The following list of contracts show in the questionnaires submitted by the contractors that they made a profit of 20 to 30 percent on the cost. They are correctly printed in the preliminary report.

They are

The following list of contracts show in the questionnaires submitted by the contractors that they made a profit of 10 to 20 percent on the cost. correctly printed in the preliminary report.

EXHIBIT No. 9

(Navy Department, Bureau of Supplies and Accounts, Cost Inspection Division)
COST INSPECTION REPORT ON NAVY CONTRACTS WITH JACK &
HEINTZ, INC., SOLON ROAD, BEDFORD, OHIO, YEAR ENDED
DECEMBER 31, 1941

In accordance with the instructions contained in a letter from the Under Secre-
tary of the Navy to the Chief of the Bureau of Supplies and Accounts, file
L4-3 (32), QM (411223), Aer-PR-4-OK, QM (8598), dated January 2, 1942, an
examination has been made of the results of operations of Jack & Heintz, Inc.,
Solon Road, Bedford, Ohio, for the fiscal year ended October 31, 1941, for the
purpose of determining costs and profits attributable to fixed-price contracts for
aircraft starters and hand cranks awarded to the contractor by the Navy Depart-
ment.

SCOPE OF EXAMINATION

The examination consisted of a general review and analyses of certain of the
balance sheet and operating accounts, supplemented by test inspection of vouchers,
pay-roll summaries, and other data. Information and explanations were obtained
from officers and employees of the contractor, but a detail examination of all the
accounts and transactions was not made. The net profit shown in exhibit A of
this report was reconciled with the net taxable income reported in the Federal
income and excess-profits tax returns. The records of the contractor had not
been audited by independent public accountants and were not maintained in a
manner that would readily permit a complete and detailed audit of contract costs.

HISTORY AND ORGANIZATION

The company was incorporated on November 5, 1940, under the laws of the State

of Ohio, for the purpose of manufacturing and research and development in con-

nection therewith. The authorized capital stock of the company, provided in the

articles of incorporation, consists of 100 shares of capital stock without par value

having an aggregate stated capital of $500. In accordance with resolutions

adopted by the incorporators of the company at a meeting held November 7,

1940, the consideration to be received for the shares authorized was fixed at $1,000

per share and the company issued all its authorized shares in exchange for the

assets and business of Jack-Heintz, Ltd. (predecessor company), as of October 31,

1940, and assumed the obligations of that company as of that date. The incor-

porators of the company allocated the amount of $99,500 from the proceeds for

the issue of the authorized capital stock to paid-in surplus. The incorporators

and their respective stock holdings are as follows:

DEFENSE CONTRACTS AWARDED

Negotiated fixed-price contracts awarded to the contractor by the War and Navy Departments for aircraft engine "inertia" type starters, spare parts, and flexible hand cranks aggregated $14,670,582.35 as at December 31, 1941, and are summarized hereunder as follows:

War Department, Army Air Corps.
Navy Department, Bureau of Aeronautics.

Total...

$12, 849, 221. 35 1, 821, 361. 00 14, 670, 582. 35

Details of the foreging contracts, delivery schedules, and actual deliveries to December 31, 1941, are presented in schedule 4 of this report. It will be observed from this schedule that actual deliveries to December 31, 1941, are in advance of contractual requirements. Units delivered in the period from March 1941 through December 1941, aggregate 11,272 as compared with contractual requirements of of 5,850 units.

Excluding spare parts and experimental starters, the contracts awarded by the War and Navy Departments were for JH-5 "inertia" starters and flexible hand cranks. The unit prices specified in each production contract are as follows:

1 Unit price of $600 less 10 percent discount, plus $13.75 change costs. Unit price of $525 less 10 percent discount.

Mr. William S. Jack, president of the company, stated that the unit price differentials can be attributed to variations in the number of units in each contract. Mr. Jack further stated that at the time the contracts were negotiated the company had not produced a sufficient quantity of the starters from which reliable costs could be determined and, for this reason, the prices quoted were based on his best judgment at the time.

The Navy auditors were informed by Mr. Jack that a contract had been negotiated with the Army Air Corps for 38,910 starters, JH-3, 3D, 5B, 5E, and 5L, ranging in unit price from $375 for the JH-3 to $440 per unit for JH-5E and JH-5L.

RESULTS OF OPERATIONS

The contractor's productive capacity is directed almost entirely to defense purposes. Net sales for the fiscal year ended October 31, 1941, aggregated $4,339,379.52 of which $4,202,941.25, or approximately 97 percent, are attributable to deliveries under contracts awarded by the War and Navy Departments. The net profit shown on the books of the contractor for the fiscal year ended October 31, 1941, before provision for Federal income and excess-profits taxes, amounted to $376,537.38, or approximately 8.68 percent of net sales. After deducting the provision for Federal taxes, the balance of net profit transferred to the contractor's earned surplus for the fiscal year amounted to $204,316.81 or approximately 4.71 percent of net sales. This surplus credit is equivalent to approximately 204 percent of the capital stock and paid-in surplus with which the contractor commenced operations on November 1, 1940.