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Transportation terminal activities.-These activities are responsible for planning, regulating, and controlling the export and import movement of cargo and personnel through Army and commercial ports on the Atlantic, Pacific, and Gulf coasts and the Great Lakes area. In addition, this program includes the cost of auxiliary port services and support of tenants and satellites. The increase in costs forecast in 1965 is due mainly to a substantial increase in cargo workload. The decrease in the program in 1966 is attributable to the closing of New Orleans and Hampton Roads Army terminals in July 1965. Cargo which moved over these facilities will move over commercial or other facilities in these areas. Estimated workload and costs are as follows (in thousands):

1966

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

Adjustments in selected resources consist of inventory adjustments charged to prior year income, $48 thousand. and assets capitalized, $5 thousand, offset by accrued leave canceled, $139 thousand, in 1964; accrued leave assumed, $364 thousand, and materials and supplies transferred to the Army Stock Fund, $6,916 thousand, in 1965; and accrued leave canceled, $136 thousand, in 1966.

The Army Industrial Fund, under authority in 10 U.S.C. 2208 is currently used at 23 industrial and commercial type activities for initially financing research and limited quantity production of goods and services needed by the three military departments and other government agencies on a reimbursable basis.

Munitions command.-This command manages nuclear and nonnuclear ammunition, rocket and missile warhead sections, chemical, biological and radiological materiel and propellant actuated devices. The six industrial facilities under this command perform research and development, production engineering, pilot manufacturing, testing and evaluating, cataloging, standardization, and inventory management and control of munitions items. The program in this command for 1965 and 1966 will be almost identical to the 1964 program which amounted to $265.9

million.

Missile command.This activity includes the Watertown Arsenal and the Missile Command at Redstone Arsenal, which manages materiel development programs for free rockets, guided and ballistic missiles, rocket motors and components, target missiles (except Zeus evaluation targets), and special purpose and missile test equipment. The decrease in the program for this activity is due to the scheduled closing of Watertown Arsenal in September 1967. Weapons command. This command manages combat vehicles, artillery, mortars, recoilless rifles, gun carriages, recoil mechanisms, rocket launchers, and a variety of arms, and accessories. Its mission for the assigned items encompasses the span from research through pilot production including support, management, training devices, and technical assistance. The planned programs for 1965 and 1966 reflect the phasedown of industrial operations at Springfield Armory which is scheduled to be closed in April 1968.

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750-100-65- -23

Cargo in measurement tons. Passengers transhipped. Cost of services rendered.

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estimate

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Operations of the Army's CONUS ports will be taken over in 1965 by the newly established Military Traffic Management and Terminal Service Agency.

Depot manufacturing and maintenance activities.-Activities under this program are units of multiple mission installations. Included in this program are a quartermaster shop, an engineer shop, a signal shop, and a rail equipment repair shop. These shops rebuild and restore unserviceable equipment. The program decreases in 1965 and 1966 because of discontinuance of activities of the Quartermaster and Engineer shops at Ogden, Utah. This is offset in part by an increase in work at the engineer shop at Atlanta Army Depot and the signal shop at Lexington-Blue Grass Army Depot.

Proving grounds and laboratories.-This activity includes two proving grounds which engage primarily in research, test and evaluation of ordnance weapons, materials and equipment, and chemical agents, and a laboratory which specializes in fuses. The planned program will increase about 5% in 1965 over 1964 and then decrease slightly in 1966.

Army pictorial center. This installation produces, procures, processes, distributes and evaluates motion pictures, foreign language rescorings, filmstrips, recordings, and television programs for use in military training, research, orientation, and education. Slight program decreases are planned for 1965 and 1966.

Financing the budget program.—This program is financed by reimbursement from customers for goods produced or services performed. The estimates of orders to be received in 1965 and 1966 are derived from the current un

worked orders on hand and program guidance from major customers. New orders in 1965 and 1966 will decline from the 1964 figure due to planned base closures and reduction in Army procurement programs. The balance of unworked and unbilled customers orders is expected to be reduced from $414 million at the end of 1964 to $300 million by end of 1966.

Operating results and financial condition.-The following table indicates 1964 net revenue and expense by activity (in thousands of dollars):

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Financial Condition (in thousands of dollars)

REVOLVING AND MANAGEMENT FUNDS-Con.

Intragovernmental funds—Continued

ARMY INDUSTRIAL FUND-Continued

The net gain of $465 thousand primarily in the munitions and weapons commands, and depot maintenance activities reflects an operating variance resulting from the use of standard costs and the pricing of customer billings at predetermined rates. Revenue and expense are projected to break even in 1965 and 1966.

Collections exceeded expenditures by $46 million in 1964 but expenditures will exceed collections by $43.5 million in 1965 and $24.2 million in 1966. The Government equity at the end of 1966 is estimated at $35.6 million, composed of $26.3 million in reappropriations and $7.4 million in capitalized assets, plus an accumulated operating gain of $1.9 million. This investment is required for the financing of activities currently under the fund. In 1966, $30 million of appropriated capital is proposed for transfer to Military personnel, Army. The reduction in Government equity from $72.7 million in 1964 is due to decapitalization and transfer of $6.9 million in material inventory to the Army Stock Fund in 1965 and the proposed transfer of $30 million in 1966.

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

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Government equity:

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Non-interest-bearing capital:
Start of year.
Adjustment of prior year
balance.

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235,103 226,745

Transportation..

71,438

79,038

72,099

Printing..

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Supply services...

50,148

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Capital additions and improvements.

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Support of nonindustrial activities.

Unobligated balance transferred to "Military personnel, Army" (77 Stat. 254 and annual appropriation act)

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77,221 86,804 83,505 30,575 26,098 25,747

768,96877 770,036 726,137

11,118 11,325

11,340

Materials and supplies transferred to Army Stock Fund.. Assets capitalized or decapi

-6,916

talized.

-5

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End of year.

122,726 120,458 112,358 462,275 470,906 441,402 112,323 114,533 114,407 60,753 -76

Retained earnings..

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63,345 58,338

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Net income for the year.

Unpaid undelivered orders 1 Unobligated balance..

465

Analysis of retained earnings:

Retained earnings, start of year.

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Adjustment of prior year revenue.

1,886

151

Adjustment of prior year expense... Inventory adjustment charged.

49

-48

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Total Government equity... 121,988

Analysis of Government Equity (in thousands of dollars)

96,937 73,790 65,157 60,351 418,714 379,776 309,272 254,735

Unbilled balance of customer orders-439,869-414,046 -333,112-300,234

Invested capital and earnings...

46,206 33,198 24,121 20,722 Total Government equity... 121,988 72,718 65,438 35,574

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Shipyards...

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810,704

Military Sea Transporta

tion Service...

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Research..

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116,371

Base services...

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Aircraft maintenance fa

cilities...

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86,959 289,008

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

Adjustments in selected resources consist of: Accrued leave liquidated. -$1,348 thousand in 1964; and materials and supplies capitalized, net, -$337 thousand, and accrued leave liquidated, -$454 thousand in 1965.

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This fund finances 65 industrial and commercial type activities on a reimbursable basis (10 U.S.C. 2208).

Budget program. The cost of goods and services produced by activities operated under the Navy Industrial Fund is expected to decrease in 1965 as compared with 1964 by $67.7 million or 3.1%. This decrease reflects reduced activity at the naval shipyards partially offset by minor increases in other programs. The decrease in 1966 of $68.2 million results primarily from further decreases in the shipyard program, and the anticipated sale of the ordnance plant at Macon, Ga., to private enterprise.

Printing. This program includes the operations of 30 printing plants. These plants provide printing services in the Washington area and throughout the defense field establishment. The printing workload for 1965 and 1966 indicates a relatively stable condition for this program.

REVOLVING AND MANAGEMENT FUNDS -Con. Intragovernmental funds-Continued

NAVY INDUSTRIAL FUND-Continued

Ordnance. With the anticipated sale of the Naval Ordnance Plant at Macon, Ga., to a private concern, this program will include six major activities. These activities are engaged in the production and overhaul and repair of naval ordnance, ammunition, and propellants. The decrease in costs during 1966 relates primarily to the sale of the ordnance plant at Macon.

Shipyards.-The shipyard program for 1966 includes 10 activities engaged in the construction, overhaul, repair, and alteration of active and reserve fleet vessels. The shipyard workload and employment have been decreasing since 1962. The dollar value of customer orders on the books of the shipyards decreased $141.7 million and $9.6 million, respectively, during 1963 and 1964, and is expected to further decrease by $75.3 million during 1965. In 1966 a decrease of $12.5 million is planned. This represents a decrease in workload carryover of $239.1 million for the period 1963-66. Additional cost reductions result from the closing of the San Diego ship repair facility in 1964 and the consolidation of the San Francisco and Mare Island shipyard management in 1965, as announced by the Secretary of Defense on November 19, 1964. The future closing of the New York and Portsmouth, N.H., naval shipyards were also announced at

that time.

Military Sea Transportation Service. This organization provides ocean transportation of dry cargo, passenger, and petroleum products, and provides the ocean platforms for scientific and other special projects. The estimates include the costs of operating Government-owned ships and the procurement of commercial augmentation. Principal changes in MSTS operating programs are the marked increase in the number of project ships performing special programs for sponsoring agencies and the reduction in passenger sealift resulting from the placing of 8 of the 16 MSTS nucleus fleet troop transports in ready reserve, rather than full operating status, and greater use of air transportation. A summary of workload and costs (dollars in thousands) is provided in the following table:

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the Washington, D.C., area, and the Naval Ordnance Laboratory, Corona, Calif. These activities provide Navy in-house research capability into the physical sciences, the shapes and forms of naval vessels, and other ship design problems, and into guided missile fuzes. Workload and employment at these activities have been relatively stable for the last several years. The fluctuations in costs stem primarily from fluctuations in contractual services procured from commercial sources.

Base services. This program includes seven activities engaged in providing utility, maintenance, custodial and transportation services for customers in their geographic areas. The workload, costs, and employment reflect a relatively stable condition at these activities.

Aircraft maintenance. This program includes seven activities involved in the overhaul and repair of aircraft and missiles, and the manufacture and repair of aircraft parts and assemblies. The increase in workload and costs in 1966 over 1965 reflects the increase in the aircraft and

engine overhaul program.

Financing the budget program. This program is financed by orders citing the customers' appropriations. Costs are financed by the working capital of the fund, which is augmented by the customers' prepayment of large orders, and billed to the customers' appropriations upon receipt of the prepayment or upon completion of the work.

The following table shows 1964 net revenue and expense by activity (in thousands of dollars):

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Operating results and financial condition. In 1964 retained earnings increased $5.7 million, the result of a $4.9 million gain from operations and $0.8 million prior year adjustments. Government investment at June 30, 1966 is estimated at $173.9 million representing $190.4 million in reappropriations and $28.3 million in retained 12,777,823 earnings offset, in part, by $44.8 million representing the 3.741 excess of liabilities assumed over assets capitalized.

1964 actual 1965 estimate 1966 estimate 13,136,582 6,263 $270,189

13,637,819

$266,660

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

5.391 $278.919

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