Mr. Frear. How much did you receive ?
Col. Stearns. As I tell you, I would prefer that you ask the comp-
troller that, but my recollection is that it was approximately $10,000,-
000 of that $21,000,000, was actually sent out to the coast.
Mr. Frear. Didn't you deposit at one time over $20,000,000 in one
bank from the sale of debenture bonds?
Col. Stearns. In one bank?
Mr. Frear. Yes.
Col. Stearns. I have no recollection of that.
Mr. Frear. You don't know about that?
Col. Stearns. No, sir.
Mr^. Frear. Now, the capital stock, you say, was $100,000. Who
were the stockholders?
Col. Stearns. It has changed from time to time.
Mr. Frear. I do not mean the individuals ; how many stockholders
did you have?
Col. Stearns. The United States owned all the stock except what
was necessary by law for individual stockholders to hold as qualify-
ing stock, and there were some seven of those stockholders.
Mr. Frear. And they had how much apiece?
Col. Stearns. They paid $1 for that qualifying stock.
Mr. Frear. And then the $99,000 and the balance was held by
Col. Stearns. Was held by the Government and voted by the Di-
rector of Aircraft Production.
Mr. Frear. Who was the Director of Aircraft Production?
Col. Stearns. It was first voted by him and then by the Director of
Air Service. First, Mr. Ryan was the Director of Aircraft Produc-
tion, and he voted it while he was in. Then we had the authority
delegated then we had Lieut. No, Gen. Menoher voted it
as Director of Air Service, and then Lieut. Col. Mars was made
Director of Aircraft Production, and he cast the last vote on that.
Mr. Frear. Lieut. Col.
Col. Stearns. Mars.
Mr. Frear. Throughout?
Col. Stearns. Yes, sir.
Mr. Frear. Until after the signing of the armistice Mr. Ryah was
the director?
Col. Stearns. That is correct, sir.
Mr. Frear. So he held the $99,000 in shares of stock
Col. Stearns. Well, he did not hold it, he voted it. I suppose you
would call holding it intrust.
Mr. Frear. The record shows that you received $21,500,000 from
the sale of debenture bonds, does it not? I mean that is your testi-
mony.
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708 WAR EXPENDITURES.
Col. iStearns, Yes, sirz either credited to our accounU or — I do
not think it was physically received, that is my point was all.
Mr. Frear. What would be the indebtedness where the credit
would appear, in what fonn? You say you believe it was credited.
What would be the indebtedness to onset the credit — what kind of
indebtedness ?
Col. Stearns. We would draw^ from time to time on that account
It was placed to our account in Washington, and we would dnw
on it from time to time to carry on the expenses of our work.
Mr. Frear. Then what you did, you drew the $21,500,000, did vou
not ? I want to get the procedure ?
Col. Stearns. Yes, sir ; I ^ess that was done.
Mr. Frear. Let me say this, if there was any misstatement in the
record, or anything like that that you should ascertain aftenrtrd>
that you want to correct, we will be very glad to have you do that.
We are just asking for the general scope of the work and the wit
in which it was carried out.
Col. Stearns. I guess it was drawn, but it has not been used.
Mr. Frear. AVhat is the balance on hand now, in cash, approxi-
mately ?
Col. Stearns. Have you got it right there, Walker? (Refers Xo
memorandum.) Roughly speaking, it is $10,000,000.
Mr. Frear. That is the cash that is in the hands of the corporttion
to-day ?
Capt. Walker. In the banks.
Mr. Frear. Yes, in the banks ; I understand. Here is an item of
commercial lumber sales, and I am taking this up briefly because the
statement appears before us, of $579,000. What kind of sales were
those. Colonel?
Col. Stearns. Commercial lumber sales.
Mr. Frear. I want to get the procedure?
Col. Stearns. At the cut-up plant, out of the cut-up plant open-
tions. Our main object was to produce airplane lumber. We pro-
duced and shipped that airplane lumber and sold it to the allies and
to our own Government. There was developed in that operation a
large amount of side cuttings, which was stored in the yard and sol<i
to the best advantage, from time to time.
Mr. Frear. And that is the $579,000 on commercial lumber!
Col. Stearns. What are you looking at, please?
Mr. Frear. The statement here that was made
Col. Stearns. Yes, sir.
Mr. Frear. You mean your cut-up plant down at Vancouver i
Col. Stearns. Yes, sir.
Mr. Frear. The next comes aircraft lumber sales, $5,059,000 in
round numbers. What was that?
Cdl. Stearns. I want to get all the facts in that. That is the sales
of the aircraft lumber since the formation of the corporation
Mr. Frear. Yes.
Col. Stearns (continuing). To the allies.
Mr. Frear. What were ttie sales of lumber before the forming of
the corporation ? I mean airplane stock.
Mr. Stearns. I will get that for you in a minute, Mr. Frear.
Mr, Frear. All right.
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AVIATION. - 7Q9
Mr. Steabks. Is there anything else you want! ! . — ' .':
Mr. Frear, Yes, I would like to know, right following that, this
salvage sales, which are
Mr. Stearns. That is the sales of equipment?
Ml". Frear. Those were sales since the formation of the corpora-
tion, up to June 30?
Mr. Stearns. Well, those are the sales on the equipment that we
had on hand after the armistice was signed and up to June SO.
Mr. Frear. That is right; and what were the. sales of commercial
lumber and of aircraft lumber and of salvage prior to the organi-
zation?
Mr. Stearns. Well, you see there t^ras no— the salvage has all
taken place since the armistice was signed.
Mr. Frear. I assume that; but on the other two, the aircraft
lumber sales
Mr. Stearns. The sales of that Mr. Walker is now getting the
figures for.
Might I correct one statement? I said that $5,000,000 was the
total sales. It is not the total sales ; it is the cash received on account
of those sales.
Mr. Frear. Yes.
Mr. Stearns. Yes.
Mr. Frear. We are going on the cash statement here, that I am
trying to get th6 facts about, that is all. Have you got the receipts
from sales prior to the formation ?
Mr. Stearns. Approximately $15,000,000. That is up to the latter
part of August, and I will have to get you those figures later on.
Mr. Frear. From all sources.
Mr. Stearns. You asked me the amount.
Mr. Frear. Commercial lumber sales.
Mr. Stearns. No, sir; you asked me the amount of the aircraft
lumber sales under the old regime — under the division.
Mr. Frear. Yes.
Mr. Stearns. I haven't that part here.
Mr. Frear. All right. Then we will supply that later.
Attached to the statement of cash receipts and disbursements, sent
by your company, is the abstract of expenditures to June 30, 1919.
This statement Carries the financial affairs of the corporation from
the time of its organization down to the 80th of June, 1919. The item
of $4,341,147 for spruce
Mr. Stearns. Where is that, Mr. Frear?
Mr. Frear. About three-fourths of the waj down on the first
page— no, I mean on the second page — of the Siems-Carey-Kerbaugh
Corporation?
Col. Stearns. I have a corrected figure on that. This was esti-
mated at that time. We have carried or extended our accounts
further since that time. You understand, we haven't closed the
Siems-Carey account yet.
Mr. Frear. Yes.
Col. Stearns. And I have a more correct figure on that. [Examin-
ing papers.] Is it the railroad up there that you are specially inter-
ested in?
Mr. Frear. No, this is the spruce contract, I am first speaking
about, $4,841,147, is the item that appears in the cash sjbatement
147155— 19— VOL 1 47
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710 WAB EXFENDITUBES.
Col. Stearns. I have not the other figuite <m that, bat I caa get
them, or when you come to Portland we can go into that
Mr. Fbear. I would rather have that, if we could, While we tre
here, but you need not give it just now.
Mr. Stbabnb. That is an approximation on this date. It is a little
changed since then, not a great deaL
Mr. Fbs^r, This was a statement up to June 30, on your bookit
Col. Stearns. Yes.
Mr. Fbeab. That $4,841,1471
Col. Stbarks. Yes, sir.
Mr. Frear. That money was paid out under the Siems-Carey*
Kerbaugh spruce corporation contract!
Col. Stearns. Yes.
Mr. Frbar. Were any advances made to this corporation f
Col. Stearns. Yes ,sir; from time to time advances have been
made.
Mr. Frear. On the next page, in relation to the spruce, appears tn
item of $750,000, made to the Siems-Carey-Kerbaugh Spruce Cor-
poration on the spruce contract. That is the total advance that wis
made to them?
Col. Stearns. Where is this, Mr. Frear?
Mr. Frear. That is on the top of the next page, the third pa|(e; thil
is it right thei-e.
Col. Stearns. I guess I haven't your statement.
Mr. Frear. I guess you have it there.
Col. Stearns. We will have prepared for you, detailed cost state-
ments, and they should be here tonight, of those Carey — two Siems-
Carey contracts. They are being prepared and they should be here
tonight.
Mr. Frear. Don't you have it there?
Col. Stearns. I don't find what you are referring to.
Mr. Frear. I think it is right there before you. [Col. SCeaiw
handedpaper to Mr. Frear.]
Mr. Frear. Oh, no, this is a different statement. You will find it
under " War credit advancement " on your sheet $750,000 was id-
vanced to the Siems-Carey-Kerbaugh Co., for spruce.
Col. Stearns. Yes sir.
Mr. Frear. And $500,000 was advanced to the Siems-Carey-Ker-
baugh Corporation for their railroad?
Col. Stearns. Yes sir.
Mr. Frear. There was paid to the railroad corporation, according
to your statement, $3,088,611.93, prior to June 30 1
Col. Stearns. Yes sir.
Mr. Frear. What has been paid since that time, on the ndlrotJ
contract, and also on the spruce contract?
Col. Stearns. As I have stated, Mr. Frear, the detail sfeatenMst
will be here tonight, to give you the exact amount. I woidd xalbff
wait until those exact figures are here.
Mr. Frear. You haven't the total with you?
Col. Stearns. No, sir; not on those accounts.
Mr. Frear. This advancement of $500,000 and $750,000, where d«*
that come in this payment that was made, is that to be deducted, or
a portion of it to be deducted, or what bearing has that got on thfe»
payments that were made to the Siems-Carey-Kerbaugh 0>.t
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AVIATION. ^ 711
Col. Stkarkb. That k the total fi^re, that is not the coast. These
are advances and are to come out o£<-any advances, of course, would
come out of the moneys dua the corporation.
Mr. Frear. But that doesn't quite reach mv point. You have ad-
vanced for the spruce corporation $4^1,000?
Col. Steabns. Yes sir.
Mr. Frear. You have advance for the Spruce Corporation $750,000
Col. Stearns. Yes. W6 haven't paid it yet.
Mr. Frear. You haven't paid whidi?
Col. Stearns. No, that settlement has not been made with the cor-
poration yet, comj^lete settlement has not been made.
Mr. Frear. This says expenditures to June 30; this don't say
commitments or anything.
Col. Stearns. No.
Mr. Frear. That is right, isn't it?
Col. Stearns. That is correct. I am mistaken, yes. That is not
the final figures, however.
Mr. Frear. The $500 in addition to the $3,000,000, making $3,500,-
000, diat has been paid by the corporation to Siems-Carey-Kerbaugh
Co. for the railway, depending upon the final settlement.
Col. Stearns. How much?
Mr. Frear. You have advanced the Siems-Carey-Kerbaugh Co.
$500,000, according to this statement?
Col. Stearns. Yes.
Mr. Frear. You paid the Siems-Carey Kerbaugh Co. $3,088,000?
Col. Stearns. Three million nine hundred thousand.
Mr. Frear. Three million nine hundred thousand ?
Col. Stearns. Eighty-eight. The total cost of that
Mr. Frear. Those are under your disbursements, and my question
is: Are they cumulative or are they
Col. Stearns. No, sir ; they are not. One is a War Credits Board
advance and the other is a spruce production advance.
Mr. Frear. Well, now^ how much more has been advanced by the
War Credits Board and m the hands of Siems-Carey-Kerbaugh Co.
than the 3,988,511 that you people have advanced ?
Col. Stearns. I can't answer that question until I get all my rec-
ords here, and I would prefer not to attempt to.
Mr. Frear. Can you tell, when the records are here, what the re-
lation is of the War Credit Boards - —
Col. Stearns. Yes; I can give you the exact information.
Mr. Frear. When will the records be here, to-night?
Col. Stearns. They should be here to-night, sir.
Mr. Fkear. The Siems-Carqr-Kerbaugh Co. — the contract was
entered into on May 12, 1918. How did the company enter into that
contract with this firm, if you know ?
Col. Stearns. I don't know the details of how that was done, sir.
]h&. Fbbar. This was a cost-plus contract?
Col. Stearns. Yes, sir.
Mr. Faear. For the taking out of spruce, from Clallam County,
wasn't it practically confined to that county?
Col. Stearns. Yes, sir.
Mr. Frear. The contract was for 250,000,000 feet of flitches?
Col. Stearns. As the contract states. I have not the figures in my
mind.
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T12 WAR EXPENWTURES.
Mr. Frbar. At a cost to the Government of approxiiQately
$25,000,000, if the contract was fulfilled?
Col. Stearns. I don't know what the final cost would be, Mr.
Frear.
Mr. FsEAR. Doesn't it so state? I don't know that it does.
Mr. Lea. The contract states. Could not we put the contract in
evidence?
Mr. Frear. I think we will. I think we will put it in. This ex-
hibit marked for identification " B "^— this was the final contriu;t with
the Siems-Carey-Kerbaugh Co.
Col. Stearns. Yes, sir.
Mr. Frear. The only contract that has been entered into, in fact—
I mean for spruce ?
Col. Stearns. Yes, sir.
Mr. Frear. And with the other attached papers, including the
contract for advancement and other matters, that is all that you
know of that concerns this spruce contract?
Col. Stearns. Yes, sir.
Mr. Frear. I will just offer it in evidence, and then I want to
inquire.
(Contract referred to was marked "Exhibit B, Steams, Aug. 30,
1919.")
Col. Stearns. While you are touching on that matter of cost I
would like to make a brief statement — ;the general figures on the cat
of that contract.
Mr. Frear. Which is that, the railroad contract?
Col. Stearns. Both of them?
Mr. Frear. Both of them.
Col. Stearns. Yes, sir; the matter of profit.
Mr. Frear. I was ^oing to ask you some questions on it, ami I
don't know but what it will develop ; if not, you can supply it.
Col. Stearns. What I was going to say, tnat after fiie Govern-
ment — after the contractors — Siems-Carey, contractors, have paid
their income tax to the Government — ^I understand they are in this
80 per cent class — the total profits to them on this railroad contrtfi
will be $51,000 and a little over.
Mr. Frear. That was due to no fault of the spruce corporation,
but due to an act of Congress, was it not?
C!ol. SiT.ARNs. May I finish this, please, Mr. Frear?
Mr. Frear. Yes.
Col. Stearns. And the total profits for them, under the spruce
contract, will amount to $65,000 and a little over, and the total profits
that all our cost-plus contractors will get, after they have paid their
income taxes, will be probably less than $250,000.
Mr. Frear. Do you take any credit to your corporation for Uut
result that you are stating to the committee; if so, in what particiiUr-
Col. Stearns. I am not taking credit for anything; I am simplj
stating facts.
Mr. Frear. You are stating facts, because Congress passed ^
law that taxed those people upon those contracts. You paid U»
money, did you not, under the contract?
Col. Stearns. I am simply stating
Mr. Frear. You are simply stating that Congress took the money
back, under an act; that is right, isn't it?
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ATIAnON. 718
Col. Stearns. That is right.
* Mr: Frear. And it was not any act of your people out here that
changed thie amount of their profits?
Col. Stearns. I am simply stating the facts as they developed, that
is all.
Mr. Frear. Yes; we understand. If the war hadn't stopped as it
did November 11, could you tell what the profits would have been?
Col. Stearns. Nobody could tell what the profits would have
been.
Mr. Frear. No, it was that thought that those people undertook
to make the contract to carry it out in 18 months after the 1st of
December for the deliveries of spruce, isn't it — the 1st of December,
1918, they were not to deliver spruce until December, 1918 — ^isn't
that right — under the contract?
Col. Stearns. If it says so, Mr. Frear.
Mr. Frear. I think it says so, and that period even hadn't been
reached, they hadn't begun delivering spruce. So why do you say
at this time that their profits were so small, when the contract
hadn't been entered into as far as the delivery of spruce was con-
ccimed ?
Col. Stearns. The newspapers having charged an expenditure
out here, I think it is but right that the American people should
know just the exact amount ot profits these people are going to get
out of said work.
Mr. Frear. We desire to aid the American people in ascertaining
this, and we want to find out what part the spruce corporation has
had in saving all this money. If that company had gone on for the
full period of 18 months, as proposed, instead of stopping
before the contract took effect, do you say that the profits would
only have been that amount, unless Congress had intervened?
Col. Stearns. I make no statement concerning profits in the
future ; I am stating the situation as it exists today.
Mr. Frear. Due to the action of Congress, subsequent to the mak-
ing of the contracts; that is right, is it not?
Col. Stearns. Oh, yes; yes. Congress passed the law.
Mr. Frear. I am trying to find what relation your statement has
to the facts before us. If Siems-Carey-Kerbaugh Co. wishes to make
a statement that their profits are small,^ and apparently that would
be
Mr. Lea. Do you object to the facts being given in the record,
upon such a material matter as this?
Mr. Frear. In answer to Mr. Lea, a member of tlie committee, I
will say this : That here is a contract made for $25,000,000 — a 7 per
cent plus contract, possibly running to 15 per cent, which was the
limitation placed upon it; that the war stopped before this contract
could take effect; that Congress also passed an act which provided
that the revenues should take effect upon the profits of men who
were doin^ business in commercial life, and that the entire result
was not enected in the slightest degre>e by the action of the Spruce
Corporation, but by the act of Congress, in enforcing the revenue
law, and by the fact that the war stopped a few months after the
contract was entered into — the profits would have been larger if the
contract had been carried out, wouldn't they; is that right?
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714 WAR BXPENDITUBES.
Col. Stearns. What profits? ^
Mr. Frear. The profit they would make under this contract, 7
to 15 per cent on a $25,000,000 contract; wouldn't they have gom
to these people if they had performed the contiiact!
Col. Stearns. Except that which would be charged — which would
have to be returned to the Government, by income tax.
Mr. Fr£ar. And that is an act Congress has passed, but they would
get that money from your corporation, wouldn't they, yon had notii-
ing to do with the collection or the tax I
Col. Stearns. Mr. Frear, we are acting as a governmental ageocr,
we are a part and parcel of the Government; we ¥rere not a aqmrate
entity.
Mr. Frear. Have you any part whatever in the collection of the
income tax, or the passing of tne law ?
Col. Stearns. We act m cognizance of all the laws that have been
passed. We have a right to consider such laws when we make anj
particular policies.
Mr. Frear. Did your organization, when they entered into this con-
tract, know about what the eflfect would be of the income tax!
Col. Stearns. I don't know, because I didn't make this contract;
but we would have a right to assume that they did until the contrary
is proved.
Mr. Frear. You think that. Then you mean to say that instead of
the 7 per cent plus contract that was entered into here in this con-
tract, your people took into consideration the fact that Congress mi^t
take away their profits?
Col. Stearns. I don't know, Mr. Frear.
Mr. Frear. You don't know anything about that, do you! Nata-
i-ally you would not. It don't concern your corporation what Con-
gress does or what income tax is collected, does it^ you haven^t anj
interest in that at all ?
Col. Stearns. It certainly does.
Mr. Frear. Any more than a commercial body mi^t, have yoat
Col. Stearns. We have. We act as a governmental agency.
Mr. Frear. Tell me any single instance, while vour corporation has
been in existence, of a contract that you framed in oonsideratioo of
the income tax.
Col. Stearns. I didn't frame the contract.
Mr. Frear. And then you are assuming that those contracts weit
framed that way?
Col. Stearns. I don't know. But we have a right to assume that
we know what is common knowledge.
Mr. Frear. You have no right to assume that with any com-
mercial body doing business in the same way, have you?
Col. Stearns. We were a governmental agency.
Mr. Frear. It makes no difference whether you were a govera-
mental agency, so far as the profit is concerned. Any man who was
making profits was subject to this tax, was he not?
Col. Stearns. We were not making profits. We were acting as
a governmental agency, in protecting the Government, and we nan
a right to use that Government's laws.
Mr. Frear. How did you protect the Government in the internal-
revenue tax? Just give us an illustration; give the committee aa
illustration.
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AVIATION. 715
CoL Steabns. I took no part in that.
Mr. Frbar. No. Well, how did you? How did you do it^ di-
rectly or indirectly — make that explanation to the committee.
Col. Stearns. I have no explanation to make, because I had no
part in making those contracts, Mr. Frear. I merely make that
assumption, that the people who made those contracts had a right
to use what was common knowledge concerning
Mr. Frear. That they had a right to use that, and that was an
assumption on your part, that they did use it?
Col. Stearns. Yes.
Mr. Frear. You know nothing more about it, no more than any
member of the committee?
Col. Stearns. Purely an asi^mption of general knowledge.
Mr. Frear. The war ended before this went into effect '
Col. S'TEARNs. I have another statement, Mr. Frear, about the cost,
that I would like to have put in the record.
Mr. Frear. If it is no more relevant than that, the committee will
take up the matter in the proper way, I think at this time, because
the last remark does not seem to me so relevant,' so far as your or-
ganization is concerned. The committee can weigh that fact — ^what
the profits will be.
Col. Stearns. It is not a matter of profits, it is a matter of in-
formation concerning expenditures that I think you should know.
Mr. Frear. Expenditures in what?
Col. Stearns. Expenditures of the corporation and the division.
Mr. Frear. You don't claim that any of these statements you
have given the ccmimittee are not accurate, do you ?
Col. Stearns. No.
Mr. Frear. Those are true. In other words, this railroad — ^what
is the length of the railroad out there?
Col. Stearns (producing memorandum). All of that matter is of
general information here, Mr. Frear.
Mr. Frear. I am just asking you to give me the figures. Three
million nine hundred and eighty-eight thousand five hundred and
eleven dollars, with some additions. Those figures are right, are
they?
Col. Stearns. They are right at that date, yes.
Mr. Frear. What approximately has been the addition, $100,000?
Col. Stearns. I would rather not make any approximation.
Mr. Frear. Twelve thousand dollars will bring it up to $4,000,000.
Col Stearns. Less than $4,000,000.
Mr. Frear. And less than $12,000 incurred since June 30, 1019.
Col. Stearns. The cost of the road will be less than $4,000,000, I
am quite positive. I can give you the exact figures this evening or
as soon as possible.
Mr. Frear. The amount that you have stated here, the $3,988,511,
is that it?
CoL Stearns. Yes.
Mr. Frear. That has been expended for the railroad?
Col. Stearns. Yes.
Mr. Frear. How many miles of railroad ?
Col. Stearns. Thirty-six miles.
Mr. Frear. That is, that would be about $110,000 a mile?
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