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TESTIMONY OF EUGENE F. ROTH, COUNSEL TO THE DARLING
Mr. Roth. Taylor's Oak Ridge Corp. secured a lease on these premises in 1946, and that lease, subject to cancellation provisions, ran until the end of August 1949. It was extended to January 31, 1950, at which date according to its terms it expired. It provided for a straight percentage payable by Taylor's Oak Ridge to the Atomic Energy Commission, acting through Roane-Anderson, Co. I might mention that Roane-Anderson Co. is a privately owned Tennessee corporation, a wholly owned subsidiary of Turner's Construction, a New York corporation. It acts for the Atomic Energy Commission pursuant to certain delegated powers and agreements. However, it is a private corporation.
Prior to the time that Taylor's Oak Ridge went into possession of the premises, they were occupied by Miller's Department Store of Knoxville. And for reasons that will appear in the later testimony, I believe, Miller's removed from the premises. Their volume prior to the time that we took possession in 1945, for example, was $1,605,000. In 1946, for the first half, it was $705,000.
At the time we entered into possession of the premises, we expended approximately $77,000 in cash on fixtures and improvements. We also spent considerable sums of money in addition to that in getting started, sums which are truly capital items. As anyone can imagine it would take a substantial amount of money outside of ordinary expenses in getting a business of this type started. We estimated that those expenses were a minimum of some $20,000 over and above ordinary running expenses, so that we had invested in there at least $100,000, on the basis of what turned out to be a 3-year lease, with options on our part to get out.
A deal was negotiated with the Atomic Energy Commission, or rather Roane-Anderson, under which, if the Government exercised its option to terminate the lease at the end of any one year, Taylor's Oak Ridge would receive a rebate of certain amounts, certain unamortized amounts of the $70,000 which was originally invested in fixtures. However, I would make it clear that we would never have gone into this proposition with the idea of putting up nearly $100,000 of fixtures to be written off over a period of 3 years. We believe that any merchant would know that he has got to write off his fixtures, if he is going to operate profitably, over a period anywhere from 5 to 15 years, and our practice has been 10 years.
However, great stress has been laid on this amortization rebate provision which was simply a way of our recouping in case of a cancellation but had nothing to do with the real proposition of what the business amortization or the true amortization or even the tax amortization of these fixtures could possibly be. Amortization would have to be keyed to your profits and your business in a store, and we do not know of any instance where a store could be so profitable that you could successfully write off your fixtures in 3 years or should do it on that basis.
Mr. HOLIFIELD. Notwithstanding the facts which you have stated, Mr. Roth, the lease which your clients entered into did not contain any protection on that point?
Mr. Roth. No. And all through the history of this matter there is permeated a certain atmosphere to which I cannot personally testify but which is there. We have witnesses here who will testify to it, that constant assurances were received that in dealing with this agency of the Government we would not only receive fair treatment but preferential treatment, and that we would be sure to stay in for a long, long period of time, and that the only reason we did not get a long lease right then and there was that it was contrary to the policy of the Atomic Energy Commission.
Those are facts that may or may not stand up in a court of law because they depend on oral testimony and they violate the parole evidence rule in many ways, and they are the sort of thing that a court may not be able to act on, but they are true. We have witnesses to prove them.
Mr. KILDAY. How did you get your lease? Was it negotiated or was it bid on?
Mr. Roth. It was negotiated.
Mr. HOLIFIELD. May I ask you to clarify the term of the original lease?
Mr. Roth. The lease ran from 1946-October 1-to August 31, 1949. That is, it may not bave been that way originally but by amendment it was made thot way and it was subject to cancellation from either side.
Mr. HOLIFIELD. It was a 1-year lease with the privilege of renewing it?
Mr. Roth. It may bave been in that form, or the reverse. have been a 2-year lease with the privilege of canceling, but I do not recall that detail at the moment. That is the substance of it.
Mr. HOLIFIELD. At this point we will enter the original lease into the record in order that the terms of it may be known.
(The lease above referred to is marked "Exhibit 1" and will be found in the appendix on p. 94.)
Mr. ELSTON. Were there any particular provisions with respect to the cancellation, any particular showing that had to be made or could either side cancel it at will?
Mr. Roth. I think either side could cancel it at will.
Our operations in the premises were something like this in terms of profit or volume:
For the period from September 1, 1946, to January 31, 1947, we lost $56,493.74.
From February 1, 1947, to January 31, 1948, we lost $18,795.68. From February 1, 1948, to January 31, 1949, we made $13,163.37.
The only figures we now have available, from February 1, 1949, to December 24, 1949, which is not a full year, since our fiscal year begins on February 1, we made $19,253.22.
Mr. HOLIFIELD. At this point will you give us the average investment in inventory of your department store, excluding the $100,000?
Mr. Roth. I do not have that figure at hand, but one of the witnesses may be able to give me a rough estimate of that. It is hard to say at the moment, but we can produce those inventory figures.
Mr. HOLIFIELD. Will you produce all of the inventory for all of the subconcessionaires as well as your original lessor?
Mr. Roth. Would you want them, sir, as of the end of the lease, or when?
Mr. HOLIFIELD. Not as of the end of the lease. That would not be a fair figure, because you would have sold down pretty low right after the Christmas rush. I would suggest that you give us your average inventory for the year for the different departments.
Mr. ROTH. All right.
Mr. Elston. I would like to know if this $100,000 entered into the profit-and-loss figures.
Mr. Roth. Not the $100,000, but certainly the $74,000 did. It did enter into it. We did amortize it because we had to. Under our tax laws we would have had to amortize it over the entire period of our lease, no matter what the length of the lease is, and that is the fortuitous or the accidental thing about it, perhaps the strange thing about our tax laws. If this lease had been 10 years, we could have and would have been required to amortize it over a 10-year lod.
Mr. KILDAY. You amortized it over 1 year?
Mr. Roth. We amortized it over 3 years. The original lease is 2 years, and I would have to check the details, but based upon the fixed term of the lease, you see. Our volume including the concessionaires, and there are about 14 concessionaires, was this:
For the first 4-month period, from September 1, 1946, to January 31, 1947—and the figures are here only to the end of the calendar year, to December 31, 1946—the figures are $613,226.
From January 1, 1947, to December 31, 1947, it is $1,215,331.
From January 1, 1949, through the end of our occupancy, to the end of the year, December 31, 1949, it was $944,208.
Now, during that period of time that we were in there, as a matter of fact shortly after we got in, there began and there was consummated a series of reductions in the staff at Oak Ridge which resulted in a very, very terrible diminution of volume, dollar volume, flowing in the town. I think the population reduced, and we do not have those figures, and it would have to come from the Commission themselves, was reduced from about 80,000 to a figure that toward the end of last year we understand was probably close to 27,000 or 28,000.
A large part of the decline in volume, and there was some substantial decline in volume between the 1948 calendar year and the 1949 calendar year, was due to that trend downward in population. Also there are other factors that go into the question of dollar volume in a town. One factor would be the actual total pay roll, the amount of overtime, whether there were any strikes; and in this case particularly the significant fact was that you had a reduction of price per unit in the entire retail field as a result of which your total volume, even if you sold the same number of units, would be dollarwise less.
Now, in the summer of 1949 we were in negotiation with the RoaneAnderson people. We thought that we could do a better job in spite of the fact that a reasonably good job, or we thought an excellent job was being done there, provided they gave us a reduction in the percentage of rental. We were paying 6 percent. We would not attract the best concessionaires in all instances, although strangely enough some of the concessionaires that we had have been retained in other places by the Commission down in Oak Ridge; and we felt that it
would be a much more successful operation all around if we got a reduction in the percentage.
Now, the fact is that the percentage of 6 percent which we were paying has not been equaled in any of the bids that will be turned up here, either the one received of Loveman's or anyone else's, so it is perfectly clear on its face that that percentage we were paying was excessive. It is common knowledge in the department-store field that for this type of operation you cannot operate on a 6-percent basis, and you need a lower figure than that. As a result of the various negotiations we received a short extension of time, and at the same time we received the usual assurances of good faith, preference, priority, that we would be all right, and that extension of time went from September 1, 1949, to January 31, 1950.
It was understood that they would ask for additional bids because now they were in a position to grant a longer term of 5 or 10 years beyond the expiration of our term. But we had no doubt in our mind that our record was good, that we could offer anything that anyone else could offer, and that acting in good faith the Roane-Anderson people would see to it that we got at least a preference, if there was any parity between our bids, although we expected that our bid would be better.
They sent out a notice for bidding, and here is the advertisement. Mr. HOLIFIELD. What date was that advertisement?
Mr. Roth. I do not have the exact date, but it was issued sometime toward the end of October, I think, or during November, and I think that it ran on different occasions in different publications.
(The advertisement is as follows:)
AVAILABLE FOR LEASE
Proposals will be received until Thursday, December
For complete information and inspection of premises, phone, wire, or write immediately.
Commercial Realty Division
Oak Ridge, Tenn.
Mr. Roth. I ask the members of the subcommittee to examine the advertisement and see the rather terse and limited character of the statements that they make there. They tell you nothing about the actual requirements, what they really wanted, no details and no specifications, and nothing.
Mr. HOLIFIELD. Were you furnished any additional information at the time you entered into negotiations with them as to what they wanted?
Mr. Roth. We were not.
Mr. HOLIFIELD. How did this compare with the original negotiations, the manner in which you originally negotiated with them? Were you at that time asking for any special requirements?
Mr. Roth. Well, there was a long complicated form that was filled out the last time, and I think that the procedure was much more complicated when we first got into it, that is our original lease in 1946. There were many more details that were examined and it was known what was required, and a great many more negotiations took place. I believe that I have a questionnaire which I will be able to produce later that would show what was required of us.
Mr. HOLIFIELD. As of the original lease?
Mr. HOLIFIELD. And you make the statement that no such requirement was made on the second time?
Mr. Roth. All that happened was that you have this thing. Now, after that there were of course discussions between ourselves and Roane-Anderson. At no time did they tell us what they wanted, that they wanted anything substantially different from wbat we had been doing before.
Mr. HOLIFIELD. There was no indication from the Roane-Anderson people that you had not fulfilled the terms of your obligation, that you were not serving the community with the right kind of merchandise?
Mr. ROTH. Absolutely not.
Mr. Roth. No, and in fact one of our principal points here is that we were lulled into a feeling that nothing else was required to be done that was of any consequence, and nothing that we didn't know, or wanted to do, because it must be recognized that we as merchants ouselves were very anxious to increase the volume in this business as well, since we would make money.
I think that this advertisement itself shows the character of the negotiations, because that is about all that they have indicated that they wanted, just the most general statement to go in there and operate a store, and we were operating a store and we were making money in that store, and we weren't doing too bad financially or otherwise.
Mr. HOLIFIELD. I think that you should qualify that statement with the fact that in the last two lines there it says: For complete information and inspection of premises, phone, wire, or write immediately. And it is true that this is a general notification but they do say that they will give more complete information upon inquiry of an interested party.
Mr. Roth. There is no question about that, and we were in touch with them and others were in touch with them. But I might just say this: It is perfectly clear from everything that has gone before that their position is that we must have known that there were additional requirements.
First of all, as will appear, nobody else offered any more requirements than we did, but we say that as a matter of fact they did not do