All of the foregoing customers had entered into prime facilities1958 U.S. Tax Ct. LEXIS 111">*114 contracts with the Signal Corps of the United States Army, under a production plan known as the "Spiral Four Program" (hereinafter called the Program). This Program, which sought the production of a certain type of cable, required, inter alia, substantial quantities of stainless steel wire. Title to the machines was to vest in the Government upon acquisition by or installation in a respective customer's plant.

Stainless steel wire is comparatively difficult to manufacture, and has been produced in the United States only since about 1934. The prime contracts required the seven foregoing companies to manufacture or otherwise acquire for the Government the machines necessary for its production. At that time the requirements of the Signal Corps exceeded by several times existing productive capacity.

It was understood that speed was essential and interchangeability desirable, and, accordingly, the seven customers were prevailed upon to accept standard specifications, contrary to usual practice, whereby each mill sets its own standards. Although petitioner dealt directly with the seven companies, it was aware that ultimately the Government would pay for the machines. Competitive1958 U.S. Tax Ct. LEXIS 111">*115 bidding was not required by the prime contracts, but competition existed to some degree between petitioner and other manufacturers.

The machines manufactured by petitioner in connection with the Program were of standard types, except for minor changes, and petitioner's activities under the Program were essentially multiple manufacture of machines with standardized specifications. Although 30 T.C. 949">*951 standardization resulted or should have resulted in substantial cost savings, the costs and prices of those machines were determined in accordance with the usual formula used by petitioner, irrespective of whether the customers had a contract or subcontract subject to renegotiation. The orders received as a result of the Program did not require expansion of facilities or new capital investment. The machines produced for the Program were essentially the same as those produced for other customers during 1952.

Orders placed with petitioner pursuant to the Program had priority over other orders. The normal time of delivery prior to the receipt of the Program orders was 7 to 9 months. As a result of those orders, delivery time on other orders became 12 to 14 months. Petitioner was entitled1958 U.S. Tax Ct. LEXIS 111">*116 to a priority in the acquisition of materials needed to fulfill its commitments under the Program.

Under the prime contracts the machines could, under stated conditions, be leased by the Government to the contractors or others for commercial production. Eventually, such leases were entered into with respect to many of the machines produced by petitioner under the Program. The leases to Allegheny Ludlum Steel Corporation and Crucible Steel Company were effective virtually as soon as the machines purchased by those two companies were delivered. All leases were terminable on unilateral notice by the Government in case of mobilization.

As a result of the availability of the machines for commercial production, petitioner's customers directed additional efforts toward the acquisition of stainless steel wire business. Had the machines not been so available, such business would not have been sought or it would in some instances have become necessary to acquire machines by purchase or otherwise. The foregoing leases permitted full-scale commercial production on a 24-hour per day basis. Actual use for commercial production was as follows:

30 T.C. 949">*952 A number of the leased machines were returned to the Government by the lessees because not needed for commercial use.

From 1946 to 1956, inclusive, petitioner sold in each year machines of the type produced for the Program as follows:

In the same period total machines sold each year by petitioner, sales of the type produced for the Program, and the ratio of the latter to the former, were as follows:

During World War II the major part of petitioner's business consisted of the manufacture of rubber machinery and tube-drawing machinery. The years immediately following World War II constituted a "boom" period for wire-drawing machinery, because the demand had been suppressed during wartime, and petitioner's wire-drawing machinery business enjoyed a large increase.

Petitioner has had for many years an experimental department, which has resulted in the improvement of its machines. The machines produced in 1952 for the Program received the benefit of experimentation and research of earlier years, as did machines produced in that year for other customers. Orders are not made by customers 1958 U.S. Tax Ct. LEXIS 111">*119 for experimental machines, and the expenses of that department are not allocable to specific orders or items of income. Petitioner has consistently treated the expense of the experimental department as overhead, and distributed it ratably over the total business done in each year, based upon factory cost. This practice was followed in 1952 with respect to renegotiable and nonrenegotiable business.

30 T.C. 949">*953 Petitioner maintains on its books an engineering account, which includes various items of expenses incurred in respect of the business as a whole and not directly allocable to specific items of receipt. Such expenses, as in the case of research and experimental costs, are treated as overhead and allocated ratably over the year's business upon the basis of factory cost.

Research and experimental expenses and engineering expenses of the above-described nature for the period 1941 to 1956, inclusive, were as follows:

1958 U.S. Tax Ct. LEXIS 111">*120 Petitioner's books have at all relevant times been kept on an accrual basis. In 1952, its "renegotiable" and "nonrenegotiable" sales, and the costs, profits, and percentage of profits to net sales attributable to each class of business were as follows:

During the years 1941 to 1956, inclusive, petitioner's net sales, costs, other income, net1958 U.S. Tax Ct. LEXIS 111">*121 profits, and the percentage of net profits to sales were as follows: 30 T.C. 949">*954

1958 U.S. Tax Ct. LEXIS 111">*122 Petitioner's sales, profits, and profit percentage for 1952 after renegotiation were as follows:

The net investment in petitioner's stock and petitioner's net worth and profit ratio thereto as of December 31 in each of the years 1941 to 1952, inclusive, were as follows:

1958 U.S. Tax Ct. LEXIS 111">*123 Petitioner sold in 1952 under the Program various types of machines as follows: 30 T.C. 949">*955

All machines of each type above set forth had substantially identical specifications, although, except in the case of the take-up frames, they were sold to different customers.

During the years 1946 to 1955, inclusive, petitioner's sales of the above types of stainless steel wire-drawing machines (including sales in 1952 not under the Program) were as follows:

30 T.C. 949">*956 Petitioner financed its undertakings in connection with the Program solely through its own working capital. Material was conserved by reducing spoilage to 2 per cent from the normal rate of 5 per cent. No unusual bonuses or increases in salary were paid in 1952.

Before petitioner received orders for any machines under the Program its financial status and physical plant were investigated, and found to be in satisfactory condition. Management was determined to be satisfactory and the machine shop facilities were regarded as excellent. Petitioner's performance was likewise considered to be excellent.

In 1952, on net sales in the amount of $ 1,960,961 (the amount of petitioner's actual net sales under the Program plus a small amount of other "renegotiable" sales, reduced by $ 200,000), petitioner's expectable 30 T.C. 949">*957 net profits, on the basis of its past history, were in the amount of approximately $ 232,000.

Petitioner's deliveries to other customers were delayed several months as a result of the Program. Many sales which were made in 1953, when net profits were slightly below 7 per cent of sales, would, 1958 U.S. Tax Ct. LEXIS 111">*125 but for the Program, have been consummated in 1952.

OPINION.

Petitioner first contends that section 106 (c) of the Renegotiation Act of 1951 applies. ¹ Under this theory, only five twenty-fifths of profits realized under the Program would be subject to renegotiation. A careful reading of the statute cited requires us to reject that argument.

1958 U.S. Tax Ct. LEXIS 111">*126 Subcontracts whereby a purchaser acquires equipment for the account of the Government are expressly denied relief, pursuant to section 106 (c) (2) (B). The purchases here in question were clearly for the account of the Government.

Petitioner argues that the leases executed by the Government place it in as favorable an equitable position as manufacturers afforded relief under the express terms of the statute. That argument, however appealing, is irrelevant here. This Court has no equitable jurisdiction and the statute clearly and unambiguously requires us to deny to petitioner the advantage sought. Cf. , on appeal (C. A. 9). There is no ambiguity, and thus no room for the "liberal" interpretation urged. ; and cf. . Petitioner, in effect, urges us to legislate. That we may not do.

30 T.C. 949">*958 It is unnecessary to determine whether a different result would be required by section 106 (c) as amended in 1954 and 1955. ² Those amendments effected changes in the law applicable1958 U.S. Tax Ct. LEXIS 111">*127 only to fiscal years ending on or after June 30, 1953. There is no evidence before us that any part of the profits in question was earned in such a fiscal year of the petitioner.

1958 U.S. Tax Ct. LEXIS 111">*128 We must now determine whether in fact petitioner realized excessive profits under the Program in 1952. The Board has determined that profits were excessive in the amount of $ 200,000. Petitioner bears the burden of proving that determination erroneous. ; ; ; .

Petitioner claims that in 1951 and 1952 it lost business as a result of the Program, and that in accepting orders under the Program it assumed a risk of saturation of its post-1952 market. The foregoing matters are claimed to constitute a "risk" or "other factor" within the purview of section 103 (e) (3) and/or (6), ³ and that as a result, petitioner realized no excessive profits in 1952.

1958 U.S. Tax Ct. LEXIS 111">*129 30 T.C. 949">*959 The six "factors" set forth in section 103 (e) (as well as the matter of efficiency also mentioned therein) are merely quantitative. The presence in a given case of one or more of such factors does not automatically require a finding of no excessive profits. It is evidence, to be weighed together with other evidence, of the existence or absence of such profits, and, if excessive profits were realized, the amount thereof. And we may not assume, but it must be affirmatively proved by petitioner, that the Board has failed to give proper consideration and weight in reaching its determination to all evidence favoring petitioner, including the matters enumerated in the foregoing statute.

We believe that petitioner did lose some business in 1951 and 1952 as a result of the Program, although not to the extent claimed, and less, in terms of net sales, than business acquired solely because of the Program, but the record utterly fails to convince us that the business lost would have resulted in profits as high as those realized under the Program, or, indeed, higher than those attained on other civilian business in that year.

We are likewise satisfied that petitioner assumed a risk1958 U.S. Tax Ct. LEXIS 111">*130 that its post-1952 market would be saturated to some extent and some business subsequently lost as a result of the Program. In this connection, we do not deem tenable respondent's objections to evidence of the sales and profits of such later years. Far from being irrelevant and immaterial, it is the best evidence available of the risk undertaken in 1952. It is, of course, not itself conclusive, but will vary in probative value according to the extent to which it appears to have been caused by the Program.

We conclude that, while petitioner assumed a risk of the nature alleged, it was not nearly as extensive as claimed. In part, petitioner's own evidence requires this conclusion.

The average useful life of the machines here in issue was 25 years, yet the decline in petitioner's business after 1952 lasted no longer than 3 years, and was followed in 1956 by a rise in sales to an unprecedented level. No lease for commercial use was consummated with respect to 16 of the 101 machines sold under the Program. None of the 85 machines leased was actually so used for more than a fraction of the time; 60 for an almost insignificant portion (1.7 per cent in the case of 34 machines and 5.51958 U.S. Tax Ct. LEXIS 111">*131 per cent in the case of 26 machines). And the leases with respect to 23 of the remaining machines were first consummated in mid-1954, well into the post-1952 decline in petitioner's business, which it here seeks to ascribe to the Program. Moreover, the leases covering these 23 machines, which received by far the most extensive commercial use of any so leased, continued at least throughout 1956, in which year, as previously noted, petitioner's 30 T.C. 949">*960 net sales reached an all-time high. There is no evidence of the extent to which the remaining 2 machines were used for commercial production. In summary, even accepting and giving great weight to the evidence of actual events after 1952, the record fails to establish that any risk of market saturation was assumed in 1952 which was not properly and adequately considered by the Board.

Petitioner argues in its brief that while the profit realized on commercial sales in 1952 represented 11.5 per cent of net sales, its profit under the Program remaining after renegotiation represents 11.8 per cent of net sales, and that the Board thus allowed profit under the Program to exceed that on nonrenegotiable transactions by only 0.3 per cent. 1958 U.S. Tax Ct. LEXIS 111">*132 It contends that such small additional allowance proves that the Board failed to give more than token consideration to the factors enumerated in section 103 (e) other than normal earnings.

Whatever might have been the legal tenability of that argument, were the record to contain the facts upon which it relies, it cannot prevail here, as it is based upon an arithmetical error.

In 1952, actual net sales and net profits under the Program were, respectively, $ 2,160,961 and $ 455,748, with a resulting rate of profit of 21.1 per cent. These figures, after renegotiation are, respectively, $ 1,960,961, $ 255,748, and 13.0 per cent, not 11.8 per cent as computed by petitioner. Petitioner's error apparently consisted of a failure to reduce net sales as well as net profits by $ 200,000 in computing the post-renegotiation figures. The basis of the Government's claim is that petitioner received $ 200,000 more than it should have for its machines, and the remedial post-renegotiation figures merely show the complete picture which would have resulted absent such alleged excess payment.

Ordinarily, there is no reason why the profit ratio on Government business should exceed that on other 1958 U.S. Tax Ct. LEXIS 111">*133 transactions of a similar nature. Cf. . In fact, where, as here, sales to the Government include factors of standardization and volume production not normally present, the "normal" rate of profit, i. e., that realized on civilian business, may well be excessive. Cf. ; . Here the Board has allowed petitioner a rate of profit under the Program greater than that realized in the same year on nonrenegotiable business to the extent of 1.5 per cent of net sales. We cannot say, on the basis of such a record, that this was inadequate or that the Board failed to treat petitioner fairly.

Furthermore, the foregoing computations are based upon the assumption that 11.5 per cent, the rate of profit realized on nonrenegotiable 30 T.C. 949">*961 business in 1952, is "normal." Yet in 1946 to 1950, inclusive, characterized as "boom" years by one of petitioner's principal officers, such rate averaged 8.5 per cent. An expert called by respondent1958 U.S. Tax Ct. LEXIS 111">*134 estimated petitioner's reasonably expectable profits under the Program to be between $ 218,000 and $ 232,000. This estimate, although in response to a hypothetical question, was based upon all material facts in existence at the commencement of petitioner's entry into the Program. The witness used 1947 and 1948 as "normal" years, and it does not appear that he knew or made any adjustment because they were in fact "boom" years. The foregoing strongly suggests that any error or inaccuracy on the part of the Board actually favored petitioner.

While it is not strongly urged, petitioner does seem to contend that it is entitled to some adjustment or consideration for unusual efficiency. This seems to be based upon (1) standardization of specifications, and (2) a reduction of spoilage from the "normal" 5 per cent to 2 per cent.

Efficiency merely somewhat above average is insufficient to influence to any substantial degree the conclusion as to the existence and extent of excessive profits. , appeal dismissed (C. A., D. C.), certiorari denied .1958 U.S. Tax Ct. LEXIS 111">*135 The record fails to demonstrate that petitioner was generally or in any particular extraordinarily efficient or unusually ingenious in carrying out its duties.

Standardization was required by the Signal Corps, and was agreed to by the seven prime contractors because of such requirement, not as a result of any peculiar competence or persuasiveness on petitioner's part. And reduction of spoilage may well have resulted as a matter of course from standardization and other mass production features of the orders under the Program. Cf. .

Respondent has argued that petitioner overcharged the Program in respect of engineering expenses and research and experimental expenses. We feel that the evidence as a whole does show to be excessive the amounts of these expenses allocated by petitioner to sales under the Program but in view of the fact that we are already amply convinced that the Board did not err to petitioner's prejudice, we need not discuss this point further.

Having carefully and painstakingly reviewed the entire record, we do not find error in the determination of the Board.

An 1958 U.S. Tax Ct. LEXIS 111">*136 order will be issued in accordance herewith.