Senator PEARSON. I assume from your prior responses you cannot state how much of the assets of the parent and subsidiaries are now unencumbered?

Mr. STAFFORD. Yes, I believe that is right.

Senator PEARSON. And you would be unable to state for the record what assets are available for security for loans or to raise cash? Mr. GRADY. At this time, yes.

Senator PEARSON. What happened to the assets of the railroad when the parent holding company was formed?

Mr. GRADY. The assets of the carrier stayed as a part of the carrier.

Senator PEARSON. Were there any transfers from the railroad company to noncarrier companies?

Mr. GRADY. As far as the Penn Central Co., the top holding company, we have not been able to find any substantial transfers of any of the transportation company's assets up to the holding company. Senator PEARSON. You testified as to the movement upwards. How about the movement downwards into the subsidiary?

Mr. GRADY. There have been several transactions between the Penn Central Transportation Co. and the Pennsylvania Co.

Senator PEARSON. Are you prepared to discuss those at this time, what the transfers were, what they consisted of?

Mr. GRADY. We do not have a list today. We can furnish you with a detailed list of all the transfers that have been made and our staff is going over all of the intercompany transactions, particularly those involving the carrier.

Senator PEARSON. Well, you can supply that for the record.1

Let me ask you this: Has the Penn Central exchanged transportation assets for nontransportation assets such as real estate companies or pipelines?

Mr. GRADY. I am not sure. As to the question that they transferred transportation assets to subsidiaries of the Pennsylvania?

Senator PEARSON. Yes. I am talking about the transfer of transportation assets to corporate entities not primarily involved in the furnishing of transportation services?

Mr. GRADY. It is a difficult question to answer because the Penn Central Transportation Co. really owns the Pennsylvania Co., so when it transfers an asset down it transfers an asset that it controls. In the past, prior to the holding company, there was not a great concern because the profits presumably would flow up to the top company which was the Penn Central Transportation Co. or at that time it was called the Penn Central Co.

Senator PEARSON. The point I was trying to develop by these questions is whether or not the transportation assets were being transferred, no matter which direction they may move, for nontransportation assets so as to strip the transportation company of valuable assets.

Mr. GRADY. I presume there has been some transfer of assets. The extent of the transfer of assets we have under study as part of the audit review here of the impact upon the intercompany actual transfers of assets between the group.

Senator PEARSON. Which corporation is in reorganization?

1 See letter dated Nov. 18, 1970 in Part 3 of these hearings.

Mr. GRADY. The Penn Central Transportation Co.

Senator PEARSON. Are the assets of the other companies available to keep the railroad in operation?

Mr. KAHN. Among the principal assets of the Penn Central Transportation Co. is its 100-percent stock interest in the Penn Central Co. It remains for the court to determine the extent to which the stock interest of the Pennsylvania Co. and other companies are assets comprising the estate of the Penn Central Transportation Co. This is a matter for the court to determine.

Certainly the court's actions today, in disallowing certain of the creditor banks to take beneficial interest in the stock of Pennsylvania Co., suggests that at least for the time being the reorganization court may be treating the Pennsylvania Co. stock as an asset of the Penn Central Transportation Co. and through it the other subsidiary holdings.

Senator PEARSON. In a very general way, what is the role of the ICC in relation to a conglomerate organization such as the Penn Central? What are the limits of such organization's legal right and power to transfer assets? What is the power and the duty of the ICC to exercise its statutory oversight responsibility, generally, and, specifically, how was that power exercised in relation to Penn Central?

Mr. KAHN. The Interstate Commerce Commission's jurisdiction is certainly over carriers. It has jurisdiction over a holding company only insofar as that holding company acquires control of two or more carriers. The subsidiary companies of a carrier are not within the control of the Interstate Commerce Commission for accounting and reporting purposes unless such subsidiary companies themselves control carriers.

The Pennsylvania company has been designated by the Interstate Commerce Commission as a carrier because the Pennsylvania company controls among others in the D.T. & I., the T. P. & W. and other railroads. On the other hand, the Penn Central Co. is a parent company and has not been designated to be a carrier since it acquired only control of the Penn Central Transportation Co., a single carrier.

Senator PEARSON. Now, what is the authority of the ICC to oversee the handling of assets of a carrier company within a conglomerate such as the Penn Central Co.?

Mr. KAHN. A carrier, Senator Pearson, under the statutory scheme is free to make such investments as in its managerial discretion it seems best so long as there does not have to be a security issue. Senator PEARSON. That is the only time the ICC gets into the picture?

Mr. KAHN. That is correct.

Senator PEARSON. When was the last opportunity for the ICC to take a look at Penn Central Co.'s situation?

Mr. KAHN. It is my understanding, sir, that the most recent reported authorization under section 20a was the one to which I earlier referred, No. 25854, dated October 29, 1969. That is the last reported one. If there were minor unreported authorizations in the interim, I do not presently have that information.

Senator PEARSON. Do you have any set of criteria as to what should be included within a proper reorganization plan, or does this vary from case to case?

Mr. STAFFORD. I think this varies from case to case, Senator. Of course, we have had roads go under in years past. I cannot say we have helped reorganize any of them, but the whole field is not new to the history of the Commission. Our staff and facilities are already taxed to the limit right now.

For instance, right now we have, as I told you, 18 of our total of 60 auditors on this one case. That number covers the entire United States. This is our problem in all areas when you take on a big job of this kind and we are already completely taxed. But we have set up a team now in the Commission of top people

Senator PEARSON. Will it be assigned to one of the Commission's divisions?

Mr. STAFFORD. No, sir, we will set up a special staff committee to look into and handle the matter of preparing material for this whole field right now.

By the way, we have some 5,000 carriers that those 60 auditors must cover and we have pulled 18 of them already.

Senator PEARSON. Well, how much of the assets of the transportation company are unencumbered?

Mr. GRADY. We have not been able to ascertain that yet, Senator Pearson. That is, if we believe the financial statements in the Penn Central Co. in the offering circular, Footnote 7 to the long-term debt says they all have been encumbered. It is questionable here to the point that the securities they were going to pledge as a result of the $100 million debenture issue here meant that all of them were pledged except those that were going to be used in this financing. Senator PEARSON. So you do not know

Mr. GRADY. Our staff is presently going over them.

Senator PEARSON. So you do not presently know what assets are available as security for loans?

Mr. GRADY. That is right. We are investigating that particular aspect of it.

Senator PEARSON. Nor are you presently able to ascertain what assets may be available to raise cash?

Mr. GRADY. I believe after we complete the review here of the encumbered assets, I think we will be able to answer that question. Mr. KAHN. The reorganization court has already taken steps to facilitate the sale in the open market of up to $50 million of certificates. Judge Fullam will hold hearings on that on July 15 and if he enters an order the matter will be referred to the Commission and the Commission will then consider the matter.

At this point at least there does not seem to be anything on the horizon suggesting those trustee certificates cannot be sold.

Senator PEARSON. Well, I was somewhat surprised with the number of corporate entities involved. You said 207. Do you have a chart of that corporate organization?

Mr. STAFFORD. Yes, we do.

Senator PEARSON. Has it been made part of the record?
Mr. STAFFORD. I do not believe so.

Senator PEARSON. Let's do that now.

(The documents follow:)

Senator PEARSON. Do you have any set of criteria as to what should be included within a proper reorganization plan, or does this vary from case to case?

Mr. STAFFORD. I think this varies from case to case, Senator. Of course, we have had roads go under in years past. I cannot say we have helped reorganize any of them, but the whole field is not new to the history of the Commission. Our staff and facilities are already taxed to the limit right now.

For instance, right now we have, as I told you, 18 of our total of 60 auditors on this one case. That number covers the entire United States. This is our problem in all areas when you take on a big job of this kind and we are already completely taxed. But we have set up a team now in the Commission of top people

Senator PEARSON. Will it be assigned to one of the Commission's divisions?

Mr. STAFFORD. No, sir, we will set up a special staff committee to look into and handle the matter of preparing material for this whole field right now.

By the way, we have some 5,000 carriers that those 60 auditors must cover and we have pulled 18 of them already.

Senator PEARSON. Well, how much of the assets of the transportation company are unencumbered?

Mr. GRADY. We have not been able to ascertain that yet, Senator Pearson. That is, if we believe the financial statements in the Penn Central Co. in the offering circular, Footnote 7 to the long-term debt says they all have been encumbered. It is questionable here to the point that the securities they were going to pledge as a result of the $100 million debenture issue here meant that all of them were pledged except those that were going to be used in this financing. Senator PEARSON. So you do not know

Mr. GRADY. Our staff is presently going over them.

Senator PEARSON. So you do not presently know what assets are available as security for loans?

Mr. GRADY. That is right. We are investigating that particular aspect of it.

Senator PEARSON. Nor are you presently able to ascertain what assets may be available to raise cash?

Mr. GRADY. I believe after we complete the review here of the encumbered assets, I think we will be able to answer that question. Mr. KAHN. The reorganization court has already taken steps to facilitate the sale in the open market of up to $50 million of certificates. Judge Fullam will hold hearings on that on July 15 and if he enters an order the matter will be referred to the Commission and the Commission will then consider the matter.

At this point at least there does not seem to be anything on the horizon suggesting those trustee certificates cannot be sold.

Senator PEARSON. Well, I was somewhat surprised with the number of corporate entities involved. You said 207. Do you have a chart of that corporate organization?

Mr. STAFFORD. Yes, we do.

Senator PEARSON. Has it been made part of the record?
Mr. STAFFORD. I do not believe so.

Senator PEARSON. Let's do that now.

(The documents follow:)