%jMall Street 
August 24, 1 974 / William G. Shepherd, Editor 
The ‘hidden’ corporate debt 
The 20-month bear market has eaten so deeply into 
pension portfolios that it is beginning to pose a 
serious threat to corporate profits. As pension as 
sets decline, companies are faced with making 
larger and larger contributions out of pretax earn 
ings. Meantime, vested benefits—dollars that long 
standing employees have a claim to—keep rising. 
Some plans have already grown larger than their 
sponsor companies. And new legislation that’s due 
to pass Congress any day will increase vested ben 
efits further, as well as make companies legally 
liable for more of those benefits. 
That’s a blow, because $30-billion or more of the 
money isn’t there. The gap doesn’t represent cor 
porate negligence so much as promises that com 
panies haven’t yet had time to fulfill. When a pen 
sion plan is installed, or benefits are improved, the 
terms usually apply retroactively to cover employ 
ees’ previous service. This produces instant, large 
“past service” liabilities for the company—deferred 
wages that can be amortized over long periods, 
usually 30 years. 
But pension liability shows up only in footnotes in 
annual reports, not on balance sheets, so it repre 
sents a kind of “hidden debt.” The stock and bond 
market declines have just made matters worse. 
Scores of companies are deeply in hock to their 
pension plans. For some, the debt is so enormous it 
could impede their profitability, growth, and borrow 
ing power for years to come. 
Though pension liability promises to be a hot 
topic in investment circles, investors so far have 
little hard information to go on. As a simple rule, 
“companies that are fully funded,” says Robert S. 
Driscoll of Lord, Abbett & Co., which manages Affil 
iated and other mutual funds, "are going to be more 
r 
Unfunded pension liabilities: How big are they getting? 
i : ■ 
These examples show how much pension assets fell short of 
vested benefits last year, a debt that doesn’t appear on 
corporate balance sheets. “Percent of book value” reflects how 
much common shareholders would lose in equity if 
pension liability were capitalized. “Multiple of 
pretax profits” suggests how many years of a company’s 
earning power it would take to make up the deficit. To adjust a 
bit for cyclical swings and inventory profits, business week 
used a three-year average of pretax profits. 
Owed to 
pension 
Per share 
Percent 
of book 
Multiple of 
1971-73 
average 
pretax 
fund 
of common 
vaiuo 
profits 
ACF Industries 
(millions 
of dollars)' 
. . .$48.2. ‘ 
....$3.57. 
23.8% 
1.3 
Allegheny Ludlum . 
. .. 76.0.. 
.. . .16.02. 
50.7 
2.5 
Allis-Chalmers .... 
. .. 93.0.. 
.... 8.78. 
26.8 
5.4 
Ambac Industries .. 
. .. 15.1.. 
.... 3.60. 
27.1 
1.6 
Am cord 
. . . 10.0.. 
.... 1.76. 
16.1 
1.5 
American Brands .. 
...101.5.. 
.... 3.96.. 
21.6 
0.4 
American Can ..... 
...278.0.. 
....15.66. . 
....42.7 
2.5 
American Motors ... 
. .. 80.0.. 
.... 2.95.. 
23.8 
2.0 
American Standard 
... 79.3.; 
.... 6.52.. 
67.9 
1.9 
Anchor Hocking ... 
. .. 64.5.. 
.... 9.35., 
.....37.8 
1.7 
Armco Steel 
...139.5.. 
.... 4.77.. 
14.2 
1.1 
Beech Aircraft .... 
. .. 13.4.. 
.... 1.93.. 
24.2 
1.0 
Bendix 
. . .116.8. . 
.... 9.15.. 
29.9 
1.4 
Bethlehem Steel . . 
. . .758.0. . 
....17.44. 
33.8 
3.0 
Boeing 
. . . 93 0.. 
. . . . 4.39. 
10.4 
3.0 
Hwdd 
. . . 70.0. . 
.. . .11.52. 
38.7 
2.6 
Canadian Pacific • • 
. . 510.0.. 
.... 7.12. 
28.9 
3.2 
Chrysler 
. . .583.0.. 
. . . .10.34. 
21.0 
1.6 
Consolidated Edison 
. .207.0.. 
. . . . 3.36. 
10.8 
1.6 
Crane 
. . . 97.Q.. 
. . . .18.99. 
55.7 
4.4 
Curtiss-Wright .... 
. . . 34.5. . 
. . .. 3.95. . 
....22.3 . 
2.9 
Eltra 
. .. 61.1.. 
.. . . 8.12. . 
....24.6 . 
1.3 
Owed to 
pension 
Per share 
Percent 
of book 
Multiple of 
1971-73 
average 
pretax 
fund 
of common 
value 
profits 
(millions 
of dollars) 
Fairchild Industries ...$28.8.. 
.. . .$6.33. . 
... .60.7% 
1.9 
Ford Motor 
.680.0.. 
.... 6.88.. 
....11.1 
0.5 
General Motors 
.800.0.. 
. . .. 2.80. . 
.... 6.6 
0.2 
B. F. Goodrich 
. 60.3.. 
.... 4,22... 
.... 9.2 
0.7 
Goodyear Tire & 
Rubber 
.... 3.39.. 
. . ..14.5 
0.7 
Greyhound 
. 91.0.. 
.... 2.16.. 
....26.0 
0.7 
Inland Container 
.17.8.. 
.... 6.01.. 
....21,2 
1.7 
Interlake 
. 40.0.. 
....10.72.. 
....19.7 
1.3 
International Harvester.229.0.. 
.... 8.24.. 
....17.8 v 
2.0 
International Paper .. 
.128.2. . 
.... 2.91.. 
....11.4 
0.8 
Jones &. Laughiin Steel 
.191.0.. 
....12.01 .. 
,...26.9 
3.8 
Keystone Consolidated 
Industries 
. 40.0.. 
....21.29.. 
....42.3 
10.6 
Lockheed Aircraft ... 
.138.0.. 
... .12.15. . 
....48.7 
5.7 
Lukens Steef 
. 34.3.. 
.,..13.37... 
...36.6 . 
8.6 
Marquette Cement Mfg. 
. 17.5.. 
.... 5.23. . 
. ...18.2 . 
4.9 
Midland-Ross 
. 27.6.; 
.... 4.88.. 
....21.6 
1.7 
Mohawk Rubber 
. 8.8.. 
.... 8.07... 
....34.1 . 
1.5 
National Steel 
.218.0.. 
....11.79.. 
....204 , 
1.9 
Raybestos-Manhattan 
. 20.2.. 
....14,91... 
...32.7 . 
2.3 
Remington Arms .... 
. 38.0.. 
.... 5.37... 
...37.9 . 
2.2 
Republic Steel 
.346.0.. 
... .21.39. . . 
...31.3 . 
5.3 
Richardson 
. 6.9.. 
.... 4.36. . . 
...297 . 
1.0 
A. O. Smith 
. 31.0.. 
.... 6.29... 
...18.0 
1.3 
Unlroyal 
.421.0. . 
.. . .15.85 . . 
...78.2 . 
5.6 
Western Union 
.228.0. . 
. . . .16.61 . . . 
...41.3 . 
7.6 
Westlnghouse Electric 
.431.0. . 
. . . . 4.90... 
...24.3 . 
1.3 
Wheeling-Pittsburgh 
Steel 
.186.0.. 
....50.93... 
...642 . 
....10.7 
White Motor 
. 75.0.. 
.... 9.11... 
...33.2 . 
3.8 
Youngstown Steel Door 6.2.. 
.... 4.81. .. 
...28.5 . 
3.4 
Data: Arnold Bernhard & Co.; Investors Management Sciences; business week 
46 BUSINESS WfctK: August 24, 1974 
WAl L STREET