nite goal in mind that we intend to, as Jim Hill said almost a 100 years ago: If you want to be in this business, you have got to be the low-cost producer. If we are going to do our job well, I think it is incumbent upon us to do those things that put us in that position. Senator BAUCUs. Could you identify some of the other productivity improvements that require further reduction?

Mr. GRAYSON. Well, the things that we have done primarily are through automation.

Senator BAUCUS. I mean those in the future. As you say, there are other productivity improvements that require further reduction.

Mr. GRAYSON. We certainly did not get there in a year. You do not do these things in a year. It takes a year to get a lot of the equipment that it takes for us to do things. We are talking about new types of machines that were not onboard for our shops. We are spending $17 million this year for improved and newest state-ofthe-art machines for maintaining our track structure. We are talking about advanced design computers that we are using in many more places than we have in the past to improve our information system to better handle our cars and our locomotives. These are the types of things that we are spending money on and will continue to.

Senator BAUCUs. Still, cannot you give me a ballpark estimate as to what the further reduction in labor force will be?

Mr. GRAYSON. No, sir, not unless you can tell me how much business we are going to be doing because that is the great unknown in this.

Senator BAUCus. Still, you made the statement that there will be further trimming of labor force. What does trimming mean? That is the company's statement.

Mr. GRAYSON. Well, this goes on and on. You know, I do not know. As new machines and better ways of doing business are discovered, we are going to try to take advantage of them. For example, our wage ratio last year was some 12 or 13 points higher than the best railroads such as the Southern and the Norfolk & West


Mr. BRESSLER. I think that is perhaps doubly significant in view of the kind of business that the Burlington Northern Railroad--. Senator BAUCus. I am sorry, Dick. I am having a hard time hearing you.

Mr. BRESSLER. I think that is particularly significant in view of the fact that the Burlington Northern Railroad's principal business is the movement of grain and coal, which increasingly operates in unit trains which you would expect to be the most efficient way to do it. And we do expect those to be most efficient. So, when we compare ourselves with railroads that are not similarly situated, then we ask ourselves what efficiencies are we missing? I think a lot of it has to do with the kinds of things that Dick alluded to. Senator BAUCUs. I am just trying to understand. Will there or will there not be further reductions in labor force? Are there today planned reductions of labor force?

Mr. GRAYSON. There is no one in our company that has a quota of people that he must reduce. This is only as we can find ways to

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improve productivity. I have no number. There is no number in our company anywhere.

Senator BAUCUS. You could not tell me whether it would be 10, 100 or 1,000?

Mr. GRAYSON. It may be a little north of that.

Mr. BRESSLER. I am sure you are concerned with the kind of situation that we have in Plum Creek, which is almost total employment in Montana. Maybe Fred Winegar would talk a little bit about what he is doing and what he sees as the employment situation.

Senator BAUCUs. I appreciate what Fred is doing. He has a whole separate special set of problems, with the forest products industry in such rotten shape as it is today.

Mr. BRESSLER. The railroad, I think I commented, has thousands of cars and hundreds of locomotives idle. We would like to have those all employed, but the truth of the matter is there is not enough business to keep them employed.

Mr. GRAYSON. I would say that one of the other things we are doing in demonstrating our faith in the future of this business is this: In the past 2 years, even with the surplus of equipment, as Dick said, somewhere between 400 and 500 and at one time over 500 locomotives stored serviceable, we bought new locomotives last year and this year. If we are going to be in business, we have to be as good as anyone else and hope for the best. So, we are putting our money back into this equipment and taking out the older, less efficient, less fuel-efficient, higher maintenance units.

Senator BAUCUS. Have you developed a rail-cost-reduction plan? Mr. GRAYSON. A what?

Senator BAUCUS. A rail-cost-reduction plan.

Mr. GRAYSON. Do you mean the labor of laying rail? You bet.
Senator BAUCUS. Just generally any plan to reduce costs.

Mr. GRAYSON. Oh, yes. Yes, indeed. That is what we are spending a lot of money in our maintenance and machinery on. Our cost of laying a mile of rail was probably 40 percent higher than it should have been. The cost of putting a crosstie on a track, of which we put in about 4 million a year, was about twice what we thought it should be. This year we hope to achieve the goals of reaching those levels of productivity. What this simply means to us is that we do get more bang for a buck. We get more miles of track, more miles of rail, and more crossties.

Senator BAUCUS. What effect will those have on the number of employees?

Mr. GRAYSON. Of course, a lot of these people, you have to understand, are part-time employees. In our territory much of the work has to be done in the summer. We will stabilize employment for a great many of our employees because we were able to work out with our labor union some regional rather than divisional gangs. With the addition of Frisco to our system and by closer examination of some of the work areas that we can extend our work periods, we are going to sort of level out some of the maintenance cycles that we have traditionally had on the Burlington Northern. I think the end result is that, while we may have fewer overall people in maintenance, we are going to get a higher quality of work. The people that are doing those jobs are going to be riding a

machine and work a very high technology machine and being paid more than those guys who were trying to hit it with a sledge and a shovel.

Senator BAUCUS. As you know, in rail merger proceedings the Commission spends a considerable amount of time deciding what level of benefits a merger will produce. I gather from your testimony that BN has been unable to count up the dollar benefits of the 1970 BN merger with any precision. If that is so, I am curious as to how it is that the BN was able to assert that the merger would produce $40 million in benefits when the merger was pending before the Commission.

Mr. BRESSLER. Are you referring to the recent merger with the Frisco?

Senator BAUCUS. No, the 1970 merger. The Northern Lines merger.

Mr. BRESSLER. I really do not have any comment on that, Senator. That is past events, as far as I personally was concerned. Frank, do you have any comments?

Mr. FARRELL. Yes. Outside consultants were engaged to make the study. Their study consumed some 18 months. They testified under oath to that effect and were extensively cross-examined. That is a part of the record. The Commission based part of its findings in approving the merger upon that testimony.

Senator BAUCUS. As I understand you, you are saying consultants spent 18 months but did find asserted benefits at that time.

The question arises, how can the applicant find all these benefits but the Commission or apparently the railroad now cannot attribute a dollar value to benefits. Generally, hindsight is better than foresight.

Mr. BRESSLER. I am not sure that we can.

Senator BAUCUs. Now it is the other way around.

Mr. BRESSLER. What are you referring to? What response did we give that indicated that we could not identify them?

Senator BAUCUs. I am referring to your testimony where you say it is very difficult to attribute a dollar value to benefits.

Mr. BRESSLER. I think it is. It is difficult. I think attempts have been made in the past.

Senator BAUCUs. I agree with you it is difficult, but the question is what are the-

Mr. GRAYSON. I think it is easy in the case of our latest merger. Certainly, we identified the places where we were going to reduce duplicative personnel. We were going to do it by attrition. That is what we have been doing. Those are easy to identify. The changes that we contemplated and which Chairman Taylor, I believe it was, spoke to are changes in traffic patterns. Certainly, that is a part of this business. You know, if you do not have any volume in this business, you only have one place to go, and that is broke.

Senator BAUCUS. Could you for the record give us the dollar value benefits of the merger? We have not time to get into it here. I know it is difficult to identify them, but I think it would be helpful if we could. Also, please furnish the source of those estimates. [See letter of May 25, 1982, to Senator Baucus at page 638 in the appendix.]


Mr. BRESSLER. It would certainly be much easier, I think, because it is so much of a current event, with respect to the Frisco merger, the more recent one

Senator BAUCUs. I appreciate——

Mr. BRESSLER. Going back to 1970, certainly that becomes a little more difficult.

Senator BAUCUS. I would like them for both, actually, 1970 as well as the Frisco.

Mr. BRESSLER. We will make a stab at it.

Mr. GRAYSON. I think the thing that makes it so difficult from 1970 merger, Senator, is the fact of the very disproportionate expenditures that had to be made by Burlington Northern in areas that were really not planned to tool up for the massive amount of coal that we are now hauling out of the Powder River Basin and then over the corridors that gets it to the utilities or to the connections. That, obviously, affected earnings because of the system of accounting we use. A great deal of those expenses were charged to operations where in most industries, I suppose, a major part of them would have been capitalized.

Senator BAUCUs. I appreciate that. It would help this committee a lot if you could undertake your best effort.

Mr. BRESSLER. We will research what we have and get back to you with a response to it.

Senator BAUCUs. Without objection, that will be made a part of the record.

Senator BAUCUS. Could any of the merger benefits of the appendix to your testimony been achieved without the merger?

Mr. BRESSLER. Would you identify which ones you are referring to?

Senator BAUCUS. On pages 10 to 14 you mention a number of Northern Lines merger benefits.

You could do that for the record instead of spending the time here, without objection.

[See page 645 in the appendix.]

Senator BAUCUS. What is the approximate market value of properties that you indicate were transferred from BN-Frisco to the holding company?

[See page 641 in the appendix.]

Mr. BRESSLER. I am going to ask Frank Farrell to answer that. Mr. FARRELL. At this time, Senator, I think Mr. Bressler indicated in the appendix to his testimony that the properties have not been transferred. The properties are owned by the railroad. What the railroad has done with the holding company is enter into a tripart management agreement. So, for example, the BN Timberlands is managing the timber-growing properties of the railroad, but the railroad has fee title to those properties.

The result is that the railroad management is able to devote its time to the operation of the railroad property while the timber group is devoting its time to the management of the timber properties.

Senator BAUCUS. I am asking actually with respect to the Frisco properties, the market value of the New Mexico & Arizona Land Co.

Mr. GRAYSON. What was the market value in New Mexico & Arizona Land Co.?

Senator BAUCUS. Of the other properties that were transferred. Mr. BRESSLER. The interest the Frisco held in the New Mexico & Arizona Land Co.

Mr. GRAYSON. The Frisco owned 50.03 percent of 2 million shares of New Mexico & Arizona Land Co., which is in the resources business and real estate business in northeastern Oklahoma, some various other parts of New Mexico, and a little bit in southern Arizona. Today on the market we own 1 million shares of it. It is worth about $11, I think. It has been as high as $50, $55. It is a highly speculative stock for reasons best known to those people who buy


Mr. BRESSLER. That stock trades on the American?

Mr. GRAYSON. Yes, the American Exchange.

Mr. BRESSLER. If somebody has a paper, we can look it up. It has gone down considerably in recent months.

Mr. GRAYSON. If this is what you are searching for, these lands originally came from part of an old Atlantic & Pacific land grant. The Frisco & Santa Fe were both a part of a company known as Atlantic & Pacific which broke up in 1893 or 1895. Our friend, Albro, here probably knows the history better than I. We came out and formed this company as an offshoot of those land grants.

Mr. BRESSLER. I am told that the stock closed yesterday at 11%, which would put the approximate value at $11 or $12 million.

Senator BAUCUS. BN owns some 2.3 million acres of surface and about 6 million acres of mineral rights, not counting properties acquired with the Frisco merger. Can you give us a ballpark estimate for the current market value of BN's natural resource properties? Mr. BRESSLER. It is a good question, and I wish I could. You start with-

Senator BAUCUS. I wish you could, too.

Mr. BRESSLER [continuing]. This kind of a problem, Senator. We compile in our annual report what we think are the recoverable reserves of subbituminous and lignite coal on those lands. And it is true that we can add up those figures and, to the degree to which they are accurate, I suppose, are plus or minus 10 percent. Many of those reserve figures have not been verified by the kinds of drilling and what not that would be required to do it.

Nevertheless, the big question is, what is the present worth of those holdings? I think that that is a much more difficult question to answer. As you know, very little of the Burlington Northern coal is currently being mined. I think our expectation is that relatively little would be mined in the near future, given the present econo my, the present glut of existing mines that have additional capac ity to produce more coal, and the sheer fact of the differential that exists between the two States, Wyoming and Montana, because of the severance tax. More of the coal development has gone forw in Wyoming. So, to the extent that you are looking at the


mies there, the chances are more coal will be developed souti

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