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Obligations are estimated to remain relatively stable

from 1964 through 1966. The budget program provides gations incurred. for year-end inventories as follows (in millions of dollars):

34.1

6.8

49.0

8.1

1.6

8.5

16.1

4.2

25.6

17.3

9.8

20.4

1963 1964 1965 1966 actual actual estimate estimate

14.2

12.0

.3

-4,841

-1,000 -80

3,387 -3,387

-11,816 -75

-11,891

37.7

10.9

23.1

9.0

2.5

11.2

18.4

4.5

14.4

16.7

11.0

16.2

12.2

9.5

4.5

32.7

12.0

5.5

5.8

2.2

2.9

12.3

4.6

7.8

13.4

6.9

6.2

10.0

14.9

.6

25.8 11.8

5.1

1.3

.4

.2

4.8

2.4

1.0

11.4

4.4

7.4

12.6

8.5

2.2

6.6

17.1

.6

1.4

1.8

1.0

.2

.2

.4

1.5

1.7

.1

4.9

4.9

4.3

4.3

96.1 100.7 79.8 66.5 34.6 38.6 41.0 44.6 105.3 71.2 23.2 16.4 236.0 210.5 144.0 127.5

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Operating results and financial condition.-An operating loss of $18.3 million was realized for 1964, and losses of $52 million and $4.3 million are forecast for 1965 and 1966, respectively, largely due to large forecast disposals of surplus property in those years. Government equity at June 30, 1966, is estimated at $145.4 million, consisting of $522.0 million in net capitalized inventory since the inception of the fund, less $127 million in net cash withdrawals from the fund and $249.6 million deficit.

Revenue, Expense, and Retained Earnings (in thousands of dollars)

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1,367,500

1,361,000

1 Balances of selected resources are identified on the statement of financial condition.

This fund, established July 1, 1950, finances for 1966 the procurement of approximately 9,000 items for resale and maintenance of operating and war readiness stocks (10 U.S.C. 2208). These items are stocked and sold at approximately 900 outlets worldwide.

Budget program. Obligations increase $54 million in 1965, reflecting continuing higher commissary store sales and related inventory increases. In 1966, however, obligational requirements will drop $6 million due to inventory drawdown of aviation fuels war readiness material, and the impact of the inventory build-up in 1965. Changes in inventory capitalized under the fund are as follows (in thousands of dollars):

-391

1963

actual

13.0
.5

41,605 696,493

622,270

1,703

1,362,071
5,420

9

1964 actual 1965 estimate 1966 estimate
-12
-380

51.2
2.5

.5

The budget program provides for year-end inventories

as follows (in millions of dollars):

1964

actual

53.8
2.8

.7

1966 estimate

-9

164.7
83.2

.5

12.7
.5
101.6 97.6 82.1
91.5 80.4 93.8

41,879 672,755

660,302

1,700

12.8
.4

1965 1966 estimate estimate

Net expenditures....

A transfer of $25 million to Military personnel, Air Force, was made in 1964, $41 million has been authorized for 1965, and $25 million proposed for 1966.

1,376,636

Operating results. Operations are basically on a breakeven basis for all 3 years; the cumulative deficit of $184 -15,636 million at June 30, 1966, is largely attributable to down

ward revision of standard prices for items initially capitalized and losses sustained in the disposal of excess and surplus stocks.

Revenue, Expense, and Retained Earnings (in thousands of dollars)

1964 actual

1965 1966 estimate estimate

1,336,931 1,363,300 1,380,100

248.8

13.0
.4

81.3 84.3

55.9 55.2
3.0 3.0

.8

.8

.1

151.6 150.4

166.4
94.0
.5

96.8

87.4
.4

.4

260.8 248.4

238.2

The decrease in inventories of $22.6 million from the beginning of 1964 to the end of 1966 results primarily from drawdown of stocks of aviation fuels. Costs exceed obligations for the 3 years presented here by $35 million, largely because inventory is being sold at a faster rate than it is being ordered.

Financing. Funds for financing the budget program are derived from sales to authorized customers. Sales increase $26 million in 1965 and $17 million in 1966, largely due to the commissary trend noted above.

The

relationship of collections and payments is as follows (in thousands of dollars):

Gross expenditures
Applicable receipts

Revenue: Sale of goods....

Expense:

Purchase of goods (at cost).
Transportation..

Other operating expense.

Inventory increase (~) or decrease_
Inventories donated to other accounts
(capitalized) -

Increase or decrease in customer credits,
net..

Total expense.

Net operating gain or loss for the year.
Deficit, start of year...

Deficit, end of year.

Assets:
Treasury balance...
Accounts receivable, net.

Selected assets: 1 Inventories.
Undistributed charges..
Other assets.

Total assets

Liabilities:

Accounts payable....

Unapplied sales return credits..
Undistributed credits.
Other liabilities.

1964 actual
1,343,796
1,372,716

-28,920

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See footnote at end of table.

104,193
152
-580

370

104,136

1965 estimate 1966 estimate 1,346,610 1,369,300 1,340,410 1,382,100

6,200 -12,800

1,251,913 1,288,228 1,294,593
63,591 63,440 61,612
10,017 10,804 9,798
12,415 -401 10,623
-9
11

-391
-9

1,337,536 1,362,071 1,376,636 -605 1,229 3.464 -188,394-188,999 -187,770

-188,999-187,770-184,306

84,538
140

674

497

208,833 212,753 165,553 153,353
97,566 61,418 84,052 81.783
260,799 248,384 248,786
2,286 2,448 2,904
4
201

238,163
3,173

569,488

525,204

85,849

1965 1966 estimate estimate

501,295

Total liabilities..

Government equity:
Non-interest-bearing capital:
Start of year..
Unobligated Treasury balance
transferred to other accounts

755,394 653,745 628,354 587,345

(see program and financing) -47, 300-25,000-41,000 -25,000 Net changes in capitalized inventory.

End of year..

10

476,472

101,111
150

97,814

160

460

460 101,721 98,434

-54,349 -391
-9
653,745 628,354 587,345 562,345

Deficit:

Start of year..
Operating gain or loss..

End of year..

-187,547-188, 394-188, 999-187, 770 -847 -605 1,229 3,464 -188, 394 -188, 999-187, 770-184, 306 Total Government equity.... 465,351 439,355 399,574 378,038

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Identification code 07-40-4961-04-051

Financing-Continued 21.98 Unobligated balance available, start of year.... 23.98 Unobligated balance transferred to:

24.98 25.49

10 70

Program and Financing (in thousands of dollars)—Continued

71

72.98

74.98

90

"Military personnel,
Army" (77 Stat. 254,
78 Stat. 465 and annual
appropriation act)..
"Military personnel,
Navy" (77 Stat. 254,
78 Stat. 465 and annual
appropriation act)___
"Reserve personnel,
Navy" (78 Stat. 466)..
"Military personnel,
Air Force" (77 Stat.
245, 78 Stat. 465 and
annual appropriation
act)...

"Reserve personnel, Air
Force" (78 Stat. 466)..
"Military personnel,
Marine Corps" (78 Stat.
465 and annual appro-
priation act) ___.
"Reserve personnel, Ma-
rine Corps" (78 Stat.
466).
"Defense industrial fund"
(annual appropriation
act).

Unobligated balance available, end of year. Unobligated balance lapsing (contract authorization)..

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Obligations affecting expenditures... Obligated balance, start of

year..

Obligated balance, end of

year.

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1964 actual

Total operating costs, funded. Change in selected resources 1. Adjustment in selected resources: Inventory capitalized or decapitalized.

Total program (obligations)

50,000

30,000

20,000

77,381 2,125

-179,506

99,189

-103,786

-184,103

411,590

119,113

1965 estimate

795,005

82,077

143,044

32,935

35,154

71,044

245,649

-77,381

1,935,611 -126,838

50,000

50,000

3,400

40,000

3,400

3,000

1,200

62,981

-136,600 -163.000

103,786

147,186

Expenditures

-147, 186
-180,000

-139,186 -155,000

Costs and Obligations (in thousands of dollars)

394,500

102,600

850,000

113,000

167,000

1,577,846 1,697,400 1,674,000

-1,757,352

-1,834,000 -1,837,000

45,600 126,100

175,800

1,974,600 -261,600

1966 estimate

-230,928 -15,600 1,577,846 1,697,400

-62,981

.

55,000

65,000

60,000

15,000

30,000

981

389.000

96,600 840,000

103,000

155,000

42,600

124,500

170,900

1,921,600

-337.100

89,500 1,674,000

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Clothing and textiles:

Operating and other stocks.
Mobilization reserve stocks..
Long supply..
Medical and dental material:
Operating and other stocks..
Mobilization reserve stocks.
Long supply...
Subsistence:
Operating and other stocks.
Mobilization reserve stocks.
Long supply....

1964 actual

8,982

611

3,505 -19,178

53,134

19,268 49,599 -34,815 149,822

230,928

79.5 98.1 29.7

1965 estimate

73.9 95.8 8.6

1966 estimate

500

11.000

5,200

300

-1,400

76.9 92.5
17.9 20.1

15,600

The 1964 increase of $231 million is the net of $375 million in inventory capitalized (including electronics items, electric wire and cable, and certain mechanical and construction items), partly offset by $144 million in decapitalizations. The decapitalizations included paint, hand tools, and automotive items. The 1966 decapitalization of $89.5 million reflects the transfer of prepositioned war reserve stocks of medical material from the Defense Supply Agency to the military services for management. Budget program. The increase in obligations in 1965 and 1966 above the 1964 level reflects the increased sales and an increase in procurement for augmentation of mobilization reserves. These procurements amounted to $3.5 million in 1964 and are estimated at $33 million in 1965 and $23 million in 1966.

This program reflects a drawdown of peacetime on hand and on order stocks in 1965 of $143.6 million, the difference between $1,664.4 million in obligations and $1,808 million in sales. The 1966 program proposes a drawdown of peacetime on hand and on order stocks of $154 million by estimating $1,651 million in obligations to support sales of $1,805 million.

The budget program provides for year-end inventories as follows (in millions of dollars):

1966 estimate

-89,500

-89,500

1963 1964 1965 1966 actual actual estimate estimate 378.2 314.8 233.7 196.5 379.7 244.4 255.9 255.9 280.0 283.0 223.1 176.3

51.5 43.0 115.1 32.5 7.6 7.5

100.6 85.6
20.0 20.0

General supplies:

Operating and other stocks.
Mobilization reserve stocks.
Long supply
Industrial supplies:

Operating and other stocks.
Mobilization reserve stocks.
Long supply

Fuel supplies:

Operating and other stocks.
Mobilization reserve stocks.
Long supply.
Construction supplies:

Operating and other stocks.
Mobilization reserve stocks.
Long supply..
Automotive supplies:

Operating and other stocks.
Mobilization reserve stocks.
Long supply.
Electronics:

Operating and other stocks
Mobilization reserve stocks.
Long supply..
Summary:

Operating and other stocks.
Mobilization reserve stocks..
Long supply...

Total inventories

1963

actual

Gross expenditures..
Applicable receipts..

96.1

4.8

45.7

Net expenditures

104.5

4.4

197.8

7.2

1.1

1.0

33.3
3.4

50.9

1964 actual

152.7
1.6

72.3 65.6
9.1

5.6

49.0

40.8

99.1

5.4

196.7

38.9 83.0

6.1

31.3 64.1 109.3

.2

15.1

6.8

5.7

162.8 5.3 258.5 251.2

1965 eslim ale

86.5

5.4

130.4

20.2

6.5

3.6

1964 actual
1,530,975
1,715,078

-184,103 -180,000

65.1

36.6

82.1

160.0 6.3 188.2

1966 estimate

54.4

11.6

39.0

67.9

7.8

70.6

Inventory is forecast to decrease by $859 million from the beginning of 1964 to the end of 1966, the net of $157 million in capitalizations, reflected above, and $1,016 million in decreases. The decreases include $402 million in sale of stock without replacement, $498 million to be transferred for donation or sale as surplus, $62 million in donations to other agencies and the military assistance program, $47 million in price reductions, and $7 million in losses and adjustments.

19.5

7.0

3.7

52.0

43.8

55.9

146.2

6.3 149.8

967.3 913.7 783.2 665.1 517.1 414.7 454.9 384.9 927.7 903.5 675.8 502.8

2,412.2 2,231.9 1,913.9 1,552.8

Costs exceed obligations by $883 million for the three years, because inventory is being sold or disposed of at a faster rate than it is being ordered.

Financing the budget program.-Funds for financing the the budget program are derived from sales to authorized customers. The relationship of cash collections and payments is as follows (in thousands of dollars):

Transfers to the military personnel and reserve personnel appropriations were $100 million in 1964 and are estimated at $151 million in 1965 and $195 million for 1966. In addition, $30 million is proposed for transfer to the Defense industrial fund in 1966.

Operating results and financial condition.-The statements indicate net losses of $197 million in 1964, $167 million in 1965, and $117 million in 1966, resulting largely from disposal and donation of excess and surplus inventories. These losses are expected to be reduced in future years as the amount of surplus material in the supply system is reduced, and as the pricing of items in the system is adjusted. Although generation of excess stocks is inevitable in supply operations, every effort is being made to minimize disposal losses and to provide for the recovery of such losses as do occur through appropriate charges to customer accounts, in order to protect the integrity of the capital of the fund.

1965 estimate 1966 estimate 1,641,000 1,650,000 1,821,000 1,805,000

-155,000

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