The CHAIRMAN. How much?

Major FLEET. We have been building up in San Diego alone to 40,600 men, from 1,146, in 2 years, to say nothing of having to design. a plant, the second largest plant in the country, at Fort Worth, Tex., and with a duplicate at Tulsa, Okla., for Douglas. We made a deal with Henry Ford for several hundred millions, and we have had $2,300,000,000 of business. I had to, gentlemen, take greenhorns. This contract is not finished yet.

Our books are always audited, every single year, by Haskins and Sells, the third largest certified public accounting firm in the world. All our accounts are sworn to, and I swore to them when I gave them here.

(The tabulation entitled "Tabulation of Consolidated-Vultee Transactions, December 19, 1941," was received in evidence, marked "Exhibit No. 181" and is printed in the appendix of this volume.) The CHAIRMAN. Of course, you are not with the company right

now.

Major FLEET. Yes, I am with the company but am not a stockholder.

The CHAIRMAN. Have there been any renegotiations on the part of the company?

Major FLEET. No, sir.

The CHAIRMAN. Are there any contracts in the process of being renegotiated?

Major FLEET. I am not sure about that, Mr. Chairman. As far as I am concerned, I finished up the calendar year of 1941 with the company as its general manager, as its president, as chairman of its board. The prices that we had for the articles that we had under contract amounted at that time, say, to pretty close to $2,000,000,000.

The mortal doesn't live who can tell how much the aircraft are going to cost. Every dollar's worth of business that Consolidated Aircraft Corporation ever got from the United States Navy we bid for. We not only bid for it, but we were determined by the United States Navy to have the best design and to be the cheapest in price. And yet, we show exactly what our profit limitations were and we have never had to return, under our audits, one dollar to the United States Navy under all those contracts, under the Vinson-Trammell Act, which I felt was pretty good for a company doing such an enormous business as we have.

Mr. TOLAND. You personally did pretty well over a period of 18 years with this company.

Major FLEET. This company represents certain things. My average earnings, including the return on stock interest, amount to $122,000 a year. Mr. Girdler, who is now serving as chairman of the board in my place, draws $175,000 a year from the Republic Steel Corporation and nothing from Consolidated.

Four or five men are now taking my place. If you were to add the salaries of those gentlemen together, you would find that they figure out at least twice, maybe three times my average earnings from this company of $122,000, including interest on my money and my investment.

I face you gentlemen with pride, because I made a go of a company through 18 years and 7 months, throughout a period in the history of our country where I saw over 1,000 companies in this line of business

go down, and where, during the year 1941, Fitch's Report says that no industry in all the history of industry in the world has had to expand as has the aviation manufacturing industry in 12 companies in this country during the year 1941.

Mr. RIVERS. What do you think your profit should be with $2,000,000,000 in Government contracts?

Mr. FLEET. I should say that whatever it is, we should be content with it.

Mr. RIVERS. Do you think 6 percent would be too much?

Mr. FLEET. I should say that on a volume of business, 6 percent is O. K.

Mr. RIVERS. Do you think it is too much?

Mr. FLEET. We are interested only, gentlemen, in profits after taxes, because there is no use just simply putting money in one pocket and passing it out in another.

Mr. RIVERS. What do you think would be a fair profit on a $2,000,000,000 contract?

Mr. FLEET. It depends on how much investment it takes, and also how much time it takes, and everything of that character, to do two billions of business. I imagine that our corporation will do this year better than half a billion. In other words, think of jumping from $9,000,000, gentlemen, to half a billion dollars in 2 years' time.

Mr. RIVERS. I understood you to say you had $2,300,000,000. I asked you what you thought would be a fair profit on it.

Mr. FLEET. I haven't thought about it. I will say this to you, that my own profit individually is such that the Federal tax takes 4 percent normal and 74% percent surtax. That is 78%. California takes 15. That is 93%. That leaves me 6%, and when you consider I have been living for 25%1⁄2 years on the border line of death or danger, both financially and physically, in aviation, and I have ridden that trail with determination to make it go and put my country in my line of goods ahead of anybody else in the world, and when I tell you gentlemen that our volume of business was only $3,000,000 3 years ago, and 1,100 men-I had to discharge men and got down to 1,146 menyou don't know how our industry was hanging on by its eyelashes through lax periods in business

Mr. JACOBSON. What was the rate of dividends to the stockholders in the last 2 years, '40 and '41?

Mr. FLEET. In '40 I believe we had to pass a dividend. We had to spend our earnings for more plant. In 1941, based on the market price of our stock, it was around 16 percent.

Mr. TOLAND. Major, how much money has the Government loaned you for expansion of plant facilities?

Mr. FLEET. Plant 2, I presume, has cost about $20,000,000. It is covered by an E. P. F. contract, or a series of them, and will probably be retained by the Government for all time. On plant 1, the Government has loaned us probably three or four million dollars, maybe five, and the company, as fast as it can possibly spare the change, is reimbursing the Government for it under a certificate of plant expansion necessity.

You see our industry-remember that during this time, too, gentlemen, I had to increase the plant from 220,000 square feet to 3,300,000 square feet in San Diego alone; that is 16 times.

Mr. TOLAND. It is a fact, is it not, that 3 years ago if you had sold your stock you would not have realized $8,000,000 for it at that time? Mr. FLEET. That is right.

Mr. TOLAND. And in the last 3 years the bulk of your business has come from the Government of the United States?

Mr. FLEET. Yes.

Mr. TOLAND. And the profits and the dividends have come from the contracts that you have had with the Government of the United States?

Mr. FLEET. Yes; and we paid taxes to the United States for selling them.

Mr. TOLAND. Now, Mr. Fountain, briefly and very quickly, give a short summary of your report on the contracts so that we can finish with the hearing.

Mr. FOUNTAIN. We found that the figures as shown in the questionnaires, included the profit after taxes. Otherwise they were approximately correct.

We compiled all the figures on all those contracts.

We went into the costs of the new plant facilities and the Government's help, and, as shown to some extent in this report, the total Government participation in the success of the Consolidated Aircraft Corporation.

Mr. TOLAND. What is the total amount of that participation?
Mr. FLEET. I would like to interject right here.

Mr. TOLAND. No, let him answer. Whenever he makes a statement, then you can.

The CHAIRMAN. Let's go ahead and get through.
Mr. TOLAND. Page 10.

Mr. FOUNTAIN. $25,000,000 up to September 1941.

Mr. TOLAND. What did you find as to the question of the application of costs by the company that you determined were not proper applications and what effect did that have on the profit on the contract? How much did they increase the cost under the contract?

Mr. FOUNTAIN. They increased the contract-I would say the total profit would be increased several million dollars over a period of 3 years.

Mr. TOLAND. In other words, if your formula of application of costs was followed, the profits realized by the company would be greater than what they have reported in their questionnaire? Mr. FOUNTAIN. That is true.

The CHAIRMAN. Were you following the formula of TD-5000, issued by the Treasury Department as a guide under the VinsonTrammell Act?

Mr. FOUNTAIN. Yes, sir.

The CHAIRMAN. That is what you were following?

Mr. FOUNTAIN. Yes, sir.

(Two volumes labeled "Report of the Investigation of the Records of the Consolidated Aircraft Corporation, San Diego, Calif.," were received in evidence, marked "Exhibit No. 182," and are filed with the committee.)

The CHAIRMAN. The company was not following that? As to certain items of cost?

Mr. FOUNTAIN. That is right.

Mr. FLEET. Does this auditor say that our company is in any way crooked?

Mr. TOLAND. No, no, no, Major; don't get excited now. This is a friendly proceeding. It is merely a question of accounting procedure, as to how costs should be allocated.

Mr. FLEET. I want to say that I was for 4 years the business manager of the Army Air Corps, as a major, and had the duty of auditing the books of all our contractors around the country, even before the McSwain and Vinson Act of 1926 gave us that right because that was enacted after I was in business. The disputes which we had with the contractors were legion. We never could agree on many things, that naturally TD-5000 doesn't allow, and we frankly admit that we include taxes before we count profits, the same as everybody else does that I know of in business. We paid the Government $21,000,000 this year.

The CHAIRMAN. The point that counsel is making is that the cost audit that you make doesn't follow TD-5000 and the cost audit we make follows TD-5000.

Mr. FLEET. That is right. We agree.

Mr. MAAS. Your point is that it isn't a profit until after you have paid the taxes?

Mr. FLEET. That is right.

Mr. TOLAND. It goes a little further than whether or not the formula of TD-5000 should be followed by all Government contractors. It goes to the question of charges that may not be proper charges as costs against the contracts. For that purpose we made a survey to determine whether or not the company was following TD-5000, and to see how they were arriving at the profit figures that they set forth in the questionnaires and that they have maintained here today.

Now, under the Vinson-Trammell Act, isn't it a fact that costs that you claimed were disallowed by the Navy Department?

Mr. FLEET. I presume so; yes, sir. I might say this: I have the highest respect for the chairman because he has been active for our country and our Navy all these years. I noticed in the act he proposed today, he had 8 percent in it; and that certain ordinarily prohibited expenses would be allowed. Now those things that he had would be allowed in his draft today, and these together with the 8 percent that he sets forth are based upon experience that he has undoubtedly received from Government people.

In other words, we have had disputes for many years about such a thing as advertising, whether it was an allowable item of cost, and we have had disputes about many things that we could not seemingly settle as businessmen.

Mr. TOLAND. Mr. Fountain, go ahead and read this chart. Then you will be through.

Mr. FOUNTAIN. I prepared this chart, which, incidentally, is based on company figures and contains no figures which have been prepared by the committee. On it we show the cost, selling price, and percentage of profit which has been made on the PBY contracts, from one up to four, as shown on the company books. From a journal entry, a company journal entry, of December 1939 these costs are brought down by the exclusion of certain items which the company recognizes have to be included for the Vinson-Trammell Act.

For instance, on one contract, No. 49653, the profit on sales, according to the company books, was 12.59. By the cost exclusions in

the company's own journal entry, the profit is brought up to 15.92 percent on sales.

Mr. TOLAND. What would the profit be on the cost of the contract? Mr. FOUNTAIN. On cost it would be 14.4 percent, according to company books, and from this journal entry 18.93 percent, on that particular contract. On the contract for PBY-3's, 17.84 percent on cost according to the books, and 27.53 percent from the journal entry. Mr. FLEET. That is on cost?

Mr. FOUNTAIN. On cost.

Mr. FLEET. Wait a minute, that is not fair because the VinsonTrammel Act said on price.

Mr. FOUNTAIN. All right; on price it is 14.4 percent according to the company books, and 19.59 percent according to the journal entry. Mr. FLEET. The difference is 5 points. I want to invite the committee's attention to the fact, therefore, that between civilian auditors, the way we have to run a business and the way the Government's auditors following TD and so forth, there is a discrepancy of say 5 percent on price of disallowances. Therefore if you adopt a profit limitation of 6 percent and you wash out 5 percent you see, through Government auditors, it would be a very bad thing and it depends on how tight the auditors are and so on.

Mr. TOLAND. Those figures are your figures; they are not Government audits.

The CHAIRMAN. Mr. Toland, why can't we put that in the record? Mr. TOLAND. Let's put it in the record.

(The chart entitled "Comparison of Costs and Profits on Specific Contracts, etc.", was received in evidence, marked "Exhibit No. 183" and is printed in the appendix of this volume.)

The CHAIRMAN. Any other facts?

Mr. TOLAND. I have nothing more.

Mr. BATES. Mr. Fleet, did you design the PBY?

Mr. FLEET. No one man can design a modern airplane. My organization did it.

Mr. BATES. A big flying boat covers anywhere from 3 to 4 thousand miles?

Mr. FLEET. Did you see what today's paper says about it? I can't help advertising.

Mr. BATES. Your organization designed the B-24, a 4-motor bomber?

Mr. FLEET. Yes, sir.

Mr. BATES. Those bombers, I presume we would all say, are two of the finest bombers in the world.

Mr. FLEET. I think that the PBY is the best of its class in the world and that the B-24 is the best bomber in the world; both hold many world's records. It flew up from Australia the other day in 38 hours and a half.

The CHAIRMAN. You have done all of that, notwithstanding the McSwain bill?

Mr. FLEET. That is right. I might tell you that on the B-24 we got $820,000 for the first ship and it cost us $2,500,000. There was an article in the Saturday Evening Post that said "Will This Win the War?"

Mr. BATES. I think those of us who have worked with Major Fleet down through the past few years, who have been with the committees,