Railroad Forums 

  • Purpose of holding companies

  • Pertaining to all railroading subjects, past and present, in New Jersey
Pertaining to all railroading subjects, past and present, in New Jersey

Moderator: David

 #1227112  by carajul
 
Something I've always wondered. What is the purpose of a holding company?

Example... Norfolk Southern Corporation is a holding company whose sole purpose is to own Norfolk Southern Railway, Inc. which is actually the railroad.

UAL, Inc. owns United Airlines, Inc. the airline.

Or in the case of Washington Mutual Corp holding company it owned Washington Mutal Bank. The bank went broke it was the holding company's only asset so now the holding company just flounders as a shell on paper.

Why don't the actual companies that run the RR (or airline in the case of United) just exist on their own. Why a holding company? It results in double taxation. The NSRwy gets taxed, then the income is passed to NSCorp who also pays tax. What's the purpose? Seems like double accounting, double tax, double work!
 #1227120  by charlie6017
 
carajul wrote:Why a holding company? It results in double taxation. The NSRwy gets taxed, then the income is passed to NSCorp who also pays tax. What's the purpose? Seems like double accounting, double tax, double work!
Well, I'm sure it sounds that way, but I would bet "the farm" that they're not paying double in taxes. Someone's head would
be rolling if that were the case.

The railroads have many subsidiaries. Just like CSX Corp has CSX Transportation, CSX Intermodal, and others that go on
down the line. It's just corporate structure.

Many times they have holding companies to protect total assets. Like the way Norfolk & Western created Dereco to keep
themselves at arms-length from the Erie Lackawanna and the Delaware & Hudson. They rid themselves quickly of EL after
Hurricane Agnes and it was quick and painless (for M&W anyway) after that happened, instead of dealing with potential
litigation to "cut the cord".

Charlie
 #1227290  by Ken W2KB
 
charlie6017 wrote:
carajul wrote:Why a holding company? It results in double taxation. The NSRwy gets taxed, then the income is passed to NSCorp who also pays tax. What's the purpose? Seems like double accounting, double tax, double work!
Well, I'm sure it sounds that way, but I would bet "the farm" that they're not paying double in taxes. Someone's head would
be rolling if that were the case.

The railroads have many subsidiaries. Just like CSX Corp has CSX Transportation, CSX Intermodal, and others that go on
down the line. It's just corporate structure.

Many times they have holding companies to protect total assets. Like the way Norfolk & Western created Dereco to keep
themselves at arms-length from the Erie Lackawanna and the Delaware & Hudson. They rid themselves quickly of EL after
Hurricane Agnes and it was quick and painless (for M&W anyway) after that happened, instead of dealing with potential
litigation to "cut the cord".

Charlie
I work for a publicly traded corporation in holding company structure with assets totaling about $32 billion. Organizing as subsidiaries also makes it, among other things, easier to track the performance of the different lines of business. Indeed "the farm" is safe for sure as there is no adverse tax impact, the Service permits the filing of a single consolidated tax return for the entire enterprise which yields the same result as if there was but one corporation.
 #1227330  by kilroy
 
To further expand on Ken's reply. While not applying to railroads as much, both Ken and I work in heavily regulated insudtries and one type of company may not be able to be in a certain busienss or hold a certain type of asset. The holding company structure sovles that problem. Each entity has its specialty or legal right to do something.
 #1227558  by Eliphaz
 
A consolidated balance sheet also allows for more massive borrowing power -its about leverage in the financial markets - a company consisting of one factory cannot expect to get financed to double in size, that is, and expect to retain management control, the investor will naturally feel he owns 50% of the new venture, but a large conglomerate can easily double the size of one of its units, and borrow whatever it might need on its own terms.