Reports v. Reports

A familiar ghost stalked the corridors of the New York Stock Exchange last week--the question of corporate publicity. Though attacked for years for not showing more gumption in demanding full and frequent reports from listed corporations, the fact remains that, until the New Deal, the Stock Exchange was the only U. S. body, public or private, that consistently and effectively strove to raise the standards of stockholders' statements.

In what it considered another forward step, the Stock Exchange last month suggested that listed companies issue interim earnings reports on a twelve-month basis instead of in the usual quarterly or half-year form. In the past this form of report has been widely used by utilities but rarely by industrials. Two conspicuous exceptions have been Continental Can and Owens Illinois Glass, both of which publish earnings every three months covering operations for the preceding twelve months. Chief advantage is that it automatically irons out any seasonal factors in a company's business, each report taking in a full year of earnings. Analysts and accountants regard a series of twelve-month reports as a better key to an earnings trend than the piecemeal picture given by quarters.

Nevertheless, the average stockholder has several objections to the twelve-month plan. Since earnings at best are merely history, the stockholder wants to know his company's latest history, which is generally the preceding quarter. To figure out quarterly earnings from a twelve-month report requires considerable arithmetic.

First company to comply with the Stock Exchange's suggestion was the biggest company listed on the Hoard, American Telephone & Telegraph. President Walter Sherman Gifford told the 350 A. T. & T. stockholders who turned out for the annual meeting in Manhattan last week that their company's profits for the twelve months through March 1936 were $130,000,000 compared to $118,000,000 for the same period through March 1935. Those figures were not for the entire Bell System, earnings of which were reported only through February. But to find out what the parent company's profits were for the March quarter, an A.T. & T. stockholder had to 1) deduct earnings for the first three months of 1935 from earnings for the calendar year 1935; 2) then deduct the resulting figure (profits for the last nine months of 1935) from the twelve-month earnings reported by Mr. Gifford last week. A similar mathematical bout would be necessary to figure out the Bell System's earnings for January and February.

Having done this ciphering, the stock holder could not be sure that his figures were correct because year-end adjustments might have distorted them. In a company like A.T. & T. the stockholder would undoubtedly have been informed of any important special charges against earnings. But an unscrupulous management could temporarily deceive its stockholders as to the profit trend. An official of another company using twelve-month reports, replying to a newshawk's complaint that the plan made it impossible for a stockholder to learn what his company earned in any given quarter, blandly declared: "That's the idea."

The Wall Street Journal, launching into a hot campaign against the Stock Exchange's plan, declared: "First . . . the new style report makes it necessary ... to go twice around the barn to get what the company used to tell him straight out. Second, there is no assurance that the results thus calculated are true ones."

Some companies like Westinghouse Electric and Johns-Manville supplemented their regular quarterly statements last week with twelve-month figures, a combination that the Wall Street Journal admitted was "ideal." Hopping on the Johns-Manville reports to bolster its argument, the Wall Street Journal pointed out that a comparison of twelve-month figures showed earnings of $2,000,000 through March 1936 as against $1,000,000 through March 1935, a clear 100% gain. In the three months through March 1936, however, Johns-Manville earned only $176,000 compared to $246,000 in the same period last year, a 28% decline.

The Stock Exchange's suggestion for twelve-month reports was put forward as a sincere attempt to improve the quality of corporate figures. Furthermore it hoped that companies now reporting only once a year might be tempted to use twelve-month interim statements, which would certainly be better than no interim statements at all. Criticism was really based on the fact that the suggestion permitted any company to substitute the twelve-month plan for the old quarterly statements, not to supplement them.

More sensitive to public criticism than it used to be, the Stock Exchange was amazed by the teapot tempest raised by its action. Smart for once, it frankly and freely shifted its stand, this week called upon companies to continue quarterly reports, urging twelve-month reports to supplement them.*

*Belatedly discovered last week was the fact that the Stock Exchange had indeed taken private action against Walter P. McCaffray & Co. before that member firm was enjoined by New York's Attorney General (TIME, April 13). Having learned of the McCaffray irregularities on March 3, the Exchange investigated for 15 days, then gave the firm's floor member the ten days required by the Exchange's constitution for preparation of a defense, finally suspended him on March 30. Meantime the public prosecutor, tipped off by other sources, stole" the headlines by getting a quick injunction.

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