*31 Petitioner was engaged in the production of 20 mm. cartridge cases and armor piercing shot under a total of 17 contracts with the War Department during the years 1942 and 1943. Petitioner realized profits from the contracts which were subject to renegotiation of $ 584,848 in 1942, and $ 1,343,464 in 1943. Held, upon the record that the petitioner realized excessive profits from renegotiable contracts during the years 1942 and 1943, in the amounts of $ 355,400, and $ 1,000,000, respectively.
*201 In Docket No. 80-R, the Under Secretary of War, on July 11, 1944, made a unilateral determination that the petitioner realized excessive profits of $ 355,400 during the year 1942, on contracts subject to renegotiation under section 403 of the Sixth Supplemental National Defense Appropriation Act, 1942, as amended, hereinafter referred to as the Renegotiation Act. In an amended answer, the respondent affirmatively alleged that the petitioner realized excessive profits from renegotiable contracts of not less than $ 441,000 during the year 1942.
In Docket No. 370-R, the War Contracts Price Adjustment Board, by an order dated June 6, 1945, made a unilateral determination that the petitioner realized excessive profits of $ 1,055,000 during the year 1943, on contracts subject to renegotiation under section 403 of the Renegotiation Act.
The United States of America was substituted as the respondent in Docket No. 370-R by order of the Court pursuant to a timely motion made by the petitioner.
The only issue for decision is the amount of excessive profits, if any, realized by the petitioner, in each of the years 1942 and 1943, on contracts subject to renegotiation.
*33 FINDINGS OF FACT.
The facts which have been stipulated are found as facts and the stipulations are incorporated herein by this reference.
The petitioner was incorporated under the laws of the State of Illinois in October 1933, for the purpose of manufacturing vending machines and related products. The petitioner's original capitalization was $ 15,000. Its stock has been closely held by members of the Stoner family. The petitioner's plant and offices are located at Aurora, Illinois. During the years 1936 through 1943, the petitioner's books were kept, and its income tax returns prepared on an accrual calendar year basis.
The petitioner's peacetime business consisted of designing, manufacturing, and selling coin operated amusement games, commonly known as pinball machines, and merchandise vending machines, principally for candy and chewing gum. The petitioner began the manufacture of vending machines in 1938, prior thereto its only product was the pinball games. The pinball machines consisted of a wooden table and various mechanical and electrical parts. The vending machines were of metal construction. Substantially all the parts for the pinball and the vending machines were*34 made by the petitioner.
*202 The petitioner's peacetime business was of a highly fluctuating nature. The petitioner's sales and operating profits or losses before Federal income taxes for the years 1936 to 1939, inclusive, were as follows:
| Operating | ||
| Year | Sales | profit (loss) |
| 1936 | $ 897,026 | $ 156,637 |
| 1937 | 632,868 | 11,509 |
| 1938 | 309,679 | (13,606) |
| 1939 | 496,436 | (363) |
The decline in the petitioner's operating results from 1937 through 1939 was due, principally, to several factors. Laws enacted in various states adversely affected petitioner's pinball machine business; rapid changes in the design of vending machines made obsolete much of the equipment initially produced by the petitioner; and a strike at petitioner's plant hampered production in 1939.
The petitioner had about 150 employees in 1939.
The salaries paid to the petitioner's officers in each of the years 1936 to 1939, inclusive, were as follows:
| 1936 | 1937 | 1938 | 1939 | |
| H. B. Stoner, President | $ 25,000 | $ 17,500 | $ 7,500 | $ 3,500 |
| T. M. Stoner, Sec.-Treas | 25,000 | 17,500 | 2,500 | |
| M. H. Stoner, Vice-Pres | 5,200 | 3,200 | 3,200 | |
| R. L. Stoner, Secretary | 800 | 2,400 | ||
| Totals | $ 55,200 | $ 38,200 | $ 14,000 | $ 5,900 |
*35 At all times material hereto, the land and buildings housing the petitioner's plant were leased by the company from members of the Stoner family. The physical plant consisted of an area of about 5 acres of land and twin 2-story buildings which contained about 70,000 square feet of floor space.
In the latter part of 1939, the petitioner's officers concluded that its business would not be regarded as essential to the defense program, and that it would become increasingly more difficult to procure materials for the petitioner's regular products. They thereafter made diligent efforts to secure defense contracts.
In June 1941, the petitioner was awarded its first contract by the War Department for the manufacture of 7 million 20 mm. brass cartridge cases. In December 1941, the petitioner was awarded a second letter contract by the War Department for the production of 1 million 20 mm. armor piercing shot. The petitioner was one of the first companies to receive contracts for 20 mm. cartridge cases and armor piercing shot. Before accepting a bid from and awarding the initial contract for cartridge cases to the petitioner, the War Department required the company to purchase some of the*36 machinery essential to the performance of the contract.
*203 The petitioner ceased the manufacture of pinball machines and began converting its facilities to war production in June 1941. The company delivered its first sample cartridge cases for ballistic tests in December 1941. The company suspended the manufacture of vending machines and converted its remaining facilities to war production early in 1942.
The petitioner's sales and operating profits before Federal income taxes for the years 1940 and 1941 were as follows:
| Year | Sales | Operating profit |
| 1940 | $ 822,000 | $ 28,000 |
| 1941 | 596,000 | 43,000 |
The compensation paid by the company to its officers in 1941 was $ 7,500, all of which sum was paid to H. B. Stoner.
The petitioner's capitalization was increased in 1940 to $ 75,000. As of December 31, 1941, the petitioner's net depreciable assets totaled $ 187,157, including $ 155,814 in defense equipment; its earned surplus and undivided profits were $ 90,234; and its capital stock was $ 75,000.
The company's comparative balance sheets for the years 1936 to 1941, inclusive, were as follows:
| 1936 | 1937 | 1938 | |
| ASSETS | |||
| Cash | $ 73,473.96 | $ 54,360.53 | $ 14,529.97 |
| Receivables | 70,475.42 | 16,442.24 | 55,137.25 |
| Inventories | 28,576.42 | 49,196.05 | 39,020.81 |
| Patents | 2,231.80 | 2,296.80 | 3,011.80 |
| Net depreciable assets | 27,960.35 | 40,082.94 | 34,931.59 |
| Deferred expenses | 660.41 | 2,725.33 | 3,398.39 |
| Deferred defense items | |||
| Total assets | $ 203,378.36 | $ 165,103.89 | $ 150,029.81 |
| LIABILITIES AND | |||
| CAPITAL | |||
| Accounts payable | $ 75,161.33 | $ 61,159.89 | $ 72,483.34 |
| Accrued expenses | 2,186.88 | ||
| Reserve for taxes | 12,205.28 | ||
| Earned surplus and | |||
| undivided profits | 111,030.15 | 76,738.72 | 62,546.47 |
| Capital stock | 15,000.00 | 15,000.00 | 15,000.00 |
| Total liabilities and | |||
| capital | $ 203,378.36 | $ 165,103.89 | $ 150,029.81 |
| 1939 | 1940 | 1941 | |
| ASSETS | |||
| Cash | $ 10,791.45 | $ 13,801.56 | $ 41,058.74 |
| Receivables | 53,598.00 | 100,434.27 | 23,400.78 |
| Inventories | 60,665.39 | 46,218.74 | 29,866.30 |
| Patents | 3,581.80 | ||
| Net depreciable assets | 36,776.53 | 42,702.44 | * 187,157.21 |
| Deferred expenses | 955.82 | 44.93 | 2,606.11 |
| Deferred defense items | 66,727.89 | ||
| Total assets | $ 166,368.99 | $ 203,201.94 | $ 350,817.03 |
| LIABILITIES AND | |||
| CAPITAL | |||
| Accounts payable | $ 85,451.30 | $ 57,080.07 | $ 185,582.33 |
| Accrued expenses | |||
| Reserve for taxes | |||
| Earned surplus and | |||
| undivided profits | 65,917.69 | 71,121.87 | 90,234.70 |
| Capital stock | 15,000.00 | 75,000.00 | 75,000.00 |
| Total liabilities and | |||
| capital | $ 166,368.99 | $ 203,201.94 | $ 350,817.03 |
During the years 1942 and 1943, the petitioner manufactured 20 mm. cartridge cases and armor piercing shot under a total of 17 contracts with the War Department, including two research and development contracts, one for steel cartridge cases, and one for armor piercing shot. In 1942, the company produced approximately 10 million cartridge cases and 400,000 rounds of shot. In 1943, it produced about 30 million cartridge cases and 2 million*38 rounds of shot. Substantially all of the cartridge cases were brass. The company produced a small quantity of steel cartridge cases under its research and development contract. *204 However, the steel cartridge case program was abandoned by the War Department in 1943. Sales of the company's regular products were relatively small in 1942, and were negligible in 1943.
The petitioner's renegotiable and nonrenegotiable sales, costs, and net profits before Federal income taxes for the year 1942 were as follows:
| Year 1942 | Renegotiable | Nonrenegotiable | Total |
| Sales | $ 2,014,243 | $ 170,645 | $ 2,184,888 |
| Costs | 1,429,395 | 109,126 | 1,538,521 |
| Net profits | $ 584,848 | $ 61,519 | $ 646,367 |
The breakdown of petitioner's renegotiable sales for 1942 as between cartridge cases and shot was approximately 93 per cent and 7 per cent, respectively.
The petitioner's cost of renegotiable sales for 1942 was determined as follows:
| Costs per Exhibit 72 | $ 1,400,128 | ||
| Add: Other costs allowed as deductions | |||
| under Ch. 1, I. R. C. | |||
| Officers' salaries | $ 25,417 | ||
| Capital stock tax | 3,850 | 29,267 | |
| Total costs | $ 1,429,395 |
The petitioner's renegotiable and nonrenegotiable*39 sales, costs, and net profits before Federal income taxes for the year 1943 were as follows:
| Year 1943 | Renegotiable | Nonrenegotiable | Total |
| Sales | $ 3,680,217 | $ 5,367 | $ 3,685,584 |
| Costs | 2,336,753 | * 12,310 | 2,300,721 |
| Net profits (loss) | $ 1,343,464 | ($ 6,943) | $ 1,384,863 |
The breakdown of the petitioner's renegotiable sales for 1943 as between cartridge cases and shot was approximately 79 per cent and 21 per cent, respectively.
The Government furnished substantially all of the brass disks used by the petitioner in the production of cartridge cases in 1943.
The petitioner's costs of renegotiable sales for 1943 was determined as follows:
| Costs per Exhibit 67 | $ 2,288,411 | ||
| Add: Other costs allowed as deductions | |||
| under Ch. 1, I. R. C. | |||
| Accelerated amortization on machinery and | |||
| equipment pursuant to sec. 124(d) | $ 48,101 | ||
| Additional depreciation | 241 | 48,342 | |
| Total costs | $ 2,336,753 |
The petitioner's officers, and the salaries received by each during the years 1942 and 1943 were as follows: *205
| 1942 | 1943 | |
| H. B. Stoner, President | $ 53,641 | $ 52,166 |
| C. E. Attelberg, Vice President | 28,659 | 26,188 |
| R. L. Stoner Lawrence, Secretary-Treasurer | 7,308 | 6,521 |
| Totals | $ 89,608 | $ 84,875 |
*40 A reasonable allowance for the aggregate of salaries paid by the petitioner to its officers in 1942 is $ 85,875.
Petitioner's comparative balance sheets for the years ended December 31, 1942 and 1943, as reflected by the books of the company and before renegotiation, were as follows:
| ASSETS | ||
| 1942 | 1943 | |
| Cash | $ 19,599.78 | $ 786,430.91 |
| Receivables | 345,132.78 | 436,011.36 |
| Inventories | 135,855.20 | 121,717.97 |
| U. S. Government bonds | 3,700.00 | 77,700.00 |
| Fixed assets -- Net after reserves for depreciation | ||
| and amortization | 290,228.55 | 401,018.84 |
| Patents -- Net | 1,667.18 | 1,524.94 |
| Farm | 34,002.10 | 44,230.88 |
| Due from stockholders | 26,452.50 | |
| Post-war refund -- Federal excess profits tax | 25,000.00 | 106,000.00 |
| Deferred charges: | ||
| Leasehold improvements -- Net after reserve | ||
| for amortization | 21,364.68 | 17,420.65 |
| Insurance | 4,998.04 | 9,473.33 |
| Miscellaneous | 43.46 | 1,302.96 |
| Total assets | $ 881,591.77 | $ 2,029,284.34 |
| LIABILITIES AND CAPITAL | ||
| Accounts payable | $ 132,423.22 | $ 144,110.95 |
| Accruals: | ||
| Federal income tax | 375,000.00 | 1,067,286.52 |
| Others | 23,366.89 | 78,054.41 |
| Reserve for renegotiation -- 1942 profits | 70,000.00 | |
| Reserves | * 450,000.00 | |
| Anticipated retroactive wage increase | 15,000.00 | |
| Legal suits pending | 5,000.00 | |
| Post-war rehabilitation | 55,000.00 | |
| Additional taxes and other contingencies | 40,000.00 | |
| Reconditioning Government-owned machinery | 20,000.00 | |
| Capital stock | 75,000.00 | 87,000.00 |
| Earned surplus | 140,801.66 | 132,832.46 |
| Total liabilities and capital | $ 881,591.77 | $ 2,029,284.34 |
| Dividends paid | $ 8,700.00 |
The process employed in the manufacture of brass cartridge cases was well established in 1941. The process is a reasonably complex one requiring adherence to close tolerances. After the production lines *206 have been set up, the process, except for improvements in production techniques, is a repetitive, mass production operation. When the petitioner's production lines were set up, its manufacturing operations were carried on with unskilled labor of which approximately 95 per cent were women. There was no essential difference between the process employed by the petitioner in the manufacture of 20 mm. cartridge cases, and the process in use in the manufacture of other size cartridge cases. In June 1941, when the petitioner was awarded its first Government contract, 20 mm. cartridge cases were being mass produced in the United States by the Bridgeport Brass Company.
The petitioner's officers and engineering staff had no experience in the production of munitions of war prior to June 1941. The petitioner, in June 1941, lacked the essential machines and tools and was without sufficient capital to perform its contracts without substantial *42 assistance from the Government. In 1941 and 1942, the petitioner was unable to secure a performance bond and this provision of the contracts was waived by the Government.
The Army Ordnance Department materially aided the petitioner in getting into production under its contracts by providing technical advice, by priority assistance, by authorizing the petitioner to purchase machinery and equipment for Government account, and by making substantial advance payments to the petitioner in 1942.
The petitioner was furnished with blueprints and specifications for both the cartridge cases and the shot. Its officers were afforded the opportunity to inspect plants already in production of munitions of war. Before setting up a production line, the petitioner's president, H. B. Stoner, visited the plants of the Bridgeport Brass Company in Connecticut, the Frost Company in Kenosha, Wisconsin, and the Frankford Arsenal in Philadelphia, Pennsylvania. Engineers of the Army Ordnance Department made frequent visits to the petitioner's plant.
The cost of Government-owned machinery and equipment used by the petitioner for war production totaled $ 325,067 as of December 31, 1943.
The petitioner, in *43 1942, received advance payments under its Government contracts totaling $ 474,666. Negotiations for the first advance payment of $ 270,000 were completed in November 1941 before the petitioner made any deliveries of cartridge cases under the initial contract. The payment was approved on December 27, 1941, and was received by the petitioner in January 1942.
The petitioner's entry into war work required a complete change in its operations, the purchase of a substantial amount of new and used machinery and equipment, and the making of leasehold improvements. As of December 31, 1943, the petitioner had purchased machinery and equipment at a cost to it of $ 485,243, and had expended $ 82,923 for *207 leasehold improvements for the production of munitions of war. The machinery and equipment, and the leasehold improvements were all covered by certificates of necessity. As of December 31, 1943, the petitioner had applied for certificates of necessity on its emergency facilities totaling $ 722,057. Of this amount $ 612,251 had been approved as of the end of 1943, and applications were pending for $ 63,243.
The petitioner's officers and plant engineers exhibited resourcefulness and*44 ingenuity in converting the company's existing facilities to war production, in improvising and adapting secondhand machinery to the required manufacturing processes, in improving production techniques, and in conducting successful experimental and development work in connection with its contracts for 20 mm. armor piercing shot.
The petitioner's war production record for the years 1942 and 1943 was good. None of its war work was subcontracted. It was a low cost efficient producer. Production schedules were reasonably well maintained. Its war products were of good quality. Manufacturing rejects amounted to less than 3 per cent of total production. The petitioner received the Army-Navy E award in each of the years 1942 and 1943.
The petitioner assumed no unusual risks in connection with the performance of its war contracts. The contracts contained escalator clauses which protected the petitioner against increases in the cost of labor and materials. Petitioner's prices were sufficiently high to obviate any risks incident to close pricing. The petitioner's margin of profit on war contracts before elimination of excessive profits for the years 1942 and 1943 was over 29 per cent*45 and 36 per cent, respectively.
The petitioner realized excessive profits from renegotiable contracts during the years 1942 and 1943, in the amounts of $ 355,400, and $ 1,000,000, respectively.
OPINION.
The principal question in these proceedings is whether the petitioner realized excessive profits from renegotiable contracts in each of the years 1942 and 1943, and, if so, to what extent. Several subordinate issues are presented relating to whether certain items should be allowed as costs of renegotiable sales in each of the years in question.
The Under Secretary of War determined that the petitioner realized excessive profits of $ 355,400 in 1942 on contracts subject to renegotiation. The respondent in an amended answer affirmatively alleged that the petitioner realized excessive profits from renegotiable contracts of not less than $ 441,000 during the year 1942. The War Contracts Price Adjustment Board determined that the petitioner realized excessive profits of $ 1,055,000 in 1943 on contracts subject to renegotiation.
*208 The petitioner has the burden of establishing that the original determination of excessive profits for each of the years before us is erroneous. The*46 respondent has the burden of proof with respect to the increase in excessive profits for 1942 as set out in his affirmative pleadings. Nathan Cohen v. Secretary of War, 7 T. C. 1002; Ring Construction Corporation, 8 T. C. 1070, affd. 178 F. 2d 714, certiorari denied 339 U.S. 943">339 U.S. 943; Rosner v. War Contracts Price Adjustment Board, 17 T.C. 445">17 T. C. 445.
The subordinate issues relating to the allowance of certain items as costs of renegotiable sales in each of the years 1942 and 1943 are considered first. There is no dispute as to the amount of renegotiable sales in each of the years before us. The evidence establishes and we have found that the petitioner's costs of renegotiable sales for the years 1942 and 1943, were $ 1,429,395 and $ 2,336,753, respectively.
With respect to the costs of renegotiable sales for the year 1942, petitioner contends that the unamortized balance of deferred expenses, $ 32,502.82, incurred in 1941 in connection with renegotiable contracts, should be allowed as an item of cost in 1942, and that reserves for possible*47 additional taxes and other contingencies, for reconditioning Government-owned machinery, and for postwar rehabilitation totaling $ 115,000 should be considered as items of costs in 1942. The petitioner concedes that the aforementioned items of deferred expenses and reserves are not "properly applicable exclusions and deductions of the character which the contractor or subcontractor is allowed under Chapter 1 and Chapter 2 E of the Internal Revenue Code," within the meaning of section 403(c)(3) of the Renegotiation Act. The petitioner's argument that they should none the less be considered as items of costs in determining profits from renegotiable sales is without merit. See Albert & J. M. Anderson Mfg. Co. v. Secretary of War, 12 T. C. 132, 138.
As is set forth in the Findings of Fact, we have allowed the petitioner, as items of costs in 1942, additional capital stock tax paid in the amount of $ 3,850, and officers' salaries in the total amount of $ 85,875. The respondent argues that the amount of compensation paid to the petitioner's officers in 1942 is excessive to the extent of $ 25,417. We have considered all of the evidence. The company's*48 success was attributable in large part to the initiative and ability of its officers, particularly H. B. Stoner who, as president, received over half of the compensation allowed. We note, also, that in 1941 when the company undertook considerable work in converting its facilities and preparing for war production, the total compensation of $ 7,500 paid to the petitioners officers was very modest. From all of the evidence, it is concluded that the aggregate amount of salaries of officers, $ 85,875, is reasonable.
*209 The only item of cost in dispute for the year 1943 concerns reserves. The petitioner argues that an increase in reserves in the amount of $ 335,000 for such contingencies as postwar rehabilitation and renegotiation of 1943 profits should be considered as costs of renegotiable sales for 1943. What we have said above with respect to items of reserves as allowable costs for the year 1942 is dispositive of this issue. Petitioner's contention cannot be sustained.
The principal issue is the amount of excessive profits, if any, realized by the petitioner from renegotiable contracts in each of the years in question. The petitioner contends that no part of its realized*49 profits of $ 584,848 from renegotiation sales for the year 1942 is excessive; and that no more than $ 685,000 should be considered as excessive out of 1943 profits of $ 1,343,464. The petitioner argues that it is entitled to the highest consideration on the basis of the statutory renegotiation factors, and points with emphasis to certain aspects of its war performance record for the years before us.
The petitioner also argues that with respect to the determination of excessive profits for the year 1943, the value of "free issue" material, i. e., the brass furnished by the Government for the manufacture of cartridge cases, should be added to the amount of renegotiable sales for 1943 in considering the relationship of profit to gross sales. The petitioner places the value of the free issue material at over 2 million dollars. The statement of the renegotiating authority attached to the petition for the year 1943 places the value of the free issue material at approximately $ 1,700,000. It is not necessary for us to determine the exact value of the free issue material used by the petitioner in the manufacture of cartridge cases during 1943, as we are of the opinion that the petitioner's*50 argument is without merit. This Court has previously rejected, essentially, the same contention. See Ellis Coat Co. v. Secretary of War, 9 T. C. 1004, 1017.
We have carefully considered all of the evidence, which is voluminous, and all of the arguments advanced by counsel in these proceedings. Upon the entire record, we have found as a fact and conclude that the petitioner realized excessive profits from renegotiable contracts during the years 1942 and 1943, in the amounts of $ 355,400, and $ 1,000,000, respectively. The evidence adduced by the respondent in support of his affirmative pleadings with respect to the year 1942 has been considered. The evidence does not in our opinion justify the increase in excessive profits urged by the respondent. In arriving at our determination of excessive profits for the year 1943, we have taken into account and have allowed as an item of cost the increase of over $ 48,000 in the amount of the amortization deduction allowed the petitioner by reason of a recomputation of the amortization deduction pursuant to section 124 (d) of the Internal Revenue Code.
*210 In assaying the evidence, all of the "factors" *51 set forth in section 403 (a) (4) (A) of the Renegotiation Act have been considered and have been given such weight as seemed appropriate. The petitioner draws attention to various favorable factors in its performance record. We recognize those factors fully. We have considered, among other things, the petitioner's early and total conversion to war production with the attendant problems and difficulties; its substantial investment in machinery and equipment for the production of munitions of war; the resourcefulness and ingenuity demonstrated by its officers and plant engineers in converting existing equipment and adapting secondhand machinery to the required manufacturing processes; the good quality of its products; its research and development work in connection with the manufacture of 20 mm. armor piercing shot; its improvements in production techniques and its substantial increase in production during the years before us; its record as a low cost efficient producer; and its reconversion problems.
We have also considered other factors stressed by the respondent. The petitioner's early conversion to war work was, admittedly, occasioned by the fact that its officers recognized*52 at an early date that the production of its regular products would become increasingly more difficult, if not impossible, in a war economy. A conversion to war production, or to the manufacture of products essential to a war economy was necessary if the petitioner was to continue in business. Only limited significance can be given to the petitioner's base period operations due to the lack of similarity between war production and peacetime business. We note, however, that the petitioner's retained profits from renegotiable contracts for the years 1942 and 1943, before Federal income taxes and after the elimination of excessive profits as herein determined, amount to $ 229,448, and $ 343,464, respectively. The retained profits for each of the years before us are substantially in excess of the aggregate of the petitioner's profits before Federal income taxes of $ 154,177 for the entire base period. The retained profits for 1942 and 1943 are also substantially in excess of the petitioner's net worth on January 1, 1942, of $ 165,234. No new capital was added to the business except from earnings.
The ingenuity demonstrated by the petitioner's officers, while commendable, was fairly*53 compensated for by the allowance, as costs of renegotiable sales, of the generous salaries paid to them.
The petitioner required substantial assistance from the Government in order to get into production of both cartridge cases and shot. It received advances from the Government under its contracts of $ 474,666 during 1942. It had the use of Government-owned machinery and equipment which cost $ 325,000.
Machinery and equipment purchased by the petitioner at a cost of $ 485,000, and other emergency facilities acquired by the company for *211 war production, were all covered by certificates of necessity. Much of this machinery and equipment is adaptable to peacetime products.
The petitioner assumed no unusual risks in performing its war contracts. Its prices were sufficiently high to obviate any risks incident to close pricing. The company's margin of profit on renegotiable sales for 1942 and 1943, before the elimination of excessive profits, was over 29 per cent and 36 per cent, respectively. Since the company was a prime contractor, risk of inventory and receivable loss was negligible. The petitioner's substantial investment in emergency facilities did not involve any unusual*54 risks considering the protection afforded by certificates of necessity, and the amount of profits realized.
Although the manufacturing processes involved were reasonably complex, once production lines were established the process was a repetitive, mass production operation. The bulk of the company's renegotiable sales in each of the years before us was in cartridge cases.
The petitioner made no unusual inventive or developmental contributions to the war effort. Petitioner stresses the fact that it used carbide dies in the production of its 20 mm. cartridge cases. But the evidence shows that carbide dies were employed in the mass production of other sizes of cartridge cases prior to the time the petitioner adapted their use to the manufacture of 20 mm. cases. The petitioner, also, points with emphasis to its work in the development of a satisfactory 20 mm. armor piercing shot, particularly, its method of attaching the windshield to the shot so that the windshield would not come off in the firing and flight of the projectile. But this too was the adaptation by the company of already established manufacturing techniques to the problem at hand. As we have already noted the ingenuity*55 displayed by petitioner's officers, its good production record, and other favorable considerations have, in our opinion, been fairly compensated for by the considerable profits retained by the company after the elimination of excessive profits for 1942 and 1943.
It is held that the petitioner realized excessive profits from renegotiable contracts during the years 1942 and 1943, in the amounts of $ 355,400, and $ 1,000,000, respectively.
Orders will be entered in accordance herewith.