I hope you will continue to anticipate our inquiries and take action before we ask you to do it and perhaps then some of our transportation problems can be solved before they become of crisis proportion. (The article referred to follows:) PENN CENTRAL INVESTIGATION (Docket No. 35291) The Interstate Commerce Commission today instituted an investigation into all phases of the operations, accounts, and financial transactions of the Penn Central Transportation Company and its affiliates. Penn Central, which petitioned for reorganization under the bankruptcy laws on June 21, has since been operated under the jurisdiction of the Federal District Court in Philadelphia. Nevertheless, the Commission explained, as a rail carier it also remains subject to the ICC's jurisdiction. According to ICC Chairman George M. Stafford, the Commission has been conducting a staff investigation of the Penn Central's accounting practices and financial transactions for several weeks. Institution of the formal investigation under Section 12 of the Interstate Commerce Act, the Chairman said, will allow the Commission to examine the operating practices of the railroad and will also give it access to the records of Penn Central's affiliated companies. Chairman Stafford emphasized that the Commission's concern wtih the Penn Central situation stems in large part from its need to develop better methods for forecasting and preventing possible similar problems on other railroads. From the Penn Central's experience, the Commission expects to develop new reporting and accounting regulations which will keep it and the public better informed concerning the operating and financial practices of railroads under the control of conglomerate holding companies. Date of Service: July 2, 1970. ORDER At a General Session of the Interstate Commerce Commission, held at its offices in Washington, D.C. on the 2nd day of July, 1970. No. 35291 INVESTIGATION INTO THE MANAGEMENT OF THE BUSINESS OF THE PENN CENTRAL TRANSPORTATION COMPANY AND AFFILIATED COMPANIES The Penn Central Transportation Company on June 21, 1970, having petitioned for reorganization under Section 77 of the Bankruptcy Act, 11 U.S.C. § 205, et seq., and the Commission deeming it necessary to carry out the provisions of the Interstate Commerce Act that it inquire into and report on the management of the business, the operations, the dealings and other practices of the carrier and of persons controlling, controlled by, or under a common control with, such carier; and good cause appearing therefor: It is ordered, That pursuant to the provisions of Section 12(1) of the Interstate Commerce Act, 49 U.S.C. § 12(1), an investigation be, and it is hereby, instituted into and concerning the management of the business, the operations, the dealings and other practices of the Penn Central Transportation Company, the Penn Central Company, the Pennsylvania Company, and other persons controlling, controlled by, or under a common control with, the carrier, with a view to the making of a report and such order or orders as may be appropriate in the circumstances; It is further ordered, That the Penn Central Transportation Company, the Penn Central Company and the Pennsylvania Company be, and they are hereby, made respondents in this proceeding, that this Order be served on said respondents, and that notice to the public be given by posting a copy of this order in the office of the Secretary of the Commission. It is further ordered, That the Bureau of Enforcement of this Commission be, and it is hereby directed to participate in this proceeding as a party. And it is further ordered, That in order to expedite this investigation, depositions may be taken and subpoenas may be issued for production of records for inspection upon the request of interested parties and a showing of the relevance of such request. At a General Session of the Interstate Commerce Commission, held at its offices in Washington, D.C. on the 26th day of June 1970. No. 35288 AND INVESTIGATION INTO THE MANAGEMENT, BUSINESS INTER-RELATIONSHIPS TRANSACTIONS OF THE KANSAS CITY SOUTHERN RAILWAY COMPANY AND THE LOUISIANA AND ARKANSAS RAILWAY COMPANY IN RELATION TO THEIR CONTROLLING HOLDING COMPANY, KANSAS CITY SOUTHERN INDUSTRIES, INC. AND PERSONS UNDER A COMMON CONTROL WITH THE CARRIERS. The Commission having under consideration the matter of the management, business inter-relationships and transactions, financial, accounting and other practices of The Kansas City Southern Railway Company and The Louisiana and Arkansas Railway Company in relation to their controlling holding company, Kansas City Southern Industries, Inc. and persons under common control with the two rail carriers, particularly as to whether carrier funds and assets have been used for purposes not necessary to the honest, economical, and efficient operations of such rail corporations: It is ordered, That pursuant to the provisions of the National Transportation Policy (49 U.S.C. preceding Sec. 1), Sections 12, 13 and 15a of the Interstate Commerce Act (49 U.S.C. 12, 13, 15a) and Sections 2, 3, and 10 of the Clayton Act (15 U.S.C. 13, 14, 20) an investigation be, and it is hereby instituted upon the Commission's own motion into and concerning the management, business inter-relationships and transactions, financial, accounting and other practices of The Kansas City Southern Railway Company and The Louisiana and Arkansas Railway Company in relation to their controlling holding company. Kansas City Southern Industries, Inc. and persons under common control with the two rail carriers, particularly but not limited to whether carrier funds and assets have been used for purposes not necessary to the honest, economical, and efficient operations of such rail carriers, in order to determine whether such practices may involve violations of law administered by this Commission or may be inconsistent with The National Transportation Policy, with a view to the making of a report and such order or orders as may be appropriate upon the record; It is further ordered, That The Kansas City Southern Railway Company, The Louisiana and Arkansas Railway Company, Kansas City Southern Industries, Inc., and the following controlled or commonly controlled companies, American-Coleman Company; Carthage Cablevision, Inc.; Horndean, Limited: Alfred Lindgren, Inc.; Mid-America Cable TV, Inc.; Mid-America Television Company, Inc.; North Baton Rouge Development Company; Pabtex, Inc.: Supervised Investors Services, Inc.; Fort Smith and Van Buren Railway Company; Kansas City Shreveport and Gulf Terminal Company; Kansas City Southern Transport Company; Kansas and Missouri Railway and Terminal Company; The Arkansas Western Railway Company; Port Arthur Canal and Dock Company; Landa Motor Lines; Louisiana, Arkansas and Texas Transportation Company; Tolmak, Inc.; Joplin-Southern Corporation; Fort Smith Enterprises, Inc.; Railway Communications, Inc.; Rice-Carden Corporation; Grasis Fabricating Company; Oretta, Inc.; Veals, Inc.; Carland, Inc.: Taxpediters, Inc.; Trans-Serve, Inc.; Shreveport Cable TV Co.; Southern Enterprises, Inc.; Southern Development Co.; Joplin Union Depot Co., be and they are hereby made respondents in this proceeding, that this order be served on said respondents, and that notice to the public be given by posting a copy of this order in the office of the Secretary of the Commission. It is further ordered, That the Bureau of Enforcement of this Commission be, and it is hereby directed to participate in this proceeding as a party. It is further ordered, That in order to expedite this investigation, depositions may be taken and subpoenas may be issued for production of records for inspection in advance of the hearing upon the request, with or without notice, of interested parties and a showing of the relevance of such request. And it is further ordered, That this proceeding be assigned for hearing at Washington, D.C. at a time to be fixed. By the Commission. [SEAL] N. NEIL GARSON, Senator HARTKE. You know I indicated I want to be kept advised on a daily basis. You have been somewhat derelict in this matter and maybe you don't have the information to give us. But let me point out quickly in the order issued by the court just a few hours ago, in fact since noon today, they made the same order to the parent company. The court insisted it be kept informed on a daily basis because they think this is of such an important nature. Senator PEARSON. Mr. Chairman, Thank you. Chairman Stafford, since your last appearance before the Subcommittee on Surface Transportation the Commission has initiated two full scale investigations into the intracorporate relationships among conglomerate enterprises, including a railroad subject to the jurisdiction of the Interstate Commerce Commission. I am referring of course to the Commission's recently initiated investigation of the Kansas City Southern and the Penn Central Transportation Co. While I believe the Commission may be subject to criticism for having delayed so long in facing up to the troublesome problems associated with such conglomerate enterprises, I also believe the Commission is to be commended for its recent actions in this field. Although I believe it would be premature to ask you for any tentative conclusions with respect to the investigation of the Penn Central Transportation Co., its parent the Penn Central Co. and its subsidiary, the Pennsylvania Co., which investigation I understand was initiated only last Thursday, I will have, together with the other members of the committee, several questions concerning the scope of that investigation and the procedures to be followed in connection therewith. Also, I would like to urge the Commission to undertake additional investigations of conglomerate holding companies which include railroads, because it seems to me it is too late in the game for the Commission to simply audit a few companies selected at random for purposes of deciding on new reporting forms and audit procedures to be applied commencing at some date in the future. I am pleased to see you again and I certainly look forward to your testimony today. Senator HARTKE. Šenator Baker. Senator BAKER. Thank you very much. I am reserving my comments and questions until later. Senator HARTKE. I might say, Mr. Chairman, Mr. Perlman is going to appear here tomorrow. I might also express my disappointment that he only plans to answer questions without having a prepared statement. I would assume that he takes judicial notice of my concern and I would hope he changes his mind before he comes tomorrow. I am not one that says you have to be prepared in advance, but I do think there are an awful lot of people who feel there are people who are in authority owe more than just a casual report to the Congress in this regard. If you have a statement, sir, we would be glad to hear from you first. Would you first identify the individuals from your commission staff? STATEMENT OF HON. GEORGE M. STAFFORD, CHAIRMAN, INTERSTATE COMMERCE COMMISSION; ACCOMPANIED BY FRITZ KAHN, DEPUTY GENERAL COUNSEL; HOWARD DOMINGUS, ASSISTANT DIRECTOR, BUREAU OF ACCOUNTS; JOHN GRADY, CHIEF, FIELD SERVICE; EDWARD MARGOLIN, DIRECTOR, BUREAU OF ECONOMICS; ROBERT G. RHODES, BUREAU OF ECONOMICS; THADDEUS W. FORBES, ASSOCIATE DIRECTOR, OFFICE OF PROCEDURES; JOHN MATTRAS, OFFICE OF PROCEEDINGS; AND WILLIAM J. McCORMICK, CHIEF, SECTION OF FINANCIAL ANALYSIS, BUREAU OF ECONOMICS Mr. STAFFORD. Yes, I would like to identify those staff officials I was requested to bring with me today. First of all, Deputy General Counsel Fritz R. Kahn to my left here; Assistant Director Howard Domingus of the Bureau of Accounts, to my right; then John Grady, Chief of the Field Service; Ed Margolin, Director of the Bureau of Economics, to my far left; and I brought with me Assistant Director Robert S. Rhodes of the Bureau of Economics and Ted Forbes, the Associate Director of the Office of Proceedings; John Mattras, Office of Proceedings; and Bill McCormick, Chief of the Section of Financial Analysis, Bureau of Accounts. You asked whether I. had a prepared statement for today. In view of the fact that this is a contínuation of a previous hearing, I felt that you were more interested in getting right to questions that you might have for us and in view of the fact that we had prepared statements to start off our hearing with, we make ourselves available right now. Senator HARTKE. All right. Let's go to cash flow. Mr. KAHN. Let me respond initially, Mr. Chairman, to state that I believe the Commission has previously furnished the committee with cash flow data concerning the Penn Central since its filing of a petition for receivership in the U.S. District Court for the Eastern District of Pennsylvania. We are happy to report that the court heard from the petitioner last week and that Penn Central Transportation Co. has on hand approximately $37 million. Its projections for the month of July were to the effect that it anticipated having approximately the same amount of money at the end of the month of July. This would mean that all payroll expenditures would be met and the prospects for continued viable operation by the transportation company were optimistic. Senator HARTKE. About the payroll, what does it run monthly, do you know? Mr. KAHN. Approximately $20 million a week, as I understand it. Senator HARTKE. With the cash flow on hand, they anticipate they will have the same amount of money on hand at the end of the month that they had at the beginning? Mr. KAHN. That is right. Senator HARTKE. After making payments for payrolls and operating expenses? Mr. KAHN. That is right. Senator HARTKE. So there is no problem in that regard? Mr. STAFFORD. We mailed these figures yesterday or this morning to the committee. Senator HARTKE. What other payments besides salaries are needed to keep the Penn Central running? Mr. KAHN. The Penn Central will have to maintain a current balance of accounts on interline settlements and loss and damage claims and the like. The railroad as a transportation enterprise will need to be maintained and operated. Senator BAKER. May I ask a question? Senator HARTKE. Yes. I hope you feel free anytime you have questions on this to go right ahead rather than to make a request. Senator BAKER. Did I understand you to say current balances for interline accounts? Mr. KAHN. Yes, that is correct. At last week's hearing before Judge Fullam in receivership court, there was a question about interline settlements, payments for which became due in the month of June, and the court was of the opinion that only for that period of time were the claims of the connecting railroads to be treated as other claims against the estate. But thereafter, those interline settlements that became payable after the company went into receivership on June 21, that those payments should be kept on a current basis. Senator BAKER. So current operating interline charges would be remitted as a cost of administration? Mr. KAHN. That is correct, sir. Senator HARTKE. Do you know what they run on an average monthly? Mr. KAHN. It is my understanding, Mr. Chairman, that Penn Central runs a deficit monthly of approximately $20 million. Senator HARTKE. What about the per diem payment on freight cars? Mr. KAHN. That would be similarly treated. Senator HARTKE. Do you know what that is? Mr. KAHN. No, sir. I do not. Senator HARTKE. Have you made any effort to find out? Mr. KAHN. We will furnish that for the record. Senator HARTKE. On these things, are you going behind the scenery? Mr. KAHN. We most certainly are. Senator HARTKE. You are doing more than just taking the accountants' word for it? Mr. KAHN. Definitely. Senator HARTKE. Is the Commission aware of any-in regard to the bookkeeping procedure |