TESTIMONY OF HAROLD KNEEN, GENERAL SUPERINTENDENT, LINCOLN ELECTRIC CO., CLEVELAND, OHIO Mr. TOLAND. Mr. Kneen, will you give the reporter your full name? Mr. KNEEN. Harold Fitch Kneen. Mr. TOLAND. Where do you reside? Mr. KNEEN. In South Euclid, Ohio. Mr. TOLAND. What is your present business or occupation? Mr. KNEEN. I am general superintendent of the Lincoln Electric Co. Mr. TOLAND. What is your salary? Mr. KNEEN. My annual compensation Mr. TOLAND (interposing). Not bonuses-your salary. Mr. TOLAND. Your salary in 1939 was $7,565. Is that right? Mr. KNEEN. That was part of my compensation. Mr. TOLAND. In 1940, $8,015. Was that your salary? Mr. KNEEN. That was part of my compensation. Mr. TOLAND. In 1940, you got a bonus of $40,000 in addition to your salary. Is that right? Mr. KNEEN. That is the additional compensation. Mr. TOLAND. I said a bonus. It was a bonus, wasn't it? Mr. KNEEN. No; I don't think it was. Mr. TOLAND. What do they call it on the books of the company? Mr. KNEEN. What do I call it? Mr. TOLAND. What do they call it? What do the books of the com pany call the compensation or bonus? Mr. KNEEN. I presume they call it a bonus. Mr. TOLAND. Right, and you got that $40,000, didn't you? Mr. KNEEN. I got the $40,000. Mr. TOLAND. I offer that check in evidence. (Check referred to was received in evidence, marked "Exhibit No. 357," and is filed with the committee.) Mr. TOLAND. In 1941 you got $50,000. Mr. KNEEN. That is right. Mr. TOLAND. I show you that check. (Check referred to was received in evidence, marked "Exhibit No. 358," and is filed with the committee.) Mr. TOLAND. How long have you been with the company? Mr. KNEEN. Since 1929. Mr. TOLAND. What are your duties? Mr. KNEEN. I run the factory. Mr. TOLAND. Just that? Mr. KNEEN. Yes. The CHAIRMAN. You run the factory? You are the superintendent? Mr. KNEEN. Yes. Mr. TOLAND. Mr. Taylor said that you would be able to give us the cost figures and I would like you to give to the committee whatever figures you have on the cost, the factory cost, of the electric welders that you sell direct to the Government or as a subcontractor to prime contractors of the Government, and the selling price of them. The CHAIRMAN. Just take that list we have there and ask him if that is correct. Mr. TOLAND. Let me show you this list of Navy contracts and this computation of the comparison of selling prices to factory costs, and ask you if they are correct. This first sheet which I will mark as an exhibit is exhibit 359. That represents contracts that your company has with the Navy? (Computation referred to was received in evidence, marked "Exhibit No. 359," and is printed in the appendix of this volume.) Mr. KNEEN. I know nothing about those. Mr. TOLAND. I want you to look at them, if you don't mind. I show you a comparison of factory costs and the selling price, exhibit 360, and ask you to select the items on this exhibit 359 sold by your company to the Navy that appear on here, these symbols, and I ask you if the figures that we have as the factory costs are correct. (Comparison referred to was received in evidence, marked "Exhibit No. 360," and is printed in the appendix of this volume.) Mr. KNEEN (examining exhibits 359 and 360). I presume these factory costs were taken from this book here. Mr. TOLAND. Right. Mr. KNEEN. These costs in this book do not represent the cost of the machines. They are simply a standard of my accomplishment and the accomplishment of the factory in that they represent direct labor and material and simply the factory overhead. They do not include any expenses of administration, executive expenses, taxes, or any other figures. Mr. TOLAND. Well, now, let's take your general overhead to net sales, which we figure as 11 percent, and take your figures and add 11 percent, and tell the committee what it costs you to make the articles that you sell the Navy and how much you sell them for. Mr. KNEEN. I don't have your instructions correctly. Will you repeat them? Mr. TOLAND. Take what your factory costs are on one of those items on the comparison sheet. Take this sheet here; take these symbols. here that are represented here. Take this No. 6050, for which the factory cost of that article is $72.32 and you sell it for $180. Isn't that right? Mr. KNEEN. The figures that you have are probably correct, but the cost, as I say, is not the true cost of the article. Mr. TOLAND. Add the overhead of 11.7 percent and tell us what it costs you to make and produce the article that you sell to the United States Navy for $180. Mr. KNEEN. Well, I can do the addition for you, but I don't know. Mr. TOLAND. You are the general superintendent. Don't you know what it costs to produce an electric welding machine? Mr. KNEEN. Yes; I do. Mr. TOLAND. How much? Mr. KNEEN. I know exactly what it costs to Mr. TOLAND (interposing). Tell us. Mr. KNEEN. Factory cost. Mr. TOLAND. How much? Mr. KNEEN. Oh, approximately half of the sales price is the cost that I am responsible for. Mr. TOLAND. Doesn't it show that the cost there, the factory cost, is $72 on an item you sell to the Navy for $180? Mr. KNEEN. This is the cost without Mr. TOLAND (interposing). I am giving you 11 percent on top of that. Mr. KNEEN. I don't like to take your 11 percent. Mr. TOLAND. What percent do you want to take for overhead? Mr. KNEEN. I don't know. Mr. TOLAND. We figured your overhead based on your income tax. Mr. MAAS. He is not in a position to figure the overhead. He is only concerned with the factory cost. Mr. TOLAND. Let him give us the factory cost of the article and I will state for the record that we have computed the overhead cost to net sales of 11.79 percent. Mr. MAAS. The company might dispute that figure. I don't know whether it is right, but they might not accept that figure. The CHAIRMAN. We are trying to get it from the witness. The CHAIRMAN. I know he is not. He is the man who ought to know. Mr. MAAS. He said he didn't know. That ought to be accepted and get somebody on at the proper time who does know. He is not charged with that. Mr. BRADLEY. Mr. Chairman, the auditor says he doesn't know and this gentleman says he doesn't know. If he doesn't know he can't tell us, but somewhere, somebody in the company should know. Mr. MAAS. Find out from the president. He knows or knows who knows. This man knows his factory costs; that is all he is supposed to know. The CHAIRMAN. What is the factory cost? Mr. TOLAND. What is the factory cost? Mr. KNEEN. The factory cost that he has here is $72. Mr. TOLAND. And the selling price is what? Mr. KNEEN. $180. Mr. TOLAND. Take them and read them right across, items that you have sold the Navy. The CHAIRMAN. You say the factory cost is how much? Take the first one. Mr. KNEEN. $72.32. The CHAIRMAN. And what is the selling price? Mr. KNEEN. It says here $180. The CHAIRMAN. Is that correct? Mr. KNEEN. I don't know. I don't know the selling prices. I have nothing to do with the sales. The CHAIRMAN. You know that that is the factory cost; that is the correct factory cost. Mr. KNEEN. I don't even know what S6050 is. Mr. TOLAND. If you will look at the other sheet, you will see it. That is an item you sold to the Navy. The CHAIRMAN. Here is all we are trying to do: to find out as accurately as possible what the factory cost is. You ought to know that. Don't you? Mr. KNEEN. Yes; I can tell you that in general-the costs that I am responsible for The CHAIRMAN (interposing). That is correct. Mr. KNEEN. Which are direct labor, that is, piece-work prices, the total of the piece-work prices spent, the material that we put into the job, plus the factory overhead-that is the foreman, the maintenance, and all the other, power, light, heat, and all those things-total this figure that I am responsible for, and in general they are 50 percent of the sales price. Mr. TOLAND. We are talking about No. 6050. selling prices put out by your own company. does it say the selling price is? Mr. KNEEN. It says $180. Mr. TOLAND. What do we say it is there? Mr. KNEEN. $180. Here is your list of Mr. TOLAND. Let's take No. 3692. Read that for the benefit of the committee. Mr. KNEEN. $225. Mr. TOLAND. The factory price is $77.22. Mr. KNEEN. The factory cost that I am responsible for is $77.22. Mr. TOLAND. And that is No. 3692. See if we can find that on here, 3692, $25. So we are right on that one, on the selling price. Mr. KNEEN. That is right. Mr. TOLAND. What is the next one, No. 6401? The selling price is $380 and the factory cost is $150.37. Isn't that right? Mr. KNEEN. That is right. Mr. TOLAND. And No. 6041 shows the selling price $380. Is that right? Mr. KNEEN. That is right. Mr. TOLAND. Read them across for the benefit of the committee to show what the factory cost is. The CHAIRMAN. Haven't you got it all broken down there? I would like to show the factory costs Mr. KNEEN (interposing). They are for no other purpose except for Mr. Lincoln and myself to measure the accomplishments of the factory. in Mr. FLAHERTY. Do these costs agree with what you have set up your books? Mr. KNEEN. I presume so. I didn't check it. They sound, some of them he has probably picked out ones that look a little worse here, maybe, but in general Mr. TOLAND (interposing). Those represent the articles they sell the most of. The CHAIRMAN. Put that in the record. Mr. FLAHERTY. As to that factory cost there, you say it is your policy to produce an item at approximately 50 percent of the sales value. Is that so? Mr. KNEEN. If we can produce it tomorrow for 40, we will do it. Mr. FLAHERTY. You say that it averages about 50 percent of the sales value. Mr. KNEEN. Yes; because as soon as it gets any lower than that, Mr. Lincoln cuts the sales price. Mr. FLAHERTY. You get down to some of these items, and one of them is 333 percent, and you do subscribe to the fact that you go that low in your factory cost on certain items. Mr. KNEEN. We probably do. Mr. TOLAND. Mr. Chairman, I would like to offer in evidence a memorandum computation that we have made based on their incometax return as to the general overhead cost of the company to net sales. I ask that it be printed. (Memorandum referred to was received in evidence, marked "Exhibit No. 361," and is printed in the appendix of this volume.) Mr. SUTPHIN. Mr. Toland, was that arrived at from an incometax return? Mr. TOLAND. Yes, sir; and it is 11.79 percent. I would like also to show the taxes of the company for the 3 years, based upon their returns, and if the bonuses and the million dollar trust fund had not been set up and distributed, the United States Government would have received $4,438,916.17 in addition to the taxes that it did receive. I submit that and ask that it be printed. (Federal tax memorandum was received in evidence, marked "Exhibit No. 362," and is printed in the appendix of this volume.) Mr. TOLAND. Were you present at the directors' meeting last Saturday? Mr. KNEEN. I was. Mr. TOLAND. What was the purpose of that meeting? Mr. KNEEN. It was an ordinary directors' meeting. Mr. TOLAND. What business was taken up at that meeting if it was an ordinary meeting? Mr. KNEEN. Reading of the minutes. Mr. TOLAND. What else? Mr. KNEEN. I would like to refer to the minutes. Mr. TOLAND. It was just last Saturday. Can't you recall what you discussed last Saturday? Mr. KNEEN. If you want to know in detail I had better tell you. Mr. TOLAND. I am asking your recollection. Wasn't it to discuss the president's salary? Mr. KNEEN. That was one of the things discussed; yes, sir. Mr. TOLAND. Was there anything else discussed at the meeting besides the president's salary? Mr. KNEEN. Yes. Mr. TOLAND. What? Mr. KNEEN. General policies of the company. The CHAIRMAN. We don't care to go into general policies. Mr. TOLAND. All right. I show you a copy of the minutes of the meeting and ask you if they show anything except the fact that the question of the compensation for officers and the compensation of the president was considered? The minutes show that there had not been any record of the president's terminations of the agreement for the years 1939, 40, 41, and '42. Isn't that a fact? Mr. KNEEN. That is right. Mr. TOLAND. So that at a late date, a termination resolution covering the years gone by was considered last Saturday. Isn't that right? Mr. KNEEN. That is right. Mr. TOLAND. I offer them in evidence. (Minutes of board referred to were received in evidence, marked "Exhibit No. 363," and are printed in the appendix of this volume.) Mr. TOLAND. Do you know how they forgot about it and didn't record it before? Is there any reason? Mr. KNEEN. It seemed a matter of no importance. 70533-42-vol. 4-6 |