1 2 3 4 5 6 7 8 9 10 11 12 13 Sec. 3. The Committee shall have subpena power to obtain needed information and shall have the authority to require and receive the assistance and cooperation of all appropriate departments, agencies, bureaus, and other instrumentalities of the United States, including but not limited to the Department of Transportation, Department of Interior and the Department of Defense. As a part of such study, the Secretary of Transportation shall take such action as necessary to have all applicable information, statistics, and findings published in an appropriate form. Sec. 4. Within nine months following the date of the enactment of this Act, the Committee shall submit a report to the Congress containing the summary compiled pursuant to this 14 Act. Senator BAUCus. I think it is very important, in addressing these kinds of questions with regard to holding companies and other transportation matters, for all of us in the Congress and others of us in decisionmaking forums to have as near as possible an understanding as we can of the various forms of subsidies that affect the transportation industries. Chairman TAYLOR. I would support and I would hope the Commission would support such legislation. Senator BAUCUS. Thank you, Mr. Taylor. Mr. Krueger, do you have any other points you want to make or rebuttals or suggestions? Mr. KRUEGER. No, sir. Senator BAUCUS. You are a wise man. Thank you both very much. Chairman TAYLOR. Thank you very much, Senator. [Material follows:] March 31, 1982 Washington DC 2010 (202) 224-25 Mortana Toll Free No. (1) 800-332-6106 Mr. Oliver W. Krueger General Accounting Office 441 G Street, N.W. Room 6804 Washington, D.C. 20548 Dear Mr. Krueger: As a follow-up to our hearing on rail mergers on March 26, I would appreciate it very much if you could supply for the hearing record the following: 1. Additional specifics on the weaknesses of ICC's current holding company audits. Committees Environment and 2. Additional specifics on the beneficial changes that could be made in the substance and procedure of auditing-including frequency, variables that need to be monitored, extent to which holding company itself needs to be monitored, etc. 3. Any additional views you have on alternative interpretation of ICC's holding company jurisdiction. 4. A copy of the pertinent positions of FRA's study of export rail merger benefits--mentioned by Mr. Blume in testimony. The -record of the hearing will remain open until close of business, April 25, 1982, to receive these materials. Again, I appreciate your valuable contribution to the testimony. With best personal regards, I am Sincerely, Finance Judiciary Small Business Billings 657-6790 Bozeman 586-6104 As a followup to the March 26 hearing on lail mergers, you asked us to respond to the following questions in your March 31 letter. 1. Additional specifics on the weaknesses of ICC's current holding company audits. While our analysis was not directed at assessing the adequacy of ICC's holding company audits, we did identify certain weaknesses that could impact on ICC's ability to monitor holding companies' rail-related transactions. transactions. Within ICC's Bureau of Accounts, two sections conduct financial reviews or audits of railroad and holding company transportation-related financial The Section of Financial Analysis reviews financial reports submitted by railroads and holding companies in an attempt to determine, among other things, the financial strength of the railroads, the emphasis on track rehabilitation, and lending and borrowing practices. This section can alert the Section of Audits in the event that it finds activities which may be detrimental to the railroads. However, the financial reports submitted by railroads and holding companies are not sufficiently detailed to reliably determine if a transaction could be detrimental to the railroad. Therefore, transactions which could be detrimental to the railroad may go undetected. The Section of Audits reviews all class I railroads with emphasis on those in financial difficulty. However, these audits are performed every 2 to 3 years. In our opinion, the lack of detailed financial data and the infrequency of audits could lead to potential abuses of railroads going undetected. 2. Additional specifics on the beneficial changes that could be made in As a general guide, we believe that ICC should comply with the auditing standards as specified in our Standards for Audits of Governmental, Organizations, Programs, Activities, and Functions (1981 Revision). These standards provide guidance when determining whether the entity has complied with laws and regulations that may have a material effect upon the financial statements. The American Institute of Certified Public Accountants standards are generally accepted for such audits and have been incorporated into this publication. ICC's audits are neither frequent enough nor detailed enough to identify all transactions which could adversely affect a holding company's railroad subsidiaries. deficiencies. We believe ICC should improve its audits to correct these 3. Any additional views you have on alternative interpretation of ICC's holding company jurisdiction. We recognize, as did the U.S. Court of Appeals for the Eighth Circuit and the Commissioner of ICC, that alternative interpretations are possible of ICC's jurisdiction over holding companies. However, we have no such alternative view. ICC, in its 1977 study--"Railroad Conglomerates and Other Corporate Structures"--identified an alternative interpretation. This alternative would have found ". . . that the Commission possesses the authority, under section 5(4), to designate any person acquiring control over any two railroads as a rail carrier and thus subject to the reporting, investigatory, and securities provisions of the Act. The report went on to say that such an interpretation would result in more rail holding companies being under ICC's jurisdiction than under its current "single system" interpretation. 4. 11 A copy of the pert est positions of Fu's study of export rail errer benefits--ntioned by Mr. Blume in testimony. I responding to a question on postmerger studies, Mr. Blume referred to a Federal Railroad Administration, Department of Transportation study which the Transportation and Industrial Systems Center performed under a contract with FRA. The study was entitled "The Merger Between the Seaboard Air Line and Atlantic Coast Line Railroads: A Case Study" and was published in March 1979. The study covers many aspects of the merger such as the --identification of the parties affected by the merger and their viewpoints of the merger, --economic characteristics for regions served by the merging railroads, --financial information, --operations of the merged railroads, and --service to be provided shippers. The merger applicants sought permission to merge in order to improve the financial condition of the combined company. The estimated maximum savings was $38.7 million over a 5-year period from the merger as well as a net cash gain of $1.3 million. The study concluded that the operating consequences of the merger are clouded by subsequent events such as the creation of AMTRAK which relieved the merged railroad of providing passenger service, the emergence of the Family Line System, and traffic shifts. The attitudes of affected parties could not be examined with any clarity. However, the merger clearly benefited the applicants despite personnel adjustments and labor disapproval. ICC, in referring to the study, said in 1980 the potential benefits are still potential and long-term affects are too early to judge. We are providing a copy of the study for the Committee's files. Senator BAUCUS. Our next witness is Mr. Richard Bressler, chairman of the board of the Burlington Northern Railroad. I wonder if, for the record, you would identify those who are accompanying you. STATEMENT OF RICHARD M. BRESSLER, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, BURLINGTON NORTHERN, INC., ACCOMPANIED BY FRANK FARRELL, SENIOR VICE PRESIDENT AND SECRETARY, BN, INC., SEATTLE, WASH.; RICHARD GRAYSON, PRESIDENT AND CHIEF EXECUTIVE OFFICER, BN RR, ST. PAUL, MINN.; ALFRED E. MICHON, VICE PRESIDENT, INTERNATIONAL, BN, INC.; FRED WINEGAR, PRESIDENT, PLUM CREEK, INC.; BRUCE ENNIS, PRESIDENT, MERIDIAN LAND AND MINERAL CO.; AND ALBRO MARTIN, OGLESBY PROFESSOR OF THE AMERICAN HERITAGE, BRADLEY UNIVERSITY Mr. BRESSLER. Mr. Chairman, we took the opportunity to testify not only because our company, as you expressed it, is important to Montana but Montana is certainly important to us. I brought with me today the chief executives of the other companies headquartered in the State of Montana. On my right is Bruce Ennis, who is president and chief executive of Meridian Land and Mineral Co., headquartered in Billings, which is responsible for our coal and other mineral activities. Fred Winegar is president of Plum Creek, headquartered in Columbia Falls, Mont., which is responsible for our lumber, plywood, and fiberboard mills, primarily operating in the State of Montana. On my left is Dick Grayson, who is president and chief executive of the Burlington Northern Railroad. Although not headquartered in Montana but in St. Paul, it is very important, as we all know, to the State and vice versa. Senator BAUCUs. Thank you very much. I understand you have a statement. Mr. BRESSLER. I have a short statement. Senator BAUCUS. Before you do that, I want to thank all of you for coming today. I know you have come great distances. It is good |