The CHAIRMAN. But you have it in full. We have got here the manufacturing costs and the selling price, haven't we? Mr. TOLAND. We have on this group of contracts, on which the manufacturing costs were $2,317,093.09, and upon which royalties of $200,255.03 were paid, that the total cost, excluding general overhead, was $2,517,348.93. The amount billed to the Navy was $4,546,301.22, and the percentage of profit as to cost was 80.60, and the percentage of profit as to the selling price was 44.63. That is on that group of contracts. The CHAIRMAN. We have all that information. Put a witness on the stand who made it up from their books and don't take up the time of the committee by reading each one. Mr. TOLAND. Mr. Glisson, will you take the stand and take this report and show the number of contracts that they have? Sit right with Mr. Curran. The CHAIRMAN. Hold up your right hand, Mr. Glisson. Do you solemnly swear the evidence you shall give the Naval Affairs Committee shall be the truth, the whole truth, and nothing but the truth, so help you God? Mr. GLISSON. I do. TESTIMONY OF HUGH D. GLISSON, NAVAL AFFAIRS INVESTIGATING COMMITTEE INVESTIGATOR Mr. GLISSON. We have shown here a total of 10 contracts, the principal confidential and restricted Navy Department contracts, on which we show the total manufacturing costs, the royalties, and the total amount billed the Navy, with the resulting gross profit percentage applied. On all of these contracts the gross profit percent on cost is 80.60 and on selling price is 44.63. That is on a total of $4,546,301.22. Mr. TOLAND. Now, Mr. Glisson, will you look at the first part of your report at the recapitulation of their business. Please state the percentage of Navy business as to commercial business and the percentage of profit on the Navy business that is reflected. Mr. GLISSON. The total Navy sales were 48.70 percent of the total business of this company in 1941. The total sales in 1940 were 20.48 percent of all sales for this company. That represents an actual increase of 466 percent in dollar volume; that is, on total Navy sales, the increase from 1940 to 1941. The gross profits on these Navy contracts amount to, as I have just stated, 81 percent on cost, and vary from a high of 122 percent to a low of 38 percent. On the two largest contracts shown here, one for $2,000,000, approximately, and the other for approximately $900,000, gross profits reflected were 93 percent and 116 percent on costs. Does that answer your question, Mr. Toland? Mr. COLE. Is that reflected in your report? Mr. GLISSON. We do have that reflected. Mr. TOLAND. I was just going to ask him that. You go ahead and explain that. Take exhibit B of your report. Mr. GLISSON. Exhibit B here reflects the net profits after the application of general overhead, and the resulting net profits amount to 45.02 percent on cost and 31.05 percent on selling price. 70533-42-vol. 5- -4 Mr. SUTPHIN. Is that after taxes are deducted? Mr. GLISSON. No, sir; that is prior to taxes. Mr. TOLAND. Taking the two large contracts which you heretofore mentioned Mr. GLISSON (interposing). Yes, sir. Mr. TOLAND. As 93 and 116 percent, after including the overhead on the two million and the nine hundred thousand, the net profit on those two contracts was 55 and 62 percent on cost, respectively. Isn't that true? Mr. GLISSON. That is correct. Mr. TOLAND. That is on approximately $3,000,000 worth of contracts? Mr. GLISSON. That is right. Mr. TOLAND. The net profit before taxes of this company was 55 percent on cost on the $2,000,000 contract and 63 percent on cost on the $900,000 contract? Mr. SUTPHIN. Were income taxes paid on those figures? Mr. TOLAND. Well, the corporation paid their taxes on their income. Mr. GLISSON. Of course, these figures are included in all manufacturing costs. Mr. TOLAND. Mr. Curran, is that your signature? Will you identify that as a formula of cost that you used in connection with 112,000 canister attachments, showing the percentage of gross profit estimated on the contract? Mr. CURRAN. Yes, sir; that is my signature. Mr. TOLAND. One more exhibit, Mr. Chairman, and then we will be through. Mr. CURRAN. That is my signature. (Cost estimate on canister contract was received in evidence, marked "Exhibit No. 409," and is printed in the appendix of this volume.) Mr. TOLAND. Will you tell us what that estimate represents and what the profit was, actual and estimated, on the particular contract— the gross profit? Mr. CURRAN. The estimated gross was 64. Mr. TOLAND. Percent? Mr. CURRAN. Yes; 64.5 on the one. Mr. TOLAND. And the actual cost-the actual profit was what? Mr. CURRAN. The actual was 64 on the one item; 75.7 on the other one estimated, 77 actual. The CHAIRMAN. That is your figure? Mr. CURRAN. Yes, sir. Mr. TOLAND. Now, Mr. Glisson, in connection with page 2 of your report, on the entire business of approximately $7,000,000 this company has received from the Navy for gas masks, what did you estimate, based upon your examination of the books, the profits of the company would be? Mr. GLISSON. Approximately $4,000,000, based on the previous experience. That is on $7,000,000 worth of business. Mr. TOLAND. Is it a fact that in view of the actual profits-the huge profits and the anticipated profits, that this company has seen fit to increase its price to the Navy for this mask as much as $0.32 a unit? Mr. GLISSON. That is correct. Mr. BATES. What percent is that over the previous cost, Mr. Toland? Thirty-two cents means nothing itself. What about the percent of cost over previous cost? Mr. TOLAND. Well, Mr. Curran, what would be the percentage? Mr. BATES. It might have been $10 and adding $0.32 to it is meaningless. Mr. TOLAND. What was the justification for the $0.32 increase? The fact is, Mr. Bates, the company shows a $4,000,000 profit on $7,000,000 worth of business, and notwithstanding that profit, it increased the unit cost of the mask $0.32. Mr. BATES. What was the unit cost prior to that? Mr. TOLAND. What was the unit cost; $13.52 was it? Mr. GLISSON. $13.56. Mr. TOLAND. And that increased it $0.32? Mr. GLISSON. That is right. Mr. TOLAND. They will make an estimated $4,000,000 profit on $7,000,000 worth of business. Nevertheless, they increased the unit price 32 cents? Mr. GLISSON. That is correct. Mr. TOLAND. Now, with regard to contracts for oxygen-breathing apparatus, involving $5,500,000, what did you estimate the net profit of the company on that contract? Mr. GLISSON. $2,000,000, sir. Mr. TOLAND. Now, with regard to these two products, which involved $9,290,492.25, and which constituted 63 percent of the total classified Navy business granted to the company in 1941, what was the anticipated net profit of the company on that amount of business? Mr. GLISSON. The anticipated net profit on those two products would be $4,173,318.93. Mr. TOLAND. Now, for the benefit of the record, will you state your analysis of the total business-Navy classified and industrial? It appears on the next page-page 3 of your report. Mr. GLISSON. This analysis of operations shows that the Navy sales, as previously stated, approximate 50 percent of the entire business of this company in 1941, and 21 percent in 1940, with the tremendous increase in business there, of course, wholly due to Navy business. The comparison there of the increase between Navy business and the ordinary industrial sales reflects the Navy business as running as high as 535 percent, whereas the industrial sales increased only 21 percent. Mr. TOLAND. Now, did this company file any questionnaires with this committee, Mr. Glisson? Mr. GLISSON. Yes, sir; they did. Mr. TOLAND. Did you make an examination of the questionnaires filed with this committee that were sworn to under oath? Mr. GLISSON. Yes, sir; I did. Mr. TOLAND. Did you make that in connection with your analysis of the books and records of this company? Mr. GLISSON. Yes, sir. Mr. TOLAND. Were the questionnaires filed with this committee truthful and accurate? Mr. GLISSON. No, sir; insofar as the profit figures reflected on these two questionaires; one on contract No. 70462, the net profits reflected by the company amounted to $76,203.47, or 8.8 percent. Our analysis of cost on this particular contract indicated the gross profits amounted to 116 percent on cost and 54 percent on selling price; and the net profits amounted to 63 percent on cost and 39 percent on selling price. As to exactly how the company arrived at their low net-profit figure, I have no idea. Mr. TOLAND. Who signed that questionnaire? Mr. GLISSON. Mr. Beggy and Mr. Ryan, Jr. Mr. TOLAND. Mr. Beggy, will you come here, please. Mr. COLE. Before he leaves, why doesn't he tell us what they estimated the profit on that contract to be-a comparable figure to this $76,000 which they figure it to be. Mr. GLISSON. The actual figure, that is the net profit figure nowThe CHAIRMAN (interposing). They put it at $76,000. What do you think it is? Mr. GLISSON. $348,560.19. Mr. IzAC. Does that include overhead? Mr. GLISSON. Yes, sir; that is net profit. The CHAIRMAN. And they figured it at $76,000 in the questionnaire? Mr. GLISSON. That is correct. Mr. TOLAND. Mr. Beggy. The CHAIRMAN. And your examination shows $336,000? Mr. GLISSON. Approximately $348,000, I believe. The CHAIRMAN. $348,000. Mr. TOLAND. Mr. Beggy, did you sign that questionnaire? Mr. BEGGY. May I see it? [Examining papers.] Yes, sir; I did. Mr. TOLAND. Was it prepared for you? Mr. BEGGY. Yes, sir. Mr. TOLAND. Who prepared it? Mr. BEGGY. The accounting department. Mr. TOLAND. Well, do you know the individual who prepared it? Mr. BEGGY. It was prepared by our accounting department based on our tax return which took into account the net profit after taxes, as we indicated here. Mr. TOLAND. Net profit after taxes, but not before taxes. Mr. BEGGY. That is right, sir. In each instance the figures brought out in these reports do not show that our average Federal income tax was over 65 percent for the year 1941, and in round figures $2,700,000, out of the net profit of four-million-some-odd figure. In other words, we added as net income $1,200,000 on $16,000,000 worth of business. (The 1939 questionnaire and the 1941 questionnaire were received in evidence, marked "Exhibits Nos. 410 and 411" respectively, and are filed with the committee.) Mr. TOLAND. That is after your taxes. Mr. SUTPHIN. For the year 1941, where in this questionnaire do you show an income of 7.58 percent? That was after taxes? Mr. BEGGY. That is correct, sir. Mr. TOLAND. And that is a pretty good profit. Mr. BEGGY. In our previous years, when Government business was not involved, it shows a higher return after tax. Mr. TOLAND. Taxes weren't as high the previous years, either. Mr. TOLAND. Mr. Glisson, I would like to offer in evidence Mr. GLISSON (interposing). I have one other contract here. This other contract is NOS-80955, on which the company has reflected an estimated profit of $258,000. Based on the previous experience of this company on its initial contract on this same product, contract NOS70462, on which we reflect a net profit on cost of 63.24 percent, the estimated profits on this new contract, which amounts to approximately $4,500,000 should be approximately $1,631,057.43 as compared with the company figure of $258,000. Mr. TOLAND. All right, I would like to offer in evidence the report Mr. Glisson has just testified to. The CHAIRMAN. Without objection, let it be put in the record. (Investigators' report on profits on Mine Safety Appliance Co. was received in evidence, marked "Exhibit No. 412," and is printed in the appendix of this volume.) Mr. BATES. Mr. Chairman, before the witness finishes, I note on this report, I was not here to hear the evidence, the net profits after taxes for 1937, 1938, 1939, 1940, and 1941. Mr. GLISSON. That is on the entire business, as I recall it. Mr. BATES. The entire business statement. Do you recall that statement? Mr. GLISSON. I think the percentage is a little low. Mr. BATES. Have you any contrary figures to show it is low? Mr. BATES (interposing). The thought, Mr. Chairman, is being brought to the attention of the committee that this company is making unconscionable profits, which, of course, includes 50 percent of all Navy work, and this statement denies that allegation, if such is being made. I would like the witness to say whether or not these figures presented to the committee by George H. Deike are correct or whether he disputes them, and if so, in what respects. Mr. TOLAND. Mr. Glisson, you have on the exhibit in your report, the last page Mr. GLISSON (interposing). Exhibit D, sir. Mr. TOLAND. Exhibit D, for 1941, the net income prior to taxes. That is on all the business of the company? Mr. GLISSON. The net income of this company prior to Federal taxes on the entire business amounted to approximately 25 percent; in other words, the ratio of $4,000,000 to $16,000,000. Mr. BATES. Prior to taxes? Mr. GLISSON. Correct. Mr. BATES. Now after. Mr. GLISSON. The company has estimated its taxes for 1941 at $2,600,000, resulting in a net income after taxes of $1,425,093.70. That would be approximately 9 percent. The difference is slight, however. Mr. BATES. Where they make the profit in the first instance, the Government comes along through the back door and takes it away from them. Is that it? Mr. GLISSON. Except, sir, that your profits on your Navy contracts. have been high-excessive-and a lower profit on industrial sales would reduce that to this 25 percent figure. Mr. BATES. Do I understand you to say 9 percent is the net profit. after taxes? Mr. GLISSON. Yes, sir; that is on the entire business. |