Mr. WOODRUM. Plus any additions that he may have made. Mr. FARBACH. Plus any improvements that he may have made. Mr. WOODRUM. The additions may account for the 17 percent. Mr. FARBACH. No; because we only got our $3,850,000—the extra 17 percent represents amounts in addition to what the Commission receives. Mr. WIGGLESWORTH. When was the Navy first notified that you were going to charge them $3,800,000 for the President Jackson? Captain VICKERY. They were notified when they asked us to take it over. Mr. WIGGLESWORTH. When was that? Captain VICKERY. They took over that vessel in the early part of June, I believe. Are you talking about the Jackson or the Adams? Mr. WIGGLESWORTH. The Jackson. Captain VICKERY. They came in at the same time. Mr. KIRSCH. It was delivered to the Navy on June 30. Mr. WIGGLESWORTH. Did they know what they were going to pay for it? Mr. KIRSCH. The bill is going out to them in the next day or so. Mr. WIGGLESWORTH. As a result of the inquiry which was developed here with the Navy Department? Mr. KIRSCH. Oh, no. Just as fast as the Navy Department has taken over these ships, we send our bills to the Navy for reimbursement. We have bills that have gone out in the last day or so for those ships that were taken over in the early part of June. Bills are going out for those that were taken over in the latter part of June. They are being billed for a group of 12 ships that have been turned over within the last month. Mr. LUDLOW. This may not be important, but why do you bill the Navy Department $21,000 less than the actual cost to the Maritime Commission? Mr. KIRSCH. Because the final construction cost has not yet been completed by audit. When an audit is completed, we will arrive at the total construction figure, and from that will be deducted depreciation while the vessel was in operation, so that the figure might be $3,850,000 as billed to the Navy Department; it may be $3,900,000. But the figure we bill the Navy is a tentative figure, close to the figure that we have presently on the books. Mr. WIGGLESWORTH. You are still paying 50 percent subsidies in a good many instances, despite the fact that 33% percent is supposed to be the top in the absence of conclusive evidence that the actual differential is greater. Captain VICKERY. No. I think the differentials were frozen in 1939 by act of Congress, and the rates of differential at that time have been applied since. Mr. WIGGLESWORTH. Is not that the law; 33% percent? Mr. WIGGLESWORTH. It is conclusive evidence; is it not? Mr. FARBACH. The statute reads convincing evidence. Mr. WIGGLESWORTH. Of course, there is no evidence today, is there? Mr. FARBACH. Congress permitted us to apply the differentials set up prior to September 3, 1939. Mr. WIGGLESWORTH. Will you put in the record a list of these amounts; that is, bring the construction differential table up to date, if there have been any additions since the testimony was given on the regular bill? Mr. FARBACH. Covering recent sales; yes. Mr. WIGGLESWORTH. Show what the construction subsidies have been. (The information requested is as follows:) Recent sales of newly constructed vessels, Jan. 1, 1941, to June 30, 1941, as at June OPERATING SUBSIDY PAID ON INSURANCE Do you or do you not cover any insurance with your operating subsidy? Mr. FARBACH. An operating subsidy is paid on insurance where a difference in cost is established. Mr. WIGGLESWORTH. In other words, if the owner takes out insurance, is that covered by the operating subsidy? Mr. FARBACH. If he pays more for insurance than he would have to pay if he were operating under a foreign flag, we are authorized under the act to pay the difference. Mr. WIGGLESWORTH. It is only the excess that we cover? Mr. FARBACH. That is right. That percentage varies from zero up to 33% percent; 33% percent is, I believe, the highest that we pay. Mr. WIGGLESWORTH. Could you furnish for the record a statement which would show the excess of insurance which we have, in fact, covered? Mr. FARBACH. I shall be glad to. Of course, we have recently served notice on all of the operators that the subsidies are being reconsidered, are to be reconsidered; and a number of them have agreed to a reduction of their operating subsidies under a nominal amount for the duration. In other cases, we are holding hearings to determine whether they are entitled to subsidies. (The statement requested is as follows:) Accrued operating-differential subsidy covering excess insurance costs on voyages terminated to June 30, 1941 Mr. WIGGLESWORTH. Will you also put in the record a statement that will show any sums that we have collected under the excessprofits provisions of the law? Mr. FARBACH. I think we would not have many cases of that sort. We can put in the record what we have collected. Mr. WIGGLESWORTH. What you have collected and from whom. Mr. FARBACH. Yes; most of them run for 10 years, in the long-term subsidy cases. That is on a 10-year basis. So the amount is not collectible until the end of the subsidy contract. Mr. WIGGLESWORTH. The excess over 10 percent is not collectible annually? Mr. FARBACH. Not annually; no. Mr. WIGGLESWORTH. Will you make some kind of a statement on that? Mr. FARBACH. All right, sir. (The information requested is as follows:) STATEMENT SHOWING NET, UNRESTRICTED, AND EXCESS PROFITS AND ACCRUED SUBSIDY FOR THE CALENDAR YEARS 1938, 1939, AND 1940 UNDER LONGTERM OPERATING-DIFFERENTIAL SUBSIDY AGREEMENTS AND CHARTER PARTY AGREEMENTS, AND SHOWING ALSO BALANCES IN THE STATUTORY CAPITAL AND SPECIAL RESERVE FUNDS AND IN THE CONTRACTUAL CONSTRUCTION FUNDS AS AT DECEMBER 31, 1940, AND ADDITIONAL AMOUNTS REQUIRED TO BE DEPOSITED THEREIN PURSUANT TO GENERAL ORDER NO. 31 This statement reflects the financial results from the operation of subsidized vessels under long-term operating-differential subsidy agreements during the calendar years 1938, 1938, and 1940; also vessels chartered by the Commission under charter party agreements for the same years. During this 3-year period there was experienced 14 years of operation under normal conditions, and 14 years of operations under abnormal conditions due to the enactment of the neutrality law and conditions resulting from the war. Therefore, it is not deemed advisable that these figures be used for purposes of comparison with previous years, as they are presented solely for the purpose of demonstrating the manner in which the provisions of the 1936 act have been applied by the Commission in connection with the maintenance of the statutory reserve funds in the light of the extraordinary profits earned during 1940. NET EARNINGS OR NET PROFITS It will be observed that during the calendar year 1938 the various subsidized operators realized a net profit of more than $4,500,000, during the year 1939 a net profit in excess of $10,500,000, and during 1940 a net profit in excess of $32,500,000. For these 3 years the subsidized operators as a whole realized a net profit in excess of $47,600,000, which included subsidy received from the Government in excess of $31,500,000. Of the net profit of $47,600,000, unrestricted profits (10 percent of capital employed) amounted to approximately $13,800,000 and excess profits amounted to approximately $33,800,000, and of this latter amount, approximately $23,700,000 were on deposit in the various statutory special reserve funds, the difference of approximately $10,100,000 having been deposited in the statutory capital reserve funds at the direction of the Commission in order to provide funds necessary to meet the 25 percent down payments on new ships and mortgage obligations on old ships. If all of the long-term operating-differential subsidy agreements were canceled as at December 31, 1940, the Commission would recapture approximately $12,400,000 of the $28,900,000 subsidy paid, or approximately 43 percent. In the instances of 5 of the 13 operating-differential subsidy agreements in effect during this period, one-half of the cumulative excess profits exceeded the accrued operating-differential subsidy; hence, the amount subject to recapture in those instances would have been limited to such accrued subsidy. It is interesting to note that during these 3 years subsidy has accrued to the various operators of chartered ships in the amount of approximately $2,500,000, whereas the various operators have been required to pay to the Commission as additional charter hire an amount in excess of $2,800,000, or a little more than $300,000 in excess of the subsidy paid. CAPITAL RESERVE AND CONSTRUCTION FUNDS During the 3-year period the various subsidized operators have deposited approximately $65,000,000 into the several capital reserve funds. Of this amount, in excess of $27,000,000 represented proceeds from the sale of vessels and $10,100,000 represented excess earnings, the balance representing depreciation earned and unrestricted profits. As at December 31, 1940, the various operators had disbursed in excess of $43,000,000 from the capital reserve funds. Of this amount approximately $17,000,000 was disbursed for payments of mortgage notes, approximately $25,500,000 represented payments on new vessels, and approximately $600,000 represented payments for the purchase of old vessels. As at December 31, 1940, balances in the various capital reserve and construction funds aggregated approximately $20,300,000, and there were amounts to be deposited accruing through the year 1940 of approximately $1,500,000, making a total of approximately $21,800,000. SPECIAL RESERVE FUNDS As previously stated, during the 3-year period ended December 31, 1940, the results of operation under the various long-term operating-differential subsidy agreements and charter party agreements indicated excess earnings of over $33800,000. As at December 31, 1940, balances in the various statutory special reserve funds aggregated approximately $18,000,000 and there was accrued to the various special reserve funds approximately $5,700,000, which deposits were made on or before April 1, 1941, bringing the balance of the various special reserve funds to approximately $23,700,000. During this same period excess earnings totaling approximately $10,100,000 have been deposited in the statutory capital reserve funds with the permission of the Commission. |