SEP
.
Annual
11
1944
Report
1943
1
NORTH
AMERICAN
(A
Delaware
AVIATION,
INC.
Corporation)
_-
NORTH
AMERICAN
AVIATION,
INGLEWOOD,
BOARD
INC.
CALIFORNIA
OF DIRECTORS
Henry M. Hogan, Chairman
J. L. Atwood
Herbert G. Fales
Ernest R. Breech
James H. Kindelberger
Henry B. du Pont
R. A. Lambeth
OFFICERS
James H. Kindelberger
J. L. Atwood
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
R. A. Lambeth
.
.
.
.
Raymond H. Rice
........
J. S. Smithson
........
S. G. Anspach
...................
Vice President
.
.
.
.
President
First Vice President
in Charge of Finance, and Tremurer
Vice President
Vice President
in Charge of Engineering
in Charge
of Manufacturing
.
Secretary
OFFICE OF TRANSFER AGENT
1775 BROADWAY
NEW YORK, N. Y.
September
TO
OUR
I, 1944
STOCKHOLDERS
Under provisions of the Renegotiation
Act, as amended by Section 701 of the Revenue
Act of 1943, the major portion of your company’s 1943 business is subject to renegotiation through the War Contracts Price Adjustment Board. In order to avoid the necessity
of issuing a revised report, the company elected at the close of the I943 fiscal year to
delay issuance of its 1943 Annual Report until completion
of renegotiation,
and notice
was conveyed to stockholders
in a
of this decision, together with the reasons therefor,
letter dated January 18, 1944.
Information
required by the Price Adjustment Board was filed starting late in 1943,
and many conferences have since been held between the company and representatives
of
the Board, culminating
in an informal settlement proposal by the Board on July 26, 1944.
In this proposal the Board indicated that the corporation’s
1943 sales under fixed price
contracts resulted in excessive income of $46,200,000
within the meaning of the Act. After
application
of tax credits, this would result in a net cash refund to the Government of
$7,748,664.
I n addition it would effect a reduction of $3,580,000 in the amount of postwar refunds, or a total reduction in income of $11,328,664.
Although a formal written agreement covering renegotiation has not yet been executed,
the company has decided to accept the proposal of the Price Adjustment Board, and is of
the opinion that the final settlement will be substantially
on this basis. We therefore feel
justified in issuing the accompanying
financial statements giving effect to renegotiation in the
amounts stated in the informal proposal of the War Contracts Price Adjustment
Board,
rather than delaying the report further pending execution of formal agreements.
Sales of the company and its subsidiaries
during 1943 amounted to $509,139,649,
compared with 1942 sales of $253,226,119.
Consolidated
net income, after all charges,
was $6,790,323,
equal to $1.98 a share on the 3,435,033 shares of capital stock outstanding. This may be compared with consolidated net income of $7,370,626,
equal to $2.15 a
share, reported for the fiscal year ended September 30, 1942.
Operations during the 1943 fiscal year as in previous years were characterized
by
intensive efforts to deliver the highest possible number of aircraft possessing the greatest
possible military
utility at the lowest possible cost to the Government.
Your company’s
total efforts will continue to be devoted solely to war production
as long as the nation’s
military welfare may require.
Despite the complexities inherent in aircraft production
under wartime conditions of
manpower and material supply, coupled with rapidly changing tactical requirements,
your
company and its subsidiary delivered during the fiscal year a total of 65,197,828
pounds
of airframe,
which constituted approximately
1170 of the nation’s entire airframe output
during the 12-month period.
Quantity production methods and a general improvement
in efficiency controls were
reflected in a substantial improvement
in pounds produced per total worker.
During the
1943 fiscal year the average output rose to 990 pounds, an increase of approximately
600/O
over a comparable period in 1941, the last year before the United States entered the war.
1
mm
Average total floor area in use increased 25270 between
1941 and 1943, and deliveries increased from 4,370 airframe
pounds per 1,000 square feet in 1941 to 11,055 pounds in
1943, a total production increase of approximately
79070 and
an increase in area productivity
of more than 15070.
During the year the company continued production of three
proven aircraft of its own design. B-25 Mitchell twin-engine
bombers were delivered in steadily increasing volume from the
California division and the plant of the subsidiary company in
Kansas. P-51 Mustang fighters were produced throughout the
year in the California division, supplemented
in the latter part
of the year by production of the fighter in the original plant of
the Texas division.
The original Texas plant also maintained
production of AT-6 and SN J combat trainers, and a second Texas
plant launched production
of the B-24 Liberator four-engine
bomber, a design of the Consolidated Vultee Aircraft Corporation. Final modification work was performed on B-25 bombers
in a large modification center operated by the subsidiary company in Kansas.
In all these five major production units, increasing emphasis
was placed during the year on maximum utilization of available
manpower, materials, floor area, and equipment.
Through effective industrial engineering
applications
and continued encouragement of on-the-job improvement ideas from employees, your
company was able to maintain its high reputation for efficient
production of military aircraft.
A total of 15,000 production
improvement
suggestions were submitted by employees during
the year, of which more than 20 per cent were usable. Progress
in material conservation is indicated by the estimated saving of
more than $2,300,000 worth of materials realized through conservation studies and procedures
during 1943.
2,267,837
LBS.
VOLUME OF
NORTH AMERICAN AVIATION
PRODUCTION IN AIRFRAME POUNDS
mm
mm-
NOTE:
END
OF FISCAL
BAR REPRESENTS
YEAR
NINE-MONTH
CHANGED
TO SEPT. 30 IN
1941;
PERIOD
m-
65,197,828
LBS.
EMPLOYEE
PRODUCTIVITY
In 12 months ended Sept.
30, 1941, company averaged
620 airframe
pounds for
each employee
on payroll.
In 1943 fiscal year company produced
990 airframe pounds per employee, compared with a national
average for the
airframe industry of 733 airframe pounds.
LBS.
AREA
PRODUCTIVITY
In 12 months ended Sept.
30, 1941, company produced
4,370 arrframe
pounds for
each 1,000 sq. feet of total
floor
area
then
in use.
A program of production decentralization
was inaugurated during 1943 through establishment
of “feeder”
plants in outlying communities which served the dual purpose of bringing work to an available labor supply and
freeing the main plants of certain sub-assembly operations
to provide space for increased production.
In addition to
the decentralization
achieved through company-operated
“feeder” plants, constant efforts have been made to extend
sub-contract work to available plants capable of meeting
quality and schedule requirements.
Many types of assistance are made available to small plants, ranging from the
purchase of materials to the furnishing of tooling and technical assistance with production problems.
Your company continued its active part in cooperating
with other companies of the aircraft
industry in interchanges of technical data and materials, chiefly through the
agency of the Aircraft War Production Council, an organization comprising the seven major airframe manufacturers
on the West Coast.
Your company has accepted its design responsibility
as
one of its principal
contributions
to winning the war.
Technical improvement in its aircraft is continuous despite
the difficulties thereby created in meeting production goals.
The importance of your company’s policy of forcing technical improvements
at all possible speed is now being
proved in all theaters of war.
The magnitude of the task of keeping a military airplane superior to enemy aircraft in wartime is illustrated
by the fact that 554,000 engineering hours, seven times as
for the original
design, were
many as were required
expended in the California division during the 1943 fiscal
year on design changes for the P-51 Mustang fighter.
Although the original design of the B-25 Mitchell required
only 260,000 engineering hours, design changes made during the 1943 fiscal year on this airplane required a total
of 432,000 engineering hours.
CHANGE
i
IN
In 1943 fiscal year company produced
11,055 airframe
pounds for each 1,000
sq. ft. of total
floor
area
in use,
compared
with
a national
average of
7,000 airframe
pounds per 1,000 sq. ft.
WORKING
Women comprised 36%
of the total
payroll
at
Sept. 30, 1943, compared
with
5%
at Sept. 30,
1941. Number of women
on payroll
increased
from 790 to 31,500.
EMPLOYMENT
FORCE
MEN
MEN
n
AND
TRAINING
87,875 on payroll
Sept. 30, 1943
5,100 military
leaves
were granted
employees in 1943, an
average of 425 per
month.
5,376,OOO hours of
instruction
were
given employees
in
1943,
exclusive
of
on-the-iob
training
by supervision.
3
nl
Net
personnel increase during
1943 was 39,712 or 82%
I
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III
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There are 3,435,033
99% of the holders
Women comprise approximately
42% of the
total number of stockholders;
19% of the
shares outstanding
are registered to estates
and trust funds.
shares of stock oustanding;
reside in continental
United
more than
States.
16,813
stockholders
55% of total
The average holding of
North
American
Aviation’s 30,600 stockholders is 112 shares.
Largest
single
holder is General
Corporation,
1,000,061 shares,
senting 29%
of
outstanding.
11,139
stockholders
36% of total
TOCKHOLDERS
2648
stockholders
9% of total
cl
stockMotors
with
represhares
hold
‘s&e:5
hold
26sZ!o
hold
over 100
shares
over 1000
On the map shading indicates the approximate
distribution
of stockholders
in the 48 states and District
of Columbia.
For example, the B-25 Mitchell has been modified and specially equipped for almost
every type of tactical operation and for service in all theaters of the global war. A dramatic
illustration of its versatility occurred when the airplane went into action in 1943 equipped
with a 75 mm. cannon-the
first production airplane in history to carry a large cannon. Since
its initial design, the P-51 Mustang fighter also has been improved constantly in all phases
of performance,
and is now generally regarded as the outstanding fighter airplane in service.
These constant design improvements
are the result of close collaboration
with the technical staffs of the armed forces; the initiative and know-how of your company’s research
and engineering staffs; and performance
reports from North American Aviation technicians
at the battle fronts.
In order to achieve its engineering
and manufacturing
goals during the year, your
company had to meet and overcome serious manpower handicaps. While the working force
was increased more than 80 per cent during the year, the assimilation and training problem
represented
by this increase was further complicated
by the generally high turnover rate
prevalent in most war industries, which resulted in your company having to hire and train
more than twice the number of persons represented in the net increase. A total of 5,375,OOO
hours of training were given employees during the year exclusive of on-the-job instruction by regular supervision.
At the end of the fiscal year, women represented 36 per cent of the total working force.
as compared with five per cent at the end of the 1941 fiscal year. A total of 5,100 employees were given leaves of absence to enter the armed forces during 1943.
The regular force has been augmented by business and professional
men on part time
shifts, and minors during their summer vacations.
Thousands of physically
handicapped
persons were employed during the year, and a complete program
is in effect for the
employment of honorably discharged veterans.
A trained labor relations group was maintained in each main unit to assist supervision
and employees and to work with labor unions on all matters concerned with administration
of labor agreements.
No work stoppages occurred in any North American Aviation plant
during the fiscal year. Also, active Labor-Management
Production
Drive committees were
maintained in each of the major plants.
Dozens of services designed to aid employees with wartime living problems were
maintained in all plants, ranging from complete transportation
and rationing services to
assistance rendered working mothers in problems of child care.
4
_ _-
with the aim at all times of maintaining
a solvent condition
Continued on Page
to the long-range benefit of the stockholders.
---
-
of the Mitchell;
in a published
article,
“There
are
few more dramatic
examples
of the advantages
of
constant
improvement
of current
models than the
modification
and
design
changes
in the
B-25
medium
bomber.
It is serving
in every theater
of
8
war completely around the world.”
Nose tip on chart indicates
best performance
of early
Mustang and 1943 model.
MAXIMUM
SPEED *
MAXIMUM
RANGE
USEFUL
LOAD
SERVICE
1943
MUSTANG
1941
MUSTANG
&For security
and ceiling
reasons
speed
shown in percent-
ages of 194 1 performance.
CEILING 4
.
I
4
I
“OVER
100
105
%%%%
425 MPH”
110
115
SOURCE:
H
I
I
I IW
“OVER
I
1,000
MILES
COMPANY
3,650
I I
1,500
MILES
FLIGHT
POUNDS
4i-
/ / xaw
2,000
MILES
I
TEST PERFORMANCES
.
2,340
CORRECTED
POUNDS
TO STANDARD
40,000
CONDITIONS
100
110
%%%%
120
130
FT.’
DESIGN
THE
contracts on a fixed price basis wherever possible and, where
not possible in the first instance, to change to that basis as soon
At the end of the fiscal year your
as circumstances
permit.
company was negotiating
with the War Department
for conversion of the Texas plant producing B-24 bombers from costplus-a-fixed-fee
contracts to fixed price contracts, in which the
company and the Government negotiate in advance a mutually
agreeable price. Actual conversion of this plant to a fixed price
operation occurred after the end of the fiscal year, and all your
company’s production is now conducted under fixed price contracts except the production of B-25 bombers by the subsidiary
company in Kansas.
The cost-plus-a-fixed-fee
contracts which
your company has accepted when circumstances
required differ
materially
from the old type “cost-plus-a-percentage”
contracts
of World War I, under which fees increased as costs increased.
The latter type of contract was made illegal years ago and has
not been used in the present war. Under the cost-plus-a-fixed-fee
contracts now being used, fees remain constant even though costs
may vary.
With regard to prices, it is the policy of your company to
make price reductions as cost reductions materialize, applicable
to products already delivered as well as to future deliveries.
Despite the extensive improvements
effected in airplane types
through constant design changes, and increased cost per labor
hour, your company has been able to make important price reductions on all types as manufacturing
experience
and efficiency
have mounted. Also, the company has waived royalties and other
compensation
for design rights and patent privileges when it
appeared in the interest of the nation’s war effort to do so.
Careful thought has been given to all factors affecting the
present and future success of your company.
Dividends paid
to stockholders have been as liberal as present conditions and
necessary reserve for contingencies
would reasonably
permit,
with the aim at all times of maintaining
a solvent condition
Continued on Page 8
to the long-range benefit of the stockholders.
MAXIMUM
SPEED*
MAXIMUM
P-51
MUSTANG
Illustrating
the extent
of engineering
work required to keep a combat
airplane
better
than the
enemy’s
best, the wing span of the two Mustang
It is the policy of your company to accept war production
Nose tip on chart indicates
best performance
of early
Mustang
and 1943 model.
CHANGES
*
Original
Design
Time
silhouettes
shows the relation
between
the number
of engineering
hours used in designing
the original
Mustang,
and the number
of engineering
hours
used in the California
division in 1943 to effect design changes.
A total of 554,730
engineering
hours
were applied
by the California
division during
1943
on Mustang
changes, approximately
seven times the
78,220 hours required
to get the first Mustang
into
the air in 1940.
THE
B-25
MITCHELL
Design changes during 1943 on the B-25 Mitchell
bomber required
432,260
engineering
hours in the
California
division
alone,
compared
with 260,495
Original
Design
Time
engineering
hours on the original
design.
The resulting
superiority
over other types prompted
Assistant Secretary
of War
Robert A. Lovett to say
of the Mitchell,
in a published
article,
“There
are
few more dramatic
examples
of the advantages
of
constant
improvement
of current
models than the
modification
and
design
changes
in the
B-25
medium
bomber.
It is serving
in every theater
of
war completely
around the world.”
USEFUL
RANGE
LOAD
SERVICE
CEILING *
1943
MUSTANG
1941
MUSTANG
*For security
reasons
speed
and ceiling shown in percentages of 1941
performance.
I
-I
“OVER
100
105
%%%%
425 MPH”
110
115
SOURCE:
I
1,000
MILES
COMPANY
1,500
MILES
FLIGHT
2,000
MILES
TEST PERFORMANCES
.
3,650
POUNDS
2,340
POUNDS
CORRECTED
TO STANDARD
4
100
110
%%%%
CONDITIONS
/lk
“OVER
120
40,000
130
FT.”
----
TACTICAL
USES OF THE MITCHELL
Low Level Bombing
Torpedo Launching
_
Strafing
Altitude
Bombing
Armed Reconnaissance
/-
TACTICAL
High Altitude
Strafing
USES OF THE MUSTANG
Escort
Interceptor
Dive Bombing
Combat
Photo Reconnaissance
Relation
and
Federal
through
income
taxes
five years
presented
come
of net
on
income
is graphically
in this chart.
has remained
Net
almost
stant
although
sales have
plied
18 times.
Comparative
ures are given
Since numerous contract terminations
and reductions have
already been effected by the Government in this and other industries, your company has established
a Contract Termination
Board with a responsible executive in charge for the purpose
of keeping abreast of all developments which may in the future
affect your company.
Constructive work is being done by this
Board at the present time in reducing inventories and diverting
surplus materials back into normal trade channels.
to sales
in the table
incon-
multifigbelow.
Your company aims to maintain
those concerned with its operations,
in which it operates.
With proper recognition of management’s joint responsibility
to the stockholders and to the nation’s wartime interest, and with
the sincere belief that North American Aviation is a definite
asset to the military, to the community, to aviation, and to the
nation as a whole in war or in peace, your company has taken
and will continue to take every legitimate step to secure and
improve its position both financially
and technically
in order
that the organization
may make the greatest possible contribution to the future of aviation and the nation.
KEY
III
Federal Taxes
on Income
m
Net
good relationships with all
including the communities
Income
On behalf of the Board of Directors and the stockholders
whom they represent, we wish to acknowledge with wholehearted
appreciation
the splendid job which has been done by every
North American Aviation employee.
Total Bar Represents
Sales Volume
HENRY M. HOGAN
Chairman of the Board
COMPARATIVE
SALES
NORTH
Year
Dec.
Ended
31,
AMERICAN
Year
1939
TAXES
l
AVIATION,
Ended
Dec. 31,
INCOME
l
INC.,
AND
Nine
1940
J. H. KINDELBERGER
President
SUBSIDIARIES
Months
Sept.
DIVIDENDS
l
30,
Ended
1941
Year
Sept.
Ended
30,
Year
1942
Sept.
Ended
30,
1943
Sales . . . . . . . . . . . . . . . . .
$27,608,651.44
$36,862,514.31
$60,865,686.84
Net income before Federal
taxes on income . . . . . .
8,589,091.56
10,082,335.78
16,008,677.42
43,153,126.31*
66,532,323.43”
Federal taxes on income
.
1,501,000.00
2,992,ooo.oo
9,932,723.57
35,782,500.00”
59,742,000.00”
Net income . . . . . . . . . . . .
7,088,091.56
7,090,335.78
6,075,953.85
7,370,626.31
6,790,323.43
Net income percentage to
sales . . . . . . . . . . . . . . .
25.67%
9.98%
2.91%
1.33%
Net income per share . . .
Amount of dividend
....
$2.06
4,809,046.20
Dividend per share . . . . .
1.40
Dividend percentage to
net income . . . . . . . . . .
67.85 %
Amount reinvested in
business . . . . . . . . . . . .
$2,279,045.36
19.23 %
$2.06
4,293,791.25
$1.77
2,576,274.75
1.25
$253,226,119.02
$2.15
4,293,791.25
.75
60.56%
42.40%
$2,796,544.53
$3,499,679.10
*Before deducting Federal taxes related to renegotiation refunds.
1.25
58.26 %
$3,076,835.06
(See Note 5 on Page 12.)
$509,139,649.00
$1.98
3,435,033&o
1.00
50.59%
$3,355,290.43
NORTH
AMERICAN
AND
STATEMENT
AVIATION,
SUBSIDIARY
OF CONSOLIDATED
INC.
COMPANIES
INCOME
AND
EARNED
FOR THE YEARS ENDED SEPTEMBER 30, 1943 AND
YEAR
ENDED
SURPLUS
1942
SEPTEMBER
1942
1943
SALES AND OTHER
INCOME:
Net sales of airplanes, parts, etc .......................
Miscellaneous
u
30
(Note 8)
$509,139,649.00
$253,226,119.02
income :
Royalties and licenses. ............................
Cash discounts on purchases. ......................
290,992.23
217,500.OO
612,641.75
433,889.83
Other ..........................................
176,368.92
71,014.98
Total..
......................
$510,219,651.90
$253,948,523.83
$421,175,981.96
$201,082,643.80*
6,077,302.96
3,877,372.55
DEDUCT:
Cost of sales ........................................
General administrative and service expenses, and Federal
capital-stock and State franchise taxes. ..............
Interest and miscellaneous
Provision for :
income charges. .............
105,380.01
Refund in connection with renegotiation of contracts
for war materials (before deducting related Federal
income and excess-profits taxes-see
below; in 1943,
less credit for State taxes on adjusted net income,
$544,304.84)
(Note 1) .........................
45,655,695.16
18,200,000.00
Federal income and excess-profits taxes (less such taxes
related to renegotiation refund) (Note 5) ........
25,414,968.38
21,887,666.48
5,000,000.00
1,530,214.69
$503,429,328.47
$246,577,897.52
$
$
Contingencies
(Note 6) ...........................
Total. .......................
NET INCOME
EARNED
........................................
SURPLUS
GROSS EARNED
LESS CASH
AT BEGINNING
OF THE YEAR .....
SURPLUS ............................
DIVIDENDS
6,790,323.43
7,370,626.31
12,398,133.90
9,321,298.84
$ 19,188,457.33
$ 16,691,925.15
:
December
24, 1941-$1.25
a share. ...................
November
23, 1942-$1.00
a share. ...................
EARNED SURPLUS ATEND
OFTHEYEAR
ber 31, 1934). .....................................
4,293,791.25
3,435,033.00
(sinceDecem-
*After deducting scrap sales of $666,362.62,
$ 15,753,424.33
previously
included
$ 12,398,133.90
in miscellaneous
The accompanying notes to financial statements are a part of this statement.
income.
--.-
CONSOLIDATED
NORTH
AMERICAN
AVIATION,
INC.
(INCORPORAT
CONSOLIDATED
SEPTEMBER 30,
ASSETS
SEPTEMBER
30
1943
CURRENT
1942
ASSETS :
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,284,729.60
Marketable short-term notes, at amortized values (face value,
$ 43,138,851.85
$4,800,000.00)
..................................
4,792,963.54
United States Government securities :
Treasury Notes, Tax Series, at cost plus accrued interest
23,330,750.00
Treasury Certificates of Indebtedness, Series E, due
September 1,1944,at cost. . . . . . . . . . . . . . . . . . . . . .
5,000,000.00
Accounts receivable :
United States Government departments. . . . . . . . . . . . . .
70,207,083.77
Other trade accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,303,225.26
Sundry accounts and accrued items, etc.. . . . . . . . . . . . . .
2,584,158.27
Inventories, at cost, less reserves for inventory losses and
adjustments: 1943-$1,001,594.02,1942-$3,506,594.02
-Contracts
and work in progress (less cost of partial
deliveries) and materials and supplies (Note 2) . . . . . . .
74,868,229.20
Deposits on purchase contracts. . . . . . . . . . . . . . . . . . . . . . . .
52,679.39
Total current assets. . . . . . . . . . . . . . . . . . . . . . $227,630,855.49
AMOUNT TO BE RECEIVED FOR
OF FEDERAL EXCESS-PROFITS
POST-WAR
REFUND
TAXES. . . . . . . . . . . . . $
(Note 8)
2,613,500.00
702,520.OO
48,709,921.57
2,372,181.83
585,559.OO
42,235,073.03
459,012.26
$142,996,083.08
$
278,500.OO
$
36,831.02
INVESTMENTS
(including
municipal
bonds deposited as
security for performance of obligations: 1943-$35,416.82,
1942-$35,829.02)
................................. $
PROPERTY,
PLANT,
AND EQUIPMENT
(Note 3) :
Buildings and improvements (on leased land), machinery,
and equipment, etc., at cost. . . . . . . . . . . . . . . . . . . . . . . . $
Less reserves for depreciation and amortization. . . . . . . . .
Remainder-Net
DEFERRED
CHARGES-Taxes,
TOTAL.
book value. . . . . . . . . . . . . . $
insurance,
36,418.82
etc.. . . . . . . . . . . . $
4,057,135.66
2,093,686.49
$
1,963,449.17
$ 2,401,047.68
1,451,970.67
$ 2,543,359.47
. . . . . . . . . . . . . . . . . . . . . . . $233,696,194.15
3,864,334.97
1,463,287.29
$148,255,821.25
The accompanying notes to financial statements are a part of this statement.
NOTES TO FINANCIAL
1.
2.
STATEMENTS
Provision has been made for renegotiation of war-material contracts for the year ended September 30, 1943 in
accordance with a proposal for settlement recently made to the Company by representatives of the United
States Government, with whom the matter has been under discussion for some time. Corresponding adjustments have been made in related tax accruals for the year. A formal written renegotiation agreement has not
yet been executed, but it is the Company’s intention to accept the proposal mentioned above.
Title to a substantial portion of the inventories is held by the United States Government, which has made progress
payments pursuant to the terms of sales contracts.
10
BALANCE
ED IN
SHEET
DELAWARE)
BALANCE
SHEET
1943 AND
1942
AND
SUBSIDIARY
COMPANIES
LIABILITIES
SEPTEMBER
30
1943
CURRENT
LIABILITIES
1942
(Note 8)
:
Notes payable to banks under Federal Reserve Regulation V
(Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,OOO,OOO.O0
Accountspayable
...................................
44,074,037.57
$ 25,564,112.75
9,318,652.09
7,469,873.96
1,289,509.25
5,744,377.25
3,080,282.23
215,431.66
Accrued liabilities :
Taxes other than Federal taxes on income. . . . . . . . . . . .
Salaries and wages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other items . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts payable to the United States Government:
Contract price adjustments. . . . . . . . . . . . . . . . . . . . . . . .
Refund accrued in connection with renegotiation of
contracts for war materials, less tax credits to which
the Company is entitled under the provisions of
Section 3806 of the Internal Revenue Code: 1943$37,907,031.62,
1942-$13,894,833.52
(Note 1) . . .
Federal income and excess-profits taxes, including the
tax credits referred to in the item next above
(Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,748,663.54
4,305,166.48
67,550,133.36
36,064,830.74
Deposits and progress billings on sales contracts. . . . . . . . .
51,495,594.90
33,987,181.09
. . . . . . . . . . . . . . . . . $203,946,464.67
$126,861,382.20
Total current liabilities.
17,900,000.00
(Note 6) . . . . . . . . . . . . . . $
7,451,334.14
$
2,451,334.14
Capital stock (authorized, 6,000,OOO shares of $1.00 each;
issued and outstanding, 3,435,033 shares) . . . . . . . . . . . . $
3,435,033.00
$
3,435,033.00
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,109,938.01
3,109,938.01
Earned surplus (since December 31, 1934) . . . . . . . . . . . . . .
15,753,424.33
12,398,133.90
Total capital stock and surplus. . . . . . . . . . . . $ 22,298,395.34
$ 18,943,104.91
RESERVE
FOR CONTINGENCIES
CAPITAL
STOCK AND SURPLUS:
TOTAL.
. . . . . . . . . . . . . . . . . . . . . . . $233,696,194.15
1
$148,255,821.25
The accompanying notes to financial statements are a part of this statement.
NOTES TO FINANCIAL
STATEMENTS (Continued)
In the interest of continued war production the Company’s plants were not shut down for the purpose of taking a physical inventory during the year ended September 30, 1943. The inventory amounts shown in the balance sheet
represent inventories taken largely in 1941, plus materials (at invoice cost), direct labor and expense, and plant
overhead, less deliveries of airplanes, parts, etc. (at average cost for materials, as shown by bills of materials,
and accumulated costs for other items). However, physical inventories were taken as of June 30, 1944, the
pricing of which has not yet been completed; any adjustments necessary to be made in the accounts as a
result of these inventories will be recorded in the year ending September 30, 1944.
(Notes Continued on Page 12)
11
NOTES TO FINANCIAL
STATEMENTS (Continued)
The inventories shown herein do not include work being performed at September 30, 1943 under cost-plus-a-fixedfee contracts with the Government. It is the companies’ accounting practice with respect to expenditures for
account of the Government under cost-plus-a-fixed-fee contracts, to charge them to accounts receivable as they
are incurred, and concurrently to take them up as sales, together with the accrued fees thereon, and cost of
sales. Costs incurred bv the comuanies and billed to the Government under cost-plus-a-fixed-fee contracts are
subject to review as to admissibility, and have not yet been finally passed upon by the Government.
By agreement dated December 15, 1943, one of the Company’s cost-plus-a-fixed-fee contracts referred to in the
preceding paragraph was converted to a fixed-price basis as of that date. In recording the conversion in the
accounts, the inventories of work in progress and materials and supplies related to the contract were taken up
at cost ($60,500,000, approximately) ; the amounts theretofore received from the Government as reimbursement
for costs and payment of accrued fees, reduced by fixed-price allowances for completed airplanes and spare
parts already delivered, were taken up as progress billings against the contract ($33,000,000, approximately) ;
and the accounts receivable from the Government for costs and fees previously accrued were canceled
($27,500,000, approximately) . Under the agreement the rights and liabilities of the parties, from and after its
effective date of December 15, 1943, are determined as though the contract had been on a fixed-price basis
originally, and the legality and propriety of all things done while on a cost-plus-a-fixed-fee basis are expressly
recognized and preserved. The agreement should not, therefore, in the opinion of counsel, be treated as retroactive in the Company’s accounts. Had it been made effective as of September 30, 1943, there would have
resulted changes of approximately the following amounts in the assets and liabilities reported in the balance
sheet as of that date: increase in inventories of $50,500,000, increase in progress billings of $38,000,000, and
decrease in receivables of $12,500,000. Had the contract been on a fixed-price basis from its inception, the
sales recorded to December 15, 1943 would have been reduced about $60,500,000, of which $47,000,000 would
3.
4.
5.
The property, plant, and equipment includes $1,365,672.60 of emergency plant facilities acquired since January 1,
1940. These facilities are covered by necessity certificates issued pursuant to Section 124 of the Internal
Revenue Code. The provision for depreciation and amortization for the year ended September 30,1943 amounted
to $791,021.82. This includes amortization, based upon a five-year period, of $363,066.42 applicable to emergency plant facilities acquired since January 1, 1940 and $141,505.80 ( in addition to normal depreciation) applicable to buildings and leasehold improvements acquired prior to that date. Similar provision for the year ended
September 30, 1942 amounted to $553,722.34, including amortization of $135,536.28 applicable to emergency
plant facilities acquired since June 10, 1940 and $209,950.97 ( in addition to normal depreciation) applicable
to buildings and leasehold improvements acquired prior to that date.
Title to certain plant facilities used by the companies is held by the United States Government, in part through
Defense Plant Corporation. The accounts of the companies do not include the cost of such facilities or provision for depreciation thereof.
The credit agreement relating to bank loans, as amended November 1, 1943, provides, among other things, that
the Company will not declare dividends after the date of the credit agreement in an amount which, together
with all other dividends declared after that date, will exceed seventy per cent of its aggregate net income subsequent to September 30, 1942 (before provision for contingencies but after provision for all taxes).
The Company has filed claims for relief from Federal excess-profits taxes, under Section 722 of the Internal Revenue
Code, for the period from January 1, 1940 to September 30, 1942, and intends to file a similar claim for the
year ended September 30, 1943. Since these claims have not yet been passed upon by the Treasury Department,
they have not been taken up in the accounts or given effect in the computation of current tax provisions.
The provisions for Federal income and excess-profits taxes for the years ended September 30, 1943 and 1942 are
composed as follows :
ITEM
1943
1942
Normal income taxes and surtaxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess-profits taxes (less post-war refund : 1943-$5,915,000.00,
1942-
$ 5,265,OOO.OO
$ 7,192,ooo.oo
$278,500.00
. . .. .. .. .. .. .. ... . .. . .. .. .. .. . .. . .. .. .. .. ... . .. ...
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less Federal income and excess-profits taxes related to
refund (in 1943, less adjustment of post-war refund of
taxes, $3,580,000.00) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remainder
6.
7.
8.
54,477,ooo.oo
28,590,500.00
.... ........
renegotiation
excess-profits
.... ........
$59,742,000.00
34,327,031.62
13,894,833.52
....... ............. ...... .. ................
$25,414,968.38
$21,887,666.48
$35,782,500.00
The contingency reserve applies to all contingencies, particularly those arising in conversion from war to peacetime
activities and during the post-war era.
There are various claims and suits pending against the companies, none of which in the opinion of their counsel will
involve any substantial loss.
The amounts shown in respect of the year ended September 30, 1942 are stated as adjusted to give effect to renegotiation of United States Government contracts and certain other transactions related to that year, as set forth
in the Company’s revised annual report for 1942, issued to stockholders under date of July 27, 1943.
12