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Section 303 provides:
mission may require that such reports shall include, among "Except as otherwise provided in this chapter, the other things, full information as to assets and liabilities, Commission from time to time, as public convenience, capitalization, net investment, and reduction thereof, interest or necessity requires, shall
gross receipts, interest due and paid, depreciation, and
other reserves, cost of project and other facilities, cost of “(m) (1) Have authority to suspend the license of ties, cost of renewals and replacement of the project works
maintenance and operation of the project and other faciliany operator upon proof to satisfy the Commission
and other facilities, depreciation, generation, transmisthat the licensee
sion, distribution, delivery, use, and sale of electric “(A) has violated any provision of any Act,
energy treaty, or convention binding on the United
(Sec. 825n provides for forfeiture up to $1,000 for willful States; which the Commission is authorized to failure by any licensee to comply with reporting requireadminister, or any regulation made by the
ments. Sec. 8250 provides for criminal penalties for anyone Commission under such Act
who is found to have willfully caused failure or omission to
report in full as required by the Commission of up to Federal Maritime Commission
$5,000 and/or $500 for each day he causes such violation
to continue.) Section 820 of Title 46 U.S.C. provides as follows: "The Federal Maritime Commission and the Secretary
Federal Trade Commission of Commerce may require any common carrier by water, or other person subject to this chapter, or any officer, Title 15 U.S.C., Section 46(b) provides that the Commisreceiver trustee, lessee, agent, or employer thereof, to sion shall have the power: file with it or him any periodical or special report, or "To require, by general or special orders, corporations any account, record rate, or charge, or any memorandum engaged in commerce, excepting banks and common carof any facts and transactions appertaining to the business
riers subject to the Act to regulate commerce, or any class of such carrier or other person subject to this chapter of them, or any of them, respectively, to file with the ComWhoever fails to file
any report as required by this mission in such form as the Commission may prescribe section shall forfeit to the United States the sum of $100
annual or special, or both annual and special, reports or for each day of such default.
answers in writing to specific questions, furnishing to the "Whoever willfully falsifies, destroys, mutilates or alters Commission such information as it may require as to the any such report or willfully files a false report organization, business, conduct, practices, management, shall be guilty of a misdemeanor, and subject upon and relation to other corporations filing such reports or conviction to a fine of not more than $1,000, or imprison- answers in writing. ment for not more than one year, or both such fine and (Sec. 50 provides civil penalties in fine of not less than imprisonment."
$1,000 nor more than $5,000 and/or imprisonment for not
more than one year, for neglect or refusal to report; the Federal Power Commission
section also provides for criminal penalties by fine of not Title 15 U.S.C., Section 717i, provides :
less than $1,000 nor more than $5,000 and/or imprison
ment up to 3 years for willfully falsifying information.) "(a) Every natural-gas company shall file with the Commission such annual and other periodic or special reports
Interstate Commerce Commission as the Commission may by rules and regulations or order prescribe as necessary or appropriate to assist the Com
Title 49 U.S.C., Section 20 provides: mission in the proper administration of this chapter
"(1) The Commission is authorized to require annual, The Commission may require that such reports shall in- periodical, or special reports from carriers, lessors, and clude, among other things, full information as to the assets associations and form in which such reports shall be made, and liabilities, capitalization, investment and reductions and to require from such carriers * ** specific and full, thereof, gross receipts, interest due and paid, depreciation, true, and correct answers to all questions upon which the amortization and other reserves, cost of maintenance and Commission may deem information to be necessary operation of facilities for the production, transportation or Such annual reports shall give an account of the affairs of sale of natural gas, cost of renewal and replacement of such the carrier * *** in such form and detail as may be prefacilities, transportation, delivery, use, and sale of natural
scribed by the Commission. * * *" gas.
(7) (a) (Failure to report or refusal to do so results in a (Sec. 717t provides a maximum $5,000 fine and two year $500 fine for each offense for each day the failure or refusal prison term for knowing and willful failure to comply with continues.) requirements.)
(b) (Knowing and willful falsification of reports and/or Title 16 U.S.C., Section 825c, provides that:
records on which they are based results in a liability for a “(a) Every licensee and every public utility shall file maximum $5,000 fine and/or 2 year prison sentence for with the Commission such annual and other periodic or each offense.) special reports as the Commission may by rules and regula- (Part II of the Act imposes identical reporting requiretions or order prescribe as necessary or appropriate to ments on motor carriers (Sec. 320 (a)). No specific mention assist the Commission in the proper administration of is made of penalties which inhere in the event of failure to this chapter. The Commission may prescribe the manner comply, however.) and form in which such reports shall be made, and require (Part III imposes identical requirements on water from such persons specific answers to all questions upon carriers (Sec. 913). Once again, no specific mention is made which the Commission may need information. The Com- of penalties.)
Securities and Exchange Commission
hand as to the stock ownership of the Union Pacific Cor
poration. The Commission has no legal means to obtain Title 15 U.S.C., Section 78m provides:
this information. "(a) Every issuer of a security registered pursuant to However, the Union Pacific Corporation is required to 781 of this title shall file with the Commission, in accord- submit annually to the Securities and Exchange Comance with such rules and regulations as the Commission mission a list of shareholders owning at least 10 percent may prescribe as necessary or appropriate for the proper of the company's outstanding shares. The company protection of investors and fair dealing in securities-
reported that none of its shareholders met this criteria as “(1) such information and documents
of April 2, 1973. Commission shall require to keep reasonably current
We have recently proposed legislation which, if enacted, the information and documents required to be would authorize this Commission to require holding included in or filed with an application to registration companies of carriers to submit information as to their statement pursuant to Sec. 781 of this title
major stockholders. This legislation will also provide the “(2) such annual reports *** certified if required Commission with additional authority necessary to control by the rules and regulations of the Commission by abuses against transportation companies by non-carrier independent accountants, and such quarterly re
affiliates. ports * * * as the Commission may prescribe."
Enclosed, for your information, is a copy of the proposed (Sec. 78m(b) provides that SEC reporting requirements which I submitted on August 9, 1973, to both Senator
draft of legislation and accompanying summary report shall be complementary with those of other agencies.)
Magnuson, Chairman of the Senate Committee on Com(Sec. 78ff provide that willful violations shall be punished by fines of up to $10,000 and imprisonment up to
merce and Congressman Staggers, Chairman of the House
Committee on Interstate and Foreign Commerce. 2 years in the case of individuals, and fines up to $500,000
Sincerely yours, in the case of exchanges.)
GEORGE M. STAFFORD, (Other sections of title 15 give the SEC similar author
Chairman. ity in other areas.)
CORRESPONDENCE REGARDING MAJOR
INTERSTATE COMMERCE COMMISSION, STOCKHOLDERS IN RAILROAD HOLDING
Washington, D.O., August 9, 1979. COMPANIES
Hon. WARREN G. MAGNUSON,
Chairman, Committee on Commerce,
SEPTEMBER 17, 1973. U.S. Senate, Washington, D.C.
Hon. HARLEY O. STAGGERS,
Chairman, Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D.C. DEAR CHAIRMAN STAFFORD: In response to my request your liaison office provided me with a copy of an excerpt
GENTLEMEN: For a number of years it has been apparent from the report filed this year with the Interstate Com- that there is a trend for conglomerate holding companies merce Commission by the Union Pacific Railroad. The and other non-carriers to assume control of carriers excerpt from the report (109. Voting Powers and Elections) subject to this Commission's jurisdiction and for the includes the Commission's request for the company's carriers themselves to enter other fields. The possibility thirty largest stockholders and their voting powers. that this trend might ultimately result in a weakened
The company response lists only the Union Pacific common carrier system incapable of responding to the Corporation, the holding company, which held all 29,913,- needs of the public has caused great concern in both the 015 shares.
governmental and private sectors. Who are the top thirty security holders, and their voting
The entire question of conglomerates achieved national powers, in the Union Pacific Corporation?
prominence following the bankruptcy of the Penn Central Sincerely,
Transportation Company and this Commission's testi-
mony at Oversight Hearings held before the Subcommit-
on Commerce on June 23, 1970. The conglomerate quesINTERSTATE COMMERCE COMMISSION, tion was also raised during hearings on Railroad Loan
Washington, D.C., September 24, 1973. Guarantee Legislation held before the House Interstate Hon. LEE METCALF,
and Foreign Commerce Committee on June 25, 1970, and Chairman, Subcommittee on Budgeting Management and
the Senate Committee on Commerce on July 8, 1970. Erpenditures, U.S. Senate, Washington, D.C.
The Commission is increasingly concerned that the DEAR SENATOR Metcalf: This is in response to your holding companies having little or no interest in the per
indiscriminate acquisition of transportation enterprises by letter of September 17, 1973, requesting information as to the top thirty security holders of the Union Pacific public may be inimical to the public interest. Similarly,
formance of needed services for the shipping or traveling Corporation. The Union Pacific Corporation, a holding company
the employment by carriers of the device of establishing which owns all of the outstanding common stock of the
a parent company to escape Commission jurisdiction also Union Pacific Railroad Company, is not a carrier and,
causes concern since it may serve to impair their ability
to render efficient and economical services. We are also therefore, not subject to the reporting requirements of Section 20(1) of the Interstate Commerce Act. Since this
aware, however, of the potential benefits that corporate
diversification can provide. company is not required to file any financial or other reports with the Commission, we have no information on * Proposed legislation retuined in committee files.
The Commission has, therefore, undertaken to draft Carriers required to pay dividends with highly a bill which we believe would provide us with the needed appreciated assets. additional authority, and which, at the same time, would Carriers required to obtain loan from holding not prevent carriers from participating in profitable company in order to finance payment of dividends ventures unrelated to transportation.
back to holding company resulting in depletion of The draft legislation has been written in terms that carrier's retained income and contributing to future will enable the Commission to deal with major problem cash problems. areas without, however, imposing undue burdens of
Carriers' assets were removed at less than fair market administration upon the carriers regulated by us or our staff. This has been accomplished by limiting most of the value resulting in holding company profiting from ap
. provisions of the draft bill to railroads having operating revenues in excess of $5 million annually or to other
Carriers' assets were removed through payment of carriers having operating revenues in excess of $1 million management fees, in excess of fair market value, for nonannually.
existent or negligible services. THE CONGLOMERATE TREND
Carriers were denied short term investment opportuni
ties because of holding company restrictions on its use of Tables 1 through 5 show statistics for conglomerates cash. in the railroad industry. The recent trend toward conglo- Carriers required to maintain excessive bank merates of Class I railroads is reflected in Table 2. During balances for holding company credit. 1962, two Class I railroads, the Missouri Pacific and
Carriers required to advance cash to holding comKansas City Southern, were acquired by parent holding pany at no interest or at below market interest rates. companies. At that time, the two carriers' share of total Class I railroad operating revenues and ton-miles was
Carriers' costs were increased because of arbitrary 3.6 and 4.0 percent, respectively. By the end of 1972, billing by holding company of intercompany transactions, fourteen roads were under the control of conglomerats such as leases, rental agreements and improper allocation companies, the affected carriers accounting for 50.2
of expenses. percent of total Class I operating revenues and 50.9 Carriers' costs were increased and their cash position percent of total ton-miles. As may be seen in the tables, weakened because of being required to pay higher Federal the extent of “conglomeratization” was only slightly income taxes by holding company tax allocation methods, greater in 1972 than in 1969, the banner year for conglo- such as: merate formation. However, with the formation of the
Carriers were not given credit for losses of their Chessie System, Inc., on June 15 of this year, railroads controlled by conglomerate holding companies now
Carriers did not receive any benefits from tax account for approximately two-thirds of total industry
losses contributed to a consolidatod return revenues and ton-miles. The intercity bus business is dominated by two systems,
Carrier investment tax credits which produce a Greyhound and Trailways, both controlled by firms
lower tax payment for the holding company were not
passed down from the holding company involved in conglomerate activities--The Greyhound Corporation and Holiday Inns, Inc. Approximately 85
Carrier management talent was diverted to non-carrier percent of total Class I operating revenues in the bus activities without compensation. industry were accounted for by conglomerates in 1972. Specific examples of the above practices, some of which This information is reflected in Table 6.
have been previously reported to Congress, are set forth Table 7 indicates the extent of conglomerate involve in Attachment A (p. 234). ment in the trucking industry. Although acquisition activity has slowed appreciably in this area recently, it
PROPOSED LEGISLATION is our belief that, if an economic uptum accompanied by easier financial market conditions occurs, there will be & resulting acceleration in the conglomerate trend in the Commission requests that the attached draft bill, which is
In order to control these questionable practices, the trucking industry.
reviewed below, be enacted.
Section 1 of the draft bill would confer jurisdiction upon QUESTIONABLE AND IMPROPER PRACTICES OF the Commission to authorize single carrier acquisitions, CONGLOMERATES
limited, however, to the requirement that authorization
be obtained for railroads having operating revenues in In recognition of this growing trend towards conglomerates, the Commission initiated a review of carriers operating revenues in excess of $1 million annually.
excess of $5 million annually and all other carriers having controlled by diversified holding companies. The com
Section 2 of the draft bill would authorize the Commisplexity of transactions involving intercompany relation- sion to designate a person not a carrier to be a carrier for ships made these reviews exceedingly difficult. However, the Commission developed special audit procedures which purposes of reporting, maintaining accounts and issuing were instrumental in bringing to light many intricate securities, as the Commission may deem appropriate, at
such time as the acquisition of control is authorized by the transactions. Among the practices uncovered by the
Commission or subsequently in the cases of railroads havCommission were the following:
ing operating revenues in excess of $5 million annually Carrier's assets were removed through questionable or other carriers having operating revenues in excess of dividend practices.
$1 million annually. Spin off of carrier's valuable non transportation Section 3 of the draft bill would enable the Commission assets.
in its discretion to promulgate rules and regulations relatCarriers required to pay special dividends to ing to transactions between affiliated companies and railliquidate holding company loans.
roads having operating revenues in excess of $5 million
annually and other carriers having operating revenues
ATTACHMENT A in excess of $1 million annually. Section 4 of the draft bill would establish a presumption
RAILROADS of control where any person owns 10 percent or more of Southern Pacific Transportation Company the voting securities of the carrier. Section 5 of the draft bill would enable the Commission
Southern Pacific Transportation Company transferred to enter such orders as may be required, including divesti
at book value to its parent holding company, Southern ture, whenever it finds that the continued maintenance of
Pacific Company, the following properties: control will impair the ability of the affected carrier to
Carrier's investment in its subsidiaries with a book render its services.
value of $6 million, and an estimated market value Section 6 of the draft bill would require the recording,
of more than $120 million. in the manner prescribed by the Commission, of the
Carrier-owned nonoperating lands of about 1.9 beneficial or record ownership by those who hold more
million acres, mostly land grants, in the States of than 1 percent of any class of stock of a railroad having
California, Nevada, and Utah with a book value of operating revenues in excess of $5 million ann
about $6 million, and an undetermined market
value. 5 percent of any other carrier having operating revenues in excess of $1 million annually.
Union Pacific Railroad Section 10 of the draft bill adds a proviso to section 20a(3) of the Act so that it will conform to change made
Several questionable practices which our staff uncovered in section 2 of the draft bill. Sections 7 through 9 and 11 through 21, inclusive, of
Several thousand acres of land grants were transthe draft bill would authorize the Commission to prescribe
ferred at no cost to the holding company. That is the accounts and reports to be rendered by persons con
the carrier gave away its resources, and since trolling, controlled by and under common control with
they did not initially pay for these lands, there carriers, as well as those of the carriers themselves, and
were no dollar amounts assigned as a dividend. would permit the inspection of the records of such persons,
Substantial cash transactions were made by the as well as those of the carriers themselves.
carrier, prior to reorganization such as a $175 Under separate cover, the Commission is sending a
million advance to Union Pacific Development recommendation to Congress that section 20(5) of the
Company, a subsidiary prior to reorganization, to Act be amended to allow the Commission to obtain
enable Union Pacific Development Company to financial forecasts from carriers. The proposal here is to
acquire Champlin Petroleum and to provide it be considered independently of that recommendation. If,
with operating funds. however, Congress enacts both recommendations, á
• An agreement between the carrier and Amoco Prore-draft of the amendment to section 20(5) of the Act
duction Company covering exploratory rights will be necessary.
with respect to 6.8 million acres of land that was Section 22 of the draft bill would make it a crime to
given to Champlin Petroleum after reorganization. misappropriate funds by the officials of carriers and,
The agreement was a 3-year option for $9 million. additionally, persons controlling, controlled by or under The carrier, by giving this to Champlin (now a common control with such carriers.
subsidiary of the holding company), will not Finally, section 23 of the draft bill would establish an
receive the balance of the option payment which effective date 90 days from the date of approval of the
is about $4.5 million. In addition, all royalty paylegislation.
ments that would have been received will now be
lost to the carrier. As previously stated, the draft bill does not attempt to prevent carriers from availing themselves of profitable
MOTOR CARRIERS OF PROPERTY opportunities unrelated to transportation but rather seeks to control the flow of assets out of carriers connected with Commercial Motor Freight, Inc. conglomerates. With such safeguards it can be noted
Carrier obtained a loan of $14,990,000 from General incidentally that the carriers' position with regard to the original versus replacement cost issue in ratemaking subsequently lent to Banner Industries, Inc., in order for
Acceptance Corporation (a financial institution), which it becomes less offensive to the Commission.
Banner to acquire the carrier's outstanding stock. These relatively new forms of corporate structure make new authority for the Commission necessary if it is to Akers Motor Lines, Inc. continue to perform its public duties. We, therefore, urge On December 15, 1971, Transportation Systems, Inc., Congress to give this recommendation prompt and purchased Akers Motor Lines, Inc., through acquisition of favorable consideration.
all of the carrier's outstanding capital stock. Total conSincerely yours,
sideration was $14 million, of which $11 million was GEORGE M. STAFFORD, borrowed from the carrier. In order to finance its acquisi
Chairman. tion, carrier has encumbered its entire fleet of revenue Attachments.
MOTOR CARRIERS OF PASSENGERS
• In recent years, over 32 percent of the carrier's
assets have been passed to the holding company depleting its working capital.
TABLE 1.-MAJOR RAILROADS CONTROLLED
BY HOLDING COMPANIES AND DATE OF INVOLVEMENT
Preliminary review by our staff of questionable practices disclosed the following: • Similar problems encountered at other holding
companies, such as dividend practices, interest policies, income tax allocations and use of carrier
resources for the benefit of the holding company. • Carrier's bus fleet has been encumbered to support a
$75 million loan obtained by the holding company
for its acquisition of Armour and Company. Carrier subsidiaries are required to pay dividends
whether or not the cash is available. Where sufficient funds are not available, interest is charged on the unpaid dividends. This appears to be a device to increase the carrier's income and increase its
dividend payment to the holding company. • Carrier pays out a higher percentage of its earnings in
dividends to the holding company than other
members of the group. Carrier assets were transferred to the holding company
as an advance. The carrier not only does not receive any interest but has lost the earning power of these assets which is in excess of about $17 million since the transfer.
Effective date Kansas City Southern Ry. Co..
Jan. 29, 1962 Missouri Pacific RR. Co.
Dec. 31, 1962 Illinois Central Gulf RR. Co..
Mar. 26, 1963 Boston & Maine Corp
May 1, 1964 Bangor & Aroostook RR. Co...
Oct. 13, 1964 Missouri-Kansas-Texas RR. Co...
Aug. 24, 1967 Atchison, Topeka, & Santa Fe Ry. Co..
Aug. 19, 1968 Seaboard Coast Line RR. Co.-
Jan. 21, 1969 Union Pacific RR. Co..
Feb. 17, 1969 Denver & Rio Grande Western RR. Co-
Apr. 25, 1969 Penn Central Transportation Co.
Oct. 1, 1969 Southern Pacific Transportation Co.---
Nov. 26, 1969 Western Pacific RR. Co...
June 17, 1971 Chicago, Milwaukee, St. Paul & Pacific RR. Co... Mar. 23, 1972 Chesapeake & Ohio RR. Co..
June 15, 1973 Baltimore & Ohio RR. Co....
Do. NOTE.—Prior to 1972 Illinois Central Gulf RR. Co. was Illinois Central RR.; new name adopted August 10, 1972, when Illinois Central merged with Gulf, Mobile & Ohio RR. Co. Chicago & North Western Ry. was included prior to 1972 when it was controlled by Northwest Industries, Inc.
TABLE 2-SELECTED STATISTICS FOR MAJOR CLASS I RAILROADS IN THE UNITED STATES
DIRECTLY CONTROLLED BY CONGLOMERATE HOLDING COMPANIES, YEARS 1967-72
$10, 366, 041 $1, 037, 520
$10, 854, 678
Operating revenues (thousands):
Total class I railroads.--
Total class I railroads.
control... Ton miles (millions):
Total class I railroads..
$9, 130, 233
$9, 749, 788
719, 498 73, 531
$11, 450, 325
$11, 984, 994
$12, 790, 311
$13, 585, 893
$10, 346, 258
$10, 915, 771
$11, 786, 431
$12, 571, 707
Source: "Transport Statistics in the United States," annual reports form A, 4th quarter R.E. & I. and OS-B, and statement No. 100.