10. INVENTORIES

The value of end-of-year inventories held by each manufacturing establishment, was obtained for 1963 to 1965. Separate inventory figures were requested for (a) finished products; (b) work in process; and (c) materials, supplies, fuel, and other inventories.

Respondents were asked to report their inventories at approximate current costs if feasible; otherwise "at book values." Since different methods of inventory valuation are used (LIFO, FIFO, etc.), the definition of the value of inventories aggregate for all establishments in an industry is not precise. The figures on change in inventory between the beginning and end of the year are of considerably greater significance.

In using inventory data by stage of fabrication for all industries and at the 2-digit industry level the following should be noted: An item treated as a finished product by an establishment in one industry may be reported as a raw material by another establishment in a different industry. For example, the finished-product inventories of a steel mill would be reported as raw materials by a stamping plant. Such differences are present in the inventory figures by stage of fabrication shown for individual industries, industry groups, and "all manufacturing" which are merely aggregates of figures reported by establishments in specified industries.

For a few industries in the food group, there are special problems in the handling of inventories by stage of fabrication. These are industries in which the products are usually stored under controlled conditions, and the products are aged. Included among such types of products are stemmed and dried tobacco, cheese, and whiskey. It is not clear whether such products should be treated as finished goods inventories or as work in process while in storage. In all these industries substantial finished goods inventories have been reported. These data have been summarized in the inventory tables in a consistent manner for all of the years included in this report.

The total end-of-year inventories for 1964 and 1965 reported in the Annual Survey of Manufactures by manufacturing establishments are lower than the total inventories estimated for manufacturing companies by the Office of Business Economics. This difference is mainly attributable to the fact that the Census Bureau total includes only the inventories of manufacturing establishments while the OBE inventory is a total for manufacturing companies including inventories of trade and mining establishments of the company. At the end of 1963 manufacturers' sales branches and sales offices alone held inventories which were valued at $3,333 million.

11. EXPENDITURES FOR PLANT AND EQUIPMENT

In the Annual Surveys, as in the 1963 census, manufacturers were asked to report expenditures made during the year for permanent additions and major alterations to their plants, as well as for new machinery and equipment purchases, that were chargeable to fixed-asset accounts of manufacturing establishments and were of a type for which depreciation accounts are ordinarily maintained. Expenditures for machinery and equipment were to include those made for replacement purposes, as well as for additions to plant capacity. Excluded from such expenditure totals are costs of maintenance and repairs charged as current operating expense, new facilities and equipment leased from nonmanufacturing concerns, new facilities owned by the Federal Government but operated under contract by private companies, and plant and equipment furnished to manufacturers by communities and organizations.

In addition to total capital expenditures, respondents were requested to indicate the following subtotals: (a) New structures and additions to plant (including major alterations and capitalized repairs and improvements); (b) new machinery and new equipment (including capitalized repairs and improvements); and (c) expenditures for used plant and used equipment acquired from others (including the United States Government). The publication of statistics on capital expenditures is generally confined to new plant and equipment (items "a" and "b" above).

The "Establishments in operation and under construction" figures include (a) the expenditures made at manufacturing plants that were in operation during any part of the year, plus (b) expenditures made at plants that were not as yet in production. The data on capital expenditures for plants not in production at the end of 1965 were collected on separate report form (MA-101) requesting companies to report the value of new plant and new equipment put in place during the year. This form was mailed to the following: (a) The 1,500 largest manufacturing companies; (b) all other companies which indicated on either the Annual Survey of Manufactures report form (MA-100) or the "Listing of Manufacturing Establishments" (MA-151) that they had one or more manufacturing plants under construction and not yet in operation at the close of 1965.

The Census Bureau estimates of capital expenditures differ from those published in the joint Office of Business Economics-Securities and Exchange Commission survey. In addition to normal sampling variation, a major source of difference is to be found in the scope of coverage. Census data relate only to manufacturing establishments, whereas the OBE-SEC series cover all establishments operated by manufacturing companies--nonmanufacturing as well as manufacturing. On the other hand, manufacturing establishments of companies engaged primarily in

nonmanufacturing activities are excluded from the OBESEC series but included in Census figures. Both series, it should be noted, exclude expenditures for plant and equipment at establishments owned by the Federal Government but operated under lease or contract by private companies.

12. BOOK VALUE OF FIXED ASSETS AND RENTAL PAYMENTS

The table (chapter 7) provides industry totals of the value of depreciable assets of manufacturing establishments at the end of 1962, 1963, and 1964 and rental outlays for the use of structures, buildings, machinery, and equipment during those years. The information is based on an inquiry added to the Annual Survey of Manufactures beginning with the 1963 survey. Comparable information for 1965 and 1966 will appear as part of the 1966 Annual Survey of Manufactures publication program. Information on a geographic basis on 1962 to 1964 assets and 1963 and 1964 rental payments will be published in a separate report.

The table brings up to date part of the information published for the year 1957 in the special Census of Manufactures Report MC58(1)-9, "Supplementary Employee Costs, Cost of Maintenance and Repair, Insurance, Rent, Taxes, and Depreciation and Book Value of Depreciable Assets: 1957" (Included in Volume I, 1958 Census of Manufactures as chapter 9).

Unlike the 1957 report, this table provides information on gross book value (original cost) of fixed assets without data on depreciation. At the time this inquiry was proposed for inclusion in the Annual Survey of Manufactures, it was uncertain what effect the revised tax guidelines introduced in 1964 would have on the accounting records of individual establishments of multiestablishment companies. Since the new guidelines permitted the grouping of assets for depreciation purposes by class of asset across an entire company, some large companies indicated that they would not have separate establishment depreciation accounts after 1963.

This table provides additional detail on rental payments compared to 1957. The earlier survey provided a single figure on total rents paid for the use of both buildings and equipment, whereas the current report provides separate information on the two rental accounts.

The 1957 information on rents and assets is provided where the industries are comparable and 1957 data were published. Since the 1957 data were published, there has been a major revision of the Standard Industrial Classification System (SIC). This revision is described in appendix C of the 1958 Census of Manufactures volumes along with tables showing the comparability of the old and new SIC. Figures for 1957 are shown in this report if the gross change in 1958 employment due to

reclassification of establishments into the new industry and reclassification of establishments out of the old industry did not exceed 2 percent of the old SIC total employment.

The information presented in this table is in terms of the 1964 industry code of the reporting establishments, even though asset figures are shown for 1962 and 1963 and rental payments for 1963. Thus, the assets and rental payments for 1964 are directly comparable to other 1964 measures for an industry, such as employment, value added, and capital expenditures appearing in the Annual Survey publications. However, the 1962 and 1963 assets and rental estimates may not be completely comparable to these other industry estimates derived from the 1962 Annual Survey of Manufactures and the 1963 Census of Manufactures. Some establishments are reclassified from one year to the next because of shifting product mix; however, the effect on year-to-year comparability is usually quite minor. The effect on industry classification changes during the period 1959-62 was measured in part in a special study, "Industry Classification and Sector Measures of Industrial Production" by James W. McKie, Bureau of the Census Working Paper No. 20, 1965.

The estimates in this table based on establishment data are not directly comparable to other estimates of depreciable assets or rental payments developed from company level reports such as the Internal Revenue Service "Statistics of Income" or the Federal Trade Commission-Securities Exchange Commission "Quarterly Financial Report of Manufacturing Companies." This Annual Survey of Manufactures report includes only the assets and rental payments of manufacturing plants. In the company-level reports, an entire company's operations are included in an industry based on the company's principal activity. Thus, assets for manufacturing companies will include the assets of many nonmanufacturing establishments but will exclude the assets of manufacturing plants or companies that are not primarily manufacturing companies.

Gross Book Value

The data encompass all fixed depreciable assets on the books of the establishment at the end of each year, 1962 to 1964. The values shown (book value) represent the actual cost of the assets at the time they were acquired, including all costs incurred in making the assets usable (such as transportation and installation).

Included are all buildings, structures, machinery and equipment (production, office, transportation equipment) for which depreciation reserves are maintained. Excluded are nondepreciable capital assets; for example, inventories and intangible assets such as patent rights and royalties. Excluded from the 1962 to 1964 data are land and other depletable assets such as timber and mineral rights.

Whenever a plant changed ownership, the new owner typically reported the assets at the appraised or purchase value rather than at the original cost of the previous owner. In industries in which significant mergers or acquisitions took place, there could be a substantial downward valuation of assets between years and a high rate of apparent retirements during the year in which the change in ownership occurred. In comparing the level of assets during the period covered (1957-1964), these accounting practices have to be taken into

consideration,

Rental Payments

The figures include rental payments for the use of all items for which depreciation reserves would be maintained if they were owned by the establishment; e.g., structures and buildings, and production, office, and transportation equipment. Excluded are royalties and other payments for use of intangibles and depletable assets.

Where an establishment of a multiestablishment company was charged a "rent" by another part of the same company for the use of assets owned by the company, it was instructed to exclude these payments from rental payments. However, the book value (original cost) of these company-owned assets were to be reported as assets of the establishment at the end of the year.

If there were assets at an establishment which were rented from another company but the rents paid centrally by the head office of the establishment, the company was instructed to report these rental payments as if they were paid directly by the establishment. Types of rented assets included are as follows:

Structures and buildings include elevators, cranes, kilns, furnaces, fractionating towers, shipways, and similar structures. Excluded are payments for use of land on which structures are erected where such land rents are separable.

Machinery and equipment include all types of production machinery, motors, lathes, etc., as well as office machinery, computers, furniture, and transportation equipment such as automobiles, trucks, and similar equipment.

13. FUELS AND ELECTRIC ENERGY

Cost data on fuels such as coal, oil, and gas consumed during the year for heat, power, or the generation of electricity are obtained in the Annual Survey of Manufactures. Data were also obtained on the quantity and cost of electricity purchased from other companies or transferred from other establishments of the same company, the quantity generated by the establishment, and the quantity of electric energy sold or transferred to other plants of the same company.

The statistics on "cost of fuels" exclude fuels used as a raw material, such as coal used in making coke. Also excluded are the values of fuels and electric energy produced and consumed in the same establishment. The cost of fuels used in generating electricity, however, is included.

14. GEOGRAPHIC AREAS

Census Divisions

In order to present Annual Survey data at a level intermediate between the United States and the individual 50 States plus the District of Columbia, the Census Bureau has used divisional groupings. Not only are these groupings convenient for the summary presentation of data below the U.S. level, but they are essential to presenting maximum geographic information for those industry groups in which application of the disclosure law precludes the publication of individual State data.

Standard Metropolitan Statistical Areas

In addition to the States and divisions, "all manufacturing" totals have been tabulated for the approximately 225 standard metropolitan statistical areas, while major industry group (2-digit) statistics have been tabulated for areas with at least 40,000 manufacturing employees. These major industry-group statistics for each area are presented in table 3 in the section for each State. There are about 75 areas with more than 40,000 employees.

Standard metropolitan statistical areas (SMSA's) are integrated economic and social units with a large volume of daily travel and communication between the central city (having 50,000 or more population) and outlying parts of the area. Each area (except in New England) consists of one or more whole counties. An area may contain not only highly industrialized counties but also adjoining counties which, though primarily residential in character, contribute significantly to the industrial counties' labor force and are socially and economically integrated with the central city. These areas were defined by the Federal Committee on Standard Metropolitan Statistical Areas of the U.S. Bureau of the Budget for general-purpose use throughout the Federal Government in presenting economic and social data. In the New England States, similar integration criteria have been applied in defining SMSA's on a city and town basis because towns are regarded as the significant unit in this region of the country.

The requirement that each SMSA consist of county units (except in New England) sometimes results in the inclusion in an area of a considerable amount of territory which would not ordinarily be considered "metropolitan," much less "industrial." It is recognized that metropolitan areas could be more accurately defined in terms of smaller area segments such as minor civil divisions,

but the usefulness of areas so defined would be limited by the fact that many types of economic and social data are available only on a county basis.

Each SMSA is designated by the name of the principal city of the area. In addition to the name of the principal city, the area title may include one or two additional city names.

Counties

The publication of these data is limited to the large industrial counties (those with over 5,000 manufacturing employees) which could be shown without disclosing figures for individual companies and for which a reliable estimate was obtained. The data for smaller counties could not be published since the sample was not designed to obtain reliable estimates for these counties.