SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the period ended March 31, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the transition period from to
Commission file number 1-10720
ILLINOIS CENTRAL RAILROAD COMPANY
(Exact name of registrant as specified in its charter)
Delaware 36-2728842
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
455 North Cityfront Plaza Drive, Chicago, Illinois 60611-5504
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 755-7500
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months, (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
YES X NO
As of March 31, 1997, 100 common shares were outstanding.
THE REGISTRANT IS A WHOLLY-OWNED SUBSIDIARY OF ILLINOIS CORPORATION AND MEETS
THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) AND (b) OF THE FORM
10-Q AND IS THEREFORE FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
FORM 10-Q
Quarter Ended March 31, 1997
CONTENTS
Part I - Financial Information: Page
Item 1. Financial Statements:
Consolidated Statements of Income 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Part II - Other Information:
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANANY AND SUBSIDIARIES
Consolidated Statements of Income
($ in millions)
(Unaudited)
Three Months
Ended March 31,
1997 1996
Revenues $ 154.2 $ 162.6
Operating expenses:
Labor and fringe benefits 43.5 47.2
Leases and car hire 14.5 13.7
Diesel fuel 9.4 8.8
Materials and supplies 9.2 8.3
Depreciation and amortization 8.2 8.0
Casualty, insurance and losses 4.2 4.2
Other taxes 5.3 5.1
Other 2.2 9.5
Operating expenses 96.5 104.8
Operating income 57.7 57.8
Other income, net 0.5 0.5
Interest expense, net (7.2) (6.8)
Income before income taxes 51.0 51.5
Provision for income taxes 19.1 21.3
Net income $ 31.9 $ 30.2
The following notes are an integral part of the consolidated financial
statements.
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
($ in millions)
ASSETS March 31, 1997 December 31, 1996
Current assets:
Cash and temporary cash investment $ 50.8 $ 46.3
Receivables, net of allowance for
doubtful accounts of $1.1 in 1997
and $1.3 in 1996 89.6 84.4
Loans to affiliates 21.6 14.9
Materials and supplies, at average cost 18.9 17.3
Deferred income taxes - current 18.1 18.1
Other current assets 8.1 7.8
Total current assets 207.1 188.8
Investments 11.8 11.7
Loans to affiliates 105.7 138.2
Properties:
Transportation:
Road and structures, including land 1,133.8 1,118.0
Equipment 167.0 165.2
Other, principally land 41.2 41.5
Total properties 1,342.0 1,324.7
Accumulated depreciation (40.9) (38.4)
Net properties 1,301.1 1,286.3
Other assets 21.1 20.9
Total assets $1,645.7 $ 1,645.9
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Current maturities of long-term de $ 2.7 $ 2.8
Accounts payable 46.0 56.3
Dividends payable - -
Income taxes payable 12.0 1.2
Casualty and freight claims 20.9 20.9
Employee compensation and vacations 14.1 18.4
Taxes other than income taxes 10.0 15.4
Accrued redundancy reserves 4.3 4.3
Other accrued expenses 81.2 72.6
Total current liabilities 191.2 191.9
Long-term debt 574.1 590.3
Deferred income taxes 271.4 263.5
Other liabilities and reserves 113.2 117.5
Contingencies and commitments (Note 13)
Stockholder's equity:
Common stock authorized, issued and outstanding
100 shares, $1 par value - -
Additional paid-in capital 129.6 129.6
Retained income 367.3 353.1
Total stockholder's equity 496.9 482.7
Total liabilities and stockholder's
equity $1,645.7 1,645.9
The following notes are an integral part of the consolidated financial
statements.
-4-
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in milions)
(Unaudited)
Three Months Ended March 31,
1997 1996
Cash flows from operating activities :
Net income $ 31.9 $ 30.2
Reconciliation of net income to net cash
provided by (used for) operating activities :
Depreciation and amortization 8.2 8.0
Deferred income taxes 7.9 8.1
Equity in undistributed earnings of
affiliates,
net of dividends received (0.1) 0.1
Net gains on sales of real estate 0.1 (0.4)
Cash changes in working capital (7.6) 2.2
Changes in other assets (0.3) (0.5)
Changes in other liabilities and rese (4.1) (11.6)
Net cash provided by operating act 36.0 36.1
Cash flows from investing activities :
Additions to properties (19.5) (24.5)
Proceeds from real estate sales 0.3 0.8
Proceeds from equipment sales 0.2 0.6
Proceeds from sales of investments - 0.1
Loans to affiliated companies 25.7 1.8
Other 0.2 (2.3)
Net cash provided by (used for) investing
activities 6.9 (23.5)
Cash flows from financing activities :
Proceeds from issuance of debt - -
Principal payments on debt (2.6) (0.4)
Net proceeds (payments) in commercial paper (18.0) 5.0
Dividends paid (17.8) (12.0)
Purchase of subsidiary's common stock - -
Net cash (used for) financing activities (38.4) (7.4)
Changes in cash and temporary cash investments 4.5 5.2
Cash and temporary cash investments at
beginning of period 46.3 3.0
Cash and temporary cash investments at end
of period $ 50.8 $ 8.2
Supplemental disclosure of cash flow information :
Cash paid during the year
for:
Interest (net of amount capitalized) $ 10.2 $ 5.8
Income taxes $ 0.4 $ 4.4
The following notes are an integral part of the consolidated financial
statements
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY
AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
Except as described below, the accompanying unaudited consolidated
financial statements have been prepared in accordance with accounting
policies described in the 1996 Annual Report on Form 10-K and should be
read in conjunction with the disclosures therein.
In the opinion of management, these interim financial statements reflect
all adjustments, consisting of normal recurring accruals, necessary to
present fairly the financial position, results of operations and cash
flows for the periods presented. Interim results are not necessarily
indicative of results for the full year. Certain 1996 amounts have been
reclassified to conform with the presentation used in the 1997 financial
statements.
Income Per Share
Income per common share has been omitted as ICRR is a wholly-owned
subsidiary of Illinois Central Corporation ("IC").
2. Equity and Restrictions on Dividends
For the three month period ended March 31, 1997, ICRR has paid cash
dividends of $17.8 million to IC. Covenants of the ICRR Revolver require
specified levels of tangible net worth. At March 31, 1997, ICRR exceeded
its tangible net worth covenant by $25.0 million.
In March 1996, ICRR transferred its ownership in the Chicago Intermodal
Company ("CIC") via a dividend of CIC stock to IC. The book value of the
CIC investment was $5.7 million.
3. Receivable Sales Agreement
On January 1, 1997, ICRR adopted SFAS 125. The accounting and reporting
of sales relating to the accounts receivable agreement was not changed.
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations
Three Months Ended March 31, 1997 Compared to Three Months Ended March 31, 1996
Total revenues for 1997 decreased from the prior year quarter by $8.4
million or 5.2% to $154.2 million. The decrease is attributable to a 3.8%
decrease in the average revenue per carload partially offset by an increase in
freight carloads of 3,121 or 1.4%. The 1.4% traffic increase offset weak export
grain which had a negative impact on the revenue mix.
The Revenue mix for 1997 and 1996 were comprised of the following, as a
percentage of total loads and ton-miles:
Loads Ton-Miles
1997 1996 1997 1996
---- ---- ---- ----
Grain and Grain Mill ............... 19.0% 20.4% 37.0% 36.6%
Coal ............................... 21.2 19.6 22.0 19.5
Chemicals .......................... 15.5 14.7 16.4 15.0
Paper and Forest Products .......... 14.7 15.8 13.0 13.3
Bulk commodities ................... 4.4 4.7 4.3 4.9
Intermodal ........................ 20.7 20.0 6.2 5.7
All Others ........................ 4.5 4.8 1.1 5.0
----- ----- ----- -----
100.0% 100.0% 100.0% 100.0%
===== ===== ===== =====
Operating expenses overall decreased $8.3 million or 7.9% in 1997. Leases
and car hire returned to more normal operating levels. Fuel expense reflects the
increase in cost per gallon (3.6%) partially offset by decreased usage (13.6%).
The expense category Casualty, Insurance and Losses reflects normal operating
levels. Other expenses reflect recovery of prior period expenses in relation to
a derailment.
Net interest expense of $7.2 million for 1997 increased 5.9% compared to
$6.8 million in 1996. The 1997 expense includes borrowings to support the $109.9
million transferred to IC in June 1996 in connection with the acquisition of CCP
Holdings, Inc.
Liquidity and Capital Resources
Operating Data ($ in millions): Three Months Ended March 31,
----------------------------
1997 1996
---- ----
Cash flows provided by (used for):
Operating activities................. $36.0 $36.1
Investing activities................. 6.9 (23.5)
Financing activities................. (38.4) (7.4)
------- --------
Net change in cash and
temporary cash investments $ 4.5 $ 5.2
===== =====
Cash from operating activities in 1997 and 1996 was primarily net income
before depreciation and deferred taxes.
<PAGE>
Investing Data ($ in millions):
Additions to property were as follows:
Three Months Ended March 31,
1997 1996
---- ----
Communications and signals........... $ 4.2 $ 3.3
Equipment/rolling stock.............. - 9.7
Track and bridges.................... 15.1 9.7
Other................................ .2 1.8
------- -------
Total............................ $19.5 $24.5
===== =====
Property retirements and removals generated proceeds of $.5 million and
$1.4 million in 1997 and 1996, respectively.
ICRR anticipates that capital expenditures for 1997 will be approximately
$93 million. Base expenditures of $79 million will concentrate on track
maintenance, bridges and freight car upgrades.
Financing Activities
In April 1997 and 1996, ICRR paid $15.6 million and $12.2 million,
respectively, in cash dividends to IC. Included in the 1996 dividends to IC is
the March 1996 transfer by ICRR of its ownership in the Chicago Intermodal
Company ("CIC") via a dividend of CIC stock. The book value of the CIC
investment was $5.7 million.
ICRR has a commercial paper program whereby a total of $200 million can be
issued and outstanding at any one time. The program is supported by a $250
million Revolver with the ICRR's lending group (see below). At March 31, 1997,
no amounts were outstanding. The average interest rate on commercial paper for
the quarter ended March 31, 1997, was 5.68% with a range of 5.68% to 5.69%.
ICRR's public debt is rated Baa2 by Moody's and BBB by S&P.
In 1994, ICRR 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.
ICRR services the accounts receivable sold under the agreement and retains the
same exposure to credit loss as existed prior to the sale. At March 31, 1997,
$50 million 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 (Expense), Net, were $.8 million each for the
quarters ended March 31, 1997, and 1996. The accounting and reporting for the
sale of accounts receivable was not changed by the implementation of SFAS No.
125.
<PAGE>
ICRR has a $250 million Revolver with its bank lending group, which expires
in 2001. Fees and borrowing spreads are predicated on ICRR's long-term credit
ratings. Currently, the annual facility fee is 15 basis points and borrowings
under this agreement are at Eurodollar offered rate plus 22.5 basis points. The
Revolver is used primarily for backup for ICRR'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 ICRR under the facility. No amounts have been drawn under
the Revolver. At March 31, 1997, the full $250 million was available but
undrawn.
Certain covenants of ICRR's debt agreements require among others specific
levels of tangible net worth but not a specific dividend restriction. At March
31, 1997, ICRR exceeded its tangible net worth covenants by $25.0 million. ICRR
was in compliance with all covenants at March 31, 1997, and does not contemplate
any difficulty maintaining such compliance.
A shelf registration from 1996 can be used to issue an additional $70
million in MTN's or other debt until 2000. Currently, there are no plans to
issue additional debt but capital investments in the terminal facilities and
other ventures could necessitate use.
ICRR 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, ICRR believes it has access to
the public debt market if needed.
Miscellaneous
ICRR has entered into various diesel fuel collar agreements designed to
mitigate significant changes in fuel prices. As a result, approximately 17% of
ICRR's short-term diesel fuel requirements through June 1997 are protected
against significant price changes.
In January 1997, the United Transportation Union ("UTU") ratified a new
agreement which settles wage and work rule issues through 2000. The UTU
agreement is similar to the nationally negotiated agreement in effect with other
Class I carriers. The main distinction is timing of the various lump sum payouts
and scheduled wage increases. ICRR and the Brotherhood of Locomotive Engineers
("BLE") have negotiated on a local agreement and ratification is pending.
The new agreement, if ratified, settles wage and work rule issues through
2000. The BLE agreement requires a ratification payment based on 1996 earnings
and an effective increase of approximately 4.9% in wage rates upon ratification.
Environmental Liabilities
ICRR's operations are subject to comprehensive environmental regulation by
federal, state and local authorities. Compliance with such regulation requires
ICRR 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, ICRR is
potentially liable for the cost of clean-up of various contaminated sites. ICRR
generally participates in the clean-up at sites where
<PAGE>
other substantial parties share responsibility through cost-sharing
arrangements, but under Superfund and other similar laws ICRR can be held
jointly and severally liable for all environmental costs associated with such
sites.
ICRR is aware of approximately 25 contaminated sites at which it is
probably liable for some portion of any required clean-up. Of these, 17 involve
contamination primarily by diesel fuel which can be remediated without material
cost. Five other sites are expected to require more than $1 million in clean-up
costs. At four of these sites other parties are expected to contribute the
majority of the costs incurred. ICRR anticipates expenditures of approximately
$2.8 million annually for the investigation and remediation at all sites.
For all known sites of environmental contamination where ICRR loss or
liability is probable, the ICRR has recorded an estimated liability at the time
when a reasonable estimate of remediation cost and ICRR liability can first be
determined. Adjustments to initial estimates are recorded as necessary based
upon additional information developed in subsequent periods. Estimates of the
ICRR`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 March
31, 1997, ICRR estimated the probable range of its liability to be $13 million
to $53 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 contributions.
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 ICRR has leased substantial amounts of property to industrial
tenants, and ICRR 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 ICRRwill 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, based on these known facts and circumstances, to have a
material adverse effect on ICRR`s financial position, results of operations,
cash flow or liquidity.
Recent Accounting Pronouncements
Statement of Financial Accounting Standards No. 125, "Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS No. 125"), issued by the Financial Accounting Standards Board in 1996 and
effective for 1997, provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities. The
accounting and reporting for the ICRR's sales of accounts receivable agreement
was not changed by the January 1, 1997 implementation of SFAS No. 125.
<PAGE>
The FASB has also released Statement of Financial Accounting Standard No.
129 "Disclosure of Information about Capital Structure" ("SFAS No. 129"). ICRR
complies with all the requirements of the standard which is effective for
periods ending after December 15, 1997.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
See Exhibit Index on page E-1
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, ICRR
has duly caused this report to be signed on its behalf by the undersigned
hereto duly authorized.
ILLINOIS CENTRAL RAILROAD COMPANY
/s/ Dale W. Phillips
Dale W. Phillips
Vice President & Chief Financial
Officer
/s/ John V. Mulvaney
John V. Mulvaney
Controller
Date: May 14, 1997
<PAGE>
ILLINOIS CENTRAL RAILROAD COMPANY AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit Sequential
No. Description Page No.
27 Financial Data Schedule (This exhibit is required to
be submitted electronically pursuant to the rules and
regulations of the Securities and Exchange Commission
and shall not be deemed filed for the purposes of
Section 11 of the Securities Act of 1933 or Section
18 of the Securities Exchange Act of 1934).
<PAGE>
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0
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<OTHER-SE> 496900
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