UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
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
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class so registered: each class is registered:
Illinois Central Railroad Company New York Stock Exchange
6-3/4% Notes, due May 15, 2003
Gulf, Mobile and Ohio Railroad New York Stock Exchange
Company, 5% Income Debentures,
Series A, due December 1, 2056
Securities registered pursuant to Section 12(g) of the Act:
None
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 11, 1996, there were 100 shares of the registrant's
common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF ILLINOIS CENTRAL
CORPORATION (SEC FILE NO. 1-10720) AND MEETS THE CONDITIONS SET FORTH IN
GENERAL INSTRUCTION J(1)(a) and (b) of form 10-K AND IS THEREFORE FILING
THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
FORM 10-K
Year Ended December 31, 1995
INDEX
PART I 10-K Page
Item 1. Business 3
Item 2. Properties 10
Item 3. Legal Proceedings 13
Item 4. Submission of Matters to a Vote of Security
Holders (A) 14
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters 15
Item 6. Selected Financial Data. (A) 15
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 16
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 23
PART III
Item 10. Directors and Executive Officers of the
Registrant (A) 24
Item 11. Executive Compensation (A) 24
Item 12. Security Ownership of Certain Beneficial Owners
and Management (A) 24
Item 13. Certain Relationships and Related
Transactions (A) 24
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 25
SIGNATURES 26
(A) Omitted or amended as the registrant is a wholly-owned
subsidiary of Illinois Central Corporation and meets the
conditions set forth in General Instruction J(1)(a) and
(b) of Form 10-K and is, therefore, filing this Form
with the reduced disclosure format.
PART I
Item 1. Business
Background
Illinois Central Railroad Company (the "Railroad"), traces its
origin to 1851, when the Railroad was incorporated as the nation's first
land grant railroad. Today, the Railroad operates 2,700 miles of main
line track between Chicago and the Gulf of Mexico, primarily carrying
chemicals, coal and paper north, with coal, grain and milled grain
products moving south along its lines. The Railroad is a wholly-owned
subsidiary and the principal asset of Illinois Central Corporation ("IC").
The principal executive office of the Railroad is located at 455
North Cityfront Plaza Drive, Chicago, Illinois 60611-5504 and its
telephone number is (312) 755-7500.
The 1992 Four-Year Growth Plan and Plan2000
In the fall of 1992, IC announced a four-year growth plan designed
to increase revenues $100 million to $647 million, reduce the operating
ratio four percentage points to 66.9% and reduce interest expense $10
million to $33 million. By December 31, 1994, the Railroad had achieved
the operating ratio and interest expense reduction goals. Therefore, in
the spring of 1995, IC developed and announced Plan2000. This new plan
is designed to build on the success of the 1992 plan and position the
Railroad for the next century. Plan2000 calls for (i) revenue to grow
from the 1994 base of $594 million to $800 million by the end of 1999 and
(ii) the continued reduction of the operating ratio to below 60%.
As of December 31, 1995, following revenue increases of 3.1%, 5.2%
and 8.4% in 1993, 1994 and 1995, respectively, revenue was 17.6% higher
than 1992 and only $3 million below the original four year $100 million
target. The 1995 revenue of $644 million is slightly ahead of the 1995
target specified in Plan2000. Contributing to the revenue growth since
1992 were gains in intermodal (57.7%), grain and grain mill (22.9%), and
chemicals (14.4%), partially offset by a decline in coal (.6%).
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations - Significant Development."
Commodities and Customers
The Railroad's customers are engaged in a wide variety of businesses
and ship a number of different products that can be classified into
commodity groups: chemicals, coal, grain, paper, grain mill and food
products and other commodities. In 1995, two customers each accounted for
approximately 6% of revenues (no other customer exceeded 5%) and the ten
largest customers accounted for approximately 35% of revenues.
In 1995, approximately 71% of the Railroad's freight traffic
originated on its own lines, of which approximately 22% was forwarded to
other carriers. Approximately 16% of the Railroad's freight traffic was
received from other carriers for final delivery by the Railroad, and the
balance of approximately 13% represented bridge or through traffic.
In order to address more effectively the diversity of the Railroad's
customer base, the Railroad's marketing department was re-organized in
late 1995 into two major groups - Bulk and Consumer Products. The Bulk
group is responsible for coal, chemicals and grain products. The Consumer
group covers forest products, intermodal and metals. The formation of
separate units enables a fully integrated sales and marketing effort.
Specialization allows employees to anticipate and respond to customer
needs more quickly, and to establish business relationships with new
shippers. These new units work with current and prospective customers to
develop customized shipping solutions. Management believes that this
commitment to improved customer service will enhance relations with
shippers.
The respective percentage contributions by principal commodity group
to the Railroad's freight revenues and revenue ton miles during the past
five years are set forth below:
Contributions to Total Freight Revenues by Commodity Group
Commodity
Group 1995 1994 1993 1992 1991
Chemicals 25.3% 24.8% 25.0% 24.3% 24.5%
Coal 14.0 15.2 12.8 15.3 15.0
Grain 14.4 10.2 14.0 12.2 11.7
Paper 12.9 12.2 12.4 12.1 11.2
Grain mill &
food products 9.1 8.5 9.8 8.8 8.7
Intermodal 7.9 6.6 5.4 5.4 5.2
All other 16.4 22.5 20.6 21.9 23.7
Total 100.0% 100.0% 100.0% 100.0% 100.0%
Contribution to Revenue Ton Miles by Commodity Group
Commodity
Group 1995 1994 1993 1992 1991
Chemicals 14.6% 15.8% 15.9% 15.1% 16.0%
Coal 20.8 24.0 15.1 18.2 17.0
Grain 26.8 20.0 27.9 27.3 27.7
Paper 9.0 9.8 9.6 9.0 8.4
Grain mill &
food products 9.8 9.3 9.9 9.0 8.3
Intermodal 5.5 5.5 3.7 3.1 2.9
All other 13.5 15.6 17.9 18.3 19.7
Total 100.0% 100.0% 100.0% 100.0% 100.0%
The principal elements of these commodity groupings are as follows:
Chemicals A wide variety of chemicals and related products such
as chlorine, caustic soda, potash, soda ash, vinyl
chloride monomer, carbon dioxide, synthetic resins,
alcohols, glycols, styrene monomer, plastics, sulfuric
acid, muriatic acid, anhydrous ammonia, phosphates,
mixed fertilizer compounds and carbon blacks.
Coal Bituminous and metallurgical coal.
Grain Corn, wheat, soybeans, sorghum, barley and oats.
Paper Pulpboard, fiberboard, woodpulp, printing
paper, newsprint and scrap or waste paper.
Grain Mill &
Food Products Products obtained by processing grain and other farm
products such as feed, soybean meal, corn syrup,
flour and middlings, animal packinghouse by-products
(tallow), canned food, corn oil, soybean oil,
vegetable oils, malt liquors, sugar and molasses.
Intermodal A wide variety of products shipped either in
containers or trailers on specially designed cars.
Other Pulpwood and chips, lumber and other wood products;
sand, gravel and stone, coke and petroleum products,
metallic ores and other bulk commodities; primary and
scrap metals, machinery and metal products,
appliances, automobiles and parts, transportation
equipment and farm machinery; glass and clay
products, ordnance and explosives, rubber and plastic
products, and general commodities.
Operating Statistics
Set forth below is certain information relating to the Railroad's
freight traffic during the past five years:
1995 1994 1993 1992 1991
Carloads
(in thousands) 957 915 848 852 866
Freight train miles
(in thousands)(1) 7,758 7,179 5,659 5,149 5,445
Revenue ton miles of
freight traffic
(in millions)(2) 24,635 21,160 20,334 18,734 19,357
Revenue tons per
carload 74.7 76.3 79.1 76.6 79.0
Average length of
haul (in miles) 328 286 293 284 286
Gross freight revenue
per ton mile (3) $ .025 $ .027 $ .027 $ .029 $ .028
Net freight ton miles
per average route
mile (in millions) 9.3 7.9 7.5 6.8 7.0
Gallons per ton
mile (4) .00234 .00248 .00251 .00269 .00276
Active locomotives 333 328 322 331 361
Track resurfacing
(miles) 1,360 1,397 1,293 1,465 940
Percent resurfaced 32.2% 33.0% 29.8% 32.0% 19.6%
Ties laid in
replacement
(including switch
ties) 408,760 346,994 323,764 296,536 255,283
Slow order miles 209.76 275.79 152.32 135.42 194.62
1 Freight train miles equals the total number of miles traveled by the
Railroad's trains in the movement of freight.
2 Revenue ton miles of freight traffic equals the product of the
weight in tons of freight carried for hire and the distance in miles
between origin and destination.
3 Revenue per ton mile equals net freight revenue divided by revenue
ton miles of freight traffic.
4 Gallons per ton mile equals the amount of fuel required to move one
ton of freight one mile.
The following tables summarize operating expense-to-revenue ratios
of the Railroad for each of the past five years, excluding the effect of
the $8.9 million pretax special charge in 1992. The first table analyzes
the various components of operating expenses based on the line items
appearing on the income statements, whereas the second table is based on
Surface Transportation Board ("STB") functional groupings.
Ratio 1995 1994 1993 1992 1991
Operating(1) 65.5% 67.6% 68.6% 70.9% 73.6%
Labor and fringe
benefits 30.3 31.0 31.2 32.0 32.4
Leases and car
hire 9.1 10.0 12.5 13.0 13.8
Diesel fuel 5.2 5.3 5.4 5.5 6.0
Materials and
supplies 5.4 6.0 6.2 5.8 5.5
Depreciation and
amortization 4.8 4.2 4.0 4.3 3.7
Casualty,
insurance and
losses 2.7 4.0 3.8 4.8 7.2
Other taxes 2.8 3.0 2.9 2.3 1.9
Other 5.2 4.1 2.6 3.2 3.1
1995 1994 1993 1992 1991
Operating(1) 65.5% 67.6% 68.6% 70.9% 73.6%
Transporta-
tion (2) 28.0 28.9 29.6 31.6 34.8
Maintenance of
way(3) 7.8 7.7 7.2 7.1 6.4
Maintenance of
equipment(4) 20.3 20.6 21.3 22.9 23.9
1 Operating ratio means the ratio of operating expenses before special
charge over operating revenues.
2 Transportation ratio means the ratio of transportation expenses
(such as expenses of operating, servicing, inspecting, weighing,
assembling and switching trains) over operating revenues.
3 Maintenance of way ratio means the ratio of maintenance of way
expenses (such as the expense of repairing, maintaining, leasing,
depreciating and retiring right-of-way and trackage structures,
buildings and facilities) over operating revenues.
4 Maintenance of equipment ratio means the ratio of maintenance of
equipment expenses (such as the expense of repairing, maintaining,
leasing, depreciating and retiring transportation and other
operating equipment) over operating revenues.
Employees; Labor Relations
Railroad industry personnel are covered by the Railroad Retirement
System instead of Social Security. Employer contribution rates under the
Railroad Retirement System are currently more than double those in other
industries and may rise further because of the increasing proportion of
retired employees receiving benefits relative to the shrinking number of
working employees.
Labor relations in the railroad industry is subject to extensive
governmental regulation under the Railway Labor Act. Railroad employees
are also covered by the Federal Employer's Liability Act ("FELA") rather
than by state no-fault workmen's compensation systems. FELA is a fault-
based system, with compensation for injuries determined by individual
negotiation or litigation.
Approximately 90% of all Railroad employees are represented by a
union. Prior to 1994, the Railroad had been a party to several national
collective bargaining agreements which, until 1994, established the wages
and benefits of its union workers. These agreements became subject to
renegotiation beginning November 1, 1994, when bargaining notices were
filed; however, cost of living allowance provisions and other terms in
each agreement continue until new agreements are reached. Beginning in
late 1994, the Railroad began negotiating separate distinct agreements
with each of its eleven unions on a local basis. To date, eight unions,
representing 42% of the Railroad's represented workforce, have ratified
agreements which cover wages and work rule issues through 1999. During
the term of these agreements wages will rise approximately 3%-4% per year
on average. In reaching these agreements, approximately $1.2 million was
paid in signing bonuses. It is too early to determine if separate
agreements will be reached with the other crafts, although on November 10,
1995, a tentative agreement was reached with the United Transportation
Union ("UTU"), subject to membership ratification. This agreement
represented a significant change in the basis of paying operating
employees, with an hourly wage system replacing a mileage-based system.
On February 28, 1996, the Railroad was notified by the UTU that its
members had rejected the agreement. As a result, no amounts have been
reflected in the Consolidated Financial Statements associated with this
agreement. The Railroad will seek the counsel of the National Mediation
Board who facilitated the agreement in November. The following table
shows the average annual employment levels of the Railroad:
1995 1994 1993 1992 1991
Total employees 3,268 3,250 3,306 3,421 3,611
A substantial portion of the decline from the 1992 level is the result
of a separate agreement between the Railroad and the UTU, reached in
November 1991. This agreement permits the Railroad to reduce the size of
all crews on all trains operated. In accordance with this agreement, 158
crew members were severed at a cost of $9.6 million to date. The current
crew size of approximately 2.74 is not expected to change significantly.
Management believes that over the next several years attrition and
retirements will be the primary source of future declines in employment
levels. Increases in employment levels, particularly in train operations,
are possible in response to growth of business in accordance with
Plan2000. See also, "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Significant Developments - CCP
Holdings, Inc. Acquisition."
Regulatory Matters; Freight Rates; Environmental Considerations
The Railroad is subject to significant governmental regulation by
the STB and other federal, state and local regulatory authorities with
respect to rates, service, safety and operations.
The jurisdiction of the STB encompasses, among other things, rates
charged for certain transportation services, assumption of certain
liabilities by railroads, mergers or the acquisition of control of one
carrier by another carrier and extension or abandonment of rail lines or
services.
The Federal Railroad Administration, the Occupational Safety and
Health Administration and certain state transportation agencies have
jurisdiction over railroad safety matters. These agencies prescribe and
enforce regulations concerning car and locomotive safety equipment, track
safety standards, employee work conditions and other operating practices.
The amount of Southern Illinois coal transported by the Railroad is
expected to decline somewhat as the Clean Air Act is fully implemented.
Much of the coal from mines in that area currently served by the Railroad
will not meet the environmental standards of the Clean Air Act without
blending with compliance coal or installation of air scrubbers at point
of use. On the other hand, the Railroad expects to participate in
additional movements of Western coal and Southern Illinois coal which does
comply. Overall, management believes that implementation of the Clean Air
Act is unlikely to have a material adverse effect on the results of the
Railroad.
The Railroad is and will continue to be subject to extensive
regulation under environmental laws and regulations 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. See Item 2.
"Properties - Environmental Conditions" for discussion of sites on which
the Railroad currently or formerly conducted operations that are subject
to governmental action in connection with environmental degradation. The
EPA is expected to propose regulations limiting locomotive emissions which
may significantly increase the purchase price or operating expense of
locomotives. Additional expenditures by the Railroad may be required in
order to comply with existing and future environmental and health and
safety laws and regulations or to address contaminated sites which may be
discovered.
Competition
The Railroad faces intense competition for freight traffic from
motor, water, and pipeline carriers and from other railroads. Competition
is generally based on the quality and reliability of the service provided
and the rates charged. Declining fuel prices disproportionately benefit
trucking operations over railroad operations. The trucking industry
frequently is more cost and transit-time competitive than railroads,
particularly for distances of less than 300 miles. While deregulation of
freight rates under the Staggers Act has greatly increased the ability of
railroads to compete with each other and alternate modes of transportation,
changes in governmental regulations (particularly changes to the Staggers
Act) could significantly affect the Railroad's competitive position.
To a greater degree than other rail carriers the Railroad is
vulnerable to barge competition because its main routes are parallel to
the Mississippi River system. The use of barges for some commodities,
particularly coal and grain, sometimes represents a lower cost mode of
transportation. As a result, the Railroad's revenue per ton-mile has
generally been lower than industry averages for these commodities. Barge
competition and barge rates are affected by navigational interruptions
from ice, floods and droughts. These interruptions cause widely
fluctuating rates. The Railroad's ability to maintain its market share
of the available freight has traditionally been affected by its response
to the navigational conditions on the river.
Most of the Railroad's operations are conducted between points served
by one or more competing carriers. The consolidation in recent years of
major rail systems has resulted in strong competition in the service
territory of the Railroad. To date, such consolidations have not had a
material adverse impact on the Railroad's operation or financial results,
but continued consolidation could limit the Railroad's access to shippers.
Liability Insurance
The Railroad is self-insured for the first $5 million of each loss.
The Railroad carries $245 million of liability insurance per occurrence,
subject to an annual cap of $345 million in the aggregate for all losses.
This coverage is considered by the Railroad's management to be adequate
in light of the Railroad's safety record and claims experience.
Item 2. Properties
Physical Plant and Equipment
System. As of December 31, 1995, the Railroad's total system
consisted of approximately 4,600 miles of track comprised of 2,700 miles
of main line, 200 miles of secondary main line and 1,700 miles of passing,
yard and switching track. The Railroad owns all of the track except for
190 miles operated by agreements over track owned by other railroads.
Track Structures. During the five years ended December 31, 1995,
the Railroad has spent $394.5 million on track structure to construct and
maintain its rail lines, as follows ($ in millions):
Capital
Expenditures Maintenance Total
1995 $ 66.9 $ 33.5 $100.4
1994 63.2 29.1 92.3
1993 50.3 25.1 75.4
1992 46.4 23.0 69.4
1991 36.3 20.7 57.0
Total $263.1 $131.4 $394.5
These expenditures concentrated primarily on track roadway and bridge
rehabilitation over the last four years. Approximately, 1,400 miles of
road were resurfaced in each of the last three years. During 1994 and
1993, approximately $11.4 million was spent to complete the conversion of
198 miles of track, known as the Yazoo District, to a single track with
centralized traffic control ("CTC"). In 1992 through 1994, a total of
$11.4 million was spent to construct new or expanded intermodal facilities
in Chicago and Memphis. Expenditures in 1991 benefited from the use of
reclaimed rail, cross ties, ballast and other track materials from the
second main line when the Railroad's double-track mainline was converted
to a single-track mainline with CTC. See "Management's Discussion's and
Analysis of Financial Condition and Results of Operations" for a
discussion of future capital expenditures.
Fleet. The Railroad's fleet has undergone significant rationalization
and modernization since 1985 when locomotives and cars were at their peak of
862 and 28,616, respectively. Over the last four years the lease of 59 used
SD-40-2's and 20-new SD-70's have enabled the Railroad to replace older,
lower horsepower, less efficient locomotives. In 1995 alone the SD-70's
replaced 31 older smaller locomotives. These locomotives are owned by IC's
financing/leasing subsidiaries and are leased to the Railroad.
These acquisitions were part of an equipment program implemented in
1993, to increase ownership of its equipment. The program includes lease
conversions whereby equipment is acquired outright or the lease terms
modified to be more favorable to the Railroad. To date, the conversion
program has involved 118 locomotives and 4,228 freight cars. As a result
of the new lease terms, $24.7 million of capital leases were recorded in
1994. Most of these leases contain fixed price options whereby the
equipment can be acquired at or below fair market value at some point
during the lease term.
Approximately 1,800 cars leased by the Railroad are leased from a
seperate subsidiary of IC. As the Railroad increases the number of cars
leased from this subsidiary, other leased equipment will be returned to the
independent third-party lessors or short-term car hire agreements will
be terminated.
The third segment of the equipment program was a significant upgrade
of the highway trailer fleet for used in intermodal service. In 1992 all
old leased trailers, approximately 880, were replaced with 800 newly built
trailers. To further address expanded intermodal volume, another 100
trailers were added in 1994.
During 1994, the Railroad has repaired and reconditioned approximately
173 cars at a cost of $2.9 million. This equipment is being leased on a
short-term basis to other carriers until the Railroad anticipates it will
need the equipment for its expansion.
The following is the overall fleet at December 31:
Total Units: 1995 1994 1993 1992 1991
Locomotives(1) 397 417 468 449 470
Freight cars 15,767 16,178 15,112 15,877 16,381
Work equipment 654 625 745 902 881
Highway
trailers 898 898 898 203 124
1 Approximately 56 locomotives need repair before they can be returned
to service. This equipment is repaired if needed on an ongoing basis or
sold. The Railroad sold 40, 48, 23 and 66 surplus locomotives in 1995,
1994, 1993 and 1992, respectively. The active fleet is 333 as of December
31, 1995.
The components of the fleet by subsidiary and in total for
1995 and in total for 1994 are shown below:
Long-Term 1995 1994
Description(1) Owned(2) Lease Total Total
Locomotives:
Multipurpose 215 97 312 325
Switching 63 22 85 92
Total 278 119 397 417
Freight Cars:
Box (general service) 261 1,220 1,481 1,462
Box (special purpose) 2,577 434 3,011 3,101
Gondola 910 518 1,428 1,362
Hopper (open top) 2,110 2,072 4,182 4,397
Hopper (covered) 2,930 624 3,554 3,732
Flat 239 466 705 780
Other 1,167 239 1,406 1,344
Total 10,194 5,573 15,767 16,178
Work Equipment 654 - 654 625
Highway trailers - 898 898 898
1 In addition, approximately 1,630 freight cars were being used
by the Railroad under short-term car hire agreements.
2 Includes 59 locomotives and 1,722 freight cars under
capital leases.
Environmental Conditions
The Railroad faces potential environmental cleanup costs
associated with approximately 30 contaminated sites and various
fueling facilities for which a total of $13 million has been
reserved as of December 31, 1995. The most significant of those
sites are described below.
Mobile, Alabama
The Railroad owned property in Mobile prior to 1976 upon which
a lessee conducted creosoting operations. The Alabama Department
of Environmental Management has determined that the soil and
groundwater are contaminated with creosote, pentachlorophenol and
possibly dioxins. The Railroad has been participating in joint
cleanup efforts with the current owner and the Railroad's lessee.
See Item 3. "Legal Proceedings."
Jackson, Tennessee
A rail yard in Jackson, Tennessee, formerly owned by the
Railroad has been placed on the federal and state "superfund" list
as a result of the discovery of Trichloroethylene (TCE) in the
adjacent municipal water well field. The Railroad formerly operated
a shop facility at the site and TCE is a common component of
solvents similar to those believed to have been used in the shop.
See Item 3. "Legal Proceedings."
McComb, Mississippi
The Railroad is conducting a site assessment of a facility
where car repairs were formerly performed to determine the nature
and extent of contamination, primarily lead from removed paint, at
the site. The study is being conducted under the supervision of the
Mississippi Department of Environmental Quality.
Kegley, Illinois
Emergency response action has been taken by the Railroad at
this scene of a 1994 derailment in which about 22,000 gallons of TCE
were released. The spill has been contained by construction of an
impervious wall extended into the bedrock and encircling the site.
The Railroad has enrolled in Illinois' Pre-Notice Site Cleanup
Program and is voluntarily remediating the site. The Railroad
believes the shipper bears some responsibility for the release and
has so notified it.
East Hazel Crest, Illinois
In 1994 the Railroad learned that an underground fuel line had
leaked about 100,000 gallons of diesel fuel into the soil and
groundwater. The Railroad has constructed a groundwater remediation
system and enrolled the site in Illinois' Pre-Notice Site Cleanup
Program. See Item 3. "Legal Proceedings."
Fueling Facilities
The Railroad has maintained fueling facilities at more than
20 locations at various times from the 1950's to date. Many of
those sites are or may be contaminated with spilled fuel. Those
stations currently in use are equipped with drip pans and treatment
facilities and the Railroad has initiated a program of rebuilding
all fuel lines above ground.
Waste Oil Generation
The Railroad has been identified as a Potentially Responsible
Party ("PRP") at three sites where waste oil was allegedly processed
and disposed. In each instance, the Railroad is alleged to have
generated some of the waste oil, and in each the Railroad believes
any contribution it may have made to the site contamination is de
minimis.
Item 3. Legal Proceedings
State of Alabama, et al. v. Alabama Wood Treating Corporation, Inc.,
et al., S.D. Ala. No. 85-0642-C
The State of Alabama and Alabama State Docks ("ASD") filed
suit in 1985 seeking damages for alleged pollution of land in
Mobile, Alabama, stemming from creosoting operations over several
decades. Defendants include the Railroad, which owned the land
until 1976, Alabama Wood Treading Corporation, Inc., and Reilly
Industries, Inc. ("RII"), which leased the land from the Railroad
and conducted creosote operations on the site. In December 1976,
the Railroad sold the premises to ASD. The complaint sought payment
for the clean-up cost together with punitive and other damages.
In 1986, ASD, RII and the Railroad agreed to form a joint
technical committee to clean the site, sharing equally the cost of
clean-up, and in October 1986 the court stayed further proceedings
in the suit. Under the agreement the joint technical committee has
spent approximately $6.8 million and has been authorized to expend
up to a total of $6.9 million. The Railroad has contributed $2.3
million. Further clean-up activities are anticipated.
Under the agreement, if any party disagrees with the amount
determined by the joint technical committee to be expended or
otherwise disagrees with any aspect of the clean-up, such party may
decline further participation and recommence legal proceedings.
However, amounts already contributed by any party will be credited
against that party's eventual liability and may not be recovered
from any other party.
In the Matter of Illinois Central Railroad Company, et al.,
Tennessee Division of Superfund No. 94-0187
The Tennessee Department of Environment and Conservation has
issued a Remedial Order requiring cleanup by the Railroad and the
current owners of a site in Jackson, Tennessee. The Railroad
operated a rail yard and locomotive repair facility at the site.
Trichloroethylene ("TCE") has been found in several municipal water
wells near the site. TCE is a common component of solvents similar
to those believed to have been used at the shop. In addition,
concentrations of metals and organic chemicals have been identified
on the surface of the site. The Railroad has commenced a remedial
investigation and feasibility study of the site, and expects to
cooperate with the agency and other PRP's to conduct any necessary
clean-up activities.
People of the State of Illinois v. Illinois Central Railroad No. 95
CH842 (Circuit Court of Cook County, Illinois)
On February 2, 1995, the State of Illinois filed a Complaint
for Injunction and Civil Penalties against the Railroad relating to
a release of diesel fuel from an underground pipeline at the
Railroad's Markham Yard facility in East Hazel Crest, Illinois. The
Complaint alleges that the Railroad violated State water pollution
statutes by allowing diesel fuel to enter waters of the State and
seeks an order compelling the Railroad to take necessary corrective
actions at the site and to pay a civil penalty.
Item 4. Submission of Matters to a Vote of Security Holders
Intentionally omitted. See Index page of this Report for explanation.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
All of the outstanding common stock of the Railroad (100 shares)
is owned by IC and therefore is not traded on any market. Certain
covenants of the Railroad's Revolver while not specifically restricting
dividends do require the Railroad to maintain minimum levels of tangible
net worth. While not anticipated, such restrictions could limit the
amount of dividends paid by the Railroad to IC. The Railroad paid
dividends to IC of $107.7 million in 1995, $42.5 million in 1994 and
$27.4 million in 1993. At December 31, 1995, approximately $71.9
million of Railroad equity was free of such restriction. In January 1996,
the Railroad declared and paid a dividend of $12.0 million to IC.
Item 6. Selected Financial Data
Intentionally omitted. See Index page of this Report for explanation.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Significant Developments
1992 Four-Year Growth Plan and Plan2000
In the fall of 1992, IC announced a four-year growth plan
designed to increase revenues $100 million to $647 million, reduce
the operating ratio four percentage points to 66.9% and reduce
interest expense $10 million to $33 million. By December 31, 1994,
the Railroad had achieved the operating ratio and interest expense
reduction goals. Therefore, in the spring of 1995, IC developed and
announced Plan2000. This new plan is designed to build on the
success of the 1992 plan and position the Railroad for the next
century. Plan2000 calls for (i) revenue to grow from the 1994 base
of $594 million to $800 million by the end of 1999 and (ii) the
continued reduction of the operating ratio to below 60%.
As of December 31, 1995, following revenue increases of
3.1%, 5.2% and 8.4% in 1993, 1994 and 1995, respectively, revenue
was 17.6% higher than 1992 and only $3.6 million below the original
four year $100 million target. The 1995 revenue of $644 million is
slightly ahead of the 1995 target specified in Plan2000.
Contributing to the revenue growth since 1992 were gains in
intermodal (57.7%) grain and grain mill (22.9%) and chemicals
(14.4%), partially offset by a decline in coal (.6%).
Plan2000 was developed primarily as a management tool and
is subject to factors and assumptions which could impact on its
achievability. The most significant risks that could impact
Plan2000 are its economic assumptions, the haulage agreement with
the Southern Pacific Railroad ("Southern Pacific") and export grain
demand. The plan assumes industrial production will rise, an
average 2.8% in each year 1996 through 1999 with a soft landing of
2.4% in 1997. Historically, the Railroad's growth excluding coal
and export grain, which are not affected by industrial production,
has been 50% to 60% of industrial production. Plan2000 assumes the
historical trend will continue. As to the Southern Pacific,
intermodal haulage between Memphis and Chicago is expected to remain
in excess of 30,000 units annually. However, the Southern Pacific
and the Union Pacific have indicated that this business will be re-
evaluated following their merger. Unlike the very low 1994 level
and the unusually strong 1995 grain traffic levels, Plan2000 expects
export grain traffic will be closer to the historical norm.
Local Union Agreements
In 1994 the Railroad began to negotiate separate distinct
agreements with each of its eleven unions on a local basis
effectively withdrawing from the traditional pattern of bargaining
on a national basis with the other railroads. To date eight unions,
representing 42% of the Railroad's union workforce, have ratified
agreements which cover wages and work rule issues through 1999.
These agreements provide wage increases of 3%-4% per year on average.
Upon ratification, signing bonuses of $1.2 million were paid.
In November 1995, the Railroad and the United
Transportation Union ("UTU") entered into a tentative agreement
subject to membership ratification. This agreement represented a
significant change in the basis of paying operating employees, with
an hourly wage system replacing a mileage-based system. On February
28, 1996, the Railroad was notified by the UTU that its members had
rejected the agreement. As a result, no amounts have been reflected
in the Consolidated Financial Statements associated with this agreement.
The Railroad will seek the counsel of the National Mediation Board who
facilitated the agreement in November.
CCP Holdings, Inc. Acquisition
On January 17, 1996, IC announced that it had entered into
a definitive agreement to purchase all the stock of CCP Holdings,
Inc., for approximately $125 million in cash and the assumption of
approximately $14 million in net debt and approximately $18 million
of capitalized lease obligations. IC expects to fund the
acquisition using funds from existing line of credit and the
proceeds of public debt issued by the Railroad. The Railroad will
transfer the funds to IC via a combination of dividends and
intercompany loans. The purchase will not close until required
regulatory approval from the Surface Transportation Board is
obtained, which is expected by no later than September 1996.
IC will account for the transaction as a purchase. The
total purchase price is subject to various potential adjustments for
up to one year after the closing date.
CCP Holdings, Inc., principal subsidiaries are the Chicago,
Central and Pacific Railroad (CCP) and the Cedar River Railroad
(CRR). These two railroads comprise a Class II freight system which
operates 850 miles of road. CCP operates from Chicago west to
Omaha, Nebraska, with connecting lines to Cedar Rapids and Sioux
City, Iowa. CRR runs north from Waterloo, Iowa to Albert Lea,
Minnesota. CCP Holdings, Inc.'s 1995 revenues were approximately
$76 million, its operating ratio was approximately 70%, and its
shareholders' equity was approximately $54 at December 31, 1995.
Railroad Industry Mergers
During 1995, the merger of the Burlington Northern Railroad
and the Sante Fe Railway and the merger of the Union Pacific
Railroad and the Chicago NorthWestern Railroad were completed and
the intended acquisition of the Southern Pacific Railroad by the
Union Pacific Railroad was announced. These consolidations have the
potential to increase competition in the Railroad's service
territory. To date, the impact on the Railroad's operation or
financial results has not been material, but continued
consolidations could limit the Railroad's access to shippers.
Results of Operations
The discussion below takes into account the financial
condition and results of operations of the Railroad for the years
presented in the consolidated financial statements.
1995 Compared to 1994
Revenues for 1995 increased from the prior year by $49.9
million or 8.4% to $643.8 million. The increase was a result of a
4.6% increase in carloadings coupled with a 2.1% increase in the
average freight revenue per carload. In 1995, the Railroad
experienced increased carloadings in intermodal (31.2%), grain and
grain mill products (13.2%), paper (6.4%) and chemicals (4.1%),
partially offset by decreased loadings in coal (11.9%).
Operating expenses for 1995 increased $20.4 million or 5.1%.
Labor and fuel expenses increased reflecting the increased loadings
experienced in 1995 over 1994. Depreciation expense was higher in
1995 because of the Railroad's increased ownership of equipment. Other
expenses, which include joint facilities, net and equipment related
expenses, increased $9.0 million. Partially offsetting the increased
expenses was a $.5 million decrease in lease and carhire expense and
decreased casualty, insurance and loss expense ($6.3 million) reflecting
the Railroad's emphasis on safety and improved claims experience.
Operating income for 1995 increased $29.5 million or 15.3%
to $221.9 million for the reasons cited above.
Net interest expense of $26.3 million for 1995 increased
1.2% compared to $26.0 million in 1994. Increased debt burden
primarily associated with equipment additions and stock repurchases
account for the increase in interest expense. Results for 1995,
also reflect the issuance of lower coupon debt in connection with
the prepayment of the Railroad's $160 million Senior Notes at face
value, plus accrued interest and a prepayment penalty. The
prepayment resulted in an extraordinary loss of $18.4 million, $11.4
million after tax. See "- Liquidity and Capital Resources."
Net income was further affected by a $4.3 million after tax
gain on the resolution of prior period tax issues.
1994 Compared to 1993
Revenues for 1994 increased from the prior year by $29.2
million or 5.2% to $593.9 million. The increase was a result of a
7.9% increase in carloadings partially offset by a 3.7% decrease in
the average freight revenue per carload. In 1994, the Railroad
experienced increased carloadings in intermodal (53.0%), coal
(22.6%), chemicals (3.6%) and paper (2.2%) partially offset by
decreased loadings in grain (12.5%) and grain mill products (10.3%).
The increase in intermodal carloadings highlighted the Railroad's
emphasis and commitment in this area. For the year, carloadings
increased over 67,000 to approximately 915,000 carloads.
Operating expenses for 1994 increased $14.4 million or 3.7%.
Labor and fuel expenses increased reflecting the increased loadings
experienced in 1994 over 1993. Depreciation expense was higher in 1994
because of the Railroad's shift to ownership of equipment from leasing.
Other expenses, which include property and franchise taxes, casualty and
environmental accruals, joint facilities, net and equipment related
expenses, increased $9.7 million. Partially offsetting the increased
expenses was a $11.0 million decrease in lease and car hire expense which
resulted from the Railroad's shift from leasing to owning, more effective
turnaround of cars and lower export grain.
Operating income increased $14.8 million or 8.3% to $192.4
million for the reasons described above.
Net interest expense for 1994 decreased 18.2% ($5.8 million)
to $26.0 million compared to $31.8 million in 1993. The sales of
accounts receivable under a revolving agreement allowed the Railroad
to utilize existing assets to obtain funds rather than issuing
additional debt. The expense associated with this transaction is
accounted for as Other Income, Net, not Interest Expense and when
coupled with paydowns of other existing debt, produced the decrease
in interest expense.
Net income was further affected by a $5.0 million after tax
gain on the favorable resolution of prior period tax issues.
Liquidity and Capital Resources
Operating Data ($ in millions):
1995 1994 1993
Cash flows provided by (used for):
Operating activities $168.2 $195.6 $121.8
Investing activities (122.8) (77.0) (54.2)
Financing activities (54.6) (114.5) (85.1)
Net change in cash and
temporary cash
investments $ (9.2) $ 4.1 $(17.5)
Cash from operating activities in 1995, 1994 and 1993 was
primarily net income before depreciation, deferred taxes,
extraordinary item and the cumulative effect of changes in
accounting principles, and 1994 was also affected by the sales of
accounts receivable. A significant source of cash in 1993 ($6.3
million) was the realization of settlement proceeds with numerous
insurance carriers in connection with asbestos and hearing loss
casualty claims. Most of the settlements were for prior claims but
some cover future claims related to prior periods. As part of the
settlements, the Railroad agreed to release the carriers from
liability for future hearing loss claims. In 1995 and 1994, the
Railroad received $1.1 million and $.5 million, respectively.
Additions to the property were as follows ($ in millions):
1995 1994 1993
Communications and signals $ 10.7 $ 13.8 $ 5.6
Equipment-rolling stock 30.3 22.5 13.7
Track and bridges 47.0 44.7 36.6
Other 9.6 5.4 1.2
Total $ 97.6 $ 86.4 $57.1
In 1994, Other includes $3.0 million for intermodal facility
rehabilitation in Memphis. In 1995, 1994 and 1993 capital
expenditures exceeded original estimates as several opportunities
to acquire equipment were acted upon in accordance with the
Railroad's strategy of owning more of its equipment. Property
retirements and removals generated proceeds of $5.4 million, $8.2
million, and $5.3 million in 1995, 1994 and 1993, respectively.
The Railroad anticipates that capital expenditures for 1996
will be approximately $114 million of which $83 million of base
expenditures will concentrate on track maintenance (i.e., renewal
of track structures such as bridges) and for freight car upgrades.
Approximately $20 million will be incurred to expand the Railroad's
intermodal facility in Chicago to service Canadian National
Railway. Most of the remainder of these expenditures are expected
to be met from current operations or other available sources.
Since 1990, a major financial goal has been to reduce
leverage, expand funding sources, lower funding costs and obtain
upgraded credit ratings from the debt rating services. Some of the
steps taken have included replacing high-coupon public debt with
private debt and public debt with lower interest rates, renegotiating
existing bank credit agreements, obtaining unsecured credit lines for
the Railroad, selling accounts receivables and initiating (in 1993)
and expanding (in 1995) a commercial paper program.
Under the Railroad's commercial paper program a total of $150
million can be issued and outstanding at any one time. The program
is supported by a $250 million Revolver with the Railroad's lending
group (see below). At December 31, 1995, Standard & Poor's
Corporation ("S&P"), Moody's Investor Services ("Moody's") and Fitch
Investors Service ("Fitch") have rated the commercial paper A2, P2
and F2, respectively, and $57.0 million was outstanding. For the
year the rates ranged from 5.90% to 6.60%. The Railroad views this
program as a significant long-term funding source and intends to
issue replacement notes as each existing issue matures. Therefore,
commercial paper borrowings are classified as long-term. The
Railroad's public debt is rated Baa2 by Moody's and BBB by S&P.
In 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 in June 1998, allows for sales of accounts receivable up
to a maximum of $50 million at any one time. The Railroad services the
accounts receivable sold under the agreement and retains the same
exposure to credit loss as existed prior to the sale. At December 31,
1995, the maximum had been sold pursuant to the agreement. Costs related
to the agreement fluctuate with changes in prevailing interest rates.
These costs, which are included in Other Income Net, were $3.2 million
for the year ended December 31, 1995.
In April 1995, the Railroad concluded negotiations with its
bank lending group whereby the Railroad's Revolver was amended and
restated, for the third time since becoming unsecured in September
1993, to a $250 million revolver expiring in 2000. Fees and
borrowing spreads are predicated on the Railroad's long-term credit
ratings. Currently, the annual facility fee is 17 basis points and
borrowings under this agreement are at Eurodollar offered rate plus
32.5 basis points. This amended facility replaced the $150 million
revolver due in 1999. The Revolver will be used primarily for
backup for the Railroad's commercial paper program but can be used
for general corporate purposes. The available amount is reduced by
the outstanding amount of commercial paper borrowings and any
letters of credit issued on behalf of the Railroad under the
facility. No amounts have been drawn under the Revolver. At
December 31, 1995, the $250 million was limited to $192.1 million
because $57.0 million in commercial paper was outstanding and $.9
million in letters of credit had been issued.
The Railroad believes that its available cash, cash generated
by its operations and cash available from the facilities described
above will be sufficient to meet foreseeable liquidity requirements.
Additionally, the Railroad believes it has access to the public
debt market if needed.
Various borrowings of the Railroad are governed by agreements which
contain financial and operating covenants. The Railroad was in compliance
with these covenant requirements at December 31, 1995, and management
does not anticipate any difficulty in maintaining such compliance.
Certain covenants of the Railroad's Revolver require specific
levels of tangible net worth but not a specific dividend
restriction. The Railroad paid dividends to IC of $107.7 million
in 1995, $42.5 million in 1994 and $27.4 million in 1993. At
December 31, 1995, the Railroad's tangible net worth exceeded the
required level by approximately $71.9 million. In January 1996, the
Railroad declared and paid a dividend of $12.0 million to IC.
In 1995, the Railroad prepaid the holders of its $160 million
Senior Notes at face value plus accrued interest and a prepayment
penalty. The monies used to fund the prepayment were provided by
commercial paper, the net proceeds of the $100 million 7.75% non-callable
10 year-notes due May 2005 and $40 million from existing lines of credit.
The prepayment resulted in an extraordinary loss of $18.4 million, $11.4
million after-tax. The line of credit borrowings were replaced with the
proceeds of Medium-Term Notes ("MTN"). The MTN's expire as follows:
$20 million (coupon 6.27%) in 1998, $30 million (coupon 6.83%) in 2000,
and $50 million (coupon 6.98%) in 2007.
In 1993, a $23.4 million extraordinary loss, net of $12.6
million in tax benefits, was incurred in connection with the
Railroad's tender offer for its $145 million 14 1/8% Senior
Subordinated Debentures ("Debentures") and the costs associated
with calling the Debentures. In connection with the tender offer for
the Debentures, the Railroad issued $100 million of 6.75% non-
callable, 10-year notes due 2003 and irrevocably placed funds with
a trustee to cover principal, a 6% premium and interest through the
first call date of October 1, 1994, for the untendered Debentures.
The Railroad has entered into various diesel fuel collar
agreements designed to mitigate significant changes in fuel prices.
As a result, approximately 65% of the Railroad's short-term diesel
fuel requirements through June 1996 and 17% for the period July 1996
through June 1997 are protected against significant price changes.
See Note 6 of the Notes to Consolidated Financial Statements.
The Railroad has paid approximately $6 million, $6 million and
$8 million in 1995, 1994, and 1993, respectively, for severance,
lump sum signing awards and other costs associated with the various
agreements signed in 1994, 1992 and 1991. The previously announced
agreement, with the United Transportation Union ("UTU") covering
wages and work rule issues through 2000 failed to ratify. See "-
Significant Developments." As the Railroad continues to negotiate
with its remaining operating unions on a local level, agreements may
be reached that require significant lump sum payments. It is too
early to determine if separate agreements will be reached but
management believes available funding sources will be sufficient to
meet any required payments.
Environmental Liabilities
The Railroad's operations are subject to comprehensive
environmental regulation by federal, state and local authorities.
Compliance with such regulation requires the Railroad to modify its
operations and expend substantial manpower and financial resources.
Under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("Superfund"), and similar
state and federal laws, the Railroad is potentially liable for the
cost of clean-up of various contaminated sites. The Railroad has
been notified that it is a Potentially Responsible Party at sites
ranging from those with hundreds of potentially responsible parties
to sites at which the Railroad is primarily responsible. The
Railroad generally participates in the clean-up at sites where other
substantial parties share responsibility through cost-sharing
arrangements, but under Superfund and other similar laws the
Railroad can be held jointly and severally liable for all
environmental costs associated with such sites.
The Railroad is aware of approximately 30 contaminated sites
and various fueling facilities at which it is probably liable for
some portion of the clean-up. The Railroad paid approximately $6.3
million in 1995 toward the investigation and remediation of those
sites, and anticipates similar future expenditures of between $1
million and $2 million annually. Furthermore, recent amendments to
the Clean Air Act require the Environmental Protection Agency to
promulgate regulations restricting the level of pollutants in locomotive
emissions which could impose significant retrofitting requirements,
operational inefficiencies or capital expenditures in the future.
For all known sites of environmental contamination where
Railroad loss or liability is probable, the Railroad has recorded
an estimated liability at the time when a reasonable estimate of
remediation cost and Railroad liability can first be determined.
Adjustments to initial estimates are recorded as necessary based
upon additional information developed in subsequent periods.
Estimates of the Railroad`s potential financial exposure for
environmental claims or incidents are necessarily imprecise because
of the difficulty of determining in advance the nature and extent
of contamination, the varying costs of alternative methods of
remediation, the regulatory clean-up standards which will be
applied, and the appropriate allocation of liability among multiple
responsible parties. At December 31, 1995, the Railroad estimated
the probable range of its estimated liability to be $13 million to
$50 million, and in accordance with the provisions of SFAS No. 5
had a reserve of $13 million for environmental contingencies. This
amount is not reduced for potential insurance recoveries or third-
party contribution where the Railroad is primarily liable.
The risk of incurring environmental liability in connection
with both past and current activities is inherent in railroad
operations. Decades-old railroad housekeeping practices were not
always consistent with contemporary standards, historically the
Railroad leased substantial amounts of property to industrial
tenants, and the Railroad continues to haul hazardous materials
which are subject to occasional accidental release. Because the
ultimate cost of known contaminated sites cannot be definitively
established and because additional contaminated sites yet unknown
may be discovered or future operations may result in accidental
releases, no assurance can be given that the Railroad will not incur
material environmental liabilities in the future. However, based
on its assessments of the facts and circumstances now known,
management believes that it has recorded adequate reserves for known
liabilities and does not expect future environmental charges or
expenditures to have a material adverse effect on the Railroad`s
financial position, results of operations, cash flow or liquidity.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued
"Statement of Financial Accounting Standards No. 121 - Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" ("SFAS No. 121"). SFAS No. 121 requires that
long-lived assets and certain identifiable intangibles to be held
or used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate the carrying amount may not be
recoverable. The statement is effective for fiscal year beginning
after December 15, 1995. The Railroad is reviewing this statement
to determine its impact, if any. Early adoption is not anticipated.
In October 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). SFAS
No. 123 establishes a fair value based method of accounting for
stock-based compensation plans. This statement applies to financial
statements for fiscal years beginning after December 15, 1995, or
for the fiscal year for which this Statement is initially adopted
for recognizing compensation cost, which ever comes first. The
Railroad is currently evaluating the impact, if any, this statement
will have on its reported results.
Item 8. Financial Statements and Supplementary Data
See Index to Consolidated Financial Statements on page 28 of this
Report.
Item 9. Changes in and Disagreement with Accountants in Accounting
Financial Disclosures
NONE
PART III
Items 10, 11, 12 and 13
Intentionally omitted. See the Index page of this Report for
explanation.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) 1. Financial Statements:
See Index to Consolidated Financial Statements on page 28
of this Report.
2. Financial Statement Schedules:
See Index to Financial Statement Schedules on page F-22 of
this Report.
3. Exhibits:
See items marked with "*" on the Exhibit Index beginning on
page E-1 of this Report. Items so marked identify
management contracts or compensatory plans or arrangements
as required by Item 14.
(b) 1. Reports on Form 8-K:
During the fourth quarter of 1995 the Registrant filed with
the Securities and Exchange Commission the following reports
on Form 8-K on the dates indicated to report the events
described:
NONE
(c) Exhibits:
The response to this portion of Item 14 is submitted as a
separate section of this Report. See Exhibit Index
beginning on page E-1.
(d) Financial Statement Schedules:
The response to this portion of Item 14 is submitted as a
separate section of this Report.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned, there unto duly authorized.
ILLINOIS CENTRAL RAILROAD COMPANY
By: /s/ DALE W. PHILLIPS
Dale W. Phillips
Vice President and Chief Financial Officer
Date: March 11, 1996
Pursuant to the requirements of the Securities Exchange Act
of 1934, this Report has been signed by the following persons in
the capacities and on the dates indicated.
Signature Title(s) Date
/s/ GILBERT H. LAMPHERE Chairman of the Board
Gilbert H. Lamphere and Director March 11, 1996
/s/ E. HUNTER HARRISON President and Chief
E. Hunter Harrison Officer (princiipal March 11, 1996
executive officer),
Director
/s/ DALE W. PHILLIPS Vice President March 11, 1996
Dale W. Phillips and Chief Financial
Officer(principal
financial officer)
/s/ JOHN V. MULVANEY Controller March 11, 1996
John V. Mulvaney (principal accounting
officer)
/s/ RONALD A. LANE Director March 11, 1996
Ronald A. Lane
/s/ JOHN D. MCPHERSON Director March 11, 1996
John D. McPherson
/s/ DONALD H. SKELTON Director March 11, 1996
Donald H. Skelton
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
F O R M 10-K
FINANCIAL STATEMENTS
SUBMITTED IN RESPONSE TO ITEM 8
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Report of Independent Public Accountants. F-1
Consolidated Statements of Income for the three
years ended December 31, 1995 F-2
Consolidated Balance Sheets at December 31, 1995
and 1994 F-3
Consolidated Statements of Cash Flows for the three
years ended December 31, 1995 F-4
Consolidated Statements of Stockholder's Equity
and Retained Income for the three years ended
December 31, 1995 F-5
Notes to Consolidated Financial Statements for the
three years ended December 31, 1995 F-6
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Illinois Central Railroad Company:
We have audited the accompanying consolidated balance
sheets of Illinois Central Railroad Company (a Delaware corporation)
and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, cash flows and stockholder's equity
and retained income for each of the three years in the period ended
December 31, 1995. These financial statements and the schedule
referred to below are the responsibility of the Railroad's management.
Our responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Illinois
Central Railroad Company and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedule listed in the
index to financial statement schedule herein is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not
part of the basic financial statements. This schedule has been subjected
to the auditing procedures applied in the audits of the basic financial
statements and, in our opinion, fairly states in all material respects the
financial data required to be set forth therein in relation to the basic
financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 25, 1996
(except with respect to the
matter discussed in Note 16,
as to which the date is
February 29, 1996)
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions)
Years Ended December 31,
1995 1994 1993
Revenues $643.8 $593.9 $564.7
Operating expenses:
Labor and fringe benefits 194.8 184.2 175.9
Leases and car hire 58.8 59.3 70.3
Diesel fuel 33.2 31.5 30.4
Materials and supplies 35.0 35.6 34.9
Depreciation and amortization 30.9 25.0 22.8
Casualty, insurance and losses 17.4 23.7 21.5
Other taxes 18.2 17.6 16.4
Other 33.6 24.6 14.9
Operating expenses 421.9 401.5 387.1
Operating income 221.9 192.4 177.6
Other income, net 2.7 4.5 2.8
Interest expense, net (26.3) (26.0) (31.8)
Income before income taxes,
extraordinary item and
cumulative effect of changes in
accounting principles 198.3 170.9 148.6
Provision for income taxes 67.1 58.2 56.6
Income before extraordinary item
and cumulative effect of changes
in accounting principles 131.2 112.7 92.0
Extraordinary item, net (11.4) - (23.4)
Cumulative effect of changes in
accounting principles - - (0.1)
Net income $119.8 $112.7 $68.5
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
ASSETS December 31, 1995 December 31, 1994
Current assets:
Cash and temporary cash
investments $3.0 $12.2
Receivables, net of
allowance for doubtful
accounts of $2.0 in 1995
and $2.1 in 1994 57.7 43.6
Materials and supplies, at
average cost 14.9 15.7
Assets held for disposition 7.7 9.1
Deferred income taxes -
current 19.1 21.8
Other current assets 2.5 3.1
Total current assets 104.9 105.5
Investments 13.5 13.3
Loans to affiliates 26.9 -
Properties:
Transportation:
Road and structures,
including land 1,052.1 994.9
Equipment 143.5 114.6
Other, principally land 41.0 40.8
Total properties 1,236.6 1,150.3
Accumulated depreciation (37.1) (25.9)
Net properties 1,199.5 1,124.4
Other assets 14.7 15.2
Total assets $1,359.5 $1,258.4
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of
long-term debt $ 10.7 $ 9.7
Accounts payable 52.1 55.6
Dividends payable - 60.0
Income taxes payable 6.9 0.5
Casualty and freight claims 24.9 24.9
Employee compensation and
vacations 16.9 16.5
Taxes other than income taxes 16.3 16.2
Accrued redundancy reserves 4.3 6.8
Other accrued expenses 28.4 31.6
Total current liabilities 160.5 221.8
Long-term debt 373.9 297.6
Deferred income taxes 235.7 213.9
Other liabilities and reserves 124.4 132.7
Contingencies and commitments (Note 13)
Stockholder's equity:
Common stock authorized,
issued and outstanding
100 shares, $1 par value - -
Additional paid-in capital 129.6 129.1
Retained income 335.4 263.3
Total stockholder's equity 465.0 392.4
Total liabilities and
stockholder's equity $1,359.5 $1,258.4
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in millions)
Years Ended December 31,
1995 1994 1993
Cash flows from operating
activities:
Net income $119.8 $112.7 $68.5
Reconciliation of net income
to net cash provided by (used
for) operating activities:
Extraordinary item, net 11.4 - 23.4
Cumulative effect of changes
in accounting principles - - 0.1
Depreciation and amortization 30.9 25.0 22.8
Deferred income taxes 24.5 14.3 31.9
Equity in undistributed earnings
of affiliates, net of dividends
received (0.8) (0.4) (0.3)
Net gains on sales of real
estate (0.1) (2.0) (0.8)
Cash changes in working capital (8.3) 51.0 (3.1)
Changes in other assets (2.0) (4.3) (0.9)
Changes in other liabilities
and reserves (7.2) (0.7) (19.8)
Net cash provided by operating
activities 168.2 195.6 121.8
Cash flows from investing activities:
Additions to properties (97.6) (86.4) (57.1)
Proceeds from sales of real estate 2.5 3.8 1.5
Proceeds from equipment sales 2.9 4.4 3.8
Proceeds from sales of
investments 0.7 1.6 0.8
Loans to affiliated company (26.9) - -
Other (4.4) (0.4) (3.2)
Net cash (used for) investing
activities (122.8) (77.0) (54.2)
Cash flows from financing activities:
Proceeds from issuance of debt 250.0 113.0 304.6
Principal payments on debt (238.7) (159.2) (400.0)
Net proceeds (payments) -
Commercial Paper 42.0 (23.1) 38.1
Dividends paid (107.7) (42.5) (27.4)
Purchase of subsidiary's
common stock (0.2) (2.7) (0.4)
Net cash (used for) financing
activities (54.6) (114.5) (85.1)
Changes in cash and temporary
cash investments (9.2) 4.1 (17.5)
Cash and temporary cash
investments at beginning of
year 12.2 8.1 25.6
Cash and temporary cash
investments at end of year $ 3.0 $ 12.2 $ 8.1
Supplemental disclosure of cash flow information :
Cash paid during the year for:
Interest (net of amount
capitalized) $30.8 $ 26.8 $ 37.2
Income taxes $31.0 $ 46.9 $ 10.9
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statements of Stockholder's Equity and Retained Income
Shares Equity ($ in millions)
Total
Additional Stock-
Common Common Paid-In Retained holder's
Share Share Capital Income Equity
Balance December 31,
1992 100 $ - $125.8 $205.7 $331.5
Capital contribution 2.8 2.8
Dividends (36.0) (36.0)
Net income 68.5 68.5
Balance December 31,
1993 100 - 128.6 238.2 366.8
Capital contribution 0.5 0.5
Dividends (87.6) (87.6)
Net income 112.7 112.7
Balance December 31,
1994 100 - 129.1 263.3 392.4
Capital contribution 0.5 0.5
Dividends (47.7) (47.7)
Net income 119.8 119.8
Balance December 31,
1995 100 $ - $129.6 $335.4 $465.0
The following notes are an integral part of the consolidated financial
statements.
ILLINOIS CENTRAL RAILROAD AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The Railroad
Illinois Central Corporation ("IC"), a holding company, was
incorporated under the laws of Delaware. IC, through its wholly-owned
subsidiary, Illinois Central Railroad Company (the "Railroad"), is
principally engaged in the rail freight transportation business. The
Railroad operates 2,700 miles of main line track between Chicago and the
Gulf of Mexico, primarily transporting chemicals, grain and milled grain,
coal, paper and intermodal commodities.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of the
Railroad and its subsidiaries. Significant investments in affiliated
companies are accounted for by the equity method. Transactions between
consolidated companies have been eliminated in the accompanying
consolidated financial statements.
Properties
Depreciation is computed by the straight-line method and includes
depreciation on properties under capital leases. Depreciation for track
structure, other road property, and equipment is calculated using the
composite method. In the case of routine retirements, removal cost less
salvage recovery is charged to accumulated depreciation. Expenditures for
maintenance and repairs are charged to operating expense.
The approximate ranges of annual depreciation rates for major property
classifications of the Railroad are as follows:
Road properties 1% - 8%
Transportation Equipment 1% - 7%
Prior to 1996, the rates used by the Railroad were approved by the
Interstate Commerce Commission ("ICC"). The Interstate Commerce
Commission Termination Act of 1995, signed in December 1995, transfers
certain responsibilities of the ICC, including economic and accounting
analyses and authority to determine depreciation rates, to the Surface
Transportation Board ("STB"), an independent agency of the Department of
Transportation.
Revenues
Revenues are recognized based on services performed and include estimated
amounts relating to movements in progress for which the settlement process
is not complete. Estimated revenue amounts for movements in progress are
not significant.
Income Taxes
Deferred income taxes are accounted for on the asset and liability method
by applying enacted statutory tax rates to differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities. The resulting deferred tax liabilities and assets represent
taxes to be paid or collected in the future when the related assets and
liabilities are recovered and settled, respectively.
Cash and Temporary Cash Investments
Cash in excess of operating requirements is invested in certain funds
having original maturities of three months or less. These investments are
stated at cost, which approximates market value.
Income Per Share
Income per share has been omitted as the Railroad is a wholly-owned
subsidiary of IC.
Derivative Financial Instruments
The Railroad has only limited involvement with derivative financial
instruments and does not use them for trading purposes. Specifically, the
Railroad has entered into various diesel fuel collar agreements with the
objective of mitigating significant changes in fuel prices. Premiums paid
for the purchase of these agreements are amortized to fuel expense over
the terms of the agreements. Unamortized premiums are included in Other
Assets in the Consolidated Balance Sheets. Amounts receivable or payable
under the collar agreements are accrued as increases or decreases to
Diesel Fuel Expense. See Note 6.
Casualty Claims
The Railroad accrues for injury and damage claims based on actuarially
determined estimates of the ultimate costs associated with asserted claims
and claims incurred but not reported. As a result of significant
improvements in safety performance and enhancements in claim and
settlement approaches, the Railroad has experienced continuing reductions
in its final claim settlement amounts. As a result, it is reasonably
possible that future actuarial valuations will reflect additional
improvements that could result in a reduction in the near term to casualty
costs and related expenses.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Reclassifications
Certain items relating to prior years have been reclassified to conform
to the presentation in the current year.
3. Extraordinary Items
In 1995, the Railroad prepaid the holders of its $160 million Senior
Notes at face value plus accrued interest and a prepayment penalty. The
prepayment resulted in an extraordinary loss of $18.4 million, $11.4
million after-tax. The loss resulted from the premium paid, the write-off
of unamortized financing fees and costs associated with the prepayment.
The monies used to fund the prepayment were provided by commercial paper,
the net proceeds of the 7.75% Notes and $40 million from existing lines
of credit. See Note 8.
The 1993 extraordinary loss resulted from the retirement of the
Railroad's 14-1/8% Senior Subordinated Debentures (the "Debentures") and
refinancing the Permanent Facility. The loss was $23.4 million, net of tax
benefits of $12.6 million. The loss resulted from the premium paid, the
write-off of unamortized financing fees and debt discount and costs
associated with calling the Debentures. The net proceeds of the 6.75% Notes,
borrowings under the $180 million Revolving Credit Facility and other
available cash were used to fund the retirement of the Debentures. See Note 8.
4. Other Income, Net
Other Income, Net consisted of the following ($ in millions):
Years Ended December 31,
1995 1994 1993
Rental income, net $3.5 $ 3.3 $ 3.9
Net gains (losses) on sales
of real estate (.1) 2.0 .8
Net gains (losses) on equip-
ment sales - .2 (2.3)
Equity in undistributed
earnings of affiliates .9 .7 .5
Sales of accounts receivable
(see Note 9) (3.2) (2.2) -
Other, net 1.6 .5 (.1)
Other Income, Net $2.7 $ 4.5 $ 2.8
5. Supplemental Cash Flow Information
Cash changes in components of working capital, exclusive of Current
Maturities of Long-Term Debt, included in the Consolidated Statements of
Cash Flows were as follows ($ in millions):
Years Ended December 31,
1995 1994 1993
Receivables, net $(14.1) $41.1 $ (5.5)
Materials and supplies .8 4.4 (1.4)
Other current assets .6 .4 (1.5)
Accounts payable (3.5) 6.6 (1.7)
Income taxes payable 13.3 (3.0) 13.9
Accrued redundancy
reserves (2.5) - (2.6)
Other current
liabilities (2.9) 1.5 (4.3)
Cash Changes in
Working Capital $ (8.3) $51.0 $ (3.1)
Included in changes in Other Liabilities and Reserves is approximately
$6.3 million for the year ended December 31,1993, reflecting the settlement
of casualty claims with numerous insurance carriers.
The Railroad entered into capital leases of $7.1 million covering 328
freight cars in 1995, $24.7 million covering 65 locomotives and 1,623
freight cars in 1994, and $4.4 million covering 200 freight cars in 1993.
See Note 7 for a recap of the present value of the minimum lease payments.
6. Materials and Supplies
Materials and Supplies, valued using the average cost method, consist
of track material, switches, car and locomotive parts and fuel.
As of December 31, 1995, the Railroad was party to four diesel fuel
collar agreements under which the Railroad receives or makes monthly
payments based on the monthly average near-by contract price for Heating
Oil #2 traded on the New York Mercantile Exchange (the "Contract Price"),
which was $.577 per gallon for December 1995. Under the agreements, the
Railroad receives or makes monthly payments on notional amounts based on
the excess or deficiency of the Contract Price over or under an amount
averaging approximately $.59 or $.44 per gallon, respectively. As of
December 31, 1995, the agreements cover notional quantities amounting to
3,000,000 gallons through June 1996 (approximately 65% of requirements).
An agreement covering 800,000 gallons for the period July 1996 to June
1997 contains a put, whereby the issuer may increase the notional amount
to 2,000,000 gallons per month at $.55 or $.43 per gallon, respectively.
The put expires March 29, 1996.
7. Leases
As of December 31, 1995, the Railroad leased 7,295 of its cars and
178 of its locomotives. These leases generally have original terms of 15
years and expire between 1996 and 2003. Under the terms of the majority
of its leases, the Railroad has the right of first refusal to purchase,
at the end of the lease term, certain cars and locomotives at or below
fair market value. The Railroad also leases office facilities, computer
equipment and vehicles.
Net obligations under capital leases at December 31, 1995 and 1994,
included in the Consolidated Balance Sheets were $23.2 million and $27.9
million, respectively.
At December 31, 1995, minimum rental payments under capital and
operating leases that have initial or remaining noncancellable terms in
excess of one year were as follows ($ in millions):
Capital Operating
Leases Leases
1996 $14.2 $37.6
1997 3.0 30.2
1998 2.6 20.2
1999 2.6 17.9
2000 2.0 11.0
Thereafter 3.3 34.0
Total minimum
lease payments 27.7 $150.9
Less: Imputed interest 4.5
Present value of
minimum payments $23.2
Total rent expense applicable to noncancellable operating leases
amounted to $32.4 million in 1995, $48.8 million in 1994 and $47.9 million
in 1993. Most of the leases provide that the Railroad pay taxes,
maintenance, insurance and certain other operating expenses.
8. Long-Term Debt and Interest Expense
Long-Term Debt at December 31, consisted of the following ($ in
millions):
1995 1994
Debentures and other debt, due 1996
to 2056, 4.5% to 10.89% $ 10.2 $ 10.5
Commercial Paper, at average
interest rate 6.19% in 1995 and
4.72% in 1994 57.0 15.0
Notes, due 2003, 6.75% 100.0 100.0
Notes, due 2005, 7.75% 100.0 -
Medium term notes, due 1998 to
2007, 6.27%-6.98% 100.0 -
Senior Notes, 10.02% and 10.4% - 159.8
Capitalized leases (see Note 7) 12.8 18.5
Unamortized discount (6.1) (6.2)
Total Long-Term Debt $373.9 $297.6
At December 31, 1995, the aggregate annual maturities and sinking
fund requirements for debt payments for 1996 through 2001 and thereafter
were $10.7 million, $59.4 million, $22.1 million, $2.0 million, $31.6
million, $1.5 million and $263.4 million, respectively. The weighted-
average interest rate for 1995 and 1994 on total debt excluding the effect
of discounts, premiums and related amortization was 8.0% and 8.8%,
respectively.
In 1995, the Railroad prepaid the holders of its $160 million Senior
Notes at face value plus accrued interest and a prepayment penalty. The
monies used to fund the prepayment were provided by commercial paper, the
net proceeds of the $100 million 7.75% 10-year notes due May 2005 and $40
million from existing lines of credit. In connection with the prepayment,
the Railroad amended and restated its revolver with its bank lending group
(the "Revolver"). The Revolver was increased to $250 million and expires
in the year 2000. The Railroad pays an annual fee of 17 basis points on
the Revolver and the Eurodollar offered rate plus 32.5 basis points for
any borrowings. The line of credit borrowings were replaced with the
proceeds of Medium-Term Notes ("MTN"). The MTN's expire as follows: $20
million (coupon 6.27%) in 1998, $30 million (coupon 6.83%) in 2000 and $50
million (coupon 6.98%) in 2007.
The Railroad's commercial paper is rated A2 by S&P, P2 by Moody's and
F2 by Fitch and is supported by the Revolver. The Railroad views
commercial paper as a significant long-term funding source and intends to
issue replacement notes as maturities occur. Therefore, the $57.0 million
outstanding at December 31, 1995 has been classified as long-term.
The Revolver may be used as backup for the commercial paper and for
general corporate purposes. The available amount is reduced by the
outstanding amount of commercial paper borrowings and any letters of
credit issued on behalf of the Railroad under the facility. No amounts
have been drawn under the Revolver. At December 31, 1995, the Revolver
was limited to $192.1 million because $57.0 million in commercial paper
was outstanding and $.9 million in letters of credit had been issued.
Various borrowings of the Railroad are governed by agreements which
contain certain affirmative and negative covenants customary for
facilities of this nature including restrictions on additional
indebtedness, investments, guarantees, liens, distributions, sales and
leasebacks, and sales of assets and capital stock. Some also require the
Railroad to satisfy certain financial tests, including a leverage ratio,
an earnings before interest and taxes to interest charges ratio, and
minimum consolidated tangible net worth requirements. See Note 12.
Interest Expense, Net consisted of the following ($ in millions):
Years Ended December 31,
1995 1994 1993
Interest expense $30.4 $28.9 $33.8
Less:
Interest capitalized 1.3 1.4 .8
Interest income 2.8 1.5 1.2
Interest Expense, Net $26.3 $26.0 $31.8
9. Sales of Accounts Receivable
In 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 allows for sales of
accounts receivable up to a maximum of $50 million at any one time. The
Railroad services the accounts receivable sold under the agreement and
retains the same exposure to credit loss as existed prior to the sale.
During June 1995, the agreement was extended one year and now expires in
June 1998. At December 31, 1995, the maximum had been sold pursuant to
the agreement. Costs related to the agreement fluctuate with changes in
prevailing interest rates. These costs, which are included in Other
Income, Net, were $3.2 million and $2.2 million for 1995 and 1994,
respectively.
10. Benefit Plans
All employees of the Railroad are covered under the Railroad
Retirement System instead of Social Security. Additionally, the Railroad
provides various retirement plans, postemployment benefits and
postretirement benefits.
Retirement Plans. The Railroad has two qualified plans permitting
participants to make "pre-tax" contributions of their salary up to
Internal Revenue Code limitations and each contains a company match
provision. The union plan, which started in mid-1995, allows union
employees covered by local contracts to participate. The Railroad matches
25% of the first 4% of employee contributions. The management plan's
matching provisions are 50% of the first 6% of salary deferral. The
management plan also contains a separate defined contribution portion of
2% of each employee's salary. Expenses related to both plans were $1.1
million, $1.0 million, and $.9 million in 1995, 1994 and 1993, respectively.
All Railroad contributions are fully vested upon contribution.
The Railroad also has a supplemental executive retirement plan
("SERP") which covers officers and certain other management employees.
The SERP provides for a monthly benefit equal to 35% of a participant's
final average compensation as defined in the plan. The monthly benefit
is subject to offsets such as employer contributions to the 401(k) plan.
The plan was adopted in 1994. The cost was not material in 1994 or 1995.
Salary Deferral Plans. In addition to the 401(k) plan, all officers
and certain other management employees may elect to defer up to 50% of
base salary and 100% of annual bonus. Participant deferrals are fully
vested and earn interest at a specified, variable rate. Approximately $.5
million and $.3 million were deferred in 1995 and 1994, respectively.
Unfunded Plan. The Railroad has an unfunded plan whereby 10% of an
officer's combined salary and bonus in excess of a wage offset factor
($102,000 in 1995) is accrued and earns interest. Amounts accrued are
paid when the employee leaves the Railroad, normally at retirement.
Expenses for this plan were $.4 million, $.3 million and $.2 million in
1995, 1994 and 1993, respectively.
Postemployment Benefit Plans. In addition to its retirement plans,
the Railroad provides certain postemployment benefits such as long-term
salary continuation and waiver of medical and life insurance co-payments
while on long-term disability.
Postretirement Plans. In addition to its retirement plans, the Railroad
has three benefit plans which provide some postretirement benefits to most
former full-time salaried employees and selected former union-represented
employees. The medical plan for salaried retirees is contributory, with
retiree contributions adjusted annually if expected inflation rate exceeds
9.5%, and contains other cost sharing features such as deductibles and
co-payments. The Railroad's contribution will be fixed at the 1999 year end
rate for all subsequent years. Salaried retirees are covered by a life
insurance plan which provides a nominal death benefit and is
non-contributory. The medical plan for locomotive engineers who retired
under a special early retirement program in 1987 provides non-contributory
coverage until age 65. All benefits under this plan terminate in 1998.
There are no plan assets and the Railroad funds these benefits as claims are
paid.
Effective January 1, 1993, the Railroad adopted the Statement of
Financial Accounting Standards No. 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions" and the Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." As a result of adopting these two standards,
the Railroad recorded a decrease to Net Income of $84,000 (net of taxes
of $46,000) as a cumulative effect of changes in accounting principles.
The accumulated postretirement benefit obligations ("APBO") of the
postretirement plans were as follows ($ in millions):
December 31,
1995 1994
Medical Life Total Total
Accumulated post-
retirement
benefit obligation:
Retirees $14.2 $ 2.2 $16.4 $17.7
Fully eligible
active plan
participants .9 - .9 .6
Other active plan
participants 3.4 - 3.4 3.3
Total APBO $18.5 $ 2.2 20.7 21.6
Unrecognized net
gain 18.4 8.9
Accrued liability
for postretirement
benefits $39.1 $40.5
The weighted-average discount rate used in determining the
accumulated postretirement benefit obligation was 8.5% at December 31,
1994. As a result of the change in general interest rates in 1995 on high
quality investment vehicles, the Railroad lowered the weighted-average
discount rate to 7.25% as of December 31, 1995. The change in rates
resulted in approximately $1.9 million actuarial loss. The actuarial
gains and losses along with actual experience gains, primarily fewer
claims and lower medical rate inflation, resulted in a total $18.4
million unrecognized net gain as of December 31, 1995. In accordance with
SFAS No. 106, the excess gain is subject to $1.2 million annual
amortization based on an amortization period of approximately 13 years.
The components of the net periodic postretirement benefits cost were
as follows ($ in millions):
Years Ending December 31,
1995 1994
Service costs $ .1 $ .2
Interest costs 1.7 2.4
Net amortization of
excess gain (1.2) (.1)
Net periodic post-
retirement benefit costs $ .6 $ 2.5
The weighted-average annual assumed rate of increase in the per
capita cost of covered benefits (e.g., health care cost trend rate) for
the medical plans is 12.0% for 1996 and is assumed to decrease gradually
to 6.25% by 2002 and remain at that level thereafter. The health care
cost trend rate assumption normally has a significant effect on the
amounts reported; however, the plan limits annual inflation for the
Railroad's portion of such costs to 9.5% each year and caps the Railroad's
contribution at the actual 1999 level. Therefore, an increase in the
assumed health care cost trend rates by one percentage point in each year
would have no impact on the Railroad's accumulated postretirement benefit
obligation for the medical plans as of December 31, 1995, or the aggregate
of the service and interest cost components of net periodic postretirement
benefit expense in future years.
11. Provision for Income Taxes
In 1995 and 1994 tax benefits of $4.3 million and $5.0 million,
respectively, were recorded to reflect the favorable resolution of prior-
period tax issues. On August 10, 1993, the Omnibus Budget Reconciliation
Act of 1993 became law and increased the maximum corporate federal income
tax rate from 34% to 35% retroactive to January 1, 1993. This change
required the Railroad to record additional deferred income tax expense of
approximately $3.1 million in 1993 to reflect the new tax rate's impact
on net deferred income tax liability as of January 1, 1993.
The Provision for Income Taxes for continuing operations consisted
of the following ($ in millions):
Years Ended December 31,
1995 1994 1993
Current income tax:
Federal $38.1 $39.9 $23.8
State 4.5 4.0 .9
Deferred income taxes 24.5 14.3 31.9
Provision for Income
Taxes $67.1 $58.2 $56.6
The effective income tax rates for the years ended December 31, 1995,
1994 and 1993, were 34%, 34% and 38%, respectively. See Note 3 for the
tax benefits associated with the 1995 and 1993 extraordinary losses. In
1993, state income taxes benefited from the utilization of state net
operating losses.
The items which gave rise to differences between the income taxes
provided for continuing operations in the Consolidated Statements of
Income and the income taxes computed at the statutory rate are summarized
below ($ in millions):
Years Ended December 31,
1995 1994 1993
Expected tax expense
computed at statutory
rate $69.4 35% $59.8 35% $52.0 35%
Dividends received
exclusion (.1) - (.3) - (.1) -
Impact of OBRA 1993 rate
change - - - - - -
State income taxes, net
of Federal tax effect 5.4 3 3.6 2 .6 -
Favorable resolution of
prior period tax issues (4.3) (2) (5.0) (3) - -
Other items, net (3.3) (2) .1 - 1.0 1
Provision for Income
Taxes $67.1 34% $58.2 34% $56.6 38%
Temporary differences between book and tax income arise because
the tax effects of transactions are recorded in the year in which they
enter into the determination of taxable income. As a result, the book
provisions for taxes differ from the actual taxes reported on the income
tax returns. The net results of such differences are included in Deferred
Income Taxes in the Consolidated Balance Sheets.
At December 31, 1995, the Railroad, for tax or financial
reporting purposes, had no Federal net operating loss carryovers.
Deferred Income Taxes consisted of the following ($ in millions):
December 31,
1995 1994
Deferred tax assets $ 79.5 $ 82.2
Less: Valuation allowance (1.8) (1.8)
Deferred tax assets, net of
valuation allowance 77.7 80.4
Deferred tax liabilities (294.3) (272.5)
Deferred Income Taxes $(216.6) $(192.1)
The valuation allowance is comprised of the portion of state tax net
operating loss carryforwards expected to expire before they are utilized
and non-deductible expenses incurred with the previous merger of wholly-
owned subsidiaries.
Major types of deferred tax assets are: reserves not yet deducted for
tax purposes ($66.7 million) and safe harbor leases ($11.5 million).
Major types of deferred tax liabilities are: accelerated depreciation
($266.6 million), land basis differences ($11.0 million) and debt marked
to market ($2.0 million).
IC and its subsidiaries have a tax sharing agreement whereby each
subsidiary's federal income tax and state income tax liabilities are
determined on a separate company income tax basis as if it were not a
member of IC's consolidated group, with no benefit for net operating
losses or credit carryovers from prior years.
12. Equity and Restrictions on Dividends
The Railroad paid dividends to IC of $107.7 million in 1995, $42.5
million in 1994 and $27.4 million in 1993. Certain covenants of the
Railroad's Revolver require specific levels of tangible net worth but not
a specific dividend restriction. At December 31, 1995, the Railroad's
tangible net worth exceeded the required level by approximately $71.9
million. In January 1996, the Railroad declared and paid a dividend of
$12.0 million to IC.
For the years ended December 31, 1995, 1994 and 1993, IC made capital
contributions of $.5 million, $.5 million and $2.8 million, respectively,
to the Railroad which was equivalent to the vested portion of the
restricted IC common stock granted to various Railroad employees. Such
restricted stock vests in equal installments through 1996.
13. Contingencies, Commitments and Concentration of Risks
The Railroad is self-insured for the first $5 million of each loss.
The Railroad carries $245 million of liability insurance per occurrence,
subject to an annual cap of $345 million in the aggregate for all losses.
This coverage is considered by the Railroad's management to be adequate
in light of the Railroad's safety record and claims experience.
As of December 31, 1995, the Railroad had $.9 million of letters of
credit outstanding as collateral primarily for surety bonds executed on
behalf of the Railroad. Such letters of credit expire in 1996 and are
automatically renewable for one year. The letters of credit reduced the
maximum amount that could be borrowed under the Revolver. See Note 8.
The Railroad has guaranteed repayment of certain indebtedness of a
jointly owned company aggregating $7.8 million. The Railroad's primary
share is $1.0 million; the remainder is a primary obligation of other
unrelated owner companies.
There are various regulatory proceedings, claims and litigation
pending against the Railroad. While the ultimate amount of liability
that may result cannot be determined, in the opinion of the Railroad's
management, based on present information, adequate provisions for
liabilities have been recorded. See "Management's Discussion and
Analysis - Liquidity and Capital Resources - Environmental Liabilities"
for a discussion of environmental matters.
14. Disclosures about Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments for which it is practicable
to estimate that value:
Cash and Temporary Cash Investments. The carrying amount
approximates fair value because of the short maturity of those
instruments. Investments in U.S. corporate demand notes of $.2 million
and $8.4 million included in Cash and Temporary Cash Investments as of
December 31, 1995 and 1994, respectively, have been classified and
accounted for as held to maturity securities.
Investments. The Railroad has investments of $8.1 million in 1995
and $8.6 million in 1994 for which there are no quoted market prices.
These investments are in joint railroad facilities, railroad terminal
associations, switching railroads and other transportation companies. For
these investments, the carrying amount is a reasonable estimate of fair
value. The Railroad's remaining investments ($5.4 million in 1995 and
$4.7 million in 1994) are accounted for by the equity method.
Loans to Affiliates. The Railroad makes loans to affiliates for
specific periods not to exceed 180 days. The Railroad and the affiliates
view these loans as a significant long-term investment or funding source
and intend to issue replacement notes as maturities occur. Interest charged
by the Railroad is based on LIBOR plus approximately 65 basis points and is
established at each renewal date for the next term. The fair value of the
Railroad's loans to affiliates is estimated based on the quoted market price
on the current rates offered to the Railroad for debt of the same maturities.
Long-Term Debt. The fair value of the Railroad's long-term debt is
estimated based on the quoted market prices for the same or similar issues
or on the current rates offered to the Railroad for debt of the same
remaining maturities.
Derivative Financial Instruments. The fair value of diesel fuel collar
agreements is the estimated amount that the Railroad would receive or pay
to terminate the agreements as of year end, taking into account the
current credit worthiness of the agreement counterparties.
The estimated fair values of the Railroad's financial instruments are
as follows ($ in millions):
December 31,
1995 1994
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash and temporary
cash investments $ 3.0 $ 3.0 $ 12.2 $ 12.2
Investments 8.1 8.1 8.6 8.6
Loans to affiliates 26.9 26.9 - -
Accounts payable
(derivatives) - - (.1) (.4)
Debt (384.6) (420.5) (307.3) (308.6)
15. Subsequent Event - CCP Holdings, Inc. Acquisition
On January 17, 1996, IC announced that it had entered into a
definitive agreement to purchase all the stock of CCP Holdings, Inc., for
approximately $125 million in cash, the assumption of approximately $14
million in net debt and approximately $18 million of capitalized lease
obligations. IC expects to fund the acquisition using existing debt
issued by the Railroad. The Railroad will transfer the funds to IC via
a combination of dividends and intercompany loans. The purchase will
not close until required regulatory approval from the STB is obtained,
which is expected by no later than September 1996.
IC will account for the transaction as a purchase. The total
purchase price is subject to various potential adjustments for up to
one year after the closing date.
CCP Holdings, Inc., principal subsidiaries are the Chicago,
Central and Pacific Railroad (CCP) and the Cedar River Railroad (CRR).
These two railroads comprise a Class II freight system which operates 850
miles of road. CCP operates from Chicago west to Omaha, Nebraska, with
connecting lines to Cedar Rapids and Sioux City, Iowa. CRR runs north
from Waterloo, Iowa to Albert Lea, Minnesota. CCP Holding, Inc.'s 1995
revenues were approximately $76 million, its operating ratio was
approximately 70%, and its shareholders' equity was approximately $54
million at December 31, 1995.
16. Subsequent Event - UTU Agreement
On November 10, 1995, the Railroad announced a tentative agreement
with the United Transportation Union ("UTU") providing for prospective
wage and work rule changes and a one-time payment of $60,000 per trainman.
On February 28, 1996, the Railroad was notified by the UTU that its
members had rejected the agreement. As a result, no amounts have been
reflected in the Consolidated Financial Statements associated with this
agreement. The Railroad will seek the counsel of the National Mediation
Board who facilitated the agreement in November.
17. Selected Quarterly Financial Data - (Unaudited) ($ in millions):
First Second Third Fourth
1995 Quarter Quarter Quarter Quarter
Revenues $167.5 $156.2 $161.0 $159.1
Operating income 61.1 54.2 51.4 55.2
Income before
extraordinary
item, net 34.2 29.8 28.8 38.4
Net income 34.2 18.4 28.8 38.4
1994
Revenues $147.5 $145.2 $146.7 $154.5
Operating income 48.6 44.1 43.8 55.9
Net income 26.9 24.7 25.1 36.0
1993
Revenues $142.7 $132.1 $147.4 $142.5
Operating income 45.9 37.8 45.9 48.0
Income before extra-
ordinary item and
cumulative effect
of changes in
accounting
principles 24.1 19.9 21.6 26.4
Net income (loss) 24.0 (3.5) 21.6 26.4
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
F O R M 10-K
FINANCIAL STATEMENT SCHEDULE
SUBMITTED IN RESPONSE TO ITEM 14(a)
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
I N D E X
T O
FINANCIAL STATEMENT SCHEDULE
SUBMITTED IN RESPONSE TO ITEM 14(a)
Schedule for the three years ended December 31, 1995:
II-Valuation and qualifying accounts F-23
Pursuant to Rule 5.04 of General Rules of Regulation S-X, all other
schedules are omitted because they are not required or because the
required information is set forth in the financial statements or related
notes thereto.
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
($ in millions)
Year Ended December 31, 1995
Balance At Additions
Beginning Charged Payments Balance
Of To And At End
Classification Year Expense (Charges) Of Year
Accrued redundancy
reserve $ 38.2 $ 3.0 $ 7.3 $ 33.9
Casualty and other
reserves 61.7 14.3 20.3 55.7
Environmental 13.3 5.3 5.7 12.9
Bad debt reserve 2.1 1.9 2.0 2.0
Taxes 1.8 - - 1.8
Total $117.1 $24.5 $35.3 $106.3
Year Ended December 31, 1994
Accrued redundancy
reserve $ 43.6 $ 1.8 $ 7.2 $ 38.2
Casualty and other
reserves 62.3 16.9 17.5 61.7
Environmental 11.9 4.4 3.0 13.3
Bad debt reserve 3.1 1.9 2.9 2.1
Taxes 2.2 - 0.4 1.8
Total $123.1 $25.0 $31.0 $117.1
Year Ended December 31, 1993
Accrued redundancy
reserve $ 51.6 $ 1.8 $ 9.8 $ 43.6
Casualty and other
reserves 67.4 18.8 23.9 62.3
Environmental 9.9 2.9 0.9 11.9
Bad debt reserve 2.6 2.0 1.5 3.1
Taxes 3.3 - 1.1 2.2
Total $134.8 $25.5 $37.2 $123.1
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Descriptions Page No.
3.1 Articles of Incorporation of Illinois Central Railroad Company,
as amended. (Incorporated by reference to Exhibit 3.1 to the
Registration Statement of Illinois Central Railroad Company on
Form S-1. (SEC File No. 33-29269))
3.2 By-Laws of Illinois Central Railroad Company, as
amended. (Incorporated by reference to Exhibit
3.2 to the Registration Statement of Illinois
Central Railroad Company on Form S-1. (SEC File
No. 33-29269))
4.1 Form of 14-1/8% Senior Subordinated Debenture Indenture dated
as of September 15, 1989 (the "Senior Subordinated Debenture
Indenture") between Illinois Central Railroad Company and
United States Trust Company of New York, Trustee (including
the form of 14-1/8% Senior Subordinated Debenture included as
Exhibit A therein). (Incorporated by reference to Exhibit 4.1
to the Registration Statement of Illinois Central Railroad
Company on Form S-1, as amended. (SEC File No. 33-29269))
4.2 Form of Pledge Agreement dated as of September 22, 1989, and
amended and restated as of July 23, 1991, among Illinois
Central Corporation and the Banks named therein that are or
may become parties to the Amended and Restated Revolving
Credit and Term Loan Agreement dated as of September 22, 1989,
and amended and restated as of July 23, 1991, among the
Illinois Central Railroad Company and the Banks named therein
and the Senior Note Purchasers that are parties to the Note
Purchase Agreement dated as of July 23, 1991. (Incorporated
by reference to Exhibit 4.4 to the Quarterly Report of
Illinois Central Corporation on Form 10-Q for the three months
ended September 30, 1991. (SEC File No. 1-10720))
4.3 Form of Note Purchase Agreement dated as of July 23, 1991,
among Illinois Central Railroad Company, as issuer, and
Illinois Central Corporation, as guarantor, for 10.02%
Guaranteed Senior Secured Series A Notes due 1999 and for
10.4% Guaranteed Senior Secured Series B Notes due 2001
(including the Form of Series A Note and Series B Note
included as Exhibits A-1 and A-2, respectively, therein).
(Incorporated by reference to Exhibit 4.3 to the Quarterly
Report of the Illinois Central Railroad Company on Form 10-Q
for the three months ended September 30, 1991. (SEC File No.
1-7092))
4.4 Form of Commercial Paper Dealer Agreement between Illinois
Central Railroad Company and Lehman Commercial Paper, Inc.
dated as of November 19, 1993. (Incorporated by reference to
Exhibit 4.10 to the Annual Report on Form 10-K for the year
ended December 31, 1993 for Illinois Central Railroad Company
filed March 16, 1994. (SEC File No. 1-7092))
4.5 Form of Issuing and Paying Agency Agreement of the Illinois
Central Railroad Company related to the Commercial Paper
Program between Illinois Central Railroad Company and Bank
America National Trust Company dated as of November 19, 1993,
(including Exhibit A the Form of Certificated Commercial Paper
Note included therein). (Incorporated by reference to Exhibit
4.11 to the Annual Report on Form 10-K for the year ended
December 31, 1993 for Illinois Central Railroad Company filed
March 16, 1994. (SEC File No. 1-7092))
4.6 Toronto Dominion Credit Agreement (Incorporated by reference
to Exhibit 4.1 to the Quarterly Report of the Illinois Central
Railroad Company on Form 10-Q for the three months ended March
31, 1994. (SEC File No. 1-7092))
4.7 Form of Receivables Purchase Agreement dated as of March 29,
1994, between Illinois Central Railroad Company and Golden
Gate Funding Corporation. (Incorporated by reference to
Exhibit 4.2 to the Quarterly Report of the Illinois Central
Railroad Company on Form 10-Q for the three months ended March
31, 1994. (SEC File No. 1-7092))
4.8 Form of Note Purchase Agreement dated as of May 1, 1993,
between Illinois Central Company and The First National Bank
of Boston (Incorporated by reference to Exhibit 4.1 to the
Registration Statement of Illinois Central Railroad Company
on Form S-3. (SEC File No. 33-61410))
4.9 Form of Second Amended and Restated Revolving Credit Agreement
dated as of April 2, 1993, amended and restated as of October
27, 1993 and further amended and restated as of November 1,
1994, among Illinois Central Railroad Company and the Banks
named therein (Incorporated by reference to Exhibit 4.14 to
the Annual Report of Illinois Central Railroad Company on Form
10-K for the year ended December 31, 1994. (SEC File No. 1-
7092))
4.10 Form of Lease Agreement dated as of July 1, 1994, between IC
Leasing Corporation III and Illinois Central Railroad Company.
(Incorporated by reference to Exhibit 4.10 to the Annual
Report on Form 10-K for the year ended December 31, 1994, for
the Illinois Central Railroad Company. (SEC File No. 1-7092))
4.11 Form of Lease Agreement dated as of July 1, 1994 between IC
Leasing Corporation III and Waterloo Railway Company.
(Incorporated by reference to Exhibit 4.11 to the Annual
Report on Form 10-K for the year ended December 31, 1994, for
the Illinois Central Railroad Company. (SEC File No. 1-7092))
4.12 Form of Options Agreement dated as of July 1, 1994, between
IC Leasing Corporation III and Illinois Central Railroad
Company. (Incorporated by reference to Exhibit 4.12 to the
Annual Report on Form 10-K for the year ended December 31,
1994, for the Illinois Central Railroad Company. (SEC File No.
1-7092))
4.13 Form of Options Agreement dated as of July 1, 1994, between
IC Leasing Corporation III and Illinois Central Railroad
Company. (Incorporated by reference to Exhibit 4.13 to the
Annual Report on form 10-K for the year ended December 31,
1994, for the Illinois Central Railroad Company. (SEC File No.
1-7092))
4.14 Third Amended and Restated Revolving Credit Agreement between
Illinois Central Railroad Company and the banks named therein
dated as of April 2, 1993, amended and restated as of October
27, 1993, further amended and restated as of November 1, 1994
and further amended and restated as of April 28, 1995.
(Incorporated by reference to Exhibit 4.1 to the quarterly
report of Illinois Central Railroad Company in Form 10-Q for
the three months ended June 30, 1995. (SEC File No. 1-7092))
4.15 Form of Indenture dated as of April 1, 1995 between Illinois
Central Railroad Company and The First National Bank of
Boston. (Incorporated by reference to Exhibit 4.1 to
Registration Statement on Form S-3 of Illinois Central
Railroad Company dated April 12, 1995. (SEC File No. 33-
58547))
4.16 Form of Fixed Rate Medium-Term Note dated as of May 1, 1995
between Illinois Central Railroad Company and Lehman Brothers
Inc., Salomon Brothers, Inc and Smith Barney Inc.
(Incorporated by reference to Exhibit 4.1 to the Current
Report of Illinois Central Railroad Company of Form 8-K dated
May 2, 1995. (SEC File No. 1-7092))
4.17 Form of Floating Rate Medium-Term Notes dated as of May 1,
1995 between Illinois Central Railroad Company and Lehman
Brothers Inc, Salomon Brothers Inc and Smith Barney Inc.
(Incorporated by reference to Exhibit 4.2 to the Current
Report of Illinois Central Railroad Company on Form 8-K dated
May 2, 1995. (SEC File No. 1-7092))
10.1* Form of supplemental retirement and savings plan.
(Incorporated by reference to Exhibit 10C to the Registration
Statement of Illinois Central Transportation Co. on Form 10
filed on October 7, 1988, as amended. (SEC File No. 1-10085))
10.2 Form of indemnification agreement dated as of January 29,
1991, between Illinois Central Corporation and certain
officers and directors. (Incorporated by reference to Exhibit
10.9 to the Annual Report on Form 10-K for the year ended
December 31, 1990, for the Illinois Central Corporation filed
on April 1, 1991. (SEC File No. 1-10720))
10.3* Form of IC Long-Term Incentive Option Plan. (Incorporated by
reference to Exhibit 10.17 to the Registration Statement of
Illinois Central Corporation and Illinois Central Railroad
Company on Form S-1. (SEC File Nos. 33-36321 and 33-36321-
01))
10.4 Railroad Locomotive Lease Agreement between IC Leasing
Corporation I and Illinois Central Railroad Company dated as
of September 5, 1991. (Incorporated by reference to Exhibit
10.9 to the Annual Report on Form 10-K for the year ended
December 31, 1991 for the Illinois Central Railroad Company
filed March 12, 1992. (SEC File No. 1-7092))
10.5 Railroad Locomotive Lease Agreement between IC Leasing
Corporation II and Illinois Central Railroad Company dated as
of January 14, 1993. (Incorporated by reference to Exhibit
10.6 to the Annual Report on Form 10-K for the year ended
December 31, 1992, for the Illinois Central Railroad Company
filed March 5, 1993. (SEC File No. 1-7092))
10.6* Form of the Illinois Central Railroad Company Executive
Performance Compensation Program (Incorporated by reference
to Exhibit 10.1 to the report on Form 8-K of the Illinois
Central Railroad Company dated as of July 29, 1994. (SEC File
No. 1-7092))
10.7* Form of the Illinois Central Railroad Company Supplemental
Executive Retirement Plan (Incorporated by reference to
Exhibit 10.2 to the report on Form 8-K of the Illinois Central
Railroad Company dated as of July 29, 1994. (SEC File No. 1-
7092))
10.8* Form of the Illinois Central Railroad Company Executive
Deferred Compensation Plan (Incorporated by reference to
Exhibit 10.3 to the report on Form 8-K of the Illinois Central
Railroad Company dated as of July 29, 1994. (SEC File No. 1-
7092))
10.9* Form of Illinois Central Railroad Company Performance
Compensation Program (Incorporated by reference to Exhibit
10.4 to the report on Form 8-K of the Illinois Central
Railroad Company dated as of July 29, 1994. (SEC File No. 1-
7092)
10.10 Form of Illinois Central Railroad Company Union Employees'
Savings Plan. (Incorporated by reference to Registration
Statement of Illinois Central Corporation on Form S-8. (SEC
File No. 33-61095))
21 Subsidiaries of Registrant (Included at E-6)
27 Financial Data Schedule (A)
(A) Included herein but not reproduced.
Exhibit 21
ILLINOIS CENTRAL RAILROAD COMPANY
Subsidiaries of the Registrant
as of December 31, 1995
Name Place of Incorporation
Subsidiaries that are 100% owned
by Illinois Central Railroad Company:
Chicago Intermodal Company Delaware
Kensington and Eastern Railroad Company Illinois
Mississippi Valley Corporation Delaware
Waterloo Railroad Company Delaware
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3000
<SECURITIES> 0
<RECEIVABLES> 57700
<ALLOWANCES> 2000
<INVENTORY> 14900
<CURRENT-ASSETS> 104900
<PP&E> 1236600
<DEPRECIATION> 37100
<TOTAL-ASSETS> 1359500
<CURRENT-LIABILITIES> 197700
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 457100
<TOTAL-LIABILITY-AND-EQUITY> 1359500
<SALES> 643800
<TOTAL-REVENUES> 643800
<CGS> 434600
<TOTAL-COSTS> 434600
<OTHER-EXPENSES> (2700)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26300
<INCOME-PRETAX> 185600
<INCOME-TAX> 62300
<INCOME-CONTINUING> 111900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 111900
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
