry Yoxtheimer is a very capable man. I hired him at so much a month. His home was in Dayton, Ohio. In Dayton, Ohio, maybe he paid four or five thousand dollars for a home. He owned that home. I knew if he came to Cleveland, he couldn't get a home out in that territory possibly between ten and fifteen thousand dollars. I knew that he would be sacrificing that home. Consequently, in my own mind, I figured he was going to be $10,000 out as a result of moving from Dayton, Ohio, to Cleveland. I realized there would be moving expense involved for Yoxtheimer in removing his family and furniture to Cleveland. I paid him $1,000 for that. I paid him $10,000 bonus to pay him the difference between the home he owned in Dayton, Ohio, and the home he will have to buy in Cleveland, to put him on the plane that he was in Dayton. Mr. TOLAND. Didn't you think the $3,600 or $3,900 he received was all he was worth to your company?

Mr. JACK. Harry Yoxtheimer to me today

Mr. TOLAND (interposing). Isn't that true?

Mr. JACK. I would have to go back on that. I had to approve Harry Yoxtheimer. First I had to find out what he was capable of doing. I found his capabilities. Maybe a lot of other people didn't recognize them. I believe I did recognize them.

Mr. TOLAND. Mr. Chairman, may I have Mr. Farris stand and be sworn?

The CHAIRMAN. In the inquiry into the matter of the Jack & Heintz, Inc., do you solemnly swear that the testimony you are about to give will be the truth, the whole truth and nothing but the truth, so help you God?

Mr. FARRIS. I do.