5. Members of the Roundtable are not bound by the Has any other member of the Business Roundtable or any From time to time the Company has been contacted The matters covered by the communications from the The Company has from time to time contacted members There is one additional matter on which I would appreciate the opportunity to supplement the record. As the corrected transcript of my testimony indicates, I undertook to try to determine whether my understanding that the Internal Revenue Service had not allowed deductions for entertainment of Government officials was correct and whether any in fact had been allowed (p. 61). This matter has now been reviewed, and I am advised by our tax people that for the Company's fiscal year 1971 (the most recent year that has been audited) and for several previous years the Internal Revenue Service, while generally taking the position on audit that expenditures for entertainment involving Government employees (and the expenditures for Company employees and other non-Government personnel present on those occasions) were not allowable, has allowed some claimed deductions for certain items such as business lunches for which the average cost per person present did not exceed $5, cost of hospitality suites and some other items. APPENDIX III A Northrop's Corporate Policy Directive (CPD) No. 46 is attached at Att ment 2. CPD No. 46 was first issued on January 28, 1963. As of April 1, 1 the Directive is applicable to all Northrop subsidiaries, as well as the corpo offices and divisions. The procedures for implementing CPD No. 46 are inco rated in Corporate Finance Manual (CFM) 2-642 (Attachment 3) and C 2-628 (Attachment 4). In addition, Frank W. Lynch, Senior Vice President-Administration, issued related policy memoranda dated August 7, 1975 (Attachment 5) and October 1975 (Attachment 6). I. II. It is the policy of the company that expenditures for business conferences, In no case will any reimbursement be made which is not in compliance with the A. Standards of Conduct Our relationships with our customers, both domestic and foreign, public B. Necessary Documentation Sufficient records will be maintained to insure that all appropriate expenditures under IRS criteria can be claimed as U.S. income tax deductions as ordinary and necessary business expenses, and as reimbursable costs under government contracts, where applicable, to the extent permitted under the Armed Services Procurement Regulations (ASPR), or any other contract terms, rules and regulations. (177) Page 2 of 2 26 February 1976 III. IV. C. Reasonable Business Expenses It is recognized that the nature of the company's business with foreign governments may on occasion require business conferences, entertainmen or hospitality to be conducted in conformance with standards of official international protocol. Such expenditures, when deemed necessary, mus have the prior approval of the responsible corporate officer, division gen eral manager or subsidiary president. Under no circumstances will any other expenditure for business conferences, entertainment or hospitality H reimbursed by the company in amounts greater than would be involved in the extension of courtesies and normal amenities to acquaintances or friend Corporate officers, division general managers, and subsidiary presidents will fully instruct all employees or consultants having authority to expend company funds for these purposes concerning the necessity for being particularly metic lous in their observance of this policy and all applicable laws, regulations and directives pertaining to such expenditures, whether applicable to the company to government personnel or to any others with whom we have business relation ships. Failure to comply with this policy shall constitute a basis for dismissal : the case of employees, or contract cancellation where consultants are involved. Detailed instructions implementing this policy will be issued from time to time a part of the Corporate Policy Manual or supplementary publication. Thomas Yuus Thomas V. Jones Chief Executive Officer Applicable to: II. III. IV. The policy of the company governing entertainment expense is outlined in DEFINITION Entertainment for business purposes includes activities normally considered ACCOUNTING TREATMENT Entertainment expenses shall be expensed as incurred. REDBURSEMENT AND ALLOWABILITY A. Entertainment expense will be approved for reimbursement to employees 1. The expenditures are reasonable and necessary for business purposes, 2. 3. and The expense is fully supported by required documentation, as out- The request or reimbursement is substantiated by including on Form |