Foreign direct investment in the United States.

Fahim-Nader, Mahnaz ; Zeile, William J.

In 1994, new foreign direct investment in the United States (FDIUS) increased sharply for the second consecutive year from a 10-year low in 1992 (chart 1). Most measures of the overall operations of U.S. affiliates of foreign companies in 1993, the latest year for which such measures are available, were boosted by the rise in new investments that year.(1)

Outlays by foreign direct investors to acquire and establish U.S. business enterprises, either directly or through existing U.S. affiliates, increased 80 percent in 1994, to $47.2 billion, following a 71-percent increase in 1993 (table 1). Although quite large, these increases followed four consecutive years of decline, and they raised outlays to only about two-thirds the peak level of $72.7 billion recorded in 1988. Much of the reduction in outlays that has occurred since 1988 is attributable to sharply reduced new investments from Japan.

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The increase in outlays in 1994 reflected stepped-up economic activity in the United States and abroad and coincided with a sharp increase in overall merger and acquisition activity in the United States. As in the past, most of the new investments were for acquiring existing companies rather than for establishing new companies.

Reflecting both the increase in new investment and the expansion of existing operations, gross product originating in nonbank U.S. affiliates of foreign companies increased 9.0 percent in 1993, to $290.4 billion.(2) The share of total gross product originating in U.S. businesses that was accounted for by affiliates increased to 6.1 percent from 5.9 percent in 1992 (chart 2). The affiliate share had dropped slightly in 1992, following substantial increases in 1986-91 that were largely propelled by the high level of new investment activity in the late 1980's.

Additional highlights of the operations of U.S. affiliates in 1993 are as follows:

* Employment by affiliates edged up in 1993 after declining in 1992. Increases in employment resulting from new investments slightly exceeded decreases in employment from sales and liquidations of foreign ownership interests.

* Most of the other measures of affiliate operations - such as total assets, sales, and expenditures for new plant and equipment - also rose in 1993.

* Merchandise imports of affiliates increased more than merchandise exports; these increases were roughly in line with those in total U.S. merchandise exports and imports. Thus, the affiliate shares of the U.S. totals - 23 percent of exports and 34 percent of imports - were about the same in 1993 as in 1992.

* For the fourth consecutive year, the net income of affiliates was negative; however, the losses in 1993 were substantially less than in 1992, when one-time charges against income were taken to conform to new accounting standards. Profit-type return - operating profits on an economic accounting basis - was positive in both years and was not affected by accounting changes; it increased fivefold in 1993.

* Affiliates with ultimate beneficial owners (UBO'S) in the United Kingdom, Japan, Canada, and Germany accounted for the largest shares of total affiliate gross product in 1993.(3) Largely as a result of acquisitions, the share of gross product accounted for by affiliates with Canadian UBO'S increased substantially, after falling in 1992.

* By industry, affiliate shares of all - U.S.-business employment continued to be largest in mining and manufacturing. Reflecting new acquisitions, affiliate shares of employment increased substantially in the mining and transportation industries.

* By State, affiliate shares of business employment were largest in Hawaii, Delaware, South Carolina, and North Carolina. The affiliate share in Hawaii declined slightly to just under 12 percent; the affiliate share in Delaware decreased sharply, to less than 11 percent, following an even larger decrease in 1992.

New Investment in 1994

Outlays for the acquisition and establishment of U.S. businesses, including both those made directly by foreign investors and those made through their existing U.S. affiliates, increased 8o percent in 1994, to $47.2 billion, following a 71-percent increase in 1993 (table 2). The increase in outlays in 1994 coincided with a sharp increase in overall merger activity in the United States.(4) More than go percent of outlays in 1994 were for the acquisition of existing U.S. companies rather than for the establishment of new U.S. companies.

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The increase in outlays in 1994 reflected a number of factors that were conducive to increased foreign direct investment. Continued strong expansion in the U.S. economy increased the profitability of potential acquisition targets and made them more attractive to foreigners. Economic expansion in Western Europe, particularly in the United Kingdom, raised foreign companies' profitability and provided them with additional funds for investment. In addition, the cumulative effect of dollar depreciation against several major currencies - most notably the British pound and the Swiss franc - probably encouraged some foreign investors to invest, or to invest more, in the United States. The dollar also depreciated significantly against the Japanese yen; however, outlays by Japanese investors remained virtually constant, as new investments were constrained by slow economic recovery, reduced corporate profits, and continued liquidity problems in the banking system.

The step-up in outlays in 1994 partly reflected a sharp increase in the average size of investments. The number of investments of $1 billion or more quadrupled to eight; four of these investments were $2 billion or more, compared with only one in 1993 (table 3). Investments of $1 billion or more accounted for 38 percent of total outlays in 1994, compared with 19 percent in 1993; they accounted for four-fifths of the increase in outlays in 1994.

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The four countries with the largest outlays in 1994 - the United Kingdom, Switzerland, Canada, and Germany - accounted for two-thirds of the total. Investments from the United Kingdom alone accounted for $19.0 billion, or two-fifths of total outlays (table 4). Most of the increase in outlays was accounted for by investments from the United Kingdom and Switzerland. Outlays by Japanese investors decreased for the fourth consecutive year and were only about one-tenth as large as in the peak year of 1990 (chart 3).

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By industry, outlays in 1994 were largely in the manufacturing and services industries. Manufacturing alone accounted for $23.9 billion, or 51 percent of total outlays. Outlays increased in all industries except petroleum, "finance, except banking," and insurance. Increases were particularly large in manufacturing, services, and "other industries." In manufacturing, most of the increase was accounted for by "other manufacturing" (particularly paper, tobacco, and printing and publishing), food and kindred products, and chemicals and allied products (particularly drugs and toiletries). In services, most of the increase was accounted for by business services (particularly computer and information retrieval services). In "other industries," most of the increase was accounted for by communication and public utilities (particularly telephone and telegraph communications).

The portion of outlays financed with funds from foreign parents, rather than from U.S. or other foreign sources, increased $16.8 billion, to $28.7 billion. This increase contributed to the sharp overall increase in net capital inflows for FDIUS recorded in the U.S. balance of payments accounts for 1994.(5)

In contrast to the sharp increase in outlays, the total assets of newly acquired or established affiliates were smaller in 1994 than in 1993 - $75.9 billion in 1994 compared with $104.4 billion in 1993 (table 5). The smaller assets mainly reflected large acquisitions in 1993, but not in 1994, in industries - particularly "finance, except banking" and insurance - in which assets tend to be large in relation to owners' equity. U.S. affiliates that were newly acquired or established in 1994, nearly all of which were nonbank affiliates, employed 310,000 persons, up from 289,000 in 1993. Manufacturing accounted for the largest share of employment (37 percent); "other industries" - particularly communication and public utilities - also accounted for a large share (22 percent).

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Affiliate Operations in 1993

Reflecting the increase in new investment activity, the rate of growth in most measures of the operations of nonbank U.S. affiliates picked up substantially in 1993. Total assets of affiliates increased 12 percent to more than $2 trillion (table 6). The gross product of affiliates increased 9 percent - the largest rate of increase since 1989 - and sales increased 6 percent. Partly in response to improved business conditions, expenditures on new plant and equipment increased 4 percent after dropping 12 percent in 1992.

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Employment by affiliates edged up in 1993, following a 3-percent decline in 1992 (chart 4), as increases due to new investments slightly exceeded decreases due to sales and liquidations of affiliates. New investments added 248,000 employees(6) - compared with only 102,000 employees in 1992 - whereas sales and liquidations reduced employment by 242,000 (table 7). Other sources of change had little net effect on employment by affiliates: Increases due to expansions in existing operations were roughly balanced by decreases due to cutbacks.

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In 1993, U.S. merchandise exports shipped by affiliates increased 1 percent, and U.S. merchandise imports shipped to affiliates increased 8 percent. For both exports and imports, the rate of increase was slightly below that for the corresponding all-U.S. total. In 1993, affiliates accounted for 23 percent of total U.S. merchandise exports and 34 percent of total U.S. merchandise imports, about the same shares as in 1992. Most of the merchandise trade by affiliates - 53 percent of the exports and 59 percent of the imports - was by wholesale trade affiliates, which typically function as distribution agents, buying and reselling selling the goods they export or import with little or no further processing or assembly.

Gross product

In 1993, gross product originating in affiliates increased 9 percent to $290.4 billion, following an increase of only 3 percent in 1992. Constant-dollar estimates of affiliate gross product are not available, but a rough adjustment for the effects of inflation suggests that the increases in real terms were about 1-2 percent lower than the current-dollar increases in each year.(7) With or without an adjustment, the rate of increase in 1993 was the largest since 1989.

Much of the increase in affiliate gross product represented new foreign acquisitions of existing U.S. companies rather than increased production within the borders of the United States.(8) Some of the largest acquisitions (as well as some of the largest selloffs) in 1993 were of minority ownership shares. Although their share was down slightly from 1992, majority-owned affiliates continued to account for more than three-fourths of the gross product of all U.S. affiliates.

By industry. - Affiliates in manufacturing accounted for almost one-half of the gross product of affiliates in 1993 (table 8), a share much larger than manufacturing's share of total U.S. private-industry gross product.(9) However, the concentration of U.S. affiliate production in manufacturing is consistent with the industry distribution of gross product by the foreign affiliates of U.S. multinational companies: In 1992, manufacturing accounted for slightly more than one-half of the gross product of foreign affiliates of U.S. companies.(10) Direct investment in general may be more concentrated in manufacturing than in services or other industries due to a greater presence in manufacturing of scale economies and of production processes that can be standardized across national boundaries. In addition, foreign direct investment in some service industries (such as legal services) may be constrained because a high degree of knowledge of the local language, culture, and business environment typically is required to compete effectively with domestically owned businesses.

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Manufacturing's share of U.S. affiliate gross product dipped slightly in 1993. Within manufacturing, the food industry's share of affiliate gross product decreased substantially, and the shares of printing and publishing and of motor vehicles and equipment increased.

Outside manufacturing, the transportation and service industries' shares of affiliate gross product increased. The transportation industry's share of affiliate gross product increased sharply to 4.3 percent after declining in 1992. The increase was mainly due to acquisitions in the airline industry. In accordance with the legal restrictions on foreign ownership in the domestic air transport industry, the acquisitions were of ownership shares of no more than 25 percent.

The share of affiliate gross product in services increased to 8.1 percent, continuing an uptrend. The increase mainly reflected new investment in the motion picture industry.

By country. - In 1993, affiliates with UBO'S in the largest four investing countries - the United Kingdom, Japan, Canada, and Germany - continued to account for more than 60 percent of the gross product of all affiliates (table 9).

The share of Canadian-owned affiliates increased substantially, to 14.2 percent, after declining in 1992. Much of the increase was accounted for by acquisitions of minority-ownership interests in companies in the airline, motion picture, and publishing industries. The share of German-owned affiliates also increased, to 11.3 percent, continuing an uptrend.

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In contrast, the share of British-owned affiliates dropped slightly, to 20.9 percent. By country of UBO, British-owned affiliates have accounted for the largest share of affiliate gross product since at least 1977, the first year for which annual data on U.S. affiliate operations were collected.

The gross product share of Japanese-owned affiliates also dipped slightly, to 15.8 percent. Despite the falloff since 1990 in new direct investment from Japan, the share accounted for by Japanese-owned affiliates was larger in 1993 than in any year before 1992, reflecting expanded production by existing affiliates.

Share of the economy

In 1993, affiliates accounted for 6.1 percent of the total U.S. gross product originating in private industries, up from 5.9 percent in 1992 (table 1). Except for a slight dip in 1992, the affiliate share has increased every year since 1985. In contrast, the share of U.S. private-industry employment accounted for by affiliates decreased from 5.3 percent in 1991 to 5.1 percent in 1992 and to 5.0 percent in 1993. The continued dip in the affiliate share of employment partly reflects the concentration of affiliate activity in manufacturing, where employment growth at the all-U.S. level has been much lower than in service and other industries.

The employment data for affiliates and U.S. private industries can be used to examine affiliate shares of the U.S. economy by industry and State. Unlike the data on gross product, the data on U,.S. affiliate employment are available by industry of sales as well as by industry of affiliate (see the box "Data by Industry of Affiliate and by Industry of Sales"). Because the data on affiliate employment classified by industry of sales are roughly comparable with the data on U.S. private-industry employment classified by industry of establishment (or plant), they can be used to calculate affiliate shares of the U.S. economy at a greater level of industry detail than is appropriate for the gross product data, which are available only by primary industry of the enterprise as a whole.(11) Data on affiliate employment, unlike the data on gross product, are also available by State; thus, affiliates' share of private-industry employment in each State can be computed.

By industry. - In 1993, as in most previous years, the shares of total U.S. employment accounted for by affiliates were largest in mining and manufacturing (table 10). Excluding petroleum refining, the affiliate shares within manufacturing were largest in chemicals, in stone, clay, and glass products, and in electrical machinery.(12)

The affiliate shares of U.S. employment rose the most rapidly in mining and transportation. In mining, the affiliate share increased to 14.6 percent from 12.4 percent, mainly reflecting foreign acquisitions of chemical companies with secondary operations in mining. In transportation, the affiliate share increased to 6.7 percent from 5.6 percent, largely reflecting acquisitions in the airline industry.

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In "finance, except banking," the affiliate share decreased substantially to 5.2 percent. The decrease was more than accounted for by the liquidation of foreign minority-ownership interests in security brokerage firms.

The affiliate share in manufacturing dipped slightly to 11.6 percent. Excluding petroleum refining, the largest decrease in the affiliate share of employment within manufacturing was in food products; the decrease reflected both selloffs and reductions in the operations of food-processing affiliates. The largest increases were in apparel and other textile products, printing and publishing, and motor vehicles and equipment. The increases in the apparel and printing industries were mainly accounted for by new foreign acquisitions, whereas the increase in motor vehicles was mainly due to expansions by existing affiliates.

By State. - In 1993, the share of private-industry employment accounted for by affiliates was highest in Hawaii, followed by Delaware, South Carolina, and North Carolina (table 11). Before 1992, Delaware had the highest share among States.

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In Hawaii, the affiliate share was 11.8 percent in 1993, down slightly from that in 1992; more than two-thirds of the affiliate employment was by Japanese-owned affiliates, mainly those in the hotel industry. In Delaware, the affiliate share declined for the third consecutive year, to 10.7 percent. The affiliate share also declined in South Carolina, to 8.1 percent. In North Carolina, the affiliate share increased to 7.5 percent; the share has increased every year since 1978, when it was 2.5 percent.

Profitability

Affiliates reported losses on net income in both 1992 and 1993: In 1993, affiliate net income was - $9.9 billion, less than one-half the losses in 1992.(13) In contrast, affiliates' "profit-type return" was positive in both years: In 1993, affiliate profit-type return was $15.7 billion, more than five times larger than in 1992 (table 12).(14)

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The large losses reported for 1992 on a net-income basis partly reflected one-time adjustments to earnings made by many affiliates to conform with new accounting standards for post-employment and post-retirement benefits and for deferred income taxes. Although the adjustments reduced net income substantially, they had no effect on the profit-type-return measure, which excludes nonoperating income and is before deduction of income taxes.

By major industry, affiliate net income in 1993 was negative in every industry except petroleum, "finance, except banking," insurance, and "other industries"; in 1992, it was negative in every industry except "finance, except banking" and insurance. In manufacturing and wholesale trade, affiliates had negative net income in both years despite having positive profit-type return.

In 1993, the profit-type return of affiliates in every major industry increased. The increases were especially large in manufacturing and "other industries." Within "other industries," the profit-type return of affiliates in transportation turned around sharply, partly reflecting the addition of new affiliates in the airline industry.

In some industries, affiliates have continued to incur negative profit-type return (that is, losses from current operations). In recent years, operating losses have been particularly large for affiliates in real estate. Within manufacturing, operating losses have been large in machinery; within services, they have been large in hotels.

Appendix: Sources of Data

Foreign direct investment in U.S. business enterprises, including all ownership of real estate other than for personal use, is reported to BEA under the International Investment and Trade in Services Survey Act. The data are collected in a number of surveys.

This article presents two types of data from BEA'S surveys of FDIUS: (1) Data on new investments from the survey of new FDIUS, and (2) data on the overall operations of both new and existing U.S. affiliates of foreign companies from the annual and benchmark surveys of FDIUS.

New investment survey

The new investment survey covers (a) existing U.S. business enterprises in which foreign direct investors acquired, directly or through their U.S. affiliates, at least a 10-percent ownership interest and (b) new U.S. business enterprises established by foreign direct investors during the year. The new investment survey provides data on investment outlays, the number and type of investments and investors, the portion of outlays financed with foreign-source funds, and selected operating items - total assets, sales, net income, employment, and U.S. land owned - for the new U.S. affiliate. The data on outlays and on the number and types of investments and investors are on a calendar year basis. (See the next section of this appendix for a discussion of the basis used for the operating data items from the new investment survey.)

The new investment data are limited to all U.S. business enterprises (including banks) that have total assets of over $1 million or that own at least 200 acres of U.S. land in the year they are acquired or established. U.S. enterprises that do not meet these criteria are required to file partial reports, primarily for identification purposes, but the data from these reports are not included in the accompanying tables. For 1994, total assets of the U.S. enterprises that filed partial reports were only $182.0 million, or about 0.2 percent of the total assets of $75.9 billion of the U.S. enterprises that filed complete reports.

Each year, preliminary estimates for the previous year are revised to incorporate data received after the publication of the preliminary results and any corrections to reported data or to the country or industry classification of affiliates. The preliminary estimates include bias adjustments for late reports.

Annual and benchmark surveys

The annual survey of FDIUS collects information on the overall operations of nonbank U.S. affiliates, such as their balance sheets and income statements, and data on their employment and employee compensation, property, plant, and equipment, merchandise trade, sources of external financing, and selected data by State.(15) The survey covers nonbank affiliates that have assets, sales, or net income greater than $10 million. Estimates covering the universe of nonbank U.S. affiliates of foreign companies are derived by combining data reported by a sample of affiliates in the annual survey with BEA estimates of data for affiliates not in the sample. Estimates for nonsample affiliates that existed before 1993 are derived by extrapolating forward the data they reported in BEA'S 1992 benchmark survey. Estimates for new nonsample affiliates are derived from data they reported in BEA'S survey of new investment.

The annual survey data are on a fiscal year basis. Thus, for example, for 1993, an individual affiliate's fiscal year is its financial reporting year that ended in calendar year 1993.

The benchmark survey (or census), which is now normally conducted every 5 years, is BEA'S most comprehensive survey Of FDIUS in terms of both subject matter and numbers of companies covered. The 1980, 1987, and 1992 estimates of the overall operations of foreign-owned U.S. companies are based on universe data from BEA'S benchmark survey Of FDIUS. The benchmark survey collects both financial and operating data (which are presented in this article) and data on the foreign direct investment position and on balance of payments transactions between U.S. affiliates and their foreign parent groups. For financial and operating data, it obtains all of the items collected in the annual survey as well as a number of items that are collected only in benchmark years. (The annual survey is not conducted in years in which a benchmark survey is conducted.) Very small companies - those with less than $1 million of assets, sales, or net income - are exempt from the benchmark survey. These companies are required to file partial reports, primarily for identification purposes, but the data from these reports are not included in the accompanying tables. For 1992, total assets of nonbank companies that filed partial reports were only $1.5 billion, or about o.1 percent of the total assets of $1.8 trillion of the nonbank companies that filed complete reports. Like the annual survey data, the benchmark survey data are on a fiscal year basis.

Unlike the new investment data, the operations data from the annual and benchmark surveys cover existing, as well as newly acquired or established, U.S. affiliates, and they reflect changes due to liquidations and sales of affiliates. In addition, the data for newly acquired or established affiliates differ in the two data sets.

One difference is in timing. For example, in the annual survey for 1993, the data for new affiliates are for (or as of the end of) fiscal year 1993. In the new investment survey, the operations data for U.S. businesses acquired in 1993 are for (or as of the end of) the most recent fiscal year preceding the acquisition (generally 1992), and the operations data for newly established businesses are projected for (or as of the end of the first full year of operation. These timing differences reflect differences in the due dates for the two surveys. For example, the due date for the 1993 annual survey was May 31, 1994. The due date for the new investment survey is 45 days after the transaction takes place. Thus, for many acquisitions or establishments that occurred in 1993, reports were required before yearend, so that it was impossible for reporters to supply data for 1993.

In addition, data for a newly acquired or established may be classified in different industries in the two surveys. In the annual survey, data for a business newly acquired or established by an existing U.S. affiliate are included in the consolidated report of the existing affiliate if that affiliate owned more than 50 percent of the business. Therefore, data for that business appear in the industry in which the consolidated entity is classified. In the new investment survey, data for a newly acquired or established business are reported separately and are classified in the industry of the business.

Finally, data for banks are collected in the new investment survey but are excluded from the data on the operations of U.S. affiliates in this article.

Tables 13 through 18.2 follow.

(1.) This article combines two annual articles that used to appear separately - one on the acquisition and establishment of U.S. businesses by foreign direct investors in the past year and another on the overall operations of U.S. affiliates of foreign companies in the year before that. Estimates of new investment are derived from sea's survey of new foreign direct investment in the United States; preliminary estimates from the most recent survey cover 1994. Estimates of the overall operations of U.S. affiliates ape derived from BEA'S annual and benchmark surveys of foreign direct investment in the United States; preliminary estimates from the most recent survey cover 1993. The operations data, unlike the new investment data, cover only nonbank affiliates. (See the appendix "Sources of Data.") (2.) A U.S. affiliate is a U.S. business enterprise in which there is foreign direct investment - that is, in which a single foreign person owns or controls, directly or indirectly, 10 percent or more of the voting securities of an incorporated U.S. business enterprise or an equivalent interest in an unincorporated U.S. business enterprise. An affiliate is called a "U.S. affiliate" to denote that it is located in the United States; in this article, affiliate and "U.S. affiliate" are used interchangeably. "Person" is broadly defined to include any individual, corporation, branch partnership, associated group, association, estate, trust, or other organization and any government (including any corporation, institution, or other entity or instrumentality of a government). A "foreign" person is any person resident outside the United States - that is, outside the 50 States, the District of Columbia, the Commonwealth of Puerto Rico, all U.S. territories and possessions, and U.S. offshore oil and gas sites. (3) The UDO is that person, proceeding up a U.S. affiliate's ownership chain, beginning with and including the foreign parent, that is not owned more than 50 percent by another person. The foreign parent is the first foreign person in the affiliate's ownership chain. Unlike the foreign parent, the udo of an affiliate may be located in the United States. The ubo of each U.S. affiliate is identified to ascertain the person that ultimately owns or controls and that, therefore, ultimately derives the benefits from owning or controlling the U.S. affiliate. (4.) In a news release dated December 30, 1994, the Securities Data company reported a 43-percent increase in overall merger and acquisition activity in the United States in 1994. (5.) In addition to outlays from foreign parents to acquire or establish new U.S. affiliates, net capital inflows for FDIUS in die U.S. balance of payments accounts include foreign parents' financing of their existing U.S. affiliates. In 1994, net capital inflows for FDIUS increased $38.7 billion, to $60.1 billion. Preliminary estimates of these inflows were published in tables 1 and 5 Of "U.S. International Transactions, Fourth Quarter and Year 1994," Survey of Current Business 75 (March 1995): 80 and 87. Revised estimates will appear in the June 1995 Survey. (6.) This increase in employment is smaller than the number of employees of newly acquired or established U S. businesses in 1993 shown in table 1. The difference partly reflects differences in coverage and timing and the existence of some changes in nonbank affiliate employment that could not be categorized. For more information, see the note to table 7 and the appendix "Sources of Data." (7.) The data used to estimate affiliate gross product are reported to BEA in current dollars. Price indexes specifically designed for deflating affiliates' gross product are unavailable; however, rough estimates of real changes in affiliate gross product can be constructed by applying industry-level implicit price deflators for all U.S. businesses derived from BEA'S estimates of current-and constant-dollar gross product by industry, weighted to account for the industry mix of affiliate production. (8.) Changes in affiliate gross product may reflect either changes in the production of existing affiliates or changes in foreign ownership due to new investments or selloffs. (9.) BEA'S most recent data on gross product by industry indicate that manufacturing accounted for about one-fifth of the gross product originating in U.S. private industries in 1993. See "Gross Product by Industry, 1993," Survey 75 (April 1995): 47. (10) The figure for foreign affiliates covers only those affiliates that are majority-owned by U.S. direct investors. See "U.S. Multinational Companies: Operations in 1992," Survey 74 (June 1994): 62. (11.) Establishment-level data from a joint project of BEA and the Bureau of the Census can be used to calculate affiliate shares of U.S. economic activity at an even greater level of detail. These data show each four-digit manufacturing industry in the Standard Industrial Classification; they are currently available for 1987-91. The data for 1990 are discussed in "Characteristics of Foreign-Owned U.S. Manufacturing Establishments," Survey 74 (January 1994): 34-59. (12.) The precise share for petroleum refining cannot be calculated from the affiliate data. See footnote 4 to table 10. (13.) Net income of affiliates is after-tax profits on a financial accounting basis, as shown in affiliates' income statements; it includes capital gains and losses, income from investments, and other nonoperating income. (14.) Affiliates' profit-type return is an economic-accounting measure of the profits generated from production; it is before deduction of income taxes or depletion charges, excludes nonoperating income, and includes an inventory valuation adjustment. For a more complete description of this measure and for a comparison between it and the corresponding measure used in the U.S. national income and product accounts, see "Gross Product of U.S. Affiliates of Foreign Companies," Survey 70 (June 1990): 53. (15.) Data on affiliate gross product are not collected directly, but are estimated by BEA. Gross product is calculated as the sum of employee compensation, profit-type return, net interest paid, indirect business taxes, and capital consumption allowances.

Data by Industry of Affiliate and by Industry of Sales

Most data from BEA'S annual and benchmark surveys Of FDIUS are classified by industry of affiliate. For this classification, an affiliate's primary industry is based on a breakdown of the affiliate's sales by three-digit International Surveys Industry Classification code.(1) All of the data for the affiliate are assigned to a single industry - the industry in which it has the largest sales - even if the affiliate has activities in secondary industries.

Sales and employment are also classified by industry of sales. For this classification, an affiliate's sales and employment are distributed among all the industries in which it reported sales. Employment classified by industry of sales should generally approximate that classified by industry of establishment (plant), because an affiliate that has an establishment in an industry usually also has sales in that industry.(2) Data classified by industry of sales are preferable for analyses of the various activities in which diversified enterprises are engaged. The pattern of change in employment by industry of sales may differ from the pattern by industry of affiliate because the changes in employment in affiliates' secondary industries may not parallel those in their primary industries. A change in an affiliate's industry of classification may also cause these patterns to differ; when employment is classified by industry of affiliate, all employees are shifted from the old industry to the new one, but when it is classified by industry of sales, changes in employment for an industry reflect only actual changes in employment in that industry.

(1.) These codes are adapted from the Standard Industrial Classification Manual, 1987, the comprehensive industry classification system used for Federal economic statistics. (2.) However, if one establishment of an affiliate provides all of its output to another establishment of the affiliate, the affiliate will not have sales in the industry of the first establishment. For example, if an affiliate operates both a metal mine and a metal-manufacturing plant and if the entire output of the mine is used by the manufacturing plant, all of the affiliate's sales will be in metal manufacturing and none in metal mining. When the mining employees are distributed by industry of sales, they are classified in manufacturing even though the industry of the establishment is mining.

Data Availability

New investment data

Only summary data arc published in this article. A set of supplementary tables containing detail on the number of investments and investors for 1992-93 and on investment outlays and selected operating data for the newly acquired or established businesses for 1992-94 will be available in June for $10.00 from the Public Information Office, Order Desk, BE-53, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230. Visa or Mastercard orders may be placed by telephone at (202) 606-9827. When ordering, refer to the "BE-13 Supplementary Tables for the May 1995 Survey Article." Comparable table sets for 1987-91 and 1980-86 are also available for $18.00 each. For order information on the tables, call (202) 606-9828. The data are also available on computer diskettes; the price is $20.00 each for the 1992-94, 1987-91, and 1980-86 series. For order information on the diskettes, call (202) 606-9841.

Annual and benchmark survey data

Publications and computer diskettes presenting revised estimates of U.S. affiliate operations for 1992 from the benchmark survey and preliminary estimates for 1993 from the annual survey will be available later this year; their availability will be announced on the inside back cover of the Survey. These estimates win be comparable with those in this article, but they will be presented in greater detail.

More detailed estimates of U.S. affiliate operations in 1977-91 are available on computer diskettes; for order information, call (202) 606-9841. The estimates for 1977-91 are also available in a series of annual publications; for order information, call (202) 606-9893.

The International Investment Division's Direct Investment in the U.S. Branch, under the direction of James L. Bomkamp, conducted the surveys from which the data in this article were drawn. Joseph F. Cherry, III, coordinated the editing and processing of the reports from the survey of new investment. David Galleer, with the assistance of Juris E. Abolins, coordinated the editing and processing of the reports from the annual and benchmark surveys from which the estimates of the overall operations of U.S. affiliates were obtained. Arnold Gilbert and Angela Roberts, with assistance from Robert Price, designed the computer programs to generate the tables.