AS TO OUR GROWTH PROBLEMS

This can be summarized by stating that we had to develop a good product which in its early phases was a trial and error sort of a thing guided by our dealers. Know-how had to be developed, employees trained, and supervisory personnel developed from a small operation to our present one. When we reached a certain size we then ran into union problems, the end product of which forced management to be highly efficient in order to be competitive at appreciably increased labor costs. Testing of our product had a great part in developing performance and durability. Designing had a great deal to do with eye appeal, while the kind of trim, such as extrusions, color combination, and most recently the introduction of plastic decks to our boats, finalized a solid demand and preference for our product. A good sales policy had to be developed and adhered to. We had to expose our product to the public through the use of national boat shows, where we would annually pick up additional dealers; moreover, this had to be backed up with national advertising to keep our brand name before the public and generate inquiries from the consumer to our dealers, as well as others. A vigorous publicity program, in addition to the above, had to run concurrently. By this I mean that editors of various publications were supplied with pictures and stories of our boats with the hope that they would use them in their columns. Outdoor writers were solicited very carefully. We have now reached the point where Arkansas Traveler boats are synonymous with the standard demanded by the public in outboard boats.

OUR FINANCING PROBLEM

We never have seen a year yet when we had adequate capital to finance the normal sales demands of our product. I'm enclosing herewith a pamphlet which I wrote, This Is the Aluminum Boat Business, which will clearly show you our financial problems in connection with a highly seasonable product.

As to our local banks, I can only say that they have given me financial aid on an open credit, way beyond what our balance sheet justified. This was due largely to their faith in this management. I cannot recall any one year where I could not have used more money than we were legitimately entitled to, plus that additional money, based on faith, which we secured locally. At the present moment our money requirements based on a legitimate demand made upon us to deliver, exceeds $1 million of short-term money. This is equal to the legal limit of our three largest banks in Little Rock. Since we had started business with the First National Bank, in Little Rock, it was necessary for a larger bank in another community to take care of our needs in excess of the legal limit of the First National.

I recall that when we first started this business, before we made aluminum boats, when our equity was small, and a good deal of hazard was involved in extending us credit, I secured a personal loan from an individual here in Little Rock, with a 25 percent return to him on the amount loaned us for a period of 1 year. From one of the banks we did business with before our connection with the First National Bank, we paid a premium interest on that amount of money in excess of what we were legitimately entitled to from a balance-sheet standpoint.

Our growth was so rapid that the time came where we had to do something with our plant, for we found ourselves with different floor levels, buildings that we could not get a decent insurance rate on, and found ourselves crossing each other in production flow; therefore, the management decided to tear down the present buildings and erect one that would lend itself to straight production flow. It was then necessary to divorce our real estate from our manufacturing operation for balance-sheet purposes, and we were able to secure a first mortgage bond issue of $175,000 to do the job that is now our present plant. For a first mortgage bond 6 percent interest was the going rate in Arkansas, which I think is too high. but it is the penalty that a small, growing concern has to pay on its way up. The bondholders are primarily secured by the plant and plant site plus a lease of its property to the Southwest Manufacturing Co. at a leasehold revenue sufficient to retire the bond issue. We did save in insurance rates from a published $1.89 per hundred to $0.07 per hundred. The insurance rate saving alone almost pays the maturity of the bonds and interest each year. We had to put in a sprinkler system, of course, to get that. Unfortunately, there is no bank in Arkansas large enough to take care of our current money requirements. A Chicago bank wants to take us on for size. This bank has no connection with any of the local banks, and they are free to do what they wish; however, I

do not want to disassociate our company from any local bank, and for good reason. Our local banks have seen us through to this point and I don't think that it's "kosher" to walk off and leave them unless there should be clearly a good reason to do so.

THE COST AND UNUSUAL TERMS IMPOSED UPON THE TYPE OF FINANCING WE HAVE HAD TO DO

I've answered part of this in the paragraph immediately above but will dwell on my task in securing equity capital. Our bankers kept pointing out to me that we would have to put in more equity capital because our growth was fast running away from the accumulated profits after taxes. In other words, we were no longer in balance, and could readily understand our banker's point of view, and as a result adhered to his advice. We first launched a $100,000 debenture 6 percent issue to finance the purchase of an assembly plant and to acquire additional working capital that would be needed in operating this plant. Again, this 6 percent I thought was high, but the amount was small compared to our equity position. I then made an attempt to sell stock through our local facilities; that is, brokers. A brochure was prepared and distributed. I have pointed out before, and I'm bringing it to your attention again, that Little Rock does not have any legitimate broker who is qualified or willing to sell securities in the equity capital category. When Hill, Crawford & Lanford tried to sell 20,000 shares at $5, if my memory serves me right, they never did sell more than 1,000 shares, and it took several weeks to do that. It was then that I made up my mind to set up a brokerage office of our own for the sole purpose of selling our common stock. This common stock had to be sold in an unusual manner far from the restraint used in selling bonds. This unusual manner of selling did produce some results, and was successful in selling, in a period of 6 months, close to 100,000 shares, which was 38,000 short of the goal. However, we stopped selling these shares because we could not successfully apply for a listing with the Midwest Stock Exchange with an open end; in other words, our shares outstanding had to come to a fixed amount. In order to sell these shares in Arkansas it cost us $1.20 a share, which again is a very high premium to secure that kind of capital on which earnings will have to be made.

We were successfully listed on the Midwest Stock Exchange the first week of January of this year, and I estimate the cost of getting that job done to be about $12,000.

WHETHER OR NOT WE NOW HAVE ADEQUATE LONG-TERM FINANCING

We presently need to sell these 38,000 shares or its equivalent in bonds. Our directors have to make up their minds whether we want to go the bond route or the stock route. This will depend largely upon what it will cost to get either type of money, bearing in mind, of course, bonds show on the balance sheet as a liability while equity stock does not. How much is it worth to show it as equity stock so that if we should hit a soft spot in our economy we will not be hamstrung with fixed obligations? At the present moment, I can't tell you which route we will take, but we will definitely need a minimum of $200,000. WHAT OUR FINANCIAL NEEDS MIGHT BE AND WHAT WE THINK IT MIGHT ACCOMPLISH This additional $200,000 will fix our balance sheet in such a manner that our present source of short-term money will not extend themselves beyond what we are legitimately entitled to from a balance-sheet standpoint. As you may surmise, even this past and present season we have been out of balance between equity and short-term money. We do not plan any substantial addition to our plant investment for the 1958 season as we wish to level off at the moment and observe what our general economy will settle to.

I hope the above report is sufficient for you to draw a conclusion or a good case study.

Sincerely,

FRED J. VENNER, President.

Senator CLARK. Mr. Grace, do you have a prepared statement? Mr. GRACE. Yes, sir; I have a prepared statement.

Senator CLARK. Mr. Grace's prepared statement will be made a part of the record at the conclusion of his remarks.

Mr. GRACE. My name is Preston W. Grace, and I am president of the White River Propane Gas Co., which was started in 1945 with a borrowed investment, on my part, of $3,000-incidentally, borrowed from a relative—and it has grown now to a net worth, or company that has a net worth, of approximately $1 million. Our sales for the first year in 1945 were approximately $46,000. Our sales for last year were over $2 million.

Senator CLARK. How many people do you employ?
Mr. GRACE. Approximately 75 people.

We have had the same difficulty that Mr. Venner has had in our business. The gas business has been a growth industry. The bankers, to start with, would not even grant us short-term credit because it was a new business, and they were not sure that it would succeed. Two years ago we reached the point that we had to raise some long-term financing. We were unable to interest an Arkansas broker in doing this, and had to go to New York to obtain a brokerage house to sell our securities. We sold stock and convertible debentures. It was more or less a package deal. I did not lose control of my company at that time. At the present time I still have 55 percent interest in it. Senator CLARK. What did it cost you, Mr. Grace?

Mr. GRACE. Fifteen percent, plus the expenses. We raised $700,000, which netted us-I mean our issue was $700,000, and it netted us $575,000. It cost us $125,000.

Senator CLARK. Was much of that sold back in Arkansas?

Mr. GRACE. None of it was sold in Arkansas. We have possibly 500 stockholders. All of them, practically, are in the East. My experience has been along the same line as Mr. Venner's.

Senator CLARK. Senator Fulbright.

Senator FULBRIGHT. I know that you are going to put the entire statement in the record.

Senator CLARK. Yes.

Senator FULBRIGHT. Your experience is very similar, as a matter of fact, to Mr. Venner's; is it not?

Mr. GRACE. That is right.

(Mr. Grace's prepared statement follows:)

STATEMENT OF PRESTON W. GRACE, PRESIDENT, WHITE RIVER PROPANE GAS Co., BATESVILLE, ARK.

Mr. Chairman, my name is Preston W. Grace, Batesville, Ark. I appear today as president of White River Propane Gas Co., Inc., which I organized in 1945 with a capital investment of $3,000, borrowed from a relative who probably thought he would never recover the $3,000. I was sole owner of my business until 1955, at which time my company made a public stock offering. I believe that my experiences during the past 12 years as owner of a very small business have been more or less typical of other small-business concerns, particularly those engaged in the LP gas industry.

The $3,000 invested by me in 1945 today represents a net worth of our company of approximately $1 million. Our total sales for the year 1945 were $46,000, and our total sales for 1956 were $2,225,000.

In 1945 the LP gas industry was practically unknown; in fact, at that time there were no more than 5 or 6 families in my county using LP gas (also known as butane, propane, bottle gas, or tank gas). Today, approximately 75 percent of the rural families in Arkansas use LP gas for one purpose or more, and more uses are being developed at the present time. In 1945, I, like the majority of other LP gas dealers, was a young man with no money or previous business experience, except 7 years' practice as a country lawyer. I gave up my law practice because I had faith in the future of the LP gas industry. I realized

it was a product that was needed by the people in the rural areas for cooking and home heating, since it gave the rural people all of the advantages of city gas at a price comparable to this fuel. It was difficult at that time to obtain equipment, appliances, or tanks, as very few manufacturers made this type of equipment. Trained personnel could not be obtained, and the dealers in this area learned the business by trial-and-error method.

It was impossible during the first few years to obtain any type of financing from banks, even short-term credit. Many bankers were convinced that the industry would never succeed. Prior to this time LP gas had been a necessary byproduct of refinery that burned most of the fuel because of no market facilities. We were fortunate during this period in being able to sell most of our products for cash, and the profit was plowed back into our business. After the first 3 or 4 years our bankers realized that the LP gas industry was becoming a major industry, and we were able to obtain limited short-term financing for the sale of our tanks and appliances.

As the years went by it became apparent that LP gas, in addition to being the ideal fuel for cooking and home heating in rural areas and small towns, had also a wonderful potential for other uses, such as chicken brooders, lumber drying, and as a motor fuel for farm tractors. I recall that in 1950 we prevailed on a few farmers to permit us to install, on a no-charge basis, propane carburetion equipment on their farm tractors on an experimental basis. The pioneering in the development of propane as a motor fuel for farm tractors was done by LP gas dealers such as ourselves. It proved to be successful, and today every tractor manufactured is available from the factory for use with LP gas. All of these additional uses called for more storage plants, delivery trucks, farm storage vessels, and other equipment, all of which was very costly.

During this period our business expanded at a rapid rate, and we extended our credit as far as we could, taking no money out of the business except for living expenses. We were unable to obtain enough credit from normal banking channels with which to meet the demand of our customers. As a result of being unable to meet this demand, many of the large major oil compaines entered the retail phase of the LP gas business, and today practically all of the major oil companies are in the retail LP gas business, a field that might have been retained for small business if we could have been financed. The retail LP gas business was pioneered by small-business concerns, in many instances one-man operations. Much of the development of new uses for LP gas was developed by these small businesses. As a result, a product which had previously been wasted by the major oil companies today has a ready market for hundreds of uses.

Four years ago we entered another phase of the LP gas industry through the assembling of truck delivery tanks for resale to other LP gas dealers who were entering the business. Our entrance into this phase of the business was made because we saw a definite need for this type of equipment. Hundreds of new dealers in other States were entering the retail LP gas business. They needed trucks; they needed assistance and know-how from other dealers such as ourselves. By this time we were in a position to finance, on a short-term basis, the sale of these trucks to new dealers. We have sold hundreds of these delivery trucks to new dealers, and this equipment, manufactured by our company, is now in use in practically every State and several foreign countries.

Since that time we have expanded our manufacturing facilities to include the manufacture of storage vessels, which are also sold to other LP gas dealers. It is the common practice throughout the industry today for LP gas dealers to furnish, without charge, farm storage tanks to farmers who use LP gas as a tractor motor fuel. This practice is prevalent in order to be competitive with the large major oil companies who furnish storage vessels to farmers for competitive fuels.

Most LP gas dealers amortize their investment in these loan tanks over a 10- to 15-year period, which requires long-term financing. The major oil companies who have entered the retail LP gas business are in a position to obtain adequate financing for furnishing these tanks to their retail customers. Small dealers must do likewise or lose their business to the major oil companies. The small dealer then reaches the stage that he must obtain long-term financing in order to compete with the major oil company, or sell his business to one of the major companies.

Sound financing is a "must" for any business. The equity capital for the average small business is generally contributed by the operators. Banks do not ordinarily supply risk or equity capital. Loans for that purpose need to ex

tend over a long period of time, and for that reason a long-term loan should not be a part of the bank's portfolio.

In 1955, we reached the point in our business whereby we had to obtain long-term financing, merge or sell out to a larger oil company, or see the business which we had built dwindle to nothing. We approached our banker with this problem and, while our local bank had been most cooperative in extending us short-term credit, they advised us that they were not in a position to extend long-term financing, merge, or sell out to a larger oil company, or see the business Little Rock. The Little Rock investment house advised us that they could do nothing for us in obtaining long-term financing. We then approached a New York underwriting firm, who agreed to sell for our company, on a “best effort" basis, an issue of $400,000 6 percent convertible debentures, and 50,000 shares of common stock in our company. We were not in a position to dictate terms; therefore, we accepted the offer made us by the New York underwriter. We obtained SEC approval of our issue, and out of the $700,000 issue made by our company we receive approximately $575,000, after deducting underwriter's commissions of 15 percent, attorneys' fees, and expenses of the SEC registration. We might add at this point that it is very difficult to obtain long-term financing through the sale of debentures and stock without going to Wall Street for the underwriting. Since our 1955 stock issue was made, we have continued to show a profit and have paid regular quarterly dividends on the basis of 44 cents year per share. Our stock was sold at $6 per share.

I have previously read the testimony of Mr. Herbert L. Thomas given here today. I agree with his concern regarding the future of small business. I am not opposed to big business just because it is "big." My fear is that small business will vanish from our American way of life for the lack of adequate longterm financing and by being taxed at the same rate as big businesss. If this happens, we will see monopolies created by big business that will ruin our country. We would like to impress upon you at this time the need for thought as to the taxes that are being paid by small-business men in American today. Without the revenue being paid into our Federal Government by small business to pay the stupendous expense of operating our Nation, a great deficit would ensue. We recognize that so-called big business enjoys many advantages with tax writeoffs of various kinds. We are not asking for any kind of subsidies; rather, we are asking that we be placed in a position that we may have a source of securing needed capital on a long-range basis to allow us to survive the storms that come to every business sometime or another. Mergers have already eliminated many small-business concerns.

In speaking of monopolies, let me give you an example that I personally know about. You are all familiar with the Fair Trade Act. Several years ago our company sold at retail Prestone antifreeze, manufactured by Union Carbide & Carbon Co. Prestone and Zerex, manufactured by Du Pont, account for the greater portion of antifreeze sales, and the fair-trade price of both products was $3.75 per gallon. We sold Prestone for $2.95 per gallon, and had signed no agreement, at the time we purchased Prestone, to abide by the fair-trade price.

Union Carbide & Carbon Co. filed suit against our company in Federal court, asking for an injunction against us. We carried the case through the Supreme Court, and the Fair Trade Act was declared unconstitutional in Arkansas. During the trial of the case, our attorney was approached by the attorney for Union Carbide & Carbon Co., advising that the price of Prestone would be reduced to $2.75 per gallon, if we would drop our fight against the Fair Trade Act. We refused, and the fair-trade price was reduced during the trial from $3.75 to $2.75 After the trial it was per gallon, where it remained until the trial was over. raised to $2.95, its present price. This is what we call big-business monopoly. We wonder how long the price would have remained at $3.75 per gallon, if someone had not called their hand.

We find this same situation today with regard to many items manufactured by only 1 or 2 large companies who are able to maintain a high price for their product because of lack of competition from small business. In many instances, small business develops a competitive product, and if the sale of the product reaches the point where it is affecting the sales of big business, the smaller company is either bought out, merged into the large company, or forced into bankruptcy by cutthroat pricing.

I was interested in certain statements made recently by the chairman of the board of one of the large steel companies. He effectively developed the thesis that the great enterprises (or big business) of America are the resultsimply and solely of the great expectations of the American people. He pre