1 Book value of steamship branch house assets of Lykes Bros., Inc., for which stock in Lukes Bros. Steamship Co., Inc., was issued when the latter company was organized Apr. 4, 1922.

Of this amount, $70,000 was progressively applied as payments on stock purchased in the parent steamship company, Lykes Bros. Steamship Co., Inc.

Of this amount, $35,000 was progressively applied as payments on stock purchased in the parent steamship.company, Lykes Bros Steamship Co., Inc.

NOTE-The stockholders in Lykes Bros. Steamship Co., Inc. (parent steamship company, which was organized Apr. 4, 1932), follows: Lykes Bros., Inc. (parent company), 8,500 shares, at $100R. E. Tipton, 1,000 shares, at $100___

S. B. Turman, 500 shares, at $100

Total authorized and issued (10,000 shares)

Net worth Lykes Bros. Steamship Co., Inc., and its subsidiary companies, as at June 30, 1933:

$850,000.00 100, 000. 00 50,000.00

10, 000, 000. 00

Dividends paid by Lykes Bros. Steamship Co., Inc., and the Tampa Interocean Steamship Co. in 1934, which are in addition to those shown in tabulation on page no. 6:

In the above-mentioned agreed statement of facts the following is shown on page 5:

The following subsidiary companies of Lykes Bros. Steamship Co., Inc., except the Tampa Interocean Steamship Co., Southern Stevedoring Co. (Louisiana), and Southern Stevedoring Co. (Texas), were organized after the formation of the parent steamship company, Lykes Bros. Steamship Co., Inc.

Acme Machine Co. (Galveston).

Texas Star Stevedoring Co. (Houston).
Sabine Stevedoring Co. (Beaumont).

Suderman & Young Towing Co. (Galveston).

Southern Stevedoring Co. (Louisiana).

Southern Stevedoring Co. (Texas).

Southern Stevedoring Co. of Tampa, Inc. (Florida).
Daniel Ripley & Co.

Lykes Bros.-Ripley Steamship Co., Inc. (Louisiana).
Dutch American Shipping Co. (Hamburg).

Dutch American Shipping Co. (Bremen).
Rotterdam Ocean Scheepvaart Co.

Lykes Bros. Havana, Agency South America.

The Tampa Interocean Steamship Co. was organized in 1919, but Lykes Bros. Steamship Co., Inc., did not purchase control until the year 1925. The Southern Stevedoring Co. of Louisiana and the Southern Stevedoring Co. of Texas were organized in 1920.

These subsidiary companies are operated by the Lykes Bros. with the purpose and with the result that the Lykes Bros. interests retain for themselves the sums which they would be compelled to pay to independent companies of like character. This practice has also resulted in a considerable disadvantage to the independent machine, stevedoring, towing, and other companies for the reason that they find it impossible to compete with the Lykes Bros. owned and operated companies, although those companies were in many instances established to service these lines when operated by the Shipping Board.

Despite tremendous profits from their dealings with the Shipping Board and the Post Office Department made by the Lykes interests on very small initial investments, the total addition to the American merchant marine by these interests to date has been the reconditioning at a cost of about $143:000 of the Margaret Lykes acquired from the Shipping Board for $25,000 which vessel was thereafter placed in service on route 23 as a class 5 vessel and mail pay thereafter collected to March 15, 1934, in the amount of $432,156, or more than two and one-half times in mail pay the original cost to the contractor of the vessel plus the reconditioning cost. By reason of the fact that the speed of this vessel, and her consequent classification, is questioned, the Comptroller General suspended certification of payments for service on route 23 by this vessel on March 15, 1934.

After a review of the record of the Lykes Bros. activities, one is compelled to the conclusion that the effect of their dealings with the Government has been a distinct detriment to the American merchant marine.

This route, when established, was not necessary to afford an adequate postal service" between the ports served.

The four services to "the four corners of the earth" were embraced in one advertisement by the collusive act of responsibile Government officials and representatives of the contractor expressly for the purpose of preventing competitive bidding.

The combining of these four routes was an illogical grouping. It appears that it would have been more logical and more in the public interest that these services, if necessary, should have been established by four separate contracts.

The 30 days allowed for the submission of bids was insufficient to enable prospective bidders to survey the services, arrange for the acquisition of the fifty-and-odd ships required, as well as docking facilities and foreign agents, and submit bids.

Practically the same service as is required by the mail contract is guaranteed for 5 years of the 10-year mail contract term by the ships sales agreement with the Shipping Board.

The contract is worthless to the Postal Service.

The several services appear to have some value as trade routes, but as now operated they appear to be unbalanced and uneconomical. It appears that portions of the service, if retained, might be consolidated with other existing services.

The original capital investment required of the contractor has been too small, and there appears to be no adequate assurance that necessary replacements will be provided to make the service permanent after the termination of the mail contract in 1943. The ships sales agreement whereby the vessels were sold at the very low price of $5.04 per ton, without competitive bidding, and the mail contract under which the contractor will be paid an estimated $27,320,838 practically guarantee the contractor substantial profits of approxi mately $4,500,000 on an original cash investment in ships of $506,500.

Mr. CAMPBELL. Oh, yes; that is one of the things the Post Office Department people did. You will find, in these reports, that they go back to the very beginning of the organization of these companies and go right straight through, when they were operating mail contracts, or whatever they were doing. That is what they did with the Lykes Bros. Co. They did the same thing with every company. They went back to the very inception of it.

Mr. BREWSTER. Do you say that there is no warrant for the Postmaster General's report, on page 202, that the initial and only investment in the Lykes Steamship companies, other than from the subsequent profits derived from steamship operations, which investment was made in October 1918, in the amount of $115,439.13, on which, in the ensuing 15 years, they showed net profits of $6,625,936? Mr. WEARIN. During the depression years.

Mr. CAMPBELL. The Lykes Bros., Inc.

Mr. BREWSTER. Yes.

Mr. CAMPBELL. The Lykes Bros., Inc., was engaged in an extensive cattle business, in a private shipping business, before they ever went into these Government operations. My recollection is that when they began operating under these Government contracts, they set aside and transferred a cash amount of about $115,000.

Mr. BREWSTER. Yes.

Mr. CAMPBELL. They set that aside from their other assets, or whatever they had, and put it in a special ship account, which, I think, was sent over to the Galveston office, and so they started that account with that figure.

Mr. BREWSTER. Then they made a 6,000 percent profit during the depression period of the American merchant marine, with Government aid?

Mr. CAMPBELL. No; they did not.

Mr. SIROVICH. How many ships did they build during that period?
Mr. CAMPBELL. They did not build any.
Mr. SIROVICH. They did not build any?
Mr. CAMPBELL. They did not build any.
Mr. SIROVICH. Under private ownership?
Mr. CAMPBELL. Under private ownership.

Mr. SIROVICH. And they made a profit of $6,625,936 on an investment of $115,000?

Mr. CAMPBELL. They were under obligations to build $20,000,000 worth of ships.

Mr. BREWSTER. And they are still under that obligation?

Mr. CAMPBELL. They are still under that obligation to build $20,000,000 worth of new ships.

Mr. BREWSTER. And did they, in connection with that

Mr. CAMPBELL (interposing). And they have conserved their assets for that very purpose.

Mr. BREWSTER. Now, you pointed out that they were to build $20,000,000 of ships, which would cost $10,000,000 more than it would cost to build them abroad.

Mr. CAMPBELL. Yes.

Mr. BREWSTER. Is it not also pertinent to know that they acquired nearly $8,000,000 worth of ships, for which they only paid $2,000,000?

Mr. CAMPBELL. I submit that that is the most absurd statement that could possibly be made by the Post Office Department. It is the same thing that they have tried to carry out throughout this whole investigation. For instance, these ships were built during the war, at World War prices, just the same as munitions or guns, or anything else were made at war prices.

And then there came a time when the Shipping Board set these vessels up on their books at certain figures, and began to write them down, and the figures they gave were book figures.

Mr. BREWSTER. I know; but

- Mr. CAMPBELL (interposing). Or rather, I should have said, write them off, their value.

Mr. BREWSTER. You do not mean to intimate that they were the construction cost of these vessels?

Mr. CAMPBELL. No.

Mr. BREWSTER. What was their construction cost?

Mr. CAMPBELL. I have not the slightest idea.

Mr. BREWSTER. The construction cost of the 52 vessels sold to the Lykes Bros. Ripley Steamship Co. was $97,908,893. Is that wide of the mark? So that, when the Government had written off more than 90 percent of their value, you bought them for $1 for every $50 that the Government put into the construction of those vessels. Do you know of anybody else that liquidated on that basis?

Mr. CAMPBELL. No; wait a minute. The Government built these vessels at wartime prices.

Mr. BREWSTER. Yes.

Mr. CAMPBELL. And set them up in their books in that way.

- Mr. BREWSTER. Yes.

Mr. CAMPBELL. And gradually they wrote them down.

Mr. BREWSTER. Yes.

Mr. CAMPBELL. And these ships were operated in services where the Government had spent millions and millions of dollars trying to build up these particular trade services, and they simply sold them as they had all the other services that were sold. When they came to the sale of these vessels, the Shipping Board reduced the prices, as they reduced the prices on all services, and sold these vessels cheap. They had to, to get by. At the time the earlier vessels were sold there was no thought of the Mail Act of 1928; and the Government purposely sold these vessels to these owners at low prices, to give them aid, to see if they could not establish the trade routes out of the southern ports of the United States which required development. Now, you go to the Shipping Board and you will find that they were operated at a loss; and they are operated at a loss today.

Mr. BREWSTER. Was 2 cents on the dollar about a going price on those boats at the time?

Mr. CAMPBELL. Do you mean were the prices?

Mr. BREWSTER. No.

Mr. CAMPBELL. Do you mean construction costs?

Mr. BREWSTER. It was 2 cents a dollar on the construction costs. Mr. CAMPBELL. If that is the way it figures out mathematically. Mr. BREWSTER. That is the way it figures out.

Two cents on Two cents on the

Mr. CAMPBELL. How much did the shells sell for? the dollar? How much did the housing sell for? dollar?

Mr. BREWSTER. I do not know of housing that sold for 2 cents on the dollar.

Mr. CAMPBELL. You certainly could not expect the shipowners, or anybody else, to come in and buy those ships at wartime prices.

Mr. ŠIROVICH. May I ask this question, Mr. Campbell? When the Lykes Bros. Co. purchased these ships, in 1918, for the price which the Government states they paid

Mr. CAMPBELL (interposing). Not in 1918. It was way after that. Mr. SIROVICH. When did they buy them?

Mr. CAMPBELL. The first ships, I think, were bought around 1925, or something like that.

Mr. SIROVICH. All right. Let us assume that they bought them in 1925. When were they built?

Mr. CAMPBELL. Those were all wartime vessels, built in 1918 or 1917.

Mr. SIROVICH. In other words, they were built in 1917 or 1918? Is that right?

Mr. CAMPBELL. The wartime vessels were built all along until 1920, you know. A large part of the fleet was not completed until about 1920.

Mr. SIROVICH. Well, let us assume, for the purposes of consideration, that between 1917 and 1920 these ships were constructed. Is that right?

Mr. CAMPBELL. Yes.

Mr. SIROVICH. I see. Now, the life of those ships, based upon the best maritime thought, is 20 years. Is that true? In other words, according to the mortality tables for ships, they would expire between 1937 and 1940, and this contract that they entered into with the Government required the replacement of those ships, because the price that you received was a subsidy at the time. So they received a subsidy of 98 cents on every dollar that they received from the Government, upon the theory that they would operate those ships and ultimately replace them with new ships?

Mr. CAMPBELL. Where do you suppose the money will come from to replace them?

Mr. SIROVICH. In answer to this question, was that the assumption that they would ultimately be replaced, as the contract provided, with new merchant marine? You propose a subsidy from the Government here to aid the Lykes people in developing the merchant marine, to make all the money they can, on the theory that they would replace these ships with new ones? Is that right?

Mr. CAMPBELL. Absolutely.

Mr. SIROVICH. But today is 1935.

Mr. CAMPBELL. Yes.

Mr. SIROVICH. And I notice, in the report submitted by the Postmaster General to the President of the United States, in the conclusion, on page 202, after an investigation of this company, the Postmaster General states:

The Lykes Bros. have, as a result of operating Shipping Board vessels and through their several ocean-mail contracts (routes 23, 45, and 57), made large profits on a small original capital investment. The record shows that in their dealings with the Shipping Board and the Post Office Department they have been actuated largely by a desire to obtain as much from the Government as possible upon minimum commitments looking to the upbuilding of the American merchant marine.