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asks for the separate data on the golf cart and washing machine factories, they are told that that is top-secret, proprietary information, the disclosure of which would endanger the job security of every worker in the company's employ. Conclusion of the bargaining: "Sorry, fellows and girls, you • Consumer durables'

workers will just have to get your productivity up before we can get you a raise."

Some further questions.

This tale of the two "Motorcycles, bicycles and parts" manufacturers suggests at least the following additional questions: (Question 3-1.) Given the application of present

SEC line-of-business reporting requirements, just revealed,
to two companies each making sales of $2.7 million a year
in golf carts and also making other sales of other items,
should the disclosure requirements for either Company A or
5/
Company B, or for both companies, be changed? In what way?

(Question 3-2.) Is there some quantitative measure or
benchmark of a company's size, diversification, or both,
below which its segregated sales, cost and profit infor-
mation about a particular product or line of products
should be deemed properly proprietary, and above which the
corresponding information should be deemed appropriate for

itemized public disclosure?

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(Question 3-3.) Are there significant policy and

conceptual problems involved in reconciling-

(a) the idea of "generally accepted accounting principles," the time-honored term familiar to all readers of CPA certifications of corporate financial

statements,

with-

(b) the idea of "accounting methods and procedures which themselves are considered important managerial tools and proprietary in nature," the bold concept advanced in the Automobile Manufacturers Association's

forthright defense of corporate secrecy, quoted above?

The FTC, the OFR, and the Strange Case of Ling-Temco-Vought.

Others who are disserved and disadvantaged by the consolidation of financial and operating statistics of giant corporations are all the groups that use Federal statistical services for industrial analysis. Here an actual rather than hypothetical example can illustrate the nature and dimensions of problems that are now pervasive.

Since 1947, the Federal Trade Commission and the Securities and Exchange Commission have jointly compiled data for and published a statistical reporting service called the Quarterly Financial 6/and familiarly known Report for Manufacturing Corporations, widely

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as "the QFR". This publication purports to give quarterly data on sales, costs and expenses, net profit from operations, other income or deductions (net), net profit before and after Federal income taxes, depreciation and depletion, and several balance sheet items. Separate tables present these statistics, both in dollar-amount and in ratio forms, for all manufacturing corporations in the aggregate, for all manufacturing corporations (all industries) by assets-size classes, for durable goods and nondurable goods corporations by assets-size classes, and for manufacturing corporations "principally" engaged in various named industry groups. Each issue presents separate data in parallel columns for each of the last five quarters, so that trends can be noted.

7/

Publication of the QFR costs the taxpayers (in excess of modest revenues from paid subscriptions) about $500,000 per year. The purposes it is intended to serve (some of which it still is serving) are easily worth that amount, and more. Those purposes-paraphrased from a statement in the "Explanatory Notes" at the head of each issue--include aid to government and business planners in analyzing current business conditions, in estimating national income trends, in estimating current tax liability and future tax receipts, and in determining current monetary and credit policy. The OFR is also intended to help its readers evaluate the current

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As

financial position of small business, and to help the free enter-
prise economy itself function competitively and efficiently.
the OFR "Explanatory Notes" put it, this last, vital purpose is
served by enabling

thousands of nongovernment subscribers to measure
efficiency and appraise costs by comparing a company's
operating results with the average performance of
companies of similar size or in the same line of
business, to determine whether to undertake new ventures
by comparing the profitability of various types of
business activity, and as a guide to the relative movement
of sales and profits in order to reduce controversies in
wage negotiations.

Let's see how well the QFR serves those purposes by trying

a few exercises.

Suppose we want "to determine whether to undertake new ventures" in our old friend, the golf cart industry. Disappointment no. 1: the QFR industry groups that seem relevant only go down to "Transportation equipment" and two principal component industry groups thereof, "Motor venicles and equipment" and "Aircraft and parts." So forget that use of the QFR; that was an unreasonable expectation anyway.

So let's suppose we own some stock in Ling-Temco-Vought, that astonishing conglomerate that climbed up out of nowhere to become, by 1969, number 14 in Fortune's list of 500 industrials ranked by sales. (It was number 15 in 1970.) LTV managed to

Page 16

attain, on consolidated basis, a net loss of almost $38.3 million on sales of over $3.75 billion in 1969, and a net loss of over

$69.6 million on sales of almost $3.8 billion in 1970, according to the Fortune directories. Concerned by these statistics, we

decide to use the QFR to compare our

company's operating results with the average performance
of companies
in the same line of business.

Well, this proves to be a little beyond the QFR, too, but

it takes us longer to find it out. Let's go through the steps.

Our first problem, obviously is to determine which "line of business"

LTV is in, for purposes of classification in the QFR, and how it is doing in its "line of business."

For that, we turn to LTV's

Form 10-K, the annual report it files with the Securities and Exchange Commission. We know that in 1971, for the first time, diversified corporations whose fiscal years ended on or after December 31, 1970, have been filing sales and income data by "line of business" on a somewhat finer breakdown than previously. happening by virtue of a recent change in SEC rules. 8 (We have already glimpsed the new Form 10-K at work in the case of hypothetical Companies A and B above.)

That is

LTV's Form 10-K gives us "approximate" sales and income data for 1969 and 1970 (also 1967 and 1968) for seven major lines of