RFC that the operating expenses, the overhead expenses of the company were unduly heavy?

Mr. WILLIAMS. Well, I think that is right, sir; and I might say this, that when the loans were originally made they were approved by Smaller War Plants Corporation.

At that time Defense Plant Corporation, a wholly owned subsidiary of RFC, was acting as agent for Smaller War Plants Corporation, so that DPC was administering and servicing the loans, and it was that department that was handling this case; it was not the RFC proper.

Senator MCCLELLAN. What I am trying to determine was, had it already developed prior to the time or at the time they made application for the loan of 1948 that the management of the company was not very economical, and that they were making expenditures in the form of overhead that seemed to be excessive in comparison to the volume of business the company was transacting?

Mr. WILLIAMS. Well, I can give you some figures, I think, that Mr. Rochelle, who was one of the examiners that handled that application, made. He made a comparison of the average selling expenses, general and administrative expenses and officers' salaries of American Lithofold, with the figures in eight similar companies, and he ran those figures for a 6-year period.

His percentage was that there were costs there which averaged 22.9 percent as against an average of 15.5 for the eight companies over the similar period.

Senator MCCLELLAN. In other words, 7 percent more.

Mr. WILLIAMS. That is right, sir.

Senator MCCLELLAN. Which was an indication that this company had an overhead above the average of other similar companies. Mr. WILLIAMS. Yes, sir.

Senator MCCLELLAN. To that extent.

Was that giving the RFC officials some concern at that time?

Mr. WILLIAMS. Yes. I know that at one time we withheld additional disbursements against these accounts and all, by reason of losses that they had sustained, and because there was a controversy with reference to salaries and commissions.

At that time the New York loan agency was handling the loan, and they went into it fairly thoroughly. The company took the position that it was a small company that had strong competition, and that the best way they could sell their product was to sell it at a fixed price to their salesmen or agents and not have any ceiling as to what they could ask the customers.

For instance, if they sold a thousand forms for 15 cents to the salesman, he could sell that for 20 cents, and they would bill the company for the amount they sold it for, and the company would get the 15 cents, and the 5 cents would be the spread or what the commissions would be.

They also claimed that the salesmen had expenses and traveling expenses and a lot of things like that out-of-pocket; that that was not unusual.

Senator MCCLELLAN. It was unusual to the extent that it increased. their overhead and operating costs 7 percent above the average company.

Mr. WILLIAMS. Well, what impressed me at the time I was looking at it was that I didn't think they had an adequate cost accounting set-up so that they could reasonably determine exactly what different forms were costing them, so that it would seem to me that maybe they were pushing an item that they were selling below cost, and not selling many of them that they were making a profit on; that that might be one of the answers to their loss in operation.

Senator MCCLELLAN. The discussions that came up at the time they asked for deferment and for readjustments in these loans-that is when they came up?

Mr. WILLIAMS. Well, some of them came up. Of course, I was not administering and servicing the loan, and I don't know exactly what transpired; but I imagine it was along the same lines, because that is what occurred to me when I later got into the picture.

Senator MCCLELLAN. At any rate, what you testified to did occur, had occurred before this application in 1948 was approved? Mr. WILLIAMS. Yes, sir; that is, according to the record.

Senator MCCLELLAN. I wanted to get that background. Thank you, Mr. Chairman.

Senator MCCARTHY. Just one question, Mr. Chairman. Did Mr. Toole go directly from the Defense Plant Corporation to American Lithofold, do you know?

Mr. WILLIAMS. Yes, sir; I understand he did.

Senator MCCARTHY. Do you know what salary he was getting with RFC or Defense Plant Corporation?

Mr. WILLIAMS. I don't know what salary. He went with American Lithofold at $8,500. It was subsequently cut half in two, but I imagine his salary was probably fairly well in line with that figure, because he was an examiner.

Senator MCCARTHY. All right.

Senator MUNDT. Mr. Chairman, before we get off that and go any further, I want to be sure that we are dealing with the same financial structure all the way through.

This is the same company and the same group of assets and liabilities, is that the situation which is involved in the whole set of figures that you have given us, starting from the top of the page down to December 8, 1948, dealing with the same company and the same corporation throughout or are we dealing with various segments or subsidiaries at any stage of the game?

Mr. WILLIAMS. I think you are dealing with different figures in that insofar as the Smaller War Plants and RFC are concerned

Senator MUNDT. In what way?

Mr. WILLIAMS. Well, as a matter of fact, there were two applications to Smaller War Plants. I think one of them was $815,000 by American Lithofold Corp., and $874,000 by Forms, Inc., the subsidiary. Senator MUNDT. A wholly-owned subsidiary?

Mr. WILLIAMS. Yes, sir; for a total of $1,689,000, and ultimately the loans were consolidated, and it was one loan for $1,671,000.

Now, that loan was in the form of a line of credit with a maximum amount they could take down, and it had a chattel mortgage on machinery and equipment, but the varying factor was the accounts receivable that developed from the Government contracts.

When RFC got into the picture there in 1948 they had practically completed the consolidation of Forms, Inc., and transferred a lot of

equipment directly into American Lithofold, and maybe disposed of other items, and acquired other machinery and equipment.

Senator MUNDT. What I was trying to arrive at, Mr. Williams, was what had happened to the financial structure of the company if they started out in 1944 with sufficient credit and assets to justify a Government loan of $1,671,000, and 4 years later had arrived at such a point that its appraised value was only $1,204,000; and its agency loan value $576,000, or about a third of the value of the loan that the Government paid it 4 years ago?

Mr. WILLIAMS. Well, I think that $1,671,000 is a figure you have to take into consideration with reference to the maximum amount they could get out at one time. It was revolving accounts receivable and contracts from time to time, so that they never could have taken down the total amount involved. A million dollars of it was more or less of a revolving nature, you see.

Senator MUNDT. Well, even if you take the other figure of $630,000, the maximum they could take out, that is still getting close to $100,000 more than the Government was willing to loan it in 1944, more than its agency loan value was 4 years later.

Mr. WILLIAMS. Right.

Well, the point is they were supposed to be a hundred percent on war work during the war period, and it was hard to get printing, as it was everything else, and they had a flourishing business, and one of the difficulties they had after the war was to convert from the wartime economy to peacetime operations.

For instance, they started off, let us say, a hundred percent on Government work. Well, during the war it was probably 80-percent Government and 20-percent commercial.

By the time we got into the picture it was about the reverse, 80percent commercial and 20-percent Government, and their volume had dropped down, you see. I think you will find that there was some improvement in the situation at the time we got into it because they had accumulated more collateral in the form of machinery, and so forth, but essentially the difference in the picture was the volume of the business.

Senator HOEY. Mr. Flanagan, do you want to ask any questions? Mr. FLANAGAN. In the fall of 1948 when American Lithofold applied for these next loans, were they making or losing money as a corporation?

Mr. WILLIAMS. They were losing money.

Mr. FLANAGAN. Can you tell from your figures there when they started to lose money as a corporation?

Mr. WILLIAMS I was primarily concerned with the immediate situation, and in 1948 they lost about $21,000, and in 1949-of course, it was in the middle of that year that I was considering that-they lost $100,000.

Mr. FLANAGAN. Let us go back to 1948. They lost $21,000 that year. I think that is the figure you gave, $21,000.

Mr. WILLIAMS. These should be very good figures because they are prepared by Price, Waterhouse, certified public accountants.

Senator MUNDT. No advertising. [Laughter.]

Mr. WILLIAMS. It shows in 1948 they lost $21,698, and in 1949, which was the year I was considering it, they lost $100,000.

Mr. FLANAGAN. Now, is one of the reasons that they had to come in and ask for this second loan because of the fact of their financial condition, that they were losing money and they needed a loan to keep going, is that not correct?

Mr. WILLIAMS. Well, they were usually hard-pressed for working capital, otherwise they could never justify paying 1 to 12 percent to a factor against a pledge of Government accounts.

Mr. FLANAGAN. During this year of 1948 when they lost money, can you tell from your records approximately how much was drawn out of the corporation by Mr. Blauner and the immediate members of his own family in wages and commissions?

Mr. WILLIAMS. Well, 1948 Mr. Blauner was getting $12,000, R. J. Blauner; his son R. A. Blauner was getting $36,000; Mr. Bridell, his son-in-law, was getting $36,000.

Subsequently in April

Senator MUNDT. Let me ask you, Mr. Blauner got $12,000?

Mr. WILLIAMS. Yes, sir.

Senator MUNDT. Then $36,000 and $36,000. Go ahead.

Mr. WILLIAMS. The commissions paid during 1948 were $304,561.03. Senator MCCLELLAN. On what volume of business?

Mr. WILLIAMS. $2,769,000.

Senator MCCARTHY. I do not believe you answered Mr. Flanagan's question yet. He asked for the total withdrawn by Mr. Blauner and his family.

Mr. WILLIAMS. I am trying to get those figures, Senator, and I am going to have to give them in total, I am afraid. I don't know whether I can break them down too fine.

Mr. FLANAGAN. Can you break down how much in commissions, for example, Mr. Blauner's son got, in addition to his $36,000 salary that year, and how much his secretary got in commissions that year?

Mr. WILLIAMS. In 1948, the total commissions, as I said, were $304,561.03; and in 1949 they were $251,524.38.

Mr. FLANAGNAN. Well, what we would like to do is to try to find out how much of that salary and commission was going directly into the hands of the Blauner family.

Mr. WILLIAMS. Well, I don't believe I can break it down.

Mr. FLANAGAN. You and I discussed that yesterday, I believe, Mr. Williams.

Mr. WILLIAMS. That is right; and I have attempted from the records to do that, and in the time I had I could not break it down too far for you. I could go back to 1944 and 1945 and give you the exact figures, and I think the percentage might be substantially in line with those.

Mr. FLANAGAN. Well, give us the 1944 figures, and give us some idea of how much this family was taking out of the corporation.

Mr. WILLIAMS. Commissions on sales for 2 years were credited to the following officers and employees in 1944: R. A. Blauner-that is the son of R. J. Blauner-$125,493.

Senator McCLELLAN. How much?

Mr. WILLIAMS. $125,493.

Senator NIXON. Excuse me, that included his salary and his commissions?

Mr. WILLIAMS. No, that was commissions.

81249-51-pt. 3- 2

Senator NIXON. That was just commissions alone.

Senator MUNDT. What was his salary that year, still $36,000?

Mr. WILLIAMS. I think he started off at around $17,000, and probably it was along that figure at that time. It was about $36,000 for the last 2 or 3 years.

Senator NIXON. But in any event that figure then is not his total take from the corporation, the figure you just gave?

Mr. WILLIAMS. No, this is, according to the audited statement of Price, Waterhouse-this says commissions on sales for the 2 years was $125,493, in 1944, R. A. Blauner, vice president.

In 1945 it was $108,903.

Senator MUNDT. Let us just stay on 1944 now and get all the Blauners in 1 year in one column. In 1944 the son of Blauner got about $140,000 salary and commission. What did Blauner get from the company, and the mother-in-law or son-in-law or

Mr. WILLIAMS. Mr. Leschen was the president, and he was the father-in-law of R. A. Blauner, the son of R. J. Blauner.

Senator MUNDT. All right.

Mr. WILLIAMS. Mr. Leschen only got $6,000, but was not very active in the company, and no commissions.

Senator MUNDT. You have not given Mr. Blauner, senior.

Mr. WILLIAMS. Mr. A. M. Bridell, who was the son-in-law of R. J. Blauner, in 1949 got $14,777 in commissions. According to my recollection of the figures he always drew a pretty good salary. I never saw where his salary was less than $36,000.

Senator MUNDT. $36,000?

Senator MCCARTHY. Let us get up to 1948.

Senator MUNDT. Let us get 1944 together, because we have not got 1948.

We have not got Mr. Blauner, senior; we have got the son, the father-in-law and son-in-law.

Mr. WILLIAMS. Miss Katherman, the secretary to R. A. Blauner, got $107,246.

Senator MUNDT. Who did?

Mr. WILLIAMS. K. Katherman, the secretary to R. A. Blauner.
Senator MUNDT. Is she a relative?

Mr. WILLIAMS. I don't know, sir.

Senator MUNDT. I think we are interested just in the family relationship, not all the employees. I would like to get in 1944 the whole family.

Mr. WILLIAMS. R. A. Blauner at that time was geting $12,000 a year, as he was all the way through the picture, and he got commissions of $18,000 to $20,000. I don't have the exact figures. That is the 1944 situation.

In 1945, Mr. Leschen got the same thing; R. J. Blauner got about the same thing, R. A. Blauner, the son, got $108,903, and A. M. Bridell, $16,899.

In these years, 1944 and 1945, R. A. Blauner got about 30 percent of the total commissions that were paid by the company, and his father about 10 percent, and A. M. Bridell about 5 or 6 percent. Senator MCCARTHY. And the secretary, what percent?

Mr. WILLIAMS. The secretary got $98,000 in 1945, and that is why I was going back to those, because the