for 1936. The rate of 3 percent approximates the rate of interest paid by the United States Government on funds borrowed to construct the Canal. The interest charge is based on a total investment of $549,874,826.95, as of June 30, 1936. This capital investment and the expenses listed above do not include any of the expenses incurred by the Government to fortify the Canal nor for buildings and other facilities used by the military forces, such expenditures being properly charged to national defense. Panama Railroad Co. revenues from the operation of its facilities totaled $14,553,291.11; expenses totaled $13,411,773.06, resulting in a net revenue from its various business enterprises of $1,141,518.05. Adding to this miscellaneous profit and loss items amounting to $378,111.22 resulting from interest, exchange, etc., the net revenue received by the Panama Railroad Co. for the year was $1,519,629.27. Dividends declared by the railroad for the year and credited to the United States Government amounted to $700,000. By the end of the year construction of the new town of Gamboa had progressed sufficiently to allow the transfer of the headquarters and shops of the Dredging Division to that station. In addition to this the majority of the employees had moved into the newly built quarters. in Gamboa. It is estimated that the construction of municipal buildings, quarters, and other buildings, as well as all remaining municipal work, will be completed prior to the first of April 1938. INLAND WATERWAYS CORPORATION Satisfactory results were attained by the Inland Waterways Corporation during the fiscal year ending June 30, 1937. This Corporation operates the Federal Barge Line on the Mississippi, Missouri, Illinois, and Warrior Rivers in accordance with congressional authority. The purpose of Congress in establishing this agency to encourage the development of barge transportation on our inland waterways is being: achieved. Net revenue of the Corporation declined sharply during the past year because of the elimination of an existing surcharge. However, rate increases have been recently granted by the Interstate Commerce Commission which will have the effect of increasing the earnings of the Corporation. The operating results of the Corporation for the Government fiscal year ending June 30 were as follows: Tonnage carried by the Corporation and its subsidiary 2, 481, 684 $6, 671, 673. 99 6, 500, 194. 94 171, 479. 05 There was collected a total of $594,211.25 depreciation funds, which deposited with the general fund, makes a total reserve fund as of June 30, 1937, of $4,804,894.35. Of this, $4,493,985.01 was invested in Government bonds and the balance deposited, as follows: Treasurer of the United States. Total... $2,340. 46 308, 568. 98 310, 909. 34: During the year there was a general audit of the financial affairs of the Corporation by Haskins & Sells of New York, who reported assets, liabilities, and corporate net worth, as of December 31, 1936, as follows: Total assets__ Total liabilities. Net worth.. $30, 668, 714. 35 6, 175, 792. 81 24, 492, 921. 54 The auditors certified that the accounting records of the Corporation were consistently kept in accordance with the classification of accounts prescribed by the Interstate Commerce Commission. Respectfully, HARRY H. WOODRING, REPORT OF THE ASSISTANT SECRETARY OF WAR FOR THE FISCAL YEAR ENDED JUNE 30, 1937 DEAR MR. SECRETARY: As I took office just 2 days before the end of the fiscal year, I am unable to submit a report to you based on firsthand knowledge of the activities of the Office of the Assistant Secretary of War during the year. I have formed some definite impressions for improvements, which I am reserving until such time as they can be based on more exact personal knowledge and more complete investigation and checking. STATUTORY DUTIES The two most outstanding of the activities of my office are the statutory duties charged to the Assistant Secretary of War by the National Defense Act. The first, preparing plans to govern Army procurement in an emergency, and providing for the mobilization of industry to meet war-time needs, is of primary importance and the most difficult of all those encountered by the War Department. The second, the supervision and control of the current business of the Department, continues to receive the emphasis due it under the changing conditions in the commercial world and the necessity of keeping pace with the latest developments in private business and effecting the greatest economies in the purchasing of military supplies. INDUSTRIAL MOBILIZATION AND WAR PROCUREMENT PLANNING With the developments in the international situation gradually taking on a more belligerent aspect during the past few years, the task of preparing plans for war-time procurement and for the mobilization of industry has vaulted into a prominent place in the eyes of the major foreign powers. They have concerned themselves with getting their houses in order for a major emergency and have come to realize the necessity of having plans made in peace time in order that the required supplies will be forthcoming on time in case they are needed. In some instances, these nations have been forced to go farther than the mere making of plans-they have proceeded some distance on the road toward completely organizing industry on a war basis. Fortunately, in this country the situation is such, at this time, as to make unnecessary any such measures. Even so, effective industrial planning is an indispensable element in adequate national defense and the War Department is making marked progress in the development of such plans. These cannot help but prove to be a distinct asset in the event that this country should be forced into another war. Industrial Mobilization Plan.-The War Department has made every effort to keep up to date its plans for the organization of industry. During the year just ended, a revision of the industrial mobilization plan of 1933 was completed. It was given general publicity in order that the people of the Nation might be authoritatively informed concerning the status of that phase of national defense. The objective of the plan is to ascertain definitely what supplies are needed, where and how soon they may be procured, all at the lowest cost to the Government with a minimum disruption to normal conditions. It represents the coordinated study and conclusions of the War and Navy Departments, covering the policies, procedure and industrial controls necessary to meet the supply requirements of the armed forces in the event of a major emergency. It has taken into consideration recent discussions in Congressional committees, industrial progress in this country and developments in world affairs. During the first session of the Seventy-fifth Congress, both the Senate and House Committees on Military Affairs have given extensive consideration to legislation designed to prevent profiteering in war and to give the Government the industrial controls required during the emergency. To meet this objective, the Senate Military Affairs Committee has favorably reported S. 25, a bill entitled, "To prevent profiteering in time of war and to equalize the burdens of war and thus provide for the national defense, and promote peace.' This bill is now before the Senate Committee on Finance for consideration of its tax provisions. The House Committee on Military Affairs has favorably reported H. R. 6704, a companion bill, which is now on the Union Calendar of the House of Representatives. When a war-time emergency arises, the broad control measures 'contained in these bills will permit the prompt initiation and execution of an orderly and effective procurement program of munitions. In the interest of national defense, it is desirable that a basic law, delegating these controls, within the authority of the Executive, be enacted in time of peace in order to insure prompt execution if the necessity arises and to furnish a sound basis of legal authority to war procurement planning. Allocation system. The allocation system under the plan provides a means for equitable division of the productive capacity of the country and for the assignment in peace time, to specific facilities, of definite production tasks to meet the emergency requirements of the several procuring agencies. Selected plants are allocated on a priority basis, in whole or in part, to the agencies concerned and plans are made for conversion and construction where necessary. Through personal contacts by the district executives and by drawings and specifications which are furnished them, the individual plants are forewarned of and become familiar with the tasks to be performed. The willingness and ability of a concern to do the work is indicated by signature of the management to a schedule of production covering the items desired. The industrial organizations are thus given the opportunity to obviate many of the difficulties that otherwise might be encountered, thereby facilitating early production. In effect, the allocation system permits prearrangement for the production of munitions, safeguards essential civilian needs, reduces undesirable competition to a minimum, and equitably distributes the war load. During the past year in the revision of policies governing allocations, greater emphasis has been placed upon individual plant assignments and the recording of load. Special attention has been given to the allocation of productive sources of contributory requirements, such as machine tools, optical glass, and basic steel products. The supply arms and services are now engaged actively in a complete check-up and readjustment of all allocated facilities. Com mendable progress is being made in furtherance of the policy to resurvey all allocated facilities at least once every 3 years. Loads are being reported and recorded both by item or commodity departments and by plants as a whole. Under the principles outlined in the Industrial Mobilization Plan, Revised 1936, the adjustment of allocations between the Army and the Navy has continued through the medium of the Army and Navy Munitions Board. Of special significance in this connection has been the action taken to reapportion the capacity for aeronautical matériel, powder and explosives, machine tools, and shell forgings. Construction.-The Construction Division annex to the Industrial Mobilization Plan was completed during the year. The annex sets forth in detail the measures to be adopted in an emergency for the control and coordination necessary to assure the mobilization of the construction industry and the adequate flow of building materials in accordance with the general policies laid down in the basic plan. Procurement plans.-After a thorough survey of the situation during the year, it was evident that the progress made by the supply arms and services in submitting procurement plans could be materially improved through a simplification of the system. A new directive was issued specifying that plans would be submitted on a revised standard form, thereby greatly reducing the work required in the writing of procurement plans. The supply arms and services enthusiastically received the new system and have made very satisfactory progress under it. The majority of the supply arms and services have now completed procurement plans for most of the important items assigned to them. The status of procurement plans of all the supply arms and services has made it possible to evaluate the procurement possibilities of American industry in terms of the mobilization of man power. In other words, it is now possible for the Planning Branch of this office to determine the rate at which men mobilized can be equipped month by month. An analysis based upon procurement planning records revealed that the man power mobilization rate specified by the War Department was not in line with supply. These factors are now in the process of being coordinated. Procurement data have been furnished in regard to the most critical items of equipment to assist in the adjustment between the military and economic requirements involved in the mobilization of the Nation's man power. The value of procurement planning in the determination of sound plans for national defense is being given its proper weight in the preparation of these plans. Standards and specifications. During the year the regulations governing the development, classification of, and specifications for types of equipment were revised and brought up to date. These regulations form a basis for directing and coordinating the various agencies of the War Department in the important work of applying commercial standard materials and manufacturing practices to the design of military items of equipment and to the preparation of specifications. All proposed standards and specifications of the supply arms and services, prior to adoption, are being reviewed by this office from the viewpoint of their adaptability to mass production. Effort is being continuously made to accelerate this work and to effect a closer relationship between the Army and standardizing bodies of |