Full opinion text
OPINION PER CURIAM: This renegotiation case comes before the court on defendant’s exceptions to the recommended decision, filed July 23, 1975, by Trial Judge Joseph V. Colaianni, pursuant to Rule 134(h), having been submitted on the briefs and oral argument of counsel. With the qualification to be stated in the next paragraph, the court agrees with the recommended decision, as hereinafter set forth, and hereby affirms and adopts the same, with minor modifications, as the basis for its judgment in this case. The court does not understand the trial judge’s opinion as holding that use of the weighted guidelines method of determining reasonable profits (or a method patterned on that system) is automatically forbidden in renegotiation. That method is not outlawed per se if properly used, but, as the trial judge points out, it has some inherent dangers in assessing performance after the fact, which must be carefully guarded against. In this instance, defendant’s expert witness did not so use the method, and perhaps could not in the circumstances, as to make a convincing presentation that plaintiff’s profits were in fact excessive or to show the amount of the excess. The trial judge’s opinion underscores the particular defects of the witness’s presentation, and we agree with that criticism. The defendant has not carried the burden it bears, under Lykes Bros. S.S. Co. v. United States, 459 F.2d 1393, 198 Ct.Cl. 312 (1972), of showing that plaintiff realized excessive profits and the amount of such excess. Accordingly, plaintiff is entitled to a refund of the amount paid to defendant, together with interest as provided by the Renegotiation Act of 1951, as amended. OPINION OF TRIAL JUDGE COLAIANNI, Trial Judge: Plaintiff was a sole-source supplier to the National Aeronautics and Space Administration (NASA) of air transportation of “outsize” cargoes too large to be transported in conventional cargo aircraft. The cargoes which plaintiff transported for NASA consisted of components used in the Apollo Moon Program and included the Douglas Satum-IV B Third Stage and North American Aviation’s Lunar Excursion Module. Plaintiff transported these items from the west coast, where they were assembled, to Kennedy Space Center in Florida. To provide this unique service, plaintiff employed two specially fabricated aircraft known as the “Pregnant Guppy” and the “Super Guppy.” Each had a substantially enlarged fuselage to accommodate the outsize NASA freight. Plaintiff’s contract with NASA was subject to the Renegotiation Act of 1951, 65 Stat. 7, as amended, 50 U.S.C. App. §§ 1211—33 (1970), as amended, (Supp. III, 1973). Dissatisfied with a unilateral determination by the Renegotiation Board that plaintiff realized excessive profits of $250,000 during fiscal year 1966, plaintiff seeks de novo judicial re-determination of the amount of excessive profits, if any, realized by plaintiff in 1966. The action was originally brought in the United States Tax Court and was transferred to the Court of Claims pursuant to the Act of July 1, 1971, Pub.L. No. 92-41, 3(e), 85 Stat. 97, 98 (1971). Lykes Bros. S.S. Co. v. United States, 459 F.2d 1393, 198 Ct.Cl. 312 (1972), established the principle that in de novo redeterminations by this court of the amount of excessive profits, if any, realized by a Government contractor subject to the Act, the burden rests upon the Government both to persuade the court that plaintiff realized excessive profits and to prove the extent of the excessive profits. The plaintiff does not have “the burden of persuasion on the principal issue” because plaintiff is, in effect, seeking declaratory relief from a unilateral assertion of the Renegotiation Board that plaintiff has realized excessive profits in a particular amount. See id. at 327, 328, 459 F.2d at 1401, 1402. “It is the Government, based upon a unilateral order of the Renegotiation Board, which asserts that the contractor owes it money.” Id., 459 F.2d at 1400, 198 Ct.Cl. at 325. The Court of Claims is the first forum in which a contractor has an opportunity to be heard in a manner consistent with procedural due process and in a proceeding generating a formal, reviewable record. Accordingly, in the Court of Claims proceeding, no presumption of correctness is accorded the Renegotiation Board’s order determining excessive profits. The unilateral order is treated simply as a claim by the Government against the contractor. Furthermore, the court held in the Lykes case, supra, that a rule assigning the burden of proving the existence and amount of excessive profits to the Government is more consistent with the Congressional requirement of a full de novo redetermi-nation of excessive profits than the former Tax Court practice placing upon the contractor the burden of proving that its profits were reasonable. 459 F.2d at 1399, 1403, 198 Ct.Cl. 323-24, 330. The Government bears this burden in a rede-termination proceeding despite the fact that the contractor, as plaintiff, is nominally the moving party. For this reason, the court has found it helpful to analogize a renegotiation suit to the type of declaratory judgment action in which an insurer sues for a declaration relieving it of its contractual obligation to pay insurance benefits on the ground that actions of the insured, such as suicide, have made the policy inapplicable. Although such a suit is instituted by the insurer, which has “the burden of providing the existence of the controversy” and the jurisdiction of the court, * * * the burden of proving, by a fair preponderance of the evidence, the existence of the fact or facts upon which the rights and liabilities of the parties depend is upon him who has the affirmative of the issue which forms the basis of the controversy, without regard to whether he is plaintiff or defendant in the suit. In an insurance declaratory judgment action, the party held to have “the affirmative of the issue which forms the basis of the controversy” is the representative of the insured, who must prove that the claim for recovery under the insurance policy is a valid one. In a renegotiation suit, the underlying claim is the Government’s assertion that the contractor realized a particular quantity of excessive profits. In both types of cases, the party asserting the fundamental claim has the burden of proof. The analogy between the insurance declaratory judgment and de novo redetermination of excessive profits in this court is central to the court’s opinion in Lykes. 459 F.2d at 1402, 198 Ct.Cl. at 328-29. By assigning the burden of persuasion to the Government, the court also held that the Government, although the defendant, must bear the risk of nonpersuasion if the evidence in the case should be in equipoise. In an action patterned on the insurance declaratory judgment model, “ * * * the burden of proof is on the party who would receive an adverse judgment if no evidence were submitted.” Annot., 23 A.L.R.2d 1243, 1253 (1952), citing Reliance Life Ins. Co. v. Burgess, 112 F.2d 234 (8th Cir.), cert. denied, 311 U.S. 699, 61 S.Ct. 137, 85 L.Ed. 453 (1940), Bauer v. Clark, 161 F.2d 397 (7th Cir.), cert. denied, 332 U.S. 839, 68 S.Ct. 210, 92 L.Ed. 411 (1947), and Pacific Portland Cement Co. v. Food Mach. & Chem. Corp., 178 F.2d 541 (9th Cir. 1949). Although the Government bears the risk of nonpersuasion, a risk which, once it is assigned, does not shift during the course of litigation, the court held, in the exercise of its discretion over the manner in which its proceedings are to be held, that— * * * the contractor has the initial burden of going forward with proof as to the statutory factors upon which it relies to the extent that the facts pertaining thereto are within its knowledge or possession, are accessible to the public generally in the form of published reports, or are actually made available to the contractor by the Government, * * *. Normally, when the contractor does this, it will have made a prima facie case, i.e., a showing which, unless rebutted, would justify a judgment in accord with the contractor’s contentions. The rule adopted by the court is analogous to a Renegotiation Board Regulation, 32 C.F.R. § 1460.1, “General Considerations,” which provides: (b) The contractor will be given an opportunity to develop and present whatever information is available to it which the contractor may consider pertinent to the determination. [Emphasis added.] During the Board proceedings, the contractor is given an opportunity to present information which it feels places its contribution in the most favorable light, before the Board reaches its conclusion concerning the contractor’s profitability. See Renegotiation Board v. Grumman Aircraft, 421 U.S. 168, 173-74, 175, 176-77, 95 S.Ct. 1491, 44 L.Ed.2d 57 (1975). Similarly, by holding that the contractor may discharge its burden of going forward by presenting evidence as to the statutory factors upon which it relies, the court has defined the contractor’s task as making the best case it can to blunt the impact of the defendant’s anticipated case in chief. Plaintiff’s obligation to proceed first is not an empty formality. Though defendant bears the risk of nonpersuasion regardless of the cogency of plaintiff’s opening presentation, plaintiff’s opening case will inevitably influence the outcome of the litigation by determining how easily defendant can meet its burden of persuading the court that plaintiff realized excessive profits in a particular amount. If its opening presentation is cogent and thorough, plaintiff runs less risk that the Government will be able to overcome that presentation in seeking to meet its burden of persuasion. On the other hand, if plaintiff’s initial presentation is perfunctory, defendant’s chance of success is much greater. Obviously, plaintiff’s rebuttal case would be strictly confined to meeting defendant’s affirmative arguments. In his dissenting opinion in Banner-craft Clothing Co. v. Renegotiation Board, 151 U.S.App.D.C. 174, 466 F.2d 345 (1972), rev’d., 415 U.S. 1, 94 S.Ct. 1028, 39 L.Ed.2d 123 (1974), Judge MacKinnon discussed the importance of the new ground rules adopted by this court in the Lykes decision for protecting the rights of Government contractors undergoing renegotiation: The Court of Claims replaced the United States Tax Court as the forum for review of “final determinations” of the Renegotiation Board on July 1, 1971. One of the reasons given in the legislative history for this transfer of jurisdiction was that the Court of Claims is procedurally more suitable for handling renegotiation cases than the Tax Court. H.R.Rep.No.92-235, 92d Cong., 1st Sess. 6 (1971). Lykes is the first renegotiation case to have been decided in the Court of Claims since the transfer, and the congressional prophecy seems about to be fulfilled. In Lykes * * * the burden of proof concerning the existence and extent of excess profits was shifted to the Government. Perhaps more significantly in the context of our cases here, the burden of going forward with evidence with regard to the statutory factors on which the contractor relies in his argument against an excess profit finding remains with the contractor, but only to the extent that the facts pertaining thereto are within its knowledge or possession, are accessible to the public generally in the form of published reports, or are actually made available to the contractor by the Government, voluntarily through a request made in pre-trial proceedings, by discovery under the rules of the court, or pursuant to the Freedom of Information Act, 5 U.S.C. § 552. Id. at 367. For reasons discussed infra, plaintiff, Aero Spacelines, Inc., had made a prima facie showing that it did not realize excessive profits in 1966. The Government has failed to demonstrate by a preponderance of the evidence either that plaintiff’s profits during 1966 were excessive or the amount of the alleged excess. Stipulated Cost Figures will be Used As a preliminary matter, plaintiff contends that costs not reflected on the books and records of Aero Spacelines, Inc., or in the accounting statement to which the parties stipulated before trial should be recognized by this court in order properly to state the costs incurred by plaintiff in connection with its renegotiable business. Specifically, plaintiff asks for: 1. An adjustment of $95,244 in “unreflected depreciation” to compensate plaintiff for the fact that no depreciation was taken on the “Super Guppy,” one of the aircraft employed by plaintiff, during the first 2 months of 1966 while the Super Guppy was still undergoing flight tests; 2. A credit for an undetermined “reserve for self-insurance” to compensate plaintiff “to the extent that plaintiff either elected or was compelled to act as a self-insurer with respect to certain risks”; and 3. A $950,000 cost allowance to reflect amortization of the excess of the purchase price Aero Spacelines, Inc., paid for its assets over the value of those assets on the books of Haven-hurst Van Nuys, Inc., the corporation which was plaintiff’s predecessor. For reasons which follow, each of these cost adjustments proposed by plaintiff is rejected. The sales, cost, and profit figures to be assayed for excessiveness are those to which the parties stipulated before trial. The parties stipulated that plaintiff had $3,926,239 in renegotiate sales; $2,793,299 in costs attributable to those sales; and $1,132,940, the difference between sales and costs, in renegotiate profits. Plaintiff now argues that additional costs, neither reflected upon plaintiff’s books nor included in the accounting statement to which the parties stipulated, should nevertheless be taken into account. Plaintiff seeks thereby to reduce the $1,132,940 profit figure to which the parties have agreed. The stipulation of facts incorporates by reference, with two exceptions not material here, the statement on accounting for renegotiation submitted as plaintiff’s first exhibit. The stipulation has the effect of adopting the accounting figures of the statement on accounting for renegotiation which put plaintiff’s renegotiable sales, costs, and profit at $3,926,239, $2,793,299 and $1,132,940, respectively. By express terms of the stipulation, these figures were not to be subject to contradiction by additional, conflicting facts. By asking the court to recognize additional costs, which would correspondingly reduce plaintiff’s profits, plaintiff proposes to do precisely what the terms of the stipulation prohibit. Although the court will occasionally relieve a party of its stipulation “if necessary to prevent an injustice, particularly where facts contrary to the stipulation are established by the evidence,” H. B. Zachry Co. v. United States, 344 F.2d 352, 357, 170 Ct.Cl. 115, 123 (1965), the general rule is that absent special considerations, parties are bound by their stipulation on issues of fact. Gresham & Co. v. United States, 470 F.2d 542, 551, 200 Ct.Cl. 97, 112-13 (1972); John McShain, Inc. v. United States, 375 F.2d 829, 831, 179 Ct.Cl. 632, 635 (1967). Analysis of the substance of plaintiff’s three proposed additions to cost indicates this is not an appropriate occasion for deviating from this rule. Plaintiff’s first cost adjustment proposal is that $95,244 be added to compensate plaintiff for its failure to take depreciation on the Super Guppy during the first 2 months of 1966. Depreciation of plaintiff’s aircraft was allowable as a cost of plaintiff’s performance of air transportation services for NASA. During 1966, plaintiff was permitted for tax purposes to use a 5-year depreciable life for the Super Guppy and a 200 percent declining balance method of depreciation. Given a book basis of $1,714,395 for the Super Guppy and the method of amortization just described, plaintiff would have been entitled to take $685,758, or 40 percent of the book value of the Super Guppy as tax depreciation during calendar year 1966. However, since the Super Guppy was still undergoing tests in January and February 1966 and had not begun transporting NASA cargoes under plaintiff’s contract with NASA, plaintiff did not begin depreciating the aircraft until the beginning of March. The actual depreciation taken during the 10 months of 1966 when the Super Guppy was used for actual air transportation was $571,465. This is 10/12 of the first-year amortization of the Super Guppy. Plaintiff seeks now both to overturn the stipulation between the parties, which specified $571,465 as the amount of depreciation actually taken on the Super Guppy, and the accounting procedure which plaintiff in fact used in 1966. This it may not do. Plaintiff argues that the court has discretion, which it should exercise here, to allow an additional $95,244 in Super Guppy depreciation for the first 2 months of 1966. To support its position, plaintiff invokes section 103(f) of the Renegotiation Act of 1951, 50 U.S.C. App. § 1213(f) (1970), as amended, (Supp. Ill, 1973). That part of the renegotiation statute provides that “All items estimated to be allowed as deductions and exclusions under chapter 1 of the Internal Revenue Code” shall be allowed as items of cost for renegotiation purposes. Section 1213(f) also confers upon this court discretion to redefine costs, but only in situations in which a contractor either has not employed a regular method of accounting or has employed a method which does not properly reflect the contractor’s cost of doing renegotiable business. Plaintiff employed an established cost accounting method for 1966. Accordingly, in order to persuade the court to use its statutory authority to modify plaintiff’s chosen method of accounting, plaintiff must demonstrate that the method actually used does not properly reflect plaintiff’s costs. This is not such a situation. Plaintiff has shown no facts of record to suggest that use of the standard accounting principle that property is depreciated over its useful life would cause plaintiff’s costs to be misstated. Plaintiff did not depreciate the Super Guppy in January or February of 1966 because the aircraft was still undergoing tests. The Super Guppy did not actually begin carrying NASA cargoes until March 1966. A principle advantage of consistent adherence to Internal Revenue Code accounting methods, mandated by Congress in 50 U.S.C. App. § 1213(f) (1970), as amended, (Supp. III, 1973), is the uniformity which those methods provide over several years of renegotiable business. Defendant correctly observes that the depreciation which plaintiff now seeks to take was undoubtedly reflected in plaintiff’s tax returns and renegotiation reports for subsequent years. In order to prevent a “double deduction” of the additional $95,244 depreciation allowance now sought by plaintiff, revision of all of plaintiff’s subsequent tax and renegotiation submissions would be necessary. Plaintiff has not shown the manifest unsuitability of the accounting method it has used which might warrant revision of that method, with all of the attendant complications. Plaintiff’s second proposed cost adjustment is for a “reserve for self-insurance,” unspecified in amount and not reflected in plaintiff’s accounting statement to which the parties have agreed. Plaintiff carried hull, liability, and excess liability insurance on its aircraft during 1966 and loss of use insurance for the first 6 months of 1966. Plaintiff argues that it should receive an indeterminate amount of cost credit for the extent to which it acted as a self-insurer with respect to losses not covered by insurance and for which it had no recourse to NASA. Plaintiff set aside no reserve for self-insurance against possible loss of use or any other contingency in 1966, and no such reserve appears in plaintiff’s accounting statement. Accordingly, there is no basis in fact for this court to make the cost adjustment which plaintiff seeks. The third cost adjustment sought by plaintiff is a $950,000 cost allowance to reflect amortization of the excess of the purchase price which. was paid for the assets of Havenhurst Van Nuys, Inc. To place plaintiff’s argument in context, it is necessary to know something of plaintiff’s organizational history- Plaintiff, Aero Spacelines, Inc., was organized in 1965 as a wholly-owned subsidiary of Twin Fair, a New York corporation, to acquire the assets and assume the liabilities of Havenhurst Van Nuys, Inc., a California corporation known also as Aero Spacelines, Inc. Prior to being acquired, Havenhurst had designed and fabricated at its sole expense and risk a special purpose aircraft for transporting outsize cargo by air. This aircraft, known as the Pregnant Guppy, was a structurally modified Boeing 377 Stratocruiser. Havenhurst conceived and developed the Pregnant Guppy and proved its capability to transport oversize cargoes. From its completion in mid-1963, the Pregnant Guppy was continuously under exclusive contract to NASA. In January 1965, Havenhurst began modifying a Boeing YC — 97J aircraft to transport cargoes that were too large even for the Pregnant Guppy. These cargoes included the Saturn-IV B stage and the Lunar Excursion Module. This second structurally modified Boeing aircraft was designated the Super Guppy. The Super Guppy was not simply an extension of the technology of the Pregnant Guppy, which had been built by enlarging the fuselage of the Boeing 377 Stratocruiser. Manufacture of the second Guppy aircraft required numerous, complex modifications of the YC-97J. These modifications were consider-, ably more elaborate than those which were necessary in manufacturing the Pregnant Guppy. By mid-1965, Havenhurst found itself financially unable to complete construction of the Super Guppy. Havenhurst was insolvent, had exhausted its credit, and was seeking a purchaser willing to provide the financing necessary to complete construction of the Super Guppy. The management of Twin Fair was approached by a business broker who suggested that Twin Fair acquire the assets of Havenhurst. On August 12, 1965, before completion of the Super Guppy and prior to the beginning of the fiscal year under consideration, Havenhurst transferred all of its assets (including its NASA contract) and liabilities to plaintiff, Aero Space-lines, Inc., in exchange for voting common stock of Twin Fair, plaintiff’s parent corporation. The parties have stipulated that the purchase price exceeded the value of the net assets on the books of the acquired corporation by at least $2,185,340. No portion of this excess was amortized or otherwise charged against the contractor’s sales in determining profits subject to renegotiation. There is no evidence that the acquisition price negotiated was not arrived at by arm’s-length dealings between the acquired and acquiring corporations. The acquisition qualified under Section 368(a)(1)(C) of the Internal Revenue Code of 1954 as a tax-free reorganization. The principal tax consequences of treating the acquisition as a tax-free reorganization were two-fold: 1. Havenhurst was not required to recognize capital gains upon the transaction (Int.Rev.Code of 1954, § 361(a)); and 2. The basis of the property transferred to Aero Spacelines, Inc., remained the same as it had been in the hands of the transferor (Int.Rev.Code of 1954, § 362(b)). Consistent with Section 362(b) of the Code, the Havenhurst assets were taken on the tax books of the new corporation, Aero Spacelines, Inc., at their depreciated value on the tax books of Haven-hurst. The market value of the Twin Fair stock issued in exchange for the assets was not shown on the Aero Space-lines’ books. Accordingly, none of the difference between the market value of the Twin Fair stock and the depreciated tax value of the Havenhurst assets was amortized against the contractor's sales in determining profit subject to renegotiation. In seeking to amortize the stipulated excess of the purchase price over the tax book value of Havenhurst assets acquired by Aero Spacelines, Inc., plaintiff now attempts to modify the accounting method which it actually used in 1966 for federal income tax purposes. To do this, plaintiff must demonstrate that the method used for federal income tax purposes is manifestly unsuitable for renegotiation purposes because it does not clearly reflect the profits attributable to plaintiff’s performance of its renegotiable contract in 1966. The plaintiff must show, further, that the alternative it proposes does clearly reflect such costs. This plaintiff has not done. Plaintiff argues that under presently accepted accounting principles applicable to its nontax bookkeeping, the stipulated $2,185,340 difference between the market value of Twin Fair stock issued to acquire the Havenhurst assets and the book value of the acquired assets would be reflected on the books and records of the plaintiff and amortized against earnings. This would result in a charge against earnings in 1966 in an amount in excess of $900,000. This $2,185,340 component of the purchase price, plaintiff asserts, was a true economic cost of the acquisition and, accordingly, should be recognized by this court in evaluating plaintiff’s costs. At trial, plaintiff introduced evidence that under presently accepted accounting principles the August 1965 acquisition would be required to be accounted for by the “purchase method.” In this form of combination— * * * [t]he agreed terms * * * recognize primarily the fair values and only secondarily the historical-cost based amounts of assets and liabilities as reflected in the financial statements of the acquired company. Accordingly, the purchase method requires recognition of the fair values through allocation of the cost or purchase price of an acquired company to the assets acquired and liabilities assumed. Identifiable assets and liabilities of an acquired company, whether or not shown in the financial statements of that company, are assigned a portion of the purchase price, normally equal to their fair values at date of acquisition. Any excess of the purchase price over the sum of the amounts assigned to identifiable assets acquired less liabilities assumed is recorded as goodwill. Goodwill is required to be amortized by systematic charges to income over the period estimated to be benefited. Despite its superficial appeal, plaintiff’s argument fails for two reasons. First, the “purchase method” of accounting was not actually used in 1965 by the parties to the acquisition. They elected instead, in accordance with then generally accepted accounting principles, to treat the transaction as a “pooling of interests.” Paragraph 12 of Opinion No. 16 of the Accounting Principles Board (August 1970), which applies primarily to nontax accounting procedures, explains that in a pooling of interests— * * * [o]wnership interests continue and the former bases of accounting are retained. The recorded assets and liabilities of the constituents are carried forward to the combined corporation at their recorded amounts. In 1966, this method was used for most business combinations in which stock was issued. It was the method actually used by plaintiff, was reflected in plaintiff’s 1966 nontax books, and closely paralleled the tax accounting method mandated by Sections 361 and 362 of the Internal Revenue Code for a tax free reorganization. Plaintiff’s accounting witness testified that if the transaction had taken place in 1974 rather than in 1965, the preferred accounting approach would be the purchase method rather than the pooling of interests method. However, the witness noted specifically that by its express terms, Accounting Principles Board Opinion No. 16 was not to be applied retroactively to business combinations initiated before November 1, 1970, the effective date of the opinion. The witness testified, further, that it was neither his opinion nor the opinion of Price Waterhouse, the accounting firm which he represented, that the change in method should be applied retroactively in this case. Secondly, retroactive application of the purchase method presents difficult problems of valuation which plaintiff has not addressed with proof. Plaintiff has not assigned fair values to the “identifiable assets” acquired from its predecessor. No portion of the purchase price has been assigned to a 5-year covenant of the officers of plaintiff’s predecessor not to compete with Aero Spacelines in the outsize cargo air transportation business. No fair value has been assigned to the' NASA contract to which the new corporation was to succeed. Since plaintiff has made no attempt to assign portions of the purchase price to the identifiable assets received from Havenhurst, it is not possible to place a value on the residual, the goodwill acquired from Haven-hurst. Plaintiff has neither estimated the period to be benefited by Haven-hurst’s goodwill nor addressed the troublesome question of why, even if annual goodwill amortization could be measured, the Government should subsidize plaintiff’s acquisition of a concern with potential commercial viability well after expiration of the exclusive NASA contract under which plaintiff initially operated. Because plaintiff has not allocated specific portions of the $950,000 annual amortization cost claimed to increases in the values of physical assets over book values, to plaintiff’s intangible assets (the covenant not to compete and the NASA contract), or to goodwill, plaintiff has failed to make the clear factual presentation necessary to warrant replacing the method of accounting plaintiff actually used in 1966 and to which the parties have stipulated. I. Plaintiff’s Prima Facie Case Lykes Bros. S.S. Co. v. United States charges the contractor with the initial burden of going forward with proof as to the statutory factors upon which it relies in order to make a prima facie case that it has not realized excessive profits in the year under review. 459 F.2d at 1401, 198 Ct.Cl. at 326-27. Once the contractor has done this, “the burden shifts to the Government to prove that plaintiff’s profits were excessive and the extent thereof.” Id. 459 F.2d at 1402, 198 Ct.Cl. at 327. The Government has the burden of persuasion on each of these issues. Id. In § 103(e) of the Renegotiation Act of 1951, 50 U.S.C. App. § 1213(e) (1970), Congress set forth the following, general criteria for identifying “excessive profits”: The term “excessive profits” means the portion of the profits derived from contracts with the Departments and subcontracts which is determined in accordance with this title [sections 1211 to 1224 of this Appendix] to be excessive. In determining excessive profits favorable recognition must be given to the efficiency of the contractor or subcontractor, with particular regard to attainment of quantity and quality production, reduction of costs, and economy in the use of materials, facilities, and manpower; and in addition, there shall be taken into consideration the following factors: (1) Reasonableness of costs and profits, with particular regard to volume of production, normal earnings, and comparison of war and peacetime products; (2) The net worth, with particular regard to the amount and source of public and private capital employed; (3) Extent of risk assumed, including the risk incident to reasonable pricing policies; (4) Nature and extent of contribution to the defense effort, including inventive and developmental contribution and cooperation with the Government and other contractors in supplying technical assistance; (5) Character of business, including source and nature of materials, complexity of manufacturing technique, character and extent of subcontracting, and rate of turn-over; (6) Such other factors the consideration of which the public interest and fair and equitable dealing may require, which factors shall be published in the regulations of the Board from time to time as adopted. As the Supreme Court noted in Lichter v. United States, 334 U.S. 742, 784-85, 68 S.Ct. 1294, 1316, 92 L.Ed. 1694 (1948), Congress did not choose to provide the Renegotiation Board or the courts— * * * with a specific formula for their guidance in a field where flexibility and the adaptation of the congressional policy to infinitely variable conditions constitute the essence of the program. Congress’ eschewal of formulae or precise percentage limitations on profits was deliberate, renegotiation having been conceived as a flexible means of eliminating excessive profits without interference with war production. The need for case-by-case application of the statutory factors was made necessary by the difficulty of developing broad rules which could be applied fairly to all types of firms doing business with the Government, and determinations of excessiveness made on the basis of individual cases were designed to eliminate problems presented by use of a fixed-profit formula. 32 C.F.R. § 1460.8(a) (1974) provides: Reasonable profits will be determined in every case by over-all evaluation of the particular factors present and not by the application of any fixed formula with respect to rate of profit, or otherwise. This Renegotiation Board regulation underscores the importance of comprehensive evaluation, in terms of all of the statutory factors, of a renegotiated contractor’s performance in the fiscal year under review. “Comprehensive evaluation” is not synonymous with purely subjective determination. As the Tax Court observed in LTV Aerospace Corp. v. Renegotiation Board, 51 T.C. 369, 397 (1968), one of the last cases in which that court addressed the specific issue of excessive profits,— The decision as to the existence and amount of excessive profits is to be reached on the basis of objective business judgment [citing H. Rep. No. 7, 82d Cong. 1st Sess. 2 (1951)], and the Act provides a number of criteria to be considered in making that judgment. Although the criteria are necessarily general and though the different statutory factors necessarily have different weight and relevancy in different situations,— * * * The parties to a renegotiation proceeding must present to this Court the facts relevant to the contractor’s performance. They must also present sufficient information as to the relevant industry norms to enable this Court to determine the appropriate standards against which the contractor’s performance under each criterion is to be evaluated. Finally, they must provide us with sufficient information that we may determine what weight the contractor’s comparative performance under each criterion is to be given, in the particular case, in reaching our ultimate decision. [Id] Though the Lykes decision shifted the burden of persuasion on the issue of ex-cessiveness from the contractor, upon whom it had rested in proceedings before the Tax Court, to the Government, Lykes did not dispense with the requirement that the court have enough information before it to render a just decision. The court must be in the position to make a decision based upon reasoning cogent enough— * * * to warrant the conclusion that any reasonable and fairminded man, exercising an informed business judgment, would be likely to reach approximately the same result. Insistence by the Tax Court in LTV Aerospace Corp. v. Renegotiation Board, supra, on meaningful comparative data is echoed by 32 C.F.R. § 1460.2(c) (1974), which provides: Comparisons. In evaluating the contractor’s performance, comparisons will be made with the prices, costs and profits of other contractors engaged in the production of the same or similar products or using the same or similar processes. Comparative analysis is essential in order to give the statutory factors concrete, dollars and cents meaning. In the words of one commentator on renegotiation: The term [excessive profits] itself implies comparisons to profits earned on current and previous private contracts by both the contractor and its competitors and profit earnings averages for the relevant industry. A most important question in renegotiation is “ * * * where the contractor in a defense industry belongs in the hierarchy of profit returns of industry as a whole and the reason for his being placed in that particular position.” Despite the importance of meaningful comparative data, neither party to this suit has made a significant effort to bring such information before the court. The absence of helpful comparisons characterized both plaintiff’s prima facie case and the Government’s response. The defendant, which bears the ultimate burden of proving both the existence of excessive profits and the extent of those profits necessarily fares worse than does plaintiff for lack of this information. Character of Business The fifth, enumerated statutory factor, “character of business,” is discussed first in order to provide a framework for discussion of all of the statutory factors. The language of Section 103(e)(5), 50 U.S.C. App. § 1213(e)(5) (1970), is as follows: (5) Character of business, including source and nature of materials, complexity of manufacturing technique, character and extent of subcontracting, and rate of turn-over; During fiscal year 1966, plaintiff provided oversize air transportation services for the National Aeronautics and Space Administration pursuant to renegotiable contract NAS 8-15476. In addition, plaintiff performed instrument calibration and maintenance and engine overhaul and modification projects related to the basic transportation service contract. Plaintiff’s renegotiable sales of $3,926,-239 accounted for all but less than one-tenth of one percent of plaintiff’s total business in 1966. Plaintiff’s nonrenego-tiable sales consisted of a single $3,300 sale of surplus equipment. Plaintiff’s nonrenegotiable sales are of no significance for renegotiation purposes because they constituted such a minimal fraction of plaintiff’s total business. As noted earlier in this opinion, plaintiff used two specially built aircraft to carry cargoes for NASA which were simply too large for conventional cargo aircraft to accommodate. The first of these aircraft, the Pregnant Guppy, had been developed by Havenhurst, plaintiff’s predecessor corporation, and had been continuously under exclusive contract to NASA since its completion in mid-1963. The second, larger and more complex aircraft, the Super Guppy, was begun by Havenhurst but was completed and flight tested by plaintiff after plaintiff purchased its insolvent predecessor in order to continue its operations. Both of the Guppies — but particularly the Super Guppy, which plaintiff completed and tested — were extraordinary looking aircraft whose unconventional profiles appeared almost to defy the laws of aerodynamics. The Pregnant Guppy had been fabricated by enlarging the fuselage of a Boeing 377 Stratocruiser to 19 feet 9 inches in diameter by building a new shell around the old fuselage. No further structural changes were required in order to maintain the aerodynamic stability of the aircraft. Manufacture of the Super Guppy, however, was considerably more complex. The Super Guppy was designed principally as a mode of transportation for Douglas S-IVB stages, which were used as the third stage of the NASA Saturn-V launch vehicle employed in the Apollo moon program. The Super Guppy began with a Boeing YC-97J, a military cargo aircraft which had the additional power needed to carry the heavier cargoes envisioned for the Super Guppy. Only two YC-97J’s had ever been manufactured, and one of these had already been scrapped by the Air Force. To accommodate the S-IVB stage, the fuselage of the Super Guppy had to be expanded to between 23 and 24 feet in diameter. This change in fuselage dimensions so altered the aerodynamic characteristics of the Super Guppy from those of the YC-97J that significant modifications to the wing and tail structures were also required. The YC-97J was, in effect, completely dismantled and reassembled into an entirely new aircraft. Aero Spacelines also made significant structural changes related to the cargo loading capability of the Super Guppy. The Super Guppy was the first aircraft ever to be built with a nose opening for loading cargo. The flight control system of the aircraft also had to be redesigned so that the nose could be hinged open. The control system’s modification was a major one and the first of its kind. The United States Government provided none of the capital for development of the Super Guppy airframe, and Ha-venhurst was the only business known to NASA which was willing to design and build such an aircraft at its own risk and expense. After Aero Spacelines “bailed out” the insolvent Havenhurst, the new corporation obtained a $950,000 loan from a New York bank, guaranteed by the parent company, in order to complete construction of the Super Guppy. Contract NAS 8-15476 was not a manufacturing contract nor a contract for purchase of aircraft, but was a service contract providing transportation of oversize cargo. NAS 8 — 15476 was unique among service contracts in that the Guppies were both designed for the purpose of facilitating the NASA space program and with particular NASA cargoes in mind. This was especially true of the Super Guppy, whose internal dimensions were determined in large measure by the dimensions of the S-IVB stage, a specific item of NASA freight. Furthermore, contract NAS 8 — 15476 specified that NASA should have exclusive use of the services of the Guppies for the duration of the contract, including renewal periods, and NASA insisted vigorously upon keeping the aircraft under its control. The unusual character of plaintiff’s business, and plaintiff’s willingness to design and build a special purpose aircraft at its own risk and expense, are important factors in establishing plaintiff’s prima facie case. The statutory subfactor, complexity of manufacturing technique, is not applicable because plaintiff provided a service. The difficulties inherent in plaintiff’s operations are considered under the statutory factors, “risk” and “contribution to the defense effort.” Source and nature of materials is a second subfactor to be considered under the statutory factor, “character of business.” Pursuant to two Air Force contracts, the Air Force leased to plaintiff spare aircraft parts, aircraft engines, and propellers for use in operating the Super Guppy. These Government surplus items had a total “stated value” of $1,424,476. Defendant’s witness testified that “stated value” is undepreciated original cost to the United States, it being the practice of the Government not to depreciate its equipment but to write off the cost only.when the equipment is scrapped. No evidence appears in the record to establish what it would have cost plaintiff to purchase these materials had plaintiff been required to purchase them. By the terms of the Air Force contracts, plaintiff was obligated to maintain the equipment at its own expense and to return it to the United States Air Force in the same condition as received, less normal wear and tear. Plaintiff paid no fee for the use of these surplus items. 32 C.F.R. § 1460.14(b)(2) (1974) provides: A contractor who uses customer-furnished materials generally is not entitled to as large a dollar profit as the dollar profit to which such contractor would have been entitled had it furnished the materials itself. In the latter case, the contractor would have expended effort in finding or acquiring the materials, would have invested capital in the materials and would have assumed the risks of obsolescence, spoilage, or other loss inherent in owning such materials. [Emphasis added.] Despite the presumption that, all other things being equal, a contractor who uses Government-furnished materials is entitled to less profit than one who does not, the preponderence of evidence before the court does not warrant reducing plaintiff’s profit because it used Government surplus equipment. The Renegotiation Performance Report by NASA to assess plaintiff’s performance during 1966 indicates that plaintiff “was Economical in Use of Materials, Facilities, and Manpower, and was otherwise effective in Controlling Production Costs.” Assuming this assessment by the contracting agency to be correct, plaintiff’s use of Government surplus engines, propellers, and spare parts is one source of plaintiff’s cost effectiveness. The record suggests that cost savings were, in fact, passed on to the Government as a result of plaintiff’s having used Government-furnished parts. Defendant introduced no evidence to support a contrary inference. Plaintiff introduced additional evidence indicating that its use of military surplus equipment, while saving the initial cost of new engines and propellers, made spare parts difficult to locate and maintenance costs difficult to predict. Regulation 1460.14(b)(2) in effect provides that a contractor which uses materials it owns itself is entitled to compensation for its investment and for its assumption of the risks of ownership. Although it was not the owner of the parts provided by the Government, plaintiff was obligated by contract to maintain the leased property in good condition and remained “solely and fully liable for any damage to, or loss or destruction of, the leased property resulting from any cause whatsoever.” Plaintiff was actually in a less favorable position than if it had purchased the parts itself because it bore the risk of loss without benefit of other incidents of ownership. For example, had plaintiff owned the parts, it would have been entitled to earn profit on the value of its investment in the parts, to charge depreciation against current income, and to retain the parts after termination of the NASA contract. During 1966, plaintiff purchased a significant amount of the fuel and oil it required at Government facilities at prices lower than those prevailing at commercial airfields. There is no evidence in the record to suggest that plaintiff’s profit should be reduced because of this contractual privilege. In fact, the fuel cost estimate which Aero Spacelines provided to NASA contract negotiators assumed that 80 percent of plaintiff’s fuel purchases would be made at Government installations. This representation was presumably taken into account in negotiations between plaintiff and the Government. Plaintiff employed no subcontractors. 32 C.F.R. § 1460.14(b)(3)(i) (1974) states the general rule that “ * * * a contractor who subcontracts work may not reasonably expect to be allowed as large a profit thereon as if it had done the work itself, * * *.” Plaintiff benefits in establishing its prima facie case from the fact that it employed its own facilities and skill in performing under contract NAS 8-15476. The final statutory subfactor under “character of business” is rate of turnover. Rates of turnover viewed as significant in defense contract analysis and in renegotiation are (1) the turnover of a contractor’s equity capital investment, (2) the turnover of total capital investment of the contractor, and (3) “inventory turnover,” the ratio of sales to average inventory on hand. Each of these ratios may be relevant in a particular context, depending upon the nature of the business being evaluated and upon comparisons with businesses having similar characteristics. Because plaintiff provided a service rather than manufactured a product, rate of turnover in the sense of “inventory turnover” is irrelevant in evaluating plaintiff’s performance. Renegotiation Board Regulation 1460.-14(b)(4) suggests that turnover ratios may be useful in evaluating whether plaintiff made efficient use of the resources at its disposal, provided that relevant comparisons are made with the turnover ratios of businesses with similar characteristics. Plaintiff’s net worth turnover ratio in 1966 was 4.2 (sales, $3,926,239, divided by beginning net worth, $926,839); its capital turnover ratio was 1.6 (sales, $3,926,239, divided by beginning capital, $2,460,150). Since neither of the parties has introduced relevant comparative data, it is impossible for the court to assess the significance of plaintiff’s turnover ratios. Accordingly, this subfactor has no weight in evaluating the reasonableness of plaintiff’s profit. Contribution to the Defense Effort Section 103(e)(4) of the Renegotiation Act, 50 U.S.C. App. § 1213(e)(4) (1970), provides that there shall be taken into consideration the— [n]ature and extent of contribution to the defense effort, including inventive and developmental contribution and cooperation with the Government and other contractors in supplying technical assistance; * * *. Though plaintiff was a contractor for the civilian space agency, plaintiff is nevertheless entitled to be evaluated under this statutory factor. The Renegotiation Board found that plaintiff’s contract did have a direct and immediate connection with the national defense and was, accordingly, not entitled to exemption from renegotiation. The Board’s decision on this particular issue is not subject to redetermination in this court. Hereafter, the term “contribution to the space effort” is used synonymously with “contribution to the defense effort.” 32 C.R.F. § 1460.13(b) (1974), which fleshes out “contribution to the defense effort,” provides: * * * Credit will be given under this factor, in such degree as as [sic] the facts may warrant, for * * * (4) experimental and developmental work of high value to the defense effort; * * * (6) performance under difficult environmental or geographical conditions or hazardous working conditions; * * * or (8) performance, assistance, or service considered otherwise exceptional. The cited subfactors in this regulation apply to plaintiff. In mid-1965, NASA was interested in the Super Guppy primarily as a mode of transportation for Douglas S-IVB stages, which were used as the third stage of the NASA Saturn-V launch vehicle. The S-IVB stage was so large and heavy that even the Pregnant Guppy, which NASA had been using since 1963, was not capacious or powerful enough to accommodate it. A larger aircraft was needed to carry the stage, which measured 21.7 feet in diameter and 58.3 feet in length and weighed 25,000 pounds un-fueled. The Super Guppy, which had a cargo compartment with an inside diameter greater than that of the S-IVB stage for 60 feet of its length, was just large enough to hold the S-IVB and had been developed with the dimensions of the S-IVB in mind. Before the advent of the Super Guppy, the only way NASA had to transport the S-IVB stages was by ocean-going barges from California through the Panama Canal. Ocean shipment via the canal took 4 weeks. Delivery of the stages by air required only 1 day, accelerating delivery by practically the full 4 weeks formerly needed. Manufacturer’s contract delivery dates for the S — IVB stages had been set 4 weeks in advance of the dates they were needed at Kennedy Space Center to provide enough time for delivery by ocean transportation. Nevertheless, the oceangoing barge method was unacceptable to NASA because of the time required to complete each shipment. NASA desired early delivery of the stages to gain additional time for testing and provide a hedge against unforeseen development problems. In fact, NASA considered accelerated delivery so important that in June 1966 it incorporated approximately $26.2 million in schedule incentives into the Saturn I — C stage and Saturn IV — B stage contracts. NASA claimed the value to the space program of accelerated delivery was substantially in excess of this amount. According to NASA’s Renegotiation Performance Report on the contractor’s 1966 operations (1966 Renegotiation Performance Report), the Super Guppy “resulted in considerable savings in cost and time over other acceptable means of transportation.” The importance of Aero Spacelines’ service to the space program is underscored by the agency’s rejection in 1968 of plaintiff’s proposal to revise the contract to permit Aero Spacelines to carry supplies for other Government agencies. In denying plaintiff’s request, NASA stated its position as follows: The existing launch schedule for the next 12-18 months, requiring rapid reaction to changing requirements, demands immediate availability of the Guppies. If the Guppies are not under the proximate control of NASA, * * our response time may be seriously jeopardized. This could delay priority cargoes 2-3 days with a resultant impact on launchings and added costs. As the foregoing facts show, plaintiff is .entitled to very favorable consideration for its ingenuity in recognizing the need for and in implementing the means to provide a unique air transportation service which met NASA’s need for speed and flexibility in carrying components used in the space program. Plaintiff’s 1966 Renegotiation Performance Report noted: Aero Spacelines is the only contractor, to date, that has taken the initiative and invested private capital to design, develop and fabricate aircraft capable of transporting outsize cargo such as Saturn Stages. Plaintiff provided an exceptional service within the meaning of the fourth and eighth subfactors listed in 32 C.F.R. § 1460.13(b). The frequently difficult conditions under which plaintiff operated (subfactor 6 of the regulation) are discussed, infra, in connection with plaintiff’s risk and plaintiff’s efficiency. Extent of Risk Assumed In determining whether profits are excessive, § 103(e)(3) of the Act, 50 U.S.C. App. § 1213(e)(3) (1970), requires that consideration be given to the “[ejxtent of risk assumed, including the risk incident to reasonable pricing policies.” 32 C.F.R. § 1460.12(b)(1) (1974) notes that risks to be considered include, but are not limited to, risks incident to close pricing policies. Nonpricing risks enumerated in the regulation are listed by way of example and do not purport to be all-inclusive. However, risks that may be considered in connection with renegotiation may not be “mere speculative or unlikely possibilities.” 32 C.F.R. § 1460.-12(b)(1) (1974). Plaintiff’s nonpricing risks can be separated into “business risks” and “operating risks.” These categories have no special analytical significance and are adopted only for convenience in explaining the nature and extent of plaintiff’s risks. Business Risks Plaintiff’s contract with NASA envisioned a total duration of 4 years, yet had to be renewed year by year, at the option of NASA. Contrary to plaintiff’s contention, this was not a significant source of business risk, since there was little danger of premature contract termination on the part of the space agency. The parties have stipulated that in December 1965 plaintiff knew of NASA’s commitment to place a man on the moon by 1970. Because of this commitment, plaintiff also knew there was a high probability that NASA would continue the contract throughout all of its option periods. NASA ultimately did exercise the options and renew the contract for each of the succeeding 3 years. NASA maintained a program of schedule incentives for the stage manufacturer in order to ensure delivery far enough in advance of the date the stages would be needed to allow reversion to barge transportation. However, this measure was merely a precaution against the possibility that the more desirable air transportation might become unavailable. A far more significant business risk incidental to plaintiff’s performance of contract NAS 8 — 15476 was the risk that its aircraft, particularly the Super Guppy, would soon become obsolete. Plaintiff’s 1966 Renegotiation Performance Report observed: Contractor assumes some risk of investment since aircraft was developed by own capital and customer demand for use of aircraft has to date been limited. The nature of the aircraft is such that it is subject to higher obsolescence than is normally recognized with conventional cargo aircraft. * * Since the Super Guppy had been developed on a limited budget of private capital and on a tight time schedule, many tests which would have been required for commercial certification of a new aircraft by the Federal Aviation Administration were not done. This circumstance did not impair the usefulness of the Super Guppy to NASA because, as a “public aircraft” under the auspices of a particular governmental agency, the plane was exempt from many regulations normally enforced by the FAA and the Civil Aeronautics Board. However, without complying with FAA and CAB regulations, the Super Guppy could not be used for commercial cargo transportation after termination of the NASA contract. Testimony at trial indicated that such compliance would require extensive additional modifications and testing. Accordingly, the risk that the Super Guppy would soon become obsolete was real and is an important element of plaintiff’s prima facie case. Like the Super Guppy, the Pregnant Guppy was not commercially certificated. Whether it would be difficult to convert the Pregnant Guppy to commercial use does not appear from the record. Defendant’s expert witness, a specialist in Government procurement, testified that transporting oversize cargoes for NASA enhanced plaintiff’s position to enlarge either its service market or its aircraft development and production market through attendant “space age publicity.” Plaintiff’s association with NASA, the witness stated, enhanced plaintiff’s standing in commercial as well as Government markets. This testimony was highly impressionistic and exceptionally difficult to verify. In the absence of any concrete evidence that plaintiff was actually able to capitalize on its position as a NASA supplier, it is found that the assertedly beneficial association did not appreciably offset plaintiff’s risk. Operating Risks Plaintiff’s operating risks during 1966 arose primarily from the circumstances under which the Super Guppy had been developed and from the fact that 1966 was the first year the Super Guppy provided air transportation services under the NASA contract. Development of the Super Guppy through the stage of wind tunnel testing occurred before plaintiff Aero Space-lines, Inc., acquired Havenhurst. Mr. Kirk Irwin, vice-president of plaintiff and an aeronautical engineer, testified that the amount of wind tunnel testing which had been done on the Super Guppy wind tunnel model was an “insignificant amount” by any standard to which the witness was accustomed. According to Mr. Irwin, limited capital and lack of Government funding, as well as NASA’s “very tight needs schedule,” permitted only a minimal amount of predictive analysis of performance, stability, and controllability to be done. Like the wind tunnel testing of the Super Guppy model, the flight test program for the aircraft itself was not extensive. The 96 hours of flight testing done on the Super Guppy were only between one-fourth and one-sixth of the number of hours of tests which would normally be done in the aerospace industry to evaluate comparable airframe modifications. The flight test program for the Super Guppy took place from August 81, 1965, about 2 weeks after acquisition of Ha-venhurst by plaintiff, until March 3, 1966. Almost immediately upon completion of the abbreviated flight test program, on March 25, 1966, NASA changed the primary mode of transportation for Saturn-IVB stages from water to air. On April 6, 1966, NASA began airlifting all S — IVB stages to Kennedy Space Center. Because the Super Guppy had been developed on a tight time schedule, the aircraft began actual operations with a number of important questions about its flight performance still unresolved. Many tests which would have been required for commercial certification of a new aircraft by the Federal Aviation Agency were not done on the Super Guppy, which was exempted from FAA certification requirements by its status as a “public aircraft” under NASA auspices. By the time wind tunnel testing of the Super Guppy was completed in May