SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1994
[ ] Transition Report Pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-7092
ILLINOIS CENTRAL RAILROAD COMPANY
(Exact name of registrant as specified in its
charter)
Delaware 36-2728842
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois
60611-5504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(312) 755-7500
Indicate by check mark whether the Registrant (1)
has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months, (or for
such shorter period that the Registrant was
required to file such reports), and (2) has been
subject to such filing requirements for the past 90
days.
YES X NO
As of March 31, 1994, 100 common shares were
outstanding.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF
ILLINOIS CENTRAL CORPORATION AND MEETS THE
CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)
(a) AND (b) OF THE FORM 10-Q AND IS THEREFORE
FILING THIS FORM WITH THE REDUCED DISCLOSURE
FORMAT.
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
FORM 10-Q
Three Months Ended March 31, 1994
CONTENTS
Part I - Financial Information:
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial
Statements 6
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 8
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
<PAGE>
<TABLE>
ILLINOIS CENTRAL RAILROAD COMPANY
Consolidated Statements of Income
($ in millions)
(Unaudited)
<CAPTION>
<S> <C> <C>
Three Months
Ended March 31,
1994 1993
Revenues $ 147.5 $ 142.7
Operating expenses:
Labor and fringe benefits 49.0 47.1
Leases and car hire 15.5 18.9
Diesel fuel 7.8 7.7
Materials and supplies 10.8 9.5
Depreciation and amortization 5.9 5.5
Other 9.9 8.1
Operating expenses 98.9 96.8
Operating income 48.6 45.9
Other income, net 1.0 1.0
Interest expense, net (6.9) (9.9)
Income before income taxes and cumulative effect
of changes in accounting principles 42.7 37.0
Provision for income taxes 15.8 12.9
Income before cumulative effect of changes
in accounting principles 26.9 24.1
Cumulative effect of changes in accounting
principles - (0.1)
Net income $ 26.9 $ 24.0
</TABLE>
The following notes are an integral part of
the consolidated financial statements.
<PAGE>
<TABLE>
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
(Unaudited)
<CAPTION>
<S> <C> <C>
ASSETS March 31, 1994 December 31, 1993
Current assets:
Cash and temporary cash investment $ 8.8 $ 8.1
Receivables, net of allowance for doubtful
accounts of $2.6 in 1994 and $3.1 in 1993 62.3 84.6
Materials and supplies, at average cost 20.5 20.1
Assets held for disposition 9.1 9.1
Deferred income taxes - current 22.1 22.8
Other current assets 3.7 3.6
Total current assets 126.5 148.3
Investments 14.6 14.5
Properties:
Transportation:
Road and structures, including land 951.9 947.9
Equipment 72.3 71.7
Other, principally land 40.4 40.4
Total properties 1,064.6 1,060.0
Accumulated depreciation (17.9) (19.3)
Net properties 1,046.7 1,040.7
Other assets 10.6 10.2
Total assets $ 1,198.4 $ 1,213.7
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term debt $ 0.9 $ 1.1
Accounts payable 54.2 51.7
Dividends payable 9.0 15.0
Income taxes payable 10.4 3.5
Casualty and freight claims 24.7 24.7
Employee compensation and vacations 18.6 15.8
Taxes other than income taxes 11.2 13.9
Accrued redundancy reserves 6.9 6.8
Other accrued expenses 26.4 28.4
Total current liabilities 162.3 160.9
Long-term debt 311.3 347.3
Deferred income taxes 205.9 200.6
Other liabilities and reserves 134.0 138.1
Contingencies and commitments
Stockholder's equity:
Common stock authorized, issued and outstanding
100 shares, $1 par value - -
Additional paid-in capital 128.8 128.6
Retained income 256.1 238.2
Total stockholder's equity 384.9 366.8
Total liabilities and stockholder's equity $ 1,198.4 $ 1,213.7
</TABLE>
The following notes are an integral part of the
consolidated financial statements.
<PAGE>
<TABLE>
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
(Unaudited)
<CAPTION>
<S> <C> <C>
Three Months Ended March 31,
1994 1993
Cash flows from operating activities :
Net income $ 26.9 $ 24.0
Reconciliation of net income to net cash
provided by (used for) operating activities :
Cumulative effect of changes in accounting
principles - 0.1
Depreciation and amortization 5.9 5.5
Deferred income taxes 5.9 7.7
Equity in undistributed earnings of affiliates,
net of dividends received (0.2) -
Net gains on sales of real estate 0.1 -
Cash changes in working capital 30.2 (3.3)
Changes in other assets (0.4) 0.3
Changes in other liabilities and reserves (4.7) (10.2)
Net cash provided by (used for) operating
activities 63.7 24.1
Cash flows from investing activities :
Additions to properties (12.4) (11.9)
Proceeds from real estate sales 0.2 0.2
Proceeds from single track sales - -
Proceeds from equipment sales 0.3 0.6
Proceeds from sales of investments 0.1 -
Other 0.1 (0.5)
Net cash provided by (used for) investing
activities (11.7) (11.6)
Cash flows from financing activities :
Proceeds from issuance of debt 48.6 -
Principal payments on debt (59.7) (4.7)
Net proceeds (payments) in commercial paper (25.1) -
Dividends paid (15.0) (6.4)
Purchase of subsidiary's common stock (0.1) (0.1)
Net cash provided by (used for) financing
activities (51.3) (11.2)
Changes in cash and temporary cash investments 0.7 1.3
Cash and temporary cash investments at beginning of
period 8.1 25.6
Cash and temporary cash investments at end of period $ 8.8 $ 26.9
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount capitalized) $ 9.1 $ 9.7
Income taxes $ 3.1 $ 2.6
</TABLE>
The following notes are an integral part of the
consolidated financial statements.
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
Except as described below, the accompanying
unaudited consolidated financial statements
have been prepared in accordance with
accounting policies described in the 1993
Annual Report on Form 10-K and should be read
in conjunction with the disclosures therein.
In the opinion of management, these interim
financial statements reflect all adjustments,
consisting of normal recurring accruals,
necessary to present fairly the financial
position, results of operations and cash flows
for the periods presented. Interim results
are not necessarily indicative of results for
the full year. Certain 1993 amounts have been
reclassified to conform with the presentation
used in the 1994 financial statements.
Income Per Share
Income per share data has been omitted as the
Railroad is a wholly-owned subsidiary of
Illinois Central Corporation ("IC").
2. Sale of Accounts Receivable
In the first quarter of 1994, the Railroad
entered into a revolving agreement to sell
undivided percentage interests in certain of
its accounts receivable, with recourse, to a
financial institution. The agreement, which
expires March 1997, allows for sales of
accounts receivable up to a maximum of $50
million. The Railroad services the accounts
receivable sold under the agreement. During
the first quarter, the Railroad received cash
proceeds of $25.0 million as a result of such
sales of accounts receivable. The Railroad
retains the same exposure to credit loss as
existed prior to the sale. Costs related to
the agreement will vary generally in
correlation with changes in prevailing
interest rates. These costs, which are
included in Other Income, Net, were $.4
million for the quarter ended March 31, 1994.
3. Dividends
On April 6, 1994, the Railroad paid a $9.0
million dividend to IC. Certain provisions
of the Railroad's debt agreements restrict
the level of dividends it may pay to IC.
At March 31, 1994, approximately $81
million was free of such restrictions.
4. Certain Investments in Debt and Equity
Securities
Effective January 1, 1994, the Railroad
adopted the Statement of Financial Accounting
Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities"
("SFAS No. 115"). SFAS No. 115 expands the
use of fair value accounting for certain
investments in debt and equity securities but
retains the use of the amortized cost method
for investments in debt securities that the
reporting enterprise has the positive intent
and ability to hold to maturity. All of the
investments held by the Railroad are temporary
and held for less than 90 days. They are
included in the Consolidated Balance Sheet as
part of Cash and Temporary Cash Investments.
For the periods presented, all investments
were in U.S. Corporate demand notes. It is
the intent of the Railroad to hold all debt
securities to maturity, therefore, the
following is provided in accordance with SFAS
No. 115 ($ in millions):
3-31-94 1-1-94
Aggregate fair value $ 5.6 $ 4.6
Gross unrealized
holding gains $ - $ -
Gross unrealized
holding losses $ - $ -
Amortized cost $ 5.6 $ 4.6
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The discussion below takes into account the
financial condition and results of operations of
the Railroad for the periods presented in the
consolidated financial statements.
Results of Operations
Three Months Ended March 31, 1994 Compared to Three
Months Ended March 31, 1993
Revenues for 1994 increased from the prior
year quarter by $4.8 million or 3.4% to $147.5
million. The increase was a result of a 3.2%
increase in the number of carloads coupled with
increases in other revenue, other than gross
freight revenue, which were partially offset by a
decrease of 1.5% in gross freight revenue per
carload. For the quarter, the Railroad experienced
carloading increases in coal (13.9%), intermodal
(27.7%) and chemicals (4.0%), offset by decreased
grain loads (16.3%).
Operating expenses for 1994 increased $2.1
million, or 2.2% as compared to 1993. Increases in
labor, materials and supplies and depreciation were
offset by decreased lease and car hire expense.
Lease and car hire expense was reduced 18.0%,
primarily from decreased grain carloadings
and increased receipts for Railroad owned
equipment held off line by the severe weather. The
severe weather throughout the Railroad's service
territory caused significant labor and material
costs to be incurred.
Operating income for 1994 increased 5.9% ($2.7
million) to $48.6 million from $45.9 million in
1993, primarily as a result of increased revenues
cited above.
Net interest expense decreased by 30.3% to
$6.9 million as compared to $9.9 million in 1993,
primarily as a result of the 1993 refinancing of
the Railroad's debt.
Effective January 1, 1993, the Railroad
adopted both the Statement of Financial Accounting
Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS
No. 106") and the Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("SFAS No. 112"). SFAS
No. 106 requires that future costs associated with
providing postretirement benefits be recognized as
expense over the employees' requisite service
period. The pay-as-you-go method used prior to
1993 recognized the expense on a cash basis. SFAS
No. 112 establishes accounting standards for
employers who provide postemployment benefits and
clarifies when the expense is to be recognized. As
a result of adopting these two standards the
Railroad recorded a decrease to net income of
$84,000 (net of taxes of $46,000) as a cumulative
effect of changes in accounting principles.
<PAGE>
Liquidity and Capital Resources
Operating Data: Three Months Ended March 31,
1994 1993
($ in millions)
Cash flows provided by
(used for):
Operating activities $ 63.7 $ 24.1
Investing activities (11.7) (11.6)
Financing activities (51.3) (11.2)
Net change in cash
and temporary cash
investments $ .7 $ 1.3
Operating activities in 1994 provided $63.7
million in cash, primarily from net income before
depreciation and deferred taxes, and the $25.0
million proceeds from the sale of accounts
receivables.
During 1994, additions to property of $12.4
million included approximately $7.2 million for
track and bridge rehabilitation and approximately
$1.8 million for equipment upgrades. The Railroad
anticipates that capital expenditures for the year
1994 will be in the range of $45 million to $50
million and will concentrate on track maintenance
and renewal of track structures such as bridges.
These expenditures are expected to be met from
current operations and other available sources.
Over the last three years, management has
concentrated on reducing leverage, expanding
funding sources, lowering funding costs and
upgrading the debt ratings issued by the rating
services. The latest steps in this process are a
first quarter of 1994 agreement with a financial
institution whereby the Railroad sells certain of
its accounts receivables and the initiation in
November 1993 of a public commercial paper program.
In the first quarter of 1994, the Railroad
entered into a revolving agreement to sell
undivided percentage interests in certain of its
accounts receivable, with recourse, to a financial
institution. The agreement, which expires March
1997, allows for sales of accounts receivable up to
a maximum of $50 million. The Railroad services
the accounts receivable sold under the agreement.
During the first quarter, the Railroad received
cash proceeds of $25.0 million as a result of such
sales of accounts receivable. The Railroad retains
the same exposure to credit loss as existed prior
to the sale. Costs related to the agreement will
vary generally in correlation with changes in
prevailing interest rates. These costs, which are
included in Other Income, Net, were $.4 million for
the quarter ended March 31, 1994.
The commercial paper, issued by the Railroad,
is rated A2 by S&P, F2 by Fitch Investors Service,
Inc. ("Fitch") and P3 by Moody's and is supported
by a $100 million Revolver with the Railroad's bank
lending group. At March 31, 1994, $13.0 million of
commercial paper was outstanding with an interest
rate of 3.92%. During the quarter, the amount
outstanding ranged from $13.0 million to $47.7
million. The Railroad views this program as a
significant long-term funding source and intends to
issue replacement notes as each existing issue
matures and accordingly issuances are classified as
long-term.
At March 31, 1994, no amounts had been drawn
under the Railroad's Revolver and $30 million was
outstanding under the Bank Line at an average
interest rate of 3.5%. The $100 million available
under the Revolver was limited to $83.0 million
because $13.0 million in commercial paper was
outstanding and $4.0 million in letters of credit
had been issued. The Bank Line was structured as a
364-day renewal instrument and the Company intends
to renew it on an on-going basis. The $30 million
borrowed at March 31, 1994, has therefore been
classified as long-term.
The Railroad also has an uncommitted $25.0
million floating rate Credit Facility. At March
31, 1994, no amounts were outstanding, and the
maximum outstanding in the quarter was $23.0
million.
The Railroad believes that its available
cash, cash generated by its operations and cash
available via commercial paper, the Revolver, the
Bank Line and the Credit Facility will be
sufficient to meet foreseeable liquidity
requirements.
Various borrowings of the Railroad are
governed by agreements which contain financial and
operating covenants. All entities were in
compliance with these covenant requirements at
March 31, 1994, and management does not anticipate
any difficulty in maintaining such compliance.
On April 6, 1994, the Railroad paid a $9.0
million dividend to IC. Certain provisions of the
Railroad's debt agreements restrict the level of
dividends it may pay to IC. At March 31, 1994,
approximately $81 million was free of such
restrictions.
The Railroad has paid approximately $1.5
million in the first quarter of 1994 for costs
associated with the various labor agreements signed
in 1992 and 1991. The Railroad anticipates that an
additional $5.1 million will be required in 1994
related to all such agreements. These requirements
are expected to be met from current operating
activities or other available sources.
The Railroad has entered into various hedge
agreements designed to mitigate significant changes
in fuel prices. As a result, approximately 93% of
the Railroad's short-term diesel fuel requirements
through March 1995 and 46% through June 1995 are
protected against significant price changes.
The Railroad is and will continue to be
subject to extensive regulation under environmental
laws concerning, among other things, discharges
into the environment and the handling, storage,
transportation and disposal of waste and hazardous
materials. Inherent in the operations and real
estate activities of the Railroad and other
railroads is the risk of environmental liabilities.
As discussed in Item 3. "Legal Proceedings," in the
Railroad's definitive Annual Report Form 10-K for
the year ended December 31, 1993, dated March 16,
1994, Commission File No. 1-7092, several
properties on which the Railroad currently or
formerly conducted operations are subject to
governmental action in connection with
environmental damage. In the opinion of
management, the Railroad has adequate reserves to
cover the costs for investigation and remediation.
However, there can be no assurance that
environmental conditions will not be discovered
which might individually or in the aggregate have a
material adverse effect on the Company's financial
condition.
Recent Accounting Pronouncements
In May 1993, the Financial Accounting
Standards Board issued Statement of Financial
Accounting Standards No. 114, "Accounting by
Creditors for Impairment of a Loan" ("SFAS No.
114").
SFAS No. 114 requires that impaired loans be
measured based on the present value of expected
future cash flows discounted at the loan's
effective interest rate. This statement applies to
financial statements for fiscal years beginning
after December 31, 1994, with earlier adoption
encouraged. The Company is currently evaluating
the impact of this statement, if any, on its
reported results. Early adoption is not
anticipated.
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
None
(b) Reports on Form 8-K:
None
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY
Signatures
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly
caused this report to be signed on its behalf
by the undersigned hereto duly authorized.
ILLINOIS CENTRAL RAILROAD COMPANY
/S/ DALE W. PHILLIPS
Dale W. Phillips
Vice President & Chief Financial Officer
/S/ JOHN V. MULVANEY
John V. Mulvaney
Controller
Date: May 11, 1994<PAGE>
