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Section 820 of Title 46 U.S.C. provides as follows: "The Federal Maritime Commission and the Secretary of Commerce may require any common carrier by water, or other person subject to this chapter, or any officer, receiver trustee, lessee, agent, or employer thereof, to file with it or him any periodical or special report, or any account, record rate, or charge, or any memorandum of any facts and transactions appertaining to the business of such carrier or other person subject to this chapter Whoever fails to file any report as required by this section shall forfeit to the United States the sum of $100 for each day of such default.

"Whoever willfully falsifies, destroys, mutilates or alters any such report or willfully files a false report shall be guilty of a misdemeanor, and subject upon conviction to a fine of not more than $1,000, or imprisonment for not more than one year, or both such fine and imprisonment."

Federal Power Commission

Title 15 U.S.C., Section 717i, provides: "(a) Every natural-gas company shall file with the Commission such annual and other periodic or special reports as the Commission may by rules and regulations or order prescribe as necessary or appropriate to assist the Commission in the proper administration of this chapter * The Commission may require that such reports shall include, among other things, full information as to the assets and liabilities, capitalization, investment and reductions thereof, gross receipts, interest due and paid, depreciation, amortization and other reserves, cost of maintenance and operation of facilities for the production, transportation or sale of natural gas, cost of renewal and replacement of such facilities, transportation, delivery, use, and sale of natural gas.

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(Sec. 717t provides a maximum $5,000 fine and two year prison term for knowing and willful failure to comply with requirements.)

Title 16 U.S.C., Section 825c, provides that:

"(a) Every licensee and every public utility shall file with the Commission such annual and other periodic or special reports as the Commission may by rules and regulations or order prescribe as necessary or appropriate to assist the Commission in the proper administration of this chapter. The Commission may prescribe the manner and form in which such reports shall be made, and require from such persons specific answers to all questions upon which the Commission may need information. The Com

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Federal Trade Commission

Title 15 U.S.C., Section 46(b) provides that the Commission shall have the power:

"To require, by general or special orders, corporations engaged in commerce, excepting banks and common carriers subject to the Act to regulate commerce, or any class of them, or any of them, respectively, to file with the Commission in such form as the Commission may prescribe annual or special, or both annual and special, reports or answers in writing to specific questions, furnishing to the Commission such information as it may require as to the organization, business, conduct, practices, management, and relation to other corporations filing such reports or answers in writing. * * **,

(Sec. 50 provides civil penalties in fine of not less than $1,000 nor more than $5,000 and/or imprisonment for not more than one year, for neglect or refusal to report; the section also provides for criminal penalties by fine of not less than $1,000 nor more than $5,000 and/or imprisonment up to 3 years for willfully falsifying information.)

Interstate Commerce Commission

Title 49 U.S.C., Section 20 provides: "(1) The Commission is authorized to require annual, periodical, or special reports from carriers, lessors, and associations and form in which such reports shall be made, and to require from such carriers * specific and full, true, and correct answers to all questions upon which the Commission may deem information to be necessary Such annual reports shall give an account of the affairs of the carrier * * in such form and detail as may be prescribed by the Commission. ***

(7) (a) (Failure to report or refusal to do so results in a $500 fine for each offense for each day the failure or refusal continues.)

(b) (Knowing and willful falsification of reports and/or records on which they are based results in a liability for a maximum $5,000 fine and/or 2 year prison sentence for each offense.)

(Part II of the Act imposes identical reporting requirements on motor carriers (Sec. 320 (a)). No specific mention is made of penalties which inhere in the event of failure to comply, however.)

(Part III imposes identical requirements on water carriers (Sec. 913). Once again, no specific mention is made of penalties.)

Securities and Exchange Commission

Title 15 U.S.C., Section 78m provides:

"(a) Every issuer of a security registered pursuant to 781 of this title shall file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and fair dealing in securities-

"(1) such information and documents as the Commission shall require to keep reasonably current the information and documents required to be included in or filed with an application to registration statement pursuant to Sec. 781 of this title

"(2) such annual reports * certified if required by the rules and regulations of the Commission by independent accountants, and such quarterly reports as the Commission may prescribe."

(Sec. 78m (b) provides that SEC reporting requirements shall be complementary with those of other agencies.) (Sec. 78ff provide that willful violations shall be punished by fines of up to $10,000 and imprisonment up to 2 years in the case of individuals, and fines up to $500,000 in the case of exchanges.)

(Other sections of title 15 give the SEC similar authority in other areas.)

hand as to the stock ownership of the Union Pacific Corporation. The Commission has no legal means to obtain this information.

However, the Union Pacific Corporation is required to submit annually to the Securities and Exchange Commission a list of shareholders owning at least 10 percent of the company's outstanding shares. The company reported that none of its shareholders met this criteria as of April 2, 1973.

We have recently proposed legislation which, if enacted, would authorize this Commission to require holding companies of carriers to submit information as to their major stockholders. This legislation will also provide the Commission with additional authority necessary to control abuses against transportation companies by non-carrier affiliates.

Enclosed, for your information, is a copy of the proposed which I submitted on August 9, 1973, to both Senator draft of legislation and accompanying summary report Magnuson, Chairman of the Senate Committee on Commerce and Congressman Staggers, Chairman of the House Committee on Interstate and Foreign Commerce. Sincerely yours,

Enclosures.1

GEORGE M. STAFFORD,

Chairman.

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SEPTEMBER 17, 1973.

Hon. GEORGE M. STAFFORD,
Chairman, Interstate Commerce Commission,
Washington, D.C.

DEAR CHAIRMAN STAFFORD: In response to my request your liaison office provided me with a copy of an excerpt from the report filed this year with the Interstate Commerce Commission by the Union Pacific Railroad. The excerpt from the report (109. Voting Powers and Elections) includes the Commission's request for the company's thirty largest stockholders and their voting powers.

The company response lists only the Union Pacific Corporation, the holding company, which held all 29,913,

015 shares.

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INTERSTATE COMMERCE COMMISSION,
Washington, D.C., September 24, 1973.

Hon. LEE METCALF,
Chairman, Subcommittee on Budgeting Management and
Erpenditures, U.S. Senate, Washington, D.C.
DEAR SENATOR METCALF: This is in response to your
letter of September 17, 1973, requesting information as to
the top thirty security holders of the Union Pacific
Corporation.

The Union Pacific Corporation, a holding company which owns all of the outstanding common stock of the Union Pacific Railroad Company, is not a carrier and, therefore, not subject to the reporting requirements of Section 20(1) of the Interstate Commerce Act. Since this company is not required to file any financial or other reports with the Commission, we have no information on

INTERSTATE COMMERCE COMMISSION, Washington, D.C., August 9, 1973.

Hon. WARREN G. MAGNUSON,
Chairman, Committee on Commerce,
U.S. Senate, Washington, D.C.
Hon. HARLEY O. STAGGERS,

Chairman, Committee on Interstate and Foreign Commerce,
House of Representatives, Washington, D.C.

GENTLEMEN: For a number of years it has been apparent that there is a trend for conglomerate holding companies and other non-carriers to assume control of carriers subject to this Commission's jurisdiction and for the carriers themselves to enter other fields. The possibility that this trend might ultimately result in a weakened common carrier system incapable of responding to the needs of the public has caused great concern in both the governmental and private sectors.

The entire question of conglomerates achieved national prominence following the bankruptcy of the Penn Central Transportation Company and this Commission's testimony at Oversight Hearings held before the Subcommittee on Surface Transportation of the Senate Committee on Commerce on June 23, 1970. The conglomerate question was also raised during hearings on Railroad Loan Guarantee Legislation held before the House Interstate and Foreign Commerce Committee on June 25, 1970, and the Senate Committee on Commerce on July 8, 1970.

The Commission is increasingly concerned that the holding companies having little or no interest in the perindiscriminate acquisition of transportation enterprises by public may be inimical to the public interest. Similarly, formance of needed services for the shipping or traveling

the employment by carriers of the device of establishing a parent company to escape Commission jurisdiction also causes concern since it may serve to impair their ability to render efficient and economical services. We are also aware, however, of the potential benefits that corporate diversification can provide.

1 Proposed legislation retained in committee files.

The Commission has, therefore, undertaken to draft a bill which we believe would provide us with the needed additional authority, and which, at the same time, would not prevent carriers from participating in profitable ventures unrelated to transportation.

The draft legislation has been written in terms that will enable the Commission to deal with major problem areas without, however, imposing undue burdens of administration upon the carriers regulated by us or our staff. This has been accomplished by limiting most of the provisions of the draft bill to railroads having operating revenues in excess of $5 million annually or to other carriers having operating revenues in excess of $1 million annually.

THE CONGLOMERATE TREND

Tables 1 through 5 show statistics for conglomerates in the railroad industry. The recent trend toward conglomerates of Class I railroads is reflected in Table 2. During 1962, two Class I railroads, the Missouri Pacific and Kansas City Southern, were acquired by parent holding companies. At that time, the two carriers' share of total Class I railroad operating revenues and ton-miles was 3.6 and 4.0 percent, respectively. By the end of 1972, fourteen roads were under the control of conglomerate companies, the affected carriers accounting for 50.2 percent of total Class I operating revenues and 50.9 percent of total ton-miles. As may be seen in the tables, the extent of "conglomeratization" was only slightly greater in 1972 than in 1969, the banner year for conglomerate formation. However, with the formation of the Chessie System, Inc., on June 15 of this year, railroads controlled by conglomerate holding companies now account for approximately two-thirds of total industry revenues and ton-miles.

The intercity bus business is dominated by two systems, Greyhound and Trailways, both controlled by firms involved in conglomerate activities-The Greyhound Corporation and Holiday Inns, Inc. Approximately 85 percent of total Class I operating revenues in the bus industry were accounted for by conglomerates in 1972. This information is reflected in Table 6.

Table 7 indicates the extent of conglomerate involve ment in the trucking industry. Although acquisition activity has slowed appreciably in this area recently, it is our belief that, if an economic upturn accompanied by easier financial market conditions occurs, there will be a resulting acceleration in the conglomerate trend in the trucking industry.

QUESTIONABLE AND IMPROPER PRACTICES OF
CONGLOMERATES

In recognition of this growing trend towards conglomerates, the Commission initiated a review of carriers controlled by diversified holding companies. The complexity of transactions involving intercompany relationships made these reviews exceedingly difficult. However, the Commission developed special audit procedures which were instrumental in bringing to light many intricate transactions. Among the practices uncovered by the Commission were the following:

Carrier's assets were removed through questionable dividend practices.

Spin off of carrier's valuable nontransportation

assets.

Carriers required to pay special dividends to liquidate holding company loans.

Carriers required to pay dividends with highly appreciated assets.

Carriers required to obtain loan from holding company in order to finance payment of dividends back to holding company resulting in depletion of carrier's retained income and contributing to future cash problems.

Carriers' assets were removed at less than fair market value resulting in holding company profiting from appreciated value.

Carriers' assets were removed through payment of management fees, in excess of fair market value, for nonexistent or negligible services.

Carriers were denied short term investment opportunities because of holding company restrictions on its use of cash. Carriers required to maintain excessive bank balances for holding company credit.

Carriers required to advance cash to holding company at no interest or at below market interest rates. Carriers' costs were increased because of arbitrary billing by holding company of intercompany transactions, such as leases, rental agreements and improper allocation of expenses.

Carriers' costs were increased and their cash position weakened because of being required to pay higher Federal income taxes by holding company tax allocation methods, such as:

Carriers were not given credit for losses of their subsidiaries

Carriers did not receive any benefits from tax losses contributed to a consolidated return

Carrier investment tax credits which produce a lower tax payment for the holding company were not passed down from the holding company Carrier management talent was diverted to non-carrier activities without compensation.

Specific examples of the above practices, some of which have been previously reported to Congress, are set forth in Attachment A (p. 234).

PROPOSED LEGISLATION

In order to control these questionable practices, the Commission requests that the attached draft bill, which is reviewed below, be enacted.

Section 1 of the draft bill would confer jurisdiction upon the Commission to authorize single carrier acquisitions, limited, however, to the requirement that authorization be obtained for railroads having operating revenues in excess of $5 million annually and all other carriers having operating revenues in excess of $1 million annually.

Section 2 of the draft bill would authorize the Commission to designate a person not a carrier to be a carrier for purposes of reporting, maintaining accounts and issuing securities, as the Commission may deem appropriate, at such time as the acquisition of control is authorized by the Commission or subsequently in the cases of railroads having operating revenues in excess of $5 million annually or other carriers having operating revenues in excess of $1 million annually.

Section 3 of the draft bill would enable the Commission in its discretion to promulgate rules and regulations relating to transactions between affiliated companies and railroads having operating revenues in excess of $5 million

annually and other carriers having operating revenues in excess of $1 million annually.

Section 4 of the draft bill would establish a presumption of control where any person owns 10 percent or more of the voting securities of the carrier.

Section 5 of the draft bill would enable the Commission to enter such orders as may be required, including divestiture, whenever it finds that the continued maintenance of control will impair the ability of the affected carrier to render its services.

Section 6 of the draft bill would require the recording, in the manner prescribed by the Commission, of the beneficial or record ownership by those who hold more than 1 percent of any class of stock of a railroad having operating revenues in excess of $5 million annually, or 5 percent of any other carrier having operating revenues in excess of $1 million annually.

Section 10 of the draft bill adds a proviso to section 20a (3) of the Act so that it will conform to change made in section 2 of the draft bill.

Sections 7 through 9 and 11 through 21, inclusive, of the draft bill would authorize the Commission to prescribe the accounts and reports to be rendered by persons controlling, controlled by and under common control with carriers, as well as those of the carriers themselves, and would permit the inspection of the records of such persons, as well as those of the carriers themselves.

Under separate cover, the Commission is sending a recommendation to Congress that section 20(5) of the Act be amended to allow the Commission to obtain financial forecasts from carriers. The proposal here is to be considered independently of that recommendation. If, however, Congress enacts both recommendations, a re-draft of the amendment to section 20(5) of the Act will be necessary.

Section 22 of the draft bill would make it a crime to misappropriate funds by the officials of carriers and, additionally, persons controlling, controlled by or under common control with such carriers.

Finally, section 23 of the draft bill would establish an effective date 90 days from the date of approval of the legislation.

As previously stated, the draft bill does not attempt to prevent carriers from availing themselves of profitable opportunities unrelated to transportation but rather seeks to control the flow of assets out of carriers connected with conglomerates. With such safeguards it can be noted incidentally that the carriers' position with regard to the original versus replacement cost issue in ratemaking becomes less offensive to the Commission.

These relatively new forms of corporate structure make new authority for the Commission necessary if it is to continue to perform its public duties. We, therefore, urge Congress to give this recommendation prompt and favorable consideration.

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ATTACHMENT A

RAILROADS

Southern Pacific Transportation Company

Southern Pacific Transportation Company transferred at book value to its parent holding company, Southern Pacific Company, the following properties:

• Carrier's investment in its subsidiaries with a book value of $6 million, and an estimated market value of more than $120 million.

• Carrier-owned nonoperating lands of about 1.9 million acres, mostly land grants, in the States of California, Nevada, and Utah with a book value of about $6 million, and an undetermined market value.

Union Pacific Railroad

are:

Several questionable practices which our staff uncovered Several thousand acres of land grants were transferred at no cost to the holding company. That is the carrier gave away its resources, and since they did not initially pay for these lands, there were no dollar amounts assigned as a dividend. Substantial cash transactions were made by the carrier, prior to reorganization such as a $175 million advance to Union Pacific Development Company, a subsidiary prior to reorganization, to enable Union Pacific Development Company to acquire Champlin Petroleum and to provide it with operating funds.

An agreement between the carrier and Amoco Production Company covering exploratory rights with respect to 6.8 million acres of land that was given to Champlin Petroleum after reorganization.

The agreement was a 3-year option for $9 million. The carrier, by giving this to Champlin (now a subsidiary of the holding company), will not receive the balance of the option payment which is about $4.5 million. In addition, all royalty payments that would have been received will now be lost to the carrier.

MOTOR CARRIERS OF PROPERTY Commercial Motor Freight, Inc.

Carrier obtained a loan of $14,990,000 from General Acceptance Corporation (a financial institution), which it subsequently lent to Banner Industries, Inc., in order for Banner to acquire the carrier's outstanding stock. Akers Motor Lines, Inc.

On December 15, 1971, Transportation Systems, Inc., purchased Akers Motor Lines, Inc., through acquisition of all of the carrier's outstanding capital stock. Total consideration was $14 million, of which $11 million was borrowed from the carrier. In order to finance its acquisition, carrier has encumbered its entire fleet of revenue equipment,

MOTOR CARRIERS OF PASSENGERS

Greyhound Corporation

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.

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TABLE 2.-SELECTED STATISTICS FOR MAJOR CLASS I RAILROADS IN THE UNITED STATES DIRECTLY CONTROLLED BY CONGLOMERATE HOLDING COMPANIES, YEARS 1967-72

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Source: "Transport Statistics in the United States," annual reports form A, 4th quarter R.E. & I. and OS-B, and statement No. 100.

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