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R245a
1946/47
cop.2
RECONSTR~CTION FINANCE CORPORATION
AND SIJBSmIARIES
Annual Report
and
Finaneial Statement s
.lane 30. 1947
JAN 1 2 1948
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RECONSTRUCTION FINANCE CORPORATION
811 Vermont Avenue
W a&hington 25, D. C.
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BOARD OF DIRECTORS
,,
JoHN
HENRY
---.,
T.
D.
GooDLOE,
Chairman
BODMAN
HARLEY HISE
HARVEY J. GUNDERSON
HENRY
A.
MULLIGAN
OFFICERS
D.
GooDLOE ••••.••••••••••••••.•..••••• • Chairman
of the Board
A. T. HOBSON ••••••...••••.•..•..•••.•••.•••.••• • ••••••• • Secretary
WILLIAM C. BECK, Ja...................................... Treasurer
JAMF.S L. DouoHERTY ••.••.•• • ••••.•..••.•••••..•.•. General Coumel
.../"
HAROLD W. H. Bumwws .. ........ . ........... . .......... . Controller
JOHN
SUBSIDIARIES AT JUNE 30, 1947
Federal National Mortgage Association
War Damage Corporation
U. S. Commercial Company
Directors and Officers as of December !6, 1947
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•
•
TABLE OF CONTENTS
Page
Letter of transmittal :
Comments on financial statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3
Comments on creation and purpose of R.F.C.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Lending activities:
4
Direct business loans and participation with banks in business loans. . . . . . . . . . . . . . . . . . . . . . . .
5
Public agency loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
Catastrophe loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6
Other loans and purchase of securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Federal National Mortgage Association. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7
Purchase of surplus property for resale to small business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Lending activities:
7
Production and sale of tin. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Production and sale of synthetic rubber. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8
Purchase and sale of other commodities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9
Guaranteed market agreements covering prefabricated houses and new type building materials. .
9
Direct subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
U. S. Commercial Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Defense plants and equipment............... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10
Fiber plantations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11
Loans, leases, plants and equipment of Small War Plants Corporation. . . . . . . . . . . . . . . . . . . . . . . 11
War Damage Corporation................... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . .
11
Personnel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Consolidated balance sheet. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
14
Schedule 1-Net income from lending activities. . . . . . • . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
16
Schedule 2-Net income from war damage insurance program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Schedule 3-Unrecovered costs and net expenses of, and estimated future recoveries to be realized from,
non-lending activities for national defense, war and related purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Notes to financial statements............................................... . . . . . . . . . . . . . . . . . . .
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RECONSTRUCTION FINANCE CORPORATION
WASHINGTON
r:
To The President,
The President Pro Tempore of the Senate, and
The S-peaker of the Home of Representatives:
On June 30, 1947, Reconstruction Finance Corporation had completed more than fifteen years of continuous operation. This report outlines some of the major activities and programs that the Corporation and
its subsidiaries have engaged in during that period with emphasis being placed on those responsibilities
which the Congress has authorized the Corporation to continue in the future at least until June 30, 1948.
The report also includes a consolidated balance sheet of the Corporation and its subsidiaries at June 30, 1947
and consolidated statements of operating results for periods ended at that date.
FINANCIAL STATEMENTS
The accompanying financial statements have been prepared in accordance with sound accounting principles applicable in the circumstances and, taken in conjunction with the related notes, should be found to
be generally self-explanatory.
It will be noted from the consolidated balance sheet that the Corporation expects to realize $2,839,868,439
from the assets which it owned at June 30, 1947 after making allowance, by way of reserves and otherwise,
for potential losses or non-recoverable cost elements which may be experienced in the future. Of the foregoing total, net assets amounting to $2,158,846,427 were acquired primarily in connection with our regular
lending programs; the remainder of $681,022,012 represents the projected cost recoveries which we expect to
realize from assets and equities acquired principally in connection with our non-lending activities for
national defense, war and related purposes.
Net income from the regular lending programs of the Corporation and its subsidiaries for the cumulative
period from inception of the Corporation to June 30, 1947 has amounted to $551,901,483 after charging off
losses on loans, investments and other receivables in the amount of $52,706,210 and absorbing as an operating
cost a provision of $96,013,949 for potential future losses on the loans, investments and other receivables
which were owned at June 30, 1947. Net income from the lending programs for the single fiscal year ended
June 30, 1947 amounted to $19,836,143. Further details pertaining to the net income of the Corporation
from its lending programs are shown in the accompanying Schfdule 1.
The war damage insurance program administered by the Corporation's subsidiary War Damage Corporation, has produced net income of $209,827,810 for the cumulative period from December 13, 1941 to June 30,
1947, further details pertaining to which are shown in the accompanying Schedule 2. By direction of Congress, this amount has been paid into the Treasury of the United States subsequent to June 30, 1947 to be
applied in reduction of the National debt.
As shown in some detail in Schedule 3, the non-lending activities of the Corporation and its subsidiaries
for national defense, war and related purposes have resulted in unrecoverable costs of $8,632,714,519 to
June 30, 1947, after deducting future recoveries expected to be realized by the Corporation on the assets held
in connection with these programs at that date. All of these programs were engaged in under authority of
law. For many of them it was known, even before the programs were undertaken, that there either could be
no recovery of the amounts expended {such as for direct subsidy payments of $3,089,434,043) or that the
potential of sustaining substantial losses was inevitable. Procurement of strategic and critical materials in
foreign countries at whatever costs were involved and their subsequent sale in the United States subject to
ceiling price limitations; preclusive procurement abroad primarily for the purpose of denying strategic
materials to enemy countries; and inflated construction and acquisition costs during the war period for plants,
equipment, facilities and inventories that were destined to become surplus after hostilities had ended are
some examples of the loss potential involved in these latter programs.
_
In addition, the Corporation has elected on its own initiative, pursuant to permissive provisions of law
- ,. and in the interest of overall economy of administrative expense in the Government, to forego the sales proceeds from plants, equipment, facilities and inventories which it has declared or expects to declare surplus to
War Assets Administration and has directed that such proceeds be paid into the United States Treasury for
credit to Miscellaneous Receipts account by that Administration.
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Of similar consequence, insofar as the potential of cost recovery to the Corporation is concerned, are
the provisions of Public Law 364, 80th Congress, whereunder the Corporation is directed to transfer to the
Departments of the Army and the Navy without further reimbursement such of certain plants, equipment and
facilities as the Secretaries of those departments may determine to be essential in the national interest.
Circumstances and conditions such as those outlined in the three preceding paragraphs substantially
account for the fact, as determinable from Schedule 3, that the Corporation anticipates that net unrecoverable
costs with respect to its outlays for property, plant and equipment will amount to $4,855,748,781 and with
respect to the production or procurement of strategic materials and supplies will amount to $266,743,502.
These two amounts, together with the $3,089,434,043 in direct subsidy payments previously referred to,
account for $8,211,926,326 of the $8,632,714,519 of unrecoverable costs and net expenses arising under these
special programs for national defense, war and related purposes as shown in the balance sheet and Schedule 3.
It will be observed that the unrecoverable costs on the Corporation's outlays for property, plants and
equipment and in connection with the production or procurement of strategic materials and supplies, as
referred to in the preceding paragraph, represent costs which the Corporation does not expect to recover in
its accounts. This, however, does not mean that the Government as a whole has experienced or will experience losses in the foregoing amounts. Offsetting these unrecoverable costs to the Corporation in substantial
but presently undeterminable amounts will be, for example, the sales proceeds which War Assets Administration has realized or will realize for the Government's account from disposition of these assets and the value
of the benefit which will accrue to the Departments of the Army and the Navy by way of having the ownership of plants and facilities which are essential in the national interest transferred by the Corporation to the
United States Government without further cost to the Government and continued in operation under the
supervision of those Departments.
The funds involved in these programs, and to a certain extent in the Corporation's regular lending
programs, were borrowed from the Treasury Department, the outstanding notes for which aggregated
$10,009,704,982 at June 30, 1947, including accrued interest thereon of $43,564,132 to that date. It is
obvious that the Corporation is not in a position to absorb the unrecoverable costs incurred in connection
with these special programs and also make full payment to the Treasury Department in settlement of its
outstanding note obligations. Accordingly, consistent with the provisions of Public Law 248, 79th Congress,
the Corporation has recommended that the Congress be requested to authorize the Secretary of the Treasury
to cancel outstanding notes of the Corporation as of June 30, 1947, in the amount of $9,313,736,531,
representing the unrecovered costs of these special programs to that date; subject, however, to a requirement that the Corporation pay into the Treasury for credit to Miscellaneous Receipts account all recoveries,
less applicable expenses, realized by the Corporation under the special programs subsequent to that date.
The form and content of the accompanying financial statements and the related explanatory notes
have been approved by the Controller of the Corporation and by each member of the Board of Directors.
CREATION AND PURPOSE
The Reconstruction Finance Corporation was organized and began operations February 2, 1932 following its creation by Act of Congress approved January 22, 1932. The Corporation was created primarily for
the purpose of establishing in government a source of credit which could be used to assist in strengthening
the Nation's economic and credit structure which had suffered severely as a result of the violent depression
of that era.
In its early years the Corporation's major functions comprised the extension of credit to agriculture,
commerce and industry through loans to banks and other financial institutions, insurance companies, agricultural agencies and railroads.
From time to time as economic conditions shifted and there was indicated a need for expansion of
government credit, the authority of the Corporation was broadened by amendatory and supplemental legislation to include the purchase of capital stock of banks, insurance companies, agricultural credit corporations,
and national mortgage loan associations, loans to business enterprises, mining interests, agricultural improvement districts, and loans to assist in the financing of public works and self-liquidating projects.
During the national defense and war periods Congress further augmented the Corporation's functions
to enable it to assist in carrying out various programs essential to the national defense and war effort,
such as the financing of plant conversion and construction, providing war production facilities, acquiring
critical and strategic materials, and other diversified undertakings.
The Corporation originally had succession for a period of ten years, later extended to fifteen years and
by Public Law 132, 80th Congress, approved June 30, 1947, it was extended to June 30, 1948. Under the
provisions of this Act the Corporation's lending powers were substantially curtailed and its wartime func4
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tions were terminated except with respect to the production of tin and synthetic rubber and the payment of
premiums on building materials for use in the Veterans Housing program. The Corporation was authorized
however to carry out all contracts and commitments outstanding as of June 30, 1947.
This legislation confines the Corporation's lending functions to the purchase of obligations of, and the
extension of loans to business enterprises, including railroads and air carriers, financial institutions, public
bodies and agencies and instrumentalities of public bodies, and the making of catastrophe loans.
LENDING ACTIVITIES
Direct Business Loans and Participation with Banks in Business Loans
The RFC's normal peacetime activity is its loan and investment program, and loans made to business
enterprises directly and in participation with banks constitute its principal lending operation.
During the fiscal year 1947 in excess of ninety per cent of the number of all'loans made by the Corporation were business loans. The Corporation is not in competition with private sources of credit, but in order
to assist the banks of the nation in supplying credit to business it will participate in such loans in cases
where banks are unable or do not desire to undertake the entire risk on their own account. The Corporation
may make loans to business enterprises only in instances where credit is not otherwise available on reasonable terms, and provided such loans are so secured or are of such sound value as reasonably to assure
repayment.
A Small Loan Participation program was inaugurated by RFC in early 1947 for the purpose of making
longer term credit more readily available to small business concerns through regular banking channels. The
plan provides that at the request of a bank the Corporation will consider taking a participation of not more
than seventy-five per cent in business loans up to a maximum of $100,000. The program is designed to be of
service in those instances where loans would not be made without such assistance. Under this arrangement
the facilities of the Corporation become more conveniently available in the small communities of the country
at less cost than would be possible otherwise, and the potential demand on the government for direct loans
is reduced. The participation agreements provide that the Corporation receive a fee based upon a graduated
scale for the contractual liability represented by the agreement.
Since inception of the program in January 1947 to June 30, 1947, the Corporation bad agreed to
participate in 1,639 small loans amounting to $40,300,000. Including the Small Loan Participation commitments, 10,500 business loans in the aggregate amount of $393,800,000 were authorized during the fiscal year
1947 and approximately $91,000,000 had been disbursed. Recorded business loan disbursements of
$142,000,000 in the fiscal year 1946 include one large loan, $102,788,000 of which was applied in settlement
of the unpaid principal balance of a national defense loan made by the Corporation to that borrower in a
prior fiscal year. If the foregoing amount from this particular loan is excluded from the 1946 fiscal year
disbursement total for business loans, the 1947 fiscal year disbursements of $91,000,000 would represent
more than two and a half times the amount of the remaining business loan disbursements made in the 1946
fiscal year.
·
RFC was given authority to make loans directly to business enterprises more than thirteen years ago,
and since that time it has made commitments for 29,800 loans totalling $1,400,000,000 for a wi(ie variety of
purposes and to many types of industry. These loans have ranged from a few hundred dollars to many
millions, but approximately ninety per cent of the total number of business loans authorized have been to
small business concerns.
The following chart shows by fiscal years for the ten-year period, July 1, 1937-June 30, 1947, the
amount authorized by the Corporation for business loans as well as the amounts disbursed, collected and
outstanding.
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RECONSTRUCTION FINANCE CORPORATION
LOANS TO BUSINESS ENTERPRISES
EXCLUDING NATIONAL DEFENSE
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=-.::=
Fiscal Ytara 1938-1947
400,--------------------------------------400
2001------------------------------+----------1200
·.·:.·.·.·:::::::.
AUTHORIZED150
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DISBURSED
1938
1939
1940
1941
1944
1947
Public Agency Loam
The demand for loans and the purchase of obligations in connection with projects authorized under
federal, state or municipal law has been comparatively small since the war. Such loans were authorized in
the 1947 fiscal year in the amount of $1,115,000. The demand for loans to assist in financing this type of
enterprise is determined largely by the availability of essential manpower and materials and consequently
it tends to increase with the economic need for promotion of employment by the federal government, states
and municipalities.
In past years the Corporation has assisted in financing numerous public agency projects such as the
Pennsylvania Turnpike in the amount of $37,400,000; the Knickerbocker Village, New York amounting to
$8,000,000; the 240-mile aqueduct to carry water from the Colorado River in Arizona to Southern California,
costing $208,500,000; the San Francisco-Oakland Bay Bridge, representing an investment of $73,000,000;
and many others.
From the beginning of this activity the Corporation's investment has amounted to $768,600,000, the
major portion of which was advanced during the period 1937 to 1942.
Public Law 256, 80th Congress, approved July 29, 1947, provides that the aggregate of the unpaid
balances of such loans for construction purposes plus outstanding commitments may not exceed $125,000,000.
Catastrophe Loans
In the 1947 fiscal year 83 catastrophe loans amounting to $383,000 were approved by the Corporation.
These loan commitments were made for rehabilitation of property damage by the tornado which swept
across the Oklahoma-Texas Panhandle area; the destruction resulting from the series of explosions at Texas
City, Texas; and devastation caused by floods and tornadoes which occurred in Pennsylvania, Arkansas,
Missouri, Illinois, Iowa, Ohio and Nebraska.
The Corporation-either directly or for a period from 1937 to June 30, 1945 through its affiliate,
Disaster Loan Corporation-has been authorized since 1933 to make catastrophe and disaster loans. From
1933 to June 30, 1947 approximately 24,900 such loans aggregating $54,000,000 have been approved.
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More than $8,600,000, representing 7,500 loans, was authorized as a result of the Ohio River flood in
1937. Following the hurricane which caused widespread damage in the New England States in September
1938, a total of 1,880 loans was authorized involving approximately $4,062,000.
Other Loans and Purchase of Securities
By Public Law 656, 79th Congress, approved August 7, 1946, the Corporation was authorized to furnish
a market for veterans home loans made pursuant to the provisions of the Servicemen's Readjustment Act
of 1944, as amended. The purpose of the legislation was to assure originating mortgagees such as banks,
building and loan associations, and other private lending institutions, a secondary market for such investments at par and thus encourage the extension of credit to assist veterans in financing the purchase of homes.
As of June 30, 1947, when the Corporation's authority to carry on this function expired, it had purchased
11,800 such mortgages in the gross amount of $67,080,000 and had commitments outstanding to purchase
13,200 additional loans amounting to $81,200,000.
Other authorizations during the fiscal year 1947 included: for loans to manufacturers of prefabricated
houses and building materials in connection with the Veterans Emergency Housing Program in the amount of
$41,460,000; for loans to railroads and air carriers aggregating $88,000,000; for real estate mortgage loans
involving construction of new buildings, remodeling existing buildings, and refinancing distressed properties
amounting to $4,200,000; for loans to the Rural Electrification Administration and to the Secretary of
Agriculture in the total amount of $470,000,000; and for loans to the Government of the Philippines for
$70,000,000.
Under Public Law 266, 80th Congress, the Corporation's authority to advance funds to other governmental agencies was withdrawn and its authority to make national defense loans expired June 30, 1947,
except as to commitments outstanding as of that date.
Federal National Mortgage Association
The Corporation, through its subsidiary, Federal National Mortgage Association, may purchase mortgages on homes and rental housing projects insured by the Federal Housing Administration. However,
during the fiscal year 1947, the demand upon the Association to buy such mortgages was light.
Federal National Mortgage Association was organized under the provisions of Title III of the National
Housing Act, as amended, for the purpose of assisting in establishing and maintaining a market for this
type of paper so as to encourage the construction of housing accommodations and investment in such mortgages by private lending institutions.
Since organization of the Association in 1938 more than 66,000 mortgages aggregating $271,600,000
have been acquired and over that period of time 49,000 of such mortgages with an unpaid principal of
$165,600,000 have been sold for a consideration of $171,800,000.
Effective January 1, 1948, the Association will purchase mortgages insured under sections 203 and 603
of the National Housing Act as amended (except farm mortgages), which are delivered to the Association
within one year after the loans have been insured by the Federal Housing Administration. The Association
is not authorized by law to make real estate loans insured under sections 203 or 603, or to make or purchase
insured or uninsured second mortgage loans.
PURCHASE OF SURPLUS PROPERTY FOR RESALE TO SMALL BUSINESS
RFC first undertook the purchase of surplus property for resale to small business as a result of the
transfer of this function from Smaller War Plants Corporation by Executive Order 9665 effective January
28, 1946 and from that date through June 30, 1947 over 17,000 sales covering surplus property having a
value in excess of $57,000,000 have been consummated.
The acceptance of applications for the purchase of such property was temporarily discontinued on
March 11, 1947 due to a ruling of the Comptroller General; however, under the provisions of Public Law
132, 80th Congress, the Corporation was authorized to re-engage in this program. During the fiscal year 1947
approximately 13,200 small business priority applications were processed and surplus property in the approximate amount of $40,600,000 was acquired and resold. More than 19,000 priority applications were canceled
during the year because the material desired was not available and funds received with such applications
were returned to the applicants.
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NON-LENDING AcrIVITIES
Production and Sale of Tin
The Corporation purchased $54,988,000 of tin, tin ores and concentrates during the period July 1, 1946
to June 30, 1947. Its sales of tin amounted to $89,716,000 for the same period.
In early 1941 RFC entered into an agreement for the construction of a tin smelter in Texas City, Texas,
and the plant was completed in April 1942 at a cost of $6,638,000. This government-owned plant, operated
for the account of RFC, is the only such facility of importance in the Westem Hemisphere and was built
to insure a domestic supply of tin in the United States, which prior to the war had not produced as much as
one per cent of its requirements. There is no adequate source of tin ores in this country and during the war
the Texas City smelter was fed with ores obtained primarily from Bolivia.
From 1942 to June 30, 1947 the plant has produced 377,343,000 pounds of tin at a cost of $204,428,000
of which 359,840,000 pounds have been sold for $202,318,000. These data do not include certain direct
purchases and sales of refined tin during the metals procurement program which were not involved in the tin
smelter operations.
Under the provisions of Public Law 125, 80th Congress, RFC was authorized to continue the purchase
and sale of tin and to operate by lease or otherwise the government-owned tin smelter at Texas City until
June 30, 1949, or until such earlier time as the Congress shall otherwise provide.
RECONSTRUCTION
FINANCE CORPORATION
TIN SMELTER - TEXAS CITY
PRODUCTION AND SALES
MILLION
,OUNDS
Fiscal Ytara
1942-1947
IIIWON
IIOUNDS
1 5 0 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - , 150
Production and Sale of Synthetic Rubber
In the fiscal year 1947 there was produced for the account of the Corporation 1,531,000,000 pounds of
synthetic rubber in 44 government-owned plants at a cost of $214,000,000, exclusive of interest, depreciation,
administrative overhead, etc. During this period the Corporation sold 1,504,000,000 pounds of synthetic
rubber for $279,800,000.
The synthetic rubber program was started in 1940 and at that time, for all practical purposes, there was
no commercial production of the product in this country. RFC financed the construction of 51 plants and
related facilities for synthetic rubber production, which, exclusive of discontinued projects, engineering sur8
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veys, etc., represented upon completion a total investment of $666,217,000. By the close of 1945 these plants
were producing at the rate of over 1,000,000 tons of synthetic rubber annually.
Since the beginning of the program to June 30, 1947, approximately 6,363,000,000 pounds of synthetic
rubber have been produced at a cost of $1,417,033,000 and 6,252,700,000 pounds have been sold for
$1,263,000,000, excluding war order premiums.
Pursuant to Public Law 24, 80th Congress, the Corporation is authorized to continue the manufacture
and sale of synthetic rubber until March 31, 1948 and to carry on essential research in connection with the
development of the synthetic rubber industry. It remains for the Congress to determine the ultimate disposition of this operation, i.e., whether it shall be placed in private industry or continued as a government
function.
RECONSTRUCTION FINANCE CORPORATION
. SYNTHETIC RUBBER
PRODUCTION AND SALES
IIWON
Fiscal Years 1943-1947
BILLION
POUNDS
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0
0 ~,
1943
J944
1945
1946
1947
Purchaae and Sale of Other Commodities
During the fiscal year 1947, RFC continued the purchase and sale of certain other strategic materials
and supplies which it had bought and sold during the war. In the fiscal year approximately $535,000,000 of
BUch commodities were purchased representing principally natural rubber, alcohol, molasses, and copper.
Sales in the same period amounted to $884,300,000.
The Corporation began accumulating stockpiles of strategic minerals and metals and other critical or
strategic supplies in 1940 and, on a cumulative basis, it had expended approximately $9,681,000,000 for this
purpose to June 30, 1947. Sales of such commodities and materials amounted to $9,505,000,000 during the
same period. More than fifty categories of strategic and critical minerals and metals were purchased in
thirty-eight states of the nation, and from Alaska, the Philippines and fifty-one foreign countries and territories. It also purchased over that period approximately 200 categories of critical or strategic supplies
including Cuban sugar and molasses, drugs, wool, cordage fibers, rubber, pig and hog bristles, shellac, hides,
aviation gasoline, alcohol, chemicals, fats and oils, forest products, and other miscellaneous items.
Guaranteed Market Agreements Covering Prefabricated Houses and New Type Building Materials
Public Law 388, 79th Congress, authorized the RFC to guarantee markets for new type building
materials and prefabricated houses to the extent that the Housing Expediter found this necessary to assure
a sufficient supply for the Veterans Emergency Housing Program.
9
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At the request of the Housing Expediter, RFC during the fiscal year 1947 entered into market guarantee
contracts with 21 manufacturers of prefabricated houses covering approximately 62,500 units and authorized
the execution of contracts with 6 manufacturers of new type building materials.
Direct Subsidies
The Corporation recorded claims in the amount of $109,000,000 from July 1, 1946 to June 30, 1947
under the several direct subsidy programs. The principal commodity items involved were copper, lead, zinc,
livestock, stripperwells, and building materials for veterans housing. With the exception of the clearance
and settlement of subsidy claims which were pending at June 30, 1947, the Corporation's activities in connection with these programs are virtually completed.
The subsidy programs were instigated as a war measure for the purpose of stimulating production of
materials and supplies essential to the national defense and war effort. From the inception of the programs
to June 30, 1947, the Corporation had expended in direct subsidy payments an aggregate amount of approximately $3,090,000,000. Some of the principal items involved were meat, petroleum, flour, butter, zinc,
copper, excess transportation costs, coffee, lead, wood pulp, and nitrate of soda.
U. S. Commercial. Company
At the request of the President and pursuant to arrangements made with other interested government
departments, RFC through its subsidiary, U. S. Commercial Company, engaged during the 1947 fiscal year
in selling merchandise made available to it in Germany, Japan and Korea by the United States military
authorities. The primary purpose of the program is to provide dollar exchange for use in facilitating
administration of those areas under direction of the military authorities. Products imported included wines,
toys, silk, textiles, metals, rubber, and other manufactured products and raw materials.
Sales for the fiscal year, primarily silk and other merchandise imported, together with textiles sold in
foreign countries, amounted to approximately $109,400,000. From the commencement of the program to
June 30, 1947, $111,600,000 of sales have been made as a result of this activity.
The Corporation also performed, through U. S. Commercial Company, various functions on Pacific
Islands administered by or under direction of the United States military forces. These operations were
assumed at the request of the Department of the Navy and comprise such enterprises as a dairy farm, a
hog farm, and fishery projects. Primarily, the activities were intended to develop island resources and to
supply troops and military hospitals with fresh vegetables and other foodstuffs. In addition a number of
trade stores are operated throughout the islands to which native products are sold and in tum the civilian
population purchases from the stores small agricultural tools, fertilizer, fishing equipment and other articles
intended to develop a subsistence economy. The volume of business transacted in the native stores has
averaged approximately $125,000 per month. Millions of pounds of vegetables, more than one thousand
quarts of milk per day, several hundred thousand pounds of pork, and a large tonnage of fish have been
produced and delivered for use by the armed forces and the naval hospitals located on the islands.
RFC is not at this time associated with the local food production program on the Pacific Islands.
However, it is continuing the operation of approximately one hundred native trade stores. It is expected
that responsibility for these latter operations will be assumed by the Department of the Navy not later
than December 31, 1947. It is also contemplated that responsibility for the importation and sale of merchandise available for exports in Germany, Japan, and Korea will be taken over by the United States
military authorities not later than December 31, 1947.
Defense Plants and Equipment
RFC declared surplus to War Assets Administration in the fiscal year 1947 defense plants and other facilities in which it had an aggregate investment of $2,074,000,000. As of the close of the fiscal year the Corporation held (in addition to the synthetic rubber plants, the Texas City tin smelter, and fiber plantations in Central America and Haiti) defense plants and equipment with a book value of $1,245,000,000. In due course, the
majority of these plants and other facilities will be declared surplus to War Assets Administration for disposal although a number of them will be transferred to the Department of the Army, Navy or Air Corps.
During the national defense and war period, the Corporation constructed or equipped more than 2,000
industrial plants for use in war production, 62 flying schools and 150 other facilities essential to the war
effort. The gross recorded cost and related expense, applicable to the land, plants, machinery and equipment
and other such facilities amounted to approximately $7,800,000,000. These plants were leased to private
industry for the manufacture of war material and supplies, with the exception of the synthetic rubber plants,
the Texas tin smelter, the magnesium and aluminum facilities and a few others, which were operated by
private organizations under a management arrangement for the account of the Corporation. They included
facilities to produce aircraft, engines and parts, aviation gasoline, chemicals, machine tools, guns, tanks,
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shells, bombs and other ordnance, ships and parts, steel and pig iron, industrial machinery, medical supplies,
and numerous other facilities. It has been estimated that these facilities represent over 10% of the value
of the entire production facilities of the country, and in particular industries these facilities account for as
high as 90% of industry capacity in magnesium metal, 71 % in aircraft manufacture and aircraft engine
industry, 58% in aluminum metals and 50% in the aluminum fabrication industry.
Fiber Plantations
Production of fiber during the fiscal year 1947 amounted to 26,905,000 pounds on the Corporation's
six plantations located in Costa Rica, Guatamela, Honduras, Panama and Haiti. The production cost of
this commodity was $5,213,000 and 23,866,000 pounds were sold during this period for $4,034,000.
Prior to the war the Philippines were the principal source of supply for the type of fiber grown on these
plantations. This source was cut off when the Japanese invaded those islands. Fibers being essential to the
war effort, RFC in early January, 1942, arranged to finance the planting and processing of fiber on these
plantations, in which it now has an investment of approximately $13,280,000.
From the beginning of the program to June 30, 1947, the plantations have produced 71,587,000 pounds
of fiber at a cost of $17,065,000 of which 67,216,000 pounds have been sold for $8,366,000.
The agreements under which these projects were established and the plantations operated do not expire
until the latter part of 1948. However, steps have been taken to bring about disposition of the properties
as soon as this can be accomplished.
Loans, Leases, Plants and Equipment of Smaller War Plants Corporation
Pursuant to Executive Order of December 27, 1945, RFC acquired for liquidation certain assets and
liabilities of the Smaller War Plants Corporation, including plants, equipment and outstanding loans receivable. Public Law 132, 80th Congress, directed RFC to continue this liquidation program.
During the fiscal year 1947, RFC disbursed on loan commitments theretofore made by Smaller War
Plants Corporation, and for refinancing purposes in connection with such loans, approximately $5,358,000,
and collections on Smaller War Plants Corporation loans amounted to $12,336,000. During this same period,
RFC declared surplus to War Assets Administration equipment, formerly the property of Smaller War Plants
Corporation, representing an investment of approximately $1,700,000. At the close of the fiscal year the
investment in such facilities amounted to $4,349,000. The remaining lands, structures and equipment will
be declared surplus as expeditiously as practicable.
War Damage Corporation
RFC continued the liquidation of the affairs of its subsidiary, War Damage Corporation, during the
fiscal year 1947. Such activities consisted in the main of settling 866 claims requiring an expenditure of
approximately $893,400 and carrying on the audit of those companies which acted as fiduciary agents for
the Corporation.
As of June 30, 1947, the Corporation had paid out an aggregate amount of $73,000 in settlement of
279 claims under the war damage insurance policy program; and under the so-called "free" war damage
insurance program, $1,201,000 was expended in settlement of 1,503 claims for loss arising prior to July 1, 1942.
War Damage Corporation, which was created December 13, 1941, originally provided financial protection without payment of premium against loss of or damage to property as a result of enemy attack. Such
coverage was continued until July 1, 1942 when the Corporation made available policies at uniform premium
rates throughout the United States, its territories and possessions. Through the facilities of 546 fire and 88
casualty and surety insurance companies which acted as fiduciary agents of War Damage Corporation in
receiving applications and premiums and issuing policies, more than 8,700,000 policies or renewal certificates
were issued representing a potential liability of approximately $140,000,000,000. Aggregate premiums collected amounted to almost $250,000,000. The fire insurance companies had a 10% participating interest, up
to a limit of $20,000,000, in the operating profits or losses of the program, and the casualty and surety
insurance companies had a like interest, limited to $5,000,000, in the program of insurance on money and
securities.
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PERSONNEL
The following chart indicates the number of RFC employees as of the end of each fiscal year over the
ten-year period 1938-1947.
R.F.C. EMPLOYEES
Fiscal YIOfl 1938-1947
HO. OF EMPLOYEES
HO, OF EMPLOYEES
15,000
l~<>qO
~
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.......~
......~
..... r-------112,ooo
1 2 p o o i - - - - - - - - - - - - - - - - - - - - - - - --
=
::::.::::::::
•.:•.::.~.·:.:.I...I.·l.i.:
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~
:············:
e,ooo t - - - - - - - - - - - - - - - - - - -~ ~ r
~
............
............
----.:
..-.... ....
.............,.........
3,0001---1"""""""'
,:.:;:··,:;:,:;
···:;.:;:·
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::::;.:;:
:::.~·::::;.:;: :1--1-.............
..........
...;..;
............-l:;..::§:·.-.-§:·:.::§
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=
~
.·:.·:·.=.·:··:··:.•·•.·=.·:..:.·:·
::::::::::::::::::::::::·
:.::.:_:,::_:_:_:_:_:,:
.........................
---1~ ~f -~~i!it------i~ ~t---t\!
...'-....
'-:!:~
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:-:-:-:-:-:-:-:-:-:-:-:-:
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:.:.:.:.:.:.:.:.:.~:.:.:
.:.:.:.:.:.:.:.:.:.:-~:.
.... . .......
· ···· ··· · ·· ··
:.=.=.=.=_:_=.=.:_:_:_:_:
..............
;:::\:\:::::::=:
.fi#.i§.4----+.~ ~ - - E ~~---1;;;:;.;;;~f ---fi!:;~~---i~
....§......!i!'
.....~
... 1---i 3,000
0~~il.-..Jii.~~!~~a........lii:~~-~~--~;~;~;~.; _~~~~:~~~~-~-·-.·-.
oi-~·~
I~~~
I._~-~i~
·-····_·· _ . a ···_····_···~·• ..........
: _~;:_· ;_~ ____
~ _~ _~ _ __~0
1938
1939
1940
1941
1943
1942
1944
0
1947
1948
1945
At the close of the fiscal year 1938, RFC had 3,277 employees, including both the Washington Office
and the Field. During the ensuing several years, the Corporation found it necessary to increase its personnel
from time to time as its functions were added to and expanded. The largest number of employees during the
life of the Corporation was reached in February, 1946, when for a short period there were more than 35,000
RFC employees just prior to transfer of the surplus property disposal functions, and the employees engaged
therein, to War Assets Administration.
The peak employment in the fiscal year 1947 was 12,299 in July, 1946, and by June 30, 1947, the
number stood at 7,718, a reduction of more than one-third. Substantial reductions in personnel are projected
for the 1948 and 1949 fiscal years.
Respectfully submitted,
JOHN D. GOODLOE,
Chairman of the Board
December 26, 1947
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I!
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CONSOLIDATED BALANCE SHEET
June 30, 1947
ASSETS
CASH.............................................................................................
I 265,621,685
INVESTMENTS IN AND RECEIVABLES FROM OnlER U.S. GoVERNMENT AGENCIES-NOTED
Investments, at cost, and loans (including accrued interest and dividends):
Rural Electrification Administration-loans .................................... . I 510,848,904
Federal home loan banks-<:apital stock ....................................... .
123,186,105
Secretary of State-advances for European aid programs ......................... .
175,000,000
Secretary of Agriculture-loans ............................. , ... . ............. .
40,367,816
Defense Homes Corporation-loans ........................................... .
43,041,944
Federal Housing Administration-debentures ......... . ...... . .................. .
1,735,784
I 894,180,553
Accounts receivable, Iese reserve of 1207,943 ........................................ .
0rHER INVESTMENTS AND RECEIVABLES-NOTE
8,764,829
902,945,382
E
Investments, at cost, and loans:
Industrial and commercial enterprises ........ . ............. . ................... . I 276,422,299
Financial institutions ........................................................ .
163,407,332
Railroads ..•................................................................
146,886,898
States, territories and political subdivisions ..................................... .
120,265,175
United Kingdom of Great Britain and Northern Ireland, leBB prepayments of
112,798,666 ..............•.......•........................................
181,683,888
Republic of the Philippines ................................................... .
60,000,000
Mortgagee (including 16,807,060 principal amount fully insured by F.H.A. and
167,076,941 subject to partial guarantees by Veterans Administration) ........... .
80,965,564
Properties and securities acquired by foreclOBUre or in liquidation of loans, lees
collections ...•.............................................................
21,867,845
Other loans ..••.............................................................
1,435,992
Accrued interest and dividends ............................................... .
21,096,191
Less reserve for loBBeB .......................................................•
11,074,031,184
100,000,000
I 974,031,184
Accounts and other notes receivable, Iese reserve of 1120,000 . ........................ .
4,735,366
978,766,550
LAND, BUILDINGS AND EQUIPMENT-NOTE F
Used in administrative operations, Iese reserve for depreciation of 12,777,071............ I
Not used in administrative operations, Iese reserve for depreciation of 16,000 ........... .
Machinery and equipment transferred from Smaller War Plants Corporation for administration and diepoeition, leBB reserve of 17,627,587 ...............•..................
10,653,672
319,422
539,716
11,512,810
12,158,846,427
PROJECTED CoST RECoVERIES UNDER SPECIAL PROGRAMS
F..stimated recoveries to be effected from diepoeition or liquidation of properties, facilities,
inventories, receivables, etc., arising out of non-lending activities for national defense, war
and related purposes-Schedule 3 and Note G .................................... .
681,022,012
12,839,868,439
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RECONSTRUCTION FINANCE CORPORATION
AND SUBSIDIARIES
LIABILITIES
PUBuc
Trade accounts payable ......................................................... .
LIABILITIES TO THE
Accrued subsidy payments ...................................................... .
Other accounts and claims payable ............................................... .
Trust and deposit liabilities ..................................................... .
Deposits against future 88.les .................................................... .
Accrued liabilities .............................................................. .
Liability to insurance companies for participation in war damage insurance program ...••
Provision for claims arising under war damage insurance program .................... .
Demand advances by commercial banks under letters of credit ....................... .
Deferred income and other deferred credits ........................................ .
LIABILITIES TO U.
•
63,051,480
17,016,181
19,089,849
22,964,814
24,212,984
41,894,329
20,016,460
637,000
2,576,768
197,901 I 211,657,766
S. GoVERNMENT AGENCIES
Accounts payable, principally to Departments of the Army and Navy for 88.les proceeds of
commodities from occupied areas and for net receipts from 88.les of gasoline. . • . . . . . . . . I
Trust and deposit liabilities ....................................................•.
Accrued liabilities .............................................................. .
Accountability for:
Undistributed net receipts from dispoB&l of securities acquired from Public Worka
Administrator, Federal Worka Agency ...................................... .
Net proceeds from liquidation of assets of Smaller War Plants Corporation ......•..
Unexpended balances of appropriation allocations .............................. .
73,228,653
11,290,341
829,280
45,719,335
25,565,238
1,174,522
REs.EllVE FOR EMPWYEES' EARNED ANNl.JAL LEAVE .•..••...•..•.•••..••••.••••.••.••
EQUITY OF
U. S.
157,807,369
6,683,548
TREASURY DEPARTMENT
Capital stock, less 1175,000,000 retired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . I 325,000,000
Notes payable to Treasury Department and accrued interest thereon of 143,564,132Note H ............... _.......................................................
10,009,704,982
Net income from lending activities-Schedule 1. ................................... .
551,901,483
Net income from war damage insurance program-,Schedule 2 and Note I. ............ .
209,827,810
Lesa unrecoverable costs and net expelll!eS of non-lending activities for national defense,
war and related purpoaes-Schedule 3...........................................
111,096,434,275
8,632,714,519
2,463,719,756
Thia balance aheet ill subject to the accompanying "Notes to Financial Statements".
12,839,868,439
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RECONSTRUCTION FINANCE CORPORATION
AND SUBSIDIARIES
For the cumulative period from
dates of incorporation to
'
SCHEDULE I-NET INCOME FROM LENDING ACTIVITIES
June 30, 1947
F'---• year
ended
June 30, 1946(1) June 30, 1947
INCOME
Interest and dividends on loans and investments ....................... .
Excess of proceeds over cost realized on sale o(other:disposition:or mortgages
and other investments ............................................ .
Income from acquired collateral. .................................... .
Commitment and participation fees, and other income .................. .
Sl,160,192,784 $1,109,956,190 $50,236,594
51,802,772
12,878,129
49,647,501
12,076,231
5,244,665
6,918,575
2,155,2711
801,898
1,673,910
Sl,231,792,260 Sl,176,924,587 $54,867,673
ExPENSES AND LoSSES
Interest expense:
On funds borrowed from Treasury Department, less interest on notes
canceled and interest redistributed as an expense of non-lending
activities for national defense, war and related purposes ........... .
On funds held for War Damage Corporation ..............•........•
On funds borrowed from the public .............................. .
On funds held for others (including U.S. Government agencies) ...... .
Administrative expenses-Note M ................................... .
Fees paid for servicing mortgages .................................... .
Expenses on acquired collateral ....... , .............................. .
Other expenses .................................................... .
Nm INCOME BEFORE LossEs
AND
RESERVE PRov1s10Ns .....
LosSES AND RESERVE PROVISIONS-NOTE N
Investments, loans and other receivables charged off ....................
Provision for losses on investments, loans and other receivables .............
Nm INCOME ...........................................
SCHEDULE 2-NET INCOME FROM WAR DAMAGE INSURANCE
Net premiums collected ..................................................
Interest earned and miscellaneous income ..................................
Less:
Lo111 and damage claims paid and provided for .........................
Commissions and administrative expenses-Note M .....................
Provision for payments to participating insurance companies of their agreed
percentage of the net profits of the program ..........................
•
•
•s
•
•s
354,138,276
158,902,303
8,642,818
5,691,665
3,795,556
•
•
52,706,210
96,013,949
•
•
•
148,720,159
s
531,170,618
700,621,642
551,901,483
•
232,519,339 S 2,853,379
7,687,978
2,296,384
86,466,912
-021,040,658
1,273,626
347,714,887 S 6,423,389
144,708,918
14,193,385
8,511,964
130,854
5,611,763
79,902
3,642,815
152,741
510,190,347 $20,980,271
666,734,240 $33,887,402
44,065,592 S 8,640,618
90,603,308
5,410,641
134,668,900 $14,051,259
532,065,340 $19,836,143
PROGRAM
•
•s
246,042,270
9,986,236
256,028,506
1,911,744
24,257,813
•
•
•
20,031,139
s
NET INCOME ...........................................
235,372,718
9,984,362
86,466,912
22,314,284
•
46,200,696
209,827,810
246,042,270
7,688,608
-02,297,628
253,730,878 S 2,297,628
2,493,482
23,735,826
•
•
•
46,259,544
581,738·
521,987
903
20,030,236
•
58,848·
207,471,334 S 2,356,476
(1) After applying adjustments made in the fiacal year ended June 30, 1947 but applicable to prior periods.
• Credits.
Thelle achedulee are subject to the accompanying "Notes to Financial Statements".
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See Note L.
RECONSTRUCTION FINANCE CORPORATION
AND SUBSIDIARIES
SCHEDULE 3-UNRECOVERED COSTS AND NET EXPENSES OF, AND ESTIMATED FUTURE RECOVERIES
TO BE REALIZED FROM, NON-LENDING ACTIVITIES FOR NATIONAL DEFENSE, WAR AND RELATED PURPOSES
For the period from inception of programa to June 30, 1947
U nrecovered Costs
and Net Expenses
F..stimated Future
Recoveries to Be
Realized (1)
LoANS, ADVANCES, RECEIVABLES AND SECURITIES
Loans in connection with the acquisition of materials (including accrued
interest) ....................................................... . I
Advances for the construction and equipment of plants ................ .
Advances in connection with the procurement of materials ............. .
Accounts receivable from Treasury Department for strategic materials
transferred under Public Law 520-79th Congress (to be paid by cancellation of RFC notes payable to Treasury Department) ............ .
Accounts receivable from other U. S. Government agencies, arising principally from sales of strategic materials, and reimbursable services
r::ti?rr:e~ ~~ -~~~~~t~~~
~~~ -~~~~~i-~~ ~~-~ ~-~~~~-~-~~ ~~'.~~1
-~t-~
Receivables from others, arisi~ principally from sales of strategic materials
and rentals from leased facilities .................................. .
Miscellaneous securities, principally those of enterprises operating in foreign
countries in connection with the production or procurement of strategic
materials and supplies ........................................... .
16,813,804
1,995,700
22,888,325
I 16,742,404
187,898,259
187,898,259
50,273,741
50,273,741
102,573,985
68,371,853
242,728
14,507,633
4,215,218
PLANTs, EQUIPMENT AND RELATED FACILITIES AND CosTS
Property, plant and equipment a substantial part of l'hich has been or will
be declared surplus-Notes Oand P ............................... . 16,551,503,411
Excess of cost over proceeds from sales and other disposals of plant and
equipment ..................................................... .
360,339,945
Expenses, principally for servicing and administering leases, standby, plant
c1earance, protection and maintenance ............................. .
154,540,038
Development and experimental costs for special design aircraft ......... .
15,338,247
Utility connection charges ......................................... .
4,349,653
Write-off of investment occasioned by transfer of Hotel Empire, San Francisco, California to Public Buildings Administration without reim2,137,869
bursement ..................................................... .
114,856
I 386,659,032 $338,151,474
PROPERTY,
I 31,447,667 (1)
--0--0(1)
--02,299,683
--0-
I 33,747,350
17,088,209,163
Less:
Payments received from other U.S. Government agencies under agreeme~ts pro~~ng for contingent reimbursement of costs of wartime
capital facilities ............................................. . 11,379,877,783
816,702,310
Rentals and other income ...................................... .
Carrying value of properties acquired without cost ................ .
2,132,939
12,198,713,032
I
--0--0--0-
I
--0-
4,889,496,131 I 33,747,350
PRODUCTION OR PROCUREMENT, AND DISPOSITION OF STRATEGIC
MATERIALS AND SUPPLIES
Inventories of strategic materials and operating supplies held for disposal,
declaration as surplus or transfer to national stockpile-Notes P and Q:
Metals and minerals (including 115,248,795 declared surplus). . . . . . . . I 171,709,834
Rubber and related commodities ................................ .
169,443,028
38,814,066
Other strategic materials (including 16,071,735 declared surplus) .... .
Operating and other supplies (including 120,730,304 declared surplus) ..
36,551,155
I 416,518,083
Net cost of handling, proceseing and manufacturing strategic materials (in•
cluding settlements and expense of $47,993,790 on termination of eontracts and lees expended appro1_>riated funds of 116,302,375 received from
other U.S. Government agencies):
Metals and minerals ........................................... . I 118,132,716
Natural, synthetic and scrap rubber ............................. .
69,168,917
Other commodities, _principally alcohol, aviation gasoline, petroleum,
278,263,652*
foodstuffs, hides, fibers and their products, and chemicals ........ .
I
90,962,019*
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1151,045,767
116,762,583
30,015,493
4,638,170
$302,462,013
I
--0--0-
I
--0-
--0-
(1)
(1)
(1)
(1)
RECONSTRUCTION FINANCE CORPORATION
AND SUBSIDIARIES
SCHEDULE 3-UNRECOVERED COSTS AND NET EXPENSES OF, AND ESTIMATED n.JTURE RECOVERIES
TO BE REALIZED FROM, NON-LENDING ACTIVITIES FOR NATIONAL DEFENSE, WAR AND RELATED PURPOSES
For the period from inception of pro,rama to June 30, 1947
( Continued)
PRODUCTION OR PROCUREMENT, AND DISPOSITION OF STRATEGIC
MATERIALS AND SUPPUES (CoNTINUED)
Estimated Future
Recoveries to Be
Realized (1)
Unrecovered Costs
and Net Expenses
Cost of strategic materials transferred to national stockpile, leBB accounts
receivable from Treasury Department of $187,898,259 (to be paid by
cancellation of RFC notes payable to Treasury Department} for materials transferred subsequent to June 30, 1946 ..................... .
Cost of inventories declared surplus to, and accepted by disposal agenciesNote P ........................................................ .
Reimbursement to producers of aluminum for exceBS power costs ........ .
Development and experimental costs in connection with procurement of
strategic materials .............................................. .
Cost of {)reclusive procurement and related o_perations abroad, including
activities conducted jointly with United Kingdom Commercial Corporation ....................................................... .
s
s
62,763,962
35,250,370
26,039,420
--0--0--0-
(1)
1,365,511 (1)
3,420,597
117,540,613
--0570,571,026 $303,827,524
DIRECT SUBSIDH'.S TO PRODUCERS AND OniERS
Livestock-to slaughterers ................................... ·• .... .
Petroleum transportation compensatory adjustments-net ............. .
Flour-to producers ....... ·........................................ .
Butter-to producers .............................................. .
Copper, lead and Binc-to producers who exceeded quotas ............. .
Sl,547,148,094
353,232,488
348,431,265
181,617,850
349,969,942
Ot!~~ ~r=~~ ~~~~~~i~. ~~~~-s.t~~~~ ~~ -~~~l~•. ~~~ -~~ ~~~~~~
309,034,404
s
--0--0--0--0--0--0-
3,089,434,043 S
--0-
OniER COSTS AND ExPENSES
Interest expense (including $352,820,230 on funds borrowed from Treasury
Department) ................................................... .
Administrative expenses-Note M .................................. .
Miscellaneous costs and deferred charges ............................ .
s
s
354,134,288
108,802,885
11,476,421
--0--05,295,664
474,413,594 S 5,295,664
$9,410,573,826 $681,022,012
LEss OniER INCOME
Net proceeds of renegotiation settlements-Note R ................... .
Discount and interest earned ....................................... .
Service fees ...................................................... .
Miscellaneous income ............................................. .
s
s
--0--0--0--0-
96,837,295 S
--0-
83,936,935
7,611,753
3,051,253
2,237,354
CosTS AND NET EXPENSES ......•.•....••.....••.......• 19,313,736,531
EsTDIATED FUTURE RiccoVERIES TO B11 REALIZED......................
681,022,012 $681,022,012
UNRECOVERED
UNRECOVIIBABLII
CosTS
AND
NET
ExPl:NSEs .•••..•.••......••.•.••...•.
$8,632,714,519
(1) This column sets forth only the estimated future recoveries to be realized by Reconstruction F"mance Corporation and its
subsidiaries. In addition to the amounts shown herein, the Government has realized or will realize additional recoveries, in
substantial amounts1 with respect to property, plant, equipment, facilities and inventories declared or to be declared surplUB
to War Assets Administration, the sales proceeds from which will not be returned to the Corporation but, instead, will be
covered into the Treasury as Miscellaneous Receipts by War ABBets Administration.
• Excess of income over costs.
This schedule is subject to the accompanying "Notes to Financial Statements".
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RECONSTRUCTION FINANCE CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
June 30, 1947
A. The succession and certain of the functions of Reconstruction Finance Corporation were extended for
one year through June 30, 1948 under the provisions of Public Law 132-80th Congress. Pursuant to
this law, the Corporation is authorized to make loans, investments, purchases, and commitments beginning July 1, 1947 not exceeding $2,000,000,000 outstanding at any one time, and to borrow from the
Secretary of the Treasury sufficient funds for that purpose and for the purpose of carrying out any of
its commitments lawfully entered into as of the close of business June 30, 1947. Other legislation pertaining to the powers and functions of Reconstruction Finance Corporation and its subsidiaries is
referred to later herein.
B. The accompanying consolidated balance sheet sets forth the financial position at June 30, 1947 of
Reconstruction Finance Corporation, which commenced operations on February 2, 1932, and its active
subsidiaries. The active subsidiaries at the balance sheet date, together with their dates of organization,
are as follows:
Federal National Mortgage Association-February 10, 1938
War Damage Corporatiol\-December 13, 1941
U. S. Commercial Company-March 27, 1942
C. The related statements identified as Schedules 1, 2 and 3 set forth the consolidated operating results
of Reconstruction Finance Corporation and, to the extent appropriate, of its subsidiaries from their
dates of organization to June 30, 1947, including subsidiaries which had been dissolved or inactivated
at that date. These latter subsidiaries, together with their dates of organization and their dates of
dissolution or inactivation, are as follows:
Rubber Reserve Company-organized June 28, 1940; dissolved July 1, 1945
Defense Plant Corporation-organized August 22, 1940; dissolved July 1, 1945
Defense Supplies Corporation-organized August 29, 1940; dissolved July 1, 1945
Metals Reserve Company-organized June 28, 1940; dissolved July 1, 1945
Disasl,er Loan Corporation-organized February 11, 1937; stock transferred to Secretary of the Treasury against cancellation of notes; dissolved pursuant to Public Law 109-79th Congress, approved
June 30, 1945; net assets acquired by Reconstruction Finance Corporation in cash settlement with
Treasury Department July 1, 1945. (The operating results of Disaster Loan Corporation prior to
July 1, 1945 have not been included in the accompanying financial statements.)
War Assets Corporation-organized as Petroleum Reserves Corporation on June 30, 1943, with change
in name as of November 15, 1945; dissolved June 30, 1946
Rubber Development Corporation-organized February 16, 1943. The assets and liabilities of this
subsidiary were transferred to Reconstruction Finance Corporation July 1, 1946 and its charter
expired June 30, 1947.
The RFC Mortgage Company-organized March 14, 1935. The assets and liabilities of this subsidiary
were transferred to Reconstruction Finance Corporation June 30, 1947, pursuant to the provisions
of Public Law 132-SOth Congress, and it thei eupon was inactivated.
Distinction has been made in the accompanying statements as between those operating results of the
Reconstruction Finance Corporation and its subsidiaries (hereinafter collectively referred to as the
Corporation) which pertain to lending activities and those which pertain to non-lending activities for
national defense, war and related purposes. In general, the non-lending group of activities commenced
during the fiscal year beginning July 1, 1940 and has continued, actively or in liquidation, during the
subsequent period to June 30, 1947.
D. (a) Pursuant to provisions of legislation enacted by the 80th Congress, the Corporation was directed
to transfer to the Secretary of the Treasury, against cancellation in appropriate amount of the
Corporation's notes payable to the Treasury Department, its investments in and loans to the following U. S. Government agencies the amounts of which, including principal and accrued dividends
on the stock of the Federal home loan banks, were as follows at June 30, 1947:
Rural Electrification Administration-Loans. . . . . . . . . . . . . . . . . . . . . . . . $510,848,904
123,186,105
Federal home loan banks-Capital Stock. . . . . . . . . . . . . . . . . . . . . . . . . .
40,367,816
Secretary of Agriculture-Loans...................................
The transfers directed by this legislation and the related cancellation of the Corporation's notes
were effected subsequent to June 30, 1947.
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NOTES TO FINANOAL STATEMENTS--Continued
(b) Advances in the amount of $175,000,000 made by direction of the 80th Congress to the Secretary
of State prior to June 30, 1947 in connection with European aid programs were repaid to the Corporation subsequent to that date from appropriations made by Congress in furtherance of those
programs.
(c) In addition to the investments in and receivables from U. S. Government agencies separately set
forth in the balance sheet, reference is made to Schedule 3 in which are included additional accounts
receivable, from the Treasury Department in the amount of $187,898,259 representing the value
of materials transferred to the national stockpile subsequent to June 30, 1946 and other governmental receivables of $50,273,741. These receivables represent a part of the unrecovered costs at
June 30, 1947 arising in connection with the Corporation's non-lending activities for national defense, war and related purposes. It is anticipated that subsequent to June 30, 1947, the Corporation
will recover the $187,898,259 in full by way of cancellation of its notes payable to the Treasury
Department and will receive cash reimbursement with respect to the $50,273,741.
E. (a) Prior to the fiscal year 1947, it had been the Corporation's general practice to carry in its accounts,
as loans receivable, the deficiency balances of loans remaining after application of the assigned
value of collateral acquired through foreclosure or otherwise; and to carry as an asset not only the
assigned value of the collateral so acquired but also certain costs incurred by the Corporation arising
out of its interest in or ownership of such cellateral or the related loan, less any income received
from or in connection with the collateral. In general, these deficiency loan balances and the related
collateral were carried in the accounts until final realization had been made on the collateral at
which time any remaining balances were recognized as losses and charged off. During the fiscal
year 1947 this practice was revised and deficiency loan balances together with unrecovered balances
of related costs have been recognized as losses, by charge-off to operations, as at the time the collateral was foreclosed or otherwise acquired; furthermore, any subsequent expense incurred or income realized in connection with the collateral so acquired has been charged to or taken into income
as of the period in which incurred or realized. Profits or losses on disposition of acquired collateral
similarly have been taken into or charged to income as of the period in which realized subsequent
to acquisition. The foregoing change in policy has resulted in corresponding revisions in the amount
of reserves theretofore provided for losses on loans and investments, including the deficiency balances, acquired collateral, and related deferred net costs referred to herein.
(b) In addition to the amounts stated in the balance sheet under the caption "Other Investments and
Receivables," reference is made to Schedule 3 in which are included additional investments, receivables and inventories, representing a part of the unrecovered costs at June 30, 1947 arising in connection with the Corporation's non-lending activities for national defense, war and related purposes.
With respect to these additional items Schedule 3 also includes an estimate of the recoveries which
will be realized by the Corporation subsequent to June 30, 1947 from disposition or liquidation of
the additional investments, receivables and inventories referred to herein.
F. (a) Pursuant to legislation enacted by the 80th Congress, title to land and buildings owned by the Corporation in the District of Columbia was transferred to the United States in July, 1947. The depreciated cost at June 30, 1947, of the facilities used in administrative operations for which title
was transferred pursuant to this law is included in the balance sheet in the amount of $9,252,295.
This law further provides that settlement will be made with the Corporation, by cancellation of
its notes payable to the Treasury Department, to the extent of the value of the facilities so transferred as determined by the Secretary of the Treasury subject to final determination by the Administrator of the Federal Works Agency if the Corporation does not concur with the valuation
determined by the Secretary of the Treasury. As of the date of this report title to these facilities
has been transferred to the United States, as previously stated, but determination has not been
made as to the values involved for purposes of effecting cancellation of the Corporation's notes payable to the Treasury Department. It is not anticipated that the values to be applicable to this
transfer, and the consequent amount of notes to be canceled, will be less than the depreciated cost
of the facilities involved as of the date of transfer.
(b) In addition to the land and buildings used in administrative operations in the District of Columbia,
to which reference is made in the preceding paragraph (a), it is possible that other of the Corporation's property, primarily land, in the District of Columbia which was not used in administrative
operations at June 30, 1947, but was originally acquired for that purpose, may be subject to transfer
of title to the United States under the requirements and provisions of the same law. At the date
of this report, legal counsel for the Corporation and for Public Buildings Administration are examining the applicability of the law to this property, which is included in the balance sheet at depreciated cost in the amount of $319,422.
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NOTES TO FINANCIAL STATEMENTS-Continued
(c) Machinery and equipment transferred to the Corporation from Smaller War Plants Corporation for
administration and disposition is included in the balance sheet in the net amount of $539,716 after
deducting a valuation reserve in the amount of $7,627,587. Substantially all of this reserve represents 100% of the cost of those facilities which have been or, it is anticipated, will be declared surplus for disposition by War Assets Administration and from which the Corporation will not receive
the surplus sales proceeds. In this connection, reference is made to Note P in which are set forth
the arrangements whereunder sales proceeds from surplus property, plants and equipment disposed
of by War Assets Administration will be covered into the Treasury as Miscellaneous Receipts and
will not be returned to the Corporation.
(d) In addition to the amounts stated in the balance sheet under the caption "Land, Buildings and
Equipment," reference is made to Schedule 3 in which are included additional property, plants,
equipment and related facilities, representing a part of the unrecovered costs at June 30, 1947
arising in connection with the Corporation's non-lending activities for national defense, war and
related purposes. With respect to these additional items Schedule 3 also includes an estimate of the
recoveries which will be realized by the Corporation subsequent to June 30, 1947 from disposition
of the additional property, plants, equipment and facilities referred to herein.
G. The assets acquired by the Corporation in connection with its special programs for national defense, war
and related activities are in process of substantial and accelerated liquidation. Particularly with
respect to the defense plants and related facilities involved in these programs, and to a lesser extent with
respect to inventories of strategic and critical materials, a substantial proportion of the assets involved
have been or will be declared surplus to War Assets Administration under arrangements whereby the
subsequent sales proceeds will be paid into the Treasury as Miscellaneous Receipts by War Assets
Administration and will not be returned to the Corporation in further reduction of the unrecovered
costs of these assets as shown by the Corporation's accounts at June 30, 1947. In view of the current
and projected status of these liquidating programs and the relatively restricted recoveries that the
Corporation may expect to realize thereunder subsequent to June 30, 1947 it has been considered desirable, for purposes of clarity, to exclude the unrecovered costs at June 30, 1947 of the assets involved
in these special programs from the regular balance sheet categories. Instead, they have been included in
significant detail in Schedule 3, together with the estimated future recoveries which the Corporation
expects to realize thereon, and the aggregate of such recoveries from all assets involved in the special
programs has been included as a separate item in the balance sheet. This treatment of the projected cost
recoveries under these special programs in the balance sheet has the further seemingly desirable effect
of emphasizing in the balance sheet, under appropriate categories and in reasonable detail, the assets
involved in the regular lending programs which, for the future, will constitute the primary concern and
responsibility of the Corporation.
H. (a) Certain of the notes of the Corporation were canceled by the Secretary of the Treasury prior to
June 30, 1947 pursuant to provisions of Public Law 432-75th Congress and Section 602 of the
National Housing Act, as amended. These notes evidenced funds obtained by the Corporation by
direction of Congress. The aggregate amount of notes canceled to June 30, 1947 was $2,785,673,281,
and accordingly the following programs have not been reflected in the accompanying financial
statements:
Allocations to other Government agencies for relief and other purposes $2,469,670,094
Advances for relief under Emergency Relief and Construction Act of
1932 to States, territories and political subdivisions.............
282,825,767
Interest expense on the foregoing funds. . . . . . . . . . . . . . . . . . . . . . . . . . .
33,177,420
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$2,785,673,281
(b) Under provisions of Public Law 132-SOth Congress obligations of the Corporation to the Treasury
Department for funds borrowed to carry out its lending functions subsequent to June 30, 1947, will
bear interest at a rate determined by the Secretary of the Treasury, taking into consideration the
current average rate on outstanding marketable obligations of the United States. In this connection
it is noted that the "current average rate on outstanding marketable obligations of the United
States," due to the inclusion of long term obligations, is higher than the rate of 1 % per annum
which is applicable to the Corporation's notes payable to the Treasury Department outstanding at
June 30, 1947. A substantial portion of the outstanding notes payable to the Treasury Department
represents funds borrowed to finance the Corporation's non-lending activities for national defense,
war and related purposes, the unrecoverable costs and net expenses of which, as appearing in the
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NOTES TO FINANOAL STATEMENTS-Continued
accompanying consolidated balance sheet, amount to $8,632,714,519. In view of the anticipated
recognition by Congress of the impairment of the Corporation's capital by way of authorizing
cancellation of notes payable to the Treasury Department and of the fact that application of the
higher rate of interest to such notes payable would only serve to increase the capital impairment
and the amount of notes to be canceled, the Secretary of the Treasury has agreed to continue at
least until July 1, 1948, the 1 % rate on the outstanding notes payable as at June 30, 1947. Obviously the increased rate of interest on new borrowings will significantly increase the cost of the
Corporation's future lending operations.
(c) Prior to July 1, 1947, the Corporation, pursuant to provisions of then applicable laws, was authorized
to borrow up to stated amounts for general purposes, specific purposes and, in certain instances, such
amounts without limitation as might be necessary for specific purposes. Such laws have been
superseded by Public Law 132-SOth Congress. Notes payable to the Treasury Department as
shown in the accompanying balance sheet represent the aggregate unpaid balance at June 30, 1947
of notes issued by the Corporation under authority of the laws which have been superseded.
Segregation by the categories or purposes applicable at the times the notes were issued is felt to
have no further significance.
I.
Pursuant to the provisions of legislation enacted by the 80th Congress, the Corporation subsequent to
June 30, 1947 has paid into the Treasury of the United States the net income in the amount of
$209,827,810 realized under the war damage insurance program to June 30, 1947.
J. It is the general policy of the Corporation to act as self-insurer with respect to loss risks, except that
blanket commercial fidelity bond coverage of $100,000 was in effect at June 30, 1947 in addition to
commercial coverage for certain public liability and maritime risks. Lessees of plants and facilities
owned by the Corporation generally are required to carry fire and extended coverage insurance in
accordance with the provisions of the lease agreements.
K. The Corporation is a party defendant in legal proceedings involving contingent liabilities of approximately $580,000 with respect to lending activities and of approximately $10,170,000 with respect to
wartime activities; also claims not approved by the Corporation involving contingent liabilities of
approximately $13,000,000 have been received from various contractors, operators and others. The
Corporation has outstanding commitments relating to the procurement of strategic materials not
delivered at June 30, 1947 and to operation of wartime facilities in amounts aggregating $554,240,182;
and has outstanding contracts in the amount of $493,060 for the procurement of commodities for export
to foreign countries. Unused commercial letters of credit were outstanding in the amount of $132,400.
Under agreements with other lending institutions, the Corporation may be called upon to participate
to the extent of $310,170,568 in loans carried by those institutions. The Corporation also has commitments outstanding to make loans aggregating approximately $306,000,000. The Corporation also may
be liable for refunds in connection with the net proceeds of renegotiation settlements of contractors'
excess profits taken into income. The amount of such refunds, which is dependent upon the outcome of
certain contractors' claims for rebates pending in tax courts and other actions, is not expected to be
substantial. The Corporation may be liable to a limited extent for additional wages to employees of
contractors or agents for "portal to portal" time under applicable provisions of law.
L. It will be observed by reference to the published financial statements as at June 30, 1946, that the net
income from lending activities for the period from dates of incorporation to June 30, 1946 was stated
therein as being $527,051,017. It also will be observed from the accompanying Schedule 1 that the net
income from lending activities for the same cumulative period to June 30, 1946, after applying adjustments made in the fiscal year ended June 30, 1947 but applicable to prior periods, is stated in the amount
of $532,065,340, an increase of $5,014,323 as compared with the former amount. The principal adjustments made during the fiscal year ended June 30, 1947, affecting prior periods and accounting for the
increase of $5,014,323 are as follows:
Adjustments resulting from change in policy with respect to treatment of deficiency balances of loans,
related receivables, collateral acquired and income and expenses on acquired collateral as explained
in Note E (a) herein:
Deficiency balances of loans and related receivables at June 30, 1946 charged off ...... $22,237,841•
Provision for losses on investments, loans and other receivables at June 30, 1946
decreased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22,237,841
Increase in investments, loans and other receivables charged off due to the reclassification of income on acquired collateral previously credited in reduction of deficiency
balances charged off. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,540,287•
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NOTES TO FINANOAL STATEMENTS-Continued
Decrease in investments, loans and other receivables charged off due to the reclassification of expenses on acquired collateral previously charged as additions to deficiency
balances charged off.........................................................
1,816,557
Income from acquired collateral to June 30, 1946:
Reclassified from losses as above. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,540,287
Reclassified from acquired collateral asset account. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,535,944
Expenses on acquired collateral to June 30, 1946:
Reclassified from losses as above.............................................
1,816,557•
3,795,206•
Reclassified from acquired collateral asset account..............................
Net adjustment resulting from change in policy .............................. S 6,740,738
Adjustment resulting from establishment of reserve for employees' earned annual leave at
June 30, 1947, representing amount of reserve required at June 30, 1946...............
2,045,496•
Adjustment resulting from reversal of previously established reserve for self-insurance in
lieu of additional commercial fidelity bond coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
325,000
5,919•
Miscellaneous adjustments-net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total net adjustment to net income from lending activities June 30, 1946 ........ S 5,014,323
M. Administrative expenses, as separately set forth in the accompanying statements of net income and net
cost, represent salaries and other expenses which, under provisions of applicable law, have not been
construed to be properly chargeable to specific construction or operating programs or projects. In
accordance with permissive provisions of law, additional salaries, wages and other expenses, in substantial amounts, particularly as to national defense and war programs have been directly charged to
specific projects or activities. Accordingly, the amounts separately classified in the accompanying
operating statements as administrative expenses do not purport to represent all the salaries, wages and
other expenses incurred by the Corporation during the periods covered by the financial statements.
N. (a) Reserves for losses on investments, loans and other receivables as stated in the accompanying
balance sheet are as follows:
Reserve for losses on accounts receivable from other U.S. Government agencies .... S 207,943
Reserve for losses on investments, at cost, and loans ............................ . 100,000,000
Reserve for losses on accounts and other notes receivable ..................... .
120,000
$100,327,943
These reserves have been provided from the following sources:
By charge to operations pertaining to lending activities as shown in Schedule 1 ..... $ 96,013,949
By charge to the liability account "Accountability for net proceeds from liquidation
of assets of Smaller War Plants Corporation" ............................... .
3,836,841
By application of remaining balance of reserve for losses and contingencies on
Disaster Loan Corporation loans and receivables as acquired by Reconstruction
Finance Corporation on July 1, 1945 ....................................... .
477,153
$100,327,943
(b) In addition to the reserve provisions charged to operations pertaining to lending activities as noted
above, actual charge offs to operations of investment, loan and other receivable balances have
amounted to $52,706,210, as shown in Schedule 1. Losses on other accounts acquired in connection
with special programs also have been charged off for the cumulative period to June 30, 1947 as
follows:
Losses, less recoveries, arising in connection with loans and receivables of Smaller
War Plants Corporation, charged to the liability account "Accountability for net
proceeds from liquidation of assets of Smaller War Plants Corporation" .......... $1,704,784
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NOTES TO FINANCIAL STATEMENTS-Continued
Losses, less recoveries, arising in connection with loans and receivables included in net
assets of Disaster Loan Corporation acquired by Reconstruction Finance Corporation July 1, 1945, charged to reserve established at that date ................... .
76,272
$1,781,056
(c) The foregoing provisions for and charge offs of losses on investments, loans and other receivablea
pertain only to the lending programs of the Corporation and are not inclusive of actual or
anticipated losses involved in the non-lending activities for national defense, war and related purposes. All actual and potential losses, costs and expenses in connection with the non-lending programs are incorporated in the accompanying Schedule 3.
O. A preponderance of the property, plant, facilities and equipment acquired by the Corporation in connection with its program for national defense, war and related activities were sponsored by other
agencies of the Government, principally the Department of the Army and Navy, Department of Agriculture and Maritime Commission, under agreements whereby the sponsoring agency generally contributed a part of the estimated costs involved to the Corporation and undertook to request appropriations
from Congress at a future date to the extent of any unrecovered costs of the facilities which should be
then remaining. The unrecovered costs of the facilities subject to these arrangements, after allowing
credit for any realized or potential income or sales proceeds, are substantial in amount. During the
1947 fiscal year it became increasingly apparent that there was little likelihood that the Congress would
make appropriations to the sponsoring agencies, even if so requested, merely for the purpose of permitting
those agencies to make settlement with the Corporation. Accordingly, the Corporation unilaterally
determined to recognize what appeared to be the realities with respect to the potentiality of further
recoveries from the sponsoring agencies under these agreements and to waive its contingent right to any
further reimbursement thereunder. This decision also had the effect of permitting certain economies in
the Corporation's accounting and operating procedures with respect to costs and expenses which
technically were contingently recoverable under the terms of the agreements but which had no
significance in relation to the value or capital cost of the facilities involved. The Department of the
Navy, Department of Agriculture and Maritime Commission have concurred in the position taken by
the Corporation with respect to the contingent reimbursement provisions of these agreements; however,
the Corporation has received no indication of the position of the Department of the Army with respect
to this action. In this connection the Department of the Army is the sponsor of by far the largest
number and the largest dollar amount of facilities subject to contingent reimbursement agreements.
P. (a) The provisions of the Surplus Property Act authorize, but do not require, the Corporation to receive
payment of the sales proceeds resulting from disposal of property, equipment, facilities, materials
and supplies which it declares surplus to Government disposal agencies, principally War Assets
Administration. Prior to the current fiscal year the Corporation had elected to have such sales
proceeds returned to it and, under such arrangements, had received in excess of $449,000,000 to
June 30, 1947 from the disposal agencies involved. In order to implement the then existing arrangements between the Corporation and War Assets Administration and its predecessors as to disposition of surplus sales proceeds, it was necessary for the disposal agency to continuously maintain
certain physical segregations of equipment, materials, etc., so as to be in a position to identify
subsequent sales proceeds to items declared surplus by the Corporation. It also was necessary for
the Corporation and the disposal agency to maintain duplicating accounting and other records all
arising in connection with these special arrangements pertaining to the return of surplus sales
proceeds. Accordingly, in the interest of eliminating this duplicating and nonproductive expense
insofar as the Corporation, War Assets Administration and the Government as a whole were concerned, the Corporation during the fiscal year 1947 authorized and directed War Assets Administration to pay into the Treasury as Miscellaneous Receipts all subsequent sales proceeds arising
from surplus declarations made by the Corporation. As a result of these revised arrangements the
Corporation will realize no further recovery from the substantial amount of property, plants,
facilities, equipment, materials and supplies which it has declared or will declare surplus to War
Assets Administration. In this connection, however, it will be noted that the sales proceeds which
otherwise would have been returned to the Corporation will, instead, go directly into the Treasury
without loss of any benefit insofar as the Government as a whole is concerned and, in fact, with
additional economies being realized to the extent of the duplicating nonproductive operating and
administrative costs which this revised procedure has eliminated. The revised procedure also is
consistent with the disposition required to be made by law of surplus sales proceeds arifling from
surplus declarations made by substantially all other agencies of the Government. Subsequent to
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NOTES TO FINANOAL STATEMENTS-Continued
June 30, 1947 the Corporation's potential sources of realization on assets which it acquired in
connection with its programs for national defense, war and related purposes will be limited, subtantially, to sales of defense property, plant and equipment to lessees in possession, sales or transfers
of inventory materials and supplies to commercial users or to the national stockpile and surplus
sales proceeds in minor amount arising from the disposition of surplus facilities, equipment, etc.,
outside the continental United States.
(b) Consistent with the revised arrangements as to the disposition of future surplus sales proceeds
referred to in paragraph (a) above, the Corporation also determined during the 1947 fiscal year
that all surplus sales proceeds which theretofore bad been returned to it by War Assets Administration
and its predecessors should be covered into the Treasury as Miscellaneous Receipts and should not
continue to be retained by the Corporation. Accordingly, on June 30, 1947 the Corporation paid into
the Treasury a total of $445,000,000, being substantially all the surplus sales proceeds which it had
received from War Assets Administration or its predecessors to that date. The additional surplus
sales proceeds, $4,072,785, which had been returned to the Corporation prior to June 30, 1947 were
paid into the Treasury subsequent to that date at the conclusion of the reconciliation of the
aggregate amounts shown in the accounting records of the Corporation and those of War Assets
Administration.
Q.
Due in part to the volume and nature of the materials and commodities involved, it has not been the
general practice of the Corporation to take periodic physical inventories of the commodities and materials acquired for resale or other disposition in connection with the national defense and war programs
and, in general, no such physical inventories were taken in connection with the preparation of the
accompanying financial statements as of June 30, 1947. However, based on the Corporation's experience to date with the complete or partial liquidation of inventories of many of these commodities,
through sales, surplus declarations and otherwise, the dollar amount of differences in quantities between
physical inventories, were they to be taken, and book records would not be significant in terms of the
volume handled and related circumstances. In connection with these materials it is observed that the
majority are warehoused or stored in commercial or agency facilities and are covered by warehouse
receipts and other independent documentation evidencing ownership by the Corporation. The Corporation is generally satisfied that these arrangements, together with other arrangements relating to the
physical control or custody of the materials and commodities involved, substantially safeguard the
interests of the Government with respect thereto.
R. (a) The Corporation has taken into income an amount of $83,936,935 representing renegotiation settlements of contractors' excess profits recovered under a provision of law which authorizes the retention of such settlement proceeds by the Corporation. In the determination of the net excess profits
to be recovered, income tax credits aggregating $227,962,743 have been allowed to the contractors
involved in accordance with applicable provisions of law. The Corporation has construed that the
application of tax credits in determination of the net excess profits to be recovered represents only
one of the factors in measuring the extent of such recoverable excess profits. Accordingly, the
Corporation has taken into income only the net amount of such excess profits. In this connection
the Treasury Department has advised the Corporation that there is no provision of law whereunder
the amount of such allowed tax credits could be available as income to the Corporation, and the
Corporation concurs in this finding.
(b) In addition, the Corporation has recorded receivables and collections in the amount of $9,607,402
representing renegotiation settlements of contractors' excess profits recovered under a provision of
law which requires that the proceeds of such settlements shall be paid into the Treasury as Miscellaneous Receipts. The Corporation has construed that the excess profits settlements under this
particular provision of law do not constitute income to or any equity of the Corporation.
S. In addition to the assets set forth in the accompanying financial statements, the Corporation held the
following assets at June 30, 1947 in a custodial or agency capacity:
(a) Imports from occupied territories valued at an estimated amount of $49,252,517 held under agreements with the Department of the Army pursuant to which the Corporation is obligated to pay to
that Department or other interested Government agency the proceeds of disposal less the expenses
of the program.
(b) 408,951,222.87 fine troy ounces of silver loaned by the Treasury Department for use in manufacturing processes used in national defense, war and related operations, which the Corporation is
obligated to return.
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NOTES TO FINANOAL STATEMENTS-Continued
(c) Materials and equipment in foreign areas having an estimated value of $444,634 received principally
from the Department of the Navy and used in the economic development of Pacific Ocean islands.
The Program pertaining to the economic development of the islands is to be transferred to the
Department of the Navy prior to January 1, 1948.
T. The accompanying financial statements, and the underlying records of the Corporation, are subject to
audit by the Corporation Audits Division of the General Accounting Office under the provisions of the
Government Corporation Control Act (Public Law 248---79th Congress). This audit has not been completed for the period ended June 30, 1947, and during its course or when completed may disclose the
necessity for adjustments or revisions in the accounting treatment of certain of the Corporation's
financial transactions. It is felt, however, that any such revisions or adjustments will not result in
significant changes in the financial position or operating results of the Corporation as set forth in the
accompanying financial statements.
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@FedFRASER