Lapas attēli
PDF
ePub

In the same consolidation process, it seems possible-to-probable that data on several other industry groups reported in the QFR have been distorted to significant degrees.

For example, the QFR includes data on an industry group styled "Aircraft and parts;" but it seems quite likely that the QFR data for that industrial classification did not include LTV's results in "Aerospace." Again, this is no small matter. LTV's total "Aerospace" sales, as reported in its 1970 Form 10-K, were over $820 million, or more than 3 percent of the $25.5 billion national-total "Aircraft and parts" sales reported for 1970 in the QFR.

Distortions such as these do not occur solely as the result of consolidation of the operating results of the brash young conglomerates. The older corporate giants play the same game, with the QFR's aid and consent, and with effects equally or even more detrimental for any efforts at reliable economic and industrial analysis. It is increasingly treacherous to think of any giant corporation as other than a conglomerate.

General Motors, for example, through its Frigidaire Division, is a leading producer of electric refrigerators; but the Frigidaire Division's operating results are all consolidated, in the QFR, in industry code 371, "Motor vehicles and equipment," rather than being tabulated separately-as would seem more sensible, desirable and truthful-in the QFR industry group styled "Electrical machinery, equipment and supplies." The inclusion in "Motor vehicles and equipment" of the operating results of GM's Allison Division, Defense Division and assorted divisions making locomotives and other heavy equipment surely must inflate that industry code significantly, while deflating in like degrees such other QFR industry codes as "Transportation equipment," "Aircraft and parts," "Other machinery," and "Miscellaneous manufacturing, and ordnance."

United States Steel, for another example, through its Universal Atlas Cement Division, is a leading producer of cement; but that division's operating results are all consolidated, in the QFR, in "Primary iron and steel." The QFR includes data on an industry group termed "Stone, clay and glass products," within which the data for Universal Atlas would seem to belong; but the principle of consolidated enterprise reporting precludes so elementary an application of economic commonsense and semantic and statistical honesty.

And the examples could be multiplied and multiplied, presumably to a point approximating the arithmetical product of the 31 industry groups covered in QFR times the number of giant corporations reporting to QFR that have multiindustry operations.

We may now add to our list of questions two that seem to go to the heart of the foregoing, more specific questions about LTV.

Question 3-9. Why should not, and why does not, the QFR obtain from the larger respondents to its quarterly questionnaires-say corporations with annual sales of $50 million or more-separate questionnaires for their operating results in each of the 31 industry groups that QFR reports, instead of a consolidated questionnaire that mixes, so to speak, industrial apples, oranges and roller skates? Question 3-10. Why should not the individual contributions of giant corporations to the data tabulated in the QFR be made available to the public in a separate, supplemental publication, or in an appendix to the QFR itself?

Among those most concerned about the degradation of the QFR as a credible record of industrial performance are the members and staff of the FTC, which will soon bear sole responsibility for it. (After all, the agency is charged with protecting the public from false and misleading advertising!) In a later working paper in this series, which we hope will be ready before the hearings begin, we shall describe in some detail the efforts the Commission is making to improve this unsatisfactory situation, and the astonishing big-business resistance to those efforts.

-GAYLORD NELSON AND RAYMOND D. WATTS.

APPENDIX III

CORRESPONDENCE WITH LING-TEMCO-VOUGHT, INC. CONCERNING QUESTIONS RAISED IN WORKING PAPER "A"

A. LETTER DATED NOV. 3, 1971, FROM SENATOR NELSON TO PAUL THAYER, CHAIRMAN OF THE BOARD, LING-TEM CO-VOUGHT, INC.

Mr. PAUL THAYER,

U.S. SENATE,

SELECT COMMITTEE ON SMALL BUSINESS,
Washington, D.C., Nov. 3, 1971.

Chairman of the Board and President,
Ling-Temco-Vought, Inc., Washington, D.C.

DEAR MR. THAYER: The Senate Small Business Committee's Subcommittee on Monopoly will open hearings on Corporate Secrecy on November 9, 1971. A press release from my office dated October 22 and a Notice of Hearings from the Congressional Record of October 15 are enclosed for your information.

Also enclosed are a list of "Sixteen Major Questions To Be Considered By the Subcommittee" and "Working Paper A-The Nature and Dimensions of Corporate Secrecy,” which contains a discussion by subcommittee counsel and myself of the first three of the 16 major questions. "Working Paper A" contains four subordinate questions to our Major Question No. 2 and ten subordinate questions to our Major Question No. 3.

While all of these questions-both major and subordinate-may prove to be of interest to Ling-Temco-Vought, Inc., I believe your company will be especially interested in subordinate questions 3-4 through 3-8 inclusive. Those questions and the accompanying text of "Working Paper A" relate directly to LTV and its subsidiaries.

It would be most helpful to the Subcommittee to have LTV's written comments on or answers to any or all of the 16 major and 14 subordinate questions enclosed; but we especially invite and urge you to submit comments or answers to the questions identified in the preceding paragraph. If received before December 7, 1971, your submission can be included in the next part of the printed record of our hearings on "The Role of Giant Corporations in the American and World Economies." If received thereafter, it will appear in a later part.

Should you or another representative of LTV wish to appear before the Subcommittee to offer oral testimony in support or elaboration of your written presentation, we shall be happy to try to work out a mutually convenient time. With best wishes,

Very truly yours,

Enclosures.

GAYLORD NELSON, Chairman, Subcommittee on Monopoly.

NOTE. The enclosures referred to in this letter are reproduced elsewhere in this record and are therefore omitted here. The press release and notice of hearings will be found in appendix VII-B 1, infra. The "Sixteen Major Questions" will be found in the transcript of the hearings, Nov. 9 session, at p. 1045. "Working Paper A" will be found in appendix II.-Committee editor.

(1213)

B. LETTER DATED DEC. 2, 1971, FROM PAUL THAYER TO SENATOR NELSON

LING-TEMCO-VOUGHT, INC.,

POST OFFICE Box 5003,
Dallas, Tex., Dec. 2, 1971.

Hon. GAYLORD NELSON,

Select Committee on Small Business,
U.S. Senate, Washington, D.C.

DEAR SENATOR NELSON: Thank you for your letter of November 3, 1971 concerning your subcommittee's hearings on corporate secrecy. You especially invited and urged me in that letter to submit comments with respect to subordinate questions 3-4 through 3-8 in Working Paper A. This letter will set forth my comments on these subordinate questions, and I respectfully request that such comments be included in the next part of the printed record of your hearings.

Before addressing myself to these specific questions, however, I should like to make a few general observations concerning LTV and the question of corporate secrecy. LTV's operations are carried on through subsidiary companies rather than divisions, and a minority interest in each of its major subsidiaries is held by the public. As a result, not only LTV but also each of eleven of its subsidiaries separately files with the Securities and Exchange Commission ("SEC") annual reports on Form 10-K which contain detailed financial and other information, quarterly reports on Form 10-Q, with the financial information required therein, and proxy statements and other required information. Fortune magazine commented in its June 15, 1968 issue, p. 249, that LTV has a "special kind of visibility" and "discloses more about its operating subsidiaries . . than any other company among the 500 largest industrials." I believe that this comment was true in 1968 and is true today. Indeed, since 1968, one of LTV's subsidiaries, Wilson & Co., Inc., has restructured its operations so that its business is now carried on through four of its own subsidiaries-Wilson-Sinclair Co., Wilson Certified Foods, Inc., Wilson Beef & Lamb Co. and Wilson Laurel Farms, Inc. Each of these companies now files reports with the SEC. What all of this means is that an exceptional amount of data concerning LTV's operations, including detailed sales and income information broken down into lines of business, is available to investors and to the general public.

I will now turn to subordinate questions 3-4 through 3-8. Basically, these questions relate to the SEC's manner of compiling statistics for use in the Quarterly Financial Reports for Manufacturing Corporations published by the SEC and the Federal Trade Commission ("FTC"). I have no first hand information relating to the internal procedures of these agencies, and I can thus address myself only to the actions of LTV and its subsidiaries with respect to the Forms R-1 which are employed by the SEC and FTC in preparing the Quarterly Financial Reports. At the outset, it should be noted the completion of these forms is "requested" by the SEC, and I have been informed that up to now such reports have been mailed to "selected" companies and completed by them on a voluntary basis. LTV and its subsidiary, Jones & Laughlin Steel Corporation, have each been requested to complete Forms R-1 and forward them to the SEC and each have regularly complied with such requests. I have been informed that none of LTV's other subsidiaries, past or present, has been requested to file, or has filed, such forms. The forms request that information be presented on a consolidated basis and do not provide for allocation of sales or income on a product-line basis. They have been completed by LTV and Jones & Laughlin Steel Corporation in accordance with the instructions on the forms.

I understand from your Working Paper A that, in preparing the Quarterly Financial Reports, the SEC has reflected LTV's financial results under Industry Code 20, "Food and kindred products". Accordingly, since LTV files its Reports R-1 on a consolidated basis, it would appear that financial data with respect to all of LTV's subsidiaries (with the exception of Braniff Airways, Incorporated and the probable exception of Jones & Laughlin Steel Corporation) are reflected in this product classification. As noted above, Jones & Laughlin Steel Corporation also files a Form R-1 with the SEC. I can only assume that the financial data thus supplied appears under the classification "Primary Iron and Steel" and that in order to avoid duplication in classifying financial results, the staff of the SEC has made an appropriate modification in the data concerning LTV which is reflected under "Food and kindred products". Jones & Laughlin Industries. Inc., a wholly-owned subsidiary of LTV, has not been requested to file, and has not

filed, a Form R-1. It would thus appear that the results for Jones & Laughlin Industries, Inc. would not appear under "Primary Iron and Steel". This seems appropriate since Jones & Laughlin Industries, Inc. is not an operating company and simply holds LTV's stock interest in Jones & Laughlin Steel Corporation. However, I can not explain why Jones & Laughlin Steel Corporation is included, and Jones & Laughlin Industries, Inc. is excluded, from the consolidated subsidiaries section of the SEC directory. The financial results for both of these companies are included in LTV's consolidated reports.

As indicated in the SEC directory, the financial results of Braniff Airways, Incorporated ("Braniff") a regulated air carrier, were not consolidated with those of LTV for 1969 and 1970 in LTV's financial reports. Braniff was accounted for as an unconsolidated subsidiary of LTV. Braniff's revenues were thus not reflected in LTV's "sales" on Form R-1, and LTV's equity in Braniff's profits or losses appeared in that form in "Other Income or Deductions (Net)" rather than in "Net Income From Operations". Accordingly, I believe that financial data with respect to Braniff would be reflected only in the "Other Income or Deductions (Net)" line under Industry Code 20. Since Braniff neither received nor filed a Form R-1 for 1969 and 1970, I would assume that Braniff's financial results would not be reflected under "Air Transportation" in the Quarterly Financial Report.

In conclusion, I wish to emphasize that neither LTV nor any of its subsidiaries has ever been consulted by the SEC or the FTC with respect to the procedures used in compiling the Quarterly Financial Reports. LTV and its subsidiaries have provided all the information which these agencies have requested or required in the form which they have requested or required. However, the use made of such information in the compilation of the Quarterly Financial Reports apparently has been the sole responsibility of the agencies involved.

I wish to express again my gratitude for the opportunity to respond to the matters concerning LTV which were raised in your working paper.

Very truly yours,

PAUL THAYER,

Chairman of the Board and President.

(Appendixes continued in Part 2A. See Table of Contents, p. iv, for list of subject headings.)

CD 1,38

« iepriekšējāTurpināt »