point, it will start to fall apart. They will have to keep it running-a railroad serves the public--and in the effort it may well devour the entire estate. They can't afford to let that happen. A sick railroad in a holding company is like a sick elephant in the living room: it claims the family's full attention.

The leaders of the Burlington Northern know that their railroad can earn an attractive return, provided they are able to equip the property for the bright future it faces and if the government keeps the faith on deregulation. Every divisional head in the Burlington Northern should

be able to say that the operating results of his division--railroad, trucking, air freight, forest products, or petroleum--reflect only his own efficiency or the lack of it, and top management should be free to reinvest the profits where their judgment dictates.

Under such an arrangement, the railroad will get its full share. As Jim Hill liked to say, "Every pot should sit on its own bottom."

Thank you.

Senator BAUCUs. Mr. Bressler, I appreciate your testimony, too. I also understand your point that the holding company structure allows managers to focus on various areas. As Mr. Martin said, every pot should sit on its own bottom. I also want to encourage Mr. Grayson, who has done a good job, I think, on the railroad side, to continue in that area, too. That is the heart of what we are doing here. I appreciate Mr. Grayson's efforts very much.

As you could tell from some of my questions that I asked Mr. Krueger and Mr. Taylor, I am somewhat curious about the timing of BN's announcements concerning the holding company. I am wondering why did BN wait a month or so after approval of the Frisco merger to announce the decision to form a holding company. Mr. BRESSLER. I am not sure that I can give you a complete historical perspective on that. I think, in terms of my reasoning about it, it is simply when you are involved in a major merger, as the merger of the BN and the Frisco was, it occupies a lot of your time. Obviously, you want to get that accomplished in terms of all the things that are important to make that work. I think there is an orderliness to most of the things that we try to do in any business. You set your priorities and take them accordingly.

At the time that I joined the BN, of course, the Frisco and the BN merger had been under way for some time. There were a lot of internal studies and work to make sure that that was accomplished.

I think it had been the intent of management to consider a holding company for some time but had just put that on the back burner, so to speak.

Senator BAUCus. I am asking the question because I am wondering if by so informing the ICC that would have given interested parties a chance to air their views and perhaps resolve some of the holding company questions that are now floating in the air, maybe even obviate the need for this hearing.

Mr. BRESSLER. Senator, I think you can tell from my remarks, I must admit, I have been somewhat surprised by the amount of concern for simply a holding company. I think I tried to indicate what the very simple reasons were for which we formed it. There really has been relatively little change other than that.

I appreciate that the ICC version is that securities can be issued for other than railroad purposes. I guess my way of approaching that-let us take as an example Fred Winegar and Plum Creek. Fred operates that business in a very competitive atmosphere today. I think we all know how competitive the forest products business is. In fact, they are so competitive that they are all running in the red. But, at the same time, he has to compete with other people who are not similarly hampered by the fact that they would have to go to the ICC if he should want to merge with another company, if he should wish to issue securities, to acquire, to build up his own company. I think, from my standpoint, I want his business to operate in the same competitive arena that he has to compete with across the board.

I think it was a disadvantage to have Plum Creek encumbered by the necessity to go to the Interstate Commerce Commission even though they may well have approved it several months after the application. It just represents another competitive impediment.

Senator BAUCUS. Are you agreeing or disagreeing with the statement of Mr. Taylor that ICC, as it interprets the present statute, does not require issuance of securities to be only related to transportation efforts? That is, the securities could be issued for nontransportation activities so long as there are-I have forgotten the qualification here. My recollection is that it is so long as there is a relation here of some kind or some public purpose here.

Mr. BRESSLER. I am not an expert on it. I think I would just refer again to what I see as a competitive disadvantage in the necessity of filing an application with the Interstate Commerce Commission for something which really does not pertain to transportation. There is delay if nothing else.

Senator BAUCUs. But does not this somewhat go into the question of just disclosure? I mean, companies file with the SEC when they want to issue securities. It is a disclosure function. It is not that the ICC gives or does not give approval. The ICC does not have the authority generally to disapprove an application to issue securities. Mr. BRESSLER. I think that is a good question to ask Mr. Taylor, if he would compare the time in which the ICC acts on those kinds of applications versus the SEC. My guess is that you will find that the SEC is much faster in approving those applications.

Senator BAUcus. There is no doubt about that, that is right. That is very true. I think it is attributable in part to a difference in statutes. I think the securities statutes and even the regulations the SEC, if not require, at least give strong impetus to early approval by the SEC.

I am just wondering if perhaps we could have avoided some of these questions if the railroad had gone to the ICC and indicated that, subsequent to the merger, they would be applying for holding company status.

Mr. BRESSLER. Possibly that is true. As I say, I must admit I have been somewhat surprised by the amount of controversy over something that I think in my mind should not have been so controversial. Obviously, the Burlington Northern was about the last of any of the major carriers to take the same action.

Senator BAUCUs. Would it impair BN's performance to have a careful, continual ICC review of the holding company's financial operations, that is to insure that rail service is continuing at a quality level?

Mr. BRESSLER. Do you mean monitoring of the railroad?
Senator BAUCUS. Yes.

Mr. BRESSLER. It is subject to the ICC's full jurisdiction.

Senator BAUCUs. It is monitoring the holding company now, not the railroad.

Mr. BRESSLER. I think there again my remarks would be about the same. The rest of our businesses in the nontransportation businesses, we have to compete with businesses which do not have similar encumbrances. To the extent that any regulatory agency requires more administrative burden and cumbersome procedures, then I think that is a competitive disadvantage.

Senator BAUCUS. What about the obligation to the public to provide service? Is not there another side of the coin? I ask the question because in your statement you said you agreed with the point I made, the dual role of the railroad. What about the other side of that coin?

Mr. BRESSLER. We believe it is perfectly proper, there is no question about it, the railroad is subject to ICC jurisdiction. We comply with the Commission's regulations and comply with the law.

Senator BAUCUs. You are saying that, yes, there should be regulations?

Mr. BRESSLER. With respect to the railroad?

Senator BAUCUS. With respect to the railroad, that is correct. Mr. BRESSLER. We think that there should be a fair amount less regulation, and apparently the Congress agreed with that thinking last year with the passage of the Staggers Act.

Senator BAUCUS. Do you think there are too many burdensome regulations affecting the railroad operations today of the BN?

Mr. BRESSLER. I would like to ask Mr. Grayson to comment on that. He runs the railroad.

Mr. GRAYSON. We are still just trying to find out where we really stand in what has been called deregulation. While it is not complete deregulation by any sense of the word, we have less regulation than we have had in the period when I grew up in the railroad business. However, there are some areas where we think we could still stand less regulation than we have now.

Senator BAUCUS. Has not the railroad in the past depended upon its natural resource profits to help the operations of the railroad? Mr. BRESSLER. The railroad▬▬

Senator BAUCUs. Particularly to cover its fixed costs?

Mr. BRESSLER. No, not to my knowledge. Do you mean back in time? I think the real thrust of what you are asking there has to do with the fact that the railroad has invested a great deal more money in recent years, particularly in its ability to haul coal, than might have been granted to it by virtue of the railroad operations by itself. Even last year, despite the fact that the railroad generated more income dollars than it has, I guess, ever, our rate of return on that capital employed, which I think is really the only reasonable measure by which a capital-intensive business should be measured, was less than 5 percent.

Again, though, I would cite the fact that that does not mean that we will not invest in the railroad in the future. That is the return on the sunk capital that has been invested in the railroad ever since day one.

We look at the rate of return we expect the capital to earn if we invest it in the railroad or any of our other businesses. I think that is the only proper way that you can make those kinds of allocations or resources.

Senator BAUCUS. The point I am trying to establish is that the railroad in the past has depended upon natural resources earnings. Mr. GRAYSON. I do not think there has ever been a time when the railroad was not able to meet its obligations on its own, at least on an ICC reporting basis.

Senator BAUCUS. How great have natural resource contributions been to the railroad in the past 10 years?

Mr. BRESSLER. I think we will have to compile that information, Senator. I think last year, as I indicated in my testimony, the railroad is 75 percent, for instance, of earnings and cash flow. It has been a very large proportion for some period of time and will continue to be.

Senator BAUCUs. I would appreciate if for the record you could, on an annual basis for each of the last 10 years, provide that. [See appendix F at page 663 in the appendix.]

Mr. BRESSLER. I would be happy to do that.

Senator BAUCUS. Without objection, it will be inserted into the record.

What do you say to shippers and laid-off rail employees who argue that BN is storing up to $1 billion for natural resource acquisitions and development by reducing rail services and reducing rail employment? I mention this because in an article in Business Week of March 8 there is a graph there which lends one to that kind of interpretation. It cites a 13-percent reduction in labor force, extensive abandonments, and a drop in capital expenditures on the railroad.

Mr. BRESSLER. I think, again, I have talked about that in my testimony. Our interest is increasing the profitability of the railroad to make it productive and efficient. Certainly, I think we see all about us in today's economy how industries, if they do not strive to be the most cost efficient producers, they certainly do not provide any security for their employees. I think that the record is replete with those kinds of industries and those kinds of companies.

We think it is tantamount to make sure that our company, th railroad, and all of our businesses are financially strong and

competitive. That is the only way that we can really assure anyone of a continuing job.

Senator BAUCUS. But is it true that $1 billion cash is being built up?

Mr. BRESSLER. No, I cannot be responsible for how the media interprets things. That was not my statement, also the statement about the cash

Senator BAUCUs. I do not know whose statement it was. I am just asking whether it is accurate and to what degree it is accurate. I do not care who made the statement.

Mr. BRESSLER. I think our cash position today is right around $300 million, quite a ways from $1 billion.

Senator BAUCUS. What is your intention with respect to that cash. Is that going to the railroad or elsewhere?

Mr. BRESSLER. Right now it is going to be returning a fairly healthy return in short-term securities. We have a very substantial capital program. Again this year the railroad will be issuing debt securities, probably equipment trust securities for equipment to be bought. So, you know, cash is not coming out of our ears, so to speak.

Senator BAUCUs. I asked the question, again, because of the speculation that some of that might be built up to acquire an oil company or for some other purpose that is other than to the railroad.

Mr. BRESSLER. In today's times, when we are operating in the kind of an economy we are, we feel very fortunate to have the kind of cash position that we have. But we do not have any billion dollars of cash.

Senator BAUCUS. You also stated that productivity improvements require further trimming of the labor force. I note that you have fewer employees with the combined BN-Frisco than BN had alone in 1970. How many more jobs will be terminated over the next 5 to 10 years?

Mr. BRESSLER. I am not sure that any of us have any great predictions on that. I will ask Mr. Grayson to comment on it. I think, though, that before he does I will just say that, by any number of measures-and I think there have been previous questions and testimony to the fact of what happens in terms of the merger benefits. A lot of the reduction of employment has occurred because of the consolidation of shop facilities that has occurred as a result of the 1970 merger. Many of those have just occurred in the last year or so. Dick, do you want to comment?

Mr. GRAYSON. We have no set number. Obviously, a lot of the people that are unemployed today in our company are because of a severe decline in business. The economy affects us probably earlier than it does most businesses. Grain exports have been very poor. Our coal business was off the first 2 months of the year. But I think in the long run a lot of the people that we did take out of our work force last year probably will not come back, at least unless they come back to replace someone who may retire. It would be an attrition program.

The reason for all this was that Burlington Northern did not rank well in their peer group in productivity levels and almost any measurement that we looked at. It was our purpose to certainly be as good as the average of our peer group. In fact, we have one defi

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